29th Mar 2006 07:00
UNITED UTILITIES TRADING UPDATE IntroductionUnited Utilities today issues an update on trading for the year ending 31 March2006. The company will announce its preliminary results on 1 June 2006.Commenting on the group's trading position, John Roberts, Chief Executive,said:"The group is on track to deliver results for the year ending 31 March 2006 inline with our expectations. Taken together, our regulated and support servicesbusinesses continue to deliver the financial performance that underpins ourdividend policy through to 2010."In licensed multi-utility operations, our water and electricity businesseshave made a good start to the five-year regulatory review period. Our supportservices businesses have mobilised a number of substantial new contracts."Vertex recently announced that it had agreed terms to acquire 1st SoftwareLimited, strengthening its position in the financial services sector. Vertexalso recently secured a ‚£45 million contract to provide outsourced mortgageservices to Deutsche Bank."Following our decision last December to accelerate the disposal of ourtelecommunications business, Your Communications, this objective has beenachieved, through the sale of the business to THUS Group plc, which completedon 26 February 2006."Building on the successful completion of our equity rights issue in July lastyear, we have turned our attention to the favourable market opportunities toraise long-term index-linked debt. In the second half year, we have agreed theissue of a total of ‚£550 million of this debt with 30, 35, 36, 37 and 40 yearmaturities at real interest rates ranging from 1.3 to 2.0 per cent."Philip Green will be succeeding me as Chief Executive, following my retirementat the end of this month, and he has my best wishes as he leads the company inthe next phase of its development."Licensed multi-utility operationsOperating profit* for the year to 31 March 2006 is expected to increase byaround 15 per cent, compared to the previous year. This principally reflectsthe regulatory price increases which are accompanying the substantial capitalinvestment programmes and subsequent growth in the asset base. It also reflectsthe re-planned mobilisation of the infrastructure renewals programme which hasresulted in the deferral to future years of approximately ‚£15 million ofinfrastructure renewals expenditure.Capital investment is expected to be around ‚£600 million, reflecting thephasing of expenditure in the first year of the water and electricity capitalprogrammes. Good progress has been achieved in delivering our operating andcapital efficiency initiatives. The company's water resource levels remainrobust, with reservoir levels standing at approximately 90 per cent, in linewith typical levels for this time of year. United Utilities Water is targetingto have reduced leakage by around 50 megalitres per day, in the year to 31March 2006, and will be at, or close to, Ofwat's March 2006 spot leakage leveltarget of 470 megalitres per day.Infrastructure management United Utilities Contract Solutions has successfully mobilised a number ofsignificant new contracts in the year and this is expected to increasefull-year turnover by around 35 per cent, compared to last year. Operatingprofit** is anticipated to increase by around 5 per cent. This slower growth inprofit reflects the planned start-up costs associated with the substantial newcontracts, which are not expected to recur next year.The ‚£1.1 billion, eight-year contract to operate the North of England gasdistribution network successfully commenced on 1 June 2005. Performance to datehas been good with all business targets either on track or having beenoutperformed.Business process outsourcingTurnover for the year to 31 March 2006 is expected to be similar to last year.Second half operating profit** is expected to be somewhat below thecorresponding period last year, following a consistent pattern to the resultfor the first half of the year. This outturn for the year primarily reflectsthe contract with the Department for Work and Pensions coming to a naturalclose, the start-up costs associated with the Thurrock Council contract and theweak trading position of Marlborough Stirling that was recognised at the timeof its acquisition.The integration of Marlborough Stirling, now re-branded as Vertex FinancialServices, is well-advanced and to support the growth strategy, Vertex agreed toacquire 1st Software Limited in February 2006. Significant progress has beenmade in developing Vertex Financial Services' order book, with a ‚£45 million,5-year contract with Deutsche Bank to provide outsourced mortgage serviceshaving been recently secured. Additionally, Vertex has purchased Egg's 49 percent stake in its mortgages subsidiary, extended its mortgage servicesagreement with Egg, and secured other contracts with Livingstone Mortgages, aUK company created by Dresdner Kleinwort Wasserstein, and GMAC-RFC in Canada.Other financialThe full-year accounts to 31 March 2006 will be prepared on an IFRS basis. Thecompany published 2004/05 pro-forma financial results in July 2005. Thispro-forma showed the impact of these changes in 2004/05 compared to UK GAAP tobe a reduction in operating profit of 1 per cent, a reduction in profit beforetax of just under 4 per cent and a reduction in net assets of around 31 percent. None of these accounting changes impact on the cash flow position of thegroup.Financing costs in the full-year accounts will reflect the impact of IAS 39"Financial Instruments: Recognition and Measurement". At the half-year, thegroup recorded a ‚£68 million charge as a result of the application of thisaccounting standard.Amortisation of intangibles, previously classified as goodwill under UK GAAP,is expected to be around ‚£16 million for the full-year.Net debt at the year-end is forecast to be around ‚£4.2 billion. This representsa broadly flat position, compared to 30 September 2005, reflecting operationalcash flows being largely offset by expenditure on the regulated businesses'water and electricity capital programme and payment of the 2005/06 interimdividend.The overall tax charge is expected to be close to 30 per cent, reflecting thefull provision for deferred tax, as required by IAS 12, and the anticipatedincrease in current tax following the change in tax treatment of capitalisedrevenue expenditure.Restructuring costs of around ‚£25 million are expected for the full year, ofwhich ‚£9 million was recognised in the first half year. This exceptional chargeprimarily relates to the restructuring costs following the Marlborough Stirlingacquisition and a further restructuring and rationalisation of propertyrequirements in Vertex.As outlined in the 2005/06 interim results, Your Communications, in accordancewith IFRS, was classified as a discontinued business held for sale in thecontext of United Utilities' consolidated accounts. Following the sale of YourCommunications to THUS Group plc, the resultant 21.7 per cent holding in THUSis not expected to be material in the context of the group's balance sheet oroperating performance.* excluding amortisation of intangibles considered as goodwill under UK GAAP** excluding amortisation of intangibles considered as goodwill under UK GAAPand restructuring costsUnited 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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