Southern Water is set to launch a pioneering integrated water cycle management programme (IWCM), according to its annual report for 2015-16.

Via the IWCM the water company will develop collaborative partnerships with a range of industries, such as agriculture and tourism, in order to look holistically at all the factors influencing water supply, demand and wastewater disposal. According to Southern Water, it is only by working with partners in this way that the company can really start to make solid plans for the future, even beyond 2020.

The IWCM is among a range of innovative solutions flagged up in the report which the utility is developing to build greater levels of resilience into its services -  for example water re-use and using waste to generate energy.

Southern Water has also examined thousands of future drought scenarios to help create realistic plans - the company's expertise in this area has been critical to the development of a National Water Resources Framework, which will inform national planning for future water resource needs across the country. 
The water company has also established a group that is looking to develop a single water resource management plan for the region, enabling it to take a holistic look at growth in the region and identify solutions that increase the resilience of the service while protecting the environment. 

In addition,Southern Water is developing two specific water re-use schemes, which will provide a vital resource to support the rivers used for abstraction during droughts. "We believe there is potential for water re-use schemes to play a far greater role in securing water supplies for future generations.", the report says.

On other issues, the report says the water company has beaten its regulatory target for the fifth consecutive year by reducing leakage to 84 million litres per day, against a target of 88. This puts it at the top of the sector league tables and means that Southern Water has had the lowest levels of leakage in the industry for more than 10 years. On drinking water quality the water company is also expecting to be confirmed as sector leaders of the 10 largest water companies in the UK for the 2015 calendar year.

The report has also highlighted the fact that Southern Water customers are using less water than ever before. In 2015/16, each of the company’s two million water customers used an average of 130 litres per day – the lowest ever and well below the national average of about 150 litres. This is largely attributable to Southern's water metering programme - between 2010-15, we installed 450,000 water meters were installed in households across the region.
On finances, the report says financial results for 2015–16 reflect a reduction in revenues of almost three per cent, to £804 million, down from the £826 million reported in 2014–15. The reduction in revenues also contributed to a lower operating profit of £284 million – a 14.2 per cent reduction from the previous year. 
 Southern Water has also seen a rise in operating costs this year, increasing to £286 million from £273 million in the prior year.  

Over the past five years, the report says the company's shareholders have helped strengthen the business by not taking a dividend, enabling it to make considerable improvements to our operational performance over 2010–15. In addition, this support has meant Southern Water could reduce its gearing, the ratio of debt to equity used to finance the business, thereby reducing financial risk, strengthening its overall financial position and improving its credit ratings. The report says:
"As a result of these improvements, we are now in a much stronger position financially and operationally. As a consequence, in 2015–16, we resumed dividend payments with shareholders receiving £79.6 million."

However, the water company has incurred a performance-related financial penalty. While all but one of the 83 bathing waters in its region met the new, tighter minimum standards introduced this year, due to some extreme weather experienced in August, Southern did not meet its target to maintain water quality at 54 of the region’s beaches at the very highest ‘excellent’ status – meaning it we will face a financial penalty of £1.458 million. Based on performance in the first year, it would also incur a penalty in respect of internal sewer flooding, where it is above target.

Southern Water is on track for a reward for helping customers to reduce the amount of water they use, where it has beaten its consumption target and for a reward for beating its leakage target in the first year. 

The rewards and penalties are based on performance over the whole five-year period of the AMP6 business plan, meaning it can only earn a reward, or incur a penalty, if performance across the whole period is better or worse than the target, rather than for individual years.

Overall, based on first year performance Southern Water would expect to face a net penalty, with the penalties for not meeting the beaches and flooding targets exceeding the potential rewards in respect of consumption and leakage. However this will depend on how the company performs for the remaining four years of AMP6.

Click here to read the report in full.