Water utility Pennon (PNN) reported a collapse in profits after problems at recycling unit Viridor turned out to be far worse than originally feared. The combination of a sharp fall in prices for recycled material, as China slows and the eurozone weakens, and landfill overcapacity in a sluggish UK economy led to a hefty £176m in asset write-offs. Even after adding these back, adjusted pre-tax profits still fell slightly to £198m and underlying EPS declined 9.9 per cent to 42.6p.
Results were once again saved by the steady returns at South West Water, where cost cutting ahead of schedule and regulatory price increases pushed adjusted pre-tax profits up 7.5 per cent to £152m. This was achieved despite falling demand as three quarters of domestic customers now have a meter.
In sharp contrast, Viridor's operating profits more than halved to £30.8m as the recycling unit suffered from overcapacity in the UK market. Average recycling revenue of £99 per tonne was down sharply on the prior year's figure of £118, with management adding there has been little recovery from December lows. Capital expenditure in new energy from waste projects rose from £143m to £323m during the year.
Analysts at Deutsche Bank forecast flat adjusted pre-tax profits of £197m and EPS of 43p for the current year.
PENNON (PNN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 704p | MARKET VALUE: | £2.57bn | |
| TOUCH: | 702.5-703.5p | 12-MONTH HIGH: | 797p | LOW: 589p |
| DIVIDEND YIELD: | 4.0% | PE RATIO: | 95 | |
| NET ASSET VALUE: | 211p* | NET DEBT: | 189% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 0.96 | 159 | 25.8 | 21.0 |
| 2010 | 1.07 | 186 | 40.4 | 22.6 |
| 2011 | 1.16 | 189 | 48.4 | 24.7 |
| 2012 | 1.23 | 201 | 48.1 | 26.5 |
| 2013 | 1.2 | 21.8 | 7.40 | 28.5 |
| % change | -2 | -89 | -85 | +7 |
Ex-div: 7 Aug Payment: 4 Oct *Includes intangible assets of £352m, or 96p per share | ||||
