Final Results
Pennon Group PLC
31 May 2001
PENNON GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2001
Pennon Group announces its unaudited results for the year ended 31 March
2001
FINANCIAL RESULTS
- Impact of one-off price reduction for South West Water - £32.6m
- Turnover down 7% to £435m
- Group operating profit down 23% to £128m
- Profit before tax down 37% to £76m*
- Earnings per share down 35% to 56.0p*
- Dividend
- recommended final dividend down 24.7% (as forecast last
year) to 24.4p
- full year dividend down 24.7% (as forecast last year) to 36.0p
- progressive dividend policy going forward
* before exceptional business disposal loss of £2.1m in 2000/01.
OPERATIONAL HIGHLIGHTS
- South West Water confident of out-performing the regulatory contract to
2005.
- South West Water continuing to improve efficiency whilst delivering
highest ever levels of compliance.
- Substantial improvement in profitability achieved in Viridor
Instrumentation.
STRATEGIC INITIATIVES
As a result of the strategic review undertaken by the Board, it has been
decided that:
- The current structure for South West Water will
be retained, as the extensive range of
potential options which have been explored in
detail would not generate additional value.
- Viridor will concentrate on creating value from
its waste management business.
- Viridor Construction would be sold (the sale
was completed by December 2000).
- Steps are being taken to seek to dispose of
Viridor Instrumentation with the intention of
returning value to shareholders.
- Corporate overheads will be reduced.
- Efforts will continue to restructure the
balance sheet to become more efficient.
Chairman, Ken Harvey said: 'The results reflect the impact of the one-off
price reductions imposed on South West Water, by the Director General of
Water Services. South West Water has responded to the challenges posed by
the Periodic Review and is confident of achieving out-performance. At the
same time, the highest ever levels of performance have been delivered in
customer service and compliance levels.
Having explored an extensive range of potential options, the Board has
concluded that the current structure of South West Water will be retained.
Efforts will continue to restructure the balance sheet to become more
efficient.
Viridor will focus on waste management with the objective of creating full
value. Steps are being taken to seek to dispose of Viridor Instrumentation
with the intention of returning value to shareholders.'
For further information on 31 May 2001, please contact:
Ken Harvey Chairman )
Ken Hill Group Director of Finance ) 020 7831 3113
Jo Finely Investor Relations Manager )
Andrew Dowler Financial Dynamics )
Stephen Swain Communications Manager 01392 443022
GROUP OVERVIEW
Group turnover reduced by 6.8% to £435.1m, reflecting principally the
impact of the one-off price reduction of 12.2% imposed on South West Water
by the Director General of Water Services. As a result, South West Water's
turnover reduced by £30.0m to £250.2m. Turnover in Viridor and other Group
businesses fell by £1.9m to £184.9m, reflecting the disposal of the Viridor
Contracting business which was completed by December 2000. Turnover for
Viridor Waste rose by £5.5m to £106.1m and turnover for Viridor
Instrumentation rose by £5.3m to £54.9m.
Group operating profit reduced by £39.0m to £128.1m, principally as a
result of the South West Water price determination. The operating profit
for Viridor rose by £1.0m to £20.8m.
Group profit before tax, and before the business disposal loss of £2.1m,
reduced by £45.3m to £76.3m incorporating the price reductions for South
West Water and the funding of the capital programme.
Earnings per share fell, as a consequence of the reduction in profit, by
34.7% to 56.0p (before the exceptional item), notwithstanding a lower tax
charge (2001 - nil; 2000 - £5.0m).
Capital expenditure for the Group rose to £166.5m (2000 - £153.8m),
comprising £154.4m for South West Water and £12.1m for Viridor and other
Group activities (2000 - £133.6m and
£20.2m respectively).
There were no acquisitions undertaken during the period, but £0.9m Plc loan
stock was issued in connection with contingent consideration aspects
associated with an earlier acquisition.
Net debt for the Group was £718m, an increase of £51m on 1 April 2000.
Gearing, being net borrowings to shareholders funds, was 73% at 31 March
2001 (71% at 31 March 2000). Interest cover was 2.5 times (2000 - 3.7
times). During the five year period to 2005, the Group expects to have to
raise new and replacement funding of around £500m. Of this, £170m of
finance leasing and £100m of European Investment Bank funding facilities
were finalised during the year at an all in cost of more than 100 basis
points below the allowed Ofwat cost of capital.
As foreshadowed in the Interim Results announcement on 9 December 1999, the
Board has rebased the level of dividend, recommending a final dividend of
24.4p, subject to shareholder approval. The final dividend will be paid on
1 October 2001 to shareholders on the register on 24 August 2001. Together
with the interim dividend of 11.6p, this will result in a total dividend
for the year of 36.0p, representing a reduction of 24.7% on the total
dividend for 2000. In the absence of unforeseen circumstances, the Board
intends to pursue a progressive dividend policy for the immediate future.
The total cost of the dividend for 2001 is £49.4m. As in previous years,
shareholders will be given the opportunity to participate in a Dividend
Reinvestment Plan, details of which will be circulated with the Annual
Report.
UTILITY OPERATIONS - SOUTH WEST WATER LIMITED (SWW)
Turnover for SWW reduced by £30.0m to £251.4m, reflecting the one-off price
reduction.
The number of customers who opted during the year to change to a measured
basis of charge was 27,500, producing an adverse impact of £4.7m. The
company expects to apply in September 2001 to the Director General for an
Interim Price Determination.
There were 6,800 new customers during the year. Demand for water from
existing metered customers reduced by 0.8%.
Operating costs, before depreciation charges, increased by £1.2m to £92.7m,
incorporating further efficiency savings of £5.8m. Cumulatively, the
company has generated efficiency savings of £33.4m since 1995, and is
confident of out-performing the Director General's efficiency targets for
the period 2000-2005.
Operating profit for SWW reduced by £39.5m to £107.3m, encompassing the
turnover and operating costs changes.
Capital expenditure was £154.4m (2000 - £133.6m). The company's 'Clean
Sweep' coastal sewage treatment improvement initiative is now substantially
complete. This covers 38 major schemes and many more minor schemes
throughout the region and, together with a significant number of
improvements to inland sewage treatment works, has resulted in major
improvements in sewage treatment, with consequent benefits to the
environment. The programme has been undertaken at a cost below budget and
earlier than anticipated in a number of locations. This investment has
contributed to the best ever bathing water compliance levels in the South
West.
Compliance levels for water supplies and waste water treatment are at an
all time high.
The 12 month rolling average for water leakage at March 2001 was in line
with the prescribed target of 84.0 megalitres. The company continues to be
regarded as one of the industry leaders in managing leakage levels.
Substantial improvements in the standards of service provided to customers
and in the formal Level of Service Indicators prescribed by the Director
General have been achieved.
The company achieved the prestigious Charter Mark status during the year
and was also awarded Investors in People recognition.
NON-REGULATED ACTIVITIES
(COVERING VIRIDOR AND OTHER GROUP BUSINESSES)
Turnover of Viridor and other non-regulated Group businesses was £209.9m
(2000 - £213.7m). Operating profit was £20.8m (2000 - £20.3m).
Turnover of continuing businesses for Viridor was £166.7m (2000 £150.9m)
delivering operating profit of £20.3m (2000 £18.2m). The discontinued
business turnover was £37.1m (2000 £56.0m) and operating profit was £0.5m
(2000 £1.6m).
WASTE MANAGEMENT
Turnover for Viridor Waste was £106.1m (2000 - £100.6m). Included in
turnover was landfill tax of £31.9m (2000 - £29.7m).
Operating profit was £13.1m (2000 - £15.2m). Operating margins (excluding
the impact of landfill tax) were 17.7% (2000 - 21.4%). The business has
experienced difficult trading conditions in some areas and an unprecedented
level of leachate from the wet weather, causing operating costs to rise.
Total landfill volumes were unchanged at 3 million tonnes. Overall, the
price per tonne rose by 4%. Power generating capacity rose by 3.5MW to
28.0MW.
The business continues to be well placed to take advantage of the projected
shortage of landfill capacity in key parts of the UK, having 71m cubic
metres of consented void space and 53m cubic metres of unconsented void.
Prospects are encouraging as a result of enhanced marketing, new contract
wins and continued focus on margins.
INSTRUMENTATION
Turnover for Viridor Instrumentation rose by 10.7% to £54.9m (2000 -
£49.6m).
Operating profit rose to £4.8m (2000 - £2.9m), both figures after charging
goodwill amortisation for Orbisphere, an acquisition completed in December
1998. Operating margins, before charging goodwill, rose to 11.1% (2000 -
8.3%).
Viridor Instrumentation has seen improved performance across all its
businesses, particularly from Orbisphere. GLI continues to perform well.
CONSTRUCTION
As foreshadowed at the Interim Results in November 2000, the sale of
Viridor Construction was completed by December 2000. The disposal resulted
in a loss of £2.1m, which is included in the Preliminary Results as an
exceptional item. During the period to disposal, a profit of £0.5m was
made, compared to a profit of £1.6m in the previous full year.
TAXATION
The benefit of the Group's advance corporation tax utilisation strategy and
initiatives in relation to overseas taxation has resulted in no tax charge
arising in 2001 (2000 - £5.0m).
STRATEGY & PROSPECTS
The Board has concluded that, having explored an extensive range of
potential options, the current structure of South West Water will be
retained. These options have covered the ownership and operation of the
assets and the potential use of the customer base. None of these offered an
increase in shareholder value, compared with the current structure. Efforts
will continue to restructure the balance sheet to become more efficient.
With the imposition of the Windfall Tax in 1997 & 1998 and the major water
and sewerage price reduction imposed by Ofwat from April 2000, the Group
cannot provide sufficient financial resources to continue to grow its
Viridor businesses to the extent previously anticipated. Viridor will
therefore focus on the waste management business, with the aim of creating
full value from that business. The sale of Viridor Construction was
successfully completed by December 2000. Steps are being taken to seek to
dispose of Viridor Instrumentation, with the intention of returning value
to shareholders.
In addition, corporate overheads will be reduced.
Ken Harvey
Chairman
31 May 2001
PENNON GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 March 2001
2001 2000
(Unaudited) Restated
(note 2)
Note £m £m
Turnover
Continuing operations 412.1 427.6
Discontinued operation 2 23.0 39.4
Total turnover 435.1 467.0
Operating costs (307.0) (299.9)
Group operating profit
Continuing operations 127.6 165.5
Discontinued operation 2 0.5 1.6
Total Group operating profit 128.1 167.1
Share of operating loss in associate (0.4) (0.4)
Total operating profit 127.7 166.7
Loss on disposal of discontinued operation 2 (2.1) -
Net interest payable (51.4) (45.1)
Profit on ordinary activities before taxation 74.2 121.6
Tax on profit on ordinary activities 3 - (5.0)
Profit on ordinary activities after taxation 74.2 116.6
Dividends 4 (49.4) (65.1)
Retained profit transferred to reserves 24.8 51.5
Basic earnings per share 5
Before exceptional item 56.0p 85.8p
After exceptional item 54.4p 85.8p
Dividend per share 4 36.0p 47.8p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 March 2001
2001 2000
(Unaudited)
£m £m
Profit on ordinary activities after taxation 74.2 116.6
Currency retranslation differences on foreign 0.2 (1.1)
currency net investments
Total gains and losses recognised for the year 74.4 115.5
PENNON GROUP PLC
SUMMARISED GROUP BALANCE SHEET
as at 31 March 2001
2001 2000
(Unaudited)
£m £m
Fixed assets
Intangible assets 24.7 23.3
Tangible assets 1,798.5 1,711.2
Investments 3.1 2.1
1,826.3 1,736.6
Current assets
Stocks 13.9 15.1
Debtors 89.3 108.5
Investments and cash 65.1 39.3
168.3 162.9
Creditors : amounts falling due within one year (217.3) (217.5)
Net current liabilities (49.0) (54.6)
Total assets less current liabilities 1,777.3 1,682.0
Creditors : amounts falling due after more than one (727.9) (664.5)
year
Provisions for liabilities and charges (22.8) (24.3)
Deferred income (49.0) (49.9)
Net assets 977.6 943.3
Capital and reserves
Called-up share capital 136.9 136.3
Share premium account 151.3 148.6
Profit and loss account 689.4 658.4
Shareholders' funds 977.6 943.3
PENNON GROUP PLC
GROUP CASH FLOW STATEMENT
for the year ended 31 March 2001
2001 2000
(Unaudited)
£m £m
Cash inflow from operating activities 205.0 216.3
Returns on investments and servicing of finance (39.9) (10.1)
Taxation (0.3) (15.9)
Capital expenditure and financial investment (153.2) (140.6)
Acquisitions and disposals 12.0 0.5
Equity dividends paid (65.3) (48.7)
Cash (outflow)/inflow before use of liquid (41.7) 1.5
resources and financing
Management of liquid resources (25.2) 20.8
Financing 65.6 (27.4)
Decrease in cash in year (1.3) (5.1)
PENNON GROUP PLC
SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
for the year ended 31 March 2001
2001 2000
(Unaudited)
£m £m
Turnover
Water and sewerage business 251.4 281.4
Less : intra-group trading (1.2) (1.2)
250.2 280.2
Non-regulated businesses :
Viridor businesses :
Waste management 106.1 100.6
Instrumentation 54.9 49.6
Construction services (discontinued operation) 37.1 56.0
Property and other 5.7 0.7
Total Viridor 203.8 206.9
Other non-regulated businesses 6.1 6.8
Less : intra-group trading (£) (25.0) (26.9)
Total non-regulated 184.9 186.8
Group total 435.1 467.0
Group operating profit
Water and sewerage business 107.3 146.8
Non-regulated businesses :
Viridor businesses :
Waste management 13.1 15.2
Instrumentation 4.8 2.9
Construction services (discontinued operation) 0.5 1.6
Property and other 2.4 0.1
Total Viridor 20.8 19.8
Other non-regulated businesses - 0.5
Total non-regulated 20.8 20.3
Group total 128.1 167.1
Profit on ordinary activities before taxation
Water and sewerage business 67.0 108.0
Non-regulated businesses :
Viridor businesses :
Waste management 11.7 14.0
Instrumentation 4.9 2.9
Construction services (discontinued operation) 0.4 1.4
Property and other 2.5 0.2
Total Viridor 19.5 18.5
Other non-regulated businesses * (10.2) (4.9)
Before exceptional item 9.3 13.6
Exceptional item (2.1) -
Total non-regulated 7.2 13.6
Group total 74.2 121.6
* Includes parent company financing of the acquisition of non-regulated
businesses.
(£) Includes £14.1 million in respect of the discontinued operation (2000
£16.6 million).
PENNON GROUP PLC
NOTES
1. The financial information for the years ended 31 March
2000 and 31 March 2001 does not constitute full
financial statements within the meaning of section 240
of the Companies Act 1985. The full financial statements
for the year ended 31 March 2000 have been delivered to
the Registrar of Companies. The auditors' report on
those financial statements was unqualified and did not
contain a statement under section 237 (2) or (3) of the
Companies Act 1985.
2. On 15 December 2000 the Group disposed of its interest
in the ordinary share capital of T J Brent Limited,
having previously sold the Copa Products division of
that company on 21 November 2000. The results of T J
Brent Limited, and its Copa Products division, up to the
respective disposal dates and the comparatives for the
year ended 31 March 2000 are shown under discontinued
operations. The loss on disposal of the discontinued
operation relates to the disposal of that business
segment and is after charging £6.6 million of goodwill
previously written off to reserves on acquisition.
3. The taxation charge comprises :
Year ended 31 March : 2001 2000
£m £m
United Kingdom taxation :
Prior year corporation tax at 30% - 14.8
Utilisation of previous years' advance corporation tax - (10.5)
Overseas taxation - 0.7
- 5.0
4. If approved at the Annual General Meeting on 26 July 2001 the final
dividend of 24.4p per share will be paid on 1 October 2001 to
shareholders on the register at 24 August 2001.
5. The calculation of basic earnings per share is based on the profit on
ordinary activities after taxation divided by the weighted average
number of ordinary shares in issue during the year of 136.3 million
(2000 135.9 million) as follows :
Profit after tax Basic earnings per share
Year ended 31 March : 2001 2000 2001 2000
£m £m
Before exceptional 76.3 116.6 56.0p 85.8p
item
Exceptional item (2.1) - (1.6p) -
After exceptional item 74.2 116.6 54.4p 85.8p
The exceptional item in 2001 is the loss on disposal of the discontinued
operation.
Earnings per share on a diluted basis are 55.9p (2000 85.4p), and after the
exceptional item 54.3p (2000 85.4p).
6. Reconciliation of Group operating profit to net cash inflow from
operating activities for the year ended 31 March 2001 :
2001 2000
(unaudited)
£m £m
Group operating profit 128.1 167.1
Depreciation charge 70.4 60.9
Amortisation of intangible assets 1.4 1.2
Fixed asset impairments 0.1 1.1
Deferred income released to profits (1.2) (1.2)
Decrease in provisions for liabilities and charges (2.1) (4.0)
(Increase)/decrease in stocks (0.3) 0.1
Decrease/(increase) in debtors (amounts falling due 8.7 (8.6)
within and over one year)
Increase in creditors (amounts falling due within and 0.6 0.4
over one year)
Profit on disposal of tangible fixed assets (0.7) (0.7)
Net cash inflow from operating activities 205.0 216.3
The discontinued operation did not contribute materially to the Group's
cash flow in the current or prior year.
7. Analysis of net debt
At Cash Acquisitions Non- At
1 April flow & disposals cash 31 March
2000 (excl cash) movements 2001
(unaudited)
£m £m £m £m £m
Cash at bank 3.8 (0.4) - 0.3 3.7
and in hand
Current
asset
investments :
Overnight 0.1 0.5 - - 0.6
deposits
Bank (2.4) (1.4) - (0.1) (3.9)
overdrafts
1.5 (1.3) - 0.2 0.4
Debt due
within one
year
(other than (30.0) 14.5 (0.9) (22.1) (38.5)
bank
overdrafts)
Debt due
after more
than
one year (344.2) 3.3 - 18.8 (322.1)
Finance (329.5) (80.7) 0.9 (9.3) (418.6)
lease
obligations
(703.7) (62.9) - (12.6) (779.2)
Current
asset
investments :
Other than
overnight
deposits 35.4 25.2 - 0.2 60.8
Net debt (666.8) (39.0) - (12.2) (718.0)
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 lease
obligations, and retranslation of foreign currency debt.
8. The Annual Report for 2000/01 will be issued to shareholders on 28 June
2001.
Pennon Group Plc
Registered Office
Peninsula House
Rydon Lane
Exeter
Devon EX2 7HR
Registered in England No 236664
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