Pennon Group Plc · LSE:PNN
Pennon — FY2021/22 Earnings Presentation
51 slides from Pennon's earnings presentation, May 31, 2022
Slide 1: Full Year Results 2021/22
Full Year Results 2021/22 Bringing water to life – supporting the lives of people and the places they love for generations to come
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to outcomes or results expressed or implied by such forward This document is not an offer to sell, exchange or transfer this “document” shall mean this presentation pack and shall looking statements include, among other things, cha
Slide 3: Resilient performance, building momentum, driving sustainable growth
Pennon Resilient performance, building momentum, driving sustainable growth Purpose led business • Talented people delivering for customers and communities • Financially supporting all our customers Robust, resilient financial and operational performance • Organic revenue growth: 6.7%, EBITDA growth
Slide 4: Responsible, sustainable business
Pennon Responsible, sustainable business Environment – Social – delivering Governance – enhancing the Great for customers and maintaining the South West OUR ROUTEMAP TO NET ZERO CARBON BY 2030 1 communities highest standards • Net Zero 2030 – • SWW bill cut for 2022/23 • Embracing and accelerating –
Slide 5: Underpinning long-term value
Pennon Underpinning long-term value Resilient performance Reinvesting outperformance • Efficient totex and financing outperformance – maintaining momentum, delivering benefits for customers of c. £150m to date in K7 c. 80% c. 75% c. £19m • c. £82m Green Recovery of ODIs of ODIs contract • c. £45m Wa
Slide 6: Paul Boote, Group Finance Director
Paul Boote Group Finance Director © Pennon Group plc 2022 6
Slide 7: Delivering growth
Pennon Delivering growth Financial performance across the Group +6.7% +14.7% £53.3m in line with expectations Organic Total Bristol Water revenue 1 EBITDA 2 EBITDA growth growth contribution 3 3.4% +5.0% +8.2% South West Water Adjusted earnings Growth on sector-leading effective per share of 50.2p 4
Slide 8: Robust financial performance
Pennon Robust financial performance Underlying1 (£m unless stated) 2021/22 2020/21 Bristol Water Revenue 792.3 644.6 – 10 month contribution Operating costs (408.4) (309.9) Higher interest costs EBITDA 383.9 334.7 from index-linked debt Depreciation (146.7) (119.4) Operating profit 237.2 215.3 Lower
Slide 9: Revenue growth
Pennon Revenue growth Bristol Water South West Water Pennon Water Services • 10 month contribution to • Household demand • Revenue growth driven by Group revenue – £104.4m remains elevated contract wins • Overall demand levels • Non-household and other • Customer demand recovered stable year-on-year
Slide 10: Profit before tax
Pennon Profit before tax Bristol Water South West Water Pennon Water Services • 10 month contribution to • Higher demand for water • First full year PBT Group profit before tax – £9.2m increasing cost to serve • Profit growth driven by • Inflation impact on financing • Inflation impact on financing
Slide 11: Responsible approach to tax
Pennon Responsible approach to tax Current tax Corporation tax 2021/22 2020/21 (£m) Current tax reflects: • Effective rate of 3.5% Current tax (5.0) (23.0) • Super deductions on infrastructure investment Deferred tax (8.9) (6.6) – c. £15 million of additional capital allowances Underlying tax (13.9)
Slide 12: Strong cash flows
Pennon Strong cash flows Pennon Group movement in net debt (£m) 2021/22 flows 2020/21 flows Opening balance 1 April 64.3 (3,264.0) Cash inflow from operations and other movements 364.7 317.6 Operational cash Corporation tax (7.3) (3.0) flows funding capital investment Net interest paid (72.0) (66.3)
Slide 13: Group capital expenditure – delivering for customers, communities and the environment
Pennon Group capital expenditure – delivering for customers, communities and the environment c. 20% organic increase £102.1 South West Water clean water investment million • Commencement of construction at new cutting edge in capital expenditure 1 water treatment works in Bournemouth • Acceleration
Slide 14: Sustainable gearing – well positioned for investment
Pennon Sustainable gearing – well positioned for investment Strategically positioned index-linked proportion of debt Water Water business business net debt RCV £2.6bn WATER £2.2bn £4.2bn WATER £3.6bn BUSINESS BUSINESS £0.4bn £0.6bn Gearing: Net debt/RCV Water business South West Water Bristol Water
Slide 15: Responsible and sustainable balance sheet
Pennon Responsible and sustainable balance sheet Pioneering Sustainable Financing Framework UK Water Gross debt mix Sustainable Financing Framew • Framework refreshed in 29% ork 2021 September 2021 49% Lower proportion 18% of debt linked to • c. £300 million sustainable finance Index-linked 8% infla
Slide 16: Macro-economic outlook
Pennon Macro-economic outlook Near-term Energy inflationary • 2021/22 – power costs c. £56 million – of which c. £28 million relates to wholesale costs pressure on • 2022/23 – currently 2/3 de-risked – overall power costs expected to increase 50-75%1 earnings • 2023/24 & 2024/25 – c. 40% de-risked a
Slide 17: Susan Davy, Group Chief Executive
Susan Davy Group Chief Executive © Pennon Group plc 2022 17
Slide 18: Expanding our reach across the Great South West
Pennon Expanding our reach across the Great South West Bringing together the best of the best • Deploying our proven integration blueprint • 24 month programme to integrate the business Bristol Water • Expanded talent pool of c. 3,000 colleagues • Embracing innovation, driving continuous improvement
Slide 19: Talented people delivering for customers and communities in the Great South West
Pennon Talented people delivering for customers and communities in the Great South West Continued Community support Supporting customers customer service and engagement through our range of improvements affordability measures Social Contract It’s what we’re made of • Relaunched educational • More th
Slide 20: Water
Water © Pennon Group plc 2022 20
Slide 21: Robust water performance for 2021/22 – opportunity to share best practice
Water Robust water performance for 2021/22 – opportunity to share best practice Performance commitment Mains repairs Unplanned outages Leakage Number of repairs per 1,000km % Megalitres per day 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 SWW Bristo
Slide 22: Robust water performance for 2021/22 – opportunity to share best practice
Water Robust water performance for 2021/22 – opportunity to share best practice Performance commitment Compliance Risk Index Supply interruptions1 C-Mex, D-Mex, R-Mex Score Duration per property per year Customer performance Bristol median position SWW 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22
Slide 23: Wastewater
Wastewater © Pennon Group plc 2022 23
Slide 24: Innovation driving performance – wastewater
South Innovation driving performance – wastewater West Water Internal sewer flooding Sewer collapses External sewer flooding Incidents per 10,000 sewer connections Incidents per 10,000 sewer Number of incidents 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 SWW SWW SWW • c. 40% year-on-year reducti
Slide 25: Delivering in our catchments in 2021/22
South Delivering in our catchments in 2021/22 West Water Bathing water River water quality Catchment Isles of quality results improvements management Scilly • Investment advanced – • Four schemes underway • Enhancing biodiversity • Water quality first eight schemes delivered for phosphorous and – c.
Slide 26: Pollution Incident Reduction Plan – delivering improvements
South Pollution Incident Reduction Plan – West delivering improvements Water Continued area of focus Pollution Incident • More than 1/3 reduction in wastewater pollutions year-on-year1 – Reduction Plan Annual Review 2021 best performance in 10 years • Culture change programme • Pollution incident re
Slide 27: Driving operational excellence – ODI outcomes
Water Driving operational excellence – opportunity Business for sharing best practice – ODI outcomes Delivering Delivering net reward net reward • Delivering £0.6 million net reward • Delivering £0.4 million net reward – improving from £10.4 million – improving from £1.8 million penalty for 2020/21
Slide 28: RORE delivery
Water RORE delivery Business Ofwat • Overall totex for the Water Business – c. £87m SWW 1 totex 10% efficiency1 efficiency • Net of increased expenditure on c. £7m Bristol 1 pollutions and leakage Ofwat • Effective interest rate for South 7.0% Lowest financing West Water – 3.4% interest outperforman
Slide 29: Water Retail
Water Retail © Pennon Group plc 2022 29
Slide 30: Growing a profitable, sustainable national platform for business retail
Pennon Growing a profitable, sustainable national platform for business retail Pennon Water Services • c. 6% market share 80% ownership • Resilient financial performance – delivered by focus on key strategic initiatives – c. 20% revenue growth driven by contract wins • Continued focus on enhancing a
Slide 31: Well positioned for the future
Well positioned for the future © Pennon Group plc 2022 31
Slide 32: Well positioned for the future
Pennon Well positioned for the future Well placed to deliver for the remainder of K7 Innovation driving efficiency creating headroom for growth Significant environmental focus • Green Recovery – innovative pilots informing our future investment strategy • WaterFit – good platform for environmental s
Slide 33: Resilient performance, building momentum, driving sustainable growth
Pennon Resilient performance, building momentum, driving sustainable growth Purpose led business • Talented people delivering for customers and communities • Financially supporting all our customers Robust, resilient financial and operational performance • Organic revenue growth: 6.7%, EBITDA growth
Slide 34: Q&A
Q&A © Pennon Group plc 2022 34
Slide 35: Appendix
Appendix © Pennon Group plc 2022 35
Slide 36: Technical guidance 2022/23
Pennon Technical guidance 2022/23 Pennon Group 2021/22 Change Revenue • Full year revenue contribution from Bristol Water • Pennon Water Services growth through contract wins and continued non-household demand recovery £792.3m • Offset by impact of lower customer bills Net debt • Expected deployment
Slide 37: Building momentum, driving sustainable growth
Pennon Building momentum, driving sustainable growth Underlying1 (£m unless stated) 2021/22 2020/21 Change South West Water Revenue 792.3 644.6 +22.9% – elevated demand EBITDA 383.9 334.7 +14.7% Bristol Water Operating profit 237.2 215.3 +10.2% – 10 month Net finance costs (93.7) (58.3) (60.7%) cont
Slide 38: Income statement – adjusted EPS reconciliation
Pennon Income statement – adjusted EPS reconciliation Adjusted EPS 2021/22 2020/21 (£m unless stated) Profit before tax 127.7 132.1 Adjusted for: Non-underlying items (pre-tax) 15.8 24.9 Current tax (5.0) (23.0) Minority interest1 (0.2) 0.2 Profit for adjusted EPS calc 138.3 134.2 Basic weighted ave
Slide 39: Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment (£m) 2021/22 2020/21 South West Water 203.4 168.2 Clean water 102.1 85.8 Wastewater 101.3 82.4 Bristol Water 37.0 - Other Group 0.5 0.3 Capital additions 240.9 168.5 Discontinued operations - 36.7 Total Group capital investmen
Slide 40: Balance sheet – pensions
Pennon Balance sheet – pensions Pensions 31 31 (£m) March March 2022 2021 Pension schemes’ assets 1,052 911 Pension schemes’ liabilities (986) (902) Net pension schemes’ assets 66 9 Deferred tax (12) (2) Net of tax pension schemes’ assets 54 7 c. £28m c. £7m c. £25m Responsible employer Bristol Wate
Slide 41: Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 31 March 2022 Pennon Water South West (£m) Group business Water Leasing 1,212 1,212 1,211 Bank bilaterals 682 635 502 Index-linked bonds 773 628 421 Fixed rate bonds 213 193 135 Private placements 309 167 160 Preference sh
Slide 42: Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 31 March 2022 Pennon Group (£m) Book value Fair value Difference Bank bilaterals 682 695 (13) Index-linked bonds 773 886 (113) Fixed rate bonds 213 260 (47) Private placements1 309 304 5 Preference shares 13 26 (13) Total borrowings (excluding
Slide 43: South West Water: resilient performance despite challenges from global pandemic
South Resilient performance despite challenges West from global pandemic Water Underlying1 2021/22 2020/21 Change (£m) Household demand remains Revenue2 583.4 563.0 +3.6% elevated Operating costs (251.9) (222.4) (13.3%) EBITDA 331.5 340.6 (2.7%) Non-household and other Depreciation and amortisation
Slide 44: Net interest analysis
Water Net interest analysis Business 2021/22 2020/21 Water Bristol South West South West (£m unless stated) Business Water 1 Water 2 Water 2 Underlying net interest charge (99.3) (22.5) (76.8) (56.5) Less: pensions net interest (0.2) 0.2 (0.4) 0.4 Add: capitalised interest (1.3) (0.3) (1.0) (0.9) Ne
Slide 45: Financial Outcome Delivery Incentives – South West Water 2021/22
South Financial Outcome Delivery Incentives – West 2021/22 Water Area of Outperformance On track Marginal Area of excellence 10 11 14 7 focus 2 Bespoke • Biodiversity • Bathing water quality • Abstraction incentive • Descriptive compliance • EPA score ODIs • Wastewater resilience • Biodiversity – pr
Slide 46: Financial Outcome Delivery Incentives – Bristol Water 2021/22
Bristol Financial Outcome Delivery Incentives – Water 2021/22 Area of Outperformance On track Marginal Area of excellence 3 10 9 4 focus 3 Bespoke • Properties – risk of low • Water quality – taste and • Abstraction Incentive • Water quality – appearance • Meter penetration ODIs pressure smell Mecha
Slide 47: Return on Regulated Equity
Water Return on Regulated Equity Business 1 2 1 2 cumulative 7.9% cumulative 8.2% cumulative 4.9% cumulative 6.3% 9.2% 7.8% 8.7% 7.4% 6.7% 6.8% 5.2% 3.1% Base Totex Tax Financing 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 ODI Outperforming in all areas • c. 10%3 cumulative totex
Slide 48: Bristol Water: financial performance ahead of acquisition expectations
Bristol Financial performance ahead Water of acquisition expectations Underlying1 2021/22 (£m) Revenue2 104.4 10-month contribution Operating costs (51.1) EBITDA 53.3 Strong Depreciation and amortisation (24.0) operational performance Operating profit 29.3 Net interest (20.1) Interest costs Profit b
Slide 49: Sharing best practice to deliver synergistic benefits
Pennon Sharing best practice to deliver synergistic benefits 24 month programme to integrate the businesses Synergies of c. £20 million per annum identified – full run rate by 2025, targeting c. £50 million over K7 Deploying our proven integration blueprint Scale of synergies broadly in line with Bo
Slide 50: Net Zero 2030 – reducing our carbon footprint in the Great South West
Pennon Net Zero 2030 – reducing our carbon footprint in the Great South West Our promise • Sustainable living – reducing emissions through to the planet – changes to operational practices and helping customers OUR PROM ISE TO underpinned by to use less THE PLAN ET CARBON-BU STING NET three key pilla
Slide 51: Water Services: strong market performance
Pennon Strong market performance Water Services 1 Underlying2 (£m) 2021/22 2020/21 Change Revenue 195.3 162.8 +20.0% Business wins underpinning Water segment wholesale elimination (90.9) (81.6) +11.4% revenue growth Revenue excluding elimination 104.4 81.2 +28.6% Operating costs (191.9) (161.4) (18.