REG - Pennon Group PLC - Full Year Results 2024/25
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RNS Number : 1840L Pennon Group PLC 03 June 2025
3 June 2025
Pennon Group plc
Full Year Results 2024/25
Pennon Group plc ('Pennon' or the 'Group') today announces its results for the
full year ended 31 March 2025.
Susan Davy, Group Chief Executive Officer, commented:
"Pennon has delivered a resilient operational performance during a demanding
year, while building a robust platform for the future. We have reshaped and
reset the cost base, delivered record levels of capital investment and -
following a successful rights issue - maintained a strong balance sheet.
"We are listening to our customers, who are quite rightly demanding water
companies to do more for customers today and to step up investment for the
future. We are doing both. We have worked diligently to help customers use
less water and save more money with a range of campaigns and pilots. At the
same time, our record year for investment has improved services that matter
most to our customers. Whilst this has impacted profitability this year, it
has been the right thing to do.
As the only water company to have received an outstanding rating for our
business plan for the third consecutive time, we have a track record of
setting and delivering on stretching business plans. Consistently around 70%
of the stretching regulatory deliverables have been met which put us top
quartile compared to the sector. Of course there is more to do, not least on
those measures we didn't achieve, and our ambitious new plan includes a record
£3.2bn of investment due to be completed by 2030.
We know customers are worried about rising bills to fund this level of
investment. While we have made the tough decision to put bills up in 2025/26 -
for the first time in over a decade - two thirds of our investments are being
funded by our supportive investors and debt providers.
Ultimately everyone will benefit from the investments we are making - from
building reservoirs, to fixing storm overflows, powering our net zero
ambitions and helping to create economic growth. It's why we're able to make a
£200m support package available to those who need it most. It's also why - as
the dry weather persists - we're predicting that the South West won't need a
hosepipe ban this summer. We could not do this without the 4,000 brilliant
colleagues who walk in our customers shoes every single day, focusing on the
priorities that matter most for customers. "
FINANCIAL PERFORMANCE
2024/25 2023/24
Underlying revenue^ £1,047.8m £907.8m
Underlying EBITDA^ £335.6m £338.3m
Underlying (loss)/profit before tax^ (£35.1m) £16.8m
Non-underlying items before tax(1) (£37.6m) (£25.9m)
(Loss) before tax - statutory (£72.7m) (£9.1m)
(Loss) after tax - statutory (£56.8m) (£8.5m)
(Loss)/earnings per share
Adjusted EPS^ (10.3p) 5.1p
Basic EPS (16.1p) (2.9p)
Dividend per share(2) 31.57p 36.67p
Capital expenditure
Group (incl. SES) £652.5m £649.5m
South West Water £588.7m £582.9m
At 31 Mar 2025 At 31 Mar 2024
Water Group
RCV(3) £5,983.1m £5,536.0m
Gearing(4) 61.8% 64.4%
SWW
Cumulative RORE (real, notional)(5) 6.0% 7.6%
Cumulative RORE (nominal, notional(6)) 10.4% 12.3%
Financial highlights
· Results for 2024/25 in line with management expectations(7),
reflecting a full year of Sutton and East Surrey Group ('SES')
· Our successful water efficiency initiatives reducing customer demand
has driven lower revenues in South West Water ('SWW') with regulatory revenue
mechanisms in place to protect future recovery
· c.5% operational efficiencies have offset inflationary cost
pressures, we have also invested in new technology, including our new customer
platform and increased our front-line activities to drive improved outcomes
· Our continued capital investment programme at £652.5m this year has
increased finance costs, which have moved from £150.2m to £184.4m
· The resulting loss before tax on both an underlying and statutory
basis reflects a point of inflection into K8 with an expected return to
profitability in 2025/26 through increased revenue and a reset of our cost
base
· Profitable sector leading B2B retailers; Pennon Water Services
('PWS') and Water2Business - with plans to consolidate SES Business Water
· Statutory loss before tax reflects the cost of interventions to
return quality supplies following the Brixham water quality event (c.£21.0m)
and the costs of restructuring to reshape the Group's activities (c.£16.6m)
· Capital expenditure to drive our commitments and priorities as well
as accelerating delivery from K8 has continued at the levels seen last year
· Following the successful rights issue supporting £1.3bn of funding
raised in the year, the balance sheet for the Group is robust with total Water
Group RCV gearing of 61.8%, with Group gearing which includes other businesses
a few percentage points higher
· Strong investment grade credit rating with liquidity of c.£1bn in
place to support continued investment
· Return on regulated equity for SWW is relatively strong, equating to
10.4% on a nominal basis, and 6.0% on a real notional WaterShare basis (10.3%
and 5.9% including Bristol Water)
· Inflation linked dividend, growing from CPIH (3.4%) from the 2023/24
£129m rebased(9) on a dividend per share basis of 31.57p.
Operational highlights
· Sector leading internal sewer flooding with a reduction in 2024/25 of
14% (68% over K7) and 11% in external sewer flooding in the year (20% over K7)
· One of only 5 companies to reduce storm overflows, down c.4% in 2024
compared with 2023 despite the exceptionally high rainfall and groundwater
levels. Our focus on bathing waters has reduced spills by 20% over K7 (with
2024 and 2023 levels consistent)
· Investment in water resources, with Blackpool pit fully operational
in 2024/25 and the new water treatment works at Rialton supplementing water
available for use in Cornwall by c.34%, with the interventions already
delivered in the previous year in Devon by 30% compared to the levels during
the 2022 drought. As a result, despite the dry start to the year we are not
predicting any water restrictions this summer
· Water quality investments are on track and we have already begun our
planning and design for our K8 programme. Our quality first programme has
delivered water quality improvements this year
· Pennon Power solar investments on track with PV construction complete
at Fife and underway at Aberdeenshire and Cumbria. Cold commissioning at Fife
completed, with energisation in June
· At the end of K7 100% of our South West and Bristol customers now
find their bill affordable with c.£124m support benefiting over 150,000
customers over K7, including innovative tariffs driving water efficiency and
affordability.
Outlook
· We are well positioned for the future and stand ready to implement
government legislation
· As the only water company to have received an outstanding rating for
our business plans for the 3rd consecutive time, we have a track record of
setting and largely delivering on very stretching business plans.
· The foundations are in place and we are out of the blocks - already
working on over 1,000 deliverables, representing around 1/3 of our £3.2bn
investment.
· For 2025/26, we are anticipating a return to profitability, with
EBIDTA expected to increase by 2/3rds through increased revenue and a reset of
the cost base.
· Ultimately everyone will benefit from the investments we are making
with a 34% growth in RCV over K8, as we drive efficiency and innovation as we
build new reservoirs, fix storm overflows, power our net zero ambitions and
deliver improved services for customers.
· In targeting 7% RORE - we will be delivering for all - and sharing
that performance with customers through WaterShare.
Notes:
Results include the results of SES in the current period. SES was acquired on
10 January 2024 and therefore the prior year comparative year includes the
impact from acquisition to 31 March 2024.
(^) 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. 2024/25 dividend reflects 2023/24 base increased
by CPIH of 3.4% at 31 March 2025.
(3) Shadow RCV at 31 March 2025 based on PR24 pre-closing regulatory true-ups
including in the PR24 Final Determination, adjustments for the levels of
investment for Green Recovery, accelerated delivery, and transitional
investment, alongside inflationary impacts and changes post the K8 Final
Determination.
(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 March 2025
(8)The base dividend for the year ended 31 March 2024 was £129.3m adjusted
from the dividend paid in that year of £126.9m to remove the £2.4m one-off
deduction in respect of the fine from the Environment Agency paid by South
West Water
Results presentation
A presentation of these results hosted by Susan Davy, Group Chief Executive
Officer and Laura Flowerdew, Group Chief Financial Officer, will take place at
London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS at 9:00am
(BST), today, 3 June 2025. The presentation will be immediately followed by a
Q&A and will both be available to view on our website here:
https://www.pennon-group.co.uk/investor-information
(https://www.pennon-group.co.uk/investor-information)
For further information, please contact:
Institutional equity investors and analysts
Louise Rowe - Compliance, ESG and IR Director
01392 443 260
James Murgatroyd - FGS Global
020
7251 3801
Debt investors
Chris Tregenna - Group Treasurer
01392 443 260
Retail investors
Link Asset Services
0371 664 9234
GROUP CHIEF EXECUTIVE OFFICER'S REVIEW
Ending K7 resiliently, reshaped and reset in 2024/25, secured a strong
platform for the future
I'm pleased to share my Chief Executive's Review for 2024/25, highlighting key
aspects from the year, as we conclude the K7 (2020-2025) five-year delivery
period and make a strong start on our new K8 (2025-2030) delivery period.
As a group focused on UK water, with a growing geographical footprint, we are
rightly being challenged to do more for customers today and invest more for
the future.
We are doing both.
I want to start by saying the fundamentals for the business are robust, and
our performance for 2024/25 reflects the reset and reshaping we have done
ahead of K8, in what has been a challenging year.
We have successfully closed out the K7 regulatory period to 2025, having
delivered higher than allowed base regulatory returns and consistently been a
top quartile performer against stretching regulatory outcome performance
metrics. The solid operational performance, across all parts of the Group,
whether you are a South West Water (SWW), Bristol Water (BW) or Sutton and
East Surrey (SES) customer, was recognised in Ofwat's Water Company
Performance Report in 2024. Alongside this, our Business to Business
Retailers Pennon Water Services and W2B are consistently securing top ratings
from Trustpilot.
We have worked diligently this year to support the affordability of bills with
customers. Having held off increasing bills for over a decade, with
continuing record investment we have had to make a tough decision and put the
bills up for customers in the coming year in 2025/26, which is why we have
focused on metering, water efficiency and financial support for those who need
it most during 2024/25.
Of course, there are also areas where we need to improve our performance,
which is one of the reasons we have also reshaped the group with clear
business lines, aligned to our four strategic priorities, building water
resources and improving water quality, tackling storm overflows and
pollutions, driving environmental gains and supporting affordability and
delivering for customers. I now have in place Managing Directors leading key
delivery aspects for waste water, drinking water, retail services and
renewable energy. This new structure ensures there is a direct line of sight
into the business systems, processes and governance. Having considered the
ongoing sector wide and company specific investigations, the refreshed pillars
of governance are supporting rectifications we have identified through
delivery on action plans as we await any findings.
Through rightsizing, we are focused on having more of our colleagues on the
front line having increased these teams by c.35 %. This puts us in a good
position as we head into K8.
Having received outstanding / good assessments for our SWW and SES respective
business plans, we are well positioned to deliver on our plans for K8, with
another period of significant growth.
With our robust deployment of capital, our growing footprint gives us a strong
platform for delivery, and we were pleased to receive fast tracked clearance
from the CMA in June 2024 for our acquisition of SES. Having integrated
Bristol, we are well progressed with the SES integration, using our
well-established integration blueprint.
Our capital delivery supply chain partnership 'amplify' has already been stood
up delivering on over 1,000 schemes, representing one third of the £3.2
billion earmarked for investment to 2030. Expenditure for K8 was accelerated,
and by April 2025 we had invested c.£85m (c.£65m to March 2025), kick
starting our plans to reduce spills from storm overflows, investing in water
treatment enhancements and improving services to customers. Once again we have
had record investment in 2024/25 at £652m, aligned with the step change run
rate required for K8.
Of course, it's not what we do 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 resilience and our Science Based Target Initiative underpinning our
Net Zero ambitions.
Financially, we have good liquidity and a strong balance sheet having raised
£1.3bn in 2024/25 following the rights issue earlier this year, coupled with
debt capital market funding. We have encouraged customers to use less water,
and for 2024/25 that has impacted our revenues. Coupled with the financing
costs of accelerated capital investment, we have reported a loss this year.
This is a point of inflection into K8, where we will see a return to
profitability. We have driven cost base efficiencies to offset inflation
increases and rightsized and right shaped the business, with cumulative
efficiency benefits of c.£76m.
As part of our reshaping and reset, following the rights issue we have reset
the dividend policy for 2024/25, growing the dividend in line with inflation
from a rebased position.
Making progress on what matters most to customers, delivering on our four
priorities
We remain resolutely focused on our customer's key priorities, areas we know
they truly value. With record levels of investment in 2024/25, we are focused
on tackling the use of storm overflows at our beaches and reducing pollutions,
protecting water quality and enhancing resilience, driving environmental gains
and supporting our customers in making sure their bills are as affordable as
they can be, whilst delivering improved services.
Reducing pollutions and tackling the use of storm overflows
We rely upon the natural environment to deliver for customers and communities,
and our achievements this year have been delivered against a backdrop of some
challenging weather conditions; rainfall in 2024 was similar to last year,
itself 11% higher than average and a record wet year. These two years of
exceptional rainfall resulted in higher groundwater levels c.14% above normal
levels.
Despite the exceptionally wet weather, we have made progress on waste water
measures. Our approach has been two-fold - prioritising reducing pollutions to
homes, businesses and land, alongside tackling pollutions to watercourses -
given we look after a third of the nation's bathing waters. The number of
homes and businesses impacted by internal sewer floodings to homes and
businesses fell again this year by 14%, and over the five years since 2020
have reduced by 68%. External sewer floodings have also fallen by 11%, and 24%
since 2020 respectively, supported by a 30% reduction in sewer collapses (37%
in 2024/25) and reducing sewer blockages through our planned cleansing
programme. We are the best performing company at tackling flooding to homes
and businesses, and a top quartile performer for reducing pollutions to land.
For the impacts on water courses, having made sure all our storm overflow
monitors were installed at the end of 2022, we are equally focused on
delivering against our 15-year programme to 2040 to reduce the use of the
storm overflows. Despite the exceptional rainfall and groundwater levels, we
were one of only five companies to reduce spills in 2024 - and for bathing
waters, we have seen a reduction of 20% since 2020 consistent with last year.
Our K7 WaterFit interventions are delivering ongoing benefits preventing
c.15,000 spills and two thirds of our top spillers from last year have been
resolved.
With critical national infrastructure, and a network length that could wrap
around the circumference of the world, occasionally things go wrong, it is how
we respond and how we strive to eliminate those occurrences that matters.
Overall pollution incidents to water courses have marginally fallen year on
year, and whilst I am very disappointed that the level of incidents has not
reduced further, and the number of more serious incidents in 2024 has risen
from 2 to 4, there has been progress, with pollutions from our thousands of
kilometres of network reduced by 40% since 2020, having installed thousands of
network monitors that are allowing us to predict, avoid and alleviate
incidents.
As we close the period, we are anticipating the EA's Environmental Performance
Assessment, which measures 4% of all pollutions - and specifically those which
impact watercourses, to maintain a 2-star rating for South West Water. In
order for us to improve our rating, we must reduce the number of water course
pollutions, and our recently published pollution incident reduction plan sets
out how we will achieve this. We have a plan to get to EPA 4 star - we have
been enacting it - and our regulatory settlement for the outstanding plan
means we need to achieve this for the 2028 assessment.
Protecting water quality and enhancing water resilience
The top priority for our customers is safe clean drinking water, across
Bristol, Bournemouth, Devon, Cornwall, the Isles of Scilly, and now with the
recently acquired Sutton and East Surrey region.
We have been investing to enhance resilience and protect water quality.
This has been a monumental undertaking, with teams across South West Water and
our supply chain partners. Blackpool pit has been fully operational during
2024/25, coupled with construction completing at the new treatment works at
Rialton. That means for Cornwall we have supplemented resources available for
use cumulatively since 2022 by 34%, with 4% extra delivery this year, having
delivered the 30% uplift for Devon in 2023/24. Whilst there are rising
concerns nationally about water resources, after the driest start to spring
2025 in 69 years, we have already learnt more about managing through drought
than most given the 1 in 200 drought we experienced in the South West in 2022.
Simply put - we have invested and innovated to break the cycle of drought -
repurposing disused mines and quarries as mini reservoirs and building network
recharge schemes. As a result, with the scenarios we have modelled, we do not
anticipate restrictions to supply across our regions this summer.
There are always two sides to the coin. Reducing demand is also fundamental to
future resilience alongside tackling our own production losses and leakage
from our network. Across K7, we have reduced leakage by 13% in SWW, 1% in
Bristol and 19% in SES. Whilst we narrowly missed the stretching leakage
targets for 2024/25 for SWW and Bristol the in-year leakage results for
2024/25 were an 9%, 4% improvement respectively on the prior year. In SES
leakage reduced by 3% meeting our 2024/25 target.
Our sector leading demand reduction schemes have focused on supporting
customers to use less and save money. Leading with our 'Water is Precious'
water efficiency campaign we are targeting both residents and visitors. In
Cornwall residents were given £10 off their bills for delivering a 5%
reduction in use. We are also trialling several firsts for the region with
progressive tariff trials (seasonal and progressive) - early results are
showing demand reductions from between 2% and 9%.
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 last year in
Brixham, highlights just how important it is that customers can have
confidence in their water supply. For eight weeks in the summer, teams
worked tirelessly to return safe clean drinking water to the people and
businesses in and around Brixham in Devon. Over 800 brilliant colleagues and
supply chain partners supported customers during that period, flushing over
30km of network 27 times, and installing UV and filtration equipment to ensure
the supply could be restored as quickly and safely as possible. I would like
to thank customers for their incredible patience, and their kindness to
colleagues who were working on the ground at all hours. We continue to work
with the Drinking Water Inspectorate on the lessons learned from that
incident.
Our underlying water quality is improving. With SES the top performer in the
industry, and SWW the top performer for water and sewerage companies, we are
confident that we can do even more as we share best practice 9 (#_ftn1) . For
Bournemouth customers, we continue to make good progress, using state of the
art off site build techniques for our new water treatment works at Alderney
and Knapp Mill which will supply 85% of the Bournemouth population. In Devon
and Cornwall, we are on track to finalise improvements at Stithians, Saint
Cleer, Restormel and Littlehempston with tactical investments in Bristol
delivered in 2024/25 - ahead of significant investment in K8 - showing
improvements on last year's performance.
Driving environmental gains
1. We've improved river water quality at 37 sites 10 (#_ftn2) , with an
80% reduction in phosphorus, and improved the RNAGS over K7 from 19% to 12%.
Our award-winning catchment management programme, delivering 144,000 hectares
of improvements, 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. The activities range from building ponds,
improving farm tracks, slurry storage as well as planting trees and buffer
strips to catch and filter water.
With our commitment to Net Zero, our investment in Pennon Power has continued
with over half of our targeted capacity already under construction at three
sites across Fife, Aberdeenshire and Cumbria, with one further site where we
have appointed preferred partners. Returns for these assets, post energisation
on an unlevered basis are between 7-9% and on a levered basis between 11-15%.
With PV construction for Fife completed, energisation is expected in June
2025, having secured revised grid connection timings.
Supporting affordability, delivering for customers
In tackling affordability, it is about doing two things, keeping bills as low
as possible and supporting those who find themselves struggling with
affordability. By focusing on efficiency, we have kept bills as low as
possible over the last decade to 2025, with increases below headline inflation
over that period. We are supporting more customers than ever before with over
150,000 across the group benefitting from our support tariffs. By unlocking
over £124m of financial support we have increased affordability to 100% for
customers in South West and Bristol - having met our pledge of having zero
customers in water poverty by March 2025. Alongside supporting customers, we
have also supported 55 charities through our neighbourhood fund.
That said, with the significant investment we will be making, bills are rising
by on average c.28% in 2025/26 for SWW customers, with the average water and
sewerage bill now being c.£1.85 per day. Water bills for customers in Bristol
and SES are set to rise by 5% and 3% respectively. We know customers are
worried about the necessary bill increases to support investments. The
majority of the funding will come from shareholders and debt providers,
meaning that customers will pay around a third. At the same time, we will
support those who need it most with a £200m support package, building on our
100% affordable bill pledge. We have continued to support our vulnerable
customers through our priority services register to ensure they have our
support when they need it.
And given you can't choose your water provider; we believe you should have a
say which is why we plan to grow our unique water share plus scheme and will
extend this scheme to SES customers for the first time. Through WaterShare
plus, we are demonstrating how a socially responsible model can successfully
develop in a monopoly market. Listening to our customers, in 2020 we launched
our first WaterShare+ share issuance. Sharing financial outperformance arising
from delivery on our regulatory plans, we have offered money off bills or
share ownership. So far we have c.80,000 customers who have become
shareholders through the two issuances we have had. This equates to nearly
four times the number of institutional shareholders. Customers have all the
voting rights this affords, whether holding us to account at quarterly public
meetings, or attending the AGM, their voice is always the loudest. At the AGM
in July, we will be seeking authority to launch a third issuance, distributing
the funds set aside for this purpose following the rights issue earlier this
year, and in doing so inviting customers of SES to participate for the first
time.
One aspect I enjoy most about the scheme is the ability for me to meet so many
of my customers. I have met over 1,000 customers through our customer roadshow
campaign and the WaterShare meetings.
Key to building trust is reducing complaints and with Bristol recognised as a
top performer for complaints and customer service, we see opportunities for
improving across the Group - with South West reducing complaints by 7% last
year.
We continue to support customers to use less and save more with our
progressive charges' trials, underpinned by our smart metering programme.
Record investment and growth
Record investment in K7 - with £652m in 2024/25, at the run rate for K8.
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 have closed out the regulatory period. We have
accelerated K8 investment, which coupled with our strategy of consolidation in
the UK water sector, has resulted in RCV growth of 75% over K7.
Investment in Pennon Power of £41m reflects the construction at three sites
as the four site build programme accelerates.
Point of inflection for 2024/25
We have reset and reshaped ahead of K8.
Firstly, our successful water demand customer initiatives, helping customers
to use less and save more, has meant that on a like for like basis, across the
wholesale water businesses we have seen lower revenues, resulting in a loss
before tax on both an underlying and statutory basis. Regulatory revenue
mechanisms are in place to protect future recovery.
Secondly, having delivered c.£76m of cumulative annualised efficiency savings
in 2024/25 as we reshape the Group and integrate SES, towards our targeted
annualised savings of c.£86m in K8, this is an important base from which to
deliver the K8 business plans.
Thirdly - having ramped up capital expenditure during K7, we are delivering at
the required K8 run rate - with the supply chain alliance 'amplify' in place.
Our Return on Regulated Equity for SWW is relatively strong, at 10.4% on a
nominal basis, and 6.0% on a real notional WaterShare basis (10.3% and 5.9%
including Bristol). We are delivering for investors as well as customers -
with robust relative performance on common ODIs, with overall cumulative ODI
performance at c.70%. SES, with a reshaped balance sheet, will increase its
performance in K8.
And finally - we have retained and grown our profitable sector leading B2B
retailers PWS and Water2Business. They are both improving PBT against the
prior year, with c.15% market share, delivering excellent customer service in
England and Scotland, and with trust pilot scores that rival that of John
Lewis and Amazon.
Underpinning all our activities is a robust funding position, with total water
group RCV gearing of 61.8%. With a strong balance sheet and good liquidity, we
maintain the agility to deliver on our strategy in UK Water and are well
positioned for a sustainable future.
A sustainable future in the UK water sector
We share the Government's ambition for a step-change in environmental
performance, and to drive economic growth and our significant investment plans
for K8 will help us to achieve this.
Standing ready to implement new legislation, government review
This has also been a year in which many of the foundations, underpinning
effective regulation, have been under review, with a new Government, new
legislation and a renewed focus on the sector. The Water (Special Measures)
Act, passed in February, has been an important first step, strengthening the
power of water industry regulators, with Ofwat now consulting on the
supporting rules. We have responded and await the outcome. As a principle, we
always strive to ensure we maintain constructive working relationships with
government and our regulators. It is what the public expects from us. However,
to effectively regulate a transforming sector, we recognise that regulation
should also reset. As a sector providing critical national infrastructure, we
do believe we should be governed in the same way as other utilities, making a
strong case for a more investable, resilient and predictable sector, and in
unlocking long term capital at fair rates. We stand ready to implement what is
required and continue to contribute to the independent Water Commission's
review of water.
Our people
With a history and heritage built up over many years, we continue to learn,
innovate and grow. Everyone who works at Pennon is fiercely proud of our
heritage in the water sector, with generations of fathers, sons, mothers and
daughters, who have dedicated their lives to water, and I am extremely proud
of our brilliant teams.
Our c.4,000 talented colleagues don't just bring water to life every day; we
drive economic growth, and break down barriers to opportunity, supporting
livelihoods in the areas we serve. As one of the largest private employers in
the South West, and across the Group, leadership is all about making this a
great place to work, and a safe place to work. Our most recent employee
engagement scores were the highest we have ever had, and health and safety
engagement is consistently our best scoring area. Our health and safety track
record has improved for the past five years, as we focus on making sure
everyone who works for us and with us, goes home safe every single day,
through our Home Safe culture programme, and with our lowest ever LTIFR rate,
which has halved over the last 5 years.
Our partnerships with the wider supply chain and our 'amplify' alliance more
than doubles our workforce and plays a critical role in the regions too. As
a living wage employer, we continue to invest in skills and jobs, and the only
water company recognised by the Government as a top 100 apprenticeship
employer, with our earn and learn approach and as a member of the 5% club with
platinum status. With our 680 apprenticeship and graduate placements we are
well on with our own target of 1,000 by 2030. With organisations like the
Institute of Water, we are focused on making sure we have the talent and
trained colleagues we need across the sector for our record investment and
delivery.
I'd personally like to thank my brilliant colleagues who serve our communities
24/7 and are a credit to the business.
Strong platform for the future
The fundamentals for the business are robust for a sustainable future.
Our growing footprint puts us on a strong platform for delivery. We have good
liquidity, having delivered higher than base allowed regulatory returns and
consistently been a top quartile performer against our regulatory outcome
performance.
Following the successful oversubscribed rights issue earlier this year, we
have a strong balance sheet.
In summary, whilst there is always more to do, we have successfully closed out
this regulatory period to 2025.
As we look ahead, we are set to invest a record level of £3.2bn by 2030,
having achieved a sector leading plan in SWW for 3 consecutive price reviews.
With Managing Directors now in place for Water Services, Wastewater Services,
Pennon Power and Retail Services, we are reshaping the Group aligned to the
new model, with more resources and capabilities, on the front line, supported
by expert corporate functions, ensuring we are well positioned to deliver our
outstanding business plan for K8, and another period of significant growth.
Finally, it's not what we do but how we do it that matters, walking in the
shoes of our customers and the regions we serve, living our values, and as we
bring together customers and communities.
GROUP CHIEF FINANCIAL OFFICER'S REVIEW
Our 2024/25 financial results were in line with expectations, reflecting the
challenges seen across the UK water sector, as well as a relentless focus from
our teams to meet the commitments we have made to customers and stakeholders,
whilst investing in our assets to protect the environment and meet the
expectations of the public.
Our underlying loss before tax of £35.1 million for the year (2023/24:
underlying profit of £16.8 million), resulted from lower regulated revenue
impacted by lower customer demand in Devon and Cornwall, driven by customer
efficiency initiatives. Cost pressures have been seen as we strive to deliver
against our regulatory targets. SES Group was acquired in January 2024, and
this reflects the first full year in which SES has been incorporated into the
results of the Group.
Depreciation and interest have increased as a result of the increased capital
investment we have seen in the current and previous years. These investments
have been reconciled into RCV as the K7 period ends, with a step-up in revenue
associated with the allowed returns on such investments commencing from the
2025/26 financial year.
The Group's statutory loss before tax of £72.7 million for the year (2023/24:
£9.1 million loss) includes non-underlying items of £37.6 million (2023/24:
£25.9 million), the majority of which related to costs in relation to the
cryptosporidium water quality incident and costs in connection with
restructuring and reshaping actions. The statutory loss after tax of £56.8m
(2023/24: £8.5 million) incorporates the associated tax credit on these
results.
We were pleased to receive an 'outstanding' assessment for South West Water's
Business Plan. In their Final Determination received in December 2024, Ofwat
allowed 100% of the revenues requested in our Business Plan, and improved both
the cost of capital and risk mitigations through cost adjustment mechanisms,
compared with July's Draft Determination. We believe that the Final
Determination provides a strong base for the business to deliver against its
strategic priorities and confirmed we would accept that Determination in late
January.
It is critical that we deliver on our strategic priorities, but that we also
deliver the required outcomes and our capital programme as efficiently as
possible. As such, in this period of transition from K7 to K8, we have
continued to progress our efficiency programme, which targets annualised run
rate savings of £86 million. In the 2024/25 financial year, we have focused
on reshaping and realigning the business to ensure we are ready to deliver on
the strategic priorities we have set for the next regulatory period.
With this in mind, we have restructured the business around our four business
units, as well as continued with our programme of integration and
transformation to ensure effective, efficient delivery. We have also invested
in a number of measures to transform our underlying operational performance.
In addition to the restructure, we have continued to deliver our
transformation and integration programmes. Synergies delivered through our
acquisitions of Bristol Water and SES Water have delivered savings of c.£20
million and c.£9 million, respectively. Combined with base efficiency of
c.£47million we have delivered c.£76 million of the expected annualised
savings of c.£86 million for K8. These actions have resulted in
non-underlying costs of £15.8 million in the current year but will provide a
more effective and efficient delivery as we head into the next regulatory
period.
We have continued to invest record levels of capital to deliver enhancements
and benefits for the environment and our customers. Our group wide capital
investment 11 (#_ftn3) of £652.5 million reflects £610.2 million of
investment in our water businesses as we focus on delivering on our K7
commitments and transition to K8. Key investments, such as our new treatment
works at Alderney and Knapp Mill, have progressed at pace, whilst our
continued focus on the environment, through investment in our WaterFit and
storm overflow programmes, have also driven capital investment in the year.
Our programme to increase our water resources and strengthen our resilience to
drought has also continued, leading to a 34% increase in water resources in
Cornwall since the drought, as well as a 30% increase in Devon, positioning us
well as we experience an exceptionally dry spring period across the UK.
Our current rate of investment aligns with that required to deliver our K8
programme of £3.2 billion 12 (#_ftn4) and which will deliver 34% growth in
our regulatory asset base to 2030. To support this growth, ensuring a strong
and resilient balance sheet has been a key focus. The completion of the £490
million fully underwritten rights issue in February 2025 was core to this;
with over 93% of shareholders taking up their rights and the rump placing
being more than four times over-subscribed, we are grateful to all those
shareholders who supported the issuance. With the proceeds received, we close
the K7 period with a water group gearing of 61.8%, well within our renewed
gearing policy of 55-65% and within our anticipated range of 60-65% to 2030
for our Water Group. At 31 March 2025, SWW's net debt/forecast shadow RCV
gearing ratio was 62.0% (31 March 2024: 63.5%), reflecting the benefit of the
equity injection following the rights issue, notwithstanding continued record
levels of capital expenditure and reduced operating cash flows.
Debt funding is also fundamental to our growth; during the year we secured
strong investment grade credit ratings for South West Water Limited and
ratings were uplifted for SES Group as a result of recognition from the
ratings agency of the stronger balance sheet support provided by SES being
part of the Pennon Group. These credit ratings have allowed us to secure
funding through private placements, the public bond markets, lease financing
and wider bilateral lending. Overall, we have raised £1.3 billion in debt and
equity funding to the end of the year, as well as ensuring our EMTN programme,
launched in July 2024, provides an efficient and flexible way to fund our
ongoing funding and liquidity needs over the next five years.
We continue to outperform the regulatory cost of equity. Our RORE across the
K7 period reflects a 6% real return to shareholders, outperforming the equity
return allowed by Ofwat of 4.19% as a result of strong financing performance
across the five-year cycle, partially offset by increased investment, cost
pressures including higher power costs than allowed, and ODI performance.
Group performance - summary
Revenue Underlying EBITDA
2024/25 2023/24 2024/25 2023/24
SWW 737.7 729.8 308.6 332.5
SES Water 82.8 16.0 29.6 3.3
Total Water 820.5 745.8 338.2 335.8
Retail 320.3 253.5 7.5 7.7
Other 12.8 11.8 (10.1) (5.2)
Intra-group (105.8) (103.3) - -
Group 1,047.8 907.8 335.6 338.3
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. The
year to 31 March 2025 will be the first year where Pennon's results will
include a full year of SES results; the 2023/24 financial year incorporated
results from the date of acquisition only.
The Group's revenue for 2024/25 was £1,047.8 million (2023/24: £907.8
million). Water revenue increased by £74.7 million (10.0%), as a result of
the full year contribution from SES Water of £82.8 million (2023/24: three
months' contribution of £16.0 million). Revenue from South West Water
(including Bristol and Bournemouth) was broadly flat year-on-year, as tariff
increases were offset by lower customer demand in the first half of the year
from South West Water customers, in response to our water efficiency campaigns
and activities. Non-household retail revenue increased by £66.8 million to
£320.3 million, with new contracts outside South West Water's regions
contributing c.£14.9 million to this increase alongside the full year impact
of the SES BW acquisition. SES BW has contributed £67.9 million of revenue in
the year (2023/24: three months' contribution of £19.7 million).
Overall, the Group's underlying EBITDA has decreased 0.8% from £338.3 million
to £335.6 million, with full year contribution from SES of £26.9 million
(2023/24: three months' contribution of £3.6 million), leading to £23.3
million year-on-year benefit to underlying EBITDA, offset by a £23.9 million
reduction in underlying EBITDA from South West Water, given flat revenue and
increasing cost pressures.
Cash collections across the Group have remained robust during the financial
year. Expected credit loss charges for 2024/25 of £9.7 million for the Group
(0.9% of revenue) are in line with previous levels (2023/24: 0.8%).
The Group reported a statutory loss before tax of £72.7 million (2023/24:
loss of £9.1 million) after non-underlying costs of £37.6 million (2023/24:
£25.9 million). The Group recognised an underlying loss before tax of £35.1
million (2023/24: profit of £16.8 million), with SES Water and SES Business
Water contributing an underlying loss before tax of £8.0 million (2023/24:
£2.5 million). Group underlying loss before tax on a like-for-like basis
(excluding SES) was £27.1 million (2023/24: profit of £19.3 million).
Segmental performance - Water businesses
South West Water
South West Water's revenue for 2024/25 was £737.7 million (2023/24: £729.8
million). The revenue growth of £7.9 million has been explained previously.
Underlying operating costs of £429.1 million (2023/24: £397.3 million) have
increased year-on-year by £31.8 million. This reflects the impact of
inflationary pressures, the cost of implementing the new digital customer
services platform and a focus on delivering key finance commitments. These
were partially offset by lower wholesale commodity power costs and efficiency
savings.
South West Water's underlying EBITDA reduced by 7.2% to £308.6 million.
Underlying operating profit has decreased by 17.5% reflecting the weakened
EBITDA performance, and an increase in the depreciation charges of £5.9
million compared to last year, in line with our record, capital investment
programme.
Net finance costs of £170.6 million (2023/24: £155.5 million), reflect an
effective interest rate of 5.4% 13 (#_ftn5) (2023/24: 5.6%) The year-on-year
increase of £15.1 million was as a result of higher debt, funding the capital
programme.
South West Water's statutory loss before tax was £62.7 million (2023/24: loss
of £1.0 million) after non-underlying costs of £32.4 million (2023/24:
£15.6 million).
South West Water's capital expenditure was £588.7 million (2023/24: £582.9
million), a continuation of the increase in investment level from 2023/24. We
have invested c.£2 billion over the K7 period, both in the underlying PR19
programme, but also in additional programmes, including WaterFit and storm
overflow reductions, investing more in our wastewater infrastructure; Green
recovery, delivering smarter, healthier homes in our regions; and water
resources, increasing our resilience to climate change and drought. Further
investment during a year of high rain fall has enabled a reduction in
pollutions and spillages despite being the wettest hydrological year on
record, as we drive operational improvements in support of our focus on
protecting the natural environment, on which we rely.
SES Water
SES Water's revenue for 2024/25 was £82.8 million of revenue in the year
(2023/24: £16.0 million from date of acquisition), and reducing costs on an
annualised basis, leading to an improved EBITDA margin for the 2024/25 year.
SES Water capital investment of £21.5 million has focused on network
resilience and metering, continuing its focus on smart networks and ensuring
resilient supply of drinking water.
Following the Rights Issue in February 2025, £330.0 million of equity was
passed down to South West Water and £50.0 million of equity was injected into
SES Water to ensure appropriate gearing in each water business.
Segmental performance - non-household retail
Pennon Water Services 14 (#_ftn6)
Pennon Water Services has delivered a strong financial performance for the
year through its continued focus on key strategic initiatives: 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 fallen within our underlying water region; however,
year-on-year revenue, EBITDA and profit before tax have continued to grow
throughout 2024/25 aided by winning new contracts on a national basis.
The overall impact on revenues for Pennon Water Services, including the impact
of new contract wins and tariff increases across the UK water market, is an
increase of c.8% compared to the prior year. The business continued 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. New business wins contributed £13.9 million of
additional revenue compared to the prior year, with inflation (net of customer
attrition) contributing further to the increase.
The non-household market continues to be very competitive with low margins. As
a result, a clear focus on cost control and efficiencies is critical to the
success of the business. The business has improved its performance
year-on-year, with underlying operating costs growing marginally and at a rate
below the increase in revenues. As a result, the business has increased its
underlying EBITDA by c.2.7% to £7.6 million (2023/24: £7.4 million). This
strong performance has resulted in the business reporting a profit before tax
of £5.4 million (2023/24: £4.7 million), an increase of 14.9%.
SES Business Water
SES Business Water's revenue for 2024/25 was £67.9 million during the year
with underlying EBITDA at £(0.1) million.
Segmental performance - 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 £3.3 million
in the year (2023/24: profit before tax of £0.1 million) with non-underlying
costs of £1.5 million (2023/24: £0.7 million) associated with the closure of
SES Home Services, a business providing plumbing services on a retail and
business to business basis. This business was loss making and on 31 March
2025, it was announced that the business would be closed.
Group finance costs (net)
The increase of £34.2 million resulted from; £47.3 million from new and
renewed debt facilities, the full year impact of financing SES Group (£16.1
million), offset by lower inflation and interest rates (£21.3 million),
increased interest receivable as a result of the Rights Issue (£3.4 million)
and higher levels of capitalised interest as we continue to invest record
levels of capital in our water businesses (£9 million).
The Group continues to efficiently secure funding through its Sustainable
Financing Framework and to ensure c.60% of its interest rate risk is mitigated
in line with the Group Treasury Policy, which is achieved both through issuing
fixed rate debt and effective interest rate hedging, with a further element
being index-linked.
Share of post-tax profit from associated companies
The Group has a 30% interest in Water2Business Limited (W2B), a water retailer
joint venture with Wessex Water. This investment is accounted for under the
equity method and as the financial performance improves as it has gained
scale, we have recognised £0.8 million of profit after tax in our 2024/25
results (2023/24: £0.7 million), an increase of 14%.
Acquisition accounting
As part of the requirements of acquisition accounting, we have finalised the
fair values of the acquired balance sheet of SES Water. The provisional values
reported in the Group's results to 31 March 2024 have been revised to reflect
a £0.4 million decrease in the fair value of the acquired property, plant and
equipment, including the network infrastructure, the fair value of SES Water's
debt portfolio, and the deferred tax liabilities with a corresponding increase
in Goodwill. The majority of the value is attributed to the SES Water
business, recognising the strategic alignment of our acquisition with our
other water companies.
Goodwill arising from the acquisition of £16.0 million, based on these fair
values, has been recorded in the Group consolidated balance sheet and is
attributable to the recognition of deferred tax liabilities on fair value
gains recognised as part of the acquisition.
Non-underlying items
Non-underlying items for 2024/25 were a net charge before tax of £37.6
million (2023/24: net charge of £25.9 million). Non-underlying items are
those that in the Directors' view should be separately identified by virtue of
their size, nature or incidence and where they believe excluding
non-underlying items provides a more useful comparison of business trends and
performance.
The non-underlying charge includes:
· £21.0 million of costs in relation 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
· £15.8 million of costs in connection with restructuring and
reshaping actions
· £0.8 million of acquisition-related costs in relation to Pennon
Power and SES.
The non-underlying charges in the year give rise to a net tax credit of £8.9
million in relation to the above items.
Responsible approach to tax
We are proud of our responsible approach to tax. The Group has maintained the
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 2024/25 tax credit for the Group was £15.9 million (2023/24:
credit of £0.6 million). On an underlying basis, the net tax credit for
2024/25 for the Group of £7.0 million (2023/24: charge of £4.3 million)
consisted of:
· Current tax charge of £0.8 million, reflecting an effective tax
charge rate of 2.3% (2023/24: credit of £0.6 million, 3.6%). The reduction in
rate is due to the Group generating tax losses, all of which are carried
forward for future relief. These tax losses reflect the enhanced capital
allowances available because of full expensing and first year allowances,
pension payments made during recent years where tax relief is now due, and
capitalised interest, which for tax purposes is deductible in the year
incurred.
· Deferred tax credit of £7.8 million (2023/24: charge of £4.9
million). This primarily reflects a current year deferred tax credit in
relation to tax losses carried forward for utilisation in later periods,
partially offset by a charge in relation to capital allowances in excess of
depreciation charged across the Group, largely due to full expensing, and a
charge in respect of pension payments paid in previous years and where tax
relief is now due.
There was also a non-underlying current tax credit in the year of £0.5
million (2023/24: £nil) and a deferred tax credit in the year of £8.4
million (2023/24: £4.9 million) relating to the non-underlying items. This
related to losses carried forward for utilisation in later years.
Given the Group's continued capital investment programme and full expensing
deductions together with 50% first year allowances on long life assets and
integral features, the Group does not expect to generate taxable profits for
the foreseeable future, and therefore does not expect to make any corporation
tax payments in the immediate future.
Earnings per share (basic and diluted)
The earnings per share calculations reflect an increase in weighted average
shares due to the rights issue in February 2025. The Group has recorded a
statutory loss per share of 16.1 pence per share for the year ended 31 March
2025 (2023/24: loss of 2.9 pence per share). This includes a net
non-underlying charge before tax of £37.6 million (2023/24: £25.9 million)
and a net non-underlying tax credit of £8.9 million (2023/24: charge of £4.9
million).
Our adjusted earnings per share excludes the impact of deferred tax charges
and non-underlying items. For the Group, we have generated adjusted earnings
per share for 2024/25 of (10.3) pence (2023/24: 5.1 pence).
Basic and diluted earnings per share figures and the weighted average number
of shares for the comparative period have been restated and adjusted for the
bonus factor of 1.21 to reflect the bonus element of the February 2025 rights
issue, in accordance with IAS 33 Earnings per Share. Amounts as originally
stated at 31 March 2024 were (3.6)p basic and diluted earnings per share, 6.2p
basic and diluted adjusted earnings per share.
Movement in Net debt
Pennon Group - summarised net debt flow 2024/25 flows
(£m)
Net debt excluding other non-cash indebtedness 1 April (3,684.8)
Opening balance 1 April (restated) (3,844.8)
Cash generated from operations 233.6
Corporation tax received 3.0
Net interest paid (132.0)
Capital investment (666.7)
Proceeds from Rights Issue 491.0
Share Issue transaction costs (15.4)
Ordinary dividends paid (126.9)
Non-cash index-linked accretion (33.4)
Other movements 15 (#_ftn7) 13.4
Closing balance 31 March excluding other non-cash indebtedness (4,078.2)
Net debt excluding fair value uplifts 31 March (3,936.2) 16 (#_ftn8)
The Group's cash flow from operating activities for 2024/25 was £233.6
million (2023/24: £261.7 million). This recognises robust cash collection in
the period, whilst we remain focused on supporting customers through a range
of affordability measures where they may financially vulnerable. Operating
cash flows continue to reflect the lower levels of underlying profitability,
impacted by lower customer demand and cost pressures from inflation and
delivering on our operational performance commitments.
Net interest payments were £132.0 million (2023/24: £109.1 million) with the
higher payment in 2024/25 driven by increased debt consequent on our ongoing
record levels of capital investment, partially offset by lower inflation and
interest rates.
Capital investment has resulted in an increase in capital expenditure cash
outflows of £68.6 million to £666.7 million (2023/24: £598.1 million). This
includes c.£32.2 million (2023/24: £49.0 million) of cash outlay for the
investment in Pennon Power.
Sustainable net debt
We completed an equity rights issue in order to ensure we maintain financial
discipline with the leverage and capital structure for the Group. Proceeds
from the rights issue, net of associated expenses, were £475.6 million.
Other significant movements in net debt in 2024/25 include payment of our
interim and final dividends for 2023/24 totalling £126.9 million (interim and
final dividends for 2022/23: £111.7 million) and £33.4 million (2023/24:
£46.8 million) of non-cash indexation on our loan instruments.
The Group's net debt at 31 March 2025 was £4,078.2 million (31 March 2024
(restated): £3,810.5 million). This includes acquisition-related fair value
adjustments of £109.8 million (31 March 2024: £125.7 million) which are
released over the life of the related debt instruments and other non-cash
accounting adjustments of £32.2million (31 March 2024: £35.2million). The
Group's net debt position excluding these adjustments is £3,936.2 million (31
March 2024 (restated): £3,684.8 million).
Robust liquidity and flexible funding strategy
Group debt at 31 March 2025 (£m) Gross debt Net debt
Pennon Group Plc 247.2 202.2
Water Group 4,107.1 3,698.3
SWW 3,815.9 3,481.7
SES Water 291.2 216.6
Other Group companies 155.9 133.6
Intercompany borrowing eliminations (97.9) (97.9)
Total adjusted group (excluding FV and hedging) 4,412.3 3,936.2
Non-cash indebtedness 17 (#_ftn9) 142.0 142.0
Total Group 4,554.3 4,078.2
As at 31 March 2025, the Group had £1,036.1 million of cash and committed
facilities (31 March 2024: £601.4 million). This consists of cash and cash
deposits of £476.1 million (31 March 2024: £171.4 million), including £58.2
million (31 March 2024: £37.4 million) of restricted funds representing
deposits with lessors against future lease obligations, and £560.0 million
(31 March 2024: £430.0 million) of undrawn committed facilities.
Since 31 March 2024, the Group has secured c.£1,140 million of new debt,
through its diverse portfolio of debt, consisting of:
· £300 million in US private placements with an average maturity of 15
years
· £650 million through our inaugural public bond issuances under our
EMTN 18 (#_ftn10) programme
· £65 million of new term loans and leasing with an average maturity
of 6 years
· £125 million of new and renewed revolving credit facilities.
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
£2.5 billion 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.
Resulting from the changes above and drawing of new debt during the year,
South West Water gross debt at 31 March 2025 was £3,815.9 million (31 March
2024: £3,287.8 million). The debt has a maturity of up to 32 years with a
weighted average maturity of 14 years.
South West Water 19 (#_ftn11) net debt at 31 March 2025 is a mix of
fixed/swapped (£2,460.7 million, 71%), floating (£243.7 million, 7%) and
index-linked borrowings (£777.3 million, 22%), which reflects our diverse
debt portfolio and compares to a 2024 industry average 20 (#_ftn12) of
fixed/swapped 32%, floating 12% and index-linked 56%. Where appropriate,
derivatives are used to fix the rate on floating rate debt.
At 31 March 2025, South West Water's net debt to RCV ratio 21 (#_ftn13) stood
at 62.0% (31 March 2024: 63.5%). This is due to increased capital investment
and reduced in period operating cash flows.
South West Water's cost of finance, with an effective interest rate in 2024/25
of 5.4%(16) (2023/24: 5.6%), continues to benefit from the diverse portfolio
of debt.
SES Water's net debt portfolio predominantly reflects index linked and fixed
rate debt, based on the legacy portfolio acquired at the date of acquisition.
Subsequent to the equity injections in 2024/25, SES Water's gearing levels
relative to RCV have reduced to 59.3%, with recognition from Ofwat of their
improving financial resilience as a result of Pennon's ownership.
The effective interest rate on the SES debt book is 7.2% (adjusted for the
March injection of equity). As a material component of this debt book is index
linked, it is anticipated this rate will decrease as UK inflation rates
reduce. In addition, over time, as the legacy debt matures, we anticipate it
will also benefit from being part of the diverse debt portfolio and hedging
strategy employed by the wider Group.
Strong investment grade ratings
During the first half of the year the Group, through South West Water, has
achieved two strong credit ratings with Moody's and Fitch. We were pleased
that despite the sector wide downgrade by Moody's due to ongoing regulatory
risk, and the impact of the Determinations on the wider sector, our credit
rating remained unchanged subsequent to the Final Determination. We were also
pleased that SES Water's credit rating was upgraded by Moody's in November, in
recognition of the benefit gained from being part of the wider Pennon Group
and its resilient balance sheet.
South West Water launched its EMTN programme in July 2024, establishing a
programme for access to the debt capital markets. This included the first
public ratings for South West Water ahead of the appointee licence requirement
for two ratings by April 2025. Following the Final determination outcome, both
rating agencies have reaffirmed the rating, maintaining the Baa1 (negative)
and BBB+ (Stable) ratings.
The Group maintains its commitment to maintaining strong investment grade
ratings across the water businesses and has showed significant commitment
through the January 2025 equity raise to support this.
Creating economic value in the regulated business
Regulatory Capital Value (RCV)
31 March 2025
SWW 4,900.1
BRL 717.7
SWB 5,617.8
SES 365.3
Water Group 5,983.1
Total Water Business RCV of £5,983.1 million includes the benefit of
regulatory reconciliation items in the PR24 Final Determination, inflation of
3.4% at March 2025, as well as additional accelerated investment and
expenditure to drive outcomes in 2024/25.
Return on Regulated Equity
During K7 we continued to deliver South West Water RORE performance of 6.0%
cumulatively, with Bristol achieving 5.1% cumulatively, equating to c.£146.0
million of outperformance. This consists of c.£344.0 million financing
outperformance (inclusive of the benefit from tax allowances), net of
c.£140.0 million totex overspend, and c.£58.0 million ODI net penalty
impact. This has enabled the funding of additional capital investment
initiatives as noted above.
WaterShare RORE South West Water Bristol Water SES Water
Base return 4.0% 4.5% 4.1%
Financing 4.2% 1.2% (1.9%)
Totex (1.6%) 0.6% 4.5%
ODI (0.6%) (1.2%) (2.5%)
Cumulative RORE 6.0% 5.1% 4.2%
The cumulative benefits from the structure of our debt book on financing costs
persist, but have reduced due to the impact of falling inflation. Totex
performance has been impacted in year due to peak levels of capital
expenditure following past outperformance.
ODI performance across the South West Water group in 2024/25 has continued to
be dominated by pollutions underperformance, partly mitigated by areas of
outperformance such as internal sewer flooding, catchment management and
bathing waters. As a consequence, South West Water has incurred a penalty of
c.£19 million (2023/24: penalty c.£12.1 million). South West Water continues
to build on its ODI performance with c.70% either on track or ahead of target
across a broad range of challenging bespoke, common, and comparative measures.
ODI performance for Bristol Water is on track to achieve c.70% of its ODIs and
has resulted in a net financial penalty of c.£4 million (2023/24: penalty of
c.£1.7 million). ODI performance for SES is on track to achieve c.52% of its
ODIs and has resulted in a net financial penalty of c.£2 million.
Across K7, South West Water has created c.£910 million of value for the Group
from base returns, RORE outperformance and the growth in RCV over the five
year period. The South West Water Board has taken a prudent approach to its
dividend payments in making distributions to Pennon Group and as result
c.£200 million has been distributed in K7 to date. This results in over
c.£710 million of retained value (including dividends declared but not yet
paid of £45 million) in South West Water, which the South West Water Board
will consider as K7 closes.
Dividends
The Group continues to strive to deliver on its commitments to customers,
shareholders and stakeholders as our investments drive strong and sustainable
results. Around 50% of Pennon's shareholders are UK-based investors including
individuals, pension funds, and charities. Over a third of the Group's c.3,500
employees (excluding SES Water) are shareholders and following the second
issuance of our unique WaterShare+ initiative, around 80,000 customers are now
also shareholders.
In January 2025 the Board announced our dividend policy to 2030 of growing the
base dividend in line with CPIH. As a result, they have recommended a final
dividend of 19.43 pence per share for the year ended 31 March 2025. Together
with the interim dividend of 12.14 pence per share paid on 4 April 2025 this
gives a total dividend per share for the year of 31.57 pence. Proposed
dividends per share for the 2024 comparative period have been restated and
adjusted for the bonus factor of 1.21 to reflect the bonus element of the
February 2025 rights issue, in accordance with IAS 33 Earnings per Share.
Pennon offers shareholders the opportunity to invest their dividend in a
Dividend Reinvestment Plan (DRIP).
The proposed total dividend for 2024/25 is increased by 5.4% year on year to
£133.7 million (2023/24: £126.9 million adjusted for £2.4 million fines).
This reflects an increase in line with CPIH on the 2023/24 dividend adjusted
to remove the £2.4 million one off deduction in respect of the fine from the
Environmental Agency paid by SWW. Current year dividends are covered 2.5 times
by underlying EBITDA (2023/24: 2.7 times). Pennon Group plc has substantial
retained earnings and a sustainable balance sheet to support its stated
dividend policy. The strong fundamentals of its principal operating
subsidiary, South West Water Limited, underpin this policy with its strong
RORE and growing RCV. Dividends are charged against retained earnings in the
year in which they are paid.
Investing for sustainable growth - renewable energy generation
Investment in renewable energy generation is an important part of achieving
our Net Zero strategy and is aligned with our long term sustainable growth
strategy with respect to the UK environmental infrastructure.
Pennon Power was established to support delivery of the Group's Net Zero
commitments and to provide financial protection from energy price volatility
whilst providing sustainability financial returns and contributing towards
Group profitability.
To date c.£145 million has been committed to build four assets, and once all
four sites are operational, Pennon Power will generate enough electricity each
year to power c.50,000 homes.
Of this overall commitment, we have incurred total costs of c.£100 million to
date, relating to project acquisition and construction costs incurred to date.
Our first project at Fife is expected to commence energy generation in June
2026, with Aberdeenshire and Cumbria sites energising in the second half of
the financial year 2025/26. Buckinghamshire will commence construction in
2025/26 and is expected to energise in 2026/27.
Financial outlook 22 (#_ftn14)
Looking to 2025/26 we expect revenue to increase with regulated revenues for
the Water Group reset to align with the impact of both the Final Determination
and inflation. This leads to an expected increase in Water Group revenues by
£180-£240 million. Non-household retail revenues will also increase by
c.20-25%, in line with sector wide tariff increases. Following energisation,
we anticipate receiving first revenues from Pennon Power on the Fife project
in Q2 2025/26.
We expect total operating costs across the regulated Water Group to be broadly
stable, as upward cost pressures from inflation and operational delivery will
be offset by anticipated benefits from our ongoing operational efficiency and
transformation programme. Total Group operating costs are expected to increase
as a result of wholesale costs relating to the non-household retail business
outside our region increasing aligned with wider water tariff increases.
The step change in revenue, aligned with the cost movements set out, are
expected to result in underlying EBITDA increasing in 2025/26 by around two
thirds compared with 2024/25.
Depreciation and amortisation charges are expected to increase by c.5-10% as a
result of our continued K8 Water Group capital investment programme, and from
projects for Pennon Power once commissioned.
Similarly, expected debt requirements to support our record levels of capital
investment, both from the full year effect of current year financing and into
2025/26, are expected to increase net finance costs at a Water Group and
therefore Group level leading to an increase in net financing costs for the
Group of £25-35million.
Overall capital expenditure is expected to increase in 2025/26, as required
under our capital programme for K8 delivery, and the associated front-loaded
profile to ensure early benefits delivered to customers and communities across
our regions. The build-out of our Pennon Power renewable energy sites will
continue across the year. This is expected to lead to Group capital
expenditure in the range of £710 million to £740 million.
We remain in a strong position from a liquidity perspective with additional
facilities already raised during the year, the successful Rights Issue in
2025/26, and with further programmes planned, supported by our strong
investment grade credit ratings.
The Group's RCV is expected to increase in line with K8 business plan levels
of investment. We target a RORE over K8 of 7% delivered through totex and
financing efficiencies, coupled with strong operational performance. In
2025/26 we expect outperformance to be focused on financing and cost
efficiencies, with a target to achieve a neutral ODI position in terms of
financial reward or penalty.
TECHNICAL GUIDANCE FOR FY 2025/26
FY 2024/25 Change
Revenue* • Regulated Water Group revenue increasing by £180-£240m aligned £1,047.8 ▲
with Final Determination allowed revenues
• Non-household retailers increase revenue in line with sector wide
tariff increases
• Pennon Power first revenues from Q2, following energisation
Operating costs* • Stable water operating costs with upward cost pressures offset by (£712.2m) ▲
operational efficiency programmes.
• Non-household retailer costs increased as sector wide wholesale
charge increases take off
EBITDA • EBITDA increasing by two-thirds year on year £335.6m ▲
Depreciation* • Increase by c.5-10% as a result of ongoing investment programme and (£187.1m) ▲
as Pennon Power projects are commissioned
Net interest • Record capital investment programme and full year impact of 2024/25 (£184.4m) ▲
debt issuances, increasing by £25-35m reflecting continued record investment
Capital expenditure • £710-740m Group wide capital investment £652.5m ▲
• Front loaded Water Group investment over K8 to deliver early
benefits
• Ongoing construction for Pennon Power projects, with Fife
energisation
RORE • 7% target over K8 6.0% ▲
• Driving financing efficiency - effective interest rate below Ofwat
allowances 23 (#_ftn15)
• Driving totex efficiency
• Neutral ODIs over 2025/26 24 (#_ftn16)
*Underlying basis
PRINCIPAL RISKS AND UNCERTAINTIES
Principal Risks
During the year there have been continued sector specific and broader
geopolitical developments that have created an environment of continued
heightened risk and uncertainty. Notwithstanding that from a regulatory
perspective there is certainty as a result of the PR24 Final Determination,
there remains continued focus on the financeability of the broader sector as
well as ongoing government-commissioned reviews of the sector, the impact of
global trade wars and of the continued war in Ukraine impacting operational
costs and energy prices.
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:
· Confirming that the Group's risk appetite statements remain
appropriate.
· Receiving and reviewing updates on the Group's principal risks,
including movements in the risk exposure.
· Undertaking horizon scanning of emerging risks and trends.
· Performing deep dive reviews into key risk areas.
· Through the Audit Committee, confirming the effectiveness of the risk
management and internal control framework.
This has resulted in the following material changes to the Group's principal
risks compared with those previously reported:
· 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
8. Failure to improve wastewater performance resulting in
environmental commitments not being delivered
9. Failure to provide excellent service or meet the needs and
expectations of our customers and communities
9. Inability to attract and retain staff with the skills to
deliver the Group's strategy
Business Systems and Capital Investment
10. Insufficient capacity and resilience of the supply chain to
support the delivery of the Group's operational and capital programmes in K8
11. Inadequate technological control or cyber-attack results in a
breach of the Group's assets, systems and data
Financial Timetable
3 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 2025. Such forward looking statements should
therefore be construed in light of all risks, uncertainties, and other
factors, including without limitation those identified above, and undue
reliance should not be placed on them. Nothing in this report should be
construed as a profit forecast.
Any forward-looking statements are made only as of the date of this document
and no representation, assurance, guarantee or warranty is given in relation
to them including as to their accuracy, completeness, or the basis on which
they are made. The Group accepts no obligation to revise or update publicly
these forward-looking statements or adjust them as a result of new information
or for future events or developments, except to the extent legally required.
UNSOLICITED COMMUNICATIONS WITH SHAREHOLDERS
A number of companies, including Pennon Group plc, continue to be aware that
their shareholders have received unsolicited telephone calls or correspondence
concerning investment matters which imply a connection to the company
concerned. If shareholders have any concerns about any contact they have
received, then please refer to the Financial Conduct Authority's website
www.fca.org.uk/scamsmart. Details of any share dealing facilities that the
Company endorses will be included in Company mailings.
PENNON GROUP PLC
Consolidated income statement for the year ended 31 March 2025
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
2025
(note 4)
2025
2024
(note 4)
2024
2025
2024
Notes £m £m £m £m £m £m
Revenue 3 1,047.8 - 1,047.8 907.8 - 907.8
Operating costs
Employment costs (151.1) (11.7) (162.8) (114.8) (0.7) (115.5)
Raw materials and consumables used** (51.7) (0.2) (51.9) (37.4) - (37.4)
Other operating expenses** (499.7) (25.7) (525.4) (410.2) (25.2) (435.4)
Financial assets impairment (9.7) - (9.7) (7.1) - (7.1)
Earnings before interest, tax, 3 335.6 (37.6) 298.0 338.3 (25.9) 312.4
depreciation and amortisation
Depreciation and amortisation (187.1) - (187.1) (172.0) - (172.0)
Operating profit/(loss) 3 148.5 (37.6) 110.9 166.3 (25.9) 140.4
Finance income 5 15.0 - 15.0 12.6 - 12.6
Finance costs 5 (199.4) - (199.4) (162.8) -. (162.8)
Net finance costs 5 (184.4) - (184.4) (150.2) - (150.2)
Share of post-tax profit from associated companies 0.8 - 0.8 0.7 - 0.7
(Loss)/profit before tax 3 (35.1) (37.6) (72.7) 16.8 (25.9) (9.1)
Taxation credit/(charge) 6 7.0 8.9 15.9 (4.3) 4.9 0.6
Profit/(loss) for the year (28.1) (28.7) (56.8) 12.5 (21.0) (8.5)
Attributable to:
Ordinary shareholders of the parent (57.9) (9.5)
Non-controlling interests 1.1 1.0
Earnings per ordinary share* 7
(pence per share)
- Basic (16.1) (2.9)
- Diluted (16.1) (2.9)
*Earnings per ordinary share restated for 2024, see note 7.
**Raw materials and consumables used and other operating expenses have been
restated, see note 2.
The above results were derived from continuing operations.
PENNON GROUP PLC
Consolidated statement of comprehensive income for the year ended 31 March
2025
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
2025
(note 4)
2025
2024
(note 4)
2024
2025
2024
£m £m £m £m £m £m
(Loss)/profit for the year (28.1) (28.7) (56.8) 12.5 (21.0) (8.5)
Other comprehensive income / (loss)
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit obligations 3.5 - 3.5 (7.7) - (7.7)
Income tax on items that will not be reclassified (0.9) - (0.9) 2.2 - 2.2
Total items that will not be reclassified to profit or loss 2.6 - 2.6 (5.5) - (5.5)
Items that may be reclassified
subsequently to profit or loss
Loss on cash flow hedging* (19.7) - (19.7) (34.7) - (34.7)
Hedging losses recycled to profit or loss* 15.4 - 15.4 18.3 - 18.3
Income tax on items that may be reclassified 2.4 - 2.4 4.1 - 4.1
Total items that may be reclassified (1.9) - (1.9) (12.3) - (12.3)
subsequently to profit or loss
Other comprehensive income/(loss) for the 0.7 - 0.7 (17.8) - (17.8)
year net of tax
Total comprehensive (loss)/income for the year (27.4) (28.7) (56.1) (5.3) (21.0) (26.3)
Total comprehensive (loss)/income attributable to:
Ordinary shareholders of the parent (57.2) (27.3)
Non-controlling interests 1.1 1.0
*Movements on cash flow hedges were presented net in 2024, the presentation
has been restated to present as gross, see note 2 for further detail.
PENNON GROUP PLC
Consolidated balance sheet at 31 March 2025
2025 (restated, note 13)
2024
Notes £m £m
ASSETS
Non-current assets
Goodwill 179.9 179.9
Other intangible assets 62.2 60.3
Property, plant and equipment 5,849.4 5,374.3
Other non-current assets 8.7 8.7
Financial assets at fair value through profit 0.6 0.9
Derivative financial instruments 22.4 17.4
Investments in associated companies 1.8 1.0
Retirement benefit obligations 22.0 26.6
6,147.0 5,669.1
Current assets
Inventories 12.8 13.2
Trade and other receivables 391.8 355.4
Current tax receivable 0.9 6.0
Derivative financial instruments 9.8 23.4
Cash and cash equivalents* 11 417.9 134.0
Restricted funds* 58.2 37.4
Retirement benefit assets 9.2 -
900.6 569.4
LIABILITIES
Current liabilities
Borrowings 11 (257.4) (240.7)
Financial liabilities at fair value through profit (0.3) (0.1)
Derivative financial instruments (0.5) (5.4)
Trade and other payables (331.0) (346.5)
Provisions (6.8) -
(596.0) (592.7)
Net current assets 304.6 (23.3)
Non-current liabilities
Borrowings 11 (4,296.9) (3,775.5)
Other non-current liabilities (171.3) (154.9)
Derivative financial instruments (1.6) (3.3)
Deferred tax liabilities (530.6) (548.4)
Provisions (0.5) (1.1)
(5,000.9) (4,483.2)
Net assets 1,450.7 1,162.6
Shareholders' equity
Share capital 9 288.1 174.6
Share premium account 755.0 398.2
Capital redemption reserve 157.1 157.1
Retained earnings and other reserves 248.0 431.3
Total shareholders' equity 1,448.2 1,161.2
Non-controlling interests 2.5 1.4
Total equity 1,450.7 1,162.6
*The 2024 balance sheet has been restated, see note 2 for further detail.
.
PENNON GROUP PLC
Consolidated statement of changes in equity for the year ended 31 March 2025
Share capital (note 9) Share premium account Capital redemption reserve Retained earnings and other reserves Non-controlling interests Total equity
£m £m £m £m £m £m
At 31 March 2023 159.5 237.6 157.1 570.6 0.4 1,125.2
Profit for the year - - - (9.5) 1.0 (8.5)
Other comprehensive loss for the year - - - (17.8) - (17.8)
Total comprehensive (loss) / income for the year - - - (27.3) 1.0 (26.3)
Transactions with equity shareholders:
Dividends paid - - - (111.7) - (111.7)
Shares issued 15.1 164.9 - - - 180.0
Transaction costs arising on shares issued - (4.7) - - - (4.7)
Adjustments in respect of share-based - - - 1.1 - 1.1
payments (net of tax)
Own shares acquired by the Pennon Employee - - - (1.4) - (1.4)
Share Trust in respect of share options granted
Proceeds from shares issued under - 0.4 - - - 0.4
the Sharesave Scheme
Total transactions with equity shareholders 15.1 160.6 - (112.0) - 63.7
At 31 March 2024 174.6 398.2 157.1 431.3 1.4 1,162.6
Profit for the year - - - (57.9) 1.1 (56.8)
Other comprehensive loss for the year - - - 0.7 - 0.7
Total comprehensive (loss) / income for the year - - - (57.2) 1.1 (56.1)
Transactions with equity shareholders:
Dividends paid - - - (126.9) - (126.9)
Rights issue* 113.5 377.5 - - - 491.0
Transaction costs arising on rights issue - (20.5) - - - (20.5)
Transaction costs arising on shares issued - (0.2) - - - (0.2)
Adjustments in respect of share-based - - - 2.0 - 2.0
payments (net of tax)
Own shares acquired by the Pennon Employee - - - (1.2) - (1.2)
Share Trust in respect of share options granted
Total transactions with equity shareholders 113.5 356.8 - (126.1) - 344.2
At 31 March 2025 288.1 755.0 157.1 248.0 2.5 1,450.7
* On 17 February 2025 the Company completed a rights issue to existing
shareholders on the basis of 13 ordinary shares for every 20 fully paid
ordinary shares held. As a result, 185,928,002 ordinary shares with an
aggregate nominal value of £113.5m were issued for cash consideration of
£491.0m. Transaction costs directly attributable to the rights issue of
£20.5m were incurred and have been accounted for as a deduction from share
premium, cash paid in relation to the transaction costs amounted to £15.4m
with the rest held on the balance sheet as payable.
PENNON GROUP PLC
Consolidated statement of cash flows for the year ended 31 March 2025
2025 2024
Notes £m £m
Cash flows from operating activities
Cash generated from operations 10 233.6 261.7
Interest paid 10 (143.1) (116.2)
Tax paid 3.0 3.4
Net cash generated from operating activities 93.5 148.9
Cash flows from investing activities
Interest received 11.1 7.1
Purchase of property, plant and equipment (663.1) (555.1)
Acquisition of subsidiaries, net of cash acquired - (62.7)
Deposit of restricted funds (20.8) (4.3)
Purchase of intangible assets (5.5) (43.8)
Proceeds from sale of property, plant and equipment 1.9 0.8
Net cash used in investing activities (676.4) (658.0)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 491.0 175.7
Share issue transaction costs (15.4) -
Purchase of ordinary shares by the Pennon Employee Share Trust (1.2) (1.4)
Proceeds from new borrowing 920.0 574.5
Repayment of borrowings (328.5) (168.7)
Cash inflows from lease financing arrangements 10 25.0 64.8
Lease principal repayments (including net recoverable VAT paid/recovered) (97.2) (22.4)
Dividends paid 8 (126.9) (111.7)
Net cash used in financing activities 866.8 510.8
Net increase/(decrease) in cash and cash equivalents 283.9 1.7
Cash and cash equivalents at beginning of year* 11 134.0 132.3
Cash and cash equivalents at end of year 11 417.9 134.0
* Cash and cash equivalents has been restated, see note 2 for further detail.
PENNON GROUP PLC
Notes
1. General information
Pennon Group plc is a company registered in the United Kingdom under the
Companies Act 2006. The address of the registered office is given on page 47.
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. The Company 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.
2. Basis of preparation
The Group's financial information has been prepared in accordance with the
recognition and measurement requirements of UK adopted international
accounting standards. It has been prepared on a basis consistent with that
adopted in the previous year. The financial statements have been prepared
under the historical cost convention (except for fair value items, principally
acquisitions, transfer of assets from customers and certain financial
instruments as described in the 2024 Annual Report and Accounts which are
available on the Company website www.pennon-group.co.uk). Whilst the financial
information included in this Preliminary Results Announcement has been
prepared in accordance with the recognition and measurement criteria of IFRS,
this announcement does not itself contain sufficient information to comply
with IFRS. The Preliminary Results Announcement does not constitute the
Company's statutory accounts for the years ended 31 March 2025 and 31 March
2024 within the meaning of Section 435 of the Companies Act 2006 but is
derived from those statutory accounts. The Group's statutory accounts for the
year ended 31 March 2024 have been filed with the Registrar of Companies.
The Group's Financial Statements for the year ended 31 March 2025 were
approved by the Board on 3 June 2025. They have been reported on by the
Group's auditors and will be delivered to the registrar of companies in due
course. The report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006
In the prior year 'Cash and cash deposits' consisted of 'Cash and cash
equivalents' and 'Restricted funds'. As restricted funds do not form part of
cash and cash equivalents has been re-presented in the 2024 balance sheet.
Cash and cash equivalents totalled £134.0 million and Restricted funds £37.4
million at 31 March 2024. An adjustment has also been reflected in the cash
flow statement, the opening and closing values of cash and cash equivalents in
the prior year have been restated to £132.3 million and £134.0 million
respectively from £143.7 million and £145.4 million.
In the prior year 'Financial liabilities at fair value through profit' (FVTP)
included a £2.5m current liability and £31.8m non-current liability. These
items relate to an unamortised hedging adjustment following a decision to
de-designate a hedging relationship on a bond in a prior period. The
unamortised hedging adjustment has been reclassified to be shown as part of
borrowings to align with the debt for which the hedge was entered into.
In the prior year purchases of water from wholesalers by SESWS were presented
as raw materials in operating costs, to align with the existing group
presentation this has been reclassified to other operating expenses, the total
being £14.4m.
In the prior year movements on cash flow hedges were presented net in the
statement of comprehensive income, the presentation has been amended to show
the gross values in relation to the loss on cash flow hedging (2024: £34.7
million) and hedging gains recycled to profit or loss (2024: £18.3 million).
Adjustments to the prior period have been made in relation to the acquisition
of SES as detailed in note 13.
The going concern basis has been adopted in preparing these financial
statements. At 31 March 2025 the Group has access to undrawn committed funds
and cash and cash equivalents totalling £977.9 million, including cash and
other short-term deposits of £417.9 million and £560.0 million of undrawn
facilities. Cash and cash equivalents excludes £58.2
PENNON GROUP PLC
Notes (continued)
2. Basis of preparation (continued)
million of restricted funds deposited with financial institutions which are
available for access, subject to being replaced by an equivalent valued
security. The Group has an expected headroom of £379.6 million at 30
September 2026.
In making their assessment, the Directors reviewed the principal risks and
considered which risks might threaten the Group's going concern status, to do
this the Group's business plan has been stress-tested. Whilst the Group's risk
management processes seek to mitigate the impact of principal risks,
individual sensitivities against these risks have been identified. These
sensitivities, which are ascribed a value with reference to risk weighting,
factoring in the likelihood of occurrence and financial impact, were applied
to the baseline financial forecast which uses the Group's annual budget for FY
2025/26, and longer-term strategic business plan for the remainder of the
going concern period to 30 September 2026. The risks and sensitivities include
consideration of: legislative impacts such as change in government policy and
non-compliance with laws and regulations, macro-economic impacts such as
inflation and interest rate increases and operational impacts such as ensuring
adequate water resources and failure of operational assets.
A combined stress testing scenario has been performed to assess the overall
impact of these individual scenarios impacting the Group collectively. The
combined weighted impact of the risks occurring is a cash outflow of c.£108.5
million, this value is considered equivalent to an extreme one-off event that
could occur by 30 September 2026, the probability of such an event happening
is deemed unlikely. Through this testing, it has been determined that none of
the individual principal risks would in isolation, or in aggregate, compromise
the going concern of the Group over the going concern period, the assessment
has been considered by reviewing the impact on the solvency position as well
as debt and interest covenants. In the combined scenario to ensure that the
Group was able to continue as a going concern, additional mitigations could be
deployed to reduce gearing and increase covenant headroom. In the combined
stress test scenario, the group has sufficient liquidity and covenant headroom
which reflects that no mitigations would be needed by the Group. However, if
required additional mitigations could be deployed to reduce gearing and
increase covenant headroom. Examples of mitigations could include: reduction
in discretionary operational expenditure, deferral of capital expenditure
and/or cancellation of non-essential capital expenditure, reduction in the
amount of dividend payable, and raising additional funding.
We have considered the Group's funding position and financial projections,
which take into account a range of possible impacts, including the refinancing
required within and immediately after the going concern assessment period.
Having considered these factors, the Directors have a reasonable expectation
that that the Group will meet the requirements of its covenants and has
adequate resources to continue in operational existence for the period to at
least the end of the going concern assessment period of 30 September 2026, and
that there are no material uncertainties to disclose. For this reason, they
continue to adopt the going concern basis in preparing the financial
statements.
In preparing the financial statements management has considered the impact of
climate change, taking into account the relevant disclosures in the Strategic
Report, including those made in accordance with the recommendations of the
Taskforce on Climate-related Financial Disclosure. The expected environmental
impact of climate change on the water business has been modelled noting that
the physical risks are increasing. It is likely that the Group will need to
invest to protect certain assets such as sewage works and pumping stations
against sea level inundation and these considerations form part of the
planning process for new capital expenditure. Longer term investment, outlined
in the strategic plans, will be needed to manage future risks. To achieve
this, combined regulatory and government support within their policy
frameworks will be essential. Whilst it is estimated additional spend will be
required to manage future risks, the current available information and
assessment did not identify any risks regarding the sufficiency of funds
available to the Group to support this additional spend or any risk that would
require the useful economic lives of assets to be reduced in the year or
identify the need for impairment that would impact the carrying values of such
assets or have any other impact on the financial statements. The impact
assessments will be continuously updated to reflect the latest available
information on the impact of climate change.
PENNON GROUP PLC
Notes (continued)
3. Segmental information
Operating segments are reported in a manner consistent with internal reporting
provided to the Chief Operating Decision-Maker (CODM), which has been
identified as the Pennon Group plc Board. The earnings measures below are used
by the Board in making decisions.
The Group is organised into two operating segments. The water segment
comprises the regulated water and wastewater services undertaken by South West
Water and the regulated water services undertaken by SES Water. The
non-household retail business reflects the services provided by Pennon Water
Services and SESWS.
2025 2024
Revenue £m £m
Water 820.5 745.8
Non-household retail 320.3 253.5
Other 12.8 11.8
Less intra-segment trading((1)) (105.8) (103.3)
Total underlying revenue 1,047.8 907.8
Operating profit before depreciation, amortisation and
non-underlying items (underlying EBITDA)
Water 338.2 335.8
Non-household retail 7.5 7.7
Other (10.1) (5.2)
335.6 338.3
Operating profit before non-underlying items
Water 153.8 169.9
Non-household retail 7.2 6.9
Other (12.5) (10.5)
148.5 166.3
Loss before tax before non-underlying items
Water (35.6) 11.8
Non-household retail 4.3 4.9
Other (3.8) 0.1
(35.1) 16.8
Loss before tax
Water (71.7) (13.4)
Non-household retail 4.3 4.9
Other (5.3) (0.6)
(72.7) (9.1)
(1) Intra-segment trading between different segments is under normal market
based commercial terms and conditions. Intra-segment revenue of the other
segment is at cost.
PENNON GROUP PLC
Notes (continued)
3. Segmental information (continued)
All revenue is generated in the United Kingdom. The grouping of revenue
streams by how they are affected by economic factors, as required by IFRS 15,
is as follows:
Year ended 31 March 2025
Water Non-household Other Total
retail
£m £m £m £m
Segment revenue - underlying 820.5 320.3 12.8 1,153.6
Inter-segment revenue (100.6) (0.2) (5.0) (105.8)
Revenue from external customers 719.9 320.1 7.8 1,047.8
Significant service lines
Water 719.9 - - 719.9
Non-household retail - 320.1 - 320.1
Other - - 7.8 7.8
719.9 320.1 7.8 1,047.8
Year ended 31 March 2024
Water Non-household Other Total
retail
£m £m £m £m
Segment revenue - underlying 745.8 253.5 11.8 1,011.1
Inter-segment revenue (91.4) (0.2) (11.7) (103.3)
Revenue from external customers 654.4 253.3 0.1 907.8
Significant service lines
Water 654.4 - - 654.4
Non-household retail - 253.3 - 253.3
Other - - 0.1 0.1
654.4 253.3 0.1 907.8
The Group's country of domicile is the United Kingdom and this is the country
in which it generates the majority of its revenue.
PENNON GROUP PLC
Notes (continued)
4. Non-underlying items
Non-underlying items are those that in the Directors' view are required to be
separately disclosed by virtue of their size, nature or incidence to enable a
full understanding of the Group's financial performance in the year and
business trends over time. The presentation of results is consistent with
internal performance monitoring.
2025 2024
£m £m
Operating Costs
Brixham water quality incident1 (21.0) -
Restructuring/Transformational costs2 (15.8) (13.9)
SES Water Group acquisition costs3 (0.7) (9.6)
Renewables Projects acquisition costs4 (0.1) (0.6)
Drought costs5 - (1.8)
Earnings before interest, tax, depreciation and amortisation (37.6) (25.9)
Net tax credit arising on non-underlying items above6 8.9 4.9
Net non-underlying charge (28.7) (21.0)
(1) 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. £21.0 million
(2024 £nil) 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. £0.8m of the costs
incurred were employment costs.
(2) £15.8 million (2024: £13.9 million) of costs were incurred in
connection with the business transformation of the Group, £10.9 million
(2024: £0.7 million) of which were employment costs. These restructuring and
transformation costs are one-off in nature and incidence, with the benefits
from incurring these costs expected to endure into the future on a recurring
basis. Further costs are not expected to arise in the year ended 31 March
2026.
(3) In the year the Group incurred expenses of £0.7 million (2024: £9.6
million) in connection with the acquisition of SES Water Group. Due to the
one-off nature and incidence of the costs they have been classified as
non-underlying.
(4) Expenses in connection with the strategic review of renewal energy
generating investments, not directly attributable to the intangible assets
acquired, totalled £0.1 million (2024: £0.6 million). Due to the one-off
nature and incidence of the costs they have been classified as non-underlying.
(5) 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 eight months of
2023/24.
(6) The net tax credit arising on non-underlying items, relates to a
deferred tax credit in respect of tax losses carried forwards. The prior year
credit reflected a £4.9 million current tax credit also in respect of
transformation losses carried forwards.
PENNON GROUP PLC
Notes (continued)
5. Net finance costs
2025 2024
Finance costs Finance income Total Finance Finance income Total
costs
£m £m £m £m £m £m
Cost of servicing debt
Bank borrowings and overdrafts (138.6) - (138.6) (113.0) - (113.0)
Interest element of lease payments (49.9) - (49.9) (44.0) - (44.0)
Other finance costs (10.9) - (10.9) (5.8) - (5.8)
Interest receivable - 11.1 11.1 - 7.1 7.1
Net gains on derivative financial instruments - 2.3 2.3 - 3.8 3.8
(199.4) 13.4 (186.0) (162.8) 10.9 (151.9)
Notional interest
Retirement benefit obligations - 1.6 1.6 - 1.7 1.7
Net finance costs (199.4) 15.0 (184.4) (162.8) 12.6 (150.2)
In addition to the above, finance costs of £27.7 million (2024 £15.5
million) have been capitalised on qualifying assets included in property,
plant and equipment, at an average borrowing rate of 5.7% (2024 6.4%).
Other finance costs include £1.1 million (2024 £1.1 million) of dividends
payable on listed preference shares issued by Bristol Water, which are
classified as debt.
6. Taxation
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
2025
2025
2024
2024
(note 4) (note 4)
2025
2024
£m £m £m £m £m £m
Analysis of charge
Current tax charge/(credit) 0.8 (0.5) 0.3 (0.6) - (0.6)
Deferred tax (credit)/charge (7.8) (8.4) (16.2) 4.9 (4.9) -
Tax (credit) / charge for the year (7.0) (8.9) (15.9) 4.3 (4.9) (0.6)
UK corporation tax is calculated at 25% (2024 25%) of the estimated assessable
profit for the year.
UK corporation tax for the Group is stated after a charge relating to prior
year current tax of £0.3 million (2024: £0.6 million credit) and a prior
year deferred tax charge of £0.7 million (2024: £nil). These items relate to
prior year adjustments in respect of capital allowances claimed in accordance
with UK tax legislation (2024 additional interest deductions).
PENNON GROUP PLC
Notes (continued)
7. Earnings per share
Basic earnings per share are calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year, excluding those held in the employee share trust
which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to include all dilutive potential ordinary shares. The
Group has two types of dilutive potential ordinary shares - those share
options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares during the year; and the
contingently issuable shares under the Group's performance and Co-investment
Plan, the long-term incentive plan and the deferred shares element of the
Annual Incentive Bonus Plan, based on performance criteria for the vesting of
the awards.
Basic and diluted earnings per share figures and the weighted average number
of shares for the comparative period have been restated and adjusted for the
bonus factor of 1.21 to reflect the bonus element of the February 2025 rights
issue, in accordance with IAS 33 Earnings per Share. Amounts as originally
stated at 31 March 2024 were (3.6)p basic and diluted earnings per share, 6.2p
basic and diluted adjusted earnings per share and 266.6 million weighted
average number of shares.
Potential ordinary shares, as discussed above, that could dilute basic
earnings per share in the future, were not included in the calculation for
statutory earnings per share because they were anti-dilutive for the current
year. The weighted average number of shares and earnings used in the
calculations are detailed in the table below.
2025 2024
Number of shares (millions)
For basic earnings per share 360.5 322.5
Effect of dilutive potential ordinary shares from share options - -
For diluted earnings per share 360.5 322.5
Basic and diluted earnings per ordinary share
Earnings per ordinary share before non-underlying items and deferred tax are
presented as the Directors believe this measure provides a more useful year on
year comparison of business trends and performance. Deferred tax is excluded
as the Directors believe it reflects a distortive effect of changes in
corporation tax rates and the level of long-term capital investment. Earnings
per share have been calculated as follows:
2025 2024 (restated)
(Loss)/ Earnings per share Profit Earnings per share
profit after tax
after tax
Basic Diluted Basic Diluted
£m p p £m p p
Statutory earnings attributable to ordinary shareholders of the parent (57.9) (16.1) (16.1) (9.5) (2.9) (2.9)
Deferred tax (credit)/charge before non-underlying items (7.8) (2.1) (2.1) 4.9 1.5 1.5
Non-underlying items (net of tax) 28.6 7.9 7.9 21.0 6.5 6.5
Adjusted earnings (37.1) (10.3) (10.3) 16.4 5.1 5.1
PENNON GROUP PLC
Notes (continued)
8. Dividends
2025 2024
£m £m
Amounts recognised as distributions to ordinary equity holders in the year:
Interim dividend paid for the year ended 31 March 2024: 11.60p (restated) 40.1 33.9
(2023 10.71p) restated per share
Final dividend paid for the year ended 31 March 2024: 25.07p (restated) (2023 86.8 77.8
24.60p) per share
126.9 111.7
Proposed dividends
Interim dividend paid for the year ended 31 March 2025: 12.14p (2024 11.60p 42.0 40.2
restated) per share
Final dividend paid for the year ended 31 March 2025: 19.43p (2024 25.07p 91.7 86.7
restated) per share
133.7 126.9
The proposed interim and final dividends have not been included as liabilities
in these financial statements.
The proposed interim dividend for 2025 was paid on 4 April 2025 and the
proposed final dividend is subject to approval by shareholders at the Annual
General Meeting.
Proposed dividends per share for the 2024 comparative period have been
restated and adjusted for the bonus factor of 1.21 to reflect the bonus
element of the February 2025 rights issue, in accordance with IAS 33 Earnings
per Share and as detailed in note 11. The proposed interim dividend for the
year ended 31 March 2025 of 14.69p as announced previously has been restated
to 12.14p as adjusted by the bonus factor.
9. Share capital
Allotted, called-up and fully paid
Number of shares
Treasury shares Ordinary shares £m
At 31 March 2023 ordinary shares of 61.05p each 5,628 261,315,489 159.5
For consideration of £460,000, shares issued - 72,299 -
under the Company's Sharesave Scheme
Shares cancelled - 24,657,535 15.1
At 31 March 2024 ordinary shares of 61.05p each 5,628 286,045,323 174.6
For consideration of £21,000, shares issued - 3,386 -
under the Company's Sharesave Scheme
Rights issue - 185,928,002 113.5
At 31 March 2025 ordinary shares of 61.05p each 5,628 471,976,711 288.1
PENNON GROUP PLC
Notes (continued)
9. Share capital (continued)
Shares held as treasury shares may be sold, re-issued for any of the Company's
share schemes, or cancelled.
On 17 February 2025 the Company completed a rights issue to existing
shareholders on the basis of 13 ordinary shares for every 20 fully paid
ordinary shares held. As a result, 185,928,002 ordinary shares with an
aggregate nominal value of £113.5m were issued for cash consideration of
£491.0m. Transaction costs directly attributable to the rights issue of
£20.5m were incurred and have been accounted for as a deduction from share
premium.
During the year ended 31 March 2024 the Group issued 24,657,535 new ordinary
shares of 61.05 pence each in connection with the acquisition of SES Water
Group (see note 13). The equity capital raise was used to reduce leverage in
the enlarged group following the acquisition.
10. Analysis of the cash flows given in the statement of cash flows
Reconciliation of profit for the year to cash generated from operations:
2025 2024
£m £m
Cash generated from operations
(Loss)/profit for the year (56.8) (8.5)
Adjustments for:
Share-based payments 2.0 1.2
Profit on disposal of property, plant and equipment (1.2) (0.7)
Depreciation charge 184.7 168.2
Amortisation of intangible assets 2.3 3.7
Intangible impairment charge 1.3 -
Share of post-tax profit from associated companies (0.8) (0.7)
Finance income (15.0) (12.6)
Finance costs 199.4 162.8
Taxation credit (15.9) (0.6)
Changes in working capital:
Decrease/(increase) in inventories 0.4 (1.1)
Increase in trade and other receivables (42.5) (47.6)
Decrease in trade and other payables (30.5) (2.0)
Increase/(decrease) in provisions 6.2 (0.4)
Cash generated from operations 233.6 261.7
2025 2024
Reconciliation of total interest paid £m £m
Interest paid in operating activities 143.1 116.2
Total interest paid 143.1 116.2
PENNON GROUP PLC
Notes (continued)
11. Net borrowings
2025 2024
(Restated)
£m £m
Cash and cash equivalents 417.9 134.0
Restricted funds 58.2 37.4
476.1 171.4
Borrowings - current
Bank and other current borrowings (224.5) (188.8)
Lease obligations (32.9) (51.9)
Total current borrowings (257.4) (240.7)
Borrowings - non-current
Bank and other non-current borrowings (3,265.1) (2,691.8)
Listed preference shares (12.5) (12.5)
Lease obligations (1,019.3) (1,071.2)
Total non-current borrowings (4,296.9) (3,775.5)
Total net borrowings (4,078.2) (3,844.8)
An unamortised hedging adjustment has been reclassified from fair value
through profit and loss to borrowing in the current year and the prior year
restated.
12. Contingent liabilities
2025 2024
£m £m
Guarantees: Performance bonds 20.0 13.8
Ofwat and the Environment Agency (EA) announced an industry-wide investigation
into sewage treatment works on 18th November 2021. On 27th June 2022, as part
of its ongoing investigation, Ofwat announced enforcement action against South
West Water Limited and the company is now included alongside all other waste
water companies. The Group continues to work openly with Ofwat to comply with
the notice as part of this ongoing investigation. The Group has undertaken its
own internal investigation and investment interventions have been undertaken
at a small number of our sites. In addition, the Group has looked for
opportunities for additional future investment to include further storm
storage and an extension of its sewer misuse programme which has been shared
with Ofwat. Ofwat have yet to formally respond on the investigation and the
timing of a response is unknown, although has been potentially indicated for
later in 2025. Until such time that an initial response is received, the
potential outcome of these investigations continues to be unknown. Ofwat has a
range of options that it could apply from closing the investigation with no
further action, agreeing to formal S.19 undertakings through to fining the
Group up to 10% of its revenue in relation to the regulated wastewater
business. Given the wide range of possible outcomes therefore the potential
outcome of this investigation continues to be unknown, and it is not possible
to estimate any obligations arising from the investigation with any certainty.
On 23rd 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 assurance
processes which include independent checks and balances carried out by an
external technical auditor. The Group continues to work openly and
constructively with Ofwat to comply with the formal notice issued to South
West Water as part of this investigation. The Group has undertaken its own
internal investigation into the data and third party experts have concluded
the calculations are within a tolerance as reported, as a result there were no
detrimental impacts to customers through Outcome Delivery Incentives ('ODIs').
The Group recognises opportunities to enhance data quality to improve the
estimation process and these have been shared
PENNON GROUP PLC
Notes (continued)
12. Contingent liabilities (continued)
with Ofwat. Until such time that an initial response is received, the
potential outcome of these investigations continues to be unknown. Ofwat has a
range of options that it could apply from closing the investigation with no
further action, agreeing to formal S.19 undertakings through to fining the
Group up to 10% of its revenue in relation to the regulated drinking water
business. Given the wide range of possible outcomes therefore the potential
outcome of this investigation continues to be unknown, and it is not possible
to estimate any obligations arising from the investigation with any certainty.
On 2nd February 2024 summons were received by South West Water Limited from
the EA in relation to alleged non permitted discharges at 7 locations with a
total of 30 charges. The EA have since withdrawn 6 of these charges relating
to 1 site. At a hearing on 14th November 2024, South West Water pleaded
guilty to 5 of the charges and the sentencing hearing for all 24 charges will
take place in the third quarter of 2025 with judgment following at a later
date.
On 15th May 2024, cryptosporidium was detected in South West Water's water
network and, in response, boil water notices were issued for certain customers
in the Brixham area that were lifted in a phased manner completing on 8th July
2024. South West Water continues to assist the Drinking Water Inspectorate
in their ongoing investigation, the outcome of which is not known at this
time.
The Group establishes provisions in connection with contracts and litigation
where it has a present legal or constructive obligation as a result of past
events and where it is more likely than not an outflow of resources will be
required to settle the obligation and the amount can be reliably estimated.
Where it is uncertain that these conditions are met, a contingent liability is
disclosed unless the likelihood of the obligation arising is remote or the
matter is not deemed material.
13. Acquisition of SES Water 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 Water 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 acquisition of SESGHL was reviewed by the Competition and Markets
Authority and given full clearance on 14 June 2024. For the year ended 31
March 2024, the SESGHL Group has been consolidated into Pennon Group plc's
consolidated financial statements from 10 January 2024 due to management's
assessment of obtaining control of SESGHL as of that date in accordance with
IFRS.
The net assets recognised in the 31 March 2024 financial statements were based
on a provisional assessment of their fair value. This valuation exercise has
now been finalised. Final Fair values on acquisition are shown in the table
below. Corresponding amounts for the financial year ended 31 March 2024 have
also been restated in the Statement of Financial Position.
The fair value of trade and other receivables acquired as part of the business
combination amounted to £63.1 million with a gross contractual amount of
£82.6 million. At the acquisition date the Group's best estimate of the
contractual cash flows expected not to be collected amounted to £19.5
million.
The Goodwill that arose on acquisition 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. The
acquisition of the SES Water Group provides a strategic fit for Pennon Group
plc as the Group expands its presence in water supply across Southern England.
PENNON GROUP PLC
Notes (continued)
13. Acquisition of SES Water Group (continued)
The details of the business combination are as follows:
10 January 2024 Adjustments included until 31 March 2024 Adjustments 10 January 2024
Adjustments
included until 9 January 2025
£m £m £m
Fair value of consideration transferred
Amount settled in cash 90.2 - 90.2
Total consideration transferred 90.2 - 90.2
Fair value of assets and liabilities recognised on acquisition
Property, plant and equipment 441.6 12.7 454.3
Intangible assets 11.6 (7.4) 4.2
Inventories 2.1 - 2.1
Trade and other receivables 61.4 1.7 63.1
Cash and cash deposits 27.5 - 27.5
Current tax receivable 0.4 - 0.4
Borrowings (360.1) (1.3) (361.4)
Trade and other payables (65.3) (5.3) (70.6)
Retirement benefit obligations 3.3 - 3.3
Deferred tax liabilities (47.5) (0.1) (47.6)
Provisions (0.4) (0.7) (1.1)
Identifiable net assets 74.6 (0.4) 74.2
Goodwill on acquisition 15.6 0.4 16.0
Outflow of cash to acquire subsidiary, net of cash acquired
Consideration for equity settled in cash 90.2 - 90.2
Cash and cash equivalents acquired (27.5) - (27.5)
Net cash outflow on acquisition 62.7 - 62.7
Total acquisition related costs of £10.3 million, including £9.6 million
incurred in the prior year, are not included as part of the consideration
transferred and were recognised as an expense in the consolidated income
statement within other operating expenses.
PENNON GROUP PLC
Pennon Group plc
Registered office:
Peninsula House
Rydon Lane
Exeter
Devon
EX2 7HR
pennon-group.co.uk
Registered
in England: 2366640
PENNON GROUP PLC
Alternative performance measures
Alternative performance measures (APMs) are financial measures used in this
report that are not defined by International Financial Reporting Standards
(IFRS). The Directors believe that these APMs assist in providing additional
useful information on the underlying trends, performance and position of the
Group as well as enhancing the comparability of information between reporting
periods.
As the Group defines the APMs they might not be directly comparable to other
companies' APMs. They are not intended to be a substitute for, or superior to,
IFRS measurements.
(i) Underlying earnings
Underlying earnings are presented alongside statutory results as the Directors
believe they provide a more useful comparison on business trends and
performance. Note 4 in the notes to the financial statements provides more
detail on non-underlying items, and a reconciliation of underlying earnings
for the current year and the prior year is as follows:
Non-underlying items
Underlying earnings Underlying Brixham water qualify incident Restructuring/Transformational costs SES acquisition Renewables acquisition Statutory results Earnings
reconciliation
per share
31 March 2025
£m £m £m £m £m £m p
EBITDA (see below) 335.6 (21.0) (15.8) (0.7) (0.1) 298.0
Operating profit 148.5 (21.0) (15.8) (0.7) (0.1) 110.9
Profit before tax (35.1) (21.0) (15.8) (0.7) (0.1) (72.7)
Taxation 7.0 5.2 3.7 - - 15.9
Profit after tax (56.8)
Non-controlling interests (1.1)
Profit after tax attributable (57.9) (16.1)
to shareholders
(i) Underlying earnings (continued)
Non-underlying items
Underlying earnings Underlying Drought costs SES acquisition Renewables acquisition Transformation Statutory results Earnings
reconciliation
per share
31 March 2024
£m £m £m £m £m £m p
EBITDA (see below) 338.3 (1.8) (9.6) (0.6) (13.9) 312.4
Operating profit 166.3 (1.8) (9.6) (0.6) (13.9) 140.4
Profit before tax 16.8 (1.8) (9.6) (0.6) (13.9) (9.1)
Taxation (4.3) 0.5 0.9 0.1 3.4 0.6
Profit after tax (8.5)
Non-controlling interests (1.0)
Profit after tax attributable (9.5) (2.9)
to shareholders
(ii) Underlying EBITDA
Underlying EBITDA (earnings before interest, tax, depreciation and
amortisation and non-underlying items) is used to assess and monitor
operational underlying performance.
PENNON GROUP PLC
Alternative performance measures (continued)
(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, including Bristol Water
plc, which excludes interest costs not directly associated with net debt. This
measure is presented to assess and monitor the relative cost of financing for
South West Water.
2025 2024
£m £m
Net finance costs before non-underlying items (note 5) 184.4 150.2
Remove: net finance income before non-underlying items not associated (13.8) 5.3
with South West Water Limited's group of companies
Net finance costs before non-underlying items associated with 170.6 155.5
South West Water Limited's group of companies
Net interest on retirement benefit obligations associated with South 1.1 1.4
West Water Limited's group of companies
Capitalised interest 23.1 14.1
Non-debt related interest (4.5) -
Net finance costs for effective interest rate calculation 190.3 171.0
Group net debt / (cash) (opening) (note 11) 3,844.8 3,001.8
Remove: Unamortised hedging adjustment (34.3) (36.4)
Remove: opening net debt not associated with South West Water (515.8) (100.1)
Limited's group of companies
Opening net debt for calculation 3,294.7 2,865.3
Group net debt (closing) (note 11) 4,078.2 3,844.8
Remove: Unamortised hedging adjustment (32.2) (34.3)
Remove: closing net debt not associated with South West Water (564.3) (515.8)
Limited's group of companies
Equity injection on 31 March 2025 330.0 -
Closing net debt for calculation 3,811.7 3,294.7
Average net debt (opening net debt + closing net debt divided by 2) 3,553.2 3,080.0
Effective interest rate (%) 5.4 5.6
(iv) Effective cash cost of interest
Effective cash cost of interest is calculated on the same basis as 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).
2025 2024
£m £m
Net finance costs for effective interest rate calculation (as above) 190.3 171.0
Remove non-cash interest accrued (income statement indexation charge) (26.3) (55.5)
Net finance costs for effective cash cost of interest calculation 164.0 115.5
Opening net debt (as above) 3,294.7 2,865.3
Closing net debt (as above) 3,811.7 3,294.7
Average net debt (opening net debt + closing net debt divided by 2) 3,553.2 3,080.0
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.
2025 2024
£m £m
Net finance costs before non-underlying items (note 5) 184.4 150.2
Net interest on retirement benefit obligations (note 5) 1.6 1.7
Net finance costs for interest cover calculation 186.0 151.9
Operating profit before non-underlying items (see APM (i) above) 148.5 166.3
Interest cover (times) 0.8 1.1
(vi) EBITDA dividend cover
Underlying EBITDA for the Group divided by proposed combined interim and final
dividends.
2025 2024
£m £m
Underlying EBITDA (see APM (i) above) 335.6 338.3
Proposed dividends (note 8) 133.7 126.9
EBITDA dividend cover (times) 2.5 2.7
(vii) Group dividend cover
Proposed dividends divided by profit for the year before non-underlying items
and deferred tax
2025 2024
£m £m
Proposed dividends (note 8) 133.7 126.9
Loss for the year attributable to ordinary shareholders (57.9) (9.5)
Deferred tax charge before non-underlying items (note 6) (7.8) 4.9
Non-underlying items after tax in profit for the year (note 4) 28.7 21.0
Adjusted (loss)/profit for dividend cover calculations (37.0) 16.4
Group dividend cover (times) - 0.1
(viii) 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.
2025 2024
£m £m
Additions to property, plant and equipment 647.0 604.5
Additions to intangible assets 5.5 45.0
Capital investment 652.5 649.5
(ix) 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.
2025 2024
£m £m
Cash flow statements: purchase of property, plant and equipment 663.1 555.1
Cash flow statements: purchase of intangible assets 5.5 43.8
Cash flow statements: proceeds from sale of property, plant and equipment (1.9) (0.8)
Capital payments relating to the Group 666.7 598.1
PENNON GROUP PLC
Alternative performance measures (continued)
(x) Group return on capital employed
The total of underlying operating profit divided by capital employed (net debt
plus total equity invested).
2025 2024
£m £m
Capital employed (opening):
Net debt (note 11) 3,844.8 3,001.8
Remove: Unamortised hedging adjustment (34.3) (36.4)
Total equity invested 729.9 554.2
Opening capital employed for return on capital employed calculation 4,540.4 3,519.6
Capital employed (closing):
Net debt (note 11) 4,078.2 3,844.8
Remove: Unamortised hedging adjustment (32.2) (34.3)
Total equity invested 1,200.2 729.9
Closing capital employed for return on capital employed calculation 5,246.2 4,540.4
Underlying operating profit (see APM (i) above) 148.5 166.3
Capital employed for return on capital employed calculation (opening capital 4,893.3 4,030.0
employed + closing capital employed divided by 2)
Return on capital employed (%) 3.0 4.1
(xi) Return on Regulated Equity (RoRE)
This is a key regulatory metric which represents the returns to shareholders
expressed as a percentage of regulated equity.
Returns are made up of a base return (set by Ofwat, the water business
regulator, at c.3.9% for South West Water and c.4.4% for Bristol Water for the
period 2020-25) plus totex outperformance, financing outperformance and ODI
outperformance. Returns are calculated post tax and post sharing (only a
proportion of returns are attributed to shareholders and shown within RoRE).
The three different types of return calculated and added to the base return
are:
· Totex outperformance - totex is defined below and outperformance
is the difference between actual reported results for the regulated business
compared to the Final Determination (Ofwat published document at the start of
a regulatory period), in a constant price base
· Financing outperformance - is based on the difference between a
company's actual effective interest rate compared with Ofwat's allowed cost of
debt
· ODI outperformance - the net reward or penalty a company earns
based on a number of different key performance indicators, again set in the
Final Determination.
Regulated equity is a notional proportion of regulated capital value (RCV
which is set by Ofwat at the start of every five-year regulatory period,
adjusted for actual inflation). For 2020-25, the notional equity proportion is
40.0%.
References are made to Ofwat RoRE and Watershare RoRE which utilise differing
inflation assumptions and the disclosure of tax.
Further information on this metric can be found in South West Water and
Bristol Water's annual performance report and regulatory reporting, published
in July each year.
(xii) Totex
Operating costs and capital expenditure of the regulated water and wastewater
business (based on the Regulated Accounting Guidelines).
PENNON GROUP PLC
Alternative performance measures (continued)
(xiii) Outcome Delivery Incentive (ODIs)
ODIs are designed to incentivise companies to deliver improvements to service
and outcomes based on customers' priorities and preferences. If a company
exceeds these targets a reward can be earned through future higher revenues.
If a company fails to meet them, they can incur a penalty through lower future
allowed revenues.
(xiv) 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.
9 (#_ftnref1) The exceptional events at Brixham and Cheam are recognised by
the DWI as water quality events and therefore are not included in the CRI
score.
10 (#_ftnref2) 33 sites complete, 4 under construction
11 (#_ftnref3) Capital investment includes Property, Plant and Equipment
additions plus intangible additions
12 (#_ftnref4) At forecast outturn prices
13 (#_ftnref5) Based on South West Water group, including Bristol Water
excluding SES
14 (#_ftnref6) Pennon Water Services (PWS) - 80:20 joint venture with South
Staffordshire.
15 (#_ftnref7) Includes unwind of fair value adjustments
16 (#_ftnref8) Carrying value of fair value acquisition adjustments to net
debt as at 31 March 2025 - £29.3 million Bournemouth Water, £71.0 million
Bristol Water and SES Water £9.5 million and unamortised hedge adjustment of
£32.2m.
17 (#_ftnref9) Including acquisition related fair value adjustments and
non-cash adjustments on legacy debt
18 (#_ftnref10) Euro Medium Term Note
19 (#_ftnref11) Based on South West Water Group, including Bristol Water
excl. SES.
20 (#_ftnref12) UK water position as at 31 March 2023 as per published
Annual Performance Reports - weighted average.
21 (#_ftnref13) Based on South West Water group including Bristol Water net
debt/shadow RCV.
22 (#_ftnref14) All guidance measured on an underlying basis.
23 (#_ftnref15) Based on CPIH at 31 March 2025 of 3.4%, nominal allowance of
6.55%
24 (#_ftnref16) Subject to EPA consultation finalisation
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