Pennon Group Plc · LSE:PNN
Pennon — Non-Deal Roadshow (December 2014)
53 slides from Pennon's roadshow presentation, Dec 4, 2014
Slide 1: Roadshow with Morgan Stanley, 2-4 December 2014
Roadshow with Morgan Stanley 2 - 4 December 2014 Top: Restormel Water Treatment Works; Bottom: Exeter Energy Recovery Facility
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 2014/15 Financial Highlights
Pennon Group Plc H1 2014/15 Financial Highlights • Revenue up by 3.8% to £692.3m • Profit before tax(1) down £10.9m (9.8%) to £100.0m South West Water down £1.1m to £86.2m Viridor down £10.6m to £4.7m • Exceptional credit of £14.9m relating to pension scheme benefit changes • Adjusted earnings p
Slide 4: H1 2014/15 Operational and Business Highlights: South West Water
Pennon Group Plc H1 2014/15 Operational and Business Highlights South West Water • Strong performance against the 2010-2015 (K5) regulatory contract well placed to deliver outcomes and outperform robust operating performance supporting delivery into the next K6 regulatory period • Operating prof
Slide 5: H1 2014/15 Operational and Business Highlights: Viridor
Pennon Group Plc H1 2014/15 Operational and Business Highlights Viridor • Excellent continuing progress in the strategic re-orientation of Viridor’s business model from landfill to ERFs – has now reached point of inflexion • As flagged, H1 2014/15 EBITDA materially lower than H1 2013/14 but full y
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 2014(1) 2013 Change 2013/14(1) £m £m £m £m Group revenue 692.3 667.0 25.3 1,321.2 Group EBITDA 200.0 215.4 (15.4) 407.3 - SWW 172.2 173.8 (1.6) 330.9 - Viridor statutory EBITDA 28.1 41.4 (13.3) 76.3 - Share of
Slide 8: H1 2014/15 Cash Flow
Pennon Group Plc H1 2014/15 Cash Flow • Significant ongoing capital expenditure • Conversion of convertible bond reduced net debt by £125m (1) Including construction spend on service concession arrangements 8
Slide 9: Viridor ERF Capex
Pennon Group Plc Viridor ERF Capex(1) Cumulative Remaining spend Total spend to to project project 30 September 2014 completion spend ERF projects in operation £m £m £m Exeter 45 2 47 Oxford (Ardley) 178 32 210 223 34 257 ERF projects under construction Runcorn II 187 29 216 Cardiff (Trident Park) 1
Slide 10: 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 c23% of SWW current debt index-linked to 2041-2057 • Over 50% of SWW net debt fixed for K5 in line with Group policy weighted average rate of 3.4% • Su
Slide 11: Net Borrowings
Pennon Group Plc Net Borrowings As at 30 September As at 31 March 2014 2013 2014 £m £m £m Loans and finance leases 2,800 2,625 2,807 Less: cash and cash deposits (694) (527) (613) Net borrowings 2,106 2,098 2,194 Net gearing (1) 62% 65% 65% SWW debt/RCV 57% 56% 56% • Pennon gearing reduced following
Slide 12: Net Interest Analysis
Pennon Group Plc Net Interest Analysis(1) For the half year ended Full Year 30 September 2014 2013 2013/14 £m £m £m Interest payable (32.7) (39.5) (73.2) Capitalised interest payable (13.9) (9.9) (21.8) Other finance income 6.9 7.8 14.3 Net interest payable (39.7) (41.6) (80.7) Average rate of inter
Slide 13: Liquidity
Pennon Group Plc Liquidity • Total of £1,785m cash/committed facilities at 30 September 2014 cash balances of £694m (includes £174m deposits with Letter of Credit providers and lessors) undrawn committed facilities of £1,091m • Committed funding in place for South West Water to September 2016 •
Slide 14: Taxation
Pennon Group Plc Taxation For the half year ended Full Year 30 September 2014 2013 2013/14 £m £m £m Current tax - current year 19.8 27.0 51.8 - prior year (12.6) (10.7) (16.5) 7.2 16.3 35.3 Deferred tax - current year 4.5 2.6 2.1 - prior year 9.7 9.3 12.2 14.2 11.9 14.3 Deferred tax reduction on cha
Slide 15: Pensions as at September 2014
Pennon Group Plc Pensions as at 30 September 2014 • Gross pension deficit of £94m (March 2014 - £79m) £75m net of tax (March 2014 - £63m) September 2014 March 2014 • Pension schemes’ assets £629m £608m Pension schemes’ liabilities £723m £687m £94m = £75m net of tax £79m = £63m net of tax • Decreas
Slide 16: Dividends
Pennon Group Plc Dividends • Interim dividend increased by 6.3% to 9.98p per share • Sector-leading progressive dividend policy: 4% real increase to end of K5 period (March 2015) • Scrip dividend alternative 16
Slide 17: South West Water
SOUTH WEST WATER 17
Slide 18: South West Water Financial Performance Summary
South West Water Financial Performance Summary For the half year ended Full year 30 September 2014(1) 2013 2013/14 £m £m £m Revenue 268.3 269.1 520.0 EBITDA 172.2 173.8 330.9 Operating profit 119.2 121.3 227.0 Profit before tax 86.2 87.3 162.5 • Tariff freeze in 2014/15 – half year revenue impact c£
Slide 19: South West Water Revenue
South West Water Revenue 274 272 0.4 (2.8) 1.6 270 269.1 268.3 £m268 266 264 262 260 H1 2013/14 New connections Other Sales Meter optants & H1 2014/15 assessed charges • New connections & other sales reflecting higher developer services activity • Stable metered demand on prior year – reflecting rel
Slide 20: South West Water Operating Costs
South West Water Operating Costs(1) 160.0 155.0 0.4 (2.5) 1.0 149.1 2.4 150.0 147.8 145.0 £m 140.0 135.0 130.0 125.0 H1 2013/14 Cost increases (inc. Other (including Depreciation, IFRS Efficiency savings H1 2014/15 power, business cost of other sales) Opex Transfers & (Inc pension rates) New Capital
Slide 21: Operating Cost Efficiency
South West Water Operating Cost Efficiency • Delivering efficiency ahead of FD09 assumptions • Robust cost control – solid platform for K6 K5 CUMULATIVE OPERATING COST EFFICIENCIES TO • Cumulative K5 efficiency of £24.7m: SEPTEMBER 2014 ahead of FD09 - result of early delivery Admin and Energy pro
Slide 22: Capital Programme
South West Water Capital Programme • Expenditure £64.6m H1 2014/15 (H1 2013/14 £58.5m) K5 CUMULATIVE CAPITAL focus on wastewater compliance & reliability EXPENDITURE TO SEPTEMBER 2014 safeguarding high quality drinking water supply reducing number of customers’ properties at risk of flooding •
Slide 23: Shareholder Value
South West Water Shareholder Value 3700 K5 K6 3500 3300 3100 RCV £m (1) (2) RCV 2900 2700 2500 2300 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 • RCV of £2,959m (31 March 2014) • Debt/RCV gearing 57% – within optimum range • SWW dividend to Pennon ahead of FD09 assumptions – reflecting ou
Slide 24: Operational Highlights: Delivering the K5 Regulatory Contract – I
South West Water Operational Highlights: Delivering the K5 Regulatory Contract – I • Top quartile performance in industry leakage target met every year outstanding drinking water quality at 99.98% stable serviceability • 18th consecutive year without water restrictions • Continuing strong bath
Slide 25: Operational Highlights: Delivering the K5 Regulatory Contract – II
South West Water Operational Highlights: Delivering the K5 Regulatory Contract – II • Targeting improvements in outstanding customer debt industry leading approach to customer debt support c38,000 assisted through our debt support schemes company social tariff – 1 of only 3 currently in place
Slide 26: Operational Highlights: Delivering the K5 Regulatory Contract – III
South West Water Operational Highlights: Delivering the K5 Regulatory Contract – III 2011/12 2014/15 Improving Waste water treatment numeric compliance Serious wastewater pollution incidents Stable Water pollution incidents DG3 supply interruptions # Security of supply index Post-tax return on capit
Slide 27: Benefits of fast track Draft Determination
South West Water Benefits of fast track Draft Determination Water and sewerage companies’ Return on Regulated Equity (RORE) 2015-20 • Relative industry position ‘Do No Harm’ principle to Final SWW Determination no reduction in the cost of capital ODI(1) & cost outperformance 5.7% uncapped • Fi
Slide 28: SWW Return on Regulated Equity, Draft Determination 2015-20
South West Water SWW Return on Regulated Equity Draft Determination 2015-20 (RORE) 2015-20 • Equity returns up to 10% for outperformance • Appointee vanilla WACC(1) 3.85% (Wholesale WACC 3.7%) • Retail margins 1.0% & 2.5% for retail household/non- household – equivalent to RCV return of 0.15% • Extr
Slide 29: Political and Regulatory Developments
South West Water Political and Regulatory Developments Water Act • SWW well prepared for Non-household retail market opening April 2017 engaged in Open Water programme separate retail operation retail supply licences received for Scotland and England Source for Business established in 2011 •
Slide 30: South West Water Summary
South West Water Summary • Operational & financial performance remains strong • Implementation of K6 business plan under way • Well prepared for legislative & regulatory reform Successful and robust operational strategy underpinned by strong financial performance Advanced bathing water scheme at Tor
Slide 31: Viridor: Transforming waste
PENNON GROUP PLC Viridor Transforming waste™
Slide 32: Viridor strategy: transforming waste
Viridor Viridor’s strategy remains focused on transforming waste, adding substantial value through renewable energy generation and recycling • ‘Point of inflexion’ for Viridor • Strategic re-orientation of business around ‘Energy’ and ‘Recycling & Resources’ divisions Board strengthened with new h
Slide 33: UK Waste Projections
Viridor Market intelligence is regularly reviewed and we remain consistent and confident in our view on UK Waste Projections Volume (m tonnes) 2010/11 2015/16 2020/21 Total Market Total Market Total Market Landfill 43 20 5 Energy from Waste 6 10 20 Recycling(1) 28 35 35 Total 77 65 60 Source: DEFRA;
Slide 34: Viridor Financial Performance
Viridor Financial Performance – as previously flagged materially lower in H1 2014/15, in line with management expectations H1(6) H1 Change 2014/15 2013/14 £m £m Revenue(1)(2) 424.4 398.2 6.6% EBITDA 28.1 41.4 (32.1%) Share of joint ventures’ EBITDA(3) 21.4 19.4 10.3% IFRIC 12 interest(4) 5.8 4.2 38.
Slide 35: EBITDA by Activity
Viridor EBITDA by Activity – Improvements in Joint Ventures and PPPs but lower recycling margins and decline in landfill energy as forecast H1 H1 Change 2014/15(5) 2013/14 £m £m Landfill 9.3 13.2 (29.5%) Recycling 10.0 13.1 (23.7%) Collection 5.4 6.1 (11.5%) Contracts and other(1) 15.2 15.5 (1.9%) L
Slide 36: Landfill managed down to strategic sites
Viridor Landfill is being managed down to a few strategic sites together with the development of alternative uses for existing asset base infrastructure H1 H1 2014/15 2013/14 Consented void(1) 56.1mcm 60.0mcm Volumes 1.4mt 1.4mt Revenues £19.73/t £23.28/t Costs(2) £12.95/t £13.70/t (1) It is expecte
Slide 37: Landfill Energy business
Viridor Landfill Energy business being managed to maximise value of landfill gas generation whilst exploring photovoltaic and cryogenic developments H1 H1 2014/15 2013/14 Operational capacity(1) 105MW 107MW Volumes 297GWh 303GWh Revenues £88.42/MWh £88.88/MWh Costs(2) £36.51/MWh £29.07/MWh • Volumes
Slide 38: Recycling: ITOO programme
Viridor Input, Throughput, Output Optimisation (ITOO) programme designed to drive margin improvements in recycling H1 H1 2014/15 2013/14 Volumes 0.9mt 1.0mt Revenues £86/t £93/t Costs(1) £74/t £80/t Margin £12/t £13/t (1) Figures on new EBITDA basis. 2014/15 £77/t and 2013/14 £82/t on old basis (1)
Slide 39: ITOO activities across the value chain
Viridor ITOO activities address opportunities and drive actions across the value chain • Future actions are very much focused on the three key parts of the value chain: Inputs – enforcing contractual waste specifications Throughput – two year asset management optimisation process commenced to im
Slide 40: Contract base and collection operations
Viridor Continued importance of contract base and collection operations which also supply in-house recycling materials and ERF fuel • Collections are a key part of Viridor’s integrated offering Viridor’s collection fleet has an increasing role in securing material for its recycling plants and ERFs
Slide 41: Joint Ventures – VLGM/TPSCo
Viridor Joint Ventures – VLGM/TPSCo about to reach final handover H1 H1 2014/15 2013/14 VLGM – share of EBITDA £1.5m £1.3m – share of IFRIC 12 interest £6.0m £6.2m TPSCo – share of EBITDA £4.5m £5.5m • 42 of the total 43 VLGM facilities formally taken over. Final plant in takeover test • Runcorn I a
Slide 42: Joint Ventures – Lakeside
Viridor Joint Ventures – Lakeside continues to outperform financial close assumptions H1 H1 2014/15 2013/14 Lakeside – share of EBITDA £9.4m £6.4m • H1 results benefitted from different scheduled outage timing (H1 ‘13/14 vs H2 ‘14/15) and continued good performance Lakeside ERF 42
Slide 43: ERFs becoming operational in 2014/15
• In 2014/15, Exeter and Oxford ERFs have become operational, with three further 42 plants (Cardiff, and Runcorn I and II) expected to be operational by March 2015
Slide 44: Progress on PPP/ERF asset base
Viridor Continued excellent progress on PPP/ERF asset base • Safety – all sites are running at world class construction industry safety levels • Exeter ERF – safely completed on time (July), meeting capital budget and performing better than specification • Oxford ERF – takeover completed in November
Slide 45: Progress on PPP/ERF asset base (continued)
Viridor Continued excellent progress on PPP/ERF asset base • Runcorn Phase 1 – final takeover test under way with scheduled takeover early 2015. Phase 2 – construction complete, first waste burn is imminent • Peterborough ERF – progressing well to schedule (50% complete) and to capital budget • Glas
Slide 46: Dunbar ERF
Dunbar ERF Favourable commercial and market backdrops underpin decision to proceed • Market and legislative environment is attractive Scottish ‘Zero Waste’ legislation supports landfill diversion and maintains price regulation detailed market analysis - 1.25m tonnes pa MSW(1) and C&I(2) catchmen
Slide 47: Dunbar ERF: shovel ready
Dunbar ERF Our project is “shovel ready” in a market with limited competitor activity • Full planning permission, IPCC licences and permits in place • Well proven technology - EPC contract in place with trusted suppliers following extensive competitive procurement • No competitor facilities currentl
Slide 48: Pennon Group Plc
PENNON GROUP PLC
Slide 49: Summary
Pennon Group Plc Summary • Strategy clearly focused on water and sewerage services recycling, renewable energy and waste management • £192m invested in key infrastructure supporting the development of the UK economy in first half of 2014/15 • South West Water focus on efficient service deliver
Slide 50: Appendices
PENNON GROUP PLC Appendices
Slide 51: Net Borrowings Analysis as at September 2014
Pennon Group Plc Net Borrowings Analysis as at 30 September 2014 £m Finance leasing 1,277 Bank bilaterals - RCFs/term loans 470 EIB 315 Index-linked bond 2057 254 Bond 2040 133 Private placements 350 Unsecured loan notes 1 Total gross debt 2,800 Less: Cash/liquid investments (694) Net borrowings 2,1
Slide 52: Fair Value non-current Borrowings
Pennon Group Plc Fair Value non-current Borrowings As at 30 September 2014 As at 31 March 2014 Book Fair Book Fair Value Value Diff Value Value Diff £m £m £m £m £m £m Finance Leases 1,247 1,097 150 1,151 979 172 Bank and other loans 470 473 (3) 469 469 - Private Placement 350 375 (25) 222 216 6 Bond
Slide 53: ERF Asset Base Summary
Viridor ERF Asset Base Summary Site Capital Gross Capacity Status Base Load Municipal Actual/Expected Income Operations Cost (1) Contract Commissioning recognition dates End (2) in 2014/15 Tonnes Electricity (000) MWe Lakeside(3) 150 410 37 Operational Merchant May 2010 n/a 2033 Bolton N/A 120 9 Ope