One man's trash is another man's treasure, as the old cliché goes. Nowhere is this truer than for water giant Pennon (PNN), whose waste business, Viridor, almost doubled profit before tax to £60.4m in its most recent results, driven by the strong performance of its growing fleet of energy recovery facilities (ERFs). The group has eight such facilities in operation, with plans for four more across the UK between now and 2021. This helps give the group extra resilience by diversifying it away from the water business, and reducing exposure to the machinations of the five-year regulatory review cycle - the current review period known as AMP 6 runs until 2020.
- Strong, progressive dividend policy
- Sector-leading return on equity
- Strong growth in waste
- Effective cost cutting
- Climbing net debt
- Increased political risk
Viridor's ERFs increased cash profits by 19 per cent during the year to £107m, some way ahead of the £100m target. Utilisation rates were good, with average availability for the portfolio meeting the 90 per cent goal. This strong performance from ERFs, along with a marked uptick in recycling profits, contributed to a 12.5 per cent rise in the waste business's cash profits, including joint ventures, to £199m. The division's large and relatively stable costs associated with interest, amortisation and depreciation, meant the cash profit increase translated into a near doubling in pre-tax profit from the division.