Bringing resources to life
Chris Loughlin, Pennon Chief Executive said:
“Pennon has delivered another year of strong performance across the Group, fulfilling our promises to customers and communities in a responsible and sustainable way.
Viridor is delivering sustainable growth in UK recycling and residual waste management. The existing portfolio of Energy Recovery Facilities is performing well, transforming waste into electricity and heat and underpinning Pennon's earnings growth beyond 2020.
Market dynamics continue to be favourable with the 'Blue Planet' effect spurring action, while the Government's recent Resources & Waste Strategy will encourage positive reform. Today we are announcing the first part of Viridor's next growth phase with significant investment in a new, state of the art plastics processing facility. The facility will be powered by low carbon energy from our Energy Recovery Facility in Avonmouth, adding much-needed recycling capabilities to the UK market.
South West Water has invested over £7 billion since 1989 with over £650 million invested in this regulatory period alone. This investment enabled South West Water to demonstrate its resilience over the course of this year in extreme weather conditions, recording the lowest ever supply interruptions and again meeting our leakage target. Our focus on delivering sector-leading customer experience has been reflected in our highest ever customer service score, being ranked 2nd out of all water and wastewater companies for the quality of service.
Our ambitious 2020-25 business plan received fast-track status from the regulator for the second consecutive review, the only water company to achieve this. Customer bills will be lower in 2025 than they are both today and fifteen years ago. Two thirds of South West Water employees are also our shareholders and our proposed 'New Deal' will give our South West Water customers a financial stake in the business from 2020.”
Financial Highlights
|
Underlying[1] |
2018/19 |
2017/18 |
Change |
|
Revenue |
£1,478.2m |
£1,393.0m |
+6.1% |
|
EBITDA[2] |
£546.2m |
£509.6m |
+7.2% |
|
Adjusted EBITDA[3] |
£592.7m |
£562.3m |
+5.4% |
|
Operating profit |
£351.0m |
£323.9m |
+8.4% |
|
Profit before tax (PBT) |
£280.2m |
£258.8m |
+8.3% |
|
Non-underlying items before tax[4] |
(£19.9m) |
£4.1m |
– |
|
Statutory profit before tax |
£260.3m |
£262.9m |
(1.0%) |
|
Tax |
(£37.7m) |
(£41.0m) |
+8.0% |
|
Statutory profit after tax (PAT) |
£222.6m |
£221.9m |
+0.3% |
|
|
|
|
|
|
Underlying earnings per share[5] |
57.8p |
50.9p |
+13.6% |
|
Statutory earnings per share |
51.1p |
48.0p |
+6.5% |
|
Dividend per share[6] |
41.06p |
38.59p |
+6.4% |
Pennon Group
· Pennon has delivered robust performance in 2018/19, in line with management expectations
· Underlying PBT up +8.3% driven by:
o EBITDA growth of +19.1% at Viridor supported by the build out and performance of our Energy Recovery Facilities (ERFs)
o Higher revenues and EBITDA at South West Water reflecting increased customer demand over the summer, net of costs to deliver the resilient service to customers
o c.£17 million p.a. Group efficiencies secured in line with expectations
· Statutory PBT at £260.3 million, after non-underlying items of £19.9 million, broadly comparable with prior year
· Statutory earnings per share growth of 6.5% to 51.1p, reflecting efficient hybrid financing
· 2018/19 dividend per share up +6.4% to 41.06p
· Cash flow from operations reflecting robust operational performance, whilst significant capital investment for growth continues, including increased holding in Runcorn I ERF joint venture
· Development of our Sustainable Financing Framework, with £600 million of the £830 million debt raised during the year linked to the sustainable nature of the business, reducing our costs and reflecting our environmental and social credentials
Viridor
· Focus on de-risked infrastructure model, backed by index linked long-term contracts
· Excellent track record, successful diversification and growth – capitalising on UK waste strategy
· Successful execution of ERF portfolio – continued outperformance in 2018/19
o Availability >90% for third consecutive year – top quartile for the industry
o Operational performance in excess of base case IRR assumption of 8%
o Increased ERF like for like performance compared with last year – portfolio EBITDA margin c.60%
o Build out of ERFs supporting strong growth in EBITDA of +19.1%[7] – three new ERFs delivered, with construction of Avonmouth on track
o Increased stake in Runcorn I ERF joint venture and investment in additional throughput capacity at Glasgow
· Confidence in long-term market outlook
o Government Resources & Waste Strategy aligned to Viridor strategy
o Plastics on fast-track driven by 'Blue Planet' effect
o ERF market fundamentals remain strong
o Landfill continued feature of UK waste in the medium term
· Future growth opportunities, developing options for new ERFs, Energy Parks and plastics recycling
· Investment in plastics recycling – leveraging our plastics skill set
o Co-located at Avonmouth ERF using energy and heat off-takes
o £65 million investment in de-risked infrastructure model backed by index linked contracts
o Secured three quarters of inputs (third party and Viridor) and half of plastic offtake (third party)
o 80,000 tonnes per annum capacity representing 8% of current market requirement
o Handles multi-stream[8] plastics and will produce pellets directly for manufacturers from 2020/21
South West Water
· Strong performance, demonstrating service resilience through extreme weather conditions
o Lowest ever supply interruptions, and leakage target met again this year
o Highest ever customer service (SIM) score of 88 achieved in both regions
o South West Water now ranked 2nd overall in the industry for quality of service
· Sector leading outperformance in K6 (2015-20)
o Cumulative Return on Regulated Equity (RORE) at 11.8%[9]
o WaterShare delivering c.£110 million of outperformance for sharing with customers
o On track to deliver all our business plan commitments by 2020
· 'New Deal' Business Plan for K7 (2020-25) awarded 'fast-track' status for its quality, the only water company to achieve this for two successive price reviews
o Highest outperformance potential – confidence in outperformance in all areas
o Strong platform for ODI performance in K7
o Fast start to next period already underway
Pennon Water Services
· One of only five associated retailers to have achieved net growth in the new competitive non-household market. Focused on value enhancing contracts and future cost base efficiencies.