United Utilities Annual Report and Financial Statements for the year

Chief executive’s review
Group overview
solid
growth
John Roberts
Chief executive
In a year which has seen high profile corporate
collapses and very volatile markets, we are pleased
to report another year of solid, stable growth.
“We stick to our core
skills and don’t take
on risks we don’t
understand.”
2 United Utilities Annual Report & Accounts 2003
Business performance
Our support services businesses made
significant progress during the year which
enabled us to grow profit overall. This was
achieved despite the anticipated reduction
in profit in our licensed multi-utility operations,
reflecting regulatory price profiles and the
commissioning of new assets. Particularly
pleasing was our continued success in
securing contracts in our key target markets –
the utility and public sectors, where we were
able to apply the experience we’ve gained
in our regulated businesses.
In infrastructure management, we saw
a substantial increase in profit as start-up
costs, which accompanied last year’s growth in
turnover, came to an end and our £225 million
contract with British Gas Trading got underway.
United Utilities was also named as one of the
preferred bidders to partner with Scottish
Water in the delivery of its four-year £1.8 billion
capital investment programme. This would
represent the third ground-breaking utility
outsourcing contract won by United Utilities,
following our successes with Welsh Water
and British Gas Trading. The infrastructure
management order book now stands at nearly
£2.5 billion, of which 75 per cent is in the
United Kingdom.
Vertex, our business process outsourcing
arm, continued to grow operating profit and
margins despite start-up costs associated
with the Westminster City Council and the
Department for Work and Pensions contracts,
both of which began successfully during the
second half of the year. Segmental operating
margins* increased by 70 per cent over the
last two years, standing at over six per cent
for the full year.
The sales mix in our telecommunications
business, Your Communications, continued to
change away from premium rate services to
higher-margin business sales, which increased
by 22 per cent during the year. With the
network building phase completed, net cash
investment in the business fell to £25 million,
compared to £45 million in the previous year.
As capital investment requirements continue to
fall we are targeting this business to be a net
cash contributor to the group, on a post-tax
basis, in 2003/04.
Our licensed multi-utility operations
business is on track to meet our £480 million
operating cost saving target over the 2000-05
period. Whilst the capital programme in our
water business is currently ahead of schedule,
the next two years will be challenging as the
programme peaks, both in terms of investment
and delivery of outputs. The programme
requires us to deliver around 1,200 outputs
by 2005.
Regulation
The Energy White Paper received a mixed
response. Although it was pleasing to see
that the government remains committed to
its target of 20 per cent of electricity sales
to come from renewable sources by 2020,
we would have preferred to see this set
as a firm, rather than aspirational, target.
Investors and developers need clarity
and stability. The intended review of the
Renewables Obligation in 2005/06 will
provide an important opportunity to rethink
strategy on this issue. Whilst concerns over
the impact of wind farm developments on
the landscape are understandable, the impact
of climate change may be more devastating.