Pennon performs in line despite Viridor challenges

9th Feb 2017 08:00

(ShareCast News) - Environmental infrastructure group Pennon issued a trading update on Thursday, confirming it will deliver trading performance consistent with the board's expectations and prior guidance.The FTSE 250 company said it continued to focus on delivering for customers, communities and shareholders across its water and waste businesses.Its operational performance is supported by cost savings and synergies across the group, the board said, while growth was being delivered through Viridor's portfolio of 12 energy recovery facilities across the UK.As it announced at the half year, Glasgow's Recycling and Renewable Energy Centre was being completed by an "experienced team" assembled by Viridor, which will work with a new engineering, procurement and construction contractor.The Glasgow-based firm Doosan Babcock were currently finalising an assessment and project plan at the site, with Pennon saying they had been chosen for their experience in delivering large capital projects in the energy and power space.That followed the decision to terminate the EPC contract with Interserve due to repeated delays in the completion of GREEC, for which Viridor had contractual remedies, the board said.Its client, Glasgow City Council, had been consulted throughout the period of change, and reportedly remained supportive of Viridor's actions and the revised plan for completion.In Greater Manchester, Pennon said Viridor recognised the financial challenges faced by its client, the Greater Manchester Waste Disposal Authority, due to prolonged austerity.Viridor was working with its partners to respond, and modifications were being undertaken and funded at a handful of sites by the original construction contractor Costain to ensure the facilities operate effectively for the mix and profile of waste arisings.Diversion of waste from landfill remained ahead of contractual commitments, and Viridor and its partners were keen to ensure this progress is able to continue, Pennon's board said. "Our water and waste businesses are performing well and we are on track to deliver a good set of results for the full year 2016/17," said group chief executive Chris Loughlin."South West Water is on course to remain at a sector-leading 11.7% RORE and Viridor is on track to contribute the targeted £100m of EBITDA from its portfolio of Energy Recovery Facilities."With our sector-leading dividend policy, our growth profile and our strong balance sheet, Pennon is well-placed to continue to deliver for customers, communities and shareholders."In a separate announcement, Pennon also confirmed that it had agreed terms with Nomura to unwind a derivative - entered into in 2011 - through Peninsula MB.It said the derivative had been due to end in 2027, however following a change in the economic benefit of this derivative outlined at the half year results 2016/17, Pennon was exercising its option to unwind the transaction early.The estimated overall post-tax impact of unwinding the derivative had already been reflected through the £39.5m derivative liability recognised at the half year results 2016/17.