Waste Market Round Table Discussion · • Portfolio of twelve Energy Recovery Facilities ... +3.9% Profit Before Tax 30.6 23.1 +32.5% Capital Investment(4) 147.1 103.6 +42.0% Overview

© Pennon Group plc 2017© Pennon Group plc 2017

Waste Market Round Table Discussion

29 January 2018

© Pennon Group plc 2017Round Table Discussion January 20182 © Pennon Group plc 2017

Viridor Team

Chris LoughlinChief Executive Officer

Paul RinghamCommercial Director

Phil PiddingtonManaging Director

Susan DavyChief Financial Officer

Chris JonasManaging Director – Major Contracts

Paul BrownManaging Director - Recycling

Keith TrowerManaging Director - VRM


Overview

Agenda

Recycling Strategy & Market Trends

Landfill Strategy & Market Trends

Residual Waste Market & ERF portfolio

Lunch

Discussion


A market leader well-positioned today

and for the future

OverviewGiving resources new life

Delivering for customers, employees

and shareholders

ERF ‘growth kicker’

ERFs earnings enhancing for Pennon

Viridor growth to 2020 and beyond

- Differentiated from water peers


OverviewAt the forefront of the resource sector in the UK

650Waste collection

vehicles

12ERFs

32,000 UK customers

1.6 Million

tonnesof recyclate traded

380,000equivalent homes

powered by energy produced by our

portfolio

• Portfolio of twelve Energy Recovery Facilities

• 380,000 equivalent homes powered by energy

produced by our portfolio

• 150 local authority and major corporate clients

• 32,000 customers across the UK

• 300+ recycling, energy recovery and waste

management facilities

• 650 waste collection vehicles securing materials for our

network of assets

• 1.6 million tonnes of recyclate traded

Network

of 300+

recycling

facilities


Landfill and Landfill Gas

Recycling

Landfill1.7 mT

Recycling3.7 mT

7.6mT

Total Waste

inputs

£198.5m

Adjusted

EBITDA

OverviewWaste volumes and Adjusted EBITDA 2016/17

Contracts, Collections and Other

Energy Recovery Facilities2.2 mT

Energy Recovery Facilities


Underlying(1)

H1 2017/18

£m

H1 2016/17

£mChange

Revenue(2) 407.0 397.9 +2.3%

EBITDA 66.6 63.3 +5.2%

ERFs 51.7 50.5 +2.4%

Landfill 3.3 3.2 +3.1%

Landfill Gas 9.2 12.9 (28.7%)

Recycling 10.6 11.0 (3.6%)

Contracts, Collections & Other(3) 20.0 16.0 +25.0%

Indirect Costs (28.2) (30.3) +6.9%

Share of JV EBITDA 25.4 23.0 +10.4%

IFRIC 12 Interest Receivable 6.9 8.8 (21.6%)

Adjusted EBITDA 98.9 95.1 +4.0%

Depreciation and amortisation (34.2) (35.6) +3.9%

Profit Before Tax 30.6 23.1 +32.5%

Capital Investment(4) 147.1 103.6 +42.0%

OverviewViridor Half Year 2017/18 Financial Highlights

ERFs

- ERF availability >90%(5) for H1 2017/18

- Expect H2 weighting

Optimising landfill

- Landfill volumes increased since H2

2016/17 – pricing holding up

- Gas yields impacted by maintenance

Recycling

- Volumes reduced, optimising contracts

and asset base

- EBITDA margin/tonne increased

Focus on cost base

- Driving efficiency through shared

services

(1) Before non-underlying items(2) Including landfill tax and construction spend on service concession arrangements(3) H1 2017/18 benefiting from contract rationalisation(4) Including construction spend related to service concession arrangements(5) Includes 100% of joint ventures, excluding Bolton ERF availability due to fire

C

D

A

B

C

D

B

A

B

A


OverviewWaste sector - continued opportunities for Viridor

2018 Resources &

Waste Strategy

(DEFRA)

Landfill - ongoing

feature of UK waste

market, retaining

dynamic approach

Developing new

markets for recyclate

(UK & export)

UK residual waste market

dynamics favourable - ERF

demand exceeding

capacity into long-term


Recycling Strategy

& Market Trends

2016/17Waste inputs

2016/17Adjusted EBITDA


UK

Europe

ChinaGlassPaper

Commodity

volumes

Active

markets

Recycling Strategy & Market TrendsViridor’s recycling market activity

Rest ofWorld

Metal &WEEE

Plastics & Polymers

All Viridor metals and glass stay in the UK- no plastics have been exported to China as of March 2017


Recycling Strategy & Market Trends A challenging environment, ‘self-help’ in place, market developing

• Public pressure is growing - ‘Blue Planet’ effect

• Recycling rates have stalled in the UK

• Model needs improvement, Government recognition -

Viridor engaging

• Brexit represents an opportunity for a new framework

• Quality improvements (input and output) required

Market dynamics

• Optimisation of contracts and asset base

o c.65% of contracted volumes have now been

renegotiated to pain/gain sharing mechanisms

o Ongoing rollout of ‘lean RCM(1)’

o Rationalisation of assets

o Increased quality sampling regimes

• Managing pressure on costs – China/shipping

• Developing new markets

Viridor ‘self-help’ activities

c.65% of contracted volumes have now been renegotiated

(1) Reliability Centred Maintenance


Recycling Strategy & Market Trends Changes in the Chinese market – ‘Operation Sword’

Plastic

• Anticipated market change in advance, no plastic sold

to China as of March 2017, new European/UK markets

• Investment made in plastics innovation in UK

operations

Paper

• Developing new markets for paper in India, Vietnam

and South Korea – partially mitigating impact

• Investing to improve quality

• Working with our supply chain to improve the quality of

paper material for China

Viridor ‘self-help’ plan

• New quality requirements from China for paper and

plastic

• Expectations of lower volumes to China for paper

and plastic imports

• Anticipate managing more waste domestically

Market dynamics


Recycling Strategy & Market TrendsPlastics and Polymers

Households KerbsideCollection

Viridor Materials Recycling FacilityViridor Plastics

Recycling FacilityViridor PolymersRecycling Facility

Bottle Manufacturing

Plant

• Manufacturer interest in securing

longer-term supplies

• Innovation has facilitated

consistent, odour-free, high quality

product needed for premium

consumer packaging, replacing

virgin resin

• Long-term agreement to recycle

200 million+ bottles in UK – in new

packaging for hair and fabric care

products

Viridor’s Circular

Economy Developments


Landfill Strategy

& Market Trends

2016/17Waste inputs



• Landfill tax successful in diversion to energy

recovery/recycling

• Recycling rates have stalled – continued

requirement for landfill

• Landfill capacity will remain scarce and valuable as

sites continue to close in accordance with plans

• Tolvik estimates shortfall in capacity means c.70MT

will need to be landfilled over next 12 years

Market dynamics

Landfill Strategy & Market Trends Ongoing feature of UK waste market

• Dynamic strategy, retaining flexibility

o Well-located sites in areas of scarcity

o Mothballed landfill sites will re-open when

demand justifies e.g. Viridor Heathfield in Devon

o Maximising gas yields

o Alternative use extracting value from sites –

maximising opportunities for external

grid connections

How Viridor is positioned


Residual Waste Market

& ERF Portfolio

2016/17Waste inputs



Residual Waste Market & ERF PortfolioDemand exceeding capacity into short, medium and long-term

• Further UK waste treatment capacity is essential to service longer term demand

• Conservative assumptions taking into account higher recycling over time and further ERF build-out

• Household waste arisings have increased annually since 2012. Expenditure on waste services up c.16% from 2008/09

Source: Tolvik, Defra, SEPA, NRW, MSW and Viridor analysis

Capacity gap forecast to be >7m by 2030

-

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030UK

Co

mb

us

tib

le R

es

idu

al W

as

te M

ark

et

(MT

)

ERF Capacity Viridor ERF Capacity Undercapacity

Favourable waste market dynamics confirmed


Residual Waste Market & ERF PortfolioERF capacity projections

Source: Environmental Services Association (ESA)

• ESA commissioned review of Residual Waste

Market – reports by 2030 projected tonnage of

residual waste likely to be 22-27 Mt

• Consistency in baseline Residual Waste

tonnages. Differing recycling assumptions leads

to variability in capacity gap

• UK’s recycling rate c.44% for the last 5 years.

Tolvik estimates maximum recycling rate by 2030

is 54% - based on international analysis

Market consensus - capacity gap2030 Residual Waste Capacity “Gap”

(excl. RDF Export)


Residual Waste Market & ERF PortfolioRDF exports expected to level off as Europe reaches capacity

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Ma

y-1

3

Au

g-1

3

No

v-1

3

Fe

b-1

4

Ma

y-1

4

Au

g-1

4

No

v-1

4

Fe

b-1

5

Ma

y-1

5

Au

g-1

5

No

v-1

5

Fe

b-1

6

Ma

y-1

6

Au

g-1

6

No

v-1

6

Fe

b-1

7

Ma

y-1

7

Au

g-1

7

Moving average against the monthly tonnage exported

• Less favourable FX rate post-EU Referendum

making exports more expensive

• More opportunities to treat waste in the UK as

planned ERF capacity comes on-stream

• Brexit may reduce waste exports

Changing market dynamics

Source: Defra


Resilient infrastructure model with contracted revenues

• Revenue Mix: c.70% gate fees (read across from landfill tax), c.25% power price, c.5% recovered metals

• Technology: Viridor uses long-established, well-proven technology. Moving grate and established gasification

technology (6 operating gasification plants across UK/Europe)

• High availability: Average >90%(1) across fleet

• c.80% long-term contracted(2): on portfolio volumes. Contracts include escalators/inflation-linking

• Heat off-take: All plants heat-enabled. Already successful at Runcorn 1, planned for Beddington, South London and

other opportunities being explored.

• Capacity market agreements: >80MW capacity secured long-term with more being added

Residual Waste Market & ERF PortfolioERFs Delivering on our investments

ERF Availability H1 2017/18(1)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Runcorn II Cardiff Ardley P'borough Exeter Lakeside Runcorn I

(1) Includes 100% of joint venture availability, excludes Bolton ERF due to fire(2) Excluding Avonmouth

2016/17 2020/21

EBITDA

Glasgow

(IFRIC 12)

DunbarSouth

London

Avonmouth

Adjusted

EBITDA

Share of JV EBITDA

IFRIC 12Interest

Receivable

£107m


Residual Waste Market & ERF PortfolioDelivering the next growth stage, significant earnings step up

Beddington – final commissioning Glasgow – final commissioning

Dunbar – early stage commissioning Avonmouth – progressing well


A market leader well-positioned today

and for the future

OverviewGiving resources new life

Delivering for customers, employees

and shareholders

ERF ‘growth kicker’

ERFs earnings enhancing for Pennon

Viridor growth to 2020 and beyond

- Differentiated from water peers


Q&A

Documents

Waste Market Round Table Discussion · • Portfolio of twelve Energy Recovery Facilities ... +3.9% Profit Before Tax 30.6 23.1 +32.5% Capital Investment(4) 147.1 103.6 +42.0% Overview