South East Water Limited

Preliminary results

for the year to 31 March 2026

Chair and CEO joint report

Introduction

This joint statement reflects on our company performance in Year 1 of our new five-year Business Plan period (AMP 8) - which runs from 1 April 2025 to 31 March 2030.

We have made progress on many of our commitments across our six priorities which you can read about in our annual report. However, much of this progress has been overshadowed by a number of serious incidents which impacted the service we provide to our customers.

These events caused us significant operational challenges over the past year, including last summer's drought and two major incidents over the winter. Any interruption to supply for our customers is unacceptable, and we fully recognise the disruption and upset caused. Our customers are at the heart of our business and we know our service wasn't good enough during these incidents. The Board and Executive team reiterate their unreserved apology to those customers impacted by recent operational failings, and the resulting loss of public trust in our company and the services we provide.

This has been a tough year with many challenges, but we have a clear and comprehensive plan to turn things around and transform the way we work and the service we provide. We also have a growing team of dedicated and valued colleagues across our business whose driving force is regaining the trust and confidence of our customers by providing them with the service they both expect and deserve.

Strong leadership, customer focus, accountability and cultural change will underpin this transformation, together with an absolute desire and commitment to ensure we move forward at pace. Work on this is already underway and you can read more about this later in this report.

In March 2026 we received an update from the referral of the PR24 Business Plan by Ofwat to the Competition and Markets Authority (CMA). The overall outcome of the appeal provides over £100 million of additional funding, including crucial increased resilience funding, giving us a greater ability to invest directly in our network. Most noticeably, a key scheme to provide additional treatment and transfer capacity at our Bewl Water Treatment Works, in Kent, was approved.

Separately, on 5 March 2026, Ofwat issued a draft decision with a proposed £22 million fine for supply interruptions experienced in Kent and Sussex between 2020 and 2023 as part of an investigation into our supply resilience, which was launched in November 2023. On 15 January 2026, Ofwat opened an investigation into South East Water following supply interruptions in Kent and Sussex in November/December 2025 and January 2026. This investigation considered whether, and how, the company has complied with its customer-focused licence condition (Condition G).

With the objective of achieving greater network resilience for the benefit of our customers and communities, we are pleased to have agreed undertakings with Ofwat in respect of both investigations. These undertakings include a redress package of £30.5 million to be funded wholly by the company's shareholders. Instead of paying a government fine, this £30.5 million will be spent in our affected local areas directly funding local network resilience and community redress.

Through the redress package, the company's shareholders will fund:

·    £13m to undertake further investment following an independent root and branch review of the company's resilience.

·    £5m to speed up the smart metering programme for businesses.

·    £5m to help households to collect rainwater and reduce demand on the mains supply.

·    £5m to install on-site storage tanks and smart meters in high-usage businesses to help manage the network better at peak times.

·    £1m to make sure critical settings don't run out of water if there is a future outage.

·    £1.5m to create a community relief fund to give back to communities that suffered the worst water supply failures.

Moody's recent downgrade of South East Water's financing subsidiary (SEWF) has caused the company to breach its licence condition obligation to maintain at least two investment-grade credit ratings. However, Ofwat has accepted a set of financial undertakings from us to secure a return to compliance with our licence condition in conjunction with the resilience undertakings mentioned above.

We are pleased to move forward positively with the conclusion of both the supply resilience and the condition G investigations and the financial undertakings.

On 22 June 2026, we announced John Halsall as Chief Executive Officer (CEO)-Designate, effective immediately. Subject to regulatory approvals, John will succeed David Hinton, who will leave the business after a period of handover.

Finally, on 25 June 2026, due to sustained high temperatures and near record levels of demand for treated drinking water across Kent, the company introduced a Temporary Use Ban (hosepipe restriction) for all customers in its Kent region. This step was taken in order to support our ability to preserve resources to meet demand across the county. While raw water resources remained in a healthy position due to winter rainfall, demand over the more recent summer period had breached the triggers in the company's approved Drought Plan. We are monitoring our other regions closely.

Drought

We are experiencing more severe and more frequent extreme weather events fuelled by climate change, which appears to be accelerating faster than previously observed. We do not make reference to these changes in weather patterns as an excuse, but rather to recognise that with a demonstrable increase in the frequency and severity of such events, we will need to plan differently to take account of this. Improving the resilience of our network and our operational approach will be key to us overcoming the threat posed to long-term water security and the environment from climate change.

In 2025, we experienced the driest spring in England since 1893 and therefore we started our public water efficiency campaign early. This included a television advert and social media campaign to encourage customers to make 'simple changes' by, for example, doing water-intensive jobs at home before the summer peak demand season.

The driest spring was followed by the hottest summer on record, four separate heatwaves and unparalleled demand for water. On 30 June 2025, water usage reached 680 million litres a day (ML/d) - that's 105 million litres more than the summer daily average, or the equivalent of adding a town the size of Eastbourne or Maidstone to our network overnight. In accordance with our pre-published drought trigger levels within our Drought Plan, we followed due process to impose a temporary use ban (hosepipe ban) on 18 July 2025 for parts of Kent and Sussex. The National Drought Group declared the worsening situation a "nationally significant incident" on 11 August 2025.

On 22 September 2025, the Environment Agency (EA) granted a Drought Permit as a sensible precaution to help conserve raw water storage in Ardingly Reservoir in Sussex after water levels dropped to critically low levels. Again, this followed the actions outlined in our Drought Plan. In its summary report on dry weather and drought in England (10 to 16 October 2025), the EA warned that "further significant rainfall over a sustained period is needed to return (the water resource position) to normal conditions." On 19 October 2025, Ardingly had just 24.6 per cent of total storage remaining, the equivalent of about 6 weeks' worth of water.

On 23 October 2025, we applied for a Non-Essential Use Ban (NEUB) under a Drought Order as a precautionary measure to further protect water resources in case drought conditions worsened. Fortunately, we were able to cancel our NEUB application in December when we started to see more rainfall, and reservoir levels began to recover.

As well as restrictions aimed at conserving raw water supplies, we worked hard to ensure a consistent supply for customers by moving water around our network using our new fleet of tankers, and by finding and fixing more leaks than ever before. In the past year alone, we found and fixed more than 21,000 leaks on our network and a further 6,000 customer-side leaks. This is around 10 per cent up on the previous year.

To ensure a consistent supply of water for all customers it is vital that we work with customers to reduce demand in both household and non-household settings. As well as our water efficiency campaign, we gave away 184,264 free water-saving devices last year and offered discounted water butts on our website. We completed 1,900 household visits for customers to check for leaks, fit water-savings devices and offer other water efficiency tips. Fixing all the issues we found during these visits saved a combined total of around 108,000 litres of water a day, enough for 750 customers' everyday drinking water needs.

In January 2026, we began upgrading water meters across our network in preparation for smart meter technology. This technology will give customers more control over their water usage and will make it easier for us to work together to detect leaks earlier. In the first three months of the roll-out (January to March 2026), we installed 13,489 smart meters, surpassing our Year 1 target of 12,743.

We also work with farmers, landowners and other partners all year round to improve the quality and quantity of water at its source by, for example, planting cover crops or installing rainwater harvesting systems.

Hosepipe restrictions were lifted on 5 February 2026, following due process, when the levels in our reservoirs and our underground water sources returned to normal. Groundwater makes up around 73 per cent of our water sources so we had to wait for aquifers to recharge fully, which can take several months. We'd like to thank customers for cooperating with the restrictions throughout the hosepipe ban.

As we commenced the new financial year the water resource position was normal (Level 0 using our Drought Plan levels/triggers). However, the first heatwave of the year, starting around the May 2026 Bank Holiday weekend, saw demand for drinking water increase rapidly - jumping from an average of 572ML/d earlier in May to 670ML/d on the Bank Holiday at the end of May. This, coupled with a low level of rainfall in April 2026 (with only 15 per cent of the long-term average (LTA) rainfall recorded across the south east) put severe strain on our network, where we were unable to pump and treat water fast enough in order to meet high demand for all our customers.

Despite having every water treatment works operating at full capacity, this increased demand regrettably led to some supply interruptions across mid and east Kent. We worked collaboratively with local MPs, stakeholders and resilience forums, set up bottled water stations and delivered water to vulnerable customers on our Priority Services Register (PSR). We are in the process of understanding the full impact of the disruption and will compensate customers in line with our Guaranteed Standards of Service (GSS).

Major incidents

Pembury/Tunbridge Wells: 29 November to 12 December 2025

Regrettably, some 24,000 customers lost their drinking water supply in and around Tunbridge Wells - supplied from the Pembury Water Treatment Works (WTW). This was caused by, amongst other factors, a change in the raw water quality which meant the pre treatment stage of the water treatment process failed. By 29 November 2025, were no longer able to reliably supply all customers served by this WTW and a major incident was declared on 2 December 2025. On 3 December, following several days of interruption, we took the decision to restart the WTW, implementing a precautionary Boil Water Notice (BWN) on public health grounds, and supplies were restored gradually.

The BWN lasted for nine days, during which customers needed to boil tap water before drinking and cooking. After the WTW was restarted, it very briefly operated outside normal water quality parameters and, while the issues at the WTW were resolved (by 5 December) shortly after restarting, the BWN remained in place until 12 December to be absolutely sure of the safety of the water as this part of the network refilled. We recognise that our customers in this area endured sustained disruption to their water supply over this period, for which we sincerely apologise.

In addition to the BWN, we moved as much water as we could around the network, using our fleet of new tankers to keep as many customers as possible in supply. These tankers delivered a total of 37 million litres of water during the incident, the equivalent of over a quarter of a million customers' daily drinking water. Coupled with tankers provided under mutual aid from other water companies, and contracted from private third parties, this was the largest mobilisation of alternative water ever undertaken by the company.

During this time, we made 38,715 deliveries of bottled water to around 4,400 vulnerable customers on our PSR. We also responded to requests from other vulnerable customers not already on our PSR. Additionally, we handed out 1.6 million litres of water at our bottled water stations and provided immediate financial support to 2,788 impacted customers registered on our financial support tariffs to cover the extra cost of boiling water. Emergency plans were mobilised to keep supplies running for two hospitals and we ensured care homes, GP surgeries, dental surgeries, pharmacies, schools and nurseries received bottled water deliveries. £19.6 million has been paid out to customers and businesses for the disruption under the GSS applicable to utility companies.

Freeze-thaw: 7 January to 17 January 2026

A total of 77,279 customers in Tunbridge Wells, East Grinstead, Maidstone, Whitstable, Canterbury and surrounding towns experienced intermittent periods without water supply, low pressure or intermittent supplies, after a freeze-thaw event on 7 January (when there was an outbreak of leaks and bursts across the network), closely followed by supply interruptions (predominantly linked to normal operations at WTWs being affected by power cuts and bulk supply failures due to Storm Goretti in January 2026. We declared a major incident on 11 January 2026, when the scale of issues linked to the outages peaked.

During the incident we delivered bottled water to 34,418 customers on our PSR. Our tankers moved 60.9 million litres of water during this incident - the equivalent of over four hundred thousand customers daily drinking water needs - averaging 4 million litres a day - and we made 62 deliveries to landowners and farmers with livestock. More than 1.7 million litres of water were handed out in total at our bottled water stations during the incident.

Greywell

The Greywell abstraction in our western region currently provides water for communities in the Greywell and Swains Hill area. The EA has refused our application to extend our abstraction licence to March 2031. Because an immediate cessation of abstraction at Greywell would cause a severe and immediate water shortage for thousands of local residents and businesses reliant on that source, the Board has agreed to lodge a formal appeal to the Planning Inspectorate against this decision.

By submitting an appeal, we are legally permitted to continue abstracting water from Greywell until the independent appeal process is determined. This ensures that taps keep running while we work on long-term solutions.

Taking this formal route to appeal the EA's decision is not something we decide lightly and we are sorry that we have not been able to resolve this matter without taking this action. During this time we welcome ongoing dialogue with partners at Defra, EA, and Natural England in order to reach a resolution to the challenge.

Scrutiny

Our performance and the resilience of our water supplies and network have been scrutinised as a result of the major incidents. We commissioned our own independent review into what happened at Pembury and we continue to fully cooperate with our regulators Ofwat and the Drinking Water Inspectorate (DWI) regarding these events. We were also called to give oral evidence to the Environment, Food and Rural Affairs (EFRA) Select Committee as part of its inquiry into 'Reforming the water sector' on 6 January 2026 and 14 April 2026. We note also the EFRA report published on 1 May 2026.

We continue to work with our stakeholders and review feedback from our customers to ensure lessons are learned to improve the service we provide. We have welcomed the opportunities to discuss these events in detail with our valued partners and to have a broader discussion about the issues we face in our operating area as we strive to make our network more resilient and so we can minimise the risk of supply interruptions for our customers.

Independent review

In December 2025, our Executive and Board commissioned an independent external review into the Pembury/Tunbridge Wells incident. This included a forensic investigation into the root causes of the incident and our response. This review enabled us to fast-track the implementation of a recovery and resilience action plan to improve the resilience of our water supply network. Our leadership and strategic transformation will underpin tactical actions and make sure we move forward purposefully.

Short-term actions to improve resilience

Since February 2026 we have undertaken a tactical programme of critical engineering works and accelerated operational changes to the way we manage supply interruptions. These focused actions have been designed to reduce the risk of future network outages and improve our service to customers in the event of future interruptions.

The tactical actions taken will positively impact the water supply to the 24,000 households across Tunbridge Wells and surrounding areas, as well as strengthening our wider network resilience. Our actions have led to the following critical progress:

Pembury Water Treatment Works: Two new filters have been installed to improve treatment processes, reduce the risk of water quality issues and increase the resilience of water that can be provided into the Tunbridge Wells system. These filters will allow us to support the Pembury network from the Bewl WTW, providing an additional source of water to the Tunbridge Wells system, if needed. Additional operational improvements include revised site maintenance schedules, updated testing guidance for operators, and a revised inventory of critical spare equipment.

Tonbridge Water Treatment Works: Three carbon filters have been installed and are operational. These filters will bolster the site's filtration capacity after the site had been suspended to prevent contamination from third party activity at nearby housing construction sites. Bringing the Tonbridge WTW back into supply adds 1.5 million litres per day of water to our network in the Mid Kent area.

Bewl to Cottage Hill transfer main: Engineering work to the 12km pipeline is complete, with final tests now complete. When operational, Bewl will distribute to the Wadhurst area of Sussex for the first time and help us balance supplies across Sussex and parts of Kent. This will provide much-needed additional resilience in this area of the network that suffered from supply interruptions in the summer of 2023 and enable us to provide our customers in these areas with a better service.

Increasing spare stock levels: A programme to increase and optimise the location of spare equipment is complete. This will reduce supply interruption risks and enable quicker repairs.

Over and above these actions, we have made considerable changes to our alternative water arrangements following reviews and feedback. As part of this, we're working closely with local resilience and community groups to ensure our alternative water sources, including water tankers and bottled water stations, are in the best locations to support the needs of local communities. We arranged alternative water supply workshops for local authorities in Kent in May 2026 and in Sussex in June, where we collaboratively created bespoke local alternative water plans. These have been tailored to the needs of the specific local communities, ready for immediate deployment, if required. To manage these resources, we are digitising our operations when stocking and delivering alternative water to customers when required. We've created a new bottled water station app, which will provide bottled water station staff, as well as customers, with real-time information about bottled water stations and stock levels. This digitisation will improve our efficiency when responding to incidents and will improve the customer experience. Other changes include better traffic management, signage and training at bottled water stations. We've also increased our bottled water storage capacity and created a new livestock register to help us support agricultural businesses during an incident. Partnering with a specialist traffic and event management company so we can support communities better during incidents, and extending our mutual aid agreements with other water companies to share resources and best practice are two other immediate actions we've taken.

These improvements, which complement our longer-term investment plans, are a positive step in the right direction, but we recognise there is still more to do and we are committed to providing regular updates on our progress.

Drinking Water Inspectorate (DWI)

The Drinking Water Inspectorate (DWI) carried out its own investigations into the major incidents. We are now working with the DWI to deliver the changes needed to ensure our customers receive the reliable drinking water supply they are entitled to expect.

Consumer Council for Water (CCW)

In February 2026, customers affected by the Pembury major incident attended a customer-led forum set up by the CCW. They were able to directly challenge our leadership about their concerns and we've agreed an action plan with CCW's Water Voice consumer panel.

Investment

Funding remains critical to our plans to tackle the urgent resilience and investment challenges we face in our area. That's why in February 2025 we asked Ofwat to refer its final Price Review 24 (PR24) determination to the Competition and Markets Authority (CMA) for redetermination, as it fell 13 per cent (£300 million) short of what we had proposed in our Business Plan for AMP 8 (2025 to 2030). This was a difficult decision but a necessary one, which we took in our customers' interests to ensure proper funding for the infrastructure needed. In March 2026, the CMA agreed an extra £100 million of funding, which will enable many resilience-focused schemes to go ahead, including a game-changing scheme at Bewl WTW.

We are now working hard to deliver the biggest investment programme in our company's history. With our customers' support, our £1.8 billion programme (excluding retail costs) will double the investment into the water supply network serving Kent, Sussex, Surrey, Hampshire, and Berkshire over the next five years. In addition, we are progressing plans for a new reservoir at Broad Oak, near Canterbury and investigating accelerating the proposed new Arlington Reservoir.

Our programme will enable longer term water network improvements to increase our storage of water, to enhance the connectivity of our network and to boost our water treatment capacity. All of these will help make our supplies more reliable and resilient for our customers, especially during extreme weather events. This programme of investment will also help tackle the rising demand for water in our officially designated 'water-stressed' region, and to deliver the infrastructure and technology needed for long-term water security.

We obviously welcome the increased funding. It will help improve customer service, lower the risk of supply interruptions for our customers and strengthen network resilience in the face of current and future challenges, such as the accelerated impacts of climate change, population and housing growth. Forecasts show that our supply area will increase its population by 23 per cent by 2050 - the equivalent of an extra 550,000 customers. At the same time, government housebuilding targets have increased beyond the calculations used as the basis for our Water Resources Management Plan 2024 (WRMP24). Planning for our new WRMP (2029) is already under way and will reflect the new housebuilding targets. In the meantime, we continue to work with local authorities to find solutions to the challenges of population and housing growth.

Whilst the investment granted in this 5 year period is welcomed, we did not receive all the funding for water security and resilience improvements that we wanted. As a consequence we will face difficult decisions in the years ahead.

Bill increases

The scale of our investment programme means that customer bills have had to rise, which we appreciate is never welcome. The specific timing of the bill rises is set by Ofwat, our economic regulator, as part of the price control. From April 2026, our customers have seen bills rise by an average of seven per cent. At the same time, we have taken steps to help even more customers who need support with paying their bills by increasing the household income thresholds for eligibility for discounts through our Social Tariff. We continue to offer other financial support too, through WaterSure, the Helping Hand scheme, and our single occupier tariff. By the end of March, we had 78,664 customers on our social tariff and 7,897 customers eligible for our WaterSure bill cap.

Moody's rating action

On 28 May 2026 Moody's downgraded the credit rating of South East Water (Finance) Limited ("SEWF"), the financing subsidiary of South East Water Limited. The ratings action has resulted in SEWF's backed and underlying senior secured rating changing to Ba1 from Baa3 and assigned a Ba1 Corporate Family Rating (CFR) and Ba2-PD probability of default rating.

The company maintains adequate liquidity and a resilient capital structure. As a condition of its operating licence with the regulator, Ofwat, the company must maintain at least two investment grade credit ratings, and following the downgrade by Moody's the company is in breach of this condition. The company engaged constructively with Ofwat and agreed certain commitments that are designed to return the company to compliance with its licence conditions.

Financial performance

2025/26 has been a tough year operationally and financially. The operational challenges of the 2025 summer drought and the two major incidents in December 2025 and January 2025 resulted in significant additional costs, with the incident costs amounting to £54.7 million in compensation to customers and other costs such as bottled water and tankering costs. This naturally has had a significant impact on the financial performance for the year.

Underlying operating costs have also increased in the year as the company gears up to deliver the largest investment programme in its history. Operating profit was, therefore, lower than the previous year at £30.4 million compared to £54.5 million in 2024/25, this being despite a £66.3 million increase in revenue to £351.8 million. Despite the challenging operating conditions, we managed to deliver a 22 per cent increase in our investment programme.

The decline in operating profit has resulted in the loss before tax increasing to £45.4 million compared to

£19.8 million in the previous year.

The group has improved its gearing position in the last year. In May 2025, our shareholders invested a further £200 million of equity, reducing gearing from 75.2 per cent at 31 March 2025 to 66.5 per cent at 31 March 2026, improving the financial stability of South East Water.

We are currently in discussions with lenders regarding new loan facilities to support the first stage of our ambitious AMP 8 capital programme. Following the credit rating downgrade by Moody's, we have agreed undertakings with Ofwat designed to return the company to compliance with its licence conditions.

Leadership

On 30 April 2026, the Board of South East Water accepted the resignation of the Independent Non-Executive Chair, Chris Train OBE, effective immediately. Leading up to the announcement, Board discussions had taken place regarding the company's recovery and transformation plan. As part of this, the Board and Chris mutually agreed that new independent Board leadership was required to oversee a critical period of positive, transformative change for the company, its customers, and local communities. In accepting Chris' resignation, the Board thanked him for his service and significant contribution during his tenure.

Lisa Clement has been appointed Interim Independent Non-Executive Chair. Lisa is an Independent Non-Executive Director and Chair of the Audit and Risk Committee. The Directors carefully considered corporate governance requirements and, having considered the company's financial position and the ongoing year end process, (leading to the approval of the company's financial statements and this annual report) it was decided that, in addition to the skillset she would bring as Interim Chair, Lisa's financial experience was a significant reason for her continuing to carry out the role of Chair of the Audit and Risk Committee. This is intended to be a temporary situation as we seek to appoint a permanent chair over the coming months. The company is continuing to work constructively with Ofwat on this matter including any mitigation that may be required.

A thorough search process is taking place to appoint a permanent Chair. This process will be led by the Nomination Committee, comprising the Non-Executive Directors and chaired by an Independent Non-Executive Director.

Separately on 8 May 2026, David Hinton announced his intention to resign as Chief Executive Officer (CEO) after over 30 years' service to the company. David is committed to remain in post to allow for an orderly transition over the summer period and continued momentum of the transformation plan. David decided to step down as his position was an increasing distraction from South East Water's most important priority, which is to deliver a resilient water supply for our customers.

The Board announced John Halsall as CEO-Designate. Subject to regulatory approvals, John will succeed David Hinton. John brings over 35 years of operational and executive leadership experience, having spent his career working in public and private sector infrastructure organisations including: South West Water, Network Rail and Thames Water. John served on the Board of South West Water, was COO at Pennon Group, and an Executive member of Network Rail, where he ran rail infrastructure in the South East of England.

John has extensive experience of delivering transformation programmes while directing operations, asset management, capital delivery, and setting strategic direction to drive strong performance.

In announcing that John has joined the company, the Board affirmed its continuing focus on accelerating targeted engineering works, delivering the extra investment secured by the CMA process and making operational changes to improve the resilience of the supply network, as well as increasing water capacity and quality in high priority areas as part of the comprehensive, company-wide transformation plan.

Looking ahead

Our priority remains to provide the public drinking water supply for all our customers with wholesome drinking water while protecting the environment for future generations. We know we need to go much further and faster to ensure our network is more reliable, resilient and sustainable in the face of the challenges we've described above. Investment in critical infrastructure through our Business Plan is obviously a key part of this but what has become clear as a result of the incidents experienced in the past year is that there is need of a fundamental change in our culture and how we operate to regain the trust, confidence and support of our customers and the communities we serve.

Project Lighthouse

Our major new company-wide transformation plan, Project Lighthouse, is already under way to guide our future and help us navigate the sustained changes we need to make sure our customers are at the forefront of our planning, decision-making and actions.

Project Lighthouse will help us to both simplify and modernise our business, ensuring it is equipped for tomorrow's challenges. It will deliver under the following four strategic pillars:

1. Delivering a Safe and Resilient Water Supply - Ensuring the sustainable supply of high-quality water balanced with minimising environmental impact.

2. Restoring the Trust of our Customer and Stakeholders - Restoring trust and confidence, through increasing transparency and by always putting our customer first.

3. Empowering High-Performing Teams - Fostering a safe, diverse and accountable workforce, operating as one with key partners to deliver high performance and exceptional results.

4. Driving Business Excellence - Optimising and modernising how we work to deliver operational excellence and greater value for our customers.

The scope of this transformation programme is currently being defined and roadshows have been taking place across our business to raise awareness of our new strategy among our colleagues.