Southern Water to wind up Cayman Islands firm by year end

Southern Water aims to close it subsidiary finance company in the Cayman Islands by the end of this year in a bid to increase trust with customers.

The water company said it wants to make its financial structure and its 100 per cent UK tax status “more transparent and easier to understand”.

The Cayman Islands company was set up by Southern Water in 2003 for debt raising purposes and the firm insists it has never “offshored its tax obligations”.

It said it has made the decision to wind up the subsidiary as it recognises the Cayman Islands contributes to “misconceptions” about its business practices.

Since autumn 2017 Southern Water has been working towards the move and the board reached an agreement to close the offshore company at the end of last year.

Ian McAulay, chief executive of Southern Water, told Utility Week: “I’m not the sort of chief executive that’s going to come out and say we are thinking about this, we are going to do it.

“We started talking about this on the board last year and we agreed towards the end of last year that we would proceed with winding it up.

“I think it’s good the shareholders are saying this. There are no tax benefits with the Cayman Islands company but it has become toxic and there’s an ability for things like that to become damaging in terms of trust.”

He said the company is making “reasonably good progress” but would not be drawn on a specific date for completion.

“I don’t like the whole ‘we’re going to get it done on this date’ thing, it’s more a case of we’re targeting being finished by the end of the year,” he said.

McAulay said he thinks the current perceived lack of trust in the water sector is part of the “populus voice”.

“The strength of the populus movement has taken everybody by surprise. If something can be seen to be not good it will grow in strength and sometimes go viral but rightly because people think there is something inappropriate associated with it.

“I think for some companies there have been unusual arrangements but for water companies it was a function of how they were set up in the first place. But it doesn’t matter, it has become something that we have to resolve.”

He added: “I have often said this is the biggest time of change in my lifetime for the water sector. This is the point of reflection now, we cannot continue to do what we have always done.”

Southern Water said it is planning changes to the dividends it pays to reflect the quality of public service the company delivers.

The company also plans to “take a deeper look” at how its customers perceive it and how much trust they have in Southern Water. It said it will use this insight to shape its future structure.

Southern Water said it made a total tax contribution of £143.5 million last year, made up of the tax it pays directly and the tax the company collects. It outlined its contribution to the Exchequer amounted to £65.5 million in 2016-17 and it collected £78 million of its behalf.

The company is going though a consultation process to restructure the business. It plans to reduce its staff members by approximately 150 people within management and support roles in an efficiency drive.

Yorkshire Water, Thames Water and Anglian Water are all in the process of closing their Cayman Islands subsidiaries.