Pennon pre-tax losses widen in full-year results

(Sharecast News) - Pennon Group reported a full-year statutory pre-tax loss of £72.7m for the 12 months ended 31 March on Tuesday, widening from a £9.1m loss the prior year, as finance costs rose and the company absorbed charges related to operational and structural interventions. Underlying revenue rose 15% year-on-year to £1.05bn, reflecting a full contribution from Sutton and East Surrey Group, acquired in 2023.

However, underlying EBITDA slipped slightly to £335.6m from £338.3m, and the group posted an underlying loss before tax of £35.1m, compared to a £16.8m profit a year earlier.

Adjusted losses per share were 10.3p, versus earnings of 5.1p in 2024.

The FTSE 250 company said the total dividend was cut to 31.57p per share from 36.67p, in line with the previously rebased payout.

It cited the impact of water efficiency initiatives, which reduced customer demand and revenues at South West Water, though it expected to recover those under regulatory mechanisms.

Around £21m in costs were also incurred in response to the Brixham water quality incident, while a further £16.6m related to group restructuring.

Finance costs rose from £150.2m to £184.4m as Pennon maintained high levels of capital expenditure, which stood at £652.5m.

Despite the losses, Pennon said the group remained well funded, with gearing across its water businesses falling to 61.8% and liquidity of around £1bn.

It said it had already started delivery of more than 1,000 projects under the K8 regulatory period, representing around a third of its planned £3.2bn investment.

The company said it expected EBITDA to rise by two-thirds in 2025-2026 as it benefited from increased revenue and a reset cost base.

Operationally, Pennon recorded sector-leading reductions in internal sewer flooding, continued to invest in water quality and treatment capacity, and made progress with solar generation projects.

Water resource resilience was enhanced with new infrastructure in Cornwall and Devon, helping the company avoid water restrictions despite dry conditions.

Looking ahead, Pennon said it was targeting a 7% return on regulated equity over K8 and reiterated its commitment to affordability, having provided £124m in customer support over the last regulatory period.

Management said it expected a return to profitability in the current financial year.

"Pennon has delivered a resilient operational performance during a demanding year, while building a robust platform for the future," said group chief executive officer Susan Davy.

"We have reshaped and reset the cost base, delivered record levels of capital investment and - following a successful rights issue - maintained a strong balance sheet.

"We are listening to our customers, who are quite rightly demanding water companies to do more for customers today and to step up investment for the future. We are doing both."

Davy said the company had "worked diligently" to help customers use less water and save more money with a range of campaigns and pilots.

"At the same time, our record year for investment has improved services that matter most to our customers.

"Whilst this has impacted profitability this year, it has been the right thing to do.

"As the only water company to have received an outstanding rating for our business plan for the third consecutive time, we have a track record of setting and delivering on stretching business plans."

Consistently, around 70% of the stretching regulatory deliverables had been met, which Susan Davy said put Pennon in the top quartile compared to the sector.

"Of course there is more to do, not least on those measures we didn't achieve, and our ambitious new plan includes a record £3.2bn of investment due to be completed by 2030.

"We know customers are worried about rising bills to fund this level of investment.

"While we have made the tough decision to put bills up in 2025-2026 - for the first time in over a decade - two thirds of our investments are being funded by our supportive investors and debt providers.

"Ultimately everyone will benefit from the investments we are making - from building reservoirs, to fixing storm overflows, powering our net zero ambitions and helping to create economic growth."

At 0901 BST, shares in Pennon were down 2.93% at 493.6p.

Reporting by Josh White for Sharecast.com.