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Pennon Group PLC (PNN)

  Print      Mail a friend       Annual reports

Thursday 29 November, 2001

Pennon Group PLC

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