REG - Pennon Group PLC - Full Year Results 2022/23
01/06/2023 07:00
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RNS Number : 2629B Pennon Group PLC 01 June 2023
1 June
2023
Full Year Results 2022/23
Susan Davy, Group Chief Executive, commented:
This has been an extraordinary year for Pennon in which extreme weather
patterns have tested our operational resilience. At the same time,
inflationary pressures have proven our financial resilience. We have been
able to respond to both, with agility and pace, focusing on the things that
matter right now, and tackling the biggest challenges head on. Whether it's
the use of storm overflows, water resilience, the cost of living crisis or
climate change, we are investing more than ever before. We are also investing
for the future.
In a year in which the sector has been rightly challenged to clean up its act,
we have delivered improvements in environmental performance, building on our
sector leading 100% water quality for our 860 miles of coastline and on track
to reduce our use of storm overflows by 50% by 2025. I am also clear that one
pollution is one too many, and numbers are falling as we implement sustained
change.
Water is essential for life. As one of only two regions officially in drought,
and with the hottest, driest, weather on record, we are investing to break
through the drought cycle, deploying innovative solutions such as
desalination, repurposing ex quarries and mines into mini reservoirs to create
more capacity in Cornwall and Devon as and when it's needed, and empowering
customers to use less and save money.
At Pennon, we believe that every customer should benefit from what we do
especially in this cost of living crisis. With over £85 million customer
benefits delivered, we have kept bills as low as possible, with below
inflationary increases, considerably lower than the sector average of c.7%. We
continue to focus on eradicating water poverty in our region, with many more
customers benefiting from affordability and support tariffs. At the same
time, more customers than ever before are shareholders in our Group, with our
socially responsible business model, Watershare+, giving customers both a
stake and a say in their local water company.
And given the ongoing volatility of the energy markets, we have boosted the
renewable energy pillar of our Net Zero strategy, with investments in energy
generation well underway, and with more to come.
We can do all this, because of our robust balance sheet and financial
resilience, supported by year on year increases in outperformance. In summary,
we are tackling the biggest challenges head on, focusing on the things that
matter most, investing more, and in building the capabilities for the future.
FINANCIAL PERFORMANCE
2022/23 2021/22 Change
Underlying(^) revenue £825.0m £792.3m +4.1%
Underlying profit before tax £16.8m £143.5m (88.3%)
Non-underlying items before tax 1 (£25.3m) (£15.8m) -
Profit after tax £0.4m £15.6m (97.4%)
Group RORE 2 10.5% 8.9% +1.6%
Earnings per share (EPS)
· Adjusted EPS(^) 7.3p 50.2p (85.5%)
· Statutory EPS Nil p 4.9p (100.0%)
Dividend per share 3 42.73p 38.53p +10.9%
· Underlying revenue increase includes growth in Non-household demand,
supported by contract wins from Pennon Water Services 4 , in areas outside of
our wholesale supply regions, and a full twelve-month contribution from
Bristol Water. The Group's statutory revenue for 2022/23 of £797.2 million
includes non-underlying revenue reductions of £27.8 million
· £16.8 million underlying profit before tax - reduction compared to
the prior year reflects the flagged near-term pressures on earnings from
inflation driven power and financing costs
· Net non-underlying costs before tax of £25.3 million - delivering on
our WaterShare+ commitments and helping to address the severe drought
conditions
· Statutory profit after tax of £0.4 million (2021/22: £15.6 million
profit after tax)
· Adjusted earnings per share of 7.3 pence, down from 50.2 pence in
2021/22
· Statutory earnings per share of nil pence after net non-underlying
costs. Statutory earnings per share for 2021/22 were impacted by the
significant non-underlying deferred tax charge in respect of the change in
corporation tax rate
· Group RORE(2) for 2022/23 of 10.5% reflecting an increase of 1.6% on
2021/22
· Delivering on established K7 (2020-25) dividend policy - total
dividend up 10.9% (CPIH +2%) to 42.73 pence.
A full reconciliation to the statutory reported results is included in item
(i) in the Alternative Performance Measures on pages 58 to 63 of this
announcement.
MAKING PROGRESS AGAINST OUR KEY PRIORITIES
Improving environmental water quality
· c.50% reduction in pollution incidents since 2020, c.30% reduction
delivered in 2022
· c.30% reduction in storm overflow use over 2022 to an average of
28 5 (2021: 39) and a c.50% reduction during the bathing season. This is
supported by our WaterFit investment, which remains on track to reduce
releases to an average of 20(5) by 2025
· Installation of monitors at 100% of storm overflows completed, one
year ahead of target
· Achieved 100% bathing water quality, as assessed by the Environment
Agency, for the second consecutive year, with 99% achieving good or excellent
status
· Reduced our impact on rivers by almost one third to date, from 19% to
12.6% 6 , well ahead of our target of 12% by 2025, and river water quality
pilots underway
Water resilience and quality
· Investing c.£125 million to diversify water resources and secure
future resilience - progressing desalination solutions, installing new
pipelines and repurposing quarries
· Significant increase in water resources available by 2025 - Cornwall
by c.45% 7 (c.25% delivered to date), Devon by c.30%(7) (c.12% delivered to
date)
Climate change and Net Zero
· Delivering on our Net Zero 2030 plan, having already reduced our
carbon footprint by c.40% since 2021
· c.£160 million investment to accelerate our Net Zero 2030
commitments - first site acquired in Dunfermline producing c.40 GWh for
acquisition and build costs of c.£35 million, additional opportunity for 60
MW battery storage capacity totalling c.£25 million
· 80% of catchments improved, >110,000 hectares improved to date,
220,000 trees planted
Addressing customer affordability
· Keeping bills as low as possible - below inflation bill increases for
South West Water and Bristol Water customers in 2023/24
· Over £85 million of customer benefits delivered in K7 to date
o Second £20 million issuance of our unique customer sharing mechanism -
WaterShare+, with Bristol Water customers also benefitting for the first time
o Over 110,000 customers benefitting from our affordability initiatives
o 23% increase in customers accessing our support tariffs
Financially resilient
· Year on year reduction in gearing 8 to 60.8%, broadly in line with
Ofwat's notional assumption
· Pension scheme c.£29 million surplus - 2022 valuation agreed, no
ongoing deficit recovery
· Strong, double-digit RORE(2) for South West Water - 11.1%, Bristol
Water - 4.6%
o Outperformance supporting reinvestment in additional environmental
initiatives
Delivering on our largest ever environmental investment programme
· c.50% increase in capital expenditure in 2022/23, investing over
£750 million over the next two years to deliver our c.£1.5 billion K7
programme
· RORE outperformance and Pennon balance sheet strength supporting
reinvestment in accelerated and additional initiatives totalling c.£300
million over K7
· Investment of c.£358 million in 2022/23 across our asset base to
support the delivery of our environmental, water and wastewater service
outcomes
o c.70% of Outcome Delivery Incentives(^) (ODIs) on track or ahead of target
for SWW
o c.65% of Outcome Delivery Incentives on track or ahead of target for
Bristol Water
Driving long-term sustainable growth
· Sustainable, profitable B2B retailer growth
· On track to deliver a high quality, ambitious plan for PR24 -
balancing a step change in investment with a continued focus on customer
affordability
· Twin-track strategy for growth - delivering RCV growth of >50%
over K7, positive outlook for RCV growth in K8 and beyond
Presentation of results
A presentation of these results hosted by Susan Davy, Group Chief Executive
and Paul Boote, Group Chief Financial Officer, will take place at London Stock
Exchange, 10 Paternoster Sq, London, EC4M 7LS at 09:00am (GMT), today, 1 June
2023.
The presentation will be immediately followed by a live Q&A which will
also be available via conference call facility. Details are included below:
United Kingdom (Toll-Free): +44 800 358 1035
All other locations: +44 20 3936 2999
Conference passcode: 482295
For further information, please contact:
Paul Boote Group Chief Financial Officer 01392 443 168
Jennifer Cooke Group Head of Investor Relations
James Murgatroyd FGS Global 020 7251 3801
Harry Worthington
Group Chief Executive's Review
As Chief Executive of Pennon and South West Water my priority is to ensure
that there is an uninterrupted supply of high-quality drinking water, and
effective wastewater services for our population of 3.5 million, every day.
This includes the summer months, when our services rapidly scale up to supply
over 10 million customers who visit the South West for the 860 miles of
coastline and one third of the nation's bathing beaches. We are facing
significant environmental challenges as a sector, and as a Group we need to
move at pace to keep up with the change that is rightly demanded.
Tackling the sector's biggest challenges head on
Environmental water quality
When South West Water was privatised over thirty years ago, nearly half of all
household and business' sewage in the region was untreated and discharged
directly into the sea. Testing carried out to assess levels of harmful
bacteria showed bathing water quality was low, with only 28% passing the most
stringent tests. By investing over £13 billion through upgrades, like
operation 'Clean Sweep', all sewage is now treated through one of our 653
treatment works. For the second year running we have achieved 100% bathing
water quality, and no other water company has as many high-quality bathing
waters in their area, but we recognise that there is still more to do.
Like all water companies in the UK, we have historically relied on storm
overflows which are designed to prevent sewage filling our streets and
flooding homes and businesses. We are acting now to accelerate investment to
reduce their use, improve transparency and to benefit all of our communities.
WaterFit Live details investment that we are making to reduce overflow spills
across the region's coastline by 2025. It also gives customers and visitors
live information about our region's bathing beaches and storm overflow
operation. There will be more investment to come and through
#YourBeachYourSayOurInvestment, we are empowering customers and communities to
work with us to plan our next phase of improvements and investments.
Water quality and resilience
Water supply across our region is under immense and growing pressure. Over 90%
of our water comes from the region's surface water sources which come from our
river and reservoir systems. With the hottest, driest weather on record last
year, we have seen the impact of climate change first hand, intensified by
population growth and tourism. For the first time in over 25 years, we had to
implement our drought plan, which also included introducing a hosepipe ban for
the first time in as many years. We are doing everything possible to manage
our water resources carefully, including reinvesting c.£125 million to
diversify water resources across the region, boosting resilience for now and
the long-term. Acting quickly and responsibly, we have already made good
progress by creating new sources through repurposing quarries as well as
developing new pipelines, alongside a range of demand-side initiatives, such
as offering free customer leak repairs, but we need to do more. We recognise
the need to do more, and our supply-side investments, including the
development of innovative desalination solutions and additional sources and
storage, combined with the interventions we're already underway with, will
boost Cornwall's supplies by c.45% and c.30% for Devon by 2025.
Climate change and Net Zero
In addition to the drought conditions, this was also a year in which we
experienced some of the worst storms on record, with freezing temperatures,
followed by rapid thawing and flooding. It is clear to see that the impact of
climate change is upon us, and that we all need to play our part in protecting
the planet's precious resources. We continue to expect more extreme weather
events, hotter drier summers, rising sea levels and flooding. As a result,
delivering on our Net Zero 2030 commitment is more important than ever, and we
are making good progress across all three pillars of our strategy -
sustainable living, championing renewables and reducing carbon emissions. We
are investing c.£160 million in renewable energy generation, and have
improved 80% of the catchments we work in so far, through activities including
peatland restoration and tree planting, and we will continue to deliver
more.
Customer affordability
We know that we, and the broader sector need to step up investment to higher
levels than we have seen since we took ownership thirty years ago, and it's
critical that we balance investing in our network infrastructure whilst
ensuring that bills remain fair and affordable for all. As a Group, we are
different from others in the sector and have around 90,000 customer
shareholders following the second c.£20 million issuance of our
ground-breaking Watershare+ scheme. We are delighted that 1 in 14 households
across the South West Water region have chosen to take a stake and a say in
the future of their water company and we are pleased to have extended the
offering to our customers in the Bristol Water region. We are committed to
delivering for the long-term, whilst keeping bills fair and affordable for
all. This year, bill increases were significantly less than inflation, and
much lower than customers pay to other utility providers. We have over 3,000
talented employees who are committed to delivering for the environment,
customers and communities every day. We are doing more than ever to support
customers through the cost-of-living crisis, delivering more than £85 million
of benefits at a time when many customers need it most.
MAKING PROGRESS AGAINST OUR KEY PRIORITIES
Improving environmental water quality
The quality of river and coastal water across the region is quite rightly
centre stage for our customers and communities. We launched WaterFit in April
2022 and over the last year we have made significant strides in delivering on
our commitments. We have invested to support bathing water quality all year
round, increased our network capacity to reduce storm overflow releases into
waterways, and upgraded works to enhance river water quality and unlock
development and economic growth.
Reducing wastewater pollutions
Since 2020 we have delivered a c.50% 9 reduction in wastewater (category 1-3)
pollutions, with c.30% reduction, including a 75% reduction in serious
pollutions from 8 to 2, delivered in 2022, alongside our best-ever wastewater
treatment works compliance at 99.4%. We continue to focus relentlessly on
delivering further improvements to support the achievement of our 80%
reduction target over K7, in line with our Pollution Incidents Reduction Plan.
Key aspects of the plan include:
· A range of solutions, driven by the use of artificial intelligence
and predictive technology, such as Innovyze to map catchments and target
interventions, and Meniscus, utilising asset and weather data to predict
potential pollution risks, enabling early intervention
· The roll-out of c.9,000 sewer depth monitors is well underway across
our c.23,000km of sewer network, with 1,700 installed to date, to provide
visibility of network performance, reduce blockages and enable proactive
interventions, in addition to the deployment of region-wide predictive network
burst detection technology
· 18 rising main replacements have been delivered alongside 50
'hotspot' interventions during the year, bringing the K7 total to date to 260
· Rolling out telemetry across 100% of our pumping stations and
improving alternative power supplies at 150 pumping stations.
· Utilising the Centre for Resilience, Environment, Water and Waste
(CREWW), our innovative partnership with Exeter University, for root cause
analysis, with this insight helping to shape our plans.
Looking beyond the headlines, our underlying performance across all
Environmental Performance Assessment (EPA) metrics is improving, this
includes:
· A continuation of the downward trend in overall pollution numbers
including category 2 incidents, whilst maintaining zero category 1 incidents
· Our best ever wastewater treatment works compliance - 99.4%
· Completion of 536 of 538 WINEP investigations and interventions
· 99.1% sludge compliance - a new measure on the EPA for 2022
We remain on a trajectory that would result in achieving our target of 4* EPA
status for 2024 10 , and based on performance data shared with the Environment
Agency, we are forecasting the achievement of a 2 star rating 11 for 2022.
Whilst that indicates the right direction of travel on the rating that we
achieved for 2021, it also underpins our real focus on getting our performance
metrics to where we want, and need, them to be over the next two years.
Reducing storm overflows
We are committed to sharing open information and undertaking transparent
reporting with our numerous stakeholders, including our wider customer base,
particularly regarding our environmental impact. We completed the installation
of monitors at 100% of our c.1,600 12 storm overflows during 2022 - one year
ahead of our 2023 target date. During the same year, releases from storm
overflows reduced by c.30% to an average of 28 per asset (2021: 39 per asset).
Releases during the 2022 bathing season (May - September 2022) reduced by
c.50%. This is aligned with our goal and performance trajectory to reduce the
average number of releases per overflow to 20 per year by 2025, which will be
driven by the continued delivery of our WaterFit programme of investment. Part
of this programme includes operational optimisation and targeted interventions
to reduce infiltration and increase storm storage to date. This includes 19
storm storage schemes delivered during the year, as part of our wider
programme to deliver 58 schemes, and 6 wastewater treatment flow schemes
delivered in the year, as part of our plan to deliver 15 during K7.
Coastal and river water quality
2022 is the second consecutive year that we have achieved 100% bathing water
quality across the region, with 99% achieving excellent / good status, as
independently measured by the Environment Agency. Supporting this is the
delivery of 19 bathing water quality schemes in K7 to date, and we are
targeting to maintain this performance to 2025 through the delivery of all 22
bathing water schemes, alongside sewer separation and monitoring through our
WaterFit programme.
We are using our expertise in coastal water improvements that has been learned
over many years to inform and guide our river water quality pilots that are
underway as part of our Green Recovery initiatives, including 3-year pilot
schemes on the Rivers Dart and Tavy, where we are supporting communities
seeking bathing water status, with a target to achieving this by 2025. We are
well on track to reduce the impact that our own assets and processes have on
river water quality by one third by 2025, from 19% to 12%, and have already
reached 12.6% 13 as a result of our interventions to date, including sewer
separation and 4 phosphorous removal schemes completed in K7 to date.
Water quality and resilience
2022 saw some of the hottest and driest weather on record across the region,
with record demand and visitors and high soil moisture deficit levels leading
to a situation beyond a one in 200 year event 14 . In August 2022, the
Environment Agency officially declared a drought in the South West, which
remains in place today. The significant demand on the network impacted water
sources across the region with river flows and reservoir levels in Cornwall
reaching historically low levels during the summer and autumn. Throughout this
period our teams worked around the clock to ensure that water quality was
maintained, delivering on our 'Quality First' principles, ensuring customers
received a continuous supply of clean, safe drinking water.
Acting responsibly, we enacted our established drought plan and responded
innovatively and at pace to changing demands. In line with our drought plan we
introduced a temporary use ban (also known as a TUB or hosepipe ban) for the
first time in 25 years, in parts of Cornwall and North Devon in August 2022,
and extended this to the majority of Devon in April 2023.
Our operational response has been agile and has included a wide range of
innovative demand side initiatives, supporting drought recovery, and
supply-side investments. Over 90% of South West Water's supply comes from
surface water sources - rivers and reservoirs, with the remainder coming from
groundwater sources such as springs, wells and boreholes. With reservoir
levels falling to record lows towards the end of 2022, to protect the region's
natural water sources and build longer term resilience, we implemented our
pioneering "Stop The Drop" initiative - our largest ever customer campaign,
successfully incentivising customers to reduce their usage. This contributed
to a c.4.6% reduction in demand with customers in the Cornwall region
receiving a £30 reduction on their bill 15 . We are continuing to promote
water efficiency across our customer base and have issued over 130,000 free
water saving devices to date.
Leakage remains a key area of focus with elevated demand conditions leading to
higher pressures across the network, and the hot, dry weather during the
summer causing greater ground movement. Through this year we have repaired
around 2,000 leaks each month, offered free customer leak repairs as part of
our targeted campaign, and increased our use of network monitoring and
artificial intelligence, all of which has helped in keeping our leakage
reduction plan on track. Alongside this, we have reduced consumption across
our own sites, saving on average 6 Ml/day.
Diversifying our water resources is critical to building resilience across
Devon and Cornwall, and ensuring a continuous supply for our customers, as we
navigate the ever-increasing impact of climate change. Our target to 2025 is
to increase water resources available in Cornwall by c.45%, and in Devon by
c.30%, which is being delivered through our reinvestment of c.£125 million.
Our interventions so far have already delivered results, boosting resources by
c.25% in Cornwall, and c.12% in Devon through investment in augmented supply
and storage schemes, providing c.11% and c.12% to date, respectively 16 . The
expansion of the treated water network in Cornwall has added c.3% and
repurposing quarries, including Hawks Tor, purchased and operational in 2022,
has added an additional c.11% in Cornwall.
Future resilience through additional resource volumes will be significantly
bolstered following the development of desalination solutions in Cornwall,
which alongside quarry re-purposing will add a further c.20%. To deliver our
desalination facility, work will be undertaken to deliver infrastructure and
marine works on site, with a purpose-built pipeline linking the facility to
Restormel water treatment works. A modular solution will then be deployed
providing the ability to flex and scale up in line with anticipated future
population growth and the impact of climate change, enabling delivery for the
long-term. In Devon, new storage sources will add an additional c.18%
including winter pump storage from the River Tamar at Gatherley and utilising
a reservoir at Challacombe.
Whilst 2023 remains a challenging year, the interventions we have delivered to
date have already improved resilience from our position in 2022. Our plans are
dynamic with scope to increase in response to changing situations.
Net Zero 2030 and environmental gains
Our Net Zero 2030 plan is well underway across the Group, with delivery
focused across our three pillars:
· Sustainable living - reducing process emissions across the Group,
with carbon capture and storage trials underway and monitoring in place, we
have reduced our carbon emissions by c.40% 17 since 2021
· Championing renewables - investing in solar PV schemes, with the
first site from a suite of potential assets acquired. The site, in Dunfermline
will produce c.40 GWh, with acquisition and build costs of c.£35 million,
alongside the additional opportunity for a 60MW battery storage capacity, for
c.£25 million. We are in advanced discussions on a portfolio of 4 attractive
assets, producing c.150 GWh of electricity. This investment, of a ringfenced
c.£160 million, will increase the Group's energy security and resilience, and
deliver returns ahead of regulatory earnings.
· Reversing carbon emissions - working in partnership to deliver natural
Carbon sequestration through peatland restoration and tree planting and are
making good progress towards our target of restoring 1,000 hectares of
peatland, with 300 hectares delivered to date, and 220,000 trees planted, of
our target to plant 250,000 by 2025. Alongside this, our award winning
'Upstream Thinking' programme has driven an increase in biodiversity across
the region, with over 110,000 hectares cumulatively improved to date, and we
remain on track to improve 123,000 hectares by 2025. We work closely with
partners, including Natural England, National Trust and South West Lakes Trust
to deliver initiatives across the South West including Exmoor, Dartmoor and
Bodmin Moor.
Addressing customer affordability
We continue to work hard to deliver quality services as efficiently as
possible, so that bills remain as low as possible. In all the areas we serve,
average bill increases for 2023/24 will be well below the headline rates of
inflation (South West Water - 0.8% and Bristol Water - 5.5%) and we are
pleased that the vast majority of our customers find their bill affordable -
with 97% of South West Water customers and 100% of Bristol Water customers
citing their bills as being affordable. We are committed to eliminating water
poverty across the region and have an extensive package of affordability and
vulnerability measures across the water businesses, including specific tariffs
and income maximisation schemes.
Building on the successful launch of our WaterShare+ initiative in 2020, we
were pleased to have been able to accelerate the second issuance of our unique
WaterShare+ scheme in 2022/23. This brings the total returned to customers
over K7 to date through WaterShare+ to c.£40 million, during a time when
customers need it most. As a result of this second issuance, one in 14
households in the South West region are now shareholders, with around c.90,000
customers in total now shareholders.
We believe that nobody should worry about their water bill, which is why we
have an extensive package of affordability and vulnerability measures,
including specific tariffs and income maximisation schemes. We also appreciate
the broader cost of living pressures and understand that everyone is
different, which is why the support we offer is different. The support we
provide includes discounts to bills amongst other initiatives, and we are
pleased to have increased the number of customers benefitting from one or more
of our social tariffs by 23%.
Since the start of this regulatory period, we have delivered over £85
million 18 of support for our household customers. Alongside the financial
support we provide, we work closely with a range of independent organisations
and debt partners, who continue to be key in promoting the range of help
available to customers.
We are passionate about contributing positively to the communities in the
regions we serve. We continue to support community groups with funding
available in all our regions including South West Water's Neighbourhood Fund
and Water Saving Community Fund, and Bristol Water's Community Fund,
supporting a range of initiatives across the Bristol region. In total, over
130,000 people have benefited directly from these projects to date in K7.
Given the importance of our role in communities we are proud to be providing
c.£1 million to local charities and good causes over the period to 2030.
Our school education programme is focused on teaching school children the
importance of water conservation and environmental protection, illustrating
the part they can play through being careful with what is discarded through
the wastewater network. Through this programme we have directly taught almost
10,000 pupils in K7 to date about where our clean water comes from and how
wastewater is treated.
At the heart of any great business are the people who work in it. We are
passionate about creating a diverse and inclusive place to thrive and are
proud to have increased gender diversity across the Group and to support the
#10000blackinterns initiative and the Change The Race Ratio. Through our
membership of 'The 5% Club' we are investing in the next generation, embracing
an 'earn and learn' culture. We are delighted to be the only water company
awarded Gold membership status this year as we have exceeded the 5% target and
have almost 10% of our employees on these development programmes - with over
350 apprenticeships and graduates. We have also doubled our apprenticeship and
graduate schemes to 1,000 by 2030, along with offering 5,000 work placement
opportunities over the same period.
ODI performance impacted by challenging weather conditions
2022/23 has been a year of weather extremes, from an exceptionally hot, dry
summer - resulting in the ongoing drought status in the South West, to the
periods of extreme rainfall and the freeze/thaw conditions during the winter.
This has impacted the achievement of our stretching suite of ODIs across the
Group, with South West Water at c.70% and Bristol Water at 65% of ODIs on
track or ahead of target 19 .
For South West Water, ensuring quality and compliance is a key underpin. Our
Compliance Risk Index (CRI) performance has improved, resulting in anticipated
upper quartile performance and we have achieved our best ever wastewater
treatment works compliance at 99.4%. Whilst drought conditions have driven the
requirement to put in place water restrictions for the first time in 25 years,
the reliability of our water treatment works is improving, despite the
significant demand on the network.
The freeze/thaw conditions experienced in the winter illustrated how the
improvements we put in place following the 2018 'Beast from the East' have
delivered results, with supply interruptions this year c.85% better than 2018.
Alongside this, our teams have focused on finding and fixing c.2,000 leaks a
month, to support the achievement of our leakage target, with the strong
performance in the first half of the year providing some headroom.
We are continuing to drive improvements in wastewater, as demonstrated through
the deployment of our Pollution Incidents Reduction Plan, and our
sector-leading internal sewer flooding performance. Our focus remains on
improving external flooding incidents and sewer blockages, where we are
investing in network monitoring to enable proactive intervention.
For Bristol Water, water quality is a key area of focus and we are expanding
our 'Quality First' transformation programme, initially rolled out in South
West Water, to Bristol Water. As with South West Water, the extreme weather
conditions also placed pressure on the network with peak summer demand
challenging water treatment works reliability, resulting in an increase in
unplanned outages. Given the impact of the extreme weather on the network as a
whole, ODIs associated with the water network, including leakage, mains
repairs and supply interruptions did not hit their targets.
Bristol Water customer service measures remain strong, with C-MeX ranking
6(th), supporting our sharing of best practice across our operating regions.
In addition, total complaints also reduced during the year, outperforming
their target. Our focus in this area is now on increasing meter penetration to
drive water efficiency.
ODI performance across the Group in 2022/23 has resulted in a net financial
penalty of c.£4.2 million for South West Water, and net financial penalty of
c.£5.9 million for Bristol Water.
Delivering on our largest ever environmental investment programme
We are well underway with the delivery of our largest environmental investment
programme for 15 years of c.£1.5 billion, which includes delivery of
accelerated and additional investments such as WaterFit and Green Recovery,
alongside our existing, extensive business plan commitments. During the year
we have invested c.£358 million across environmental, customer, water and
wastewater outcomes - a record level of spend for Pennon, and a c.50% increase
on the prior year. Continuing this momentum, we plan to invest over £750
million over the next two years.
Our capital delivery model for K7 is well established. For South West Water
and Bournemouth Water this is delivered through two Tier 1 construction
partners, supported by regionally strong Tier 2 construction firms. For
Bristol Water two regionally strong construction firms form part of Bristol
Water's intelligent partnership. To meet the challenges head on, we are
enhancing our supply chain capacity to deliver our accelerated investments,
gearing up ready for the step change in our investment programme over the next
regulatory period. We are currently underway with a full retender with
excellent interest from Tier 1 partners, and an expectation to contract with
at least four Tier 1 contractors in 2023.
Financial resilience enabling accelerated investment
Driving outperformance gives us the flexibility to deliver more within a
regulatory delivery period - with reinvestment supporting additional and
accelerated initiatives. Our RORE performance for 2022/23 continues to be
strong, with South West Water achieving a RORE of 11.1%, and Bristol Water
achieving 4.6%. This supports our cumulative Group RORE position of 8.7%
equating to £192 million 20 , an increase on £149 million in 2021/22. This
is supporting our reinvestment across the Group in additional environmental
initiatives including our WaterFit and water resilience investments.
This outperformance, combined with the strength of our balance sheet, is
supporting c.£300 million 21 of additional and accelerated initiatives.
c.£170 million of the cumulative outperformance of c.£192 million is being
reinvested to deliver initiatives tackling some of the biggest challenges,
including c.£45 million to fund the delivery of our WaterFit programme,
enhancing coastal and river water quality, and c.£125 million investment
supporting the diversification of our water resources, boosting resilience. In
addition to this, c.£20 million funded the accelerated delivery of our second
WaterShare+ issuance.
In April 2023, Ofwat announced further accelerated investment totalling
c.£130 million for South West Water over the period to 2030. £52 million of
this investment will be delivered over the period to 2025. Of the total £98
million wastewater accelerated investment outlined to 2030, £35 million will
fund storm overflow and nutrient neutrality schemes to 2025, further
supporting the delivery of our WaterFit plans, and benefitting the region's
growth and development. £32 million of accelerated water efficiency
investment has been outlined as part of these plans to 2030, of which £17
million will be delivered to 2025 to support customers in Cornwall and Bristol
reduce their usage, alongside cutting leakage from customers' pipes. Given the
ongoing drought across the South West, securing resilient water supplies for
current and future generations remains of significant importance.
This accelerated investment to 2025 of c.£52 million, combined with our Green
Recovery £82 million investment, totals £134 million, which is being funded
through the strength of Pennon's balance sheet, and providing incremental RCV
growth.
Return on Regulated Equity
Our strong return on regulated equity for 2022/23 is driven by the Group's
flexible financing strategy and diverse debt portfolio, with a comparatively
lower level of index-linked debt relative to the industry average, allowing us
to outperform the cost of debt allowances. Our efficient financing strategy
continues to drive significant outperformance with South West Water's
effective interest rate(^) at 5.5% (2021/22 3.9% 22 ). Given the current
macro-environment, this strong financing outperformance has outweighed totex
and net ODI penalty contributions.
The table below summarises the 2022/23 RORE position for both South West Water
and Bristol Water.
Ofwat RORE WaterShare RORE 23
South West Water Bristol Water South West Water Bristol Water
Base return 3.9% 4.5% 3.9% 4.5%
Totex (3.7)% (0.6)% (3.2)% (0.8)%
ODI (0.3)% (2.8)% (0.3)% (2.7)%
Tax 1.5% 0.0% N/A N/A
Financing 9.7% 3.5% 7.1% 2.0%
Total RORE - 2022/23 11.1% 4.6% 7.5% 3.0%
K7 Cumulative RORE 9.0% 5.7% 8.0% 5.2%
Enhancement spend
In December 2022, Ofwat published their Water Company Performance Report
2021/22. Each company's performance is measured on 12 key performance and
expenditure metrics as outlined in their respective Business Plans for
2020-2025. South West Water has met or exceeded its performance commitments in
7 out of 12 areas, and is a top performer in Internal Sewer Flooding. However,
Ofwat found the performance in the remaining 5 areas in need of improvement
and as a result, categorised South West Water as 'lagging behind'.
Whilst, South West Water has underspent the enhanced allowances to March 2023,
this excludes the significant increase in investment to reduce leakage and
pollution incidents, improve sewer flooding and maintain a resilient supply -
all of which are included within base capital or operating expenditure.
Overall, South West Water has spent c.112% of our total expenditure allowances
(across water and wastewater) for the first three years of this regulatory
period, with enhanced expenditure at c.70% of allowances (enhancement spend
represents just c.20% of totex). While this may be below the expected level in
the Final Determination, investments are being delivered in line with
Environment Agency expectations and deadlines, different to the profile in the
Final Determination - with some delivered ahead of this, and therefore
delivering accelerated benefits for customers and for the environment.
We have delivered efficiencies and savings across the programme in the first
two years which is enabling investment in other areas including our WaterFit
programme - with £45 million reinvested to reduce spills and deliver
improvements for our rivers and beaches and our drought resilience investments
of c.£125 million.
For wastewater South West Water is committed to delivering our WINEP (Water
Industry National Environment Programme) obligations and other commitments
whilst remaining dynamic to changes in the environment. Given the increasing
profile of enhanced investments we are forecasting to over-spend our
allowances by 2025 (including WaterFit enhanced investment), and have
substantially recovered our position in 2022/23 with c.120% of annual
allowance spent in the year representing c.65% cumulatively.
Developing a robust plan for 2025-2030
As we develop our plans for 2025-2030 we remain focused on delivering
exceptional outcomes for customers, communities and the environment, building
a plan for a sustainable future. Customer priorities form the basis of our
plans, through extensive stakeholder engagement including wide-reaching
campaigns and robust data analysis with c.20,000 customers engaged directly in
the last two years.
Included within our plans are significant environmental investments, driven by
new legislative requirements, and an increasing need for resilience informed
by our long-term planning, ensuring flexibility in delivering the right plan
for the communities in the regions we serve. We are anticipating a step change
in investment to ensure we are able to tackle the most significant challenges
so that we are able to deliver long-term benefits for all stakeholders.
Our plans reflect the unique needs of our region and include ambitious
programmes to tackle some of the biggest challenges we face.
Storm overflows and pollutions
· Prioritising beaches - making water fit for recreational use all year
round
· Protecting ecologically sensitive sites - halving our negative impact
· Using sustainable solutions to boost and protect nature
· Upgrade 90 WWTW to meet tighter environmental standards - protecting
rivers and wildlife
· Innovation to address micro plastics and forever chemicals
Water quality and resilience
· Major upgrades at 16 water treatment works
· Replace up to 50,000 lead pipes
· Reduce leakage by up to 15%
· Investing in new sources - equivalent to water used by 150,000 people
· Start building new regional sources - including new reservoir at
Cheddar
· Install half a million smart meters
Net Zero and environmental gains
· Improvement to the treatment of biosolids to reduce nutrient run off
into rivers
· 125,000 hectares of habitat creation, including peatland and seagrass
restoration
· 1,000 smart ponds to protect river flows and prevent flooding
· 50% renewable energy generation, creating enough energy to power
20,000 homes
· Saving 11,000 tonnes of carbon each year
Addressing customer affordability
· Developing progressive charging options and tariffs - ensuring fair
and affordable charging for all
· Extending our affordability toolkit - ensuring all customers can
access the right support, especially the most vulnerable
Finding the balance between service performance, financeability,
deliverability and affordability will be key. Ensuring that the way in which
we charge customers is fair will be critical and in response we are working to
develop progressive charging options and tariffs. Alongside, we will continue
to ensure that customers have access to our suite of affordability initiatives
Our plans are built for the long-term - ensuring flexibility in delivering the
right plan for the communities in the regions we serve. We will continue to
challenge ourselves to develop innovative and sustainable solutions to deliver
on our commitment to protect and enhance the natural environment, both now and
for generations to come - driving significant value for all.
We look forward to sharing more on our plans for PR24 on 5 October 2023 at our
Spotlight presentation and Q&A.
Group Chief Financial Officer's Review
During 2022/23, volatility in the global economy, reflecting the geopolitical
situation and economic difficulties arising from the global pandemic, has
continued. We started to experience the impact of this in the second half of
the financial year ended 31 March 2022 and, as expected, the impact of
elevated inflation on power and interest costs has reduced our near-term
earnings. The second half of this financial year has also been impacted by the
drought in the South West, which has resulted in increased levels of operating
costs and capital expenditure. Where appropriate, specifically identifiable
operating costs have been treated as non-underlying given the unprecedented
summer weather conditions with 2022 being one of the hottest, driest years on
record.
Over the long term the elevated inflationary environment provides the Group
with additional growth in sustainable value with revenues and RCV linked to
November and March CPIH inflation, respectively.
Bristol Water has contributed to the Group's financial results since 3 June
2021 with full clearance for the merger of our wholesale water businesses
granted on 7 March 2022. The merger of South West Water and Bristol Water
completed on 1 February 2023 with the combined water business now operating
under one licence held by South West Water Limited. Within this report, to aid
comparability both now and ongoing, the results of South West Water include
the operating performance of Bristol Water in the current year and in the
prior year. The results in the comparative financial year ended 31 March 2022
only include Bristol Water for ten months from the date of acquisition.
Underlying 2022/23 2021/22 Change
Revenue £825.0m £792.3m +4.1%
Operating costs (£517.2m) (£408.4m) (26.6%)
EBITDA(^) £307.8m £383.9m (19.8%)
Depreciation and amortisation (£154.7m) (£146.7m) (5.5%)
Operating profit £153.1m £237.2m (35.5%)
Net interest charge (£136.6m) (£93.7m) (45.8%)
Share of associated companies PAT £0.3m - +100.0%
Profit before tax £16.8m £143.5m (88.3%)
Non-underlying items before tax(1) (£25.3m) (£15.8m) -
(Loss) / Profit before tax (£8.5m) £127.7m (106.7%)
Underlying tax credit/(charge) £3.6m (£13.9m) +125.9%
Non-underlying tax credit/(charge) £5.3m (£98.2m) -
Profit for the period £0.4m £15.6m (97.4%)
Earnings per share
Adjusted EPS 7.3p 50.2p (85.5%)
Statutory EPS Nil p 4.9p (100.0%)
Dividend per share - dividend policy(3) 42.73p 38.53p +10.9%
Capital investment
Total Group £358.3m £240.9m +48.7%
South West Water £358.2m £240.4m +49.0%
Other £0.1m £0.5m (80.0%)
31 March 2023 31March 2022
Total Group net debt (£2,965.4m) (£2,682.9m)
The Group's statutory revenue for 2022/23 of £797.2 million included
non-underlying revenue reductions of £27.8 million in respect of the second
issuance under WaterShare+ (£20.2 million) and our "Stop The Drop" demand
reduction incentive (£7.6 million).
The Group's underlying revenue has increased from £792.3 million to £825.0
million, an increase of 4.1%, with South West Water increasing by £13.5
million and Pennon Water Services delivering further external revenue growth,
predominantly outside South West Water's regions, of c.£19 million.
Overall, underlying EBITDA has reduced 19.8% from £383.9 million to £307.8
million with the increase in power costs being the most significant
contributing factor to this reduction.
Further details of the performance of South West Water and Pennon Water
Services is outlined below.
We recognise the pressure the cost of living crisis poses to our customers and
we are focused on providing a broad range of affordability measures to support
those in financial need. Across all Group businesses, the potential impact of
significant increases in the cost of living on affordability has been
considered in assessing our expected credit loss charges.
Cash collections throughout the Group have remained robust during the
financial year. Underlying expected credit loss charges for 2022/23 of £7.0
million for South West Water (1.0% of revenue) are in line with previous
levels (2021/22 0.8% 24 ). For Pennon Water Services, the expected credit loss
charge of £0.8 million (0.4% of revenue) is also in line with previous levels
(2021/22 0.3% of revenue).
The Group reported a statutory loss before tax of £8.5 million (2021/22
profit £127.7 million) after net non-underlying costs of £25.3 million
(2021/22 £15.8 million). Group underlying profit before tax decreased to
£16.8 million from £143.5 million in 2021/22. This outturn reflects the
significant near-term pressures on earnings from elevated power pricing,
financing costs and revenue reductions in the water business through lower
customer demand as a result of continued water efficiency promotion and
mechanistic regulatory adjustments 25 .
SOUTH WEST WATER
Since 1 February 2023, the trade and the significant majority of assets and
liabilities of Bristol Water plc were transferred to South West Water Limited
under a statutory transfer mechanism set out in the Water Industry Act. The
Bristol Water brand will continue as a trading name of South West Water. As
noted above the financial performance of South West Water includes the
performance of Bristol Water in both this financial year and the comparative
year.
South West Water underlying 2022/23 2021/22 Change
Revenue £701.3m £687.8m +2.0%
Operating Costs (£392.9m) (£303.0m) (29.7%)
EBITDA £308.4m £384.8m (19.9%)
Depreciation and amortisation (£149.0m) (£141.0m) (5.7%)
Operating profit £159.4m £243.8m (34.6%)
Net interest charge (£145.3m) (£98.0m) (48.3%)
Profit before tax £14.1m £145.8m (90.3%)
Non-underlying items before tax (£43.7m) (£1.8m) -
(Loss) / Profit before tax (£29.6m) £144.0m (120.6%)
Underlying revenue of £701.3 million for 2022/23 has increased by 2.0%
(£13.5 million) compared with the prior year (2021/22 £687.8 million).
Adjusting for the additional two months of revenue in this financial year from
the Bristol Water region (£22.5 million), revenue on a like for like basis
has reduced by £9.0 million, with the inflationary impact on tariffs being
more than offset by the reduction in demand and regulatory adjustments to
revenue, including in-year ODI penalties from 2020/21. South West Water's
statutory revenue for 2022/23 includes a non-underlying reduction of £27.8
million in respect of the second WaterShare+ issuance and our "Stop The Drop"
demand reduction incentive.
Underlying operating costs of £392.9 million increased by £89.9 million
(2021/22 £303.0 million) reflecting the following significant factors:
· Inflationary and other macro-economic impacts on wholesale energy
market prices and transmission costs (£48.6 million)
· Additional two months of operating costs (not including power) for
Bristol Water (£10.0 million)
· Responding to operational drivers including continued elevated demand
prolonging high production volumes, supporting improvements to leakage and
pollutions performance, and underlying cost increases to address the extreme
operating conditions including the freeze/thaw event to ensure resilience of
water supply (£5.9 million)
· Increased costs relating to the price review for the next regulatory
period
· Pay increases of between 3-5% across the Group, with the majority at
5%.
South West Water's underlying EBITDA and underlying operating profit reduced
by 19.9% and 34.6% respectively. Despite the level of inflation in tariffs
lagging behind actual cost inflation in the year, overall increases in
operating costs excluding power were carefully managed to remain broadly in
line with the inflation embedded in tariffs.
The net interest charge of £145.3 million is £47.3 million higher than prior
year (2021/22 £98.0 million) primarily reflecting the impact of higher RPI
and CPI rates on index-linked debt. The Group's efficient funding mix which
includes a relatively low proportion of index-linked debt, and hedging
strategy, minimises these market effects resulting in an effective interest
rate of 5.5% (2021/22 3.9%(22)).
South West Water's capital expenditure was £358.2 million, an increase of
£117.8 million (49.0%) on the prior year (2021/22 £240.4 million), primarily
due to water resources investments to boost supplies including repurposing
disused quarries, and investments in GAC schemes to increase water quality,
along with development work at the new Alderney and Knapp Mill water treatment
works in the Bournemouth region. Wastewater investments included the roll out
of our WaterFit programme, targeted investments in wastewater pollutions
hotspots and the installation of event duration monitors on our storm
overflows to achieve 100% coverage in 2022. The increase also includes the
additional two months of capital expenditure in the Bristol Water region in
this year compared to last.
PENNON WATER SERVICES
Pennon Water Services - statutory and underlying 2022/23 2021/22 Change
Revenue £218.0m £195.3m +11.6%
Water segment wholesale elimination (£94.7m) (£90.9m) +4.2%
Revenue excluding elimination £123.3m £104.4m +18.1%
Operating Costs 26 (£213.7m) (£191.9m) (11.4%)
Water segment wholesale elimination £94.7m £90.9m (4.2%)
Operating costs excluding elimination (£119.0m) (£101.0m) (17.8%)
EBITDA £4.3m £3.4m +26.5%
Depreciation and amortisation (£0.7m) (£0.8m) +12.5%
Operating profit £3.6m £2.6m +38.5%
Net interest charge (£1.8m) (£1.6m) (12.5%)
Profit before tax £1.8m £1.0m +80.0%
Pennon Water Services has once again performed strongly this financial year
through its disciplined approach to winning new business and benefitting from
higher demand.
Non-household demand has continued to recover, up 5.8% on 2021/22 and
consumption is approaching pre-covid levels, with recovery predominantly in
the hospitality, tourism and manufacturing sectors. New contract wins have
contributed £11.2 million of additional revenue compared to last year. The
overall growth rate in this financial year was 11.6% and compares to 2021/22
levels of 19.9%.
Underlying operating costs have grown marginally behind the improving revenues
and the business has boosted its underlying EBITDA by 26.5% to £4.3 million
(2021/22 £3.4 million). This strong performance has resulted in the business
reporting a profit before tax of £1.8 million (2021/22 £1.0 million), a
significant 80% increase on the previous year.
The business continues to maintain its focus on targeting high-quality,
sustainable customers who will benefit from the value-added services that form
part of Pennon Water Services' differentiated service proposition, with new
annualised contract wins of c.£14 million secured during the year.
Group net finance costs
Total net finance costs for the Group of £118.2 million include £18.4
million non-underlying gain resulting from the repayment of the Bristol Water
plc index-linked bond due 2041. Underlying net finance costs for the Group of
£136.6 million are £42.9 million higher than last year (2021/22 £93.7
million), driven largely by the current high levels of inflation impacting
index-linked debt charges but also includes an additional two months' finance
cost contribution from Bristol Water in 2022/23. Whilst the Group benefits
from a lower proportion of index-linked debt compared to the water industry
average, following the Bristol Water acquisition c.30% of Pennon's regulated
water businesses' gross debt was index-linked. Actions have been taken during
the second half of the year to both smooth inflation volatility over the
period to 2025 and lower our level of index-linked debt over the long-term to
around 20-25%. The non-cash element of our finance charges, which accretes to
the debt principal, was c.£84 million (2021/22 c.£36 million).
The Group continues to efficiently secure funding for South West Water through
its Sustainable Financing Framework and to ensure c.60% of its interest rate
risk is mitigated in line with the Group treasury policy, which is achieved
through issuing both fixed rate debt and effective interest rate hedging, with
a further element being index-linked. Prior to the acquisition of Bristol
Water, the index-linked proportion of debt had been maintained at a relatively
stable proportion of c.25%.
In the second half of the year, the Group reduced its proportion of
index-linked debt by repaying the Bristol Water plc index-linked bond due 2041
and entered into £300 million of RPI to fixed rate swaps to fix the interest
charge over the period to 2025 to smooth the impact of inflation over K7.
These changes have helped to manage the Group's exposure to the current
volatility in its finance costs.
Share of post-tax profit from associated companies
As part of the acquisition of Bristol Water in June 2021, we obtained a 30%
interest in Water 2 Business Limited (W2B), a water retailer joint venture
with Wessex Water. This investment is accounted for under the equity method
and following a period of losses as the business reached scale, we are pleased
to recognise £0.3 million of profit after tax from associated companies in
this year's results.
Non-underlying items and acquisition accounting
Non-underlying items for 2022/23 total a charge before tax of £25.3 million
(2021/22 charge of £15.8 million). Non-underlying items are those that in the
Directors' view should be separately identified by virtue of their size,
nature or incidence and where they believe excluding non-underlying items
provides a more useful comparison of business trends and performance.
The non-underlying charge of £25.3 million consists of:
· £20.2 million reduction in revenue being the recognition in full of
the second issuance of our WaterShare+ scheme, which has been extended to
include Bristol Water customers and £2.2 million of associated costs.
· A combination of elevated demand from increased tourism and
record-breaking extremes of prolonged dry and hot weather led to extremely low
water storage levels in the Cornwall region. Drought permits were issued
allowing increased extractions and water-saving measures for the South West
Water region were issued for the first time since 1995. To ensure the region
could be supplied with water over the summer and continuing into 2023, South
West Water has instigated a series of mitigating measures and one-off
expenditure to address the situation. Due to the exceptional combination of
these events and the significance of the mitigating actions this has resulted
in the recognition of £7.6 million revenue reduction from the "Stop the Drop"
discount incentive to reduce water consumption and £9.4 million of specific
costs relating to the measures being treated as non-underlying.
· £4.3 million of costs in connection with the merger, statutory
licence transfer and integration of Bristol Water into South West Water.
· £18.4 million gain resulting from the repayment of the Bristol Water
plc index-linked bond due 2041, as part of rebalancing the proportions of
index-linked debt in the Group debt portfolio.
The non-underlying charges in 2022/23 give rise to a net tax credit of £5.3
million in relation to the above items. In 2021/22 the total non-underlying
tax charge was £98.2 million, including a credit of £1.3 million in
connection with non-underlying pre-tax items and a £99.5 million
non-underlying deferred tax charge, recognised for the change in future tax
rate which was substantively enacted during the previous financial year.
As part of the requirements of acquisition accounting, we have finalised the
fair values of the acquired balance sheet of Bristol Water. The provisional
values reported in the Group's results to 31 March 2022 have been revised to
reflect a £5.5 million increase in the fair value of the acquired deferred
tax liabilities with a corresponding increase in Goodwill.
Goodwill arising from the acquisition of £121.6 million has been recorded in
the Group consolidated balance sheet and is attributed to the synergies
expected to be derived from the combination and the value of the workforce
which cannot be recognised as a separately identifiable intangible asset.
Responsible approach to tax
The Group is pleased to confirm it has once again maintained the Fair Tax Mark
accreditation for the year. This is the fifth year in succession that the
Group has been awarded the accreditation and we are proud of our responsible
approach to tax.
The overall 2022/23 tax credit for the Group is £8.9 million (2021/22 charge
of £112.1 million). On an underlying basis, the net tax credit for 2022/23
for the Group of £3.6 million (2021/22 charge of £13.9 million) consists of:
· Current tax credit of £2.7 million, reflecting an effective tax
credit rate of 16.1% (2021/22 charge of £5.0 million, 3.5%). This reflects a
£2.7 million current tax credit in respect of the prior year as a result of
additional super-deductions and lower non-deductible expenditure following the
preparation and submission of the 2022 corporate tax computations.
· Deferred tax credit of £0.9 million (2021/22 charge of £8.9
million). This reflects a current year deferred tax credit of £1.6 million in
relation to capital allowances in excess of depreciation charged across the
Group, largely due to super-deductions, offset by tax losses carried forwards
for utilisation in later periods. A £0.3 million credit also arises as a
result of the change in tax rate, on current year items (including tax losses
generated in the year carried forward for future relief) which will crystalise
at 25% rather than 19%. It also includes a deferred tax charge in respect of
the prior year of £1.0 million which arises largely due to additional
super-deductions.
There is also a non-underlying deferred tax credit of £5.3 million in 2022/23
relating to the non-underlying items set out above. This includes a current
tax credit of £2.8 million in relation to losses to be carried back to
relieve against prior year profits and a deferred tax credit of £2.5 million
which relates to losses carried forward for utilisation in later years and the
unwind of the fair value adjustment in relation to the Bristol Water bond
terminated in the year
The Chancellor announced in the March Budget, that the 130% super-deduction on
plant and machinery will be replaced with full expensing deductions for the
next three years from 1 April 2023 to 31 March 2026, with a plan to make this
permanent when fiscal conditions allow. Without this change, the writing down
allowance would have reverted to the previous rate of 18% on plant and
machinery (where the expected life is less than 25 years). The 50% first year
allowance on long life assets and integral features has been extended for the
same three-year period, again with the aim to make this a permanent change.
Without this, relief would have reverted to 6% per annum on a reducing balance
basis. Given the Group's continued capital investment programme, these changes
mean that the Group anticipates generating tax losses in the remaining years
of K7, and therefore does not expect to make any corporation tax payments
during this time.
Earnings per share
The Group has recorded a statutory earnings per share of nil pence per share
for the year ended 31 March 2023 (2021/22 4.9 pence per share). This includes
a net non-underlying charge before tax of £25.3 million and a net
non-underlying tax credit of £5.3 million. Statutory earnings per share for
2021/22 were impacted by the significant non-underlying deferred tax charge in
respect of the change in corporation tax rate and also the average number of
shares used to derive the earnings per share were impacted by the share
consolidation in July 2021.
Our adjusted earnings per share excludes the impact of deferred tax charges
and non-underlying items. For the Group, we have generated adjusted earnings
per share for 2022/23 of 7.3 pence (2021/22 50.2 pence), with this reduction
in earnings reflecting the significant impacts from higher power costs and the
impacts of inflation on finance costs and operating costs more generally.
Sustainable net debt position
The Group's cash flow from operating activities for 2022/23 was £313.7
million (2021/22 £334.2 million). Cash collections have remained robust and
we continue to monitor cash collections closely and are focused on providing a
broad range of affordability measures to support those in need of support.
Net interest payments were £154.8 million (2021/22 £72.0 million) within the
increase driven by £51.5 million of interest paid on lease settlements
relating to interest accreted to the lease principal and a full 12-month
impact of Bristol Water. A significant element of the increased income
statement finance charges arises from our index-linked debt, and is non-cash,
as the indexation element accretes to the debt principal repayable on
maturity.
Our accelerated environmental investment programme has resulted in an increase
in capital investment cash outflows of £102.9 million to £330.5 million
(2021/22 £227.6 million).
Other significant movements in net debt in 2022/23 include the final tranche
of the share buy-back programme of c.£40 million, payment of our interim and
final dividends for 2021/22 and £84.3 million of non-cash indexation on our
loan instruments. Other movements of £116.4 million arise in the main from a
reduction of debt associated with historically accreted lease interest (£51.5
million), the unwinding of fair value adjustments on acquired debt (£44.3
million), notably following the repayment of the Bristol Water plc
index-linked bond due 2041, and VAT recovered on lease repayments (£21.5
million).
The Group's IFRS net debt at 31 March 2023 was £2,965.4 million (31 March
2022 £2,682.9 million), which is also referred to as sustainable net debt.
This includes fair value adjustments on acquired debt of £124.0
million(( 27 )) which are released over the life of the related debt
instruments. The Group's net debt position excluding these adjustments is
£2,841.4 million.
Agile and efficient financing
The Group has made several changes to its financing since the end of the last
financial year to ensure we can efficiently support the needs of our business
strategy and are agile to address the changes in the macro-economic
environment.
Since 31 March 2022, the Group has secured and completed c.£825 million of
new and renewed facilities, including:
· Our first syndicated £300 million private placement with an average
maturity of 12 years
· £205 million of new term loans and leasing with an average maturity
of 9 years
· £25 million 20-year private placement
· £295 million of new and renewed revolving credit facilities.
During 2022/23 all new and renewed facilities were raised under our
Sustainable Financing Framework.
Our lease portfolio will continue to deliver long-term benefits as part of our
diverse range of facilities as we look to further diversify our portfolio
going forward, as a strand of our Sustainable Financing Framework. During the
year, we continued our programme of repayment and restructuring of the
portfolio to ensure its continued efficient and effective management with a
further c.£167 million (including interest on leases) repaid during 2022/23.
The Group has taken steps during the year to re-balance the proportion of
index-linked debt to align with previously maintained levels for the
longer-term. In November 2022, we reduced our index-linked debt proportion by
repaying the £40 million Bristol Water plc index-linked bond due 2041,
generating an £18.4 million non-underlying gain.
The statutory transfer of the Bristol Water business to South West Water
completed in February 2023, including outstanding debt being transferred on an
unsecured basis.
Resulting from the changes above and drawing of new debt during the year,
South West Water 28 gross debt at 31 March 2023 was £2,918 million (31 March
2022 £2,848 million). The debt has a maturity of up to 34 years with a
weighted average maturity of c.15 years.
At 31 March 2023, South West Water's(28) net debt to RCV ratio 29 stood at
60.8% (31 March 2022 62.3%). This is broadly in line with Ofwat's notional
structure of 60%.
South West Water's cost of finance, with an effective interest rate in 2022/23
of 5.5% remains among the lowest in the industry, continuing to benefit from
the diverse portfolio of debt.
Financing portfolio - strategic positioning
The Group has a strong liquidity and funding position with £420 million of
cash and committed facilities as at 31 March 2023. This consists of cash and
cash equivalents of £165 million (including £22 million of restricted funds
representing deposits with lessors against lease obligations) and £255
million of undrawn facilities. £104 million of the cash holdings are held at
the Pennon company level.
Following the successful transfer of Bristol Water to South West Water, this
has meant changes to the regulatory licence and we are targeting to obtain a
strong investment-grade rating for South West Water for the start of the next
regulatory period.
South West Water(28) net debt at 31 March 2023 is a mix of fixed / swapped
(£1,854 million, 65%), floating (£609 million, 21%) and index-linked
borrowings (£402 million, 14%), which reflects our diverse debt portfolio and
compares to an industry average 30 of fixed / swapped 42%, floating 4% and
index-linked 54%. New debt raised during this regulatory period has been fixed
to align to iBoxx indices in line with Ofwat's approach to allowed cost of
debt. Where appropriate, derivatives are used to fix the rate on floating rate
debt.
As we progress through the remainder of K7, we expect the mix of our debt
portfolio to evolve and are strategically targeting index-linked debt to
represent 20-25% of our portfolio in the long term. This will enable the Group
to maintain its financing flexibility, whilst remaining within our treasury
policy of at least 60% fixed rate debt.
As the Group continues to develop, and we see our funding requirements grow,
we expect the Group to manage its portfolio with larger, and more diverse debt
instruments, taking advantage of the public ratings once established in 2025,
in line with Ofwat's final PR24 methodology requirements.
We will continue to maintain a diverse portfolio of debt to support
flexibility and growth opportunities. We expect that our reinvestment of our
outperformance in environmental enhancements will be financed through debt,
resulting in increased net debt to RCV gearing in the short-term. In the
long-term this investment will provide returns though K8 revenues and a higher
RCV. We now expect RCV to reach £5.2 billion at the start of K8.
Contingencies
Ofwat and the Environment Agency announced an industry-wide investigation into
sewage treatment works on 18 November 2021. In June 2022, as part of its
ongoing investigation, Ofwat announced enforcement action against South West
Water Limited, alongside the five companies which received enforcement notices
in March 2022.
On 23 May 2023 Ofwat announced an investigation into South West Water's
2021/22 operational performance data relating to leakage and per capita
consumption. This operational performance data was reported in South West
Water's Annual Performance Report 2021/22.
All company data is subject to extensive process checks, which include both
internal and external assurance. All data disclosed in South West Water's
Annual Performance Report is subject to rigorous checks and balances carried
out by South West Water's external technical auditor.
The company continues to work openly and constructively with regulators to
comply with the formal notices as part of these ongoing investigations by
engaging and providing information as required.
Pensions
At 31 March 2022, the surplus on retirement obligations of £66.3 million
comprised a surplus on the Group's principal pension scheme, Pennon Group
Pension Scheme (PGPS), of £59.5 million and a surplus of £6.8 million in
respect of Bristol Water's defined benefit pension obligations.
The overall surplus at 31 March 2023 has reduced to c.£29 million reflecting
the following principal movements:
· £23 million net reduction in surplus from the movement in financial
actuarial assumptions with significant reductions in liabilities, from the
increasing discount rate, offset by the reduction in asset values (reflecting
market volatility and the greater level of hedging in the schemes).
· £16 million reduction in surplus with the change in other actuarial
assumptions reflecting the impact of inflation on immediate term pension
increases, and other changes in actuarial assumptions from the March 2022
triennial valuation.
The triennial valuation of PGPS as at 31 March 2022 has been agreed and no
deficit recovery payments are required. The valuation recorded an actuarial
technical provision surplus of c.£8 million, representing c.101% funding. The
valuation reflects the improvements in the funding of PGPS over recent years
supported by the responsible payments made by the Group. The ongoing funding
requirements for the Company to the scheme are limited to the continuing
administration expenses.
As funding of PGPS has improved the investment portfolio has been de-risked
through increasing the scheme's real gilts hedging position through Liability
Driven Investments (LDIs), which are commonly used by UK pension schemes.
Whilst LDIs remain a critical part of the hedging strategy, further risk
management and monitoring strategies have been implemented to help protect
against the potential for rapid movements in yields, given what was seen in
gilt markets last autumn.
Bristol Water's pension surplus relates to the Bristol Water Section of the
Water Companies Pension Scheme (WCPS). The liabilities of the scheme are fully
insured, securing the pension promises made to the benefit of members through
a bulk annuity policy. Changes in actuarial assumptions have little impact on
the surplus recognised as the change in liabilities is materially matched by
the change in asset values through the bulk annuity policy. As a result the
net surplus of c.£7 million remains largely unchanged. The surplus recognised
is restricted by a tax deduction of 35% under UK tax legislation.
Dividends
The Group continues to strive to deliver on its commitments to customers,
shareholders and stakeholders as our investments drive strong and sustainable
results. Around two thirds of Pennon's shareholders are UK pension funds,
savings, charities and individuals with almost half of the Group's employees,
now including Bristol Water, also being shareholders. Following the second
issuance of our unique WaterShare+ initiative, customers now make up more than
four times the number of institutional shareholders.
Pennon's sector-leading 2020-2025 dividend policy of growth of CPIH +2%
reflects the Board's ongoing confidence in the Group's strategy and is
underpinned by continued RORE outperformance in South West Water.
The Board has recommended a final dividend of 29.77 pence per share for the
year ended 31 March 2023. Together with the interim dividend of 12.96 pence
per share paid on 5 April 2023 this gives a total dividend for the year of
42.73 pence. This represents an increase of 10.9% (March 2023 CPIH + 2%) on
2021/22. Pennon offers shareholders the opportunity to invest their dividend
in a Dividend Reinvestment Plan (DRIP).
The proposed dividends totaling £111.7 million are covered 2.8 times by
underlying EBITDA (2021/22 3.8 times). The reduction in EBITDA dividend
cover(^) was expected given the significant near-term pressures on earnings
from elevated power pricing. Pennon Group plc has substantial retained
earnings and a sustainable balance sheet to support its stated dividend
policy. The strong fundamentals of its principal operating subsidiary, South
West Water Limited, underpin this policy with its strong RORE and growing RCV.
Dividends are charged against retained earnings in the year in which they are
paid.
Investing for sustainable growth - renewable energy generation
In line with both our long-term sustainable growth strategy in UK
environmental infrastructure and our desire to accelerate on our Net Zero
target by 2030, we have allocated £160 million for investment in renewable
energy generation. This strategy will also benefit the Group by reducing our
exposure to future volatility in wholesale power markets, that we have
experienced this year, and will provide commercial returns ahead of those
earned from our regulatory water business.
In May 2023 Pennon Power Limited, a direct subsidiary to Pennon Group plc,
acquired a c.40 GWh site in Dunfermline for an expected total acquisition and
build cost of around £35 million. This is an attractive ready to build site,
with consents in place, and is expected to commence generation in 2024. This
site also has capacity for further investment of around £25 million for a
2-hour 60 MW battery storage facility that will support the UK's transition to
renewable energy and earn further healthy returns.
In addition, we are in advanced discussions on a further four sites that could
provide a further 150 GWh generation, potentially bringing our total
generation to c.190 GWh from these projects. This amount equates to around 45%
of our electricity usage and would be a big step forward towards our 2030
target of 50% self-generation, which we have accelerated to 2025.
Financial outlook
Looking to 2023/24, there are some signs of inflation stabilisation before it
recedes to more normal levels, whilst the global economy continues to be
volatile and reactive to a range of ongoing geopolitical dynamics.
We recognise the pressure that inflationary pricing increases may pose to our
customers, and customer bill affordability continues to remain a key
consideration for us. Our broad range of affordability measures ensures we are
able to support those in need of support, and we continue to focus on
delivering improvements efficiently and effectively.
We expect overall revenues to increase with the combined impact of inflation
on our 2023/24 tariffs (net of the year-on-year impact of regulatory
adjustments and ODI penalties) and ongoing expected growth in our
non-household retail business.
Whilst wholesale cost levels remain elevated, we anticipate power costs to
remain broadly flat year on year 31 compared to 2022/23 total power costs of
c.£103 million (wholesale costs £67 million, non-commodity costs £36
million). We have recognised the pressure sustained high levels of inflation
place on our colleagues and pay increases of c.5-7% have been agreed across
the Group with a greater allocation towards lower income bands. In other areas
the sustained elevated levels of inflation continue to place upward pressure
on our input costs. Despite these upward cost pressures we are targeting to
maintain total operating costs in South West Water at 2022/23 levels, whilst
growth in the retail business outside our region will increase wholesale water
costs.
We have reduced the level of volatility on our interest costs by reducing our
exposure to index-linked debt with £300 million of RPI swaps to smooth the
impact of inflation over the remaining years of K7. Whilst the changes we have
made in our financing remain efficient, the increased borrowing rates on
variable debt and increased debt levels to support our capital investment
profile are expected to result in an overall increase in net finance costs.
Overall, these impacts are expected to result in improvements in near-term
earnings and, in the longer term, the elevated inflationary environment
provides the Group with additional growth in long-term sustainable value, with
revenues and RCV linked to November and March outturn inflation, respectively.
Technical Guidance - full year 2022/23
Pennon Group FY 2022/23 Change
Revenue* • Inflation reflected in 2023/24 tariffs in South West Water £825.0m ▲
partially offset by in-year impact of regulatory adjustments and ODI penalties
• Ongoing growth in our retail businesses
Net debt • Continued delivery of accelerated environmental capital £2,965.4m ▲
investment across the Group
• Accretion on index-linked debt
Current tax • 2022/23 effective credit rate reflects prior year credit as a 16.1% ▲
result of additional super-deductions and lower non-deductible expenditure
following the submission of the 2022 corporate tax computations (credit rate)
• Higher capital allowances from the Group's continued capital
investment programme together with full expensing means that the Group
anticipates generating tax losses in the remaining years of K7 resulting in
effective tax rate around 0%
Operating costs* • Ongoing inflationary increases on input costs £517.2m
• Power costs expected to be flat year on year(31). We anticipate
consumption to remain elevated while we recover from the drought conditions.
• Pay increases between c.5-7% agreed
• Growth in retail businesses leading to higher wholesale supply
charges external to our regions
• Continued delivery of efficiencies
Depreciation* • Expanded capital programme driving increases in depreciation £154.7m ▲
Net interest* • RPI swaps over K7 to smooth the impact of inflation £136.6m ▲
• Increased variable rates on floating rate debt - c.65% of debt
fixed
• Increased levels of debt to support capital investment profile
Capex • Capital expenditure reflects K7 existing profile of investment £358.3m ▲
along with additional and accelerated environmental investment
RORE • Expected year on year reduction in line with lower inflation 10.5% ▼
expectations.
(Underlying Ofwat measure)
• Continued doubling of Group cumulative base returns
RCV 32 • Increase in line with K7 business plan levels of investment in £4.7bn ▲
addition to additional and accelerated investment, regulatory true-ups and
inflationary impact
*All measures on an underlying basis
Board Matters
On 1 December 2022 the Group welcomed Dorothy Burwell and Loraine Woodhouse to
the Boards of Pennon Group plc and South West Water Limited.
Dorothy currently sits on the Group's ESG, Nomination, Remuneration and Health
and Safety Board Committees and Loraine sits on the Audit, Nomination and
Remuneration Committees.
In light of these appointments, the Group has reviewed its Committee
membership. Neil Cooper, Senior Independent Director and Audit Committee
Chair will be stepping down later this year after serving nine years on the
Board. Loraine will be replacing Neil as Audit Committee Chair and a process
has commenced to appoint a new Senior Independent Director.
Andrew Garard was also appointed Group General Counsel and Company Secretary
following the retirement of Simon Pugsley.
Susan Davy
Group Chief Executive
31 May 2023
Financial Timetable
01 June 2023 Full Year Results 2022/23
June 2023 Annual Report and Accounts published
20 July 2023 Annual General Meeting
20 July 2023* Ordinary shares quoted ex-dividend
21 July 2023* Record date for final dividend
10 August 2023* Final date for receipt of DRIP applications
04 September 2023* Final dividend payment date
02 October 2023 Submission of PR24 Business Plans
05 October 2023 Trading Statement
05 October 2023 PR24 Spotlight presentation
29 November 2023 Half Year Results 2023/24
25 January 2024 Ordinary shares quoted ex-dividend
26 January 2024 Record date for interim dividend
08 March 2024 Final date for receipt of DRIP applications
28 March 2024 Trading Statement
05 April 2024 Interim dividend payment date
21 May 2024 Full Year Results 2023/24
* Subject to obtaining shareholder approval at the 2023 Annual General
Meeting.
PRINCIPAL RISKS AND UNCERTAINTIES
Principal Risks
During the year the Board have carried out a detailed review of the of the
current and emerging risks in the context of the Group's strategic objectives
and priorities, the Group's risk appetite and the external environment within
which it operates. This includes the impact of changes to the external
macro-economic, legal and regulatory environment within which the Group
operates. This has resulted in changes to the Group's principal risks compared
with those reported within the Pennon 2022 Annual Report. The Group's
principal risks are:
Law, Regulation and Finance
1. Changes in Government Policy
2. Regulatory reform
3. Non-compliance with laws and regulations
4. Inability to secure sufficient finance and funding, within our debt
covenants, to meet ongoing commitments
5. Non-compliance or occurrence of avoidable health and safety incidents
6. Failure to pay all pension obligations as they fall due and increased
costs to the Group should the defined benefit pension scheme deficit increase
Market and Economic Conditions
7. Macro-economic near-term risks impacting on inflation, interest rates
and power prices
Operating Performance
8. Failure to deliver the Group's 2030 Net Zero Commitment to respond to
the impact of climate change
9. Availability of sufficient water resources to meet current and future
demand
10. Failure of operational water treatment assets and processes resulting in
an inability to produce or supply clean drinking water
11. Failure of operational wastewater assets and processes resulting in an
inability to remove and treat wastewater and potential environmental impacts,
including pollutions
12. Non-delivery of customer and environmental commitments
13. Insufficient skills and resources to meet the current and future business
needs and deliver the Group's strategic priorities
Business Systems and Capital Investment
14. Insufficient capacity and resilience of the supply chain to deliver the
Group's operational and capital programmes
15. Inadequate technological security results in a breach of the Group's
assets, systems and data
CAUTIONARY STATEMENT IN RESPECT OF FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements relating to the Pennon Group's
operations, performance and financial position based on current expectations
of, and assumptions and forecasts made by, Pennon Group management which may
constitute "forward-looking statements" within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
identified in this Report by words such as "anticipate", "aim", "believe",
"continue", "could", "due", "estimate", "expect", "forecast", "goal",
"intend", "may", "outlook", "plan", "probably", "project", "remain", "seek",
"should", "target", "will", "would" and related and similar expressions, as
well as statements in the future tense. All statements other than of
historical fact may be forward-looking statements and represent the Group's
belief regarding future events, many of which, by their nature, are inherently
uncertain and outside the Group's control. Various known and unknown risks,
uncertainties and other factors could lead to substantial differences between
the actual future results, financial situation, development or performance of
the Group and the estimates and historical results given herein. Important
risks, uncertainties and other factors that could cause actual results,
performance or achievements of Pennon Group to differ materially from any
outcomes or results expressed or implied by such forward-looking statements
include, among other things, changes in Government policy; regulatory and
legal reform; compliance with laws and regulations; maintaining sufficient
finance and funding to meet ongoing commitments; non-compliance or occurrence
of avoidable health and safety incidents; tax compliance and contribution;
failure to pay all pension obligations as they fall due and increased costs to
the Group should the defined benefit pension scheme deficit increase;
non-recovery of customer debt; poor operating performance due to extreme
weather or climate change; macro-economic risks impacting commodity and power
prices and other matters; poor customer service and/or increased competition
leading to loss of customer base; business interruption or significant
operational failure/incidents; difficulty in recruitment, retention and
development of skills; non-delivery of regulatory outcomes and performance
commitments; failure or increased cost of capital projects/exposure to
contract failures; failure of information technology systems, management and
protection, including cyber risks; and all other risks in the Pennon Group
Annual Report to be published in June 2023. Such forward looking statements
should therefore be construed in light of all risks, uncertainties, and other
factors, including without limitation those identified above, and undue
reliance should not be placed on them. Nothing in this report should be
construed as a profit forecast.
Any forward-looking statements are made only as of the date of this document
and no representation, assurance, guarantee or warranty is given in relation
to them including as to their accuracy, completeness, or the basis on which
they are made. The Group accepts no obligation to revise or update publicly
these forward-looking statements or adjust them as a result of new information
or for future events or developments, except to the extent legally required.
UNSOLICITED COMMUNICATIONS WITH SHAREHOLDERS
A number of companies, including Pennon Group plc, continue to be aware that
their shareholders have received unsolicited telephone calls or correspondence
concerning investment matters which imply a connection to the company
concerned. If shareholders have any concerns about any contact they have
received, then please refer to the Financial Conduct Authority's website
www.fca.org.uk/scamsmart. Details of any share dealing facilities that the
Company endorses will be included in Company mailings.
PENNON GROUP PLC
Consolidated income statement for the year ended 31 March 2023
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
2023
(note 4)
2023
2022
(note 4)
2022
2023
2022
Notes £m £m £m £m £m £m
Revenue 3 825.0 (27.8) 797.2 792.3 - 792.3
Operating costs
Employment costs (102.2) - (102.2) (90.4) (1.7) (92.1)
Raw materials and consumables used (33.6) - (33.6) (22.9) - (22.9)
Other operating expenses (373.6) (15.9) (389.5) (289.5) (14.1) (303.6)
Trade receivables impairment (7.8) - (7.8) (5.6) - (5.6)
Earnings before interest, tax, 3 307.8 (43.7) 264.1 383.9 (15.8) 368.1
depreciation and amortisation
Depreciation and amortisation (154.7) - (154.7) (146.7) - (146.7)
Operating profit/(loss) 3 153.1 (43.7) 109.4 237.2 (15.8) 221.4
Finance income 5 9.2 18.4 27.6 2.6 - 2.6
Finance costs 5 (145.8) . (145.8) (96.3) - (96.3)
Net finance costs 5 (136.6) 18.4 (118.2) (93.7) - (93.7)
Share of post-tax profit from associated companies 0.3 - 0.3 - - -
Profit/(loss) before tax 3 16.8 (25.3) (8.5) 143.5 (15.8) 127.7
Taxation credit/(charge) 6 3.6 5.3 8.9 (13.9) (98.2) (112.1)
Profit/(loss) for the year 20.4 (20.0) 0.4 129.6 (114.0) 15.6
Attributable to:
Ordinary shareholders of the parent 0.1 15.4
Non-controlling interests 0.3 0.2
Earnings per ordinary share 7
(pence per share)
- Basic - 4.9
- Diluted - 4.9
The above results were derived from continuing operations.
PENNON GROUP PLC
Consolidated statement of comprehensive income for the year ended 31 March
2023
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
2023
(note 4)
2023
2022
(note 4)
2022
2023
2022
£m £m £m £m £m £m
Profit/(loss) for the year 20.4 (20.0) 0.4 129.6 (114.0) 15.6
Other comprehensive income / (loss)
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit obligations (39.0) - (39.0) 24.9 - 24.9
Income tax on items that will not be reclassified 9.8 - 9.8 2.4 - 2.4
Total items that will not be reclassified to profit or loss (29.2) - (29.2) 27.3 - 27.3
Items that may be reclassified
subsequently to profit or loss
Cash flow hedges 29.1 - 29.1 40.6 - 40.6
Income tax on items that may be reclassified (7.3) - (7.3) (6.5) - (6.5)
Total items that may be reclassified 21.8 - 21.8 34.1 - 34.1
subsequently to profit or loss
Other comprehensive (loss) / income for the (7.4) - (7.4) 61.4 - 61.4
year net of tax
Total comprehensive income/(loss) for the year 13.0 (20.0) (7.0) 191.0 (114.0) 77.0
Total comprehensive income/(loss) attributable to:
Ordinary shareholders of the parent (7.3) 76.8
Non-controlling interests 0.3 0.2
PENNON GROUP PLC
Consolidated balance sheet at 31 March 2023
2023 2022*
Notes £m £m
ASSETS
Non-current assets
Goodwill 163.9 163.9
Other intangible assets 14.9 13.9
Property, plant and equipment 4,476.9 4,264.0
Other non-current assets 23.2 9.6
Financial assets at fair value through profit 1.3 -
Derivative financial instruments 33.2 14.8
Investments in associated companies 0.3 -
Retirement benefit obligations 29.3 66.3
4,743.0 4,532.5
Current assets
Inventories 10.0 7.7
Trade and other receivables 238.0 270.9
Current tax receivable 8.4 1.5
Derivative financial instruments 20.7 5.6
Cash and cash deposits 11 165.4 519.0
442.5 804.7
LIABILITIES
Current liabilities
Borrowings 11 (124.7) (240.2)
Financial liabilities at fair value through profit (2.6) (2.5)
Derivative financial instruments (2.4) -
Trade and other payables (225.4) (171.5)
Provisions (0.4) (1.0)
(355.5) (415.2)
Net current assets 87.0 389.5
Non-current liabilities
Borrowings 11 (3,006.1) (2,961.7)
Other non-current liabilities (155.3) (137.2)
Financial liabilities at fair value through profit (34.0) (36.1)
Derivative financial instruments (2.4) -
Deferred tax liabilities (507.0) (512.4)
(3,704.8) (3,647.4)
Net assets 1,125.2 1,274.6
Shareholders' equity
Share capital 9 159.5 161.7
Share premium account 237.6 235.5
Capital redemption reserve 157.1 154.7
Retained earnings and other reserves 570.6 722.6
Total shareholders' equity 1,124.8 1,274.5
Non-controlling interests 0.4 0.1
Total equity 1,125.2 1,274.6
*An adjustment to the preliminary accounting for the Bristol Water acquisition
has been made within the measurement period ending 2 June 2022, this
adjustment is presented retrospectively and the 31 March 2022 balance sheet
figures have been adjusted accordingly.
PENNON GROUP PLC
Consolidated statement of changes in equity for the year ended 31 March 2023
Share capital (note 9) Share premium account Capital redemption reserve Retained earnings and other reserves Non-controlling interests Total equity
£m £m £m £m £m £m
At 1 April 2021 171.8 232.1 144.2 2,436.8 (0.1) 2,984.8
Profit for the year - - - 15.4 0.2 15.6
Other comprehensive profit for the year - - - 61.4 - 61.4
Total comprehensive income for the year - - - 76.8 0.2 77.0
Transactions with equity shareholders:
Dividends paid - - - (1,590.3) - (1,590.3)
Shares purchased for cancellation (including - - - (201.7) - (201.7)
related expenses)
Shares cancelled (note 9) (10.5) - 10.5 - - -
Adjustments in respect of share-based - - - 2.2 - 2.2
payments (net of tax)
Own shares acquired by the Pennon Employee - - - (1.2) - (1.2)
Share Trust in respect of share options granted
Proceeds from shares issued under 0.4 3.4 - - - 3.8
the Sharesave Scheme
Total transactions with equity shareholders (10.1) 3.4 10.5 (1,791.0) - (1,787.2)
At 31 March 2022 161.7 235.5 154.7 722.6 0.1 1,274.6
Profit for the year - - - 0.1 0.3 0.4
Other comprehensive loss for the year - - - (7.4) - (7.4)
Total comprehensive (loss) / income for the year - - - (7.3) 0.3 (7.0)
Transactions with equity shareholders:
Dividends paid - - - (101.6) - (101.6)
Shares purchased for cancellation (including - - - (40.0) - (40.0)
related expenses)
Shares cancelled (note 9) (2.4) - 2.4 - -
Adjustments in respect of share-based - - - 1.9 - 1.9
payments (net of tax)
Own shares acquired by the Pennon Employee - - - (5.0) - (5.0)
Share Trust in respect of share options granted
Proceeds from shares issued under 0.2 2.1 - - - 2.3
the Sharesave Scheme
Total transactions with equity shareholders (2.2) 2.1 2.4 (144.7) - (142.4)
At 31 March 2023 159.5 237.6 157.1 570.6 0.4 1,125.2
PENNON GROUP PLC
Consolidated statement of cash flows for the year ended 31 March 2023
2023 2022
Notes £m £m
Cash flows from operating activities
Cash generated from operations 10 313.7 334.2
Interest paid 10 (159.7) (74.6)
Tax paid (1.4) (7.3)
Net cash generated from operating activities 152.6 252.3
Cash flows from investing activities
Interest received 4.9 2.6
Movement of restricted deposits 146.1 89.1
Purchase of property, plant and equipment (326.6) (225.6)
Acquisition of subsidiaries, net of cash acquired - (421.2)
Proceeds on disposal of subsidiaries, net of cash - 9.2
disposed and transaction costs
Purchase of intangible assets (4.6) (3.4)
Proceeds from sale of property, plant and equipment 0.7 1.4
Net cash used in investing activities (179.5) (547.9)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 2.3 3.8
Purchase of ordinary shares by the Pennon Employee Share Trust (5.0) (1.2)
Proceeds from new borrowing 233.0 61.0
Repayment of borrowings (210.3) (49.4)
Cash inflows from lease financing arrangements 10 40.2 15.0
Lease principal repayments (including net recoverable VAT paid/recovered) (99.2) (258.9)
Dividends paid 8 (101.6) (1,590.3)
Repurchase of own shares and associated fees (40.0) (201.7)
Net cash used in financing activities (180.6) (2,021.7)
Net (decrease) / increase in cash and cash equivalents 207.5 (2,317.3)
Cash and cash equivalents at beginning of year 11 351.2 2,668.5
Cash and cash equivalents at end of year 11 143.7 351.2
PENNON GROUP PLC
Notes
1. General information
Pennon Group plc is a company registered in the United Kingdom under the
Companies Act 2006. The address of the registered office is given on page
57. Pennon Group's business is operated through two principal subsidiaries.
South West Water Limited, providing water and wastewater services in Devon,
Cornwall and parts of Dorset and Somerset and water only services in parts of
Dorset, Hampshire, Wiltshire and Bristol. Following the statutory licence
transfer from Bristol Water plc to South West Water Limited on 1 February 2023
the regulated water business of Bristol Water plc transferred to South West
Water Limited. Pennon Group is the majority shareholder of Pennon Water
Services Limited, a company providing water and wastewater retail services to
non-household customer accounts across Great Britain. Bristol Water Holdings
UK Limited owns a 30% share in Water 2 Business Limited, a joint venture with
Wessex Water, operating in the same sector as Pennon Water Services Limited.
The financial information for the years ended 31 March 2023 and 31 March 2022
does not constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. The Annual Report and Accounts for the year ended 31
March 2023, including the financial statements from which this financial
information is derived, will be delivered to the Registrar of Companies after
the AGM on 20 July 2023. The independent auditor's report on the 2023
financial statements was unqualified and did not contain a statement under
section 498 of the Companies Act 2006.
The full financial statements for the year ended 31 March 2022 were approved
by the Board of Directors on 30 May 2022 and have been delivered to the
Registrar of Companies. The independent auditor's report on those financial
statements was unqualified and did not contain a statement under section 498
of the Companies Act 2006. This final results announcement and the results for
the year ended 31 March 2023 were approved by the Board of Directors on 31 May
2023.
2. Basis of preparation
The financial information in this announcement has been prepared on the
historical cost accounting basis (except for fair value items, principally
acquisitions, transfer of assets from customers and certain financial
instruments as described in the 2023 Annual Report and Accounts) and in
accordance with UK-adopted international accounting standards. The accounting
policies adopted are consistent with those followed in the preparation of the
Group's 2023 Annual Report and Accounts which have not changed significantly
from those adopted in the Group's 2022 Annual Report and Accounts (which are
available on the Company website www.pennon-group.co.uk
(http://www.pennon-group.co.uk) ).
The going concern basis has been adopted in preparing these financial
statements. At 31 March 2023 the Group has access to undrawn committed funds
and cash and cash deposits totalling £420 million, including cash and other
short-term deposits of £165 million and £255 million of undrawn facilities.
Cash and other short-term deposits include £22 million of restricted funds
deposited with lessors which are available for access, subject to being
replaced by an equivalent valued security.
In making their assessment, the Directors reviewed the principal risks and
considered which risks might threaten the Group's going concern status, to do
this the Group's business plan has been stress-tested. Whilst the Group's risk
management processes seek to mitigate the impact of principal risks,
individual sensitivities against these risks have been identified. These
sensitivities, which are ascribed a value with reference to risk weighting,
factoring in the likelihood of occurrence and financial impact, were applied
to the baseline financial forecast which uses the Group's annual budget for FY
2023/24 and longer-term strategic business plan for the remainder of the going
concern period to 30 June 2024. The forecast includes our new syndicated £300
million private placement. During the year we also agreed updated covenant
terms on the majority of our facilities and the Directors are confident that
the covenant update process for the remaining small number of lenders will be
concluded satisfactorily in the very near term. For facilities where changes
to covenant terms are not finalised at the date of approval of the financial
statements, we have modelled the impact on the Group's solvency, using
existing terms, under a stress-tested scenario, and concluded this does not
compromise the going concern of the Group over the assessment period. The
risks and sensitivities include consideration of; legislative impacts such as
change in government policy and non-compliance with laws and regulations,
macro-economic impacts such as inflation and interest rate increases, and
operational impacts such as ensuring adequate water resources and failure of
operational assets. A combined stress testing scenario has been performed to
assess the overall impact of these individual scenarios impacting the Group
collectively. The combined weighted impact of the risks occurring is c.£120m,
this value is considered equivalent to an extreme one-off event that could
occur within a year, the probability of such an event happening is deemed
unlikely.
PENNON GROUP PLC
Notes (continued)
2. Basis of preparation (continued)
Through this testing, it has been determined that none of the individual
principal risks would in isolation, or in aggregate, compromise the going
concern of the Group over the going concern period, the assessment has been
considered by reviewing the impact on the solvency position as well as debt
and interest covenants. In the combined scenario to ensure that the Group was
able to continue as a going concern, additional mitigations could be deployed
to reduce gearing and increase covenant headroom. Examples of mitigations
could include; reduction in discretionary operational expenditure, deferral of
capital expenditure and / or cancellation of non-essential capital
expenditure, reduction in the amount of dividend payable, and raising
additional funding.
In addition, we have modelled a reverse engineered scenario that could
possibly compromise the Group's solvency over the going concern assessment
period. This scenario builds on the factors above and additionally assumes all
the Group's principal risks are incurred within the going concern period, with
no probability weightings attached. The Board considered the likelihood of
this scenario on the Group's solvency over the going concern period, as
remote, given this would require all of the principal risks to be incurred at
maximum impact within the same time frame, without implementing controllable
mitigations, as noted above, or raising additional funding.
Having considered the Group's funding position and financial projections,
which take into account a range of possible impacts, as described in this
report, the Directors have a reasonable expectation that that the Group will
meet the requirements of its covenants and has adequate resources to continue
in operational existence for the period to at least the end of the going
concern assessment period of 30 June 2024, and that there are no material
uncertainties to disclose. For this reason, they continue to adopt the going
concern basis in preparing the financial statements.
PENNON GROUP PLC
Notes (continued)
3. Segmental information
Operating segments are reported in a manner consistent with internal reporting
provided to the Chief Operating Decision-Maker (CODM), which has been
identified as the Pennon Group plc Board. The earnings measures below are used
by the Board in making decisions.
The Group is organised into two operating segments. The water segment
comprises the regulated water and wastewater services undertaken by South West
Water. The Non-household retail business reflects the services provided by
Pennon Water Services.
2023 2022
Revenue £m £m
Water 701.3 687.8
Non-household retail 218.0 195.3
Other 8.6 8.5
Less intra-segment trading((1)) (102.9) (99.3)
Total underlying revenue 825.0 792.3
Water non-underlying revenue (note 4) (27.8) -
797.2 792.3
Operating profit/(loss) before depreciation, amortisation and
non-underlying items (underlying EBITDA)
Water 308.4 385.0
Non-household retail 4.3 3.4
Other (4.9) (4.5)
307.8 383.9
Operating profit/(loss) before non-underlying items
Water 159.4 244.0
Non-household retail 3.6 2.6
Other (9.9) (9.4)
153.1 237.2
Profit/(loss) before tax before non-underlying items
Water 14.1 146.0
Non-household retail 1.8 1.0
Other 0.9 (3.5)
16.8 143.5
(Loss)/Profit before tax
Water (29.6) 144.0
Non-household retail 1.8 1.0
Other 19.3 (17.3)
(8.5) 127.7
(1) Intra-segment trading between different segments is under normal market
based commercial terms and conditions. Intra-segment revenue of the other
segment is at cost.
PENNON GROUP PLC
Notes (continued)
3. Segmental information (continued)
All revenue is generated in the United Kingdom. The grouping of revenue
streams by how they are affected by economic factors, as required by IFRS 15,
is as follows:
Year ended 31 March 2023
Water Non-household Other Total
retail
£m £m £m £m
Segment revenue - underlying 701.3 218.0 8.6 927.9
Segment revenue - non-underlying (note 4) (27.8) - - (27.8)
Inter-segment revenue (94.7) - (8.2) (102.9)
Revenue from external customers 578.8 218.0 0.4 797.2
Significant service lines
Water 578.8 - - 578.8
Non-household retail - 218.0 - 218.0
Other - - 0.4 0.4
578.8 218.0 0.4 797.2
Year ended 31 March 2022
Water Non-household Other Total
retail
£m £m £m £m
Segment revenue - underlying 687.8 195.3 8.5 891.6
Inter-segment revenue (90.9) (0.2) (8.2) (99.3)
Revenue from external customers 596.9 195.1 0.3 792.3
Significant service lines
Water 596.9 - - 596.9
Non-household retail - 195.1 - 195.1
Other - - 0.3 0.3
596.9 195.1 0.3 792.3
The Group's country of domicile is the United Kingdom and this is the country
in which it generates the majority of its revenue.
PENNON GROUP PLC
Notes (continued)
4. Non-underlying items
Non-underlying items are those that in the Directors' view are required to be
separately disclosed by virtue of their size, nature or incidence to enable a
full understanding of the Group's financial performance in the year and
business trends over time. The presentation of results is consistent with
internal performance monitoring.
2023 2022
£m £m
Revenue
WaterShare+((1)) (20.2) -
Drought incentive((2)) (7.6) -
Operating Costs
Drought costs((2)) (9.4) -
WaterShare+((1)) (2.2) -
Integration and CMA merger review costs((3)) (4.3) (6.9)
Bristol Water acquisition costs((3)) - (8.9)
Earnings before interest, tax, depreciation and amortisation (43.7) (15.8)
Bond redemption((4)) 18.4 -
Net tax credit arising on non-underlying items above((5)) 4.7 1.3
Deferred tax change in rate((6)) 0.6 (99.5)
Net non-underlying charge (20.0) (114.0)
(1) In September 2020, the Group offered its WaterShare+ scheme to its
customers whereby customers could choose to accept a credit on their bill or
take shares in Pennon Group plc. The scheme has operated again in the year
ended 31 March 2023. The value of the rebate equated to £13 per customer and
the total value of £20.2 million was recognised in full as a non-underlying
reduction to revenue in the year ended 31 March 2023. £19.9 million of the
WaterShare+ credits were taken as credits on customers' bills, with the
balance of £0.3 million being taken as shares in Pennon Group Plc. This item
was non-underlying in nature given its individual size and its non-recurring
nature. Additional costs of £2.2 million were incurred in relation to the
offering.
(2) 2022 was one of the driest and hottest years on record. Elevated demand
on the South West Water region from increased tourism and the hot, dry weather
led to an approximate 15% increase in distribution input in the year against
the expected level from 2017 included in the drought plan. The combination of
these individually extreme factors led to extremely low water storage levels
in the Colliford Water Resource Zone, with the main supply of Colliford
reservoir falling to around 14% capacity in October. A drought was declared by
the Environment Agency in Devon and Cornwall in August 2022. In order to react
to the drought and water shortage, South West Water invoked a series of
emergency measures and one-off expenditure to ensure the region could be
supplied with water over the summer and continuing into 2023. Due to the
exceptional combination of these events and the significance of the emergency
actions, certain costs have been classified as non-underlying given their
size, nature and non-recurring incidence. The costs directly addressing these
exceptional circumstances include charges for drought permits, water tankering
and other water saving measures. In November 2022, South West Water asked
households in Cornwall to reduce water usage as part of the "Stop The Drop"
campaign to increase reservoir levels. Household customers were offered a £30
bill credit if Colliford reservoir reached 30% storage capacity by 31 December
2022 from a low of around 14%. In December 2022 the company announced the
water level in Colliford reservoir reached 30% and as a result all household
customers in Cornwall received a £30 credit on their bill. This one-off
incentive was provided as part of the response to the drought conditions in
the Cornwall area in order to further prompt customers to reduce water usage.
The total value of the bill credits amounted to £7.6 million.
PENNON GROUP PLC
Notes (continued)
4. Non-underlying items (continued)
(3) The Group incurred expenses of £4.3 million in the year ended 31 March
2023. These costs are largely legal fees associated with statutory transfer
related activities. These costs are classified as non-underlying due to their
non-recurring nature. In the year ended 31 March 2022, the Group incurred
expenses of £8.9 million in relation to the acquisition of Bristol Water and
£6.9 million on the resulting merger review by the Competition and Markets
Authority and other integration costs.
(4) On 17 October 2022 Bristol Water plc gave notice of redemption of the
£40 million bonds due to be repaid in March 2041. The bonds were redeemed as
part of the statutory transfer of the business of Bristol Water to South West
Water. The Group carrying value of the bonds at 30 September 2022 was £91.3
million. The bonds were redeemed on 17 November 2022 for £72.3 million, and
the difference arising on early settlement was credited to finance costs in
the year. Associated legal costs of c£1 million have been incurred in
relation to the bond redemption. The redemption of the bonds is non-recurring
and of a material value, hence the credit has been treated as non-underlying.
(5) The net tax credit arising on non-underlying items reflects a £2.8
million current tax credit in respect of losses which will be carried back
against prior year taxable profits. A deferred tax credit of £1.9 million
relates to tax losses carried forwards, and the deferred tax unwind of the
fair value adjustment in relation to the Bristol Water bond terminated in the
year. The prior year credit of £1.3 million related to a current tax credit
on Group strategic review costs.
(6) Following the Chancellor's Budget on 4 March 2021 and subsequent
substantial enactment of the Finance Act on 24 May 2021, the UK's main rate of
corporation tax increased to 25% from 1 April 2023. All deferred tax assets
and liabilities were therefore reviewed and where they will crystallise after
1 April 2023 recalculated to crystallise at 25%, hence giving a non-underlying
deferred tax charge in the year ended 31 March 2022 of £99.5 million. This
charge is considered non-underlying due to it arising from a material
legislative change and its treatment is consistent with that applied in
relation to previous changes in corporation tax rates. A £0.6 million
deferred tax credit in respect of rate change arises on losses carried
forwards which will be relieved at 25%.
PENNON GROUP PLC
Notes (continued)
5. Net finance costs
2023 2022
Finance costs Finance income Total Finance Finance income Total
costs
£m £m £m £m £m £m
Cost of servicing debt
Bank borrowings and overdrafts (111.3) - (111.3) (73.9) - (73.9)
Interest element of lease payments (30.8) - (30.8) (20.3) - (20.3)
Other finance costs (3.7) - (3.7) (2.1) - (2.1)
Interest receivable - 4.9 4.9 - 2.0 2.0
Net gains on derivative financial instruments - 2.3 2.3 - - -
(145.8) 7.2 (138.6) (96.3) 2.0 (94.3)
Notional interest
Retirement benefit obligations - 2.0 2.0 - 0.6 0.6
Net finance costs (underlying) (145.8) 9.2 (136.6) (96.3) 2.6 (93.7)
Finance Income (non-underlying) - 18.4 18.4 - - -
Net finance costs (including non-underlying) (145.8) 27.6 (118.2) (96.3) 2.6 (93.7)
In addition to the above, finance costs of £5.0 million (2022 £1.3 million)
have been capitalised on qualifying assets included in property, plant and
equipment, at an average borrowing rate of 5.7% (2022 4.1%).
Other finance costs include £1.1 million (2022 £0.9 million) of dividends
payable on listed preference shares issued by Bristol Water, which are
classified as debt.
6. Taxation
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
2023
2023
2022
2022
(note 4) (note 4)
2023
2022
£m £m £m £m £m £m
Analysis of charge
Current tax (credit) / charge) (2.7) (2.8) (5.5) 5.0 (1.3) 3.7
Deferred tax - other (0.6) (1.9) (2.5) 8.9 - 8.9
Deferred tax arising on change of rate of corporation tax (0.3) (0.6) (0.9) - 99.5 99.5
Total deferred tax charge / (credit) (0.9) (2.5) (3.4) 8.9 99.5 108.4
Tax (credit) / charge for the year (3.6) (5.3) (8.9) 13.9 98.2 112.1
UK corporation tax is calculated at 19% (2022 19%) of the estimated assessable
profit for the year.
UK corporation tax for the Group is stated after a credit relating to prior
year current tax of £2.7 million (2022 £1.7 million credit) and a prior year
deferred tax charge of £1.0 million (2022 £10.2 million credit). These items
arise following the recording of the routine return to provision adjustments
following the submission of tax computations for the year ended 31 March 2022
to HMRC ahead of the 31 March 2023 filing deadline.
PENNON GROUP PLC
Notes (continued)
7. Earnings per share
Basic earnings per share are calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year, excluding those held in the employee share trust
which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to include all dilutive potential ordinary shares. The
Group has two types of dilutive potential ordinary shares - those share
options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares during the year; and the
contingently issuable shares under the Group's performance and Co-investment
Plan, the long-term incentive plan and the deferred shares element of the
Annual Incentive Bonus Plan, based on performance criteria for the vesting of
the awards.
The weighted average number of shares and earnings used in the calculations
were:
2023 2022
Number of shares (millions)
For basic earnings per share 261.9 312.1
Effect of dilutive potential ordinary shares from share options 0.9 1.7
For diluted earnings per share 262.8 313.8
Basic and diluted earnings per ordinary share
Earnings per ordinary share before non-underlying items and deferred tax are
presented as the Directors believe this measure provides a more useful year on
year comparison of business trends and performance. Deferred tax is excluded
as the Directors believe it reflects a distortive effect of changes in
corporation tax rates and the level of long-term capital investment. Earnings
per share have been calculated as follows:
2023 2022
(Loss)/ Earnings per share Profit Earnings per share
profit after tax
after tax
Basic Diluted Basic Diluted
£m p p £m p p
Statutory earnings attributable to ordinary shareholders of the parent 0.1 - - 15.4 4.9 4.9
Deferred tax (credit)/charge before non-underlying items (0.9) (0.3) (0.3) 8.9 2.9 2.8
Non-underlying items (net of tax) 20.0 7.6 7.6 114.0 36.5 36.4
Adjusted earnings 19.2 7.3 7.3 138.3 44.3 44.1
PENNON GROUP PLC
Notes (continued)
8. Dividends
2023 2022
£m £m
Amounts recognised as distributions to ordinary equity holders in the year:
Interim dividend paid for the year ended 31 March 2022: 11.70p (2021 6.77p) 31.6 28.6
per share
Final dividend paid for the year ended 31 March 2022: 26.83p (2021 14.97p) per 70.0 63.2
share
Special dividend paid for the year ended 31 March 2022: nil (2021 355.0p) per - 1,498.5
share
101.6 1,590.3
Proposed dividends
Interim dividend paid for the year ended 31 March 2023: 12.96p (2022 11.70p) 33.9 32.4
per share
Final dividend paid for the year ended 31 March 2023: 29.77p (2022 26.83p) per 77.8 69.6
share
111.7 102.0
The proposed interim and final dividends have not been included as liabilities
in these financial statements.
The proposed interim dividend for 2023 was paid on 5 April 2023 and the
proposed final dividend is subject to approval by shareholders at the Annual
General Meeting.
9. Share capital
Allotted, called-up and fully paid
Number of shares
Treasury shares Ordinary shares £m
At 1 April 2021 ordinary shares of 40.7p each 8,443 422,120,181 171.8
Share consolidation (2,815) (140,708,916) -
For consideration of £3.8 million, shares issued - 582,427 0.4
under the Company's Sharesave Scheme
Shares cancelled - (17,146,744) (10.5)
At 31 March 2022 ordinary shares of 61.05p each 5,628 264,846,948 161.7
For consideration of £2.3 million, shares issued - 379,044 0.2
under the Company's Sharesave Scheme
Shares cancelled - (3,910,503) (2.4)
At 31 March 2023 ordinary shares of 61.05p each 5,628 261,315,489 159.5
PENNON GROUP PLC
Notes (continued)
9. Share capital (continued)
Shares held as treasury shares may be sold, re-issued for any of the Company's
share schemes, or cancelled.
On 16 July 2021, the Group paid a special dividend of £1.5 billion to
shareholders in relation to the return of capital to shareholders announced on
3 June 2021. In order to maintain the comparability of the Company's share
price before and after the special dividend, a share consolidation was
approved at the General Meeting held on 28 June 2021. Shareholders received 2
New Ordinary shares of 61.05 pence each for every 3 Existing Ordinary shares
of 40.7 pence each.
During the prior year, the Group announced and began a process to purchase
ordinary shares at an aggregate cost of £400 million by September 2022.
During the prior year, the Group purchased £199.6 million of ordinary shares
from the market at an average ordinary share price of 1,164 pence. The shares
acquired under the tender offer were immediately cancelled, creating a capital
redemption reserve of £10.5 million. The maximum number of shares that can be
repurchased in connection with the Programme is 42,183,689 (being the maximum
authority granted by Pennon's shareholders at Pennon's AGM on 22 July 2021).
During the year ended 31 March 2023, the group purchased £39.9 million of
ordinary shares from the market at an average ordinary share price of 1,022
pence. The total aggregate cost of the Buy-back programme, which has
terminated, was £239.5 million. The shares acquired under the tender offer
were immediately cancelled, creating a capital redemption reserve of £2.4
million.
PENNON GROUP PLC
Notes (continued)
10. Analysis of the cash flows given in the statement of cash flows
Reconciliation of profit for the year to cash generated from operations:
2023 2022
£m £m
Cash generated from operations
Profit for the year 0.4 15.6
Adjustments for:
Share-based payments 2.4 2.2
Profit on disposal of property, plant and equipment (0.4) (1.0)
Depreciation charge 151.1 143.3
Amortisation of intangible assets 3.6 3.4
non-underlying net interest (18.4) -
non-underlying Bristol Water acquisition costs - 8.9
non-underlying CMA merger review and integration costs - 6.9
Share of post-tax profit from associated companies (0.3) -
Finance income (before non-underlying items) (9.2) (2.6)
Finance costs (before non-underlying items) 145.8 96.3
Taxation (credit) / charge (8.9) 112.1
Changes in working capital:
Increase in inventories (2.3) (0.6)
Decrease / (increase) in trade and other receivables 15.9 (14.3)
Increase / (decrease) in trade and other payables 34.6 (12.2)
Decrease in retirement benefit obligations from contributions - (24.2)
(Decrease) / increase in provisions (0.6) 0.4
Cash generated from operations 313.7 334.2
2023 2022
Reconciliation of total interest paid £m £m
Interest paid in operating activities 159.7 74.6
Interest paid in investing activities 5.0 1.3
Total interest paid 164.7 75.9
During the year, the Group completed a number of sale and leaseback
transactions in respect of its infrastructure assets as part of its ongoing
finance arrangements. Cash proceeds of £40.2 million (2022 £15.0 million)
were received and a gain of £nil (2022 £nil) was recognised. These assets
are being leased back at market rentals over varying lease terms from 7.5 to
9.5 years.
PENNON GROUP PLC
Notes (continued)
11. Net borrowings
2023 2022
£m £m
Cash and cash deposits 165.4 519.0
Borrowings - current
Bank and other current borrowings (92.7) (70.0)
Lease obligations (32.0) (170.2)
Total current borrowings (124.7) (240.2)
Borrowings - non-current
Bank and other non-current borrowings (1,960.9) (1,907.4)
Listed preference shares (12.5) (12.5)
Lease obligations (1,032.7) (1,041.8)
Total non-current borrowings (3,006.1) (2,961.7)
Total net borrowings (2,965.4) (2,682.9)
For the purposes of the cash flow statement cash and cash equivalents
comprise:
2023 2022
£m £m
Cash and cash deposits as above 165.4 519.0
Less: deposits with a maturity of three months or more (restricted funds) (21.7) (167.8)
143.7 351.2
PENNON GROUP PLC
Notes (continued)
12. Contingent liabilities
2023 2022
£m £m
Guarantees: Performance bonds 9.7 9.7
Guarantees in respect of performance bonds relate to changes to the collateral
requirements for the non-household retail business with other wholesalers.
Other contractual and litigation uncertainties
Ofwat and the Environment Agency announced an industry-wide investigation into
sewage treatment works on 18 November 2021. On 27 June 2022, as part of its
ongoing investigation, Ofwat announced enforcement actions against South West
Water Limited, the company is now included alongside the five companies which
received enforcement notices in March 2022. The company continues to work
openly with Ofwat to comply with the notice as part of this ongoing
investigation. The potential outcome of these investigations remains
unknown.
On 23 May 2023 Ofwat announced an investigation into South West Water's
2021/22 operational performance data relating to leakage and per capita
consumption. This operational performance data was reported in South West
Water's Annual Performance Report 2021/22. This report is subject to
rigorous assurance processes which include independent checks and balances
carried out by an external technical auditor. The company will work openly
and constructively with Ofwat to comply with the formal notice issued to South
West Water as part of this investigation. The potential outcome of this
investigation is currently unknown
The Group establishes provisions in connection with contracts and litigation
where it has a present legal or constructive obligation as a result of past
events and where it is more likely than not an outflow of resources will be
required to settle the obligation and the amount can be reliably estimated.
Where it is uncertain that these conditions are met a contingent liability is
disclosed unless the likelihood of the obligation arising is remote or the
matter is not deemed material.
13. Acquisition of Bristol Water Group
On 2 June 2021, the Company acquired 100% of the issued share capital and
voting rights of Bristol Water Holdings UK Limited, the holding company of the
Bristol Water Group. Bristol Water Group comprises Bristol Water plc, a
regulated water only company and a 30% share in Water 2 Business Limited, a
joint venture with Wessex Water. The purpose of the acquisition was to grow
the Group's core water business by expanding into a geographically contiguous
region. The acquisition of the Bristol Water Group was reviewed by the
Competition and Markets Authority and given full clearance on 7 March 2022.
The Bristol Water Group is consolidated in Pennon's accounts with effect from
the completion of acquisition at midnight on 2 June 2021.
The net assets recognised in the 31 March 2022 financial statements were based
on a provisional assessment of their fair value. The Group had not completed a
full tax review by the date the 2022 financial statements were approved for
issue by the Board of Directors. In early June 2022 the final review of tax
balances was completed, this has led to an increase in the deferred tax
liability with an offsetting increase in the total value of goodwill
recognised on acquisition of £5.5 million, the amortisation of this deferred
tax liability to 30 September 2022 is immaterial. Final fair values on
acquisition are shown in the table below. Corresponding amounts for the
financial year ended 31 March 2022 have also been restated.
The goodwill that arose on the acquisition can be attributed to synergies
expected to be derived from the combination and the value of the workforce
which cannot be recognised as a separately identifiable intangible asset.
Goodwill has been allocated to the water segment. The goodwill arising is not
expected to be tax deductible.
PENNON GROUP PLC
Notes (continued)
13. Acquisition of Bristol Water Group (continued)
The details of the business combination are as follows:
£m
Fair value of consideration transferred
Amount settled in cash
419.6
Recognised amounts of identifiable net assets
Property, plant and equipment 944.8
Intangible assets 12.8
Other non-current assets 9.9
Inventories 1.7
Trade and other receivables 22.3
Cash and cash deposits (including restricted cash of £6.1 million) 18.9
Current tax liability (2.2)
Borrowings (545.1)
Trade and other payables (32.2)
Provisions (0.3)
Retirement benefit obligations 7.8
Deferred tax liabilities (140.4)
Identifiable net assets 298.0
Goodwill on acquisition 121.6
Consideration for equity settled in cash 419.6
Payment to acquire loan to former parent 5.5
Cash and cash equivalents acquired (excluding restricted cash) (12.8)
Net cash outflow on acquisition 412.3
Acquisition costs paid charged to expenses 8.9
Net cash paid relating to the acquisition 421.2
Acquisition related costs of £8.9 million are not included as part of the
consideration transferred and have been recognised as an expense in the
consolidated income statement within other operating expenses.
The fair value of trade and other receivables acquired as part of the business
combination amounted to £22.3 million with a gross contractual amount of
£38.9 million. At the acquisition date the Group's best estimate of the
contractual cash flows expected not to be collected amounted to £16.6
million.
As part of the acquisition of Bristol Water, the Group acquired interests in
two joint ventures, Bristol Wessex Billing Services Limited ("BWBSL") and
Water 2 Business Limited ("Water 2 Business"). These two interests are
accounted for using the equity method. Currently the carrying values of these
investments equates to £0.3 million (2022 nil) representing the relevant
share of the net assets of each of these interests.
The goodwill that arose on the acquisition can be attributed to synergies
expected to be derived from the combination and the value of the workforce
which cannot be recognised as an intangible asset. Goodwill has been allocated
to the water segment. The goodwill arising is not expected to be tax
deductible.
PENNON GROUP PLC
Notes (continued)
14. Events after the reporting period
In May 2023 the Group acquired a c.40 Gwh solar photovoltaic site in
Dunfermline which is ready to build with consents in place, and is expected to
commence generation in 2024, for total acquisition and build costs of c.£35
million. The site also has the capacity for a two-hour 60 MW battery that will
support the UK Grid's move to renewables at a cost of c.£25 million.
On 23 April 2023, South West Water was issued with a fine of £2.15 million in
relation to pollution offences occurring between 2016 and 2020, following a
case brought by the Environment Agency. The liability for the fine and related
costs are recorded on the balance sheet of the Group as at 31 March 2023.
On 23 May 2023 Ofwat announced an investigation into South West Water's
2021/22 operational performance data relating to leakage and per capita
consumption. This operational performance data was reported in South West
Water's Annual Performance Report 2021/22. This report is subject to rigorous
assurance processes which include independent checks and balances carried out
by an external technical auditor. The company will work openly and
constructively with Ofwat to comply with the formal notice issued to South
West Water as part of this investigation. The potential outcome of this
investigation is currently unknown.
Pennon Group plc
Registered office:
Peninsula House
Rydon Lane
Exeter
Devon
EX2 7HR
pennon-group.co.uk
Registered
in England: 2366640
PENNON GROUP PLC
Alternative performance measures
Alternative performance measures (APMs) are financial measures used in this
report that are not defined by International Financial Reporting Standards
(IFRS). The Directors believe that these APMs assist in providing additional
useful information on the underlying trends, performance and position of the
Group as well as enhancing the comparability of information between reporting
periods.
As the Group defines the APMs they might not be directly comparable to other
companies' APMs. They are not intended to be a substitute for, or superior to,
IFRS measurements. The following APMs have been added or amended to those
presented previously to reflect the changing nature of the Group for the
acquisition of Bristol Water in June 2021 and integration of Bristol Water plc
into South West Water Limited's group of companies:
· The APM for 'effective interest rate' has been updated following
changes to Group financial structures during the financial year. Following the
acquisition of Bristol Water, Bristol Water plc has been integrated into South
West Water Limited's group of companies. This metric has been amended, with
the prior year reanalysed, to ensure a consistent, comparable metric is
presented and is reflective of South West Water performance.
· An APM for the 'effective cash cost of interest' has been
presented in addition to the 'effective interest rate' APM to provide an
insight into South West Water's interest charges excluding finance costs that
are not paid in the year but accrete to the carrying value of debt. This
provides a useful insight into South West Water's cash cost of debt.
· The APM 'South West Water return on capital employed' has
reverted to 'Group return on capital employed' (as presented in 2021/22
results) given the Group's current balance sheet structure. In the previous
two years the APM was altered to 'South West Water return on capital employed'
as this provided a more meaningful comparison of performance due to the Group
holding a net cash position at 31 March 2021.
· The APM 'Continuing operations operational cash inflows and other
movements' has been discontinued as management believe the statutory cash
flows from operating activities appropriately reflects performance.
· The APM 'Regulatory Capital Value (RCV)' definition has been
added alongside other regulatory APM definitions to provide additional
information about the regulatory framework.
(i) Underlying earnings
Underlying earnings are presented alongside statutory results as the Directors
believe they provide a more useful comparison on business trends and
performance. Note 4 in the notes to the financial statements provides more
detail on non-underlying items, and a reconciliation of underlying earnings
for the current year and the prior year is as follows:
Non-underlying items
Underlying earnings Underlying Integration costs Water-Share+ Drought incentive Drought costs Bond redemption Statutory results Earnings
reconciliation
per share
31 March 2023
£m £m £m £m £m £m £m p
EBITDA (see below) 307.8 (4.3) (22.4) (7.6) (9.4) - 264.1
Operating profit 153.1 (4.3) (22.4) (7.6) (9.4) - 109.4
Profit before tax 16.8 (4.3) (22.4) (7.6) (9.4) 18.4 (8.5)
Taxation 3.6 1.1 5.5 1.5 1.8 (4.6) 8.9
Profit after tax 0.4
Non-controlling interests (0.3)
Profit after tax attributable 0.1 -
to shareholders
PENNON GROUP PLC
Alternative performance measures (continued)
(i) Underlying earnings (continued)
Non-underlying items
Underlying earnings Underlying Deferred tax Acquisition and merger review related costs Statutory results Earnings
reconciliation
change of rate
per share
31 March 2022
£m £m £m £m p
EBITDA (see below) 383.9 - (15.8) 368.1
Operating profit 237.2 - (15.8) 221.4
Profit before tax 143.5 - (15.8) 127.7
Taxation (13.9) (99.5) 1.3 (112.1)
Profit after tax 15.6
Non-controlling interests (0.2)
Profit after tax attributable 15.4 4.9
to shareholders
(ii) Underlying EBITDA
Underlying EBITDA (earnings before interest, tax, depreciation and
amortisation and non-underlying items) is used to assess and monitor
operational underlying performance.
(iii) Basic adjusted earnings per share (adjusted for share consolidation)
2023 2022
Basic weighted average number of shares
Basic weighted average number of shares (millions) (note 7) 261.9 312.1
Adjustment to reflect the post-consolidation share base as if it had been in - (36.6)
place
from the start of the previous financial year (millions)
Adjusted basic weighted average number of shares (adjusted for share 261.9 275.5
consolidation) (millions)
Basic adjusted earnings per share before non-underlying 7.3 44.3
items and deferred tax (pence) (note 7)
Adjustment to reflect the post-consolidation share base as if it had been in - 5.9
place
from the start of the previous financial year (pence)
Basic adjusted earnings per share before non-underlying items 7.3 50.2
and deferred tax (adjusted for share consolidation) (pence)
PENNON GROUP PLC
Alternative performance measures (continued)
(iv) Effective interest rate
A measure of the mean average interest rate payable on net debt associated
with South West Water Limited's group of companies, including Bristol Water
plc, which excludes interest costs not directly associated with net debt. This
measure is presented to assess and monitor the relative cost of financing for
South West Water.
2023 2022((1))
£m £m
Net finance costs before non-underlying items (note 5) 136.6 93.7
Remove: net finance income before non-underlying items not associated 8.7 6.7
with South West Water Limited's group of companies
Net finance costs before non-underlying items associated with 145.3 100.4
South West Water Limited's group of companies
Net interest on retirement benefit obligations associated with South 1.6 0.2
West Water Limited's group of companies
Capitalised interest (note 5) 5.0 1.3
Net finance costs for effective interest rate calculation 151.9 101.9
Group net debt / (cash) (opening) (note 11) 2,682.9 (64.3)
Remove: opening net debt not associated with South West Water (43.8) 2,658.5
Limited's group of companies
Opening net debt for calculation 2,639.1 2,594.2
Group net debt (closing) (note 11) 2,965.4 2,682.9
Remove: closing net debt not associated with South West Water (100.1) (43.8)
Limited's group of companies
Closing net debt for calculation 2,865.3 2,639.1
Average net debt (opening net debt + closing net debt divided by 2) 2,752.2 2,616.7
Effective interest rate (%) 5.5 3.9
(1) 2021/22 water business comparator of 3.7% re-analysed to provide
comparative performance under post-integration South West Water Limited group
of companies' structure.
(v) Effective cash cost of interest
Effective cash cost of interest for South West Water Limited's group of
companies is based on the effective interest cost calculation above, but
excludes finance costs that are not paid in cash, but accrete to the carrying
value of debt (principally the inflationary impact of indexation on
index-linked debt).
2023 2022
£m £m
Net finance costs for effective interest rate calculation (as above) 151.9 101.9
Remove non-cash interest accrued (income statement indexation charge) (66.8) (35.7)
Net finance costs for effective cash cost of interest calculation 85.1 66.2
Opening net debt (as above) 2,639.1 2,594.2
Closing net debt (as above) 2,865.3 2,639.1
Average net debt (opening net debt + closing net debt divided by 2) 2,752.2 2,616.7
Effective cash cost of interest (%) 3.1 2.5
PENNON GROUP PLC
Alternative performance measures (continued)
(vi) Underlying interest cover
Underlying net finance costs (excluding pensions net interest cost) divided by
operating profit before
non-underlying items.
2023 2022
£m £m
Net finance costs before non-underlying items (note 5) 136.6 93.7
Net interest on retirement benefit obligations (note 5) 2.0 0.6
Net finance costs for interest cover calculation 138.6 94.3
Operating profit before non-underlying items (see APM (i) above) 153.1 237.2
Interest cover (times) 1.1 2.5
(vii) EBITDA dividend cover
Underlying EBITDA for the Group divided by proposed combined interim and final
dividends.
2023 2022
£m £m
Underlying EBITDA (see APM (i) above) 307.8 383.9
Proposed dividends (note 8) 111.7 102.0
EBITDA dividend cover (times) 2.8 3.8
(viii) Group dividend cover
Proposed dividends divided by profit for the year before non-underlying items
and deferred tax
2023 2022
£m £m
Proposed dividends (note 8) 111.7 102.0
Profit for the year attributable to ordinary shareholders 0.1 15.4
Deferred tax charge before non-underlying items (note 6) (0.9) 8.9
Non-underlying items after tax in profit for the year (note 4) 20.0 114.0
Adjusted profit for dividend cover calculations 19.2 138.3
Group dividend cover (times) 0.2 1.4
(ix) Capital investment
Property, plant and equipment and intangible asset additions. The measure is
presented to assess and monitor the total capital investment by the Group.
2023 2022
£m £m
Additions to property, plant and equipment 353.7 237.3
Additions to intangible assets 4.6 3.6
Capital investment 358.3 240.9
(x) Capital payments
Payments for property, plant and equipment (PPE) and intangible asset
additions, net of proceeds from sale of PPE and intangible assets. The measure
is presented to assess and monitor the net cash spend on PPE and intangible
assets.
2023 2022
£m £m
Cash flow statements: purchase of property, plant and equipment 326.6 225.6
Cash flow statements: purchase of intangible assets 4.6 3.4
Cash flow statements: proceeds from sale of property, plant and equipment (0.7) (1.4)
Capital payments relating to the Group 330.5 227.6
PENNON GROUP PLC
Alternative performance measures (continued)
(xi) Group return on capital employed
The total of underlying operating profit divided by capital employed (net debt
plus total equity invested). An average value for this metric is part of the
long-term incentive plan for Directors under the 2020 LTIP award.
2023 2022((1))
£m £m
Capital employed (opening):
Net debt (note 11) 2,682.9 2,198.6
Total equity invested 551.9 250.9
Opening capital employed for return on capital employed calculation 3,234.8 2,449.5
Capital employed (closing):
Net debt (note 11) 2,965.4 2,233.8
Total equity invested 554.2 295.9
Closing capital employed for return on capital employed calculation 3,519.6 2,529.7
Underlying operating profit (see APM (i) above) 153.1 214.5
Capital employed for return on capital employed calculation (opening capital 3,377.2 2,486.6
employed + closing capital employed divided by 2)
Return on capital employed (%) 4.5 8.6
(1) 2022 presentation reflects South West Water return on capital employed,
re-analysed on an average capital employed basis
PENNON GROUP PLC
Alternative performance measures (continued)
(xii) Return on Regulated Equity (RoRE)
This is a key regulatory metric which represents the returns to shareholders
expressed as a percentage of regulated equity.
Returns are made up of a base return (set by Ofwat, the water business
regulator, at c.3.9% for South West Water and c.4.4% for Bristol Water for the
period 2020-25) plus totex outperformance, financing outperformance and ODI
outperformance. Returns are calculated post tax and post sharing (only a
proportion of returns are attributed to shareholders and shown within RoRE).
The three different types of return calculated and added to the base return
are:
· Totex outperformance - totex is defined below and outperformance
is the difference between actual reported results for the regulated business
compared to the Final Determination (Ofwat published document at the start of
a regulatory period), in a constant price base
· Financing outperformance - is based on the difference between a
company's actual effective interest rate compared with Ofwat's allowed cost of
debt
· ODI outperformance - the net reward or penalty a company earns
based on a number of different key performance indicators, again set in the
Final Determination.
Regulated equity is a notional proportion of regulated capital value (RCV
which is set by Ofwat at the start of every five-year regulatory period,
adjusted for actual inflation). For 2020-25, the notional equity proportion is
40.0%.
References are made to Ofwat RoRE and Watershare RoRE which utilise differing
inflation assumptions and the disclosure of tax.
Further information on this metric can be found in South West Water and
Bristol Water's annual performance report and regulatory reporting, published
in July each year.
(xiii) Totex
Operating costs and capital expenditure of the regulated water and wastewater
business (based on the Regulated Accounting Guidelines).
(xiv) Outcome Delivery Incentive (ODIs)
ODIs are designed to incentivise companies to deliver improvements to service
and outcomes based on customers' priorities and preferences. If a company
exceeds these targets a reward can be earned through future higher revenues.
If a company fails to meet them, they can incur a penalty through lower future
allowed revenues.
(xv) Regulatory Capital Value (RCV)
RCV has been developed for regulatory purposes and is primarily used in
setting price limits.
RCV is widely used by the investment community as a proxy for the market value
of the regulated business and forms part of covenant debt limits.
Shadow RCV reflects the addition of anticipated regulatory adjustments which
amend RCV at the end of a regulatory period. These changes are accrued due to
performance through ODIs, changes in levels of totex expenditure, changes in
inflation rates and other regulatory adjustments.
(#_ftnref1) (^) Measures with this symbol are defined in the Alternative
Performance Measures (APMs) as outlined on pages 58 to 63.
1 Non-underlying items are adjusted for by virtue of their size, nature or
incidence to enable a full understanding of financial performance
2 Return on Regulated Equity^ Calculated on Ofwat basis, excluding
re-investment in additional commitments
3 Dividend policy of CPIH + 2%. The CPIH rate used is 8.9% as of 31 March
2023.
(( 4 )) 80:20 joint venture with South Staffs
5 Average per asset, per calendar year
6 As per latest published EA assessment - August 2022
7 Calculated as a percentage of seasonal resources available as a percentage
of demand
8 Based on South West Water(28) net debt and shadow RCV^ at 31 March 2023
9 Reduction from 2020-2022 - wastewater pollutions are measured on a
calendar year basis.
10 Measures required for each star rating are as follows - 1: 3 or more red
metrics, 2: 1 or 2 red metrics and/or 2 or less green metrics, 3: 3 or more
green metrics and no red metrics, 4 : 6 or more green metrics and no red
metrics, including core metric (numeric compliance) at green
11 Provisional rating from the Environment Agency - final EPA expected in
June/July 2023
12 Storm and emergency overflows
13 Based on Environment Agency August 2022 publication
14 The combination of pressures experienced in 2022 resulted in a situation
beyond currently applicable regulatory planning design requirements of 1 in
200 year resilience.
15 Customers in Cornwall received a £30 bill reduction following the
successful "Stop The Drop" initiative which helped to support the recovery of
Colliford Reservoir (serving the majority of Cornwall) to 30% capacity by 31
December 2022.
16 Reservoir capacity in the South West Water region at c.80% as at 22 May
2023
17 From 130,000 tonnes (2021) to 80,000 tonnes (2023)
18 Includes c.£40m WaterShare+, c.£10m Stop The Drop, c.£35m customer
support unlocked
19 On track or ahead of target, or within regulatory tolerances
20 This is made up of c.£13 million Totex^, c.£200 million financing, net
of c.£21 million ODI penalty. Excludes the impact of the third-party Carland
Cross event in 2021 which we are seeking to recover from the third-party
21 Investment above K7 business plan commitments
22 2021/22 water business comparator of 3.7% re-analysed to provide
comparative performance under post-integration South West Water Limited group
of companies' structure.
23 Watershare RORE - financing outperformance is based on the outturn
effective interest rate translated into a real rate using a forecast average
inflation assumption of 4.8% CPIH.
(#_ftnref24)
24 Includes full 12-month Bristol Water performance during 2021/22
25 Includes ODI penalties and revenue forecast incentive adjustment
26 Includes wholesale costs for non-household customers
27 Carrying value of fair value acquisition adjustments to net debt as at 31
March 2023 - £36.4 million Bournemouth Water, £87.6 million Bristol Water
28 Based on South West Water Limited's group of companies, including Bristol
Water plc
29 Based on South West Water net debt and shadow RCV
30 UK water position as at 31 March 2022 as per published Annual Performance
Reports - weighted average
31 Based on current market pricing and current hedged position of c.75% for
2023/24 (and c.30% for 2024/25).
32 Based on South West Water (South West Water Limited group of companies
including Bristol Water plc) net debt and shadow RCV
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