Delivering for customers, communities and shareholders
Chris Loughlin, Pennon Chief Executive said:
“Momentum for Pennon continues with a strong performance in the first half of 2018/19 across both water and waste. We are delivering on our promises to customers and communities and our investment across the Group is driving tangible and positive results.
In water, we demonstrated our service resilience in extreme weather conditions, with the aftermath of the exceptional cold weather in March followed by the hottest summer on record. Our focus on customers has been reflected in South West Water’s best ever customer service score for this half year. With a relentless focus on efficiency and cost savings, average bills are lower than they were 9 years ago, with a further 11% decrease expected in the next regulatory period 2020-2025 under our new business plan. Customers will be empowered as part of a New Deal giving them a tangible stake and say in South West Water.
The focus for Viridor is UK recycling and residual waste processing and transformation. Waste market dynamics are favourable, with the ‘Blue Planet’ effect spurring action, and we are optimistic that positive changes will be announced in the Government’s Resources & Waste Strategy later this year enabling a UK recycling system fit for the future. The operating fleet of Energy Recovery Facilities (ERFs) is performing well, transforming waste into electricity and heat. Progress continues bringing Viridor’s remaining four ERFs in the portfolio on stream, with three now in operational ramp up and the final facility under construction. We have further consolidated our position through increasing our holding in one of our joint venture ERFs, Runcorn I. The development of Viridor’s ERF portfolio will support Pennon’s earnings growth to 2020 and beyond”.
Financial Highlights
| Underlying1 | H1 2018/19 | H1 2017/18 | Change |
| Revenue | £746.7m | £723.9m | +3.1% |
| EBITDA2 | £274.0m | £253.5m | +8.1% |
| Adjusted EBITDA3 | £294.7m | £285.8m | +3.1% |
| Operating profit | £178.5m | £162.4m | +9.9% |
| Profit before tax (PBT) | £142.5m | £131.1m | +8.7% |
| Non-underlying items before tax4 | (£8.9m) | (£1.3m) | - |
| Statutory profit before tax | £133.6m | £129.8m | +2.9% |
| Tax | (£17.6m) | (£17.5m) | (0.6%) |
| Statutory profit after tax (PAT) | £116.0m | £112.3m | +3.3% |
| Earnings per share5 | 30.0p | 25.3p | +18.6% |
| Statutory earnings per share | 25.6p | 21.8p | +17.4% |
| Dividend per share6 | 12.84p | 11.97p | +7.3% |
Pennon Group
- Pennon is on track to meet management expectations for full year 2018/19
- Underlying PBT up +8.7% following:
- Higher revenues and EBITDA at South West Water reflecting increased customer demand over the summer
- Continued cost saving focus, leading to Total Expenditure (Totex) outperformance, at South West Water, a key component to RORE7. On track for continued outperformance for 2018/19
- EBITDA growth of +17.7% at Viridor supported by the build out of new ERFs
- Momentum in group efficiencies maintained with c.£15 million p.a of the £17 million p.a expected from 2019 already secured
- Statutory PBT up +2.9% to £133.6 million
- Statutory earnings per share growth of +3.8p to 25.6p
- Interim dividend per share up +7.3% to 12.84p
- Cash flow from operations reflecting robust operational performance, whilst significant capital investment continues
- Development of our sustainable financing framework, with £350 million of £480 million secured linked to the sustainable nature of the business, reducing our cost and reflecting our environmental and social credentials
South West Water
- Strong performance, demonstrating service resilience through extreme climatic conditions
- Highest ever Customer Service (SIM) score achieved with South West Water now ranked 2nd overall in England and Wales in H1 2018/198
- Cumulative Return on Regulated Equity (RORE) at 11.8%9 - WaterShare delivering c.£100 million of outperformance for sharing with customers to date
- On track to deliver all our business plan commitments by 2020
- Cumulative net ODI reward of £9.3 million10 to H1 2018/19
- Continued strong focus on efficiency, on track to deliver the c.£300 million Totex outperformance to 2020 – £209 million delivered cumulatively to H1 2018/19
- New Deal launched in our Business Plan to Ofwat for the next five year period 2020-2025 (K7), giving customers a tangible stake and say in the business
- Operational delivery preparations already underway
Viridor
- Focused on UK recycling and residual waste processing and transformation
- Favourable recycling market dynamics
- Public perception, ‘Blue Planet’ effect – driving Government support for recycling
- Recovery in recycling markets since H2 2017/18 – EBITDA of £7.4 million in H1 2018/19 ahead of £4.4 million achieved in H2 2017/18
- Strong residual waste market opportunities
- Build out of ERFs supporting strong growth in EBITDA of +17.7%11
- Operational ERFs outperforming base case. On track for full year availability >90%12 with planned maintenance weighted to H1
- The three new ERFs at Glasgow, Beddington and Dunbar are all processing waste. Optimisation is ongoing and operations will ramp up over the next 18 months as has previously occurred at the other ERFs in our portfolio
- Further consolidated our position through increasing the holding in Viridor’s joint venture (TPSCo)13 which owns Runcorn I ERF
- Maximising value from landfill energy
- Robust landfill demand forecast into the medium term.
- 10 sites open to waste arisings, with volumes and gate fees holding up well
- Investing in landfill gas for improved longer term yields
Pennon Water Services
- Pennon Water Services, one of only five associated retailers to have achieved net growth in the new competitive non-household market. Focused on value enhancing contracts and future cost base efficiencies.
Presentation of Results
A presentation for City audiences will be held today, Tuesday 27 November 2018, at 09.00am at the ICAEW (The Auditorium), One Moorgate Place, London, EC2R 6EA.
A live webcast of the presentation can also be accessed using the following link:
http://www.pennon-group.co.uk/investor-information
1 Before non-underlying items. Underlying earnings are presented to provide a more useful comparison on business trends and performance.
2 Earnings before interest, tax, depreciation and amortisation (EBITDA)
3 Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable
4 Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of financial performance
5 EPS before deferred tax, non-underlying items and proportionately adjusted for the return on the perpetual capital securities (Note 8)
6 The RPI rate used is 3.3% as of September 2018
7 RORE - Return on Regulated Equity
8 Ranked 2nd Water and Sewerage Company (WASC) for H1 2018/19 quality score based on two waves of Customer Experience Surveys (CES), a key element of SIM (Service Incentive Mechanism)
9 See page 20
10 £9.3 million cumulative net reward reflecting £11.6 million net reward which will be recognised at the end of the regulatory period and £2.3 million net penalty which can be reflected during the regulatory period
11 ERF earnings include contractual compensation in the form of liquidated damages of H1 2018/19 £25.2 million (H1 2017/18 £2.6 million) when construction completed post original contractual completion date, offsetting this is a provision for amounts recognised against the Interserve contractual receivable
12 Forecast average ERF availability is weighted by site capacity, includes 100% of joint venture availability, excludes Bolton
13 TPSCo – INEOS Runcorn (TPS) Holdings Limited which owns Runcorn I ERF
