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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Pennon Group Plc | LSE:PNN | London | Ordinary Share | GB00BNNTLN49 | ORD 61 1/20P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-8.50 | -1.30% | 647.50 | 646.50 | 647.50 | 670.50 | 645.00 | 670.50 | 855,152 | 16:35:27 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Sewerage Systems | 797.2M | 100k | 0.0004 | 16,162.50 | 1.69B |
TIDMPNN
RNS Number : 3214Q
Pennon Group PLC
05 June 2018
PENNON GROUP PLC
PUBLICATION OF ANNUAL REPORT AND ACCOUNTS 2018
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 2018 -- Notice of Annual General Meeting -- Form of Proxy
The Annual Report and Accounts 2018 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 2018 Annual General Meeting at Sandy Park Conference Centre, Sandy Park Way, Exeter, Devon, EX2 7NN on Thursday 5 July 2018 at 11.00am.
The following information in the Appendix to this announcement is as set out in the Company's Annual Report and Accounts 2018. It should be read in conjunction with the Company's Full Year Results announcement released on 25 May 2018 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.
Helen Barrett-Hague
Group General Counsel & Company Secretary
5 June 2018
APPIX
PRINCIPAL RISKS AND UNCERTAINTIES
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 ----------------------------- ------------------- ------- ----------- ------- ----------- The low, medium and Current assessment high risk level is of direction of travel our estimate of the of risk level. net risk to the Group after mitigation. It is important to note that risk is difficult to estimate with accuracy and therefore may be more or less than indicated.
Law, regulation and finance
Principal risks Strategic impact Mitigation Net Direction Risk appetite risk -------------------- ------------------------ ------------------------ ------ ---------- ------------------------ Changes in Long-term priorities (i) The Red We recognise Government affected: renationalisation that policy 1,2 of the water industry Government Changes in Government continues to be policy policy a central policy evolves and may fundamentally of the Opposition seek to impact our and remains a minimising ability to deliver possibility potential the Group's in the event of risk and maximising strategic priorities, a change of Government. opportunities impacting We recognise, however through shareholder value. the existing Government regular communication is supportive of and robust the existing regulatory scenario model. We engage planning. regularly with all political parties as well as customers and stakeholders demonstrating the value they receive based on our operational performance and continued investment in the network infrastructure. (ii) The Government Green is considering legislating on the use of specific single-use plastics to reduce the environmental impact and improve recycling rates. Viridor is well positioned to leverage this opportunity in the event that legislation is introduced and continue to invest in its sorting and reprocessing technology. Viridor is also a founding signatory to the UK Plastic Pact. -------------------- ------------------------ ------------------------ ------ ---------- ------------------------ Regulatory Long-term priorities During the year Amber We accept reform affected: Ofwat finalised that regulatory 1,2 their price review reform occurs Reform of the methodology for and seek to regulatory 2020-25. There leverage the framework may result has also been a opportunities in changes to the focus by the Government this Group's and Ofwat on the creates while priorities and governance of companies mitigating the service we in the water sector. the associated provide to our We are well positioned risk. customers. It may for the new regulatory have a significant period with a impact on our dedicated, performance which experienced PR19 can impact project team, supported shareholder value. by external consultants, which is monitored through a robust governance framework. We are broadly supportive of Ofwat's proposed reforms and engage fully with the regulator during each consultation. South West Water already carries out its business in line with the improvements set out. -------------------- ------------------------ ------------------------ ------ ---------- ------------------------
Compliance Long-term priorities Our robust regulatory Green The Group with laws and affected: framework ensures has the regulations 1,2 compliance with highest standards The Group is required Ofwat, Environment of to comply Agency and other compliance with an ever increasing relevant requirements. and has range of Employees, contractors no appetite regulated and and partners receive for legal non-regulated a rolling programme or regulatory laws and regulation of training and breaches. across our water guidance. Additionally, and waste businesses. during the year We aim to Non-compliance we have launched minimise the with one or a number our 'Speak Up' impact of of these may result whistleblowing regulatory in financial penalties, policy. reform by a negative impact We have been proactive targeting on our ability in reviewing our changes which to operate effectively policies and processes are NPV neutral and reputational in preparation over the longer damage which could for the introduction term to protect affect of the General customer affordability shareholder value. Data Protection and shareholder Regulation and value. have appointed a dedicated Data Protection Officer. -------------------- ------------------------ ------------------------ ------ ---------- ------------------------ Maintaining Long-term priorities The Group have Green We operate sufficient affected: mature treasury, a prudent finance and 1,3 funding and cash approach to funding, within Failure to maintain flow policies in our financing our debt covenants, funding requirements place. We regularly strategy in to meet ongoing could lead to consider how political, order to ensure commitments additional economic and regulatory our funding finance costs and risks may impact requirements put our growth on the Group's are fully agenda at risk. financing commitments met. Breach of covenants and cashflow. could result in the requirement The Group operates to repay certain with strong liquidity debt. position and diversified funding mix. South West Water is funded to March 2020 while the Viridor committed energy recovery facility (ERF) programme is also fully funded. The successful refinancing of the GBP300 million hybrid in September 2017has also strengthened our investment capacity and covenant position. -------------------- ------------------------ ------------------------ ------ ---------- ------------------------ Non-compliance Long-term priorities The effective Amber The Group or occurrence affected: management has no of avoidable 1,2,3 of health and safety appetite for health and A breach of health related risks continue health and safety incident and safety law to be a priority safety related could lead to financial for the Board and incidents penalties, significant Pennon Executive. and has the legal costs and highest standards damage to the Group's The HomeSafe programme of compliance reputation. was within the successfully piloted Group and in Viridor's materials third parties. recycling facility site in Plymouth, nationwide rollout commenced in April 2018. This is supported by a programme of capital investment for existing assets. The Group has also invested in people, processes and systems within its HSSA function during the year which will assist in driving consistency and monitoring compliance with the Group's health and safety standards. -------------------- ------------------------ ------------------------ ------ ---------- ------------------------
Market and economic conditions
Principal risks Strategic impact Mitigation Net Direction Risk appetite risk ----------------- ------------------------- -------------------------- ------ ---------- ------------------------ Non-recovery Long-term priorities Mature and embedded Amber While seeking of customer affected: debt collection to minimise debt 1,2 strategies are non-recoverable Potential impact in place for the debt, on revenue recovery of South we recognise as a result of West Water domestic customer affordability reduced customer customer debt. challenges debt collection, This is supplemented and the inability particularly with by affordability to disconnect regards to vulnerable tariffs such as domestic customers, customers Restart, WaterCare some risk and affordability. and Freshstart of uncollectable
to help reduce debt remains. our bad debt exposure for those customers who are struggling to pay. Within the non-household market there has been renewed 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 We work closely Red We seek to risks arising affected: in partnership take from a downturn 3 with our local well-judged in the global Challenges such authority customers and and UK economy as continued local in the delivery informed decisions and commodity authority, reduced of our services, while ensuring and power prices global demand for while Viridor remains plans are our recycled commodities well positioned in place to and decreases in across the waste mitigate the power prices have hierarchy, with potential a direct impact long term contracts impact of on the revenues supporting the macroeconomic generated by our ERF segment. risks. recycling business. We have secured new markets for our paper and plastic recyclate in response to changes in quality requirements announced by China. We continue to invest in our assets and are working with our supply chain to improve the quality of paper recycling, we are also implementing self-help measures to drive operational efficiencies. Energy risk management at a Group level acts as a natural hedge between South West Water and Viridor, offsetting any drop in power prices. Existing investments that qualified for Renewable Obligation Certificates are protected by the 'grandfathering' principle. ----------------- ------------------------- -------------------------- ------ ---------- ------------------------
Operating performance
Principal risks Strategic impact Mitigation Net Direction Risk appetite risk --------------------- ------------------------- ------------------------- ------ ---------- --------------------- Poor operating Long-term priorities Contingency plans, Green We seek to performance affected: emergency resources reduce due to extreme 1 and investment both the likelihood weather or Failure of our through a planned and impact climate change assets to cope capital through long-term with extreme weather programme assist planning to conditions may in mitigating this ensure sufficient lead to an inability risk. Extreme weather measures are to meet our customers' conditions, such in place. needs, environmental as those damage, additional experienced in costs being incurred March 2018, are and reputational expected to test damage. the resilience of South West Water's assets, while the expectations of both customers and Ofwat with regards to operational performance during such an event have increased. We also prepare drought plans every three years which are reviewed annually for a range of climate change and demand scenarios. The recently published Water Resources Management Plan has not identified an overall significant increase in the risk to water resources, however ongoing climate change will continue to challenge this. Viridor has in place a regional adverse weather management strategy, aimed at reducing disruption to site operations and transport logistics. --------------------- ------------------------- ------------------------- ------ ---------- --------------------- Poor customer Long-term priorities Targeted improvements Amber We continually service/ increased affected: have been made seek competition 1, 3 to continually to increase leading to Poor customer service improve customer customer
loss of customer has a direct impact service satisfaction base on South West Water's within South West and delivery of the Water has contributed maximise customer PR14 business plan to the achievement retention and the ability of the ServiceMark while taking of both Viridor accreditation during well-informed and Pennon Water the year and we risk to Services to retain continue to secure develop further and grow market high service incentive markets. share. mechanism (SIM) scores. There has been a significant focus within Viridor on our customer experience during the year and the reorganisation of the marketing and sales, service delivery and customer service functions has improved this further, alongside the launch of an annual customer survey. Both Viridor and Pennon Water Services have a large and diverse customer base and are not materially exposed to the loss of any one customer. --------------------- ------------------------- ------------------------- ------ ---------- --------------------- Business interruption Long-term priorities A continued reduction Amber We operate or significant affected: in the number of a low operational 1,3 pollution events tolerance failures/ Operational failure in wastewater has for significant incidents in our water been identified operational business could as a priority and failure or mean that we are a programme incidents not able to supply of targeted action and seek to clean water to is currently underway mitigate these our customers or to address these risks provide safe wastewater risks. where possible. services. This has a direct impact Both South West on the successful Water and Viridor delivery of the maintain detailed PR14 business plan. contingency plans and incident Additionally, business management procedures interruption caused which are regularly by defects, outage reviewed. Equipment or fire could impact failure is managed the availability through a programme and optimisation of of our ERFs and sophisticated planned recycling facilities. and preventive maintenance regime and effective management of stores. The focus on the effective optimisation of ERFs in particular has resulted in availability exceeding the Group's original forecasts. The Group also maintains comprehensive insurance across its asset base in the event of an incident occurring. --------------------- ------------------------- ------------------------- ------ ---------- --------------------- Difficulty Long-term priorities The people strategy, Amber While turnover in recruitment, affected: underpinned by does occur, retention and 1,2,3 six threads, has we ensure development Failure to have been rolled out the appropriate of appropriate a workforce of across the skills and skills, which skilled and motivated Group and is designed experience are required individuals to ensure we have is in place to deliver will detrimentally the workforce necessary with succession the Group's impact all of our to deliver our plans to provide strategy strategic priorities. strategic priorities. resilience We need the right This has included in mitigating people in the right our refreshed Vision, the impact places to share increased workforce of this. best practice, engagement, continued deliver synergies commitment to training and move the Group and development forward in the and the introduction new shared services of a Pennon Code structure. of Conduct. Succession plans remain in place for senior and other key positions. Challenges remain, however, in sourcing skills and expertise externally for specific senior and operational roles with the implications of Brexit continuing to add additional uncertainty. --------------------- ------------------------- ------------------------- ------ ---------- ---------------------
Business systems and capital investment
Principal risks Strategic impact Mitigation Net Direction Risk appetite risk -------------------- ------------------------- ------------------------ ------ ---------- ----------------------- Failure or Long-term priorities All capital projects Red Pennon's investment increased cost affected: are subject to activities of capital 1,3 a robust business are taken projects/ exposure Inability to case process and on an informed to contract successfully skilled project basis with failures deliver our capital management resource risks weighed programme may result and senior oversight against appropriate in increased costs is utilised to returns. and delays and provide additional detrimentally impacts rigour in the delivery our ability to of major projects. provide top class customer service Robust due diligence and achieve our is undertaken on growth agenda. key suppliers, technologies and acquisitions. Back to back agreements and supplier guarantees also provide additional protection. Commissioning at Beddington, Dunbar and Glasgow Recycling and Renewable Energy Facility (GRREC) continued through the year, with financial contributions from Dunbar ERF protected by contractual mechanisms. Expenditure at GRREC is above initial expectations. Viridor is contractually entitled to recover incremental costs under certain circumstances. Avonmouth ERF and Mayflower water treatment works remain on schedule and on budget. -------------------- ------------------------- ------------------------ ------ ---------- ----------------------- Failure of Long-term priorities The Group operates Amber We seek to information affected: a mature and embedded minimise the technology 1 governance framework risk of informational systems, management Failure of our over the business technology and protection, information technology as usual IT environment failure and including cyber systems, due to and cyber security risks inadequate internal major project threats to processes or external implementations. the lowest cyber threats could This is aligned level without result in the business to ISO27001 standards detrimentally being unable to and regular internal impacting operate effectively and external on business and the assessments operations corruption or loss are of data. This would undertaken to maintain have a detrimental this accreditation. impact on our customers Disaster recovery and result in financial plans are in place penalties and for corporate and reputational operational technology damage for the and Group. these are regularly reviewed and tested. Cyber risks are mitigated by a strong information security framework. This is aligned with guidance issued by the National Cyber Security Centre (NCSC). Awareness campaigns have been undertaken during the year aligned with preparations for GDPR. A variety of internal and external assessments are also undertaken, including annual penetration testing, to test the robustness of our controls. -------------------- ------------------------- ------------------------ ------ ---------- -----------------------
DIRECTORS' RESPONSIBILITIES STATEMENTS
(This statement is extracted from the governance section of the Annual Report 2018 and page numbers referred to are those in the Annual Report 2018.)
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 66 and 67, confirms that, to the best of his or her knowledge:
i) The financial statements, which have been prepared in accordance with International Financial Reporting Standards (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 1 to 61) and the Directors' report(pages 102 to 105) 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 with a description of the principal risks and uncertainties 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 shareholders 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 45 to the Financial Statements set out in the Annual Report 2018.)
During the year Group companies entered into the following transactions with joint ventures and associate related parties who are not members of the Group:
2018 2017 GBPm GBPm ============================================ ===== ===== Sales of goods and services -------------------------------------------- ----- ----- Viridor Laing (Greater Manchester) Limited 38.4 80.1 -------------------------------------------- ----- ----- INEOS Runcorn (TPS) Limited 15.9 15.8 ============================================ ===== ===== Purchase of goods and services -------------------------------------------- ----- ----- Lakeside Energy from Waste Limited 12.0 10.4 -------------------------------------------- ----- ----- INEOS Runcorn (TPS) Limited 6.0 6.6 -------------------------------------------- ----- ----- Dividends received -------------------------------------------- ----- ----- Lakeside Energy from Waste Holdings Limited 6.5 4.5 ============================================ ===== =====
Year-end balances
2018 2017 GBPm GBPm ============================================================= ===== ===== Receivables due from related parties ------------------------------------------------------------- ----- ----- Viridor Laing (Greater Manchester) Limited (loan balance) - 40.2 ------------------------------------------------------------- ----- ----- Lakeside Energy from Waste Limited (loan balance) 8.2 8.6 ------------------------------------------------------------- ----- ----- INEOS Runcorn (TPS) Limited (loan balance) 32.5 37.8 ============================================================= ===== ===== 40.7 86.6 ============================================================= ===== ===== Viridor Laing (Greater Manchester) Limited (trading balance) - 15.3 ------------------------------------------------------------- ----- ----- Lakeside Energy from Waste Limited (trading balance) 1.0 1.0 ------------------------------------------------------------- ----- ----- INEOS Runcorn (TPS) Limited (trading balance) 2.0 1.3 ============================================================= ===== ===== 3.0 17.6 ============================================================= ===== ===== Payables due to related parties ------------------------------------------------------------- ----- ----- Lakeside Energy for Waste Limited (trading balance) 1.2 2.7 ------------------------------------------------------------- ----- ----- INEOS Runcorn (TPS) Limited (trading balance) 2.5 1.5 ============================================================= ===== ===== 3.7 4.2 ============================================================= ===== =====
The GBP40.8 million (2017 GBP86.6 million) receivable relates to loans to related parties included within receivables and due for repayment in instalments between 2017 and 2033. Interest is charged at an average of 13.0% (2017 13.0%).
Company
The following transactions with subsidiary undertakings occurred in the year:
2018 2017 GBPm GBPm ================================================== ===== ===== Sales of goods and services (management fees) 12.2 11.2 ================================================== ===== ===== Purchase of goods and services (support services) 1.5 0.5 ================================================== ===== ===== Interest receivable 39.9 39.6 ================================================== ===== ===== Interest payable 0.1 0.1 ================================================== ===== ===== Dividends received 202.3 247.0 ================================================== ===== =====
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
2018 2017 GBPm GBPm ============================================= ===== ======= Receivables due from subsidiary undertakings --------------------------------------------- ----- ------- Loans 870.8 1,124.3 ============================================= ===== ======= Trading balances 16.2 13.4 ============================================= ===== =======
Interest on GBP425.3 million of the loans has been charged at a fixed rate of 5.0%, on GBP20.3 million at a fixed rate of 6.0% (2017 GBP70.0 million at 4.5%, GBP428.0 million nil at 5.0% and GBP28.0 million at 6.0%). Interest on GBP411.8 million of the loans is charged at 12 month LIBOR +1.0% (2017 GBP497.8 million) and on GBP13.4 million at 12 month LIBOR + 3.0% (2017 nil). These loans are due for repayment in instalments over the period 2018 to 2056.
Loans of GBP100.0 million at 1 month LIBOR + 1.0% and GBP0.5 million at base rate +1.0% were repaid during the year.
During the year there were no provisions (2017 nil) in respect of loans to subsidiaries not expected to be repaid.
2018 2017 GBPm GBPm ======================================== ===== ===== Payables due to subsidiary undertakings ---------------------------------------- ----- ----- Loans 283.6 322.0 ======================================== ===== ===== Trading balances 14.4 9.5 ======================================== ===== =====
The loans from subsidiary undertakings are unsecured and interest-free without any terms for repayment.
5 June 2018
www.pennon-group.co.uk
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END
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