Interim Management Statement

RNS Number : 9606O

Pennon Group PLC

13 August 2014

 

13 August 2014

PENNON GROUP PLC

INTERIM MANAGEMENT STATEMENT

Overall financial performance of Pennon Group since 31 March 2014 remains in line with management expectations.

South West Water

South West Water is continuing its strong financial performance with robust operational delivery and high standards of customer service and expects to complete the successful delivery of the K5 (2010-2015) regulatory contract.

2014/15 profits will be impacted by the 2014/15 tariff freeze already announced.  However, the revenues foregone are included in the Draft Determination for K6 (2015-2020) on an NPV neutral basis.

Following early receipt of its Draft Determination for the K6 regulatory contract in April this year, South West Water is able to accelerate a number of key projects (eg bathing water improvements) ahead of significant legislative changes.  With the company's track record of efficiency and outperformance, South West Water is well placed to deliver its business plan in K6 and will have an opportunity to outperform the assumed returns on equity.

Viridor

Viridor continues its transformation from being predominantly a landfill operator to being one of the country's leading recycling, renewable energy and waste management companies.

As flagged at the Preliminary Results, Viridor's H1 2014/15 EBITDA will be materially lower than in H1 2013/14. However with five Energy Recovery Facilities (ERFs)⁽¹⁾ scheduled to come on stream this year H2 EBITDA is expected to increase significantly and result in 2014/15 full year EBITDA exceeding 2013/14.

Year to date performance has primarily been impacted by the expected continuation of the decline of the landfill business.  Also, as expected, landfill gas generation has declined from peak and the recycling business has been moderately affected by near term weakness in recycling prices. 

Viridor has been investing to improve the productivity of its assets and quality of its recyclate products.  The Rochester plastics plant is expected to come on stream in the next month and the Scottish glass separation plant shortly thereafter.  The strategic focus on improving the productivity of recycling assets and recyclate quality is expected to enhance future margins.

The Lakeside ERF joint venture is performing strongly and is ahead of expectations.  Other highlights of the ongoing development of the Viridor Energy business include:

·     Takeover of Exeter ERF was achieved on 28 July and plant operation is exceeding design parameters

·     Ardley ERF commenced burning waste at the end of June and synchronised to the Grid on 25 July

·     Runcorn I commenced burning waste in March and is undergoing an extensive commissioning process.  Issues arising are being addressed to ensure the long term performance and consequently takeover is now expected to be in Q3/Q4 2014/15.  Runcorn II is still expected to be taken over towards the end of Q4 2014/15

·     Cardiff ERF is now in cold commissioning and remains on track for takeover in late 2014/early 2015

We believe ERFs are central to the UK's waste and renewable energy strategies as the long-term low-cost alternative to landfill for disposal of residual waste. Since the year end Viridor has secured additional waste inputs for the opening of its ERF plants, and now has c85% of the required waste input for the opening of the committed ERFs.

⁽¹⁾    Previously referred to as Energy from Waste (EfW) facilities.

Group

Since 1 April 2014 Pennon Group Plc has secured/renewed £205m funding comprising:

·     £80m term loan

·     £75m of Revolving Credit Facilities (RCFs)

·     £50m finance lease

The £125m Convertible Bonds due 2014 have all converted resulting in the issuance of 20,908,635 Pennon shares. 

The Company intends to announce its Half Year Results for 2014/15 on Friday 28 November 2014. 

Further information on Pennon, South West Water and Viridor can be found on the Group's website, www.pennon-group.co.uk

For further information, please contact:

Pennon:           David Dupont - Group Director of Finance               
                        01392 443998

                        Jo Finely - Investor Relations Manager
                        01392 443401

RLM Finsbury: Sarah Heald                                                                
                         0207 251 3801

Cautionary statement in respect of forward-looking statements This Statement contains forward-looking statements relating to the Pennon Group's operations, performance and financial position based on current expectations of, and assumptions and forecasts made by, Pennon Group management.  Forward-looking statements are identified by words such as "aim", "anticipate", "believe", "continue", "could", "due", "estimate", "expect", "forecast", "goal", "intend", "may", "plan", "project", "remain", "seek", "should", "target", "will" and related and similar expressions, as well as statements in the future tense. Important risks, uncertainties and other factors that could cause actual results, performance or achievements of Pennon Group to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things, changes in law, regulation or decisions by governmental bodies or regulators including uncertainties arising from market reform affecting South West Water; general business and economic conditions in the UK and globally; the availability and cost of finance; poor operating performance or a failure or interruption of the Group's operating systems or the inability to carry out network operations or damage to infrastructure; failure or increased costs of capital projects or acquisitions or joint ventures not achieving predicted revenues or performance; reduced customer base, market reform or increased competition affecting prices or reduced demand for services or overcapacity in some markets; and information technology and business continuity systems and processes failing.  These and other risks are described in greater detail in the 2014 Pennon Group Annual Report which can be viewed online at http://www.pennonannualreport.co.uk/2014 Such forward looking statements should therefore be construed in light of such risks, uncertainties and other factors and undue reliance should not be placed on them.  Nothing in this Statement should be construed as a profit forecast. Any forward-looking statements are made only as of the date of this Statement and no representation, assurance, guarantee or warranty is given in relation to them including as to their accuracy, completeness, or the basis on which they are made.  The Group accepts no obligation publicly to revise or update these forward-looking statements or adjust them as a result of new information or for future events or developments, except to the extent legally required.

 

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