Pennon Group Plc · LSE:PNN
Pennon — FY2021 Earnings Presentation
50 slides from Pennon's earnings presentation, May 2021
Slide 1: Full Year Results 2020/21
Full Year Results 2020/21
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to looking statements include, among other things, changes in This document is not an offer to sell, exchange or transfer this “document” shall mean this presentation pack and shall Government policy; regulatory and legal reform; c
Slide 3: Susan Davy, Group Chief Executive
Susan Davy Group Chief Executive © Pennon Group plc 2021 3
Slide 4: Transformative year for Pennon
Pennon Transformative year for Pennon Creating value for shareholders and stakeholders Attractive growth in UK water A purpose led business – delivering our New Deal for K7 • Pioneering a new relationship with customers • Robust operational and financial performance Bringing water to life A sustaina
Slide 5: Creating value for shareholders and stakeholders
Pennon Creating value for shareholders and stakeholders £3.7 billion Shareholder value creation Viridor net sale proceeds Positioning the Reinvesting Recognising Group sustainably in UK water shareholder support Sustainable Supporting Return to balance sheet organic growth shareholders £1.2bn (1) £0
Slide 6: Paul Boote, Group Finance Director
Paul Boote Group Finance Director © Pennon Group plc 2021 6
Slide 7: Strong financial results – 2020/21
Pennon Strong financial results – 2020/21 Realising value for shareholders Profit on sale Shareholder of Viridor return £1.7billion Up to £1.5bn Special dividend £0.4bn Share buyback 2020/21 Financial performance £157 2.5% 31.9p 21.74p in line with expectations for the million Effective Earnings Div
Slide 8: Revenue growth
Pennon Revenue growth South West Water South West Water Group Revenue growth K7 Net demand supported revenue increase from by Pennon reset Covid-19 Water Services contract wins Revenue (£m) © Pennon Group plc 2021 8
Slide 9: Profit before tax – in line with expectations
Pennon Profit before tax – in line with expectations South West Water Pennon Group • K7 revenue reset • Continuing Group PBT of £157.0m • Modest profit impact of Covid-19 • Total Group PBT of £200.3m • Interest rate reduction following • Total statutory Group PAT of £1.8bn hedging reset Profit befor
Slide 10: Net cash position at March 2021
Pennon Net cash position at March 2021 Robust Substantial cash cash resources collections from Viridor sale Net debt (£m) Net cash (£m) (1) (3) (2) (1) Taxes include business rates, employers national insurance, fuel excise duty, carbon reduction commitments, environmental payments and climate chang
Slide 11: Advancing critical investments, maximising efficient delivery
Pennon Advancing critical investments, maximising efficient delivery Advancing investment Efficient delivery • Bathing waters – earlier spend to improve • Bathing waters – economics of scale water quality delivering multiple schemes at the • Network enhancements – to deliver same time targeted impro
Slide 12: Agile and efficient financing – South West Water
Pennon Agile and efficient financing – South West Water Effective 90 basis point Interest charge hedging through reduction in the year K7 to manage in effective reduced by interest rate risk interest rate £13.7 million South West Water South West Water Net debt Net interest mix charge (£m) Index lin
Slide 13: ESG benefits – sustainable financing framework
Pennon ESG benefits – comprehensive sustainable financing framework c.£1billion Tangible interest Seeking to raise raised through saving achieved all new financing sustainable through the through the financing framework framework framework Diverse mix of 5% 18% 12% 13% 6% 46% sustainable finance CPI
Slide 14: Capital allocation – sustainable balance sheet, growth and capital return
Pennon Capital allocation – sustainable balance sheet, growth and capital return £1.3 Positioning • Debt rationalisation to lower ongoing interest charges the Group – Maintaining fixed rate debt billion sustainably – Lower make-whole costs optimising shareholder value • Pension deficit moved to smal
Slide 15: Use of proceeds (1) – reinvesting in UK water
Pennon Use of proceeds (1) – reinvesting in UK water £425 million acquisition of Bristol Water • Value accretive – £556 million(1) RCV representing 16% RCV growth, delivering Accretive acquisition long term sustainable returns • Revenues of £118 million(2) c.£0.4billion • Underlying profit before ta
Slide 16: Use of proceeds (2) – positioning the Group sustainably
Pennon Use of proceeds (2) – positioning the Group sustainably – recognising shareholder support Pennon Company debt repayment Pennon de-gearing & cash retained • c.£180 million of gross debt remaining, reducing to c.£150 million in July 2022 • c.£100 million cash retained at Pennon level c.£1.2bill
Slide 17: Progressive dividend policy
Pennon Progressive dividend policy Pre-share Illustrative post-share consolidation consolidation Special dividend 355.00p NA 2020/21 Interim dividend 6.77p 10.15p Final dividend 14.97p 22.46p Total dividend 21.74p 32.61p 2021/22 – Increased dividend base Total dividend +2.0p +3.0p Annual growth CPIH
Slide 18: Operational Highlights
———y Operational > Highlights;
Slide 19: Driving performance, efficiency and growth in UK Water
Pennon Driving performance, efficiency and growth in UK Water Purpose led business – characterised by our New Deal • Building a new relationship with customers, delivering on our outcomes and creating a great place to work • Focusing on the right things, in the right way – enabling us to outperform
Slide 20: A new deal for K7
Pennon A new deal for K7 © Pennon Group plc 2021 20
Slide 21: Delivering more of what matters for our communities
South Delivering more of what matters West for our communities Water • Our Neighbourhood Fund supports projects • One in 16 households focused on improving are now shareholders the wellbeing of people, • Independent the environment and WaterShare+ Advisory communities in the Panel – Quarterly South
Slide 22: Talented people doing great things for customers and each other
South Talented people doing great things West for customers and each other Water • Officially accredited a Great Place to Work • 161 apprenticeships • Proud to be Britain’s awarded to date with most admired utility 500 planned to 2025 company • 100 graduate opportunities over the next 5 years • 25 y
Slide 23: Robust start to K7 – Driving performance and efficiency through innovation
South Robust start to K7 – Driving performance West and efficiency through innovation Water Further improving water quality Minimising customer supply interruptions c.20% year on year reduction in taste, c.40% year on year reduction – smell and colour contacts two years ahead of target • Innovative
Slide 24: Resilient operations – continued supply for customers
South Resilient operations – continued supply West for customers Water Water networks tested through No water increased demand restrictions – • Regional population increased – high proportion despite high of second homes in Devon and Cornwall demand • Increased pumping to rural areas – away from con
Slide 25: Robust start to K7 – Driving performance and efficiency through innovation
South Robust start to K7 – Driving performance West and efficiency through innovation Water Reducing sewer collapses Internal sewer flooding Benefits from K7 early start enhanced sewer cleansing and monitoring programme driving improvements c.20% improvement Educational campaigns influencing from 20
Slide 26: Robust start to K7 – Driving performance and efficiency through innovation
South Robust start to K7 – Driving performance West and efficiency through innovation Water Boosting biodiversity in our regions Bathing water quality improvements • c.20,000 hectares improved in 2020/21 • Accelerated delivery of bathing water • Early achievement of our 2025 target(1) improvements –
Slide 27: Driving operational excellence – c.80% of ODIs delivered
South Driving operational excellence – West c.80% of Outcome Delivery Incentives delivered (1) Water 7 12 15 7 3 Area of Outperformance On track Marginal excellence • Supply • Water restrictions • Water • Internal interruptions pollution • Customers who find sewer • External sewer their bill afforda
Slide 28: Dedicated pollutions reduction focus – target improvements
South Dedicated pollutions reduction focus – West target improvements Water Halving monthly pollutions incidents since the implementation of new plan in September 2020 Pollution Incident Reduction Plan – closing the performance gap through innovation • Root cause analysis – • Asset specific plans –
Slide 29: RORE delivery
South RORE delivery West Water Totex efficiencies – 2.5% RORE WaterShare Ofwat • Overall totex 8% lower than Final Determination RORE(2) RORE(3) • Reflective of efficiency and advancements (e.g. bathing waters) 7.8% 6.7% • Net of increased expenditure in the areas of focus of pollutions and leakage
Slide 30: Confident in our plans for a Green Recovery
South Confident in our plans for a Green Recovery West Water c.£80m of environmental investment • c.3% growth in RCV No impact on customer bills • Improving water quality for c.160,000 customers – to 2025 advancing Knapp Mill water treatment works • Protecting water resources for c.250,000 customers
Slide 31: Sustainable customer growth – differentiated service proposition
Pennon Sustainable customer growth – Water differentiated service proposition Services Maintaining revenue growth – c.£20 million Total revenue annualised new contract wins through 2020/21 Cash collections remain robust despite challenging £162.8m environment 2019/20 £173.5m Customer centric approac
Slide 32: Bristol Water – logical, accretive acquisition
Pennon Bristol Water – logical, accretive acquisition (1) Building on proven track record of successful acquisition and assimilation of Bournemouth Water Bristol Water – UK based Water Group • Profitable – earnings enhancing Population Excellent business fit with Pennon served c.1.2m c.2.3m Properti
Slide 33: Transformative year for Pennon
Pennon Transformative year for Pennon Creating value for shareholders and stakeholders Attractive growth in UK water A purpose led business – delivering our New Deal for K7 • Pioneering a new relationship with customers • Robust operational and financial performance Bringing water to life A sustaina
Slide 34: Appendix
——y Pennon Appendix
Slide 35: Technical guidance 2021/22
Pennon Technical guidance 2021/22 Pennon Group 2020/21 Change Revenue • Increased non-household demand and other services as COVID-19 recovery continues. £644.6m • SWW household demand trending to more typical pre COVID-19 levels with seasonal demand impacts expected to be prolonged due to staycatio
Slide 36: Significant gain on Viridor disposal
Pennon Significant gain on Viridor disposal Underlying continuing operations(1) 2020/21 2019/20 Change (£m) Revenue 644.6 636.7 +1.2% Results EBITDA 334.7 365.3 (8.4%) in line with Operating profit 215.3 245.5 (12.3%) management Profit before tax 157.0 183.0 (14.2%) expectations Non-underlying items
Slide 37: Income statement
Pennon Income statement 2020/21 £m A 157.0 Continuing Group profit Underlying profit before tax A Continuing Group before tax reflects transition Non-underlying profit before tax(1) B (24.9) to K7 Tax (charge) / credit (24.8) B Continuing Group profit after tax 107.3 WaterShare+ and closure of defin
Slide 38: Corporation tax – transparent tax strategy
Pennon Corporation tax – transparent tax strategy Corporation tax 2020/21 2019/20 (£m) Current year Current tax (23.7) (28.6) Fair Tax Mark reflects (6.2) (6.7) Deferred tax our contribution to (29.9) (35.3) society through our Prior year responsible approach Current tax 0.7 0.3 to tax Deferred tax
Slide 39: Income statement – Adjusted EPS reconciliation
Pennon Income statement – Adjusted EPS reconciliation Adjusted EPS 2020/21 2019/20 (£m unless stated) Profit before tax 132.1 193.1 Adjusted for: Non-underlying items (pre-tax) 24.9 (10.1) Current tax (23.0) (28.3) Hybrid charge - (7.0) Minority interest(1) 0.2 0.1 Profit for adjusted EPS calc 134.2
Slide 40: Balance sheet – Group capital expenditure
Pennon Balance sheet – Group capital expenditure Group capital investment 2020/21 2019/20 (£m) South West Water 168.2 161.0 Clean Water 85.8 87.4 Wastewater 82.4 73.6 Other Group 0.3 0.6 Capital additions 168.5 161.6 Discontinued operations 36.7 177.6(1) Total Group capital investment 205.2 339.2 Gr
Slide 41: Balance sheet – Sustainable, diversified funding sources
Pennon Balance sheet – Sustainable, diversified funding sources Balance as at 31 March 2021 Pennon South West (£m) Group Water Finance leasing 1,439 1,439 Bank bilaterals 303 253 European Investment Bank loans 237 237 Index-linked bonds 440 397 Fixed rate (SWW 2040) bond 135 135 Private placements 3
Slide 42: Balance sheet – Pensions
Pennon Balance sheet – Pensions Pensions 31 March 31 March 2021 2020 (£m) Responsible Pension schemes’ assets 911 934 employer Pension schemes’ liabilities 902 943 contributions of £36m in Net pension scheme’s assets/(liabilities) 9 (9) H1 2020/21 Tax (2) 2 Net of tax pension scheme’s assets/(liabil
Slide 43: Balance sheet – Fair value of debt
Pennon Balance sheet – Fair value of debt Balance as at 31 March 2021 Pennon Group (£m) Book value Fair value Difference Bank bilaterals 303 315 (12) European Investment Bank loans 237 221 16 Index-linked bonds 440 550 (110) Fixed rate (SWW 2040) bond 135 203 (68) Private placements(1) 301 308 (7) T
Slide 44: South West Water – Resilient performance despite challenges
South Resilient performance despite challenges West from global pandemic Water Underlying(1) 2020/21 2019/20 Change (£m) Revenue(2) 563.0 570.3 (1.3%) K7 revenue Operating costs (222.4) (206.1) (7.9%) reset EBITDA 340.6 364.2 (6.5%) Depreciation and amortisation (118.3) (118.8) +0.4% Net demand Oper
Slide 45: South West Water – Net interest analysis
South Net interest analysis West Water South West Water 2020/21 2019/20 (£m) Underlying net interest charge: (56.5) (71.1) 2.5% South West Water Adjustment for prior period interest credit(1) - (1.2) effective interest rate Less: pensions net interest 0.4 0.2 Add: capitalised interest (0.9) (2.0) Ne
Slide 46: South West Water – Financial Outcome Delivery Incentives 2020/21
South Financial Outcome Delivery Incentives – 2020/21 West Water Area of Outperformance On Marginally Area excellence target below target of focus Bespoke • Sewer • External sewer • Odour contacts • Descriptive • EPA blockages flooding compliance score ODIs • Abstraction incentive • Wastewater • Wat
Slide 47: South West Water – Sharing outperformance with customers
South Sharing outperformance with customers West Water Continuing to share financial benefits with customers – building on the success of WaterShare+ • Only company to share embedded debt outperformance • Delivering totex savings for the benefit of customers and shareholders Giving customers a great
Slide 48: South West Water – Reconciliation of WaterShare RORE 2020/21
South Reconciliation of WaterShare RORE 2020/21 West Water Totex outperformance of c.£70.0 million(1) Totex 2020/21 £m • c.20% delivered through operating cost savings, remainder delivered through capital efficiencies Operating costs 222 Capital Expenditure 168 Financing outperformance of £33 millio
Slide 49: Pennon Water Services – Focused cost efficiencies
Pennon Focused cost efficiencies Water in a competitive market Services(1) Underlying(2) 2020/21 2019/20 Change (£m) Revenue 162.8 173.5 (6.2%) Business wins SWW wholesale elimination (81.6) (106.4) (23.3%) underpinning Revenue – external to the Group 81.2 67.1 +21.0% revenue Operating costs (161.4)
Slide 50: Full Year Results 2020/21
Full Year Results 2020/21