Utilities analyst at Whitman Howard, Angelos Anastasiou said: “It is a generally reassuring statement, confirming that the energy reclamation facilities are on track to deliver c.£100 million of EBITDA this year as planned, and that South West Water continues to significantly outperform its regulatory contract.”
He added: “The statement reconfirms our view that there were no sinister undercurrents surrounding the recent departure of Viridor’s chief executive, and that all is on track there.”
In a trading update, Pennon stated that EBITDA expectations for 2016/17 are “driven by additional ERF earnings” as Peterborough ramps up, and as availability increases at Trident Park in Cardiff and Runcorn II in Greater Manchester.
“We therefore expect to see a weighting in the ERF results,” the group said.
The board will take a decision this year on whether to proceed with the investment in an additional ERF at Avonmouth, near Bristol.
South West Water has continued to experience higher customer demand in the first half of the year, the group said. It is now focussed on delivering further totex savings from efficiency initiatives outlined at the 2015/16 full year results.
The statement also said ongoing cost reduction plans announced in 2015/16 are “progressing well”.
These included around £27 million of net synergies by 2020 from the integration of South West Water and Bournemouth Water and approximately £11 million a year of enduring financial benefits by 2017/18 from additional totex outperformance at South West Water and restructuring of overheads at Viridor.
Pennon chief executive Chris Loughlin said: “Pennon has made a good start to 2016/17 delivering a strong performance across both water and waste.
“The portfolio of energy recovery facilities is performing in-line with expectations and remains on track to contribute the targeted c.£100m of EBITDA this year.
“South West Water continues to significantly outperform its regulatory contract and we anticipate achieving a sector-leading return on regulated equity again this year.”
Pennon Group’s final results for financial year 2015/16 were on 25 May. Adjusted pre-tax profit was £211.3 million – well ahead of consensus of £197.5 million. Within this, the water business produced profit before tax of £165.7 million (down 1.3 per cent) while Viridor increased 10.8 per cent to £30.7 million.
Pennon intends to announce its half year results for 2016/17 on 25 November 2016.