South East Water Limited

Preliminary results

for the year to 31 March 2022

Chair and CEO joint report

This is a joint statement and as CEO, I'd like to take the opportunity to formally welcome Chris to the organisation. Chris is a former CEO of Cadent, Britain's largest gas distribution network. His knowledge and experience will be of invaluable benefit to us as we face new challenges ahead.

Chris succeeds Nick Salmon, who stepped down as Chair on 31 March 2022 after seven years' service, having presided over a crucial period of transformation and improvement for the business. Chris and I would like to thank Nick for his leadership and I would like to personally thank him for his support.

Nick presided over a period where we have continued to evolve the strength of the business. We intend to build on the firm foundation he has given us. We remain committed to our purpose; to provide today's public water service and create tomorrow's water supply solutions, fairly and responsibly, working with others, to help society and the environment to thrive.

We feel that this review should start with a huge 'thank you' to everyone in the business, our contractors and our partner organisations who have continued to adapt and respond to the challenges that this past year has sent in our direction. Despite the overall level of Covid-19 restrictions lifting slightly during the year, the hurdles that we've had to overcome have been significant, whilst also focussing on returning to normal operations and preparing for the future.

It seems expecting the unexpected has become normal, as we reflect on another year of achievement, ambition and challenges and as we enter the mid-point year of the five year business plan period.

Despite considerable challenges from the impact of the pandemic, this has been a strong year for the business. We have made significant progress in the year on our regulated performance commitments. We achieved 87 per cent of our financial performance measures, and overall saw an improved performance in 80 per cent of our financial performance measures. The highlights include the lowest level of leakage that the company has ever recorded and our best ever performance for CRI, the DWI's lead measure of water quality.

We are proud to supply high quality drinking water to our customers at a time when other water companies are under scrutiny regarding storm water overflows. Protecting and enhancing our local environment is integral to what we do and you will see in this report the industry leading commitment we have made to planning how we protect our environment over the next 25 years.

The impact of the Covid-19 global pandemic has continued to be felt, affecting everything we do. As we entered the second year of Covid-19, the depth of the strong foundations we set in 2020/21 has reaped huge benefits. However economic conditions have worsened impacting our costs and this is set to continue in 2022/23. High energy costs and the rising cost of living are affecting our customers.

We have a number of key engineering projects underway to deliver improved resilience across our network. The temporary water treatment works in Aylesford, Kent - built in just eight months to replace the loss of a key strategic service reservoir caused by a sinkhole that opened up - continues to support the area. Construction is now underway on a permanent water treatment works solution on the site.

This project is just one of a number of significant investments we're making, such as the strategic pipeline being laid between Fleet and Greywell in Hampshire to enable more water to be pumped into the region as the population increases. We've also been working to upgrade our existing network. In Chilham we've invested £2.1 million installing new equipment in the area to prevent customers going without water during power cuts, and in Pluckley, Kent a £700,000 new 1.2 km water main will reduce the likelihood of bursts and supply interruptions.

The multi-million-pound expansion of our flagship Keleher treatment site in Bray was officially unveiled in February by the Rt Hon Theresa May MP, in her role as constituency MP for Maidenhead. The site is now capable of pumping up to 68 million litres of water a day - a 50 per cent capacity increase and enough to fill 27 Olympic-sized swimming pools.

Our ability to respond to increased demand has therefore increased, putting in place extra capacity where needed.

We have found opportunities to learn more about our customers, their expectations of us and our services and to promote water efficiency initiatives to protect the environment and help with the cost of living pressures.

We have increased our support for vulnerable customers and to help those customers who are facing financial hardship. An industry first data partnership with two councils in Kent has enabled us to automatically enrol customers onto our social tariff, helping those most financially at risk in our communities. We will continue to review the provision of these partnerships to reflect the changing economic climate in the future, supporting the most vulnerable in our society.

Once again our colleagues across the business have risen to the trials of lockdowns and the restrictions which have been placed on all of us, responding quickly and with professionalism. Those attributes extend to our contractors and partner organisations who once again supported us in every way.

We have reacted with agility to all the challenges that we have faced as an organisation, including macro environmental challenges such as those created by the instability in the global energy market and, of course, Storm Eunice - more of which later.

We are very pleased to present our group annual report and the audited financial statements for the year ended 31 March 2022.

Across the business we have continued to make progress on delivering on the commitments we have made in our five year plans and have ambitious targets. We are particularly proud of our achievements in the environment area of our business, as we know our connection to the natural world is crucial.

Climate change is - and will continue to be - a huge challenge for us. It's an area of uncertainty in terms of risk. We operate in an area of water-stress and in recent years have done a lot to overcome this, including our hugely successful Customer Metering Programme, where we have the highest level of meter penetration of any water company in the UK.

However, as population growth continues we must make further changes and as new evidence and research emerges, we will use innovation and best practice to overcome the challenges that this will bring.

This year we have prepared our draft 25 year environment plan. This is a first in the water industry and we believe that this ambitious approach will make significant improvements to our environment within a generation.

We have sought feedback from stakeholders and customers alike. We invited over 500,000 customers to give us their views, which is the largest consultation we have ever undertaken. This feedback will be vital in helping us to develop our plan, and protect the unique environment which is an integral part of everything we do.

In addition, we have shown our commitment to working in partnership to make sure we secure our resources for the future by working with Water Resources in the South East (WRSE) to create a regional plan which looks forward to 2100. This will be the basis of our own water resources management plan designed for the long-term.

For a long time, we've been talking to the farmers in our region to see how we can join together to keep our water sources and rivers cleaner, to reduce the amount of fertilisers going in to them in the first place. This proactive partnership approach is making a marked difference in helping to clean our rivers.

Our commitment to achieve net zero carbon by 2030 is also on track. We will continue to track our progress and make robust decisions which will ensure we achieve our goal as it edges ever-closer. We are always looking towards renewable energy sources, as well as how we operate more generally to improve the environment.

Of course, we consider ourselves a service industry and people are at the very heart of every area of service.

Whether it's our own colleagues whose expertise we want to harness and nurture or our consumers in the communities we serve, we aim to put service front and centre.

We have committed to learn more about our customers, their expectations of us and how we can help them to reduce their water bills and play their part in water efficiency drives.

We have continued to reach out to the sectors of the community that are more difficult to engage with and to learn more about how we can offer extra support.

An industry-leading data share initiative, where we are working in partnership with two local authorities to auto enrol customers onto a social tariff, is a great example of this. We are actively seeking to offer assistance as an early intervention to avoid customers becoming unable to pay their bills, especially where there may be financial pressures for families and individuals.

Providing excellent customer service across the board is not just an ambition for us, it is embedded in our vision and values.

That's why being awarded the ServiceMark Accreditation with Distinction from The Institute of Customer Service - one of only a handful of companies to receive it - was so important to us. We are extremely proud of that achievement and it is a reflection of the teamwork across the business.

Among the areas highlighted by ServiceMark were knowledge and empathy, both attributes we encourage in all our colleagues.

That's why we have produced our people plan. This important accreditation is a validation of our people plan, which clearly sets out our vision and plans for how we will attract and retain the very best professionals to South East Water.

We are particularly pleased to be promoting apprenticeships as a means of training or retraining in all areas of our business, before moving on to focus on continuous professional development.

This programme has resulted in the number of apprenticeships in the company increasing by 250 per cent.

Bringing in new and diverse talent is also a long-term aim and we have engaged with the Leonard Cheshire Foundation to give talented graduates with a disability access to internships before they enter the workplace full time.

Our on-going training services have been enhanced as we are keen to keep and develop our talent. Many of our workforce live in our supply area and they are our best ambassadors.

Supporting our colleagues beyond the work environment is also important to us and the change in the way we work has presented an opportunity to reassess how work-life balance can be achieved.

We have created our hybrid working plan with the objective of moving towards an agile working approach, which we believe will also support our goal of attracting and retaining the best talent.

Of course, the year was not without adversity, most notably Storm Eunice, the worst storm to hit our region in more than a generation.

Sussex bore the brunt of the issues caused by the high winds, which hit again when Storm Franklin swept in immediately after.

Despite significant planning for the storm, including the provision of alternative power sources, unprecedented power outages left us in a very difficult position. In the aftermath of the storms, over 100 assets were inoperable due to lack of power. This represented the most significant loss of power in our company's history.

Whilst we worked closely with UK Power Networks to restore electricity, the power cuts also caused damage to vital equipment in some areas, which meant we weren't able to pump water into the network as soon as power was restored. Once again, our colleagues rose to the challenges, but some customers were affected whilst power supplies were impacted.

We were in direct contact with hospitals, supplying tankers to various NHS sites, and other healthcare centres to make sure they were prioritised, and supported our livestock farmers and their specialist needs. At the same time, we prioritised our vulnerable customers and made over 5,000 deliveries to those customers.

During the height of the emergency we set up and had volunteers at more bottled water stations than we have had in any previous incidents, the logistics of which alone were immense.

Our early and intense engagement with our stakeholders was also crucial in our success in getting essential messages to our communities in extremely testing circumstances, especially where many were without power and internet access.

We are doing all we can to support the communities worst affected and, as always, reflecting on any lessons to be learned, working with local stakeholders to gather feedback on how we can respond better in the future.

For impacted customers who fell outside our General Standards of Service (GSS), specifically those in East Grinstead, we set up a Community Fund of £100,000 to be distributed to charities, community groups and not for profit organisations, selected by the local community. Our customers are currently voting on how this fund should be distributed and we look forward to making a real difference in the community.

Overall we have made good progress against our plans set out under our four strategic themes and you will see more of those throughout this report.

As we return to more normal times, with the pandemic behind us, we will continue to develop the positive outcomes that we have delivered in challenging times. I am sure that this will put us in a great position to build strongly in the coming year.

The year ahead

This year has shown again how we are facing ever-increasing challenges from the weather and rapidly changing economic pressures on our business and our customers.

In the year ahead we are looking to build on the improved performance from this year. We will focus on building resilience in our existing networks and creating plans to ensure we have the right investment in place for future generations via the up and coming Price Review process.

As part of this we will be publishing our 25 year environment plan which aims to understand and engage on the complex trade-offs between different environmental priorities and affordability using feedback from customers, staff and stakeholders.

This will be supported by our strategic direction statement bringing all our long-term plans and ambitions together in one place and set the long-term direction of the business driven from our overriding purpose.

We will continue to assist more customers in need of financial support, or our help during interruptions to supply, through our innovative data sharing exercise with our local authority partners. This is particularly important given the rising cost of living challenge our customers are facing.

We remain very confident that we will continue to deliver excellent service and deal with the challenges immediately ahead of us whilst beginning to plan the key activities and investment needed to sustain the vital service we provide for future generations and the good of the environment.

Chris Train OBE                                                                         David Hinton

Chair                                                                                          CEO

14 July 2022                                                                              14 July 2022