Yorkshire Water has taken 'clear action' to improve its finances but concerns remain, Ofwat says
Last year Ofwat put the company in its “requires action” catergory, as it had one of the lowest scores for financial resilience in the industry.
In a new report, the regulator said Yorkshire Water has been moved out of that category because it has secured more than £400m of investment from shareholders and set out a plan to recover £940m of loans from its parent company.
Yorkshire Water, which has 5m customers, is now classed as an “elevated concern”, meaning it will be subjected to frequent monitoring as there are “some concerns”.
Water companies have been criticised in recent years for failing to tackle sewage spills and water leaks, and accused of prioritising dividend payments for investors over investment in their infrastructure.
In its new report, Ofwat praised shareholders for investing £4.6bn in the sector since 2020, saying the money is used to shore up water companies’ finances and upgrade their networks.
But the regulator also said it is working to ensure those companies are not paying dividends, which totalled £1.4bn last year, when they are struggling financially and managing their debts following a sharp rise in interest rates. Total borrowing in the sector rose from £60.6bn to £68.3bn 2022/23.
Yorkshire Water reported a net debt of £6.1bn in that year, when the amount it spent on covering interest payments on various loans rose from £281.9m to £427.6m.
Chief Executive Nicola Shaw has said the company’s borrowing is “under control” and it will need to take on more debt to fund its £7.8bn investment plan, which promises to reduce sewage discharges by 35 per cent.
Customers have been told they will need to pay almost £150 extra per year by 2030 to help fund the programme.
It comes after Yorkshire Water announced £62.3m in dividends were paid to its parent company to “cover costs including debt interest“ in 2022/23, but said the money did not go to external shareholders.
It is one of the companies in the Kelda Group which routinely lend each other money and charge interest. The controlling company, Kelda Holdings Limited, is owned by a consortium of private investment groups based in Singapore, the US and Germany as well as an Australian pension fund.
“We’ve been working hard to strengthen our financial resilience and are pleased this has been reflected in Ofwat’s recent Monitoring Financial Resilience report,” a company spokesman said.
“We know there is more to do and our shareholders have already committed to supporting the aims of the business through further funding to deliver plans to help Yorkshire thrive. This includes £100m before end of March 2025 and £440m before end of June 2027.”