Tariff freeze to hit profits at South West Water - Analyst tells WWi more water utilities to follow

Tariff freeze to hit profits at South West Water - Analyst tells WWI more water utilities to follow
Sponsored by

A city analyst as told WWi that more utilities are likely to follow as Pennon Group (LSE: PNN), parent company of South West Water, issues an interim management statement warning that profits at the UK utility will be impacted by the 2014/15 tariff freeze.

However, according to the statement South West Water (SWW) is continuing its strong financial performance with robust operational delivery and high standards of customer service, and the company expects to complete the successful delivery of the K5 (2010-2015) regulatory contract.

The statement added that the revenues foregone due to the tariff freeze are included in the Draft Determination for the K6 (2015-2020) on an NPV neutral basis.
 
Following early receipt of its Draft Determination for the K6 regulatory contract in April this year, Pennon said that SWW is able to accelerate a number of key projects (e.g. bathing water improvements) ahead of significant legislative changes. 

The statement also said that South West Water is well placed to deliver its business plan in K6 and will have an opportunity to outperform the assumed returns on equity.

Commenting on the statement, Ken Odeluga analyst from City Index  told WWi that “relief for the consumer means pain for the utilities”.

“Pennon is the latest regional water operator to say the government’s price freezes and industry reviews are having a negative impact,” he said. “Last month, Severn Trent, another big regional water group, also made a profit warning.”

“As for, Pennon it can’t blame its profit drop entirely on the price freezes,” continued Odeluga. “That’s because Pennon’s first-half results also show a fall in its landfill business [at Pennon’s waste and recycling subsidiary, Viridor], something that has been known about for a number of years.”

However, the analyst added that that part of Pennon’s business should still be in profit by the end of the year.

“All in all, we don’t expect these profit warnings in the water sector and in utilities as a whole, to be the last,” he added.

“We expect significant hits to water companies’ earnings and perhaps dividends too,” concluded Odeluga.

Sponsored by

TODAY'S HEADLINES

EPA awards over $17M in Great Lakes Restoration Initiative grants to address algal blooms

The Environmental Protection Agency has announced the award of 14 Great Lakes Restoration Initiative grants totaling over $17 million to fund projects that will improve Great Lakes water quality by preventing phosphorus runoff and soil erosion that contribute to algal blooms.

Texas water district recognized for Eagle Mountain Spillway Dam rehabilitation

The Association of State Dam Safety Officials announced that it has awarded the Tarrant Regional Water District of Texas with the National Rehabilitation Project of the Year Award.

Innovyze named winner of prestigious Esri Partner Conference Award

Innovyze recently announced that it was named the winner of the ArcGIS for Desktop Based Application category of the Esri Partner Conference Awards.

CH2M HILL partnership to deliver safe, clean water supply to Jaipur, India

CH2M HILL in partnership with the Singapore Public Utilities Board and Singapore Cooperation Enterprise, is providing water management leadership services to the Rajasthan state government through Public Health and Environment Department for the city of Jaipur, India.

FOLLOW US ON SOCIAL MEDIA