Pennon Group Plc · LSE:PNN
Pennon — FY2016/17 Earnings Presentation
57 slides from Pennon's earnings presentation, May 24, 2017
Slide 1: Full Year Results 2016/17
Full Year Results 2016/17 Building Momentum, Driving Growth 24 May 2017 Delivering for customers, communities and investors © Pennon Group plc 2017
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this technology systems management and protection including higher risks, “document” shall mean this presentation pack and shall be deemed to maintaining finance and funding to meet ongoing commitments, include references to the
Slide 3: Chris Loughlin, Group Chief Executive
Chris Loughlin Group Chief Executive © Pennon Group plc 2017
Slide 4: Delivering for customers, communities and investors
Delivering for customers, communities and investors Strong operational & financial performance • ERF portfolio delivery – EBITDA of £107m, in excess of c.£100m target • Recycling ‘self-help’ margin improvements • Continued sector leading outperformance in Water – RORE improvements in 2016/17 Sector
Slide 5: Susan Davy, Chief Financial Officer – Financial Performance
Susan Davy Chief Financial Officer Financial Performance © Pennon Group plc 2017
Slide 6: Financial Highlights Full Year 2016/17
Financial Highlights Full Year 2016/17 Strong financial performance across the Group Dividend per share(1) Adjusted +7.1% EBITDA(2) +7.4% Statutory EPS Strong balance +7.6% sheet (1) Dividend policy of 4% + RPI to 2020. The RPI rate used is 3.1% as of March 2017 (2) Statutory EBITDA before non-under
Slide 7: Financial Highlights
Financial Highlights Strong results £m A Adjusted EBITDA in-line with expectations Underlying(1) 2016/17 2015/16 CHANGE • Higher SWW revenue and opex efficiencies Revenue 1,353.1 1,352.3 +0.1% • Strong ERF performance EBITDA 486.0 448.4 +8.4% • Recycling ‘self-help' measures Adjusted EBITDA(2) A 546
Slide 8: Viridor Financial Highlights
Viridor Financial Highlights Growth driven by ERFs and recycling ‘self-help’ £m 2016/17 2015/16 CHANGE A Growth in ERF EBITDA Revenue(1) 793.5 806.2 (1.6%) • c.£100m target exceeded • Availability >90% EBITDA(2) 138.3 116.5 +18.7% ERFs A 106.9 89.7 +19.2% Landfill B 6.5 6.3 +3.2% B Optimising landfi
Slide 9: South West Water Financial Highlights
South West Water Financial Highlights Continued outperformance of regulatory contract £m 2016/17 2015/16 CHANGE A Revenue Revenue A 561.0 547.0 +2.6% • Tariff increase 1.4% (1.1% RPI) • Higher demand up 2.5% on metered Operating Costs(1) (211.9) (211.8) - volumes • Increase in new connections EBITDA
Slide 10: Non-underlying Items
Non-underlying Items A Operating costs • Migration to a Group IS platform – £m 2016/17 2015/16 non-cash asset de-recognition of £9.5m Operating Costs A (10.7) (10.2) • Restructuring costs of £1.2m Derivatives B (28.8) 5.2 B Derivatives Profit Before Tax impact (39.5) (5.0) • Cost of Peninsula MB der
Slide 11: Taxation
Taxation £m 2016/17 2015/16 Current Year Current Tax A 41.3 34.3 A Current tax Deferred Tax 17.8 23.3 • Current year current tax effective 59.1 57.6 rate of 16.5% (2015/16 16.2%) reflecting capital allowances Prior Year (including ERFs) Current Tax (1.8) (1.4) Deferred Tax 1.1 15.9 B Non-underlying
Slide 12: Capital Investment, Investing For Growth
Capital Investment, Investing For Growth Group Capital Investment Profile (£m) 400 £m 2016/17 2015/16 Viridor 300 ERFs(1) 158 139 200 Recycling 3 7 Landfill Energy 12 12 100 Contracts and Collections 13 11 Other 8 14 0 2015/16 2016/17 2017/18 2018/19 2019/20 Viridor Total 194 183 SWW Viridor South W
Slide 13: Net Debt Movements
Net Debt Movements Strong cash inflow from operations, continuing investment Significant increase Peak years of in cash inflow from capital investment operations in 2016/17 and 2017/18 (2,664.9) £m (2,484.4) (363.4) (151.9) (61.9) (16.6) (36.4) 456.1 4.8 (11.2) (1) Net Debt Cash inflow JV dividends
Slide 14: Balance Sheet
Balance Sheet Strong funding position underpinning capital investment GROUP NET WATER BUSINESS Group Net Debt Profile GEARING(1) NET DEBT/RCV at 31 March 2017 Total: £2,665m 63.8% 61.8%(2) (31 March 2016 62.5%) (31 March 2016 59.7%) Fixed £1,831m Index- 69% Gearing £1,383m cash & Linked • Reflects c
Slide 15: Balance Sheet – Sustainable funding
Balance Sheet Strong funding position underpinning capital investment GROUP NET Sustainable funding FINANCE COSTS (1) £58.8m • Diversified funding mix of fixed, floating and index-linked borrowings (2015/16 £54.1m) • Weighted average debt maturity of 20 years – matching the asset base • Net finance
Slide 16: Dividend Growth
Dividend Growth Established 10 year sector leading policy Policy of 4% + RPI leading to a +7.1% doubling of dividend over 10 +5.6% 35.96 years (2010 to 2020)(1) +4.9% +6.5% 33.58 31.80 +7.6% +7.3% 30.31 • Recommend final dividend of 28.46 +9.3% 26.52 24.87p, up 7.6% 24.65 22.55 • Full year dividend
Slide 17: Chris Loughlin – Operating Performance
Chris Loughlin Group Chief Executive Operating Performance © Pennon Group plc 2017
Slide 18: Delivering for customers, communities and investors
Delivering for customers, communities and investors Strong operational & financial performance • ERF portfolio delivery – EBITDA of £107m, in excess of c.£100m target • Recycling ‘self-help’ margin improvements • Continued sector leading outperformance in Water – RORE improvements in 2016/17 Sector
Slide 19: Viridor: Strong operational and financial performance
Viridor: Strong operational and financial performance ERFs performing well ERF Availability 2016/17(1) 100% 90% 8 operational Focus on optimising performance • Delivered £107m of EBITDA in 2016/17 50% • High availability across fleet – Average >90%(1) • Recently secured 3% capacity expansion at Card
Slide 20: Viridor: Securing further growth opportunities
Viridor: Securing further growth opportunities Significant growth to come from ERFs Portfolio of ERFs continues to deliver significant growth in EBITDA Avonmouth South London Dunbar Glasgow (IFRIC 12) IFRIC 12 Interest Receivable Adjusted Share of JV EBITDA EBITDA EBITDA ERFs under construction ERFs
Slide 21: Landfill, Contracts and Collections
Viridor: Strong operational and financial performance Landfill, Contracts and Collections Delivering cash flow from landfill – optimising capacity LANDFILL • Closing sites, dynamic review reducing to a small number 11 open sites • Extracting value from sites – maximising opportunities for existing (
Slide 22: Recycling 'self-help' increasing EBITDA
Viridor: Strong operational and financial performance Recycling ‘self-help’ increasing EBITDA VOLUMES Revenue & Pricing 0.2mT • Paper price increase partially offset by other commodities 2016/17: 1.6mT (2015/16: 1.8mT) • Shipping costs increased in H2 – mitigated by pain/gain mechanisms REVENUES ‘Se
Slide 23: Water: Sector leading RORE outperformance
Water: Strong operational and financial performance Sector leading RORE outperformance Confidence in delivering cumulative K6 Totex outperformance RORE (1) performance • Maintaining momentum from year 1 • £73m delivered in 2016/17 - Cumulative £129m for K6 2016/17 12.6%(1) K6 Totex outperformance Fi
Slide 24: Water: 2016/17 ODI performance levels
Water: Strong operational and financial performance 2016/17 ODI performance levels GOOD Odour contacts Water quality standard PERFORMANCE Taste, smell and colour contacts Bathing water quality Operational contacts resolved 1st time Water & waste asset reliability Water restrictions Sustainable abstr
Slide 25: Water: Delivering ODI performance
Water: Delivering ODI performance Focus on delivery and improvements Water restrictions & quality Bathing water quality • 20th consecutive year without water restrictions • 98.6% achieving sufficient quality • Outperformed leakage target – 82ML/d • Further investments in bathing and shellfish • Main
Slide 26: Sector leading efficiency delivery
Sector leading efficiency delivery SWW Totex savings Sector leading water Totex outperformance £129m • £129m cumulative Totex efficiencies K6 to date SWW/BW SYNERGIES Bournemouth Water synergies on track c.£27m • Final integration phase complete 2015-2020 (K6) Group wide efficiencies GROUP EFFICIENC
Slide 27: Non-Household Retail – Pennon Water Services
Successfully growing Non-Household Retail – Pennon Water Services 80:20 JV with South Staffordshire Plc (incorporating South Staffs/Cambridge Water) Operations based in Bournemouth Successful market opening • Operating successfully 3,000 Net supply point movement(2) • Grown market share since openin
Slide 28: Prepared for PR19
Prepared for PR19 Changing methodology – incentives driving returns to shareholders • Ofwat PR19 methodology – continues to incentivise top performing companies • Lower base returns balanced with incentives for outperformance Engaging with Ofwat on methodology changes • Ofwat methodology due 11 July
Slide 29: Delivering for customers, communities and investors
Delivering for customers, communities and investors Strong operational & financial performance • ERF portfolio delivery – EBITDA of £107m, in excess of c.£100m target • Recycling ‘self-help’ margin improvements • Continued sector leading outperformance in Water – RORE improvements in 2016/17 Sector
Slide 30: Questions
Questions © Pennon Group plc 2017
Slide 31: Appendix
Appendix © Pennon Group plc 2017
Slide 32: Pennon
Pennon © Pennon Group plc 2017
Slide 33: Adjusted group EBITDA
Pennon Adjusted group EBITDA £m 1.1 0.4 0.2 9.6 1.9 546.2 13.5 17.2 (2.4) (3.7) 508.4 2015/16 ERFs SWW Tariff Recycling Plc/Other(1) Viridor SWW Other Share of JV Viridor Contracts, Landfill and 2016/17 Increase and Overheads Revenue and EBITDA + IFRIC Collections and Landfill Gas Customer cost Impa
Slide 34: Diversified funding sources
Pennon Diversified funding sources £m (As at 31 March 2017) Finance Leasing(1) 1,384 Finance leasing Bank Bilaterals - Term Loans 404 provides key role in long-dated funding European Investment Bank Loans 364 Index-Linked Bond 416 Fixed Rate Bond 133 Private Placements 562 Total Gross Debt 3,263 Les
Slide 35: Fair value of non-current debt
Pennon Fair value of non-current debt As at 31 March 2017 As at 31 March 2016 £m Book Fair Difference Book Fair Difference value value value value Finance Leases 1,354 1,218 136 1,315 1,163 152 Bank and Other Loans 329 336 (7) 403 403 - European Investment Bank 323 282 41 235 209 26 Loans Index-Link
Slide 36: Net interest analysis
Pennon Net interest analysis(1) £m 2016/17 2015/16 Net interest payable (58.8) (54.1) Efficient effective interest Add: capitalised interest (12.9) (9.4) rate Less: notional interest payable(2) 10.3 11.2 Net interest payable higher Add: interest receivable on service than last year, reflecting conce
Slide 37: 2011 Peninsula MB Limited (PMB) derivative unwind
Pennon 2011 Peninsula MB Limited(1) (PMB) derivative unwind • Designed to improve Group’s overall interest rate performance • Pennon received fixed interest on £200m financial asset, paid an index-linked interest rate on a £200m loan – through counterparty PMB • Accounted for as derivative, net inco
Slide 38: Pensions
Pennon Pensions Deficit recovered since half year, 31 March 31 March £m 2017 2016 which reflected lower bond yields following Brexit, albeit the deficit Pension schemes’ assets £903m £793m remains higher than at March 16 Pension schemes’ £971m £834m Over half of the increase in the liabilities valua
Slide 39: Significant energy generation
Pennon Significant energy generation Group Energy generation • Total renewable energy generation of c.1.8TWh in 2016/17 − 8 ERFs – 1.3TWh − Landfill gas – 506GWh − 25 Hydro turbines – 9.4GWh generation − 53 solar PV installations – 10.6GWh(1) − Anaerobic digestion – 0.5GWh − CHP – 6.2GWh − 1 wind tu
Slide 40: Viridor
Viridor © Pennon Group plc 2017
Slide 41: Viridor Revenue breakdown
Viridor Revenue breakdown £m 14.5 9.7 17.7 806.2 (6.6) (20.4) 793.5 (27.6) 2015/16 ERFs - operational Recycling Contracts, Collections & Landfill gas ERFs - IFRIC 12 Landfill 2016/17 revenue Other construction revenue 41 Pennon Full Year Results 2016/17 © Pennon Group plc 2017
Slide 42: Viridor Adjusted EBITDA breakdown
Viridor Adjusted EBITDA breakdown £m 9.6 1.1 0.2 0.2 198.5 17.2 (2.4) (3.9) 176.5 2015/16 ERFs Recycling Viridor Overheads Share of JV EBITDA & Landfill Contracts, Collections Landfill Gas 2016/17 IFRIC 12 Interest & Other Receivable 42 Pennon Full Year Results 2016/17 © Pennon Group plc 2017
Slide 43: Viridor Profit contribution by activity
Viridor Profit contribution by activity(1) £m 2016/17 2015/16 CHANGE ERFs 82.3 63.9 +28.8% Landfill (9.5) (16.5) +42.4% Landfill Gas 23.1 23.8 (2.9%) Recycling 14.1 5.4 +161.1% Contracts, Collections and Other 24.0 29.1 (17.5%) Joint Ventures 14.4 14.3 +0.7% Total contribution 148.4 119.4 +24.3% Ind
Slide 44: Viridor Joint Venture Performance
Viridor Joint Venture Performance Greater Manchester Viridor £m TPSCo Laing VWGM(1) Lakeside Total 2016/17 Share of JV PAT - (1.2) - 5.4 4.2 Interest on shareholder loans 4.2 4.7 - 1.3 10.2 EBITDA VWGM(1) - - (0.2) - (0.2) Shareholder loans 37.8 40.2 - 8.6 86.6 Share of non-recourse debt 67.1 89.2 -
Slide 45: ERF waste market changes
Viridor ERF waste market changes ERF under capacity(1) continues to 2030 and beyond 30 25 UK combustible residual waste market (mt) 20 15 10 5 - 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 ERF capacity Viridor ERF capacity Under capacity Source: Defra, SEPA, NRW a
Slide 46: ERF accounting
Viridor ERF accounting An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA Illustrative ERF(1) IAS 16(2) IFRIC 12(2) JVs IAS 16 IFRIC 12 JVs • Oxford (Ardley) • Exeter • Lakeside • Cardiff • Peterborough(3) • Runcorn I EBITDA £28m £12m -- (Trident Park) • Glasgow • Runcorn
Slide 47: ERF CAPEX – Efficient investment
Viridor ERF CAPEX(1) – Efficient investment to deliver growth Cumulative Capital Cumulative Remaining Total Original spend at investment spend to spend to project planned £m 1 April 2016 in 2016/17 31 March 2017 completion spend project spend ERF projects in operation Exeter 47 - 47 - 47 47 Oxford (
Slide 48: ERFs (including Joint Ventures)
Viridor ERFs (including Joint Ventures) Base load Capital municipal Actual/expected Site Cost (1) Gross capacity Status contract commissioning Progress on ERF pipeline £m Tonnes Electricity (000) MWe Fully Lakeside(2) 150 410 38 Merchant Commissioned operational Fully Greater ERF portfolio build-out
Slide 49: South West Water
South West Water © Pennon Group plc 2017
Slide 50: South West Water Revenue breakdown
South West Water Revenue breakdown 3.7 0.8 £m 6.6 561.0 6.9 (4.0) 547.0 NHH Retail(1) 2015/16 Increased customer demand Tariff increase New connections Other sales Meter optants 2016/17 (1) Non-Household retail revenues reflect the total revenue from Non-Household customers (both wholesale and retai
Slide 51: South West Water Operating cost breakdown
South West Water Operating cost breakdown £m 2.0 2.8 4.6 211.8 (1.3) 211.9(1) (8.0) 2015/16 Cost increases incl. Bournemouth Water HSE fine and legal Bad debt reduction Efficiency savings and 2016/17 inflation full period impact fees other cost reductions (1) Non-Household retail costs of £4.0m incl
Slide 52: Sector leading RORE outperformance
South West Water Sector leading RORE outperformance Ofwat additional(2) guidance on financing outperformance RORE performance • Uses actual in-year average inflation 2015/16 2016/17 • Produces more volatile annual performance 12.6%(1) • K6 forecast cumulative performance unchanged 11.7%(1) 11.9%(2)
Slide 53: Delivering operational outperformance
South West Water Delivering operational outperformance Highest potential returns in the 2016/17 Operational RORE industry £73m of Totex savings delivered TOTEX +3.2% • Totex largest element of potential +1.5% operational outperformance £35m(1) • Opex lower than last year – delivering operational sav
Slide 54: Reconciliation of RORE to financials
South West Water Reconciliation of RORE to financials Totex (£m) 2016/17 2015/16 Combined Totex outperformance Operating costs 212 212 ODI outperformance Capital Expenditure 191 134 • Total net reward £3.6m(3). £3.9m reward will be recognised at the end of the regulatory period, £0.3m Totex 403 346
Slide 55: Cumulative performance & WaterShare 2016/17
South West Water Cumulative performance & WaterShare 2016/17(1) Shareholder (£m) Customer (£m) 2016/17 2015/16 2016/17 2015/16 Net Totex savings(2) 31.3 25.5 20.8 21.0 ODIs 3.6 1.9 3.6 1.9 Shareholder Investment in Value enhancing services Other items(3) - - 4.0 3.1 Total Value Benefit 34.9 27.4 28.
Slide 56: Reconciliation of WaterShare
South West Water Reconciliation of WaterShare Driving cost base efficiency • Totex efficiencies delivered despite cost pressures Delivering outcomes • ODI net rewards delivered of £3.6m in 2016/17 Other factors • Market movements on new financing returned to customers • Costs associated with Market
Slide 57: Full Year Results 2016/17
Full Year Results 2016/17 24 May 2017 57 Pennon Full Year Results 2016/17 © © Pennon Pennon Group Group plc plc 2017 2017