The parent company of South West Water is promising to slash bills for customers this year even though it has been hit by rising costs thanks to the war in Ukraine.
Exeter-headquartered Pennon Group Plc said there will be a bill cut for 2022/23, and that bills will be lower than they were 10 years ago.
In a trading statement to investors, Pennon said it was aware of the financial pressures customers were facing and was doing all it could to support them.
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The company said: “We recognise the pressure that inflationary pricing increases may pose to our customers. Our broad range of affordability measures ensures we are able to support those in need of support, and we are pleased that for the coming year bills will continue to be lower than they were 10 years ago, driven by our continued focus on delivering improvements efficiently and effectively.”
In February, Pennon said the average South West Water bill for water and wastewater services will be lower in 2022/23 than last year. The average household bill will now be £472, a fall from £483 in 2021/22. Customers will also continue to benefit from the £50 Government Contribution, to cut household bills, for 2022/23.
The company said, in its statement to the London Stock Exchange, it will be posting out lower bills despite facing mounting inflation itself. It said that whilst long-term protection from increasing prices was provided through its inflation-linked revenues and growth in the capital value of the business, the group still expects costs to go up.
This is because 26% of Pennon’s regulated water businesses’ gross debt of £3.1bn is index linked, meaning a 1% increase in inflation results in an additional £8m of financing costs.
And wholesale power costs account for about 10% of Pennon’s regulated water businesses’ operating costs. Although Pennon is about 60% hedged for 2022/23 it still has about 40% exposure to wholesale market prices, which have increased significantly over recent weeks because of the current geopolitical situation, including the Russian invasion of Ukraine.
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However, Pennon told investors it remains on track to deliver “resilient financial and operational performance” across the group in line with management expectations, despite this “challenging macro-economic environment”.
Meanwhile, the company also said there is unlikely to be a water shortage although it is looking at a new reservoir site in the South West. The statement said: “As we enter the summer period, our water resources remain in a robust position with reservoir storage at about 93%. We continue to look for strategic value enhancing opportunities in this area having recently procured a site for development in our region.”
Pennon said its recently approved merger with Bristol Water means integration between the two businesses is already under way and it is targeting synergies of about £20m per annum across the group by 2024/25.
In March the Competitions and Markets Authority (CMA) approved Pennon’s £425m takeover of Bristol Water after being satisfied separate price controls will be maintained.
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Pennon said the integration is anticipated to be complete during the next 24 months and added: “Synergies of c£20m per annum by 2024/25 have been identified across the group through service improvements, driving supply chain efficiencies, creating common systems and processes, and sharing best practice. We expect the profile of these efficiencies to ramp up to deliver c£50m over K7 (2020-2025), with one-off, non-underlying integration costs of c£10m anticipated.
“Pennon will retain the valuable Bristol Water brand and will continue to deliver the existing PR19 business plans of both South West Water and Bristol Water. For PR24, the combined entity will deliver for all our regulated water customers in accordance with a single business plan, with separate price controls.”
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