Pennon reports revenue growth amid Brixham water crisis

(Sharecast News) - Embattled water utility Pennon Group reported strong financial and operational results for the 2024 financial year on Tuesday, but worked to reassure shareholders and customers amid a contamination crisis in its supply area. The company issued a boil water notice for around 17,000 households in Brixham after the UK Health Security Agency confirmed it was investigating cases of the cryptosporidium parasite.

Pennon's South West Water division lifted the boil notice for 14,500 properties over the weekend, although it remained in place for 2,500 properties in Hillhead, with health experts warning that infections could continue to crop up for "weeks" to come.

"Whilst the results we are announcing today are based on our performance for the last financial year, we are 100% focused on returning a safe water supply to the people and businesses in and around Brixham," said chief executive officer Susan Davy.

"Normal service has returned for 85% of customers, but we won't stop until the local drinking water is returned to the quality all our customers expect and deserve.

"Our absolute priority continues to be the health and safety of our customers and our operational teams are working tirelessly around the clock to deliver this."

The group said its underlying revenue increased 10% in the 12 months ended 31 March to £907.8m, while statutory revenue rose 13.9%.

Underlying operating profit improved 8.6% to £166.3m, and statutory operating profit surged 28.3% to £140.4m.

Despite those gains, Pennon reported a statutory loss before tax of £9.1m, slightly wider than the prior year's £8.5m loss, and a statutory loss after tax of £8.5m, swinging from a £0.4m profit in 2023.

Adjusted earnings per share were 6.2p, down 15.1%, as the total dividend per share increased by 3.8% to 44.37p.

Operationally, Pennon reported a number of milestones, including breaking the drought cycle for Devon and Cornwall with 100% peak reservoir capacity and leading the sector in internal sewer flooding performance.

The company maintained 100% bathing water quality for the third consecutive year and invested £583m in its water business to protect customers, the network, and the environment.

Additionally, Pennon committed £145m to renewable energy, meeting 40% of its energy needs, and implemented below-inflation bill increases for two consecutive years, with bills lower today than they were a decade ago.

Over £100m in customer support had been provided during the K7 period to date.

Strategically, Pennon raised £1.2bn in new and renewed facilities since March, as it aimed to achieve two public credit ratings by March 2025, anticipating strong investment-grade ratings.

South West Water's regulatory capital value (RCV) grew 10% to £5.19bn, with its RCV gearing at 63.5%, within the group's 55% to 65% policy range for the K7 period.

The cumulative return on regulated equity (RORE) for South West Water stood at 7.6%.

Looking ahead to 2025, Pennon said it expected organic revenue growth driven by inflationary tariff increases and growth in non-household retail businesses.

Operating costs for South West Water were projected to remain broadly flat net of inflation, while total group operating costs were expected to increase.

Increased debt levels would support the group's capital investment profile, driving an overall increase in net finance costs.

Group RCV was expected to rise in line with the K7 business plan levels of investment, along with additional and accelerated investments, regulatory true-ups, and inflationary impacts.

The overall results would also reflect a full year's contribution from SES Water.

Susan Davy said the company delivered a "robust performance" for the 2024 financial year, and retained "good levels" of liquidity.

"We have continued to make sure we are prepared for a sustainable future for all our stakeholders with a record level of investment, record support for customers and the creation of new jobs.

"At a time when media, public and regulatory scrutiny is high, it is important we do what is right for all."

In the context of the wider group performance, Susan Davy said the company had "carefully considered" Ofwat's new dividend guidance for water businesses.

"We have followed our K7 dividend growth policy of CPIH + 2%, and adjusted the final dividend quantum by £2.4m, equivalent to the South West Water court fine in 2024, signalling we are listening, clearing the way for long-term shareholder value."

At 1005 BST, shares in Pennon Group were down 6.83% at 667.59p.

Reporting by Josh White for Sharecast.com.