Interim Management Statement

Utilico Limited 16 April 2008 Utilico Limited Interim Management Statement 16 April 2008 Quarterly Management Review Utilico Limited ('Utilico') published its half yearly accounts on 29 February 2008, including an investment update to 31 December 2007. Further, Utilico has published monthly fact sheets on its website, www.utilico.bm. Set out below is the quarterly review for the period 31 December 2007 to 31 March 2008. Performance Global stock markets remained volatile throughout the period. The market weakness continues to be driven by the fall-out from sub-prime lending and the financial institutions repricing and reassessing risk. These factors have led to unprecedented concerns over counter party risks and the tightening of credit availability. This will impact the real economy and may well result in a recession in the US and a slow down in world economies. The Federal Reserve continues to defend the US economy and the financial markets by cutting interest rates and advancing billions to the financial institutions. In contrast, the Bank of England has held to the position of 'moral hazard'. Both the Federal Reserve and the Bank of England have had to intervene directly in stabilising the financial system. Without their intervention on Bear Stearns and Northern Rock, markets would have spiralled downwards quickly. The FTSE All Share Index ended the quarter at 2927 down 10.9% from 3287 at 31 December 2007. The Dow Jones Utilities Index (Sterling adjusted) was down 8.6% over the period. Utilico's undiluted net asset value (cum income) ('NAV') was 289.61p down 20.4% over the three months. Utilico is geared 1.9 times. Portfolio The portfolio overall underperformed the market. In the three months to 31 March 2008 the losses were £55.1m, equal to some 12.1% of the opening position. Net investment was £8.5m resulting in a closing portfolio of £408.9m. This has been a disappointing result but reflects in the main increasing volatility and a divergence of views on value. The ten largest holdings remained relatively unchanged over the period with some interchange of positions. The key underperformance in the period has been Infratil. Infratil's share price declined by 24.3% from NZ$2.80 at 31 December 2007 to NZ$2.12. This decline was partly offset by the strengthening New Zealand dollar. Overall, the investment was down just under 20.0% in sterling terms. To put this in perspective, TrustPower, which is some 50% of Infratil's asset base, share price was NZ$8.65 at 31 December 2007 and ended the quarter at NZ$7.55, down 12.7%. Infratil remains a long-term strategic investment for Utilico. The quality and nature of the assets and management of Infratil should enable them to both withstand market uncertainties and identify investment opportunities going forward. Utilico Emerging Markets' ('UEM') share price declined by 14.0% reflecting the decline in the diluted net asset value of 11.0% and a widening of the discount from a premium of 1.1% to a discount of 2.1%. UEM's NAV performance was in line with the MSCI (sterling adjusted) index which declined 11.2% over the three months. Ecofin Capital Shares declined 21.1% in the three months. Again this was a result of falling NAVs combined with widening discounts. Amongst the rest of the top 10 at 31 December 2007 Zurich, Vienna, Renewable Energy Generation plc and Keytech fell 9.1%, 3.4%, 0.9% and 5.0% respectively and JEL gained 4.6%. The top 10 and the geographic and sector analysis have been presented on a look through basis. The underlying geographic and sectoral exposure of the portfolio has remained broadly constant. The underlying trading performance on most investments remains encouraging, although ERG continues to be challenging. Utilico has advanced £6.1m to ERG in the period under review to enable them to meet their working capital needs following the cancellation of the Sydney contract. Debt and Cash During the period Utilico increased its bank facility by £10.0m on a temporary basis to enable Utilico to take advantage of opportunities in the market. As at 31 March 2008 £7.5m of this temporary facility was drawn and invested. This temporary facility will be repaid in part from the proceeds arising from the exercise of the 2008 warrants. Hedging Market protection. The market hedges performed well. The hedging position recorded a profit of £19.9m offsetting 36% of the losses on the portfolio. Utilico has on balance, started to reduce its absolute level of market protection. While cautious about the markets generally and the difficulty in calling the market, much of the risk was priced in at the low points of March. Increasingly Utilico is moving to put spreads and has also commenced establishing a call spread position on the market. The opening market value of the hedge positions were £25.8m. This rose by £19.9m as a result of gains. Arising from the repositioning through put spreads and calls £12.8m was released in cash leaving the net market value of the positions at £32.9m as at 31 March 2008. The position is liquid and provides access to capital should it be required. New Zealand dollar ('NZ$'). Utilico has increased its hedge against the NZ$. As at 31 March 2008, Utilico had sold currency forward to the value of NZ$182.6m against sterling to neutralise currency movements over £72.2m of New Zealand denominated assets, equivalent to 77.8% of the value of Utilico's investment in Infratil. United States dollar ('US$'). Utilico started the quarter with all its borrowings in US$. In addition, Utilico held US$ forward currency options over £27.5m at an average rate of 2.053. These forward currency options expired during the quarter. At the time the US$ borrowings were rolled over into US$ and UK£s. Utilico ended the three months with £42.2m drawn in UK£ and £35.3m (US$68.6m) drawn in US$. Interest rates. Utilico has entered into US$ interest rate swaps over US$71.5m for 15 months to 30 months fixing interest rates between 3.0% and 4.4%. The average US$ swap rate is 3.39%. ZDP Shares Over the quarter, Utilico's ZDP shares rose by 1.0%, 4.1% and 1.0% for the 2012, 2014 and 2016 maturities respectively, as a result of which at the period end the 2012 and 2014 offered reduced yields to maturity of 6.2% and 6.8% and the 2016 offered an increased yield of 7.7%. The cover for all three tranches remains healthy. Other Utilico's share price fell to 240.00p at 31 March 2008 and its discount to diluted NAV narrowed to 7.6%. A combination of all Utilico's traded instruments ended March with a 3.3% discount to underlying asset value. Outlook We continue to expect the US to be led into a recession by the problems associated with financial institutions. This in turn is leading to a downturn in the outlook for world economies. The continued uncertainties and repricing of risk will impact the underlying real economy. While a number of Utilico's investments are less correlated to levels of economic activity, the portfolio is not immune from this repricing. Looking forward we continue to expect volatility to remain high over the next six months and do not anticipate markets finding a firm footing during this time. Capital Structure 31 March 2008 31 December 2007 £m £m Gross assets less current liabilities 445.7 493.0 Bank debt 76.7 67.2 ZDP shares 2012 59.2 58.2 ZDP shares 2014 39.3 38.6 ZDP shares 2016 39.3 38.6 Shareholders' funds (ordinary shares) 231.2 290.4 445.7 493.0 Effective gearing on ordinary shares 1.93x 1.70x Ordinary Shares 31 March 2008 31 December 2007 NAV (undiluted, cum income) 289.61p 363.81p NAV (diluted, cum income) 259.79p 323.83p Share price 240.00p 288.50p Discount to diluted NAV 7.6% 10.9% Annual average compound return (including dividends) 26.8% 35.3% Historic dividend yield 0.3% 0.3% Shares in issue 79,825,388 79,825,388 Warrants at 31 March 2008 2008 2012 Expiry date April 2008 April 2012 Price 179.00p 89.50p Warrants in issue 12,169,153 3,593,597 Exercise terms 1 ordinary 1 ordinary share share per warrant at per warrant at subscription subscription price price of 64.2p of 315p ZDP Shares at 31 March 2008 2012 2014 2016 Accrued capital entitlement 130.18p 105.71p 105.71p Share price 134.75p 108.50p 102.25p (Discount)/premium to NAV 3.5% 2.6% (3.3%) ZDP cover* 2.83x 2.02x 1.52x Yield to redemption* 6.2% 6.8% 7.7% ZDP redemption value 177.52p 167.60p 192.78p Shares in issue 45,486,200 37,500,000 37,500,000 *based on final redemption values Performance 31 March 2008 31 December 2007 % change Utilico NAV (undiluted, cum income) 289.61p 363.81p (20.4%) FTSE All-Share Index 2927 3287 (10.9%) Dow Jones World Utilities Index (GBP adjusted) 126.8 138.7 (8.6%) Sectoral Split of Investments * 31 March 2008 31 December 2007 Electricity 20% 23% Airports 19% 20% Renewable Energy 19% 20% Telecoms 10% 10% Other 9% 9% Road & Rail 8% 4% Water 5% 5% Gas 3% 2% Ports 3% 4% Investment Funds 2% 2% Postal 1% 1% Satellites 1% -% Geographical Split of Investments * 31 March 2008 31 December 2007 Europe (excluding UK) 33% 31% Australasia 28% 28% UK 12% 12% Asia & Far East 11% 14% Latin America 8% 8% North America 8% 7% * on a look through basis Top 10 Holdings on a look through basis 31 March 2008 1 (1) TrustPower 11.6% 2 (2) Unique Flughafen Zurich AG 6.9% 3 (4) Flughafen Wien AG 4.9% 4 (6) ERG Limited 4.8% 5 (3) Renewable Energy Generation 4.8% 6 (5) Jersey Electricity Company Limited 3.4% 7 (8) Keytech Limited 3.0% 8 (7) Infratil Airports Europe 2.5% 9 (9) NZ Bus 2.3% 10 (-) Intellect Holdings 2.1% Total Top 10 46.3% Figures in brackets 31 December 2007 Enquiries Charles Jillings Utilico Limited +44 1372 271 486 Alistair Moreton Arbuthnot Securities +44 207 012 2000 This information is provided by RNS The company news service from the London Stock Exchange
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