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Annual Report and Financial Statements for the Year Ended 31 March 2020 Welcome to the Annual Report and Financial Statements 2019–20

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Annual Report and Financial Statements for the Year Ended 31 March 2020 Welcome to the Annual Report and Financial Statements 2019–20 Annual Report and Financial Statements For the year ended 31 March 2020 Welcome to the Annual Report and Financial Statements 2019–20. Ensuring water for life, together. We provide essential water services to 2.6 million customers, and wastewater services to more than 4.7 million customers across Sussex, Kent, Hampshire and the Isle of Wight. Delivering value to our stakeholders Without water, life would be impossible, so Southern Water’s stakeholder base is diverse. Communities Customers Employees Environment Regulators Suppliers Read more about our Section 172(1) statement on pages 162 to 163 Overview In this report Overview What we do Read more on What we do 02 and where we do it pages 02 to 03 Where we do it 03 We provide vital water and Highlights and challenges 04 wastewater services to homes Chairman’s statement 08 and businesses across the Strategic Report South East. Our purpose and strategic priorities 16 Chief Executive’s summary 18 Our progress 24 The markets we operate in 26 Our business plan 2020–25 36 Our business model 40 Engaging with our stakeholders 46 Our culture 49 Our people and our community 50 Our purpose Our commitments to customers 58 62 and strategic priorities Read more on Responsive customer service 68 We provide water for life pages 16 to 17 Affordable bills to enhance health and Better information and advice 72 wellbeing, protect and improve A constant supply of high-quality 78 drinking water the environment, and sustain Removing wastewater effectively 86 the economy, in order to create Looking after the environment 90 a resilient water future for our customers. Financial Performance Financial performance 102 Capital structure 109 Risks 116 Principal risks and uncertainties 120 Viability statement 135 Governance Chairman’s overview 140 Read more on Our business plan Board of directors 144 pages 36 to 39 2020–25 Our approach to governance 150 We continue to transform our Corporate governance report 154 business to deliver our most Directors’ remuneration report 182 challenging five-year plan yet, Directors’ report 200 following a comprehensive consultation with our Financial Statements customers and stakeholders. Income statement 208 Statement of other 209 comprehensive income Statement of financial position 210 Statement of changes in equity 211 Statement of cash flows 212 Notes to the financial statements 213 Independent Auditor’s report 251 Our approach to governance Read more on We have a duty to take into our approach to Registered office account the interests of governance on pages 150 to 153 Southern Water our stakeholders, including Southern House, Yeoman Road our customers, employees, Worthing, West Sussex BN13 3NX suppliers, local communities and shareholders as well as Registered no: 02366670 the impact of our operations on the environment. Navigating the report Read more in this report Read more online 01 Overview What we do Our purpose We provide water for life to enhance health and wellbeing, protect and improve the environment, and sustain the economy Key facts about our operations Water Wastewater 2.6 4.7 People served People served (millions) (millions) 1.1 2.0 Number of properties Number of properties (millions) (millions) 985,774 745 Number of metered Average daily properties wastewater recycled (millions of litres 542 per day) Average daily water supply (millions of litres per day) 367 Number of wastewater 207 Number of service reservoirs treatment works 3,420 84 Number of pumping stations Number of water treatment works 39,872 13,959 Length of sewers (kilometres) Length of water mains (kilometres) Read more on Read more on pages 46 to 47 2020–25 pages 36 to 39 Stakeholder and beyond engagement Over the next five years, To create a resilient water Southern Water is investing future, we must work with our £3.2 billion across the region. stakeholders to co-imagine and This will create jobs, benefit the co-create in all aspects of local environment and ensure our process, and in the resilience of our water any setting. and wastewater networks. 02 Southern Water Annual Report and Financial Statements for the year ended 31 March 2020 Overview Where we do it Creating a resilient water future for our customers in the South East Traversing over 700 miles of coastline, national parks and forests, as well as numerous Areas of Outstanding Natural Beauty, our region is as diverse as the populations we serve. Each area presents its £800m own resource and service challenges and opportunities as we plan for the future. invested over the next 10 years in Hampshire alone Hampshire Kent Balancing supply and demand while protecting We are accommodating large-scale growth, and at 2 river habitats is a key focus. We are investing least two new garden towns, while also exploring £800 million over the next 10 years to make up new garden opportunities to support longer-term sustainable towns supplied supply deficits in the area, looking at desalination, approaches, such as water recycling. We continue water recycling, new pipelines from neighbouring to work hard to replace ageing sewers and in Kent water companies, reducing leakage and improving Victorian infrastructure to protect homes and water efficiency. the environment. Isle of Wight East and West Sussex The island’s bathing waters were the cleanest We are collaborating with local farmers and they have ever been this year with 12 rated at landowners to deliver improved water quality 12 excellent and two at good. We have invested over and innovative environmental solutions to excellent bathing £9 million to increase water supply capability and our challenges. Through the Greater Brighton waters on the improve the wastewater screening process at Infrastructure Panel, we are driving a step-change Isle of Wight Sandown. While a community outreach programme in economic and environmental resilience. To has improved engagement with more than 300 support growth in the Chichester area, we are residents on the most remote parts of the island. investing in a 10km sewer pipeline running from west Chichester across the north of the city and 10km through to west Tangmere. of new sewer pipeline for Chichester Southern Water Annual Report and Financial Statements for the year ended 31 March 2020 03 Overview Highlights and challenges Read more about our operational Operational performance on pages 62 to 99 Responsive customer service Our performance 2019–20: Moving into the next five-year period: • Despite poor performance in pre-reporting • C-MeX reporting starts April 2020. for Ofwat’s new C-MeX (customer satisfaction) • Improving our self-serve capability for customers measure, in 2019–20 we have worked towards by rebuilding our online portal. our aims to improve the experience and service we deliver to our customers. • Helping our customers use their channel of choice. • The Consumer Council for Water has acknowledged our ‘significant strides’ to improve • Simplifying our bill, working directly with our our service. However, we know we still have customers to meet their needs. more work to do. • In response to the COVID-19 pandemic, we changed our processes, making them quicker and easier for those customers needing help to pay their bills. A constant supply of high-quality drinking water Our performance 2019–20: Moving into the next five-year period: • We achieved 99.95% (2019: 99.98%) compliance • The DWI has introduced new compliance with the Drinking Water Inspectorate’s (DWI) metrics: Compliance Risk Index (CRI) and water quality measures. Event Risk Index (ERI). These are weighted by population, so will better highlight risks to • Our leakage was above target at 94 Ml/d (2019: individual consumers. These new metrics will 102 Ml/d). Although an improvement, we missed apply from 2020 onwards. our five-year target, incurring a penalty of £2.7 million. This was due to the extreme weather • We will continue our Catchment First of 2018 and 2019. Since then we have seen a programme, working with farmers and reduction of 15%, our commitment for 2020–25. landowners to design and deliver solutions that address water quality at the source, which will • We were able to limit the number of customers’ deliver benefits to all parties. properties at risk of experiencing low pressure to 203 in 2019–20, well below our target of 257. Removing wastewater effectively Our performance 2019–20: Moving into the next five-year period: • We reported 453 incidents of internal flooding • We will continue to work closely with the in 2019–20 (2019: 389), meaning we missed our Environment Agency to provide regulator target of keeping these incidents below 392. updates on our progress, in order to achieve better environmental outcomes. • We undertook a £34.5 million rehabilitation project of the century-old Thanet sewers. This • Our Pollution and Flooding Resilience team was the second phase of a three-phase scheme will continue its work to proactively define and to overhaul the area’s sewer network. deliver best-practice reduction programmes throughout our region. 04 Southern Water Annual Report and Financial Statements for the year ended 31 March 2020 Overview Operational Looking after the environment Our performance 2019–20: Moving into the next five-year period: The outcome • Our Bathing Water Enhancement Programme • We will be working with colleagues and our key of Ofwat’s (BWEP) continues to deliver results, with 62 environmental stakeholders to embed natural investigation into bathing waters achieving excellent status, capital assessments and biodiversity ‘net gain’ our wastewater 56 against our target of 54 plus a further six as part of our overall approach. treatment works improved by the BWEP. and an update • We will continue to deliver our Pollution to the ongoing • Our pollutions performance is unacceptable Reduction Plan, which has around 50 separate Environment with seven serious (category one and two) and actions under eight Critical Success Factors and Agency 427 less serious (category three) incidents*.
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