SES Water publishes Annual Report 202223

14/07/23

SES Water has published its annual review of operational and financial performance results covering the third year of its Business Plan for 2020 to 2025.

Operational performance

The Company’s operational performance for the year-ended 31 March 2023 has been strong. We have been fully focused on delivering and improving upon the promises we have made to our customers in our Business Plan 2020-2025, which includes achieving our leakage reduction target this year.

In addition, we have:

• Maintained our excellent water quality performance and are one of the top-ranking companies in the Drinking Water Inspectorate’s sector-wide report, published in July 2023
• Ensured no restriction or hosepipe ban was imposed on our customers’ use of water
• Achieved our greenhouse gas emissions targets
• Ensured that supply interruptions for our customers have been minimal and below targeted levels, despite the challenges posed by the severe summer drought and winter freeze/thaw conditions. Unfortunately we missed our target for minimising bursts
• Ensured no restrictions were imposed on our customers’ use of water
• Enhanced the resilience of our water network, with more than 180,000 further customers now connected to two water treatment works
• Won the Utility Week Innovation Award for the Company’s fully smart network, which allows us to monitor and repair leaks in near real-time
• Achieved the Company’s highest ever ranking of 10^th for customer satisfaction and experience (C-MeX) for the period of January to March 2023. For the full year the Company finished 13^th, an improvement of two places from prior year
• Continued to ensure our customers benefit from the Company’s Water Support Scheme, with 19,476 eligible customers now receiving a 50% bill reduction
• Retained The Wildlife Trusts’ Biodiversity Benchmark Award for the third year at Elmer Treatment Works and a second year at Fetcham Springs in Leatherhead. We remain the only water company to currently hold the accreditation

Overall, we have met circa 76% of Performance Commitments for 2022/23 compared to circa 60% in 2021/22.

Financial performance

The Company’s financial performance for the year-ended 31 March 2023 reflected a tough economic environment in the last year:

• Total revenue increased by 7% to £67.4m (2022: £62.9m). This overall increase is primarily due to higher volumes of household water consumed in the long hot summer, combined with a circa 4% increase in tariffs charged compared with prior year.
• Operating expenses increased by 11% to £62.8m (2022: £56.6m), primarily due to increased costs for raw materials and consumables arising from supply chain pressures (in particular for chemicals) together with increased network maintenance costs, although power costs were efficiently hedged.
• Other operating income decreased by 67% to £1.1m (2022: £3.4m) due to the absence of one-off receipts relating to insurance and profits on disposal of assets
• Our bad debt provision increased to £9.3m from £7.8m as customers continued to struggle with cost-of-living issues.
• As a result of the above, our operating profit reduced by 58% to £4.3m (2022: £10.2m)
• Financing costs increased to £30.6m (2022: £15.9m), a 92% increase due to the impact of high inflation on our index-linked bond (although the majority of these costs were non-cash)
• Our “gearing” (the ratio of net debt to our regulatory capital value) was 77% at year-end (2022: 72%), within the 80% permitted by our bond covenants. The significant increase in RPI inflation had a material impact on our gearing due to the indexation charge on our long-term bond.
• During the third year of AMP 7, we invested £25.3m (2022: £27.0m) in our capital programme, including expenditure on resilience mains and upgrading the Bough Beech treatment works.

The Company held cash and cash equivalents at the 31 March 2023 of £39.0m (2022: £24.1m). Cash from operating activities fell by £1.5m to £8.2m (2022: £9.7m).

Dividends

While operational performance remained strong throughout the full year to 31 March 2023, the Board determined not to declare a final appointed dividend payable in respect of the year ended 31 March 2023 having reflected on the financial results for the year, the pressures on gearing and financial resilience in the high-inflation environment and the increased levels of uncertainty in the context of the shareholders’ strategic review.

An interim appointed dividend of £1.46m was declared in November 2022 reflecting our strong operational performance in the first half of the year.

Dividends paid in 2022/23 by the non-appointed business were £5.0m (2022: £0.6m). Non-appointed dividends are based on the overall operational and financial performance of the non-appointed business. These non-appointed dividends were paid to East Surrey Holdings (ESH) Limited from the accumulated profits and cash generated by the non-appointed business of the Company. These monies have been retained within the ESH group and have not been distributed to the ultimate shareholder, but are being utilised, under the approval of the ESH Board, for other ESH Group activities.

Strategic review and shareholder commitment

Our shareholders have engaged financial advisors to undertake a strategic review of the East Surrey Holdings (ESH) Group business, including SES Water. While the strategic review is ongoing our focus remains on delivering for our customers, our communities and our people.

To strengthen our financial resilience our shareholders have committed in writing to provide support including £22m in aggregate in the form of equity injections to the Company in the period up to 31 March 2024. We expect the majority of the committed equity (over 75% of the £22m) to be received on or prior to 1 December 2023, with the first instalment of £2m already received as at the date of this press release. These equity injections allow the Company to deliver its capital investment programme for the next 12 months and meet its liquidity and financial covenant requirements. The shareholders have committed support to cover further funds if needed for additional operating or refinancing costs.

In the event that the ongoing strategic review results in the sale of the Company within the next 12 months, the Board expect that a new owner would be required as part of taking on our water supply licence to confirm appropriate ongoing funding arrangements.

Community activity

The Company has continued to go beyond providing its essential public service and played an active part in the local communities it serves. This has included:

• Welcoming more than 2,825 people to the state-of-the-art education centre at Bough Beech Treatment Works in the past year, continuing to inspire future generations. The Company’s education programme has reached a total of 4,118 people, including in-school talks
• Visiting 140 vulnerable customers a week, to make sure the members of the community who need it most benefit from the Company’s support. This includes contact over telephone and attending local food banks
• Partnering with Run Series to support both Run Gatwick and Run Reigate as the events’ official water provider, avoiding more than 48,000 single-use plastic water bottles from being given out at each event
• Continuing to work with Bore Place, a charity local to its Bough Beech site, and a number of other partners to assess the opportunity to develop biodiversity net gain on a landscape scale

Chief Executive Officer, Ian Cain, said:

“During the last 12 months, the world around us has continued to face significant challenges. The economic downturn increases in inflation, and the war in Ukraine have all had a significant impact on our business. The water industry as a whole is addressing a number of negative perceptions, including summer hosepipe bans, sewage concerns and supply interruptions. We are a water-only company which does not treat or discharge sewage and we managed to avoid hosepipe bans last summer but we do not take this for granted and will continue to work, independently and collaboratively, to address the challenges the industry faces and improve performance.

“Our shareholders have also engaged financial advisors to undertake a strategic review of the business. The review is ongoing, and our shareholders have yet to reach any firm decisions. In some circumstances such reviews can lead to a sale of the business. Despite these challenges, I’m pleased with how we’ve continued to deliver on our performance commitments, while continuing to provide a resilient service of the highest quality.

“Despite these challenges, and as a water-only company that does not treat or discharge sewage, I’m pleased with how we’ve continued to deliver on our performance commitments, while continuing to provide a resilient service of the highest quality.

“Undoubtedly the biggest short-term challenge for many of our customers is the cost-of-living crisis. We’ve continued to provide financial support for customers through our ‘Here For You’ programme and have focused on making sure our support reaches those who need it the most.

“However, there are areas where we know we can improve. We fully recognise we need to make further improvements to our customer service, both for households and developers, as measured under the UK water industry performance tables for 2022/23, and we are working hard to do so.

“Overall, I’m tremendously proud to work for a business which tirelessly puts its customers first each and every day. “

Chair, Dave Shemmans, said:

“It’s been another demanding year for the Company but one in which everyone has worked together to overcome a number of significant challenges.

“Winning the Utility Week Innovation Award for our smart network was well-deserved recognition from the industry for the diligence of our team working to fix leaks as quickly as possible. We know there is always more to do, and I know the team will keep pushing forward with this technology to help drive down leakage even further.

“In the year ahead I’d like to see us continue the great strides we’ve made with our environmental commitments. We’re leading the way with Biodiversity Benchmark Awards at two of our sites and the number of electric vehicles in our fleet is ever growing to help cut down on operational emissions.

“Alongside managing our business on a day-to-day basis, we are also setting out an ambitious plan for the future. We must ensure that we always provide an affordable, reliable, and sustainable supply of high-quality water for all our customers. Making sure we have an ambitious Business Plan for the future is vital. The work we are undertaking for both PR24 and our Long-Term Delivery Strategy sets out our ambition for the next 25 years and is inspired by a renewed sense of purpose to further deliver for our customers.

“While the strategic review is ongoing, our focus remains on delivering for our customers, our communities and our people. I’m looking forward to us keeping up the momentum we’ve achieved going into the next 12 months.” 

ENDS

Notes to editors:

The full annual report can be viewed on our website at: https://seswater.co.uk/about-us/publications/our-annual-performance-report