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United Utilities raises interim dividend by 5%, affirms outlook for 2010

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United Utilities (LSE: UU.) (‘UU’) hiked its interim dividend by 5% this morning after reporting solid interim results for the six months ended 30 September 2009.

During the period, revenues from continuing operations rose by £6 million to £1.2 billion and underlying operating profit rose 1% to £370 million. UU stated that the increasing revenues and profits ‘primarily reflects the price increase allowed’ by the industry regulator. The price increase offset decreasing demand in the water business.

Basic earnings per share (EPS), was substantially increased to 29.1p compared with 0.6p in the same period last year, thanks primarily to a one-off deferred tax charge of £214 million in 2008. UU confirmed it would increase the interim dividend by 5% to 11.17 per share.

In the UK utilities industry, regulatory bodies hold fairly strict controls over pricing models. The UK’s regulator for the water industry, Ofwat, moderates the market by defining pre-stated pricing limits to protect a fair trading environment. Under Ofwat guidance United Utilities Water is allowed a 6.0% regulatory price increase (including inflation) for 2009/10.

UU has taken several initiatives to improve efficiency, such as its ‘workforce management’ monitoring and scheduling system. Through improved operational performance and efficiency, UUs made total cost savings at a rate of £7 million per annum, and stated that this figure could potentially rise to £9 million per annum going forward.

In terms of its outlook, the company expects a sound underlying financial performance over the full year. Despite the ongoing revenue and cost pressures both in the utilities industry and the wider economy, United Utilities says it has a healthy level of headroom to cover projected financing needs until early 2012.

Quick facts: United Utilities Group PLC

Price: 1058 GBX

LSE:UU.
Market: LSE
Market Cap: £7.21 billion
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