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Pennon Group, the parent company of South West and Bournemouth Water, is eyeing outright acquisitions as opposed to taking a stake in another water company as it “narrows down the potential opportunities”.
Following the sale of its Viridor waste management business, which completed in July, the company has a war chest of £2.7billion to invest after reducing debt levels by around £750 million and paying c.£36 million into pension schemes
The company announced its half year results today and told Utility Week it is continuing to explore all options that have scope for operational improvements and financial efficiencies.
Susan Davy, who was named chief executive in July, stressed the business’ interest in a takeover rather than a minority or small majority share.
“In terms of what we can bring through operational changes in a business you only really get that from getting control of the business,” Davy said. “We are not interested in a minority share per se because that would not enable us to unlock the efficiencies that can be made.”
Pennon is understood to have run the rule over Wessex and Bristol in recent months as well as Northumbrian in the summer and is now rumoured to be mulling an approach to Southern.
Davy said the organisation was assessing acquisitions on the grounds of how operations can be improved, what totex and finance efficiencies can be made, whilst making sure customers benefit as well.
The 2015 acquisition of water only company Bournemouth allowed for operational efficiencies and improved customer service levels, which Davy said Pennon wants to replicate with any future targets. She said the group is not ruling out either water only, or water and sewerage companies.
Should the company not find a “compelling value creating opportunity” it will return the capital to shareholders.
For the first six months of enacting the PR19 business plan the company has delivered on its plans for the start of AMP7 including delivering £37 million from operating cost efficiency and through capital investment saving.
The company is on track or ahead of target for 80 per cent of its outcome delivery incentives (ODIs). Davy said the company is looking at the potential to accelerate investments planned for AMP8 into AMP7 including two wastewater treatment plants in Bournemouth area – one of which was due to come to complete in AMP8 but could be brought forward.
She said spending to improve monitoring of sewer overflows could also be moved up to benefit the environment as well as spending on the company’s smarter healthy homes project to roll out meters and efficiency tools to households.
The company boasts a “sector leading dividend policy – growth of CPIH +2 per cent, underpinned by its strategy with expectations for continued outperformance.
An interim dividend of 6.77p has been declared to be paid on 1 April 2021, however no decision has yet been made on a special dividend for shareholders following from the proceeds of the Viridor sale.
Profit before tax was down 14 per cent year on year to £86.7million, which the company said reflects the expected reduction because of the revenue reset at the start of a new AMP cycle and the Covid-19 impact.
The overall revenue impact of Covid-19 was a drop of £10.7 million, which the company said is broadly in line with its expectations. Revenue for Pennon Water Services, the non-household business, was impacted by Covid-19 in the first half of 2020/21 with demand down over the summer.
The company said new contracts won by PWS in the period will grow revenue by around £15 million, which helped mitigate demand reduction from other customers.
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