UU considers more sell-offs
UNITED Utilities is considering more disposals following its multi-million pound sale of stakes in two other utility businesses.
Earlier in the month it confirmed the sale of its 11.7% holding in Manila Water of the Phillipines for £44m and the disposal of 15% of the Leeds-based gas distributor Northern Gas Works for £85m.
Announcing half-year figures for the period to September 30 chief executive Philip Green said the group was now looking at “further opportunities to crystalise value” from its non-regulated business.
The Warrington-based business has been expected to seek additional funds because its ability to raise cash from higher water bills could be limited by a price review from the regulator OFWAT, published tomorrow.
Revenue for the period was up marginally at £1.2bn while pre-tax profits dropped by a third to £206.1m. However, Mr Green said the most accurate indicator of the group’s performance was the underlying pre-tax profit of £268.2m, up 6%.
Mr Green said: “This is a sound set of results in a challenging economic climate. We have delivered an underlying operating profit of £370m in the half year and have continued to make high levels of investment in our water and wastewater infrastructure.”
The figures came as UU prepared for OFWAT’s price review which will determine prices for the next five years. Water companies have a two-month period to consider the proposals before responding.
Mr Green said UU would aim to keep bills “affordable” while continuing to invest in infrastructure.
He would not be drawn on the implications of the review, refusing to answer whether UU would be appealing or launching a rights issue if, as expected, the company is told to cut bills in the next five years.
Last week analysts at Morgan Stanley said it expected UU would have to raise £500m through disposals or a rights issue. The business is also weighing up job cuts at its headquarters in Warrington in a bid to save money.
Mr Green also addressed the widespread flooding in Cumbria where UU manages water and sewage services. He said the financial cost to UU was “a small number of millions”, adding: “The real cost is to the community there, for whom we feel desperately sorry.”
He said heavy investment of around £200m in infrastructure in recent years had helped mitigate UU’s facilities from damage.
The board has recommended an interim dividend of 11.1p, up 5%. Carl Cross, investment director at stockbroker Rensburg Sheppards in Liverpool, said the dividend could come under pressure following the publication of OFWAT’s review.
He said: “They say they will continue to look at actions across the board. But the problem is the bulk of the company is regulated so there’s only a certain amount they can do [to raise money]. Disposals will help but whether it will be enough is open to question.”
