Investment Profile by Pink Investments

 Pennon Group Plc

Pennon Group Plc (PNN:L)

Pennon Group Plc is a large FTSE 250 company with £4.1 billion in assets and employs over 4,000 people. It operates and invests in utility infrastructure businesses.

The Group is committed to:

-sustainable development

-enhancing the environment and

-providing high quality customer services

The Group has two principal subsidiaries:

-South West Water provides water and sewerage services in Devon, Cornwall and parts of Dorset and Somerset. In the last year, the South West Water division has shown
very strong performance against the K5 regulatory contract. In the South West, the best ever bathing water results were achieved last year, with over 95% achieving excellent
status according to the European guideline standard.

-Viridor is one of the UK.s leading recycling, renewable energy and waste management businesses. Viridor is delivering continued growth by exploiting opportunities in
recycling and renewable energy. 51% of its profits come from recovering value in waste.

Pennon Groups strategy is clearly focused on water and sewerage services; recycling; renewable energy and waste management. The company continues to enjoy steady growth with exposure to resource/cyclical upswings.

A further £100m has been invested in key infrastructure to support the development of the UK economy. The EfW / PPP pipeline underpins the long-term profit momentum.

The Pennon Group is well funded with efficient long-term financing in place. The Group businesses remain well positioned in the current difficult economic conditions.
Pennon is benefiting from very strong operational delivery and financial performance .The comapny strategy is to grow and add value by proactively developing new recycling
operations to meet ambitious EU/UK targets, successfully exploiting the huge potential in waste-based renewable energy generation and capitalising on its strong position
in landfill waste disposal . For the next two years Viridor.s profits are expected to be driven by recycling and the rollout of EfW pipeline (operations commencing 2013/14
onwards) could more than double Viridor's earnings in five years time.

Pennon was the top ranked Utility in “Britain's Most Admired Companies”awards in 4 areas

-quality of management

-capacity to innovate

-community and environmental responsibility

-use of corporate assets

So, the company has strong SRI credentials.

The company profits have been steadily increasing and dividends have also increased.
Revenue was up 5.8%, Operating profit was up 7.5% and Profit before tax was up 8.5%. The full year dividend 2010/11 was up 9.3% to 24.65p

The company has a sector-leading progressive dividend policy: 4% real to end of K5 period (March 2015). This is refreshing to see in a climate where many companies have
been pruning dividends down.

The company's main customers are the Quality Regulators:

•Environment Agency (EA)

•Drinking Water Inspectorate (DWI)

•Department of Environment, Food and Rural Affairs (DEFRA)

Economic Regulators:

•Water Services Regulation Authority (OFWAT)

•Competition Commission

Pennon Group has been transforming ways of working by using:

– remotely managed networks with a mobile and flexible workforce
– asset optimisation to reduce energy consumption
– „Upstream Thinking projects to improve raw water quality
- re-establishing wetlands on Exmoor & Dartmoor
- working with farmers to protect rivers and watercourses from pollution

The long-term economics of recycling and energy recovery look compelling and Pennon Group continues to grow its business by targeting acquisitions which add value for
shareholders. In the last year acquisitions have included:

Storm Recycling Limited for £1.7m
Veolia’s trade waste collection interests in Cornwall and North Devon for £0.6m

WS Churngold Limited which provides transport and logistics solutions to the Lancashire Waste PFI for £14.25m

Community Waste, a recycling business in the south east of England, for £15.75m

All the above acquisitions are in line with Viridor.s recycling and contracts strategies.

Renewable Energy Developments include:

Runcorn, Exeter,Cardiff,South Lanarkshire and two Anaerobic Digestion facilities that are now operational in Greater Manchester with two further plants under construction.
Terms have also been agreed for an AD plant at Walpole, Somerset.

If you are looking to invest in recycling and water management and want a steadily increasing dividend then Pennon Group could fit the bill.