Building Momentum, Driving Growth
Chris Loughlin, Pennon Group Chief Executive said:
"Pennon has delivered a good performance in the first half of 2016/17 across its water and waste businesses. South West Water continues to achieve a sector-leading RORE(1) at 11.7% as it outperforms for its customers, and is expecting momentum and delivery to continue. Viridor is on track to contribute the targeted c.£100 million of EBITDA from its ERF(2) portfolio this year while self-help measures are driving improved EBITDA margins in recycling.
We are continuing to invest for growth. Following a review, we have taken the decision to commit to a £252 million ERF at Avonmouth, expanding our portfolio to twelve plants. This is a significant investment in the UK’s environmental infrastructure and will add to the already expected significant increase in EBITDA from our ERF portfolio once all facilities are fully operational. In water, we are announcing a new retail venture for business customers with South Staffs/Cambridge Water.
We remain focused on driving value through efficiency. South West Water has delivered £80 million of Totex savings since the beginning of K6 (2015-2020), while our recently completed Shared Services Review will increase total Group cost savings from the c.£11 million previously announced to c.£17 million p.a from 2019.
We believe Pennon is well positioned for the future and is on track to meet management expectations for the full year 2016/17. Our performance underpins our sector-leading dividend policy of 4% growth per annum above RPI inflation to 2020."
Financial Highlights
| Underlying(3) | H1 2016/17 | H1 2015/16 | Change |
| Revenue | £685.5m | £689.1m | (0.5%) |
| EBITDA | £245.4m | £231.7m | +5.9% |
| Adjusted EBITDA(4) | £277.2m | £261.6m | +6.0% |
| Operating Profit | £153.9m | £135.3m | +13.7% |
| Profit Before Tax | £128.1m | £106.8m | +19.9% |
| Tax | (£30.7m) | (£21.9m) | +40.2% |
| Earnings per share(5) | 23.6p | 23.2p | +1.7% |
| Dividend per share(6) | 11.09p | 10.46p | +6.0% |
| Underlying Profit After Tax (PAT) to Statutory PAT | |||
| Underlying PAT | £97.4m | £84.9m | +14.7% |
| Non-underlying Items (Profit After Tax) | (£8.3m) | - | - |
| PAT (attributable to holders of hybrid capital) | (£16.2m) | (£16.2m) | - |
| PAT (attributable to shareholders) | £72.9m | £68.7m | +6.1% |
- Underlying earnings are presented to provide a more useful comparison on business trends and performance. Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of the Group’s financial performance
- Underlying operating profit and PBT up +13.7% and +19.9% respectively following higher revenues and cost savings at South West Water and growth at Viridor driven by the Energy Recovery Facilities (ERFs) and recycling ‘self-help’ initiatives, net of an expected decline in landfill activities
- Return on Regulated Equity at 11.7%, unique WaterShare mechanism benefiting customers
- Sustainable, low cost funding position underpinning continuing capital investment
- Interim dividend per share +6.0% to 11.09p
- On track to meet management expectations for the full year 2016/17
Operational Highlights
- Water business outperforming the regulatory contract, on track to deliver a net ODI reward for 2016/17, and a cumulative net ODI reward for the performance to date(7)
- Eight operational ERFs performing well, focus on increasing average availability, expected to be c.90% for 2016/17
- Construction of three further ERFs ongoing – Dunbar and South London (Beddington) progressing to budget
- Commissioning has commenced at parts of Glasgow’s Recycling and Renewable Energy Centre, though contractor delays mean takeover of the centre is now expected in 2017. The project will now be completed by an experienced team assembled by Viridor with contractual remedies supporting completion
- c.80%(8) of existing ERF portfolio volumes (and associated price) contracted long-term
- Recycling 'self-help' measures driving increased EBITDA, commodity risk sharing with clients
- Driving value through efficiency - integrating, sharing best practice, reducing costs through a Shared Service Review
- Secured further growth opportunities
- New non-household retail venture with South Staffs / Cambridge Water
- Committed to 12th ERF at Avonmouth - expected to be completed in 2020/21
- Over 50% of inputs to Avonmouth are already agreed
Presentation of Results
A presentation for City audiences will be held today, Friday 25 November 2016, at 10am at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.
A live videocast of the presentation can also be accessed using the following link:
www.pennon-group.co.uk/investor-information
For further information, please contact:
Pennon
Susan Davy – Chief Financial Officer - Pennon
Sarah Heald – Director of Corporate Affairs & Investor Relations – Pennon
01392 443 401
Finsbury
James Murgatroyd
Faeth Birch
0207 251 3801
About Pennon Group
As one of the largest environmental infrastructure groups in the UK, Pennon is at the top end of the FTSE 250. Pennon has assets of around £5.8 billion and a workforce of around 5,000 people.
The merged water company of South West Water and Bournemouth Water provides water and wastewater services to a population of c.1.7 million in Cornwall, Devon and parts of Dorset and Somerset and water only services to c.0.5 million in parts of Dorset, Hampshire and Wiltshire. South West Water was awarded enhanced status for its 2015-2020 Business Plan, and has the highest potential returns in the water sector.
Viridor is a leading UK recycling, energy recovery and waste management company, providing services to more than 150 local authorities and major corporate clients as well as over 32,000 customers across the UK.
Pennon currently has a sector leading dividend policy of 4% year-on-year growth above RPI inflation to 2020. This is underpinned by the highest potential Return on Regulated Equity in the water sector over K6 (2015-2020) and the growth in earnings being delivered by Viridor’s ERFs.
Notes:
1 Return on Regulated Equity (RORE)
2 Energy Recovery Facility (ERF)
3 Before non-underlying items
4 Statutory EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable
5 Before deferred tax and adjusted proportionately to reflect the half year impact of the annual hybrid periodic return. Basic earnings per share (statutory basis) 17.7p
6 The RPI rate used is 2.0% as of September 2016
7 The RPI rate used is 2.0% as of September 2016
8 Excluding Avonmouth
