Half Yearly Report
Pennon Group PLC
29 November 2007
PENNON GROUP PLC 29 November 2007
HALF YEARLY REPORT ON THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Pennon Group announces its unaudited results for the half year ended 30 September
2007.
A presentation for City audiences will be held today, Thursday 29 November 2007
at 11:30 at Andaz London (formerly The Great Eastern Hotel), Liverpool Street,
London, EC2.
FINANCIAL HIGHLIGHTS
• Operating profit(1) up 17.0% to £123.6m.
- South West Water up 15.2% to £97.0m.
- Viridor (1) up 24.3% to £27.1m.
• Profit before tax up 15.8% to £82.3m.
• Earnings per share (before deferred tax) up 8.5% to 17.8p.
• Interim dividend per share up 6.8% to 6.25p.
• £55m share buyback programme approaching completion with £52.8m bought back to date.
(1) before amortisation of intangibles
OPERATIONAL HIGHLIGHTS
• South West Water :
• On target to deliver 2005 - 2010 Regulatory Contract.
• Profit increase reflecting expected strong growth in Regulatory Capital
Value 2005 - 2010.
• Eleventh consecutive year without hosepipe bans and drought orders.
• 2006/07 - best ever leakage performance.
• Capital investment of £76.6m in the half year
- major upgrade to water treatment works serving 160,000
homes in South Devon.
• All major projects delivered in line with Regulators' expectations.
• Preparing for PR09
- customer consultation launched.
• Viridor :
• Particularly strong growth in operating profits, especially from
landfill and recycling.
• Viridor / Laing consortium preferred bidder for Greater Manchester
Waste PFI contract
- contract negotiation and planning applications ongoing
- new strategic location selected for energy from waste plant.
• Lakeside energy from waste plant (joint venture with Grundon Waste
Management Limited) under construction and on schedule to open for
commissioning in second half of 2008.
• Progressing possible energy from waste sites in Cardiff and Dunbar.
• Planning permissions achieved for a 60,000 tonne Energy from Waste (EfW)
plant in Exeter and a Mechanical Biological Treatment (MBT) and
Anaerobic Digestion (AD) facility in Somerset.
'I am again delighted to announce further profitable growth in the Group' said
Ken Harvey, Chairman. 'We are delivering the benefits from our strategy of
focusing on our two key businesses, South West Water and Viridor. South West
Water remains on target to meet the PR04 regulatory contract and Viridor
continues to deliver a very strong performance based on both organic growth and
sound acquisitions.'
For further information today, 29 November 2007, please contact :
David Dupont Group Director of Finance - Pennon ) 0207 251 3801
Jo Finely Investor Relations Manager - Pennon )
Mark Harris Finsbury Group )
Sally Hogan Finsbury Group )
GROUP OVERVIEW
• Revenue rose by 16.7% to £435.9m.
• Operating profit before amortisation of intangibles rose by 17.0% to £123.6m.
• Profit before tax increased 15.8% to £82.3m.
• Earnings per share before deferred tax increased by 8.5% to 17.8p. Earnings
per share after deferred tax rose by 51.7% to 22.9p.
• Group capital expenditure was £109.0m (H1 2006 - £113.9m).
• Net borrowings were £1,614m, an increase of £57m since 31 March 2007. Gearing,
being net borrowings to shareholders' funds plus net borrowings, was
73% (2006 - 72%).
• South West Water net debt to RCV was 60% (31 March 2007 - 62%).
• Net interest cover was 3.0 times for the half year to 30 September 2007
(H1 2006 - 3.1 times).
• The interim dividend of 6.25p per share represents an increase of 6.8% over
the equivalent figure for the half year to 30 September 2006. It will be
paid on 9 April 2008 to shareholders on the register on 25 January 2008.
The Company will once again be offering a DRIP (Dividend Re-Investment Plan).
SOUTH WEST WATER
South West Water revenue rose by £19.1m to £215.0m. Approved tariff increases,
including the 9.8% K factor, amounted to £26.8m. Customers switching from
unmeasured to metered charging caused a reduction of £5.4m in turnover. 61% of
South West Water's domestic customers are now metered. 4,200 new customer
connections contributed £1.7m of turnover. A decrease in measured demand, largely
due to the wet summer, reduced turnover by £4.6m.
South West Water's operating profit rose 15.2% to £97.0m. Operating costs,
excluding depreciation, increased by 3.2% to £76.3m. Additional costs from new
capital schemes of £0.7m, inflation of £1.7m, a £1.0m restructuring charge and
£0.9m of other cost increases (including infrastructure expenditure charged to
operating costs), were partially offset by £1.9m of efficiency savings. The cost
of bad debts (part of which is charged against revenue) is rising more slowly
than the tariff increase. Depreciation increased by £3.9m to £41.7m as a result
of new capital schemes. The company is implementing detailed plans targeting
outperformance of the operating cost efficiency targets set by Ofwat for the
period up to 2010. As previously announced, further efficiency projects are under
way and they are expected to result in a total restructuring charge for the year
of circa £4m. A new customer contact/billing contract was announced in October,
aimed at improving customer service and reducing costs.
Capital expenditure in the half year was £76.6m (H1 2006 - £83.7m). £46.0m was
invested in water supply improvements including water mains renovation and water
treatment works enhancement. The water treatment works at Littlehempston in South
Devon, serving 160,000 homes in the Torbay area, was substantially upgraded.
Continued high levels of investment in the £240m water mains renovation programme
is a key element in the K4 period. A further 261kms of water mains were laid,
replaced or refurbished during the half year, in line with the Drinking Water
Inspectorate's (DWI) agreed programme for completion by 2010.
Drinking water quality was sustained at very high levels. 2007 was the eleventh
consecutive year with no water restrictions in our region. Ofwat's latest report
on leakage confirms that South West Water remains one of the leading companies in
managing water leakage and continues to achieve Ofwat's leakage target of 84 ML/ day.
South West Water has achieved Ofwat's leakage targets for the eighth
consecutive year, every year since their inception. In 2006/07 South West Water
achieved its lowest ever level of leakage.
Waste water quality in 2006/07 was at an all time high. The region features the
highest proportion of high quality rivers in England. Investment expenditure
totalled £30.6m for the half year and included one of the last remaining Clean
Sweep projects at Sennen and Porthcurno.
Ofwat's recently published 2006/07 'Levels of Service Report' confirms that South
West Water has its highest ever Overall Performance Assessment (OPA) ranking.
Ofwat also awarded South West Water the top assessment for asset serviceability -
'stable' in all 4 service areas - in a recent appraisal.
South West Water continues to deliver capital projects in line with Ofwat, DWI
and EA expectations. The company is targeting delivery of Ofwat's allowed K4
capital programme for 5% less than Ofwat's assumed £762m (2002/03 price base),
and is on track to achieve this.
Regulatory Capital Value (RCV) is expected to grow by 35% 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 growth in gearing, the company expects its
growth in RCV to outstrip significantly the anticipated growth in net
borrowings.
As part of its preparation for the next Periodic Review, PR09, earlier this
month, South West Water published a customer consultation document, 'Delivering
Pure Water, Pure Service, Pure Environment'. The document outlined the company's
vision and detailed the first steps it proposes to take towards facing the
challenges of the future, eg climate change and new legislative requirements. A
major comprehensive customer consultation process is under way with the ultimate
goals of continuing to provide customers with high quality services and
protecting and enhancing the environment.
VIRIDOR
Viridor traded particularly strongly in the six months ended 30 September 2007,
building further on the growth achieved over the past six years and including the
benefit of certain non-recurring factors in the half year. Revenue was up 24.2%
to £221.3m, of which acquisitions accounted for £12.6m and underlying business
£30.5m. This increase included landfill tax of £17.2m.
Viridor's earnings before interest, tax, depreciation and amortisation (EBITDA)
for the half year rose 23.4% from £39.8m to £49.1m. Operating profit before
intangibles amortisation (PBITA) rose by 24.3% to £27.1m, compared to £21.8m in
2006/07. The increase reflected contributions from Skipaway Holdings Limited
(acquired February 2007) and a full six month's contribution from Wyvern Waste
Services Limited (acquired May 2006). Excluding these acquisitions and the
effects of a one-off profit of £0.6m on the disposal of Viridor's interest in
Devon Waste Management Limited in 2006/07, underlying business grew by 13%.
Within underlying business, landfill and recycling performed particularly
strongly.
Profit before tax at £16.0m was up 25%. Capital expenditure for the half year was
£32.3m (H1 2006 - £29.9m).
Total landfill disposal volumes rose 21% to 2.7m tonnes compared to the previous
first half. After adjusting for acquisitions, underlying volumes increased by
16%, reflecting non-recurring items (including the MSC Napoli shipwreck) and
underlying trade in the first half.
Average gate fees remained unchanged at £19 per tonne, reflecting waste mix and
the strong volumes seen in the first half of the year. The wet summer of 2007
resulted in increased leachate and other costs of 30p per tonne overall.
Consented landfill capacity declined from 90m cubic metres at 31 March 2007 to a
current 87m cubic metres, reflecting usage during the period offset by a small
planning gain.
Viridor's landfill gas power generation output increased a further 11% to 230 GWH
in the six months to 30 September 2007, 52% of which is eligible for Renewable
Obligation Certificates (31 March 2007 - 50%). This volume increase largely
offset the impact of reduced prices which were noted at the Group's Preliminary
Results in May (average prices declined by £6 to £56 per MWH as the benefit of
the strong brown energy prices seen in 2006/07 reduced).
Last year's acquisitions, Wyvern Waste and Skipaway, are now both fully
integrated, and were earnings enhancing post amortisation of intangibles in the
half year, ahead of schedule. Planning permission was achieved for a MBT and
Anaerobic Digestion facility at Walpole in Somerset and volumes from Skipaway's
transfer stations were diverted to Viridor's landfill site at Shelford.
As part of its overall strategy, Viridor continues to explore other suitable
Private Finance Initiative (PFI) and Public Private Partnership (PPP)
opportunities. In January 2007 the 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. This is due to be the largest such scheme in the UK and will
involve the handling of around 1.4 million tonnes of waste per annum. Contract
negotiations are under way and planning is being progressed for the various
facilities involved; permission has already been achieved for an in-vessel
composting / materials recycling facility at Rochdale (Greater Manchester) in the
half year. An alternative power plant solution has been selected which, although
it will delay the timing of the contract completion, is likely to permit the
quicker overall development of the power plant. In addition, Viridor is one of
Manchester's nominated landfill contractors for 5 years from April 2008.
The joint venture, Lakeside Energy from Waste Limited ('Lakeside'), with Grundon
Waste Management Limited is progressing well. The plant is under construction and
scheduled to open for commissioning in the second half of calendar 2008, with a
profit contribution expected in 2009/10.
During the half year Viridor successfully obtained a planning application for a
60,000 tonne energy from waste facility in Exeter. A Pollution, Prevention and
Control (PPC) permit application has been submitted for the site. We are also
progressing energy from waste opportunities in Cardiff and Dunbar. Planning
Authority's opinion is being sought for the site which Viridor has secured in
Cardiff and consultation has commenced at the existing Viridor site in Dunbar.
PENSIONS
The Group's pension schemes had a deficit (net of deferred tax) under IAS 19 at
30 September 2007 of circa £27m, representing just over 1% of market
capitalisation. A triennial actuarial valuation of the schemes' position as at 31
March 2007 is currently under way.
FINANCING INITIATIVES
The total net interest charge increased by £6.9m to £40.5m. The average interest
rate on net debt for the Group was 5.1% (31 March 2007 - 4.6%) and for South West
Water was 4.7% (31 March 2007 - 4.3%). 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 debt up to March 2010.
During the period the Group raised £300m of debt, including £200m of 50-year
index linked bonds for South West Water. South West Water now has circa £347m of
index linked debt at an average real rate of 1.66%. Circa 25% of South West Water
debt is index linked.
TAXATION
The mainstream corporation tax charge for the half year to September 2007 was
£19.7m (H1 2006 - £13.0m) giving a mainstream effective tax rate of 24% (H1 2006 - 18%).
Deferred tax for the half year to 30 September 2007 was a credit of £17.9m (H1
2006 - £4.6m charge) resulting from a non-recurring credit of £22.4m, relating to
the reduction in the rate of UK corporation tax from 30% to 28% effective from
1 April 2008. The abolition of Industrial Buildings Allowances is expected to be
enacted in 2008/09 and will then increase deferred tax by an estimated £37m.
RETURN OF CAPITAL
The £55m on-market share buy back scheme is approaching completion with £52.8m of
shares bought back to date.
RISKS AND UNCERTAINTIES
The principal risks and uncertainties facing the Group are set out on page 27 of
the Group's 2007 Annual Report and Accounts, on pages 10 - 13 for South West Water
and pages 19 - 21 for Viridor. A copy of the Group's 2007 Annual Report and
Accounts is available and can be viewed on or downloaded from the Group's
website, www.pennon-group.co.uk or obtained from the Company Secretary at the
Company's registered office. In the view of the Directors there has been no
material change in these factors in respect of the second half of the financial
year.
Factors such as weather can affect volumes and costs in both South West Water and
Viridor. Also, the precise impact of landfill pre-treatment requirements which
came into force on 30 October on the different segments of Viridor's business
will become apparent over the coming months. However, none of these items is
expected to be material in an overall Group context.
STRATEGY AND PROSPECTS
The Board's strategy remains focussed on its two businesses, South West Water and
Viridor.
South West Water is successfully delivering the K4 regulatory contract and is
expected to grow significantly its Regulatory Capital Value up to £2.6 billion by
2010. PR09 preparation is progressing well.
Viridor's successful strategy to create 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
29 November 2007
DISCLAIMER IN RESPECT OF FORWARD-LOOKING STATEMENTS
This half yearly report contains forward-looking statements based on current
expectations of, and assumptions and forecasts made by, Pennon Group management.
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. Undue reliance should not be placed on forward-looking statements
which are made only as of the date of this document. The Group accepts no
obligation publicly to revise or update 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.
PENNON GROUP PLC
Consolidated income statement for the half year ended 30 September 2007
Unaudited
----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
Note £m £m £m
Revenue 5 435.9 373.6 748.3
Operating costs
Manpower costs (50.6) (44.7) (91.0)
Raw materials and consumables used (25.7) (22.3) (47.2)
Other operating expenses (171.2) (144.8) (294.6)
Restructuring costs (1.0) - -
Depreciation (63.8) (56.2) (113.7)
Amortisation of intangibles (0.8) (1.1) (1.8)
--------------------------------------------
Operating profit 5 122.8 104.5 200.0
Finance income 19.2 14.8 29.1
Finance costs (59.7) (48.4) (98.3)
Share of post-tax profit from
joint ventures - 0.2 0.3
--------------------------------------------
Profit before tax 5 82.3 71.1 131.1
Taxation 6 (1.8) (17.6) (37.2)
--------------------------------------------
Profit for the period 80.5 53.5 93.9
============================================
Profit attributable to equity
shareholders 80.5 53.5 93.9
============================================
Earnings per share (pence per share) 7
- Basic 22.9 15.1 26.5
- Diluted 22.7 15.0 26.3
Dividend per share (pence per share) 8 6.25 5.85 18.55
Dividend proposed for the period (£m) 8 21.8 20.8 65.6
All operating activities are continuing operations.
The notes on pages 16 to 24 form part of these condensed half year financial statements.
PENNON GROUP PLC
Consolidated statement of recognised income and expense for the half year ended 30 September 2007
Unaudited
----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Profit for the period 80.5 53.5 93.9
Actuarial gains/(losses) on defined
benefit schemes (before deferred tax) 8.2 (5.4) (1.2)
Cash flow hedges
Net fair value (losses)/gains (3.1) 6.0 15.7
Tax on items taken directly to equity (3.3) 1.6 0.4
--------------------------------------
Net gains taken directly to equity 1.8 2.2 14.9
--------------------------------------
Total recognised income for the period 82.3 55.7 108.8
======================================
Attributable to equity shareholders 82.3 55.7 108.8
======================================
The notes on pages 16 to 24 form part of these condensed half year financial statements.
PENNON GROUP PLC
Consolidated balance sheet at 30 September 2007
Unaudited
----------------------------
30 September 30 September 31 March
2007 2006 2007
(restated
note 4)
Note £m £m £m
ASSETS
Non-current assets
Goodwill 134.3 120.4 134.3
Other intangible assets 7.0 8.2 7.8
Property, plant and equipment 2,601.6 2,482.1 2,559.4
Trade and other receivables 8.5 4.5 6.9
Investments accounted for
using the equity method 1.4 1.5 1.4
-----------------------------------------
2,752.8 2,616.7 2,709.8
-----------------------------------------
Current assets
Inventories 5.3 5.2 5.1
Trade and other receivables 160.6 135.1 122.5
Derivative financial instruments 12.9 6.5 16.0
Cash and cash equivalents 12 340.3 90.4 127.9
-----------------------------------------
519.1 237.2 271.5
-----------------------------------------
LIABILITIES
Current liabilities
Borrowings 12 (86.2) (71.1) (85.8)
Derivative financial instruments - (0.4) -
Trade and other payables (227.2) (212.0) (175.9)
Current tax liabilities (53.1) (37.6) (36.5)
Provisions for other
liabilities and charges (12.7) (12.9) (13.2)
-----------------------------------------
(379.2) (334.0) (311.4)
-----------------------------------------
Net current assets/(liabil ities) 139.9 (96.8) (39.9)
-----------------------------------------
Non-current liabilities
Borrowings 12 (1,868.1) (1,513.6) (1,599.4)
Other non-current liabilities (1.9) (2.1) (2.1)
Retirement benefit obligations (37.0) (41.7) (41.2)
Deferred tax liabilities (299.1) (307.0) (313.7)
Provisions for other liabilities
and charges (87.0) (82.5) (86.3)
-----------------------------------------
(2,293.1) (1,946.9) (2,042.7)
-----------------------------------------
Net assets 599.6 573.0 627.2
=========================================
Shareholders' equity
Share capital 9 144.5 144.9 144.9
Share premium account 10 11.7 11.5 11.7
Capital redemption reserve 10 144.2 143.8 143.8
Retained earnings and
other reserves 10 299.2 272.8 326.8
-----------------------------------------
Total shareholders' equity 599.6 573.0 627.2
=========================================
The notes on pages 16 to 24 form part of these condensed half year financial statements.
PENNON GROUP PLC
Consolidated cash flow statement for the half year ended 30 September 2007
Unaudited
----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
Note £m £m £m
Cash flows from operating
activities
Cash generated from operations 11 165.1 136.6 305.1
Interest paid (37.6) (24.0) (58.1)
Tax paid (3.1) (0.1) (12.0)
-----------------------------------------
Net cash generated from
operating activities 124.4 112.5 235.0
-----------------------------------------
Cash flows from investing
activities
Interest received 6.2 3.9 6.7
Acquisition of subsidiaries
(net of cash acquired) - (22.4) (37.0)
Return of loan from joint venture - - 0.1
Proceeds from investment disposal - 0.6 0.6
Purchase of property, plant and
equipment (111.9) (121.6) (251.4)
Proceeds from sale of property,
plant and equipment 0.2 1.3 5.0
-----------------------------------------
Net cash used in investing
activities (105.5) (138.2) (276.0)
-----------------------------------------
Cash flows from financing
activities
Net proceeds from issue of
ordinary share capital - 1.7 1.9
Purchase of ordinary shares
subsequently cancelled (5.9) (3.5) (3.5)
Purchase of ordinary shares
held as treasury shares (40.8) - -
Proceeds from treasury
shares reissued 1.4 - -
Purchase of ordinary shares by
the Pennon Employee Share Trust (0.3) (2.3) (2.3)
Deposit of restricted funds (2.1) - (4.1)
Net proceeds from new borrowing 308.7 110.0 110.0
Repayment of borrowings (54.4) (58.8) (71.1)
Finance lease drawdowns 10.1 - 130.2
Finance lease principal
repayments (5.1) (0.8) (21.4)
Dividends paid (20.8) (19.4) (61.0)
B Share payments - (5.7) (5.7)
---------------------------------------
Net cash received from
financing activities 190.8 21.2 73.0
---------------------------------------
Net increase/(decrease)
in cash and cash equivalents 209.7 (4.5) 32.0
Cash and cash equivalents at
beginning of period 12 112.3 80.3 80.3
---------------------------------------
Cash and cash equivalents at
end of period 12 322.0 75.8 112.3
=======================================
The notes on pages 16 to 24 form part of these condensed half year financial statements.
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS
1. General information
Pennon Group Plc is a Company incorporated in the United Kingdom under the Companies Act
1985. The address of the registered office is given on page 24. Pennon Group's business
is operated through two main subsidiaries: South West Water Limited holds the water and
sewerage appointments for Devon, Cornwall and parts of Dorset and Somerset, Viridor
Limited's business is waste treatment and disposal.
These condensed half year financial statements were approved by the Board of Directors
on 28 November 2007.
The financial information for the year ended 31 March 2007 does not constitute full
financial statements within the meaning of section 240 of the Companies Act 1985. The
full financial statements for that year were approved by the Board of Directors on 23
June 2007 and have been delivered to the Registrar of Companies. The independent
auditors' report on those financial statements was unqualified, did not contain an
emphasis of matter paragraph and did not contain a statement under section 237 (2) or
(3) of the Companies Act 1985.
2. Basis of preparation
These condensed half year financial statements have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Services Authority and with IAS34
'Interim financial reporting' as adopted by the European Union (EU). These condensed
half year financial statements should be read in conjunction with the Pennon Group Plc
Annual Report and Accounts for the year ended 31 March 2007, which were prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted by the
EU.
These condensed half year financial statements have not been audited or reviewed by the
independent auditors pursuant to the Auditing Practices Board guidance on the 'Review of
Interim Financial Information'.
3. Accounting policies
The accounting policies adopted in these condensed half year financial statements are
consistent with those applied and set out in the Pennon Group Plc Annual Report and Accounts for
the year ended 31 March 2007 and are also in accordance with all IFRS and
interpretations of the International Financial Reporting Interpretations Committee
(IFRIC) expected to be applicable for the year ended 31 March 2008 in issue which have
been endorsed by the European Union and effective at 31 March 2008.
At the date of approval of these condensed half year financial statements the following
standards and interpretations which have not been applied in these financial statements
were in issue, but not yet effective:
IFRS8 'Operating segments'
IAS23 'Borrowing costs' (revised)
IAS1 'Presentation of financial statements' (revised)
IFRIC12 'Service concession arrangements'
IFRIC13 ' Customer loyalty programmes'
IFRIC14 'IAS19 - The limit on a defined benefit asset, minimum funding requirements and
their interaction'
The Directors expect that the adoption of these standards and interpretations in future
periods will have no material impact on the financial statements of the Group. The
presentational impact of these Standards is being assessed.
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
4. Restatements at 30 September 2006
At 30 September 2006 the accounting for the acquisition of Wyvern Waste Services Limited
(renamed Viridor Waste (Somerset) Limited) was provisional. Completion of the accounting
for the acquisition by 31 March 2007 resulted in an increase in goodwill of £11.9
million, a decrease in intangible assets of £3.9 million, a decrease in property, plant
and equipment of £3.3 million and an increase in provisions for other liabilities and
charges of £4.7 million. Comparative figures at 30 September 2006 have been restated
accordingly.
5. Segment information
Unaudited
-----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Revenue
Water and sewerage 215.0 195.9 381.5
Waste management 221.3 178.2 367.7
Other 4.4 4.1 7.6
Less intra-segment trading * (4.8) (4.6) (8.5)
---------------------------------------------
435.9 373.6 748.3
---------------------------------------------
Segment result
Operating profit before interest, tax,
depreciation, amortisation (EBITDA)
Water and sewerage 138.7 122.0 234.5
Waste management 49.1 39.8 82.8
Other (0.4) - (1.8)
---------------------------------------------
187.4 161.8 315.5
---------------------------------------------
Operating profit before amortisation
Water and sewerage 97.0 84.2 156.8
Waste management 27.1 21.8 46.8
Other (0.5) (0.4) (1.8)
---------------------------------------------
123.6 105.6 201.8
---------------------------------------------
Operating profit
Water and sewerage 97.0 84.2 156.8
Waste management 26.3 20.7 45.0
Other (0.5) (0.4) (1.8)
---------------------------------------------
122.8 104.5 200.0
---------------------------------------------
Profit before tax
Water and sewerage 64.2 55.6 98.9
Waste management 16.0 12.8 27.6
Other 2.1 2.7 4.6
---------------------------------------------
82.3 71.1 131.1
---------------------------------------------
All operating activities are continuing operations.
* 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.
Factors such as seasonal weather patterns can affect sales volumes, income and costs in
both the water and sewerage and waste management segments.
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
6. Taxation
Unaudited
----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Tax on profit on ordinary
activities comprises :
United Kingdom corporation tax 19.7 13.0 23.9
Deferred tax 4.5 4.6 13.3
Deferred tax arising on change of rate (22.4) - -
------------------------------------------
1.8 17.6 37.2
==========================================
The tax charge for September 2007 and September 2006 has been derived by applying the
anticipated effective annual tax rate to the first half year profit before tax. The
deferred tax charge has been reduced by a non-recurring credit of £22.4m reflecting the
reduction in the rate of UK corporation tax from 30% to 28% effective from 1 April
2008.
The effective tax rate for the period before the benefit of the £22.4m deferred tax
credit was 29% and after the deferred tax credit 2% (six months to 30 September 2006
25%).
Tax on amounts included in the consolidated statement of recognised income and expense
or directly in equity, is included in those statements respectively.
During the year it was announced that industrial building allowances will be phased out
over three years commencing 1 April 2008 but at 30 September 2007 the change was not
substantively enacted. The provision to abolish industrial building allowances is
expected to be contained in the Finance Bill 2008 and, if fully enacted, is likely to
increase the deferred tax liability by an estimated £37 million.
7. 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.
Unaudited
----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
Weighted average number of ordinary shares
(millions)
For basic earnings per share 351.8 353.7 353.9
Effect of dilutive potential ordinary
shares :
Share options 3.1 3.2 3.2
------------------------------------------
For diluted earnings per share 354.9 356.9 357.1
==========================================
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
7. Basic and diluted earnings per share (Continued)
Adjusted basic and diluted earnings per share
Adjusted earnings per share have been calculated to exclude the impact of deferred tax
on the results as this can have a distorting effect on earnings from year to year and
therefore warrants separate consideration. Adjusted earnings have been calculated as
follows :
Unaudited
------------------------------------------------------------------
Half year ended Half year ended Year ended
30 September 30 September 31 March
2007 2006 2007
Profit Earnings per share Profit Earnings per share Profit Earnings per share
after tax Basic Diluted after tax Basic Diluted after tax Basic Diluted
£m p p £m p p £m p p
Earnings per
share 80.5 22.9 22.7 53.5 15.1 15.0 93.9 26.5 26.3
Deferred tax (17.9) (5.1) (5.1) 4.6 1.3 1.3 13.3 3.8 3.7
-----------------------------------------------------------------------------------------------------
Adjusted
earnings
per share 62.6 17.8 17.6 58.1 16.4 16.3 107.2 30.3 30.0
=====================================================================================================
All operating activities are continuing operations.
8. Dividends Unaudited
------------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Interim dividend paid for the year
ended 31 March 2007 :
5.85 (2006 5.5p) per share 20.8 19.4 19.4
Final dividend approved for the year
ended 31 March
2007 : 12.7p (2005 11.7p) per share 44.8 41.6 41.6
--------------------------------------------------
65.6 61.0 61.0
==================================================
Proposed interim dividend Unaudited
-----------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Proposed interim dividend for the
year ended 31 March 2008 of 6.25p
(2007 5.85p) per share 21.8 20.8 20.8
============================================
The proposed interim dividend has not been included as a liability in these condensed
half year financial statements.
The interim dividend of 6.25p per share will be paid on 9 April 2008 to shareholders on
the register on 25 January 2008.
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
9. Share capital
Allotted, called up and fully paid
1 April 2006 to 30 September 2006 Number of shares
Deferred shares Ordinary shares £m
At 1 April 2006
Ordinary shares of £1.22 1/10 each 118,608,847 144.8
Deferred shares of £1.10 each 3,585,821 39.4
----------
184.2
Deferred shares of £1.10 each cancelled (3,585,821) (39.4)
For consideration of £3.5m,
shares purchased
and subsequently cancelled (245,000) (0.3)
-------------
118,363,847
-------------
Sub-division into three new
ordinary shares of 40.7p each 355,091,541
For consideration of £0.2m,
shares purchased
and subsequently cancelled (50,000) -
For consideration of £1.7m,
shares issued under
the Company's Sharesave Scheme 977,485 0.4
------------------------
Ordinary shares of 40.7p each at 30 September 2006 356,019,026 144.9
------------------------
1 April 2007 to 30 September 2007 Number of shares
Treasury Ordinary £m
shares shares
At 1 April 2007
Ordinary shares of 40.7p each 356,123,879 144.9
For consideration of £5.9m,
shares purchased
and subsequently cancelled (960,000) (0.4)
For consideration of £40.8m,
shares purchased
and held as treasury shares 6,850,024 (6,850,024) -
For consideration of £1.4m,
shares issued under
the Company's Sharesave Scheme (747,652) 748,047 -
------------------------------------------------
Ordinary shares of 40.7p each
at 30 September 2007 6,102,372 349,061,902 144.5
------------------------------------------------
Shares held as treasury shares may be sold, re-issued for any of the Company's
share schemes, or cancelled.
The weighted average price of the Company's shares at the date of exercise of
Sharesave options during the half year was 602p (2006 468p).
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
10. Reserves
1 April 2006 to 30 September 2006 Unaudited
--------------------------------
Retained
Share Capital earnings
premium redemption and other
account reserve reserves
£m £m £m
At 1 April 2006 10.2 98.4 288.4
Profit for the period - - 53.5
Other recognised income and expense for
the period - - 2.2
Dividends paid or approved - - (61.0)
Premium on shares issued for
cash consideration 1.3 - -
Deferred shares cancelled - 39.4 -
Own shares purchased and
subsequently cancelled - 0.3 (3.5)
Adjustment in respect of share-based
payment - - 1.0
Deferred tax in respect of share-based
payment - - 0.2
Own shares acquired by the Pennon Employee
Share Trust in respect of share options granted - - (2.3)
B Share payments - 5.7 (5.7)
---------------------------------
At 30 September 2006 11.5 143.8 272.8
=================================
1 April 2007 to 30 September 2007 Unaudited
---------------------------------
Retained
Share Capital earnings
premium redemption and other
account reserve reserves
£m £m £m
At 1 April 2007 11.7 143.8 326.8
Profit for the period - - 80.5
Other recognised income and expense for
the period - - 1.8
Dividends paid or approved - - (65.6)
Own shares purchased and
subsequently cancelled - 0.4 (5.9)
Own shares purchased and held
as treasury shares - - (40.8)
Proceeds from treasury shares re-issued - - 1.4
Adjustment in respect of share-based payment - - 1.3
Own shares acquired by the Pennon Employee
Share Trust in respect of share options granted - - (0.3)
---------------------------------
At 30 September 2007 11.7 144.2 299.2
=================================
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
11. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating
activities:
Unaudited
---------------------------
Cash generated from operations Half year Half year
ended ended Year ended
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Profit for the period 80.5 53.5 93.9
Adjustments for:
Employee share schemes 1.3 1.0 2.1
Deferred income released to
profits - (1.0) -
Profit/(loss) on disposal of
property, plant and
equipment 0.1 (0.3) (2.6)
Profit on disposal of
investment - (0.6) (0.6)
Depreciation charge 63.8 56.2 113.7
Amortisation of intangible
assets 0.8 1.1 1.8
Share of post-tax profit from
joint ventures - (0.2) (0.3)
Finance income (19.2) (14.8) (29.1)
Finance costs 59.7 48.4 98.3
Taxation 1.8 17.6 37.2
Changes in working capital
(excluding the effect of acquisition of subsidiaries)
Increase in inventories (0.2) (0.2) (0.1)
Increase in trade and other
receivables (37.8) (28.7) (20.7)
Increase in trade and other
payables 11.1 10.2 16.9
Increase/(decrease) in retirement
benefit obligations 5.2 (3.7) 2.0
Decrease in provisions for
liabilities and charges (2.0) (2.8) (7.4)
-------------------------------------
Net cash generated from operations 165.1 136.6 305.1
=====================================
12. Net borrowings Unaudited
----------------------
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Cash and cash equivalents 340.3 90.4 127.9
Borrowings - current
Bank overdrafts (11.5) (14.0) (10.9)
Other current borrowings (23.2) (18.3) (26.0)
Finance lease obligations (51.5) (38.8) (48.9)
-------------------------------------
Total current borrowings (86.2) (71.1) (85.8)
-------------------------------------
Borrowings - non-current
Bank and other loans (618.8) (367.6) (350.1)
Other non-current borrowings (204.3) (218.4) (215.9)
Finance lease obligations (1,045.0) (927.6) (1,033.4)
-------------------------------------
Total non-current borrowings (1,868.1) (1,513.6) (1,599.4)
-------------------------------------
Total net borrowings (1,614.0) (1,494.3) (1,557.3)
=====================================
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
12. Net borrowings (Continued)
During the period South West Water Finance Plc, a subsidiary of South West
Water Limited, issued £200m of 1.99% index linked bonds due 2057. The issue was
made in two equal parts, the second, a tap issue, at a price of 107.6%
reflecting accrued interest. The aggregate real yield of the bonds was 1.86%.
Also during the period the Company issued £100m of bonds due 2022 having an
initial 6% fixed cash coupon for the first three years.
Cash and cash equivalents comprise the following for the purposes of the cash
flow statement :
Unaudited
--------------------------
30 September 30 September 31 March
2007 2006 2007
£m £m £m
Cash and cash equivalents as above 340.3 90.4 127.9
Bank overdrafts as above (11.5) (14.0) (10.9)
-------------------------------------
328.8 76.4 117.0
Less : deposits with a maturity of
three months or more 6.8 0.6 4.7
-------------------------------------
322.0 75.8 112.3
=====================================
13. Capital expenditure
Unaudited
---------------------------
Half year Half year Year ended
ended ended 31 March
30 September 30 September
2007 2006 2007
£m £m £m
Property, plant and equipment
Additions 109.0 113.9 245.1
Net book value of disposals 0.3 1.0 2.4
Capital commitments
Contracted but not provided 77.0 93.7 71.7
Share of commitment contracted but
not provided by joint venture 39.0 63.5 41.7
14. Contingent liabilities
There have been no material changes to the Group's contingent liabilities since
31 March 2007.
PENNON GROUP PLC
NOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued)
15. Related party transactions
The Group's significant related parties remain its joint ventures as disclosed
in the Pennon Group Plc Annual Report and Accounts for the year ended 31 March
2007. There was no material change in transactions with these related parties
in the period.
Pennon Group Plc
Registered Office: Peninsula House
Rydon Lane
Exeter
EX2 7HR
Registered in England No 2366640
www.pennon-group.co.uk
PENNON GROUP PLC
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors named below confirm on behalf of the Board of Directors that these
unaudited condensed half year financial statements have been prepared in accordance
with IAS34 'Interim financial reporting' as adopted by the European Union and to the
best of their knowledge the interim management report herein includes a fair review of
the information required by DTR4.2.7 and DTR4.2.8 of the Disclosure and Transparency
Rules, being an indication of important events that have occurred during the period and
their impact on the unaudited condensed half year financial statements; a description
of the principal risks and uncertainties for the remainder of the current financial
year; and the disclosure requirements in respect of material related party
transactions.
The Directors of Pennon Group Plc are listed in the Annual Report and Accounts for the
year ended 31 March 2007 and there has been no change since that date.
For and on behalf of the Board of Directors
K G Harvey D J Dupont
Chairman Group Director of Finance
28 November 2007
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 16th July 2024
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