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

NAWC lauds U.S. House Committee's notable PPP bipartisan report

The National Association of Water Companies is supporting the report, "Public-Private Partnerships: Balancing the Needs of the Public and Private Sectors to Finance the Nation's Infrastructure," by the Transportation and Infrastructure Panel of the U.S. House of Representatives.

Baldor Electric receives Governor's Top Quality Award for operational excellence

This week, the Arkansas Institute for Performance Excellence honored Baldor Electric to receive the Arkansas Governor's Quality Award for Performance Excellence.

MA wastewater treatment plant improves operations with sludge grinder

The Lynn Wastewater Treatment Plant in Swampscott, Mass., has improved capacity and reduced maintenance intervals thanks to a pair of Series-A Munchers from NOV Mono.

EPA announces major modifications to ongoing VT landfill Superfund site remedy

EPA has proposed major recommended modifications to the ongoing remedy of the BFI Rockingham Landfill Superfund Site in Rockingham, Vt., that include an increased timeframe to cleanup groundwater, additional groundwater restrictions, and revised arsenic and lead cleanup levels.

FOLLOW US ON SOCIAL MEDIA