South West Water owner Pennon has scaled back profit hopes for its Viridor waste division after an expected recovery in recycling prices failed to materialise.
The water firm said Viridor’s annual profits were set to be “somewhat below” current market forecasts as it admitted a second-half bounce back in prices for waste paper and recovered metals was now looking unlikely.
The warning is the second for Pennon’s waste division in three months and comes after it said in August that half-year profits at Viridor were expected to fall.
In the update, it revealed it was expecting underlying profits at Viridor, which provides recycling and waste collection services, to plunge by 31 per cent to £27.8 million for the first half.
Recycling prices plunged by 18 per cent in the half year, with the slide accelerating at the end of the period and Pennon said there had been no improvement yet in the third quarter.
Shares in the FTSE 100 listed group fell four per cent after the warning.
Pennon has been slashing costs at Viridor and renegotiating customer contracts. to offset the division’s trading troubles, which it said had helped recover around half of the impact of falling recycling prices.
Its South West Water arm, which supplies water to Devon, Cornwall and parts of Somerset and Dorset, has also been making up for the Viridor woes and is expected to see half-year profits rise 10% to more than £83 million, according to Pennon.
Overall half-year profits are set to rise by more than 3% to £111 million, the group added.