REG - Pennon Group PLC - FD Acceptance, Rights Issue and dividend policy

PennonAnnouncement

29/01/2025 07:00

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RNS Number : 0331V  Pennon Group PLC  29 January 2025

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

29 January 2025

Pennon Group plc

Acceptance of Ofwat's Final Determinations, launch of rights issue to support
record investment, revised dividend policy

 

·    Acceptance of Ofwat's Final Determination for South West Water (SWW)
and Sutton and East Surrey (SES), following respective outstanding and
good/standard business plan assessments

·    c.£490m fully underwritten rights issue as part of a comprehensive
financing package to support a record £3.2bn 1  of investment to drive
improved outcomes for customers and the environment

·    Total dividend maintained, with dividend per share rebased, and a
sustainable CPIH inflation linked growth policy to 2030.

 

 

Acceptance of Ofwat's Final Determinations

 

Following Ofwat's PR24 Final Determinations in December 2024 in respect of the
K8 period (2025-2030) for the water businesses within the Pennon Group (SWW
and SES), Pennon Group is announcing today that after careful consideration,
SWW and SES will be accepting their respective Determinations and will not be
seeking a reference to the Competition and Markets Authority (CMA).

 

The Final Determinations support a significant uplift in investment over the
K8 period to 2030, with capital expenditure increasing from an expected K7
(2020-2025) outturn of c.£1.9bn, to a record c.£3.2bn. The investment will
be across a range of transformational projects that are focused on areas like
tackling the use of storm overflows, bolstering water resources through a new
reservoir in the South West, and expanding our programme of nature recovery.
With challenging performance commitments, the clarity and visibility of the
Final Determinations, coupled with our advanced preparation for delivery mean
we can confidently move forward, targeting c.7% Return on Regulated Equity
(RORE), within Ofwat's expected RORE ranges.

 

For the third consecutive price review, Ofwat recognised the outstanding
nature of SWW's business plan with a 30 bps uplift to the cost of equity
(subject to meeting certain targets over the forthcoming period), whilst SES
benefits from a 5 bps uplift for a good/standard plan.

 

An investor summary document detailing the assessment of the Determinations
has been published on the Pennon website and can be accessed by the following
link: https://www.pennon-group.co.uk/investor-information/price-review-pr24
(https://www.pennon-group.co.uk/investor-information/price-review-pr24) .

 

Launch of c.£490m rights issue as part of a comprehensive financing package

 

The step change in investment delivers growth in Regulatory Capital Value
(RCV) 2  of c.34% over the K8 period. To maintain robust balance sheet
resilience, Pennon Group is today launching a fully underwritten c.£490m
rights issue, used to fund increased investment in the water businesses.

 

SWW is consistently named in the top category for financial resilience by
Ofwat, and since acquisition in 2024, Pennon Group has supported SES to
improve its financial resilience which has been noted in Ofwat's most recent
financial resilience report.

 

We anticipate gearing in the water business to be 60-65% consistent with our
long-term gearing policy for the water businesses of 55%-65%. We are targeting
retaining a strong investment grade credit rating of Baa1 for the water
companies over the K8 period, with Pennon Group leverage expected to be a few
percentage points higher than the water businesses but unlikely to exceed
c.5%.

 

Information in respect of the rights issue has been published on the Pennon
website: Investor Information | Pennon Group PLC
(https://www.pennongroup.co.uk/investor-information)

Revised Pennon Group dividend policy

Considering the SWW and SES Final Determinations, and our overall
comprehensive financing package for K8, we are announcing a revised dividend
policy.

 

The total dividend amount for the year to 31 March 2024 of £129.3million 3 
 will be rebased on a dividend per share basis (taking into account the
effect of the Rights Issue), with the rebased dividend per share growing in
absolute terms, by CPIH inflation from and in respect of the current financial
year ending 31 March 2025 and each financial year thereafter to 31 March 2030.

 

Coupled with the c.34% organic RCV growth projections to 2030, this represents
an attractive combination of underlying asset growth and income to our
shareholders.

 

 

Susan Davy, Group Chief Executive Officer commented;

 

" We have listened to customers, communities, and stakeholders. With these
record levels of investment, we will be transforming what we do, fixing storm
overflows, building new reservoirs and creating natural habitats for wildlife.
This is so much more than just about water.  It's about much needed regional
investment, creating jobs and building homes. At the same time, we will be
supporting customers when they need it most, keeping bill increases low, with
innovative tariffs and our £200m support package.  We're doing this. "

 

 

A presentation hosted by Susan Davy, Group Chief Executive Officer and Laura
Flowerdew, Group Chief Financial Officer, will be available at 08:00am (GMT)
today, 29 January 2025. This will be followed by a live Q&A session at
08:45am (GMT). The presentation and Q&A session can be accessed
here: www.pennon-group.co.uk/investor-information
(https://eur03.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.pennon-group.co.uk%2Finvestor-information&data=05%7C02%7Cccnash%40pennon-group.co.uk%7C82c2d186f6c94700c0e808dc7742b4d2%7C25d26f64e15045878705aefeb42a308c%7C0%7C0%7C638516375577033350%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=M75mZgIdqvj9YSpU7kDbKzTsK3LzyIzXsIeS4WdeNSQ%3D&reserved=0)
.

 

On 13 March 2025 we will bring our plan to life at our in-region Capital
Markets Day with further details to follow.

For further information, please contact:

 

 Institutional equity investors and analysts

 Louise Rowe - Compliance, ESG and IR Director  01392 443 260

 James Murgatroyd - FGS Global                  020 7251 3801

 Harry Worthington - FGS Global

 Debt investors

 Chris Tregenna - Group Treasurer               01392 443 260

 Retail investors

 Link Asset Services                            0371 664 9234

 

Disclaimer

The person responsible for making this announcement on behalf of Pennon is
Andrew Garard, Group General Counsel and Company Secretary.

The information contained in this announcement is for background purposes only
and does not purport to be full or complete. No reliance may or should be
placed by any person for any purpose whatsoever on the information contained
in this announcement or on its accuracy, fairness or completeness. The
information in this announcement is subject to change without notice.

This announcement is for information purposes only and is not intended to
constitute, and should not be construed as, an offer to sell or issue, or a
solicitation of any offer to purchase, subscribe for or otherwise acquire, any
securities of the Company in any other jurisdiction where such offer or sale
would be unlawful and, subject to certain exceptions, should not be
distributed, forwarded to or transmitted in or into any jurisdiction, where to
do so might constitute a violation of local securities laws or regulations.

Neither this announcement nor any part of it should form the basis of or be
relied on in connection with or act as an inducement to enter into any
contract or commitment whatsoever. Nothing in this announcement should be
interpreted as a term or condition of the rights issue.

This announcement does not constitute an offer to sell, or a solicitation of
offers to purchase or subscribe for, securities in the United States. No
securities have been and will not be registered under the US Securities Act of
1933, as amended (the "Securities Act"), or with any securities regulatory
authority or under the relevant securities laws of any state or other
jurisdiction of the United States, and may not be offered, sold, resold,
pledged, taken up, exercised, renounced, delivered, distributed or
transferred, directly or indirectly, into or within the United States except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and in compliance with any
applicable securities laws of any state or other jurisdiction of the United
States.

 

 1  In forecast outturn prices

 2  RCV is used to measure the capital base of a company when setting price
limits. The RCV increases through proportion of totex and an adjustment for
inflation, net of the run-off mechanism (which is similar to depreciation of
fixed assets) which is recognised in revenue. For K8 this represents a c.34%
increase to 2030.

 3  The base dividend for the year ended 31 March 2024 was £129.3m, adjusted
from the dividend paid in that year of £126.9m to remove the £2.4m one-off
deduction in respect of the fine from the Environment Agency paid by South
West Water

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