Pennon Group plc (LON: PNN) have today provided half year results 2019/20 for the period ended 30th September 2019.
Chris Loughlin, Pennon Group Chief Executive said:
“Pennon has maintained its positive momentum through the first half of 2019/20, delivering robust performance across our water and waste businesses. 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. Our existing portfolio of Energy Recovery Facilities (ERFs) is consistently outperforming our investment case returns. This underpins Pennon’s earnings growth for 2020 and beyond. 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. We have made an early start on our business plan for 2020-2025 after receiving fast-track status from the regulator for the second consecutive review, the only water company ever to achieve this. 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. We have challenged ourselves to be more ambitious on environment and climate action, 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.”
Financial Highlights
| Underlying | H1 2019/20 | H1 2019/20 (excluding IFRS 16 impact) | H1 2018/19 | Change(excluding IFRS 16 impact) |
| Revenue | £712.4m | £712.4m | £746.7m | (4.6%) |
| EBITDA^ | £283.9m | £276.8m | £274.0m | +1.0% |
| Adjusted EBITDA | £311.5m | £304.4m | £294.7m | +3.3% |
| Operating profit | £180.7m | £179.5m | £178.5m | +0.6% |
| Profit before tax (PBT) | £142.9m | £143.7m | £142.5m | +0.8% |
| Non-underlying items before tax | £20.2m | £20.2m | (£8.9m) | – |
| Profit before tax | £163.1m | £163.9m | £133.6m | +22.7% |
| Tax | (£29.6m) | (£29.6m) | (£17.6m) | (68.2%) |
| Profit after tax (PAT) | £133.5m | £134.3m | £116.0m | +15.8% |
| Adjusted earnings per share | 31.1p | 31.3p | 30.0p | +4.3% |
| Statutory earnings per share | 30.1p | 25.6p | +17.6% | |
| Dividend per share | 13.66p | 12.84p | +6.4% |
From 2019/20 the new accounting standard IFRS 16: Leases has been adopted, which results in all leases whether operating or financial being treated on a consistent basis within the reported results. Overall there is marginal net impact on the income statement of £0.8 million reducing underlying profit before tax from £143.7 million to £142.9 million and profit before tax from £163.9 million to £163.1 million. For 2019/20 only, to aid the comparability of reported results against the prior period, all figures and narrative in this statement will focus on the results using consistent accounting policies, with references to performance measures excluding the impact of IFRS 16. A full reconciliation of the statutory reported results is included in Item (iii) in the Alternative Performance Measures on pages 70 to 71 of this announcement.
Pennon Group
· Group performance in line with management expectations
· Underlying PBT up by 0.8% to £143.7 million, resulting from:
o Viridor EBITDA growth driven by strong performance across all activities, with ERF availability on track for >90% in 2019/20
o Lower revenues and EBITDA at South West Water reflecting reduced customer demand compared to the elevated level during last year’s hot dry summer, net of lower operating costs through continued focus on cost-savings
· Profit before tax (excluding the impact of IFRS 16) up +22.7% to £163.9 million due to efficient financing providing a non-underlying gain of £18.0 million, and a non-underlying gain of £2.2 million from aspects of the finalisation of pension commitments relating to the exit from the Greater Manchester contract
· Statutory earnings per share up +17.6% to 30.1p
· Interim dividend per share up +6.4% to 13.66p
· Cash flow from operations reflecting robust operational performance, whilst significant capital investment across the Group continues
Viridor
· Excellent track record, successful growth – capitalising on favourable UK policy environment
· Focus on infrastructure model, de-risked through index-linked, long-term contracts
· Good operational performance and EBITDA growth in H1 2019/20 across Viridor’s complementary activities with EBITDA up +9.9%
o Build out of ERFs supporting strong, profitable growth – performing consistently in excess of investment case returns
o Portfolio of 10 operating ERFs on track to deliver full-year availability >90% for the fourth consecutive year, with planned maintenance weighted to H1
o Optimisation ongoing at Glasgow, Beddington and Dunbar ERFs through operational ramp-up process
o Robust volumes and pricing in landfill and landfill gas – strong engine availability and gas collection
o Resilient performance in recycling with continued focus on quality
o Driving ongoing efficiencies in indirect costs
· Confidence in long-term market outlook
o Well placed to benefit from substantial imbalance of supply and demand for ERFs and plastics recycling
· Growth through investment in ERFs, plastics recycling activities and Energy Parks
o Avonmouth ERF on track for commissioning in H2 2019/20
o Joint Venture with Grundon Waste Management Limited for a new ERF at Ford, West Sussex – heads of terms signed
o Construction at our £65 million Avonmouth plastics recycling facility underway – c.85% of inputs and c.75% of offtake now contracted with third parties
o Energy Park development – contract signed for the private wire agreement at Beddington ERF – offtake up to 27 MWs for up to 25 years
· Visible pipeline of future growth projects
o Exploring two further co-located plastics recycling facilities at Ardley and Dunbar ERFs
o Two additional ERFs being considered as market fundamentals remain favourable
o Leveraging value from Viridor’s asset base through Energy Park opportunities
South West Water
· Delivering for our customers
o Bills lower today than they were 10 years ago
o Upper quartile in Ofwat’s Service Delivery report for 2018/19
o Improving operational performance – written complaints down 15%, reducing pollution incidents, and reducing supply interruptions
o On track to meet our leakage target – met every year since inception
o c.99% of bathing waters meeting the quality standard – c.83% achieved excellent status
o H1 2019/20 return on regulated equity (RORE) 11.9% – cumulative RORE for K6 11.8%
o WaterShare delivering £121 million of cumulative outperformance to be shared with customers
· Continuing momentum for K7 (2020-25)
o Highest potential outperformance for K7 – confidence in outperformance across all areas
o Delivering early investments to target ODI rewards – laying the foundations for future performance
o Innovation at the centre of our plans for the next regulatory period – international collaboration agreements signed and UK Innovation Centre launched
· Working in the public interest – ‘New Deal’ for our customers and communities
o Improving our impact on the environment – reducing leakage by 15% by 2025
o Targeting net zero carbon emissions by 2030
o Delivering our WaterShare+ commitment – empowering customers, giving them a stake and say in our business
Pennon Water Services
· Robust performance in a competitive market
o Gaining national customers with multi-year contracts
o Focused on a broader customer offering including value-added services as well as reducing costs and driving efficiency
