Pennon Group Plc · LSE:PNN
Pennon — Non-Deal Roadshow (February 2017)
55 slides from Pennon's roadshow presentation, February 2017
Slide 1: London Investor Roadshow
London Investor Roadshow February 2017 © Pennon Group plc 2017
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this technology systems management and protection including higher risks, “document” shall mean this presentation pack and shall be deemed to maintaining finance and funding to meet ongoing commitments, include references to the
Slide 3: About Pennon Group
About Pennon Group Unique combination of environmental infrastructure assets Pennon • At the top end of the FTSE 250 index with a market capitalisation of £3.6 billion • Assets of £5.8 billion and a workforce of over 5,000 people • Dividend policy of +4% annual growth above Retail Price Index inflat
Slide 4: Pennon Group Strategy
Pennon Group Strategy One of the largest environmental infrastructure groups in the UK Strategic priorities Focused on moving towards a more consistent risk profile DELIVER FOR LEADERSHIP IN CAPITALISE ON DELIVER FOR CUSTOMERS, EFFICIENT COST CAPITALISE GROUP-WIDEON LEADERSHIP IN CUSTOMERS, COMMUNIT
Slide 5: Investment case
Pennon Group Investment case ‘SECTOR-LEADING WATER BUSINESS, GROWING RECYCLING, ENERGY RECOVERY AND WASTE MANAGEMENT GROUP’ WELL-POSITIONED TO PREDICTABLE EFFICIENT/EFFECTIVE TAKE OPPORTUNITIES INDEX-LINKED BALANCE SHEET AND IN A CHANGING EARNINGS AND CASH SECTOR-LEADING REGULATORY FLOW GROWTH FINAN
Slide 6: Financial Overview
Financial Overview © Pennon Group plc 2017
Slide 7: Financial Highlights
Half Year 2016/17 Financial Highlights(1) Results on track to meet management’s expectations DIVIDEND PER SHARE +6.0% to 11.09p ADJUSTED EBITDA(2) OPERATING PROFIT £277.2m £153.9m +6.0% +13.7% NET FINANCE COST EARNINGS PER SHARE(3) £28.6m 23.6p Effective rate of 3.3% +1.7% (SWW 3.2%) (1) Before non-
Slide 8: Financial Highlights: Pennon – robust results
Half Year 2016/17 Financial Highlights Pennon – robust results A £m Adjusted EBITDA ahead Underlying(1) H1 2016/17 H1 2015/16 CHANGE • Higher SWW revenue and opex efficiencies Revenue 685.5 689.1 (0.5%) • Strong ERF performance • Recycling self-help measures EBITDA 245.4 231.7 +5.9% South West Water
Slide 9: South West Water – continued outperformance of regulatory contract
Half Year 2016/17 Financial Highlights South West Water – continued outperformance of regulatory contract - 11.7% RORE A H1 H1 Revenue £m CHANGE 2016/17 2015/16 • Tariff increase 1.4% (1.1% RPI) Revenue A 287.9 279.3 +3.1% • Higher demand up 1.3% • Increase in new connections Operating Costs(1) (104
Slide 10: Viridor – growth driven by ERFs and recycling self-help
Half Year 2016/17 Financial Highlights Viridor – growth driven by ERFs and recycling ‘self-help’ £m H1 2016/17 H1 2015/16 CHANGE A Revenue(1) 397.9 410.1 (3.0%) Growth in ERF EBITDA • Increase vs H1 2015/16 as EBITDA(2) 63.3 61.0 +3.8% plants ramp-up • Expected to contribute c.£100m ERFs A 50.5 43.8
Slide 11: Non-underlying Items
Half Year 2016/17 Non-underlying Items A Restructuring £m H1 2016/17 H1 2015/16(1) • Shared Services Review delivering additional c.£6m per annum of Operating costs efficiencies from 2019 Shared services restructuring costs A (10.7) - • Migration to a Group platform – non- cash asset de-recognition
Slide 12: Taxation
Half Year 2016/17 Taxation H1 H1 £m A 2016/17 2015/16 Current Year Current tax Current tax A 23.1 18.5 • Current year current tax effective rate of 18.0% (H1 Deferred tax 9.5 6.4 2015/16 17.3%) reflecting capital allowances (including 32.6 24.9 ERFs) Prior Year Current tax (0.3) (14.7) Deferred tax
Slide 13: Capital Investment
Half Year 2016/17 Capital Investment Investing For Growth £m H1 2016/17 H1 2015/16 ERF CAPITAL INVESTMENT(3) £204m Viridor c.£180m c. £80m ERFs(1) 86 87 c.£140m £139m Recycling 2 3 Landfill Energy 5 6 £86m c.£60m Contracts and Collections 4 5 Other 7 7 Viridor Total 104 108 2014/15 2015/16 H1 2016/1
Slide 14: Net debt movements
Half Year 2016/17 Net debt movements Strong cash inflow from operations, continuing investment £m (163.0) (2,566.1) (2,484.4) (131.6) (33.3) (6.2) (9.1) 257.5 4.0 Net Debt Cash inflow JV Loan Pension Other Net Interest Dividends Capital Net Debt (1) (3) 1-Apr-16 from Repayments Contributions movemen
Slide 15: Balance Sheet
Half Year 2016/17 Balance Sheet Strong funding position underpinning capital investment GROUP NET CASH / COMMITTED BORROWINGS FACILITIES(2) £2,566m £1,603m (31 March 2016 £2,484m) (31 March 2016 £1,707m) Net borrowings increased with capital investment GROUP NET GEARING(1) Gearing 65.3% • Pennon – r
Slide 16: Balance Sheet: Sustainable funding
Half Year 2016/17 Balance Sheet Strong funding position underpinning capital investment Sustainable funding GROUP NET FINANCE COSTS (1) • Diversified funding mix of fixed, floating and index-linked borrowings £28.6m • Weighted average debt maturity of 21 years – matching the asset base (H1 2015/16 £
Slide 17: Dividend Growth
Dividend Growth Sector leading policy Policy of 4% + RPI leading to a +5.6% +4.9% 33.58 doubling of dividend over 10 +6.5% +7.3% 30.31 31.80 years (2010 to 2020)(1) +7.6% 28.46 +9.3% 26.52 24.65 22.55 Scrip dividend alternative available as an option to +6.0% shareholders H1 11.09 2009/10 2010/11 20
Slide 18: Operational Overview
Operational Overview © Pennon Group plc 2017
Slide 19: Operational Highlights
Operational Highlights Half Year 2016/17 Building Momentum, Driving Growth Good operational and financial performance • Consistent outperformance in Water – RORE of 11.7% • ERF portfolio on track to deliver c.£100m EBITDA 2016/17 • Recycling – self-help measures delivering improved margins Continued
Slide 20: Water: Sector leading RORE outperformance
Water: Good operational and financial performance Sector leading RORE outperformance OFWAT INDUSTRY RORE(2) COMPARISON 2015/16 Cumulative RORE (1) performance to H1 2016/17 11.7% Totex 2.3% ODIs 0.3% Financing 3.1% Base returns 6.0% (1) Cumulative annual equivalent outperformance to H1 2016/17 (2) S
Slide 21: Water: Building momentum from strong early outperformance
Water: Good operational and financial performance Building momentum from strong early outperformance K6 Totex Confidence in delivering cumulative K6 Totex outperformance outperformance • Continuing advantage from strategic alliances - New water distribution alliance framework - H50 capital delivery
Slide 22: Water: Cumulative 2016/17 performance levels
Water: Good operational and financial performance Cumulative 2016/17 performance levels Water quality standard Odour contacts Taste, smell and colour contacts Bathing water quality Operational contacts resolved 1st time Water & waste asset reliability Water restrictions Sustainable abstractions Supp
Slide 23: Water: Delivering ODI performance
Water: Delivering ODI performance Focus on delivery and improvements Water restrictions & quality • 20th consecutive year without water restrictions • Leakage target met every year since inception – driving further improvements • Maintaining top quartile water quality performance Bathing water quali
Slide 24: Water: Prepared for regulatory and market developments
Water: Prepared for regulatory and market developments Engaged in Water 2020 Debt consultation • SWW leading company adopting pain/gain sharing at PR14 – consistent with our WaterShare approach • Structure close to the notional company structure and gearing levels Market Reform • Lowest exposure in
Slide 25: Viridor: ERF and landfill portfolios delivering
Viridor: Good operational and financial performance ERF and landfill portfolios delivering H1 2016/17 Focus on reliability and optimising performance ERFs • On track to deliver c. £100m of EBITDA in 2016/17 • Expected availability of c.90% in 2016/17 8 operational 3 in construction Continued progres
Slide 26: Recycling self-help increasing EBITDA
Viridor: Good operational and financial performance Recycling ‘self-help’ increasing EBITDA VOLUMES 0% H1 2016/17: 0.9mT (H1 2015/16: 0.9mT) Self-help measures driving improved margin • Cost and overhead reduction REVENUES • Further opportunities to improve returns from portfolio £-/T H1 2016/17: £8
Slide 27: Viridor: Significant growth to come from ERFs
Viridor: Significant growth to come from ERFs Long-term revenue streams secured Portfolio of ERFs continue to deliver significant growth in EBITDA Avonmouth ERF REVENUE MIX South London 5% RECOVERED METALS Dunbar Glasgow (IFRIC 12) 25% IFRIC 12 Interest POWER OUTPUT Receivable Adjusted Share of EBIT
Slide 28: Continued focus and momentum on cost efficiency
Pennon Continued focus and momentum on cost efficiency SWW Totex savings Delivering cumulative totex savings £80m K6 to date SWW/BW SYNERGIES Bournemouth Water synergies on track £27m 2015-2020 (K6) SWW/VIRIDOR EFFICIENCIES 2015/16 announced cost savings being delivered £11m p.a. By 2017/18 Group sh
Slide 29: Securing further growth opportunities
Pennon Securing further growth opportunities Avonmouth ERF – Key Facts • £252m investment • 320,000 tonnes inputs with c.33MW / c.260,000MWh electricity output • Operational - 2020/21 • Clear market opportunity with already c. 50% early contract commitments Non-household Retail Joint Venture – Key F
Slide 30: Optimising the risk/reward profile
Pennon Optimising the risk/reward profile Growing asset base • Water RCV growth of 21% over K6 • ERFs - 11 plants, including 3 under construction on-stream by H1 2018/19. − Glasgow – commissioning expected to commence in 2017 − Dunbar and Beddington (South London) - construction in progress − Newly
Slide 31: Outlook
Outlook Well prepared for the future Good operational and financial performance in water and waste Continued focus on cost efficiency Securing further growth Well prepared for regulatory and market developments 31 (1) Expected annual efficiency from 2019 © Pennon Group plc 2017
Slide 32: Questions
Questions © Pennon Group plc 2017
Slide 33: Appendix
Appendix © Pennon Group plc 2017
Slide 34: Adjusted group EBITDA
Pennon Half Year 2016/17 Adjusted group EBITDA 2.0 1.9 1.4 0.8 0.3 £m 3.8 277.2 6.7 7.2 (1.3) 261.6 (3.1) (4.1) (1) H1 2015/16 SWW Tariff ERFs Recycling Plc/Other Share of JV SWW Other SWW Net Viridor Landfill Landfill Gas Contracts & H1 2016/17 Increase and EBITDA + Revenue Cost Savings Overheads C
Slide 35: Diversified funding sources
Pennon Half Year 2016/17 Diversified funding sources £m (As at 30 September 2016) Finance Leasing(1) 1,334 Finance leasing Bank Bilaterals - Term Loans 403 provides key role in long-dated funding European Investment Bank Loans 380 Index-Linked Bond 413 Fixed Rate Bond 133 Private Placements 561 Tota
Slide 36: Fair value of non-current debt
Pennon Half Year 2016/17 Fair value of non-current debt As at 30 September 2016 As at 31 March 2016 £m Book Fair Difference Book Fair Difference value value value value Finance Leases 1,307 1,188 119 1,315 1,163 152 Bank and Other Loans 378 388 (10) 403 403 - European Investment Bank 339 300 39 235
Slide 37: Net interest analysis
Pennon Half Year 2016/17 Net interest analysis(1) £m H1 2016/17 H1 2015/16 Net interest payable (28.6) (29.5) Add: capitalised interest (6.1) (4.0) Less: notional interest payable(2) 5.7 7.0 Efficient effective interest Add: interest receivable on service rate concession contracts (8.8) (8.3) Net in
Slide 38: Pensions
Pennon Half Year 2016/17 Pensions Deficit has increased due to the 30 September 31 March £m 2016 2016 post-Brexit fall in bond yields, increasing the valuation of Pension schemes’ assets £893m £793m liabilities Pension schemes’ £1,009m £834m Over half of the increase in the liabilities valuation of
Slide 39: Significant energy generation
Pennon Half Year 2016/17 Significant energy generation Group energy generation • Total renewable energy generation of c.0.9TWh in the first half of 2016/17 UK forward power prices − 8 ERFs – 632GWh − Landfill gas – 263GWh − 25 Hydro turbines – 3.7GWh generation − 53 solar PV installations – 7.6GWh(1
Slide 40: South West Water
South West Water © Pennon Group plc 2017
Slide 41: Revenue breakdown
South West Water Half Year 2016/17 Revenue breakdown £m 1.6 1.1 3.7 287.9 4.0 279.3 (1.8) NHH Retail(1) H1 2015/16 Tariff increase Increased customer Other sales New connections Meter optants H1 2016/17 demand (1) Non-Household retail revenues reflect the total revenue from Non-Household customers (
Slide 42: Operating cost breakdown
South West Water Half Year 2016/17 Operating cost breakdown £m 2.3 1.4 161.6 160.7 (0.9) (3.7) H1 2015/16 Cost increases incl. Bournemouth Water full Bad debt reduction Efficiency savings and H1 2016/17 inflation period impact other cost reductions 42 © Pennon Group plc 2017
Slide 43: Delivering operational outperformance
South West Water Half Year 2016/17 Delivering operational outperformance Highest potential returns in the 2016/17 Cumulative industry Operational RORE £80m of Totex savings delivered TOTEX +2.3% • Totex largest element of potential +1.5% operational outperformance £38.5m(1) • Opex lower than last ye
Slide 44: Reconciliation of RORE to financials
South West Water Reconciliation of RORE to financials Combined Totex outperformance • Operating costs £105m + Capital Expenditure £80m = £185m • Totex allowance(1) assumed for H1 2016/17 = £209m • £24m Totex saving equates to £11m of RORE benefit after applying company sharing rate and tax impact (c
Slide 45: Performance & WaterShare 2015/16
South West Water Performance & WaterShare 2015/16(1) Shareholder (£m) Customer (£m) Net Totex savings(2) 25.5 21.0 1.8 1.8 ODIs Shareholder Investment in value enhancing services Other items(3) - 3.1 Total Value Benefit 27.3 25.9 Shared through: Shared through: • Dividends • Re-investment options •
Slide 46: Viridor
Viridor © Pennon Group plc 2017
Slide 47: Revenue breakdown
Viridor Half Year 2016/17 Revenue breakdown £m 410.1 7.8 5.4 0.7 397.9 (4.2) (9.9) (12.0) H1 2015/16 Contracts, Collections & ERFs - operational Recycling Landfill gas Landfill ERFs - IFRIC 12 H1 2016/17 Other revenue construction revenue 47 © Pennon Group plc 2017
Slide 48: Adjusted EBITDA breakdown
Viridor Half Year 2016/17 Adjusted EBITDA breakdown £m 1.9 3.8 0.3 6.7 95.1 90.9 (1.3) (3.1) (4.1) H1 2015/16 ERFs Recycling Share of JV EBITDA & Viridor Overheads Landfill Landfill Gas Contracts, Collections H1 2016/17 IFRIC 12 Interest & Other(1) Receivable (1) H1 2015/16 included higher asset sal
Slide 49: Profit contribution by activity
Viridor Half Year 2016/17 Profit contribution by activity(1) £m H1 H1 CHANGE 2016/17 2015/16 ERFs 38.3 30.1 +27.2% Landfill (7.4) (9.4) (21.3%) Landfill Gas 10.9 12.2 (10.7%) Recycling 6.6 3.5 +88.6% Contracts, collections and other 11.3 16.3 (30.7%) Joint Ventures 7.8 6.7 +16.4% Total contribution
Slide 50: Joint Venture profitability
Viridor Half Year 2016/17 Joint Venture profitability £m H1 H1 CHANGE 2016/17 2015/16 Improved TPSCo performance at TPSCo Share of EBITDA 8.3 6.7 +23.9% Share of PAT - (1.4) - Viridor Laing Greater Manchester Share of EBITDA 1.7 1.6 +6.3% Share of IFRIC 12 interest receivable 5.6 5.7 (1.8%) Share of
Slide 51: Viridor: Securing further growth opportunities
Viridor: Securing further growth opportunities ERF waste market changes ERF under capacity(1) continues to 2030 and beyond 30 25 UK combustible residual waste market (mt) 20 15 10 5 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 ERF capacity Viridor ERF capacity Un
Slide 52: ERF accounting
Viridor ERF accounting An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA Illustrative ERF(1) IAS 16 IFRIC 12 JVs EBITDA £28m £12m -- IFRIC 12 Interest -- £16m -- Receivable IAS 16(2) IFRIC 12(2) JVs Share of JV EBITDA -- -- £14m • Oxford • Exeter • Lakeside (50%) • Runcor
Slide 53: ERF CAPEX – Efficient investment to deliver growth
Viridor ERF CAPEX(1) – Efficient investment to deliver growth Cumulative Capital Cumulative Remaining Total Original spend at investment spend to spend to project planned £m 1 April 2016 H1 2016/17 30 Sept 2016 completion spend project spend ERF projects in operation Exeter 47 - 47 - 47 47 Oxford (A
Slide 54: ERF build-out nearing completion
Viridor ERFs (including Joint Ventures) Base load Capital municipal Actual/expected Site Cost (1) Gross capacity Status contract commissioning Tonnes Electricity £m Progress on ERF pipeline (000) MWe Fully Lakeside(2) 150 410 38 Merchant Commissioned operational Fully Greater Bolton N/A 120 9 Commis
Slide 55: © Pennon Group plc 2017
© Pennon Group plc 2017