Delivering Sustainable Growth Annual Report and Accounts 2011 Introduction
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Delivering sustainable growth Annual Report and Accounts 2011 Introduction Who we are Pennon Group Plc is a company at the top end of the FTSE 250 which owns South West Water Limited and Viridor Limited. The Group has assets of around £4.1 billion and a workforce of over 4,300 people. Group strategy Our strategy is to promote the success of the Group for the benefit of our shareholders, customers and other stakeholders through our focus on water and sewerage services, recycling, waste management and renewable energy. We aim to be a pre-eminent provider of customer services to high standards of quality, efficiency and reliability. What we do We carry out our business through: South West Water Limited which provides water and sewerage services in Devon, Cornwall and parts of Dorset and Somerset. Viridor Limited which is one of the UK’s leading recycling, waste management and renewable energy businesses. To view our online report visit: pennonannualreport2011.co.uk Directors’ report – Business review Group performance overview Group Delivering sustainable growth Revenue £m Contents 2010/11 1,159.2 Directors’ report 2009/10 1,068.9 2008/09 958.2 Business review: 2007/08 879.4 Group overview Water South West 2006/07 748.3 Group performance 1 Chairman’s statement 2 £1,159.2m Strategic Q&A 4 +8.4% South West Water At a glance 8 The business 10 Viridor KPI Profit before tax £m At a glance 14 2010/11 188.5 The business 16 2009/10 185.8 Group 2008/09 159.4 Financial review 20 2007/08 152.3 Viridor Risk review 24 2006/07 131.1 Corporate responsibility 28 £188.5m Other statutory information 32 +1.5% Governance Chairman’s introduction to governance 34 Board of Directors 36 KPI Underlying* earnings per share pence Corporate governance and internal control 38 2010/11 42.3 Directors’ Remuneration Report 45 2009/10 40.8 Independent auditors’ report 57 Group 2008/09 36.9 2007/08 36.3 2006/07 30.3 Financial statements and shareholder information 42.3p Financial statements 58 Five-year financial summary 113 +3.7% Shareholder information 114 KPI Dividend per share pence Governance 2010/11 24.65 2009/10 22.55 2008/09 21.00 2007/08 19.81 2006/07 18.55 24.65p +9.3% Financial statements * Excluding deferred tax. Statutory earnings per share were 48.4p (2009/10 40.4p) Pennon Group Plc Annual Report and Accounts 2011 1 Directors’ report – Business review Group overview Group at a glance Financial highlights Revenue Profit before tax Pennon Group £1,159.2m £188.5m Our strategy is to promote the success of +8.4% +1.5% the Group for our shareholders, customers and other stakeholders through our focus KPI Dividend per share pence on water and sewerage services, recycling, 2010/11 24.65 waste management and renewable energy. 2009/10 22.55 We aim to be a pre-eminent provider of customer services to high standards KPI Underlying* earnings per share pence of quality, efficiency and reliability 2010/11 42.3 2009/10 40.8 * Excluding deferred tax. Statutory earnings per share were 48.4p (2009/10 40.4p) Key Group facts Financial highlights £4.1bn South West Water… Revenue Profit before tax assets £448.8m £128.9m 4,300 provides water and +1.0% -0.5% employees sewerage services in Devon, Cornwall and parts of Dorset and Somerset, Revenue £m delivering industry-leading 2010/11 448.8 operational performance 2009/10 444.2 Profit before tax £m 2010/11 128.9 2009/10 129.5 Financial highlights Viridor… Revenue Profit before tax £712.0m £62.9m one of the UK’s leading +13.6% +14.2% recycling, waste management, and renewable energy Revenue £m businesses. It won 2010/11 712.0 the 2010 National 2009/10 626.5 Recycling and Waste Profit before tax £m Management Business 2010/11 62.9 of the Year Award 2009/10 55.1 Strategy Highlights of the year Strategy in action The Group aims to be a leading provider Our strategy continued to deliver The Group continues to successfully of high-quality, efficient and trusted shareholder value in 2010/11 and we source additional finance for funding the services whilst: are committed to an annual dividend growth strategies of both subsidiaries increase of 4% above inflation at least • having strong corporate responsibility Progressive dividend policy up to 2014/15 credentials which make a positive Low cost of debt. impact on communities and the • both businesses delivered a strong environment performance during the year Further details on page 20 • maintaining high standards of ethical • the Group has benefited from an business conduct exceptionally low cost of finance thanks to its prudent funding and • fostering open and positive efficient long-term financing relationships with suppliers, customers and other stakeholders • both businesses are well positioned in the current economic conditions. • protecting and promoting the interests of all our employees. Strategy Highlights of the year Strategy in action South West Water is committed to • industry leading performance Pure Water – providing safe and reliable its vision of ‘Pure Water, Pure Service in tackling leakage water supplies and Pure Environment’, underpinned • 14th consecutive summer without Pure Service – increasing levels of by a strategy of striking the right water restrictions customer satisfaction and maintaining balance between: reliability of assets to protect service • near perfect drinking water quality • investing to improve service improvements made over last 20 years at 99.97% • customer affordability Pure Environment – protecting and • customer satisfaction levels are rising enhancing the environment • the needs of stakeholders. • record percentage (90.3%) of bathing Financial Management – outperforming waters achieved EU Guideline (or the regulatory contract, rigorously excellent) standard. controlling costs and arranging efficient funding. Further details on page 9 Strategy Highlights of the year Strategy in action Viridor’s strategy is to grow and add • Viridor delivered strong profit growth Acquiring a growing network of value by: thanks to the attractive margins in its established recycling businesses and expanding recycling and Energy from progressing major renewable energy • proactively developing and expanding Waste (EfW) operations schemes in addition to organic growth, recycling operations to meet is increasing Viridor’s presence in these ambitious EU and UK targets • some 46% of profits came from expanding sectors realising the value in waste (recycling • successfully exploiting the huge and energy recovery) Achieved planning permission for four potential inherent in waste-based new strategic EfW plants (including one renewable energy generation • 25-year PFI waste management post year-end and two permissions contract in Greater Manchester • capitalising on its strong position subject to challenge) (the largest programme of its kind in landfill waste disposal. in Europe) entered its second year Five high-quality strategically located of operation recycling companies acquired for a total of nearly £50 million. • new Lakeside EfW plant operated for its first full year. Further details on page 15 Directors’ report – Business review Chairman’s statement Adding value for shareholders It is my pleasure to report on yet another successful year for Pennon Group. South West Water has had a strong start to the new 2010-2015 regulatory contract and Viridor has once again delivered strong profit growth. Ken Harvey, Chairman, Pennon Group Plc Dear shareholder Financial review I am pleased to say that we will be Our Group revenue rose by 8.4% to offering a Scrip Dividend Alternative Our Group history shows that we £1,159.2 million and our profit before to shareholders in respect of the final have concentrated on developing and tax increased by 1.5% to £188.5 million1. dividend. The timetable for offering the improving our two businesses, South Our underlying2 earnings per share Scrip Dividend Alternative is given on West Water and Viridor. South West increased by 3.7% to 42.3p. page 114. Water has delivered greater efficiencies, improved operating standards and The Group has substantial cash Business performance provided a better overall service to resources and undrawn facilities and South West Water’s year was its customers. Viridor has seen a is well placed in the current financial characterised by a strong start to the step-change from being a virtually market conditions. K5 period, when it delivered some pure landfill company to a UK-leading £8 million in efficiency savings (nearly South West Water’s Regulatory Capital recycling and renewable energy twice its 2009/10 achievement). This Value (RCV) grew by a further 5.8% business, whilst continuing to benefit is being achieved through changing during 2010/11 to £2.7 billion, building from its strong position in landfill. This operational ways of working; right- on the 31% increase over the K4 (2005- last year has continued to demonstrate sourcing and innovative contracting 2010) period which was the highest the success of our strategy of focusing arrangements; energy procurement and percentage increase for any quoted UK on water and sewerage services, reduced usage; and the rationalising of water company. Viridor’s profit before recycling, waste management and administrative and support services. The tax at £62.9 million was an increase renewable energy. company also delivered industry-leading of 14.2% on the previous year and operational performance and improved continues to build upon the growth standards of customer service. achieved over the last ten years. Viridor saw its revenues and profit Dividend before tax move ahead (by 13.6% and The Board is recommending to 14.2% respectively) as it concentrated shareholders a final dividend per share on extracting value from waste. Its of 17.15p, which represents a 9.9% results were driven by a successful first increase on last year’s final dividend.