Pennon Group Plc · LSE:PNN
Pennon — H1 2021/22 Earnings Presentation
45 slides from Pennon's earnings presentation, 2021
Slide 1: Bringing water to life
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 changes in Government policy; regulatory and legal reform; This document is not an offer to sell, exchange or transfer any this “document” shall mean this presentation pack and shall be compliance with laws and regulations; main
Slide 3: Building momentum, driving sustainable growth
Pennon Building momentum, driving sustainable growth Resilient Driving Well positioned performance sustainable for the future – underpinned growth by innovation and efficiency • c.85% ODIs on track for • Bristol Water acquisition • Talented people South West Water on track – performance delivering f
Slide 4: Living our values – sustainability at the heart of our business
Pennon Living our values – sustainability at the heart of our business Net Zero by 2030 – on track across our 3 pillars • Sustainable living – reducing our on-site water usage, decarbonising our fleet • Championing renewables – self-generation investment underway to achieve 50% by 2030 OUR PROMISE T
Slide 5: Creating long-term sustainable value
Pennon Creating long-term sustainable value Responsible deployment Resilient of capital performance • c.£1.2bn de-geared – sustainable Consistent RORE balance sheet performance • c.£0.1bn additional pension Financial performance contributions ahead of expectations • c.£0.5bn reinvestment in UK Water
Slide 6: Paul Boote
Paul Boote Group Finance Director © Pennon Group plc 2021 6
Slide 7: Resilient financial performance
Pennon Resilient financial performance Financial performance across the Group +8.8% +1.8% +14.3% in line with expectations Organic Organic Total revenue1 EBITDA1 EBITDA1 growth growth growth 2 2.9% +14.2% +4.9% South West Water Adjusted Growth on sector-leading earnings per interim dividend effectiv
Slide 8: Revenue growth
Pennon Revenue growth Group South West Water Pennon Water Services • Bristol Water revenue • Net demand increase • PWS revenue growth contribution from • Household demand from contract wins 3 June 2021 remains elevated • Customer demand • Overall underlying • Non-Household and recovered to near reve
Slide 9: Profit before tax
Pennon Profit before tax Group South West Water Pennon Water Services • Bristol Water performing • Higher demand for water • Period on period profit well increasing the cost growth • Inflation impact on index- to serve • Driven by contract linked debt • Higher developer services wins, Non-Household
Slide 10: Responsible approach to tax
Pennon Responsible approach to tax Current tax Corporation tax H1 2021/22 H1 2020/21 Current year current tax effective rate (£m) of 7.2% reflecting: Current year • Support for UK economic recovery, Current tax (6.5) (12.4) with infrastructure investment eligible for super deductions Deferred tax (1
Slide 11: Sustainable net debt position
Pennon Sustainable net debt position Pennon Group net debt flow H1 2021/22 H1 2020/21 (£m) flow flow Opening balance 1 April 64.3 (3,264.0) Strong Cash inflow from operations 168.7 156.6 operational Corporation tax (6.3) (7.1) cashflows Net interest paid (32.4) (37.4) Capital investment (120.9) (80.
Slide 12: Group capital expenditure
Pennon Group capital expenditure – delivering for customers, communities and the environment c.30% increase in capital expenditure1 Advancing investment and embracing innovative solutions Group capital South West Water clean water investment expenditure £50.3 – including the commencement of million
Slide 13: Agile and efficient financing
Pennon Agile and efficient financing Lower proportion of debt linked to inflation Agile and efficient strategy compared to industry Water business net debt stable average South Bristol £2.2 West £0.4 UK Water billion Water billion Water Gross debt mix • South West Water c.£800 million of swaps in pl
Slide 14: Responsible and sustainable balance sheet
Pennon Responsible and sustainable balance sheet Responsible employer Planned Pennon • £23 million pension contributions in H1 2021/22 deployment of £100m • Pennon pension scheme surplus c.£50 million investment in water • Bristol Water net pension surplus c.£8 million – business buy-out in progress
Slide 15: Macro-economic outlook
Pennon Macro-economic outlook Bad debt & affordability • South West Water bad debt charge sector-leading at 0.6% – £1.8 million for H1 2021/22 • c.68,000 customers now benefiting from one or more of our social tariffs Wholesale power costs • 100% hedged for 2021/22 • c.50% hedged to end of K7 • c.10
Slide 16: Susan Davy
Susan Davy Group Chief Executive © Pennon Group plc 2021 16
Slide 17: Building momentum, driving sustainable growth
Pennon Building momentum, driving sustainable growth Resilient performance Driving sustainable growth Well positioned for the future © Pennon Group plc 2021 17
Slide 18: Resilient performance – delivering for customers
South Delivering for our customers and communities Resilient performance West Water Delivering improved services Dedicated community funds for customers • Supporting the customers and All complaints communities we serve c.60% reduction • Best ever performance complaints • Improving customer Number o
Slide 19: Innovation driving performance – wastewater
South Innovation driving performance Resilient performance West and efficiency – wastewater Water Internal sewer flooding Pioneering for success (per 10,000 sewer connections) Number of flooding incidents c.40% reduction • i-Phyc algae based • Ahead of 2025 target treatment solutions using • Continu
Slide 20: Improving river and coastal water quality
South Improving river and coastal water quality Resilient performance West Water Record bathing water Driving river water Pioneering catchment quality results quality improvements management for 15 years • 100% achieving bathing • On track to reduce our • c.5,000 hectares improved water quality stan
Slide 21: Innovation driving performance – water
South Innovation driving performance Resilient performance West and efficiency – water Water Mains repairs Pioneering c.30% reduction for success • Ensuring resilience of • UK first deployment of EZ Number of repairs valves – allowing burst (per 1,000km) our networks • Step change in our leakage rep
Slide 22: Sustainable step change in performance
South Sustainable step change in performance Resilient performance West Water Halving pollution incidents vs last year Wastewater • Root cause analysis – enhancing pollutions data modelling Halving incidents1 • Innovative Meniscus technology supporting (per 10,000km of mains) Pollution incidents pre
Slide 23: Outcome Delivery Incentives – building momentum
South Outcome Delivery Incentives – Resilient performance West building momentum Water H1 2021/22 FY 2020/21 c.85%1 on track/ ahead of target c.80% Area of excellence Outperformance on track/ On track ahead Marginal Area of focus of target • Consistently delivering ahead of target – 7 areas of excel
Slide 24: Consistent RORE delivery
South Consistent RORE delivery Resilient performance West Water Cumulative Water sector Totex Support K7 RORE effective interest rates & admin services Operational Outcome ways of driven smart 10% working design 7.8% 8.3% Totex 7.0% SWW 8% Financing Water sector Base Right ODIs sourcing 6% 4.5% 4% 2
Slide 25: Bristol Water: Robust performance – H1 2021/22
Bristol Robust performance – H1 2021/22 Resilient performance Water Financial performance ahead Bristol Water of expectations • Contributing £7.2 million profit before tax South West Water • Capital investment of £12.7 million Bournemouth Water Operational performance review Performance ahead of tar
Slide 26: Well positioned for the future
Pennon Talented people delivering for Well positioned for the future customers and communities Progressive organisation • The 5% Club – promoting an earn and learn culture • Graduate programme – new intake, investing in future leaders • Apprenticeships – c.30% towards our 2025 target of 500 • Kickst
Slide 27: Evolving our environmental strategy
Pennon Evolving our environmental strategy Well positioned for the future Focused on climate change mitigation and adaptation • Net Zero 2030 – committed to science based targets • c.£80 million investment programme – first tranche identified and underway OUR PROMISE TO THE PLANET • Investments to m
Slide 28: Delivering growth – Water Services
Pennon Delivering growth Driving sustainable growth Water Services Resilient financial performance, delivered H1 2021/22 Growth by focus on key strategic initiatives Revenue £92.7m +23% • Period on period revenue, EBITDA and profit growth EBITDA £1.6m +433% • Continued focus on securing sustainable
Slide 29: Investing in sustainable growth – right to grow
Pennon Investing in sustainable growth – Driving sustainable growth ‘right to grow’ Growth over 2020-25 Base c.£1bn 11% Business Plan 2020-2025 Empowering – South West Water 2020-25 investment allowance RCV growth1 customers Organic c.£82m 2.5% – incremental investment Additional investment in RCV g
Slide 30: Building momentum, driving sustainable growth
Pennon Building momentum, driving sustainable growth Resilient Driving Well positioned performance sustainable for the future – underpinned growth by innovation and efficiency • c.85% ODIs on track for • Bristol Water acquisition • Talented people South West Water on track – performance delivering f
Slide 31: Pennon
Pennon
Slide 32: Technical guidance 2021/22
Pennon Technical guidance 2021/22 Pennon Group 2020/21 Change Revenue • Increased non-household demand and other services as Covid-19 recovery continues £644.6m • South West Water household demand reflects increased regional population due to staycations Bristol Water • 10-month contribution – H1 we
Slide 33: Building momentum, driving sustainable growth
Pennon Building momentum, driving sustainable growth Underlying1 H1 2021/22 H1 2020/21 Change (£m unless stated) Revenue 389.3 319.7 +21.8% Results in line with EBITDA 199.4 174.5 +14.3% management Operating profit 127.4 114.8 +11.0% expectations Profit before tax – underlying 90.4 86.7 +4.3% Non-un
Slide 34: Income statement – adjusted EPS reconciliation
Pennon Income statement – adjusted EPS reconciliation (continuing operations) Adjusted EPS (continuing operations) H1 2021/22 H1 2020/21 (£m unless stated) Profit before tax – continuing operations 79.9 61.9 Adjusted for: Non-underlying items (pre-tax) 10.5 24.8 Current tax (4.5) (11.6) Minority int
Slide 35: Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment (£m) H1 2021/22 H1 2020/21 South West Water 98.7 73.3 Clean water 50.3 40.9 Wastewater 48.4 32.4 Bristol Water 12.7 - Other Group 0.1 0.2 Capital additions 111.5 73.5 Discontinued operations - 36.7 Total Group capital investme
Slide 36: Balance sheet – pensions
Pennon Balance sheet – pensions Pensions 30 31 (£m) September March 2021 2021 Pension schemes’ assets 1,171 911 Pension schemes’ liabilities 1,114 902 Net pension schemes' assets 57 9 £23m c.£8m c.£16m Responsible Bristol Water net Favourable employer pension surplus – movements in contributions buy
Slide 37: Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 30 September 2021 Pennon Water South (£m) Group business West Water Finance leasing 1,447 1,447 1,446 Bank bilaterals 475 431 298 European Investment Bank loans 221 221 221 Index-linked bonds 756 602 397 Fixed rate (SWW 20
Slide 38: Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 30 September 2021 Pennon Group (£m) Book value Fair value Difference Bank bilaterals 475 489 (14) European Investment Bank loans 221 206 15 Index-linked bonds 756 897 (141) Fixed rate (SWW 2040) bond 213 282 (69) Private placements1 316 334 (18
Slide 39: Resilient performance – underpinned by innovation and efficiency
South Resilient performance – West underpinned by innovation and efficiency Water Underlying1 H1 2021/22 H1 2020/21 Change (£m) Revenue2 298.1 282.9 5.4% Recovery of non-household Operating costs (119.8) (106.8) (12.2%) market EBITDA 178.3 176.1 1.2% Depreciation and amortisation (60.4) (59.3) (1.9%
Slide 40: Net interest analysis
South Net interest analysis West Water South West Water H1 2021/22 H1 2020/21 (£m unless stated) Underlying net interest charge (32.7) (27.6) Less: pensions net interest (0.2) - Add: capitalised interest (0.3) (0.6) Net interest for average rate calculation (33.2) (28.2) Split between: Interest paya
Slide 41: Financial Outcome Delivery Incentives – H1 2021/22
South Financial Outcome Delivery Incentives – West H1 2021/22 Water Area of Outperformance On track Marginal Area of excellence focus Bespoke • Sewer blockages • External sewer flooding • Odour contacts • Water pollution • EPA score ODIs • Wastewater resilience • Water operational contacts • Abstrac
Slide 42: Sharing outperformance with customers
South Sharing outperformance with customers West Water Continuing to share financial benefits with customers – keeping bills as low as possible • Delivering totex savings for the benefit of customers and shareholders – realising c.£15 bill reductions • Building on the success of WaterShare+, offerin
Slide 43: Reconciliation of WaterShare RORE 2021/22
South Reconciliation of WaterShare RORE 2021/22 West Water Cumulative totex outperformance of c.£94m1 • c.20% delivered through operating cost savings, remainder delivered through capital efficiencies Totex H1 FY £m 2021/22 2020/21 Operating costs 120 222 Cumulative financing outperformance2 Capital
Slide 44: Strong market performance
Pennon Strong market performance Water Services 1 Underlying2 H1 2021/22 H1 2020/21 Change (£m) Revenue 92.7 75.3 +23.1% Business wins underpinning Water segment wholesale elimination (43.2) (38.8) +11.3% revenue growth Revenue excluding elimination 49.5 36.5 +35.6% Operating costs (91.1) (75.0) (21
Slide 45: Bringing water to life
Bringing water to life – supporting the lives of people and the places they love for generations to come