4 June 2020
Full Year Results 2019/20
Strategic value realised through sale of Viridor,
well positioned for new regulatory delivery period
Pennon, one of the UK's largest environmental infrastructure groups, is issuing its Full Year Results for the year ended 31 March 2020.
Solid 2019/20 performance
·
We continue to do all we can to support our employees, customers and communities through this unprecedented COVID-19 pandemic, with the vast majority of operations continuing as usual
·
Pennon is well positioned with strong funding and liquidity of £1.6 billion, prior to receipt of net cash proceeds from Viridor sale, to weather ongoing uncertainty
·
Solid financial and operational performance across the Group, in line with management expectations, delivering for all our stakeholders, well positioned for K7 (2020-25)
·
South West Water finished K6 (2015-20) with sector leading cumulative RORE[1] of 11.8%
·
Viridor has performed well, successfully delivering key priorities and growth investment
·
Delivering on dividend commitment for 2019/20, announcing a sustainable 2020-25 dividend policy for the Continuing Group of CPIH[2] +2% per annum
Financial impact of COVID-19
·
Financial impacts for 2019/20 focused on expected credit losses (ECL) - related to customer debt - provision of £9.0 million across the Pennon Group
·
Pennon Water Services not requiring deferral of wholesale payments at this stage - a number of other retailers taking advantage of wholesaler regulatory support
·
Impact for 2020/21 - assumes a three month lockdown with ramp-up over the remaining year
o
non-household revenue expected to reduce, offset by increased household demand
o
risk from ECL for businesses, retailers and households. Support schemes to mitigate impacts
o
Viridor resilient through ERF contracts
Sale of Viridor on track for early summer completion
· Sale of Viridor to KKR[3] for an Enterprise Value of £4.2 billion representing an EV / EBITDA multiple of 18.5x[4]
· Shareholder approval and European Commission merger clearance received, now finalising the last condition precedent
· Net cash proceeds expected to be £3.7 billion[5], to be used to reduce Pennon company borrowings, reduce the pension deficit, retain headroom for future value creating opportunities, and make a return to shareholders
· Following the sale of Viridor, Pennon will focus on its sector leading water and wastewater businesses and will continue to pursue growth within the UK water industry.
Financial Highlights
| Continuing Group | Continuing Group and Viridor |
Underlying^ | 2019/20
| 2018/19
| 2019/20
| 2018/19 | Change |
Revenue | £636.7m | £632.6m | £1,389.9m | £1,478.2m | (6.0%) |
EBITDA^ | £365.3m | £367.3m | £563.4m | £546.2m | +3.1% |
Adjusted EBITDA^ | £365.3m | £367.3m | £619.8m | £592.7m | +4.6% |
Operating profit | £245.5m | £250.1m | £361.5m | £351.0m | +3.0% |
Profit before tax (PBT) | £183.0m | £191.7m | £287.6m | £280.2m | +2.6% |
Non-underlying items before tax[6] | £10.1m | £9.7m | £13.9m | (£19.9m) | - |
Profit before tax | £193.1m | £201.4m | £301.5m | £260.3m | +15.8% |
Tax | (£70.6m) | (£32.8m) | (£95.2m) | (£37.7m) | (152.5%) |
Discontinued Operations | £83.8m | £54.0m | | | |
Profit for the Year | £206.3m | £222.6m | £206.3m | £222.6m | (7.3%) |
Statutory earnings per share | 47.7p | 51.1p | 47.7p | 51.1p | (6.7%) |
- From continuing operations | 27.7p | 38.2p | | | |
Adjusted earnings per share[7] | 61.7p | 57.8p | 61.7p | 57.8p | +6.7% |
Dividend per share[8] | 43.77p | 41.06p | 43.77p | 41.06p | +6.6% |
IFRS 16: Leases
From 1 April 2019 the Group adopted the new accounting standard IFRS 16: Leases resulting in a marginal net impact on the income statement. A full reconciliation is included in note 15 on pages 62 to 65 of this announcement.
Continuing Group
On 18 March 2020, the Group entered into a formal sale agreement to dispose of Viridor to Planets UK Bidco Limited (Bidco), a newly formed company established by funds advised by Kohlberg Kravis Roberts & Co. L.P. (KKR). In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations', the operations of Viridor have been classified as discontinued operations in both the current and prior year. The 'Continuing Group' consists of South West Water, Pennon Water Services and Pennon Group (the Company).
The results of the Continuing Group compared to 2018/19 reflect:
· Revenue up marginally, from £632.6 million to £636.7 million as growing retail revenues from Pennon Water Services from outside of South West Water's operational region offsets lower wholesale revenues from South West Water due to weather driven reduced demand
· EBITDA is marginally lower at £365.3 million from £367.3 million, reflecting the mix of margin on retail and wholesale revenues, with South West Water's wholesale margin reducing as a result of lower customer consumption
· Profit before tax reduces by £8.7 million from £191.7 million to £183.0 million reflecting lower EBITDA, increased depreciation on asset growth and higher absolute interest
· Non-underlying items of £10.1 million reflect the gain from efficient financing, net of COVID-19 related ECL adjustments
· Tax of £70.6 million (increased from £32.8 million) primarily reflects the change in the legislated tax rate from 17% up to 19% which has increased the deferred tax charge
· Discontinued operations of £83.8 million (up from £54.0 million) reflects the delivery of growth and expansion of Energy Recovery Facilities in Viridor
· Adjusted earnings per share up +6.7% to 61.7p, statutory earnings per share down (6.7%) to 47.7p reflecting the deferred tax charge from changes in enacted headline rates
· Dividend per share up +6.6% to 43.77p.
To aid the comparability of reported results year on year, the figures and narrative in this statement will focus primarily on the results of the aggregate Continuing Group and Viridor. A full reconciliation of the statutory reported results is included in Item (i) in the Alternative Performance Measures on pages 67 to 72 of this announcement.
Continuing Group and Viridor
· As expected, Group revenue reduced 6.0% to £1,389.9 million, reflecting the exit from Viridor's Greater Manchester contract and lower demand at South West Water due to weather driven lower volume consumption by customers
· Underlying profit before tax increased +2.6% to £287.6 million, supported by efficiencies across the Group and earnings growth from Energy Recovery Facilities (ERF) at Viridor
· Profit before tax for the year increased +15.8% to £301.5 million, due to efficient financing providing a non-underlying gain
· The increase in the tax charge largely reflects the deferred tax impact of the Government's decision not to go ahead with the planned reduction in corporation tax rate from 19% to 17%
· Adjusted earnings per share up +6.7% to 61.7p, statutory earnings per share down (6.7%) to 47.7p reflecting the deferred tax charge from changes in enacted headline tax rates
· Dividend per share up +6.6% to 43.77p
· Group has £1.6 billion of cash and committed facilities providing strong liquidity and funding
o £840 million of new or renewed finance was raised in 2019/20, including £245 million of funding through the Sustainable Financing Framework for South West Water.
OUTLOOK
Completion of the Viridor disposal is expected early summer 2020, following which the Continuing Group of South West Water and Pennon Water Services and Pennon Group (the Company) will be a UK focused water infrastructure group.
Entering the new K7 regulatory period (2020-25), South West Water is the only water and wastewater company to have achieved fast-track status for two consecutive price reviews. Work is underway to deliver the commitments in the Business Plan focusing on cost base efficiency, operational performance, customer service and sustainable growth. South West Water is focused on providing services in the most efficient and sustainable way, using innovation and new technologies to serve its customers, communities and the environment.
Chris Loughlin, Pennon Chief Executive, commented:
"We are pleased with the solid operational and financial performance delivered this year. Viridor has continued to drive growth while South West Water has maintained its sector leading returns. In these uncertain and difficult times arising from the COVID-19 pandemic we would like to thank all our employees across the Group for the incredible hard work and dedication that has contributed to this performance. The health, safety and wellbeing of our employees and customers is paramount and continues to be our number one priority.
The performance for 2019/20 underpins the dividend of 43.77p per share.
It has been a landmark year for Pennon, culminating in the announcement in March of the proposed sale of Viridor to KKR for an Enterprise Value of £4.2 billion. Viridor has become a leader in engineering excellence, new technology and tackling environmental challenges, and the transaction recognises the strategic value that has been created over many years, accelerating the realisation of that value for shareholders.
Following the sale, Pennon will be a leading UK-focused water infrastructure group, delivering for customers and providing services in the most efficient and sustainable way possible. We are pleased to announce our Continuing Group dividend policy of CPIH + 2% growth per annum through to 2025, with additional returns to shareholders to come from the sale of Viridor."
Presentation of Results
A presentation of these results hosted by Chris Loughlin, Chief Executive Officer and Susan Davy, Chief Financial Officer will be available on our website www.pennon-group.co.uk/investor-information at 09.00am BST, today 4 June 2020.
We will be hosting a live Q&A session from 10:00am via conference call. Please click this link to register for the conference call.
For further information, please contact:
Susan Davy Sarah Moody Jennifer Cooke | Chief Financial Officer Director of Corporate Affairs & Investor Relations Investor Relations Manager | 01392 443 168 |
James Murgatroyd Harry Worthington | Finsbury | 020 7251 3801 |
PENNON BUSINESS REVIEW
Notwithstanding the challenging backdrop of the COVID-19 pandemic, Pennon has maintained its positive momentum through 2019/20 delivering solid performance in both water and waste as we enter the new K7 (2020-25) period. On 18 March 2020 we announced the sale of Viridor to KKR for £4.2 billion which the Board unanimously believe realises the full strategic value that Pennon has developed and nurtured in Viridor over many years, and the realisation of that value for shareholders.
COVID-19
Operational impact of COVID-19
In these unprecedented times, arising from the COVID-19 pandemic, the health, safety and wellbeing of our employees and customers is paramount and remains our number one priority. Following the latest Government and Public Health guidance, we have strict precautions in place at our sites including enhanced levels of cleaning, additional hygiene facilities and protective personal equipment, and social distancing. The majority of our employees are designated key workers and are delivering the best possible service to customers during this challenging time. Enhanced precautions and safety checks have been established and only critical customer visits are taking place. We know that this is a difficult time for our customers and we have stepped up our support for those in vulnerable circumstances, including a dedicated COVID-19 priority services register and extending our support schemes for customers who struggle to pay their bills.
Financial impact of COVID-19
The financial impact of COVID-19 on our 2019/20 financial results have been limited to the expected credit losses (ECL) on our customer debt across the Group (£9.0 million provision recognised) with the largest impact for non-household business customers of c.£5.0 million. There has been no significant additional Totex impact as a result of the pandemic to date.
During lockdown South West Water has seen a change in customer demand with a decline in wholesale demand from businesses (c.20%), particularly those within hospitality and retail sectors, net of increased residential demand (c.5%) as people remain at home during this period with c.84% of our customers on a meter. We continue to monitor these impacts closely, however any net shortfall in household and non-household demand would be recovered through existing regulatory mechanisms.
The extent of the impact of COVID-19 on the UK economy remains uncertain with the risk of ECL from business and commercial customers increasing during and following lockdown, although post year end cash collections have remained strong and Pennon Water Services has not taken advantage of wholesaler regulatory support through deferral of any payments at this stage.
The strong collections performance for household customers and use of our social tariff and support schemes has successfully reduced our bad debt costs in recent years. We believe these support measures and our continued focus on collections will help mitigate the financial impacts of COVID-19.
The strong local authority contracted position in Viridor provides resilience to the underlying business, with strong ERF performance mitigating the volume impact from commercial & industrial customers in collections, landfill and recycling.
Solid financial and operational performance
South West Water finished the K6 (2015-20) regulatory period with a sector leading return on regulated equity (RORE) and the successful conclusion of the 2019 Price Review process (PR19). As a result, South West Water began the K7 (2020-25) regulatory period as the only company to have achieved fast-track status for its Business Plan in two consecutive 5-year Price Reviews.
Over K6 South West Water has transformed performance in many key operational areas and is focused on delivering for customers and targeting environmental performance improvements.
Pennon Water Services has sustained its position in the competitive market providing high quality customer services, whilst improving its profitability through growth in value added services and reducing the unit cost to serve through automation, self-service and efficiency.
This has been an important year for Viridor operationally, as the most recent ERFs at Glasgow, Beddington and Dunbar have moved through their ramp-up phases and the construction at Avonmouth ERF has progressed with commissioning underway.
We continue to deliver on our promises to customers, communities and shareholders as our investments drive tangible, positive and sustainable results for all our stakeholders. Over 60% of Pennon's shareholders are UK pension funds, savings, charities, individuals and employees, with over half of South West Water's employees being shareholders.
Crystallising value from the sale of Viridor
Over recent years, the Board has closely monitored the market value of the Group and its component parts. It has been clear for some time that the fundamental value of Viridor was not fully reflected in Pennon's share price. In addition, given the strong financial performance and operational progress of the Group, the Board announced in September 2019 that it was an appropriate time to conduct a review of the strategic focus, growth options and capital allocation policy for the Group.
The sale of Viridor recognises the full strategic value that Pennon has developed and nurtured in Viridor over many years and accelerates the realisation of that value for shareholders. The Board carefully considered the wider implications of the deal and agreed unanimously that the transaction was in the best interests of shareholders and key stakeholders.
The sale of Viridor for an enterprise value of £4.2 billion was approved by Shareholders on 28 May 2020 and European Commission merger clearance has been received. We are finalising the last condition precedent ahead of an expected completion in early summer.
Pennon has strategically invested in Viridor since 1993, creating a de-risked infrastructure model across a complementary portfolio of assets, underpinned by long-term, index linked contracts. Viridor's ability to capitalise on economic and market trends has delivered consistent growth and we look forward to seeing how the business develops through its next phase under new ownership.
Dividend policy
The Board has evaluated the Group's dividend for 2019/20 in light of the COVID-19 pandemic and has concluded that it is appropriate for Pennon to continue to deliver on its dividend commitment. The Group has significant cash and liquidity of £1.6 billion (prior to receipt of net cash proceeds from the sale of Viridor), has not received any Government support measures and continues to progress our WaterShare+ scheme which will see c.£20 million of benefit shared with customers through a customer rebate or a stake in the business through Pennon shares. In addition, the majority of Pennon's shareholders are UK based pension funds, charities, employees, customers and other retail holders who rely on this income.
For 2019/20, the Board has recommended a final dividend of 30.11p, subject to shareholder approval at the Annual General Meeting on 31 July 2020. Together with the interim dividend of 13.66p, this will result in a total dividend of 43.77p, an increase of +6.6% from last year. This is in line with our dividend policy for 2010-2020 of Retail Price Index (RPI) +4% growth per annum, which has been achieved whilst investing more than £3.6 billion in our businesses over the past 10 years. Pennon offers shareholders the opportunity to invest their dividend in a Dividend Reinvestment Plan (DRIP).
The crystallisation of the Viridor sale is equivalent to 22.66p per share of the recommended 2019/20 dividend. This implies a Continuing Group dividend (after excluding Viridor) of 21.11p per share.
The Board intends to use the c.£3.7 billion of net cash proceeds to reduce Pennon's company borrowings and pension deficit, retain some funds for future opportunities, and make a return to shareholders. Details of additional returns to shareholders from the sale of the Viridor business will be announced in due course.
Pennon's dividend policy for 2020-25 for the re-based Continuing Group will be growth of CPIH + 2% per annum, from an implied Continuing Group dividend for 2019/20 of 21.11p per share. The shift from the existing policy of linking the growth in dividend from RPI to CPIH reflects the change in the regulatory model for South West Water, matching allowed revenues.
The re-based dividend reflects the sector leading position of the Continuing Group, with expectations for outperformance on financing and Totex supporting the sustainable dividend growth policy and dividend cover.
Final dividend payment information
23 July 2020 | Ordinary shares quoted ex-dividend |
24 July 2020 | Record date for final dividend |
10 August 2020* | Final date for receipt of DRIP applications |
2 September 2020* | Final dividend payment date |
*These dates are provisional and are subject to obtaining shareholder approval at the 2020 Annual General Meeting.
Upcoming Events
Early Summer | Expected completion of Viridor sale |
31 July 2020[9] | Annual General Meeting |
18 September 2020 | Capital Markets Day |
25 September 2020 | Trading Statement |
24 November 2020 | Half Year Results 2020/21 |
30 March 2021 | Trading Statement |
25 May 2021 | Full Year Results 2020/21 |
PENNON FINANCIAL PERFORMANCE
| Continuing Group | Continuing Group and Viridor |
Underlying^ | 2019/20 | 2018/19 | 2019/20 | 2018/19 | Change |
Revenue | £636.7m | £632.6m | £1,389.9m | £1,478.2m | (6.0%) |
EBITDA^ | £365.3m | £367.3m | £563.4m | £546.2m | +3.1% |
Adjusted EBITDA^ | £365.3m | £367.3m | £619.8m | £592.7m | +4.6% |
Depreciation and amortisation | (£119.8m) | (£117.2m) | (£201.9m) | (£195.2m) | (3.4%) |
Operating profit | £245.5m | £250.1m | £361.5m | £351.0m | +3.0% |
Net interest | (£62.5m) | (£58.4m) | (£88.7m) | (£83.2m) | (6.6%) |
Share of JV profit after tax | | | £14.8m | £12.4m | +19.4% |
Profit before tax (PBT) | £183.0m | £191.7m | £287.6m | £280.2m | +2.6% |
Non-underlying items before tax[10] | £10.1m | £9.7m | £13.9m | (£19.9m) | - |
Profit before tax | £193.1m | £201.4m | £301.5m | £260.3m | +15.8% |
Tax | (£70.6m) | (£32.8m) | (£95.2m) | (£37.7m) | (152.5%) |
Discontinued Operations | £83.8m | £54.0m | | | |
Profit for the year | £206.3m | £222.6m | £206.3m | £222.6m | (7.3%) |
| | | | | |
PAT(attributable to holders of hybrid capital) | £7.0m | £8.6m | £7.0m | £8.6m | (18.6%) |
PAT(attributable to minority interests) | (£1.1m) | (£0.3m) | (£1.1m) | (£0.3m) | +266.7% |
PAT(attributable to shareholders) | £200.4m | £214.3m | £200.4m | £214.3m | (6.5%) |
| | | | | |
Adjusted earnings per share[11] | 61.7p | 57.8p | 61.7p | 57.8p | +6.7% |
| | | | | |
Statutory earnings per share | 47.7p | 51.1p | 47.7p | 51.1p | (6.7%) |
- From continuing operations | 27.7p | 38.2p | | | |
| | | | | |
Dividend per share[12] | 43.77p | 41.06p | 43.77p | 41.06p | +6.6% |
| | | | | |
Capital investment[13] | | | £339.2m | £395.9m | (14.3%) |
South West Water | | | £161.0m | £154.0m | +4.5% |
Viridor13 | | | £177.6m | £241.7m | (26.5%) |
Other | | | £0.6m | £0.2m | +200.0% |
| | | | | |
| | | 31 March 2020 | 31 March
2019 | Change |
Net debt Continuing Group and Viridor | | £3,264.0m | £3,079.5m | +6.0% |
IFRS 16: Leases
From 1 April 2019 the Group adopted the new accounting standards IFRS 16: Leases resulting in a marginal net impact on the income statement and balance sheet.
Based on the additional lease liability and associated assets recognised at 1 April 2019 for the Continuing Group the impact on profit for the year ended 31 March 2020 was a reduction in profit after tax of £0.6 million, resulting from:
· an increase in EBITDA of £1.9 million
· an increase in depreciation of £1.4 million
· an increase in finance costs of £1.2 million; and
· a reduction in corporation tax of £0.1 million.
A full reconciliation is included in note 15 on pages 60 to 63 of this announcement.
Non-underlying items
The non-underlying items before tax for the Continuing Group and Viridor total a credit £13.9 million and after tax total a charge of £29.3 million, consisting of:
· The movement in the fair value of long-dated derivatives associated with South West Water's 2040 bond. These derivatives no longer met the Group's accounting hedging requirements and early settlement enabled South West Water to lock in a 'mark to market' gain. This has resulted in the recognition of a pre-tax credit of £18.0 million and cash proceeds on termination of the derivative of £87.2 million | £18.0m |
· A provision charge for expected credit losses related to the impacts of the COVID-19 pandemic across the Group - c.£5 million Pennon Water Services, c.£3 million South West Water and c.£1 million Viridor | (£9.0m) |
· Aspects of the closedown of defined benefit pension commitments following the cessation of the Greater Manchester recycling operating contract resulting in a pre-tax credit | £4.9m |
· A net tax charge on the above items | (£2.6m) |
· A deferred tax charge resulting from the announced change of headline tax rates from 17% to 19% | (£40.6m) |
Of the total £29.3 million net charge, £22.1 million relates to the Continuing Group with £7.2 million relating to Viridor.
Financial performance from the Continuing Group and Viridor (before non-underlying items)
Given the significant contribution of Viridor to the Group's results for entire financial year, pro forma results for the whole Group including continuing and discontinued operations have been presented alongside the statutory results in the income statement. The commentary on the overall performance of the Group is based on this approach.
Revenue
Group revenue has reduced by 6.0% (£88.3 million) to £1,389.9 million (2018/19 £1,478.2 million). The majority of this reduction was due to the planned cessation of the Greater Manchester recycling operating contract and lower landfill tax receipts in Viridor. South West Water's revenue has reduced marginally due to customer demand falling from the exceptionally hot, dry summer in 2018/19 in comparison with the wetter weather this year. Revenues in Pennon Water Services are broadly in line with the previous financial year with the decrease in South West Water revenues offset by continuing growth in the rest of the market, with a focus customer profitability.
EBITDA
Group EBITDA and adjusted EBITDA were ahead of last year by 3.1% at £563.4 million (2018/19 £546.2 million) and 4.6% to £619.8 million (2018/19 £592.7 million) respectively driven by good operational cost control across the Group and strong performance across Viridor's activities, particularly from the fleet of ERFs.
Net finance costs
Underlying net finance costs of £88.7 million are £5.5 million higher than last year (2018/19 £83.2 million), primarily due to the cessation of capitalising interest on assets in the course of construction as the Beddington, Glasgow and Dunbar ERFs which are now operational.
The Group continues to secure funding at a cost that is efficient with the effective interest rate reducing to 3.5% (2018/19 3.6%), reflecting lower margins on new and renewed financing. The effective interest rate for South West Water is 3.4%, reduced from 3.5% in the prior year.
The effective interest rate is calculated after adjusting for capitalised interest of £11.0 million (2018/19 £15.2 million), notional interest items of £9.0 million (2018/19 12.5 million), interest received from shareholder loans to joint ventures of £5.3 million (2018/19 £5.3 million) and service concession contracts of £15.1 million (2018/19 £14.6 million).
During 2019/20 underlying net finance costs (excluding pensions net interest costs of £0.8 million (2018/19 £1.4 million), discount unwind on provisions of £8.2 million (2018/19 £11.1 million) and interest receivable from service concession contracts of £15.1 million (2018/19 £14.6 million) were covered 3.8 times by Group operating profit (2018/19 4.1 times)).
Profit before tax
Group underlying profit before tax was £287.6 million, an increase of 2.6%, compared with the prior year (2018/19 £280.2 million). Included in profit before tax is our share of joint venture profit after tax of £14.8 million (2018/19 £12.4 million). After non-underlying items, profit before tax was £301.5 million (2018/19 £260.3 million) reflecting a combined non-underlying credit before tax from continuing and discontinued operations of £13.9 million (2018/19 charge of £19.9 million).
Taxation
On an underlying basis the net tax charge of £52.0 million (2018/19 £42.7 million) consists of:
· Current year current tax charge of £28.0 million, reflecting an effective tax rate of 9.7% (2018/19 £32.4 million, 11.6%). The lower effective rate versus the UK's mainstream corporation tax rate of 19% reflects the accelerated level of capital allowance claims available to the Group compared with the depreciation charge and tax relief on accelerated pension deficit recovery payments made during the year
· Current year deferred tax charge of £26.7 million (2018/19 £23.2 million) primarily reflect capital allowances across the Group in excess of depreciation charged
· Following the submission of prior year tax computations:
o Current tax credit of £9.2 million (2018/19 £3.0 million), reflecting clarification of uncertain tax items
o Deferred tax charge of £6.5 million (2018/19 £9.9 million credit), reflecting finalisation of capital allowance claims
The 2019/20 non-underlying items result in a £43.2 million[14] tax charge (2018/19 £5.0 million credit), primarily reflecting the impact of the announced change of tax rates from 17% to 19% in March 2020.
Overall, the total tax charge for the year was £95.2 million (2018/19 £37.7 million). The Group's taxes borne and collected (those that are a cost to the Group and those where the business acts as a collector of taxes) results in a total tax contribution of £278 million[15] being paid to the Government.
Earnings per share
Whilst earnings per share on an underlying basis increased by 6.7% to 61.7p (2018/19 57.8p), earnings per share on a statutory basis reduced by 6.7% to 47.7p (2018/19 51.1p) driven by the c.£41 million non-underlying deferred tax charge relating to the change in tax rate from 17% to 19%. From 2019/20 the 2017 perpetual capital securities qualify for tax relief, following a change in legislation. The tax relief for 2019/20 is £1.6 million, increasing earnings per share by 0.4p.
Strong cash inflows from operations, continuing capital investment
The Group's operational cash inflows in 2019/20 were £728.6 million (2018/19 £649.0 million). These funds have been put to use in efficiently financing the Group's capital structure and investing in our capital programmes. This capital investment has resulted in marginally higher Group net debt (before the effects of IFRS 16).
Contributions into the Group's pension schemes were £48.1 million (2018/19 £32.2 million), including a voluntary £17.2 million accelerated deficit recovery payment. Corporation tax payments were £52.6 million (2018/19 £29.2 million) reflecting the changes in legislation for the timing of payments on account. Other tax payments made by the Group in 2019/20 total £147.1 million[16] (2018/19 £137.9 million).
Sustainable funding position
The Group has a strong liquidity and funding position with £1,639 million cash and committed facilities at 31 March 2020. This consists of cash and deposits of £699 million (including £227 million of restricted funds representing deposits with lessors against lease obligations) and undrawn facilities of £940 million. At 31 March 2020 the total Group borrowings were £3,963 million, including £137 million of obligations now classified as leases under IFRS 16. £3,715 million of gross borrowings are in the Continuing Group with £2,520 million at South West Water and £1,195 million at Pennon Group and subsidiaries and £248 million of lease liabilities in Viridor.
The net debt of the Continuing Group including Viridor (before the impact of IFRS 16) was broadly comparable with the prior year. An increase of £137 million has been recognised attributable to lease liabilities in accordance with IFRS 16. As a result, total net debt is £3,264 million compared with £3,080 million in the prior year. The net debt of the Continuing Group as at 31 March 2020 is £3,049 million (£822 million at Pennon Group and £2,227 million at South West Water).
Pennon has pioneered a Sustainable Financing Framework to integrate commitments to environmental and social objectives into a variety of funding opportunities across the Group, with £845 million raised since 2018. The framework allows Pennon to access future funding opportunities aligned with the Green Loan Principles, Green Bond Principles and Social Bond Principles. The framework has been certified by DNV GL a leading sustainability verifier. Pennon is committed to continuous annual improvements in sustainability ratings and KPIs which may lead to improved interest rate margins.
During the year, £840 million of new and renewed facilities have been agreed, £500 million in Pennon Group plc and £340 million in South West Water. The total includes a Pennon revolving credit facility (RCF) which provides the Group with flexible, efficient and effective funding during the strategic review. In total, £245 million of the new facilities signed in the year are linked to the sustainable nature of the business. This includes a new £50 million CPI linked sustainable loan, this maintains South West Water's proportion of index linked net debt and supports the industry's transition from RPI to CPIH.
During the year the Group also early settled the fixed to floating rate derivatives associated with the South West Water Finance plc 2040 bond. The settlement locked in the value and removed the future volatility from the income statement, the resulting cash inflow of £87.2 million will be utilised to fund South West Water's capital commitments.
In preparation for the announced abolition of LIBOR in 2021, South West Water has completed the first LIBOR to SONIA amendment for a sustainable RCF. While financial institutions finalise the precise workings of the successor measure to LIBOR, widely expected to be SONIA, this amendment to an existing facility allows the Group to address documentation and early system changes that will be required. Further work continues and later this year it is expected that our financial institutions will no longer provide LIBOR linked financial products.
Efficient long-term financing strategy
The Group has a diversified funding mix of fixed (£1,797 million, 55%), floating (£844 million, 26%) and index-linked borrowings (£623 million, 19%). The Group's debt has a maturity of up to 37 years with a weighted average maturity of c.17 years. Much of the Group's debt is floating rate and derivatives are used to fix the rate on that debt.
Following the K7 (2020-25) South West Water Final Determination the Group has aligned its hedging strategy with the changed regulatory methodology in this area. A proportion of new debt will be hedged in K7 on a rolling ten-year basis while still maintaining flexibility within the overall portfolio. Embedded debt hedging is aligned with the five year regulatory delivery period. Around 60% of South West Water's embedded floating net debt has already been hedged through K7, taking advantage of falling swap rates and assuring the Group transitions smoothly into the new regulatory period.
South West Water's cost of finance, with an effective rate of 3.4%, is among the lowest in the industry. Around two-thirds of South West Water's net debt is from finance leases which provide a long maturity profile. Interest payable benefits from the fixed credit margins which are secured at the inception of each lease. £576 million (c.26%) of South West Water's net debt is index-linked. This is below Ofwat's notional assumption of 33%, giving an advantageous position through regulatory transition from RPI to CPIH.
The overall average effective rate through the K6 regulatory period for South West Water has been 3.3%, being a drop of 0.6% from the average rate achieved in the K5 regulatory period of 3.9%. Expectations are for a similar period on period reduction in the effective interest rate as we move into K7, given the advantageous interest rate hedging that has been undertaken to date.
Net debt position
The net debt of the total Group including Viridor was £3,264 million, an increase of £184 million during the year (2018/19 £3,080 million), which is largely attributable to £137 million of lease liabilities being recognised in accordance with IFRS 16. For the purposes of banking covenants these lease obligations are excluded from net debt. The net debt of the Continuing Group as at 31 March 2020 is £3,049 million, and ongoing covenants are not adversely impacted by the Viridor sale.
In the year, cash inflow from operations was strong at £728.6 million (2018/19 £649.0 million). Cash outflows relating to the capital programme totalled £339.9 million[17] (2018/19 £384.5 million). The gearing ratio at 31 March 2020, being the ratio of net debt to (equity plus net debt) was stable at 64.6%[18] (31 March 2019 64.7%).
The combined South West Water and Bournemouth Water debt to RCV ratio is 63.6%[19] (31 March 2018 58.9%) which is broadly in line with Ofwat's K6 target for efficient gearing of 62.5%. Gearing at South West Water is expected to fall in the coming regulatory period meeting the trajectory of Ofwat's notional structure. During the year South West Water also made a voluntary accelerated pension deficit recovery payment of £17.2 million covering two years of planned payments, adding 0.5% to gearing.
Group net debt includes £2,227 million for South West Water and £215 million for Viridor, with £822 million implied for Pennon the Company.
Reducing capital investment as ERF build out progresses
Group capital investment from continuing and discontinued operations decreased to £339.2 million in 2019/20 from £395.9 million in 2018/19.
South West Water
South West Water's capital expenditure in the year was £161.0 million, compared to £154.0 million in 2018/19 with the profile aligned with the K6 capital plan, in addition to expenditure accelerated to make an early start on key K7 initiatives focused on ODI[20] delivery.
Key areas of investment and activity during 2019/20 included:
· Further investments in our drinking water quality programme including installation of granular activated carbon (GAC) treatment at College water treatment works in Cornwall. This £10 million project will improve the resilience of our water quality for c.35,000 customers
· Continued investment in the network to drive leakage reduction to support pledges made in the next regulatory period
· Investment in the Plymouth region to improve resilience of water supplies with the completion and commissioning of the Mayflower water treatment works and upgrades to the network and pumping stations
· Schemes to deliver National Environment Programme (NEP) commitments, including phosphorus and ammonia discharge reductions
· Continued improvements at wastewater treatment works, including flood resilience and at pumping stations to reduce pollution incidents
· Investment for growth to meet increases in supply and demand
· Early preparations for the new water treatment works in Bournemouth, building on the innovative investment at Mayflower.
Pennon Water Services
Capital investment during the year was focused on improving service and driving efficiency within our systems and processes.
Viridor
Viridor's capital spend in the year was £177.6 million (2018/19 £241.7 million), a reduction of £64.1 million over 2018/19 as the ERF assets have become operational.
The majority of the expenditure continues to relate to the ERF portfolio, principally the continued development of Avonmouth ERF where commissioning is underway. Other larger projects in the year include the commencement of construction of the £65.0 million Avonmouth plastics recycling facility and upgrade of Masons Materials Recycling Facility (MRF).
Pensions
The Group operates defined benefit pension schemes for certain employees of Pennon Group. The main schemes were closed to new entrants on or before 1 April 2008.
At 31 March 2020, the Group's pension schemes showed an aggregate deficit (before deferred tax) of £8.5 million (March 2019 £60.8 million), a reduction of £52.3 million as a result of:
· £32.6 million contributions over and above the ongoing service and net interest charges following the Group's decision to voluntarily accelerate £17.2 million of the planned deficit recovery payments
· Greater Manchester recycling operating contract cessation decreasing liabilities by £2.0 million
· Reduction in liabilities of £51.9 million due to lower long term inflation rates reducing liabilities
· £25.1 million reduction in asset values caused by the financial market uncertainty arising from the COVID-19 pandemic
· Changes in other actuarial assumptions increasing the net deficit by £9.1 million.
The net aggregate liabilities of c.£7 million (after deferred tax) represents less than 0.2% of the Group's market capitalisation at 31 March 2020.
Of these liabilities a surplus of £6.6 million relates to Continuing Group and a deficit of £15.1 million relates to Viridor. On completion of the Viridor sale, expected early summer 2020, the Continuing Group will assume responsibility for near all of Viridor's defined benefit obligations.
For the Group's principal scheme, of which South West Water accounts for around 82%, Viridor 12% and 6% for Pennon company, the 2019 triennial valuation has been finalised, recording an actuarial technical provisions deficit of c.£53 million. In agreeing to the valuation, the Group committed to deficit recovery contributions in line with those agreed at the 2016 triennial actuarial valuation to 2022, noting the significant acceleration of contributions during the year.
In addition to the principal scheme, the Group has further pension liabilities (£20.9 million at March 2019 calculated on an actuarial technical provisions basis), that relate to schemes in which the Group participates in connection with Viridor's Greater Manchester recycling operating contract which ceased in May 2019. Following the planned exit from the Greater Manchester recycling operating contract, it is expected that the assets and liabilities associated with all active members of these schemes at 31 May 2019 will transfer to the new operator's pension fund. A non-underlying credit of £4.9 million has been recognised in the income statement in connection with active employees moving to deferred status in these schemes.
The Group is in the process of consulting with all employees on plans to modernise its pension arrangements. The proposals which are being consulted on include the closure of the main defined benefit scheme to future accrual with all employees transitioning to a new defined contribution scheme offered through a master trust arrangement. The outcome of the consultation is expected to be announced in June 2020.
Energy hedging
Pennon has adopted a Group portfolio management approach to energy hedging. The Group has continued to trade over the last 12 months to maintain its net hedged position in accordance with Group policy. Forward hedges for South West Water not already under long-term contracts have been put in place in the liquid market with 100% of the energy requirements hedged until March 2021 and c.92% until March 2022.
SOUTH WEST WATER PERFORMANCE
Underlying | 2019/20 | 2018/19 | Change |
Revenue[21] | £570.3m | £581.0m | (1.8%) |
Operating Costs | (£206.1m) | (£213.9m) | +3.6% |
EBITDA | £364.2m | £367.1m | (0.8%) |
Depreciation and amortisation | (£118.8m) | (£116.0m) | (2.4%) |
Operating profit | £245.4m | £251.1m | (2.3%) |
Net interest | (£71.4m) | (£70.5m) | (1.3%) |
Profit before tax | £174.0m | £180.6m | (3.7%) |
| | | |
Revenue
South West Water revenue for 2019/20 has reduced by 1.8% (£10.7 million) compared with the prior year. Noting our c.84% metered customer base, tariff rises of 0.6%[22] have been offset by lower customer demand (down 3.7%) from the wetter weather experienced this year. Revenue from new customer connections (c.9,000) has been offset by meter switchers and assessed charges. Year on year changes in revenues (compared with the Final Determination) are subject to a revenue 'true-up' mechanism.
EBITDA & operating profit
As a result of lower revenue in 2019/20, South West Water's EBITDA and operating profit reduced by 0.8% and 2.3%, respectively. The ongoing focus on strong cost control and efficiency delivery, as well as extreme weather costs in the prior year which have not been repeated, resulted in operating costs decreasing by 3.6%. South West Water's bad debt performance remains strong with a charge of 0.5% as a percentage of revenue excluding the impact of COVID-19 (1.0% including COVID-19 impact). This reflects the continuation of efficient cash collections, with the annual charge below the levels assumed in our K6 Final Determination.
COVID-19 resilient delivery of critical services
Focus on safety and supporting our employees and customers
Our focus has been on the safety of our employees and we have prioritised their mental, physical and financial wellbeing. Our swift response to the emerging challenges of the COVID-19 pandemic ensured we have a continuing supply of personal protective equipment (PPE) and we have committed to paying our staff in full without Government support. Our technology infrastructure was resilient and supported the swift changes in working locations and practices allowing staff to work from home wherever possible. We have implemented an extensive staff engagement programme with a dedicated online COVID-19 facility providing up to date information and guidance to support both individuals and their families.
Delivering a robust service safely
During these unprecedented times the health and safety of our staff and customers has been paramount whilst continuing deliver a robust service to the communities we serve. We responded rapidly to the emerging developments and we have maintained the vast majority of our services - particularly those critical to operations and customer needs with over 90% of our staff either at sites, out in the communities they serve or continuing to operate by working from home. We have continued to deliver our key capital schemes, working effectively with our partners to ensure safe working practices. In addition to maintaining services, South West Water successfully completed the expansion into the Isles of Scilly despite the restrictions in place.
Supporting vulnerable customers and maintaining customer service
A key part of our pandemic response has been focused on supporting all our customers through these difficult times, especially those in vulnerable circumstances. We continued to operate our call centre ensuring we maintained our operational support whilst providing reassurance to customers who were concerned about paying their bills.
South West Water was the first company to launch a COVID-19 Priority Services Register where customers could register that they were in a high-risk, vulnerable group and would need ongoing support or if they were self-isolating for a short period due to potential symptoms in their household. Around 21,000 customers have registered over this period and in the unfortunate event of an operational incident these customers will receive support directly to their property.
Like many companies we have limited our visits to customer properties (unless for a critical incident). Despite this we have continued to deliver our support schemes to those customers who struggle to pay their bills and for those on a social tariff or other support scheme. We have extended the period for renewals and lessened the requirements for applications in the short term to provide greater support to those who need it.
We have also supported our communities, providing a mobile incident support vehicle which is being used as a COVID-19 temporary GP medical consultation room in Cornwall.
Well established support for vulnerable customers
South West Water is leading the industry in providing support for customers in vulnerable circumstances or who struggle to pay their bills, with c.60,000 customers benefiting through our range of support programmes. This includes:
· Social tariff - continued to develop since its introduction in 2013/14 with over 25,500 customers supported through this scheme
· WaterCare+ programme - supporting customers to ensure they are receiving all their eligible benefits (£2.8 million of benefits income realised through this programme since 2015)
· Restart - which incentivises customers into regular payment plans (£5.2 million over K6)
· Freshstart - a dedicated fund which supports customers who find themselves in temporary hardship (£1.0 million contributed into the scheme over K6)
· Dual billing pilot - K7 programme already underway focused on water efficiency and reducing bills.
Our K7 plans continue to focus on this area and we have committed to eliminating water poverty within our regions.
Strong delivery and performance throughout K6 regulatory period
South West Water is committed to delivering outstanding customer service and environmental performance, recognising the substantial role we have within our communities, alongside keeping bills as low as possible.
Customer service improvements over K6
Improving customer service is at the heart of our delivery plans. Since 2015 South West Water has delivered a step change in our SIM score with the highest improvement across the sector[23], ranked third in both the South West and Bournemouth regions and second for the quality of customer service.
Our continued performance improvements since 2015 has seen written complaints more than halve, customer wait times of less than a minute, unwanted contacts reduce c.40%, and complaints to CCW[24] have fallen by almost two thirds. In addition, our positive operational response to customer issues and targeted investment has resulted in 96% of operational contacts resolved the first time a customer contacts us.
Ofwat has ceased publishing comparable SIM score results as it prepares to introduce a new customer experience metric (CMex) in the next regulatory period, and we have been focused on these changes in our delivery plans this year. C-Mex consists of two customer surveys which obtain feedback from those customers who have contacted the company along with a perception survey to a random selection of customers who may not have had any previous interaction with the company.
Excelled and transformed performance in key operational areas
Whilst a small number of ODIs are in penalty in 2019/20, South West Water is forecasting to deliver net ODI rewards again this year of £2.0 million. This brings the total net reward position for K6 to £13.3 million.
· Bathing water quality - c.99% achieving sufficient quality, c.83% excellent
Our legacy of major investment to protect bathing waters continues to be reflected in extremely positive results for the 2019 bathing water season. Of the 151 bathing waters tested in the South West Water region, 149 (c.99%) were classified 'sufficient' or better, with more than c.83% classified as 'excellent'. Neither of the two bathing waters rated as 'poor' were attributed to any failure of South West Water's assets.
· Leakage - targets met every year
The leakage target in the South West region was met again this year and has been met every year since targets began. Bournemouth Water K6 leakage target was exceeded, resulting in an ODI reward this year. We continue to focus on new techniques to deliver the stretching commitments for K7, which target a 15% reduction in leakage by 2025.
· Supply interruptions - maintaining strong performance
Average duration of supply interruptions per property for South West Water continued to outperform the targeted performance commitment in 2019/20, despite a significant interruption caused by a third-party developer. Excluding this impact, interruptions have more than halved over K6. For the Bournemouth region, the number of properties at reduced risk of large-scale interruptions over K6 outperformed the target resulting in an ODI reward for the year.
· Water resources - 23rd consecutive year without water restrictions
Throughout K6 South West Water has achieved zero water restrictions in both regions, again resulting in an ODI reward this year despite the impact of the very dry weather in Summer 2019 placing challenges on specific reservoirs.
· Flooding - wet weather impacted performance
The wet weather in 2019/20, including the extreme storms in February 2020, resulted in an increase in internal sewer flooding incidents which exceeded the target for the year, however no penalty was incurred. Over the K6 period the focus on delivering solutions to reduce flooding has been successful with a 12% reduction in internal and 9% reduction external flooding incidents, which outperformed the target in 2019/20.
· Customer contacts - reduced in both water and wastewater
Our customers want water that is free from taste, smell and colour and to ensure the odours from our wastewater treatments works are kept at a minimum. We monitor the number of contacts we have in both areas and for 2019/20 outperformed our targets recognising a reward in the year. As well as outperforming our target, over K6 water taste, smell and colour contacts have reduced by 44%, with wastewater odour contacts falling by 27%.
Environmental performance - remains a key area of focus
· Pollution incidents - serious pollution incidents reducing
The number of serious pollution incidents (Category 1&2) has reduced with one Category 2 incident in the year (7 incidents in 2015), therefore no penalty has been incurred. Disappointingly the number of minor pollution incidents (Category 3 & 4) has increased compared to last year. In February 2020 South West Water published a consultation on our plans to tackle wastewater pollution incidents with significant focus to improve this performance with stretching targets for the next regulatory period. The metrics have a key impact on the Environment Agency's Environmental Performance Assessment (EPA).
Delivered sector leading outperformance
South West Water has performed consistently well throughout K6 delivering strong operational and financial performance which underpins our sector leading cumulative RORE[25] of 11.8% over K6. We have delivered the highest RORE outperformance in every year.
| 2019/20 | K6 |
Base return | 6.0% | 6.0% |
Totex outperformance | 2.9% | 2.6% |
ODI outperformance | 0.2% | 0.3% |
Financing outperformance | 3.0% | 2.9% |
WaterShare RORE[26] | 12.1% | 11.8% |
Ofwat RORE[27] | 11.9% | 11.7% |
Totex efficiency reducing customer bills
Totex outperformance has achieved cumulative savings of £297 million over 5 years delivering our target of c.£300 million totex savings which is shared with customers, reducing future bills. This represents c.15% outperformance compared to regulatory allowances.
These savings have been delivered across all areas of water, wastewater and retail activities. The key efficiencies have been driven by:
· Managing upward cost pressures across the 5 years, with actual net price rises being below annual average inflation rates again this year
· Reducing customer debt through enhanced collections activities and increasing our affordability schemes (such as social tariffs), with the cost of bad debt now below the level assumed within the K6 Final Determination
· Taking advantages from our strategic alliances, driving efficiency from our procurement processes, and supporting innovation in our capital programme delivery
· Efficiencies from the Bournemouth Water integration, including delivery of key capital schemes in the region, realising c.£27 million of net synergies which were secured early in the integration.
ODIs continue to deliver net reward for K6
Outperformance in ODIs for 2019/20 include those relating to Bournemouth Water where performance (and rewards) were measured at the end of the 5 year period. This has resulted in a net ODI reward of £2.0 million[28] (£13.3 million[29] cumulatively for K6) reflecting RORE outperformance of 0.3% on average over the period through operational improvements, good asset reliability with stable serviceability across all water and wastewater areas and delivering the service customers want. The cumulative net reward of £13.3 million comprises £22.3 million of total rewards and £9.0 million of total penalties.
Financing investment efficiently
South West Water's efficient and effective financing strategy has delivered one of the lowest effective interest rates across the industry consistently over the 5 years. This has resulted in cumulative financing outperformance of £164 million. South West Water's diverse and flexible financing structure has reduced the effective interest rate this year to 3.4% (2018/19 3.5%).
Sharing outperformance between customers and shareholders
South West Water is sharing the benefits of outperformance between customers and shareholders through our unique WaterShare mechanism. Since 2015 £139 million of cumulative benefits have been identified to share with customers through future bill reductions, ODI service improvements and reinvestment in services. This reflects £103 million of totex savings, £13 million of net ODI benefits and £23 million of other benefits (including financing and tax). South West Water was the only company to voluntarily share financing and tax outperformance with customers - an approach which has now been adopted by Ofwat for K7.
The total other savings provide the basis for the c.£20 million[30] WaterShare+ scheme in 2020. This scheme will give customers a choice of how to receive these benefits including a reduction in their bill or the option of receiving Pennon shares.
Looking forward - delivering the fast-track K7 plan
Performance transition to K7 (2020-25)
As we transition to K7 the potential return on regulatory equity (RORE) is impacted by the base returns and the change in approach to K7 outperformance. Base returns (through the allowed cost of equity) have reduced to 3.9% compared with 6.0% during K6. Gearing has also reduced to 60% and the wholesale totex sharing rate has been lowered to 50% for fast-track companies compared to the 55% allowed for South West Water (as an enhanced company) in the last regulatory period. In addition, the cost of debt allowed reduced to a nominal cost of debt of 4.2% from 5.5% in K6, reducing the potential for financing outperformance despite lower expected effective interest rates.
Applying these changes rebased the 11.8% cumulative outperformance delivered during K6 to 9.0%. Overall the Final Determination noted a potential RORE of 8.5% with increased potential and scale for ODIs offset by more challenging cost efficiency allowances resulting in the potential doubling of base returns.
| K6 Average | K7 Rebased | K7 Final Determination |
Base return | 6.0% | 3.9% | 3.9% |
Totex outperformance | 2.6% | | 1.2% |
ODI outperformance | 0.3% | | 2.2% |
Financing outperformance | 2.9% | | 1.2% |
Total Outperformance | 5.8% | 5.1% | 4.6% |
WaterShare RORE | 11.8% | 9.0% | 8.5% |
South West Water is confident that it will deliver outperformance in each area and is targeting delivery in every year, with financing outperformance locked-in through favourable swap rates (c.60 bps lower than K6) and a focus on delivering substantial cost savings alongside increased targeted ODI rewards.
Strong track record of improvements
In February 2020 South West Water accepted the Final Determination for the K7 business plan which targets continued improvements for our customers and the environment alongside a significant investment programme. Whilst the plan includes stretching performance targets we have a strong track record of delivering improvements across the regulatory period. During 2019/20 we made an early start on our investment plans, including targeting areas for ODI delivery and performance.
Isles of Scilly expansion completed
On 1 April South West Water completed the expansion into the Isles of Scilly with assets transferred and operational teams already working well to deliver essential water and wastewater services. A first for the industry, we collaborated with all our regulators and key stakeholders on the islands to ensure a smooth transition and our plans over the next 5 years include significant investment in critical infrastructure and improvements for both customers and the environment.
Significant enhancement programme of investment
Alongside stretching operational targets and maintaining resilient services to our customers our plan includes a significant enhancement programme of investment. Delivering safe, reliable drinking water is a primary focus and development of our two new water treatment works in the Bournemouth region is underway. These works will build on the technology and experience gained from delivering the Mayflower water treatment works in Plymouth which uses innovative ceramic membrane technology to improve the resilience of water quality - a first of its kind in the UK. Work is due to begin on testing a pilot plant at our Alderney site this summer.
Protecting the environment is key to our plans which include improvements to bathing water quality, through investments at 8 sites across the region and our pollutions enhancement strategy is focused of reducing both the number of incidents and the impact, with a target of zero serious pollution incidents.
PENNON WATER SERVICES PERFORMANCE
Underlying | 2019/20 | 2018/19 | Change |
Revenue | £173.5m | £173.7m | (0.1%) |
SWW wholesale elimination | (£106.4m) | (£119.3m) | (10.8%) |
Revenue - external to the Group | £67.1m | £54.4m | +23.3% |
Operating Costs[31] | (£171.6m) | (£172.7m) | +0.6% |
SWW wholesale elimination | £106.4m | £119.3m | +10.8% |
Operating Costs - external to the Group | (£65.2m) | (£53.4m) | (22.1%) |
EBITDA | £1.9m | £1.0m | +90.0% |
Depreciation and amortisation | (£0.7m) | (£0.7m) | - |
Operating profit | £1.2m | £0.3m | +300.0% |
Net interest | (£1.6m) | (£1.9m) | +15.8% |
Loss before tax | (£0.4m) | (£1.6m) | +75.0% |
| | | |
Financial Performance
Pennon Water Services performance has been driven through stable revenues and a focus on reducing operating costs. Revenue has remained stable with a focus on value added services to large national customers and winning dual tariff customers offsetting the attrition from businesses switching retailer, primarily in South West Water's wholesale region. Operating costs have reduced through automation, increased self-service and overhead efficiencies which has resulted in EBITDA almost doubling on last year. Increasing cash collections has reduced the level of debt, further reducing net interest costs. The focus continues to be on improving services whilst driving efficiency to reduce the cost to serve our customers.
High quality business services delivering value and positive environmental impact
High quality customer service in a competitive market
Our customer centred approach has underpinned our focus on excellent service, with our Trustpilot score achieving 9.1 out of 10 during the year. Written complaints are down 41% from the prior year and Pennon Water Services was placed within the top three in the regulatory market performance standards. This strong and resilient performance ensures we are well placed to deliver our long-term strategic objectives once the business market 'normalises' following the impact of COVID-19.
Delivering operating cost efficiencies
Our focus has been on reducing operating costs through investment in our people, processes and technology, increasing the automation of our systems and offering greater self-service to customers. Strong operational delivery focused on increasing cash collections has reduced the bad debt costs to <0.5% of revenue before the impact of COVID-19 (3.0% of revenue post COVID-19).
Further growth and cost efficiencies are targeted through offering added value, non-retail services including support to address private leakage and compliance with environmental standards.
COVID-19 impacting the Non-household retail market
The largest impact of COVID-19 has been on businesses and commercial customers. During lockdown we have seen a decline in non-household demand and numerous customers being identified as temporarily vacant within the market.
Our customer service operations and contact centre have continued to operate effectively through this period and we continue to focus on cash collections, whilst supporting those customers who find themselves in financial difficulty.
We have engaged with our regulators to ensure the regulatory interventions put in place to support the non-household market are appropriate. The liquidity support from the wholesaler provides a safety net for the whole market, however, Pennon Water Services has not required to take advantage of this support to date as a result of our focused operations and collections. The future mechanism to recover any additional risk from bad debt (above 2% of revenue) will ensure retailers can provide additional support to business customers where needed.
VIRIDOR PERFORMANCE - Discontinued Operations
Underlying | 2019/20 | 2018/19 | Change |
Revenue[32] | £757.8m | £852.7m | (11.1%) |
EBITDA | £198.1m | £178.9m | +10.7% |
ERFs | £165.6m | £154.8m | +7.0% |
Landfill | £5.2m | £4.8m | +8.3% |
Landfill Gas | £26.8m | £20.6m | +30.1% |
Recycling | £14.2m | £14.9m | (4.7%) |
Contracts, Collections & Other | £36.0m | £39.0m | (7.7%) |
Indirect Costs | (£49.7m) | (£55.2m) | +10.0% |
Depreciation and Amortisation | (£82.1m) | (£78.0m) | (5.3%) |
Profit Before Tax | £104.6m | £88.5m | +18.2% |
| | | |
Share of JV EBITDA | £41.3m | £31.9m | +29.5% |
IFRIC 12 Interest Receivable | £15.1m | £14.6m | +3.4% |
Adjusted EBITDA | £254.5m | £225.4m | +12.9% |
Revenue
In line with expectations, following the successful exit from the Greater Manchester recycling operating contract at the end of May 2019, and activities to optimise the landfill portfolio last year, Viridor revenues reduced by (11.1%) to £757.8 million (2018/19 £852.7 million). After taking into account overhead savings in relation to the Greater Manchester recycling operating contract exit, these lower revenues had a minimal impact on profits.
EBITDA
In 2019/20, Viridor's EBITDA increased by 10.7% to £198.1 million, underpinned by growth from the ERF business.
The ERF portfolio has performed strongly over the year. Ramp up of operations continue at Glasgow, Beddington and Dunbar, all three having commenced operation towards the end of last year, and Avonmouth generated its first financial contribution[33] this year. It is currently under commissioning and on track for operational ramp up during 2020/21. ERF availability achieved c.90%[34] for the fourth successive year. ERF EBITDA has increased 7.0% to £165.6 million for the year.
Landfill EBITDA has remained consistent with 2018/19 at £5.2 million (2018/19 £4.8 million). Pricing has held up well, with volumes down but in line with expectations following the closure of two sites last year. We continue to operate from eight locations to meet the market demand for the provision of a landfill solution. Cost savings have helped increase the level of EBITDA per tonne above the prior year.
Landfill Gas has performed strongly in the period with EBITDA up 30.1% to £26.8 million (2018/19 £20.6 million). Investment in gas collection infrastructure has improved collection volumes, and investment in engines has improved availability and reliability. These factors have contributed to gas volumes declining at slower rates than previously experienced. Coupled with improved hedged pricing and higher renewable pricing this has resulted in a strong performance for the year.
We have maintained a continued focus on quality through the year in order to ensure continuation of supply, however, recycling performance has been impacted by global recyclate price headwinds in H2 2019/20 in particular, resulting in a 4.7% decrease to £14.2 million for the year (2018/19 £14.9 million). The market for high grade export paper recyclate has effectively closed with product now being sold as mixed grade paper.
Contracts, collections and other has seen a reduction in EBITDA of 7.7% to £36.0 million (2018/19 £39.0 million). This was in line with management expectations following the successful transition of the Manchester contract to Suez at the end of May 2019, and timing of the disposal of surplus assets. The closed landfill site at Norlands was also disposed of in the year. This has been sold to developers for repurposing following the completion of high-quality restoration and remediation.
We have continued our focus on indirect costs, which have fallen to £49.7 million following the exit from the Greater Manchester contract and delivery of further efficiencies. This reduction of £5.5 million represents a 10.0% saving over the same period last year (2018/19 £55.2 million).
Share of JV EBITDA has increased by 30.4% to £41.3 million (2018/19 £31.9 million). This reflects an improved contribution from both Lakeside and TPSCo joint ventures based on strong operational performance in the year, and the increase in contribution from the additional investment in TPSCo in December 2018. We received a £6.0 million dividend from Lakeside during the year.
COVID-19 - Resilient operations in unprecedented times
Viridor is well positioned to manage the impact of COVID-19 through the unprecedented lockdown period. The strong local authority contracted position provides resilience to the underlying business, with strong ERF performance mitigating the volume impact from Commercial & Industrial customers in Collections, Landfill and Recycling.
Operational sites have largely remained open throughout the period. Household Waste Recycling Centres which were closed for a period have now reopened in conjunction with our Local Authority customers.
We are supporting our staff across the business, with a strong emphasis on the heath & wellbeing of our people. Remote working has been facilitated across the business where possible, and guidelines on social distancing are being adhered to at operational sites. We have manged our supply chain to ensure that personal protective equipment has remained available across our operations.
Successful delivery of key priorities for 2019/20
| 2019/20 | 2018/19 |
Total Waste Inputs (MT) | 6.7 | 6.8 |
ERFs | 2.9 | 2.3 |
Landfill | 1.2 | 1.5 |
Recycling and Other | 2.6 | 3.0 |
Recycling Volumes Traded | 1.0 | 1.2 |
ERF availability[35] | 90% | 91% |
This year Viridor has delivered robust operational performance across a complementary portfolio of assets. We are delivering continued progress in our targeted growth areas, with increasing contribution from contract backed infrastructure assets.
Viridor has seen strong growth in energy recovery with the ramp up and optimisation of existing plants being augmented by the first financial contribution from Avonmouth ERF. We are mitigating near term challenges in recyclate markets and we remain confident in the UK residual waste and recycling sector fundamentals. Construction is progressing at the Avonmouth Plastics Processing Facility.
Strong growth from ERF portfolio
For 2019/20 our ERFs have performed strongly with availability c.90%[36] for the fourth consecutive year.
Glasgow, Beddington and Dunbar, which were all taken over towards the end of H2 2018/19, have been progressing through their ramp up stage towards optimisation. The Glasgow Recycling & Renewables Energy Centre (GRREC) is our first ERF to utilise Advanced Conversion Facility (ACF) technology. Unlike our existing ERF fleet this produces a synthetic gas which is then controlled and converted to provide energy. This innovative technology has required the development and adoption of new skill sets to fully optimise the plant.
Avonmouth ERF has now entered the commissioning stage with the facility on track for operational ramp up during 2020/21. This now takes our ERF portfolio to 11 facilities.
The ERF joint venture with Grundon Waste Management at Ford (announced in H1 2019/20) is progressing through project design with our technical advisors. Further ERF capacity is essential to meet longer term demand and Viridor continues to progress a pipeline of opportunities to deliver two further ERFs.
Efficiently managed landfill sites with demand into the long term
Overall landfill volumes have decreased in the year reflecting the closure of Beddington and Rigmuir to active waste in the prior year, in line with management expectations. Heathfield has been reopened and Broadpath closed, as planned, leaving 8 sites in operation.
High quality restoration and remediation of our landfill sites remains the cornerstone of our land stewardship responsibilities. We have disposed of one former site (Norlands) in the year which will now be repurposed for other activities.
Landfill gas has shown a robust operational performance reflecting the benefits from investment undertaken in our generation equipment and infrastructure. Investment in new engines has reduced both maintenance downtime and costs, and improvements to the efficiency of our gas collection systems has improved overall engine output. This has led to electricity volumes declining at a lower rate than experienced in previous years which allied to higher pricing, including the renewable energy value, has resulted in improved performance year on year.
We have continued to invest in our engine optimisation strategy this year installing eleven new engines to enhance future availability and better gas outputs.
Over time the decline in Landfill gas volumes has created surplus grid connection capacity at some sites. We are currently seeking to capitalise on this opportunity by the installation of gas peaking engines.
Recycling - long term fundamentals remain strong despite short term paper headwinds
The construction of our £65 million plastics processing facility at Avonmouth continues to progress. To fill the predicted UK plastics reprocessing capacity gap by 2025 would require the construction of c.14 Avonmouth sized facilities. We continue to progress plans for two further plastic processing plants co-located with Ardley and Dunbar ERFs and have held regional events to engage stakeholders ahead of submitting formal planning applications. Through investment in UK based plastics processing we are reducing exposure to international markets and moving recyclate production higher up the value chain. This reflects our continued focus on quality and driving value from the Circular Economy.
The impact of global paper markets has adversely affected the H2 2019/20 recycling performance. We have seen a fall of c.£50 per tonne in paper pricing, with negative paper pricing on mixed paper and the market for high grade export paper effectively closed. These downside issues have been somewhat mitigated by the risk share mechanisms in place with our customers.
Technical Guidance 2019/20
Pennon Group | 2019/20 | Change |
Revenue | • Impact of lower tariffs based on K7 Final Determination (c.£20m) • Reduced non household demand (c.£15m including impact from customers outside of the South West Water region) partially offset by increased household demand (c.£5m) as a result of COVID-19 • Non-underlying sharing of outperformance with customers through WaterShare+ of c.£20m | £636.7m[37] | ▼ |
Net debt | • Expectation of reduced Pennon company debt levels following Viridor sale completion | £1,122[38] | ▼ |
Tax rate | • Underlying effective tax rate lower than UK headline rate of 19% reflecting capital allowances | 9.7% | ▲ |
South West Water - transition to new regulatory period | 2019/20 | Change |
Operating costs | • Increased costs reflecting inflation, expansion into the Isles of Scilly, net of continued efficiency | £206.1m | ▲ |
Net interest | • Efficient financing reflecting lower interest rate swaps - effective rate reduction | £71.4m | ▼ |
Capex | • Capital expenditure reflects K7 profile of investment - 2019/20 included advancement of investment from 2020/21 | £161.0m | ▼ |
RORE | • Continued outperformance targeted in all areas | 9.0% | (rebased)[39] |
RCV | • Reduction due to impact of K7 Final Determination reflecting midnight adjustments of c.£200m driven by the significant totex outperformance in K6 • Potential impact of COVID-19 on future inflation rates | £3,573m | ▼ |
Pennon Water Services | 2019/20 | Change |
Operating costs | • Reduction in operating costs due to lower wholesale charges due to COVID-19 | £171.6m | ▼ |
EBITDA | • Focus on continued cost efficiency with strong collections offsetting potential bad debt impact of COVID-19 | £1.9m | |
Viridor - completion of transaction expected early summer | 2019/20 | Change |
Profit after tax | • Continues to contribute to Group earnings up until the point of completion | £83.8m | ▼ |
COVID-19 assumptions are based on Government current position and timeframe of lockdown, successful exist of lockdown and no second wave of the pandemic supporting a recovery in economic activity over the year.
Board Matters
We were pleased to welcome Claire Ighodaro to the Board in September 2019. Claire's extensive range of Boardroom experience and her background in finance, across both regulated and non-regulated industries, is a great asset to the Group and complements the broad range of skills on the current Board. We ensure that our Board has a broad skill set and deep experience.
Sadly, we will say our farewells to both Lord Matthew Taylor and Martin Hagen who have both served on the Board of South West Water for some 10 years in order to provide continuity through to the K7 regulatory period. Both have rendered exemplary service to the South West Water Board and deserve our heartfelt thanks.
Chris Loughlin
Group Chief Executive Officer
4 June 2020
Financial Timetable
4 June 2020 | Full Year Results 2019/20 |
June 2020 | Annual Report & Accounts published |
Early summer | Expected completion of Viridor sale |
23 July 2020 | Ordinary shares quoted ex-dividend |
24 July 2020 | Record date for final dividend |
31 July 2020[40] | Annual General Meeting |
10 August 2020* | Final date for receipt of DRIP applications |
2 September 2020* | Final dividend paid |
25 September 2020 | Trading Statement |
24 November 2020 | Half Year Results 2020/21 |
30 March 2021 | Trading Statement |
25 May 2021 | Full Year Results 2020/21 |
* Subject to obtaining shareholder approval at the 2020 Annual General Meeting.
PRINCIPAL RISKS AND UNCERTAINTIES
COVID-19
The Board recognise the significant impact that COVID-19 has had globally and within the UK. In response to the current situation the UK Government has designated keyworker status to our front line operational water and waste activities.
In order to continue delivering the expected levels of service to our stakeholders we have reviewed our processes and ways of working and drawn on our resilience and continuity plans, while continuing to prioritise the health, safety and wellbeing of our employees and customers which remains paramount during this period. We also continue to work closely with our key stakeholders and peers including local resilience forums, Water UK, Ofwat and Defra ensuring a joined up and collaborative response. Both the Pennon Executive and the Pennon Board continue to receive regular updates on the Group's response.
To date, our business has remained broadly resilient to the immediate risks that have been presented by COVID-19. It is likely, however, that there will be ongoing restrictions in place during 2020/21, which could provide continued challenges to the delivery of our key operational activities.
Medium-term response planning has been undertaken to establish strategies to mitigate these risks where possible, which has considered a range of potential scenarios and been informed by actions taken by other countries impacted by the pandemic. These plans will continue to be reviewed and updated as further Government and public health guidance is provided.
Britain's Exit from the European Union
Prior to Britain's exit from the EU detailed contingency plans had been established and tested to mitigate against potential issues that may have occurred in the event of a no-deal scenario. Negotiations on a future trading agreement between Britain and the EU is ongoing and
continues to be closely monitored.
The impact of any agreement on the Group's operations and processes will be fully evaluated as further detail is confirmed. In the event that no agreement is reached, and trade arrangements revert to World Trade Organization (WTO) rules, existing contingency plans will ensure that the Group is well prepared to mitigate against any short-term impact that is likely to arise from this scenario.
Principal Risks
The Board considers the principal risks to be:
Law, Regulation and Finance
1. Changes in Government Policy
2. Regulatory reform
3. Compliance with laws and regulations
4. Maintaining sufficient finance and funding within our debt covenant to meet ongoing commitments
5. Non-compliance or occurrence of avoidable health and safety incidents
6. Tax compliance and contribution
7. Failure to pay all pension obligations as they fall due & increased costs to the Group should the defined benefit pension scheme deficit increase
Market and Economic Conditions
8. Non-recovery of customer debt
9. Macro-economic risks arising from the downturn impacting inflation commodity and power prices
Operating Performance
10. Poor operating performance due to extreme weather or climate change
11. Poor service and/or increased competition leading to loss of customer base
12. Business interruption or significant operational failures/ incidents
13. Difficulty in recruitment, retention and development of skills required to deliver the Group's strategy
14. Non-delivery of Regulatory Outcomes and performance commitments
Business Systems and Capital Investment
15. Failure or increased cost of capital projects and/or exposure to contract failures
16. Failure of IT systems, management and protection including cyber risks
CAUTIONARY STATEMENT IN RESPECT OF FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements relating to the Pennon Group's operations, performance and financial position based on current expectations of, and assumptions and forecasts made by, Pennon Group management which may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified in this Report by words such as "anticipate", "aim", "believe", "continue", "could", "due", "estimate", "expect", "forecast", "goal", "intend", "may", "outlook", "plan", "probably", "project", "remain", "seek", "should", "target", "will", "would" and related and similar expressions, as well as statements in the future tense. All statements other than of historical fact may be forward-looking statements and represent the Group's belief regarding future events, many of which, by their nature, are inherently uncertain and outside the Group's control. Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation, development or performance of the Group and the estimates and historical results given herein. Important risks, uncertainties and other factors that could cause actual results, performance or achievements of Pennon Group to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things, changes in Government policy; regulatory and legal reform; compliance with laws and regulations; maintaining sufficient finance and funding to meet ongoing commitments; non-compliance or occurrence of avoidable health and safety incidents; tax compliance and contribution; failure to pay all pension obligations as they fall due and increased costs to the Group should the defined benefit pension scheme deficit increase; non-recovery of customer debt; poor operating performance due to extreme weather or climate change; macro-economic risks impacting commodity and power prices and other matters; poor customer service and/or increased competition leading to loss of customer base; business interruption or significant operational failure/incidents; difficulty in recruitment, retention and development of skills; non-delivery of regulatory outcomes and performance commitments; failure or increased cost of capital projects/exposure to contract failures; failure of information technology systems, management and protection, including cyber risks. These risks will be described in greater detail in the Pennon Group Annual Report to be published in June 2020. Such forward looking statements should therefore be construed in light of all risks, uncertainties and other factors, including without limitation those identified above, and undue reliance should not be placed on them. Nothing in this report should be construed as a profit forecast.
Any forward-looking statements are made only as of the date of this document and no representation, assurance, guarantee or warranty is given in relation to them including as to their accuracy, completeness, or the basis on which they are made. The Group accepts no obligation to revise or update publicly these forward-looking statements or adjust them as a result of new information or for future events or developments, except to the extent legally required.
UNSOLICITED COMMUNICATIONS WITH SHAREHOLDERS
A number of companies, including Pennon Group plc, continue to be aware that their shareholders have received unsolicited telephone calls or correspondence concerning investment matters which imply a connection to the company concerned. If shareholders have any concerns about any contact they have received then please refer to the Financial Conduct Authority's website www.fca.org.uk/scamsmart. Details of any share dealing facilities that the Company endorses will be included in Company mailings.
PENNON GROUP PLC |
|
Consolidated income statement for the year ended 31 March 2020 |
| |
| |
| Notes | Statutory 2020 £m | Discontinued operations (note 16) 2020 £m | Pro Forma Total1 2020 £m | Statutory 2019 (Restated2) £m | Discontinued operations (note 16) 2019 (Restated2) £m | Pro Forma Total 20191 £m | |
Revenue | 4 | 636.7 | 753.2 | 1,389.9 | 632.6 | 845.6 | 1,478.2 | |
Operating costs | | | | | | | | |
Employment costs | | (70.0) | (130.4) | (200.4) | (67.2) | (138.6) | (205.8) | |
Raw materials and consumables used | | (14.9) | (87.2) | (102.1) | (15.0) | (94.3) | (109.3) | |
Other operating expenses | | (186.5) | (337.5) | (524.0) | (183.1) | (433.8) | (616.9) | |
Underlying Earnings before interest, tax, depreciation and amortisation | 4 | 365.3 | 198.1 | 563.4 | 367.3 | 178.9 | 546.2 | |
Operating non-underlying items | 5 | (7.9) | 3.8 | (4.1) | 3.9 | (29.6) | (25.7) | |
Depreciation and amortisation | | (119.8) | (82.1) | (201.9) | (117.2) | (78.0) | (195.2) | |
Operating profit | | 237.6 | 119.8 | 357.4 | 254.0 | 71.3 | 325.3 | |
Finance income | 6 | 4.1 | 22.5 | 26.6 | 3.5 | 20.0 | 23.5 | |
Finance costs: Underlying | 6 | (66.6) | (48.7) | (115.3) | (61.9) | (44.8) | (106.7) | |
Finance costs: Non-underlying | 5 | 18.0 | - | 18.0 | 5.8 | - | 5.8 | |
Finance costs | | (48.6) | (48.7) | (97.3) | (56.1) | (44.8) | (100.9) | |
Net finance costs | 6 | (44.5) | (26.2) | (70.7) | (52.6) | (24.8) | (77.4) | |
Share of post-tax profit from joint ventures | | - | 14.8 | 14.8 | - | 12.4 | 12.4 | |
| | | | | | | | |
Underlying profit before tax | | 183.0 | 104.6 | 287.6 | 191.7 | 88.5 | 280.2 | |
Non-underlying operating and finance costs | 5 | 10.1 | 3.8 | 13.9 | 9.7 | (29.6) | (19.9) | |
Profit before tax | 4 | 193.1 | 108.4 | 301.5 | 201.4 | 58.9 | 260.3 | |
Taxation (charge)/credit | 7 | (70.6) | (24.6) | (95.2) | (32.8) | (4.9) | (37.7) | |
| | | 83.8 | 206.3 | | 54.0 | 222.6 | |
Profit from continuing operations | | 122.5 | | | 168.6 | | | |
Profit from discontinued operations | 16 | 83.8 | | | 54.0 | | | |
Profit for the year | | 206.3 | | | 222.6 | | | |
Attributable to: | | | | | | | | |
Ordinary shareholders of the parent | | 200.4 | | | 214.3 | | | |
Non-controlling interests | | (1.1) | | | (0.3) | | | |
Perpetual capital security holders | | 7.0 | | | 8.6 | | | |
Earnings per ordinary share (pence per share) | 8 | | | | | | | |
From Continuing operations | | | | | | | | |
- Basic | | 27.7 | | | 38.2 | | | |
- Diluted | | 27.6 | | | 38.1 | | | |
From Continuing and discontinued operations | | | | | | | | |
- Basic | | 47.7 | | | 51.1 | | | |
- Diluted | | 47.5 | | | 50.9 | | | |
| | | | | | | | | | |
1 Pro forma results represent non-GAAP measures presented to provide sufficient detail to enable certain users of the financial statements to assess the combined results of the continuing and discontinued operations of the Group during the current and prior financial years.
2 The prior year income statement has been restated to reflect the impact of classifying our waste management activities provided by Viridor as a discontinued operation (see note 16).
Consolidated statement of comprehensive income
For the year ended 31 March 2020
| | 2020 £m | 2019 £m |
Profit for the year | | 206.3 | 222.6 |
Other comprehensive income/(loss) | | | |
Items that will not be reclassified to profit or loss | | | |
Remeasurement of defined benefit obligations | | 17.7 | (17.2) |
Income tax on items that will not be reclassified | | 0.1 | 3.2 |
Total items that will not be reclassified to profit or loss | | 17.8 | (14.0) |
Items that may be reclassified subsequently to profit or loss | | | |
Share of other comprehensive income from joint ventures | | 0.2 | 0.5 |
Cash flow hedges | | (14.3) | (6.4) |
Income tax on items that may be reclassified | | 3.1 | 0.6 |
Total items that may be reclassified subsequently to profit or loss | | (11.0) | (5.3) |
Other comprehensive income/(loss) for the year net of tax | | | |
net of tax | | 6.8 | (19.3) |
Total comprehensive income for the year | | 213.1 | 203.3 |
Total comprehensive income attributable to: | | | |
Ordinary shareholders of the parent | | 207.2 | 195.0 |
Non-controlling interests | | (1.1) | (0.3) |
Perpetual capital security holders | | 7.0 | 8.6 |
Balance sheets
At 31 March 2020
| | | | 2020 | 2019 |
| | Notes | | £m | £m |
ASSETS | | | | | |
Non-current assets | | | | | |
Goodwill | | | | 42.3 | 385.0 |
Other intangible assets | | | | 1.2 | 92.1 |
Property, plant and equipment | | | | 3,171.8 | 4,509.4 |
Other non-current assets | | | | - | 256.4 |
Derivative financial instruments | | | | 4.1 | 70.5 |
Investments in joint ventures | | | | - | 51.1 |
Retirement benefit obligations | | | | 6.6 | - |
| | | | 3,226.0 | 5,364.5 |
| | | | | |
Current assets | | | | | |
Inventories | | | | 4.9 | 28.8 |
Trade and other receivables | | | | 185.8 | 484.8 |
Current tax receivable | | | | 1.9 | - |
Derivative financial instruments | | | | 2.7 | 11.8 |
Cash and cash deposits | | 13 | | 665.9 | 569.6 |
| | | | 861.2 | 1,095.0 |
Assets held for sale | | 16 | | 2,675.3 | - |
| | | | 3,536.5 | 1,095.0 |
LIABILITIES | | | | | |
Current liabilities | | | | | |
Borrowings | | 13 | | (59.9) | (150.4) |
Financial liabilities at fair value through profit | | | (1.5) | (3.8) |
Derivative financial instruments | | | | (7.1) | (11.1) |
Trade and other payables | | | | (115.3) | (298.0) |
Current tax liabilities | | | | - | (19.1) |
Provisions | | | | (0.6) | (28.7) |
| | | | (184.4) | (511.1) |
Liabilities directly associated with assets classified as held for sale | | | (756.3) | - |
Net current assets | | | | 2,595.8 | 583.9 |
| | | | | |
Non-current liabilities | | | | | |
Borrowings | | 13 | | (3,654.9) | (3,498.7) |
Other non-current liabilities | | | | (122.9) | (147.9) |
Financial liabilities at fair value through profit | | | (43.1) | (43.1) |
Derivative financial instruments | | | | (27.2) | (9.9) |
Retirement benefit obligations | | | | - | (60.8) |
Deferred tax liabilities | | | | (261.6) | (305.1) |
Provisions | | | | - | (203.1) |
| | | | (4,109.7) | (4,268.6) |
| | | | | |
Net assets | | | | 1,712.1 | 1,679.8 |
Shareholders' Equity | | | | | |
Share Capital | | 10 | | 171.3 | 171.1 |
Share premium account | | | | 227.0 | 223.6 |
Capital redemption reserve | | | | 144.2 | 144.2 |
Retained earnings and other reserves | | | 872.8 | 843.0 |
Total shareholders' equity | | | | 1,415.3 | 1,381.9 |
Non-controlling interests | | | | 0.1 | 1.2 |
Perpetual capital securities | | 11 | | 296.7 | 296.7 |
Total equity | | | | 1,712.1 | 1,679.8 |