The water sector has attracted £4.6bn in additional money from shareholders since 2020, helping to improve the financial resilience of water companies and help fund increased investment for the 2024 price review, according to Ofwat.
This comes after Ofwat has made clear its requirement for water companies to take action to secure their long-term resilience.
Today’s report on the Monitoring Financial Resilience (MFR) of water companies shows £1.4bn of that equity has come in the previous year, with Thames securing £500m, Yorkshire Water £400m, Southern Water £375m, Portsmouth Water £120m and SES Water £7m. This is additional money that has been put into the business from shareholders, not customers. This trend has continued a Severn Trent has recently announced a further £1 billion to finance its investment programme.
The MFR report sets out Ofwat’s ongoing approach to company financial monitoring and engagement. It places water companies into three distinct categories: standard, elevated concern or action required.
This year’s report, which covers the financial year of 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.
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.”
This year’s MFR report covers the year ending 31 March 2023 prior to new licence conditions being introduced. New powers were introduced in May 2023 that will see Ofwat able to take enforcement action if the payment of dividends doesn’t take account of water company performance or financial resilience over the long term.
Notes to Editor
|Financial resilience status||Monitoring and engagement approach||Company (alphabetical)|
No specific concerns with the financial resilience of the company that we are 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 and Wessex Water.|
We have 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 ⬆ and Yorkshire Water ⬆.|
Company action is being taken or is required, and/or commitments have been made to strengthen long term financial resilience.
High priority for our 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.|
⬆ company has moved up into a lower level of monitoring category
⬇ company has moved down into an increased level of monitoring category
Companies with no direction remain in the same category as 2021/22
- With effect from 17 May 2023, we have modified companies’ licences to align to our expectations on dividends and will consider appropriate action where companies fail to meet those conditions.
- Read our full Monitoring Financial Resilience Report 2022-23
- Download charts and underlying data