Pennon Group Plc · LSE:PNN
Pennon — H1 2009/10 Earnings Presentation
46 slides from Pennon's earnings presentation, Nov 19, 2009
Slide 1: Half Year Report 2009/10
Half Year Report 2009/10 19 November 2009 www.pennon-group.co.uk 1
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: Another Strong Half Year Performance
Pennon Group Plc Another Strong Half Year Performance • Underlying profit before tax up 10.7% to £97.3m − South West Water up 10.6% to £71.8m − Viridor up 14.0% to £22.8m • Underlying earnings per share up 11.6% to 21.1p • Interim dividend per share up 3.0% to 6.95p • Strong liquidity position − cas
Slide 4: H1 2009/10 Operational and Business Highlights: South West Water
Pennon Group Plc H1 2009/10 Operational and Business Highlights South West Water: • On target to deliver 2005 – 2010 Regulatory Contract • Regulatory Capital Value expected to reach £2.5bn by end of K4 • Thirteenth consecutive summer without hosepipe bans and drought orders • Operating efficiency ta
Slide 5: H1 2009/10 Operational and Business Highlights: Viridor
Pennon Group Plc H1 2009/10 Operational and Business Highlights Viridor: • Continued strong growth in PBT • Greater Manchester 25 year PFI contract operating successfully − planning permissions achieved for all required 23 sites / 36 facilities and construction programme under way • Lakeside EfW cur
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Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results(1) For the half year ended 30 September Full Year 2009 2008 Change 2008/09 £m £m £m Group revenue 535.5 505.1 6.0% 958.2 Group operating profit (2) 135.1 136.8 (1.2)% 257.0 - SWW 101.9 101.8 0.1% 191.6 - Viridor 32.6 33.1 (1.5)% 63.5 Group profit before tax
Slide 8: Cash Flow
Pennon Group Plc Cash Flow For the half year ended 30 September Full Year 2009 2008 2008/09 £m £m £m Cash inflow from operations 157.7 171.9 339.3 Net interest paid (23.6) (32.5) (80.1) Dividends and tax paid (36.7) (33.5) (99.9) Capital expenditure (101.3) (116.6) (235.3) Acquisitions (net of dispo
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at As at 30 September 31 March 2009 2008 2009 £m £m £m Loans and finance leases - over one year 2,009 2,065 1,982 - under one year 317 50 263 2,326 2,115 2,245 Less: cash and cash equivalents (428) (306) (353) Net borrowings 1,898 1,809 1,892 Net gearing (1) 77% 76
Slide 10: Net Debt Analysis as at September 2009
Pennon Group Plc Net Debt Analysis as at 30 September 2009 £m Finance leasing 1,225 Bank bilaterals - RCFs/term loans 270 EIB 290 Index linked bond 2057 218 Private placements 199 Convertible bond 112(1) Other 12 Total gross debt 2,326 Less: Cash/liquid investments (428) Total net debt 1,898 • Key r
Slide 11: Net Interest Payable
Pennon Group Plc Net Interest Payable(1) For the half year ended Full Year 30 September 2009 2008 2008/09 £m £m £m Interest payable (40.1) (60.2) (109.5) Interest receivable 4.6 12.4 21.1 Net interest payable (35.5) (46.7) (88.4) Average rate of interest 3.7% 5.2% 4.8% Net interest cover(2) 3.8x 2.9
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 2004 assumptions − circa 60% of SWW projected net debt fixed to March 2010 − circa 25% of SWW current debt index-l
Slide 13: Liquidity
Pennon Group Plc Liquidity • Cash balances of £428m at 30 September 2009 (includes c£70m deposits with L/C providers and lessors) • Committed undrawn facilities of £224m at 30 September 2009 • Committed funding in place for South West Water to at least 2011 • Refinancing of existing facilities being
Slide 14: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2009 2008 2008/09 £m £m £m UK corporation tax 23.1 21.2 31.3(1) Deferred tax 3.0 0.1(2) 11.7(1)(2) Deferred tax arising on abolition of - 29.2 24.9 industrial buildings allowances 26.1 50.5 67.9 • Mainstream tax charge 24% (H1
Slide 15: Pensions as at September 2009
Pennon Group Plc Pensions as at 30 September 2009 • Gross pension deficit of £129m (March 2009 - £66m) − £93m net of tax (March 2009 - £48m) • Pension fund assets £384m Pension fund liabilities £513m £129m = £93m net of tax • Deficit increased from March 2009 due to impact of reduction in the intere
Slide 16: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 3.0% to 6.95p per share • Progressive dividend policy: 3% real to end of this financial year • SCRIP dividend alternative 16
Slide 17: South West Water
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Slide 18: South West Water Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2009 2008 2008/09 £m £m £m Revenue 226.5 223.1 431.7 Operating profit(1) 101.9 101.8 191.6 (1) Underlying – before restructuring costs 18
Slide 19: South West Water Revenue
South West Water Revenue 236 0.6 (3.8) 11.0 234 232 (2.3) 230 (2.1) 228 226.5 £m 226 224 223.1 222 220 218 216 2008/09 Tariff Increase New Meter Option Other Sales Demand 2009/10 Connections Switchers H1 2009/10 H1 2008/09 • Number of meter switchers 9,300 14,500 • Number of new customers 2,600 4,20
Slide 20: South West Water Operating Costs
South West Water Operating Costs 82 1.0 (2.0) 81 3.1 80 (1.7) 79 £m 78 77.7 77.3 77 76 75 2008/09 Cost Increases New Capital Efficiency Savings Cost of other 2009/10 Schemes Sales • Minimal increase in overall costs • Debt collections stable • Efficiency in energy usage delivered 20
Slide 21: K4 Opex Efficiency Achievement versus Target
South West Water K4 Opex Efficiency Achievement versus Target Efficiency Achievement 20.0 18.0 16.0 14.0 12.0 £m Cumulative Actual 10.0 8.0 6.0 Cumulative Original Target profile 4.0 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 • Further
Slide 22: Capital Programme
South West Water Capital Programme • Capital expenditure half year to 30 September 2009 – £70.8m (H1 2008/09 - £67.4m) − 89km water mains replaced/refurbished − programme on track to finish December 2009 - ahead of schedule - one of the last major deliverables of the “Clean Sweep” programme now unde
Slide 23: Regulatory Capital Value
South West Water Regulatory Capital Value Year End 2005 2006 2007 2008 2009 2010 2010 £m £m £m £m £m £m adjusted £m(3) At 2002/03 1,847 1,929 1,994 2,042 2,095 2,136 N/A prices(1) Actual/expected 1,956 2,091 2,265 2,408 2,461 2,584 2,524 outturn prices(2) • 29% growth in RCV 2005-10 – highest percen
Slide 24: Delivering K4: Preparing for K5 - I
South West Water Delivering K4: Preparing for K5 - I • OFWAT K4 efficiency target achieved − energy savings target achieved (Megawatt Challenge) • OFWAT leakage target met every year − impact of exceptionally cold winter successfully managed − leakage performance amongst the best in the industry • 2
Slide 25: Delivering K4: Preparing for K5 - II
South West Water Delivering K4: Preparing for K5 - II • Customer debt - overall debt collection stable − improved collections from recent billing offsetting some slower collection of older debt − less exposure than peers to large industrial customers − ‘WaterCare’ assisting vulnerable customers • Ea
Slide 26: PR09 Draft Determination
South West Water PR09 Draft Determination • Average annual price limits lower than SWW Final Business Plan reflecting inter alia Ofwat’s assumptions on: − lower cost of capital − lower capital and operating cost assumptions • Headline 4.5% post tax real cost of capital − cost of equity 7.1% real − c
Slide 27: PR09 Draft Determination
South West Water PR09 Draft Determination • Customers − Average bill decreases 1.3% pa before inflation − 81% domestic customers metered by 2015 − discoloured water targeted with investment − targeted programmes to deal with odours at sewage treatment works and sewage flooding • Environment – £676m
Slide 28: Price Review Timetable
South West Water Price Review Timetable 19 December 2008 OFWAT published draft capital baseline 7 April 2009 Companies submitted final business plans 23 July 2009 Draft price limits published by OFWAT 26 November 2009 Final price limits published by OFWAT January 2010 Accept price limits or seek Com
Slide 29: PR09 Draft Determination Summary
South West Water PR09 Draft Determination Summary • The Draft Determination is a draft − representations made to Ofwat in September − key components can change in the Final Determination • Logging up/IDoK potential for K5 − Water Framework Directive − revised Bathing Water Directive − adoption of pr
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Slide 31: Viridor Financial Performance Summary
Viridor Financial Performance Summary(1) For the half year ended Full Year 30 September 2009 2008 Change 2008/09 £m £m % £m Turnover (2) 309.8 282.9 9.5 528.0 EBITDA 55.0 55.1 - 105.2 PBITA 32.6 33.1 (1.5) 63.5 PBITA plus joint ventures (3) 33.7 33.4 0.9 64.9 PBT 22.2 19.4 14.4 39.9 • PBITA down 1.5
Slide 32: 2009/10 H1 Financial Highlights
Viridor 2009/10 H1 Financial Highlights • Revenue increased by £26.9m (10%) to £309.8m − acquisitions of London Recycling and Intercontinental Recycling plus Greater Manchester project accounted for £42.4m − existing business decreased by £15.5m (including decrease in landfill tax of £2.4m) • EBITDA
Slide 33: Profit Contribution by Segment
Viridor Profit Contribution by Segment (1) Half Year Ended 30 September 2009 Half Year Ended 30 September 2008 C ontracts & Contracts & Other (2) Other (2) 8% 13% Landfill Recycling 38% Recycling 13% 23% Landfill 43% Collection 8% C ollection 7% Power Generation Power 28% Generation 19% • Business s
Slide 34: Operational Highlights – Landfill
Viridor Operational Highlights – Landfill • Total volumes decreased by 0.4m tonnes or 17% to 2.1m tonnes − excluding site closures the decrease is 0.3m tonnes or 13% − decrease is primarily third party industrial and commercial (recession related) − domestic slightly down but Viridor collected volum
Slide 35: Operational Highlights - Contracts and Collection
Viridor Operational Highlights - Contracts and Collection • Contracts profits well ahead − continued good performance in West Sussex PFI and around 10 other municipal contracts − sludge contracts back in profit − impact of Greater Manchester sub-contract profit • Collection profits up with enhanced
Slide 36: Operational Highlights – Power Generation
Viridor Operational Highlights – Power Generation • Total landfill gas power generation increased by 11% to 273GWh reflecting capacity brought on at 2008/09 year end • Average price up 25% to £82MWh (H1 2008/09 - £66MWh) − ROC-able electricity output (brown energy component) sold forward to March 20
Slide 37: Operational Highlights – Recycling
Viridor Operational Highlights – Recycling • Overall recycling revenues per tonne back to H1 2008/09 levels (after the deterioration in H2 2008/09) with some variations by product − glass and plastics ahead − metal and paper behind − recyclate very economical compared to virgin materials • Recycling
Slide 38: Recycling Companies Acquired H1 2009/10
Viridor Recycling Companies Acquired H1 2009/10 • London Recycling Limited − acquired in June for £10.6m cash consideration (plus £1.8m debt) − HQ in London, E16 − full range of recycling operations, including collection fleet, 'WEEE' facility, paper processing, confidential destruction, MRF, waste
Slide 39: PPP/PFI Pipeline
Viridor PPP/PFI Pipeline • Preferred bidder for Oxfordshire PPP (September 2009) • One of last two for Cheshire PFI • Viridor continues to bid selectively for other contracts 39
Slide 40: Renewable Energy Summary
Viridor Renewable Energy Summary Waste currently 30% of UK Renewables. Low cost, base load, distributed. Scope for significant further growth. Chancellor’s April 2009 Budget announced increasing EIB support for UK renewables. Planning approval is a lengthy process, often involving appeals • Landfill
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Slide 42: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services and waste management • South West Water − successfully delivering K4 − Final Determination from OFWAT due 26 November − platform for K5 in place • Viridor delivering strong growth by − capitalising on its strong posit
Slide 43: Appendices
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Slide 44: Water Industry 2008/09 Average Interest Rate on Net Debt
Water Industry 2008/09 Average Interest Rate Water Industry 2008/09 Average Interest Rate on Net Debt 8.0% 7.12% 7.0% 6.84% Percentage 6.0% 5.73% 5.73% 5.51% 5.55% 5.17% 5.0% 4.92% 4.94% 4.55% 4.0% Source: Pennon calculation based on company Annual Reports Basis: Net interest payable (excluding pens
Slide 45: IFRIC 'Service Concession Arrangements'
Viridor IFRIC 12 ‘Service Concession Arrangements’ • Requirement of International Accounting Standards Board (IASB) • Revenue from ‘Service concession arrangements’ split between − construction − operations − financing • Capitalisation of interest during construction phase not permitted • Tends to b
Slide 46: Greater Manchester Waste PFI
Viridor Greater Manchester Waste PFI • 25 year contract signed by Viridor/Laing consortium 8 April 2009 and now operational • The UK’s largest ever combined waste and renewable energy project − 1.3m tonnes pa of waste − total potential energy generation approaching 130MW (including Runcorn Phases I