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Pennon Group PLC (PNN)

  Print      Mail a friend       Annual reports

Thursday 30 May, 2002

Pennon Group PLC

Final Results

Pennon Group PLC
30 May 2002



Pennon Group announces its unaudited results for the year ended 31 March 2002.


-      Profit before tax up 4% to £77.4m
-      Earnings per share up 31% to 54.3p
-      Dividend
       -     recommended final dividend up 4% to 25.4p
       -     full year dividend up 4% to 37.5p
-      Sale of Viridor Instrumentation for £105.5m
-      Return of value from the disposal of Viridor Instrumentation
       -     special interim dividend of 70p coupled with consolidation of share 


South West Water
-      Remains confident of outperforming the regulatory contract to 2005
-      Continues to improve efficiency
-      Delivers highest ever levels of drinking water and bathing water 
-      Completed Interim Determination

Viridor Waste
-      16% growth of operating profit before goodwill amortisation
-      Two acquisitions completed with a third shortly after the year end


-      Securitisation no longer under consideration
-      Strategy is for South West Water to outperform the regulatory contract 
       and to continue to grow Viridor Waste
-      Profitable sale of Viridor Instrumentation.  Special interim dividend to 
       be paid from the sale proceeds
-      Corporate re-organisation completed

Chairman, Ken Harvey, said:

'The Board, together with its advisers, has conducted an extensive review of
financial restructuring options including that of a whole business
securitisation of  South West Water.  The technical feasibility of securitising
was established.  However, the Board has concluded that securitisation for
Pennon Group is unlikely to create sufficient incremental shareholder value to
outweigh the significant implementation and other costs and identifiable risks. 
The Board has decided, therefore, not to pursue this option for the foreseeable

'The Board will continue to focus on adding value for shareholders by pursuing
the policy of outperforming the regulatory contract in South West Water and of
continuing to grow Viridor Waste.  A special interim dividend will be paid from
the proceeds of the sale of Viridor Instrumentation. '

For further information on 30 May 2002, please contact:

Ken Harvey               Chairman                         )
David Dupont             Group Director of Finance        )        020 7831 3113
Richard Hughes           Strategic Planning Manager       )
Andrew Dowler            Financial Dynamics               )
Stephen Swain            Communications Manager                    01392 443022


Turnover from continuing operations rose £27.8m to £381.0m.  Turnover in South
West Water increased by £9.0m to £260.4m and turnover in Viridor Waste increased
by £19.2m to £125.3m.  Overall group turnover reduced by £11.2m to £423.9m
principally as a consequence of the disposals of Viridor Instrumentation and T J

Operating profit from continuing operations reduced by £1.3m to £119.1m.  South
West Water's operating profit remained broadly unchanged on last year (£107.0m
for 2001/02 vs £107.3m for 2000/01) and Viridor Waste's increased from £13.1m to
£14.9m.  After disposals and restructuring, including £2.1m costs relating to
testing the feasibility of balance sheet restructuring, overall Group operating
profit fell £6.3m to £121.8m.

Profit before tax was up 4% to £77.4m.

Profit before tax in continuing operations was up £0.8m to £69.3m.

The disposal of Viridor Instrumentation produced an exceptional profit of £5.1m 
in 2001/02.

Earnings per share before exceptional items rose by 17% to 50.6p and after 
exceptional items increased 31% to 54.3p.

Capital expenditure for the Group rose £19.9m to £186.4m, comprising £167.6m for
South West Water and £18.8m for Viridor Waste and other Group activities
(2000/01 £154.4m and £12.1m respectively.)

Two waste management businesses, The Suffolk Waste Disposal Company Limited and
Lavelle & Sons Limited, were acquired during the year for a total cash
consideration of £12.1m.  A further acquisition, Richardson Limited, was made
shortly after the year end for a cash consideration of £11.9m.

Viridor Instrumentation was sold in February 2002 for £105.5m which included
£9.5m in respect of the cash transferred with the business.

With the adoption of Financial Reporting Standard 18 'Accounting Policies' (FRS
18), the Directors have 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 is appropriate to
present the Group's defeased lease arrangements in a manner that improves their
understandability and comparability with other utilities.  Accordingly, the
rental obligations and cash deposits associated with these leases have now been
recognised on the balance sheet separately.

Net debt for the Group at 31 March 2002 was £751.3m, including the proceeds from
the sale of Viridor Instrumentation, virtually unchanged on that at 31 March
2001, as restated.  Gearing, being net borrowings to shareholders funds, was 77%
at 31 March 2002 (83% at 31 March 2001, as restated).  Interest cover, before
exceptional items, was maintained at 2.5 times.  On a pro forma basis, assuming
payment of the special interim dividend, gearing was 96%.

The Board has recommended a final dividend of 25.4p up 4.1%, subject to
shareholder approval.  Together with the interim dividend of 12.1p, this will
result in a total dividend for the year of 37.5p, representing an increase of
4.2% on the total dividend for 2001. In the absence of unforeseen circumstances,
the Board intends to continue to pursue a progressive dividend policy.  The
total cost of the dividend for 2001/02 is £51.4m.  Following the sale of Viridor
Instrumentation, a special interim dividend for 2002/03 of 70p per share has
been declared, at an estimated cost of £96m, being the net sale proceeds.  The
final dividend, along with the special interim dividend, will be paid on 1
October 2002 to shareholders on the register on 30 August 2002.  As in previous
years, shareholders will be given the opportunity to participate in a Dividend
Reinvestment Plan, details of which will be circulated with the Annual Report.

Reflecting the return of capital by way of special interim dividend from the
sale of Viridor Instrumentation, a resolution will be proposed at the Annual
General Meeting to consolidate the share capital of the Company in order to
maintain comparability of the share price before and after the payment of the
special interim dividend.  The consolidation ratio will be based on the closing
price of the Company's shares on 29 May 2002 (ie  the price immediately before
this announcement).  Further details will be provided in a circular to be issued
to shareholders on 27 June 2002.


South West Water increased its turnover by £9.0m during the year.  Approved
tariff increases, including headroom arising from meter switching, amounted to
£8.3m.  Measured demand from existing customers contributed a turnover increase
of £1.6m.  Customers switching from unmeasured to metered charging caused a
reduction of £4.3m in turnover.  Other factors, including new customer
connections (5,800), contributed £3.4m.

The company submitted an application for an Interim Determination of 'K' in
September 2001.  In December 2001 Ofwat confirmed revised price increases of
4.4% above inflation for each of the three years 2002/03 to 2004/05.

South West Water's operating profit was virtually unchanged at £107.0m (2000/01
£107.3m).  Operating costs, including depreciation, increased by £9.3m to
£153.4m, including £7.2m in respect of new capital schemes.  £4.0m of cost
efficiencies were made in the year and the company remains on track to deliver
further efficiency savings to outperform the regulatory contract to 2005.

Capital expenditure rose £13.2m to £167.6m.  With the commissioning of major
waste water treatment schemes at Camborne and the first phase of Torbay, the
company's 'Clean Sweep' coastal sewage treatment improvement programme is now
virtually complete.  In addition, reflecting the changing emphasis of the
capital programme, over 90 smaller schemes were delivered in the year to meet
the National Environmental Programme coupled with an extension of water mains
rehabilitation activity.

Drinking water quality attained a new all time high.  In November 2001, the
Department for Environment, Food and Rural Affairs and the Environment Agency
announced the best ever bathing water quality results (98% compliance with
mandatory standards) for beaches and bathing waters along the South West
coastline.  In addition, 100 bathing waters (71% of the region's total) met the
more stringent guideline standards, the best performance of any region in the
UK.  Reported river water quality remains the best in England.  The company is
one of the industry leaders in managing water leakage and continues to deliver
results in line with Ofwat's mandatory leakage target.  Market research carried
out amongst South West Water's customers continues to confirm high levels of
satisfaction with the overall service provided by the company.  There has been
continued high performance against Ofwat's Levels of Service Indicators.


Viridor Waste turnover rose by 18% from £106.1m in 2000/01 to £125.3m in
2001/02.  £5.0m of this increase came from the rise in landfill tax, £6.2m from
acquisitions (including £1.0m of landfill tax) and £8.0m from existing trade.

Operating profit rose 16% from £13.1m to £15.2m, before goodwill amortisation of
£0.3m with an operating margin, excluding landfill tax, of 17%.  The first half
year performance was particularly strong, reflecting the benefit of certain
temporary contracts. Earnings before interest, tax, depreciation and
amortisation amounted to £32.1m.  The increased profitability arose from volume
and price increases in landfill and volume increases and cost savings in the
collection business.

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 73m cubic metres of consented landfill capacity, 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 new waste and renewable energy strategies.

Two acquisitions were announced on 18 October 2001 with a further announced on 9
April 2002, shortly after the year end.  All three acquisitions reinforce the
waste strategy outlined above either by adding to Viridor's landfill capacity in
key parts of the UK or by enhancing the company's materials transfer and
recycling capability.

Capital expenditure for the year was £18.3m which was primarily invested by
Viridor Waste in its continuing landfill operations.


The sale of Viridor Instrumentation was completed on 4 February 2002.  Profit on
disposal was £5.1m which is included in the Preliminary Results as an
exceptional item.  During the period to disposal, a profit before tax of £2.7m
was made, compared to a profit of £4.9m in the previous full year.


The Group's taxation strategy continues to be beneficial.  Excluding deferred
tax, there was no tax charge for the year ended 31 March 2002 (2000/01 nil).

A new Financial Reporting Standard (FRS 19) relating to deferred tax is
operative for 2001/02.  This requires the Group to make full provision for
deferred tax liabilities, which are discounted.  The consequent change of policy
necessitated a prior year adjustment.

The deferred tax charge for the year to 31 March 2002 was £3.3m.  The equivalent
figure for the year to 31 March 2001 was £17.6m.


Mr David Dupont was appointed interim Group Director of Finance on 2 March 2002
immediately following the retirement of Mr Ken Hill from that role.  The Board
has now confirmed Mr Dupont  in the role of Group Director of Finance and also
takes this opportunity to express its gratitude to Ken Hill for his significant
contribution to the development of the Group since privatisation and wish him
well in his retirement.


The Board will continue to focus on adding value for shareholders by pursuing
the policy of outperforming the regulatory contract in South West Water and of
continuing to grow Viridor Waste.  The successful disposal of Viridor
Instrumentation and the corporate re-organisation have confirmed the focused
strategy outlined by the Board in May 2001.

The satisfactory performances this year of the water, sewerage and waste
management activities provide a strong foundation for the business going

Ken Harvey
30 May 2002

for the year ended 31 March 2002
                                                                           Note                   2002          2001
                                                                                             (unaudited)      restated
                                                                                                            (notes 2 &
                                                                                                      £m            3)
  Continuing operations                                                                            374.8         353.2
           Acquisitions                                                                              6.2             -
                                                                                                 _______       _______
                                                                                                   381.0         353.2
  Discontinued operations                                                       2                   42.9          81.9
                                                                                                 _______       _______
  Total turnover                                                                                   423.9         435.1
  Operating costs                                                                                (302.1)       (307.0)
                                                                                                 _______       _______
  Group operating profit                                                                                              
  Continuing operations                                                                            119.2         120.4
           Acquisitions                                                                             (0.1)             -
                                                                                                 _______       _______
                                                                                                   119.1         120.4
  Discontinued operations                                                       2                    2.7           7.7
                                                                                                 _______       _______
  Total Group operating profit                                                                     121.8         128.1
  Share of operating loss in                                                                                          
           Joint venture                                                                            (0.1)             -
           Associate                                                                                (0.4)         (0.4)
                                                                                                 _______       _______
  Total operating profit                                                                           121.3         127.7
  Profit/(loss) on disposal of discontinued operations                          2                    5.1         (2.1)
  Net interest payable                                                                            (49.0)        (51.4)
                                                                                                 _______       _______
  Profit on ordinary activities before taxation                                                     77.4          74.2
  Tax on profit on ordinary activities                                          4                  (3.3)        (17.6)
                                                                                                 _______       _______
  Profit on ordinary activities after taxation                                                      74.1          56.6
  Dividends                                                                     5                 (51.4)        (49.4)
                                                                                                 _______       _______
  Retained profit transferred to reserves                                                           22.7           7.2
                                                                                                  ======        ======
  Basic earnings per share                                                      6                                     
           Before exceptional item                                                                 50.6p         43.1p
           After exceptional item                                                                  54.3p         41.5p
  Dividend per share                                                                               37.5p         36.0p

  STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES                                                                      
  for the year ended 31 March 2002                                                                                    
                                                                                                     2002       2001
                                                                                               (unaudited)  restated
                                                                                                       £m         £m

  Profit on ordinary activities after taxation                                                       74.1       56.6
  Currency retranslation differences on foreign currency net                                          0.6        0.2
  investments                                                                                     _______    _______
  Total gains and losses recognised for the year                                                     74.7       56.8
  Prior year adjustments                                               3                                -      (50.9)
                                                                                                  _______    _______
  Total gains and losses recognised since last Annual Report                                         74.7        5.9
                                                                                                  =======    =======

  PENNON GROUP PLC                                                                                                    
  SUMMARISED GROUP BALANCE SHEET                                                                                      
  as at 31 March 2002                                                                                                 
                                                                                              2002                2001
                                                                                       (unaudited)            restated
                                                                                                £m                  £m
  Fixed assets                                                                                                        
          Intangible assets                                                                   11.7                24.7
          Tangible assets                                                                  1,907.7             1,798.5
          Investments                                                                          3.3                 3.1
                                                                                           _______             _______
                                                                                           1,922.7             1,826.3
  Current assets                                                                                                      
          Stocks                                                                               3.2                13.9
          Debtors                                                                             81.6                89.3
          Investments and cash                                                               292.0               219.7
                                                                                           _______             _______
                                                                                             376.8               322.9
  Creditors: amounts falling due within one year                                           (276.0)             (221.4)
                                                                                           _______             _______
  Net current assets                                                                         100.8               101.5
  Total assets less current liabilities                                                    2,023.5             1,927.8
  Creditors: amounts falling due after more than one year                                  (932.3)             (911.7)
  Provisions for liabilities and charges                                                    (74.4)              (65.9)
  Deferred income                                                                           (40.6)              (41.1)
                                                                                           _______             _______
  Net assets                                                                                 976.2               909.1
                                                                                            ======              ======
  Capital and reserves                                                                                                
          Called-up share capital                                                            137.0               136.9
          Share premium account                                                              151.6               151.3
          Profit and loss account                                                            687.6               620.9
                                                                                           _______             _______
  Shareholders' funds                                                                        976.2               909.1
                                                                                            ======              ======

  PENNON GROUP PLC                                                                                                    
  GROUP CASH FLOW STATEMENT                                                                                           
  for the year ended 31 March 2002                                                                                    
                                                                      Note                    2002                2001
                                                                                        (unaudited)           restated
                                                                                                £m                  £m

  Cash inflow from operating activities                                7                     196.2               205.0
  Returns on investments and servicing of finance                                           (44.3)              (39.9)
  Taxation                                                                                     0.4               (0.3)
  Capital expenditure and financial investment                                             (182.3)             (153.2)
  Acquisitions and disposals                                                                  85.0                12.0
  Equity dividends paid                                                                     (49.4)              (65.3)
                                                                                           _______             _______
  Cash inflow/(outflow) before use of liquid resources and financing                           5.6              (41.7)
  Management of liquid resources                                                            (27.0)              (24.2)
  Financing                                                                                   38.2                64.6
                                                                                           _______             _______
  Increase/(decrease) in cash in year                                  8                      16.8               (1.3)
                                                                                            ======              ======

  PENNON GROUP PLC                                                                                                    
  SEGMENTAL ANALYSIS BY CLASS OF BUSINESS                                                                             
  for the year ended 31 March 2002                                                                                    
                                          Turnover         Group operating profit                    Profit before tax
                                     2002     2001                   2002    2001                2002             2001
                              (unaudited)                     (unaudited)                 (unaudited)       
                                       £m       £m                     £m      £m                  £m               £m
  Continuing operations                                                                                               
  Water and sewerage                260.4    251.4                  107.0   107.3                66.8             67.0
  Waste management                  125.3    106.1                   14.9    13.1                13.5             11.7
  Other                               6.6      6.1                  (2.8)       -             (11.0)*          (10.2)*
  Less intra-group trading         (11.3)   (10.4)                      -       -                   -                -
                                  _______    _____                _______   _____             _______          _______
  Total continuing                  381.0    353.2                  119.1   120.4                69.3             68.5
  operations                       ======     ====                 ======    ====              ======           ======
  Discontinued operations                                                                                             
  Instrumentation                    43.0     54.9                    2.6     4.8                 2.7              4.9
  Construction services                 -     37.1                      -     0.5                   -              0.4
  Property                            1.4      5.7                    0.1     2.4                 0.3              2.5
  Less intra-group trading          (1.5)   (15.8)                      -       -                   -                -
                                  _______    _____                _______   _____             _______          _______
  Total discontinued                 42.9     81.9                    2.7     7.7                 3.0              7.8
  operations                       ======     ====                 ======    ====              ======           ======
  Exceptional item                                                                                                    
  Discontinued operations               -        -                      -       -                 5.1            (2.1)
  disposal profit/(loss)          _______    _____                _______   _____             _______          _______
  Group totals                      423.9    435.1                  121.8   128.1                77.4             74.2
                                   ======     ====                 ======    ====              ======           ======

  * includes parent company financing of business acquisitions.                                                       

  PENNON GROUP PLC                                                                                                    


  1     The financial information for the years ended 31 March     
        2001 and 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 the  
        year ended 31 March 2001 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.                                                  

  2     On 4 February 2002 the Group disposed of its interest in   
        the ordinary share capital of Viridor Instrumentation      
        Limited. The results of Viridor Instrumentation Limited up 
        to the disposal date and the comparatives for the year     
        ended 31 March 2001 are included under discontinued        
        operations. The profit on disposal of discontinued         
        operations in the year ended 31 March 2002 relates to the  
        disposal of that business and is after charging            
        £43.5million of goodwill previously written off to         
        reserves on acquisition.                                   

        The comparatives for the year ended 31 March 2001 for      
        discontinued operations also include the results of T J    
        Brent Limited which was disposed of in December 2000.      

  3     The Group's accounting policy on deferred taxation has     
        changed 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 2001.                

        With the adoption of Financial Reporting Standard 18       
        'Accounting Policies' (FRS 18), the Directors have         
        reviewed the accounting policies of the Group and have     
        decided that, in the current reporting environment which   
        encourages increased clarity and transparency in           
        accounting transactions, it is appropriate to present the  
        Group's defeased lease arrangements in a manner that       
        improves their under-standability and comparability with   
        other utilities. Accordingly, the rental obligations and   
        cash deposits associated with these leases have now been   
        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 these changes in accounting policy the      
        comparatives have been restated as follows:    
    Group balance sheet:                                      Provisions 
    As at 31 March 2001                                  for liabilities          Deferred                Profit and    
                                                             and charges            income              loss reserve    
                                                                      £m                £m                        £m

    Previously reported                                           (22.8)            (49.0)                   (689.4)
    Deferred taxation (FRS 19)                                    (43.1)                 -                      43.1
    Defeased leases (FRS 18)                                           -               7.9                      25.4
                                                                 _______           _______                   _______
    Restated now reported                                         (65.9)            (41.1)                   (620.9)
                                                                  ======            ======                    ======
                                                                                     Creditors:            Investments  
                                                    Creditors:                          amounts               and cash
                                                       amounts                      falling due     
                                                   falling due                       after more 
                                                    within one                         than one  
                                                          year                             year
                                                            £m                               £m                     £m

  Previously reported                                  (217.3)                          (727.9)                   65.1
  Deferred taxation (FRS 19)                                 -                                -                      -
  Defeased leases (FRS 18)                               (4.1)                          (183.8)                  154.6
                                                       _______                          _______                _______
  Restated now reported                                (221.4)                          (911.7)                  219.7
                                                        ======                           ======                 ======
  The restatement of the profit and loss reserve for March 2001 comprises a
  prior period adjustment at 1 April 2000 of £50.9million (£25.5million FRS 19 
  and £25.4million FRS 18) and a £17.6million charge for the year ended 31 March 
  2001 (FRS 19).                                                                                                      
  Group profit and loss account:            Net interest                             Tax on                      Basic  
  Year ended 31 March 2001                       payable                          profit on                   earnings
                                                                                   ordinary                  per share 
                                                      £m                                 £m                          p

  Previously reported                             (51.4)                                  -                       56.0
  Deferred taxation (FRS 19)                           -                             (18.0)                     (13.2)
  Defeased leases (FRS 18)                             -                                0.4                        0.3
                                                 _______                            _______                     ______
  Restated now reported                           (51.4)                             (17.6)                       43.1
                                                  ======                             ======                     ======
  The changes arising within net interest payable from the application of FRS 18 
  relate to the recognition of £9.2million interest receivable on investments 
  and £8.6million interest payable on finance leases, offset by the elimination 
  of a previously reported gain on defeasance of finance leases of £0.6million.                           
  Group cash flow statement:                       Management     Financing
  Year ended 31 March 2001                          of liquid  
                                                           £m          £m

  Previously reported                                   (25.2)        65.6
  Defeased leases (FRS 18)                                 1.0       (1.0)
                                                       _______     _______
  Restated now reported                                 (24.2)        64.6
                                                        ======      ======
  4   The taxation charge comprises: 
    Year ended 31 March                                  2002       2001
                                                  (unaudited)   restated
                                                           £m         £m
    United Kingdom taxation                          
    Corporation tax at 30%                                0.5          -
    Overseas taxation                                    (0.5)         -
    Deferred tax                                          3.3       17.6
                                                      _______    _______
                                                          3.3       17.6
                                                       ======     ======
  5   If approved at the Annual General Meeting on 25 July 2002 the final 
      dividend of 25.4p per share will be paid on 1 October 2002 to shareholders 
      on the register at 30 August 2002.                                               

  6   The calculation of basic 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 year of 136.5 million (2001 136.3 
      million) as follows:                                                                                            
                                       Profit after tax Basic earnings per share
      Year ended 31 March               2002       2001          2002       2001
                                  (unaudited)  restated   (unaudited)   restated
                                          £m         £m             p          p
      Before exceptional item           69.0       58.7          50.6       43.1
      Exceptional item                   5.1      (2.1)           3.7      (1.6)
                                     _______    _______       _______     ______
      After exceptional item            74.1       56.6          54.3       41.5
                                      ======     ======        ======      =====
      The exceptional item in 2002 comprises the profit on disposal of Viridor 
      Instrumentation Limited and that for 2001 is the loss on disposal of T J 
      Brent Limited.                                                              

      Earnings per share on a diluted basis are 50.5p (2001 43.0p), and after 
      the exceptional item 54.2p (2001 41.4p).

  7   Reconciliation of Group operating profit to net cash inflow from operating 
      activities for the year ended 31 March 2002:                                                                      
                                                                                           2002         2001    
                                                                                            £m            £m      
         Group operating profit                                                          121.8         128.1   
         Depreciation charge                                                              75.5          70.4    
         Amortisation of intangible assets                                                 1.6           1.4     
         Fixed asset impairment                                                            0.3           0.1     
         Deferred income released to profits                                              (1.2)         (1.2)   
         Increase/(decrease) in provisions for liabilities and charges                     1.0          (2.1)   
         Increase in stocks                                                               (0.6)         (0.3)   
         (Increase)/decrease in debtors (amounts falling due within and over one year)    (4.0)          8.7     
         Increase in creditors (amounts falling due within and over one year)              2.9           0.6     
         Profit on disposal of tangible fixed assets                                      (1.1)         (0.7)   
                                                                                       _______       _______ 
         Net cash inflow from operating activities                                       196.2         205.0   
                                                                                        ======        ======  
  8   Analysis of net debt 
                                                   At      Cash   Acquisitions    Non-cash             At
                                         1 April 2001      flow    (excl cash)   movements       31 March 
                                                   £m        £m             £m          £m             £m 
  Cash at bank and in hand                        3.7     (2.7)              -           -            1.0
  Current asset investments:                     
  Overnight deposits                              0.6      44.7              -           -           45.3               
  Bank overdrafts                               (3.9)    (25.2)                                     (29.1)
                                              _______   _______        _______     _______        _______
                                                  0.4      16.8              -           -           17.2
                                              _______   _______        _______     _______        _______
  Debt due within one year (other              (38.5)      13.5          (0.2)      (37.7)          (62.9)
  than bank overdrafts)                                                                                               
  Debt due after more than one year           (322.1)    (14.8)              -        37.7         (299.2)
  Finance lease obligations*                  (607.0)    (36.6)          (2.8)       (5.7)         (652.1)
                                              _______   _______        _______     _______        _______
                                              (967.6)    (37.9)          (3.0)       (5.7)       (1,014.2)
                                              _______   _______        _______     _______        _______
  Current asset investments:                    215.4      27.0              -         3.3          245.7
  Other than overnight deposits*              _______   _______        _______     _______        _______
  Net debt                                    (751.8)       5.9          (3.0)       (2.4)         (751.3)
                                               ======    ======         ======      ======         ======
  * Finance lease obligations and current asset investments other than overnight   
    deposits have been restated as described in note 3.     
    Non-cash movements include transfers between categories for debt changing        
    maturities, increased accrued finance charges within finance lease obligations   
    and increased accrued interest on cash deposits placed to secure rental          

  9   The Annual Report for 2001/02 will be issued to shareholders on 27 June 

  Pennon Group Plc                                                                                                    
  Registered Office                                                                                                   
  Peninsula House                                                                                                     
  Rydon Lane                                                                                                          
  Devon EX2 7HR                                                                                                       
  Registered in England No 2366640                                                                                    

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