Severn Trent Water artificially inflated its books by £1.68bn to deliver bumper payouts to shareholders
https://www.bbc.co.uk/news/articles/cd75nqwdpj7o
by majorlicks
Severn Trent Water artificially inflated its books by £1.68bn to deliver bumper payouts to shareholders
https://www.bbc.co.uk/news/articles/cd75nqwdpj7o
by majorlicks
30 comments
Surely if they are using this to get around regulation for shareholder pay outs it is fraud?
They should be wound up if so.
Our economic systems are so fucked. The fact that it is possible to conjure up the insane amount of £1.68 billion with a bit of creative book keeping shows just how detached from reality it is. We are told we can’t afford to teach our children, look after our old or police our streets while politicians and industry throw around these pretend billions like they mean anything.
Okay, I guess I’ll just inflate my personal wealth by a coupla billion pounds to justify taking out a loan of £150 million from the bank. That’s perfectly legal and cool, right? I can just do that without any consequences, right?
From the article:
“The complex accounting trick started in March 2017 when a shell company, with no money or assets, called Severn Trent Trimpley was set up as part of the group. Another Severn Trent company called Severn Trent Draycote – which owns the water company – agreed to buy Trimpley for £2.
Trimpley then issued additional shares and Draycote bought them for a staggering £3bn.”
Followed by this seeming sleight of hand.
“No money actually changed hands, however, as Draycote paid Trimpley with a £3bn loan note – effectively an IOU. But, on paper, Trimpley immediately appeared to be worth £3bn because it had the IOU.
Severn Trent Water then acquired 49% of Trimpley – and that investment was valued in the water company’s accounts at £1.47bn.”
Good to see that OFWAT is keeping an eagle eye on Severn Trent /s
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Article does a really good job of explaining some relatively complex accounting stuff in basic terms.
Of course they claim it’s legal and above board. It is legal, but it’s clearly dodgy.
Tell me again how the privatisation of basic necessities has been beneficial to me.
£50,000 fine for Severn Trent Water and a 10 point deduction for Everton FC.
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Imagine Joe blogs did this, they’d be in jail for fraud, especially for those amounts of £.
Sounds like a pretty textbook fraud to me.
When can we expect the jail sentences?
Another company swindling the books?
Another dishonest collection of filthy rich greedy bastards making themselves even richer.
My bills will still increase.
I’m so fucking tired of this bullshit.
Can that chappy from New York pop over and blow away few CEOs in England please?
Should surprise no one. These companies are not in the business of providing water services. Their business is financial services and wealth management. They exist is to generate profit and shareholder value.
The wonders of capitalist involvement in essential services. The reason that we can’t let them near our healthcare system.
> The complex accounting trick started in March 2017 when a shell company, with no money or assets, called Severn Trent Trimpley was set up as part of the group. Another Severn Trent company called Severn Trent Draycote – which owns the water company – agreed to buy Trimpley for £2.
> Trimpley then issued additional shares and Draycote bought them for a staggering £3bn.
> No money actually changed hands, however, as Draycote paid Trimpley with a £3bn loan note – effectively an IOU. But, on paper, Trimpley immediately appeared to be worth £3bn because it had the IOU.
> Severn Trent Water then acquired 49% of Trimpley – and that investment was valued in the water company’s accounts at £1.47bn. A hugely valuable asset appears to have been created for Severn Trent Water out of thin air.
Lovely. At least they did think of the shareholders:
> As well as bolstering the balance sheet, the made-up £1.68bn has also been added to Severn Trent Water’s retained earnings – that is the pot of money from which cash can be paid out to shareholders. The more money there is in that pot, the easier it is to justify large dividends.
> Since Trimpley was added to the accounts in 2017, Severn Trent Water Ltd has paid out £1.615bn in dividends.
> Profits over the same period were £1.246bn, so Severn Trent Water has paid out £369m more than it made in profit during that period. It looks like cash is being drained from the regulated water company.
And the Thames Water demand right to pay higher dividends to encourage “investors” to bail them out.
Any fine to ST will just be offset by either reduced costs (leading to lower quality) or increased prices to customers- so as to ensure return on investment.
Gotta love it. Gotta keep those shareholders happy
> Severn Trent Water then acquired 49% of Trimpley – and that investment was valued in the water company’s accounts at £1.47bn.
I need to get into more of the detail, but this seems like the key issue. Accounting standards only really deal with “arms length” transactions, ie ones that make sense economically. If Severn Trent Water didn’t pay £1.47bn for that investment, then why is it worth £1.47bn? If they did, then where did the money go?
So if that’s true their CEO and CFO are going to prison right? Right??
Nothing will change and no-one will be held to account, the system is set-up and working as intended… this is just seen as good business practice at the end of the day, run away with the profits scott free…laughing at the fools who fall for it, the question is who is it set up for? Only a fool would trust someone to mark their own homework
Our water should not be run for profit for shareholders. A countries infras should belong to the people.
No doubt they’ll be telling us soon that they need to raise their fees as they can’t afford the work needed to be done to improve the system.
Prison. And not nice prison either. Armley, or Wakefield, or somewhere similar.
It’s the only way this will ever get under control. Make the directors and shareholders personally liable, lock them up 10 years and seize their houses, cars and bank accounts as the proceeds of crime.
The funny thing as a Severn Trent customer is that they literally refuse to take money off us! My entire development everyone I’ve asked has never paid for water in two years, I phone them once every couple of months to convince them that I owe them money and they say I don’t and that our address doesn’t exist.
They probably wouldn’t have to lie about profit if they actually took money from the 300-400 residents here yet alone all the other developments!
Article is a bunch of BS written by non accountants who don’t properly grasp the issue. There is no misleading information and no fraud. No investor looks at an individual company that’s part of a larger group in isolation. They look at the group accounts for reasons like this.
Individual companies can charge each other whatever they want within the same geographical boundaries only when it becomes cross border do tax implications arise. If group company a in the UK sells a piece of cheese for a billion to group company b in the UK as long as they both accurately record the transaction there’s no issue with doing it. When you look at the group accounts which you’d base investment decisions on the transaction would net to nil as its intragroup and you get a clearer picture of what’s going on.
What’s happened in this situation is they need an entity within the group to pay out the dividend and needed to create sufficient distributable reserves in that particular company to make it happen as individually the companies in the group wouldn’t have had a high enough level reserves to pay out the level of dividend. Essentially they’ve just shifted pre existing profit around the group to a particularly entity so they can pay dividends. It’s not a trick or misleading.
Whether you think public utilities shouldn’t be privately owned is a separate question. The article is basically libellous and accusing them of fraud in not so many words.
I heard that a recent arrival from NY wants to know where da CEOs of all these Severn businesses at…..
They gave out more in dividends than they made in profit 😂
Absolute bunch of thieving bastards!
And to think of the trouble I had moving back to the UK and getting a bank account in case I was laundering money.
It seems that all the criminals are already here.
This is called Fraud.
Unless your being protected by the media then it’s won’t be called that.
What a shock! Private industry stealing from formerly publicly own infrastructure. Who’d have thunk it.
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