Utility giant slashes borrowing for year ahead

FTSE100 utilities giant United Utilities has said it will slice borrowing costs and increase profits for its 2005/06 financial year, after announcing that it will spend £4bn on infrastructure by 2010.

Controlling borrowing costs will thus be crucial for United Utilities’ finance director Simon Batey over the next five years, as the company undertakes a massive capital investment programme.

In addition to the capital raised from bonds, loans and bank facilities, the company is undertaking a second rights issue later this month to help fund the capital outlay. The company currently has £1.8bn of available liquidity Batey has implemented interest rate swaps to fix interest rates from 2005 to 2010, which will help to cut borrowing spend over the next five years.

Reporting pre-tax profits of £370m for the year ended 31 March 2005 – a 10% increase on the previous year – United said that net interest payable for the 2005 financial year had increased by 15% to £284m, mainly due to the funding of capital expenditure programmes during the year.

However, the company said borrowing costs would fall over the next year because of the swaps, even though it raised £584m of new debt over the last 12 months.

The company runs regulated water, electricity and waste utilities businesses and is investing in infrastructure to improve services and meet regulatory obligations. It provides services to almost three million premises.

‘With prices in our water and electricity businesses now fixed for the 2005-10 period, and with plans in place which we believe will meet our operating and capital efficiency targets, our regulated businesses benefit from some of the most predictable, index-linked income streams over the next five years,’ said John Roberts, United’s CEO.

Roberts said forecasts for the capital investment programme indicated that the investment would be worth as much as £4bn in 2010 because of investment by its water and electricity businesses.

‘In addition to the £2.9bn programme that was set out in its final determination, United Utilities Water is expecting to spend approximately another £200m as a result of carry-over of obligations funded during the previous regulatory period,’ Roberts said.

‘Including United Utilities Electricity’s £640m investment programme, our regulated businesses could be required to spend more than £4bn on capital investment over the next five years.’

Company reports

Amortisation rules under IFRS produce profit for chemicals company, but loss for broadcaster ITV.

FTSE100

Chemicals company Johnson Matthey said pre-tax profits for the year ending 31 March 2005 increased from £131m under UK GAAP to £167.4m under IFRS. The group benefited from not having to amortise £20.9m of goodwill and £5.4m worth of development costs that were capitalised.

Gregor Alexander, finance director of Scottish & Southern Energy, saw his pay for 2005 increase to £403,000 from £277,000 in 2004. Alexander earned a £260,000 salary, £130,000 in bonuses and £13,000 in benefits. The energy company saw pre-tax profits increase by 29.3%, from £607.3m in 2004 to £785.3m in 2005.

UK broadcaster ITV said that switching to IFRS would have hit profits before tax by £39m last year. In its results for the year ended 31 December 2004, the company said that, had it reported under IFRS, despite earnings before interest, taxation, and amortisation remaining ‘virtually unchanged’ at £254m, profits before tax would have been reduced to £168m, £39m less than under UK GAAP. This was largely due to an increase in amortisation charges.

FTSE250
Media and photography group Aegis said that profit before tax for the year ended 31 December 2004 would take a £1.9m hit under IFRS because of a share-based payments charge. The group estimated that the incremental charge in 2005 would be in the range of £3m-£5m, but warned that variables, such as the number awards granted and the calculation of fair value, could change the estimate.

FTSE ALL-SHARE
Peter Whitehead, FD of Young’s Brewery, took home £150,689 in the 2005 financial year, up on the £140,857 he earned in 2004. Whitehead received a £125,362 salary, benefits of £14,881 and £10,446 from a profit-sharing agreement. The brewer’s turnover increased by 6.7% to £120m. Pre-tax profit was up 6.2% at £9.4m.

Expro International Group, the oil and gas company, said that accounting for ESOP Trusts (the investment in its own shares held by the ESOP trust, previously reported under investment in own shares) had been reclassified for 2004 as a deduction against shareholders’ funds under UITF Abstract 38. At 31 March 2004, the ESOP trust reported bank balances of £22,000, amounts owing to the group of £28,000 and net liabilities of £6,000.

AIM
Mining company Mano River Resources, which built up accumulated losses of $6.3m (£3.4m) since commencing operations in 1996, said its net loss for the year ended 31 January 2005 of $889,364 was larger than the $751,652 loss in 2004 because of new accounting for non-cash stock options. The changes required it to record these options as an expense, which increased the reported loss.

Maxima Holdings, the IT and software services group, said bottom line profit and earnings per share would be ahead of expectations as the group will not have to pay any tax. The company said it held tax allowances and that no corporation tax would be payable.