United Utilities' profits fall as price cuts take effect

The decline, which was smaller than City forecasts, follows regulator Ofwat's latest review of prices and industry spending in the five years to 2015.

The Warrington-based company, which covers a population of seven million people and 3.2m households and businesses in north-west England, was told to lower bills by 4.3 per cent for 2010/11 but the impact of this on results was offset partly by slightly higher volumes due to the economic recovery.

Revenues from United's regulated activities were 3 per cent lower, at 748m, in the six months to September 30, while operating profits fell 7 per cent, to 324m, despite a reduction in staff, power and infrastructure renewal charges. The impact of rising inflation on financing costs meant it posted group-wide profits of 196m.

Chief executive Philip Green said United was hopeful of beating the regulatory targets set for 2010-15, helped by its renewed focus on core operations after asset sales that have included Northern Gas Networks for 86m.

The company committed 307m of capital expenditure over the half-year and said it was close to completing its West End Link water pipeline, a 120m project connecting Merseyside and Greater Manchester.

United cut its half-year dividend to 10p a share from 11.17p a year earlier.

But with a predictable stream of regulated revenues, it has already set a growth target for future payments of two per cent a year above inflation through to 2015.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said United's shares were up 29 per cent this year. He added: "The utilities have traditionally been seen as a dour sector, but in the current environment they show some attractions, while United's current dividend yield is supportive and tempting for income investors."