Final Results
Pennon Group PLC
31 May 2007
PENNON GROUP PLC 31 May 2007
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007
Pennon Group announces its unaudited results for the year ended 31 March 2007.
A presentation for City audiences will be held today, 31 May 2007, at 11:30 at The
Great Eastern Hotel, Liverpool Street, London, EC2.
FINANCIAL HIGHLIGHTS
• Operating profit (1) up 14.2% to £201.8m.
- South West Water up 10.8% to £156.8m.
- Viridor up 30.4% to £46.8m.
• Profit before tax (2) up 18.2% to £131.1m.
• Earnings per share up 20.2% to 30.3p. (3)
• Dividend
- Recommended final dividend per share up 8.5% to 12.7p.
- Full year dividend up 7.8% to 18.55p.
- Dividend policy of 3% per annum real increases until 2009/10.
• 3 for 1 stock split took place July 2006.
(1) Before amortisation of intangibles, and exceptional items in 2005/06
(2) Before exceptional items in 2005/06
(3) Before deferred tax, and exceptional items in 2005/06. Basic earnings
per share are 26.5p (2005/06 - 9.9p)
OPERATIONAL HIGHLIGHTS
• South West Water :
- On target to deliver 2005 - 2010 Regulatory Contract.
- Profit increase reflecting strong growth in Regulatory Capital
Value 2005 - 2010.
- South West bathing waters 100% compliant with EU mandatory
standards (all 144 beaches for the first time).
- Tenth consecutive year without hosepipe bans and drought orders.
- Drinking water quality sustained at all time high as direct result
of mains rehabilitation.
- Capital investment of £184.0m, 117% of operating profit.
- All major projects delivered in line with Regulators'
expectations.
- Preparing for PR09.
• Viridor :
- Particularly strong growth in operating profits.
- Preferred bidder (consortium with John Laing) status achieved for
the Greater Manchester Waste Disposal Authority PFI contract.
- Wyvern Waste Services Limited acquisition fully integrated and
earnings enhancing in its first ten months.
• Long-term waste management PPP contract secured with
Somerset County Council.
- Skipaway Holdings Limited acquired in February for £14.7m.
- Lakeside (joint venture with Grundon) energy from waste plant under
construction and on schedule to open in 2008.
The Chairman, Ken Harvey, said, 'I am delighted to report an excellent year for
Pennon. These results demonstrate further profitable growth in the Group and affirm
our strategy of focusing on our two key businesses, South West Water and Viridor.
South West Water remains on target to meet the current regulatory contract and
Viridor has had an outstanding year delivering a particularly strong performance
based on both organic growth and successful acquisitions as a result of its focused
strategy.
'The Board has noted the recent rise in the Group's share price, but is not aware
of any particular reason for the movement. The Group will continue to pursue its
declared strategy.'
For further information today, 31 May 2007, please contact :
David Dupont Group Director of Finance - Pennon )
Jo Finely Investor Relations Manager - Pennon ) 0207 251 3801
Mark Harris/ Sally Hogan Finsbury Group )
GROUP OVERVIEW
• Revenue rose by 15.9% to £748.3m.
• Operating profit before amortisation of intangibles rose by 14.2% to
£201.8m. (1)
• Profit before tax was up 18.2% to £131.1m (1)
• Earnings per share from continuing operations and before deferred tax
increased by 20.2% from 25.2p (1) (2) to 30.3p. Basic earnings per share
(after exceptional items in 2005/06) increased from 9.9p (2) to 26.5p.
• Capital expenditure was £245.1m (2005/06 - £249.7m).
• Net borrowings at 31 March 2007 were £1,557m, an increase of £130m since
31 March 2006. Gearing, being net borrowings to shareholders' funds plus net
borrowings, was 71% (2005/06 - 71%). Interest cover was 2.9 times(2005/06 - 2.7 times).
South West Water net debt to RCV was 62% (2006 - 62%).
• The Board has recommended a final dividend of 12.7p, up 8.5%, subject to
shareholder approval. Together with the interim dividend of 5.85p, this will
result in a total dividend for the year of 18.55p, an increase of 7.8% on
the total dividend for 2005/06. The Board's stated policy is to grow the
Group dividend by 3% above inflation per annum up to 2009/10. Shareholders
will also be given the opportunity to participate in a Dividend Re-investment Plan,
details of which will be circulated in August.
(1) Before exceptional items in 2005/06 as detailed in note 5 to the
financial statements.
(2) Restated for 3 for 1 stock split in July 2006.
SOUTH WEST WATER
South West Water revenue rose by £33.0m to £381.5m. Approved tariff increases,
including the 9.8% K factor, amounted to £43.0m. 7,100 new customer connections
contributed £3.1m. Customers switching from unmeasured to metered charging caused a
reduction of £8.0m in revenue. Over 57% of South West Water's domestic customers
are now metered. A 2.9% decrease in measured demand reduced turnover by £5.1m.
South West Water's operating profit rose 10.8% (before exceptional costs in 2005/
06) to £156.8m. Operating costs, excluding depreciation, increased by £11.9m to
£147.0m. Additional costs from new capital schemes of £2.7m, inflation of £10.2m
(including power costs of £5.5m) and other cost increases of £2.0m (including
infrastructure expenditure charged to operating costs), were partially offset by
£3.0m of efficiency savings. Depreciation increased by £5.8m to £77.7m, primarily
as a result of new capital schemes. The cost of bad debts (part of which is charged
against revenue) is rising more slowly than the tariff increase. The company is
implementing detailed plans to ensure it is well on track to achieve the operating
cost efficiency targets set by the Director General of Water Services for the
period up to 2010.
South West Water has put in place a comprehensive strategy to help ensure a
continued secure supply of water for the region. In 2006/07 three of the company's
key reservoirs were again replenished by pumping water from downstream river flows
to supplement the natural rain water inflow. The pump infrastructure was installed
several years ago to provide enhanced drought protection. Ofwat's latest report on
leakage confirms that South West Water remains one of the leading companies in
managing water leakage and continues to deliver results in line with Ofwat's
leakage target of 84 ML/day. South West Water has achieved Ofwat's leakage targets
since their inception and this year has achieved its lowest ever level of leakage.
These activities contributed to the tenth consecutive year of no water restrictions
in our region.
In addition, the purchase of Park Lake in November 2006, a former china clay pit on
Bodmin Moor, is a significant addition to water resources in Cornwall, further
enhancing their robustness. The new lake will be the region's fourth largest
reservoir. Work will now be carried out to build the appropriate infrastructure and
it is anticipated that the water from this new source will become available during
2007/08 (subject to obtaining the necessary Environment Agency (EA) permissions).
Drinking water quality and river water quality have been sustained at an all time
high and the region features the highest proportion of high quality rivers in
England. In 2006, for the first time, 100% of the designated bathing waters in the
South West Water region achieved the EU mandatory standard, and 91.7% achieved the
even more stringent guideline standard.
Ofwat's 2005/06 'Levels of Service Report' confirms that South West Water has
maintained last year's step change improvement in its Overall Performance
Assessment (OPA) ranking, maintaining its 6th position out of the 10 water and
sewerage companies. We expect this position to be consolidated when the 2006/07
scores are published later this year.
Capital expenditure was £184.0m (2005/06 - £191.0m). £93.6m was invested in water
supply improvements including water mains renovation and water treatment works
enhancement. Continued high levels of investment in the £240m water mains
renovation programme to replace or reline 3,200kms of water mains will be a key
element during the remainder of the K4 period. A further 638kms of water mains were
laid, replaced or refurbished during the year, in line with the Drinking Water
Inspectorate's (DWI) agreed programme for completion by 2010.
Waste water investment expenditure totalled £90.4m for the year. All of the major
projects in the company's 15 year original 'Clean Sweep' coastal sewage treatment
programme have been completed and as noted above the region is now attaining record
levels of bathing water quality compliance.
South West Water continues to deliver capital projects in line with Ofwat, DWI and
EA expectations. The company is targeting 5% efficiency outperformance of Ofwat's
allowed K4 capital programme of £762m (2002/03 prices) and is on track to achieve
this.
'Service +', a major project to improve the service to customers in relation to the
company's day to day operational activities and to reduce costs, was launched in
October 2006. The new Service Centre in Exeter utilises the latest mobile computing
technology to give quicker, more accurate information to customers on service
issues as well as better prioritising the work of field operations staff. The
benefits of the new system are already being seen with a significant reduction in
the number of repeat contacts from customers.
'WaterCare', a ground-breaking new customer care programme, was launched early in
2007 targeted at helping those most in need pay their bills by advising them on how
to manage better both their water use and household budget. Trained advisors are
meeting with around 2,500 qualifying customers a year in their homes and offering a
range of free services including home water audits, advice on potential savings
from fitting a meter and advice on receiving financial benefits to which they are
entitled. The identification of customers who would benefit from moving on to
special payment plans enables them to make regular affordable payments, thereby
reducing the company's outstanding debt.
In preparing for the forthcoming periodic review of prices in 2009 (PR09), a number
of projects are under way to ensure that South West Water is prepared for the new
challenges that lie ahead. The customer contact/billing contract will be
re-tendered during 2007 and the company will build on the success of 'Service +'.
The role of tariff structures in addressing the agenda of affordability and
sustainability is also being reviewed.
To meet the twin objectives of service excellence and operational efficiency, South
West Water has launched a long-term project, 'Puros', to move the organisation
towards a more centralised operational structure employing increased levels of
automation and remote working. In the shorter term, a new 'rightsourcing' review is
under way to determine the optimal combination of internal and external resource
provision. It is expected that the cost of £3m - £4m of ongoing organisational
restructuring will be provided for in 2007/08.
Regulatory Capital Value (RCV) is expected to grow by 34% over the K4 period to
£2.6bn by March 2010 - the highest forecast percentage increase of any quoted UK
water company. After adjusting for the step change in gearing following the capital
restructuring in 2005/06, the company again expects its growth in RCV to outstrip
significantly the anticipated growth in net borrowings over the K4 period.
VIRIDOR
Viridor traded particularly strongly in 2006/07, building further on the growth
achieved over the past six years. Revenue was up £68.8m (23.0%) to £367.7m, of
which acquisitions accounted for £39.6m and underlying business £29.2m. This
increase included landfill tax of £21.7m.
Viridor's earnings before interest, tax, depreciation and amortisation (EBITDA)
rose 24.1% from £66.7m to £82.8m. Operating profit before intangibles amortisation
(PBITA) for the year increased by 30.4% (£10.9m) to £46.8m, compared to £35.9m in
2005/06. The increase reflected a full year's contribution from last year's Brett
Waste Management acquisition, the positive effect of this year's acquisitions
(Wyvern Waste and Skipaway), a one-off profit of £0.6m on the disposal of Viridor's
interest in Devon Waste Management Limited and 12.6% growth in the underlying
business.
Profit before tax at £27.6m was up 26.0% on the previous year. Capital expenditure
for the year was £60.9m (2005/06 - £58.9m).
Total landfill disposal volumes increased by 9% to 4.7 million tonnes. Total
landfill disposal volumes excluding acquisitions were held constant at 4.3 million
tonnes. Average gate fees rose by 7% to £19 per tonne and margins increased by 50p
to over £6 per tonne. At 31 March 2007, Viridor had 90 million cubic metres of
landfill capacity, an increase of 3 million over the previous year. This increase
reflected the 5 million cubic metres that came with the Wyvern acquisition and
4 million cubic metres of net planning gains at 4 sites, offset by usage of 6 million
cubic metres in the year.
Viridor's total power generation output increased by a further 15% in the year to
423 GWH. Average prices increased 4.3% to £62 per MWH reflecting the strong brown
energy prices and the ongoing shortage of renewable energy in the UK which is
driving the price premium achieved by renewables. The timing of open market sales
contracts in 2006/07 was particularly favourable - current brown energy prices in
2007/08 are lower. Total capacity (excluding a small amount of sub contract
capacity) grew 14 MW from 61 MW at 31 March 2006 to 75 MW at 31 March 2007 (of
which Wyvern contributed 7 MW). At 31 March 2007 50% of Viridor's power generating
capacity was eligible for Renewable Obligation Certificates (ROCs) and 50% for Non
Fossil Fuel Obligation (NFFO).
In May 2006, Viridor acquired Wyvern Waste from Somerset County Council for £25m
(including £3m cash on the balance sheet) as part of a 25 year Public Private
Partnership (PPP) contract with the County. The company is already integrated and
was earnings enhancing in its first ten months.
Viridor continues to explore other suitable Private Finance Initiative (PFI) and
PPP opportunities as part of its overall strategy. In January 2007 Greater
Manchester Waste Disposal Authority announced that the Viridor Waste Management
Limited / John Laing Infrastructure Limited consortium had been selected as
preferred bidder for its waste management services contract. With an investment
value of around £300m, this will be the largest such scheme in the UK and will
involve the handling of around 1.4 million tonnes of waste per annum. Final
negotiations are underway with the contract due to commence in the current
financial year. In addition, Viridor is one of Manchester's nominated landfill
contractors for 5 years from April 2008.
In September 2005, Viridor entered into a joint venture with Grundon Waste
Management Limited to set up Lakeside Energy from Waste Limited to build and
operate an energy from waste plant. The 50 : 50 joint venture is in line with
Viridor's strategy of capitalising on opportunities arising from the Government's
developing waste strategy and will assist local authority customers in meeting
their landfill diversion targets and avoiding penalties under the Landfill
Allowance Trading Scheme (LATS). A number of these councils are existing waste
disposal customers of Viridor or Grundon. The plant will have a capacity of 400,000
tonnes per annum and it will also provide power generation capacity of up to 37 MW
of electricity which will be fed into the national grid. The plant is being built
at a strategically located site at Colnbrook near Heathrow, which has the relevant
permissions and permits. Total investment is projected to be circa £160m, 86% of
which is non-recourse debt financing with the balance split equally between Viridor
and Grundon. The plant is under construction and on schedule to open in the second
half of calendar 2008.
Other significant new developments in the year include :
• a 70,000 tonne pa recycling and disposal contract extension to 2027 for the
Borough of Poole.
• a 7 year 120,000 tonne pa landfill contract for the City of Plymouth, starting
in April 2008.
• 5 year landfill and 7 year recycling contracts for South Lanarkshire totalling £20m.
• preferred bidder status achieved for medium term disposal contracts with West
Sussex and Suffolk County Councils.
• the acquisition of Skipaway for £14.7m in February 2007. This acquisition
comprises three transfer stations plus associated collection and recycling
activities in Kent and handles approximately 240,000 tonnes of material
per annum.
• planning application submitted for a 60,000 tonne energy from waste facility
in Exeter.
PENSIONS
The Group pension schemes had net liabilities at 31 March 2007 of £41 million (31
March 2006 - £42 million) from pension fund assets of £348m and liabilities of
£389m. Sound investment performance, an increase in the market interest rate used
to discount liabilities, plus a further £9m prepayment of employer contributions in
September 2006, have been offset by an increase in liabilities of which £16m arises
from the use of an updated longevity assumption for pensioners. A full actuarial
valuation is being undertaken as at April 2007. The net liabilities (after deferred
tax) represented circa 1% of the Group's total market capitalisation as at 31 March
2007.
FINANCING INITIATIVES
The total net interest charge increased from £64.3m (before exceptional net
charges) in 2005/06 to £69.2m in 2006/07. The average interest rate on net debt for
the Group overall has been reduced to 4.6% (2005/06 - 5.1%) for the Group and 4.3%
for South West Water. This is believed to be amongst the lowest in the sector.
The Group funding strategy utilises a mix of fixed, floating and index-linked rate
borrowings. To reduce the risk of adverse interest rate movements, South West Water
has swap arrangements in place to fix the interest rate on circa 60% of its projected net
debt for the period up to March 2010. In addition, circa 10% of South West Water
current net debt is index-linked to 2041.
During the year the following financing initiatives were implemented :
• £180m finance lease extended by 20 years.
• £100m 4.13% private placement issued.
• £85m finance lease drawdown for water mains rehabilitation.
TAXATION
The mainstream corporation tax charge for the year was £23.9m (2005/06 - £14.8m)
giving a mainstream effective tax rate of 18%.
The deferred tax charge for the year was £13.3m (2005/06 - £20.2m).
RETURN OF CAPITAL
The Company completed the redemption of the outstanding B shares for a total of
£5.7m in April 2006. Circa £145m has now been returned through the B share issue.
STRATEGY & PROSPECTS
The Board's priority continues to be the creation of shareholder value through its
strategic focus on water, sewerage and waste management. The excellent performance
highlighted above is testament to the Board's strategy of focusing on these key
business areas.
The Board has confidence that South West Water will successfully deliver the K4
regulatory contract and significantly grow its Regulatory Capital Value up to 2010
(£2.6bn). South West Water is now looking beyond K4 and preparing for PR09.
Viridor's successful strategy of creating long-term sustainable profit growth is
expected to continue through capitalising on its landfill asset base, exploiting
its landfill gas power generation potential and pursuing profitable opportunities
in line with the Government's developing waste strategy. In addition, the Group has
put in place a long-term funding structure to enable it to continue to finance its
activities efficiently.
Ken Harvey
Chairman
31 May 2007
PENNON GROUP PLC
Consolidated income statement for the year ended 31 March 2007
Before Exceptional
exceptional items
2007 items (note 5) Total
(Unaudited) 2006 2006 2006
Note £m £m £m £m
Revenue 3 748.3 645.7 - 645.7
Operating costs
Manpower costs (91.0) (79.9) - (79.9)
Raw materials and
consumables used (47.2) (40.7) - (40.7)
Other operating expenses (294.6) (245.9) (14.5) (260.4)
Depreciation (113.7) (102.5) - (102.5)
Amortisation of
intangibles (1.8) (1.6) - (1.6)
-------------------------------------------
Operating profit 3 200.0 175.1 (14.5) 160.6
Interest payable and
similar charges (98.3) (96.8) (50.2) (147.0)
Interest receivable 29.1 32.5 7.9 40.4
Share of post-tax profit
from joint ventures 0.3 0.1 - 0.1
-------------------------------------------
Profit before tax 3 131.1 110.9 (56.8) 54.1
Tax on ordinary
activities 4 (37.2) (35.0) 18.7 (16.3)
-------------------------------------------
Profit for the year 93.9 75.9 (38.1) 37.8
===========================================
Profit attributable to
equity shareholders 93.9 75.9 (38.1) 37.8
===========================================
Earnings per share
(pence per share) * 6
- Basic 26.5 9.9
- Diluted 26.3 9.8
Proposed dividend per
share (pence per share) * 7 18.55 17.2
Proposed dividend for the
year (£m) 7 66.0 61.0
All operating activities are continuing operations.
* The earnings per share and dividend per share for 2006 have been restated to reflect the
sub-division of the Company's ordinary shares by way of a three for one split on 31 July
2006.
PENNON GROUP PLC
Consolidated statement of recognised income and expense for the year ended 31 March 2007
2007
(Unaudited) 2006
£m £m
Profit for the year 93.9 37.8
------------------
Actuarial losses on defined
benefit schemes (1.2) (2.8)
Cash flow hedges
Net fair value gains 15.7 1.0
Tax on items taken directly to or
transferred from equity 0.4 0.8
------------------
Net gains/(losses) not recognised
directly in income statement 14.9 (1.0)
------------------
Total recognised income for the year 108.8 36.8
Adjustments on adoption of IAS 32/39
1 April 2005 (net of tax) - 8.6
------------------
108.8 45.4
==================
Attributable to equity shareholders 108.8 45.4
==================
PENNON GROUP PLC
Consolidated balance sheet at 31 March 2007
Note 2007
(Unaudited) 2006
£m £m
Assets
Non-current assets
Goodwill 134.3 98.6
Other intangible assets 7.8 5.7
Property,plant and equipment 2,559.4 2,415.9
Trade and other receivables 6.9 6.0
Investments accounted for
using equity method 1.4 1.3
------------------
2,709.8 2,527.5
------------------
Current assets
Inventories 5.1 5.0
Trade and other receivables 122.5 94.5
Derivative financial instruments 16.0 3.1
Cash and cash equivalents 127.9 99.4
------------------
271.5 202.0
------------------
Liabilities
Current liabilities
Borrowings (85.8) (54.7)
Derivative financial instruments - (3.0)
Trade and other payables (175.9) (170.1)
Current tax liabilities (36.5) (24.0)
Provisions for liabilities and charges (13.2) (11.4)
------------------
(311.4) (263.2)
------------------
Net current liabilities (39.9) (61.2)
------------------
Non-current liabilities
Borrowings (1,599.4) (1,471.8)
Other non-current liabilities (2.1) (2.2)
Retirement benefit obligations (41.2) (41.7)
Deferred tax liabilities (313.7) (302.8)
Provisions for liabilities and charges 8 (86.3) (66.6)
------------------
(2,042.7) (1,885.1)
------------------
Net assets 627.2 581.2
==================
Shareholders' equity
Share capital 144.9 184.2
Share premium account 11.7 10.2
Capital redemption reserve 143.8 98.4
Retained earnings and other reserves 326.8 288.4
------------------
Total shareholders' equity 9 627.2 581.2
==================
PENNON GROUP PLC
Consolidated cash flow statement for the year ended 31 March 2007
2007
(Unaudited) 2006
Note £m £m
Cash flows from operating activities
Cash generated from operations 10 305.1 232.1
Interest paid * (58.1) (128.9)
Tax paid (12.0) (2.2)
------------------
Net cash generated from operating
activities 235.0 101.0
------------------
Cash flows from investing activities
Interest received * 6.7 22.5
Acquisition of subsidiary undertakings (net of
Cash acquired) (37.0) (44.7)
Investment in joint venture - (1.1)
Return of loan from joint venture 0.1 -
Proceeds of business disposal - 5.0
Proceeds from investment disposal 0.6 -
Purchase of property,plant and equipment (251.4) (218.6)
Proceeds from sale of property, plant and
equipment 5.0 4.8
------------------
Net cash used in investing
activities (276.0) (232.1)
------------------
Cash flows from financing activities
Net proceeds from issue of
ordinary share capital 1.9 1.6
Purchase of ordinary shares (3.5) -
Purchase of ordinary shares by
the Pennon Employee Share Trust (2.3) -
(Deposit)/release of restricted funds (4.1) 177.1
Net proceeds from new borrowing 110.0 182.5
Repayment of borrowings (71.1) (224.3)
Finance lease drawdowns 130.2 141.6
Finance lease principal repayments (21.4) (15.8)
Dividends paid (61.0) (34.1)
B Share payments (5.7) (137.8)
------------------
Net cash received from financing activities 73.0 90.8
------------------
Net increase/(decrease) in cash
and cash equivalents 32.0 (40.3)
Cash and cash equivalents at
beginning of year 80.3 120.6
------------------
Cash and cash equivalents at
end of year 112.3 80.3
==================
* Interest paid and received in 2006 included exceptional items, note 5.
PENNON GROUP PLC
NOTES
1. Basis of preparation
These unaudited financial statements have been prepared under the historical
cost convention, except for derivative financial instruments, and in
accordance with International Financial Reporting Standards and
International Financial Reporting Interpretation (IFRIC) interpretations
adopted by the European Union, with those parts of the Companies Act 1985
applicable to companies reporting under IFRS and the requirements of the
Financial Services Authority.
2. Financial information
The financial information for the years ended 31 March 2007 and 31 March
2006 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 2006 have been delivered to the Registrar of Companies.
The independent auditors' report on those financial statements was
unqualified and did not contain a statement under section 237 (2) or (3) of
the Companies Act 1985.
3. Segmental reporting
2007
(Unaudited) 2006
£m £m
Revenue
Water and sewerage 381.5 348.5
Waste management 367.7 298.9
Other 7.6 7.3
Less intra-segment trading * (8.5) (9.0)
------------------
748.3 645.7
------------------
Segment result
Operating profit before depreciation,
amortisation and exceptional items (EBITDA)
Water and sewerage 234.5 213.4
Waste management 82.8 66.7
Other (1.8) (0.9)
------------------
315.5 279.2
------------------
Operating profit before amortisation and
exceptional items
Water and sewerage 156.8 141.5
Waste management 46.8 35.9
Other (1.8) (0.7)
------------------
201.8 176.7
------------------
Operating profit before exceptional items
Water and sewerage 156.8 141.5
Waste management 45.0 34.3
Other (1.8) (0.7)
------------------
200.0 175.1
------------------
Operating profit
Water and sewerage 156.8 127.0
Waste management 45.0 34.3
Other (1.8) (0.7)
------------------
200.0 160.6
------------------
PENNON GROUP PLC
NOTES (Continued)
3. Segmental reporting (Continued)
2007
(Unaudited) 2006
£m £m
Profit before tax and exceptional items
Water and sewerage 98.9 87.4
Waste management 27.6 21.9
Other 4.6 1.6
------------------
131.1 110.9
------------------
The exceptional items are detailed in note 5.
* Intra-segment trading between and to other segments by the water and
sewerage and waste management segments is under normal commercial terms and
conditions that would also be available to unrelated third parties.
Intra-segment revenue of the Other segment is at cost.
4. Tax on profit on ordinary
activities
Before Exceptional
exceptional items
2007 items (note 5) Total
(Unaudited) 2006 2006 2006
£m £m £m £m
Tax on profit on ordinary
activities comprises:
United Kingdom corporation
tax 23.9 14.8 (18.7) (3.9)
Deferred tax 13.3 20.2 - 20.2
--------------------------------------------
37.2 35.0 (18.7) 16.3
============================================
5. Exceptional items
The exceptional items are : 2007
(Unaudited) 2006
£m £m
Customer payment - (14.5)
-------------------
Operating profit - (14.5)
Bond retirement - (50.2)
Receipt on transfer of lease - 7.9
-------------------
Profit before tax - (56.8)
Tax arising on exceptional items - 18.7
-------------------
- (38.1)
===================
The customer payment and bond retirement relate to financial restructuring
in the Company and South West Water Limited.
The receipt on transfer of lease relates to a consent fee paid to South West
Water Limited arising from the sale of finance leases between financial
institutions.
PENNON GROUP PLC
NOTES (Continued)
6. Basic and diluted earnings per share
Basic earnings per share are calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period, excluding those held in the employee share trust,
which are treated as cancelled. For diluted earnings per share, the weighted
average number of ordinary shares is adjusted to include all dilutive potential
ordinary shares.
A reconciliation of the weighted average number of shares and earnings used in
the calculations is set out below:
Number of shares (millions) 2007 2006
(Unaudited) (Restated)
For basic earnings per share 353.9 381.9
Effect of dilutive potential ordinary shares :
Share options 3.2 3.3
-----------------------
For diluted earnings per share 357.1 385.2
=======================
The weighted average number of ordinary shares for 2006 has been restated to
reflect the sub-division of the Company's ordinary shares by way of a three for
one split on 31 July 2006.
Adjusted basic and diluted earnings per share
Adjusted earnings per share have been calculated to exclude the impact of the
exceptional items and deferred tax on the results, as these items can have a
distorting effect on earnings from year to year and therefore warrant separate
consideration. Adjusted earnings have been calculated as follows:
2007 2006
Earnings per share Earnings per share
(Unaudited) (Restated)
Earnings Basic Diluted Earnings Basic Diluted
£m p p £m p p
Earnings per share 93.9 26.5 26.3 37.8 9.9 9.8
Exceptional items (net
of tax) - - - 38.1 10.0 9.9
Deferred tax 13.3 3.8 3.7 20.2 5.3 5.2
-----------------------------------------------------
Adjusted earnings per
share 107.2 30.3 30.0 96.1 25.2 24.9
=====================================================
All operating activities are continuing operations.
PENNON GROUP PLC
NOTES (Continued)
7. Dividends
2007 2006
(Unaudited)
£m £m
Amounts recognised as distributions to equity
holders in the year :
Interim dividend paid for the year
ended 31 March 2006 :
5.5p (2005 4.6p) per share 19.4 17.7
Final dividend paid for the year
ended 31 March 2006 :
11.7p (2005 9.7p) per share 41.6 37.4
-----------------------
61.0 55.1
=======================
Proposed dividends
Proposed interim dividend for the year ended 31
March 2007 :
5.85p (2006 5.5p) per share 20.8 19.4
Proposed final dividend for the year ended 31
March 2007 :
12.7p (2006 11.7p) per share 45.2 41.6
-----------------------
66.0 61.0
=======================
Dividend per share for 2006 has been restated to reflect the sub-division of the
Company's ordinary shares by way of a three for one split on 31 July 2006.
The proposed interim and final dividends have not been included as liabilities in
these financial statements. The proposed interim dividend was paid on 11 April
2007 and the proposed final dividend is subject to approval by shareholders at
the Annual General Meeting on 26 July 2007.
If approved at the Annual General Meeting the final dividend of 12.7p per share
will be paid on 2 October 2007 to shareholders on the register at 10 August 2007.
The Company is intending to offer a Dividend Re-investment Plan (DRIP) in respect
of this dividend and full details will be sent to shareholders on 24 August 2007. The
final date for receipt of DRIP application forms will be 18 September 2007.
PENNON GROUP PLC
NOTES (Continued)
8. Landfill restoration
At 31 March 2007 landfill restoration provisions recognised with a matching
addition to the cost of tangible fixed assets were £43.6m (2006 £32.3m)
following a change in accounting methodology in 2006.
9. Statement of changes in shareholders' equity
Retained
Share Capital earnings
Share premium redemption and other (Unaudited)
capital account reserve reserves Total
£m £m £m £m £m
Profit for the year - - - 93.9 93.9
Other recognised
income and expense
for the year - - - 14.9 14.9
Dividends paid - - - (61.0) (61.0)
Shares issued for
cash consideration 0.4 1.5 - - 1.9
Shares cancelled and
cost of buy back (0.3) - 0.3 (3.5) (3.5)
Deferred shares
redeemed (39.4) - 39.4 - -
B Shares redeemed - - 5.7 (5.7) -
Own shares acquired
by the Pennon
Employee Share Trust - - - (2.3) (2.3)
Adjustment in respect
of share-
based payment - - - 2.1 2.1
--------------------------------------------------------
(39.3) 1.5 45.4 38.4 46.0
At 1 April 2006 184.2 10.2 98.4 288.4 581.2
--------------------------------------------------------
At 31 March 2007 144.9 11.7 143.8 326.8 627.2
========================================================
PENNON GROUP PLC
NOTES (Continued)
10. Cash flow from operating activities
The reconciliation of operating profit to net cash inflow from operating
activities is :
Cash generated from operations 2007
(Unaudited) 2006
£m £m
Profit for the year 93.9 37.8
Adjustments for:
Employee share schemes 2.1 1.7
Deferred income released to profits - (0.3)
Profit on disposal of property,
plant and equipment (2.6) (1.1)
Profit on disposal of investment (0.6) -
Depreciation charge 113.7 102.5
Amortisation of intangible assets 1.8 1.6
Share of post-tax profit from
joint ventures (0.3) (0.1)
Interest payable and similar
charges 98.3 147.0
Interest receivable (29.1) (40.4)
Taxation 37.2 16.3
Changes in working capital
(excluding the effect of
acquisition of subsidiaries)
Increase in inventories (0.1) (0.3)
(Increase)/decrease in trade and
other receivables (20.7) 2.0
Increase in trade and other payables 16.9 8.4
Increase/(decrease) in retirement
benefit obligations 2.0 (39.7)
Decrease in provisions for
liabilities and charges (7.4) (3.3)
--------------------------
Cash generated from operations 305.1 232.1
==========================
11. Net borrowings 2007
(Unaudited) 2006
£m £m
Cash and cash equivalents 127.9 99.4
Borrowings - current
Bank overdrafts (10.9) (18.5)
Other current borrowings (26.0) (8.2)
Finance lease obligations (48.9) (28.0)
---------------------------
Total current borrowings (85.8) (54.7)
---------------------------
Borrowings - non-current
Bank loans (350.1) (312.7)
Other non-current borrowings (215.9) (232.2)
Finance lease obligations (1,033.4) (926.9)
---------------------------
Total non-current borrowings (1,599.4) (1,471.8)
---------------------------
Total net borrowings (1,557.3) (1,427.1)
===========================
PENNON GROUP PLC
NOTES (continued)
12. Acquisitions and disposals
On 13 May 2006 the entire issued share capital of Wyvern Waste Services Limited,
(now renamed Viridor Waste (Somerset) Limited), was purchased by Viridor Waste
Management Limited for a cash consideration of £25.4m including costs of £0.4m.
The acquisition has been accounted for using the acquisition method. Goodwill of
£21.8m and intangible fixed assets of £3.6m have been capitalised. The intangible
fixed assets are being amortised evenly over the Directors' estimate of useful
economic life. Cash balances on acquisition amounted to £3.0m.
On 5 September 2006 Viridor Waste Management Limited disposed of its 15%
interest in the issued share capital of Devon Waste Management Limited for a
cash consideration of £0.6m.
On 13 February 2007, the entire issued share capital of Skipaway Holdings
Limited, (now renamed Viridor Waste (Medway) Holdings Limited), was purchased by
Viridor Waste Management Limited for a cash consideration of £15.1m including
costs of £0.4m. The acquisition has been accounted for using the acquisition
method. Provisional goodwill of £13.9m and intangible fixed assets of £0.3m have
been capitalised. The intangible fixed assets are being amortised evenly over
the Directors' estimate of their useful economic life.
13. The Annual Report for 2006/07 will be posted to shareholders on 26 June 2007 and
will be available for viewing on the Company's website at www.pennon-group.co.uk
on 27 June 2007.
Pennon Group Plc
Registered Office:
Peninsula House
Rydon Lane
Exeter
EX2 7HR
Registered in England No 2366640
www.pennon-group.co.uk
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