Pennon Group Plc · LSE:PNN
Pennon — FY2011/12 Earnings Presentation
49 slides from Pennon's earnings presentation, May 29, 2012
Slide 1: Preliminary Results 29 May 2012
Preliminary Results 29 May 2012
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: 2011/12 Financial Highlights
Pennon Group Plc 2011/12 Financial Highlights • Profit before tax up 6.4% to £200.5m South West Water up 9.8% to £141.5m Viridor down 8.4% to £57.6m • Earnings per share before deferred tax up 11.8% to 47.3p(1) • Dividend full year dividend per share up 7.6% to 26.52p recommended final dividend per
Slide 4: 2011/12 Operational and Business Highlights: South West Water
Pennon Group Plc 2011/12 Operational and Business Highlights South West Water • Strong performance against 2010 – 2015 regulatory contract • Average funding cost 4.1% • Substantial progress in operating efficiency • Strong water resource position, expect 16th summer without restrictions • Best ever
Slide 5: 2011/12 Operational and Business Highlights: Viridor
Pennon Group Plc 2011/12 Operational and Business Highlights Viridor • Continuing growth in profits from recycling, contracts and joint ventures offset this year by reduction in landfill plus increased project pipeline bid costs • As flagged previously, recyclate prices have fallen from their first
Slide 6: Pennon Group Plc
PENNON GROUP PLC Available i App Store
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results 2011/12 2010/11 Change £m £m Group revenue 1,233.1 1,159.2 6.4% Group operating profit 268.8 260.9 3.0% - SWW 204.7 189.8 7.9% - Viridor 63.7 71.6 (11.0%) Viridor PBIT plus joint ventures 75.2 82.6 (9.0%) Group profit before tax 200.5 188.5 6.4% - SWW 141.5
Slide 8: Cash Flow
Pennon Group Plc Cash Flow 2011/12 2010/11 £m £m Cash inflow from operations 373.9 411.8 Net interest paid (61.3) (63.8) Dividends paid (69.1) (56.8) Tax paid (41.4) (43.2) Capital expenditure (257.6) (185.6) Acquisitions and investment in joint ventures (42.6) (37.6) Loan repayments received from j
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at 31 March 2012 2011 £m £m Loans and finance leases - over one year 2,204 2,390 - under one year 326 99 2,530 2,489 Less: cash and cash deposits (425) (555) Net borrowings 2,105 1,934 Net gearing (1) 71.9% 71.3% SWW debt/RCV 56.1% 57.1% • Gearing stable • Net borr
Slide 10: Net Borrowings Analysis as at March 2012
Pennon Group Plc Net Borrowings Analysis as at 31 March 2012 £m Finance leasing 1,284 Bank bilaterals - RCFs/term loans 384 EIB 253 Index-linked bond 2057 240 Bond 2040 132 Private placements 100 Convertible bond 118 Unsecured loan notes 8 Other 11 Total gross debt 2,530 Less: Cash/liquid investment
Slide 11: Interest Analysis
Pennon Group Plc Interest Analysis (1) 2011/12 2010/11 £m £m Interest payable (92.0) (90.0) Capitalised interest payable (3.0) (1.1) Interest receivable on shareholder loans to joint ventures 7.5 6.7 Other interest receivable 9.6 6.1 Net interest payable (77.9) (78.3) Average rate of interest 3.9% 4
Slide 12: 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 weighted av
Slide 13: Liquidity
Pennon Group Plc Liquidity • £425m cash balances at 31 March 2012 (includes £123m deposits with Letter of Credit providers and lessors) • £659m undrawn facilities at 31 March 2012 • Committed funding in place for South West Water up to March 2015 c.£140m of drawn facilities will mature over the rest
Slide 14: Taxation
Pennon Group Plc Taxation 2011/12 2010/11 £m £m Current tax 30.9 38.6 Deferred tax 23.6 3.4 Deferred tax reduction on change of (26.4) (25.1) corporation tax rate 28.1 16.9 • Current tax charge 15% (2010/11 - 20%) • Reduction in effective rate reflects lower CT rate and higher pension contributions
Slide 15: Pensions as at March 2012
Pennon Group Plc Pensions as at 31 March 2012 • Gross pension deficit of £99m (March 2011 - £86m) £75m net of tax (March 2011 - £64m) March 2012 March 2011 • Pension schemes’ assets £517m £454m Pension schemes’ liabilities £616m £540m £99m = £75m net of tax £86m = £64m net of tax • Market volatility
Slide 16: Dividends
Pennon Group Plc Dividends • Recommended final dividend up 6.7% to 18.30p • Full year dividend up 7.6% to 26.52p, reflecting RPI of 3.6% to March 2012 • Sector-leading progressive dividend policy: 4% real increase to end of K5 period (March 2015) • Scrip dividend alternative 16
Slide 17: South West Water
SOUTH WEST WATER 17
Slide 18: South West Water Financial Performance Summary
South West Water Financial Performance Summary 2011/12 2010/11 Change £m £m Revenue 474.0 448.8 5.6% Operating profit 204.7 189.8 7.9% Profit before tax 141.5 128.9 9.8% 18
Slide 19: Revenue
South West Water Revenue • Tariff increase of 8.1% (inc RPI) • Metered demand – reduced 2.6%, cumulative K5 demand higher than Final Determination assumption 19 • 73.4% of domestic customers now metered
Slide 20: Operating Costs
South West Water Operating Costs 280.0 1.9 (6.7) 2.5 275.0 2.8 (1.5) 4.6 269.3 270.0 £m 6.7 265.0 260.0 259.0 255.0 250.0 Mar-12 Mar-11 Cost increases Private Sewers Efficiency Restructuring IFRS Opex Depreciation & Other (inc. CRC Transfers (inc. inflation savings & lower asset New capital and rate
Slide 21: Operating Cost Efficiency
South West Water Operating Cost Efficiency • Good operational cost control K5 cumulative operating • On track to deliver 2.8%(1) pa required efficiency over K5 cost efficiencies to March focus on front loaded delivery 2012 efficiency delivery offsetting general cost increases Energy Admin and K5 to
Slide 22: Capital Programme
South West Water Capital Programme • Expenditure £130.8m (2010/11 £125.1m) K5 cumulative capital expenditure Park & Stannon Lakes now fully operational to March 2012 1st borehole developed in 18 years major upgrades at 3 water treatment works Enhanced Service new service reservoir completed at Newqu
Slide 23: Shareholder Value
South West Water Shareholder Value 3,000 2,500 Expected growth 2,000 in RCV 2010-15 18.3%(1) 1,500 £m 1,000 500 0 1990 1995 2000 2005 2010 2015 • Growth in RCV continues to exceed growth in net debt • RCV of £2,827m at 31 March 2012, debt/RCV gearing 56.1% • RCV growth benefiting from higher inflati
Slide 24: Operational Highlights: Delivering the Regulatory Contract - I
South West Water Operational Highlights: Delivering the Regulatory Contract - I • No hosepipe bans or drought orders – 15th consecutive summer in 2011 • As announced in March, 2012 expected to be 16th summer without restrictions two new reservoirs in use, Park & Stannon winter use of pumped storage
Slide 25: Operational Highlights: Delivering the Regulatory Contract - II
South West Water Operational Highlights: Delivering the Regulatory Contract - II • SIM(1) score improved 15% (78% improvement over two years) customer complaints halved in last two years • Online/self-service customer support increased My Account – online account management Water Live – live info. o
Slide 26: Operational Highlights: Delivering the Regulatory Contract - III
South West Water Operational Highlights: Delivering the Regulatory Contract – IlI • Renewable energy capacity enhanced solar generation at 23 sites Lowermoor wind turbine installed – generating 60% of site’s energy requirement two further hydro-electric schemes developed • ‘Upstream Thinking’ projec
Slide 27: Regulatory Developments – Private Sewers
South West Water Regulatory Developments – Private Sewers • Successful transition on 1 October 2011 • Estimated network increase > 50% 2011/12 Expected Costs future • Customer contacts within predicted levels annual costs(1) • Investigations ongoing to determine asset condition & targeted capex upgr
Slide 28: Regulatory Developments
South West Water Regulatory Developments • Legislative & regulatory change Water White Paper published December 2011 Ofwat consulting on future price limits and Licence change preparations for PR14 under way updating long-term Strategic Direction Statement establishment of WaterFuture panel • Go
Slide 29: Outlook
South West Water Outlook • Outperforming the K5 regulatory contract • Preparing for PR14 • Well positioned for legislative changes Successful operational strategy underpinned by strong financial performance 29
Slide 30: Viridor: Transforming Waste
Viridor Transforming waste”
Slide 31: Viridor Strategy: Transforming Waste
Viridor Strategy Transforming Waste • Viridor strategy is to add value by growing in recycling growing in PPPs/Energy from Waste capitalising in the long-term on strong position in landfill market • From 2007/08 until 2010/11 (and into H1 2011/12) growth in recycling profits more than offset decline
Slide 32: Viridor Financial Performance Summary
Viridor Financial Performance Summary 2011/12 2010/11 Change £m £m Revenue (1) 761.1 712.0 6.9% EBITDA 110.3 116.5 (5.3%) PBIT 63.7 71.6 (11.0%) PBIT plus joint ventures (2) 75.2 82.6 (9.0%) PBT 57.6 62.9 (8.4%) (1) Including landfill tax (2) Interest receivable on shareholder loans plus share of PA
Slide 33: Viridor Financial Highlights
Viridor Financial Highlights • Revenue increased by £49.1m (6.9%) to £761.1m acquisitions(1) accounted for £23.1m existing business increased by £26.0m (including increase in landfill tax of £17.8m) export sales £70.7m (2010/11 - £67.4m) • EBITDA decreased by £6.2m (5.3%) to £110.3m • PBIT plus join
Slide 34: Profit Contribution by Segment
Viridor Profit Contribution by Segment (1) Year ended 31 March 2012 Year ended 31 March 2011 Collection Collection 6% 6% Landfill Recycling 18% 27% Recycling Landfill 24% 23% JVs 9% LFG Power JVs generation 9% 20% LFG Power generation 20% Contracts and other(2) Contracts 20% and other(2) 18% • c50%
Slide 35: Operational Highlights - Recycling
Viridor Operational Highlights - Recycling • Volumes traded increased by 124k tonnes (7.2%) to 1,842k tonnes with continuing improvements in mix higher value recyclates up 198k tonnes (17.4%), 110k tonnes from acquisitions lower value recyclates down by 74k tonnes (12.8%) • Overall average revenue p
Slide 36: Recyclate Revenues Per Tonne
Viridor Recyclate Revenues Per Tonne Weighted Average - Calendar Year Basis 140 120 - Quarterly revenues 100 per tonne £ PER TONNE 80 60 40 20 - • Viridor strategy is to maximise recyclate quality and hence revenue and margin per tonne but not immune to world market conditions • Key sensitivity: £5
Slide 37: Acquisitions
Viridor Acquisitions • Viridor continues to grow its business by targeted acquisitions • As reported at Half Year Viridor acquired Storm Recycling Limited for £1.7m in June 2011 Veolia’s trade waste collection interests in Cornwall and North Devon for £0.6m in October 2011 JWS Churngold Limited, whi
Slide 38: Operational Highlights – Contracts and Collection
Viridor Operational Highlights – Contracts and Collection • Contracts 16 municipal contracts around the UK (the more significant ones include Glasgow, Lakeside, Manchester, Somerset, W Sussex and Bedfordshire (last full year)) Thames Water overall profit contribution up • Collection profit contribut
Slide 39: Operational Highlights – Joint Ventures
Viridor Operational Highlights – Joint Ventures • Lakeside, the first of our EfW pipeline, continues to perform very strongly - total contribution of £7.8m £1.4m interest on shareholder loans (down £1.1m because of partial repayment); £3.7m share of PAT (up £0.2m); £2.7m sub-contract profit won 2011
Slide 40: Operational Highlights – Landfill Gas Power Generation
Viridor Operational Highlights – Landfill Gas Power Generation • Average revenue per MWh up 1% to £83.5 per MWh (£82.5 2010/11) offset by unit cost increases • Total landfill gas power generation 576GWh slightly up on last year level of 566GWh approaching peak output • Total operational capacity(1)
Slide 41: Operational Highlights - Landfill
Viridor Operational Highlights - Landfill • Total volumes decreased by 0.4m tonnes (11.4%) to 3.1m tonnes in line with the market site closure (Horton) accounted for approaching half the decline ongoing impact of landfill diversion/recycling and weak UK economy • Average gate fees increased by 5.8%
Slide 42: Renewable Energy Developments
Viridor Renewable Energy Developments • Runcorn EfW/CHP phase I on track for handover at end of 2012/13 with phase II to follow during 2014/15 • Exeter EfW contract signed and construction commenced • Ardley EfW legal challenge successfully resolved and construction commenced • Cardiff EfW construct
Slide 43: PPP Pipeline
Viridor PPP Pipeline • Preferred bidder for South London Waste Partnership residual waste • Preferred bidder for Glasgow recycling and residual waste • Preferred bidder for South Lanarkshire recycling and residual waste, subject to challenge • One of last two for Peterborough recycling and residual
Slide 44: 2011/12 Summary
Viridor 2011/12 Summary • PBT down 8.4% continued growth in recycling, contracts and joint ventures insufficient to offset decline in annual landfill profits and increased bid costs • Recyclate prices have fallen from their first half 2011/12 peak reflecting world economic conditions cost base adjus
Slide 45: Pennon Group Plc
PENNON GROUP PLC
Slide 46: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services; recycling; renewable energy; and waste management • Over £250m invested in key infrastructure supporting the development of the UK ‘s green economy • South West Water strong performance against K5 regulatory contract
Slide 47: Pennon Group Plc
PENNON GROUP PLC
Slide 48: Appendix
PENNON GROUP PLC Appendix
Slide 49: Water Industry: 2010/11 Average Interest Rate on Net Debt
Water Industry 2010/11 Average Interest Rate on Net Debt • SWW interest rate consistently low Source: Pennon calculation based on company Annual Reports Basis: Net interest payable (excluding pensions net interest) / average net debt 49