Pennon Group Plc · LSE:PNN
Pennon — H1 2013/14 Earnings Presentation
61 slides from Pennon's earnings presentation, Nov 28, 2013
Slide 1: Half Year Results 2013/14
Half Year Results 2013/14 28 November 2013
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: H1 2013/14 Financial Highlights
Pennon Group Plc H1 2013/14 Financial Highlights • Profit before tax(1) up 3.5% to £110.9m South West Water up 7.6% to £87.3m Viridor down 28.8% to £15.3m • Viridor PBIT plus joint ventures down 15.8% to £23.4m Viridor PBIT plus joint ventures up 30.7% compared to H2 2012/13 • Adjusted earning
Slide 4: H1 2013/14 Operational and Business Highlights: South West Water
Pennon Group Plc H1 2013/14 Operational and Business Highlights South West Water • Continued strong performance against the 2010-2015 regulatory contract • Robust operational performance and improving standards of customer service strong performance against bathing water compliance further impro
Slide 5: H1 2013/14 Operational and Business Highlights: Viridor
Pennon Group Plc H1 2013/14 Operational and Business Highlights Viridor • Financial performance in line with management expectations PBIT plus joint ventures in 2013/14 expected to be broadly similar to 2012/13 • Improvement in recycling margins • Key developments in the EfW business five plants
Slide 6: Pennon Group Plc
PENNON GROUP PLC
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results(1) For the half year ended 30 September Full Year 2013 2012 Change 2012/13(2) £m £m £m Group revenue 667.0 633.7 5.3% 1,201.1 Group operating profit 139.7 136.1 2.6% 245.6 - SWW 121.3 114.8 5.7% 214.8 - Viridor 18.0 21.0 (14.3%) 30.6 Viridor PBIT plus joint
Slide 8: Cash Flow
Pennon Group Plc For the half year ended Cash Flow 30 September Full Year 2013 2012 2012/13 £m £m £m Cash inflow from operations 188.2 190.6 384.6 Net interest paid (20.0) (31.3) (49.8) Dividends paid (29.5) (18.4) (77.9) Tax paid (31.3) (15.2) (18.5) Capital expenditure(1) (196.2) (184.8) (421.8) A
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at 30 September As at 31 March 2013 2012 2013 £m £m £m Loans and finance leases 2,625 2,632 2,644 Less: cash and cash deposits (527) (459) (635) Net borrowings 2,098 2,173 2,009 Net gearing (1) 65% 72% 65% SWW debt/RCV 56% 59% 55% • Gearing stable • Net borrowings
Slide 10: Viridor EfW Capex
Pennon Group Plc Viridor EfW Capex(1) Cumulative Remaining spend Total spend to to project project 30 September 2013 completion spend EfW projects under construction £m £m £m Runcorn II 170 46 216 Oxford (Ardley) 144 66 210 Exeter 38 9 47 Cardiff 140 83 223 Glasgow 30 125 155 Peterborough 10 62 72 5
Slide 11: Net Interest Analysis
Pennon Group Plc Net Interest Analysis(1) For the half year ended Full Year(2) 30 September 2013 2012 2012/13 £m £m £m Interest payable (39.5) (44.4) (85.2) Capitalised interest payable (9.9) (4.5) (13.6) Interest receivable on shareholder loans to joint ventures 4.6 4.6 9.3 Other finance income 7.8
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 c23% of SWW current debt index-linked to 2041-2057 • Over 50% of SWW net debt fixed for K5 in line with Group policy weighted average rate of 3.4% • Si
Slide 13: Fair Value non-current Borrowings
Pennon Group Plc Fair Value non-current Borrowings As at 30 September 2013 As at 31 March 2013 Book Fair Book Fair Value Value Diff Value Value Diff £m £m £m £m £m £m Finance Leases 1,254 1,056 198 1,222 1,053 169 Bank and other loans 360 360 - 410 410 - Private Placement 162 154 8 162 157 5 Bond 20
Slide 14: Liquidity
Pennon Group Plc Liquidity • Total of £1,132m cash/committed facilities at 30 September 2013 cash balances of £527m (includes £146m deposits with Letter of Credit providers and lessors) undrawn facilities of £605m • Committed funding in place for South West Water up to end of K5 £165m will mat
Slide 15: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2013 2012 2012/13 £m £m £m Current tax - current year 27.0 32.9 56.3 - prior year (10.7) (9.7) (13.0) 16.3 23.2 43.3 Deferred tax(1) - current year 2.6 0.2 (2.8) - prior year 9.3 5.7 2.3 11.9 5.9 (0.5) Deferred tax reduction on
Slide 16: Climate Disclosure Leadership Index
Pennon Group Plc Climate Disclosure Project’s (CDP’s) “Climate Disclosure Leadership Index” (CDLI) CDLI • Highlights FTSE 350 companies displaying strong information disclosure regarding climate change • High scores indicate good internal data management / understanding of climate change-related iss
Slide 17: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 7.2% to 9.39p per share • Sector-leading progressive dividend policy: 4% real increase to end of K5 period (March 2015) • Scrip dividend alternative 17
Slide 18: South West Water
SOUTH WEST WATER 18
Slide 19: South West Water Financial Performance Summary
South West Water Financial Performance Summary(1) For the half year ended Full Year 30 September 2013 2012 2012/13(2) £m £m £m Revenue 269.1 256.5 498.6 Operating profit 121.3 114.8 214.8 Profit before tax 87.3 81.1 146.7 • Revenue up 4.9% • Operating profit up 5.7% • Profit before tax up 7.6% (1) C
Slide 20: South West Water Revenue
South West Water Revenue 275 1.2 (2.5) 1.2 270 12.7 269.1 265 260 256.5 £m 255 250 245 240 235 H1 2012/13 Tariff increase Other sales New connections Meter option H1 2013/14 switchers • Tariff increase 4.3% (inc. RPI) • Metered customer demand constant – cold, wet spring offset by dry summer • 78% d
Slide 21: South West Water Operating Costs
South West Water Operating Costs • Cumulative K5 cost increases continue lower than RPI • Depreciation, IFRS opex transfers & new capital schemes reflect growing asset base • Higher cost of other sales, driven by higher other revenue • Bad and doubtful debt cost stable 21
Slide 22: Operating Cost Efficiency
South West Water Operating Cost Efficiency • Robust cost control K5 cumulative operating cost efficiencies to • Delivering efficiency ahead of FD assumptions September 2013 • Cumulative K5 efficiency of £20.3m over 75% of K5 required efficiency delivered equivalent to 3.8%(1) pa vs 2.8%(2) pa
Slide 23: Capital Programme
South West Water Capital Programme • Maintenance focused investment programme • Expenditure £58.5m H1 2013/14 (H1 2012/13 K5 cumulative capital expenditure to September 2013 £42.7m) focus on improving water quality; upgrades at biggest water treatment works safeguarding supply & reducing interru
Slide 24: Shareholder Value
South West Water Shareholder Value • RCV of £2,916m (31 March 2013) • Debt/RCV gearing 56% • SWW dividend to Pennon ahead of FD09 assumptions, reflecting outperformance 24 Outturn prices for K5 based on assumed RPI (2.7% 2013/14 and 3.2% 2014/15)
Slide 25: Operational Highlights: Delivering the Regulatory Contract - I
South West Water Operational Highlights: Delivering the Regulatory Contract - I • 17th consecutive summer without hosepipe bans or drought orders • Best bathing water quality results for seven years 91% excellent(1) status & 99% good(2) status • 25 year Water Resource Management Plan published; su
Slide 26: Operational Highlights: Delivering the Regulatory Contract - II
South West Water Operational Highlights: Delivering the Regulatory Contract - II • Upstream Thinking (Catchment management) further recognition winners of the prestigious Living Wetland Award • Renewable energy - over one million KWhrs of solar generation last year • Top quartile performance in in
Slide 27: Operational Highlights: Delivering the Regulatory Contract - III
South West Water Operational Highlights: Delivering the Regulatory Contract - III 2011/12 2012/13 2013/14 Improving Supply interruptions Greenhouse gas emissions Stable Total Leakage Ml/d Water pollution incidents Security of supply index Serviceability measures (x4) Internal sewer flooding repeats
Slide 28: Political and Regulatory Developments - I
South West Water Political and Regulatory Developments - I Water Bill • Competition proposed in both retail & wholesale • Retail market opening April 2017 • SWW well prepared engaged in Open Water programme retail supply licence application separate retail operation Source for Business estab
Slide 29: Political and Regulatory Developments - II
South West Water Political and Regulatory Developments - II 2014/15 Tariff Freeze • Research shows customers do not favour price increases followed by reductions • 2014/15 tariff freeze without loss of shareholder value • Revenue foregone taken into account in PR14 Supported by Ofwat PR14 Business
Slide 30: Political and Regulatory Developments - III
South West Water Political and Regulatory Developments – III PR14 Timetable • Business Plan submission Monday 2 December 2013 • City conference call @ 9.00am Tuesday 3 December 2013 30
Slide 31: South West Water Summary
South West Water Summary • Focus on efficient service delivery • Operational and financial performance remains strong • Balanced business plan for 2015-2020 • Well prepared for legislative changes Successful operational strategy underpinned by strong financial performance 31
Slide 32: Viridor
PENNON GROUP PLC Viridor Transforming waste™
Slide 33: Viridor's strategy remains to transform waste
Viridor Viridor’s strategy remains to transform waste, adding value through recycling and renewable energy generation • Recycling focus on quality and managing cost base to improve margins; prices are currently stable as capacity shakes-out • Landfill energy division focus on: maximising value of ga
Slide 34: Viridor's strategy aligned to trends in UK Waste Market Projections
Viridor Viridor’s strategy aligned to trends in UK Waste Market Projections 2010/11 2015/16 2020/21 (Figures in million tonnes) Total Market Viridor Total Market Total Market Landfill 43 4.7 20 5 Energy from Waste 6 0.3 10 20 Recycling(1) 28 1.8 35 35 Total 77 6.8 65 60 Source: DEFRA; UK Landfill Ta
Slide 35: Rebound in financial performance in H1 2013/14
Viridor Rebound in financial performance in H1 2013/14(1) H1 H2 H1 v H2 H1 H1 v H1 2013/14 2012/13(2) Change 2012/13 Change £m £m £m Revenue(3) 398.2 325.7 22.3% 378.1 5.3% EBITDA 41.4 32.8 26.2% 44.9 (7.8%) PBIT 18.0 9.6 87.5% 21.0 (14.3%) PBIT plus joint ventures(4) 23.4 17.9 30.7% 27.8 (15.8%) PB
Slide 36: Year on year improvement in all business areas except landfill and joint ventures
Viridor Year on year improvement in all business areas except landfill and joint ventures H1 2013/14 H2 2012/13(1) H1 2012/13 £m £m £m Landfill gas power generation 14.3 13.3 10.5 Contracts and other 13.4 12.3 12.8 Recycling 10.9 2.0 8.7 Joint ventures 5.4 8.4 6.8 Collection 3.7 2.2 2.1 Landfill 2.2
Slide 37: Improvement in recycling margins through cost management
Viridor Improvement in recycling margins through cost management • Average revenue per tonne £93 compared to last year’s H1 figure of £103 prices currently stable for most commodities, but cautious on future prospects average revenue per tonne impacted by change in mix • Volumes increased by 4%
Slide 38: Recyclate revenues per tonne are currently stable
Viridor Recyclate revenues per tonne are currently stable • Viridor strategy is to maximise Weighted Average (1) recyclate quality and hence 140 revenue and margin per tonne 120 but not immune to world 100 market conditions • Key sensitivity: £10 per tonne £ PER TONNE 80 change in revenue per tonn
Slide 39: Landfill energy business to maximise value of landfill gas generation
Viridor Landfill energy business to maximise value of landfill gas generation • Volumes unchanged at a peak of 303GWh • Average prices increased by 14.4% to £88.88 per MWh reflecting the switch from legacy NFFO(1) contracts to ROCs(2) long term upward trend in brown energy prices forecast • Averag
Slide 40: Continuing trend in landfill profit decline
Viridor Continuing trend in landfill profit decline with prudent provisioning impacting margin • Continues to be strongly cash generative - £13.2m EBITDA • Volumes stable • Average gate fees down 11.8% to £23.28 per tonne • Landfill tax increased to £72 per tonne (passed through to customer) rises
Slide 41: Strategic landfill network focused on cost base and alternative uses
Viridor Strategic landfill network focused on cost base and alternative uses • Reducing operations to a few strategic landfill sites • Other sites run to closure with emphasis on maximising the value of landfill gas generation • Sites rationalised and operations streamlined to run as combined landfi
Slide 42: Continued progress in performance of Joint Ventures
Viridor Continued progress in performance of Joint Ventures • JVs’ contribution (interest receivable on shareholder loans and share of PAT) decreased 21% to £5.4m (H1 2012/13 - £6.8m) Lakeside • Contribution of £1.8m (H1 2012/13 £3.0m) reflecting end of NFFO contract and higher costs • £0.7m interes
Slide 43: Further improvements in Contracts and Collections
Viridor Further improvements in Contracts and Collections to support recycling and EfW operations • Contracts 15 municipal contracts around the UK (including Lancashire, Glasgow, Lakeside, Manchester, Somerset, W Sussex PFI and (last full year) Bedfordshire) Thames Water overall profit contrib
Slide 44: Viridor EfW Asset Portfolio
Energy from Waste ® Viridor EfW Asset Portfolio ® Consented facilities Our EfW business has a strong, strategic foundation offering long term sustainable profitability. - assets are strategically located. - good mix of baseload (municipal) and I&C capacity. [Trident Park EfW | | Energy capacity ~30M
Slide 45: Viridor EfW Asset Portfolio: Population Density
Energy from Waste ® Viridor EfW Asset Portfolio ® Population Density 45
Slide 46: Viridor EfW Asset Portfolio: Commercial/Industrial activity
Energy from Waste © Viridor EfW Asset Portfolio @ Commercial/Industrial activity 46
Slide 47: Viridor EfW Asset Portfolio: Primary Rail Network
Energy from Waste ® Viridor EfW Asset Portfolio ® Population Density = Primary Rail Network 47
Slide 48: Viridor EfW Asset Portfolio: Primary Road Network
Energy from Waste ® Viridor EfW Asset Portfolio ® Population Density — Primary Road Network 48
Slide 49: Viridor EfW Asset Portfolio
Energy from Waste © Viridor EfW Asset Portfolio Our EfW business has a strong, strategic foundation offering long term sustainable profitability. Excellent regional asset base with “National” flexibility. 49
Slide 50: EfW tonnage vs capacity situation in South Wales
Viridor The EfW tonnage vs capacity situation in South Wales is reflective of UK trends 2010 Projection to 2020 2013 Projection to 2020 2.5 2.5 2.0 2.0 1.5 1.5 Veolia Viridor Viridor 1.0 Covanta 1.0 0.5 0.5 0.0 0.0 Tonnage Forecasted Capacity Tonnage Forecasted Capacity 50
Slide 51: Excellent progress on PPP/EfW asset base in the period
Viridor Excellent progress on PPP/EfW asset base in the period • Safety – Over 1 million safe man hours without a RIDDOR reportable accident achieved at both Runcorn and Ardley construction sites • Construction commenced on both the Glasgow Design Build Finance Operate project and Peterborough PPP •
Slide 52: Good progress in EfW project planning and capacity development
Viridor Good progress in EfW project planning and capacity development • Planning permission approved in May 2013 for the South London Waste Partnership PPP (Beddington). London Mayor and Secretary of State both elected not to call the project in for appeal and “Notice to Proceed” expected in spring
Slide 53: Market leading EfW Asset Base
Viridor Market leading EfW Asset Base Site Capital Gross Capacity Status Base Load Actual/Expected Operations End (2) Cost (1) Municipal Contract Start of Commissioning Tonnes Electricity (000) MW Lakeside(3) 150 410 37 Operational Merchant May 2010 2033 Bolton N/A 120 9 Operational Greater Manchest
Slide 54: Projects moving from design to construction
Viridor Projects moving from design to construction…… Glasgow recycling & Peterborough EfW artistic renewable energy centre artistic impression impression Beddington EfW Peterborough site Glasgow site 54
Slide 55: Towards productive social infrastructure
Viridor …… and towards productive social infrastructure Exeter EfW Ardley EfW Cardiff EfW Runcorn EfW 55
Slide 56: H1 2013/14 Summary
Viridor H1 2013/14 Summary • PBIT plus joint ventures rebound - down 15.8% compared to H1 2012/13, but up 30.7% on H2 2012/13 continued growth in most of the business outweighed by decline in landfill • Recyclate prices have fallen from their first half 2011/12 peak reflecting world economic and m
Slide 57: Pennon Group Plc
PENNON GROUP PLC
Slide 58: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services recycling, renewable energy and waste management • £205m invested in key infrastructure supporting the development of the UK economy in first half of 2013/14 • South West Water focus on efficient service deliver
Slide 59: Appendices
PENNON GROUP PLC Appendices
Slide 60: Net Borrowings Analysis as at September 2013
Pennon Group Plc Net Borrowings Analysis as at 30 September 2013 £m Finance leasing 1,293 Bank bilaterals - RCFs/term loans 385 EIB 281 Index-linked bond 2057 247 Bond 2040 133 Private placements 163 Convertible bond 122 Unsecured loan notes 1 Total gross debt 2,625 Less: Cash/liquid investments (52
Slide 61: Pensions as at September 2013
Pennon Group Plc Pensions as at 30 September 2013 • Gross pension deficit of £95m (March 2013 - £100m - restated) £77m net of tax (March 2013 - £80m - restated) September 2013 March 2013 • Pension schemes’ assets £583m £580m Pension schemes’ liabilities £678m £680m(1) £95m = £77m net of tax £100m