SALESFORCE BRIEFING BUILDING ON A STRONG PLATFORM MARCH 2016 - PowerPoint PPT Presentation

SALESFORCE BRIEFING BUILDING ON A STRONG PLATFORM MARCH 2016

DISCLAIMER For the purposes of the following disclaimers, references to this “document” shall mean higher cost for future service and growing deficit in relation to past service in the Defined this presentation pack and shall be deemed to include references to the related Benefit Schemes. speeches made by or to be made by the presenters, any questions and answers in Forward looking statements should therefore be construed in light of such risks, relation thereto and any other related verbal or written communications. uncertainties and other factors and undue reliance should not be placed on them. This document contains certain “forward - looking statements” with respect to Pennon Nothing in this document should be construed as a profit forecast. Group’s financial condition, results of operations and business and certain of Pennon All written or verbal forward-looking statements, made in this document or made Group's plans and objectives with respect to these matters. subsequently, which are attributable to Pennon Group or any other member of the Forward-looking statements are sometimes, but not always, identified by their use of a Pennon Group or persons acting on their behalf are expressly qualified in their entirety date in the future or such words as “anticipate”, “aim”, “believe”, “continue”, “could”, by the factors referred to above. Pennon Group may or may not update these forward- “due”, "estimate“, “expect”, “forecast”, “goal”, “intend”, "may", “plan", “project”, “seek”, looking statements. “should”, “target”, “will” and related and similar expressions, as well as statements in the future tense. By their very nature forward-looking statements are inherently This document is not an offer to sell, exchange or transfer any securities of Pennon Group or any of its subsidiaries and is not soliciting an offer to purchase, exchange or unpredictable, speculative and involve risk and uncertainty because they relate to events transfer such securities in any jurisdiction. and depend on circumstances that will or will not occur in the future. Without prejudice to the above, whilst Pennon Group accepts liability to the extent Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation development required by the Listing Rules, the Disclosure Rules and the Transparency Rules of the UK Listing Authority for any information contained within this document which the or performance of the Group and the estimates and historical results given herein. Undue Company makes publicly available as required by such Rules: reliance should not be placed on forward-looking statements which are made only as of the date of this document. Important risks, uncertainties and other factors that could a) neither Pennon Group nor any other member of Pennon Group or persons acting on cause actual results, performance or achievements of Pennon Group to differ materially their behalf shall otherwise have any liability whatsoever for loss howsoever arising, from any outcomes or results expressed or implied by such forward-looking statements directly or indirectly, from use of the information contained within this document; are changes in law, regulation or decisions by governmental bodies or regulators; non- b) neither Pennon Group nor any other member of Pennon Group or persons acting on recovery of customer debt; poor operating performance due to extreme weather and their behalf makes any representation or warranty, express or implied, as to the climate change; poor service provided to customers; global economic downturn accuracy or completeness of the information contained within this document; and pressuring volumes and margins; downward pressure on UK wholesale power prices; business interruption or significant operational failures/ incidents; non-compliance or c) no reliance may be placed upon the information contained within this document to the occurrence of avoidable health and safety incidents; failure or increased cost of capital extent that such information is subsequently updated by or on behalf of Pennon projects and/or Joint Ventures not achieving predicted revenues or performance; Group. exposure to contractor failure to deliver construction progress, increasing costs and potentially requiring lengthy legal action or other redress; reduced customer base, Past performance of securities of Pennon Group cannot be relied upon as a guide to the increased competition affecting prices or reduced demand for services; information future performance of any securities of Pennon Group. technology systems requiring replacement, development or upgrading to meet growing requirements of the business; an inability to raise sufficient funds to finance its activities or such funds only being available at higher cost; uncertainty arising from open tax computations where liabilities remain to be agreed and pension costs increasing due to 2

PENNON STRATEGY STRONG PLATFORM, EVOLVING FOR FUTURE LEADING UK-LISTED ENVIRONMENTAL INFRASTRUCTURE GROUP Strategic priorities FOCUSED ON MOVING TOWARDS A MORE CONSISTENT RISK PROFILE DELIVER FOR LEADERSHIP IN CAPITALISE ON INVESTING FOR CUSTOMERS, EFFICIENT COST GROUP-WIDE GROWTH COMMUNITIES, BASE AND STRENGTHS, ENVIRONMENT, FINANCING BEST PRACTICE, SHAREHOLDERS SYNERGIES Strategic objective LONG-TERM, PREDICTABLE, ASSET-BACKED, INDEX-LINKED RETURNS 3

PENNON’S BUSINESS SIGNIFICANT AND GROWING ASSET BASE (3) EFFICIENT, EFFECTIVE ASSET BASE REVENUE PROFILE £BN Water – Recyclate Recyclate Recyclate 9 NHH Retail 9 NHH Retail 9 NHH Retail (4) 6 5% 0% 5% 5% 0% 0% 0% 7 ERF power & Landfill Competition 7 ERF power & Landfill 7 ERF power & Landfill 1% 1% 1% Recyclate Gas Gas Gas 6% 6% 6% 5 ERF power and landfill gas 4 3 5 Recycling, landfill, 5 Recycling, landfill, 5 Recycling, landfill, Water Water Water Water Recycling, landfill, collections & contracts collections & contracts collections & contracts Wholesale Wholesale Wholesale Wholesale 17% 17% 17% collections and and and and and 2 contracts HH Retail HH Retail HH Retail HH Retail 1 Water 1 Water 1 Water 47% 47% 47% 1 ERF – gate fees 4 ERF - not lt 4 ERF - not lt 4 ERF - not lt 3% 3% 3% 0 Contracts 3 Other contracts - lt 3 Other contracts - lt 9% 9% ERF gate fees 2 ERF - lt 2 ERF - lt 12% 12% Water RCV (1) Viridor Asset Base (2) (1) Managed commodity exposure Long-term contracted Varied contract lengths NHH Market Opening 2017 UNDERPINNED BY LONG- (1) South West Water RCV, plus Bournemouth Water RCV from 2015-16 onwards (2) Includes NBV of PPE assets, JV Shareholder Loans and IFRIC 12 Financial Assets TERM INDEX-LINKED (3) Revenue based on H1 2015-16, adjusted to include share of JV revenue and excluding landfill tax, IFRIC 12 construction revenue and revenue subject to natural offset within the Group (i.e. CONTRACTS power and recyclate purchase costs) 4 (4) Non-Regulated and Non-Household Retail Revenue (excluding wholesale charges)

DELIVERING SHAREHOLDER RETURNS COMMITTED TO SECTOR-LEADING, SUSTAINABLE DIVIDENDS + 4% annual increase +4.9% above RPI policy to +6.5% 31.80 2020 +7.3% 30.31 +7.6% 28.46 26.52 Scrip dividend alternative 24.65 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Note: Full Year dividend in pence per share 5

WHOLESALE WATER ON TRACK FOR OUTPERFORMANCE Ofwat Water and sewerage companies’ • Enhanced business plan at PR14 Return on Regulated Equity (RoRE) 2015-20 • Highest RoRE potential in the sector • Track record of delivering efficiency • RoRE at 11.5% (1) Base returns in SWW Business Plan • Bournemouth Water integration on track (1) As at H1 2015/16 6

WHOLESALE WATER ON TRACK FOR OUTPERFORMANCE H1 2015/16 Operational RoRE • Maintain cost leadership/ frontier efficiency at PR19 TOTEX +2.2% -1.5% +2.3% £12.5m • Building customer operational SIM 0.0% quality -0.3% +0.2% £0.1m ODIs +0.3% -1.8% • Focus on environmental +1.5% £1.8m performance and customer service K6 Business Plan Commitment • Strengthen/grow wholesale business Note: Operational RoRE calculated from outperformance on Total Expenditure (TOTEX) compared to 2014 Final Determination allowances and performance on Outcome Delivery Incentives (ODI). Regulatory reporting requirements still to be confirmed by Ofwat for 2015/16 and therefore approach to calculating returns may be amended when further guidance is published 7

ENERGY RECOVERY FACILITIES (ERFS) PORTFOLIO OF ASSETS SERVING RESIDUAL WASTE MARKET • Build out risk diminishing Operational ERF 2016-18 Consented facility • 8 operational ERFs delivered • Construction of 3 further ERFs progressing well • On track to deliver c.£100m ERF EBITDA 16/17 • Supplies residual waste market 8

ENERGY RECOVERY FACILITIES (ERFS) LONG-TERM, PREDICTABLE, ASSET-BACKED, INDEX-LINKED RETURNS ERF REVENUE 5% RECOVERED METALS 25% POWER OUTPUT Pennon - natural hedge SWW/Viridor (c.25%) SHORT TERM MEDIUM TERM CONTRACTED WASTE FUEL 70% LONG TERM INPUT WASTE FUEL INPUT CONTRACTED (GATE FEES) (GATE FEES) (C.80%) VIRIDOR HAS OVER 80% OF ERF REVENUES HEDGED OR CONTRACTED 9 9