United Utilities Regulatory News (UU.)

23 Sep 2010 07:00

United Utilities Group PLC

23 September 2010

UNITED UTILITIES TRADING UPDATE

United Utilities Group PLC today issues an update on trading for the six months ending 30 September 2010. The company will announce its half year results on 24 November 2010.

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, reflecting the impact of the recent regulatory price review.

"In line with our strategy of focusing on our core activities, we have now agreed the sales of the vast majority of our non-regulated businesses for a total enterprise value of approximately £600 million.

"We believe that, with the group's consistent focus on its core activities and the low cost of its debt portfolio, we are well positioned to deliver outperformance over the 2010-15 regulatory period."

Regulated activities

The 2010-15 regulatory price review 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 and included a 4.3% real price decrease for 2010/11.

In line with these new price limits and as expected, underlying operating profit in the regulated business is anticipated to be lower compared with the prior year. This also reflects continuing cost pressures, including an expected increase in property rates and depreciation, partly offset by a reduction in power costs. It is anticipated that infrastructure renewals expenditure and depreciation will be higher in the second half of 2010/11 compared with the first half of the year. As outlined previously, capital expenditure is expected to remain at high levels this year.

UUW has a strong focus on operational performance and is on course to meet its regulatory leakage target for the fifth consecutive year. In addition, UUW expects to have improved its position in Ofwat's 2009/10 wastewater non-infrastructure serviceability assessment, returning all four asset classes to a "stable" rating. The business remains focused on delivering further operational and service level improvements for customers.

Non-regulated activities

In line with its strategy of focusing on core activities, over the last half year, the group has entered agreements to sell the vast majority of its remaining non-regulated businesses*. Completions of the various non-regulated disposal transactions are subject to a number of consents and regulatory approvals and are expected to take place in the second half of the year.

Taken together with the sales of its holdings in Northern Gas Networks and Manila Water Company, completed during the second half of 2009/10, the group has now agreed non-regulated disposals for a total enterprise value of approximately £600 million. United Utilities intends to retain the proceeds from these disposals within the group.

Since United Utilities has now sold or agreed to sell the vast majority of its non-regulated businesses, it is expected that the non-regulated activities segment will be treated as discontinued in the 2010/11 financial statements.

All other segments

United Utilities Property Services is expected to deliver a small underlying operating profit in the first half of this financial year, reflecting continuing difficult conditions in the UK property market. As a result, other activities, which include central costs, are expected to make a small underlying operating loss for the six months ending 30 September 2010.

Other financial

United Utilities' financial position remains robust and the group has headroom to cover its projected financing needs through to the summer of 2012.

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 anticipated to be broadly neutral in cash terms for United Utilities over the five years to 31 March 2015. However, the changes are expected to result in an accounting deferred tax credit in excess of £200 million over the five-year period, with the deferred tax credit in the 2010/11 income statement expected to be approximately £50 million.

Group borrowings, net of cash and short term deposits and derivatives, at the half year are expected to be moderately higher than the position at 31 March 2010, subject to no material further fair value movements and assuming that no further cash proceeds are received from the agreed non-regulated sales on or before 30 September. This principally reflects expenditure on the regulatory capital investment programmes, payment of the 2009/10 final dividend and payments of interest and tax, partly offset by operational cash flows.

One-off costs in the order of £15 million, relating to continuing operations, are expected in the first half of 2010/11. These costs principally reflect business restructuring.

Dividend

As announced in January, the board intends to pay a total dividend per ordinary share of 30 pence for the 2010/11 financial year. Thereafter, the intention is to continue to target a dividend per share growth rate of RPI+2% per annum through to 2015.

United Utilities contacts:

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% 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; * 50% holding in its non-regulated gas and electricity meter ownership business, Meter Fit; and * electricity operations and maintenance business in the North West of England (transaction completed).