Viridor sees half year recycling profits fall 26.5%

The falling price of recyclable materials has been blamed for a 26.5% drop in pre tax profits during the first six months of the 2012/13 financial year for waste management and recycling firm Viridor.

In its half year financial report on the six months ended September 30, Pennon Group, which owns Taunton-based Viridor as well as South West Water, revealed that revenue from recycling was down 18.8 million compared to the previous year.

Pennon says that the average price per tonne of recycled material fell an estimated 17.6% to 103, compared to an average price of 125 per tonne during the same period for the preceding year. Some within the waste sector have noted that the value of recovered material has begun to stabilise in recent weeks, but Pennon claims it is still cautious on the prospects for recovery.

The Group issued a trading statement earlier this month, warning that its profit projections were somewhat below the bottom range of current market expectations. This followed an 8.4% fall in pre-tax profits for 2011/12, blamed by the company on the diminishing use of landfill as well as a drop in the value of recycled material (see letsrecycle.com story).

Progress

However, Pennon claims that Viridor is making strong progress on its public private partnerships (PPP) and energy from waste projects currently in the pipeline, which include the 250 million waste treatment services contract agreed with Glasgow city council, and a 990 million waste treatment contract with the South London Waste Partnership.

Ken Harvey, chairman of Pennon Group said: We announced on November 15 that trading in Viridor has been significantly below the high level of last years first half with recyclate prices remaining under pressure reflecting world and market conditions. Viridor is responding to the near-term challenges and has recovered about half of the impact of the reduction in recyclate prices through the terms of customer supply contracts and cost reductions.

We remain cautious about the future prospects for recyclate prices. We have, however, made further strong progress on our PPP and EfW pipeline this half year which will form the basis for future growth.

Notwithstanding current challenges, the Group has delivered increased overall profit before tax or the first half of the year and an increase in dividend in line with our stated policy.

The half year statement reveals that Viridors revenue was down 5.3% to 378.1 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) decreased by 13.5 million to 44.9 million. Meanwhile, profit before tax decreased 8.1 million to 22.5 million.

Volumes

Recycling volumes were up 2.6% for the first six months of the year to 936,000 tonnes, but this increase was offset by the falling gate fees and value of recovered material.

The company has made two acquisitions since March 2012, including Manchester based waste collection and recycling business JWT Holdings Ltd in July for 7.6 million, and paper processor Pulp Friction Limited and SBS Paper LLP for around 9 million in October.

Overall, Pennon Groups profit before tax rose 3.4% to 111.1 million, buoyed by a 10% rise in profits for South West Water, which reached 83.8 million in the first six months of the year.