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TWST: Can we start with an overview and history of Pennon Group (LSE: PNN.L)?

Mr. Dupont: Pennon Group is a holding company which owns two main businesses. The larger of the businesses is South West Water, which is a water and sewerage utility, providing services to Devon and Cornwall in southwest England where we have about 1.5 million residents and about 700,000 connected customers. The other business owned by Pennon is Viridor Waste, which provides waste treatment and disposal services on a national basis across the United Kingdom. Along with the other water and sewerage companies in England, South West Water was privatized by the British government in 1989 and was known as South West Water Plc. Over the years, South West Water Plc acquired a number of other businesses and the one which has been developed through to the present day is Viridor Waste. The company changed its name to Pennon about five years ago to reflect where it is today, i.e. a company with two principal business streams.

TWST: How would you assess the current size of your markets and looking forward one to two years what are the dynamics and developments in this space that suggest good growth opportunities for your company?

Mr. Dupont: In terms of South West Water, there are various ways in which you can measure the market size. We are one of the smaller of the water and sewerage companies with about 3% of the UK market as measured by turnover of water and sewerage business. In terms of growth opportunities, it’s a very stable business. The bulk of our business is with our domestic customers and although we are one of the fastest growing regions in the UK in terms of population, that still only equates to about 1% per annum in terms of the growth of the customer base. In terms of other opportunities for growth, there has been a lot of talk about whether there might be market opportunity for industry consolidation through further mergers. At present Ofwat is very reluctant to sanction further mergers; it relies very heavily on the use of comparative data between the companies in setting both efficiency and also service quality targets for the companies going forward. Because of the importance of that information to-date it has blocked mergers between water and sewerage companies, although it has allowed several mergers between the smaller water only-companies; those are companies that are smaller than South West Water. So I think it’s fair to say it’s unlikely that we will see a significant change in that over the next year or so. Having said that, we are awaiting the outcome of the Competition Commission Review into a proposed takeover by Vivendi, a French Company, of Southern Water, which is another of the British water companies. If that’s allowed to proceed, it would probably only have a minor impact on Ofwat’s number of comparators and we don’t think that would be a precedent for mergers on a larger scale. But it remains to be seen.

TWST: As opposed to the waste business where you’ve been quite acquisitive?

Mr. Dupont: Yes, we have been very active in the waste business. The waste business in the UK is fairly fragmented. There are a significant number of players and because of that we do believe that there are a reasonable number of opportunities to grow the business through acquisition. Over the last year, we have in fact made five acquisitions and those are all designed to strengthen Viridor’s position in the waste business; in particular, growing areas where it has already got strength and also expanding its capabilities in recycling because there is going to be a growing focus on recycling as the waste industry moves forward.