Full Year Results 2019/20 North America Roadshow June 2020
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, b) neither Pennon Group nor any other member of Pennon Group or among other things, changes in Government policy; regulatory and legal reform; compliance with laws and regulations; maintaining sufficient finance persons acting on their behalf makes any representation or warranty, and funding to meet ongoing commitments; non-compliance or occurrence express or implied, as to the accuracy or completeness of the information contained within this document; and of avoidable health and safety incidents; tax compliance and contribution; 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 a guide to the future performance of any securities of Pennon Group. increased competition leading to loss of customer base; business interruption or significant operational failure/incidents; difficulty in 2
Pennon A unique combination of environmental infrastructure assets Pennon has been driven by its strategic vision to become a leader in UK infrastructure, delivering for the benefit of customers, communities and the environment. 2019/20 has been a landmark year for Pennon, culminating in the announcement in March 2020, of the proposed sale of Viridor. Going forward, Pennon will continue to pursue operational excellence and growth within the UK water industry. Continuing Group Discontinued operations Water & Wastewater Water Retail Waste Management Regulatory ring-fence Sale of Viridor to KKR Water and wastewater services to B2B water retailer announced in March 2020 a population of c.2.2 m • • Serves Cornwall, Devon, parts of Dorset, PWS is our growing B2B water • Recognises strategic value created in Somerset, Hampshire and Wiltshire retailer currently serving Viridor - £4.2 billion enterprise value >160,000 customers nationwide • Awarded ‘fast - track’ status by Ofwat for • Represents and EV/EBITDA multiple of 2020-25 Business Plan – only company to • c.13,000 new accounts won 18.5x (2) achieve successive fast-track status since market opening Potential to double base returns (1) in K7 • Sale on track for completion in early • summer 2020 (2020-25) (1) Based on Ofwat’s Final Determination Assessment for South West Water (2) Based on Viridor’s 2018/19 adjusted EBITDA of £255.4 million 3
UK Water Industry Regulation Market Regulation – overview • As a provider of water and wastewater services, South West Water operates within a framework which contains a variety of regulators • Regulation on price and performance by economic, quality and environmental factors - this regulatory framework is designed to safeguard the best interests of customers and the environment • Defra set the overall water and sewerage policy framework in England, other regulators focus on specific economic, environmental, customer and drinking water quality aspects Ofwat - water sector economic regulator - legal obligations • Ensure companies properly carry out their functions • Ensure companies can finance their functions • Protect the interest of consumers, wherever appropriate, by promoting effective competition • Ensure the long-term resilience of water and sewerage systems • Promote economy and efficiency • Contribute to the achievement of sustainable development 4
2020-25 Business Plan Ofwat’s Final Determination for South West Water Key Features • Minimal changes to our Business Plan to 2025 • Totex allowance of c.£2 billion – in line with South West Water’s fast track Draft Determination • An innovative sharing mechanism – WaterShare+ • A K7 capital investment programme of c.£1 billion • Appointee cost of capital for the industry of 2.96% (CPIH), 1.96% (RPI) • As a fast-track company, South West Water received a 10 basis point uplift to our base Return on Regulated Equity 5
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 6
Financial Highlights Strong, consistent financial performance 7
Total Shareholder Return Consistently outperforming the market since privatisation 7,500 7,000 Pennon Severn Trent United Utilities FTSE 100 FTSE 250 6,500 6,000 5,500 5,000 4,500 Total indexed to 100 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 K5 K7 K4 K1 K2 K3 K6 Note: Share price as at 17 June 2020 8
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