Pennon Group Plc · LSE:PNN
Pennon — H1 2008/09 Earnings Presentation
48 slides from Pennon's earnings presentation, Nov 27, 2008
Slide 1: Half Yearly Report 2008/09
Half Yearly Report 2008/09 1 27 November 2008 www.pennon-group.co.uk
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: 2008/09 H1 Financial Highlights
Pennon Group Plc 2008/09 H1 Financial Highlights • Underlying operating profit(1) up 9.8% to £136.8m − SWW up 3.9% to £101.8m − Viridor up 22.1% to £33.1m • Underlying profit before tax(1) up 3.2% to £86.8m • Underlying earnings per share(2) up 2.7% to 18.7p • Dividend − Interim dividend per share u
Slide 4: 2008/09 H1 Operational and Business Highlights
Pennon Group Plc 2008/09 H1 Operational and Business Highlights South West Water: • On target to deliver 2005 – 2010 Regulatory Contract • Strong growth in Regulatory Capital Value 2005 – 2010, due to reach £2.7bn by end of K4 • OFWAT K4 operating cost efficiency target achieved 18 months early • Le
Slide 5: 2008/09 H1 Operational and Business Highlights: Viridor
Pennon Group Plc 2008/09 H1 Operational and Business Highlights Viridor: • Continued strong growth in PBITA • 14 year, 450kt pa recycling, anaerobic digestion and disposal contracts secured with South London Waste Partnership • ROC-able power generation output sold forward to March 2010 in May at fa
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Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended 30 September Full Year 2008 2007 Change 2007/08 £m £m £m Group revenue 503.3 435.9 15.5% 875.0 Group operating profit (1) 136.8 124.6 9.8% 242.1 Group profit before tax (1) 86.8 84.1 3.2% 154.9 Earnings per share (2) 18.7p 18.2p 2.7%
Slide 8: Cash Flow
Pennon Group Plc Cash Flow For the half year ended 30 September Full Year 2008 2007 2007/08 £m £m £m Cash inflow from operations 175.9 165.1 356.1 Net interest paid (32.5) (31.4) (79.7) Dividends and tax paid (33.5) (23.9) (86.6) Capital expenditure (120.6) (111.7) (218.1) Acquisitions (3.4) - (88.9
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at As at 30 September 31 March 2008 2007 2008 £m £m £m Loans and finance leases - over one year 2,033 1,868 2,032 - under one year 83 86 89 2,116 1,954 2,121 Less: cash and cash equivalents (306) (340) (357) Net borrowings 1,810 1,614 1,764 Net gearing (1) 76% 73%
Slide 10: Net Debt Analysis as at September 2008
Pennon Group Plc Net Debt Analysis as at 30 September 2008 £m Finance leasing 1,196 Bank bilaterals - RCFs/term loans 295 EIB 204 Index linked bond 2057 212 Private placements 200 Other 9 Total gross debt 2,116 Less: Cash/liquid investments (306) Total net debt 1,810 • Key role of finance leasing 10
Slide 11: Net Interest Payable
Pennon Group Plc Net Interest Payable(1) For the half year ended Full Year 30 September 2008 2007 2007/08 £m £m £m Interest payable (60.2) (47.0) (106.6) Interest receivable 13.5 7.5 21.0 Net interest payable (46.7) (39.5) (85.6) Average rate of interest 5.2% 5.0% 5.2% Net interest cover(2) 2.9x 3.2
Slide 12: Efficient Financing Strategy
Pennon Group Plc Efficient Financing Strategy • Funding strategy uses mix of fixed, floating and index linked rate borrowings: − Locks in benefit of low interest rates compared to Ofwat assumptions − Circa 60% of SWW projected net debt fixed to March 2010 − Circa 25% of SWW current debt index linked
Slide 13: Fair Value of Non-Current Borrowing
Pennon Group Plc Fair Value of Non-Current Borrowing As at 30 September 2008 As at 31 March 2008 Book Value Fair Value Diff Book Value Fair Value Diff £m £m £m £m £m £m Finance Leases 1,136 1,004 132 1,124 992 132 Bank bilaterals – 295 295 - 295 295 - RCFs/term loans EIB 190 183 7 202 198 4 Index-li
Slide 14: Refinancing
Pennon Group Plc Refinancing • Cash balances of £306m at 30 September 2008 • Committed undrawn facilities of £218m at 30 September 2008 • New £100m EIB facility secured November 2008 • Committed funding in place for South West Water to at least 2011 • £267m loan repayments required March 2010 • £31m
Slide 15: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2008 2007 2007/08 £m £m £m UK corporation tax(1) 20.9 19.7 25.0 Deferred tax 0.3 4.5 12.0 Deferred tax arising on abolition of 29.2 (22.4) (21.0) industrial buildings allowances (2007 change of rate) 50.4 1.8 16.0 • Mainstream
Slide 16: Pensions as at September 2008
Pennon Group Plc Pensions as at 30 September 2008 • Gross pension deficit of £58m (March 2008 - £26m) • Pension fund assets £301m Pension fund liabilities £359m £58m = £42m net of tax • Net deficit represents less than 3% of current market capitalisation • Deficit increased from March 2008 due to im
Slide 17: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 8.0% to 6.75p per share • Progressive dividend policy: 3% real to 2009/10 • DRIP (Dividend Re-Investment Plan) alternative 17
Slide 18: South West Water
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Slide 19: South West Water Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2008 2007 2007/08 £m £m £m Revenue 223.1 215.0 421.0 Operating profit(1) 101.8 98.0 185.0 • Revenue up by 3.8% • Operating profit(1) up by 3.9% (1) Underlying – before restructuring costs 19
Slide 20: South West Water Revenue
South West Water Revenue 235 1.6 (4.4) 2.0 230 14.1 (5.2) 225 223.1 £m 220 215.0 215 210 205 2007/08 Tariff New Other Meter Option Demand 2008/09 Increase Connections Switchers • Number of meter switchers 14,500 • Number of new customers 4,200 • Domestic customers now metered 64% 20 • Existing meter
Slide 21: South West Water Operating Costs
South West Water Operating Costs 80 (2.0) 0.4 3.8 79 78 (0.2) 77.3 77 £m 76 75.3 75 74 73 2007 Inflation New Capital Efficiency Other 2008 Schemes Savings • Bad debts rising more slowly than tariff increases • 2008/09 power prices fixed below headline inflation rate 21
Slide 22: K4 Opex Efficiency Achievement versus Target
South West Water K4 Opex Efficiency Achievement versus Target Efficiency achievement 14.0 12.0 10.0 8.0 Cumulative Actual £m 6.0 Cumulative Original Target 4.0 profile 2.0 0.0 2005/06 H1 2005/06 H2 2006/07 H1 2006/07 H2 2007/08 H1 2007/08 H2 2008/09 H1 2008/09 H2 2009/10 H1 2009/10 H2 • K4: £13m per
Slide 23: Capital Programme
South West Water Capital Programme • Capital expenditure half year to 30 September 2008 – £67.4m (H1 2007 - £76.6m) − 180km water mains replaced/refurbished (H1 2007 - 261km) reflecting switch to urban areas • Depreciation charges of £44.0m (2007: £41.7m) reflect the increased asset base • K4 capi
Slide 24: Regulatory Capital Value
South West Water Regulatory Capital Value Year End 2005 2006 2007 2008 2009 2010 £m £m £m £m £m £m At 2002/03 prices(1) 1,847 1,929 1,994 2,042 2,095 2,136 Actual/expected outturn 1,956 2,091 2,265 2,408 2,590 2,710 prices(2) • 39% growth in RCV 2005-10 – highest projected percentage increase of any
Slide 25: Delivering K4: Operational Performance
South West Water Delivering K4: Operational Performance • OFWAT K4 efficiency target achieved 18 months early, and targeting outperformance to 2010 • OFWAT leakage target met every year − leakage performance maintained in 2007/08; amongst the very best in the industry • 2007 drinking water quality –
Slide 26: Reservoir Storage Capacity
South West Water Reservoir Storage Capacity 40000 35000 30000 25000 Storage in Ml 20000 15000 10000 5000 0 Fernworthy KTT Meldon Siblyback Burrator Stithians Park Stannon Wimbleball Colliford Roadford 26
Slide 27: Preparing for PR09 and K5
South West Water Preparing for PR09 and K5 • Organisational restructuring − delivering efficiencies − platform for K5 − £5m cost expected in 2008/09 (£3.4m spend in H1) • Customer debt and affordability programmes − new debt recovery system − new incentivised customer contact/billing contract − succ
Slide 28: PR09 Draft Business Plan – Highlights
South West Water PR09 Draft Business Plan – Highlights A realistic balance between stakeholder requirements: • Customers – prices as stable as possible − average bill increases 1.4% pa above inflation − 82% customers metered by 2015 • Environment - £813m investment (2007/08 prices) − protect and mai
Slide 29: PR09 Draft Business Plan – Cost of Capital
South West Water PR09 Draft Business Plan – Cost of Capital • 4.6% post tax real return − cost of equity 7.7% (same as PR04) − cost of debt 3.8% real − embedded debt c 0.1% benefit − gearing 60% debt/RCV • Returns to be reviewed as market conditions develop, and updated for the Final Business Plan s
Slide 30: PR09 Draft Business Plan Water Service Investment
South West Water PR09 Draft Business Plan Water Service Investment Water service comparison Capital investment (at 2007/08 prices) 300 2005 - 2010 (2004 Determination) 2010 - 2015 (Draft Business Plan) 250 200 £m 150 100 50 0 Quality Supply Demand Capital Enhanced Maintenance Service Service area 30
Slide 31: PR09 Draft Business Plan Waste Water Investment
South West Water PR09 Draft Business Plan Waste Water Investment Sewerage service comparison Capital investment (at 2007/08 prices) 300 2005 - 2010 (2004 Determination) 2010 - 2015 (Draft Business Plan) 250 200 £M 150 100 50 0 Quality Supply Capital Enhanced Demand Maintenance Service Service area 3
Slide 32: Price Review Timetable
South West Water Price Review Timetable 11 August 2008 Companies submitted draft business plan 19 December 2008 OFWAT publish draft capital baseline 7 April 2009 Companies submit final business plan 23 July 2009 Draft price limits published 26 November 2009 Final price limits published January 2010
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Slide 34: Viridor Financial Performance Summary
Viridor Financial Performance Summary For the half year ended Full Year 30 September 2008 2007 Change 2007/08 £m £m % £m Turnover (1) 281.1 221.3 27.0 455.1 EBITDA 55.5 49.1 13.0 101.0 PBITA 33.1 27.1 22.1 58.1 • Particularly strong growth in turnover, EBITDA and PBITA (1) Including landfill tax 34
Slide 35: Viridor 2008/09 Financial Highlights
Viridor 2008/09 Financial Highlights • Revenue increased by £59.8m (27.0%) to £281.1m − acquisitions (full 6 month contribution from Grosvenor and Shore) accounted for £33.5m and existing business £11.7m − includes increase in landfill tax of £14.6m • EBITDA increased by £6.4m (13.0%) to £55.5m • PB
Slide 36: Profit Contribution by Segment
Viridor Profit Contribution by Segment (1) Half Year Ended 30 September 2008 Half Year Ended 30 September 2007 C ontracts & Other (2) C ontracts & 8% Other (2) 11% Recycling 8% Recycling 23% Landfill 43% C ollection 10% Landfill 52% C ollection 7% Power Generation 19% Power Generation 19% • Business
Slide 37: Operational Highlights – Landfill
Viridor Operational Highlights – Landfill • Total volumes decreased by 0.2m tonnes or 6.2% to 2.5m tonnes − non-recurring items H1 2007/08 − increase in domestic and Viridor’s own inputs, more than offset by reduced third party industrial and commercial • Average gate fees increased by 9.1% (to £20.
Slide 38: Operational Highlights – Power Generation
Viridor Operational Highlights – Power Generation • Total landfill gas power generation increased by 6.6% to 245 GWh reflecting our strategy of maximising output • Average price grew to £66MWh (H1 2007 - £56MWh) − ROC-able electricity output sold forward to March 2010 at May 2008 forward prices • To
Slide 39: Operational Highlights – Recycling I
Viridor Operational Highlights – Recycling I • Tough UK Government recycling targets − 50% of municipal waste by 2020 • Steeply increasing Landfill Tax (£8 per tonne pa) enhances economics of recycling in pure cost terms • Worldwide long-term requirement for raw materials − particularly in Asia/Far
Slide 40: Operational Highlights – Recycling II
Viridor Operational Highlights – Recycling II • Viridor recycles and composts around 1.5m tonnes per annum through − 18 Materials Reclamation Facilities (MRFs) 14 municipal waste; 2 electronic waste; 2 glass − 72 Household Waste Recycling Centres (HWRCs) − 10 composting sites − international distr
Slide 41: Operational Highlights - Contracts and Collection
Viridor Operational Highlights - Contracts and Collection • Contracts − continued good performance in Somerset PPP and West Sussex PFI − feeds recycling • Collection profits down slightly reflecting high fuel costs and the volume impact of UK economic conditions 41
Slide 42: Renewable Energy Opportunities
Viridor Renewable Energy Opportunities Waste currently 30% of UK Renewables – scope for significant further growth • Landfill gas − 85 MW (as at 30 September 2008) • Lakeside joint venture with Grundon Waste Management − 400kt pa and up to 37MW EfW plant at Colnbrook near Heathrow − £160m capex, 86%
Slide 43: PPP/PFI Contracts
Viridor PPP/PFI Contracts Up to £30bn needs to be invested in municipal waste facilities in UK by 2020 (Source: Institution of Civil Engineers) • West Sussex PFI and Somerset PPP already operational • South London Waste Partnership contracts won (September 2008) − 450,000 tonnes pa − recycling, anae
Slide 44: Current Economic Conditions
Viridor Current Economic Conditions • Viridor overall well positioned in face of current economic conditions − but is not immune • ROC-able power generation sold forward to 31 March 2010 at mid 2008 prices • 60% of landfill volumes are domestic plus Viridor’s own collection • Recycling diversified b
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Slide 46: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services and waste management • South West Water − successfully delivering K4 regulatory contract − strong growth in K4 RCV due to reach £2.7bn by March 2010 − PR09 programme on track: Draft Business Plan published • Viridor d
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Slide 48: Water Industry 2007/08 Average Interest Rate
Water Industry 2007/08 Average Interest Rate Water Industry 2007/08 Average Interest Rate 7.5% 7.2% 7.0% 6.5% 6.5% 6.3% Average Interest Rate 6.0% 5.8% 5.7% 5.4% 5.4% 5.4% 5.4% 5.5% 5.0% 4.7% 4.5% 4.0% SWW Severn Trent Northumbrian Wessex Dwr Cymru Thames Yorkshire United Utilities Southern AWS Sour