REG - Pennon Group PLC - Pennon Group Half Year Results 2017/18 <Origin Href="QuoteRef">PNN.L</Origin> - Part 2
29/11/2017 07:06
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tonne has increased by 7.7% year on year to £14
as a result of higher pricing (H1 2016/17 £13).
Revenue per tonne is up 11.5% to £97 (H1 2016/17 £87), reflecting higher gate fees as well as market pricing.
Total operating costs are broadly in line with the prior year, but costs per tonne have increased as we have responded to
higher quality requirements. Shipping costs have increased £3 per tonne to £5 per tonne following the administration of one
of the larger shipping carriers last year reducing capacity.
Contracts and Collections securing waste inputs
We continue to work with our customers to identify mutually beneficial enhancements to our contracts. We have sharing
mechanisms in place in our long term local authority contracts where returns exceed contractual hurdle levels,
demonstrating a commitment to partnership and working for a common goal.
The contract to operate the recycling assets on behalf of the Greater Manchester Waste Disposal Authority (GMWDA) has
entered a 'run off' period of no less than 18 months from 1 October 2017 whilst GMWDA run a tender process for a new
contract expected to commence in 2019. Performance on this contract and the other major local authority contracts has been
in line with expectations.
Our collections business continues to provide a valuable service to our customers and secures volume for our ERF, landfill
and recycling assets. The increase in performance in H1 2017/18 reflects the rationalisation of a contract.
Joint Ventures continue to perform strongly
Viridor Laing Greater Manchester (VLGM), a joint venture between Viridor and John Laing, performed in line with
expectations during the period. As part of the contract exit, the company was sold to GMWDA at the end of September and as
a result is no longer a joint venture. On disposal of the joint venture, of the £42.7 million outstanding shareholder loans
£23.5 million was repaid resulting in a write-down of £19.2 million.
The TPSCo joint venture (between Viridor, John Laing and Inovyn) remains in place and has performed strongly during the
half year. As part of the wider contract reset, GMWDA provided finance to the joint venture to enable the repayment of
external bank debt. This change in cash flows resulted in the recognition of income in this joint venture, with an amount
deferred relating to the lower ongoing gate fee. The overall share of profit after tax, in H1 2017/18, related to the reset
is £22.5 million.
In addition the contract to operate VLGM's assets will continue for at least 18 months on a reset basis. All claims
relating to construction of VLGM's assets have been settled, resulting in a net benefit to Viridor of £3.2 million in the
period. Viridor's operating contract for TPSCo's Runcorn I ERF remains unchanged.
Following the changes in contractual arrangements it is anticipated that, future annual earnings will reflect:
· No further finance income or share of profit after tax will be recognised from Viridor Laing, as the entity is no
longer part of the Group
· A non material reduction in profit after tax and finance income from TPSCo shareholder loans, due to a re-profiling
of cash flows
· Improved earnings from the recycling asset operations contract over the 18 month run-off period
The joint venture at Lakeside ERF (a 50:50 joint venture with Grundon Waste Management) continues to perform strongly. In
its eighth year of operation it continues to outperform its original targets for both waste processing and power
generation.
Growth and compliance in new Water Retail market
We have seen a successful start to the new non-household water retail market, which opened on 1 April 2017. Our retailer,
Pennon Water Services (PWS), which is an 80:20 venture with South Staffordshire Plc has performed strongly in the new
market, delivering net customer41 and revenue growth during the period and consistently leading the market in performance
standards as measured by the market operator, MOSL.
We continue to focus on delivering customer service that reflects the needs of our business customers. Set up costs and
service investment of c.£1.5 million are reflected in the EBITDA performance for the half year, resulting from our
successful migration to a single billing system and customer service operation for those customers previously served by
South West Water and South Staffs Water. This initial investment will result in delivery of increased efficiencies in
service throughout the second half of the year.
Throughout this period, PWS has regularly achieved industry leading standards showing strong compliance with required
market performance as measured by MOSL, with average performance of c.99%. Financial penalties for poor performance will
be introduced during 2018/19, with PWS already having established a solid base to minimise potential penalties.
Board matters
Jonathan Butterworth was appointed as an Independent Non-Executive Director of South West Water Limited on 28 September
2017.
Chris Loughlin
Group Chief Executive Officer
29 November 2017
Financial Timetable
12 January 2018 Posting of interim dividend DRIP alternative
25 January 2018 Ordinary shares quoted ex-dividend
26 January 2018 Record date for interim dividend
9 March 2018 Final date for receipt of DRIP applications
26 March 2018 Trading Statement
4 April 2018 Interim dividend paid
25 May 2018 Full Year Results 2017/18
Early June 2018 Annual Report & Accounts published
5 July 2018 Annual General Meeting
5 July 2018* Ordinary shares quoted ex-dividend
6 July 2018* Record date for final dividend
20 July 2018* Posting of final dividend DRIP alternative
13 August 2018* Final date for receipt of DRIP applications
4 September 2018* Final dividend paid
24 September 2018 Trading Statement
27 November 2018 Half Year Results 2018/19
* These dates are provisional and, in the case of the final dividend subject to obtaining shareholder approval at the 2018 Annual General Meeting.
Principal Risks and Uncertainties
In accordance with DTR4.2.3 and 4.2.7 of the Disclosure & Transparency Rules the principal risks for the remaining six
months of the financial year which could have a material adverse affect on the Group are detailed below. These principal
risks have been reconsidered against a back drop of potential wider uncertainties, including the UK leaving the EU and the
evolving political views on the nationalisation of the Water industry and the associated influence on regulatory behaviour
and news-flow. Whilst a lack of clarity exists with respect to their potential direct and indirect impact, these
uncertainties continue to be pro-actively monitored and managed by the Group at both a strategic and operational level.
The Board considers the principal risks to be:
Law, Regulation and Finance
- Compliance with law (including tax laws), regulation or decisions by Government and regulators, including water
industry market reform
- Maintaining sufficient finance and funding to meet ongoing commitments
- Non-compliance or occurrence of avoidable health and safety incidents
- Tax compliance and contribution
Market and Economic Conditions
- Non-recovery of customer debt
- Macro-economic risks arising from global and UK economic downturn impacting commodity and power prices
- Increase in defined benefit pension scheme deficit
Operating Performance
- Poor operating performance due to extreme weather or climate change
- Poor customer service and/or increased competition leading to loss of customer base
- Business interruption or significant operational failures/ incidents
- Difficulty in recruitment, retention and development of appropriate skills required to deliver the Group's strategy
Business Systems and Capital Investment
- Failure or increased cost of capital projects and/or exposure to contract failures
- Failure of information technology systems, management and protection including cyber risks.
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, compliance with law, regulation or decisions by Government and regulators, including water
industry reform; maintaining sufficient finance and funding to meet ongoing commitments; non-compliance or occurrence of
avoidable Health and Safety incidents; tax compliance and contribution; increase in defined benefit pension scheme deficit;
non-recovery of customer debt; poor operating performance due to extreme weather and climate change; macro-economic risks
arising from the Global and UK economic downturn impacting commodity and power prices; poor customer service/increased
competition leading to loss of customer base; business interruption or significant operational failures/incidents;
difficulty in recruitment, retention and development of appropriate skills which are required to deliver the Group's
strategy; failure or increased cost of capital projects/exposure to contract failures; and failure of information
technology systems, management and protection, including cyber risks. These risks were described in greater detail in the
Pennon Group Annual Report published at the beginning of June 2017. Such forward looking statements should therefore be
construed in light of such risks, uncertainties and other factors 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 half year ended 30 September
2017
Unaudited
Before non-underlying itemshalf year ended 30 September 2017 Non-underlying items(note 5)half year ended 30 September 2017 Totalhalf yearended 30 September 2017 Before non-underlying items half year ended 30 September2016 Non-underlying items(note 5)half year ended 30 September 2016 Totalhalf yearended 30 September 2016
Notes £m £m £m £m £m £m
Revenue 4 723.9 3.2 727.1 685.5 - 685.5
Operating costs
Employment costs (99.1) - (99.1) (89.9) (1.1) (91.0)
Raw materials and consumables used (60.0) - (60.0) (56.1) - (56.1)
Other operating expenses (311.3) - (311.3) (294.1) (9.6) (303.7)
Earnings before interest, tax,
depreciation and amortisation 4 253.5 3.2 256.7 245.4 (10.7) 234.7
Depreciation and amortisation (91.1) - (91.1) (91.5) - (91.5)
Operating profit 4 162.4 3.2 165.6 153.9 (10.7) 143.2
Finance income 6 13.5 - 13.5 19.7 24.4 44.1
Finance costs 6 (50.1) (27.0) (77.1) (48.3) (39.4) (87.7)
Net finance costs 6 (36.6) (27.0) (63.6) (28.6) (15.0) (43.6)
Share of post-tax profit from
joint ventures 5.3 22.5 27.8 2.8 - 2.8
Profit before tax 4 131.1 (1.3) 129.8 128.1 (25.7) 102.4
Taxation 7 (21.8) 4.3 (17.5) (30.7) 17.4 (13.3)
Profit for the period 109.3 3.0 112.3 97.4 (8.3) 89.1
Attributable to:
Ordinary shareholders of the
parent 87.9 3.0 90.9 81.2 (8.3) 72.9
Non-controlling interests (0.1) - (0.1) - - -
Perpetual capital security
holders 21.5 - 21.5 16.2 - 16.2
Earnings per ordinary share(pence per share) 8
- Basic 21.8 17.7
- Diluted 21.7 17.6
The notes on pages 38 to 55 form part of this condensed half year
financial information.
PENNON GROUP PLC
Consolidated statement of comprehensive income for the half year
ended 30 September 2017
Unaudited
Before non-underlyingitems halfyear ended30 September2017 Non-underlying items(note 5)half year ended30 September 2017 Totalhalf year ended30 September 2017 Before non-underlyingitems halfyear ended30 September2016 Non-underlying items(note 5)half year ended 30 September 2016 Totalhalf year ended30 September 2016
£m £m £m £m £m £m
Profit for the period 109.3 3.0 112.3 97.4 (8.3) 89.1
Other comprehensive
Income / (loss)
Items that will not be reclassified
to profit or loss
Remeasurement of defined
benefit obligations (note 16) 15.3 - 15.3 (73.1) - (73.1)
Income tax on items that will not
be reclassified (2.5) - (2.5) 14.8 (3.6) 11.2
Total items that will not be
reclassified to profit or loss 12.8 - 12.8 (58.3) (3.6) (61.9)
Items that may be reclassified
subsequently to profit or loss
Share of other comprehensive
income from joint ventures (3.9) - (3.9) (2.8) - (2.8)
Cash flow hedges 15.0 - 15.0 (2.7) - (2.7)
Income tax on items that may be
reclassified (2.6) - (2.6) 0.5 (0.5) -
Total items that may be
reclassified subsequently to
profit or loss 8.5 - 8.5 (5.0) (0.5) (5.5)
Other comprehensive
Income / (loss) for the period net of tax 21.3 - 21.3 (63.3) (4.1) (67.4)
Total comprehensive income
for the period 130.6 3.0 133.6 34.1 (12.4) 21.7
Total comprehensive income
attributable to:
Ordinary shareholders of the
parent 109.2 3.0 112.2 17.9 (12.4) 5.5
Non-controlling interests (0.1) - (0.1) - - -
Perpetual capital security
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