Viridor takes action after profits fall by a third

Waste management firm Viridor is taking aggressive action to reduce costs, after a greater than expected fall in the value of recyclate contributed to a 36.6% fall in profits in 2012/13.

The revelation from its parent company Pennon Group came today (May 23) as it posted financial results for 2012/13, showing that Viridors pre-tax profits decreased by 21.1 million to 36.5 million. Pennon said this was caused in part by the falling value of recyclate from an average of 118 per tonne in early 2011/12 to 99 per tonne between October and December 2012.

The Group said it has responded swiftly to the difficult conditions in the maturing recycling market, closing six facilities across the UK with a total of 152 redundancies, generating savings of around 13 million. It also plans to reduce its network of landfill sites from 21 to three by the end of 2020.

On a more positive note, the company pointed to a number of contract wins and the advancement of several EfW projects throughout the year that are expected to contribute more than 100 million within the next four years. These include the signing of a 25-year contract with the South London Waste Partnership, believed to be worth around 990 million, as well as a 250 million waste disposal contract with Glasgow city council.

And, the company has identified the expansion of its energy from waste (EfW) projects as a key growth area for the business, with a target to have 15% of the EfW market share in the UK by 2020. According to the report Viridor and its partners currently have a total EfW capacity of 2.5 million tonnes, with 1.3 million tonnes backed by long term municipal contracts.

Mixed year

Ken Harvey, chairman of Pennon Group, said: It has been a mixed year for Viridor. As previously flagged, trading in Viridor is significantly down on last year with declines in recycling and landfill more than outweighing continued growth in joint ventures; Viridor is continuing to respond aggressively to the near term challenges in recycling and landfill which have necessitated site rationalisations, headcount reductions and exceptional charges in relation to asset impairments and provisions.

On the positive side, Viridor has continued to make very strong progress on its growing PPP and EfW pipeline with major new contracts signed for Glasgow, South London and Peterborough; its appointment as preferred bidder for the South East Wales PPP; and an enhancement of Dunbars planning permission to cover all of Scotland. These and similar projects are expected to drive the companys long term profit growth.

The results show that Viridors earnings before interest, tax, depreciation and amortisation (EBITDA) for the year were down, falling 29.4% to 77.9m, while profit before interest and tax PBIT fell 32.9 million to 30.8 million.

Meanwhile, capital expenditure for the year, including construction spend and investment in joint ventures, had risen to 323 million, compared to just 143 million in 2011/12.

Overall, Pennon Group which also owns utilities firm South West Water, saw its annual pre-tax profits fall by 1.1% to 198.2 million.

In February 2013, the company issued an interim statement, revealing that low recyclate prices and landfill volumes had continued to affect trading conditions for the waste management firm (see letsrecycle.com story).

This followed the Taunton-based companys chief executive, Colin Drummond, announcing his retirement after twenty years at the helm of the business. Mr Drummond will step down in September (see letsrecycle.com story).