REG - Pennon Group PLC - TRADING STATEMENT AND BUSINESS PLAN UPDATE

PennonAnnouncement

02/10/2023 07:00

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RNS Number : 2666O  Pennon Group PLC  02 October 2023

PENNON GROUP PLC

2 October 2023

TRADING STATEMENT AND BUSINESS PLAN UPDATE

Pennon Group announces the following trading update for the six months ended
30 September 2023. Pennon's half year results will be announced on 29 November
2023.

Key Highlights

·      Trading in line with management expectations

·      Water resilience investment delivering demonstrable improvement
in the water resource position across the South West - all Temporary Use Bans
now lifted

·      On track to deliver significant K7 environmental investment plan
with capex of over £400 million for 2023/24

·      Strategically well positioned to continue to deliver a cumulative
doubling of RORE base returns over K7 to 2023/24

·      Investment in renewable energy generation progressing in line
with expectations - accelerating our Net Zero 2030 commitment

·      Submitted South West Water's ambitious, deliverable and
financeable business plan to Ofwat, outlining capital investment of
c.£2.8bn 1  over K8 (2025-30) to secure improvements to the benefit of the
environment, customers and communities

·      Gearing expectation for K8 remains within our well-established
range of 55-65%.

Susan Davy, Group CEO said:

'In our South West Water 2025-30 business plan, we're set to tackle the
challenges that matter most in our region head on, with progress already
underway. We plan to invest £2.8bn in water quality and resilience, with a
pledge to fix storm overflows at beaches and eradicate pollutions, whilst
delivering on our Net Zero 2030 promise to the planet. Our robust balance
sheet underpins our ambition.

This plan will create 2000 jobs in our communities, alongside our plan for
1000 apprenticeships and graduates. At the same time, we will do more with
less, as we drive efficiency and innovation, with a nature first principle,
keeping unwelcome bill increases as low as possible.

We have tested our plan with thousands of customers, and they are confident
this is the right deal for right now.'

Robust K7 (2025-30) platform

We continue to build momentum as we plan for the next regulatory period, as
demonstrated by South West Water being one of only two companies to improve
their position in Ofwat's latest Water Company Performance Report, published
in September 2023. Following the completion of the merger with Bristol Water
earlier this year, investment in the Bristol Water region is focused on
improving the consistency of performance and embedding best practice to
provide a sustainable platform across the water business for the next
regulatory period.

Water resilience

Climate change has shown how unpredictable weather patterns can be, and the
impact they can have on our operations. Whilst the South West region still
remains in official drought status, as declared by the Environment Agency in
2022, the impact of our targeted supply and demand side investments has
supported the significant improvement in our water resources, and as a result
we are pleased to have been able to lift all Temporary Use Bans across Devon
and Cornwall. Overall, resource levels for Devon and Cornwall have increased
to 64% (compared to 33% this time last year). Roadford Reservoir is now at 54%
storage, up over 14 percentage points from this time last year, while
Colliford Reservoir is at 52% storage, up 30 percentage points from this time
last year.

Our investment plans to further diversify water resources and boost
resilience, including the development of Cornwall's first de-salination
facility, are ongoing and progressing well.

Delivering on our significant K7 environmental investment programme

Work to deliver on our largest environmental improvement programme to date
continues at pace, with total investment for 2023/24 expected to be in excess
of c.£400 million.

Our c.£100 million K7 WaterFit investment programme focused on Devon and
Cornwall, is now well underway. This programme targets improving river and
coastal waters through increasing storm storage, sewer separation and
employing nature-based solutions to divert flows. To date, work on over 70
improvement schemes is either complete or underway at 49 bathing beaches.

As the roll out of our WaterFit interventions continue, we expect to see
further improvements to performance and remain confident in achieving our 2025
commitments.

Through our pollutions incident reduction plan, established in 2020, we have
consolidated the gains made in reducing pollution incidents by c.50% in K7 to
date across the network. Dynamic plans are in place to deliver the trajectory
of improvements required to achieve our 2024 target.

Strategically well positioned to double base RORE returns

Across our water and wastewater operations, colleagues have worked around the
clock to deliver on our commitments to customers, communities and the
environment. These efforts are having a positive impact, and as result we
anticipate a reduction in the net ODI penalty for 2023/24.

Given the current macro-environment we now anticipate higher regulated capital
value (RCV) growth reflecting updated forward assumptions on inflation.
Factoring in this, and all midnight adjustments, we anticipate an opening RCV
of c.£5.4bn 2  at the beginning of the next regulatory period (2025-30). This
c.£200m additional value on our previous guidance would broadly equate to a
c.2.5% reduction in gearing, and as we move into K8 we are confident that our
gearing will remain within our well-established range of 55-65%.

Whilst finance costs for 2023/24 are reflective of the elevated inflationary
and interest rate environment, our agile and efficient financing strategy has
ensured we continue to be strategically well positioned in the current
macro-environment. In the current regulatory period to 2023/24 we continue to
anticipate a cumulative doubling of base returns on regulated equity (RORE),
with the structure of our financing portfolio driving significant financial
outperformance.

Financial performance for 2023/24 is expected to be weighted into H2,
reflecting lower power costs, and the realisation of further efficiencies as
we continue to unlock synergies from the integration of Bristol Water and
reshape our organisation for K8.

Investing in renewable generation - Pennon Power

To date we have announced expected investment of c.£145 million at four
recently acquired sites across the UK which will deliver c.135 GWh of
electricity on an annual basis, with additional battery storage of 60 MW. This
investment helps accelerate the Group's Net Zero 2030 target of 50%
self-generation, whilst de-risking exposure to volatile global power markets,
and offering attractive commercial returns.

Development of these projects is proceeding in line with our expectations,
with construction expected to commence during H2 2023/24 at our Dunfermline
site, announced in June 2023. Construction at the sites announced in July 2023
is expected to commence over 2024, with the full portfolio of assets on track
to contribute to Group earnings in 2025/26.

South West Water's business plan for K8 (2025-30) - The Right Deal for Right
Now

South West Water has today submitted its five-year business plan for the
period 2025-30 to Ofwat. The £2.8bn package of capital investments outlined
are built around addressing four key challenges; storm overflows and
pollutions, water quality and water resilience, delivering Net Zero and
environmental gains, whilst ensuring bills remain affordable for all. The plan
is underpinned by a robust balance sheet with expectations of gearing
remaining within our well-established range of 55-65%.

Full details of the Business Plan, along with an investor summary of the plan
can be accessed here
(https://www.pennon-group.co.uk/investor-information/price-review-pr24) .

A spotlight presentation on PR24 will be held for investors and analysts at
08:00am on Thursday 5(th) October, followed by a live Q&A at 08:45am.

PR24: Spotlight Presentation and Conference Call

Please register here: https://www.pennon-group.co.uk/investor-information
(https://www.pennon-group.co.uk/investor-information)

Conference call dial in details:

United Kingdom (Local):                      +44 20 4587
0498

United Kingdom (Toll-Free):                 +44 800 358 1035
Global Dial-In Numbers
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Access Code:
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 For further information, please contact:
 Pennon Group plc                                            +44 (0)1392 443 168

 Paul Boote                Group Chief Financial Officer
 Jennifer Cooke            Group Head of Investor Relations
 Media Enquiries                                             +44 (0)207 251 3801
 James Murgatroyd          FGS Global
 Harry Worthington

 

Cautionary statement in respect of forward-looking statements

Certain statements in this announcement are forward-looking statements
relating to the Group's operations, performance and financial position based
on current expectations of, and assumptions and forecasts made by, management.
They are subject to a number of risks, uncertainties and other factors that
could cause actual results, performance or achievements of the Group to differ
materially from any outcomes or results expressed or implied by such
forward-looking statements.

The Group's principal risks were described in the 2023 Pennon Group Annual
Report which can be viewed online at http://annualreport.pennon-group.co.uk
(http://annualreport.pennon-group.co.uk) . Such forward looking statements
should therefore be construed in light of such risks, uncertainties and other
factors and undue reliance should not be placed on them. They are made only as
of the date of this announcement 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.

No obligation is accepted to publicly revise or update 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. Nothing in this
Statement should be construed as a profit forecast.

 

 

 

 1  Real, 2022-23 prices, in comparison to anticipated capital investment of
£1.3bn over the current regulatory period, using the same price base.

 2  Including proposed c.£100m smoothed revenue adjustment into RCV.

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