South West Water’s parent firm has made a £157m before-tax profit - but it is £26m less than the firm made last year as the Covid pandemic and Government imposed price cuts took a bite out of earnings.
Exeter-headquartered Pennon Group Plc, which has submitted its to the Financial Conduct Authority, has announced a 21.74p dividend as a result of the profit.
It also reported that its sale of waste management division Viridor netted it a profit of £1.7bn. The company has already splashed £814m on buying Bristol Water, although it meant taking on that firm’s debt of £389m, reducing the equity value of the sale to £425m. It has also repaid £1.1bn of debt
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Paul Boote, group finance director, explained that profits were reduced by a £9.4m reduction in South West Water income due to price cuts imposed for the 2020-25 (K7) period, a £1million loss from business customer division Pennon Water Services, £6.6m in other costs, plus such things as interest on debts.
In a statement with the report he said underlying group revenue was up by £7.9m to £644.6m thanks to higher than expected household demand, driven by lockdown restrictions, and new contract wins for Pennon Water Services, the new division which deals with business customers, outside the South West Water region.
These outstripped a £19.5m reduction from the transition to the new K7 regulatory period, during which the Government regulator has imposed cuts to customers bills, and the impact of Covid on non-household demand.
South West Water’s underlying revenue for 2020/21 of £563m was reduced by £7.3m due to the transition to this new K7 regulatory period.
But it saw a net increase in demand from Covid with higher household demand of about .9% more than offsetting the expected reduction in non-household demand, of about.22%, and cash from developers as a result of reduced construction activity during lockdown and subsequent restrictions.
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Pennon Water Services’ business customers were also impacted by Covid. The initial lockdown in the first quarter of 2020/21 caused a significant reduction in non household demand whilst businesses adjusted to new ways of working.
Demand increased across the second quarter of 2020/21 with a largely normal summer holiday season but was further impacted by business closures during the winter, particularly in the leisure and hospitality industries.
The overall impact on revenues for Pennon Water Services, excluding the impact of new contract wins, was a reduction of about 16% compared to the prior year.
But despite the impact of the pandemic, Pennon Water Services made revenue gains with about.£20m of new business compared to the previous year.
But Mr Boote said: “Despite the challenges posed by Covid-19 the performance of the business has been in line with management expectations, with revenues marginally higher than expected with the pandemic impacting demand patterns as outlined in more detail below.”
He added: “Overall, profitability has been resilient with a modest financial impact from Covid-19.”
In the report Susan Davy, Pennon chief executive, said the Covid hit 2020/21 period had been “a pivotal year” for the company, which had been repositioned to focus on growth in the 海角视频 water sector thereby “building stability for the longer term, and recognising ongoing shareholder loyalty”.
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She said: “We have transitioned the group to become wholly focused on the 海角视频 Water sector, as an experienced consolidator with significant experience of leading, transforming and optimising water and wastewater businesses for the benefit of all our customers.
“As the only water company to have been fast tracked twice in successive price reviews, we have strong foundations on which to build.
“We have also ensured Pennon is well positioned for the future, reinvesting for growth, and retaining sufficient funds to drive further value.”
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Ms Davy said the acquisition of Bristol Water is the next step in the growth of the company and increases the size and scale of Pennon to now serve about 3.5million customers, and adds another 500 employees to the 2,000 already working for Pennon.
She said the company had also reduced debt levels, increased pension contributions, and further supported “Green Recovery for the much-needed regeneration of our region”.
She added: “The acquisition of Bristol Water is an important next step in the evolution of the group, a strong strategic fit, cementing Pennon as a leader in our chosen sector. The group is now firmly focused on leading, transforming and optimising water and wastewater businesses.
“Building on strong credentials as an experienced consolidator, we are confident we can deliver more for shareholders, customers and employees. 2020/21 saw the expansion of our licence to include the Isles of Scilly, and work is well underway to deliver critical investments to improve infrastructure and assets.
“The board remains committed to exploring growth opportunities in the 海角视频 Water sector that are value adding. We will also continue to invest in environmental infrastructure projects that realise new revenue streams.”