Cost savings drive first-half growth at Pennon

Pennon Group reported a 5.6% uplift in its first-half revenue on Wednesday, to £723.9m, with its board claiming higher water revenues were driven by customer demand.

The FTSE 250 water utility and waste management company’s EBITDA was 3.3% higher than last year in the six months to 30 September, to £253.5m, while adjusted EBITDA was up 3.1% at £285.8m.

Operating profit stood at £162.4m, a 5.5% improvement on the first half of the prior year, while profit before tax rose 2.3% to £131.1m.

On the operational front, Pennon said the final phase of the Bournemouth Water integration project was now complete, with £12m of synergies delivered in 18 months and £27m cumulative expected by 2020.

Growth at Viridor was driven by “strong performance” from its energy recovery facilities during the period, with the company’s board saying ERF availability stood at more than 90% for the first half.

It also reported continuing group efficiencies, with £11m per annum of the £17m annual efficiency goal expected from 2019 already secured.

Pennon said it maintained “strong” operating cash flows during the period, reflecting “robust” operational performance.

The board also described ongoing momentum in the regulated water business, with cumulative return on regulated equity at 11.8%, adding that the “unique WaterShare mechanism” was set to “share transparently” the benefits of outperformance in period.

It said its sustainable, low cost funding position was underpinned by continuing capital investment, adding that its perpetual capital securities issuance delivering balance sheet flexibility.

Statutory earnings per share grew 23.2% to 21.8p in the period, while the company’s board confirmed an interim dividend per share of 11.97p - a 7.9% improvement.

“Pennon has delivered robust performance in the first half of 2017/18 across both water and waste activities,” said Pennon chief executive Chris Loughlin.

“Our priority continues to be to provide an outstanding level of service to our customers and communities, while offering a sector-leading dividend policy for our shareholders.”

In water, Loughlin said the company’s focus on cost savings meant bills were lower now than they were eight years ago, while at the same time Pennon was continuing to invest “significantly” in its plants and distribution network.

“This means we have delivered significant improvements in clean water and bathing water quality and our leakage levels have halved since privatisation.

“Good progress is being made to bring Viridor's remaining four energy recovery facilities in the portfolio on stream, with three in commissioning in 2017/18 and the final facility under construction,” Loughlin explained.

“The expansion of Viridor's energy recovery facility portfolio will support Pennon's earnings growth to 2020 and beyond.”