Information  X 
Enter a valid email address

Pennon Group PLC (PNN)

  Print      Mail a friend       Annual reports

Thursday 30 November, 2000

Pennon Group PLC

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