UNITED UTILITIES GROUP PLC - Final Results
May 28, 2009 (PR Newswire Europe via COMTEX) --
Company: United Utilities Group PLC (UUGWF)
Final results for the year ended 31 March 2009
GBPm Year ended
(continuing operations)
31 March 31 March %
2009 2008 Change
Operating profit 735.2 663.2 +11%
Underlying operating profit* 741.8 677.2 +10%
Profit before tax 529.8 478.3 +11%
Underlying profit before tax* 531.8 475.6 +12%
Pence Year ended
31 March 2009 31 March 2008
Basic earnings per share** 26.5 61.2
Total dividends per ordinary share*** 32.67 46.67
* Underlying operating profit and underlying profit before tax are defined in
the underlying profit measure table.
** Basic EPS for the year ended 31 March 2009 was negatively impacted by a
one-off deferred tax charge of GBP206.4 million (equivalent to 30.3 pence per
share) and basic EPS for the comparative period (re-presented) was positively
impacted by a one-off deferred tax credit of GBP81.7 million (equivalent to 12.0
pence per share), as explained in the earnings per share section.
*** 2008/09 dividends per share reduced by 30%, as initially outlined in United
Utilities' half yearly financial report published on 29 November 2007, in light
of the revised composition of the group following the sale of United Utilities
Electricity and the GBP1.5 billion return to shareholders.
* Strong results in a challenging environment: underlying operating profit*
up 10% to GBP742 million
* Financing position remains robust: headroom through to mid-2011
* GBP740 million invested in regulated water and wastewater infrastructure
during the year
* Regulatory leakage target achieved for third consecutive year
* Customer satisfaction continues to improve
* Final business plan for 2010-15 submitted to Ofwat in April 2009
* Final dividend of 22.03 pence per share in line with policy
Commenting, Philip Green, Chief Executive, said:
"This is a robust set of results in a difficult economic climate. We have
delivered strong underlying profit growth and continued to make high levels of
investment in our water and wastewater infrastructure. United Utilities
continues to benefit from a robust financing position and we have a healthy
level of headroom to cover our projected financing needs through to mid-2011.
"We have a consistent strategy to focus on our core skills of managing utility
networks, as we aim to build on the operational and customer service
improvements seen over the last few years. Our non-regulated business has made
further progress, leveraging our core skills to secure additional long-term
revenue streams for the group.
"We submitted our final business plan for 2010-15 to Ofwat in April 2009, which
we believe balances the needs of all our stakeholders and maintains the
affordability of customer bills. We expect investment in our assets to continue
at high levels, providing further growth as well as environmental and customer
benefits.
"We expect to deliver a sound underlying financial performance in the final
year of this regulatory period, although the group faces ongoing revenue and
cost pressures. In line with our policy, we expect to grow dividends for 2009/
10 by five per cent."
For further information on the day, please contact:
Philip Green - Chief Executive +44 (0) 20 7307 0300
Tim Weller - Chief Financial Officer +44 (0) 20 7307 0300
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
A presentation to investors and analysts starts at 9.00 am on Thursday 28 May
2009, at the Auditorium, Deutsche Bank, Winchester House, 1 Great Winchester
Street, London, EC2N 2DB. The presentation can be accessed via a live listen in
conference call facility by dialling: +44 (0) 20 7162 0025. A recording of the
call will be available for seven days following 28 May 2009 on +44 (0) 20 7031
4064, access code 834294.
This final results announcement and the associated presentation will be
available on the day at: http://www.unitedutilities.com.
CHIEF EXECUTIVE'S REVIEW
Financial performance
United Utilities has delivered a strong set of financial results for the year
ended 31 March 2009. Revenue from continuing operations rose 3% to GBP2,435
million. Underlying profit before tax* increased by 12% to GBP532 million and
underlying operating profit* was up by 10% to GBP742 million.
Our regulated activities have delivered strong growth this year with operating
profit up 11%. This result primarily reflects the price increase allowed by our
regulator and tight cost control. This price increase helps fund the high
levels of essential investment in our assets, which allows the business to meet
strict environmental standards and deliver an improved service for our
customers.
Capital expenditure in our regulated water and wastewater business amounted to
GBP740 million during the year, including infrastructure renewals expenditure.
This high level of spend is consistent with our planned investment profile and
reflects the peak phase of our current 2005-10 capital expenditure programme.
Overall, we remain in line with regulatory assumptions on both expenditure and
outputs.
Our business improvement initiatives are delivering benefits and we remain
broadly on track to meet our regulatory efficiency targets across this price
review period, although we expect cost pressures in areas such as power and bad
debts to continue through 2009/10. In particular, we are encouraged by the
early progress of our workforce management project which has been successfully
implemented on time and below budget. This integrated system is a key
initiative in increasing productivity by using real time data across the
workforce to enable more effective work scheduling. The system should improve
both our efficiency and customer service. Cost savings in the order of GBP7
million per annum are expected by 2010.
We have delivered good underlying operating profit growth of 9% in our
non-regulated business. This principally reflects the planned increase in
activity on the Scottish Water contract, an increase in contribution from the
group's international operations and a benefit realised from foreign exchange
rate movements. Overall, we are pleased with our performance across our
non-regulated contract portfolio. Our order book remains strong at over GBP6
billion in revenue and we continue to be the leading utility infrastructure
outsourcing business in the UK.
The group has returned GBP1.5 billion to shareholders as planned and continues to
benefit from a robust financing position, with headroom to cover its projected
financing needs through to mid-2011. During the year we enhanced our liquidity,
raising over GBP1 billion of debt finance, via a GBP400 million 12-year term loan
facility with the European Investment Bank, a GBP375 million 6.125%, seven-year
bond and a GBP275 million 5.75%, 13-year bond. In addition, we supplemented this
through the arrangement of additional bank facilities and renewal of core
relationship banking facilities which matured during the period. This provides
us with good flexibility in terms of when and how we raise further debt
finance.
Operational performance
Improving operational performance is a key area of focus for the group and we
are pleased to report further progress. The business met its regulatory leakage
target for the third consecutive year, despite unfavourable winter weather, and
customer satisfaction continues to increase.
We also met our medium term target of a 50% reduction in the number of serious
pollution incidents for the third consecutive year. Since 2005, we have closed
the operational efficiency gap to the most efficient water companies and this
has been reflected in Ofwat's relative efficiency assessments. We have
sustained these efficiency ratings for 2007/08 (Ofwat's most recent
assessment).
We continue to remove properties from our sewer flooding register. Ofwat has
published a review of how registers of properties at risk of sewer flooding are
compiled and reported in the water sector in England and Wales. We are in
discussions with Ofwat regarding our own methodology and processes in this
area. This is expected to result in a restatement of the number of properties,
increasing both the start point in 2005/06 and the current position, but we
envisage that the restated numbers will still demonstrate progress over this
period. We aim to build on the achievements made over the last two years and
will provide a further update when our sewer flooding registers have been
reassessed.
Although we are encouraged by the tangible progress we have delivered, we do
recognise that there is more to do and we remain strongly focused on delivering
further improvements.
Regulatory developments
In April 2009, United Utilities Water PLC (UUW) submitted its final business
plan for the 2010-15 period to Ofwat, which was welcomed by the Consumer
Council for Water and supported by the company's independent engineering
Reporter, Halcrow. This plan forms part of the 2009 water price review process
and builds on the draft plan which was submitted last August and the strategic
direction statement published in December 2007. We believe our final plan
balances the needs of all our stakeholders.
We have proposed a GBP3.7 billion capital investment programme which aims to
safeguard existing standards of service, address higher quality standards and
make provision for the challenge of climate change, whilst maintaining the
affordability of customer bills. Of the proposed GBP3.7 billion capital
programme, investment to meet tighter regulatory quality standards, enhance
service to customers and maintain the supply/demand balance is forecast at
around GBP1.8 billion. The remainder of the investment relates to maintenance of
the company's substantial water and wastewater assets and infrastructure.
We estimate that an average real, fully post-tax return of 4.85% is required to
finance this plan, which we believe would support an A3 credit rating. This is
consistent with the findings of the updated research published by NERA Economic
Consulting in January, which concludes that a required return in the range 4.6%
to 5.1% (fully post-tax, real) would be appropriate for the UK water industry.
UUW expects to improve its efficiency further in the next regulatory period and
is aiming for a 1.5% annual improvement in its underlying operating efficiency
and an average efficiency improvement of between 4% and 8% across the five-year
period in respect of its capital investment programme.
UUW's service currently costs households approximately GBP1 per day on average.
With this plan, average household bills would increase by seven pence per day
in real terms by 2015. We believe this represents excellent value for money,
providing our customers with high quality drinking water to meet all their
daily needs and for environmentally responsible wastewater collection and
treatment. This equates to an average annual real price increase of 1.8% across
our customer base during the 2010-15 period. We believe this plan is consistent
with the aim set out in our strategic direction statement that bills, on
average, should rise no faster than medium-term household income growth.
Overall, we expect significant levels of capital investment to continue beyond
2010 delivering further growth as well as customer and environmental benefits.
Outlook
We expect to deliver a sound underlying financial performance in the final year
of this price review period, although the group is experiencing ongoing revenue
and cost pressures. United Utilities continues to benefit from a robust
financing position and has headroom to cover its projected financing needs
through to mid-2011. In line with the group's policy, the board expects to grow
dividends for 2009/10 by 5%. There is a strong focus on operational performance
and we aim to build on the improvements already achieved. We have submitted our
final business plan to Ofwat and are in active discussions with our regulators
ahead of publication of the draft determination in July 2009 and the final
determination in November 2009.
OPERATING PERFORMANCE
REGULATED ACTIVITIES
Financial highlights
* Regulated revenue increased by 6% to GBP1,500 million
* Regulated underlying operating profit increased by 11% to GBP679 million
Revenue from regulated activities increased by 6% to GBP1,500 million,
principally as a result of an allowed price increase of 7.8% (including
inflation), partially offset by lower water demand. As expected and indicated
previously, this level of growth is consistent with the position at the half
year. The regulated price increase supports significant investment in UUW's
infrastructure which provides vital clean water and wastewater services to
customers.
Operating profit for the year increased by 11% on an underlying basis,
primarily reflecting the allowed price increase and tight cost control, partly
offset by higher depreciation and power costs. The higher depreciation charge
reflects the high levels of capital spend, in line with the planned profile of
the investment programme. In line with UUW's policy, the business has entered
into forward contracts for the bulk of its power requirements for 2009/10. This
means that unit power costs in the forthcoming financial year are expected to
be in the order of 10% higher than in 2008/09. Bad debt expense is similar to
the prior year, although this represents a marginally lower proportion of
regulated revenue at 3.4% compared with 3.6% in 2007/08. However, cash
collection continues to be challenging.
Capital investment in the year, including GBP118 million of infrastructure
renewals expenditure, was GBP740 million. This high level of spend reflects the
capital investment profile, as UUW completes the peak phase of its 2005-10
regulatory programme. After adjusting for the revised sewage sludge strategy as
agreed with Ofwat, cumulative capital expenditure on water and wastewater
assets remains broadly in line with agreed regulatory assumptions. Overall, the
business remains on course to meet its capital expenditure regulatory
efficiency targets and deliver its outputs across the 2005-10 period.
Operational performance
Operational performance is a key area of focus and UUW is targeting an upper
quartile position among UK water companies on key operational measures in the
medium-term. The regulated business continues to upgrade its infrastructure,
replacing 227 kilometres of water mains during the year. UUW continues to
supply a high quality of drinking water, with a mean zonal compliance water
quality performance for the year of 99.92%. UUW is making good progress against
its key performance indicators:
* Relative efficiency - UUW has closed the operational efficiency gap to the
most efficient water companies over the last three years. This is reflected
in Ofwat's most recent (2007/08) assessment of United Utilities as band B
for the water service and band C for the wastewater service and represents
a one band improvement for both services over the three-year period.
* Security of water supply - UUW met its economic level of leakage rolling
target for the third consecutive year in 2008/09, despite unfavourable
winter weather conditions which made this target more challenging. This
follows a period where the company had not met this target for five years.
In addition, no water restrictions were required during the year.
* Pollution - The business has now met or outperformed its medium-term target
of a 50% reduction in major pollution incidents in each of the last three
years. One water and ten wastewater Category 1&2 incidents were recorded in
2008 compared with the base position of two water and 21 wastewater
incidents in 2005. In addition, UUW has more than halved the number of
failing wastewater treatment works, from 18 works in 2007 to seven works in
2008, and performance so far this year has been encouraging.
* Sewer flooding - UUW continues to remove properties from the sewer flooding
register. Ofwat has published a review of how registers of properties at
risk of sewer flooding are compiled and reported in the water sector in
England and Wales. UUW is currently in discussion with Ofwat regarding its
methodology and processes in this area. This is expected to result in a
restatement of the number of properties on UUW's sewer flooding registers,
with a resulting increase in these numbers in terms of both the start point
in 2005/06 and the current position. However, it is envisaged that the
restated numbers will still demonstrate progress over this period. UUW aims
to build on the progress achieved over the last three years and will
provide a further update when its sewer flooding registers have been
reassessed. Following completion of this review, UUW expects to restate its
historical overall performance assessment (OPA) scores for the three years
2004/05 through 2006/07 in relation to `flooding other causes' and is in
discussion with Ofwat regarding the extent of these restatements.
* Overall customer satisfaction - Significant improvements have been
delivered. Overall customer satisfaction, in response to enquiries, has
improved from less than 50% in 2005 to consistently over 70%. These
satisfaction levels are based on a comprehensive independent survey
conducted on behalf of UUW each month. Further progress has been achieved
and customer satisfaction is now at its highest levels for many years, with
a satisfaction rating of 76% for 2008/09. The rating for the final month of
the year was 80%. The business remains focused on achieving further
improvements.
Although UUW has delivered real progress, the business recognises that there is
more to do. Sewer flooding incidents, influenced by adverse weather, together
with environmental underperformance at Fleetwood wastewater treatment works are
expected to continue to impact the 2008/09 OPA score. A funded capital
investment programme has already been initiated at the Fleetwood works and an
improvement in performance is expected in the medium term.
Efficiency initiatives
UUW is broadly on track to meet its regulatory efficiency targets across the
2005-10 period, although the business is facing ongoing cost pressures in areas
such as power and bad debts.
The company's principal efficiency initiatives include an integrated
performance management project, which increases remote operational site
management and optimises chemical and power usage, and its asset improvement
programme which is improving the efficiency of operational pumps. These schemes
are key elements of United Utilities' plan to mitigate its carbon emissions,
alongside its combined heat and power assets which recycle energy generated
from wastewater treatment processes. UUW has been awarded the Carbon Trust
Standard; the business has developed the technology to convert biogas, a
by-product of the sludge treatment process, into bio-methane for vehicle fuel
and potentially to export into the national gas distribution network.
Other key initiatives include supply chain management, which has been
centralised and is delivering procurement economies, and a workforce management
project. There is a strong drive to improve customer service and the business
is focusing on reducing the number of customer queries, improving staff
productivity and implementing improved cash collection procedures.
The workforce management system is a key initiative in increasing the
efficiency of frontline staff, by using real time data across the workforce to
enable more effective work scheduling. This project has been successfully
implemented on time and below budget; early progress is encouraging. The system
should provide the dual benefits of reducing the cost to serve and improving
customer satisfaction. Cost savings of approximately GBP7 million per annum are
expected by 2010.
2009 water price review
UUW submitted its draft water and wastewater business plan, covering the
2010-15 period, to Ofwat in August 2008 and submitted its final plan on 7 April
2009, entitled "Planning for the future". These submissions form part of the
2009 water price review process and build on the company's strategic direction
statement published in December 2007. The business has worked hard to strike
the right balance between improvements in the network and the impact on the
bills paid by its customers. The final plan was welcomed by the Consumer
Council for Water and supported by UUW's independent engineering Reporter,
Halcrow, which described the capital investment assessment as well considered,
comprehensive and robust.
The total capital investment programme contained within the final plan,
including infrastructure renewals expenditure, is approximately GBP3.7 billion
(2007/08 prices), comprising GBP1.3 billion for the water service and GBP2.4
billion for the wastewater service. This compares with a programme of just over
GBP3 billion in the 2005-10 period. Investment to meet regulatory quality
standards, enhance the service to customers and maintain the supply/demand
balance is forecast at around GBP1.8 billion. The remainder relates to essential
maintenance of the water and wastewater infrastructure. Having raised over GBP1
billion of debt finance in the last year, the business would expect to borrow GBP
1.6 billion across the five-year period 2010-15 to finance this plan.
The planned 2010-15 capital investment programme takes account of the geography
and industrial legacy of the North West of England. It aims to maintain and
improve current service standards and address new tighter quality standards as
well as making provision for the challenge of climate change. The total
proposed capital expenditure programme in the final plan is GBP3,704 million,
compared with GBP4,035 million in the draft plan. The principal reductions are
the deferral and removal of outputs (GBP433 million), the impact of recession on
growth (GBP119 million) and greater future efficiency (GBP130 million), partly
offset by the inclusion of further projects relating to sewer overflows/
unsatisfactory intermittent discharges (GBP351 million).
UUW expects to improve its efficiency further across the 2010-15 period. The
business is aiming for a 1.5% annual improvement in its underlying operating
efficiency, although operating expenditure is likely to increase overall due to
cost pressures in areas such as property rates and pensions. UUW is also
targeting an average improvement in efficiency of between 4% and 8% across the
five-year period in respect of its capital investment programme.
UUW estimates that to finance this plan an average real, fully post-tax return
of 4.85% is required, which it believes would support an A3 credit rating. This
compares with a cost of capital of 5.1% assumed by Ofwat at the last price
review in 2004, reflecting the reduction in the cost of debt finance available
to the water sector during the early part of the 2005-10 period. However, this
return represents an increase of approximately 0.2% compared with the required
return in the draft business plan, following UUW's reassessment of its
financing costs in light of recent financial market conditions. This
reassessment is supported by NERA Economic Consulting's (NERA) recently updated
independent research ("Cost of Capital for PR09 - A Final Report for Water UK",
January 2009) which has concluded that a higher cost of capital in the range of
4.6% to 5.1% (fully post-tax, real) would be appropriate for the UK water
industry. NERA intends to reassess this cost of capital range later in the
year.
United Utilities believes that Ofwat should ensure that water companies can at
least maintain an A3 credit rating and should consider recent developments in
the credit markets. The raising of debt finance is particularly important given
the likely scale of investment that is still required in the water industry to
replace and refurbish ageing infrastructure, make provision for climate change
and deliver further statutory environmental obligations and customer
priorities. The board believes this to be an appropriate investment grade
rating to allow UUW to raise finance to fund its substantial capital investment
programmes, particularly in light of conditions in the debt markets over the
last 12 months.
UUW believes that its service, which on average costs households around GBP1 per
day for the supply of high quality drinking water and for environmentally
responsible wastewater collection and treatment, represents excellent value for
money. With this plan, average household bills would increase by seven pence
per day in real terms by 2015. This equates to an average annual real price
increase of 1.8% across UUW's customer base during the 2010-15 period. The
business believes this plan is consistent with its aim that bills, on average,
should rise no faster than medium-term household income growth.
The next stage of the price review process is publication of the draft
determination by Ofwat in July 2009, with the final determination due in
November 2009.
NON-REGULATED ACTIVITIES
Financial highlights
* Non-regulated revenue 3% lower at GBP919 million
* Non-regulated underlying operating profit increased by 9% to GBP68 million
Non-regulated revenue was marginally lower at GBP919 million, reflecting the
impact of the slowdown in the UK property market on the group's utility
connections business. However, underlying operating profit increased by 9%
compared with the prior year. This principally reflects the planned increase in
activity on the Scottish Water contract and an increase in contribution from
the company's international operations, including the benefit of foreign
exchange rate movements which amounted to GBP2.9 million.
Business update
United Utilities is the leading utility infrastructure outsourcing business in
the UK, applying the core utility skills from its regulated activities. United
Utilities holds major outsourcing contracts working on behalf of DAur Cymru
Welsh Water, Southern Water, Scottish Water, Electricity North West, Northern
Gas Networks and British Gas Trading (meter installation).
United Utilities also has a meter ownership contract with British Gas Trading
which provides a revenue stream to the group through rental income once the
meters have been installed. In addition, United Utilities has a 15% stake in
Northern Gas Networks, three Scottish PFI operations and operations in
Bulgaria, Estonia, Poland, the Philippines and Australia which provide a steady
income stream.
In December 2008, United Utilities was selected as preferred bidder for a
municipal solid waste treatment contract in Derbyshire, via a joint venture
with Interserve. The contract is due to commence in April 2010 with an expected
duration of 27 years. Subsequently, United Utilities also secured a 20-year
desalination operations and maintenance contract in Adelaide, through its joint
venture with Acciona Agua. It is expected that this contract will commence in
mid-2011.
United Utilities continues to benefit from a strong order book worth over GBP6
billion in revenue, which provides long-term income streams for the group.
Overall, the business is pleased with performance across its non-regulated
contract portfolio.
United Utilities continues to seek asset-light opportunities by leveraging its
core skills in areas that generate additional shareholder value with little
impact on the risk profile of the group.
OTHER ACTIVITIES
As expected, other activities delivered a small underlying operating loss of GBP6
million during the year, as central costs were partly offset by a small
contribution from United Utilities Property Solutions (UUPS). UUPS is the
property sales and management business of the group and, as indicated
previously, has been affected by the slowdown in the UK property market.
One-off costs of GBP7 million were incurred in 2008/09. These costs principally
relate to the capital restructuring associated with the GBP1.5 billion return to
shareholders.
FINANCIAL PERFORMANCE
Investment income and finance expense
Finance expense of GBP271 million was GBP61 million lower than the prior year. This
expense included a GBP24 million net fair value loss on debt and derivative
instruments, compared with a GBP43 million net fair value loss in the previous
year. This volatility in financing expense reflects the fact that, in order to
provide a hedge of the interest cost implicit in the regulatory period, the
group fixes interest rates for the duration of each five-year review period for
the majority of its debt using interest rate swaps. IAS 39 limits the use of
hedge accounting for these commercial hedges, thereby increasing the potential
volatility of the income statement. In addition, the impact of changes in
credit spread on debt accounted for at fair value through profit or loss can
result in significant additional volatility. However, this volatility in fair
values has no cashflow impact. Interest expense on swaps and debt under the
fair value option was GBP8 million, GBP33 million lower than the comparative
period, primarily due to the derivative contracts associated with a ae1 billion
6.625% bond, which matured in November 2007.
Investment income was GBP66 million, compared with GBP147 million in the previous
year, principally reflecting a reduction in cash following the return of
approximately GBP1.5 billion to shareholders and repayment of debt, including the
repayment of a $500 million bond on 1 April 2008. The underlying cost of net
borrowings for continuing operations of GBP196 million was GBP11 million lower than
the prior year. This reflects a reduction in the group's average net borrowing
rate from around 5.8% to 4.7% partly offset by higher average net debt,
primarily due to the return of approximately GBP1.5 billion to shareholders in
August 2008. The group's redemption of a ae1 billion 6.625% bond in November
2007 contributed to the reduction in the underlying cost of net borrowings. RPI
inflation during the previous year and the first half of 2008/09 initially
increased the cost of the group's index-linked debt. However, the benefit of
lower RPI began to impact the group's interest expense during the second half
of the year, with further benefits on interest expense expected in 2009/10. In
the event of RPI deflation, the principal amount of the index-linked debt would
be adjusted downwards, reducing interest expense in the income statement.
During 2008/09 indexation of the principal of index-linked debt amounted to a
charge of GBP28 million compared with a charge of GBP55 million in 2007/08.
Profit before taxation
Profit before taxation increased by 11% to GBP530 million. Underlying profit
before taxation (note 1) was GBP532 million, 12% ahead of the results for the
year ended 31 March 2008. This underlying measure adjusts for the impact of
one-off items, fair value movements in respect of debt and derivative
instruments, interest on swaps and debt under fair value option and the
short-term interest benefit associated with the cash proceeds from the sale of
United Utilities Electricity (UUE) prior to the GBP1.5 billion return to
shareholders.
Taxation
The current tax charge relating to continuing operations was GBP139 million and
the current tax effective rate was 26% compared with 19% in the previous year.
The increase in the current tax rate principally relates to fair value movement
in derivatives, the cessation of deductions for the 2005 pension prepayment and
a net reduction in capital allowances claimed, partly offset by the reduction
in the corporation tax rate from 30% to 28%. These timing differences are
matched by equal and opposite movements in deferred tax.
The group has recognised a one-off deferred tax charge of GBP206 million relating
to the abolition of industrial buildings allowances. This one-off item has
resulted in a significant increase in the effective tax rate for the year ended
31 March 2009. However, the cash impact will be spread over a period of
approximately 20 years.
The total deferred tax charge relating to continuing operations is GBP210 million
compared with a deferred tax credit in the prior year of GBP27 million, which
reflected the restatement of the opening deferred tax liability following the
reduction in the corporation tax rate from 30% to 28% with effect from April
2008.
An overall tax charge of GBP349 million relating to continuing operations has
been recognised for the year ended 31 March 2009. Excluding the impact of the
abolition of industrial buildings allowances and the change in corporation tax
rate in the prior year, the total tax charge relating to continuing operations
would be GBP143 million or 27% compared with a GBP144 million charge or 30% in the
prior year. It is expected that the group's effective tax rate for 2009/10
will be broadly in line with the mainstream UK corporation tax rate of 28%.
Earnings per share
Basic earnings per share relating to continuing operations decreased from 61.2
pence to 26.5 pence, principally reflecting the one-off deferred tax charge of
GBP206 million relating to the abolition of industrial buildings allowances
(equivalent to 30.3 pence per share). Basic earnings per share in the previous
year were positively impacted by a one-off deferred tax credit of GBP82 million
(equivalent to 12.0 pence per share), reflecting the reduction in the
corporation tax rate from 30% to 28% with effect from April 2008.
Basic earnings per share are calculated based on 681 million ordinary shares
(the prior year has been re-presented based on 680 million ordinary shares),
reflecting the group's capital reorganisation implemented on 28 July 2008.
Dividends per share
The board has proposed a final dividend of 22.03 pence per ordinary share in
respect of the year ended 31 March 2009. Including the interim dividend of
10.64 pence per share, which has already been paid, the total dividend for 2008
/09 is 32.67 pence per share. As explained previously, this is a 30% reduction
compared with the 2007/08 dividend per share, to reflect the revised
composition of the group following the sale of UUE and the return of GBP1.5
billion to shareholders.
The group's revised dividend policy is intended to target a sustainable and
growing level of dividends. The new target real growth rate of RPI+2% will be
applied from 2009/10 to the 2008/09 dividend per share. In line with this
policy, the board expects to grow dividends for 2009/10 by 5.0%. This
incorporates an inflationary increase of 3.0%, which is based on the RPI
element included within the allowed regulated price increase for UUW for the
2009/10 financial year (i.e. the movement in RPI between November 2007 and
November 2008).
The final dividend in respect of 2008/09 is expected to be paid on 3 August
2009 to shareholders on the register at the close of business on 19 June 2009.
The ex-dividend date for the final dividend is 17 June 2009.
Cashflow
Cash generated from the group's continuing operations for the year ended 31
March 2009 was GBP911 million, compared with GBP877 million in the prior year. High
levels of capital expenditure have continued, principally in the regulated
water and wastewater investment programmes. The group's capital expenditure on
property, plant and equipment for the year was GBP675 million, excluding
infrastructure renewals expenditure which is treated as an operating cost under
IFRS.
Net debt, including derivatives, at 31 March 2009 was GBP4,895 million, an
increase of GBP1,992 million compared with 31 March 2008. This movement
principally reflects the return to shareholders of approximately GBP1.5 billion,
along with expenditure on the regulatory capital investment programme, payment
of dividends and payments of interest and tax, partly offset by operational
cashflows.
Debt financing and interest rate management
As expected, gearing (measured as group net borrowings divided by UUW's
regulatory capital value) increased to 66% at 31 March 2009, compared with 39%
at 31 March 2008, following the return of approximately GBP1.5 billion to
shareholders in August 2008. Adjusting for the group's non-recourse joint
venture debt of GBP230 million, gearing is 63%. The board continues to target an
A3 credit rating for United Utilities Water PLC. At the year end, United
Utilities Water PLC had stable long-term credit ratings of A3/A- and United
Utilities PLC had stable long-term credit ratings of Baa1/BBB+ from Moody's
Investors Services and Standard and Poor's Ratings Services respectively.
During the year, United Utilities repaid a $500 million 6.45% bond and a ae600
million 4.875% bond from existing cash resources. Cash and short-term deposits
on the balance sheet at 31 March 2009 amounted to GBP299 million. United
Utilities has a long-standing relationship with the European Investment Bank
and during the year enhanced its liquidity further via a new GBP400 million term
loan facility for UUW to support the remainder of the company's current capital
investment programme. In addition, UUW issued a GBP375 million 6.125%, seven-year
bond, a GBP275 million 5.75%, 13-year bond and GBP35 million of floating rate
Japanese Yen notes, maturing in 2017. In total, the group raised over GBP1
billion of term funding during the financial year.
The group has access to the international debt capital markets through its ae7
billion medium-term note programme which provides for the periodic issuance by
United Utilities PLC and United Utilities Water PLC of debt instruments on
terms and conditions determined at the time the instruments are issued. The
programme does not represent a funding commitment, with funding dependent on
the successful issue of the debt securities.
Long-term borrowings are structured or hedged to match earnings and assets,
which are largely in sterling, indexed to UK retail price inflation, and in the
case of revenues, subject to regulatory price reviews every five years.
Very long-term sterling inflation index-linked debt is the group's preferred
form of funding as this provides a natural hedge to earnings and assets. At the
year-end, approximately 40% of the group's net debt was in index-linked form,
representing around 27% of UUW's regulatory capital value, with an average real
interest rate of 1.8%. The long-term nature of this funding also provides a
good match to the group's long-life infrastructure assets and is a key
contributor to the group's average term debt maturity profile which is in
excess of 25 years.
Where debt is raised in a currency other than sterling and/or with a fixed
interest rate, it is generally swapped to create a floating rate sterling
liability for the term of the liability. The group's policy is to seek to match
the debt service costs to regulatory cashflow which is impacted by the general
interest rate environment at the time of each price control determination and
is then fixed for the five-year period of that price control. To hedge the
exposure to each price control determination, the group enters into interest
rate swaps, around the time of each price control determination, to fix
interest costs for a substantial proportion of the group's debt for the
duration of that price control period. The group does not undertake any
speculative trading activity.
The group enters into joint ventures with consortium partners. The financial
and legal structure of joint ventures is designed to limit the group's exposure
to the extent of the equity investment and loans provided by the group, with no
further recourse should the joint venture default. All joint venture
arrangements have been incorporated into the group's results on a proportionate
consolidation basis.
Liquidity
Short-term liquidity requirements are met from the group's normal operating
cashflow and its short-term bank deposits. Further liquidity is provided by
committed but undrawn credit facilities. This liquidity supports the group's ae2
billion euro-commercial paper programme.
In line with the board's treasury policy, United Utilities aims to maintain a
healthy headroom position. Available headroom at 31 March 2009 was GBP935 million
based on cash, short-term deposits and medium-term committed bank facilities,
net of short-term debt. This headroom is sufficient to cover the group's
projected financing needs through to mid-2011.
United Utilities believes that it operates a prudent approach to managing
banking counterparty risk. The group does not have any cash (or cash
equivalents) invested in money market funds. Its cash is held in the form of
short-term (generally no longer than three months) money market deposits with
prime commercial banks.
United Utilities operates a bilateral, rather than a syndicated, approach to
its core relationship banking facilities. This approach spreads maturities more
evenly over a longer time period, thereby reducing refinancing risk and
providing the benefit of several renewal points rather than a large single
refinancing requirement.
Going concern
The directors have reviewed the financial resources available to the group and
have concluded that the group is a going concern. This conclusion is based,
amongst other matters, upon a review of the group's budget for 2009/10, on a
review of the group's proposed five-year business plan and investment programme
(in line with the plans submitted for the 2009 water price review - see above),
together with a review of the cash and committed borrowing facilities available
to the group (see above).
Underlying profit
In considering the results for the year, the directors have adjusted the
group's statutory measures for fair value movements on debt and derivative
instruments, interest on swaps and debt under fair value option and those
significant items identified as non-recurring. Operating profit and profit
before taxation from continuing operations are reconciled to underlying
operating profit from continuing operations and underlying profit before
taxation from continuing operations as follows:
Continuing operations Regulated Non- Other Total
Operating profit/(loss) for the year activities regulated activities
ended 31 March 2009 activities
GBPm GBPm GBPm GBPm
------ ------ ------ ------
Operating profit/(loss) per published 678.4 69.1 (12.3) 735.2
results
------ ------ ------ ------
One-off items**** 1.0 (1.0) 6.6 6.6
------ ------ ------ ------
Underlying operating profit/(loss) 679.4 68.1 (5.7) 741.8
Continuing operations Regulated Non- Other Total
Operating profit for the year ended activities regulated activities
31 March 2008 activities
GBPm GBPm GBPm GBPm
------ ------ ------ ------
Operating profit per published results 611.6 50.6 1.0 663.2
------ ------ ------ ------
Restructuring costs 2.6 11.6 (0.2) 14.0
------ ------ ------ ------
Underlying operating profit 614.2 62.2 0.8 677.2
------ ------ ------ ------
Continuing operations Year ended Year ended
Profit before taxation 31 March 31 March
2009 2008
GBPm GBPm
------ ------
Profit before taxation per published 529.8 478.3
results
------ ------
Operating profit adjustments (see above) 6.6 14.0
Net fair value losses on debt and 24.3 42.7
derivative instruments
Interest on swaps and debt under fair (8.3) (41.7)
value option
Interest associated with cash proceeds (20.6) (17.7)
from UUE sale*****
------ ------
Underlying profit before taxation 531.8 475.6
------ ------
Continuing operations Year ended Year ended
Underlying cost of net borrowings 31 March 31 March
2009 2008
GBPm GBPm
Finance expense 270.9 331.6
Net fair value losses (24.3) (42.7)
Interest on swaps and debt under fair 8.3 41.7
value option
------ ------
Underlying interest payable 254.9 330.6
------ ------
Investment income (65.5) (146.7)
Adjustment for net pension interest income 6.8 23.5
------ ------
Underlying cost of net borrowings 196.2 207.4
------ ------
Add back adjustment for net pension (6.8) (23.5)
interest income
Interest associated with cash proceeds 20.6 17.7
from UUE sale*****
------ ------
Underlying net interest payable 210.0 201.6
------ ------
**** Principally relates to the capital restructuring associated with the GBP1.5
billion return to shareholders (contained within the other activities segment)
and restructuring within the business.
***** The interest associated with the cash proceeds from the sale of UUE has
been deducted to provide a more representative view of underlying performance.
As the cash proceeds from the sale of UUE were held by the group until the GBP1.5
billion return to shareholders in August 2008, this resulted in a short-term
net debt and interest reduction.
GBP1.5 billion return to shareholders and creation of new parent company
As a result of the sale of United Utilities Electricity and the review of the
group's capital structure, outlined in its half year results published on 29
November 2007, the board reported its intention to return to shareholders a
total of GBP1.5 billion or 170 pence per share. The vast majority of the planned
GBP1.5 billion return to shareholders took place in August 2008 via a B share
scheme. The residual balance of approximately GBP17 million was returned in April
2009 to shareholders that had elected to receive the return in the next
financial year.
In order to implement the B share scheme and return of value and increase
distributable reserves, the group proposed a change to its corporate structure.
The change was subject to court and shareholder approval and involved a scheme
of arrangement to introduce a new parent company above United Utilities PLC.
The scheme of arrangement has now taken place and involved the new parent
company, United Utilities Group PLC, acquiring all of the shares in United
Utilities PLC and issuing new shares. This comprised the issue of new shares,
including ordinary shares and redeemable B shares, to facilitate the GBP1.5
billion return. The number of new ordinary shares issued was reduced on the
basis of 17 United Utilities Group PLC ordinary shares for every 22 United
Utilities PLC ordinary shares in issue prior to the capital reorganisation.
This reduction in shares was commensurate with the GBP1.5 billion return to
shareholders. The last day of trading for United Utilities PLC shares was 25
July 2008 and United Utilities Group PLC shares commenced trading on 28 July
2008.
PRINCIPAL RISKS AND UNCERTAINTIES
The group faces a variety of risks and uncertainties, both foreseeable and
unforeseeable which, if they materialise, could adversely affect its
reputation, profitability or financial position, its share price or the pricing
and liquidity of its debt securities. The principal ones are summarised below.
The group maintains an internal control framework that seeks to identify,
assess and manage exposures to internal and external risks. This requires
management to assess the nature and magnitude of risks consistently and, in the
absence of appropriate controls, to implement risk mitigation strategies in a
prioritised manner. The framework's effectiveness is reviewed by the Audit
Committee.
Unfavourable price determination
The regulated business operates in an industry which is substantially
influenced by the service levels, regulatory targets and price determinations
set by its primary regulator, Ofwat, as well as Ofwat's assessment of its
delivery against these. An adverse outcome to the price determination process
(which limits the income the regulated business can receive from its customers)
could occur for a number of reasons. These include an inadequate allowed cost
of capital, turnover forecasts proving not to be sufficiently accurate, or
unforeseen or unforeseeable costs which arise after the determination that
cannot be recovered from customers. After a price determination, there is a
right of appeal to the Competition Commission, but otherwise the scope to
review the outcome within the relevant five year period is limited. Review
mechanisms can also be invoked by Ofwat to reduce the prices for customers.
Furthermore, implicit within the price determination are assumptions by Ofwat
concerning the group's future operating expenditure and the achievement of
operating cost savings. If these efficiencies are not achieved this may be
reflected in less favourable outcomes in Ofwat's future price determinations.
In April this year, the group submitted its final business plan to Ofwat for
the 2009 price review for the regulated business, which will set prices for the
five year period from April 2010. This plan endeavours to ensure that the
assumptions and projections underlying Ofwat's price determination are accurate
and achievable. The group has committed substantive and qualified resource to
ensuring the quality of its submissions throughout the price determination
process to give it the best prospect of receiving a satisfactory determination.
The submission process includes an assessment of the risks associated with each
component of the business to assist Ofwat's understanding of these. Ofwat's
draft determination will be published in July 2009 and its final determination
of allowable prices is expected to be published in November 2009.
Capital investment programmes
The regulated business requires significant capital expenditure, particularly
in relation to new and replacement plant and equipment for water and wastewater
networks and treatment facilities. Historically, the group has financed this
capital expenditure from operating cashflow and from external debt and equity
financing. There can be no assurance that operating cashflows will not decline
or that external debt financing and other sources of capital will be available,
at similar cost to that assumed by Ofwat, in order to meet these capital
expenditure requirements. Delivery of capital investment programmes could also
be affected by a number of factors including adverse legacy effects of earlier
capital investments or amounts budgeted in prior capital investment programmes
proving insufficient to meet the actual amount required. This may affect the
group's ability to meet regulatory and other environmental performance
standards, which may result in fines imposed by Ofwat of an amount of up to 10
per cent of regulated business turnover or other sanctions.
In order to minimise the likelihood of funding shortfalls, capital investment
programmes are regularly monitored to identify the risk of time, cost and
quality variances from plans and budgets and to identify, where possible, any
appropriate opportunities for out-performance. Development of the programme for
2010-15 is progressing in line with expectations, as is delivery of the current
capital investment programme.
Current capital market conditions
The global banking crisis continues to impact the debt and equity capital
markets. It has resulted in the cost of capital increasing significantly and
has made the issuance of new equity and debt capital more expensive and more
difficult to secure. A compounding challenge arises from the relationship
between the Regulatory Capital Value (RCV) of the regulated business and the
Retail Price Index (RPI). The RCV is adjusted annually for inflation so, if RPI
decreases, the RCV would be adjusted downward to reflect this. This may lead
to pressure on the gearing ratios and credit ratings of the regulated business
and the group as a whole and increase the cost or limit the availability of
credit in an already difficult market. In the extreme, the group may be
required to increase its equity base by either reducing its dividend payments
or raising new equity capital. The global economic crisis has also created
difficult trading and financing conditions for customers, contractors and
suppliers of materials and/or services to the group.
The group closely monitors its liquidity headroom within the parameters
approved by the Board, the impact of trends in inflation or deflation on its
capital position as well as the potential impact of wider changes in the credit
markets. Where possible, the group has sought to issue debt linked to RPI to
minimise the extent of its exposure to deflationary (or low inflationary)
conditions. The group also monitors the financial position of its key
contractors and suppliers and seeks to use its procurement processes to ensure
that alternative suppliers can be sourced quickly and, where possible, on
similar terms.
Pension scheme obligations
The group participates in a number of pension arrangements, predominately in
the UK. The principal schemes are defined benefit schemes, although these have
been closed to new employees since October 2006. The assets of these schemes
are held in trust funds independent of group finances, with the funds being
well diversified and professionally managed. Reflecting the global economic
environment, the group's current schemes had a combined IAS19 deficit of GBP213
million as at 31 March 2009, compared with a deficit of GBP101 million as at 31
March 2008 and a deficit of GBP253 million as at 30 September 2008.
Increases to pension deficits may result in an increased liability for the
group, the size of which depends upon the extent to which additional deficits
are recoverable through the regulatory price determination process. The
regulated business is in ongoing dialogue with Ofwat concerning the allowances
for increased pension scheme deficits within the price determination process
for the 2010-2015 period. The group monitors the scheme's investment strategy
implementation and assesses changes in the group's exposure to liability.
Failure to comply with applicable law or regulations
The group is subject to various laws and regulations in the UK and
internationally. Regulatory authorities may from time to time make enquiries of
companies within their jurisdiction regarding compliance with regulations
governing their operations. In addition to regulatory compliance proceedings,
the group could become involved in a range of third party proceedings relating
to land use, environmental protection and water quality. Amongst others, these
may include civil actions by third parties for infringement of rights or
nuisance claims relating to odour or other matters. Furthermore, the impact of
future changes in laws or regulations or the introduction of new laws or
regulations that affect the business cannot always be predicted and, from time
to time, interpretation of existing laws or regulations may also change or the
approach to their enforcement may become more rigorous. If the group fails to
comply with applicable law or regulations, in particular in relation to its
water and wastewater licences, or has not successfully undertaken corrective
action, regulatory action could be taken that could include the imposition of a
financial penalty (of up to 10 per cent of relevant regulated turnover) or the
imposition of an enforcement order requiring the group to incur additional
capital or operating expenditure to remedy its non-compliance. In the most
extreme cases, non-compliance may lead to revocation of a licence or the
appointment of a special administrator.
The group endeavours to comply with all legal requirements in accordance with
its business principles and robust processes are in place to seek to mitigate
against non-compliance. The regulated business is certified to both ISO 9001
and 14001 standards and the group continually monitors legislative and
regulatory developments and, where appropriate, participates in consultations
to seek to influence their outcome, either directly or through industry trade
associations for wider issues. The group seeks appropriate funding for any
additional compliance costs in the regulated business as part of the price
determination process.
Increased competition in the water and wastewater industry
The Cave review of competition and innovation in water markets was published in
April 2009. If its recommendations are implemented, this would eventually
expand the competitive market allowing retail competition to all non-household
customers. Ofwat has also taken steps to introduce competition into the water
supply market through inset appointments and the water licensing supply regime.
Prior to 2007 (with one exception), inset appointees had all been granted to
existing regulated companies. Since 2007, Ofwat has granted more inset
appointments, two of which are within UUW's region. Further inset appointments
may be made in the future, resulting in increased competition.
The group has been fully engaged in the Ofwat consultations on the Cave review,
although a relatively small proportion of the group's profits derives directly
from non-household retail activities. If competition is expanded, there would
be opportunities for the group to participate in a wider market in England and
Wales. As far as inset appointments are concerned, these generally relate to
new developments or large industrial customers. Furthermore, the regulated
business has not received any applications from holders of water supply
licences to supply any premises within its region.
Events, service interruptions, systems failures, water shortages or
contamination of water supplies
The group controls and operates utility networks and maintains the associated
assets with the objective of providing a continuous service. In exceptional
circumstances, electricity, gas or water shortages or the failure of an asset,
an element of a network or supporting plant and equipment could result in the
interruption of service provision or catastrophic damage resulting in
significant loss of life and/or environmental damage and/or economic and social
disruption. The group could be fined for breaches of statutory obligations or
held liable to third parties, or be required to provide an alternative water
supply of equivalent quality, which could increase costs. The group is also
dependent on the ability to access, utilise and communicate remotely via
electronic software applications mounted upon corporate information technology
hardware and communicating through internal and external networks. The
ownership, maintenance and recovery of such applications, hardware and networks
are not wholly under its control.
The group operates long-standing, well tested and appropriately resourced
incident response and escalation procedures. The processes continue to be
refined, together with risk management and business continuity procedures,
recognising that possible events have varying impacts and likelihoods. While
the group seeks to ensure that it has appropriate processes in place, there can
be no certainty that such measures will be effective in preventing or, when
necessary, managing large-scale incidents to the satisfaction of customers,
regulators, government and the wider stakeholder community. The group also
maintains insurance cover in relation to losses and liabilities likely to be
associated with such significant risks, although potential liabilities arising
from a catastrophic event could exceed the maximum level of insurance cover
that can be obtained cost effectively. The regulated business's licence also
contains a `shipwreck' clause that, if applicable, may offer a degree of
recourse to Ofwat in the event of a major incident.
Risks in the group's non-regulated business
Outside the regulated business, the group provides services relating to the
operation and management of assets for other utility clients in the UK and
overseas. These services include the maintenance and operation of electricity,
gas and water networks, the design and construction of new assets, the design
and construction of new connections to the relevant network and the provision
of ancillary services. The delivery of contracts, both existing and future,
will be achieved by exploiting the group's core infrastructure management
skills and may also require capital expenditure. The overstretching of such
skills could lead to a loss of customers or the inability to meet contractual
commitments, or to the incurrence of penalties.
The costs and risks associated with these new projects are subject to internal
reviews before approval is given to commit to them. The group aims to comply
with its contractual commitments or operating performance targets and any
requirements to maintain service continuity or achieve specified operating
efficiencies in relation to those clients. Within the non-regulated business,
the focus is on deploying the group's core skills on an asset-light basis,
whilst continually monitoring contract performance and programme and project
management.
Material litigation
NOSS Consortium (NOSS), of which North West Water International Limited, a
wholly owned subsidiary of United Utilities Group PLC, is a member and the sole
remaining active participant, is party to arbitration proceedings in Thailand
in relation to a design and construction contract dated 1 November 1993 between
NOSS and the Bangkok Metropolitan Administration (BMA) to build a wastewater
treatment plant and network in central Bangkok. Following disagreements with
the engineer (Dorsch Consult) and disputes with the BMA, NOSS terminated the
contract with the BMA and served a notice of arbitration. NOSS has total claims
against the BMA of approximately six billion baht. The BMA has counter claimed
for approximately three billion baht, however, based upon the facts and matters
currently known, the counter claim appears to lack substance. Although there
have been some delays in the arbitral process, the arbitration now appears set
to proceed.
In February 2009 the group was served with notice of a multi-party "class
action" in Argentina into which United Utilities International Limited ("UUIL")
was enjoined in 2007. The class action is related to the issuance and payment
default of a US$230 million bond by Inversora Electrica de Buenos Aires S.A.
("IEBA"), an Argentine project company set up to purchase one of the Argentine
electricity distribution networks, which was privatised in 1997. UUIL had a 45%
shareholding in IEBA which it sold in 2005. The class action is being pursued
against various parties, including the original direct and indirect
shareholders of IEBA, the banks which advised IEBA and the rating agencies of
the bonds. The bonds, which were issued in 1997, were defaulted in March 2002
and IEBA entered an insolvency process in 2003. The claim is for a non
quantified amount of unspecified damages, and purports to be pursued on behalf
of unidentified consumer bondholders in IEBA who allegedly lost money. UUIL has
filed a defence to the action and will vigorously resist the proceedings, given
the robust defences that UUIL has been advised that it has on procedural and
substantive grounds.
The group faces the general risk of litigation in connection with its
businesses. In most cases, liability for litigation is difficult to assess or
quantify; recovery may be sought for very large and/or indeterminate amounts
and the existence and magnitude of liability may remain unknown for substantial
periods of time. The group robustly defends litigation where appropriate and
seeks to minimise its exposure to such claims by early identification of risks
and compliance with its legal and other obligations. Based upon the facts and
matters currently known and the provisions carried in the group's balance
sheet, the directors are of the opinion that the possibility of the disputes
referred to having a material adverse effect on the group's financial position
is remote.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This final results announcement contains certain forward-looking statements
with respect to the operations, performance and financial condition of the
group. By their nature, these statements involve uncertainty since future
events and circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements reflect
knowledge and information available at the date of preparation of this final
results announcement and the company undertakes no obligation to update these
forward-looking statements. Nothing in this final results announcement should
be construed as a profit forecast.
Certain regulatory performance data contained in this final results
announcement is subject to regulatory audit.
Consolidated income statement
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Continuing operations
Revenue 2,434.7 2,362.9
------ ------
Other income 18.5 21.3
Employee benefits expense (347.2) (317.5)
Depreciation and amortisation expense (263.5) (248.2)
Infrastructure renewals expenditure (117.8) (120.1)
Other operating costs (989.5) (1,035.2)
------ ------
Total operating expenses (1,699.5) (1,699.7)
------ ------
Operating profit 735.2 663.2
Investment income (note 3) 65.5 146.7
Finance expense (note 4) (270.9) (331.6)
------ ------
Investment income and finance expense (205.4) (184.9)
------ ------
Profit before taxation 529.8 478.3
Current taxation charge (139.1) (88.6)
Deferred taxation charge (3.7) (55.1)
Deferred taxation charge - abolition of (206.4) -
industrial buildings allowances
Deferred taxation credit - change in taxation - 81.7
rate
------ ------
Taxation (note 5) (349.2) (62.0)
------ ------
Profit for the year from continuing operations 180.6 416.3
Discontinued operations
(Loss)/profit for the year/period from (1.2) 492.9
discontinued operations (note 6)
------ ------
Profit for the year 179.4 909.2
------ ------
Earnings per share
from continuing and discontinued operations (note 7)*
Basic 26.3p 133.6p
Diluted 26.3p 133.6p
Earnings per share
from continuing operations (note 7)*
Basic 26.5p 61.2p
Diluted 26.5p 61.2p
Dividend per ordinary share (note 8) 32.67p 46.67p
* The weighted average number of shares for the current and prior year
have been based on the 681,381,233 new ordinary shares issued in United
Utilities Group PLC on 28 July 2008 and the earnings per share figures
for the comparative year have been re-presented accordingly (see note 7).
Consolidated balance sheet
31 March 31 March
2009 2008
GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 7,977.2 7,591.8
Goodwill 2.6 2.3
Other intangible assets 106.1 85.3
Investments 136.8 155.5
Trade and other receivables 21.5 28.2
Derivative financial instruments 412.6 44.3
------ ------
8,656.8 7,907.4
------ ------
Current assets
Inventories 73.0 63.3
Trade and other receivables 491.6 456.2
Cash and short-term deposits 298.6 1,810.5
Derivative financial instruments 226.4 99.0
------ ------
1,089.6 2,429.0
------ ------
Total assets 9,746.4 10,336.4
------ ------
LIABILITIES
Non-current liabilities
Trade and other payables (139.8) (125.5)
Borrowings (5,200.1) (3,788.9)
Retirement benefit obligations (213.1) (101.2)
Deferred tax liabilities (1,338.9) (1,164.0)
Provisions (17.2) (18.7)
Derivative financial instruments (4.5) (53.2)
------ ------
(6,913.6) (5,251.5)
------ ------
Current liabilities
Trade and other payables (672.4) (771.9)
Borrowings (479.6) (878.4)
Current income tax liabilities (67.6) (66.9)
Provisions (22.6) (21.0)
Derivative financial instruments (148.6) (136.7)
------ ------
(1,390.8) (1,874.9)
------ ------
Total liabilities (8,304.4) (7,126.4)
------ ------
Total net assets 1,442.0 3,210.0
------ ------
EQUITY
Capital and reserves attributable to equity
holders of the company
Share capital 499.8 881.6
Share premium account 0.7 1,429.3
Revaluation reserve 158.8 158.8
Treasury shares (0.3) (0.3)
Cumulative exchange reserve 16.1 7.6
Merger reserve 313.0 -
Other reserves 36.6 58.1
Retained earnings 417.3 674.9
------ ------
Shareholders' equity (note 10) 1,442.0 3,210.0
------ ------
Consolidated cashflow statement
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Operating activities
Cash generated from operations 911.4 876.9
Interest paid (232.3) (299.9)
Interest received and similar income 90.4 119.1
Tax paid (32.8) (98.6)
------ ------
Net cash generated from operating activities 736.7 597.5
(continuing operations)
Net cash generated from operating activities - 99.5
(discontinued operations)
------ ------
736.7 697.0
------ ------
Investing activities
Disposal of investments - 0.6
Disposal of associated company - 75.8
Disposal of subsidiaries - 1,152.7
Net cash outflow from group reorganisation - (15.0)
Purchase of property, plant and equipment (675.2) (644.5)
Purchase of other intangible assets (38.9) (25.3)
Proceeds from sale of property, plant and 3.8 15.0
equipment
------ ------
Net cash (used in)/generated from investing (710.3) 559.3
activities (continuing operations)
Net cash used in investing activities - (161.0)
(discontinued operations)
------ ------
(710.3) 398.3
------ ------
Financing activities
Proceeds from issue of ordinary shares 1.6 9.2
Cash used in structured financing (163.9) (170.1)
Proceeds from borrowings 3,784.7 1,068.9
Repayment of borrowings (3,310.9) (2,297.2)
Dividends paid to equity holders of the company (349.9) (400.4)
(note 8)
Return to shareholders on capital reorganisation (1,482.3) -
Dividends received from discontinued operations - 100.0
------ ------
Net cash used in financing activities (continuing (1,520.7) (1,689.6)
operations)
Net cash used in financing activities - (190.1)
(discontinued operations)
------ ------
(1,520.7) (1,879.7)
------ ------
Effects of exchange rate changes (continuing (1.8) 148.9
operations)
------ ------
Net decrease in cash and cash equivalents (1,496.1) (383.9)
(continuing operations)
Net decrease in cash and cash equivalents - (251.6)
(discontinued operations)
------ ------
(1,496.1) (635.5)
------ ------
Cash and cash equivalents at beginning of the year 1,705.2 2,340.7
------ ------
Cash and cash equivalents at end of the year 209.1 1,705.2
------ ------
Consolidated statement of recognised income and
expense
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Actuarial losses on defined benefit (124.3) (126.4)
pension schemes
Revaluation of investments (20.3) 34.9
Fair value losses on cashflow hedges (1.6) (1.5)
Foreign exchange adjustments 8.5 11.8
Tax on items taken directly to equity 35.2 35.8
------ ------
Net expense recognised directly in (102.5) (45.4)
equity
Profit for the year 179.4 909.2
------ ------
Total recognised income and expense 76.9 863.8
for the year
------ ------
Reconciliation of movements in consolidated equity
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Total net income recognised for the 76.9 863.8
year
Dividends (note 8) (349.9) (400.4)
New share capital issued (note 10) 500.5 9.2
Capital reorganisation (note 10)* (1,997.9) -
Other movements 2.4 2.6
------ ------
Net (decrease)/increase in equity for (1,768.0) 475.2
the year
Opening equity attributable to equity 3,210.0 2,734.8
shareholders
------ ------
Closing equity attributable to equity 1,442.0 3,210.0
shareholders
------ ------
* March 2009 includes GBP1,499.0 million return of capital to shareholders (note
10).
Cash generated from continuing
operations
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Profit before taxation 529.8 478.3
Adjustment for investment income and 205.4 184.9
finance expense
------ ------
Operating profit 735.2 663.2
Adjustments for:
Depreciation of property, plant and 244.3 226.0
equipment
Amortisation of other intangible 19.2 22.2
assets
Loss/(profit) on disposal of 0.8 (5.7)
property, plant and equipment
Equity-settled share-based payments 1.9 2.6
charge
Other non-cash movements - 3.9
Changes in working capital:
Increase in inventories (9.7) (4.1)
Increase in trade and other (30.2) (81.3)
receivables
(Decrease)/increase in provisions and (50.1) 50.1
payables
------ ------
Cash generated from continuing 911.4 876.9
operations
------ ------
Segmental analysis by class of
business
Continuing operations Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Revenue
Regulated activities 1,499.5 1,416.3
Non-regulated activities 919.3 949.2
Other activities 22.4 41.3
------ ------
2,441.2 2,406.8
Inter-segment revenue (6.5) (43.9)
------ ------
2,434.7 2,362.9
------ ------
Continuing operations Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Operating profit/(loss)
Regulated activities 678.4 611.6
Non-regulated activities 69.1 50.6
Other activities (12.3) 1.0
------ ------
735.2 663.2
------ ------
For management purposes, the group is organised into two principal operating
divisions, being regulated and non-regulated activities. These divisions form
the basis on which the above primary segment information is reported.
The regulated activities segment includes the regulated results of United
Utilities Water PLC.
The non-regulated activities segment includes the group's utility outsourcing
contracts in the United Kingdom and overseas.
In addition, the other activities segment includes the results of United
Utilities Property Solutions Limited, United Utilities Group PLC and other
group holding companies.
NOTES
1. New statutory holding company
On 28 July 2008, a new statutory holding company structure became effective by
way of a share exchange between the shareholders of United Utilities PLC (the
previous holding company) and United Utilities Group PLC (the new holding
company) and the group became United Utilities Group PLC.
This has been accounted for as a reverse acquisition in the condensed
consolidated financial statements. The legal subsidiary, United Utilities PLC,
is treated as the acquirer and the legal parent company, United Utilities Group
PLC, is treated as the subsidiary. The transaction was, in substance, an
acquisition of the assets of United Utilities Group PLC by United Utilities
PLC.
As a consequence of applying reverse acquisition accounting, the results of
United Utilities Group PLC (the "group") for the year ended 31 March 2009
comprise the results of United Utilities PLC for the year ended 31 March 2009
consolidated with those of United Utilities Group PLC from 28 July 2008. The
comparative figures for the group are those of the group headed by United
Utilities PLC for the year ended 31 March 2008. All of the financial
information has been presented in accordance with the accounting policies
referred to below.
2. Basis of preparation
The results for the year ended 31 March 2009 have been prepared on the basis of
accounting policies consistent with those set out in the annual report to
shareholders of United Utilities PLC for the year ended 31 March 2008.
During the year, the group has adopted IFRIC 14 `IAS 19 - The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. The
adoption of this interpretation has no material impact on the financial
statements for the year ended 31 March 2009.
The condensed consolidated financial statements of the group have been prepared
on a basis consistent with the United Utilities Group PLC full financial
statements which are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union that are effective
for the year ended 31 March 2009.
The condensed consolidated financial statements do not include all of the
information and disclosures required for full annual financial statements and
do not comprise statutory accounts within the meaning of section 435 of the
Companies Act 2006. United Utilities Group PLC prepared unconsolidated initial
accounts of the company for the period from 8 April 2008 to 31 July 2008.
The comparative figures for the year ended 31 March 2008 do not comprise the
group's statutory accounts for that financial year. Those accounts have been
reported upon by the group's auditors and delivered to the registrar of
companies. The report of the auditors was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
Statutory accounts for United Utilities Group PLC for 2009 will be delivered to
the Registrar of Companies following the company's annual general meeting. The
auditors have reported on these accounts; their report is unqualified and does
not contain a statement under either section 498(2) or (3) of the Companies Act
2006.
3. Investment income
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Interest receivable on short-term bank deposits 22.6 67.8
held at amortised cost
Foreign exchange gains on 36.1 55.4
forward contracts
------ ------
58.7 123.2
------ ------
Expected return on pension 124.3 128.6
schemes' assets
Interest cost on pension (117.5) (105.1)
schemes' obligations
------ ------
Net pension interest income 6.8 23.5
------ ------
65.5 146.7
------ ------
4. Finance expense
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Interest payable (246.6) (288.9)
Fair value losses on debt and derivative (24.3) (42.7)
instruments
------ ------
(270.9) (331.6)
------ ------
The group follows a policy of economic hedging its interest rate and currency
exposures, with particular regard to the five-year regulatory period. Including
the interest element of swaps and interest on debt under the fair value option
within interest payable, as opposed to within the fair value gains/(losses) and
adjusting for the reclassification of interest income and expenditure
associated with the group's defined benefit pension schemes, would give an
economic underlying cost of net borrowings of GBP196.2 million (2008: GBP207.4
million).
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Finance expense (270.9) (331.6)
Fair value losses on debt and derivative 24.3 42.7
instruments
Add back interest on swaps and debt under fair (8.3) (41.7)
value option
------ ------
Underlying interest payable (254.9) (330.6)
Investment income 65.5 146.7
Adjustment for net pension interest income (6.8) (23.5)
------ ------
Underlying cost of net borrowings (196.2) (207.4)
------ ------
5. Taxation
Continuing operations
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Current taxation:
UK corporation tax (147.0) (108.9)
Foreign tax (2.1) (2.7)
Prior year adjustments 10.0 23.0
------ ------
(139.1) (88.6)
------ ------
Deferred taxation:
Current year 0.5 (37.5)
Prior year adjustments (4.2) (17.6)
------ ------
(3.7) (55.1)
Abolition of industrial buildings (206.4) -
allowances
Change in taxation rate - 81.7
------ ------
(210.1) 26.6
------ ------
Total tax charge for the year (349.2) (62.0)
------ ------
Following Royal Assent of the 2008 Finance Act on 21 July 2008, the abolition
of industrial buildings allowances was formally enacted. The financial impact
as a consequence of this legislation is a one-off deferred tax charge of GBP206.4
million, which is included in the current year deferred tax charge; however the
cash impact will be spread over a period of approximately 20 years.
6. Discontinued operations
During the prior year, in line with its declared strategy of concentrating on
its core skills of managing water, wastewater, electricity and gas networks the
group completed the disposals of United Utilities Electricity (UUE), its
industrial liquid waste and facilities management operations and its exit from
the telecoms sector.
The results of UUE, the group's industrial liquid waste and facilities
management operations and its share of results from its associate (THUS Group
plc) have been disclosed, along with the profit/(loss) on disposal, as
discontinued operations in the group's results in 2008. A summary of the
retained (loss)/profit for the current and prior year is shown below:
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
United Utilities Electricity (1.2) 493.0
Industrial liquid waste - (5.0)
Facilities management - 10.4
Telecoms (including loss on disposal of THUS Group - (5.5)
plc shares of GBP10.0 million)
------ ------
(Loss)/profit for the year/period from discontinued (1.2) 492.9
operations
------ ------
7. Earnings per share
Basic and diluted earnings per share are calculated by dividing profit for the
year by the following weighted average number of shares in issue:
Basic Diluted
million million
Year ended 31 March 2009 681.4 682.3
Year ended 31 March 2008 (re-presented) 680.4 680.7
To enable a meaningful comparison and in compliance with IAS 33 `Earnings per
Share', the weighted average number of shares for the current and prior year
have been based on the 681,381,233 new ordinary shares in United Utilities
Group PLC issued on 28 July 2008.
The actual United Utilities PLC shares in issue in the year from 1 April 2007
to 31 March 2008 have been proportionally applied to the 681,381,233 shares in
issue at 28 July 2008 to derive a weighted average number of shares for the
comparative year and the earnings per share re-presented accordingly.
The difference between the weighted average number of shares used in the basic
and diluted earnings per share calculations represents those ordinary shares
deemed to have been issued for no consideration on the conversion of all
potential dilutive ordinary shares in accordance with IAS 33 `Earnings per
Share'.
The basic and diluted earnings per share for the current and prior year are as
follows:
Re-presented
Year ended Year ended
31 March 31 March
2009 2008
From continuing and discontinued
operations
Basic 26.3p 133.6p
Diluted 26.3p 133.6p
From continuing
operations
Basic 26.5p 61.2p
Diluted 26.5p 61.2p
8. Dividends
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Dividends relating to the year
comprise:
Interim dividend 72.5 133.8
Final dividend 150.1 277.4
------ ------
222.6 411.2
------ ------
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Dividends deducted from shareholders' equity
comprise:
Interim dividend 72.5 133.8
Final dividend 277.4 266.6
------ ------
349.9 400.4
------ ------
The proposed final dividends for the years ended 31 March 2009 and 31 March
2008 were subject to approval by equity holders of United Utilities Group PLC
and United Utilities PLC respectively and hence have not been included as
liabilities in the consolidated financial statements at 31 March 2009 and 31
March 2008 respectively.
The final dividend of 22.03 pence per ordinary share (2008: final dividend of
31.47 pence per ordinary share) will be paid on 3 August 2009 to shareholders
on the register at the close of business on 19 June 2009. The ex-dividend date
for the final dividend is 17 June 2009.
The interim dividend of 10.64 pence per ordinary share (2008: interim dividend
of 15.20 pence per ordinary share)
was paid on 4 February 2009 to shareholders on the register at the close of
business on 19 December 2008.
9. Additional disclosures
The following items are considered material in size or nature and are therefore
disclosed separately in accordance with IAS 1 `Presentation of Financial
Statements':
Year ended Year ended
31 March 31 March
2009 2008
GBPm GBPm
Operating profit items:
Restructuring costs 6.6 14.0
Finance expense items:
Fair value losses on debt and 24.3 42.7
derivative instruments
Interest on swaps and debt under fair (8.3) (41.7)
value option
Interest associated with cash proceeds (20.6) (17.7)
from UUE sale
10. Shareholders' equity - capital reorganisation
The movements on the accounts within shareholders' equity of the group which
are affected by the capital reorganisation during the year are shown below:
Share
Share premium Merger
capital account reserve Total
GBPm GBPm GBPm GBPm
At 1 April 2008 881.6 1,429.3 - 2,310.9
New share capital issued 499.8 0.7 - 500.5
Capital reorganisation (note 1) (881.6) (1,429.3) 313.0 (1,997.9)
------ ------ ------ ------
At 31 March 2009 499.8 0.7 313.0 813.5
------ ------ ------ ------
On 24 July 2008, the High Court (the "Court") approved the scheme of
arrangement (the "Scheme") of United Utilities PLC under section 425 of the
Companies Act 1985 to establish a new listed company, United Utilities Group
PLC, as the holding company of United Utilities PLC. The Scheme became
effective on 28 July 2008. Under the terms of the Scheme, holders of shares in
United Utilities PLC received 17 United Utilities Group PLC ordinary shares for
every 22 United Utilities PLC shares, together with one United Utilities Group
PLC B share of 170 pence for each United Utilities PLC share.
On 30 July 2008, the Court approved the reduction of the capital of United
Utilities Group PLC, whereby the nominal value of each ordinary share was
reduced from 500 pence to five pence.
In addition, a merger reserve was created in the company balance sheet of
United Utilities Group PLC upon the Scheme becoming effective, which, in order
to create further distributable reserves in United Utilities Group PLC, was
capitalised into A shares, which were cancelled as part of the reduction of
capital of United Utilities Group PLC.
The reduction of capital became effective on 31 July 2008. The effect of the
scheme of arrangement and the subsequent reduction in capital increased the
distributable reserves of United Utilities Group PLC by GBP4.8 billion which
enabled the return of GBP1,499.0 million capital to take place and will allow
future dividends.
The merger reserve, as shown above, arises on consolidation and represents the
capital adjustment to reserves required to effect the reverse acquisition,
being the difference between the existing share capital and share premium of
United Utilities PLC at the date of the reverse acquisition and the share
capital, including B shares, of United Utilities Group PLC following the
reduction of capital of United Utilities Group PLC.
11. Related party transactions
Transactions between the company and it's subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
The following transactions were carried out with the group's joint ventures:
Sales of Purchase of
services goods and
services
2009 2008 2009 2008
GBPm GBPm GBPm GBPm
Joint ventures 109.8 130.9 11.4 3.2
Amounts owed Amounts owed
by related to related
parties parties
2009 2008 2009 2008
GBPm GBPm GBPm GBPm
Joint ventures 12.8 15.0 1.9 0.1
Sales of services to related parties were on the group's normal trading terms.
The amounts outstanding are unsecured and will be settled in accordance with
normal credit terms. No guarantees have been given or received. A GBP0.1 million
provision has been made for doubtful receivables in respect of the amounts owed
by related parties (2008: GBPnil).
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with International Financial
Reporting Standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; and
- the management report, which is incorporated into the directors' report,
includes a fair review of the development and performance of the business and
the position of the company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that they face.
Approved by the board on 27 May 2009 and signed on its behalf by:
Philip Green Tim Weller
Chief Executive Officer Chief Financial Officer
27 May 2009 27 May 2009
END
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Company: United Utilities Group PLC (UUGWF)
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