Pennon Group Plc · LSE:PNN
Pennon — Investor Presentation (March 2016)
32 slides from Pennon's investor presentation, March 2016
Slide 1: Salesforce Briefing: Building on a Strong Platform
SALESFORCE BRIEFING BUILDING ON A STRONG PLATFORM MARCH 2016
Slide 2: Disclaimer
DISCLAIMER For the purposes of the following disclaimers, references to this “document” shall mean higher cost for future service and growing deficit in relation to past service in the Defined this presentation pack and shall be deemed to include references to the related Benefit Schemes. speeches m
Slide 3: Pennon Strategy: Strong Platform, Evolving for Future
PENNON STRATEGY STRONG PLATFORM, EVOLVING FOR FUTURE LEADING UK-LISTED ENVIRONMENTAL INFRASTRUCTURE GROUP Strategic priorities FOCUSED ON MOVING TOWARDS A MORE CONSISTENT RISK PROFILE DELIVER FOR LEADERSHIP IN CAPITALISE ON INVESTING FOR CUSTOMERS, EFFICIENT COST GROUP-WIDE GROWTH COMMUNITIES, BASE
Slide 4: Pennon's Business: Significant and Growing Asset Base
PENNON’S BUSINESS SIGNIFICANT AND GROWING ASSET BASE (3) £BN EFFICIENT, EFFECTIVE ASSET BASE REVENUE PROFILE Recyclate Water – 9 NHH Retail 6 7 ERF power & Landfill 5% 0% (4) Gas Recyclate Competition 1% 6% 5 ERF power and landfill gas 4 3 5 Recycling, landfill, Water Recycling, landfill, collection
Slide 5: Delivering Shareholder Returns
DELIVERING SHAREHOLDER RETURNS COMMITTED TO SECTOR-LEADING, SUSTAINABLE DIVIDENDS +4% +4.9% annual increase +6.5% above RPI policy to 31.80 +7.3% 30.31 2020 +7.6% 28.46 26.52 Scrip dividend alternative 24.65 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Note: Full Y
Slide 6: Wholesale Water: On Track for Outperformance
WHOLESALE WATER ON TRACK FOR OUTPERFORMANCE • Enhanced business plan at PR14 Ofwat Water and sewerage companies’ Return on Regulated Equity (RoRE) 2015-20 • Highest RoRE potential in the sector • Track record of delivering efficiency • RoRE at 11.5%(1) Base returns in SWW Business Plan • Bournemouth
Slide 7: Wholesale Water: On Track for Outperformance
WHOLESALE WATER ON TRACK FOR OUTPERFORMANCE • Maintain cost leadership/ frontier H1 2015/16 Operational RoRE efficiency at PR19 TOTEX +2.2% -1.5% +2.3% • Building customer operational £12.5m SIM 0.0% quality -0.3% +0.2% £0.1m ODIs +0.3% -1.8% • Focus on environmental +1.5% £1.8m performance and cust
Slide 8: Energy Recovery Facilities (ERFs)
ENERGY RECOVERY FACILITIES (ERFS) PORTFOLIO OF ASSETS SERVING RESIDUAL WASTE MARKET • Build out risk diminishing Operational ERF 2016-18 Consented facility • 8 operational ERFs delivered • Construction of 3 further ERFs progressing well • On track to deliver c.£100m ERF EBITDA 16/17 • Supplies resid
Slide 9: Energy Recovery Facilities: Long-term, Predictable Returns
ENERGY RECOVERY FACILITIES (ERFS) LONG-TERM, PREDICTABLE, ASSET-BACKED, INDEX-LINKED RETURNS ERF REVENUE 5% RECOVERED METALS 25% POWER OUTPUT Pennon - natural hedge SWW/Viridor (c.25%) SHORT TERM MEDIUM TERM CONTRACTED WASTE FUEL 70% LONG TERM INPUT WASTE FUEL INPUT CONTRACTED (GATE FEES) (GATE FEES
Slide 10: Landfill and Landfill Gas
LANDFILL AND LANDFILL GAS A SOLID EARNINGS STREAM FROM GAS, CAPITALISE ON VALUE OF SITES CASH GENERATING BUSINESS • Simple, well-proven technology • Predictable gas volumes, steady decline, effective management of sales price risk LANDFILL SITES BEING CLOSED TO WASTE INPUTS • Reducing from 17 sites
Slide 11: Recycling
RECYCLING DRIVING TOWARDS MORE PROFITABLE RECYCLING SECTOR CONTINUES TO FACE HEADWINDS • Current focus on comingled waste, but quality of waste input vital SEEKING OPPORTUNITIES TO DE-RISK AND RATIONALISE ASSETS • ITOO change programme – essential response • Contract management, pain/gain sharing on
Slide 12: Non-Household Retail
NON-HOUSEHOLD RETAIL DEFEND AND GROW CUSTOMER BASE • Merging SWW and BW Non-Household Retail business (based in Bournemouth) • Standalone legally separated business • Defend incumbent business and grow out of area • Capitalise on Viridor footprint/order book/relationships/culture • Winning Scottish
Slide 13: Outlook
OUTLOOK UNDERSTANDING AND MANAGING THE REGULATORY ENVIRONMENT WATER 2020 AND FUTURE REGULATORY REFORMS • Engaged in Water 2020 through “market place for ideas” • RPI / CPI is key debate - Lowest RPI index-linked debt in industry - Approach and pace of transition to CPI important THE WASTE HIERARCHY
Slide 14: Appendix
PENNON GROUP PLC APPENDIX
Slide 15: Pennon Overview
PENNON OVERVIEW UNIQUE COMBINATION OF ENVIRONMENTAL UTILITY INFRASTRUCTURE ASSETS VIRIDOR One of the leading UK renewable energy, recycling and resource management companies providing services to more than 150 local authorities and major corporate clients as well as over 32,000 customers across the
Slide 16: Pennon – Old Structure
PENNON – OLD STRUCTURE MULTIPLE LAYERS Pennon Board of Directors Pennon South West Water Board Viridor Board South West Water Viridor Recycling / Wholesale Retail Energy Resource s Household Non- Household 16
Slide 17: Pennon – New Structure
PENNON – NEW STRUCTURE DECISION-MAKING STREAMLINED Pennon Board of Directors Pennon Executive Board South West Water Pennon Water (includes Bournemouth Viridor Services Water) (Non-Household Retail) 17
Slide 18: Pennon's Business: Earnings Underpinned by Long-term Contracts
PENNON’S BUSINESS EARNINGS UNDERPINNED BY LONG-TERM INDEX-LINKED CONTRACTS PENNON GROUP EARNINGS PROFILE (1) Non-Household Retail Contracts, Recycling Collections & Other(2) South West Water Landfill & Landfill Gas Underlying Group EBITDA ERFs(2) (1) As at H1 2015/16 (2) Includes share of JVEBITDA a
Slide 19: Driving Financial Outperformance
DRIVING FINANCIAL OUTPERFORMANCE FOCUS ON CONTINUOUS, SECTOR-LEADING EFFICIENCY AND EFFECTIVENESS INITIATIVES UNDERWAY ACROSS THE GROUP • Base efficiencies in water –13.8%(1) Totex outperformance in 2015/16 (c.£29m Totex at H1 2015/16) • Bournemouth Water integration –1.7% per annum of Totex outperf
Slide 20: Strong, Sustainable Balance Sheet
STRONG, SUSTAINABLE BALANCE SHEET STRONG FINANCIAL POSITION PROVIDING FLEXIBILITY GROUP NET GROUP NET CASH/COMMITTED BORROWINGS GEARING(1) FACILITIES(2) £2,345m 62.6% £1,816m (30 September 2015) (30 September 2015) (30 September 2015) SUSTAINABLE DEBT FUNDING • Diversified funding mix - large propor
Slide 21: Strong, Sustainable Balance Sheet: Low Cost Financing
STRONG, SUSTAINABLE BALANCE SHEET SECTOR-LEADING FINANCE COSTS PENNON EFFECTIVE INTEREST RATES WATER INDUSTRY 2014/15 AVERAGE INTEREST RATE ON NET DEBT K4 K5 K6 7.0% (2005-10) (2010-15) (2015-20) 7.8% 6.5% 5.1% 6.0% 5.1% 5.5% 5.0% 5.0% 4.9% 4.5% 4.7% 4.0% 4.1% 4.1% 3.5% 3.5% 3.0% SWW 3.3% SWW H1 201
Slide 22: Investing for Growth
INVESTING FOR GROWTH APPROACH TO CAPITAL ALLOCATION GEOGRAPHY RISK PROFILE UK FOCUS, BALANCING LEVERAGING OUR RISK/REWARD SKILLS AND IN-LINE WITH EXPERTISE STRATEGY BUSINESS FIT ORGANIC OR M&A CULTURE AND ALL GOOD VALUES IMPORTANT OPPORTUNITIES REVIEWED AND ASSESSED 22
Slide 23: Delivering Shareholder Returns
DELIVERING SHAREHOLDER RETURNS BASE PLANS DELIVERING SUBSTANTIAL EARNINGS AND CASH FLOW GROUP EBITDA(1) £M GROUP CASH GENERATED FROM OPERATIONS £M £m 700 700 ERFs contributing 600 600 significantly post - ERFs expected to contribute build out 500 500 c.£100m to 400 300 200 400 300 EBITDA by 2016/17
Slide 24: South West Water: Reconciliation of H1 2015/16 RoRE
SOUTH WEST WATER RECONCILIATION OF H1 2015/16 RoRE TO FINAL DETERMINATION (FD) BASE ALLOWED RETURNS – 6.0% COMBINED TOTEX OUTPERFORMANCE – 2.2% RoRE • Actual operating costs before depreciation (£106m) + actual capital expenditure (£58m) = £164m • Totex allowance(1)(2) assumed for H1 2015/16 = £193m
Slide 25: ERF Under-capacity Continues to 2030 and Beyond
ENERGY RECOVERY FACILITIES (ERFS) ERF UNDER-CAPACITY CONTINUES TO 2030 AND BEYOND UK COMBUSTIBLE RESIDUAL WASTE MARKET (MT) 30 Other ERF Capacity Viridor ERF Capacity UK ERF Under-capacity 25 20 15 10 5 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: DE
Slide 26: Long Term Contract Base Covers c.80% of Capacity
ENERGY RECOVERY FACILITIES (ERFS) LONG TERM CONTRACT BASE, WHICH COVERS C.80% OF CAPACITY VIRIDOR CAPACITY Viridor capacity (operational & in construction) Balance of short and medium-term contracts (Municipal and Commercial & Industrial) De-risking - long-term contracts secured Long-term contracts
Slide 27: Minimising Risk – Merchant Becomes Long Term Contracted
VIRIDOR MINIMISING RISK – MERCHANT BECOMES LONG TERM CONTRACTED Planning & Permitting Plant Plant Contracted % Achieved Commissioning Operational Merchant % 100% 80% Fuel Load TRIDENT 60% PARK ERF 40% 20% 0% Project Gwyrdd Project Gwyrdd in Trident Contracting Project Gwyrdd Outline Bid Contract sig
Slide 28: Delivering the ERF Programme, Reducing Construction Risk
VIRIDOR DELIVERING THE ERF PROGRAMME, REDUCING CONSTRUCTION RISK OPERATIONAL RAMP-UP AT NEW PLANTS LAKESIDE RAMP-UP • Eight operational facilities Waste Inputs (tonnes) 500,000 • Managed operational ramp-up of the five new ERFs brought on-stream in 2014/15, the same 400,000 process performed at Lake
Slide 29: Viridor: 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 IFRIC 12 JVs Share of JV EBITDA (50%) -- -- £14m • Oxford (Ardley) • Exeter • Lakeside Under
Slide 30: Viridor ERFs: Build-out Nearing Completion
VIRIDOR ERFS (INCLUDING JOINT VENTURES) PROGRESS ON ERF PIPELINE BASE LOAD CAPITAL MUNICIPAL ACTUAL/EXPECTED SITE COST (1) GROSS CAPACITY STATUS CONTRACT COMMISSIONING Tonnes Electricity ERF BUILD-OUT (000) MWe Lakeside(3) 150 410 38 Fully operational Merchant Commissioned NEARING Bolton N/A 120 9 F
Slide 31: Substantial Ongoing ERF Capex
VIRIDOR SUBSTANTIAL ONGOING ERF CAPEX(1) CUMULATIVE CAPITAL CUMULATIVE REMAINING TOTAL ORIGINAL SPEND AT INVESTMENT SPEND TO SPEND TO PROJECT PLANNED £M 1 APRIL 2015(2) H1 2015/16 30 SEP 2015 COMPLETION SPEND PROJECT SPEND ERF projects in operation Exeter 47 1 48 - 48 47 Oxford (Ardley) 203 1 204 -
Slide 32: Salesforce Briefing: Building on a Strong Platform
SALESFORCE BRIEFING BUILDING ON A STRONG PLATFORM MARCH 2016