Pennon Group Plc · LSE:PNN
Pennon — Non-Deal Roadshow (March 2023)
45 slides from Pennon's roadshow presentation, March 2023
Slide 1: North America Roadshow March 2023
North America Roadshow March 2023
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to There are a number of factors that could cause actual results, a) neither Pennon Group nor any other member of Pennon this “document” shall mean this presentation pack and shall performance or achievements of Pennon Group to dif
Slide 3: Paul Boote and Jennifer Cooke
Paul Boote Jennifer Cooke Group Chief Financial Officer Group Head of Investor Relations © Pennon Group plc 2023 3
Slide 4: About us...
Pennon About us... At Pennon Group, we provide clean and wastewater services Our purpose through our businesses across the Great South West. Our team Bringing water to life – of around 3,000 talented colleagues work around the clock to supporting the lives of people and the deliver services to a pop
Slide 5: About us... Our businesses and brands
Pennon About us... Our businesses and brands 1 1 water wastewater water water water retail services services services services services c. 1.8 million c. 500,000 c. 1.2 million Profitable businesses providing water retail services to businesses across population served population served population s
Slide 6: Ofwat and Sector Regulation
Pennon 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) Food & Rural Affairs was formed in 1990 to provide independent Defra is a Government Body. Their mandate i
Slide 7: Robust fundamentals, driving sustainable growth
Pennon Robust fundamentals, driving sustainable growth Net Zero 2030 100% c.50% on track Improving bathing water quality for second reduction environmental year running in bathing water OUR PROMISE TO THE PLANET performance storm overflow use CARBON-BUSTING NET ZERO PLAN Record c. £143 c. 30% millio
Slide 8: Robust fundamentals, driving sustainable growth
Pennon Robust fundamentals, driving sustainable growth Green Recoverye c. £225 Initiativ Group million Customer Advisory RORE 1 Panel Annual 13.4% report 2022 Double digit outperformance BW Identity WIP Calibre Semi Bold Pantone: 2145 25.07.16 and Regular Pantone 2145 (98C 62M 14K) returns enabling
Slide 9: Innovating to deliver – water resources
Pennon Innovating to deliver – water resources Driest, hottest year on record across the region • Record demand and visitor numbers Continuous supply of clean, safe drinking water • ‘Quality-first’ principle adopted • Agile operational response – flexed our network connectivity, continued elevated m
Slide 10: Operational & environmental performance
Pennon Operational & environmental performance Outcome Critical ways in which we monitor Additional Green Recovery Delivery Environmental Performance Assessment 1 and track our operational and investment, above our business plan commitments Incentives Our operations and initiatives are aligned to en
Slide 11: Financial performance H1 2022/23
Financial performance H1 2022/23 © Pennon Group plc 2023 11
Slide 12: Summarised income statement
Pennon Summarised income statement Underlying1 (£m unless stated) H1 2022/23 H1 2021/22 Change As flagged, Revenue 425.5 389.3 +9.3% near-term impact EBITDA 174.6 199.4 (12.4%) on earnings driven Operating profit 97.2 127.4 (23.7%) by inflationary Net finance costs (74.7) (37.0) (101.9%) pressures P
Slide 13: Profit before tax
Pennon Profit before tax Bristol Water South West Water Pennon Group • Additional 2 months EBITDA • Elevated demand levels continue • +43.8% EBITDA growth in PWS contribution compared to H1 to increase – Underlying contract growth 2021/22: +£12.5m1 • Regulatory revenue adjustments3 and demand recove
Slide 14: Increasing environmental investment
Pennon Increasing environmental investment H1 c. 30% increase in 2022/23 capital investment £55.6 South West Water clean water investment vs H1 2021/22 million • Water resources – investment to boost and protect supplies • Water quality investment including granular activated Group capital carbon (G
Slide 15: Sustainable net debt
Pennon Sustainable net debt Pennon Group – summarised net debt flow H1 2022/23 H1 2021/22 (£m) flows flows Net debt excluding fair value uplifts 30 September (2,514.3) 107.8 Opening balance 1 April (2,682.9) 64.3 Cash inflow from operations 160.2 135.9 Corporation tax paid (3.1) (6.3) Net interest p
Slide 16: Responsible and sustainable balance sheet
Pennon Responsible and sustainable balance sheet Water business Water business Water business Net debt RCV 1 Gearing: Net debt 2/ RCV 1 £2.3bn £0.4bn Forecast 2022/23 growth £4.0bn 58.4% March 2022 – 62.7% Below Ofwat’s £2.7bn notional gearing of 60% WATER £4.6bnWATER BUSINESS BUSINESS K7 RCV growth
Slide 17: Efficient and responsible financing
Pennon Efficient and responsible financing Agile and efficient financing Strategically positioned financing • Average maturity of debt c. 15 years portfolio • Dynamic hedging strategy reducing interest volatility • Bristol Water index-linked c. £40 million bond Lower proportion of index-linked termi
Slide 18: Investing in renewable energy generation
Pennon Investing in renewable energy generation Delivering on our Net Zero 2030 commitments • £160 million held for investment in renewable energy – investment accelerating the delivery of our Net Zero commitment • Advanced discussions underway with a range of counterparties offering large scale sol
Slide 19: Guidance update – 2022/23
Pennon Guidance update – 2022/23 2022/23 results – H1 weighted H2 2022/23 Revenue Operational costs Financing trends Lower customer demand Seasonal increases in power Index-linked exposure anticipated as a result of usage and inflationary reduced, minimising continued water efficiency impact on inpu
Slide 20: Operational performance H1 2022/23
Operational performance H1 2022/23 © Pennon Group plc 2023 20
Slide 21: Improving environmental performance
Pennon Improving environmental performance Nurturing healthy Reducing our impact Working with communities, rivers and seas on rivers by 1/3 by 2025 open and transparent • 100% bathing water quality • Extensive enhancement • 100% of storm overflows now achieved for second year running programme acros
Slide 22: Pollution Incident Reduction Plan – delivering benefits
Pennon Pollution Incident Reduction Plan – delivering benefits Pollution Incident Reduction Plan October 2022 Update • Pollution incident reduction plan activities accelerated to deliver maximum environmental benefit – Best performance in 10 years: >50% reduction in wastewater pollutions in first tw
Slide 23: Investment driving operational performance
Pennon Investment driving operational performance 1 95% WATER • 4 GAC2 and manganese removal investments underway – for 2025, delivering water quality improvement to 70% of Cornwall capital programme • 50% uplift in our tank cleaning programme under framework contracts • Leakage currently on track,
Slide 24: Supporting all our customers and communities
Pennon Supporting all our customers and communities Reducing bills Addressing Encouraging water Playing our part for all customers water poverty efficiency in the community • Keeping 2023/24 bills • c. £28 m of support • Smart meter roll-out • Providing c. £1 million significantly below inflation un
Slide 25: Double digit RORE outperformance enabling reinvestment
Pennon Double digit RORE – outperformance enabling reinvestment 1 Cumulative RORE outperformance of 9.5% to date in K7 Continue to anticipate cumulative doubling of base returns c.£87 million c.£148 million Net of totex efficiencies 2 financing outperformance c. £10 million ODI penalty 3 13.4% Group
Slide 26: Long term sustainable growth – bringing together the best of the best
Pennon Long term sustainable growth – growing the business, bringing together the best of the best 24 month programme to integrate the business • Licence change and statutory transfer completed February 2023 • Phase one well underway – organisational changes in progress • Rolling out Group wide heal
Slide 27: Growing a profitable, sustainable national platform for business retail
Pennon Long term sustainable growth – growing a profitable, sustainable national platform for business retail • c. 6% market share • Resilient financial performance – £0.9 million profit 80% ownership after tax in H1 2022/23 - c. £8 million contract wins during H1 in addition to one of the lowest cu
Slide 28: PR24 – delivering for now and the next generation
Water PR24 – delivering for now and the next generation Business JUNE JULY AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT 2022 2023 Price Review 2024 Business Plan Price Review Final PR24 Draft Water Resources 2024 methodology submission Management Plan Customer Summary WRMP 2025-20
Slide 29: Robust fundamentals, driving sustainable growth
Pennon Robust fundamentals, driving sustainable growth Record Improving c. 30% Supporting environmental increase in all our performance investment customers * MSCI disclaimer referenced on p.86 of Pennon’s 2022 Annual Report and Accounts Long-term sustainable Double digit Financial growth – discipli
Slide 30: Appendix
Appendix © Pennon Group plc 2023 30
Slide 31: Technical guidance full year 2022/23
Pennon Technical guidance full year 2022/23 Pennon Group FY 2021/22 Change Revenue • Full year revenue contribution from Bristol Water • Reduced demand from customer water saving incentive • Pennon Water Services growth through contract wins and • Non-underlying impact of customer water saving conti
Slide 32: Revenue growth
Pennon Revenue growth Bristol Water South West Water Pennon Group • Full period contribution • Stable, elevated demand • Revenue growth supported during the period by PWS contract wins Revenue 6.2 5.8 425.5 5.6 (£m) 22.5 0.4 (0.3) (4.2) 389.3 H1 Bristol Water Bristol Water net SWW PWS PWS Other H1 2
Slide 33: Responsible approach to tax
Pennon Responsible approach to tax Current tax position – effective Corporation tax H1 2022/23 H1 2021/22 rate of 6.7% (£m) • Super-deductions generate a significant deduction in the half year with c. 40% of Current tax (1.5) (4.5) additions qualifying for super-deductions Deferred tax (1.2) (0.7) •
Slide 34: Income statement – EPS reconciliation
Pennon Income statement – EPS reconciliation Adjusted EPS (£m unless stated) H1 2022/23 H1 2021/22 Profit before tax 20.9 79.9 Adjusted for: Non-underlying items (pre-tax) 1.6 10.5 Current tax 1.5 (4.5) Minority interest1 (0.2) (0.1) Profit for adjusted EPS calc 20.8 85.8 Basic weighted average numb
Slide 35: Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment (£m) H1 2022/23 H1 2021/22 South West Water 118.1 98.7 Clean water 55.6 50.3 Wastewater 62.5 48.4 Bristol Water 24.4 11.6 Other Group 0.1 0.3 Capital additions 142.6 111.5 Group capital payments (£m) Group capital additions 14
Slide 36: Balance sheet – Pensions
Pennon Balance sheet – Pensions Pensions 30 31 (£m) September March 2022 2022 Pension schemes’ assets 746 1,052 Pension schemes’ liabilities (695) (986) Net pension schemes’ assets 51 66 Deferred tax (10) (12) Net of tax pension schemes’ assets 41 54 100% De-risked investment Bristol Water scheme fu
Slide 37: Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 30 September 2022 Pennon Water South West (£m) Group Business Water Leasing 1,068 1,068 1,067 Bank bilaterals 762 715 581 Index-linked bonds 785 646 425 Fixed rate bonds 212 192 136 Private placements 280 167 160 Preferenc
Slide 38: Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 30 September 2022 Pennon Group (£m) Book value Fair value Variance Bank bilaterals 762 741 21 Index-linked bonds 785 676 109 Fixed rate bonds 212 196 16 Private placements1 280 305 (25) Preference shares 13 22 (9) Total borrowings (excluding le
Slide 39: South West Water results
South Resilient performance despite challenges West from global pandemic Water Underlying1 H1 2022/23 H1 2021/22 Change (£m) Household demand remains Revenue2 294.1 298.1 (1.3%) elevated Operating costs (154.5) (119.8) (29.0%) EBITDA 139.6 178.3 (21.7%) Non-household and other Depreciation and amort
Slide 40: Net interest analysis
Water Net interest analysis Business H1 2022/23 H1 2021/22 Water Bristol South West South West (£m unless stated) Business Water Water 1 Water 1 Underlying net interest charge (78.1) (19.8) (58.3) (32.7) Less: pensions net interest (1.0) (0.2) (0.8) (0.2) Add: capitalised interest (1.6) (0.5) (1.1)
Slide 41: RORE outperformance
Water RORE outperformance Business Cumulative RORE performance H1 2022/23 Cumulative £m 2020/ 21 2021/ 22 H1 2022/23 Cumulative total RORE RORE Financials Totex 68 26 -22 72 14.7% Financing 14 53 81 148 9.2% 10.2% Tax -8 7 16 15 8.6% ODIs -12 11 1 -10 5.5% 5.1% 5.2% 2.9% Ofwat 62 87 76 225 WaterShar
Slide 42: Maintaining momentum – ODI performance
Water Maintaining momentum – Business ODI performance Delivering Delivering net reward net penalty • Delivering c. £2.1 million net reward • Delivering c. £0.6 million net penalty • 8 Outcome Delivery Incentives • 2 Outcome Delivery Incentives achieving 2025 target early achieving 2025 target early
Slide 43: Financial Outcome Delivery Incentives – South West Water 2022/23
South Financial Outcome Delivery Incentives – West 2022/23 Water Area of Outperformance On track Marginal Area of excellence 8 8 20 6 focus 2 Bespoke • Bathing water quality • Biodiversity – prevent • Abstraction incentive mechanism • Water pollution incidents • EPA score ODIs • Biodiversity deterio
Slide 44: Financial Outcome Delivery Incentives – Bristol Water 2022/23
Bristol Financial Outcome Delivery Incentives – Water 2022/23 Area of Outperformance On track Marginal Area of excellence 2 5 14 4 focus 4 Bespoke • Local community satisfaction • Satisfied vulnerable customers • Abstraction Incentive Mechanism • Water quality – appearance • Meter penetration ODIs •
Slide 45: Strong market performance – Pennon Water Services
Pennon Strong market performance Water Services 1 Underlying2 (£m) H1 2022/23 H1 2021/22 Change Revenue 108.2 92.7 +16.7% Business wins underpinning Water segment wholesale elimination (46.7) (43.2) +8.1% revenue growth Revenue excluding elimination 61.5 49.5 +24.2% Operating costs (105.9) (91.1) (1