Final Results

RNS Number : 1920F

Utilico Limited

06 October 2008

Date: 6 October 2008

Contact: Charles Jillings

Utilico Limited

01372 271 486

Utilico Limited

Audited Statement of Results

for the period 17 January 2007 to 30 June 2008

Financial Highlights

Diluted NAV per ordinary share reduced by 27.8%
Revenue return per ordinary share increased by 95.1%
Total expense ratio maintained
2008 Warrants exercised during the period

CHAIRMAN'S STATEMENT

Following the strong gains in the 12 months to 30 June 2007, it is disappointing, although perhaps slightly inevitable, to report a fall in assets for the year to 30 June 2008.

Following modest gains in the period to 31 December 2007, the second six months have proved difficult. Due to the final exercise of Utilico's 2008 warrants during the period, performance is more fairly represented by the diluted, rather than the undiluted, NAV per ordinary share. The diluted NAV per ordinary share fell by 27.8% in the year to June 2008 as compared to the FTSE All Share Index which fell 16.1%.

As a result of the leveraged nature of Utilico's balance sheet, the losses for ordinary shareholders were magnified. The ordinary shareholders started the year 1.6 times geared and ended the year 2.0 times geared. The loss for the period of £81.3m represents a loss on Gross Assets of 19.6%. The effect of gearing magnified the loss on Gross Assets to be a reduction in diluted NAV per ordinary share of 27.8%.

Despite this, Utilico's long-term record is still strong. Since inception of UIT at 14 August 2003, the average annual compound return to shareholders has been 19.0%.

The loss for the period of £81.3m arose from a negative capital return of £84.2m. This principally arose from losses on investments of £92.1m.

Pleasingly the revenue return was strong with a profit for the period of £2.9m. This arose from increased income of £10.5m, up 25.0%, combined with costs of £3.1m, up 19.2% and finance costs of £3.6m, down 12.2%. The above resulted in the basic group earnings per share increase of 95.1% to 3.59p. The increased income reflects for the most part, a strengthening of the economic fundamentals underlying the investments.

The performance of the three significant investments, UEM, Infratil and Ecofin, were mixed. UEM's share price held up well with a modest decline of 5.6% to 147.75p. Utilico invested a further £17.4m into UEM's December 2007 C share issue resulting in UEM being Utilico's largest investment at £84.6m. UEM accounted for £5.8m or 7.1% of the loss for the period of £81.3m. Ecofin saw declines broadly in line with the markets resulting in a loss of 12.8% on the position.

However, in sharp contrast to last year, Infratil's share price performance was disappointing with an unrealised loss on investment during the period of £57.4m. This accounted for 70.6% of Utilico's overall loss for the period of £81.3m. Infratil's share price declined 39.4% to end the year at NZ$1.83. This has been a source of frustration given the nature and quality of Infratil's underlying assets.

UEM, Ecofin and Infratil continue to consist of diversified underlying portfolios. To present the underlying risk of the gross portfolio more appropriately these three investments are analysed (in preparing the top ten, sector analysis, geographic analysis and split of investments by category) on a 'look through' basis, thus showing the underlying investments rather than the holding company, as though they were owned directly by Utilico.

A continuing strong feature of Utilico is the index put option positions and other hedging strategies. At 31 December 2007 these contributed £13.2m to the profit for the period. In the full period they contributed £23.3m at a group level.

As previously announced, despite the revenue earnings per share reported for the period, under Bermuda law Utilico is unable to pay a dividend to shareholders as a result of having negative capital reserves. As soon as investment returns create a positive balance of capital reserves, Utilico will recommence dividend payments.

During the period Utilico purchased 880,000 shares at a cost of £2.0m, and these shares were held in treasury. Post the period end, Utilico has purchased, for cancellation, a further 4,745,660 shares at a cost of £8.8m. In addition the shares held in treasury at period end have also been cancelled. Together this represented 6.1% of the final shares outstanding at 30 June 2008.

Despite the tough market conditions we are seeing continuing corporate activity. Since the period end we have seen an offer for one of our investments, Cedegel. This has allowed us to increase our cash balance at fair value well above the market value immediately before the offer was made.

Clearly we continue to be faced with challenging market conditions. The globalisation of markets has over the last 10 years unlocked significant opportunities but the resultant globalisation represented by significant capital mobility, the disintermediation of the markets and the demands placed on the supply chain are all being tested. As could be expected the expansion of the global markets has led to a poorer understanding of risk and capital allocation. As the understanding of risk has improved the markets have repriced and volatility has returned.

Looking forward there are a number of issues to consider. The four on which we are particularly focused are market liquidity, unemployment, inflation and political stability. Liquidity of capital is sharply lower and this would be expected to lead to less stimulus to the world economies and therefore lower growth. Unemployment will follow lower growth. Rising unemployment would be expected to contribute to a further cycle of value loss as individuals adjust their personal positions. We do not think this is fully reflected in the world's markets. Inflation remains a concern as higher commodity prices flow through. Inflation should rise and continue to test central banks' resolve to keeping interest rates relatively low. Political stability and strong leadership are needed to adequately address the above issues.

At Utilico we remain confident about the long-term prospects for Utilico's portfolio, its attractions to long-term strategic investors and its ability to increase earnings.

J. Michael Collier
6 October 2008

INVESTMENT manager's REPORT

The investment climate has changed sharply over the year with increased focus by the market on credit availability, gearing, input costs and economic growth. Utilico has not been immune from this and its shareholders' funds were down from £279.0m to £205.2m for the year. While this has been an unwelcome setback, viewed over the longer term the NAV per ordinary share has performed well. Since 14 August 2003 the average annual compound return has been 19.0%. This remains substantially ahead of the FTSE All Share Index which achieved 6.9% over the same period.

Investment approach

Our response to the changing markets has been to continue to invest in well managed companies whose business models are sustainable and offer long-term growth. A key ratio we use in considering investments is the Enterprise Value ('EV') (being the market capitalisation plus net debt and certain other long term liabilities) to Earnings before Interest, Tax and Depreciation ('EBITDA') (being a guide to the ability of the business to generate cashflows). We look for a ratio which is reducing (evidencing real growth in value) together with a move from debt to equity at the EV level indicating a lowering of risk as an investment reduces its net debt.

In terms of investment allocation we have seen increased investment in renewable energy businesses such as wind farms and hydroelectric dams. The long-term outlook for these businesses remains sound as the world focuses on sustainability and the true cost of fossil fuels. We continue to hold investments in fossil fuel power generation which remain attractive on a valuation basis.

While the economic slowdown is impacting on the transportation sector, we expect the slowdown to be modest and the well run businesses within our portfolio to continue to make progress. Our holdings in telecoms offer a combination of growth, attractive valuations and defensive characteristics.

Recognising the increased risks in global markets, we have increased the level of protection in the form of market based index put options and exchange rate hedges.

Investment activity

Investment activity was higher than last period, in part as a result from an increase in the bank debt together with the proceeds from the exercise of the 2008 warrants.

During the period Utilico realised £73.2m including £9.8m from Zurich Airport and £3.4m from Ecofin capital shares. Utilico invested £118.6m in equities, of which £17.4m was invested in Utilico Emerging Markets ('UEM'); £6.9m in Infratil; £8.4m in Vienna Airport; £7.2m in Renewable Energy Generation Limited ('REG') and £2.9m in Ecofin ordinary shares. Utilico also invested £24.4m in debt instruments of which £11.9m was in secured loans to ERG.

Over the twelve months there has been some movement in the geographic split of investments. Europe has reduced from 31% to 28% with the sell down of Zurich Airport offset in part by investments in Vienna Airport. Australasia has reduced from 32% to 25% with the reduction in value of Infratil and ERG. North America has risen from 9% to 13% as a result of investment and the UK has risen to 14% from 10% as a result of investment, principally in REG.

Electricity remains the largest sector at 22%. Renewables, despite the reduction in value of TrustPower (Infratil's largest investment), remained the second largest investment sector at 18%. Airports are down from 18% to 15% as a result of the sell down of Zurich Airport again offset in part by the investment in Vienna Airport. Road and Rail is up from 5% to 9% as a result of investment. Most other sectors are unchanged.

Major investments

A continuing feature of Utilico has been the significant investment in three utility and infrastructure investment holding companies, Infratil, UEM and Ecofin. Each of these continues to offer a different investment profile thus diversifying Utilico's underlying exposure.

The investment in UEM rose from £73.0 to £84.6m making UEM the top holding in Utilico's portfolio. This increase represents further investment (by way of a C share issue by UEM) of £17.4m offset by a loss of £5.8m. UEM continues to make progress, reporting stronger earnings for the year to 31 March 2008 and paying a higher dividend. The revenue EPS to March 2008 was 5.24p, being a 77.0% increase on the revenue EPS to March 2007. UEM has continued to see higher dividend income from investments in the current year. We remain confident about UEM's long term prospects.

UEM's portfolio remains diversified with the top holding COMGAS representing 6.5% of UEM's Gross Assets as at 31 August 2008. COMGAS is a gas distribution business in the state of Sao Paulo in Brazil, and ranks 16th in Utilico's portfolio on a look through basis. UEM has over 70 investments in its portfolio.

Utilico's investment in Infratil nearly doubled in the year to 30 June 2007, from £60.4m to £118.0m. During the period under review it retraced all those unrealised valuation gains to end at £68.1m, an increase over the two years of £7.7m. The increase is mainly accounted for by the £7.5m subscribed for the partly paid rights issue during the year. Infratil's investments continued to make progress in the period.

Ecofin remains Utilico's third largest holding with an investment value of £34.4m. This reflects a decline of 12.8% in value or £5.1m over the previous period. Ecofin remains a well run, diversified investment company focused on the water and power sectors. However, the leveraged nature of our Ecofin capital shares has led us to reduce our capital share holding over the period. Since the period end this process has accelerated.

On a look through basis Ecofin's largest holding is Electric Power Developments which ranks 40th in Utilico's portfolio. Ecofin has over 100 investments in its portfolio.

As at 30 June 2008, Ecofin's capital shares were geared 1.9x.

Portfolio

As in previous years and to better understand Utilico's profile the major investments are included on a 'look through' basis. This assumes that the proportional share of investments held in UEM, Infratil and Ecofin are held directly by Utilico. Set out below is a review of the portfolio's top ten investments reviewed by sector. We have included more information than usual to help investors better understand the profile of our investments including EV/EBITDA and gearing ratios.

Electricity

Electricity remained our largest sector accounting for 22% of the Gross Assets; within electricity we held Jersey Electricity and Cegedel in the top ten at the period end.

Jersey Electricity ('JEL') ended the period with a gain on investment of 11.8% to stand at £15.9m.

While JEL's turnover growth has been strong over the last two years, up from £56.1m to £75.9m, much of this growth is a reflection of sharply higher input costs being passed through in their tariffs. Disappointingly JEL failed to pass on the full impact of these higher costs resulting in profit after tax falling over the two years. We have been critical of JEL as a result. However, JEL now appears to accept the need to pass through the cost increases as they arise and have announced that they expect to increase prices by at least 25% in January 2009. A welcome development has been the increase in the dividend payment by 49.0%.

JEL continues to be ungeared with net cash at their last year end, 30 September 2007, of £12.6m. The EV at that date was £57.5m, giving rise to an EV/EBITDA of 3.5x. In the six months to March 2008 EBITDA is up 21.3% on the same period in the previous year.

Our investment in Cegedel increased in value from £5.2m to £9.2m during the year, taking Cegedel to 8th in the portfolio. This represented further investment of £1.5m combined with gains of £2.5m.

Cegedel was a value investment. Utilico has gradually increased its holding in Cegedel to £5.6m over the last two years. Post Utilico's period end Cegedel was bid for by a consortium of investors. Utilico has sold its stake for £11.2m, representing a gain of 100.0% on cost. The exit EV/EBITDA was 9.4x.

Renewable Energy

We continue to invest in renewable energy, in particular wind energy generation. We believe this has the attraction of high tariffs, low operating costs and guaranteed offstake contracts. This is now the second largest investment sector within the portfolio accounting for 18% of the Gross Assets. Included in the top ten are TrustPower and Renewable Energy Generation. The portfolio also includes inter alia Renewable Energy Holdings where Utilico has a 28.9% holding today. These investments are by their nature long-term.

TrustPower Infratil's largest investment, remains Utilico's largest investment on a look through basis accounting for some 7.8% of Utilico's Gross Assets.

TrustPower continues to add to its renewable energy capacity. Their portfolio includes the 161MW Tararua Wind Farm, the largest wind farm in the Southern Hemisphere. They are currently commissioning another large asset, the 98MW Snowtown Wind Farm in Australia and have submitted planning applications in to add 118MW of new hydro and 440MW of new wind farm capacity in New Zealand. New Zealand has recently experienced both low wind and rainfall which have held back TrustPower's performance in the short term. This resulted in the share price weakness of 11.4% over the year to June 2008.

As at 31 March 2008, TrustPower's EV was NZ$2.9bn of which net debt was NZ$0.5bn and equity NZ$2.4bn. EBITDA for the year was NZ$208.0m giving rise to an historic EV/EBITDA of 14.0x, although this is expected to fall in coming years as new investments come online.

Renewable Energy Generation ('REG') has risen to be the fourth largest investment in the portfolio on a look through basis. During the year we increased our investment by £7.2m. The position recorded a loss of £0.7m resulting in a closing investment value of £18.5m for the year.

REG continues to make strong progress. During the period REG increased its operational capacity to 17.7MW in the UK and 39MW in Canada. REG is developing a further 16.6MW in the UK and 30MW in Canada which it expects to commission in the year to June 2009. In addition, REG has a potential pipeline of 200MW in the UK and 4,000MW in Canada. REG is well positioned to benefit from rising demand for wind power. We expect REG to generate substantial EBITDA in coming years.

Airports

Airports accounts for 15% of Utilico's Gross Assets. Utilico holds three airports within its ten largest holdings, being Infratil Airports Europe, Zurich Airport and Vienna Airport. We continue to believe in the long-term prospects for these investments. Airports offer an attractive concentration of operational gearing, plus non aviation income activities such as retailing, car parking and property development.

Zurich Airport having seen its value increase over the period to June 2007 by 71.5% to £27.5m, increased in value by £0.2m in the period to 30 June 2008. This, together with realisations of £9.8m, resulted in the investment being worth £17.9m at period end.

Zurich Airport continued to benefit from the significant investments made between 2000 and 2002. During the year to December 2007 and the half-year to June 2008, passenger numbers grew 7.8% and 9.3% respectively. Similarly, revenue increased by 8.9% and 13.9%. The leveraged nature of the asset and earnings saw EBITDA increase by 8.4% and 27.2% for the two periods, net debt has now reduced from CHF 2.0bn in 2003 to stand at CHF 1.0bn at the end of June this year.

As at 31 December 2007, Zurich Airport's EV was CHF4.0bn of which CHF1.2bn was net debt and CHF2.8bn was equity. The EBITDA was CHF411.0m giving rise to an EV/EBITDA of 9.7x.

Vienna Airport rose to fifth in the portfolio reflecting further investments of £8.4m in the period Utilico recorded a loss of £1.0m on the position to end the period at £15.9m.

Vienna Airport's passenger numbers continue to rise. In 2006 passenger numbers grew by 6.3%, in 2007 by 11.2% and in the six months to June 2008 by 12.8%. This has resulted in rising profits; in the six months to June 2008 interim net earnings were up by 19.2%.

Vienna Airport is in the finals stages of commissioning a new 'Skylink' terminal which will expand the airport's capacity enabling it to meet future growth and more importantly significantly expand the retail offering. As a result of this investment, capital expenditure has risen. This has been funded from operating cashflows together with external borrowings.

As at 31 December 2007, Vienna Airport's EV was €1.7bn of which €0.4m was net debt. The EBITDA to December 2007 was €191.0m giving rise to an EV/EBITDA of 8.6x. Vienna's interim results, as at 30 June 2008, show EBITDA at €104.4m, a rise of 10.7%.

Infratil Airports Europe, Infratil's second largest investment has fallen on a look through basis from fifth to tenth, mainly as a result in Infratil's reduction in value. The three airports, Glasgow Prestwick International, Kent International and Hamburg Lubeck all continued to make progress in the year.

Road and Rail (including related technology)

This sector accounts for 9% of the Gross Assets and includes ERG, Utilico's second largest investment on a look through basis. During the period we increased our investment in ERG, principally by debt and a deposit, in support of ERG following the loss of the Sydney contract. The Board provided in full against its ordinary share position and has written back the secured loans to the principal amount invested. This resulted in a loss on the position in the period of £9.4m.

It was a difficult year for ERG. The loss of the Sydney contract was unexpected and caused considerable disruption. Utilico supported ERG through this difficulty. Today ERG's business has stabilised and they are making good progress towards delivering contracts successfully across the world.

At June 2008 ERG's EV was A$132.6m of which net debt was A$115.4m and equity was A$17.2m.

Telecoms

Telecoms accounts for 11% of our Gross Assets and includes Keytech and Newtel in the top ten.

Keytech stood still in terms of investment value at £13.2m. This reflects modest investment during the period of £0.7m offset by a decline in value of £1.0m equal to 7.3%.

Keytech continues to develop as a well run, focused telecoms group. This was reflected in the results for the year to March 2008 which saw turnover increase by 2.9% to US$108.5m, the fifth year of consecutive growth. Despite continued significant investment in assets, the cash dividend increased by 2.2% to US$7.9m, again the fifth consecutive year of growth.

Keytech's balance sheet remains undergeared with net cash (including investments) of US$46.8m at 31 March 2008. EBITDA for the year was US$32.6m giving rise to an EV/EBITDA of 4.1x.

Newtel continued to make progress in the period. The company successfully located, refurbished and opened a new data centre in Guernsey, aimed at attracting a number of gaming customers who are relocating to Guernsey. Having invested significantly in the data centre and telecoms platform and increased the resilience of the company, Newtel is set to benefit from increased revenues. In the year to 31 March 2008 the turnover rose 25.3% to £6.0m. This momentum has continued in the current year.

Derivatives

Utilico continues to hold a significant position in derivatives including £29.9m invested in market related options accounting for 7.2% of Gross Assets.

In March 2008 Ingot Capital Management Pty Limited ('ICM') set up a new Bermuda based company Global Equity Risk Protection Limited ('GERP'). GERP is a segregated account company with its sole purpose being the taking on of derivative positions. Utilico is a shareholder in GERP and has funded a segregated account within GERP into which all the option positions have been transferred. This segregated account is solely the asset or liability of Utilico and is, under the segregated account structure, protected from the rest of the segregated accounts within GERP. This step has allowed ICM to better manage the option positions for all its clients.

At the period end Utilico's segregated account in GERP was valued at £29.9m. This has not been included in the top 10 as it is not reflective of investments but rather a hedge.

Utilico, through GERP, continues to use market based index put options as part of its risk management strategy. During the period Utilico's put option position was moved from outright protection (net long puts) to a net neutral put spread position. As a result in the first part of the period Utilico benefited from the inherent protection in the net put position while in the later part of the period Utilico benefited from the increased premiums derived from selling short dated puts resulting in a net neutral put spread position.

Since the period end Utilico's position has been moved back to a net long put position. During the year Utilico invested a further £6.3m in the put spread positions. At the end of the period the position was valued at £29.9m. This represents a gain of £16.4m for the year.

The gains on derivatives for the period of £23.3m does not include any gains/losses on GERP. The gains/losses on GERP are included in investment gains and losses; however, if we add back the loss of £4.0m on GERP to our gains and losses on derivatives then the total for the period, including any gains and losses on currency instruments, is a gain of £19.3m.

Debt

Utilico's bank debt stood at £69.2m, up from £44.8m at the start of the year. This increase reflects an increase in the facility with Royal Bank of Scotland to £70.0m. The facility comprises £25.0m which expires on 29 November 2008, £25.0m on 29 November 2009 and £20.0m on 29 November 2010. The facility is drawn as to £34.7m in UK Sterling and £34.5m in US$.

Financing charges were £13.4m for the period, up from £8.5m in the last period. Overall the financing charges represent a cost of 6.4% (prior period 5.0%) based on the average balances for the group's debt and ZDP shares. The increase in the charges to 6.4% reflects the fact that the CULS, whose coupon was 3.75%, were converted into equity in June 2007.

Towards the end of the period we increased our NZ$ hedge from NZ$130.4m to NZ$203.8m at the period end. The NZ$203.8m forward exchange contracts were entered into at an average exchange rate of 2.59.

Utilico ended the period with cash balances of £4.7m.

Revenue Income

Revenue income has risen strongly over the last two periods. Last period it increased 21.7% to £8.4m; this period it increased by 25.0% to £10.5m. This is a result of rising dividend payments coupled with reduced holdings in non revenue paying investments. We expect this trend to continue. Revenue income represents a yield of 2.3% on average Gross Assets. Taking out the put option spread position, Ecofin capital shares and ERG investments which do not pay dividends, the yield on the balance of the portfolio is 3.2%.

Expenses

The advisory and administrative fees and other expenses were £3.1m for the period. These increased in line with average assets under management. The TER (being the expenses expressed as a percentage of the consolidated average Gross Assets) remained at 0.7%.

Dividends

In March 2008 Utilico received advice that under Bermuda law the company was not in a position to pay dividends at that time. Although Utilico had sufficient revenue reserves to pay a dividend, its capital account deficit exceeded its revenue reserves. The Directors intend paying a dividend as soon as they are in a position to do so.

Buybacks

As detailed in the Chairman's Statement, Utilico bought back shares within the period and also since the period end. These buybacks were funded from cash balances at the time and took advantage of a widening discount. This should be regarded as opportunistic and no specific policy exists in regards to future buybacks. The Board will renew the authority to buy back up to 14.99% of the ordinary shares in order to preserve its flexibility.

Outlook

The market deterioration has accelerated in recent weeks and the ability to anticipate the outcome has been increasingly challenging. Our investments have been marked down significantly as the markets retreat. At times this does not reflect the underlying performance of the assets. We remain confident about the longer term and firmly believe investable opportunities will emerge. We are encouraged by the quality of earnings of our investee companies, reinforced in some cases by the buybacks undertaken by those companies.

PRINCIPAL RISKS AND RISK MITIGATION

The Board carefully considers the Company's principal risks and seeks to mitigate these risks through continual and regular review, policy setting, compliance with and enforcement of contractual obligations and active communication with the Investment Manager and the Administrator.

The Board applies the principles and recommendations of the UK Combined Code on Corporate Governance and the AIC's Code on Corporate Governance.

The Company's assets consist mainly of listed and quoted securities and its principal risks are therefore market related or currency related. Other risks faced by the Company include the following:

External: any events or developments which can affect the general level of share prices including for instance, terrorism, disease, inflation or deflation, economic recessions and movements in interest rates;

Key Staff: loss by the management of key staff could affect investment returns. The quality of the management team is a crucial factor in delivering good performance. There are training and development programs in place for employees and the recruitment and remuneration package has been developed in order to retain key staff;

Strategy: an inappropriate investment strategy including country and sector allocation, stock selection and the use of gearing could all lead to poor returns to shareholders. The Board regularly reviews strategy in relation to a range of issues including the balance between quoted and unquoted stocks, the allocation of assets between geographic regions and industrial sectors and gearing;

Regulatory: breach of regulatory rules could lead to suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. The Administrator monitors the Company's compliance with the Listing Rules of the UK Listing Authority and compliance with the principal rules is reviewed by the Directors at each Board Meeting and Appleby Corporate Services (Bermuda) Ltd ensure that the Company adheres to Bermuda law;

Operational: failure of the Manager's or Administrator's systems, or those of third party service providers could lead to an inability to provide accurate reporting. The Board reviews operational issues at each Board Meeting and the Audit Committee receives reports on the operation of internal controls;

Financial: inadequate controls by the Manager or Administrator or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. The Board reviews financial reports in detail at each Board Meeting; and

Banking: a breach of the Company's loan covenants might lead to funding being summarily withdrawn. At each Board Meeting the Board reviews compliance with the banking covenants.

STATEMENT OF DIRECTOR'S RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and financial statements of the Group and Company in accordance with applicable Bermuda law and IFRSs.

The Directors are required to prepare Group and Company accounts for each financial period which present fairly the financial position of the Group and Company and the financial performance and cash flows of the Group and Company for that period. In preparing those Group and Company accounts the Directors are required to:

select suitable accounting policies in accordance with IAS 8: Accounting policies, Changes in Accounting Estimates and Errors and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
IFRSs have been followed; and
prepare the financial statements on the going concern basis.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company accounts comply with Bermuda Law. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for prevention and detection of fraud and other irregularities.

To the best of the knowledge of the Directors, the financial statements give a true and fair view of the assets, liabilities, financial position and loss of the Group and Company, and the Investment Manager's report includes a fair review of the development and performance of the business and a description of the principal risks and uncertainties that they face.

Insofar as the Directors are aware:

there is no relevant audit information of which the Company's auditors are unaware; and
the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The financial statements are published on the Company's website, www.utilico.bm, the maintenance and integrity of which is the responsibility of the Company. The work carried out by the auditors does not involve consideration of the maintenance and integrity of the website and accordingly, the auditors accept no responsibility for any changes that have occurred to the financial statements since they were originally presented on the website. Visitors to the website need to be aware that the legislation governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

PERFORMANCE SUMMARY

	30 June 2008	30 June 2007(1)	Change 2007/08
Ordinary shares
Capital value
Net asset value per ordinary share (undiluted)	225.20p	350.29p	(35.7%)
Net asset value per ordinary share (diluted)	225.20p	312.06p	(27.8%)
Share prices and indices
Ordinary share price	234.00p	299.00p	(21.7%)
Discount/(premium) (based on diluted NAV per ordinary share)	(3.9%)	4.2%
FTSE All-share Index	2,856	3,404	(16.1%)
Dow Jones World Utilities Index (sterling adjusted)	130.4	125.6	3.8%
Returns and dividends
Revenue return per ordinary share (undiluted)	3.59p	1.84p	95.1%
Capital return per ordinary share (undiluted)	(103.35p)	178.01p	n/a
Total return per ordinary share (undiluted)	(99.76p)	179.85p	n/a
Dividend per ordinary share	-	0.80p	n/a
Zero dividend preference (ZDP) shares (2)
2012 ZDP Shares (7.00%)
Capital entitlement per ZDP share	132.39p	123.71p	7.0%
ZDP share price	135.50p	126.75p	6.9%
2014 ZDP Shares (7.25%)
Capital entitlement per ZDP share	107.57p	100.29p	7.3%
ZDP share price	108.50p	103.25p	5.1%
2016 ZDP Shares (7.25%)
Capital entitlement per ZDP share	107.57p	100.29p	7.3%
ZDP share price	103.75p	103.00p	0.7%
Warrants
2008 warrant price	n/a (3)	260.00p	n/a
2012 warrant price	79.50p	88.25p	(9.9%)
Equity holders funds (£m)
Gross Assets (4)	414.6	454.6	(8.8%)
Bank debt	69.2	44.8	54.5%
ZDP shares	140.2	130.8	7.2%
Equity holders' funds	205.2	279.0	(26.5%)
Revenue account (£m)
Income	10.5	8.4	25.0%
Costs (management and other expenses)	3.1	2.6	19.2%
Finance costs	3.6	4.1	(12.2%)
Financial ratios of the Group
Revenue yield on average Gross Assets	2.3%	2.3%
Total expense ratio (5) on average Gross Assets	0.7%	0.7%
Bank loans, CULS and ZDP shares gearing on Gross Assets	50.5%	38.6%

(1) Utilico Limited ('Utilico') began trading on 20 June 2007. An investment update was produced for the year ended 30 June 2007 which included

figures from Utilico's predecessor Utilico Investment Trust plc. As such these numbers are neither audited nor reviewed under auditing standards.

(2) Issued by Utilico Finance Limited, a wholly owned subsidiary of Utilico Limited in June 2007. 2012 ZDP shares previously issued by Utilico

Investment Trust plc.

(3) 2008 Warrants expired April 2008.

(4) Gross assets less current liabilities excluding loans.

(5) Excluding performance fee (if applicable).

INCOME STATEMENT

for the period to 30 June 2008
		Group
	Revenue	Capital	Total
	£'000s	£'000s	£'000s

Gains/(losses) on investments	-	(92,075)	(92,075)
Gains/(losses) on derivative instruments	-	23,313	23,313
Exchange gains/(losses)	3	(5,753)	(5,750)
Investment and other income	10,463	-	10,463
Total income	10,466	(74,515)	(64,049)
Management and administration fees	(2,291)	111	(2,180)
Other expenses	(768)	(21)	(789)
Profit/(loss) before finance costs and taxation	7,407	(74,425)	(67,018)
Finance costs	(3,618)	(9,809)	(13,427)
Profit/(loss) before tax	3,789	(84,234)	(80,445)
Taxation	(860)	-	(860)
Profit/(loss) for the period	2,929	(84,234)	(81,305)

Earnings per ordinary share (basic) - pence	3.59	(103.35)	(99.76)
Earnings per ordinary share (diluted) - pence	3.27	n/a	n/a

The total column of this statement represents the Groups income statement, prepared in accordance with IFRSs.

The supplementary revenue returns and capital returns are prepared under guidance published by the Association of Investment Companies in the UK.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company. There are no minority interests.

STATEMENT OF CHANGES IN EQUITY

for the period to 30 June 2008
Group
	Ordinary	Share		Non-	Retained earnings
	share	premium	Warrant	distributable	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Profit/(loss) for the period	-	-	-	-	(84,234)	2,929	(81,305)
Issue of ordinary share capital and warrants	7,966	238,030	35,118	-	-	-	281,114
Issue costs of ordinary share capital	-	(547)	-	-	-	-	(547)
Conversion of warrants	1,234	6,719	(32,067)	32,067	-	-	7,953
Purchase of ordinary shares held in treasury	-	(2,014)	-	-	-	-	(2,014)
Balance at 30 June 2008	9,200	242,188	3,051	32,067	(84,234)	2,929	205,201

BALANCE SHEET

at 30 June 2008
	Group
	£'000s
Non current assets
Investments	408,671
Current assets
Other receivables	2,745
Derivative financial instruments	730
Cash and cash equivalents	4,681
	8,156
Current liabilities
Bank loans	(25,000)
Other payables	(2,254)
	(27,254)
Net current liabilities	(19,098)
Total assets less current liabilities	389,573
Non-current liabilities
Bank loans	(44,166)
Zero dividend preference shares	(140,206)
Net assets	205,201

Equity attributable to equity holders
Ordinary share capital	9,200
Share premium account	242,188
Warrant reserve	3,051
Non-distributable reserve	32,067
Capital reserves	(84,234)
Revenue reserve	2,929
Total attributable to equity holders	205,201
Net asset value per ordinary share
Basic - pence	225.20
Diluted - pence	225.20

CASH FLOW STATEMENT

for the period to 30 June 2008
	Group
	£'000s
Cash flows from operating activities	(75,039)
Cash flows from investing activities	-
Cash flows before financing activities	(75,039)
Financing activities
Equity dividends paid	-
Proceeds from borrowings	80,335
Proceeds from warrants exercised	7,954
Cost of share buy back	(2,014)
Cash flows on issue of ordinary share capital	203
Cash flows from financing activities	86,478

Net increase in cash and cash equivalents	11,439
Cash and cash equivalents at the beginning of the period	-
Effect of movement in foreign exchange	(6,758)
Cash and cash equivalents at the end of the period	4,681

NOTES

The Company is an investment company incorporated in Bermuda on 17 January 2007 and quoted on London Stock Exchange. The Company commenced trading on 20 June 2007 and its first accounting reference date is 30 June 2008 and thus there are no comparatives.

This is not the Company's statutory accounts. The statutory accounts for the financial period ended 30 June 2008 have been approved and audited, and received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report. The statutory accounts for the period ended 30 June 2008 have been prepared on the basis of the financial information presented by the Directors in this announcement

The Report & Accounts will be posted to shareholders and made available on the website www.utilico.bm in mid October 2008. Copies may be obtained during normal business hours from Exchange House, Primrose Street, London, EC2A 2NY.