Viridor has reported “significant earnings growth” driven by its growing portfolio of energy-from-waste plants across the UK, as it tackles lower recyclate prices with in-house efforts to boost material quality.
The annual financial results of parent Pennon Group shows Viridor’s pre-tax profit has increased by 10.8%, from £27.7m in 2014-15 to £30.7m in 2015-16.
“Eight out of the 11 committed energy recovery facilities (ERFs) are operational and this is expected to rise to nine in 2016-17. ERFs are on track to contribute around £100m to EBITDA in 2016-17, despite removal of Levy Exemption Certificates and lower energy prices,” the report says.
The company is also retaining the option for a 12th plant, at Avonmouth in Bristol.
Viridor, in common with others in the sector, has been hit by lower prices for recyclates, and the report says it is increasingly looking to share the risk with its business and local authority customers. Recycling volumes traded increased by 7.3% or 121,000 tonnes to 1.8 million tonnes.
“Viridor remains cautious about future recyclate price growth but is not relying on a near-term price recovery, and is instead driving forward self-help measures to deliver margin improvement. This focuses on reducing costs, simplifying the organisation, improving asset utilisation and rationalising the portfolio to improve returns.”
Viridor’s landfill business is being wound down, and capacity fell from 51.7 million cubic metres at 31 March 2015 to 47.4 million this year. Average gate fees increased by 1% to £20.14 per tonne.
The company’s revenue decreased by 3.6% to £806.2m due in part to lower landfill volumes. Capital investment was £182.8m compared with £262.2m in 2014-15, largely driven by expenditure on ERFs.
“This reduction reflected reduced capital expenditure on ERFs, as eight of the 11 plants in the portfolio are now on-stream, and reduced capital investment in recycling because 2014-15 included expenditure on the Scottish Newhouse glass recycling facility in North Lanarkshire, which came on-stream during 2015-16.”
Viridor says it has realised £22m of efficiencies across the ERF capital investment programme.
Pennon is also undertaking a review of its shared services to assess ”where opportunities can be unlocked to create additional value through integrating back office functions, sharing skills and knowledge across Pennon’s businesses and reducing costs”.
Chris Loughlin, group chief executive, said it had been a transformative year.
“The group has delivered a strong performance, notwithstanding the financial impact of our commitment to keep South West Water customer bills below inflation to 2020.
”We have seen significant earnings growth driven by the build-out of ERFs across the UK. This strong performance across the group underpins our sector-leading dividend policy of 4% growth per annum above RPI inflation to 2020.”