June 3, 2014 / 7:52 AM / in 4 years

UPDATE 1-Profits at UK water utility Pennon rise after tariff increases

(Adds details on impairment charge, focus on EFW business, analyst comment, share price)

LONDON, June 3 (Reuters) - British water group Pennon reported a 9 percent rise in full-year pretax profit to 207.3 million pounds ($347.4 million), beating analyst estimates, after tariff increases and new customers helped its South West Water subsidiary.

The utility incurred an impairment charge of 39.7 million pounds on its landfill business, prompting a decision to close down 80 percent of its landfill sites, that may result in a minimal loss of jobs.

Instead, the company will focus on energy-from-waste (EFW) projects, a business that is expected to contribute around 100 million pounds in earnings before interest, taxes, depreciation and amortisation (EBITDA) at Pennon’s Viridor subsidiary within three years.

“The profitability of the landfill business has declined faster than anticipated due to aggressive pricing from other landfill operators,” Pennon said in a statement.

The utility also said it would pay a year-end dividend of 20.92 pence, taking its full-year total to 30.31p, in line with expectations and up 6.5 percent on the previous year.

It has promised to freeze water tariffs for customers in 2014/15, a cost it said was evened out over a six year period under which its prices are capped by regulator Ofwat.

South West Water has been granted “enhanced status” under the water regulator’s business plan review, meaning the regulated tariffs it can charge through 2020 are now largely clear, giving investors revenue clarity.

“Pennon’s shares have been strong performers in recent times, but we reiterate that it remains a quality play in the sector,” said analyst Angelos Anastasiou at brokerage Whitman Howard, who recommends holding Pennon stock.

Shares in Pennon traded down 2.8 percent at 0734 GMT, having climbed the previous session to a near two-year high of 790.69p. ($1 = 0.5968 British Pounds) (Reporting by Karolin Schaps; Editing by Kate Holton and David Holmes)

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