Interim Results
Pennon Group PLC
30 November 2000
PENNON GROUP PLC
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2000
Pennon Group announces its unaudited results for the half year ended 30
September 2000.
FINANCIAL HIGHLIGHTS
- Turnover down 4% to £223m
- Operating profit down 20% to £67m
- Profit before tax down 32% to £41m
- Earnings per share down 26% to 30.0p
- Interim dividend per share down 25% to 11.6p, as forecast last year.
OPERATIONAL HIGHLIGHTS
- South West Water targeting out-performance of regulatory contract to
2005
- South West Water continuing to reduce operating costs, whilst improving
levels and standards of service
- Substantial improvement achieved in Viridor Instrumentation
Chairman Ken Harvey said:
'The impact of the one-off price reduction of 12.2% from 1 April 2000 imposed
on South West Water by the Director General of Water Services, is reflected in
the financial highlights. I am delighted to report that South West Water has
responded well to the challenges posed by the Periodic Review, in particular
by improving efficiency and customer service. Detailed plans have been
approved which should ensure that South West Water outperforms the Regulatory
Contract to 2005. The Viridor businesses have maintained profitability and
are well-placed to produce future growth. The review of strategic options is
ongoing, with a range of options being explored including possible alternative
structures for the ownership of South West Water assets and the operation of
those assets. A number of issues still need to be resolved, including
Regulatory implications. South West Water has been organised internally to
facilitate possible changes. Viridor will focus on its waste management and
instrumentation businesses, with a number of options being pursued to support
its growth aspirations.'
For further information on 30 November 2000, please contact:
Ken Harvey Chairman )
Ken Hill Group Director of Finance ) 020 7831 3113
Jo Finely Investor Relations Manager )
Stephen Swain Communications Manager 01392 443022
Andrew Dowler Financial Dynamics 020 7831 3113
GROUP OVERVIEW
Group turnover reduced by 4.4% to £223.3m, reflecting the impact of the one-
off price reduction of 12.2% imposed by the Director General of Water Services
on South West Water from 1 April 2000. After taking account of this impact,
South West Water's turnover reduced by £13.8m to £126.6m. Turnover in the
Viridor and other Group businesses rose by £3.5m to £96.7m.
Group operating profit reduced by 20.0% to £66.6m, principally as a result of
the South West Water price determination. The operating profit for Viridor
improved by 2.0% to £10.0m.
Group profit before tax reduced by 32.1% to £41.4m, incorporating the price
reductions for South West Water and the funding of the regulated capital
programme.
Earnings per share fell, as a consequence of the reduction in profit, by 26.3%
to 30.0p, notwithstanding a lower tax charge of £0.6m (1999 - £5.7m).
Capital expenditure for the Group was £70.2m (1999 - £53.3m), comprising
£63.9m for South West Water and £6.3m for Viridor and other Group activities
(1999 - £43.8m and £9.5m respectively).
There were no acquisitions during the period.
Net debt for the Group was £683m, an increase of £16m since 31 March 2000.
Gearing, being net borrowings to shareholders' funds, was 70% at 30 September
2000, compared with 71% at 31 March 2000. Interest cover was 2.7 times
compared with 3.7 times at 31 March 2000.
As foreshadowed in the Interim Results announcement on 9 December 1999, the
Board has decided to re-base the dividend effective from the interim dividend
for 2000/01. The interim dividend of 11.6p will be paid on 6 April 2001 to
shareholders on the register on 2 March 2001. A similar reduction is expected
to be applied to the final dividend for 2000/01. Thereafter, the Board
expects to pursue a progressive dividend policy.
UTILITY OPERATIONS - SOUTH WEST WATER
Turnover for South West Water reduced by £13.8m reflecting the one-off price
reduction imposed by the Director General of Water Services.
The number of customers who opted during the half year to change to a measured
basis of charge was 18,000, producing an adverse impact of £2.4m. Based on
current projections, the company anticipates being in a position to apply to
the Director General for an Interim Price Determination in September 2001.
There were 3,700 new customers during the half year. Measured demand for
water from existing customers was 2% below the equivalent period in 1999.
Operating costs, before depreciation charges, reduced by £1.1m to £44.7m in
the September half year, reflecting the generation of a further £3.7m of
efficiency savings. Cumulatively, the company has produced efficiency savings
of £31.3m since 1995. Detailed plans are in place and actions have been taken
which are anticipated to produce an outperformance against the operating cost
targets imposed by the Director General of Water Services for the period to
2005.
Capital expenditure was £63.9m compared to £43.8m in the same period in 1999.
The company's 'Clean Sweep' coastal sewage treatment improvement initiative is
now substantially complete. This covers 38 major schemes and many more minor
schemes throughout the region and, together with a significant number of
improvements to inland sewage treatment works, has resulted in a massive
improvement in standards of sewage treatment, with consequential benefits to
the environment. The programme has been undertaken at a cost below budget and
generally earlier than originally anticipated. This investment has
contributed to the best ever bathing water compliance level in the South
West.
Compliance levels for water supplies and waste water treatment are at an all
time high.
The 12 month rolling average for leakage at September 2000 was 80.8 megalitres
per day, compared to a prescribed target for 2000/01 of 84 megalitres per day.
The company is regarded as one of the industry leaders in reducing levels of
leakage.
Substantial improvements in the standards of service provided to customers and
in the formal Levels of Services Indicators prescribed by the Director General
have been achieved.
NON-REGULATED ACTIVITIES
(COVERING VIRIDOR AND OTHER GROUP BUSINESSES)
Turnover of Viridor and other non-regulated Group businesses was £96.7m (1999
- £93.2m).
Operating profit was £10.0m (1999 - £10.0m).
WASTE MANAGEMENT
Turnover for Viridor Waste was £54.1m for the half year to September 2000
(1999 - £50.1m), an increase of £4.0m, or 8.0%. Included in turnover was
landfill tax of £16.8m (1999 - £14.5m).
Operating profit was £7.0m compared to £7.8m for the equivalent period in
1999. Operating margins (excluding the impact of landfill tax) were 18.8%
compared to 21.9% for 1999. The decline in profits can be primarily
attributed to a reduction in minerals activities and cost increases in the
collection business.
Landfill volumes and gate prices have remained relatively flat over the period
and are not expected to show a significant improvement in the immediate
future. The business continues to be well placed to take advantage of the
anticipated shortage of landfill capacity in key parts of the UK, having 74m
cubic metres of fully consented void space and 53m cubic metres of unconsented
void. It is actively exploring opportunities arising from the Government's
new waste strategy.
INSTRUMENTATION
Turnover for Viridor Instrumentation rose from £24.1m in the half year to
September 1999, to £26.9m for the equivalent period in 2000, representing an
increase of 11.6%.
Operating profit was £2.9m for the period to September 2000 (1999 - £1.6m),
both figures after charging for goodwill amortisation for Orbisphere, an
acquisition completed in December 1998. Operating margins before charging
goodwill were 13.2% for 2000, compared to 9.6% for 1999.
Viridor Instrumentation has seen improved performance across all its
activities, reflecting business rationalisation implemented last year and the
impact of two significant contracts in the first half of this year. GLI
continues to perform well and Orbisphere has made substantial gains.
CONSTRUCTION
Turnover for the construction business was £27.0m for the half year to
September 2000, compared to £27.1m for the equivalent period in 1999.
Operating profits were £0.1m and £0.5m respectively.
The sale of the Copa Division has now been completed and discussions are
progressing in relation to the intended disposal of other parts of the
construction business.
TAXATION
The benefit of the Group's advance corporation tax utilisation strategy, based
on disclaiming relevant capital allowances, has resulted in a tax charge of
£0.6m for the half year to September 2000, all of it relating to overseas
businesses. The equivalent figure for the period to September 1999 was £5.7m.
In the absence of unforeseen circumstances, the tax charge is not expected to
materially increase in the immediate future.
PROSPECTS
The Group has made sound progress during the six months.
South West Water has responded positively to the challenges presented by the
Periodic Review, and has continued to improve both service standards and
efficiency. The plans in place generate a confident expectation of future
outperformance. A range of options has been explored as to alternative
structures, covering the ownership and operation of water and sewerage
assets. A number of issues remain to be resolved, including Regulatory
issues. As and when those issues have been resolved, appropriate
announcements will be made. In the meantime, South West Water has been
organised internally to facilitate possible changes.
Viridor will focus on its waste management and instrumentation businesses,
with the waste business representing good longer term potential and
Instrumentation expected to produce further growth, building on the
achievements of the past six months. A number of options are being pursued to
support its growth aspirations.
Ken Harvey
Chairman
30 November 2000
PENNON GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
for the half year ended 30 September 2000
Half year Half year Year
ended ended ended
30 Septem- 30Septem- 31 March
ber 2000 ber 1999 2000
(unaudited) (unaudited)
Notes £m £m £m
Turnover 223.3 233.6 467.0
Group operating profit 66.6 83.3 167.1
Share of operating loss
in associate (0.2) (0.2) (0.4)
Total operating profit 66.4 83.1 166.7
Net interest payable (25.0) (22.1) (45.1)
Profit on ordinary
activities before
taxation 41.4 61.0 121.6
Tax on profit on ordinary (3)
activities (0.6) (5.7) (5.0)
Profit on ordinary
activities after
taxation 40.8 55.3 116.6
Dividends (15.9) (21.0) (65.1)
Retained profit transferred
to reserves 24.9 34.3 51.5
Basic earnings per share (4) 30.0p 40.7p 85.8p
Dividend per share (5) 11.6p 15.4p 47.8p
All the activities are continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the half year ended 30 September 2000
Half year Half year Year
ended ended ended
30 30 31 March
September September 2000
2000 1999
(unaudited) (unaudited)
£m £m £m
Profit on ordinary
activities after
taxation 40.8 55.3 116.6
Currency retranslation
differences on
foreign currency net
investments - (0.6) (1.1)
Total gains and losses
recognised for the
period 40.8 54.7 115.5
PENNON GROUP PLC
SUMMARISED GROUP BALANCE SHEET
at 30 September 2000
30 30 31 March
September September 2000
2000 1999
(unaudited) (unaudited)
£m £m £m
Fixed assets
Intangible assets 24.5 25.6 23.3
Tangible assets 1,744.6 1,643.0 1,711.2
Investments 2.6 3.2 2.1
1,771.7 1,671.8 1,736.6
Current assets
Stocks 15.3 14.9 15.1
Debtors 107.8 110.1 108.5
Investments and cash 65.4 79.2 39.3
188.5 204.2 162.9
Creditors: amounts falling
due within one year (211.4) (230.4) (217.5)
Net current liabilities (22.9) (26.2) (54.6)
Total assets less current 1,748.8 1,645.6 1,682.0
liabilities
Creditors: amounts falling
due after more than one (705.6) (661.8) (664.5)
year
Provisions for liabilities (23.5) (24.9) (24.3)
and charges
Deferred income (49.2) (32.4) (49.9)
Net assets 970.5 926.5 943.3
Capital and reserves
Called-up share capital 136.9 136.3 136.3
Share premium account 150.9 148.4 148.6
Profit and loss account 682.7 641.8 658.4
Shareholders' funds 970.5 926.5 943.3
PENNON GROUP PLC
GROUP CASH FLOW STATEMENT
for the half year ended 30 September 2000
Half year Half year Year
ended ended ended
30 September 30 31 March
2000 September 2000
(unaudited) 1999
(unaudited)
Notes £m £m £m
Cash inflow from (6)
operating activities 105.3 105.2 216.3
Returns on investments
and servicing of finance (19.4) (9.6) (10.1)
Taxation (1.0) (0.5) (15.9)
Capital expenditure and
financial investment (81.0) (57.5) (140.6)
Acquisitions and disposals 0.5 0.3 0.5
Equity dividends paid (21.0) (6.5) (48.7)
Cash (outflow)/inflow
before use of liquid
resources and financing (16.6) 31.4 1.5
Management of liquid
resources (20.3) (13.5) 20.8
Financing 42.4 (19.8) (27.4)
Increase/(decrease) in
cash in period 5.5 (1.9) (5.1)
PENNON GROUP PLC
SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
for the half year ended 30 September 2000
Half year Half year Year
ended ended ended
30 September 30 31 March
2000 September 2000
(unaudited) 1999
(unaudited)
£m £m £m
Turnover
Water and sewerage 127.1 141.1 281.4
business
Less: intra-group (0.5) (0.7) (1.2)
trading
126.6 140.4 280.2
Non-regulated
businesses:
Viridor businesses:
Waste management 54.1 50.1 100.6
Instrumentation 26.9 24.1 49.6
Construction Services 27.0 27.1 56.0
Property and other 0.6 0.3 0.7
Total Viridor 108.6 101.6 206.9
Other non-regulated
businesses 3.0 3.4 6.8
Less: intra-group
trading (14.9) (11.8) (26.9)
96.7 93.2 186.8
223.3 233.6 467.0
Group operating profit
Water and sewerage 56.6 73.3 146.8
business
Non-regulated
businesses:
Viridor businesses:
Waste management 7.0 7.8 15.2
Instrumentation 2.9 1.6 2.9
Construction services 0.1 0.5 1.6
Property and other - (0.1) 0.1
Total Viridor 10.0 9.8 19.8
Other non-regulated
businesses - 0.2 0.5
10.0 10.0 20.3
66.6 83.3 167.1
Profit on ordinary
activities before
taxation
Water and sewerage 37.2 54.3 108.0
business
Non-regulated business:
Viridor businesses:
Waste management 6.3 7.4 14.0
Instrumentation 2.9 1.5 2.9
Construction services 0.1 0.4 1.4
Property and other - - 0.2
Total Viridor 9.3 9.3 18.5
Other non-regulated
businesses* (5.1) (2.6) (4.9)
4.2 6.7 13.6
41.4 61.0 121.6
* includes interest arising on parent company financing of acquisitions
PENNON GROUP PLC
NOTES
1. The results for the half year ended 30 September 2000 are unaudited as
were those for the half year ended 30 September 1999. The same accounting
policies have been applied as those set out in the Pennon Group Plc Annual
Report and Accounts for the year ended 31 March 2000.
2. The financial information for the year ended 31 March 2000 does not
constitute full financial statements within the meaning of section 240 of the
Companies Act 1985. The full financial statements for that year have been
delivered to the Registrar of Companies. The auditors' report on those
financial statements was unqualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985.
3 Tax on profit on ordinary activities comprises:
30 30 31 March
September September 2000
2000 1999
£m £m £m
United Kingdom
taxation:
Corporation tax at 30% - 10.7 14.8
Advance corporation
tax:
Previous year
utilisation - (5.4) (10.5)
Overseas taxation 0.6 0.4 0.7
0.6 5.7 5.0
The corporation tax charge for September 1999 was derived by applying the
anticipated effective annual tax rate to the first half year profit before
tax.
The corporation tax charge reflects actions to utilise all the advance
corporation tax charged against profits in previous years.
4. The calculation of earnings per share is based on the profit on
ordinary activities after taxation divided by the weighted average number of
ordinary shares in issue during the half year of 136.2 million (1999 135.9
million).
Earnings per share on a diluted basis are 29.9p (1999 40.4p). This basis
allows for the issue of share options.
5. The interim dividend of 11.6p per share will be paid on 6 April 2001 to
shareholders on the register on 2 March 2001.
PENNON GROUP PLC
NOTES (continued)
6. Reconciliation of Group operating profit to net cash inflow from
operating activities:
Half year Half year Year
ended ended ended
30 September 30 September 31 March
2000 1999 2000
(unaudited) (unaudited)
£m £m £m
Group operating profit 66.6 83.3 167.1
Depreciation charge 34.5 30.2 60.9
Amortisation of goodwill 0.6 0.7 1.2
Provision for impairments of
fixed asset investments 0.1 0.4 1.1
Deferred income released to
profits (0.6) (0.5) (1.2)
Decrease in provisions for
liabilities and charges (1.1) (1.9) (4.0)
Decrease in stocks 0.2 0.4 0.1
Decrease/(increase) in debtors
(amounts falling due within
and over one year) 3.6 (9.9) (8.6)
Increase in creditors (amounts
falling due within and
over one year) 1.7 2.7 0.4
Profit on disposal of tangible
fixed assets (0.3) (0.2) (0.7)
Net cash inflow from operating
activities 105.3 105.2 216.3
PENNON GROUP PLC
NOTES (continued)
7. Analysis of net debt:
At Cash Exchange Non- At
1 April flow move- cash 30 Septem-
2000 ments move- ber 2000
ments
£m £m £m £m £m
Cash at bank and in 3.8 (0.1) 0.1 - 3.8
hand
Current asset
investments:
Overnight deposits 0.1 5.7 - - 5.8
Bank overdrafts (2.4) (0.1) - - (2.5)
1.5 5.5 0.1 - 7.1
Debt due within one
year (other than
bank overdrafts) (30.0) 7.4 - (5.9) (28.5)
Debt due after more
than one year (344.2) - (1.8) 5.9 (340.1)
Finance lease
obligations (329.5) (47.5) - (0.3) (377.3)
(703.7) (40.1) (1.8) (0.3) (745.9)
Current asset
investments:
Other than overnight
deposits 35.4 20.3 0.1 - 55.8
(666.8) (14.3) (1.6) ( 0.3) (683.0)
Non-cash movements include transfers between categories of debt for changing
maturities £5.9m, and increased accrued finance charges within finance lease
obligations £0.3m.
8. On 21 November 2000 the Group realised a loss of £4.2m on the sale of
its interest in the Copa Products division of TJ Brent Limited for a cash
consideration of £2.2m. The business disposal loss is after charging £3.9m of
acquisition goodwill previously written off to reserves.
9. The interim report will be posted to shareholders on 4 January 2001 and
will also be available from the Company's registered office at Peninsula
House, Rydon Lane, Exeter, EX2 7HR.
Pennon Group Plc
Registered Office: Peninsula House,
Rydon Lane, Exeter, EX2 7HR.
Registered in England No. 2366640