Pennon Group Plc · LSE:PNN
Pennon — FY2022/23 Earnings Presentation
49 slides from Pennon's earnings presentation, September 2023
Slide 1: European engagement: September 2023 Full Year Results 2022/23
European engagement: September 2023 Full Year Results 2022/23 Bringing water to life – supporting the lives of people and the places they love for generations to come
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, Paul Boote, Jennifer Cooke
Susan Davy Paul Boote Jennifer Cooke Group Chief Executive Officer Group Chief Financial Officer Group Head of Investor Relations 3 © Pennon Group plc 2023
Slide 4: Bringing water to life
Pennon Bringing water to life Tackling the biggest challenges head on Making progress in 2022/23 and towards our targets for 2025 Resilient financial performance Developing a robust PR24 plan © Pennon Group plc 2023 Rebuilding trust over time through our actions 4
Slide 5: Tackling the biggest challenges head on
Pennon Tackling the biggest challenges head on Storm overflows Water quality Climate change Customer & pollutions & resilience – Net Zero 2030 affordability One third of the Challenging nation’s bathing One in 200 year topography driving Ongoing cost beaches drought event power consumption of living
Slide 6: Tackling the biggest challenges head on
Pennon Tackling the biggest challenges head on What we're doing Our plan for healthy rivers and seas April 2022 Delivering on accelerated change programmes and additional investments in the areas that matter most to our customers and the environment • WaterFit, our plan to 2025 for healthy rivers an
Slide 7: Tackling the biggest challenges head on: Rebuilding trust
Pennon Tackling the biggest challenges head on Rebuilding trust over time through our actions • WaterShare+ – sharing c. £40 million with customers through our second c. £20 million issuance, engaging regularly • WaterFit Live – increasing transparency of environmental performance • Save Every Drop
Slide 8: Making progress against our key priorities
Pennon Making progress against our key priorities c.50% c.30% 100% reduction reduction bathing water 2 EPA in storm quality – second in pollutions for 2022 Improving the overflow use consecutive since 2020 year environment in 2022 Delivered in 2022/23 Our 2025 target How we’ll achieve this • Polluti
Slide 9: Making progress against our key priorities
Pennon Making progress against our key priorities Augmented New Driving Water quality supply resources and resilience – Improved & storage – repurposing demand-side Spotlight on Devon water initiatives schemes of quarries and Cornwall quality Supply-side investments underway, Demand-side initiatives
Slide 10: Making progress against our key priorities
Pennon Making progress against our key priorities Carbon footprint reduced 1 80% of catchments Net Zero & by c. 40% improved since 2021 environmental gains Delivered in 2022/23 Our 2025 target • Sustainable living: Reducing process emissions – carbon 50% renewable energy Restoring 1,000 hectares of
Slide 11: Making progress against our key priorities
Pennon Making progress against our key priorities Below Second c.£85 Addressing inflation issuance million customer bill increases of customer support affordability for 2023/24 to date Delivered in 2022/23 Our 2025 target How we’ll achieve this • Below inflation bill increases – South West Water +0.
Slide 12: Performance impacted by challenging weather conditions
Pennon Performance impacted by challenging weather conditions Hottest, driest summer on record, followed by periods of extreme rainfall and freeze / thaw event in December ODIs South 2020/21 2021/22 2022/23 Bristol 2020/21 2021/22 2022/23 on track West Water or ahead Water of target 1 c. 80% c.80% c
Slide 13: Delivering on our largest ever environmental investment programme
Pennon Delivering on our largest ever environmental investment programme Investing over c.£358 c.50% £750 Record million increase million capital capex in in 2022/23 over the next investment 2022/23 two years Capital delivery model for Our 2025 target c.£1.5 billion K7 Enhancing our supply chain • S
Slide 14: Financial resilience enabling accelerated investment
Pennon Financial resilience enabling accelerated investment Double digit RORE 1 60.8% Pension gearing scheme in Financially resilient 11.1% 4.6% SWW BRL – a year on year reduction surplus Outperformance and balance sheet strength supporting Reinvestment of outperformance c.£300m investment 2 to date
Slide 15: Summarised income statement
Pennon Summarised income statement Underlying1 (£m unless stated) 2022/23 2021/22 Revenue 825.0 792.3 esults in line R EBITDA 307.8 383.9 with management Operating profit 153.1 237.2 expectations Net finance costs (136.6) (93.7) • As flagged, near term impact on earnings driven Profit before tax – u
Slide 16: Profit before tax
Pennon Profit before tax South West Water Pennon Group • Net reduction in demand reflecting successful consumption • Inflation impact on index-linked debt – reduction initiatives driving increase in net interest charge • Regulatory revenue adjustments from 2020/211 • +80% growth in PWS pre-tax profi
Slide 17: Sustainable net debt
Pennon Sustainable net debt Pennon Group – summarised net debt flow 2022/23 2021/22 (£m) flows flows Net debt excluding fair value uplifts 1 April (2,514.3) 107.8 Opening balance 1 April (2,682.9) 64.3 Cash flows from operating activities 313.7 334.2 Corporation tax paid (1.4) (7.3) Net interest pai
Slide 18: Agile and efficient financing
Pennon Agile and efficient financing Funding secured since March 2022 Effective • New and renewed facilities totalling c. £825 million interest rate 2 − First syndicated £300 million private placement completed with an average maturity of 12 years 5.5% − £205 million of new term loans and leasing wi
Slide 19: Financing portfolio – strategic positioning
Pennon Financing portfolio – strategic positioning Debt funding strategy • Expanding our diverse debt portfolio – supporting flexibility and growth opportunities • Strategically targeting between 20-25% index-linked debt into the long-term • Maintaining dynamic hedging strategy – 10 year swaps to me
Slide 20: Outlook – 2023/24
Pennon Outlook – 2023/24 Sustained elevated levels of inflation SWW SWW SWW SWW Revenue Opex Financing Capex • Inflation reflected in • Ongoing inflationary • RPI swaps over K7 to • Continued increased capex 2023/24 tariffs in South increases on input costs smooth the impact of supporting the delive
Slide 21: Developing a robust plan for 2025 to 2030
Developing a robust plan for 2025 to 2030 © Pennon Group plc 2023 21
Slide 22: What is important to our customers and communities
Pennon What is important to our customers and communities “Storm overflows that are specifically effective in places like beaches need priority rather than something across all of the overflows.” “Our environment is SWW customer, Aged 56+ our biggest asset and SP EN DI NG TI M E I think that needs t
Slide 23: PR24 – Building a plan for a sustainable future
Pennon PR24 – Building a plan for a sustainable future TACKLING ADDRESSING WS STO RM OV ER FLO WATER QUALITY NET ZERO AND CUSTOMER AND POLLU TIONS AND RESILI ENCE ENVIRONME NTAL GAINS AFFOR DABIL ITY • Prioritising beaches – making • Major upgrades at 16 water • Improvement to biosolid • Developing
Slide 24: PR24 – Building a plan for a sustainable future
Pennon PR24 – Building a plan for a sustainable future JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC 2024 2023 Regional Draft Determination Final (Spring) Determination Drainage and Wastewater Plan Management Plan Customer Summary Price Review
Slide 25: Bringing water to life
Pennon Bringing water to life Tackling the biggest challenges head on Making progress in 2022/23 and towards our targets for 2025 Resilient financial performance Developing a robust PR24 plan © Pennon Group plc 2023 Rebuilding trust over time through our actions 25
Slide 26: Appendix
Appendix © Pennon Group plc 2023 26
Slide 27: Technical guidance full year 2023/24
Pennon Technical guidance full year 2023/24 Pennon Group FY 2022/23 Change Revenue* • Inflation reflected in 2023/24 tariffs in South West Water partially offset by in-year impact of regulatory adjustments and ODI penalties £825.0m • Ongoing growth in our retail businesses Net debt • Continued deliv
Slide 28: Focused on environmental improvement & long-term resilience
Pennon Focused on environmental improvement & long-term resilience Business Plan 2020-2025 Empowering customers 2022 performance highlights 100% EDM coverage at CSOs c. 30% reduction in storm overflow releases Water resilience – 2020-2025 c. 30% reduction in wastewater pollutions securing resilience
Slide 29: Pollution Incident Reduction Plan – reducing to <50 in 2024
South Pollution Incident Reduction Plan – West reducing to <50 in 2024 Pollution Incident Reduction Plan Water Annual Review 2022 • Pollution incident reduction plan to achieve <50 in 2024 Category 3 wastewater pollutions1 − c. 50% reduction in pollutions from 2020 to 2022 – including a 75% reductio
Slide 30: Continued delivery of environmental improvements
Pennon Continued delivery of environmental improvements Pollution Incident Reduction Plan Environmental Performance Assessment Annual Review 2022 • Relentless improvement focus, delivering our best ever performance in 2022 • Pollution Incident Reduction Plan delivering c. 50% improvement since 2020
Slide 31: WaterFit Live – Putting people in control
Pennon WaterFit Live – Putting people in control Positive feedback – greater transparency welcomed by stakeholders • 96% find the site clear and easy to use • 78% consider the site important to view before visiting their local beach WaterFit Live delivers: 1 WaterFit Live • Context and information r
Slide 32: Water resources
Pennon Water resources Colliford net storage – 2022 vs. 2023 2022/23 supply and demand side interventions 25,000 positively impacting total reservoir storage 20,000 Colliford Roadford reservoir reservoir (Cornwall) (Devon) 56% 55% 15,000 (2022: 31%) (2022: 47%) 10,000 Total reservoir storage 5,000 6
Slide 33: Diversifying water resources
Pennon Diversifying water resources Desalination Repurposing quarries Park & Stannon • c. 50 Ml/d abstraction of sea water on Hawks Tor • Abstraction of water from Blackpool Pit, the coastline – Par Bay a water-filled claypit, near St Austell • Modular, scalable, permanent in Cornwall, to support th
Slide 34: Our journey so far
Pennon Our journey so far Investment over 20-30 years ago NOW £1s3in bn ce Water quality – samples failing tests 2% 0.04% privatisation 250 raw sewage All raw sewage Sewage treatment outfalls open outfalls closed Sewer flooding inside properties (per 10,000 properties) 3.8 0.63 30% disposed 100% tre
Slide 35: RORE outperformance
South RORE outperformance West Water Cumulative RORE performance £m 2020/ 2021/ 2022/ Cumulative 21 22 23 total 2022/23 RORE K7 Cumulative RORE Financials Totex2 60 33 -80 13 11.1% 9.0% Financing 14 53 133 200 7.5% 8.0% ODIs -12 11 -10 -21 4.6% Ofwat 62 87 43 192 3.0% 5.7% WaterShare 96 94 8 198 5.2
Slide 36: Financial Outcome Delivery Incentives – 2022/23 – South West Water
South Financial Outcome Delivery Incentives – West 2022/23 – c. 70% on track or ahead of target Water Area of Outperformance On track Marginal Area of excellence 7 9 15 10 focus 3 Bespoke • Bathing water quality • Biodiversity – prevent • Abstraction incentive mechanism • Water pollution incidents •
Slide 37: Financial Outcome Delivery Incentives – 2022/23 – Bristol Water
Bristol Financial Outcome Delivery Incentives – Water 2022/23 – c. 65% on track or ahead of target Area of Outperformance On track Marginal Area of excellence 3 9 7 4 focus 6 Bespoke • Local community satisfaction • Satisfied vulnerable customers • Abstraction Incentive Mechanism • Water quality – a
Slide 38: Growing the business, bringing together the best of the best
Pennon Growing the business, bringing together the best of the best Licence change and statutory transfer completed 1 Feb 2023 • Phase one complete – organisational and licence changes • Phase two expanded to Group-wide evolution programme, incorporating culture, operating model, data and insight, g
Slide 39: Revenue growth
Pennon Revenue growth South West Water Pennon Group • Full period contribution from Bristol Water • Sustained growth in PWS • Net overall demand reduction − Contract wins driving growth − Successful Household consumption reduction initiatives − Demand outside region returning − Non-household activit
Slide 40: Responsible approach to tax
Pennon Responsible approach to tax Current tax position – effective credit Corporation tax 2022/23 2021/22 rate of 16.1% (£m) • Current tax credit arises from super-deductions on 45% of additions and continued pension relief Current tax 2.7 (5.0) following exceptional contributions in prior periods
Slide 41: Income statement – EPS reconciliation
Pennon Income statement – EPS reconciliation Adjusted EPS (£m unless stated) 2022/23 2021/22 Loss / (profit) before tax (8.5) 127.7 Adjusted for: Non-underlying items (pre-tax) 25.3 15.8 Current tax 2.7 (5.0) Minority interest1 (0.3) (0.2) Profit for adjusted EPS 19.2 138.3 Basic weighted average nu
Slide 42: Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment (£m) 2022/23 2021/22 South West Water 358.2 240.4 Clean water 210.6 139.1 Wastewater 147.6 101.3 Other Group 0.1 0.5 Capital additions 358.3 240.9 Group capital payments (£m) Group capital additions 358.3 240.9 Capital credito
Slide 43: Balance sheet – Pensions
Pennon Balance sheet – Pensions Pensions 31 31 (£m) March March 2023 2022 Pension schemes’ assets 749 1,052 Pension schemes’ liabilities (720) (986) Net pension schemes’ assets 29 66 Deferred tax (3) (10) Net of tax pension schemes’ assets 26 56 March 2022 triennial No further Bristol Water valuatio
Slide 44: Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 31 March 2023 Pennon South West (£m) Group Water Leasing 1,065 1,065 Bank bilaterals 790 814 Index-linked debt (RPI) 744 644 Fixed rate bonds 214 196 Private placements 305 186 Preference shares 13 13 Total borrowings 3,13
Slide 45: Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 31 March 2023 Pennon Group (£m) Book value Fair value Variance Bank bilaterals 790 777 13 Index-linked debt (RPI) 744 614 130 Fixed rate bonds 214 205 9 Private placements1 305 288 17 Preference shares 13 22 (9) Total borrowings (excluding leas
Slide 46: South West Water: Resilient performance despite challenges
South Resilient performance despite challenges West from global pandemic Water Underlying1 2022/23 2021/22 Household (£m) demand reduced Revenue2 701.3 687.8 Reflects Operating costs (392.9) (303.0) additional two EBITDA 308.4 384.8 months of Depreciation and amortisation (149.0) (141.0) Bristol Wat
Slide 47: Net interest analysis
South Net interest analysis West Water 2022/23 2021/22 (£m unless stated) South West Water 1 South West Water 1 Underlying net interest charge (145.3) (100.4) Less: pensions net interest (1.6) (0.2) Add: capitalised interest (4.9) (1.3) Net interest for average rate calculation (151.8) (101.9) Split
Slide 48: Long-term sustainable growth – national platform for business retail
Pennon Long-term sustainable growth – growing a profitable, sustainable national platform for business retail • c. 6% market share1 • Resilient financial performance – £1.6 million profit 80% ownership after tax in 2022/23 - c . £11 million contract wins during 2022/23 in addition to one of the lowe
Slide 49: Strong market performance
Pennon Strong market performance Water Services 1 Underlying2 (£m) 2022/23 2021/22 Revenue 218.0 195.3 Business wins underpinning Water segment wholesale elimination (94.7) (90.9) revenue growth Revenue excluding elimination 123.3 104.4 NHH recovery Operating costs (213.7) (191.9) Water segment whol