Another excellent year with significant achievements despite difficult economic conditions
Pennon Group Plc
I am pleased to say that it has been another excellent year for Pennon Group with significant achievements by both businesses, despite difficult economic conditions.
South West Water has delivered strong operational results and has outperformed the operating cost efficiency and financing targets set by Ofwat for the K4 period (2005-2010).
Viridor has once again delivered a very strong financial performance. The Greater Manchester Waste PFI contract, the Lakeside Energy from Waste (EfW) project and the latest acquisitions are further major steps forward in the successful evolution of Viridor.
The continuing prudent approach to financing in the Group, combined with a dedicated Board, management and staff, has also significantly contributed to our success.
Group revenue increased by 11.6% to £1,068.9 million, exceeding £1 billion for the first time. Underlying* profit before tax increased by 14.2% to £189.1 million and underlying* earnings per share increased by 9.2% to 41.6p. The Group also has a strong liquidity and funding position.
South West Water's Regulatory Capital Value (RCV) grew by 31% over the K4 (2005-2010) period to £2.6 billion by March 2010, the highest percentage increase for any quoted UK water company. Viridor's underlying* profit before tax was up by 34.8%, building on the growth achieved by the company over the last eight years.
* Underlying measures are defined in the Pennon Group Financial performance page.
The Board is recommending to shareholders a final dividend per share of 15.60p, a 9.5% increase on last year's final dividend. This represents a full year dividend of 22.55p which is an increase of 7.4% compared with 2008/09 reflecting RPI of 4.4% to March 2010. We have therefore delivered the policy to increase dividends from 2005/06 by 3% per annum above inflation.
Following the setting of price limits for South West Water by Ofwat for delivery of the K5 (2010-2015) regulatory contract and the expectation that Viridor will continue to deliver strong long-term growth, the Board has reviewed its dividend policy and is pleased to announce that it intends to enhance its progressive dividend policy to 4% per annum real increases from 2010/11 to at least until the end of 2014/15.
Dividends have increased over the last five years as follows: [shown in the graph]
South West Water increased its revenue in the year by 2.9% and profit before tax was up by 8.7%. The operating cost efficiency target set by Ofwat for K4 was achieved in 2008/09, ahead of schedule. The company has accepted Ofwat's Final Determination for the setting of price limits for the K5 period. Notwithstanding the lower returns envisaged by Ofwat's Final Determination and the impact of current economic conditions which represent a very tough challenge for South West Water, the company is determined to achieve additional efficiencies despite having already delivered substantial efficiencies over the last two decades.
Viridor has yet again delivered a strong financial performance in difficult market conditions with revenue up by 18.7% and profit before tax up by 34.8%. The company expects to continue to deliver long-term growth through successfully leading the way in exploiting opportunities arising from the Government's targets for recycling, landfill diversion and renewable energy.
Plastics, waste electrical and electronic equipment (WEEE) and paper processing in particular are a growing part of Viridor's recycling business. These recycling activities were enhanced in the year with two acquisitions: Intercontinental Recycling Limited which processes plastics into pellet or flake form and London Recycling Limited with WEEE and paper processing facilities.
I am also pleased to say that the Greater Manchester PFI waste and renewables contract and another major scheme, the Lakeside EfW plant joint venture at Colnbrook, near Heathrow, are now operational and trading profitably.
HEALTH & SAFETY
Ensuring the health and safety of all our employees continues to be central to our ethos as a responsible Group. The Corporate Responsibility Committee and the Board pay particular attention to ensuring that we continually strive to improve occupational health and safety performance. We are therefore very disappointed to report that last year our recorded number of incidents in Viridor increased. Where incidents do occur they are fully investigated and every effort is made to ensure that they cannot be repeated through, in particular, raising the level of training and support available to staff and reinforcing strong positive attitudes to health and safety at all levels in the Group.
We operate businesses which can and do have a material impact on the environment. We believe that a responsible approach to environmental, social and governance (ESG) matters and our sustainable practices not only benefit the communities in which we operate, but also enable our businesses to be more successful. This year we have set out in full in this Annual Report our Corporate Responsibility Report which demonstrates our commitment to ESG and the improvements we have made in protecting the environment, carbon capture, energy savings and resource recovery which all contribute to a more sustainable future for everyone. We also take into account the views of our shareholders and major institutional groups on what they regard to be the key governance issues in reviewing annually our practices, policies and procedures. This ensures that we continue to have a strong and appropriately experienced Board with governance structures in place which can successfully respond to the challenges we face in the best interests of our shareholders and other stakeholders.
We fully recognise that the Group's success is due to the quality of the staff and their support and commitment.
I once again express my personal thanks to all members of staff for their continuing dedication and commitment particularly as we continue to implement further efficiences and develop new systems and processes to strengthen further governance across the Group.
In addition I am extremely grateful to my Board colleagues for their support and significant contributions to another successful year.
Notwithstanding the lower returns envisaged by Ofwat's Final Determination and the impact of current economic conditions, the Group remains well positioned to continue to deliver shareholder value and meet future challenges. South West Water is well placed to achieve Ofwat's efficiency targets and outperform its financing cost assumptions for K5. Viridor expects to continue to deliver strong long-term growth through successfully leading the way in exploiting opportunities arising from the Government's landfill diversion, recycling and renewable energy targets. This anticipated success has enabled the Board to announce an enhanced dividend policy for the next five years.
I am confident that we have the right strategy in place for the Group to succeed and that this strategy together with the management skills in the Group will steer us through to a successful future.
Ken Harvey, Chairman
Pennon Group Plc, 24 June 2010