Pennon Group, owner of South West Water, Bournemouth Water and Bristol Water, has raised its final dividend in line with its dividend policy– despite falling from a profit of £127.7 million in 2021/22 to a pretax loss of £8.5 million in 2022/23 in “an extraordinary year” which has tested its operational resilience.

The loss came on the back of a 4.1% rise in revenue to £825.0 million – up from £792.3 million in the previous year.

Commenting on the Group’s final results for the financial year ending March 31 2023, Susan Davy, CEO of Pennon Group, said:

“This has been an extraordinary year for Pennon in which extreme weather patterns have tested our operational resilience. At the same time, inflationary pressures have tested our financial resilience.

“We have been able to respond to both, with agility and pace, pivoting to focus on the things that matter right now, and tackling the biggest challenges head on. Whether it’s the use of storm overflows, water resilience, the cost of living crisis or climate change, we are investing more than ever

before.”

Susan Davy has previously announced she will forgo her bonus with the equivalent amount being invested into the Group’s WaterShare+ which directly benefits customers.

Pennon has attributed to the loss to inflationary pressures, including a 27% rise in operating costs to £517.2 million up from £408.4 million the year before. Underlying earnings before interest, tax, depreciation and amortisation fell by 20% to £307.8 million from £383.9 million the year before due to an increase in power costs. Adjusted earnings per share of 7.3 pence were down from 50.2 pence in 2021/22.

However, the Group is reporting a resilient, financial, and operational performance amid inflation pressure and a stronger focus on agile action. Performance highlights include:

Improving environmental water quality

• c.50% reduction in pollution incidents since 2020, c.30% reduction delivered in 2022.
• c.30% reduction in storm overflow use over 2022 to an average of 285 (2021: 39) and a c.50% reduction during the bathing season. This is supported by our WaterFit investment, which remains on track to reduce releases to an average of 205 by 2025.
• Installation of monitors at 100% of storm overflows completed, one year ahead of target.
• Achieved 100% bathing water quality, as assessed by the Environment Agency, for the second consecutive year, with 99% achieving good or excellent status.
• Reduced impact on rivers by almost one third to date, from 19% to 12.6%6, well ahead of our target of 12% by 2025, and river water quality pilots underway.

Water resilience and quality

• Investing c.£125 million to diversify water resources and secure future resilience – progressing desalination solutions, installing new pipelines and repurposing quarries.
• Significant increase in water resources available by 2025 – Cornwall by c.45%7 (c.25% delivered to date), Devon by c.30%7 (c.12% delivered to date).
• Climate change and Net Zero
• Delivering on its Net Zero 2030 plan, having already reduced its carbon footprint by c.40% since 2021.
• c.£160 million investment to accelerate our Net Zero 2030 commitments - first site acquired in Dunfermline producing c.40 GWh for acquisition and build costs of c.£35 million, additional opportunity for 60 MW battery storage capacity totalling c.£25 million.
• 80% of catchments improved, >110,000 hectares improved to date, 220,000 trees planted.

Addressing customer affordability

• Keeping bills as low as possible – below inflation bill increases for South West Water and Bristol Water customers in 2023/24.
• Over £85 million of customer benefits delivered in K7 to date
• Second £20 million issuance of our unique customer sharing mechanism – WaterShare+, with Bristol Water customers also benefitting for the first time
• Over 110,000 customers benefitting from affordability initiatives
• 23% increase in customers accessing support tariffs

Financially resilient

• Year on year reduction in gearing to 60.8%, broadly in line with Ofwat’s notional assumption.
• Pension scheme c.£29 million surplus – 2022 valuation agreed, no ongoing deficit recovery.
• Strong, double-digit RORE for South West Water – 11.1%, Bristol Water – 4.6%.
• Outperformance supporting reinvestment in additional environmental initiatives.
• Delivering on its largest ever environmental investment programme
• c.50% increase in capital expenditure in 2022/23, investing over £750 million over the next two years to deliver a c.£1.5 billion K7 programme.
• RORE outperformance and Pennon balance sheet strength supporting reinvestment in accelerated and additional initiatives totalling c.£300 million over K7.
• Investment of c.£358 million in 2022/23 across its asset base to support the delivery of environmental, water and wastewater service outcomes.
• c.70% of Outcome Delivery Incentives^ (ODIs) on track or ahead of target for SWW
• c.65% of Outcome Delivery Incentives on track or ahead of target for Bristol Water.