A report in The Times newspaper on Friday says that Pennon, owner of South West Water and Bournemouth Water, will have funds available to “splash cash” on more takeovers following the sale of its waste business Viridor for £3.7 billion.
According to Pennon’s annual results published last Friday for the financial year ended on 31st March 2020, following the sale of Viridor, it will now focus on its sector leading water and wastewater businesses and continue to pursue growth within the UK water industry.
Unlike some of the other UK water companies, Pennon has paid out the annual dividend to its shareholders – total dividend per share rose +6.6% to 43.77p. Pennon said the Board had evaluated the Group’s dividend for 2019/20 in light of the COVID-19 pandemic and concluded that it was appropriate for Pennon to continue to deliver on its dividend commitment.
According to the annual results report, the re-based dividend reflects the sector leading position of the continuing group, with expectations for outperformance on financing and Totex supporting the sustainable dividend growth policy and dividend cover.
Commenting on the financial impact of COVID-19 on its 2019/20 financial results, Pennon said these had been limited to the expected credit losses on customer debt across the Group (£9.0 million provision recognised) with the largest impact for non-household business customers of c.£5.0 million. There has been no significant additional Totex impact as a result of the pandemic to date.
The group has £1.6 billion of cash and committed facilities providing strong liquidity and funding with £840 million of new or renewed finance raised in 2019/20, including £245 million of funding through the Sustainable Financing Framework for South West Water.
South West Water’s capital expenditure in the year was £161.0 million, compared to £154.0 million in 2018/19, in addition to expenditure accelerated to make an early start on key AMP7 initiatives.
Photo: SW Water's innovative Mayflower water treatment works at Plymouth
Key areas of investment and activity during 2019/20 included:
- Further investments in its drinking water quality programme including installation of granular activated carbon (GAC) treatment at College water treatment works in Cornwall. The £10 million project will improve the resilience of water quality for c.35,000 customers
- Continued investment in the network to drive leakage reduction to support pledges made in the next regulatory period
- Investment in the Plymouth region to improve resilience of water supplies with the completion and commissioning of the Mayflower water treatment works and upgrades to the network and pumping stations
- Schemes to deliver National Environment Programme (NEP) commitments, including phosphorus and ammonia discharge reductions
- Continued improvements at wastewater treatment works, including flood resilience and at pumping stations to reduce pollution incidents
- Investment for growth to meet increases in supply and demand
- Early preparations for the new water treatment works in Bournemouth, building on the innovative investment at Mayflower
Chris Loughlin, Pennon Chief Executive, commented:
“We are pleased with the solid operational and financial performance delivered this year. Viridor has continued to drive growth while South West Water has maintained its sector leading returns.
“It has been a landmark year for Pennon, culminating in the announcement in March of the proposed sale of Viridor to KKR for an Enterprise Value of £4.2 billion. Viridor has become a leader in engineering excellence, new technology and tackling environmental challenges, and the transaction recognises the strategic value that has been created over many years, accelerating the realisation of that value for shareholders.”
“Following the sale, Pennon will be a leading UK-focused water infrastructure group, delivering for customers and providing services in the most efficient and sustainable way possible.“
Completion of the Viridor disposal is expected early summer 2020.
According to the report in The Times, Chris Loughlin had said that the company’s purchase of Bournemouth Water in 2015 had proved to Ofwat and Pennon that “consolidation in the privatised water industry works financially for customers and shareholders” and he was “scanning the possibilities, seeing what the opportunities are” for acquisitions.
The newspaper has flagged up neighbouring water company Wessex Water as an "ambitious target" for a potential acquisition by Pennon.
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