Pennon Group Plc · LSE:PNN
Pennon — H1 2010/11 Earnings Presentation
46 slides from Pennon's earnings presentation, Nov 25, 2010
Slide 1: Half Year Report 2010/11
HALF YEAR REPORT 2010/11 25 November 2010 1 www.pennon-group.co.uk
Slide 2: Disclaimers
Pennon Group Plc (“Pennon Group”) 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 relatio
Slide 3: H1 2010/11 Financial Highlights
Pennon Group Plc H1 2010/11 Financial Highlights • Profit before tax up 0.7% to £96.2m(1) − South West Water down 0.6% to £70.2m(1) − Viridor up 28.8% to £28.6m • Underlying earnings per share(2) up 1.4% to 21.0p(1) • Dividend − interim dividend per share up 7.9% to 7.5p • Strong liquidity and fundi
Slide 4: H1 2010/11 Operational and Business Highlights – South West Water
Pennon Group Plc H1 2010/11 Operational and Business Highlights South West Water • Strong start to the new 2010 – 2015 regulatory contract • Step change in operating efficiency delivered • Average funding cost 4.0% • Industry leader in tackling leakage - lowest ever leakage in 2009/10 • 2010 fourtee
Slide 5: H1 2010/11 Operational and Business Highlights – Viridor
Pennon Group Plc H1 2010/11 Operational and Business Highlights Viridor • Continued strong growth in PBIT plus joint ventures(1) and PBT − contributions from Greater Manchester 25 year waste PFI contract and Lakeside Energy from Waste (EfW) plant − recyclate prices recovered • c.45% of profits from
Slide 6: Pennon Group Plc
PENNON GROUP PLC
Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended 30 September Full Year 2010 2009 Change 2009/10 (Restated)(1) (Restated)(1) £m £m £m Group revenue 593.2 535.5 10.8% 1,068.9 Group operating profit 133.3 133.3 - 266.3 - SWW 100.4 100.7 (0.3)% 193.5 - Viridor 33.4 32.0 4.4% 72.8 Viri
Slide 8: Cash Flow
Pennon Group Plc For the half year ended Cash Flow 30 September Full Year 2010 2009 2009/10 (Restated) (1) (Restated)(1) £m £m £m Cash inflow from operations 194.7 183.2 381.8 Net interest paid (37.1) (23.6) (69.7) Dividends paid (17.5) (23.6) (63.8) Tax paid (20.4) (13.1) (3.8) Capital expenditure
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at 30 September As at 31 March 2010 2009 2010 £m £m £m Loans and finance leases - over one year 2,339 2,009 2,160 - under one year 78 317 229 2,417 2,326 2,389 Less: cash and cash equivalents (540) (428) (494) Net borrowings 1,877 1,898 1,895 Net gearing (1) 74% 77
Slide 10: Net Debt Analysis as at September 2010
Pennon Group Plc Net Debt Analysis as at 30 September 2010 £m Finance leasing 1,221 Bank bilaterals - RCFs/term loans 350 EIB 276 Index linked bond 2057 219 Bond 2040 132 Private placements 100 Convertible bond 114 Other 5 Total gross debt 2,417 Less: Cash/liquid investments (540) Total net debt 1,8
Slide 11: Net Interest Payable
Pennon Group Plc Net Interest Payable(1) For the half year ended Full Year 30 September 2010 2009 2009/10 £m £m £m Interest payable (44.9) (40.1) (87.4) Interest receivable on shareholder loans to 3.1 1.2 3.1 joint ventures Other interest receivable 2.6 3.4 6.1 Net interest payable (39.2) (35.5) (78
Slide 12: Efficient Financing Strategy
Pennon Group Plc Efficient Financing Strategy • Mix of fixed, floating and index-linked rate borrowings – locks in benefit of low interest rates versus OFWAT assumptions – c.24% of SWW current debt index-linked to 2041-2057 • At least 50% of SWW net debt fixed for K5 in line with Group Policy – weig
Slide 13: Fair Value of Borrowings
Pennon Group Plc Fair Value of Borrowings As at 30 September 2010 As at 31 March 2010 Principal Fair Value Diff Principal Fair Value Diff Value £m £m Value £m £m £m £m Finance Leases 1,201 1,034 167 1,205 968 237 Bank bilaterals – RCFs/term loans 315 315 - 250 250 - EIB 258 226 32 274 236 38 Index-l
Slide 14: Liquidity
Pennon Group Plc Liquidity • Cash balances of £540m at 30 September 2010 (includes c.£86m deposits with Letter of Credit providers and lessors) • Committed undrawn facilities of £250m at 30 September 2010 • Committed funding in place for South West Water − c.£200m will mature over the rest of K5 equ
Slide 15: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2010 2009 2009/10 £m £m £m UK corporation tax 22.2 23.1 43.0 Deferred tax (0.8) 3.0 1.3 Deferred tax reduction on change of (12.3) - - corporation tax rate 9.1 26.1 44.3 • Mainstream tax charge 23% (H1 2009/10 - 24%) 15
Slide 16: Pensions as at September 2010
Pennon Group Plc Pensions as at 30 September 2010 • Gross pension deficit of £115m (March 2010 - £108m) − £84m net of tax (March 2010 - £78m) September 2010 March 2010 • Pension schemes’ assets £409m £402m Pension schemes’ liabilities £524m £510m £115m = £84m net of tax £108m = £78m net of tax • Def
Slide 17: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 7.9% to 7.5p per share • Enhanced progressive dividend policy: 4% real to end of K5 period (March 2015) • Scrip dividend alternative 17
Slide 18: South West Water
SOUTH WEST WATER 18
Slide 19: South West Water Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2010 2009 2009/10 (Restated)(1) (Restated)(1) £m £m £m Revenue 230.9 226.5 444.2 Operating profit before 102.8 102.6 198.5 restructuring costs Operating profit 100.4 100.7 193.5 • H1 operating profit stable
Slide 20: South West Water Revenue
South West Water Revenue 238 0.9 (3.3) 236 4.4 234 (1.8) 232 230.9 4.2 230 £m 228 226.5 226 224 222 220 2009/10 Tariff Increase Demand New Meter option Other sales 2010/11 Connections switchers • Tariff increase of 1.4% (inc RPI) • Increased demand reflecting summer usage, H2 expected to be impacted
Slide 21: South West Water Operating Costs
South West Water Operating Costs (1) 136 1.6 (4.4) 134 2.0 132 2.9 (1.4) 130 (0.4) (0.3) 4.2 128.1 128 £m 126 123.9 124 122 120 118 IFRS Opex Sept 2009 Sept 2010 Non-recurring & Efficiency Depreciation Schemes & Asset Cost Increases Costs (IFRIC 18) Transfers New Connection Other Costs inc. Asset sa
Slide 22: Operating Cost Efficiency
South West Water Operating Cost Efficiency • K5 opex efficiency 2.8%(1) pa 2010-2015 (K5) − step change required − focus on front-end loaded delivery − targeting highest efficiency band rating • Efficiency delivery − operational ways of working − right-sourcing and innovative contracting − energy pr
Slide 23: Capital Programme
South West Water Capital Programme 2005-2010 (K4) 2010-2015 (K5) • K5 maintenance focused investment programme • Targeting 5% outperformance of Final Determination(1) • Expenditure £40.3m in H1 2010/11 (H1 2009/10 £71.5m(2)) − construction works on an Exeter WTW flood defence scheme − connected Stan
Slide 24: Shareholder Value
South West Water Shareholder Value 3,000 2,500 2,000 Growth in RCV 2010-15 - 13.9%(1) 1,500 £m 1,000 500 0 1990 1995 2000 2005 2010 2015 • Expect growth in RCV to continue to exceed growth in net debt • Gearing at H1 58% − expect to increase slightly at year end due to timing of dividend payments •
Slide 25: Operational Highlights: Delivering the Regulatory Contract - I
South West Water Operational Highlights: Delivering the Regulatory Contract - I • Ofwat leakage target met every year since inception − 11th successive year − Industry-leading leakage performance • Industry leading water quality 99.98% − well above national average • No hosepipe bans or drought orde
Slide 26: Operational Highlights: Delivering the Regulatory Contract - II
South West Water Operational Highlights: Delivering the Regulatory Contract - II • Step change in operational cost efficiency − organisational restructuring £4m costs planned in 2010/11 (H1 - £2.4m) − 94% of K5 energy purchased at lower price than in Final Determination • Bad debt charge stable as a
Slide 27: Operational Highlights: Delivering the Regulatory Contract - III
South West Water Operational Highlights: Delivering the Regulatory Contract - III Logging up/IDoK potential • Private sewers − adoption planned for October 2011 − updating studies to ascertain scale of capital investment • Water Framework Directive and Revised Bathing Water Directive − studies under
Slide 28: Viridor
MViridor
Slide 29: Viridor Strategy
Viridor Strategy • To grow and add value by − proactively developing new recycling operations to meet ambitious EU/UK targets − successfully exploiting the huge potential in waste-based renewable energy generation − capitalising on strong position in landfill waste disposal 29
Slide 30: 2010/11 H1 Financial Performance Summary
Viridor 2010/11 H1 Financial Performance Summary For the half year ended Full Year 30 September 2010 2009 Change 2009/10 £m £m % £m Turnover (1) 363.1 309.8 17 626.5 EBITDA 55.6 55.0 1 114.8 PBIT 33.4 32.0 4 72.8 PBIT plus joint ventures (2) 38.4 33.1 16 77.0 PBT 28.6 22.2 29 55.1 • PBIT plus joint
Slide 31: 2010/11 H1 Financial Highlights
Viridor 2010/11 H1 Financial Highlights • Revenue increased by £53.3m (17%) to £363.1m − acquisitions(1) accounted for £17.8m − existing business increased by £35.5m (including increase in landfill tax of £8.2m) • EBITDA increased by £0.6m to £55.6m • PBIT increased by £1.4m (4%) to £33.4m • Joint v
Slide 32: Profit Contribution by Segment
Viridor Profit Contribution by Segment(1) Half Year ended 30 September 2009 Half Year ended 30 September 2010 • Business successfully evolving • c.45% of profits from recovering value in waste(3) (1) Contribution plus joint ventures (share of PAT and interest) before intangibles and overheads (inclu
Slide 33: Operational Highlights – Joint Ventures
Viridor Operational Highlights – Joint Ventures • Joint ventures’ contribution increased to £5.0m (from £1.1m in H1 2009/10) • Lakeside (handed over in January 2010) – £1.7m share of PAT – £1.3m interest on shareholder loans • Viridor Laing Greater Manchester – £0.2m share of PAT, IFRIC 12 basis (£1
Slide 34: Operational Highlights – Landfill
Viridor Operational Highlights – Landfill • Total volumes decreased by 0.3m tonnes or 12% to 1.8m tonnes – decrease is primarily third party industrial and commercial – impact of landfill diversion/recycling and recession • Average gate fees increased by 0.4% (to £21.76 per tonne) • Consented landfi
Slide 35: Operational Highlights – Contracts & Other
Viridor Operational Highlights – Contracts & Other • Profits well ahead – Lakeside local authority volumes – increased profits from municipal PFI/PPP contracts/sub-contracts – other municipal contracts also ahead more than offsetting reduced profits from sludge contracts 35
Slide 36: Operational Highlights – Recycling
Viridor Operational Highlights – Recycling • Volumes traded increased by 172kt (25%) to a little over 0.9m tonnes with improved mix – existing business 119kt (18% increase) – acquisitions 53kt • Overall recycling revenues per tonne back up to H1 2008/09 peak levels (after the deterioration in H2 200
Slide 37: Acquisitions
Viridor Acquisitions • Viridor continues to grow its business by targeted acquisitions where positive synergies will add value for shareholders • In June Viridor acquired the Reconomy recycling businesses for a debt-free consideration of £23.8m − three MRFs in East Anglia and the South Midlands • In
Slide 38: Operational Highlights – Landfill Gas Power Generation
Viridor Operational Highlights – Landfill Gas Power Generation • Total landfill gas power generation increased by 3% to 280GWh(1) • As flagged, average price down 15% to £69 per MWh (£82 per MWh at 30 September 2009) – ROC-able electricity output (brown energy component) sold forward to March 2010 a
Slide 39: Renewable Energy Summary - I
Viridor Renewable Energy Summary - I • Landfill gas – 103MW (as at 30 September 2010) • Lakeside EfW joint venture with Grundon Waste Management now operational – 410kt pa and up to 37MW EfW plant at Colnbrook near Heathrow • Bolton EfW facility (part of GMW sub-contract) already operational (120kt
Slide 40: Renewable Energy Summary - II
Viridor Renewable Energy Summary - II • Ardley (Oxfordshire) EfW – 300kt, 24MW – Oxfordshire County Council resolved to grant planning permission; awaiting Secretary of State consideration • Other possible long-term EfW sites include – Dunbar (turned down locally; being appealed) – Avonmouth (turned
Slide 41: PPP Prospects
Viridor PPP Prospects • Preferred bidder for Oxfordshire • Provisional preferred bidder for Cheshire* • One of last two for South West Devon Waste Partnership • One of last two for South Lanarkshire • One of last three for South London Waste Partnership* • One of last three for each of Peterborough
Slide 42: Viridor Summary
Viridor Summary • Continues to deliver strong growth • Successfully exploiting opportunities in – recycling – renewable energy • c.45% of profits from recovering value in waste • Growing contribution from joint ventures • Strong strategic positioning and favourable long-term trends 42
Slide 43: Pennon Group Plc
PENNON GROUP PLC
Slide 44: Pennon Group Plc Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services; waste management; recycling and renewable energy • South West Water − strong start to the K5 contract − targeting outperformance • Viridor delivering strong growth by exploiting opportunities in recycling and renewab
Slide 45: Appendix
PENNON GROUP PLC Appendix
Slide 46: Water Industry 2009/10 Average Interest Rate
Water Industry 2009/10 Average Interest Rate Water Industry 2009/10 Average Interest Rate on Net Debt 8.00% 7.06% 7.00% 6.37% 6.00% 5.67% 5.18% 4.95% 4.98% 5.00% 4.69% 4.56% Percentage 3.93% 3.96% 4.00% 3.00% 2.00% 1.00% 0.00% Wessex SWW Dwr Cymru Northumbrian Thames Severn Trent Southern AWS Yorksh