South East Water

South East Water is the largest water-only company by regulated capital value in England and Wales. South East Water is a regulated utility and provides water to approximately 2.1 million people within an area covering 5,657 square kilometres in the south of England.

Performance highlights 2009

South East Water generated a return of 6.7 percent for the year and 9.4 percent per annum since inception.

South East Water's revenue for 2008/2009 was £172.1 million, and normalised EBITDA was £104.2 million, which represents an increase of 1.8 percent and 2.8 percent respectively compared to last year.(1)

Poor summer weather, combined with the effect of the agreed £4 million merger rebate, had a negative impact on water revenues and the effects of the UK recession were seen on commercial income and cash collections. While operating costs were also put under pressure by high summer inflation, increased contract power cost and chemical costs, continued focus on delivering operating efficiencies led to a solid EBITDA result.

Management's focus on execution of the capital expenditure program has delivered good results despite adverse winter weather conditions. Capital expenditure for the full year was broadly on target and South East Water expects to achieve the cumulative 2005/2010 spend allowed by Ofwat (UK water regulator).

The operational merger between South East Water and Mid Kent Water continues to be implemented, with a strong focus on Customer Services and Systems Integration.

The year also saw a slowdown in South East Water's cash collections. This was the result of both the worsening UK economic environment and pressures on cash collection and customer service following the in-sourcing of the call centre as part of the merger. The company is taking steps to improve its performance in these operational areas.

Given the volatile deflationary environment during the year, South East Water's shareholders contributed circa £36 million of equity in March 2009 to ensure the company had sufficient headroom against its gearing covenants.

Performance outlook

Whilst the operational merger plan is now largely complete, a number of key projects are in progress to allow organisational streamlining. These projects include the migration to a single billing platform, the implementation of a Customer Relationship Management module and a major upgrade of South East Water's work management system. South East Water is also strongly focused on improving its customer services function. These improvements include strengthening debt collection systems and teams, improving the efficiency of call handling and providing more efficient ways for customer contacts.

The next price control review process for the period 2010/2015 is underway, with final price determinations to be published in November 2009. These determinations will have a material impact on South East Water's medium term outlook.

(1) EBITDA for 2008 has been normalised to remove one-off merger costs of £3.5 million.

South East Water
Financial and operational performance

* CAGR: Compound Annual Growth Rate

(1) 2008 figures reflect the merged entity results. South East Water and Mid Kent Water merged in December 2007.

(2) CAGR figures are not meaningful owing to the merger of South East Water and Mid Kent Water in December 2007.

Note: Figures may differ slightly from previously reported information due to the timing of the completion of the audit of both statutory and regulatory accounts.

For more information please visit the South East Water website