South West Water’s parent firm has seen a £16million fall in profit and is expecting more problems as the coronavirus pandemic increases demand for wate rbut cuts the incomes of customers.
Pennon’s full year results to the end of March 2020 revealed after-tax profits had fallen from £222.6million to £206.3million, a 7.3% drop.
It blamed a 2% hike in taxes for the fall, increasing its bill from £37.7million to £95.2millon, and stressed that its underlying profit was therefore up by more than £7million to £287.6million.
Revenue, however,declined from £1,478million to £1,390million, a 6% slip.
The company said it had offset this with efficiencies across the business and earnings growth at its Viridor energy from waste plants.
Pennon is in the process of selling its Viridor waste management arm to investment company Planets UK Bidco Ltd for £4.2billion and is expecting the deal to be finalised during the summer.
Pennon said that even before this cash arrives it is in good financial health, despite the Covid-19 crisis, and said it has £1.6billion in cash to draw on and is “well positioned” for the next five years.
Nevertheless, it has set aside £9million to cover expected non-payments from customers due to the coronavirus and its lockdown.
It is expecting revenue from business customers to reduce, as they are using less water during lockdown, but that this will be offset by increased household demand.
But it expects businesses, retailers and householders will have trouble paying bills, and is looking at support schemes to mitigate the impact.
Furthermore,Pennon expects to receive a net cash sum of £3.7billion from the Viridor sale and will use the money to reduce its borrowings and pension deficit, and “make a return to shareholders”. The company announced a dividend of 44.77p a share.
Chris Loughlin, Pennon’s chief executive,said: “We are pleased with the solid operational and financial performance delivered this year.
“Viridor has continued to drive growth while South West Water has maintained its sector leading returns.
“In these uncertain and difficult times arising from the Covid-19 pandemic we would like to thank all our employees across the group for the incredible hard work and dedication that has contributed to this performance.
“The health, safety and wellbeing of our employees and customers is paramount and continues to be our number one priority.”
He added: “It has been a landmark year for Pennon, culminating in the announcement in March of the proposed sale of Viridor to KKR for an enterprise value of £4.2billion.
“Viridor has become a leader in engineering excellence, new technology and tackling environmental challenges, and the transaction recognises the strategic value that has been created over many years, accelerating the realisation of that value for shareholders.
“Following the sale, Pennon will be a leading UK-focused water infrastructure group, delivering for customers and providing services in the most efficient and sustainable way possible.
“We are pleased to announce our Continuing Group dividend policy of CPIH (inflation) plus2% growth per annum through to 2025, with additional returns to shareholders to come from the sale of Viridor."
