Utility Week

8 | 13TH - 19TH APRIL 2018 | UTILITY WEEK Policy & Regulation Analysis A nglian Water is the latest company to take up the transparency gauntlet thrown down by Ofwat and the gov- ernment, and its chief executive Peter Simp- son urges other companies to follow suit. Last month, just a couple of weeks aer Anglian was labelled by environment secre- tary Michael Gove as one of four companies which "make particularly keen use of finan- cial engineering", it announced plans to embark on a transparency overhaul. While giving a keynote speech at Water UK's annual City Conference on 1 March, Gove accused Anglian, along with Thames Water, Southern Water and Yorkshire Water, of having "multi-layered corporate structures of dizzying complexity involving multiple subsidiaries, some based offshore". It wasn't the first time Gove had criticised the behaviour and financial structures of the water sector, although it was probably the first time chief executives of water compa- nies were gathered in the same room as he did so. Gove gave the industry a stern warning to clean up its act, but he also highlighted examples of good practice from companies and some of the achievements the sector has accomplished since privatisation. Anglian was one of a couple of companies that appeared on Gove's naughty list but also on his nice one. He praised Anglian for issuing the first ever public utility Green Bond last year to meet the threefold challenge of water scarcity, climate change and better environ- mental protection. Yet the company has clearly recognised the need to do more and on 15 March it pub- licly made a ra of commitments, which will see it "speed up" the removal of its Cay- man Islands subsidiary, reduce dividends, increase investment in resilience schemes and review its corporate structure. Series of initiatives The company hopes its "series of financial and corporate initiatives" will improve trans- parency, trust and customer confidence. To improve clarity of its financial structures, Anglian plans to repay an inter-company loan to simplify the presentation of its accounts, particularly around real dividends, and aims to complete this by the end of this financial year. It stresses its Cayman Islands subsidiary "is and always has been" registered in the UK for tax and it has never received any tax advantage from this location, nor has it been used to raise debt finance. "The subsidiary is effectively dormant," says the company. Anglian commits to clarity A raft of commitments by Anglian Water will see it "speed up" removal of its Cayman Islands subsidiary, cut dividends, increase investment and review its corporate structure, says Katey Pigden. Anglian's commitments To improve the transparency and clarity of its financial structures. • It will significantly speed up the removal of its Cayman Islands subsidiary. • It will repay an inter-company loan to simplify the presentation of its accounts (particularly around real dividends), aiming to complete this by the end of this financial year. To place public interest at the heart of the business. • It will work with Ofwat on proposals to ensure it can be held to account for not acting in the public interest. • It will change the composition of the Anglian Water Services board so that independent non-executive directors are in the majority, and not just the largest group. To make an additional investment commitment to 2020. • It will invest an extra £65 million in resilience schemes not included in the company's original plan, by 2020. This will improve the region's ability to deal with drought and flooding and will be paid for through a reduction in dividends to shareholders. To reduce dividends and borrowings through to 2025. • It will reduce dividends through to 2025, resulting in a significant reduction in the company's level of debt and gearing. Anglian also pledges to reduce dividends through to 2025, which it claims will result in a "significant reduction" in the company's level of debt and gearing, currently around 79.1 per cent. Financial results for the six months to 30 September 2017 show oper- ating profit of £210.2 million. By reducing dividends to shareholders, it will invest an extra £65 million in resilience schemes not included in the company's original busi- ness plan for the current regulatory period, by 2020. The money will be used to improve the region's ability to deal with drought and flooding. The company says the commitments build on the £5 billion it has already pledged to invest between 2015 and 2020. "I hope the move will be seen positively by Ofwat and Defra [the Department for Environment, Food and Rural Affairs]," Anglian Water Group's chief executive Peter Simpson tells Utility Week. No 'knee-jerk' Although the programme responds to chal- lenges laid down at the water conference in London last month by both Gove and Ofwat chairman Jonson Cox, Simpson insists it is not a "knee-jerk reaction" and is something the company has been working on for sev- eral months. This week (10 April) Cox outlined an agenda of reform to bring the water sector "back in balance" in response to Gove's pre- vious comments. Anglian Water is proud of its Responsi- ble Business of the Year accolade, which it was awarded in July 2017 at the Responsible Business Awards. Simpson says: "I like to think in the last few years we have behaved responsibly but, somewhere along the line, the narrative has been lost. "We can't just look back at the great things, and need to position ourselves in a positive space and move the agenda forward. We've put a lot of skin in the game." In Cox's speech at the Water UK confer- ence, he set out a sweeping programme of reforms for water companies, including a radical overhaul of divi-dends, action on

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