Pennon Group earnings fall in line with forecasts

Pennon Group reported half-year results in line with management expectations on Tuesday, as continuing group underlying profit before tax slipped to £86.7m, from £101.4m year-on-year.

The FTSE 100 water utility operator said underlying earnings per share for the continuing group totalled 17.9p for the continuing group in six months ended 30 september, down from 20.1p year-on-year.

It reported a return on retained earnings from the WaterShare scheme of 8.0%, driven by “strong” total expenditure and financing outperformance.

Total expenditure efficiency of £34m had been delivered to date, with Pennon expecting to maintain that momentum over the next regulatory period, dubbed ‘K7’.

It said it had an effective average interest rate of 2.5%, “significantly below” Ofwat's 4.2% notional cost of debt.

Pennon said operations had been “resilient” through Covid-19 thus far, with a “limited financial impact” as cash collections for South West Water and Pennon Water Services remained robust.

There had been no requirement for the use of regulatory or market support mechanisms, while 21,000 additional customers had been added to South West Water's dedicated Covid-19 priority services register.

Looking at the new K7 regulatory period, Pennon said it had seen continued improvements in key customer measures, with period-on-period reductions in supply interruptions, down 51%, improvements to water quality with taste and odour complaints down 18%, and written complaints, which reduced 5%.

It said it was 80% already on target or in reward for K7, with a key focus being on improving pollutions performance.

Pennon also noted the successful sale of Viridor, delivering a £1.7bn profit on disposal, with net cash proceeds of £3.7bn received.

The company’s debt rightsizing was said to be progressing “well”, with around £0.75bn repaid to date.

A contribution of £36m had been made to Pennon's principal pension scheme following the disposal, with the firm noting it now had headroom of £2.7bn for investment.

“The completion of the Viridor sale in July this year has seen significant shareholder value realised, allowing us to refocus our business on excellence in the water and wastewater sector,” said chief executive officer Susan Davy.

“It is an incredibly exciting time for the group as we forge ahead with our 'New Deal' plans for the K7 2020-2025 period.

“We will deliver our New Deal by being even closer to the people we serve, understanding people's needs, demonstrating the positive impacts we're making, and above all else, doing the right thing.”

Davy said that started with the company’s new ‘WaterShare+’ scheme, in which one in 16 of its household customers were now shareholders.

“Pennon has delivered resilient operational and financial performance through the first half of 2020-2021, making good progress in the new K7 regulatory period and against the backdrop of Covid-19.”

At 0906 GMT, shares in Pennon Group were down 0.62% at 997.8p.