London Investor Roadshow February 2017

For the purposes of the following disclaimers, references to this technology systems management and protection including higher risks, “document” shall mean this presentation pack and shall be deemed to maintaining finance and funding to meet ongoing commitments, include references to the related speeches made by or to be made by the uncertainty arising from open tax computations where liabilities remain to presenters, any questions and answers in relation thereto and any other be agreed and difficulty in recruitment, retention and development of related verbal or written communications. appropriate skills which are required to deliver the Group’s strategy. This document contains certain “forward-looking statements” with respect Forward looking statements should therefore be construed in light of such to Pennon Group’s financial condition, results of operations and business risks, uncertainties and other factors and undue reliance should not be and certain of Pennon Group's plans and objectives with respect to these placed on them. Nothing in this document should be construed as a profit matters which may constitute “forward-looking statements” within the forecast. meaning of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Pennon Group or any other Forward-looking statements are sometimes, but not always, identified by member of the Pennon Group or persons acting on their behalf are their use of a date in the future or such words as “anticipate”, “aim”, expressly qualified in their entirety by the factors referred to above. “believe”, “continue”, “could”, “due”, "estimate“, “expect”, “forecast”, “goal”, Pennon Group may or may not update these forward-looking statements. “intend”, "may", “plan", “project”, “seek”, “should”, “target”, “will” and related and similar expressions, as well as statements in the future tense. 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 By their very nature forward-looking statements are inherently purchase, exchange or transfer such securities in any jurisdiction. unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will or will not occur in Without prejudice to the above, whilst Pennon Group accepts liability to the future. Various known and unknown risks, uncertainties and other the extent required by the Listing Rules, the Disclosure Rules and the factors could lead to substantial differences between the actual future Transparency Rules of the UK Listing Authority for any information results, financial situation development or performance of the Group and contained within this document which the Company makes publicly the estimates and historical results given herein. Undue reliance should available as required by such Rules: not be placed on forward-looking statements which are made only as of a) neither Pennon Group nor any other member of Pennon Group or the date of this document. Important risks, uncertainties and other factors persons acting on their behalf shall otherwise have any liability that could cause actual results, performance or achievements of Pennon whatsoever for loss howsoever arising, directly or indirectly, from use Group to differ materially from any outcomes or results expressed or of the information contained within this document; implied by such forward-looking statements are changes in law, regulation b) neither Pennon Group nor any other member of Pennon Group or or decisions by governmental bodies or regulators, non-recovery of persons acting on their behalf makes any representation or warranty, customer debt, poor operating performance due to extreme weather and express or implied, as to the accuracy or completeness of the climate change, poor service provided to customers or increased information contained within this document; and competition leading to loss of customer base, global economic downturn c) no reliance may be placed upon the information contained within this pressuring volumes and margins, downward pressure on UK wholesale document to the extent that such information is subsequently updated power prices, business interruption or significant operational failures/ by or on behalf of Pennon Group. incidents, non-compliance or occurrence of avoidable health and safety incidents, failure or increased cost of capital projects, exposure to Past performance of securities of Pennon Group cannot be relied upon as contractor failure to deliver construction progress, failure of information a guide to the future performance of any securities of Pennon Group.

Pennon • At the top end of the FTSE 250 index with a market capitalisation of £3.6 billion • Assets of £5.8 billion and a workforce of over 5,000 people • Dividend policy of +4% annual growth above Retail Price Index inflation to 2020 • Peers include: United Utilities, Severn Trent, Veolia and Suez • Pennon operates in the most efficient and sustainable way possible. Innovation, new technologies, and the pioneering of a holistic approach deliver service improvements and long-term value Viridor • A leading UK recycling, energy recovery and waste management company • Providing services to more than 150 local authorities and major corporate clients as well as over 32,000 customers across the UK South West Water • Provides water and wastewater services to a population of c.2.2 million • Serves Cornwall, Devon, parts of Dorset, Somerset, Hampshire and Wiltshire • Awarded enhanced status for its 2015-2020 Business Plan, highest potential returns in the water sector • South West Water acquired Bournemouth Water in April 2015

One of the largest environmental infrastructure groups in the UK

Strategic priorities Focused on moving towards a more consistent risk profile

DELIVER FOR LEADERSHIP IN CAPITALISE ON DELIVER FOR CAPITALISE ON CUSTOMERS, EFFICIENTLEADERSHIP COST IN GROUP-WIDE CUSTOMERS, GROUP-WIDE COMMUNITIES, EFFICIENTBASE AND COST STRENGTHS, INVESTING FOR COMMUNITIES, STRENGTHS, ENVIRONMENT, FINANCINGBASE & BEST PRACTICE, GROWTH ENVIRONMENT & BEST PRACTICE & SHAREHOLDERS FINANCING SYNERGIES SHAREHOLDERS SYNERGIES

Strategic objective

LONG-TERM, PREDICTABLE, ASSET-BACKED, INDEX-LINKED RETURNS

Water & Wastewater Waste Recycling & Recovery

‘SECTOR-LEADING WATER BUSINESS, GROWING RECYCLING, ENERGY RECOVERY AND WASTE MANAGEMENT GROUP’

WELL-POSITIONED TO PREDICTABLE EFFICIENT/EFFECTIVE TAKE OPPORTUNITIES INDEX-LINKED BALANCE SHEET AND IN A CHANGING EARNINGS AND CASH SECTOR-LEADING REGULATORY FLOW GROWTH FINANCE COSTS ENVIRONMENT

INVESTING FOR STRONG SECTOR-LEADING FURTHER INDEX- OPERATIONAL DIVIDEND OF +4% LINKED GROWTH, PERFORMANCE, ABOVE RETAIL PRICE TRACK RECORD OF DELIVERING INDEX (RPI) DELIVERING VALUE FINANCIAL BENEFITS INFLATION TO 2020 FROM M&A

DIVIDEND PER SHARE +6.0% to 11.09p

ADJUSTED EBITDA(2) OPERATING PROFIT £277.2m £153.9m

+6.0% +13.7%

NET FINANCE COST EARNINGS PER SHARE(3) £28.6m 23.6p

Effective rate of 3.3% +1.7% (SWW 3.2%)

(1) Before non-underlying items as set out on slide 10 (2) Statutory EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (3) Before deferred tax and adjusted proportionately to reflect the half year impact of the annual hybrid periodic return. Basic earnings per share (statutory basis) 17.7p © Pennon Group plc 2017 7 Half Year 2016/17 Financial Highlights Pennon – robust results

£m A Adjusted EBITDA ahead Underlying(1) H1 2016/17 H1 2015/16 CHANGE • Higher SWW revenue and opex efficiencies Revenue 685.5 689.1 (0.5%) • Strong ERF performance • Recycling self-help measures EBITDA 245.4 231.7 +5.9% South West Water 183.0 173.6 +5.4% B Viridor 63.3 61.0 +3.8% Profit before tax growth • SWW in line with expectations Adjusted EBITDA(2) A 277.2 261.6 +6.0% • Significant Viridor contribution Operating Profit 153.9 135.3 +13.7% • Efficient ongoing finance costs

Profit Before Tax B 128.1 106.8 +19.9% C Tax (30.7) (21.9) +40.2% EPS ahead of H1 2015/16 (3) C Earnings per share (p) 23.6 23.2 +1.7% • Underlying profits ahead Dividend per share(4) (p) 11.09 10.46 +6.0% • YOY impact from last year’s prior year corporation tax credit

(1) Before non-underlying items (2) Statutory EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (3) Before deferred tax and adjusted proportionately to reflect the half year impact of the annual hybrid periodic return. Basic earnings per share (statutory basis) 17.7p © Pennon Group plc 2017 8 (4) The RPI rate used is 2.0% as of September 2016 Half Year 2016/17 Financial Highlights South West Water – continued outperformance of regulatory contract - 11.7% RORE

A H1 H1 £m CHANGE Revenue 2016/17 2015/16 • Tariff increase 1.4% (1.1% RPI) Revenue A 287.9 279.3 +3.1% • Higher demand up 1.3% • Increase in new connections Operating Costs(1) (104.9) (105.7) (0.8%) EBITDA(1) B 183.0 173.6 +5.4% B Depreciation (55.8) (55.9) (0.2%) EBITDA Operating Profit(1) 127.2 117.7 +8.1% • Operating costs down – lower bad debt at 1.1% of revenue and Interest (30.2) (30.7) (1.6%) efficiency savings Profit Before Tax(1) 97.0 87.0 +11.5% • Contributing to Totex outperformance of £24m H1 2016/17 - £80m cumulative to date Capital Expenditure 79.7 58.0 +37.4% C RORE C 11.7% 11.5% +0.2% RORE • Outperforming regulatory contract • Maintaining momentum from year 1

(1) Before non-underlying items

£m H1 2016/17 H1 2015/16 CHANGE A Revenue(1) 397.9 410.1 (3.0%) Growth in ERF EBITDA • Increase vs H1 2015/16 as EBITDA(2) 63.3 61.0 +3.8% plants ramp-up • Expected to contribute c.£100m

ERFs A 50.5 43.8 +15.3% of EBITDA by the end of the year Landfill B 3.2 4.5 (28.9%) B Optimising landfill Landfill Gas B 12.9 16.0 (19.4%) • Now at 13 sites, reducing to a Recycling C 11.0 7.2 +52.8% handful of strategic sites by the end of 2020 Contracts, Collections & Other D 16.0 20.1 (20.4%) • Maximising gas yields but decreasing as expected Indirect Costs (30.3) (30.6) (1.0%)

C Share of JV EBITDA 23.0 21.6 +6.5% Recycling self-help IFRIC 12 Interest Receivable 8.8 8.3 +6.0% • Significant progress made in reducing costs Adjusted EBITDA(2) 95.1 90.9 +4.6% • Improvements in asset utilisation Profit Before Tax(2) 23.1 12.9 +79.1% D Contracts, collections & other (3) Capital Investment 103.6 107.9 (4.0%) • Higher asset sales in H1 2015/16

(1) Including landfill tax and construction spend on service concession arrangements (2) Before non-underlying items © Pennon Group plc 2017 10 (3) Including construction spend on service concession arrangements Half Year 2016/17 Non-underlying Items

A Restructuring £m H1 2016/17 H1 2015/16(1) • Shared Services Review delivering additional c.£6m per annum of Operating costs efficiencies from 2019 Shared services restructuring costs A (10.7) - • Migration to a Group platform – non- cash asset de-recognition of £9.5m plus Net operating costs (10.7) - restructuring costs of £1.2m Movement in derivatives B (15.0) - B Derivatives Deferred tax – change of rate C 20.1 - • Movements in fair value shown Tax charge on non-underlying items (2.7) - separately within the income statement to make clearer. Reflects changes in Net charge for the period (8.3) - expected future cash flows of derivatives driven by market conditions and legislative changes C Change in rate • Change in the headline tax rate to 17% in 2020 has resulted in a deferred tax credit

(1) No non-underlying items in H1 2015/16

H1 H1 £m 2016/17 2015/16 A Current Year Current tax

Current tax A 23.1 18.5 • Current year current tax effective rate of 18.0% (H1 Deferred tax 9.5 6.4 2015/16 17.3%) reflecting capital allowances (including 32.6 24.9 ERFs) Prior Year Current tax (0.3) (14.7) Deferred tax (1.6) 11.7 B Non-underlying items (1.9) (3.0) • Reflect the change in headline Total Underlying Tax Charge 30.7 21.9 rate of future current tax and Deferred tax – change of rate B (20.1) - tax on other non-underlying items Tax charge on non-underlying items(1) B 2.7 - 13.3 21.9

(1) £4.0m deferred tax charge net of £1.3m current tax credit

£m H1 2016/17 H1 2015/16 ERF CAPITAL INVESTMENT(3)

£204m Viridor c.£180m c. £80m ERFs(1) 86 87 £139m c.£140m Recycling 2 3 Landfill Energy 5 6 £86m c.£60m Contracts and Collections 4 5 Other 7 7

Viridor Total 104 108 2014/15 2015/16 H1 2016/17 H2 2016/17 2017/18 2018/19 2019/20 South West Water Exeter Glasgow(4) Cardiff (Trident Park) Dunbar Clean Water 38 26 Runcorn II South London (Beddington) Oxford (Ardley) Avonmouth Waste Water 42 32 Peterborough South West Water Total 80 58 Total ERF portfolio - £1,529m Total Pennon Capital 184 166 (including £252m for Avonmouth) Investment(1)(2) • Remaining investment c.£460m.

(1) Including construction spend on service concession arrangements (2) Includes £6.1m of capitalised interest in H1 2016/17 (3) Future periods exclude capitalised interest and capital expenditure during operation © Pennon Group plc 2017 13 (4) Contractual remedies in place to mitigate incremental costs on Glasgow. Half Year 2016/17 Net debt movements Strong cash inflow from operations, continuing investment

£m (163.0) (2,566.1)

(2,484.4)

(131.6)

(33.3)

(6.2) (9.1)

257.5 4.0

Net Debt Cash inflow JV Loan Pension Other Net Interest Dividends Capital Net Debt (1) (3) 1-Apr-16 from Repayments Contributions movements Paid Paid (2) Payments 30-Sept-16 Operations

(1) Includes £7.2m non-cash movement in Euro loan due to exchange rates (2) Includes 2015/16 interim and final dividend due to advancement of final results reporting and AGM date (3) Including construction spend on service concession arrangements and proceeds from sale of property, plant and equipment

GROUP NET CASH / COMMITTED BORROWINGS FACILITIES(2) £2,566m £1,603m (31 March 2016 £2,484m) (31 March 2016 £1,707m)

Net borrowings increased with capital investment GROUP NET GEARING(1) Gearing • Pennon – reflects continuing investment, timing of dividend and 65.3% pension accounting deficit increase (31 March 2016 62.5%) • SWW – aligned with Ofwat efficient level

WATER BUSINESS Committed funding in place NET DEBT/RCV • SWW EIB drawn September 2016: £130m

62.2%(3) • Group fully funded to March 2019, including the three ERFs currently under construction (31 March 2016 59.7%) Development of portfolio

• Avonmouth will be corporately financed – options, including new hybrid, being considered

• EIB funding for Pennon agreed - £110m new Pennon facility – to support ERF programme (1) Net borrowings/(equity + net borrowings) (2) Including £219m deposits with Letters of Credit providers and Lessors © Pennon Group plc 2017 15 (3) Based on RCV at March 2017, assuming RPI of 2.5%

Half Year 2016/17 Balance Sheet Strong funding position underpinning capital investment

Sustainable funding GROUP NET (1) FINANCE COSTS • Diversified funding mix of fixed, floating and index-linked borrowings

£28.6m • Weighted average debt maturity of 21 years – matching the asset base (H1 2015/16 £29.5m) • South West Water funding:

GROUP AVERAGE - Predominantly hedged for K6 – policy to have hedging in place INTEREST RATE before the start of a regulatory period 3.3% - 2/3 of funding from finance leases (H1 2015/16 3.4%) - Long maturity and secured margins of finance leases - 25% of funding from RPI-linked debt SOUTH WEST WATER AVERAGE INTEREST RATE 3.2% (H1 2015/16 3.2%)

(1) Before non-underlying items

Policy of 4% + RPI leading to a +5.6% +4.9% doubling of dividend over 10 +6.5% 33.58 +7.3% 31.80 (1) 30.31 years (2010 to 2020) +7.6% 28.46 +9.3% 26.52 24.65 22.55 Scrip dividend alternative available as an option to +6.0% shareholders H1 11.09

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

Note: Full Year dividend in pence per share

Good operational and financial performance • Consistent outperformance in Water – RORE of 11.7% • ERF portfolio on track to deliver c.£100m EBITDA 2016/17 • Recycling – self-help measures delivering improved margins Continued focus on cost efficiency • Cumulative Water Totex outperformance – £80m • Shared Services Review – extra efficiency of c.£6.0m(1) p.a. – in addition to c.£11m p.a. • Efficient, effective consolidation of Bournemouth Water – c.£27m target for K6 on track Supporting RPI +4% dividend policy to 2020 Securing further growth • Avonmouth ERF committed • Non-household retail venture with South Staffs/Cambridge Water based in Bournemouth Well prepared for regulatory and market developments • Engaged in Water 2020 • Ready for water retail market opening

OFWAT INDUSTRY RORE(2) COMPARISON 2015/16 Cumulative RORE (1) performance to H1 2016/17

11.7%

Totex 2.3% ODIs 0.3% Financing 3.1%

Base returns 6.0%

(1) Cumulative annual equivalent outperformance to H1 2016/17 (2) Source: Ofwat’s Monitoring financial resilience report published November 2016 © Pennon Group plc 2017 20 Water: Good operational and financial performance Building momentum from strong early outperformance

K6 Totex Confidence in delivering cumulative K6 Totex outperformance outperformance • Continuing advantage from strategic alliances

- New water distribution alliance framework

- H50 capital delivery alliance in place since 2010 - £80m aligned incentives £56m6.0% - Using off-site build techniques

2015/16 2016/17 2016/17 2017/18 2018/19 2019/20 • Changing ways of working – iOps FY H1 FY FY FY FY

K6 Financing outperformance Confidence in our ability to deliver cumulative K6 financing outperformance

• Maintaining efficient gearing levels • Good balance of fixed and floating debt £48m £33m • Continued finance leasing - cost efficient debt

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

FY H1 FY FY FY FY © Pennon Group plc 2017 21 Water: Good operational and financial performance Cumulative 2016/17 performance levels

Water quality standard Odour contacts Taste, smell and colour contacts Bathing water quality Operational contacts resolved 1st time Water & waste asset reliability Water restrictions Sustainable abstractions Supplies interrupted due to flooding Internal sewer flooding Duration of supply interruptions Leakage level Descriptive compliance

Pollution incidents (Cat 3&4) Customers paying a metered bill Wastewater numeric compliance(1) Service Incentive Mechanism (SIM)(1)

Wastewater pollution incidents (Cat 1&2) External sewer flooding

ODI Outperformance net reward £3.8m(2) (cumulative) £5.7m reward : £1.9m penalty

(1) End of AMP measure only, on track to deliver with no penalty assumed (2) Cumulative ODI performance to H1 2016/17 based on performance to 30 September 2016 £5.7m net reward will be recognised at the end of the regulatory period and £1.9m net penalty which can be reflected during the regulatory period.

Water restrictions & quality • 20th consecutive year without water restrictions • Leakage target met every year since inception – driving further improvements • Maintaining top quartile water quality performance

Bathing water quality • 98.6% of bathing waters achieving more stringent bathing water standards • Innovative solutions for Plymouth bathing waters investment

Customer service (SIM) – our best ever score • Written complaints reduced by 28% in South West and 20% in Bournemouth region • Value for money satisfaction at an all time high

Wastewater compliance and significant pollutions • Significant pollutions reduced • Year on year compliance improvements – c.98% vs 95.8%

Outperformance shared through established WaterShare mechanism

(1) Category 1 & 2 pollution incidents

Debt consultation • SWW leading company adopting pain/gain sharing at PR14 – consistent with our WaterShare approach • Structure close to the notional company structure and gearing levels

Market Reform • Lowest exposure in the industry at c.4% for water resources and c.2% bio-resources (sludge)

Direct procurement • Potential opportunity for innovative planning, scoping and delivery

Licence changes • Supportive of Ofwat’s proposals and fully engaged in process for change

Household retail competition • Engaging in response and development of reform

H1 2016/17 Focus on reliability and optimising performance

ERFs • On track to deliver c. £100m of EBITDA in 2016/17 • Expected availability of c.90% in 2016/17 8 operational

3 in construction Continued progress on 3 ERFs in construction

• Dunbar and South London progressing well • Glasgow commissioning commenced – proactive intervention to complete OPERATIONAL − MRF in commissioning CAPACITY(1) − AD plant construction completed – ready for commissioning − ACF(2) c.85% of construction completed 2.1 mT Contracted position secure 178 MW • c.80% long-term contracted volumes (and associated price) across existing ERF portfolio

LANDFILL Delivering cash flow from landfill Operational sites 13 • Dynamic reviews of local market conditions to optimise value • Optimising landfill gas output 99 MW

(1) Includes 100% capacity of joint ventures (2) Advanced combustion facility (ACF) © Pennon Group plc 2017 25 Viridor: Good operational and financial performance Recycling ‘self-help’ increasing EBITDA

VOLUMES 0% H1 2016/17: 0.9mT (H1 2015/16: 0.9mT) Self-help measures driving improved margin

• Cost and overhead reduction REVENUES £-/T • Further opportunities to improve returns from portfolio H1 2016/17: £87/T rationalisation and improved asset utilisation (H1 2015/16: £87/T)

COSTS Market shift to sharing commodity risk/opportunity with £5/T clients H1 2016/17: £74/T (H1 2015/16: £79/T) • Good progress on contract renegotiations made to date • Further opportunities with over half still to review on renewal EBITDA MARGIN £5/T H1 2016/17: £13/T (H1 2015/16: £8/T)

Portfolio of ERFs continue to deliver significant growth in EBITDA Avonmouth ERF REVENUE MIX South London

5% RECOVERED METALS Dunbar Glasgow (IFRIC 12) 25% IFRIC 12 Interest POWER OUTPUT Adjusted Receivable Share of EBITDA (Pennon natural hedge) JV EBITDA

EBITDA - £100m

ERFs under construction 2016/17 2020/21 ERFs operational 70% ERF committed WASTE FUEL INPUT Waste inputs secured at plant opening (GATE FEES) • c.80% of volumes (and associated price) secured across the ERF portfolio under long-term contracts(1) • The remaining c.20% is under short and medium-term contracts • Index-linked contracts and risk-mitigation built-in with customer pass- through (e.g. new legislation) • Track record of converting merchant capacity to contracted revenues

SWW Totex savings £80m Delivering cumulative totex savings K6 to date

SWW/BW SYNERGIES Bournemouth Water synergies on track £27m

2015-2020 (K6)

SWW/VIRIDOR EFFICIENCIES 2015/16 announced cost savings being delivered £11m p.a.

By 2017/18 Group shared services GROUP SHARED SERVICES • Group wide review – centralised shared services c.£6m p.a. - reducing central overheads From 2019 - sharing best practice, delivering synergies

Avonmouth ERF – Key Facts • £252m investment • 320,000 tonnes inputs with c.33MW / c.260,000MWh electricity output • Operational - 2020/21 • Clear market opportunity with already c. 50% early contract commitments

Non-household Retail Joint Venture – Key Facts

• 80:20 JV with South Staffs/Cambridge Water • 4th largest Non-household retailer, achieving lower cost to serve • Grows our national footprint • Combined revenue of c. £170m – c. 8% of the new market

Growing asset base

• Water RCV growth of 21% over K6 • ERFs - 11 plants, including 3 under construction on-stream by H1 2018/19.

− Glasgow – commissioning expected to commence in 2017 − Dunbar and Beddington (South London) - construction in progress − Newly committed 12th ERF at Avonmouth due to commence operations in 2020/21 Two thirds of revenues index-linked and long-term contracted

• c.80% of ERF portfolio volumes (and associated price) contracted long-term(1) • 25-year rolling licence for water Remaining one third of revenues

• Ensuring viable long-term market • Seeking appropriate risk/reward balance

Good operational and financial performance in water and waste

Continued focus on cost efficiency

Securing further growth

Well prepared for regulatory and market developments

0.8 0.3 3.8 2.0 1.9 1.4 £m 6.7 277.2 7.2 (1.3) 261.6 (3.1) (4.1)

(1) H1 2015/16 SWW Tariff ERFs Recycling Plc/Other Share of JV SWW Other SWW Net Viridor Landfill Landfill Gas Contracts & H1 2016/17 Increase and EBITDA + Revenue Cost Savings Overheads Collections Customer IFRIC 12 Impacts(2) and (3) Demand Interest Efficiencies Receivable

(1) Last year included Bournemouth Water acquisition related costs (2) Includes impact of meter switchers and new connections (3) Includes cost increases due to inflation

£m (As at 30 September 2016) Finance Leasing(1) 1,334 Finance leasing provides key role in Bank Bilaterals - Term Loans 403 long-dated funding European Investment Bank Loans 380 Index-Linked Bond 413 Fixed Rate Bond 133 Private Placements 561 Total Gross Debt 3,224 Less: Cash/liquid investments (658) Net Borrowings 2,566

As at 30 September 2016 As at 31 March 2016 £m Book Fair Difference Book Fair Difference value value value value Finance Leases 1,307 1,188 119 1,315 1,163 152 Bank and Other Loans 378 388 (10) 403 403 - European Investment Bank 339 300 39 235 209 26 Loans Index-Linked Bonds 413 476 (63) 412 365 47 Fixed Rate Bond 133 205 (72) 133 198 (65) Private Placements 561 626 (65) 554 600 (46) Total 3,131 3,183 (52) 3,052 2,938 114

£m H1 2016/17 H1 2015/16

Net interest payable (28.6) (29.5)

Add: capitalised interest (6.1) (4.0) Less: notional interest payable(2) 5.7 7.0 Efficient effective interest Add: interest receivable on service rate (8.8) (8.3) concession contracts Net interest payable higher Add: interest receivable on shareholder (5.0) (5.6) loans to JVs than last year, reflecting higher net debt Net interest for average rate calculation (42.8) (40.4)

Split between:

Interest payable (42.6) (44.7)

Capitalised interest payable (6.1) (4.0)

Other finance income 5.9 8.3

Net interest payable (42.8) (40.4)

Average rate of interest 3.3% 3.4% GROUP SOUTH WEST WATER Net interest cover 4.9x 4.4x 3.3% 3.2%

(1) Before non-underlying items as set out in slide 10 (2) Includes pensions net interest and discount unwind on provisions © Pennon Group plc 2017 37 Pennon Half Year 2016/17 Pensions

Deficit has increased due to the 30 September 31 March £m post-Brexit fall in bond yields, 2016 2016 increasing the valuation of Pension schemes’ assets £893m £793m liabilities

Pension schemes’ £1,009m £834m Over half of the increase in the liabilities valuation of liabilities has been £116m = £41m = offset by increases in asset £93m £33m values net of tax net of tax Net deficit c.3% of Group’s market capitalisation 2016 actuarial valuation underway • outcome not expected to be materially different from position anticipated in 2013 valuation • contributions are currently in line with FD allowances

Group energy generation • Total renewable energy generation of c.0.9TWh in the first half of 2016/17 UK forward power prices − 8 ERFs – 632GWh − Landfill gas – 263GWh − 25 Hydro turbines – 3.7GWh generation − 53 solar PV installations – 7.6GWh(1) − Anaerobic digestion – 0.4GWh − CHP – 3.2GWh − 1 wind turbine – 0.1GWh generation Utilising existing grid connections at landfill sites • Continuing to identify opportunities to maximise the value from our grid connections Portfolio management strategy • Portfolio management team continues to actively Pennon hedging activity manage the Group net energy generation position • Net Group hedge in place for 2016/17 Pennon hedging

˗ Natural hedge within the Group, a third of generation Further trading along the curve ˗ Over 90% hedged for 2016/17, and c.60% hedged continued from hedges in H2 out to 2019/2020 2015/16 and in early H1 2016/17

(1) This includes 5.1GWh of output from two private wire schemes – Polmaugan (Restormel) and Wadebridge Renewable energy network (Nanstallon)

£m

1.6 1.1 3.7 287.9 4.0 279.3 (1.8)

NHH Retail(1)

H1 2015/16 Tariff increase Increased customer Other sales New connections Meter optants H1 2016/17 demand

(1) Non-Household retail revenues reflect the total revenue from Non-Household customers (both wholesale and retail charges) as well as value added services

£m

2.3 1.4

161.6 160.7 (0.9) (3.7)

H1 2015/16 Cost increases incl. Bournemouth Water full Bad debt reduction Efficiency savings and H1 2016/17 inflation period impact other cost reductions

Highest potential returns in the 2016/17 Cumulative industry Operational RORE £80m of Totex savings delivered TOTEX +2.3% • Totex largest element of potential +1.5% operational outperformance £38.5m(1) • Opex lower than last year – delivering operational savings and Bournemouth Water synergies ODIs +0.3%

+1.8% Delivering net ODI rewards £3.8m(2) • £3.8m(2) cumulative rewards for H1 K6 Business Plan 2016/17 Commitment (Base Return) • ODIs for 2020 delivery on track

Performance above Final Determination RORE range

(1) Cumulative Totex RORE outperformance to 30 September 2016 calculated after sharing rate and the impact of tax. Phasing of actual expenditure compared to the planned programme is reflected prior to calculating Totex savings. Outperformance includes a reduction in the RCV run-off for the RCV element of Totex outperformance calculated based on the Final Determination PAYG. Tax impacts reflect actual effective tax rates. (2) Cumulative ODI rewards to H1 2016/17. © Pennon Group plc 2017 43 South West Water Reconciliation of RORE to financials

Combined Totex outperformance • Operating costs £105m + Capital Expenditure £80m = £185m • Totex allowance(1) assumed for H1 2016/17 = £209m • £24m Totex saving equates to £11m of RORE benefit after applying company sharing rate and tax impact (cumulatively Totex savings of £80m equates to £38.5m of RORE benefit) ODI outperformance • Total net reward £3.8m(2). £5.7m reward will be recognised at the end of the regulatory period, £1.9m penalty which could be adjusted during the regulatory period • Rewards: bathing water quality, odour complaints, water restrictions and leakage • Penalties: pollution incidents and external flooding SIM outperformance • Currently on track to deliver business plan targets in both businesses Regulated equity • Based on notional gearing levels of 62.5% • 2016/17 average RCV(3) of £2,970m

(1) Totex RORE outperformance calculated after sharing rate and the impact of tax. Phasing of actual expenditure compared to the planned programme is reflected prior to calculating totex savings. Outperformance includes a reduction in the RCV run-off for the RCV element of Totex outperformance calculated based on the Final Determination PAYG. Tax impacts reflect actual effective tax rates. (2) Cumulative ODI rewards to H1 2016/17. (3) 2012/13 prices © Pennon Group plc 2017 44 South West Water Performance & WaterShare 2015/16(1)

Shareholder (£m) Customer (£m) Net Totex savings(2) 25.5 21.0

1.8 1.8 ODIs Shareholder Investment in value enhancing services Other items(3) - 3.1

Total Value Benefit 27.3 25.9

Shared through: Shared through: • Dividends • Re-investment options • Future bill reductions • Service improvements exceeding planned targets

(1) WaterShare relates to South West Water performance and customers only (2) Gross Totex savings of £52m (inclusive of retail), net of tax for sharing and performance purposes. Enhanced sharing ratio of 56.7% for water and 55.1% wastewater (3) Other items including market movements on new financing returned to customers and the impact of new legislation

£m

410.1 7.8 5.4 0.7 397.9 (4.2) (9.9) (12.0)

H1 2015/16 Contracts, Collections & ERFs - operational Recycling Landfill gas Landfill ERFs - IFRIC 12 H1 2016/17 Other revenue construction revenue

£m 1.9 3.8 0.3 6.7 95.1 90.9 (1.3) (3.1) (4.1)

H1 2015/16 ERFs Recycling Share of JV EBITDA & Viridor Overheads Landfill Landfill Gas Contracts, Collections H1 2016/17 IFRIC 12 Interest & Other(1) Receivable

(1) H1 2015/16 included higher asset sales

£m H1 H1 CHANGE 2016/17 2015/16 ERFs 38.3 30.1 +27.2% Landfill (7.4) (9.4) (21.3%) Landfill Gas 10.9 12.2 (10.7%) Recycling 6.6 3.5 +88.6% Contracts, collections and other 11.3 16.3 (30.7%) Joint Ventures 7.8 6.7 +16.4% Total contribution 67.5 59.4 +13.6% Indirect costs (32.0) (32.2) (0.6%) PBIT + JVs 35.5 27.2 +30.5%

(1) Before non-underlying items

£m H1 H1 CHANGE 2016/17 2015/16 Improved TPSCo performance at TPSCo Share of EBITDA 8.3 6.7 +23.9% Share of PAT - (1.4) - Viridor Laing Greater Manchester Share of EBITDA 1.7 1.6 +6.3% Share of IFRIC 12 interest receivable 5.6 5.7 (1.8%) Share of PAT 0.1 (0.3) +133.3% Lakeside Share of EBITDA 7.4 7.6 (2.6%) Share of PAT 2.7 2.7 - Total share of JV EBITDA 23.0 21.6 +6.5% Total share of JV PAT 2.8 1.0 +180.0%

ERF under capacity(1) continues to 2030 and beyond

)

mt 20

10 waste market ( market waste

UK combustible residual residual combustible UK 5

- 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

ERF capacity Viridor ERF capacity Under capacity Previous view of under capacity Source: Defra, SEPA, NRW and Viridor analysis Waste arisings • Brexit – potential for increased residual waste availability • Consistently forecasting under capacity in residual waste market

An illustrative, large ERF (c.300kt) will contribute c.£28m to Viridor EBITDA Illustrative ERF(1) IAS 16 IFRIC 12 JVs EBITDA £28m £12m -- IFRIC 12 Interest -- £16m -- Receivable IAS 16(2) IFRIC 12(2) JVs Share of JV EBITDA -- -- £14m • Oxford • Exeter • Lakeside (50%) (Ardley) • Peterborough(3) • Runcorn I Underlying EBITDA £28m £28m £14m • Cardiff • Glasgow (Trident Park) • Runcorn II • Bolton • Dunbar • South London (Beddington) • Avonmouth

(1) From first full year of operation (2) ERFs under construction identified in green, ERF committed identified in blue © Pennon Group plc 2017 52 (3) Local authority funding, interest income will be negligible Viridor ERF CAPEX(1) – Efficient investment to deliver growth

Cumulative Capital Cumulative Remaining Total Original spend at investment spend to spend to project planned £m 1 April 2016 H1 2016/17 30 Sept 2016 completion spend 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 746 - 746 - 746 768 ERF projects under construction Glasgow 135 8 143 12 155 155 Dunbar 44 29 73 104 177 177 South London (Beddington) 57 44 101 98 199 199 Total 236 81 317 214 531 531 ERF projects committed Avonmouth - - - 252 252 252 Total 982 81 1,063 466 1,529 1,551 Peterborough financed by local (72) - (72) - (72) (72) authority Total impact on net debt 910 81 991 466 1,457 1,479 • Efficient delivery on projects in operation of £22m, managing projects under construction closely • Debt includes £991m(1) for Runcorn II / Exeter / Oxford / Cardiff / Glasgow / Dunbar/ South London

(1) Excluding capitalised interest, £4.8m in H1 2016/17 and £66m cumulatively

© Pennon Group plc 2017 53 Viridor ERFs (including Joint Ventures) Base load Capital municipal Actual/expected Site Cost (1) Gross capacity Status contract commissioning Tonnes Electricity £m Progress on ERF pipeline (000) MWe Fully Lakeside(2) 150 410 38 Merchant Commissioned operational Fully Greater Bolton N/A 120 9 Commissioned ERF build-out nearing operational Manchester Fully Exeter 47 60 3 Exeter Commissioned completion operational Oxford Fully 204 300 24 Oxfordshire Commissioned (Ardley) operational Cardiff Fully Gwyrdd 207 350 28 Commissioned (Trident Park) operational (SE Wales) Fully Greater Runcorn I(2) 236 375 28(4) Commissioned operational Manchester Fully Runcorn II 216 375 41 Merchant Commissioned operational Operational Peterborough 72 80 7 Peterborough Commissioned ramp-up Parts of plant Glasgow 155 200 15 in Glasgow 2017 commissioning Construction in Merchant Dunbar 177 300 23(5) H2 2017/18 (1) Capital cost excludes capitalised interest and for progress (Clyde Valley) projects for which the Engineering Procurement South London Construction in Construction (EPC) contract has not yet been 199 275 26 S London H1 2018/19 executed, capital cost may vary in accordance with (Beddington) progress the Euro exchange rate Sub Total 2,845 242 (2) Joint ventures economic interest (Lakeside 50%; Runcorn I 37.5%) Construction to Avonmouth(3) 252 320 33 Somerset 2020/21 (3) Project committed November 2016 begin 2017/18 (4) Plus heat 51MWth (5) Plus heat 17MWth Grand Total 3,165 275