Pennon Group Plc · LSE:PNN
Pennon — H1 2006/07 Earnings Presentation
39 slides from Pennon's earnings presentation, November 2006
Slide 1: Interim Results 2006
Interim Results 2006 For the half year ended 30 September 2006 www.pennon-group.co.uk
Slide 2: Disclaimer
Disclaimer 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 relation thereto and any other related ver
Slide 3: Financial Highlights
Pennon Group Plc Financial Highlights • Operating profit up 11.7% to £105.6m before amortisation of intangibles − SWW up 8.2% to £84.2m − Viridor up 29.8% to £21.8m • Profit before tax up 16.9% to £71.1m • Earnings per share up 18.8% to 16.4p (1) • Interim dividend per share up 6.4% to 5.85p • South
Slide 4: 2006/07 Operational Highlights: South West Water
Pennon Group Plc 2006/07 Operational Highlights South West Water: • On target to deliver 2005 – 2010 Regulatory Contract • Profit increase reflecting strong growth in RCV 2005 – 2010 reaching £2.6bn by end of K4 • South West bathing waters 100% compliant with mandatory standards (all 144 beaches for
Slide 5: 2006/07 Operational Highlights: Viridor
Pennon Group Plc 2006/07 Operational Highlights Viridor: • Particularly strong growth in profits • Wyvern Waste acquired for £25m and performing well • Long-term waste management PPP contract signed with Somerset County Council • Lakeside energy from waste plant joint venture under construction and
Slide 6: Lf —_ #£#£+«» ¥¢ es
Lf —_ #£#£+«» ¥¢ es Pennon Group Plc
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended Full Year 30 September 2006 2005 Change 2005/06 £m £m % £m Group revenue 373.6 328.2 13.8 645.7 Group operating profit 105.6 94.5 11.7 176.7 (1) Group profit before tax 71.1 60.8 16.9 110.9 (1) Earnings per share (2)(3) 16.4p 13.8p 1
Slide 8: Cash Flow
Pennon Group Plc Cash Flow For the half year ended Full Year 30 September 2006 2005 2005/06 £m £m £m Cash inflow from operations before pension prepayment 145.2 126.4 276.3 Net interest paid (20.1) (18.3) (106.4) Dividends and tax paid (19.5) (16.4) (36.3) Capital expenditure (120.3) (84.9) (213.8)
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at As at 30 September 31 March 2006 2005 2006 £m £m £m Loans and finance leases - over one year 1,513.6 1,360.9 1,471.8 - under one year 71.1 53.7 54.7 1,584.7 1,414.6 1,526.5 Less: cash and cash equivalents (90.4) (215.8) (99.4) Net borrowings 1,494.3 1,198.8 1,42
Slide 10: Net Debt Analysis
Pennon Group Plc Net Debt Analysis as at 30 September 2006 £m Finance leasing 966.4 Bank bilaterals - RCFs/term loans 267.5 EIB 234.4 Private placement 100.0 Other 16.4 Total gross debt 1,584.7 Less: Cash/liquid investments (90.4) Total net debt 1,494.3 10
Slide 11: Net Interest Payable
Pennon Group Plc Net Interest Payable For the half year ended Full Year 30 September 2006 2005 2005/06(1) £m £m £m Interest payable (48.4) (48.4) (96.8) Interest receivable 14.8 15.5 32.5 Net interest payable (33.6) (32.9) (64.3) Average rate of interest 4.6% 5.7% 5.1% Net interest cover 3.1 times 2
Slide 12: Efficient Financing Strategy
Pennon Group Plc Efficient Financing Strategy • Funding strategy uses mix of fixed, floating and index linked rate borrowings • Locks-in benefit of low interest rates compared to Ofwat assumptions • Circa 70% of SWW debt fixed to March 2007 • Circa 60% of SWW debt fixed to March 2010 • Circa 10% SWW
Slide 13: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2006 2005 2005/06 £m £m £m UK corporation tax 13.0 8.1 14.8 (1) Deferred tax 4.6 15.3 20.2 Total 17.6 23.4 35.0 • Mainstream tax charge 18% (H1 2005 - 13%) (1) Before net tax credit of £18.7m relating to tax relief on exception
Slide 14: Pensions
Pennon Group Plc Pensions • Pension deficit (net of tax) of c£29m at 30 September 2006 – unchanged from 31 March 2006 • Deficit includes impact of further c£9m contribution prepayment in September 2006 (c£6m net of tax) for period up to 2009/10 • Net deficit represents less than 2% of market capital
Slide 15: Dividends
Pennon Group Plc Dividends • Progressive dividend policy: 3% real • Interim dividend increased by 6.4% to 5.85p per share • Dividend cover (before deferred tax): 2.8x (H1 2005/06: 2.7x) • DRIP (Dividend Re-Investment Plan) alternative 15
Slide 16: South West Water
SOUTH WEST WATER 16 J ———= Pennon Group Plc
Slide 17: South West Water: Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2006 2005 Change 2005/06 £m £m % £m Revenue 195.9 177.3 10.5% 348.5 Operating profit 84.2 77.8 8.2% 141.5(1) (1) Before exceptional costs 17
Slide 18: South West Water: Revenue
South West Water Revenue Increase of £18.6m (10.5%) in half year. Reflects impact of: £m - tariff increase 22.0 - meter option switchers (3.7) - new connections 1.6 - demand (1.9) - other 0.6 18.6 • Number of meter switchers 15,400 • Number of new customers 3,700 • 56% domestic customers now metered
Slide 19: South West Water: Operating Costs
South West Water Operating Costs For the half year ended 30 September 2006 2005 Change £m £m % Total operating costs 111.7 99.5 12.3 Increase in operating costs due to - inflation (including power costs and 5.2 chemicals) - new capital schemes 4.7 - other (including infra opex) 3.7 - efficiency savi
Slide 20: South West Water: Analysis of Efficiency Savings
South West Water Analysis of Efficiency Savings – first half 2006/07 £m • Manpower 0.5 • Raw materials 0.4 • Power usage 0.4 • Other 0.1 1.4 • K4 target: £13m pa base opex savings by 2009/10 • K4 to date: £5.4m 20
Slide 21: South West Water: Operational Performance Summary
South West Water Operational Performance Summary • Highest ever drinking water and river water quality − highest proportion of high quality rivers in England • South West bathing waters 100% compliant for the first time • Tenth consecutive year without hosepipe bans and drought orders • Purchase of
Slide 22: South West Water: Capital Programme
South West Water Capital Programme • Capital expenditure half year to 30 September 2006 – £83.7m (H1 2005 - £69.2m) − 330km water mains replaced/refurbished (H1 2005 - 350km) • K4 capital programme on track − investment to date £275m (outturn prices) • K4 capital programme of £762m (2002/03 price ba
Slide 23: South West Water: Regulatory Capital Value
South West Water Regulatory Capital Value Year End 2005 2006 2007 2008 2009 2010 £m £m £m £m £m £m At 2002/03 prices(1) 1,847 1,929 1,994 2,042 2,095 2,136 Actual/Projected outturn 1,956 2,091 2,213 2,324 2,443 2,554 prices(2) • 31% growth in RCV 2005-10 – highest projected percentage increase of an
Slide 24: Viridor
ennon Group Plc
Slide 25: Viridor: Financial Performance Summary
Viridor Financial Performance Summary For the half year ended Full Year 30 September 2006 2005 Change 2005/06 £m £m % £m Turnover (1) 178.2 152.0 17.2 298.9 EBITDA 39.8 31.8 25.2 66.7 PBITA 21.8 16.8 29.8 35.9 • Particularly strong growth in turnover, EBITDA and PBITA (1) Including landfill tax 25
Slide 26: Viridor: Financial Highlights
Viridor Financial Highlights • At beginning of year projected moderate growth in operating profit before intangibles − after strong growth in each of previous five years • H1 revenue up 17.2% or £26.2m (£17.9m excluding landfill tax) • EBITDA up 25.2% • PBITA up £5.0m or 29.8% to £21.8m reflecting:
Slide 27: Viridor: Profit Contribution by Segment
Viridor Profit Contribution by Segment (1) Half Year Ended 30 September 2006 Half Year Ended 30 September 2005 (reclassified) Contracts & Other (2) Contracts & Other (2) 10% 13% Recycling 3% Recycling Collection 5% 10% Collection 9% Landfill Landfill 51% 56% Power Generation 21% Power Generation 22%
Slide 28: Operational and Business Highlights – Landfill (I)
Viridor Operational and Business Highlights – Landfill (I) • Total landfill volumes increased by 1.6% to 2.2m tonnes reflecting Brett and Wyvern Waste acquisitions • Major one-off sludge contract in H1 2005/06 • Excluding the above, underlying volume was 0.1m tonnes lower 28
Slide 29: Operational and Business Highlights – Landfill (II)
Viridor Operational and Business Highlights – Landfill (II) • Average gate fees increased by 11% to £19 per tonne • Consented landfill capacity grew from 87m cubic metres 31 March 2006 to 91m cubic metres 30 September 2006 reflecting − Wyvern acquisition 5 − net planning gains 2 − usage (3) 29
Slide 30: Operational and Business Highlights – Power Generation
Viridor Operational and Business Highlights – Power Generation • Total landfill gas power generation increased by 17.8% to 207 GWH • Average price increased 7.2% from £58 per MWH to £62 per MWH − prices increased 16.5% excluding Wyvern (mainly NFFO) − reflecting strong brown energy prices and ROCs p
Slide 31: Wyvern Waste Acquisition/Somerset PPP
Viridor Wyvern Waste Acquisition/Somerset PPP • In May 2006 completed acquisition of Wyvern Waste for £25m (including £3m cash on balance sheet) and entered into 25 year Public Private Partnership agreement with Somerset County Council • Wyvern Waste − 5m cubic metres consented landfill void − 7 MW
Slide 32: Operational and Business Highlights – Recycling Partners
Viridor Operational and Business Highlights – Recycling Partners • Viridor provides waste services to 4 of the 5 top recycling counties in the UK − Suffolk − Devon − Somerset − Cambridgeshire • Bury St Edmunds, the top performing council in the UK, is one of Viridor’s clients at the Mason’s MRF • ‘B
Slide 33: Viridor: Significant New Projects
Viridor Significant New Projects • Poole disposal contract 70kt pa extension to 2027 − including access to Lakeside • Plymouth landfill contract 120kt pa for 7 years starting in April 2008 • Greater Manchester landfill contract 100kt pa for 5 years starting in April 2008 • Lakeside energy from waste
Slide 34: Lakeside Energy from Waste Plant – under construction
Viridor Lakeside Energy from Waste Plant – under construction 34
Slide 35: Lakeside Energy from Waste Plant – artist's impression
Viridor Lakeside Energy from Waste Plant – artist’s impression 35
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Slide 37: Summary
Pennon Group Plc Summary • Strategy clearly focused on water, sewerage and waste management • South West Water − delivery well under way of K4 contract − strong growth in K4 RCV reaching £2.6bn by March 2010 • Viridor delivering strong growth by − capitalising on landfill asset base − exploiting lan
Slide 38: Appendix
Lf — # (¥¢ — “arr Pennon Group Plc 38 J ——_ Pennon Group Plc
Slide 39: Appendix A: Average Interest Rate
Appendix A Wate r Industry 2005/06 Ave rage Inte re st Rate (Pre Exceptional Ite ms) 8% 7% Average Interest Rate 6% 5% 4% 3% * x W S ire es rn es n t se W en ia ru he SW am iti sh es A br Tr ym til ut k W Th um or So U n rC er Y th ted v w or Se D ni N U Source: Annual Reports and Regulated accounts