The water sector has attracted £4.6 billion in additional money from shareholders since 2020, according to Ofwat’s annual Monitoring Financial Resilience Report (MFR) published today for the year ended 31 March 2023.

Introducing the report, Ofwat said the additional investment was helping to improve the financial resilience of water companies and help fund increased investment for the 2024 price review. Today’s report shows that £1.4 billion of the £4.6 billion of additional equity has come in the previous year, with Thames securing £500 million, Yorkshire Water £400 million, Southern Water £375 million, Portsmouth Water £120 million and SES Water £7 million. This is additional money that has been put into the business from shareholders, not customers.

Ofwat said this trend has continued into the current financial year - Severn Trent has recently announced a further £1 billion to finance its investment programme.

Since April 2022, actions taken to inject, or commit to the injection of equity include:

• Thames Water – In accordance with the commitment made by shareholders in June 2022, Thames Water received £500 million of equity on 30 March 2023 to support investment in AMP7. Shareholders have agreed to provide a further £750 million of funding by 2025, subject to conditions.
• Southern Water – On 19 October 2023, £550 million of further equity was injected into the Southern Water Group, of which £375 million has been received by the regulated entity. The commitment follows the £1.1 billion of equity injected in the Southern Water Group in September 2021 by funds managed by Macquarie Asset Management to facilitate investment and reduce leverage across the Group (with £530 million received by the regulated entity).
• Yorkshire Water – In October 2022 Yorkshire Water resolved to take steps which will strengthen its financial resilience, including the recovery of two loans made to group companies totalling around £940 million by the end of March 2027 of which £400 million was received in June 2023 (greater than the minimum £300 million scheduled). In addition, the company has made further undertakings to strengthen its financial resilience such as to carry out a review of its financial structure by April 2025.
• Portsmouth Water – Alongside raising new debt in 2022-23, shareholders provided an equity injection of £20 million and a commitment for a further £150 million to support the business and the construction of the Havant Thicket Winter Storage Reservoir. On 3 July 2023 £120 million had been received (£60m via an intercompany loan repayment), with the remaining £30 million of committed capital anticipated to be drawn in 2024.
• SES Water – Shareholders have agreed to inject £22 million into the company in tranches by March 2024 to strengthen financial resilience, of which £7 million has been received. Shareholders have also indicated that they may advance further amounts, if required.
• Severn Trent Water – On 29 September 2023, Severn Trent Plc announced it had raised £1.0 billion of new equity, with net proceeds to support the funding of Severn Trent Water's business plan for the regulatory period 2025-2030 (AMP8). This follows a £250 million equity raise in 2021-22 to help fund the company’s Green Recovery programme.

Categorisation of currrent financial resilience status

The annual publication highlights Ofwat’s categorisation of the regulated companies based on its wider assessment of their financial resilience, alongside relevant information. 

The report places water companies into three distinct categories: standard, elevated concern or action required. It also sets out movements between reslience categories - Ofwat's examination and prioritisation of companies’, both between and within category, changes over time based on the financial resilience matters or concerns that might arise.

This year’s report, which covers the financial year 2022-23, sees eight companies categorised as standard, four marked as elevated concern and four companies as requiring action. Where companies find themselves in a category of higher concern, Ofwat expects companies to take action to address their financial resilience. Companies in this category are subject to a range of regulatory actions, which include increased regulatory challenge, scrutiny and monitoring and an expectation that actions are put in place to improve financial resilience. In some instances, this requires companies to action a turnaround plan

Financial resilience status - Action required

Company action is being taken or is required, and/or commitments have been made to strengthen long term financial resilience.

High priority for monitoring engagement. Additional information and reporting on improvements, and at a senior level in Ofwat, as required.

• SES Water
• South East Water
• Southern Water
• Thames Water

Financial resilience status - Elevated concern

Where Ofwat has identified some concerns or potential concerns with the company’s long term financial resilience that may require action to address.

More frequent or targeted monitoring including engagement, with a requirement for the company to provide additional information where appropriate.

• Affinity Water
• Northumbrian Water
• Portsmouth Water
• Yorkshire Water

Financial resilience status - Standard

No specific concerns with the financial resilience of the company that Ofwat is aware of at this time. No specific company action expected to be required at this time.

Company is subject to ongoing monitoring, including through standard regulatory reporting and engagement.

• Anglian Water
• Dŵr Cymru
• Hafren Dyfrdwy
• Severn Trent
• South Staffs
• South West Water
• United Utilities
• Wessex Water

Category movements

Compared to the previous year, Portsmouth Water and Yorkshire Water have been placed in the Elevated Concern, while South East Water has been moved into the Action Required category from Elevated Concern.

David Black, Chief Executive of Ofwat said:

“We expect companies to maintain a level of financial headroom so they can manage periods of volatility and meet their obligations to customers and the environment. We’ve been calling for the water sector to be strengthened by further investment that is why we welcome the £4.6bn of additional equity.

“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. This is particularly notable in the cases of Yorkshire Water and Portsmouth Water who last year we had categorised as requiring action. They have taken clear actions and this year, have been moved out of our bottom category. We expect to see more companies following this trend and will continue to closely monitor their progress.”

Thames Water in particular is highlighted in the MFR as needing to strengthen its financial resilience and deliver a turnaround in performance. The report states:

“We have been clear that Thames Water has significant issues to address. Alongside improving operational performance, the company needs to strengthen its financial resilience.

“We have moved South East Water into this category reflecting increased financial pressures which sit alongside a weakening in operational performance.”

Click here to download the Monitoring Financial Resilience Report in full