Wessex Water has declared a £37 million dividend payout for the six months to 30 September 2023 according to its interim results for the first half of financial year 2023/24.

Results for the half year show operating profit increased by £10.8m from £67.2m to £78.0m, whilst the position after taxation eroded from a profit of £3.8m in 2022 to a loss after taxation of £8.0m.

Total revenues increased by £20.2m from £266.8m to £287.0m. Regulated tariff revenue increased by £17.5m, mainly due to price rises allowed by Ofwat. Operating costs increased by £9.4m from £199.6m to £209.0m. The water company said there were significant upward pressures on costs due to continuing high energy market prices, general high inflation within the economy and new obligations such as phosphorus removal, partially offset by on‐going efficiency programmes.

Net financing expenses increased by £29.8m from £61.3m to £91.1m - financial expenses increased by £35.0m as a result of high inflation impacting on the utility’s index linked bond portfolio. Financial income rose by £5.0m as a result of higher interest rates on short and medium term deposits.

Net capital investment for the six months was £161.9m, a significant increase on £100.7m last year. Wessex Water said the increase “remains consistent with the timing of the construction programme for the current regulatory period.” The regulatory capital value increased by £406.1m to £4,184.3m primarily as a result of the high levels of inflation applied as part of the calculation.

The water company said that since privatisation the regulatory capital value has continued to reflect the growth of the size of the business and the investment programme.

Upward revision of useful economic life of assets 

During the period Wessex Water revised the estimated useful economic lives of certain items of plant and equipment and infrastructure assets with effect from 1 April 2023. The revision followed a detailed review of the asset lives coinciding with the preparation of the AMP8 business plan. The utility said the detailed work involved in preparing the plan had enabled it to gain a greater understanding of its assets and their expected lives, ensuring that any extension to the lives is reflected in reduced customer bills over the foreseeable future.

The economic life of sewer infrastructure was increased from 125 years to 200 years, while the economic life of water recycling plant and equipment increased from 20 years to 25 years. According to Wessex, the revised lives were based on operational experience, revisions to design horizons and industry comparisons.

Contingencies flagged up in the interim report include an explosion at the firm’s Avonmouth Water Recycling Centre in December 2020 which resulted in the death of four workers, including a 16-year-old boy Wessex Water says it is continuing to co‐operate with the investigating authorities, commenting:

“No proceedings have been issued and, as such, it is not possible to assess any financial penalties or related costs could be incurred.”

The report also refers to the announcement in November 2021 by Ofwat and the Environment Agency separate industry‐wide investigations into Flow to Full Treatment at waste water recycling centres.

Ofwat has since opened enforcement cases into five companies, including Wessex Water. The Environment Agency continues to issue written requests for information and have conducted four visits of Water Recycling Centres with

more visits expected over the coming months. Wessex Water says it is continuing to work with both organisations as they continue to gather further information to inform the investigations and next steps.

Significant investment required to ensure we maintain levels of service in increasingly unstable and extreme weather events

Commenting on the company’s AMP8 Business Plan in the Chief Executive’s overview, Chief Executive Colin Skellett said:

“This plan represents a major change – we are proposing to double our current level of investment to £3.5bn and to deliver a massively ambitious set of outcomes. The plan will not only reduce pollution, storm overflow operation and leakage, but at the same time leave more water in the environment to cater for all our needs over the long term…..

“It will be challenging for us all – shareholders will have to provide more investment and, regretfully, customers will have to pay higher bills. But we will always protect our hardest hit customers – we will make sure bills are affordable for all…”

He went on to comment on climate change, saying it was continuing to drive real changes in weather patterns – with the hottest June in the UK since records began in 1884, significant flooding events, and more frequent, more intense rainfall.

“These events all have significant impacts on our operations, but we have continued to provide resilient services to our customers throughout... Significant investment is required to ensure we maintain these levels of service in increasingly unstable and extreme weather events.”