Final Results
Pennon Group PLC
01 June 2006
PENNON GROUP PLC 1 June 2006
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2006
Pennon Group announces its unaudited results for the year ended 31 March 2006.
A presentation for City audiences will be held today, 1 June 2006, at 10:30 at
The Brewery, Chiswell Street, London, EC1.
FINANCIAL HIGHLIGHTS
* Operating profit up 16.0% to £175.1m. (1)
• South West Water up 15.8% to £141.5m.
• Viridor Waste up 19.7% to £35.9m before amortisation of intangibles.
* Profit before tax up 24.6% to £110.9m. (1)
* Earnings per share up 17.4% to 75.5p. (2)
* Return of capital announced December 2005.
• £200m capital return.
• £14.5m South West Water customer payment.
* Dividend
• Recommended final dividend per share up 20.2% to 35.1p.
• Full year dividend up 20.0% to 51.6p.
• Dividend policy of 3% per annum real increases until 2009/10
* Proposed 3 for 1 stock split.
(1) Before exceptional items (as detailed in note 4 to the financial
statements).
(2) Before exceptional items (as detailed in note 4 to the financial
statements) and deferred tax.
OPERATIONAL HIGHLIGHTS
* South West Water:
• On target to deliver 2005 - 2010 Regulatory Contract.
• Profit increase reflecting strong growth in Regulatory Capital Value
(RCV) in 2005/06.
• Successful re-focusing of capital programme to mains rehabilitation
and asset maintenance.
• Reservoir water storage of 85%, 3% above last year.
• No restrictions envisaged.
* Viridor Waste:
• Continued strong growth in profits from landfill, power generation
and contracts.
• Brett Waste Management Limited acquired June 2005 - successfully
integrated and earnings enhancing in its first year.
• Lakeside energy from waste plant joint venture signed September 2005
- now fully financed and under construction.
• Since the year end, Wyvern Waste Services Limited acquired for £25m
and long-term waste management PPP contract signed with Somerset County Council.
The Chairman, Ken Harvey, said, ' Once again I am pleased to report excellent results
for Pennon which clearly affirm our strategy of focusing on our two key businesses,
South West Water and Viridor Waste. The Board announced last December its decision to
increase the level of gearing in South West Water to increase the efficiency of the
Group's capital structure. As a consequence, £145m has been returned to shareholders
via a B Share scheme and £55m is to be returned via a share buyback. In addition,
£14.5m has been paid to South West Water customers as a payment of £20 per customer.
Viridor Waste continues to deliver a very strong performance based on both organic
growth and acquisitions as a result of its successful focused strategy.
'Pennon's Board proposes, subject to shareholder approval at the forthcoming AGM, to
effect a 3 for 1 share split to increase the liquidity and marketability of the
Company's shares.'
For further information today, 1 June 2006, please contact :
David Dupont Group Director of Finance - Pennon )
Jo Finely Investor Relations Manager - Pennon ) 0207 251 3801
Mark Harris Finsbury Group )
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
All numbers contained herein are published in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union with prior year figures
restated.
Full information relating to the restatement from UK GAAP to IFRS was published on 8
December 2005, 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 17.1% to £645.7m.
• Operating profit before exceptional items rose by 16.0% to £175.1m.
• Profit before tax was up 24.6% to £110.9m *
• Earnings per share from continuing operations before exceptional items and
deferred tax increased by 17.4% from 64.3p to 75.5p. Earnings per share from
continuing operations after exceptional items and deferred tax fell from
48.1p to 29.7p.
• Capital expenditure was £249.7m (2004/05 - £181.0m).
• Net borrowings at 31 March 2006 were £1,427m, an increase of £309m since31 March 2005.
Gearing, being net borrowings to shareholders' funds plus net borrowings,
was 71% (2004/05 - 61%). Interest cover was 2.7 times (2004/05 - 2.4 times).
South West Water net debt to RCV was 62.5% (2005 - 52.4%).
• The Board has recommended a final dividend of 35.1p, up 20.2%, subject to
shareholder approval. Together with the interim dividend of 16.5p, this will
result in a total dividend for the year of 51.6p, an increase of 20.0% on the
total dividend for 2004/05. As confirmed at the time of the Group's interim
results last December, the Board's policy is to grow the Group dividend by 3%
above inflation per annum thereafter 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.
• The Board proposes, subject to shareholder approval at the forthcoming AGM,
to effect a stock split of 3:1 in Pennon's share capital in order to increase
the liquidity of its shares. Further details will be circulated with the
Annual Report.
* Before net exceptional costs totalling £56.8m in 2005/06 and £4.9m in 2004/
05 as detailed in note 4 to the financial statements.
STRATEGY
The Board's priority continues to be the creation of shareholder value through its
strategic focus on water, sewerage and waste management. The preliminary results
announced above are testament to the Board's strategy of focusing on these key business
areas. The move to a more highly geared structure has allowed the Group to return value
to shareholders and customers and provide an enhanced dividend.
SOUTH WEST WATER
South West Water revenue rose by £41.5m to £348.5m. Approved tariff increases,
including the 12.5% K factor, amounted to £49.5m. 7,400 new customer connections
contributed £2.8m. Customers switching from unmeasured to metered charging caused a
reduction of £7.9m in turnover. Over 50% of South West Water's domestic customers are
now metered. Other factors, including a small decrease in measured demand, reduced
turnover by £2.9m.
South West Water's operating profit rose 15.8% to £141.5m, before exceptional costs of
£14.5m from the customer payment (2004/05 exceptional restructuring costs of £3.4m).
Operating costs, including depreciation, increased by £22.2m to £207.0m. Additional
costs from new capital schemes of £7.7m, inflation of £8.4m (including energy and
chemicals), and other cost increases of £10.1m (including depreciation increases and
direct charging of a proportion of leakage expenditure to operating cost), were offset
by £4.0m of efficiency savings. Detailed plans are in place and the company is on track
to achieve the operating cost efficiency targets set by the Director General of Water
Services for the period up to 2010.
In 2005/06 two of our key reservoirs were 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. This contributed to
current reservoir water levels in the region of 85%, 3% above last year. 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.
During the year, the company completed the majority of the 'Early Start' schemes agreed
with Ofwat during the last Price Review, numbering around 45 in total and at a cost of
some £20m. The programme is on track with the remaining schemes due to be completed in
2006/07.
Capital expenditure increased by 42.0% to £191.0m. £109.4m was invested in water supply
improvements including water mains renovation, water treatment works enhancement and
leakage control. A record length of 695km 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. 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. Ofwat's Levels of Service Report showed that in 2004/05 South West
Water achieved the largest Overall Performance Assessment score improvement, resulting
in 6th position out of 10 water and sewerage companies, as it has become possible to
redirect capital expenditure from the coastal clean-up programme to other areas of the
business. This included an increase in the Operational Performance Index (OPI) score
used by the DWI to assess drinking water quality which has benefited from the water
mains rehabilitation investment in recent years.
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 last summer,
142 of the 143 designated bathing waters met the mandatory EU quality standards, with
88.8% meeting the substantially 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.
Regulatory Capital Value (RCV) is expected to grow by 31% 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 again expects its
growth in RCV to outstrip significantly the anticipated growth in net borrowings.
VIRIDOR WASTE
Financial performance in 2005/06 was again strong. Revenue rose by 20.4% (£50.6m) to
£298.9m in 2005/06. Acquisitions accounted for £21.3m of the increase and underlying
business £29.3m. Landfill tax within revenue increased by £19.8m.
Viridor Waste's operating profit before intangibles amortisation rose by 19.7% to
£35.9m (£34.3m after intangibles amortisation), compared to £30.0m (£28.6m after
intangibles amortisation) in 2004/05. The increase was driven by good performance in
landfill, power generation, contracts and the Brett Waste Management acquisition. Of
the 19.7% total growth in 2005/6 Brett Waste accounted for 11.7%, and the underlying
business for 8.0%. Since 2000/01 operating profit before intangibles amortisation has
grown at a compound rate of 22.3% pa of which around 11% has been organic, with the
rest being achieved through acquisitions.
Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 18.3% from
£56.4m to £66.7m. Profit before tax at £21.9m was 9.0% up on the previous year. Capital
expenditure for the year was £58.9m (2004/05 - £45.8m).
Total landfill disposal volumes increased by 7% to 4.3 million tonnes, due mainly to
the Brett Waste Management acquisition. Total landfill disposal volumes excluding
acquisitions remained unchanged compared to the previous 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 non-hazardous landfill and
ii) in the first half of 2005/06, a significant one-off sludge contract
at Masons.
Excluding the above, underlying volume was unchanged, with growth in industrial/
commercial volumes (particularly from Viridor's own fleet) offsetting a decline in
municipal waste volumes.
Average gate fees rose by 9%, reflecting inputs of stabilised non-reactive hazardous
waste and the underlying tightness of UK landfill capacity. At 31 March 2006, Viridor
had 87 million cubic metres of landfill capacity.
Viridor Waste's total power generation capacity increased by a further 17% in the year,
principally through the Brett Waste acquisition. Viridor's power generation prices
(excluding acquisitions) rose 10% 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. Including the Brett Waste
acquisition, total output increased by 12% in the year to 367 Gigawatt hours. Viridor's
capacity as at 31 March 2006 (including the contribution from Brett Waste) was 61
Megawatts, around 52% of which was eligible for ROCs.
In June 2005, Viridor acquired Brett Waste, a landfill and power generation business,
for a cash consideration of £44.4m. The company owns strategically located landfill
sites in Kent and Essex with approximately 11m cubic metres of consented void capacity,
landfill gas power generation schemes totalling 6 Megawatts capacity and associated
waste transfer station, recycling, composting and transport activities. The acquisition
fits well with Viridor's stated strategy and complements the Company's existing
facilities in the adjacent counties of East Sussex, Surrey and Suffolk. Brett Waste has
now been successfully integrated and was earnings enhancing (after integration costs
and intangibles amortisation) in its first 9 months, a year ahead of expectations.
In August 2005, 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 2005, Viridor set up Lakeside Energy from Waste Limited, a joint venture
with Grundon Waste Management Limited, to build and operate an energy from waste (EfW)
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 32 Megawatts of electricity which will be fed into the national grid. The
plant is being built at a strategically located site at Colnbrook near Slough, 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 total project IRR is within normal project finance
parameters. The plant is under construction and scheduled to be commissioned in
mid-2008.
On 15 May 2006, Viridor Waste announced the acquisition of Wyvern Waste Services
Limited 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
acquisition comprises 5m cubic metres of consented landfill void, 7 Megawatts of power
generation capacity and associated recycling and treatment operations. It is expected
to be earnings enhancing before amortisation of intangibles in its first full year.
This acquisition and associated contract fit well with Viridor Waste's strategy.
Viridor Waste continues to explore other suitable PFI or PPP opportunities as part of
its overall strategy : in May 2006 Greater Manchester Waste Disposal Authority
announced that the Viridor Waste Management Limited/John Laing Plc partnership was one
of two parties shortlisted to submit Best And Final Offers for its waste management
services contract.
PENSIONS
The Group pension schemes had a deficit (net of deferred tax) under IAS 19 at 31 March
2006 of circa £29m, compared to circa £56m at 31 March 2005. In August 2005 the Company
made a prepayment of employer pension contributions for the period to 2010 of £44m
(£31m net of tax). A strong investment performance has been offset by an increase in
liabilities.
FINANCING INITIATIVES
The total net interest charge increased from £62.0m to £64.3m (excluding exceptional
items). The average interest rate on net debt has reduced to 5.1% (2004/05 5.6%) for
the Group and 4.7% for South West Water.
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
extended its swap arrangements to fix the interest rate on over 65% of its current net
debt for the period up to March 2007 and on 60% up to March 2010.
In addition, South West Water has index linked 10% of its current net debt up to 2041.
The £114m finance facility lease reported within the interim results announcement has
been increased to £142m. In February 2006 South West Water exercised an option to
convert this lease to an RPI index linked basis (1.365% real), taking advantage of
historically low index linked rates and also to reduce earnings volatility.
During the year South West Water agreed a new £70m facility with the European
Investment Bank. The 10.625% £150m bond due 2012 was retired in January 2006.
TAXATION
The mainstream corporation tax charge for the year was £14.8m (£3.9m credit after
exceptional items) compared to a £7.9m charge in 2004/05.
The deferred tax charge for the year was £20.2m (£15.6m in 2004/05).
RETURN OF CAPITAL
On 15 February 2006 Pennon's shareholders approved the proposal to return £200m of cash
to shareholders, with circa £145m of this return by way of a B Share scheme and circa
£55m through an on-market share buy back programme. The B Shares have now been issued
with circa £138m of capital returned in March 2006, and the balance in April.
In order to maintain comparability of the share price after the B Share scheme, Pennon
undertook a share consolidation whereby shareholders received ten new ordinary shares
for every eleven existing ordinary shares. As a result, the number of ordinary shares
in issue was reduced from approximately 130.5 million to 118.6 million at year end. The
weighted average number of shares during 2005/06 was 127.3m.
The £55m on-market share buy back scheme is to be progressed.
In association with the return of capital, a payment of £20 has been made to each South
West Water customer at a cost of £14.5m.
BOARD MATTERS
Bob Baty, Chief Executive of South West Water, is due to retire at the end of July
following 45 years service in the industry. The Board would like to take this
opportunity to express its gratitude to Bob for his significant contribution to South
West Water since privatisation in 1989 and to wish him well in his retirement.
The Board looks forward to welcoming Chris Loughlin as an Executive Director of Pennon
and Chief Executive of South West Water. He will take up his post on 1 August.
PROSPECTS
The Board has confidence that South West Water will successfully deliver the new K4
regulatory contract and significantly grow its Regulatory Capital 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
1 June 2006
PENNON GROUP PLC
Consolidated income statement for the year ended 31 March 2006
Unaudited
----------------------------------------------------------------------
Before Exceptional Before Exceptional
exceptional items exceptional items
items (note 4) Total items (note 4) Total
2006 2006 2006 2005 2005 2005
Note £m £m £m £m £m £m
Continuing operations
Revenue 3 645.7 645.7 551.4 551.4
Operating costs
Manpower costs (79.9) (79.9) (68.3) (3.0) (71.3)
Raw materials
and consumables used (40.7) (40.7) (32.8) (32.8)
Other operating
expenses (245.9) (14.5) (260.4) (207.3) (1.9) (209.2)
Depreciation (102.5) (102.5) (90.7) (90.7)
Amortisation
of intangibles (1.6) (1.6) (1.4) (1.4)
----------------------------------------------------------------------
Operating profit 3 175.1 (14.5) 160.6 150.9 (4.9) 146.0
Interest payable and
similar charges (96.8) (50.2) (147.0) (89.3) (89.3)
Interest receivable 32.5 7.9 40.4 27.3 27.3
Share of post-tax
profit from joint venture 0.1 0.1 0.1 0.1
----------------------------------------------------------------------
Profit before tax 110.9 (56.8) 54.1 89.0 (4.9) 84.1
Tax on ordinary
activities 5 (35.0) 18.7 (16.3) (23.5) (23.5)
----------------------------------------------------------------------
Profit/(loss)for the year
from continuing operations 75.9 (38.1) 37.8 65.5 (4.9) 60.6
Discontinued operations
Post-tax disposal profit - 5.0 5.0
----------------------------------------------------------------------
Profit/(loss)for the year 75.9 (38.1) 37.8 65.5 0.1 65.6
======================================================================
Profit/(loss)attributable
to equity shareholders 75.9 (38.1) 37.8 65.5 0.1 65.6
======================================================================
Earnings pershare
(pence per share) 6
- Basic 29.7 52.1
- Diluted 29.4 51.7
Earnings per share from
continuing operations
- Basic 29.7 48.1
- Diluted 29.4 47.8
Dividend per share
(pence per share) 7 51.6 43.0
Dividend proposed for
the period (£m) 7 61.0 55.1
PENNON GROUP PLC
Consolidated statement of recognised income and expense for the year ended 31 March 2006
Unaudited
-------------------------
2006 2005
£m £m
Profit for the year 37.8 65.6
--------------------------
Actuarial(losses)/gains on defined benefit schemes (2.8) 1.9
Cash flow hedges
Net fair value gains 1.0 -
Tax on items taken directly to or transferred from equity 0.8 (0.6)
--------------------------
Net (losses)/gains not recognised directly in income statement (1.0) 1.3
--------------------------
Total recognised income for the year 36.8 66.9
Adjustments on adoption of IAS 32/39 1 April 2005 (net of tax) 8.6 -
--------------------------
45.4 66.9
==========================
Attributable to equity shareholders 45.4 66.9
==========================
PENNON GROUP PLC
Consolidated balance sheet at 31 March 2006
Unaudited
------------------------
2006 2005
£m £m
Assets
Non-current assets
Goodwill 98.6 64.4
Intangible assets 5.7 6.0
Property,plant and equipment 2,415.9 2,218.5
Trade and other receivables 6.0 3.3
Investments accounted for using equity method 1.3 -
------------------------
2,527.5 2,292.2
------------------------
Current assets
Inventories 5.0 4.7
Trade and other receivables 94.5 99.6
Financial assets
Derivative financial instruments 3.1 -
Cash and cash equivalents 99.4 303.4
------------------------
202.0 407.7
------------------------
Liabilities
Current liabilities
Financial liabilities
Borrowings (54.7) (54.8)
Derivative financial instruments (3.0) -
Trade and other payables (170.1) (127.8)
Current tax liabilities (24.0) (23.6)
Provisions for liabilities and charges (11.4) (8.4)
------------------------
(263.2) (214.6)
------------------------
Net current(liabilities)/assets (61.2) 193.1
------------------------
Non-current liabilities
Financial liabilities
Borrowings (1,471.8) (1,366.8)
Other non-current liabilities (2.2) (19.1)
Retirement benefit obligations (41.7) (79.8)
Deferred tax liabilities (302.8) (282.8)
Provisions for liabilities and charges (66.6) (27.9)
------------------------
(1,885.1) (1,776.4)
------------------------
Net assets 581.2 708.9
========================
Shareholders' equity
Share capital 184.2 142.0
Share premium account 10.2 153.7
Capital redemption reserve 98.4 -
Retained earnings and other reserves 288.4 413.2
-----------------------
Total shareholders' equity 581.2 708.9
======================
PENNON GROUP PLC
Consolidated cash flow statement for the year ended 31 March 2006
Unaudited
------------------------
2006 2005
Note £m £m
Cash flows from operating activities
Cash generated from operations 8 232.1 242.4
Interest paid (128.9) (68.5)
Forward interest rate swap settlement - (3.4)
Tax paid (2.2) (0.4)
-----------------------
Net cash generated from operating activities 101.0 170.1
-----------------------
Cash flows from investing activities
Interest received 22.5 12.8
Acquisition of subsidiaries (net of cash acquired) (44.7) (28.6)
Investment in joint venture (1.1) -
Proceeds of business disposal 5.0 -
Proceeds from sale of available for sale investments - 4.2
Purchase of intangible assets - (0.2)
Purchase of property, plant and equipment (218.6) (167.1)
Proceeds from sale of property, plant and equipment 4.8 2.3
-----------------------
Net cash used in investing activities (232.1) (176.6)
-----------------------
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 1.6 0.8
Release of restricted cash balances 177.1 -
Net proceeds from new borrowing 182.5 150.0
Repayment of borrowings (224.3) (130.2)
Finance lease drawdowns 141.6 57.3
Finance lease principal repayments (15.8) (5.4)
Dividends paid (34.1) (28.3)
B share payments (137.8) -
-----------------------
Net cash received from financing activities 90.8 44.2
-----------------------
Net (decrease)/inc rease in cash and cash equivalents (40.3) 37.7
Cash and cash equivalents at beginning of year 120.6 82.9
-----------------------
Cash and cash equivalents at end of year 80.3 120.6
=======================
PENNON GROUP PLC
NOTES
1. Basis of preparation
These unaudited results are the first financial results following adoption of International
Financial Reporting Standards (IFRS) as adopted by the European Union. 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
year ended 31 March 2005 were set out in a separate document 'Adoption of International
Financial Reporting Standards (IFRS)' published on 8 December 2005.
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) applicable for the year
ended 31 March 2006 and with those parts of the Companies act 1985 applicable to companies
reporting under IFRS.
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.
3. Segmental reporting
Unaudited
------------------------
2006 2005
£m £m
Continuing operations
Revenue
Water and sewerage 348.5 307.0
Waste management 298.9 248.3
Other 7.3 6.9
Less intra-segment trading (9.0) (10.8)
------------------------
645.7 551.4
------------------------
Segment result
Earnings before depreciation, amortisation and exceptional items *
Water and sewerage 213.4 186.4
Waste management 66.7 56.4
Other (0.9) 0.2
------------------------
279.2 243.0
------------------------
Earnings before amortisation and exceptional items *
Water and sewerage 141.5 122.2
Waste management 35.9 30.0
Other (0.7) 0.1
------------------------
176.7 152.3
------------------------
Operating profit before exceptional items *
Water and sewerage 141.5 122.2
Waste management 34.3 28.6
Other (0.7) 0.1
-----------------------
175.1 150.9
-----------------------
Operating profit
Water and sewerage 127.0 118.8
Waste management 34.3 28.6
Other (0.7) (1.4)
-----------------------
160.6 146.0
-----------------------
Discontinued operations
Other - 5.0
-----------------------
* The exceptional items are detailed in note 4.
4. Exceptional items
Unaudited
----------------------
The exceptional items are : 2006 2005
£m £m
Continuing operations
Customer payment 14.5 -
Abortive acquisition costs - 1.5
Business restructuring costs
Manpower costs - 3.0
Other external charges - 0.4
-----------------------
Operating profit 14.5 4.9
Bond retirement 50.2 -
Receipt on transfer of lease (7.9) -
-----------------------
Profit before tax 56.8 4.9
Tax arising on exceptional items (18.7) -
-----------------------
38.1 4.9
Discontinued operations
Post-tax disposal profit - (5.0)
------------------------
38.1 (0.1)
========================
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.
The abortive acquisition costs arose from negotiations to acquire the UK landfill and
landfill gas operations of Shanks Group Plc where discussions were terminated on 25 May 2004.
The business restructuring costs arose in the water and sewerage segment.
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.
No tax charge arose from the business disposal profit.
5. Tax on profit on ordinary activities
Unaudited
----------------------------------------------------------
Before Exceptional
exceptional items
items (note 4) Total
2006 2006 2006 2005
£m £m £m £m
Tax on profit on ordinary
activities comprises:
United Kingdom corporation tax 14.8 (18.7) (3.9) 7.9
Deferred tax 20.2 - 20.2 15.6
--------------------------------------------------------
35.0 (18.7) 16.3 23.5
========================================================
6. Basic and diluted earnings per share
The reconciliation of the weighted average number of shares and earnings used in the calculations is :
Unaudited
--------------------------
Number of shares (millions) 2006 2005
For basic earnings per share 127.3 126.0
Effect of dilutive potential ordinary shares :
Share options 1.1 0.9
---------------------------
For diluted earnings per share 128.4 126.9
===========================
At 31 March 2006 there were 118,608,847 Ordinary shares of £1.221 each in issue (2005
127,944,340 Ordinary shares of £1.11 each).
Earnings per share from discontinued operations
(in pence per share)
- Basic - 4.0
- Diluted - 3.9
----------------------------
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 :
6. Basic and diluted earnings per share (continued)
Unaudited
------------------------------------------------------------------
2006 2005
Earnings per share Earnings per share
Earnings Basic Diluted Earnings Basic Diluted
£m p p £m p p
Adjusted earnings :
Earnings per share from 37.8 29.7 29.4 60.6 48.1 47.8
continuing operations
Exceptional items (net of tax) 38.1 29.9 29.7 4.9 3.9 3.8
Deferred tax 20.2 15.9 15.7 15.6 12.3 12.3
------------------------------------------------------------------
Adjusted earnings per share
from continuing operations 96.1 75.5 74.8 81.1 64.3 63.9
==================================================================
7. Dividends
Unaudited
---------------------------
2006 2005
£m £m
Amounts recognised as distributions to equity holders in
the year :
Interim dividend paid for the year ended 31 March 2005 :
13.8p (2004 13.2p) per share 17.7 16.4
Final dividend paid for the year ended 31 March
2005 : 29.2p (2004 27.8p) per share 37.4 34.7
---------------------------
55.1 51.1
===========================
Unaudited
--------------------------
2006 2005
£m £m
Proposed dividends
Proposed interim dividend for the year ended 31 March 2006:
16.5p (2005 13.8p) per share 19.4 17.7
Proposed final dividend for the year ended 31 March 2006 :
35.1p (2005 29.2p) per share 41.6 37.4
--------------------------
61.0 55.1
==========================
The proposed interim and final dividends have not been included as a liability in these
financial statements. The proposed interim dividend was paid on 13 April 2006 and the
proposed final dividend is subject to approval by shareholders at the Annual General Meeting.
If approved at the Annual General Meeting on 27 July 2006 the final dividend of 35.1p per
share will be paid on 3 October 2006 to shareholders on the register at 4 August 2006. 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 21 August 2006. The final date for
receipt of DRIP application forms will be 12 September 2006.
8. Cash flow from operating activities
The reconciliation of operating profit to net cash inflow from operating activities is :
Unaudited
------------------------
Cash generated from operations 2006 2005
£m £m
Profit for the year 37.8 60.6
Adjustments for:
Employee share schemes 1.7 1.5
Deferred income released to profits (0.3) (0.2)
Profit on disposal of property, plant and equipment (1.1) (1.4)
Depreciation charge 102.5 90.7
Amortisation of intangible assets 1.6 1.4
Share of post-tax profit from joint venture (0.1) (0.1)
Interest payable and similar charges 147.0 89.3
Interest receivable (40.4) (27.3)
Taxation 16.3 23.5
Changes in working capital (excluding the effect of
acquisition of subsidiaries)
Increase in inventories (0.3) (0.2)
Decrease/(increase) in trade and other receivables 2.0 (0.9)
Decrease in long-term deposits - (3.5)
Increase in trade and other payables 8.4 8.5
(Decrease)/increase in retirement benefit obligations (39.7) 2.9
Decrease in provisions for liabilities and charges (3.3) (2.4)
-------------------------
Net cash generated from operations 232.1 242.4
=========================
Unaudited
-------------------------
9. Net borrowings 2006 2005
£m £m
Cash and cash equivalents 99.4 303.4
Borrowings - current
Bank overdrafts (18.5) (5.1)
Other current borrowings (8.2) (20.4)
Finance lease obligations (28.0) (29.3)
----------------------------
Total current borrowings (54.7) (54.8)
----------------------------
Borrowings - non-current
Bank loans (312.7) (255.3)
Other non-current borrowings (232.2) (316.4)
Finance lease obligations (926.9) (795.1)
-----------------------------
Total non-current borrowings (1,471.8) (1,366.8)
-----------------------------
Total net borrowings (1,427.1) (1,118.2)
=============================
10. 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 £44.7 million including costs. The acquisition has been accounted for
using the acquisition method and goodwill of £34.2 million and intangible fixed assets of
£1.3 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 £1.1 million including
costs. The joint venture has been accounted for using the equity method.
11. The Annual Report for 2005/06 will be posted to shareholders on 26 June 2006.
Pennon Group Plc
Registered Office:
Peninsula House
Rydon Lane
Exeter
EX2 7HR
Registered in England No 2366640
www.pennon-group.co.uk
This information is provided by RNS
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