Chairman's AGM Statement 2008

31 Jul 2008

Before moving to the formal business of the Meeting, I'd like to mention some of the key points I made in this year's Annual Report.

I'm once again pleased to report that the Group had another excellent year as we continued to deliver the benefits of our strategy of focusing on our two key businesses, South West Water and Viridor.

Revenue for the Group last year increased by nearly 17 per cent to 875 million pounds, operating profit increased by nearly 20 per cent to 242 million pounds, and earnings per share saw an increase of over 19 per cent to 36.9 pence.

The Board is pleased to recommend a final dividend of 13.56 pence per share which, together with the interim dividend of 6.25 pence, will result in a full year dividend of  19.81 pence.  This represents an increase of 6.8 per cent on the total dividend paid last year and is in line with the Board's policy of growing the Group dividend up to 2009/10 by 3 per cent above the rate of inflation.

Once again Shareholders will be given the opportunity to participate in the Company's Dividend Re-investment Plan.  We'll be sending you details of this next month.

The share buy back programme is now complete with over 49 million pounds spent during the year.

With that brief overview, I'd like to focus on the two core businesses, starting with the water and sewerage business.

South West Water has again delivered strong financial performance and has achieved high levels of customer service.

The company is on track to outperform the operating cost efficiency targets set by the Director General of Water Services for the period up to 2010.  Further efficiency projects are also underway to ensure we achieve additional improvements to our operational and customer service performance.   This is being done mainly by moving towards a more centralised operational structure, and also by an ongoing programme of organisational change across the whole business.

In early 2007 the company launched 'WaterCare', a new ground-breaking customer care programme which aims to help those most in need to pay their bills by advising them on how to manage better both their water use and household budget, including claiming all the benefits to which they are entitled.  'WaterCare' has delivered benefits to around 2,000 customers and has been commended by the Government as an exemplary service offered to customers.

As part of its preparation for the next Periodic Review in 2009, South West Water last December published its Strategic Direction Statement outlining its vision for the next 25 years.  This Statement sets out the first steps the company intends to take towards facing the challenges of the future, including climate change.  The Draft Water Resources Plan published in May 2008 confirms that, despite a forecast 12 per cent regional population increase by 2035 and new challenges created by climate change, the Company will not need to build any new reservoirs in the region.  Instead, several new water conservation measures are proposed to manage demand efficiently and to improve future water availability.   This includes the recently announced purchase of former china clay pits – Park Lake and Stannon Lake - which will become the company's fourth and fifth largest reservoirs.

South West Water has recently awarded its customer service and billing contract to Accenture which will result in an improvement to the customer service we offer through quality improvements and new ways of working.  In addition, the company has installed a new call-handling system in its service centre for customers using the helpline.  These improvements are examples of how we aim to provide outstanding customer services going forward.

I'd now like to turn to Viridor.

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

Its financial performance during the year was very strong, building further on the growth it achieved over the past six years, with profits rising by nearly 24 per cent, of which roughly half was from acquisitions and half from the existing business.

During the year, total landfill disposal volumes increased by 11 per cent compared with the previous year.  Landfill gas power generation output increased by a further 13 per cent and power generation capacity is now 84 Megawatts compared with 75 Megawatts at the previous year end.

Viridor collects nearly 90 per cent of the estimated total methane generated in its landfill sites and uses the majority of this for energy generation, which has the double environmental benefit of reducing emissions of methane to the atmosphere and generating renewable energy.

As part of its overall strategy Viridor is pursuing a number of energy from waste opportunities including the Lakeside joint venture with Grundon Waste Management which will burn 410 thousand tonnes of waste a year and will have 37 Megawatts of electrical generation capacity. A profit contribution is expected from Lakeside in the next financial year.  Last summer Viridor also achieved planning permission for a 60 thousand tonne, 3 Megawatt energy from waste plant in Exeter and it is progressing similar long-term opportunities in Cardiff and Dunbar.

Private Finance Initiative (PFI) and Public Private Partnership (PPP) contracts are also a key part of Viridor's strategy and it continues to bid selectively for further integrated municipal contracts.  As you may be aware, the Viridor/Laing consortium achieved preferred bidder status on the Greater Manchester PFI, the UK's largest waste contract. Financial close on this contract is expected shortly.

Finally I'd like to thank my fellow Directors for their significant contributions during what has been another very successful and demanding year for the Group.

My thanks are also extended to all employees in the Pennon Group who have once again continued to be loyal and committed and have carried out their work with a high standard of professionalism.