Pennon Group Plc · LSE:PNN
Pennon — H1 2007/08 Earnings Presentation
41 slides from Pennon's earnings presentation, Nov 29, 2007
Slide 1: 2007/08 Half Yearly Report
2007/08 Half Yearly Report 29 November 2007 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: 2007/08 H1 Financial Highlights
Pennon Group Plc 2007/08 H1 Financial Highlights • Operating profit(1) up 17.0% to £123.6m − SWW up 15.2% to £97.0m − Viridor(1) up 24.3% to £27.1m • Profit before tax up 15.8% to £82.3m • Earnings per share (before deferred tax) up 8.5% to 17.8p • Interim dividend per share up 6.8% to 6.25p • £55m
Slide 4: 2007/08 H1 Operational and Business Highlights - South West Water
Pennon Group Plc 2007/08 H1 Operational and Business Highlights South West Water: • On target to deliver 2005 – 2010 Regulatory Contract • Profit increase reflecting strong growth expected in Regulatory Capital Value 2005 – 2010 • Eleventh consecutive year without hosepipe bans and drought orders •
Slide 5: 2007/08 H1 Operational and Business Highlights - Viridor
Pennon Group Plc 2007/08 H1 Operational and Business Highlights Viridor: • Particularly strong growth in operating profits, especially from landfill and recycling • Viridor / Laing consortium preferred bidder for Greater Manchester Waste PFI contract − contract negotiation and planning applications
Slide 6: Ly —_ #£#£+«» ¥¢ es a= °
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Slide 7: Summary Financial Results
Pennon Group Plc Summary Financial Results For the half year ended Full Year 30 September 2007 2006 Change 2006/07 £m £m £m Group revenue 435.9 373.6 16.7% 748.3 Group operating profit (1) 123.6 105.6 17.0% 201.8 Group profit before tax 82.3 71.1 15.8% 131.1 Earnings per share (2) 17.8p 16.4p 8.5% 3
Slide 8: Cash Flow
Pennon Group Plc Cash Flow For the half year ended Full Year 30 September 2007 2006 2006/07 £m £m £m Cash inflow from operations (before pension prepayment) 165.1 145.2 313.7 Net interest paid (31.4) (20.1) (51.4) Dividends and tax paid (23.9) (19.5) (73.0) Capital expenditure (111.7) (120.3) (246.4
Slide 9: Net Borrowings
Pennon Group Plc Net Borrowings As at As at 30 September 31 March 2007 2006 2007 £m £m £m Loans and finance leases - over one year 1,868.1 1,513.6 1,599.4 - under one year 86.2 71.1 85.8 1,954.3 1,584.7 1,685.2 Less: cash and cash equivalents (340.3) (90.4) (127.9) Net borrowings 1,614.0 1,494.3 1,5
Slide 10: Net Debt Analysis as at September 2007
Pennon Group Plc Net Debt Analysis as at 30 September 2007 £m Finance leasing 1,097 Bank bilaterals - RCFs/term loans 217 EIB 218 Index linked bond 2057 209 Private placements 200 Other 13 Total gross debt 1,954 Less: Cash/liquid investments (340) Total net debt 1,614 • Key role of finance leasing 1
Slide 11: Net Interest Payable
Pennon Group Plc Net Interest Payable For the half year ended Full Year 30 September 2007 2006 2006/07 £m £m £m Interest payable (59.7) (48.4) (98.3) Interest receivable 19.2 14.8 29.1 Net interest payable (40.5) (33.6) (69.2) Average rate of interest 5.1% 4.6% 4.6% Net interest cover 3.0x 3.1x 2.9x
Slide 12: Efficient Financing Strategy
Pennon Group Plc Efficient Financing Strategy • Funding strategy uses mix of fixed, floating and index linked rate borrowings: − Locks in benefit of low interest rates compared to Ofwat assumptions − Circa 60% of SWW projected net debt fixed to March 2010 − Circa 25% of SWW current debt index linked
Slide 13: Fair Value of Non-Current Borrowing
Pennon Group Plc Fair Value of Non-Current Borrowing as at 30 September 2007 Book Value Fair Value £m £m Finance leasing 1,045 955 Bank bilaterals – RCFs/term loans 210 210 EIB 204 199 Index linked bond 2057 209 192 Private placements 200 198 Total gross debt 1,868 1,754 • Debt ‘fair value’ benefit
Slide 14: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2007 2006 2006/07 £m £m £m UK corporation tax 19.7 13.0 23.9 Deferred tax (17.9)(1) 4.6 13.3 1.8 17.6 37.2 • Mainstream tax charge 24% (H1 2006 - 18%) (1) Includes a non-recurring credit of £22.4m reflecting the reduction in th
Slide 15: Pensions as at September 2007
Pennon Group Plc Pensions as at 30 September 2007 • Pension deficit of £37m (March 2007 - £41m) • Pension fund assets £346m Pension fund liabilities £383m £(37)m = £(27)m net of tax • Net deficit represents just over 1% of market capitalisation • Triennial Actuarial valuation 2007 progressing 15
Slide 16: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 6.8% to 6.25p per share • Progressive dividend policy: 3% real until 2009/10 • Dividend cover (before deferred tax): 2.9x (H1 2006/07: 2.8x) • DRIP (Dividend Re-Investment Plan) alternative 16
Slide 17: South West Water
SOUTH WEST WATER 17 J —— Pennon Group Plc
Slide 18: South West Water Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full Year 30 September 2007 2006 2006/07 £m £m £m Revenue 215.0 195.9 381.5 Operating profit 97.0 84.2 156.8 • Revenue up by 9.7% • Operating profit up by 15.2% 18
Slide 19: South West Water Revenue
South West Water Revenue Increase of £19.1m (9.7%) in half year. Reflects impact of: £m - tariff increase 26.8 - meter option switchers (5.4) - new connections 1.7 - demand (4.6) - other 0.6 19.1 • Number of meter switchers 19,400 (up 26%) • Number of new customers 4,200 • Domestic customers now met
Slide 20: South West Water Operating Costs
South West Water Operating Costs For the half year ended 30 September 2007 2006 £m £m Total operating costs 118.0 111.7 Less depreciation charges (41.7) (37.8) Operating costs before depreciation charges 76.3 73.9 Cost movements between the 2 years: - inflation 1.7 - new capital schemes 0.7 - restru
Slide 21: Analysis of Efficiency Savings - 2007/08 H1
South West Water Analysis of Efficiency Savings –2007/08 H1 14.0 12.0 10.0 8.0 Cumulative Actual £m 6.0 4.0 Cumulative Original Target profile 2.0 0.0 2005/06 H1 2005/06 H2 2006/07 H1 2006/07 H2 2007/08 H1 2007/08 H2 2008/09 H1 2008/09 H2 2009/10 H1 2009/10 H2 • K4: £8.9m efficiency savings to date
Slide 22: Capital Programme
South West Water Capital Programme • Capital expenditure half year to 30 September 2007 – £76.6m (H1 2006 - £83.7m) − 261km water mains replaced/refurbished (H1 2006 - 330km) − major upgrade to WTW serving 160,000 homes in Torbay − progress on remaining Clean Sweep schemes • K4 capital programme on
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) 1,847 1,929 1,994 2,042 2,095 2,136 Actual/expected outturn 1,956 2,091 2,265 2,386 2,516 2,637 prices(2) • 35% growth in RCV 2005-10 – highest projected percentage increase of any
Slide 24: Operational and Business Highlights
South West Water Operational and Business Highlights • No hosepipe bans or drought orders -11th consecutive year • Continued industry leadership in managing leakage - OFWAT target met for 8th consecutive year • Drinking water quality – high standards maintained • Waste water quality – 2006/07 all ti
Slide 25: PR09 - Strategic Direction Statement
South West Water PR09 - Strategic Direction Statement • Customer consultation document launched on 8 November • Delivering further real benefits to customers and the environment • Continued innovation, including ‘WaterCare’, debt management and tariffs • Service delivery efficiencies from ‘Puros’ an
Slide 26: PR09 - Likely Investment Drivers
South West Water PR09 – Likely Investment Drivers • Quality − revised bathing water directive − water framework directive − groundwater directive • Adoption of private sewers • Supply/demand focus • Climate change impacts • Enhanced focus on sustainability and energy efficiency • Capital maintenance
Slide 27: PR09 - Timetable
South West Water PR09 – Timetable • Strategic Direction Statement December 2007 • Final OFWAT methodology March 2008 • Draft Business Plan August 2008 • Final Business Plan April 2009 • Draft Determination July 2009 • Final Determination November 2009 27
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Slide 29: Viridor Financial Performance Summary
Viridor Financial Performance Summary For the half year ended Full Year 30 September 2007 2006 Change 2006/07 £m £m £m Turnover (1) 221.3 178.2 24.2% 367.7 EBITDA 49.1 39.8 23.4% 82.8 PBITA 27.1 21.8 24.3% 46.8 • Particularly strong growth in turnover, EBITDA and PBITA (1) Including landfill tax 29
Slide 30: Viridor Financial Highlights
Viridor Financial Highlights • At beginning of year projected moderate growth in operating profit before intangibles − after strong growth in each of previous six years − whilst noting that power generation prices would be below high level of preceding year • H1 revenue up 24.2% or £43.1m (£25.9m ex
Slide 31: Profit Contribution by Segment
Viridor Profit Contribution by Segment (1) Half Year Ended 30 September 2007 Half Year Ended 30 September 2006 C ontracts & Other (2) C ontracts & 11% Other (2) 13% Recycling 8% Recycling 5% C ollection C ollection 9% 10% Landfill Landfill 52% 51% Power Power Generation Generation 22% 19% (1) Contri
Slide 32: Operational and Business Highlights - Landfill
Viridor Operational and Business Highlights – Landfill • Total volumes increased by 21% to 2.7m tonnes − excluding acquisitions increased by 16% reflecting non-recurring items and underlying trade in the first half • Average gate fees unchanged at £19 per tonne reflecting mix and additional volumes
Slide 33: Operational and Business Highlights - Power Generation
Viridor Operational and Business Highlights – Power Generation • Total landfill gas generation increased by 11% to 230GWH • Average price declined by £6 to £56 per MWH − 2006/07 prices reflected strong energy prices − 2007/08 brown energy price lower as flagged at beginning of year • Total capacity(
Slide 34: Wyvern Waste and Skipaway Acquisitions
Viridor Wyvern Waste and Skipaway Acquisitions • Both acquisitions fully integrated and earnings enhancing post amortisation of intangibles in the half year – ahead of schedule • Planning permission achieved for a MBT and AD facility at Walpole (Somerset) • Skipaway transfer station volumes diverted
Slide 35: Greater Manchester Waste PFI Contract
Viridor Greater Manchester Waste PFI Contract • Viridor/Laing consortium announced as preferred bidder in January 2007 − 1.4m tonnes per annum − contract negotiations ongoing • Alternative power plant solution selected − solid recovered fuel produced, to go to proposed combined heat and power plant
Slide 36: Lakeside Energy from Waste Plant
Viridor Lakeside Energy from Waste Plant • Joint venture with Grundon Waste Management − 400kt and up to 37MW energy from waste (‘EfW’) plant at Colnbrook near Heathrow − £160m capex, 86% non-recourse debt with balance split equally between equity providers − due to open for commissioning during sec
Slide 37: Other Significant EfW Projects
Viridor Other Significant EfW Projects • Planning application achieved for 60kt EfW facility in Exeter − PPC permit application submitted • Other possible long-term EfW sites − Trident Park, Cardiff (site acquired) − Dunbar (existing Viridor site; initial consultation commenced) 37
Slide 38: J ——=
Pennon Group Plc 38 J ——= Pennon Group Plc
Slide 39: Summary
Pennon Group Plc Summary • Strategy clearly focused on water, sewerage and waste management • South West Water − successfully delivering K4 regulatory contract − strong growth in K4 RCV due to reach £2.6bn by March 2010 − PR09 preparation is progressing well • Viridor delivering strong growth by − c
Slide 40: Appendix
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Slide 41: Average Interest Rate
Appendix Water Industry 2006/07 Average Interest Rate (Pre Exceptional Items) 8% 7% 6% Average Interest Rate 5% 4% 3% 2% 1% 0% United Utilities SWW Severn Trent Yorkshire Wessex Northumbrian Thames AWS Southern Dwr Cymru Source: Annual Reports and Regulated accounts Basis: Net Interest Payable/Avera