Pennon Earnings Pulled Up by Its Waste-to-Power Generation Unit

(Bloomberg) — Profit at Pennon Group Plc, the third-largest publicly traded water company in the U.K., is depending
more on its Viridor Ltd. unit for earnings as the utility
expands its energy-from-waste plant capacity.

Viridor’s fiscal full-year earnings before interest, taxes,
depreciation and amortization rose 5.4 percent to 80.4 million
pounds ($125 million), compared with a 0.9 percent gain in the
parent’s profit, according to a filing on Wednesday by Pennon.

Viridor expects energy-from-waste to bring in about 125
million pounds of Ebitda by 2020, with the addition of five
plants taking capacity to 270 megawatts, the unit’s Chief
Executive Officer, Ian McAulay, said in a phone interview.

“Most of the earnings growth is set to come from Viridor
during the next three years,” leaving the water operator at
risk of commissioning delays or earnings setbacks at the unit,
Xavier Caroen, an analyst at Bryan Garnier & Co., wrote in a
research note after the results. “There is no room for error.”

The analyst has a neutral recommendation on the stock.

Pennon was little changed by 10:18 a.m. in London after
falling as much as 2.8 percent following the earnings filing.

The utility reported Ebitda of 411 million pounds in the
year ended March, from 407.3 million pounds a year earlier.

Sales rose to 1.36 billion pounds from 1.32 billion pounds,
the Exeter, England-based company said in its filing. Pretax
profit advanced 1.6 percent to 210.7 million pounds.

Seven Plants

Pennon expanded its water business in April, buying
Sembcorp Bournemouth Water Investments Ltd. from Singapore-based
Sembcorp Industries Ltd.

Viridor operates seven energy-from-waste plants in Exeter,
Oxford, Cardiff and Runcorn. Income from renewable-power
generation has helped the division counter declines in the
landfill business following an increase in taxes.

Pretax profit at Pennon’s South West Water Ltd. unit rose
3.3 percent to 167.9 million pounds on efficiency savings.

In December, regulator Ofwat announced the prices utilities
can charge customers in the five years through 2020. The average
annual bill will drop about 5 percent to 376 pounds. South West
Water plans to keep average bill increases below inflation until
the end of the decade.

The full-year dividend of 31.80p a share is 4.9 percent
higher than a year earlier.

To contact the reporter on this story:
Louise Downing in London at

To contact the editors responsible for this story:
Reed Landberg at
Tony Barrett, Randall Hackley

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