Price regulation proves costly for United Utilities

26th May 2011 10:27

With United Utilities having exited nearly all of its non-regulated activities in November, the impact of price reviews was experienced across the board, as revenues and profits fell back in the year ended 31 March.The water supplier reported that the 2009 price review included a 4% nominal price decrease for 2010/11, driving group revenues down 3% to £1.51bn, from £1.57bn previously.Just 3% of the group's revenues are now non-regulated.Total underlying operating profit fell by 16% from £706.3m to £596.4m, while underlying pre-tax profit dropped by 32% to £329.2m, from £482.6m. The later figure still beat consensus estimates of around £311.8m.The reduction was primarily as a result of the aforementioned price regulation combined with increases in depreciation, infrastructure renewals expenditure and property rates.Meanwhile, reported operating profit from regulated activites fell by 24%, due to the one-off costs of £9m from business restructuring.Nevertheless, despite severe winter weather, United Utilities met Ofwat's (UK regulator of the water industry) leakage target for the fifth year running. The target for 2010/11 was 464 megalitres per day."We have made good progress in the early part of the new regulatory period and have continued to drive further performance improvements. Despite a year of extreme weather conditions, we have demonstrated resilience, continued to serve our customers and, thanks to the extraordinary efforts of our employees, met our leakage target," said chief executive officer Steve Mogford.---BC