Yorkshire Water to remove offshore banking arrangements

Utility company plans to enhance its service to customers

Yorkshire Water has announced it plans to remove its offshore banking arrangements, reduce borrowing costs and simplify its finances as part of a long-term drive to enhance service for customers.

Speaking at Moody’s 2017 UK Water Sector Conference yesterday (17 October), Liz Barber, the company’s group director of finance, regulation and markets said Yorkshire Water is committed to closing its offshore banking arrangements in the Cayman Islands, which it uses to manage high levels of borrowing. 

“There is a real challenge to the water industry’s legitimacy at the moment and complex financial structures only add to public concern as to the way in which companies are financed,” she said.

“We have some offshore companies in our structure which are no longer necessary or appropriate and we’re taking steps to remove these as soon as possible.”

Talking to Utility Week, she added: “Our offshore companies in the Cayman Islands have nothing to do with tax and no matter how we try to explain, people just don’t understand them. As it effects our reputation and legitimacy we have taken the decision to get rid of them. It may take time but that’s what we have decided to do.”

She explained: “I am very aware of the challenges of the legitimacy of the sector and the way it is perceived, as well as the need to demonstrate to customers that we are financially resilient.

“We need to make sure we explain our financial structures and are transparent. We demonstrated we were resilient in AMP6 and going into AMP7 we need to show we are resilient going into a lower returns environment.”

Discussing the sector’s reputation, she said, “it does a great deal of good, but often forgets to tell people about it”.

During her talk entitled Highly-leveraged capital structures: fit for a changing world? she told delegates that Yorkshire Water plans to reduce its leverage to 70 per cent by 2020. 

The firm’s gearing, currently equates to 76 per cent of its total asset value. It plans to reduce interest costs to create “headroom” for investment in improvements to customer service, in the next two years and for the longer-term. The company said it is also taken measures to reduce annual interest costs by strengthening its balance sheet.

Barber said: “By reducing what we spend on interest costs it means that we’ll have more money to invest in better service and we hope to announce what this might involve next month.

“Customers expect us to provide safe and reliable services and we have a responsibility to have safe and resilient finances so that we meet their expectations.

“They want to know that we have the flexibility to cope with unplanned events like the last major floods in Yorkshire in 2015. By reducing our borrowing costs we’re better able to cope with this type of event, which on its own cost some £57 million.” 

She explained there are safeguards in leverage and the company had taken “a multi-faceted approach” as part of its strategic view of long-term financial resilience.

“But leverage levels, per se, are not the only measure of being fit for purpose, it is financial flexibility and the resilience of the capital model that is important,” she said.

The company said Yorkshire Water could be the first in its sector to raise funds by use of a “social bond”, enabling ethical investors to directly finance some of the company’s plans for the next five years. For example, plans to use natural flood management techniques to reduce flood risk for customers in Hull, Calderdale and the Aire Valley could be financed by these means.