Full Year Results 2019/20
Disclaimer For the purposes of the following disclaimers, references to this “document” recruitment, retention and development of skills; non-delivery of regulatory shall mean this presentation pack and shall be deemed to include outcomes and performance commitments; failure or increased cost of references to the related speeches made by or to be made by the capital projects/exposure to contract failures; failure of information presenters, any questions and answers in relation thereto and any other technology systems, management and protection, including cyber risks. related verbal or written communications. These risks will be described in greater detail in the Pennon Group Annual Report to be published in June 2020. Forward looking statements should This document contains certain “forward-looking statements” with respect therefore be construed in light of such risks, uncertainties and other factors to Pennon Group’s financial condition, results of operations and business and undue reliance should not be placed on them. Nothing in this and certain of Pennon Group's plans and objectives with respect to these document should be construed as a profit forecast. matters which may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (the All written or verbal forward-looking statements, made in this document or “PSLRA”). made subsequently, which are attributable to Pennon Group or any other member of the Pennon Group or persons acting on their behalf are Forward-looking statements are sometimes, but not always, identified by expressly qualified in their entirety by the factors referred to above. Pennon their use of a date in the future or such words as “anticipate”, “aim”, Group may or may not update these forward-looking statements. “believe”, “continue”, “could”, “due”, "estimate“, “expect”, “forecast”, “goal”, “intend”, “probably”, "may", “plan", “project”, “seek”, “should”, “target”, “will” This document is not an offer to sell, exchange or transfer any securities of and related and similar expressions, as well as statements in the future Pennon Group or any of its subsidiaries and is not soliciting an offer to tense. purchase, exchange or transfer such securities in any jurisdiction. By their very nature forward-looking statements are inherently Without prejudice to the above, whilst Pennon Group accepts liability to the unpredictable, speculative and involve risk and uncertainty because they extent required by the Listing Rules, the Disclosure Rules and the relate to events and depend on circumstances that will or will not occur in Transparency Rules of the UK Listing Authority for any information the future. Various known and unknown risks, uncertainties and other contained within this document which the Company makes publicly factors could lead to substantial differences between the actual future available as required by such Rules: results, financial situation, development or performance of the Group and a) neither Pennon Group nor any other member of Pennon Group or the estimates and historical results given herein. Important risks, persons acting on their behalf shall otherwise have any liability uncertainties and other factors that could cause actual results, performance whatsoever for loss howsoever arising, directly or indirectly, from use of or achievements of Pennon Group to differ materially from any outcomes or the information contained within this document; results expressed or implied by such forward-looking statements include, among other things, changes in Government policy; regulatory and legal b) neither Pennon Group nor any other member of Pennon Group or reform; compliance with laws and regulations; maintaining sufficient finance persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the and funding to meet ongoing commitments; non-compliance or occurrence of avoidable health and safety incidents; tax compliance and contribution; information contained within this document; and failure to pay all pension obligations as they fall due and increased costs to c) no reliance may be placed upon the information contained within this the Group should the defined benefit pension scheme deficit increase; non- document to the extent that such information is subsequently updated recovery of customer debt; poor operating performance due to extreme by or on behalf of Pennon Group. weather or climate change; macro-economic risks impacting commodity Past performance of securities of Pennon Group cannot be relied upon as and power prices and other matters; poor customer service and/or increased competition leading to loss of customer base; business a guide to the future performance of any securities of Pennon Group. interruption or significant operational failure/incidents; difficulty in 2
Chris Loughlin Group Chief Executive
Pennon – Significant Strategic Delivery Bringing resources to life COVID 19 – Resilient delivery of critical services across Group • Prioritised the health and safety of employees and customers – key worker status across Group • Adapted quickly to unprecedented conditions, vast majority of operations continuing as usual Good results, momentum maintained • Delivered in right way – consistent with our values • South West Water – strong finish to K6 (1) • Viridor – successful delivery of growth investment • New deal – sharing financial outperformance between customers and shareholders Value creation for stakeholders • Crystallising value from the sale of Viridor • Continuing Group well positioned for K7 (2) • New Continuing Group dividend policy announced for K7 (1) K6 regulatory period – 2015-20 (2) K7 regulatory period – 2020-25 4
Susan Davy Chief Financial Officer
2019/20 Financial Highlights Solid financial performance, resilient outlook Managing COVID-19 impacts Responsible delivery of 2019/20 results for all stakeholders Strong liquidity and funding position Sale of Viridor on track Sector leading new dividend policy for 2020-25 6
COVID-19 Managing financial impacts of COVID-19 Limited impact on 2019/20 results • No significant additional Totex impact as a result of the pandemic to date • COVID-19 expected credit losses provision – non-underlying charge £9.0m across Group – largest impact for PWS £5.0m • Cash collections remain strong post year end Potential impact on 2020/21 – gradual recovery post lockdown Water business – South West Water (SWW) and Pennon Water Services (PWS) Revenue c.£10m Expected credit losses: reduction: Business customers, water Lower business customer Viridor retailers – risk increased revenue net of higher Resilient ERF position through lockdown household demand (c.84% - strong local authority Household – strong metered base) – regulatory contracts collections and support mechanism to recover in schemes to mitigate impact future years 7
Pennon Financial performance in line with expectations for 2019/20 Continuing Continuing Group and Viridor Continuing Group represents Group South West Water, Pennon Water Underlying (1) 2019/20 (£m) 2019/20 (£m) 2018/19 (£m) Change (2) Services and Pennon (the company) Revenue 636.7 1,389.9 1,478.2 (6.0%) EBITDA 365.3 563.4 546.2 +3.1% Adjusted EBITDA (3) 592.7 +4.6% 365.3 619.8 Solid Group financial performance Depreciation and Amortisation (195.2) (3.4%) (119.8) (201.9) • Expected revenue reduction Operating Profit reflecting: 245.5 361.5 351.0 +3.0% – Cessation of Viridor’s Greater Net Interest (83.2) (6.6%) (62.5) (88.7) Manchester contract Share of JV Profit After Tax - 14.8 12.4 +19.4% – SWW demand reduction, Profit Before Tax 183.0 287.6 280.2 +2.6% weather driven impacts Non-underlying Items Before Tax (4) (19.9) - 10.1 13.9 • Good operational cost control across the Group and strong Profit Before Tax 193.1 301.5 260.3 +15.8% performance across Viridor Tax (70.6) (95.2) (37.7) (152.5%) activities Discontinued Operations PAT 83.8 Efficient financing Profit After Tax for the Year 206.3 206.3 222.6 (7.3%) • Reduced average interest rate to 3.5% Statutory Earnings Per Share (p) 47.7 47.7 51.1 (6.7%) • £87.2m cash crystallised on swap - From continuing operations (p) 27.7 settlement resulting in £18m non- Adjusted Earnings Per Share (p) (5) 61.7 61.7 57.8 +6.7% underlying credit in year Dividend Per Share (p) (6) 43.77 43.77 41.06 +6.6% (1) Before non-underlying items, see slide 12 (2) Measures presented focus on the results of the aggregate Continuing Group and Viridor to aid the comparability of reported results, year on year (3) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (4) Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of financial performance (5) Adjusted EPS: before deferred tax and non-underlying items (6) Dividend policy of 4% + RPI. RPI 2.6% at 31 March 2020 8
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