United Utilities makes dividend pledge

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The Independent Online

United Utilities, the water and electricity supplier for the North-west, pledged yesterday to maintain its dividend payment in real terms over the next five years as it became the first of the big utilities to accept the new regulatory price controls.

United Utilities, the water and electricity supplier for the North-west, pledged yesterday to maintain its dividend payment in real terms over the next five years as it became the first of the big utilities to accept the new regulatory price controls.

The company said it expected to be able to fund £3.6bn of investment in its water and electricity networks over the period and cut £210m from its operating costs and still grow dividends in line with inflation.

However, the group said that in order to meet the new efficiency targets it would shed 200 permanent jobs from a workforce of 4,600 in its regulated business and cut the number of contract and agency staff it uses.

The dividend pledge reflects the generous settlements United Utilities obtained from the water regulator Ofwat and Ofgem, its counterpart for the electricity industry. Ofwat is allowing the company to increase water charges by 4.5 per cent a year, lifting the average domestic bill to £322 by 2010. Ofgem, meanwhile, has sanctioned an 8 per cent real terms increase in electricity distribution charges next year followed by increases in line with inflation in the next four. Distribution charges account for about 30 per cent of household electricity bills.

United Utilities has one of the most generous payouts of any company, with a dividend yield of 8 per cent - two and a half times the average for the FTSE All Share index. John Roberts, the company's chief executive, justified the decision to maintain the dividend by saying that virtually all of the payout would be covered by allowed returns from its regulated businesses, after taking account of their interest costs, 80 per cent of which were fixed.

Dividends will continue to be covered at least 1.2 times by earnings over the next five years, Mr Roberts said and he ruled out any fresh rights issue among shareholders before the next price review in 2010.

The company also indicated that there might be scope to grow dividends further depending on the performance of its non-regulated business. One of these, the call centre and outsourcing division Vertex, received a boost yesterday with a 12-year contract worth "several hundred million pounds" from Walsall council - its third local authority deal.

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