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

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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.

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