Pennon restructuring to deliver future efficiencies

Pennon Group reported first half-year results on 27 November, in line with management expectations. Lower customer demand drove adjusted EBITDA down 3% to £163.5m from £168.5m, despite the recently-acquired contribution from SES Water.

The loss before tax for the group increased to £38.8m, reflecting the cost of interventions to return quality water supplies to Brixham (£16m) after the cryptosporidium outbreak, and the costs of restructuring to reshape the group’s activities (£4m). The company earned a 6% return on regulatory equity and declared an interim dividend of 14.69p in line with its growth policy of CPIH +2%.

Pennon is reshaping the business to create efficiencies with four new business units: Water Services, Wastewater Services, Pennon Power and Retail Services. It had achieved £35m of efficiency savings by September 2024 and is aiming to deliver £86m in the enlarged water group for AMP8.

Its acquisitions of Bristol Water and SES are on target to deliver savings of £20m and £11m respectively. South West Water is accelerating £75m of storm overflow transition work. South West Water targets an Environmental Performance Assessment 2* rating for 2024, with work in progress to improve.

Analysts focused many of their questions on debt, given that reported regulatory capital value (RCV), group and utility debt numbers were presented on an adjusted basis. RCV was £5,916m, reflecting adjustments to be made by March 2025 for accelerated investment in the water companies. Based on the water group (South West Water including Bristol Water and SES Water), net debt at period end/forecast shadow RCV at 31 March 2025 was 65%.

Pennon Group IFRS net debt/RCV at 30 September, excluding fair value adjustments, was 68%, according to management.

Pennon will hold a Capital Markets Day on 25 February, timed to be a few days after the deadline for any Competition and Markets Authority referral.