Pennon Group, owners of South West Water has announced it will continue with its current dividend policy of year-on-year growth of 4% above RPI inflation to 2019/20.
Commenting on its group dividend policy for 2015 – 2020 in a pre-close trading statement published this morning, Pennon said it is well positioned to continue to generate increasing operating cashflows and shareholder value over the AMP6 (2015-2020) regulatory period.
Pennon Board said this means up to ten consecutive years (2010-2020) of 4% real dividend growth to shareholders. As previously announced, the 2014/15 tariff freeze for South West Water, and the allowed revenue foregone, will impact profits for 2014/15. However, the revenues have been taken into account in Ofwat’s Final Determination for AMP6 and will be recovered over 2015-2020 on an NPV neutral basis.
The statement says:
“Building on the success of its enhanced status and track record of efficiency and outperformance, South West Water is well placed to deliver the 2015-2020 regulatory contract and will have an opportunity to generate returns for shareholders ahead of the assumed returns on equity.”
The Group said South West Water’s sister company Viridor has made excellent progress in establishing its Energy Recovery Facility ERF (previously referred to as Energy from Waste (EfW) facility. which would “contribute meaningfully” to growth in profits and cashflow.
South West Water is currently finalising the successful delivery of its AMP5 2010-2015 regulatory contract, outperforming on its targets for both customers and shareholders.
The Board said acceptance of Ofwat’s Final Determination in December 2014 had brought to a close a successful price review process for South West Water and represented an excellent outcome for investors and for customers.
Pennon said the award of enhanced status to South West Water’s Business Plan would translate into a tangible financial benefit for Pennon, as well as enabling a swift and smooth transition into the next regulatory period. Delivery of key projects – including those which improve the region’s bathing waters and water quality – have been advanced into 2014/15 delivering benefits for customers and investors alike. Pennon added that accelerating projects would also assist in delivering outcomes and cost efficiencies in a timely fashion.
Sister company Viridor has reached what the Board describes as an inflexion point in the strategic re-orientation of the business in its ongoing transformation from being predominantly a landfill business to becoming a leading renewable energy and recycling provider. The Group reported strong progress in the development of its ERF asset base: four new ERFs are already on stream in 2014/15 with a fifth due shortly, adding to the existing Lakeside and Bolton operational ERF assets. Two thirds of the portfolio capacity now in operation. Viridor’s strategy remains focused on transforming waste by adding substantial value through renewable energy generation and recycling.
Pennon Group will announce its Preliminary Results for 2014/15 in May 2015.