TIDMPNN
RNS Number : 3323D
Pennon Group PLC
25 June 2019
PENNON GROUP PLC
PUBLICATION OF ANNUAL REPORT AND ACCOUNTS 2019
AND NOTICE OF ANNUAL GENERAL MEETING
In compliance with Listing Rule 9.6.1 Pennon Group Plc (the
"Company") announces that the following documents have been
submitted to the Financial Conduct Authority electronically via the
National Storage Mechanism and will shortly be available for
inspection at www.morningstar.co.uk/uk/NSM
-- Annual Report and Accounts 2019
-- Notice of Annual General Meeting
-- Form of Proxy
The Annual Report and Accounts 2019 and Notice of Annual General
Meeting may also be viewed on the Company's website at
www.pennon-group.co.uk
The Company will hold its 2019 Annual General Meeting at Sandy
Park Conference Centre, Sandy Park Way, Exeter, Devon, EX2 7NN on
Thursday 25 July at 2.30pm.
The following information in the Appendix to this announcement
is as set out in the Company's Annual Report and Accounts 2019. It
should be read in conjunction with the Company's Full Year Results
announcement released on 30 May 2019 which included a set of
consolidated financial statements, a fair review of the development
and performance of the business and the position of the Company and
its main trading subsidiary companies. Together these documents
constitute the information required by Disclosure and Transparency
Rule 6.3.5.
Simon Pugsley
Group General Counsel & Company Secretary
25 June 2019
APPIX
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's business model exposes it to a variety of external
and internal risks influenced by the
possible impact of macro political, economic and environmental
factors; notably the continued
uncertainly arising from Britain's exit from the European Union
(EU) and the potential renationalisation
of the water industry. While the current Government are
supportive of the existing regulatory model, in
the event of a change of government, it remains the policy of
the opposition to renationalise the water
industry and Labour has provided further detail of their
proposed approach during the year. In the
event of this scenario occurring there could be an impact to the
Group's business model and
consequently this remains a significant risk to the Group.
While the ability of the Group to influence these macro level
risks is limited, they continue to be
regularly monitored and the potential implications are
considered as part of the ongoing risk
assessment process. The Group performs a range of scenario
planning and analysis exercises to
understand the risk exposure of one or a number of these events
occurring. The Group's principal risks
have remained consistent with the 2018 annual report with the
exception of one additional principal
risk: non-delivery of regulatory outcomes and performance
commitments. This risk reflects the significance of the ODI regime
in the regulatory model. South West Water has the opportunity for
reward but it is also exposed to risk if performance commitments
are not achieved.
Britain's exit from the European Union
During the year the Group has continued to evaluate and monitor
the potential risks and opportunities arising from Britain's
decision to exit the EU. Cross functional working groups have been
established and mitigation plans have been implemented focusing on
those activities that are likely to be most impacted in the event
of Britain leaving the EU without a withdrawal agreement. The
Pennon Executive and the Board have received regular updates
throughout the year on the Group's preparations for a
no-deal scenario.
The Group continues to reflect the impact associated with
Britain leaving the EU within the relevant principal risks. While
no single issue is considered to expose the Group to material risk,
it is recognised that the combination of multiple issues or events
concurrently could result in some disruption in the period
immediately after leaving the EU in the event of a no-deal
scenario. Plans have been established which seek to minimise the
potential impact on the Group and its operations.
The following issues have been identified as potentially having
a significant impact on the Group's principal risks:
-- Availability of chemicals (linked to principal risk: Business
interruption or significant operational failures/incidents).
Detailed analysis has been completed on chemicals received from
European-based suppliers and on South West Water and Viridor stock
levels to ensure they continue to be maximised. Additionally,
operational plans have been developed to ensure continued asset
availability and that Government and Local Resilience Forum
requirements are met. South West Water has also been heavily
engaged with Water UK in developing a national response. This has
involved discussions with the UK Government, regulators and other
key stakeholders, developing a 'critical chemicals' action plan
jointly with the Chemicals Industry Association and due diligence
being undertaken on critical chemical suppliers.
-- Exporting of recyclate material (linked to principal risk:
Macro level risks impacting on commodity and power prices). While
we continue to export recyclate to Europe, contingency plans have
been established so that, in the event of a no-deal scenario, the
majority of recyclate can be diverted to non-European markets. We
have engaged extensively with our haulage and shipping partners to
understand their preparations and trialled shipments to EU and
non-EU countries from alternative UK ports. For the limited volume
of recyclate material which will continue to be exported to Europe
in the event of a no-deal scenario, revised documentation
requirements have been reviewed and internal processes amended
where appropriate.
-- Inability to access the same level of funding from the
European Investment Bank (linked to principal risk: Maintaining
sufficient finance and funding): Prior to the financial year end
funding lines have been put in place which has resulted in cash and
committed facilities to fund Viridor's committed growth projects
and South West Water's capital programme into K7 (2020-25).
Furthermore, we have engaged with a variety of UK and European
banks who have reaffirmed their appetite for UK infrastructure
lending.
-- The ability to attract and employ individuals with the
necessary skills and experience (linked to principal risk:
Difficulty in the recruitment, retention and development of
skills): While the current position of the UK Government in the
event of a no-deal scenario is that EU nationals already in the
country will be able to apply for settled status, the Group has
been proactive in reinforcing this to all affected staff.
Furthermore, Viridor has moved 180 employees from agency roles into
permanent employment. The Group has also sought assurances from
temporary employment agencies as to their plans to ensure
sufficient availability of temporary resource in the event of a
no-deal scenario.
The Directors confirm that during 2018/19 they have carried out
a robust assessment of risks facing the Group, including assessing
the impacts on its business model, future performance, solvency and
liquidity.
These principal risks have been considered in preparing the
viability statement on page 69 of the 2019 Annual Report.
Strategic impact - long-term priorities
affected
---------------------------------------------------------------------------
1 2 3
Leadership Leadership Driving sustainable
in UK in cost growth
water and base efficiency
waste
------------ ------------------- ----------------------------------------
Risk level
Green Amber Red
Low Medium High Increasing Stable Decreasing
Law, regulation and finance
Principal risks Strategic impact Mitigation Net Direction Risk appetite
risk
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Changes in Long-term priorities (i) While the present Red We recognise
Government affected: Government is supportive that
policy 1,2 of the existing Government
Changes in Government regulatory model, policy
policy the renationalisation evolves. The
may fundamentally of the water industry Group
impact our continues to be seeks to minimise
ability to deliver a central policy potential
the Group's of the Labour Party risk and maximise
strategic priorities, and remains a possibility opportunities
impacting in the event of through regular
shareholder value. a change of Government. engagement,
We continue to communication
engage with all and robust
political parties, scenario planning.
customers and wider
stakeholders, both
directly and via
Water UK, demonstrating
the value received
from our operational
performance and
continued investment
in the network
infrastructure.
South West Water's
2020-25 business
plan also detailed
how we would empower
customers further
and deliver benefits
for our stakeholders
over the next regulatory
period.
(ii) Viridor remains Green
well placed to
leverage the
opportunities
arising from the
key outcomes within
the Government's
Resources and Waste
Strategy, as reflected
by investment in
an
additional plastic
processing facility.
Further clarity
is required, however,
with respect to
key aspects of
the initiatives
within the Resources
and Waste Strategy
as timescales remain
uncertain.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Regulatory Long-term priorities There remains a Amber We accept
reform affected: continued focus that
1,2 from Ofwat on the regulatory
Reform of the regulatory governance of companies reform
framework may result in the water sector; occurs and
in changes to the in particular the seek
Group's introduction of to leverage
priorities and a 'social contract' opportunities
the service we between water companies where possible
provide to our and their stakeholders. and minimise
customers. It may We have been an the
have a significant active voice in negative impact
impact on our the sector during of
performance which the year on this regulatory
can impact topic. reform by
shareholder value. This concept was targeting
at the heart of changes
South West Water's which are
2020-25 business NPV
plan, entitled neutral over
'New Deal', which the
received fast-track longer term
status from Ofwat. to
The Draft Determination protect customer
was received from affordability
Ofwat in April and
2019. This included shareholder
our commitment value.
to provide customers
with a shareholding
and a greater say
in how South West
Water is run.
Additionally,
as a listed company
we continue to
uphold the highest
standards of corporate
governance and
transparency, including
compliance with
the UK Corporate
Governance Code
and Ofwat's Principles
for Holding Companies.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Compliance Long-term priorities The Group operates Green The Group
with laws and affected: a robust and mature has the
regulations 1,2 regulatory framework highest standards
The Group is required which seeks to of
to comply ensure compliance compliance
with a range of with Ofwat, Environment and has
regulated and Agency and other no appetite
non-regulated relevant requirements. for legal
laws and regulation The Group also or regulatory
across our water continues to provide breaches.
and waste businesses. a rolling programme
Non-compliance of training and
with one or a number guidance to our
of these may result staff, contractors
in financial penalties, and partners. This
a negative impact included data protection
on our ability training following
to operate effectively the implementation
and reputational of the General
damage. Data Protection
. Regulation. During
the year we have
also refreshed
our Code of Conduct
and launched a
specific Supply
Chain Code of Conduct,
further reinforcing
the standards expected
of our staff and
our partners.
The Group's Speak
Up whistleblowing
process allows
any concerns to
be raised confidentially
and robust processes
are in place for
investigating these.
Additionally during
the year Pennon
became a member
of the Slave Free
Alliance, demonstrating
the Group's commitment
to eradicating
modern slavery.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Maintaining Long-term priorities The Group has mature Green The Group
sufficient affected: treasury, funding operates
finance and 1,3 and cash flow a prudent
funding, within Failure to maintain arrangements approach
our debt covenants, funding requirements in place and the to our financing
to meet ongoing could lead to additional impact of political, strategy in
commitments finance costs and economic, order to
put our growth and regulatory ensure our
agenda at risk. risks on the Group's funding
Breach of covenants financing commitments requirements
could result in and cashflow is are
the requirement regularly reviewed fully met.
to repay certain by Pennon Executive
debt. and the Board.
The Group has GBP1.2
billion of cash
and committed facilities.
During the year
the Group has signed
new facilities
of
GBP830 million
of which GBP600
million is linked
to the sustainable
nature of our business.
This provides funding
for Viridor's committed
capital projects
and funds the South
West Water into
K7.
The strength of
our position provides
the Group with
added
resilience in the
event of short-term
volatility of a
potential Brexit
no-deal scenario.
Further detail
is provided above.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Non-compliance Long-term priorities The effective management Amber The Group
or occurrence affected: of health & safety has no
of an avoidable 1,2,3 risks continues appetite for
health & safety A breach of health to be a priority health & safety
incident & safety law could for the Board and related incidents
lead to financial Pennon Executive, and has the
penalties, significant as highest standards
legal costs and demonstrated by of compliance
damage to the Group's the 2025 HomeSafe within the
reputation. strategy. Group, contractors,
partners and
Experienced health third parties.
& safety professionals
are embedded
within the Group
providing advice,
guidance and support
to
operational staff.
During the year
the Group progressed
the full roll out
of HomeSafe for
Viridor and South
West Water which
encompassed both
face-to-face and
e-learning training.
This was supported
by a comprehensive
assurance programme
to ensure the key
requirements of
HomeSafe, legal
compliance and
our standards are
being correctly
followed with outcomes
reported to the
Pennon Health &
Safety Committee.
The benefits of
the HomeSafe programme
are already being
seen with lost
time injury frequency
rates falling 32.2%
during the year.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Tax compliance Long-term priorities The Group have Green The Group
and contribution affected: an experienced ensures
2 and professionally full compliance
Non-compliance qualified in-house with
may result in tax team, supported, HMRC requirements
financial penalties, where necessary, and will not
legal costs and by external specialists. enter
reputational damage. into artificial
Furthermore, the The Pennon tax tax
perception that strategy has been arrangements
Pennon's overall refreshed and published, or
tax contribution following customer take an aggressive
is inadequate could consultation. stance in
have a detrimental the
impact on the reputation During the year interpretation
of the Group. Pennon became the of tax legislation.
first water and
waste management
utility to secure
the Fair Tax Mark;
an independent
accreditation scheme,
which recognises
organisations that
demonstrate they
are paying the
right amount of
corporation tax
at the right time.
Processes and controls
have been reviewed
during the year
to ensure we are
able to continue
to meet HMRC
requirements.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Failure to Long-term priorities The Group has an Amber The Group
pay all pension affected: experienced in-house will
obligations 2 pensions team ensure that
as they fall The Group could who also engage all
due and increased be called upon professional advisors obligations
costs to the to increase funding to manage the pension are met
Group should to reduce the deficit, scheme's investment in full but
the deferred impacting our cost strategy, ensuring seeks to
pension scheme base. the scheme can manage this
deficit increase pay without
its obligations unnecessary
as they fall due. increased
costs
During the past to the Group.
year there has
been a significant
decrease in
bond yields resulting
from uncertainty
over Brexit, which
could result in
an increased deficit
position following
the revaluation
of the defined
benefit pension
scheme.
-------------------- ------------------------- -------------------------- ------ ---------- ---------------------
Market and economic conditions
Principal risks Strategic impact Mitigation Net Direction Risk appetite
risk
----------------- ------------------------
Non-recovery Long-term priorities South West Water Green While seeking
of customer affected: has mature and to minimise
debt 1,2 embedded debt collection non-recoverable
Potential impact strategies in place debt, we recognise
on revenue for the recovery customer affordability
as a result of of domestic customer challenges
reduced customer debt which has and
debt collection, delivered improved the inability
particularly with collection rates to
regard to vulnerable and decreased bad disconnect
customers debt exposure during customers
and affordability. the past three results
years. There has in a residual
been no significant risk
increase in bills of uncollectable
for 2019/20 and debt remaining.
real-term decreases
form part of the
business plan for
2020-25.
The potential economic
impact of Brexit
on our customers
remains a risk.
We work proactively
with our customers
who are struggling
to pay and have
a range of affordability
schemes and social
tariffs to
support them including
Restart, WaterCare
and Freshstart.
Within the non-household
market there has
been continued
focus on the collection
of older debt which
has proved effective.
Due to high proportion
of public sector
contracts, Viridor's
debt
collection risk
is lower, however,
customer debt is
regularly
reviewed and proactively
managed.
----------------- ------------------------- -------------------------- ------ ---------- ------------------------
Macroeconomic Long-term priorities Viridor remains Red The Group
risks arising affected: well positioned seeks
from a downturn 3 across the waste to take well-judged
in the global Challenges such hierarchy and informed
and UK economy as continued with long-term decisions
and commodity local authority contracts supporting while
and power prices austerity, reduced the ERF business. ensuring plans
global demand for are
our recycled commodities While recyclate in place to
and decreases in markets have improved mitigate
power prices have during the year, the potential
a direct impact continuing to meet impact
on our revenues the quality requirements of macroeconomic
generated by our within China risks.
recycling and energy and other markets
businesses. remains a key area
of focus in addition
to
sourcing other
potential markets.
Extensive planning
in the event of
a Brexit no deal
scenario has also
been undertaken
and is detailed
further above.
We continue to
invest in our assets
and we work closely
in
partnership with
our local authority
customers in the
delivery of our
services and maximising
the quality of
the input recyclate
material.
Additionally, a
significant proportion
of our input contracts
have price adjustments
based on price
fluctuations during
the year.
Energy risk management
is undertaken at
a Group level and
acts as a natural
hedge between South
West Water and
Viridor, offsetting
any drop in power
prices. Forward
hedges have been
put in place with
the Group c. 95%
hedged for 2019/20,
c.55% for 2020/21
and c.20% for 2021/22
hedged.
----------------- ------------------------- -------------------------- ------ ---------- ------------------------
Operating performance
Principal risks Strategic impact Mitigation Net Direction Risk appetite
risk
--------------------- ----------------------
Poor operating Long-term priorities The increased frequency Amber The Group
performance affected: and impact of extreme seeks
due to extreme 1 weather to reduce
weather or Failure of our exposes our assets both the impact
climate change assets to cope to risk, while and likelihood
with extreme weather there continues through long-term
conditions may to be a planning and
lead to an inability reduced appetite forecasting
to meet our customers' for reduced performance to ensure
needs, environmental arising from such that sufficient
damage, additional incidents from measures are
costs and the regulator and in place to
reputational damage. our stakeholders. mitigate the
impact of
The Group seeks extreme weather
to mitigate this and climate
risk through investment change on
via a planned capital our operations.
investment programme,
emergency resources
and contingency
planning. As part
of the risk management
process the Group
also performs horizon
scanning on the
longer-term impacts
of climate change
on its operations.
Key lessons learnt
from the freeze-thaw
event in March
2018 were incorporated
into our 2018/19
winter preparedness
planning. Extensive
modelling and
forecasting
is also performed
to evaluate
South West Water's
water resources,
both in actively
managing resources
in periods of dry
weather but also
managing long-term
water resources
as demonstrated
through South West
Water's
25 year Water Resources
Management Plan.
Viridor has in
place regional
adverse weather
management
strategies aimed
at reducing disruption
to site operations
and
transport logistics.
--------------------- ------------------------- ------------------------ ------ ---------- ----------------------
Poor customer Long-term priorities There has been Amber The Group
service/ increased affected: a continued focus continually
competition 1,3 on customer experience seeks to
leading to Poor customer service and the customer increase customer
loss of customer has a direct impact journey across satisfaction
base on South West Water's the Group during and
delivery of the the year. maximise customer
PR14 business plan retention
and the ability Enhanced capability while taking
of both Viridor within our call well informed
and Pennon Water centre, investment risk to develop
Services to retain in training and further markets
and grow market expanded channels and offerings.
share. to interact with
our customers resulted
in South West Water's
best ever SIM customer
service score with
a ranking of second
out of all water
and sewerage
companies in England
and Wales. South
West Water is also
accredited to the
Institute of Customer
Service's ServiceMark
accreditation.
Planning is also
underway to evaluate
South West Water's
performance under
the new C-MeX guidance,
which will replace
SIM from 2020.
Customer service
and experience
has been a continued
focus for Viridor
with a score of
7.1 out of ten
on Trustpilot.
Customer service
within Pennon Water
Services is also
monitored through
Trustpilot where
a score of 8.5
out of ten has
been achieved.
--------------------- ------------------------- ------------------------ ------ ---------- ----------------------
Business interruption Long-term priorities The Group maintains Amber The Group
or significant affected: detailed contingency operates
operational 1,3 plans and incident a low tolerance
failures/ Operational failure management procedures for significant
incidents in our water which are regularly operational
business could reviewed and failure
mean that we are assets are managed and seeks
unable to supply through a programme to mitigate
clean water to of sophisticated these risks
our customers or planned and preventive where possible.
provide safe wastewater maintenance and
processes. This effective
has a direct impact management of stores.
on the successful
delivery of the Extensive Group-wide
PR14 business plan. Brexit no-deal
planning has also
Additionally business been
interruption caused undertaken with
by defects, outage further detail
or fire could impact outlined above.
the availability
and optimisation Continued investment
of our ERF and alongside South
recycling facilities. West Water's pollution
reduction strategy
has resulted in
a reduction of
serious pollution
incidents to two
during the year.
This was among
the lowest number
of such incidents
in the industry.
There has also
been a continued
reduction in minor
pollution incidents
(Category 3).
Careful management
and effective
optimisation
of the ERF fleet
has again resulted
in availability
exceeding 90% across
our operational
portfolio (including
joint ventures).
--------------------- ------------------------- ------------------------ ------ ---------- ----------------------
Difficulty Long-term priorities The Group's HR Amber While turnover
in the recruitment, affected: Strategy continues of staff does
retention and 1,2,3 to be embedded occur we ensure
development Failure to have across the organisation the appropriate
of appropriate a workforce of and a range of skills and
skills required skilled and motivated initiatives have experience
to deliver individuals been delivered is in place
the Group's will detrimentally during the year with succession
strategy impact all of our to attract, retain plans providing
strategic priorities. and develop our adequate resilience.
We need the right employees. Employee
people in the right Voice Forums and
places to share engagement provides
best practice, opportunities for
deliver synergies employees to regularly
and move the Group discuss business
forward. priorities and
challenges with
business leaders.
Mitigating actions
have also been
taken to reduce
the potential impact
of a Brexit no-deal
scenario on our
workforce. Further
detail is included
above.
Succession plans
remain in place
for senior and
other key positions.
In order to ensure
the Group can compete
for the top talent
in the market place
during the year
30 graduates joined
Viridor and 226
apprenticeships
started across
the Group supporting
new starters
and existing employees
in their career
development.
The impact of these
initiatives is
measured through
the results
of the most recent
Great Places to
Work Best
Workplaces(TM)
Survey which showed
an improved Trust
Index score of
62% and Engagement
score of 68%.
--------------------- ------------------------- ------------------------ ------ ---------- ----------------------
Non-delivery Long-term priorities The regulatory Amber The Group
of Regulatory affected: framework has been is committed
Outcomes and 1,2,3 in place since to achieving
performance South West Water's 1 April 2015 all of
commitments Regulatory and South West our performance
Outcomes and performance Water has delivered commitments
commitments cover cumulative net over
key strategic focus ODI the length
areas. rewards of GBP11.3 of each
million. South regulatory
Non-delivery against West Water is forecast period.
these could result to meet Where performance
in financial penalties all its ODI commitments in an individual
being applied as by 2020. year falls
well as reputational below expectation
damage to the Group. This risk reflects we
the significance implement
of the ODI regime action
in the regulatory plans and
model. South West targeted
Water has the interventions
opportunity to
for reward but ensure performance
is also exposed returns to
to risk if performance committed
commitments are levels.
not achieved.
Following the South
West Water 2020-25
business plan being
awarded fast-track
status, we are
already working
on plans to
deliver a step
change in operational
performance as
well as meeting
our 2020 commitments.
--------------------- ------------------------- ------------------------ ------ ---------- ----------------------
Business systems and capital investment
Principal risks Strategic impact Mitigation Net Direction Risk appetite
risk
-------------------- -----------------------
Failure or Long-term priorities All capital projects Red The Group's
increased cost affected: are subject to investment
of capital 1,3 a robust business activities
projects/ exposure Inability to case are taken
to contract successfully process which includes on an
failures deliver on our challenge and risk informed basis
capital programme modelling over with
may result in increased key assumptions. risks weighed
costs and delays Projects are delivered against appropriate
and detrimentally using skilled project returns.
impacts our ability management resource
to provide top complimented by
class customer senior oversight
service and achieve and leadership.
our growth agenda.
As a result of
the financial
challenges
experienced by
large
contractors in
the construction
sector, there is
a reduced
appetite for large
water and waste
construction projects,
resulting in a
general lack of
commercial tension.
Regular
monitoring is performed
on the financial
health of key
contractors and
supply chain partners.
Glasgow, Beddington
and Dunbar ERFs
all began processing
waste during the
year while the
commissioning commenced
on Mayflower water
treatment works.
The construction
of Avonmouth ERF
is progressing
well with completion
on track for 2020/21.
Resulting from
remediation work
at the Glasgow
ERF, Viridor is
contractually entitled
to recover the
gross contractual
receivable
of GBP72 million
from the original
principal contractor
Interserve
Construction Limited.
We will take all
necessary legal
and
procedural steps
to achieve this.
Liquidated damages
associated with
Beddington and
Dunbar ERFs have
been fully offset
against milestone
payments.
The redevelopment
of Heathrow Airport
continues to be
closely
monitored, with
the Lakeside ERF
joint venture located
on the
site of the proposed
third runway. Lakeside
ERF would have
to be removed in
the event this
redevelopment occurs
and we would expect
to be fully compensated
for the rebuild
of the facility
on a like-for-like
basis. An alternative
site has been
identified
with detailed site
studies and
environmental
assessments currently
being undertaken.
-------------------- ------------------------- ------------------------ ------ ---------- -----------------------
Failure of Long-term priorities The Group operates Amber We seek to
information affected: a mature and embedded minimise the
technology 1 governance risk of informational
systems, management Failure of our framework over technology
and protection information technology the 'business as failure and
including cyber systems, due to usual' IT environment cyber security
risks inadequate internal and threats to
processes or external major project the lowest
cyber threats could implementations level without
result in the business aligned to ISO detrimentally
being unable to 27001 impacting
operate effectively standards. Disaster on business
and the recovery plans operations.
corruption or loss are in place for
of data. This would corporate
have a detrimental and operational
impact on our customers technology and
and result in financial these are regularly
penalties and reviewed
reputational and tested.
damage for the
Group. Cyber threats continue
to increase in
volume and
sophistication.
These risks are
mitigated by a
strong information
security framework
aligned to guidance
issued by the National
Cyber Security
Centre (NCSC).
A gap analysis
of South West Water's
drinking water
operational technology
cyber security
controls has been
undertaken against
the requirements
of the Network
and Information
Systems (NIS)
directive utilising
external expertise.
The outcomes of
this
exercise have informed
future actions
where opportunities
for
further improvement
exist.
-------------------- ------------------------- ------------------------ ------ ---------- -----------------------
DIRECTORS' RESPONSIBILITIES STATEMENTS
(This statement is extracted from the governance section of the
Annual Report 2019 and page numbers referred to are those in the
Annual Report 2019.)
The Directors are responsible for preparing the annual report,
the Directors' remuneration report and the financial statements in
accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the
Group and Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group for the year.
In preparing these financial statements the Directors are
required to:
-- select suitable accounting policies and then apply them consistently
-- make judgements and accounting estimates which are reasonable and prudent
-- state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions, and disclose with reasonable accuracy at any time the
financial position of the Group and the Company; and enable them to
ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the
International Accounting Standards (IAS) Regulation. They are also
responsible for safeguarding the assets of the Group and the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Each of the Directors, whose names and functions are listed on
pages 76 and 77, confirms that, to the best of his or her
knowledge:
i) The financialstatements, which have been prepared in accordance with International
Financial Reporting Standars (IFRSs) as adopted by the European
Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group and of
the Company.
ii) The strategic report (pages 1to71) and the Directors' report
include a fair review of the
development and performance of the business during the year and
the position of the
Company and the Group at the year end, together witha
description of the principal risks
and uncertaintis they face.
iii) Following receipt of advice from the Audit Committee, that
the annual report, taken as a whole, is fair, balanced and
understandable, and provides the information necessary
for the share holders to assess the Group's performance,
business model and strategy.
The Directors are responsible for the maintenance and integrity
of the Company's website www.pennon-group.co.uk.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
RELATED PARTY TRANSACTIONS
(The following is Note 44 to the Financial Statements set out in
the Annual Report 2019.)
During the year Group companies entered into the following
transactions with joint ventures and associate related parties who
are not members of the Group:
2019 2018
GBPm GBPm
============================================ ===== =====
Sales of goods and services
-------------------------------------------- ----- -----
Viridor Laing (Greater Manchester) Limited - 38.4
-------------------------------------------- ----- -----
INEOS Runcorn (TPS) Limited 16.6 15.9
============================================ ===== =====
Purchase of goods and services
-------------------------------------------- ----- -----
Lakeside Energy from Waste Limited 12.4 12.0
-------------------------------------------- ----- -----
INEOS Runcorn (TPS) Limited 7.1 6.0
-------------------------------------------- ----- -----
Dividends received
-------------------------------------------- ----- -----
Lakeside Energy from Waste Holdings Limited 5.5 6.5
============================================ ===== =====
Year-end balances
2019 2018
GBPm GBPm
===================================================== ===== =====
Receivables due from related parties
----------------------------------------------------- ----- -----
Lakeside Energy from Waste Limited (loan balance) 7.7 8.2
----------------------------------------------------- ----- -----
INEOS Runcorn (TPS) Limited (loan balance) 65.0 32.5
===================================================== ===== =====
72.7 40.7
===================================================== ===== =====
Lakeside Energy from Waste Limited (trading balance) 1.0 1.0
----------------------------------------------------- ----- -----
INEOS Runcorn (TPS) Limited (trading balance) 1.8 2.0
===================================================== ===== =====
2.8 3.0
===================================================== ===== =====
Payables due to related parties
----------------------------------------------------- ----- -----
Lakeside Energy for Waste Limited (trading balance) 0.9 1.2
----------------------------------------------------- ----- -----
INEOS Runcorn (TPS) Limited (trading balance) 3.2 2.5
===================================================== ===== =====
4.1 3.7
===================================================== ===== =====
The GBP72.7 million (2018 GBP40.7 million) receivable relates to
loans to related parties included within receivables and due for
repayment in instalments between 2018 and 2033. Interest is charged
at an average of 13.0% (2018 13.0%).
Company
The following transactions with subsidiary undertakings occurred
in the year:
2019 2018
GBPm GBPm
================================================== ===== =====
Sales of goods and services (management fees) 19.7 12.2
================================================== ===== =====
Purchase of goods and services (support services) 2.0 1.5
================================================== ===== =====
Interest receivable 43.3 39.9
================================================== ===== =====
Interest payable 0.1 0.1
================================================== ===== =====
Dividends received 196.7 202.3
================================================== ===== =====
Sales of goods and services to subsidiary undertakings are at
cost. Purchases of goods and services from subsidiary undertakings
are under normal commercial terms and conditions which would also
be available to unrelated third parties.
Year-end balances
2019 2018
GBPm GBPm
============================================= ======= =====
Receivables due from subsidiary undertakings
--------------------------------------------- ------- -----
Loans 1,044.6 870.8
============================================= ======= =====
Trading balances 19.9 16.2
============================================= ======= =====
Interest on GBP499.8 million (2018 GBP425.3 million) of the
loans has been charged at a fixed rate of 5.0%, and on GBP18.1
million (2018 GBP20.3 million) at a fixed rate of 6.0%. Interest on
GBP499.8 million of the loans is charged at 12 month LIBOR +2.2%
(2018 GBP411.8 million charged at 12 month LIBOR + 1.0% and GBP13.4
million charged at 12 month LIBOR + 3.0%). These loans are due for
repayment in instalments over the period 2020 to 2056. Interest on
GBP13.5 million of the loans has been charged at a fixed rate of
5.0%. Interest on GBP13.4 million of the loans is charged at 12
month LIBOR + 3.0%. These loans are due for repayment in
instalments over a five-year period following receipt of a request
to repay.
No material expected credit loss provision has been recognised
in respect of loans to subsidiaries (2018 GBPnil).
2019 2018
GBPm GBPm
======================================== ===== =====
Payables due to subsidiary undertakings
---------------------------------------- ----- -----
Loans 283.9 283.6
======================================== ===== =====
Trading balances 14.3 14.4
======================================== ===== =====
The loans from subsidiary undertakings are unsecured and
interest-free without any terms for repayment.
25 June 2019
www.pennon-group.co.uk
End transmission
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of this information may apply. For further information, please
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END
MSCVELBLKQFEBBE
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June 25, 2019 05:25 ET (09:25 GMT)
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