Pennon expects to deliver profit despite plunging recycling revenues

Utilities company Pennon Group has said it expects to post a three per cent rise in profit before tax for the half year and will increase the interim dividend by 6.6 per cent to 8.76p.

The increase comes despite the fact the company's recycling revenues in the first half are expected to be £18.8m lower than the same period last year.

In a statement it said: "While we have taken action to reduce our cost base and have recovered about half of the impact of the reduction in recyclate prices through the terms of customer supply contracts and cost reductions, profit before interest and tax (PBIT) plus joint ventures is expected to be £27.8m in H1 2012/13, down 30.5% on H1 2011/12.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

"Analyst forecasts for the full year currently assume a recovery in recyclates prices in the second half of the year. However, we have not seen an improvement in prices to date in the third quarter and are therefore cautious on the prospects for recyclate prices. Accordingly we expect Viridor's PBIT plus joint ventures for the full year to be somewhat below the bottom of the current range of market expectations."

The firm stressed that its Viridor business continues to make strong progress on its growing pipeline of projects which underpins its long term profit momentum.

South West Water is continuing its strong operational performance against the 2010/15 regulatory contract with further advances in operating efficiency and customer service. Rigorous cost control, efficiency delivery and stable interest costs are expected to deliver profit before tax for the half year for South West Water up 10% to more than £83m, it added.

NR