Final Results

United Utilities Group PLC 22 May 2014 FULL YEAR RESULTS FOR THE YEAR ENDED 31 MARCH 2014 Continuing operations Year ended 31 March 2014 31 March 2013 (Restated*) Revenue £1,704.5m £1,636.0m Underlying operating profit** £641.3m £604.2m Operating profit £636.9m £601.6m Total dividends per ordinary 36.04p 34.32pshare (pence) Regulatory capital expenditure*** £836m £787m RCV gearing**** 58% 60% * In accordance with the revised accounting standard IAS 19 `Employee benefits'which applies retrospectively, the prior year has been restated ** Underlying profit measures have been provided to give a more representativeview of business performance and are defined in the underlying profit measuretables *** Regulatory capex represents fixed asset additions and infrastructurerenewals expenditure using regulatory accounting guidelines; there is noequivalent GAAP measure ****Regulatory capital value or RCV gearing calculated as group net debt/UnitedUtilities Water's RCV adjusted for actual capex (outturn prices) * Delivering for our customers - further improvements in customer satisfaction, as measured through Ofwat's SIM mechanism - strong performance on Ofwat and Environment Agency KPI assessments - reinvesting c£280m of outperformance for customer and environmental benefits - below inflation growth in average household bills for the ten-year period 2010-20 * Effective delivery of capital investment programme - further improvement on capex delivery; Time: Cost: Quality index (TCQi) up to 98% - accelerated capital investment programme with a £49m increase to £836m in 2013/14 - initiated c£40m of transitional investment to aid a smoother and more effective start to AMP6 * Strong financials - underlying operating profit up £37m to £641m - RCV gearing 2% lower at 58%, well within Ofwat's assumed range - final dividend of 24.03 pence per share (total for the year of 36.04 pence), in line with policy * Growth in Business Retail - continuing to offer and develop a range of value-added services - largest new entrant and second largest water retailer in Scotland Steve Mogford, Chief Executive Officer, said: "Customer satisfaction continues to improve, underpinned by strong operationaland environmental performance, and we believe there is scope to deliver furtherimprovements. We are continuing to improve the quality, reliability andresilience of our assets and increased capital investment in our network to£836 million this year. We are reinvesting around £280 million of ouroutperformance, providing benefits for customers and the environment. "We have been building our retail capability over the last two years and haverapidly secured a position as the second largest water retailer in Scotland.Our experience in Scotland will place the company in a strong position, inadvance of full opening of the English market for business customers in 2017. "We are working closely with Ofwat, ahead of submission of our revised businessplan at the end of June, as customers are set to benefit from below inflationgrowth in average household bills for the decade to 2020." For further information on the day, please contact: Gaynor Kenyon - Corporate Affairs Director +44 (0) 7753 622282 Darren Jameson - Head of Investor Relations +44 (0) 7733 127707 Peter Hewer / Michelle Clarke - Tulchan Communications +44 (0) 20 7353 4200 A presentation to investors and analysts starts at 9.00 am on Thursday 22 May2014, at the Auditorium, Deutsche Bank, Winchester House, 1 Great WinchesterStreet, London, EC2N 2DB. The presentation can be accessed via a live listen inconference call facility by dialling: +44 (0) 20 7031 0088, access code 944454.A recording of the call will be available for seven days following Thursday 22May 2014 on +44 (0) 20 7031 4064, access code 944454. This results announcement and the associated presentation will be available onthe day at: http://corporate.unitedutilities.com/investors.aspx KEY OPERATIONAL PROGRESS Improving our operational performance and delivering benefits for our customersand the environment remain top priorities for United Utilities (UU). We havemade significant progress on these key priorities since the start of the2010-15 regulatory period, as outlined below: * Significant improvements in customer service - Every year since 2010, we havecontinued to improve the customer experience, as demonstrated through Ofwat'scustomer service measure the service incentive mechanism (SIM). Over the threeyears to 2013/14, we have moved up from last position to joint seventh place,out of the 19 water companies, on Ofwat's qualitative SIM measure. Continuingour improving trend, complaints to the Consumer Council for Water (CCW) havefallen by a further 11% in 2013/14 and, importantly, for the second consecutiveyear we had zero complaints warranting investigation by the CCW. We areencouraged with our progress, as we narrow the gap further to the leadingperformers, although recognise that we still have more to do. * Strong operationalperformance- We performed well again across a broad front,as measured in Ofwat's latest (2012/13) key performance indicators report. Thebalance of ratings across the fourteen assessments indicated that UU was againan above average performer, in respect of the ten water and sewerage companies.We were also pleased to be an upper quartile performer in the EnvironmentAgency's most recent assessment. The good performance has continued through2013/14. This performance has helped provide benefits for customers, forexample in terms of better customer service and very high levels of reliabilityand availability of water supply and wastewater services, alongside a range ofenvironmental benefits. * Effective capital deliverydrives customer and environmental benefits - Wecontinue to drive more effective and efficient delivery of our capitalprogramme. This is reflected in a significant improvement in our Time: Cost:Quality index (TCQi) score from around 50% in 2010/11 to 98% for 2013/14. Weagain met our water and wastewater asset serviceability standards in 2013/14and have confidence that our performance in respect of meeting our 2010-15regulatory commitments will be much improved, compared with the 2005-10 period.We have now invested £2.9 billion across the first four years of thisregulatory period, and have delivered a smoother investment profile to supportefficient delivery of outputs and reduce risk. * Leakage target - We have met or outperformed our regulatory leakage target ineach of the last eight years and our aim is to meet the target each year. * Regulatory outperformanceon track- We have set clear targets for the 2010-15period and are ahead of schedule in delivering these targets. As outlinedpreviously, we expect to reinvest around £280 million of outperformance, across2010-15, for the benefit of our customers and the environment. This comprises c£200 million of capex outperformance, c£40 million of financing outperformancebeing reinvested in private sewers costs and c£40 million of tax benefits beingused to provide a special customer discount for 2014/15 along with furthercontributions to our trust fund. * Corporate responsibility - We retained our `World Class' rating in the DowJones Sustainability Index for the sixth consecutive year. We also have thehighest `Platinum Big Tick' ranking in Business in the Community's CorporateResponsibility Index. We are one of only seven FTSE 100 companies to hold bothaccolades. * Extending our presence in the retail water marketfor business customers - Wehave been building our capability and experience over the last two years tohelp ensure we are in a strong position as the competitive business retailmarket evolves and are very active in this expanding market. After obtaining aScottish water supply licence in 2012 we have already won around 150 customers,covering around 2,000 sites and representing annual revenue in 2014/15 ofaround £10 million. We are the largest new entrant and have now established aposition as the second largest water retailer in Scotland. We also have asignificant pipeline of opportunities and are continuing to offer and developour range of value-added services. Financial overview The group has delivered another good set of financial results for the yearended 31 March 2014. * Revenue - up by £69 million to £1,705 million, principally as a result of theimpact of the regulated price increase for 2013/14 of 4.0% nominal (1.0% realprice increase, plus 3.0% RPI inflation). This follows on from real pricedecreases of 4.3% in 2010/11 and 0.2% in 2011/12, with an allowed real priceincrease of 0.6% in 2012/13. * Underlying operating profit - increased by £37 million to £641 million,benefiting from the rise in revenue and tight cost control. * Capex - total regulatory capital investment in the year, including £165million of infrastructure renewals expenditure, was £836 million, representingan increase of 6% compared with last year and reflecting continued goodprogress on the capital investment programme. * Underlying profit before tax - up £38 million, to £390 million, marginallyabove the increase in underlying operating profit as net finance expensedecreased slightly, mainly due to the impact of lower RPI inflation on thegroup's index-linked debt. * Reported profit after tax - this benefited from a £157 million deferred taxcredit, which follows the UK Government's announced 3% staged reduction in themainstream tax rate down to 20% by 2015/16. A similar credit of £53 million,reflecting a 1% reduction in the mainstream tax rate, was recognised in 2012/13. Reported profit after tax also benefitted from a one-off current tax creditof £141 million and a deferred tax credit of £13 million, both relating torecently agreed matters with Her Majesty's Revenue and Customs (HMRC) inrelation to prior years, covering a period of over ten years in total. Inaddition, fair value gains on the group's debt and derivative instruments had apositive impact on this measure. As outlined previously, we are sharing the netcash tax benefits with our customers. * Capital structure - the group has a robust capital structure with gearing(measured as group net debt to regulatory capital value), as at 31 March 2014,having reduced to 58%. This level remains well within Ofwat's assumed range of55% to 65%, supporting a solid investment grade credit rating. United UtilitiesWater PLC (UUW) has a long-term credit rating of A3 from Moody's with a stableoutlook. * Financing headroom - the group benefits from headroom to cover its projectedfinancing needs into 2016, following the agreement of a £500 million term loanwith the European Investment Bank (EIB) in the second half of 2013/14 tosupport the delivery of our capital investment programme. This headroomprovides good flexibility in terms of when and how further debt finance israised to help refinance maturing debt and fund the ongoing regulated capitalinvestment programme. * Dividend - in line with our policy, the board has proposed a final dividendof 24.03 pence per ordinary share, an increase of 5.0%, taking the totaldividend for 2013/14 to 36.04 pence. PRICE REVIEW 2014 - BUSINESS PLAN On 2 December 2013, we submitted our business plan, covering the 2015-20period, to Ofwat. This followed a period of extensive consultation with around27,000 customers and other key stakeholders and the plan received high levelsof customer acceptability. Ofwat provided an initial view on our plan through its pre-qualificationdecisions publication in March 2014 and subsequently shared detailed feedbackwith the company, which we are currently assessing. In line with ourexpectations and consistent with the company specific adjustments wehighlighted when we submitted our initial business plan in December, two keyareas we are focusing on are wastewater total expenditure (totex) and retailaverage cost to serve. Ofwat's initial view on wastewater totex indicated a £1.1 billion difference, compared with our business plan submission. In oursubmission, we asked for around £1 billion of wastewater totex to be givenspecific consideration. We are in detailed dialogue with Ofwat to understandthis difference and provide any further evidence required to support oursubmission. We are also revising our outcome delivery incentives to includemore symmetrical reward/penalty mechanisms. In addition, we are focusing on anumber of adjustments relating to the 2010-15 period. These adjustments includea range of economic, performance and scope differences, compared with theassumptions made at the 2009 price review. We are continuing to work closely with our regulators, customers and otherstakeholders to finalise the revisions to our business plan which are due to besubmitted by 27 June 2014. Ofwat is due to publish draft determinations on 29August 2014 and final determinations on 12 December 2014. BOARD CHANGES Nick Salmon will stand down at the forthcoming AGM, on 25 July 2014, after overnine years as a non-executive director. Mark Clare, who was appointed as anon-executive director on 1 November 2013, will replace Nick as seniorindependent director. Mark is also a member of the Audit Committee and theNomination Committee. Outlook We are encouraged by our operational and customer service performanceimprovements and believe we can improve further. Our improved capital deliveryperformance, with continued substantial investment in our assets, will deliverfurther benefits for our customers and the environment. We are ahead ofschedule and remain confident of delivering our 2010-15 regulatoryoutperformance targets. We intend to continue with our dividend policy oftargeting 2% per annum growth above the rate of RPI inflation through to atleast 2015, underpinned by a robust capital structure. We are well progressedwith our revised business plan and are on track to submit this to Ofwat nextmonth. KEY CORPORATE DATES The forthcoming key corporate dates are expected to be: Ex-dividend date for 2013/14 final dividend 18 June 2014 Record date for 2013/14 final dividend 20 June 2014 Interim management statement for the period from 1 April 25 July 20142014 Annual General Meeting 25 July 2014 Payment of 2013/14 final dividend to shareholders 1 August 2014 Pre-close trading update 24 September 2014 Announcement of half year results for the six months 26 November 2014ending 30 September 2014 Ex-dividend date for 2014/15 interim dividend 17 December 2014 Record date for 2014/15 interim dividend 19 December 2014 Payment of 2014/15 interim dividend to shareholders 2 February 2015 OPERATIONAL PERFORMANCE United Utilities aims to deliver long-term shareholder value by providing: * The best service to customers * At the lowest sustainable cost * In a responsible manner Best service to customers Customer service - our continuing strong focus on dealing effectively withcustomer enquiries has helped us deliver further improvements in ourperformance, as measured by Ofwat's service incentive mechanism (SIM). This isalso reflected in a reduction in the number of customer complaints received,which has contributed to improvements in opex efficiency. In addition, thenumber of customer complaints made to the Consumer Council for Water (CCW) in2013/14 has reduced by a further 11%, compared with 2012/13. We are pleased toreport that the total number of escalated complaints assessed by the CCW wasagain zero in 2013/14. This has helped us improve our SIM performance further,as detailed in the KPIs section below. We were particularly encouraged with ourqualitative SIM performance for the fourth quarter of 2013/14, where weachieved fourth position out of the 19 water companies. We believe that ourimprovements should move the company to a neutral position on the SIM incentiveassessment, the outcome of which will be assessed by Ofwat based on performanceacross the 2011/12 to 2013/14 period. Leading North West service provider - we were pleased to have been consistentlyranked third out of ten leading organisations in the North West, through anindependent brand tracker survey which is undertaken quarterly. We are behindonly Marks & Spencer and John Lewis, but ahead of seven other majororganisations covering utilities, telecoms, media and banking services. Robust water supply - our customers continue to benefit from our robust watersupply and demand balance, along with high levels of water supply reliability.In addition, we continue to supply a high level of water quality, with meanzonal compliance continuing to be over 99.9%. Mitigating sewer flooding - we have continued to invest heavily in schemesdesigned to mitigate the risk of flooding of our customers' homes, includingincidence based targeting on areas more likely to experience flooding anddefect identification through CCTV sewer surveys. Our wastewater network willcontinue to benefit from significant investment going forward as we adapt toweather patterns likely to result from climate change. Asset serviceability - we have a range of actions to help support theserviceability of our assets. We are improving the robustness of our watertreatment processes, refurbishing service reservoir assets, continuing with ourcomprehensive mains cleaning programme and optimising water treatment to reducediscoloured water events. Improving customer service remains a significant area of management focus andwe see opportunities to deliver further benefits for our customers. Key performance indicators: * Serviceability - Long-term stewardship of assets is critical and Ofwatmeasures this through its serviceability assessment (Ofwat definesserviceability as the capability of a system of assets to deliver a referencelevel of service to customers and to the environment now and in the future). Weare currently assessed as `improving' for our wastewater non-infrastructureassets and `stable' for our water infrastructure, water non-infrastructure andwastewater infrastructure assets. The aim is to continue to hold at least a`stable' rating for all four asset classes, which aligns with Ofwat's target. * Service incentive mechanism (SIM) - UU continued its progress on Ofwat'scombined (qualitative and quantitative) SIM assessment for 2012/13, moving up afurther three places to joint 13th of the 21 water companies, compared with2011/12. Further progress has continued in 2013/14, with a quantitative SIMscore (which measures customer contacts) of 135 points, representing a further25% improvement compared with 2012/13. On the qualitative measure (whichmeasures customers' satisfaction in respect of how their enquiries werehandled), UU has improved its 2013/14 average score by 0.13 points to 4.56points, significantly closing the gap to the top performers. From 2013/14,Ofwat assesses SIM out of 19 water companies and UU's qualitative SIMimprovement moves it to joint 7th position. Our continued progress isencouraging. Lowest sustainable cost Power and chemicals - our asset optimisation programme continues to provide thebenefits of increased and more effective use of operational site management tooptimise power and chemical use and the development of more combined heat andpower assets to generate renewable energy. We have substantially locked in thecost of our power requirements through to 2015, via hedging, securingoutperformance across the 2010-15 period. Proactive network management - we are implementing a more proactive approach toasset and network management, with the aim of improving our modelling andforecasting to enable us to address more asset and network problems before theyaffect customers, thereby reducing the level of reactive work and improvingefficiency. Debt collection - we are continuing to enhance our proactive approach to debtcollection and are implementing a detailed action plan. We recognise thefinancial difficulties facing many of our customers and provide a range ofoptions to help those who are struggling to pay their bills, including ourcharitable trust, which have helped many customers back onto manageable paymentplans. We have again delivered a good performance and have sustained bad debtsat 2.2% of regulated revenue for 2013/14, consistent with the 2012/13 full yearposition, mitigating the impact of recent benefit changes on customers' abilityto pay. Pensions - UU placed its pension provision on a more sustainable footing in2010 and has subsequently taken additional steps to de-risk the pension schemefurther. Further details on the group's pension provision are provided in thepensions section. Capital delivery and regulatory commitments - the business is strongly focusedon delivering its commitments efficiently and on time and has a robustcommercial capital delivery framework in place. Regulatory capital investmentin the year, including £165 million of infrastructure renewals expenditure, was£836 million. Including transitional spend of around £40 million, we wouldexpect to deliver a similar level of investment for 2014/15. Following ourrapid increase in our internal Time: Cost: Quality index (TCQi) score fromaround 50% in 2010/11 to approximately 90% in 2012/13, we have further improvedour score to 98% for 2013/14. This has already exceeded our internal target of95%, which we were aiming to achieve by the end of this regulatory period in2015. We received a shortfalling revenue penalty of over £80 million at thelast price review in 2009 but, with our improved TCQi performance, we expect tosignificantly reduce the penalty risk at the 2014 price review. We remain ontrack to deliver the five-year programme within the regulatory allowance ofaround £3.6 billion (excluding costs associated with private sewers,transitional investment and non-regulated investment) and we are reinvestingcapex outperformance to deliver further customer benefits. Private sewers - in 2013/14, private sewers opex was £8 million, IRE was £15million and enhancement capex was £16 million. This brings cumulative privatesewers spend since they were transferred in October 2011 to £22 million foropex, £35 million for IRE and £37 million for enhancement capex, at the lowerend of our estimates. As such, our total spend is now expected to be moderatelybelow our 2011-15 total cost estimate of £160 million. Key performance indicators: * Financing outperformance - UU has secured over £300 million of financingoutperformance across the 2010-15 period, when compared with Ofwat's allowedcost of debt of 3.6% real, based on an average RPI inflation rate of 2.5% perannum. As outlined previously, we expect to reinvest around £40 million of ourfinancing outperformance in private sewers costs which were not reflected inprice limits for the current period. * Operating expenditure outperformance - The business is targeting totaloperating expenditure outperformance over the 2010-15 period of at least £50million, or approximately 2%, compared with the regulatory allowance. This isin addition to the base operating expenditure efficiency targets set by Ofwat,which equate to a total of approximately £150 million over the five years. Weare ahead of schedule and expect to deliver cumulative operating expenditureoutperformance of over £50 million across the 2010-15 period. * Capital expenditure outperformance - UU is continuing to deliver significantefficiencies in the area of capital expenditure and expects to meet Ofwat'sallowance after adjusting, through the regulatory methodology, for the impactof lower construction output prices. As outlined previously, we expect toreinvest around £200 million of capital expenditure outperformance for thebenefit of our customers and the environment. Responsible manner Acting responsibly is fundamental to the manner in which we undertake ourbusiness and the group has for many years included corporate responsibilityfactors in its strategic decision making. Our environmental and sustainabilityperformance across a broad front has received external recognition. UUcontinues to be rated `World Class' in the Dow Jones Sustainability Index andhas retained the highest ranking, `Platinum Big Tick', in Business in theCommunity's Corporate Responsibility Index. We are one of only seven FTSE 100companies (and the only water company) to hold both accolades. Leakage - our strong, year round, operational focus on leakage and theimplementation of a range of initiatives, such as active pressure management,enabled us to again beat our leakage target for 2013/14. Our leakageperformance, alongside the network resilience improvements we are making, arehelping us to maintain a robust water supply and demand balance, and deliverhigh levels of reliability for our customers. Environmental performance - this is a high priority for UU and we are pleasedto be an upper quartile company in the Environment Agency's 2012/13 performancemetrics (the latest available), as described in the KPIs section below. Carbon footprint - we are committed to reducing our carbon footprint andincreasing our generation of renewable energy. In 2013/14, our carbon footprinttotalled 449,042 tonnes of carbon dioxide equivalent, a reduction of 11%compared with the previous year. We set a target of achieving at least a 21%reduction in carbon emissions by 2015, measured from a 2005/06 baseline, and wewere encouraged with our performance in 2013/14 which was 23% below thebaseline. The recent completion of our innovative, award winning, £100m+recycling and energy plant at our Davyhulme wastewater site has contributed toour highest ever renewable energy production in 2013/14 of 133 GWh. Thisrepresents c17% of our total electricity consumption, up from c13% last year,and has helped us avoid energy purchase costs of around £10 million, as well asattracting renewable incentives of around £5 million. In addition, we haveplans in place to further increase renewable energy production over the nextfew years. Employees - a committed, capable and motivated workforce is central todelivering our vision and we remain strongly focused on high levels of employeedevelopment and engagement. In our most recent employee opinion survey, weachieved an engagement score of 79%, which is close to the UK high performingnorm even at a time of significant change. We continue to be successful inattracting and retaining people and have continued to expand our apprentice andgraduate programmes, having recruited a further 24 graduates and 32 apprenticesin 2013/14 and with plans to add a similar number in 2014/15. As part of ourhealth and safety improvement programme, we implemented a number of initiativesthroughout the year. We launched a manager's guide for health and safetyresponsibilities and our transformation project, covering 13 key areas of focusacross the business, is progressing well. These initiatives helped reduce theemployee accident frequency rate to 0.137 accidents per 100,000 hours, comparedwith a rate of 0.188 last year. However, we recognise we have more to do to andhealth and safety will continue to be a significant area of focus, as we strivefor continuous improvement. Communities - we continue to support partnerships, both financially and interms of employee time through volunteering, with other organisations acrossthe North West that share our objectives. This year we set up Catchment Wise,our new approach to tackling water quality issues in lakes, rivers and coastalwaters across the North West. As a first step, we have provided matched fundingto all of the DEFRA Catchment partnerships in our region and a further £500,000has been made available as part of a competitive improvement fund to make adifference on the catchments. Our `Beachcare' employee volunteering scheme,working in partnership with the Environment Agency, Keep Britain Tidy and theLocal Authority, helps to keep our region's beaches tidy and this is just oneexample of over 26,000 hours of volunteering time. We also contributedapproximately £2 million to support local communities, through schemes such asproviding debt advisory services and our Community Fund, offering grants tolocal groups impacted by our capital investment programme. Key performance indicators: * Leakage - UU met its economic level of leakage rolling target for the eighthconsecutive year in 2013/14, with a performance of 452 megalitres per dayversus the regulatory target of 463 megalitres per day. The aim is to meet ourregulatory leakage target each year. * Environmental performance - On the Environment Agency's latest assessment(2012/13 draft report), which covers a broad range of operational metrics, UUis an upper quartile company. Based on our performance across the range ofmetrics, this would indicate joint 2nd position among the ten water andsewerage companies. This represents another step up on the previous year whenUU was in 3rd position and aligns with our medium-term goal of being a firstquartile company on a consistent basis. * Corporate responsibility - UU has a strong focus on operating in aresponsible manner and is the only UK water company to have a `World Class'rating as measured by the Dow Jones Sustainability Index. The group hasretained its `World Class' rating and aims to retain this rating each year. FINANCIAL PERFORMANCE Revenue UU has delivered a good set of financial results for the year ended 31 March2014. Revenue increased by £69 million to £1,705 million, principallyreflecting a 4.0% nominal (1.0% real price increase plus 3.0% RPI inflation)allowed regulated price increase. Operating profit Underlying operating profit increased by 6% to £641 million, primarily as aresult of an increase in revenue and benefiting from tight cost control withoperating costs up at a lower rate than revenue. Reported operating profitsimilarly increased by 6% to £637 million. Investment income and financeexpense The underlying net finance expense of £252 million was broadly in line with theprior year. The indexation of the principal on our index-linked debt amountedto a net charge in the income statement of £83 million, compared with a netcharge of £86 million last year. The group had approximately £2.9 billion ofindex-linked debt as at 31 March 2014. The lower RPI inflation chargecontributed to the group's average underlying interest rate of 4.6% being lowerthan the rate of 4.9% for the prior year. Reported investment income and finance expense of £92 million was significantlylower than the £290 million expense in 2012/13. This £198 million reductionprincipally reflects a change in the fair value gains and losses on debt andderivative instruments, from a £42 million loss last year to a £129 milliongain in 2013/14. The £129 million fair value gain in 2013/14 is largely due togains on the regulatory swap portfolio, resulting from a significant increasein medium-term sterling interest rates during the period and the unwinding ofthe opening liability position. The group uses these swaps to fix interestrates on a substantial proportion of its debt to better match the financingcash flows allowed by the regulator at each price review. The group fixed themajority of its non index-linked debt for the 2010-15 financial period,providing a net effective nominal interest rate of approximately 5%. Profit before tax Underlying profit before tax was £390 million, £38 million higher than lastyear, due to the £37 million increase in underlying operating profit and the £1million decrease in underlying net finance expense. This underlying measureadjusts for the impact of one-off items, principally from restructuring withinthe business, and other items such as fair value movements in respect of debtand derivative instruments. Reported profit before tax increased by £233million to £545 million. Taxation For 2013/14, we paid corporation tax of £65 million which represents aneffective cash tax rate of 12%, 11% lower than the mainstream rate ofcorporation tax of 23%. For 2012/13, we paid corporation tax of £55 million(18%), 6% lower than the mainstream rate for that year. For both years, the keyreconciling items to the respective mainstream rates were tax deductions oncapital investment and pension contributions and timing differences in relationto certain unrealised profits/losses on treasury derivatives where thecorresponding profits or losses are only taxed when realised. For 2013/14, the company also received an exceptional cash tax refund of £96million in relation to prior years' tax matters, covering a period of over 10years in total. The amount principally related to tax deductions on capitalexpenditure and included the revised tax treatment for capital expenditure atwater and sewage treatment works agreed between the Industry and HMRC,following the abolition of industrial buildings allowances. Taking account ofthis one-off repayment, the net effective cash tax rate for 2013/14 reduced toa credit of 6%. The current tax charge was £77 million in the year, compared with £81 millionin the previous year. In addition, there was a current tax credit of £141million relating to matters agreed with HMRC in respect of prior years. On topof the £96 million cash refund, the £141 million current tax credit alsoincludes the release of an accounting accrual, which is a non-cash item. For 2013/14, the group recognised a deferred tax charge of £41 million,compared with a credit of £3 million in 2012/13. In addition, the group hasrecognised a deferred tax credit of £157 million relating to the 3% stagedreduction in the mainstream rate of corporation tax, substantively enacted on 2July 2013, to reduce the rate to 20% by 2015/16. A deferred tax credit of £53million relating to a similar 1% reduction in the mainstream rate ofcorporation tax was included in 2012/13. The group also recognised a deferredtax credit of £13 million relating to prior years' matters. An overall tax credit of £194 million has been recognised for 2013/14.Excluding the deferred tax impact of the future reduction in the corporationtax rate and the adjustments relating to recently agreed matters in relation toprior years, the total tax charge would have been £117 million or 22% comparedwith a £78 million charge or 25% in the previous year. This reduction in totaltax rate is due to the decrease in the mainstream rate of corporation tax from24% for 2012/13 to the current rate of 23%, together with the year-on-yearmovement in tax disallowable items. In addition to corporation tax, the group pays and bears further annualeconomic contributions, typically of around £140 million per annum, in the formof business rates, employer's national insurance contributions, green taxes andother regulatory service fees such as water abstraction charges. Profit after tax Underlying profit after tax of £305 million was £41 million higher than theprevious year, principally reflecting the increase in underlying profit beforetax. Reported profit after tax was £739 million, compared with £288 millionlast year, impacted by the £171 million improvement in fair value gains on debtand derivative instruments and the £218 million increase in the net tax creditbetween the two periods. Earnings per share Underlying earnings per share increased from 38.7 pence to 44.7 pence. Thisunderlying measure is derived from underlying profit after tax. This includesthe adjustments for the deferred tax credits in both 2013/14 and 2012/13,associated with the reductions in the corporation tax rate and an adjustmentfor the tax credit arising from agreement of prior years' tax matters in 2013/14. Basic earnings per share increased from 42.2 pence to 108.3 pence. Dividend per share The board has proposed a final dividend of 24.03 pence per ordinary share inrespect of the year ended 31 March 2014. Taken together with the interimdividend of 12.01 pence per ordinary share, paid in February, this produces atotal dividend per ordinary share for 2013/14 of 36.04 pence. This is anincrease of 5.0%, compared with the dividend relating to the previous year, inline with group's dividend policy of targeting a growth rate of RPI+2% perannum through to at least 2015. The inflationary increase of 3.0% is based onthe RPI element included within the allowed regulated price increase for the2013/14 financial year (i.e. the movement in RPI between November 2011 andNovember 2012). The final dividend is expected to be paid on 1 August 2014 to shareholders onthe register at the close of business on 20 June 2014. The ex-dividend date is18 June 2014. Cashflow Net cash generated from continuing operating activities for the year ended 31March 2014 was £805 million, compared with £631 million last year. This mainlyreflects the receipt of the exceptional tax refund, an improvement in workingcapital cash flows, impacted by the reduction in the total pension contributionpayments between the two periods, and an increase in operating profit. Thegroup's net capital expenditure was £683 million, principally in the regulatedwater and wastewater investment programmes. This excludes infrastructurerenewals expenditure which is treated as an operating cost under InternationalFinancial Reporting Standards (IFRS). Net debt including derivatives at 31 March 2014 was £5,532 million, comparedwith £5,451 million at 31 March 2013. This slight increase reflects expenditureon the regulatory capital expenditure programmes and payments of dividends,interest and tax, alongside an increase in the principal of our index-linkeddebt, largely offset by operating cash flows, fair value gains on our debt andderivative instruments and the one-off tax refund. Debt financingand interest rate management Gearing (measured as group net debt divided by UUW's regulatory capital valueadjusted for actual capital expenditure) decreased to 58% at 31 March 2014,compared with 60% at 31 March 2013, remaining well within Ofwat's 55% to 65%assumed gearing range. The group's pension accounting position has moved to adeficit of £177 million at 31 March 2014, on an IFRS basis, compared with asmall pension surplus of £15 million as at 31 March 2013. Taking account of thegroup's pension deficit, and treating it as debt, gearing would be 60%. UUW has long-term credit ratings of A3/BBB+ and United Utilities PLC hadlong-term credit ratings of Baa1/BBB- from Moody's Investors Service andStandard & Poor's Ratings Services respectively. The split rating reflectsdiffering methodologies used by the credit rating agencies. Standard & Poor'scurrently have the group's ratings on positive outlook, citing improvingfinancial metrics and operational performance. Cash and short-term deposits at 31 March 2014 amounted to £127 million. InDecember 2013, UUW agreed a new £500 million term loan facility with theEuropean Investment Bank. As at 31 March 2014, UUW had drawn down £100 millionon this facility as a floating rate amortising term loan with semi-annualrepayments, a final maturity in 18 years and an initial capital repaymentholiday of two and a half years. The remaining £400 million is expected to bedrawn down in tranches over the next year or so. The group also renewed £100million of committed bank facilities prior to 31 March 2014 and a further £50million since the year end. The group has headroom to cover its projectedfinancing needs into 2016. The group has access to the international debt capital markets through its €7billion euro medium-term note programme which provides for the periodicissuance by United Utilities PLC and UUW of debt instruments on terms andconditions determined at the time the instruments are issued. The programmedoes not represent a funding commitment, with funding dependent on thesuccessful issue of the debt securities. Long-term borrowings are structured or hedged to match assets and earnings,which are largely in sterling, indexed to UK retail price inflation and subjectto regulatory price reviews every five years. Long-term sterling inflation index-linked debt provides a natural hedge toassets and earnings. At 31 March 2014, approximately 53% of the group's netdebt was in index-linked form, representing around 31% of UUW's regulatorycapital value, with an average real interest rate of 1.7%. The long-term natureof this funding also provides a good match to the company's long-lifeinfrastructure assets and is a key contributor to the group's average term debtmaturity, which is approximately 25 years. Where nominal debt is raised in a currency other than sterling and/or with afixed interest rate, to manage exposure to long-term interest rates, the debtis generally swapped to create a floating rate sterling liability for the termof the liability. To manage exposure to medium-term interest rates, the groupfixes underlying interest costs on nominal debt out to ten years on a reducingbalance basis. This is supplemented by fixing substantially all remainingfloating rate exposure across the forthcoming regulatory period around the timeof the price control determination. In line with this, the group fixed interest costs for a substantial proportionof the group's debt for the duration of the 2010-15 regulatory period aroundthe time of the 2009 price review. In addition, we have already fixed just overhalf of our floating rate exposure over the 2015-20 period. Following Ofwat's2015-20 cost of debt guidance, which was published as part of its risk andreward guidance in January, we intend to fix underlying interest rates onsubstantially all of the group's projected nominal debt for the duration of the2015-20 regulatory period, during 2014/15. Liquidity Short-term liquidity requirements are met from the group's normal operatingcash flow and its short-term bank deposits and supported by committed butundrawn credit facilities. In addition to its €7 billion euro medium-term noteprogramme, the group has a €2 billion euro-commercial paper programme, both ofwhich do not represent funding commitments. In line with the board's treasury policy, UU aims to maintain a robustliquidity position. Available headroom at 31 March 2014 was £864 million basedon cash, short-term deposits, medium-term committed bank facilities, along withthe undrawn portion of the EIB term loan facility, net of short-term debt. UU believes that it operates a prudent approach to managing bankingcounterparty risk. Counterparty risk, in relation to both cash deposits andderivatives, is controlled through the use of counterparty credit limits. UU'scash is held in the form of short-term money market deposits with either primecommercial banks or with triple A rated money market funds. UU operates a bilateral, rather than a syndicated, approach to its corerelationship banking facilities. This approach spreads maturities more evenlyover a longer time period, thereby reducing refinancing risk and providing thebenefit of several renewal points rather than a large single refinancingrequirement. Pensions As at 31 March 2014, the group had an IAS 19 net retirement benefit, orpension, deficit of £177 million, compared with a net pension surplus of £15million at 31 March 2013. This £192 million adverse movement principallyreflects the movement of long-term market rates during the period, particularlyinfluenced by the significant reduction in corporate credit spreads. Incontrast, the scheme specific funding basis does not suffer from volatility dueto credit spread movements as it uses a prudent, fixed credit spreadassumption. Therefore, the recent credit spread movements have not had amaterial impact on the deficit calculated on a scheme specific funding basis orthe level of deficit repair contributions. The triennial actuarial valuations of the group's defined benefit pensionschemes were carried out as at 31 March 2013 and the overall funding positionhas improved since March 2010. Following the de-risking measures we haveimplemented over recent years, our pension funding position remains well placedand in line with our expectations. There has been no material change to thescheduled cash contributions as assessed at the previous valuations in 2010.The group has already completed early all scheduled deficit repair paymentsthrough to March 2015. Further detail is provided in note 9 ("Retirement benefit (obligations)/surplus") of these condensed consolidated financial statements. Underlying profit In considering the underlying results for the period, the directors haveadjusted for the items outlined in the table below to provide a morerepresentative view of business performance. Reported operating profit andprofit before tax from continuing operations are reconciled to underlyingoperating profit, underlying profit before tax and underlying profit after tax(non-GAAP measures) as follows: Continuing operations Restated*Operating profit Year ended Year ended 31 March 2014 31 March 2013 £m £m Operating profit per published results 636.9 601.6 One-off items** 4.4 2.6 ----- ----- Underlying operating profit 641.3 604.2 ----- ----- Net finance expense £m £m Finance expense (99.2) (292.1) Investment income 7.0 2.3 ----- ----- Net finance expense per published results (92.2) (289.8) Net fair value (gains)/losses on debt and (129.2) 41.5derivative instruments Adjustment for interest on swaps and debt under 8.1 8.3fair value option Adjustment for net pension interest (income)/ (1.3) 1.5expense Adjustment for capitalised borrowing costs (19.4) (14.3) Adjustment for release of tax interest accrual (13.3) - Adjustment for interest receivable on tax (4.5) -settlement ----- ----- Underlying net finance expense (251.8) (252.8) ----- ----- Profit before tax £m £m Profit before tax per published results 544.7 311.8 One-off items** 4.4 2.6 Net fair value (gains)/losses on debt and (129.2) 41.5derivative instruments Adjustment for interest on swaps and debt under 8.1 8.3fair value option Adjustment for net pension interest (income)/ (1.3) 1.5expense Adjustment for capitalised borrowing costs (19.4) (14.3) Adjustment for release of tax interest accrual (13.3) - Adjustment for interest receivable on tax (4.5) -settlement ----- ----- Underlying profit before tax 389.5 351.4 ----- ----- Profit after tax £m £m Underlying profit before tax 389.5 351.4 Reported tax credit/(charge) 193.9 (24.0) Deferred tax credit - change in tax rate (156.8) (53.0) Agreement of prior years' UK tax matters (154.3) (0.7) Tax in respect of adjustments to underlying 32.6 (9.5)profit before tax ----- ----- Underlying profit after tax 304.9 264.2 Earnings per share £m £m Profit after tax per published results (a) 738.6 287.8 Underlying profit after tax (b) 304.9 264.2 Weighted average number of shares in issue, in 681.9m 681.9mmillions (c) Earnings per share per published results, in 108.3p 42.2ppence (a/c) Underlying earnings per share, in pence (b/c) 44.7p 38.7p * In accordance with the revised accounting standard IAS 19 `Employee benefits'which applies retrospectively, 2012/13 has been restated **Principally relates to restructuring costs within the business Underlying operating profit reconciliation The table below provides a reconciliation between group underlying operatingprofit and United Utilities Water PLC historical cost regulatory underlyingoperating profit (non-GAAP measures) as follows: Continuing operations Restated*Underlying operating profit Year ended Year ended 31 March 2014 31 March 2013 £m £m Group underlying operating profit 641.3 604.2 Underlying operating profit not relating to (7.1) (0.8)United Utilities Water Infrastructure renewals accounting 46.8 32.6 Other differences 2.1 1.9 ----- ----- United Utilities Water statutory underlying 683.1 637.9operating profit Revenue recognition (0.2) 1.7 Infrastructure renewals accounting 6.1 5.1 Non-appointed business (7.4) (6.2) ----- ----- United Utilities Water regulatory underlying 681.6 638.5operating profit ----- ----- * In accordance with the revised accounting standard IAS 19 `Employee benefits'which applies retrospectively, 2012/13 has been restated PRINCIPAL RISKS AND UNCERTAINTIES Risk is managed through the individual responsibility of each business area,supported by our Corporate Risk Framework, which aims for continuousimprovement. With an overarching mandate and commitment by the board, theframework consists of four key areas: * Governance; * Approach; * Process; and * Guidance. The application of the framework involves the regular assessment of theinternal and external risk environment by the business. We focus on the factorsthat could limit or prevent the achievement of our company objectives andinvolves the prioritised implementation of controls to mitigate exposure andbuild resilience and sustainability. The most significant risks and the group's risk profile summary are reported tothe executive and the board twice a year. This supports the determination ofthe nature and extent of those risks we are willing to take in pursuing ourobjectives in line with good corporate governance practice. In addition theaudit committee regularly reviews the framework's effectiveness, and thegroup's compliance with it, reporting its findings to the board. Key features and developments over the last year Key features for 2013/14 relate to the ongoing dominance of regulatory risksand the uncertainty which these continue to pose. There continue to be two ongoing pieces of material litigation worthy of notebut, based on the facts currently known to us and the provisions in ourstatement of financial position, our directors remain of the opinion that thelikelihood of these having a material adverse impact on the group's financialposition is remote. * In 2009, United Utilities International Limited (UUIL) was served with noticeof a `class action' in Argentina. The action relates to allegations about aUS$230 million bond relating to Inversora Electrica de Buenos Aires S.A. (IEBA)that UUIL had a 45 per cent shareholding in (but sold in 2005). IEBA owned anArgentine electricity distribution network. The amount of the claim remainsunspecified and UUIL continues to defend the matter vigorously. * In March 2010, Manchester Ship Canal Company (MSCC) issued proceedingsagainst United Utilities Water PLC (UUW) alleging that UUW was trespassing as aresult of it discharging into the canal. MSCC is seeking damages and otherrelief. UUW won a `summary judgment' application regarding a significantelement of the claim but an appeal of that judgment was considered by theSupreme Court at the beginning of May. We await the court's decision. Also notable was the extent of mitigating activity across the business inresponse to the changing regulatory environment and our commitment to be aleading water and wastewater company and service provider. This includedsignificant progress in customer satisfaction, operational service performanceand environmental assessments carried out by the Environment Agency. Inaddition there was a step forward following activities tied to our ongoingcommitment to a continuous and secure supply of water with a successfulinspection of the largest aqueduct in Europe, detecting no urgent structuralmaintenance required. Ongoing business change and transformation programmesalso featured heavily during the year in both the wholesale and business retailbusinesses preparing for the opening of the English market in 2017. Thisincluded the successful acquisition of customers in Scotland which provides notonly a source of income for the group, but also a platform to learn and developexpertise. Ongoing innovative initiatives also played a key part in businesstransformation with a focus on reducing operating cost and the cost to serve. Looking ahead Following the price determination, we expect our risk profile to return to onebased on operational performance, compliance and delivery risk. The ongoingdevelopment of the non-household market, including the extent of competitoractivity and customer switching rates will continue to be a focus as will theuncertainty surrounding the form of upstream competition for water and sewerageservices. Determination of the principal risks The five principal risks summarised below have been determined by consideringour entire risk profile relative to the five principal risk categoriescontained within our Corporate Risk Framework (Strategic, Financial,Operational, Compliance and Hazard), drawing out key circumstances where thereis a potential for material effect. In each case the summary illustrates a listof current issues and uncertainties along with the extent of control/mitigation. 1. The regulatory environment Current issues or areas of uncertainty include: i) The PR14 price determination will reflect a lower assumed weighted averagecost of capital (WACC) and may reflect lower cost allowances than incorporatedin our proposed business plan. Regulatory penalties relating to the currentregulatory period are also possible ii) Market reform (see 2) iii) Compliance with regulations (see 4) Potential impactOur proposed business plans are subject to final determination from Ofwat whichmay reflect a different view of the appropriate scope and/or cost of deliveringcustomer benefits. Longer term and less frequent changes to the mechanism mayalso cause increased costs of administration and also reduce income and margin.The water and wastewater sectors in England and Wales have benefitted from astable and transparent regulatory regime based on a regulatory capital value.The evolution of regulation in the sector may involve incremental changes tothis model, more variations in returns and, consequently, changes to the riskand return profile of companies operating in the sector. Control mitigationOur business plan has been prepared based on extensive research andconsultation from a wide range of stakeholders including customers,environmental and quality regulators and others in order to ensure that it isboth affordable and sustainable, meets statutory and legal obligations, strikesan appropriate balance between the needs of customers and the environment,whilst still being financeable by investors. We engage in relevant government and regulatory consultations and initiativeswhich may affect the future strategic decisions made about policy andregulation in the sectors where we operate. In addition, we proactivelyconsider all the opportunities and threats associated with any potentialchange, exploiting opportunities and mitigating risks where appropriate. 2. Competition in the market Current issues or areas of uncertainty include:i) Market reform including competition in the non-household retail sector ii) Competitor positioning in the market iii) Upstream reform iv) Compliance with regulations (see 4) Potential impactThe opening of the market for retail services to non-household customers inEngland generates both opportunities to gain market share and scale and risksof losing market share and margin erosion. Longer term, upstream competitionhas the potential to generate issues relating to underutilisation or strandingof assets, although there is much uncertainty surrounding the development ofupstream competition. Control mitigationWe look to retain existing and acquire new customers by striving to meet theirneeds more effectively. We monitor competitor activity and target a reductionin operating costs. We continue to engage with government and regulators on theshape of future competition and are actively engaged in the Open Waterprogramme. 3. The economy Current issues or areas of uncertainty include:i) Stability of the world economy ii) Speed of economic recovery iii) Stability of financial institutions iv) Socio-economic deprivation in the North West v) Welfare Reform and the impact on domestic bad debt Potential impactAdverse market conditions can impact the group's profitability and financialcondition in a number of ways. These range from price rises for goods andservices affecting profit and cash flow to the availability and/or cost offunding and hedging. It may also lead to increased customer bad debt with theNorth West suffering a higher level of socio-economic deprivation than anyother region of the UK. Differentials to predicted financial instrument yieldscan also affect the economic return on the RCV and on our pension schemes witha requirement for the group to make additional contributions. In extreme butremote cases adverse conditions can affect our debt obligations and creditrating and the ability of our financial counterparties to meet their debtobligations to us. Control mitigationRefinancing is long-term with staggered maturity dates to minimise the effectof short-term downturns. Counterparty credit, exposure and settlement limitsexist to reduce any potential future impacts. These are based on a number offactors, including the credit rating and the size of the asset base of theindividual counterparty. The group also employs hedging strategies to stabilisemarket fluctuation for inflation, interest rates and commodities (notablyenergy prices). Sensitivity analysis is carried out as part of the businessplanning process, influencing the various financial limits employed. Continuousmonitoring of the markets takes place including equity movements. Within our operations, contract and category management covers supplier priceand price volatility of goods and services and the effect of the economy on ourcustomers is monitored. We adopt best practice collection techniques includingthe segmentation of customers based on their credit risk profile. 4. Failure to comply with applicable law or regulations Current issues or areas of uncertainty include:i) Ongoing legal, economic, environmental and regulatory requirementsassociated with operating in a highly regulated business ii) Market reform (see 2 above) iii) Material litigation Potential impactIn addition to general UK and international laws, our activities are subject tosignificant additional obligations. In the context of changes in the regulatoryenvironment there is a risk that we fail to adopt policies /processes to ensurecompliance with emerging requirements. It is also difficult to predict theimpact of future changes to laws or regulations or the introduction of new lawor regulations that affect us and, from time to time, interpretation ofexisting laws or regulations may also change or the approach to enforcement maybecome more rigorous. We could face a range of impacts from this. These includefinancial payments, penalties (of up to 10 per cent of relevant regulatedturnover), the imposition of an enforcement order requiring additional capital/operating expenditure or compensation following litigation. It could also leadto high levels of scrutiny by regulators, enforcement agencies or authoritieswith associated increase in operational costs. In more extreme but remotecircumstances, impacts could ultimately include licence revocation or theappointment of a special administrator. Control mitigationThe group has robust processes in place to identify risks to its compliancewith legal and regulatory obligations and seeks to take appropriate action toensure compliance. This includes continually monitoring legislative andregulatory developments, the training of employees in new developments and theparticipation in consultations to influence their outcome, either directly orthrough industry trade associations for wider issues. Funding for anyadditional compliance costs in the regulated business is sought as part of theprice determination process. The group also robustly defends litigation whereappropriate and seeks to minimise its exposure by establishing provision andseeking recovery wherever possible. 5. Operational and Hazardous Events Current issues or areas of uncertainty include:i) Future abstraction licencing ii) Supply demand balance in West Cumbria iii) Weather conditions iv) Population growth v) Investment requirements in wastewater infrastructure vi) Excavation, tunnelling and construction work Potential impactCaused by both internal and external factors, operational impacts can rangefrom performance related issues, such as leakage or discharge consent breachesto service related issues such as operational /asset failures and the effect onquality, supply or flooding. In exceptional and extremely remote circumstanceswhich may include human error or malicious intervention, the impact could bemore significant ranging from environmental damage, economic and socialdisruption to loss of life. Depending on the circumstances the company could be exposed to increasedregulatory scrutiny, regulatory penalties and /or additional operating orcapital expenditure. In the more extreme situations the group could also befined for breaches of statutory obligations, be held liable to third partiesand sustain reputational damage. Control mitigationControls and mitigation relate to our core business processes, focusing onpreventing negative impacts in order to support high levels of customer serviceand operation in a reasonable manner. Forecasting and monitoring is afundamental element of our operational activity, with robust quality assuranceprocedures, risk assessments and rigorous sampling/testing regimes in place.Ongoing network maintenance and capital programmes aim to enhance standards andintegration across the water and wastewater networks for both service andresilience. We also undertake major education programmes in both water usageand appropriate disposal into the sewer network in an attempt to minimiseoperational issues. In support of this, physical and technological securitymeasures to protect the operational capability from malicious or accidentalactivity and governance and inspection regimes exist for key infrastructureassets (including aqueducts, dams, reservoirs and treatment works). We havealso developed a strong safety and health and environmental culture throughoutthe organisation supported by health and safety management (HSMS) andenvironmental management systems (EMS) which are certified to OHSAS18001 andISO14001 respectively. Recognising that events can materialise we operate long-standing responsivecontrols. These include well tested and appropriately resourced incidentresponse, business continuity, disaster recovery and escalation procedureswhich continue to be refined. We also maintain insurance cover in relation tolosses and liabilities likely to be associated with significant risks, althoughpotential liabilities arising from catastrophic events could exceed the maximumlevel of cover that can be obtained cost-effectively. The licence of theregulated business also contains a `shipwreck' clause that, if applicable, mayoffer a degree of recourse to Ofwat/customers (by way of an interimdetermination) in the event of a catastrophic incident. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This financial report contains certain forward-looking statements with respectto the operations, performance and financial condition of the group. By theirnature, these statements involve uncertainty since future events andcircumstances can cause results and developments to differ materially fromthose anticipated. The forward-looking statements reflect knowledge andinformation available at the date of preparation of this financial report andthe company undertakes no obligation to update these forward-lookingstatements. Nothing in this financial report should be construed as a profitforecast. Certain regulatory performance data contained in this financial report issubject to regulatory audit. Consolidated income statement Restated* Year ended Year ended 31 March 31 March 2014 2013 £m £m Continuing operations ----- ----- Revenue 1,704.5 1,636.0 ----- ----- Employee benefits expense: - excluding restructuring costs (131.7) (130.4) - restructuring costs (4.4) (2.6) ----- ----- Total employee benefits expense (136.1) (133.0) Other operating costs (430.7) (414.1) Other income 3.5 3.1 Depreciation and amortisation expense (339.2) (329.2) Infrastructure renewals expenditure (165.1) (161.2) ----- ----- Total operating expenses (1,067.6) (1,034.4) ----- ----- Operating profit 636.9 601.6 Investment income (note 3) 7.0 2.3 Finance expense (note 4) (99.2) (292.1) ----- ----- Investment income and finance expense (92.2) (289.8) ----- ----- Profit before taxation 544.7 311.8 Current taxation charge (76.7) (80.7) Current taxation credit - adjustment in 141.0 6.5respect of prior years Deferred taxation (charge)/credit (40.5) 3.0 Deferred taxation credit/(charge) - 13.3 (5.8)adjustment in respect of prior years Deferred taxation credit - change in 156.8 53.0taxation rate ----- ----- Taxation (note 5) 193.9 (24.0) ----- ----- Profit after taxation from continuing 738.6 287.8operations Discontinued operations Profit after taxation from discontinued 0.8 14.6operations (note 6) ----- ----- Profit after taxation 739.4 302.4 ----- ----- Earnings per sharefrom continuing and discontinued operations(note 7)Basic 108.4p 44.3pDiluted 108.2p 44.3p Earnings per sharefrom continuing operations (note 7)Basic 108.3p 42.2pDiluted 108.1p 42.2p Dividend per ordinary share (note 8) 36.04p 34.32p * The comparatives have been restated to reflect the requirements of IAS 19(Revised) `Employee Benefits'. See note 1 for details. Consolidated statement of comprehensive income Restated* Year ended Year ended 31 March 31 March 2014 2013 £m £m Profit after taxation 739.4 302.4 Other comprehensive incomeRemeasurement (losses)/gains on defined benefit (200.8) 35.0pension schemes (note 9)Taxation on items taken directly to 40.9 (8.4)equity (note 5)Foreign exchange adjustments (1.2) 0.6 ----- ----- Total comprehensive income 578.3 329.6 ----- ----- * The comparatives have been restated to reflect the requirements of IAS 19(Revised) `Employee Benefits'. See note 1 for details. With the exception of foreign exchange adjustments, none of the items in thetable above will be prospectively reclassified to profit or loss. Consolidated statement of financial position 31 March 31 March 2014 2013 £m £m ASSETSNon-current assetsProperty, plant and equipment 9,361.7 8,990.7Goodwill 4.9 5.0Other intangible assets 115.2 99.9Investments 6.9 5.7Trade and other receivables 1.3 2.2Retirement benefit surplus (note 9) - 15.1Derivative financial instruments 456.0 659.2 ----- ----- 9,946.0 9,777.8 ----- ----- Current assetsInventories 42.5 39.6Trade and other receivables 335.5 326.9Cash and short-term deposits 127.2 201.7Derivative financial instruments 56.9 62.0 ----- ----- 562.1 630.2 ----- ----- ----- ----- Total assets 10,508.1 10,408.0 ----- ----- LIABILITIESNon-current liabilitiesTrade and other payables (452.2) (419.8)Borrowings (5,956.4) (6,007.4)Retirement benefit obligations (note 9) (177.4) -Deferred taxation liabilities (1,050.4) (1,219.0)Provisions - (3.4)Derivative financial instruments (52.3) (196.2) ----- ----- (7,688.7) (7,845.8) ----- ----- Current liabilitiesTrade and other payables (388.1) (440.1)Borrowings (112.9) (166.1)Current income taxation liabilities (35.4) (71.5)Provisions (16.3) (8.8)Derivative financial instruments (50.8) (3.8) ----- ----- (603.5) (690.3) ----- ----- Total liabilities (8,292.2) (8,536.1) ----- ----- Total net assets 2,215.9 1,871.9 ----- ----- EQUITYShare capital 499.8 499.8Share premium account 2.9 2.9Revaluation reserve 158.8 158.8Cumulative exchange reserve (5.6) (4.4)Merger reserve 329.7 329.7Retained earnings 1,230.3 885.1 ----- ----- Shareholders' equity 2,215.9 1,871.9 ----- ----- Consolidated statement of changes in equity Year ended 31 March 2014 Share Cumulative Share premium Revaluation exchange Merger Retained capital account reserve reserve reserve earnings Total £m £m £m £m £m £m £m At 1 April 2013 499.8 2.9 158.8 (4.4) 329.7 885.1 1,871.9 Profit after - - - - - 739.4 739.4taxation Other comprehensiveincomeRemeasurement losses - - - - - (200.8) (200.8)on defined benefitpension schemes(note 9) Taxation on items - - - - - 40.9 40.9taken directly toequity (note 5) Foreign exchange - - - (1.2) - - (1.2)adjustments ----- ----- ----- ----- ----- ----- ----- Total comprehensive - - - (1.2) - 579.5 578.3(expense)/income ----- ----- ----- ----- ----- ----- ----- Transactions withowners Dividends (note 8) - - - - - (237.9) (237.9) Equity-settled - - - - - 4.4 4.4share-based payments Exercise of share - - - - - (0.8) (0.8)options - purchaseof shares ----- ----- ----- ----- ----- ----- ----- At 31 March 2014 499.8 2.9 158.8 (5.6) 329.7 1,230.3 2,215.9 ----- ----- ----- ----- ----- ----- ----- Year ended 31 March 2013 (Restated*) Share Cumulative Share premium Revaluation exchange Merger Retained capital account reserve reserve reserve earnings Total £m £m £m £m £m £m £m At 1 April 2012 499.8 2.4 158.8 (5.0) 329.7 778.9 1,764.6 Profit after taxation - - - - - 302.4 302.4 Other comprehensiveincome Remeasurement gains - - - - - 35.0 35.0on defined benefitpension schemes (note9) Taxation on items - - - - - (8.4) (8.4)taken directly toequity (note 5) Foreign exchange - - - 0.6 - - 0.6adjustments ----- ----- ----- ----- ----- ----- ----- Total comprehensive - - - 0.6 - 329.0 329.6income ----- ----- ----- ----- ----- ----- ----- Transactions withowners Dividends (note 8) - - - - - (223.5) (223.5) New share capital - 0.5 - - - - 0.5issued Equity-settled - - - - - 1.7 1.7share-based payments Exercise of share - - - - - (1.0) (1.0)options - purchase ofshares ----- ----- ----- ----- ----- ----- ----- At 31 March 2013 499.8 2.9 158.8 (4.4) 329.7 885.1 1,871.9 ----- ----- ----- ----- ----- ----- ----- * The comparatives have been restated to reflect the requirements of IAS 19(Revised) `Employee Benefits'. See note 1 for details. Consolidated statement of cash flows Year ended Year ended 31 March 31 March 2014 2013 £m £m Operating activities Cash generated from continuing 941.6 852.2operationsInterest paid (169.1) (168.3)Interest received and similar income 2.7 2.4Tax paid (65.4) (55.2)Tax received 95.5 - ----- ----- Net cash generated from operating activities 805.3 631.1(continuing operations) ----- ----- Net cash used in operating activities (discontinued (0.8) (1.4)operations) ----- ----- Investing activitiesPurchase of property, plant and (663.1) (625.6)equipmentPurchase of other intangible assets (39.4) (35.3)Proceeds from sale of property, plant 2.8 2.9and equipmentGrants and contributions received 16.4 16.3Purchase of investments (1.9) (3.0)Proceeds from sale of investments 0.1 0.9 ----- ----- Net cash used in investing activities (685.1) (643.8)(continuing operations) ----- ----- Financing activitiesProceeds from issue of ordinary shares - 0.5Proceeds from borrowings 372.0 147.9Repayment of borrowings (344.8) (39.4)Exercise of share options - purchase of (0.8) (1.0)sharesDividends paid to equity holders of the (237.9) (223.5)company ----- ----- Net cash used in financing activities (211.5) (115.5)(continuing operations) ----- ----- Effects of exchange rate changes (0.1) -(continuing operations) ----- ----- Net decrease in cash and cash equivalents (91.4) (128.2)(continuing operations) ----- ----- Net decrease in cash and cash equivalents (0.8) (1.4)(discontinued operations) ----- ----- Cash and cash equivalents at beginning 182.5 312.1of the year ----- ----- Cash and cash equivalents at end of the 90.3 182.5year ----- ----- Cash generated from continuing operations Restated/ re-presented* Year ended Year ended 31 March 31 March 2014 2013 £m £m Operating profit 636.9 601.6Adjustments for:Depreciation of property, plant and 314.4 305.9equipmentAmortisation of other intangible assets 24.8 23.3Loss on disposal of property, plant and 6.4 6.6equipmentLoss on disposal of other intangible - 3.2assetsAmortisation of deferred grants and (7.4) (7.1)contributionsEquity-settled share-based payments 4.4 1.7chargeOther non-cash movements (2.0) (1.9) Changes in working capital:(Increase)/decrease in inventories (2.9) 7.8Increase in trade and other receivables (4.7) (26.5)(Decrease)/increase in trade and other (25.4) 9.3payablesIncrease in provisions 4.1 1.9Pension contributions paid less pension expense (7.0) (73.6)charged to operating profit ----- ----- Cash generated from continuing 941.6 852.2operations ----- ----- * The comparatives have been restated to reflect the requirements of IAS 19(Revised) `Employee Benefits'. See note 1 for details. The comparatives havealso been re-presented to include increase in provisions of £1.9 million andpension contributions paid less pension expense charged to operating profit of£73.6 million as separate categories, rather than within decrease in provisionsand retirement benefit obligations as previously presented. NOTES 1. Basis of preparation and accounting policies The condensed consolidated financial statements for the year ended 31 March2014 have been prepared in accordance with the Disclosure and TransparencyRules of the Financial Conduct Authority. The accounting policies, presentation and methods of computation have beenprepared on a basis consistent with the United Utilities Group PLC auditedfinancial statements for the year ended 31 March 2014, which are prepared inaccordance with International Financial Reporting Standards (IFRSs) as adoptedby the European Union (EU), including International Accounting Standards (IAS)and Interpretations issued by the International Financial ReportingInterpretations Committee (IFRIC). The adoption of the following standards and interpretations, at 1 April 2013,has had no material impact on the group's financial statements. IAS 19 (Revised) `Employee Benefits'The impact of the changes in this standard is to replace interest cost andexpected return on plan assets with a net interest amount that is calculated byapplying the discount rate to the net defined benefit (obligations)/surplus. Inaddition, the standard clarifies that administration costs relating to theadministration of benefits should be recognised as an employee benefits expensethrough the income statement, rather than as a deduction from the return onplan assets which was previously recognised through other comprehensive income.The standard's application is retrospective and hence requires the restatementof the year ended 31 March 2013. The impact in the year ended 31 March 2014 has been an increase in employeebenefit expense of £2.2 million (2013: £2.9 million), a decrease in financeexpense of £nil (2013: £10.0 million) and an offsetting gain to remeasurementgains and losses within other comprehensive income of £2.2 million (2013: £7.1million loss). These amendments have had no overall impact on the retirementbenefit (obligations)/surplus in the statement of financial position. The impact on taxation in the year ended 31 March 2014 has been a deferredtaxation credit of £0.4 million (2013: £1.6 million charge) and an offsettingcharge to other comprehensive income of £0.4 million (2013: £1.6 millioncredit). IFRS 13 `Fair Value Measurement'The standard provides guidance on the measurement of fair value where requiredby existing accounting standards. The application of the standard isprospective and, hence, impacts the year ended 31 March 2014 only. The impactin the year ended 31 March 2014 has been a £0.3 million credit to financeexpense and a corresponding reduction in derivative liabilities, due to theinclusion of the group's own credit risk in measuring the fair value of itsliabilities. Amendments to IAS 1 `Presentation of items of Other Comprehensive Income'The impact of the amendments is that items, which may be reclassified to profitand loss in the future, are presented separately in the statement of othercomprehensive income from those that would never be reclassified to profit andloss. The condensed consolidated financial statements do not include all of theinformation and disclosures required for full annual financial statements, donot comprise statutory accounts within the meaning of section 434 of theCompanies Act 2006 and should be read in conjunction with the group's annualreport and financial statements for the year ended 31 March 2014. The comparative figures for the year ended 31 March 2013 do not comprise thegroup's statutory accounts for that financial year. Those accounts have beenreported upon by the group's auditor and delivered to the registrar ofcompanies. The report of the auditor was unqualified and did not include areference to any matters to which the auditor drew attention by way of emphasiswithout qualifying their report and did not contain a statement under section498(2) or (3) of the Companies Act 2006. Going concernThe directors have a reasonable expectation that the group has adequateresources available to it to continue its operational existence for theforeseeable future and have therefore continued to adopt the going concernpolicy in preparing the financial statements. This conclusion is based upon,amongst other matters, a review of the group's financial projections togetherwith a review of the cash and committed borrowing facilities available to thegroup as well as consideration of the group's capital adequacy. In addition,the directors also considered, amongst other matters, the primary legal duty ofUnited Utilities Water PLC's economic regulator, to ensure that the companiescan finance their functions. 2. Segment reporting The board of directors of United Utilities Group PLC (the board) is providedwith information on a single segment basis for the purposes of assessingperformance and allocating resources. The board reviews revenue, underlyingoperating profit, operating profit, assets and liabilities, regulatory capitalexpenditure and RCV gearing at a consolidated level. In light of this, thegroup has a single segment for financial reporting purposes and therefore nofurther detailed segmental information is provided in this note. 3. Investment income Continuing operations Year ended Year ended 31 March 31 March 2014 2013 £m £m Interest receivable 1.2 2.3Interest receivable on tax settlement 4.5Net pension interest income (note 9) 1.3 - --- --- 7.0 2.3 --- --- 4. Finance expense Restated Year ended Year ended 31 March 31 March 2014 2013 £m £mContinuing operationsInterest payable (228.4) (249.1)Net fair value gains/(losses) on debt and 129.2 (41.5)derivative instruments ----- ----- (99.2) (290.6) Net pension interest expense (note 9) - (1.5) ----- ----- (99.2) (292.1) ----- ----- The group has fixed interest costs for a substantial proportion of the group'snet debt for the duration of the current regulatory pricing period. Inaddition, the group has hedged currency exposures for the term of each relevantdebt instrument. The group has hedged its position through the use of interestrate and cross currency swap contracts where applicable. The underlying net finance expense for the continuing group of £251.8 million(31 March 2013: £252.8 million) is derived as shown in the table below. Restated Year ended Year ended 31 March 31 March 2014 2013 £m £m Continuing operationsFinance expense (99.2) (292.1)Investment income 7.0 2.3Net fair value (gains)/losses on debt and (129.2) 41.5derivative instrumentsInterest on swaps and debt under 8.1 8.3fair value optionAdjustment for net pension interest (income)/ (1.3) 1.5expense (note 9)Adjustment for capitalised borrowing (19.4) (14.3)costsAdjustment for release of tax (13.3) -interest accrualAdjustment for interest receivable (4.5) -on tax settlement ----- ----- Underlying net finance expense (251.8) (252.8) ----- ----- 5. Taxation Restated Year ended Year ended 31 March 31 March 2014 2013Continuing operations £m £mCurrent taxationUK corporation taxation 75.3 79.4Foreign taxation 1.4 1.3Adjustments in respect of prior (141.0) (6.5)years ----- ----- Total current taxation (credit)/ (64.3) 74.2charge for the year ----- ----- Deferred taxationCurrent year 40.5 (3.0)Adjustments in respect of prior (13.3) 5.8years ----- ----- 27.2 2.8 Change in taxation rate (156.8) (53.0) ----- ----- Total deferred taxation credit for (129.6) (50.2)the year ----- ----- ----- ----- Total taxation (credit)/charge for (193.9) 24.0the year ----- ----- The current taxation charge is £76.7 million for the year ended 31 March 2014representing a current taxation effective rate of 14 per cent compared with 26per cent for the year ended 31 March 2013. The reduction is principally due tofair value movements, which give rise to a corresponding current year deferredtaxation charge. In addition, there is a current taxation credit of £141.0million, and an associated deferred taxation credit of £13.3 million relatingto recently agreed matters in relation to prior years. The deferred taxation credits for the years ended 31 March 2014 and 31 March2013 include a credit of £156.8 million and £53.0 million respectively toreflect the staged reductions in the mainstream rate of corporation tax from 24per cent in the year ended 31 March 2013 to 20 per cent, effective from 1 April2015. Taxation on items taken directly to equity The taxation (credit)/charge relating to items taken directly to equity is asfollows: Restated Year ended Year ended 31 March 31 March 2014 2013 £m £m Continuing operationsCurrent taxationRelating to other pension movements (1.9) (15.6) ----- ----- Deferred taxationOn remeasurement (losses)/gains on defined benefit (40.2) 8.1pension schemesRelating to other pension movements 1.7 15.0Change in taxation rate (0.5) 0.9 ----- ----- (39.0) 24.0 ----- ----- ----- ----- Total taxation (credit)/charge on items taken (40.9) 8.4directly to equity ----- ----- 6. Discontinued operations Discontinued operations represent the retained obligations of businesses soldin prior years. In accordance with IFRS 5 'Non-current assets held for sale anddiscontinued operations', the post-tax results of discontinued operations aredisclosed separately in the consolidated income statement and consolidatedstatement of cash flows. The profit after taxation from discontinued operations is analysed as follows: Year ended Year ended 31 March 31 March 2014 2013 £m £m Transaction and other costs of 0.8 14.6disposal --- --- Profit after taxation from 0.8 14.6discontinued operations --- --- During the year ended 31 March 2014, the profit after taxation fromdiscontinued operations of £0.8 million (2013: £14.6 million) relatingprimarily to the release of accrued costs of disposal in respect of certainelements of the group's non-regulated disposal programme. 7. Earnings per share Basic and diluted earnings per share are calculated by dividing profit aftertaxation by the following weighted average number of shares in issue: Basic Diluted million million Year ended 31 March 2014 681.9 683.2 Year ended 31 March 2013 681.9 682.8 The difference between the weighted average number of shares used in the basicand diluted earnings per share calculations arises due to the group's operationof share-based payment compensation arrangements. The difference representsthose ordinary shares deemed to have been issued for no consideration on theconversion 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 years are asfollows: Restated Year ended Year ended 31 March 31 March 2014 2013 From continuing and discontinuedoperations Basic 108.4p 44.3pDiluted 108.2p 44.3p From continuing operations Basic 108.3p 42.2pDiluted 108.1p 42.2p 8. Dividends Year ended Year ended 31 March 31 March 2014 2013 £m £m Dividends relating to the yearcomprise: Interim dividend 81.9 78.0Final dividend 163.9 156.0 ----- ----- 245.8 234.0 ----- ----- Year ended Year ended 31 March 31 March 2014 2013 £m £m Dividends deducted from shareholders' equity comprise: Interim dividend 81.9 78.0Final dividend 156.0 145.5 ----- ----- 237.9 223.5 ----- ----- The proposed final dividends for the years ended 31 March 2014 and 31 March2013 were subject to approval by equity holders of United Utilities Group PLCand hence have not been included as liabilities in the consolidated financialstatements at 31 March 2014 and 31 March 2013 respectively. The final dividend of 24.03 pence per ordinary share (2013: final dividend of22.88 pence per ordinary share) is expected to be paid on 1 August 2014 toshareholders on the register at the close of business on 20 June 2014. Theex-dividend date for the final dividend is 18 June 2014. The interim dividend of 12.01 pence per ordinary share (2013: interim dividendof 11.44 pence per ordinary share) was paid on 3 February 2014 to shareholderson the register as at the close of business on 20 December 2013. 9. Retirement benefit (obligations)/surplus The main financial assumptions used by the actuary to calculate the definedbenefit (obligations)/surplus of the United Utilities Pension Scheme (UUPS) andthe United Utilities PLC Group of the Electricity Supply Pension Scheme (ESPS)were as follows: Year ended Year ended 31 March 31 March 2014 2013 %pa %pa Discount rate 4.3 4.6Pensionable salary growth and pension 3.3 3.3increasesPrice inflation 3.3 3.3 The net pension expense before taxation recognised in the income statement inrespect of the defined benefit schemes is summarised as follows: Restated Year ended Year ended 31 March 31 March 2014 2013 £m £m Continuing operations Current service cost (17.2) (15.9)Curtailments/settlements arising on (1.7) (0.6)reorganisationAdministrative expenses (2.2) (2.9) ----- ----- Pension expense charged to operating (21.1) (19.4)profit ----- ----- Net pension interest income (note 3)/ 1.3 (1.5)(expense) (note 4) ----- ----- Net pension expense charged before (19.8) (20.9)taxation ----- ----- The reconciliation of the opening and closing net pension (obligations)/surplusincluded in the statement of financial position is as follows: Restated Year ended Year ended 31 March 31 March 2014 2013 £m £m At the start of the year 15.1 (92.0)Expense recognised in the income (19.8) (20.9)statementContributions paid 28.1 93.0Remeasurement (losses)/gains gross of (200.8) 35.0taxation ----- ----- At the end of the year (177.4) 15.1 ----- ----- Under the prescribed IAS19 basis, pension scheme liabilities are calculatedbased on current accrued benefits. Expected cash flows are projected forwardallowing for RPI and the current member mortality assumptions. These projectedcash flows are then discounted by an AA corporate bond rate, which comprises anunderlying interest rate and a credit spread. The group has de-risked its pension schemes through hedging strategies appliedto the underlying interest rate and the forecast RPI. The underlying interestrate has been largely hedged through external market swaps, the value of whichis included in the schemes' assets, and the forecast RPI has been largelyhedged through the Inflation Funding Mechanism (IFM), with RPI in excess of3.0% p.a. being funded through an additional schedule of deficit contribution. As a consequence, the reported statement of financial position under IAS19remains volatile to changes in credit spread which have not been hedged,primarily due to the difficulties in doing so over long durations; changes ininflation, as the IFM results in changes to the IFM deficit contributionsrather than a change in the schemes' assets; and, to a lesser extent, changesin mortality as management has decided not to hedge this exposure due to itslower volatility in the short-term. In contrast, the schemes' specific funding basis, which forms the basis forregular (non-IFM) deficit repair contributions, is unlikely to suffer fromvolatility due to credit spread or inflation. This is because a prudent, fixedcredit spread assumption is applied, and inflation linked contributions areincluded within the IFM. In the IAS19 assessment of financial position at 31 March 2014, although thediscount rate has fallen by 0.3% this masks a rise in underlying interest ratesoffset by a credit spread reduction of 0.5%. This credit spread reductionresults in substantially all of the reported £192.5 million deterioration.During the year ended 31 March 2014, there has not been any material change inthe deficits on a scheme specific funding basis and therefore the level ofdeficit repair contributions. The closing (obligations)/surplus at each reporting date are analysed asfollows: 31 March 31 March 2014 2013 £m £m Present value of defined benefit (2,554.4) (2,426.9)obligationsFair value of schemes' assets 2,377.0 2,442.0 ----- ----- Net retirement benefit (obligations)/ (177.4) 15.1surplus ----- ----- 10. Related party transactions Transactions between the company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. The following transactions were carried out with the group's joint ventures andother investments: Year ended Year ended 31 March 31 March 2014 2013 £m £m Sales of services 1.6 1.3Purchases of goods and services 0.8 0.7 --- --- Amounts owed by the group's joint ventures and other investments are asfollows: 31 March 31 March 2014 2013 £m £m Amounts owed by related parties 1.4 1.0 --- --- 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 withnormal credit terms. The group has issued guarantees of £5.2 million (2013:£5.2 million) in support of its joint ventures. No provision has been made for doubtful receivables in respect of the amountsowed by related parties (2013: £nil). 11. Contingent liabilities The group has entered into performance guarantees as at 31 March 2014 where afinancial limit has been specified of £47.1 million (2013: £72.1 million). 12. Changes in circumstances significantly affecting the fair value offinancial assets and financial liabilities From 1 April 2013 to 31 March 2014 market interest rates have increased, andsterling has strengthened against the US dollar, which has decreased the fairvalue of the group's borrowings and derivative assets. The group's borrowings have a carrying amount of £6,069.3 million (31 March2013: £6,173.5 million). The fair value of these borrowings is £6,336.4 million(2013: £6,470.0 million). The group's derivatives measured at fair value are anet asset of £409.8 million (2013: £521.2 million). 13. Events after the reporting period There are no events arising after the reporting date that require recognitionor disclosure in the financial statements for the year ended 31 March 2014. STATEMENT OF DIRECTORS' RESPONSIBILITIES The responsibility statement below has been prepared in connection with thecompany's full annual report for the year ended 31 March 2014. Certain partsthereof are not included within this announcement. Responsibility statement We confirm that to the best of our knowledge: * the financial statements, prepared in accordance with IFRS as adopted by theEuropean Union, give a true and fair view of the assets, liabilities, financialposition and profit or loss of the company and the undertakings included in theconsolidation taken as a whole; * the strategic report includes a fair review of the development andperformance of the business and the position of the issuer and the undertakingsincluded in the consolidation taken as a whole, together with a description ofthe principal risks and uncertainties that they face; and * the directors consider the annual report, taken as a whole, is fair, balancedand understandable and provides the information necessary for shareholders toassess the Group's performance, business model and strategy. The directors of United Utilities Group PLC at the date of this announcementare listed below: Dr John McAdam Steve Mogford Dr Catherine Bell CB Mark Clare (appointed 1 November 2013) Russ Houlden Brian May Nick Salmon Sara Weller This responsibility statement was approved by the board on 21 May 2014 andsigned on its behalf by: Steve Mogford Russ Houlden

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