23rd Mar 2005 12:30
UNITED UTILITIES TRADING UPDATE IntroductionUnited Utilities today issues an update on trading for the year ending 31 March2005. The company will announce its preliminary results on 2 June 2005.Commenting on the group's trading position, John Roberts, Chief Executive,said:"I'm pleased to report that the group is on track to deliver results for theyear ending 31 March 2005 in line with our expectations."Looking forward, the Board reaffirms its target of maintaining dividends inreal terms during the 2005-10 period. This target is based on the Board'sconfidence that the group meets its cost savings targets, as set by Ofwat andOfgem, and its non-regulated businesses continue to perform at least in linewith current levels."The group is expecting to have invested around ‚£900 million in 2004/05, withthe vast majority of this being spent in our regulated businesses. Includingsome projects carried over from the 2000-05 regulatory period (AMP3), in thenext five years our regulated businesses are tasked with delivering over ‚£3.7billion of capital investment. In addition there is potential for up to another‚£400 million of additional investment relating to projects that were originallyexcluded from our 2005-10 regulatory contract, but are currently being reviewedby Ofwat. The second stage of our rights issue, which is due in June this year,will make an important contribution to the funding of the capital programme." Vertex has recently announced that it has agreed terms on a recommendedproposal to acquire Marlborough Stirling. This is an excellent opportunity toextend Vertex's offering into a new market, the financial services sector, bycombining Vertex's expertise in business process outsourcing with MarlboroughStirling's sector specific knowledge, IT and software capabilities. It isintended that the funding for the acquisition will be met from the operationalcash flows of our non-regulated businesses and the redeployment of capitalwithin these activities."During the last six months United Utilities Contract Solutions and Vertex haveannounced a number of substantial contract wins and preferred bidder positionswith public sector and utility clients, with a total new contract valueapproaching ‚£3 billion."Licensed multi-utility operationsOperating profit for the year to 31 March 2005 is expected to increase byaround 12 per cent, principally reflecting the allowed 8.9 per cent real priceincrease for United Utilities Water.Having made preparations in advance of receiving their final regulatorydeterminations, United Utilities Water and United Utilities Electricity aretargeting to at least meet the operating and capital efficiency challenges setby Ofwat and Ofgem for the 2005-10 period.In addition to its 2005-10 investment programme, which totals ‚£2.9 billion,United Utilities Water is expecting to spend around ‚£200 million over the nexttwo years as a result of carry-over of AMP3 obligations. This principallyrelates to its Unsatisfactory Intermittent Discharge (UID) programme, which wassubject to revisions in scope and scheduling during the latter stages of AMP3in agreement with Ofwat and the Environment Agency.United Utilities Electricity is tasked with delivering a capital investmentprogramme worth around ‚£640 million during the 2005-10 period. For the firsttime this is being more closely integrated with the delivery of UnitedUtilities' water and wastewater network investment programmes. Discussionsregarding the appointment of partners to help deliver these programmes areongoing.Infrastructure management Operating profit is expected to increase by around 13 per cent compared withlast year.A consortium comprising United Utilities Contract Solutions, Costain andMontgomery Watson Harza has been named as preferred bidder to help deliver themajor part of Southern Water's ‚£1.5 billion water quality and environmentalimprovement programme over the 2005-10 period.United Utilities Contract Solutions has been named as preferred bidder for aneight-year contract to operate the North of England gas distribution network.Contract signature and mobilisation are expected in June.During December United Utilities announced that it had agreed to sell its greenenergy operational assets for ‚£63 million in cash to Novera Macquarie RenewableEnergy Limited.In partnership with Vertex, United Utilities Contract Solutions has recentlywon a contract with Thurrock Council, and been named as a preferred bidder toprovide services to Walsall Council. Combined these contracts are worth around‚£300 million to United Utilities Contract Solutions.Business process outsourcingOperating profit growth is expected to slow in the second half-year, reflectingthe incidence of bid costs, but is still expected to increase by around 5 percent compared to the previous year. Sales are expected to benefit next year ascontracts with Thurrock and Walsall commence. Start-up costs from thesecontracts are anticipated to have some impact on operating margins next year.Vertex has agreed terms on a recommended proposal to acquire MarlboroughStirling, a provider of outsourcing, transaction-based services and technologyto the UK financial services sector. Shareholders holding 58.5 per cent of theissued share capital have irrevocably undertaken to, or given a writtenindication that they will, vote in favour of the proposal.After accounting for Marlborough Stirling's cash balances as at 31 December2004 and exercisable options, the transaction equates to an enterprise value ofapproximately ‚£72.2 million. The rationale for the acquisition is that it willprovide Vertex with an entry point into the business process outsourcingsegment of the financial services market, which Vertex believes offerssignificant growth opportunities. The acquisition is expected to becomeeffective in May this year.TelecommunicationsThe industry-wide reductions in the prices of fixed to mobile calls, and thecontinued change in Your Communications' sales mix away from premium rateservices to higher margin business sales, have impacted on revenue growth,which increased by around 25 per cent compared with last year.Excluding the impact of changes in fixed to mobile tariffs, which does notaffect the businesses' profitability, underlying sales growth in the year isexpected to be around 28 per cent. Your Communications continues to targetoperating profitability (pre goodwill amortisation) in the second half of 2004/05.Other financialGoodwill amortisation is expected to be around ‚£16 million for the year.The group expects to incur a net exceptional charge of around ‚£20 millionprincipally relating to the restructuring of its regulated businesses inpreparation for meeting its 2005-10 operating cost efficiency challenges.Net debt at the year-end is forecast to be around ‚£4.2 billion. The increase innet debt principally reflects expenditure on the regulated businesses' waterand electricity capital programmes and United Utilities' decision to make alump-sum contribution of ‚£320 million split between the group's two definedbenefit pension schemes. This is being made in lieu of annual cashcontributions for the 2005-10 period. As at 31 March 2004 the combined deficitof the two schemes was ‚£378 million before deferred tax on an FRS 17 basis.The overall tax charge for the year is expected to be around 10 per cent.United Utilities' Contacts:John Roberts, Chief Executive +44 (0)1925 237000Simon Batey, Finance Director +44 (0)1925 237000Simon Bielecki, Investor Relations Manager +44 (0)7810 157649Evelyn Brodie, Corporate and Financial Communications +44 (0)20 7307 0309ENDUNITED UTILITIES PLCRelated Shares:
United Utilities