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RNS Number : 2666O
Pennon Group PLC
02 October 2023
PENNON GROUP PLC
2 October 2023
TRADING STATEMENT AND BUSINESS PLAN UPDATE
Pennon Group announces the following trading update for the six
months ended 30 September 2023. Pennon's half year results will be
announced on 29 November 2023.
Key Highlights
-- Trading in line with management expectations
-- Water resilience investment delivering demonstrable
improvement in the water resource position across the South West -
all Temporary Use Bans now lifted
-- On track to deliver significant K7 environmental investment
plan with capex of over GBP400 million for 2023/24
-- Strategically well positioned to continue to deliver a
cumulative doubling of RORE base returns over K7 to 2023/24
-- Investment in renewable energy generation progressing in line
with expectations - accelerating our Net Zero 2030 commitment
-- Submitted South West Water's ambitious, deliverable and
financeable business plan to Ofwat, outlining capital investment of
c.GBP2.8bn[1] over K8 (2025-30) to secure improvements to the
benefit of the environment, customers and communities
-- Gearing expectation for K8 remains within our well-established range of 55-65%.
Susan Davy, Group CEO said:
'In our South West Water 2025-30 business plan, we're set to
tackle the challenges that matter most in our region head on, with
progress already underway. We plan to invest GBP2.8bn in water
quality and resilience, with a pledge to fix storm overflows at
beaches and eradicate pollutions, whilst delivering on our Net Zero
2030 promise to the planet. Our robust balance sheet underpins our
ambition.
This plan will create 2000 jobs in our communities, alongside
our plan for 1000 apprenticeships and graduates. At the same time,
we will do more with less, as we drive efficiency and innovation,
with a nature first principle, keeping unwelcome bill increases as
low as possible.
We have tested our plan with thousands of customers, and they
are confident this is the right deal for right now.'
Robust K7 (2025-30) platform
We continue to build momentum as we plan for the next regulatory
period, as demonstrated by South West Water being one of only two
companies to improve their position in Ofwat's latest Water Company
Performance Report, published in September 2023. Following the
completion of the merger with Bristol Water earlier this year,
investment in the Bristol Water region is focused on improving the
consistency of performance and embedding best practice to provide a
sustainable platform across the water business for the next
regulatory period.
Water resilience
Climate change has shown how unpredictable weather patterns can
be, and the impact they can have on our operations. Whilst the
South West region still remains in official drought status, as
declared by the Environment Agency in 2022, the impact of our
targeted supply and demand side investments has supported the
significant improvement in our water resources, and as a result we
are pleased to have been able to lift all Temporary Use Bans across
Devon and Cornwall. Overall, resource levels for Devon and Cornwall
have increased to 64% (compared to 33% this time last year).
Roadford Reservoir is now at 54% storage, up over 14 percentage
points from this time last year, while Colliford Reservoir is at
52% storage, up 30 percentage points from this time last year.
Our investment plans to further diversify water resources and
boost resilience, including the development of Cornwall's first
de-salination facility, are ongoing and progressing well.
Delivering on our significant K7 environmental investment
programme
Work to deliver on our largest environmental improvement
programme to date continues at pace, with total investment for
2023/24 expected to be in excess of c.GBP 400 million.
Our c.GBP100 million K7 WaterFit investment programme focused on
Devon and Cornwall, is now well underway. This programme targets
improving river and coastal waters through increasing storm
storage, sewer separation and employing nature-based solutions to
divert flows. To date, work on over 70 improvement schemes is
either complete or underway at 49 bathing beaches.
As the roll out of our WaterFit interventions continue, we
expect to see further improvements to performance and remain
confident in achieving our 2025 commitments.
Through our pollutions incident reduction plan, established in
2020, we have consolidated the gains made in reducing pollution
incidents by c.50% in K7 to date across the network. Dynamic plans
are in place to deliver the trajectory of improvements required to
achieve our 2024 target.
Strategically well positioned to double base RORE returns
Across our water and wastewater operations, colleagues have
worked around the clock to deliver on our commitments to customers,
communities and the environment. These efforts are having a
positive impact, and as result we anticipate a reduction in the net
ODI penalty for 2023/24.
Given the current macro-environment we now anticipate higher
regulated capital value (RCV) growth reflecting updated forward
assumptions on inflation. Factoring in this, and all midnight
adjustments, we anticipate an opening RCV of c.GBP5.4bn[2] at the
beginning of the next regulatory period (2025-30). This c.GBP200m
additional value on our previous guidance would broadly equate to a
c.2.5% reduction in gearing, and as we move into K8 we are
confident that our gearing will remain within our well-established
range of 55-65%.
Whilst finance costs for 2023/24 are reflective of the elevated
inflationary and interest rate environment, our agile and efficient
financing strategy has ensured we continue to be strategically well
positioned in the current macro-environment. In the current
regulatory period to 2023/24 we continue to anticipate a cumulative
doubling of base returns on regulated equity (RORE), with the
structure of our financing portfolio driving significant financial
outperformance.
Financial performance for 2023/24 is expected to be weighted
into H2, reflecting lower power costs, and the realisation of
further efficiencies as we continue to unlock synergies from the
integration of Bristol Water and reshape our organisation for
K8.
Investing in renewable generation - Pennon Power
To date we have announced expected investment of c.GBP145
million at four recently acquired sites across the UK which will
deliver c.135 GWh of electricity on an annual basis, with
additional battery storage of 60 MW. This investment helps
accelerate the Group's Net Zero 2030 target of 50% self-generation,
whilst de-risking exposure to volatile global power markets, and
offering attractive commercial returns.
Development of these projects is proceeding in line with our
expectations, with construction expected to commence during H2
2023/24 at our Dunfermline site, announced in June 2023.
Construction at the sites announced in July 2023 is expected to
commence over 2024, with the full portfolio of assets on track to
contribute to Group earnings in 2025/26.
South West Water's business plan for K8 (2025-30) - The Right
Deal for Right Now
South West Water has today submitted its five-year business plan
for the period 2025-30 to Ofwat. The GBP2.8bn package of capital
investments outlined are built around addressing four key
challenges; storm overflows and pollutions, water quality and water
resilience, delivering Net Zero and environmental gains, whilst
ensuring bills remain affordable for all. The plan is underpinned
by a robust balance sheet with expectations of gearing remaining
within our well-established range of 55-65%.
Full details of the Business Plan, along with an investor
summary of the plan can be accessed here .
A spotlight presentation on PR24 will be held for investors and
analysts at 08:00am on Thursday 5(th) October, followed by a live
Q&A at 08:45am.
PR24: Spotlight Presentation and Conference Call
Please register here:
https://www.pennon-group.co.uk/investor-information
Conference call dial in details:
United Kingdom (Local): +44 20 4587 0498
United Kingdom (Toll-Free): +44 800 358 1035
Global Dial-In Numbers
Access Code: 372707
For further information, please contact:
+44 (0)1392 443
Pennon Group plc 168
Paul Boote Group Chief Financial Officer
Jennifer Cooke Group Head of Investor Relations
+44 (0)207 251
Media Enquiries 3801
James Murgatroyd FGS Global
Harry Worthington
Cautionary statement in respect of forward-looking
statements
Certain statements in this announcement are forward-looking
statements relating to the Group's operations, performance and
financial position based on current expectations of, and
assumptions and forecasts made by, management. They are subject to
a number of risks, uncertainties and other factors that could cause
actual results, performance or achievements of the Group to differ
materially from any outcomes or results expressed or implied by
such forward-looking statements.
The Group's principal risks were described in the 2023 Pennon
Group Annual Report which can be viewed online at
http://annualreport.pennon-group.co.uk . Such forward looking
statements should therefore be construed in light of such risks,
uncertainties and other factors and undue reliance should not be
placed on them. They are made only as of the date of this
announcement and no representation, assurance, guarantee or
warranty is given in relation to them including as to their
accuracy, completeness, or the basis on which they are made.
No obligation is accepted to publicly revise or update these
forward-looking statements or adjust them as a result of new
information or for future events or developments, except to the
extent legally required. Nothing in this Statement should be
construed as a profit forecast.
[1] Real, 2022-23 prices, in comparison to anticipated capital
investment of GBP1.3bn over the current regulatory period, using
the same price base.
[2] Including proposed c.GBP100m smoothed revenue adjustment
into RCV.
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END
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