Water and waste group Pennon (PNN) reported full year revenues to 31 March 2020 down 6% to £1.4bn and operating profits up 3% to £361m, while the dividend was increased 6.6% to 43.77p, although the shares traded 3% lower at £11.5.
COVID-19 IMPACT
South West Water has seen a decline in wholesale demand of around 20%, partially offset by a 5% increase in residential demand. The company believes any shortfall in demand would be recovered through existing regulatory mechanisms.
The financial impact for the period was restricted to provisions put aside for bad debts where the group has recognised a £9m cost.
While the business has remained largely resilient, the board believes it is likely the pandemic will provide continued challenges for the current financial year. That said the post year-end cash collections have remained strong and Pennon Water Services has not needed to take advantage of regulatory support.
DIVESTMENT TO REDUCE DEBT
The sale of waste management business Viridor was approved by shareholders on 28 May 2020 and is expected to complete in late summer and will result in the group receiving net proceeds of around £3.7bn. These will be used to reduce debts and the pension deficit as well as returning some cash to shareholders.
The company believes it has ample cash and liquidity to continue paying dividends with £1.6bn at the period end, excluding the Viridor proceeds.
The policy for the 2020-25 periods will be re-based for the divestment of Viridor, implying a base level of 21.11p. The policy is to target growth of consumer price inflation plus 2%.
The business generated strong growth in cash from operations up 12% to £729m, while the gearing ratio remained stable at 65%. This is calculated by comparing net debt to equity plus net debt.
