Pennon turns up the heat

published 29 May 2012

Full year profits at Pennon came in ahead of expectations, with growth at South West Water more than offsetting a slow-down at Viridor, the waste management unit.

Profit before tax in the year to March 31st was £200.5m, ahead of market expectations of £196.2m and up from £188.5m the year before.

South West Water, the water supply division, saw profit rise 9.8% to £141.5m, but Viridor's profits dropped 8.4% to £57.6m. As flagged previously, recyclate prices have fallen from their first half 2011/12 peak reflecting world economic conditions, and thus hitting Viridor's profitability. Management cut back on costs at Viridor which recovered more than half of the impact of reduced recyclate prices.

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Revenue rose to £1,233.1m from £1,159.2m the year before but was less than the £1,274m predicted by broker Charles Stanley.

Diluted earnings per share eased to 47.8p from 48.1p the year before, well above the consensus forecast of 43.29p.

As much of Britain swelters in a heatwave, Pennon Chairman Ken Harvey offered the confident prediction that South West Water would enjoy its sixteenth success summer without water restrictions.

Viridor's financial performance will continue to be affected by trends in recycling and landfill, Harvey observed.

"We are cautious about the prospect for a recovery in recyclate prices in the near-term. Looking further ahead, our growing pipeline of projects will ensure the future success of the company and could more than double Viridor's EBITDA [earnings before interest, tax, depreciation and amortisation] within the next five years," Harvey said.

The board has recommended a final dividend of 18.30p, up 6.7% on the year before; that takes the full year dividend up to 26.52p, up 7.6% on the year before but below the 26.63p expected by the market.