Interim Results
Pennon Group PLC
30 November 2006
PENNON GROUP PLC 30 November 2006
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2006
Pennon Group announces its unaudited results for the half year ended 30 September
2006.
A presentation for City audiences will be held today, Thursday 30 November 2006 at
11:30 at The Great Eastern Hotel, Liverpool Street, London, EC2.
FINANCIAL HIGHLIGHTS
• Operating profit up 11.7% to £105.6m before amortisation of intangibles.
* South West Water up 8.2% to £84.2m.
* Viridor up 29.8% to £21.8m.
• Profit before tax up 16.9% to £71.1m.
• Earnings per share up 18.8% to 16.4p. (1)
• Interim dividend per share up 6.4% to 5.85p.
• South West Water capital expenditure up 21.0% to £83.7m.
• 3 for 1 stock split took place July 2006.
(1) Before deferred tax.
OPERATIONAL HIGHLIGHTS
• South West Water:
* On target to deliver 2005 - 2010 Regulatory Contract.
* Profit increase reflecting strong growth in RCV 2005 - 2010
reaching £2.6bn by end of K4.
* South West bathing waters 100% compliant with mandatory standards
(all 144 beaches for the first time).
* Tenth consecutive year without hosepipe bans and drought orders.
* Drinking water quality at all time high as direct result of mains
rehabilitation.
• Viridor:
* Particularly strong growth in profits.
* Wyvern Waste Services Limited acquired for £25m and performing well.
* Long-term waste management PPP contract signed with Somerset County
Council.
* Lakeside energy from waste plant joint venture under construction
and on schedule to open in 2008.
* Treatment and disposal contract extension to 2027 secured with
Borough of Poole.
Ken Harvey, Chairman, said, 'These excellent results demonstrate further profitable
growth in the Group and affirm our strategy of focusing on our two businesses, South
West Water and Viridor. South West Water remains on target to meet the current
regulatory contract and Viridor continues to deliver a very strong performance based
on both organic growth and acquisitions as a result of its successful focused
strategy.'
For further information today, 30 November 2006, please contact :
David Dupont Group Director of Finance - Pennon 0207 251 3801
Jo Finely Investor Relations Manager - Pennon
Sally Hogan Finsbury Group
GROUP OVERVIEW
• Revenue rose by 13.8% to £373.6m.
• Operating profit before amortisation of intangibles rose by 11.7% to £105.6m.
• Profit before tax increased 16.9% to £71.1m.
• Earnings per share before deferred tax increased by 18.8% to 16.4p.
Earnings per share after deferred tax rose by 54.1% to 15.1p.
• Group capital expenditure was £113.9m (H1 2005 - £93.1m).
• Wyvern Waste Services Limited was acquired during the half year for £25m
(including £3m cash on the balance sheet).
• Net borrowings were £1,494m, an increase of £67m since 31 March 2006.
Gearing, being net borrowings to shareholders' funds plus net borrowings,
was 72% (2005 - 63%). Interest cover was 3.1 times for the half year to 30
September 2006 (2005 - 2.8 times). South West Water net debt to RCV was 64%
(31 March 2006 - 62%).
• The interim dividend of 5.85p per share represents an increase of 6.4% over
the equivalent figure for the half year to 30 September 2005. It will be
paid on 11 April 2007 to shareholders on the register on 26 January 2007. A
DRIP (Dividend Re-Investment Plan) alternative will be available.
• A 3 for 1 stock split of Pennon's share capital was effected in July 2006
in order to increase the liquidity of its shares.
• Efficient financing initiatives at both Group and subsidiary level. South
West Water financing costs are amongst the lowest in the sector.
STRATEGY
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 success of the Board's strategy of focusing on these business
areas. The move to a more highly geared structure earlier in 2006 has allowed the
Group to return value to both shareholders and customers. 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 up to 2009/10.
SOUTH WEST WATER
South West Water turnover rose by £18.6m to £195.9m. Approved tariff increases,
including the 9.8% K factor, amounted to £22.0m. Customers switching from unmeasured
to metered charging caused a reduction of £3.7m in turnover. 56% of South West
Water's domestic customers are now metered. 3,700 new customer connections
contributed £1.6m of turnover. Other factors, including a small decrease in measured
demand, reduced turnover by £1.3m.
South West Water's operating profit rose 8.2% to £84.2m. Operating costs, including
depreciation, increased by £12.2m to £111.7m. Additional costs from new capital
schemes of £4.7m, inflation of £5.2m (including energy and chemicals) and £3.7m of
other cost increases (including infrastructure expenditure charged to operating
costs), were partially offset by £1.4m of efficiency savings. Detailed plans are in
place and the company is on track to achieve the operating cost efficiency targets
set by Ofwat for the period up to 2010.
South West Water has put in place a comprehensive strategy to help ensure a
continued secure supply of water for the region following two successive dry winters
and summers. In 2005/06 three 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 and these facilities are currently in use to augment reservoir inflow
over the coming winter. Ofwat's latest report on leakage confirms that South West
Water remains one of the leading companies in managing water leakage and continues
to deliver results in line with Ofwat's leakage target of 84 ML/day. These
activities contributed to the tenth year of no water restrictions in our region.
In addition, the purchase of Park Lake in November 2006, a former china clay pit on
Bodmin Moor, is a significant addition to water resources in Cornwall further
enhancing their robustness. The new lake will be the region's fourth largest
reservoir. Work will now be carried out to build the appropriate infrastructure and
it is anticipated that the water from this new source will become available from
2007/08 (subject to obtaining the necessary Environment Agency permissions).
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. In 2006,
for the first time 100% of the designated bathing waters in the South West Water
region achieved the European mandatory standard, and 91.7% achieved the still more
stringent guideline standard.
Ofwat's recently published 2005/06 'Levels of Service Report' confirms that South
West Water has maintained last year's step change improvement in its Overall
Performance Assessment (OPA) ranking, consolidating its 6th position out of the 10
water and sewerage companies.
Capital expenditure in the half year increased by £14.5m to £83.7m. £49.4m was
invested in water supply improvements including water mains renovation and water
treatment works enhancement. Continued high levels of investment in the £240m water
mains renovation programme to replace or reline 3,200kms of water mains will be a
key element during the remainder of the K4 period. A further 330kms 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.
Waste water investment expenditure totalled £34.3m 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 as noted above the region is now
attaining record levels of bathing water quality compliance.
South West Water continues to deliver capital projects in line with Ofwat and EA
expectations. The company is targeting 5% efficiency outperformance of Ofwat's
allowed K4 capital programme of £762m (2002/03 prices) and is on track to achieve
this.
A major project, 'Service +', is currently underway to improve the service to
customers in relation to the company's day to day operational activities and reduce
costs. A new Service Centre in Exeter, which utilises the latest mobile computing
technology, is now operational and is managing contacts with customers on service
issues and the activities of field operations staff.
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
Viridor traded particularly strongly in the six months ended 30 September 2006,
building further on the growth achieved over the past five years. Revenue was up
17.2% to £178.2m, including a £9.5m contribution from the Wyvern Waste Services
Limited (Wyvern Waste) acquisition, a full six month contribution from Brett Waste
Management Limited adding £4.2m, and £8.3m from increased landfill tax.
Viridor's operating profit before intangibles amortisation (PBITA) for the half year
rose by 29.8% to £21.8m, compared to £16.8m in 2005/06. The increase reflected a
full half year contribution from last year's Brett Waste Management acquisition, the
performance of Wyvern Waste, a one-off profit of £0.6m on disposal of Viridor's
interest in Devon Waste Management Limited and 11% growth in underlying business.
Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 25.2%
from £31.8m to £39.8m. Profit before tax at £12.8m was up 22% on the previous first half.
Capital expenditure for the half year was £29.9m (H1 2005 - £23.9m).
On 13 May 2006, Viridor acquired 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 comprised
5 million cubic metres of consented landfill void, 7 megawatts of power generation
capacity and associated recycling and transfer operations. The business is
performing well and the operational integration of the company is already complete.
This acquisition and associated contract fit well with Viridor's existing
operations.
Total landfill disposal volumes rose 1.6% to 2.2m tonnes compared to the previous
half year. After adjusting for acquisitions and a significant one-off sludge
contract at Masons in the first half of 2005/06, underlying volumes fell by 0.1m
tonnes.
Gate fees rose by 11% to £19 per tonne, reflecting the increasing scarcity of UK
landfill capacity. Consented landfill capacity grew from 87mm3 at last year end to a
current 91mm3 reflecting the Wyvern Waste acquisition and planning gains less usage
in the period.
Viridor's power generation prices rose 7.2% to £62 per megawatt hour. Excluding the
Wyvern Waste acquisition (the contracts for which are mainly under NFFO) the
increase was 16.5% to £67 per megawatt hour, reflecting the strong brown energy
price in the first half of 2006 and the ongoing shortage of renewable energy in the
UK, which is driving the premium price achieved by renewables. The timing of sales
contracts for this financial year was particularly favourable and brown energy
prices subsequently have been significantly lower. Output increased a further 17.8%
compared to the previous first half (excluding Wyvern Waste 7.1%). Viridor's current
capacity (including the contribution from Wyvern Waste) increased 9 megawatts to 70
megawatts in the six months to 30 September 2006, 46% of which is eligible for
Renewable Obligation Certificates (ROCs). 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.
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 plant is
under construction and scheduled to be commissioned in second half calendar 2008.
Significant new projects won in the half year include a 21 year 70kt pa disposal
contract extension to 2027 for Poole; a 7 year 120kt pa landfill contract for
Plymouth starting in April 2008 and a 5 year 100kt pa landfill contract for Greater
Manchester also commencing in April 2008.
Viridor provides waste services to 4 of the top 5 recycling counties in the UK.
Viridor also partners the London Borough of Sutton and the Suffolk Recycling
Consortium which have been awarded 'Beacon Status' for waste management and
recycling. This status is conferred by Government for excellence, innovation and
improvements in efficiency and effectiveness in delivering waste services.
Viridor 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 / Laing partnership was one of two parties shortlisted to submit
Best And Final Offers (BAFO) for its waste management services contract. The BAFO
was submitted to the Authority earlier this month and a decision on preferred bidder
is expected in January.
PENSIONS
The Group pension schemes had a deficit (net of deferred tax) under IAS 19 at 30
September 2006 of circa £29m, unchanged from 31 March 2006. Investment growth and a
further prepayment of £9m (circa £6m net of tax) have been offset by an increase in
liabilities.
FINANCING INITIATIVES
The total interest charge increased by £0.7m to £33.6m. The average interest rate on
net debt for the Group overall has been reduced to 4.6% (2005/06 5.7%) and for South
West Water to 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 70% of its net debt
for the period up to March 2007 and on around 60% of its debt up to March 2010. In
addition circa 10% of South West Water debt is index linked to 2041.
TAXATION
The mainstream corporation tax charge for the half year to September 2006 was £13.0m
(H1 2005 - £8.1m) giving a mainstream effective tax rate of 18%.
The deferred tax charge for the half year to 30 September 2006 was £4.6m (H1 2005 -
£15.3m).
RETURN OF CAPITAL
The Company completed the redemption of the outstanding B shares for a total of
£5.7m in April 2006. Accordingly circa £145m has now been returned through a B share
issue. The £55m on-market share buy back scheme is being progressed with £3.5m of
shares bought back to date.
BOARD CHANGES
As indicated at the Group's Preliminary results last June, Bob Baty, Chief Executive
South West Water, retired at the end of July. Chris Loughlin joined the Board in
August as an Executive Director of Pennon and Chief Executive of South West Water.
STRATEGY AND PROSPECTS
The Board's strategy is to focus on its two businesses, South West Water and
Viridor.
The Board is confident that South West Water will successfully deliver the K4
regulatory contract and significantly grow its Regulatory Capital Value up to 2010.
Viridor's successful strategy of creating long-term sustainable profit growth is
expected to continue through capitalising on its landfill asset base, exploiting its
landfill gas power generation potential and pursuing profitable opportunities in
line with the Government's developing waste strategy. In addition, the Group has put
in place a long-term funding structure to enable it to continue to finance its
activities efficiently.
Ken Harvey
Chairman
30 November 2006
PENNON GROUP PLC
Consolidated income statement for the half year ended 30 September 2006
Unaudited
-----------------------
Before Exceptional
exceptional items
Half year Half year items (note 5) Total
ended ended Year ended Year ended Year ended
30 September 30 September 31 March 31 March 31 March
2006 2005 2006 2006 2006
Note £m £m £m £m £m
Revenue 4 373.6 328.2 645.7 - 645.7
Profit on
disposal of investment 0.6 - - - -
Operating costs
Manpower costs (44.7) (39.2) (79.9) - (79.9)
Raw materials and
consumables used (22.3) (19.4) (40.7) - (40.7)
Other operating
expenses (145.4) (125.8) (245.9) (14.5) (260.4)
Depreciation (56.2) (49.3) (102.5) - (102.5)
Amortisation
of intangibles (1.1) (0.8) (1.6) - (1.6)
------------------------------------------------------------
Operating
profit 4 104.5 93.7 175.1 (14.5) 160.6
Interest
payable and
similar charges (48.4) (48.4) (96.8) (50.2) (147.0)
Interest receivable 14.8 15.5 32.5 7.9 40.4
Share of post-tax
profit from joint venture 0.2 - 0.1 - 0.1
------------------------------------------------------------
Profit before tax 4 71.1 60.8 110.9 (56.8) 54.1
Tax on ordinary
activities 6 (17.6) (23.4) (35.0) 18.7 (16.3)
------------------------------------------------------------
Profit for the period 53.5 37.4 75.9 (38.1) 37.8
============================================================
Profit attributable
to equity shareholders 53.5 37.4 75.9 (38.1) 37.8
============================================================
Earnings per
share (pence
per share) * 7
- Basic 15.1 9.8 9.9
- Diluted 15.0 9.7 9.8
- Adjusted (before 16.4 13.8 25.2
deferred tax)
Dividend per share
(pence per share) * 8 5.85 5.5 17.2
Dividend proposed for
the period (£m) 8 20.8 19.4 61.0
All operating activities are continuing operations.
* The earnings per share and dividend per share for September 2005 and March 2006 have been
restated to reflect the sub-division of the Company's ordinary shares by way of a three for
one split on 31 July 2006.
PENNON GROUP PLC
Consolidated statement of recognised income and expense for the half year ended 30
September 2006
Unaudited
------------------------------
Half year Half year Year
ended ended ended
30 September 30 September 31 March
2006 2005 2006
(restated
note 3)
£m £m £m
Profit for the period 53.5 37.4 37.8
Actuarial losses on
defined benefit schemes (5.4) (2.2) (2.8)
Cash flow hedges
Net fair value gains/(losses) 6.0 (6.3) 1.0
Tax on items taken directly
to or transferred
from equity 1.6 0.7 0.8
-----------------------------------------------
Net gains/(losses) not
recognised directly in income statement 2.2 (7.8) (1.0)
-----------------------------------------------
Total recognised
income for the period 55.7 29.6 36.8
Adjustments on adoption of
IAS 32/39 1 April 2005 - 8.6 8.6
-----------------------------------------------
55.7 38.2 45.4
===============================================
Attributable
to equity shareholders 55.7 38.2 45.4
===============================================
PENNON GROUP PLC
Consolidated balance sheet at 30 September 2006
Unaudited
-----------------------------
30 September 30 September 31 March
2006 2005 2006
(restated
note 3)
Note £m £m £m
Assets
Non-current assets
Goodwill 108.5 98.6 98.6
Other intangible assets 12.1 6.4 5.7
Property, plant and
equipment 9 2,485.4 2,283.3 2,415.9
Trade and other
receivables 4.5 4.1 6.0
Investments accounted for
using equity method 1.5 1.2 1.3
-------------------------------------------
2,612.0 2,393.6 2,527.5
-------------------------------------------
Current assets
Inventories 5.2 5.3 5.0
Trade and other
receivables 135.1 120.3 94.5
Financial assets
Derivative financial instruments 6.5 0.4 3.1
Cash and cash equivalents 90.4 215.8 99.4
-------------------------------------------
237.2 341.8 202.0
-------------------------------------------
Liabilities
Current liabilities
Financial liabilities
Borrowings (71.1) (53.7) (54.7)
Derivative financial instruments (0.4) (7.6) (3.0)
Trade and other payables (212.0) (195.1) (170.1)
Current tax liabilities (37.6) (37.3) (24.0)
Provisions for
liabilities and charges (12.9) (7.5) (11.4)
-------------------------------------------
(334.0) (301.2) (263.2)
-------------------------------------------
Net current (liabilities)/
assets (96.8) 40.6 (61.2)
-------------------------------------------
Non-current liabilities
Financial liabilities
Borrowings (1,513.6) (1,360.9) (1,471.8)
Other non-current
liabilities (2.1) (3.5) (2.2)
Retirement benefit
obligations (41.7) (39.6) (41.7)
Deferred tax liabilities (307.0) (299.9) (302.8)
Provisions for
liabilities and charges 9 (77.8) (34.0) (66.6)
------------------------------------------
(1,942.2) (1,737.9) (1,885.1)
------------------------------------------
Net assets 573.0 696.3 581.2
==========================================
Shareholders' equity
Share capital 144.9 142.6 184.2
Share premium account 11.5 155.8 10.2
Capital redemption
reserve 143.8 - 98.4
Retained earnings and
other reserves 272.8 397.9 288.4
-----------------------------------------
Total shareholders'
equity 10 573.0 696.3 581.2
=========================================
PENNON GROUP PLC
Consolidated cash flow statement for the half year ended 30 September 2006
Unaudited
-------------------------
Half year Half year
ended ended Year ended
30 September 30 September 31 March
2006 2005 2006
Note £m £m £m
Cash flows from operating
activities
Cash generated from operations 11 136.6 82.2 232.1
Interest paid (including
exceptional item) (24.0) (33.9) (128.9)
Tax paid (0.1) (0.3) (2.2)
-----------------------------------------
Net cash generated from operating
activities 112.5 48.0 101.0
-----------------------------------------
Cash flows from investing activities
Interest received (including
exceptional item) 3.9 15.6 22.5
Acquisition of subsidiaries (net
of cash acquired) (22.4) (44.5) (44.7)
Investment in joint venture - (1.0) (1.1)
Proceeds from business disposal - 5.0 5.0
Proceeds from investment disposal 0.6 - -
Purchase of property, plant and
equipment (121.6) (86.4) (218.6)
Proceeds from sale of property,
plant and equipment 1.3 1.5 4.8
-----------------------------------------
Net cash used in investing
activities (138.2) (109.8) (232.1)
-----------------------------------------
Cash flows from financing activities
Net proceeds from issue of
ordinary share capital 1.7 1.5 1.6
Purchase of ordinary shares
subsequently cancelled (3.5) - -
Purchase of ordinary shares by
the Pennon Employee
Share Trust (2.3) - -
Release of restricted deposits - - 177.1
Net proceeds from new borrowing 110.0 77.5 182.5
Repayment of borrowings (58.8) (93.1) (224.3)
Finance lease drawdowns - 1.5 141.6
Finance lease principal
repayments (0.8) (5.1) (15.8)
Dividends paid (19.4) (16.1) (34.1)
B Share payments (5.7) - (137.8)
-----------------------------------------
Net cash received from/(used in)
financing activities 21.2 (33.8) 90.8
-----------------------------------------
Net decrease in cash and cash equivalents (4.5) (95.6) (40.3)
Cash and cash equivalents at
beginning of period 80.3 120.6 120.6
-----------------------------------------
Cash and cash equivalents at end
of period 75.8 25.0 80.3
=========================================
PENNON GROUP PLC
NOTES
1. Basis of preparation
These unaudited interim financial statements have been prepared in accordance with
the Listing Rules of the Financial Services Authority. In preparing these interim
financial statements the same accounting policies have been applied as those set out
in the Pennon Group Plc Annual Report and Accounts for the year ended 31 March 2006.
The Group has chosen not to adopt IAS 34, 'Interim Financial Reporting', and
therefore, these interim financial statements are not in full compliance with
International Financial Reporting Standards (IFRS).
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 2007 and have been determined
in accordance with IFRS in issue that are either endorsed by the European Union and
effective at 31 March 2007 or are expected to be endorsed and effective at 31 March
2007.
2. Financial information
The financial information for the year ended 31 March 2006 does not constitute full
financial statements within the meaning of section 240 of the Companies Act 1985. The
full financial statements for that year 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. Restatements at 30 September 2005
As a result of applying IAS 32/39 at 1 April 2005 the comparative consolidated
statement of recognised income and expense at 30 September 2005 has been restated to
show an £8.6 million increase in net assets comprising a reduction of £0.9 million
for the Group's debt interest rate swaps, a reduction of £0.8 million reflecting the
amortised proceeds of trade receivables and an increase of £10.3 million (net of
tax), following release of deferred income which does not qualify as a hedge under
IFRS.
At 30 September 2005 the accounting for the acquisition of Brett Waste Management
Limited (renamed Viridor Waste Kent Limited) was provisional. Completion of the
accounting for the acquisition by 31 March 2006 resulted in an increase in goodwill
of £3.3 million, a decrease in intangible assets of £3.9 million and a decrease in
trade and other payables of £0.6 million. Comparative figures at 30 September 2005
have been restated accordingly.
4. Segmental reporting
Unaudited
-------------------------------
Half year ended Half year ended Year ended
30 September 30 September 31 March
2006 2005 2006
£m £m £m
Revenue
Water and sewerage 195.9 177.3 348.5
Waste management 178.2 152.0 298.9
Other 4.1 3.9 7.3
Less intra-segment trading * (4.6) (5.0) (9.0)
-----------------------------------------------
373.6 328.2 645.7
-----------------------------------------------
Segment result
Operating profit before interest, tax,
depreciation,amortisation and exceptional
items(EBITDA)
Water and sewerage 122.0 112.3 213.4
Waste management 39.8 31.8 66.7
Other - (0.3) (0.9)
-----------------------------------------------
161.8 143.8 279.2
-----------------------------------------------
Operating profit before amortisation
and exceptional items
Water and sewerage 84.2 77.8 141.5
Waste management 21.8 16.8 35.9
Other (0.4) (0.1) (0.7)
----------------------------------------------
105.6 94.5 176.7
----------------------------------------------
Operating profit before exceptional
items
Water and sewerage 84.2 77.8 141.5
Waste management 20.7 16.0 34.3
Other (0.4) (0.1) (0.7)
-----------------------------------------------
104.5 93.7 175.1
-----------------------------------------------
Operating profit
Water and sewerage 84.2 77.8 127.0
Waste management 20.7 16.0 34.3
Other (0.4) (0.1) (0.7)
----------------------------------------------
104.5 93.7 160.6
----------------------------------------------
Profit before tax and exceptional items
Water and sewerage 55.6 49.4 87.4
Waste management 12.8 10.5 21.9
Other 2.7 0.9 1.6
----------------------------------------------
71.1 60.8 110.9
----------------------------------------------
The exceptional items are detailed in note 5.
* Intra-segment trading between and to other segments by the water and sewerage
and waste management segments is under normal commercial terms and conditions
that would also be available to unrelated third parties. Intra-segment revenue
of the Other segment is at cost.
5. Exceptional items
The exceptional items for the year ended 31 March 2006 were :
£m
Customer payment (14.5)
--------
Operating profit (14.5)
Bond retirement (50.2)
Receipt on transfer of lease 7.9
--------
Profit before tax (56.8)
Tax arising on exceptional items 18.7
-------
(38.1)
========
The customer payment and bond retirement related to financial restructuring in the
Company and South West Water Limited.
The receipt on transfer of lease related to a consent fee paid to South West Water
Limited arising from the sale of finance leases between financial institutions.
6. Tax on profit on
ordinary activities
Unaudited
--------------------
Before Exceptional
exceptional items
items (note 5) Total
September September March March March
2006 2005 2006 2006 2006
£m £m £m £m £m
Tax on profit on
ordinary activities
comprises :
United Kingdom
corporation tax 13.0 8.1 14.8 (18.7) (3.9)
Deferred tax 4.6 15.3 20.2 - 20.2
----------------------------------------------------------------
17.6 23.4 35.0 (18.7) 16.3
================================================================
The tax charge for September 2006 and September 2005 has been derived by applying the
anticipated effective annual tax rate to the first half year profit before tax.
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
-------------------
September September March
2006 2005 2006
(restated) (restated)
Weighted average number of ordinary shares
(millions)
For basic earnings per share 353.7 382.5 381.9
Effect of dilutive potential ordinary shares:
Share options 3.2 3.3 3.3
---------------------------------
For diluted earnings per share 356.9 385.8 385.2
=================================
The weighted average number of ordinary shares at September 2005 and March 2006
have been restated to reflect the sub-division of the Company's ordinary shares
by way of a three for one split on 31 July 2006.
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 :
Unaudited
-----------------------------------------------------
September 2006 September 2005 March 2006
(restated) (restated)
Earnings per Earnings per Earnings per
Profit share Profit share Profit 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 53.5 15.1 15.0 37.4 9.8 9.7 37.8 9.9 9.8
Exceptional
items - - - - - - 38.1 10.0 9.9
Deferred tax 4.6 1.3 1.3 15.3 4.0 4.0 20.2 5.3 5.2
---------------------------------------------------------------------------------
Adjusted earnings
per share 58.1 16.4 16.3 52.7 13.8 13.7 96.1 25.2 24.9
=================================================================================
All operating activities are continuing operations.
8. Dividends Unaudited
--------------------
September September March
2006 2005 2006
£m £m £m
Interim dividend paid for the year
ended 31 March 2006 :
5.5p (2005 4.6p) per share 19.4 17.7 17.7
Final dividend approved for the year
ended 31 March
2006 : 11.7p (2005 9.7p) per share 41.6 37.4 37.4
--------------------------------
61.0 55.1 55.1
================================
Unaudited
---------------------
September September March
2006 2005 2005
£m £m £m
Proposed interim dividend for the year
ended 31 March 2007 of 5.85p
(2006 5.5p) per share 20.8 19.4 19.4
================================
The proposed interim dividend has not been included as a liability in
these financial statements. The Company is intending to offer a Dividend
Re-Investment Plan (DRIP) in respect of the proposed interim dividend and
full details will be sent to shareholders on 23 February 2007. The final
date for receipt of DRIP application forms will be 16 March 2007.
The interim dividend of 5.85p per share will be paid 11 April 2007 to
shareholders on the register on
26 January 2007.
Dividend per share for the comparative periods has been restated to
reflect the sub-division of the Company's ordinary shares by way of a
three for one split on 31 July 2006.
9. Landfill restoration
At 31 March 2006, following a change in accounting methodology, a landfill
restoration provision of £32.3 million was recognised with a matching
addition to tangible fixed assets.
10. Statement of changes in shareholders' equity
Retained
Share Capital earnings
Share premium redemption And other Unaudited
capital account reserve reserves Total
£m £m £m £m £m
Profit for the period - - - 53.5 53.5
Other recognised income
and expense for the period - - - 2.2 2.2
Dividends declared - - - (61.0) (61.0)
Shares issued for cash
consideration 0.4 1.3 - - 1.7
Shares cancelled and cost
of buy back (0.3) - 0.3 (3.5) (3.5)
Deferred shares redeemed (39.4) - 39.4 - -
B Shares redeemed - - 5.7 (5.7) -
Own shares acquired by
the Pennon Employee
Share Trust - - - (2.3) (2.3)
Adjustment in respect of
share based payment - - - 1.0 1.0
Deferred tax in respect
of share based payment - - - 0.2 0.2
---------------------------------------------------
(39.3) 1.3 45.4 (15.6) (8.2)
At 1 April 2006 184.2 10.2 98.4 288.4 581.2
---------------------------------------------------
At 30 September 2006 144.9 11.5 143.8 272.8 573.0
===================================================
11. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating
activities:
Unaudited
--------------------
Cash generated from operations September September March
2006 2005 2006
£m £m £m
Profit for the period 53.5 37.4 37.8
Adjustments for:
Employee share schemes 1.0 0.9 1.7
Deferred income released to profits (0.1) (0.4) (0.3)
Profit on disposal of property, plant
and equipment (0.3) (0.7) (1.1)
Profit on disposal of investment (0.6) - -
Depreciation charge 56.2 49.3 102.5
Amortisation of intangible assets 1.1 0.8 1.6
Share of post-tax profit from joint
venture (0.2) - (0.1)
Interest payable and similar charges 48.4 48.4 147.0
Interest receivable (14.8) (15.5) (40.4)
Taxation 17.6 23.4 16.3
Changes in working capital (excluding
the effect of acquisition of subsidiaries)
Increase in inventories (0.2) (0.2) (0.3)
(Increase)/decrease in trade and other
receivables (28.7) (23.3) 2.0
Decrease in long-term deposits - (2.9) -
Increase in trade and other payables 10.2 8.2 8.4
Decrease in retirement benefit
obligations (3.7) (42.4) (39.7)
Decrease in provisions for liabilities
and charges (2.8) (0.8) (3.3)
-------------------------------
Net cash generated from operations 136.6 82.2 232.1
===============================
12. Net borrowings Unaudited
--------------------
September September March
2006 2005 2006
£m £m £m
Cash and cash equivalents 90.4 215.8 99.4
Borrowings - current
Bank overdraft (14.0) (10.2) (18.5)
Other current borrowings (18.3) (14.5) (8.2)
Finance lease obligations (38.8) (29.0) (28.0)
-------------------------------
Total current borrowings (71.1) (53.7) (54.7)
-------------------------------
Borrowings - non-current
Bank loans (367.6) (247.7) (312.7)
Other non-current borrowings (218.4) (314.4) (232.2)
Finance lease obligations (927.6) (798.8) (926.9)
-------------------------------
Total non-current borrowings (1,513.6) (1,360.9) (1,471.8)
-------------------------------
Total net borrowings (1,494.3) (1,198.8) (1,427.1)
===============================
13. Acquisitions and disposals
On 13 May 2006 the entire issued share capital of Wyvern Waste Services
Limited, (now renamed Viridor Waste (Somerset) Limited), was purchased by
Viridor Waste Management Limited for a cash consideration of £25.4 million
including costs of £0.4 million. The acquisition has been accounted for
using the acquisition method and provisional goodwill is expected to be
£9.9 million with intangible fixed assets of £7.5 million capitalised. The
intangible fixed assets are being amortised evenly over the Directors'
estimate of useful economic life. Cash balances on acquisition amounted to
£3.0 million.
On 5 September 2006 Viridor Waste Management Limited disposed of its 15%
interest in the issued share capital of Devon Waste Management Limited for
a cash consideration of £0.6 million.
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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