24th Nov 2010 07:00
United Utilities Group PLC
24 November 2010
HALF YEARLY FINANCIAL REPORT for the SIX MONTHS ended 30 SEPTEMBER 2010
£m Six months ended (continuing operations) 30 September 2010 30 September 2009 (restated)*Revenue 762.4 786.6Operating profit 311.5 339.9Profit before taxation** 122.2 189.9Profit after taxation 133.1 186.2Basic earnings per share**** 19.5 27.3
(pence)
Interim dividend per ordinary 10.0 11.17
share (pence)
Underlying operating profit*** 327.7 345.4Underlying profit before 196.2 258.2
taxation***
Underlying profit after 139.3 185.1
taxation***
Underlying earnings per share**** 20.4 27.2
(pence)
* The vast majority of the group's non-regulated activities are treated as discontinued and the group has now adopted IFRIC 18 hence the first half of 2009/10 has been restated
** Profit before taxation of £122m reflects the recent price review and is impacted by £16m of one-off items, £55m of fair value movements and £3m of net pension interest expense
***Underlying profit measures have been provided to give a morerepresentative view of business performance and exclude one-off items and fairvalue movements on debt and derivative instruments. These profit measures aredefined in the underlying profit measure tables.
****One-off factors affecting earnings per share and underlying earnings per share calculations are explained in the earnings per share section.
* Results slightly ahead of management expectations
* Underlying operating profit of £328 million: reflects new regulatory settlement
* Completed c£600 million non-regulated disposal programme: strategic focus on regulated business
* Customer satisfaction at highest recorded level: continued strong focus on operational performance
* Good start to new regulatory period: capital investment of £307 million in the first half
* West East Link: close to completing one of the largest capital projects of its kind in UK water sector
* Confident of delivering outperformance over 2010-15 period
* Interim dividend of 10 pence per share, in line with policy
Philip Green, Chief Executive, said:
"We have made a good start to the new regulatory period and I am pleased to report results slightly ahead of our expectations. The board has declared an interim dividend for 2010/11 of 10 pence per share with the intention of paying a total dividend of 30 pence per share for the year, consistent with our policy.
"Over the last four years, United Utilities has reshaped its portfolio and is now a focused regulated UK water and wastewater company. Earlier this month, we completed our non-regulated disposal programme, providing the opportunity to focus further on improving the performance of our core business.
"With the programme of actions we are implementing, we areconfident of delivering outperformance over the 2010-15 period with financingoutperformance already secured. We have continued to make high levels ofinvestment in our water and wastewater assets, with capital expenditure ofover £300 million in the half year, providing further benefits for customers,shareholders and the environment.
"We are close to completing our West East Link water pipeline, a project costing over £120 million, which connects Merseyside and Greater Manchester. This is one of the largest projects of its kind undertaken and will improve further the water supply and demand balance in our region.
"United Utilities has a robust capital structure and the businessshould benefit from predictable regulated revenue streams over the next fiveyears. The group's well defined dividend policy, with a growth target of twoper cent per annum above inflation through to 2015, provides clarity forshareholders."
For further information on the day, please contact:
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 4200A presentation to investors and analysts starts at 9.00 am onWednesday 24 November 2010, at the Auditorium, Deutsche Bank, WinchesterHouse, 1 Great Winchester Street, London, EC2N 2DB. The presentation can beaccessed via a live listen in conference call facility by dialling: +44 (0) 207162 0025. A recording of the call will be available for seven days following24 November 2010 on +44 (0) 20 7031 4064, access code 880195.
This results announcement and the associated presentation will be available on the day at: http://www.unitedutilities.com
CHIEF EXECUTIVE'S REVIEW
Financial performance
The group has delivered financial results slightly ahead of its expectationsfor the six months ended 30 September 2010, following the recent regulatoryprice review. Revenue from continuing operations fell by £24 million to £762million, reflecting a real price decrease in our regulated business.Underlying operating profit decreased by 5% to £328 million. Underlying profitbefore taxation decreased by 24% to £196 million, which reflected an increasein the underlying net finance expense, largely due to the impact of rising RPIinflation on the group's index-linked debt.
We have made a positive start to the new regulatory period and investment in our assets has continued at high levels, helping the business meet strict environmental standards and deliver an improved service for our customers. Capital expenditure in our regulated water and wastewater business amounted to £307 million during the half year, including infrastructure renewals expenditure. This level of spend is consistent with our planned investment profile for the initial phase of the 2010-15 period and we have made good early progress in the delivery of outputs.
United Utilities has a robust capital structure and the completion of the non-regulated disposal programme, alongside recent levels of inflation, has had a beneficial impact on gearing. The group benefits from headroom to cover its projected financing needs through to the summer of 2012 and this provides us with good flexibility in terms of when and how we raise further debt finance.
Disposal programme complete
Earlier this month, we completed our non-regulated disposalprogramme. Over the last four years, United Utilities has reshaped itsportfolio from a group with a wide-ranging set of activities and interests,such as telecommunications, business process outsourcing, gas and electricitydistribution, metering and international utility operations into a regulatedUK water and wastewater business.
Operational performance
Improving operational performance is a top priority for the group and we have revised our key operational and service measures for the new regulatory period to enhance further the visibility of our performance. We are continuing with our KPIs in the areas of customer satisfaction, relative efficiency and leakage and have introduced new measures to cover serviceability, environmental performance and corporate responsibility.
Customer satisfaction has continued to increase and is now at itshighest recorded level. Although we are pleased with the progress we havemade, we do recognise that we need to reduce further the number of customercomplaints we receive and are focused on delivering further improvements.Ofwat is currently introducing a new service incentive mechanism (SIM), whichis replacing the existing overall performance assessment (OPA) measurement andwill be focused on the customer experience. When this is fully implemented weintend to include SIM as one of our key performance measures, although webelieve the measure requires further refinement and we are working with theindustry and Ofwat in developing the methodology.
Throughout the previous regulatory period we sustained our relative efficiency bandings as assessed by Ofwat. However, we recognise that there is more to do and we aim to reach the upper quartile on relative efficiency by 2013/14, ahead of the next price review.
We are on track to meet our regulatory leakage target for the fifth consecutive year and aim to meet or outperform this target each year.
We have improved our position in the area of wastewater non-infrastructure in Ofwat's 2009/10 serviceability assessment from a "marginal" rating to a "stable" rating and, as a result, all four asset classes are now "stable". Our aim is to retain a "stable" rating for all four asset classes, which is aligned with Ofwat's target.
In respect of environmental performance, we are introducing anEnvironment Agency measure that incorporates a broad range of areas includingpollution. We have halved the number of serious pollution incidents over thelast few years and this should help our performance in this area, as we aimfor an upper quartile position on this measure by 2013/14.
The group has a strong focus on corporate responsibility and is the only UK water company to have a "World Class" rating, as measured by the Dow Jones Sustainability Index. Our target is to retain this status each year.
Efficiency initiatives
Last year we undertook a comprehensive review of the business,challenging working practices across the group. Our very detailed and earlyplanning enabled us to develop extensive efficiency plans and we are now busyimplementing our plans to improve performance and efficiency. We arestreamlining our processes as we aim to become a leaner, more efficientcompany and our new supplier contracts will deliver significant savings andhelp improve operational and capital efficiency. In March 2010, we placed ourpension provision on a much more sustainable footing, which also has thebenefit of reducing our future service cost.We have secured significant financing outperformance for the2010-15 period. United Utilities has just over £2 billion of index-linked debtat an average cost of 1.8% real, compared with Ofwat's cost of debt assumptionof 3.6% real. The group has also fixed the cost of the majority of itsremaining debt at an average nominal rate of around 5.0%. Together with thegroup's index-linked debt, this produces approximately £300 million offinancing outperformance over the 2010-15 period, based on an RPI inflationrate of 2.5% per annum.
Overall, we are confident of delivering outperformance in respect of the new regulatory contract.
Dividend
As announced in January, the board intends to pay a total dividendof 30 pence per share for the 2010/11 financial year. This includes an interimdividend of 10 pence per share. Thereafter, the intention is to continue withour policy of targeting dividend growth of RPI+2% per annum through to 2015.
Outlook
United Utilities has a robust capital structure and should benefitfrom predictable regulated revenue streams over the next five years. We areimplementing a range of detailed efficiency and performance improvementinitiatives and are confident of delivering outperformance, with financingoutperformance already secured. Our detailed capital investment planning hasfacilitated a smooth transition into the new regulatory period and we havemade good early progress. We expect capital expenditure to continue at highlevels in the second half of 2010/11 and beyond, benefiting customers and theenvironment. For shareholders, our well defined dividend policy providesclarity through to 2015.SEGMENTAL PERFORMANCEREGULATED ACTIVITIESFinancial highlights
* Regulated revenue lower by 3% at £748 million, reflecting impact of price review
* Regulated underlying operating profit down to £324 million from £348 million
Revenue from regulated activities was lower by 3% at £748 million, principallyreflecting the impact of the recent price review, which includes a 4.3% realprice decrease for 2010/11, partly offset by slightly higher volumes.Customers are benefiting from lower prices alongside significant investment inUnited Utilities' water and wastewater infrastructure, which helps meet strictenvironmental standards and deliver an improved service. It is expected thatregulated revenue will be a little lower in the second half of 2010/11compared with the first half, reflecting seasonality.As expected, underlying operating profit for the half year, at £324 million,was 7% lower than the corresponding period last year. This was primarily aresult of the regulated price reduction and an expected increase indepreciation and property rates, partly offset by a reduction in employeecosts, power costs and lower infrastructure renewals expenditure than in thefirst half of last year. In line with the planned phasing of the capitalinvestment programme, it is anticipated that infrastructure renewalsexpenditure and depreciation will be higher in the second half of 2010/11compared with the first half of the year. Reported operating profit, at £316million, was somewhat lower than the prior period, impacted by one-off costsof £8 million which principally reflect business restructuring.
As outlined previously, the business has entered into forward contracts for the majority of its power requirements for 2010/11 and 2011/12 and unit power costs are expected to be over 20% lower than in 2009/10.
Despite the continuing tough economic environment, the business has maintainedits cash collection performance. The bad debt charge for the first half of theyear is £18 million, compared with £28 million in the corresponding periodlast year. The bad debt position would be broadly flat compared with thecorresponding period last year, prior to the impact of the group's revision ofits application of revenue recognition. United Utilities has made changeswhich it believes best reflect the likelihood of cash collection. This revisedapproach is consistent with IFRS guidelines and reflects better information onwhich customers are not likely to pay. The effect has been to reduce bothrevenue and the bad debt charge in the income statement, with a minimal impacton operating profit.
Other operating expenses have increased by approximately £17 million, reflecting increased legal provisions, higher support costs and several small non-recurring items.
Capital investment in the half year, including £48 million of infrastructure renewals expenditure, was £307 million. This level of spend is in line with the planned capital investment profile for the first half of 2010/11, with an increase expected in the second half of the year.
Operational performance
Operational performance is a top priority and United Utilities Water (UUW) is targeting an upper quartile position among UK water companies on key operational measures by 2013/14, ahead of the next price review. The business has revised its key operational and service measures for the new regulatory period to enhance further the visibility of its performance.
* Overall customer satisfaction - Significant progress has beenachieved. Customer satisfaction, in response to enquiries, has improved fromless than 50% in 2005 to consistently over 80%, with a score of 82% for2009/10. Overall customer satisfaction is now at its highest recorded leveland further improvement has been achieved, with a satisfaction rating of 83%for the 12 months to 30 September 2010. Although UUW has made good progress,the business recognises that it needs to reduce further the number of customercomplaints and remains focused on achieving further improvements as it aimsfor a target of 85%. Ofwat is introducing a new service incentive mechanism(SIM), which replaces the overall performance assessment (OPA) measure. Theregulator and the industry are currently working together on its introductionand when fully implemented UUW intends to include SIM as one of its keyperformance measures.* Relative efficiency - UUW sustained its relative efficiencybandings as assessed by Ofwat throughout the previous regulatory period. Thisis reflected in Ofwat's most recent (2008/09) assessment of UUW as band B forthe water service and band C for the wastewater service. The business expectsto sustain these bandings in Ofwat's 2009/10 assessment, which is due to bepublished shortly, and is aiming for an upper quartile position by 2013/14.
* Leakage - UUW met its economic level of leakage rolling target for the fourth consecutive year in 2009/10, despite extreme winter weather conditions, reflecting strong management focus and the commitment of the workforce. The business is on course to meet its 2010/11 regulatory leakage target and aims to continue to meet or outperform the regulatory leakage targets set by Ofwat.
* Serviceability - Long-term stewardship of assets is critical andUUW has improved its position in the area of wastewater non-infrastructure inOfwat's 2009/10 serviceability assessment (Ofwat defines serviceability as thecapability of a system of assets to deliver a reference level of service tocustomers and to the environment now and in the future). All four assetclasses (water infrastructure, water non-infrastructure, wastewaterinfrastructure and wastewater non-infrastructure) are now rated "stable". Theaim is to retain a "stable" rating for all four asset classes, which isaligned with Ofwat's target.* Environmental performance - UUW has halved the number of majorpollution incidents over the last few years and has reduced the number ofproperties on the sewer flooding register. In respect of environmentalperformance, a composite measure is being introduced which is computed by theEnvironment Agency and incorporates a broad range of areas includingpollution. UUW was ranked 10th out of 10 water and sewerage companies for2008/09, but improved to 6th position for 2009/10. Performance to date in2010/11 has been encouraging and the business aims to reach the upper quartileby 2013/14.
* Corporate responsibility - United Utilities has a strong focus on corporate responsibility and is the only UK water company to have a "World Class" rating as measured by the Dow Jones Sustainability Index. The company aims to retain this "World Class" rating each year.
United Utilities has for many years included corporateresponsibility (CR) factors as a strategic consideration in its decisionmaking and this contributed to the company achieving the highest platinum plusranking in Business in the Community's (BITC) CR index and being recognised asBITC's Company of the Year for 2009/10, as well as being rated "World Class"in the Dow Jones Sustainability Index. United Utilities' CR policy sets outits commitment to environmental, social and economic improvements and this iscommunicated in a way that enables all employees to recognise how their rolesand responsibilities contribute to maintaining and improving sustainabilityperformance.The company is now close to completion of a significant capitalproject, referred to as the West East Link, designed to improve further thewater supply and demand balance in its region. Progress has been good and theproject, costing over £120 million, is due to be completed on schedule in thespring of 2011. The project is a 55 kilometre water pipeline connectingMerseyside and Greater Manchester and over 50 kilometres have now beeninstalled. It will use gravity to transport water from Greater Manchester toMerseyside, with the option to pump water in the other direction, thusproviding more resource flexibility. It will increase further the integrationof UUW's network, which is important given the potential supply and demandissues that are likely to arise through climate and demographic change. A keybenefit is that it will facilitate the maintenance of critical assets and willreplace the need to use temporary mains pipes during maintenance and cleaningactivities.Efficiency initiativesLast year, United Utilities undertook a comprehensive review of thebusiness, challenging working practices across the group. The very detailedand early planning enabled the business to develop extensive efficiency plansand these plans are now being implemented to improve performance and enhanceefficiency and effectiveness.As indicated previously, United Utilities has already securedfinancing outperformance through its existing debt portfolio of approximately£300 million over the 2010-15 period based on an RPI inflation rate of 2.5%per annum. Overall, the business is confident of delivering outperformance inrespect of the new regulatory contract.
Operating efficiency
During 2009/10, United Utilities reduced the number of peopleworking in or supporting the regulated business by approximately 350 (includesUnited Utilities and agency staff), equivalent to around 7% of that workforce.This has provided an immediate contribution to the achievement of theefficiency targets.Customer service continues to be a key area of focus, as thecompany aims to reduce significantly its cost to serve, whilst continuing toimprove the customer experience. Customer service performance will contributeto the regulator's new SIM assessment and the associated costs form part ofOfwat's relative efficiency analysis. UUW has reduced its annual cost to servefrom around £23 per customer to approximately £18 per customer over the lastthree years and is implementing plans to deliver further reductions, all whilecustomer satisfaction has improved markedly.The company has amended staff incentive mechanisms with the aim ofimproving the customer experience thereby reducing unnecessary customercontacts. Performance measurement is now based on first time resolution,rather than average call handling time. Customer service agents have beenprovided with increased training to help improve management of customercontacts and are proactively keeping customers informed of progress to reducethe need for repeat contacts and help increase satisfaction. New service levelarrangements have been introduced to reduce work queues and backlogs havealready been substantially eradicated. UUW has achieved an 84% reduction incustomer complaints assessed by the Consumer Council for Water (CCW), in thefirst half of the year compared with the same period last year, throughfocused performance improvements and is working hard to deliver furtherimprovements.United Utilities' customer online self-serve system is beingenhanced to make it more comprehensive and user friendly, with the aim ofreducing by a third the need for customers to contact the company's callcentre. UUW is focused on improving its debt collection rates and is planningto use more local authority collection agreements. The company is alsoenhancing systems to improve its customer segmentation analysis and to obtainbetter data on customers who have moved address, coupled with a more proactivedebt follow up strategy.United Utilities is reviewing and streamlining its processes as itaims to become a leaner, more efficient company. The group is focused onoperating with fewer, simpler and more consistent processes. For example, UUWis halving the number of steps from metering to cash collection. The group isrationalising its IT infrastructure, providing greater automation andvisibility of workflow. Managers now have ownership of all steps in a processto help enhance performance. Individuals also have greater visibility andunderstanding of how their performance influences the efficiency of the entireprocess. To support this, the group has taken the decision to bring backin-house its IT services to give the business greater control of its IT assetsand applications.The group has in place a focused programme to improve theefficiency of its assets. This includes using remote operational sitemanagement and optimisation of chemical and power usage and developingcombined heat and power assets, which recycle energy generated from wastewatertreatment processes. The company's wastewater treatment optimisation programmeis targeting approximately £9 million of annual savings by 2013 and theanalysis phase has to date identified savings ahead of target. Operationalimprovements at treatment works have already been identified and are beingimplemented, reducing reactive work orders, providing benefits to asset livesand helping improve serviceability.
Capital delivery
United Utilities has a robust commercial capital delivery frameworkin place for the 2010-15 period. Contractor partners have been appointed andthe company has signed new supplier contracts, which will deliver significantsavings and help improve efficiency. Incentive mechanisms are closely linkedto the UUW business plan and pain/gain incentives are assessed on a projectbasis, rather than a cumulative basis, providing more clarity on performance.A partial fee retention mechanism is also in place to help drive on-timeproject delivery. In addition, UUW has flexibility in respect of the level ofcompetitive tendering it may use in the award of future work during the fiveyear regulatory period.United Utilities undertook detailed advanced planning which ensureda smooth transition into the 2010-15 period and leveraged recent economicconditions to deliver procurement efficiency benefits. Early progress has beengood. For example, in respect of the company's mains cleaning programme,innovative techniques and improved unit rates have delivered schemes below theinitial target costs and outputs have been delivered ahead of schedule. Inaddition, UUW has reorganised its capital delivery function for the newregulatory period which is expected to deliver efficiencies over the fiveyears.
Financial
United Utilities has just over £2 billion of long dated,index-linked debt at an average cost of 1.8% real. This compares with Ofwat'scost of debt assumption of 3.6% real and secures financing outperformance forthe next five years. In line with its policy, the group has also fixed theinterest rates on a significant proportion of the remainder of its existingdebt portfolio, for the 2010-15 regulatory period, at an average nominal rateof around 5.0% (inclusive of credit spread). This provides more clarity onUUW's ability to outperform the final determination. Taken together with thegroup's index-linked debt, this equates to approximately £300 million offinancing outperformance over the five years, based on an RPI inflation rateof 2.5% per annum.
United Utilities has a robust debt profile and has less than £250 million of its c£5 billion term debt portfolio to re-finance during the 2010-15 period. In addition, the group would expect to raise new finance to help fund the substantial capital investment programmes and would expect UUW's regulatory capital value to grow to reflect the investment.
The changes made to the defined benefit pension schemes in thesecond half of 2009/10 have reduced significantly the company's pensiondeficit, reduced the future service cost and reduced future funding and futuredeficit risk, thereby placing the company's pension provision on a much moresustainable footing.NON-REGULATED ACTIVITIESUnited Utilities completed its c£600 million non-regulated disposalprogramme in November 2010. The vast majority of the non-regulated activitiesare treated as discontinued in the 2010/11 half yearly financial statements.The residual elements of the previously reported non-regulated activitiesoperating segment, which have not been classified as discontinued operations,no longer form a reportable segment as defined by International FinancialReporting Standards and have therefore been included within "All othersegments". These principally include UUW's non-appointed activities and thegroup's holding in AS Tallinna Vesi (Tallinn Water) which it has decided toretain.As outlined previously, United Utilities intends to retain theproceeds from these disposals within the group. Since the majority of the saletransactions completed after 30 September 2010, including the group's holdingin Meter Fit, its Australian business and its principal UK and Europeannon-regulated water interests, the proceeds are not fully reflected in thegroup's net debt position at the half year end but will be included in the netdebt position reported in the financial statements as at 31 March 2011.
In the half year, the non-regulated activities that are now treated as discontinued produced profit after taxation of £20 million.
ALL OTHER SEGMENTS
All other segments has delivered a small underlying operatingprofit during the half year of £4 million, which compares with an underlyingoperating loss of £3 million in the corresponding period last year. Thissegment includes UUW's non-appointed activities, United Utilities PropertyServices (UUPS) and the contribution from the group's 35.3% holding in TallinnWater, partly offset by certain central costs. Despite the continuingdifficult conditions in the UK property market, UUPS has generated a smallprofit contribution.The reported operating loss for the segment was £4 million. Thisreflects one-off costs of approximately £8 million, principally in relation torestructuring within the group's support services function, elements of whichare reported in central costs.
FINANCIAL PERFORMANCE
Investment income and finance expense
Finance expense of £191 million was £36 million higher than the prior period,principally reflecting a higher charge in respect of the group's index-linkeddebt following an increase in RPI inflation. This expense included £53 millionof net fair value losses on debt and derivative instruments, compared with £64million of net fair value losses in the first half of 2009/10. The impact ofcredit spreads on debt accounted for at fair value through profit or loss andthe fair value associated with the group's fixed interest rate hedge canresult in significant volatility. These factors have contributed to the netfair value movement on the prior period. In order to provide a hedge of theinterest cost implicit in the regulatory period, the group fixes interestrates for the duration of each five-year review period for a substantialproportion of its debt using interest rate swaps. IAS 39 limits the use ofhedge accounting for these commercial hedges, thereby increasing the potentialvolatility of the income statement. However, this volatility in fair valueshas no cash flow impact. A reduction in net pension interest expense in thefirst half of 2010/11, compared with the corresponding period last year, haspartially offset the increase in finance expense in the period.
Investment income was £1 million, compared with £5 million in the prior period. This reduction principally relates to a £4 million interest receipt in the prior year from HMRC, in respect of historical taxation payments. Excluding this interest receipt, investment income has been flat on the comparative period last year.
The underlying net finance expense for continuing operations of £132 millionwas £44 million higher than the first half of 2009/10. This reflects anincrease in the group's average annualised underlying interest rate fromaround 3.7% to 5.6%. The group has just over £2 billion of index-linked debtand the increase in the finance expense primarily reflects a return to aninflationary environment. However, the group has benefited from fixing themajority of its remaining debt for the 2010-15 period, with a net effectivenominal interest rate of approximately 5%, around 0.8% lower than the firsthalf of last year.During the six months ended 30 September 2010, indexation of the principal ofindex-linked debt amounted to a net charge in the income statement of £50million compared with a credit of £8 million in the comparative prior perioddue to the effects of RPI deflation in the prior year on the index-linked debtwith an eight month lag. The indexation charge of £50 million is not a cashpayment and is more than matched by an inflationary uplift to the regulatorycapital value.Profit before taxationUnderlying profit before taxation was £196 million, 24% lower than the firsthalf of the prior year, principally reflecting the revenue impact from theregulatory price review, an increase in the underlying net finance expense anda higher depreciation charge as a result of growth in the commissioned assetbase. This underlying measure adjusts for the impact of one-off items,principally from restructuring within the business, and fair value movementsin respect of debt and derivative instruments. Reported profit before taxationfrom continuing operations decreased by 36% to £122 million principally as aresult of larger one-off restructuring costs, a higher depreciation charge andan increase in finance expense.
Taxation
The group made a cash taxation payment during the first half of theyear of £27 million. In the corresponding period last year, the group receiveda cash taxation inflow of £51 million, following agreement with HMRC of prioryears' taxation returns. This item significantly reduced the cash taxationpaid in 2009/10.The current taxation charge relating to continuing activities was£30 million at the half year and the current taxation effective rate was 25%,compared with 10% in the equivalent prior year period. The prior year currenttaxation charge included a £34 million credit in relation to the agreementwith HMRC of prior years' taxation returns, without which the effectivetaxation rate would have been 28%.The group has recognised a net deferred taxation credit of £41million in the first half of 2010/11. This includes a £47 million credit toreflect the changes enacted on 27 July 2010 to reduce the mainstream rate ofcorporation taxation from 28% to 27% from 1 April 2011. This compares to adeferred taxation credit relating to continuing operations of £15 million inthe first half of last year, which included a £16 million credit in relationto the agreement with HMRC of prior years' taxation returns.
An overall taxation credit of £11 million relating to continuing operations has been recognised for the six months ended 30 September 2010. Excluding the impact of the reduction in the corporation taxation rate, the total taxation charge relating to continuing operations would be £36 million or 30% compared with a £54 million charge or 28% in the first half of last year, after excluding the impact of the one-off prior year taxation credits.
Profit after taxation
Reported profit after taxation was £133 million compared with £186million in the first half of the prior year. Underlying profit after taxationwas £139 million. This is based on the underlying profit before taxationfigure less an underlying taxation charge of £57 million, which includes anadjustment for the deferred taxation credit in relation to the change in themainstream rate of corporation taxation.
Earnings per share
Basic earnings per share relating to continuing operations reducedfrom 27.3 pence to 19.5 pence, principally reflecting the reduction in profitbefore taxation in the current period. Underlying earnings per share reducedfrom 27.2 pence to 20.4 pence. This underlying measure is derived fromunderlying profit before taxation less underlying taxation. This includes theadjustment for the deferred taxation credit in the first half of 2010/11associated with the aforementioned reduction in the corporation taxation rateand the impact of the one-off taxation credit in the first half of last year.
Dividend per share
The board has declared an interim dividend of 10.0 pence perordinary share in respect of the six months ended 30 September 2010. This isconsistent with the group's intention to pay a total dividend for the 2010/11financial year of 30.0 pence per ordinary share, which was announced inJanuary. Thereafter, United Utilities intends to continue with its dividendpolicy of targeting a real growth rate of RPI+2% per annum through to 2015.
The interim dividend is expected to be paid on 2 February 2011 to shareholders on the register at the close of business on 17 December 2010. The ex-dividend date is 15 December 2010.
Cash flow
Net cash generated from continuing operating activities for the sixmonths ended 30 September 2010 was £331 million, compared with £460 million inthe corresponding period last year. This reflects the impact of the regulatoryprice review and a taxation payment of £27 million in the first half of thecurrent year compared with a taxation receipt of £51 million in the first halfof last year. The group's net capital expenditure on continuing operations was£247 million, principally in the regulated water and wastewater investmentprogrammes. This excludes infrastructure renewals expenditure which is treatedas an operating cost under International Financial Reporting Standards.Net debt including derivatives in respect of continuing operationsat 30 September 2010 was £4,864 million, compared with £4,906 million at 31March 2010. Expenditure on the regulatory capital investment programmes andpayments of dividends and interest have been offset by operating cash flowsand the net debt reduction of £208 million following the announcednon-regulated disposals and the associated activities being treated asdiscontinued. The cash proceeds from the non-regulated disposals completedafter 30 September 2010 have subsequently reduced further the group's net debtposition.
Debt financing and interest rate management
Gearing (measured as group net debt divided by UUW's regulatorycapital value) decreased to 62% at 30 September 2010, compared with 64% at 31March 2010. This reflects growth in the regulatory capital value coupled witha reduction in group net debt following the agreed disposal of non-regulatedactivities. Since the majority of the non-regulated disposal transactionscompleted after the 30 September 2010, the associated cash proceeds receivedhave subsequently reduced gearing further to approximately 60%.
At the half year end, United Utilities Water PLC had long-term credit ratings of A3/BBB+ and United Utilities PLC had long-term credit ratings of Baa1/BBB- from Moody's Investors Service and Standard & Poor's Ratings Services respectively. The split rating reflects differing methodologies used by the credit rating agencies.
Cash and short-term deposits at 30 September 2010 amounted to £136million. During the 2009/10 financial year, the group's financing headroomposition was enhanced through the issuance of an additional £100 million,5.75% bond maturing in March 2022; an additional £50 million, 6.125% bondmaturing in December 2015; and a new £70 million, 2.40%+RPI index-linked bondmaturing in July 2039. No further bonds were issued in the first half of2010/11, although the group renewed £50 million of existing bilateral bankfacilities in the period. United Utilities has headroom to cover its projectedfinancing needs through to the summer of 2012.
The group has access to the international debt capital markets through its €7 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 assets and earnings, which are largely in sterling, indexed to UK retail price inflation and 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 assets and earnings. At 30 September 2010, approximately 44% 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 nominal debt is raised in a currency other than sterlingand/or with a fixed interest rate, to manage exposure to long-term interestrates, the debt is generally swapped to create a floating rate sterlingliability for the term of the liability. To manage exposure to medium-terminterest rates, the group fixes interest costs for a substantial proportion ofthe group's debt for the duration of each price control period at around thetime of that price control determination. The group does not undertake anyspeculative trading activity.
Liquidity
Short-term liquidity requirements are met from the group's normal operating cash flow and its short-term bank deposits. The group has a €2 billion euro-commercial paper programme and further liquidity is provided by committed but undrawn credit facilities.
In line with the board's treasury policy, United Utilities aims to maintain ahealthy headroom position. Available headroom at 30 September 2010 was £735million based on cash, short-term deposits and medium-term committed bankfacilities, net of short-term debt. This headroom is sufficient to cover thegroup's projected financing needs through to the summer of 2012.
United Utilities believes that it operates a prudent approach to managing banking counterparty risk. Counterparty risk, in relation to both cash deposits and derivatives, is controlled through the use of counterparty credit limits. United Utilities' cash is held in the form of short-term (generally no longer than three months) money market deposits with either prime commercial banks or with triple A rated money market funds.
United Utilities operates a bilateral, rather than a syndicated,approach to its core relationship banking facilities. This approach spreadsmaturities more evenly over a longer time period, thereby reducing refinancingrisk and providing the benefit of several renewal points rather than a largesingle refinancing requirement.
Pensions
The group has sought to adopt a more sustainable approach to thedelivery of pension provision and in the second half of 2009/10 amended theterms of its defined benefit pension schemes. The measures taken include a capon the increase in pensionable earnings, an increase in the normal retirementage, an increase in employee contribution rates, an adjustment to the accrualrates and a re-balancing of the pensions investment strategy. This reducesboth the future service cost and the future funding risk to the company,thereby enabling the company to retain defined benefit pension schemes forexisting members. The changes to the scheme rules were supported by thecompany's trade unions. The reduction in service cost in the first half of2010/11 was approximately £5 million, although the lower risk investmentstrategy has reduced investment income and resulted in a lower net benefit atthe profit before taxation level. These amendments also resulted in areduction of £92 million to the group's pension deficit, which was reported inthe financial statements as at 31 March 2010.Overall, the group's net pension deficit at the half year end hasincreased by £29 million, compared with the position at 31 March 2010,reflecting changes in market conditions and the routine actuarial assessmentof movements in assets and liabilities. As at 30 September 2010, the group'snet pension obligations stood at £301 million, a lower level than would havebeen the case had the group not made the above changes to its pension schemes.United Utilities has also reduced its future pension obligations as a resultof the sale of non-regulated activities. Further detail is provided in note 8("Retirement benefit obligations") of these condensed consolidated financialstatements. The group will continue to evaluate its pensions investmentstrategy to de-risk further its pension provision.
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 upon, amongst other matters, a review of the group's financial projections together with a review of the cash and committed borrowing facilities available to the group.
Underlying profit
In considering the underlying results for the period, the directors have excluded fair value movements on debt and derivative instruments and one-off items. Reported operating profit and profit before taxation from continuing operations are reconciled to underlying operating profit, underlying profit before taxation and underlying profit after taxation (non-GAAP measures) as follows:
Continuing operations Regulated All other
Group
activities segments
Operating profit/(loss) for the six months ended
£m £m
£m
30 September 2010Operating profit/(loss) per published results 315.5 (4.0)
311.5One-off items* 8.1 8.1 16.2 ------ ------ ------Underlying operating profit 323.6 4.1 327.7 ------ ------ ------ Continuing operations Regulated All other Group activities segments
Operating profit/(loss) for the six months ended
£m £m
£m
30 September 2009 (restated)
Operating profit/(loss) per published results 344.9 (5.0)
339.9One-off items* 3.5 2.0 5.5 ------ ------ ------
Underlying operating profit/(loss) 348.4 (3.0)
345.4 ------ ------ ------ Continuing operations Restated Six months Six months
Underlying net finance expense ended 30
ended 30 September September 2010 2009 £m £mFinance expense (190.5) (154.8)Investment income 1.2 4.8 ------ ------Net finance expense (189.3) (150.0)Net fair value losses on debt and derivative 53.2instruments
63.9
Add back interest on swaps and debt under fair 2.0value option
(11.7)
Adjustment for net pension interest expense 2.6
10.6
------
------
Underlying net finance expense (131.5)
(87.2) ------ ------ Continuing operations Restated Six months Six monthsProfit before taxation ended 30 ended 30 September September 2010 2009 £m £m
Profit before taxation per published results 122.2
189.9
One-off items* 16.2
5.5
Net fair value losses on debt and derivative 53.2instruments
63.9
Add back interest on swaps and debt under fair 2.0value option
(11.7)
Adjustment for net pension interest expense 2.6
10.6
------
------
Underlying profit before taxation 196.2
258.2 ------ ------ Continuing operations Restated Six months Six monthsProfit after taxation ended 30 ended 30 September September 2010 2009 £m £m
Underlying profit before taxation 196.2
258.2Reported taxation 10.9 (3.7)Deferred taxation credit (47.1) -
Agreement of prior years' UK taxation returns -
(50.3)
Taxation relating to underlying profit before (20.7)
(19.1)
taxation adjustments
------
------
Underlying profit after taxation 139.3
185.1
------
------
*principally relates to restructuring and other reorganisation costs within the business
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 group maintains an internal control framework that assesses,throughout the year, the nature and magnitude of internal and external risksto the achievement of business goals. The board assesses the group's appetitefor and tolerance of risk and clear risk tolerance boundaries are set.Managers are required to employ both proactive and reactive mitigationmeasures in a prioritised manner to reduce exposures and ensure ongoingresilience should a risk materialise. The executive management team regularlyreviews significant risks. The audit committee regularly reviews theframework's effectiveness and the group's compliance with it.The group's anticipated principal risks and uncertainties over thesecond half of the financial year and beyond remain as stated in its 2010Annual Report and Financial Statements, although the risks in the group'snon-regulated business have largely been removed since the vast majority ofthese activities have now been sold. The principal risks and uncertainties areset out in full on pages 19-24 of the 2010 Annual Report and FinancialStatements, namely (a) capital investment programmes; (b) service incentivemechanism and serviceability assessment; (c) the adoption of private sewers;(d) economic environment, inflation and capital market conditions; (e) pensionscheme obligations; (f) failure to comply with applicable law or regulations;(g) increased competition in the water and wastewater industry; (h) events,service interruptions, systems failures, water shortages or contamination ofwater supplies; (i) risks in the group's non-regulated business; and (j)material litigation.
There has been no change to the nature of related party transactions in the first six months of the financial year which has materially affected the financial position or performance of United Utilities.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This half yearly financial report contains certain forward-lookingstatements with respect to the operations, performance and financial conditionof the group. By their nature, these statements involve uncertainty sincefuture events and circumstances can cause results and developments to differmaterially from those anticipated. The forward-looking statements reflectknowledge and information available at the date of preparation of this halfyearly financial report and the company undertakes no obligation to updatethese forward-looking statements. Nothing in this half yearly financial reportshould be construed as a profit forecast.
Certain regulatory performance data contained in this half yearly financial report is subject to regulatory audit.
Consolidated income statement
Restated* Restated* Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mContinuing operationsRevenue 762.4 786.6 1,573.1 ------ ------ ------ Employee benefits expense:- excluding pension schemes curtailmentgains arising on (67.9) (77.7)
(156.3)
amendment of pension obligations andrestructuring costs- pension schemes curtailment gains arisingon amendment ofpension obligations (note 8) - -
87.3- restructuring costs (3.4) (5.5) (25.8) ------ ------ ------
Total employee benefits expense (71.3) (83.2)
(94.8) ------ ------ ------ Other reorganisation costs (12.8) - -Other operating costs (177.8) (181.7) (321.8)Other income 0.7 2.4 5.1
Depreciation and amortisation expense (141.7) (125.8)
(280.1)
Infrastructure renewals expenditure (48.0) (58.4)
(113.7) ------ ------ ------Total operating expenses (450.9) (446.7) (805.3) ------ ------ ------ Operating profit 311.5 339.9 767.8 Investment income (note 2) 1.2 4.8 6.2Finance expense (note 3) (190.5) (154.8) (365.3) ------ ------ ------
Investment income and finance expense (189.3) (150.0)
(359.1) ------ ------ ------ Profit before taxation 122.2 189.9 408.7 Current taxation charge (30.2) (18.4) (19.5)
Deferred taxation (charge)/credit (6.0) 14.7
(42.2)
Deferred taxation credit - change in 47.1 -
-taxation rate ------ ------ ------Taxation (note 4) 10.9 (3.7) (61.7) ------ ------ ------
Profit after taxation from continuing 133.1 186.2
347.0
operations
Discontinued operationsProfit after taxation from discontinued 20.3 11.9
56.5operations (note 5) ------ ------ ------Profit after taxation 153.4 198.1 403.5 ------ ------ ------ Earnings per share from continuing and discontinued operations(note 6)Basic 22.5p 29.1p 59.2pDiluted 22.5p 29.0p 59.2p Earnings per share from continuing operations (note 6)Basic 19.5p 27.3p 50.9pDiluted 19.5p 27.3p 50.9p Underlying basic earnings per sharefrom continuing operations (note 6) 20.4p 27.2p
50.9p
Dividend per ordinary share (note 7) 10.00p 11.17p
34.30p
* The comparatives have been restated to reflect the requirements of IFRS 5 `Non-current Assets Held for Sale and Discontinued Operations' and the adoption of IFRIC 18 `Transfers of Assets from Customers'.
Consolidated statement of comprehensive income
Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m Profit after taxation 153.4 198.1 403.5 Other comprehensive income
Actuarial losses on defined benefit pension (70.7) (131.0)
(125.4)
schemes
Deferred tax on actuarial losses on definedbenefit pension schemes 19.1 36.7 35.1Revaluation of investments 1.1 6.7 3.4Reclassification from other reserves arisingon sale of financial asset investment - -
(36.6)
Net fair value (losses)/gains on cashflow (0.2) 1.0
0.9
hedges
Deferred tax on net fair value 0.1 (0.3)
(0.5)
losses/(gains) on cashflow hedgesForeign exchange adjustments (3.1) 5.9
6.4 ------ ------ ------Total comprehensive income 99.7 117.1 286.8 ------ ------ ------
There is no tax impact on the items of other comprehensive income except where stated in the table above.
Consolidated statement of financial position Restated* Restated* 30 September 30 September 31 March 2010 2009 2010 £m £m £mASSETSNon-current assetsProperty, plant and equipment 8,113.0 7,990.4 8,159.6Goodwill - 2.5 2.5Other intangible assets 97.9 209.1 208.6Investments 2.1 143.3 7.7Trade and other receivables - 52.6 56.5
Derivative financial instruments 565.1 303.7
378.5 ------ ------ ------ 8,778.1 8,701.6 8,813.4 ------ ------ ------ Current assetsInventories 50.3 80.2 74.8Trade and other receivables 333.4 510.9 451.0Cash and short-term deposits 135.6 331.6 301.5
Derivative financial instruments 2.2 186.1
18.3
Assets classified as held for sale 524.1 -
- ------ ------ ------ 1,045.6 1,108.8 845.6 ------ ------ ------ Total assets 9,823.7 9,810.4 9,659.0 ------ ------ ------LIABILITIESNon-current liabilitiesTrade and other payables (203.5) (157.8) (182.9)Borrowings (5,323.5) (5,260.0) (5,307.9)
Retirement benefit obligations (note 8) (300.6) (358.6)
(271.3)Deferred tax liabilities (1,303.2) (1,293.0) (1,355.4)Provisions (8.6) (10.2) (8.3)
Derivative financial instruments (151.5) (43.7)
(102.3) ------ ------ ------ (7,290.9) (7,123.3) (7,228.1) ------ ------ ------ Current liabilitiesTrade and other payables (470.2) (704.1) (594.4)Borrowings (89.9) (314.6) (168.3)
Current income tax liabilities (93.8) (137.9)
(89.0)
Provisions (30.0) (26.2)
(45.5)
Derivative financial instruments (2.4) (91.0)
(25.8)
Liabilities classified as held for sale (397.0) -
- ------ ------ ------ (1,083.3) (1,273.8) (923.0) ------ ------ ------ Total liabilities (8,374.2) (8,397.1) (8,151.1) ------ ------ ------ Total net assets 1,449.5 1,413.3 1,507.9 ------ ------ ------ EQUITYCapital and reserves attributable to equity holders of thecompanyShare capital 499.8 499.8 499.8Share premium account 1.1 0.9 0.9Retained earnings 436.2 358.4 492.7
Other non-distributable reserves 512.4 554.2
514.5 ------ ------ ------Shareholders' equity 1,449.5 1,413.3 1,507.9 ------ ------ ------
* The comparatives for the period ended 30 September 2009 and year ended 31 March 2010 have been restated to reflect the adoption of IFRIC 18 `Transfers of Assets from Customers'. The comparatives for the period ended 30 September 2009 have also been restated to reflect the adoption of the amendments to IAS 1 arising from the `Improvements to IFRS (2008)' project.
Consolidated statement of changes in equitySix months ended 30 September 2010 Share Cumulative Share premium Retained Treasury exchange Merger Other Revaluation capital account earnings shares* reserve* reserve* reserves* reserve* Total £m £m £m £m £m £m £m £m £m
At 1 April 2010 499.8 0.9 492.7 (0.1) 22.3 329.7 3.8 158.8 1,507.9 Profit after taxation - - 153.4 - - - - - 153.4
Other comprehensive income
Actuarial losses on definedbenefit pension schemes - - (70.7) - - - - - (70.7)Deferred tax on actuariallosses on defined benefitpension schemes - - 19.1 - - - - - 19.1Revaluation of investments - - - - -
- 1.1 - 1.1Net fair value losses oncashflow hedges - - - - - - (0.2) - (0.2)Deferred tax on net fairvalue losses on cashflowhedges - - - - - - 0.1 - 0.1Foreign exchangeadjustments - - - - (3.1) - - - (3.1) ------ ------ ------ ------ ------ ------ ------ ------ ------Total comprehensiveincome/(expense) forthe period - - 101.8 - (3.1) - 1.0 - 99.7 ------ ------ ------ ------ ------ ------ ------ ------ ------Transactions with ownersDividends (note 7) - - (157.6) - - - - - (157.6)New share capital issued - 0.2 - - - - - - 0.2Equity-settled share-basedpayments - - (0.7) - - - - - (0.7) ------ ------ ------ ------ ------ ------ ------ ------ ------
At 30 September 2010 499.8 1.1 436.2 (0.1) 19.2
329.7 4.8 158.8 1,449.5 ------ ------ ------ ------ ------ ------ ------ ------ ------ Six months ended30 September 2009 Share Cumulative Share premium Retained Treasury exchange Merger Other Revaluation capital account earnings shares* reserve* reserve* reserves* reserve* Total £m £m £m £m £m £m £m £m £mAt 1 April 2009 499.8 0.7 420.2 (0.3) 15.9 313.0 36.6 158.8 1,444.7
Profit after taxation - - 198.1 - -
- - - 198.1
Other comprehensive income
Actuarial losses on definedbenefit pension schemes - - (131.0) - - - - - (131.0)Deferred tax on actuariallosses on defined benefitpension schemes - - 36.7 - - - - - 36.7Revaluation of investments - - - - -
- 6.7 - 6.7Net fair value gains oncashflow hedges - - - - - - 1.0 - 1.0Deferred tax on net fairvalue gains on cashflowhedges - - - - - - (0.3) - (0.3)
Foreign exchange adjustments - - - - 5.9
- - - 5.9 ------ ------ ------ ------ ------ ------ ------ ------ ------Total comprehensive incomefor the period - - 103.8 - 5.9 - 7.4 - 117.1 ------ ------ ------ ------ ------ ------ ------ ------ ------Transactions with ownersDividends (note 7) - - (150.1) - - - - - (150.1)New share capital issued - 0.2 - - - - - - 0.2Shares disposed of fromemployee share trust - - (0.2) 0.2 - - - - -Capital reorganisation** - - (16.7) - - 16.7 - - -Equity-settledshare-based payments - - 1.4 - - - - - 1.4 ------ ------ ------ ------ ------ ------ ------ ------ ------
At 30 September 2009 499.8 0.9 358.4 (0.1) 21.8
329.7 44.0 158.8 1,413.3 ------ ------ ------ ------ ------ ------ ------ ------ ------ Year ended 31 March 2010 Share Cumulative Share premium Retained Treasury exchange Merger Other Revaluation capital account earnings shares* reserve* reserve* reserves* reserve* Total £m £m £m £m £m £m £m £m £m
At 1 April 2009 499.8 0.7 420.2 (0.3) 15.9 313.0 36.6 158.8 1,444.7 Profit after taxation - - 403.5 - - - - - 403.5
Other comprehensive income
Actuarial losses ondefined benefit pension schemes - - (125.4) - - - - - (125.4)Deferred tax on actuariallosses on defined benefitpension schemes - - 35.1 - - - - - 35.1Revaluation of investments - - - - - - 3.4 - 3.4Reclassification from otherreserves arising on sale offinancial asset investment - - - - - - (36.6) - (36.6)Net fair value gains on cashflow hedges - - - - - - 0.9 - 0.9Deferred tax on net fairvalue gains on cashflow hedges - - - - - - (0.5) - (0.5)Foreign exchange adjustments - - - - 6.4 - - - 6.4 ------ ------ ------ ------ ------ ------ ------ ------ ------Total comprehensiveincome/(expense) for the year - - 313.2 - 6.4 - (32.8) - 286.8 ------ ------ ------ ------ ------ ------ ------ ------ ------
Transactions with owners
-Dividends (note 7) - - (226.2) - - - - - (226.2)
New share capital issued - 0.2 - - - - - - 0.2Shares disposed of fromemployee share trust - - (0.2) 0.2 - - - - -Capital reorganisation** - - (16.7) - - 16.7 - - -Equity-settled share-basedpayments - - 2.4 - - - - - 2.4 ------ ------ ------ ------ ------ ------ ------ ------ ------At 31 March 2010 499.8 0.9 492.7 (0.1) 22.3 329.7 3.8 158.8 1,507.9 ------ ------ ------ ------ ------ ------ ------ ------ ------
* Other non-distributable reserves
** The increase in the merger reserve during the year ended 31 March 2010 is due to the redemption of the remaining £16.7 million of B shares in April 2009.
Consolidated statement of cashflows
Restated Restated Six months Six months Year ended ended ended 30 31 March 30 September September 2010 2010 2009 £m £m £m Operating activities
Cash generated from continuing operations 419.9 484.7
945.5
Interest paid (63.9) (79.8)
(201.0)
Interest received and similar income 1.2 4.1
6.5Tax paid (26.7) - (51.2)Tax received - 50.5 50.5 ------ ------ ------Net cash generated from operating activities(continuing operations) 330.5 459.5
750.3
------ ------
------
Net cash (used in)/generated from operatingactivities (discontinued operations) (11.9) 5.1
51.7 ------ ------ ------ Investing activities
Proceeds from disposal of discontinued 34.4 -
-
operations
Transaction costs, deferred consideration (17.3) -
-
and cash disposed
------ ------
------
Proceeds from disposal of discontinuedoperations net of deferred consideration, 17.1 -
-
cash disposed and transaction costsPurchase of property, plant and equipment (239.0) (264.9)
(500.4)
Purchase of other intangible assets (8.4) (12.2)
(33.9)
Proceeds from sale of property, plant and - 1.8
3.9equipmentPurchase of investments - - (0.8) ------ ------ ------
Net cash used in investing activities (230.3) (275.3)
(531.2)
(continuing operations)
------ ------
------
Net cash (used in)/generated from investingactivities (discontinued operations) (11.8) (25.1)
78.5 ------ ------ ------ Financing activities
Proceeds from issue of ordinary shares 0.2 0.2
0.2Proceeds from borrowings 29.3 234.5 265.0Repayment of borrowings (59.4) (167.2) (337.9)
Dividends paid to equity holders of the (157.6) (150.1)
(226.2)
company
Return to shareholders on capital - (16.7)
(16.7)
reorganisation
------ ------
------
Net cash used in financing activities (187.5) (99.3)
(315.6)
(continuing operations)
------ ------
------
Net cash (used in)/generated from financingactivities (discontinued operations) (1.2) 1.0
(2.6)
------ ------
------
Effects of exchange rate changes (0.7) 10.2
13.5
(discontinued operations)
------ ------
------
Net (decrease)/increase in cash and cashequivalents (continuing operations) (87.3) 84.9
(96.5)
------ ------
------
Net (decrease)/increase in cash and cashequivalents (discontinued operations) (25.6) (8.8)
141.1
------ ------
------
Cash and cash equivalents at beginning of 253.7 209.1
209.1
the period
------ ------
------
Cash and cash equivalents at end of the 140.8 285.2
253.7period ------ ------ ------
Cash generated from continuing operations
Restated Restated Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m
Profit before taxation (continuing 122.2 189.9
408.7
operations)
Adjustment for investment income and finance 189.3 150.0
359.1
expense
------ ------
------
Operating profit (continuing operations) 311.5 339.9
767.8
Adjustments for:Depreciation of property, plant and 126.5 114.2
254.1
equipment
Amortisation of other intangible assets 15.2 11.6
26.0
Loss/(profit) on disposal of property, plant 0.6 (1.0)
3.0
and equipmentEquity-settled share-based payments (0.7) 1.0
1.7
(credit)/charge
Other non-cash movements - pension schemescurtailment gains arising on amendment of - -
(87.3)pension obligationsChanges in working capital:Increase in inventories (0.6) (1.4) (1.6)
(Increase)/decrease in trade and other (52.4) (34.9)
12.1
receivables
Increase/(decrease) in provisions and 19.8 55.3
(30.3)
payables
------ ------
------
Cash generated from continuing operations 419.9 484.7
945.5 ------ ------ ------Segmental reporting
The group now has one operating division for management purposes, being regulated activities. This forms the basis on which the operating segment information, presented in accordance with IFRS 8 `Operating Segments', is reported.
The United Utilities Group PLC board of directors (the `board') hasimplemented a strategy to divest the vast majority of its non-regulatedbusinesses and in accordance with IFRS 5 `Non-current Assets Held for Sale andDiscontinued Operations', the results of the relevant disposal groups havebeen reclassified from the previously reported non-regulated activitiesoperating segment to discontinued operations in the consolidated incomestatement and the comparative information has been restated accordingly (note5).
The segmental information presented has been restated to reflect the changes in the group. The elements of the previously reported non-regulated activities operating segment which have not been classified as discontinued operations no longer form a separately reportable segment as required by IFRS 8 and are therefore included within `all other segments'. Segmental information in respect of discontinued operations is included in note 5.
The regulated activities segment is as previously reported and includes the regulated results of United Utilities Water PLC.
The `all other segments' category includes the results of United Utilities Property Services Limited (formerly United Utilities Property Solutions Limited), United Utilities Group PLC, the remaining non-regulated businesses not classified as discontinued and other group holding companies.
The disclosure correlates with the information provided to the board for the purposes of assessing performance and allocating resources. The board reviews revenue, underlying operating profit and operating profit by segment, but assets and liabilities are reviewed at a consolidated level. Investment income and finance expense, and taxation are managed on a group basis and are not allocated to operating segments.
Regulated All other GroupContinuing operations activities segments £m £m £mSix months ended 30 September 2010Total revenue 747.7 24.7 772.4Inter-segment revenue (0.2) (9.8) (10.0) ------ ------ ------External revenue 747.5 14.9 762.4 ------ ------ ------
Underlying segmental operating profit 323.6 4.1 327.7 Restructuring costs
(0.8) (2.6) (3.4)Other reorganisation costs (7.3) (5.5) (12.8) ------ ------ ------Segmental operating profit/(loss) 315.5 (4.0) 311.5
------ ------Investment income 1.2Finance expense (190.5) ------Profit before taxation 122.2 ------ Regulated All other GroupContinuing operations activities segmentsRestated £m £m £mSix months ended 30 September 2009Total revenue 768.3 20.8 789.1Inter-segment revenue (0.3) (2.2) (2.5) ------ ------ ------External revenue 768.0 18.6 786.6 ------ ------ ------Underlying segmental operating profit/(loss) 348.4 (3.0) 345.4Restructuring costs (3.5) (2.0) (5.5) ------ ------ ------Segmental operating profit/(loss) 344.9 (5.0) 339.9 ------ ------Investment income 4.8Finance expense (154.8) ------Profit before taxation 189.9 ------ Regulated All other GroupContinuing operations activities segmentsRestated £m £m £mYear ended 31 March 2010Total revenue 1,538.2 40.8 1,579.0Inter-segment revenue (0.8) (5.1) (5.9) ------ ------ ------External revenue 1,537.4 35.7 1,573.1 ------ ------ ------Underlying segmental operating profit 700.8 5.5
706.3
Restructuring costs (15.8) (10.0)
(25.8)
Pension schemes curtailment gains arising onamendment of pension obligations 76.7 10.6 87.3 ------ ------ ------Segmental operating profit 761.7 6.1 767.8 ------ ------Investment income 6.2Finance expense (365.3) ------Profit before taxation 408.7 ------NOTES
1. Basis of preparation and accounting policies
The condensed consolidated half yearly financial statements for thesix months ended 30 September 2010 which are unaudited, have been prepared inaccordance with the Disclosure and Transparency Rules of the FinancialServices Authority and International Accounting Standard 34 `Interim FinancialReporting' (IAS 34).
The accounting policies, presentation and methods of computation are consistent with those set out in the audited consolidated financial statements of United Utilities Group PLC for the year ended 31 March 2010, which are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU), except for the adoption of the standards and interpretations referred to below.
The adoption of the following standards and interpretations, at 1 April 2010, has not had a material impact on the group's financial statements:
IFRIC 18 `Transfers of Assets from Customers'
The interpretation applies to all agreements in which an entityreceives from a customer an item of property, plant and equipment (PPE) (orcash to construct or acquire an item of PPE) that the entity must then use,either to connect the customer to a network, or to provide the customer withongoing access to a supply of goods or services, or to do both. Itsapplication is retrospective and has been applied to transfers of assets fromcustomers received on or after 1 July 2009. Hence, restatement of theinformation presented for the period ended 30 September 2009 and the yearended 31 March 2010 is required.The impact in the half year ended 30 September 2010 in respect oftransfers of assets from customers which were not previously accounted for isto record PPE of £20.5 million (September 2009: £15.0 million, March 2010:£36.8 million) with a credit of the same amount to deferred revenue withincurrent and non-current trade and other payables combined. The assets will bedepreciated over their useful life and the deferred revenue released over thesame period.Certain transfers of assets from customers were previouslyrecognised immediately within revenue and operating expenses and havetherefore been reclassified to deferred revenue and PPE thereby reducing bothrevenue and operating expenses, as they would otherwise have been reported, by£0.9 million in the half year ended September 2010 (September 2009: £0.9million, March 2010: £2.5 million).
As a result of the adoption of this interpretation, the group has presented a restated consolidated income statement and consolidated statement of financial position for the period ended 30 September 2009 and the year ended 31 March 2010.
IFRS 3 `Business Combinations'
This revised standard, issued in January 2008, is effective for periods commencing on or after 1 July 2009 and was endorsed by the EU on 12 June 2009. This will have a material impact on the group's financial statements only if it enters into any relevant transactions in the future.
`Improvements to IFRSs (2008)'
The group adopted the amendments to IAS 1 arising from the`Improvements to IFRS (2008)' project in the financial statements for the yearended 31 March 2010 and has therefore restated the statement of financialposition for the comparative period ended 30 September 2009 to categorise the`held for trading' derivatives between current and non-current, based upon thecontractual maturity date or, where applicable, the contractual earlytermination date.
The comparatives for the consolidated income statement and consolidated statement of cash flows for the period ended 30 September 2009 and year ended 31 March 2010, have been restated to reflect the disclosure of the results of the non-regulated businesses that meet the definition of disposal groups in accordance with IFRS 5 `Non-current Assets Held for Sale and Discontinued Operations' as at 30 September 2010 and the results of the businesses disposed of in the period, as discontinued operations (note 5).
The group has updated the valuation of its defined benefit pension schemes in the half yearly financial statements due to the continued volatility in financial markets.
The condensed consolidated half yearly financial statements do notinclude all of the information and disclosures required for full annualfinancial statements, do not comprise statutory accounts within the meaning ofsection 434 of the Companies Act 2006 and should be read in conjunction withthe group's annual report and financial statements for the year ended 31 March2010.The comparative figures for the year ended 31 March 2010 do notcomprise the group's statutory accounts for that financial year. Thoseaccounts have been reported upon by the group's auditors and delivered to theregistrar of companies. The report of the auditors was unqualified and did notinclude a reference to any matters to which the auditors drew attention by wayof emphasis without qualifying their report and did not contain a statementunder section 498(2) or (3) of the Companies Act 2006.
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 upon, amongst other matters, a review of the group's financial projections together with a review of the cash and committed borrowing facilities available to the group.
2. Investment income Restated Restated Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m Continuing operations Interest receivable 1.2 4.8 6.2 ------ ------ ------3. Finance expense Restated Restated Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m Continuing operations Interest payable (134.7) (80.3) (207.2)
Fair value losses on debt and derivative (53.2) (63.9)
(136.5)instruments ------ ------ ------ (187.9) (144.2) (343.7)
Expected return on pension schemes' assets 51.6 41.6
83.8
Interest cost on pension schemes' (54.2) (52.2)
(105.4)
obligations
------ ------
------
Net pension interest expense (note 8) (2.6) (10.6)
(21.6) ------ ------ ------ (190.5) (154.8) (365.3) ------ ------ ------The group has a policy of fixing interest costs for a substantialproportion of the group's net debt for the duration of each five-yearregulatory pricing period and hedging currency exposures for the term of eachrelevant debt instrument. The group hedges its position through the use ofinterest rate and cross currency swap contracts where applicable. The economicunderlying net finance expense for the continuing group of £131.5 million (30September 2009 restated: £87.2 million, 31 March 2010 restated: £223.2million) is derived by excluding from financing expense fair value losses ondebt and derivative instruments, adding back the interest payable element offair value with respect to swaps and fair value option debt, includinginvestment income and excluding the net pension interest expense in relationto the group's defined benefit pension schemes. Restated Restated Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m Continuing operations Finance expense (190.5) (154.8) (365.3)
Fair value losses on debt and derivative 53.2 63.9
136.5
instruments
Add back interest on swaps and debt under 2.0 (11.7)
(22.2)
fair value optionInvestment income 1.2 4.8
6.2
Adjustment for net pension interest 2.6 10.6
21.6
expense
------ ------
------
Underlying net finance expense (131.5) (87.2)
(223.2) ------ ------ ------4. Taxation Restated Restated Six months Six months Year ended ended ended 31 March 30 September 30 September 2010Continuing operations 2010 2009 £m £m £m Current taxationUK corporation tax 28.3 51.4 65.7Foreign tax 1.9 1.2 0.9Prior year adjustments - (34.2) (47.1) ------ ------ ------ 30.2 18.4 19.5 ------ ------ ------Deferred taxationCurrent period 6.0 1.4 48.8Prior year adjustments - (16.1) (6.6) ------ ------ ------ 6.0 (14.7) 42.2Change in taxation rate (47.1) - - ------ ------ ------ (41.1) (14.7) 42.2 ------ ------ ------ ------ ------ ------
Total taxation (credit)/charge for the (10.9) 3.7
61.7period ------ ------ ------
The prior year adjustments relate to agreement of prior years' UK tax returns.
The deferred taxation credit for the six months ended 30 September 2010 includes a credit of £47.1 million to reflect the changes enacted on 27 July 2010 to reduce the mainstream rate of corporation tax from 28% to 27% from 1 April 2011.
5. Discontinued operations and disposal of investments
Discontinued operations and assets and liabilities held for sale
In line with the group's strategy of focusing on its core regulatedactivities, the board had previously approved a strategy to divest itsnon-regulated businesses. As at 30 September 2010, sales for the vast majorityof these non-regulated businesses had either been completed, agreed or werebeing actively marketed. Subsequent to the half year end, the group announcedthat the non-regulated disposal programme had been completed. Therefore, thebusinesses that had not reached sale completion as at 30 September 2010 meetthe definition of disposal groups in accordance with IFRS 5 `Non-currentAssets Held for Sale and Discontinued Operations' and are therefore classifiedas held for sale in the consolidated statement of financial position and asdiscontinued operations in the consolidated income statement and consolidatedstatement of cash flows.In accordance with IFRS 5, the assets and liabilities of thedisposal groups have been reviewed to determine whether an adjustment isrequired to carry them at fair value, less estimated costs to sell. Thisreview has not resulted in a reduction in the carrying value of the assets andliabilities of the disposal groups in the consolidated statement of financialposition at 30 September 2010.
In the period, the group completed the disposals of its electricity operations and maintenance business in the North West of England and its gas and electricity metering installation contract with British Gas Trading. Combined proceeds from the two transactions totalled £34.4 million.
The results of the discontinued operations in the six months to 30September 2010, and comparative periods, which have been disclosed separatelyin the consolidated income statement, as required by IFRS 5, are as follows: Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m Revenue 311.1 422.7 863.5 Employee benefits expense:- excluding pension schemes curtailmentgains arising on (74.3) (104.2)
(206.1)
amendment of pension obligations andrestructuring costs- pension schemes curtailment gains arisingon amendment of - -
5.0
pension obligations- restructuring credits/(costs) 1.5 (1.9)
(4.9)
------ ------
------
Total employee benefits expense (72.8) (106.1)
(206.0)
Other reorganisation credits 7.0 -
-
Other operating costs (198.4) (282.5)
(582.7)
Depreciation and amortisation expense (6.3) (11.9)
(24.7) ------ ------ ------Operating profit 40.6 22.2 50.1
Investment income and finance expense (6.6) (2.8)
(10.4)
Profit on disposal of investments - -
36.6
Evaluation and disposal costs relating to (5.0) (3.2)
(10.8)discontinued operations ------ ------ ------Profit before taxation 29.0 16.2 65.5 Current taxation charge (9.7) (1.5) (2.5)
Deferred taxation credit/(charge) 0.7 (2.8)
(6.5) ------ ------ ------Taxation (9.0) (4.3) (9.0) ------ ------ ------ Profit after taxation 20.0 11.9 56.5 ------ ------Profit on disposal of discontinued 0.3
operations after taxation
------Total profit after taxation from 20.3
discontinued operations
------
The total assets and liabilities disposed in the period and the profit on disposal were as follows:
£m Property, plant and equipment 15.2Other intangible assets 3.8Inventories 8.2Trade and other receivables 46.4Cash and short-term deposits 14.7Trade and other payables (58.0)Deferred taxation 1.4 ------Net assets disposed of 31.7Transaction and other costs of disposal 2.4
Profit on disposal of discontinued operations after taxation 0.3
------Total proceeds 34.4 ------Disposal of investments
As reported in the consolidated financial statements of United Utilities Group PLC for the year ended 31 March 2010, during the prior year the group disposed of its 11.7 per cent economic interest in Manila Water Company (MWC) and of its 15.0 per cent economic interest in Northern Gas Networks Holdings Limited (NGN).
MWC NGN Total £m £m £mYear ended 31 March 2010Proceeds 46.3 85.8 132.1Carrying value of investment (46.3) (85.8) (132.1)
Reclassification from other reserves arising on sale of 36.6 -
36.6
financial asset investment
------ ------
------
Profit on disposal of investments 36.6 -
36.6 ------ ------ ------6. Earnings per share
Basic and diluted earnings per share are calculated by dividing profit after taxation by the following weighted average number of shares in issue:
Basic Diluted million millionSix months ended 30 September 2010 681.5 682.0Six months ended 30 September 2009 681.5 682.0Year ended 31 March 2010 681.5 682.0The difference between the weighted average number of shares used in the basicand diluted earnings per share calculations arises due to the group'soperation of share-based payment compensation arrangements. The differencerepresents those ordinary shares deemed to have been issued for noconsideration on the conversion of all potential dilutive ordinary shares inaccordance with IAS 33 `Earnings per Share'.
The basic, diluted and underlying earnings per share for the current and prior periods are as follows:
Six months Six months ended Year ended ended 30 September 31 March 30 September 2009 2010 2010From continuing and discontinuedoperationsBasic 22.5p 29.1p 59.2pDiluted 22.5p 29.0p 59.2p From continuingoperationsBasic 19.5p 27.3p 50.9pDiluted 19.5p 27.3p 50.9p Underlying basic 20.4p 27.2p 50.9pFrom continuingoperations Six months Six months Year ended ended ended 30 September 30 September 31 March 2010 2009 2010 £m £m £m
Profit after taxation - continuing and 153.4 198.1
403.5
discontinued operationsAdjustment for profit after taxation (20.3) (11.9)
(56.5)
from discontinued operations
------ ------
------
Profit after taxation - continuing 133.1 186.2
347.0operations ------ ------ ------Statutory profit after taxation from continuing operations isreconciled to underlying profit after taxation from continuing operations asfollows: Six months Six months ended Year ended ended 30 September 31 March 30 September 2009 2010 2010 £m £m £m Continuing operations Profit after taxation 133.1 186.2 347.0
Restructuring and other reorganisation 16.2 5.5
25.8
costs
Pension schemes curtailment gainsarising on amendment of pension - -
(87.3)
obligations (note 8)Net fair value losses on debt and 53.2 63.9
136.5
derivative instrumentsInterest on swaps and debt under fair 2.0 (11.7)
(22.2)
value optionNet pension interest expense 2.6 10.6
21.6
Deferred taxation credit - change in (47.1) -
-
taxation rateAgreement of prior years' UK taxation - (50.3)
(53.7)
returns
Taxation relating to underlying profitbefore taxation adjustments (20.7) (19.1)
(20.8)
------ ------
------
Underlying profit after taxation 139.3 185.1
346.9 ------ ------ ------7. Dividends Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mDividends relating to the period comprise:Interim dividend 68.2 76.1 76.1Final dividend - - 157.6 ------ ------ ------ 68.2 76.1 233.7 ------ ------ ------ Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mDividends deducted from shareholders'equity comprise:Interim dividend - - 76.1Final dividend 157.6 150.1 150.1 ------ ------ ------ 157.6 150.1 226.2 ------ ------ ------
The proposed interim dividends for the six months ended 30 September 2010 and 30 September 2009 and the final dividend for the year ended 31 March 2010 have not been included as liabilities in the condensed consolidated half yearly financial statements at 30 September 2010, 30 September 2009 or the consolidated financial statements at 31 March 2010 respectively.
The interim dividend of 10.00 pence per ordinary share (2010: interim dividend of 11.17 pence per ordinary share; final dividend of 23.13 pence per ordinary share) is expected to be paid on 2 February 2011 to shareholders on the register at close of business on 17 December 2010. The ex-dividend date for the interim dividend is 15 December 2010.
8. Retirement benefit obligations
The main financial assumptions used by the actuary were as follows:
Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 %pa %pa %pa Discount rate - United Utilities PensionScheme (UUPS), United Utilities Group PLCsection of the Electricity Supply PensionScheme (ESPS) and Northern Gas Networks 5.20 5.60
5.70
Pension Scheme (NGNPS)Expected return on assets - UUPS 6.20 6.60
6.20
Expected return on assets - ESPS 6.30 6.20
6.30
Expected return on assets - NGNPS 6.10 5.90
6.10
Pensionable salary growth - UUPS 3.10 4.15
3.30
Pensionable salary growth - ESPS 3.10 4.20
3.30
Pensionable salary growth - NGNPS 4.10 4.20
4.30Pension increases 3.10 3.20 3.30Price inflation 3.10 3.20 3.30
The net pension (expense)/income (charged)/credited before taxation for continuing operations in the income statement in respect of the defined benefit schemes is summarised as follows:
Restated Restated Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mContinuing operationsCurrent service cost (6.1) (8.6) (16.5)Curtailments/settlements
- arising on reorganisation* (4.9) (1.2)
(9.3)
- arising on amendment of pension - -
87.3obligationsPast service cost (1.0) (1.4) (2.8) ------ ------ ------Pension (expense)/income
(charged)/credited to operating profit (12.0) (11.2)
58.7
------ ------
------
Expected return on schemes' assets 51.6 41.6
83.8
Interest cost on schemes' obligations (54.2) (52.2)
(105.4)
------ ------
------
Pension expense charged to investmentincome and finance expense (note 3) (2.6) (10.6)
(21.6) ------ ------ ------Net pension (expense)/income
(charged)/credited to profit before (14.6) (21.8)
37.1taxation ------ ------ ------
* Curtailments arising on reorganisation of £4.9 million (September 2009: £1.2 million; March 2010: £9.3 million) are included within net restructuring costs of £3.4 million (September 2009: £5.5 million; March 2010: £25.8 million) within total employee benefits expense.
The net pension expense charged before taxation for discontinued operations in the income statement in respect of defined benefit pension schemes is summarised as follows:
Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mDiscontinued operationsCurrent service cost (3.5) (4.9) (9.5)Curtailments/settlements- arising on reorganisation 3.0 (6.2) (7.9)
- arising on amendment of pension - -
5.0
obligations
------ ------
------
Pension expense charged to operating (0.5) (11.1)
(12.4)profit ------ ------ ------
Expected return on schemes' assets 6.9 5.0
10.3
Interest cost on schemes' obligations (6.6) (5.9)
(11.9)
------ ------
------
Pension income/(expense)credited/(charged) to investment income 0.3 (0.9)
(1.6)
and finance expense
Curtailment/settlement arising on disposaland charged to profit on disposal of (0.9) -
-discontinued operations ------ ------ ------
Net pension expense charged to profit (1.1) (12.0)
(14.0)before taxation ------ ------ ------
Employee related pension costs have been charged to operating profit within discontinued operations where the employing entity has been included as a discontinued operation. Pension interest income/(expense) has been included within investment income and finance expense where the underlying pension obligation has either been disposed of during the period or is included within liabilities held for sale at 30 September 2010. Curtailments/settlements arising on the transfer of employees' pension obligations with businesses disposed of in the current period are included within the profit on disposal of discontinued operations.
The reconciliation of the opening and closing net pension obligation included in the statement of financial position is as follows:
Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m At the start of the period (271.3) (213.1) (213.1)Expense recognised in the income statement- continuing operations (14.6) (21.8) 37.1- discontinued operations (1.1) (12.0) (14.0)Contributions paid 47.9 19.3 44.1
Actuarial losses gross of taxation (70.7) (131.0)
(125.4)
Reclassified to liabilities held for sale 9.2 -
- ------ ------ ------At the end of the period (300.6) (358.6) (271.3) ------ ------ ------The closing obligation at each reporting date is analysed asfollows: Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £m
Present value of defined benefit (1,917.5) (2,210.9)
(2,182.2)obligationsFair value of schemes' assets 1,616.9 1,852.3 1,910.9 ------ ------ ------
Net retirement benefit obligations (300.6) (358.6)
(271.3)
------ ------
------
The net retirement benefit obligation of £9.2 million included in liabilities held for sale consists of a present value of defined benefit obligations of £252.2 million net of fair value of schemes' assets of £243.0 million.
9. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
The following trading transactions were carried out with thegroup's joint ventures: Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mGroupSales of services 38.5 48.3 92.9Purchases of goods and services 8.1 1.6
4.8
------ ------
------
Amounts owed by and to the group's joint venturesare as follows: Six months Six months Year ended ended ended 31 March 30 September 30 September 2010 2010 2009 £m £m £mGroupAmounts owed by related parties 16.8 13.1
19.2
Amounts owed to related parties 3.8 (0.1)
0.9
------ ------
------
Sales of services to related parties were on the group's normal trading terms.
The amounts outstanding are unsecured and will be settled inaccordance with normal credit terms. The group has issued guarantees of £180.2million (30 September 2009: £157.2 million, 31 March 2010: £126.8 million) toits joint ventures.
A £0.7 million provision has been made for doubtful receivables in respect of the amounts owed by related parties (30 September 2009: £0.1 million, 31 March 2010: £0.4 million). A £0.4 million expense has been recognised for bad and doubtful receivables in respect of the amounts owed by related parties (30 September 2009: £0.1 million, 31 March 2010: £0.3 million).
10. Contingent liabilities
The group has entered into performance guarantees as at 30September 2010, where a financial limit has been specified of £279.4 million(30 September 2009: £193.5 million, 31 March 2010: £201.2 million), of thisamount, £186.9 million relates to discontinued operations.
11. Events after the reporting period
The group announced on 10 November 2010 that it had completed its non-regulated disposal programme. The various sales have achieved a total enterprise value of approximately £600 million. The group has taken the decision to retain its 35.3% holding in AS Tallinna Vesi (Tallinn Water).
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The half yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
We confirm that to the best of our knowledge:
- The condensed set of financial statements has been prepared in accordance with IAS 34 `Interim Financial Reporting' as adopted by the EU; and
- The interim management report includes a fair review of the information required by:
* DTR 4.2.7R of the Disclosure and Transparency Rules, being anindication of important events during the first six months of the currentfinancial year and their impact on the condensed set of financial statements;and a description of principal risks and uncertainties for the remaining sixmonths of the year; and* DTR 4.2.8R of the Disclosure and Transparency Rules, beingrelated party transactions that have taken place in the first six months ofthe current financial year and that have materially affected the financialposition or performance of the entity during that period; and any changes inthe related party transactions described in the last annual report that coulddo so.
The directors of United Utilities Group PLC at the date of this announcement are listed below:
Dr John McAdamPhilip GreenRuss HouldenDr Catherine Bell CBPaul HeidenDavid Jones CBENick SalmonBy order of the Board
............................. ............................
Philip Green Russ Houlden23 November 2010 23 November 2010Chief Executive Officer Chief Financial Officer
INDEPENDENT REVIEW REPORT TO UNITED UTILITIES GROUP PLC
We have been engaged by the company to review the condensed set offinancial statements in the half-yearly financial report for the six monthsended 30 September 2010 which comprises the consolidated income statement, theconsolidated statement of comprehensive income, the consolidated statement offinancial position, the consolidated statement of changes in equity, theconsolidated statement of cashflows and related notes 1 to 11. We have readthe other information contained in the half yearly financial report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements.This report is made solely to the company in accordance withInternational Standard on Review Engagements (UK and Ireland) 2410 "Review ofInterim Financial Information Performed by the Independent Auditor of theEntity" issued by the Auditing Practices Board. Our work has been undertakenso that we might state to the company those matters we are required to stateto them in an independent review report and for no other purpose. To thefullest extent permitted by law, we do not accept or assume responsibility toanyone other than the company, for our review work, for this report, or forthe conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of thegroup are prepared in accordance with IFRSs as adopted by the European Union.The condensed set of financial statements included in this half yearlyfinancial report has been prepared in accordance with International AccountingStandard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standardon Review Engagements (UK and Ireland) 2410 "Review of Interim FinancialInformation Performed by the Independent Auditor of the Entity" issued by theAuditing Practices Board for use in the United Kingdom. A review of interimfinancial information consists of making inquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical andother review procedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing (UK andIreland) and consequently does not enable us to obtain assurance that we wouldbecome aware of all significant matters that might be identified in an audit.Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causesus to believe that the condensed set of financial statements in thehalf-yearly financial report for the six months ended 30 September 2010 is notprepared, in all material respects, in accordance with InternationalAccounting Standard 34 as adopted by the European Union and the Disclosure andTransparency Rules of the United Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditors
Manchester, United Kingdom
23 November 2010
mapperRelated Shares:
United Utilities