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PNN Pennon Group Plc

647.50
-8.50 (-1.30%)
28 Mar 2024 - Closed
Delayed by 15 minutes
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

Pennon Group PLC Annual Report and Accounts 2018 and Notice of AGM (3214Q)

05/06/2018 9:23am

UK Regulatory


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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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