Pennon Group swings to half-year loss
By Josh White
Date: Wednesday 27 Nov 2024
(Sharecast News) - Pennon Group reported a statutory loss before tax of £38.8m for the first half on Wednesday, swinging from a profit of £3.2m year-on-year, as restructuring costs and investments weighed on the bottom line despite a 17.5% increase in underlying revenue to £527.2m.
The FTSE 250 water utility said its statutory loss reflected £16m in costs associated with restoring water supplies to Brixham and £4m in restructuring expenses as it reshaped its operations for greater efficiency.
Underlying EBITDA fell slightly to £163.5m for the six months ended 30 September, from £168.5m a year earlier, while the underlying loss before tax stood at £18.6m, reversing a profit of £9.1m.
Pennon said the newly-acquired Sutton and East Surrey Group (SES) contributed to the loss, though it remained focused on reducing costs and improving profitability within the subsidiary.
Meanwhile, the group's business-to-business retailers, Pennon Water Services and Water2Business, delivered profitable growth and announced plans to consolidate SES Business Water operations.
Capital expenditure for the period rose by £65.5m year-on-year, reflecting increased investment in water resource diversification, sewer overflow reduction, and infrastructure improvements.
The group highlighted the completion of new water treatment facilities in Cornwall and ongoing work in Bournemouth as part of its efforts to enhance water quality and availability.
South West Water (SWW) recorded a return on regulated equity of 10.8% on a nominal basis.
The firm also maintained a robust balance sheet, with liquidity of about £675m and gearing levels at 68%.
Pennon reaffirmed its commitment to growth under its strategic K8 business plan, which was recognised as "outstanding" by regulator Ofwat.
The group said it was progressing with its £2.5bn capital programme, supported by sustainable financing, including a £400m bond issue.
Despite the losses, Pennon declared an interim dividend of 14.69p per share, in line with its policy of CPIH +2%.
"Water companies are rightly being challenged to do more for customers today and invest more for the future; we are doing both," said chief executive officer Susan Davy.
"100% of customers across the south west found their bills affordable for the first time - five years ahead of the sector-wide pledge to eradicate water poverty.
"We continue to lead the way in helping customers to use less and save more with a range of money saving campaigns and pilots."
Davy said that while that had led to lower wholesale water business revenues, it was "the right thing" to do.
"As we look ahead, we are energised following our business plans for SWW and SES achieving 'outstanding' and 'good' ratings, respectively, from Ofwat.
"In preparation, we are reshaping the group and driving cost base efficiency.
"We are putting more resources on the front line than ever before, streamlining our support functions, with clear business lines, aligned to our four strategic priorities."
Overall, Susan Davy said Pennon was "well positioned" for the future, with lower revenues protected by regulatory mechanisms, as it continued to focus on sustainable growth.
"Our financial position remains resilient to the challenges ahead, with good liquidity and a diversified debt portfolio.
"Our plans to restructure the business, as well as the benefits being delivered through integration of SES into our group, will allow us to deliver efficiently as we move forward."
Reporting by Josh White for Sharecast.com.
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