Interim Results
Pennon Group PLC
29 November 2001
PENNON GROUP PLC
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2001
Pennon Group announces its unaudited results for the half year ended
30 September 2001.
FINANCIAL HIGHLIGHTS
- Turnover down 2% to £220m
- Operating profit down 3% to £65m
- Profit before tax down 3% to £40m
- Earnings per share up 13% to 25.4p
- Interim dividend per share up 4% to 12.1p
- Ofwat announces Draft Determination for Interim Price Increases
OPERATIONAL HIGHLIGHTS
- South West Water remains confident of outperforming the
Regulatory Contract to 2005
- South West Water continuing to improve efficiency whilst
delivering record levels of compliance and standards
- Increase in Viridor profitability
STRATEGIC INITIATIVES
- Good progress in relation to all strategic initiatives
announced with Preliminary Results in May 2001, including:
- planned disposal of Viridor Instrumentation with intention
of returning value to shareholders
- action to improve efficiency of Balance Sheet
- reduction in corporate overheads.
Chairman, Ken Harvey, said:
'The Group continues to make sound progress with good performance in
all areas. The strategic initiatives announced with the Preliminary
Results in May 2001 are being pursued. The planned disposal of
Viridor Instrumentation is progressing well, via a competitive
process.
'South West Water remains confident of outperforming the Regulatory
Contract to 2005, having generated additional efficiencies.
Standards of service to customers continue to improve and record
levels of drinking water, bathing water and river water quality have
been achieved.
'Viridor Waste has increased its profitability and, with the two
acquisitions recently announced, is well-placed to achieve further
growth.
'Plans to reduce corporate overheads have progressed. When fully
implemented, a saving of approximately £1m per annum is expected to
accrue. A restructuring charge of £0.7m has been made in the half
year.
'Options to improve the Group's Balance Sheet efficiency continue to
be examined and a favoured option is being explored in detail.'
For further information on 29 November 2001, please contact:
Ken Harvey Chairman )
Ken Hill Group Director of Finance ) 020-7831-3113
Jo Finely Investor Relations Manager )
Andrew Dowler Financial Dynamics )
Stephen Swain Communications Manager 01392-443022
GROUP OVERVIEW
Group turnover reduced overall by £3.6m to £219.7m. Turnover in
South West Water increased by £3.1m to £129.7m and turnover in
Viridor Waste increased by £10.0m to £62.6m. As a consequence of
the disposal of the Viridor construction business, which was
completed in December 2000, turnover of £16.8m was eliminated when
compared with the half year ended 30 September 2000.
Group operating profit reduced by £1.7m to £64.9m incorporating a
reduction of £2.5m for South West Water and an increase of £0.8m for
Viridor. The principal reason for the reduction in South West Water
emanates from the impact of the capital investment programme.
Group profit before tax reduced by £1.2m to £40.2m, reflecting a
reduction of £3.0m for South West Water and an increase of £1.8m for
Viridor and other Group companies.
Earnings per share rose by 13% to 25.4p principally as a consequence
of the impact of applying the new Financial Reporting Standard for
Deferred Tax (FRS 19). The Standard required a restatement of the
previous year's figures and the total tax charge for the half year
to 30 September 2001 at £5.5m was £5.3m lower than the re-stated
charge of £10.8m for the half year ended 30 September 2000.
Capital expenditure for the Group was £70.7m (2000 - £70.2m)
comprising £61.8m for South West Water and £8.9m for Viridor and
other Group activities (2000 - £63.9m and £6.3m respectively).
No acquisitions were made during the half year. Two acquisitions to
enhance the waste management business were subsequently announced on
18 October 2001.
Net debt for the Group was £727m, an increase of £9m since 31 March
2001. Gearing, being net borrowings to shareholders' funds, was
77%, unchanged from the restated amount at 31 March 2001, which
allows for the impact of deferred taxation. Interest cover was 2.6
times for the 30 September 2001 half year (2000 - 2.7 times). At 31
March 2001 the equivalent figure was 2.5 times.
The interim dividend of 12.1p represents an increase of 4.3% over
the equivalent figure for September 2000. It will be paid on 8
April 2002 to shareholders on the register on 8 March 2002. In the
absence of unforeseen circumstances, the Board confirms its
intention to pursue a progressive dividend policy. As in previous
years, the Board intends to offer shareholders the opportunity to
participate in a Dividend Reinvestment Plan.
UTILITY OPERATIONS - SOUTH WEST WATER
South West Water turnover rose by £3.1m, reflecting the impact of
the approved tariff increase (£4.0m) and other positive factors
(£1.3m), partially offset by the impact of customers switching from an
unmetered basis of charge to a metered basis (£2.2m).
The company submitted an application for an Interim Determination of
'K' in September 2001, as permitted by the appropriate Ofwat
procedures. The Director General of Water Services published Draft
Determinations on 8 and 20 November in response to the application.
These Draft Determinations set out revised K factor increases of
1.9% resulting in a total of 3.9% for each of the three years
commencing 1 April 2002. Further discussions are being held with
the Director General and he is expected to issue the Final
Determination by 14 December.
There were 3,000 new customers during the half year. Measured
demand from existing customers was unchanged from the half year to
September 2000.
Operating costs, before depreciation charges, increased by £3.7m to
£48.4m, after taking into account further efficiency savings of
£1.9m. The most significant factor contributing to the increase was
the implications of further capital investment (£1.8m). The cost of
dealing with foot and mouth related activities was £1.0m, which was
more than offset by associated income. The company remains on track
to deliver further efficiency savings which are expected to ensure
an outperformance of the Regulatory Contract to 2005.
Capital expenditure was £61.8m, being £2.1m less than the half year
to 30 September 2000. The success of the company's 'Clean Sweep'
coastal sewage treatment improvement initiative has been a major
factor in the record level of bathing water compliance in the
region. River water quality and drinking water quality are also at
an all time high. The company continues to be regarded as one of the
industry leaders in managing water leakage levels.
NON-REGULATED ACTIVITIES
(COVERING VIRIDOR AND OTHER GROUP BUSINESSES)
Turnover of Viridor and other non-regulated businesses was £90.0m
(2000 - £96.7m). Operating profit was £10.8m (2000 - £10.0m).
Turnover for continuing businesses of Viridor and other
non-regulated businesses was £90.0m (2000 - £79.9m) delivering
operating profit of £10.8m (2000 - £9.9m). The discontinued
business (Viridor Contracting) had turnover of £16.8m, with an
operating profit of £0.1m in the half year to 30 September 2000.
WASTE MANAGEMENT
Viridor Waste turnover was £62.6m, an increase of £10.0m over the
half year to 30 September 2000. Included in turnover was £19.6m in
respect of landfill tax (2000 - £16.8m). The increase in turnover
reflects increases in both volumes and gate fees.
Operating profit was £8.2m (2000 - £7.0m) with an operating margin,
excluding landfill tax, of 18.5%. The increased profitability arose
principally in the landfill and collection divisions, from the
volume and price increases.
The company announced two further acquisitions on 18 October 2001.
These acquisitions reinforce the opportunity to benefit from a
shortage of landfill capacity in key parts of the UK and enhance
materials transfer and reclamation capability. The company now has
73 million cubic metres of fully consented void space and 52 million
cubic metres of unconsented void space.
INSTRUMENTATION
Viridor Instrumentation turnover was £27.3m (2000 - £26.9m).
Operating profit was £2.7m (2000 - £2.9m). Operating margins were
12.3%, excluding goodwill amortisation.
The planned disposal of Viridor Instrumentation is progressing well,
via a competitive process.
TAXATION
The Group's taxation strategy continues to benefit the mainstream
corporation tax charge which was nil for the half year to 30
September 2001 (2000 - nil). The foreign tax charge was £0.2m (2000
- £0.6m).
A new Financial Reporting Standard (FRS 19) relating to deferred tax
is operative for 2001/02. This requires the Group to recognise
deferred tax liabilities and to introduce a prior period adjustment.
The deferred tax charge for the half year to 30 September 2001 was
£5.3m. The equivalent figure for the half year to 30 September 2000
was £10.2m, which has entailed a restatement of the previous
period's figures.
STRATEGY & PROSPECTS
Progress has been made by the Board in pursuit of the strategy
outlined in May 2001. The planned disposal of Viridor
Instrumentation is progressing well via a competitive process and
corporate overheads are being reduced.
Improving the Balance Sheet efficiency is a complex issue and a
favoured option is being explored in detail.
The performance of the Group in the six months to 30 September 2001
provides confidence for the future, focusing on the water, sewerage
and waste management activities.
Ken Harvey
Chairman
29 November 2001
PENNON GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
for the half year ended 30 September 2001
Half year Half year Year
ended ended ended
30 September 30 September 31 March
2001 2000* 2001*
(unaudited) (unaudited)
Notes £m £m £m
Turnover
Continuing 219.7 206.5 412.1
operations
Discontinued - 16.8 23.0
operations
_____________ ____________ _________
Total turnover 219.7 223.3 435.1
=========== =========== ========
Group operating profit
Continuing 64.9 66.5 127.6
operations
Discontinued - 0.1 0.5
operations
_____________ ____________ _________
Total Group 64.9 66.6 128.1
operating profit
Share of operating (0.2) (0.2) (0.4)
loss in associate
_____________ ____________ _________
Total operating 64.7 66.4 127.7
profit
Loss on disposal of - - (2.1)
discontinued
operation
Net interest payable (24.5) (25.0) (51.4)
_____________ ____________ _________
Profit on ordinary
activities
before taxation 40.2 41.4 74.2
Tax on profit on (4) (5.5) (10.8) (18.0)
ordinary activities
_____________ ____________ _________
Profit on ordinary
activities after
Taxation 34.7 30.6 56.2
Dividends (16.6) (15.9) (49.4)
_____________ ____________ _________
Retained profit 18.1 14.7 6.8
transferred to
reserves =========== ========== ========
Basic earnings per (5)
share
- before 25.4p 22.5p 42.8p
exceptional items
- after 25.4p 22.5p 41.2p
exceptional items
Dividend per share (6) 12.1p 11.6p 36.0p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the half year ended 30 September 2001
Half year Half year Year
ended ended ended
30 September 30 September 31 March
2001 2000* 2001*
(unaudited) (unaudited)
Notes £m £m £m
Profit on ordinary
activities after
taxation 34.7 30.6 56.2
Currency
retranslation
differences on
foreign currency (0.1) - 0.2
net investments
____________ ___________ _________
Total gains and
losses recognised
for the period 34.6 30.6 56.4
Prior period (3) - (31.9) (31.9)
adjustment
____________ ___________ _________
Total gains and
losses recognised
since last Annual 34.6 (1.3) 24.5
Report
========== ========== ========
* restated (note 3)
PENNON GROUP PLC
SUMMARISED GROUP BALANCE SHEET
at 30 September 2001
30 September 30 September 31 March
2001 2000* 2001*
(unaudited) (unaudited)
£m £m £m
Fixed assets
Intangible assets 24.6 24.5 24.7
Tangible assets 1,830.8 1,744.6 1,798.5
Investments 3.5 2.6 3.1
__________ __________ _________
1,858.9 1,771.7 1,826.3
Current assets
Stocks 14.4 15.3 13.9
Debtors 90.3 107.8 89.3
Investments and cash 73.5 65.4 65.1
__________ __________ _________
178.2 188.5 168.3
__________ __________ _________
Creditors:
amounts falling due
within one year (220.1) (211.4) (217.3)
__________ __________ _________
Net current (41.9) (22.9) (49.0)
liabilities
__________ __________ _________
Total assets less 1,817.0 1,748.8 1,777.3
current liabilities
Creditors:
amounts falling due
after more than (743.1) (705.6) (727.9)
one year
Provisions for (79.5) (65.6) (72.7)
liabilities and charges
Deferred income (48.4) (49.2) (49.0)
__________ __________ _________
Net assets 946.0 928.4 927.7
========= ======== ========
Capital and reserves
Called-up 137.0 136.9 136.9
share capital
Share premium 151.6 150.9 151.3
account
Profit and 657.4 640.6 639.5
loss account
__________ __________ _________
Shareholders' 946.0 928.4 927.7
funds
========= ======== ========
*restated (note 3)
PENNON GROUP PLC
GROUP CASH FLOW STATEMENT
for the half year ended 30 September 2001
Half year ended Half year ended Year ended
30 September 30 September 31 March
2001 2000 2001
(unaudited) (unaudited)
Notes £m £m £m
Cash inflow (7)
from operating
activities 107.3 105.3 205.0
Returns on
investments and
servicing of (14.5) (19.4) (39.9)
finance
Taxation 0.1 (1.0) (0.3)
Capital
expenditure and
financial
investment (85.2) (81.0) (153.2)
Acquisitions - 0.5 12.0
and disposals
Equity (15.9) (21.0) (65.3)
dividends paid
___________ ___________ ________
Cash outflow
before use of liquid
resources and (8.2) (16.6) (41.7)
financing
Management of (0.7) (20.3) (25.2)
liquid resources
Financing 14.9 42.4 65.6
___________ ___________ ________
Increase/ 6.0 5.5 (1.3)
(decrease) in
cash in period ========== ========== =======
PENNON GROUP PLC
SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
for the half year ended 30 September 2001
Half year Half year Year
ended ended ended
30 September 30 September 31 March
2001 2000 2001
(unaudited) (unaudited)
£m £m £m
Turnover
Water and sewerage 130.3 127.1 251.4
business
Less: intra-group (0.6) (0.5) (1.2)
trading
_____________ ____________ ___________
129.7 126.6 250.2
____________ ____________ ___________
Non-regulated
businesses:
Viridor
businesses:
Waste management 64.4 54.1 106.1
Instrumentation 27.4 26.9 54.9
Construction services
(discontinued) - 27.0 37.1
Property and 0.4 0.6 5.7
other
____________ ____________ ___________
Total Viridor 92.2 108.6 203.8
Other 3.4 3.0 6.1
non-regulated businesses
Less: intra-group (5.6) (14.9) (25.0)
trading
___________ ____________ ___________
90.0 96.7 184.9
____________ ____________ ___________
219.7 223.3 435.1
=========== ========== ==========
Group operating profit
Water and sewerage 54.1 56.6 107.3
business
____________ ____________ ___________
Non-regulated
businesses:
Viridor
businesses:
Waste 8.2 7.0 13.1
management
Instrumentation 2.7 2.9 4.8
Construction
services
(discontinued) - 0.1 0.5
Property and (0.1) - 2.4
other
___________ ____________ ___________
Total Viridor 10.8 10.0 20.8
___________ ____________ ___________
64.9 66.6 128.1
=========== ========== ==========
Profit on ordinary
activities before
taxation
Water and sewerage 34.2 37.2 67.0
business
____________ ____________ ___________
Non-regulated
businesses:
Viridor
businesses:
Waste 7.8 6.3 11.7
management
Instrumentation 2.7 2.9 4.9
Construction
services
(discontinued) - 0.1 0.4
Property and - - 2.5
other
___________ ____________ ___________
Total Viridor 10.5 9.3 19.5
Other (4.5) (5.1) (10.2)
non-regulated
businesses* ___________ ____________ ___________
Before 6.0 4.2 9.3
exceptional item
Loss on disposal
of discontinued
operation - - (2.1)
____________ ____________ ___________
After exceptional 6.0 4.2 7.2
item
____________ ____________ ___________
40.2 41.4 74.2
========== ========== ==========
* includes interest arising on parent company financing of acquisitions
PENNON GROUP PLC
NOTES
1 The results for the half year ended 30 September 2001 are
unaudited as were those for the half year ended 30 September
2000. 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 2001 except for the policy on deferred
taxation (see note 3).
2 The financial information for the year ended 31 March 2001 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 The Group's accounting policy on deferred taxation has been
amended following adoption of Financial Reporting Standard 19 '
Deferred Tax' (FRS 19). The FRS requires full provision to be
made for deferred taxation arising from timing differences
between recognition of gains and losses in the financial
statements and their recognition in a tax computation. The Group
has adopted a policy of discounting deferred tax assets and
liabilities to reflect the time value of money, as permitted by
FRS 19. Previously, the Group's accounting policy was to provide
for deferred taxation to the extent that it was likely to
crystallise in the foreseeable future. The application of the
previous accounting policy resulted in no provision for deferred
taxation being recognised at 31 March 2000, 30 September 2000 and
31 March 2001.
As a result of this change in accounting policy the comparatives
have been restated as follows:
Group balance sheet
Provision for liabilities Profit and loss account
and charges
September 2000 March 2001 September 2000 March 2001
£m £m £m £m
Previously (23.5) (22.8) (682.7) (689.4)
reported
Application (42.1) (49.9) 42.1 49.9
of FRS 19
________ ______ ________ _______
Restated now (65.6) (72.7) (640.6) (639.5)
reported ======= ===== ======= ======
The restatement for September 2000 comprises a prior period
adjustment of £31.9m and a £10.2m charge for the half year.
Group profit and loss account
Tax on profit on ordinary Basic earnings per share
activities
September 2000 March September March
2001 2000 2001
£m £m p p
Previously (0.6) - 30.0 56.0
reported
Application (10.2) (18.0) (7.5) (13.2)
of FRS 19
________ ______ ________ _______
Restated now (10.8) (18.0) 22.5 42.8
reported ======= ===== ======= ======
4 Tax on profit on ordinary activities comprises:
September September March
2001 2000* 2001*
£m £m £m
United Kingdom - - -
corporation tax
Overseas taxation 0.2 0.6 -
Deferred taxation 5.3 10.2 18.0
________ ________ _______
5.5 10.8 18.0
======= ======= ======
*restated (note 3)
The tax charge for September 2001 and September 2000 has been
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.
5 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 136.5 million (2000 136.2 million).
Earnings per share on a diluted basis are 25.4p (2000 22.4p,
after restatement from 29.9p). This basis allows for the issue
of share options.
6 The interim dividend of 12.1p per share will be paid on 8 April
2002 to shareholders on the register on 8 March 2002.
7 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
2001 2000 2001
(unaudited) (unaudited)
£m £m £m
Group operating profit 64.9 66.6 128.1
Depreciation charge 37.1 34.5 70.4
Amortisation of 0.8 0.6 1.4
intangible fixed
assets
Provision for
impairment of fixed
asset investments 0.1 0.1 0.1
Deferred income (0.6) (0.6) (1.2)
released to profits
Increase/(decrease) in
provisions for
liabilities and 1.2 (1.1) (2.1)
charges
(Increase)/decrease in (0.5) 0.2 (0.3)
stocks
(Increase)/decrease in
debtors (amounts
falling due within and (2.6) 3.6 8.7
over one year)
Increase in creditors
(amounts
falling due within and 7.0 1.7 0.6
over one year)
Profit on disposal of (0.1) (0.3) (0.7)
tangible fixed assets
____________ ___________ __________
Net cash inflow from 107.3 105.3 205.0
operating activities
=========== ========== =========
8 Analysis of net debt:
At Cash flow Non-cash Exchange At
1 April movements movements 30 September
2001 2001
£m £m £m £m £m
Cash at bank and 3.7 1.7 - 0.1 5.5
in hand
Current asset
investments:
Overnight 0.6 5.9 - - 6.5
deposits
Bank (3.9) (1.6) - - (5.5)
overdrafts
______ _______ ________ _______ ________
0.4 6.0 - 0.1 6.5
______ _______ ________ _______ ________
Debt due within
one year
(other than (38.5) 0.6 (0.3) - (38.2)
bank overdrafts)
Debt due
after more
than one year (322.1) 6.0 0.3 (0.4) (316.2)
Finance lease (418.6) (21.2) (0.9) - (440.7)
obligations ______ _______ ________ _______ ________
(779.2) (14.6) (0.9) (0.4) (795.1)
______ _______ ________ _______ ________
Current asset
investments:
Other 60.8 0.7 - - 61.5
than overnight
deposits ______ _______ ________ _______ ________
(718.0) (7.9) (0.9) (0.3) (727.1)
===== ====== ======= ===== =======
Non-cash movements include transfers between categories of debt
for changing maturities £0.3m, and increased accrued finance
charges within finance lease obligations £0.9m.
9 The interim report will be posted to shareholders on 7 January
2002 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: 236640
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