South West Water steady as she goes at year end

South West Water reported profit before tax for the year to 31 March 2018 up 4.7% on 2017 at £180.5m as a 2.5% net tariff increase at the West Country firm beat off a1.3% year-on-year increase in operating costs at £210.4m. Revenue was up 2.9% at £571.3m.

Operating profit was up 5.9% to £247.8m. The firm emphasised the role of efficiencies and cost savings totalling £4.7m in offsetting cost increases of £5.3m including inflation.

These figures were reported as underlying in not including the impact of a number of exceptional items filed under the water company’s parent group, Pennon and the exclusion of South West’s non-2016-17 household retail results reflecting the firm’s departure from the business retail market. Exceptional (non-underlying) items included a Pennon group derivatives charge at £2.4m down from £28.8m in 2017 which took in the fair value movement of a South West Water 2040 bond.

Total expenditure (totex) efficiencies for the reported year came to £48m with the cumulative figure for the K6 regulatory period to date at £177m. Cumulative financing outperformance came in at £100m. South West claimed to be the “only company” to share reductions in interest rates with customers.

South West reported £79m going to customers in K6 to date through its Water Share outperformance share scheme, with £58m coming from totex efficiencie, £8m from Outcome Delivery Incentives (ODI) and £13m from “other items.” Totex was £394m – down £9m from the previous year. Its 2017-18 totex allowance was £442m, down £34m from 2016-17, leaving the return on regulated equity (RORE) benefit for the year at £23m, down from £35m in 2016-17.

Net ODIs for 2017-18 were £2.6m after £0.3m in penalties with the cumulative figure at £10.4m after £2.3m in penalties.

South West Water’s parent group, Pennon reported pre tax profit up 3.5% to £258.8m on revenue at £1.39bn up 2.9% on the previous year.

Pennon’s business water retail arm, Pennon Water Services, posted a £1.1m loss before tax in its first year with revenue at £165.6m. Operating income was £0.4m.