Read More Pennon Group, owners of South West Water and waste group Viridor, has published its latest half year results - with a strong start to the new 2010 – 2015 AMP5 programme.

Profit for the Group before tax was up 0.7% to £96.2m - down 0.6% at South West Water to £70.2m and up 28.8% at Viridor to £28.6m. Group revenue rose by 10.8% to £593.2m.

At South West Water revenues rose 1.9% (£4.4m) to £230.9m as result of tariff increases, new connections and higher demand offset by the effects of customers switching to a metered tariff and lower other sales. Customers switching from unmeasured to metered charging reduced turnover by £3.3m, but 2,800 new customer connections contributed £0.9m of additional turnover.

South West Water’s operating profit decreased by £0.3m to £100.4m, while operating costs increased from £125.8m to £130.5m. Pennon said that during AMP4 South West Water had implemented a significant programme of organizational restructuring, an initiative which had continued into AMP5.

Capital expenditure in the half year was £40.3m compared to £71.5m in the first half of 2009/10 (which included £18.3m for South West Water’s substantial water mains rehabilitation project). Major investments included construction on the Exeter water treatment works flood defence scheme and infrastructure works connecting Stannon Lake (the company’s fourth largest reservoir) into the distribution network. The Group said it was expecting second half capital expenditure to be significantly higher.

Catchment management will improve raw water quality and lower costs

South West Water has now embarked on an innovative programme of work to improve raw water quality in a sustainable way. The improved raw water quality generated by the ‘Upstream Thinking’ programme would reduce expenditure on chemicals and treatment processes.

South West Water is working with farmers, environmental bodies and statutory bodies to re-wet uplands, restore grasslands and revise farming practices.

Operational efficiencies are front-end loaded


Pennon said a strong start had been made towards achieving a step change in South West Water’s target operating cost -the company is seeking to front-end load delivery of efficiencies of 2.8% per annum targeted for AMP5. Around £4.4m, equal to 6.1% p.a., of operating cost efficiencies were delivered in the first half of 2010/11.

Pennon said this was being achieved through changing operational ways of working; right-sourcing and innovative contracting arrangements; energy procurement and reduced usage; and the re-alignment of administration and support services. South West Water has now purchased 94% of its AMP5 energy requirements at a lower market price than that assumed in the Final Determination.