Ahead of the publication of Ofwat’s Final Determinations on the water companies’ AMP7 Business Plans on 16^th December, SES Water has described “certain aspects of the regulator’s draft determination for its plan as “not rational or reasonable.”

Commenting in its latest results for its half-year performance for 2019/20, the water company said:

“We responded to Ofwat’s draft determination on our Business Plan and whilst we accepted the majority of interventions, we maintained that certain aspects were not rational or reasonable and did not recognise the specific circumstances of our company and what our customers have told us is most important.”

“We also continue to be concerned about the wider effects of the declining cost of capital and strongly caution against a further fall at final determination, requesting that Ofwat takes a balanced assessment of the recent evidence available in reaching its view. “

Financial performance

In the first six months of this year SES Water has invested £15.2m (2018: £11.5m) in its capital programme, including £5.2m (2018: £4.0m) in upgrading treatment works and pumping stations.

Profit after tax has increased by 21% (£0.8m) to £4.5m (2018: £3.7m) this half year, primarily due to one-off costs in the prior year related to operational incidents that have not recurred.

The utility has agreed the terms of a new £35 million revolving credit facility at competitive market rates – SES Water said the demonstrated its credit worthiness and financial stability, despite the general downgrade in the sector’s credit quality in recent years.

Commenting on its credit agency outlook which has been downgraded to negative by both Moody’s and S&P, SES Water said:

“While disappointing, this is generally consistent with others in the industry and was strongly influenced by Ofwat’s proposals for a lower cost of capital across the sector.”

Revenue in the first half of the year increased by 3% (£1.0m) to £34.3m (2018: £33.3m) mainly due to the RPI-linked increase in customer bills.

Operating costs in the period reduced by 3% (£0.7m) to £23.3m (2018: £23.9m) because some one-off costs in 2018 relating to burst mains and increased leakage reduction activity have not recurred.

Other operating income remained at similar minimal levels year-on-year. The increase in revenue and reduction in costs has resulted in an 18% increase in operating profit (£1.7m) to £11.1m (2018: £9.4m)

Net financing costs have increased by 11% (£0.5m) to £5.3m (2018: £4.8m) primarily due to the impact of RPI on the indexation of its £100m bond and set-up costs of the renewed £35m revolving credit facility. This has been offset by a reduction in interest charges due to repaying a £30m bank loan as part of its de-gearing strategy.

The Board has declared an interim dividend of £1.8m relating to 2019/20 which will be paid in December 2019 (2018: £1.9m).  

On track to meet goal of minimising customer contacts about water quality for 1^st time in AMP6

For the first time in the AMP6 five-year regulatory period the company is on track to meet its goal of minimising customer contacts about water quality – SES continues to lead the industry on this metric in terms of its relatively low level of contacts.

Three potential pollution incidents have been logged with the Environment Agency for further investigation during the first half of the year, two as a result of burst mains and one linked to the commissioning of a new main. One of these, reported in July, has been classed as a significant incident by the Environment Agency due to the volume of burst water travelling through the surface water drainage system.

According to SES Water, there have been some notable improvements in its overall customer service performance across a broad range of measures, including its first C-MeX results. However, it is likely to miss some performance targets at the end of the year to March 2020, This is the first year that Ofwat has been measuring its new sector-wide indicator of customer satisfaction.

Over 11,000 eligible customers are now benefitting from our Water Support Scheme bill discount, which is more than double our target for 2020

Operational highlights during the period included:

• trialling innovative new technology, such as intelligent sensors and smart meters, that will help improve the network and bring down leakage and consumption
• laying key strategic mains to help increase the resilience and connectivity of the network
• finalising upgrade work at its Woodmansterne Treatment Works
• a trial of ten electric vehicles, powered by 100% renewable electricity
• implementing a new online appraisal system for employee performance and new performance management workshops for every manager
• progressing customer service performance improvement plan which includes significant investment to utilise latest digital technology as well as a brand-new billing system

Continuing to monitor water resources and demand situation

Despite some very wet weather this autumn and flooding in some parts of the country, over the last two winters the water company has had less rain than normal in its supply area. SES Water’s groundwater levels remain below average despite the recent rainfall - its underground aquifers provide 85% of the overall water source, with the River Eden providing the other 15%.

SES Water has an agreed action plan it can implement when groundwater levels go below certain levels. So far, the company has started up an additional treatment works and is moving water around its network of pipes to use more plentiful sources. “We continue to monitor the situation carefully and are liaising with other companies in the region to discuss any emerging risks,” the company said.

Water efficiency and sustainability

On average, each person in SES Water’s supply area uses around 160 litres of water a day at home which is 20 litres higher than the national average. A key focus this year has been a new campaign ‘Every Drop Counts’ piloted in Tandridge which is intended to test emerging and innovative methods of bringing down consumption and leakage.

As well as increased water efficiency activity, including home visits, collaborating with local businesses and free leak detection and repair activity, the company is trialling new technology.

Working with expert partners, SES is seeking to make its network more ‘intelligent’ over time in order to have much more accurate and timely information about the health of its pipes enabling more informed decisions about repair and replacement.

Since 2015 the water company has also fitted over 32,000 water meters – saying that on average, switching to a meter reduces water use by 14% making them a key tool in bringing down consumption. Its focus is now turning to switching as many customers as possible onto measured charges to bring it in line with other water companies in the south east.

Summing on up its 2019/20 performance to date, SES Water said its long-term and targeted asset investment strategy was helping ensure it was able to achieve industry upper quartile performance in terms of low levels of leakage, burst mains and supply interruptions. SES water is aiming to halve leakage by 2045.

However, the utility will miss its annual target of overall drinking water quality following five sample failures measured at customers’ taps, rather than issues with the quality of water leaving its treatment works. SES will incur a financial penalty from Ofwat of £140,000 based on annual performance for the 2019 calendar year.

Commenting on risks and uncertainties, SES WAter said it was continuing to work with the rest of the industry in preparation for the potential impact of a no-deal Brexit with the potential impacts incorporated in its risk register. It also recognises that a cyber-attack continues to be a significant risk and says that ensuring strong mitigations are in place is a high priority.

The Board has also acknowledged the continuing political debate over the re-nationalisation of the water industry.