Pennon Group Plc · LSE:PNN
Pennon — Non-Deal Roadshow (June 2019)
73 slides from Pennon's roadshow presentation, June 2019
Slide 1: Full Year Results 2018/19 North America Roadshow
Full Year Results 2018/19 North America Roadshow June 2019 1
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this “document” projects/exposure to contract failures; failure of information technology shall mean this presentation pack and shall be deemed to include references systems, management and protection, including cyber risks. The
Slide 3: The Pennon Team
Pennon The Pennon Team Chris Loughlin Sarah Heald Chief Executive Director of Corporate Officer Affairs & Investor Relations 3 Full Year Results 2018/19
Slide 4: A unique combination of environmental infrastructure assets
Pennon A unique combination of environmental infrastructure assets Water & Wastewater Waste Management Regulatory ring-fence Water and wastewater services to B2B water retailer A leading UK recycling and a population of c.2.2 m residual waste processing and • PWS is our growing B2B water transformat
Slide 5: Bringing resources to life
Pennon Bringing resources to life Delivered strong results in a responsible and sustainable way Viridor • Focus on de-risked infrastructure model, backed by index linked long-term contracts • Successful ERF(1) build out and operations >90% availability • Confidence in long-term market outlook – grow
Slide 6: Trusted, Collaborative, Responsible, Progressive – living our core values
Pennon Trusted, Collaborative, Responsible, Progressive – living our core values Our core values are embedded in our sustainable way of operating • Prioritising the interests of customers, employees and the environment • Delivering outstanding service to customers and communities • Significant susta
Slide 7: Financial Highlights
Financial Highlights Strong, consistent financial performance 7 Full Year Results 2018/19
Slide 8: Total Shareholder Return
Total Shareholder Return Consistently outperforming the market since privatisation 5,000 Pennon Severn Trent United Utilities FTSE 100 FTSE 250 4,500 4,000 3,500 Total indexed to 100 3,000 2,500 2,000 1,500 1,000 500 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2
Slide 9: Dividend Growth
Dividend Growth Growth driving attractive dividend sustainability Established 10 year sector leading policy of RPI +4% • Recommend final dividend of 28.22p, up +6.0% Final dividend • Full Year dividend of 41.06p, up +6.4%(1) Interim dividend • Viridor earnings supporting growth in dividends 41.06p •
Slide 10: Robust financial performance
Pennon Robust financial performance 2018/19 2017/18 Underlying(1) Change A £m £m EBITDA growth momentum Revenue 1,478.2 1,393.0 +6.1% • Strong performance across our Water and Waste operations EBITDA A 546.2 509.6 +7.2% • Focus on efficiencies Adjusted EBITDA(2) 592.7 562.3 +5.4% Depreciation and Am
Slide 11: Viridor: Delivering growth underpinned by ERF portfolio
Viridor Delivering growth underpinned by ERF portfolio 2018/19 2017/18 Underlying(1) Change £m £m New ERF capacity on stream Revenue(2) 852.7 785.7 +8.5% • 3 new ERFs operational in 2018/19 EBITDA 178.9 150.2 +19.1% • Investment in additional throughput capacity at Glasgow ERFs 154.8 123.7 +25.1% •
Slide 12: South West Water: Strong outperformance – momentum continues
South West Water Strong outperformance – momentum continues 2018/19 2017/18 Revenue – dry weather driving Underlying(1) Change £m £m increases Revenue(2) 581.0 571.3 +1.7% • Net tariff increase of 1.0%(5) Operating Costs (213.9) (210.4) (1.7%) • Increase in metered volumes 1.4% as a result of dry we
Slide 13: Capital Investment
Capital Investment Continued investment for growth across the Group 500 2018/19 2017/18 £m £m 400 Total Water 154 184 Group Total Viridor 242 213 300 Capex(1) £m Total PWS/Other - 1 200 Total 396 398 100 Key elements of Group expenditure in 2018/19 0 2015/16 2016/17 2017/18 2018/19 2019/20 • Complet
Slide 14: Balance Sheet
Balance Sheet Sustainable funding position underpinning investment Group at 31 March 2019 Stable Gearing Net Debt £3,080m Profile Index-Linked £568m 64.7% 58.9% 18% 63.1% at 60.3% at 31 March 2018 31 March 2018 Fixed £1,936m 63% Floating Group Net Water Business £576m Gearing(1) Debt / RCV(2) 19% •
Slide 15: Balance Sheet: Sustainable financing delivering efficient financing costs
Balance Sheet Sustainable financing delivering efficient financing costs Financing secured in 2018/19 of £830m Sustainability linked financing Other financing agreements £600m £230m • £110m Plc EIB(1) 19 year loan • Supporting capital investments in • £100m RCFs our environmentally sustainable • £32
Slide 16: Viridor
Viridor
Slide 17: Viridor: Bringing resources to life
Viridor Bringing resources to life • Strong delivery in 2018/19 – platform for continued growth • Excellent track record, successful diversification and growth – capitalising on UK waste strategy • Confidence in long-term market outlook – Government Resources & Waste Strategy aligned to Viridor stra
Slide 18: Viridor – Residual Waste: ERF portfolio outperformance
Viridor – Residual Waste ERF portfolio – continued outperformance in 2018/19 Outperforming base case expectations(2) • Portfolio continuing to deliver in excess of base case – 15% increase in permitted capacity approved at Runcorn I & II Outperformance Peterborough • Portfolio EBITDA margin c.60% Ru
Slide 19: Viridor – Residual Waste: Longer term value from landfill
Viridor – Residual Waste Longer term value from landfill • Optimising long-term value from landfill – Sale of another closed site for alternative use – mitigating long term liability (H1 2019/20) – Responsible operator, managing our legacy – Highly engineered and controlled operations • Long-term ca
Slide 20: Viridor – Energy Parks
Viridor – Energy Parks Leveraging value from Viridor asset base Dunbar – Landfill gas private wire to Tarmac cement works Runcorn – Heat and power off-take to Inovyn – ERF and landfill gas heat off-take into Sutton Beddington Beddington Decentralised Energy Network for community heating – Opportunit
Slide 21: Viridor – Recycling: market opportunities in plastics processing
Viridor – Recycling Recycling market opportunities in plastics processing • Government strategy supports investment in new recycling infrastructure – Tax on plastic packaging containing <30% recycled content 46% (1) 75% – Responsibility of 100% recycling costs on producers UK target for – Boosting d
Slide 22: Viridor – Recycling: New industry leading plastics recycling facility
Viridor – Recycling New industry leading plastics recycling facility • Industry leading attractive investment – leveraging our plastics skill set – Co-located at Avonmouth ERF using energy and heat off-takes – Energy Park concept gives significant cost advantage – £65m investment in de-risked infras
Slide 23: South West Water
South West Water | Pennon
Slide 24: Delivering high quality services – solid platform for next period – K7
South West Water Delivering high quality services – solid platform for next period – K7 • Resilience to weather extremes – Hottest summer on record and ‘Beast from the East’ ‘freeze and thaw’ – 22nd consecutive year without water restrictions – Leakage target met every year – Supply interruptions re
Slide 25: Sector leading outperformance in this period – K6
South West Water Sector leading outperformance in this period – K6 • Consistently highest RORE delivered – 11.8% – Totex: £237m of £300m target delivered to date – ODIs: net cumulative reward, £11m to date – Financing: continued low effective interest rate, £130m to date • Outperformance delivered i
Slide 26: Our plan: setting the standard for the industry to meet
South West Water Our plan “setting the standard for the industry to meet” Board pledges – working in the public interest • Making bills affordable for all – Lower in cash terms in 2025 than in 2010 – Eliminate water poverty by 2025 by extending support measures – Ofwat praised our plan for “high qua
Slide 27: Sector leading outperformance – next period – K7
South West Water Sector leading outperformance – next period – K7 Sector leading company outperformance • Highest outperformance potential next period – Confidence in outperformance in all areas • Totex allowances consistent with current period – Allowance higher than current forecast spend • Financ
Slide 28: K7 Draft Determination – ODI outperformance potential for K7
South West Water K7 Draft Determination – ODI outperformance potential for K7 Strong platform for ODI performance in K7 BESPOKE ODIs Taste, smell and colour contacts Compliance with sludge standards Unique rewards Water & wastewater operational contacts Resilience (water & wastewater) for SWW resolv
Slide 29: Future growth
South West Water Future growth • £6bn - £9bn investment anticipated to 2050 - Customer / stakeholder research and engagement - Informed by Defra’s guidance to Ofwat - Direct engagement with Ofwat • Key investment drivers continue - Resilience - Environmental protection and enhancement - Security of
Slide 30: UK Regulation
UK Regulation Full Year Results 2018/19
Slide 31: UK Water Industry regulation
UK Water Industry regulation Legal obligations – Ensure companies properly carry out their functions – Ensure companies can finance their functions – Protect the interest of consumers, wherever appropriate, by promoting effective competition – Ensure the long-term resilience of water and sewerage sy
Slide 32: Ofwat's Initial Assessment of Business Plans (IAP)
Ofwat’s Initial Assessment of Business Plans (IAP) South West Water “South West Water Plan is high quality...includes ambitious innovative and sector-leading proposals.” • Only company to achieve successive fast-track status for two price reviews • Benefit of an early Draft Determination in April 20
Slide 33: Ofwat's Draft Determination
Ofwat’s Draft Determination South West Water • Minimal changes to our Business Plan to 2025 • RoRE range now 1.2% to 8.6% – fair returns for excellent performance • Pay As You Go (PAYG) / Regulated Capital Value (RCV) run-off approach confirmed – maintaining natural approach • c.£1bn capital program
Slide 34: Appendix
Pennon Appendix Full Year Results 2018/19
Slide 35: Group EBITDA
Pennon Group EBITDA £m 1.7 1.2 9.7 546.2 31.1 (0.1) (3.5) (3.5) 509.6 2017/18 ERFs SWW revenue Plc, PWS and Viridor contracts, Recycling Landfill and SWW cost 2018/19 other collections & landfill gas impacts other, and indirect costs 35 Full Year Results 2018/19
Slide 36: Financial performance underpinned by efficiency initiatives
Pennon Financial performance underpinned by efficiency initiatives delivering across the Group Sector leading Totex outperformance for South West Water SWW Totex • £237m cumulative Totex efficiencies – on track to deliver c.£300m £237m savings over K6 K6 to date • Underpins SWW efficient cost base l
Slide 37: Non-underlying items
Pennon Non-underlying items 2018/19 2017/18 A Derivatives £m £m • Movements in fair value of long- Derivatives A 5.8 (2.4) dated derivatives associated with South West Water 2040 bond. GMP equalisation B (3.0) - Interserve provision C (22.7) - B Guaranteed Minimum Pension Greater Manchester reset -
Slide 38: A responsible approach to tax
Corporation Tax A responsible approach to tax – managing tax efficiently for the benefit of customers and shareholders 2018/19 2017/18 £m £m Current Year Current Tax 32.4 29.7 • First water and waste infrastructure Deferred Tax 23.2 20.7 business to secure accreditation • Demonstrates transparency a
Slide 39: Adjusted EPS reconciliation
Pennon Adjusted EPS reconciliation 2018/19 2017/18 2018/19 2017/18 Adjusted EPS Calculation Statutory EPS Calculation £m £m £m £m Statutory Profit Before Tax 260.3 262.9 Statutory Profit Before Tax 260.3 262.9 Adjusted for: Adjusted for: Non-underlying Items (pre-tax) 19.9 (4.1) Current Tax (29.4) (
Slide 40: Net Debt Movements
Net Debt Movements Robust cash inflow from operations Robust cash inflow from operations supporting: £m (3,079.5) • Significant investment across the Group • Runcorn I acquisition (2,801.5) (384.5) (54.8) (5.8) (162.0) (73.6) (29.2) (137.9) (47.0) 649.0 (32.2) Net Debt Cash inflow Pension Other move
Slide 41: Finance Costs
Finance Costs Delivering efficient financing – mitigating risk 2018/19 net finance costs(1) 2018/19 Group interest rate 2018/19 SWW interest rate £83.2m 3.6% 3.5% £74.5m 2017/18 3.7% 2017/18 3.5% 2017/18 Interest rate hedging for K7 1.80% Hedging Hedging activity • Aligned to Ofwat’s PR19 1.60% acti
Slide 42: Group capital expenditure reconciliations
Pennon Group capital expenditure reconciliations Group Capital Investment 2018/19 2017/18 Group Capital Payments 2018/19 2017/18 (Slide 14) £m £m (Net debt movements slide 17) £m £m Viridor 210.2 192.8 Viridor 210.2 192.8 ERFs 176.2 158.0 South West Water 154.0 184.2 Recycling 8.9 3.3 Other Group 0.
Slide 43: Diversified funding sources
Pennon Diversified funding sources As at 31 March 2019 £m Finance Leasing(1) 1,560 Bank Bilaterals 452 European Investment Bank Loans 401 • Finance leasing provides a significant amount of long-dated funding Index-Linked Bonds 435 Fixed Rate (SWW 2040) Bond 134 Private Placements 668 Total Gross Deb
Slide 44: Impact of low yields at March 2019
Pennon Impact of low yields at 31 March 2019 Fair value of non-current debt As at 31 March 2019 As at 31 March 2018 compared to book value Book Fair Difference Book Fair Difference £m Value Value Value Value Finance Leases 1,497 1,432 65 1,477 1,350 127 Bank and Other Loans (Including EIB) 817 792 2
Slide 45: Net interest analysis
Pennon Net interest analysis(1) 2018/19 2017/18 £m £m K4 K5 K6 7.0% (2005-10) (2010-15) (2015-20) 6.5% Pennon Net interest charge: (83.2) (74.5) 6.0% 5.5% Add: capitalised interest (15.2) (17.0) SWW 5.0% Less: notional interest payable(2) 12.5 11.8 4.5% 4.0% Water Add: interest receivable on service
Slide 46: Pensions
Pennon Pensions • The aggregate pension schemes’ deficit has increased in the year to 31 March 2019 by 31 March 2019 31 March 2018 £11m from £50m to £61m £m £m Pension schemes’ assets 934 898 • This represents a net deficit of c.2%of Group’s market capitalisation at 31 March 2019 Pension schemes’ li
Slide 47: Significant energy generation
Pennon Significant energy generation • Total Group energy generation of 1.65TWh in 2018/19 – 11 ERFs(1) – 1.2TWh UK Power Forward Seasons – 25 Hydro Turbines – 11.4GWh 70 S 19 W 19 – 52 Solar PV installations(2) – 10.2GWh 60 S 20 W 20 – 6 CHP – 6.3GWh – 1 wind turbine – 0.1GWh £/MWh 50 – Anaerobic d
Slide 48: Pennon Water Services financial highlights
Year End Results 2018/19 Pennon Water Services(1) financial highlights 2018/19 2017/18 Growing in a competitive market £m £m Revenue 173.7 165.9 • 20% of revenue secured in national tendered contracts and additional EBITDA 1.0 1.0 contracts for SMEs, with good Depreciation and Amortisation (0.7) (0.
Slide 49: 2019/20 technical guidance
Pennon 2019/20 technical guidance Pennon Group 2018/19 Change Capex Passed peak of committed ERF capex. Growth capex in near term principally reflects completion £396m of Avonmouth and investment in recycling Dividend Reflecting policy of RPI + 4% annual increase in dividend 41.06p per share Tax rat
Slide 50: Viridor Appendix
Viridor Appendix Full Year Results 2018/19
Slide 51: Viridor Revenue
Viridor Revenue £m 5.9 12.0 69.7 852.7 (0.5) (6.4) (13.7) 785.7 2017/18 ERFs operational ERFs construction Recycling Landfill Gas Contracts, Collections Landfill 2018/19 revenue & Other 51 Full Year Results 2018/19
Slide 52: Viridor Adjusted EBITDA
Viridor Adjusted EBITDA £m 1.5 31.1 (0.1) (0.3) (0.8) 225.4 (2.7) (6.2) 202.9 2017/18 ERFs Indirect costs Recycling Contracts, Landfill Landfill Gas Share of JV 2018/19 Collections & Other EBITDA and IFRIC 12 interest receivable 52 Full Year Results 2018/19
Slide 53: Viridor Joint venture performance
Viridor Joint venture performance 2018/19 Runcorn I Runcorn I Runcorn I Viridor Lakeside Total £m Tranche 1(1) Tranche 2(2) Total Laing(3) Share of JV PAT 2.5 0.8 3.3 - 9.1 12.4 Interest on Shareholder Loans 3.6 0.6 4.2 - 1.1 5.3 Shareholder Loans 30.6 34.4 65.0 - 7.7 72.7 Share of non-recourse net
Slide 54: Viridor ERF Background
Viridor ERF Background 54 Full Year Results 2018/19
Slide 55: ERF Revenue breakdown
ERF Revenue breakdown 100% Total ERF Revenue – De-risked position 5% RECOVERED METALS 25%25% POWER OUTPUT POWER OUTPUT • Pennon - natural hedge (one third) Viridor capacity(1) 70% Balance of short and medium-term contracts (Municipal and Commercial & Industrial) 70% WASTE FUEL WASTE70%FUELINPUT (GAT
Slide 56: ERF market fundamentals remain strong
Viridor – Residual Waste ERF market fundamentals remain strong • Conservative assumptions – based on third party analysis – Combustible residual market - suitable for ERF treatment, remains robust – DEFRA(1) analysis gives a 10mT range depending on speed of implementation of the strategy 35 UK Combu
Slide 57: Focus on De-risked Infrastructure Model
Focus on De-risked Infrastructure Model Successful execution in residual waste transformation 57 Full Year Results 2018/19
Slide 58: Excellent Viridor Track Record
Excellent Viridor Track Record Leading the way in UK waste ERF Financial c.£28m c.60% > 8% Performance EBITDA/plant(1) EBITDA Margin IRR(2) ERF Operational 2.8mt 240MW > 90% Base Base Performance Tonnage(3) Energy(3) Availability ERF current outperformance of 10% (1) Based on a typical large, 300kt
Slide 59: Viridor ERF Financials
Viridor ERF Financials 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 Receivable -- £16m -- Share of JV EBITDA (50%) -- -- £14m IAS 16 IFRIC 12 JVs Underlying EBITDA £28m £28m £14m • Oxford (
Slide 60: Growth capex driving increased earnings
Growth capex driving increased earnings Viridor focus on Recycling and Residual Waste 200 150 £m 100 50 0 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2014/15 2015/16 2016/17 2017/18 2018/19 2021/22 Growth Capex PBT EBITDA Adj EBITDA Investment delivering growth • Investment in committed
Slide 61: Viridor – Residual Waste: Growth from existing ERF portfolio
Viridor – Residual Waste Growth from existing ERF portfolio Build out nearing completion Avonmouth • Additional capacity at Glasgow • Acquired additional stake in Ramp up Runcorn I joint venture IFRIC 12 Glasgow Runcorn I • Glasgow, Beddington and Dunbar Interest in operational ramp up Receivable •
Slide 62: ERF capital expenditure – Efficient investment to deliver growth
Viridor ERF capital expenditure(1) – Efficient investment to deliver growth Cumulative Capital Cumulative Remaining Amounts Original Total project £m spend at investment in spend to spend to subject to planned project spend 1 April 2018 2018/19 31 March 2019 completion recovery(2) spend ERF projects
Slide 63: Viridor ERFs (including Joint Ventures)
Viridor ERFs (including Joint Ventures) Capital Base load Actual/expected Site Gross capacity Status Cost (1) municipal contract commissioning Tonnes Electricity £m (000) MWe Lakeside(2) 150 410 38 Fully operational Merchant Commissioned Exeter 47 60 3 Fully operational Exeter Commissioned Oxford (A
Slide 64: Glasgow ERF (GRREC)
Viridor Glasgow ERF (GRREC) Construction spend Benefit to Viridor £ 273m Construction cost related to additional throughput Recovered from incremental income related to increased throughput over life of contract £21m Gross contractual recoverable from ICL Net contractual Contractual recovery from IC
Slide 65: South West Water Appendix
South West Water Appendix Full Year Results 2018/19
Slide 66: South West Water Revenue
South West Water Revenue £m 17.4 5.6 3.7 581.0 571.3 (3.8) (12.0) (1.2) 2017/18 Tariff increases WRFIM¹ New connections Other Revenue Increased Meter optants 2018/19 customer demand (net of leak (1) WRIFM - Wholesale Revenue Forecast Incentive Mechanism allowance) 66 Full Year Results 2018/19
Slide 67: South West Water EBITDA
South West Water EBITDA £m 4.8 9.7 367.1 2.4 (6.0) 360.9 (4.7) 2017/18 Revenue Growth Efficiencies & other Cost increase incl. Adverse weather Bad debt charge 2018/19 cost savings inflation 67 Full Year Results 2018/19
Slide 68: 2018/19 ODI performance levels
South West Water 2018/19 ODI performance levels – cumulative net reward position for K6 Water quality standard Bathing water quality GOOD Taste, smell and colour contacts Water & waste asset reliability PERFORMANCE(1) Water operational contacts resolved 1st time Sustainable abstractions Water restri
Slide 69: Sharing outperformance with customers
South West Water Sharing outperformance with customers Strong focus on sharing financial benefits with customers • Unique mechanism to share outperformance transparently • Significant benefits identified for customers to date • Reinvestment in services, future lower bills • Future sharing scheme for
Slide 70: Reconciliation of RORE to financials
South West Water Reconciliation of RORE to financials Cumulative Totex(1) outperformance of £237m Totex £m 2018/19 2017/18 2016/17 2015/16 ODI Outperformance(2) Operating Costs 214 210 212 212 • Total net reward £4.1m will be recognised at the end of Capital Expenditure 154 184 191 134 regulatory pe
Slide 71: RCV growth over 10 years
Growth capex driving increased earnings South West Water – RCV(1) growth over 10 years Continuing investment in our assets and services • Significant K7 capital investment planned – above K6 actual expenditure • 10% nominal growth in RCV in K7 (c.28% over 10 years) • c.£300m Totex outperformance for
Slide 72: Fast start to next period
South West Water Fast start to next period • Key partnerships in place – Strategic consultants and capital delivery partners confirmed – Operational partners in place – Other delivery relationships in place including Wildlife Trusts, customer groups and charities – Exeter University innovation progr
Slide 73: Full Year Results 2018/19 North America Roadshow
Full Year Results 2018/19 North America Roadshow June 2019 73 Full Year Results 2018/19