Southern Water Annual Report Errors: Six Admissions, Undisclosed Controls and Unnamed Sewage Permit Failures

Southern Water has admitted that its 2025/26 reporting contained wrong financial, credit-rating and operational figures. Yet some of its answers create fresh questions about the controls used to check the reports and what customers still aren’t being told.

The first mistake was sitting in full view on page two.

Southern Water reported a £112.6 million loss for the year. The audited income statement put it at £128.3 million. The company now accepts the lower figure was wrong, meaning its prominent summary understated the loss by £15.7 million. The audited accounts also confirm operating profit of £304.2 million, rather than the £307.1 million repeated in the going-concern section.

That wasn’t the end of it.

The critical-accounting-estimates section reported a £51.7 million pension actuarial gain. Southern Water says it should’ve been £59.1 million, matching the audited statement. A panel elsewhere described Moody’s rating as Baa3 with a negative outlook; the company says the correct rating was Ba1 with a stable outlook. The Annual Performance Report itself records Ba1 stable. Three different financial or credit disclosures had therefore gone through the mill carrying incorrect information.

Then comes the £4.4 million that still can’t be followed across the page. Deloitte said Southern Water’s £246.8 million expected-credit-loss provision comprised £177.5 million from its statistical model, £70.7 million from non-modelled estimates and a £3 million overlay. Those figures total £251.2 million. Southern Water attributes the difference to manual adjustments involving occupancy dates, billed debt and unbilled revenue, but hasn’t produced a numerical bridge showing precisely how £251.2 million became £246.8 million.

The company’s answer on financial controls is more troubling. Southern Water says Deloitte placed no reliance on IT controls, while the Board’s “mature” framework related to non-financial reporting. The second point is supported by the Annual Performance Report. The first, however, narrows Deloitte’s language too far. Deloitte identified deficiencies in access controls, management-review controls and manual-journal controls, then said weaknesses in both IT and business-process controls led it to conduct the audit “placing no reliance on controls”.

Southern Water won’t identify the affected systems, the accounting processes involved or the dates by which those weaknesses are supposed to be fixed.

The wastewater answer muddies the water further. The published table showed 24 numeric wastewater permits, 11 failures and wastewater compliance of 54.2%. A separate line combined 310 water permits with the wastewater permits, producing overall compliance of 96.7%. Southern Water now says 54.2% was published in error and the correct wastewater figure was 96.45%, but it hasn’t explained the new denominator, how the 11 recorded failures fit that percentage, or whether the earlier table accidentally confused wastewater-only compliance with the combined total. Nor will it name the failed permits or the remedial work required.

The internal sewer-flooding contradiction is clearer. The Annual Report recorded 392 incidents; the performance commentary said 389. Southern Water says 389 was a pre-assurance placeholder that wasn’t replaced when the final figure arrived. Its corrected leakage figures are 89.8 million litres a day for 2025/26 and 101.6 million litres a day for 2024/25, with separate three-year averages of 101.1 and 109.9 million litres a day.

Southern Water did answer one question with unusual clarity. Of its advertised £235 million affordability package, £218 million is funded through cross-subsidies paid by customers. The remaining £17 million represents reduced or potentially uncollected revenue which, the company says, forms part of the overall funding recovered from customers. Its breakdown identifies no direct shareholder contribution. The package may help struggling households, but it isn’t a £235 million present from Southern Water’s owners.

Other doors remain shut. Southern Water won’t disclose all forecast derivative cash settlements through to 2030 or provide project-by-project capitalised overheads and borrowing costs. That second refusal matters because £164.9 million of overheads was capitalised during the year, and Deloitte treated their valuation and classification as a key audit matter involving significant judgement and a potential risk of fraud.

Any large report can contain the odd typo. This is different: wrong headline numbers, conflicting assured data, control weaknesses, manual adjustments without a numerical reconciliation and failed permits that remain unnamed. Southern Water has corrected several errors. It still hasn’t explained how they all got through the door.

The Shepway Vox Team

Dissent is NOT  a Crime