Pennon posts decent earnings performance in first half

Water and waste management utility operator Pennon Group reported a 4.6% fall in underlying revenue in its first half results on Tuesday, excluding the impact of IFRS 16, to £712.4m.

The FTSE 250 company said its EBITDA was 1% higher, however, at £276.8m, while adjusted EBITDA for the six months ended 30 September was 3.3% firmer at £311.5m.

Underlying operating profit improved 0.6% year-on-year to £180.7m, and underlying profit before tax was up 0.8% at £142.9m.

Adjusted earnings per share stood at 31.3p, which was a 4.3% improvement over the first half of the prior year, while the board declared a dividend per share of 13.66p, up 6.4%.

“Pennon has maintained its positive momentum through the first half of 2019-2020, delivering robust performance across our water and waste businesses,” said chief executive officer Chris Loughlin.

“We continue to deliver on our promises to customers, communities and shareholders as our strong operational performance and ongoing investments drive tangible, positive and sustainable results.

“Viridor continues to deliver sustainable growth in UK recycling and residual waste management.”

Loughlin said the company’s existing portfolio of energy recovery facilities was consistently outperforming its investment case returns.

That underpinned Pennon's earnings growth for 2020 and beyond, he added.

“Our recycling division is on a growth trajectory with a new plastics processing facility on track to add much needed capacity in the UK market.

“With its diversified complementary operations and unique competitive advantages, Viridor is well positioned to take advantage of strong market dynamics and a favourable UK policy environment.

“South West Water performance is underpinned by strong cost control.”

The division had made an early start on its business plan for 2020-2025, after receiving fast-track status from the regulator, Ofwat, for the second consecutive review.

Pennon noted it was “the only water company ever” to achieve that.

“Our plan will see customer bills reduce further, with the cost of the average bill lower in 2025 than it is today.

“Almost two thirds of South West Water employees are shareholders and, from next summer, our 'new deal' will give South West Water customers a financial stake and a say in the business.”

Pennon had also challenged itself to be more ambitious on environment and climate action at South West Water, Loughlin noted, reducing leakage and targeting net zero carbon emissions by 2030.

“In September we announced a full review of Pennon's strategic focus, growth options and capital allocation policy.

“The review is ongoing and we will announce our conclusions in 2020.”

At 0828 GMT, shares in Pennon Group were up 2.24% at 947.6p.