Half Year Results 2019/20 1 Disclaimer For the purposes of the - - PowerPoint PPT Presentation

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Half Year Results 2019/20

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Disclaimer

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 verbal 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 which may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipate”, “aim”, “believe”, “continue”, “could”, “due”, "estimate“, “expect”, “forecast”, “goal”, “intend”, “probably”, "may", “plan", “project”, “seek”, “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 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. Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation, development

• r performance of the Group and the estimates and historical results given
• herein. Important risks, uncertainties and other factors that could cause actual

results, performance or achievements of Pennon Group to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things, changes in Government policy; the exit

• f the United Kingdom from the European Union; international treaty changes

and other events; re-nationalisation; regulatory and legal reform; compliance with laws and regulations; maintaining sufficient finance and funding to meet

• ngoing commitments; non-compliance or occurrence of avoidable health and

safety incidents; tax compliance and contribution; failure to pay all pension

• bligations as they fall due and increased costs to the Group should the defined

benefit pension scheme deficit increase; non-recovery of customer debt; poor

• perating performance due to extreme weather or climate change; macro-

economic risks impacting commodity and power prices and other matters; poor customer service and/or increased competition leading to loss of customer base; business interruption or significant operational failure/incidents; difficulty in recruitment, retention and development of skills; non-delivery of regulatory

• utcomes and performance commitments; failure or increased cost of capital

projects/exposure to contract failures; failure of information technology systems, management and protection, including cyber risks; and all risks described in the Pennon Group Annual Report published in June 2019. Forward looking statements should therefore be construed in light of such risks, uncertainties and other factors and undue reliance should not be placed on

• them. Nothing in this document should be construed as a profit forecast.

All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Pennon Group or any other member of 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; 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; and c) no reliance may be placed upon the information contained within this document to the extent that such information is subsequently updated by or

• n 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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Chris Loughlin Group Chief Executive

Half Year Results 2019/20

Pennon Bringing resources to life

Good results, momentum maintained – delivered in the right way Review of Pennon Group strategic focus, growth options and capital allocation underway

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• Delivering for our customers – best ever customer service score
• Continued sector leading outperformance – cumulative 11.8% RORE(1) – sharing benefits with customers
• Highest potential outperformance for K7
• Fast start well underway for K7 – projects delivering early benefits focused on ODI(1) performance

South West Water

• Focus on infrastructure model, de-risked through index-linked long-term contracts
• Portfolio of operating Energy Recovery Facilities (ERFs) consistently outperforming base case
• Well positioned to take advantage of strong market fundamentals – confidence in long-term market outlook
• Growth through investment in further ERFs, Plastics Recycling Facilities and Energy Parks
• JV with Grundon to build a new ERF in West Sussex
• Construction of Viridor’s £65m Avonmouth Plastics Recycling Facility underway

Viridor

• Our core values are embedded in delivering outstanding service to customers and communities

(1) RORE - Return on Regulated Equity; ODI – Outcome Delivery Incentives

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Susan Davy Chief Financial Officer

Half Year Results 2019/20

H1 2019/20 Financial Highlights Robust financial performance

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+3.3%

(1) Adjusted EBITDA includes IFRIC 12 interest and joint venture EBITDA (2) Measures presented are on a consistent accounting basis, to exclude the impact of IFRS 16 Leases and adjusted/underlying measures are presented before non-underlying items, see slide 10 (3) Underlying EPS before deferred tax, non-underlying items and proportionately adjusted for the return due on the perpetual capital securities (4) Dividend policy of 4% + RPI to 2020. RPI 2.4% at 30 September 2019 (5) Total tax contribution includes landfill tax collected and borne, VAT, business rates, employment taxes, corporation tax, fuel excise duty, carbon reduction commitment, environmental payments and climate change levy and external landfill tax

Responsible delivery of results for all stakeholders

+4.3% +17.6%

Adjusted(2)(3) Statutory

Earnings Per Share Adjusted EBITDA(1)(2)

3.5%

Effective Interest Rate

Strong Balance Sheet

Robust financial performance

+6.4%

Dividend Per Share

(4)

• Founder of the Sustainable

Financing Framework - at the forefront of sustainable financing

• First water and waste company

to receive the Fair Tax Mark accreditation

• Innovative mechanism to share

benefits of outperformance

• Responsible contributions

– Voluntarily accelerated pension deficit recovery

contributions of £17.2m in H1 2019/20

– Total tax contribution(5) £141m in H1 2019/20

Half Year Results 2019/20

Robust Group financial performance

• Expected revenue reduction reflecting:

– Cessation of Viridor’s Greater

Manchester recycling operating contract

– SWW demand reduction from prior

period elevated weather driven levels

• Good operational cost control across

the Group and strong performance across Viridor activities Efficient financing

• Reduced average interest rate to 3.5%
• £18m non-underlying movement in
• period. £87.2m cash crystallised on

settlement of SWW 2040 bond derivatives – locking in value

• Interest rate efficiency supporting

cumulative SWW RORE of 11.8%

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Pennon Financial performance in line with expectations for 2019/20

Underlying(1) H1 2019/20 H1 2019/20

(excluding IFRS 16 impact)

H1 2018/19 Change(1)

(excluding IFRS 16 impact)

Revenue 712.4 712.4 746.7 (4.6%) EBITDA 283.9 276.8 274.0 +1.0% Adjusted EBITDA(2) 311.5 304.4 294.7 +3.3% Depreciation and Amortisation (103.2) (97.3) (95.5) (1.9%) Operating Profit 180.7 179.5 178.5 +0.6% Net Interest (45.1) (43.1) (40.8) (5.6%) Share of JV Profit After Tax 7.3 7.3 4.8 +52.1% Profit Before Tax 142.9 143.7 142.5 +0.8% Non-underlying Items Before Tax(3) 20.2 20.2 (8.9)

• Profit Before Tax

163.1 163.9 133.6 +22.7% Tax (29.6) (29.6) (17.6) (68.2%) Profit After Tax 133.5 134.3 116.0 +15.8% Adjusted Earnings Per Share(4) (p) 31.1 31.3 30.0 +4.3% Statutory Earnings Per Share (p) 30.1 25.6 +17.6% Dividend Per Share(5) (p) 13.66 12.84 +6.4%

(1) Measures presented are on a consistent accounting basis, to exclude the impact of IFRS 16 Leases and adjusted/underlying measures are presented before non-underlying items, see slide 10 (2) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (3) Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of financial performance (4) Adjusted EPS: before deferred tax, non-underlying items and proportionately adjusted for the return due on the perpetual capital securities (5) Dividend policy of 4% + RPI. RPI 2.4% at 30 September 2019

£m

Half Year Results 2019/20

Viridor Delivering growth underpinned by index-linked long-term contracts

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(1) Measures presented are on a consistent accounting basis, to exclude the impact of IFRS 16 Leases and adjusted/underlying measures are presented before non-underlying items, see slide 10 (2) Including landfill tax and construction spend on service concession arrangements (3) Including construction and lifecycle spend related to service concession arrangements

Underlying(1) H1 2019/20 H1 2019/20

(excluding IFRS 16 impact)

H1 2018/19 Change(1)

(excluding IFRS 16 impact)

Revenue(2) 388.1 388.1 422.3 (8.1%) EBITDA 92.4 86.2 78.4 +9.9% ERFs 71.4 71.0 66.6 +6.6% Landfill 4.6 4.4 3.8 +15.8% Landfill Gas 11.1 11.1 8.1 +37.0% Recycling 10.1 7.6 7.4 +2.7% Contracts, Collections & Other 21.0 18.5 20.3 (8.9%) Indirect Costs (25.8) (26.4) (27.8) 5.0% Depreciation and Amortisation (43.7) (38.5) (36.2) (6.4%) Share of JV Profit After Tax 7.3 7.3 4.8 +52.1% Net Interest (14.5) (13.1) (10.8) (21.3%) Profit Before Tax 41.5 41.9 36.2 +15.7% Capital Expenditure(3) 94.4 94.4 131.9 (28.4%) Share of JV EBITDA(4) 20.2 20.2 13.4 +50.7% IFRIC 12 Interest Receivable 7.4 7.4 7.3 +1.4% Adjusted EBITDA(5) 120.0 113.8 99.1 +14.8%

Revenue

• Expected revenue reduction from planned

Greater Manchester recycling operating contract cessation and lower landfill tax – minimal profit impact ERF operational ramp up

• Increased performance as new ERFs

ramp-up

• Strong contribution from JVs including

increased investment in TPSCo

• Reducing capital investment with assets

now operational Optimising landfill and landfill gas

• Strong engine availability & gas collection
• Higher year on year renewable gas pricing

Delivering in recycling

• Resilient performance - focus on quality
• Investing in UK based processing

Focus on cost base

• Driving ongoing indirect cost efficiencies

(1) Joint venture EBITDA reflects the acquisition of the additional stake in Runcorn I in H2 2018/19 (2) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC12 interest receivable (4) (5)

£m

Half Year Results 2019/20

South West Water Continued outperformance – on track for highest sector returns in K6

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Underlying(1) H1 2019/20 H1 2019/20

(excluding IFRS 16 impact)

H1 2018/19 Change(1)

(excluding IFRS 16 impact)

Revenue(2) 292.9 292.9 301.5 (2.9%) Operating Costs (102.3) (103.2) (106.8) +3.4% EBITDA 190.6 189.7 194.7 (2.6%) Depreciation and Amortisation (59.1) (58.4) (58.8) +0.7% Operating Profit 131.5 131.3 135.9 (3.4%) Net Interest (35.3) (34.7) (35.6) +2.5% Profit Before Tax 96.2 96.6 100.3 (3.7%) Capital Expenditure 77.6 77.6 68.6 +13.1% Return on Regulated Equity: WaterShare RORE(3) 11.9% 11.9% 11.6% +0.3% Ofwat RORE(4) 12.0% 12.0% 12.3% (0.3%)

(1) Measures presented are on a consistent accounting basis, to exclude the impact of IFRS 16 Leases and adjusted/underlying measures are presented before non-underlying items, see slide 10 (2) Includes wholesale revenue for non-household customers (3) Financing outperformance based on average forecast RPI for K6 of 2.8% (4) Ofwat’s definition of financing outperformance calculated based on average RPI of 1.1% for 2015/16, 2.1% for 2016/17, 3.7% for 2017/18, 3.1% for 2018/19 and 2.7% for 2019/20. (5) Net tariff increase reflects the net position post Wholesale Revenue Forecast Incentive Mechanism (WRFIM) pass back of £9.0m for H1 2019/20

Weather related revenue impacts

• Overall revenue reduced by 2.9%

– c.84% metered customer base – lower

revenue following exceptionally dry weather last year

– Net of 0.6%(5) tariff increase – Mitigated by revenue ‘true-up’

mechanism Momentum in efficiency

• Overall cost reductions down 3.4%

– Efficiencies offsetting inflation – Extreme weather costs of c.£3m from

prior period not repeated

• Efficient financing – 3.4% effective rate

Strong RORE

• Maintaining momentum, cumulative K6

position 11.8%

• £268m Totex delivered to date - on track to

deliver c.£300m of Totex outperformance by 2020 £m

Half Year Results 2019/20

Derivatives

• Fair value movement of South West

Water 2040 bond swaps to settlement in September 2019. Locking in benefit of low yield environment

• Cash benefit of £87.2m

Pension past service credit

• £2.2m recognised – reflects aspects of

closedown of defined benefit pension schemes following cessation of the Greater Manchester recycling operating contract

Pennon Non-underlying items

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H1 2019/20 £m H1 2018/19 £m Derivatives 18.0 (8.9) Pension past service credit 2.2

• Profit Before Tax

20.2 (8.9) Tax on non-underlying items (5.2) 1.7 Profit After Tax 15.0 (7.2)

A A B B

Half Year Results 2019/20

Corporation Tax A responsible approach to tax – managing tax efficiently for the benefit of customers and shareholders

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H1 2019/20 £m H1 2018/19 £m Current Year Current Tax 13.7 15.6 Deferred Tax 13.1 12.2 26.8 27.8 Prior Year Current Tax (4.9) (3.2) Deferred Tax 2.5 (5.3) (2.4) (8.5) Total Underlying Tax Charge 24.4 19.3 Non-underlying items(1) 5.2 (1.7) Total Statutory Tax Charge 29.6 17.6

• First water and waste infrastructure

business to secure accreditation

• Demonstrates transparency and best

practice across the Group

• Total tax contribution(2) £141m for H1

2019/20. Tax charge reflects investment profiles

• Comparable current year current tax

effective rate of 9.6% in H1 2019/20 (H1 2018/19 10.9%)

• Lower than the UK headline rate of 19%,

reflecting capital allowances (including ERFs) resulting in deferred tax charge in current period

• Prior period items reflect clarification of

uncertain tax items.

(1) £16.3m current tax charge and (£11.1m) deferred tax credit (2) Includes landfill tax collected and borne, VAT, business rates, employment taxes, corporation tax, fuel excise duty, carbon reduction commitment, environmental payments and climate change levy and external landfill tax

Half Year Results 2019/20

Capital investment Continued investment for growth across the Group

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100 200 300 400 500

2015/16 2016/17 2017/18 2018/19 H1 2019/20 H2 2019/20

SWW Viridor

£m

H1 2019/20 £m H1 2018/19 £m Total Water 78 69 Total Viridor 94 132 Total(1) 172 201

Group Capex

Key elements of Group expenditure in H1 2019/20

• Early investments for K7 – focused on ODI delivery
• Water quality investments, including commencing c.£10m project at

College water treatment works

• Commissioning of Mayflower water treatment works
• Construction of Avonmouth ERF on track for commissioning in H2

2019/20

• Construction of Plastics Recycling Facility at Avonmouth underway
• Upgrade of Masons Material Recycling Facility (MRF)

(1) Including construction and lifecycle spend related to service concession arrangements, capitalised interest (£6.1m in H1 2019/20), ERF maintenance capital expenditure net of amounts subject to legal contractual process in H1 2018/19.

Half Year Results 2019/20

Net Debt Movements Strong cash inflow from operations

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(3,079.5) 339.8 87.2 (2.2) (37.9) (48.9) (26.8) (35.3) (8.6) (172.6) (192.9) (3,177.7) (118.3) (3,296.0)

Net Debt 01-Apr-19 Cash inflow from operations Cash settlement

• f derivatives

Other movements Pension contributions Other taxes Corporation tax Net interest paid Hybrid coupon payment Interim & Final 2018/19 dividend Capital additions Net Debt 30-Sep-19 (pre- IFRS 16) IFRS 16 adjustment Net Debt 30-Sep-19

Substantial operating cash flows supporting:

• Continued capital investment
• Accelerated pensions contributions
• Responsible tax contributions
• 2018/19 interim and final dividends paid

(1) Other taxes include business rates, employers national insurance, fuel excise duty, carbon reduction commitment, environmental payments, climate change levy and external landfill tax (2) Includes one-off impact of accelerated HMRC payment on account timing (3) Includes net of proceeds from sale of property, plant and equipment and spend on service concession arrangements (4) IFRS 16 adjustment reflects impact of the new accounting standard on Group net debt. This non-cash impact has no debt covenant impact

(3) (4)

£m

(2)

Non-cash impact of IFRS 16 has no debt covenant impact

(1)

Half Year Results 2019/20

Balance Sheet Sustainable funding position underpinning investment

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Group Net Debt Profile(1)

• £3,178m net debt at 30 September 2019
• Sustainable and diversified funding mix, underpinned by

finance leases with long maturities

• Average maturity for the Group 18 years

South West Water Funding

• c.25% index-linked – first CPI linked instrument issued –

fully aligned to CPI index - £50m

• H1 weighted - reflecting timing of

dividend payments – gearing anticipated to reduce in H2 2019/20

Optimised financing

66.3%

65.5% at 30 September 2018

63.1%

61.9% at 30 September 2018 Group Net Gearing(2) Water Business Debt / RCV(3) Floating

£519m

16%

Index-Linked

£570m

18%

Fixed

£2,089m

66%

(1) Excluding impact of IFRS 16 Leases (2) Net borrowings / (equity + net borrowings) excluding impact of IFRS 16 (3) Based on Regulatory Capital Value (RCV) forecast at 31 March 2020 and South West Water group net debt (excluding the impact of IFRS 16). Regulatory SWW Limited Gearing is 65.8% at 30 September 2019 (62.1% at 30 September 2018)

Funding and Liquidity

• £1.6bn cash & committed facilities

(31 March 2019 £1.2bn)

• Headroom for investment c.£800m
• SWW – gearing increased to optimise

balance sheet – aligned with Ofwat’s K6 notional efficient level

Half Year Results 2019/20

Balance Sheet Sustainable Financing Framework delivering efficient financing costs

• Good availability of financing
• Speed of execution through the framework
• Efficient financing rates

Balanced portfolio of sustainable financing Sustainably linked financing - £845m raised to date

v

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• £230m against Pennon Group’s ESG performance
• £90m green long-funding lease facilities
• £400m from sustainability linked counterparties
• £75m against SWW bathing water targets
• £50m green CPI linked loan

Progressive approach to financing

Half Year Results 2019/20

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Finance Costs Efficient financing – mitigating risk

• Aligned to Ofwat’s PR19

methodology

• Rolling 10 year hedges for new

debt in K7

• Embedded debt matched to

regulatory delivery period

• c.50% of South West Water

floating rate net debt hedged for the next regulatory period

(1) Before non-underlying items – see slide 10, excludes the impact of IFRS 16 of £2.0m

£43.1m

£40.8m H1 2018/19

H1 2019/20 net finance costs(1)

3.5%

3.6% H1 2018/19

3.4%

3.5% H1 2018/19

H1 2019/20 SWW interest rate H1 2019/20 Group interest rate Interest rate hedging for K7

Hedging activity

0.50% 0.70% 0.90% 1.10% 1.30% 1.50% 1.70% 1.90%

20 Year 10 Year 7 Year 5 Year Hedging activity

Swap rates

2040 bond settlement

Half Year Results 2019/20

Dividend Growth Track record driving sustained dividend growth

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2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Note: Dividend in pence per share

+9.3% +5.6% +4.9% +6.5% +7.3% +7.6% +7.1% +7.3% 38.59p 35.96p 33.58p 31.80p 30.31p 28.46p 26.52p 24.65p 22.55p

• Interim dividend of 13.66p, up +6.4%(1)
• Viridor earnings and sustained outperformance in the water business

supporting growth in dividends

• Dividend reinvestment plan (DRIP) available

+6.4% 41.06p

Delivering on 10 year sector leading policy of RPI +4% to 2020

(1) 2019/20 interim dividend based on 30 September 2019 RPI of 2.4%

Final dividend Interim dividend

H1 13.66p +6.4%

Half Year Results 2019/20

Chris Loughlin Group Chief Executive

Half Year Results 2019/20

Pennon Bringing resources to life

Good results, momentum maintained – delivered in the right way Review of Pennon Group strategic focus, growth options and capital allocation underway

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• Delivering for our customers – best ever customer service score
• Continued sector leading outperformance – cumulative 11.8% RORE(1) – sharing benefits with customers
• Highest potential outperformance for K7
• Fast start well underway for K7 – projects delivering early benefits focused on ODI(1) performance

South West Water

• Focus on infrastructure model, de-risked through index-linked long-term contracts
• Portfolio of operating Energy Recovery Facilities (ERFs) consistently outperforming base case
• Well positioned to take advantage of strong market fundamentals – confidence in long-term market outlook
• Growth through investment in further ERFs, Plastics Recycling Facilities and Energy Parks
• JV with Grundon to build a new ERF in West Sussex
• Construction of Viridor’s £65m Avonmouth Plastics Recycling Facility underway

Viridor

• Our core values are embedded in delivering outstanding service to customers and communities

(1) RORE - Return on Regulated Equity; ODI – Outcome Delivery Incentives

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Half Year Results 2019/20

Viridor

Half Year Results 2019/20

Viridor Leading UK waste management core infrastructure business

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• Strong delivery in H1 2019/20

–

Continued momentum for outperformance

–

Resilient financial performance underpinned by de-risked business model

• Providing a unique platform for growth

–

Track record of significant growth from a complementary portfolio

–

Defined strategy to deliver growth from ERFs, plastics recycling and Energy Parks

–

Well placed to benefit from sustained imbalance of supply and demand for ERFs and plastics recycling

(1) Split based on EBITDA excluding indirect costs

Half Year Results 2019/20

Viridor Residual waste: Strong delivery in H1 2019/20 – continued momentum

• Strong operational performance in ERFs

–

Portfolio of ten operating ERFs is performing well

–

Glasgow, Beddington and Dunbar ERFs progressing through

• perational ramp-up

–

ROCs(1) confirmed for Glasgow

–

On track to deliver full year availability > 90%(3) for fourth consecutive year – planned maintenance H1 weighted

• Avonmouth ERF on track - commissioning H2 2019/20

–

Operational ramp-up from 2020/21

• De-risked portfolio

–

100% contracted

–

80% secured under long-term index-linked contracts

–

20% short/medium term (less than 10 years)

–

Further de-risking the 20% with increasing demand for medium/longer term Commercial and Industrial contracts

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(1) Renewable Obligations Certificates – secured for a period of 20 years from commissioning (2) Adjusted EBITDA performance above base case investment assumptions (3) ERF availability is an average weighted by site base case capacity, including 100% of joint ventures

Outperformance in excess of £35m since 2017

Half Year Results 2019/20

• Continuing to develop options for new ERFs

–

Heads of Terms with Grundon for a new 40 year JV in Ford, West Sussex

–

Site with outline planning permission

–

De-risked inputs through shared commitments

–

Energy Park potential – adjacent to existing Materials Recycling Facility

–

Trend of increased UK processing and reduction of RDF export

• Optimising long-term value from Landfill

–

Demand for landfill remains strong particularly in targeted geographies – two new cells constructed

–

CarbonOrO agreement – a global first, transforming landfill gas into transport fuels

–

Strong gas collection and engine availability

–

Asset improvements leveraging spare grid capacity

23

Viridor Residual waste: Strong delivery in H1 2019/20 – continued momentum

Half Year Results 2019/20

Viridor Recycling: Delivering continued progress in recycling in H1 2019/20

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• Avonmouth plastics recycling facility construction underway

–

On track to contribute to earnings in 2020/21

–

c.85% of inputs and c.75% of offtake contracts secured

• Policy and regulatory measures driving market opportunity

–

Increased requirement for plastics recycling

–

Viridor moving up the value chain – capturing additional margin

• Opportunities to increase our market share in plastics

–

Exploring two further Plastics Recycling Facilities at Ardley and Dunbar ERFs

–

More than doubling Viridor’s capacity for plastics processing – estimated market share >15%

(1) Viridor analysis, WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018

Half Year Results 2019/20

Viridor Energy Parks: Leveraging value from Viridor asset base

c.50% of Viridor total power output will supply long- term private wire connections or own usage

–

Landfill gas private wire to Tarmac cement works

–

Exploring potential Plastics Recycling Facility

–

Private wire power supply from ERF to SWW

–

ERF heat connection to council depot

Beddington Dunbar Runcorn Beddington Peterborough –

Heat and power off-take to Inovyn

Exeter Avonmouth –

New Viridor Plastics Recycling Facility

–

Solar array at landfill sites

Westbury & Broadpath –

ERF and landfill gas heat off-take into Sutton Decentralised Energy Network for community heating

–

Co-located data centre contract signed

Ardley –

Exploring potential Plastics Recycling Facility

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Avonmouth Dunbar Broadpath Ardley Westbury

ERF with existing/ immediate Energy Park development Landfill sites with Energy Parks

Runcorn I & II Peterborough Exeter Beddington

Half Year Results 2019/20

Viridor Market growth for residual waste – unique platform

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• Imbalance between supply and demand for ERFs is expected to persist

–

Capacity gap forecast to remain c.7mT by 2035(1)

–

To fill estimated capacity gap by 2035 would require the equivalent of c.23 large ERFs

–

In addition to this, a further 12 ERFs would be required to fulfil increased demand if recycling rates do not improve

(1) Net of RDF export forecast (2) Based on an illustrative 300kt plant (3) DEFRA 2018 estimates

5 10 15 20 25 30 35 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 ERF Capacity (Others) Viridor ERF Throughput Capacity Gap No New Policy - DEFRA New policy - DEFRA

(3) (3)

Equivalent capacity to c.23 large ERFs(2) Equivalent capacity to c.12 large ERFs(2)

Residual Waste Sources: Tolvik, Defra, SEPA, NRW, MSW and Viridor analysis

Half Year Results 2019/20

• UK capacity unable to fulfil consumer demand – driving confidence in recycling investment

–

Only 46% of all UK plastic material with recycling potential currently collected

–

Government target of 75% by 2030 with current expectation of 67% by 2025

–

UK capacity gap significantly increasing – equivalent to 14 Avonmouth facilities

–

Recycling all potential material would require a further 10 facilities equivalent to Avonmouth

Source: Viridor analysis, WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018 (1) 2025 capacity gap of 1141kt based on WRAP forecast of 2410kt plastic packaging placed in the market and a forecast implied recycled rate of 67%

250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 2018 2019 2020 2021 2022 2023 2024 2025

UK Recyclable Plastic Packaging Market (kT) UK Plastic Reprocessing Capacity (Others) Viridor Committed Plastic Reprocessing Capacity UK Capacity Gap Additional Material with Recycling Potential 46%

Implied Recycling Rate (%)

50% 52% 55% 58% 61% 64% 67%

Equivalent capacity to c.10 Avonmouth facilities Equivalent capacity to c.14 Avonmouth facilities

27

Viridor – Recycling Forecast growth in plastics available for recycling

Half Year Results 2019/20

Viridor – confident outlook for growth Visible pipeline of growth projects at various stages of development

28

Expected Growth in Viridor Adjusted EBITDA

(1) EBITDA plus share of joint venture EBITDA and IFRIC 12 interest receivable

29

South West Water

Half Year Results 2019/20

• Delivering for our customers
• Bills lower today than they were ten years ago – driven by efficiency
• Strong performance in K6 – delivered cumulative RORE of 11.8%
• Continuing momentum into K7
• Innovation driving performance
• Working in the public interest

South West Water Strong foundations for continued outperformance

30

Half Year Results 2019/20

South West Water Strong operational performance – delivering for our customers

31

• SWW Upper Quartile in Ofwat’s Service Delivery

report for 2018/19

–

Strong performance in key common measures:

• Leakage – target met every year
• Supply interruptions – 58% reduction since 2014
• Internal sewer flooding – top performer
• Step change in SIM performance over K6

–

Ranked 3rd in 2018/19 – delivered continuous improvements throughout K6

–

2nd for customer quality of service

–

Written complaints down 15% for H1 2019/20

Ofwat Service Delivery Report 2018/19

Half Year Results 2019/20

South West Water Supporting our customers

32

• Bills lower today than in 2010 – driven by efficiency
• Industry leading support for customers in vulnerable circumstances

–

Supporting c.59,500 customers through our range of support programmes

–

WaterCare+ programme delivering for customers

• Working with partners to reach more customers needing support
• WaterCare app gives instant assessment of support available
• Over £90(1) per week on average of unclaimed benefits identified for

customers

• £2.5m of benefits realised since 2015

(1) SWW’s WaterCare+ programme supporting customers through benefit checks – average saving per household per week where identified

Supporting customers – making bills affordable

Half Year Results 2019/20

South West Water Strong performance in K6 - Sector leading outperformance

33

• Consistently delivered the highest RORE
• Outperformance delivered in every area in every year
• Sharing outperformance benefits with customers

–

Delivering around £120m of benefits over K6 – reducing future bills, reinvestment, improved services, and c.£20m share scheme

–

Only company to voluntarily share financing and tax outperformance with customers

–

Options for customers to share financial benefits into the next period through innovative WaterShare+ mechanism

Half Year Results 2019/20

South West Water Continued momentum into K7

34

• Highest potential outperformance for 2020-25

–

July DDs confirm strong position on outperformance

–

Confident in delivering across all areas

• Strong position for ODI delivery

–

Bespoke ODIs – up to £68m reward available

–

Common ODIs – well placed for K7 with up to £66m reward available

–

Areas of focus – pollutions a key area of targeted improvement

• Key partnerships in place

–

Continuing our successful model of outsourcing

• Strategic consultants and capital delivery partners confirmed
• Operational partners in place

Half Year Results 2019/20

South West Water Innovation driving performance into K7

35

• Establishing a UK water industry innovation centre

–

New partnership with the University of Exeter

–

State of the art specialist lab facilities, focused on developing innovative new solutions for the environment, industry and economy

–

£10m of Government funding already secured – SWW matched funding

• International innovation exchange agreement with Singapore Utility(1)

and Dutch technology innovation company(2)

–

Continuing development of ceramic membrane and ion exchange technology

–

Building on experience of Mayflower – first in world for this process

• Partnering with suppliers of innovative new to market products
• ‘Digital twins’ and ‘smart networks’ technology, robotics and telemetry

(1) PUB – Public Utilities Board (2) PWNT – PWN Technologies, supplier of Ceramic membranes at Mayflower water treatment works

Half Year Results 2019/20

South West Water Working in the public interest

36

• Commitment to drive sustainable outcomes

–

Building on our track record and reducing leakage by a further 15% by 2025

–

Targeting net zero carbon emissions by 2030

• Targeting to eliminate water poverty in K7 (2020-25)

–

Expanding our existing programmes of support to reach more customers

–

Supporting water and energy efficiency – including a dual billing programme

• Delivering our WaterShare+ commitment – a ‘New Deal’ for Customers

–

Building a closer relationship with our water customers

–

Aligning investor and customer objectives

–

Further increasing trust and legitimacy

• Continuing to deliver outperformance to share with customers

Half Year Results 2019/20

Pennon Bringing resources to life

Good results, momentum maintained – delivered in the right way Review of Pennon Group strategic focus, growth options and capital allocation underway

37

• Delivering for our customers – best ever customer service score
• Continued sector leading outperformance – cumulative 11.8% RORE(1) – sharing benefits with customers
• Highest potential outperformance for K7
• Fast start well underway for K7 – projects delivering early benefits focused on ODI(1) performance

South West Water

• Focus on infrastructure model, de-risked through index-linked long-term contracts
• Portfolio of operating Energy Recovery Facilities (ERFs) consistently outperforming base case
• Well positioned to take advantage of strong market fundamentals – confidence in long-term market outlook
• Growth through investment in further ERFs, Plastics Recycling Facilities and Energy Parks
• JV with Grundon to build a new ERF in West Sussex
• Construction of Viridor’s £65m Avonmouth Plastics Recycling Facility underway

Viridor

• Our core values are embedded in delivering outstanding service to customers and communities

(1) RORE - Return on Regulated Equity; ODI – Outcome Delivery Incentives

37

Half Year Results 2019/20

Questions

Half Year Results 2019/20

Appendix Pennon Appendix

Half Year Results 2019/20

Pennon Underlying Income Statement

40

(1) Before non-underlying items, see slide 10 (2) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (3) Reflects the impact of the non-controlling interest in Pennon Water Services (4) Adjusted earnings and adjusted EPS before deferred tax, non-underlying items and proportionately adjusted for the return due on the perpetual capital securities

Underlying(1) H1 2019/20

(excluding IFRS 16 impact)

£m IFRS 16

(impact on profit)

£m H1 2019/20 £m Revenue 712.4

• 712.4

EBITDA 276.8 7.1 283.9 Adjusted EBITDA(2) 304.4 7.1 311.5 Depreciation and Amortisation (97.3) (5.9) (103.2) Operating Profit 179.5 1.2 180.7 Net Interest (43.1) (2.0) (45.1) Share of JV Profit After Tax 7.3

• 7.3

Profit Before Tax 143.7 (0.8) 142.9 Taxation (24.4)

• (24.4)

Profit After Tax 119.3 (0.8) 118.5 Profit attributable to non-controlling interest(3) 0.1

• 0.1

Profit attributable to perpetual capital security holders (3.5)

• (3.5)

Profit attributable to ordinary shareholders of the parent 115.9 (0.8) 115.1 Add back deferred tax 15.6

• 15.6

Adjusted Earnings(4) 131.5 (0.8) 130.7 Adjusted Earnings Per Share(4) (p) 31.3 (0.2) 31.1

Half Year Results 2019/20

Pennon Group 2018/19 Change Capex Passed peak of committed ERF capex. Growth capex in near term principally reflects completion

• f Avonmouth and investment in recycling

£396m Dividend Reflecting policy of RPI + 4% annual increase in dividend 41.06p per share Tax rate Underlying effective tax rate lower than UK headline rate of 19% reflecting capital allowances (including ERFs). 11.6% IFRS 16 Minimal impact on profit before tax

• South West Water

Revenue Impact of net tariff increases and lower metered volumes reflecting 2018 extreme summer weather £581m Opex 2018/19 includes costs associated with extreme weather. Continued efficiency into 2019/20 £214m Totex efficiency On track to deliver c.£300m over K6 £237m cumulative RORE Continued momentum for delivering outperformance in all areas 11.8% cumulative IFRS 16 Impact of new standard applicable in 2019/20. Minimal impact on profit before tax. Approximate impact on balance sheet and income statement lines as follows:

• £32m Gross assets; £34m Gross liabilities
• £2m EBITDA; £2m Depreciation; £1m Interest

N/A Viridor Revenue Lower following impact of cessation of Greater Manchester Contract and lower IFRIC 12 construction revenue, partially offset by ERF ramp up and full year operations at new ERFs £853m EBITDA Impact of ERF ramp up £179m IFRS 16 Impact of new standard applicable in 2019/20. Minimal impact on profit before tax. Approximate impact on balance sheet and income statement lines as follows:

• £76m Gross assets; £85m Gross liabilities
• £12m EBITDA; £9m Depreciation; £3m Interest

N/A

Pennon 2019/20 technical guidance

41

Half Year Results 2019/20

Pennon Group EBITDA

274.0 (8.6) (0.4) 0.2 3.6 3.6 4.4 276.8 7.1 283.9

H1 2018/19 SWW revenue Viridor contracts, collections &

• ther, and

indirect costs Recycling SWW cost savings Landfill and landfill gas ERFs H1 2019/20 (pre- IFRS) IRFS 16 impact H1 2019/20

£m

42

Half Year Results 2019/20

Pennon Adjusted EPS reconciliation

43

Hybrid (Perpetual Capital Securities) movements

• 2017 Hybrid – adjusted EPS reflects a proportionate adjustment for the annual periodic return. In 2019/20 the 2017 Hybrid qualifies

for tax relief, following a change in legislation, with an annualised saving of £1.6m for the financial year. Adjusted EPS Calculation H1 2019/20 £m H1 2018/19 £m Profit Before Tax (pre-IFRS 16) 163.9 133.6 IFRS 16 PBT impact (0.8)

• Profit Before Tax

163.1 133.6 Adjusted for: Non-underlying Items (pre-tax) (20.2) 8.9 Current Tax (8.8) (12.4) Minority Interest(1) 0.1 0.1 Hybrid charge (3.5) (4.3) Profit for Adjusted EPS calc. 130.7 125.9 Average number of shares (m) 420.0 419.3 Adjusted EPS 31.1 30.0 Adjusted EPS (pre-IFRS 16) 31.3 30.0 Statutory EPS Calculation H1 2019/20 £m H1 2018/19 £m Profit Before Tax (pre-IFRS 16) 163.9 133.6 IFRS 16 PBT impact (0.8)

• Statutory Profit Before Tax

163.1 133.6 Adjusted for: Tax (current and deferred) (29.6) (17.6) Minority Interest(1) 0.1 0.1 Hybrid charge (7.0) (8.6) Profit for Statutory EPS calc. 126.6 107.5 Average number of shares (m) 420.0 419.3 Statutory EPS 30.1 25.6

(1) Reflects the impact of the non-controlling interest in Pennon Water Services

Half Year Results 2019/20

Pennon Group capital expenditure reconciliations

Group Capital Investment (Slide 12) H1 2019/20 £m H1 2018/19 £m Viridor 85.6 123.9 ERFs 50.6 103.2 Recycling 25.2 3.5 Landfill and Landfill Gas 6.0 6.3 Contracts and Collections 1.4 7.0 Other 2.4 3.9 South West Water 77.6 68.6 Clean Water 44.0 38.6 Waste Water 33.6 30.0 Other Group

• 0.1

Group Capital Additions 163.2 192.6 IFRIC 12 Additions(1) 8.8 8.0 Capital Investment 172.0 200.6 Group Capital Payments (Net debt movements slide 13) H1 2019/20 £m H1 2018/19 £m Viridor 85.6 123.9 South West Water 77.6 68.6 Other Group

• 0.1

Group Capital Additions 163.2 192.6 Capital creditor (increase)/decrease (inc. non-cash items) 33.3 (10.1) Grants and Contributions (1.8) (0.6) Proceeds from sale of PPE (10.6) (0.5) IFRIC 12 Payments 8.8 10.9 Total Adjustments 29.7 (0.3) Capital Payments 192.9 192.3

(1) Capital additions on IFRIC 12 ERF capital assets (before amounts subject to legal contractual process)

44

Half Year Results 2019/20

Pennon Sustainable, diversified funding sources

45

(1) Includes £133m of index-linked finance leasing

• Finance leasing provides a significant amount of long-dated funding

Pennon Group as at 30 September 2019 £m Finance Leasing(1) 1,637 Bank Bilaterals 496 European Investment Bank Loans 387 Index-Linked Bonds 434 Fixed Rate (SWW 2040) Bond 134 Private Placements 618 Total Debt (pre-IFRS 16) 3,706 Less: Cash/Liquid Investments (528) Net Borrowings (pre-IFRS 16) 3,178 IFRS 16 Adjustment 118 Net Borrowings (post-IFRS 16) 3,296 SWW as at 30 September 2019 £m Finance Leasing(1) 1,491 Bank Bilaterals 76 European Investment Bank Loans 278 Index-Linked Bonds 385 Fixed Rate (SWW 2040) Bond 134 Private Placements 100 Total Debt (pre-IFRS 16) 2,464 Less: Cash/Liquid Investments (252) Net Borrowings (pre-IFRS 16) 2,212 IFRS 16 Adjustment 36 Net Borrowings (post-IFRS 16) 2,248

Half Year Results 2019/20

46

Pennon Pensions

30 September 2019(1) £m 31 March 2019 £m Pension schemes’ assets 1,035 934 Pension schemes’ liabilities 1,074 995 39 = 32 net of tax 61 = 51 net of tax

• The aggregate pension schemes’ net deficit has

decreased in the period to 30 September 2019 by £22m from £61m to £39m, reflecting:

• a lower discount rate, net of;
• the responsible acceleration of £17.2m of

deficit contributions

• recognition of £12m surplus following the

Greater Manchester (GM) contract cessation

• The 2019 triennial valuation for the Group’s

principal scheme is underway and is expected to conclude in the first half of 2020

• Broad alignment of IAS 19 and actuarial funding

assumptions

• Pension scheme net deficits represents c.1% of

the Group’s market capitalisation at 30 September 2019

• Well managed pension scheme - on track to meet
• bligations through efficient investment returns on

scheme asset, supported by company contributions

(1) £168m of assets and £187m liabilities are associated with the GM contract, a large proportion of which are expected to be transferred to the new GM contract operator.

Half Year Results 2019/20

Pennon Net interest analysis(1)

47

H1 2019/20 £m H1 2018/19 £m Net interest charge: (43.1) (40.8) Add: capitalised interest (6.1) (8.3) Less: notional interest payable(2) 5.8 6.3 Add: interest receivable on service concession contracts (7.4) (7.3) Add: interest receivable on shareholder loans to JVs (3.4) (2.5) Net interest for average rate calculation: (54.2) (52.6) Split between: Interest payable (50.0) (46.0) Capitalised interest payable (6.1) (8.3) Other finance income 1.9 1.7 Net interest payable: (54.2) (52.6) Average rate of interest 3.5% 3.6% Net interest cover 4.0x 4.4x

• Decrease reflects impact of Greater Manchester
• Increase reflects higher Group borrowings

Efficient, effective interest rate

• Group – 3.5%
• South West Water – 3.4%

A A B B

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%

Pennon SWW Water Sector K4 (2005-10) K5 (2010-15) K6 (2015-20)

(1) Before non-underlying items as set out in slide 10 and impact of IFRS 16 (2) Includes pensions net interest and discount unwind on provisions

Half Year Results 2019/20

Pennon

Significant energy generation

• Total Group energy generation of 0.9TWh in 2019/20

–

10 ERFs(1) – 0.7 TWh

–

25 Hydro Turbines – 2.7 GWh

–

52 Solar PV installations(2) – 7.4 GWh

–

6 CHP – 3.4 GWh

–

1 wind turbine – 0.1 GWh

–

Anaerobic digestion – 1.4 GWh

–

Landfill gas – 199.3 GWh

• Utilising existing grid connections at landfill sites

–

Continuing to identify opportunities to maximise value from our grid connections

• Portfolio management strategy

–

The portfolio management team continues to actively manage the Group net energy generation position in liquid markets

–

The natural hedge within the Group is maintained at around a third of generation

–

Forward hedges have been put in place along the curve out to and including Winter 2021

48

(1) Includes % share of joint ventures at Lakeside and Runcorn (2) Including Solar PV electricity supply purchased via PPA through private wires to Restormel Water Treatment Works and Nanstallon Sewage Treatment Works

Pennon hedging The Group has regularly traded over the last 12 months to maintain its net hedged position in accordance with Group policy The Group is fully hedged for the remainder of the financial year, with hedges in place for c.90% of 2020/21 and c.40% for 2021/22

Denotes hedging activity

Half Year Results 2019/20

–

Private wire to Tarmac cement works

Plastics Recycling –

Heat and power off-take to Inovyn

–

Solar array at landfill sites Westbury & Broadpath

–

New Plastics Recycling Facility Dunbar

–

Heat off-take into community heating Beddington

Landfill Gas

Ardley & Dunbar

–

Exploring potential Plastics Recycling Facilities Avonmouth

Energy Recovery Facilities

Exeter Beddington Peterborough Runcorn

–

Private wire power supply to SWW

–

Heat connection to council depot

–

Heat off-take community heating

–

Co-located data centre agreement

49

c.2% c.32% c.10% Pennon

Viridor energy park power supply

c.12%

Internal usage –

Natural hedge within the Group SWW Viridor

c.2%

Half Year Results 2019/20

Pennon Pennon Water Services(1) financial highlights

50

>160,000

Customer accounts

Robust performance in a competitive market

• Continuing to sign multi-year contracts with

national accounts within targeted sectors Operational focus on delivering future cost base efficiency

• Balancing customer mix between Nationals

and SME customers

• Focus on reducing unit cost of supply and

driving efficiency

(1) 80:20 venture with South Staffordshire Group

Focus on being the retailer of choice

• Broader customer offering – retail billing

and value added services

• A bespoke offer – enabling larger customer

contract wins H1 2019/20 £m H1 2018/19 £m Change Revenue 86.6 84.1 +3.0% EBITDA 0.9 0.9

• Depreciation

(0.3) (0.4) +25.0% Operating Profit 0.6 0.5 +20.0% Net Interest (0.9) (1.0) +10.0% Loss Before Tax (0.3) (0.5) +40.0%

Half Year Results 2019/20

Viridor

Appendix

Half Year Results 2019/20

Viridor Revenue

52

422.3 26.6 3.3 1.5 (4.3) (36.1) (25.2) 388.1

H1 2018/19 ERFs Landfill Gas Other Recycling Contracts Landfill H1 2019/20

£m

1) Contracts includes anticipated reduction following the cessation of the Greater Manchester recycling operating contract 2) Landfill includes Landfill Tax movements (1) (2)

Half Year Results 2019/20

Viridor Adjusted EBITDA

53

99.1 6.9 4.4 3.0 0.6 0.2 (0.4) 113.8 6.2 120.0

H1 2018/19 Share of JV EBITDA and IFRIC 12 Interest Receivable ERFs Landfill Gas Landfill Recycling Contract, Collections & Other H1 2019/20 (pre- IFRS 16) IFRS 16 H1 2019/20

£m

Half Year Results 2019/20

Viridor ERFs (including Joint Ventures)

(1) Capital cost excludes capitalised interest (2) Joint ventures economic interest (Lakeside 50%: Runcorn I 75% from December 2018, 37.5% previously) (3) Planning constraints relaxed at Oxford, Cardiff and Runcorn I & II combined allowing up to 327,000, 425,000 and 1,100,000 tonnes of waste respectively (4) Plus heat 51MWth (5) Includes increased capacity expenditure and tonnage throughput (6) Plus heat 17MWth

Site Capital Cost (1) Gross capacity Status Base load municipal contract H1 2019/20 Availability £m Tonnes (000) Electricity MWe Lakeside(2) 150 410 38 Fully operational Merchant 90.0% Exeter 47 60 3 Fully operational Exeter 83.5% Oxford (Ardley)(3) 204 300 24 Fully operational Oxfordshire 86.7% Cardiff (Trident Park)(3) 207 360 28 Fully operational Gwyrdd (SE Wales) 82.8% Runcorn I(3) 236 375 28(4) Fully operational Greater Manchester 97.8% Runcorn II(3) 216 375 41 Fully operational Merchant 89.0% Peterborough 72 80 7 Fully operational Peterborough 88.0% Glasgow(5) 176 250 15 Operational ramp-up Glasgow 70.0% Dunbar 177 300 23(6) Operational ramp-up Clyde Valley 89.0% Beddington 199 275 26 Operational ramp-up South London 84.4% Avonmouth 252 320 34 Commissioning H2 2019/20 Somerset

• Grand Total

3,105 267

54

Half Year Results 2019/20

Viridor ERF capital expenditure(1) – Efficient investment to deliver growth

55 £m Cumulative spend at 1 April 2019 Capital investment in 2019/20 Cumulative spend to 30 September 2019 Remaining spend to completion Amounts subject to recovery Total project spend Original planned project spend ERF projects in operation Exeter 47

• 47
• 47

47 Oxford (Ardley) 204

• 204
• 204

210 Cardiff (Trident Park) 207

• 207
• 207

223 Peterborough 72

• 72
• 72

72 Runcorn II 216

• 216
• 216

216 Total in operation 746

• 746
• 746

768 ERF projects in operational ramp up Glasgow 273

• 273
• (97)(2)

176 176(3) Dunbar 168 6 174 3

• 177

177 South London (Beddington) 180 3 183 16

• 199

199 ERF projects under construction Avonmouth 172 19 191 61

• 252

252 Total including under construction 1,539 28 1,567 80 (97) 1,550 1,572 Peterborough financed by local authority (72)

• (72)
• (72)

(72) Total impact on Net Debt 1,467 28 1,495 80 (97) 1,478 1,500

(1) Excluding capitalised interest, £3.6m in H1 2019/20 and £102.2m cumulatively (2) Incremental costs – contractually entitled to recover under certain circumstances. Gross value before credit risk provision (3) Includes £21m additional spend for increased capacity

Half Year Results 2019/20

Viridor Joint venture performance

56

£m Runcorn I Tranche 1(1) Runcorn I Tranche 2(2) Runcorn I Total Lakeside Total H1 2019/20 Share of JV PAT 2.3 0.9 3.2 4.1 7.3 Interest on shareholder loans 1.7 1.1 2.8 0.6 3.4 Shareholder loans 30.6 33.8 64.4 7.4 71.8 Share of non-recourse net debt/(cash) (13.6) (13.6) (27.2) 21.0 (6.2) Share of EBITDA 6.5 4.8 11.3 8.9 20.2 H1 2018/19 Share of JV PAT 1.2

• 1.2

3.6 4.8 Interest on shareholder loans 1.9

• 1.9

0.6 2.5 Shareholder loans 32.7

• 32.7

7.9 40.6 Share of non-recourse net debt/(cash) (7.5)

• (7.5)

27.1 19.6 Share of EBITDA 5.3

• 5.3

8.1 13.4

(1) Original investment in TPSCo joint venture (2) Additional investment in TPSCo joint venture acquired in December 2018, recorded at fair value on acquisition

Half Year Results 2019/20

Viridor Core Environmental Infrastructure Business Model

Plastics Recycling Business Model(1)

Capex and Costs Revenue Price Volume

• Capital requirement of c.£65m
• Direct power supply from co-located ERF enabling

significant cost savings of c.50% and ESG benefits

• c.85% of material input volume and c.75% of offtake

volume secured via contracts over the duration of the 7 year business case

• 60-80% of pricing fixed and index-linked
• Balance linked to materials purchase price to mitigate

market risk (i.e. de-facto fixed production margins)

ERF Business Model

70% 25% 5% 100% Waste Fuel Input (Gate Fees) Power Output Recovered Metals

Long Term Contract Base Covering c.80%

• f Capacity

Balance of Short and Medium-Term Contracts (Less Than 10 Years) (Municipal and Commercial & Industrial)

Total ERF Volumes Illustrative ERF Revenues

(1) Based on Avonmouth Plastics Processing Facility (2) On build out of the plastics recycling facilities at Ardley and Dunbar

• De-risked business model from

contracted ERFs ― c.80% of total ERF capacity and price contracted with inflation linkage, on long-term contracts from commissioning ― c.40% (rising to 50%(2)) of power

• utput supplies long-term Energy

Park private wire connections, plastics facilities and internal usage

• New investments in plastics recycling

facilities are de-risked via attractive contract frameworks and benefits of Energy Park co-location

• Ancillary revenues enhance the
• verall risk provide (e.g. heat off-

take, private wires)

57

Half Year Results 2019/20

(1) From first full year post operational ramp up (2) Local authority funded – lower EBITDA reflecting no borrowing costs (3) Bolton ERF to be returned to Greater Manchester Combined Authority at the end of the run-off contract in 2019

An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA

IAS 16 IFRIC 12 JVs

• Oxford (Ardley)
• Cardiff

(Trident Park)

• Runcorn II
• Dunbar
• Beddington

(South London)

• Bolton(3)
• Avonmouth
• Exeter
• Glasgow
• Peterborough(2)
• Lakeside
• Runcorn I(2)

ILLUSTRATIVE ERF(1)

IAS 16 IFRIC 12 JVs EBITDA £28m £12m

• IFRIC 12 Interest Receivable
• £16m
• Share of JV EBITDA (50%)
• £14m

Underlying EBITDA £28m £28m £14m

Viridor ERF Financials

• Ongoing capital and operational maintenance:
• Underlying future average rate – 3.5% of

capital spend

58

Half Year Results 2019/20

South West Water Appendix

Half Year Results 2019/20

60

301.5 10.7 (9.0) 2.1 (2.7) (1.7) (8.0) 292.9

H1 2018/19 Tariff increases WRFIM New connections Customer leak allowances Meter optants Other revenue (incl. customer demand) H1 2019/20

£m

South West Water Revenue

(1) WRIFM - Wholesale Revenue Forecast Incentive Mechanism (1)

Half Year Results 2019/20

61

194.7 (8.6) 3.7 (3.0) 2.9 189.7 0.9 190.6

H1 2018/19 Reduction in revenue Efficiencies & other cost savings Cost increases incl. inflation Prior year one-

• ff/atypical costs

H1 2019/20 (pre- IFRS) IFRS 16 H1 2019/20

£m

South West Water EBITDA

Half Year Results 2019/20

South West Water

H1 2019/20 ODI performance levels – cumulative net reward position for K6

GOOD PERFORMANCE(1)

Water quality standard Taste, smell and colour contacts Water operational contacts resolved 1st time Water restrictions Supplies interrupted due to flooding External & Internal sewer flooding Supply interruptions

IMPROVING PERFORMANCE

Wastewater operational contacts resolved 1st time Odour contacts

AREAS OF FOCUS

Wastewater & water pollution incidents Cat 3&4 Wastewater numeric compliance

Cumulative ODI outperformance net reward: £13.0m(2)

Customers paying a metered bill

62

(1) Good performance - in line with committed performance (or within appropriate tolerances) for H1 2019/20 (2) ODI performance in H1 2019/20 of £1.7m net reward. £1.7m net reward will be recognised at the end of the regulatory period, with £nil net penalty reflected during the regulatory period. Of the cumulative net reward of £13.0m, £16.1m will be recognised at the end of the regulatory period and £3.1m net penalty which may be reflected during the regulatory period

Bathing water quality Water & waste asset reliability Sustainable abstractions Leakage level Descriptive compliance Water Cat 1&2 pollution incidents Wastewater Cat 1&2 pollution incidents

Half Year Results 2019/20

63

South West Water Sharing outperformance with customers

Strong focus on sharing financial benefits with customers

• Unique mechanism to share outperformance transparently
• Significant benefits identified for customers to date
• Reinvestment in services, future lower bills
• Future sharing scheme for customers planned in K7 (WaterShare+)

Customer Shareholder

Cumulative to H1 2019/20 £m Cumulative to H1 2019/20 £m

86 Net Totex savings(1) 131 13 ODIs 13 22 Other items(2)

• Total Value Benefit

(1) Gross Totex savings (inclusive of retail), net of tax for sharing and performance purposes (2) Other items including market movements on new financing returned to customer and the impact of new legislation

Half Year Results 2019/20

South West Water Reconciliation of RORE to financials

64 Totex £m H1 2019/20 2018/19 2017/18 2016/17 2015/16 Operating Costs 102 214 210 212 212 Capital Expenditure 78 154 184 191 134 Totex 180 368 394 403 346 Totex allowance 211 428 442 476 401 Totex saving 31 60 48 73 56 RORE benefit 16 27 23 35 28 ODIs £m H1 2019/20 2018/19 2017/18 2016/17 2015/16 End of period 1.7 4.9 2.0(4) 3.9 3.6 During period

• (0.8)

(0.3) (0.3) (1.7) Net ODI reward 1.7 4.1 1.7 3.6 1.9

Cumulative Totex(1) outperformance of £268m ODI Outperformance(2)

• Total net reward £1.7m will be recognised at the

end of regulatory period

• Rewards: water restrictions, flooding incidents
• Penalties: numeric compliance

Cumulative financing outperformance(3) of £146m Regulated Equity – 62.5% notional gearing

• 2019/20 average RCV of £2,998m in 2012/13

prices

(1) Phasing of actual expenditure compared to the planned programme is reflected prior to calculating Totex savings (2) ODI net rewards for 2018/19 – cumulative net rewards of £13.0m (3) Interest outperformance is based on the outturn effective interest rate on net debt, translated into an effective real interest rate using cumulative K6 forecast RPI of 2.8%, notional debt gearing of 62.5%, and actual tax rates

Half Year Results 2019/20

South West Water

K7 Draft Determination – ODI outperformance potential for K7

BESPOKE ODIs Unique rewards for SWW

Taste, smell and colour contacts Water & wastewater operational contacts resolved first time Water restrictions External sewer flooding Odour contacts from WWTW Sewer blockages Compliance with sludge standards Resilience (water & wastewater) Biodiversity – enhancement Bathing water quality Abstraction incentive mechanism Number of pollution incidents (water Cat 1-3) Descriptive compliance

COMMON ODIs Current average & upper quartile performance

Internal sewer flooding Duration of supply interruptions Leakage Per capita consumption Water quality compliance

AREAS OF FOCUS

Sewer collapses Environmental performance / Pollution incidents Unplanned outage at WTW Numeric compliance Number of mains bursts CMex / DMex

65

Strong platform for ODI performance in K7

Half Year Results 2019/20

66

Half Year Results 2019/20