Pennon Group Plc · LSE:PNN
Pennon — H1 2016/17 Earnings Presentation
55 slides from Pennon's earnings presentation, Nov 25, 2016
Slide 1: Half Year Results 2016/17
Half Year Results 2016/17 Building Momentum, Driving Growth 25 November 2016 © Pennon Group plc 2016
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this “document” technology systems management and protection including higher risks, shall mean this presentation pack and shall be deemed to include references maintaining finance and funding to meet ongoing commitments, uncert
Slide 3: Chris Loughlin, Group Chief Executive
Chris Loughlin Group Chief Executive © Pennon Group plc 2016
Slide 4: Building Momentum, Driving Growth
Building Momentum, Driving Growth Good operational and financial performance • Consistent outperformance in Water – RORE of 11.7% • ERF portfolio on track to deliver c.£100m EBITDA 2016/17 • Recycling – self-help measures delivering improved margins Continued focus on cost efficiency • Cumulative Wa
Slide 5: Susan Davy, Chief Financial Officer: Financial Performance
Susan Davy Chief Financial Officer Financial Performance © Pennon Group plc 2016
Slide 6: Financial Highlights Half Year 2016/17
Financial Highlights(1) Half Year 2016/17 Results on track to meet management’s expectations DIVIDEND PER SHARE +6.0% to 11.09p ADJUSTED EBITDA(2) OPERATING PROFIT £277.2m £153.9m +6.0% +13.7% NET FINANCE COST EARNINGS PER SHARE(3) £28.6m 23.6p Effective rate of 3.3% +1.7% (SWW 3.2%) (1) Before non-
Slide 7: Financial Highlights: Robust results
Financial Highlights Robust results A £m Adjusted EBITDA ahead Underlying(1) H1 2016/17 H1 2015/16 CHANGE • Higher SWW revenue and opex efficiencies Revenue 685.5 689.1 (0.5%) • Strong ERF performance • Recycling self-help measures EBITDA 245.4 231.7 +5.9% Adjusted EBITDA(2) A 277.2 261.6 +6.0% B Op
Slide 8: South West Water Financial Highlights
South West Water Financial Highlights Continued outperformance of regulatory contract – 11.7% RORE A £m H1 2016/17 H1 2015/16 CHANGE Revenue Revenue A 287.9 279.3 +3.1% • Tariff increase 1.4% (1.1% RPI) • Higher demand up 1.3% Operating Costs(1) (104.9) (105.7) (0.8%) • Increase in new connections E
Slide 9: Viridor Financial Highlights
Viridor Financial Highlights Growth driven by ERFs and recycling ‘self-help’ £m H1 2016/17 H1 2015/16 CHANGE A Revenue(1) 397.9 410.1 (3.0%) Growth in ERF EBITDA • Increase vs H1 2015/16 as plants EBITDA(2) 63.3 61.0 +3.8% ramp-up • Expected to contribute c.£100m of ERFs A 50.5 43.8 +15.3% EBITDA by
Slide 10: Non-underlying Items
Non-underlying Items A Restructuring £m H1 2016/17 H1 2015/16(1) • Shared Services Review delivering additional c.£6m per annum of efficiencies Operating costs from 2019 Shared services restructuring costs A (10.7) - • Migration to a Group platform – non-cash asset de-recognition of £9.5m plus Net o
Slide 11: Taxation
Taxation £m H1 2016/17 H1 2015/16 A Current Year Current tax Current tax A 23.1 18.5 • Current year current tax effective Deferred tax 9.5 6.4 rate of 18.0% (H1 2015/16 17.3%) reflecting capital allowances 32.6 24.9 (including ERFs) Prior Year Current tax (0.3) (14.7) Deferred tax (1.6) 11.7 B (1.9)
Slide 12: Capital Investment, Investing For Growth
Capital Investment, Investing For Growth £m H1 2016/17 H1 2015/16 ERF CAPITAL INVESTMENT(3) £204m Viridor c.£180m c. £80m ERFs(1) 86 87 c.£140m £139m Recycling 2 3 Landfill Energy 5 6 £86m c.£60m Contracts and Collections 4 5 Other 7 7 Viridor Total 104 108 2014/15 2015/16 H1 2016/17 H2 2016/17 2017
Slide 13: Net Debt Movements
Net Debt Movements Strong cash inflow from operations, continuing investment (163.0) £m (2,566.1) (2,484.4) (131.6) (33.3) (6.2) (9.1) 257.5 4.0 Net Debt Cash inflow JV Loan Pension Other Net Interest Dividends Capital Net Debt 1-Apr-16 from Operations Repayments Contributions movements (1) Paid Pai
Slide 14: Balance Sheet: Strong funding position
Balance Sheet Strong funding position underpinning capital investment GROUP NET CASH / COMMITTED BORROWINGS FACILITIES(2) £2,566m £1,603m (31 March 2016 £2,484m) (31 March 2016 £1,707m) Net borrowings increased with capital investment GROUP NET GEARING(1) Gearing • Pennon – reflects continuing inves
Slide 15: Balance Sheet: Strong funding position
Balance Sheet Strong funding position underpinning capital investment GROUP NET Sustainable funding FINANCE COSTS (1) • Diversified funding mix of fixed, floating and index-linked borrowings £28.6m • Weighted average debt maturity of 21 years - matching the asset base (H1 2015/16 £29.5m) • South Wes
Slide 16: Dividend growth
Dividend growth Sector leading policy Policy of 4% + RPI leading to a +5.6% +4.9% 33.58 doubling of dividend over 10 years +6.5% +7.3% 30.31 31.80 (2010 to 2020)(1) +7.6% 28.46 +9.3% 26.52 24.65 22.55 Scrip dividend alternative available as an option to +6.0% shareholders H1 11.09 2009/10 2010/11 20
Slide 17: Chris Loughlin: Operating Performance
Chris Loughlin Group Chief Executive Operating Performance © Pennon Group plc 2016
Slide 18: Building Momentum, Driving Growth
Building Momentum, Driving Growth Good operational and financial performance • Consistent outperformance in Water – RORE of 11.7% • ERF portfolio on track to deliver c.£100m EBITDA 2016/17 • Recycling – self-help measures delivering improved margins Continued focus on cost efficiency • Cumulative Wa
Slide 19: Water: Sector leading RORE outperformance
Water: Good operational and financial performance Sector leading RORE outperformance OFWAT INDUSTRY RORE(2) COMPARISON 2015/16 Cumulative RORE (1) performance to H1 2016/17 11.7% Totex 2.3% ODIs 0.3% Financing 3.1% Base returns 6.0% (1) Cumulative annual equivalent outperformance to H1 2016/17 (2) S
Slide 20: Water: Building momentum from strong early outperformance
Water: Good operational and financial performance Building momentum from strong early outperformance K6 Totex outperformance Confidence in delivering cumulative K6 Totex outperformance • Continuing advantage from strategic alliances - New water distribution alliance framework - H50 capital delivery
Slide 21: Water: Cumulative 2016/17 performance levels
Water: Good operational and financial performance Cumulative 2016/17 performance levels Water quality standard Odour contacts Taste, smell and colour contacts Bathing water quality Operational contacts resolved 1st time Water & waste asset reliability Water restrictions Sustainable abstractions Supp
Slide 22: Water: Delivering ODI performance
Water: Delivering ODI performance Focus on delivery and improvements Water restrictions & quality • 20th consecutive year without water restrictions • Leakage target met every year since inception – driving further improvements • Maintaining top quartile water quality performance Bathing water quali
Slide 23: Viridor: ERF and landfill portfolios delivering
Viridor: Good operational and financial performance ERF and landfill portfolios delivering H1 2016/17 Focus on reliability and optimising performance ERFs • On track to deliver c. £100m of EBITDA in 2016/17 • Expected availability of c.90% in 2016/17 8 operational 3 in construction Continued progres
Slide 24: Recycling 'self-help' increasing EBITDA
Viridor: Good operational and financial performance Recycling ‘self-help’ increasing EBITDA VOLUMES 0% H1 2016/17: 0.9mT (H1 2015/16: 0.9mT) Self-help measures driving improved margin • Cost and overhead reduction REVENUES • Further opportunities to improve returns from portfolio rationalisation and
Slide 25: Continued focus and momentum on cost efficiency
Continued focus and momentum on cost efficiency SWW Totex savings Delivering cumulative totex savings £80m K6 to date SWW/BW SYNERGIES Bournemouth Water synergies on track £27m 2015-2020 (K6) SWW/VIRIDOR EFFICIENCIES 2015/16 announced cost savings being delivered £11m p.a. By 2017/18 Group shared se
Slide 26: Securing further growth opportunities: ERFs
Securing further growth opportunities Significant growth to come from ERFs Portfolio of ERFs continue to deliver significant growth in EBITDA Avonmouth South London Dunbar Glasgow (IFRIC 12) IFRIC 12 Interest Receivable Adjusted Share of JV EBITDA EBITDA EBITDA - £100m ERFs under construction ERFs o
Slide 27: Avonmouth ERF committed
Securing further growth opportunities Avonmouth ERF committed Creating shareholder value Key Facts • £252m investment • 320,000 tonnes inputs Clear market opportunity • c.33MW / c.260,000MWh electricity output • Operational - 2020/21 Early contract commitments • Somerset Waste Partnership contract b
Slide 28: Non-household Retail Joint Venture
Securing further growth opportunities Non-household Retail Joint Venture 80:20 JV with South Staffs/Cambridge Water • 4th largest Non-household retailer in the new market • Achieves scale and lower cost to serve • Builds on strong retail strategy – growing our national footprint • Operations to be m
Slide 29: Prepared for regulatory and market developments
Prepared for regulatory and market developments Engaged in Water 2020 Debt consultation • SWW leading company adopting pain/gain sharing at PR14 – consistent with our WaterShare approach • Structure close to the notional company structure and gearing levels Market Reform • Lowest exposure in the ind
Slide 30: Outlook
Outlook Building momentum, driving growth - well prepared for the future Good operational and financial performance in water and waste Continued focus on cost efficiency Securing further growth Well prepared for regulatory and market developments 30 Half Year Results 2016/17 © Pennon Group plc 2016
Slide 31: Questions
Questions © Pennon Group plc 2016
Slide 32: Appendix
Appendix © Pennon Group plc 2016
Slide 33: Pennon
Pennon © Pennon Group plc 2016
Slide 34: Adjusted group EBITDA
Pennon Adjusted group EBITDA 2.0 1.9 1.4 0.8 0.3 3.8 277.2 £m 6.7 (1.3) 7.2 261.6 (3.1) (4.1) (1) H1 2015/16 SWW Tariff ERFs Recycling Plc/Other Share of JV SWW Other SWW Net Cost Viridor Landfill Landfill Gas Contracts & H1 2016/17 Increase and EBITDA + Revenue Savings and Overheads Collections Cus
Slide 35: Diversified funding sources
Pennon Diversified funding sources £m (As at 30 September 2016) Finance Leasing(1) 1,334 Finance leasing provides Bank Bilaterals - Term Loans 403 key role in long-dated funding European Investment Bank Loans 380 Index-Linked Bond 413 Fixed Rate Bond 133 Private Placements 561 Total Gross Debt 3,224
Slide 36: Fair value of non-current debt
Pennon Fair value of non-current debt As at 30 September 2016 As at 31 March 2016 £m Book Fair Difference Book Fair Difference value value value value Finance Leases 1,307 1,188 119 1,315 1,163 152 Bank and Other Loans 378 388 (10) 403 403 - European Investment Bank 339 300 39 235 209 26 Loans Index
Slide 37: Net interest analysis
Pennon Net interest analysis(1) £m H1 2016/17 H1 2015/16 Net interest payable (28.6) (29.5) Add: capitalised interest (6.1) (4.0) Less: notional interest payable(2) 5.7 7.0 Efficient effective interest rate Add: interest receivable on service concession contracts (8.8) (8.3) Net interest payable hig
Slide 38: Pensions
Pennon Pensions Deficit has increased due to the 30 September 31 March £m 2016 2016 post-Brexit fall in bond yields, increasing the valuation of Pension schemes’ assets £893m £793m liabilities Pension schemes’ liabilities £1,009m £834m Over half of the increase in the valuation of liabilities has be
Slide 39: Pennon Energy: Significant generation
Pennon Energy Significant generation Group Energy generation • Total renewable energy generation of c.0.9TWh in the first half of 2016/17 UK forward power prices − 8 ERFs – 632GWh − Landfill gas – 263GWh − 25 Hydro turbines – 3.7GWh generation − 53 solar PV installations – 7.6GWh(1) − Anaerobic dige
Slide 40: South West Water
South West Water © Pennon Group plc 2016
Slide 41: South West Water Revenue breakdown
South West Water Revenue breakdown £m 1.6 1.1 3.7 287.9 4.0 279.3 (1.8) NHH Retail(1) H1 2015/16 Tariff increase Increased customer Other sales New connections Meter optants H1 2016/17 demand (1) Non-Household retail revenues reflect the total revenue from Non-Household customers (both wholesale and
Slide 42: South West Water Operating cost breakdown
South West Water Operating cost breakdown £m 2.3 1.4 161.6 160.7 (0.9) (3.7) H1 2015/16 Cost increases incl. Bournemouth Water full Bad debt reduction Efficiency savings and H1 2016/17 inflation period impact other cost reductions 42 Half Year Results 2016/17 © Pennon Group plc 2016
Slide 43: Delivering operational outperformance
South West Water Delivering operational outperformance Highest potential returns in the industry 2016/17 Cumulative Operational RORE £80m of Totex savings delivered TOTEX +2.3% • Totex largest element of potential operational outperformance +1.5% • Opex lower than last year – delivering £38.5m(1) op
Slide 44: Reconciliation of RORE to financials
South West Water Reconciliation of RORE to financials Combined Totex outperformance • Operating costs £105m + Capital Expenditure £80m = £185m • Totex allowance(1) assumed for H1 2016/17 = £209m • £24m Totex saving equates to £11m of RORE benefit after applying company sharing rate and tax impact (c
Slide 45: Performance & WaterShare 2015/16
South West Water Performance & WaterShare 2015/16(1) Shareholder (£m) Customer (£m) Net Totex savings(2) 25.5 21.0 1.8 1.8 ODIs Shareholder Investment in value enhancing services Other items(3) - 3.1 Total Value Benefit 27.3 25.9 Shared through: Shared through: • Dividends • Re-investment options •
Slide 46: Viridor
Viridor © Pennon Group plc 2016
Slide 47: Viridor Revenue breakdown
Viridor Revenue breakdown £m 410.1 7.8 5.4 0.7 397.9 (4.2) (9.9) (12.0) H1 2015/16 Contracts, Collections & ERFs - operational Recycling Landfill gas Landfill ERFs - IFRIC 12 H1 2016/17 Other revenue construction revenue 47 Half Year Results 2016/17 © Pennon Group plc 2016
Slide 48: Viridor Adjusted EBITDA breakdown
Viridor Adjusted EBITDA breakdown £m 1.9 3.8 0.3 6.7 95.1 90.9 (1.3) (3.1) (4.1) H1 2015/16 ERFs Recycling Share of JV EBITDA & Viridor Overheads Landfill Landfill Gas Contracts, Collections H1 2016/17 IFRIC 12 Interest & Other(1) Receivable (1) H1 2015/16 included higher asset sales 48 Half Year Re
Slide 49: Viridor Profit contribution by activity
Viridor Profit contribution by activity(1) £m H1 2016/17 H1 2015/16 CHANGE ERFs 38.3 30.1 +27.2% Landfill (7.4) (9.4) (21.3%) Landfill Gas 10.9 12.2 (10.7%) Recycling 6.6 3.5 +88.6% Contracts, collections and other 11.3 16.3 (30.7%) Joint Ventures 7.8 6.7 +16.4% Total contribution 67.5 59.4 +13.6% I
Slide 50: Viridor Joint Venture profitability
Viridor Joint Venture profitability £m H1 2016/17 H1 2015/16 CHANGE TPSCo Improved performance at Share of EBITDA 8.3 6.7 +23.9% TPSCo Share of PAT - (1.4) - Viridor Laing Greater Manchester Share of EBITDA 1.7 1.6 +6.3% Share of IFRIC 12 interest receivable 5.6 5.7 (1.8%) Share of PAT 0.1 (0.3) +13
Slide 51: UK combustible residual waste market
Securing further growth opportunities 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 capac
Slide 52: Viridor ERF accounting
Viridor ERF accounting An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA Illustrative ERF(1) IAS 16 IFRIC 12 JVs EBITDA £28m £12m -- IFRIC 12 Interest -- £16m -- Receivable IAS 16(2) IFRIC 12(2) JVs Share of JV EBITDA (50%) -- -- £14m • Oxford (Ardley) • Exeter • Lakeside
Slide 53: 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 H1 2016/17 30 Sept 2016 completion spend project spend ERF projects in operation Exeter 47 - 47 - 47 47 Oxford (A
Slide 54: Viridor ERFs (including Joint Ventures)
Viridor ERFs (including Joint Ventures) Base load Progress on ERF pipeline Capital municipal Actual/expected Site Cost (1) Gross capacity Status contract commissioning Tonnes Electricity £m (000) MWe ERF build-out nearing Lakeside(2) 150 410 38 Fully operational Merchant Commissioned completion Bolt
Slide 55: Half Year Results 2016/17
Half Year Results 2016/17 Building Momentum, Driving Growth 25 November 2016 © Pennon Group plc 2016