Economic sustainability
Managing the company's financing
Pennon Group and the Company have robust treasury policies in place to ensure the Company's borrowings and financial commitments are managed in a controlled, prudent way.
These include policies that require that:
- there are always pre-drawn or committed facilities to cover at least one year's estimated cashflow
- no more than 20% of borrowing matures in any one year.
Policies also monitor interest rate risk and govern the balance between fixed and floating interest rates, and those set by reference to the Retail Price Index (RPI). Derivatives, usually interest rate swaps, are used to manage the mix of fixed and floating rate debt.
Financial covenants included in the company's debt facilities are monitored on a regular basis.
We aim to achieve a level of gearing within Ofwat's 'optimum range' of 55% - 65%.
A major source of funding for the Company has been in the form of finance leases. The total owed under finance leases was £1,172.4m at 31 March 2011. This is a long-term form of finance, matching the lives of the plant, property and equipment funded under the leases.
Further details of the Company's treasury and financing policies are given in the Company's Annual Report and Accounts.