United Utilities Regulatory News (UU.)

23 Sep 2009 07:00

United Utilities Group PLC

23 September 2009

UNITED UTILITIES TRADING UPDATE

United Utilities Group PLC today issues an update on trading for the six months ending 30 September 2009. The company will announce its half year results on 25 November 2009.

Commenting on the group's trading position, Philip Green, Chief Executive, said:

"The group is on track to deliver results in line with our expectations of a sound underlying financial performance for the six months ending 30 September 2009.

"Earlier this month we submitted our written response to Ofwat's draft determination of prices for the 2010-15 period and we will be discussing this with the regulator ahead of the final determination in November."

Regulated activities

Underlying operating profit in the regulated business, for the six months ending 30 September 2009, is expected to broadly be in line with the first half of last year, reflecting ongoing revenue and cost pressures.

United Utilities Water (UUW) is allowed a 6.0% regulatory price increase (including inflation) for 2009/10, to help fund the high levels of essential investment in its assets to meet strict environmental standards and deliver an improved service for customers. However, as indicated previously, reduced water demand means that regulated revenue growth for the year is expected to be lower than the allowed price rise. As expected, the company also faces cost pressures in areas such as power and bad debts, alongside an increase in depreciation.

The business continues to focus on improving operational performance and is on course to meet its 2009/10 regulatory leakage target of 465 megalitres per day, having met its target for each of the last three years. Customer satisfaction, in response to enquiries, has also improved further since the start of this financial year. In addition, overall service performance, as measured by Ofwat's OPA score, is on track to improve in the year.

In July, the economic regulator, Ofwat, published its draft determination of price limits for the 2010-15 period, which for UUW included:

* a 3.4 billion capital investment programme (2007/08 prices); * an average annual underlying operating efficiency of 1.8% for the water service and 2.4% for the wastewater service; * a return on capital of 4.5% (post-tax, real); and * an average annual real price decrease of 0.6% across the five-year period, with a real price decrease of 6.3% in the first year.

Earlier this month UUW submitted its formal written response to Ofwat ahead of the final price determination, scheduled for November 2009.

Non-regulated activities

The group expects a marginal increase in underlying operating profit in its non-regulated business in the first half of the year, compared with the corresponding period last year.

In June 2009, United Utilities, via the 4D consortium, won a new capital delivery contract with Southern Water to manage the design and build of a new wastewater treatment works in the Brighton and Hove area. The contract has now commenced and the construction phase is expected to take approximately three years, followed by the potential for a two-year contract to operate and maintain the new plant.

The contract with Scottish Water, via Scottish Water Solutions Limited in which United Utilities is a major partner, is expected to come to a natural end in March 2010.

Other activities

United Utilities Property Solutions (UUPS) is expected broadly to break even in the first half of this financial year, reflecting difficult conditions in the UK property market. As a result, other activities, which include central costs, are expected to make a moderate underlying operating loss for the six months ending 30 September 2009.

Other financial

United Utilities has headroom to cover its projected financing needs through to the second half of 2011. Since the start of the 2009/10 financial year, the group enhanced its liquidity position through the issuance of an additional 100 million, 5.75% bond maturing in March 2022, an additional 50 million, 6.125% bond maturing in December 2015 and a new 70 million, 2.40%+RPI index-linked bond maturing in July 2039. United Utilities Water now has in place around 2 billion of index-linked funding, with an average real interest rate of approximately 1.8%. The average term to maturity of the group's term debt portfolio is over 25 years.

The group expects a net cash tax inflow for the half year of approximately 50 million, following agreement with UK tax authorities of prior years' tax returns.

Borrowings, net of cash and short term deposits, at the half year are expected to be similar to the position at 31 March 2009, subject to no material further fair value movements. This principally reflects expenditure on the regulatory capital investment programmes, payment of the 2008/09 final dividend and payments of interest, offset by operational cash flows and the aforementioned net cash tax repayment.

One-off costs in the order of 10 million are expected in the first half of 2009/10, which principally relate to restructuring within the business.

United Utilities contacts:

Philip Green, Chief Executive +44 (0)1925 237000 Tim Weller, Chief Financial Officer +44 (0)1925 237000 Gaynor Kenyon, Communications Director +44 (0)7753 622282 Darren Jameson, Head of Investor Relations +44 (0)1925 237033

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