Pennon Group, owners of South West Water Limited and waste company Viridor Limited, has published its preliminary financial results to 31st March 2010.

With underlying profit before tax up 14.2% to £189.1m – of which South West Water accounted for a rise of 8.7% to £132.5m – the Board said the company had strong liquidity and funding position with group businesses well positioned in current economic conditions. Group revenue rose by 11.6% to £1,068.9m, exceeding £1 billion for the first time. The Board also announced a policy of 4% per annum real dividend increases from 2010/11 at least until 2014/15.

Commenting on the results, Ken Harvey, Pennon Group Chairman said:

"This has been another successful year for the Group. During the year South West Water has delivered strong operational performance and has outperformed the operating cost efficiency and financing targets set by Ofwat for the K4 period. Viridor has once again delivered a very strong financial performance. The Greater Manchester Waste PFI contract, Lakeside Energy from Waste project and the latest acquisitions are further major steps forward in the successful evolution of Viridor.

"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. As a result the Board is pleased to announce its intention to increase the dividend by 4% per annum above inflation from 2010/11 at least until 2014/15.”

South West Water saw strong growth in the AMP4 investment period with Regulatory Capital Value significantly exceeding growth in net debt and its leakage target achieved despite severest winter for around 30 years. The company performed strongly during 2009-10, improving its customer service, delivering further operational efficiencies and achieving sound financial results.

Revenues increased by 2.9% (£12.5m) to £444.2m as a result of tariff increases and new connections. Approved tariff increases amounted to £20.9m. Customers switching from unmeasured to metered charging reduced turnover by £7.0m but 5,000 new customer connections contributed £0.6m of additional turnover. Customer demand remained constant, reversing the trend of consumption decline seen in recent years.

Operating profit rose by 2.6% (£4.9m) to £196.5m while operating costs increased from £150.3m to £154.1m. Cost increases including inflation of £6.5m, additional costs from new capital schemes of £1.8m and other cost impacts of £1.5m were offset by £4.4m of efficiency savings and £1.6m of other savings, primarily lower cost of sales.

Staff-led energy saving projects resulted in an overall energy saving of 6.5GWh, a reduction of around 3,500 tonnes of CO2 and a cost saving of around £600,000 per annum. The company’s PowerDown scheme has now been extended in 2010/11 with the aim of further reducing energy use. South West Water has already purchased three quarters of its AMP5 energy requirements at a lower market price than that assumed in the Final Determination.

Capital expenditure was £143.3m (2008/09 - £147.8m). £74m was invested in water supply improvements including water mains renovation and water treatment works enhancement. Continued high levels of investment in the £240m water mains renovation programme to replace or reline water mains were a key element during AMP4 and the programme finished ahead of schedule in December 2009 when a final 104km of water mains were completed.

Water resources strengthened and leakage down