Pennon Group on track to deliver results in line with management expectations


Pennon Group plc (LON:PNN) has announced the following trading update for the year ending 31 March 2023.

Pennon Group is on track to deliver results in line with management expectations. Full year 2022/23 results will be announced on 1 June 2023.

Key highlights

·    Bristol Water licence merger successfully completed in February 2023

·    Reinvesting outperformance in South West Water to increase water resilience and enhance the environment – on track to continue the delivery of double base returns on regulated equity (RORE) in 2022/23, driven by our strategically positioned financing portfolio

·    Accelerating environmental capital expenditure – record c.40% increase year on year

·    Driving improvements in underlying EPA[i] performance, with a c.30% reduction in pollution incidents in 2022

·    Delivered c.100% coverage monitoring storm overflows – one year ahead of plan

·    Reducing releases from storm overflows, with a 30% reduction in 2022

·    Water resilience initiatives progressing well – innovative ‘Stop The Drop’ campaign highly successful and delivered £30 benefit per household[ii]

·    Operating a socially responsible business – supporting all customers

o  Below inflation bill increases for 2023/24

o  WaterShare+ second £20 million issuance completed, including Bristol Water customers, with more households than ever before now shareholders

o  Over 100,000 customers benefiting from one of more of our extensive affordability initiatives.

Investing for growth and resilience

Bristol Water merger

Following clearance from the CMA in 2022 the merger of South West Water and Bristol Water completed on 1 February 2023 with the combined water business now operating under one licence. The merger and statutory transfer mark a further step on our integration blueprint, focused on bringing together the best of the best to realise operational and service improvements across the Group.

Renewable energy generation

We are accelerating our plan to achieve c.50% self-generation by 2030, which forms part of our broader Net Zero 2030 commitment. We are in advanced discussions with a range of counterparties offering large scale solar development opportunities at sites situated across the UK, ranging in capacity up to 60 MW. These opportunities, which would be initially funded through the Group capital allocation of c.£160 million, offer the potential for attractive commercial returns, with actionable near-term development timelines.

The rollout of solar generation across our operational sites is continuing and alongside our dynamic hedging strategy, we have delivered an incremental increase in our hedging position for 2023/24 with two thirds of energy needs now de-risked, providing protection from global market volatility.

Water resilience

Following some of the driest, hottest weather on record in 2022, and more recently a very dry February, the drought status declared in the South West by the Environment Agency last year remains in place. Our focus remains on securing resilient water supplies for current and future generations through investment in a suite of innovative solutions and engaging with customers to ‘Save Every Drop’.

Our industry-first ‘Stop the Drop’ campaign launched in November 2022 successfully incentivised customers to reduce their usage to support reservoir recharges in Cornwall, resulting in a customer payment of £30 per household.

The investments we outlined at our half year results in November 2022 are now well underway. We anticipate the first of our innovative de-salination facilities will be operational later this year, significantly boosting our water resource capacity. In addition, Hawkstor reservoir, purchased in March 2022, is fully operational and supporting Cornwall’s supplies.  Our dedicated teams continue to work around the clock to ensure clean, safe and reliable supplies for customers, supporting the 24/7 recharging of our strategic reservoirs in readiness for the summer period.

Delivering improved environmental performance

Pennon Group are delivering on our ambitious environmental improvement plans and are making good progress towards sector-leading targets, whilst recognising there is still more to do.

We have improved our wastewater pollutions performance by over 50% in two years, including a 75% reduction in serious pollutions in 2022 from 8 to 2, alongside our best ever wastewater treatment works compliance at 99.4%. We remain on track, and confident in achieving, 4* EPA for 2024.

Since the launch of our WaterFit programme in April 2022, we have significantly progressed our commitments to protect and enhance coastal and river water quality, with 100% bathing water quality achieved for the second consecutive year, as measured by the Environment Agency. We accelerated the installation of monitors across our network of c.1,600 storm overflows and now have 100% coverage. We are also making excellent progress toward our 2025 target to achieve a reduction in releases from storm overflows, equivalent to an average of 20 per asset, per year delivering a c.30% reduction during the year, and ahead of our 2022 glidepath at 28 for 2022.

During March we will be launching the first phase of WaterFit Live – Your Say, Your Beach, Our Investment – a digital resource focused on providing customers with detailed updates on storm overflows and bathing waters. We have been engaging extensively with key stakeholders across the region to ensure we’re delivering on our regional responsibility and providing stakeholders with the information they need.

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