Pennon Group Plc · LSE:PNN
Pennon — Non-Deal Roadshow (December 2020)
50 slides from Pennon's roadshow presentation, December 2020
Slide 1: Half Year Results 2020/21 – North America Roadshow
Half Year Results 2020/21 North America Roadshow – Dec 2020
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to looking statements include, among other things, changes in This document is not an offer to sell, exchange or transfer this “document” shall mean this presentation pack and shall Government policy; regulatory and legal reform; c
Slide 3: Pennon: Bringing water to life
Pennon Bringing water to life Pennon has been driven by its strategic vision to become a leader in UK infrastructure, delivering for the benefit of customers, communities and the environment 2020 has been a landmark year for Pennon, culminating in the completion of the sale of Viridor on 8 July for
Slide 4: Industry regulation
Pennon Industry regulation Market Regulation – overview • As a provider of water and wastewater services, South West Water operates within a framework which contains a variety of regulators • Regulation on price and performance by economic, quality and environmental factors - this regulatory framewo
Slide 5: 2020-25 Business Plan: Ofwat's Final Determination for South West Water
Pennon 2020-25 Business Plan Ofwat’s Final Determination for South West Water Minimal changes to South West Water’s 2020-25 Business Plan Totex allowance of c.£2 billion – in line with South West Water’s fast-track Draft Determination An innovative sharing mechanism – WaterShare+ A K7 capital invest
Slide 6: Total shareholder return – consistently outperforming the market since privatisation
Pennon Total shareholder return – consistently outperforming the market since privatisation © Pennon Group plc 2020 Note: Share price as at 3 December 2020 6
Slide 7: Susan Davy, Group Chief Executive
Susan Davy Group Chief Executive © Pennon Group plc 2020 7
Slide 8: Bringing water to life – New Vision and Purpose
Pennon New Vision and Purpose Bringing water to life – supporting the lives of people and the places they love for generations to come Reshaping the Group – focused on UK water • Disciplined approach to assessing potential opportunities Trusted A new deal for our customers, the environment and our e
Slide 9: A strong performance base – delivering on our plans
Pennon A strong performance base – delivering on our plans WaterShare RORE(1) 8.0% – Doubling base returns Outcome Delivery Incentives Totex Financing 80% on track/ahead £34million outperformance efficiency momentum 2.5% effective interest rate – of target continuing locked in efficiency Creating va
Slide 10: Paul Boote, Group Finance Director
Paul Boote Group Finance Director © Pennon Group plc 2020 10
Slide 11: H1 2020/21 results in line with management expectations
Pennon H1 2020/21 results in line with management expectations £4.2 billion Viridor sale completed 8 July – Group statutory Profit After Tax £1.7 billion profit on disposal £1,770.4m Resilient financial results following K7 reset Continuing Group PBT (underlying) • COVID-19 financial impact broadly
Slide 12: Robust revenue
Pennon Robust revenue South West Water Group Pennon Water Services Impact of COVID-19 K7 on Household and Contract wins revenue Non-household in Pennon Water reset demand of (£10.7m) Services Revenue (£m) COVID-19 impacts (£10.7m) © Pennon Group plc 2020 12
Slide 13: Continuing Group profit before tax in line with expectations
Pennon Continuing Group profit before tax in line with expectations K7 Interest rate charge Resilient COVID-19 revenue reduction following operations – reset hedging reset limited financial impact Profit before tax (£m) © Pennon Group plc 2020 (1) Reflects COVID-19 impact from reduced revenue and im
Slide 14: Net cash position at September 2020
Pennon Net cash position at September 2020 Robust cash flows Substantial from Continuing cash resources Group supporting from Viridor sale investment Net debt (£m) Net cash (£m) (1) Includes disposal of £39.0m of cash balances and £240.7m of lease financing held by Viridor at 8 July 2020 © Pennon Gr
Slide 15: Sustainable balance sheet – South West Water
Pennon Sustainable balance sheet – South West Water Agile and efficient financing and liquidity Floating £467m • South West Water’s £2.2 billion of net debt is a mix of fixed, floating and index-linked 21% borrowings – average maturity c.20 years • Supported by our pioneering Sustainable 53% Financi
Slide 16: Disciplined use of proceeds
Pennon Disciplined use of proceeds Value accretive £3.7bn net right-sizing of Substantial cash proceeds Pennon company funds available received debt – c.£0.75bn – £2.7bn repaid to date Enterprise value A £4.2bn £0.5 billion debt and debt-like A items transferred with Viridor B B £0.9 billion Pennon
Slide 17: Resilient financial results
Pennon Resilient financial results £86.7 million 2.5% 17.9p South West Water Continuing Group Continuing Group effective interest rate EPS (adjusted) PBT CPIH £1,770.4 £2.7 +2% sector leading million billion statutory PAT of available funds dividend policy © Pennon Group plc 2020 17
Slide 18: Operational Highlights
—— Pennon Operational Highlights
Slide 19: A new deal for K7
South A new deal for K7 West Water Changing the nature of our relationship with customers, the environment and employees © Pennon Group plc 2020 19
Slide 20: Changing the nature of our relationship with customers
South Changing the nature of our relationship West with customers Water © Pennon Group plc 2020 20
Slide 21: Talented people doing great things for customers and each other
South Talented people doing great things West for customers and each other Water Protecting employees Nurturing talent • c.1,800 employees • 500 new apprenticeships over the completed mental next 5 years health training • Early adopter of Kickstart – • Expanding our mental 50 placements for young pe
Slide 22: Delivering outstanding services for customers and communities
South Delivering outstanding services for customers West and communities Water Reducing customer complaints Priority Services 5% reduction in 21,000 registered on our written complaints temporary COVID-19 register H1 20/21 58% reduction from start of K6 H1 15/16 Increasing social tariff uptake Digit
Slide 23: Driving operational excellence for customers
South Driving operational excellence for customers West Water Reducing customer interruption time Delivering sustainable leakage solutions 51% reduction Target met in supply every year interruptions(2) H1 20/21 H1 20/21 improvements 65% reduction • 40% increase in since start of leak detection K6 H1
Slide 24: Driving operational excellence – protecting the environment
South Driving operational excellence – West protecting the environment Water Continuing bathing water improvements Sector leading catchment management Delivery on investment Increasing biodiversity – 2 years ahead of plan • Driving environmental improvements • Maintaining excellent quality supportin
Slide 25: Driving operational excellence – 80% of ODIs on track
South Driving operational excellence – West 80% of ODIs on track Water Outcome Delivery Incentives (ODIs)(1) Bespoke ODIs Common ODIs Comparative ODIs Internal sewer Bathing water quality Customers on social tariff Leakage flooding Biodiversity Water Quality Supply interruptions £3.5m £0.1m (£4.9m)
Slide 26: Delivering efficiently and effectively
South Delivering efficiently and effectively West Water £34m totex outperformance in H1 2020/21 Maintaining momentum over K7 Support & admin services Operational ways of working Outcome driven smart design Right sourcing Innovation supporting delivery Delivering investment efficiently © Pennon Group
Slide 27: Efficient financing – driving performance
South Efficient financing – driving performance West Water 2.5% effective interest H1 2020/21 • Lower than Ofwat’s nominal cost of debt SWW effective • Over half of the period on period 90bps reduction interest rate in average effective interest rate is linked to active management, with the remainde
Slide 28: Delivering for shareholders
South Delivering for shareholders West Water Strong outperformance in totex and financing Doubling of base returns – maintaining momentum for K7 • Totex efficiencies £34 million in H1 2020/21 H1 2020/21 Return on • Effective interest rate 2.5% – below Ofwat’s Regulated Equity 4.2% nominal cost of de
Slide 29: Customer growth despite challenging Water Services environment
Pennon Customer growth despite challenging Water environment Services Total revenue Revenue EBITDA (external to the Group) £75.3m H1 2019/20 £86.6m £36.5m H1 2019/20 £33.1m £0.3m H1 2019/20 £0.9m Positive EBITDA despite like for like volume reduction – c.20% demand reduction driven by lockdown Maint
Slide 30: Growth platform in place
Pennon Growth platform in place Broadening the base for SWW Building Back Better • Good start to Isles of Scilly expansion • Supporting the Government’s drive – £36m investment allowed to Build Back Better • Operational team and key suppliers • Sustainable water resources in place • Catchment manage
Slide 31: A new deal for K7
South A new deal for K7 West Water Changing the nature of our relationship with customers, the environment and employees © Pennon Group plc 2020 31
Slide 32: Appendix
——y Pennon Appendix
Slide 33: Technical guidance 2020/21
Pennon Technical guidance 2020/21 Pennon Group 2019/20 Change Revenue • Impact of lower tariffs based on K7 Final Determination (c.£20m)(1) £636.7m(2) • Reduced Non-household demand and other services (c.£30m including c.£10m impact from customers outside of the South West Water region) partially of
Slide 34: Disciplined approach to assessing potential opportunities
Pennon Disciplined approach to assessing potential opportunities Significant value potential for shareholders from reinvestment of proceeds into the UK water sector Extensive work to narrow down a number of potential opportunities and continue to assess whether they are executable and can deliver at
Slide 35: Significant gain on Viridor disposal
Pennon Significant gain on Viridor disposal Underlying continuing operations(1) H1 2020/21 H1 2019/20 Change (£m) (restated) (2) Revenue 319.7 325.8 (1.9%) Results EBITDA 174.5 191.5 (8.9%) in line with Operating profit 114.8 132.0 (13.0%) management Profit before tax 86.7 101.4 (14.5%) expectations
Slide 36: Income statement
Pennon Income statement H1 2020/21 £m A Continuing Group profit Underlying profit before tax A 86.7 before tax reflects transition Continuing Group Non-underlying profit before tax(1) B (24.8) to K7 Tax (charge) / credit (11.5) B Continuing Group profit after tax 50.4 WaterShare+ and closure of defi
Slide 37: Corporation tax – transparent tax strategy
Pennon Corporation tax – transparent tax strategy Corporation tax H1 2020/21 H1 2019/20 (£m) (restated)(2) Current year Current tax (12.4) (14.2) Fair Tax Mark reflects (4.2) (5.3) Deferred tax our contribution to (16.6) (19.5) society through our Prior year responsible approach Current tax 0.8 0.8
Slide 38: Income statement – Adjusted EPS reconciliation
Pennon Income statement – Adjusted EPS reconciliation Adjusted EPS H1 2020/21 H1 2019/20 (£m unless stated) (restated)(2) Profit before tax 61.9 119.4 Adjusted for: Non-underlying items (pre-tax) 24.8 (18.0) Current tax (11.6) (13.4) Hybrid charge - (3.5) Minority interest(1) 0.2 0.1 Profit for adju
Slide 39: Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment H1 2020/21 H1 2019/20 (£m) (restated)(1) South West Water 73.3 77.6 Clean Water 40.9 44.0 Wastewater 32.4 33.6 Other Group 0.2 - Capital additions 73.5 77.6 Discontinued operations 36.7 94.4(2) Total Group capital investment 1
Slide 40: Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 30 September 2020 Pennon South West (£m) Group Water Finance leasing 1,439 1,439 Bank bilaterals 284 135 European Investment Bank loans 251 251 Index-linked bonds 489 443 Fixed rate (SWW 2040) bond 135 135 Private placemen
Slide 41: Balance sheet – Pensions
Pennon Balance sheet – Pensions Pensions 30 September 31 March 2020 2020 (£m) Responsible Pension schemes’ assets 916 934 employer Pension schemes’ liabilities 968 943 contributions of £36m in Net pension scheme’s assets/(liabilities) (52) (9) H1 2020/21 Tax 10 2 Net of tax pension scheme’s assets/(
Slide 42: Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 30 September 2020 South West Water (£m) Book value Fair value Difference Bank bilaterals 186 186 - European Investment Bank loans 251 238 13 Index-linked bonds 393 581 (188) Fixed rate (SWW 2040) bond 135 206 (71) Private placements 100 100 - T
Slide 43: Resilient performance despite challenges from global pandemic
South Resilient performance despite challenges West from global pandemic Water Underlying(1) H1 2020/21 H1 2019/20 Change (£m) Revenue(2) 282.9 292.9 (3.4%) K7 revenue Operating costs (106.8) (102.3) (4.4%) reset EBITDA 176.1 190.6 (7.6%) Depreciation and amortisation (59.3) (59.1) (0.3%) Non-househ
Slide 44: Net interest analysis
South Net interest analysis West Water South West Water H1 2020/21 H1 2019/20 (£m) Net interest charge: (27.6) (35.3) 2.5% South West Water Less: pensions net interest - 0.4 effective interest rate Add: capitalised interest (0.6) (1.6) Net interest for average rate calculation (28.2) (36.5) Split be
Slide 45: Financial Outcome Delivery Incentives – H1 2020/21
South Financial Outcome Delivery Incentives – West H1 2020/21 Water Performance on-track / Marginally Area ahead of target below target of focus Bespoke • External sewer flooding • Water restrictions • Sludge compliance • EPA score ODIs • Sewer blockages • Scheme delivery • Wastewater • Wastewater r
Slide 46: Financial Outcome Delivery Incentives – H1 2020/21
South Financial Outcome Delivery Incentives – West H1 2020/21 Water © Pennon Group plc 2020 46
Slide 47: Sharing outperformance with customers
South Sharing outperformance with customers West Water Continuing to share financial benefits with customers – building on the success of WaterShare+ • Only company to share embedded debt outperformance • Delivering totex savings for the benefit of customers and shareholders Giving customers a great
Slide 48: Reconciliation of WaterShare RORE H1 2020/21
South Reconciliation of WaterShare RORE H1 2020/21 West Water Totex outperformance of £34.0 million(1) Totex H1 2020/21 £m • One third delivered through operating cost savings, remainder delivered through capital efficiencies Operating costs 107 Capital Expenditure 73 Financing outperformance(2) of
Slide 49: Focused cost efficiencies in a competitive market
Pennon Focused cost efficiencies Water in a competitive market Services(1) Underlying(2) H1 2020/21 H1 2019/20 Change (£m) Revenue 75.3 86.6 (13.0%) Business wins SWW wholesale elimination (38.8) (53.5) (27.5%) underpinning Revenue – external to the Group 36.5 33.1 +10.3% revenue Operating costs (75
Slide 50: Half Year Results 2020/21 – North America Roadshow
Half Year Results 2020/21 North America Roadshow – Dec 2020