United Utilities Half-year Report

[OLTB]

For those interested and who may hold (I do) - I suppose that an increase of 1.1% on the dividend is at least an increase!

http://www.investegate.co.uk/united-uti ... 00068845P/

Highlights



· Effective acceleration of capital investment continues: £383m invested in first half, c£800m planned for full year



· On track to meet our 2015-20 totex and outcome delivery incentives (ODI) targets



· Innovation and new technology through Systems Thinking approach driving further operational improvements



· Attained industry leading company status as measured by the Environment Agency



· Operating profit slightly ahead of last year



· Good financial performance, robust capital structure and effective pensions hedging



· Interim dividend of 12.95 pence per share, an increase of 1.1% in line with policy



Dividend per share



The Board has declared an interim dividend of 12.95 pence per ordinary share in respect of the six months ended 30 September 2016. This is an increase of 1.1%, compared with the interim dividend relating to last year, in line with the group's dividend policy of targeting a growth rate of at least RPI inflation each year through to 2020. The inflationary increase of 1.1% is based on the RPI element included within the allowed regulated revenue increase for the 2016/17 financial year (i.e. the movement in RPI between November 2014 and November 2015).



The interim dividend is expected to be paid on 1 February 2017 to shareholders on the register at the close of business on 16 December 2016. The ex-dividend date is 15 December 2016.



In light of the Financial Reporting Lab's recent report entitled 'Disclosure of dividends - policy and practice' which provided best practice guidance, we enhanced our dividend policy disclosure, at the 2015/16 full year results, as outlined below.



· Dividend policy - a growth rate target of at least RPI inflation each year through to 2020.



· Policy period - the dividend policy aligns with the five-year regulatory period which runs from 1 April 2015 to 31 March 2020.



· Policy approval process - the dividend policy was considered and approved by the UU Group PLC Board in January 2015, as part of a comprehensive review of the 2015-20 regulatory final determination in the context of a detailed business planning process, with due regard for the group's financial metrics, credit ratings and long-term financial stability, and is reviewed at least annually.



· Distributable reserves - as at 30 September 2016, the company had distributable reserves of £3,192 million. The total external dividends relating to the 2015/16 financial year amounted to £262 million. The company distributable reserves support over 12 times this annual dividend.



· Financing headroom - supporting the group's cash flow, UU adopts a funding/liquidity headroom policy of having available resources to cover the next 15-24 months of projected cash outflows.



· Cash flows from subsidiaries - the directors consider that the group's principal operating subsidiary, United Utilities Water Limited, has sufficient resources to pay dividends to United Utilities Group PLC for the duration of the current dividend policy period to support the external payment of dividends to shareholders.



· Financial stability - the water industry has invested significant capital since privatisation in 1989 to improve services for customers and provide environmental benefits, a large part of which is driven by legislation. Water companies have typically raised borrowings to help fund the capital investment programme. Part of total expenditure is additive to the regulatory capital value, or RCV, on which water companies earn a return allowed by the economic regulator, Ofwat. RCV gearing is useful in assessing a company's financial stability in the UK water industry and is one of the key credit metrics that the credit rating agencies focus on. UU has had a relatively stable RCV gearing level over the last five years, always comfortably within its target range of 55% to 65%, supporting a solid A3 credit rating for UUW with Moody's. RCV gearing at 30 September 2016 was 62% and the movement in net debt is outlined in the cash flow section below.



· Dividend sustainability - in approving the policy, the Board is satisfied that across the current regulatory period, the projected dividend is adequately covered by underlying profit after tax. Separately, the executive directors' long-term remuneration plan is directly linked to a measure of sustainable dividends. Whilst specific targets are not disclosed in advance, for commercial sensitivity reasons, there is a major focus on the creation of strong earnings that ensure the sustainability of dividends.



· Viability statement - the dividend policy is underpinned by the group's long-term viability statement (contained within the group's annual report and financial statements). Assurance supporting this statement is provided by the review of: the group's key financial measures; the key credit financial metrics; the group's liquidity position; and the contingent liabilities of the group.



· Annual dividend approval process - the group places significant emphasis on strong corporate governance, and before declaring interim and proposing final dividends, the UU Group Board undertakes a comprehensive assessment of the group's key financial metrics.



Outlook



We are encouraged by our continued strong operational and environmental performance, as well as our improvements in customer satisfaction. We have plans to improve further, supported by our Systems Thinking approach to operating the business and the acceleration of our capital investment programme. Overall, we are encouraged by our progress in the early part of this regulatory period. We have a robust financial position and are confident that we can deliver our targets for both customers and shareholders.



Financial overview



The group has delivered a good set of financial results for the six months ended 30 September 2016.



· Revenue - was down £4 million, as expected, at £853 million, reflecting the accounting impact of our Water Plus JV, which completed on 1 June 2016, partly offset by our allowed regulatory revenue changes.



· Operating profit - underlying operating profit was up £4 million, at £313 million. This reflects the new regulated price controls, slightly lower infrastructure renewals expenditure, a small decrease in depreciation, as we recognised some accelerations in depreciation in the first half of last year, and a small decrease in the remaining cost base, partly offset by the accounting impact of our Water Plus JV. Reported operating profit was £304 million, up £25 million, mainly as a result of reduced profit in the first half of last year principally due to costs associated with the water quality incident.



· Capex - total regulatory capital investment in the first half of the year, including £73 million of infrastructure renewals expenditure, was £383 million, in line with the company's plans to accelerate the 2015-20 investment programme, and we remain on track to deliver a total of around £800 million of regulatory capital investment for the full year. In addition to our c£3.5 billion five-year regulatory capex programme, we plan to invest over £100 million in non-regulated projects across 2015-20, subject to acceptable returns, principally relating to solar power, and we have now invested a total of £37 million during the last 18 months.



· Profit before tax - underlying profit before tax was down £16 million to £189 million, as the £4 million increase in underlying operating profit was more than offset by a £19 million increase in underlying net finance expense. The increase in underlying net finance expense is mainly due to the impact of higher RPI inflation on our index-linked debt. Reported profit before tax was £158 million, reflecting fair value movements and other adjusting items as outlined in the underlying profit measures table.



· Profit after tax - underlying profit after tax was down by £11 million to £152 million. Reported profit after tax was higher at £203 million, mainly reflecting a deferred tax credit as a result of the UK Government's future planned reduction in the mainstream rate of corporation tax.



· Capital structure - the group has a robust capital structure with gearing of 62% as at 30 September 2016 (measured as group net debt to 'shadow' regulatory capital value). Our shadow RCV adjusts for actual spend and was £10.5 billion as at 30 September 2016. This gearing level is comfortably within our target range, of 55% to 65%, supporting a solid investment grade credit rating. United Utilities Water Limited (UUW) has long-term credit ratings of A3 with Moody's, on stable outlook, and BBB+ with Standard & Poor's, on positive outlook.



· Financing headroom - the group now benefits from headroom to cover its projected needs into 2019, enhanced by the recent raising of new finance. This headroom provides good flexibility in terms of when and how further debt finance is raised to help refinance maturing debt and support the delivery of our regulatory capital investment programme.



· Dividend - the board has declared an interim dividend of 12.95 pence per ordinary share, an increase of 1.1%, in line with our policy of targeting an annual growth rate of at least RPI inflation through to 2020.

[OLTB]

Whoops - I see that tjh got in just before me...