TIDMPNN
RNS Number : 5859A
Pennon Group PLC
30 May 2019
The headline for the Pennon Group PLC announcement released on
30 May 2019 at 07.00am BST under RNS No 5384A should read Full Year
Results 2018/19, not Annual Financial Report.
The announcement text is unchanged and is reproduced in full
below.
30 May 2019
Full Year Results 2018/19
for the year ended 31 March 2019
Bringing resources to life
Chris Loughlin, Pennon Chief Executive said:
"Pennon has delivered another year of strong performance across
the Group, fulfilling our promises to customers and communities in
a responsible and sustainable way.
Viridor is delivering sustainable growth in UK recycling and
residual waste management. The existing portfolio of Energy
Recovery Facilities is performing well, transforming waste into
electricity and heat and underpinning Pennon's earnings growth
beyond 2020.
Market dynamics continue to be favourable with the 'Blue Planet'
effect spurring action, while the Government's recent Resources
& Waste Strategy will encourage positive reform. Today we are
announcing the first part of Viridor's next growth phase with
significant investment in a new, state of the art plastics
processing facility. The facility will be powered by low carbon
energy from our Energy Recovery Facility in Avonmouth, adding
much-needed recycling capabilities to the UK market.
South West Water has invested over GBP7 billion since 1989 with
over GBP650 million invested in this regulatory period alone. This
investment enabled South West Water to demonstrate its resilience
over the course of this year in extreme weather conditions,
recording the lowest ever supply interruptions and again meeting
our leakage target. Our focus on delivering sector-leading customer
experience has been reflected in our highest ever customer service
score, being ranked 2(nd) out of all water and wastewater companies
for the quality of service.
Our ambitious 2020-25 business plan received fast-track status
from the regulator for the second consecutive review, the only
water company to achieve this. Customer bills will be lower in 2025
than they are both today and fifteen years ago. Two thirds of South
West Water employees are also our shareholders and our proposed
'New Deal' will give our South West Water customers a financial
stake in the business from 2020."
Financial Highlights
Underlying[1] 2018/19 2017/18 Change
Revenue GBP1,478.2m GBP1,393.0m +6.1%
EBITDA[2] GBP546.2m GBP509.6m +7.2%
Adjusted EBITDA[3] GBP592.7m GBP562.3m +5.4%
Operating profit GBP351.0m GBP323.9m +8.4%
Profit before tax (PBT) GBP280.2m GBP258.8m +8.3%
----------------------------------- ------------ ------------ -------
Non-underlying items before (GBP19.9m) GBP4.1m -
tax[4]
Statutory profit before tax GBP260.3m GBP262.9m (1.0%)
Tax (GBP37.7m) (GBP41.0m) +8.0%
Statutory profit after tax
(PAT) GBP222.6m GBP221.9m +0.3%
Underlying earnings per share[5] 57.8p 50.9p +13.6%
Statutory earnings per share 51.1p 48.0p +6.5%
Dividend per share[6] 41.06p 38.59p +6.4%
Pennon Group
-- Pennon has delivered robust performance in 2018/19, in line with management expectations
-- Underlying PBT up +8.3% driven by:
o EBITDA growth of +19.1% at Viridor supported by the build out
and performance of our Energy Recovery Facilities (ERFs)
o Higher revenues and EBITDA at South West Water reflecting
increased customer demand over the summer, net of costs to deliver
the resilient service to customers
o c.GBP17 million p.a. Group efficiencies secured in line with
expectations
-- Statutory PBT at GBP260.3 million, after non-underlying items
of GBP19.9 million, broadly comparable with prior year
-- Statutory earnings per share growth of 6.5% to 51.1p, reflecting efficient hybrid financing
-- 2018/19 dividend per share up +6.4% to 41.06p
-- Cash flow from operations reflecting robust operational
performance, whilst significant capital investment for growth
continues, including increased holding in Runcorn I ERF joint
venture
-- Development of our Sustainable Financing Framework, with
GBP600 million of the GBP830 million debt raised during the year
linked to the sustainable nature of the business, reducing our
costs and reflecting our environmental and social credentials
Viridor
-- Focus on de-risked infrastructure model, backed by index linked long-term contracts
-- Excellent track record, successful diversification and growth
- capitalising on UK waste strategy
-- Successful execution of ERF portfolio - continued outperformance in 2018/19
o Availability >90% for third consecutive year - top quartile
for the industry
o Operational performance in excess of base case IRR assumption
of 8%
o Increased ERF like for like performance compared with last
year - portfolio EBITDA margin c.60%
o Build out of ERFs supporting strong growth in EBITDA of
+19.1%[7] - three new ERFs delivered, with construction of
Avonmouth on track
o Increased stake in Runcorn I ERF joint venture and investment
in additional throughput capacity at Glasgow
-- Confidence in long-term market outlook
o Government Resources & Waste Strategy aligned to Viridor
strategy
o Plastics on fast-track driven by 'Blue Planet' effect
o ERF market fundamentals remain strong
o Landfill continued feature of UK waste in the medium term
-- Future growth opportunities, developing options for new ERFs,
Energy Parks and plastics recycling
-- Investment in plastics recycling - leveraging our plastics skill set
o Co-located at Avonmouth ERF using energy and heat
off-takes
o GBP65 million investment in de-risked infrastructure model
backed by index linked contracts
o Secured three quarters of inputs (third party and Viridor) and
half of plastic offtake (third party)
o 80,000 tonnes per annum capacity representing 8% of current
market requirement
o Handles multi-stream[8] plastics and will produce pellets
directly for manufacturers from 2020/21
South West Water
-- Strong performance, demonstrating service resilience through extreme weather conditions
o Lowest ever supply interruptions, and leakage target met again
this year
o Highest ever customer service (SIM) score of 88 achieved in
both regions
o South West Water now ranked 2(nd) overall in the industry for
quality of service
-- Sector leading outperformance in K6 (2015-20)
o Cumulative Return on Regulated Equity (RORE) at 11.8%[9]
o WaterShare delivering c.GBP110 million of outperformance for
sharing with customers
o On track to deliver all our business plan commitments by
2020
-- 'New Deal' Business Plan for K7 (2020-25) awarded
'fast-track' status for its quality, the only water company to
achieve this for two successive price reviews
o Highest outperformance potential - confidence in
outperformance in all areas
o Strong platform for ODI performance in K7
o Fast start to next period already underway
Pennon Water Services
-- One of only five associated retailers to have achieved net
growth in the new competitive non-household market. Focused on
value enhancing contracts and future cost base efficiencies.
Presentation of Results
A presentation for City audiences will be held today, Thursday
30 May 2019, at 09.00am at the ICAEW (The Auditorium), One Moorgate
Place, London, EC2R 6EA.
A live webcast of the presentation can also be accessed using
the following link:
http://www.pennon-group.co.uk/investor-information
For further information, please contact:
Chief Financial Officer - Pennon
Susan Davy Director of Corporate Affairs & Investor
Sarah Heald Relations - Pennon 01392 443
Jennifer Cooke Investor Relations Officer - Pennon } 168
James Murgatroyd Finsbury 020 7251
Harry Worthington Finsbury } 3801
About Pennon Group
Pennon is one of the largest environmental infrastructure FTSE
250 groups in the UK with assets of around GBP6.5 billion and a
workforce of over 5,000 people. Over 60% of Pennon's shareholders
are UK pensions, savings, charities, individuals and employees,
with two thirds of South West Water's employees being
shareholders.
Pennon's purpose is bringing resources to life. We aim to
protect the environment and provide an outstanding service to
customers and communities, while creating value for our
shareholders. Pennon is investing significantly in its UK water and
waste infrastructure and estimates capital expenditure of c.GBP1.8
billion between 2015 and 2020, with GBP1.5 billion invested to
date. The Group continues to generate robust operating cash flows,
and has a strong liquidity and balance sheet position, underpinning
a well established sector leading dividend policy.
Viridor is a leading UK recycling and residual waste processing
and transformation business providing services to more than 150
local authorities and major corporate clients as well as over
32,000 customers across the UK.
The integrated water company of South West Water and Bournemouth
Water provides water and wastewater services to a population of
c.1.7 million in Cornwall, Devon and parts of Dorset and Somerset
and water only services to c.0.5 million in parts of Dorset,
Hampshire and Wiltshire.
Since 1989 South West Water has invested over GBP7 billion to
improve water and wastewater services. This investment means that
we supply some of the best quality drinking water in the UK and
have achieved record bathing water quality in recent years.
Pennon Water Services provides water and wastewater retail
services to over 160,000 non-household customer accounts across
Great Britain, and is an 80:20 venture with South Staffordshire
Plc.
Dividend policy
Whilst delivering on our promises to customers and communities,
for investors Pennon's long established 10 year dividend policy
delivers 4% year-on-year growth above RPI inflation to 2020. This
policy reflects the Board's confidence in our sustainable growth
strategy and is underpinned by the highest potential Return on
Regulated Equity in the water sector over K6 (2015-20) and the
growth in earnings delivered by Viridor's ERFs.
For 2018/19, the Board has recommended a final dividend of
28.22p, subject to shareholder approval at the Annual General
Meeting on 25 July 2019. The final dividend will be paid on 3
September 2019 to shareholders on the register on 26 July 2019.
Together with the interim dividend of 12.84p, this will result in a
total dividend of 41.06p, an increase of 6.4% from last year.
Pennon offers shareholders the opportunity to invest their
dividend in a Dividend Reinvestment Plan (DRIP).
Full year dividend payment information
25 July 2019 Ex-dividend date
26 July 2019 Record date
12 August 2019 Final date for receipt of DRIP applications
03 September 2019 Final dividend payment date
Upcoming Events
25 July 2019 Annual General Meeting
27 September 2019 Trading Statement
26 November 2019 Half Year Results 2019/20
March 2020 Trading Statement
2 June 2020 Full Year Results 2019/20
PENNON BUSINESS REVIEW
Pennon has had another year of strong progress against its
strategic objectives of leading in the UK's water and waste
infrastructure sectors, investing for sustainable growth and
driving value through efficiency. South West Water's K7 (2020-25)
business plan received the green light from the water industry
regulator Ofwat in January 2019, awarding us fast-track status that
allows us to plan and provide early certainty to our customers.
Viridor reported an excellent year across its recycling and
residual waste processing and transformation operations. Throughout
the year, we continued to deliver on our promises to customers and
communities and our investment across the Group is driving tangible
and positive results for all our stakeholders.
How we do business
Our two core businesses - South West Water and Viridor - each
provide essential services to local communities. We have a
responsibility to deliver those well and our customers depend on
our ability to operate over the long term as a stable and
sustainable service provider. Whilst delivering our services forms
an essential part of serving our customers, we have a special
responsibility to ensure we make a positive difference to our
communities. Delivering our services in a way that reflects our
Group values - trusted, collaborative, responsible and progressive
- emphasises how we want to do that and the contribution we want to
make to society. In addition, we focus on strong financial control,
sound administration and good governance, ensuring Board alignment
with our stakeholders.
Delivering on our promises for customers and communities
Viridor continues to expand the ERF portfolio with three new
facilities at Glasgow, Beddington and Dunbar delivered during the
year, and construction at Avonmouth remaining on track. We continue
to work closely with our key customers and partners across our
whole portfolio to deliver service in line with expectations.
We know that delivering a resilient service in South West Water
is critical to our customers. Despite the periods of extreme
weather during 2018 with the 'freeze and thaw' in March and the hot
dry summer giving rise to unprecedented demand, we continued to
deliver an excellent service to our customers. This has been
reflected in our best ever customer service score with South West
Water ranked 2(nd) out of all water and sewerage companies for our
quality of service.
South West Water has delivered further benefits for customers
through our innovative WaterShare mechanism with around GBP110
million of benefits achieved since 2015. Customers will continue to
benefit from reinvestment in services and lower bills into the next
period.
Delivering strong, sustainable financial performance across the
Group
Confidence in our financial resilience is driven by robust
operating cash flows, a strong liquidity and balance sheet
position, and a diversified mix of low cost and flexible funding
which underpins our sector leading dividend policy.
Earnings growth of 7.2% for 2018/19 has been driven by ERF
portfolio growth, weather related higher revenue in South West
Water (net of costs to deliver a resilient service) and a strong
focus on cost savings, benefiting both customers and
shareholders.
The build out of the ERF portfolio is supporting growth in
Viridor and recycling activities have stabilised in the year with
margins improving due to optimising contracts and asset base.
Viridor has continued to focus on cost savings with initiatives
delivering indirect cost efficiencies of 17% in real terms since
2015/16.
South West Water continues to deliver sector leading Totex
outperformance, with GBP237 million cumulative efficiencies to date
over K6 regulatory period and is on track to deliver c.GBP300
million over the whole period. Together with delivery of net ODI
rewards and outperformance in our cost of financing, momentum of
delivery has been maintained with a cumulative RORE of 11.8%. South
West Water is confident in the continued delivery of outperformance
in all areas in the next regulatory period.
Targeted Group wide efficiencies of c.GBP17 million p.a. from
2019, identified through a detailed overhead review in 2015/16,
have been secured in line with expectations.
Pennon continues to seek and identify further growth
opportunities within the UK, assessing the long-term viability of
the markets in which we operate and achieving an appropriate
risk/reward balance, and is confident of delivering sustainable,
long-term returns from water and waste, supported by significant
headroom for investment.
Leading, responsible and sustainable UK waste operator,
delivering growth
Viridor is focused on delivering UK recycling and residual waste
processing and transformation. The business has been re-positioned
to focus on a de-risked infrastructure model, with investment
backed by profitable, long-term contracts. We believe there are
continued favourable waste market dynamics in both recycling and
residual waste, supporting opportunities for further growth.
The 'Blue Planet' effect continues to encourage action and we
were pleased to see the Government's Resources & Waste Strategy
aligned to Viridor's strategy, with plastics on a fast track.
Whilst the recycling market has been challenging, with changing
public perception and Government support for recycling and the UK
Plastics Pact outlining a roadmap with targets to 2025, we are
confident in the long-term market outlook. The proposed reforms are
significant and positive, though the timeline is conservative.
Viridor sees clear opportunities in plastics recycling and
reprocessing and has committed to a new GBP65 million investment in
a facility co-located on the Avonmouth ERF site, allowing us to
leverage our existing skill sets in this space. This will bring the
added benefit of the energy being supplied from the ERF, realising
significant operating cost savings, and will create a new Energy
Park. Viridor is also assessing two further opportunities in the
plastics recycling and reprocessing market with the potential for
co-location giving a cost advantage.
We continue to expect UK residual waste market dynamics to be
favourable with demand for ERFs exceeding capacity into the long
term. We anticipate the capacity gap to be around seven million
tonnes (mT) to 2035. Household waste arisings remain robust and
expenditure on waste services is up c.18%[10] from 2008/09. The
operational ERF portfolio achieved availability in excess of
90%[11] in 2018/19 with the operational performance of the
facilities above management's initial base case expectations which
assume a real post tax IRR (internal rate of return) of 8%. We have
further consolidated our position through increasing our holding in
Viridor's joint venture TPSCo[12], which owns Runcorn I ERF, from
37.5% to 75.0% of the economic interest. We believe our landfill
portfolio complements the combustible residual waste strategy, with
a requirement for a landfill solution into the medium term.
Viridor's earnings have more doubled in the period from 2014/15
to 2018/19. Given our confidence in the UK recycling and residual
waste market and our committed investment in growth projects to
2021/22 we anticipate Viridor's contribution to Group profit to
continue to increase. We also continue to consider further
expansion and investment, with development of Energy Park
opportunities across the landfill and ERF portfolio capitalising on
the potential of existing grid connections. Viridor is currently
assessing three further ERF options where we see under-capacity in
the local market and the opportunity for attractive long-term
contracts.
South West Water K7 (2020-25) Draft Determination presenting
sector leading opportunities for delivery of promised
performance
Ofwat's Draft Determination made minimal changes to our 'New
Deal' Business Plan for K7 (2020-25) submitted in September 2018
and subsequently awarded 'fast-track' status to reflect its high
quality. The plan signals a new way of doing business for our
customers and stakeholders. This approach is focused on empowering
our customers by giving them the option of a tangible financial
stake and a share in the business and the power to hold us to
account, with a say in our business through a Customer AGM.
Preparations are already underway for a fast start in K7, with key
partnerships already in place, our RSI transformation programme
underway and preparation for the Isles of Scilly transfer well
advanced.
PENNON FINANCIAL PERFORMANCE
Pennon Group
Underlying[13] 2018/19 2017/18 Change
Revenue GBP1,478.2m GBP1,393.0m +6.1%
EBITDA GBP546.2m GBP509.6m +7.2%
Adjusted EBITDA[14] GBP592.7m GBP562.3m +5.4%
Depreciation and amortisation (GBP195.2m) (GBP185.7m) (5.1%)
Operating profit GBP351.0m GBP323.9m +8.4%
Net interest (GBP83.2m) (GBP74.5m) (11.7%)
Share of JV profit after
tax GBP12.4m GBP9.4m +31.9%
Profit before tax GBP280.2m GBP258.8m +8.3%
------------------------------------- ------------ ------------ ----------
Non-underlying items before (GBP19.9m) GBP4.1m -
tax[15]
Statutory profit before
tax GBP260.3m GBP262.9m (1.0%)
Tax (GBP37.7m) (GBP41.0m) +8.0%
Statutory profit after tax
(PAT) GBP222.6m GBP221.9m +0.3%
PAT (attributable to holders
of hybrid capital) GBP8.6m GBP21.5m +60.0%
PAT (attributable to minority
interests) (GBP0.3m) (GBP0.2m) +50.0%
PAT (attributable to shareholders) GBP214.3m GBP200.6m +6.8%
Underlying earnings per
share[16](,[17]) 57.8p 50.9p +13.6%
Statutory earnings per share(17) 51.1p 48.0p +6.5%
Dividend per share[18] 41.06p 38.59p +6.4%
Capital investment[19] GBP395.9m GBP398.2m (0.6%)
South West Water GBP154.0m GBP184.2m (16.4%)
Viridor(19) GBP241.7m GBP213.0m +13.5%
Other GBP0.2m GBP1.0m (80.0%)
31 March 31 March Change
2019 2018
Net debt[20] GBP3,079.5m GBP2,801.5m +9.9%
Non-underlying Items before tax
Non-underlying items for the year total a charge of GBP19.9
million before tax (2017/18 credit of GBP4.1 million). The
Directors believe excluding non-underlying items provides a more
useful comparison on business trends and performance.
The non-underlying charge of GBP19.9 million is a result of:
-- Increased provision in respect of the receivable due for
recovery of rectification and completion costs for Glasgow
Recycling and Renewable Energy Centre (GRREC). This reflects our
assessment of the credit loss (under IFRS 9) and results in a
charge of GBP22.7 million
-- Past pension service cost for Guaranteed Minimum Pension
equalisation, which applies to all affected UK employers, results
in a charge of GBP3.0 million
-- The movement in the fair value of long-dated derivatives
associated with South West Water's 2040 bond results in a credit of
GBP5.8 million (2017/18 charge of GBP2.4 million).
Viridor
Underlying 2018/19 2017/18 Change
Revenue[21] GBP852.7m GBP785.7m +8.5%
EBITDA GBP178.9m GBP150.2m +19.1%
ERFs GBP154.8m GBP123.7m +25.1%
Landfill GBP4.8m GBP5.6m (14.3%)
Landfill gas GBP20.6m GBP23.3m (11.6%)
Recycling GBP14.9m GBP15.0m (0.7%)
Contracts, Collections &
Other GBP39.0m GBP39.3m (0.8%)
Indirect costs (GBP55.2m) (GBP56.7m) +2.6%
Depreciation and amortisation (GBP78.0m) (GBP71.6m) (8.9%)
Share of JV profit after
tax GBP12.4m GBP9.4m +31.9%
Net interest (GBP24.8m) (GBP17.2m) (44.2%)
Profit before tax GBP88.5m GBP70.8m +25.0%
Share of JV EBITDA GBP31.9m GBP38.9m (18.0%)
IFRIC 12 interest receivable GBP14.6m GBP13.8m +5.8%
Adjusted EBITDA[22] GBP225.4m GBP202.9m +11.1%
South West Water
Underlying 2018/19 2017/18 Change
Revenue[23] GBP581.0m GBP571.3m +1.7%
Operating costs (GBP213.9m) (GBP210.4m) (1.7%)
EBITDA GBP367.1m GBP360.9m +1.7%
Depreciation and amortisation (GBP116.0m) (GBP113.1m) (2.6%)
Operating profit GBP251.1m GBP247.8m +1.3%
Net interest (GBP70.5m) (GBP67.3m) (4.8%)
Profit before tax GBP180.6m GBP180.5m +0.1%
Pennon Water Services
2018/19 2017/18 Change
Revenue GBP173.7m GBP165.9m +4.7%
EBITDA GBP1.0m GBP1.0m -
Depreciation and amortisation (GBP0.7m) (GBP0.6m) (16.7%)
Operating profit GBP0.3m GBP0.4m (25.0%)
Net interest (GBP1.9m) (GBP1.5m) (26.7%)
Profit before tax (GBP1.6m) (GBP1.1m) (45.5%)
Strong Group underlying financial performance
Pennon Group has again had a successful year of earnings growth,
robust cash flows, strong liquidity and a sound balance sheet
position underpinned with low cost, flexible and sustainable
funding. These successes form the background to the delivery of our
10 year, sector-leading dividend policy of 4% year-on-year growth
above RPI inflation to 2020.
Group revenue increased by 6.1% (GBP85.2 million) to GBP1,478.2
million (2017/18 GBP1,393.0 million).
Viridor revenues increased by 8.5% (GBP67.0 million) to GBP852.7
million primarily due to the ERF build out and IFRIC 12
construction revenue. Revenue from South West Water increased by
1.7% (GBP9.7 million) to GBP581.0 million due to customer demand
increases of 1.4% from the hot and dry weather over the summer, net
tariff[24] increases of 1.0% and increased infrastructure
connections.
Group EBITDA and adjusted EBITDA were ahead of last year by 7.2%
at GBP546.2 million (2017/18 GBP509.6 million) and 5.4% at GBP592.7
million (2017/18 GBP562.3 million) respectively, with both South
West Water and Viridor ahead of 2017/18. The gap between EBITDA and
adjusted EBITDA narrowed in the period as expected due to the
reduced share of joint venture EBITDA following the reset of the
Greater Manchester waste contract in 2017/18, net of the increased
holding in Runcorn I ERF (TPSCo).
Viridor's EBITDA increased by 19.1% (GBP28.7 million) compared
with 2017/18.
The ERF business has performed strongly during the year, in line
with expectations. The EBITDA generated from our portfolio was
25.1% higher at GBP154.8 million (2017/18 GBP123.7 million)
reflecting financial contributions from three new ERFs[25] in the
year and increased like for like performance at established
facilities.
Whilst landfill volumes are comparable year on year, landfill
EBITDA decreased by 14.3% to GBP4.8 million (2017/18 GBP5.6
million), reflecting the mix of waste deposited at sites. We
continue to see demand for a landfill solution into the medium
term, and have sites well positioned to meet these demands, with
nine sites operational at the year end. As part of the planned
closure profile, two sites were closed in the year and we
anticipate operating at a level of six sites in the medium to long
term.
In our landfill gas business we are currently progressing our
engine replacement strategy, including investing in maintenance and
more efficient engines. This is improving reliability and securing
generation for the longer term, whilst optimising the generating
capacity potential at our sites. EBITDA for the year at GBP20.6
million, is down 11.6% from the prior year (2017/18 GBP23.3million)
reflecting the natural decline in gas volumes produced from sites
(although at 5% this is at a lower rate than previous years) and
increased maintenance costs. The benefit of higher year on year
hedged electricity prices has helped support the overall
performance.
Recycling EBITDA at GBP14.9 million is in line with expectations
and prior year guidance (2017/18 GBP15.0 million). Viridor's focus
continues to be on the production of higher quality and value
recyclates through our reliability centred maintenance programme
'WorkSmart' to create margin improvement. Whilst recyclate volumes
traded have decreased year on year, EBITDA margin has increased by
over a GBP1 per tonne (9%) to GBP12.40 per tonne (2017/18 GBP11.10)
reflecting recovery in the global recycling markets for high
quality recyclate, net of the costs of challenging input quality.
We continue to share commodity risks and rewards with our
customers, with risk/reward share arrangements in place for over
60% of inputs.
Contracts, Collections and Other EBITDA was broadly comparable
with the previous year at GBP39.0 million (2017/18 GBP39.3
million). Following last year's contract reset, the Greater
Manchester run off operating contract results are in line with our
expectations. The Greater Manchester run off contract is due to end
on 31 May 2019 and we continue with the orderly transition towards
its cessation, while maintaining high levels of service. The
financial impact of not continuing with this operational contract
is not material to the Group.
Viridor's indirect costs continued to fall with a reduction of
GBP1.5 million to GBP55.2 million (2017/18 GBP56.7 million) in
2018/19 and are 17% lower in real terms than 2015/16.
Joint venture EBITDA has reduced to GBP31.9 million (2017/18
GBP38.9 million) as a result of the contract reset at Greater
Manchester in September 2017, net of the GBP2.7 million impact of
the Group increasing its investment and economic share in Runcorn I
ERF joint venture in the year from 37.5% to 75.0%. The contract
reset in 2017 saw both the disposal of our Viridor Laing joint
venture and the introduction of a lower contractual EBITDA for the
Runcorn I ERF joint venture following the repayment of external
debt as part of the reset. This reduction in EBITDA was offset by
interest savings in the joint venture profit after tax result.
Runcorn I ERF continues to deliver strong operational and financial
performance.
IFRIC 12 interest receivable at GBP14.6 million is broadly
comparable with 2017/18 of GBP13.8 million.
South West Water's EBITDA and operating profit increased by 1.7%
and 1.3% respectively. Strong cost management and efficiency
delivery has resulted in lower than inflation (average inflation
3.1%) cost increases, despite the c.GBP5 million increased cost
challenges posed by the extreme weather and replenishment of water
resources in the second half of the year. In addition, South West
Water's debt collection performance remains strong resulting in a
charge of 0.4% of revenues (2017/18 0.8%) reduced from 1.7% at
March 2015. This continues to be driven by efficient cash
collections as we work with our customers to manage their debt and
strive to support those customers in vulnerable circumstances with
affordability challenges. South West Water has continued to record
strong performance against the K6 regulatory contracts,
outperforming regulatory assumptions resulting in a cumulative RORE
of 11.8%.
Pennon Water Services has continued to generate net customer
gains during its second year of trading with revenue increasing by
4.7% to GBP173.7 million (2017/18 GBP165.9 million). Overall EBITDA
for the year was GBP1.0 million (2017/18 GBP1.0 million), with
opportunities to improve operating cost efficiencies continuing to
be targeted.
Group efficiencies achieved as a result of the Shared Services
initiatives have delivered a further GBP4.0 million of cost savings
and synergy benefits during the year, meeting our targeted c.GBP17
million per annum from 2019.
Net Finance Costs
Underlying net finance costs of GBP83.2 million are GBP8.7
million higher than last year (2017/18 GBP74.5 million). This is
attributable to higher net debt from continuing capital investments
and lower interest receivable on shareholder loans following the
Greater Manchester contract reset.
We have secured funding at a cost that is efficient and
effective with the effective interest rate continuing to be amongst
the lowest in the sector, reducing to 3.6% (2017/18 3.7%). The
effective interest rate for South West Water was consistent with
the prior year at 3.5%.
The effective interest rate is calculated after adjusting for
capitalised interest of GBP15.2 million, notional interest items
totalling GBP12.5 million, interest received from shareholder loans
to joint ventures of GBP5.3 million and IFRIC 12 interest
receivable of GBP14.6 million.
During 2018/19 underlying net finance costs (excluding pensions
net interest costs of GBP1.4 million, discount unwind of provisions
of GBP11.1 million and IFRIC 12 notional interest receivable of
GBP14.6 million) were GBP85.3 million, covered 4.1 times by Group
operating profit (2017/18 GBP76.5 million and 4.2 times).
Profit before tax
Group underlying profit before tax was GBP280.2 million, an
increase of 8.3%, compared with the prior year (2017/18 GBP258.8
million). Included in profit before tax is our share of joint
venture profit after tax of GBP12.4 million (2017/18 GBP9.4
million). On a statutory basis, profit before tax was GBP260.3
million (2017/18 GBP262.9 million) reflecting a non-underlying
charge before tax of GBP19.9 million (2017/18 credit of GBP4.1
million).
Taxation
At Pennon, we know the taxes we pay help fund vital public
services, investment in people and infrastructure to support future
growth. In 2018/19, the Group's taxes borne and collected resulted
in a total tax contribution of GBP281 million[26] being paid to the
Government.
In December 2018 Pennon became the first water services and
waste management utility to secure the Fair Tax Mark, an
independent certification scheme which recognises organisations
that demonstrate they are paying the right amount of corporation
tax at the right time. It also recognises our responsible approach
to tax strategy, managing tax efficiently for the benefit of
customers and shareholders, demonstrating transparency and best
practice across the Group.
On an underlying basis the net tax charge of GBP42.7 million
(2017/18 GBP44.4 million) consists of:
-- Current year current tax charge of GBP32.4 million,
reflecting an effective tax rate of 11.6% (2017/18 GBP29.7 million,
11.5%). The lower effective rate versus the UK's mainstream
corporation tax rate of 19% reflects the accelerated level of
capital allowance claims available to the Group compared with the
depreciation charge
-- Current year deferred tax charge of GBP23.2 million (2017/18
GBP20.7 million) primarily reflecting capital allowances across the
Group in excess of depreciation charged.
Recognising the resolution of minor outstanding tax items with
HMRC, the following prior year credits have been recognised:
-- Current tax credit of GBP3.0 million (2017/18 credit of GBP3.6 million)
-- Deferred tax credit of GBP9.9 million (2017/18 GBP2.4 million
credit), reflecting finalisation of capital allowance claims.
The 2018/19 non-underlying items result in a GBP5.0 million net
tax credit (2017/18 GBP3.4 million net credit).
Overall, the total tax charge for the year was GBP37.7 million
(2017/18 GBP41.0 million).
Earnings per share
Earnings per share on both a statutory and underlying[27] basis
has been positively impacted by a reduction in hybrid costs[28]
compared with last year. As a consequence, earnings per share on
both a statutory and underlying basis has increased by 6.5% to
51.1p (2017/18 48.0p) and 13.6% to 57.8p (2017/18 50.9p)
respectively.
Cash inflow from operations, continuing investment in future
growth
The Group's operational cash inflows in 2018/19 were GBP649
million[29] (2017/18 GBP672 million). These funds have been put to
use in efficiently financing the Group's capital structure and
investing in future growth. This capital investment has resulted in
higher Group net debt.
Contributions into the Group's pension schemes for the year were
GBP32 million, and corporation tax payments were GBP29 million.
Included in other movements of GBP47 million is the 2017 unwind
settlement of the Peninsula MB Limited (PMB) derivative. Total tax
payments reflecting all operational taxes in 2018/19 were GBP167
million[30] (2017/18 GBP151 million).
Sustainable funding position underpinning investment
The Group has a strong liquidity and funding position with
GBP1,170 million cash and committed facilities at 31 March 2019.
This consists of cash and deposits of GBP570 million (including
GBP204 million of restricted funds representing deposits with
lessors against lease obligations) and undrawn facilities of GBP600
million. At 31 March 2019 the Group's borrowings totalled GBP3,650
million. After the GBP570 million held in cash, this gives a net
debt figure of GBP3,080 million, an increase of GBP278 million
during the year (2017/18 GBP2,802 million).
Pennon has pioneered a Sustainable Financing Framework to
integrate commitments to environmental and social objectives into a
variety of funding opportunities across the Group. The framework
allows Pennon to access future funding opportunities aligned with
the Green Loan principles, Green Bond principles and Social Bond
principles. The framework has been certified by DNV GL, a leading
sustainability verifier. Pennon is committed to continuous annual
improvements in sustainability ratings and KPIs which may lead to
improved interest rate margins.
During the year, GBP830 million of new and renewed facilities
have been signed, GBP665 million in Pennon Group plc and GBP165
million in South West Water. In total, GBP600 million of the new
facilities signed in the year are linked to the sustainable nature
of the business. Included in these facilities is an inaugural
Pennon Group loan from the European Investment Bank of GBP110
million.
Pennon has cash and committed facilities providing funding for
Viridor's committed growth projects and South West Water's
regulatory capital programme into K7, with c.GBP725 million
headroom for investment.
Efficient long-term financing strategy
The Group has a diversified funding mix of fixed (GBP1,936
million, 63%), floating (GBP576 million, 19%) and index-linked
borrowings (GBP568 million[31], 18%). The Group's debt has a
maturity of up to 38 years with a weighted average maturity of c.18
years. Much of the Group's debt is floating rate and derivatives
are used to fix the rate on that debt. In line with the Group's
updated policy of maintaining at least 60% of interest bearing
liabilities at fixed rates, the Group has fixed, or put swaps in
place to fix, the interest rate on a substantial portion of the
existing water business debt to 2020.
Additionally, following the submission of the South West Water
K7 business plan and the resulting draft determination from Ofwat
the Group is aligning the hedging for the next regulatory period
with the changed regulatory methodology. A proportion of new debt
will be hedged in K7 on a rolling ten year basis whilst still
maintaining flexibility within the overall portfolio. Embedded debt
hedging is aligned with the five year regulatory delivery period.
Around 50% of South West Water's embedded floating net debt has
been already hedged into K7 during the past six months, taking
advantage of falling swap rates.
South West Water's cost of finance is amongst the lowest in the
industry. Around two thirds of South West Water's net debt is from
finance leases which provide a long maturity profile. Interest
payable benefits from the fixed credit margins which are secured at
the inception of each lease. GBP517 million (c.25%) of South West
Water's net debt is index-linked. This is below Ofwat's notional
assumption of 33%, giving an advantageous position as there remains
uncertainty over how transitioning from RPI to CPIH may be
translated into future funding rates.
Net debt position
The Group's net debt has increased by GBP278 million to GBP3,080
million. Cash inflow from operations was GBP649 million. Cash
outflows relating to the capital programme totalled GBP385
million[32] (2017/18 GBP464 million). The gearing ratio at 31 March
2019, being the ratio of net debt to (equity plus net debt) was
64.7% (31 March 2018 63.1%).
The combined South West Water and Bournemouth Water debt to RCV
ratio is 58.9%[33] (31 March 2018 60.3%) which is lower than
Ofwat's K6 target for efficient gearing of 62.5% but aligns with
the new K7 notional assumptions of 60%.
Group net debt includes GBP2,057 million for South West Water
with the remaining GBP1,023 million supporting investment in
Viridor growth and expansion including the amount invested in joint
ventures, through shareholder loans of GBP73 million for Runcorn I
and Lakeside ERFs.
Capital investment focused on regulatory expenditure and ERF
build out
Group capital investment was GBP395.9 million[34] in 2018/19
compared with GBP398.2 million in 2017/18.
Viridor
Viridor's capital spend in the year was GBP241.7 million
(2017/18 GBP213.0 million), an increase of GBP28.7 million over
2017/18.
The majority of capital investment continues to relate to growth
projects driving increased earnings now and into the future, with
GBP207.7 million of total spend relating to the ERF portfolio. As
well as reflecting the move into operation of three ERFs and
continuing construction at Avonmouth, the expenditure in the year
included additional investment at Glasgow ERF of c.GBP21 million
securing incremental throughput capacity. Also included are
lifecycle capital expenditure on our operational ERFs and
development of our Clyde Valley ERF fuel supply facility.
On-going restoration and remediation programmes continue for our
landfill assets, ensuring we meet or exceed our environmental
duties and responsibilities.
South West Water
South West Water's capital expenditure in the year was GBP154.0
million, compared with GBP184.2 million in 2017/18 with the profile
aligned with the K6 capital plan, reflecting the completion of
specific large investment programmes at Mayflower water treatment
works and the bathing and shellfish water improvements.
Key areas of drinking water investment[35] and activity during
2018/19 included:
-- Completion of the new state-of-the-art Mayflower water
treatment works which has entered commissioning
-- Investment in the resilience of our infrastructure to reduce
the number of bursts and leakage, impacted by the 'freeze and thaw'
in March 2018 and costs associated with the hot dry summer.
Key areas of wastewater investment(35) and activity during
2018/19 included:
-- Finalisation and completion of the Plymouth bathing water scheme
-- Continued improvements at wastewater treatment works including flood resilience
-- Investment for growth to meet increases in supply and demand.
Pensions
The Group operates defined benefit pension schemes for certain
employees of Pennon Group. The main schemes were closed to new
entrants on or before 1 April 2008.
At 31 March 2019 the Group's pension schemes showed an aggregate
deficit (before deferred tax) of GBP60.8 million (March 2018
GBP49.5 million), an increase of GBP11.3 million as a result
of:
-- Increase in liabilities of GBP76 million due to lower corporate bond yields
-- Reduction in liabilities as a result of latest CMI mortality assumptions of GBP42 million
-- Increase in liabilities from other factors, including service cost, of GBP13 million
-- Increase in asset values of GBP36 million, reflecting good
asset returns and deficit contributions of GBP13 million.
For the Group's principal pension scheme, of which South West
Water accounts for around 80%, the last actuarial valuation was at
2016. Contributions, including the recovery plan of annual deficit
contributions up to 2022, remain in line with 2014 Final
Determination allowances.
The net aggregate liabilities of GBP50.5 million (after deferred
tax) represented around 2% of the Group's market capitalisation at
31 March 2019.
Impact of low yields at 31 March 2019
At 31 March 2019 forward interest rates and yields fell
significantly, to some extent reflecting Brexit uncertainty. This
resulted in a number of impacts for the Group:
-- Low corporate bond yield used to value pension scheme
liabilities increased our present value of pension obligations by
GBP76 million compared with March 2018 (as noted above)
-- Fair value of our borrowings increased by c.GBP100 million or c.3% of gross debt
-- The valuation of our derivative contracts, put in place
manage to interest risk, increased compared to 2018, albeit to a
lesser extent.
The impacts noted above have partly reversed since 31 March
2019, as forward interest rates and yields have increased, however
as yields were falling in the period leading up to 31 March 2019,
the Group advantageously entered forward starting interest rate
hedges for the K7 (2020-25 period), in line with the Group's
interest rate management policy. Through this period around 50% of
South West Water's floating rate net debt has been hedged for
K7.
Energy hedging
Pennon has adopted a Group portfolio management approach to
energy hedging, and has the ability to hedge its market position
for periods up to five years ahead, further helping to protect
revenues.
Forward hedges have been put in place in the liquid market with
the Group hedged c.95% for 2019/20, c.55% for 2020/21 and c.20% for
2021/22 for its energy (generation net of internal usage of
electricity). In addition, the Group has a natural hedging
opportunity which represents one third of Viridor's energy
generation, as South West Water is a net user of electricity.
The energy portfolio management team continues to actively
manage the Group net energy generation position in liquid
markets.
VIRIDOR
Confident outlook for Viridor in the waste sector
Viridor is focused on UK recycling and residual waste processing
and transformation and has been re-positioned to focus on a
de-risked infrastructure model, with investment backed by
profitable, long-term contracts.
Residual waste activities (ERFs and Landfill)
The market fundamentals for ERFs remain strong, with the gap
between combustible residual waste arisings and ERF capacity
forecast to remain at around 7 million tonnes (mT) per annum to
2035.
The Viridor portfolio processes around a fifth of the UK ERF
combustible waste tonnage processed in an ERF and we continue to
optimise our assets through capacity expansions, heat transfer and
offtake opportunities, targeting 3-5% capacity improvements across
the portfolio. We see localised opportunities for further ERF
investment and are developing options for three new ERFs which will
be determined by the availability of long-term contracts.
We continue to foresee a requirement for a landfill solution
into the medium term. As landfill sites close over the coming
years, parts of the country will experience a shortage of capacity
and opportunities are being assessed at other mothballed sites.
Viridor recognises that the landfill portfolio is a core part of
its residual waste strategy, and our landfill sites are well
positioned to support future market requirements. Available void
capacity at operating sites is c.27 million cubic metres, with six
sites having capacity for the medium / long term.
Recycling
The Government's Resource & Waste Strategy has confirmed the
fundamentals of the waste market and provides a foundation for
stimulus to recycling. A tax on plastic packaging containing less
than 30% recycled content is being introduced. In addition,
responsibility for 100% of recycling costs are being transferred to
producers through EPR & PRN[36] reform.
Viridor, along with 80% of the plastic packaging supply chain,
has signed up to the UK Plastics Pact which has targets including
100% of plastic packaging to be reusable or recyclable. In addition
European targets are for 75% of the UK's plastic packaging to be
effectively recycled. Only 46% is currently recycled.
Viridor's 2018 Recycling Index Report shows that over 80% of the
public is worried about plastics in the oceans, with over 60% of
consumers more likely to buy products with packaging made from
recycled materials. Brand leaders are also driving momentum in
recycling with many having issued public declarations on recycling
content.
One million tonnes of recyclable plastic is currently collected
in the UK, two thirds of which is currently exported, supporting
potential investment in new capacity in the UK, with opportunities
emerging for contract backed index linked investments akin to the
ERF model.
Strong performance underpinned by cost base efficiency
2018/19 2017/18
Total Waste Inputs
(mT) 6.8 7.0
ERFs 2.3 2.2
Landfill 1.5 1.5
Recycling and Other 3.0 3.3
Recycling volumes
traded 1.2 1.4
ERF availability 91% 92%
ERFs delivering strong operational and financial performance
The operational ERF fleet has expanded successfully during the
year. Beddington and Dunbar became operational and have both
performed well, with good initial availability. Additionally, we
have achieved contractual service commencement at Glasgow, and have
invested GBP21 million in the asset to provide capability to
process up to an additional 50,000 tonnes p.a. All three sites are
now in operational ramp up to achieve plant optimisation. In
addition, a 15% increase in permitted capacity has been approved at
Runcorn I and II ERFs.
We have seen another year of strong operational performance
across the existing portfolio (including joint ventures), with
plant availability remaining above 90% for a third consecutive
year. This consistent level of availability across our portfolio
puts Viridor in the top quartile of UK operators.
The Glasgow development consists of advanced facilities for
recycling, anaerobic digestion and energy recovery. In total we
have spent GBP273 million in completing the facility, rectifying
the non-conformances of the previous Engineering, Procurement and
Construction (EPC) contractor and increasing the capacity. Viridor
is contractually entitled to recover incremental costs associated
with remediation work and is looking to recover up to GBP97 million
of this additional expenditure (contractual receivable from
Interserve Construction Limited GBP72 million; other, including all
contractors and advisors GBP25 million).
Construction work at Avonmouth ERF has progressed successfully
and at pace, with all major processing equipment now in place and
the steelwork for the external building being erected. The build
remains on track for takeover in line with the planned costs and
timetable. Commissioning is anticipated to commence later this year
with EBITDA contribution expected from 2020/21. Viridor has secured
an additional 120,000 tonnes p.a. of waste from the West of England
Partnership resulting in 85% of Avonmouth inputs now being
contracted.
The ERF build-out plan has accounted for the majority of capital
expenditure once more, with GBP1.5 billion spent to date on the
portfolio.
Viridor's ERF fleet offers the potential for establishing
integrated Energy Parks, providing heat and power direct to Group
companies and third parties, and so creating further value from
these assets. We already have existing Energy Park activities or
immediate development opportunities at six ERFs and four landfill
sites, with further opportunities under development.
Landfill demand remains strong with a long-term shortfall in
capacity within the UK
This year we have invested over GBP5 million in our landfill
sites, including expenditure on new cells and leachate treatment
equipment. We have maintained the application of our site-specific
strategy with some sites being kept open longer, with new cells
being created where there is demand. Preparatory work is underway
to reopen our Heathfield site during 2019/20.
Overall landfill volumes have remained consistent but with a
change in the mix of waste deposited at sites. Both Beddington and
Rigmuir (Dunbar) closed to active waste during the year following
go live of the new ERFs and two further closures are planned next
year. Closure has led to increasing the level of topsoil inputs as
part of our strategy to maintain well managed sites. This strategy
will help ensure that these sites can be restored and repurposed
for alternative uses in the future. Since the year end an agreement
has been reached to sell a closed landfill site for alternative
use, mitigating a long-term liability.
Landfill Gas securing reliable generation
The natural decline in underlying landfill gas volumes has
continued, but the rate of decline in electricity volumes generated
is lower than in recent years at c.5%. This is a result of our
planned preventative maintenance programme, and investment of over
GBP5 million in our Engine Optimisation Strategy. Together these
have improved engine availability, the gas collection process and
matched engine capacity to the gas yields. We will continue to
invest in landfill gas to provide reliable generation and improve
the longer-term yields.
The overall reduction in landfill energy generation has also led
to surplus grid capacity and this presents other growth
opportunities in the future.
Energy Parks
We are exploring opportunities for integrated energy parks at
our ERF and landfill sites which will enhance profitability by
c.5-10% at these assets. Energy parks would provide competitively
priced heat and power as an alternative to the national grid
potentially involving provision of wind and solar power. We already
have several such connections, including our Runcorn ERF that has a
heat and power offtake to Inovyn, Peterborough ERF where we provide
a heat connection to a council depot, and our landfill gas engines
and ERF at Beddington, which provide heat offtake into a community
heating network. We believe there is significant potential to do
more with energy parks supporting Viridor's own activities, other
Pennon Group operations such as South West Water's treatment
plants, or third-party energy intensive facilities.
Recycling assets well placed to benefit from Government's new
strategy
The impact of escalating volumes of plastic pollution has become
of increasing concern to the public consciousness - the "Blue
Planet effect". This has created a ground-swell of opinion for the
use of higher levels of recycled plastics, achieved by extending
the producers' responsibilities, which in turn has provided a
backdrop for investment in new recycling infrastructure. Recently
the Government published its Draft Resources & Waste Strategy,
which aligns closely with Viridor's own strategy and key
priorities. The cornerstones of this policy include increasing the
amount of packaging that must be recycled and standardised
collections to improve the quality of feedstock. As a consequence,
we continue to see a positive outlook for the recycling sector.
New industry leading plastics recycling facility
Viridor has committed to a new GBP65 million plastics recycling
facility, with the investment reflecting a de-risked infrastructure
model backed by index linked contracts. The 80,000 tonne capacity
facility represents around 8% of current market requirement and
will be co-located with the Avonmouth ERF that is currently under
construction. This is consistent with our Energy Park concept and
provides significant cost advantages from direct electricity and
heat offtakes. The new facility will handle multi stream plastics
(including PET, HDPE and polypropylene), and produces pellets
directly for manufacture. Building on our existing commercial
relationships, we have already secured three quarters of inputs
(third party and Viridor) and half of plastic offtake (third party)
of the plant. The investment has been assessed based on a hurdle
rate IRR of 15% real, post tax and has a payback of under 4
years.
Recycling performing in line with our expectations
There was a partial recovery of global recycling markets in
2018/19 following import restrictions by China in the prior year,
and we see ongoing value in high quality recyclate. We focused
throughout the year on producing higher quality recyclates,
including investing over GBP9 million in recycling assets seeking
to improve output quality and support the introduction of our
reliability centred maintenance programme 'WorkSmart'. In the UK,
input quality has remained poor, largely as a result of councils
reducing their collection schemes due to austerity cost
pressures.
The recycling business has performed in line with our
expectations this year. Our emphasis on producing high quality
outputs contributed to an increase in revenue per tonne since last
year. We have incurred higher costs in producing the right quality
recyclate, but recycling margins have improved year on year.
To help mitigate our exposure to recyclate price volatility, we
continue to share commodity risks and rewards with our customers.
Over 60% of our ongoing contracted input volumes continue to share
commodity risk.
We have also committed to a GBP15 million investment at Masons
Material Recycling Facility (MRF), backed by a 10-year contract
with Suffolk County Council. Based on our confidence in the market
outlook, as previously announced, we are also developing two
further options for plastics recycling plants.
Contracts, Collections and other
We continue to work with our customers to identify mutually
beneficial enhancements to our contracts and strive to demonstrate
our commitment to partnership, working towards a common goal. This
collaborative approach has led to the GBP80 million extension of
the Somerset Waste Partnership contract for an additional nine
years to 2031, and the award of the Hinckley Point C 'Zero to
landfill' total waste management contract.
The Greater Manchester run off contract is due to end on 31 May
2019 and we continue with the orderly transition towards its
cessation, while maintaining high levels of service.
Our collections business continues to provide a valuable service
to all our customers.
Joint Ventures investments create a solid return from strong
operational performance
The joint venture at Lakeside ERF (a 50:50 joint venture with
Grundon Waste Management) continues to outperform its original
targets for both waste processing and power generation.
Availability has again been in excess of 90% and we received a
dividend of GBP5.5 million during the year.
The TPSCo joint venture (between Viridor and Inovyn) which
operates Runcorn I ERF has also performed strongly during the year
with availability again in excess of 90%.
In December 2018, Viridor exercised its pre-emption rights and
for a total cash consideration of GBP54.8 million acquired John
Laing Investments Limited's 37.5% economic interest and 20% voting
rights in the Runcorn I ERF. The acquisition consolidates further
Viridor's position as a market leader in UK Energy Recovery and
results in an increase to economic interest in INEOS Runcorn (TPS)
Holdings Limited from 37.5% to 75.0%, with the associated voting
rights moving from 20% to 40%.
SOUTH WEST WATER
Delivering a resilient service for customers through extreme
weather events
2018 has been a year of extreme weather events from the 'Beast
from the East' exceptional cold weather[37] in March, with the
first red weather warning for snow in the South West, followed by
the hottest summer on record. Despite these challenges South West
Water continued to deliver a resilient service to its
customers.
Our proactive planning and management ensured we were able to
manage the impacts of the 'freeze and thaw' effectively and South
West Water were commended in a number of areas during the
subsequent Ofwat review.
South West Water maintained supplies to customers despite the
unprecedented demand over the hottest summer on record, with supply
interruptions at their lowest ever level. 2018 has been our 22(nd)
year without water restrictions and during the second half of the
year we have focused on replenishing our reservoirs to ensure we
maintain resilient water resources for future years. Despite these
challenges South West Water again met its leakage target which has
been achieved every year since targets were set.
Sector leading customer service
Improving customer service is at the heart of our delivery
plans. South West Water achieved its highest ever customer
satisfaction level and also its best ever customer service score
(SIM) at 88 points, across both regions. Overall we were ranked
2(nd) for quality of service out of all water and sewerage
companies in England and Wales.
The improvement in service has also been delivered alongside
improvements in debt collection and extending our support for
customers in vulnerable circumstances. Our innovative approach to
enhancing 'customer journeys' as well as improving the channels
with which customers can contact us, such as online and social
media, has been a success.
South West Water has an industry leading approach to supporting
customers who find themselves in vulnerable circumstances or who
struggle to pay their bills. We have continued to focus on this and
are targeting to eliminate water poverty in our K7 (2020-25)
business plan which was praised by Ofwat for its high quality
customer engagement and affordability. Preparation for these
additional activities is already underway and those currently
receiving support through reduced tariffs has increased to c.23,000
customers, with around 57,000 customers supported through this and
other programmes. Supporting this activity is our work providing
specialist training to c.1,600 people across 80 partner
organisations and securing c.GBP2.1 million of additional benefits
income realised through our leading WaterCare+ programme, since
2015.
Since the opening of the non-household retail market in April
2017, South West Water has operated successfully with 21 different
retailers and our wholesale service desk has been operating
effectively.
Continued sector leading outperformance
South West Water has performed well in 2018/19 and continues to
outperform in all areas, giving a very strong foundation for the
next regulatory period. Strong operational and financial
performance underpins our sector leading RORE[38], which remains
11.8% cumulatively since the start of K6. Cumulatively the
WaterShare RORE outperformance is broadly consistent with the
approach adopted by Ofwat.
2018/19 K6 to date
Base return 6.0% 6.0%
Totex outperformance 2.4% 2.6%
ODI outperformance 0.4% 0.3%
Financing Outperformance 2.8% 2.9%
WaterShare RORE[39] 11.6% 11.8%
Ofwat RORE[40] 12.0% 11.7%
Totex efficiency reducing customer bills
South West Water is striving for ever greater efficiency. Totex
outperformance has already achieved cumulative savings of GBP237
million[41] to 2018/19 and we are on track to deliver c.GBP300
million of Totex savings by 2020, which are embedded into our K7
business plan.
These savings are being driven by:
-- Managing upward cost pressures, with actual net price rises
being below annual average inflation rates despite the c.GBP5m
atypical costs associated with the extreme weather
-- Continuing advantages from our strategic alliances and
driving efficiency from our procurement processes
-- Reducing customer debt through enhanced collections
activities and increasing our affordability schemes (such as social
tariffs), with the cost of bad debt now below the level assumed
within the 2014 Final Determination
-- Efficiencies from the Bournemouth Water integration,
including delivery of key capital schemes in the region, with the
c.GBP27m of net synergies required by 2020 secured
This focus on cost efficiency is reducing bills for customers,
and our K7 business plan was identified as one of the most
efficient and a key aspect of achieving our fast-track status.
ODIs continue to deliver net reward for K6
Operational performance for the year resulted in our highest net
ODI reward of GBP4.1 million[42] (GBP11.3 million cumulatively for
K6) reflecting RORE outperformance of 0.4%. Good asset reliability
with stable serviceability across all water and wastewater areas
has been maintained. Rewards were delivered across bathing water
quality, water restrictions and continued improvements in internal
sewer flooding. The cumulative net reward of GBP11.3 million
comprises GBP18.4 million of total rewards and GBP7.1 million of
total penalties. ODI penalties which apply within the regulatory
period will reduce customer bills as they are 'passed back'. ODI
net penalties of GBP2.1 million have been adjusted in customer
bills for 2018/19 and GBP0.3 million will be adjusted in the
2019/20 tariffs.
Whilst a small number of ODIs are in penalty this year, South
West Water is forecasting to meet all its ODI commitments by
2020.
-- Flooding - continuing strong performance
The number of flooding incidents in 2018/19 has reduced and
resulted in rewards for both internal and external flooding.
-- 22(nd) consecutive year without water restrictions
Despite the impact of the hot dry summer, water resources in the
South West Water region remained unrestricted for a twenty-second
consecutive year and the Bournemouth water region maintained its
position of having no water restrictions since privatisation.
During the second half of the year South West Water actively
replenished water resources through storage schemes to protect
future supplies.
-- Bathing water quality - c.99% achieving sufficient quality, over 78% excellent
Our legacy of major investment to protect bathing waters
continues to be reflected in extremely positive results for the
2018 bathing water season. Of the 151 bathing waters tested in the
South West Water region, 149 (c.99%) were classified 'sufficient'
or better, with more than 78% classified as 'excellent'. Neither of
the two bathing waters rated as 'poor' were attributed to any
failure of South West Water's assets.
-- Leakage - target met despite extreme weather
The impact of the 'freeze and thaw' in March 2018 as well as the
dry summer impacting ground movement, had seen leakage levels
increase in the first half of the year. Targeted investment and
operational resources (including fixing visible leaks and providing
additional support to customers) ensured we met our 2018 target of
84 megalitres per day ensuring no ODI penalty was incurred.
-- Supply interruptions - lowest ever level
Demand over the summer months placed pressure on both our
treatment works and network to meet customer demand. Despite this
the average duration of supply interruptions per property for South
West Water was below the target set for the year and resulted in a
reward for the year.
-- Pollution incidents - serious incidents reduced
The number of serious pollution incidents (Category 1&2) has
reduced to 2 and no penalty has been incurred. Disappointingly, the
number of less serious incidents (Category 3&4) has increased
slightly from last year with GBP0.7 million penalty this year. This
is a significant area of focus and recent investments to drive
reductions in incidents have been completed, including delivery of
a fleet of jetters and vactors to provide resilient support on the
network.
Financing investment efficiently
Alongside strong operational outperformance, South West Water is
confident that the efficient and effective financing strategy in
place will continue to deliver cumulative financing outperformance,
with GBP130 million delivered in the K6 period to date. South West
Water's diverse and flexible financing structure has underpinned
one of the lowest effective interest rates across the industry. The
Pennon Sustainable Financing Framework opens further opportunities
for debt investment including GBP60 million of leasing specifically
linked to the new innovative Mayflower water treatment works.
Gearing levels remain aligned with Ofwat's current notional level
and South West Water is the only UK water company to share the
benefits of lower interest rates with customers.
Sharing outperformance between customers and shareholders
South West Water is sharing the benefits of business
outperformance between customers and shareholders through our
unique WaterShare mechanism. Since 2015 GBP110 million of
cumulative benefits have been identified to share with customers
through future bill reductions, ODI service improvements and
reinvestment in services. This reflects GBP80 million of Totex
savings, GBP11 million of net ODI benefits and GBP19 million of
other benefits (including financing). These Totex savings and
efficiencies (including the forecast to 2020) have been reflected
in the K7 business plan, lowering bills for customers over the next
regulatory period. This results in forecast average bills in 2025
being lower than they are both today and 15 years ago.
The other savings identified in recent years and expected out to
2020 will provide the basis for the WaterShare+ scheme in 2020 - a
first of its kind - an ambitious, voluntary share scheme, which
will give all customers a choice of how to receive these benefits
including the option of receiving Pennon shares.
K7 (2020-25) Draft Determination
The key focus for our business plan is empowering customers
through a 'New Deal' - giving customers a stake and a say. It will
ensure customers are sharing in our success and having a say
through a Customer AGM and quarterly meetings, which will allow
customers to hold us directly to account. In addition, the option
for customers to have a shareholding gives them a tangible stake in
our business through the outperformance delivered and will further
ensure customers are at the heart of our business.
Sector leading outperformance forecast to continue
South West Water has the highest outperformance potential for
the next regulatory period and we are confident in delivering
outperformance across all areas (Totex, ODIs and Financing).
Totex allowances in K7 are consistent with the allowances in K6
and higher than the current forecast spend for K6 which reflects
the c.GBP300 million of Totex outperformance on track to be
delivered by 2020.
An efficient financing structure is already in place for the
next regulatory period and South West Water has consistently
delivered the lowest effective interest rates in the industry, a
strong platform for financing outperformance.
The ODIs[43] for K7 are a mixture of bespoke performance
measures which are proposed and designed by South West Water and 15
common measures which will be measured consistently across the
whole industry. South West Water has a strong base for
outperformance in K7 with two thirds of ODIs currently upper
quartile or above industry average.
South West Water's continuing investment in our assets and
services into K7 reflects significant planned capital expenditure,
above forecast K6 levels. This results in c.10%[44] growth in RCV
to GBP3.75 billion in 2025 (around 28% growth over 10 years).
Operational and service leadership
South West Water's Business Plan, will continue to deliver
outstanding customer service whilst keeping bills as low as
possible. Alongside this, we will deliver environmental leadership
with key commitments including:
-- Building on our track record and reducing leakage by a further 15%
-- Continued extensive catchment management - Upstream Thinking
project improving 80% of catchments
-- Implementing innovative solutions in the replacement of
Alderney and Knapp Mill water treatment works
-- Achieving net zero carbon emissions by 2030.
Delivery preparations underway
The early Draft Determination enables South West Water to make a
fast start towards the next period with a number of areas already
developed:
-- A number of key partnerships are already in place, including
our strategic consultants and capital delivery partners, wildlife
trusts, customer groups and charities
-- Resilient Service Improvement (RSI) transformation project is
already underway with South West Water praised by Ofwat as "setting
the standard for others to reach"
-- Sustainable Financing Framework embedded to support funding requirements
-- Preparation for the Isles of Scilly transfer well advanced.
PENNON WATER SERVICES
Focus on delivering operating cost efficiencies
Pennon Water Services, our 80:20 retail venture with South
Staffordshire Plc, continues to deliver net gains in customers[45]
and revenue growth during its second year of operation, with
continued success with the dual service proposition.
Serving over 160,000 customer accounts across 18 different
wholesale regions, Pennon Water Services has c.11,700(45) new
customer accounts generating around GBP31 million of new revenue,
with 100% new tendered contract renewal rate to date.
We continue to focus on delivering customer service that
reflects the needs of our business customers with satisfaction
scores increasing in the year. We are continuing to implement
further strategies to improve operating cost efficiency and billing
and cash management.
Technical Guidance 2019/20
Pennon Group 2018/19 Change
Capex Passed peak of committed ERF capex. Growth GBP396m
capex in near term principally reflects
completion of Avonmouth and investment
in recycling
--------------------------------------------------------------- ----------------- -------
Dividend Reflecting policy of RPI + 4% annual increase 41.06p
in dividend per share
--------------------------------------------------------------- ----------------- -------
Underlying effective tax rate lower than
UK headline rate of 19% reflecting capital
Tax rate allowances (including ERFs) 11.6%
--------------------------------------------------------------- ----------------- -------
IFRS 16 Minimal impact on profit before tax -
--------------------------------------------------------------- ----------------- -------
South West Water
----------------- -------
Revenue Impact of net tariff increases and lower GBP581m
metered volumes reflecting 2018 extreme
summer weather
--------------------------------------------------------------- ----------------- -------
Opex 2018/19 includes costs associated with GBP214m
extreme weather. Continued efficiency into
2019/20
--------------------------------------------------------------- ----------------- -------
Totex Efficiency On track to deliver c.GBP300m over K6 GBP237m
cumulative
--------------------------------------------------------------- ----------------- -------
RORE Continued momentum for delivering outperformance 11.8% cumulative
in all areas
--------------------------------------------------------------- ----------------- -------
IFRS 16 Impact of new standard applicable in 2019/20. N/A
Minimal impact on profit before tax. Approximate
impact on balance sheet and income statement
lines as follows:
* GBP32m gross assets; GBP34m gross liabilities
* GBP2m EBITDA; GBP1m depreciation; GBP1m interest
--------------------------------------------------------------- ----------------- -------
Viridor
----------------- -------
Revenue Lower following impact of cessation of GBP853m
Greater Manchester contract and lower IFRIC
12 construction revenue, partially offset
by ERF ramp up and full year operations
at new ERFs
--------------------------------------------------------------- ----------------- -------
EBITDA Impact of ERF ramp up GBP179m
--------------------------------------------------------------- ----------------- -------
IFRS 16 Impact of new standard applicable in 2019/20. N/A
Minimal impact on profit before tax. Approximate
impact on balance sheet and income statement
lines as follows:
* GBP76m gross assets; GBP85m gross liabilities
* GBP11m EBITDA; GBP8m depreciation; GBP3m interest
--------------------------------------------------------------- ----------------- -------
Board Matters
As previously announced and in line with governance best
practice, Martin Angle, Non-Executive Director and chairman of the
Remuneration Committee, who had been a Director for nine years,
stood down from the Board on 31 December 2018. Iain Evans was
appointed as his successor and joined the Board on 1 September
2018. We thank Martin for his considerable contribution to the
Group's success and strong governance over the years.
We are also pleased to have recruited Claire Ighodaro to our
Board. Claire's extensive background in finance and across both
regulated and non-regulated industries will be a great asset to the
Group and will complement the broad range of skills of the current
Board. Claire will join us in September 2019.
Chris Loughlin
Group Chief Executive Officer
30 May 2019
Financial Timetable
30 May 2019 Full Year Results 2018/19
June 2019 Annual Report & Accounts published
25 July 2019 Annual General Meeting
25 July 2019* Ordinary shares quoted ex-dividend
26 July 2019* Record date for final dividend
12 August 2019* Final date for receipt of DRIP applications
3 September 2019* Final dividend paid
27 September 2019 Trading Statement
26 November 2019 Half Year Results 2019/20
March 2020 Trading Statement
2 June 2020 Full Year Results 2019/20
* These dates are provisional and, in the case of the final
dividend subject to obtaining shareholder approval at the 2019
Annual General Meeting.
CAUTIONARY STATEMENT IN RESPECT OF FORWARD-LOOKING
STATEMENTS
This Report contains forward-looking statements relating to the
Pennon Group's operations, performance and financial position based
on current expectations of, and assumptions and forecasts made by,
Pennon Group management which may constitute "forward-looking
statements" within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
identified in this Report by words such as "anticipate", "aim",
"believe", "continue", "could", "due", "estimate", "expect",
"forecast", "goal", "intend", "may", "outlook", "plan", "probably",
"project", "remain", "seek", "should", "target", "will", "would"
and related and similar expressions, as well as statements in the
future tense. All statements other than of historical fact may be
forward-looking statements and represent the Group's belief
regarding future events, many of which, by their nature, are
inherently uncertain and outside the Group's control. Various known
and unknown risks, uncertainties and other factors could lead to
substantial differences between the actual future results,
financial situation, development or performance of the Group and
the estimates and historical results given herein. Important risks,
uncertainties and other factors that could cause actual results,
performance or achievements of Pennon Group to differ materially
from any outcomes or results expressed or implied by such
forward-looking statements include, among other things, changes in
Government policy; the exit of the United Kingdom from the European
Union; international treaty changes and other events;
re-nationalisation; regulatory and legal reform; compliance with
laws and regulations; maintaining sufficient finance and funding to
meet ongoing commitments; non-compliance or occurrence of avoidable
health and safety incidents; tax compliance and contribution;
failure to pay all pension obligations as they fall due and
increased costs to the Group should the defined benefit pension
scheme deficit increase; non-recovery of customer debt; poor
operating performance due to extreme weather or climate change;
macro-economic risks impacting commodity and power and other
matters; poor service and/or increased competition leading to loss
of customers; business interruption or significant operational
failure/incidents; difficulty in recruitment, retention and
development of skills; non-delivery of regulatory outcomes and
performance commitments; failure or increased cost of capital
projects/exposure to contract failures; failure of information
technology systems, management and protection, including cyber
risks. These risks will be described in greater detail in the
Pennon Group Annual Report to be published in June 2019.
Such forward looking statements should therefore be construed in
light of all risks, uncertainties and other factors, including
without limitation those identified above, and undue reliance
should not be placed on them. Nothing in this report should be
construed as a profit forecast.
Any forward-looking statements are made only as of the date of
this document and no representation, assurance, guarantee or
warranty is given in relation to them including as to their
accuracy, completeness, or the basis on which they are made. The
Group accepts no obligation to revise or update publicly these
forward-looking statements or adjust them as a result of new
information or for future events or developments, except to the
extent legally required.
UNSOLICITED COMMUNICATIONS WITH SHAREHOLDERS
A number of companies, including Pennon Group plc, continue to
be aware that their shareholders have received unsolicited
telephone calls or correspondence concerning investment matters
which imply a connection to the company concerned. If shareholders
have any concerns about any contact they have received then please
refer to the Financial Conduct Authority's website
www.fca.org.uk/scamsmart. Details of any share dealing facilities
that the Company endorses will be included in Company mailings.
PENNON GROUP PLC
Consolidated income statement for the year ended 31 March 2019
Non-underlying Non-underlying
items items
Before Before
non-underlying (note non-underlying (note
items 5) Total items 5) Total
2019 2019 2019 2018 2018 2018
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 4 1,478.2 - 1,478.2 1,393.0 3.2 1,396.2
Operating costs
Employment costs (205.8) (3.0) (208.8) (192.9) - (192.9)
Raw materials and consumables
used (109.3) - (109.3) (108.7) - (108.7)
Other operating expenses (616.9) (22.7) (639.6) (581.8) - (581.8)
Earnings before
interest,
tax,
depreciation and amortisation 4 546.2 (25.7) 520.5 509.6 3.2 512.8
Depreciation and amortisation (195.2) - (195.2) (185.7) - (185.7)
Operating profit 4 351.0 (25.7) 325.3 323.9 3.2 327.1
Finance income 6 23.5 - 23.5 24.2 - 24.2
Finance costs 6 (106.7) 5.8 (100.9) (98.7) (21.6) (120.3)
-------------------------------------------- --------- ---------------- --------------- ---------------- --------------- --------------- --------
Net finance costs 6 (83.2) 5.8 (77.4) (74.5) (21.6) (96.1)
Share of post-tax profit
from
joint ventures 12.4 - 12.4 9.4 22.5 31.9
Profit before tax 4 280.2 (19.9) 260.3 258.8 4.1 262.9
Taxation 7 (42.7) 5.0 (37.7) (44.4) 3.4 (41.0)
---------------- --------------- ---------------- --------------- --------------- --------
Profit for the year 237.5 (14.9) 222.6 214.4 7.5 221.9
================ =============== ================ =============== =============== ========
Attributable to:
Ordinary shareholders
of the
parent 229.2 (14.9) 214.3 193.1 7.5 200.6
Non-controlling interests (0.3) - (0.3) (0.2) - (0.2)
Perpetual capital security
holders 8.6 - 8.6 21.5 - 21.5
Earnings per ordinary
share
(pence per share) 8
- Basic 51.1 48.0
- Diluted 50.9 47.8
PENNON GROUP PLC
Consolidated statement of comprehensive income for the year ended 31 March
2019
Non-underlying Before Non-underlying
Before non-underlying items non-underlying items
items (note 5) Total items (note 5) Total
2019 2019 2019 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Profit for the year 237.5 (14.9) 222.6 214.4 7.5 221.9
Other comprehensive
(loss) / income
Items that will not
be reclassified
to profit or loss
Remeasurement of defined
benefit obligations (17.2) - (17.2) 24.5 - 24.5
Income tax on items
that will not
be reclassified 3.2 - 3.2 (4.2) - (4.2)
--------- ---------------- --------------- ---------------- --------------- ---------------
Total items that will
not be
reclassified to profit
or loss (14.0) - (14.0) 20.3 - 20.3
--------- ---------------- --------------- ---------------- --------------- ---------------
Items that may be
reclassified
subsequently to profit
or loss
Share of other
comprehensive
Income / (loss) from
joint ventures 0.5 - 0.5 (2.7) - (2.7)
Cash flow hedges (6.4) - (6.4) 20.5 - 20.5
Income tax on items
that may be
reclassified 0.6 - 0.6 (3.5) - (3.5)
Total items that may
be
reclassified
subsequently
to
profit or loss (5.3) - (5.3) 14.3 - 14.3
--------- ---------------- --------------- ---------------- --------------- ---------------
Other comprehensive
(loss) / income
for
the year net of
tax (19.3) - (19.3) 34.6 - 34.6
--------- ---------------- --------------- ---------------- --------------- ---------------
Total comprehensive
income
for the year 218.2 (14.9) 203.3 249.0 7.5 256.5
========= ================ =============== ================ =============== ===============
Total comprehensive
income
attributable to:
Ordinary shareholders
of the
parent 209.9 (14.9) 195.0 227.7 7.5 235.2
Non-controlling interest (0.3) - (0.3) (0.2) - (0.2)
Perpetual capital
security
holders 8.6 - 8.6 21.5 - 21.5
========= ================ =============== ================ =============== ===============
PENNON GROUP PLC
Consolidated balance sheet at 31 March 2019
2019 2018
Notes GBPm GBPm
ASSETS
Non-current assets
Goodwill 385.0 385.0
Other intangible assets 92.1 72.6
Property, plant and equipment 4,509.4 4,310.6
Other non-current assets 256.4 263.5
Derivative financial instruments 70.5 70.5
Investments in joint ventures 10 51.1 22.8
---------- ----------
5,364.5 5,125.0
---------- ----------
Current assets
Inventories 28.8 24.6
Trade and other receivables 484.8 416.0
Derivative financial instruments 11.8 12.9
Cash and cash deposits 14 569.6 585.3
---------- ----------
1,095.0 1,038.8
---------- ----------
LIABILITIES
Current liabilities
Borrowings 14 (150.4) (209.8)
Financial liabilities at fair value
through profit (3.8) (2.6)
Derivative financial instruments (11.1) (9.4)
Trade and other payables (298.0) (342.0)
Current tax liabilities (19.1) (24.4)
Provisions (28.7) (38.0)
---------- ----------
(511.1) (626.2)
---------- ----------
Net current assets 583.9 412.6
---------- ----------
Non-current liabilities
Borrowings 14 (3,498.7) (3,177.0)
Other non-current liabilities (147.9) (140.1)
Financial liabilities at fair value
through profit (43.1) (46.6)
Derivative financial instruments (9.9) (8.2)
Retirement benefit obligations (60.8) (49.5)
Deferred tax liabilities (305.1) (295.6)
Provisions (203.1) (181.5)
---------- ----------
(4,268.6) (3,898.5)
---------- ----------
Net assets 1,679.8 1,639.1
========== ==========
Shareholders' Equity
Share capital 11 171.1 170.8
Share premium account 223.6 218.8
Capital redemption reserve 144.2 144.2
Retained earnings and other reserves 843.0 807.1
---------- ----------
Total shareholders' equity 1,381.9 1,340.9
---------- ----------
Non-controlling interests 1.2 1.5
Perpetual capital securities 12 296.7 296.7
---------- ----------
Total equity 1,679.8 1,639.1
========== ==========
PENNON GROUP PLC
Consolidated statement of changes in equity for the year ended 31 March
2019
Retained Perpetual
Share Share Capital earnings Non-controlling capital
capital premium redemption and other interests securities Total
(note account reserve reserves (note Equity
11) 12)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2017 168.4 217.4 144.2 684.4 - 294.8 1,509.2
Profit for the year - - - 200.6 (0.2) 21.5 221.9
Other comprehensive income
for the year - - - 34.6 - - 34.6
--------- --------- ---------------------- ---------------- ------------------- ----------------- --------
Total comprehensive income
for the year - - - 235.2 (0.2) 21.5 256.5
--------- --------- ---------------------- ---------------- ------------------- ----------------- --------
Transactions with equity
shareholders:
Dividends paid - - - (149.5) - - (149.5)
Adjustment for shares issued
under the
Scrip Dividend Alternative 2.1 (2.1) - 41.7 - - 41.7
Adjustment in respect of
share-based
payments (net of tax) - - - 2.2 - - 2.2
Issuance of perpetual capital
securities - - - - - 296.7 296.7
Redemption of perpetual
capital securities - - - (5.2) - (294.8) (300.0)
Distributions due to
perpetual
capital
security holders - - - - - (25.3) (25.3)
Current tax relief on
distributions
to
perpetual capital security
holders - - - - - 3.8 3.8
Own shares acquired by
the Pennon
Employee Share Trust
in respect of
Share options granted 0.1 0.4 - (1.7) - - (1.2)
Proceeds from shares issued
under the
Sharesave Scheme 0.2 3.1 - - - - 3.3
Non-controlling interests - - - - 1.7 - 1.7
--------- --------- ---------------------- ---------------- ------------------- ----------------- --------
2.4 1.4 - (112.5) 1.7 (19.6) (126.6)
--------- --------- ---------------------- ---------------- ------------------- ----------------- --------
At 31 March 2018 170.8 218.8 144.2 807.1 1.5 296.7 1,639.1
========= ========= ====================== ================ =================== ================= ========
Retained Perpetual
Share Share Capital earnings Non-controlling capital
capital premium redemption and other interests securities Total
(note account reserve reserves (note Equity
11) 12)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2018 170.8 218.8 144.2 807.1 1.5 296.7 1,639.1
Profit for the year - - - 214.3 (0.3) 8.6 222.6
Other comprehensive loss
for the year - - - (19.3) - - (19.3)
--------- --------- ---------------------- ---------------- ------------------- ----------------- ----------
Total comprehensive income
for the year - - - 195.0 (0.3) 8.6 203.3
--------- --------- ---------------------- ---------------- ------------------- ----------------- ----------
Transactions with equity
shareholders:
Dividends paid - - - (162.0) - - (162.0)
Adjustment in respect of
share-based
payments (net of tax) - - - 4.4 - - 4.4
Distributions to perpetual
capital
security holders - - - - - (8.6) (8.6)
Own shares acquired by
the Pennon
Employee Share
Trust
in respect of
Share options
granted - - - (1.5) - - (1.5)
Proceeds from shares issued
under the
Sharesave Scheme 0.3 4.8 - - - - 5.1
Total transactions with
equity shareholders 0.3 4.8 - (159.1) - (8.6) (162.6)
At 31 March 2019 171.1 223.6 144.2 843.0 1.2 296.7 1,679.8
========= ========= ====================== ================ =================== ================= ========
PENNON GROUP PLC
Consolidated statement of cash flows for the year ended 31 March 2019
2019 2018
Notes GBPm GBPm
Cash flows from operating activities
Cash generated from operations 13 399.8 443.5
Interest paid (83.9) (69.6)
Tax paid (29.2) (21.7)
Net cash generated from operating activities 286.7 352.2
--------------------- ---------------------
Cash flows from investing activities
Interest received 10.3 8.3
Dividends received 5.5 6.5
Investment in joint venture (54.8) -
Loan repayments received from joint
ventures 0.5 33.3
(Deposit) / Return of restricted deposits (21.6) 42.3
Purchase of property, plant and equipment (356.0) (390.6)
Proceeds from sale of property, plant
and equipment 6.3 10.6
Purchase of intangible assets - (1.0)
Acquisition of subsidiary undertaking - (8.4)
Net cash used in investing activities (409.8) (299.0)
--------------------- ---------------------
Cash flows from financing activities
Proceeds from issuance of ordinary
shares 5.1 3.9
Proceeds from the issuance of perpetual
capital securities - 296.7
Redemption of 2013 perpetual capital
securities 12 - (300.0)
Purchase of ordinary shares by the
Pennon
Employee Share Trust (1.5) (1.8)
Proceeds from new borrowing 384.5 106.9
Repayment of borrowings (181.6) (116.0)
Finance lease sale and leaseback 74.9 140.1
Finance lease principal repayments (27.8) (28.6)
Disposal of non-controlling interest - 1.7
Dividends paid (162.0) (107.8)
Perpetual capital securities periodic
return (5.8) (19.6)
Net cash used in financing activities 85.8 (24.5)
--------------------- ---------------------
Net (decrease) / increase in cash and
cash
equivalents (37.3) 28.7
Cash and cash equivalents at beginning
of year 14 403.0 374.3
Cash and cash equivalents at end of
year 14 365.7 403.0
===================== =====================
PENNON GROUP PLC
Notes
1. General information
Pennon Group plc is a company registered in the United Kingdom
under the Companies Act 2006. The address of the registered office
is given on page 58. Pennon Group's business is operated through
two main subsidiaries. South West Water Limited includes the integrated
water businesses of South West Water and Bournemouth Water, providing
water and wastewater services in Devon, Cornwall and parts of Dorset
and Somerset and water only services in parts of Dorset, Hampshire
and Wiltshire. Viridor Limited is a recycling and residual waste
processing and transformation business. Pennon Group is also the
majority shareholder of Pennon Water Services Limited, a company
providing water and wastewater retail services to non-household
customer accounts across Great Britain.
The financial information for the years ended 31 March 2019 and
31 March 2018 does not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006. The Annual Report
and Accounts for the year ended 31 March 2019, including the financial
statements from which this financial information is derived, will
be delivered to the Registrar of Companies after the AGM on 25
July 2019. The auditor's report on the 2019 financial statements
was unqualified and did not contain a statement under section 498
of the Companies Act 2006.
The full financial statements for the year ended 31 March 2018
were approved by the Board of Directors on 24 May 2018 and have
been delivered to the Registrar of Companies. The independent auditor's
report on those financial statements was unqualified and did not
contain a statement under section 498 of the Companies Act 2006.
This final results announcement and the results for the year ended
31 March 2019 were approved by the Board of Directors on 29 May
2019.
2. Basis of preparation
The financial information in this announcement has been prepared
on the historical cost accounting basis (except for fair value
items as set out in the 2018 Annual Report and Accounts) and in
accordance with International Financial Reporting Standards (IFRS)
and interpretations of the IFRS Interpretations Committee as adopted
by the European Union, and with those parts of the Companies Act
2006 applicable to companies reporting under IFRS. The accounting
policies adopted are consistent with those followed in the preparation
of the Group's 2019 Annual Report and Accounts which have not changed
significantly from those adopted in the Group's 2018 Annual Report
and Accounts (which are available on the Company website www.pennon-group.co.uk),
except as described in note 3.
3. Accounting policies
Initial adoption of IFRS 15 'Revenue from Contracts with Customers'
The Group adopted the standard with effect from 1 April 2018 using
the full retrospective approach to transition. As the impact of
the new standard has not had a material effect on the Group's reported
revenues, net assets or any specific financial statements line,
there has been no restatement of prior year figures.
Initial adoption of IFRS 9 'Financial Instruments'
IFRS 9 replaced IAS 39 with effect from 1 April 2018 bringing together
all three aspects of the accounting for financial instruments:
classification and measurement, impairment and hedge accounting.
The Group applied IFRS 9 prospectively from 1 April 2018. The first
time application of this standard in the specific areas is detailed
below but has not resulted in any adjustment or reclassification
of amounts previously reported.
PENNON GROUP PLC
Notes (continued)
3. Accounting policies (continued)
The classification and measurement requirements of IFRS 9 require
that financial assets are classified in the statements of financial
position according to their nature, the characteristics of their
contractual cash flows and the business model adopted for their
management. Following assessment of the Group's
business model as of the date of initial application, 1 April 2018,
these requirements did not have a significant impact on the Group.
The Group continued measuring at fair value all financial assets
previously held at fair value under IAS 39.
The impairment aspects of IFRS 9 require the Group to evaluate
and recognise expected credit losses (ECLs) on financial assets
and to ensure changes in credit risk are assessed at regular intervals,
and to make suitable adjustments for expected credit losses where
applicable. This has not had any material impact on the Group.
The Group has a policy of hedging currency risk and interest rate
risks. The Group adopted hedge accounting in accordance with IFRS
9 from 1 April 2018.
IFRS 16 'Leases'
The adoption of IFRS 16 on 1 April 2019 will affect primarily the
accounting for those leases currently classified as operating leases.
IFRS 16 no longer distinguishes between an on the balance sheet
finance lease and an off the balance sheet operating lease.
The Group has made the following elections on adoption IFRS 16
to apply from 1 April 2019:
* Applying the modified retrospective approach: the
cumulative effect of initially applying IFRS 16 has
been calculated as a reduction to retained profits at
1 April 2019 of GBP8.1 million. Under this election
no restatement of comparative figures will be made.
* Electing to apply the standard to contracts that were
previously identified as leases when applying IAS 17.
* Using the exemptions available in respect of
contracts with a lease term ending within 12 months
of 1 April 2019 and in respect of the low value of
underlying assets. These exemptions allow accounting
similar to that for an operating leases under IAS 17.
Carrying amounts for assets and liabilities under finance leases
existing at 1 April 2019 will not be changed on adoption of IFRS
16.
At 31 March 2019 the Group had non-cancellable operating lease
commitments of GBP195.7 million. These predominantly relate to
leases of properties occupied by the Group in the course of carrying
out its businesses. Applying IFRS 16 at 1 April 2019 results in
the Group recognising an asset in use of GBP107.6 million, a deferred
tax asset of GBP1.6 million, an additional lease liability figure
of GBP121.2 million and the reversal of prepayments and accruals
of GBP0.5 million and GBP4.4 million respectively. The overall
reduction in net assets of GBP8.1 million is deducted from retained
profits at 1 April 2019 in accordance with the modified retrospective
approach.
Differences between the values of the disclosed operating lease
commitment at 31 March 2019 and the additional lease liability
recognised at 1 April 2019 under IFRS 16 result from future cash
flows being discounted under IFRS 16 rather than shown gross, the
availability of exemptions available on transition and different
rules defining the appropriate length of lease to use between the
two methods.
Based on the additional lease liability and associated assets recognised
at 1 April 2019 it is estimated that the impact on profit for the
year ended 31 March 2020 would be a reduction in profit after tax
of GBP1.0 million, resulting from an increase in EBITDA of GBP12.7
million, depreciation of GBP9.9 million, finance costs of GBP4.0
million and a reduction in corporation tax of GBP0.2 million.
Other new standards or interpretations in issue but not yet effective
are not expected to have a material impact on the Group's net assets
or results.
PENNON GROUP PLC
Notes (continued)
4. Segmental information
Operating segments are reported in a manner consistent with
internal reporting provided to the Chief Operating Decision-Maker,
which has been identified as the Pennon Group plc Board.
The water business comprises the regulated water and wastewater
services undertaken by South West Water. The waste management
business is the recycling and residual waste processing and
transformation services provided by Viridor. The non-household
retail business comprises the services provided by Pennon Water
Services in the non-household water and wastewater retail market
which, while regulated, is open to competition.
2019 2018
GBPm GBPm
Revenue
Water 581.0 571.3
Waste management 852.7 788.9
Non-household retail 173.7 165.9
Other 21.4 13.8
Less intra-segment trading * (150.6) (143.7)
------------------------------ -----------------------------
1,478.2 1,396.2
------------------------------ -----------------------------
Segment result
Operating profit before depreciation,
amortisation and non-underlying items
(EBITDA)
Water 367.1 360.9
Waste management 178.9 150.2
Non-household retail 1.0 1.0
Other (0.8) (2.5)
------------------------------ -----------------------------
546.2 509.6
------------------------------ -----------------------------
Operating profit before non-underlying
items
Water 251.1 247.8
Waste management 100.9 78.6
Non-household retail 0.3 0.4
Other (1.3) (2.9)
------------------------------ -----------------------------
351.0 323.9
------------------------------ -----------------------------
Profit before tax and non-underlying
items
Water 180.6 180.5
Waste management 88.5 70.8
Non-household retail (1.6) (1.1)
Other 12.7 8.6
------------------------------ -----------------------------
280.2 258.8
------------------------------ -----------------------------
Profit before tax
Water 184.6 178.1
Waste management 58.9 77.3
Non-household retail (1.6) (1.1)
Other 18.4 8.6
------------------------------ -----------------------------
260.3 262.9
------------------------------ -----------------------------
* Intra-segment trading between and to different segments is
under normal market based commercial terms and conditions.
Intra-segment revenue of the other segment is at cost.
PENNON GROUP PLC
Notes (continued)
5. Non-underlying items
Non-underlying items are those that in the Directors' view
are required to be separately disclosed by virtue of their
size, nature or incidence to enable a full understanding of
the Group's financial performance in the year and business
trends over time.
2019 2018
GBPm GBPm
Revenue
Construction contract
settlements (4a) - 3.2
Operating costs
Pension past service cost (GMP
equalisation
impact) (1) (3.0) -
Provision for receivable
(Interserve (22.7) -
in respect of Glasgow Recycling
Renewable
Energy Centre) (2)
Earnings before interest, tax,
depreciation
and amortisation (25.7) 3.2
Remeasurement of fair value
movement
in derivatives (3) 5.8 (2.4)
Write-down of joint venture
shareholder
loans (4b) - (19.2)
Refinancing of joint venture
arrangement
(4c) - 22.5
Tax credit arising on
non-underlying
items 5.0 3.4
------------------------------ --------------------------
Net non-underlying credit
/(charge) (14.9) 7.5
------------------------------ --------------------------
(1) On 26 October 2018, the High Court of Justice of England and
Wales issued a judgment in a claim regarding the rights of
female members of certain pension schemes to equality of treatment
in relation to pension benefits (Guaranteed Minimum Payment
(GMP) equalisation). The judgment concluded that the claimant
is under a duty to amend the schemes in order to equalise benefits
for men and woman in relation to GMP benefits. The issues determined
by the judgment arise in relation to many other occupational
pension schemes.
The Group estimates, with advice from the Group's corporate
actuary, that scheme liabilities will increase by an estimated
GBP3.0 million as a result of the judgment. The cost has been
recognised as a past service cost in the current year income
statement. The charge is considered non-underlying due to its
non-recurring nature.
(2) The financial statements recognise a gross receivable of GBP72.0
million from Interserve Construction Limited in relation to
rectifications and completion costs for Glasgow Recycling Renewable
Energy Centre (GRREC). Under IFRIC 12 the difference between
the gross contractual value and the expected recovery will
be taken directly to the income statement. During the year,
Interserve Plc (holding company of Interserve Construction
Limited) entered into administration. The operating company,
Interserve Construction Limited with whom we contracted, is
currently continuing to trade. As a result of the lack of certainty
around the future of Interserve's business, and in accordance
with IFRS 9, we have sought to make an appropriate market-based
assessment using the latest public information available. Consequently
a provision of GBP22.7 million has been recognised in the year
against the receivable, resulting in a total cumulative provision
at 31 March 2019 of GBP28.7 million. The charge is considered
non-underlying due to its size and non-recurring nature. The
financial stability of Interserve Construction Limited is judged
to be outside the control of Pennon Group.
PENNON GROUP PLC
Notes (continued)
(3) In the year a credit of GBP5.8 million (2017/18 charge of
GBP2.4 million) was recognised relating to non-cash derivative
fair value movements associated with derivatives that are
not designated as being party to an accounting hedge relationship.
These movements are non-underlying due to the nature of the
item being market dependent and potentially can be significant
in value.
(4) In the prior year, on reset of the contracts associated with
the Greater Manchester Waste Disposal Authority (GMWDA) an
overall net credit before tax of GBP6.5 million was recognised
as follows:
(a) A net amount of GBP3.2 million was recognised in revenue
following the settlement of all outstanding claims relating
to the construction of assets.
(b) On reset of the contracts associated with GMWDA ownership
of Viridor Laing Holdings Limited passed to the GMWDA. On
transfer GBP23.5 million of Viridor's shareholder loans were
repaid, resulting in the write down of the remaining financial
asset of GBP19.2 million.
(c) On reset of the contracts associated with GMWDA repayment
of external bank debt in our joint venture, Ineos Runcorn
TPSCo Limited, was financed by GMWDA. This change in cash
flows resulted in the recognition of income in this joint
venture, with an amount deferred relating to a lower ongoing
gate fee. The overall share of profit after tax related to
the reset was GBP22.5 million, which contributed to an increase
in investments in joint ventures recognised on the balance
sheet to GBP22.8 million.
These items are considered non-underlying due to their size
and non-recurring nature.
PENNON GROUP PLC
Notes (continued)
6. Net finance costs
2019 2018
------------------------ ---------------------------
Finance Finance Finance Finance
cost income Total cost income Total
GBPm GBPm GBPm GBPm GBPm GBPm
Cost of servicing debt
Bank borrowings and
overdrafts (52.5) - (52.5) (48.6) - (48.6)
Interest element of
finance lease
rentals (39.2) - (39.2) (34.4) - (34.4)
Other finance costs (2.5) - (2.5) (3.9) - (3.9)
Interest receivable - 3.6 3.6 - 2.5 2.5
Interest receivable
on
shareholder loans to
joint
ventures - 5.3 5.3 - 7.9 7.9
(94.2) 8.9 (85.3) (86.9) 10.4 (76.5)
------- ------- ------ -------- ------- --------
Notional interest
Interest receivable
on service
concession arrangements - 14.6 14.6 - 13.8 13.8
Retirement benefit obligations (1.4) - (1.4) (1.6) - (1.6)
Unwinding of discounts
on
provisions (11.1) - (11.1) (10.2) - (10.2)
(12.5) 14.6 2.1 (11.8) 13.8 2.0
------- ------- ------ -------- ------- --------
Net finance costs before
non-underlying items (106.7) 23.5 (83.2) (98.7) 24.2 (74.5)
Non-underlying items
(note 5)
Write-down of joint
venture
Shareholder loans - - - (19.2) - (19.2)
Fair value remeasurement
of
non-designated derivative
financial instruments,
providing commercial
hedges 5.8 - 5.8 (2.4) - (2.4)
Net finance costs after
non-underlying items (100.9) 23.5 (77.4) (120.3) 24.2 (96.1)
------- ------- ------ -------- ------- --------
In addition to the above, finance costs of GBP15.2 million have
been capitalised on qualifying assets included in property, plant
and equipment (2018 GBP17.0 million, GBP14.7 million property,
plant and equipment, GBP2.3 million other intangible assets).
PENNON GROUP PLC
Notes (continued)
7. Taxation
Before Non-underlying Before Non-underlying
non-underlying items non-underlying items
(note (note
items 5) Total items 5) Total
2019 2019 2019 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Analysis of charge
Current tax charge 29.4 (5.5) 23.9 26.1 (3.0) 23.1
Deferred tax charge 13.3 0.5 13.8 18.3 (0.4) 17.9
Tax charge for the
year 42.7 (5.0) 37.7 44.4 (3.4) 41.0
=============== ============== ===== =============== ============== =====
UK corporation tax is calculated at 19% (2018 19%) of the estimated
assessable profit for the year.
UK corporation tax is stated after a credit relating to prior
year current tax of GBP3.0 million (2018 credit of GBP3.6 million)
and a prior year deferred tax credit of GBP9.9 million (2018
credit of GBP2.4 million).
PENNON GROUP PLC
Notes (continued)
8. 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 year, 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 in issue is adjusted to include all dilutive
potential ordinary shares.
The weighted average number of shares and earnings used in the
calculations were:
2019 2018
Number of shares (millions)
For basic earnings per share 419.6 417.9
Effect of dilutive potential ordinary shares
from share options 1.3 1.5
For diluted earnings per share 420.9 419.4
===================== ==================
Adjusted basic and diluted earnings per ordinary share
Adjusted earnings per share before non-underlying items and deferred
tax are presented to provide a more useful comparison of business
trends and performance. Non-underlying items are adjusted for
by virtue of their size, nature or incidence to enable a full
understanding of the Group's financial performance (as described
in note 5). In the prior year, perpetual capital returns were
proportionately adjusted to allow a more useful comparison in
the year as a full return is accrued at 31 March but not payable
until May. Earnings per share have been calculated:
2019 2018
------------------------------ -----------------------------------------
Earnings per Earnings
share per
Profit Profit share
after Basic Diluted after Basic Diluted
tax tax
GBPm p p GBPm p p
Statutory earnings 214.3 51.1 50.9 200.6 48.0 47.8
Deferred tax before
non-underlying items 13.3 3.1 3.1 18.3 4.4 4.4
Non-underlying items
(net of tax) 14.9 3.6 3.6 (7.5) (1.8) (1.8)
Proportional
adjustment
on
perpetual capital
securities - - - 1.3 0.3 0.3
Adjusted earnings 242.5 57.8 57.6 212.7 50.9 50.7
PENNON GROUP PLC
Notes (continued)
9. Dividends
Amounts recognised as distributions to ordinary equity holders
in the year:
2019 2018
GBPm GBPm
Interim dividend paid for the year ended
31 March 2018 : 11.97p (2017 11.09p) per
share 50.2 45.9
Final dividend paid for the year ended
31 March 2018 : 26.62p (2017 24.87p) per
share 111.8 103.6
162.0 149.5
===================== ==================
Proposed dividends
Proposed interim dividend for the year ended
31 March 2019 : 12.84p per share 54.0
Proposed final dividend for the year ended
31 March 2019 : 28.22p per share 118.7
172.7
=====================
The proposed interim and final dividends have not been included
as liabilities in these financial
statements.
The proposed interim dividend for 2019 was paid on 4 April 2019
and the proposed final dividend is subject to approval by shareholders
at the Annual General Meeting.
10. Investments in joint ventures
Shares
GBPm
At 1 April 2017 0.1
Share of post-tax profit - underlying 9.4
Share of post-tax profit - non-underlying 22.5
Share of other comprehensive charges (2.7)
Disposals -
Dividends received (6.5)
------------------
At 31 March 2018 22.8
Additions 20.9
Share of post-tax profit 12.4
Share of other comprehensive income 0.5
Dividends received (5.5)
------------------
At 31 March 2019 51.1
------------------
PENNON GROUP PLC
Notes (continued)
10. Investments in joint ventures (continued)
In December 2018 John Laing Investments Limited, a joint venture
partner with the Group in INEOS Runcorn (TPS) Holdings Limited
('Runcorn I ERF') sold its holding. The Group exercised its pre-emption
rights and paid a total cash consideration of GBP54.8 million
for the 37.5% economic interest and 20% voting rights. The cash
consideration has been allocated GBP20.9 million to investment
in equity shares and GBP33.9 million to investment in shareholder
loans. The acquisition increased the Group's economic interest
in Runcorn I ERF from 37.5% to 75%, with the associated voting
rights moving from 20% to 40%. With the acquisition the Group
now has joint control over Runcorn I ERF and classifies its investment
as a joint venture. Previously the Group had classified its investment
as an associate because the other joint venture partners could
have operated without the Group's agreement. The equity method
of accounting is used for both classifications, so the same accounting
treatment has been applied continuously.
11. Share capital
Allotted, called up and fully paid
Number of shares
---------------------------------
Treasury Ordinary
shares shares GBPm
At 1 April 2017 Ordinary shares of
40.7p each 8,443 413,893,293 168.4
Shares issued under the Scrip Dividend
Alternative - 5,223,293 2.1
For consideration of GBP0.5m, shares
issued
to the Pennon Employee Share Trust - 46,205 0.1
For consideration of GBP3.4m, shares
issued under the
Company's Sharesave Scheme - 580,392 0.2
At 31 March 2018 ordinary shares of
40.7p each 8,443 419,743,183 170.8
For consideration of GBP5.1m, shares
issued
in respect of the Company's Sharesave
Scheme - 777,415 0.3
At 31 March 2019 ordinary shares of
40.7p each 8,443 420,520,598 171.1
---------- --------------------- ------------------
Shares held as treasury shares may be sold or re-issued for any
of the Company's share schemes, or cancelled.
PENNON GROUP PLC
Notes (continued)
2019 2018
GBPm GBPm
12. Perpetual capital securities
GBP 300m 2.875% perpetual subordinated capital
securities 296.7 296.7
296.7 296.7
--------------------- ------------------
On 22 September 2017 the Company issued GBP300 million 2.875%
perpetual capital securities. Costs directly associated with
the issue of GBP3.3 million were set off against the value of
the issuance. They had no fixed redemption date but the Company
could at its sole discretion redeem all, but not part, of these
securities at their principal amount on 22 May 2020 or any subsequent
periodic return payment date after this.
The Company has the option to defer periodic returns on any relevant
payment date, as long as a dividend on the Ordinary Shares has
not been paid or declared in the previous 12 months. Deferred
periodic returns shall be satisfied only on redemption or payment
of dividend on Ordinary Shares, all of which only occur at the
sole discretion of the Company.
As the Company paid a dividend in the 12 months prior to the
periodic return date of 22 May 2019, a periodic return of GBP8.6
million (2017/18 GBP5.8 million) has been recognised as a financial
liability at the year end.
PENNON GROUP PLC
Notes (continued)
13. Cash flow from operating activities
Reconciliation of profit for the year to net cash inflow from
operations:
2019 2018
GBPm GBPm
Cash generated from operations
Profit for the year 222.6 221.9
Adjustments for:
Share-based payments 3.6 2.5
Profit on disposal of property, plant
and equipment (3.9) (2.5)
Depreciation charge 190.0 182.5
Amortisation of intangible assets 5.2 3.6
Non-underlying JV loan write-off and
credit - (6.5)
Non-underlying remeasurement of fair
value movement in (5.8) 2.4
derivatives
Share of post-tax profit from joint
ventures (12.4) (9.4)
Finance income (before non-underlying
items) (23.5) (24.2)
Finance costs (before non-underlying
items) 106.7 98.7
Taxation charge 37.7 41.0
Changes in working capital:
Increase in inventories (4.2) (5.2)
Increase in trade and other receivables (46.4) (36.9)
Decrease / (increase) in service
concession
arrangements
receivable 6.8 (15.2)
(Decrease) / Increase in trade and other
payables (47.7) 2.2
(Decrease) / increase in retirement
benefit
obligations from
contributions (7.3) 4.5
Decrease in provisions (21.6) (15.9)
Cash generated from operations 399.8 443.5
================================= ==================
2019 2018
GBPm GBPm
Total interest paid
Interest paid in operating activities 83.9 69.6
Interest paid in investing activities 15.2 17.0
Total interest paid 99.1 86.6
================================= ==================
PENNON GROUP PLC
Notes (continued)
14. Net borrowings
2019 2018
GBPm GBPm
Cash and cash deposits 569.6 585.3
Borrowings - current
Bank and other loans (59.8) (149.6)
Other current borrowings (27.0) (32.0)
Finance lease obligations (63.6) (28.2)
--------------------------------- ------------------
Total current borrowings (150.4) (209.8)
--------------------------------- ------------------
Borrowings - non-current
Bank and other loans (1,628.0) (1,408.8)
Other non-current borrowings (373.9) (291.4)
Finance lease obligations (1,496.8) (1,476.8)
--------------------------------- ------------------
Total non-current borrowings (3,498.7) (3,177.0)
--------------------------------- ------------------
Total net borrowings (3,079.5) (2,801.5)
================================= ==================
For the purposes of the cash flow statement cash and cash equivalents
comprise:
2019 2018
GBPm GBPm
Cash and cash deposits as above 569.6 585.3
Less: deposits with a maturity of three
months
or more (restricted funds) (203.9) (182.3)
365.7 403.0
================================= ==================
PENNON GROUP PLC
Notes (continued)
15. Contingencies
2019 2018
Contingent GBPm GBPm
liabilities
Performance bonds 201.7 185.1
201.7 185.1
================================= ==================
Guarantees in respect of performance bonds are entered into in
the normal course of business. No liability is expected to arise
in respect of the guarantees.
In connection with the application of the audit exemption under
Section 479A of the Companies Act 2006 the Company has guaranteed
all the outstanding liabilities as at 31 March 2019 of Viridor
Waste 2 Limited since this company qualifies for the exemption.
Other contractual and litigation uncertainties
The Group establishes provisions in connection with contracts
and litigation where it has a present legal or constructive obligation
as a result of past events and where it is more likely than not
an outflow of resources will be required to settle the obligation
and the amount can be reliably estimated. Matters where it is
uncertain that these conditions are met include a potential prosecution
from the Health and Safety Executive and limited contractual
commitments to provide certain employees with defined benefit
pension provision.
Contingent assets
In addition to contractual receivables related to our construction
contracts in respect of Glasgow Recycling and Renewable Energy
Centre that are reflected in the financial statements, there
are further possible recoveries that are contingent on events
in the future that are not wholly within the Group's control.
These contingent assets of GBP25 million have not been recognised
as at 31 March 2019.
Pennon Group plc
Registered Office : Registered in England No 2366640
Peninsula House
Rydon Lane
Exeter
EX2 7HR
pennon-group.co.uk
[1] Before non-underlying items. Underlying earnings are
presented to provide a more useful comparison on business trends
and performance.
[2] Earnings before interest, tax, depreciation and amortisation
(EBITDA)
[3] Underlying EBITDA plus share of Joint Venture EBITDA and
IFRIC 12 interest receivable
[4] Non-underlying items are adjusted for by virtue of their
size, nature or incidence to enable a full understanding of
financial performance
[5] EPS before deferred tax and non-underlying items
[6] The RPI rate used is 2.4% as at March 2019
[7] ERF earnings include contractual compensation in the form of
liquidated damages of GBP33.2 million (2017/18 GBP12.1 million)
when construction completed post original contractual completion
date
[8] Three plastics types - PET, HDPE and polypropylene
[9] See page 29
[10] Source: Tolvik, Defra, SEPA, NRW, MSW and Viridor analysis
based on 2017/18 latest local authority data available
[11] Average ERF availability is weighted by site capacity,
includes 100% of joint venture availability, excludes Bolton
[12] TPSCo - INEOS Runcorn (TPS) Holdings Limited
[13] Before non-underlying items
[14] Underlying EBITDA plus share of Joint Venture EBITDA and
IFRIC 12 interest receivable
[15] Non-underlying items are adjusted for by virtue of their
size, nature or incidence to enable a full understanding of the
Group's financial performance
[16] EPS before deferred tax and non-underlying items
[17] Weighted average number of shares for 2018/19 of 419.6
million (2017/18 417.9 million)
[18] The RPI rate used is 2.4% as at March 2019
[19] Including construction spend related to service concession
arrangements net of amounts subject to legal contractual
process
[20] Net debt - total borrowings less cash and cash deposits
[21] Including landfill tax and construction spend on service
concession arrangements
([22]) EBITDA plus share of joint venture EBITDA and IFRIC 12
interest receivable
[23] Includes wholesale revenue for non-household customers
[24] Net tariff increase reflects the net position post
Wholesale Revenue Forecasting Incentive Mechanism (WRFIM) pass back
of GBP12 million for 2018/19
[25] ERF earnings include contractual compensation in the form
of liquidated damages of GBP33.2 million (2017/18 GBP12.1 million)
arising where construction was completed post the original
contractual completion date
[26] Includes landfill tax collected and borne, VAT, business
rates, employment taxes, corporation tax, fuel excise duty, carbon
reduction commitment, environmental payments and climate change
levy
[27] Before deferred tax and non-underlying items
[28] Perpetual capital securities (hybrid). Cost in 2018/19 was
GBP8.6 million (2017/18 GBP21.5 million)
[29] Before construction spend on service concession agreements
of GBP35 million (2017/18 GBP83 million), pension contributions of
GBP32 million (2017/18 GBP17 million), GBP44 million for the 2017
unwind settlement of the PMB derivative and other tax payments of
GBP138 million (2017/18 GBP129 million)
[30] Total tax includes corporation tax, business rates,
employers' national insurance, fuel excise duty, carbon reduction
commitment, environmental payments, climate change levy and
external landfill tax
[31] Includes GBP133 million of index-linked finance leasing
[32] Includes spend on service concession agreements (before
amounts subject to legal contractual process)
[33] Based on RCV at 31 March 2019
[34] Including construction spend relating to service concession
arrangements, capitalised interest (GBP15.2 million in 2018/19),
ERF maintenance expenditure, net of amounts subject to legal
contractual process. Total Glasgow construction spend GBP34.8
million for 2018/19
[35] Infrastructure spend (IRE) during the year was GBP21
million capital and GBP16 million operating expenditure
[36] EPR - Extended Producer Responsibility; PRN - Packaging
Recovery Note
[37] Reflecting a 1 in 60 year event
[38] RORE reflects base plus outperformance. It is calculated
using actual results before non-underlying items (deflated into
2012/13 prices) and compared against the Final Determination
allowances and based on notional gearing, annual average RCV and
reflecting the value of tax impacts at the actual annual effective
tax rate for the year
[39] WaterShare RORE financing outperformance is based on the
outturn effective interest rate on net debt, translated into an
effective real interest rate using cumulative K6 forecast RPI of
2.8%.
[40] Ofwat's definition of financing outperformance is
calculated based on average RPI of 1.1% for 2015/16, 2.1% for
2016/17, 3.7% for 2017/18 and 3.1% for 2018/19
[41] Delivered around two thirds from capital expenditure and
one third from operating cost savings
[42] GBP4.1 million (GBP11.3 million cumulatively) net ODI
reward; GBP4.9 million (GBP14.4 million cumulatively) net reward
will be recognised at the end of the regulatory period and GBP0.8
million (GBP3.1 million cumulatively) net penalty which may be
reflected during the regulatory period. Cumulative net reward
reflects a prior year reassessment of GBP0.9 million for supply
interruptions relating to the extreme cold weather in March
2018
[43] Bespoke ODIs, unique rewards for South West Water with up
to GBP68 million reward, up to GBP74 million of rewards for common
ODIs where performance is currently upper quartile or above
industry average and ODIs which are an area of focus for
improvement reflect a penalty up to GBP28 million.
[44] Nominal RCV growth over K7 period based on draft
determination
[45] As at 31 March 2019. c.11,785 new accounts, net growth of
c.1,955 accounts
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GRGDUBGXBGCG
(END) Dow Jones Newswires
May 30, 2019 03:18 ET (07:18 GMT)
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