Slide 1: Full Year Results 2018/19
Full Year Results 2018/19 Pe nnon
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: Chris Loughlin, Group Chief Executive
Chris Loughlin Group Chief Executive 3
Slide 4: 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 5: 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 6: Susan Davy, Chief Financial Officer
Susan Davy Chief Financial Officer
Slide 7: 2018/19 Financial Highlights
2018/19 Financial Highlights Robust financial performance Underlying EBITDA Earnings Per Share (1) (2) +7.2% +13.6% +6.5% Underlying Statutory Strong Balance Sheet Dividend Per Share (3) Effective Interest Rate 3.6% +6.4% (1) Before non-underlying items, see slide 12 (2) Adjusted EPS before deferred
Slide 8: 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 9: 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 10: 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 11: 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 12: 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 - 6
Slide 13: 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 14: 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 15: 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 16: South West Water – 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 17: 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 18: 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 19: 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 20: 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 21: 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 22: Chris Loughlin, Group Chief Executive
Chris Loughlin Group Chief Executive Full Year Results 2018/19
Slide 23: Viridor
Viridor Full Year Results 2018/19
Slide 24: 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 25: 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 26: 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 27: 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 28: 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 29: Future growth opportunities
Viridor Future growth opportunities • Developing options for up to 3 new ERFs Regional household growth 2016 - 2035 – Continued forecast under-capacity for residual waste Regional Household Growth 2016-2035 – Attraction determined by availability of long-term contracts in line with our model N East
Slide 30: 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 31: 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 32: 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 33: South West Water
South West Water | Pennon
Slide 34: Delivering high quality services – solid platform for 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 35: 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 36: 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 37: K7 Draft Determination – ODI outperformance potential
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 38: 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 39: 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 40: 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 41: Questions
Questions 41 Full Year Results 2018/19
Slide 42: Appendix
Pennon Appendix Full Year Results 2018/19
Slide 43: Underlying Income Statement
Pennon Underlying Income Statement 2018/19 2017/18 Underlying(1) Change £m £m Revenue 1,478.2 1,393.0 +6.1% EBITDA 546.2 509.6 +7.2% Adjusted EBITDA(2) 592.7 562.3 +5.4% Depreciation and Amortisation (195.2) (185.7) (5.1%) Operating Profit 351.0 323.9 +8.4% Net Interest (83.2) (74.5) (11.7%) Share o
Slide 44: 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 45: 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 45 Full Year Results 2018/19
Slide 46: 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 47: 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 48: 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 49: 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 50: Impact of low yields at March 2019 – partly reversed post year end
Pennon Impact of low yields at 31 March 2019 – partly reversed post year end • c.£76m increase in deficit from change in actuarial Pensions £m financial assumptions due to lower yields reducing Opening deficit 31 March 2018 49.5 discount rate. Partly reversed post year end as yields Change in actuar
Slide 51: 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 52: 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 53: 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 54: 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 55: Viridor Appendix
Viridor Appendix Full Year Results 2018/19
Slide 56: 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 56 Full Year Results 2018/19
Slide 57: 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 57 Full Year Results 2018/19
Slide 58: 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 59: 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 60: 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 61: 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 62: South West Water Appendix
South West Water Appendix Full Year Results 2018/19
Slide 63: 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) 63 Full Year Results 2018/19
Slide 64: 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 64 Full Year Results 2018/19
Slide 65: 2018/19 ODI performance levels – cumulative net reward position for K6
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 66: 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 67: 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 68: Full Year Results 2018/19
Full Year Results 2018/19 Full Year Results 2018/19