It's now 11.00 am, and it's my pleasure to welcome you to the Twentieth Annual General Meeting of Pennon Group Plc.
I'm Ken Harvey and I'm 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 Corporate Responsibility Committees; and, on my far right, Colin Drummond, the Chief Executive of Viridor and a member of the Corporate Responsibility Committee.
On my left is David Dupont, the Group Director of Finance; Dinah Nichols, who is a Non-executive Director. Dinah is Chairman of the Corporate Responsibility Committee and a member of the Audit, Nomination and Remuneration Committees. Martin Angle, who is a recently appointed Non-executive Director and is Chairman of the Remuneration Committee and a member of the Audit, Nomination and Corporate Responsibility Committees. I'd like to welcome Martin to his first Pennon AGM.
Last but by no means least, Chris Loughlin, the Chief Executive of South West Water who is also a member of the Corporate Responsibility Committee.
Before moving to the formal business of the Meeting, I'd like to highlight 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 9 per cent to 952.9 million pounds, operating profit increased by nearly 7 per cent to 259 million pounds, and earnings per share saw an increase of over 3.5 per cent to 38.2 pence.
The Board is pleased to recommend a final dividend of 14.25 pence per share which, together with the interim dividend of 6.75 pence, will result in a full year dividend of 21.0 pence. This represents an increase of 6 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.
The Board is proposing to re-introduce a scrip dividend alternative to replace the Company's Dividend Re-investment Plan. This will allow shareholders to increase their shareholding in the Company without incurring stamp duty or dealing expenses. Details of the scrip dividend alternative will be circulated to shareholders in August.
I would also like to mention that the Company has this morning announced the proposed issuance of a convertible bond to raise around 120 million pounds for general commercial purposes including acquisitions by the Group. Our brokers have been marketing the bond to institutional investors this morning and we will know later today the final terms of the issue.
I'd now like to focus on our two core businesses, starting with the water and sewerage business.
South West Water has again delivered sound financial results and has achieved high levels of customer service in difficult recessionary conditions.
Revenues increased by 2.5% to 431.7 million as a result of tariff increases and new connections, offset by the effects of customer switching and lower demand. Underlying Operating profit increased by 3.6% to 191.6 million.
The economic slowdown has had a serious impact on industrial output across the UK and consequently has resulted in reduced demand for water and sewerage services. But within the South West there is much less industry than in many other parts of the country and therefore, the impact on South West Water has been marginal to date compared to other water companies. There has however been a reduction of 9.8 million pounds in measured income due to a reduction in consumer demand and also because of the exceptionally wet summers of 2007 and 2008.
South West Water has in place a comprehensive strategy to make sure it can provide a continued secure supply of water to the region in the future. The company has increased its storage capacity with the purchase of Stannon Lake which was formerly a disused china clay pit. This will add to the capacity of Park Lake which was acquired in the previous year. These new lakes will significantly increase our water resources in Cornwall. Park Lake has now been connected to the network and water from Stannon Lake should be available later this year.
Despite last year's exceptionally cold winter South West Water has again achieved its leakage target of 84 megalitres per day which remains amongst the lowest in the industry. Also drinking water quality remains very high at 99.96%
Capital expenditure was 147.8 million pounds during the year with investment in water supply improvements and water treatment works enhancement. Also new sewage treatment works were completed during the year for Sennen and Porthcurno. This was one of the last in the "Clean Sweep" coastal waste water programme which has transformed the quality of our coastal environment within the South West region.
Targeted efficiency cost savings of 13 million per annum by the end of the current Regulatory period have been achieved ahead of schedule. The Company has also implemented a significant programme of organisational restructuring across the business to support general operational and service improvements.
Last week South West Water received from Ofwat a Draft Determination setting out proposed price limits for 2010/2015. These proposals are currently under active consideration.
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.
The Company continues to deliver strong financial performance based on both organic growth and sound acquisitions, building on the growth achieved over the past seven years. Revenue increased by 15% to 522.7 million, and Underlying Operating Profit increased by 13% to 65.5 million pounds.
Public Private Partnership and Private Finance Initiative contracts – known as PPPs and PFIs are a key part of Viridor's strategy and it continues to bid selectively for further contracts.
Financial closure on the Greater Manchester Waste PFI 25-year contract was achieved just after the year end, on 8 April 2009. This is the UK's largest ever combined waste and renewable energy project, managing 1.3 million tonnes of waste per year. The total potential energy generation will be approaching 130Mega-Watts, enough to supply about 150,000 homes.
The Greater Manchester Waste PFI is a joint venture between Viridor and John Laing Infrastructure. Operation of the associated facilities will be carried out on a sub-contract basis by Viridor. The associated Energy from Waste/Combined Heat and Power facility is a three way joint venture between Ineos Chlor, Viridor and John Laing.
Viridor is also pursuing a number of other renewable energy opportunities. These include, the Lakeside joint venture with Grundon Waste Management for the construction of a 37 Mega-Watt Energy from Waste plant at Colnbrook near Heathrow.
In 2007, Viridor achieved planning permission for a 3 Mega-Watt Energy from Waste plant in Exeter. It's also pursuing other possible long-term Energy from Waste opportunities in Cardiff and Dunbar.
The Company's also received planning permission for two anaerobic digestion plants located at Beddington (near Croydon) and Walpole (Somerset), and is building four further plants for Greater Manchester.
Overall Viridor is well positioned to face the economic uncertainties in the UK on account of its diversified business mix, although it is by no means immune to the unfavourable economic conditions currently prevailing.
Finally I'd like to thank my fellow Directors for their 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.
With those introductory comments I'd now like to move to the formal business of the Meeting.