viewPennon Group PLC

Pennon presents more prudent dividend policy, keeps shtum on Viridor payout

The new dividend policy for the next five years reflects a more stringent regime set out by regulator Ofwat

Pennon Group PLC -

Pennon Group PLC (LON:PNN) lifted its dividend 6.6% for the past year and said it will grow the payout at 2% above inflation over the next five. 

The water supplier, which ended its financial year to March 31 with cash and liquidity of £1.6bn, said it will also pay out additional returns to shareholders from the recently agreed £4.2bn sale of its Viridor waste arm, as promised

“The performance for 2019/20 underpins the dividend”, said chief executive Chris Loughlin, with profit before tax up 2.6% to £287.6mln on revenue down 6% to £1.4bn. A £9mln provision was made for expected credit losses related to the impact of the coronavirus pandemic.

He added that the company has not received any government support measures through the coronavirus pandemic and continues to progress its WaterShare+ scheme to share around £20mln with customers through rebates or shares — though this is a fraction of the £184.3mln proposed to be shared with investors through dividends.

The recommended final dividend of 30.11p makes for a total payout of 43.77p for the past year, under the policy for the 2010-2020 regulatory period of growing the dividend according to the retail price index plus 4%.

For the next five years, the CPIH inflation index will be used, and the premium above that will be lowered to 2% as water companies enter a more difficult regulatory environment set out by Ofwat and the sale of Viridor.

The FTSE 100 group said the crystallisation of the Viridor sale is equivalent to 22.66p per share out of the 2019/20 and after excluding Viridor implies the continuing group dividend of 21.11p per share.

Management said it intends to use the £3.7bn of net cash proceeds from the sale to reduce Pennon's debt and the pension deficit, while retain some funds for future opportunities and making a return to shareholders, the quantum of which “will be announced in due course”.

Quick facts: Pennon Group PLC

Price: 1095.5 GBX

Market: LSE
Market Cap: £4.61 billion

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