Half Year Results 2012/13 29 November 2012 Pennon Group Plc (Pennon - - PowerPoint PPT Presentation

Half Year Results 2012/13 29 November 2012

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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 relation thereto and any other related oral or written communications. This document contains certain "forward-looking statements" with respect to Pennon Group's financial condition, results of operations and business and certain of Pennon Group's plans and objectives with respect to these matters. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", “believes", “continue”, "could", "due", "estimates“, "expects", "goal", “intends", "may", “plans", “project”, “seeks”, "should", "targets", “will” and related and similar expressions, as well as statements in the future tense. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will or will not occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking

• statements. These factors include, but are not limited to, changes in the economies and markets in which Pennon Group operates; changes in the regulatory

and competition frameworks in which Pennon Group operates; the impact of legal or other proceedings against or which affect Pennon Group; and changes in interest and exchange rates. All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Pennon Group or any other member

• f the Pennon Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Pennon Group may or may not

update these forward-looking statements. 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 transfer such securities in any jurisdiction. Without prejudice to the above, whilst Pennon Group accepts liability to the extent 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 Company makes publicly available as required by such Rules: (a) neither Pennon Group nor any other member of Pennon Group or persons acting on their behalf shall otherwise have any liability whatsoever for loss howsoever arising, directly or indirectly, from use of the information contained within this document; and (b) neither Pennon Group nor any other member of Pennon Group or persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this document Without prejudice to the above, no reliance may be placed upon the information contained within this document to the extent that such information is subsequently updated by or on behalf of Pennon Group. Past performance of securities of Pennon Group cannot be relied upon as a guide to the future performance of any securities of Pennon Group.

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Pennon Group Plc

H1 2012/13 Financial Highlights

• Profit before tax up 3.4% to £111.1m

 South West Water up 10.0% to £83.8m  Viridor down 26.5% to £22.5m

• Earnings per share before deferred tax up 3.4% to 24.3p(1)
• Dividend

 Interim dividend per share up 6.6% to 8.76p

• Capital investment up 88% to £188m(2)

 includes 4 EfWs under construction

• Substantial cash resources and committed funding

 £85m new/refinanced facilities since 31 March 2012  £995m cash/committed facilities at 30 September 2012(3)

(1)

Basic earnings per share were 26.2p

(2)

Including construction spend on service concession arrangements

(3)

Including £126m deposits with Letter of Credit providers and lessors

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Pennon Group Plc

H1 2012/13 Operational and Business Highlights South West Water

• Strong performance against 2010 – 2015 regulatory contract
• PBT up, in spite of atypical weather
• Average funding cost 4.0%
• Strong operational performance
• Preparing for PR14
• Unable to accept Ofwat Section13 licence proposals but responded

constructively on how concerns can be addressed

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Pennon Group Plc

H1 2012/13 Operational and Business Highlights Viridor

• Continuing growth in profits from joint ventures outweighed by reduction in recycling

 primarily price as flagged previously

• Significant progress in developing pipeline of long-term projects including

− financial close reached for the Glasgow DBFO(1) − financial close reached(2) for the South London Waste Partnership PPP − preferred bidder for the Peterborough PPP − Dunbar planning relaxed(2); proposed EfW can now serve all of Scotland

(1) DBFO – Design Build Finance Operate (2) Post half year

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Pennon Group Plc

Summary Financial Results

(1)

Including construction spend on service concession arrangements

(2) Before deferred tax

For the half year ended 30 September Full Year 2012 £m 2011 £m Change 2011/12 £m Group revenue 633.7 642.6 (1.4%) 1,233.1 Group operating profit 136.3 143.1 (4.8%) 268.8

• SWW

115.0 107.9 6.6% 204.7

• Viridor

21.0 35.2 (40.3%) 63.7 Viridor PBIT plus joint ventures 27.8 40.0 (30.5%) 75.2 Group profit before tax 111.1 107.4 3.4% 200.5

• SWW

83.8 76.2 10.0% 141.5

• Viridor

22.5 30.6 (26.5%) 57.6

• Plc/Other

4.8 0.6

• 1.4

Capex(1) 188.2 99.9 88.4% 273.4 Earnings per share(2) 24.3p 23.5p 3.4% 47.3p Dividend per share 8.76p 8.22p 6.6% 26.52p

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Pennon Group Plc

Cash Flow

For the half year ended 30 September Full Year 2012 £m 2011 £m 2011/12 £m Cash inflow from operations 190.6 185.1 389.9 Net interest paid (31.3) (32.5) (61.3) Dividends paid (18.4) (21.6) (69.1) Tax paid (15.2) (23.2) (41.4) Capital expenditure(1) (184.8) (93.3) (273.6) Acquisitions and investment in joint ventures (6.5) (5.7) (42.6) Loan repayments and dividends received from joint ventures 4.1 3.6 3.6 Pension contributions (7.5) (8.6) (49.2) Net cash (outflow)/inflow (69.0) 3.8 (143.7) Shares issued 3.0 1.6 1.6 Debt acquired with acquisitions (1.1)

• (0.1)

Non-cash movements (1.3) (1.5) (28.6) (Increase)/decrease in net borrowings (68.4) 3.9 (170.8)

Significantly increased capital expenditure to support future growth

(1) Including construction spend on service concession arrangements

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Pennon Group Plc

Net Borrowings

(1) Net borrowings / (equity + net borrowings)

• Gearing stable
• Net borrowings include £252m for EfW plants (Runcorn II, Exeter,

Oxfordshire and Cardiff)

As at 30 September As at 31 March 2012 £m 2011 £m 2012 £m Loans and finance leases 2,632 2,440 2,530 Less: cash and cash deposits (459) (510) (425) Net borrowings 2,173 1,930 2,105 Net gearing (1) 72% 72% 72% SWW debt/RCV 59% 58% 56%

Pennon Group Plc

Viridor EfW Capex – Impact on Net Debt

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• Net debt includes £252m for Runcorn II/Exeter/Oxfordshire/Cardiff – a sizeable

proportion of £690m total spend on these projects

• 2012/13 and 2013/14 are expected to be ‘peak years’ for Viridor EfW capex and

increase in Group net debt

• Cash generation from above EfWs to start in 2014/15

Cumulative Remaining spend to spend Total 30 September 2012 to project completion Project spend EfW projects under construction £m £m £m Runcorn II 129 87 216 Exeter 23 22 45 Oxford 47 159 206 Cardiff 53 170 223 252 438 690

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Pennon Group Plc

Net Interest Analysis(1)

• Effective management of interest rates

 Group 3.2%  SWW 4.0%

(1) Excludes pensions net interest, IFRIC12 “contract interest receivable” and discount unwind on provisions

For the half year ended 30 September Full Year 2012 £m 2011 £m 2011/12 £m Interest payable (44.4) (48.2) (94.3) Capitalised interest payable (4.5) (1.3) (3.0) Interest receivable on shareholder loans to joint ventures 4.6 3.3 7.5 Other finance income 9.9 6.2 11.9 Net interest payable (34.4) (40.0) (77.9) Average rate of interest 3.2% 4.1% 3.9% Net interest cover 4.6x 3.7x 3.6x

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Water Industry

2011/12 Average Interest Rate on Net Debt

• SWW interest rate consistently low

Source: Pennon calculation based on company Annual Reports Basis: Net interest payable (excluding pensions net interest) / average net debt

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Pennon Group Plc

Efficient Financing Strategy

• Mix of fixed, floating and index-linked rate borrowings

 locks in benefit of low interest rates versus OFWAT assumptions  c23% of SWW current debt index-linked to 2041-2057

• At least 50% of SWW net debt fixed for K5 in line with Group policy

 weighted average rate of 3.4%

• Significant finance leasing with long maturity and secured margins
• New financing initiatives in 2012/13

 £85m of new and renewed facilities  a further £213m has been renewed/secured since 30 September

• Average debt maturity 22 years
• Index-linked debt: average real rate 1.7%
• Facilities being renewed in line with expectations

 long-term banking relationships

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Pennon Group Plc

Liquidity

• Cash balances of £459m at 30 September 2012 (includes c.£126m deposits

with Letter of Credit providers and lessors)

• Undrawn facilities of £536m at 30 September 2012
• Committed funding in place for South West Water up to end of K5

 c.£126m will mature over the rest of K5  c.£320m due to mature in K6

• Substantial cash resources and committed funding for the Group

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Pennon Group Plc

Taxation

• Current tax charge 21% (H1 2011/12 – 22%)

For the half year ended 30 September Full Year 2012 £m 2011 £m 2011/12 £m Current tax 23.2 23.4 30.9 Deferred tax 6.8 3.5 23.6 Deferred tax reduction on change of corporation tax rate (13.9) (12.8) (26.4) 16.1 14.1 28.1

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• Interim dividend increased by 6.6% to 8.76p per share
• Sector-leading progressive dividend policy: 4% real to end of K5 period (March

2015)

• Scrip dividend alternative

Pennon Group Plc

Dividends

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South West Water

Financial Performance Summary For the half year ended 30 September Full Year 2012 £m 2011 £m 2011/12 £m Revenue 256.5 244.3 474.0 Operating profit 115.0 107.9 204.7 Profit before tax 83.8 76.2 141.5

• Revenue up 5.0%
• Operating profit up 6.6%
• Profit before tax up 10.0%

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South West Water

Revenue

• Tariff increase of 7.7% (inc. RPI)
• 3.5% reduction in metered customer demand - impacted by wettest summer in 100 years
• 75% domestic customers now metered

244.3 256.5 20.4 1.2 (4.5) (4.9) 220 225 230 235 240 245 250 255 260 265 270

H1 2011/12 Tariff increase New connections Meter option switchers Demand H1 2012/13

£m

South West Water

Operating Costs

• Cumulative K5 cost increases continue to be lower than RPI
• Efficiency savings delivered at cumulative rate of 4.8%pa (vs 2.8% in FD)
• New capital schemes costs reflect growing asset base
• Bad debt charge 2.1% consistent with H1 2011/12, despite economic climate

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136.4 141.5 4.9 1.9 0.6 0.5 (2.0) (0.8) 110.0 115.0 120.0 125.0 130.0 135.0 140.0 145.0 150.0 H1 2011/12 Cost increases (inc. inflation and rates) IFRS Opex Transfers & New capital schemes Bad debts Other (inc. PSAs & Non-recurring) Efficiency savings Restructuring H1 2012/13 £m

South West Water

Operating Cost Efficiency

• Good operational cost control
• Delivering efficiency ahead of FD assumptions

 sustaining momentum over K5

• Cumulative K5 efficiency of £17.1m

 equivalent to 4.8%(1) pa vs 2.8%(2) pa  £2.0m delivered in H1 2012/13

• Efficiency programme progressing well



• perational ways of working (PUROS(3))

 energy procurement and usage  rationalising admin & support services  right-sourcing and innovative contracting

(1) Annual equivalent rate based on cumulative K5 delivery to date (2) Average over K5 (3) PUROS – Phased Utilisation of Remote Operating Systems

K5 cumulative operating

cost efficiencies to September 2012

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Energy K5 to date £3.0m Admin and support services K5 to date £1.4m Right-sourcing and innovative contracting K5 to date £4.8m Operational ways of working K5 to date £7.9m

K5 cumulative capital expenditure to September 2012

• Maintenance focused investment programme
• Cumulative K5 capex £298.6m
• Expenditure £42.7m H1 2012/13 (H1 2011/12

£50.9m)  PUROS enabling expenditure  focus on compliance and reliability

• Capex lower than CIS(1) baseline to date in

K5(2)

• Targeting continued below CIS baseline

expenditure and a 5% outperformance for K5(3)

South West Water

Capital Programme

(1)

Capital Incentive Scheme

(2) Based on current published Construction Output Price Index (COPI) (2) Using 2009 Final Determination estimates of COPI

22 Enhanced Service Levels K5 to date £16m Supply & Demand K5 to date £40m Maintenance K5 to date £200m Quality K5 to date £43m

South West Water

Shareholder Value

• RCV of £2,827m (31 March 2012)
• Debt/RCV gearing 58.6% (30 September 2012) – well within Ofwat’s ‘efficient’ range
• RCV growth benefiting from higher than expected inflation K5 to date
• SWW dividend to Pennon ahead of FD09 assumptions reflecting outperformance

Outturn prices for K5 based on RPI (3.2% 2012/13, 2.4% 2013/14 and 2.7% 2014/15) 23

2,300 2,400 2,500 2,600 2,700 2,800 2,900 3,000 3,100 2010 2011 2012 2013 2014 2015 RCV £m RCV

South West Water

Operational Highlights: Delivering the Regulatory Contract - I

• Wettest summer for 100 years – focus on managing impacts of extreme weather
• Despite the wet weather

– 91% (133) beaches achieved good status (60% achieving excellent status)

• Good performance against Ofwat’s new KPIs

– ‘Green’ status on customer experience, reliability and availability, key environmental impact measures – sector-leading for current serviceability, sludge disposal, security of supply, leakage and sewer flooding incidents – improvements targeted for pollution incidents and waste water treatment

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South West Water

Operational Highlights: Delivering the Regulatory Contract - II

• Further improvements in customer service

– continued upward trend in SIM(1) performance – highest ever customer satisfaction score achieved Q2 2012/13 – written complaints halved in two years – 95% of customer complaints resolved first time

• Reducing leakage – industry leading performance - target met every year
• 16th consecutive year without water restrictions

(1) Service Incentive Mechanism

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South West Water

Political and Regulatory Developments - I

• Government support for household customer bills welcome

– £50 reduction to 2013/14 household customer bills – no impact on SWW financial/regulatory position

• Draft Water Bill

– ‘Water for Life’ White Paper a clear direction for evolutionary change – draft Water Bill focuses on regulatory and market reform – retention of investor and customer confidence recognised as key

• ‘Source for Business’ in place for non-domestic customers

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South West Water

Political and Regulatory Developments - II

• Licence changes

 in common with the majority of the other water companies SWW unable to accept Ofwat’s proposed licence modifications  not in the long-term interests of customers  essential to sustain investor confidence  looking forward to continuing discussions with Ofwat to achieve a mutually acceptable conclusion

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South West Water

Political and Regulatory Developments - III

• Preparing for PR14

– updated 25-year outlook(1) – soon to be published – significant customer/stakeholder engagement and research – engagement with regulators on long-term legislative obligations driving investment plans & priorities – development of customer challenge panel – new website www.southwestwater.co.uk/waterfuture

• PR14 Timetable

– Draft Ofwat methodology December 2012 – Final Ofwat methodology Spring 2013 – Business plan submission Spring 2014 – Draft determination Summer 2014 – Final determination November 2014

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(1) previously Strategic Direction Statement (SDS)

South West Water

Summary

• Outperforming K5 regulatory contract
• Preparing for PR14
• Well positioned for legislative changes

Successful operational strategy Underpinned by strong financial performance

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Viridor Strategy

Transforming Waste

• Viridor strategy is to add value through recycling and renewable energy generation

whilst capitalising on its strong position in landfill

• From 2007/08 until 2010/11 (and into H1 2011/12) growth in recycling profits more

than offset decline in annual landfill profits

• As noted since February 2012 recyclate prices per tonne have fallen from their first

half 2011/12 peak reflecting world economic and market conditions

• Roll-out of Viridor’s PPP/EfW pipeline (operations commencing 2013/14 onwards)

 substantial further progress during 2012/13

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Viridor

Financial Performance Summary

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For the half year ended 30 September Full Year 2012 £m 2011 £m Change % 2011/12 £m

Revenue(1) 378.1 399.2 (5.3) 761.1 EBITDA 44.9 58.4 (23.1) 110.3 PBIT 21.0 35.2 (40.3) 63.7 PBIT plus joint ventures(2) 27.8 40.0 (30.5) 75.2 PBT 22.5 30.6 (26.5) 57.6

(1) Including landfill tax (2) Interest receivable on shareholder loans plus share of PAT

Viridor

Financial Highlights

• Revenue decreased by £21.1m (5.3%) to £378.1m

 recycling down £18.8m (lower prices), and landfill plus landfill tax down £7.5m (lower volumes)

• EBITDA decreased by £13.5m (23.1%) to £44.9m
• PBIT plus joint ventures decreased by £12.2m (30.5%) to £27.8m

 increased contribution from joint ventures  more than offset by decline in recycling  Q2 below Q1 reflecting recyclate prices

• PBT decreased by £8.1m (26.5%) to £22.5m including intra group refinancing benefit
• Capex and investment in joint ventures(1) £145.4m (H1 2011/12 – £49.0m) of which

c£132m is Viridor growth projects (largely EfW) and the balance maintenance

(1) Including construction spend and service concession arrangements

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Viridor

Profit Contribution by Activity(1)

• c40% of profits from recovering value in waste(3)

(1) Contribution plus joint ventures (share of PAT and Interest) before intangibles and indirect costs of £24.6m in H1 2012/13 and £23.5m in

H1 2011/12 (including pensions, insurance, bid costs, environmental management and overheads)

(2) “Contracts” includes Lakeside and Greater Manchester sub-contracts, West Sussex PFI, other municipal contracts and sludge contracts

and ‘Other’ includes asset disposals

(3) Including more than 2% energy generation/recycling in JVs and Contracts & Other

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Recycling £8.7m 16% LFG power generation £10.5m 20% Contracts and Other(2) £12.8m, 25% JVs £6.8m, 13% Landfill £11.5m, 22% Collection £2.1m, 4%

Half year ended 30 September 2012 (£52.4m)

Recycling £19.9m, 32% LFG power generation £11.4m, 18% Contracts and Other(2) £12.6m, 20% JVs £4.8m 7% Landfill £11.5m, 18% Collection £3.3m, 5%

Half year ended 30 September 2011 (£63.5m)

Viridor

Profit Contribution by Activity

H1 2012/13 £m H1 2011/12 £m Recycling 8.7 19.9 LFG power generation 10.5 11.4 Contracts and other 12.8 12.6 Joint ventures 6.8 4.8 Landfill 11.5 11.5 Collection 2.1 3.3 Total contribution 52.4 63.5 Indirect costs (including intangibles, pensions, insurance, bid costs, environmental management and overheads) (24.6) (23.5) PBIT + JVs 27.8 40.0

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Viridor

UK Waste Market Projections (Tonnes m)

2010/11 2015/16 2020/21 Total Market Viridor Total Market Total Market Landfill 43 4.7 20 5-10 Energy from Waste 6 0.3 10 15-20 Recycling(1) 28 1.8 35 35 Total 77 6.8 65 60

36 Source: DEFRA; UK Landfill Tax Bulletin; Viridor analysis and estimates

• Viridor has a further 1.7m tonnes of EfW capacity under construction or

committed subject to planning permission (of which 0.9m is already backed by municipal contracts plus Viridor collection) which will give it a total capacity of at least 2.0m tonnes by end 2015/16. (Figures include joint venture capacity on a pro-rata basis)

(1) Including construction and demolition waste and compost

Viridor

Operational Highlights - Recycling

• Volumes traded increased by 23k tonnes (2.6%) to 936k tonnes

 impact of acquisitions (27kt) offset by weak UK economic conditions

• Overall average revenue per tonne (gate fee and recyclate sale) down 17.6% to £103

compared to £125 in previous half year  prices significantly lower than £103 by end of Q2  cost base adjusted accordingly: circa half of impact recovered via terms of customer supply contracts and by cost reductions  no overall improvement in prices to date in Q3; cautious on prospect for recovery

• On-going focus on revenue optimisation and facilities rationalisation/cost reduction
• Long-term economics of recycling (and energy recovery) enhanced by landfill tax

increasing by £8 per year from current £64 per tonne to £80 per tonne from 1 April 2014  recyclate very economical compared to virgin materials

• For a three minute introduction to Viridor’s MRFs, see

http://www.youtube.com/user/ViridorTV

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Viridor

Recyclate Revenues Per Tonne

• Viridor strategy is to maximise recyclate quality and hence revenue and margin per tonne

 but not immune to world economic and market conditions

• Key sensitivity: £10 per tonne change in revenue per tonne on c2m tonnes pa implies c£20m change

in revenue pa

(1) Calendar year basis

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• 20

40 60 80 100 120 140 £ PER TONNE

Weighted Average (1)

Viridor

Acquisitions

• Targeted to support Viridor’s recycling and EfW strategies
• In July Viridor acquired JWT Holdings, a waste collection and recycling business

based in Greater Manchester, for £7.6m  annual volume 70kt

• In October Viridor acquired Pulp Friction, a paper collection and processing

business based in Erith, Kent, and the business and assets of SBS Paper LLP, for £9.0m  annual volume 100kt

• Both acquisitions made on debt-free basis

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Viridor

Operational Highlights – Contracts and Collection

• Contracts

 16 municipal contracts around the UK (including Lancashire, Glasgow, Lakeside, Manchester, Somerset, W Sussex PFI and (last full year) Bedfordshire)  Thames Water 

• verall profit contribution up
• Collection profit contribution down (volumes and prices)
• Viridor collection fleet has an increasing role in feeding our recycling plants

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Viridor

Operational Highlights – Joint Ventures

• JVs’ contribution (interest receivable on shareholder loans and share of PAT) increased 42% to

£6.8m (H1 2011/12 - £4.8m)

• Lakeside, the first of our EfW pipeline, continues to perform very strongly and is ahead of

management expectations (waste input and energy output) - contribution of £3.0m (H1 2011/12 £1.8m)  £0.8m interest receivable on shareholder loans (up £0.2m) and £2.2m share of PAT (up £1.0m) plus £1.5m (up £0.1m) sub-contract profit (included in contracts segment)

• Viridor Laing Greater Manchester  contribution £3.8m (H1 2011/12 £3.0m)

 £3.8m interest receivable on shareholder loans, up £1.1m because of increased shareholder loans (H1 2011/12 - £2.7m)  £0.0m share of PAT IFRIC 12 basis down £0.3m (£3.2m profit UK GAAP, up £1.8m)  39 of the total 43 planned facilities formally taken over by Viridor

• For an introduction to Viridor’s Energy from Waste plants, including Lakeside and the

Greater Manchester Waste PFI solution, see http://www.youtube.com/user/ViridorTV

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Viridor

Operational Highlights – Landfill Gas Power Generation

• Total landfill gas power generation 303GWh up 8% on last year level of 280GWh

reflecting successful optimisation programme  approaching peak output

• Average revenue per MWh down 3% to £77.7 per MWh (£79.8 2011/12) reflecting

reduced ROBOR(1)

• Total operational capacity(2) decreased by 1MW since 31 March 2012 to 105MW at

30 September 2012 reflecting rebalancing of capacity between sites  higher value ROC(3) component remained at 74%; NFFO(4) 26%  c60% of NFFOs migrate to ROCs in 2013/14; balance up to 2016/17

(1) ROBOR – Renewables Obligation Buyout Recycle fund payment (2) Excludes 3MW capacity at sub-contract sites in Suffolk (3) ROC – Renewables Obligation Certificate (4) NFFO – Non Fossil Fuel Obligation

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Viridor

Operational Highlights - Landfill

• Overall profit contribution maintained
• Total volumes decreased by 0.3m tonnes (17.0%) to 1.4m tonnes in line with the

market  site closure (Horton) and mothballing (Whitehead) accounted for one third of the decline 

• ngoing impact of landfill diversion/recycling and weak UK economy
• Average gate fees increased by 15.7% (to £26 per tonne)

 partly offset by increased costs on lower volumes

• Consented landfill capacity fell from 65.4million cubic metres (mcm) at 31 March

2012 to 64.0mcm at 30 September 2012 reflecting usage in the period

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Viridor

PPP/EFW Pipeline

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• Runcorn I and Runcorn II, Exeter, Oxfordshire and Cardiff EfWs under construction
• Glasgow recycling and residual waste DBFO signed July 2012
• South London Waste Partnership residual waste PPP contract signed November

2012

• Preferred bidder for Peterborough recycling and residual waste
• Planning restriction on proposed Dunbar EfW relaxed October 2012 – now able to

serve all of Scotland

• Healthy project pipeline and down to last two for

 Central Bedfordshire residual waste  South East Wales (Prosiect Gwyrdd) residual waste  West Lothian residual waste

• Increasing landfill tax is the fundamental driver for the above projects

Viridor

H1 2012/13 Summary

• PBIT plus joint ventures down 30.5%

 continued growth in joint ventures outweighed by decline in recycling

• Recyclate prices have fallen from their first half 2011/12 peak reflecting world

economic and market conditions 

• n-going stringent revenue optimisation and facilities rationalisation/cost

reduction programme  Viridor financial performance will continue to be impacted by world market prices for recylcate

• PPP and EfW projects already contributing significantly to the bottom line; major

advances since the start of 2012/13 in PPP/EfW pipeline  Glasgow, South London, Peterborough, Dunbar  pipeline projects could add more than £100m to Viridor EBITDA within four years

Strategy focused on transforming waste  recycling key to profits in the short-term  long-term profit momentum underpinned by PPP/EfW pipeline

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Pennon Group Plc

Summary

• Strategy clearly focused on water and sewerage services; recycling; renewable

energy; and waste management

• £188m invested in key infrastructure supporting the development of the UK economy
• South West Water

− strong performance against K5 regulatory contract − delivering outperformance

• Viridor

 near-term headwinds from recyclate prices  PPP / EfW pipeline underpins long-term profit momentum

• Well funded with efficient long-term financing

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Appendices

49

Pennon Group Plc

Net Borrowings Analysis as at 30 September 2012 £m Finance leasing 1,280 Bank bilaterals - RCFs/term loans 461 EIB 238 Index-linked bond 2057 240 Bond 2040 132 Private placements 162 Convertible bond 119 Total gross debt 2,632 Less: Cash/liquid investments (459) Net borrowings 2,173

• Key role of finance leasing
• Diversified funding sources

50

Pennon Group Plc

Pensions as at 30 September 2012

• Gross pension deficit of £104m (March 2012 - £99m)

 £80m net of tax (March 2012 - £75m) September 2012 March 2012

• Pension schemes’ assets £526m £517m

Pension schemes’ liabilities £630m £616m £104m £99m = £80m net of tax = £75m net of tax

• Deficit recovery contributions paid in 2011/12 until end of K5
• SWW cash contributions within Final Determination
• Net deficit c4% of market capitalisation