Pennon suffers recycling price woes

ViridorSouth West Water parent Pennon has warned over a plunge in trading at its waste division as recycling prices continue to slide.

Pennon (LSE: PNN) said the first half performance so far at Viridor, which provides recycling and waste collection services, was "significantly" below a year earlier, when recycling prices peaked.%VIRTUAL-SkimlinksPromo%
The waste business - seen as the group's growth engine less than a year ago - has suffered from tumbling prices for waste paper and recovered metals in recent months as wider economic woes take their toll.

Pennon (LSE: PNN) has been slashing costs at Viridor and renegotiating customer contracts to offset the division's trading troubles. But it said: "Viridor is not immune to the difficult conditions in the world economy and trading has been significantly below the high level of last year's first half with recyclate prices remaining under pressure."

South West Water - which supplies water to Devon, Cornwall and parts of Somerset and Dorset - has seen a "robust" start to the financial year, according to Pennon.

Pennon (LSE: PNN) shares fell 2% after the Viridor news. The division was Pennon's (LSE: PNN) star performer a year ago, when a boom in household recycling saw Viridor grow half-year profits by 7% to £30.6 million. The business was benefiting from soaring levels of waste being diverted from landfill to help the UK meet targets set by the EU.

Viridor had previously specialised in landfill, but expanded significantly in recycling services and last year saw 51% of profits come from recovering value from waste. It now has the largest recycling capacity in the UK, with around 20 plants.

Despite the impact of sliding recycling profits, Pennon recently said it still believed Viridor's growing pipeline of projects could help more than double the division's underlying earnings within the next five years.

Viridor recently secured a 25-year contract with Glasgow City Council and continues to expand, snapping up Manchester waste firm JWT Holdings for £7.6 million and starting work on a new plant near Cardiff.

Pennon's (LSE: PNN) South West Water arm has also been buoying results, helping the group deliver a 6% rise in profits to £200.5 million in the year to March 31.

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