Pennon Group Plc · LSE:PNN
Pennon — FY2012/13 Earnings Presentation
71 slides from Pennon's earnings presentation, May 23, 2013
Slide 1: Preliminary Results
Preliminary Results 23 May 2013
Slide 2: Disclaimers
Pennon Group Plc (“Pennon Group”) Disclaimers For the purposes of the following disclaimers, references to this “document” shall mean 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 relatio
Slide 3: 2012/13 Financial Highlights
Pennon Group Plc 2012/13 Financial Highlights • Profit before tax(1) down 1.1% to £198.2m South West Water up 7.5% to £152.1m Viridor down 36.6% to £36.5m • Net exceptional charges £176.4m (post tax £140.2m) • Earnings per share(2) down 9.9% to 42.6p • Dividend full year dividend up 7.3% to 28
Slide 4: 2012/13 Operational and Business Highlights: South West Water
Pennon Group Plc 2012/13 Operational and Business Highlights South West Water • Strong performance against 2010 – 2015 regulatory contract well placed to deliver outcomes and outperform assumptions • PBT up in spite of atypical weather • Average funding cost 4.1% • Strong operational performance a
Slide 5: 2012/13 Operational and Business Highlights: Viridor
Pennon Group Plc 2012/13 Operational and Business Highlights Viridor • Strong progress in long term PPP/EfW strategy but significant current headwinds in recycling and ongoing trend decline in landfill affecting 2012/13 results aggressive action to reduce costs • As previously flagged, exceptional
Slide 6: Pennon Group Plc
PENNON GROUP PLC
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results 2012/13 2011/12 Change £m £m Group revenue 1,201.1 1,233.1 (2.6%) Group operating profit (1) 246.3 268.8 (8.4%) - SWW 215.2 204.7 5.1% - Viridor 30.8 63.7 (51.6%) Viridor PBIT plus joint ventures(1) 45.9 75.2 (39.0%) Group profit before tax(1) 198.2 200.5 (
Slide 8: Exceptional Items
Pennon Group Plc Exceptional Items 2012/13 2011/12 £m £m Operating costs Impairment of property, plant and equipment (78.2) - Environmental and landfill restoration provisions (90.1) - Onerous contracts and other (20.6) - (188.9) - Net finance income 12.5 - Charge before tax (176.4) - Tax credit 36.
Slide 9: Cash Flow
Pennon Group Plc Cash Flow 2012/13 2011/12 £m £m Cash inflow from operations 384.6 389.9 Net interest paid (49.8) (61.3) Dividends paid (77.9) (69.1) Tax paid (18.5) (41.4) Capital expenditure(1) (421.8) (273.6) Acquisitions and investment in joint ventures (14.3) (42.6) Loan repayments and dividend
Slide 10: Net Borrowings
Pennon Group Plc Net Borrowings As at 31 March 2013 2012 £m £m Loans and finance leases - over one year 2,505 2,204 - under one year 139 326 2,644 2,530 Less: cash and cash deposits (635) (425) Net borrowings 2,009 2,105 Net gearing(1) 65.4% 71.9% SWW debt/RCV 54.9% 56.1% ► Gearing reduced ► Net bor
Slide 11: Viridor EfW Capex – Impact on Net Debt
Pennon Group Plc Viridor EfW Capex(1) – Impact on Net Debt Cumulative Remaining spend Total spend to to project project 31 March 2013 completion spend EfW projects under construction £m £m £m Runcorn II 149 67 216 Oxford (Ardley) 106 104 210 Exeter 35 12 47 Cardiff 119 104 223 Glasgow 11 144 155 420
Slide 12: Net Interest Analysis
Pennon Group Plc Net Interest Analysis(1) 2012/13 2011/12 £m £m Interest payable (85.2) (94.3) Capitalised interest payable (13.6) (3.0) Interest receivable on shareholder loans to joint ventures 9.3 7.5 Other interest receivable 16.6 11.9 Net interest payable (72.9) (77.9) Average rate of interest
Slide 13: Efficient Financing Strategy
Pennon Group Plc Efficient Financing Strategy • Mix of fixed, floating and index-linked rate borrowings locks in benefit of low interest rates versus OFWAT assumptions c24% of SWW current debt index-linked to 2041-2057 • At least 50% of SWW net debt fixed for K5 in line with Group policy weigh
Slide 14: Liquidity
Pennon Group Plc Liquidity • Total of £1,150m cash/committed facilities at 31 March 2013 cash balances of £635m (includes c£143m deposits with Letter of Credit providers and lessors) undrawn facilities of £515m • Committed funding in place for South West Water up to end of K5 £156m will mature
Slide 15: Taxation
Pennon Group Plc Taxation(1) 2012/13 2011/12 £m £m Current tax 43.3 30.9 Deferred tax 1.4 23.6 Deferred tax reduction on change of (13.6) (26.4) corporation tax rate 31.1 28.1 ► Current tax charge 22% (2011/12 - 15%) ► 2011/12 current tax charge reflected substantial accelerated pension deficit cont
Slide 16: Dividends
Pennon Group Plc Dividends • Recommended final dividend up 7.7% to 19.70p • Full year dividend up 7.3% to 28.46p, reflecting annual RPI of 3.3% to 31 March 2013 • Sector-leading progressive dividend policy: 4% real increase to end of K5 period (March 2015) • Scrip dividend alternative 16
Slide 17: South West Water
— —— aT "=" SOUTH WEST WATER Delivering PureWater PureService and a PureEnvironment 17
Slide 18: South West Water Financial Performance Summary
South West Water Financial Performance Summary 2012/13 2011/12 Change £m £m Revenue 498.6 474.0 5.2% Operating profit 215.2 204.7 5.1% Profit before tax(1) 152.1 141.5 7.5% (1) Before exceptional items 18
Slide 19: South West Water Revenue
South West Water Revenue 520.0 1.5 0.9 (8.1) 38.1 (7.8) 498.6 500.0 480.0 474.0 £m 460.0 440.0 420.0 400.0 Mar-12 Tariff increase New connections Other Demand Meter option Mar-13 switchers ► Tariff increase of 7.7% (inc RPI) ► 2.9% reduction in metered customer demand – impacted by wet weather ► 75%
Slide 20: South West Water Operating Costs
South West Water Operating Costs 300.0 1.3 0.8 (3.5) 1.5 290.0 2.8 (2.0) 3.9 283.4 9.3 280.0 269.3 270.0 £m 260.0 250.0 240.0 230.0 220.0 Opex transfers Private Sewers Efficiency Mar-12 Mar-13 Cost increases Bad debts Restructuring non-recurring & Depreciation & (inc. inflation savings cost of sales
Slide 21: Operating Cost Efficiency
South West Water Operating Cost Efficiency • Good operational cost control • Delivering efficiency ahead of FD assumptions K5 CUMULATIVE OPERATING COST EFFICIENCIES TO MARCH 2013 • Cumulative K5 efficiency of £18.6m – over 70% of required efficiency delivered Energy Admin and K5 to date equivalent
Slide 22: Capital Programme
South West Water Capital Programme • Maintenance focused investment programme K5 CUMULATIVE CAPITAL EXPENDITURE TO MARCH 2013 • Expenditure £116.5m (2011/12 £130.8m) Enhanced focus on compliance and reliability Service Levels Supply & PUROS enabling Quality K5 to date Demand K5 to date £19m K5 t
Slide 23: Shareholder Value
South West Water Shareholder Value 3100 3000 2900 2800 RCV £m 2700 RCV(1) 2600 2500 2400 2300 2010 2011 2012 2013 2014 2015 • RCV of £2,916m at 31 March 2013 • Debt/RCV gearing 55% – growth in RCV exceeding the growth in net borrowings (1) Outturn prices for K5 based on forecast RPI (3.0% 2013/14 an
Slide 24: Operational Highlights: Delivering the Regulatory Contract - I
South West Water Operational Highlights: Delivering the Regulatory Contract - I • Outstanding drinking water quality maintained – 99.97%(1) • 16th consecutive year without water restrictions (17th forecast for 2013/14) • Leakage target achieved target met every year since introduction • Customer S
Slide 25: Operational Highlights: Delivering the Regulatory Contract - II
South West Water Operational Highlights: Delivering the Regulatory Contract - II • Best ever waste water treatment compliance follows targeted investment in 98 sites over past 18 months • Pollution control extreme weather key factor increased minor incidents significant reduction in serious
Slide 26: 2012/13 Ofwat KPI performance
South West Water 2012/13 Ofwat KPI performance • Water Pollution incidents Cat 1-3 • Waste Water Treatment numeric compliance Improved • Total Leakage Ml/d • Supply interruptions • Security of supply Water • Serviceability pollution incidents index Cat 1-3 measures (x4) • Greenhouse gas emissions ST
Slide 27: Political and Regulatory Developments - I
South West Water Political and Regulatory Developments - I • Government support for household customer bills welcomed £50 annual domestic bill reduction average bill reduced by 7.4% no impact on SWW financial/regulatory position • Draft Water Bill measured pace of change facilitating marke
Slide 28: Political and Regulatory Developments - II
South West Water Political and Regulatory Developments - II Preparing for PR14 - I • New process • Risk-based approach • Ofwat Chairman’s lecture 5th March 2013 at Royal Academy of Engineering governance, transparency, sharing outperformance • ‘WaterFuture’ Customer Challenge Panel established 18
Slide 29: Political and Regulatory Developments - III
South West Water Political and Regulatory Developments - III Preparing for PR14 – II • Excellent governance & transparency • Track record of efficiency re-investment in previous K periods • Sharing outperformance with customers & accelerating capital expenditure • Investing c£60m improving services
Slide 30: Political and Regulatory Developments - IV
South West Water Political and Regulatory Developments - IV Key investment drivers for PR14 • Tougher bathing water and shellfish water regulations • Resilience against extreme weather – networks and treatment facilities • Enhanced capital maintenance • Flood and pollution prevention – catchment-bas
Slide 31: PR14 Timetable
South West Water PR14 Timetable 2012 2013 2014 Winter Spring Summer Autumn Winter Spring Summer Autumn Winter CONSULTATION Distribution and DELIVERY promotion of 25-year vision Draft Plan for ASSESSMENT (Ofwat) customer consultation Business DRAFT FINAL Plan DETERMINATION DETERMINATION Submission Pu
Slide 32: South West Water Summary
South West Water Summary • Focus on efficient service delivery • Operational and financial performance remains strong • Well prepared for PR14 and legislative changes Successful and robust operational strategy underpinned by strong financial performance 32
Slide 33: Transforming waste
Viridor Transforming waste™
Slide 34: Transforming Waste
Viridor Strategy Transforming Waste • Viridor’s strategy is to transform waste, adding value through recycling and renewable energy generation • From 2007/08 until first half 2011/12 fast growth in recycling profits more than offset decline in annual landfill profits • As noted previously recyclate
Slide 35: External Context
Viridor External Context • Current weakness in UK and world economy exacerbating long term sector trends pressures on local authority and other customers to reduce costs • Landfill market declining long term being replaced by recycling and by EfW as capacity becomes available • Recycling market
Slide 36: UK Waste Market Projections
Viridor UK Waste Market Projections (Tonnes m) 2010/11 2015/16 2020/21 Total Market Viridor Total Market Total Market Landfill 43 4.7 20 5 Energy from Waste 6 0.3 10 20 Recycling(1) 28 1.8 35 35 Total 77 6.8 65 60 Source: DEFRA; UK Landfill Tax Bulletin; Viridor analysis and estimates ► Viridor and
Slide 37: Viridor Financial Performance Summary
Viridor Financial Performance Summary(1) 2012/13 2011/12 Change £m £m % Revenue(2) 703.8 761.1 (7.5) EBITDA 77.9 110.3 (29.4) PBIT 30.8 63.7 (51.6) PBIT plus joint ventures(3) 45.9 75.2 (39.0) PBT 36.5 57.6 (36.6) (1) Excluding exceptional charges (2) Including landfill tax (3) Interest receivable o
Slide 38: Viridor Financial Highlights
Viridor Financial Highlights(1) • Revenue decreased by £57.3m (7.5%) to £703.8m recycling and landfill • EBITDA decreased by £32.4m (29.4%) to £77.9m • PBIT plus joint ventures decreased by £29.3m (39.0%) to £45.9m increased contribution from joint ventures with contracts stable more than offs
Slide 39: Exceptional Charges
Viridor Exceptional Charges • In response to ongoing landfill trends and its own EfW development programme (including EfW plants at its Ardley, Beddington and Dunbar landfills) Viridor has reviewed its long term site lives post 2020 Viridor is expected to have a network of 3 strategically located
Slide 40: Profit Contribution by Activity
Viridor Profit Contribution by Activity(1) 2012/13 2011/12 £m £m Recycling 10.7 33.0 Landfill 19.0 22.8 Landfill gas power generation 23.8 25.3 Joint ventures 15.1 11.5 Contracts and other 25.2 25.3 Collection 4.3 7.4 Total contribution 98.1 125.3 Indirect costs (including pensions, insurance, bid c
Slide 41: Operational Highlights - Recycling
Viridor Operational Highlights - Recycling • Average revenue per tonne £99 significantly down on last year’s figure of £118 impacted by last year’s strong first half (£36m impact) prices have recovered a little from their lows of October to December 2012 • Annual volumes increased slightly to 1.9m
Slide 42: Recyclate Revenues Per Tonne
Viridor Recyclate Revenues Per Tonne Weighted Average(1) 140 • Viridor strategy is to maximise 120 recyclate quality and hence 100 revenue and margin per tonne but not immune to world £ PER TONNE 80 market conditions 60 • Key sensitivity: £10 per tonne 40 change in revenue per tonne on c2m tonnes
Slide 43: Operational Highlights - Landfill
Viridor Operational Highlights - Landfill • Volumes down 397kt (12.7%) to 2,717kt in line with the market • Average gate fees up 8.1% to £25.34 per tonne • Landfill tax increased to £72 per tonne (passed through to customer) rises to £80 per tonne April 2014 • Costs up 8.1% to £20.26 per tonne
Slide 44: Operational Highlights - Landfill Gas Power Generation
Viridor Operational Highlights - Landfill Gas Power Generation • Volumes up 7.3% to 618GWh (576GWh last year) reflecting intensive management focus at peak • Average prices fell slightly reflecting lower ROBOR(1) long term upward trend in brown energy prices • Average costs up 10.5% to £43.74 pe
Slide 45: Operational Highlights – Joint Ventures
Viridor Operational Highlights – Joint Ventures • JVs’ contribution (interest receivable on shareholder loans and share of PAT) increased 31% to £15.1m (2011/12 - £11.5m) Lakeside • The first of our EfW projects continues to perform very strongly • Contribution of £7.2m (2011/12 £5.1m) reflecting co
Slide 46: Operational Highlights – Contracts and Collection
Viridor Operational Highlights – Contracts and Collection • Contracts 16 municipal contracts around the UK (including Lancashire, Glasgow, Lakeside, Manchester, Somerset, W Sussex PFI and (last full year) Bedfordshire) Thames Water overall profit contribution stable • Collection profit contrib
Slide 47: Progress on PPP/EfW 2012/13
Viridor Progress on PPP/EfW 2012/13 • Financial close achieved for the Glasgow Design Build Finance Operate project (July 2012); planning application for the associated Recycling and Renewable Energy Centre approved (January 2013) • Financial close achieved for the South London Waste Partnership PPP
Slide 48: Overview of current and pipeline Energy from Waste facilities
Viridor Overview of current and pipeline Energy from Waste facilities
Slide 49: EfW Plants
Viridor EfW Plants Site Capital Gross Capacity Status Base Load Expected Start of Operations End (2) Cost (1) Municipal Contract Commissioning Tonnes Electricity (000) MW Lakeside( 3) 150 410 37 Operational Merchant May 2010 2033 Bolton N/A 120 9 Operational Gt M’chester 2001 2034 Runcorn I(3) 236 3
Slide 50: Projected UK EfW Capacity
Viridor Projected UK EfW Capacity 30 30 Tonnes (m) 14 6 3.2 0 2010 2020 All current 2020 likely 2020 Viridor including proposals joint ventures • Above figures are theoretical capacity • Likely capacity takes account of available base load municipal contracts (necessary for financing) and actual/exp
Slide 51: 2012/13 Summary
Viridor 2012/13 Summary • PBIT plus joint ventures down 39.0% continued growth in joint ventures outweighed by decline in recycling and landfill • Exceptional costs primarily reflecting updated assessment of landfill site lives and provisions • Recyclate prices have fallen from their first half 20
Slide 52: Pennon Group Plc
PENNON GROUP PLC
Slide 53: Pennon Group Summary
Pennon Group Plc Summary • Strategy clearly focused on: water and sewerage services recycling, renewable energy and waste management • £439m invested in key infrastructure supporting the development of the UK economy • South West Water focus on efficient service delivery operational and fina
Slide 54: Pennon Group Plc
PENNON GROUP PLC
Slide 55: Appendices
PENNON GROUP PLC Appendices
Slide 56: Net Borrowings Analysis as at March 2013
Pennon Group Plc Net Borrowings Analysis as at 31 March 2013 £m Finance leasing 1,263 Bank bilaterals - RCFs/term loans 485 EIB 232 Index-linked bond 2057 247 Bond 2040 132 Private placements 163 Convertible bond 120 Unsecured loan notes 1 Other 1 Total gross debt 2,644 Less: Cash/liquid investments
Slide 57: Pensions as at March 2013
Pennon Group Plc Pensions as at 31 March 2013 • Gross pension deficit of £110m (March 2012 - £99m) £85m net of tax (March 2012 - £75m) March 2013 March 2012 • Pension schemes’ assets £580m £517m Pension schemes’ liabilities £690m £616m £110m = £85m net of tax £99m = £75m net of tax ► Market volati
Slide 58: Accounting for EfWs
Viridor Accounting for EfWs Generic plant financials(1) • To illustrate the accounting differences and the types of expected return, we have set out the financials for a generic EfW plant: £200m capex, 350kt pa waste and 25MW electricity 80% debt, 20% sub-debt and equity • First full year of ope
Slide 59: Accounting for EfWs: Profit profiles
Viridor Accounting for EfWs Generic plant financials – Profit profiles(1) • Profits over the life of the projects should increase with inflation • PBT under IAS 16 increases as debt and subordinated debt are repaid, IFRIC 12 has a more constant notional interest calculation Generic EfW EBITDA under
Slide 60: Lakeside EfW - Summary
Viridor Lakeside EfW - Summary • Waste capacity and supply: 410kt (all merchant). Supply split between Viridor, Grundon and Lakeside • Energy: 37MWe • Capital expenditure: £150m • Build profile: Start – November 2005. End – May 2010 (Expected 36 months, actual 54 months) • Operating life: 25 years •
Slide 61: Bolton EfW - Summary
Viridor Bolton EfW - Summary • Waste capacity and supply: 120kt (all supplied via the Greater Manchester PFI) • Energy: 9MWe • Capital expenditure: n/a • Build profile: As an incinerator: start – 1970s, end – 1970s. Energy recovery: start – 1998, end – 2001 • Operating life: 2034 concession ends • C
Slide 62: Runcorn I EfW - Summary
Viridor Runcorn I EfW - Summary • Waste capacity and supply: 375kt (up to 325kt from GM PFI, remainder merchant) • Energy: 28MWe and 51MWth • Capital expenditure: £236m • Build profile: Start – April 2009. Expected start of commissioning: H2 2013/14 • Operating life: 25 years • Construction contract
Slide 63: Runcorn II EfW - Summary
Viridor Runcorn II EfW - Summary • Waste capacity and supply: 375kt (all merchant) • Energy: 42MWe • Capital expenditure: £216m • Build profile: Start – September 2010. Expected start of commissioning: H2 2014/15 • Operating life: 25 years • Construction contractor: Keppel Seghers • Operating contra
Slide 64: Exeter EfW - Summary
Viridor Exeter EfW - Summary • Waste capacity and supply: 60kt (all contracted with Devon County Council) • Energy: 3MWe • Capital expenditure: £47m • Build profile: Start – October 2011. Expected start of commissioning: H1 2014/15 • Operating life: 30 year concession • Construction contractor: TIRU
Slide 65: Ardley EfW - Summary
Viridor Ardley EfW - Summary • Waste capacity and supply: 300kt (c150kt contracted for 25 years with Oxfordshire County Council via Oxfordshire PPP) • Energy: 24 MWe • Capital expenditure: £210m • Build profile: Start date - December 2011. Expected start of commissioning: H1 2014/15 • Operating life
Slide 66: Cardiff (Trident Park) EfW - Summary
Viridor Cardiff (Trident Park) EfW - Summary • Waste capacity and supply: 350kt (170kt preferred bidder Prosiect Gwyrrd) • Energy: 28MWe • Capital expenditure: £223m • Build profile: Start – 2012. Expected start of commissioning: H2 2014/15 • Operating life: 25 years • Construction contractor: CNIM/
Slide 67: Glasgow Recycling & Renewable Energy Centre (GRREC) - Summary
Viridor Glasgow Recycling & Renewable Energy Centre (GRREC) - Summary • Waste capacity and supply: 200kt (Up to 200kt contracted with 175kt guaranteed minimum from Glasgow City Council) • Energy: 15MWe • Capital expenditure: £155m • Build profile: Start – May 2013. Expected start of commissioning: H
Slide 68: Peterborough EfW - Summary
Viridor Peterborough EfW - Summary • Waste capacity and supply: 80kt (c55kt contracted for 30 years with Peterborough City Council via Peterborough PPP) • Energy: 7.25 MWe • Capital expenditure: £72m financed by local authority • Build profile: Start date - Summer 2013. Expected start of commissioni
Slide 69: South London (Beddington) EfW - Summary
Viridor South London (Beddington) EfW - Summary • Waste capacity and supply: 275kt (c200kt contracted for 25 years with London boroughs of Croydon, Kingston, Merton and Sutton via SLWP PPP) • Energy: 26 MWe • Capital expenditure: £199m • Build profile: Planning permission achieved in May 2013. Earli
Slide 70: Avonmouth EfW - Summary
Viridor Avonmouth EfW - Summary • Waste capacity and supply: 350kt (all merchant) • Energy: 28MWe • Capital expenditure: £233m • Build profile: TBA (planning permission achieved) • Operating life: 25 years • Construction contractor: TBA • Operating contractor: Viridor • Plant ownership: 100% Viridor
Slide 71: Dunbar EfW - Summary
Viridor Dunbar EfW - Summary • Waste capacity and supply: 300kt (all merchant) • Energy: 23MWe and 17MWth • Capital expenditure: £195m • Build profile: TBA (planning permission achieved) • Operating life: 25 years • Construction contractor: TBA • Operating contractor: Viridor • Plant ownership: 100%