Latest full year results announced by United Utilities to the City yesterday revealed a 17% drop in profits on regulated business for the company. The company’s new Chief Executive Steve Mogford has committed to taking £200 million of costs out of the business.

Regulated revenue was lower by 4% at £1,477 million, principally reflecting the impact of the 2009 price review. Regulated underlying operating profit decreased by 17% to £580 million.

Commenting on the results, Steve Mogford said:

"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. 

"We have continued to make high levels of investment in our water and wastewater assets, providing further benefits for customers, shareholders and the environment.  Capital spend in the year was over £600 million, as we aim for a smoother investment profile to support efficient delivery and reduce risk.

"We are implementing a programme of actions to deliver efficiencies over the 2010-15 period and have already secured substantial financing outperformance.  In respect of operating expenditure, we are targeting total outperformance over the five years of at least £50 million, or two per cent of the regulatory allowance, and have achieved approximately £10 million of outperformance in 2010/11.” 

Regulatory capital investment in the year, including £130 million of infrastructure renewals expenditure, was £608 million, compared with £441 million in the first year of the 2005-10 regulatory period.

On operational performance, UUW‟s action plan includes innovation and investment in remote monitoring to better manage and control the company‟s water supply system. The company also has investment projects to optimise water pressures and improve network resilience.   In addition, the company is improving its response to burst mains to help keep the water flowing, supported by „wet‟ repairs to water mains where the supply remains on through the repair process.

West East Link close to opening

The company is also now close to opening the West East Link, a significant capital project designed to improve further the water supply and demand balance in its region and enhance network resilience to climate change. The project, costing over £120 million, is a 55 kilometre water pipeline connecting Merseyside and Greater Manchester which will increase integration of UUW’s network. The Link will use gravity to transport water from Greater Manchester to Merseyside, with the option to pump water in the other direction, providing more resource flexibility. It has a capacity of over 100 megalitres per day - over half of Liverpool‟s average daily demand. The Link will facilitate the maintenance of critical assets and will replace the need to use temporary mains pipes during maintenance and cleaning activities.

United Utilities said its asset optimisation programme is also progressing well, providing the benefits of increased and more effective use of operational site management to optimise power and chemical use and the development of more combined heat and power (CHP) assets to improve energy efficiency. The company‟s wastewater treatment optimisation programme is targeting approximately £9 million of annual savings by 2013.

IT back in-house

On efficiency, the company is continuing to streamline its systems and processes - the business is rationalising its infrastructure and has in-sourced its IT provision to provide greater control of its IT assets and applications.

United Utilities said it has utilised its previous experience on capital delivery to improve the terms and conditions of its supplier contracts and has a robust commercial capital delivery framework in place for the 2010-15 period.

New sludge centre to be energy self-sufficient

A new £100 million sludge processing centre is being developed at the company’s Davyhulme wastewater treatment works in Manchester. Sludge will arrive from seven feeder treatment works and will be processed using advanced thermal hydrolysis technology.  

The new facility will provide a range of benefits including energy self-sufficiency for the whole site, greater sludge disposal flexibility, with a wider choice of land disposal due to the advanced stage of the treated product, and improved sludge condition to enhance the efficiency of incineration. There will also be the option to pump the treated sludge to UUW‟s Shell Green sludge processing centre in Widnes. The project is scheduled to be completed in early 2013.

Private sewers transfer will inevitably result in extra costs

The company also reported that it expects the length of its sewer network to increase by around 80% as a result of the transfer the ownership of and responsibility for private sewers from 1 October 2011. UU said this would “inevitably result in additional cost and operational workload.” and an increase in customer contacts.

While final details of the transfer are still to be determined, UU is currently estimating that it will incur additional operating expenditure totalling around £55 million over the remainder of the 2010-15 period. Capital expenditure is estimated to be approximately £125 million across the same period, of which around £90 million is expected to be infrastructure renewals expenditure.

The company also expects to incur capital expenditure of approximately £10 million by 2015 as a result of the accompanying transfer of private pumping stations, with an estimated several thousand UU‟s region. The transfer date for pumping stations is expected to be by 1 October 2016.