Trading Update
September 26 2007 - 3:00AM
UK Regulatory
26 September 2007
UNITED UTILITIES TRADING UPDATE
Introduction
United Utilities PLC today issues an update on trading for the six months
ending 30 September 2007. The company will announce its interim results on 29
November 2007.
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 for the
six months ending 30 September 2007.
"In United Utilities Water, we are building on the operational and customer
service improvements recently achieved. Having met the economic level of
leakage rolling target for the first time in five years in 2006/07, I am
pleased to report that we are also on course to meet the target for 2007/08.
"Earlier in the year, we announced our intention to restructure our management
organisation, in order to sharpen its commercial focus, by creating an asset
owner function and an asset operator function. This new structure has now been
successfully implemented.
"We announced the initiation of a sale process for our electricity distribution
assets on 5 June 2007 and the sale process is progressing well."
Regulated activities
The business is expected to deliver good underlying operating profit growth in
its regulated activities for the six months ending 30 September 2007. United
Utilities continues to improve services for customers underpinned by its
substantial capital investment programmes. This expenditure is serving to grow
the asset base and the regulatory price increases reflect this investment for
customers.
Capital expenditure is expected to increase this financial year, compared with
the previous year, reflecting the company's planned re-phasing of the
investment programmes. Water service cumulative capital expenditure is expected
to match regulatory assumptions by the end of 2008 and wastewater service
cumulative capital expenditure by the end of 2009. With this investment to
improve essential infrastructure, the business remains confident of achieving
its regulatory outputs over the 2005-10 price control period.
United Utilities Water continues to focus on delivering further improvements in
operational performance and maintaining a robust supply and demand balance. The
business is on course to meet its 2007/08 economic level of leakage rolling
target of 465 megalitres per day and there have been no water restrictions in
the year.
United Utilities Water has made good progress in delivering its business
improvement initiatives and is on track to achieve the operating and capital
efficiency targets set by the regulator.
Non-regulated activities
Underlying operating profit in the first half is expected to show a modest
decrease compared with last year's underlying figure. As previously indicated,
this reflects an anticipated reduction in the contribution from the contract
with Southern Water, which runs through to 2010, due to the planned capital
investment profile, offset by the first time inclusion of contribution from the
group's operating activities with United Utilities Electricity.
Performance across the contract portfolio is in line with management's
expectations. Whilst new opportunities have been limited, the business
continues to benefit from a strong order book and secured revenue streams.
Other activities
United Utilities Property Solutions is performing well and operating profit for
the six months to 30 September 2007 is expected to be broadly in line with the
corresponding period last year.
Other financial
The group continues to benefit from a robust liquidity position, enhanced by
long-dated index-linked funding. United Utilities Water has in place around �
1.5 billion of this funding, with an average real interest rate of
approximately 1.8%, representing around 21% of its regulatory capital value.
Around two fifths of this funding has 50-year maturities.
Borrowings, net of cash and short term deposits, at the half year are expected
to show a modest increase compared with the position at 31 March 2007,
excluding the impact of IAS 39. This principally reflects expenditure on the
regulatory capital investment programmes and payment of the 2006/07 final
dividend, partly offset by operational cash flows and proceeds from the sale of
the group's 22.63% stake in THUS Group plc, from which a one-off loss on
disposal in the order of �10 million is expected.
The overall tax charge at the half year is expected to be around 30%. This
reflects the full provision for deferred tax and is before adjusting for the
impact of the reduction in corporation tax rate from 30% to 28% with effect
from April 2008. After adjusting deferred tax for this rate reduction, the
overall tax charge is expected to be around 10%.
Reclassifications
The regulated activities segment previously included the contribution from
United Utilities Electricity. Following the announcement made on 5 June 2007,
that the Board had taken the decision to initiate a sale process for the
group's electricity distribution assets, the contribution from these assets is
now treated as discontinued and is not included in the regulated activities
segment. The sale process is progressing well and an update will be provided in
due course.
As part of the group's strategy of focusing on its core skills, the decision
has been taken to sell its facilities management activities and industrial
liquid waste activities, which are very small in the context of the group.
Consequently, these non-regulated activities are also treated as discontinued.
In addition, the other activities segment previously included some residual
activities associated with United Utilities Electricity, but not related to
regulated electricity distribution. These residual activities are therefore
treated as discontinued and no longer included in the other activities segment.
The tables below show the impact on the prior half year and full year published
segmental analysis of these reclassifications.
Prior half year
reclassification
Continuing operations Six months ended 30 September 2006
As reported* Discontinued Reclassification Reclassified
Operations** of interest***
�m �m �m �m
Regulated activities 390.5 (71.5) (9.8) 309.2
Non-regulated 25.3 (1.4) (1.8) 22.1
activities
Other activities 8.6 (6.8) (0.7) 1.1
-------- -------- -------- --------
Operating profit 424.4 (79.7) (12.3) 332.4
Restructuring costs 4.0 - - 4.0
(regulated activities)
Restructuring costs 0.5 - - 0.5
(non-regulated
activities)
Settlement of claims (15.0) - - (15.0)
(regulated activities)
-------- -------- -------- --------
Underlying operating 413.9 (79.7) (12.3) 321.9****
profit
-------- -------- -------- --------
-------- -------- -------- --------
* As reported in the group's 2006/07 interim results announced on 5 December
2006
** As explained in the Reclassifications section of this trading update
*** This reclassification was detailed in the group's 2006/07 preliminary
results announced on 5 June 2007 (on a full year basis)
**** Comprises �298.2m from regulated activities, �22.6m from non-regulated
activities and �1.1m from other activities
Prior full year reclassification
Continuing operations
Year ended 31 March 2007
As reported* Discontinued Reclassified
operations**
�m �m �m
Regulated activities 750.1 (169.1) 581.0
Non-regulated 69.1 (6.5) 62.6
activities
Other activities 8.3 (9.8) (1.5)
-------- -------- --------
Operating profit 827.5 (185.4) 642.1
Restructuring costs 5.3 - 5.3
(regulated activities)
Restructuring costs 0.3 - 0.3
(non-regulated
activities)
Restructuring costs 5.0 - 5.0
(other activities)
Settlement of claims (27.6) - (27.6)
(regulated activities)
Settlement of claims (3.0) - (3.0)
(non-regulated
activities)
Ofwat transfer pricing 8.5 - 8.5
fine
(regulated activities)
-------- -------- --------
Underlying operating 816.0 (185.4) 630.6***
profit
-------- -------- --------
-------- -------- --------
* As reported in the group's 2006/07 preliminary results announced on 5 June
2007
** As explained in the Reclassifications section of this trading update
*** Comprises �567.2m from regulated activities, �59.9m from non-regulated
activities and �3.5m from other activities
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
Tulchan Communications
Dominic Fry and Peter Hewer +44 (0) 20 7353 4200
United Utilities' ordinary trade on the London Stock Exchange and its ADRs,
each equal to two ordinary shares, trade OTC in the USA under the Trading
Symbol "UUPLY".
END
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