UK summer helps Pennon interims shine

27th Nov 2018 08:21

(Sharecast News) - Summer heat in the UK helped boost interim profits at water utility Pennon Group, the company reported on Tuesday.Customer demand for water saw pre-tax profits rise 2.9% to £133.6m.Revenue was up 3.1% to £746.7m, while underlying pre-tax profit increased 8.7% to £142.5m.Operating profit rose 9.9% to £178.5m. The interim dividend was lifted 7.3% to 12.84p a share.Overall, strong cost management and efficiency delivery resulted in lower than inflation cost increases, despite an increase in costs required to meet higher customer demand to £3m, Pennon said.Group earnings before interest, tax, depreciation and amortisation (EBITDA) and adjusted EBITDA were ahead of the same period last year by 8.1% and 3.1% respectively, with South West Water, Viridor and Pennon Water Services all ahead of the first half last year.EBITDA and adjusted EBITDA's gap narrowed in the period as expected due to reduced share of JV EBITDA following the reset of the Greater Manchester waste contract in 2017/18.Yearly cost savings and synergy targets of £17m a year from 2019, identified through our Pennon's targeted overhead review in 2015/16, were on track with around £15m delivered to date. The group's operational cash inflows were £266.6m compared with £308.9m a year ago. The funds were used to finance capital structure and investing in future growth. This investment has resulted in higher group net debt, the company said.Waste and recycling EBITDA at the Viridor increased by 17.7% to £11.8m.Underlying net finance costs of £40.8m were £4.2m due to higher net debt from continuing capital investments and lower interest receivable on shareholder loans following the Greater Manchester contract reset.National Audit Office recommendations on recycling were expected to increase returns, Pennon said.This would be boosted by greater public awareness and concern about the use of plastics and its effect on the environment.Stimulus for recycling would be provided by the government's resource and waste strategy "and there are potential opportunities arising from Brexit which also require consideration", Pennon said.