Pennon Group reported underlying pre tax half-year profit before tax near unchanged £96.2m at its South West Water subsidiary on revenue up 2.6% at £292.2m. Increased finance and operating costs pegged the firm’s income.
Its new 80% owned business retail venture with South Staffordshire Water, Pennon Water Services, posted a pre tax profit of £500,000 in its first half year of trading with turnover at £83.5m.
Increased revenue at South West Water came from tariff increases of 2.5%, customer demand up 1.1%, dry weather and increased infrastructure connections. These increases upped operating profit 3.6% despite a 2% increase in operating costs reflecting higher inflation.
Finance costs increased as higher inflation – 3.9% at 30th September according to Pennon – took its toll on RPI indexed debt which makes up 25% of South West’s net funding.
“In water, our focus on cost savings means bills are lower now than they were 8 years ago, whilst at the same time we are continuing to invest significantly in our plants and distribution network, said pennon chief executive, Chis Loughlin (pictured).
Capital expenditure in the first half of the year rose to £97.6 million compared to £79.7 million in the first six months of 2016-17as a large projects begun last year made progress.
Exceptional items (posted as non-underlying) included fair value charge of £7.8m following a £15m charge at the interim stage in 2016-17.
The net Outcome Delivery Incentive (ODI) reward for the six month report period to 30 September 2017 was £1.5m bringing the cumulative read to £7m. Total expenditure (totex) savings for the first half year were £30m bringing the cumulative figure to £159m. Return on Regulated Equity (RORE) at the interim was 11.1%. Cumulative Return on Regulated Equity (RORE) was reported as of 11.8% with more than two-fifths coming from Totex savings and efficiencies and about one fortieth from (ODIs) and over a half coming from base returns.
The acquisition of Bournemouth Water 18 months ago has created £12m in synergies said Pennon and it said the merger was on track to deliver the £27m in savings anticipated by 2010.
Pennon Group reported an underlying profit before tax of 131m up 2.3% on the first half of 2016-17 with sales up 5.6% to £724m.