REG - Pennon Group PLC - Final Results <Origin Href="QuoteRef">PNN.L</Origin> - Part 4
15/07/2015 18:30
- Part 4: For the preceding part double click ID:nRST7139Nc
demand for
recycling in the UK remain
strong, although Viridor
remains appropriately
cautious about the future
prospects for recyclate
prices. The company is
nonetheless strongly
positioned, and remains
focused on its ITOO
programme to maximise
revenues and achieve
efficiencies to sustain
margins. A further decline
in recyclate prices and UK
power prices, would impact
profitability next year.
Viridor's EBITDA figure in
2014/15 exceeded 2013/14
as expected. The
operational ERFs along
with those that are under
construction are expected
to contribute c.£100m to
Viridor's EBITDA within
the next two years.
Viridor is also well
positioned in recycling,
contracts and collections
assets and services.
GROUP FINANCIAL POSITION
Strong liquidity position
The Group had a strong
liquidity and funding
position as at 31 March
2015 and is well placed in
current financial market
conditions. The Group has
committed funding in place
for South West Water to
March 2017 and is fully
funded for the build-out
of Viridor's committed ERF
pipeline. Cash resources
used for the Bournemouth
Water acquisition on 15
April 2015 were
replenished through an
equity placing of £100.3m.
The Group had cash
resources and committed
funding as at 31 March
2015 totalling £1,741m
comprising:
- cash balances of £771m (SWW £252m), including £196m restricted cash
- undrawn committed facilities of £970m
During the twelve months
to 31 March 2015 the Group
raised or renewed £830m of
new facilities:
- £125m 17 year facility
- £130m Schuldschein
- £80m 13 year facility
- £240m of new finance leases of which £175m are for Viridor ERFs; £65m for SWW
- £255m of new term loans and Revolving Credit Facilities (RCF) of which £225m are for SWW
Since 31 March 2015, the
following facilities have
been signed:
- new £130m EIB loan for SWW
- new £40m RCF for SWW
- renewal of £50m term loan for Plc
The £125m convertible
bonds due 2014 have all
converted during the
period leading to an
issuance of 20.9m new
Pennon shares.
The fair value of the
Group's non-current
borrowings was £74m lower
than the principal value
reflecting the benefits of
securing interest rates
below the current market
rate. The figure is lower
than 31 March 2014 due to
the fall in gilt rates.
The Group's average debt
maturity is 23 years.
Efficient long-term
financing strategy
Group net finance costs
decreased by £13m to £41m
from £54m. This reduction
includes lower interest
charges due to the full
conversion of the £125m
bond, a reduction in rates
and higher IFRIC 12
interest receivable
reflecting ongoing ERF
capital investment.
The Group funding strategy
utilises a mix of fixed,
floating and index-linked
rate borrowings. A
substantial portion of
debt is finance leasing
which provides a long
maturity profile and
secured credit margins.
Net interest cover as at
31 March 2015 was 6.0
times (2013/14: 5.2
times).
The Group has fixed the
substantial majority of
South West Water's
existing floating rate
debt to the end of K6. The
rates reflect the fall in
interest rates since 2009
taken account of by Ofwat
in setting the cost of
capital for K6. In
addition, £393.1m of South
West Water's debt is index
-linked at an overall real
rate of 1.7%.
At Pennon Group level, the
average rate achieved on
all fixed rate debt was
3.4% for 2014/15. For
South West Water this
figure was 3.1%.
Capital expenditure
focused on regulatory
expenditure and ERF build
out
Group capital investment
decreased 6.2% to £407.3m
in 2014/15 from £434.1 in
2013/14.
Cumulative ERF expenditure
(before capitalised
interest) to date is
£839m, leaving £460m left
to invest. South West
Water has delivered an
efficient capital
closedown for K5 with 6%
efficiency.
The Group is making
significant ongoing
capital investment to
support future growth.
Stable net debt position
Group net debt has
remained stable at
£2,197m, from £2,194m in
2013/14, while Group net
gearing(1) has decreased
to 61.9% from 64.7%
following conversion of
the convertible bond.
South West Water's net
debt to RCV increased to
62.1% from 55.6%.
Net debt includes £786m
(before capitalised
interest) for ERFs
operational or under
construction (Runcorn II,
Oxford, Exeter, Cardiff,
Glasgow and Dunbar).
(1)Net borrowings/(equity
+ net borrowings)
Pensions
The Group's defined
benefit pension schemes
had a deficit (net of
deferred tax) under IAS 19
at 31 March 2015 of £47.7m
(£59.6m gross), a
reduction of £19.7m on the
31 March 2014 balance.
Schemes' asset values
increased from £608.4m at
31 March 2014 to £692.7m
at 31 March 2015 due to
favourable investment
performance and cash
contributions of £22.4m.
This was partly offset by
liabilities increasing
from £687.7m to £752.3m
over the same period.
The net deficit represents
c.2% of the Group's
current market
capitalisation.
During the year, the Group
reviewed the long-term
sustainability of its main
defined pension benefit
scheme and agreed to
changes in benefits with
the scheme trustee
following extensive
employee engagement.
An exceptional credit of
£14.9m (£11.9m net of tax)
relating to past service
cost has been recognised
in operating profit
following changes in
scheme design, in
particular the
introduction of a cap on
increases in pensionable
pay.
The March 2013 actuarial
valuation was completed
during the year.
Taxation
Pennon takes seriously its
responsibility for paying
its fair share of tax.
The mainstream corporation
tax charge for the year
(before prior year and
exceptional items) was
£44.7m (2013/14 £51.8m)
giving an effective
current tax rate of 21.2%
(2013/14 25.0%) which is
close to the current UK
statutory corporation tax
rate of 21%. The reduced
charge compared to last
year reflects the increase
in pension contributions,
increased capital
allowances and the 2%
reduction in the
corporation tax rate.
Before exceptional items
deferred tax for the year
was a charge of £18.2m
(2013/14 credit £25.8m).
The 2013/14 credit
included the impact of the
reductions in the rate of
corporation tax enacted in
July 2013.
The tax credit on the
exceptional items of
£13.7m amounted to £2.7m
(2013/14 credit of £8.9m),
of which a £0.6m debit
(2013/14 nil) relates to
corporation tax.
Exceptional Charges
During the year, the Group
reviewed the long-term
sustainability of its main
defined pension benefit
scheme and agreed to
changes in benefits with
the scheme trustee
following extensive
employee engagement. An
exceptional credit of
£14.9m relating to past
service costs has been
recognised in operating
profit following changes
in scheme design, in
particular the
introduction of a cap on
increases in pensionable
pay.
The profitability of a
small number of landfill
energy sites has been
impacted by higher than
anticipated site costs and
lower than expected
volumes due to site
specific circumstances. As
a result, a net
exceptional impairment
charge of £24.3m has been
recognised to write-down
the carrying value of
landfill energy property,
plant and equipment.
Whilst the Viridor
contracts and recycling
businesses contribute
positively towards Viridor
profits, a small number of
contracts have been
assessed as
underperforming. On that
basis, a provision of
£11.0m has been
established.
Landfill environmental
provisioning has been
reassessed resulting in a
£6.7m reduction reflecting
lower expected
restorations costs, partly
offset by a reduction in
the discount rate.
The net exceptional items
have no immediate cash
impact.
An associated deferred tax
credit of £3.3m and a
£0.6m debit relating to
corporation tax have been
recognised on the above
items. The £0.6m debit
relating to corporation
tax is due to be paid
during 2015/16.
BOARD MATTERS
The Board announced in
September the planned
retirement of David
Dupont, Group Director of
Finance, as an Executive
Director of Pennon Group,
on 31 January 2015. Susan
Davy, previously Finance
and Regulatory Director of
South West Water, took
over as Group Director of
Finance and as an
Executive Director of
Pennon Group effective on
1 February 2015.
As announced last year,
Gerard Connell, Non
-executive Director of
Pennon Group, will stand
down from the Pennon Board
at the Annual General
Meeting, marking the end
of a term of office
lasting twelve years. We
would like to thank Gerard
for his contribution to
the Group's success over
the years.
Neil Cooper joined the
Board on 1 September 2014
as a Non-executive
Director and as Chairman
of the Audit Committee.
Neil is Group Finance
Director of William Hill
Plc and previously was
Group Finance Director of
Bovis Homes Group Plc.
Ken Harvey, Chairman
said:"On 20 March this
year, I announced my
decision to retire from
the Pennon Board on 31
July 2015 following the
Company's Annual General
Meeting. It has been my
privilege to serve as
Chairman since March 1997.
I will be succeeded by Sir
John Parker who, with
effect from 1 April 2015,
joined the Board as an
independent Non-executive
Director and as Deputy
Chairman.
"Sir John is the chairman
of Anglo American Plc,
Deputy Chairman of DP
World and a Non-executive
Director of the Airbus
Group and Carnival
Corporation & Plc. He has
recently stepped down
after three years as the
President of the Royal
Academy of Engineering. He
has chaired five FTSE 100
companies and has served
as CEO, Chairman or Non
-executive Director in
more than twenty major UK
and overseas companies."
Ken HarveyChairman20 May
2015
FINANCIAL TIMETABLE FOR
THE YEAR ENDED 31 MARCH
2015 AND UPCOMING EVENTS
20 May 2015 2014/15 Preliminary Results (unaudited)
Early July 2015 Annual Report & Accounts published
30 July 2015 Annual General Meeting
6 August 2015 * Ordinary shares quoted ex-dividend
7 August 2015 * Record date for final cash dividend
14 September 2015 * Scrip election date for final dividend
End September 2015 Pre-Close Trading Statement
2 October 2015 * Final cash dividend paid and Scrip shares issued
20 October 2015 Analyst & Investor Day
27 November 2015 Half Year Results 2015/16
25 May 2016 Preliminary Results 2015/16
* These dates are
provisional and, in the
case of the final dividend
subject to obtaining
shareholder approval at
the 2015 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. Forward
-looking statements are
identified in this Report
by words such as
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