South West Water will have an opportunity to generate the highest returns in the sector during AMP6, according to the latest trading update published by owners Pennon Group this morning.
Pennon said South West Water is building on a successful 2010-2015 AMP5 regulatory period, and is focused on remaining at the frontier of efficiency and targeting outperformance in 2015-2020. The company’s enhanced business plan status allowed it to advance AMP6 capital expenditure in 2014/15.
As anticipated, revenues for 2015/16 will be impacted by the reduction in base allowed returns as part of the 2014 final determination. Over the full AMP6 period, South West Water will have an opportunity to generate the highest returns in the sector, ahead of the assumed returns on equity through Total Expenditure (TOTEX) and financing efficiency, Service Incentive Mechanism (SIM) improvement and Outcome Delivery Incentives (ODIs), the update says. Overall performance is forecast to deliver financial rewards from 2015/16.
According to Pennon, South West Water is “well-prepared for market liberalisation in 2017, with established retail and wholesale strategies.” Within the South West region, South West Water has Water Business Services, which is tasked with retaining existing business customers, and outside the region it has Source for Business, which is focused on winning new customers.
In April, Pennon Group announced that it had acquired Bournemouth Water from Singapore-based SembCorp for a cash consideration of £100.3million.
The acquisition, which was referred to the Competition and Markets Authority, is part of Pennon Group's strategy to prepare for changes in the water industry, creating more efficient and effective wholesale operations and retail services, and preparing for the opening of the non-household retail market from 2017. The regulatory approval process is expected to take about six months.
Commenting on Bournemouth Water’s results, Pennon said these are in line with expectations and the Competition and Markets Authority (CMA) referral is progressing as expected.
Provisional findings from the CMA are due to be published shortly.
The Group described itself as “increasingly well positioned for the future” as Energy Recovery Facilities (ERF) at Viridor, its waste management subsidiary, come on stream.
Pennon Group intends to announce its half year results for 2015/16 on Friday 27 November 2015.
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