South East Water Limited

16 July 2026

South East Water Limited

Preliminary results

for the year to 31 March 2026

Chair and CEO joint report

Introduction

This joint statement reflects on our company performance in Year 1 of our new five-year Business Plan period (AMP 8) - which runs from 1 April 2025 to 31 March 2030.

We have made progress on many of our commitments across our six priorities which you can read about in our annual report. However, much of this progress has been overshadowed by a number of serious incidents which impacted the service we provide to our customers.

These events caused us significant operational challenges over the past year, including last summer's drought and two major incidents over the winter. Any interruption to supply for our customers is unacceptable, and we fully recognise the disruption and upset caused. Our customers are at the heart of our business and we know our service wasn't good enough during these incidents. The Board and Executive team reiterate their unreserved apology to those customers impacted by recent operational failings, and the resulting loss of public trust in our company and the services we provide.

This has been a tough year with many challenges, but we have a clear and comprehensive plan to turn things around and transform the way we work and the service we provide. We also have a growing team of dedicated and valued colleagues across our business whose driving force is regaining the trust and confidence of our customers by providing them with the service they both expect and deserve.

Strong leadership, customer focus, accountability and cultural change will underpin this transformation, together with an absolute desire and commitment to ensure we move forward at pace. Work on this is already underway and you can read more about this later in this report.

In March 2026 we received an update from the referral of the PR24 Business Plan by Ofwat to the Competition and Markets Authority (CMA). The overall outcome of the appeal provides over £100 million of additional funding, including crucial increased resilience funding, giving us a greater ability to invest directly in our network. Most noticeably, a key scheme to provide additional treatment and transfer capacity at our Bewl Water Treatment Works, in Kent, was approved.

Separately, on 5 March 2026, Ofwat issued a draft decision with a proposed £22 million fine for supply interruptions experienced in Kent and Sussex between 2020 and 2023 as part of an investigation into our supply resilience, which was launched in November 2023. On 15 January 2026, Ofwat opened an investigation into South East Water following supply interruptions in Kent and Sussex in November/December 2025 and January 2026. This investigation considered whether, and how, the company has complied with its customer-focused licence condition (Condition G).

With the objective of achieving greater network resilience for the benefit of our customers and communities, we are pleased to have agreed undertakings with Ofwat in respect of both investigations. These undertakings include a redress package of £30.5 million to be funded wholly by the company's shareholders. Instead of paying a government fine, this £30.5 million will be spent in our affected local areas directly funding local network resilience and community redress.

Through the redress package, the company's shareholders will fund:

·    £13m to undertake further investment following an independent root and branch review of the company's resilience.

·    £5m to speed up the smart metering programme for businesses.

·    £5m to help households to collect rainwater and reduce demand on the mains supply.

·    £5m to install on-site storage tanks and smart meters in high-usage businesses to help manage the network better at peak times.

·    £1m to make sure critical settings don't run out of water if there is a future outage.

·    £1.5m to create a community relief fund to give back to communities that suffered the worst water supply failures.

Moody's recent downgrade of South East Water's financing subsidiary (SEWF) has caused the company to breach its licence condition obligation to maintain at least two investment-grade credit ratings. However, Ofwat has accepted a set of financial undertakings from us to secure a return to compliance with our licence condition in conjunction with the resilience undertakings mentioned above.

We are pleased to move forward positively with the conclusion of both the supply resilience and the condition G investigations and the financial undertakings.

On 22 June 2026, we announced John Halsall as Chief Executive Officer (CEO)-Designate, effective immediately. Subject to regulatory approvals, John will succeed David Hinton, who will leave the business after a period of handover.

Finally, on 25 June 2026, due to sustained high temperatures and near record levels of demand for treated drinking water across Kent, the company introduced a Temporary Use Ban (hosepipe restriction) for all customers in its Kent region. This step was taken in order to support our ability to preserve resources to meet demand across the county. While raw water resources remained in a healthy position due to winter rainfall, demand over the more recent summer period had breached the triggers in the company's approved Drought Plan. We are monitoring our other regions closely.

Drought

We are experiencing more severe and more frequent extreme weather events fuelled by climate change, which appears to be accelerating faster than previously observed. We do not make reference to these changes in weather patterns as an excuse, but rather to recognise that with a demonstrable increase in the frequency and severity of such events, we will need to plan differently to take account of this. Improving the resilience of our network and our operational approach will be key to us overcoming the threat posed to long-term water security and the environment from climate change.

In 2025, we experienced the driest spring in England since 1893 and therefore we started our public water efficiency campaign early. This included a television advert and social media campaign to encourage customers to make 'simple changes' by, for example, doing water-intensive jobs at home before the summer peak demand season.

The driest spring was followed by the hottest summer on record, four separate heatwaves and unparalleled demand for water. On 30 June 2025, water usage reached 680 million litres a day (ML/d) - that's 105 million litres more than the summer daily average, or the equivalent of adding a town the size of Eastbourne or Maidstone to our network overnight. In accordance with our pre-published drought trigger levels within our Drought Plan, we followed due process to impose a temporary use ban (hosepipe ban) on 18 July 2025 for parts of Kent and Sussex. The National Drought Group declared the worsening situation a "nationally significant incident" on 11 August 2025.

On 22 September 2025, the Environment Agency (EA) granted a Drought Permit as a sensible precaution to help conserve raw water storage in Ardingly Reservoir in Sussex after water levels dropped to critically low levels. Again, this followed the actions outlined in our Drought Plan. In its summary report on dry weather and drought in England (10 to 16 October 2025), the EA warned that "further significant rainfall over a sustained period is needed to return (the water resource position) to normal conditions." On 19 October 2025, Ardingly had just 24.6 per cent of total storage remaining, the equivalent of about 6 weeks' worth of water.

On 23 October 2025, we applied for a Non-Essential Use Ban (NEUB) under a Drought Order as a precautionary measure to further protect water resources in case drought conditions worsened. Fortunately, we were able to cancel our NEUB application in December when we started to see more rainfall, and reservoir levels began to recover.

As well as restrictions aimed at conserving raw water supplies, we worked hard to ensure a consistent supply for customers by moving water around our network using our new fleet of tankers, and by finding and fixing more leaks than ever before. In the past year alone, we found and fixed more than 21,000 leaks on our network and a further 6,000 customer-side leaks. This is around 10 per cent up on the previous year.

To ensure a consistent supply of water for all customers it is vital that we work with customers to reduce demand in both household and non-household settings. As well as our water efficiency campaign, we gave away 184,264 free water-saving devices last year and offered discounted water butts on our website. We completed 1,900 household visits for customers to check for leaks, fit water-savings devices and offer other water efficiency tips. Fixing all the issues we found during these visits saved a combined total of around 108,000 litres of water a day, enough for 750 customers' everyday drinking water needs.

In January 2026, we began upgrading water meters across our network in preparation for smart meter technology. This technology will give customers more control over their water usage and will make it easier for us to work together to detect leaks earlier. In the first three months of the roll-out (January to March 2026), we installed 13,489 smart meters, surpassing our Year 1 target of 12,743.

We also work with farmers, landowners and other partners all year round to improve the quality and quantity of water at its source by, for example, planting cover crops or installing rainwater harvesting systems.

Hosepipe restrictions were lifted on 5 February 2026, following due process, when the levels in our reservoirs and our underground water sources returned to normal. Groundwater makes up around 73 per cent of our water sources so we had to wait for aquifers to recharge fully, which can take several months. We'd like to thank customers for cooperating with the restrictions throughout the hosepipe ban.

As we commenced the new financial year the water resource position was normal (Level 0 using our Drought Plan levels/triggers). However, the first heatwave of the year, starting around the May 2026 Bank Holiday weekend, saw demand for drinking water increase rapidly - jumping from an average of 572ML/d earlier in May to 670ML/d on the Bank Holiday at the end of May. This, coupled with a low level of rainfall in April 2026 (with only 15 per cent of the long-term average (LTA) rainfall recorded across the south east) put severe strain on our network, where we were unable to pump and treat water fast enough in order to meet high demand for all our customers.

Despite having every water treatment works operating at full capacity, this increased demand regrettably led to some supply interruptions across mid and east Kent. We worked collaboratively with local MPs, stakeholders and resilience forums, set up bottled water stations and delivered water to vulnerable customers on our Priority Services Register (PSR). We are in the process of understanding the full impact of the disruption and will compensate customers in line with our Guaranteed Standards of Service (GSS).

Major incidents

Pembury/Tunbridge Wells: 29 November to 12 December 2025

Regrettably, some 24,000 customers lost their drinking water supply in and around Tunbridge Wells - supplied from the Pembury Water Treatment Works (WTW). This was caused by, amongst other factors, a change in the raw water quality which meant the pre treatment stage of the water treatment process failed. By 29 November 2025, were no longer able to reliably supply all customers served by this WTW and a major incident was declared on 2 December 2025. On 3 December, following several days of interruption, we took the decision to restart the WTW, implementing a precautionary Boil Water Notice (BWN) on public health grounds, and supplies were restored gradually.

The BWN lasted for nine days, during which customers needed to boil tap water before drinking and cooking. After the WTW was restarted, it very briefly operated outside normal water quality parameters and, while the issues at the WTW were resolved (by 5 December) shortly after restarting, the BWN remained in place until 12 December to be absolutely sure of the safety of the water as this part of the network refilled. We recognise that our customers in this area endured sustained disruption to their water supply over this period, for which we sincerely apologise.

In addition to the BWN, we moved as much water as we could around the network, using our fleet of new tankers to keep as many customers as possible in supply. These tankers delivered a total of 37 million litres of water during the incident, the equivalent of over a quarter of a million customers' daily drinking water. Coupled with tankers provided under mutual aid from other water companies, and contracted from private third parties, this was the largest mobilisation of alternative water ever undertaken by the company.

During this time, we made 38,715 deliveries of bottled water to around 4,400 vulnerable customers on our PSR. We also responded to requests from other vulnerable customers not already on our PSR. Additionally, we handed out 1.6 million litres of water at our bottled water stations and provided immediate financial support to 2,788 impacted customers registered on our financial support tariffs to cover the extra cost of boiling water. Emergency plans were mobilised to keep supplies running for two hospitals and we ensured care homes, GP surgeries, dental surgeries, pharmacies, schools and nurseries received bottled water deliveries. £19.6 million has been paid out to customers and businesses for the disruption under the GSS applicable to utility companies.

Freeze-thaw: 7 January to 17 January 2026

A total of 77,279 customers in Tunbridge Wells, East Grinstead, Maidstone, Whitstable, Canterbury and surrounding towns experienced intermittent periods without water supply, low pressure or intermittent supplies, after a freeze-thaw event on 7 January (when there was an outbreak of leaks and bursts across the network), closely followed by supply interruptions (predominantly linked to normal operations at WTWs being affected by power cuts and bulk supply failures due to Storm Goretti in January 2026. We declared a major incident on 11 January 2026, when the scale of issues linked to the outages peaked.

During the incident we delivered bottled water to 34,418 customers on our PSR. Our tankers moved 60.9 million litres of water during this incident - the equivalent of over four hundred thousand customers daily drinking water needs - averaging 4 million litres a day - and we made 62 deliveries to landowners and farmers with livestock. More than 1.7 million litres of water were handed out in total at our bottled water stations during the incident.

Greywell

The Greywell abstraction in our western region currently provides water for communities in the Greywell and Swains Hill area. The EA has refused our application to extend our abstraction licence to March 2031. Because an immediate cessation of abstraction at Greywell would cause a severe and immediate water shortage for thousands of local residents and businesses reliant on that source, the Board has agreed to lodge a formal appeal to the Planning Inspectorate against this decision.

By submitting an appeal, we are legally permitted to continue abstracting water from Greywell until the independent appeal process is determined. This ensures that taps keep running while we work on long-term solutions.

Taking this formal route to appeal the EA's decision is not something we decide lightly and we are sorry that we have not been able to resolve this matter without taking this action. During this time we welcome ongoing dialogue with partners at Defra, EA, and Natural England in order to reach a resolution to the challenge.

Scrutiny

Our performance and the resilience of our water supplies and network have been scrutinised as a result of the major incidents. We commissioned our own independent review into what happened at Pembury and we continue to fully cooperate with our regulators Ofwat and the Drinking Water Inspectorate (DWI) regarding these events. We were also called to give oral evidence to the Environment, Food and Rural Affairs (EFRA) Select Committee as part of its inquiry into 'Reforming the water sector' on 6 January 2026 and 14 April 2026. We note also the EFRA report published on 1 May 2026.

We continue to work with our stakeholders and review feedback from our customers to ensure lessons are learned to improve the service we provide. We have welcomed the opportunities to discuss these events in detail with our valued partners and to have a broader discussion about the issues we face in our operating area as we strive to make our network more resilient and so we can minimise the risk of supply interruptions for our customers.

Independent review

In December 2025, our Executive and Board commissioned an independent external review into the Pembury/Tunbridge Wells incident. This included a forensic investigation into the root causes of the incident and our response. This review enabled us to fast-track the implementation of a recovery and resilience action plan to improve the resilience of our water supply network. Our leadership and strategic transformation will underpin tactical actions and make sure we move forward purposefully.

Short-term actions to improve resilience

Since February 2026 we have undertaken a tactical programme of critical engineering works and accelerated operational changes to the way we manage supply interruptions. These focused actions have been designed to reduce the risk of future network outages and improve our service to customers in the event of future interruptions.

The tactical actions taken will positively impact the water supply to the 24,000 households across Tunbridge Wells and surrounding areas, as well as strengthening our wider network resilience. Our actions have led to the following critical progress:

Pembury Water Treatment Works: Two new filters have been installed to improve treatment processes, reduce the risk of water quality issues and increase the resilience of water that can be provided into the Tunbridge Wells system. These filters will allow us to support the Pembury network from the Bewl WTW, providing an additional source of water to the Tunbridge Wells system, if needed. Additional operational improvements include revised site maintenance schedules, updated testing guidance for operators, and a revised inventory of critical spare equipment.

Tonbridge Water Treatment Works: Three carbon filters have been installed and are operational. These filters will bolster the site's filtration capacity after the site had been suspended to prevent contamination from third party activity at nearby housing construction sites. Bringing the Tonbridge WTW back into supply adds 1.5 million litres per day of water to our network in the Mid Kent area.

Bewl to Cottage Hill transfer main: Engineering work to the 12km pipeline is complete, with final tests now complete. When operational, Bewl will distribute to the Wadhurst area of Sussex for the first time and help us balance supplies across Sussex and parts of Kent. This will provide much-needed additional resilience in this area of the network that suffered from supply interruptions in the summer of 2023 and enable us to provide our customers in these areas with a better service.

Increasing spare stock levels: A programme to increase and optimise the location of spare equipment is complete. This will reduce supply interruption risks and enable quicker repairs.

Over and above these actions, we have made considerable changes to our alternative water arrangements following reviews and feedback. As part of this, we're working closely with local resilience and community groups to ensure our alternative water sources, including water tankers and bottled water stations, are in the best locations to support the needs of local communities. We arranged alternative water supply workshops for local authorities in Kent in May 2026 and in Sussex in June, where we collaboratively created bespoke local alternative water plans. These have been tailored to the needs of the specific local communities, ready for immediate deployment, if required. To manage these resources, we are digitising our operations when stocking and delivering alternative water to customers when required. We've created a new bottled water station app, which will provide bottled water station staff, as well as customers, with real-time information about bottled water stations and stock levels. This digitisation will improve our efficiency when responding to incidents and will improve the customer experience. Other changes include better traffic management, signage and training at bottled water stations. We've also increased our bottled water storage capacity and created a new livestock register to help us support agricultural businesses during an incident. Partnering with a specialist traffic and event management company so we can support communities better during incidents, and extending our mutual aid agreements with other water companies to share resources and best practice are two other immediate actions we've taken.

These improvements, which complement our longer-term investment plans, are a positive step in the right direction, but we recognise there is still more to do and we are committed to providing regular updates on our progress.

Drinking Water Inspectorate (DWI)

The Drinking Water Inspectorate (DWI) carried out its own investigations into the major incidents. We are now working with the DWI to deliver the changes needed to ensure our customers receive the reliable drinking water supply they are entitled to expect.

Consumer Council for Water (CCW)

In February 2026, customers affected by the Pembury major incident attended a customer-led forum set up by the CCW. They were able to directly challenge our leadership about their concerns and we've agreed an action plan with CCW's Water Voice consumer panel.

Investment

Funding remains critical to our plans to tackle the urgent resilience and investment challenges we face in our area. That's why in February 2025 we asked Ofwat to refer its final Price Review 24 (PR24) determination to the Competition and Markets Authority (CMA) for redetermination, as it fell 13 per cent (£300 million) short of what we had proposed in our Business Plan for AMP 8 (2025 to 2030). This was a difficult decision but a necessary one, which we took in our customers' interests to ensure proper funding for the infrastructure needed. In March 2026, the CMA agreed an extra £100 million of funding, which will enable many resilience-focused schemes to go ahead, including a game-changing scheme at Bewl WTW.

We are now working hard to deliver the biggest investment programme in our company's history. With our customers' support, our £1.8 billion programme (excluding retail costs) will double the investment into the water supply network serving Kent, Sussex, Surrey, Hampshire, and Berkshire over the next five years. In addition, we are progressing plans for a new reservoir at Broad Oak, near Canterbury and investigating accelerating the proposed new Arlington Reservoir.

Our programme will enable longer term water network improvements to increase our storage of water, to enhance the connectivity of our network and to boost our water treatment capacity. All of these will help make our supplies more reliable and resilient for our customers, especially during extreme weather events. This programme of investment will also help tackle the rising demand for water in our officially designated 'water-stressed' region, and to deliver the infrastructure and technology needed for long-term water security.

We obviously welcome the increased funding. It will help improve customer service, lower the risk of supply interruptions for our customers and strengthen network resilience in the face of current and future challenges, such as the accelerated impacts of climate change, population and housing growth. Forecasts show that our supply area will increase its population by 23 per cent by 2050 - the equivalent of an extra 550,000 customers. At the same time, government housebuilding targets have increased beyond the calculations used as the basis for our Water Resources Management Plan 2024 (WRMP24). Planning for our new WRMP (2029) is already under way and will reflect the new housebuilding targets. In the meantime, we continue to work with local authorities to find solutions to the challenges of population and housing growth.

Whilst the investment granted in this 5 year period is welcomed, we did not receive all the funding for water security and resilience improvements that we wanted. As a consequence we will face difficult decisions in the years ahead.

Bill increases

The scale of our investment programme means that customer bills have had to rise, which we appreciate is never welcome. The specific timing of the bill rises is set by Ofwat, our economic regulator, as part of the price control. From April 2026, our customers have seen bills rise by an average of seven per cent. At the same time, we have taken steps to help even more customers who need support with paying their bills by increasing the household income thresholds for eligibility for discounts through our Social Tariff. We continue to offer other financial support too, through WaterSure, the Helping Hand scheme, and our single occupier tariff. By the end of March, we had 78,664 customers on our social tariff and 7,897 customers eligible for our WaterSure bill cap.

Moody's rating action

On 28 May 2026 Moody's downgraded the credit rating of South East Water (Finance) Limited ("SEWF"), the financing subsidiary of South East Water Limited. The ratings action has resulted in SEWF's backed and underlying senior secured rating changing to Ba1 from Baa3 and assigned a Ba1 Corporate Family Rating (CFR) and Ba2-PD probability of default rating.

The company maintains adequate liquidity and a resilient capital structure. As a condition of its operating licence with the regulator, Ofwat, the company must maintain at least two investment grade credit ratings, and following the downgrade by Moody's the company is in breach of this condition. The company engaged constructively with Ofwat and agreed certain commitments that are designed to return the company to compliance with its licence conditions.

Financial performance

2025/26 has been a tough year operationally and financially. The operational challenges of the 2025 summer drought and the two major incidents in December 2025 and January 2025 resulted in significant additional costs, with the incident costs amounting to £54.7 million in compensation to customers and other costs such as bottled water and tankering costs. This naturally has had a significant impact on the financial performance for the year.

Underlying operating costs have also increased in the year as the company gears up to deliver the largest investment programme in its history. Operating profit was, therefore, lower than the previous year at £30.4 million compared to £54.5 million in 2024/25, this being despite a £66.3 million increase in revenue to £351.8 million. Despite the challenging operating conditions, we managed to deliver a 22 per cent increase in our investment programme.

The decline in operating profit has resulted in the loss before tax increasing to £45.4 million compared to

£19.8 million in the previous year.

The group has improved its gearing position in the last year. In May 2025, our shareholders invested a further £200 million of equity, reducing gearing from 75.2 per cent at 31 March 2025 to 66.5 per cent at 31 March 2026, improving the financial stability of South East Water.

We are currently in discussions with lenders regarding new loan facilities to support the first stage of our ambitious AMP 8 capital programme. Following the credit rating downgrade by Moody's, we have agreed undertakings with Ofwat designed to return the company to compliance with its licence conditions.

Leadership

On 30 April 2026, the Board of South East Water accepted the resignation of the Independent Non-Executive Chair, Chris Train OBE, effective immediately. Leading up to the announcement, Board discussions had taken place regarding the company's recovery and transformation plan. As part of this, the Board and Chris mutually agreed that new independent Board leadership was required to oversee a critical period of positive, transformative change for the company, its customers, and local communities. In accepting Chris' resignation, the Board thanked him for his service and significant contribution during his tenure.

Lisa Clement has been appointed Interim Independent Non-Executive Chair. Lisa is an Independent Non-Executive Director and Chair of the Audit and Risk Committee. The Directors carefully considered corporate governance requirements and, having considered the company's financial position and the ongoing year end process, (leading to the approval of the company's financial statements and this annual report) it was decided that, in addition to the skillset she would bring as Interim Chair, Lisa's financial experience was a significant reason for her continuing to carry out the role of Chair of the Audit and Risk Committee. This is intended to be a temporary situation as we seek to appoint a permanent chair over the coming months. The company is continuing to work constructively with Ofwat on this matter including any mitigation that may be required.

A thorough search process is taking place to appoint a permanent Chair. This process will be led by the Nomination Committee, comprising the Non-Executive Directors and chaired by an Independent Non-Executive Director.

Separately on 8 May 2026, David Hinton announced his intention to resign as Chief Executive Officer (CEO) after over 30 years' service to the company. David is committed to remain in post to allow for an orderly transition over the summer period and continued momentum of the transformation plan. David decided to step down as his position was an increasing distraction from South East Water's most important priority, which is to deliver a resilient water supply for our customers.

The Board announced John Halsall as CEO-Designate. Subject to regulatory approvals, John will succeed David Hinton. John brings over 35 years of operational and executive leadership experience, having spent his career working in public and private sector infrastructure organisations including: South West Water, Network Rail and Thames Water. John served on the Board of South West Water, was COO at Pennon Group, and an Executive member of Network Rail, where he ran rail infrastructure in the South East of England.

John has extensive experience of delivering transformation programmes while directing operations, asset management, capital delivery, and setting strategic direction to drive strong performance.

In announcing that John has joined the company, the Board affirmed its continuing focus on accelerating targeted engineering works, delivering the extra investment secured by the CMA process and making operational changes to improve the resilience of the supply network, as well as increasing water capacity and quality in high priority areas as part of the comprehensive, company-wide transformation plan.

Looking ahead

Our priority remains to provide the public drinking water supply for all our customers with wholesome drinking water while protecting the environment for future generations. We know we need to go much further and faster to ensure our network is more reliable, resilient and sustainable in the face of the challenges we've described above. Investment in critical infrastructure through our Business Plan is obviously a key part of this but what has become clear as a result of the incidents experienced in the past year is that there is need of a fundamental change in our culture and how we operate to regain the trust, confidence and support of our customers and the communities we serve.

Project Lighthouse

Our major new company-wide transformation plan, Project Lighthouse, is already under way to guide our future and help us navigate the sustained changes we need to make sure our customers are at the forefront of our planning, decision-making and actions.

Project Lighthouse will help us to both simplify and modernise our business, ensuring it is equipped for tomorrow's challenges. It will deliver under the following four strategic pillars:

1. Delivering a Safe and Resilient Water Supply - Ensuring the sustainable supply of high-quality water balanced with minimising environmental impact.

2. Restoring the Trust of our Customer and Stakeholders - Restoring trust and confidence, through increasing transparency and by always putting our customer first.

3. Empowering High-Performing Teams - Fostering a safe, diverse and accountable workforce, operating as one with key partners to deliver high performance and exceptional results.

4. Driving Business Excellence - Optimising and modernising how we work to deliver operational excellence and greater value for our customers.

The scope of this transformation programme is currently being defined and roadshows have been taking place across our business to raise awareness of our new strategy among our colleagues.

As well as reviewing leadership at board level, we are enhancing the Executive leadership team. As part of this, we've recently welcomed three new Executives with, respectively, customer services, investment delivery and transformation, technology and insight leadership expertise and we are in the process of deepening our talent with additional Executive roles in public affairs and human resources. The broadened skillset of the Executive team aims to help us deliver our ambitious Business Plan and drive company-wide change. Their valuable insight and expertise will help us speed up how we bed in learnings from the independent review and get our water system working as it should for our customers and local communities.

There is clearly much to do and we look forward to reporting on progress in future reports.

Group income statement

for the year ended 31 March 2026

		2026 £000	2025 £000
Revenue		351,792	285,517
Bad debts		(2,180)	(4,055)
Net operating costs		(336,704)	(241,471)
Other income		17,464	14,496
Profit from operations		30,372	54,487
Finance income		4,141	2,490
Finance expense		(79,933)	(76,758)
Loss before taxation		(45,420)	(19,781)
Taxation		12,346	6,240
Loss for the year		(33,074)	(13,541)
Loss per share attributable to the ordinary equity holders of the parent		2026 Pence	2025 Pence
Basic and diluted		(10.98)	(17.53)

The group activities above are derived from continuing operations.

Group statement of other comprehensive income

for the year ended 31 March 2026

		2026 £000	2025 £000
Loss for the year		(33,074)	(13,541)
Other comprehensive income/(loss):
Items that will not be reclassified to the income statement:
Net actuarial gain/(loss) on pension schemes		234	(21,176)
Deferred tax (charge)/credit on net actuarial loss		(59)	5,294
Other comprehensive income/(loss) for the year		175	(15,882)
Total comprehensive loss		(32,899)	(29,423)

Group statement of financial position

Registered number: 02679874 as at 31 March 2026

		31 March 2026 £000	31March         2025 £000
Assets Non-current assets
Property, plant and equipment		1,985,776	1,870,841
Right of use assets		3,970	3,461
Intangible assets		11,304	8,787
Defined benefit pension surplus		8,667	8,378
		2,009,717	1,891,467
Current assets
Inventories		1,404	1,268
Trade and other receivables		121,457	99,278
Cash and cash equivalents		18,756	36,072
		141,617	136,618
Total assets		2,151,334	2,028,085
Liabilities Non-current liabilities
Trade and other payables		3,624	3,483
Loans and borrowings		1,271,397	1,325,934
Deferred income		4,700	3,913
Defined benefit pension liability		2,352	2,357
Deferred tax liability		165,941	178,169
		1,448,014	1,513,856
Current liabilities
Trade and other payables		157,075	143,759
Loans and borrowings		75,314	69,484
Deferred income		4,865	4,615
Provisions		10,608	8,014
		247,862	225,872
Total liabilities		1,695,876	1,739,728
Net assets		455,458	288,357
Issued capital and reserves attributable to owners of the parent
Share capital		324,312	124,312
Revaluation reserve		199,478	204,067
Retained losses		(68,332)	(40,022)
Total equity		455,458	288,357

The financial statements were approved and authorised for issue by the board of directors and were signed on its behalf by:

David Hinton                                                                                   Andrew Farmer

Chief Executive Officer                                                                          Chief Financial Officer

15 July 2026                                                                                          15 July 2026

Group statement of changes in equity

for the year ended 31 March 2026

		Issued share capital £000	Revaluation reserve £000	Retained (losses)/ earnings £000	Total equity £000
At 1 April 2024		49,312	208,657	(15,189)	242,780
Loss for the year		-	-	(13,541)	(13,541)
Other comprehensive loss		-	-	(15,882)	(15,882)
Total comprehensive loss for the year		-	-	(29,423)	(29,423)
Issue of shares		75,000	-	-	75,000
Amortisation of revaluation reserve		-	(6,110)	6,110	-
Release revaluation reserve on disposals		-	(10)	10	-
Deferred tax on the amortisation and release on disposal
of the revaluation reserve		-	1,530	(1,530)	-
		75,000	(4,590)	4,590	75,000
At 31 March 2025		124,312	204,067	(40,022)	288,357
At 1 April 2025		124,312	204,067	(40,022)	288,357
Loss for the year		-	-	(33,074)	(33,074)
Other comprehensive income		-	-	175	175
Total comprehensive loss for the year		-	-	(32,899)	(32,899)
Issue of shares		200,000	-	-	200,000
Amortisation of revaluation reserve		-	(6,109)	6,109	-
Release revaluation reserve on disposals		-	(10)	10	-
Deferred tax on the amortisation and release on disposal
of the revaluation reserve		-	1,530	(1,530)	-
		200,000	(4,589)	4,589	200,000
At 31 March 2026		324,312	199,478	(68,332)	455,458

Group statement of cash flows

for the year ended 31 March 2026

		2026 £000	2025 £000
Cash flows from operating activities
Loss for the year Adjustments for:		(33,074)	(13,541)
Depreciation of property, plant and equipment		70,323	62,953
Amortisation of intangible assets		2,904	2,524
Finance income		(4,141)	(2,490)
Finance expense		79,933	76,758
Loss/(profit) on sale of property, plant and equipment		399	(63)
Difference between pension contributions paid and amounts recognised in the income statement		281	(5,547)
Income tax charge/(credit)		(12,346)	(6,240)
Movements in working capital		104,279	114,354
Increase in trade and other receivables		(22,189)	(2,066)
(Increase)/decrease in inventories		(136)	75
Increase in trade and other payables		14,904	16,026
Cash generated from operations		96,858	128,389
Income taxes receipt/(paid)		102	(1,048)
Interest element on lease liability payments		(107)	(136)
Interest received		3,949	1,144
Interest paid		(44,921)	(50,521)
Net cash generated from operating activities		55,881	77,828
Cash flows from investing activities
Purchase of property, plant and equipment		(184,209)	(140,951)
Proceeds from disposal of property, plant and equipment		109	285
Purchase of intangible assets		(3,157)	(1,250)
Net cash outflow from investing activities		(187,257)	(141,916)
Cash flows from financing activities
Credit facility repayment		(69,000)	(28,000)
New credit facility drawdowns		75,000	-
Index linked borrowing		-	50,000
Issue of shares		200,000	75,000
Bank loan repaid		(120,000)	-
Term loan		30,000	-
Net payment of lease liabilities		(567)	(445)
Issue costs of debt		(1,369)	(1,381)
Debenture redemption		(4)	-
Net cash generated from financing activities		114,060	95,174
Net (decrease)/increase in cash and cash equivalents		(17,316)	31,086
Cash and cash equivalents at the beginning of year		36,072	4,986
Cash and cash equivalents at the end of the year		18,756	36,072

1.  Basis of preparation and authorisation of financial statements

The financial statements of South East Water Limited and its subsidiary (the "group") for the year ended 31 March 2026 were authorised for issue by the board of directors on 15 July 2026 and the Statement of Financial Position was signed on the Board's behalf by David Hinton and Andrew Farmer. South East Water Limited is a private company that has limited liability by shares and is incorporated in the United Kingdom and registered in England and Wales.

These consolidated and company only financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

Details of the group's accounting policies, including changes during the year. The group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.

1.1  Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date.

Items                                                    Measurement basis

Pension assets                                                    Fair value

Certain assets in property,                                 Measured at deemed cost by reference to fair

plant and equipment                                           value on adoption of IFRS on 1 April 2014

1.2  Going Concern

The consolidated financial statements for the year ended 31 March 2026 have been prepared on the going concern basis. The directors have considered the requirements of IAS 1 which states that an entity should prepare financial statements on a going concern basis unless the directors intend to liquidate the entity, cease trading, or has no realistic alternative but to do so.

Background to Going Concern

Following the successful referral of Ofwat's PR24 Final Determination to the Competition and Markets Authority (CMA), which secured an extra £100 million in allowed expenditure, we now have an improved settlement to start addressing the most significant resilience issues we face.

The PR24 Business Plan is the company's boldest and most ambitious plan ever. The plans for AMP 8 will require additional liquidity to be raised in order to fund the capital programme as operating cash flows will not be sufficient. It should be noted that shareholders are not planning to take any dividends in AMP 8.

The serious outage events in November/December 2025 and January 2026 demonstrate some of the resilience weaknesses in our network.

It clearly takes time to address network resilience issues. There are resilience issues across our regions and although IRAP (our Incident Recovery Action Plan) will improve the way we handle incidents there remains an elevated risk of further outages until resilience schemes are completed. Direct emergency incident response costs for the November/December 2025 and January 2026 incidents - including alternative water provision, extensive tankering operations, and direct customer compensation under the Guaranteed Standards Scheme (GSS) - totalled £54.7 million, including compensation of £38.9 million. The duration of the events and the number of customers impacted together with enhanced compensation available to customers in AMP 8 drove the significant cost, which was greatly in excess of anything seen in previous years.

South East Water is also implementing a company-wide transformation plan to improve operational performance and deliver for our customers. Project Lighthouse will help us simplify and modernise our business, improving resilience of water supply and rebuilding customer and stakeholder confidence.

The risk and impact on customers of outages is mitigated by our capital programme with a particular focus on resilience, the actions coming from IRAP and Project Lighthouse, but as some of these mitigations are over the longer term there remains a risk that outages could continue to have a significant impact on customers in the shorter term and that material costs could be incurred.

Supply interruptions in the early part of AMP 7 led Ofwat to open an investigation into the company's supply resilience in November 2023. Ofwat published a provisional decision on 5 March 2026 where it concluded

that the company had breached its obligations under s37 of the Water Industry Act 1991 and condition P12 of its licence. Following the serious outage events in November/December 2025 and January 2026, Ofwat opened a second investigation into the company's compliance with the customer-focused licence condition (condition G) and condition P12 of its licence.

On 14 July 2026 Ofwat published its final decision to accept resilience undertakings from the company (instead of making an enforcement order and imposing a fine) to deliver commitments to address Ofwat's findings, concluding both investigations. It is anticipated these undertakings will largely be delivered during AMP 8. An independent monitor will be appointed to oversee the execution of these undertakings. Should the undertakings not be complied with Ofwat has the ability to enforce.

On 28 May 2026 Moody's downgraded South East Water's credit rating from Baa3 to Ba1, moving us to sub-investment grade. Moody's cited the fallout from the high-profile and widespread supply outages in November/December 2025 and January 2026. They also noted that the downgrade followed an ongoing investigation by Ofwat into supply interruptions dating back to 2023 and a new investigation into the more recent supply interruptions. It is a condition of the company's licence that it should hold at least two investment-grade credit ratings, and following the downgrade the company is in breach of its licence.

Ofwat has accepted a set of financial undertakings from the company designed to return the company to compliance with its licence conditions in conjunction with the resilience undertakings mentioned above. Both sets of undertakings taken together provide a potential path to first restoring supply resilience and operational performance which aims to restore investment grade credit ratings and therefore compliance with the conditions of the company's licence relating to investment grade credit ratings.

The forecast cash flows over the 12 months to July 2027 have been considered in assessing the liquidity runway. The group and company forecast base case does not indicate an additional requirement for financing in the going concern period, although careful cash management will be required at the end of the period. Shortly after the going concern period it will be necessary to secure new loan facilities in order to continue as a going concern. The severe but plausible downside case (sensitivity 3 in the Long-Term Viability Statement) would indicate a need for further financing towards the end of the financial year.

The group finances its working capital requirements through cash generated from operations and committed facilities that can be called upon as required. At 31 March 2026 the group had cash in hand of £18.8 million (2025: £36.1 million) and undrawn bank facilities of £75.0 million (2025: £56.0 million). Total borrowings at 31 March 2026 amounted to £1,346.7 million (2025: £1,395.4 million). Net cash interest payments in the year amounted to £41.1 million (2025: £49.5 million). The group's liquidity position and cashflow projections are closely monitored and are updated each month. When necessary, mitigating actions are identified and implemented. This could include management of working capital or rephasing of expenditure plans if required.

As at the date of approval of these financial statements, the revolving credit facility of £150.0 million was fully drawn, resulting in a significant increase in the amount of cash held.

Under the terms of its banking arrangements, the group has to comply with a number of financial covenants based on interest cover and gearing ratios, both on a retrospective and a prospective basis. Breach of these covenants can result in either a Trigger Event or a Default Event. A Trigger Event activates initial creditor protections under the terms of the group's securitised financing arrangements, which are designed to maintain South East Water's creditworthiness without disrupting its ability to trade (these are set out further in the LTVS). The Trigger Event operates to prevent cash payments out of the ring-fence group (comprising South East Water Limited, South East Water (Finance) Limited and South East Water Holdings Limited) to affiliated entities, providing a degree of protection to these companies and specifically to the operation of the regulated business of South East Water. The Trigger Event is designed to preserve the value of the group, which is in the interests of creditors and customers.

All covenants were complied with for the year ended 31 March 2026 and on the basis of the base case, which has been adjusted for known events in the period up to the signing of these accounts, the group and company expect to comply with covenants for the year ending 31 March 2027. Under the base case scenario in the Long-Term Viability Statement the company remains in compliance throughout the going concern assessment period of 12 months from the date of approval of these financial statements. Under the base case and the severe but plausible scenario there is no Event of Default.

Going Concern

The directors believe that it is appropriate to adopt the going concern basis of accounting in preparing the financial statements as they have a reasonable expectation that the group and company will be able to meet their obligations as they fall due for a period of at least 12 months from the date of approval of the financial statements. However, in making their assessment the directors have identified the following material uncertainties which may cast significant doubt on the group's and company's ability to continue as a going concern:

·      The group and company cash flow forecasts on a base case indicate a need to secure new loan facilities shortly after the end of the going concern period being 12 months from the date of approval of the financial statements. In addition, the severe but plausible scenario indicates a need to secure new loan facilities towards the end of the financial year. Our ability to raise such debt is not wholly within our control;

·      Following the credit rating downgrade by Moody's on 28 May 2026, the company is in breach of its licence. Ofwat has accepted a set of financial undertakings from the company designed to return the company to compliance with its licence conditions. However, the company remains in breach of its licence conditions until it secures two investment grade credit ratings. If the company does not comply with the undertakings agreed with Ofwat this could result in further enforcement action. There is also the possibility that Ofwat may reasonably require additional steps if it is unlikely that the company will restore its licence requirement to have two investment grade credit ratings.

Liquidity

As part of the going concern assessment, the directors have considered the forecast cash flows over the 12 months to July 2027, the capital structure of the group and the financing needs for the period. In forming their conclusions, the board have considered the matters set out below.

Under the base case the available liquidity will fund forecast operating cashflows, capital expenditure and interest payments until August 2027 with careful cash management towards the end of the going concern period, consistent with practice in recent years. The board recognises that shortly after the end of the going concern assessment period of 12 months from the date of approval of the financial statements it will be necessary to secure additional liquidity as required so that the group and company has adequate resources to continue to discharge its obligations as they fall due beyond the immediate assessment period. There are a number of ways in which this could be achieved without impacting on the company's statutory duties including measures to conserve cash, raising new debt or raising new equity.

More severe scenarios would shorten the cash runway, requiring additional mitigating actions to be taken, and under the severe but plausible downside case (sensitivity 3 in the LTVS) the cash runway would only extend towards the end of the financial year.

The group and company are taking actions to conserve cash. In addition, and in order to provide additional liquidity to cover the going concern period and beyond as required, we have engaged with lenders. Although discussions with external lenders to provide funds to meet forecast projections and provide sufficient headroom are at an advanced stage and are expected to conclude over summer 2026, at the date of approval of these financial statements the financing has not been completed. If it is not possible to raise the additional liquidity, the group and therefore the company would not have sufficient liquidity to meet obligations as they fall due shortly after the going concern period.

As the new loan facilities have not been legally committed at the date of approval of these financial statements and the commitment is not within the control of the directors, the risk that funding will not be received constitutes a material uncertainty that may cast significant doubt on the ability of the group and company to continue as a going concern.

Regulatory licence compliance

On 28 May 2026 South East Water received a credit rating downgrade from one of its two ratings agencies, Moody's Ratings ("Moody's"). As a condition of its operating licence with the regulator, Ofwat, South East Water must maintain at least two investment grade credit ratings. The company has engaged with Ofwat, the company's regulator, and agreed certain commitments that are designed to return the company to compliance with its licence conditions.

The PR24 business plan is the company's most ambitious business plan ever. Following a redetermination by the CMA, the proposed investment over the five years 2025 to 2030 amounts to £1.9 billion with goals to improve customer service, reduce customer supply interruptions and strengthen network resilience.

However, Moody's noted that the ratings action relates to the fallout from the two high profile outages in November/December 2025 and January 2026 and the continued resilience risk the company faces until its medium- to long-term investment programmes are completed.

Ofwat has accepted a set of financial undertakings from the company designed to return the company to compliance with its licence conditions and the company has considered the likely impact of the undertakings on the group's and company's cash flow over the assessment period.

Although undertakings have been agreed, the company remains in breach of its licence until it secures two investment grade credit ratings. If the company does not comply with the undertakings agreed with Ofwat this could result in further enforcement action. There is also the possibility that Ofwat may reasonably require additional steps if it is unlikely that the company will restore its licence requirement to have two investment grade credit ratings This represents a material uncertainty that may cast significant doubt on the ability of the group and company to continue as a going concern.

Conclusion on going concern

In assessing whether the group and company has adequate resources in order to continue operations and discharge obligations as they fall due for the assessment period , being a period of at least 12 months from the date of approval of the financial statements, the directors have considered the factors set out above.

The directors have concluded that it is reasonable to assume that the group and company has adequate resources for the assessment period to continue operations and discharge its obligations as they fall due. However, there are material uncertainties that may cast significant doubt on the group's and company's ability to continue as a going concern over the assessment period:

·      The group and company cash flow forecasts on a base case indicate a need to secure new loan facilities shortly after the end of the going concern period being 12 months from the date of approval of the financial statements. In addition, the severe but plausible scenario indicates a need to secure new loan facilities towards the end of the financial year. Our ability to raise such debt is not wholly within our control;

·      Following the credit rating downgrade by Moody's on 28 May 2026, the company is in breach of its licence. Ofwat has accepted a set of financial undertakings from the company designed to return the company to compliance with its licence conditions. However, the company remains in breach of its licence conditions and if it fails to comply with the undertakings agreed with Ofwat this could lead to further enforcement action. There is also the possibility that Ofwat may reasonably require additional steps if it is unlikely that South East Water will restore its licence requirement to have two investment grade credit ratings.

Notwithstanding the material uncertainties described above, and on the basis of their assessment of the group and company's overall financial position, the advanced discussions with lenders regarding new loan facilities, the agreement with Ofwat regarding undertakings and the latest cash flow forecast shared with the board, the directors have a reasonable expectation that the group and therefore the company has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of approval of these financial statements. For this reason, the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

The financial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern.

2.  Revenue and other income

The following is an analysis of the group and company's revenue and other income for the year from continuing operations:

Group and Company	2026 £000	2025 £000
Revenue
Household - measured	254,822	204,188
Household - unmeasured	25,994	21,644
Non-household - measured	65,468	52,408
Non-household - unmeasured	1,272	1,124
Other revenue	9,511	9,967
Charge for bad and doubtful debts	(5,275)	(3,814)
Total revenue	351,792	285,517
Other income
Rental income	1,051	1,168
Laboratory income	6,785	4,354
Commission income	8,856	7,978
Other income	772	996
Total other income	17,464	14,496

All revenue is from customers within the United Kingdom.

Other revenue comprises a number of income streams, including those associated with activities typically performed for property developers, which impact the group's infrastructure network assets, including diversions works to relocate water assets, and activities that facilitate the creation of an authorised connection through which properties can obtain water services. Other revenue includes new connections income of £3.0 million (2025: £4.0 million), infrastructure income of £2.8 million (2025: £0.2 million) and capital contributions of £1.8 million (2025: £3.5 million).

2.1 Contract assets and liabilities

The group has recognised the following revenue-related contract assets and liabilities:

	2026 £000	2025 £000
Contract assets
Current
Accrued revenue for water supplied to metered customers	61,006	49,254
Accrued income for other activities	2,355	1,220
Total contract assets	63,361	50,474
Contract liabilities
Non-current
Deferred revenue from infrastructure charges	4,700	3,913
Deposits payable to developers	3,624	3,483
Total non-current contract liabilities	8,324	7,396
Current
Advance payments received	71,312	47,674
Deferred revenue from infrastructure charges	4,452	4,215
Deferred revenue from other activities	413	400
Total current contract liabilities	76,177	52,289
Total contract liabilities	84,501	59,685

Revenue recognised in relation to contract liabilities

The table below shows how much revenue was recognised in the reporting period relating to brought forward contract liabilities.

Year ended 31 March	2026 £000	2025 £000
Revenue recognised that was included in the contract liability balance at the start of the period
Advance payments received	47,674	46,227
Deferred revenue from infrastructure charges	4,215	5,247
Deferred revenue from other activities	400	404
Total	52,289	51,878

3.  Net Operating Costs

Group		2026 £000	2025 £000
Employee benefits expense		52,466	43,494
Asset expense:
Depreciation - owned assets		69,737	62,418
Depreciation - right-of-use assets		586	535
Amortisation of intangible assets		2,904	2,524
Loss/(profit) on disposal of property, plant and equipment		399	(63)
		73,626	65,414
Other operating expenses: Operating lease rentals:
Vehicles and office equipment		328	328
Land and buildings		14	16
Energy costs		30,762	29,982
Rates		17,002	16,254
Contractors		73,505	45,653
Bulk water supplies and abstraction licences		11,487	11,489
Chemicals		8,519	6,939
Insurance and related costs		3,229	4,281
Compensation		40,290	1,558
IT costs		7,889	7,263
Transport		2,530	1,997
Staff related costs		6,115	3,748
Materials		5,405	3,984
Other		14,516	5,196
Other operating expenses charged to capital projects		(10,979)	(6,125)
		210,612	132,563
Total operating costs		336,704	241,471

Group and Company	2026 £000	2025 £000
Fees payable to the group's auditors in respect of: Audit of the group and company financial statements	489	529
Audit of subsidiary	1	1
Total audit	490	530
Regulatory accounts	80	78
Other assurance services	18	18
Total non-audit services	98	96
Total fees payable to the group's auditors	588	626

3. Employees and directors

Group and Company	2026 £000	2025 £000
Employee benefit expenses (including directors) comprise:
Wages and salaries	55,400	45,704
Social security costs	6,980	4,628
Defined contribution pension cost	3,959	3,419
Defined benefit scheme charge	1,204	1,825
Labour costs capitalised	(15,077)	(12,082)
	52,466	43,494

Key management personnel compensation

Emoluments of the directors, who are the group's key management, were:

	2026 £000	2025 £000
Aggregate emoluments including bonuses (short-term employee benefits)	1,164	1,056
Pension scheme costs - defined contribution plans	20	23
	1,184	1,079

Emoluments of the highest paid director including bonuses were: £478,000 (2025: £448,000).

One director (2025: one) has a deferred pension from the defined benefit pension schemes which closed to future accrual in 2015. There are currently two directors (2025: two) under a defined contribution scheme.

The monthly average number of persons, including the directors, employed by the group during the year was as follows:

	2026 No.	2025 No.
Operations, assets and capital delivery	445	409
Customer Services	291	261
Laboratory Services (including commercial)	119	85
Corporate and support services	403	372
	1,258	1,127

4.  Finance income and expense

Group	2026 £000	2025 £000
Finance income
Interest receivable on bank balances and short-term deposits	3,800	1,361
Net interest income on defined benefit asset	341	1,129
Total finance income	4,141	2,490
Finance expense
Debenture interest	42	42
Effective interest on listed debt	15,428	15,185
Interest on lease liabilities	107	136
Financing guarantee fees	1,682	1,320
Bank interest and other finance charges	11,842	20,148
Amortisation of loan issue costs	1,634	827
Indexation on index linked bonds	9,801	7,051
Interest payable on index linked loans	19,234	17,856
Indexation on index linked loans	24,757	18,765
Variable rate loan	1,155	-
Interest capitalised	(5,749)	(4,572)
Total finance expense	79,933	76,758

Interest is capitalised at the weighted average rate of interest on the group senior long-term debt of 5.0 per cent (2025: 5.0 per cent).

Indexation on index linked bonds and loans are higher due to the increased inflation and higher RPI compared to prior year.

5.  Taxation

5.1   Income tax recognised in profit or loss

Group	2026 £000	2025 £000
Current tax
Current tax on profits for the year	43	27
Adjustments in respect of prior years	(102)	(65)
Total current tax credit	(59)	(38)
Deferred tax credit
Origination and reversal of timing differences	(11,066)	(4,715)
Adjustments in respect of prior years	(1,221)	(1,487)
Total deferred tax credit	(12,287)	(6,202)
Total tax credit	(12,346)	(6,240)

Total tax credit above consists of a tax credit of £12,389,000 (2025: £6,267,000) for South East Water Limited and a charge of £43,000 (2025: £27,000) for South East Water (Finance) Limited.

The reasons for the difference between the actual tax credit for the year and the standard rate of corporation tax in the United Kingdom applied to losses before income tax for the year are as follows:

Group	2026 £000	2025 £000
Loss for the year	(33,074)	(13,541)
Income tax credit	(12,346)	(6,240)
Loss before income taxes	(45,420)	(19,781)
Tax using the company's domestic tax rate of 25% (2025: 25%)	(11,355)	(4,945)
Expenses not deductible for tax purposes, other than goodwill, amortisation and impairment	332	273
Adjustments to current tax charge in respect of prior periods	(102)	(65)
Adjustments to deferred tax charge in respect of prior periods	(1,221)	(1,487)
Tax effect of income not taxable in determining taxable profit	-	(16)
Total tax credit	(12,346)	(6,240)

The deferred tax on temporary differences as at 31 March 2026 have been calculated using 25 per cent (2025: 25 per cent), the enacted corporation tax rate for the periods during which the temporary differences are expected to unwind.

The adjustments to current and deferred tax charge in respect of previous years represent the changes between the prior year financial statements and the prior year tax computations submitted. The expenses not deductible for tax purposes are primarily driven by the movement on general provisions, non- deductible entertainment expenditure, and depreciation on non-qualifying capital expenditure.

Changes in tax rates and factors affecting the future tax charges

Capital investment is expected to remain at similar or higher levels and the group expects to be able to claim capital allowances in excess of depreciation in future years. There are losses of £117.6 million available within the company to mitigate future profits. The enacted enhanced 100 per cent first year full expensing capital allowance for qualifying plant and machinery and 50 per cent allowance for special rate assets expenditure have been made permanent.

5.2    Income tax recognised in other comprehensive income

Group and Company	2026 £000	2025 £000
Deferred tax	(59)	5,294
Deferred tax on defined benefit pension schemes

The net credit recognised in other comprehensive income for the year ended 31 March 2026 is £0.06 million (2025: £5.3 million).

5.3    Deferred tax balances

The following is the analysis of deferred tax liabilities presented in the consolidated statement of financial position:

Group and Company	2026 £000	2025 £000
Deferred tax liabilities	(165,941)	(178,169)

Group and Company	Opening balance £000	Recognised in profit or loss £000	Recognised directly in equity £000	Closing balance £000
2026 Deferred tax (liabilities)/assets in relation to:
Property, plant and equipment	(192,107)	(1,941)	-	(194,048)
Losses carried forward	15,443	13,954	-	29,397
Defined benefit obligations	(1,505)	274	(59)	(1,290)
	(178,169)	12,287	(59)	(165,941)

Group and Company	Opening balance £000	Recognised in profit or loss £000	Recognised directly in equity £000	Closing balance £000
2025 Deferred tax (liabilities)/assets in relation to:
Property, plant and equipment	(199,197)	7,090	-	(192,107)
Losses carried forward	14,662	781	-	15,443
Defined benefit obligations	(5,130)	(1,669)	5,294	(1,505)
	(189,665)	6,202	5,294	(178,169)

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. All of the deferred tax assets were available for offset against deferred tax liabilities and hence the net deferred tax liability at 31 March 2026 was £165.9 million (2025: £178.2 million).

Temporary timing differences

All temporary timing differences are recognised in the deferred tax calculation.

The total amount of qualifying tangible fixed assets for R&D claims recognised in the deferred tax liability as at 31 March 2026 is £191,000 (2025: £191,000).

6.  Dividends

Group and Company	2026 £000	2025 £000
No dividends were paid during the current or prior year	-	-

There were no dividends proposed for approval as at 31 March 2026.

7.   Earnings per share

Group	2026 £000	2025 £000
Loss for the year from continuing operations	(33,074)	(13,541)

	2026 Number	2025 Number
Basic and diluted weighted average number of shares	301,298,655	74,312,454

	2026 Pence	2025 Pence
Basic and diluted loss per share from continuing operations	(10.98)	(17.53)

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