Veolia Water Central Limited 2011 New Chair State

Annual !Report !and !Financial !Statements !! for !the !Year !Ended !31 !March !2011 ! ! Veolia !Water !Central !Ltd ! ! ! ! ! (Registered !Number: !2546950) ! Veolia Water Central Limited Contents Page HISTORICAL COST FINANCIAL STATEMENTS Chairman’s Statement.................................................................................... 3 Directors......................................................................................................... 5 Board Committees, Executives and Advisers................................................ 6 Report of the Directors ................................................................................... 7 Corporate Governance Report....................................................................... 15 Remuneration Report..................................................................................... 19 Independent Auditors’ Report ........................................................................ 22 Profit and Loss Account ................................................................................. 24 Statement of Total Recognised Gains and Losses........................................ 25 Balance Sheet................................................................................................ 26 Cash Flow Statement..................................................................................... 27 Notes to the Cash Flow Statement ................................................................ 28 Notes to the Financial Statements ................................................................. 29 Financial Statistics ......................................................................................... 53 REGULATORY FINANCIAL STATEMENTS Operating and Financial Review .................................................................... 55 Certificate of Compliance with Licence Condition F6A .................................. 67 Independent Auditors’ Report ........................................................................ 68 Historical Cost Profit and Loss Account......................................................... 70 Historical Cost Statement of Total Recognised Gains and Losses ............... 71 Historical Cost Balance Sheet ....................................................................... 72 Reconciliation between Statutory Accounts and Regulatory Accounts ......... 74 Current Cost Profit and Loss Account............................................................ 75 Current Cost Statement of Total Recognised Gains and Losses .................. 76 Current Cost Balance Sheet Appointed Business ......................................... 77 Current Cost Statement of Cash Flows ......................................................... 78 Notes to the Current Cost Statement of Cash Flows..................................... 79 Notes to the Current Cost Financial Information............................................ 80 Licence Condition F - Paragraph 7 Activity Cost Analysis............................. 88 Rolling Summary of the Current Cost Profit and Loss Account ..................... 89 Rolling Summary of the Current Cost Balance Sheet.................................... 90 Area of Supply.. ............................................................................................. Back Page 2 Veolia Water Central Limited Chairman’s Statement I am pleased to present the Statutory Accounts for the year ended 31 March 2011. Our mission is to provide the best sustainable water services for our customers. Over the last 12 months our teams have worked hard to realise this mission, striving to achieve continuous improvement across our business. This resulted in a strong operational performance that included exceeding the leakage target set by Ofwat; achieving the lowest number of water quality compliance failures in the Company’s history; reducing written complaints by 36% and lowering unwanted telephone contact by 20%. During the year, we replaced 145km of water mains which will improve the performance of our water network. Since 2008 we have placed the health and safety of our teams and the public at the top of our priorities. Whilst we have seen improvements in some performance metrics, namely a decline in accident rates and the frequency of reportable accidents, our overall Company performance needs to improve. Throughout the year we achieved a high standard of customer service, occasionally in challenging circumstances. In June and July we faced exceptionally high demand for our water due to the hot weather. In December, during the harsh weather, we experienced three times more bursts than normal. During these periods, our teams worked very hard to repair bursts and minimise any unplanned interruptions to customers’ supplies. The year also saw three large unplanned supply interruptions to our water network. These incidents have highlighted our vulnerability to the high-impact but low-likelihood operational risks inherent in operating our mains network. We will use our experience this year to review our capital maintenance plans for the remainder of this price control period and in future business planning in order to reduce these risk. Our financial performance in 2010/11 was strong, with annual turnover rising to £239.6m (2010: £234.4m), driven by the RPI uplift and higher customer demand. Our operating costs fell to £186.5m (2010: £191.8m) despite leakage control measures incurring £5.3m of additional expenditure and restructuring costs being £1.3m higher than the previous year. A number of other factors including: lower depreciation of £13.8m due to an exceptional write down of £13.8m of assets as part of a revaluation of assets; lower energy costs of £2.5m because of lower wholesale electricity prices; efficiencies and process improvements; and a lower bad debt charge following improvements in collection rates also contributed to the reduction in costs. We incurred a loss of £1.0m on the sale of properties (2010: £10.7m profit – this figure included a small but high-market-value plot of land at St Georges Hill, Surrey). Interest costs increased to £19.9m (2010: £16.4m) because of a full year’s charge for a loan from Veolia Environment Europe Services (VEES) that was only in place for three months of 2009/10. Our overall profit for the year was £18.8m (2010: £28.1m). 3 Veolia Water Central Limited Directors F Devos (Chairman) Frederic Devos is French and was appointed a director in 2007. He was appointed Chairman in 2009. He is also the Chief Executive Officer of Veolia Water UK PLC and a director of Veolia Water Central Finance PLC, Veolia Environnement UK Ltd and of other Veolia Water UK PLC subsidiaries. R A Bienfait (Managing Director) Richard Bienfait is British and was appointed a director in 2006. He was appointed Managing Director in 2010. He is also a Director of Veolia Water Central Finance PLC, Veolia Water UK PLC and a number of other Veolia Water UK PLC subsidiaries. D W Alexander (until 2 December 2010) David Alexander is British and served as Managing Director between 2000 and 2005. He resigned as director on 2 December 2010. J C Banon (until 31 December 2010) Jean Claude Banon is French and was appointed a director in 1994. He resigned as director on 31 December 2010. J A Bishop (Operations Director until 8 June 2010) Jeff Bishop is British and was appointed Operations Director in 2002. He resigned on 8 June 2010 to take up another role within the Veolia Water UK group. R J Brimble (Customer Relations Director until 7 July 2010) Richard Brimble is British and was appointed Customer Relations Director in 2008. He resigned on 7 July 2010 to take up another role within the Veolia Water UK group Baroness Buscombe Baroness Buscombe is British and was appointed a director in 2006. She is a barrister, a member of the House of Lords and has held a number of Shadow Ministerial positions. She is Chairman of the Press Complaints Commission. P Guitard Philippe Guitard is French and was appointed a director in 2008. He is Executive Vice President Europe of Veolia Water SA. O Grunberg Olivier Grunberg is French and was appointed a director in 2008. He is the General Secretary of Veolia Transdev. Dr N W Summerton CB Neil Summerton is British and was appointed a director in 2000 having been a director of North Surrey Water Ltd from 1998 to 2000. He was appointed chairman of the Audit Committee in 2009. He is also a director of Veolia Water South East Ltd and from 1991 to 1997 was responsible for water policy at the Department of the Environment. F Woolf CBE Fiona Woolf is British and was appointed a director in 2006. She is an Alderman in the City of London, a Member of the Competition Commission, a Consultant with CMS Cameron McKenna and a trustee of Raleigh International. 5 Veolia Water Central Limited Board Committees, Executives and Advisers Audit Committee Dr N W Summerton (Chairman) Baroness Buscombe F Woolf M Butcher Executive Management Committee R A Bienfait (Chairman) F Devos N Paterson A Dench M Rowlatt S Martin G Chalkley V Muldoon T Monod Remuneration and Employment Committee F Devos (Chairman) Dr N W Summerton Membership of the Remuneration and Employment Committee was amended during the year. Secretary and Registered Office T J W Monod Tamblin Way Hatfield Hertfordshire AL10 9EZ Registered Auditors Ernst & Young LLP 1 More London Place London SE1 2AF 6 Veolia Water Central Limited Report of the Directors Introduction The directors present their report and the audited statutory financial statements

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