Slide 1: Preliminary Results 2005/06
Preliminary Results 2005/06 1 JUNE 2006 www.pennon-group.co.uk 1
Slide 2: Disclaimers
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 relation thereto and any other related ve
Slide 3: 2005/06 Financial Highlights
Pennon Group Plc 2005/06 Financial Highlights • Operating profit up 16.0% to £175.1m(1) − South West Water up 15.8% to £141.5m − Viridor Waste up 19.7% to £35.9m before amortisation of intangibles • Profit before tax up 24.6% to £110.9m(1) • Earnings per share up 17.4% to 75.5p(2) • £200m capital re
Slide 4: 2005/06 Operational Highlights
Pennon Group Plc 2005/06 Operational Highlights • South West Water − On target to deliver 2005 - 2010 Regulatory contract − Profit increase reflecting strong growth in Regulatory Capital Value (RCV) in 2005/06 − Successful re-focusing of capital programme to mains rehabilitation and asset maintenanc
Slide 5: All figures IFRS compliant unless otherwise indicated
(All figures IFRS compliant unless otherwise indicated; prior year figures restated) 5
Slide 6: Summary Financial Results
Pennon Group Plc Summary Financial Results 2005/06 2004/05 Change £m £m Group revenue 645.7 551.4 17.1% Group operating profit (1) 175.1 150.9 16.0% Group profit before tax (1) 110.9 89.0 24.6% Earnings per share (2) 75.5p 64.3p 17.4% (1) Before exceptional items (2) Before exceptional items and def
Slide 7: Exceptional Items
Pennon Group Plc Exceptional Items 2005/06 2004/05 Continuing operations £m £m SWW customer payment (14.5) - Abortive acquisition costs - (1.5) Business restructuring - (3.4) Operating profit impact (14.5) (4.9) Bond retirement (50.2) - Receipt on transfer of lease 7.9 - Pre tax impact (56.8) (4.9)
Slide 8: Cash Flow including exceptional items
Pennon Group Plc Cash Flow including exceptional items 2005/06 2004/05 £m £m Cash inflow from operations before pension 276.3 242.4 prepayment Net interest paid (106.4) (59.1) Dividends and tax paid (36.3) (28.7) Capital expenditure net of disposal proceeds (213.8) (164.8) Acquisitions/disposals (40
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at 31 March 2006 2005 £m £m Loans and finance leases - over one year 1,472 1,367 - under one year 54 55 1,526 1,422 Less: investment and cash (99) (304) Net debt 1,427 1,118 Net gearing (1) 71% 61% SWW debt/RCV 62.5% 52.4% (1) Debt/(equity + debt) 9
Slide 10: Net Interest Payable
Pennon Group Plc Net Interest Payable 2005/06 2004/05 £m £m Interest payable (1) (96.8) (89.3) Interest receivable (1) 32.5 27.3 Net interest payable (64.3) (62.0) Average rate of interest 5.1% 5.6% Net interest cover (1) 2.7x 2.4x • Effective management of interest rates – SWW: 4.7% (1) Before exce
Slide 11: Financing Initiatives
Pennon Group Plc Financing Initiatives • Funding strategy uses mix of fixed, floating and index linked rate borrowings • Locks-in benefit of low interest rates compared to Ofwat assumptions • Over 65% of SWW debt fixed to March 2007 • 60% of SWW debt fixed to March 2010 • 10% SWW debt index linked t
Slide 12: Taxation
Pennon Group Plc Taxation 2005/06 2004/05 £m £m UK corporation tax (1) 14.8 7.9 Deferred tax 20.2 15.6 35.0 23.5 • Mainstream tax charge 13% • Deferred tax not discounted under IFRS (1) Before net tax credit of £18.7m relating to tax relief on exceptional items 12
Slide 13: Pensions
Pennon Group Plc Pensions • Pension deficit (net of tax) of c£29m at 31 March 2006 (2005 - £56m) • Deficit includes impact of c£44m employer contribution prepayment (c£31m net of tax) for period up to 2009/10 • Net deficit represents c2% of market capitalisation 13
Slide 14: Landfill Restoration Accounting
Pennon Group Plc Landfill Restoration Accounting • In 2006 the accounting methodology for landfill restoration costs changed − to be consistent with majority of other large waste companies • Rather than restoration provision being built up over the site life as each tonne is input, a full provision
Slide 15: Capital Return/Dividends/Stock Split
Pennon Group Plc Capital Return/Dividends/Stock Split • Capital return of £200m £138m of B Share scheme returned in March 2006 Balance of B Share scheme returned in April 2006 £55m share buyback to be progressed • Rebased dividend per share Recommended final dividend up 20.2% to 35.1p Full
Slide 16: South West Water
SOUTH WEST WATER =e 16 Pennon Group Plc
Slide 17: South West Water Financial Performance Summary
South West Water Financial Performance Summary 2005/6 2004/05 Change £m £m Revenue 348.5 307.0 13.5% Operating profit (1) 141.5 122.2 15.8% (1) Before exceptional costs of £14.5m in 2005/6 and £3.4m in 2004/05 17
Slide 18: South West Water Revenue
South West Water Revenue • Increase of £41.5m (13.5%) in year • Reflects impact of £m - tariff increase 49.5 - meter option switchers (7.9) - new connections 2.8 - demand (3.5) - other 0.6 • Number of meter switchers 30,800 • Number of new customers 7,400 • Over half of domestic customers now metere
Slide 19: South West Water Operating Costs
South West Water Operating Costs 2005/06 2004/05 Change £m £m Total operating costs (1) 207.0 184.8 12.0% Increase in total operating costs due to: - inflation (including power costs and 8.4 chemicals) - new capital schemes 7.7 - other (depreciation, leakage, full year 10.1 effects) - efficiency sav
Slide 20: Analysis of Efficiency Savings
South West Water Analysis of Efficiency Savings £m • Manpower 0.9 • Power usage 0.2 • Contracted services 2.0 • Other (primarily raw materials) 0.9 4.0 • K4 target: £13m pa base opex savings by 2009/10 20
Slide 21: Operational Performance Summary
South West Water Operational Performance Summary • Highest ever drinking water and river water quality • Record 2005 bathing water compliance • Continues to be an industry leader in managing leakage • Reservoir water storage of 85%, 3% higher than last year • No water restrictions envisaged • Signif
Slide 22: Capital Programme
South West Water Capital Programme • Capital expenditure 2005/06 – £191.0m (2004/05 – £134.5m) − almost 700km water mains replaced/refurbished (22% higher than 2004/05 and longest length ever) • K4 capital programme of £762m (2002/03 price base) targeting 5% outperformance 22
Slide 23: 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) 1847 1929 1994 2042 2095 2136 Actual/expected outturn prices (2) 1956 2091 2213 2324 2443 2554 • 31% growth in RCV 2005-10 – highest percentage increase of any quoted water compan
Slide 24: Viridor Waste
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Slide 25: Continuing to Deliver Strong Financial Performance
Viridor Waste Continuing to Deliver Strong Financial Performance Year Ended 31 March 2001 (2) 2002 (2) 2003 (2) 2004 (2) 2005 2006 CAGR £m £m £m £m £m £m 2001-06 Turnover (1) 106.1 125.3 152.3 183.1 248.3 298.9 23.0% EBITDA 28.8 32.1 38.2 43.2 56.4 66.7 18.3% PBITA 13.1 15.2 19.1 22.7 30.0 35.9 22.3
Slide 26: Viridor 2005/06 Financial Highlights
Viridor 2005/06 Financial Highlights • At beginning of year projected continued moderate growth in operating profit before intangibles − on top of strong performance in each of previous four years • Revenue increased by £50.6m (20.4%) to £298.9m of which Brett accounted for £21.3m and underlying b
Slide 27: Profit Contribution by Segment
Viridor Waste Profit Contribution by Segment (1) Year Ended 31 March 2006 Year Ended 31 March 2005 Recycling & (reclassified) (3) Contracts & Transfer Other (2) 2% 10% Recycling & Contracts & Transfer Collection Other (2 ) 2% 8% 13% Collection 10% Landfill Landfill Power 58% 53% Generation 22% Power
Slide 28: Operational and Business Highlights – Landfill (I)
Viridor Operational and Business Highlights – Landfill (I) • Total volumes increased by 7% to 4.3m tonnes reflecting − Brett acquisition − non-recurring volumes in Q1 2004/05 preceding hazardous waste changes − major one-off sludge contract H1 2005/06 • Excluding the above underlying volume was unch
Slide 29: Operational and Business Highlights – Landfill (II)
Viridor Operational and Business Highlights – Landfill (II) • Average gate fees increased by 9% to £17.67 per tonne • Consented landfill capacity grew from 80m cubic metres 31 March 2005 to 87m cubic metres 31 March 2006 reflecting − Brett acquisition 11 − usage (5) − net planning gains 1 • Wyvern W
Slide 30: Operational and Business Highlights – Power Generation
Viridor Waste Operational and Business Highlights – Power Generation • Total landfill gas power generation increased by 12% to 367GWH − primarily Brett • Average price increased from £53.90 per MWH to £59.30 per MWH − reflecting strong brown energy prices and ROCs premium • Total capacity grew from
Slide 31: 2005/06 New Projects
Viridor Waste 2005/06 New Projects • Brett Waste acquired in June 2005 for £44.4m successfully integrated and earnings enhancing at net profit level (after integration costs and intangibles amortisation) one year ahead of expectations • Lakeside energy from waste plant joint venture with Grund
Slide 32: Wyvern Waste Acquisition/Somerset PPP (I)
Viridor Waste Wyvern Waste Acquisition/Somerset PPP (I) • In May 2006 completed acquisition of Wyvern Waste for £25m (including £3m cash on balance sheet) and entered into 25 year Public Private Partnership agreement with Somerset County Council • Wyvern Waste − 5m cubic metres consented landfill vo
Slide 33: Wyvern Waste Acquisition/Somerset PPP (II)
Viridor Waste Wyvern Waste Acquisition/Somerset PPP (II) • Wyvern Waste expected to be earnings enhancing before amortisation of intangibles in first full year • First phase of PPP is likely to require c£25m capex up to 2010 • Second phase to be negotiated subsequently • Viridor’s second long-term i
Slide 34: Other Developments
Viridor Waste Other Developments • Viridor continues to pursue other opportunities in line with its strategy landfill power generation long-term municipal contracts • Viridor/Laing’s partnership one of two consortia shortlisted for Greater Manchester waste management services PFI Viridor als
Slide 35: Viridor Waste Main UK Operations
Viridor Waste Management Main UK Operations @ ands site - operational @ tonasin site - with tanning ©@ Power Generation Plant @ Glass Recycling Plant Transport Depot ‘Transfer Station Incineration Plant MRF Plant Glass Recycling Depot Waste Treatment Plant. Composting Site @eoo0o0@88 Civic Amenity S
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Slide 37: Summary
Pennon Group Plc Summary • Strategy clearly focused on water, sewerage and waste management • Further creation of shareholder value through improved balance sheet efficiency return of £200m capital 2005/06 dividend rebased – 20% increase dividend policy: 3% pa real increases until 2009/10 • So
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Pennon Group Plc =o 38 Pennon Group Plc