Pennon Group reports fall in annual profits

Pennon Group's annual pre-tax profits fell 1.1 per cent to 198.2m pounds reflecting the weak performance of its recycling business.

The British water utility and waste management company reported a 9.9% fall in earnings per share to 42.6p for the year to end of March.

Its waste and recycling division Viridor saw profits fall 36.6% to £35.5m, offsetting a 7.5% rise to £152.1m profits in its South West Water arm.

Viridor's results were affected by headwinds in recycling and a decline in landfill. The unit was hit by exceptional charges including a £99m asset impairment, £90m increased landfill provisions and £150m net of tax.

Pennon said it was taking aggressive action to reduce costs.

South West Water, on the other hand, achieved robust results against its 2010-2015 K5 regulatory contract which covers the water industry's asset management plan. The division was supported by improvements to customer service, rigorous cost control and efficient delivery.

Approved tariff increases, including the 2.5% K factor, amounted to £38.1m and 5,100 new customer connections contributed £1.5m of additional revenue.

However, customer demand fell 2.9%, cutting into revenues by £8.1m, as clients switched to a metered tariff and the company was hit by extreme wet weather and tough economic conditions.

Pennon is now making preparations for the change in legislation after Ofwat announced its price review for 2014 (PR14). It will focus on protecting the interests of consumers as it lays out the price limit for water bills for next year and assesses companies' plans.

"South West Water is well prepared for PR14 and legislative changes and is sharing the benefits of K5 outperformance by investing £60m in further improvements to services to customers," said Chairman Ken Harvey.

The firm recommended a full-year dividend of 28.46p, up 7.3% on the previous year on expectations of future growth.

Shares fell 0.28% to 702.50p at 08:58 Thursday.

RD