Pennon Water giant will cut bills despite soaring inflation
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, whose merger with Bristol Water was recently approved, said there would be a bill cut for 2022/23, and that bills would 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.
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 would 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 would be posting out lower bills despite facing mounting inflation itself.
It said that while 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 expected costs to go up.
This is because 26 per cent of Pennon’s regulated water businesses’ gross debt of £3.1bn is index-linked.
Wholesale power costs also account for about 10% of Pennon’s regulated water businesses’ operating costs.
Although Pennon is about 60 per cent hedged for 2022/23 it still has about 40 per cent exposure to wholesale market prices, which have increased significantly over recent weeks because of the current geopolitical situation, including the Russian invasion of Ukraine.
However, Pennon told investors it remained on track to deliver “resilient financial and operational performance” across the group in line with management expectations, despite this “challenging macro-economic environment”.
Pennon said its recently approved merger with Bristol Water meant integration between the two businesses was already under way and it was targeting synergies of about £20m per annum across the group by 2024/25.
In March, the Competitions and Markets Authority approved Pennon’s £425m takeover of Bristol Water after being satisfied separate price controls would be maintained.
Pennon said the integration was anticipated to be completed 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 (20202025), 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.”
Bills will continue to be lower than they were 10 years ago Pennon Group