A strong performance at Viridor, its waste recycling business, helped Pennon Group, the owner of South West Water, to solid annual results.
The company, which provides water and waste-water services to more than one million households and businesses in the West Country and parts of Hampshire and Wiltshire, raised full-year pre-tax profits by 3.5% to £258.8million.
Within that, pre-tax profits at South West Water rose by 4.7%, to £180.5million, but the strongest performance was at Viridor, where profits shot up by 17.2% to £70.8million.
This was despite a drop in recycling volumes during the year as Viridor decided not to re-bid for some contracts where it regarded the level of contamination was too high.
Chris Loughlin, the Pennon chief executive, said that Viridor had also been hit during the year by China’s decision to stop accepting plastic imports for recycling.
He said dealing with China’s new policy had cost the business £3million – although he insisted it had not affected other parts of the business because the metal and glass that Viridor processes stays in the UK.
He said Viridor had anticipated the change and had secured new markets for plastic waste in the UK, other parts of Asia outside China and elsewhere in Europe.
But he warned that, with recycling levels in the UK having stagnated, the industry was expecting a raft of Government policies later in the year aimed at encouraging households to do more.
The Department for the Environment, Food and Rural Affairs revealed in February that UK households recycled 45.2% of their waste in 2016 – but this was up only 0.6% on the previous year, raising fears that the UK may not hit the EU’s target of 50% recycling by 2020.
Mr Loughlin added: “The UK recycling system needs fixing. We are optimistic that positive changes will be announced in the resources and waste strategy later this year creating a UK recycling system fit for the future.”
Viridor is in the process of investing £1.2bn building new facilities to capture energy from waste being incinerated that would otherwise be sent to landfill.
Mr Loughlin said construction of the latest facility, at Avon mouth near Bristol, was progressing well.
At South West Water, meanwhile, the company – which three years ago bought Bournemouth Water for £100million – beat its leakage targets during the year and achieved a drop in flooding incidents.
Household tariffs during the year rose by 2.5% but, Mr Loughlin pointed out, cost reductions across the business had been shared with customers.
He added: “The focus on cost efficiency is reducing costs for customers and has allowed us to keep bills down. Average bills for South West Water customers are currently lower than they were nine years ago.”
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Pennon, which was a member of the FTSE-100 for six months in 2009 and for a further six months in 2012, raised its full-year dividend by 7.3% to 38.59p-a-share.
Shares in the company, which nearly 30 years on from privatisation are still owned by nearly 20,000 retail investors, rose by more than 4% in early trading.