Preliminary Results 23 May 2013 Pennon Group Plc (Pennon Group) - - PowerPoint PPT Presentation

Preliminary Results

23 May 2013

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”, “forecasts”, “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. Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation development or performance of the Group and the estimates and historical results given herein. Undue reliance should not be placed on forward-looking statements which are made only as of the date of this document. Important risks, uncertainties and other factors that could 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 law, regulation or decisions by governmental bodies or regulators; general business and economic conditions in the UK and globally; the availability and cost of finance; poor operating performance or a failure or interruption of the Group’s operating systems or the inability to carry out network operations or damage to infrastructure; failure or increased costs of capital projects or acquisitions or joint ventures not achieving predicted revenues or performance; reduced customer base, increased competition affecting prices or reduced demand for services; and information technology and business continuity systems and processes failing. These and other risks will be described in greater detail in the Pennon Group Annual Report to be published on 28 June 2013. Such 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 report should be construed as a profit forecast. All written or oral 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

2012/13 Financial Highlights

• Profit before tax(1) down 1.1% to £198.2m

 South West Water up 7.5% to £152.1m  Viridor down 36.6% to £36.5m

• Net exceptional charges £176.4m (post tax £140.2m)
• Earnings per share(2) down 9.9% to 42.6p
• Dividend

 full year dividend up 7.3% to 28.46p  recommended final dividend per share up 7.7% to 19.70p

• Group capital expenditure up 61% to £439m(3)
• Strong liquidity and funding position

 £782m(4) new/refinanced facilities since 31 March 2012  £1,150m cash and facilities at 31 March 2013(5)

• £300m hybrid capital issuance provides substantial additional funding and

strengthens balance sheet

• Group businesses well positioned for the future

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(1) Before net exceptional charges (2) Before net exceptional charges and deferred tax (3) Including construction spend on service concession arrangements (4) Including hybrid capital issuance (5) Including £143m deposits with Letter of Credit providers and lessors

Pennon Group Plc

2012/13 Operational and Business Highlights South West Water

• Strong performance against 2010 – 2015 regulatory contract

 well placed to deliver outcomes and outperform assumptions

• PBT up in spite of atypical weather
• Average funding cost 4.1%
• Strong operational performance and high standards of customer service
• Preparing for PR14
• Investing c£60m improving services to customers in K5

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Pennon Group Plc

2012/13 Operational and Business Highlights Viridor

• Strong progress in long term PPP/EfW strategy but significant current headwinds in

recycling and ongoing trend decline in landfill affecting 2012/13 results  aggressive action to reduce costs

• As previously flagged, exceptional charges to reflect the above, now established as:

 £99m asset impairment (primarily landfill) and onerous contracts  £90m increased landfill provisions  total post tax £150m

• Key long term PPP/EfW developments:

 Glasgow  South London  Peterborough  Dunbar  South East Wales

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Pennon Group Plc

Summary Financial Results

2012/13 £m 2011/12 £m Change Group revenue 1,201.1 1,233.1 (2.6%) Group operating profit (1) 246.3 268.8 (8.4%)

• SWW
• Viridor

215.2 30.8 204.7 63.7 5.1% (51.6%) Viridor PBIT plus joint ventures(1) 45.9 75.2 (39.0%) Group profit before tax(1) 198.2 200.5 (1.1%)

• SWW
• Viridor
• Plc/Other

152.1 36.5 9.6 141.5 57.6 1.4 7.5% (36.6%)

• Earnings per share(2)

42.6p 47.3p (9.9%) Dividend per share 28.46p 26.52p 7.3%

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(1) Before net exceptional charges (2) Before net exceptional charges and deferred tax

Pennon Group Plc

Exceptional Items

2012/13 £m 2011/12 £m Operating costs Impairment of property, plant and equipment (78.2)

• Environmental and landfill restoration provisions

(90.1)

• Onerous contracts and other

(20.6)

• (188.9)
• Net finance income

12.5

• Charge before tax

(176.4)

• Tax credit

36.2

• Net charge for the year

(140.2)

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► No immediate cash impact

Pennon Group Plc

Cash Flow

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2012/13 £m 2011/12 £m Cash inflow from operations 384.6 389.9 Net interest paid (49.8) (61.3) Dividends paid (77.9) (69.1) Tax paid (18.5) (41.4) Capital expenditure(1) (421.8) (273.6) Acquisitions and investment in joint ventures (14.3) (42.6) Loan repayments and dividends received from joint ventures 8.8 3.6 Pension contributions (14.4) (49.2) Net cash outflow (203.3) (143.7) Perpetual capital securities issued 294.8

• Shares issued

3.7 1.6 Debt acquired with acquisitions (1.2) (0.1) Non-cash movements 1.9 (28.6) Decrease/(increase) in net borrowings 95.9 (170.8)

► Significantly increased capital expenditure to support future growth ► Perpetual capital issuance

(1) Including construction spend on service concession arrangements

Pennon Group Plc

Net Borrowings

As at 31 March 2013 £m 2012 £m Loans and finance leases

• ver one year

2,505 2,204

• under one year

139 326 2,644 2,530 Less: cash and cash deposits (635) (425) Net borrowings 2,009 2,105 Net gearing(1) 65.4% 71.9% SWW debt/RCV 54.9% 56.1%

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

► Gearing reduced ► Net borrowings include £438m (2012 £143m) for EfW plants under construction (Runcorn II, Exeter, Ardley, Cardiff and Glasgow)

Pennon Group Plc

Viridor EfW Capex(1) – Impact on Net Debt

► Net debt includes £420m for Runcorn II/Exeter/Ardley/Cardiff/Glasgow – a sizeable proportion of £851m total spend on these projects ► 2012/13 and 2013/14 are expected to be ‘peak years’ for Viridor EfW capex ► EfW programme substantially financed ► Cash generation from above EfWs under construction (excluding Glasgow) to start in 2014/15

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(1) Excluding capitalised interest £18m (2) Financed by local authority

Cumulative spend to 31 March 2013 Remaining spend to project completion Total project spend EfW projects under construction £m £m £m Runcorn II 149 67 216 Oxford (Ardley) 106 104 210 Exeter 35 12 47 Cardiff 119 104 223 Glasgow 11 144 155 420 431 851 EfW projects committed Peterborough(2)

• South London (Beddington)
• 199

199 Total 420 630 1,050

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Pennon Group Plc

Net Interest Analysis(1)

► Effective management of interest rates  Group 3.5%  SWW 4.1% 2012/13 £m 2011/12 £m Interest payable (85.2) (94.3) Capitalised interest payable (13.6) (3.0) Interest receivable on shareholder loans to joint ventures 9.3 7.5 Other interest receivable 16.6 11.9 Net interest payable (72.9) (77.9) Average rate of interest 3.5% 3.9% Net interest cover 4.2x 3.6x

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

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  c24% 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

 £482m of new and renewed facilities  £300m hybrid capital issue

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► Average debt maturity 22 years ► Index linked debt: average real rate 1.7% ► Facilities being renewed in line with expectations  long term banking relationships

Pennon Group Plc

Liquidity

• Total of £1,150m cash/committed facilities at 31 March 2013

 cash balances of £635m (includes c£143m deposits with Letter of Credit providers and lessors)  undrawn facilities of £515m

• Committed funding in place for South West Water up to end of K5

 £156m will mature over the rest of K5  £437m due to mature in K6

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► Substantial cash resources and committed funding for the Group

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Pennon Group Plc

Taxation(1) 2012/13 £m 2011/12 £m Current tax 43.3 30.9 Deferred tax 1.4 23.6 Deferred tax reduction on change of corporation tax rate (13.6) (26.4) 31.1 28.1 ► Current tax charge 22% (2011/12 - 15%) ► 2011/12 current tax charge reflected substantial accelerated pension deficit contribution

(1) Excludes tax on exceptional items

Pennon Group Plc

Dividends

• Recommended final dividend up 7.7% to 19.70p
• Full year dividend up 7.3% to 28.46p, reflecting annual RPI of 3.3% to 31 March

2013

• Sector-leading progressive dividend policy: 4% real increase to end of K5 period

(March 2015)

• Scrip dividend alternative

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South West Water

Financial Performance Summary 2012/13 £m 2011/12 £m Change Revenue 498.6 474.0 5.2% Operating profit 215.2 204.7 5.1% Profit before tax(1) 152.1 141.5 7.5%

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(1) Before exceptional items

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South West Water

Revenue

474.0 498.6 38.1 1.5 0.9 (8.1) (7.8) 400.0 420.0 440.0 460.0 480.0 500.0 520.0

Mar-12 Tariff increase New connections Other Demand Meter option switchers Mar-13

£m

► Tariff increase of 7.7% (inc RPI) ► 2.9% reduction in metered customer demand – impacted by wet weather ► 75% of domestic customers now metered

South West Water

Operating Costs

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269.3 283.4 9.3 3.9 2.8 1.5 1.3 0.8 (3.5) (2.0) 220.0 230.0 240.0 250.0 260.0 270.0 280.0 290.0 300.0 Mar-12 Cost increases (inc. inflation and rates) Opex transfers Depreciation & New Capital Schemes Private Sewers Bad debts Other (incl. non-recurring & cost of sales) Efficiency savings Restructuring Mar-13 £m

► Cumulative K5 cost increases continue to be lower than RPI ► Bad debt costs comparable with prior year as a % of revenue ► Opex transfers, new capital scheme costs and depreciation reflect growing asset base ► First full year of private sewer costs in line with expectations ► Other costs include higher cost of other sales and wet weather impacts

South West Water

Operating Cost Efficiency

• Good operational cost control
• Delivering efficiency ahead of FD assumptions
• Cumulative K5 efficiency of £18.6m – over 70%
• f required efficiency delivered

 equivalent to 4.1%(1) pa vs 2.8%(2) pa  £3.5m delivered in 2012/13

• Efficiency programme progressing well - focus in

2012/13  integrating customer service management  asset improvements supporting PUROS(3)  energy efficiency and power generation  rationalising admin & support services  right-sourcing and innovative contracting

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(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 MARCH 2013

Energy K5 to date £2.7m Admin and support services K5 to date £1.6m Right-sourcing and innovative contracting K5 to date £5.3m Operational ways of working K5 to date £9.0m

K5 CUMULATIVE CAPITAL EXPENDITURE TO MARCH 2013

South West Water

Capital Programme

• Maintenance focused investment

programme

• Expenditure £116.5m (2011/12 £130.8m)

 focus on compliance and reliability  PUROS enabling  safeguarding supply & reducing interruptions  private sewer maintenance & enhancement

• Cumulative K5 capex £372m
• Capex lower than CIS(1)(2), targeting 5%
• utperformance(3) for K5

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(1) Capital Incentive Scheme (2) Based on current published Construction Output Price Index (COPI) (3) Using 2009 Final Determination estimates of COPI Enhanced Service Levels K5 to date £19m Supply & Demand K5 to date £49m Maintenance K5 to date £252m Quality K5 to date £52m

South West Water

Shareholder Value

• RCV of £2,916m at 31 March 2013
• Debt/RCV gearing 55% – growth in RCV exceeding the growth in net borrowings

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(1) Outturn prices for K5 based on forecast RPI (3.0% 2013/14 and 3.2% 2014/15)

2300 2400 2500 2600 2700 2800 2900 3000 3100 2010 2011 2012 2013 2014 2015 RCV £m RCV(1)

South West Water

Operational Highlights: Delivering the Regulatory Contract - I

• Outstanding drinking water quality maintained – 99.97%(1)
• 16th consecutive year without water restrictions (17th forecast for 2013/14)
• Leakage target achieved

 target met every year since introduction

• Customer Service improvements to date in K5

 written complaints halved  84% fewer escalated complaints  88% improvement in SIM score(2)

• Social tariff implemented (“WaterCare Tariff”)
• Stable serviceability across all four areas

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(1) Mean Zonal Compliance (2) SIM = Service Incentive Mechanism

South West Water

Operational Highlights: Delivering the Regulatory Contract - II

• Best ever waste water treatment compliance

 follows targeted investment in 98 sites over past 18 months

• Pollution control

 extreme weather key factor  increased minor incidents  significant reduction in serious incidents

• Proactive management of flooding incidents during extreme weather

 ‘one in one hundred years’ wet weather event  ‘flood surgeries’ established in communities worst affected

• Bathing Waters

 91% achieved European mandatory standard (good status)  60% achieved guideline standard (excellent status)  weather impact on bathing water quality from flooding and run-off

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Water pollution incidents Cat 1-3 STW numeric complaint %

• Waste Water Pollution incidents
• Internal sewer flooding repeats

Improved Stable Deteriorated

• Total Leakage Ml/d
• Security of supply index
• Greenhouse gas emissions
• Sludge disposal satisfactory
• SIM Total Score Points
• Water Pollution incidents

Cat 1-3

• Waste Water Treatment

numeric compliance

• Supply interruptions
• Serviceability measures (x4)
• Post-tax return on capital %
• Gearing %
• Interest cover

South West Water

2012/13 Ofwat KPI performance

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South West Water

Political and Regulatory Developments - I

• Government support for household customer bills welcomed

 £50 annual domestic bill reduction  average bill reduced by 7.4%  no impact on SWW financial/regulatory position

• Draft Water Bill

 measured pace of change  facilitating market reform and competition  investor and customer confidence recognised as key

• ‘Source for Business’

 dedicated non-domestic service  water & energy audits, effluent management & laboratory services  dedicated account management

• Source Contact Centre

 separate subsidiary established  ring-fenced retail operation

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South West Water

Political and Regulatory Developments - II Preparing for PR14 - I

• New process
• Risk-based approach
• Ofwat Chairman’s lecture 5th March 2013 at Royal Academy of Engineering

 governance, transparency, sharing outperformance

• ‘WaterFuture’ Customer Challenge Panel established 18 months ago
• Extensive customer/stakeholder engagement and research

 25-year outlook(1) published in December 2012  draft Water Resources Management Plan published

• New website www.southwestwater.co.uk/waterfuture

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(1) Previously Strategic Direction Statement (SDS)

South West Water

Political and Regulatory Developments - III Preparing for PR14 – II

• Excellent governance & transparency
• Track record of efficiency re-investment in previous K periods
• Sharing outperformance with customers & accelerating capital expenditure
• Investing c£60m improving services to customers in K5

 upgrading assets in key bathing waters  maintaining & enhancing private sewers since October 2011  tackling customer affordability through debt initiatives

• No increase to customer bills in K5 for above investment
• No IDoK submission & initiated Change Protocol process for recognition in K6

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South West Water

Political and Regulatory Developments - IV Key investment drivers for PR14

• Tougher bathing water and shellfish water regulations
• Resilience against extreme weather – networks and treatment facilities
• Enhanced capital maintenance
• Flood and pollution prevention – catchment-based solutions
• Meeting future supply and demand pressures – including relocation of North

Plymouth Water Treatment works

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South West Water

PR14 Timetable

Spring Summer Autumn Winter

Draft Plan for customer consultation Publication

• f Draft Water

Resources Plan Business Plan Submission (December)

2013 2014

Distribution and promotion

• f 25-year vision

Ongoing research and engagement (including focus groups)

Spring Summer Autumn Winter Winter

2012 CONSULTATION DELIVERY ASSESSMENT (Ofwat)

FINAL DETERMINATION DRAFT DETERMINATION

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South West Water

Summary

• Focus on efficient service delivery
• Operational and financial performance remains strong
• Well prepared for PR14 and legislative changes

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Successful and robust operational strategy underpinned by strong financial performance

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Viridor Strategy

Transforming Waste

• Viridor’s strategy is to transform waste, adding value through recycling and

renewable energy generation

• From 2007/08 until first half 2011/12 fast growth in recycling profits more

than offset decline in annual landfill profits

• As noted previously recyclate prices per tonne have fallen from their first

half 2011/12 peak reflecting world economic and market conditions

• Substantial further progress during 2012/13 in the development and roll out
• f Viridor’s PPP/EfW pipeline

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Viridor

External Context

• Current weakness in UK and world economy exacerbating long term sector trends

 pressures on local authority and other customers to reduce costs

• Landfill market declining long term

 being replaced by recycling and by EfW as capacity becomes available

• Recycling market in UK reaching maturity and affected by world commodity price

cycle  competitive shake out taking place

• EfW central to UK waste and renewable energy strategies

 the long term low cost alternative to landfill for disposal of residual waste  the UK’s low cost source of base load distributed renewable energy  Viridor targeting 15% market share by 2020 with network of strategic facilities

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Viridor

UK Waste Market Projections (Tonnes m)

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► Viridor and its partners have a total operational/committed EfW capacity of 2.5m tonnes of which 1.3m tonnes is backed by long term base load municipal contracts. It has a further 0.6m tonnes of capacity with planning permission but not yet committed

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

Source: DEFRA; UK Landfill Tax Bulletin; Viridor analysis and estimates (1) Including construction and demolition waste, and compost

Viridor

Financial Performance Summary(1)

2012/13 £m 2011/12 £m Change % Revenue(2) 703.8 761.1 (7.5) EBITDA 77.9 110.3 (29.4) PBIT 30.8 63.7 (51.6) PBIT plus joint ventures(3) 45.9 75.2 (39.0) PBT 36.5 57.6 (36.6)

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(1) Excluding exceptional charges (2) Including landfill tax (3) Interest receivable on shareholder loans plus share of PAT

Viridor

Financial Highlights(1)

• Revenue decreased by £57.3m (7.5%) to £703.8m

 recycling and landfill

• EBITDA decreased by £32.4m (29.4%) to £77.9m
• PBIT plus joint ventures decreased by £29.3m (39.0%) to £45.9m

 increased contribution from joint ventures with contracts stable  more than offset by decline in landfill and recycling  H2 below H1 reflecting recyclate prices

• PBT decreased by £21.1m (36.6%) to £36.5m including intra group refinancing

benefit

• Capex(2) £323m (2011/12 – £143m) of which £293m is Viridor growth projects

(largely EfW) and the balance maintenance

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(1) Excluding exceptional charges (2) Including construction spend on service concession arrangements

Viridor

Exceptional Charges

• In response to ongoing landfill trends and its own EfW development programme

(including EfW plants at its Ardley, Beddington and Dunbar landfills) Viridor has reviewed its long term site lives  post 2020 Viridor is expected to have a network of 3 strategically located landfills (compared to 21 at present) 

• f the current 61.5m cubic metres (m m3) of landfill void, c39m m3 is expected

to no longer be filled (including Ardley, Beddington and Dunbar)

• It has also reviewed its recycling network and closed a number of sites
• At the same time the company has reviewed its landfill aftercare provisioning costs

to reflect revised final land forms and a re-assessment of the aftercare period (increased from 30 to 60 years)

• Taking all of the above into account:

 £99m required asset impairment (non cash; primarily landfill) and onerous contracts  £90m increased landfill provisions (reflecting long term cash over 60 years)  total £150m post tax

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Viridor

Profit Contribution by Activity(1)

2012/13 £m 2011/12 £m Recycling 10.7 33.0 Landfill 19.0 22.8 Landfill gas power generation 23.8 25.3 Joint ventures 15.1 11.5 Contracts and other 25.2 25.3 Collection 4.3 7.4 Total contribution 98.1 125.3 Indirect costs (including pensions, insurance, bid costs, environmental management, overheads and amortisation of intangibles) (52.2) (50.1) PBIT + JVs 45.9 75.2

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(1) Before exceptional charges

Viridor

Operational Highlights - Recycling

• Average revenue per tonne £99 significantly down on last year’s figure of £118

impacted by last year’s strong first half (£36m impact)  prices have recovered a little from their lows of October to December 2012

• Annual volumes increased slightly to 1.9m tonnes compared to last year 1.8m tonnes

 impact of acquisitions 71kt

• In response to the major fall in recyclate prices Viridor has rationalised its recycling

and associated operations in 2012/13  6 facilities closed/mothballed  152 redundancies

• Average cost per tonne reduced to £93 from last year’s total of £100 (total saving

£13m across all cost categories)

• Judicial review confirms DEFRA interpretation of EU Recycling rules

 supports commingled collection and centralised MRFs, the Viridor model  Viridor the largest operator of MRFs in the UK ► 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 market conditions

• Key sensitivity: £10 per tonne

change in revenue per tonne on c2m tonnes pa implies c£20m change in revenues pa

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(1) Calendar year basis

• 20

40 60 80 100 120 140 £ PER TONNE

Weighted Average(1)

Viridor

Operational Highlights - Landfill

• Volumes down 397kt (12.7%) to 2,717kt

 in line with the market

• Average gate fees up 8.1% to £25.34 per tonne
• Landfill tax increased to £72 per tonne (passed through to customer)

 rises to £80 per tonne April 2014

• Costs up 8.1% to £20.26 per tonne

 impact of reduced volume on fixed costs

• Consented landfill capacity fell from 65.4 mcm at 31 March 2012 to 61.5 mcm at 31

March 2013 reflecting usage in the year

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Viridor

Operational Highlights - Landfill Gas Power Generation

• Volumes up 7.3% to 618GWh (576GWh last year) reflecting intensive

management focus  at peak

• Average prices fell slightly reflecting lower ROBOR(1)

 long term upward trend in brown energy prices

• Average costs up 10.5% to £43.74 per MWh as maximum volume squeezed out
• Total operational capacity(2) of 107MW at 31 March 2013 was unchanged on 31

March 2012  higher value ROC(3) component remained at 74%; NFFO(4) 26%  c60% of NFFOs migrate to ROCs during 2013/14; balance up to 2016/17

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(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

Viridor

Operational Highlights – Joint Ventures

• JVs’ contribution (interest receivable on shareholder loans and share of PAT) increased 31% to

£15.1m (2011/12 - £11.5m) Lakeside

• The first of our EfW projects continues to perform very strongly
• Contribution of £7.2m (2011/12 £5.1m) reflecting continued above target waste throughput and

energy generation

• £1.4m interest receivable on shareholder loans (unchanged on year) and £5.8m share of PAT

(up £2.1m) Viridor Laing Greater Manchester

• Contribution up £1.5m to £7.9m as facilities are rolled out
• £7.9m interest receivable on shareholder loans, up £1.8m from increased average balance of

shareholder loans (loans fully drawn during 2011/12)

• £Nil share of PAT IFRIC 12 basis down £0.3m (£4.4m profit UK GAAP, down £0.2m)
• 41 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 – 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 stable
• Collection profit contribution down (volumes and prices) reflecting current market

conditions  Viridor’s collection fleet has an increasing role in feeding its recycling and EfW plants

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Viridor

Progress on PPP/EfW 2012/13

• Financial close achieved for the Glasgow Design Build Finance Operate project

(July 2012); planning application for the associated Recycling and Renewable Energy Centre approved (January 2013)

• Financial close achieved for the South London Waste Partnership PPP

(November 2012). Planning permission achieved (May 2013)

• Planning approval (January 2013) and financial close (February 2013) achieved

for the Peterborough PPP and start of construction imminent

• Preferred bidder achieved for the South East Wales residual waste project

(Prosiect Gwyrdd) (March 2013)

• Dunbar planning enhanced to cover all of Scotland (October 2012)
• Runcorn I, II, Exeter, Ardley, Cardiff and Glasgow all under construction
• A new capital projects and engineering director has been appointed to lead

delivery of the programme

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Viridor

Overview of current and pipeline Energy from Waste facilities

Viridor

EfW Plants

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Site Capital Cost (1) Gross Capacity Status Base Load Municipal Contract Expected Start of Commissioning Operations End (2) Tonnes (000) Electricity MW Lakeside( 3) 150 410 37 Operational Merchant May 2010 2033 Bolton N/A 120 9 Operational Gt M’chester 2001 2034 Runcorn I(3) 236 375 28(5) Construction in progress Gt M’chester H2 2013/14 25 years Runcorn II 216 375 42 Construction in progress Merchant H2 2014/15 25 years Oxfordshire 210 300 24 Construction in progress Oxfordshire H1 2014/15 25 years Cardiff 223 350 28 Construction in progress Gwyrdd (SE Wales) H2 2014/15 25 years Exeter 47 60 3 Construction in progress Exeter H1 2014/15 30 years Glasgow 155 200 15 Construction in progress Glasgow H1 2016/17 25 years Peterborough 72 80 7 Construction imminent Peterborough H2 2015/16 30 years South London Sub Total 199 275 2,545 26 219 Planning permission achieved S London 1,270 H1 2016/17 25 years Dunbar(4) 195 300 23(6) Planning secured TBA TBA 25 years Avonmouth(4) Grand Total 233 350 3,195 28 270 Planning secured TBA 1,270 TBA 25 years

► Above are proven technology built on fixed price contracts. Key uncertainty is build period (significant protection via liquidated damages). Runcorn is around nine months behind original plan; Oxfordshire, Cardiff and Exeter are currently on schedule and construction on Glasgow has just commenced

(1) Capital cost excludes capitalised interest and for projects for which the EPC contract has not yet been executed, capital cost may vary in accordance with the Euro exchange rate (2) Operational period post construction. This is usually the minimum guaranteed plant life (3) Joint ventures (Lakeside 50%; Runcorn 37.5%) (4) Projects are not yet committed (5) Plus heat 51MW (6) Plus heat 17MW

Viridor

Projected UK EfW Capacity

30 2010 2020 All current proposals 2020 likely 2020 Viridor including joint ventures

Tonnes (m) 6 14 3.2

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Source: Viridor analysis and estimates

• Above figures are theoretical capacity
• Likely capacity takes account of available base load municipal contracts (necessary

for financing) and actual/expected planning permissions ► Likely to be significant undercapacity in UK in 2020 compared to c20m tonnes projected demand

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Viridor

2012/13 Summary

• PBIT plus joint ventures down 39.0%

 continued growth in joint ventures outweighed by decline in recycling and landfill

• Exceptional costs primarily reflecting updated assessment of landfill site lives and provisions
• Recyclate prices have fallen from their first half 2011/12 peak reflecting world economic and

market conditions  prices have recovered a little from their lows of October to December 2012 

• ngoing stringent revenue optimisation and facilities rationalisation/cost reduction

programme

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

2012/13 in PPP/EfW pipeline  Glasgow; South London; Peterborough; Prosiect Gwyrdd; Dunbar planning  committed projects expected to contribute more than £100m to Viridor EBITDA within four years

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► Strategy focused on transforming waste  PPP/EfW pipeline expected to drive long term profit growth

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Pennon Group Plc

Summary

• Strategy clearly focused on:

 water and sewerage services  recycling, renewable energy and waste management

• £439m invested in key infrastructure supporting the development of the UK economy
• South West Water

 focus on efficient service delivery 

• perational and financial performance remains strong

 well prepared for PR14 and legislative changes

• Viridor

 near term headwinds in recycling; ongoing trend decline in landfill  PPP/EfW pipeline expected to drive long term profit growth  present CEO becoming Viridor chairman - recruitment of new CEO under way

• Group well funded with efficient long term financing

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Appendices

Pennon Group Plc

Net Borrowings Analysis as at 31 March 2013

£m Finance leasing 1,263 Bank bilaterals - RCFs/term loans 485 EIB 232 Index-linked bond 2057 247 Bond 2040 132 Private placements 163 Convertible bond 120 Unsecured loan notes 1 Other 1 Total gross debt 2,644 Less: Cash/liquid investments(1) (635) Total net debt 2,009

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► Key role of finance leasing ► Diversified funding sources

(1) Includes £143m of restricted cash

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Pennon Group Plc

Pensions as at 31 March 2013

• Gross pension deficit of £110m (March 2012 - £99m)

 £85m net of tax (March 2012 - £75m) March 2013 March 2012

• Pension schemes’ assets £580m £517m

Pension schemes’ liabilities £690m £616m £110m = £85m net of tax £99m = £75m net of tax

► Market volatility in long-term interest rates used to discount liabilities ► Deficit recovery contributions paid until end of K5 (£33m in 2011/12) ► IAS19 revision expected to increase P&L charge by c£9m pa from 2013/14 and reduce liabilities/deficit by c£10m ► SWW cash contributions within Final Determination ► Net deficit c4% of Group’s market capitalisation ► March 2013 actuarial valuation commenced - deficit expected to be higher than IAS 19 deficit due to lower discount rates

Viridor

Accounting for EfWs Generic plant financials(1)

• To illustrate the accounting differences and the types of expected return, we have

set out the financials for a generic EfW plant:  £200m capex, 350kt pa waste and 25MW electricity  80% debt, 20% sub-debt and equity

• First full year of operations, ie year 4, financials are expected to be:

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IAS 16 (£’m) Comments IFRIC 12 (£’m) Comments Revenue 42 Gate fee and electricity/heat 26 EBITDA 28 11 Operating margin Depreciation (11) Upfront + maintenance capex EBIT 17 11 Interest (18) Debt and sub-debt interest (3) Notional interest less debt and sub- debt interest PBT (1) 8

(1) 2011/12 basis

Viridor

Accounting for EfWs Generic plant financials – Profit profiles(1)

• Profits over the life of the projects should increase with inflation
• PBT under IAS 16 increases as debt and subordinated debt are repaid, IFRIC 12

has a more constant notional interest calculation

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Generic EfW EBITDA under IFRIC 12 vs IAS 16 Generic EfW PBT under IFRIC 12 vs IAS 16

(1) 2011/12 basis

Viridor

Lakeside EfW - Summary

• Waste capacity and supply: 410kt (all merchant). Supply split between Viridor,

Grundon and Lakeside

• Energy: 37MWe
• Capital expenditure: £150m
• Build profile: Start – November 2005. End – May 2010 (Expected 36 months,

actual 54 months)

• Operating life: 25 years
• Construction contractor: Takuma / BAM Nuttall
• Operating contractor: Fortum until January 2013 and then Lakeside
• Plant ownership: 50% Viridor, 50% Grundon. Grundon option to buy in 2033

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Viridor

Bolton EfW - Summary

• Waste capacity and supply: 120kt (all supplied via the Greater Manchester PFI)
• Energy: 9MWe
• Capital expenditure: n/a
• Build profile: As an incinerator: start – 1970s, end – 1970s. Energy recovery: start –

1998, end – 2001

• Operating life: 2034 concession ends
• Construction contractor: n/a
• Operating contractor: Viridor
• Plant ownership: 100% Viridor

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Viridor

Runcorn I EfW - Summary

• Waste capacity and supply: 375kt (up to 325kt from GM PFI, remainder merchant)
• Energy: 28MWe and 51MWth
• Capital expenditure: £236m
• Build profile: Start – April 2009. Expected start of commissioning: H2 2013/14
• Operating life: 25 years
• Construction contractor: Keppel Seghers
• Operating contractor: Viridor
• Plant ownership: Equity interests – 20% Viridor, 20% Laing, 60% Ineos.

Economic interests – 37.5% Viridor, 37.5% Laing, 25% Ineos. Non-reverting

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Viridor

Runcorn II EfW - Summary

• Waste capacity and supply: 375kt (all merchant)
• Energy: 42MWe
• Capital expenditure: £216m
• Build profile: Start – September 2010. Expected start of commissioning: H2

2014/15

• Operating life: 25 years
• Construction contractor: Keppel Seghers
• Operating contractor: Viridor
• Plant ownership: 100% Viridor. Non-reverting

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Viridor

Exeter EfW - Summary

• Waste capacity and supply: 60kt (all contracted with Devon County Council)
• Energy: 3MWe
• Capital expenditure: £47m
• Build profile: Start – October 2011. Expected start of commissioning: H1 2014/15
• Operating life: 30 year concession
• Construction contractor: TIRU SA
• Operating contractor: TIRU SA 1st 5 years, Viridor thereafter
• Plant ownership: 100% Viridor. Reverts to Devon County Council after 30 years

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Viridor

Ardley EfW - Summary

• Waste capacity and supply: 300kt (c150kt contracted for 25 years with Oxfordshire

County Council via Oxfordshire PPP)

• Energy: 24 MWe
• Capital expenditure: £210m
• Build profile: Start date - December 2011. Expected start of commissioning: H1

2014/15

• Operating life: 25 years
• Construction contractor: CNIM / Clugston
• Operating contractor: Viridor (4 year supervisory contract with CNIM)
• Plant ownership: 100% Viridor. Non-reverting

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Viridor

Cardiff (Trident Park) EfW - Summary

• Waste capacity and supply: 350kt (170kt preferred bidder Prosiect Gwyrrd)
• Energy: 28MWe
• Capital expenditure: £223m
• Build profile: Start – 2012. Expected start of commissioning: H2 2014/15
• Operating life: 25 years
• Construction contractor: CNIM/Lagan
• Operating contractor: Viridor
• Plant ownership: 100% Viridor. Non-reverting

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Viridor

Glasgow Recycling & Renewable Energy Centre (GRREC) - Summary

• Waste capacity and supply: 200kt (Up to 200kt contracted with 175kt guaranteed

minimum from Glasgow City Council)

• Energy: 15MWe
• Capital expenditure: £155m
• Build profile: Start – May 2013. Expected start of commissioning: H1 2016/17
• Operating life: 25 years
• Construction contractor: Interserve
• Operating contractor: Viridor
• Plant ownership: 100% Viridor. Reverts to Glasgow City Council after 25 years

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Viridor

Peterborough EfW - Summary

• Waste capacity and supply: 80kt (c55kt contracted for 30 years with Peterborough

City Council via Peterborough PPP)

• Energy: 7.25 MWe
• Capital expenditure: £72m financed by local authority
• Build profile: Start date - Summer 2013. Expected start of commissioning: H2

2015/16

• Operating life: 35 years
• Construction contractor: JV Babcock & Wilcox Volund and Interserve
• Operating contractor: Viridor
• Plant ownership: 100% Peterborough City Council

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Viridor

South London (Beddington) EfW - Summary

• Waste capacity and supply: 275kt (c200kt contracted for 25 years with London

boroughs of Croydon, Kingston, Merton and Sutton via SLWP PPP)

• Energy: 26 MWe
• Capital expenditure: £199m
• Build profile: Planning permission achieved in May 2013. Earliest expected

construction start autumn 2013 with possible commissioning: H1 2016/17

• Operating life: 25 years
• Construction contractor: CNIM/Lagan
• Operating contractor: Viridor
• Plant ownership: 100% Viridor. Non-reverting

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Viridor

Avonmouth EfW - Summary

• Waste capacity and supply: 350kt (all merchant)
• Energy: 28MWe
• Capital expenditure: £233m
• Build profile: TBA (planning permission achieved)
• Operating life: 25 years
• Construction contractor: TBA
• Operating contractor: Viridor
• Plant ownership: 100% Viridor. Non-reverting

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Viridor

Dunbar EfW - Summary

• Waste capacity and supply: 300kt (all merchant)
• Energy: 23MWe and 17MWth
• Capital expenditure: £195m
• Build profile: TBA (planning permission achieved)
• Operating life: 25 years
• Construction contractor: TBA
• Operating contractor: Viridor
• Plant ownership: 100% Viridor. Non-reverting

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