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RNS Number : 8066T
Pennon Group PLC
25 March 2019
25 March 2019
PENNON GROUP PLC
Trading Statement
Pennon, one of the UK's largest environmental infrastructure
groups, is issuing the following update ahead of its results for
the year ended 31 March 2019, which will be announced on 30 May
2019.
Group underlying financial performance in line with expectations
for 2018/19
Key highlights
-- South West Water business plan for the period 2020-2025 'fast tracked' by Ofwat
-- Momentum continuing in South West Water, with sector leading customer service and an enhanced Return on Regulated
Equity (RORE)
-- Operational ramp up for Glasgow, Dunbar and Beddington Energy Recovery Facilities (ERFs) progressing well,
construction of Avonmouth well advanced
-- Viridor's strategic focus on recycling and residual waste aligned with Government's Resources and Waste
Strategy
-- Strong liquidity and funding position - GBP680 million of financing secured so far this year, of which GBP450
million is under Pennon's sustainable financing framework.
South West Water momentum continuing, business plan 'fast
tracked' by Ofwat
South West Water continues to deliver strong operational and
financial performance, with a focus on efficiency and customer
service. RORE is on track for consistent continued outperformance
for 2018/19 with an expected cumulative rate of 11.8%.
Continuing its strong customer service performance this year,
South West Water was ranked first in the Ofwat industry customer
experience survey for the third quarter and is expected to see a
further increase in its overall customer service score for 2018/19.
Despite unprecedented demand due to the prolonged dry weather over
the summer, operationally our infrastructure has performed well
this year with no water restrictions for the 22(nd) year in a row.
Operations are focused on replenishing water resources in H2
2018/19. Revenue from increased customer demand over the summer is
expected to broadly offset the operational cost of delivery.
Momentum is being maintained in respect of achieving both the
GBP300 million target for Total Expenditure (Totex) outperformance
and delivery of further net Outcome Delivery Incentive (ODI)
rewards.
South West Water's business plan for 2020-2025 has qualified for
a 'fast track' process, the only water company to have achieved
this status for two consecutive price reviews.
Viridor's ERF delivery driving underlying EBITDA growth
The three new ERFs at Glasgow, Beddington and Dunbar have all
progressed through commissioning to service commencement ahead of
full operation. Optimisation is ongoing and operations will
continue to ramp up over the next 18 months in line with the
pattern experienced already in our existing portfolio.
In line with management expectations, the existing assets in our
ERF portfolio have continued to perform ahead of our base case
scenario, underpinning the full year results forecast.
Work at the Avonmouth ERF has progressed as expected this year
with all major process equipment parts and steelwork for the
building in place.
We remain confident that the recycling business is on track for
full year results in line with our expectations. Recyclate prices
have remained largely stable over the period albeit with increasing
customer quality requirements in line with recent trends. Viridor
has continued with targeted investment in its recycling assets in
order to improve output quality, including a focus on reliability
centred maintenance and working with its customers to improve the
quality of input materials.
We continue to see a positive future for the recycling business,
with the announcement of the Government's Resources and Waste
Strategy aligning with Viridor's strategy and key priorities and
with opportunities for contract backed asset investment.
Strong liquidity and funding position
Since 31 March 2018, Pennon has secured GBP680 million of
financing so far this year, GBP450 million of which has been
through the use of its sustainable financing framework.
Receivable due from Interserve for Glasgow Recycling Renewable
Energy Centre (GRREC)
Pennon's half year results recognised a gross receivable of
GBP72 million due from Interserve Construction Limited.
As the amounts recoverable from Interserve Construction Limited
related to rectification and completion costs, under accounting
standards (IFRIC12), the difference between the gross contractual
receivable of GBP72 million and the expected recovery will be taken
directly to the income statement.
At H1 2018/19, taking into account an assessment of market
indicators of credit risk, a provision of GBP8 million was
recognised against the receivable. We have continued to monitor
Interserve's financial condition and currently we are recognising a
provision of GBP16 million. The GBP16 million non cash provision
recognised to date will be reported as a non underlying item.
Given the recent announcements regarding Interserve plc entering
into administration we are seeking further clarification regarding
the financial position of Interserve Construction Limited the
ongoing operating company with whom we contracted, which may change
the level of provision to be announced with the full year 2018/19
results on 30 May 2019.
We will continue to pursue recovery of all amounts due from the
operating subsidiary Interserve Construction Limited and will take
all the necessary legal and procedural steps to achieve this.
Outlook
In September 2018, South West Water submitted its Business Plan
to Ofwat for the next five year period 2020-2025. Given our 'fast
track' status, a Draft Determination is expected on 11 April 2019,
with the Final Determination in December. We are well positioned to
deliver outstanding services to customers through K7
(2020-2025).
We remain confident in the UK residual waste sector
fundamentals, with further capacity essential to meet longer term
demand.
With our clear strategy of focusing on the UK water and waste
market, supported by a strong balance sheet, Pennon is well-placed
to continue to deliver for customers, communities and
shareholders.
Full Year Results - 30 May 2019
Pennon intends to announce its full year results for 2018/19 on
Thursday 30 May 2019. Further information on Pennon, Viridor and
South West Water can be found on the Group's website,
www.pennon-group.co.uk.
For further information, please contact:
Pennon: Susan Davy Chief Financial Officer
Sarah Heald Director of Corporate Affairs & Investor Relations
Jennifer Cooke Investor Relations Officer
01392 443 168
Finsbury: James Murgatroyd
Faeth Birch
0207 251 3801
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 2018 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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March 25, 2019 03:01 ET (07:01 GMT)
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