REG - Pennon Group PLC - Half Year Results 2024/25
27/11/2024 07:00
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RNS Number : 7854N Pennon Group PLC 27 November 2024
27 November 2024
Pennon Group plc
Half Year Results 2024/25
Pennon Group plc ('Pennon' or the 'Group') today announces its results for the
half year ended 30 September 2024.
Susan Davy, Group Chief Executive Officer, commented:
"Water companies are rightly being challenged to do more for customers today
and invest more for the future. We are doing both. 100% of customers across
the south west found their bills affordable for the first time - five years
ahead of the sector-wide pledge to eradicate water poverty. We continue to
lead the way in helping customers to use less and save more with a range of
money saving campaigns and pilots. Whilst that's led to lower wholesale water
business revenues, it's the right thing to do.
"Alongside our bill support, we are delivering record capital investment. Our
supply chain 'amplify' is up and running, delivering accelerated K8 investment
to tackle the use of storm overflows. We are forecasting growth in regulatory
capital of 75% over this regulatory period.
"Underpinned by solid relative operational performance, as assessed in Ofwat's
latest Water Company Performance Report across all parts of the Group, we have
continued to deliver to all of our customers across South West Water, Bristol
Water and SES. When things go wrong, as they did for customers and businesses
in and around Brixham earlier this year, we put it right, with no excuses. But
we know we have more to do.
"As we look ahead, we are energised following our Business Plans for SWW and
SES achieving 'outstanding' and 'good' ratings, respectively, from Ofwat. In
preparation, we are reshaping the Group and driving cost base efficiency. We
are putting more resources on the front line than ever before, streamlining
our support functions, with clear business lines, aligned to our four
strategic priorities.
"Of course, it's not what we are doing but how we do it that also matters. Our
operations across the Group need a reliable and efficient power supply and we
are investing to increase renewable energy provision through Pennon Power,
supporting our Net Zero ambitions.
"Overall, we are well positioned for the future, with lower revenues protected
by regulatory mechanisms, as we continue to focus on sustainable growth. Our
financial position remains resilient to the challenges ahead, with good
liquidity and a diversified debt portfolio. Our plans to restructure the
business, as well as the benefits being delivered through integration of SES
into our Group, will allow us to deliver efficiently as we move forward."
FINANCIAL PERFORMANCE
H1 2024/25 H1 2024/25 H1 2023/24
(excl. SES)
Underlying revenue(^) £527.2m £450.6m £448.6m
Underlying EBITDA(^) £163.5m £150.2m £168.5m
Underlying (loss)/profit before tax(^) (£18.6m) (£13.8m) £9.1m
Non-underlying items before tax(1) (£20.2m) (£20.2m) (£5.9m)
(Loss)/profit before tax - statutory (£38.8m) (£34.0m) £3.2m
(Loss)/profit after tax - statutory (£30.0m) (£26.2m) £1.8m
(Loss)/earnings per share
Adjusted EPS (6.6p) 3.6p
Basic EPS (10.6p) 0.5p
Dividend per share(2) 14.69p 14.04p
Capital expenditure
Group (incl. SES) £331.8m £266.3m
South West Water £306.0m £234.4m
At 30 Sept 2024 At 31 Mar 2024
Water Group
RCV(3) £5,916m £5,536m
Gearing(4) 65.0% 64.4%
SWW
Cumulative RORE (real, notional)(5) 6.0% 7.3%
Cumulative RORE (nominal, actual(6) 10.8%
Financial results for H1 2024/25
· Results for H1 2024/25 in line with management expectation(7)
· On a like for like basis, lower revenues in South West Water ('SWW')
compared to H1 2023/24 driven by successful water demand customer initiatives
resulting in a loss before tax on both an underlying and statutory basis, with
regulatory revenue mechanisms in place to protect future recovery
· As anticipated, newly acquired Sutton and East Surrey Group ('SES')
incurred a loss for the period - we are focused on reducing interest costs and
right sizing the cost base to improve profitability
· Profitable sector leading B2B retailers; Pennon Water Services
('PWS') and Water2Business - with plans to consolidate SES Business Water
· Loss before tax for the Group increased to £38.8m reflecting the
cost of interventions to return quality water supplies to Brixham (c.£16m)
and the costs of restructuring to reshape the Group's activities (c.£4m)
· Capital expenditure run rate is slightly lower than H2 2023/24, but
increased by £65.5m on H1 2023/24, as we invest to secure operational
improvements
· Solid relative performance for the wholesale water businesses in
respect of common Outcome Delivery Incentives (ODIs)
· Balance sheet for the Group is robust with Pennon Group gearing at
c.68%(8), and total Water Group RCV gearing of 65% (SWW gearing of 64%)
· Strong investment grade credit rating with liquidity of c.£675m in
place to support continued investment
· Return on regulated equity for SWW is relatively strong, equating to
10.8% on a nominal, actual balance sheet basis, and 6.0% on a real notional
WaterShare basis
· Interim dividend of 14.69p is in line with policy of CPIH +2%
Reshaping our business
· Four clear business units established focused on Water Services,
Wastewater Services, Pennon Power and Retail Services, aligned with our four
strategic priorities
· Reshaping the Group to drive greater efficiencies, as we grow, with
improvements in processes and operational effectiveness delivered and in
progress of c.£55m of annualised efficiencies in H1 2024/25 against the
targeted c.£86m annualised run rate for K8. The programme is targeted to:
o deliver the synergies identified through the water company acquisitions of
Bristol Water in 2021 and SES in 2024
§ c.£18m delivered in H1 2024/25 in Bristol Water, and we are on track for
the c.£20m targeted by the end of 2024/25
§ c.£2m delivered in H1 2024/25 in SES, with a target of c.£11m
o right size and reshape the Group to ensure we have resources focused on
our priorities - bolstering front line staff by c.100, and ensuring we have a
best-in-class customer service platform to serve our customers
Investment driving benefit
· SWW capital expenditure in H1 2024/25 broadly in line with the K8 run
rate; delivering investments to meet our K7 commitments, support performance
in our ODIs and respond to operational incidents as well as accelerate agreed
K8 transitional spend and early start planning and design activities
· Investment in water resource diversification continues with the
completion of the abstraction and new water treatment works at Rialton -
supplementing resources in Cornwall by c.4%, bringing the cumulative resource
position to 34% since 2022, with Devon benefitting from the cumulative 30%
uplift in availability reported in the 2023/24 results
· Water quality investments are on track including the two new
treatment works in Bournemouth - the treatment works will serve c.85% of the
population of Bournemouth - with the first works on track for commissioning by
the end of 2024/25
· Tackling sewer overflow spills through our WaterFit 2025 programme -
preventing c.12,500 spills with over c.350 interventions, with two thirds of
our top spillers in 2023 resolved this year
· Pennon Power solar investments on track with construction underway at
two sites equating to c.45% of our targeted generation with first energisation
expected at the end of 2024/25
· Supporting customers with c.£110m customer benefit for K7, including
innovative tariffs driving water efficiency and affordability
Strong relative sector performance
· Upper quartile performance in: SWW on internal sewer flooding and
water quality for water and sewerage companies; Bristol Water on customer
service; SES Water on supply interruptions and water quality
· Growing and profitable non-household retail businesses - with c.15%
market share, strong customer service - with Trustpilot scores for PWS and W2B
of 4.8 and 5.0, respectively - alongside a doubling of business retail PBT
from H1 2022/23
Underpinned by an 'outstanding' Business Plan for K8
· SWW's Business Plan for Bournemouth, Bristol, Cornwall, Devon,
and the Isles of Scilly categorised as outstanding and recognised as a
'leading plan' in July
· Having acquired SES Water in January 2024, Ofwat has assessed their
plan as standard, confirming this plan is 'generally good'
· SWW Draft Determination reflects minimum c.30% RCV growth to 2030,
with a cost of capital protected against reduction between Draft and Final
Determinations, with 30bps upside potential
· SES Draft Determination reflects growth of c.11% and 5bps upside for
a good standard plan
· Representations made to Ofwat in respect of risk return balance
(particularly focused on ODIs), providing additional evidence for our totex
investments, requesting that natural rates are applied for capital charges and
the balance between our regions and priorities
· Final Determination confirmed as 19 December 2024
Well positioned for a period of significant growth
· We have a sustainable supply chain to deliver our K8 programme - over
1,000 schemes already underway, with transition expenditure of c.£75m for
storm overflows we have launched our 'Turning the Tide' storm overflow
investment programme
· Strong investment grade credit ratings secured, with £2.5bn EMTN
programme launched and an inaugural £400m public bond issuance. We have
access to good liquidity funding through our sustainable financing framework
to support our growing capital programme
Notes:
All percentage movements are on a half on half basis unless otherwise stated
Results include the results of SES in the current period. SES was acquired in
January 2024 and therefore the prior year comparative period excludes the
impact of this acquisition
(^) Measures with this symbol are defined in the Alternative Performance
Measures (APM) section of this document, underlying measures are presented
before non-underlying items
(1) Non-underlying items are adjusted for by virtue of their size, nature or
incidence to enable a full understanding of financial performance.
(2) Dividend policy of CPIH+2%. The CPIH rate used is 2.6% at 30 September
2024
(3) Forecast shadow RCV at 31 March 2025 based on K7 Business Plan levels of
investment, Green Recovery, accelerated delivery, and transitional investment,
along with regulatory true-ups and inflationary impacts and the impact of
acquisitions and shadow RCV at 31 March 2024
(4) Based on Water Group (SWW including Bristol Water and SES Water) - net
debt at period end/forecast shadow RCV at 31 March
(5) Real cumulative RORE on underlying totex, financing and ODIs with notional
gearing
(6) Nominal cumulative RORE based on underlying real RORE using actual gearing
plus average inflation over K7 at 4.3%
(7) As set out in our Trading Statement in September 2024
(8) Pennon Group net debt excluding fair value adjustments/Water Group
forecast shadow RCV at 31 March 2025 and effective value of the non-regulated
businesses
Results presentation
A presentation of the Half Year 2024/25 results hosted by Susan Davy, Group
Chief Executive Officer and Laura Flowerdew, Group Chief Financial Officer,
will be available at 08:00am (GMT) today, 27 November 2024. This will be
followed by a live Q&A session at 08:45am (GMT). The presentation and
Q&A session can be accessed here:
www.pennon-group.co.uk/investor-information
(https://eur03.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.pennon-group.co.uk%2Finvestor-information&data=05%7C02%7Cccnash%40pennon-group.co.uk%7C82c2d186f6c94700c0e808dc7742b4d2%7C25d26f64e15045878705aefeb42a308c%7C0%7C0%7C638516375577033350%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=M75mZgIdqvj9YSpU7kDbKzTsK3LzyIzXsIeS4WdeNSQ%3D&reserved=0)
For further information, please contact:
Institutional equity investors and analysts
Louise Rowe - Compliance, ESG and IR Director 01392 446 688
James Murgatroyd - FGS Global 020 7251 3801
Debt investors
Chris Tregenna - Group Treasurer 01392 446 688
Retail investors
Link Asset Services 0371 664 9234
GROUP CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
Water companies are rightly being challenged to do more for customers today
and into the future. We are doing both, with good progress in K7, ensuring we
are well positioned for the delivery of our 2025-30 (K8) Business Plan and in
laying the foundations for sustainable future growth.
Our c.4,000 colleagues who live and work in the communities we support, care
passionately about what we do, each day and I couldn't be more proud. Our
customer and community roadshows continue to ensure we are hearing first-hand
what matters most and as we fix the things they care about. From Bristol to
Bournemouth, Devon, Cornwall, and the Isles of Scilly, and now Sutton and East
Surrey, we continue to help customers to use less and save more with a range
of money saving campaigns and pilots, leading the way.
Whilst South West Water ('SWW') revenues are lower on a like for like basis
due to our water efficiency initiatives, it's the right thing to do and is
protected by future regulatory mechanisms.
Agile group delivering for all in K7
As we are closing the K7 regulatory period we look back on a period of
significant change for the Group. Our agility in delivering for all
stakeholders has been a constant.
Following the sale of Viridor in 2020, as part of a highly disciplined
strategic review:
· we responsibly deployed capital, positioning the Group sustainably by
minimising liabilities
· we have reinvested in UK Water with the acquisition of Bristol and
SES at a total value of £0.6bn 9
· we have recognised shareholder support through our K7 dividend policy
of CIPH+2%.
We have made record investment in the asset base of c.£1.8bn(( 10 )) as we
focus on the things that matter most. Alongside our acquisitive growth
strategy this results in RCV growth of 75% 11 .
We are also expanding our non-regulated business; our three retailers now
having a combined market share of around 15% and our investments in Pennon
Power are on track.
Customers have benefitted through our innovative first of its kind WaterShare+
scheme. Launched in 2020, this gives customers a stake and a say in our
business and they have also shared in financial benefits.
Alongside this we have delivered solid relative sector performance with c.70%
of ODIs met over the period and we have focused on supporting customers,
keeping bills as low as possible through a drive for efficiency and providing
tangible support to those who need it most achieving 100% affordability for
the first time.
Reshaping our business to align with our four strategic priorities
To support the delivery of our outstanding and good rated Business Plans for
SWW and SES we are reshaping the Group. We are putting more resources on the
front line than ever before, with clear business lines, aligned to our four
strategic priorities.
With Managing Directors in place for Water Services, Wastewater Services,
Pennon Power and Retail Services, we have also commenced a Group-wide
reshaping programme ensuring we have the right resources and capabilities,
with more resources on the front line, supported by expert and streamlined
corporate functions. Our supply chain partnership 'amplify' has already been
stood up and is on track to deliver £75m of accelerated investment to kick
start our plans to reduce storm overflows.
At September 2024, our transformation and restructuring programmes have
delivered, or are in progress to deliver, c.£35m of annualised savings. This
is in addition to the synergies delivered through our acquisitions of Bristol
Water and SES Water where we have delivered synergies of c.£18m and c.£2m,
respectively, and are on track to achieve the savings we set ourselves at
acquisition. This is a step towards our targeted annualised savings of c.£86m
in K8.
Investment driving benefits
With over £300m of capital investment in SWW in the first half of 2024/25, we
are investing to make sure we make good operational progress on our four
priorities in the long term. We are well prepared to deliver almost double the
rate of investment from K7 ending the period at the K8 run rate.
Building water resources, improving water quality
Our investments mean we are making good progress in providing a more resilient
and diverse portfolio for water resources across Devon and Cornwall. This has
been a monumental undertaking, with teams across South West Water and our
supply chain partners. Blackpool pit has been fully operational since the end
of March with construction completed at the new treatment works at Rialton. We
have supplemented capacity in Cornwall by 4% in this half year, with 34%
cumulatively achieved since 2022, alongside the 30% uplift to Devon. Overall,
water resource levels are at 80% across Devon and Cornwall, and we achieved
100% supply demand balance index for the first time in the 2023/24 EPA.
There are always two sides to the coin to ensuring a sustainable supply demand
balance, and reducing demand is also key to future resilience. Our sector
leading demand reduction schemes are focused on supporting customers to use
less and save money. Leading with our 'Water is Precious' water efficiency
campaign targeting both residents and visitors, we are also trialling several
firsts for the region with progressive tariff trials. In Cornwall residents
were given £10 off bills for delivering a 5% reduction in consumption, and we
have also launched innovative trials including rising block tariffs and
seasonal tariffs. Early analysis shows a c.2-9% reduction in demand from these
trials.
Whilst we are focused on protecting water resources, safe, clean drinking
water remains customers' number one priority and we continue to make good
progress in rolling out our successful Quality First culture and training
programme in Bristol, with plans to extend to SES.
The incident earlier in the year in Brixham highlights just how important it
is that all customers can have confidence in their water supply. We continue
to work with the Drinking Water Inspectorate on the lessons learned from the
incident. We supported customers throughout, ensuring homes and businesses had
access to bottled water, and went over and above our customer promise of £15,
with customers compensated to the equivalent of a year's annual bill, given
the rarity of the incident.
Our primary focus throughout was the health and safety of our customers and
the 800 strong team who worked tirelessly around the clock to restore clean,
safe drinking water to customers and businesses affected. Nothing mattered
more, and over the period, SWW flushed over 34km of water pipes 27 times at
high velocity to clean network pipes, with 17 phases of ice-pigging and
swabbing the network, and installed ultraviolet (UV) solutions and
microfilters to provide barriers. Over 1.2km of new pipework was laid to
provide future resilience across the network.
Our underlying water quality is improving. With SES the top performer in the
industry, and SWW upper quartile for water and sewerage companies, we are
confident that we can do even more as we share best practice.
For Bournemouth customers, we continue to make good progress with upgrades to
provide state-of- the-art water treatment works at Alderney and Knapp Mill. In
Devon and Cornwall, we are on track to deliver improvements at four works and
our tactical investments in Bristol - ahead of significant investment in K8 -
are showing improvements on last year's performance.
Tackling storm overflows and pollutions
Tackling storm overflows is a priority, and there's no doubt we have been
challenged with high rainfall and the third wettest October 2023 to August
2024 since records began. Ground water levels have remained exceptionally high
with a corresponding increase in the headline number of storm overflow spills.
However, beneath the headlines our investments are working, having resolved
two thirds of our highest spillers from 2023, and preventing c.12,500 spills
through c.350 interventions since 2022. Importantly, we have maintained our
sector leading performance for internal sewer flooding and upper quartile for
external flooding incidents.
Our WaterFit investments are focused on:
· reducing the flows into our network, with 57km of sewers relined to
reduce infiltration and completing over 12 hectares of sewer separation
· increasing storage at 60 sites, nearly tripling our storage capacity
to capture flows that otherwise would have split, returning them for treatment
after the storm event
· increasing treatment capacity at 15 wastewater treatment works
· and maximising existing capacity at 90 sites through interventions
such as increasing weir heights and flow optimisation.
With our regions 860 miles of coastline, we are rightly focused on improving
our bathing beaches, with a 12% reduction in the number of spills during the
2024 bathing season and maintaining 100% 12 quality standards for the fourth
year in a row.
Six new bathing water designations were made in 2024, and we are working to
support catchment schemes to ensure the designations meet the highest
standards. Three have already met standard, the remaining three are where our
assets have a limited impact, so we are working to understand other upstream
sources to support improvements.
We also recognise that there is still more to do on pollutions. We have some
of the lowest absolute levels of serious pollutions across the sector, and we
have not had a Category 1 incident since 2018. We remain focused on driving
improvements to overall levels for Devon and Cornwall. Reducing levels of
Category 3 pollutions remains a top priority.
Historically, the majority of our pollutions occurred in the network and the
work we have done here is working with c.40% reduction in network incidents
over K7. We have seen improvement underlying performance at our treatment
works but our focus has now turned to our pumping stations, where resilience
to the weather and increased flows has been challenging. We are responding
with improved site MOTS and enhanced cleansing as well as tackling power
resilience. We are also focused on up-skilling teams so we are better equipped
to mitigate and react to pollution events.
Driving environmental gains
Customers and communities across our region live, relax and work around our
bathing beaches and more and more people are using our rivers and water
courses all year round.
Our award-winning catchment management programme is leading the way for
biodiversity gains as well as continuing to help the way others manage their
land, improve water quality, biodiversity and climate resilience. Activities
range from building ponds, improving farm tracks, slurry storage, planting
trees and creating buffer strips to catch and filter water, as well as
peatland restoration that is benefiting from third-party contributions.
Overall c.135,000 hectares have been improved, with a c.£25m ODI benefit
forecast for K7.
We are supporting six newly designated bathing waters this year four of which
are on the Dart Estuary. We are improving water quality by reducing the amount
of post treatment phosphorus by c.80% at 37 sites, and have improved RNAGs 13
over K7 from 19% to 12%.
With our commitment to Net Zero, our investment in Pennon Power has continued.
Around 45% of our targeted capacity is already under construction at two
sites, with the first energisation expected at the end of 2024/25, and the two
further sites on track. Annualised returns are expected to be between 11% to
15% 14 .
Supporting affordability, delivering for customers
In tackling affordability, we are doing two things, keeping bills as low as
possible and supporting those who are vulnerable. By focusing on efficiency,
we have kept bills below inflation and our bill in the South West is lower now
(in actual value) than it was 10 years ago, with the average bill now less
than £1.50 per day.
Whilst bills are lower, we are supporting more customers than ever before with
over 140,000 across the Group benefitting from our support tariffs. By
unlocking over £110m of financial support we have increased affordability to
100% for customers in South West and Bristol - on track to meeting our pledge
of having zero customers in water poverty by March 2025 and five years ahead
of the sector. We continue to support customers to use less and save more with
our progressive charges trials.
Key to building trust is reducing complaints and with Bristol recognised as a
top performer for complaints and customer service, we see opportunities for
improvements across the Group - with South West reducing billing complaints by
18% last year and we see opportunities to share best practice with SES to
improve customer service.
Delivering strong relative sector performance
Against our customer commitments, c.70% of our ODI commitments are ahead or on
track and as outlined in Ofwat's Water Company Performance Report we are
delivering good relative performance in the sector. We are industry leading or
upper quartile in a number of measures including internal sewer flooding and
unplanned outages in South West, quality and supply interruptions in SES, and
in customer service in Bristol.
The common ODI framework has been challenging across the sector, with the
majority of companies in net penalty for water and wastewater measures, with
significant outperformance largely achieved on bespoke measures during this
period.
As we enter the next regulatory period with the majority of measures common,
our relative position puts us in a solid position.
While we are targeting an EPA 2-star rating for 2024, 4-star EPA status
remains our focus. In recognition of the progress we are making and the
challenges we face from the weather and topography, Ofwat has set a target of
2028 for achieving 4-star status. Pollution incidents remain the key element
of this and while we have seen improvements in underlying performance across
our networks and treatment works, we continue to focus on ensuring our pumping
stations are resilient to the high flows we are experiencing. The Environment
Agency's consultation on the revised EPA is underway and we are contributing
to ensure an appropriate performance framework for the future - which truly
reflects overall environmental performance.
Our non-regulated retailers, with a combined market share of c.15%, which now
include SES Business Water, continue to build their strong performance and
grow EBITDA and profit contributions. Pennon Water Services ('PWS') and
Water2Business have an outstanding focus on customer service with Trustpilot
scores of 4.8 and 5.0, respectively. Following the SES acquisition which
included other non-regulated businesses we see opportunity for consolidation,
efficiencies and sharing best practice.
Underpinned by an 'outstanding' Business Plan for K8
We were delighted to be awarded 'outstanding' status on our SWW business plan
by Ofwat, recognising the quality and ambition within our proposals. The Draft
Determination provides a floor for RCV growth of c.30% for SWW to 2030. The
cost of capital is protected against reduction, with 30bps upside if we meet
four criteria by 2028, including 4-star EPA. SES's Business Plan was assessed
as a 'standard' plan and receives a 5bps upside to the cost of capital.
We had one of the lowest levels of totex reductions of any water and sewerage
company in the sector at c.8% reflecting the efficient Business Plan we had
submitted, and we positively received all funding for our storm overflow plans
- allowing us to accelerate £75m of early start transition spend, which will
be included in our March 2025 RCV, and returns applied over K8.
Given the outstanding status and good status for our respective plans, our
response to the Draft Determination covered four key areas, many of which were
consistent across the sector:
· we need to ensure a balance of risk and return with targets set at
stretching but achievable levels that show upper quartile performance in one
area can substantively offset underperformance in another. Whilst we welcomed
the recent Outcome Adjustment Model proposed by Ofwat the underlying
framework, targets and incentives also need to be balanced
· our response provided further evidence and justification to support a
return to the expenditure levels within our submitted plan
· we recognise the need to balance customer bills, particularly given
the scale of investment planned to 2030, however our customer research shows
that this should not be at the expense of future customers and therefore
capital charges (specifically RCV run-off) should reflect the natural rates
· as a Group that supports customers from as far west as the Isles of
Scilly to Surrey in the east, we wanted to ensure our investment plans were
balanced both between water and wastewater, but also across our regions where
totex reductions had been greater in Bristol, SES and the Isles of Scilly,
compared with Devon and Cornwall
With the Final Determination due on 19 December, we intend to hold a Capital
Markets Day on 25 February, ahead of the start of K8 on 1 April.
Talented people doing great things for customers and each other
As a purpose led business, we recognise that the best way to deliver for
customers is to focus on our people. Key to this is embedding our new business
operating model, led by the four Managing Directors as we drive end to end
accountability for delivery. We are ensuring we get the balance right between
protecting and improving local services for customers and communities, through
our brands, and using our size and scale to deliver efficient and effective
support services across the Group. This includes having more resources on the
front line than ever before and as we support the wider supply chain. We are
also focused on making it simpler, easier and cheaper to work together by
reducing duplication and management layers, with clear roles and
responsibilities, with everyone living our values.
At the same time, we continue to invest in future skills and capabilities. We
are the only water company to have been recognised as a Top 100 employer for
apprenticeships for the second year running, as we are ahead of plan to offer
1,000 apprenticeships and graduate roles by 2030, with 680 to date. We've
delivered over 4,000 courses at our growing number of internal training
facilities and in November, were recognised for our "earn and learn" approach
to development, with platinum status awarded to us by the '5% Club' who share
an ambition to shape the future of workforce development and national
prosperity.
We continue to promote social mobility, through the Social Mobility Business
Partnership giving young people the opportunity to dive into their local water
company, so important in a region where deep seated social mobility issues
exist, and where the South West ranks the third worst for upward occupational
mobility.
Well positioned for period of significant growth
As we move towards K8, we have built our sustainable supply chain through our
delivery partners, establishing 'amplify', an alliance with six tier one and
multiple tier two partners, supported by a network of local sub-contractors
which is already delivering on over 1,000 schemes.
We have a robust financial position with good liquidity having secured £550m
of funding in H1 2024/25. This provides appropriate liquidity as we complete
the K7 period and look ahead.
GROUP CHIEF FINANCIAL OFFICER'S REVIEW
We have delivered a resilient financial performance in the first half of
2024/25, in line with our expectations as set out in our Trading Statement in
September. Our half year results reflect the inclusion of Sutton and East
Surrey Group Holdings Limited and its subsidiary undertakings (together 'SES')
for the full six-month period. The H1 2023/24 results were prior to the
acquisition and therefore excluded any contribution from SES.
Underlying H1 2024/25 H1 2024/25 (SES) H1 2024/25 (excl. SES) H1 2023/24
Revenue £527.2m £76.6m £450.6m £448.6m
Operating costs (£363.7m) (£63.3m) (£300.4m) (£280.1m)
EBITDA(^) £163.5m £13.3m £150.2m £168.5m
Depreciation and amortisation (£94.0m) (£8.4m) (£85.6m) (£82.6m)
Operating profit £69.5m £4.9m £64.6m £85.9m
Net interest charge (£88.6m) (£9.7m) (£78.9m) (£77.3m)
Share of associated companies PAT* £0.5m - £0.5m £0.5m
(Loss)/profit before tax (£18.6m) (£4.8m) (£13.8m) £9.1m
Non-underlying items before tax (£20.2m) - (£20.2m) (£5.9m)
Loss before tax (£38.8m) (£4.8m) (£34.0m) (£3.2m)
Underlying tax credit/(charge) £3.9m (£2.8m)
Non-underlying tax credit £4.9m £1.4m
(Loss)/profit for the period (£30.0m) £1.8m
(Loss)/earnings per share
Adjusted EPS (6.6p) 3.6p
Basic EPS (10.6p) 0.5p
Interim dividend per share 14.69p 14.04p
Total Group capital expenditure £331.8m £266.3m
At 30 Sept 2024 At 31 Mar 2024
Total Group net debt £4,232.2m £3,809.2m
* Share of associated companies PAT refers to the Group's 30% interest in
Water2Business Limited which is accounted for under the equity method.
Revenue increased to £527.2m in H1 2024/25 (H1 2023/24: £448.6m) with the
£76.6m increase resultant from the acquisition of SES, whilst revenue in SWW
reflected increases from regulated tariff and inflationary movements, more
than offset by lower customer demand. This revenue is recovered through the
regulatory true up mechanisms.
Operating costs increased on a like for like basis (excluding SES) by 7.3%
with costs in South West Water ('SWW') up by 4.7% reflecting the impact of
inflation, as well as continued high power costs and costs associated with the
implementation of a new customer billing system in SWW, partially offset by
efficiency savings. Costs for Pennon Water Services ('PWS') increased by 7.1%,
slightly below revenue increases, due to wholesale cost increases (outside the
South West Water region) and new contract wins. Including the impact of SES
costs increased to £363.7m.
Cash collections across the Group have remained robust during the half year,
with SWW achieving upper quarter debt performance at 1.5% of revenue.
Overall, underlying EBITDA for the Group was £163.5m (H1 2023/24: £168.5m).
Excluding SES, which contributed £13.3m of EBITDA in the period, like for
like EBITDA decreased to £150.2m, 10.9% lower than in the prior half year
principally as a result of lower customer demand in SWW impacting regulated
revenue.
Depreciation and amortisation increased in the period to £94.0m (H1 2023/24:
£82.6m), following ongoing investment and the inclusion of SES, with
underlying operating profit for the Group reducing to £69.5m (H1 2023/24:
£85.9m).
The net interest charge increased to £88.6m (H1 2023/24: £77.3m), primarily
due to the inclusion of SES, with SWW financing costs being broadly flat year
on year, as interest costs fell but increased borrowing from the capital
investment programme impacted on charges.
As a result, the Group reported an underlying loss before tax of £18.6m (H1
2023/24: profit of £9.1m) with SES contributing an underlying loss before tax
of £4.8m. The Group reported a statutory loss before tax of £38.8m (H1
2023/24: profit of £3.2m) after net non-underlying charges of £20.2m (H1
2023/24: £5.9m). On a like for like basis, the Group's statutory loss before
tax was £34.0m, compared with a profit before tax of £3.2m in H1 2023/24.
Our focus has been on reshaping and restructuring our operations for efficient
delivery ahead of K8. We will recognise c.£16m of restructuring costs across
the year to enable more streamlined delivery from the final quarter of 2024/25
and into K8. £3.7m of these non-underlying costs were recognised in the first
six months of the year.
Our continued transformational and integration programmes have, and are in
progress to, secure c.£55m of annualised savings at the half year to 30
September 2024, with a c.£86m targeted annualised run rate for K8 across
overall expenditure.
The Brixham water contamination incident resulted in non-underlying costs of
£16.3m recognised in the first half of the year, with costs reflecting supply
and delivery of bottled water to customers, extensive flushing and cleansing
work on the network, sampling of water across the networks alongside customer
compensation.
Capital expenditure of £331.8m was incurred during the period, as we continue
to invest in improvements across our regions and networks, as well as ensuring
we are set up to deliver on the investment programme and improved service
targets required in K8. Expenditure also included £12.0m in SES and £13.4m
in Pennon Power. As we have invested over the K7 period through Green
Recovery, accelerated investment, WaterFit and resilience we are seeing the
impact coming through the income statement in increased financing charges and
depreciation. This will be trued-up on 31 March 2025 through the regulatory
adjustments with c.£34m annualised benefit to revenue from this early
investment (c.£17m for a half year)..
We secured strong investment grade credit ratings at South West Water Limited,
which enabled us to launch a £2.5bn EMTN programme 15 . We successfully
raised £400m in an inaugural public bond issue under this programme. This
EMTN programme will allow us to diversify our funding opportunities and
positions us well for funding the K8 investment programme. SWW's gearing based
on net debt at 30 September 2024 and forecast shadow RCV was 64.0%, within our
K7 policy.
In line with Pennon's 2020-2025 dividend policy for growth of CPIH+2%, the
Board has declared an interim dividend of 14.69 pence per share for the half
year ended 30 September 2024.
Integration of our acquisitions
Since the completion of the merger of Bristol Water in February 2023, we have
been delivering on our proven acquisition and integration blueprint. We are on
track to deliver a run rate of c.£20m of annualised synergies ahead of K8,
with c.£18m achieved by H1 2024/25.
In addition, we received clearance from the CMA in June 2024 for our
acquisition of SES. We will be aligning the SES businesses to the Pennon
Group structure and are on target to deliver c.£11m of annualised integration
savings with £1.6m achieved in H1 2024/25.
SEGMENTAL PERFORMANCE
SES was acquired on 10 January 2024 and has contributed to the Group financial
results since that date. It largely comprises the regulated water company,
Sutton and East Surrey Water plc ('SES Water'), along with non-regulated
businesses including SES Business Water, a non-household retail business, and
certain other ancillary businesses. The results of SES for the half year ended
30 September 2024 are reflected in the relevant segments in our segmental
reporting. There are no results for SES in the prior year comparative period.
In H1 2024/25, SES has contributed £76.6m of revenue, £13.3m of EBITDA and
£4.9m operating profit to the Group results. Results have been shown for SWW
and SES separately, as well as for the combined segment to aid comparability
year on year.
WATER
Underlying H1 2024/25 H1 2024/25 H1 2024/25 H1 2023/24
Water SES Water SWW Water
Revenue £412.9m £41.6m £371.3m £377.8m
Operating costs (£246.9m) (£26.3m) (£220.6m) (£210.7m)
EBITDA(^) £166.0m £15.3m £150.7m £167.1m
Depreciation and amortisation (£90.6m) (£8.1m) (£82.5m) (£79.6m)
Operating profit £75.4m £7.2m £68.2m £87.5m
Net interest charge (£89.9m) (£9.7m) (£80.2m) (£80.9m)
(Loss)/profit before tax (£14.5m) (£2.5m) (£12.0m) £6.6m
Non-underlying items before tax (£19.5m) - (£19.5m) (£5.4m)
(Loss)/profit before tax (£34.0m) (£2.5m) (£31.5m) £1.2m
South West Water
SWW includes the operating businesses trading as South West Water, Bournemouth
Water and Bristol Water.
SWW's statutory and underlying revenue for H1 2024/25 was £371.3m, £6.5m or
1.7% lower, compared with H1 2023/24. This was driven by lower customer
demand, following our 'Water is Precious' water efficiency campaign, which
more than offset tariff increases of c.3% and new customer numbers.
Underlying operating costs of £220.6m increased by £9.9m or 4.7% with
increased non-commodity power costs, inflationary increases in employment
costs as well as the cost of implementing the new digital customer services
platform. These increases were partially offset by lower wholesale commodity
power costs and efficiency savings.
SWW's underlying EBITDA reduced by 9.8% to £150.7m (H1 2023/24: £167.1m)
reflecting the combined impact of lower revenue and higher costs in the
period. Depreciation increased by 3.6% to £82.5m as our capital investment
programme starts to impact the depreciation charge. Underlying operating
profit also decreased by 22.1% to £68.2m (H1 2023/24: £87.5m) as a result of
these factors.
The net interest charge of £80.2m (H1 2023/24: £80.9m) was broadly flat on
the prior period, with the lower inflationary environment and benefit of a
lower effective interest rate(^) (5.3%) offsetting the higher debt levels
consequent on increased capital expenditure.
SWW's statutory loss before tax was £31.5m (H1 2023/24: profit of £1.2m)
after non-underlying costs of £19.5m (H1 2023/24: £5.4m). £16.3m of
non-underlying costs related to the Brixham water quality incident and
included enhanced customer compensation, provision of bottled water over an
eight-week period, and extensive interventions to clean and filter the
network. A further £3.2m of non-underlying costs were incurred in connection
with restructuring and reshaping actions in SWW.
SWW's capital expenditure was £306.0m, in line with expectations in the
Trading Statement, continuing the increased investment path from H2 2023/24.
This was largely driven by a c.55% increase in investment in tackling storm
overflows and in reducing the risk of pollution incidents, sewer blockages and
collapses. Clean water investment increased by c.17% driven by continued
investment in new water treatment works. There were also increases due to
transitional spending and targeted incident responses in the period.
SES Water
In H1 2024/25, SES Water contributed £41.6m of revenue, £15.3m of EBITDA and
£7.2m of operating profit to the Group results. In the first half, revenue
benefitted from a c.15% tariff increase allowed under the regulatory regime.
Operating costs reflect the impact of wage inflation in the period.
The net interest charge of £9.7m comprises interest costs on RPI-linked bonds
and other loans.
SES Water capital expenditure in the first half was £9.3m, largely associated
with the rollout of the metering programme.
NON-HOUSEHOLD RETAIL
H1 2024/25 H1 2024/25 H1 2024/25 H1 2023/24
NHH Retail SESBW PWS NHH Retail
Revenue £160.8m £34.5m £126.3m £117.6m
Water segment wholesale elimination (£46.9m) (£1.2m) (£45.7m) (£46.7m)
Revenue excluding elimination £113.9m £33.3m £80.6m £70.9m
'
Operating costs (£156.2m) (£33.6m) (£122.6m) (£114.5m)
Water segment wholesale elimination £46.9m £1.2m £45.7m £46.7m
Operating costs excluding elimination (£109.3m) (£32.4m) (£76.9m) (£67.8m)
EBITDA(^) £4.6m £0.9m £3.7m £3.1m
Depreciation and amortisation (£0.1m) - (£0.1m) (£0.3m)
Operating profit £4.5m £0.9m £3.6m £2.8m
Net interest charge (£1.9m) (£0.8m) (£1.1m) (£1.1m)
Profit before tax £2.6m £0.1m £2.5m £1.7m
Pennon Water Services
PWS has delivered a robust financial performance for the half year through its
focus on its key strategic initiatives of growing through long-term contracts
in targeted business sectors, good customer retention, and strong control of
operating costs despite additional cost pressures.
Non-household demand has continued to fall within our underlying water region,
however, revenue for PWS was 7.4% higher at £126.3m, including the impact of
new business contract wins of £5.1m and with inflation (net of customer
attrition) contributing further to the increase.
Operating costs have increased, although at a lower rate than revenue, driving
a 19.4% improvement in EBITDA to £3.7m (H1 2023/24: £3.1m). This strong
performance has resulted in the business reporting a profit before tax of
£2.5m (H1 2023/24: £1.7m), an increase of 47.1%.
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 PWS' differentiated service proposition, with new annualised contract
wins of c.£10.5m secured during the first half.
SES Business Water
The results of SES Business Water ('SESBW', SES's non-household retail
business) for the half year ended 30 September 2024 are reflected in the
Non-household retail segment. As the business was acquired in January 2024,
there are no results for SESBW in the prior year comparative period.
SESBW contributed £34.5m of revenue and profit before tax of £0.1m in H1
2024/25.
OTHER
The Other segment comprises the result of Pennon Group plc company and other
Group businesses, including the recently acquired ancillary businesses of SES.
The Other segment contributed an underlying loss before tax of £6.7m in H1
2024/25 (H1 2023/24: profit before tax of £0.3m) with non-underlying costs of
£0.7m (H1 2023/24: £0.5m).
With the CMA clearance received in H1 2024/25, work is underway to perform a
strategic review of the SES ancillary businesses to consider their fit and
role within the Group for the future.
GROUP PERFORMANCE
Net finance costs
Total net finance costs for the Group were £88.6m, up £11.3m or 14.6%,
largely reflecting the inclusion of SES financing charges (£9.7m), as well as
the increased borrowing consequent on the ongoing investment in SWW, partially
offset by the fall in inflation during the period reflected in our
index-linked debt portfolio.
The non-cash element of our finance charges, which accretes to the debt
principal, was c.£13m (H1 2023/24: c.£29m).
With the majority of debt in SWW, our efficient funding mix and hedging
strategy has resulted in an effective interest rate of 5.3% (H1 2023/24: 5.8%)
for SWW. The Group continues to secure efficient funding for SWW to ensure
c.60% of its interest rate risk is mitigated in line with the Group Treasury
Policy, which is achieved both through issuing fixed rate debt and effective
interest rate hedging, with a further element being index-linked. SWW has a
lower proportion of index-linked debt than the industry average.
SWW's net debt at 30 September 2024 comprised:
At 30 September 2024 Notional Proportion Industry average*
Fixed/swapped £2,676m 75% 39%
Floating £430m 12% 11%
Index-linked £455m 13% 50%
Total £3,561m 100% 100%
*UK Water position at 31 March 2024 as per published Annual performance
Reports - weighted average
From March 2025, c.£600m of our K7 interest rate swaps mature reverting to
floating rate. In preparation for K8, over £500m of swaps have been executed
to fix our floating rate portfolio.
In addition to our effective interest rate hedging, the short term RPI-linked
swaps issued in 2022 will be maturing in 2025.
Non-underlying items
Non-underlying items for H1 2024/25 were a net charge before tax of £20.2m
(H1 2023/24: net charge of £5.9m). 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 useful comparison of business trends and performance.
The non-underlying charge before tax in H1 2024/25 comprised:
· £16.3m related to the Brixham water quality incident which includes
enhanced customer compensation, provision of bottled water over an eight-week
period, and extensive interventions to clean and filter the network
· £3.7m of costs in connection with restructuring and reshaping
actions. Additional restructuring costs in relation to our restructuring
programme of c.£12m are expected for the full year, with the programme well
underway to deliver benefits in the last quarter of the financial year
· £0.2m of acquisition related costs in relation to Pennon Power and
SES
The non-underlying charges above gave rise to a deferred tax credit of £4.9m
in H1 2024/25.
Tax
We are proud of our responsible approach to tax. The Group has once again
maintained its Fair Tax Mark accreditation for the year, having been the first
water company to achieve this status and holding the award continuously since
2018.
The overall H1 2024/25 tax credit for the Group is £8.8m (H1 2023/24: charge
of £1.4m). On an underlying basis, the net tax credit for the Group is £3.9m
(H1 2023/24: charge of £2.8m), comprising:
· a deferred tax credit of £4.0m (H1 2023/24: charge of £3.4m),
including a charge for prior year items of £0.2m (H1 2023/24: charge of
£0.8m)
· a current tax charge of £0.1m (H1 2023/24: credit of £0.6m)
relating solely to prior year items, with a £nil charge for the current
period (H1 2023/24: £nil)
The deferred tax credit for the period and the nil current tax position
(excluding prior year items), reflect the tax effect of the Group generating
both an accounting loss and a tax loss in the period. The tax loss follows
on from the accounting loss, coupled with the effect of the UK rules for
claiming tax deductions for capital expenditure. These rules typically allow
for either 100% or 50% first year tax deductions and, when taken together with
the Group's significant future capital investment plans, mean that the Group
is unlikely to be in a UK Corporation Tax paying position for the foreseeable
future. Tax losses are carried forward for offset against taxable profits
arising in future periods.
There is also a non-underlying deferred tax credit of £4.9m in H1 2024/25 (H1
2023/24: credit of £1.4m) relating to the non-underlying items set out above.
Earnings per share
The Group has recorded a basic loss of 10.6 pence per share for H1 2024/25 (H1
2023/24: earnings of 0.5 pence per share). This includes a net non-underlying
charge before tax of £20.2m (H1 2023/24: £5.9m) and a net non-underlying
deferred tax credit of £4.9m (H1 2023/24: credit of £1.4m).
Our adjusted loss per share excludes the impact of deferred tax charges and
non-underlying items. For the Group, we have generated an adjusted loss per
share for H1 2024/25 of 6.6 pence (H1 2023/24: earnings of 3.6 pence per
share).
Capital expenditure
Capital expenditure H1 2024/25 H1 2023/24
South West Water £306.0m £234.4m
Water £175.2m £150.2m
Wastewater £130.8m £84.2m
Pennon Power £13.4m £31.7m
Other* £0.4m £0.2m
Total Group (excl. SES) £319.8m £266.3m
SES £12.0m n/a
Total Group £331.8m £266.3m
* Other includes PWS and Pennon Group plc
Total Group capital expenditure in the first half was £331.8m, £65.5m or
24.6% higher than in H1 2023/24, driven by a £71.6m increase in SWW
investment and £12.0m spend in SES. Investment reflects the ongoing focus on
transitioning to K8, as well as delivering the final regulatory commitments
for K7. With more resilient water resources, excellent progress on our
state-of-the-art water treatment works in Bournemouth and 100% water quality
at bathing waters, our investment is delivering benefits as we close out the
regulatory period.
SES capital expenditure of £12.0m in H1 2024/25 largely comprises £9.3m
spend in SES Water in respect of the rollout of SES Water's metering
programme.
Investment in Pennon Power of £13.4m (H1 2023/24: £31.7m) reflects the
commencement of construction at two sites, with a significant ramp up in
activity anticipated in the second half of the year.
Robust liquidity and funding position
At 30 September 2024, the Group had £675.1m of cash and committed facilities
contributing to a resilient balance sheet and strong liquidity position. This
consisted of cash and cash deposits of £175.1m (including £38.1m of
restricted funds representing deposits for future debt obligations and bond
interest) and c.£500.0m of undrawn committed facilities, providing the Group
with enough funding to support its obligations for at least the next 12
months. The Group continues to receive support and enquiries from a diverse
group of debt providers, showing investor appetite to support the Group and
SWW, notwithstanding sector volatility.
During H1 2024/25 the Group, through SWW, has achieved two strong credit
ratings with Moody's and Fitch, supporting the strength of the Group's
financial outlook. We were also pleased that SES Water's credit rating was
strengthened by Moody's in November, in recognition of the benefit gained from
being part of the wider Pennon Group.
SWW also completed two debt raises totalling £550m at fixed rates. These
were:
· £150m in US private placements with an average maturity of 15 years
· £400m inaugural public bond issuance through our EMTN programme
These issuances signal the move to more benchmark-sized transactions in both
the private placement and public bond markets as the scale of capital
expenditure and ongoing refinancing grows. The bond followed the launch of our
£2.5bn EMTN programme, which allows us to issue funding across the
forthcoming regulatory period to fund the growth in the business and
improvement in services reflected in our Business Plan.
Group debt
At 30 September 2024 Gross debt Net debt
Pennon Group plc £245.0m £238.9m
Water Group £3,986.9m £3,845.3m
SWW £3,666.2m £3,561.3m
SES Water £320.7m £284.0m
Other Group companies:
Pennon Power Limited £53.0m £38.8m
Pennon Water Services £32.6m £28.3m
Other subsidiaries £44.5m £35.6m
Intercompany borrowing eliminations (£71.0m) (£71.0m)
Group indebtedness £4,291.0m £4,115.9m
Acquisition related fair value adjustments 16 £116.3m £116.3m
Total Group £4,407.3m £4,232.2m
The Group's IFRS net debt at 30 September 2024 was £4,232.2m (31 March 2024:
£3,809.2m). This includes acquisition related fair value adjustments of
£116.3m which are released over the life of the related debt instruments. The
Group's net debt position excluding these adjustments is £4,115.9m, giving
gearing of c.68.0%.
At 30 September 2024, SWW's net debt/forecast shadow RCV gearing ratio was
64.0% (31 March 2024: 63.5%), reflecting increased capital expenditure and
reduced operating cashflows.
SES's total net debt was £340.3m, largely comprising index-linked borrowings
(£233.1m) and unsecured loan notes (£74.6m). SES Water's net debt was
£284.0m with a forecast shadow RCV gearing ratio of 80.7%. On 1 October 2024,
Pennon Group injected £30m into the SES, with £20m being passed down to SES
Water to de-leverage the business, reducing SES Water's gearing to 75.0%.
SWW's gross debt at 30 September 2024 was £3,666.2m (31 March 2024:
£3,323.3m). The debt has a maturity of up to 33 years with a weighted average
maturity of 14 years.
SES Water's gross debt at 30 September 2024 was £320.7m (31 March 2024:
£321.3m). The debt has a maturity of up to eight years with a weighted
average maturity of six years.
Return on Regulated Equity(^)
During K7 to date we have continued to deliver SWW RORE outperformance
(excluding SES Water). Cumulatively to H1 2024/25 SWW Group RORE was 6.0%
(6.1% in South West and 4.8% in Bristol) on a real notional basis. On an
actual gearing basis, returns increase to 6.5% real and 10.8% nominal. This
equates to c.£176m of cumulative outperformance to H1 2024/25. This consists
of c.£308m financing outperformance, net of c.(£90m) totex(^) overspend
(including tax impact), and c.(£42m) ODI net penalty impact 17 . This has
enabled the funding of additional capital investment initiatives.
The cumulative benefits from the structure of our debt book on financing costs
persist but have reduced due to the impact of falling inflation. Additional
expenditure to deliver our K7 commitments is more than offsetting positive
outperformance delivered earlier in the regulatory period.
ODI performance across the SWW Group has continued to be dominated by
pollutions performance, partly mitigated by areas of outperformance such as
internal sewer flooding, catchment management and bathing waters. Overall a
net penalty is anticipated in 2024/25.
The table below summarises the cumulative average RORE position for South West
and Bristol over K7 to 2024/25:
South West Water Bristol Water
Base return 4.0% 4.5%
Financing 4.0% 1.0%
Totex (1.3%) 1.0%
ODI (0.6%) (1.7%)
Cumulative RORE 6.1% 4.8%
For SES Water, forecast RORE for one year is (6.7%) driven by higher totex
expenditure and an effective interest rate above Ofwat's allowance resulting
in underperformance.
Dividends
In line with Pennon's 2020-2025 dividend policy of growth of CPIH +2%, the
Board has declared an interim dividend of 14.69 pence per share for the half
year ended 30 September 2024. Pennon offers shareholders the opportunity to
invest their dividend in a Dividend Reinvestment Plan (DRIP).
Pennon Group plc has substantial retained earnings and a sustainable balance
sheet to support its stated dividend policy. Dividends are charged against
retained earnings in the year in which they are paid.
FINANCIAL OUTLOOK FOR 2024/25
Looking forward to the full year 2024/25, the outlook for SWW revenue sees a
continuation of lower customer demand, offsetting tariff increases and new
customer numbers, resulting in a balanced H1/H2 split and a broadly flat year
on year position.
Continued elevated non-commodity power costs and the costs of the new digital
customer services platform in SWW are expected to be partially offset by
increased efficiency savings realised with effect from the final quarter of
2024/25.
We anticipate ongoing growth in Pennon Water Services, increasing revenue and
costs, and benefitting full year profitability.
Our acquisition of SES in January 2024 will result in a full year benefit of
SES results in the full year position.
We anticipate Group capital expenditure in H2 2024/25 to continue at the H1
2024/25 run rate. This reflects early work in preparation for K8, including
£75m accelerated investment in storm overflows agreed with Ofwat, as well as
Pennon Power development costs and the full year impact of SES investment.
The impact of our ongoing capital programme on our debt position, in addition
to SES's financing charges, is expected to increase Group net finance costs
for the full year.
The Water Group's RCV for 2024/25 is expected to increase reflecting
additional and accelerated investment along with regulatory true-ups and
inflationary impacts at the close of the K7 regulatory period.
TECHNICAL GUIDANCE FOR FY 2024/25
Pennon Group FY 2023/24 Change
Revenue* • Higher year on year £907.8m ▲
• SWW revenue expected to see a continuation of lower customer demand,
offsetting tariff increases and new customer numbers, resulting in a balanced
H1/H2 split and broadly flat year on year position
• Ongoing growth in our retail businesses
• Full year impact of SES acquisition
Operating costs* • Higher year on year £569.5m ▲
• SWW operating costs in H2 2024/25 expected to be lower than H1
2024/25, with a full year increase on 2023/24
• Pay increases of c.4%
• Growth in retail businesses leading to higher wholesale supply
charges
• Full year impact of SES acquisition
Depreciation* • Higher year on year £172.0m ▲
• SWW broadly equal H1/H2 split
• Full year impact of SES acquisition
Net interest charge* • Higher year on year driven by increased levels of debt to support £150.2m ▲
capital investment profile
• SWW interest costs step up in H2 2024/25 reflecting timing of debt
issuance and capital investment
• Full year impact of SES acquisition
Current tax • 2023/24 effective credit rate reflects prior year credits arising 3.6% ▲
from settlement of outstanding tax returns with HMRC. These are unlikely to
(credit rate)
recur
• Group is unlikely to be in a UK Corporation Tax paying position for
the foreseeable future due to the availability of tax losses and tax
deductions for capital expenditure
• As a result, the current tax rate, excluding the effect of any prior
period items, is expected to remain at 0%
Capital expenditure • Group capital expenditure in H2 2024/25 expected to continue at H1 £649.5m -
2024/25 run rate including a step up in investment in Pennon Power
Net debt • Continued delivery of capital investment programme across the Group £3,809.2m ▲
increases net debt
• Full year impact of SES acquisition
SWW RORE • Expected year on year reduction in line with lower inflation 7.3% ▼
expectations - continued expectation of RORE outperformance
(excl. SES)
Water Group RCV • Increase reflecting additional and accelerated investment, along £5.5bn ▲
with regulatory true-ups and inflationary impact, and inclusion of SES
*Underlying basis
PRINCIPAL RISKS AND UNCERTAINTIES
Principal Risks
During the first half of 2024/25 the Board has carried out a detailed review
of the Group's principal risks in the context of the Group's strategic
objectives and priorities as well as the external environment within which it
operates. This has included the impact of changes to the external
macro-economic, legal and regulatory environment within which the Group
operates. This has resulted in the following change to the Group's principal
risks compared with those reported within the Pennon Group plc Annual Report
and Accounts 2024:
· The risk of failure to receive CMA approval for the
acquisition of Sutton and East Surrey has been removed as a principal risk
following approval being received from the CMA.
The Group's principal risks are:
Law, Regulation and Finance
1. Changes in Government policy
2. Changes in regulatory frameworks and requirements
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 an avoidable health and safety incident
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 secure, treat and supply clean drinking water
9. Failure to improve wastewater performance resulting in environmental
commitments not being delivered
10. Failure to provide excellent service or meet the needs and expectations of
our customers and communities
11. Inability to attract and retain staff with the skills to deliver the
Group's strategy
Business Systems and Capital Investment
12. Insufficient capacity and resilience of the supply chain to support the
delivery of the Group's operational and capital programmes
13. Inadequate technological control or cyber attack results in a breach of
the Group's assets, systems and data
Financial Timetable
30 January 2025 Ordinary shares quoted ex-dividend
31 January 2025 Record date for interim dividend
25 February 2025 Capital Markets Day
14 March 2025 Final date for receipt of DRIP applications
March 2025 Trading Statement
4 April 2025 Interim dividend payment date
May/June 2025 Full Year Results 2024/25
June Annual Report and Accounts Published
2025
24 July 2025 Annual General Meeting 2025
24 July 2025* Ordinary shares quoted ex-dividend
25 July 2025* Record date for final dividend
8 August 2025* Final date for receipt of DRIP applications
4 September 2025* Final dividend payment date
September 2025 Trading Statement
November 2025 Half Year Results 2025/26
* Subject to obtaining shareholder approval at the 2025 Annual General Meeting
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 published in June 2024. 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 half year ended 30 September 2024
Unaudited
Before non-underlying items Non-underlying items (note 5) half year ended 30 September 2024 Total Before non-underlying items Non-underlying items (note 5) half year ended 30 September 2023 Total
half year
half year
half year
half year ended 30 September 2023
ended 30 September 2024
ended 30 September 2024
ended 30 September 2023
Notes £m £m £m £m £m £m
Revenue 4 527.2 - 527.2 448.6 - 448.6
Operating costs
Employment costs (79.6) (0.9) (80.5) (61.3) - (61.3)
Raw materials and consumables used (26.3) (0.2) (26.5) (18.6) - (18.6)
Trade receivables impairment (6.5) - (6.5) (3.8) - (3.8)
Other operating expenses (251.3) (19.1) (270.4) (196.4) (5.9) (202.3)
Earnings before interest, tax, 4 163.5 (20.2) 143.3 168.5 (5.9) 162.6
depreciation and amortisation
Depreciation and amortisation (94.0) - (94.0) (82.6) - (82.6)
Operating Profit 4 69.5 (20.2) 49.3 85.9 (5.9) 80.0
Finance income 6 7.9 - 7.9 5.7 - 5.7
Finance costs 6 (96.5) - (96.5) (83.0) - (83.0)
Net finance costs 6 (88.6) - (88.6) (77.3) - (77.3)
Share of post-tax profit from associated companies 0.5 - 0.5 0.5 - 0.5
(Loss) / profit before tax 4 (18.6) (20.2) (38.8) 9.1 (5.9) 3.2
Taxation credit / (charge) 7 3.9 4.9 8.8 (2.8) 1.4 (1.4)
(Loss) / profit for the period (14.7) (15.3) (30.0) 6.3 (4.5) 1.8
Attributable to:
Ordinary shareholders of the parent (15.0) (15.3) (30.3) 5.9 (4.5) 1.4
Non-controlling interests 0.3 - 0.3 0.4 - 0.4
(Loss) / earnings per ordinary share 8
(pence per share)
- Basic (10.6) 0.5
- Diluted (10.6) 0.5
The Group activities above are derived from continuing activities.
The notes on pages 30 to 49 form part of this condensed half year financial
information.
PENNON GROUP PLC
Consolidated statement of comprehensive income for the half year ended 30
September 2024
Unaudited
Before non-underlying items Non-underlying items (note 5) half year ended 30 September 2024 Total Before non-underlying items Non-underlying items (note 5) half year ended 30 September 2023 Total
half year
half year
half year
half year ended 30 September 2023
ended 30 September 2024
ended 30 September 2024
ended 30 September 2023
£m £m £m £m £m £m
(Loss) / profit for the period (14.7) (15.3) (30.0) 6.3 (4.5) 1.8
Other comprehensive income / (loss)
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit 14.4 - 14.4 (28.6) - (28.6)
obligations (note 16)
Income tax on items that will not be reclassified (3.6) - (3.6) 7.1 - 7.1
Total items that will not be 10.8 - 10.8 (21.5) - (21.5)
reclassified to profit or loss
Items that may be reclassified subsequently
to profit or loss
Cash flow hedges (9.9) - (9.9) 19.1 - 19.1
Income tax on items that may be reclassified 2.6 - 2.6 (4.7) - (4.7)
Total items that may be reclassified (7.3) - (7.3) 14.4 - 14.4
subsequently to profit or loss
Other comprehensive income / (loss) for the period net of tax 3.5 - 3.5 (7.1) - (7.1)
Total comprehensive loss for the period (11.2) (15.3) (26.5) (0.8) (4.5) (5.3)
Total comprehensive loss attributable to:
Ordinary shareholders of the parent (11.5) (15.3) (26.8) (1.2) (4.5) (5.7)
Non-controlling interests 0.3 - 0.3 0.4 - 0.4
The notes on pages 30 to 49 form part of this condensed half year financial
information.
PENNON GROUP PLC
Consolidated balance sheet at 30 September 2024
Unaudited Audited
30 September 2024 31 March
2024
ASSETS Notes £m £m
Non-current assets
Goodwill 179.5 179.5
Other intangible assets 17 70.3 67.7
Property, plant and equipment 17 5,601.0 5,361.6
Other non-current assets 8.7 8.7
Financial assets at fair value through profit and loss 0.6 0.9
Derivative financial instruments 15.6 17.4
Investments in associated companies 1.5 1.0
Retirement benefit assets 16 31.4 26.6
5,908.6 5,663.4
Current assets
Inventories 13.0 13.2
Trade and other receivables 342.9 353.7
Current tax receivable - 6.0
Derivative financial instruments 18.3 23.4
Cash and cash equivalents* 14 137.0 134.0
Restricted funds* 14 38.1 37.4
Retirement benefit assets 16 9.4 -
558.7 567.7
LIABILITIES
Current liabilities
Borrowings 14 (239.4) (238.2)
Unamortised hedging adjustment (2.5) (2.6)
Derivative financial instruments (5.0) (5.4)
Trade and other payables 18 (306.7) (341.2)
(553.6) (587.4)
Net current assets/(liabilities) 5.1 (19.7)
Non-current liabilities
Borrowings 14 (4,167.9) (3,742.4)
Other non-current liabilities 18 (161.5) (154.9)
Unamortised hedging adjustment (30.8) (31.8)
Derivative financial instruments (3.8) (3.3)
Deferred tax liabilities (540.4) (548.3)
Provisions (0.4) (0.4)
(4,904.8) (4,481.1)
Net assets 1,008.9 1,162.6
Shareholder's equity
Share capital 10 174.6 174.6
Share premium account 11 398.0 398.2
Capital redemption reserve 12 157.1 157.1
Retained earnings and other reserves 277.5 431.3
Total shareholders' equity 1,007.2 1,161.2
Non-controlling interests 1.7 1.4
Total equity 1,008.9 1,162.6
*Cash and cash deposits has been re-presented to separately disclose cash and
cash equivalents and restricted funds.
The notes on pages 30 to 49 form part of this condensed half year financial
information.
PENNON GROUP PLC
Consolidated statement of changes in equity for the half year ended 30
September 2024
Unaudited
Share capital Share premium account (note 11) Capital redemption reserve Retained earnings and other reserves Non-controlling interests Total equity
(note 10)
(note 12)
£m £m £m £m £m £m
At 1 April 2023 159.5 237.6 157.1 570.6 0.4 1,125.2
Profit for the period - - - 1.4 0.4 1.8
Other comprehensive loss for the period - - - (7.1) - (7.1)
Total comprehensive loss for the period - - - (5.7) 0.4 (5.3)
Transactions with equity shareholders:
Dividends paid - - - (111.7) - (111.7)
Adjustments in respect of share-based - - - 0.2 - 0.2
payments (net of tax)
Own shares acquired by the Pennon Employee - - - (1.4) - (1.4)
Share Trust in respect of Share options
Proceeds from shares issued under - 0.1 - - - 0.1
the Sharesave Scheme
Total transactions with equity shareholders - 0.1 - (112.9) - (112.8)
At 30 September 2023 159.5 237.7 157.1 452.0 0.8 1,007.1
Unaudited
Share Share premium account (note 11) Capital redemption reserve Retained earnings and other reserves Non-controlling interests Total equity
capital
(note 10) (note 12)
£m £m £m £m £m £m
At 1 April 2024 174.6 398.2 157.1 431.3 1.4 1,162.6
Loss for the period - - - (30.3) 0.3 (30.0)
Other comprehensive income for the period - - - 3.5 - 3.5
Total comprehensive loss for the period - - - (26.8) 0.3 (26.5)
Transactions with equity shareholders:
Dividends paid - - - (126.9) - (126.9)
Adjustments in respect of share-based - - - 1.1 - 1.1
payments (net of tax)
Own shares acquired by the Pennon Employee - - - (1.2) - (1.2)
Share Trust in respect of Share options
Transaction costs arising on shares issued - (0.2) - - - (0.2)
Total transactions with equity shareholders - (0.2) - (127.0) - (127.2)
At 30 September 2024 174.6 398.0 157.1 277.5 1.7 1,008.9
The notes on pages 30 to 49 form part of this condensed half year financial
information.
PENNON GROUP PLC
Consolidated statement of cash flows for the half year ended 30 September 2024
Unaudited
Half year ended 30 September 2024 Half year
ended 30 September
2023
Notes £m £m
Cash flows from operating activities
Cash generated from operations 13 125.4 88.8
Interest paid (64.6) (49.3)
Tax received 3.0 -
Net cash generated from operating activities 63.8 39.5
Cash flows from investing activities
Interest received 4.1 3.8
Movement in restricted funds (0.7) -
Purchase of property, plant and equipment (352.1) (249.8)
Purchase of intangible assets (4.7) (20.7)
Proceeds from sale of property, plant and equipment 0.9 0.2
Net cash generated from investing activities (352.5) (266.5)
Cash flows from financing activities
Proceeds from issuance of ordinary shares - 0.1
Purchase of ordinary shares by the Pennon Employee Share Trust (1.2) (1.4)
Proceeds from new borrowings 655.1 325.1
Repayment of borrowings (246.9) (70.2)
Cash inflows from lease financing arrangements 13 25.0 24.8
Lease principal repayments (13.4) (10.7)
Dividends paid 9 (126.9) (111.7)
Net cash used in financing activities 291.7 156.0
Net increase / (decrease) in cash and cash equivalents 3.0 (71.0)
Cash and cash equivalents at beginning of period* 14 134.0 143.7
Cash and cash equivalents at end of period 14 137.0 72.7
*Cash and cash equivalents opening balance has been amended due to the
re-presentation of restricted funds on the balance sheet.
The notes on pages 30 to 49 form part of this condensed half year financial
information.
PENNON GROUP PLC
Notes to condensed half year financial information
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
49. Pennon Group's business is operated through its principal subsidiaries.
South West Water Limited, provides 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. Sutton and East Surrey Water plc
("SES Water") provides water only services in the South East region. Sutton
and South East Surrey Water Services ("SESWS") provides water and wastewater
retail services to non-household customer accounts. 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 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 and SESWS.
This condensed half year financial information was approved by the Board of
Directors on 26 November 2024.
The financial information for the period ended 30 September 2024 does not
constitute statutory accounts within the meaning of section 435 of the
Companies Act 2006. The statutory accounts for 31 March 2024 were approved
by the Board of Directors on 20 May 2024 and have been delivered to the
Registrar of Companies. The independent auditor's report of the previous
auditor, Ernst &Young LLP, on these financial statements was unqualified
and did not contain a statement under section 498 of the Companies Act 2006.
2. Basis of preparation
This condensed half year financial information has been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct Authority,
and UK adopted IAS 34 'Interim financial reporting'. This condensed half year
financial information should be read in conjunction with the Pennon Group plc
Annual Report and Accounts for the year ended 31 March 2024, which were
prepared in accordance with UK-adopted international accounting standards and
in conformity with the requirements of the Companies Act 2006.
The going concern basis has been adopted in preparing the condensed half year
financial information (interim accounts). At 30 September 2024 the Group has
access to undrawn committed funds and cash and cash deposits totalling £665
million, including cash and other short-term deposits of £137 million, £490
million of undrawn facilities and £38 million of restricted funds deposited
with lessors or held for bond interest, are available for access, subject to
being replaced by an equivalent valued security. The Group is forecast to
retain headroom of £193m, throughout the going concern period through to 30
November 2025.
In making their assessment, the Directors reviewed the principal risk which
has been deemed to be the outcome of the PR24 pricing review and the Ofwat
Final Determination due on 19 December 2025. A combined stress testing
scenario has been performed to assess the overall impact of a "severe but
plausible" outcome from the Final Determination and its impact on the Group.
This severe but plausible scenario has been assessed at an interim point
between the Draft Determination and Draft Determination response.
The nature of the Group's financing portfolio means that we are continuously
raising new debt to fund our growth and investment along with refinancing
individual facilities. Our operational cashflow remains resilient, and with
a Baa1/BBB+ investment grade credit rating from Moodys and Fitch, our funding
and financial position is strong, and our EMTN programme also allows us to
raise funding on a regular and timely basis. Given this strong credit rating
and the regulated nature of the business, it is fully anticipated that funding
can be raised to support the investment programme and ongoing needs of the
business over the forthcoming period.
In addition, management mitigations are also available to the business, should
it be required, in order to manage the cash flow impact of any crystallisation
of risks; these include, but are not limited to, raising additional funding,
reduction and/or deferral of operational expenditure and the reduction and/or
deferral of capital expenditure.
As a result, the Directors have considered the Group's funding position and
financial projections, taking into account a range of possible scenarios and
concluded that there is a reasonable expectation that the Group will meet the
requirements of its covenants and has adequate resources to continue in
operational existence for a period of at least 12 months from the date of
signing the financial statements. For this reason, they continue to adopt the
going concern basis in preparing the interim accounts.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
2. Basis of preparation (continued)
This condensed half year financial information has been reviewed, but not
audited, by the independent auditor pursuant to the Auditing Practices Board
guidance on the 'Review of Interim Financial Information'.
The preparation of the half year financial information requires management to
make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. The significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty are consistent with those that
applied to the consolidated financial statements for the year ended 31 March
2024.
3. Accounting policies
The accounting policies adopted in this condensed half year financial
information are consistent with those applied and set out in the Pennon Group
plc Annual Report and Accounts for the year ended 31 March 2024, except for
the estimation of income tax (see note 7) and are in accordance with IFRS and
interpretations of the IFRS Interpretations Committee expected to be
applicable for the year ending 31 March 2025 in issue which have been adopted
by the UK.
New standards or interpretations which were mandatory for the first time in
the year beginning 1 April 2024 did not have a material impact on the net
assets or results of the Group. New standards or interpretations due to be
adopted from 1 April 2025 are not expected to have a material impact on the
Group's net assets or results.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
4. 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 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 and the regulated water services undertaken by SES Water. The
non-household retail segment (business retail) reflects the services provided
by Pennon Water Services and SESWS.
Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
Revenue £m £m
Water total 412.9 377.8
Non-household retail 160.8 117.6
Other 10.8 1.2
Less intra-segment trading (57.3) (48.0)
Total revenue 527.2 448.6
Segment result
Operating profit before depreciation, amortisation and
non-underlying items (Underlying EBITDA)
Water total 166.0 167.1
Non-household retail 4.6 3.1
Other (7.1) (1.7)
163.5 168.5
Operating profit before non-underlying items
Water total 75.4 87.5
Non-household retail 4.5 2.8
Other (10.4) (4.4)
69.5 85.9
(Loss) / profit before tax before non-underlying items
Water total (14.5) 6.6
Non-household retail 2.6 1.7
Other (6.7) 0.8
(18.6) 9.1
(Loss) / profit before tax
Water total (34.0) 1.2
Non-household retail 2.6 1.7
Other (7.4) 0.3
(38.8) 3.2
Intra-segment trading between different segments is under normal market based
commercial terms and conditions. Intra-segment revenue of the other segment is
reflected as a cost.
Factors such as seasonal weather patterns can affect sales volumes, income and
costs in the water segments.
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:
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
4. Segmental information (continued)
Unaudited
Six months ended 30 September 2023 UK total
Water Non-household Other Total
retail
£m £m £m £m
Segment revenue 377.8 117.6 1.2 496.6
Inter-segment revenue (46.7) (0.1) (1.2) (48.0)
Revenue from external customers 331.1 117.5 - 448.6
Significant service lines
Water 331.1 - - 331.1
Non-household retail - 117.5 - 117.5
331.1 117.5 - 448.6
Unaudited
Six months ended 30 September 2024 UK total
Water Non-household Other Total
retail
£m £m £m £m
Segment revenue 412.9 160.8 10.8 584.5
Inter-segment revenue (50.8) (0.1) (6.4) (57.3)
Revenue from external customers 362.1 160.7 4.4 527.2
Significant service lines
Water 362.1 - - 362.1
Non-household retail - 160.7 - 160.7
Other - - 4.4 4.4
362.1 160.7 4.4 527.2
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
5. 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 period and
business trends over time. The presentation of results is consistent with
internal performance monitoring.
Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
£m £m
Operating Costs
Restructuring / transformational costs((1)) (3.7) (3.6)
Costs associated with water quality event in Brixham((2)) (16.3) -
Acquisition costs((3)) (0.2) (0.5)
Drought related costs((4)) - (1.8)
Earnings before interest, tax, depreciation and amortisation (20.2) (5.9)
Non-underlying tax credit 4.9 1.4
Net non-underlying charges (15.3) (4.5)
(1) £3.7 million (half year ended 30 September 2023: £3.6 million) of costs were
incurred in connection with the business transformation of South West Water
following the merger of Bristol Water into South West Water, £0.9 million of
which were employment costs. Total additional restructuring costs of c.£12
million expected to be incurred wholly in H2 of the current financial year.
(2) On 15 May 2024 an outbreak of cryptosporidium was detected in the water supply
in the Brixham area of Devon, causing South West Water to issue a notice to
customers in the area to boil water before consuming. £16.3 million of
costs have been incurred which includes enhanced customer compensation,
provision of bottled water over an eight-week period, and extensive
interventions to clean and filter the network.
(3) The Group incurred expenses of £0.1 million in the half year ended 30
September 2024 in relation to the costs of acquisition of SES and £0.1
million (half year ended 30 September 2023: £0.5 million) of expenses in
connection with the acquisition of four renewable power generation
investments.
(4) In financial year 2022/23, 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 implemented 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 instigated a series of mitigating measures and
one-off expenditure to address the situation. £1.8 million of specifically
identifiable costs were recognised in the first half of 2023/24.
Cash totalling £28.6 million was paid in the half year ended 30 September
2024 (half year ended 30 September 2023: £2.7 million) in relation to items
disclosed as non-underlying in the current and previous financial years.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
6. Net finance costs
Unaudited
Half year ended Half year ended
30 September 2024
30 September 2023
Finance costs Finance income Total Finance Finance income Total
costs
£m £m £m £m £m £m
Cost of servicing debt
Bank borrowings and overdrafts (66.4) - (66.4) (58.0) - (58.0)
Interest element of lease payments (25.1) - (25.1) (22.9) - (22.9)
Other finance costs (5.0) - (5.0) (2.1) - (2.1)
Interest receivable - 7.1 7.1 - 5.0 5.0
(96.5) 7.1 (89.4) (83.0) 5.0 (78.0)
Notional interest
Retirement benefit obligations - 0.8 0.8 - 0.7 0.7
Net finance costs (96.5) 7.9 (88.6) (83.0) 5.7 (77.3)
In addition to the above, finance costs of £12.1 million have been
capitalised on qualifying assets included in property, plant and equipment (H1
2023/24: £4.1 million).
7. Taxation
Unaudited
Before non-underlying items Non-underlying items (note 5) half year ended 30 September 2024 Total Before non-underlying items half year ended 30 September 2023 Non-underlying items (note 5) half year ended 30 September 2023 Total
half year
half year
half year ended 30 September 2023
ended 30 September 2024
ended 30 September 2024
£m £m £m £m £m £m
Analysis of charge
Current tax charge / (credit) 0.1 - 0.1 (0.6) - (0.6)
Deferred tax (credit) / charge (4.0) (4.9) (8.9) 3.4 (1.4) 2.0
Tax (credit) / charge for the period (3.9) (4.9) (8.8) 2.8 (1.4) 1.4
UK corporation tax is calculated at 25% (H1 2023/24: 25%) of the estimated
assessable profit for the year. The tax charge for September 2024 and
September 2023 has been derived by applying the anticipated effective annual
tax rate to the first half year profit before tax.
Tax on amounts included in the consolidated statement of comprehensive income,
or directly in equity, is included in those statements respectively.
The effective tax rate for the period for the group, including prior year
adjustments but before the impact of non-underlying items was an effective
charge of 21.0% (H1 2023/24: charge of 30.8%).
The effective tax rate for the period for the group including prior year
adjustments and the impact of non-underlying items was a charge of 22.7% (H1
2023/24: charge of 43.8%).
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
8. 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 period, 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 weighted average number of shares and earnings used in the calculations
were:
Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
Number of shares (millions)
For basic earnings per share 285.9 261.2
Effect of dilutive potential ordinary shares from share options - 0.7
For diluted earnings per share 285.9 261.9
Adjusted basic and diluted earnings per ordinary share
Adjusted earnings per share are presented to provide a more useful comparison
of business trends and performance. Non-underlying items are adjusted for by
virtue of their size, nature or incidence to enable a full understanding of
the Group's financial performance (as described in note 5).
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to include all dilutive potential ordinary shares.
Potential ordinary shares that could dilute basic earnings per share in the
future were not included in the calculation for diluted earnings per share
because they were anti-dilutive for the current year as any dilution would
reduce the loss per share. Diluted earnings per share is therefore equal to
basic earnings per share.
Earnings per share have been calculated as follows:
Unaudited
Half year ended Half year ended
30 September 2024
30 September 2023
Loss Earnings per share Profit Earnings per share
after tax Basic Diluted after tax Basic Diluted
£m p p £m p p
Statutory earnings (30.3) (10.6) (10.6) 1.4 0.5 0.5
Deferred tax before non-underlying items (4.0) (1.4) (1.4) 3.4 1.4 1.4
Non-underlying items (net of tax) 15.3 5.4 5.4 4.5 1.7 1.7
Adjusted earnings before non-underlying items (19.0) (6.6) (6.6) 9.3 3.6 3.6
and deferred tax
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
9. Dividends
Amounts recognised as distributions to ordinary equity holders in the period: Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
£m £m
Interim dividend paid for the year ended 40.1 33.9
31 March 2024: 14.04 pence (2023: 12.96 pence) per share
Final dividend paid for the year ended 86.8 77.8
31 March 2024: 30.33 pence (2023: 29.77 pence) per share
126.9 111.7
In the six months to 30 September 2024 the 2023/24 interim and final dividends
were paid resulting in a cash outflow of £126.9 million.
Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
£m £m
Proposed interim dividend for the year ended
31 March 2025: 14.69 pence per share (31 March 2024: 14.04 pence)
42.0 36.7
The proposed interim dividend has not been included as a liability in this
condensed half year financial information. The proposed interim dividend for
the year ending 31 March 2025 will be paid on 4 April 2025 to shareholders on
the register on 31 January 2025.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
10. Share capital
Allotted, called up and fully paid:
1 April 2023 to 30 September 2023 Unaudited
Number of shares
Treasury shares Ordinary shares £m
At 1 April 2023 ordinary shares of 61.05 pence each 5,628 261,315,489 159.5
For consideration of £0.1 million, shares issued in - 17,606 -
respect of the Company's Sharesave Scheme
At 30 September 2023 ordinary shares of 61.05 pence each 5,628 261,333,095 159.5
1 April 2024 to 30 September 2024 Unaudited
Number of shares
Treasury shares Ordinary shares £m
At 1 April 2024 ordinary shares of 61.05 pence each 5,628 286,045,323 174.6
For consideration of £21,000, shares issued in - 3,386 -
respect of the Company's Sharesave Scheme
At 30 September 2024 ordinary shares of 61.05 pence each 5,628 286,048,709 174.6
Shares held as treasury shares may be sold, re-issued for any of the Company's
share schemes, or cancelled.
The weighted average market price of the Company's shares at the date of
exercise of share scheme options during the period was 625 pence (H1 2023/24:
631 pence).
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
11. Share premium account
Unaudited
1 April 2023 to 30 September 2023 £m
At 1 April 2023 237.6
Shares issued under the Sharesave Scheme 0.1
At 30 September 2023 237.7
1 April 2024 to 30 September 2024
At 1 April 2024 398.2
Shares issued under the Sharesave Scheme -
Less: Transaction costs arising on share issues (0.2)
At 30 September 2024 398.0
12. Capital redemption reserve
Unaudited
1 April 2023 to 30 September 2023 £m
At 1 April 2023 and 30 September 2023 157.1
1 April 2024 to 30 September 2024
At 1 April 2024 and 30 September 2024 157.1
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
13. Cash flow from operating activities
Reconciliation of (loss)/profit for the period to net cash generated from Unaudited
operations:
Half year ended 30 September 2024 Half year ended 30 September 2023
£m £m
Cash generated from operations
(Loss) / profit for the period (30.0) 1.8
Adjustments for:
Share-based payments 1.1 0.3
Profit on disposal of property, plant and equipment (0.5) (0.1)
Depreciation charge 91.9 80.8
Amortisation of intangible assets 2.1 1.7
Non-underlying costs - 5.9
Share of post-tax profit from associated companies (0.5) (0.5)
Finance income (7.9) (5.7)
Finance costs 96.5 83.0
Taxation (credit) / charge (8.8) 1.4
Changes in working capital:
Decrease in inventories 0.2 0.1
Increase in trade and other receivables 5.7 (45.8)
Decrease in trade and other payables (24.4) (31.0)
Cash impact of non-underlying costs - (2.7)
Decrease in provisions - (0.4)
Cash generated from operations 125.4 88.8
Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
Total interest paid £m £m
Interest paid in operating activities 64.6 49.3
Interest paid in investing activities 12.1 4.1
Total interest paid 76.7 53.4
During the period 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 £25.0 million (H1 2023/24: £24.8
million) were received and a gain of £nil (H1 2023/24: £nil). These assets
are leased back at market rates with lease terms of 10.0 years.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
14. Net borrowings
Unaudited Audited
Half year ended 30 September 2024 Year ended 31 March 2024
£m £m
Cash and cash equivalents 137.0 134.0
Restricted funds 38.1 37.4
175.1 171.4
Borrowings - current
Bank and other current borrowings (114.2) (186.3)
Lease obligations (125.2) (51.9)
Total current borrowings (239.4) (238.2)
Borrowings - non-current
Bank and other non-current borrowings (3,137.0) (2,658.7)
Listed preference shares (12.5) (12.5)
Lease obligations (1,018.4) (1,071.2)
Total non-current borrowings (4,167.9) (3,742.4)
Total net borrowings (4,232.2) (3,809.2)
Restricted funds are deposited with lessors or held for bond interest, are
available for access, subject to being replaced by an equivalent valued
security.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
14. Net borrowings (continued)
The movements in net borrowings during the periods presented were as follows:
Unaudited
Net cash/ (borrowings) at 1 April 2023 Cash Transfer between non-current and current Other non-cash movements Net cash/ (borrowings) at 30 September 2023
flows
£m £m £m £m £m
Cash and cash deposits 165.4 (71.0) - - 94.4
Bank and other current borrowings (92.7) 45.2 (36.1) - (83.6)
Current lease obligations* (32.0) 30.6 (13.9) (30.2) (45.5)
Bank and other non-current borrowings (1,960.9) (300.1) 36.1 (8.0) (2,232.9)
Listed preference shares (12.5) - - - (12.5)
Non-current lease obligations* (1,032.7) (24.8) 13.9 (3.1) (1,046.7)
Net borrowings (2,965.4) (320.1) - (41.3) (3,326.8)
Net cash/ (borrowings) at 1 April 2024 Cash Transfer between non-current and current Other non-cash movements Net cash/ (borrowings) at 30 September 2024
flows
£m £m £m £m £m
Cash and cash deposits 171.4 3.7 - - 175.1
Bank and other current borrowings (186.3) 147.0 (76.1) 1.2 (114.2)
Current lease obligations (51.9) 38.5 (82.0) (29.8) (125.2)
Bank and other non-current borrowings (2,658.7) (555.2) 76.1 0.8 (3,137.0)
Listed preference shares (12.5) - - - (12.5)
Non-current lease obligations (1,071.2) (25.0) 82.0 (4.2) (1,018.4)
Net borrowings (3,809.2) (391.0) - (32.0) (4,232.2)
*The movement in net borrowings for the prior year has been corrected to show
the gross cash flows and other non-cash movements relating to lease
obligations whereby interest accrues to and is paid from net borrowings, these
amounts were previously shown net within other non-cash movements. Transfers
between non-current and current for these items has also been corrected.
The Group has entered into covenants with lenders and, while terms vary, these
typically provide for limits on gearing and interest cover. The Group has been
in compliance with its covenants during the year to date. Other non-cash
movements for the Group in the period includes the increase in borrowings from
interest which is rolled into the amount repayable.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
15. Fair value disclosure for financial instruments
Fair value of financial instruments carried at amortised cost.
Financial assets and liabilities which are not carried at an amount which
approximates to their fair value are:
Unaudited Audited
Half year ended Year ended
30 September 2024
31 March 2024
Book value Fair value Book value Fair value
£m £m £m £m
Non-current borrowings:
Bank and other loans 3,137.0 3,045.0 2,658.7 2,540.8
Other non-current borrowings 12.5 19.7 12.5 20.1
Non-current borrowings excluding leases 3,149.5 3,064.7 2,671.2 2,560.9
Valuation hierarchy of financial instruments carried at fair value
The Group uses the following hierarchy for determining the fair value of
financial instruments by valuation technique:
× quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)
× inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (level 2)
× Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (level 3)
The fair value of financial instruments not traded in an active market (level
2, for example over-the-counter derivatives) is determined by using valuation
techniques. A variety of methods and assumptions are used based on market
conditions existing at each balance sheet date. Quoted market prices or dealer
quotes for similar instruments are used for long term debt. Other techniques,
such as estimated discounted cash flows, are used to determine fair value for
the remaining financial instruments. The fair value of interest rate swaps is
calculated as the present value of the estimated future cash flows.
The Group's financial instruments are valued principally using level 2
measures:
Unaudited Audited
Half year ended 30 September 2024 Year ended 31 March 2024
£m £m
Level 2 inputs
Assets
Derivatives used for cash flow hedging 33.8 40.5
Derivatives used for fair value hedging 0.1 0.3
Total assets 33.9 40.8
Liabilities
Derivatives used for cash flow hedging (8.8) (8.7)
Total liabilities (8.8) (8.7)
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
16. Retirement benefit assets
Defined benefit schemes
All the Group's defined benefit pension schemes are closed to future accrual.
The principal actuarial assumptions were the rate used to discount schemes'
liabilities and expected return on scheme assets with the same rate of 5.1%
(Sept 2024: 5.5%) and the inflation assumption of 3.1% (Sept 2024: 3.3%).
Unaudited
Half year ended Half Year ended
30 September 2024
30 September 2023
Present value of obligation Fair value of plan assets Total Present value of obligation Fair value of plan assets Total
£m £m £m £m £m £m
At beginning of period (774.2) 800.8 26.6 (719.5) 748.8 29.3
Amounts recognised in the (18.6) 18.3 (0.3) (17.4) 17.0 (0.4)
income statement
Remeasurements through other 27.6 (13.2) 14.4 43.5 (72.1) (28.6)
comprehensive income
Company contributions 0.1 - 0.1 - - -
Benefits and expenses paid 23.7 (23.7) - 21.2 (21.2) -
At end of period (741.4) 782.2 40.8 (672.2) 672.5 0.3
Recognition of surplus on principal pension scheme
In accordance with IAS 19 'Employee Benefits' the value of the net pension
scheme surplus that can be recognised in the statement of financial position
is restricted to the present value of economic benefits available in the form
of refunds from the scheme or reductions in future contributions. In respect
of the Group's principal pension scheme, PGPS, the surplus has been recognised
as the Group believes that ultimately it has an unconditional right to a
refund of any surplus assuming the full settlement of the plan's liabilities
in a single event, such as a scheme wind up.
Bristol Water
The overall surplus includes a net surplus of c.£9.4 million relating to the
Bristol Water Section of the Water Companies Pension Scheme (WCPS) which
remains largely unchanged as the liabilities of the scheme are fully insured
through a bulk annuity policy. The Group believes that it has an
unconditional right to a refund of surplus and that the gross pension surplus
can be recognised. This benefit is only available as a refund as no additional
defined pension benefits are being earned. Under UK tax legislation a tax
deduction of 25% is applied to a refund from a UK pension scheme, before it is
passed to the employer. This tax deduction has been applied to restrict the
value of the surplus recognised for this scheme. The process to buy out and
wind up the scheme continues and the Trustee has indicated its intention to
return the surplus to the Company. The buy-out of the section is expected to
completed within the next 12 months and therefore the surplus relating to the
Bristol Water Section has been recognised as a current asset on the balance
sheet.
Sutton and East Surrey Water
The Group believes that it has an unconditional right to a refund of surplus
and that the gross pension surplus can be recognised. This benefit is only
available as a refund as no additional defined pension benefits are being
earned. Under UK tax legislation a tax deduction of 25% (2024: 25%) is applied
to a refund from a UK pension scheme, before it is passed to the employer.
This tax deduction has been applied to restrict the value of the surplus
recognised for this scheme.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
16. Retirement benefit assets (continued)
In June 2023, the High Court handed down a decision (Virgin Media Limited v
NTL Pension Trustees II Limited and others) which potentially has implications
for the validity of amendments made by schemes, including the PGPS and other
Group defined benefit schemes, which were contracted-out on a salary-related
basis between 6 April 1997 and the abolition of contracting-out in 2016. This
decision was upheld by the Court of Appeal in August 2024. There is potential
for legislative intervention following industry lobbying efforts that may
retrospectively validate certain rule amendments that would otherwise be held
void where the requirements of section 37 were not met. However, the Company
has engaged with the relevant Trustee for PGPS and other Group defined benefit
schemes who have confirmed that based on the governance processes in place and
an initial review of significant deed changes during the period in question,
these bodies have no reason to believe, at this stage in their review, that
the relevant requirements were not complied with in relation to the Schemes
with regard to the relevant period in question. Given that there is no
indication at this stage of non-compliance with the relevant requirements, the
PGPS and other Group defined benefit schemes valuation as at 30 September 2024
does not reflect potential additional liabilities arising from the Virgin
Media case.
17. Capital expenditure
Unaudited Audited
Half year ended 30 September 2024 Year ended 31 March 2024
£m £m
Property, plant and equipment
Additions 327.1 604.5
Arising on acquisitions - 441.6
Assets adopted at fair value 6.7 10.6
Net book value of disposals (0.4) -
Intangible assets
Additions 4.7 45.0
Arising on acquisitions - 11.6
Net book value of disposals - (0.1)
Capital commitments
Contracted but not provided for the Group 157.6 211.5
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
18. Trade and other payables & other non-current liabilities
Unaudited Audited
Half year ended 30 September 2024 Year ended 31 March 2024
£m £m
Trade and other payables - current
Trade payables 164.0 227.5
Contract liabilities 10.7 10.6
Other tax and social security 1.9 3.1
Accruals 41.2 37.4
Other payables 88.9 62.6
306.7 341.2
Other non-current liabilities
Contract liabilities 161.5 154.9
19. Contingencies and Financial Guarantee
Financial Guarantee
Unaudited Audited
Half year ended 30 September 2024 Year ended 31 March 2024
£m £m
Performance bonds 21.7 13.8
Guarantees in respect of performance bonds relate to changes to the collateral
requirements for the non-household retail business with other wholesalers. The
possibility of the bond being required is remote hence the fair value of the
bond is not material.
Contingency
Other contractual and litigation uncertainties
In November 2021, Ofwat and the Environment Agency announced industry-wide
investigations into how companies manage their wastewater assets. In June
2022, as part of its ongoing investigation, Ofwat announced enforcement action
against South West Water Limited and has subsequently included all 11 water
and sewerage companies in the scope of their enforcement activities. If
Ofwat were to find a company were in breach of its legal obligations, it has a
range of options that it could apply from accepting formal section 19
undertakings which would accept operational improvements in lieu of any fine
or penalty, through to fining the Group up to 10% of its revenue in relation
to the regulated wastewater business. In August 2024, Ofwat proposed
penalties for three companies, ranging from 5% to 9% of relevant wastewater
turnover; Ofwat has however stated that the opening of enforcement cases does
not automatically imply that a financial penalty will necessarily follow.
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. Ofwat has a range of options
that it could apply should its investigation identify any concerns, from
accepting to formal section 19 undertakings through to fining the Group up to
10% of its revenue in relation to the regulated drinking water business.
Whilst to date, Ofwat has not given a firm indication of the expected
timeframe for either of its ongoing investigations or any subsequent actions
it will take, we have engaged openly and transparently with Ofwat throughout
the investigation and continue our discussions with them in respect of these
matters.
On 2 February 2024 summons were received by South West Water Limited from the
EA in relation to alleged breaches of environmental permits relating to the
illegal water discharge activity at seven locations with a total of 30
charges. In May 2024 the EA withdrew six of the 30 charges. At a court
hearing on 14 November 2024 the company entered a guilty plea on five of the
charges, sentencing is expected for these charges in the third quarter of
2025. Further hearings are due for the remaining cases. The potential
outcome of the remaining prosecutions is currently unknown.
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
19. Contingencies and Financial Guarantee (continued)
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.
20. Related party transactions
Group companies entered into the following transactions with joint ventures
which were not members of the Group. Bristol Wessex Billing Services Limited
("BWBSL") and Water 2 Business Limited ("Water 2 Business") are joint venture
investments of Bristol Water plc.
Transactions with joint ventures Unaudited
Half year ended 30 September 2024 Half year ended 30 September 2023
£m £m
Sales to Water 2 Business 15.0 9.6
Purchases from BWBSL 2.0 2.0
Balances with joint ventures Unaudited Audited
Half year ended 30 September 2024 Year ended 31 March 2024
£m £m
Trade and other receivables
Water 2 Business (including loan receivable of £8.7m, 8.9 8.9
2024: £8.7m)
Trade and other payables
BWBSL 2.6 3.0
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
21. Acquisition of SES Group
On 10 January 2024, the Pennon Group acquired 100% of the issued share capital
of Sumisho Osaka Gas Water UK Limited, which has subsequently been renamed
Sutton and East Surrey Group Holdings Limited ('SESGHL'). SESGHL is the
holding company of the SES Group which comprises Sutton and East Surrey Water
plc ('SES Water'), a regulated water only company, and certain other ancillary
businesses. The purpose of the acquisition was to expand the Group's presence
in water supply across Southern England.
The details of the business combination, accounted for in the year ended 31
March 2024, are as follows:
£m
Fair value of consideration transferred
Amount settled in cash 90.2
Total consideration transferred 90.2
Fair value of assets and liabilities recognised on acquisition
Property, plant and equipment 441.6
Intangible assets 11.6
Inventories 2.1
Trade and other receivables 61.4
Cash and cash deposits 27.5
Current tax receivable 0.4
Borrowings (360.1)
Trade and other payables (65.3)
Retirement benefit obligations 3.3
Deferred tax liabilities (47.5)
Provisions (0.4)
Identifiable net assets 74.6
Goodwill on acquisition 15.6
Outflow of cash to acquire subsidiary, net of cash acquired
Consideration for equity settled in cash 90.2
Cash and cash equivalents acquired (27.5)
Net cash outflow on acquisition 62.7
Acquisition costs paid charged to expenses 9.7
PENNON GROUP PLC
Notes to condensed half year financial information (continued)
21. Acquisition of SES Group (continued)
Acquisition related costs
Acquisition related costs of £9.7 million are not included as part of the
consideration transferred and were recognised as an expense in the
consolidated income statement in the year ended 31 March 2024 (£9.6 million)
and 30 September 2024 (£0.1 million) within other operating expenses.
Adjustments made to the carrying values of SES Group at acquisition.
The net assets recognised in the 30 September 2024 financial statements were
based on a provisional assessment of their fair value, whilst all necessary
information is finalised to complete the valuation exercise. The initial
significant fair value adjustments are described further below and have been
incorporated into the 10 January 2024 fair value balance sheet.
Acquired receivables
The provisional fair value of trade and other receivables acquired as part of
the business combination amounted to £32.9 million with a gross contractual
amount of £35.1 million. At the acquisition date the Group's best estimate of
the contractual cash flows expected not to be collected amounted to £2.2
million.
Goodwill
Goodwill is attributable to the recognition of deferred tax liabilities on
fair value gains recognised as part of the acquisition. None of the goodwill
recognised is expected to be deductible for tax purposes. Goodwill has been
allocated to the water segment.
22. Events after the reporting period
In October 2024 the Group announced a restructuring of the business, it is
expected that c.£12 million of costs will be incurred as a result of the
restructuring.
Pennon Group plc
Registered office:
Peninsula House
Rydon Lane
Exeter
Devon
EX2 7HR
pennon-group.co.uk
Registered
in England: 2366640
PENNON GROUP PLC
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors named below confirm on behalf of the Board of Directors that
this unaudited condensed half year financial information has been prepared in
accordance with UK adopted IAS 34 "Interim financial reporting" and to the
best of their knowledge the interim management report herein includes a fair
review of the information required by DTR 4.2.4, DTR 4.2.7R and DTR 4.2.8R of
the Disclosure and Transparency Rules, being an indication of important events
that have occurred during the period and their impact on the unaudited
condensed half year financial information; a description of the principal
risks and uncertainties for the remaining six months of the current financial
year; and the disclosure requirements in respect of material related party
transactions.
The Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial information may differ from legislation in
other jurisdictions.
The Directors of Pennon Group plc at the date of the signing of this
announcement and statement are:
Dorothy Burwell
Jonathan Butterworth
Iain Evans
Susan Davy
Laura Flowerdew
Claire Ighodaro
David Sproul
Loraine Woodhouse
For and on behalf of the Board of Directors who approved this half year report
on 26 November 2024.
L Flowerdew
Group Chief Financial Officer
PENNON GROUP PLC
INDEPENDENT REVIEW REPORT TO PENNON GROUP PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Pennon Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Half Year Results of
Pennon Group plc for the 6 month period ended 30 September 2024 (the
"period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
• the Consolidated balance sheet as at 30 September
2024;
• the Consolidated income statement and Consolidated
statement of comprehensive income for the period then ended;
• the Consolidated statement of cash flows for the
period then ended;
• the Consolidated statement of changes in equity for
the period then ended; and
• the explanatory notes to the interim financial
statements.
The interim financial statements included in the Half Year Results of Pennon
Group plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Half Year Results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Half Year Results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Half Year Results, including the
interim financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
PENNON GROUP PLC
INDEPENDENT REVIEW REPORT TO PENNON GROUP PLC (continued)
Our responsibility is to express a conclusion on the interim financial
statements in the Half Year Results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Bristol
26 November 2024
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:
· Group dividend cover is not presented in the half year APM
disclosure. The ratio represents a measure of full year adjusted profit and
dividend performance and cannot be calculated on a comparable basis using half
year adjusted profits and the interim dividend.
· Underlying Return on capital employed is not presented in the
half year APM disclosure. This ratio represents the total of underlying
operating profit 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.
· Like for like has been added following the acquisition of SES in
January 2024 to aid comparability between reporting periods.
(i) Underlying earnings
Underlying earnings are presented alongside statutory results as the Directors
believe they provide a useful comparison on business trends and performance.
Note 5 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 reconciliation Underlying Restructuring / transformational costs Costs associated with water quality event in Brixham Acquisition costs Statutory results Earnings
per share
30 September 2024
£m £m £m £m £m p
EBITDA (see below) 163.5 (3.7) (16.3) (0.2) 143.3
Operating profit 69.5 (3.7) (16.3) (0.2) 49.3
Loss before tax (18.6) (3.7) (16.3) (0.2) (38.8)
Taxation 3.9 0.8 4.1 - 8.8
Loss after tax (30.0)
Non-controlling interests (0.3)
Profit after tax attributable to shareholders (30.3) (10.6)
Non-underlying items
Underlying earnings reconciliation Restructuring / transformation costs Acquisition costs Statutory results Earnings
per share
30 September 2023 Underlying Drought related costs
£m £m £m £m £m p
EBITDA (see below) 168.5 (3.6) (1.8) (0.5) 162.6
Operating profit 85.9 (3.6) (1.8) (0.5) 80.0
Profit before tax 9.1 (3.6) (1.8) (0.5) 3.2
Taxation (2.8) 0.1 0.4 0.9 (1.4)
Profit after tax 1.8
Non-controlling interests (0.4)
Profit after tax attributable to shareholders 1.4 0.5
PENNON GROUP PLC
Alternative performance measures (continued)
(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) 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 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.
H1 2025 H1 2024
£m £m
Net finance costs before non-underlying items (note 6) 88.6 77.3
Remove: net finance (cost)/income before non-underlying items not associated (8.4) 3.6
with South West Water Limited's group of companies
Net finance costs before non-underlying items associated with South West Water 80.2 80.9
Limited's group of companies
Net interest on retirement benefit obligations associated with South West 0.6 0.7
Water Limited's group of companies
Capitalised interest (note 6) 10.2 4.1
Net finance costs for effective interest rate calculation 91.0 85.7
Group net debt (opening) (note 14) 3,809.2 2,965.4
Remove: opening net debt not associated with South West Water Limited's group (514.5) (100.1)
of companies
Opening net debt for calculation 3,294.7 2,865.3
Group net debt (closing) (note 14) 4,232.2 3,326.8
Remove: closing net debt not associated with South West Water Limited's group (670.9) (235.4)
of companies
Closing net debt for calculation 3,561.3 3,091.4
Average net debt (opening net debt + closing net debt divided by 2) 3,428.0 2,978.4
Effective interest rate (%) 5.3 5.8
(iv) 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).
H1 2025 H1 2024
£m £m
Net finance costs for effective interest rate calculation (as above) 91.0 85.7
Remove non-cash interest accrued (income statement indexation charge) (12.6) (28.7)
Net finance costs for effective cash cost of interest calculation 78.4 57.0
Opening net debt (as above) 3,294.7 2,865.3
Closing net debt (as above) 3,561.3 3,091.4
Average net debt (opening net debt + closing net debt divided by 2) 3,428.0 2,978.4
Effective cash cost of interest (%) 4.6 3.8
PENNON GROUP PLC
Alternative performance measures (continued)
(v) Underlying interest cover
Underlying net finance costs (excluding pensions net interest cost) divided by
operating profit before non-underlying items.
H1 2025 H1 2024
£m £m
Net finance costs after non-underlying items 88.6 77.3
Net interest on retirement benefit obligations 0.8 0.7
Net finance costs for interest cover calculation 89.4 78.0
Operating profit before non-underlying items 69.5 85.9
Underlying Interest cover (times) 0.8 1.1
(vi) 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.
H1 2025 H1 2024
£m £m
Additions to property, plant and equipment 327.1 239.1
Additions to intangible assets 4.7 27.2
Capital investment 331.8 266.3
(vii) 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.
H1 2025 H1 2024
£m £m
Cash flow statements: purchase of property, plant and equipment 352.1 249.8
Cash flow statements: purchase of intangible assets 4.7 20.7
Cash flow statements: proceeds from sale of property, plant and equipment (0.9) (0.2)
Capital payments 355.9 270.3
PENNON GROUP PLC
Alternative performance measures (continued)
(viii) 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 (see ix) 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's annual
performance report and regulatory reporting, published in July each year.
(ix) Total Expenditure (Totex)
Operating costs and capital expenditure of the regulated water and wastewater
business (based on the Regulated Accounting Guidelines).
(x) Outcome Delivery Incentive (ODI)
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.
(xi) 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.
(xii) Like for like
To aid comparison between reporting periods, "like for like", refers to the
results of the Group excluding SES which was acquired on 10 January 2024 and
therefore the results of SES are not included in H1 2023/24.
9 Reflecting Bristol acquisition of £425m and £180m equity capital raised
for SES acquisition
10 Capex investment for South West and Bristol Water over K7, excluding
transition spend
11 Based on Water Group (SWW and SES) forecast shadow RCV growth over K7
12 For those beaches impacted by our own assets on a like for like basis
13 RNAGs - Reasons for Not Achieving Good status
14 Based on 55% assumed leverage, pre-tax; 7-9% unleveraged pre-tax returns
15 Within SWW Group, South West Water Limited is the guarantor entity for
the EMTN programme, net debt for South West Water Limited at 30 September 2024
was £3,635.4m
16 Fair value accounting adjustments recognised for acquisitions
17 Excludes the ODI impact of the third party Carland Cross event in 2021
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