Slide 1: Half Year Results Roadshow November 2017
Half Year Results Roadshow November 2017 © Pennon Group plc 2017
Slide 2: Disclaimer
Disclaimer For the purposes of the following disclaimers, references to this “document” risks, maintaining finance and funding to meet ongoing commitments, tax shall mean this presentation pack and shall be deemed to include references compliance and contributions and difficulty in recruitment, rete
Slide 3: About Pennon
About Pennon Unique combination of environmental infrastructure assets Water & Wastewater Waste Management Regulatory ring-fence Water and wastewater services to B2B water retailer A leading UK energy recovery, a population of c.2.2 m recycling and waste management company • Serves more than 150 loc
Slide 4: Delivering for customers, communities and investors
Delivering for customers, communities and investors Delivering for customers and communities - On track to deliver against business plan commitments including all ODI(1) commitments by 2020 - Sharing financial benefits with customers through WaterShare - Customer bills lower than they were 8 years a
Slide 5: Financial Highlights
Financial Highlights Robust Group financial performance H1 2017/18 H1 2016/17 A Adjusted EBITDA in line Underlying(1) £m £m Change with expectations Revenue 723.9 685.5 +5.6% - Higher SWW revenue and continued efficiency EBITDA 253.5 245.4 +3.3% - Strong ERF performance Adjusted EBITDA(2) A 285.8 27
Slide 6: Capital Investment
Capital Investment Investing for growth What we have been investing in... Group Capital - Energy Recovery Facilities - Further improvements to South West Bathing and Shellfish waters Investment - New landfill cells driven by demand - Further innovation to improve drinking profile - Cutting edge Mayf
Slide 7: Net Debt Movements
Net Debt Movements Strong cash inflow from operations, continuing investment Strong cash Re-financing Peak years inflow from of perpetual of capital operations capital investment in (2,790.9) securities 2016/17 and £m 2017/18 (2,664.9) (235.3) (82.1) (48.6) (31.3) 308.9 (10.4) (25.7) (6.3) (7.0) (8.
Slide 8: Balance Sheet
Balance Sheet Strong funding position underpinning investment Group at 30 September 2017 £1,246m cash & committed facilities Net Debt £2,790.9m (31 March 2017 £1,383m) Profile Index- Linked £552m 20% Development of portfolio Fixed £1,812m Floating - £450m of new or renewed - Following EIB/Government
Slide 9: Balance Sheet: Stable gearing – increased headroom for investment
Balance Sheet Stable gearing – increased headroom for investment 64.8% Group Net Gearing(1) 65.2% at 30 September 2016 62.1% Water business Net Debt / RCV(2) 62.2% at 30 September 2016 Stable gearing - Reflects refinancing of perpetual capital securities (hybrid) in the Group’s capital structure, ne
Slide 10: Group financing
Group financing Sector-leading effective interest rate K4 K5 K6 3.7% Group average 7.0% (2005-10) (2010-15) (2015-20) interest rate 6.5% 3.3% 6.0% H1 2016/17 5.5% 5.0% 4.5% Pennon 3.5% SWW average 4.0% SWW 3.5% interest rate Water Sector 3.0% 3.2% H1 2016/17 Sector leading effective interest rates £
Slide 11: Dividend Growth
Dividend Growth Established 10 year sector leading policy Policy of 4%+RPI leading to an expected doubling of dividend over 10 years (2010 to 2020)(1) - Interim dividend of 11.97p, up 7.9%(2) - SCRIP dividend alternative ceased - Dividend reinvestment plan (DRIP) offered for 2017/18 +7.1% +5.6% +4.9
Slide 12: Water: Delivering for customers and communities
Water: Delivering for customers and communities On track to deliver against all water business plan commitments by 2020 Customers at the heart of our delivery - £7bn investment to improve services to customers since privatisation - Best ever customer service score (SIM) - Written complaints reduced
Slide 13: Water: Strong operational and financial performance
Water: Strong operational and financial performance Consistent sector-leading RORE WaterShare RORE (1) performance Cumulative K6 TOTEX outperformance - £159m - Delivering continued efficiency performance Cumulative 11.8%(1) FY 15/16 FY 16/17 H1 17/18 Operational performance ahead of 11.7% 12.6% 11.1
Slide 14: Water: ODI performance levels – cumulative net reward position
Water: Strong operational and financial performance ODI performance levels – cumulative net reward position GOOD Water quality standard Odour contacts PERFORMANCE(1) Taste, smell and colour contacts Bathing water quality Operational contacts resolved 1st time Water & waste asset reliability Water re
Slide 15: Water: Preparing for next growth phase
Water: Preparing for next growth phase Investment anticipated at least comparable to historic levels £6bn - £9bn investment anticipated to 2050 - Informed by Defra’s guidance to Ofwat - Direct engagement with Ofwat - Customer / stakeholder research and engagement Key investment drivers continue to b
Slide 16: Viridor: Robust operational and financial performance
Viridor: Robust operational and financial performance ERFs performing well Focus on optimising performance - Delivered £52m of EBITDA in H1 2017/18 – expect H2 weighting Operational - High availability across fleet – Average >90%(1) - Maintenance regimes working well. Current run rate of 2.0% p.a. o
Slide 17: Viridor: Recycling EBITDA margin consistent
Viridor: Robust operational and financial performance Recycling EBITDA margin consistent VOLUMES 120kT Self-help measures underpinning performance – H1 2017/18: 740kT further opportunities available (H1 2016/17: 860kT) REVENUES - Reduced volumes - optimisation of contracts and asset base £10/T - Bet
Slide 18: Viridor: Greater Manchester contract 'reset'
Viridor: Delivering for customers and communities Greater Manchester contract ‘reset’ Long-term partnership continues – mutually satisfactory outcome - Energy Recovery Facility – Runcorn I - Long-term contract remains - Residual waste will continue to be treated, no significant operational changes -
Slide 19: Viridor: Preparing for the next growth phase
Viridor: Preparing for the next growth phase Significant growth to come from residual waste Confidence in the waste sector - Strong fundamentals in UK waste market - Investment in further UK waste treatment capacity as essential to service longer term demand Source: Defra, SEPA, NRW and Viridor anal
Slide 20: Viridor: ERF assets will deliver earnings step up
Viridor: Preparing for the next growth phase ERF assets will deliver earnings step up Avonmouth Glasgow South Dunbar In construction or stage of commissioning London Glasgow - First generated electricity – February 2017 IFRIC 12 (IFRIC 12) Interest - MRF(1) and AD(2) plants operating Receivable Shar
Slide 21: Appendix
Appendix © Pennon Group plc 2017
Slide 22: Pennon
Pennon © Pennon Group plc 2017
Slide 23: Pennon Adjusted group EBITDA
Pennon Adjusted group EBITDA £m 0.5 1.2 2.1 4.0 (0.4) (0.4) (2.2) 285.8 7.4 (3.6) 277.2 H1 2016/17 SWW tariff Contracts, Viridor ERFs Share of JV Plc, PWS and Recycling SWW other Landfill and H1 2017/18 increase and collections and overheads EBITDA & IFRIC other revenue and cost landfill gas (1) cus
Slide 24: Pennon: Underpinned by efficiency across the Group
Pennon: Robust operational and financial performance Underpinned by efficiency across the Group Sector leading water Totex outperformance SWW Totex £159m savings • £159m cumulative Totex efficiencies K6 to date Bournemouth Water synergies on track SWW/BW • Final integration phase complete c. £27m Sy
Slide 25: Pennon Water Services Financial Highlights
Pennon Water Services Financial Highlights Growing in the new competitive market H1 2017/18(1) £m >160,000 c.5,100(2) Revenue A 83.5 Customers New accounts accounts won since EBITDA B 0.5 market opening Depreciation (0.3) Operating Profit 0.2 Net Interest (0.7) Dedicated PWS Loss Before Tax (0.5) ma
Slide 26: Non-underlying Items
Non-underlying Items H1 H1 A Greater Manchester Contract ‘Reset’ £m 2017/18 2016/17 - TPSCo contract reset and settlement of outstanding Greater Manchester A 6.5 - Viridor Waste claims, net of write down of Viridor B Laing shareholder loans Derivatives(1) (7.8) (15.0) Other non-underlying costs(2) -
Slide 27: Corporation tax
Corporation tax Effective rate reflects capital allowances for investment H1 H1 A Current tax £m 2017/18 2016/17 - Increase in capital allowances reflecting increased Current Year Viridor capital expenditure - Current year current tax effective rate of 10.9% Current Tax A 14.3 23.1 (2016/17 H1 18.1%
Slide 28: Balance Sheet: Refinancing of perpetual capital securities
Balance Sheet Successful refinancing of £300m perpetual capital securities (hybrid) - Tender offer at 103% of par value plus accrued periodic returns – together broadly 2013 £300m 6.750% - first equating to the periodic return which would have been due in March 2018 call date - 95% take-up of tender
Slide 29: Pennon Diversified funding sources
Pennon Diversified funding sources As at 30 September 2017 £m Finance Leasing(1) 1,474 Bank Bilaterals – Term Loans 380 European Investment Bank Loans 339 Index-Linked Bond 416 Fixed Rate Bond 134 Private Placements(2) 619 Total Gross Debt 3,362 Less: Cash/liquid investments (571) Net Borrowings 2,7
Slide 30: Pennon Fair value of non-current debt
Pennon Fair value of non-current debt As at 30 September 2017 As at 31 March 2017 Book Fair Book Fair £m Value Value Difference Value Value Difference Finance Leases 1,446 1,287 159 1,354 1,218 136 Bank and Other Loans 380 383 (3) 329 336 (7) European Investment Bank Loans 307 265 42 323 282 41 Inde
Slide 31: Pennon Net interest analysis
Pennon Net interest analysis(1) £m H1 2017/18 H1 2016/17 Net interest payable (36.6) (28.6) Efficient effective interest rate Add: capitalised interest (7.8) (6.1) Less: notional interest payable(2) 5.7 5.7 GROUP SOUTH WEST WATER Add: interest receivable on service concession contracts (6.9) (8.8) 3
Slide 32: Pennon Pensions
Pennon Pensions The aggregate pension schemes’ 30 September 31 March £m 2017 2017 deficit has reduced in the six months to 30 September 2017 by Pension schemes’ assets £891m £903m £12m from £68m to £56m Pension schemes’ £947m £971m This represents a net deficit of liabilities c. 1% of Group’s market
Slide 33: Pennon Significant energy generation
Pennon Significant energy generation Group energy generation - Total energy generation of c.0.9TWh in H1 2017/18 − 8 ERFs(1) – 661GWh − Landfill gas – 217GWh − 25 Hydro turbines – 4.3GWh generation − 53 solar PV installations – 5.4GWh(2) − Anaerobic digestion – 0.3GWh − CHP – 3.2GWh − 1 wind turbine
Slide 34: South West Water
South West Water © Pennon Group plc 2017
Slide 35: South West Water Financial Highlights
South West Water Financial Highlights Continuing to drive outperformance of regulatory contract H1 2017/18 H1 2016/17(1) A Revenue Underlying(2) £m £m Change - Tariff increase 2.5% Revenue A 292.2 284.9 +2.6% - Higher demand 1.1% on metered volumes net of impact of meter Operating Costs (105.1) (103
Slide 36: South West Water Revenue
South West Water Revenue £m 12.0 0.7 (1.7) 1.9 292.2 (5.6) 284.9 H1 2016/17 Tariff increase WRFIM(1) New connections Increased customer Meter optants H1 2017/18 demand (net of leak allowances) (1) Wholesale Revenue Forecast Incentive Mechanism 36 Pennon Half Year Results Roadshow November 2017 © Pen
Slide 37: South West Water EBITDA
South West Water EBITDA £m 1.4 7.4 187.1 (2.6) (0.5) (0.5) 181.9 H1 2016/17 Revenue growth Efficiencies and other Cost increases including Pension Capital charges H1 2017/18 cost savings inflation 37 Pennon Half Year Results Roadshow November 2017 © Pennon Group plc 2017
Slide 38: South West Water Sector leading RORE outperformance
South West Water Sector leading RORE outperformance Highest potential returns in the industry SWW delivering outperformance across all areas OFWAT INDUSTRY RORE(1) CUMULATIVE TO 2016/17 (1) Source: Ofwat’s Monitoring Financial Resilience report published November 2017 38 Pennon Half Year Results Roa
Slide 39: Water: Delivering for customers and communities
Water: Delivering for customers and communities On track to deliver against all water business plan commitments by 2020 Water sector leakage performance Sector-leading leakage performance GOOD PERFORMANCE Best ever numeric and descriptive wastewater compliance - Wastewater serious and significant po
Slide 40: Viridor
Viridor © Pennon Group plc 2017
Slide 41: Viridor Financial Highlights
Viridor Financial Highlights Strong performance, underpinned by cost base efficiency H1 2017/18 H1 2016/17 Change Underlying(1) £m £m A ERFs Revenue(2) 407.0 397.9 +2.3% - ERF availability >90%(5) for H1 2017/18 - Expect H2 weighting EBITDA 66.6 63.3 +5.2% ERFs A 51.7 50.5 +2.4% B Optimising landfil
Slide 42: Viridor Revenue
Viridor Revenue 1.3 5.1 £m 8.5 (8.0) 12.6 407.0 (10.4) 397.9 H1 2016/17 ERF construction Contracts, ERF operational Recycling Landfill and landfill Landfill tax H1 2017/18 revenue collections and other revenue gas 42 Pennon Half Year Results Roadshow November 2017 © Pennon Group plc 2017
Slide 43: Viridor Adjusted EBITDA
Viridor Adjusted EBITDA £m 1.2 2.1 (0.4) 2.4 (1.9) 4.0 98.9 (3.6) 95.1 H1 2016/17 Contracts, Share of JV EBITDA Indirect costs ERFs Recycling IFRIC 12 interest Landfill and landfill H1 2017/18 collections and receivable gas other 43 Pennon Half Year Results Roadshow November 2017 © Pennon Group plc
Slide 44: Viridor: Landfill and landfill gas
Viridor: Robust operational and financial performance Landfill and landfill gas Delivering cash flow from landfill – optimising capacity Landfill - Extracting value from sites – maximising opportunities for external grid connections 11 - Landfill volumes increased from H2 2016/17 – pricing holding u
Slide 45: Greater Manchester Waste Disposal Authority Contract 'reset'
Viridor Greater Manchester Waste Disposal Authority (GMWDA) Contract ‘reset’ Before 50% Joint 37.5% Joint 100% Viridor GMWDA venture Residual venture Operating subsidiary waste (ERF contract for contract) Runcorn I ERF VL TPSCo VLGM Principal contract Operating contract for recycling assets After B
Slide 46: Greater Manchester Contract 'reset' financial impacts
Viridor Greater Manchester Waste Disposal Authority (GMWDA) Contract ‘reset’ Financial Impacts H1 2017/18 reset Share of Shareholder VWGM JV PAT Loans EBITDA Viridor Laing – reduction in Disposal of Viridor Laing shareholder loan interest of Write down of shareholder loans - (£19.2m) - c.£5m p.a. Re
Slide 47: Viridor Joint Venture Performance
Viridor Joint Venture Performance Greater Manchester Viridor £m TPSCo Laing VWGM(1) Lakeside Total H1 2017/18 Share of JV PAT 1.0 0.1 - 4.2 5.3 Interest on shareholder loans 2.3 2.6 - 0.6 5.5 EBITDA VWGM(1) - - (0.3) - (0.3) Shareholder loans 40.1 - - 8.4 48.5 Share of non-recourse net debt/(cash) (
Slide 48: Viridor ERF accounting
Viridor ERF accounting An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA Illustrative ERF(1) IAS 16(2) IFRIC 12(2) JVs IAS 16 IFRIC 12 JVs • Oxford (Ardley) • Exeter • Lakeside • Cardiff • Peterborough(3) • Runcorn I EBITDA £28m £12m -- (Trident Park) • Glasgow IFRIC 12 I
Slide 49: Viridor ERF CAPEX – Efficient investment to deliver growth
Viridor ERF CAPEX(1) – Efficient investment to deliver growth Cumulative Capital Cumulative Remaining Amounts Total Original spend at investment spend to spend to subject to project planned £m 1 April 2017 in H1 2017/18 30 September 2017 completion recovery(3) spend project spend ERF projects in ope
Slide 50: Viridor ERFs (including Joint Ventures)
Viridor ERFs (including Joint Ventures) Base load Capital municipal Actual/expected Progress on ERF pipeline Site Cost (1) Gross capacity Status contract commissioning Tonnes Electricity £m (000) MWe Lakeside(2) 150 410 38 Fully operational Merchant Commissioned ERF portfolio build-out Bolton N/A 12
Slide 51: Half Year Results Roadshow November 2017
Half Year Results Roadshow November 2017 © Pennon Group plc 2017