Pennon, owners of South West Water and one of the UK’s largest environmental infrastructure groups, said it intends to review its strategic options in the light of good performances by both the water company and its waste business Viridor.
“Given the strong financial performance and operational progress of Viridor and South West Water, coupled with the imminent start of the new K7 regulatory delivery period for South West Water and the near and medium-term growth opportunities at Viridor, the Pennon Board has concluded that it is an appropriate time to conduct a full review of the strategic focus, growth options and capital allocation policy for the Group”, Pennon said.
In a trading update ahead of its results for the half year ended 30 September 2019, Pennon said that South West Water was continuing to deliver strong operational and financial performance and remains on track to deliver continued Totex outperformance) outperformance of c.£300 million savings for AMP6.
The water company had continued to deliver resilient operational performance with no water restrictions for the 23rd consecutive year. Pennon said revenue for H1 2019/20 had reduced to a more normal level compared with H1 2018/19, in line with revenue control expectations. The exceptionally hot, dry summer of 2018 resulted in higher revenue which has not been repeated this year.
Having secured fast-track status South West Water is “comparatively well placed” for AMP7, the update says.
Viridor’s ten operating Energy Recovery Facilities (ERFs) are performing well - optimisation and operational ramp-up for the Glasgow, Beddington and Dunbar ERFs commissioned in 2018/19 is underway. Avonmouth, the final ERF in the current portfolio, is on track for commissioning during H2 2019/20 with operational ramp-up from 2020/21. Construction at Viridor’s recently announced £65 million plastics reprocessing facility co-located with Avonmouth ERF is also underway - the plant is set to contribute to earnings from 2020/21.
Pennon reiterated its Capital Markets Day comment earlier this year that it remains confident in the UK residual waste sector fundamentals, with further capacity required to meet longer term demand.
The Group is continuing to develop options for up to three new ERFs, and as a first step towards one of the three new ERFs has now signed Heads of Terms with Grundon Waste Management Ltd for a new joint venture in Ford, West Sussex.
Pennon said:
“We see plastics reprocessing as an exciting area of growth and see opportunities to increase our market share in this area.”
“We see strong market fundamentals in plastics recycling and reprocessing and we are exploring investment opportunities for two further reprocessing facilities co-located with our ERFs in Ardley, Oxfordshire and Dunbar, near Edinburgh.”
Commenting on Brexit, the statement says Pennon continues to actively monitor and evaluate the potential risks and opportunities arising from any potential Brexit scenario and has plans in place to mitigate key risk areas.