Financial highlights
| Non-regulated revenue was marginally lower at £890 million, reflecting the impact of difficult conditions in the UK property market on the group’s utility connections business and, as expected, a reduction in contribution from the group’s UK outsourcing contracts in the final year of the 2005-10 regulatory period. Reported operating profit was £63 million, in line with the prior year. This reflects a one-off credit of £9 million in relation to the group’s revised pension provision, partly offset by restructuring costs of approximately £5 million. The prior year profit numbers have been restated in accordance with IFRIC 12, as explained in note 32 of the financial statements. |
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During the second half of the year, United Utilities disposed of its investment in Northern Gas Networks Holdings Limited (NGN) for approximately £86 million and sold its economic interest in Manila Water Company (MWC) for approximately £46 million. The intention is to retain these proceeds within the group. As a result of the disposals, dividends from these investments, which are included in operating profit, were materially lower in 2009/10, at £2 million, compared with £12 million received in 2008/09. Adjusting for the impact of these disposals and the aforementioned one-off items would show an increase in non-regulated underlying operating profit growth of £7 million, for the year ended 31 March 2010, reflecting tight cost control in the business.
Business update
United Utilities applies its utility skills from its regulated activities through outsourced utility contracts and investments. In June 2009, United Utilities, via the 4D consortium, won a new capital delivery contract with Southern Water to manage the design and build of a new wastewater treatment works in the Brighton and Hove area. The contract is underway and construction is expected to take approximately three years, followed by the potential for a two-year contract to operate and maintain the new plant. In addition, the 4D consortium has responsibility for managing part of Southern Water’s regulatory capital investment programme through to 2015.
The contract with Scottish Water, via Scottish Water Solutions Limited in which United Utilities is a major partner, came to a natural end in March 2010. Following the outcome of the recent water price review, Welsh Water announced in February 2010 that it intended to take operations and maintenance services in-house and therefore the contract with United Utilities has not been renewed for the 2010-15 regulatory period.
Following the sales of its holdings in NGN and MWC, United Utilities received several expressions of interest for its non-regulated activities. In May 2010, the group agreed the disposal of its Australian business for approximately £135 million, comprising £106 million in cash and £29 million in net debt assumed by the purchaser. The transaction is subject to a number of consents and regulatory approvals and financial close is expected in the second half of 2010. The group is continuing to evaluate the expressions of interest it has received for its remaining non-regulated businesses.
All other segments
As expected, the group’s other activities, which include central costs, delivered an underlying operating loss during the year of £4 million, compared with an underlying operating loss of £6 million in 2008/09. As indicated previously, the difficult conditions in the UK property market have affected the performance of United Utilities Property Services, the group’s property sales and management business. The reported operating loss for other activities was £7 million. This reflects restructuring costs of approximately £10 million, partly offset by a one-off credit of £7 million in respect of the group’s revised pension provision.