The parent firm of South West Water has taken a £10million hit from the coronavirus pandemic as demand from businesses went down the plughole, the company said.
Pennon Group Plc’s latest trading statement shows that the firm is expecting to suffer the loss during its 2020-2021 financial year.
But it stressed this was pretty much what it expected and remains in a strong financial position and on track to deliver resilient financial results in line with management predictions.
Pennon Group, one of the leading water companies in the UK, issued the update ahead of its results for the half year ended September 30, which will be announced on 24 November 24, 2020.
It comes at the end of a period when the firm completed the £4.2billion sale of its Viridor waste management arm, in July, which left it with net cash proceeds of £3.7billion.
And its newly announced WaterShare+ scheme which will see about £20million shared with customers via either a Pennon shares offer or a bill reduction or a cash rebate. Eligible customers can choose which they would like.
The statement also highlighted that the firm continues to deliver essential services through the ongoing Covid-19 pandemic - and without utilising any Government support schemes and with no employees furloughed.
“The vast majority of our operations continue as usual in Covid-19 secure environments, prioritising the health and wellbeing of our employees,” the statement said. “In addition, we have signed up to the Kickstart Scheme as part of our commitment to supporting the Government’s broader build back better campaign.
“As expected, the largest impact of Covid-19 on water usage has been on businesses and commercial customers (non-household),” the statement continued. “Overall revenue has reduced with an increase in household revenue offset by lower non-household revenue.
“Ofwat’s regulatory model allows for differences in revenue compared to the Final Determination to be trued up in future years.”
Pennon Water Services, the firm’s business-to-business retailer, continues to work to minimise bad debt risk through the implementation of cash collection initiatives, the statement said and added: “Whilst cash collections across the group to date have remained robust, we continue to closely monitor changes in revenue and payment patterns in response to new national and regional restrictions and changes in Government support for businesses and individuals.
“To support customers who have seen an impact on their household finances we have accelerated planned affordability and vulnerability initiatives ensuring accessible support to those who need it most during these challenging times.”
The statement said delivery of South West Water’s £1billion investment programme to 2025 will continue and it has signed a new sustainable £30million long-funding finance lease with a deferred draw down period and a margin in line with those seen pre-Covid-19. In addition, a maturing £30million lease has been extended, supporting South West Water’s ongoing capital programme.
In April 2020 South West Water successfully completed expansion into the Isles of Scilly, following collaboration with regulators and stakeholders. Plans for the next five years include significant investment in critical infrastructure and improvements for customers and the environment.
The statement concluded that the group remains in a strong financial position with expected cash and committed facilities well in excess of £3billion.
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Following the sale of Viridor, Pennon’s debt restructuring programme is progressing with about two thirds repaid of the £900million the group announced it would seek to retire.
“With shorter term deposit rates remaining low, the swift repayment of debt has significantly reduced the group’s cost of carry,” the statement said. “Alongside this, a contribution of £36million has also been made into the group pension schemes.
“We continue to review the most efficient and effective method of returning value to shareholders, alongside considering earnings accretive market opportunities.
“Any potential investment will be assessed in terms of value creation and the impact on shareholder returns, income and growth, as well as the impact on customers and other stakeholders.
“Any use of capital to pursue an investment opportunity will be compared with the alternative of returning that capital to shareholders, ensuring our strong focus on financial discipline is maintained.”
