Pennon Group Plc · LSE:PNN
Pennon — FY2023/24 Earnings Presentation
69 slides from Pennon's earnings presentation, May 21, 2024
Slide 1: Full Year Results 2023/24
Full Year Results 2023/24 21 May 2024
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 and Steve Buck presenters
Susan Davy Group Chief Executive Officer Steve Buck Group Chief Financial Officer © Pennon Group plc 2024 3
Slide 4: Our fundamentals are strong
Our fundamentals are strong Sound business – growing sustainably Solid building blocks in place Making progress on what matters to customers Robust financial position © Pennon Group plc 2024 4
Slide 5: Sound business – growing sustainably
Sound business – growing sustainably Step up in investment across the group – up c. 80% to £6421 million Peak capital delivery for the wholesale water businesses – investment increased 63% year on year to £583 million • Cumulative RCV growth (organic and acquisitive) of c. 65%2, on track for c. 70%2
Slide 6: Making progress, delivering on our four priorities
Making progress, delivering on our four priorities Building water Supporting resources, Tackling storm Driving affordability, improving water overflows and environmental delivering for quality pollutions gains customers Broken the drought Expected to retain EPA Catchment regeneration Over 132,000 cy
Slide 7: Building water resources & improving water quality
Building water resources & improving water quality Broken the cycle of drought in Devon & Cornwall Reservoir levels: 100%1 peak capacity achieved – 1/3 improvement as a result of our investment 2023/24 activity Delivered On track to 2025 Devon • Accelerated Devon Gatherley pumping scheme – 2025 + 30
Slide 8: Rainfall in 2023 & early 2024 – exceptionally high
Rainfall in 2023 & early 2024 – exceptionally high Weather driving headline increase in storm overflows and pollutions January - December 2023 Cumulative rainfall – Devon and Cornwall (mm) • 50% increase in rainfall over the long-term average in H2 2023 • 5th wettest year on record for Devon and Cor
Slide 9: Tackling pollutions
Tackling pollutions Network plans are delivering Pollution incident reduction over the last three years maintained Historical pollutions (% by asset) • Based on historical patterns – 70% of incidents were from our network • Installed over 12,000 sewer level monitors to support predictive / proactive
Slide 10: Tackling pollutions (cont'd)
Tackling pollutions (cont'd) Stabilising treatment works, focus on pumping stations Sewage treatment works (Number) Reinvigorated action plans in 2023 STW performance returned in 2024 60 • Targeted inlet and storm tank cleansing, risk-based generator servicing 40 • Site action plans focused on STW c
Slide 11: Tackling storm overflows
Tackling storm overflows Targeted investment 280 interventions Hatherleigh STW Chittlehamholt Community • Minimising flows into our 120m3 storm storage First full year of monitoring – roadshows network sewers – taking a nature installed March 2023 – highlighting high spills. 62m3 18 4 22 first appro
Slide 12: Driving environmental gains
Driving environmental gains Catchment regeneration programmes progressing well • Nature first approach to investment • c. 127,000 cumulative hectares restored, over 250,000 trees planted – both ahead of target • Leading innovation in nature recovery and biodiversity gains across the South West – Inv
Slide 13: Supporting affordability, delivering for customers
Supporting affordability, delivering for customers Over 132,000 customers benefiting from our affordability initiatives • Focused on eliminating water poverty – 100% Bristol and 98% South West customers find their bill affordable • Below inflation bill increases for two years – bills lower today tha
Slide 14: Solid building blocks in place
Solid building blocks in place Reshaping the business Accelerated transition Transformational Investing in people Leveraging technology to K8 programme • One in 10 colleagues have been • Trialling genAI in customer • 10 year investment delivery • Improvements in processes through our apprenticeships
Slide 15: Robust financial position
Robust financial position Solid financial performance, well positioned for the next regulatory period • Efficiency programmes keeping cost increases below inflation – despite impacts of the unprecedented wet weather • Profitable B2B retailers – c. 50% increase in EBITDA Efficiently funded robust bal
Slide 16: Key financial metrics
Key financial metrics Underlying profitability improving Step up in capital investment Return on Regulated Equity EBITDA £642.4m 7.3% 2 £334.7m (excl. SES) Group (excl. SES) (excl. SES) 2022/23 c. 80% increase in Group Cumulative SWW £307.8m c. 63%1 increase in water investment group RORE (excl. SES
Slide 17: In line with expectations – stronger H2 performance
In line with expectations – stronger H2 performance (excl. SES) Underlying1 2023/24 2023/24 2022/23 Change (£m unless otherwise stated) (excl. SES) (excl. SES) Revenue 907.8 872.1 825.0 +5.7% • Increase in profitability H2 on H2 EBITDA 338.3 334.7 307.8 +8.7% • Revenue up c. 6% driven by Operating p
Slide 18: Profit before tax – underlying profitability improving
Profit before tax – underlying profitability improving Regulatory revenue adjustments reflect 2020/21 and 2021/22 ODI outcomes and prior year over recovery of revenue Cost inflation running well below revenue inflation – cost base stabilising Increased pumping, chemicals and power costs in response
Slide 19: Transitioning to K8 – underpinning 12% totex efficiency target
Transitioning to K8 – underpinning K8 12% p.a. totex efficiency target c. £86m 2022/23 2023/24 2024/25 K8 run rate Bristol Water • Mature programme, nearing completion annualised integration • Synergies delivered on people integration and savings procurement benefits • c. £17 million annualised bene
Slide 20: Investing for growth – peak investment year
Investing for growth – peak investment year Group capital Shareholder value investment – SWW RCV growth1 (£m) 2023/24 2022/23 7,000 South West Water 582.9 358.2 +c. 63% 6,000 Clean water 369.3 210.6 5,000 Wastewater 213.6 147.6 Pennon Power 59.0 - 4,000 Other Group 0.5 0.1 +c. 80% 3,000 Total Group
Slide 21: South West Water capital expenditure – peak year as expected
South West Water capital expenditure – peak year as expected Spend profile – We have pulled forward enhancement investment and K7 Years 4 & 5 increased spend to manage operational challenges 700 c. £930m c. £80m pull forward from 2024/25 of water resource and network monitoring expenditure 600 500 P
Slide 22: Robust liquidity and flexible funding strategy
Robust liquidity and flexible funding strategy Pennon Group Continuing to build our diversified debt portfolio Available liquidity New and renewed facilities since Gross debt in excess of March 2023 (at 31 March 2024) £400m1 £3,981 m £1 bn c. £1.2bn including US private placements and (2023: £3,131m
Slide 23: RORE outperformance
RORE outperformance Cumulative Cumulative RORE 2023/24 RORE performance 7.6% 3.4% Financing1 4.2% • Cumulative benefits from the structure 1.6% of our debt book on financing costs persist, but have reduced due to the c. £255m impact of falling inflation Outcome Delivery Incentives2 Base Totex • In y
Slide 24: Strong investment grade gearing levels
Strong investment grade gearing levels SWW Pennon Group RCV1 2024 Current Timing Optimisation position £5.5 • Upward pressure from • PR24 DD due • Leverage Pennon billion peak capex spend 12 June 2024 Power during K8 • Reduced operational • PR24 FD due • Pennon debt backed Base cashflow December 202
Slide 25: Ambitious plan for PR24 – highlights
Ambitious plan for PR24 – highlights Investing Keeping bills Strong support efficiently as low as possible from customers £4.5bn 3 - 4% 74% Totex, assuming Average increase Customer 12% efficiency per annum acceptability Growth for Incentivising Supporting investors performance our customers 38% Up
Slide 26: Process for PR24
Process for PR24 2023 2024 2025 3 October 12 June Investor Investor 14 August February call update DD Representation FD Response 2 October 12 June 4 September December Business Plan Ofwat Ofwat Ofwat submitted publish Draft presentation publish Final Determination Determination Business Plan 2025-20
Slide 27: Our fundamentals are strong
Our fundamentals are strong Sound business – growing sustainably Solid building blocks in place Making progress on what matters to customers Robust financial position © Pennon Group plc 2024 27
Slide 28: Appendix
Appendix © Pennon Group plc 2024
Slide 29: Appendix – Growing sustainably
Appendix Growing sustainably © Pennon Group plc 2024
Slide 30: Growing sustainably – integration of Bristol Water
Growing sustainably – integration of Bristol Water Key highlights Merging our water operations & investment • Sharing control room capability and incident management practises • Water resources teams with integrated action plans – WRMP24 submissions managed together • Water quality first approach be
Slide 31: Reshaping the business
Reshaping the business New business transformation programme Programme has the objective of achieving significant savings for SWW • Changing the way we work • Deploying new digitally enabled tools • Upgrading our teams’ capabilities 120 initiatives have been developed across three main workstreams •
Slide 32: Growing sustainably – acquisition of SES Water
Growing sustainably – acquisition of SES Water Attractive business and operations • Builds on Pennon’s existing water operations through the acquisition of another high-quality, water-only business • Experienced and talented management team and proven integration framework • Benefit SES Water’s cust
Slide 33: Growing sustainably – Pennon Power
Growing sustainably – Pennon Power Complementary investment in environmental infrastructure • Total £145 million commitment to renewable energy generation supports our long-term sustainable growth strategy and helps achievement of our 2030 net zero target • Provides a natural hedge to our power cost
Slide 34: Growing sustainably – B2B Retailers
Growing sustainably – B2B Retailers EBITDA PBT • c. 6% market share • Resilient financial performance 80% ownership − £4.7 million profit before tax in 2023/24 − c. 7% growth in revenue for 2023/24 • Trustpilot score 4.8/5 2021/22 2022/23 2023/24 EBITDA PBT • c. 7% market share – c. 5,100 new custom
Slide 35: Appendix – Making progress on what matters most to customers
Appendix Making progress on what matters most to customers © Pennon Group plc 2024
Slide 36: Building water resources, diversifying our portfolio through innovation
Building water resources, diversifying our portfolio through innovation Strategic Accelerated On track reservoirs Devon + c.30% in Cornwall Building water resources, improving 100% capacity 1 schemes – 45% by 2025 water quality – ahead of target – 30% achieved D E VO N + c. 45% 1st0or0ag%e CO R N WA
Slide 37: Building water resources, diversifying our portfolio through innovation
Building water resources, diversifying our portfolio through innovation Driving water Water quality efficiency UQ in Devon and Cornwall – regional Building water through investment resources, improving investments providing and customer campaigns long-term benefits water quality Demand-side Quality
Slide 38: Improving the environment – tackling storm overflows
Improving the environment – tackling storm overflows 100% bathing 100% of K7 water quality 100% coverage interventions delivered Tackling storm overflows – third consecutive year1 or underway and pollutions for Bathing and Shellfish Waters Storm overflows Spotlight Focused on delivering intervention
Slide 39: Improving the environment – tackling pollutions
Improving the environment – tackling pollutions H2 2023 Network 50% increase pollutions Keeping Tackling in rainfall stabilised serious pollution storm overflows – 20% increase in flows – focus on works and incidents down and pollutions pumping stations Maintaining strong networks performance Spotli
Slide 40: Driving environmental gains
Driving environmental gains 50% £145m reduction investment Driving in carbon footprint in renewable energy providing environmental anticipated in K7 gains 40% of Group energy requirements Delivering for the environment Spotlight Secured c. £20m K7 ODI benefit and Natural Catchment Management Plans l
Slide 41: Supporting affordability for customers
Supporting affordability for customers Below inflation Over 100% Bristol Supporting bill increases £100 million 98% SWW affordability, for 2023/24 customer support Customers who find delivering for and 2024/25 provided in K7 to date their bill affordable customers Addressing customer affordability S
Slide 42: Road map to EPA 4
Road map to EPA 4 Our action plans and investment underpin achievement of 4 EPA rating for 20251 2022 2023 Target 2024 Target 2025 2 2 2 4 Pollutions 12,000 Rising Enhanced STW Reedbed Targeted SPS BAU integration Continued sewer main cleansing & action surveys & power site of MOTs & infiltration mo
Slide 43: RORE outperformance (excl. SES)
South RORE outperformance (excl. SES) West Water Cumulative RORE performance Cumulative RORE 2023/24 RORE £m 2020/ 2021/ 2022/ 2023/ Cumulative 3 4 3 4 21 22 23 24 total Financials 7.6% 7.6% 3.4% Totex1 60 33 -80 -73 -60 2.8% 4.2% 4.2% Financing 14 53 133 55 255 1.6% 2.5% ODIs -12 12 -10 -14 -35 Ofw
Slide 44: Financial Outcome Delivery Incentives 2023/24 – South West Water
South Financial Outcome Delivery Incentives – West Water 2023/24 – c. 70% on track or ahead of target 1 Area of Outperformance On track Marginal Area of excellence 9 4 17 11 focus 3 Bespoke • Customer on one of our • Biodiversity – prevent • Customers who find their bill • Water pollution incidents
Slide 45: Financial Outcome Delivery Incentives 2023/24 – Bristol Water
Bristol Financial Outcome Delivery Incentives – Water 2023/24 – c. 70% on track or ahead of target 1 Area of Outperformance On track Marginal Area of excellence 3 8 9 6 focus 3 Bespoke • Properties – risk of low pressure • Community satisfaction • WINEP compliance • Water quality – appearance • Mete
Slide 46: Appendix – Transitioning to K8
Appendix Transitioning to K8 © Pennon Group plc 2024
Slide 47: Transitioning to K8
Transitioning to K8 Building a sustainable supply chain Already progressing our K8 strategy and delivery • Launched major new supplier alliance • Accelerating Delivery with partners co-located with in-house – ‘amplify’ teams – mobilised on 1,000 projects − Early market engagement, secured • Keeping
Slide 48: Appendix – Financial analysis
Appendix Financial analysis © Pennon Group plc 2024
Slide 49: Pennon Revenue growth
Pennon Revenue growth South West Water SES Water Pennon Group • Overall positive impact of inflation starting • Impact of £35.7 million • PWS growth continues from new to feed through – inflationary factors reflect since acquisition contract wins a 9.4% increase relating to CPIH • Overall Group reve
Slide 50: Pennon Non-underlying items
Pennon Non-underlying items Non-underlying items (£m) 2023/24 2022/23 Transformation costs (13.9) - SES acquisition costs (9.6) - Drought costs including customer incentive (1.8) (17.0) Renewable energy acquisition costs (0.6) - WaterShare+ rebate - (22.4) Bristol Water bond termination - 18.4 Brist
Slide 51: Pennon Responsible approach to tax
Pennon Responsible approach to tax Current tax position – effective credit 2023/24 2022/23 rate of (3.6)% • Current tax credit arises as a result of prior Corporation tax Pennon SES Group Group (£m) (excl. SES) year adjustments Current tax 0.6 - 0.6 2.7 • Tax losses generated due to relief for capit
Slide 52: Pennon Income statement – EPS reconciliation
Pennon Income statement – EPS reconciliation Adjusted EPS (£m unless otherwise stated) 2023/24 2022/23 Loss before tax (9.1) (8.5) Adjusted for: Non-underlying items (pre-tax) 25.9 25.3 Current tax 0.6 2.7 Minority interest1 (1.0) (0.3) Profit for adjusted EPS 16.4 19.2 Basic weighted average number
Slide 53: Pennon Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment (£m) 2023/24 2022/23 South West Water 582.9 358.2 Clean water 369.3 210.6 Wastewater 213.6 147.6 Pennon Power 59.0 - Other Group 0.5 0.1 Capital additions (excl. SES) 642.4 358.3 SES Water 7.1 - Capital additions 649.5 358.3 G
Slide 54: Pennon Balance sheet – Pensions
Pennon Balance sheet – Pensions As at As at Pensions 31 March 31 March (£m) 2024 2024 Pension schemes’ assets 801 749 Pension schemes’ liabilities (774) (720) Net pension schemes’ assets 27 29 Deferred tax (7) (3) Net of tax pension schemes’ assets 20 26 Main PGPS scheme – Bristol Water SES Water ac
Slide 55: Pennon Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 31 March 2024 Pennon South West (£m) Group Water Leasing 1,123 1,117 Bank bilaterals 911 776 Index-linked debt (RPI) 997 691 Fixed rate bonds 210 193 Private placements 727 533 Preference shares 13 13 Total borrowings 3,98
Slide 56: Pennon Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 31 March 2024 Pennon Group (£m) Book value Fair value Variance Bank bilaterals 911 883 (28) Index-linked debt (RPI) 997 889 (108) Fixed rate bonds 210 210 - Private placements1 727 745 18 Preference shares 13 20 7 Total borrowings (excluding le
Slide 57: Pennon Sustainable net debt
Pennon Sustainable net debt Pennon Group – summarised net debt flow 2023/24 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 261.7 313.7 Corporation tax repayment/(paid) 3.4 (1.
Slide 58: South West Water Income statement
South Income statement West Water Underlying1 (£m) 2023/24 2022/23 Revenue2 729.8 701.3 Inflationary increase in Operating costs (397.3) (392.9) revenue due to delay in regulatory mechanism EBITDA 332.5 308.4 Depreciation and amortisation (162.4) (149.0) ODI penalties and prior Operating profit 170.
Slide 59: Net interest analysis
South Net interest analysis West Water (£m unless otherwise stated) 2023/241 2022/231 Underlying net interest charge (155.5) (145.3) Less: pensions net interest (1.4) (1.6) Add: capitalised interest (14.1) (4.9) Net interest for average rate calculation (171.0) (151.8) Split between: Interest payabl
Slide 60: SES Group Income statement – Contribution since 10 January 2024
SES Income statement – Group Contribution since 10 January 2024 Underlying1 (£m) 2023/24 Revenue2 35.7 Performance in line Operating costs (32.1) with acquisition expectations EBITDA 3.6 Depreciation and amortisation (3.6) Overall profitability Operating profit - impacted by high levels of index-lin
Slide 61: Pennon Water Services – Strong market performance
Pennon Strong market performance Water Services1 Underlying2 (£m) 2023/24 2022/23 Revenue 233.8 218.0 Overall c. 7% Water segment wholesale elimination (90.8) (94.7) growth in revenue Revenue excluding elimination 143.0 123.3 Business wins Operating costs (226.4) (213.7) continue to drive growth Wat
Slide 62: Dividend
Dividend Carefully considered final dividend position for 2023/24 Our dividend policy to 2025 – CPIH +2% • 2023/24 Interim dividend paid of 14.04 pence per share on 5 April 2024 2023/24 Final dividend • Carefully evaluated final dividend position for 2023/24 – assessed performance for the Group in t
Slide 63: Outlook – 2024/25
Outlook – 2024/25 Full year impact of SES acquisition on all measures SWW SWW SES B2B Revenue Opex retail • Inflation reflected in 2024/25 • Overall operating costs expected to be broadly flat • Overall expected to be • Ongoing growth in water tariffs (net of year on • Power costs expected to reduce
Slide 64: Pennon Technical guidance full year 2024/25
Pennon Technical guidance full year 2024/25 Pennon Group FY 2023/24 Change Revenue* • Inflation reflected in 2024/25 tariffs (net of year-on-year impact of regulatory adjustments and ODI penalties) • Ongoing growth in our retail businesses, including growth external to our wholesale region £907.8m •
Slide 65: Appendix – Case studies
Appendix Case studies © Pennon Group plc 2024
Slide 66: Community roadshows
1 Sidmouth December 2023 1 Barnstaple January2024 2 Torquay January 2024 2 12 Bristol April2024 3 Exmouth January 2024 3 Online Devon & Cornwa May2024 Community roadshows 4 5 6 7 Lynmouth Falmouth Plymouth Christow January 2024 February 2024 February 2024 March2024 4 5 6 7 Bournemouth Online Cornwal
Slide 67: Case study – Natural Catchment Management Plans
Case study – Natural Catchment Management Plans Below Workshops in Sidmouth, Devon and St Agnes, Cornwall South West Water is leading a pilot programme to develop shared understanding and action plans to tackle water management challenges in 15 natural catchments with local partners and communities.
Slide 68: Case study – Invasive non-native species
Case study – Invasive non-native species South West Water Raising awareness is leading the way Against our target to install 100 signs alerting visitors to the risk of spreading invasive species, so far we have installed 237 signs at 108 sites. in tackling invasive animals and plants Controlling inv
Slide 69: Case study – Woodland creation
Case study – Woodland creation South West Water has Woodland for wildlife Horse logging Re-purposing planted 80,327 trees South West Water has planted South West Water is using non-native trees a mix of seven native broadleaf specialist shire horses at Park Pit South West Water has felled non- with