Interim Results
Pennon Group PLC
08 December 2005
PENNON GROUP PLC 8 December 2005
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2005
Pennon Group announces its unaudited results for the half year ended 30
September 2005.
A presentation for City audiences will be held today, Thursday 8 December 2005,
at 09:00 at The Great Eastern Hotel, Liverpool Street, London, EC2.
FINANCIAL HIGHLIGHTS
• Operating profit up 14.8% to £93.7m.*
• South West Water up 15.4% to £77.8m.
• Viridor Waste up 15.1% to £16.8m before amortisation of intangibles.
• Profit before tax up 21.6% to £60.8m. *
• Earnings per share (before deferred tax) up 13.5% to 41.3p. *
*Before exceptional item in 2004/05 of £2.0m for costs incurred relating
to abortive acquisition in 2003/04.
PROPOSED RETURN OF CAPITAL AND DIVIDEND POLICY
• Proposed capital return of £200m through :
• B Share scheme of approximately £145m, equivalent to 110p per share
• with income or capital alternatives
• associated ordinary share consolidation
• Share buyback of approximately £55m
• Proposed rebased dividend per share post consolidation.
• 20% increase in full year dividend per share reflected in:
• 20% increase in interim dividend per share to 16.5p.
• 3% per annum real dividend increases thereafter until 2009/10.
• £20 per South West Water customer one-off payment from balance sheet
restructuring.
OPERATIONAL HIGHLIGHTS
• South West Water :
• Delivery under way of 2005 - 2010 Regulatory Contract.
• Profit increase reflecting strong growth in Regulatory Asset Value
(RAV) in 2005.
• Length of water mains rehabilitated up 17%.
• Highest increase in Overall Performance Assessment (OPA) score of
any of the water and sewerage companies in England and Wales in
2004/05.
• Record 2005 bathing water compliance.
• Viridor Waste :
• Continued strong growth in profits, particularly from landfill and
power generation.
• Brett Waste acquired June 2005 - now successfully integrated.
• Lakeside energy from waste plant joint venture signed September
2005 - now fully financed and under construction.
• New landfill opened in Cornwall.
• Partnership with John Laing plc for Greater Manchester integrated
waste PFI bid.
• Viridor negotiating preferred bidder status for Somerset integrated
waste contract/Local Authority Waste Disposal Company (LAWDC).
Ken Harvey, Chairman, said, 'I am pleased to report another half year of
excellent results which clearly affirm our strategy of focusing on our two key
businesses, South West Water and Viridor Waste. Following an extensive review by
the Board of the capital structure of the Group, the Board has decided, subject
to shareholder approval, to move South West Water to a more highly geared
structure to enhance the Group's capital efficiency. As a consequence of this,
the Board is pleased to announce proposals to effect a return to its
shareholders of 110 pence per share (being approximately £145m), with an
associated share consolidation, a share buyback of £55m and a one-off £20 per
South West Water customer payment from balance sheet restructuring. The Board
also intends to step up the interim and full year Group dividend per share by
20% after the share consolidation and to grow it by 3% per annum in real terms
thereafter until 2009/10.'
For further information today, 8 December 2005, please contact :
David Dupont Group Director of Finance 0207 251 3801
Pennon
Mark Harris Finsbury Group
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
All numbers contained herein are now published in accordance with International
Financial Reporting Standards (IFRS) with prior year figures restated. Pennon
Group, like all European Union listed companies, is required to produce its
results under IFRS from 1 April 2005 in accordance with IFRS issued by the
International Accounting Standards Board (IASB), and which have either been, or
are reasonably expected to be, endorsed by the European Union for application to
the financial year ending 31 March 2006. The IASB is still developing these
standards and further standards, amendments and interpretations could become
applicable to the Group's accounts as practice and interpretation continue to
evolve. Consequently, the Group's accounting policies may change prior to the
publication of financial statements for the year ending 31 March 2006.
The principal differences between UK Generally Accepted Accounting Principles
(UK GAAP) and IFRS and their indicative impact on the Group were detailed in the
Group's 2005 Annual Report.
Full information relating to the restatement from UK GAAP to IFRS has been
published today, principally comprising the consolidated balance sheet at 1
April 2004, half year results to 30 September 2004 and the full year results to
31 March 2005. Details of these results, together with reconciliations between
previously published UK GAAP reported results and those reported under IFRS, are
available on the Group's website www.pennon-group.co.uk.
GROUP OVERVIEW
• Revenue rose by 16.6% to £328.2m.
• Operating profit rose by 14.8% to £93.7m.*
• Profit before tax was up 21.6% to £60.8m *
• Earnings per share before the exceptional item and deferred tax increased
by 13.5% to 41.3p. Earnings per share after the exceptional item and
deferred tax rose by 8.9% to 29.3p.
• Capital expenditure was £93.1m (2004 - £86.0m).
• Brett Waste Management Limited was acquired during the half year for
£44.5m (£47.2m inclusive of debt).
• Net borrowings were £1,199m, an increase of £81m since 31 March 2005.
Gearing, being net borrowings to shareholders' funds plus net borrowings,
was 63% (2004 - 62%). Interest cover was 2.8 times for the half year to
30 September 2005 (2004 - 2.6 times).
*Before exceptional item in 2004/05 of £2.0m for costs incurred relating
to abortive acquisition.
PROPOSED CAPITAL RETURN AND DIVIDEND POLICY
• The Board has decided to increase the level of gearing in its regulated
water and sewerage business to increase the efficiency of the Group's
capital structure.
• As a consequence, the Board proposes a capital return to shareholders of
£200m.
• The capital return is to be achieved through a B Share scheme of
approximately £145m (equivalent to 110p per share) and an on-market share
buyback programme of approximately £55m.
• The B Share scheme is intended to provide shareholders with the choice of
receiving the return either as income or capital. In order to maintain
comparability of the share price after the B Share scheme, the Board
proposes to consolidate the ordinary share capital of the Group
immediately following the issue of the new B shares.
• The on-market share buyback programme of approximately £55m represents
approximately 4% of the Group's issued share capital at the current share
price.
• Following the ordinary share consolidation, the Board proposes to step up
the interim and full year dividend per share by 20% to 16.5p and then
grow it by 3% per annum in real terms up to 2009/10.
• Following the gearing up, we expect March 2006 South West Water pro forma
net debt to Regulatory Asset Value (RAV) of around 66%.
• £20 will be paid to each South West Water customer following the
restructuring as a one-off payment.
• The proposals to return capital through a B Share scheme and to
consolidate the ordinary share capital are conditional on shareholder
approval. A circular setting out explanatory details on the B Share
scheme and associated share consolidation, and containing the notice of
the Extraordinary General Meeting at which shareholders approval will be
sought, is expected to be posted early in 2006. The proposals to increase
the 2005/06 interim and final dividend by 20% and to make a one-off
payment to customers will be implemented if shareholders approve the
proposed B Share scheme and associated share consolidation.
• The Return is to be funded from existing facilities.
• In addition, the Company is proposing the retirement of its existing 2012
£150m 10.625% Bonds on recommended terms supported by an ABI Special
Committee.
SOUTH WEST WATER
South West Water turnover rose by £20.4m to £177.3m. Approved tariff increases,
including the 12.5% K factor, amounted to £25.0m. Customers switching from
unmeasured to metered charging caused a reduction of £4.4m in turnover. 4,100
new customer connections contributed £1.4m. Other factors, including a small
decrease in measured demand, reduced turnover by £1.6m.
South West Water's operating profit rose 15.4% to £77.8m. Operating costs,
including depreciation, increased by £10.0m to £99.5m. Additional costs from new
capital schemes of £4.0m, inflation of £3.8m and £4.1m of other cost increases
were offset by £1.9m of efficiency savings. Detailed plans are in place and
actions are being taken which are anticipated to achieve the operating cost
targets set by the Director General of Water Services for the period up to
2010.
The company has made a positive start to its K4 capital programme with 'Early
Start' schemes due for delivery as early as January 2006. Capital expenditure in
the half year increased by £1.2m to £69.2m. £41.2m was invested in water supply
improvements including water mains renovation, water treatment works enhancement
and leakage control. Ofwat's latest report on leakage confirms that South West
Water is one of the leading companies in managing water leakage and continues to
deliver results in line with Ofwat's leakage target. Water resources remain
secure. A record length of almost 350km of water mains were laid, replaced or
refurbished during the half year, in line with the Drinking Water Inspectorate's
agreed programme for completion by 2010. Drinking water quality and river water
quality are at an all time high and the region features the highest proportion
of high quality rivers in England. During the half year Ofwat reported that
South West Water in 2004/05 achieved the largest Overall Performance Assessment
score improvement of the water and sewerage companies.
Waste water investment expenditure totalled £28.0m for the half year. All of the
major projects in the Company's 15 year original 'Clean Sweep' coastal sewage
treatment programme have been completed and the region is now attaining record
levels of bathing water quality compliance. In the South West Water region, 142
of the 143 designated bathing waters met the mandatory EU quality standards,
with 88.8% meeting the more stringent guideline level. Cornwall's bathing waters
achieved an exceptionally high standard, with a 100% pass rate at mandatory
level and a 96.4% pass rate at the guideline level.
During the K3 regulatory period the company grew its RAV ahead of net debt. RAV
is predicted to grow by 33% 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 highlighted above, the company again expects
its growth in RAV to outstrip significantly the anticipated growth in net
borrowings.
VIRIDOR WASTE
Viridor Waste (Viridor) has continued to trade strongly in the six months ended
30 September 2005, building further on the growth achieved over the past several
years. Revenue was up 20.0% to £152.0m, including a £5.6m contribution from the
Brett Waste Management Limited (Brett Waste) acquisition and £9.2m from
increased landfill tax.
Viridor operating profit before intangibles for the half year rose by 15.1% to
£16.8m (£16.0m after intangibles), including the benefit of some one-off
business, compared to £14.6m in 2004/05 (£13.8m after intangibles). Operating
profit rose 13.7% excluding this year's acquisition. Earnings before interest,
tax, depreciation and amortisation (EBITDA) rose 10.8% from £28.7m to £31.8m.
Capital expenditure for the half year was £23.9m (2004 - £18.0m).
In June Viridor acquired Brett Waste, a landfill and power generation business,
for a cash consideration of £44.5m (£47.2m inclusive of debt in the company).
The company comprises strategically located landfill sites in Kent and Essex
with approximately 11m cubic metres of consented capacity, landfill gas power
generation schemes totalling 6 MW capacity and associated waste transfer station
and collection activities. The acquisition is now fully integrated into Viridor
Waste's south east region and is expected to be earnings enhancing before
amortisation of intangibles in its first full year.
Total landfill disposal volumes excluding acquisitions remained unchanged
compared to the previous half year after adjusting for non-recurring volumes:
i) in the first quarter of 2004/05, in advance of the banning of the disposal
of hazardous waste to landfill and
ii) in the first half of 2005/06 a significant one-off sludge contract at
Masons.
Increased landfill inputs from Viridor's own collection fleet offset the impact
of an overall market decline.
Gate fees rose by 12%, reflecting inputs of stabilised non-reactive hazardous
waste and the underlying tightness of UK landfill capacity. Viridor currently
has 89 million cubic metres of landfill capacity.
Viridor's power generation prices, (excluding acquisitions), rose 19% to £59 per
megawatt hour, reflecting the increasing underlying brown energy price and the
ongoing shortage of renewable energy in the UK which is driving the premium
price achieved by renewables. The Government is targeting 10% of electricity
from renewable energy sources by 2010 and 15% by 2015, with an aspiration of 20%
by 2020. Only around 4% of electricity in the UK is currently generated from
renewable sources. Excluding the Brett Waste acquisition, output increased a
further 3% in the half year. Viridor's current capacity (including the
contribution from Brett Waste) increased to 58 megawatts, around half of which
is eligible for Renewable Obligation Certificates (ROCs).
In August, Viridor opened the first new landfill disposal site to be developed
in Cornwall for about 20 years. With a capacity of 3m cubic metres, the Lean
Quarry integrated waste management facility near Liskeard in Cornwall also
provides a Materials Recycling Facility, a waste transfer station and a
collection services depot.
In September, Viridor joined forces with Grundon Waste Management Ltd and set up
a joint venture company, Lakeside Energy From Waste Limited, to build and
operate an energy from waste plant near Slough. The 50 : 50 joint venture is in
line with Viridor 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 32 megawatts of electricity which will be fed into the national
grid. The plant will be built at Grundon's strategically located site at
Colnbrook near Slough, which has the relevant permissions and permits. Total
investment is projected to be £160m, 86% of which is non-recourse debt financing
which is now in place. The total project IRR is within normal project finance
parameters. The plant is scheduled to be commissioned in mid-2008 and
preliminary infrastructure works have already started.
Municipal landfill diversion creates new opportunities as councils seek to let
long-term integrated waste management contracts in order to meet their diversion
targets and avoid penalties. These contracts will often attract Private Finance
Initiative (PFI) funding. Viridor believes there may be significant
opportunities in these contracts, subject to a fair sharing of risk between
councils and contractors, and is pursuing them in a selective manner. Viridor
announced today that it is in partnership with John Laing plc to submit a joint
bid for the Greater Manchester PFI. Viridor is also negotiating preferred bidder
status for the Somerset integrated waste management contract/LAWDC.
The new Pennon Group balance sheet capital structure allows for the continuation
of the current growth strategy in Viridor.
PENSIONS
During August 2005 the Company made a pension contribution prepayment for the
period to 2010 of £44m (£32m net of tax).
TAXATION
The mainstream corporation tax charge for the half year to September 2005 was
£8.1m (2004 - £4.6m).
The deferred tax charge for the half year to 30 September 2005 was £15.3m. (2004
- £9.8m).
FINANCING INITIATIVES
The total interest charge increased from £31.6m to £32.9m. The average interest
rate on net debt has reduced to 5.7% (2004/05 5.8%).
The Group funding strategy utilises a mix of fixed and floating rate borrowings.
To reduce the risk of adverse interest rate movements, South West Water has
extended its swap arrangements to fix the interest rate on some 75% of its debt
for the period up to March 2006 and on around 60% of its debt up to March 2010.
During the half year a new £114m finance lease facility was put in place for
long-life assets.
The proposed capital return will be funded from cash on deposit and existing
facilities.
STRATEGY AND PROSPECTS
The Board's priority continues to be the creation of shareholder value through
its strategic focus on water, sewerage and waste management. The interim results
are testament to the Board's strategy of focusing on these key business areas.
The move to a more highly geared structure will allow the Group to return value
to shareholders and customers and provide an enhanced dividend. The Board has
confidence that South West Water will successfully deliver the new K4 regulatory
contract and significantly grow its Regulatory Asset Value up to 2010. Viridor
Waste'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.
Ken Harvey
Chairman
8 December 2005
PENNON GROUP PLC
Consolidated income statement for the half year ended 30 September 2005
Unaudited
--------------------
Half year ended Half year ended Year ended
30 September 30 September 31 March
2005 2004 2005
(restated) (restated)
Continuing operations Note £m £m £m
Revenue 328.2 281.5 551.4
-------- -------- --------
Operating costs
Manpower costs (39.2) (34.7) (68.3)
Raw materials and
consumables used (19.4) (14.7) (32.8)
Depreciation (49.3) (45.2) (90.7)
Amortisation
of intangibles (0.8) (0.8) (1.4)
Other operating expenses (125.8) (104.5) (207.3)
Abortive acquisition costs 4 - (2.0) (1.5)
Business restructuring
costs 5 - - (3.4)
-------- -------- --------
Operating profit 93.7 79.6 146.0
-----------------------------------------------------------------------------------------------
Operating profit before
depreciation, amortisation
and exceptional items 143.8 127.6 243.0
Operating profit before
exceptional items 93.7 81.6 150.9
Abortive acquisition costs 4 - (2.0) (1.5)
Business restructuring
costs 5 - - (3.4)
-------- -------- --------
Operating profit 93.7 79.6 146.0
-----------------------------------------------------------------------------------------------
Interest payable and similar
charges (48.4) (44.8) (89.3)
Interest receivable 15.5 13.2 27.3
Share of post-tax profit
from joint venture - - 0.1
-------- -------- --------
Profit before tax 60.8 48.0 84.1
Tax on profit on ordinary
activities 6 (23.4) (14.4) (23.5)
-------- -------- --------
Profit for the period from
continuing operations 37.4 33.6 60.6
Discontinued operations
-------------------------
Post-tax business disposal
profit 7 - - 5.0
-------- -------- --------
Profit for the period 37.4 33.6 65.6
======== ======== ========
Profit attributable to equity
shareholders 37.4 33.6 65.6
======== ======== ========
Earnings per share (pence
per share) 8
- Basic 29.3 26.9 52.1
- Diluted 29.1 26.8 51.7
Earnings per share from
continuing operations
- Basic 29.3 26.9 48.1
- Diluted 29.1 26.8 47.8
Dividend per share (pence
per share) 9 16.5 13.8 43.0
Dividend proposed for the
period (£m) 9 19.4 17.7 55.1
2004/05 comparatives have been restated to IFRS.
PENNON GROUP PLC
Consolidated statement of recognised income and expense for the half year ended
30 September 2005
Unaudited
--------------------
Half year ended Half year ended Year ended
30 September 30 September 31 March
2005 2004 2005
(restated) (restated)
£m £m £m
Profit for the period 37.4 33.6 65.6
Actuarial (losses)/gains on
defined benefit schemes
(net of tax) (1.5) (2.9) 1.3
Cash flow hedges
Net fair value losses (net of tax) (6.3) - -
-------- -------- --------
Net (losses)/gains not recognised
directly in income statement (7.8) (2.9) 1.3
-------- -------- --------
Total recognised income for the
period 29.6 30.7 66.9
Adjustments on adoption of IAS 32/39
1 April 2005 13.9 - -
-------- -------- --------
43.5 30.7 66.9
======== ======== ========
Attributable to equity shareholders 43.5 30.7 66.9
======== ======== ========
2004/05 comparatives have been restated to IFRS.
PENNON GROUP PLC
Consolidated balance sheet at 30 Unaudited
September 2005 --------------------
Half year ended Half year ended Year ended
30 September 30 September 31 March
2005 2004 2005
(restated) (restated)
£m £m £m
Assets
Non-current assets
Goodwill 95.3 61.8 64.4
Intangible assets 10.3 6.4 6.0
Property, plant and
equipment 2,283.3 2,167.7 2,218.5
Trade and other
receivables 4.1 3.0 3.3
Investments accounted for
using equity method 1.2 - -
-------- -------- --------
2,394.2 2,238.9 2,292.2
-------- -------- --------
Current assets
Inventories 5.3 4.9 4.7
Trade and other
receivables 121.1 104.7 99.6
Financial assets
Derivative financial
instruments 0.4 - -
Cash and cash
equivalents 215.8 296.9 303.4
-------- -------- --------
342.6 406.5 407.7
-------- -------- --------
Liabilities
Current liabilities
Financial liabilities
Borrowings (53.7) (107.2) (54.8)
Derivative financial
instruments (7.6) - -
Trade and
other payables (195.7) (174.8) (127.8)
Current tax
liabilities (32.8) (19.9) (23.6)
Provisions for
liabilities
and charges (7.5) (6.8) (8.4)
-------- -------- --------
(297.3) (308.7) (214.6)
-------- -------- --------
Net current assets 45.3 97.8 193.1
-------- -------- --------
Non-current liabilities
Financial liabilities
Borrowings (1,360.9) (1,278.1) (1,366.8)
Other non-current
liabilities (3.5) (17.4) (19.1)
Retirement benefit
obligations (39.6) (82.7) (79.8)
Deferred tax
liabilities (299.9) (275.2) (282.8)
Provisions for
liabilities
and charges (34.0) (28.2) (27.9)
-------- -------- --------
(1,737.9) (1,681.6) (1,776.4)
-------- -------- --------
Net assets 701.6 655.1 708.9
======== ======== ========
Shareholders' equity
Share capital 142.6 139.5 142.0
Share premium account 155.8 156.1 153.7
Retained earnings and
other reserves 403.2 359.5 413.2
-------- -------- --------
Total shareholders'
equity 701.6 655.1 708.9
======== ======== ========
2004/05 comparatives have been restated to IFRS.
PENNON GROUP PLC
Consolidated cash flow statement Unaudited
for the half year ended 30 --------------------
September 2005
Half year ended Half year ended Year ended
30 September 30 September 31 March
2005 2004 2005
(restated) (restated)
Note £m £m £m
Cash flows from operating
activities
Cash generated from
operations 10 82.2 129.4 242.4
Interest paid (33.9) (23.7) (68.5)
Forward interest rate swap
settlement - (3.4) (3.4)
Tax paid (0.3) - (0.4)
-------- -------- --------
Net cash generated from
operating activities 48.0 102.3 170.1
-------- -------- --------
Cash flows from investing
activities
Interest received 15.6 4.6 12.8
Acquisition of subsidiaries
(net of cash acquired) (44.5) (28.5) (28.6)
Investment in joint venture (1.0) - -
Proceeds of business disposal 5.0 - -
Proceeds from sale of available
for sale investments - 4.2 4.2
Purchase of intangible
assets - - (0.2)
Purchase of property, plant and
equipment (86.4) (77.9) (167.1)
Proceeds from sale of property,
plant and equipment 1.5 0.9 2.3
-------- -------- --------
Net cash used in investing
activities (109.8) (96.7) (176.6)
-------- -------- --------
Cash flows from financing
activities
Net proceeds from issue of
ordinary share capital 1.5 0.7 0.8
Net proceeds from new borrowing 77.5 55.0 150.0
Repayment of borrowings (93.1) (46.6) (130.2)
Finance lease drawdowns 1.5 26.4 57.3
Finance lease principal
repayments (5.1) (3.6) (5.4)
Dividends paid (16.1) (10.6) (28.3)
-------- -------- --------
Net cash used in financing
activities (33.8) 21.3 44.2
-------- -------- --------
Net (decrease)/increase in cash
and cash equivalents (95.6) 26.9 37.7
Cash and cash equivalents at
beginning of period 120.6 82.9 82.9
-------- -------- --------
Cash and cash equivalents at
end of period 25.0 109.8 120.6
======== ======== ========
2004/05 comparatives have been restated to IFRS.
PENNON GROUP PLC
NOTES
1. Basis of preparation
These unaudited interim financial statements are the first interim
financial statements following adoption of International Financial
Reporting Standards (IFRS). The accounting policies adopted and the
reconciliations from net assets and equity under UK Generally Accepted
Accounting Principles (UK GAAP) at transition to IFRS on 1 April 2004 and
for the half year ended 30 September 2004 and for the year ended 31 March
2005 are set out in a separate document published today 'Adoption of
International Financial Reporting Standards' (IFRS).
All accounting policies have been consistently applied except where the
Group has taken advantage of the exemption in IFRS 1 'First-time Adoption
of IFRS' from the requirement to restate comparative information for IAS 32
'Financial Instruments : disclosure and presentation' and IAS 39 'Financial
Instruments : recognition and measurement'. These standards have been
applied with effect from 1 April 2005.
The financial information has been prepared in accordance with all IFRS and
interpretations of the Internal Financial Reporting Interpretations
Committee (IFRIC) expected to be applicable for the year ended 31 March
2006 and have been determined in accordance with IFRS in issue that are
either endorsed by the European Union (EU) and effective at 31 March 2006
or are expected to be endorsed and effective at 31 March 2006.
2. Financial information
The financial information for the year ended 31 March 2005 does not
constitute full financial statements within the meaning of section 240 of
the Companies Act 1985. The full financial statements for that year, which
were prepared under UK GAAP, 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.
PENNON GROUP PLC
NOTES (Continued)
3. Segmental reporting
Unaudited
--------------------
Half year ended Half year ended Year ended
30 September 30 September 31 March
2005 2004 2005
(restated) (restated)
£m £m £m
Continuing operations
Revenue
Water and sewerage 177.3 156.9 307.0
Waste management 152.0 126.7 248.3
Other 3.9 3.4 6.9
Less intra-segment trading (5.0) (5.5) (10.8)
-------- -------- --------
328.2 281.5 551.4
-------- -------- --------
Segment result
Earnings before depreciation and
amortisation of intangibles *
Water and sewerage 112.3 98.6 186.4
Waste management 31.8 28.7 56.4
Other (0.3) 0.3 0.2
-------- -------- --------
143.8 127.6 243.0
-------- -------- --------
Earnings before amortisation of
intangibles *
Water and sewerage 77.8 67.4 122.2
Waste management 16.8 14.6 30.0
Other (0.1) 0.4 0.1
-------- -------- --------
94.5 82.4 152.3
-------- -------- --------
Operating profit *
Water and sewerage 77.8 67.4 122.2
Waste management 16.0 13.8 28.6
Other (0.1) 0.4 0.1
-------- -------- --------
93.7 81.6 150.9
-------- -------- --------
Discontinued operations
Other - - 5.0
-------- -------- --------
* Before the exceptional items comprising abortive acquisition costs and
business restructuring costs.
4. Abortive acquisition costs
The abortive acquisition costs arise from negotiations to acquire the UK
landfill and landfill gas operations of Shanks Group Plc where discussions
were terminated on 25 May 2004.
5. Business restructuring costs
The business restructuring costs arise in the water and sewerage segment.
PENNON GROUP PLC
NOTES (Continued)
6. Tax on profit on ordinary activities Unaudited
-----------------------
September September March
2005 2004 2005
(restated) (restated)
Tax on profit on ordinary activities £m £m £m
comprises:
United Kingdom corporation tax 8.1 4.6 7.9
Deferred tax 15.3 9.8 15.6
--------- --------- ---------
23.4 14.4 23.5
--------- --------- ---------
The tax charge for September 2005 and September 2004 has been derived by
applying the anticipated effective annual tax rate to the first half year
profit before tax.
7. Discontinued operations
The business disposal profit relates to the balance of proceeds due from
the 1998 arrangement to dispose of the Group's interest in Societa Italo
Britannica dell'Acqua Srl.
The tax charge was not affected by the business disposal profit.
8. Basic and diluted earnings per share
Reconciliation of earnings and weighted average number of shares in issue
during the period.
All share options with an exercise price lower than the average market
price of the Company's shares during the period have been included in the
calculation of diluted earnings per share.
The reconciliation of the earnings and weighted average number of shares
used in the calculations is set out below.
Unaudited
-----------------------
September September March
2005 2004 2005
(restated) (restated)
Weighted average number of ordinary
shares
For basic earnings per share 127.5 124.7 126.0
Effect of dilutive potential ordinary
shares :
Share options 1.1 0.9 0.9
--------- --------- ---------
For diluted earnings per share 128.6 125.6 126.9
========= ========= =========
Earnings per share from discontinued
operations
(in pence per share)
- Basic - - 4.0
- Diluted - - 3.9
PENNON GROUP PLC
NOTES (Continued)
8. 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
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 :
September September March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
Earnings per share Earnings per share Earnings per share
Earnings Basic Diluted Earnings Basic Diluted Earnings Basic Diluted
£m p p £m p p £m p p
Earnings
per share
from
continuing
Operations 37.4 29.3 29.1 33.6 26.9 26.8 60.6 48.1 47.8
Exceptional
items - - - 2.0 1.6 1.6 4.9 3.9 3.8
Deferred tax 15.3 12.0 11.9 9.8 7.9 7.7 15.6 12.3 12.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Adjusted
earnings
per share
from
continuing 52.7 41.3 41.0 45.4 36.4 36.1 81.1 64.3 63.9
operations
====== ====== ====== ====== ====== ====== ====== ====== ======
9. Dividends Unaudited
-----------------------
September September March
2005 2004 2005
(restated) (restated)
£m £m £m
Interim dividend paid for the year
ended 31 March 2005 :
13.8p (2004 13.2p) per share 17.7 16.4 16.4
Final dividend approved for the year
ended 31 March 2005 :
29.2p (2004 27.8p) per share 37.4 34.7 34.7
--------- --------- ---------
55.1 51.1 51.1
========= ========= =========
Unaudited
-----------------------
September September March
2005 2004 2005
(restated) (restated)
£m £m £m
Proposed interim dividend for the
year
ended 31 March 2006 of 16.5p
(2005 13.8p) per share 19.4 17.7 17.7
========= ========= =========
The proposed interim dividend has not been included as a liability in these
financial statements in accordance with IFRS.
PENNON GROUP PLC
NOTES (Continued)
10. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating
activities:
Unaudited
-----------------------
Cash generated from operations September September March
2005 2004 2005
(restated) (restated)
£m £m £m
Profit for the period 37.4 33.6 60.6
Adjustments for:
Employee share schemes 0.9 0.9 1.5
Deferred income released to
profits (0.4) - (0.2)
Profit on disposal of property,
plant and equipment (0.7) (0.3) (1.4)
Depreciation charge 49.3 45.2 90.7
Amortisation of intangible assets 0.8 0.8 1.4
Share of post-tax loss from joint
ventures - - (0.1)
Interest payable and similar
charges 48.4 44.8 89.3
Interest receivable (15.5) (13.2) (27.3)
Taxation 23.4 14.4 23.5
Changes in working capital (excluding
the effect of acquisition of subsidiaries)
Increase in stocks (0.2) (0.4) (0.2)
Increase in trade and other
receivables (23.3) (5.3) (0.9)
Decrease in long-term deposits (2.9) (2.9) (3.5)
Increase in trade and other payables 8.2 12.3 8.5
(Decrease)/increase in retirement
benefit obligations (42.4) 0.4 2.9
Decrease in provisions for
liabilities and charges (0.8) (0.9) (2.4)
--------- --------- ---------
Net cash generated from operations 82.2 129.4 242.4
========= ========= =========
11. Net borrowings Unaudited
-----------------------
2005 2004 2005
(restated) (restated)
£m £m £m
Cash and cash equivalents 215.8 296.9 303.4
Borrowings - current
Bank overdraft (10.2) (10.0) (5.1)
Other current borrowings (14.5) (70.7) (20.4)
Finance lease obligations (29.0) (26.5) (29.3)
--------- --------- ---------
Total current borrowings (53.7) (107.2) (54.8)
--------- --------- ---------
Borrowings - non-current
Bank loans (247.7) (185.4) (255.3)
Other non-current borrowings (314.4) (323.5) (316.4)
Finance lease obligations (798.8) (769.2) (795.1)
--------- --------- ---------
Total non-current borrowings (1,360.9) (1,278.1) (1,366.8)
--------- --------- ---------
Total net borrowings (1,198.8) (1,088.4) (1,118.2)
========= ========= =========
PENNON GROUP PLC
NOTES (continued)
12. Acquisitions
On 21 June 2005 the entire issued share capital of Brett Waste Management
Limited, (now renamed Viridor Waste Kent Limited), was purchased by Viridor
Waste Management Limited for a cash consideration of £44.5 million before
costs. The acquisition has been accounted for using the acquisition method
and provisional goodwill of £30.9 million and intangible fixed assets of
£5.2 million have been capitalised. The intangible fixed assets are being
amortised evenly over the Directors' estimate of useful economic life.
On 30 September 2005 Viridor Waste Management Limited acquired 50% of the
entire issued share capital of Lakeside Energy From Waste Limited for an
investment of £1.0 million. The joint venture has been accounted for using
the equity method.
13. The interim dividend record and payment dates will be set out in the
Circular to shareholders relating to the proposed return of capital, which
is expected to be posted to shareholders towards the end of January 2006.
The interim report will be posted to shareholders at the same time and will
also be available from the Company's registered office.
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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