Pennon Group has increased its interim dividend payment despite incurring a significant loss following a parasitic outbreak earlier this year, according to its half year financial results to 30 September 2024.

Loss before tax for the Group increased to £38.8 million reflecting the cost of interventions to return quality water supplies to Brixham (c.£16 million) and the costs of restructuring to reshape the Group’s activities (c.£4 million).

The FTSE 250-listed water company, which owns South West Water, also saw newly acquired Sutton and East Surrey Group (SES) incur a loss for the period – Pennon said it is focused on reducing interest costs and right sizing the cost base to improve profitability.

Pennon is reshaping the Group to drive greater efficiencies as it grows, with improvements in processes and operational effectiveness delivered and in progress of c.£55 million of annualised efficiencies in H1 2024/25. The programme is targeted to deliver the synergies identified through the water company acquisitions of Bristol Water in 2021 and SES in 2024.Four clear business units have been established focused on Water Services, Wastewater Services, Pennon Power and Retail Services.

The balance sheet for the Group is robust with Pennon Group gearing at c.68%8 and total Water Group RCV gearing of 65% (SWW gearing of 64%). Pennon said it has secured

strong investment grade credit ratings with liquidity of c.£675 million in place to support continued investment, a £2.5 billion EMTN ( Euro Medium Term Note ) programme launched and an inaugural £400 million public bond issuance. Pennon said it has access to good liquidity funding through its sustainable financing framework to support a growing capital programme.

Investment in water resource diversification is continuing with the completion of the abstraction and new water treatment works at Rialton, supplementing resources in Cornwall by c.4%, bringing the cumulative resource position to 34% since 2022, with Devon benefitting from the cumulative 30% uplift in availability reported in the 2023/24 results;

Water quality investments renain on track including two new treatment works in Bournemouth which will serve c.85% of the population of Bournemouth – with the first works on track for commissioning by the end of 2024/25.

The Group is tackling sewer overflow spills through its WaterFit 2025 programme - preventing c.12,500 spills with over c.350 interventions, with two thirds of the top spillers in 2023 resolved this year.

Pennon Power solar investments are also on track with construction underway at two sites equating to c.45% of the Group’s targeted generation with first energisation expected at the end of 2024/25.

The WaterFit investments are focused on:

• reducing the flows into the network, with 57km of sewers relined to reduce infiltration and completing over 12 hectares of sewer separation
• increasing storage at 60 sites, nearly tripling storage capacity to capture flows that otherwise would have split, returning them for treatment after the storm event
• increasing treatment capacity at 15 wastewater treatment works
• maximising existing capacity at 90 sites through interventions such as increasing weir heights and flow optimisation.

Pennon is reporting strong relative sector performance, achieving upper quartile performance in:

• SWW on internal sewer flooding and water quality for water and sewerage companies; Bristol Water on customer service;
• SES Water on supply interruptions and water quality

The Group said its performance is underpinned by an ‘outstanding’ AMP8 Business Plan - SWW's Business Plan for Bournemouth, Bristol, Cornwall, Devon, and the Isles of Scilly was categorised as outstanding and recognised as a 'leading plan' by Ofwat in July.

Pennon said the Group is “well positioned for a period of significant growth” with a sustainable supply chain in place to deliver its AMP8 programme. The Group’s supply chain ’amplify’ is up and running, delivering accelerated AMP8 investment to tackle the use of storm overflows. Over 1,000 schemes are already underway, with transition expenditure of c.£75 million for storm overflows under its ‘Turning the Tide’ storm overflow investment programme.

Susan Davy, Group Chief Executive Officer, commented:

“Water companies are rightly being challenged to do more for customers today and invest more for the future. We are doing both….

When things go wrong, as they did for customers and businesses in and around Brixham earlier this year, we put it right, with no excuses. But we know we have more to do….

We are putting more resources on the front line than ever before, streamlining our support functions, with clear business lines, aligned to our four strategic priorities.

“Of course, it's not what we are doing but how we do it that also matters. Our operations across the Group need a reliable and efficient power supply and we are investing to increase renewable energy provision through Pennon Power, supporting our Net Zero ambitions.

“Overall, we are well positioned for the future, with lower revenues protected by regulatory mechanisms, as we continue to focus on sustainable growth. Our financial position remains resilient to the challenges ahead, with good liquidity and a diversified debt portfolio. Our plans to restructure the business, as well as the benefits being delivered through integration of SES into our Group, will allow us to deliver efficiently as we move forward.”