8th Dec 2005 07:02
Pennon Group PLC08 December 2005 PENNON GROUP PLC 8 December 2005 INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2005 Pennon Group announces its unaudited results for the half year ended 30September 2005. A presentation for City audiences will be held today, Thursday 8 December 2005,at 09:00 at The Great Eastern Hotel, Liverpool Street, London, EC2. FINANCIAL HIGHLIGHTS • Operating profit up 14.8% to £93.7m.* • South West Water up 15.4% to £77.8m. • Viridor Waste up 15.1% to £16.8m before amortisation of intangibles. • Profit before tax up 21.6% to £60.8m. * • Earnings per share (before deferred tax) up 13.5% to 41.3p. * *Before exceptional item in 2004/05 of £2.0m for costs incurred relating to abortive acquisition in 2003/04. PROPOSED RETURN OF CAPITAL AND DIVIDEND POLICY • Proposed capital return of £200m through : • B Share scheme of approximately £145m, equivalent to 110p per share • with income or capital alternatives • associated ordinary share consolidation • Share buyback of approximately £55m • Proposed rebased dividend per share post consolidation. • 20% increase in full year dividend per share reflected in: • 20% increase in interim dividend per share to 16.5p. • 3% per annum real dividend increases thereafter until 2009/10. • £20 per South West Water customer one-off payment from balance sheet restructuring. OPERATIONAL HIGHLIGHTS • South West Water : • Delivery under way of 2005 - 2010 Regulatory Contract. • Profit increase reflecting strong growth in Regulatory Asset Value (RAV) in 2005. • Length of water mains rehabilitated up 17%. • Highest increase in Overall Performance Assessment (OPA) score of any of the water and sewerage companies in England and Wales in 2004/05. • Record 2005 bathing water compliance. • Viridor Waste : • Continued strong growth in profits, particularly from landfill and power generation. • Brett Waste acquired June 2005 - now successfully integrated. • Lakeside energy from waste plant joint venture signed September 2005 - now fully financed and under construction. • New landfill opened in Cornwall. • Partnership with John Laing plc for Greater Manchester integrated waste PFI bid. • Viridor negotiating preferred bidder status for Somerset integrated waste contract/Local Authority Waste Disposal Company (LAWDC). Ken Harvey, Chairman, said, "I am pleased to report another half year ofexcellent results which clearly affirm our strategy of focusing on our two keybusinesses, South West Water and Viridor Waste. Following an extensive review bythe Board of the capital structure of the Group, the Board has decided, subjectto shareholder approval, to move South West Water to a more highly gearedstructure to enhance the Group's capital efficiency. As a consequence of this,the Board is pleased to announce proposals to effect a return to itsshareholders of 110 pence per share (being approximately £145m), with anassociated share consolidation, a share buyback of £55m and a one-off £20 perSouth West Water customer payment from balance sheet restructuring. The Boardalso intends to step up the interim and full year Group dividend per share by20% after the share consolidation and to grow it by 3% per annum in real termsthereafter until 2009/10." For further information today, 8 December 2005, please contact : David Dupont Group Director of Finance 0207 251 3801 PennonMark Harris Finsbury Group ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS All numbers contained herein are now published in accordance with InternationalFinancial Reporting Standards (IFRS) with prior year figures restated. PennonGroup, like all European Union listed companies, is required to produce itsresults under IFRS from 1 April 2005 in accordance with IFRS issued by theInternational Accounting Standards Board (IASB), and which have either been, orare reasonably expected to be, endorsed by the European Union for application tothe financial year ending 31 March 2006. The IASB is still developing thesestandards and further standards, amendments and interpretations could becomeapplicable to the Group's accounts as practice and interpretation continue toevolve. Consequently, the Group's accounting policies may change prior to thepublication of financial statements for the year ending 31 March 2006. The principal differences between UK Generally Accepted Accounting Principles(UK GAAP) and IFRS and their indicative impact on the Group were detailed in theGroup's 2005 Annual Report. Full information relating to the restatement from UK GAAP to IFRS has beenpublished today, principally comprising the consolidated balance sheet at 1April 2004, half year results to 30 September 2004 and the full year results to31 March 2005. Details of these results, together with reconciliations betweenpreviously published UK GAAP reported results and those reported under IFRS, areavailable on the Group's website www.pennon-group.co.uk. GROUP OVERVIEW • Revenue rose by 16.6% to £328.2m. • Operating profit rose by 14.8% to £93.7m.* • Profit before tax was up 21.6% to £60.8m * • Earnings per share before the exceptional item and deferred tax increased by 13.5% to 41.3p. Earnings per share after the exceptional item and deferred tax rose by 8.9% to 29.3p. • Capital expenditure was £93.1m (2004 - £86.0m). • Brett Waste Management Limited was acquired during the half year for £44.5m (£47.2m inclusive of debt). • Net borrowings were £1,199m, an increase of £81m since 31 March 2005. Gearing, being net borrowings to shareholders' funds plus net borrowings, was 63% (2004 - 62%). Interest cover was 2.8 times for the half year to 30 September 2005 (2004 - 2.6 times). *Before exceptional item in 2004/05 of £2.0m for costs incurred relating to abortive acquisition. PROPOSED CAPITAL RETURN AND DIVIDEND POLICY • The Board has decided to increase the level of gearing in its regulated water and sewerage business to increase the efficiency of the Group's capital structure. • As a consequence, the Board proposes a capital return to shareholders of £200m. • The capital return is to be achieved through a B Share scheme of approximately £145m (equivalent to 110p per share) and an on-market share buyback programme of approximately £55m. • The B Share scheme is intended to provide shareholders with the choice of receiving the return either as income or capital. In order to maintain comparability of the share price after the B Share scheme, the Board proposes to consolidate the ordinary share capital of the Group immediately following the issue of the new B shares. • The on-market share buyback programme of approximately £55m represents approximately 4% of the Group's issued share capital at the current share price. • Following the ordinary share consolidation, the Board proposes to step up the interim and full year dividend per share by 20% to 16.5p and then grow it by 3% per annum in real terms up to 2009/10. • Following the gearing up, we expect March 2006 South West Water pro forma net debt to Regulatory Asset Value (RAV) of around 66%. • £20 will be paid to each South West Water customer following the restructuring as a one-off payment. • The proposals to return capital through a B Share scheme and to consolidate the ordinary share capital are conditional on shareholder approval. A circular setting out explanatory details on the B Share scheme and associated share consolidation, and containing the notice of the Extraordinary General Meeting at which shareholders approval will be sought, is expected to be posted early in 2006. The proposals to increase the 2005/06 interim and final dividend by 20% and to make a one-off payment to customers will be implemented if shareholders approve the proposed B Share scheme and associated share consolidation. • The Return is to be funded from existing facilities. • In addition, the Company is proposing the retirement of its existing 2012 £150m 10.625% Bonds on recommended terms supported by an ABI Special Committee. SOUTH WEST WATER South West Water turnover rose by £20.4m to £177.3m. Approved tariff increases,including the 12.5% K factor, amounted to £25.0m. Customers switching fromunmeasured to metered charging caused a reduction of £4.4m in turnover. 4,100new customer connections contributed £1.4m. Other factors, including a smalldecrease in measured demand, reduced turnover by £1.6m. South West Water's operating profit rose 15.4% to £77.8m. Operating costs,including depreciation, increased by £10.0m to £99.5m. Additional costs from newcapital schemes of £4.0m, inflation of £3.8m and £4.1m of other cost increaseswere offset by £1.9m of efficiency savings. Detailed plans are in place andactions are being taken which are anticipated to achieve the operating costtargets set by the Director General of Water Services for the period up to2010. The company has made a positive start to its K4 capital programme with 'EarlyStart' schemes due for delivery as early as January 2006. Capital expenditure inthe half year increased by £1.2m to £69.2m. £41.2m was invested in water supplyimprovements including water mains renovation, water treatment works enhancementand leakage control. Ofwat's latest report on leakage confirms that South WestWater is one of the leading companies in managing water leakage and continues todeliver results in line with Ofwat's leakage target. Water resources remainsecure. A record length of almost 350km of water mains were laid, replaced orrefurbished during the half year, in line with the Drinking Water Inspectorate'sagreed programme for completion by 2010. Drinking water quality and river waterquality are at an all time high and the region features the highest proportionof high quality rivers in England. During the half year Ofwat reported thatSouth West Water in 2004/05 achieved the largest Overall Performance Assessmentscore improvement of the water and sewerage companies. Waste water investment expenditure totalled £28.0m for the half year. All of themajor projects in the Company's 15 year original "Clean Sweep" coastal sewagetreatment programme have been completed and the region is now attaining recordlevels of bathing water quality compliance. In the South West Water region, 142of the 143 designated bathing waters met the mandatory EU quality standards,with 88.8% meeting the more stringent guideline level. Cornwall's bathing watersachieved an exceptionally high standard, with a 100% pass rate at mandatorylevel and a 96.4% pass rate at the guideline level. During the K3 regulatory period the company grew its RAV ahead of net debt. RAVis predicted to grow by 33% over the K4 period to £2.6bn by March 2010 - thehighest forecast percentage increase of any quoted UK water company. Afteradjusting for the growth in gearing highlighted above, the company again expectsits growth in RAV to outstrip significantly the anticipated growth in netborrowings. VIRIDOR WASTE Viridor Waste (Viridor) has continued to trade strongly in the six months ended30 September 2005, building further on the growth achieved over the past severalyears. Revenue was up 20.0% to £152.0m, including a £5.6m contribution from theBrett Waste Management Limited (Brett Waste) acquisition and £9.2m fromincreased landfill tax. Viridor operating profit before intangibles for the half year rose by 15.1% to£16.8m (£16.0m after intangibles), including the benefit of some one-offbusiness, compared to £14.6m in 2004/05 (£13.8m after intangibles). Operatingprofit rose 13.7% excluding this year's acquisition. Earnings before interest,tax, depreciation and amortisation (EBITDA) rose 10.8% from £28.7m to £31.8m.Capital expenditure for the half year was £23.9m (2004 - £18.0m). In June Viridor acquired Brett Waste, a landfill and power generation business,for a cash consideration of £44.5m (£47.2m inclusive of debt in the company).The company comprises strategically located landfill sites in Kent and Essexwith approximately 11m cubic metres of consented capacity, landfill gas powergeneration schemes totalling 6 MW capacity and associated waste transfer stationand collection activities. The acquisition is now fully integrated into ViridorWaste's south east region and is expected to be earnings enhancing beforeamortisation of intangibles in its first full year. Total landfill disposal volumes excluding acquisitions remained unchangedcompared to the previous half year after adjusting for non-recurring volumes: i) in the first quarter of 2004/05, in advance of the banning of the disposal of hazardous waste to landfill and ii) in the first half of 2005/06 a significant one-off sludge contract at Masons. Increased landfill inputs from Viridor's own collection fleet offset the impactof an overall market decline. Gate fees rose by 12%, reflecting inputs of stabilised non-reactive hazardouswaste and the underlying tightness of UK landfill capacity. Viridor currentlyhas 89 million cubic metres of landfill capacity. Viridor's power generation prices, (excluding acquisitions), rose 19% to £59 permegawatt hour, reflecting the increasing underlying brown energy price and theongoing shortage of renewable energy in the UK which is driving the premiumprice achieved by renewables. The Government is targeting 10% of electricityfrom 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 fromrenewable sources. Excluding the Brett Waste acquisition, output increased afurther 3% in the half year. Viridor's current capacity (including thecontribution from Brett Waste) increased to 58 megawatts, around half of whichis eligible for Renewable Obligation Certificates (ROCs). In August, Viridor opened the first new landfill disposal site to be developedin Cornwall for about 20 years. With a capacity of 3m cubic metres, the LeanQuarry integrated waste management facility near Liskeard in Cornwall alsoprovides a Materials Recycling Facility, a waste transfer station and acollection services depot. In September, Viridor joined forces with Grundon Waste Management Ltd and set upa joint venture company, Lakeside Energy From Waste Limited, to build andoperate an energy from waste plant near Slough. The 50 : 50 joint venture is inline with Viridor strategy of capitalising on opportunities arising from theGovernment's developing waste strategy and will assist local authority customersin meeting their landfill diversion targets and avoiding penalties under theLandfill Allowance Trading Scheme (LATS). A number of these councils areexisting waste disposal customers of Viridor or Grundon. The plant will have acapacity of 400,000 tonnes per annum and it will also provide power generationcapacity of 32 megawatts of electricity which will be fed into the nationalgrid. The plant will be built at Grundon's strategically located site atColnbrook near Slough, which has the relevant permissions and permits. Totalinvestment is projected to be £160m, 86% of which is non-recourse debt financingwhich is now in place. The total project IRR is within normal project financeparameters. The plant is scheduled to be commissioned in mid-2008 andpreliminary infrastructure works have already started. Municipal landfill diversion creates new opportunities as councils seek to letlong-term integrated waste management contracts in order to meet their diversiontargets and avoid penalties. These contracts will often attract Private FinanceInitiative (PFI) funding. Viridor believes there may be significantopportunities in these contracts, subject to a fair sharing of risk betweencouncils and contractors, and is pursuing them in a selective manner. Viridorannounced today that it is in partnership with John Laing plc to submit a jointbid for the Greater Manchester PFI. Viridor is also negotiating preferred bidderstatus for the Somerset integrated waste management contract/LAWDC. The new Pennon Group balance sheet capital structure allows for the continuationof the current growth strategy in Viridor. PENSIONS During August 2005 the Company made a pension contribution prepayment for theperiod to 2010 of £44m (£32m net of tax). TAXATION The mainstream corporation tax charge for the half year to September 2005 was£8.1m (2004 - £4.6m). The deferred tax charge for the half year to 30 September 2005 was £15.3m. (2004- £9.8m). FINANCING INITIATIVES The total interest charge increased from £31.6m to £32.9m. The average interestrate on net debt has reduced to 5.7% (2004/05 5.8%). The Group funding strategy utilises a mix of fixed and floating rate borrowings.To reduce the risk of adverse interest rate movements, South West Water hasextended its swap arrangements to fix the interest rate on some 75% of its debtfor the period up to March 2006 and on around 60% of its debt up to March 2010.During the half year a new £114m finance lease facility was put in place forlong-life assets. The proposed capital return will be funded from cash on deposit and existingfacilities. STRATEGY AND PROSPECTS The Board's priority continues to be the creation of shareholder value throughits strategic focus on water, sewerage and waste management. The interim resultsare testament to the Board's strategy of focusing on these key business areas.The move to a more highly geared structure will allow the Group to return valueto shareholders and customers and provide an enhanced dividend. The Board hasconfidence that South West Water will successfully deliver the new K4 regulatorycontract and significantly grow its Regulatory Asset Value up to 2010. ViridorWaste's successful strategy of creating long-term sustainable profit growth isexpected to continue through capitalising on its landfill asset base, exploitingits landfill gas power generation potential and pursuing profitableopportunities in line with the Government's developing waste strategy. Ken HarveyChairman8 December 2005 PENNON GROUP PLC Consolidated income statement for the half year ended 30 September 2005 Unaudited -------------------- Half year ended Half year ended Year ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated)Continuing operations Note £m £m £mRevenue 328.2 281.5 551.4 -------- -------- -------- Operating costsManpower costs (39.2) (34.7) (68.3)Raw materials andconsumables used (19.4) (14.7) (32.8)Depreciation (49.3) (45.2) (90.7)Amortisation of intangibles (0.8) (0.8) (1.4)Other operating expenses (125.8) (104.5) (207.3)Abortive acquisition costs 4 - (2.0) (1.5)Business restructuringcosts 5 - - (3.4) -------- -------- --------Operating profit 93.7 79.6 146.0-----------------------------------------------------------------------------------------------Operating profit beforedepreciation, amortisationand exceptional items 143.8 127.6 243.0 Operating profit beforeexceptional items 93.7 81.6 150.9Abortive acquisition costs 4 - (2.0) (1.5)Business restructuringcosts 5 - - (3.4) -------- -------- --------Operating profit 93.7 79.6 146.0----------------------------------------------------------------------------------------------- Interest payable and similarcharges (48.4) (44.8) (89.3)Interest receivable 15.5 13.2 27.3Share of post-tax profit from joint venture - - 0.1 -------- -------- --------Profit before tax 60.8 48.0 84.1 Tax on profit on ordinaryactivities 6 (23.4) (14.4) (23.5) -------- -------- --------Profit for the period fromcontinuing operations 37.4 33.6 60.6 Discontinued operations-------------------------Post-tax business disposalprofit 7 - - 5.0 -------- -------- --------Profit for the period 37.4 33.6 65.6 ======== ======== ======== Profit attributable to equityshareholders 37.4 33.6 65.6 ======== ======== ======== Earnings per share (penceper share) 8 - Basic 29.3 26.9 52.1 - Diluted 29.1 26.8 51.7 Earnings per share fromcontinuing operations - Basic 29.3 26.9 48.1 - Diluted 29.1 26.8 47.8 Dividend per share (penceper share) 9 16.5 13.8 43.0Dividend proposed for the period (£m) 9 19.4 17.7 55.1 2004/05 comparatives have been restated to IFRS. PENNON GROUP PLC Consolidated statement of recognised income and expense for the half year ended 30 September 2005 Unaudited -------------------- Half year ended Half year ended Year ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £m £m £m Profit for the period 37.4 33.6 65.6 Actuarial (losses)/gains ondefined benefit schemes (net of tax) (1.5) (2.9) 1.3 Cash flow hedges Net fair value losses (net of tax) (6.3) - - -------- -------- --------Net (losses)/gains not recogniseddirectly in income statement (7.8) (2.9) 1.3 -------- -------- -------- Total recognised income for theperiod 29.6 30.7 66.9 Adjustments on adoption of IAS 32/39 1 April 2005 13.9 - - -------- -------- -------- 43.5 30.7 66.9 ======== ======== ======== Attributable to equity shareholders 43.5 30.7 66.9 ======== ======== ======== 2004/05 comparatives have been restated to IFRS. PENNON GROUP PLC Consolidated balance sheet at 30 UnauditedSeptember 2005 -------------------- Half year ended Half year ended Year ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £m £m £mAssetsNon-current assetsGoodwill 95.3 61.8 64.4Intangible assets 10.3 6.4 6.0Property, plant andequipment 2,283.3 2,167.7 2,218.5Trade and otherreceivables 4.1 3.0 3.3Investments accounted forusing equity method 1.2 - - -------- -------- -------- 2,394.2 2,238.9 2,292.2 -------- -------- --------Current assetsInventories 5.3 4.9 4.7Trade and otherreceivables 121.1 104.7 99.6Financial assets Derivative financial instruments 0.4 - -Cash and cashequivalents 215.8 296.9 303.4 -------- -------- -------- 342.6 406.5 407.7 -------- -------- --------LiabilitiesCurrent liabilitiesFinancial liabilities Borrowings (53.7) (107.2) (54.8) Derivative financial instruments (7.6) - -Trade andother payables (195.7) (174.8) (127.8)Current taxliabilities (32.8) (19.9) (23.6)Provisions forliabilitiesand charges (7.5) (6.8) (8.4) -------- -------- -------- (297.3) (308.7) (214.6) -------- -------- --------Net current assets 45.3 97.8 193.1 -------- -------- -------- Non-current liabilitiesFinancial liabilities Borrowings (1,360.9) (1,278.1) (1,366.8)Other non-currentliabilities (3.5) (17.4) (19.1)Retirement benefitobligations (39.6) (82.7) (79.8)Deferred taxliabilities (299.9) (275.2) (282.8)Provisions forliabilitiesand charges (34.0) (28.2) (27.9) -------- -------- -------- (1,737.9) (1,681.6) (1,776.4) -------- -------- --------Net assets 701.6 655.1 708.9 ======== ======== ======== Shareholders' equityShare capital 142.6 139.5 142.0Share premium account 155.8 156.1 153.7Retained earnings andother reserves 403.2 359.5 413.2 -------- -------- --------Total shareholders'equity 701.6 655.1 708.9 ======== ======== ======== 2004/05 comparatives have been restated to IFRS. PENNON GROUP PLC Consolidated cash flow statement Unauditedfor the half year ended 30 --------------------September 2005 Half year ended Half year ended Year ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Note £m £m £mCash flows from operatingactivitiesCash generated fromoperations 10 82.2 129.4 242.4Interest paid (33.9) (23.7) (68.5)Forward interest rate swapsettlement - (3.4) (3.4)Tax paid (0.3) - (0.4) -------- -------- --------Net cash generated fromoperating activities 48.0 102.3 170.1 -------- -------- -------- Cash flows from investingactivitiesInterest received 15.6 4.6 12.8Acquisition of subsidiaries(net of cash acquired) (44.5) (28.5) (28.6)Investment in joint venture (1.0) - -Proceeds of business disposal 5.0 - -Proceeds from sale of available for sale investments - 4.2 4.2Purchase of intangibleassets - - (0.2)Purchase of property, plant andequipment (86.4) (77.9) (167.1)Proceeds from sale of property,plant and equipment 1.5 0.9 2.3 -------- -------- --------Net cash used in investingactivities (109.8) (96.7) (176.6) -------- -------- -------- Cash flows from financingactivitiesNet proceeds from issue ofordinary share capital 1.5 0.7 0.8Net proceeds from new borrowing 77.5 55.0 150.0Repayment of borrowings (93.1) (46.6) (130.2)Finance lease drawdowns 1.5 26.4 57.3Finance lease principalrepayments (5.1) (3.6) (5.4)Dividends paid (16.1) (10.6) (28.3) -------- -------- --------Net cash used in financingactivities (33.8) 21.3 44.2 -------- -------- -------- Net (decrease)/increase in cashand cash equivalents (95.6) 26.9 37.7 Cash and cash equivalents atbeginning of period 120.6 82.9 82.9 -------- -------- --------Cash and cash equivalents atend of period 25.0 109.8 120.6 ======== ======== ======== 2004/05 comparatives have been restated to IFRS. PENNON GROUP PLC NOTES 1. Basis of preparation These unaudited interim financial statements are the first interim financial statements following adoption of International Financial Reporting Standards (IFRS). The accounting policies adopted and the reconciliations from net assets and equity under UK Generally Accepted Accounting Principles (UK GAAP) at transition to IFRS on 1 April 2004 and for the half year ended 30 September 2004 and for the year ended 31 March 2005 are set out in a separate document published today "Adoption of International Financial Reporting Standards" (IFRS). All accounting policies have been consistently applied except where the Group has taken advantage of the exemption in IFRS 1 "First-time Adoption of IFRS" from the requirement to restate comparative information for IAS 32 "Financial Instruments : disclosure and presentation" and IAS 39 "Financial Instruments : recognition and measurement". These standards have been applied with effect from 1 April 2005. The financial information has been prepared in accordance with all IFRS and interpretations of the Internal Financial Reporting Interpretations Committee (IFRIC) expected to be applicable for the year ended 31 March 2006 and have been determined in accordance with IFRS in issue that are either endorsed by the European Union (EU) and effective at 31 March 2006 or are expected to be endorsed and effective at 31 March 2006. 2. Financial information The financial information for the year ended 31 March 2005 does not constitute full financial statements within the meaning of section 240 of the Companies Act 1985. The full financial statements for that year, which were prepared under UK GAAP, have been delivered to the Registrar of Companies. The independent auditors' report on those financial statements was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. PENNON GROUP PLC NOTES (Continued) 3. Segmental reporting Unaudited -------------------- Half year ended Half year ended Year ended 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £m £m £m Continuing operations Revenue Water and sewerage 177.3 156.9 307.0 Waste management 152.0 126.7 248.3 Other 3.9 3.4 6.9 Less intra-segment trading (5.0) (5.5) (10.8) -------- -------- -------- 328.2 281.5 551.4 -------- -------- -------- Segment result Earnings before depreciation and amortisation of intangibles * Water and sewerage 112.3 98.6 186.4 Waste management 31.8 28.7 56.4 Other (0.3) 0.3 0.2 -------- -------- -------- 143.8 127.6 243.0 -------- -------- -------- Earnings before amortisation of intangibles * Water and sewerage 77.8 67.4 122.2 Waste management 16.8 14.6 30.0 Other (0.1) 0.4 0.1 -------- -------- -------- 94.5 82.4 152.3 -------- -------- -------- Operating profit * Water and sewerage 77.8 67.4 122.2 Waste management 16.0 13.8 28.6 Other (0.1) 0.4 0.1 -------- -------- -------- 93.7 81.6 150.9 -------- -------- -------- Discontinued operations Other - - 5.0 -------- -------- -------- * Before the exceptional items comprising abortive acquisition costs and business restructuring costs. 4. Abortive acquisition costs The abortive acquisition costs arise from negotiations to acquire the UK landfill and landfill gas operations of Shanks Group Plc where discussions were terminated on 25 May 2004. 5. Business restructuring costs The business restructuring costs arise in the water and sewerage segment. PENNON GROUP PLC NOTES (Continued) 6. Tax on profit on ordinary activities Unaudited ----------------------- September September March 2005 2004 2005 (restated) (restated) Tax on profit on ordinary activities £m £m £m comprises: United Kingdom corporation tax 8.1 4.6 7.9 Deferred tax 15.3 9.8 15.6 --------- --------- --------- 23.4 14.4 23.5 --------- --------- --------- The tax charge for September 2005 and September 2004 has been derived by applying the anticipated effective annual tax rate to the first half year profit before tax. 7. Discontinued operations The business disposal profit relates to the balance of proceeds due from the 1998 arrangement to dispose of the Group's interest in Societa Italo Britannica dell'Acqua Srl. The tax charge was not affected by the business disposal profit. 8. Basic and diluted earnings per share Reconciliation of earnings and weighted average number of shares in issue during the period. All share options with an exercise price lower than the average market price of the Company's shares during the period have been included in the calculation of diluted earnings per share. The reconciliation of the earnings and weighted average number of shares used in the calculations is set out below. Unaudited ----------------------- September September March 2005 2004 2005 (restated) (restated) Weighted average number of ordinary shares For basic earnings per share 127.5 124.7 126.0 Effect of dilutive potential ordinary shares : Share options 1.1 0.9 0.9 --------- --------- --------- For diluted earnings per share 128.6 125.6 126.9 ========= ========= ========= Earnings per share from discontinued operations (in pence per share) - Basic - - 4.0 - Diluted - - 3.9 PENNON GROUP PLC NOTES (Continued) 8. Basic and diluted earnings per share (Continued) Adjusted basic and diluted earnings per share Adjusted earnings per share have been calculated to exclude the impact of the exceptional items and deferred tax on the results, as these items can have a distorting effect on earnings from year to year and therefore warrant separate consideration. Adjusted earnings have been calculated as follows : September September March 2005 2004 2005 (unaudited) (unaudited) (unaudited) Earnings per share Earnings per share Earnings per share Earnings Basic Diluted Earnings Basic Diluted Earnings Basic Diluted £m p p £m p p £m p pEarningsper share from continuing Operations 37.4 29.3 29.1 33.6 26.9 26.8 60.6 48.1 47.8 Exceptionalitems - - - 2.0 1.6 1.6 4.9 3.9 3.8 Deferred tax 15.3 12.0 11.9 9.8 7.9 7.7 15.6 12.3 12.3 ------ ------ ------ ------ ------ ------ ------ ------ ------ Adjustedearnings per share from continuing 52.7 41.3 41.0 45.4 36.4 36.1 81.1 64.3 63.9 operations ====== ====== ====== ====== ====== ====== ====== ====== ====== 9. Dividends Unaudited ----------------------- September September March 2005 2004 2005 (restated) (restated) £m £m £m Interim dividend paid for the year ended 31 March 2005 : 13.8p (2004 13.2p) per share 17.7 16.4 16.4 Final dividend approved for the year ended 31 March 2005 : 29.2p (2004 27.8p) per share 37.4 34.7 34.7 --------- --------- --------- 55.1 51.1 51.1 ========= ========= ========= Unaudited ----------------------- September September March 2005 2004 2005 (restated) (restated) £m £m £m Proposed interim dividend for the year ended 31 March 2006 of 16.5p (2005 13.8p) per share 19.4 17.7 17.7 ========= ========= ========= The proposed interim dividend has not been included as a liability in these financial statements in accordance with IFRS. PENNON GROUP PLC NOTES (Continued) 10. Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities: Unaudited ----------------------- Cash generated from operations September September March 2005 2004 2005 (restated) (restated) £m £m £m Profit for the period 37.4 33.6 60.6 Adjustments for: Employee share schemes 0.9 0.9 1.5 Deferred income released to profits (0.4) - (0.2) Profit on disposal of property, plant and equipment (0.7) (0.3) (1.4) Depreciation charge 49.3 45.2 90.7 Amortisation of intangible assets 0.8 0.8 1.4 Share of post-tax loss from joint ventures - - (0.1) Interest payable and similar charges 48.4 44.8 89.3 Interest receivable (15.5) (13.2) (27.3) Taxation 23.4 14.4 23.5 Changes in working capital (excluding the effect of acquisition of subsidiaries) Increase in stocks (0.2) (0.4) (0.2) Increase in trade and other receivables (23.3) (5.3) (0.9) Decrease in long-term deposits (2.9) (2.9) (3.5) Increase in trade and other payables 8.2 12.3 8.5 (Decrease)/increase in retirement benefit obligations (42.4) 0.4 2.9 Decrease in provisions for liabilities and charges (0.8) (0.9) (2.4) --------- --------- --------- Net cash generated from operations 82.2 129.4 242.4 ========= ========= ========= 11. Net borrowings Unaudited ----------------------- 2005 2004 2005 (restated) (restated) £m £m £m Cash and cash equivalents 215.8 296.9 303.4 Borrowings - current Bank overdraft (10.2) (10.0) (5.1) Other current borrowings (14.5) (70.7) (20.4) Finance lease obligations (29.0) (26.5) (29.3) --------- --------- --------- Total current borrowings (53.7) (107.2) (54.8) --------- --------- --------- Borrowings - non-current Bank loans (247.7) (185.4) (255.3) Other non-current borrowings (314.4) (323.5) (316.4) Finance lease obligations (798.8) (769.2) (795.1) --------- --------- --------- Total non-current borrowings (1,360.9) (1,278.1) (1,366.8) --------- --------- --------- Total net borrowings (1,198.8) (1,088.4) (1,118.2) ========= ========= ========= PENNON GROUP PLC NOTES (continued) 12. Acquisitions On 21 June 2005 the entire issued share capital of Brett Waste Management Limited, (now renamed Viridor Waste Kent Limited), was purchased by Viridor Waste Management Limited for a cash consideration of £44.5 million before costs. The acquisition has been accounted for using the acquisition method and provisional goodwill of £30.9 million and intangible fixed assets of £5.2 million have been capitalised. The intangible fixed assets are being amortised evenly over the Directors' estimate of useful economic life. On 30 September 2005 Viridor Waste Management Limited acquired 50% of the entire issued share capital of Lakeside Energy From Waste Limited for an investment of £1.0 million. The joint venture has been accounted for using the equity method. 13. The interim dividend record and payment dates will be set out in the Circular to shareholders relating to the proposed return of capital, which is expected to be posted to shareholders towards the end of January 2006. The interim report will be posted to shareholders at the same time and will also be available from the Company's registered office. Pennon Group PlcRegistered Office: Peninsula HouseRydon LaneExeterEX2 7HR Registered in England No 2366640 www.pennon-group.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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