TOP NEWS: Pennon reports widened loss; CMA opens consultations

(Alliance News) - Pennon Group PLC on Tuesday reported an increased loss but a higher dividend, ...

Alliance News 21 May, 2024 | 9:29AM
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(Alliance News) - Pennon Group PLC on Tuesday reported an increased loss but a higher dividend, as the UK Competition & Markets Authority opened public consultations relating to the firm's takeover of Sutton & East Surrey Water.

Citing the recent wet weather, the Exeter, England-based water utility said pretax loss widened to GBP9.1 million in the financial year ended March 31, from GBP8.5 million a year ago.

Pennon shares fell 7.1% to 665.35 pence each on Tuesday morning in London.

Pennon recommended a final dividend of 30.33 pence per share, up from 29.77p one year prior and bringing the total payout to 44.37p, up 3.8% from 42.73p.

Revenue climbed 14% to GBP907.8 million from GBP797.2 million.

Pennon pointed out that its sewer flooding performance was "sector-leading" with 100% bathing water quality for the third consecutive year. It emphasised that it had invested GBP583 million in water business to protect the environment.

Despite this, it noted that exceptional rainfall had driven headline increases in storm overflow and pollutions.

The company noted that regarding organic underlying revenue, outcome delivery incentive (ODI) penalties offset inflationary tariff increases. ODIs provide water utilities with rewards should they meet in line with performance targets.

The ODI penalties for South West Water for financial 2024 totalled GBP12.1 million, multiplied from GBP4.2 million in financial 2023.

South West Water is currently working on returning clean and safe water following a parasite outbreak in Devon, which has left at least two people hospitalised. The UK Health Agency has confirmed 46 cases of the waterborne disease cryptosporidiosis, which is caused by the parasite cryptosporidium and can cause diarrhoea, stomach pains and vomiting.

Pennon expects further ODI penalties in financial 2025. "South West Water continues to build on its ODI performance with around 70% either on track or ahead of target," Pennon said.

Operating expenses classified as "other" increased 8.1% to GBP421.0 million from GBP389.5 million. Net finance costs came in 12% higher at GBP162.8 million from GBP145.8 million.

Depreciation & amortisation costs increased 11% to GBP172.0 million from GBP154.7 million. Employment costs increased 13% to GBP115.5 million from GBP102.2 million. Costs for raw materials and consumables used increased 54% to GBP51.8 million from GBP33.6 million.

Notably, finance income dropped 54% to GBP12.6 million from GBP27.6 million.

Net debt as at March 31 increased 17% to GBP3.48 billion from GBP2.97 billion.

Looking ahead, Pennon eyes organic revenue growth driven by combined impact of inflationary tariff increases and growth in non-household retail businesses.

Also on Tuesday, the UK Competition & Markets Authority said it has opened a consultation on Pennon, regarding undertakings offered by Pennon over its completed takeover of Sumisho Osaka Gas Water UK, which included subsidiary Sutton & East Surrey Water.

Pennon agreed to the deal, which has an enterprise value of GBP380 million including debt, in January.

"To address the CMA's concerns, Pennon has offered to provide separate reporting information for SES from the rest of Pennon's water businesses post-merger. The proposed undertakings would enable Ofwat to maintain a separate wholesale water price control for SES, and the flexibility to maintain different or consistent performance targets and incentives," the regulator said.

The CMA has until July 16 to consider whether to accept the offer by Pennon. The watchdog is now consulting publicly whether the proposal is sufficient to address its concerns. The deadline for interest parties to make their views known is June 5.

The CMA had launched a phase 1 merger inquiry into the deal in March and earlier this month said the deal could face a deeper investigation should "acceptable" undertakings not be made by Pennon.

By Tom Budszus, Alliance News slot editor

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Pennon Group PLC 610.00 GBX 1.58 -

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