REG - Pennon Group PLC - TRADING STATEMENT

PennonAnnouncement

30/09/2022 07:01

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220930:nRSd2542Ba&default-theme=true

RNS Number : 2542B  Pennon Group PLC  30 September 2022

PENNON GROUP

30 September 2022

TRADING STATEMENT

Pennon Group announces the following trading update for the period ended 30
September 2022.

Pennon's half year 2022/23 results will be announced on 30 November 2022.

Key Highlights

·    Trading in line with expectations given volatile macro-economic
environment

·    Resilient operational delivery through challenging conditions

·    Delivering our WaterFit plans, improving river and bathing water
quality outcomes

·    Strategically well positioned to maintain cumulative doubling of RORE
base returns

·    Supporting customers - sharing c.£20 million of outperformance via
WaterShare+

·    Investing in environmental enhancement and resilience - expected
c.30% increase in capital investment compared to the same period last year

·    Disciplined capital allocation - c.£160 million ringfenced for
investment in renewable energy generation.

Resilient operational delivery through challenging conditions

Operationally, we are maintaining our momentum of performance on outcome
delivery incentives (ODIs). South West Water delivered the second highest ODI
performance in the sector for 2021/22, and as a Group we are on track for a
net positive ODI outcome in 2022/23.

Our dedicated operational teams are delivering a resilient service to our
customers and communities through a period which has seen significant
population increases, with our highest ever demand recorded and the driest
weather in the South West of England for over 100 years.

·    Following our drought plan, which is focused on supporting customer
supplies and the environment through this period, we have implemented a range
of operational interventions including increasing connectivity in the region,
investments to bring additional resources into operation and increasing water
efficiency initiatives, including enhanced customer engagement campaigns to
use water wisely. In August we made the responsible decision to introduce a
temporary hosepipe ban for Cornwall and parts of North Devon to protect the
environment and customer supplies for parts of our region. Customers have also
had the opportunity to obtain free water efficiency devices including water
butts and find and fix leakage services.

·    Responding to the resilience challenge, we are repurposing a disused
quarry, Hawkstor, purchased in March 2022, alongside pursuing longer-term
investments including Cheddar 2 Reservoir in the Bristol region which will be
included in our forthcoming Water Resource Management Plan.

·    Given the focus on water efficiency, we continue to target year on
year leakage reductions in line with the delivery of our 15% business plan
commitment to 2025. South West Water and Bristol Water were the 3rd and 4th
best performing companies for leakage 1  (#_ftn1) in 2021/22, with South West
Water on track deliver a 9% reduction in leakage from 2020.

Having launched in April our WaterFit plans which are targeting coastal and
river water quality improvements, South West Water is on track to complete the
installation of monitors at 100% of our storm overflows during the year, ahead
of our 2023 target date. Releases from storm overflows have reduced by one
third year to date, when compared to the same period last year.

Our underlying performance across all Environmental Performance Assessment
(EPA) metrics is improving, including a continuation of the trend of overall
pollution reductions. With ratcheting targets, we do not anticipate a change
in the Environment Agency's EPA for 2022, despite improving underlying
metrics, but we are on a trajectory that would result in achieving our target
of 4* status for 2024.

Supporting our customers

We recognise the pressure that the current cost-of-living crisis places on
many of our customers. Our broad range of affordability measures ensures we
are able to support those in need, with over 100,000 customers across our
regions benefiting.

In April we also announced plans to accelerate sharing an additional c.£20
million of outperformance with households across South West Water, Bristol
Water and Bournemouth Water as part of our unique WaterShare+ scheme,
providing further financial support at a time when customers need it most.

Strategically well positioned to drive RORE

For 2022/23 we continue to anticipate a cumulative doubling of base returns 2 
(#_ftn2) on regulated equity (RORE), with the structure of our financing
portfolio driving significant financial outperformance, more than offsetting
the adverse impact of inflation on totex performance (noting cumulative totex
remains within our FD allowances).

As previously flagged, whilst the Group's revenues and RCV grow with
inflation, offsetting cost increases over the long-term, near-term earnings
are reduced through higher interest charges and operating costs such as power.

·    Our agile and efficient financing strategy positions us well in this
current high inflationary environment, and whilst our relatively low level of
index linked debt minimises the impact of inflation compared to the UK water
sector average, financing costs will be elevated for 2022/23. Of the Group's
c.£3.2 billion gross debt 3  (#_ftn3) , around 29% is index-linked, with the
vast majority of this being RPI linked. This broadly equates to an additional
£8 million in financing costs per 1% increase in inflation.

·    For 2022/23, >95% of the Group's energy usage is hedged and we
anticipate total power costs across the Group will now be around c.£50
million 4  (#_ftn4) higher than the 2021/22 total power cost of c.£56
million.

As a result of the Government's recently announced reversal on the planned
corporation tax increase from 19% to 25%, we are anticipating a deferred tax
credit of around c.£120 million which we expect to be recognised during the
second half of the financial year, subject to being substantially enacted into
Law.

Investing in environmental enhancement and resilience

Our c.£1.4 billion 5  (#_ftn5) environmental investment programme - our
largest for over 15 years - is now well underway, focused on delivering
benefits for customers, communities and the environment.

In the first half of the year we have invested significantly to support the
delivery of our suite of 2020-25 business plan environmental commitments,
including the development of our new water treatment works in the Bournemouth
region, alongside continued investments driving improvements in leakage and
wastewater pollutions performance. This investment is supplemented by
additional Green Recovery and WaterFit investment, embracing innovative and
nature-based solutions that will drive further environmental enhancements,
including coastal and river water quality projects, faster.

Investing in renewable energy generation

In order to significantly accelerate the Group's pathway to c.50%
self-generation by 2030, and our wider environmental Net Zero 2030 commitment,
we are now planning to invest the remaining c.£160 million, of the up to
c.£400 million originally set out for Pennon's share buy-back, in renewable
energy generation projects. These projects would supply power to our UK water
businesses, reducing our reliance on wholesale power markets.

By investing in self-generation and the supply of power to our water
businesses, this capital allocation aligns with the Board's highly disciplined
approach seeking out opportunities to drive growth in UK water. The Board is
confident that the investments being considered will deliver attractive
returns and sustainable results into the long-term, benefiting customers,
shareholders and the environment.

Bristol Water - delivering our proven integration blueprint

Following the CMA's clearance of the Bristol Water merger with South West
Water earlier this year, delivery of the Group's 24-month process integration
plan is now underway.

The process to merge Bristol Water's licence into South West Water's is in
progress and we are on track to launch the second issuance of our unique
WaterShare+ scheme to customers during 2022/23, which will also enable our
Bristol Water customers to share in the success of the Group.

Sustainable financing

Since March 2022 c.£250 million of new and renewed funding has been raised
through Pennon's Sustainable Financing Framework, and we continue to target
raising all new financing through the framework.

 

 For further information, please contact:

 Pennon Group plc                                      +44 (0)1392 443 168

 Paul Boote             Group Chief Financial Officer

 Jennifer Cooke         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 2022 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  (#_ftnref1) Per 10,000km of network.

 2  (#_ftnref2) Based on Ofwat's approach to RORE, including total tax impacts
and using actual average inflation for totex and financing.

 3  (#_ftnref3) Pennon Group position as at 31 March 2022. Water business net
debt at 31 March 2022 was £2.6 billion.

 4  (#_ftnref4) Assuming a benefit of c.£10 million from the application of
the Government's Energy Bill Relief Scheme for non-household customers.

 5  (#_ftnref5) Capital investment as per Final Determinations, using forecast
average inflation of 3.1% CPIH, and including Green Recovery and WaterFit
investments.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTFLFLAAFIAFIF