By Isla Binnie
LONDON (Reuters) - British utilities company Pennon Group reported a drop in profits at its recession-hit waste management unit, as warned earlier this month, and said it did not see a recovery in prices for recycled materials in the near future.
Pre-tax profit at waste management business Viridor fell over 30 percent in the six months to end-September to 28 million pounds ($45 million), in line with a profit warning issued by the company two weeks ago.
A weak global economy has severely depressed average prices for waste paper and recovered metals used in recycling, and Viridor remained cautious about the prospect of recyclate prices recovering.
"The fall in recyclate prices has a fairly brutal impact on turnover," Colin Drummond, chief executive of Viridor, told Reuters on Thursday.
"We've been able very quickly to recover 50 percent of the fall in recyclate prices through a combination of cost reduction, facilities rationalization, headcount reduction, change in the terms of our supply with customers."
The performance at Viridor was offset by a 10 percent rise in pretax profit at Pennon's South West Water business to 84 million pounds.
The wettest summer for a century dented customer demand at the regional water supplier, but the business achieved a profit thanks to reducing its operating costs at an annual rate of 4.8 percent, said Christopher Loughlin, the water unit's chief executive.
Shares in Pennon climbed 2.9 percent to 616 pence on Thursday, recovering some of their losses after they dropped as much as 10 percent following the profit warning.
"Overall: SWW very good, but Viridor disappointing short term," said Angelos Anastasiou at Seymour Pierce.
"It will take a while for full confidence to be regained, but we believe that investors will still appreciate the underlying story."
Overall Pennon group profit before tax rose by 3.4 percent to 111 million pounds, while revenue dipped 1.4 percent, in line with forecasts.
(Editing by Rosalba O'Brien)