29th Nov 2007 07:02
Pennon Group PLC29 November 2007 PENNON GROUP PLC 29 November 2007 HALF YEARLY REPORT ON THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Pennon Group announces its unaudited results for the half year ended 30 September2007. A presentation for City audiences will be held today, Thursday 29 November 2007at 11:30 at Andaz London (formerly The Great Eastern Hotel), Liverpool Street,London, EC2. FINANCIAL HIGHLIGHTS • Operating profit(1) up 17.0% to £123.6m. - South West Water up 15.2% to £97.0m. - Viridor (1) up 24.3% to £27.1m. • Profit before tax up 15.8% to £82.3m. • Earnings per share (before deferred tax) up 8.5% to 17.8p. • Interim dividend per share up 6.8% to 6.25p. • £55m share buyback programme approaching completion with £52.8m bought back to date. (1) before amortisation of intangibles OPERATIONAL HIGHLIGHTS • South West Water : • On target to deliver 2005 - 2010 Regulatory Contract. • Profit increase reflecting expected strong growth in Regulatory Capital Value 2005 - 2010. • Eleventh consecutive year without hosepipe bans and drought orders. • 2006/07 - best ever leakage performance. • Capital investment of £76.6m in the half year - major upgrade to water treatment works serving 160,000 homes in South Devon. • All major projects delivered in line with Regulators' expectations. • Preparing for PR09 - customer consultation launched. • Viridor : • Particularly strong growth in operating profits, especially from landfill and recycling. • Viridor / Laing consortium preferred bidder for Greater Manchester Waste PFI contract - contract negotiation and planning applications ongoing - new strategic location selected for energy from waste plant. • Lakeside energy from waste plant (joint venture with Grundon Waste Management Limited) under construction and on schedule to open for commissioning in second half of 2008. • Progressing possible energy from waste sites in Cardiff and Dunbar. • Planning permissions achieved for a 60,000 tonne Energy from Waste (EfW) plant in Exeter and a Mechanical Biological Treatment (MBT) and Anaerobic Digestion (AD) facility in Somerset. "I am again delighted to announce further profitable growth in the Group" saidKen Harvey, Chairman. "We are delivering the benefits from our strategy offocusing on our two key businesses, South West Water and Viridor. South WestWater remains on target to meet the PR04 regulatory contract and Viridorcontinues to deliver a very strong performance based on both organic growth andsound acquisitions." For further information today, 29 November 2007, please contact : David Dupont Group Director of Finance - Pennon ) 0207 251 3801 Jo Finely Investor Relations Manager - Pennon )Mark Harris Finsbury Group )Sally Hogan Finsbury Group ) GROUP OVERVIEW • Revenue rose by 16.7% to £435.9m. • Operating profit before amortisation of intangibles rose by 17.0% to £123.6m. • Profit before tax increased 15.8% to £82.3m. • Earnings per share before deferred tax increased by 8.5% to 17.8p. Earnings per share after deferred tax rose by 51.7% to 22.9p. • Group capital expenditure was £109.0m (H1 2006 - £113.9m). • Net borrowings were £1,614m, an increase of £57m since 31 March 2007. Gearing, being net borrowings to shareholders' funds plus net borrowings, was 73% (2006 - 72%). • South West Water net debt to RCV was 60% (31 March 2007 - 62%). • Net interest cover was 3.0 times for the half year to 30 September 2007 (H1 2006 - 3.1 times). • The interim dividend of 6.25p per share represents an increase of 6.8% over the equivalent figure for the half year to 30 September 2006. It will be paid on 9 April 2008 to shareholders on the register on 25 January 2008. The Company will once again be offering a DRIP (Dividend Re-Investment Plan). SOUTH WEST WATER South West Water revenue rose by £19.1m to £215.0m. Approved tariff increases,including the 9.8% K factor, amounted to £26.8m. Customers switching fromunmeasured to metered charging caused a reduction of £5.4m in turnover. 61% ofSouth West Water's domestic customers are now metered. 4,200 new customerconnections contributed £1.7m of turnover. A decrease in measured demand, largelydue to the wet summer, reduced turnover by £4.6m. South West Water's operating profit rose 15.2% to £97.0m. Operating costs,excluding depreciation, increased by 3.2% to £76.3m. Additional costs from newcapital schemes of £0.7m, inflation of £1.7m, a £1.0m restructuring charge and£0.9m of other cost increases (including infrastructure expenditure charged tooperating costs), were partially offset by £1.9m of efficiency savings. The costof bad debts (part of which is charged against revenue) is rising more slowlythan the tariff increase. Depreciation increased by £3.9m to £41.7m as a resultof new capital schemes. The company is implementing detailed plans targetingoutperformance of the operating cost efficiency targets set by Ofwat for theperiod up to 2010. As previously announced, further efficiency projects are underway and they are expected to result in a total restructuring charge for the yearof circa £4m. A new customer contact/billing contract was announced in October,aimed at improving customer service and reducing costs. Capital expenditure in the half year was £76.6m (H1 2006 - £83.7m). £46.0m wasinvested in water supply improvements including water mains renovation and watertreatment works enhancement. The water treatment works at Littlehempston in SouthDevon, serving 160,000 homes in the Torbay area, was substantially upgraded.Continued high levels of investment in the £240m water mains renovation programmeis a key element in the K4 period. A further 261kms of water mains were laid,replaced or refurbished during the half year, in line with the Drinking WaterInspectorate's (DWI) agreed programme for completion by 2010. Drinking water quality was sustained at very high levels. 2007 was the eleventhconsecutive year with no water restrictions in our region. Ofwat's latest reporton leakage confirms that South West Water remains one of the leading companies inmanaging water leakage and continues to achieve Ofwat's leakage target of 84 ML/ day. South West Water has achieved Ofwat's leakage targets for the eighthconsecutive year, every year since their inception. In 2006/07 South West Waterachieved its lowest ever level of leakage. Waste water quality in 2006/07 was at an all time high. The region features thehighest proportion of high quality rivers in England. Investment expendituretotalled £30.6m for the half year and included one of the last remaining CleanSweep projects at Sennen and Porthcurno. Ofwat's recently published 2006/07 'Levels of Service Report' confirms that SouthWest Water has its highest ever Overall Performance Assessment (OPA) ranking.Ofwat also awarded South West Water the top assessment for asset serviceability -'stable' in all 4 service areas - in a recent appraisal. South West Water continues to deliver capital projects in line with Ofwat, DWIand EA expectations. The company is targeting delivery of Ofwat's allowed K4capital programme for 5% less than Ofwat's assumed £762m (2002/03 price base),and is on track to achieve this. Regulatory Capital Value (RCV) is expected to grow by 35% over the K4 period to£2.6bn by March 2010 - the highest forecast percentage increase of any quoted UKwater company. After adjusting for the growth in gearing, the company expects itsgrowth in RCV to outstrip significantly the anticipated growth in netborrowings. As part of its preparation for the next Periodic Review, PR09, earlier thismonth, South West Water published a customer consultation document, 'DeliveringPure Water, Pure Service, Pure Environment'. The document outlined the company'svision and detailed the first steps it proposes to take towards facing thechallenges of the future, eg climate change and new legislative requirements. Amajor comprehensive customer consultation process is under way with the ultimategoals of continuing to provide customers with high quality services andprotecting and enhancing the environment. VIRIDOR Viridor traded particularly strongly in the six months ended 30 September 2007,building further on the growth achieved over the past six years and including thebenefit of certain non-recurring factors in the half year. Revenue was up 24.2%to £221.3m, of which acquisitions accounted for £12.6m and underlying business£30.5m. This increase included landfill tax of £17.2m. Viridor's earnings before interest, tax, depreciation and amortisation (EBITDA)for the half year rose 23.4% from £39.8m to £49.1m. Operating profit beforeintangibles amortisation (PBITA) rose by 24.3% to £27.1m, compared to £21.8m in2006/07. The increase reflected contributions from Skipaway Holdings Limited(acquired February 2007) and a full six month's contribution from Wyvern WasteServices Limited (acquired May 2006). Excluding these acquisitions and theeffects of a one-off profit of £0.6m on the disposal of Viridor's interest inDevon Waste Management Limited in 2006/07, underlying business grew by 13%.Within underlying business, landfill and recycling performed particularlystrongly. Profit before tax at £16.0m was up 25%. Capital expenditure for the half year was£32.3m (H1 2006 - £29.9m). Total landfill disposal volumes rose 21% to 2.7m tonnes compared to the previousfirst half. After adjusting for acquisitions, underlying volumes increased by16%, reflecting non-recurring items (including the MSC Napoli shipwreck) andunderlying trade in the first half. Average gate fees remained unchanged at £19 per tonne, reflecting waste mix andthe strong volumes seen in the first half of the year. The wet summer of 2007resulted in increased leachate and other costs of 30p per tonne overall.Consented landfill capacity declined from 90m cubic metres at 31 March 2007 to acurrent 87m cubic metres, reflecting usage during the period offset by a smallplanning gain. Viridor's landfill gas power generation output increased a further 11% to 230 GWHin the six months to 30 September 2007, 52% of which is eligible for RenewableObligation Certificates (31 March 2007 - 50%). This volume increase largelyoffset the impact of reduced prices which were noted at the Group's PreliminaryResults in May (average prices declined by £6 to £56 per MWH as the benefit ofthe strong brown energy prices seen in 2006/07 reduced). Last year's acquisitions, Wyvern Waste and Skipaway, are now both fullyintegrated, and were earnings enhancing post amortisation of intangibles in thehalf year, ahead of schedule. Planning permission was achieved for a MBT and Anaerobic Digestion facility at Walpole in Somerset and volumes from Skipaway's transfer stations were diverted to Viridor's landfill site at Shelford. As part of its overall strategy, Viridor continues to explore other suitablePrivate Finance Initiative (PFI) and Public Private Partnership (PPP)opportunities. In January 2007 the Greater Manchester Waste Disposal Authorityannounced that the Viridor Waste Management Limited / John Laing InfrastructureLimited consortium had been selected as preferred bidder for its waste managementservices contract. This is due to be the largest such scheme in the UK and willinvolve the handling of around 1.4 million tonnes of waste per annum. Contractnegotiations are under way and planning is being progressed for the variousfacilities involved; permission has already been achieved for an in-vesselcomposting / materials recycling facility at Rochdale (Greater Manchester) in thehalf year. An alternative power plant solution has been selected which, althoughit will delay the timing of the contract completion, is likely to permit thequicker overall development of the power plant. In addition, Viridor is one ofManchester's nominated landfill contractors for 5 years from April 2008. The joint venture, Lakeside Energy from Waste Limited ('Lakeside'), with GrundonWaste Management Limited is progressing well. The plant is under construction andscheduled to open for commissioning in the second half of calendar 2008, with aprofit contribution expected in 2009/10. During the half year Viridor successfully obtained a planning application for a60,000 tonne energy from waste facility in Exeter. A Pollution, Prevention andControl (PPC) permit application has been submitted for the site. We are alsoprogressing energy from waste opportunities in Cardiff and Dunbar. PlanningAuthority's opinion is being sought for the site which Viridor has secured inCardiff and consultation has commenced at the existing Viridor site in Dunbar. PENSIONS The Group's pension schemes had a deficit (net of deferred tax) under IAS 19 at30 September 2007 of circa £27m, representing just over 1% of marketcapitalisation. A triennial actuarial valuation of the schemes' position as at 31March 2007 is currently under way. FINANCING INITIATIVES The total net interest charge increased by £6.9m to £40.5m. The average interestrate on net debt for the Group was 5.1% (31 March 2007 - 4.6%) and for South WestWater was 4.7% (31 March 2007 - 4.3%). This is believed to be amongst the lowestin the sector. The Group funding strategy utilises a mix of fixed, floating and index linkedrate borrowings. To reduce the risk of adverse interest rate movements, SouthWest Water has swap arrangements in place to fix the interest rate on circa 60%of its debt up to March 2010. During the period the Group raised £300m of debt, including £200m of 50-yearindex linked bonds for South West Water. South West Water now has circa £347m ofindex linked debt at an average real rate of 1.66%. Circa 25% of South West Waterdebt is index linked. TAXATION The mainstream corporation tax charge for the half year to September 2007 was£19.7m (H1 2006 - £13.0m) giving a mainstream effective tax rate of 24% (H1 2006 - 18%). Deferred tax for the half year to 30 September 2007 was a credit of £17.9m (H12006 - £4.6m charge) resulting from a non-recurring credit of £22.4m, relating tothe reduction in the rate of UK corporation tax from 30% to 28% effective from 1 April 2008. The abolition of Industrial Buildings Allowances is expected to beenacted in 2008/09 and will then increase deferred tax by an estimated £37m. RETURN OF CAPITAL The £55m on-market share buy back scheme is approaching completion with £52.8m ofshares bought back to date. RISKS AND UNCERTAINTIES The principal risks and uncertainties facing the Group are set out on page 27 ofthe Group's 2007 Annual Report and Accounts, on pages 10 - 13 for South West Waterand pages 19 - 21 for Viridor. A copy of the Group's 2007 Annual Report andAccounts is available and can be viewed on or downloaded from the Group'swebsite, www.pennon-group.co.uk or obtained from the Company Secretary at theCompany's registered office. In the view of the Directors there has been nomaterial change in these factors in respect of the second half of the financialyear. Factors such as weather can affect volumes and costs in both South West Water andViridor. Also, the precise impact of landfill pre-treatment requirements whichcame into force on 30 October on the different segments of Viridor's businesswill become apparent over the coming months. However, none of these items isexpected to be material in an overall Group context. STRATEGY AND PROSPECTS The Board's strategy remains focussed on its two businesses, South West Water andViridor. South West Water is successfully delivering the K4 regulatory contract and isexpected to grow significantly its Regulatory Capital Value up to £2.6 billion by2010. PR09 preparation is progressing well. Viridor's successful strategy to create long-term sustainable profit growth isexpected to continue through capitalising on its landfill asset base, exploitingits landfill gas power generation potential and pursuing profitable opportunitiesin line with the Government's developing waste strategy. In addition, the Group has put in place a long-term funding structure to enableit to continue to finance its activities efficiently. Ken HarveyChairman29 November 2007 DISCLAIMER IN RESPECT OF FORWARD-LOOKING STATEMENTS This half yearly report contains forward-looking statements based on currentexpectations of, and assumptions and forecasts made by, Pennon Group management.Various known and unknown risks, uncertainties and other factors could lead tosubstantial differences between the actual future results, financial situationdevelopment or performance of the Group and the estimates and historical resultsgiven herein. Undue reliance should not be placed on forward-looking statementswhich are made only as of the date of this document. The Group accepts noobligation publicly to revise or update these forward-looking statements oradjust them as a result of new information or for future events or developments,except to the extent legally required. PENNON GROUP PLC Consolidated income statement for the half year ended 30 September 2007 Unaudited ---------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 Note £m £m £m Revenue 5 435.9 373.6 748.3 Operating costsManpower costs (50.6) (44.7) (91.0)Raw materials and consumables used (25.7) (22.3) (47.2)Other operating expenses (171.2) (144.8) (294.6)Restructuring costs (1.0) - -Depreciation (63.8) (56.2) (113.7)Amortisation of intangibles (0.8) (1.1) (1.8) --------------------------------------------Operating profit 5 122.8 104.5 200.0 Finance income 19.2 14.8 29.1Finance costs (59.7) (48.4) (98.3)Share of post-tax profit fromjoint ventures - 0.2 0.3 --------------------------------------------Profit before tax 5 82.3 71.1 131.1 Taxation 6 (1.8) (17.6) (37.2) --------------------------------------------Profit for the period 80.5 53.5 93.9 ============================================Profit attributable to equityshareholders 80.5 53.5 93.9 ============================================ Earnings per share (pence per share) 7 - Basic 22.9 15.1 26.5 - Diluted 22.7 15.0 26.3 Dividend per share (pence per share) 8 6.25 5.85 18.55Dividend proposed for the period (£m) 8 21.8 20.8 65.6 All operating activities are continuing operations. The notes on pages 16 to 24 form part of these condensed half year financial statements. PENNON GROUP PLC Consolidated statement of recognised income and expense for the half year ended 30 September 2007 Unaudited ---------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £m £m £m Profit for the period 80.5 53.5 93.9 Actuarial gains/(losses) on definedbenefit schemes (before deferred tax) 8.2 (5.4) (1.2) Cash flow hedgesNet fair value (losses)/gains (3.1) 6.0 15.7 Tax on items taken directly to equity (3.3) 1.6 0.4 -------------------------------------- Net gains taken directly to equity 1.8 2.2 14.9 -------------------------------------- Total recognised income for the period 82.3 55.7 108.8 ====================================== Attributable to equity shareholders 82.3 55.7 108.8 ====================================== The notes on pages 16 to 24 form part of these condensed half year financial statements. PENNON GROUP PLC Consolidated balance sheet at 30 September 2007 Unaudited ---------------------------- 30 September 30 September 31 March 2007 2006 2007 (restated note 4) Note £m £m £mASSETSNon-current assetsGoodwill 134.3 120.4 134.3Other intangible assets 7.0 8.2 7.8Property, plant and equipment 2,601.6 2,482.1 2,559.4Trade and other receivables 8.5 4.5 6.9Investments accounted forusing the equity method 1.4 1.5 1.4 ----------------------------------------- 2,752.8 2,616.7 2,709.8 -----------------------------------------Current assetsInventories 5.3 5.2 5.1Trade and other receivables 160.6 135.1 122.5Derivative financial instruments 12.9 6.5 16.0Cash and cash equivalents 12 340.3 90.4 127.9 ----------------------------------------- 519.1 237.2 271.5 -----------------------------------------LIABILITIESCurrent liabilitiesBorrowings 12 (86.2) (71.1) (85.8)Derivative financial instruments - (0.4) -Trade and other payables (227.2) (212.0) (175.9)Current tax liabilities (53.1) (37.6) (36.5)Provisions for otherliabilities and charges (12.7) (12.9) (13.2) ----------------------------------------- (379.2) (334.0) (311.4) -----------------------------------------Net current assets/(liabil ities) 139.9 (96.8) (39.9) ----------------------------------------- Non-current liabilitiesBorrowings 12 (1,868.1) (1,513.6) (1,599.4)Other non-current liabilities (1.9) (2.1) (2.1)Retirement benefit obligations (37.0) (41.7) (41.2)Deferred tax liabilities (299.1) (307.0) (313.7)Provisions for other liabilitiesand charges (87.0) (82.5) (86.3) ----------------------------------------- (2,293.1) (1,946.9) (2,042.7) -----------------------------------------Net assets 599.6 573.0 627.2 ========================================= Shareholders' equityShare capital 9 144.5 144.9 144.9Share premium account 10 11.7 11.5 11.7Capital redemption reserve 10 144.2 143.8 143.8Retained earnings andother reserves 10 299.2 272.8 326.8 -----------------------------------------Total shareholders' equity 599.6 573.0 627.2 ========================================= The notes on pages 16 to 24 form part of these condensed half year financial statements. PENNON GROUP PLC Consolidated cash flow statement for the half year ended 30 September 2007 Unaudited ---------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 Note £m £m £mCash flows from operatingactivitiesCash generated from operations 11 165.1 136.6 305.1Interest paid (37.6) (24.0) (58.1)Tax paid (3.1) (0.1) (12.0) -----------------------------------------Net cash generated fromoperating activities 124.4 112.5 235.0 ----------------------------------------- Cash flows from investingactivitiesInterest received 6.2 3.9 6.7Acquisition of subsidiaries(net of cash acquired) - (22.4) (37.0)Return of loan from joint venture - - 0.1Proceeds from investment disposal - 0.6 0.6Purchase of property, plant andequipment (111.9) (121.6) (251.4)Proceeds from sale of property,plant and equipment 0.2 1.3 5.0 -----------------------------------------Net cash used in investingactivities (105.5) (138.2) (276.0) ----------------------------------------- Cash flows from financingactivitiesNet proceeds from issue ofordinary share capital - 1.7 1.9Purchase of ordinary sharessubsequently cancelled (5.9) (3.5) (3.5)Purchase of ordinary shares held as treasury shares (40.8) - -Proceeds from treasuryshares reissued 1.4 - -Purchase of ordinary shares bythe Pennon Employee Share Trust (0.3) (2.3) (2.3)Deposit of restricted funds (2.1) - (4.1)Net proceeds from new borrowing 308.7 110.0 110.0Repayment of borrowings (54.4) (58.8) (71.1)Finance lease drawdowns 10.1 - 130.2Finance lease principalrepayments (5.1) (0.8) (21.4)Dividends paid (20.8) (19.4) (61.0)B Share payments - (5.7) (5.7) ---------------------------------------Net cash received fromfinancing activities 190.8 21.2 73.0 --------------------------------------- Net increase/(decrease) in cash and cash equivalents 209.7 (4.5) 32.0 Cash and cash equivalents atbeginning of period 12 112.3 80.3 80.3 ---------------------------------------Cash and cash equivalents atend of period 12 322.0 75.8 112.3 ======================================= The notes on pages 16 to 24 form part of these condensed half year financial statements. PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS 1. General information Pennon Group Plc is a Company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on page 24. Pennon Group's business is operated through two main subsidiaries: South West Water Limited holds the water and sewerage appointments for Devon, Cornwall and parts of Dorset and Somerset, Viridor Limited's business is waste treatment and disposal. These condensed half year financial statements were approved by the Board of Directors on 28 November 2007. The financial information for the year ended 31 March 2007 does not constitute full financial statements within the meaning of section 240 of the Companies Act 1985. The full financial statements for that year were approved by the Board of Directors on 23 June 2007 and have been delivered to the Registrar of Companies. The independent auditors' report on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2. Basis of preparation These condensed half year financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS34 "Interim financial reporting" as adopted by the European Union (EU). These condensed half year financial statements should be read in conjunction with the Pennon Group Plc Annual Report and Accounts for the year ended 31 March 2007, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. These condensed half year financial statements have not been audited or reviewed by the independent auditors pursuant to the Auditing Practices Board guidance on the "Review of Interim Financial Information". 3. Accounting policies The accounting policies adopted in these condensed half year financial statements are consistent with those applied and set out in the Pennon Group Plc Annual Report and Accounts for the year ended 31 March 2007 and are also in accordance with all IFRS and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) expected to be applicable for the year ended 31 March 2008 in issue which have been endorsed by the European Union and effective at 31 March 2008. At the date of approval of these condensed half year financial statements the following standards and interpretations which have not been applied in these financial statements were in issue, but not yet effective: IFRS8 "Operating segments" IAS23 "Borrowing costs" (revised) IAS1 "Presentation of financial statements" (revised) IFRIC12 "Service concession arrangements" IFRIC13 " Customer loyalty programmes" IFRIC14 "IAS19 - The limit on a defined benefit asset, minimum funding requirements and their interaction" The Directors expect that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group. The presentational impact of these Standards is being assessed. PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 4. Restatements at 30 September 2006 At 30 September 2006 the accounting for the acquisition of Wyvern Waste Services Limited (renamed Viridor Waste (Somerset) Limited) was provisional. Completion of the accounting for the acquisition by 31 March 2007 resulted in an increase in goodwill of £11.9 million, a decrease in intangible assets of £3.9 million, a decrease in property, plant and equipment of £3.3 million and an increase in provisions for other liabilities and charges of £4.7 million. Comparative figures at 30 September 2006 have been restated accordingly. 5. Segment information Unaudited ----------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £m £m £m Revenue Water and sewerage 215.0 195.9 381.5 Waste management 221.3 178.2 367.7 Other 4.4 4.1 7.6 Less intra-segment trading * (4.8) (4.6) (8.5) --------------------------------------------- 435.9 373.6 748.3 --------------------------------------------- Segment result Operating profit before interest, tax, depreciation, amortisation (EBITDA) Water and sewerage 138.7 122.0 234.5 Waste management 49.1 39.8 82.8 Other (0.4) - (1.8) --------------------------------------------- 187.4 161.8 315.5 --------------------------------------------- Operating profit before amortisation Water and sewerage 97.0 84.2 156.8 Waste management 27.1 21.8 46.8 Other (0.5) (0.4) (1.8) --------------------------------------------- 123.6 105.6 201.8 --------------------------------------------- Operating profit Water and sewerage 97.0 84.2 156.8 Waste management 26.3 20.7 45.0 Other (0.5) (0.4) (1.8) --------------------------------------------- 122.8 104.5 200.0 --------------------------------------------- Profit before tax Water and sewerage 64.2 55.6 98.9 Waste management 16.0 12.8 27.6 Other 2.1 2.7 4.6 --------------------------------------------- 82.3 71.1 131.1 --------------------------------------------- All operating activities are continuing operations. * Intra-segment trading between and to other segments by the water and sewerage and waste management segments is under normal commercial terms and conditions that would also be available to unrelated third parties. Intra-segment revenue of the Other segment is at cost. Factors such as seasonal weather patterns can affect sales volumes, income and costs in both the water and sewerage and waste management segments. PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 6. Taxation Unaudited ---------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £m £m £m Tax on profit on ordinary activities comprises : United Kingdom corporation tax 19.7 13.0 23.9 Deferred tax 4.5 4.6 13.3 Deferred tax arising on change of rate (22.4) - - ------------------------------------------ 1.8 17.6 37.2 ========================================== The tax charge for September 2007 and September 2006 has been derived by applying the anticipated effective annual tax rate to the first half year profit before tax. The deferred tax charge has been reduced by a non-recurring credit of £22.4m reflecting the reduction in the rate of UK corporation tax from 30% to 28% effective from 1 April 2008. The effective tax rate for the period before the benefit of the £22.4m deferred tax credit was 29% and after the deferred tax credit 2% (six months to 30 September 2006 25%). Tax on amounts included in the consolidated statement of recognised income and expense or directly in equity, is included in those statements respectively. During the year it was announced that industrial building allowances will be phased out over three years commencing 1 April 2008 but at 30 September 2007 the change was not substantively enacted. The provision to abolish industrial building allowances is expected to be contained in the Finance Bill 2008 and, if fully enacted, is likely to increase the deferred tax liability by an estimated £37 million. 7. Basic and diluted earnings per share Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust, which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares is adjusted to include all dilutive potential ordinary shares. A reconciliation of the weighted average number of shares and earnings used in the calculations is set out below. Unaudited ---------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 Weighted average number of ordinary shares (millions) For basic earnings per share 351.8 353.7 353.9 Effect of dilutive potential ordinary shares : Share options 3.1 3.2 3.2 ------------------------------------------ For diluted earnings per share 354.9 356.9 357.1 ========================================== PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 7. Basic and diluted earnings per share (Continued) Adjusted basic and diluted earnings per share Adjusted earnings per share have been calculated to exclude the impact of deferred tax on the results as this can have a distorting effect on earnings from year to year and therefore warrants separate consideration. Adjusted earnings have been calculated as follows : Unaudited ------------------------------------------------------------------ Half year ended Half year ended Year ended 30 September 30 September 31 March 2007 2006 2007 Profit Earnings per share Profit Earnings per share Profit Earnings per share after tax Basic Diluted after tax Basic Diluted after tax Basic Diluted £m p p £m p p £m p p Earnings pershare 80.5 22.9 22.7 53.5 15.1 15.0 93.9 26.5 26.3 Deferred tax (17.9) (5.1) (5.1) 4.6 1.3 1.3 13.3 3.8 3.7 -----------------------------------------------------------------------------------------------------Adjustedearningsper share 62.6 17.8 17.6 58.1 16.4 16.3 107.2 30.3 30.0 ===================================================================================================== All operating activities are continuing operations. 8. Dividends Unaudited ------------------------------ Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £m £m £m Interim dividend paid for the year ended 31 March 2007 : 5.85 (2006 5.5p) per share 20.8 19.4 19.4 Final dividend approved for the year ended 31 March 2007 : 12.7p (2005 11.7p) per share 44.8 41.6 41.6 -------------------------------------------------- 65.6 61.0 61.0 ================================================== Proposed interim dividend Unaudited ----------------------------- Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £m £m £m Proposed interim dividend for the year ended 31 March 2008 of 6.25p (2007 5.85p) per share 21.8 20.8 20.8 ============================================ The proposed interim dividend has not been included as a liability in these condensed half year financial statements. The interim dividend of 6.25p per share will be paid on 9 April 2008 to shareholders on the register on 25 January 2008. PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 9. Share capital Allotted, called up and fully paid 1 April 2006 to 30 September 2006 Number of shares Deferred shares Ordinary shares £m At 1 April 2006 Ordinary shares of £1.22 1/10 each 118,608,847 144.8 Deferred shares of £1.10 each 3,585,821 39.4 ---------- 184.2 Deferred shares of £1.10 each cancelled (3,585,821) (39.4) For consideration of £3.5m, shares purchased and subsequently cancelled (245,000) (0.3) ------------- 118,363,847 ------------- Sub-division into three new ordinary shares of 40.7p each 355,091,541 For consideration of £0.2m, shares purchased and subsequently cancelled (50,000) - For consideration of £1.7m, shares issued under the Company's Sharesave Scheme 977,485 0.4 ------------------------ Ordinary shares of 40.7p each at 30 September 2006 356,019,026 144.9 ------------------------ 1 April 2007 to 30 September 2007 Number of shares Treasury Ordinary £m shares shares At 1 April 2007 Ordinary shares of 40.7p each 356,123,879 144.9 For consideration of £5.9m, shares purchased and subsequently cancelled (960,000) (0.4) For consideration of £40.8m, shares purchased and held as treasury shares 6,850,024 (6,850,024) - For consideration of £1.4m, shares issued under the Company's Sharesave Scheme (747,652) 748,047 - ------------------------------------------------ Ordinary shares of 40.7p each at 30 September 2007 6,102,372 349,061,902 144.5 ------------------------------------------------ Shares held as treasury shares may be sold, re-issued for any of the Company's share schemes, or cancelled. The weighted average price of the Company's shares at the date of exercise of Sharesave options during the half year was 602p (2006 468p). PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 10. Reserves 1 April 2006 to 30 September 2006 Unaudited -------------------------------- Retained Share Capital earnings premium redemption and other account reserve reserves £m £m £m At 1 April 2006 10.2 98.4 288.4 Profit for the period - - 53.5 Other recognised income and expense for the period - - 2.2 Dividends paid or approved - - (61.0) Premium on shares issued for cash consideration 1.3 - - Deferred shares cancelled - 39.4 - Own shares purchased and subsequently cancelled - 0.3 (3.5) Adjustment in respect of share-based payment - - 1.0 Deferred tax in respect of share-based payment - - 0.2 Own shares acquired by the Pennon Employee Share Trust in respect of share options granted - - (2.3) B Share payments - 5.7 (5.7) --------------------------------- At 30 September 2006 11.5 143.8 272.8 ================================= 1 April 2007 to 30 September 2007 Unaudited --------------------------------- Retained Share Capital earnings premium redemption and other account reserve reserves £m £m £m At 1 April 2007 11.7 143.8 326.8 Profit for the period - - 80.5 Other recognised income and expense for the period - - 1.8 Dividends paid or approved - - (65.6) Own shares purchased and subsequently cancelled - 0.4 (5.9) Own shares purchased and held as treasury shares - - (40.8) Proceeds from treasury shares re-issued - - 1.4 Adjustment in respect of share-based payment - - 1.3 Own shares acquired by the Pennon Employee Share Trust in respect of share options granted - - (0.3) --------------------------------- At 30 September 2007 11.7 144.2 299.2 ================================= PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 11. Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities: Unaudited --------------------------- Cash generated from operations Half year Half year ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £m £m £m Profit for the period 80.5 53.5 93.9 Adjustments for: Employee share schemes 1.3 1.0 2.1 Deferred income released to profits - (1.0) - Profit/(loss) on disposal of property, plant and equipment 0.1 (0.3) (2.6) Profit on disposal of investment - (0.6) (0.6) Depreciation charge 63.8 56.2 113.7 Amortisation of intangible assets 0.8 1.1 1.8 Share of post-tax profit from joint ventures - (0.2) (0.3) Finance income (19.2) (14.8) (29.1) Finance costs 59.7 48.4 98.3 Taxation 1.8 17.6 37.2 Changes in working capital (excluding the effect of acquisition of subsidiaries) Increase in inventories (0.2) (0.2) (0.1) Increase in trade and other receivables (37.8) (28.7) (20.7) Increase in trade and other payables 11.1 10.2 16.9 Increase/(decrease) in retirement benefit obligations 5.2 (3.7) 2.0 Decrease in provisions for liabilities and charges (2.0) (2.8) (7.4) ------------------------------------- Net cash generated from operations 165.1 136.6 305.1 ===================================== 12. Net borrowings Unaudited ---------------------- 30 September 30 September 31 March 2007 2006 2007 £m £m £m Cash and cash equivalents 340.3 90.4 127.9 Borrowings - current Bank overdrafts (11.5) (14.0) (10.9) Other current borrowings (23.2) (18.3) (26.0) Finance lease obligations (51.5) (38.8) (48.9) ------------------------------------- Total current borrowings (86.2) (71.1) (85.8) ------------------------------------- Borrowings - non-current Bank and other loans (618.8) (367.6) (350.1) Other non-current borrowings (204.3) (218.4) (215.9) Finance lease obligations (1,045.0) (927.6) (1,033.4) ------------------------------------- Total non-current borrowings (1,868.1) (1,513.6) (1,599.4) ------------------------------------- Total net borrowings (1,614.0) (1,494.3) (1,557.3) ===================================== PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 12. Net borrowings (Continued) During the period South West Water Finance Plc, a subsidiary of South West Water Limited, issued £200m of 1.99% index linked bonds due 2057. The issue was made in two equal parts, the second, a tap issue, at a price of 107.6% reflecting accrued interest. The aggregate real yield of the bonds was 1.86%. Also during the period the Company issued £100m of bonds due 2022 having an initial 6% fixed cash coupon for the first three years. Cash and cash equivalents comprise the following for the purposes of the cash flow statement : Unaudited -------------------------- 30 September 30 September 31 March 2007 2006 2007 £m £m £m Cash and cash equivalents as above 340.3 90.4 127.9 Bank overdrafts as above (11.5) (14.0) (10.9) ------------------------------------- 328.8 76.4 117.0 Less : deposits with a maturity of three months or more 6.8 0.6 4.7 ------------------------------------- 322.0 75.8 112.3 ===================================== 13. Capital expenditure Unaudited --------------------------- Half year Half year Year ended ended ended 31 March 30 September 30 September 2007 2006 2007 £m £m £m Property, plant and equipment Additions 109.0 113.9 245.1 Net book value of disposals 0.3 1.0 2.4 Capital commitments Contracted but not provided 77.0 93.7 71.7 Share of commitment contracted but not provided by joint venture 39.0 63.5 41.7 14. Contingent liabilities There have been no material changes to the Group's contingent liabilities since 31 March 2007. PENNON GROUP PLCNOTES TO THE CONDENSED HALF YEAR FINANCIAL STATEMENTS (Continued) 15. Related party transactions The Group's significant related parties remain its joint ventures as disclosed in the Pennon Group Plc Annual Report and Accounts for the year ended 31 March 2007. There was no material change in transactions with these related parties in the period. Pennon Group PlcRegistered Office: Peninsula HouseRydon LaneExeterEX2 7HR Registered in England No 2366640 www.pennon-group.co.uk PENNON GROUP PLC DIRECTORS' RESPONSIBILITIES STATEMENT The Directors named below confirm on behalf of the Board of Directors that theseunaudited condensed half year financial statements have been prepared in accordancewith IAS34 "Interim financial reporting" as adopted by the European Union and to thebest of their knowledge the interim management report herein includes a fair review ofthe information required by DTR4.2.7 and DTR4.2.8 of the Disclosure and TransparencyRules, being an indication of important events that have occurred during the period andtheir impact on the unaudited condensed half year financial statements; a descriptionof the principal risks and uncertainties for the remainder of the current financialyear; and the disclosure requirements in respect of material related partytransactions. The Directors of Pennon Group Plc are listed in the Annual Report and Accounts for theyear ended 31 March 2007 and there has been no change since that date. For and on behalf of the Board of Directors K G Harvey D J DupontChairman Group Director of Finance 28 November 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Pennon