Pennon says outperformance offset energy costs in first half

Pennon, the parent company of South West, Bournemouth and newest acquisition Bristol, has performed in line with expectations despite the volatile economic environment in the first six months of 2022/23.

In a trading update ahead of its H1 results, the company said it anticipated a cumulative doubling of base returns on its regulated equity thanks to outperforming on outcome delivery incentives (ODIs), which would “more than” offset rising costs.

The company said for 2021/22 it delivered the sector’s second-highest performance on ODIs and was on track for a net positive outcome this year including delivering a 9% leakage reduction from the 2020 rate.

The group, whose energy usage is 95% hedged, said its total energy costs are anticipated to be around £50 million higher than 2020’s £56 million total.

The group’s regulatory capital value and revenues grew with inflation as anticipated, which it said would offset cost rises over the long-term.

It anticipates a deferred tax credit of around £120 million in the second half of this financial year as a result of the government’s reversal of corporation tax change from 19% to 25%.

Pennon said it would invest around £160 million in renewable energy generation projects from the c£400 million set out for share buybacks as part of ambition to generate 50% of its power by 2030.

Since acquiring Bristol, Pennon launched a 24 month turnaround plan after the deal was cleared by the Competition and Markets Authority. Chief executive Mel Karam will step down but remains in an advisory role during the merger.