Colin Drummond
Chief Executive, Viridor

CHIEF EXECUTIVE OVERVIEW

Climate change, excessive resource use and environmental degradation are key linked issues facing the world today. Viridor's strategy is to assist society in positively addressing these issues. In doing so the Company is mindful of its duties to its employees, the communities in which it works and other stakeholders. We aim to be a sustainable Company in environmental, social and economic terms. The Company's chosen name Viridor comes from the Latin 'to make green' and the Company's strong financial performance indicates that being green is good for business.

CLIMATE CHANGE AND RESOURCE USE

Society's current resource use and waste management practice has a number of serious potential climate change effects including the potential release of methane (21 times as potent a greenhouse gas as CO₂) from landfill, carbon release as a result of low resource efficiency and the energy requirements of society's excessive consumption of raw materials. The world is using resources at an unsustainable rate with humans having used as much resource since 1950 as in all previous history. In addition, the world loses 24 billion tonnes of topsoil each year. All this is driven by a hugely increased world population and increased consumption per head of population.

This sets a high priority on developing waste and resource management techniques which minimise the generation of greenhouse gases and maximise resource efficiency via waste prevention, re-use, recycling, recovery and the generation of energy from waste.

MEASURING OUR EMISSIONS

To establish a baseline for climate change, we recognise it is essential to accurately measure our existing CO₂ emissions; Viridor has made substantial improvements in this area as noted in our report and has set three specific targets in this area for 2009/10. We participated in the Prince of Wales' recent May Day Summit and made a public commitment to measuring our CO₂ emissions.

Provisional estimates for our total CO₂ emissions are included for the first time in this year's report and will be refined over the coming year.

WASTE PREVENTION

In aiming towards greater resource efficiency, waste minimisation is a priority for UK society. Viridor works with local authority customers to develop and deliver structured programmes of waste prevention, awareness and education (this is a specific requirement of nine of our municipal contracts). Viridor also provides audits and advice on recycling, waste prevention and best practice to business customers.

RECYCLING

In the past year Viridor has invested some £11 million in enhancing its recycling operations (in addition to acquisitions of recycling businesses totalling over £100 million in the previous year). Viridor has increased the total amount it recycles or composts from 1.6 million tonnes last year to 1.8m tonnes in 2008/09 across its recycling and other business segments. The Company has established a specialist Company, Viridor Resource Management, for the marketing, sales and logistics of all processed high quality recyclates generated by Viridor and its client facilities throughout the UK. Recycling now accounts for 16% of the Company's profits.

Recent economic conditions led to a significant reduction in the price of certain types of recyclate in the second half of 2008/09 and consequent reduction in the immediate financial attractiveness of recycling. It is hoped that these economic conditions are temporary and do not encourage the UK to cut back on its recycling and other environmental targets. More recently recyclate prices have recovered somewhat, particularly for good quality product.

RENEWABLE ENERGY

In line with the above priorities Viridor captures over 90% of methane produced from its landfills. The bulk of this is used for renewable energy generation, which is good for business and for the environment. In the past year Viridor has increased its landfill gas renewable energy generation by 17 Megawatts (MW) to 101MW, enough to meet the domestic needs of around 300,000 people. Renewable energy now accounts for 25% of Viridor's profits.

Viridor is actively developing other forms of renewable energy generation. The Lakeside EfW facility (a joint venture with Grundon Waste Management), with a total electricity output of up to 37MW, will come on stream in 2009/10. The Runcorn EfW/CHP facility, which will be developed in joint venture with INEOS Chlor and John Laing, will have total energy output (electricity and heat) of 120MW and is believed to be the largest and most efficient project of its type in Europe. Viridor also plans to build four (AD) plants in Greater Manchester plus one each in Somerset and at Beddington, near Croydon, generating in total about 10MW of energy.

Energy generated utilising waste currently represents 30%, and the largest single component, of total UK renewable energy. The bulk of this (24% of renewables) is from landfill gas and this capacity has grown six-fold over the past 10 years. The remaining 6% is from energy from waste combustion (a proportion of which - generated from biogenic carbon - is deemed renewable). Waste in total accounts for approximately 1.5% of the UK's overall electricity production. According to both the Institution of Civil Engineers and the Institution of Mechanical Engineers this theoretically could increase to between 15% and 20%, a very significant potential contribution to total UK energy supplies. The bulk of the increase is likely to come from EfW plants, which are particularly energy efficient as part of a combined heat and power system (as at Runcorn), and from new technologies such as AD.

LANDFILL AS FINAL DISPOSAL ROUTE

Where safe and efficient landfill disposal underpins the provision of other resource management services, we employ best practice in design, engineering, operations and restoration. Re-use of materials is maximised in engineering.

Progressive restoration of despoiled land to a range of habitats and land uses, and its aftercare, provide long-term environmental benefit.

MANAGEMENT SYSTEMS

Waste management is subject to strong regulations designed in the first instance to protect human health and the environment. Viridor was an early achiever, within the waste industry, of the ISO 14001 environmental management system accreditation. The Company continues to lead in this area and this accreditation has now been extended to an integrated business management system also covering quality (ISO 9001) and health and safety (OHSAS 18001) management as described in this report.

STAKEHOLDER RELATIONS

Structured employee training, the roll-out of an integrated Business Management System (incorporating environmental, quality and health and safety systems), on-going stakeholder and community relations programmes and continuous improvement in internal and external communications all continue to play vitally important roles in Viridor's overall environmental and social performance.

Operational Sites

Landfill sites - operational	27
Non operational with planning permission	1
Power generation plants	28
Transport depots	20
Waste transfer stations	23
Energy from waste incineration plant	1
Materials recycling facilities	18
Glass recycling depots	7
Waste treatment plants	4
Composting sites	10
Household waste recycling (civic amenity) sites	71
Consented landfill capacity - million m³	81

	2008-09
Total waste inputs	8,384,000 tonnes
Total Waste handled	9,875,000 tonnes
Waste Recycled	1,069,000 tonnes
Aggregates Recovered	420,000 tonnes
Waste Composted	277,000 tonnes
Total Amount of material recovered (tonnes)	1,766,000 tonnes
Relative amounts of materials recovered as a proportion of total waste inputs	21%
Number of operating units	236

TARGETS FOR 2009/10

As noted above, Viridor has embedded climate change abatement, resource efficiency, environmental protection and social responsibility in what is designed to be a strategy that is consistent with the principles of sustainable development. In previous years Viridor's targets have concentrated largely on environmental matters. For 2009/10 we have broadened our focus:

Three targets relate specifically to carbon data and management;
A fourth relates to biodiversity;
Three relate to communications and feedback with employees and other stakeholders;
Five relate to employee development and training and to a range of specific health and safety items; and
A final target relates to business continuity models which have relevance to the overall issues of sustainability.

VIRIDOR FINANCIAL PERFORMANCE

As described above Viridor's business is based on the protection of the environment and human health, on increasing resource productivity, and on climate change abatement. In implementing this strategy we are able to earn good returns for our shareholders. In 2008/09 Viridor's profit before interest, tax and amortisation of intangibles (PBITA) increased by 13% to £65.5m, and cumulatively its profits have grown 22% per annum since 2000/01 as outlined in the table below.

Year ended 31 March	2001*	2002*	2003*	2004*	2005	2006	2007	2008	2009	CAGR
	£m	£m	£m	£m	£m	£m	£m	£m	£m	2001 - 09
PBITA	13.1	15.2	19.1	22.7	30.0	35.9	46.8	58.1	65.5	22%
PBT	11.7	13.8	15.7	17.2	21.5	23.5	29.4	35.5	40.8	17%
Return on equity investment	6.1%	7.2%	8.2%	8.8%	11.0%	11.3%	14.2%	17.1%	19.7%	-
*UK GAAP

At the same time the shape of Viridor's business is changing. 25% of Viridor's profits come directly from capturing methane, a potent greenhouse gas, and putting it to beneficial use in renewable energy generation, compared with 20% the previous year. At the same time recycling has increased to 16% of profits compared with 14% for the previous year as outlined below.

Contents