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Profits hit by recyclate prices, warns Viridor

Viridor has warned of lower than expected profits, blaming pressure on recyclate prices reflecting global economic conditions.

In a trading statement issued to the London Stock Exchange ahead of the group’s half year results on 19 November, the firm said it now expects full year profits “somewhat below the bottom of the current range of market expectations”.

The company said overall average price per tonne for the first half of 2012/13 fell to £103, 17.6% lower than for H1 2011/12, with prices “significantly lower” by the end of the second quarter.

Recycling revenues for H1 12/13 are now expected to be £18.8m lower than the same period last year.

PBIT (profit before interest and tax) plus joint ventures is expected to be £27.8m in H1 2012/13, down 30.5% on H1 2011/12. 

The firm said while analysis predict an improvement in prices in the second half, it had seen no improvement to date in Q3 and was “cautious on the prospects for recyclate prices”.

“However, Viridor continues to make strong progress on its growing pipeline of PPP/EfW projects which underpins its long term profit momentum.”

Colin Drummond, chief executive of Viridor said action to reduce the firm’s cost base had recovered around half the impact of the recyclate price reductions through terms on supply contracts and cost reductions.

He said over the long-term the company continued to make substantial progress growing its pipeline of PPP contacts.

While there was a glimmer of a possibility of recovered paper prices strengthening from a low base, it was a “very volatile market”, Drummond said. Similarly, plastics remained difficult; the market was intrinsically very volatile, he added.

He said continuing ‘headwinds’ in the global economy would affect the market: “The European situation isn’t getting any better, and China is still growing, but slightly less fast than it has been.”

“At this stage there is no reason to change our view that things remain pretty tough. And that’s the fundamental driver”

Drummond predicted continuing “shake out of capacity” in the waste market, in both small and larger firms.

Pennon said it expects to report profit before tax for H1 up 3% to £111m and an interim dividend up 6.6% to 8.76p per share.

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