United Utilities Regulatory News (UU.)

25 Mar 2010 07:00

United Utilities Group PLC

25 March 2010

UNITED UTILITIES TRADING UPDATE

United Utilities Group PLC today issues an update on trading for the year ending 31 March 2010. The company will announce its full year results on 21 May 2010.

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

"The group is on track to deliver a sound underlying financial performance for the year ending 31 March 2010. We continue to benefit from a robust financing position and have headroom to cover our projected financing needs through to early 2012.

"We are well prepared for the 2010-15 regulatory period. With the extensive efficiency plans we are implementing and the low cost of the group's debt portfolio, we believe we can deliver outperformance across a broad range of areas. We will continue with our strong focus on operational performance and cost efficiency and aim to build on the improvements already achieved."

Regulated activities

The regulated business is expected to deliver a modest increase in underlying operating profit for the year ending 31 March 2010, reflecting the allowed price rise partly offset by lower water demand and ongoing cost pressures in areas such as power and bad debts, as indicated previously. This allowed price rise is to help fund major investment in the company's assets on behalf of its customers and the environment.

Capital expenditure is expected to total over £600 million for the year, including infrastructure renewals expenditure, consistent with the company's planned investment profile for the 2005-10 period.

Looking ahead, United Utilities Water (UUW) has been allowed a capital investment programme of £3.6 billion (2007/08 prices), for the 2010-15 regulatory period, which will drive real growth in the regulatory capital value of 12% across the five years. UUW's contractor partners are in place and the company is well set for delivery of the forthcoming capital investment programme. UUW expects capital investment, including infrastructure renewals expenditure, in 2010/11 to be substantial as the company aims for a smoother capital delivery profile across the five year period compared with 2005-10.

United Utilities has a continuing focus on operational performance and cost efficiency and is implementing a range of business improvement initiatives and cost control measures across the group, as it aims to lower the cost to serve its customers whilst maintaining and improving levels of service. Customer satisfaction, in response to enquiries, continues to improve and the company is on track to record its highest satisfaction score for many years.

Non-regulated activities

During the period, United Utilities disposed of its investment in Northern Gas Networks Holdings Limited (NGN) for approximately £86 million and sold its economic interest in Manila Water Company (MWC) for approximately £44 million. The intention is to retain these proceeds within the group. As a result of the disposals, dividends from these investments, which are included in operating profit, are expected to be materially lower in 2009/10 compared with approximately £12 million received in 2008/09.

Adjusting for the impact of these disposals, the non-regulated business is expected to deliver good underlying operating profit growth for the year ending 31 March 2010 reflecting tight cost control and a strong performance from its international activities.

Following the outcome of the recent water price review, Welsh Water announced in February 2010 that it intended to take operations and maintenance services in-house and therefore the current contract with United Utilities will not be renewed for the 2010-15 regulatory period.

Following the sales of its holdings in NGN and MWC, United Utilities has received several expressions of interest for its non-regulated activities. Although no decision has been taken to sell any further non-regulated businesses, the group is continuing to evaluate these expressions of interest and will update the market in due course.

All other segments

The group's other activities, which include United Utilities Property Services (UUPS) and central costs, are expected to make a small underlying operating loss for the year ending 31 March 2010. As indicated previously, difficult conditions in the UK property market have affected the performance of UUPS, the property sales and management business of the group.

Other financial

The group continues to benefit from a robust financing position and has headroom to cover its projected financing needs through to early 2012. The average term to maturity of the group's long-term debt portfolio is over 25 years, which helps reduce refinancing risk. During the year ending 31 March 2010, United Utilities raised £220 million through the issuance of new bonds, extended committed banking facilities and in January 2010 repaid a £150 million, 5.25% bond.

Borrowings, net of cash and short term deposits and derivatives, at the year end are expected to be similar to the position at 30 September 2009, subject to no material further fair value movements. This principally reflects expenditure on the regulatory capital investment programmes, payment of the 2009/10 interim dividend and payments of interest and tax, offset by operational cash flows and the cash inflow from the divestment of United Utilities' holding in NGN and the sale of its economic interest in MWC.

United Utilities has approximately £2 billion of long dated, index-linked debt at an average cost of 1.8% real. In line with its policy, the group has now also fixed the interest rates on a significant proportion of the remainder of its existing debt portfolio, for the 2010-15 regulatory period, at an average nominal rate in the range 5.0% to 5.5% (inclusive of credit spread). This provides more clarity on UUW's ability to outperform the final determination.

As outlined previously, the group received a one-off cash tax inflow during the first half of the year of £51 million, following agreement with UK tax authorities of prior years' tax returns. Excluding the impact of prior year adjustments, which incorporate this one-off item, the total effective tax rate for the year, in respect of continuing operations, is expected to be around 28%.

As part of the group's efficiency programme, one-off restructuring costs in the order of £30 million are expected in the year ending 31 March 2010, of which £ 11 million was recognised in the first half of 2009/10.

As indicated previously, United Utilities is currently reviewing its defined benefit pension provision and expects to provide further details later in the year.

Dividend

In line with United Utilities' existing policy to grow dividends by RPI+2% per annum, the board expects to grow the final dividend for 2009/10 by 5%. The final dividend for 2009/10 is therefore forecast to be 23.13 pence per ordinary share. Together with the interim dividend of 11.17 pence, this provides a forecast total dividend per ordinary share for 2009/10 of 34.3 pence.

As outlined in January, following detailed analysis and assessment of the final determination, the board intends to rebase the dividend per share to 30.0 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:

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)7733 127707 Rob Hughes, Investor Relations Manager +44 (0)1925 237019 James Bradley / Tom Murray, Tulchan Communications +44 (0) 20 7353 4200

This announcement is also available at: http://www.unitedutilities.com