United Utilities (UU) recorded strong profit growth of 12% in 2008/9, but is to cut capital spending from a planned £4.03bn to £3.7bn between 2010 and 2015.
Revenue rose 3%to £2.435bn and underlying pretax profit was up 12% at £532M in the year to 31 March 2009. Underlying operating profit was up by 10% to £742M.
But the company also said that: “The total proposed capital expenditure programme in the final plan is £3.7bn compared with £4.035bn in the draft plan.” The cuts were a result of efficiency gains of £130M, deferral and cutting of projects worth £433M and the impact of the recession on the company’s growth plans, which accounted for £119M. New projects worth £351M have been added in spending plans, however.
The company also plans “a 1.5% annual improvement in its underlying operating efficiency, although operating expenditure is likely to increase overall due to cost pressures in areas such as property rates and pensions. UUWis also targeting an average improvement in efficiency of between 4% and 8% across the five-year period inrespect of its capital investment programme.”
UU has also appealed to the water regulator Ofwat to look again at the costs of borrowing, and change the rules for water companies’ borrowing to allow the company to retain its A3 credit rating.
The company says that increased borrowing costs were eating into profitability, and would reduce its credit rating.
“United Utilities believes that Ofwat should ensure that water companies can at least maintain an A3 credit rating and should consider recent developments in the credit markets. The raising of debt finance is particularly important given the likely scale of investment that is still required in the water industry to replace and refurbish ageing infrastructure, make provision for climate change and deliver further statutory environmental obligations and customer priorities.
“The board believes this to be an appropriate investment grade rating to allow UU to raise finance to fund its substantial capital investment programmes, particularly in light of conditions in the debt markets over the last 12 months.”