Pennon Full-Year Profit Drops as Waste-Recycling Sales Decline

Pennon Group Plc (PNN), a U.K. water company, said fiscal full-year profit dropped 1.1 percent as sales shrank at its Viridor waste-management unit.

Pretax profit for the year through March fell to 198.2 million pounds ($298 million) from 200.5 million pounds a year earlier, the Exeter, England-based company said today in a statement. That beat the 192.5 million-pound median estimate of 12 analysts surveyed by Bloomberg.

Viridor suffered a decline in prices for waste paper and recyclate, the material it produces at waste-recycling plants. A 7.5 percent slump in revenue at the unit followed decisions to scale back operations, including cutting staff and mothballing sites, as Europe’s economy stagnated and Chinese growth slowed.

“Trading in Viridor is significantly down on last year with declines in recycling and landfill,” Chairman Ken Harvey said in the statement.

Energy-from-waste plants planned by Viridor in Glasgow, London, Peterborough and Wales will make a “significant contribution” to profit growth, the company said. The U.K. has promoted such projects to meet power demand while reducing imports of fossil fuels.

Pennon fell as much as 3.7 percent, the biggest intraday decline since Feb. 14, and traded down 0.5 percent at 701 pence as of 8:40 a.m. local time.

Dividend Payout

Capital spending jumped 61 percent over the year to 439 million pounds. The final dividend rose by 7.7 percent to 19.70 pence, resulting in a full-year payout of 28.46 pence.

U.K. water utilities have been the subject of takeover talk. Abu Dhabi Investment Authority was reported last month by the Daily Mail to be studying a bid for Pennon, while the Sunday Times said United Utilities Group Plc (UU/) had hired Goldman Sachs Group Inc. amid speculation of a possible purchase. Severn Trent Plc (SVT) on May 15 rejected a takeover approach from Kuwait’s sovereign wealth fund and a Canadian infrastructure investor.

Growth at Pennon’s South West Water unit helped to counter the slump at Viridor, reporting full-year profit before tax and exceptional items of 152.1 million pounds, a gain of 7.5 percent, according to today’s statement.

To contact the reporter on this story: Sally Bakewell in London at ldowning4@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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