United Utilities Regulatory News (UU.)

23 Jul 2010 07:00

United Utilities Group PLC

23 July 2010

UNITED UTILITIES GROUP PLC 2010 ANNUAL GENERAL MEETING AND INTERIM MANAGEMENT STATEMENT

United Utilities issues a trading update, for the period 1 April 2010 to 22 July 2010, ahead of its Annual General Meeting to be held today at The Midland Hotel, Peter Street, Manchester. Commenting on the group's performance for the year ended 31 March 2010, Chairman, Dr John McAdam, will say:

"The group has delivered a sound underlying financial performance for the year, despite a challenging economic climate. In line with our policy, the board is proposing a final dividend of 23.13 pence per ordinary share, taking the total dividend for the 2009/10 financial year to 34.30 pence.

"Despite a tough price review, we believe that with the group's consistent focus on its core activities we are well positioned to meet the challenges of the new five-year regulatory period."

Regulated activities

In November 2009 Ofwat published its final determination of price limits for the 2010-15 period, which sees customers of United Utilities Water (UUW) benefit from lower prices and higher levels of capital investment that help deliver improved service and meet strict environmental standards. The new price limits took effect from 1 April 2010.

With the detailed efficiency plans the group is implementing and the low cost of its debt portfolio, United Utilities believes it is well positioned to deliver outperformance over the next five years. Based on an RPI inflation rate of 2.5% per annum the group has locked in financing outperformance of approximately £300 million over the 2010-15 period.

Current trading is in line with the group's expectations and reflects the impact of the 4.3% real price decrease for 2010/11, continuing revenue pressures from reduced water volumes, ongoing bad debt cost pressures and an expected increase in property rates, partly offset by a reduction in power costs. The business has entered into forward contracts for the majority of its power requirements for 2010/11 and 2011/12 and unit power costs are expected to be in the order of 20% lower than in 2009/10. As outlined previously, capital expenditure has continued at high levels this year, including an expected increase in infrastructure renewals expenditure.

Improving operational performance is a key area of focus for the group. The business met its regulatory leakage target for the fourth consecutive year in 2009/10, despite exceptional adverse winter weather. Customer satisfaction, in response to enquiries, continues to increase and is now at its highest recorded levels, with a satisfaction score of over 80% compared with around 50% five years ago. Whilst UUW has delivered real progress, the business recognises that there is more to do and remains focused on delivering further improvements.

As a result of the extremely low levels of rainfall experienced in the North West of England during 2010, UUW is continuing to work with the Environment Agency on implementing its drought plan. The company is working hard to help minimise the impact on customers by monitoring water levels and rebalancing water resources. In line with its drought plan, UUW introduced a hosepipe ban on 9 July to help conserve water. However, recent increases in rainfall, together with the actions taken by the company, have helped improve water resource levels in the region. UUW will continue to monitor the situation and keep customers informed.

Non-regulated activities

In line with its strategy of focusing on core activities, United Utilities completed the disposals of its holdings in Northern Gas Networks and Manila Water Company during the second half of 2009/10. Since the year end, the group has entered agreements to sell the majority of its remaining non-regulated businesses*. Completion of the various non-regulated disposal transactions is subject to a number of consents and regulatory approvals and is expected to take place in the second half of the year.

To date, the group has now agreed non-regulated disposals for a total enterprise value of over £450 million. United Utilities intends to retain the proceeds from these disposals within the group. The group is continuing to evaluate the expressions of interest it has received for its remaining non-regulated businesses.

Financial position

United Utilities' financial position remains robust and its asset base continues to grow in line with management's expectations. The group has headroom to cover its projected financing needs through to the summer of 2012.

Group net debt is broadly in line compared with the position at 31 March 2010, ahead of payment of the proposed 2009/10 final dividend. This dividend payment is scheduled for 2 August 2010 and is expected to be approximately £158 million.

The impact of the staged reduction in the rate of corporation tax together with the changes to capital allowances, announced in the UK Government's budget on 22 June 2010, is expected to be broadly neutral in cash terms for United Utilities over the five years to 31 March 2015.

Board changes

The group's Chief Financial Officer, Tim Weller, left United Utilities on 21 May 2010 to take a new role at Cable&Wireless Worldwide. His replacement, Russ Houlden, is expected to join the group as Chief Financial Officer from Telecom New Zealand by early October 2010.

Following the signing of various agreements to sell the majority of United Utilities' non-regulated interests, Charlie Cornish, Managing Director Utility Solutions, is expected to leave the group by 30 September 2010 to take up a new position with Manchester Airport Group as its Chief Executive Officer.

In addition, Andrew Pinder will step down as a non-executive director and a member of the nomination and remuneration committees at today's annual general meeting after nine years on the board.

Outlook

As expected, United Utilities continues to experience ongoing revenue and cost pressures, reflecting the impact of the 2009 water price review and the challenging economic climate. The company's advanced capital investment planning has facilitated a smooth transition into the 2010-15 period and capital expenditure is expected to continue at high levels in 2010/11. United Utilities is implementing a programme of efficiency and performance improvement measures and is confident of delivering outperformance in respect of the 2010-15 regulatory contract. As outlined previously, the board intends to pay a total dividend for 2010/11 of 30 pence per ordinary share.

In line with its usual practice, United Utilities intends to issue a pre-close trading update on 23 September 2010.

United Utilities' contacts

For further information please contact:

Gaynor Kenyon, Communications Director +44 (0) 7753 622282 Darren Jameson, Head of Investor Relations +44 (0) 7733 127707

James Bradley / Tom Murray, Tulchan Communications +44 (0) 20 7353 4200

Notes

\* The principal non-regulated businesses agreed to be sold by the group since 1 April 2010 include its:

* 100 per cent owned subsidiary United Utilities Australia Pty Limited and related entities; * 57.8% holding in Sofiyska Voda AD in Bulgaria; * 26.5% holding in AS Tallinna Vesi in Estonia; * 33.2% holding in Aqua Spolka Akcyjna in Poland; * stake in the 2010-15 capital management contract with Southern Water; * stake in the capital delivery contract with Southern Water to manage the design and build of a new wastewater treatment works in the Brighton and Hove area; * UK industrial solutions business; * three Scottish private finance initiatives (33.33% of Catchment Moray Holdings Limited, 33.33% of Catchment Tay Holdings Limited and 50.0% of Catchment Highland Holdings Limited) and associated operations contracts; and * electricity operations and maintenance business in the North West of England (transaction now completed).