Interim Management Statement and Final Determin...

United Utilities Group PLC

21 January 2010

UNITED UTILITIES ACCEPTANCE OF FINAL DETERMINATION OF PRICE LIMITS AND INTERIM 
                             MANAGEMENT STATEMENT                              

Acceptance of final determination

On 26 November 2009, Ofwat published its final determination of price limits
for the period 1 April 2010 to 31 March 2015. United Utilities Group PLC (UUG)
today announces that its subsidiary, United Utilities Water PLC (UUW), has
decided to accept the final determination.

Philip Green, Chief Executive, said:

"This is a challenging price review which sees our customers benefiting from a
combination of lower bills and a major investment programme. The review
requires us to invest £3.6 billion in our infrastructure over the next five
years, an increase of some £400 million in real terms compared with the 2005-10
period.

"With the efficiency plans we are already implementing and the low cost of the
group's debt portfolio, we believe that, on balance, it is not in the best
interests of our shareholders and customers to seek a referral to the
Competition Commission. In light of our efficiency plans, we are well prepared
to meet the requirements of the review. In addition, we believe we can deliver
outperformance in a number of areas, particularly financing.

"In order to meet the requirements of the price review, we need to retain a
robust and sustainable capital structure whilst providing an attractive return
for shareholders. In view of this, the group board intends to rebase the
dividend to 30 pence per share for the 2010/11 financial year and thereafter
continue with our policy of targeting real dividend growth of 2% per annum."

Capital structure and dividend policy

As the company starts the new price review period, the UUG board is confident
that the group has a robust capital structure and will be able to finance
itself effectively through the 2010-15 regulatory period, with expected real
growth of 12% in UUW's regulatory capital value over the five years. The group
already has headroom to cover its projected financing needs until early 2012.

United Utilities has approximately £2 billion of long dated, index-linked debt
at an average cost of 1.8% real. In line with its policy, the group has now
also fixed the interest rates on a significant proportion of the remainder of
its existing debt portfolio, for the 2010-15 regulatory period, at an average
nominal rate in the range 5.0% to 5.5%. This provides more clarity on UUW's
ability to outperform the final determination.

The group intends to continue to target an A3 credit rating with Moody's
Investors Service for UUW, which it believes best mirrors the regulatory
assumptions underpinning the final determination and remains appropriate to
maintain efficient access to debt capital markets.

The group expects that Moody's Investors Service is highly likely to maintain
an A3 credit rating for UUW, whilst it is probable that Standard & Poor's will
assign a lower credit rating due to differing methodologies (as explained in
the notes section at the end of this announcement). This was fully considered
in the UUG board's assessment of capital structure.

In line with United Utilities' existing policy to grow dividends by RPI+2% per
annum, the UUG board expects to grow the final dividend for 2009/10 by 5%. The
final dividend for 2009/10 is therefore forecast to be 23.13 pence per ordinary
share. Together with the interim dividend of 11.17 pence, this provides a
forecast total dividend per ordinary share for 2009/10 of 34.3 pence.

Following detailed analysis and assessment of the final determination,
including the impact of the 4.3% real price decrease in the first year of the
2010-15 period, the UUG board intends to rebase the dividend per share to 30.0
pence for the 2010/11 financial year. Thereafter, the intention is to continue
to target a dividend per share growth rate of RPI+2% per annum through to 2015.

The UUG board believes that this represents an appropriate balance, recognising
the challenges of the final determination, the importance of income to
shareholders and the need for United Utilities to retain a robust and
sustainable financial profile.

The decisions in relation to capital structure and dividends are not dependent
on any potential opportunities to crystallise further value from the group's
non-regulated business.

Efficiency initiatives

The group is well prepared for the next price review period. Over the last
year, United Utilities has undertaken a comprehensive review of the business,
challenging working practices across the group, and is implementing detailed
plans to improve performance and reduce its cost base. The group is
streamlining its processes as it aims to become a leaner, more efficient
company and has signed new supplier contracts for the 2010-15 period, which
will deliver significant savings and help improve operational and capital
efficiency.

Trading update

Trading for the period from 1 October 2009 to 20 January 2010 is in line with
the group's expectations of delivering a sound underlying financial performance
over the remainder of 2009/10.

The regulated business is allowed a 6.0% regulatory price increase (including
inflation) for 2009/10, to help fund the high levels of essential investment in
its assets to meet strict environmental standards and deliver an improved
service for customers. The economic pressures the group experienced in the
first half of 2009/10 are continuing. Regulated revenue growth for the year
ending 31 March 2010 is expected to continue at a similar rate to that outlined
in the group's 2009/10 half year results, published on 25 November 2009.

United Utilities' balance sheet remains robust and its asset base continues to
grow in line with management's expectations. Group net debt has reduced
slightly since the position at 30 September 2009, reflecting the cash inflow
from the divestment of United Utilities' holding in Northern Gas Networks and
the sale of its economic interest in Manila Water Company.

On 25 November 2009, the UUG board declared an interim dividend of 11.17 pence
per ordinary share, in respect of the six months ended 30 September 2009, which
represents growth of 5%. The interim dividend payment is scheduled for 3
February 2010 and is expected to amount to approximately £76 million.

Regulatory developments

United Utilities had indicated previously that there was potential for
additional investment in respect of the North East Irish Sea, which was
dependent on a European court case decision involving the UK government. A
ruling by the European Court of Justice on 10 December 2009 indicated that
United Utilities will not be required to undertake this additional investment.

Non-regulated activities

During the period, United Utilities disposed of its investment in Northern Gas
Networks Holdings Limited for approximately £86 million in cash and agreed the
sale of its economic interest in Manila Water Company for approximately £44
million in cash. The intention is to retain these proceeds within the group.

As part of United Utilities' continuing focus on its core activities, in its
half year results on 25 November 2009, the group announced that it planned to
assess further opportunities to crystallise value from its non-regulated
business. Since then, United Utilities has received several preliminary
expressions of interest. Although no decision has been taken to sell any
further non-regulated businesses, the group will continue to evaluate these
expressions of interest.

Board change

On 10 December 2009, United Utilities announced that Tim Weller, Chief
Financial Officer, has decided to leave the group in May 2010, after almost
four years in the role. Tim will be taking up a new position with Cable&
Wireless Worldwide as its Chief Financial Officer. The search for his successor
is underway.

Outlook

Looking ahead, management is confident of delivering a sound underlying
financial performance for the year ending 31 March 2010. The group will
continue with its strong focus on operational performance and cost efficiency
and aims to build on the improvements already achieved.

In line with its usual practice, United Utilities intends to issue a pre-close
trading update on 25 March 2010.

Investor and analyst conference call

A conference call for investors and analysts starts at 8.30am this morning,
hosted by Chief Executive, Philip Green, and Chief Financial Officer, Tim
Weller. The call can be accessed by dialling: [phone] or 0800 376
4706, access code 668653#. A recording of the call will be available for 30
days following 21 January 2010 on [phone] or 0800 376 5689, access
code 255567#.

United Utilities contacts

For further information please contact:

Philip Green, Chief Executive                        [phone]     
                                                                             
Tim Weller, Chief Financial Officer                  [phone]     
                                                                             
Gaynor Kenyon, Communications Director               [phone]     
                                                                             
Darren Jameson, Head of Investor Relations           [phone]     
                                                                             
Rob Hughes, Investor Relations Manager               [phone]     
                                                                             
James Bradley / Tom Murray, Tulchan Communications   [phone]    

Notes

Price review

Ofwat published its final determination of price limits, for the period 1 April
2010 to 31 March 2015, on 26 November 2009 which for UUW included:

  * a £3.6 billion capital investment programme (2007/08 prices);
   
  * real growth of 12% in the regulatory capital value over the five year
    period;
   
  * an average annual underlying operating efficiency of 1.2% for the water
    service and 2.4% for the wastewater service;
   
  * a return on capital of 4.5% (post-tax, real); and
   
  * an average annual real price decrease of 0.4% across the five-year period,
    with a real price decrease of 4.3% in the first year.
   
Credit ratings

A key difference in Moody's Investors Service and Standard & Poor's (S&P)
approach is expected to be the treatment of infrastructure renewals expenditure
(IRE), which following the introduction of International Financial Reporting
Standards (IFRS), has been treated as an operating expense rather than
depreciation by S&P. This results in a material reduction in S&P's assessment
of the group's funds from operations (FFO), and hence has an impact on key
credit ratios such as FFO to debt, without any compensating change to S&P's
target threshold levels.

In contrast, Ofwat has continued to assess financial ratios on a UK GAAP basis
for the 2009 price review. The difference in approach between that expected to
be applied by S&P and that modelled by Ofwat is likely to result in a lower
actual credit rating from S&P than that implied by regulatory assumptions.