UK water company dividends jump to £1.4bn despite criticism over sewage outflows


Britain’s privatised water and sewage corporations paid £1.4bn in dividends in 2022, up from £540mn the earlier 12 months, despite rising family payments and a wave of public criticism over sewage outflows.

The figures, primarily based on a Financial Times analysis of the ten largest water and sewage corporations’ accounts, are greater than headline dividends within the 12 months to finish March 2022. This is as a result of a number of have layered company constructions with quite a few subsidiaries, solely one among which — the working company — is regulated by Ofwat.

Maintaining dividends means much less money is obtainable from buyer payments for funding in crucial infrastructure corresponding to sewage remedy and water mains.

The complicated preparations allow suppliers to distinguish between inner dividends — funds between intermediate holding corporations within the group — and exterior dividends to personal equity, sovereign wealth and pension funds, which personal your entire water and sewage enterprise together with the holding corporations.

The byzantine constructions are one purpose Ofwat is worried over transparency within the sector. It is updating licence circumstances so it may possibly block dividends from April 2025 if the company appears to be like financially susceptible. It can even require boards to take account of environmental and buyer targets once they determine to make funds.

Although water monopolies argue inner dividends are used to service debt and different prices, Ofwat says it “doesn’t recognise the distinction” and can think about all dividends that go away the regulated company “regardless of how they are used by the group and whether any amounts are paid out to the ultimate shareholders.”

David Hall, visiting professor at Greenwich University, stated the monopolies “call them dividends because they are dividends”.

Dividends “are paid for by households and businesses through their bills, and [ . . . ] benefit group companies wholly owned by the ultimate shareholders.”

Thames Water, the most important water monopoly, paid £37mn of “internal dividends” to its father or mother company within the 12 months to March 31 2022. This was a rise from £33mn within the earlier 12 months, despite asserting that “external shareholders” had not obtained dividends for 5 years.

The company, whose house owners embrace China Investment Corporation, stated all dividends could be used to “service debt obligations and group related costs of other companies within the wider Kemble Water group [which includes Thames Water]”.

After being offered with no debt at privatisation three a long time in the past, the businesses have racked up borrowings of £60.6bn, in accordance to Ofwat.

At the identical time whole spending on waste water infrastructure by the ten largest corporations — excluding Thames Tideway — has failed to rise considerably. Average annual wastewater funding was £295mn within the Nineties, £297mn within the 2010s and £273mn within the 2020s up to now.

Now prices — together with curiosity funds — are hovering, including to stress on company funds simply as they face calls for to ramp up funding in infrastructure.

It is difficult to hint precisely the place the money from water payments goes, says Sir Dieter Helm, professor of financial coverage at Oxford college.

“These complex financial structures are not transparent or clear and have delivered no obvious benefits to customers,” he says. “Water companies have been running rings around Ofwat for years.”

Ofwat stated its new powers would allow it to take motion if corporations pay dividends that didn’t replicate efficiency, whereas Anglian Water stated it “fundamentally disagreed” that any transactions are opaque. Thames Water stated it “has a strict, performance-linked dividend policy monitored by Ofwat”.

The “idea that money is diverted from frontline infrastructure development is simply untrue”, Anglian added. “The regulator specifies the level of infrastructure development and monitors the outcome.”

By any definition, nonetheless, dividends stay excessive. Anglian Water’s accounts confirmed it proposed a £169mn dividend to its quick father or mother company final 12 months, though it says simply £91.8mn will go to the last word shareholders.

“This marked a return to paying a dividend for the first time since 2017,” Anglian stated. However, the accounts present £2.5bn has been paid in “internal” dividends over the previous 5 years.

Anglian Water, owned by a clutch of pension funds and the Abu Dhabi Investment Authority, stated the phrase “dividend in terms of the inter company payments was misleading” as money “reported as dividends between 2017 and 2022 was used to pay debt and debt interest, head office costs and group pension deficit costs”. 

“We’d like to be clear the only dividend payment that shareholders received between 2017 and 2022 was the payment of £91.8mn in 2022,” it stated. The “corporate structure ensures we can finance substantial levels of investment at the most competitive rates, ultimately keeping bills lower for customers.”

Adding to the complexity, inner dividends are sometimes solely included in notes to the accounts, whereas dividends will also be deferred till after monetary outcomes are launched, enabling corporations to present zero dividends for the present 12 months of their revealed annual reviews and accounts. Dividend funds are additionally usually described as “cash neutral” because the funds are instantly returned to the company from throughout the group in fee of money owed.

In one instance, Northumbrian Water, majority owned by CK Infrastructure Holdings, declared £272.6mn in dividends within the 12 months ended March 2022, together with an interim dividend of £58.2mn, and a last dividend of £55.4mn. The last dividend was accepted after the stability sheet date and can solely present as a paid dividend within the 2023 monetary statements.

The £272.6mn included £159mn as a particular dividend, which the company stated enabled a bunch company to repay a mortgage, stating that the transaction was “cash neutral” [implying no cash leaves the business], in accordance to the accounts.

“This non-appointed dividend was not related to the regulated water and sewage business,” Northumbrian stated, arguing it got here from a separate entity that gives fishing and industrial water remedy.

Nick Hood, senior adviser at Opus Restructuring, stated it was “difficult to see what purpose such opaque corporate structures serve except to create a lack of transparency, perhaps to facilitate tax minimisation and to make it unduly difficult to trace where money diverted from front line water infrastructure investment is going.”

However, Thames Water stated: “We comply with all tax legislation at all times, both within the letter and spirit of the law.” Thames has a “strict, performance-linked dividend policy monitored by Ofwat,” it added.

Anglian Water stated “Anglian Water Services Ltd, the regulated company, is registered for tax in the UK, and we pay all of our taxes in full”. It added that its “financial structure, payments and policies are set out in detail in our annual accounts”. Northumbrian declined to touch upon the tax allegations and the feedback by Hall and Helm.

Water UK, the trade physique, stated: “All water companies report financial information, including dividend payments, in line with international accounting standards.”

“When dividend payments made by a regulated water company are retained within the broader corporate group the money is typically used to pay a wide range of corporate overheads, with external investors receiving a smaller dividend, or no dividend at all, as a result.”

Source link


Please enter your comment!
Please enter your name here