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Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

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idpickering
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Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#314972

Postby idpickering » June 4th, 2020, 7:10 am

Solid 2019/20 performance
• We continue to do all we can to support our employees, customers and communities through this unprecedented COVID-19 pandemic, with the vast majority of operations continuing as usual
• Pennon is well positioned with strong funding and liquidity of £1.6 billion, prior to receipt of net cash proceeds from Viridor sale, to weather ongoing uncertainty
• Solid financial and operational performance across the Group, in line with management expectations, delivering for all our stakeholders, well positioned for K7 (2020-25)
• South West Water finished K6 (2015-20) with sector leading cumulative RORE1 of 11.8%
• Viridor has performed well, successfully delivering key priorities and growth investment
• Delivering on dividend commitment for 2019/20, announcing a sustainable 2020-25 dividend policy for the Continuing Group of CPIH2 +2% per annum

And later;

Proposed final dividend for the year ended 31 March 2020: 30.11p per share Ex div 23 JUl 20.


https://www.pennon-group.co.uk/system/f ... esults.pdf

Dividend policy

The Board has evaluated the Group's dividend for 2019/20 in light of the COVID-19 pandemic and has concluded that it is appropriate for Pennon to continue to deliver on its dividend commitment. The Group has significant cash and liquidity of £1.6 billion (prior to receipt of net cash proceeds from the sale of Viridor), has not received any Government support measures and continues to progress our WaterShare+ scheme which will see c.£20 million of benefit shared with customers through a customer rebate or a stake in the business through Pennon shares. In addition, the majority of Pennon's shareholders are UK based pension funds, charities, employees, customers and other retail holders who rely on this income.

For 2019/20, the Board has recommended a final dividend of 30.11p, subject to shareholder approval at the Annual General Meeting on 31 July 2020. Together with the interim dividend of 13.66p, this will result in a total dividend of 43.77p, an increase of +6.6% from last year. This is in line with our dividend policy for 2010-2020 of Retail Price Index (RPI) +4% growth per annum, which has been achieved whilst investing more than £3.6 billion in our businesses over the past 10 years. Pennon offers shareholders the opportunity to invest their dividend in a Dividend Reinvestment Plan (DRIP).

The crystallisation of the Viridor sale is equivalent to 22.66p per share of the recommended 2019/20 dividend. This implies a Continuing Group dividend (after excluding Viridor) of 21.11p per share.

The Board intends to use the c.£3.7 billion of net cash proceeds to reduce Pennon's company borrowings and pension deficit, retain some funds for future opportunities, and make a return to shareholders. Details of additional returns to shareholders from the sale of the Viridor business will be announced in due course.

Pennon's dividend policy for 2020-25 for the re-based Continuing Group will be growth of CPIH + 2% per annum, from an implied Continuing Group dividend for 2019/20 of 21.11p per share. The shift from the existing policy of linking the growth in dividend from RPI to CPIH reflects the change in the regulatory model for South West Water, matching allowed revenues.

The re-based dividend reflects the sector leading position of the Continuing Group, with expectations for outperformance on financing and Totex supporting the sustainable dividend growth policy and dividend cover.


RNS here; https://www.investegate.co.uk/pennon-gr ... 00079127O/

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#314977

Postby Arborbridge » June 4th, 2020, 7:28 am

7.59% pa 5 year growth in dividends up to this point, but then a rebasing due to selling off the family silver.

Not sure what to think at the moment, but my holding is pretty large at 1.7x median and maybe should be trimmed.

Arb.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#314982

Postby Darka » June 4th, 2020, 7:49 am

Arborbridge wrote:7.59% pa 5 year growth in dividends up to this point, but then a rebasing due to selling off the family silver.

Not sure what to think at the moment, but my holding is pretty large at 1.7x median and maybe should be trimmed.

Arb.


I'm not sure what to do with them either since selling Viridor, I would have preferred the cash being returned to me (via a larger special, etc).
But I'm not sure what they will do with it, and as you say they are selling off the family silver....

I see we will get a special, but the rest seems to be debt/pension provision - no idea how Pennon will perform after the sale either.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#314996

Postby monabri » June 4th, 2020, 8:20 am

From the text above it reads as though the 3.1% current yield will halve next year and then be uplifted at a lower rate. ....

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315005

Postby moorfield » June 4th, 2020, 8:37 am

Arborbridge wrote:Not sure what to think at the moment, but my holding is pretty large at 1.7x median and maybe should be trimmed.


Darka wrote:I'm not sure what to do with them either since selling Viridor, I would have preferred the cash being returned to me (via a larger re, etc).


Your overall portfolio incomes are trashed already so what might that achieve? Which high(er) yielding shares would you buy instead? "Trade the news" if you must, but why not go "back to basics" and hold on until your other dividends are resumed and the yield dials have stopped spinning? (At such time you'll have a much clearer view of which are high and low yielders.)

Or differently put: dont't just do something, stand there.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315007

Postby Arborbridge » June 4th, 2020, 8:37 am

Darka wrote:I'm not sure what to do with them either since selling Viridor, I would have preferred the cash being returned to me (via a larger special, etc).
But I'm not sure what they will do with it, and as you say they are selling off the family silver....

I see we will get a special, but the rest seems to be debt/pension provision - no idea how Pennon will perform after the sale either.


I'm not against reducing debt but it's all a bit unsettling - I can't afford to keep a low payer, especially if it is taking up a disproportional amount of capital. I need to check on what the timetabling of all this is because the worst thing would be to knee jerk mysel into a premature sale.

In general, I've never quite understood why companies sell off "good bits" of themselves, unless there are some cracking ideas for developing some other part of the business. It's a moot point whether that often happens or whether it is just some executive money making procedure.

If this move is necessary to reduce debt and pension liabilities, what does it say about the underlying health of the company anyway? Desperation? But having said that, I've been lucky in alighting on PNN in a purple patch and making a good investment, up until now.

Arb.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315010

Postby monabri » June 4th, 2020, 8:46 am

"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”."


£3.7bn / 420 million shares ....£8.80 per share....but how much will be returned after pension and debt reductions?

The London Stock Exchange states that PNN's market cap is £5.02bn. They are selling off Viridor...for....£3.7bn... ?

The company will be much smaller.....as will the divi.

To me, PNN has become much much less attractive.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315011

Postby Arborbridge » June 4th, 2020, 8:46 am

moorfield wrote:
Arborbridge wrote:Not sure what to think at the moment, but my holding is pretty large at 1.7x median and maybe should be trimmed.


Darka wrote:I'm not sure what to do with them either since selling Viridor, I would have preferred the cash being returned to me (via a larger re, etc).


Your overall portfolio incomes are trashed already so what might that achieve? Which high(er) yielding shares would you buy instead? "Trade the news" if you must, but why not go "back to basics" and hold on until your other dividends are resumed and the yield dials have stopped spinning? (At such time you'll have a much clearer view of which are high and low yielders.)

Or differently put: dont't just do something, stand there.


If the facts alter, what do you do? I'm not doing anything at present other than suggesting I follow my usual HYP procedures (and see TJH's recent activities,which also follow normal procedures) - and until I've assessed what is going on here (and quite frankly, I've forgotten whatever PNN announced previously, so I need to refer back) I am just standing here! You should recognise the difference between speculation - or thinking aloud - and action :)

And, BTW, I don't think there would be much problem re-deploying capital at the moment supposing a share required trimming or selling. Yes, there are uncertainties, more than usual, but there are also reasonable options. I'd agree with your caution, but I wouldn't halt activity entirely.

Arb.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315015

Postby Arborbridge » June 4th, 2020, 8:49 am

monabri wrote:"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”."


£3.7bn / 420 million shares ....£8.80 per share....but how much will be returned after pension and debt reductions?

The London Stock Exchange states that PNN's market cap is £5.02bn. They are selling off Viridor...for....£3.7bn... ?

The company will be much smaller.....as will the divi.

To me, PNN has become much much less attractive.


Thanks for that quick revision course, Monabri. I remember now, thinking that the "return" carrot was being left deliberately ill defined - a dangling reward which leaves us unable to make a rational decision, so tending to keep shareholders bound in, I guess.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315021

Postby monabri » June 4th, 2020, 9:05 am

Debt is approx £2 billion.

Pension liabilities ( 2017 figure from JLT Benefits report) indicated a £41m deficit. Thus, the pension deficits are likely to be a small portion of the fund redeployment.

So.......guesses :? Pay off the debt in full and sort out the pension deficit...that would leave ~ £1.7 billion.....or £4 per share. ( breath not being held but they really should divulge the shareholder return).

p.s.
Does anyone have an updated link to the JLT Benefits pensions ( FTSE100, 250)...I'm struggling to find more up to date issues of these very useful reports?

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315029

Postby Darka » June 4th, 2020, 9:21 am

I'll probably hold on until the special is paid, then decide.

I promised my wife a while ago that with the next special we receive, she could have a new laptop - so looks like it might be this one :)
Last edited by Darka on June 4th, 2020, 9:34 am, edited 1 time in total.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315030

Postby Arborbridge » June 4th, 2020, 9:25 am

monabri wrote:Debt is approx £2 billion.

Pension liabilities ( 2017 figure from JLT Benefits report) indicated a £41m deficit. Thus, the pension deficits are likely to be a small portion of the fund redeployment.

So.......guesses :? Pay off the debt in full and sort out the pension deficit...that would leave ~ £1.7 billion.....or £4 per share. ( breath not being held but they really should divulge the shareholder return).

p.s.
Does anyone have an updated link to the JLT Benefits pensions ( FTSE100, 250)...I'm struggling to find more up to date issues of these very useful reports?


And also...when is the next review?

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315033

Postby IanTHughes » June 4th, 2020, 9:35 am

monabri wrote:From the text above it reads as though the 3.1% current yield will halve next year and then be uplifted at a lower rate. ....

I am not sure that that is correct.

It has been stated that the annual dividend, from what is left of Pennon Group PLC (PNN) after the Viridor sale, will indeed be slightly more than halved - from 43.77p to 21.11p. However, as a result of the expected return of capital to the shareholders, this dividend will be from a much smaller company, no doubt with a smaller share price to account for the return of capital. The dividend yield at that time will depend on that reduced share price, not today's price.


Ian

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315037

Postby Arborbridge » June 4th, 2020, 9:43 am

IanTHughes wrote:
monabri wrote:From the text above it reads as though the 3.1% current yield will halve next year and then be uplifted at a lower rate. ....

I am not sure that that is correct.

It has been stated that the annual dividend, from what is left of Pennon Group PLC (PNN) after the Viridor sale, will indeed be slightly more than halved - from 43.77p to 21.11p. However, as a result of the expected return of capital to the shareholders, this dividend will be from a much smaller company, no doubt with a smaller share price to account for the return of capital. The dividend yield at that time will depend on that reduced share price, not today's price.


Ian


A smaller company, falling price: but will the number of shares be altered to reflect this?
Otherwise, won't it look a bit sickly?

Arb.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315038

Postby Dod101 » June 4th, 2020, 9:50 am

I was thinking about Pennon but in view of all this I will leave it for now because as ITH has just posted it looks as there could well be a capital reconstruction as well to reflect the much smaller company. I know nothing of this utility but it would seem that a decent reduction in central expenses might well be in order as well such as either a reduction in the HO head count and/or a reduction in bonuses or whatever.

I will leave it all until the dust settles and then think again.

Dod

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315051

Postby Dod101 » June 4th, 2020, 10:11 am

I meant to add to my above post that Pennon seems to have given only half the story and have left potential new investors like me with insufficient information to do anything The rebased dividend will reflect a much smaller company and yet we are told nothing about the capital side of the picture. I do not see how anyone can invest on that basis. Furthermore it makes them entirely dependent now on the water regulator.

Dod

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315063

Postby monabri » June 4th, 2020, 10:36 am

ITH is correct, the divi will reduce but there will be a "rebalance" to some extent (TBD) as we will have a payout from the sale of Viridor which could be redeployed for income. We therefore don't know what the new yield will be. I would assume that 'sums have been done' such that the yield is similar to what it currently is but we move forward with a company with lower debt and pension deficit.

I don't see any mention of share buybacks so won't there still be the same number of shares after ?

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315071

Postby IanTHughes » June 4th, 2020, 10:56 am

Interesting to note that, with a current Market Capitalisation of just under £5 Billion, after the sale of Viridor for a net £3.7 Billion and the subsequent return of capital to shareholders, the Company that remains may be too small for inclusion in the FTSE 100.


Ian

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315072

Postby Arborbridge » June 4th, 2020, 11:01 am

Dod101 wrote:I meant to add to my above post that Pennon seems to have given only half the story and have left potential new investors like me with insufficient information to do anything The rebased dividend will reflect a much smaller company and yet we are told nothing about the capital side of the picture. I do not see how anyone can invest on that basis. Furthermore it makes them entirely dependent now on the water regulator.

Dod



and have left potential new investors like me with insufficient information to do anything


And existing investors! Your final point is also a concern in that the attraction of PNN compared with other similar companies was that it had the "second plank" of Viridor to stand on. That's partly why I chose it, and it's a bit annoying to find it has been sold off to KKR who clearly know a good thing when they see it.

Here's the wording of part of the document which concerns us, and it is completely up in the air, full of weasel words. You might get a direct benefit in some form sometime, possibly never.
"The remaining element of the Net Cash Proceeds, after deducting the amounts used to reduce net borrowings and reduce the pension fund deficit, will be returned to shareholders subject to other value creating investment opportunities that may arise for the Continuing Group. In determining the optimal route to return a portion of the proceeds to Shareholders, the Board will consider a number of factors including prevailing market conditions, the balance of shareholder preference and the scale of proceeds to be returned."



Arb.

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Re: Pennon Group Full Year Results 2019/20 nb Dividend to be rebased Notice.

#315081

Postby Dod101 » June 4th, 2020, 11:11 am

Thanks Arb. Existing shareholders can presumably console themselves that Pennon has been a good investment on the capital side although I have not looked at the numbers. Certainly they seem to be claiming that they made a lot of money via Viridor so presumably that will be recognised one way or another. But it is not currently investable for me, notwithstanding the doctrine of Strategic Ignorance, so I'm out as they say.

Dod


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