Pennon Group Plc

It’s now 11.00 am, and it’s my pleasure to welcome you to the twenty second Annual General Meeting of Pennon Group Plc.
 
I am Ken Harvey and I am Chairman of the Company.

All of the Directors and the Company Secretary are here today and I'd like to introduce you to them.  On my right, is Ken Woodier who is Company Secretary and Group General Counsel; Gerard Connell, our Senior Independent Non-executive Director who is Chairman of the Audit Committee and a member of the Remuneration, Nomination and Sustainability Committees; and, on my far right, Colin Drummond, the Chief Executive of Viridor and a member of the Sustainability Committee.
 
On my left is David Dupont, the Group Director of Finance; Dinah Nichols, who is a Non-executive Director, Chairman of the Sustainability Committee and a member of the Audit, Nomination and Remuneration Committees: and, next to Dinah, Martin Angle who is also a Non-executive Director. Martin is Chairman of the Remuneration Committee and a member of the Audit, Nomination and Sustainability Committees. 
 
Finally, on my far left is Chris Loughlin, the Chief Executive of South West Water, who is also a member of the Sustainability Committee.  By the way, this Committee of the Board was formerly called the Corporate Responsibility Committee.

Before moving to the formal business of the Meeting, I would like to highlight some of the key points I made in this year’s Annual Report. 

I am once again pleased to say that the Group had another excellent year with significant achievements by both businesses, despite continuing difficult economic conditions.

Revenue for the Group increased by 8.4 per cent to 1,159 million pounds, underlying profit before tax increased by 1.5 per cent to 188.5 million pounds and underlying earnings per share excluding deferred tax increased by 3.7 per cent to 42.3 pence.

The Group also has substantial cash resources and undrawn facilities and is well placed in the current financial market conditions.

The Board is pleased to recommend a final dividend of 17.15 pence per share, which represents a 9.9 per cent increase on last year’s final dividend. As a result the total dividend for the full year will be 24.65 pence.  This represents an increase of 9.3 per cent on the total dividend paid last year. This is in line with the Group’s previously announced policy to grow the dividend by 4 per cent above inflation per annum up to at least the end of 2014/15.

I would now like to focus on our two businesses, starting with the water and sewerage business.

This year South West Water has once again successfully met both its annual and three year rolling leakage targets; and has done so every year since leakage targets were originally set by Ofwat. This was achieved in spite of the coldest December in England in the last 100 years and this caused an exceptional number of burst pipes across the region.

South West Water’s capital expenditure in the year was 125 million pounds. Major investments included the construction of a flood defence scheme at the Exeter water treatment works and infrastructure works including connecting Stannon Lake – the company’s fourth largest reservoir - to the distribution network.

A significant proportion of South West Water’s capital programme was focused on maintaining drinking water quality, which achieved an industry leading 99.97% sample compliance rate during the 2010 calendar year.

The company has put in place a comprehensive strategy to ensure a continued and secure supply of water for the region. 2010 was the 14th consecutive summer with no water restrictions and it’s expected that there will be none this summer despite the very dry conditions we have experienced.

South West Water’s continued emphasis on excellent service is delivering tangible improvements for customers and is reflected in reducing the number of customer contacts and improving customer satisfaction levels. Service improvements undertaken in the past two years to reduce customer complaints are delivering results, with complaint levels falling for the second year running.

The Government’s response to the Walker Review of charging for household water and sewerage services has been welcomed by South West Water. The Government’s proposal to fund a cut from 2013/14 in the average bill of all South West Water householders will be especially well received by our customers.  The company will continue to work closely with Government and regulators throughout the consultation phase to examine the practicality of all options to aid customers. 

Parliament has decided that private sewers and lateral drains will become the responsibility of water and sewerage companies from 1 October 2011.  Detailed operational plans are in place to manage the transfer.  It will mean that South West Water’s sewerage network will increase by approximately 60%.

As the UK’s premier tourist region, the state of the South West’s bathing waters is  particularly high-profile.  During the last year, a record percentage - 90.3% - of the South West’s bathing waters achieved the European Guideline standard.  That was up from 84% in 2009, while 96.5% passed the mandatory minimum standard. 

This summer South West Water has launched a new real time information service updating visitors on any potential risk to bathing water quality caused by storm overflows operating after heavy rainfall.  This will be operated at 22 of the most popular beaches in our region. South West Water’s website is one of the first in Europe to offer this type of service to beach users on a daily basis.

Programmes to achieve energy efficiency and carbon reduction targets have made good progress this year.  South West Water’s energy awareness campaign – called PowerDown - has been very successful, working with the Energy Savings Trust.  PowerDown has been recognised externally, being the Business Award winner of the Devon Environmental Business Initiative. The combined energy volume reductions target of 3GWh was met from these activities

The company has continued with its innovative programme of work called ‘Upstream Thinking’ to improve raw water quality in a sustainable way. This initiative seeks to improve the quality of water that feeds into treatment plants from the main moor sources of Dartmoor and Exmoor, by helping to re-establish the wetlands that naturally cleanse water by slowing the flows on their downhill journey to rivers and reservoirs.  Receiving better quality water at the company’s plants reduces the work required to cleanse it for human consumption, lowers the quantities of chemicals the company has to use and increases the cost-effectiveness of our operations. Work to re-wet uplands, restore grasslands and revise farming practices is under way and by working with farmers, environmental bodies and statutory bodies the company aims to achieve multiple environmental benefits.

Finally in respect of South West Water, the year was characterised by a strong start to the K5 regulatory period when it delivered some 8 million pounds of efficiency savings; nearly twice that achieved in 2009/10. These efficiency savings were achieved through changes to operational ways of working; right-sourcing and innovative contracting arrangements; energy procurement and reduced usage and rationalising administrative and support services.

I would now like to turn to Viridor.

As you know, Viridor is one of the leading waste management, recycling and renewable energy companies in the UK.

The company continues to deliver strong financial performance with revenues increased by 13.6 per cent and profit before tax up by 14.2 per cent.

Operational highlights over the last year included a 22 per cent increase in traded recycling volumes to 1.7 million tonnes. Viridor is now the largest operator of Materials Recycling Facilities in the UK.  During the year the company acquired a number of companies in the business of recycling.  These were ‘Reconomy Recycling Solutions’, Pearsons Group Holdings, Adapt Recycling, Swinnerton Environmental and Martock Waste Paper.  These businesses were acquired for around 50 million pounds in total.  Since the year end Viridor has also acquired, for 1.7 million pounds, Storm Recycling Limited.

Over the last ten years, Viridor’s capacity to generate renewable energy primarily from landfill gas power generation has increased from 27 Megawatts to 136 Megawatts and the company is targeting an annual capacity of 300 Megawatts in five years time.

The company’s results were also driven by the successful first full year of operation of the Lakeside Energy from Waste plant near Heathrow and a strong second year of operation of the Greater Manchester Private Finance Initiative waste contract.  This is a 25 year contract to provide collection, recycling and renewable energy facilities to Greater Manchester.

Viridor continues to bid selectively for other Public Private Partnerships projects.  It’s the provisional preferred bidder for Cheshire and one of the last two for five other projects - South Lanarkshire, Glasgow, South London, Peterborough, and West Lothian; and one of the last three in both South East Wales and the Heads of the Valleys in South Wales.  Most of these contracts include renewable energy plants and recycling opportunities and some will also have Combined Heat and Power facilities.

We can demonstrate that Viridor has successfully transformed itself over the last ten years from predominantly a landfill operator to being one of the country’s leading recycling, renewable energy and waste management companies.  Recycling is now the company’s largest single segment and will be key to profit growth in the next few years.  Energy from Waste and Public Private Partnership projects are already starting to contribute to the bottom line and our healthy pipeline of other potential contracts is expected to underpin the profit momentum of the company longer-term.

Finally, with regard to our Group strategy we remain committed to delivering the best possible service as efficiently as possible in South West Water and further growing Viridor, particularly in recycling and power generation.  I am confident that we continue to have the right strategy in place for the Group to succeed and that this strategy together with our management skills will ensure that we remain well placed for significant long-term growth.

To close, I would like to thank my fellow Directors for their support and contribution throughout what has been another successful and demanding year for the Group and, of course, my thanks are extended to all our employees who have continued to be loyal and committed and have carried out their work to a very high standard.