Pennon Group Plc · LSE:PNN
Pennon — H1 2023/24 Earnings Presentation
45 slides from Pennon's earnings presentation, Nov 29, 2023
Slide 1: Half Year Results 2023/24
———y Pennon Half Year Results 2023/24
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, Group Chief Executive
Susan Davy Group Chief Executive © Pennon Group plc 2023 3
Slide 4: 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 • Delivering on our organic and acquisitive growth strategy – on track for c.60% RCV growth to 2025 and c.100% to 2030 • Delivering on sustainable Bristol acquisition
Slide 5: Paul Boote, Group Chief Financial Officer
Paul Boote Group Chief Financial Officer © Pennon Group plc 2023 5
Slide 6: Resilient financial performance
Resilient financial performance Underlying EBITDA Effective interest rate Return on regulated equity £168.5 million 5.8% 7.9% 1 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 7: Summarised income statement
Summarised income statement Underlying1 (£m unless stated) H1 2023/24 H1 2022/23 Revenue 448.6 425.5 esults in line R Power (55.2) (48.7) with management expectations Other operating costs (224.9) (202.2) EBITDA 168.5 174.6 • As flagged, elevated inflation impacting near Operating profit 85.9 97.2 t
Slide 8: 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 9: 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 addi
Slide 10: Step up in capital investment
Step up in capital investment H1 TOTAL 65% increase in 2023/24 £266.1 million2 capital investment vs H1 2022/23 1 £150.2 Water million • Water resources – investment to boost and protect supplies, including establishing new abstraction points, providing new strategic links between key supply sources
Slide 11: Financing portfolio strategically positioned
Financing portfolio strategically positioned Lower proportion of index-linked debt Effective interest Targeting compared to industry average rate 1 strong UK Water 5.8% investment grade credit gross debt rating 14 Average mix SOUTH maturity 69% 17% 14% • Progressing work WEST of debt to obtain two W
Slide 12: 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 13: Chief Executive's review
Chief Executive’s review © Pennon Group plc 2023
Slide 14: 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 15: Building water resources, diversifying our portfolio through innovation
Building water resources, diversifying our portfolio through innovation Breaking the drought cycle + c. 45% On track C for Devon and Cornwall – to augment supplies by 45% ORN ALL W Building water on track for 90% strategic On in Cornwall and 30% in Devon resources, improving reservoir levels by Marc
Slide 16: Improving the environment – spotlight on bathing water
Improving the environment – spotlight on bathing water 100% 90% of K7 Alleviating storm overflows bathing interventions and eliminating water quality delivered pollutions – third consecutive year1 for bathing and shellfish waters Bathing • 100% monitoring across storm overflows with • Piloting catch
Slide 17: Improving the environment – tackling pollutions
Improving the environment – tackling pollutions Alleviating Improved serious storm overflows Sector-leading pollution performance internal sewer flooding performance and eliminating – one event to date in 2023 pollutions Continued focus on reducing pollution incidents Internal sewer floodings Pollut
Slide 18: Driving environmental gains
Driving environmental gains 50% £145m reduction investment Driving in renewable energy environmental in carbon footprint providing 40% of Group 2023IIB030 CREWW BRANDING anticipated in K7 gains energy requirements Spotlight on catchment innovation – secured c. £20m K7 ODI benefit Centre for Resilien
Slide 19: Supporting affordability
Supporting affordability Supporting Below inflation Over £90 million affordability, bill increases customer support delivering for for 2023/24 and 2024/25 provided in K7 to date customers Addressing • 35% increase in customers benefiting from our social tariffs1 customer affordability • Over 120,000
Slide 20: Delivering improved outcomes for customers
Delivering improved outcomes for customers c. 75% ODI performance • Industry upper quartile 90% ODIs on track performance to date 80% or ahead of target 70% average c. 70% 60% 50% 40% 30% Areas of excellence 20% K7 Cumulative average Outcome 10% • Bathing water quality Delivery Incentives 0% • Biodi
Slide 21: 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 22: Strong PR24 platform for delivery
Strong PR24 platform for delivery Creating a strong foundation for K8 Bills at their lowest Top quartile Track record of point for 10 years common ODI RORE outperformance performance to date – doubling base returns Robust supply chain Established Unique Strong balance sheet in place – six Tier 1 ‘ea
Slide 23: 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 requirem
Slide 24: 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 Totex, assuming 3 - 4% average increase 74% Customer 12% efficiency per annum acceptability Growth for Incentivising Underpinned by investors performan
Slide 25: 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 © Pennon Group plc 2023 underway, mobilised supply chain 25
Slide 26: Appendix
Appendix © Pennon Group plc 2023
Slide 27: 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 28: 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 29: 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 30: 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 31: 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 32: 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 33: 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 34: 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 35: 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 36: 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 37: Net interest analysis
South Net interest analysis West Water H1 2023/24 H1 2022/23 (£m unless stated) South West Water 1 South West Water 1 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) Spl
Slide 38: Strong market performance
Pennon Strong market performance Water Services 1 Underlying2 (£m) H1 2023/24 H1 2022/23 Revenue 117.6 108.2 Overall 9% Water segment wholesale elimination (46.7) (46.7) growth in revenues v Revenue excluding elimination 70.9 61.5 H1 2022/23 Operating costs (114.5) (105.9) Business wins Water segmen
Slide 39: 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% Financing 14 53 133 66 266 1.4% 4.0% ODIs -12 12 -10 -3 -24 0.7% Ofwat 62 87 43 -33
Slide 40: Financial Outcome Delivery Incentives – 2023/24
South Financial Outcome Delivery Incentives – West Water 2023/24 – c. 75% on track or ahead of target Area of Outperformance On track Marginal Area of excellence 9 3 19 10 focus 3 Bespoke • Customer on one of our support • Biodiversity - prevent • Customers who find their bill • Water pollution inci
Slide 41: Financial Outcome Delivery Incentives – 2023/24 (Bristol Water)
Bristol Financial Outcome Delivery Incentives – Water 2023/24 – c. 70% on track or ahead of target Area of Outperformance On track Marginal Area of excellence 3 7 11 4 focus 4 Bespoke • Properties – risk of low pressure • Community satisfaction • Void properties • Water quality – appearance • Meter
Slide 42: 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 stora
Slide 43: 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 44: 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 45: Growing a profitable, sustainable national platform for business retail
Growing a profitable, sustainable national platform for business retail EBITDA • c. 6% market share PBT • Resilient financial performance – £1.7 million profit 80% ownership before tax in H1 2023/24 - c . £7 million growth from new contracts in H1 2023/24 • Trustpilot score 4.8/5 H1 H2 H1 H2 H1 2021