Pennon Group Plc · LSE:PNN
Pennon — Non-Deal Roadshow (February 2024)
57 slides from Pennon's roadshow presentation, February 2024
Slide 1: Middle East & Australia Roadshow
Middle East & Australia Roadshow January & February 2024
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to There are a number of factors that could cause actual a) neither Pennon Group nor any other member of Pennon this “document” shall mean this presentation pack and shall results, performance or achievements of Pennon Group to Gro
Slide 3: Susan Davy, Jennifer Cooke
Susan Davy Jennifer Cooke Group Chief Executive Officer Group Head of Investor Relations 3
Slide 4: About us…
About us… Our values Water business Non-regulated business At Pennon Group, we provide clean and Pennon Power wastewater services through our businesses Our investment in renewable energy generation across the South West of England. Our team of supports our long-term sustainable growth strategy, c.3
Slide 5: About us… Our businesses and brands
About us… Our businesses and brands © Pennon Group plc 2024 5
Slide 6: Ofwat and sector regulation
Ofwat and sector regulation Water only and water and wastewater companies in England & Wales Drinking Water Inspectorate Department for Environment , The Drinking Water Inspectorate (DWI) was Food & Rural Affairs formed in 1990 to provide independent Defra is a Government Body. Their mandate is reas
Slide 7: Making progress, growing sustainably
Making progress, growing sustainably Step up in investment across the Group • Capital investment across the Group up 87% v H1 2022/23 • Acquisition of Sutton and East Surrey Water on 10 January 2024, increases Group RCV by further 7%, delivering on sustainable Bristol acquisition benefits • Deliveri
Slide 8: Acquisition of Sutton and East Surrey Water – transaction overview
Acquisition of Sutton and East Surrey Water – transaction overview Proposed Pennon is acquiring 100% of the issued capital of Sumisho Osaka Gas Water UK Limited (SOGWUK), the holding company of Sutton and East transaction Surrey Water plc and certain other ancillary businesses for £89m, with a tot
Slide 9: Acquisition of Sutton and East Surrey Water – key investment highlights
Acquisition of Sutton and East Surrey Water – key investment highlights Acquisition of SES Water and other ancillary businesses, equating to an enterprise value £380m, adding a high-quality business with over 750k customers and a RCV of £351m(1) Enterprise value equates to a premium to 2023 RCV of c
Slide 10: Proven track-record of acquisitive growth and value creation
Proven track-record of acquisitive growth and value creation Demonstrated ability to integrate acquired businesses, realise synergies and drive shareholder value Shareholder value – Increase in Total RCV £2.1bn £7.9bn RCV on acquisition(1): £149m RCV on acquisition: £556m RCV on acquisition: £351m R
Slide 11: Deploying our proven integration blueprint
Deploying our proven integration blueprint 24-month programme to integrate the business Acquisition completes immediately without conditions, but requires CMA review Bristol Water acquisition indicates potential framework for potential undertakings Licence change and statutory transfer anticip
Slide 12: Financial & Operational Performance – HY24
Financial & Operational Performance – HY24 12
Slide 13: Resilient financial performance
Resilient financial performance Underlying EBITDA Effective interest rate Return on regulated equity £168.5 million 5.8% 1 7.9% H1 2022/23 Driven by our strategically Cumulative Group RORE – £174.6 million positioned portfolio doubling base returns Capital investment Stable gearing Dividend per shar
Slide 14: Summarised income statement
Summarised income statement Underlying1 (£m unless stated) H1 2023/24 H1 2022/23 Revenue 448.6 425.5 Results in line Power (55.2) (48.7) with management Other operating costs (224.9) (202.2) expectations EBITDA 168.5 174.6 • As flagged, elevated Operating profit 85.9 97.2 inflation impacting near te
Slide 15: Profit before tax
Profit before tax Net benefit of inflation through increased revenues Regulatory revenue adjustments reflect 2021/22 ODI outcomes and RFI true-up Increased depreciation driven by accelerated capital investment programme Inflationary impact on finance costs stabilised Continued growth in Non-Househol
Slide 16: Continued doubling of base returns enabling reinvestment
Continued doubling of base returns enabling reinvestment Cumulative Cumulative Additional RORE performance initiatives 7.9% Financing1 • Strategically positioned portfolio with low level Outperformance to date enabling reinvestment Group of index-linked debt enables greater level of c.£250m in addit
Slide 17: Step up in capital investment
Step up in capital investment TOTAL 65% increase in H1 2023/24 £266.1 million2 capital investment £150.2 Water vs H1 2022/231 million • Water resources – investment to boost and protect supplies, including establishing new abstraction points, providing new strategic links between key supply sources,
Slide 18: Financing portfolio strategically positioned
Financing portfolio strategically positioned Effective Targeting Lower proportion of index-linked debt interest compared to industry average strong 5.8% rate1 investment UK Water grade credit gross debt rating 14 Average mix SOUTH maturity • Progressing work 69% 17% 14% WEST of debt WATER years to o
Slide 19: Guidance update
Guidance update H2 (vs H1) 2023/24 underlying results – H2 weighted 2023/24 Revenue Opex Financing guidance • Seasonally lower demand in H2 • Power reducing through pricing • High inflationary environment • Continued focus on water efficiency and usage1 evenly profiled over financing costs • Drought
Slide 20: Tackling the biggest challenges across our regions
Tackling the biggest challenges across our regions Building water Alleviating Supporting resources, storm overflows Driving affordability, improving water and eliminating environmental delivering for quality pollutions gains customers Largest environmental 2020-2025 2025-2030 Further step up in inve
Slide 21: Building water resources, diversifying our portfolio through innovation
Building water resources, diversifying our portfolio through innovation Breaking the drought cycle On track for Devon and Cornwall – to augment supplies by 45% Building water on track for 90% strategic in Cornwall and 30% in Devon resources, improving reservoir levels by March 2024 by 2025 water qua
Slide 22: Improving the environment – spotlight on bathing water
Improving the environment – spotlight on bathing water 100% 90% of K7 Alleviating bathing interventions storm overflows water quality delivered and eliminating – third consecutive year1 for bathing and shellfish waters pollutions Bathing • 100% monitoring across storm overflows with • Piloting catch
Slide 23: Improving the environment – tackling pollutions
Improving the environment – tackling pollutions Alleviating Sector-leading Improved serious storm overflows internal sewer flooding performance pollution performance and eliminating – one event to date in 2023 pollutions Continued focus on reducing pollution incidents • Lowest number of internal sew
Slide 24: Driving environmental gains
Driving environmental gains 50% £145m reduction investment in renewable energy in carbon footprint providing 40% of Group anticipated in K7 energy requirements Spotlight on catchment innovation – secured c. £20m K7 ODI benefit Targeting: Delivered through: • Nature first approach • Partnership worki
Slide 25: Supporting affordability
Supporting affordability Below inflation Over £90 million bill increases customer support for 2023/24 and 2024/25 provided in K7 to date Addressing • 35% increase in customers benefiting from our social tariffs1 customer • Over 120,000 customers now benefiting from one or more of our support tariffs
Slide 26: Delivering improved outcomes for customers
Delivering improved outcomes for customers 1 Water and Sewerage Company performance 26
Slide 27: Investing in our communities’ future
Investing in our communities’ future Largest private employer in the South West Promoting an earn and learn culture Graduates and diversity Work experience Created additional 500 jobs in the • Commitment to support 5,000 work community for K7 – with 2,000 anticipated • Launched our Graduate Programm
Slide 28: Strong PR24 platform for delivery
Strong PR24 platform for delivery Creating a strong foundation for K8 Top quartile Track record of Bills at their lowest RORE outperformance common ODI point for 10 years performance to date – doubling base returns Established Unique Robust supply chain ‘earn and learn’ culture Strong balance sheet
Slide 29: Financial resilience – well positioned for PR24
Financial resilience – well positioned for PR24 Step change in investment Shareholder value – RCV growth • £2.8 billion capex programme over K8 – over 50% increase on K7 8,000 • c.100% RCV growth forecast 2020-20301 7,000 6,000 Funding requirements 5,000 4,000 • £2.5 billion of new funding requireme
Slide 30: Ambitious plan for PR24 – the right plan for our regions
Ambitious plan for PR24 – the right plan for our regions Investing Keeping bills Strong support efficiently as low as possible from customers £4.5bn 3-4% 74% Totex, assuming average increase Customer 12% efficiency per annum acceptability Growth for Incentivising Underpinned by investors performance
Slide 31: Making progress, growing sustainably
Making progress, growing sustainably Step up in investment across the Group Making progress on what matters most across our regions Adopting a Green First approach Underpinned by robust fundamentals Ambitious K8 plan – transition underway, mobilised supply chain 31
Slide 32: Appendix
Appendix 32
Slide 33: Pennon Technical guidance full year 2023/24
Pennon Technical guidance full year 2023/24 Pennon Group FY 2022/23 Change Revenue* • Inflation reflected in 2023/24 tariffs in South West Water partially offset by in-year impact of regulatory adjustments and ODI penalties £825.0m • Ongoing growth in our retail businesses, including growth external
Slide 34: Pennon Revenue growth
Pennon Revenue growth South West Water Pennon Group • Overall positive impact of inflation starting to feed through – • PWS growth continues from new inflationary factors reflect a 9.4% increase relating to CPIH contract wins • Regulatory adjustments reducing impact of inflation on tariffs • Overall
Slide 35: Pennon Responsible approach to tax
Pennon Responsible approach to tax Current tax position – effective credit Corporation tax H1 H1 rate of (6.6)% (£m) 2023/24 2022/23 • Current tax credit arises as a result of prior year adjustments Current tax 0.6 (1.5) • Tax losses generated as enhanced capital allowances exceed depreciation. Thes
Slide 36: Pennon Income statement – EPS reconciliation
Pennon Income statement – EPS reconciliation Adjusted EPS H1 H1 (£m unless stated) 2023/24 2022/23 Profit before tax 3.2 20.9 Adjusted for: Non-underlying items (pre-tax) 5.9 1.6 Current tax 0.6 (1.5) Minority interest1 (0.4) (0.2) Profit for adjusted EPS 9.3 20.8 Basic weighted average number of sh
Slide 37: Pennon Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment H1 H1 (£m) 2023/24 2022/23 South West Water 234.4 142.5 Clean water 150.2 80.0 Wastewater 84.2 62.5 Pennon Power 31.7 - Other Group 0.2 0.1 Capital additions 266.3 142.6 Group capital payments H1 H1 (£m) 2023/24 2022/23 Group
Slide 38: Pennon Balance sheet – Pensions
Pennon Balance sheet – Pensions Pensions 30 31 (£m) September March 2023 2023 Pension schemes’ assets 672 749 Pension schemes’ liabilities (672) (720) Net pension schemes’ assets - 29 Deferred tax - (3) Net of tax pension schemes’ assets - 26 March 2022 triennial valuation agreed – Bristol Water sch
Slide 39: Pennon Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 30 September 2023 Pennon South West (£m) Group Water Leasing 1,092 1,090 Bank bilaterals 744 706 Index-linked debt (RPI) 757 661 Fixed rate bonds 210 193 Private placements 605 486 Preference shares 13 13 Total borrowings
Slide 40: Pennon Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 30 September 2023 Pennon Group (£m) Book value Fair value Variance Bank bilaterals 744 725 19 Index-linked debt (RPI) 757 551 206 Fixed rate bonds 210 197 13 Private placements1 605 597 8 Preference shares 13 19 (6) Total borrowings (excluding
Slide 41: Pennon Sustainable net debt
Pennon Sustainable net debt Pennon Group – summarised net debt flow H1 2023/24 H1 2022/23 (£m) flows flows Net debt excluding fair value uplifts 1 April (2,841.4) (2,514.3) Opening balance 1 April (2,965.4) (2,682.9) Cash flows from operating activities 88.8 160.2 Corporation tax paid - (3.1) Net in
Slide 42: Water business income statement
South Water business income statement West Water Underlying1 H1 2023/24 H1 2022/23 Inflationary increase (£m) in revenue more than Revenue2 377.8 363.8 offsetting inflationary Operating costs (210.7) (191.2) cost increases EBITDA 167.1 172.6 Regulatory revenue Depreciation and amortisation (79.6) (7
Slide 43: Net interest analysis
South Net interest analysis West Water H1 2023/24 H1 2022/23 (£m unless stated) South West Water1 South West Water1 Underlying net interest charge (80.9) (78.6) Less: pensions net interest (0.7) (1.0) Add: capitalised interest (4.1) (1.6) Net interest for average rate calculation (85.7) (81.2) Split
Slide 44: Strong market performance
Pennon Strong market performance Water Services 1 Underlying2 H1 2023/24 H1 2022/23 (£m) Revenue 117.6 108.2 Overall 9% Water segment wholesale elimination (46.7) (46.7) growth in Revenue excluding elimination 70.9 61.5 revenues v H1 2022/23 Operating costs (114.5) (105.9) Water segment wholesale el
Slide 45: RORE outperformance
South RORE outperformance West Water Cumulative RORE performance Cumulative RORE H1 2023/24 RORE £m 2020/ 2021/ 2022/ H1 Cumulative 21 22 23 2023/24 total Financials 8.1% 5.4% Totex1 60 33 -80 -96 -83 6.1% 6.2% 6.6% 1.4% Financing 14 53 133 66 266 4.0% ODIs -12 12 -10 -3 -24 0.7% Ofwat 62 87 43 -33
Slide 46: Financial Outcome Delivery Incentives – 2023/24 – c.75% on track or ahead of target
South Financial Outcome Delivery Incentives – West Water 2023/24 – c.75% on track or ahead of target Area of 9 Outperformance 3 On track 19 Marginal 10 Area of 3 excellence focus Bespoke • Customer on one of our support • Biodiversity - prevent • Customers who find their bill • Water pollution incid
Slide 47: Financial Outcome Delivery Incentives – 2023/24 – c.70% on track or ahead of target
Bristol Financial Outcome Delivery Incentives – Water 2023/24 – c.70% on track or ahead of target Area of 3 Outperformance 7 On track 11 Marginal 4 Area of 4 excellence focus Bespoke • Properties – risk of low pressure • Community satisfaction • Void properties • Water quality – appearance • Meter p
Slide 48: Water resources
South Water resources West Water Colliford net storage – 2022 vs. 2023 2022/23 supply and demand side interventions 25,000 positively impacting total reservoir storage 20,000 Colliford Roadford reservoir reservoir (Cornwall) (Devon) 15,000 61% (2022: 25%) 67% (2022: 45%) 10,000 Total reservoir 77% s
Slide 49: Case study – Bristol Water
Case study – Bristol Water Key highlights PR24 investment plan • 100% increase in capital spend Merger completion – February 2023 to over £400 million in K8 • Increased enhancement expenditure unlocked, Acquisition increasing RCV growth to 2025 by c. 20% and lower cost of debt supported by financial
Slide 50: Investing in renewable energy generation
Investing in renewable energy generation Complementary investment in environmental infrastructure • £145m investment in renewable energy generation announced to date supports our long-term sustainable growth strategy, alongside accelerating our net zero target 2030 commitment • Provides attractive c
Slide 51: Growing a profitable, sustainable national platform for business retail
Growing a profitable, sustainable national platform for business retail • c.6% market share • Resilient financial performance – £1.7 million profit before tax in H1 2023/24 - c.£7 million growth from new contracts in H1 2023/24 • Trustpilot score 4.8/5 • c.6% market share • Resilient financial perfo
Slide 52: Acquisition of SES Water January 2024 Supplementary information
Acquisition of SES Water January 2024 Supplementary information 52
Slide 53: SES Water overview
SES Water overview A high-quality, water-only asset SCOTLAND SES Water SES Water highlights to further expand Pennon’s Sutton • Water supplier serving >750,000 reach in southern England Cobham Purley Leatherhead Coulsdon customers in the South East of England Caterham Dorking Reigate M25 • Over 150
Slide 54: SES Water is a high-quality, water-only business
SES Water is a high-quality, water-only business "Top performer" in 2022-2023 for minimising interruptions to customers' supply(1) Sustained strong performance throughout AMP7(2) One of only three companies in the industry to achieve Leakage, Supply Interruptions, SES Water has outperformed the indu
Slide 55: Acquisition offers scale benefits and returns opportunities
Acquisition offers scale benefits and returns opportunities Transaction highlights Upside potential from improving SES Water returns Historic AMP7 Average Rolling RoRE Comparison between PNN(3) & SESW Synergies expected to reach £11m(1) p.a., resulting in value creation 9.3% No material impact o
Slide 56: Equity placing and pro forma gearing
Equity placing and pro forma gearing £m, March 2023 Net Debt RCV PF Net Debt / RCV Pennon Group standalone pre transaction 2,965 4,716 62.9% Adjustments SES Water (SOGWUK) 291(1) 334 87.3% Equity consideration 89 - - Net placing proceeds to reduce debt (176) - - Pro Forma Combined Pennon Group(2) 3,
Slide 57: Summary
Summary Attractive opportunity to acquire a high-quality, water-only UK asset • Complements Pennon’s existing portfolio across southern England • Fits our execution and asset integration experience – proven acquisition and integration blueprint Will deliver an estimated c.7% increase in RCV on acqui