05 December 2002
for the Six Months Ended 30 September 2002
PROGRESS IN GROWTH BUSINESSES OFFSETS ANTICIPATED REDUCTION IN REGULATED EARNINGS
*£164 million profit* before tax - growth despite anticipated impact of regulatory price profiles
*Asset management services - operating profit* increased by 85 per cent to £28 million
*Customer management outsourcing - operating profit* increased by 23 per cent to £9 million
*Licensed multi-utility operations - on track to meet £480 million cost savings target
*Telecommunications - business turnover increased by 28 per cent to £64 million
*Interim dividend of 15.5 pence, an increase of 1.3 per cent
* Unless otherwise stated, amounts and percentage movements throughout this document relating to the profit and loss account are stated before goodwill amortisation and exceptional items. Chief Executive John Roberts said: "During the first half of the current regulatory period our principal focus was on the delivery of our £480 million operating cost savings target. Now that we're progressing well in delivering these efficiencies on our current asset base, we're also turning our attention to the future. By standardising the design and specification of our assets, and adopting more modern maintenance practices, we're aiming to lay the foundation for a new generation of savings, which will bring benefits to shareholders and customers, in the next review period and beyond. "United Utilities Contract Solutions, which exploits our core skill of asset management, has seen a substantial increase in profit as the period of start-up costs which accompanied last year's growth in turnover has come to an end. Further growth will come from the £225 million contract with British Gas Trading, which was mobilised in November. "Vertex, our customer management outsourcing business, has continued to increase operating profit by growing revenues and improving margins. During the last six months the business also reported a significant increase in the size of its order book, which grew by around 35 per cent to £1.9 billion, boosted by major public sector contracts wins with Westminster City Council and the Department for Work and Pensions. These contract awards, in one of our key target markets, are expected to accelerate Vertex's revenue growth in the second half of this year. We've also recently signed an extended 10-year contract with TXU Europe, whose retail base has since been acquired by Powergen. Powergen has confirmed publicly that it intends to continue this relationship, and we're now in the process of progressing the contract novation. "Our telecommunications business, Your Communications, continues to make progress. Year-on-year business sales increased by 28 per cent, reflecting our change in focus from premium rate services to higher margin business sales. During the first half of this year we've secured new business customers which are expected to boost turnover further during the next six months. Net cash investment for the full year is expected to fall to less than £25 million, compared to £45 million in the previous year, reflecting continued progress of the business towards financial self-sufficiency, which we're targeting to achieve in the next financial year. With the construction of the network now completed, we've carried out a review of its carrying value, which has confirmed substantial value in the network. This has resulted in an adjustment to value of £25.5 million, equivalent to 11% of the telecoms assets book value. Based on conservative long-term growth and cost of capital assumptions, we're confident that the valuation is robust." Commenting on the outlook for United Utilities, John Roberts said: "In our preliminary announcement of last year's results I commented that this year would be challenging, due to our regulatory price profiles and acceleration of our capital programmes. Our half-year results show that, through growth in our support service businesses and improved efficiency in our regulated businesses, we're successfully meeting this challenge. Looking ahead, we expect this performance to be continued in our full-year results. "We're pleased that Ofwat has taken further steps to reduce regulatory uncertainty. In particular, we welcome the decision to change companies' licences so that the minimum notice period of termination will be 25 years rather than 10 years. This benefits all stakeholders and brings the water industry in line with other utilities. Ofwat has also recently published a consultation paper on the process that will determine price limits from April 2005, to which all stakeholders are encouraged to respond. Given the probable size of future capital programmes, Ofwat must ensure that returns are sufficient to attract new investment into the industry. "Although we didn't identify the need for an interim price determination this year, a number of companies have applied for interim determinations during the current regulatory period. Whilst there may be exceptional circumstances which necessitate an interim determination, we believe that undue reliance on this mechanism as a part of the regulatory process may increase the capital markets' perception of regulatory risk, and ultimately impact on the cost of capital in the water industry. "In our support services businesses we've won key contracts in our target utility and public sector markets during the last six months. We're continuing to target steady growth in these businesses by exploiting our core skills in growth markets." In conclusion the Chairman, Sir Richard Evans, said: "I am pleased with the progress that the group has made in growing its non-regulated businesses, and in continuing to achieve multi-utility efficiencies in its licensed businesses. The board's confidence in the group's performance is reflected in its decision to increase the interim dividend by 1.3 per cent - more than the 0.9 per cent inflation-related increase in our regulated water and wastewater revenues." For further information, please contact: John Roberts, Chief Executive: 020 7307 0300 Simon Batey, Finance Director: 020 7307 0300 Simon Bielecki, Investor Relations Manager: 020 7307 0300 Alan Price, Head of Corporate and Financial Communications: 020 7307 0300 A presentation to investors and analysts will commence at 8.30 am on Thursday, 5 December 2002 at the City Presentation Centre, 4 Chiswell Street, London. The presentation can also be accessed via a one-way listen in conference call facility, by dialing: +44 (0) 208 240 8244, then inputting access code 458647. This recording will be available for 7 days following the presentation. The presentation, together with further information on United Utilities, will be available later in the day on our web site at: http://www.unitedutilities.com. Photographs for media use supporting these results can be downloaded via http://www.vismedia.co.uk.