Pennon Group Plc – Half Year Results 2017/18 for the half year ended 30 September 2017

Chris Loughlin, Pennon Chief Executive said:

“Pennon has delivered robust performance in the first half of 2017/18 across both water and waste activities. Our priority continues to be to provide an outstanding level of service to our customers and communities, while offering a sector-leading dividend policy for our shareholders. In water, our focus on cost savings means bills are lower now than they were 8 years ago, whilst at the same time we are continuing to invest significantly in our plants and distribution network. This means we have delivered significant improvements in clean water and bathing water quality and our leakage levels have halved since privatisation. Good progress is being made to bring Viridor's remaining four energy recovery facilities in the portfolio on stream, with three in commissioning in 2017/18 and the final facility under construction. The expansion of Viridor's Energy Recovery Facility portfolio will support Pennon's earnings growth to 2020 and beyond.”

Financial Highlights 

·   Underlying PBT up +2.3% following:

o  higher Water revenues driven by customer demand

o  final Bournemouth Water integration phase complete, £12 million synergies delivered in 18 months, with £27 million  cumulative expected to 2020

o  growth at Viridor driven by strong performance from Energy Recovery Facilities (ERFs), availability at >90%⁶ for H1 2017/18

o  continuing group efficiencies with £11 million p.a. of the c.£17 million p.a. expected from 2019 already secured

·   Strong operating cashflows, reflecting robust operational performance

·   Maintaining momentum with cumulative Return on Regulated Equity (RORE) at 11.8%⁷, unique WaterShare mechanism to share transparently the benefits of outperformance in period

·   Sustainable, low cost funding position underpinning continuing capital investment

·   Perpetual capital securities issuance delivering balance sheet flexibility

·   Statutory PBT up 26.8% to £129.8 million

·   Statutory earnings per share growth of +23.2% to 21.8p

·   Interim dividend per share +7.9% to 11.97p.

Operational Highlights

·   Continued strong performance in water, customers at the heart of our delivery plans

o  Sharing outperformance with South West Water customers, cumulatively benefiting from £68 million to H1 2017/18

·   Maintaining momentum on ODIs (Outcome Delivery Incentives) delivering against 33 of 36⁸. Cumulative net ODI reward of £7.0 million⁹ to H1 2017/18

·   Continued strong focus on efficiency, cumulative K6 TOTEX outperformance reaches £159 million

·   Pennon Water Services, one of only four associated retailers to have achieved net growth in the new competitive non-household market. Focused on value enhancing contracts

·   ERFs performing well, average availability continues to be greater than 90%, with operational ERFs delivering in excess of base case expectations

·   Recycling self-help measures continue, success in new Asian markets (partially mitigating impacts of China's changing quality requirements) – cautious about recycling pricing in H2 2017/18

·   Long-term partnership with Greater Manchester Waste Disposal Authority continues – satisfactory financial outcome reached

·   Securing further growth to support earnings

o  Three ERFs in commissioning:

–     Glasgow's Recycling and Renewable Energy Centre¹⁰. First generated electricity at the end of February 2017 with the Materials Recycling Facility (MRF) and Anaerobic Digestion (AD) plant operating through the year and ERF in final commissioning

–     Beddington and Dunbar in commissioning

o  One ERF (Avonmouth) in early stages of construction:

–     Progressing well with work on the foundations underway.

Presentation of Results

A presentation for City audiences will be held today, Wednesday 29 November 2017, at 09.30am at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.

A live webcast of the presentation can also be accessed using the following link:

http://www.pennon-group.co.uk/investor-information