Pennon on track to meet full-year expectations; Energy Recovery to provide boost

Water and waste group Pennon said revenues at South West Water for 2015/16 will be impacted by the reduction in base allowed returns as part of the 2014 final price determination from the industry regulator, but overall was on track to meet management expectations for 2015/16.

The company said it was increasingly well positioned for the future as Energy Recovery Facilities (ERF) come on stream at it's Viridor waste management unit. The ERF business, where waste is turned into an energy source, was contributing significantly to earnings before interest, tax depreciation and amortisation (EBITDA) and is on track to contribute around £100m in 2016/17.

Pennon said overall group performance is forecast to deliver financial rewards from 2015/16 and maintained its pledge to deliver a dividend increase of 4% above RPI until 2020.

“South West Water is well-prepared for market liberalisation in 2017, with established retail and wholesale strategies. Within the South West region, South West Water has Water Business Services, which is tasked with retaining existing business customers, and outside the region it has Source for Business, which is focused on winning new customers,” Pennon said in a statement.

Pennon said despite pressure on commodity prices, recycling EBITDA in the first half of 2015/16 has improved on the second half of 2014/15.

“Viridor remains confident of the long-term regulatory drivers from the EU and UK government underpinning demand for recycling and the business is well-placed to deliver sustainable returns,” Pennon said.

“In the landfill business, volumes are gradually declining as expected and waste is being diverted to energy recovery. A focus on maximising landfill gas capture rates has ensured that power generation from this source continues to contribute strongly, against a backdrop of declining yields.”

“On the regulatory front, a recent Government change to remove the climate change levy exemption for renewables led to the end of Levy Exemption Certificates, which Viridor had been receiving for both its landfill gas and ERF businesses. This has had a modest impact on Viridor's earnings.”

Pennon's Bournemouth Water division is performing in line with expectations, and Pennon said the Competition and Markets Authority (CMA) referral was progressing as planned with results from the CMA expected shortly.