Waste management company Viridor Limited has seen pre-tax profits fall by 36.6 per cent (£21.1 million) to £36.5 million in the financial year 2012/13, according to annual figures from parent company, Pennon Group Plc.

According to Pennon, the loss follows a year that saw unexpected ‘declines in recycling and landfill more than outweighing continued growth in joint ventures’. Indeed, the company says that the value of recyclate fell from an average of £118 per tonne in 2011/12 to £99 per tonne between October and December 2012.

152 staff made redundant

The annual report reads: ‘[R]ecyclate prices have fallen back sharply from the peak reached in the first half of 2011/12 reflecting world economic conditions including weakness in the Eurozone economies and uncertainty about the speed of growth in China.

‘Viridor had predicted a price fall but the scale of it, particularly in the second and third quarters of the financial year, was even greater than the company had expected. Viridor responded swiftly to this with an aggressive restructuring programme particularly in its recycling business and in 2012/13 closed/mothballed six facilities and made 152 redundancies. This and other items generated savings of about £13 million across all recycling costs which were enough to offset about 35 per cent of the price decline.’

Financial overview

Overall, revenue for the waste management company was down seven per cent (to £704 million).

Before exceptional charges, Viridor’s earnings before interest, tax, depreciation and amortisation for the year decreased by 29.4 per cent (to £32.4 million), and profit before tax and exceptional charges decreased by £21.1 million to £36.5 million, despite the benefit of reduced interest from intra group funding.

Capital expenditure for the year, including construction spend on service concession arrangements and investment in joint ventures, was £323 million (compared to £143 million the year before), of which £291 million was for Viridor growth projects (largely incineration projects) with the balance being ‘maintenance of existing assets’.

Shift from recycling to incineration

Indeed, Pennon says that Viridor will now focus on energy-from-waste (EfW) projects in future: ‘Viridor continues to face near-term headwinds in recycling and the on-going trend decline in landfill and, although recyclate revenues per tonne have recovered a little from their lows of October to December 2012, they remain significantly below first half 2011/12 levels.

‘We remain cautious about the prospects for further recovery in the short term.’

Pennon says that the ‘next phase of its strategy’ involves ‘substantial growth in EfW capacity’, targeting a 15 per cent EfW market share (including joint ventures) by 2020.

According to Viridor estimates, there will be demand for circa 20 million tonnes of EfW capacity in 2020 (up from the current six million tonnes), although it believes that there is likely to be a ‘significant capacity shortfall.’

This flies in the face of recent reports from Eunomia and GAIA, which have warned that unless investment in EfW is curbed, the UK will soon see an EfW ‘overcapacity’ that could lead to recyclable waste needing to be sent to EfW facilities for feedstock. It also goes against the government’s findings; in June, Defra withdrew £217.1 million of PFI funding for three incinerators, saying: “We now expect to have sufficient infrastructure in England to enable the UK to meet the EU target of reducing waste sent to landfill.”

Viridor ‘continuing to respond aggresively’

Speaking of the figures, Pennon Group’s Chairman, Ken Harvey said: “It has been a mixed year for Viridor. As previously flagged, trading in Viridor is significantly down on last year with declines in recycling and landfill more than outweighing continued growth in joint ventures; Viridor is continuing to respond aggressively to the near-term challenges in recycling and landfill, which have necessitated site rationalisations, headcount reductions and exceptional charges in relation to asset impairments and provisions.

“On the positive side, Viridor has continued to make very strong progress on its growing PPP and EfW pipeline with major new contracts signed for Glasgow, South London and Peterborough; its appointment as preferred bidder for the South East Wales PPP; and an enhancement of Dunbar’s planning permission to cover all of Scotland. These and similar projects are expected to drive the company’s long-term profit growth.”

Read the full financial report for Pennon Group Plc.