22/05/09
Water UK provides background information on industry finance and investment as water companies in England and Wales make preliminary announcements of financial results for the year to March 2009.
The year saw unprecedented turmoil in the financial markets, the economy going into recession and the emergence of deflationary conditions as RPI, the key measure of inflation in the water industry, turned negative. These events have impacted all sectors of the economy, including water companies.
In the past year, against this turbulent and uncertain background, companies published draft and then final business plans for investment and service levels for the five years 2010-2015. The months ahead will be the time for decisions. Ofwat will publish draft price limits for 2010-2015 at the end of July, and their final determinations on prices in November.
It will be important that decisions are made robust to these challenging economic and financial conditions, so that the industry can continue to invest in meeting customers' priorities - a secure supply of high quality drinking water and reliable sewerage services.
Sales and profit figures will be presented with reviews of companies' investment and other activities on behalf of the communities they serve.
Sharing success
Water companies are required to meet service and environmental standards as efficiently as possible. If they succeed in keeping costs below the level assumed by Ofwat the savings are shared between their customers and shareholders.
Sharing success in this way is the essence of incentive-based water regulation.
Today's average water bill would be £100 higher without the efficiency savings made by the companies - according to Ofwat.
Working for a sustainable economy and healthy environment
Well performing water companies contribute to a sustainable economy by supplying near-perfect drinking water and keeping prices low relative to the scale of their capital investment.
Well managed investment by water companies is also the main reason why rivers, streams and beaches are cleaner than ever, and water wildlife continues to recover after years of decline.
Profits
Water company profits can look high when compared with other sectors - this is because their capital investment is high compared with other sectors.
It is meaningless to quote or compare profits without quoting the investment they allow and the rate of return to investors.
Investment
All water bill-payers, consumers and investors benefit from well performing companies.
The scale of capital investment by water companies sets them apart from other sectors - the industry regularly invests at the level of half its annual turnover. A large share of this investment is required by government to enable the country to comply with environmental directives for further improvements.
Prices
Ofwat sets price limits for water companies to ensure that water services are delivered as efficiently as possible.
In setting limits, the regulator takes into account investments required by government and consults environmental and drinking water regulators and water customers.
More background
Financial performance is important for cost effective investment
Financial results - Water UK briefing
Ends
For more information please contact:
Water UK Communication
020 7344 1809 out of hours 07833 450544
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