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REG - Pennon Group PLC - Pennon Group Half Year Results 2015/16 <Origin Href="QuoteRef">PNN.L</Origin> - Part 2

- Part 2: For the preceding part double click  ID:nRSa1477Ha 

Capital expenditure focused on regulatory expenditure and ERF build out 
 
Group capital investment was £165.9m in H1 2015/16 compared to £192.0m in H1 2014/15, reflecting the ongoing investment
needs of the Group. 
 
South West Water and Bournemouth Water expenditure was £58.0m compared to £64.6m for South West Water in H1 2014/15. South
West Water's spending has focused on preparations for the innovative new water treatment works at North Plymouth, schemes
to improve water quality and investment in digital infrastructure. Bournemouth Water has focused on continued pressure
management and commissioning two ultra violet treatment plants at Beaulieu and Knapp Mill. Both South West Water and
Bournemouth Water have made a good start to delivering their K6 capital programme. 
 
Viridor capital investment was £107.9m compared to £127.3m in H1 2014/15, predominantly driven by ERF expenditure. Before
capitalised interest, cumulative ERF expenditure to date is £934m, leaving £345m left to invest on the ERF programme. So
far, £20m of efficiencies have been realised across Viridor's ERF capital investment programme. 
 
The Group is making significant ongoing capital investment to support future growth. 
 
Stable net debt position 
 
Group net debt has increased by £148m to £2,345m, from £2,197m at 31 March 2015. The increase largely reflects the net debt
assumed in the acquisition of Bournemouth Water. Group net gearing(1) has marginally increased from 61.9% at 31 March 2015
to 62.6%. 
 
South West Water's net debt to RCV marginally increased from 62.1% at 31 March 2015 to 62.4%. 
 
Debt includes £868m (before capitalised interest) for ERFs operational or under construction (Runcorn II, Oxford, Exeter,
Cardiff, Glasgow, Dunbar and South London). 
 
Pensions 
 
The Group's defined benefit pension schemes had a deficit (net of deferred tax) under IAS 19 at  30 September 2015 of £54m
(£68m gross), an increase of £6m on the 31 March 2015 net balance. 
 
Excluding the acquisition of Bournemouth Water, the aggregate schemes' asset value decreased from £692m at 31 March 2015 to
£667m at 30 September 2015. Over the same period, the aggregate schemes' liability value decreased from £752m at 31 March
2015 to £737m, resulting in an increase in the gross deficit of £10m (before Bournemouth Water). 
 
At 30 September the Bournemouth Water pension scheme had assets of £83m and liabilities of £81m, resulting in a gross
surplus of £2m. 
 
Together the total Group's schemes' asset value increased from £692m at 31 March 2015 to £750m at 30 September 2015. Over
the same period, the aggregate schemes' liability value increased from £752m at 31 March 2015 to £818m, resulting in an
increase in the gross deficit of £8m (£6m net of deferred tax). 
 
(1)Net borrowings/(equity + net borrowings) 
 
Taxation 
 
The mainstream corporation tax charge for the half year (before prior year) was £18.5m (H1 2014/15 £19.8m) giving a current
year current tax rate of 17.3% (H1 2014/15 19.8%). 
 
The reduced charge compared to last year reflects increased capital allowances due to the full year contribution of new
operational ERFs and the 1% reduction in the corporation tax rate. 
 
The deferred tax for the half year was a charge of £18.1m (H1 2014/15 £14.2m). In addition, H1 2014/15 included an
exceptional charge of £3.0m reflecting the impact of tax on exceptional items. 
 
PRINCIPAL RISKS AND UNCERTAINTIES 
 
In accordance with DTR4.2.3 and 4.2.7 of the Disclosure & Transparency Rules the principal risks and uncertainties for the
remaining six months of the financial year for the Group which could have a material adverse affect on the Group's
business, financial conditions, results, operations and reputation are: 
 
·     Changes in law, regulation or decisions by governmental bodies or regulators 
 
·     Non-recovery of customer debt 
 
·     Poor operating performance due to extreme weather and climate change 
 
·     Poor service provided to customers 
 
·     Global economic downturn pressuring volumes and margins 
 
·     Downward pressure on UK wholesale power prices 
 
·     Business interruption or  significant operational failures/ incidents 
 
·     Non-compliance or occurrence of avoidable health and safety incidents 
 
·     Failure or increased cost of capital projects and/or Joint Ventures not achieving predicted revenues or  performance 
 
·     Exposure to contractor failure to deliver construction progress, increasing costs and potentially requiring  lengthy
legal action or other redress 
 
·     Reduced customer base, increased competition affecting prices or reduced demand for services 
 
·     Information technology systems requiring replacement, development or upgrading to meet growing  requirements of the
business 
 
·     Uncertainty arising from open tax computations where liabilities remain to be agreed 
 
CORPORATE REPORTING 
 
It has been the practice of the Company to publish Preliminary Results towards the end of May followed by its Annual Report
a few weeks later.  The Board has decided with effect from the next Annual Results Announcement in May 2016 that it will no
longer issue Preliminary Results as permitted by the Listing Rules.  Instead the Company will make a Final Results
Announcement on 25 May 2016 which will be followed shortly thereafter by the publication of the Company's 2016 Annual
Report & Accounts.  This will enable the Company to bring forward its Annual General Meeting by approximately one month to
1 July 2016 and also its dividend timetable which is set out on page 30. 
 
BOARD MATTERS 
 
As previously announced, Ken Harvey retired from the Board on 31 July 2015 after over 18 years as Chairman.  Mr Harvey was
succeeded by Sir John Parker who initially joined the Board on 1 April 2015 as an independent Non-executive Director and
Deputy Chairman. In addition Gerard Connell, Non-executive Director and Senior Independent Director, retired from the Board
on 31 July 2015 marking the end of a term of office lasting twelve years. Gill Rider, an existing Non-executive Director,
replaced Mr Connell as the Senior Independent Director. 
 
Sir John Parker 
 
Chairman 
 
27 November 2015 
 
FINANCIAL TIMETABLE FOR THE YEAR ENDING 31 MARCH 2016 
 
 28 January 2016    Ordinary shares quoted ex-dividend                  
 29 January 2016    Record date for interim dividend                    
 11 February 2016   Trading Statement                                   
 7 March 2016       Scrip election date for interim dividend            
 1 April 2016       Interim cash dividend paid and Scrip shares issued  
 25 May 2016        Full Year Results 2015/16                           
 Early June 2016    Annual Report & Accounts published                  
 1 July 2016        Annual General Meeting                              
 7 July 2016*       Ordinary shares quoted ex-dividend                  
 8 July 2016*       Record date for final dividend                      
 15 August 2016*    Scrip election date for final dividend              
 2 September 2016*  Final cash dividend paid and Scrip shares issued    
 6 September 2016   Trading Statement                                   
 25 November 2016   Half Year Results 2016/17                           
 
 
* These dates are provisional and, in the case of the final dividend, subject to obtaining 
 
shareholder approval at the 2016 Annual General Meeting. 
 
CAUTIONARY STATEMENT IN RESPECT OF FORWARD-LOOKING STATEMENTS 
 
This Report contains forward-looking statements relating to the Pennon Group's operations, performance and financial
position based on current expectations of, and assumptions and forecasts made by, Pennon Group management. Forward-looking
statements are identified in this Report by words such as "anticipate", "aim", "believe", "continue", "could", "due",
"estimate", "expect", "forecast", "goal", "intend", "may", "plan", "project", "remain", "seek", "should", "target", "will"
and related and similar expressions, as well as statements in the future tense. Various known and unknown risks,
uncertainties and other factors could lead to substantial differences between the actual future results, financial
situation development or performance of the Group and the estimates and historical results given herein including but not
limited to those set out on pages 28 and 29 of this Statement. Undue reliance should not be placed on forward-looking
statements which are made only as of the date of this Statement. No representation, assurance, guarantee or warranty is
given in relation to them including as to their accuracy, completeness, or the basis on which they are made and nothing in
this Statement should be construed as a profit forecast. 
 
The Group accepts no obligation to revise or update publicly these forward-looking statements or adjust them as a result of
new information or for future events or developments, except to the extent legally required. 
 
UNSOLICITED COMMUNICATIONS WITH SHAREHOLDERS 
 
A number of companies, including Pennon Group Plc, continue to be aware that their shareholders receive from time to time
unsolicited telephone calls or correspondence concerning investment matters which imply a connection to the company
concerned.  If shareholders have any concerns about any contact they have received then please refer to the Financial
Conduct Authority's website www.fca.org.uk/scamsmart.  Details of any share dealing facilities that the Company endorses
will be included in Company mailings. 
 
                                                                                                                                                                                                              
 PENNON GROUP PLC                                                                                                                                                                                             
                                                                                                                                         
 Consolidated income statement for the half year ended 30 September 2015                                                                 
                                                                                                                                         
                                                                                                                                         Unaudited                      
                                                                                                                                                                                                              
                                                                                                                                                       Before           Exceptional                           
                                                                                                                                                       exceptional      items half year  Total                
                                                                                                                                         Half year     items half year  ended            half year            
                                                                                                                                         ended         ended            30 September     ended                
                                                                                                                                         30 September  30 September     2014             30 September         
                                                                                                                                         2015          2014             (note 5)         2014                 
                                                                                           Note                                          £m            £m               £m               £m                   
                                                                                                                                                                                                              
 Revenue                                                                                   4                                             689.1         692.3            -                692.3                
                                                                                                                                                                                                              
 Operating costs                                                                                                                                                                                              
 Manpower costs                                                                                                                          (89.7)        (85.0)           14.9             (70.1)               
 Raw materials and consumables used                                                                                                      (55.8)        (56.3)           -                (56.3)               
 Other operating expenses                                                                                                                (311.9)       (351.0)          -                (351.0)              
                                                                                                                                                                                                              
 Earnings before interest, tax, depreciation                                                                                                                                                                  
                                                                                           and amortisation                              4             231.7            200.0            14.9          214.9    
 Depreciation and amortisation                                                                                                           (96.4)        (80.8)           -                (80.8)               
                                                                                                                                                                                                              
 Operating profit                                                                          4                                             135.3         119.2            14.9             134.1                
                                                                                                                                                                                                              
 Finance income                                                                            6                                             22.0          18.3             -                18.3                 
 Finance costs                                                                             6                                             (51.5)        (39.9)           -                (39.9)               
 Net finance costs                                                                         6                                             (29.5)        (21.6)           -                (21.6)               
 Share of post-tax profit from joint ventures                                                                                            1.0           2.4              -                2.4                  
                                                                                                                                                                                                              
 Profit before tax                                                                         4                                             106.8         100.0            14.9             114.9                
                                                                                                                                                                                                              
 Taxation                                                                                  7                                             (21.9)        (21.4)           (3.0)            (24.4)               
                                                                                                                                                                                                              
 Profit for the period                                                                                                                   84.9          78.6             11.9             90.5                 
                                                                                                                                                                                                              
 Attributable to:                                                                                                                                                                                             
 Ordinary shareholders of the parent                                                                                                     68.7          62.6             11.9             74.5                 
 Perpetual capital security holders                                                                                                      16.2          16.0             -                16.0                 
                                                                                                                                                                                                              
 Earnings per ordinary share (pence per share)                                             8                                                                                                                  
                                                                                           -Basic                                                      16.8                                            19.4     
                                                                                           - Diluted                                                   16.7                                            19.3     
                                                                                           - Before exceptional items, deferred tax and                                                                         
                                                                                           adjusted proportionately to reflect the half                                                                         
                                                                                           year impact of annual hybrid periodic                                                                                
                                                                                           return                                                      23.2                                            22.1     
                                                                                                                                                                                                                
                                                                                                                                                                                                                
                                                                                                                                                                                                              
                                                                                                                                                                                                              
                                                                                                                                         
                                                                                                                                         
 The notes on pages 37 to 52 form part of this condensed half year financial information.                                                
                                                                                           
                                                                                           
 PENNON GROUP PLC                                                                                                                                                                                      
                                                                                                                                                                                                       
 
 
 Consolidated statement of comprehensive income for the half year ended 30 September 2015  
                                                                                           
                                                                                           
                                                                                                                           Unaudited                      
                                                                                                                                                                                                 
                                                                                                                                         Before           Exceptional                            
                                                                                                                                         exceptional      items half year  Total                 
                                                                                                                           Half year     items half year  ended            half year             
                                                                                                                           ended         ended            30 September     ended                 
                                                                                                                           30 September  30 September     2014             30 September          
                                                                                                                           2015          2014             (note 5)         2014                  
                                                                                                                           £m            £m               £m               £m                    
                                                                                                                                                                                                 
 Profit for the period                                                                                                     84.9          78.6             11.9             90.5                  
                                                                                                                                                                                                 
                                                                                                                                                                                                 
 Other comprehensive loss:                                                                                                                                                                       
                                                                                                                                                                                                 
 Items that will not be reclassified to profit or loss                                                                                                                                           
                                                                                                                                                                                                 
 Remeasurement of defined benefit obligations                                                                              (8.6)         (28.1)           -                (28.1)                
                                                                                                                                                                                                 
 Income tax on items that will not be reclassified                                                                         1.8           5.6              -                5.6                   
                                                                                                                                                                                                 
 Total items that will not be reclassified to                                                                                                                                                    
                                                                                           profit or loss                                (6.8)            (22.5)           -             (22.5)    
                                                                                                                                                                                                 
 Items that may be reclassified subsequently                                                                                                                                                     
                                                                                           to profit or loss                                                                                       
                                                                                                                                                                                                 
 Share of other comprehensive income from                                                                                                                                                        
                                                                                           joint ventures                                (1.0)            (2.4)            -             (2.4)     
 Cash flow hedges                                                                                                          7.4           (5.0)            -                (5.0)                 
 Income tax on items that may be reclassified                                                                              (1.5)         (0.3)            -                (0.3)                 
                                                                                                                                                                                                 
 Total items that may be reclassified                                                                                                                                                            
                                                                                           subsequently to profit or loss                4.9              (7.7)            -             (7.7)     
                                                                                                                                                                                                 
 Other comprehensive loss for                                                                                                                                                                    
                                                                                           the period net of tax                         (1.9)            (30.2)           -             (30.2)    
                                                                                                                                                                                                 
 Total comprehensive income for  the period                                                                                83.0          48.4             11.9             60.3                  
                                                                                                                                                                                                 
 Total comprehensive income attributable to:                                                                                                                                                     
 Ordinary shareholders of the parent                                                                                       66.8          32.4             11.9             44.3                  
 Perpetual capital security holders                                                                                        16.2          16.0             -                16.0                  
                                                                                                                                                                                                 
                                                                                                                                                                                                 
                                                                                                                           
                                                                                                                           
 The notes on pages 37 to 52 form part of this condensed half year financial information.  
                                                                                           
                                                                                           
                                                                                           
 PENNON GROUP PLC                                                                          
                                                                                           
 
 
 Consolidated balance sheet at 30 September 2015                                                                               
                                                                                                                               
                                                                                                                               Unaudited                            
                                                                                                                                                                    
                                                                                                                               30 September  31 March               
                                                                                                                               2015          2015                   
                                                                                           Note                                £m            £m                     
 ASSETS                                                                                                                                                             
 Non-current assets                                                                                                                                                 
 Goodwill                                                                                  18                                  386.6         339.3                  
 Other intangible assets                                                                                                       60.6          56.4                   
 Property, plant and equipment                                                             16                                  3,850.4       3,578.8                
 Other non-current assets                                                                                                      285.7         291.1                  
 Derivative financial instruments                                                                                              51.3          60.2                   
 Investments in joint ventures                                                                                                 0.1           0.1                    
                                                                                                                               4,634.7       4,325.9                
 Current assets                                                                                                                                                     
 Inventories                                                                                                                   20.1          15.0                   
 Trade and other receivables                                                                                                   315.4         287.7                  
 Financial assets at fair value through profit                                                                                 -             0.1                    
 Derivative financial instruments                                                                                              8.0           8.1                    
 Cash and cash deposits                                                                    14                                  805.9         771.0                  
                                                                                                                               1,149.4       1,081.9                
 LIABILITIES                                                                                                                                                        
 Current liabilities                                                                                                                                                
 Borrowings                                                                                14                                  (111.4)       (113.6)                
 Financial liabilities at fair value through profit                                                                            (0.2)         -                      
 Derivative financial instruments                                                                                              (15.5)        (19.5)                 
 Trade and other payables                                                                                                      (411.9)       (277.7)                
 Current tax liabilities                                                                                                       (45.1)        (52.2)                 
 Provisions                                                                                                                    (32.9)        (32.9)                 
                                                                                                                               (617.0)       (495.9)                
 Net current assets                                                                                                            532.4         586.0                  
                                                                                                                                                                    
 Non-current liabilities                                                                                                                                            
 Borrowings                                                                                14                                  (3,039.6)     (2,854.5)              
 Other non-current liabilities                                                                                                 (109.4)       (110.1)                
 Financial liabilities at fair value through profit                                                                            (52.6)        (57.3)                 
 Derivative financial instruments                                                                                              (35.2)        (46.0)                 
 Retirement benefit obligations                                                                                                (68.4)        (59.6)                 
 Deferred tax liabilities                                                                                                      (278.4)       (235.9)                
 Provisions                                                                                                                    (182.4)       (194.4)                
                                                                                                                               (3,766.0)     (3,557.8)              
 Net assets                                                                                                                    1,401.1       1,354.1                
                                                                                                                                                                    
 Shareholders' equity                                                                                                                                               
 Share capital                                                                             10                                  167.8         162.4                  
 Share premium account                                                                     11                                  212.8         118.6                  
 Capital redemption reserve                                                                                                    144.2         144.2                  
 Retained earnings and other reserves                                                                                          581.5         634.1                  
 Total shareholders' equity                                                                                                    1,106.3       1,059.3                
 Perpetual capital securities                                                              12                                  294.8         294.8                  
 Total equity                                                                                                                  1,401.1       1,354.1                
                                                                                                                                                                    
 The notes on pages 37 to 52 form part of this condensed half year financial information.  
                                                                                           
 PENNON GROUP PLC                                                                          
                                                                                                                               
 Consolidated statement of changes in equity                                                                                   
                                                                                           Unaudited                                         
                                                                                                                               Share                     Retained   Perpetual                    
                                                                                           Share                               premium       Capital     earnings   capital                      
                                                                                           capital                             account       redemption  and other  securities  Total            
                                                                                           (note 10)                           (note 11)     reserve     reserves   (note 12)   equity           
                                                                                           £m                                  £m            £m          £m         £m          £m               
                                                                                                                                                                                                 
 At 1 April 2014                                                                           151.3                               4.9           144.2       602.4      294.8       1,197.6          
                                                                                                                                                                                                 
 Profit for the period                                                                     -                                   -             -           74.5       16.0        90.5             
 Other comprehensive loss for the period                                                   -                                   -             -           (30.2)     -           (30.2)           
 Total comprehensive income for the period                                                 -                                   -             -           44.3       16.0        60.3             
                                                                                                                                                                                                 
 Transactions with equity shareholders                                                                                                                                                           
 Dividends paid or approved                                                                -                                   -             -           (117.0)    -           (117.0)          
 Adjustment for shares issued or to be                                                                                                                                                           
                                                                                           issued under the scrip dividend                                                                         
                                                                                           alternative                         2.6           (2.6)       -          48.0        -        48.0      
 Convertible bond - equity issuance                                                        8.5                                 116.3         -           (0.5)      -           124.3            
 Distributions due to perpetual capital                                                                                                                                                          
                                                                                           security holders                    -             -           -          -           (20.3)   (20.3)    
 Current tax relief on distributions to                                                                                                                                                          
                                                                                           perpetual capital security holders  -             -           -          -           4.3      4.3       
 Adjustment in respect of share-based                                                                                                                                                            
                                                                                           payments                            -             -           -          1.9         -        1.9       
 Own shares acquired by the Pennon                                                                                                                                                               
                                                                                           Employee Share Trust in respect of                                                                      
                                                                                           share options granted               -             -           -          (0.8)       -        (0.8)     
 Proceeds from treasury shares re-issued                                                   -                                   -             -           3.3        -           3.3              
                                                                                           11.1                                113.7         -           (65.1)     (16.0)      43.7             
                                                                                                                                                                                                 
 At 30 September 2014                                                                      162.4                               118.6         144.2       581.6      294.8       1,301.6          
                                                                                           Unaudited                                         
                                                                                                                               Share                     Retained   Perpetual                    
                                                                                           Share                               premium       Capital     earnings   capital                      
                                                                                           capital                             account       redemption  and other  securities  Total            
                                                                                           (note 10)                           (note 11)     reserve     reserves   (note 12)   equity           
                                                                                           £m                                  £m            £m          £m         £m          £m               
                                                                                                                                                                                                 
 At 1 April 2015                                                                           162.4                               118.6         144.2       634.1      294.8       1,354.1          
                                                                                                                                                                                                 
 Profit for the period                                                                     -                                   -             -           68.7       16.2        84.9             
 Other comprehensive loss for the period                                                   -                                   -             -           (1.9)      -           (1.9)            
 Total comprehensive income for the period                                                 -                                   -             -           66.8       16.2        83.0             
                                                                                                                                                                                                 
 Transactions with equity shareholders                                                                                                                                                           
 Dividends paid or approved                                                                -                                   -             -           (129.5)    -           (129.5)          
 Adjustment for shares issued or to be                                                                                                                                                           
                                                                                           issued under the scrip dividend                                                                         
                                                                                           alternative                         0.3           (0.3)       -          6.3         -        6.3       
 Equity issuance                                                                           4.9                                 95.4          -           -          -           100.3            
 Distributions due to perpetual capital security                                                                                                                                                 
                                                                                           holders                             -             -           -          -           (20.3)   (20.3)    
 Current tax relief on distributions to                                                                                                                                                          
                                                                                           perpetual capital security holders  -             -           -          -           4.1      4.1       
 Adjustment in respect of share-based                                                                                                                                                            
                                                                                           payments                            -             -           -          2.4         -        2.4       
 Own shares acquired by the Pennon                                                                                                                                                               
                                                                                           Employee Share Trust in respect of                                                                      
                                                                                           share options granted               -             -           -          (1.1)       -        (1.1)     
 Proceeds from treasury shares re-issued                                                   -                                   -             -           2.5        -           2.5              
 Proceeds from shares issued under the                                                                                                                                                           
                                                                                           Sharesave Scheme                    0.2           1.4         -          -           -        1.6       
 Equity issuance related costs                                                             -                                   (2.3)         -           -          -           (2.3)            
                                                                                           5.4                                 94.2          -           (119.4)    (16.2)      (36.0)           
                                                                                                                                                                                                 
 At 30 September 2015                                                                      167.8                               212.8         144.2       581.5      294.8       1,401.1          
                                                                                                                                                                                                 
 The notes on pages 37 to 52 form part of this condensed half year financial information.                                      
 PENNON GROUP PLC                                                                                                                                                                        
                                                                                                                                                                                         
 
 
 Consolidated statement of cash flows for the half year ended 30 September 2015                                                                                                    
                                                                                                                                                                                                                             
                                                                                                                                                   Unaudited                                                               
                                                                                                                                                   Half yearended30 September2015  Half year ended30 September2014           
                                                                                           Note                                                    £m                              £m                                        
 Cash flows from operating activities                                                                                                                                                                                        
 Cash generated from operations                                                            13                                                      206.4                           140.9                                     
 Interest paid                                                                                                                                     (41.4)                          (24.0)                                    
 Tax (paid)/repaid                                                                                                                                 (9.5)                           4.3                                       
                                                                                                                                                                                                                             
 Net cash generated from operating activities                                                                                                      155.5                           121.2                                     
                                                                                                                                                                                                                             
 Cash flows from investing activities                                                                                                                                                                                        
 Interest received                                                                                                                                 4.5                             7.3                                       
 Loan repayments received from joint ventures                                                                                                      19.5                            0.1                                       
 Acquisitions, net of cash acquired                                                                                                                (90.0)                          -                                         
 Purchase of property, plant and equipment                                                                                                         (141.4)                         (138.2)                                   
 Proceeds from sale of property, plant                                                                                                                                                                                       
                                                                                           and equipment                                                                           2.7                              3.4        
                                                                                                                                                                                                                             
 Net cash used in investing activities                                                                                                             (204.7)                         (127.4)                                   
                                                                                                                                                                                                                             
 Cash flows from financing activities                                                                                                                                                                                        
 Proceeds from issuance of ordinary shares                                                                                                         99.6                            -                                         
 Proceeds from treasury shares re-issued                                                   10                                                      2.5                             3.3                                       
 Deposit of restricted 

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