28th Sep 2005 06:00
UNITED UTILITIES TRADING UPDATE IntroductionUnited Utilities today issues an update on trading for the six months ending 30September 2005. The company will announce its interim results on 1 December2005.Commenting on the group's trading position, John Roberts, Chief Executive,said:"The Group is on track to deliver results for the six months ending 30September 2005 in line with our expectations."As we grow our infrastructure management outsourcing business, UnitedUtilities Contract Solutions, we are looking to leverage our increasing scaleof activities by achieving further procurement economies. For example, earlierthis month, we signed a single source contract which means that for the firsttime one pipe company will supply all our water, wastewater and gas networkbusinesses across the country."We are continuing to apply successfully our core skills to growth markets. Thecontracts with Southern Water and Northern Gas Networks were successfullymobilised in the first quarter and Vertex has made a good start on its ‚£427million contract with Thurrock Council to provide business process outsourcingservices to help the council serve its citizens."Licensed multi-utility operationsOperating profit in the first half is expected to increase by around 10 percent compared with the corresponding period last year, mainly due to allowedprice increases this year, including inflation, of 8.4 per cent in our waterbusiness and 11.5 per cent in our electricity business. This growth inoperating profit is despite increasing costs that are accompanying the growthin the asset base.The business is now well-advanced in the implementation of its plans to achieveits operating and capital efficiency targets. As part of these efficiencyplans, all customer accounts have recently been migrated on to a new customerbilling system, which will allow improved customer service and greaterefficiency in dealing with account maintenance and billing enquiries.Infrastructure management Operating profit in the first half is expected to increase by around 5 per centcompared with the corresponding period last year.The success of the infrastructure management business in securing new contractsin the latter part of 2004/05 means that it is now heavily engaged inmobilising operations on these contracts. The ‚£1.1 billion, 8-year contract tooperate the North of England Gas Network was successfully mobilised on 1 Juneand the Southern Water contract commenced in April. As anticipated, start-upcosts will affect first year contributions.In addition to servicing the requirements of the licensed multi-utilitybusiness, the Uponor pipeline deal will also provide benefits to theinfrastructure management business. It will supply elements of the company'smulti-billion pound improvement programmes on behalf of Welsh Water and theNorth of England Gas Network, in addition to its UK-wide multi-utilityconnections business.Business process outsourcingTurnover growth in the first half of the year is expected to be around 5 percent, compared to the second half of last year. This reflects the ramp down offixed-term contract activity for the Department for Work and Pensions, and theimpact of the re-shaped Powergen contract, offset by growth in other publicsector and financial services activities, including the Marlborough Stirlingacquisition. Operating margins, however, are expected to be broadly sustained,not withstanding the start-up costs associated with the Thurrock Councilcontract and the weak trading position of Marlborough Stirling that wasrecognised at the time of its acquisition.Progress on the Thurrock Council contract has been good. The customer contactcentre went live in June and the transformational programme is making goodprogress with around half the services having so far migrated across.The integration of Marlborough Stirling is well underway and a new managementstructure has already been established and immediate opportunities to achievesynergies of around ‚£6 million, on an annual basis, have been identified.Vertex's recent alliance with IBM to provide business transformation servicesto the North American energy and utilities market should help the companytransfer its core customer management skills into a market that presentssignificant opportunities.TelecommunicationsThe telecoms market continues to weaken, with adverse effects on revenue levelsand margins. However, the business is working to improve revenue quality bymoving away from low-margin premium rate service activity and towards highermargin business customer activity.Other financialThe half year accounts will be presented in accordance with IFRS. The principaleffects of this change to the reported results are expected to be an increasein the depreciation charge, as infrastructure renewals accounting is notpermitted under IAS 16, an increase in the tax charge and deferred taxprovision, an increase in net debt, relating to joint venture debt, andrecognition of the pension scheme deficits on the balance sheet.The company published pro-forma financial results on an IFRS basis in July.This showed the impact of these changes in 2004/05 to be a reduction inoperating profit of 1 per cent, a reduction in profit before tax of just under4 per cent and a reduction in net assets of around 31 per cent.Amortisation of intangibles, previously classified as goodwill under UK GAAP,is expected to be around ‚£8 million in the first half of the year.Net debt at the half year is forecast to be around ‚£4.0 billion. This decrease,compared to 31 March 2005, principally reflects the proceeds from the secondstage of the rights issue, offset by expenditure on the regulated businesses'water and electricity capital programme and payment of the 2004/05 finaldividend. Net debt, as at 31 March 2005, included the ‚£320 million pensionspre-funding payment.The overall tax charge at the half year is expected to be close to 30 per cent.This primarily reflects the full provision for deferred tax, as required by IAS12, and a small increase in current tax following a change in tax treatment ofcapitalised revenue expenditure.An exceptional charge of around ‚£9 million is expected at the half year. Thisprimarily relates to the restructuring costs associated with the MarlboroughStirling acquisition.United Utilities' Contacts:John Roberts, Chief Executive +44 (0)1925 237000Simon Batey, Finance Director +44 (0)1925 237000Darren Jameson, Investor Relations Manager +44 (0)7733 127707Evelyn Brodie, Head of Corporate and FinancialCommunications +44 (0)20 7307 0309ENDUNITED UTILITIES PLCRelated Shares:
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