Pennon Group Plc · LSE:PNN
Pennon — H1 2015/16 Earnings Presentation
56 slides from Pennon's earnings presentation, Nov 27, 2015
Slide 1: Half Year Results 2015/16
HALF YEAR RESULTS 2015/16 DELIVERING AND OUTPERFORMING 27 NOVEMBER 2015
Slide 2: Chairman: Sir John Parker
SIR JOHN PARKER CHAIRMAN TALENTED, COMMITTED LEADERSHIP TEAM • Strong central financial control, sound administration and good governance STRATEGIC PRIORITIES, EVOLUTION UNDERWAY • Moving towards a more homogeneous risk profile across the Group, whilst retaining our growth ambitions PENNON OUTPERFOR
Slide 3: Disclaimer
DISCLAIMER For the purposes of the following disclaimers, references to this “document” shall mean Benefit Schemes. this presentation pack and shall be deemed to include references to the related speeches made by or to be made by the presenters, any questions and answers in Forward looking statement
Slide 4: Financial Overview
FINANCIAL OVERVIEW SUSAN DAVY | GROUP DIRECTOR OF FINANCE
Slide 5: Financial Highlights H1 2015/16 vs H1 2014/15
FINANCIAL HIGHLIGHTS H1 2015/16 VS H1 2014/15 RESULTS BENEFITING FROM GROWTH REVENUES EARNINGS PER SHARE(3) KEY DRIVERS OF H1 PERFORMANCE • Viridor’s operational ramp-up of ERFs, optimising the portfolio: c.80% long-term contracted volumes (0.5%) +5.0% • South West Water’s revenue reset for K6 (2015
Slide 6: Underlying Group EBITDA
UNDERLYING GROUP EBITDA REFLECTING INCREASED CONTRIBUTION FROM ERFs £M 8.6 2.7 2.0 11.4 41.8 (1.9) (2.3) (2.6) (2.8) (4.2) 261.6 (18.3) 227.2 (2) (4) H1 2014/15 ERFs SWW K5 Price Bournemouth Share of JV SWW Net Cost Viridor Other SWW Other Plc/Other Recycling Landfill SWW Cost of H1 2015/16 Freeze W
Slide 7: Underlying Group EBITDA
UNDERLYING GROUP EBITDA REFLECTING INCREASED CONTRIBUTION FROM ERFs H1 2015/16 £M H1 2015/16 H1 2014/15 FY 2014/15 Contracts, Collections Recycling Viridor & Other £7.2m £20.1m ERFs 43.8 2.0 33.7 Landfill SWW Energy £165.0m Landfill Energy 20.5 24.7 51.2 £20.5m Recycling 7.2 10.0 11.5 Share of Contr
Slide 8: Cash Flow Statement
CASH FLOW STATEMENT STRONG CASH INFLOW FROM OPERATIONS £M 101.0 19.5 5.9 (5.3) (9.5) 218.8 (36.9) (37.7) (90.0) 574.8 594.8 (145.8) (1) Cash Balance (1) Cash Inflow Equity Loan Net Movements Pension Tax Net Interest Dividends Acquisitions (2) Capital Cash Balance 1-Apr-15 from Placing & Repayments f
Slide 9: Group Capital Investment
GROUP CAPITAL INVESTMENT(1) INVESTING FOR GROWTH AND SECURING OPERATIONAL EXCELLENCE H1 2015/16 £M H1 2015/16 H1 2014/15 FY 2014/15 Viridor Landfill Viridor (Other) Energy Recycling £3m Contracts and £7m £6m ERFs 87 89 204 Collections £5m Recycling 3 15 22 Clean Water (BW) Landfill Energy 6 10 16 £4
Slide 10: Group Financing
GROUP FINANCING EFFICIENT LONG-TERM SUSTAINABLE FINANCING GROUP NET BORROWINGS GROUP NET GEARING(1) £2,345m 62.6% (31 March 2015 £2,197m) (31 March 2015 61.9%) AVERAGE DEBT MATURITY SWW NET DEBT/ RCV 23 Years 62.4% (31 March 2015 62.1%) • Diversified funding mix with significant finance leasing • £3
Slide 11: Group Financing
GROUP FINANCING INTEREST, TAX AND EARNINGS IN LINE WITH MANAGEMENT EXPECTATIONS GROUP AVERAGE CURRENT EARNINGS INTEREST RATE TAX RATE(1) PER SHARE(3) 3.4% 17.3% 23.2p (H1 2014/15 3.7%) (H1 2014/15 19.8%) (H1 2014/15 22.1p) SWW AVERAGE CURRENT DIVIDEND INTEREST RATE TAX(1) PER SHARE(4) 3.2% £18.5m 10
Slide 12: Financial Outlook
FINANCIAL OUTLOOK ON TRACK TO MEET MANAGEMENT EXPECTATIONS FOR FY 2015/16 • Results likely to be weighted towards H1 • Strong operating cash flows, liquidity and balance sheet INCREASINGLY WELL-POSITIONED FOR FUTURE • Viridor – on track to contribute c.£100m to EBITDA from ERFs in 2016/17 • Strong,
Slide 13: South West Water
SOUTH WEST WATER CHRIS LOUGHLIN | CHIEF EXECUTIVE
Slide 14: South West Water – Fast Start to K6
SOUTH WEST WATER DELIVERING AND OUTPERFORMING K6 (2015-20) BUSINESS PLAN STRONG H1 RESULTS DELIVERING PREPARED FOR NON- – FAST START TO K6 OUTPERFORMANCE HOUSEHOLD RETAIL MARKET OPENING SECTOR-LEADING EXECUTING GROWTH POSITIONING FOR FINANCE COSTS STRATEGY THROUGH WATER 2020 AND BOURNEMOUTH FURTHER
Slide 15: South West Water Financial Highlights
SOUTH WEST WATER FINANCIAL HIGHLIGHTS H1 2015/16 VS H1 2014/15 REVENUES RoRE WEIGHTED TO H1 2015/16 • Revenues reset for new regulatory period +4.1% 11.5%(2) • Mitigated by higher than forecast customer demand, ongoing efficiencies and Totex outperformance SWW £259.1m BW £20.2m SWW & BW DELIVER 0.9%
Slide 16: Delivering Operational Outperformance
SOUTH WEST WATER DELIVERING OPERATIONAL OUTPERFORMANCE HIGHEST POTENTIAL RETURNS IN THE INDUSTRY H1 2015/16 OPERATIONAL RoRE(2) £29M(1) OF TOTEX SAVINGS DELIVERED IN H1 TOTEX +2.2% • Totex largest element of potential operational -1.5% +2.3% outperformance £12.5m(3) SIM 0.0% FRONT-END LOADING OF EFF
Slide 17: Delivering Net ODI Rewards
SOUTH WEST WATER DELIVERING NET ODI REWARDS CUSTOMER SERVICE IMPROVEMENTS • Continuous SIM improvements decreasing gap between SWW & industry average • Reduced odour complaints • 19th consecutive year without water restrictions • Focus on reducing supply interruptions - effective management & suppor
Slide 18: Bournemouth Water Merger
BOURNEMOUTH WATER MERGER EXECUTING GROWTH STRATEGY CMA UNCONDITIONAL CLEARANCE RECEIVED INTEGRATION OF THE TWO BUSINESSES UNDERWAY • Merging wholesale and retail operations • Single centralised support function serving both businesses • Common systems and processes – best practise from both business
Slide 19: Prepared for Non-Household Retail Market Opening
SOUTH WEST WATER PREPARED FOR NON-HOUSEHOLD RETAIL MARKET OPENING LEGALLY SEPARATE NHH RETAIL BUSINESS • Defend incumbent customers and grow out of area • Economies of scale with integration of Bournemouth Water • Capitalise on Viridor footprint/order book/relationships/culture • Customer service an
Slide 20: Positioning for Water 2020 and Further Reform
SOUTH WEST WATER POSITIONING FOR WATER 2020 AND FURTHER REFORM STRATEGY AT PR19 • Heavily involved in Water 2020 discussions with Ofwat • Ofwat working collaboratively with industry on potential reforms • SWW has shared with Ofwat detailed work already undertaken on key areas: - Upstream markets (pa
Slide 21: South West Water – Fast Start to K6
SOUTH WEST WATER DELIVERING AND OUTPERFORMING K6 (2015-20) BUSINESS PLAN STRONG H1 RESULTS DELIVERING PREPARED FOR NON- – FAST START TO K6 OUTPERFORMANCE HOUSEHOLD RETAIL MARKET OPENING SECTOR-LEADING EXECUTING GROWTH FULLY ENGAGED FINANCE COSTS STRATEGY IN FURTHER REGULATORY CHANGES 21
Slide 22: Viridor
VIRIDOR IAN McAULAY | CHIEF EXECUTIVE
Slide 23: A Leader in Renewable Energy, Recycling and Resource Management
VIRIDOR A LEADER IN RENEWABLE ENERGY, RECYCLING AND RESOURCE MANAGEMENT STRONG H1 RESULTS OPTIMISING THE LANDFILL SITES BEING ENERGY PORTFOLIO MANAGED FOR CASH AND ALTERNATIVE USE LONG-TERM DRIVING TOWARDS A STRATEGY FOCUSED CONTRACTED MORE PROFITABLE ON SHAREHOLDER POSITION INCREASED, RECYCLING DIV
Slide 24: Viridor Financial Highlights
VIRIDOR FINANCIAL HIGHLIGHTS H1 2015/16 VS H1 2014/15 REVENUES(1)(2) REVENUE PROFILE AS EXPECTED PROFIT BEFORE TAX(3) • Lower construction revenue from service concession arrangements as facilities come on-stream (3.4%) +174.5% • Lower landfill tax receipts as volumes continue to to £410.1m to £12.9
Slide 25: Long-Term Revenue Streams for ERFs Secured
VIRIDOR LONG-TERM REVENUE STREAMS FOR ERFs SECURED ALL WASTE INPUTS SECURED AT PLANT OPENING • c.80% of resource inputs secured across the total ERF portfolio (operational and under construction) under long- BEN CHANGE term contracts PHOTO • A further 15% from medium-term contracts (up to 5 years) •
Slide 26: Viridor Long Term Contract Base
VIRIDOR ERF PORTFOLIO DE-RISKED WITH LONG-TERM CONTRACTED REVENUES 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 at the start of the ERF programme 2012 2
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: UK ERF Capacity Gap Continues to 2030 and Beyond
VIRIDOR UK ERF CAPACITY GAP CONTINUES TO 2030 AND BEYOND UK COMBUSTIBLE RESIDUAL WASTE MARKET(MT) Other ERF Capacity Viridor ERF Capacity UK ERF Under-capacity 30 25 20 15 10 5 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: DEFRA, SEPA, NRW and Viridor
Slide 29: Delivering the ERF Programme, Reducing Construction Risk
VIRIDOR DELIVERING THE ERF PROGRAMME, REDUCING CONSTRUCTION RISK OPERATIONAL RAMP-UP AT NEW PLANTS LAKESIDE RAMP-UP • Seven 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 30: Platform Established for Energy Management
VIRIDOR PLATFORM ESTABLISHED FOR ENERGY MANAGEMENT CHANGE IN SCALE OF ENERGY PORTFOLIO • Expected to export over 1TWh of power to the grid in 2016/17, enough to power a city the size of Plymouth or Swindon • Developed a ‘Portfolio Management’ strategy to help realise the full potential of this growt
Slide 31: Driving Towards a More Profitable Recycling Division
VIRIDOR DRIVING TOWARDS A MORE PROFITABLE RECYCLING DIVISION ITOO YIELDING FINANCIAL BENEFITS VOLUMES • Recycling EBITDA H1 2015/16 has improved on H2 2014/15 • Ongoing Input, Throughput and Output Optimisation (ITOO) programme, 0.9mt addressing effectiveness and efficiency. Yielding financial benef
Slide 32: Landfill Sites Managed for Cash and Alternative Future Use
VIRIDOR LANDFILL SITES BEING MANAGED FOR CASH AND ALTERNATIVE FUTURE USE LANDFILLS BEING CLOSED TO WASTE INPUTS • Landfill volumes gradually declining as expected with waste being diverted to energy recovery though decline slower than expected • Reducing from 18 sites to 3 strategic sites by 2020 as
Slide 33: Focused on Creating Value for Shareholders
VIRIDOR FOCUSED ON CREATING VALUE FOR SHAREHOLDERS UNRIVALLED EXPERTISE LEGACY RECYCLING & ENERGY DELIVERING THE RIGHT BUSINESS RESOURCES STRATEGY FOR EACH BUSINESS Landfill Recycling Collection Landfill ERF • Clear strategy to combat & Gas short-term challenges Contracts SHORT-TERM Headwinds in • O
Slide 34: A Leader in Renewable Energy, Recycling and Resource Management
VIRIDOR A LEADER IN RENEWABLE ENERGY, RECYCLING AND RESOURCE MANAGEMENT STRONG H1 RESULTS OPTIMISING THE LANDFILL SITES ENERGY PORTFOLIO BEING MANAGED FOR CASH AND ALTERNATIVE USE LONG-TERM DRIVING TOWARDS STRATEGY FOCUSED CONTRACTED A MORE PROFITABLE ON SHAREHOLDER POSITION INCREASED, RECYCLING DIV
Slide 35: Moving Towards a More Homogeneous Group Risk Profile
SIR JOHN PARKER CHAIRMAN TALENTED, COMMITTED LEADERSHIP TEAM • Strong central financial control, sound administration and good governance STRATEGIC PRIORITIES, EVOLUTION UNDERWAY • Moving towards a more homogeneous risk profile across the Group, whilst retaining our growth ambitions PENNON OUTPERFOR
Slide 36: Appendix
ae PENNON GROUP APPENDIX
Slide 37: Group Financial Results
GROUP FINANCIAL RESULTS RESULTS BENEFITING FROM GROWTH £M H1 2015/16 H1 2014/15 CHANGE FY 2014/15 Group Revenue 689.1 692.3 (0.5%) 1,357.2 Group EBITDA(1) 231.7 200.0 +15.9% 411.0 - Water Business EBITDA 173.6 172.2 +0.8% 331.3 - SWW EBITDA 165.0 172.2 (4.2%) 331.3 - Bournemouth Water EBITDA 8.6 - -
Slide 38: South West Water Financial Performance
SOUTH WEST WATER FINANCIAL PERFORMANCE £M H1 2015/16 H1 2014/15 CHANGE FY 2014/15 Revenue 279.3 268.3 +4.1% 522.2 South West Water 259.1 268.3 (3.4%) 522.2 Bournemouth Water 20.2 - - - EBITDA(1) 173.6 172.2 +0.8% 331.3 South West Water 165.0 172.2 (4.2%) 331.3 Bournemouth Water 8.6 - - - Operating P
Slide 39: South West Water EBITDA
SOUTH WEST WATER EBITDA £M 11.4 2.0 172.2 8.6 173.6 (2.3) 165.0 (18.3) SWW K5 Price Freeze Net Cost Savings Other Revenue Cost of Capital SWW Bournemouth Water Business H1 2014/15 Recovery and Efficiency (1) Impacts(2) Reset H1 2015/16 Water H1 2015/16 (1) Includes cost increases due to inflation (2
Slide 40: Sector-Leading Finance Costs
SOUTH WEST WATER SECTOR-LEADING FINANCE COSTS EFFICIENT AND EFFECTIVE FINANCING SWW EFFECTIVE INTEREST RATES • Lower underlying interest rates 4.2% • Optimum capital structure 4.0% 3.8% 3.2% EFFECTIVE INTEREST RATE H1 2015/16 K5 K6 3.6% DEBT PREDOMINANTLY FIXED FOR K6 3.4% • Swaps aligned to regulat
Slide 41: Reconciliation of RoRE to Final Determination
SOUTH WEST WATER RECONCILIATION OF 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 • £29m Tot
Slide 42: Viridor Financial Performance
VIRIDOR FINANCIAL PERFORMANCE(1) £M H1 2015/16 H1 2014/15 CHANGE FY 2014/15 Revenue(2)(3) 410.1 424.4 (3.4%) 835.9 EBITDA 61.0 28.1 +117.1% 80.4 Underlying EBITDA(4) 90.9 55.3 +64.4% 135.3 Operating Profit 20.5 0.2 - 21.6 PBT 12.9 4.7 +174.5% 27.7 Capital Investment(3) 107.9 127.3 (15.2%) 262.2 (1)
Slide 43: Viridor Financial Performance
VIRIDOR FINANCIAL PERFORMANCE(1) £M H1 2015/16 H1 2014/15 CHANGE FY 2014/15 ERF 43.8 2.0 +2,090.0% 33.7 Landfill gas power generation 16.0 15.4 +3.9% 35.8 Landfill 4.5 9.3 (51.6%) 15.4 Recycling 7.2 10.0 (28.0%) 11.5 Collections 6.3 5.4 +16.7% 10.3 Contracts and other 13.8 13.2 +4.5% 27.2 Indirect c
Slide 44: Viridor Underlying EBITDA
VIRIDOR UNDERLYING EBITDA £M 41.8 2.7 90.9 (2.8) (4.2) (1.9) 55.3 (1) H1 2014/15 ERFs Share of JV EBITDA Recycling Landfill Energy Other H1 2015/16 & IFRIC 12 Interest Receivable (1) Contracts, Collections and other, including operating profit on disposal of Whitehead landfill and Viridor Project En
Slide 45: Joint Venture Profitability
VIRIDOR JOINT VENTURE PROFITABILITY £M H1 2015/16 H1 2014/15 CHANGE FY 2014/15 Lakeside Share of EBITDA 7.6 9.4 (19.1%) 18.1 Viridor Laing Greater Manchester Share of EBITDA 1.6 1.5 +6.7% 3.0 Share of IFRIC 12 interest receivable 5.7 6.0 (5.0%) 12.1 TPSCo Share of EBITDA 6.7 4.5 +48.9% 8.2 Share of
Slide 46: ERFs and Joint Ventures
VIRIDOR ERFS AND JOINT VENTURES SEVEN OPERATIONAL ERFS ACROSS THE UK, Operational ERF 2015 – 2018 FOUR MORE UNDERWAY Consented facility • All facilities fully loaded at opening • c.80% of tonnage inputs secured • Supporting a more homogeneous Group risk profile 46
Slide 47: Diversified Funding Sources
PENNON GROUP DIVERSIFIED FUNDING SOURCES £M (As at 30 Sep 2015) Finance Leasing 1,332 KEY ROLE OF Bank Bilaterals - Term Loans 443 FINANCE European Investment Bank Loans 284 LEASING Index-Linked Bonds 410 Fixed Rate Bond 133 Private Placements 548 Unsecured Loan Notes 1 Total Gross Debt 3,151 Less:
Slide 48: Fair Value of Non Current Debt
PENNON GROUP FAIR VALUE OF NON CURRENT DEBT AS AT 30 SEPTEMBER 2015 AS AT 31 MARCH 2015 £M BOOK FAIR DIFF BOOK FAIR DIFF VALUE VALUE VALUE VALUE Finance Leases 1,305 1,174 131 1,304 1,182 122 Bank and Other Loans 393 393 - 338 338 - Private Placements 548 588 (40) 548 607 (59) Fixed Rate Bond 133 18
Slide 49: Net Interest Analysis
PENNON GROUP NET INTEREST ANALYSIS(1) £M H1 2015/16 H1 2014/15 FY 2014/15 • Net interest payable unchanged, reflecting lower rates, offsetting Interest payable (44.7) (32.7) (66.0) higher net debt • Effective management of interest Capitalised interest payable (4.0) (13.9) (22.5) rates Other finance
Slide 50: Taxation
PENNON GROUP TAXATION £M H1 2015/16 H1 2014/15 CURRENT TAX CURRENT YEAR CHARGE 17.3% H1 (2014/15 – Current tax 19.8%) Current year 18.5 19.8 • Decrease driven by reduction in Prior year (14.7) (12.6) headline corporation tax rate and higher ERF capital allowances 3.8 7.2 Deferred tax Current year 6.
Slide 51: Pensions
PENNON GROUP PENSIONS £M SEPTEMBER 2015 MARCH 2015 • Bournemouth Water pension scheme has assets of around Pension schemes’ £83m resulting in a small surplus assets £750m £692m • Excluding the addition of Pension schemes’ Bournemouth Water, the liabilities underlying decrease in asset £818m £752m va
Slide 52: Current Energy Capacity Across the Business
VIRIDOR CURRENT ENERGY CAPACITY ACROSS THE BUSINESS Energy generation ERF & AD Landfill gas Operational capacity(1) 142MW 99MW Volumes 458GWh 287GWh (1) Excludes 3MW capacity at sub-contract landfill gas sites in Suffolk 52
Slide 53: 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 54: ERF Build-Out Nearing Completion
VIRIDOR ERFS (INCLUDING JOINT VENTURES) PROGRESS ON ERF PIPELINE BASE LOAD CAPITAL MUNICIPAL ACTUAL/EXPECTED OPERATIONS SITE COST (1) GROSS CAPACITY STATUS CONTRACT COMMISSIONING END (2) Tonnes Electricity ERF BUILD-OUT (000) MWe NEARING Lakeside(3) Bolton 150 N/A 410 120 38 9 Fully operational Full
Slide 55: 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 56: Half Year Results 2015/16
HALF YEAR RESULTS 2015/16 DELIVERING AND OUTPERFORMING 27 NOVEMBER 2015