Pennon CEO ‘not distracted’ by renationalisation threat

Chris Loughlin, chief executive of Pennon Group told Utility Week he is focused on running a good business and not getting distracted by “what may or may not happen” with Labour’s proposals to renationalise the water industry.

South West Water’s owner revealed a strong set of results “across the board” today (30 May) as it published its full year financial figures for the year ended 31 March 2019.

The group’s underlying profit before tax was up 8.3 per cent to £280.2 million driven by earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 19.1 per cent in its waste business, Viridor. The company said this was supported by the build out and performance of its energy recovery facilities (ERF).

South West Water reported a 1.7 per cent rise in underlying revenue to £581 million, while EBITDA increased by the same amount to £367.1 million.

As Pennon provides “essential public services” in water and waste, Loughlin said it is important it delivers results “in the right way” as well as strong results.

He pointed to the company being the first water services and waste management utility to secure the Fair Tax Mark as an example.

Loughlin said that although he is aware of what the opposition is proposing for the water sector, he does not want to become distracted by it.

He suggested that if you focus too much on potential political decisions then you run the risk of “taking your eye off the ball” and failing to deliver what is needed.

In a challenging year for the sector, not least with political pressure, water companies also had to contend with extreme weather events such as the Beast from the East and a long, dry summer.

“Our operations held up well and we had our 22^nd consecutive year without any water restrictions despite the challenges and we also met our leakage target again,” he said.

South West Water was one of only three water companies to be awarded fast track status from Ofwat for its business plan for 2020-25. Along with Severn Trent and United Utilities, it received its draft determination for PR19 last month.

South West Water became the only water company to achieve fast track status in two consecutive price reviews.

Loughlin highlighted the water company’s “highest ever” customer satisfaction score, he said: “South West Water never used to be strong on SIM [service incentive mechanism]. Bournemouth Water was but now it’s great both are.”

The water company’s results also showed that preparation for the Isles of Scilly transfer are “well advanced”.

“We have been informally helping for many years and should take responsibility in April 2020.” South West Water has included £36 million investment in its five-year plan for the move,” Loughlin said.

Legislation will be put before parliament as the Isles of Scilly were never included in privatisation.

Alongside the results, Viridor announced £65 million investment in a “new state of the art plastics recycling facility” that will recycle 80,000 tonners per year and support 8 per cent of the UK’s recycling market. It will be powered by low carbon energy from the co-located Avonmouth ERF.

South West Water said it has invested more than £7 billion since 1989 with more than £650 million invested in this regulatory period alone.

Loughlin added: “Customer bills will be lower in 2025 than they are both today and 15 years ago.

“Two-thirds of South West Water employees are also our shareholders and our proposed ‘New Deal’ will give our South West Water customers a financial stake in the business from 2020.”

Responding to the results, James Smith, fund manager, Premier Global Infrastructure Trust, Premier Asset Management, said: “In our view, Pennon’s results demonstrate that well-run water companies can be managed in a way that benefits all stakeholders, with a combination of high levels of customer service, reasonable tariffs, substantial investment and fair shareholder returns.”