Slide 1: Preliminary Results 2004/05
Preliminary Results 2004/05 26 MAY 2005 www.pennon-group.co.uk
Slide 2: 2004/05 Financial Highlights
Pennon Group Plc 2004/05 Financial Highlights • Operating profit before goodwill up 9.1% to £151.5m (1) − South West Water up 2.4% to £121.7m − Viridor Waste up 31.3% to £29.8m • Profit before tax up 10.9% to £87.4m (1) • Earnings per share (before deferred tax) up 9.4% to 63.1p (1) • Recommended fi
Slide 3: 2004/05 Operational Highlights
Pennon Group Plc 2004/05 Operational Highlights • South West Water − Successful delivery of K3 regulatory contract − Strong growth in K3 RAV outstripped growth in net debt − Delivery under way of K4 regulatory contract • Viridor Waste − Continued strong growth in profits from landfill and power gene
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Slide 5: Summary Financial Results
Pennon Group Plc Summary Financial Results 2004/05 2003/04 Change £m £m Group turnover 554.2 471.3 17.6% Group operating profit before goodwill (1) 151.5 138.8 9.1% Group profit before tax (1) 87.4 78.8 10.9% ______________________ (1) Before net exceptional items in 2004/05 of £0.1m, comprising: •
Slide 6: Cash Flow
Pennon Group Plc Cash Flow 2004/05 2003/04 £m £m Cash inflow from operations 255.3 215.1 Net interest paid (59.1) (41.3) Dividends and tax paid (28.7) (47.1) Capital expenditure (174.7) (178.6) Acquisitions (28.6) (20.0) Net cash outflow (35.8) (71.9) Shares issued for cash 0.8 2.1 Own shares purcha
Slide 7: Net Debt
Pennon Group Plc Net Debt As at 31 March 2005 2004 £m £m Loans and finance leases - over one year 1,366.8 1,234.8 - under one year 54.8 107.0 1,421.6 1,341.8 Less: investments and cash (302.8) (267.7) Net debt 1,118.8 1,074.1 Net gearing 119% 119% • Significant drawdowns of bilateral loans of net £2
Slide 8: Net Interest Payable
Pennon Group Plc Net Interest Payable 2004/05 2003/04 £m £m Interest payable (74.0) (66.6) Interest receivable 13.3 9.4 Net interest payable (60.7) (57.2) Average rate of interest 5.5% 5.5% Net interest cover (1) 2.4x 2.4x • Average interest rate unchanged – benefit of swaps strategy _______________
Slide 9: Financing Initiatives
Pennon Group Plc Financing Initiatives • Funding strategy uses mix of fixed and floating rate borrowings • Locks-in benefit of low interest rates compared to Ofwat assumptions • 75% of SWW debt fixed to March 2006 • 50% of SWW debt fixed to March 2010 • Recently signed £70m facility with EIB on a su
Slide 10: Depreciation
Pennon Group Plc Depreciation 2004/05 2003/04 £m £m South West Water - infrastructure assets 14.9 14.2 - other assets 51.2 48.6 66.1 62.8 Viridor 26.2 20.5 Other 0.1 (0.1) 92.4 83.2
Slide 11: Taxation
Pennon Group Plc Taxation 2004/05 2003/04 £m £m UK corporation tax 7.9 7.5 Deferred tax 10.8 3.3 18.7 10.8 • Deferred tax charge very sensitive to long term interest rates used for discounting
Slide 12: Taxation
Pennon Group Plc Taxation 2004/05 2003/04 £m £m Corporation tax Current year 13.1 12.8 Prior year (5.2) (5.3) 7.9 7.5 Deferred tax (undiscounted) 18.4 16.2 PBT (post exceptionals) 87.5 72.3 Effective rate (pre-exceptionals) Corporation tax 9.8% 9.5% Corporation tax & deferred tax 31.7% 30.1% • Items
Slide 13: Pensions
Pennon Group Plc Pensions • Indicative net deficit of c £56m at 31 March 2005, similar to 31 March 2004 • Represents c 4.5% market capitalisation • Triennial actuarial valuation April 2004 − added c £5.5m costs pa (SSAP 24)
Slide 14: IFRS
Pennon Group Plc IFRS • Ongoing preparation for adoption of IFRS in 2005/06 • Significant changes in: − deferred tax − pensions − fixed asset accounting (“renewals”) − goodwill • Overall reduction to net assets and potential increase in reported earnings volatility • Presentation 28 June at 6pm, Lon
Slide 15: Dividends
Pennon Group Plc Dividends • Progressive dividend policy − real growth projected up to 2010 • Interim dividend per share increased by 4.5% to 13.8p • Recommended final dividend up 5.0% to 29.2p • Full year dividend up 4.9% to 43.0p • Scrip dividend alternative • Dividend cover maintained at 1.4x (be
Slide 16: South West Water
SOUTH WEST WATER S:< wai Group Plc
Slide 17: South West Water Financial Performance Summary
South West Water Financial Performance Summary 2004/05 2003/04 Change £m £m Turnover 309.8 291.8 6.2% Operating profit (1) 121.7 118.9 2.4% (1) Before exceptional restructuring charge of £3.4m in 2004/05
Slide 18: South West Water Turnover
South West Water Turnover • Increase of £18.0m (6.2%) in year • Reflects impact of £m - tariff increase 21.2 - meter option switchers (6.3) - new connections 2.0 - measured demand (high summer 2003) (2.4) - other – commercial and service sales 3.5 18.0 • Number of meter switchers 25,500 • Number of
Slide 19: South West Water Operating Costs
South West Water Operating Costs 2004/05 2003/04 Change £m £m Total operating costs (1) 188.1 172.9 8.8% Increase in total operating costs due to: £m - inflation 4.4 - new works (including depreciation) 5.7 - other (pensions, cost of sales, bad debts) 9.2 - efficiency savings (4.1) 15.2 (1) Before e
Slide 20: Analysis of Efficiency Savings
South West Water Analysis of Efficiency Savings £m • Manpower/overheads 1.0 • Supply chain/contracted services 2.0 • Energy and rates management 1.0 • Other 0.1 4.1 • Improved efficiency banding • Annual savings of £22.5m by end of K3 period
Slide 21: Operational Performance Summary
South West Water Operational Performance Summary • Highest ever drinking water and river water quality • Remaining UWWTD schemes underway following completion of original “Clean Sweep” • Leakage management continues on target • Continued progress on service standards dependent on capital investment
Slide 22: Capital Programme
South West Water Capital Programme • Capital programme since privatisation totals just over £2bn (over 1,000 schemes): delivered to target and beating budget • Capital expenditure 2004/05 – £141.9m (2003/04 - £139.3m) − £95m Torbay scheme commissioned − almost 570km water mains replaced/refurbished
Slide 23: Efficiency Challenge – Operating Costs
South West Water Efficiency Challenge – Operating Costs • Company wide initiatives − Customer Focused Asset Management (CFAM) − Integrated Customer and Operational Management (Service +) • Target efficiency savings: £13m pa off base operating costs by 2010 • Savings breakdown: Manpower Asset plannin
Slide 24: Efficiency Challenge - Capital
South West Water Efficiency Challenge - Capital Capital Programme: £762m at 2002/03 prices Organisational focus on asset management Manpower Process re-engineering Further rationalisation/development Product innovation Benchmarking Value engineering Overhead cost minimisation Stand
Slide 25: Regulatory Asset Value
South West Water Regulatory Asset Value Year end 2005 2006 2007 2008 2009 2010 £m £m £m £m £m £m At 2002/03 prices(1) 1847 1929 1994 2042 2095 2136 Actual/Predicted outturn prices(2) 1956 2104 2234 2349 2476 2594 • Strong growth in RAV 2006-10 reaching £2.6bn by March 2010 – highest percentage incre
Slide 26: Viridor Waste
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Slide 27: Continuing to Deliver Strong Financial Performance
Viridor Waste Continuing to Deliver Strong Financial Performance Year Ended 31 March 2001 2002 2003 2004 2005 CAGR % £m £m £m £m £m 2001-05 Turnover (1) 106.1 125.3 152.3 183.1 248.3 23.7 EBITDA 28.8 32.1 38.2 43.2 56.0 18.1 Operating profit - before goodwill 13.1 15.2 19.1 22.7 29.8 22.8 - after go
Slide 28: Viridor 2004/05 Financial Highlights
Viridor 2004/05 Financial Highlights • Turnover up 36% or £65.2m compared to 2003/04 • EBITDA up 30% to £56m • Operating profit before goodwill up 31% to £29.8m − up 11% excluding this year’s and full effect of last year’s acquisitions and additional pensions charge − within underlying businesses la
Slide 29: Profit Contribution by Segment
Viridor Waste Profit Contribution by Segment (1) Year Ended 31 March 2005 Year Ended 31 March 2004 Recycling 2% Contracts & Recycling Other (2 ) Contracts 2% (2 ) 11% Other 2% Collection Collection 10% 9% Landfill Power 54% Generation 25% Landfill Power 61% Generation 24% ____________________ (1) Co
Slide 30: Operational and Business Highlights - Landfill
Viridor Operational and Business Highlights - Landfill • Landfill volumes increased by 10% to 4.0m tonnes compared to 2003/04 − 2% increase excluding acquisitions − aided by particularly high inputs preceding the ending of hazardous waste disposal to non-hazardous landfills in July 2004 • Gate fees
Slide 31: Operational and Business Highlights – Power Generation
Viridor Waste Operational and Business Highlights – Power Generation • Capacity increased by a further 7MW to 52MW − compared to 28 MW March 2002 − additional 3MW under development • 56% of output under ROCs and 44% under NFFO 3 and 4 − average price £54/MWH • Government target of 10% of electricity
Slide 32: Operational and Business Highlights - Developments
Viridor Waste Operational and Business Highlights - Developments • 25 year £450m PFI contract with West Sussex County Council commenced April 2004 − profit contribution of £0.9m (slightly ahead of expectations) • Thames Waste Management Limited acquired April 2004 for £30.8m − already earnings enhan
Slide 33: Municipal Landfill Diversion Targets - I
Viridor Waste Municipal Landfill Diversion Targets - I • EU Landfill Directive set targets for reduction of biodegradable municipal waste to landfill − by 2020 UK must achieve 65% reduction from 1995 levels • Substantial ongoing landfill market in UK − municipal only around one third of landfill tot
Slide 34: Municipal Landfill Diversion Targets - II
Viridor Waste Municipal Landfill Diversion Targets - II • UK Government has allocated landfill allowances to each disposal authority for every year up to 2020 − penalty if exceed allowance − allowances can be traded • UK as whole will require substantial investment in municipal waste management infr
Slide 35: New Technologies
Viridor Waste New Technologies • Continue to explore new technologies in partnership with our customers - potential for landfill diversion • £2.3m in-vessel composting facility opened at Beddington landfill near Croydon in partnership with Sutton, Croydon and Merton Councils − substantial grant assi
Slide 36: Delivering Value in the Waste Sector
Viridor Waste Delivering Value in the Waste Sector • A leading waste management company in the UK • Strategy − capitalise on leading position in landfill disposal − exploit opportunities in renewable energy generation − pursue profitable opportunities arising from Government’s developing waste strat
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Slide 38: Summary
Pennon Group Plc Summary • Strategy clearly focused on water, sewerage and waste management • South West Water − successful delivery of K3 regulatory contract − strong growth in K3 RAV outstripped growth in net debt − delivery under way of K4 regulatory contract − strong growth in K4 RAV reaching £2
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