30th Nov 2006 07:03
Pennon Group PLC30 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 September2006. A presentation for City audiences will be held today, Thursday 30 November 2006 at11:30 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 profitablegrowth in the Group and affirm our strategy of focusing on our two businesses, SouthWest Water and Viridor. South West Water remains on target to meet the currentregulatory contract and Viridor continues to deliver a very strong performance basedon both organic growth and acquisitions as a result of its successful focusedstrategy." For further information today, 30 November 2006, please contact : David Dupont Group Director of Finance - Pennon 0207 251 3801Jo 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 itsstrategic focus on water, sewerage and waste management. The interim results aretestament to the success of the Board's strategy of focusing on these businessareas. The move to a more highly geared structure earlier in 2006 has allowed theGroup to return value to both shareholders and customers. As confirmed at the timeof the Group's interim results last December, the Board's policy is to grow theGroup 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 unmeasuredto metered charging caused a reduction of £3.7m in turnover. 56% of South WestWater's domestic customers are now metered. 3,700 new customer connectionscontributed £1.6m of turnover. Other factors, including a small decrease in measureddemand, reduced turnover by £1.3m. South West Water's operating profit rose 8.2% to £84.2m. Operating costs, includingdepreciation, increased by £12.2m to £111.7m. Additional costs from new capitalschemes of £4.7m, inflation of £5.2m (including energy and chemicals) and £3.7m ofother cost increases (including infrastructure expenditure charged to operatingcosts), were partially offset by £1.4m of efficiency savings. Detailed plans are inplace and the company is on track to achieve the operating cost efficiency targetsset by Ofwat for the period up to 2010. South West Water has put in place a comprehensive strategy to help ensure acontinued secure supply of water for the region following two successive dry wintersand summers. In 2005/06 three of our key reservoirs were replenished by pumpingwater from downstream river flows to supplement the natural rain water inflow. Thepump infrastructure was installed several years ago to provide enhanced droughtprotection and these facilities are currently in use to augment reservoir inflowover the coming winter. Ofwat's latest report on leakage confirms that South WestWater remains one of the leading companies in managing water leakage and continuesto deliver results in line with Ofwat's leakage target of 84 ML/day. Theseactivities 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 onBodmin Moor, is a significant addition to water resources in Cornwall furtherenhancing their robustness. The new lake will be the region's fourth largestreservoir. Work will now be carried out to build the appropriate infrastructure andit is anticipated that the water from this new source will become available from2007/08 (subject to obtaining the necessary Environment Agency permissions). Drinking water quality and river water quality are at an all time high and theregion 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 Waterregion achieved the European mandatory standard, and 91.7% achieved the still morestringent guideline standard. Ofwat's recently published 2005/06 'Levels of Service Report' confirms that SouthWest Water has maintained last year's step change improvement in its OverallPerformance Assessment (OPA) ranking, consolidating its 6th position out of the 10water and sewerage companies. Capital expenditure in the half year increased by £14.5m to £83.7m. £49.4m wasinvested in water supply improvements including water mains renovation and watertreatment works enhancement. Continued high levels of investment in the £240m watermains renovation programme to replace or reline 3,200kms of water mains will be akey element during the remainder of the K4 period. A further 330kms of water mainswere laid, replaced or refurbished during the half year, in line with the DrinkingWater Inspectorate's (DWI) agreed programme for completion by 2010. Waste water investment expenditure totalled £34.3m for the half year. All of themajor projects in the Company's 15 year original "Clean Sweep" coastal sewagetreatment programme have been completed and as noted above the region is nowattaining record levels of bathing water quality compliance. South West Water continues to deliver capital projects in line with Ofwat and EAexpectations. The company is targeting 5% efficiency outperformance of Ofwat'sallowed K4 capital programme of £762m (2002/03 prices) and is on track to achievethis. A major project, "Service +", is currently underway to improve the service tocustomers in relation to the company's day to day operational activities and reducecosts. A new Service Centre in Exeter, which utilises the latest mobile computingtechnology, is now operational and is managing contacts with customers on serviceissues 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 UKwater company. After adjusting for the growth in gearing, the company again expectsits growth in RCV to outstrip significantly the anticipated growth in netborrowings. 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 up17.2% to £178.2m, including a £9.5m contribution from the Wyvern Waste ServicesLimited (Wyvern Waste) acquisition, a full six month contribution from Brett WasteManagement Limited adding £4.2m, and £8.3m from increased landfill tax. Viridor's operating profit before intangibles amortisation (PBITA) for the half yearrose by 29.8% to £21.8m, compared to £16.8m in 2005/06. The increase reflected afull half year contribution from last year's Brett Waste Management acquisition, theperformance of Wyvern Waste, a one-off profit of £0.6m on disposal of Viridor'sinterest 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 CountyCouncil for £25m (including £3m cash on the balance sheet) as part of a 25 yearPublic Private Partnership (PPP) contract with the County. The acquisition comprised5 million cubic metres of consented landfill void, 7 megawatts of power generationcapacity and associated recycling and transfer operations. The business isperforming well and the operational integration of the company is already complete.This acquisition and associated contract fit well with Viridor's existingoperations. Total landfill disposal volumes rose 1.6% to 2.2m tonnes compared to the previoushalf year. After adjusting for acquisitions and a significant one-off sludgecontract at Masons in the first half of 2005/06, underlying volumes fell by 0.1mtonnes. Gate fees rose by 11% to £19 per tonne, reflecting the increasing scarcity of UKlandfill capacity. Consented landfill capacity grew from 87mm3 at last year end to acurrent 91mm3 reflecting the Wyvern Waste acquisition and planning gains less usagein the period. Viridor's power generation prices rose 7.2% to £62 per megawatt hour. Excluding theWyvern Waste acquisition (the contracts for which are mainly under NFFO) theincrease was 16.5% to £67 per megawatt hour, reflecting the strong brown energyprice in the first half of 2006 and the ongoing shortage of renewable energy in theUK, which is driving the premium price achieved by renewables. The timing of salescontracts for this financial year was particularly favourable and brown energyprices subsequently have been significantly lower. Output increased a further 17.8%compared to the previous first half (excluding Wyvern Waste 7.1%). Viridor's currentcapacity (including the contribution from Wyvern Waste) increased 9 megawatts to 70megawatts in the six months to 30 September 2006, 46% of which is eligible forRenewable Obligation Certificates (ROCs). The Government is targeting 10% ofelectricity from renewable energy sources by 2010 and 15% by 2015, with anaspiration of 20% by 2020. Only around 4% of electricity in the UK is currentlygenerated from renewable sources. In September 2005, Viridor set up Lakeside Energy from Waste Limited, a jointventure with Grundon Waste Management Limited, to build and operate an energy fromwaste (EfW) plant. The 50 : 50 joint venture is in line with Viridor's strategy ofcapitalising on opportunities arising from the Government's developing wastestrategy and will assist local authority customers in meeting their landfilldiversion targets and avoiding penalties under the Landfill Allowance Trading Scheme(LATS). A number of these councils are existing waste disposal customers of Viridoror Grundon. The plant will have a capacity of 400,000 tonnes per annum and it willalso provide power generation capacity of 32 megawatts of electricity which will befed into the national grid. The plant is being built at a strategically located siteat Colnbrook near Slough, which has the relevant permissions and permits. Totalinvestment is projected to be circa £160m, 86% of which is non-recourse debtfinancing with the balance split equally between Viridor and Grundon. The plant isunder 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 disposalcontract extension to 2027 for Poole; a 7 year 120kt pa landfill contract forPlymouth starting in April 2008 and a 5 year 100kt pa landfill contract for GreaterManchester 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 RecyclingConsortium which have been awarded 'Beacon Status' for waste management andrecycling. This status is conferred by Government for excellence, innovation andimprovements in efficiency and effectiveness in delivering waste services. Viridor continues to explore other suitable PFI or PPP opportunities as part of itsoverall strategy. In May 2006 Greater Manchester Waste Disposal Authority announcedthat the Viridor / Laing partnership was one of two parties shortlisted to submitBest And Final Offers (BAFO) for its waste management services contract. The BAFOwas submitted to the Authority earlier this month and a decision on preferred bidderis expected in January. PENSIONS The Group pension schemes had a deficit (net of deferred tax) under IAS 19 at 30September 2006 of circa £29m, unchanged from 31 March 2006. Investment growth and afurther prepayment of £9m (circa £6m net of tax) have been offset by an increase inliabilities. FINANCING INITIATIVES The total interest charge increased by £0.7m to £33.6m. The average interest rate onnet debt for the Group overall has been reduced to 4.6% (2005/06 5.7%) and for SouthWest 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 rateborrowings. To reduce the risk of adverse interest rate movements, South West Waterhas swap arrangements in place to fix the interest rate on circa 70% of its net debtfor the period up to March 2007 and on around 60% of its debt up to March 2010. Inaddition 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 shareissue. The £55m on-market share buy back scheme is being progressed with £3.5m ofshares bought back to date. BOARD CHANGES As indicated at the Group's Preliminary results last June, Bob Baty, Chief ExecutiveSouth West Water, retired at the end of July. Chris Loughlin joined the Board inAugust 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 andViridor. The Board is confident that South West Water will successfully deliver the K4regulatory contract and significantly grow its Regulatory Capital Value up to 2010.Viridor's successful strategy of creating long-term sustainable profit growth isexpected to continue through capitalising on its landfill asset base, exploiting itslandfill gas power generation potential and pursuing profitable opportunities inline with the Government's developing waste strategy. In addition, the Group has putin place a long-term funding structure to enable it to continue to finance itsactivities efficiently. Ken HarveyChairman30 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 £mRevenue 4 373.6 328.2 645.7 - 645.7Profit ondisposal of investment 0.6 - - - - Operating costsManpower costs (44.7) (39.2) (79.9) - (79.9)Raw materials and consumables used (22.3) (19.4) (40.7) - (40.7)Other operatingexpenses (145.4) (125.8) (245.9) (14.5) (260.4)Depreciation (56.2) (49.3) (102.5) - (102.5)Amortisationof intangibles (1.1) (0.8) (1.6) - (1.6) ------------------------------------------------------------Operatingprofit 4 104.5 93.7 175.1 (14.5) 160.6 Interestpayable andsimilar charges (48.4) (48.4) (96.8) (50.2) (147.0)Interest receivable 14.8 15.5 32.5 7.9 40.4Share of post-taxprofit 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 ordinaryactivities 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 attributableto equity shareholders 53.5 37.4 75.9 (38.1) 37.8 ============================================================ Earnings pershare (penceper 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 17.2Dividend proposed forthe 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 30September 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 ondefined benefit schemes (5.4) (2.2) (2.8) Cash flow hedgesNet fair value gains/(losses) 6.0 (6.3) 1.0 Tax on items taken directlyto or transferredfrom equity 1.6 0.7 0.8 -----------------------------------------------Net gains/(losses) notrecognised directly in income statement 2.2 (7.8) (1.0) ----------------------------------------------- Total recognisedincome for the period 55.7 29.6 36.8 Adjustments on adoption ofIAS 32/39 1 April 2005 - 8.6 8.6 ----------------------------------------------- 55.7 38.2 45.4 ===============================================Attributableto 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 £mAssetsNon-current assetsGoodwill 108.5 98.6 98.6Other intangible assets 12.1 6.4 5.7Property, plant andequipment 9 2,485.4 2,283.3 2,415.9Trade and otherreceivables 4.5 4.1 6.0Investments accounted for using equity method 1.5 1.2 1.3 ------------------------------------------- 2,612.0 2,393.6 2,527.5 -------------------------------------------Current assetsInventories 5.2 5.3 5.0Trade and otherreceivables 135.1 120.3 94.5Financial 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 -------------------------------------------LiabilitiesCurrent liabilitiesFinancial 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 forliabilities 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 liabilitiesFinancial liabilities Borrowings (1,513.6) (1,360.9) (1,471.8)Other non-currentliabilities (2.1) (3.5) (2.2)Retirement benefitobligations (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' equityShare capital 144.9 142.6 184.2Share premium account 11.5 155.8 10.2Capital redemptionreserve 143.8 - 98.4Retained earnings andother 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 £mCash flows from operatingactivitiesCash generated from operations 11 136.6 82.2 232.1Interest paid (includingexceptional item) (24.0) (33.9) (128.9)Tax paid (0.1) (0.3) (2.2) -----------------------------------------Net cash generated from operatingactivities 112.5 48.0 101.0 ----------------------------------------- Cash flows from investing activitiesInterest received (includingexceptional item) 3.9 15.6 22.5Acquisition of subsidiaries (netof cash acquired) (22.4) (44.5) (44.7)Investment in joint venture - (1.0) (1.1)Proceeds from business disposal - 5.0 5.0Proceeds from investment disposal 0.6 - -Purchase of property, plant andequipment (121.6) (86.4) (218.6)Proceeds from sale of property,plant and equipment 1.3 1.5 4.8 -----------------------------------------Net cash used in investingactivities (138.2) (109.8) (232.1) ----------------------------------------- Cash flows from financing activitiesNet proceeds from issue ofordinary share capital 1.7 1.5 1.6Purchase of ordinary sharessubsequently cancelled (3.5) - -Purchase of ordinary shares bythe Pennon Employee Share Trust (2.3) - -Release of restricted deposits - - 177.1Net proceeds from new borrowing 110.0 77.5 182.5Repayment of borrowings (58.8) (93.1) (224.3)Finance lease drawdowns - 1.5 141.6Finance 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 atbeginning of period 80.3 120.6 120.6 -----------------------------------------Cash and cash equivalents at endof period 75.8 25.0 80.3 ========================================= PENNON GROUP PLCNOTES 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 pershare 53.5 15.1 15.0 37.4 9.8 9.7 37.8 9.9 9.8 Exceptionalitems - - - - - - 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 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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