South East pays out dividend and bonuses despite supply woes

South East Water has paid out a £9 million dividend and its chief executive has pocketed a six-figure bonus, despite a year of supply-related problems.

The company’s annual results also reveal that the firm made a £74 million pre-tax loss, representing a £91 million swing compared to the £17 million profit recorded last year.

Union bosses and consumer groups have questioned the appropriateness of the dividend and bonus payments, given the loss-making firm has also been blighted by performance issues.

Most recently, the company implemented a hosepipe ban for the region it serves in June, following record customer demand. It was introduced after households in parts of Kent and Sussex were cut off following a burst water main. At the time, the company’s chief executive David Hinton said an increase in people working from home was partly to blame.

South East also implemented a hosepipe ban last summer and was hit by supply issues again during the freeze thaw event in the winter. In December the company reported 300% increase in bursts during the freeze-thaw.

Despite the supply-related problems, the company’s annual accounts reveal Hinton received an annual bonus of £104,759 on top of his £280,040 salary. Meanwhile, the firm’s chief financial officer Andrew Farmer received a bonus of £68,982 on top of his £162,290 salary.

Both top executives bonuses are less than half the amount they received the previous year after South East carried out a review of the bonus scheme to align “with the strategic objectives of the company”.

In response, CCW senior director Mike Keil demanded South East explain how the bonusses were justified.

He told Utility Week: “Bonuses need to be legitimate in the eyes of customers and many people will question how the company can justify this pay-out to its executives, given its wider performance problems.

“Customers don’t expect to see senior executives rewarded for failure, so the company should explain how these bonuses are justified or risk damaging people’s perceptions of it.”

Unison head of environment Donna Rowe Merriman added: “South East Water should be resolving its supply issues and investing in infrastructure. Not rewarding senior executives who’ve contributed to the company’s financial turmoil.

“No bonuses or rewards should be granted to those responsible for amassing such substantial debts.

“The recent hosepipe ban raised doubts over the company’s judgement and decision. Giving out eye-watering bonuses is an equally poor move.”

Addressing supply issues and financial underperformance in the annual accounts foreword, Hinton says that an “exceptional combination of extreme weather events this year […] has significantly impacted on our business operations and financial performance”.

He adds that responding to weather-related supply issues has cost the company around £17 million, with £6.6 million spent on immediate responses including providing alternative water sources with an additional £5.5 million paid out in compensation.

“We regret that any customers suffered interruptions to their supplies in 2022/23 and would like to take this opportunity to apologise again to those customers and communities affected by any of the incidents outlined below,” Hinton writes.

“We have made every effort possible to compensate those affected, over and above our statutory obligations, and this has clearly had a severe impact on our company’s financial performance this year.”

He adds: “We will learn as many lessons as we can from the exceptional weather events of 2022/23.”

Despite the losses, South East states that it doesn’t expect to ask its shareholders to inject extra capital into the company this year.

However, it said an additional £412 million may be needed under a worst-case scenario forecast.

The annual accounts add: “An equity injection of £412 million may be required in AMP8 to prevent gearing going above the 85 per cent distribution lock-up threshold.

“Alternatively, should equity not be forthcoming, South East Water could increase gearing up to the 95% Event of Default threshold and constrain capital spending to preserve liquidity.”

South East’s annual accounts report the current gearing level is at 74%, no change on the previous year.

Both Thames Water and SES have also recently secured additional equity funding from their respective shareholders.

South East’s decision to award bonuses to its senior bosses comes following pressure on all water company bosses to forgo their bonuses this year after top executives at four companies declared that they wouldn’t take home additional pay due to poor performance across the sector.

Lord Hollick – who chairs the House of Lords Industry and Regulators Committee – previously told Utility Week that decisions over executive pay should be taken out of water company’s hands.

Hollick’s comments reflect recommendations made in the committee’s recent report, The affluent and the effluent: cleaning up failures in water and sewage regulation, which called for closer links between water company performance and executive pay.

Gary Carter, GMB National Officer, also believes the regulator should step in to block bonus pay. “It’s obscene that South East Water is paying out dividends and bonuses when they  – like other water companies – are failing so badly,” Carter told Utility Week.

“The water sector is in crisis and water companies cannot be allowed to just carry on polluting waterways and seas and paying out big fortunes to fat cats. The government and regulator have to stop this.”