Pennon Group Plc · LSE:PNN
Pennon — H1 2011/12 Earnings Presentation
50 slides from Pennon's earnings presentation, Nov 24, 2011
Slide 1: Half Year Results 2011/12
Half Year Results 2011/12 24 November 2011
Slide 2: Disclaimers
Pennon Group Plc (“Pennon Group”) Disclaimers For the purposes of the following disclaimers, references to this "document" shall mean this presentation pack and shall be deemed to include references to the related speeches made by or to be made by the presenters, any questions and answers in relatio
Slide 3: Financial Highlights
Pennon Group Plc Financial Highlights • Profit before tax up 11.6% to £107.4m − South West Water up 8.5% to £76.2m − Viridor up 7.0% to £30.6m • Underlying earnings per share(1) up 11.9% to 23.5p • Dividend − interim dividend per share up 9.6% to 8.22p • Group capital investment up 41% to £99.9m • S
Slide 4: Operational and Business Highlights: South West Water
Pennon Group Plc Operational and Business Highlights South West Water • Strong performance against 2010 – 2015 regulatory contract • Average funding cost 4.2% • Capital investment up 26% to £51m • Further advance in operating efficiency • Best ever bathing water results • 2011 fifteenth consecutive
Slide 5: Operational and Business Highlights: Viridor
Pennon Group Plc Operational and Business Highlights Viridor • Continued growth in profit, driven by further progress in recycling, contracts and powergen, offsetting decline in landfill • 51% of profits from recovering value in waste • Three acquisitions since year-end • Greater Manchester PFI on t
Slide 6: Pennon Group Plc
PENNON GROUP PLC
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended 30 September Full Year 2011 2010 Change 2010/11 £m £m £m Group revenue 642.6 593.2 8.3% 1,159.2 Group operating profit 143.1 133.3 7.4% 260.9 - SWW 107.9 100.4 7.5% 189.8 - Viridor 35.2 33.4 5.4% 71.6 Group profit before tax 107.4 96
Slide 8: Cash Flow
Pennon Group Plc For the half year ended Cash Flow 30 September Full Year 2011 2010 2010/11 £m £m £m Cash inflow from operations 185.1 194.7 411.8 Net interest paid (32.5) (37.1) (63.8) Dividends paid (21.6) (17.5) (56.8) Tax paid (23.2) (20.4) (43.2) Capital expenditure (93.3) (68.5) (185.6) Acquis
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at 30 September As at 31 March 2011 2010 2011 £m £m £m Loans and finance leases - over one year 2,390 2,339 2,390 - under one year 50 78 99 2,440 2,417 2,489 Less: cash and cash equivalents (510) (540) (555) Net borrowings 1,930 1,877 1,934 Net gearing (1) 72% 74%
Slide 10: Net Borrowings Analysis as at September 2011
Pennon Group Plc Net Borrowings Analysis as at 30 September 2011 £m Finance leasing 1,222 Bank bilaterals - RCFs/term loans 382 EIB 259 Index-linked bond 2057 229 Bond 2040 132 Private placements 100 Convertible bond 116 Total gross debt 2,440 Less: Cash/liquid investments (510) Net borrowings 1,930
Slide 11: Net Interest Payable
Pennon Group Plc Net Interest Payable(1) For the half year ended Full Year 30 September 2011 2010 2010/11 £m £m £m Interest payable (48.2) (44.9) (90.0) Interest receivable on shareholder loans to joint ventures 3.3 3.1 6.7 Other interest receivable(2) 6.2 2.6 6.1 Net interest payable (38.7) (39.2)
Slide 12: Efficient Financing Strategy
Pennon Group Plc Efficient Financing Strategy • Mix of fixed, floating and index-linked rate borrowings – locks-in benefit of low interest rates versus OFWAT assumptions – c.23% of SWW current debt index-linked to 2041-2057 • At least 50% of SWW net debt fixed for K5 in line with Group policy – weig
Slide 13: Fair Value of Indebtedness
Pennon Group Plc Fair Value of Indebtedness As at 30 September 2011 As at 31 March 2011 Principal Principal Value Fair Value Diff Value Fair Value Diff £m £m £m £m £m £m Finance leases 1,222 1,057 165 1,214 987 227 Bank bilaterals – RCFs/term loans 382 382 - 403 403 - EIB 259 231 28 274 241 33 Index
Slide 14: Liquidity
Pennon Group Plc Liquidity • Cash balances of £510m at 30 September 2011 (includes c.£107m deposits with Letter of Credit providers and lessors) • Undrawn facilities of £408m at 30 September 2011 • Committed funding in place for South West Water up to March 2014 − c.£140m will mature over the rest o
Slide 15: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2011 2010 2010/11 £m £m £m Current tax 23.4 22.2 38.6 Deferred tax 3.5 (0.8) 3.4 Deferred tax reduction on change of (12.8) (12.3) (25.1) corporation tax rate 14.1 9.1 16.9 • Mainstream tax charge 22% (H1 2010/11 - 23%) 15
Slide 16: Pensions as at September 2011
Pennon Group Plc Pensions as at 30 September 2011 • Gross pension deficit of £108m (March 2011 - £86m) − £80m net of tax (March 2011 - £64m) September 2011 March 2011 • Pension schemes’ assets £442m £454m Pension schemes’ liabilities £550m £540m £108m £86m = £80m net of tax = £64m net of tax • Marke
Slide 17: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 9.6% to 8.22p per share • Sector-leading progressive dividend policy: 4% real to end of K5 period (March 2015) • Scrip dividend alternative 17
Slide 18: South West Water
SOUTH WEST WATER 18
Slide 19: Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2011 2010 2010/11 £m £m £m Revenue 244.3 230.9 448.8 Operating profit 107.9 100.4 189.8 Profit before tax 76.2 70.2 128.9 • Revenue up 5.8% • Operating profit up 7.5% • Profit before tax up 8.5% 19
Slide 20: Revenue
South West Water Revenue • Tariff increase of 8.1% (inc RPI) • Reduced metered customer usage -2.3%, further demand falls expected in H2 • 72.5% of domestic customers metered 20
Slide 21: Operating Costs
South West Water Operating Costs • Cost increases lower than RPI - efficiency savings offsetting cost increases • New capital scheme costs and depreciation reflects growing asset base • Lower asset sales reflecting the current market conditions • Bad debts reflect the challenging economic environmen
Slide 22: Operating Cost Efficiency
South West Water Operating Cost Efficiency • Good operational cost control in a high inflation environment K5 cumulative operating cost efficiencies to September 2011 • On track to deliver 2.8%(1) pa required efficiency over K5 − focus on front loaded delivery − maintaining the pace – equivalent to
Slide 23: Capital Programme
South West Water Capital Programme K5 cumulative capital expenditure • Maintenance focused investment programme to September 2011 • Cumulative K5 capex £176m • Expenditure £50.9m H1 2011/12 (H1 2010/11 £40.3m) − investment in new resources: - Park & Stannon lakes now fully operational - 1st borehole
Slide 24: Shareholder Value
South West Water Shareholder Value 3,000 2,500 2,000 Growth in RCV 2010-15 - 18.3%(1) 1,500 £m 1,000 500 0 1990 1995 2000 2005 2010 2015 • Expect growth in RCV to continue to exceed growth in net debt • RCV of £2,703m at 31 March 2011, debt/RCV gearing 58% at 30 September 2011 • RCV growth benefitin
Slide 25: Operational Highlights: Delivering the Regulatory Contract - I
South West Water Operational Highlights: Delivering the Regulatory Contract - I • No hosepipe bans or drought orders – 15th consecutive summer • Leakage target met, despite harsh winter – industry-leading performance maintained • Outstanding water quality maintained – 99.97% – above industry average
Slide 26: Operational Highlights: Delivering the Regulatory Contract - II
South West Water Operational Highlights: Delivering the Regulatory Contract - II • Best ever bathing water results – over 95% achieving excellent status - European ‘guideline’ standard • Marginal increase in bad debt charge reflects challenging economic climate − schemes assisting vulnerable custome
Slide 27: Operational Highlights: Private Sewers
South West Water Operational Highlights: Private Sewers • Estimated more than 50% increase in existing 9,300km sewer base adopted from 1 October 2011 • Current cost and operational activity at expected levels • Estimated costs of transfer dependent on activity levels and asset condition − set-up cos
Slide 28: Operational Highlights
South West Water Operational Highlights • ‘Source for business’ launched – new and enhanced services for business customers • Transforming ways of working – remotely managed networks with mobile and flexible workforce (PUROS(1)) – asset optimisation to reduce energy consumption – ‘Upstream Thinking’
Slide 29: Viridor
Miridor
Slide 30: Transforming Waste
Viridor Transforming Waste • Strategy is to grow and add value by − proactively developing new recycling operations to meet ambitious EU/UK targets − successfully exploiting the huge potential in waste-based renewable energy generation − capitalising on its strong position in landfill waste disposal
Slide 31: Financial Performance Summary
Viridor Financial Performance Summary For the half year ended Full Year 30 September 2011 2010 Change 2010/11 £m £m % £m Revenue(1) 399.2 363.1 9.9 712.0 EBITDA 58.4 55.6 5.0 116.5 PBIT 35.2 33.4 5.4 71.6 PBIT plus joint ventures(2) 40.0 38.4 4.2 82.6 PBT 30.6 28.6 7.0 62.9 (1) Including landfill ta
Slide 32: Financial Highlights
Viridor Financial Highlights • Revenue increased by £36.1m (9.9%) to £399.2m − acquisitions (1) accounted for £19.6m − existing business increased by £16.5m (including increase in landfill tax of £6.7m) • Export sales £36.1m (H1 2010/11 - £29.4m) • EBITDA increased by £2.8m (5.0%) to £58.4m • PBIT i
Slide 33: Profit Contribution by Segment
Viridor Profit Contribution by Segment(1) Half Year ended 30 September 2010 Half Year ended 30 September 2011 • Business successfully evolving • 51% of profits from recovering value in waste(3) (1) Contribution plus joint ventures (share of PAT and interest) before intangibles and overheads (includi
Slide 34: Operational Highlights – Recycling
Viridor Operational Highlights – Recycling • Volumes traded increased by 53k tonnes (6%) to 913k tonnes with improved mix − higher value recyclates up 122k tonnes (14%), primarily acquisitions − lower value recyclates down 69k tonnes (8%) • Overall average revenue per tonne (gate fee and recyclate s
Slide 35: Acquisitions
Viridor Acquisitions • Viridor continues to grow its business by targeting acquisitions which add value for shareholders • In June 2011 Viridor acquired Storm Recycling Limited for £1.7m − annual volume 20k tonnes of recyclate • In October 2011 Viridor acquired Veolia’s trade waste collection intere
Slide 36: Operational Highlights – Contracts
Viridor Operational Highlights – Contracts • Strong performance with increased profits − PFI/PPP contracts/sub-contracts (Greater Manchester and West Sussex) − Lakeside sub-contract − other municipal contracts and sludge contracts 36
Slide 37: Operational Highlights – Joint Ventures
Viridor Operational Highlights – Joint Ventures • JVs’ contribution (interest on shareholder loans and share of PAT) decreased slightly to £4.8m (from £5.0m in H1 2010/11) − sub-contract profit up £0.5m (within contracts segment) • Lakeside − £0.6m interest on shareholder loans, down £0.7m because o
Slide 38: Operational Highlights – Landfill
Viridor Operational Highlights – Landfill • Total volumes decreased by 0.2m tonnes (9%) to 1.7m tonnes − site closure (Horton) accounted for half the decline − remaining decrease is primarily third party industrial and commercial − ongoing impact of landfill diversion/recycling and weak UK economy •
Slide 39: Operational Highlights – Landfill Gas Power Generation
Viridor Operational Highlights – Landfill Gas Power Generation • Average price up 15% to £80 per MWh (£69 per MWh H1 2010/11) as flagged • Total landfill gas power generation remained at last year H1 level of 280 GWh − approaching peak output • Total operational capacity(1) decreased by 2MW since 31
Slide 40: Renewable Energy Developments
Viridor Renewable Energy Developments • Construction of Runcorn phases I and II proceeding on schedule • Exeter EfW contract signed and detailed design under way • Ardley EfW legal challenge successfully resolved and Notice to Proceed issued • Cardiff EfW EPC contract negotiations under way • Prefer
Slide 41: Energy generation capacity – current projections
Viridor Energy generation capacity – current projections Total Viridor Energy capacity (MW) Waste capacity (kt) Viridor share Energy capacity (MW) Waste capacity (kt) Operational today Landfill gas 106 n/a 100% 106 n/a Lakeside 37 410 50% 18.5 205 Bolton 9 120 100% 9 120 2* GM ADs 4 100 50% 2 50 Tot
Slide 42: Energy generation key statistics – current projections
Viridor Energy generation key statistics – current projections Construction/commissioning Operations Capital cost (1) Tonnes p.a. MWs Start End End (2) Lakeside £160m 410k 37 Nov 2005 May 2010 2033 Bolton n/a 120k 9 1970s/1998 1970s/2001 2034 Runcorn I £218m 375k 28e/51CHP Apr 2009 Mar 2013 25 years
Slide 43: Current PPP/PFI Projects
Viridor Current PPP/PFI Projects • Oxfordshire PPP – legal challenge successfully resolved and Notice to Proceed issued − 25 years; £205m capex • Exeter – detailed design under way − 25 years; £46m capex • Greater Manchester PFI – operational 2009 − 25 years; £640m capex, 1.1m tonnes pa − UK’s large
Slide 44: PPP Prospects
Viridor PPP Prospects • Preferred bidder for South Lanarkshire, subject to challenge • Provisional preferred bidder for Cheshire • One of last two for Glasgow • One of last two for South London Waste Partnership • One of last two for each of Peterborough EfW and MRF • One of last two for West Lothia
Slide 45: 2011/12 H1 Key Achievements
Viridor 2011/12 H1 Key Achievements • PBT up 7% • 51% of profits from recovering value in waste • Strong progress on EfW/PPP pipeline • Further value enhancing acquisitions Strong successful strategy with recycling key in the next two years, and long-term profit momentum underpinned by EfW/PPP pipel
Slide 46: Pennon Group Plc
PENNON GROUP PLC
Slide 47: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services; recycling; renewable energy and waste management • A further £100m invested in key infrastructure to support the development of the UK economy • South West Water − Very strong performance against K5 regulatory contra
Slide 48: Pennon Group Plc
PENNO GROUP PLC
Slide 49: Appendix
PENNON GROUP PLC Appendix
Slide 50: Water Industry: 2010/11 Average Interest Rate on Net Debt
Water Industry 2010/11 Average Interest Rate on Net Debt • SWW interest rate consistently low Source: Pennon calculation based on company Annual Reports Basis: Net interest payable (excluding pensions net interest) / average net debt 50