Pennon Group's combined water business of South West Water and Bournemouth Water is continuing to deliver a strong performance, according to its latest trading update issued today..
Return on Regulated Equity (RoRE) for the combined water business is on track for continued outperformance in 2016/17 (11.7% reported for 2015/16), supported by Totex outperformance, cost savings and synergies.
According to the update, South West Water has continued to experience higher customer demand in H1 and is focused on delivering further Total Expenditure (Totex) savings from efficiency initiatives outlined at the 2015/16 full year results.
Commenting on the update, Chris Loughlin, Pennon Chief Executive said:
“Pennon has made a good start to 2016/17 delivering a strong performance across both water and waste. The portfolio of energy recovery facilities is performing in-line with expectations and remains on track to contribute the targeted c.£100m of EBITDA this year. South West Water continues to significantly outperform its regulatory contract and we anticipate achieving a sector-leading Return on Regulated Equity again this year. Our Shared Services Review, which will result in cost savings, supports our strategy of working more closely as a group. With this clear strategy and our strong balance sheet, Pennon is well-placed to continue to deliver for customers, communities and shareholders.”
At Viridor, Pennon's waste subsidiary company, the portfolio of eight operational ERFs is continuing to perform well with three further ERFs under construction. The Board will also take a decision this year on whether to proceed with the investment in an additional ERF at Avonmouth, near Bristol.
Ongoing cost reduction plans announced in 2015/16 are progressing well, the update says. These included c.£27 million of net synergies by 2020 from the integration of South West Water and Bournemouth Water and c.£11 million a year of enduring financial benefits by 2017/18 from additional Totex outperformance over and above existing plans at South West Water and reorganisation, restructuring and streamlining of overheads at Viridor.
In addition to the plans announced in 2015/16, the Shared Services Review is expected to deliver net additional efficiencies - an update will be provided at the half year results.
Pennon is expecting to deliver a strong 2016/17 performance in-line with management expectations. As expected, capital expenditure across the group is forecast to be higher than 2015/16, reflecting South West Water’s investment in the Mayflower water treatment works in North Plymouth, as well as waste water improvements, and the profile of investment in the ERF portfolio.
Pennon intends to announce its half year results for 2016/17 on Friday 25 November 2016.