Pennon Group Plc · LSE:PNN
Pennon — H1 2012/13 Earnings Presentation
50 slides from Pennon's earnings presentation, Nov 29, 2012
Slide 1: Half Year Results 2012/13
Half Year Results 2012/13 29 November 2012
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 2012/13 Financial Highlights
Pennon Group Plc H1 2012/13 Financial Highlights • Profit before tax up 3.4% to £111.1m South West Water up 10.0% to £83.8m Viridor down 26.5% to £22.5m • Earnings per share before deferred tax up 3.4% to 24.3p(1) • Dividend Interim dividend per share up 6.6% to 8.76p • Capital investment up 8
Slide 4: H1 2012/13 Operational and Business Highlights: South West Water
Pennon Group Plc H1 2012/13 Operational and Business Highlights South West Water • Strong performance against 2010 – 2015 regulatory contract • PBT up, in spite of atypical weather • Average funding cost 4.0% • Strong operational performance • Preparing for PR14 • Unable to accept Ofwat Section13 li
Slide 5: H1 2012/13 Operational and Business Highlights: Viridor
Pennon Group Plc H1 2012/13 Operational and Business Highlights Viridor • Continuing growth in profits from joint ventures outweighed by reduction in recycling primarily price as flagged previously • Significant progress in developing pipeline of long-term projects including − financial close reac
Slide 6: Pennon Group Plc
PENNON GROUP PLC
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended 30 September Full Year 2012 2011 Change 2011/12 £m £m £m Group revenue 633.7 642.6 (1.4%) 1,233.1 Group operating profit 136.3 143.1 (4.8%) 268.8 - SWW 115.0 107.9 6.6% 204.7 - Viridor 21.0 35.2 (40.3%) 63.7 Viridor PBIT plus joint v
Slide 8: Cash Flow
Pennon Group Plc For the half year ended Cash Flow 30 September Full Year 2012 2011 2011/12 £m £m £m Cash inflow from operations 190.6 185.1 389.9 Net interest paid (31.3) (32.5) (61.3) Dividends paid (18.4) (21.6) (69.1) Tax paid (15.2) (23.2) (41.4) Capital expenditure(1) (184.8) (93.3) (273.6) Ac
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at 30 September As at 31 March 2012 2011 2012 £m £m £m Loans and finance leases 2,632 2,440 2,530 Less: cash and cash deposits (459) (510) (425) Net borrowings 2,173 1,930 2,105 Net gearing (1) 72% 72% 72% SWW debt/RCV 59% 58% 56% • Gearing stable • Net borrowings
Slide 10: Viridor EfW Capex – Impact on Net Debt
Pennon Group Plc Viridor EfW Capex – Impact on Net Debt Cumulative Remaining spend to spend Total 30 September to project Project 2012 completion spend EfW projects under construction £m £m £m Runcorn II 129 87 216 Exeter 23 22 45 Oxford 47 159 206 Cardiff 53 170 223 252 438 690 • Net debt includes
Slide 11: Net Interest Analysis
Pennon Group Plc Net Interest Analysis(1) For the half year ended Full Year 30 September 2012 2011 2011/12 £m £m £m Interest payable (44.4) (48.2) (94.3) Capitalised interest payable (4.5) (1.3) (3.0) Interest receivable on shareholder loans to joint ventures 4.6 3.3 7.5 Other finance income 9.9 6.2
Slide 12: Water Industry: 2011/12 Average Interest Rate on Net Debt
Water Industry 2011/12 Average Interest Rate on Net Debt • SWW interest rate consistently low Source: Pennon calculation based on company Annual Reports Basis: Net interest payable (excluding pensions net interest) / average net debt 12
Slide 13: 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 versus OFWAT assumptions c23% of SWW current debt index-linked to 2041-2057 • At least 50% of SWW net debt fixed for K5 in line with Group policy weigh
Slide 14: Liquidity
Pennon Group Plc Liquidity • Cash balances of £459m at 30 September 2012 (includes c.£126m deposits with Letter of Credit providers and lessors) • Undrawn facilities of £536m at 30 September 2012 • Committed funding in place for South West Water up to end of K5 c.£126m will mature over the rest of
Slide 15: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2012 2011 2011/12 £m £m £m Current tax 23.2 23.4 30.9 Deferred tax 6.8 3.5 23.6 Deferred tax reduction on change of (13.9) (12.8) (26.4) corporation tax rate 16.1 14.1 28.1 • Current tax charge 21% (H1 2011/12 – 22%) 15
Slide 16: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 6.6% to 8.76p per share • Sector-leading progressive dividend policy: 4% real to end of K5 period (March 2015) • Scrip dividend alternative 16
Slide 17: South West Water
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Slide 18: Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2012 2011 2011/12 £m £m £m Revenue 256.5 244.3 474.0 Operating profit 115.0 107.9 204.7 Profit before tax 83.8 76.2 141.5 • Revenue up 5.0% • Operating profit up 6.6% • Profit before tax up 10.0% 18
Slide 19: Revenue
South West Water Revenue 270 1.2 (4.5) 20.4 265 (4.9) 260 256.5 255 250 £m 244.3 245 240 235 230 225 220 H1 2011/12 Tariff increase New connections Meter option switchers Demand H1 2012/13 • Tariff increase of 7.7% (inc. RPI) • 3.5% reduction in metered customer demand - impacted by wettest summer i
Slide 20: Operating Costs
South West Water Operating Costs 150.0 0.6 0.5 (2.0) 145.0 1.9 (0.8) 4.9 141.5 140.0 136.4 135.0 £m 130.0 125.0 120.0 115.0 110.0 Cost increases Efficiency & Non-recurring) Restructuring Transfers & New H1 2011/12 H1 2012/13 Bad debts capital schemes Other (inc. PSAs (inc. inflation savings and rate
Slide 21: Operating Cost Efficiency
South West Water Operating Cost Efficiency • Good operational cost control K5 cumulative operating cost efficiencies to • Delivering efficiency ahead of FD assumptions September 2012 Energy sustaining momentum over K5 K5 to date Admin and £3.0m support • Cumulative K5 efficiency of £17.1m services
Slide 22: Capital Programme
South West Water Capital Programme • Maintenance focused investment programme K5 cumulative capital expenditure • Cumulative K5 capex £298.6m to September 2012 Enhanced • Expenditure £42.7m H1 2012/13 (H1 2011/12 Service Levels Supply & £50.9m) Quality K5 to date Demand K5 to date £16m K5 to date
Slide 23: Shareholder Value
South West Water Shareholder Value 3,100 3,000 2,900 2,800 RCV £m 2,700 RCV 2,600 2,500 2,400 2,300 2010 2011 2012 2013 2014 2015 • RCV of £2,827m (31 March 2012) • Debt/RCV gearing 58.6% (30 September 2012) – well within Ofwat’s ‘efficient’ range • RCV growth benefiting from higher than expected in
Slide 24: Operational Highlights: Delivering the Regulatory Contract - I
South West Water Operational Highlights: Delivering the Regulatory Contract - I • Wettest summer for 100 years – focus on managing impacts of extreme weather • Despite the wet weather – 91% (133) beaches achieved good status (60% achieving excellent status) • Good performance against Ofwat’s new KPI
Slide 25: Operational Highlights: Delivering the Regulatory Contract - II
South West Water Operational Highlights: Delivering the Regulatory Contract - II • Further improvements in customer service – continued upward trend in SIM(1) performance – highest ever customer satisfaction score achieved Q2 2012/13 – written complaints halved in two years – 95% of customer complai
Slide 26: Political and Regulatory Developments - I
South West Water Political and Regulatory Developments - I • Government support for household customer bills welcome – £50 reduction to 2013/14 household customer bills – no impact on SWW financial/regulatory position • Draft Water Bill – ‘Water for Life’ White Paper a clear direction for evolutiona
Slide 27: Political and Regulatory Developments - II
South West Water Political and Regulatory Developments - II • Licence changes in common with the majority of the other water companies SWW unable to accept Ofwat’s proposed licence modifications not in the long-term interests of customers essential to sustain investor confidence looking forw
Slide 28: Political and Regulatory Developments - III
South West Water Political and Regulatory Developments - III • Preparing for PR14 – updated 25-year outlook(1) – soon to be published – significant customer/stakeholder engagement and research – engagement with regulators on long-term legislative obligations driving investment plans & priorities – d
Slide 29: Summary
South West Water Summary • Outperforming K5 regulatory contract • Preparing for PR14 • Well positioned for legislative changes Successful operational strategy Underpinned by strong financial performance 29
Slide 30: Viridor
Viridor Transforming waste”
Slide 31: Viridor Strategy: Transforming Waste
Viridor Strategy Transforming Waste • Viridor strategy is to add value through recycling and renewable energy generation whilst capitalising on its strong position in landfill • From 2007/08 until 2010/11 (and into H1 2011/12) growth in recycling profits more than offset decline in annual landfill p
Slide 32: Financial Performance Summary
Viridor Financial Performance Summary For the half year ended Full Year 30 September 2012 2011 Change 2011/12 £m £m % £m Revenue(1) 378.1 399.2 (5.3) 761.1 EBITDA 44.9 58.4 (23.1) 110.3 PBIT 21.0 35.2 (40.3) 63.7 PBIT plus joint ventures(2) 27.8 40.0 (30.5) 75.2 PBT 22.5 30.6 (26.5) 57.6 (1) Includi
Slide 33: Financial Highlights
Viridor Financial Highlights • Revenue decreased by £21.1m (5.3%) to £378.1m recycling down £18.8m (lower prices), and landfill plus landfill tax down £7.5m (lower volumes) • EBITDA decreased by £13.5m (23.1%) to £44.9m • PBIT plus joint ventures decreased by £12.2m (30.5%) to £27.8m increased c
Slide 34: Profit Contribution by Activity
Viridor Profit Contribution by Activity(1) Half year ended 30 September 2012 Half year ended 30 September 2011 (£52.4m) (£63.5m) Collection Collection Recycling £3.3m, 5% £2.1m, 4% £8.7m 16% Landfill £11.5m, 18% Landfill Recycling £11.5m, 22% £19.9m, 32% LFG power generation JVs £4.8m £10.5m 7% 20%
Slide 35: Profit Contribution by Activity
Viridor Profit Contribution by Activity H1 H1 2012/13 2011/12 £m £m Recycling 8.7 19.9 LFG power generation 10.5 11.4 Contracts and other 12.8 12.6 Joint ventures 6.8 4.8 Landfill 11.5 11.5 Collection 2.1 3.3 Total contribution 52.4 63.5 Indirect costs (including intangibles, pensions, insurance, bi
Slide 36: UK Waste Market Projections (Tonnes m)
Viridor UK Waste Market Projections (Tonnes m) 2010/11 2015/16 2020/21 Total Market Viridor Total Market Total Market Landfill 43 4.7 20 5-10 Energy from Waste 6 0.3 10 15-20 Recycling(1) 28 1.8 35 35 Total 77 6.8 65 60 Source: DEFRA; UK Landfill Tax Bulletin; Viridor analysis and estimates • Virido
Slide 37: Operational Highlights - Recycling
Viridor Operational Highlights - Recycling • Volumes traded increased by 23k tonnes (2.6%) to 936k tonnes impact of acquisitions (27kt) offset by weak UK economic conditions • Overall average revenue per tonne (gate fee and recyclate sale) down 17.6% to £103 compared to £125 in previous half year
Slide 38: Recyclate Revenues Per Tonne
Viridor Recyclate Revenues Per Tonne Weighted Average (1) 140 120 100 £ PER TONNE 80 60 40 20 - • Viridor strategy is to maximise recyclate quality and hence revenue and margin per tonne but not immune to world economic and market conditions • Key sensitivity: £10 per tonne change in revenue per t
Slide 39: Acquisitions
Viridor Acquisitions • Targeted to support Viridor’s recycling and EfW strategies • In July Viridor acquired JWT Holdings, a waste collection and recycling business based in Greater Manchester, for £7.6m annual volume 70kt • In October Viridor acquired Pulp Friction, a paper collection and process
Slide 40: Operational Highlights – Contracts and Collection
Viridor Operational Highlights – Contracts and Collection • Contracts 16 municipal contracts around the UK (including Lancashire, Glasgow, Lakeside, Manchester, Somerset, W Sussex PFI and (last full year) Bedfordshire) Thames Water overall profit contribution up • Collection profit contributio
Slide 41: Operational Highlights – Joint Ventures
Viridor Operational Highlights – Joint Ventures • JVs’ contribution (interest receivable on shareholder loans and share of PAT) increased 42% to £6.8m (H1 2011/12 - £4.8m) • Lakeside, the first of our EfW pipeline, continues to perform very strongly and is ahead of management expectations (waste inp
Slide 42: Operational Highlights – Landfill Gas Power Generation
Viridor Operational Highlights – Landfill Gas Power Generation • Total landfill gas power generation 303GWh up 8% on last year level of 280GWh reflecting successful optimisation programme approaching peak output • Average revenue per MWh down 3% to £77.7 per MWh (£79.8 2011/12) reflecting reduced
Slide 43: Operational Highlights - Landfill
Viridor Operational Highlights - Landfill • Overall profit contribution maintained • Total volumes decreased by 0.3m tonnes (17.0%) to 1.4m tonnes in line with the market site closure (Horton) and mothballing (Whitehead) accounted for one third of the decline ongoing impact of landfill diversion
Slide 44: PPP/EFW Pipeline
Viridor PPP/EFW Pipeline • Runcorn I and Runcorn II, Exeter, Oxfordshire and Cardiff EfWs under construction • Glasgow recycling and residual waste DBFO signed July 2012 • South London Waste Partnership residual waste PPP contract signed November 2012 • Preferred bidder for Peterborough recycling an
Slide 45: H1 2012/13 Summary
Viridor H1 2012/13 Summary • PBIT plus joint ventures down 30.5% continued growth in joint ventures outweighed by decline in recycling • Recyclate prices have fallen from their first half 2011/12 peak reflecting world economic and market conditions on-going stringent revenue optimisation and fac
Slide 46: Pennon Group Plc
PENNON GROUP PLC
Slide 47: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services; recycling; renewable energy; and waste management • £188m invested in key infrastructure supporting the development of the UK economy • South West Water − strong performance against K5 regulatory contract − deliverin
Slide 48: Appendices
PENNON GROUP PLC Appendices
Slide 49: Net Borrowings Analysis as at September 2012
Pennon Group Plc Net Borrowings Analysis as at 30 September 2012 £m Finance leasing 1,280 Bank bilaterals - RCFs/term loans 461 EIB 238 Index-linked bond 2057 240 Bond 2040 132 Private placements 162 Convertible bond 119 Total gross debt 2,632 Less: Cash/liquid investments (459) Net borrowings 2,173
Slide 50: Pensions as at September 2012
Pennon Group Plc Pensions as at 30 September 2012 • Gross pension deficit of £104m (March 2012 - £99m) £80m net of tax (March 2012 - £75m) September 2012 March 2012 • Pension schemes’ assets £526m £517m Pension schemes’ liabilities £630m £616m £104m £99m = £80m net of tax = £75m net of tax • Defic