Pennon Group Plc · LSE:PNN
Pennon — FY2019/20 Earnings Presentation
56 slides from Pennon's earnings presentation, May 2020
Slide 1: Full Year Results 2019/20
——) Full Year Results Pennon 2019/20
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this “document” recruitment, retention and development of skills; non-delivery of regulatory shall mean this presentation pack and shall be deemed to include outcomes and performance commitments; failure or increased cost of ref
Slide 3: Chris Loughlin, Group Chief Executive
Chris Loughlin Group Chief Executive
Slide 4: Pennon – Significant Strategic Delivery
Pennon – Significant Strategic Delivery Bringing resources to life COVID 19 – Resilient delivery of critical services across Group • Prioritised the health and safety of employees and customers – key worker status across Group • Adapted quickly to unprecedented conditions, vast majority of operation
Slide 5: Susan Davy, Chief Financial Officer
Susan Davy Chief Financial Officer
Slide 6: 2019/20 Financial Highlights
2019/20 Financial Highlights Solid financial performance, resilient outlook Managing COVID-19 impacts Responsible delivery of 2019/20 results for all stakeholders Strong liquidity and funding position Sale of Viridor on track Sector leading new dividend policy for 2020-25 6
Slide 7: COVID-19: Managing financial impacts
COVID-19 Managing financial impacts of COVID-19 Limited impact on 2019/20 results • No significant additional Totex impact as a result of the pandemic to date • COVID-19 expected credit losses provision – non-underlying charge £9.0m across Group – largest impact for PWS £5.0m • Cash collections rema
Slide 8: Pennon financial performance in line with expectations
Pennon Financial performance in line with expectations for 2019/20 Continuing Group Continuing Group and Viridor Continuing Group represents South West Water, Pennon Water Underlying(1) 2019/20 (£m) 2019/20 (£m) 2018/19 (£m) Change(2) Services and Pennon (the Revenue 636.7 1,389.9 1,478.2 (6.0%) com
Slide 9: South West Water
South West Water Continued outperformance – delivered highest sector returns in K6 Wet weather impacting revenue • Overall revenue reduced by 1.8% Underlying(1) 2019/20 (£m) 2018/19 (£m) Change – Lower revenue from wet weather impact Revenue(2) 570.3 581.0 (1.8%) (c.84% metered customer base) – Net
Slide 10: Pennon Water Services
Pennon Water Services(1) Focused cost efficiencies in a competitive market Sustained position in a competitive Underlying(2) 2019/20 (£m) 2018/19 (£m) market Revenue 173.5 173.7 • Financial performance driven through SWW wholesale elimination (106.4) cross selling to national customers (119.3) and w
Slide 11: Viridor: Solid performance, delivering value
Viridor Solid performance, delivering value Underlying(1) 2019/20 (£m) 2018/19 (£m) Change Revenue Revenue(2) 757.8 852.7 (11.1%) • Lower revenue with limited EBITDA impact from landfill tax and Greater EBITDA 198.1 178.9 +10.7% Manchester recycling operating contract ERFs 165.6 154.8 +7.0% ERFs Lan
Slide 12: Non-underlying items
Pennon Non-underlying items 2019/20 2018/19 Expected credit loss COVID-19 impacts Total Group (incl. Viridor) £m £m • Pennon Water Services – c.£5m COVID-19 – Expected credit loss from (9.0) - • South West Water – c.£3m customers • Viridor – c.£1m Derivatives 18.0 5.8 Derivatives Pension past servic
Slide 13: Corporation Tax
Corporation Tax A responsible approach to tax 2019/20 2018/19 Continuing Group (incl. Viridor) £m £m • First water and waste infrastructure business to Current Year secure accreditation Current Tax 28.0 32.4 • Demonstrates transparency and best practice across the Group Deferred Tax 26.7 23.2 • Tota
Slide 14: Net Debt Movements
Net Debt Movements Strong cash inflow from operations Non-cash impact of Substantial operating cash flows supporting: IFRS 16 has no debt • Continued capital investment covenant impact (137.5) (3,264.0) £m • Accelerated pension contributions • Responsible tax contributions (339.9) (3,126.5) (3,079.5
Slide 15: Balance Sheet: Robust financing position
Balance Sheet Robust financing position Group Net Debt(1) £3,264m net debt at 31 March 2020 £3,080m at 31 March 2019 Implied Pennon Company £822m South West Water £2,227m Viridor £215m £809m at 31 March 2019 £2,057m at 31 March 2019 £214m at 31 March 2019 Strong Balance sheet Group Net Gearing(2) Fl
Slide 16: Finance Costs
Finance Costs Efficient financing – mitigating risk 2019/20 net finance costs(1) 2019/20 Group interest rate 2019/20 SWW interest rate £88.7m 3.5% 3.4% £83.2m 2018/19 3.6% 2018/19 3.5% 2018/19 Interest rate hedging for K7 1.90% Hedging • Aligned to Ofwat’s PR19 1.70% activity Hedging methodology act
Slide 17: Crystallising Value from Sale of Viridor
Crystallising Value from Sale of Viridor Strategic review – delivering for shareholders • Recognises strategic value in Viridor - £4.2 billion enterprise value • Represents an EV / EBITDA multiple of 18.5x(1) • Pennon shareholder approval and European Commission merger clearance received • Now final
Slide 18: Dividend
Dividend Track record of sustained growth – sector leading policy for Continuing Group 10 year sector leading dividend policy delivered to 2020 • Full year dividend for 2019/20 of 43.77p per share, up +6.6% – Interim dividend paid 13.66p per share – Recommended final dividend of 30.11p per share • D
Slide 19: Chris Loughlin, Group Chief Executive
Chris Loughlin Group Chief Executive
Slide 20: South West Water: Delivering for customers and communities
South West Water Delivering for customers and communities in the right way COVID-19 – Resilient delivery of critical services • Delivering robust service safely – responded rapidly to emerging impacts • Supporting customers in vulnerable circumstances – building on well established support • Managin
Slide 21: COVID-19 – Resilient delivery of critical services
South West Water COVID-19 – Resilient delivery of critical services Focus on safety and supporting our employees and customers • Prioritised mental, physical and financial wellbeing • Commitment to full pay without Government support • Swift response to ensuring safety – continuing supply of PPE • T
Slide 22: COVID-19 – Supporting customers and communities
South West Water COVID-19 – Resilient delivery of critical services Supporting customers and our communities • Building on our well established support for customers • Launched COVID-19 Priority Services Register – 21,000 registered (an industry first) • Social tariff and affordability schemes provi
Slide 23: Strong delivery throughout K6: customer service
South West Water Strong delivery and performance throughout K6 regulatory period Customer service improvements over K6 • Step change in SIM performance – biggest increase across the industry • Written complaints more than halved since 2015 • Customer waiting times down to less than a minute • Unwant
Slide 24: Strong delivery throughout K6: operational performance
South West Water Strong delivery and performance throughout K6 regulatory period Excelled and transformed performance in key operational areas • Bathing water quality achieving c.99% • Leakage targets met every year • Maintained asset reliability throughout K6 • Supply interruptions more than halved
Slide 25: Strong delivery throughout K6: RORE and Totex
South West Water Strong delivery and performance throughout K6 regulatory period Consistently delivered highest RORE(1) in every year • 11.8% over K6 • Delivering outperformance in every area, every year Totex outperformance delivered across 5 years • c.£300m savings delivered – reducing future bill
Slide 26: Looking forward – delivering fast-track K7 plan
South West Water Looking forward – delivering fast-track K7 plan RORE impacted by industry wide changes in returns and approach in PR19 • Lower base returns – 3.9% (from 6.0% K6) • Gearing reduced to 60% • Totex sharing rates reduced to 50% • Nominal cost of debt reduced to 4.2% (from 5.5% K6) South
Slide 27: Looking forward – delivering fast-track K7 plan
South West Water Looking forward – delivering fast-track K7 plan Strong track record of improvements Isles of Scilly expansion completed on 1 April 2020 • First for industry – collaboration with all regulators and stakeholders • Teams fully operational and assets transferred • Delivering significant
Slide 28: Pennon Water Services: High quality business services
Pennon Water Services High quality business services delivering value High quality customer service in competitive market • Customer centric approach underpinning excellent service – Trustpilot score of 9.1/10 • 41% reduction in written complaints from prior year – top 3 position within market perfo
Slide 29: Pennon – Significant Strategic Delivery
Pennon – Significant Strategic Delivery Bringing resources to life COVID 19 – Resilient delivery of critical services across Group • Prioritised the health and safety of employees and customers – key worker status across Group • Adapted quickly to unprecedented conditions, vast majority of operation
Slide 30: Thank you
Pennon Thank you
Slide 31: Appendix
Pennon —S> Appendix Pennon
Slide 32: 2020/21 Technical Guidance – Continuing Group
Pennon 2020/21 Technical Guidance – Continuing Group Pennon Group 2019/20 Change Revenue • Impact of lower tariffs based on K7 Final Determination (c.£20m) £636.7m(1) • Reduced non household demand (c.£15m including impact from customers outside of the South West Water region) partially offset by in
Slide 33: Group EBITDA
Pennon Group EBITDA £m 10.8 563.4 6.6 546.2 7.8 2.5 0.9 (10.7) (0.7) 2018/19 SWW revenue Recycling Pennon Water Viridor contracts, SWW cost Landfill and ERFs 2019/20 Services collections & savings landfill gas other, and indirect costs 33 33
Slide 34: Adjusted EPS reconciliation
Pennon Adjusted EPS reconciliation Continuing Continuing Group and Continuing Continuing Group Group Viridor Group and Viridor 2019/20 2019/20 2018/19 2019/20 2019/20 2018/19 Adjusted EPS Calculation Statutory EPS Calculation £m £m £m £m £m £m Profit Before Tax 193.1 301.5 260.3 Statutory Profit Bef
Slide 35: Capital Investment
Capital Investment Continued investment across the Group 500 2019/20 2018/19 £m £m 400 Group Total Water 161 154 Capex Total Viridor 178 242 300 £m Total(1) 339 396 200 100 Key elements of Group expenditure in 2019/20 • Early investments for SWW for K7 – focused on ODI delivery 0 • Water quality inv
Slide 36: Group capital expenditure reconciliations
Pennon Group capital expenditure reconciliations Group Capital Investment 2019/20 2018/19 Group Capital Payments 2019/20 2018/19 (Slide 35) £m £m (Net debt movements slide 14) £m £m Viridor 160.5 210.2 Viridor 160.5 210.2 ERFs 84.5 176.2 South West Water 161.0 154.0 Recycling 48.2 8.9 Other Group 0.
Slide 37: Sustainable, diversified funding sources
Pennon Sustainable, diversified funding sources Pennon Group as at 31 March 2020 £m SWW as at 31 March 2020 £m Finance Leasing(1) 1,549 Finance Leasing(1) 1,402 Bank Bilaterals 660 Bank Bilaterals 139 European Investment Bank Loans 374 European Investment Bank Loans 264 Index-Linked Bonds 490 Index-
Slide 38: Fair value of non-current debt
Pennon Fair value of non-current debt Continuing Group and Viridor Pennon Plc Book Fair As at 31 March 2020 (£m) Difference Book Value Fair Value Difference Value Value Bank Bilaterals 702 710 (8) 520 528 (8) European Investment Bank Loans 341 324 17 103 103 - Index-Linked Bonds 440 536 (96) - - - F
Slide 39: Pensions
Pennon Pensions 31 March 31 March 2020 2019 2019 Actuarial technical provision basis £m £m • Principal scheme (82% SWW, 12% Viridor, 6% Pension schemes’ assets 934 934 Plc) deficit of c.£53m, agreed through triennial valuation – outcome broadly in line with the Pension schemes’ liabilities 943 995 p
Slide 40: Net interest analysis
Pennon Net interest analysis(1) 2019/20 2018/19 K4 K5 K6 £m £m (2005-10) (2010-15) (2015-20) 7.0% 6.5% Pennon Net interest charge: (88.7) (83.2) 6.0% 5.5% Add: capitalised interest A (11.0) (15.2) SWW 5.0% Less: notional interest payable(2) 9.0 12.5 4.5% 4.0% Water Add: interest receivable on servic
Slide 41: Significant energy generation
Pennon Significant energy generation Total Continuing Group energy generation of UK Power Forward Seasons 20.6 GWh in 2019/20 65 60 • 25 hydro turbines – 12.5 GWh 55 • 44 Solar PV installations(1) – 7.2 GWh 50 • 6 CHP – 5.8 GWh £/MWh 45 40 • 1 wind turbine – 0.3 GWh 35 S 20 W 20 30 Portfolio managem
Slide 42: South West Water Appendix
South West Water Appendix
Slide 43: South West Water Revenue
South West Water Revenue £m 21.4 4.3 581.0 (3.4) (17.5) (3.0) 570.3 (12.5) (1) 2018/19 Tariff increases WRFIM New connections Customer leak Meter optants Other revenue (incl. 2019/20 allowances customer demand) 43 (1) WRIFM - Wholesale Revenue Forecast Incentive Mechanism 43
Slide 44: South West Water EBITDA
South West Water EBITDA £m 367.1 1.8 364.2 4.7 362.4 7.6 (10.6) (6.4) 2018/19 Reduction in Cost increases incl. Efficiencies & other Prior year one- 2019/20 (pre-IFRS) IFRS 16 2019/20 revenue inflation cost savings off/atypical costs 44 44
Slide 45: 2019/20 Performance Measures
South West Water 2019/20 Performance Measures Water quality standard Bathing water quality Taste, smell and colour contacts Water & waste asset reliability Water contacts resolved 1st time Sustainable abstractions Water restrictions Leakage level Exceeded or met Supplies interrupted due to flooding
Slide 46: Sharing outperformance with customers
South West Water Sharing outperformance with customers Strong focus on sharing financial benefits with customers • Unique mechanism to share outperformance transparently • Significant benefits identified for customers to date • Reinvestment in services, future lower bills • Future sharing scheme for
Slide 47: Reconciliation of RORE to financials
South West Water Reconciliation of RORE to financials Cumulative Totex(1) outperformance of £297m Totex £m K6 2019/20 Total ODI Outperformance(2) Operating Costs 1,054 206 Capital Expenditure 824 161 • 2019/20 net reward £2.0m Totex 1,878 367 • Rewards: water restrictions, flooding incidents Totex a
Slide 48: Viridor
Viridor Pennon
Slide 49: Successful delivery of key priorities for 2019/20
Viridor Successful delivery of key priorities for 2019/20 Growth in earnings delivery from a complementary portfolio of assets • Increasing contribution from contract backed infrastructure assets • Successful transition out of Greater Manchester contract in May 2019 – limited business impact Strong
Slide 50: COVID-19 – Resilient operations
Viridor COVID-19 – Resilient operations in unprecedented times Well positioned to manage impact of COVID-19 • Strong local authority contracted position • Strong ERF performance mitigating volume impact from Commercial & Industrial customers in Collections, Landfill and Recycling • Household Waste R
Slide 51: Strong growth from ERF portfolio
Viridor Strong growth from ERF portfolio Avonmouth ERF in commissioning – on track for operational ramp up in 2020/21 • First financial contribution(1) in 2019/20 Optimisation ongoing at Glasgow, Beddington and Dunbar • Full year availability 90%(2) Ford ERF JV with Grundon Waste Management announce
Slide 52: Landfill and Landfill Gas
Viridor – Landfill and Landfill Gas Efficiently managed with demand into the long term Responsible operator • Highly engineered and controlled operations • Norlands site sold for alternative use in H1 2019/20 Improved gas collection and availability • Strong engine availability and gas collection ef
Slide 53: Viridor - Recycling
Viridor - Recycling Long term recycling fundamentals remain strong Avonmouth Plastics Recycling Facility • £65m construction progressing Continuing to progress facilities co-located at Ardley and Dunbar ERFs • UK regional events held to engage stakeholders ahead of formal planning applications Focus
Slide 54: Viridor Revenue
Viridor Revenue £m 3.1 37.0 3.3 852.7 (22.9) (28.2) 757.8 (87.2) 2018/19 ERFs Contracts Landfill Gas Recycling Landfill Greater 2019/20 Manchester contract 54
Slide 55: Viridor Adjusted EBITDA
Viridor Adjusted EBITDA £m 6.2 2.5 0.4 254.5 9.9 10.8 (0.7) 225.4 2018/19 ERFs Share of JV Landfill Gas Contract, Landfill Recycling 2019/20 EBITDA and Collections & IFRIC 12 Interest Other (inc. indirect Receivable overheads) 55
Slide 56: Full Year Results 2019/20
——) Full Year Results Pennon 2019/20