United Utilities dividend unaffected despite 18% profits drop

Income investor favourite United Utilities upped its interim dividend by a quarter of a penny at the end of a half-year period where profits were crunched by new regulatory price controls.

Revenue of £857.0m in the six months to 30 September, was down less than 1% compared to last year, but operating profits were down 18% to £278m, reflecting the compensation paid to the 10% of customers affected by a water-born parasite in the summer and other costs that totalled £25m.

Excluding the effects of the cryptosporidium bug, underlying operating profits still fell 10% to £308.6m, largely as expected, with the company hit by an increase in depreciation and other costs but this being partly offset by lower bad debts and regulatory fees.

The group is benefitting from low levels of inflation, with reduced underlying net finance expense on its slightly increased net debt of £6.01bn.

Regulatory capital value (RCV) gearing, which is calculated as group net debt divided by United Utilities Water's outturn prices remained at the 59% from the year-end, comfortably within its target range of 55% to 65%.

This allowed directors to easily make the 2% increase in the interim dividend to 12.81p per share.

Looking forward, they reiterated the target of growing the dividend by at least RPI inflation each year through to 2020 and added that the 2015-20 capital expenditure programme will be accelerated, with capex targets for the 2015-20 period to be set at the group's full year results next May.

For the current year, capex is expected to increase in the second half to a full year total of around £800m, in line with the accelerated plans.

"In addition to our £3.5bn-plus five-year regulatory capex programme, we expect to invest over £100m in non-regulated projects, principally relating to solar power," United added.