Key highlights
· On track to meet management expectations for 2018/19
· Continued leading efficiency in water, driving an enhanced Return on Regulated Equity (RORE)
· No water restrictions for the 22nd consecutive year, despite high demand and dry weather
· Ambitious South West Water business plan for the period 2020-2025 published
· Glasgow, Dunbar and South London Energy Recovery facilities (ERFs) are all receiving waste. Operational ramp up over the next 18 months
· £430m of financing raised, of which £240m under Pennon's sustainable financing framework.
South West Water delivering for customers and shareholders
South West Water continues to deliver strong operational and financial performance, with a focus on efficiency and customer service.
Cost saving momentum is being maintained, leading to ongoing Total Expenditure (Totex) outperformance.
South West Water continues to score highly on the customer experience survey, and operationally there were no water restrictions this summer despite the unprecedented demand as a result of the prolonged dry weather. Revenue from increased customer demand is expected to broadly offset the operational cost of delivery.
RORE is on track for continued outperformance for 2018/19.
Viridor on track for growth
The three new ERFs at Glasgow, Dunbar and South London (Beddington) are all receiving waste through the process of final commissioning.[1] Optimisation is ongoing and operations will ramp up over the next 18 months as has previously occurred at the other ERFs in our portfolio.
Works at the Avonmouth ERF are on track for commissioning in 2020/21, with process construction proceeding as planned.
There has been some improvement in recyclate pricing since the end of last financial year, in particular for paper. Output quality demands remain high, and we continue to focus on our processes to ensure we meet these requirements. As a result, the mix of output has continued to move towards higher value product. Our recycling performance for the half year and full year remain in line with our expectations.
Strong liquidity and funding position
Since 31 March 2018, Pennon has secured £430m of financing, £240m of which has been through the use of its sustainable financing framework, with £110m through the European Investment Bank with an inaugural Pennon facility.
Outlook
On 3 September 2018, South West Water submitted its Business Plan to Ofwat for the next five year period 2020-2025. Given South West Water's strong operational and financial delivery in K6 (2015-2020), we are well positioned to deliver outstanding services to customers through K7 (2020-2025).
We await Ofwat's assessments by 31 January 2019. Draft determinations are expected between 1 March and 31 July 2019, with Final Determinations by December 2019.
We remain confident in the UK residual waste sector fundamentals, with further capacity essential to meet longer term demand.
With our clear strategy of focusing on the UK water and waste market, supported by a strong balance sheet, Pennon is well-placed to continue to deliver for customers, communities and shareholders.
Half Year Results – 27 November 2018
Pennon intends to announce its half year results for 2018/19 on Tuesday 27 November 2018. Further information on Pennon, Viridor and South West Water can be found on the Group's website, www.pennon-group.co.uk.