Annual Report & Financial Statements 2018–19

129
Customers' water usage per head, per day (litres) – against industry average of of 141

Our business at a glance

Our business at a glance

We’re proud to provide high-quality water and sewerage services to more than 4.7 million customers in Sussex, Kent, Hampshire and the Isle of Wight.

Some of our other highlights for the past year include:

  • A steady performance in terms of our Service Incentive Mechanism (SIM) or customer satisfaction score of 80 (2018: 79) moving us from 15th in the industry league table to 13th position.
  • During 2018–19 we have recorded 1,603 (27%) fewer written complaints than this time last year, 66 (21%) fewer escalated complaints and 46,200 (20%) fewer unwanted contacts (unwanted from a customer point of view).
  • In 2018 we celebrated receiving our 20th consecutive Order of Distinction from the Royal Society for the Prevention of Accidents.
  • External recognition for the marked improvements we have made from Ofwat, the Drinking Water Inspectorate and, most recently, the Consumer Council for Water (CCW).
  • A Blue Star award for innovation or stand out ambition in environmental commitment for our Target 100 programme, awarded by the environmental coalition Blueprint for Water. We were one of only six companies to receive this accolade.
  • A renewed focus on catchments to improve how we collaborate with key stakeholders in the water quality chain.
  • The appointment of a dedicated Wellbeing and Health Manager and a team of wellbeing champions across the business with a roadmap in place, helping us achieve both the Workplace Wellbeing Charter and Time To Change (mental health awareness) standards.

Some of our challenges for the past year include:

  • Our leakage performance for this year has been worse than expected, at 102 Ml/d (2018: 89 Ml/d), following the unusual Freeze/Thaw event in March 2018 and the hot, dry summer.
  • Pollution performance has deteriorated during 2018, including three more serious pollution incidents than in 2017. To address and understand root causes we have put in place a Pollution Reduction Plan, including both the development of a dedicated Pollution Task Force as part of our Environment+ programme.
  • New abstraction licences for our western region, reduce the amount of water we can take from the River Test and River Itchen in Hampshire. The licence reductions aim to secure the health of these rivers while reducing the amount of water we can take from them during drought.

At a glance (PDF)

£1.19
Cost of combined water and sewerage services per household, per day

Working for our customers

Working for our customers

Responsive customer service

We recorded our best ever customer satisfaction scores this year, moving up in the industry league tables. The number of complaints we receive continued to fall, as we focused on root-case analysis of every customer contact, proactively managing customers’ accounts. We acknowledge that we still have more to do to meet the standards our customers expect but we’re working hard every day to make every interaction with our customers a refreshingly easy experience.

Affordable bills

This year our dedicated teams have helped more than 40,000 customers in vulnerable circumstances to avoid debt or manage their payments better. We have been able to do this through continuing to work in partnership with local community organisations and councils, through our Reach & Support initiative. We also continued to drive down our operating costs, delivering £160 million of efficiencies since 2015, which we can pass back to our customers by keeping their bills low.

Better information and advice

Our customers like to be kept informed, and they’ve told us that we could do more to help them understand what we do, how their money is spent and how they can save water and prevent blockages. Our website, customer leaflets and community engagement events have all been updated this year to improve and simplify the advice available to customers, and we continue to update these as we receive feedback from our customers and community partners. 

Working for our customers (PDF)

4,863
Customers received free water-saving home visits

Acting Chairman and Chief Executive statements

Acting Chairman and Chief Executive statements

Paul Sheffield, Acting Chairman

Chairman’s introduction

In his introduction to this year’s annual report, our Acting Chairman Paul Sheffield talks about how we are focused on continuing to transform the business to answer present and historic challenges – a process which began under our new Chief Executive, Ian McAulay in 2017 – while preparing to deliver our ambitious Business Plan 2020–25.

Other key themes in the Chairman’s introduction include:

  • potential changes in the political landscape, challenges to long-term resilience and preparedness for extreme weather events, and further calls to tackle issues of trust and transparency
  • a renewed focus on compliance and assurance to address legacy issues relating to our wastewater performance. For more information see southernwater.co.uk/ofwat-investigation
  • further changes to our Board and Executive Leadership Team to ensure its members can provide the best oversight, guidance and scrutiny they can to the business
  • a reduction in our gender pay gap
  • a new purpose and a focus on values-based ethical business practice and decision-making frameworks
  • a revised dividend policy and executive pay structure.

Paul Sheffield
Acting Chairman

Chairman's introduction (PDF)



Ian McAulay, CEO

Chief Executive's summary

Our Chief Executive Officer (CEO) Ian McAulay, outlines our transformation programme in more detail, apologising to our customers for key performance and compliance failures that have been, and continue to be addressed. With this in mind, he also talks about the progress that has been made during two years’ of sustained and focused change.

His summary includes:

  • our commitment to be brilliant at the basics, providing improved services for our customers at prices they can afford
  • detail of our continued transformation programme – building new systems, developing new processes and establishing new management frameworks and stronger governance procedures
  • our clear sense of purpose and our vision to create a resilient water future for our customers in the South East; meeting the challenges of population growth and climate change outlined in Sir James Bevan’s recent ‘jaws of death’ announcement
  • challenges we’ve faced in terms of our leakage and pollutions performance, as well as preparing for future challenges we face in the Western Region relating to new abstraction licences put in place by the Environment Agency
  • performance highlights, such as an increase in the number of excellent bathing waters in our region from 53 to 62 and improved customer satisfaction ratings
  • our financial performance and continued investment in our sites and networks, totalling £440 million during the year.

Ian McAulay
Chief Executive Officer

Chief Executive Officer's summary (PDF)

62
Bathing waters were classed as 'excellent' across our region – with none 'poor'

Our services

Our services

During 2018–19 we invested £442 million to improve our water and wastewater services.

This has helped us to maintain the highest water quality standards and continue to drive down the number of flooding incidents experienced by our customers. It is also helping us address issues with our leakage and pollutions performance, which we know are a priority for our customers.

Our services (PDF)

£442m
Amount invested in upgrading our sites and networks during the year

Looking after the environment

Looking after the environment

You can read all about our work to help protect and enhance our bathing waters, reduce the amount of water we take from the environment and our plans to protect these precious water sources in the future in this section of our report.

It also contains details of our recycling, renewable energy and carbon reduction performance.

Looking after the environment (PDF)

£137k
The amount raised by employees for charitable causes in 2018–19

Our people

Our people

We want Southern Water to be a great place to work, and this means looking after our employees’ health, safety and wellbeing as well as their learning and development needs.

It also means creating a fair and equal pay structure and career paths for everyone. We also want to make sure there are plenty of volunteering and community-focused projects for teams to get involved in at work, and in their spare time – our teams raised more than £137,000 for good causes during 2018–19.

Our people (PDF)

The numbers

It has been a busy year in which we have continued our transformation journey and prepared our Business Plan 2020–25. The associated costs are reflected in our operating profit for the year (excluding the impact of the regulatory settlement) which fell by £6.9 million to £256.4 million.

In particular, as part of the transformation programme, we have spent an additional £5.9 million, redesigning processes and systems as well as the structure and culture of the business, to ensure that we are ready to deliver our Business Plan for 2020–25.

I am pleased that the first year of our transformation programme is already delivering benefits and, having made improvements to the structure of our Customer Services department and contracts, we realised efficiency savings of £5.1 million in the year. In addition, improvements to our debt collection processes resulted in a further cost reduction of £1.7 million. These will all help us to reduce bills to our customers in the coming years.

In order to achieve the targets set by Ofwat for what we spend on serving customers, together with an overall water bill reduction for householders of more than 5% over the next five years, we need to keep on improving. To meet these challenges we are making further changes in Customer Services and are creating a centralised delivery model with specialist partners establishing a new Retail team to lead and deliver our customer strategy.

We have committed additional resources to tackle the increased level of leakage experienced and this resulted in additional investment of £1.7 million in the year.

During the year we submitted our business plan to Ofwat and responded to Ofwat’s Intial Assessment of our plan. This work, which included consultations with customers and stakeholders, increased our operating costs in the year by £2.7 million.

Following its investigation into our wastewater treatment works compliance reporting, Ofwat has confirmed its intention to impose a penalty under Section 22A of the Water Industry Act. This penalty comprises a fine of £3.0 million together with a reduction to future revenues of £122.9 million (at 2017–18) prices which will be made by way of a rebate to wastewater customers over the period from 2020 to 2025. We have provided for these in full in the financial statements for 2018–19 resulting in a reduction to operating profit of £138.5 million (at outturn prices). As a result operating profit after the regulatory settlement was £117.9 million. For more information please visit southernwater.co.uk/ofwat-investigation.

In 2018–19, our capital investment programme continued at pace as we completed the fourth year of our current business plan. In total, we spent over £440 million investing in our assets during the year. This included a scheme designed to improve the quality of bathing waters at seven sites to an excellent standard (as defined by the EA), the ongoing redevelopment of our Woolston wastewater treatment works, work to upgrade our Millbrook wastewater treatment works and improvements to our sewer network in Thanet.

The water industry has been the focus of considerable scrutiny during the year, not least in relation to how the industry is financed. We have responded to this by refinancing to reduce our gearing and are in the process of closing our Cayman Islands registered subsidiary.

Any changes we make to our financial structure, along with the continued capital investment in our assets and transformation activities, will be focused on ensuring we have a stable financial base to deliver on the commitments made in our current and future business plans.

Financial Performance (PDF)

Financial Statements (PDF)

Annual Performance Report (PDF)