Interim Results
Pennon Group PLC
28 November 2002
PENNON GROUP PLC
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2002
Pennon Group announces its unaudited results for the half year ended 30 September 2002.
FINANCIAL HIGHLIGHTS
- Profit before tax up 3.0% to £41.7m.
- Earnings per share (before deferred tax) maintained at 29.5p.
- Interim dividend per share up 4.1% to 12.6p.
- Share capital consolidation undertaken on 2 September 2002 coupled with a return to
shareholders of a special interim dividend of 70p per share on 1 October 2002 from the
proceeds of the sale of Viridor Instrumentation.
- Further financing initiatives to take advantage of lower costs of borrowing.
OPERATIONAL HIGHLIGHTS
- South West Water : Operating profit up 8.1%.
Continuing to improve efficiency whilst delivering record levels of
drinking water and bathing water compliance.
'Clean Sweep' now virtually complete.
- Viridor Waste : Operating profit before goodwill up 7.3%.
Two acquisitions made last year and two further acquisitions made in
the half year to 30 September 2002 already earnings enhancing.
STRATEGIC HIGHLIGHTS
- Group strategy clearly focused on water, sewerage and waste management.
- South West Water remains confident of out-performing the regulatory
contract to 2005.
- Viridor Waste delivering steady growth by capitalising on landfill asset base, exploiting
landfill gas power generation opportunities and continuing to pursue profitable
opportunities in line with the Government's developing waste strategy.
'These results demonstrate further profitable growth in the Group, affirming our strategy of focusing
on our two key businesses, South West Water and Viridor Waste' said Ken Harvey, Chairman. 'South
West Water has continued to improve its service to customers, delivered further efficiencies and
remains confident of out-performing the regulatory contract to 2005. Viridor Waste shows continued
steady growth in profits, reflecting the success of its focused strategy.'
For further information on 28 November 2002, please contact:
David Dupont Group Director of Finance )
Jo Finely Investor Relations Manager ) 020 7831 3113
Andrew Dowler Financial Dynamics )
Stephen Swain Communications Manager 01392 443022
GROUP OVERVIEW
Group turnover from continuing operations, including acquisitions, rose £17.0m to £209.0m. Overall
group turnover reduced by £10.7m from £219.7m, primarily as a consequence of the disposal of Viridor
Instrumentation, which was completed in February 2002.
Group operating profit from continuing operations rose by 7.1% to £66.7m. Overall group operating
profit rose £1.8m to £66.7m.
Group profit before tax was up 3.0% to £41.7m. Profit before tax in continuing operations rose 10.3%
by £3.9m to £41.7m.
Earnings per share before deferred tax were maintained at 29.4p. Earnings per share after deferred
tax fell by 6.2% to 24.0p.
Capital expenditure for the Group was £90.9m (2001 - £70.7m).
Two waste management businesses, Richardson Limited and Roseland Plant Co. Limited, were acquired
during the half year for a total cash consideration of £20.4m. A further acquisition, Parkwood
Holdings Limited, was made in October for a cash consideration of £20.6m.
Net debt for the Group was £790.9m, an increase of £39.6m since 31 March 2002. Gearing, being net
borrowings to shareholders' funds, was 88%. Allowing for the payment of the special interim dividend
on 1 October 2002, gearing would have been 99%. Interest cover, before exceptional items, was 2.7
times for the 30 September 2002 half year (2001 - 2.7 times). At 31 March 2002 the equivalent figure
was 2.5 times.
The interim dividend of 12.6p per share represents an increase of 4.1% over the equivalent figure for
September 2001. It will be paid on 7 April 2003 to shareholders on the register on
7 March 2003. 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.
As announced in the 2001/02 Preliminary Results in May, a special interim dividend of 70p per share
was paid to shareholders on 1 October 2002. This was funded out of the proceeds of the disposal last
February of Viridor Instrumentation. A share consolidation took place on 2 September in order to
maintain comparability of the share price both before and after the payment of the special interim
dividend.
SOUTH WEST WATER
South West Water turnover rose by £6.3m to £136.6m, reflecting the impact of the approved tariff
increase (£7.1m) and other positive factors, including 3,700 new customer connections, partially
offset by the impact of 14,000 customers switching from an unmetered basis of charge to a metered
basis. Measured demand from existing customers contributed a turnover increase of £0.8m. The first
half benefited from a recovery in demand which had been depressed by the foot and mouth outbreak in
2001/02. The effect is not expected to be repeated in the second half.
South West Water operating profit rose 8.1% to £58.5m. Operating costs, including depreciation,
increased by £1.9m to £78.1m, including £4.4m in respect of new capital schemes. A further £3.3m of
efficiency savings were made in the half year and South West Water remains on track to deliver
further efficiency savings which are expected to ensure an outperformance of the regulatory contract
to 2005.
Capital expenditure rose £18.3m to £80.1m. A major investment scheme in the company's 'Clean Sweep'
initiative was commissioned in the half year at Dartmouth, as well as many other smaller projects
across the region. 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. In
addition, over 200km of water mains were replaced or refurbished in the half year. Drinking water
quality and river water quality are at an all time high. The company was recently assessed by Ofwat
to be in the top ranking for both security of supply and leakage performance.
VIRIDOR WASTE
Viridor Waste turnover was £74.4m, an increase of £10.0m over the half year to 30 September 2001.
The increase was due primarily to acquisitions, but also included increased landfill tax of £1.9m.
Viridor Waste operating profit before goodwill for the half year rose by 7.3% to £8.8m (£8.3m after
goodwill) compared to £8.2m in 2001/02 (when no goodwill was charged).
The 2001/02 first half results included certain one-off items which have been largely offset by the
impact of subsequent acquisitions in the current year. Excluding one-offs and acquisitions,
underlying profit growth was 10%. Operating margin, excluding landfill tax, was 16.6%.
Earnings before interest, tax, depreciation and amortisation rose by 11.8% to £19.0m (2001 - £17.0m).
Capital expenditure for the half year was £10.7m (2001 - £8.3m).
The Viridor Waste strategy has two key elements. The first element is to exploit fully the company's
landfill assets. The UK is likely to face an increasing shortage of landfill disposal capacity due
to planning constraints and, with 78m cubic metres of consented landfill capacity (including Parkwood
Holdings), Viridor Waste is well-positioned for the future. The second element of the strategy is
the pursuit of profitable opportunities to help deliver the targets of the Government's developing
waste and renewable energy strategies.
Last year's second half acquisitions (The Suffolk Waste Disposal Company Limited and Lavelle & Sons
Limited) have been successfully integrated. During the first half of this year Viridor Waste
completed the purchase of Richardson, the specialist glass reclamation company, and Roseland, which
included further landfill in the South West. These four acquisitions reflect the strategy described
above and were earnings enhancing before goodwill in the first half of 2002/03.
Parkwood Holdings was acquired on 25 October and has consented landfill capacity of 4m cubic metres.
It also has recycling and transfer station operations along with an associated collection fleet. In
addition, it has a purpose built liquid waste treatment plant which is expected to benefit as liquid
wastes are diverted from landfill under the recently introduced Landfill Directive.
Viridor Waste remains confident of delivering moderate full year profit growth in line with
expectations at the beginning of the year.
TAXATION
The mainstream corporation tax charge was £2.0m in the half year (2001 - nil).
The deferred tax charge for the half year to 30 September 2002 was £7.3m. The equivalent figure for
the half year to 30 September 2001 was £5.3m.
FINANCING INITIATIVES
The Group funding strategy utilises a mix of fixed and floating rate borrowings. To take advantage
of current historically low interest rates and reduce the risk of adverse movements over the next few
years, South West Water has entered into swap arrangements to fix the interest rate on the majority
of its debt for the period up to the next Periodic Review.
STRATEGY
The Board will continue to concentrate on adding value for shareholders by pursuing the policy of
outperforming the regulatory contract in South West Water and by capitalising on the opportunities
arising from Viridor Waste's successful focused strategy.
As indicated in the 2001/02 full year announcement, Pennon intends to continue to grow Viridor Waste.
We expect to achieve this through a mix of organic growth and acquisition. We believe the ongoing
consolidation within the waste sector will continue to provide relevant acquisition opportunities.
Ken Harvey
Chairman
28 November 2002
PENNON GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
for the half year ended 30 September 2002
Half year ended Half year ended Year ended
30 September 2002 30 September 2001 31 March 2002
(unaudited) Restated
(note 3)
(unaudited)
Turnover Notes £m £m £m
Continuing operations 204.8 192.0 381.0
Acquisitions 4.2 - -
_____ _____ _____
209.0 192.0 381.0
Discontinued operations - 27.7 42.9
_____ _____ _____
Total turnover 209.0 219.7 423.9
======= ===== =====
Group operating profit
Continuing operations 66.1 62.3 119.1
Acquisitions 0.6 - -
______ _____ ______
66.7 62.3 119.1
Discontinued operations - 2.6 2.7
______ _____ ______
Total Group operating profit 66.7 64.9 121.8
Share of operating loss in joint venture/ (0.5) (0.2) (0.5)
associate
_____ _____ ______
Total operating profit 66.2 64.7 121.3
Profit on disposal of discontinued operation - - 5.1
Net interest payable (24.5) (24.2) (49.0)
_____ _____ _____
Profit on ordinary activities
before taxation 41.7 40.5 77.4
Tax on profit on ordinary activities (4) (9.3) (5.5) (3.3)
_____ _____ _____
Profit on ordinary activities after taxation 32.4 35.0 74.1
Dividends (5) (111.5) (16.6) (51.4)
_____ _____ _____
Retained (loss)/profit transferred (from)/to
reserves
(79.1) 18.4 22.7
===== ===== =====
Earnings per share (6)
Adjusted basic 29.5p 29.5p 53.0p
Adjusted diluted 29.4p 29.5p 52.9p
Basic 24.1p 25.6p 54.3p
Diluted 24.0p 25.6p 54.2p
Dividend per share (5) 82.6p 12.1p 37.5p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the half year ended 30 September 2002
Half year ended Half year ended Year ended
30 September 2002 30 September 2001 31 March 2002
(unaudited) Restated
(note 3)
(unaudited)
£m £m £m
Profit on ordinary activities after
taxation 32.4 35.0 74.1
Currency retranslation differences on
foreign currency net investments - (0.1) 0.6
_____ _____ _____
Total gains and losses recognised
for the period 32.4 34.9 74.7
===== ===== =====
PENNON GROUP PLC
SUMMARISED GROUP BALANCE SHEET
at 30 September 2002
30 September 2002 30 September 2001 31 March
(unaudited) Restated 2002
(note 3)
(unaudited)
£m £m £m
Fixed assets
Intangible assets 19.7 24.6 11.7
Tangible assets 1,968.9 1,830.8 1,907.7
Investments 3.2 3.5 3.3
_______ _______ _______
1,991.8 1,858.9 1,922.7
Current assets
Stocks 3.0 14.4 3.2
Debtors 87.0 90.3 81.6
Investments and cash 340.0 230.8 292.0
_______ _______ _______
430.0 335.5 376.8
Creditors: amounts falling due
within one year (362.0) (224.5) (276.0)
_______ _______ _______
Net current assets 68.0 111.0 100.8
_______ _______ _______
Total assets less current liabilities 2,059.8 1,969.9 2,023.5
Creditors: amounts falling due
after more than one year (1,040.3) (929.0) (932.3)
Provisions for liabilities and charges (81.6) (72.7) (74.4)
Deferred income (39.9) (40.5) (40.6)
______ ______ ______
Net assets 898.0 927.7 976.2
===== ===== =====
Capital and reserves
Called-up share capital 137.2 137.0 137.0
Share premium account 152.6 151.6 151.6
Profit and loss account 608.2 639.1 687.6
______ ______ ______
Shareholders' funds 898.0 927.7 976.2
===== ===== =====
PENNON GROUP PLC
GROUP CASH FLOW STATEMENT
for the half year ended 30 September 2002
Half year ended Half year ended Year ended
30 September 2002 30 September 2001 31 March
(unaudited) (unaudited) 2002
Notes £m £m £m
Cash inflow from operating activities (8) 108.4 107.3 196.2
Returns on investments and
servicing of finance (7.0) (14.5) (44.3)
Taxation 0.5 0.1 0.4
Capital expenditure and financial
investment (95.4) (85.2) (182.3)
Acquisitions and disposals (19.7) - 85.0
Equity dividends paid (16.6) (15.9) (49.4)
______ ______ ______
Cash (outflow)/inflow before use of
liquid resources and financing (29.8) (8.2) 5.6
Management of liquid resources 69.4 (0.7) (27.0)
Financing 103.8 14.9 38.2
_____ _____ _____
Increase in cash in period 143.4 6.0 16.8
===== ====== ======
PENNON GROUP PLC
SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
for the half year ended 30 September 2002
Half year ended Half year ended Year ended
30 September 2002 30 September 2001 31 March
(unaudited) Restated 2002
(note 3)
(unaudited)
£m £m £m
Turnover
Continuing operations
Water and sewerage 136.6 130.3 260.4
Waste management 74.4 64.4 125.3
Other 2.6 3.4 6.6
Less intra-group trading (4.6) (6.1) (11.3)
209.0 192.0 381.0
Discontinued operations
Instrumentation - 27.4 43.0
Property - 0.4 1.4
Less intra-group trading - (0.1) (1.5)
Total discontinued operations - 27.7 42.9
_____ _____ _____
Group totals 209.0 219.7 423.9
===== ===== =====
Group operating profit
Continuing operations before goodwill
amortisation
Water and sewerage 58.5 54.1 107.0
Waste management 8.8 8.2 15.2
Other (0.1) - (2.8)
_____ _____ _____
Total continuing operations 67.2 62.3 119.4
_____ _____ _____
Discontinued operations before goodwill
amortisation
Instrumentation - 3.5 3.9
Property - (0.1) 0.1
_____ _____ _____
Total discontinued operations - 3.4 4.0
_____ _____ _____
Goodwill amortisation
Continuing operations : Waste management (0.5) - (0.3)
Discontinued operations : Instrumentation - (0.8) (1.3)
_____ _____ _____
Total goodwill amortisation (0.5) (0.8) (1.6)
_____ _____ _____
Group totals 66.7 64.9 121.8
======= ======= =======
PENNON GROUP PLC
SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
for the half year ended 30 September 2002 (continued)
Half year ended Half year ended Year ended
30 September 2002 30 September 2001 31 March
(unaudited) Restated 2002
(note 3)
(unaudited)
£m £m £m
Profit on ordinary activities before
taxation
Continuing operations
Water and sewerage 36.8 34.5 66.8
Waste management 7.0 7.8 13.5
Other* (2.1) (4.5) (11.0)
_____ _____ _____
Total continuing operations 41.7 37.8 69.3
_____ _____ _____
Discontinued operations
Instrumentation - 2.7 2.7
Property - - 0.3
_____ _____ _____
Total discontinued operations - 2.7 3.0
_____
_____ _____
Exceptional item
Discontinued operations
disposal profit - - 5.1
_____ _____ _____
Group totals 41.7 40.5 77.4
======= ======= =======
* includes interest arising on parent company financing of acquisitions
Comparatives for the half year ended 30 September 2001 have been restated to
include the Instrumentation and Property segments as discontinued operations.
PENNON GROUP PLC
NOTES
1. The results for the half year ended 30 September 2002 are unaudited as were those for the
half year ended 30 September 2001. 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 2002.
2. The financial information for the year ended 31 March 2002 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. At 31 March 2002, following the adoption of Financial Reporting Standard 18 'Accounting
Policies' (FRS 18), the Directors reviewed the accounting policies of the Group and
decided that, in the current reporting environment which encourages increased clarity and
transparency in accounting transactions, it was appropriate to present the Group's
defeased lease arrangements in a manner that improved their understandability and
comparability with other utilities. Accordingly, the rental obligations and cash
deposits associated with these leases were recognised on the balance sheet separately and
the net interest receivable arising from these transactions will now be recognised over
the life of the leases.
As a result of this change in accounting policy the September 2001 comparatives have been
restated as follows:
Group balance sheet
Current asset Creditors : Creditors : Provisions Deferred Profit &
investments & amounts amounts for income loss reserve
cash falling due falling due liabilities
within one after more
year than one & charges
year
£m £m £m £m £m £m
Previously reported 73.5 (220.1) (743.1) (79.5) (48.4) (657.4)
Application of FRS 18 157.3 (4.4) (185.9) 6.8 7.9 18.3
_____ _____ _____ _____ _____ _____
Restated now reported 230.8 (224.5) (929.0) (72.7) (40.5) (639.1)
======= ======= ======= ======= ======= =======
The profit and loss reserve restatement for September 2001 comprises a prior period
adjustment of £18.6m less a £0.3m credit for the half year.
PENNON GROUP PLC
NOTES (continued)
Group profit and loss account
Net interest Basic
payable earnings per
share
£m p
Previously reported (24.5) 25.4
Application of FRS 18 0.3 0.2
_____ _____
Restated now reported (24.2) 25.6
_____ _____
4. Tax on profit on ordinary activities comprises:
September September March
2002 2001 2002
£m £m £m
United Kingdom corporation tax 2.0 - 0.5
Overseas taxation - 0.2 (0.5)
Deferred taxation 7.3 5.3 3.3
_____ _____ _____
9.3 5.5 3.3
======= ======= =======
The tax charge for September 2002 and September 2001 has been derived by applying the
anticipated effective annual tax rate to the first half year profit before tax.
5. Dividends
September September March
2002 2001 2002
£m £m £m
Special interim dividend of 70.0p
per share 95.9 - -
Interim dividend of 12.6p (September
2001 12.1p per share) 15.6 16.6 16.6
Final dividend of 25.4p per share - - 34.8
_____ _____ _____
111.5 16.6 51.4
======= ======= =======
On 2 September 2002 the Share Capital of the Company was reduced by a share capital
consolidation whereby every 111 existing Ordinary shares of £1 each were replaced by 100 new
Ordinary shares of £1.11 each. The consolidation was accompanied by the declaration of a
special interim dividend for the year ending 31 March 2003 of 70.0 pence per existing
Ordinary share. The special interim dividend was paid on 1 October 2002 together with the
final dividend for the year ended 31 March 2002.
PENNON GROUP PLC
NOTES (continued)
6. Earnings per Ordinary share
Basic and diluted earnings per share
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 134.4 million (2001 136.5 million).
All share options with an exercise price lower than the average market price of the
Company's shares during the half-year have been included in the calculation of
diluted earnings per share. The weighted average number of shares in issue during
the half year, taking account of the dilutive effect of share options, was 134.8
million (2001 136.8 million).
Adjusted basic and diluted earnings per share
Adjusted earnings per share have been calculated to exclude the impact of
exceptional items and deferred tax on the results, as such items can have a
distorting effect on earnings from year to year and therefore warrant separate
consideration. Adjusted earnings have been calculated as follows :
30 September 2002 30 September 2001 31 March
2002
£m £m £m
Profit on ordinary activities after taxation 32.4 35.0 74.1
Exceptional items - profit on business disposal - - (5.1)
_____ _____ _____
Profit after tax before exceptional items 32.4 35.0 69.0
Deferred tax 7.3 5.3 3.3
_____ _____ _____
Adjusted earnings 39.7 40.3 72.3
_____ _____ _____
PENNON GROUP PLC
NOTES (continued)
7. The interim dividend of 12.6p per share will be paid on 7 April 2003 to shareholders
on the register on 7 March 2003.
8. Reconciliation of Group operating profit to net cash inflow from operating
activities:
Half year ended Half year ended Year ended
30 September 2002 30 September 2001 31 March
(unaudited) (unaudited) 2002
£m £m £m
Group operating profit 66.7 64.9 121.8
Depreciation charge 40.0 37.1 75.5
Amortisation of intangible fixed assets 0.5 0.8 1.6
Provision for impairment of fixed asset
investments 0.2 0.1 0.3
Deferred income released to profits (0.6) (0.6) (1.2)
(Decrease)/increase in provisions for liabilities
and charges (0.7) 1.2 1.0
Decrease/(increase) in stocks 0.2 (0.5) (0.6)
Increase in debtors (amounts falling
due within and over one year) (4.1) (2.6) (4.0)
Increase in creditors (amounts
falling due within and over one year) 6.4 7.0 2.9
Profit on disposal of tangible fixed assets (0.2) (0.1) (1.1)
_____ _____ _____
Net cash inflow from operating activities 108.4 107.3 196.2
======= ======= =======
9. Acquisitions
On 8 April 2002 the entire issued share capital of Richardson Limited was purchased
by Viridor Waste Management Limited for a cash consideration of £11.9m, including
cash balances acquired of £0.7m. The acquisition was accounted for using the
acquisition method and provisional goodwill arising on the acquisition, amounting to
£8.5m, has been capitalised and will be amortised over 20 years.
On 12 July 2002 the entire issued share capital of Roseland Plant Co. Limited was
purchased by Viridor Waste Management Limited for a cash consideration of £8.5m. The
acquisition was accounted for using the acquisition method and provisionally no
goodwill arises.
PENNON GROUP PLC
NOTES (continued)
10. Analysis of net debt:
At Cash flow Acquisitions Non-cash At
movements
1 April (excluding cash 30 September
items)
2002 2002
£m £m £m £m £m
Cash at bank and in hand 1.0 2.2 - - 3.2
Current asset investments:
Overnight deposits 45.3 114.1 - - 159.4
Bank overdrafts (29.1) 27.1 - - (2.0)
_____
_____ _____ _____ _____
17.2 143.4 - - 160.6
_____ _____ _____ _____ _____
Debt due within one year
(other than bank (62.9) 7.0 (1.2) (6.7) (63.8)
overdrafts)
Debt due after more than
one year (299.2) (100.0) - 6.7 (392.5)
Finance lease obligations (652.1) (9.9) (0.3) (10.3) (672.6)
______ ______ _____ _____ ______
(1,014.2) (102.9) (1.5) (10.3) (1,128.9)
______ ______ _____ _____ ______
Current asset investments:
Other than overnight 245.7 (69.4) - 1.1 177.4
deposits
_____ _____ _____ _____ _____
(751.3) (28.9) (1.5) (9.2) (790.9)
======= ======= ======= ======= =======
Non-cash movements include transfers between categories of debt for changing maturities
£6.7m, increased accrued finance charges within finance lease obligations £10.3m and
increased accrued interest on cash deposits to secure rental obligations £1.1m.
11. The interim report will be posted to shareholders on 7 January 2003 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
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