Annual Financial Report

South East Water Limited

15 July 2025

 

South East Water Limited

Preliminary results

for the year to 31 March 2025

Chair and CEO joint report

Welcome to our group annual report and the audited financial statements for the year ended 31 March 2025.

This joint Chair/CEO statement reflects on our performance over the final year of our 2020 to 2025 business plan period (AMP 7) and looks ahead to the new 2025 to 2030 business period (AMP 8). Our team has made considerable progress on delivering on the commitments we set out in our five-year plan but we have been severely stretched by unprecedented operational challenges along the way. The impact of these is ongoing and further challenges lie ahead. However, we remain determined to do everything we can to secure the future of water resources in the South East while protecting and improving the environment.

We have continued to invest significantly in new and existing infrastructure and environmental projects while dealing with the day-to-day operational challenges associated with providing a first-class drinking water service to our 2.3 million customers. We have brought forward and prioritised investment in important engineering projects to restore resilience and boost flexibility in the parts of our supply system that are most under stress. We're doing more than ever to support our customers, especially those in our society who are vulnerable, and to protect and enhance the environment through our proactive, industry-leading environmental programme. More information about this can be found later in our report. However, we know we need to go further and faster to tackle the challenges we face now and those that lie ahead, most notably the accelerated impact of climate change.

Competition and Markets Authority - Review of Final Determination

That's why we submitted our boldest and most ambitious business plan ever to Ofwat for the new 2025 to 2030 business plan period (AMP 8). This proposed a headline investment of £2.1 billion over the next five years to improve customer service, reduce customer supply interruptions and strengthen network resilience through investment in critical infrastructure (including the acceleration of the new Broad Oak reservoir). Ofwat's Final Determination on our plan was published in December. This was 13 per cent or £0.3 billion less than we proposed in our business plan and that is one of the reasons why we have asked Ofwat to refer its Final Determination to the Competition and Markets Authority (CMA) for a new, independent review in the best interest of customers. This was not a decision we took lightly but is absolutely necessary if we are to meet the resilience and investment challenges facing the South East. We provided a Statement of Case in March for this review and we hope for a decision by the end of 2025 to enable us to reflect any changes to our investment plans and customer charging in Year 2 of AMP 8 (2026/27). In our view, in its current form, the Final Determination does not adequately address our company-specific circumstances and external challenges and undermines our plans to improve operational resilience now and in the future. We do not consider that the AMP 8 Final Determination provides the right foundations for the long-term investability of the water sector. Therefore, it threatens water security in the South East in the short and longer term. See below for more information about our new business plan.

Challenges ahead

The biggest challenge we face remains the accelerated impact of climate change and how we tackle this. It is causing more frequent and severe weather events, such as prolonged hot periods and heatwaves that cause sudden and substantial increases in peak demand. Climate change is also causing unpredictable rainfall, flooding and storms as well as rapidly fluctuating temperatures. These impact raw water quality and availability, and the operation of our assets. For example, freeze-thaw events lead to widespread leaks and bursts of water mains whereas severe storms cause power cuts, which can impair operations.

In the past year, we've continued to experience weather extremes. We had the disruptive Storm Bert in November and, in the south-east of England, the first six months of 2025 have been unusually warm, sunny and dry, including the driest March since 1961, with only 12 per cent of the long-term average rainfall recorded. The trend has continued with England experiencing its warmest June on record, with heatwaves continuing into July. As a result, we started our operational readiness as well as water efficiency communications earlier than usual to ask customers to use water wisely as we prepare for the summer ahead.

As this report is being published, record breaking demand for drinking water is putting significant strain on water resources, which impacts the company's ability to provide the public water service. With a prolonged dry period (recognised by the Met Office as the driest Spring in the region since 1893), and an approaching third heatwave of the summer, we have moved to implement a Temporary Use Ban for our household customers in Kent and Sussex from 11 July and we are closely monitoring the situation in our Western Region, to ensure that we can protect the environment and keep everyone supplied.

Despite these challenges, we have taken positive action during AMP 7 to strengthen resilience, boost the flexibility of our network and protect water supplies for customers We have invested £567 million in the water infrastructure of the South East of England, compared to an allowance in comparable prices of £513 million in the Ofwat determination for 2020 to 2025. You can read more about what we've done, below.

Weather-related events cause millions of pounds of impact and they demonstrate the real hurdles we face in providing a public water supply in the South East - a designated area of severe water stress. We would like to thank everyone in our business for tackling head-on every challenge we've faced over the last five years. Our contractors and partners have also played their part in ensuring we've been able to keep taps flowing for the vast majority of our customers, even during extreme weather events. Of course, we know there have been times when supplies have been interrupted, and we apologise unreservedly to customers who've been without running water for any length of time. We always do our best to resolve issues as quickly as possible and to keep customers informed during incidents. Our new AquAlerter messaging system helps us to do that, and has been well received by customers.

Ofwat investigation into supply resilience

Ofwat launched an investigation into our supply resilience in November 2023. This came on the back of four extreme weather events in 2022 combined with the hottest June on record in 2023, which led to a record demand for water. We've taken significant action to improve our short-term supply resilience, our operational response to supply events, to the information and support we provide to our customers, learning lessons from previous events and collaborating closely with regulators, stakeholders and the communities we serve. We're continuing to do everything we can to improve our operational response. For instance, at the start of this year we took delivery of the first of 10 new water tankers which will enable us to increase our flexibility so we can get water to where it's needed, faster. Some of these have already been deployed during supply incidents and reduced the need to rely on bottled water during interruptions. Our new five-year business plan (for AMP 8) addresses the root causes of our supply resilience issues but it is vital we secure the necessary level of funding for the next five years to deliver this longer-term investment programme. The investigation is ongoing at the time of publication of this report and no formal decisions have been made by Ofwat.

Our customers want, and rightly expect, better service and lasting environmental improvements and we need to improve resilience, adapt to climate change, and work towards net zero emissions. We don't shy away from any of these obligations as a responsible company. While planning for AMP 8, we continued to make solid progress across our six priority business areas this year:

·      Flexible, resilient infrastructure and service

·      Securing the future of water

·      A trusted and affordable service supporting customers and society

·      Thriving environment

·      Low carbon sustainable business

·      Future-ready business

Improving infrastructure and service

Strengthening our resilience remains critical to maintaining supplies. Over the past year, work has continued to strengthen our network resilience and protect and improve water supplies for our customers. We've invested £80 million into our infrastructure in East Sussex, including a critical upgrade to Barcombe WTW (water treatment works) and Bewl WTW. A pipeline project at Bewl will also increase the amount of water we can treat and supply to the area. Work on a state-of-the-art WTW on the site of the old Aylesford Newsprint in Maidstone is nearing completion too. This is the first new WTW to be built in Kent for 18 years. Across East Kent, we're investing £12 million in targeted infrastructure improvements in areas which have experienced supply interruptions in recent years during the record-breaking summers. That said, we recognise that there is more to do, as reflected in our plans for the period ahead.

Surveys and assessments are continuing for the new Broad Oak Reservoir scheme near Canterbury. This major investment will not only help meet the future demand for drinking water in East Kent, but the major investment creates new habitats, increases biodiversity and provides social benefits for the local community. A new Broad Oak Reservoir Stakeholder Advisory Group will help us shape the project. However, the review of our Final Determination - described above - remains critical to secure the funding necessary to accelerate this scheme successfully through Ofwat's RAPID gated process (Regulators' Alliance for Progressing Infrastructure Development).

Whatever we're working on, health and safety remains our top priority. We take a proactive approach. Building resilience in our teams is also important and our Mental Health First Aiders are always available to help colleagues with wellbeing issues.

Cyber threats are on the rise but so is our determination to help protect our country's critical national infrastructure by strengthening our security and safeguarding our cyber security resilience. We are using industry-leading cyber security tools and other means, to comply with the Network and Information Systems regulations (NIS).

Securing future water supplies

In October we published our Water Resources Management Plan 2024 (WRMP24). This explains how we'll provide a reliable and resilient supply of top-quality drinking water over the next 50 years. We know we need to balance this with the challenge of protecting and enhancing the environment around us for generations to come. We aim to do this by investing in new infrastructure (including the new Broad Oak reservoir), reducing leakage and encouraging water efficiency. However, we await the outcome of a review of our Final Determination by the CMA to know if we'll have the funding we need to achieve the stretching targets set out in WRMP24. See below for more information about PR24.

We share our customers' frustrations in seeing drinking water lost to leaks and reducing leakage remains a high priority for us. Although we are still playing catch-up from the impact of extreme weather events in recent years, we've repaired 12 per cent more leaks in the last year, compared to the three-year average, and have a leakage recovery plan in place. We spend around £40 million a year on finding and fixing leaks across our network and our planned investment in a smart network programme will help us to run a more efficient leakage reduction programme in the future.

As a company, we're participating in The Cunliffe Review, which is the Independent Water Commission review into England's water industry. Through this, we'll be making the case that we need to balance the need for growth with the challenge of securing the water resources to cope with that growth, without detrimentally impacting the environment.

Financial performance

The economic environment remains difficult with the inflationary effect of continued high energy prices, driving costs of power, services and supplies, such as chemicals. Additionally, staff costs, increased by

£4.9 million due to wage inflation and increased headcount as the business prepared for a step up in activity within AMP 8 in order to enhance network resilience. Operating profit was, therefore, lower than the previous year at £54.5 million compared to £63.8 million, despite an increase in revenue of £4.9 million to £285.5 million. Although operating conditions remain challenging, investment in our assets in the year increased by over 27 per cent compared to the previous year. Our investment programme is discussed in more detail in our strategic report.

However, the financial performance of the group has improved in the year, with the loss before tax reducing to £19.8 million compared to £36.7 million in the previous year. This is due to decreased finance costs with lower inflation reducing the charges on our index linked borrowing.

The group has improved its liquidity position in the last year. £50 million of index linked debt was raised in August 2024 and in December 2024 the maturity date of the £120 million loan was extended to June 2026, from December 2025. Also in December, our shareholders invested £75 million of equity, bringing gearing to c.75 per cent at March 2025. In May 2025, our shareholders invested a further £200 million of equity, bringing gearing to c.65 per cent and further reinforcing the liquidity and financial stability of South East Water. The investment by shareholders in the company reflects the desire to maintain an investment grade credit rating, but does not alter our conclusion as set out in our Statement of Case presented to the CMA that we do not consider that the AMP 8 Final Determination provides the right foundations for the long-term investability of the water sector.

We are currently in discussions with lenders regarding the renewal of our revolving credit facility that matures in September 2026. Further information on this and the impact on going concern, including the related material uncertainty.

Supporting customers and society

We aim to provide a trusted and affordable service that meets the needs of all our customers including the most vulnerable in our society. We are proud of our industry-leading approach to supporting vulnerable customers, which has been recognised with the gold-standard BSI Kitemark certification in March. We have surpassed our target for our Priority Services Register with more than 29,500 more customers joining this year. This represents 14.12 per cent of all customers and is nearly 1.5 per cent above target. It's encouraging that 2025/26 has also started strongly, and we expect to have a similar performance in the following year. We published our new Vulnerability Strategy in June after receiving praise from Ofwat on our "exemplary" approach in some key areas. Our new social tariff structure, which we launched in April to replace the previous capped approach, will enable us to help more customers than ever before, while a new trusted partnership with Kidney Care UK will ensure we can provide enhanced support to the 76,000 people with chronic kidney disease in our area.

Our commitment to stewardship and local engagement remains strong. In the last year, we've actively promoted water efficiency by providing water butts for customers and distributing nearly 200,000 water-saving devices and our annual £20,000 Community Chest scheme directly supported local projects.

The number of customers registering for our online self-serve portal, MyAccount, continues to rise. By the end of March, there were more than 535,000 customers signed up - that's 58 per cent of customers. We are delighted to have received the Institute of Customer Service ServiceMark accreditation in recognition of our high customer service standards.

Protecting and enhancing the environment

We need to make sure there's enough water for future generations. We aim to minimise the effect on the environment from our own operations and actively improve the environment, as per our 25 Year Environment Plan, which we launched last year. We work in close partnership with farmers, landowners, conservation groups, stakeholders, local communities and other partners to do this and our catchment management programme continues to go from strength to strength. Proactive engagement through tests and trials, steering groups and through our capital grants scheme, has resulted in us outperforming our five-year landowner engagement ODI target.

We've also outperformed our five-year biodiversity ODI target and now manage 77 per cent of our land for biodiversity, compared to 54 per cent in 2020. In October we were delighted to reach an important milestone in our environmental stewardship, with 73 per cent of our company-owned Sites of Special Scientific Interest (SSSI) now managed to a favourable condition, compared to the industry average of

16.4 per cent. Our work supports many species and we are excited that our proactive habitat management and protected species monitoring survey at our Offham WTW has revealed a thriving population of slow worms.

Future-ready business

Our people are an integral part of our business. They enable us to provide the best possible service for our customers today, and in the future. That's why we are committed to recruiting, training and developing talent in our business, and making our company a great place to work. During the year we've launched our new HR IT system that will connect all our business areas, drive efficiency and improve employee services, and we've been awarded Gold membership of The 5% Club in recognition of how we encourage colleagues to earn and learn at the same time. Our comprehensive apprenticeship programme continues to grow and we've increased the number of apprenticeship standards we offer from five to 20. This will help us secure the next generation of talent. We've also seen a 31 per cent increase in colleagues undertaking internal upskilling opportunities to help us meet our business's future and changing needs through our Aspire, Inspire and Lead programmes. We are now preparing to shape our company for future challenges including the delivery of our new business plan for the next five years - see below. This has seen the creation of two new directorates; for Technology and Information and Investment Delivery. A specialist external change team will ensure we set the business up for future success, and as a legacy ensure that this function is embedded in the business.

Preparing for the future also involves a commitment to innovation and adaptability as well as transitioning to become a low carbon sustainable business. We hope to announce details of our first power purchase agreement (PPA) for 40 per cent of our energy needs in the near future. This is an excellent carbon zero project and should spearhead the next stage to organise another possible PPA and on-site solar projects for the remainder of our energy. We're also continuing to invest in our electric vehicle (EV) infrastructure and have increased the number of EV vans in our commercial fleet.

More information about the specific progress we've made in each of these priority areas can be found later in this report.

The next five years - Price Review 24 (2025 to 2030)

Price Review 24 (PR24) sets the price, investment and service package for the next five-year business period (2025 to 2030). Huge effort has gone into planning for the new business period to enable us to meet the operational and resilience challenges we face and secure a safe and reliable supply of high-quality drinking water for years to come, while protecting and enhancing the environment.

Our plan has a regional focus aimed at improving operational resilience through use of localised water storage and better network connectivity.

We developed the new business plan after conducting our largest ever customer engagement programme to better understand our customers' priorities. Using feedback from customers and stakeholders, and collaborating with independent experts and external assurers to ensure our engagement was effective, we built a plan around a programme of supply-side (enhancement) and demand-side investments such as leakage reduction, water efficiency initiatives, smart networks and smart metering, all aimed at improving water security. This plan will reduce the likelihood, extent and duration of supply interruptions caused by high-demand climate change events over the next five years and also lay the groundwork for our longer- term resilience investment. Our approach to improving resilience and water security has been broadly welcomed by our customers.

Our plan focuses on investing in sustainable water resources, improving network resilience and increasing drinking water storage capacity to reduce supply interruptions. We'll install 275,000 smart meters, implement a full smart network roll-out, help customers use less water and reduce leakage by 11 million litres of water a day. Working with partners, we'll aim to improve raw water quality within our catchments, allocate extra resources for unplanned supply disruptions and maintain our exceptional drinking water standards. Tackling climate change remains a priority for us and our plan includes commitments to reduce greenhouse emissions, strengthen environmental resilience, and address future challenges such as droughts, floods, raw water quality decline, invasive non-native species impact, and land use change. We're also expanding support for vulnerable customers through a six-point plan which includes a new social tariff, targeted assistance for those facing water poverty, and increased non-financial support during service interruptions.

Our plan is bold but provides the opportunity for a much-needed reset following the unprecedented challenges of the last five years and the urgent threat to water security in the South East. However, our plan is only deliverable if we secure the necessary funding to match the scale of the challenges we face and our ambition to go further and faster to address these. Ofwat's Final Determination, announced in December 2024, set out the prices we can charge our customers and what we must deliver over the five-year period. As explained earlier in this report, it fell short of the funding we require to meet the unique challenges in our area and we remain concerned that the Final Determination doesn't address our company-specific circumstances and the external challenges we face in a severely water-stressed area with a growing population and increasing impacts of climate change.

Bill increases

In the meantime, as a result of Ofwat's Final Determination in December, bills increased in April 2025 on average by 20 per cent (14p a day). This means the average daily household bill for water for the next five years will be 81p per day, which we believe is excellent value for money. We know that bill increases are never welcome but they are necessary to drive a more secure future.

 

Work is under way

Work has already begun on implementing our new five-year business plan (PR24) while we await the outcome of the referral of the Final Determination by the CMA. We remain hopeful that our bold and ambitious plans, which have been shaped with the support of customers and stakeholders, will be matched by the necessary funding to secure the future of water resources in the South East. Setting our business up for future success is really important and, as part of our preparations, we're creating two new directorates, the Investment Delivery Directorate (IDD) and the Technology and Insight Directorate (TID), to help us deliver our most ambitious business plan ever. The recruitment process to appoint two new directors to oversee these directorates is already under way. A Change team is in place to prioritise, manage and deliver the important initiatives we need to make the next five-year period (AMP 8) a success. Our new five-year people plan will play a key role in this as we support and guide staff through the process. This is an exciting time to be part of our team as we seek to continue to improve the service we offer to customers and communities by delivering a reliable, affordable and resilient supply of top-quality drinking water while protecting and enhancing the environment for generations to come.

Group income statement

for the year ended 31 March 2025

	Note	2025 £000	2024 £000
Revenue	2	285,517	280,594*
Bad debts		(4,055)	(4,533)*
Net operating costs	3	(241,471)	(225,711)
Other income	2	14,496	13,427
Profit from operations		54,487	63,777
Finance income	4	2,490	1,711
Finance expense	4	(76,758)	(102,151)
Loss before taxation		(19,781)	(36,663)
Taxation	5	6,240	8,620
Loss for the year		(13,541)	(28,043)
Loss per share attributable to the ordinary equity holders of the parent	Note	2025 Pence	2024 Pence
Basic and diluted	7	(17.53)	(56.87)

* see note 4 for details of prior year changes to presentation

The group activities above are derived from continuing operations.

Group statement of other comprehensive income

for the year ended 31 March 2025

	Note	2025 £000	2024 £000
Loss for the year		(13,541)	(28,043)
Other comprehensive loss:
Items that will not be reclassified to the income statement:
Net actuarial loss on pension schemes		(21,176)	(8,015)
Deferred tax credit on net actuarial loss	5	5,294	2,004
Other comprehensive loss for the year		(15,882)	(6,011)
Total comprehensive loss		(29,423)	(34,054)

Group statement of financial position

Registered number: 02679874

as at 31 March 2025

	Note	31 March 2025 £000	31 March 2024 £000
Assets Non-current assets
Property, plant and equipment		1,870,841	1,777,640
Right of use assets		3,461	3,804
Intangible assets		8,787	10,066
Defined benefit pension surplus		8,378	23,014
		1,891,467	1,814,524
Current assets
Inventories		1,268	1,343
Trade and other receivables		99,278	97,477
Cash and cash equivalents		36,072	4,986
		136,618	103,806
Total assets		2,028,085	1,918,330
Liabilities Non-current liabilities
Trade and other payables		3,483	3,864
Loans and borrowings		1,325,934	1,250,980
Deferred income		3,913	3,646
Defined benefit pension liability		2,357	2,493
Deferred tax liability	5	178,169	189,665
		1,513,856	1,450,648
Current liabilities
Trade and other payables		143,759	114,849
Loans and borrowings		69,484	97,436
Deferred income		4,615	5,651
Provisions		8,014	6,966
		225,872	224,902
Total liabilities		1,739,728	1,675,550
Net assets		288,357	242,780
Issued capital and reserves attributable to owners of the parent
Share capital		124,312	49,312
Revaluation reserve		204,067	208,657
Retained losses		(40,022)	(15,189)
Total equity		288,357	242,780

The financial statements were approved and authorised for issue by the board of directors and were signed on its behalf by:

David Hinton                                                                                   Andrew Farmer

CHIEF EXECUTIVE OFFICER                                                                CHIEF FINANCIAL OFFICER

14 JULY 2025                                                                                        14 JULY 2025

Group statement of changes in equity

for the year ended 31 March 2025

	Note	Issued share capital £000	Revaluation reserve £000	Retained (losses)/ earnings £000	Total equity £000
At 1 April 2023		49,312	213,254	16,518	279,084
Loss for the year		-	-	(28,043)	(28,043)
Other comprehensive loss		-	-	(6,011)	(6,011)
Total comprehensive loss for the year		-	-	(34,054)	(34,054)
Dividends	6	-	-	(2,250)	(2,250)
Amortisation of revaluation reserve		-	(6,110)	6,110	-
Release revaluation reserve on disposals		-	(19)	19	-
Deferred tax on revaluation and retained earnings transfer1		-	1,532	(1,532)	-
		-	(4,597)	2,347	(2,250)
At 31 March 2024		49,312	208,657	(15,189)	242,780
At 1 April 2024		49,312	208,657	(15,189)	242,780
Loss for the year		-	-	(13,541)	(13,541)
Other comprehensive loss		-	-	(15,882)	(15,882)
Total comprehensive loss for the year		-	-	(29,423)	(29,423)
Issue of shares		75,000	-	-	75,000
Amortisation of revaluation reserve		-	(6,110)	6,110	-
Release revaluation reserve on disposals		-	(10)	10	-
Deferred tax on revaluation and retained earnings transfer1		-	1,530	(1,530)	-
		75,000	(4,590)	4,590	75,000
At 31 March 2025		124,312	204,067	(40,022)	288,357

Group statement of cash flows

for the year ended 31 March 2025

	Note	2025 £000	2024 £000
Cash flows from operating activities
Loss for the year Adjustments for:		(13,541)	(28,043)
Depreciation and impairment of property, plant and equipment		62,953	61,054
Amortisation of intangible assets including impairment		2,524	2,315
Finance income	4	(2,490)	(1,711)
Finance expense	4	76,758	102,151
Profit on sale of property, plant and equipment		(63)	(69)
Difference between pension contributions paid and amounts recognised in the income statement		(5,547)	(5,996)
Income tax credit	5	(6,240)	(8,620)
Movements in working capital		114,354	121,081
Increase in trade and other receivables		(2,066)	(5,196)
Decrease/(increase) in inventories		75	(211)
Increase in trade and other payables		16,026	3,160
Cash generated from operations		128,389	118,834
Income taxes paid		(1,048)	(8,464)
Interest element on lease liability payments		(136)	(121)
Interest received		1,144	526
Interest paid		(50,521)	(46,294)
Net cash generated from operating activities		77,828	64,481
Cash flows from investing activities
Purchase of property, plant and equipment		(140,951)	(123,342)
Proceeds from disposal of property, plant and equipment		285	256
Purchase of intangible assets		(1,250)	(4,613)
Net cash outflow from investing activities		(141,916)	(127,699)
Cash flows from financing activities
Credit facility (repayment)/drawdowns		(28,000)	67,000
Index linked borrowing		50,000	-
Issue of shares		75,000	-
Net payment of lease liabilities		(445)	(548)
Issue costs of debt		(1,381)	-
Dividends paid to shareholders	6	-	(2,250)
Net cash generated from financing activities		95,174	64,202
Net increase in cash and cash equivalents		31,086	984
Cash and cash equivalents at the beginning of year		4,986	4,002
Cash and cash equivalents at the end of the year		36,072	4,986

Notes to the group financial statements

for the year ended 31 March 2025

1. Basis of preparation and authorisation of financial statements

The financial statements of South East Water Limited and its subsidiary (the "group") for the year ended 31 March 2025 were authorised for issue by the board of directors on 14 July 2025 and the Statement of Financial Position was signed on the board's behalf by David Hinton and Andrew Farmer. South East Water Limited is a private company that has limited liability by shares and is incorporated in the United Kingdom and registered in England and Wales.

These consolidated and company only financial statements have been prepared in accordance with UK- adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

Details of the group's accounting policies, including changes during the year, are included in note 3.

The group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.

1.1  Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date.

Items                                                   Measurement basis

Pension assets                                                    Fair value

Certain assets in property,                                  Measured at deemed cost by reference to fair

plant and equipment                                           value on adoption of IFRS on 1 April 2014

1.2     Going concern

The group and company's business activities, together with the factors likely to affect its future development and position, are set out in the Strategic Report.

The directors have undertaken a detailed review of the group and company's liquidity requirements compared with the cash and facilities available, which includes cash at hand, cash on deposit, and committed bank facilities of which £56.0 million remained undrawn at 31 March 2025. The directors have also considered the financial covenant position including projections based on future forecasts, the current credit ratings and financial risk.

The PR24 business plan is the group's most ambitious business plan ever. The proposed investment over the five years 2025 to 2030 amounts to £2.1 billion with goals to improve customer service, reduce customer supply interruptions and strengthen network resilience. A significant investment in environmental schemes is also proposed.

As a result of the higher operating and capital expenditure proposed in the business plan, the group and company has forecasted a net cash outflow position before financing inflows over the going concern period of 12 months to 14 July 2026.

The group and company forecast base case does not indicate an additional requirement for financing in the going concern period although shortly after the going concern period it will be necessary to renew the existing revolving credit facility, or find alternative financing, in order to continue as a going concern. The severe but plausible downside case without mitigating actions would indicate a need for financing towards the end of the going concern period. The revolving credit facility matures in September 2026 and discussions with lenders are underway and progressing well, although at the date of approval of signing these financial statements the renewal has not been legally committed.

The directors are of the opinion that the revolving credit facility will be renewed, but as this has not been legally committed at the date of signing these financial statements and the commitment is not within the control of the directors, the risk that the revolving credit facility will not be renewed constitutes a material uncertainty that may cast significant doubt on the ability of the group and company to continue as a going concern.

Not withstanding the material uncertainty described above, and on the basis of their assessment of the group and company's overall financial position, and the latest cash flow forecast shared with the board, the directors have a reasonable expectation that the group and therefore the company has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of approval of these financial statements. For this reason the directors continue to adopt the going concern basis of accounting in preparing the financial statements. Further details can be found in the strategic report. The financial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern.

2. Revenue and other income

The following is an analysis of the group and company's revenue and other income for the year from continuing operations:

Group and Company	2025 £000	2024 £000
Revenue
Household - measured	204,188	196,554
Household - unmeasured	21,644	21,171
Non-household - measured	52,408	51,864
Non-household - unmeasured	1,124	1,102
Other revenue	9,967	11,084
Charge for bad and doubtful debts	(3,814)	(1,181)*
Total revenue	285,517	280,594*
Other income
Rental income	1,168	1,172
Laboratory income	4,354	3,769
Commission income	7,978	7,666
Other income	996	820
Total other income	14,496	13,427

All revenue is from customers within the United Kingdom.

Other revenue comprises a number of income streams, including those associated with activities typically performed for property developers, which impact the group's infrastructure network assets, including diversions works to relocate water assets, and activities that facilitate the creation of an authorised connection through which properties can obtain water services. Other revenue includes new connections income of £4.0 million (2024: £3.9 million), infrastructure income of £0.2 million (2024: £1.0 million) and capital contributions of £3.5 million (2024: £3.5 million).

* Under IFRS 15, revenue should only be recognised to the extent that it is probable that economic benefits will flow to the entity. In previous years, we have estimated the amount of revenue potentially requiring adjustment as immaterial (2024: £1.2 million). We have reviewed the basis on which the adjustment is calculated in the current year, aligning the calculation with the bad debt provision assessment period. This has resulted in an adjustment of £3.8 million for the current year. We have reflected this adjustment as a deduction against revenue in the current year, and in order to ensure comparability between years we have restated the presentation of the bad debt charge for the prior year. This has no impact on operating profit and is purely presentational.

Contract assets and liabilities

The group has recognised the following revenue-related contract assets and liabilities:

	2025 £000	2024 £000
Contract assets
Current
Accrued revenue for water supplied to metered customers	49,254	47,593
Accrued income for other activities	1,220	1,284
Total contract assets	50,474	48,877
Contract liabilities
Non-current
Deferred revenue from infrastructure charges	3,913	3,646
Deposits payable to developers	3,483	3,864
Total non-current contract liabilities	7,396	7,510
Current
Advance payments received	47,674	46,227
Deferred revenue from infrastructure charges	4,215	5,247
Deferred revenue from other activities	400	404
Total current contract liabilities	52,289	51,878
Total contract liabilities	59,685	59,388

Revenue recognised in relation to contract liabilities

The table below shows how much revenue was recognised in the reporting period relating to brought forward contract liabilities.

Year ended 31 March	2025 £000	2024 £000
Revenue recognised that was included in the contract liability balance at the start of the period
Advance payments received	46,227	48,087
Deferred revenue from infrastructure charges	5,247	4,972
Deferred revenue from other activities	404	340
Total	51,878	53,399

3. Net Operating Costs

Group	Note	2025 £000	2024 £000
Employee benefits expense	3	43,494	38,643
Asset expense:
Depreciation - owned assets		62,418	59,941
Depreciation - right-of-use assets		535	1,113
Amortisation of intangible assets		2,524	2,315
Profit on disposal of property, plant and equipment		(63)	(69)
		65,414	63,300
Other operating expenses: Operating lease rentals:
Vehicles and office equipment		328	324
Land and buildings		16	(7)
Energy costs		29,982	27,674
Rates		16,254	16,640
Contractors		45,653	41,484
Bulk water supplies and abstraction licences		11,489	10,294
Chemicals		6,939	6,758
Insurance and related costs		4,281	4,161
Compensation and donations		1,707	2,152
IT costs		7,263	4,699
Other		14,776	15,311
Other operating expenses charged to capital projects		(6,125)	(5,722)
		132,563	123,768
Total operating costs		241,471	225,711

The other operating costs includes admin fees of £6,000 (2024: £6,000) for South East Water (Finance) Limited.

Group and Company	2025 £000	2024 £000
Fees payable to the group's auditors in respect of: Audit of the group and company financial statements	529	564
Audit of subsidiary	1	1
Total audit	530	565
Regulatory accounts	78	76
Other assurance services	18	17
Total non-audit services	96	93
Total fees payable to the group's auditors	626	658

 

Group and Company	2025 £000	2024 £000
Employee benefit expenses (including directors) comprise:
Wages and salaries	45,704	41,467
Social security costs	4,628	4,181
Defined contribution pension cost	3,419	3,114
Defined benefit scheme charge	1,825	957
Labour costs capitalised	(12,082)	(11,076)
	43,494	38,643

Key management personnel compensation

Emoluments of the directors, who are the group's key management, were:

	2025 £000	2024 £000
Aggregate emoluments including bonuses (short-term employee benefits)	1,056	1,016
Pension scheme costs - defined contribution plans	23	20
	1,079	1,036

Emoluments of the highest paid director including bonuses were: £448,000 (2024: £430,000).

One director (2024: one) has a deferred pension from the defined benefit pension schemes which closed to future accrual in 2015. There are currently two directors (2024: two) under a defined contribution scheme.

Further disclosures in respect of directors' emoluments are set out in the remuneration report.

The monthly average number of persons, including the directors, employed by the group during the year was as follows:

	2025 No.	2024 No.
Operations	505	443
Management and Administration	622	628
	1,127	1,071

4. Finance income and expense

Group	2025 £000	2024 £000
Finance income
Interest receivable on bank balances and short-term deposits	1,361	530
Net interest income on defined benefit asset	1,129	1,181
Total finance income	2,490	1,711
Finance expense
Debenture interest	42	42
Effective interest on listed debt	15,185	15,003
Interest on lease liabilities	136	121
Financing guarantee fees	1,320	1,188
Bank interest and other finance charges	20,148	18,151
Amortisation of loan issue costs	827	652
Indexation on index linked bonds	7,051	12,349
Interest payable on index linked loans	17,856	16,044
Indexation on index linked loans	18,765	39,942
Interest capitalised	(4,572)	(1,341)
Total finance expense	76,758	102,151

Interest is capitalised at the weighted average rate of interest on the group senior long-term debt of 5.0 per cent (2024: 5.0 per cent).

Indexation on index linked bonds and loans are lower due to the decreased inflation and lower RPI compared to prior year.

Company	2025 £000	2024 £000
Finance income
Interest receivable on bank balances and short-term deposits	1,271	511
Net interest income on defined benefit asset	1,129	1,181
Total finance income	2,400	1,692
Finance expense
Debenture interest	42	42
Interest payable to subsidiary	19,058	18,728
Indexation payable to subsidiary	12,605	22,766
Interest on lease liabilities	136	121
Financing guarantee fees	1,320	1,188
Bank interest and other finance charges	20,148	18,150
Amortisation of loan issue costs	827	652
Interest payable on index linked loans	14,006	12,342
Indexation on index linked loans	13,211	29,525
Interest capitalised	(4,572)	(1,341)
Total finance expense	76,781	102,173

Interest is capitalised at the weighted average rate of interest on the group senior long-term debt of 5.0 per cent (2024: 5.0 per cent).

Indexation on index linked bonds and loans are lower due to the decreased inflation and lower RPI compared to prior year.

5. Taxation

5.1  Income tax recognised in profit or loss

Group	2025 £000	2024 £000
Current tax
Current tax on profits for the year	27	9
Adjustments in respect of prior years	(65)	(93)
Total current tax credit	(38)	(84)
Deferred tax credit
Origination and reversal of timing differences	(4,715)	(9,053)
Adjustments in respect of prior years	(1,487)	517
Total deferred tax credit	(6,202)	(8,536)
Total tax credit	(6,240)	(8,620)

Total tax credit above consists of a tax credit of £6,267,000 (2024: £8,629,000) for South East Water Limited and a charge of £27,000 (2024: £9,000) for South East Water (Finance) Limited.

The reasons for the difference between the actual tax credit for the year and the standard rate of corporation tax in the United Kingdom applied to losses before income tax for the year are as follows:

Group	2025 £000	2024 £000
Loss for the year	(13,541)	(28,043)
Income tax credit	(6,240)	(8,620)
Loss before income taxes	(19,781)	(36,663)
Tax using the company's domestic tax rate of 25% (2024: 25%)	(4,945)	(9,166)
Expenses not deductible for tax purposes, other than goodwill, amortisation and impairment	273	138
Adjustments to current tax charge in respect of prior periods	(65)	(92)
Adjustments to deferred tax charge in respect of prior periods	(1,487)	517
Tax effect of income not taxable in determining taxable profit	(16)	(17)
Total tax credit	(6,240)	(8,620)

The deferred tax on temporary differences as at 31 March 2025 have been calculated using 25 per cent (2024: 25 per cent), the enacted corporation tax rate for the periods during which the temporary differences are expected to unwind.

The adjustments to current and deferred tax charge in respect of previous years represent the changes between the prior year financial statements and the prior year tax computations submitted. The expenses not deductible for tax purposes are primarily driven by the movement on general provisions, non- deductible entertainment expenditure, and depreciation on non-qualifying capital expenditure.

Changes in tax rates and factors affecting the future tax charges

Capital investment is expected to remain at similar or higher levels and the group expects to be able to claim capital allowances in excess of depreciation in future years. There are losses of £61.8 million available within the company to mitigate future profits. The enacted enhanced 100 per cent first year full expensing capital allowance for qualifying plant and machinery and 50 per cent allowance for special rate assets expenditure have been made permanent.

5.2 Income tax recognised in other comprehensive income

Group and Company	2025 £000	2024 £000
Deferred tax	5,294	2,004
Deferred tax on defined benefit pension schemes

The net credit recognised in other comprehensive income for the year ended 31 March 2025 is £5.3 million (2024: £2.0 million).

5.3Deferred tax balances

The following is the analysis of deferred tax liabilities presented in the consolidated statement of financial position:

Group and Company	2025 £000	2024 £000
Deferred tax liabilities	(178,169)	(189,665)

Group and Company	Opening balance £000	Recognised in profit or loss £000	Recognised directly in equity £000	Closing balance £000
2025 Deferred tax (liabilities)/assets in relation to:
Property, plant and equipment	(199,197)	7,090	-	(192,107)
Losses carried forward	14,662	781	-	15,443
Defined benefit obligations	(5,130)	(1,669)	5,294	(1,505)
	(189,665)	6,202	5,294	(178,169)

Group and Company	Opening balance £000	Recognised in profit or loss £000	Recognised directly in equity £000	Closing balance £000
2024 Deferred tax (liabilities)/assets in relation to:
Property, plant and equipment	(206,514)	7,317	-	(199,197)
Losses carried forward	11,649	3,013	-	14,662
Defined benefit obligations	(5,340)	(1,794)	2,004	(5,130)
	(200,205)	8,536	2,004	(189,665)

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. All of the deferred tax assets were available for offset against deferred tax liabilities and hence the net deferred tax liability at 31 March 2025 was £178.2 million (2024: £189.7 million).

Temporary timing differences

All temporary timing differences are recognised in the deferred tax calculation.

The total amount of qualifying tangible fixed assets for R&D claims recognised in the deferred tax liability as at 31 March 2025 is £191,000 (2024: £144,000).

6. Dividends

Group and Company	2025 £000	2024 £000
No dividends were paid during the year (2024: Interim dividend of 4.56 pence).	-	2,250

There were no dividends proposed for approval as at 31 March 2025.

7.  Earnings per share

Group	2025 £000	2024 £000
Loss for the year from continuing operations	(13,541)	(28,043)

	2025 Number	2024 Number
Basic and diluted weighted average number of shares	74,312,454	49,312,354

	2025 Pence	2024 Pence
Basic and diluted loss per share from continuing operations	(17.53)	(56.87)

 

END