Regulator reveals water firms with worst finances

Thames, Southern, SES and South East have been named as the water firms with the worst financial performance in the UK.

Regulator Ofwat said the companies had been told fix holes in their finances and were being closely monitored.

It comes after doubts were raised about the future of Thames Water, the UK’s largest supplier, earlier this year due to its £14bn debt pile.

At the time, Ofwat was accused of being “complacent” in overseeing the sector.

The regulator, which rejected those claims, has vowed to keep a close eye on water company finances and said on Thursday that Thames was among a group of suppliers singled out as having “significant issues to address”.

The four firms were all taking action to “strengthen long term financial resilience”, it said.

Responding to Ofwat’s findings, Thames Water said its network had come “under unprecedented pressure” over the past year from record temperatures, a drought and a cold snap. Inflation had also affected its performance.

“In short, our performance was not as we – or our customers – wanted it to be. Despite this, we are in a robust financial position and maintain a strong liquidity position, including £3.6bn of cash and committed funding,” a spokesperson said.

SES said its business was “financially resilient” and that its shareholders had committed to investing £7m into the company over the next five years.

Southern Water said its new leadership team was “continuing to deliver” on a turnaround plan, adding that funds from its majority shareholder boosted the company with an additional £550m of equity earlier this month.

Ofwat said it would keep a closer watch on four other suppliers with potential problems: Affinity Water, Northumbrian Water, Portsmouth Water and Yorkshire Water.

Fears over financial management in the sector have come as many water companies face heavy criticism due to sewage discharges and leaks.

Last month, Ofwat ordered water companies to pay back £114m to customers through lower bills after missing key targets.

The regulator said firms paid out a total of £1.4bn in dividends to shareholders in the most recent financial year, but that there were “some companies that did not fully meet our expectation in explaining dividend decisions and payments”.

“Dividends are an important part of the investor return however they must take account of performance delivered to customers and the environment,” Ofwat said.

Thames Water, which has 15 million customers across London and the South East, faced calls to be nationalised after it ran into trouble, but managed to secure a £750m cash injection from its shareholders to keep going.

The company leaks more water than any other supplier in the UK, losing the equivalent of up to 250 Olympic-size swimming pools every day from its pipes.

The company’s future came under the spotlight this summer when it emerged it was in talks to secure extra funding, and the firm’s chief executive Sarah Bentley stepped down after just two years in the job.

Ofwat said on Thursday that the water sector had secured £4.6bn in extra cash from shareholders since 2020 to help boost firms’ financial resilience.

But David Black, its chief executive, said companies were expected to “maintain a level of financial headroom so they can manage periods of volatility and meet their obligations to customers and the environment”.

“Where we have seen cause for concern, we have also seen some companies responding to the challenge and we expect them to continue to work on improving their financial resilience,” he added.

Industry body Water UK said resilience was “an important foundation” for companies to deliver a planned £96bn of investment “to ensure the future security of our water supply and to reduce overflow spills into rivers and seas as fast as possible”.

“While dividends are now much lower than they have been previously, they must be set at the right level for attracting billions in new outside funding to cover the upfront cost of improvements,” a spokesperson added.