Price cuts and the impact of higher inflation have left water company United Utilities nursing a 24% drop in half-year profits to £196 million.
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 3.2 million households and businesses in North West England, was told to lower bills by 4.3% for 2010/11 but the impact of this on results was partly offset by slightly higher volumes due to the economic recovery.
Revenues from United’s regulated activities were 3% lower at £748 million in the six months to September 30, while operating profits fell 7% to £324 million 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 £196 million.
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 £86 million.
The company committed £307 million of capital expenditure over the half year and said it was close to completing its West End Link water pipeline, a £120 million project connecting Merseyside and Greater Manchester.
United has cut its half-year dividend to 10p a share from 11.17p a year earlier in the wake of the Ofwat determination.
But with a predictable stream of regulated revenues, it has already set a growth target for future payments of 2% a year above inflation through to 2015.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said United’s shares were up 29% this year, compared with 5% for the FTSE 100 Index.