Pennon Group Plc – Full Year Results 2021/22

Full Year Results 2021/22

Bringing water to life

Driving sustainable growth

Susan Davy, Group Chief Executive, commented:

2021/22 has been another year of resilient performance for Pennon.

We're building momentum, executing our strategy and driving sustainable growth. At the same time, we are doing more for customers than ever before as well as delivering the step change we all want for our rivers and seas, for the Great South West, and for generations to come.

At Pennon, we believe every customer should benefit from what we do. That's why in February, we announced average bills in the South West would fall, lower now than 10 years ago, supporting the cost of living crisis.

We've also announced plans to share an additional c.£20 million of outperformance with every household in the South West, part of our unique WaterShare+ scheme, putting customers in control, choosing either to take £20 off their bill or investing in shares in Pennon Group, building on the 1 in 16 households who have already done so, in 2020.

At the same time, we're investing more where it matters most.  With our largest ever environmental programme in 15 years, we are accelerating plans to make a step change in river and sea health, building on our track record of 100% coastal bathing water quality, with WaterFit, delivering a tangible difference to communities and customers in the region over the next 3 years, and with no impact on bills.

We can do all this and more, because of our relentless approach to being as efficient as possible, delivering double base RORE, reinvesting outperformance where it counts, with a robust balance sheet and an optimised financing portfolio.

We also couldn't achieve any of this without the pioneering spirit of our c.3000 employees, who see opportunities when others see obstacles, and show extraordinary care for customers, communities and each other.

Purpose-led business

• Living our values – trusted, responsible, collaborative and progressive
• Talented people delivering for customers, communities and the environment – c.3,000 colleagues serving a population of c.3.5 million
• South West Water bill cut for 2022/23 – bills lower than they were 10 years ago
• Financially supporting all our customers

Robust, resilient financial and operational performance

Largest ever water business capital investment programme – c.£240 million in 2021/22

South West Water – sector-leading RORE – 9.2%[1]

• c.80%[2] of South West Water ODIs^{^} on track – delivering net reward in 2021/22
• Sector-leading effective interest rate^{^} of 3.4%
• Continued focus on totex efficiency – supporting lower bills and enabling headroom for re-investment

Bristol Water financial results – ahead of acquisition expectations

• c.75% ² of Bristol Water ODIs^{^} on track – delivering net reward in 2021/22
• RORE – 6.3% ¹ , delivering above allowed base returns

Cumulative K7 Group outperformance of c.£150 million ¹ to date – Group RORE ¹ of c.8.9%

Pennon Water Services[3] – c.£19 million new contract wins, growing a sustainable national platform for business retail

Finance portfolio strategically positioned – optimum level of index-linked debt exposure – benefiting gearing and providing headroom for growth

Investing for sustainable growth – for the benefit of all

c.£425 million acquisition of Bristol Water – merger cleared on 7 March 2022 at Phase 1, synergies of c.£50 million identified over remainder of K7[4] – targeting doubling of base returns by 2025

c.£150 million additional and accelerated investment in K7

• c.£45 million totex reinvestment to deliver a step change for coastal and river water quality – WaterFit
• c.£20 million accelerated second issuance of WaterShare+ return to customers
• c.£82 million accelerated and additional spend on Green Recovery, including pilots into river water quality

Responsible gearing across the water business – 61.4%[5]

Pennon Water Services delivering profit before tax for the first time since market opening

Delivering Group RCV[6] growth of >40% over K7

Shareholder returns

• Share buy-back programme – c.£200 million complete, c.£200 million to deploy
• Shareholder dividend in line with policy – growth of CPIH + 2%

FINANCIAL PERFORMANCE

Resilient financial performance

• Results in line with management expectations
• +22.9% underlying revenue^{^}, with Bristol Water contributing £104.4 million
• +6.7% organic[10] underlying revenue^{^} primarily due to a recovery in non-household demand both in and out of region, and contract wins from Pennon Water Services
• (1.2%) organic ¹⁰ underlying EBITDA^{^} impacted by higher costs to serve driven by high levels of demand and cost pressures from macro-economic factors
• +14.7% underlying EBITDA^{^} growth with contribution from Bristol Water from 3 June 2021
• (8.6%) decrease in underlying profit before tax^{^} with contribution from underlying EBITDA^{^} growth being more than offset by increased interest charges on index-linked debt
• (3.3%) decrease in profit before tax
• +5.0% increase in adjusted earnings per share^{^} (adjusted for share consolidation) ⁸
• Earnings per share of 4.9 pence reflecting non-underlying impacts including deferred tax charge of £99.5 million in 2021/22 relating to the future change in tax rate (2020/21 earnings per share of 418.5 pence including the £1.7 billion profit on disposal)
• Sector-leading dividend growth of 8.2% with full year dividend per share up (CPIH +2%) to 38.53 pence.

A full reconciliation to the statutory reported results is included in item (i) in the Alternative Performance Measures on pages 60 to 64 of this announcement.