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The Topic: Attracting investment UTILITY WEEK | 21ST - 27TH APRIL 2017 | 9 BREXIT The UK's vote on 23 June 2016 to leave the European Union sent shockwaves through the investor community. There is huge uncertainty about how the UK will interact with the remaining 27 EU countries, with trade and freedom of move- ment among the top concerns. There is a lack of clarity about the political situation, and how EU law will be transposed into Brit- ish law, and the future pathway for it once the Article 50 process has been completed. The announcement this week of a general election adds to the mix. Uncertainty and investors don't mix very well, and usually result in costs being pushed up. However, one upside of the Brexit vote has been the fall in the value of the pound, which makes sterling a cheap currency to buy for international investors, and therefore makes UK investment cheaper. Mike Felton, UK equity fund manager at M&G Investments, says the weaker pound will attract investors to the UK. "There were significant spikes in foreign purchases of UK companies following previous sterling devaluations – the pound's exit from the ERM [Exchange Rate Mechanism] in late 1992 and the 25 per cent fall in sterling in 2008/09 around the financial crisis. In both cases, within six months there had been a sharp rise in acquisitions and this persisted as the currency stayed weak." He adds: "A big effect of the pound's weakness post-Brexit is to make those UK- listed companies that may have previously appeared attractive to overseas buyers look even better value." It appears Brexit could attract some foreign investors, and be enough to tempt those who were already keen to press ahead with a deal. T he chief financial officer at FTSE 250 company Pennon says that the firm has seen the cost of key investment projects rise in the wake of the referendum result and that she expects to have to "work harder" as the divorce settlement is hammered out, to reassure, retain and attract investors. Pennon is among the largest infrastructure groups in the UK. Under its wing sits Bourne- mouth and South West Water (now merged) as well as the successful waste and recycling company Viridor. In its first half year financial results for 2016/17 the company reported revenues of £685.5 million and operating profit of £153.9 million. It also recorded £183.3 million capital invest- ment. Most of which is possible only because of Pennon's inves- tors, who currently enjoy divi- dends of around 11p per share. With more significant plans for both capital investment and new business opportunities stretching into the future, its crucial for Davy that she is able to soothe the concerns that have come with Brexit, and keep the company performing. "There is great uncertainty around at the moment," Davy says. And with that, comes risk. Pennon has already seen the costs of a £242 million invest- ment in Bristol hit by increased technology costs as a result of Brexit, Davy tells Utility Week. Other investments are being looked at again to see how they will be affected. In part, this will depend on the future availability of lending from the European Investment Bank (EIB). In 2015 the key strategic areas of the energy, transport and water, benefited from €5.2 billion of EIB financing. But Brexit has put this at risk. "The EIB does lend outside the EU, but that is cur- rently only about 10 per cent of its current lending, so it's not significant. That is something I'd call on the government to think about," says Davy. Of more direct concern to Davy, however, is what she and other finance directors can do to remain attractive to investors despite the intense uncertainty that now surrounds the UK. Davy admits that she and her peers will have to "work harder at your relationships and make sure your business case is good". This will be about more than simply reporting num- bers. "You've got to take them through the investment plans. They like the whole picture of what's going on," she says. Much of this big picture vision relies on successfully communicating the impact that evolving regulatory drivers are having on the business and showcasing how the "contract in place between the utility and the customer" still supports an attractive, de-risked home for investment. But Davy believes more can, and should, be done to attract investment to the UK. She states that chief financial officers from across different sectors should come together, and work with government, to join up thinking on this impor- tant topic. Setting up a chief financial officer network could deliver this alignment, mitigate uncertainty and shore up the UK's attractive- ness to investors. "The UK does need more joined-up thinking, especially when you have that same pool of investors, and any unin- tended consequences from other sectors or government policy could have significant impacts. "You have to be careful," she concludes. INTERVIEW: Susan Davy, chief financial officer, Pennon Susan Davy is rolling with the punches that Brexit has already started throwing. GBP TO USD 1.55 1.45 1.35 1.25 1.15 2016 2017 GBP TO EURO 1.45 1.35 1.25 1.15 1.05 2016 2017