Pennon Group Plc · LSE:PNN
Pennon — Investor Presentation (September 2017)
28 slides from Pennon's investor presentation, Sep 15, 2017
Slide 1: South West Water: focused on PR19 Analyst & Investor Presentation
South West Water: focused on PR19 Analyst & Investor Presentation 15 September 2017 © Pennon Group plc 2017
Slide 2: Agenda
Agenda Delivering our strategy PR19 methodology reflections Chris Loughlin Susan Davy Our WaterFuture vision to 2050 Group Chief Executive Officer Pennon Chief Financial Officer Pennon Conclusions and Q&A Close Ed Mitchell Sarah Heald Director of Environment Director of Corporate Affairs and Pennon
Slide 3: SWW: Delivering our strategy
SWW: Delivering our strategy Sector leading outperformance Successful BW integration Meeting our PR14 ‘Enhanced’ Business Plan commitments Best in class RoRE outperformance • Strong in all measures, financing, ODIs and Totex Focus on customers and our commitments to them Confidence in future • Publi
Slide 4: Delivering our strategy: Strong performance, confidence in future
Delivering our strategy: Strong performance, confidence in future 4 © Pennon Group plc 2017
Slide 5: Sector Leading RoRE Outperformance
Sector Leading RoRE Outperformance Confidence in delivering cumulative K6 Totex outperformance • Maintaining momentum from year 1 • £73m delivered in 2016/17 – Cumulative £129m for K6 Increased ODI performance • £3.6m net reward in 2016/17 – Cumulative £5.5m targeting further improvement over K6 Con
Slide 6: RoRE Outperformance: sector leading financing outperformance
RoRE Outperformance: sector leading financing outperformance Lowest effective interest rate in the industry • Diversified funding mix of fixed, floating and index-linked borrowings • Floating rate debt fixed to protect against rate rises • Managing maturities and refinancing • Around 2/3 funding is
Slide 7: RoRE Outperformance: operational outperformance
RoRE Outperformance: operational outperformance Key Financial ODIs – 2016/17 Net penalty Net reward All ODIs set by us in our ‘Enhanced’ plan ODI Outperformance net reward £3.6m(1) • Cumulative £5.5m, £7.5m reward : £2.0m penalty Confidence in ODI reward for K6 All ODIs on track to be delivered for
Slide 8: RoRE Outperformance: ODIs water and wastewater
RoRE Outperformance ODIs: water and wastewater Water sector leakage performance Sector-leading leakage performance GOOD PERFORMANCE Best ever numeric and descriptive wastewater compliance • Wastewater serious and significant pollutions – upper quartile performance • Minor pollutions, area of focus S
Slide 9: RoRE Outperformance: Service Incentive Mechanism
RoRE Outperformance: Service Incentive Mechanism Previously an area of focus Best ever SIM performance • SWW 82, BW 86 • Tracking UK Customer Service Index – most improved utility in 2016 • Written complaints continue downward trend: • SWW down 29% Investment • BW down 33% 22 additional FTE 22 addit
Slide 10: RoRE Outperformance: sector leading Totex outperformance
RoRE Outperformance: sector leading Totex outperformance SWW PR14 ‘Enhanced’ business plan targets: • 2.5% p.a. operating cost savings • 5.5% efficiencies in the investment plan Outperforming business plan targets • 2.9% RoRE outperformance of £129m over first two years • 94% probability combined wa
Slide 11: Reflections on the PR19 Methodology & well prepared for K7
Reflections on the PR19 Methodology & well prepared for K7 11 © Pennon Group plc 2017
Slide 12: Our Reflections on Ofwat's Draft Methodology
Our Reflections on Ofwat’s Draft Methodology Ofwat PR19 methodology – direction of travel well-signalled SWW consultation response published today • More prescriptive and data dependent methodology than PR14 - Will allow better comparison between companies – SWW focused on ensuring plans continue to
Slide 13: Initial Assessment of Company Business Plans
Initial Assessment of Company Business Plans 1 2 3 ADDRESSING DELIVERING ENGAGING AFFORDABILITY OUTCOMES FOR CUSTOMERS AND CUSTOMERS VULNERABILITY 4 5 6 SECURING LONG MARKETS AND SECURING COST TERM RESILIENCE INNOVATION EFFICIENCY 7 8 9 SECURING ALIGNING RISK RECOGNITION OF CONFIDENCE AND AND RETURN
Slide 14: Engaging Customers (1)
Engaging Customers (1) Exemplar for customer engagement during PR14 Engagement firmly embedded into SWW during PR14 • Step change expected for PR19 - A wider range of techniques, customer participation and a stronger role for Customer Challenge Groups (CCG) • SWW has raised the bar further - multi-f
Slide 15: Addressing Affordability and Vulnerability (2)
Addressing Affordability and Vulnerability (2) SWW leading the way for the last 10 years • Focus on affordable bills and tailored support for customers in vulnerable circumstances • Bespoke affordability and vulnerability performance commitments - Incomes comparatively low in the South West, bills r
Slide 16: Delivering Outcomes For Customers (3)
Delivering Outcomes For Customers (3) Supportive of greater incentives for outperformance • Ofwat is suggesting 14 common performance commitments, of which 4 standardised ODIs: - Water quality - Internal sewer flooding - Wastewater pollutions 1-3 - Supply interruptions • CMex and DMex (the new SIM)
Slide 17: Securing Long Term Resilience, Markets and Innovation (4 & 5)
Securing Long Term Resilience, Markets and Innovation (4 & 5) Resilience: Environmental, Social and Corporate Governance “Resilience • Strong focus in PR19 means long-term financial, on sustainability: corporate and operational resilience.” Ofwat • Well-established upstream and downstream thinking i
Slide 18: Securing Cost Efficiency (6)
Securing Cost Efficiency (6) Cost efficiency and outperformance embedded in our business • Shift to frontier cost baselines to be set, with companies receiving progressively higher shares of Totex outperformance • SWW strong track record - K6 performance built on strong foundation from K5 - Head sta
Slide 19: Aligning Risk and Return (7)
Aligning Risk and Return (7) SWW well placed given balance sheet structure and strategy • Ofwat intends to sharpen the incentives package for companies by calibrating financial incentives • Cost of debt reflects industry embedded debt and new debt assumptions • Indexation of new debt – mirrors SWW W
Slide 20: Recognition of Past Delivery (8)
Recognition of Past Delivery (8) Clarity of performance and engaging with customers WaterShare scorecard 2016/17 It is imperative companies are held to account on promises made to customers • SWW reports transparently to customers through WaterShare • Refinement and continuation planned for next reg
Slide 21: Securing Confidence and Assurance (9)
Securing Confidence and Assurance (9) Focus on Board governance, leadership and assurance of company business plans • Essential for the development of balanced and well evidenced plan • WaterShare Panel, WaterFuture Customer Panel and Customer View Group provide significant scrutiny over current per
Slide 22: Timetable
Timetable Well prepared for Business Plan submission in September 2018 2017 September Vision to 2050 September SWW response to PR19 methodology September Bioresources submission Mid December Final Ofwat methodology published December Draft Water Resources Management Plan submitted 2018 January Water
Slide 23: Our WaterFuture vision from now to 2050
DRAFT Our WaterFuture vision from now to 2050 23 © Pennon Group plc 2017
Slide 24: WaterFuture - Vision to 2050
WaterFuture - Vision to 2050 DRAFT Launched today • Various forms – Investors, customers, regulators and stakeholders • Sets out our long term ambitions / priorities • Informs our 5 year Business Plan • Consultation with customers and stakeholders • Gathers their views and priorities for the future
Slide 25: WaterFuture 2050 – Investment Scenarios
WaterFuture 2050 – Investment Scenarios DRAFT Investment anticipated ‘at least’ comparable to historic levels • £6 - £9bn anticipated between now and 2050 • Informed by - Defra’s guidance to Ofwat - Direct engagement with Ofwat - Customer / stakeholder research and engagement • Key investment driver
Slide 26: WaterFuture 2050 – Service Aspirations
WaterFuture 2050 – Service Aspirations DRAFT Ambitious, transformational service improvements • Building on stretching improvements in our ‘enhanced’ PR14 plan • Focused on customers’ priorities • Already leading on digital interfaces • Very mature vulnerable customer support measures in place – Ess
Slide 27: Conclusions
Conclusions DRAFT SWW performance is leading the sector Meeting our PR14 ‘enhanced’ business plan commitments Best in class RoRE outperformance PR19 methodology builds on challenges in PR14 Increased rewards and penalties on a lower base return Incentives for top performing companies • Strong in all
Slide 28: South West Water: focused on PR19 Analyst & Investor Presentation
DRAFT South West Water: focused on PR19 Analyst & Investor Presentation 15 September 2017 © Pennon Group plc 2017
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