Despite South East Water’s fall into a £74m pre-tax loss due to a surge in its debt expenses, the company has issued a multimillion-pound dividend.
The firm’s latest annual report disclosed a £9m payout to shareholders, even with a £50m rise in borrowing costs, as it battled an imposed hosepipe ban and a water shortage affecting thousands last month.
South East’s £1.6bn debt cost was the primary reason for its shift from a £17m profit to a loss over the past year. Still, the same dividend was distributed to shareholders, with the company affirming that it complied with regulatory limits.
Nevertheless, South East expressed concerns over its “significant ongoing funding requirement” tied to operational expenses, capital programmes, and refinancing of maturing debt. The firm indicated that the increasing interest rates and the latest Ofwat price review have escalated the risk of lenders refusing to refinance support.
The company stressed that the present macroeconomic conditions, particularly high inflation and escalating interest rates, have considerably intensified the financial challenges they currently face and are expected to encounter in the forthcoming years.
This warning comes at a time when water companies are under intensified scrutiny regarding their sewage management practices and financial health.
Recently, Thames Water managed to secure a £750m lifeline, successfully avoiding the threat of nationalisation. However, it still needs to generate additional funds to finance its turnaround plan as it grapples with a massive debt of £14bn.
South East Water, providing services to approximately 2.2 million customers in Surrey, Kent, Sussex, Hampshire, and Berkshire, also accumulated £17m in extra costs related to the previous year’s heatwave and various severe weather incidents.
The company reported that its immediate measures to respond to the weather extremes, such as securing additional water sources and establishing emergency communication systems, amounted to about £6.6m.
The firm expended an extra £4.9m on repairing pipe network leaks and bursts. Moreover, it disbursed £5.5m as compensation to its customers.
Chairman Chris Train and CEO David Hinton stated, “Although we understand the climate is evolving, we experienced a unique series of severe weather events this year that profoundly influenced our operational activities and financial results.”
The company underwent an “exceptionally intense heatwave” in 2022, witnessing the driest conditions in Kent since records started in 1836 and the scarcest rainfall in Sussex since 1911.
South East encountered a crisis less than two months later with substantial rainfall, resulting in flooding and power outages. Later in the year, they had to manage a significant freeze-thaw event when temperatures skyrocketed by 20 degrees within a single day.
The company executives asserted that they had “no choice” but to implement a hosepipe ban last month, which has since been identified as the warmest June ever recorded.
This follows incidents where around 4,000 customers in Kent and Sussex experienced diminished water supplies or lower water pressure due to service disruptions.
