pennon group
FINANCIAL PERFORMANCE
David Dupont Group Director of Finance Pennon Group PLC
The Board's strategy is to promote the success of the Group for the benefit of its shareholders through its focus on water and sewerage services, waste management, recycling and renewable energy.
The Group's 2009/10 financial results showed continued growth in revenue and profit from both main businesses.
All profit and earnings per share figures in this Business Review relate to underlying business performance unless otherwise stated.
The Directors believe that underlying measures provide a more useful comparison on business trends and performance. Underlying results exclude restructuring costs, intangibles amortisation and deferred tax. The term underlying is not a defined term under International Financial Reporting Standards (IFRS) and may not be comparable with similarly titled measures used by other companies.
The key measures used by the Directors to assess the financial performance of the Group are profit before tax and earnings per share, shown below:
Revenue
Group revenue increased by 11.6% (£110.7 million) to £1,068.9 million. South West Water's revenue rose 2.9% (£12.5 million) to £444.2 million as a result of tariff increases and new connections. Approved tariff increases, including the 1.4% K factor, amounted to £20.9 million. Customers switching from unmeasured to metered charging reduced turnover by £7.0 million but around 5,000 new customer connections contributed £0.6 million of additional turnover. Customer demand remained constant, reversing the trend of consumption decline seen in recent years. Viridor's revenue rose by 18.7% (£98.5 million) to £626.5 million of which the acquisitions of London Recycling and Intercontinental Recycling plus the Greater Manchester Waste sub-contract accounted for £89.7 million. Existing business increased by £8.8 million (including an increase in landfill tax of £6.3 million).
Operating profit
Group operating profit increased by 4.9% (£12.6 million) to £269.6 million with South West Water up 2.6% (£4.9 million) to £196.5 million and Viridor up 15.1% (£9.6 million) to £73.1 million.
Details of the financial performance of South West Water and Viridor are set out in this Business Review on the Chief executives overview; South West Water and Chief executives overview; Viridor pages.
Finance costs
Excluding pensions net interest, discount unwind on provisions and IFRIC12 contract interest receivable, net finance costs were £78.2 million (2008/09 £88.4 million) and were 3.4 times covered by Group operating profits (2008/09 2.9 times). On this measure, net interest payable equated to a rate of 4.1% on average net debt (2008/09 4.8%) and demonstrates the Group's effective management of interest rates.
South West Water's interest rate on average net debt for the year was 4.0% (2008/09 4.6%).
Over the last five years the average interest rate on Group net debt has been:
Interest rate management is analysed further on the Pennon Group; Principal risks and uncertainties page.
RECONCILIATION OF UNDERLYING AND STATUTORY RESULTS
| 2009/10 £m |
2008/09 (restated) £m |
Growth | |
| OPERATING PROFIT | |||
| Statutory operating profit | 264.3 | 250.8 | 5.4% |
| Non-underlying costs : | |||
| - Restructuring - South West Water | 5.0 | 5.0 | |
| - Intangibles amortisation - Viridor | 0.3 | 1.2 | |
| Underlying operating profit | 269.6 | 257.0 | 4.9% |
| PROFIT BEFORE TAX | |||
| Statutory profit before tax | 183.8 | 159.4 | 15.3% |
| Non-underlying costs : | |||
| - Restructuring - South West Water | 5.0 | 5.0 | |
| - Intangibles amortisation - Viridor | 0.3 | 1.2 | |
| Underlying profit before tax | 189.1 | 165.6 | 14.2% |
| EARNINGS PER SHARE - pence | |||
| Statutory earnings per share | 39.9 | 25.8 | 54.7% |
| Non-underlying costs : | |||
| - Restructuring (after tax) - South West Water | 1.2 | 0.9 | |
| - Intangibles amortisation - Viridor | 0.1 | 0.3 | |
| Deferred tax | 0.4 | 11.1 | |
| Underlying earnings per share | 41.6 | 38.1 | 9.2% |
The 2008/09 results have been restated for the application of IFRIC 12 “Service concession arrangements” as described in note 5 to the financial statements.
Profit before tax
Profit before tax was £189.1 million, an increase of 14.2% (£23.5 million).
Taxation
The UK corporation tax charge for the year was £43.0 million, including £0.6 million tax relief on restructuring costs (2008/09 £31.3 million including £1.7 million of relief on restructuring costs). Employer pension contributions to defined benefit schemes resulted in corporation tax relief of £5.2 million in 2009/10 (2008/09 £10.7 million).
The deferred tax charge for the year was £1.3 million (2008/09 £38.3 million). 2008/09 included a non-recurring charge of £24.9 million relating to the abolition of industrial buildings allowances as contained in the Finance Act 2008.
Earnings per share
Earnings per share increased by 9.2% to 41.6p.
The weighted average number of shares in issue during the year was 350.0 million (2008/09 348.1 million). Net assets per share at book value at 31 March 2010 were 189p.
Dividends and retained earnings
The statutory net profit of £139.5 million has been transferred to reserves.
The Directors recommend the payment of a final dividend of 15.60p per share for the year ended 31 March 2010. Together with the interim dividend of 6.95p per share paid on 1 April 2010, this gives a total dividend for the year of 22.55p per share, an increase of 7.4% compared with 2008/09, reflecting RPI of 4.4% at March 2010.
Proposed dividends of £79.6 million (2008/09 £73.4 million) are covered 1.8 times (2008/09 1.8 times) by net profit. Dividends are charged against retained earnings in the year in which they are paid.
Dividend policy
Notwithstanding the lower returns envisaged by Ofwat's Final Determination and the impact of current economic conditions, the Group remains well positioned to continue to deliver shareholder value and meet future challenges. As a result the Board has announced its intention to increase the dividend by 4% per annum above inflation from 2010/11 at least until 2014/15.
