Pennon Group Plc · LSE:PNN
Pennon — FY2002/03 Earnings Presentation
36 slides from Pennon's earnings presentation, 2003
Slide 1: Preliminary Results 2003
—__ #3» + »-»¥¢X(¢ Ly Pennon Group Plc Preliminary Results 2003
Slide 2: Financial Highlights
PENNON GROUP Plc Financial Highlights • Profit before tax of £74.2m • Underlying PBT growth of 7.1% • Earnings per share (before deferred tax and exceptional item) up 3.8% from 53.0p to 55.0p • Dividend – recommended final dividend per share up 4.3% to 26.5p – full year dividend (excluding the speci
Slide 3: Operational Highlights (1) - South West Water
PENNON GROUP Plc Operational Highlights (1) South West Water • Operating profit up 4.2% to £111.5m • Profit before tax up 0.4% to £67.1m • Continuing to improve efficiency • Delivering record levels of drinking water and bathing water compliance • “Clean Sweep” now virtually complete
Slide 4: Operational Highlights (2) - Viridor Waste
PENNON GROUP Plc Operational Highlights (2) Viridor Waste • Operating profit before goodwill up 25.7% to £19.1m • Profit before tax up 5.2% to £14.2m • Consented landfill capacity up 7m m3 to 80m m3 • Landfill gas capacity up 30% to 37MW • This year’s and last year’s acquisitions performing ahead of
Slide 5: Pennon Group Plc
Pennon Group Plc
Slide 6: Summary Financial Results
PENNON GROUP Plc Summary Financial Results 2002/03 2001/02 Change £m £m % Overall Group turnover 417.2 423.9 (1.6) Group operating profit 127.0 121.8 4.3 Group profit before tax 74.2 77.4 (4.1) Continuing Businesses Turnover 417.2 381.0 9.5 Operating profit 127.0 119.1 6.6 Profit bef ore tax 74.2 69
Slide 7: Cash Flow
PENNON GROUP Plc Cash Flow 2002/03 2001/02 £m £m Cash inflow from operations 198.9 196.2 Net interest paid (42.9) (44.3) Dividends and tax paid (147.3) (49.0) Capital expenditure (198.2) (182.3) Acquisitions and disposals (37.2) 85.0 Net cash inflow/(outflow) (226.7) 5.6 Shares issued for cash 1.1 0
Slide 8: Net Debt
PENNON GROUP Plc Net Debt As at 31 March 2003 2002 £m £m Loans and finance leases - over one year 1,084.0 932.1 - under one year 95.6 111.2 1,179.6 1,043.3 Less: investments and cash (191.0) (292.0) Net debt 988.6 751.3 Significant drawdowns from EIB and finance leases Reduced cash following payment
Slide 9: Financing Strategy
PENNON GROUP Plc Financing Strategy £m £m Net funding & re -financing requirement for K3 500-550 K3 funding already arranged - finance lease facilities 265 - European Investment Bank loan 100 365 Renewal of bank bilateral facilities 130 Funding to be arranged 5-55 500-550 K3 funding already arranged
Slide 10: Net Interest Payable
PENNON GROUP Plc Net Interest Payable 2002/03 2001/02 £m £m Interest payable (62.1) (61.2) Interest receivable 10.0 12.2 Net interest payable (52.1) (49.0) Average rate of interest 6.0% 6.5%
Slide 11: Financing Initiatives
PENNON GROUP Plc Financing Initiatives • Funding strategy uses mix of fixed and floating rate borrowings • Interest rate swaps are used to ensure at least 50% is fixed rate • Additional and renewed swaps established to give around 75% fixed up to 2005 • £95m finance lease facility providing sub-LIBO
Slide 12: Depreciation
PENNON GROUP Plc Depreciation 2002/03 2001/02 £m £m South West Water - infrastructure assets 13.9 13.0 - other assets 45.2 42.9 59.1 55.9 Viridor Waste 19.1 16.6 Other (0.1) 0.7 78.1 73.2
Slide 13: Taxation
PENNON GROUP Plc Taxation 2002/03 2001/02 £m £m UK tax charge - Corporation Tax 3.4 0.5 Overseas tax credit - (0.5) Deferred tax 13.7 3.3 17.1 3.3 Deferred tax charge very sensitive to long term interest rates used for discounting
Slide 14: Pensions
PENNON GROUP Plc Pensions • Defined benefit scheme – 4.8% employer contributions in 2002/03 – FRS 17 net deficit of £59.4m at 31 March 2003 – 11.5% employer contribution from 1 April 2003 – Next actuarial review due April 2004 • New defined contribution scheme for Viridor Waste being introduced – de
Slide 15: Key Financial Ratios
PENNON GROUP Plc Key Financial Ratios 2002/03 2001/02 Dividend cover* 1.5 times 1.4 times Net interest cover* 2.4 times 2.5 times Net gearing 111% 77% Pro forma gearing after special dividend 111% 96% * before exceptional item, special dividend and deferred tax
Slide 16: Dividends
PENNON GROUP Plc Dividends • Interim dividend per share increased by 4.1% to 12.6p • Recommended final dividend up 4.3% to 26.5p • Full year dividend, excluding the special interim dividend, up 4.3% to 39.1p • Scrip dividend option to be reintroduced • Progressive dividend policy
Slide 17: South West Water
SOUTH WEST WATER
Slide 18: South West Water Financial Performance Summary
SOUTH WEST WATER Financial Performance Summary 2002/03 2001/02 Change £m £m % Turnover 270.2 260.4 3.8 Operating profit 111.5 107.0 4.2
Slide 19: South West Water Turnover
SOUTH WEST WATER Turnover • Increase of £9.8m (3.8%) in year • Reflects impact of £m - tariff increase 14.0 - meter option switchers (5.0) - new connections 2.4 - measured demand (0.3) - other changes (1.3) 9.8 • Number of meter switchers 22,000 • Number of new customers 7,300
Slide 20: South West Water Operating Costs
SOUTH WEST WATER Operating Costs 2002/03 2001/02 Change £m £m % Total operating costs 158.7 153.4 3.5 Less depreciation charges (59.1) (55.9) 5.7 Operating costs before depreciation 99.6 97.5 2.1 Increase in total operating costs due to: £m - inflation 3.1 - new w orks (including depreciation) 7.4 -
Slide 21: Analysis of Efficiency Savings
SOUTH WEST WATER Analysis of Efficiency Savings £m • Manpower 1.4 • Supply chain 1.8 • Power costs 0.4 • Contracted services 0.9 4.5 Cumulative K3 savings of £14.3m (£41.9m since 1995)
Slide 22: Operational Performance Summary
SOUTH WEST WATER Operational Performance Summary • Highest ever drinking water and river water quality • “Clean Sweep” now virtually complete – bathing water compliance at all time high in South West – best performing region in UK to guideline standards • Remains an industry leader in managing leaka
Slide 23: Capital Programme
SOUTH WEST WATER Capital Programme • Capital programme since privatisation totals just under £2bn (over 1,000 schemes): delivered to target and below budget • Capital expenditure 2002/03 - £182m (2001/02 - £168m) – Dartmouth and Taw Torridge commissioned – over 400km water mains laid/replaced/refurb
Slide 24: Regulatory Asset Value
SOUTH WEST WATER Regulatory Asset Value March Year end 2002 2003 2004 2005 £m £m £m £m At 2001/02 prices (1) 1478 1572 1655 1731 Actual/Predicted Outturn prices (2) 1478 1602 1729 1851 (1) Source: Ofwat (2) Source: SWW Strong growth in RAV 2002-05
Slide 25: Looking Towards PR04
SOUTH WEST WATER Looking Towards PR04 • October 2002 Ofwat framework document • January 2003 Initial ministerial guidance • August 2003 Draft Business Plan • January 2004 Final ministerial guidance • April 2004 Final Business Plan • July 2004 Draft Determination • November 2004 Final Determination •
Slide 26: Viridor Waste
NMiridor WASTE
Slide 27: Viridor Waste Financial Performance Summary
VIRIDOR WASTE Financial Performance Summary 2002/03 2001/02 Change £m £m % Turnover 152.3 125.3 21.5 EBITDA 38.2 32.1 19.0 Operating profit - before goodwill 19.1 15.2 25.7 - after goodwill 17.6 14.9 18.1 Operating margins (before goodwill and excluding landfill tax) 17.4% 17.3%
Slide 28: Viridor Waste Financial Highlights
VIRIDOR WASTE Financial Highlights • At the beginning of year projected moderate growth in operating profit before goodwill – strong performance the previous year due to non-recurring items • Turnover up £27m (£22.2m excluding landfill tax) – up 5% excluding this year’s and last year’s acquisitions
Slide 29: Viridor Waste Acquisitions
VIRIDOR WASTE Acquisitions • Five acquisitions over past 18 months, four of which were projected to be earnings enhancing before goodwill in the first full year after acquisition – Roseland landfill not due to open for another couple of years • 2001/02 acquisitions (Suffolk LAWDC and Lavelles) fully
Slide 30: Viridor Waste Operational Highlights
VIRIDOR WASTE Operational Highlights • Landfill volumes increased 8.6% to 3.5m tonnes including acquisitions – excluding acquisitions and last year’s one-offs, volumes increased by 3.3% • Within existing landfill volumes – domestic increased 5% to 1,368 thousand tonnes (kt) – industrial and commerci
Slide 31: Profit Contribution by Segment
VIRIDOR WASTE Profit Contribution by Segment * Year Ended 31 March 2003 Year Ended 31 March 2002 Recycling Other # 3% 3% Other # 6% Collection 13% Collection 11% Power Generation 13% Power Landfill Landfill Generation 60% 71% 20% * Contribution before goodwill and central overheads # Other includes
Slide 32: Environmental and Social Highlights
VIRIDOR WASTE Environmental and Social Highlights • ISO 14001 extended to Viridor Richardson and Suffolk LAWDC sites • Warmwell site winner of CIWM award for best run landfill in the UK (Peel People’s Cup) _ third time a VWM site has won this award in past 5 years • Renewable energy contribution • £
Slide 33: Viridor Waste Strategy
VIRIDOR WASTE Strategy • Capitalise on landfill asset base (80m cubic metres consented capacity, up 7m from last year end) – acquisitions 6.2m – planning gains 5.1m – usage (4.3m) • Exploit landfill gas power generation opportunities – Government target 10% of electricity from renewable sources by 2
Slide 34: Pennon Group Plc
Pennon Group Plc
Slide 35: Summary
PENNON GROUP Plc Summary • Strategy clearly focused on water, sewerage and waste management • 2003/04 results: impact of pension contribution increases • South West Water remains confident of outperforming the Regulatory Contract to 2005 – strong growth in RAV up to 2005 – looking towards PR04 • Vir
Slide 36: Pennon Group Plc
Pennon Group Plc