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Pennon Group PLC (PNN)

  Print      Mail a friend       Annual reports

Thursday 25 May, 2000

Pennon Group PLC

Final Results - Year Ended 31 March 2000

Pennon Group PLC
25 May 2000



Pennon Group announces its unaudited results for the year ended 31 March 2000.


-     Turnover up 7% to £467m
-     Operating profit up 3% to £167m*
-     Profit before tax maintained at £122m*
-     Earnings per share up 10% to 85.8p*
-     Dividend
      -     recommended final dividend up 4.9% to 32.4p
      -     full year dividend up 4.8% to 47.8p

*  before exceptional credit of £5m in 1998/99.

Chairman, Ken Harvey said that 'During the year, South West Water has further
improved its efficiency levels, whilst delivering substantial benefits to the
environment and improvements to quality and customer service.  After several
years of profitable growth, the Viridor companies have maintained underlying
profits.  With the benefits accruing from the application of taxation
strategies, the Group is pleased to record a 10% increase in earnings per

For further information on 25 May 2000, please contact:

Ken Harvey      Chairman                   )  7.00 am to 1.45 pm
Ken Hill        Group Director of Finance  )  020 7481 6900
Jo Rayner       Investor Relations Manager )
Andrew Dowler   Financial Dynamics         )
Stephen Swain   Communications Manager       01392 443022


Group turnover rose from £437.1m to £467.0m, an increase of 6.8%.  £11.6m of
the increase was generated by South West Water Ltd (SWW) and £18.3m by the
Viridor businesses and other Group activities.

Group operating profit, before the impact of the exceptional credit of £5m
received in 1998/99, rose by £4.4m to £167.1m.  The operating profit for SWW
rose by £8.1m but was partially offset by a reduction of £3.7m for Viridor and
other Group activities.

Group profit before tax was unchanged at £121.6m (before exceptional items).
The increase in operating profit was offset by an increase in financing costs.

Earnings per share (before exceptional items) rose by 10.1% to 85.8p
benefiting from a reduction in the tax charge from £17.5m in 1998/99 to £5.0m
in 1999/00.

Capital expenditure for the Group increased from £125.3m in 1998/99 to £153.8m
in 1999/00, with SWW capital expenditure rising from £105.2m to £133.6m.

There were no acquisitions during the year.

Net debt for the Group rose during the year by £12m to £667m at 31 March 2000.
The gearing ratio, being net borrowings to shareholders' funds, reduced from
73% at 31 March 1999 to 71% at 31 March 2000.  The interest cover for 1999/00
was 3.7 times (4.0 times for 1998/99).

The Board has recommended a final dividend of 32.4p (up 4.9%) subject to
shareholder approval, which will be paid on 2 October 2000 to shareholders on
the register at 25 August 2000.  Together with the interim dividend of 15.4p,
this will result in a total dividend for the year of 47.8p (up 4.8%).  The
total cost of the interim dividend and the final dividend to be recommended to
the Annual General Meeting to be held on 27 July 2000 is £65.1m.  As in the
previous year, shareholders will be given the opportunity to participate in a
Dividend Reinvestment Plan, details of which will be circulated with the
Annual Report.

The Board announced with its Interim Results in December 1999 an intention to
reduce the 2000/01 dividend by 25% and thereafter to pursue a progressive
dividend policy.


SWW increased its turnover by £11.6m during the year, reflecting the positive
impact of tariff increases and income from 6,800 new customers. Existing
customers switching to a metered charging base, from an unmeasured basis,
resulted in an adverse impact of £6.3m.

The operating profit for SWW rose by £8.1m to £146.8m.  Operating costs rose
by £3.5m reflecting the impact of inflation and the cost of operating new
works.  Efficiency gains continued to be made, with £4.9m being generated
during the year.

The company continues with its restructuring programme, which was initiated
prior to the 1999 Periodic Review announcement by the Director General of
Water Services.  Over the period to 2005, the company is required to achieve
efficiencies in both capital expenditure and operating costs.  With detailed
plans in place, which are being implemented, there is a confident expectation
that a degree of out-performance can be achieved.

Capital expenditure increased by £28.4m to £133.6m.  Significant progress has
been made on schemes providing improved standards of sewage treatment,
particularly for Torbay, Falmouth and Newquay.

Drinking water quality levels were increased to a record level of 99.8%
overall compliance.

The company's performance in relation to leakage continued to improve,
achieving the OFWAT target of 84 megalitres per day.


Turnover of Viridor businesses and non-regulated Group activities for 1999/00
was £186.8m (1998/99 £168.5m).  Operating profit reduced by £3.7m to £20.3m
during the year.


Turnover for Viridor Waste Ltd increased from £83.4m to £100.6m during 1999/00
including landfill tax of £29.7m (1998/99 £18.2m).  Operating profit reduced
from £17.9m to £15.2m.  Operating margins (including landfill tax) reduced
from 21.5% to 15.1%.  Excluding the impact of landfill tax, the margins fell
from 27.5% to 21.4%.

Operating profit levels for 1999/00 have been adversely affected by the
cessation of the contracts awarded under the Non Fossil Fuel Obligation 1&2
initiatives, and one-off gains in 1998/99.

New landfill sites operating for a first full year were Broadpath in Devon,
Squabb Wood in Hampshire and Whitehead in Lancashire. Erin in Derbyshire
opened in September 1999.  With the benefit of the input from these sites,
volumes increased during the year by 7% to 3m tonnes. Average landfill gate
prices increased slightly.  Existing sites suffered a 5% reduction in volumes.
Total landfill capacity at 31 March 2000 was 82m cubic metres of consented
void benefiting from licence gains which generated 3m cubic metres of
additional void.  In addition, there was 58m cubic metres of unconsented void.
The company remains in a strong position to capitalise on the shortage of
landfill capacity in key parts of the United Kingdom. It has now obtained
environmental accreditation (ISO 14001 international standard) at 24 of its
sites, representing three-quarters of the total, considerably more than any
other waste company in the UK.


Turnover for Viridor Instrumentation Ltd rose during the year from £41.0m to
£49.6m, reflecting the successful integration of Orbisphere, based in Geneva,
Switzerland, which was acquired in December 1998.

Operating profit, before goodwill amortisation of £1.2m, was £4.1m in 1999/00
(1998/99 was £4.2m, before charging £0.5m goodwill amortisation).  Operating
margins, before goodwill amortisation fell from 10.2% to 8.3%.


Turnover for Viridor Contracting Ltd reduced from £60.3m to £56.0m during the
year.  The proportion of business external to the Group now represents 70%
(68% in 1998/99).

Operating profit rose during the year from £1.1m to £1.6m and operating
margins from 1.8% to 2.9%.


The benefit of the Group's advanced corporation tax (ACT) strategy based on
disclaiming relevant capital allowances has resulted in the tax charge
reducing to £5.0m (1999/00) from £17.5m (1998/99).  In the absence of
unforeseen circumstances, the tax charge is expected to be minimal for at
least the next two years.


The Board is actively reviewing strategic options to maximise shareholder

The Periodic Review will have a major impact on the Group.  Both turnover and
profitability for South West Water will reduce as a result of the price
reduction of 12.2% imposed in 2000/01 by the Director General of Water
Services.  The Review represents a significant challenge.  However, with the
detailed plans in place, which are being implemented, there is a confident
expectation that a degree of out-performance can be achieved.

The Viridor businesses, in their respective areas, are well positioned to
produce profitable growth.  The challenge is to deliver the full potential
offered by these businesses.

Ken Harvey
25 May 2000

for the year ended 31 March 2000

                                              2000      1999
                                       Notes     £m        £m
Turnover                                       467.0     437.1
Other operating income                   2       -         5.0
Operating costs                               (299.9)   (274.4)
                                              --------  --------
Group operating profit                         167.1     167.7
Share of operating loss in associate            (0.4)     (0.2)
                                              --------  --------
Total operating profit                         166.7     167.5
Net interest payable                           (45.1)    (40.9)
                                              -------   --------
Profit on ordinary activities before                    
taxation                                       121.6     126.6
Tax on profit on ordinary activities     3      (5.0)    (17.5)
                                              --------  --------
Profit on ordinary activities after                     
taxation                                       116.6     109.1
Dividends                                      (65.1)    (61.9)
                                              --------  --------
Retained profit transferred to                          
reserves                                        51.5      47.2
                                              ========  ========
Earnings per share (basic)               4              
   Before exceptional item                      85.8p     77.9p
   After exceptional item                       85.8p     81.7p
Dividend per share                       5      47.8p     45.6p
All the activities are continuing operations.

for the year ended 31 March 2000

                                              2000      1999
                                                 £m        £m
Profit on ordinary activities after                     
taxation                                       116.6     109.1
Currency retranslation differences on                   
foreign currency net investments                (1.1)     (0.9)
                                              --------  --------
Total gains and losses recognised for                   
the year                                       115.5     108.2
Prior year adjustment                             -        2.4
                                              --------  --------
Total gains and losses recognised since                 
last Annual Report                             115.5     110.6
                                              ========  ========

as at 31 March 2000

                                                2000       1999
                                                    £m         £m
Fixed assets                                               
   Intangible assets                               23.3       27.0
   Tangible assets                              1,711.2    1,623.2
   Investments                                      2.1        2.2
                                                --------   --------
                                                1,736.6    1,652.4
Current assets                                             
   Stocks                                          15.1       15.5
   Debtors                                        108.5      101.5
   Investments and cash                            39.3       63.7
                                                --------   --------
                                                  162.9      180.7
Creditors: amounts falling due within                      
one year                                         (217.5)    (206.9)
                                                --------   --------
Net current liabilities                           (54.6)     (26.2)
Total assets less current liabilities           1,682.0    1,626.2
Creditors: amounts falling due after                       
more than one year                               (664.5)    (675.9)
Provisions for liabilities and                             
charges                                           (24.3)     (26.5)
Deferred income                                   (49.9)     (32.1)
                                                --------   --------
Net assets                                        943.3      891.7
                                                ========   ========
Capital and reserves                                       
   Called-up share capital                        136.3      136.1
   Share premium account                          148.6      147.0
   Profit and loss account                        658.4      608.6
                                                --------   --------
   Shareholders' funds                            943.3      891.7
                                                ========   ========

for the year ended 31 March 2000

                                                2000        1999
                                                   £m         £m
Cash inflow from operating activities            216.3      193.6
Returns on investments and servicing of                    
finance                                          (10.1)     (31.1)
Taxation                                         (15.9)     (79.9)
Capital expenditure and financial investment    (140.6)    (125.0)
Acquisitions and disposals                         0.5      (29.7)
Equity dividends paid                            (48.7)     (25.4)
                                                --------   --------
Cash inflow/(outflow) before use of liquid                 
resources and financing                            1.5      (97.5)
Management of liquid resources                    20.8       34.0
Financing                                        (27.4)      64.6
                                                --------   --------
(Decrease)/increase in cash in year               (5.1)       1.1
                                                ========   ========

for the year ended 31 March 2000

                                                2000       1999
Turnover                                           £m         £m
Water and sewerage business                      281.4      270.1
   Less: intra-group trading                      (1.2)      (1.5)
                                                --------   --------
                                                 280.2      268.6
                                                --------   --------
Non-regulated businesses:                                  
   Viridor businesses:                                     
     Waste management                            100.6       83.4
     Instrumentation                              49.6       41.0
     Contracting                                  56.0       60.3
     Property and other                            0.7        4.6
                                                --------   --------
     Total Viridor                               206.9      189.3
   Other non-regulated businesses                  6.8        6.3
   Less: intra-group trading                     (26.9)     (27.1)
                                                --------   --------
   Total non-regulated                           186.8      168.5
                                                --------   --------
Group total                                      467.0      437.1
                                                ========   ========
Operating profit                                           
Water and sewerage business                      146.8      138.7
                                                --------   --------
Non-regulated businesses:                                  
   Viridor businesses:                                     
     Waste management                             15.2       17.9
     Instrumentation                               2.9        3.7
     Contracting                                   1.6        1.1
     Property and other                            0.1        0.9
                                                --------   --------
     Total Viridor                                19.8       23.6
   Other non-regulated businesses                  0.5        0.4
                                                --------   --------
   Before exceptional item                        20.3       24.0
   Exceptional item                                 -         5.0
                                                --------   --------
   Total non-regulated                            20.3       29.0
                                                --------   --------
Group total                                      167.1      167.7
                                                ========   ========
Profit on ordinary activities before taxation              
Water and sewerage business                      108.0      106.2
                                                --------   --------
Non-regulated businesses:                                  
   Viridor businesses:                                     
     Waste management                             14.0       17.3
     Instrumentation                               2.9        3.6
     Contracting                                   1.4        0.7
     Property and other                            0.2        1.1
                                                --------   --------
     Total Viridor                                18.5       22.7
   Other non-regulated businesses*                (4.9)      (7.3)
                                                --------   --------
   Before exceptional item                        13.6       15.4
   Exceptional item                                 -         5.0
                                                --------   --------
   Total non-regulated                            13.6       20.4
                                                --------   --------
Group total                                      121.6      126.6
                                                ========   ========
* Includes parent company financing of the acquisition of non-regulated


1.   The financial information for the years ended 31 March 1999 and 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
     the year ended 31 March 1999 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.   Operating profit in 1998/99 is after crediting exceptional income of
     £5.0m from the settlement of a legal claim on Browning-Ferris Industries

3.   The taxation charge for the year comprises:

     Year ended 31 March:                       2000         1999
                                                 £m           £m
     United Kingdom taxation:                               
     Corporation tax at 30% (1998/99 31%)       14.8         66.0
     Advance corporation tax:                               
     Previous year utilisation                 (10.5)       (48.8)
     Foreign tax                                 0.7          0.3
                                               ------       ------
                                                 5.0         17.5
                                               ======       ======

     The corporation tax charge for 1999/00 and 1998/99 reflects actions to
     utilise all the advance corporation tax charged against profits in

4.   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 135.9 million (1998/99
     133.6 million) as follows:

                                     Profit after       Basic earnings
                                          tax              per share
       Year ended 31 March:          2000     1999      2000     1999
                                       £m       £m               
       Before exceptional item       116.6    104.1     85.8p    77.9p
       Exceptional item (note 2)        -       5.0       -       3.8p
                                     ------   ------    ------   ------
       After exceptional item        116.6    109.1     85.8p    81.7p
                                     ======   ======    ======   ======

     Earnings per share on a diluted basis are 85.4p (1998/99 77.4p), and
     after the exceptional item 85.4p (1998/99 81.1p).

5.   If approved at the Annual General Meeting on 27 July 2000 the final
     dividend of 32.4p per share will be paid on 2 October 2000 to
     shareholders on the register at 25 August 2000.

6.   Reconciliation of operating profit to net cash inflow from operating
     activities for the year ended 31 March 2000:

                                                2000       1999
                                                 £m         £m
       Group operating profit                  167.1      167.7
       Depreciation charge                      60.9       57.3
       Amortisation of goodwill                  1.2        0.5
       Fixed asset impairments                   1.1        0.7
       Deferred income released to profits      (1.2)      (1.3)
       Decrease in provisions for liabilities            
       and charges                              (4.0)      (3.3)
       Decrease in stocks                        0.1        3.1
       Increase in debtors (amounts falling              
       due within and over one year)            (8.6)      (9.7)
       Increase/(decrease) in creditors                  
       (amounts falling due within and over              
       one year)                                 0.4      (20.4)
       Profit on disposal of tangible fixed              
       assets                                   (0.7)      (1.0)
                                              -------    -------
       Net cash inflow from operating          216.3      193.6
       activities                             =======    =======

7.   Analysis of net debt

                              At        Cash      Non-     At
                              1 April   flow      cash     31 March
                              1999                move-    2000
                                                  ments    (Unaud-
                                 £m       £m        £m        £m
 Cash at bank and in hand        7.3     (3.3)     (0.2)      3.8
 Current asset investments:                                
   Overnight deposits            0.2     (0.1)       -        0.1
 Bank overdrafts                (0.7)    (1.7)       -       (2.4)
                              -------   -------   ------   -------
                                 6.8     (5.1)     (0.2)      1.5
                              -------   -------   ------   -------
 Debt due within one year                                  
 (other than bank overdrafts)                              
                               (34.8)    16.2     (11.4)    (30.0)
 Debt due after more than one                              
 year                         (365.5)     8.3      13.0    (344.2)
 Finance lease obligations    (317.8)     4.1     (15.8)   (329.5)
                              -------   ------    ------   -------
                              (718.1)    28.6     (14.2)   (703.7)
                              -------   ------    ------   -------
 Current asset investments:                                
    Other than overnight                                   
    deposits                    56.2    (20.8)       -       35.4
                              -------   ------    ------   -------
 Net debt                     (655.1)     2.7     (14.4)   (666.8)
                              =======   ======    ======   =======

     Non-cash movements includes transfers between categories
     for debt changing maturities, the in-substance extinguishment of finance
     lease obligations, increased accrued finance charges within finance
     leases, and retranslation of foreign currency debt.

8.   The Annual Report for 2000 will be issued to shareholders on 29 June

Pennon Group Plc
Registered Office
Peninsula House
Rydon Lane
Devon   EX2 7HR

Registered in England No 2366640


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