Pennon Group has reiterated its appetite to use the funds from the sale of its waste management business to take over another water company.
The sale of Viridor netted South West Water’s parent company £3.7 billion. After paying down debt it has around £2.4 billion of equity firepower to deploy. It is understood to have run the rule over a number of water companies and has been heavily linked with an approach for Southern Water.
In an update to the City this morning (30 March) ahead of the end of its financial year tomorrow, the company said it was still assessing opportunities and expected to be able to say more at its full year results presentation on 3 June.
This morning it said: “Pennon believes there is significant value potential from the reinvestment of the Viridor sale proceeds in the UK water sector and continues to narrow down its review of potential growth opportunities. In the event a major value accretive investment opportunity is not available, Pennon expects to make a substantial return of capital to shareholders.”
The update also confirmed that South West is on track to deliver strong totex and financing outperformance – anticipating a doubling of base returns on regulated equity of 3.9 per cent.
It added that 80 per cent of Outcome Delivery Incentives (ODI) are on or ahead of target. The company is, however, anticipating a net ODI penalty for 2020/21, largely based on pollution incidents. Despite this, it stressed the significant improvements since it launched its targeted pollution incident reduction plan last July.
In its non-domestic retail arm, Pennon said c£20 million of annualised new contract wins had partially offset reduced demand.
The company has raised a further £90 million through its Sustainable Financing Framework over the past year, bringing the total to more than £900 million.
South West Water’s Green Recovery Initiative could see investment to 2025 increasing by £92 million – a c10 per cent increase to its existing £1 billion investment programme, with six projects focused on “improving public health, protecting the environment, and addressing climate change”.