Slide 1: Full Year Results 2015/16
FULL YEAR RESULTS 2015/16 DELIVERING FOR CUSTOMERS AND SHAREHOLDERS 25 MAY 2016
Slide 2: Disclaimer
DISCLAIMER For the purposes of the following disclaimers, references to this “document” shall mean meet ongoing commitments, uncertainty arising from open tax computations where this presentation pack and shall be deemed to include references to the related liabilities remain to be agreed and diffic
Slide 3: Agenda
AGENDA OVERVIEW FINANCIAL PERFORMANCE OPERATIONAL PERFORMANCE OUTLOOK Q&A 3
Slide 4: Chris Loughlin, Chief Executive Officer
CHRIS LOUGHLIN CHIEF EXECUTIVE OFFICER
Slide 5: Delivering Our Strategy
DELIVERING OUR STRATEGY DELIVERING FOR CUSTOMERS AND SHAREHOLDERS STRONG DRIVING VALUE PERFORMANCE GROWING AND THROUGH MAINTAINING OUR ACROSS WATER AND EFFICIENCY WASTE ASSET BASE OPERATIONAL SECTOR-LEADING PERFORMANCE WELL-PREPARED DIVIDEND POLICY - DELIVERING FOR THE FUTURE +4% P.A. GROWTH FINANCI
Slide 6: Susan Davy, Chief Financial Officer
SUSAN DAVY CHIEF FINANCIAL OFFICER
Slide 7: Financial Highlights 2015/16
FINANCIAL HIGHLIGHTS 2015/16 STRONG RESULTS VIRIDOR GROWTH AND BOURNEMOUTH WATER RESULTS IN-LINE WITH CONTRIBUTION MANAGEMENT MITIGATING EXPECTATIONS SOUTH WEST WATER REVENUE RESET SIGNIFICANT CAPITAL STRONG FUNDING INVESTMENT POSITION CONTINUES 7
Slide 8: Financial Highlights 2015/16
FINANCIAL HIGHLIGHTS 2015/16 STRONG RESULTS £M A Underlying(1) 2015/16 2014/15 CHANGE PBT IN-LINE WITH 2014/15 • Net £13.5m(3) impact of revenue reset Group Revenue 1,352.3 1,357.2 (0.4%) mitigated by ERF profit growth Group EBITDA 448.4 411.0 +9.1% • Contribution from Bournemouth Water Group Adjust
Slide 9: Viridor Financial Highlights 2015/16
VIRIDOR FINANCIAL HIGHLIGHTS 2015/16 GROWTH DRIVEN BY ERFs £M 2015/16 2014/15 CHANGE A GROWTH IN ERF EBITDA Revenue(1) 806.2 835.9 (3.6%) • Increasing as plants ramp-up, 8 plants EBITDA(2) 116.5 80.4 +44.9% now on-stream ERFs A 89.7 33.7 +166.2% • Expected to contribute c.£100m of EBITDA in 2016/17
Slide 10: Water Business Financial Highlights 2015/16
WATER BUSINESS FINANCIAL HIGHLIGHTS 2015/16 OUTPERFORMING THE REGULATORY CONTRACT – 11.7% RORE £M 2015/16 2014/15 CHANGE A Revenue A 547.0 522.2 +4.7% REVENUE South West Water 505.1 522.2 (3.3%) • SWW revenue reset impact Bournemouth Water 41.9 N/A N/A • Bournemouth Water contribution EBITDA(1) B 33
Slide 11: Taxation
TAXATION CORPORATION TAX A £M 2015/16 2014/15 CHANGE IN TAX RATE Current Year • Current year current tax lower y-o-y reflecting reduction in headline Current tax A B 34.3 44.7 corporation tax rate Deferred tax B 23.3 8.5 • Deferred tax credit 57.6 53.2 B Prior Year(1) C CAPITAL ALLOWANCES Current ta
Slide 12: Non-Underlying Items
NON-UNDERLYING ITEMS 2015/16 POSITION £M 2015/16 2014/15 A Operating (costs)/ credits RESTRUCTURING • Initiatives across the Group, will • Restructuring costs A (10.2) - have enduring benefits in • Pension scheme benefit changes - 14.9 excess of £11m p.a. from 2017/18 • Environmental and landfill re
Slide 13: Group Capital Investment
GROUP CAPITAL INVESTMENT INVESTING FOR GROWTH £M 2015/16 2014/15 ERF CAPITAL INVESTMENT(4)(5) Viridor REMAINING ERF ERFs 139 204 CAPITAL INVESTMENT Recycling 7 22 Landfill Energy 12 16 c.£295M Contracts and Collections 11 5 £204m c.£185m Other(1) 14 15 Viridor Total 183 262 £139m South West Water c.
Slide 14: Cash Flow Statement
CASH FLOW STATEMENT STRONG CASH INFLOW FROM OPERATIONS, CONTINUING INVESTMENT £M 102 34 418 (34) (45) (55) (64) (91) (143) 575 406 (291) Cash Cash Inflow Equity JV loan Pension Tax Net Net Interest Acquisitions Dividends Capital Cash (1) (3) (1) Balance from Placing & Repayments Contributions Paid M
Slide 15: Balance Sheet
BALANCE SHEET STRONG FUNDING POSITION UNDERPINNING CAPITAL INVESTMENT GROUP NET CASH/COMMITTED BORROWINGS FACILITIES(2) £2,484m £1,707m (31 March 2015 £2,197m) GROUP NET NET BORROWINGS INCREASED WITH CAPITAL INVESTMENT GEARING(1) • Bournemouth Water debt assumed on acquisition 62.5% GEARING REMAINS
Slide 16: Balance Sheet
BALANCE SHEET STRONG FUNDING POSITION UNDERPINNING CAPITAL INVESTMENT SUSTAINABLE FUNDING GROUP NET FINANCE COSTS(1) • Diversified funding mix of fixed, floating and index linked borrowings £54.1m • Weighted average debt maturity of 22 years - matching the asset base (2014/15 £40.8m) • Water busines
Slide 17: Dividend Policy
DIVIDEND POLICY SECTOR-LEADING, PROGRESSIVE DIVIDENDS +4% +5.6% annual increase +4.9% +6.5% 33.58 above RPI policy to 31.80 +7.3% 30.31 2020 +7.6% 28.46 26.52 • Recommended 24.65 final dividend up 6.0% to 23.12p • Full year dividend up 5.6% to 33.58p, reflecting RPI of 1.6% at March 2016 Scrip divid
Slide 18: Chris Loughlin, Group Chief Executive Officer
CHRIS LOUGHLIN GROUP CHIEF EXECUTIVE OFFICER
Slide 19: Strong Performance Across Water and Waste
STRONG PERFORMANCE ACROSS WATER AND WASTE WATER - DELIVERING NET ODI REWARD FOR 2015/16 NO WATER STRONG PROGRESS ON ODIs, K6 DELIVERY ON TRACK RESTRICTIONS • Asset reliability - stable serviceability across all areas SWW 19 YEARS • Leakage targets met every year BW SINCE PRIVATISATION • No water res
Slide 20: Strong Performance Across Water and Waste: Viridor ERFs
STRONG PERFORMANCE ACROSS WATER AND WASTE VIRIDOR - ERFS DELIVERING GROWTH SECURED REVENUE STREAMS FOR ERFs ERF PORTFOLIO • Ramp-up progressing well at the 5 ERFs brought on-stream in 2014/15 • Peterborough added H2 2015/16 8 operational • c.80% long-term contracted volumes (and associated price) ac
Slide 21: Viridor Areas of Focus - Recycling
STRONG PERFORMANCE ACROSS WATER AND WASTE VIRIDOR AREAS OF FOCUS - RECYCLING VOLUMES RECYCLING ‘SELF-HELP’ TO DRIVE MARGIN IMPROVEMENT +7.3% • Short term outlook for recyclate prices relatively stable 1.8MT (2014/15 1.7MT) • Not relying on a near term recyclate price recovery REVENUES • Further ‘sel
Slide 22: Water Areas of Focus – SIM and Wastewater
STRONG PERFORMANCE ACROSS WATER AND WASTE WATER AREAS OF FOCUS – SIM AND WASTEWATER SIM IMPROVEMENTS • Sharing best practice between South West Water and Bournemouth Water • Bournemouth Water at SIM performance frontier • Year-on-year improvements in South West Water SIM WASTEWATER IMPROVEMENTS • Co
Slide 23: Driving Value Through Efficiency
DRIVING VALUE THROUGH EFFICIENCY COST REDUCTION PLANS – EXISTING AND NEW STRONG TOTEX OUTPERFORMANCE IN 2015/16 TOTEX OUTPERFORMANCE(1) • Delivering Totex outperformance – front-end loaded £56m - Opex lower than last year - H5O alliance continuing to deliver capital efficiency(2) 2015/16 INTEGRATION
Slide 24: Growing and Maintaining Our Asset Base
GROWING AND MAINTAINING OUR ASSET BASE OPTIMISING THE RISK/REWARD PROFILE GROWING ASSET BASE £BN CAPITAL INVESTMENT 6 • Water RCV growth of 21% over K6 5 4 • ERFs - all 11 plants on-stream by H1 2018/19 3 - Glasgow – commissioning expected to commence in H1 2 2016/17 1 - Dunbar and Beddington (South
Slide 25: Operational Performance Delivering Financial Benefits
OPERATIONAL PERFORMANCE DELIVERING FINANCIAL BENEFITS 11.7% RETURN ON REGULATED EQUITY 2015/16 RORE(1) Financing Outperformance DRIVING EARNINGS GROWTH FROM ERFs AT VIRIDOR 3.0% Totex Outperformance • On track for c.£100m EBITDA from ERFs in 2016/17 2.5% 11.7% 0.2% ODI Outperformance RORE AND ERF EB
Slide 26: Well-Prepared for the Future: Water 2020 – Initial Reaction
WELL-PREPARED FOR THE FUTURE WATER 2020 – INITIAL REACTION CUSTOMER ENGAGEMENT RPI/CPI SLUDGE WATER RESOURCES DIRECT PROCUREMENT FOR CUSTOMERS LICENCE CHANGES 26
Slide 27: Well-Prepared for the Future: Outlook
WELL-PREPARED FOR THE FUTURE OUTLOOK STRONG WATER BUSINESS • Outperforming and well-prepared to take opportunities in a changing regulatory environment ERFs DELIVERING GROWTH • On track to contribute c.£100m to EBITDA in 2016/17, despite removal of LECs and lower energy prices • Avonmouth ERF option
Slide 28: Delivering Our Strategy
DELIVERING OUR STRATEGY DELIVERING FOR CUSTOMERS AND SHAREHOLDERS STRONG DRIVING VALUE PERFORMANCE GROWING AND THROUGH MAINTAINING OUR ACROSS WATER AND EFFICIENCY WASTE ASSET BASE OPERATIONAL SECTOR-LEADING PERFORMANCE WELL-PREPARED DIVIDEND POLICY - DELIVERING FOR THE FUTURE +4% P.A. GROWTH FINANCI
Slide 29: Questions
PENNON GROUP PLC QUESTIONS
Slide 30: Appendix
PENNON GROUP PLC APPENDIX
Slide 31: Adjusted Group EBITDA
PENNON ADJUSTED GROUP EBITDA £M 17.4 5.1 3.6 1.6 22.2 (1.0) (2.6) (3.6) 56.0 (4.3) (7.1) (9.1) 508.4 (35.7) 465.9 2014/15 ERFs SWW K5 Price Bournemouth Share of JV SWW Net Cost Recycling Contracts & Plc/Other (2) SWW Other Landfill Gas Viridor Landfill SWW Cost of 2015/16 (4) Freeze Water EBITDA + S
Slide 32: Diversified Funding Sources
PENNON DIVERSIFIED FUNDING SOURCES £M (As at 31 March 2016) Finance Leasing 1,341 Bank Bilaterals - Term Loans 403 European Investment Bank Loans 273 Index-Linked Bond 412 Fixed Rate Bond 133 Private Placements 554 Total Gross Debt 3,116 Less: Cash/liquid Investments (632) Net Borrowings 2,484 KEY R
Slide 33: Fair Value of Non-Current Debt
PENNON FAIR VALUE OF NON-CURRENT DEBT AS AT 31 MARCH 2016 AS AT 31 MARCH 2015 £M BOOK FAIR DIFF BOOK FAIR DIFF VALUE VALUE VALUE VALUE Finance Leases 1,315 1,163 152 1,304 1,182 122 Bank and Other Loans 403 403 - 338 338 - Private Placements 554 600 (46) 548 607 (59) Fixed Rate Bond 133 198 (65) 133
Slide 34: Net Interest Analysis
PENNON NET INTEREST ANALYSIS £M 2015/16 2014/15 • Net interest payable broadly unchanged, reflecting lower Interest payable (85.0) (66.0) rates, offsetting higher net Capitalised interest payable (9.4) (22.5) debt Other finance income 14.7 13.5 • Effective management of interest rates Net interest p
Slide 35: Pensions
PENNON PENSIONS £M 31 MARCH 2016 31 MARCH 2015 • Bournemouth Water pension Pension schemes’ scheme has assets of around assets £793m £692m £87m resulting in a small surplus Pension schemes’ • Excluding the addition of liabilities £834m £752m Bournemouth Water, the underlying increase in asset values
Slide 36: Pennon Water Services: A Strategy to Retain and Grow
PENNON WATER SERVICES A STRATEGY TO RETAIN AND GROW MERGER OF SOUTH WEST WATER AND BOURNEMOUTH WATER PROVIDES OPPORTUNITY FOR LARGER, EFFICIENT RETAILER • Integration of existing businesses delivers operating synergies of c.10% RETAIN EXISTING CUSTOMERS, GROW THROUGH CUSTOMER ACQUISITION NATIONWIDE
Slide 37: Pennon Energy: Significant Generation
PENNON ENERGY SIGNIFICANT GENERATION GROUP ENERGY GENERATION UK FORWARD POWER PRICES • Total renewable energy generation of c.1.5TWh in 2015/16 £60 - 8 ERFs - 903GWh £55 - Landfill gas – 562GWh £50 £/MWh - 25 Hydro turbines – 12.8GWh generation £45 £40 - 52 solar PV installations – 10.4GWh(1) £35 -
Slide 38: South West Water EBITDA Before Non-Underlying Items
SOUTH WEST WATER EBITDA BEFORE NON-UNDERLYING ITEMS £M 331.3 22.2 3.6 17.4 335.2 (3.6) 317.8 (35.7) SWW K5 Price Freeze Net Cost Savings Other Revenue Cost of Capital SWW Bournemouth Water Business 2014/15 Recovery and Efficiency (1) Impacts(2) Reset 2015/16 Water 2015/16 (1) Includes cost increases
Slide 39: Reconciliation of RoRE to Financials
SOUTH WEST WATER RECONCILIATION OF RORE TO FINANCIALS COMBINED TOTEX OUTPERFORMANCE • Operating costs £211.8m + Capital Expenditure £134.1m = £345.9m • Totex allowance(1) assumed for 2015/16 = £401.1m • £55.2m Totex saving equates to £27.7m of RoRE benefit after applying company sharing rate and tax
Slide 40: Delivering Operational Outperformance
SOUTH WEST WATER DELIVERING OPERATIONAL OUTPERFORMANCE HIGHEST POTENTIAL RETURNS IN THE INDUSTRY 2015/16 OPERATIONAL RORE(2) £56M(1) OF TOTEX SAVINGS DELIVERED TOTEX +2.5% • Totex largest element of potential operational -1.5% +2.3% outperformance £27.7m FRONT-END LOADING OF EFFICIENCIES • Opex lowe
Slide 41: Performance & WaterShare
SOUTH WEST WATER PERFORMANCE & WATERSHARE(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 • Future b
Slide 42: Reconciliation of WaterShare
SOUTH WEST WATER RECONCILIATION OF WATERSHARE DRIVING COST BASE EFFICIENCY • Totex efficiencies delivered despite cost pressures DELIVERING OUTCOMES • ODI net rewards delivered of £1.8m OTHER FACTORS • Market movements on new financing returned to customers • Changes in legislation • Costs associate
Slide 43: Viridor Adjusted EBITDA
VIRIDOR ADJUSTED EBITDA £M 56.0 5.1 1.6 (1.0) (4.3) (7.1) 176.5 (9.1) 135.3 2014/15 ERFs Share of JV EBITDA Recycling Collections & Landfill Gas Viridor Overheads (1) Landfill 2015/16 & IFRIC 12 Interest Collections Receivable (1) Including Project Enterprise costs 43
Slide 44: Viridor Joint Venture Profitability
VIRIDOR JOINT VENTURE PROFITABILITY £M 2015/16 2014/15 CHANGE Lakeside Share of EBITDA 15.6 18.1 (13.8%) Share of JV Profit After Tax (PAT) 6.6 8.2 (19.5%) Viridor Laing Greater Manchester Share of EBITDA 3.1 3.0 +3.3% Share of IFRIC 12 interest receivable 11.7 12.1 (3.3%) Share of JV PAT (0.1) (1.3
Slide 45: 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 IFRIC 12 JVs Share of JV EBITDA (50%) -- -- £14m • Oxford (Ardley) • Exeter • Lakeside Under
Slide 46: Long-Term Revenue Streams for ERFs Secured
VIRIDOR LONG-TERM REVENUE STREAMS FOR ERFs SECURED WASTE INPUTS SECURED AT PLANT OPENING • c.80% of volumes (and associated price) secured 5% RECOVERED 25% METALS across the total ERF portfolio under long-term POWER OUTPUT contracts 25% POWER 25% OUTPUT • The remaining c.20% is under short and mediu
Slide 47: Long Term Contract Base Covers c.80% of Capacity
VIRIDOR LONG TERM CONTRACT BASE, WHICH COVERS C.80% OF CAPACITY VIRIDOR ERF CAPACITY Viridor capacity (operational & in construction) Balance of short and medium-term contracts (Municipal and Commercial & Industrial) De-risking - long-term contracts secured Long-term contracts at the start of the ER
Slide 48: ERF Under-Capacity Continues to 2030 and Beyond
VIRIDOR ERF UNDER-CAPACITY CONTINUES TO 2030 AND BEYOND UK COMBUSTIBLE RESIDUAL WASTE MARKET (MT) 30 Other ERF Capacity Viridor ERF Capacity UK ERF Under-capacity 25 20 15 10 5 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: DEFRA, SEPA, NRW and Viridor
Slide 49: Minimising Risk – Merchant Becomes Long Term Contracted
VIRIDOR MINIMISING RISK – MERCHANT BECOMES LONG TERM CONTRACTED Planning & Permitting Plant Plant Contracted % Achieved Commissioning Operational Merchant % 100% 80% Fuel Load TRIDENT 60% PARK ERF 40% 20% 0% Project Gwyrdd Project Gwyrdd in Trident Contracting Project Gwyrdd Outline Bid Contract sig
Slide 50: Delivering the ERF Programme
VIRIDOR DELIVERING THE ERF PROGRAMME OPERATIONAL RAMP-UP AT NEW PLANTS LAKESIDE RAMP-UP Waste Inputs (tonnes) • Eight operational facilities 500,000 • Managed operational ramp-up of new ERFs, the same 400,000 process performed at Lakeside 300,000 • Transition from commissioning to full operational 2
Slide 51: ERF Build-Out Nearing Completion
VIRIDOR ERFs (INCLUDING JOINT VENTURES) PROGRESS ON ERF PIPELINE BASE LOAD CAPITAL MUNICIPAL ACTUAL/EXPECTED SITE COST (1) GROSS CAPACITY STATUS CONTRACT COMMISSIONING Tonnes Electricity MWe ERF BUILD-OUT (000) Lakeside(2) 150 410 38 Fully operational Merchant Commissioned NEARING Bolton N/A 120 9 F
Slide 52: ERF Capex – Efficient Investment to Deliver Growth
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 2015(2) 2015/16 31 MAR 2016 COMPLETION SPEND PROJECT SPEND ERF projects in operation Exeter 47 - 47 - 47 47 Oxford (Ar
Slide 53: Full Year Results 2015/16
FULL YEAR RESULTS 2015/16 DELIVERING FOR CUSTOMERS AND SHAREHOLDERS 25 MAY 2016