Public subsidy to cut water bills

The blog was delighted to hear in today’s budget that the Chancellor announced help for South West Water customers. SWW customers pay for the upkeep of 30% of England’s coastline, even though they account for only 3% of the population. They have some of the highest water bills in the country and were due to face a 5.1% increase in April.

The announcement by the Government will help to reduce the inequality and is welcomed. But an announcement like this may have unintended consequences, it will certainly increase the focus on water bills. 

UK water utilities robust financial results

Photo courtesy Thames Water

Investors are seeing how their investment in the UK water utilities fared in the year ended 31 March 2010. Despite the recession and the worst winter weather for thirty years most are showing a strong and robust performance rewarding investors.

Anglian Water performed particularly strongly with underlying operating profit rising by an impressive 6.2 % to £463 million on increased turnover of £1100 million also up 6 %. Pennon’s results were even more impressive driven by a strong performance in the group’s waste division, Viridor. Operating profit at Viridor rose by 15%, against a more typical for the sector rise of 2.6% at Pennon’s South West Water division. On the back of Viridor’s strong performance and robust outlook (they are preferred bidder on two major waste contracts in Oxfordshire and Exeter) Pennon’s management are committed to real annual dividend growth of 4% from 2010/11 until at least 2014/15.

AMP5 will undoubtedly be challenging with the UK water utilities committed to ongoing massive investment (e.g £2 billion at Anglian Water for tough challenges of climate change and population growth). But equally its apparent why the water sector continues to be very attractive to investors especially pension and infrastructure funds looking for secure and attractive returns for very low risk.