Pennon Group Plc · LSE:PNN
Pennon — H1 2004/05 Earnings Presentation
37 slides from Pennon's earnings presentation, November 2004
Slide 1: Interim Results 2004
Interim Results 2004 For the half year ended 30 September 2004 www.pennon-group.co.uk
Slide 2: Financial Highlights
Pennon Group Plc Financial Highlights • Operating profit up 11.0% to £78.4m (1) − South West Water up 6.9% to £65.3m − Viridor Waste up 30.6% to £14.5m before goodwill • Profit before tax up 11.0% to £47.4m (1) • Earnings per share (before deferred tax) up 9.9% to 34.3p (1) • Interim dividend per sh
Slide 3: Operational Highlights
Pennon Group Plc Operational Highlights South West Water • Remains on track to outperform the current regulatory contract • Ofwat confirmed 2003/04 OPA improvement of 45 points and enhanced efficiency banding Viridor Waste • Continued strong growth in profits from landfill and power generation • Tha
Slide 4: —_ .#£+«x»Og¢
Lf —_ .#£+«x»Og¢ —""_ py Pennon Group Plc
Slide 5: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended 30 September 2004 2003 Change 2003/04 £m £m % £m Group turnover 282.2 234.8 20.2 471.3 Group operating profit (1) 78.4 70.6 11.0 136.3 Group profit before tax (1) 47.4 42.7 11.0 78.8 Earnings per share (2) 34.3 31.2 9.9 57.7 • Strong
Slide 6: Cash Flow
Pennon Group Plc Cash Flow For the half year ended 30 September 2004 2003 2003/04 £m £m £m Cash inflow from operations 135.0 103.8 215.1 Net interest paid (22.5) (9.6) (41.3) Dividends and tax paid (10.6) (15.6) (47.1) Capital expenditure (81.0) (94.9) (178.6) Acquisitions (28.5) (20.0) (20.0) Net c
Slide 7: Net Debt
Pennon Group Plc Net Debt As at As at 30 September 31 March 2004 2003 2004 £m £m £m Loans and finance leases - over one year 1,278.1 1,187.7 1,234.8 - under one year 107.2 74.3 107.0 1,385.3 1,262.0 1341.8 Less: investments and cash (296.3) (225.1) (267.7) Net debt 1,089.0 1,036.9 1,074.1 Net gearin
Slide 8: Net Interest Payable
Pennon Group Plc Net Interest Payable For the half year ended 30 September 2004 2003 2003/04 £m £m £m Interest payable (37.1) (32.0) (66.6) Interest receivable 6.1 4.2 9.4 Net interest payable (31.0) (27.8) (57.2) Average rate of interest 5.7% 5.5% 5.5% Net interest cover (1) 2.5 times 2.5 times 2.4
Slide 9: Depreciation
Pennon Group Plc Depreciation For the half year ended 30 September 2004 2003 2003/04 £m £m £m South West Water - infrastructure assets 7.5 7.1 14.2 - other assets 25.2 24.1 48.6 32.7 31.2 62.8 Viridor Waste 14.0 10.4 20.5 Other - - (0.1) 46.7 41.6 83.2
Slide 10: Taxation
Pennon Group Plc Taxation For the half year ended 30 September 2004 2003 2003/04 £m £m £m UK corporation tax 4.6 4.2 7.5 Deferred tax 4.5 0.7 3.3 9.1 4.9 10.8 • Deferred tax charge very sensitive to long term interest rates used for discounting
Slide 11: Pensions
Pennon Group Plc Pensions • Indicative net deficit at 30 September 2004 similar to 31 March 2004 - £54m • Represents c 5% of market capitalisation • Triennial actuarial valuation in progress − expected to result in annual additional costs of c £6m − including additional charge of c £3m under SSAP24
Slide 12: IFRS
Pennon Group Plc IFRS • Ongoing preparation for adoption of IFRS for 2005/06 • Significant changes from: − deferred tax − pensions − fixed asset accounting (“renewals”) − goodwill • Overall reduction to net assets and increase in earnings volatility • Does not affect underlying cashflow
Slide 13: Dividends
Pennon Group Plc Dividends • Progressive dividend policy • Interim dividend per share increased by 4.5% to 13.8p • Dividend cover (before exceptional item and deferred tax): 2.4x (H1 2003/04: 2.3x) • Scrip dividend alternative
Slide 14: South West Water
SOUTH WEST WATER S:< wai Group Plc
Slide 15: Financial Performance Summary
South West Water Financial Performance Summary For the half year ended 30 September 2004 2003 Change 2003/04 £m £m % £m Turnover 157.6 146.0 7.9 291.8 Operating profit 65.3 61.1 6.9 118.9
Slide 16: Turnover
South West Water Turnover Increase of £11.6m (7.9%) in half year. Reflects impact of: £m - tariff increase 10.5 - meter option switchers (3.3) - new connections 1.1 - demand (0.5) - other 3.8 11.6 • Strong H1 performance. Last year’s H2 boosted by recognition of high Summer demand • Number of meter
Slide 17: Operating Costs
South West Water Operating Costs For the half year ended 30 September 2004 2003 Change £m £m % Total operating costs 92.3 84.9 8.7 Increase in operating costs due to: £m - inflation 1.6 - new works (including depreciation) 2.8 - other (pensions, cost of sales) 4.6 - efficiency savings (1.6) 7.4
Slide 18: Efficiency Savings
South West Water Efficiency Savings • Analysis: £m • Manpower 0.2 • Power costs 0.3 • Contracted services 0.5 • Other (including raw materials, 0.6 procurement and rates) 1.6 • Improved efficiency banding • Cumulative K3 saving of £20.0m per annum (£47.6m per annum since 1995)
Slide 19: Operational Performance Summary
South West Water Operational Performance Summary • Highest ever drinking water and river water quality • Original “Clean Sweep” now complete – remaining UWWTD schemes underway • Remains an industry leader in managing leakage • Secure raw water resources • Continued progress on service standards requ
Slide 20: Capital Programme
South West Water Capital Programme • Capital programme since privatisation totals just over £2bn (over 1,000 schemes): delivered to target and beating budget • Capital expenditure half year to 30 September 2004 – £68.0m (2003 - £69.8m) − £95m Torbay scheme commissioned − Almost 300km water mains rep
Slide 21: Regulatory Asset Value
South West Water Regulatory Asset Value Year end 2003 2004 2005 £m £m £m At 2002/03 prices(1) 1620 1706 1847 (2) Actual/Predicted outturn prices including COPI indexation(3) 1642 1770 1952 • Strong growth in RAV 2003-05 outstripping anticipated growth in net debt ____________________________________
Slide 22: Final Determination
South West Water Final Determination • A reduced waste water environmental improvement programme • A bigger water mains rehabilitation programme to meet DWI requirements by 2010 • Increased levels of capital maintenance expenditure • Asset investment to meet demand growth including two new towns • M
Slide 23: Final Determination
South West Water Final Determination • K price increases of 12.5%, 9.8%, 9.8%, 1.7%, 1.4% for 2005-2010; an average of 6.9% over the five years • A capital programme of £762m at 2002/03 prices (similar to AMP3) • Average annual operating expenditure efficiency improvements of 2.5% (water) and 2.0% (
Slide 24: Final Determination: Capital Expenditure Projections
South West Water Final Determination Capital Expenditure Projections (£M)(1) AMP3 AMP4 Final Determination Water Service 317 485 Sewerage Service 453 277 Total 770 762 _______________________ (1) 2002/03 prices
Slide 25: Regulatory Asset Value
South West Water Regulatory Asset Value Year end 2006 2007 2008 2009 2010 £m £m £m £m £m At 2002/03 prices(1) 1929 1994 2042 2095 2136 Actual/Predicted outturn prices (2) 2094 2218 2329 2449 2560 • Strong growth in RAV 2006-10 reaching £2.56bn by March 2010 __________________________________________
Slide 26: Ofwat response to issues raised by SWW post Draft Determination
South West Water Ofwat response to issues raised by SWW post Draft Determination • Level of risk − additional notified items covering EA charges and FRED29 − COPI allowance − higher provision for power costs and pensions • Level of operating efficiencies: (per annum) Water Sewerage Draft Determinati
Slide 27: Waste
AS TE
Slide 28: Viridor Waste Financial Performance Summary
Viridor Waste Financial Performance Summary For the half year ended 30 September 2004 2003 Change 2003/04 £m £m % £m Turnover (1) 126.7 90.7 39.7 183.1 EBITDA (2) 28.5 21.5 32.6 43.2 Operating profit - before goodwill 14.5 11.1 30.6 22.7 - after goodwill 12.7 10.0 27.0 20.2 Operating margin % (befor
Slide 29: Viridor Waste Financial Highlights
Viridor Waste Financial Highlights • At beginning of year projected moderate growth in operating profit before goodwill − after strong growth in each of the previous three years • H1 Turnover up 40% or £36.0m (£30.7m excluding landfill tax) • EBITDA up 33% • Operating profit before goodwill up 31% t
Slide 30: Profit Contribution by Segment
Viridor Waste Profit Contribution by Segment (1) Half year ended 30 September 2004 Half year ended 30 September 2003 C ontracts & C ontracts & Other (2) Other Recycling Recycling 6% 3% 3% 1% C ollection 12% C ollection 11% Power Generation 22% Power Landfill Landfill Generation 60% 62% 20% (1) Contr
Slide 31: Operational and Business Highlights - Landfill
Viridor Waste Operational and Business Highlights - Landfill • Landfill volumes increased by 20% to 2.3m tonnes compared to H1 2003/04 − 12% increase excluding acquisitions − aided by particularly high inputs preceding the ending of hazardous waste disposal to non-hazardous landfills in July • Gate
Slide 32: Operational and Business Highlights – Power Generation
Viridor Waste Operational and Business Highlights – Power Generation • Output increased by 25% to 160,000 MWH − 9% increase excluding acquisitions − ROCs 53%; NFFO 47% − average price £50 per MWH • Capacity increased by a further 2MW to 47MW − additional 3MW under construction − compared to 28 MW Ma
Slide 33: Acquisition of Thames Waste Management
Viridor Waste Operational & Business Highlights – Acquisition of Thames Waste Management • Acquired for £30.7m (£28.5m net of cash in business) on 6 April 2004 • Since acquisition has won five year £20m contract for sludge handling with Southern Water − in addition to sludge handling for Thames Wate
Slide 34: Major Contracts
Viridor Waste Operational & Business Highlights – Major Contracts • Council integrated contracts will assume greater importance as part of Government’s developing waste strategy − note landfill diversion targets/Landfill Allowance Trading Scheme (LATS) • 25 year £450m integrated waste contract with
Slide 35: New Technologies
Viridor Waste Operational & Business Highlights – New Technologies • Continue to explore new technologies in partnership with our customers • £2.3m in-vessel composting facility opened at Beddington landfill near Croydon in partnership with Sutton, Croydon and Merton Councils − substantial grant ass
Slide 36: Lf — #+»+ « g¢ ——“""_ ry
Lf — #+»+ 2 « g¢ ——“""_ ry Pennon Group Plc
Slide 37: Summary
Pennon Group Plc Summary • Strategy clearly focused on water, sewerage and waste management • South West Water − remains on track to outperform the regulatory contract to 2005 − strong growth in RAV up to 2005, outstripping anticipated growth in net debt − determined to meet the challenge of K4 • Vi