Utility Week

UTILITY Week 3rd June 2016

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Finance & Investment This week UU profits fall £60m as price controls bite Company posts an underlying operating profit of £604 million – down from £664.3 million last year United Utilities (UU) has reported a 9 per cent (£60 mil- lion) drop in underlying operat- ing profit, as the effect of new regulatory price controls bites. In its financial report for 2015/16, the company posted an underlying operating profit of £604 million for the year to 31 March – down from £664.3 million the previous year – reflecting new, tighter price controls, a rise in infrastructure renewals expendi- ture, and increases in depreciation and other costs. Pre-tax profit decreased by £39 million to £408 mil- lion, as the £60 million fall in underlying operating profit was partly offset by a £21 million reduction in underlying net finance expense. The company accelerated its investment plan to deliver "early operational benefit", having invested £799 million in 2015/16. As well as its £3.5 billion, five-year regulatory capital expenditure programme, the group plans to invest more than £100 million in non-regulated projects such as solar power, in which £32 million was invested in 2015/16. UU said the impact of its cryptosporidium contamina- tion incident last year had "not had a material impact" on its outcome delivery incentives (ODIs), despite £25 million of associated costs incurred. UU achieved a net reward of £2.5 million in 2015/16, and is targeting a cumulative net ODI outcome over the 2015-20 period of between £30 million and £70 million. The group added that its Water Plus joint venture with Severn Trent gives it "first mover advantage" ahead of the opening of the non-domestic water market in 2017. LV WATER Pennon profits rise with help of Viridor Pennon Group has outperformed market expectations for 2015/16, reporting an increase in profit thanks to growth in energy recovery facilities in its Viridor waste business. The group reported profit before tax of £211.3 million for financial year 2015/16, up from £210.7 million in 2014/15. Group chief executive Chris Loughlin told Utility Week this was because it had been able to mitigate its revenue reset through its "contin- ued focus on efficiency", bringing Bournemouth Water online, and strong performance out of Viridor. Eight out of 11 committed Viridor energy recovery facilities are now operational; these are on track to contribute about £100 million to Ebitda in 2016/17. Both of Pennon's water businesses recorded "strong performances" against their new K6 regulatory contracts, outper- forming regulatory assumptions – profit before tax was down by £2.2 million to £165.7 million, reflecting South West Water's rev- enue reset, but largely offset by Bournemouth Water's earnings. ELECTRICITY France mulls Peugeot sale to fund Hinkley The French government is mull- ing a sale of its stake in Peugeot parent company PSA Group, to help fund a €3 billion (£2.28 bil- lion) aid package for energy giant EDF, which is responsible for building the Hinkley Point C nuclear power plant, according to a report in the Financial Times. The French state needs to raise the money aer promising that it would provide three- quarters of the €4 billion capital that EDF has requested. Sources told the newspaper that the shareholding in the carmaker could be sold in full or in part, as part of a wider review of the government's corporate holdings. Sales of the airports in Nice and Lyon have already been announced to help raise money for the French nuclear industry. ENERGY Powervault extends investment drive Domestic energy storage com- pany Powervault has extended its crowdfunding investment campaign by two weeks despite already amassing £500,000 more than its target of £750,000. Powervault chief executive Joe Warren said the Crowdcube campaign has been extended until 10 June as it has seen "significant interest" in the last week of the campaign and inves- tors have asked for more time. The company said it needs £2.5 million to reach break-even, which it planned to raise in multiple tranches. Sign of the times: costs have increased for UU UTILITY WEEK | 3RD - 9TH JUNE 2016 | 21 Stock watch Shares in oil majors BP and Shell saw a short bump at the end of May as the price of Brent crude for July neared $50 a barrel (bbl) – the highest level since November. BP's share price peaked at 369.15p and Shell's at 1,716p. The recent rally in the oil price was partly fuelled by Venezuela's ongoing economic woes, as well as production outages caused by wildfires in Canada. The price has been recovering steadily since dropping below $30/bbl briefly in January. BP SHARE PRICE, FIVE DAYS 25 May SHELL SHARE PRICE, FIVE DAYS pence pence 370 365 360 355 26 May 27 May 31 May 27 May 1,720 1,700 1,680 1,660 1,640 31 May 26 May 25 May

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