Pennon Group Plc · LSE:PNN

Pennon — H1 2017/18 Earnings Presentation

61 slides from Pennon's earnings presentation, Nov 29, 2017

Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this “document” risks, maintaining finance and funding to meet ongoing commitments, tax shall mean this presentation pack and shall be deemed to include references compliance and contributions and difficulty in recruitment, rete
Slide 4: Delivering for customers, communities and investors
Delivering for customers, communities and investors Delivering for customers and communities - On track to deliver against business plan commitments including all ODI(1) commitments by 2020 - Sharing financial benefits with customers through WaterShare - Customer bills lower than they were 8 years a
Slide 6: Financial Highlights
Financial Highlights Robust Group financial performance H1 2017/18 H1 2016/17 A Adjusted EBITDA in line Underlying(1) £m £m Change with expectations Revenue 723.9 685.5 +5.6% - Higher SWW revenue and continued efficiency EBITDA 253.5 245.4 +3.3% - Strong ERF performance Adjusted EBITDA(2) A 285.8 27
Slide 7: South West Water Financial Highlights
South West Water Financial Highlights Continuing to drive outperformance of regulatory contract H1 2017/18 H1 2016/17(1) A Revenue Underlying(2) £m £m Change - Tariff increase 2.5% Revenue A 292.2 284.9 +2.6% - Higher demand 1.1% on metered volumes net of impact of meter Operating Costs (105.1) (103
Slide 8: Viridor Financial Highlights
Viridor Financial Highlights Strong performance, underpinned by cost base efficiency H1 2017/18 H1 2016/17 Change Underlying(1) £m £m A ERFs Revenue(2) 407.0 397.9 +2.3% - ERF availability >90%(5) for H1 2017/18 - Expect H2 weighting EBITDA 66.6 63.3 +5.2% ERFs A 51.7 50.5 +2.4% B Optimising landfil
Slide 9: Pennon Water Services Financial Highlights
Pennon Water Services Financial Highlights Growing in the new competitive market H1 2017/18(1) £m >160,000 c.5,100(2) Revenue A 83.5 Customers New accounts accounts won since EBITDA B 0.5 market opening Depreciation (0.3) Operating Profit 0.2 Net Interest (0.7) Dedicated PWS Loss Before Tax (0.5) ma
Slide 10: Capital Investment
Capital Investment Investing for growth What we have been investing in... Group Capital - Energy Recovery Facilities - Further improvements to South West Bathing and Shellfish waters Investment - New landfill cells driven by demand - Further innovation to improve drinking profile - Cutting edge Mayf
Slide 11: Corporation tax
Corporation tax Effective rate reflects capital allowances for investment H1 H1 A Current tax £m 2017/18 2016/17 - Increase in capital allowances reflecting increased Current Year Viridor capital expenditure - Current year current tax effective rate of 10.9% Current Tax A 14.3 23.1 (2016/17 H1 18.1%
Slide 12: Net Debt Movements
Net Debt Movements Strong cash inflow from operations, continuing investment Strong cash Re-financing Peak years inflow from of perpetual of capital operations capital investment in (2,790.9) securities 2016/17 and £m 2017/18 (2,664.9) (235.3) (82.1) (48.6) (31.3) 308.9 (10.4) (25.7) (6.3) (7.0) (8.
Slide 13: Balance Sheet
Balance Sheet Strong funding position underpinning investment Group at 30 September 2017 £1,246m cash & committed facilities Net Debt £2,790.9m (31 March 2017 £1,383m) Profile Index- Linked £552m 20% Development of portfolio Fixed £1,812m Floating - £450m of new or renewed - Following EIB/Government
Slide 14: Balance Sheet: Stable gearing, increased headroom for investment
Balance Sheet Stable gearing – increased headroom for investment 64.8% Group Net Gearing(1) 65.2% at 30 September 2016 62.1% Water business Net Debt / RCV(2) 62.2% at 30 September 2016 Stable gearing - Reflects refinancing of perpetual capital securities (hybrid) in the Group’s capital structure, ne
Slide 15: Group financing
Group financing Sector-leading effective interest rate K4 K5 K6 3.7% Group average 7.0% (2005-10) (2010-15) (2015-20) interest rate 6.5% 3.3% 6.0% H1 2016/17 5.5% 5.0% 4.5% Pennon 3.5% SWW average 4.0% SWW 3.5% interest rate Water Sector 3.0% 3.2% H1 2016/17 Sector leading effective interest rates £
Slide 16: Dividend Growth
Dividend Growth Established 10 year sector leading policy Policy of 4%+RPI leading to an expected doubling of dividend over 10 years (2010 to 2020)(1) - Interim dividend of 11.97p, up 7.9%(2) - SCRIP dividend alternative ceased - Dividend reinvestment plan (DRIP) offered for 2017/18 +7.1% +5.6% +4.9
Slide 18: Delivering for customers, communities and investors
Delivering for customers, communities and investors Delivering for customers and communities - On track to deliver against business plan commitments including all ODI(1) commitments by 2020 - Sharing financial benefits with customers through WaterShare - Customer bills lower than they were 8 years a
Slide 19: Water: Delivering for customers and communities
Water: Delivering for customers and communities On track to deliver against all water business plan commitments by 2020 Customers at the heart of our delivery - £7bn investment to improve services to customers since privatisation - Best ever customer service score (SIM) - Written complaints reduced
Slide 20: Water: Delivering for customers and communities
Water: Delivering for customers and communities On track to deliver against all water business plan commitments by 2020 Strong focus on sharing financial benefits with customers acting responsibly - Unique mechanism to share transparently outperformance in period - Significant value shared with cust
Slide 21: Water: Strong operational and financial performance
Water: Strong operational and financial performance Consistent sector-leading RORE WaterShare RORE(1) performance Cumulative K6 TOTEX outperformance - £159m - Delivering continued efficiency performance Cumulative 11.8%(1) FY 15/16 FY 16/17 H1 17/18 Operational performance ahead of 11.7% 12.6% 11.1%
Slide 22: Water: ODI performance levels, cumulative net reward position
Water: Strong operational and financial performance ODI performance levels – cumulative net reward position GOOD Water quality standard Odour contacts PERFORMANCE(1) Taste, smell and colour contacts Bathing water quality Operational contacts resolved 1st time Water & waste asset reliability Water re
Slide 23: Water: Preparing for next growth phase
Water: Preparing for next growth phase Investment anticipated at least comparable to historic levels £6bn - £9bn investment anticipated to 2050 - Informed by Defra’s guidance to Ofwat - Direct engagement with Ofwat - Customer / stakeholder research and engagement Key investment drivers continue to b
Slide 24: Viridor: Robust operational and financial performance
Viridor: Robust operational and financial performance ERFs performing well Focus on optimising performance - Delivered £52m of EBITDA in H1 2017/18 – expect H2 weighting Operational - High availability across fleet – Average >90%(1) - Maintenance regimes working well. Current run rate of 2.0% p.a. o
Slide 25: Viridor: Recycling EBITDA margin consistent
Viridor: Robust operational and financial performance Recycling EBITDA margin consistent VOLUMES 120kT Self-help measures underpinning performance – H1 2017/18: 740kT further opportunities available (H1 2016/17: 860kT) REVENUES - Reduced volumes - optimisation of contracts and asset base £10/T - Bet
Slide 26: Viridor: Greater Manchester contract reset
Viridor: Delivering for customers and communities Greater Manchester contract ‘reset’ Long-term partnership continues – mutually satisfactory outcome - Energy Recovery Facility – Runcorn I - Long-term contract remains - Residual waste will continue to be treated, no significant operational changes -
Slide 27: Viridor: Preparing for the next growth phase
Viridor: Preparing for the next growth phase Significant growth to come from residual waste Confidence in the waste sector - Strong fundamentals in UK waste market - Investment in further UK waste treatment capacity as essential to service longer term demand Source: Defra, SEPA, NRW and Viridor anal
Slide 28: Viridor: ERF assets will deliver earnings step up
Viridor: Preparing for the next growth phase ERF assets will deliver earnings step up Avonmouth Glasgow Dunbar In construction or stage of commissioning South London Glasgow - First generated electricity – February 2017 IFRIC 12 (IFRIC 12) Interest - MRF(1) and AD(2) plants operating Receivable Shar
Slide 29: Pennon: Robust operational and financial performance
Pennon: Robust operational and financial performance Underpinned by efficiency across the Group Sector leading water Totex outperformance SWW Totex £159m savings • £159m cumulative Totex efficiencies K6 to date Bournemouth Water synergies on track SWW/BW • Final integration phase complete c. £27m Sy
Slide 30: Delivering for customers, communities and investors
Delivering for customers, communities and investors Delivering for customers and communities - On track to deliver against business plan commitments including all ODI(1) commitments by 2020 - Sharing financial benefits with customers through WaterShare - Customer bills lower than they were 8 years a
Slide 34: Adjusted group EBITDA
Pennon Adjusted group EBITDA £m 0.5 1.2 2.1 4.0 (0.4) (0.4) (2.2) 285.8 7.4 (3.6) 277.2 H1 2016/17 SWW tariff Contracts, Viridor ERFs Share of JV Plc, PWS and Recycling SWW other Landfill and H1 2017/18 increase and collections and overheads EBITDA & IFRIC other revenue and cost landfill gas (1) cus
Slide 35: Non-underlying Items
Non-underlying Items H1 H1 A Greater Manchester Contract ‘Reset’ £m 2017/18 2016/17 - TPSCo contract reset and settlement of outstanding Greater Manchester A 6.5 - Viridor Waste claims, net of write down of Viridor B Laing shareholder loans Derivatives(1) (7.8) (15.0) Other non-underlying costs(2) -
Slide 36: Capital Investment, Investing For Growth
Capital Investment, Investing For Growth Group capital expenditure H1 H1 £m 2017/18 2016/17 ERFs(1) 132 86 Recycling 1 2 Landfill energy 7 5 Contracts and Collections 1 4 Other 6 7 Viridor 147 104 Clean Water 53 38 Waste Water 45 42 South West Water 98 80 Total capital expenditure(1) 245 184 (1) Inc
Slide 37: Balance Sheet
Balance Sheet Successful refinancing of £300m perpetual capital securities (hybrid) - Tender offer at 103% of par value plus accrued periodic returns – together broadly 2013 £300m 6.750% - first equating to the periodic return which would have been due in March 2018 call date - 95% take-up of tender
Slide 38: Diversified funding sources
Pennon Diversified funding sources As at 30 September 2017 £m Finance Leasing(1) 1,474 Bank Bilaterals – Term Loans 380 European Investment Bank Loans 339 Index-Linked Bond 416 Fixed Rate Bond 134 Private Placements(2) 619 Total Gross Debt 3,362 Less: Cash/liquid investments (571) Net Borrowings 2,7
Slide 39: Fair value of non-current debt
Pennon Fair value of non-current debt As at 30 September 2017 As at 31 March 2017 Book Fair Book Fair £m Value Value Difference Value Value Difference Finance Leases 1,446 1,287 159 1,354 1,218 136 Bank and Other Loans 380 383 (3) 329 336 (7) European Investment Bank Loans 307 265 42 323 282 41 Inde
Slide 40: Net interest analysis
Pennon Net interest analysis(1) £m H1 2017/18 H1 2016/17 Net interest payable (36.6) (28.6) Efficient effective interest rate Add: capitalised interest (7.8) (6.1) Less: notional interest payable(2) 5.7 5.7 GROUP SOUTH WEST WATER Add: interest receivable on service concession contracts (6.9) (8.8) 3
Slide 41: Pensions
Pennon Pensions The aggregate pension schemes’ 30 September 31 March £m 2017 2017 deficit has reduced in the six months to 30 September 2017 by Pension schemes’ assets £891m £903m £12m from £68m to £56m Pension schemes’ £947m £971m This represents a net deficit of liabilities c. 1% of Group’s market
Slide 42: Significant energy generation
Pennon Significant energy generation Group energy generation - Total energy generation of c.0.9TWh in H1 2017/18 − 8 ERFs(1) – 661GWh − Landfill gas – 217GWh − 25 Hydro turbines – 4.3GWh generation − 53 solar PV installations – 5.4GWh(2) − Anaerobic digestion – 0.3GWh − CHP – 3.2GWh − 1 wind turbine
Slide 44: South West Water Revenue
South West Water Revenue £m 12.0 0.7 (1.7) 1.9 292.2 (5.6) 284.9 H1 2016/17 Tariff increase WRFIM(1) New connections Increased customer Meter optants H1 2017/18 demand (net of leak allowances) (1) Wholesale Revenue Forecast Incentive Mechanism 44 Pennon Half Year Results 2017/18 © Pennon Group plc 2
Slide 45: South West Water EBITDA
South West Water EBITDA £m 1.4 7.4 187.1 (2.6) (0.5) (0.5) 181.9 H1 2016/17 Revenue growth Efficiencies and other Cost increases including Pension Capital charges H1 2017/18 cost savings inflation 45 Pennon Half Year Results 2017/18 © Pennon Group plc 2017
Slide 46: Sector leading RORE outperformance
South West Water Sector leading RORE outperformance Highest potential returns in the industry SWW delivering outperformance across all areas OFWAT INDUSTRY RORE(1) CUMULATIVE TO 2016/17 (1) Source: Ofwat’s Monitoring Financial Resilience report published November 2017 46 Pennon Half Year Results 201
Slide 47: Delivering operational outperformance
South West Water Delivering operational outperformance Cumulative operational RORE £159m(1) of Totex savings delivered - Totex largest element of potential operational TOTEX outperformance +2.6% +1.5% - 2/3 capex, 1/3 opex £159m(1) - Opex lower than last year – delivering operational savings and Bou
Slide 48: Reconciliation of RORE to financials
South West Water Reconciliation of RORE to financials H1 Totex (£m) 2016/17 2015/16 2017/18 Combined Totex(1) outperformance Operating costs 105 212 212 ODI outperformance(3) Capital - Total net reward £1.5m(4). £1.6m reward will be 98 191 134 Expenditure recognised at the end of the regulatory peri
Slide 49: Water: Delivering for customers and communities
Water: Delivering for customers and communities On track to deliver against all water business plan commitments by 2020 Water sector leakage performance Sector-leading leakage performance GOOD PERFORMANCE Best ever numeric and descriptive wastewater compliance - Wastewater serious and significant po
Slide 51: Viridor Revenue
Viridor Revenue 1.3 5.1 £m 8.5 (8.0) 12.6 407.0 (10.4) 397.9 H1 2016/17 ERF construction Contracts, ERF operational Recycling Landfill and landfill Landfill tax H1 2017/18 revenue collections and other revenue gas 51 Pennon Half Year Results 2017/18 © Pennon Group plc 2017
Slide 52: Viridor Adjusted EBITDA
Viridor Adjusted EBITDA £m 1.2 2.1 (0.4) 2.4 (1.9) 4.0 98.9 (3.6) 95.1 H1 2016/17 Contracts, Share of JV EBITDA Indirect costs ERFs Recycling IFRIC 12 interest Landfill and landfill H1 2017/18 collections and receivable gas other 52 Pennon Half Year Results 2017/18 © Pennon Group plc 2017
Slide 53: Profit contribution by activity
Viridor Profit contribution by activity(1) H1 2017/18 H1 2016/17 Change £m £m ERFs 39.5 38.3 +3.1% Landfill (6.7) (7.4) (9.5%) Landfill Gas 7.6 10.9 (30.3%) Recycling 6.4 6.6 (3.0%) Contracts, Collections and Other 15.7 11.3 +38.9% Joint Ventures 10.8 7.8 +38.5% Total contribution 73.3 67.5 +8.6% In
Slide 54: Landfill and landfill gas
Viridor: Robust operational and financial performance Landfill and landfill gas Delivering cash flow from landfill – optimising capacity Landfill - Extracting value from sites – maximising opportunities for external grid connections 11 - Landfill volumes increased from H2 2016/17 – pricing holding u
Slide 55: Greater Manchester Waste Disposal Authority contract reset
Viridor Greater Manchester Waste Disposal Authority (GMWDA) Contract ‘reset’ Before 50% Joint 37.5% Joint 100% Viridor GMWDA venture Residual venture Operating subsidiary waste (ERF contract for contract) Runcorn I ERF VL TPSCo VLGM Principal contract Operating contract for recycling assets After B
Slide 56: Greater Manchester contract reset: financial impacts
Viridor Greater Manchester Waste Disposal Authority (GMWDA) Contract ‘reset’ Financial Impacts H1 2017/18 reset Share of Shareholder VWGM JV PAT Loans EBITDA Viridor Laing – reduction in Disposal of Viridor Laing shareholder loan interest of Write down of shareholder loans - (£19.2m) - c.£5m p.a. Re
Slide 57: Joint Venture Performance
Viridor Joint Venture Performance Greater Manchester Viridor £m TPSCo Laing VWGM(1) Lakeside Total H1 2017/18 Share of JV PAT 1.0 0.1 - 4.2 5.3 Interest on shareholder loans 2.3 2.6 - 0.6 5.5 EBITDA VWGM(1) - - (0.3) - (0.3) Shareholder loans 40.1 - - 8.4 48.5 Share of non-recourse net debt/(cash) (
Slide 58: ERF accounting
Viridor ERF accounting An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA Illustrative ERF(1) IAS 16(2) IFRIC 12(2) JVs IAS 16 IFRIC 12 JVs • Oxford (Ardley) • Exeter • Lakeside • Cardiff • Peterborough(3) • Runcorn I EBITDA £28m £12m -- (Trident Park) • Glasgow IFRIC 12 I
Slide 59: ERF CAPEX: Efficient investment to deliver growth
Viridor ERF CAPEX(1) – Efficient investment to deliver growth Cumulative Capital Cumulative Remaining Amounts Total Original spend at investment spend to spend to subject to project planned £m 1 April 2017 in H1 2017/18 30 September 2017 completion recovery(3) spend project spend ERF projects in ope
Slide 60: ERF portfolio build-out nearing completion
Viridor ERFs (including Joint Ventures) Base load Capital municipal Actual/expected Progress on ERF pipeline Site Cost (1) Gross capacity Status contract commissioning Tonnes Electricity £m (000) MWe Lakeside(2) 150 410 38 Fully operational Merchant Commissioned ERF portfolio build-out Bolton N/A 12

Pennon Group — H1 2017/18 Earnings Presentation on 6ix

Pennon — H1 2017/18 Earnings Presentation

Slide 1: Half Year Results 2017/18

Slide 2: Disclaimer

Slide 3: Chris Loughlin, Group Chief Executive

Slide 4: Delivering for customers, communities and investors

Slide 5: Susan Davy, Chief Financial Officer

Slide 6: Financial Highlights

Slide 7: South West Water Financial Highlights

Slide 8: Viridor Financial Highlights

Slide 9: Pennon Water Services Financial Highlights

Slide 10: Capital Investment

Slide 11: Corporation tax

Slide 12: Net Debt Movements

Slide 13: Balance Sheet

Slide 14: Balance Sheet: Stable gearing, increased headroom for investment

Slide 15: Group financing

Slide 16: Dividend Growth

Slide 17: Chris Loughlin, Group Chief Executive

Slide 18: Delivering for customers, communities and investors

Slide 19: Water: Delivering for customers and communities

Slide 20: Water: Delivering for customers and communities

Slide 21: Water: Strong operational and financial performance

Slide 22: Water: ODI performance levels, cumulative net reward position

Slide 23: Water: Preparing for next growth phase

Slide 24: Viridor: Robust operational and financial performance

Slide 25: Viridor: Recycling EBITDA margin consistent

Slide 26: Viridor: Greater Manchester contract reset

Slide 27: Viridor: Preparing for the next growth phase

Slide 28: Viridor: ERF assets will deliver earnings step up

Slide 29: Pennon: Robust operational and financial performance

Slide 30: Delivering for customers, communities and investors

Slide 31: Questions

Slide 32: Appendix

Slide 33: Pennon

Slide 34: Adjusted group EBITDA

Slide 35: Non-underlying Items

Slide 36: Capital Investment, Investing For Growth

Slide 37: Balance Sheet

Slide 38: Diversified funding sources

Slide 39: Fair value of non-current debt

Slide 40: Net interest analysis

Slide 41: Pensions

Slide 42: Significant energy generation

Slide 43: South West Water

Slide 44: South West Water Revenue

Slide 45: South West Water EBITDA

Slide 46: Sector leading RORE outperformance

Slide 47: Delivering operational outperformance

Slide 48: Reconciliation of RORE to financials

Slide 49: Water: Delivering for customers and communities

Slide 50: Viridor

Slide 51: Viridor Revenue

Slide 52: Viridor Adjusted EBITDA

Slide 53: Profit contribution by activity

Slide 54: Landfill and landfill gas

Slide 55: Greater Manchester Waste Disposal Authority contract reset

Slide 56: Greater Manchester contract reset: financial impacts

Slide 57: Joint Venture Performance

Slide 58: ERF accounting

Slide 59: ERF CAPEX: Efficient investment to deliver growth

Slide 60: ERF portfolio build-out nearing completion

Slide 61: Half Year Results 2017/18