Pennon Group PLC (LON:PNN) has announced its half year results for 2023/24.
Susan Davy, Group Chief Executive, commented:
Pennon has continued to make progress in the last six months on delivering for customers and shareholders, improving operational resilience across the group through an 87% step up in investment, supported by a healthy balance sheet. We are executing on our twin track strategy of organic and acquisitive growth in UK water, creating long term value and making progress on what matters most to those across our regions.
I am very clear that if we serve our customers well, we serve our shareholders well, which is why we are focused on improving environmental performance, keeping bills as low as possible, developing new water resources, and investing in renewable energy generation. This has helped us deliver a 100% bathing water quality assessment for the third year running and reduce serious pollution incidents this year, but we know there is more to do.
Our twin track strategy of both organic and acquisitive growth in UK water ensures we continue to drive long term value, with the Bristol acquisition benefits on track, alongside a growing portfolio of complementary services delivered through our business to business retailers and growing renewable energy business.
Everyone at Pennon and in our wider supply chain works relentlessly to make change happen and I want to thank all my colleagues for their contribution to these results. I also want to thank them in advance for what they are about to do, as we look ahead to 2030, creating 2,000 new jobs in the region and delivering a sustainable future for all.
FINANCIAL PERFORMANCE
| H1 2023/24 | H1 2022/23 | Change | |
| Underlying^ revenue | £448.6m | £425.5m | +5.4% |
| Underlying profit before tax | £9.1m | £22.5m | (59.6%) |
| Non-underlying items before tax[1] | (£5.9m) | (£1.6m) | – |
| Profit after tax | £1.8m | £18.5m | (90.3%) |
| Earnings per share (EPS) | |||
| · Adjusted EPS^ | 3.6p | 7.9p | (54.4%) |
| · Statutory EPS | 0.5p | 7.0p | (92.9%) |
| Dividend per share[2] | 14.04p | 12.96p | +8.3% |
· Statutory and underlying revenue up 5.4% driven by inflationary tariff increases which are moderated through regulatory adjustments, minimising the impact on customer bills. Pennon Water Services generating ongoing revenue growth from contract wins outside of our wholesale supply regions
· £9.1 million underlying profit before tax – reduction compared to H1 2022/23 due to higher inflation driven costs. Compared to H2 2022/23 underlying profit before tax improved, a trend expected to continue in to H2 2023/24
· Net non-underlying cost items before tax of £5.9 million – includes one-off costs of business transformation, drought and renewable energy acquisitions
· Statutory profit after tax of £1.8 million (H1 2022/23: £18.5 million profit after tax)
· Adjusted earnings per share of 3.6 pence, down from 7.9 pence in H1 2022/23
· Statutory earnings per share of 0.5 pence after net non-underlying costs
· Delivering on established K7 (2020-25) dividend policy – interim dividend per share up 8.3% (CPIH +2%) to 14.04 pence.
A full reconciliation to the statutory reported results is included in item (i) in the Alternative Performance Measures on pages 67 to 70 of this announcement.
Making progress, growing sustainably
Step up in investment across the Group
· Delivering on our organic and acquisitive growth strategy – on track for 60% RCV growth to 2025 and c.100%[3] to 2030
· c.£1.6 billion K7 (2020-25) investment well underway – delivering sustainable environmental improvements across our region – £234 million[4] regulated water business capital investment represents a 65% increase on H1 2022/23
· Total Group investment increased by 87% v H1 2022/23
· Delivering on Bristol Water acquisition benefits – c.£16 million annualised synergies to date.
Making progress on what matters most across our region
· 100% bathing water quality for the third consecutive year[5]
· Breaking the cycle of drought – reservoir levels more than doubled compared to 2022[6], on track to increase water resources across Cornwall and Devon by 45% and 30% in K7
· Upper quartile performance for South West Water on industry comparative performance metrics – one of only two companies to improve performance in Ofwat rankings
· Targeted for 2023 to retain EPA performance gains delivered in 2022 (EPA 2* status) – remain focused on achieving 4* status for 2024
· Accelerating our Net Zero 2030 commitment – investing in renewable energy generation – pioneering our Green First approach, promoting nature-based solutions
· Supporting our customers and communities – unlocking over £90 million of customer support in K7 to date, keeping bills as low as possible with below inflation increases to 2025.
Adopting a Green First approach
· Sector-leading catchment management ahead of target – supporting improvements to water quality – 6% improvement in RNAGs to date in K7, from 19% to c.13%
· Renewable energy investment through Pennon Power Limited – current investment of c.£145 million on track to generate 40% of Group energy requirements, alongside reducing exposure to volatile global energy markets.
Underpinned by robust fundamentals
· Strong balance sheet – responsible, sustainable gearing at 61.0% – broadly in line with Ofwat’s notional company expectations
· Sector-leading financing portfolio – effective interest rate of 5.8% driven by the Group’s strategically positioned financing portfolio
· Robust returns – track record of RORE^ outperformance – 7.9%[7] cumulative K7 Group RORE, reflecting a doubling of base returns.
Ambitious plan for K8 (2025-30) – the right plan for our regions
· Strong support from customers for our most ambitious plan to date – 74% customer acceptability following our most extensive engagement, with over 30,000 customers and 1,000 stakeholders engaged in the plan’s development
· Investing in the areas that matter most – £4.5 billion totex plan for 2025-30, assuming 12% efficiency, more than quadruples our K7 enhancement capex to deliver benefits for customers, communities and the environment
· Transition underway to deliver on our ambitious plan – supply chain mobilised with new contractors appointed
· Keeping bills as low as possible – 3-4% average increase per annum to 2030 across our regions
· Incentivising performance, with the potential of up to 8.6% return on regulated equity
· Underpinned by responsible financing, with average gearing of 63.3% over K8, within our well-established range of 55-65%
· Nominal RCV growth of 38% (real – 25%) to 2030 – delivering sustainable growth.
Presentation of results
A presentation of these results hosted by Susan Davy, Group Chief Executive and Paul Boote, Group Chief Financial Officer, will be available at 08:00am (GMT), today, 29 November 2023 and can be accessed here: www.pennon-group.co.uk/investor-information.
The presentation will be followed by a live Q&A conference call at 08:45am (GMT). Details are included below:
| United Kingdom (Toll-Free): | +44 800 358 1035 |
| Global Dial-In Numbers | |
| Conference passcode: | 803418 |
[1] Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of financial performance
[2] Dividend policy of CPIH + 2%. The CPIH rate used is 6.3% as of 30 September 2023.
[3] RCV growth over K7 forecast to be 60%, and RCV growth over K8 forecast to be c.40%
[4] Total H1 2023/24 capital expenditure – £266.3 million, including £31.7 million – Pennon Power
[5] For all bathing waters where South West Water has assets which may potentially impact water quality. Based on our preliminary analysis of Environment Agency data ahead of formal publication of results, anticipated at the end of November
[6] Total reservoir storage for Devon and Cornwall – 64% as at 30 September 2023 v 31% as at 30 September 2022
[7] Return on regulated equity calculated on Ofwat basis, excluding re-investment in additional commitments
