ANNUAL REPORT AND FINANCIAL STATEMENTS 2009

The directors present their report and the audited financial statements of United Utilities Group PLC (the company) and its subsidiaries (together referred to as the group) for the year ended 31 March 2009.

Principal activities and business review

The company is a public limited company registered in England and Wales. Its registered office address is at Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey, Warrington WA5 3LP.

The company is the holding company of a group which owns and operates water and wastewater assets and also manages infrastructure for other businesses, predominantly within the United Kingdom.

The business review, which includes the chairman’s and chief executive’s statements and the financial review, provides a balanced analysis of the development and performance of the group’s business during the financial year, and the position of the group’s business at the year end, and forms part of this directors’ report. A summary of key performance indicators can be found here. A summary of the principal risks and uncertainties can be found here. An indication of likely future developments of the group can be found here. The company’s principal subsidiary undertakings, and the associated companies and joint ventures in which the group participates, are listed in note 14 to the consolidated financial statements.

£1.5 billion return to shareholders and creation of new parent company

As a result of the sale of United Utilities Electricity and the review of the group’s capital structure, outlined in its half year results published on 29 November 2007, the board reported its intention to return to shareholders a total of £1.5 billion or 170 pence per share. The vast majority of the planned £1.5 billion return to shareholders took place in August 2008 via a B share scheme. The residual balance of approximately £17 million was returned in April 2009 to shareholders that had elected to receive the return in the next financial year.

In order to implement the B share scheme and return of value and increase distributable reserves, the group proposed a change to its corporate structure. The change was subject to court and shareholder approval and involved a scheme of arrangement to introduce a new parent company above United Utilities PLC.

The scheme of arrangement has now taken place and involved the new parent company, United Utilities Group PLC, acquiring all of the shares in United Utilities PLC and issuing new shares. This comprised the issue of new ordinary shares and redeemable B shares to facilitate the £1.5 billion return. The number of new ordinary shares issued was reduced on the basis of 17 United Utilities Group PLC ordinary shares for every 22 United Utilities PLC ordinary shares in issue prior to the capital reorganisation. This reduction in shares was commensurate with the £1.5 billion return to shareholders. The last day of trading for United Utilities PLC shares was 25 July 2008 and United Utilities Group PLC shares commenced trading on 28 July 2008. United Utilities Group PLC has adopted an analogous memorandum and articles of association (with transitionary arrangements) to those of United Utilities PLC. Accordingly, the comments made in this report that relate to United Utilities Group PLC are equally applicable to United Utilities PLC whilst it was publically listed.

Dividends

The directors are recommending a final dividend of 22.03 pence for each ordinary share for the year ended 31 March 2009, which together with the interim dividend of 10.64 pence, gives a total dividend for the year of 32.67 pence for each ordinary share (the interim and final dividends paid in respect of the 2008 financial year were 15.20 pence and 31.47 pence respectively). The B share continuing dividend was paid on 20 April 2009 at a rate of 5.175225 pence per B share, calculated in respect of the period from 11 August 2008 to (and including) 13 April 2009 on the basis of a 365 day year. B shares were redeemed in full on 14 April 2009.

Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 3 August 2009 to shareholders on the register at the close of business on 19 June 2009. United Utilities Employee Share Trust Limited has waived its rights to dividends, including dividends paid in respect of the year ended 31 March 2009 and future dividends, in respect of the 41,418 ordinary shares held by it as at 27 May 2009.

Directors

The names of the current directors and summary biographical details are given here. During the year, Sir Richard Evans, non-executive chairman and Norman Broadhurst, non-executive director stood down from the board at the annual general meeting on 25 July 2008 and Dr John McAdam was appointed as non-executive chairman at that meeting.

The articles of association provide that a director must retire at the third annual general meeting following his or her last appointment or re-appointment by shareholders. For the annual general meetings held in 2009 and 2010, the articles have transitional provisions in relation to the retirement of directors by rotation. In accordance with these provisions Philip Green, Paul Heiden and Andrew Pinder are therefore retiring and offering themselves for reappointment at the 2009 annual general meeting.

Details of the board’s policies and procedures regarding the appointment of directors are included in the corporate governance report. Details of the interests in the company’s shares held by the directors and persons connected with them are set out in the directors’ remuneration report.

Corporate governance statement

Further details of the company’s compliance with the Combined Code on Corporate Governance as published by the Financial Reporting Council in June 2006 (the code) are given. The statement includes a description of the main features of the group’s internal control and risk management systems in relation to the financial reporting process. A copy of the code, published in June 2006 as applicable to the company for the year ended 31 March 2009, can be found at the Financial Reporting Council’s website frc.org.uk Copies of the matters reserved to the board and the terms of reference for each of the main board committees can be found on the company’s website at unitedutilities.com The corporate governance statement also includes the consideration given by the directors to the factors relevant to the adoption of the going concern basis.

The annual general meeting

The annual general meeting of the company will be held on 24 July 2009 at The Midland Hotel, Peter Street, Manchester M2 3NQ. Full details of the resolutions to be proposed to shareholders, and explanatory notes in respect of these resolutions, can be found in the notice of annual general meeting. Copies can be found on the company’s website [select the invetor reations pages or alternatively, go to the AGM notice at the bottom of this page].

At the annual general meeting, resolutions will be proposed, amongst other matters: to receive the annual report and financial statements; to approve the directors’ remuneration report; to declare a final dividend; and to reappoint Deloitte LLP as auditors.

In addition, resolutions will be proposed: to approve the directors’ general authority to allot shares; to grant the authority to issue shares without first applying statutory rights of pre-emption; to authorise the company to make market purchases of its own shares; to authorise the making of limited political donations by the company and its subsidiaries; and to enable the company to continue to hold general meetings on not less than 14 clear days’ notice.

Share capital, transfers of shares and voting rights

At 31 March 2009 the authorised share capital of the company was £1,580,050,000, divided into 1,000,000,000 ordinary shares of five pence each, 626,043,820 B shares of 170 pence each, 273,956,180 deferred shares of 170 pence each and 50,000 non-voting redeemable preference shares of £1 each, and the issued share capital of the company was £516,524,906 divided into 681,485,632 ordinary shares of five pence each, 9,838,305 B shares of 170 pence each, and 273,956,180 deferred shares of 170 pence each. Details of the share capital and movements in the issued share capital are shown in note 25 to the financial statements. The ordinary shares represented 70.6 per cent and the B shares together with the deferred shares represented 29.4 per cent respectively of the total issued share capital as at 31 March 2009.

All ordinary shares have the same rights, including the right to one vote at a general meeting, the right to an equal proportion of any dividend declared and payable, and to an equal amount of any surplus assets which are distributed in the event of a winding up. All the outstanding B shares were redeemed and cancelled on 14 April 2009. The deferred shares convey no right to income and no appreciable right to participate in any surplus capital in the event of a winding up.

The rights attaching to shares in the company are provided by the articles of association, which may be amended or replaced by means of a special resolution of the company in general meeting. The company annually renews its power to issue and buy back shares at its annual general meeting and such resolutions will be proposed at the 2009 annual general meeting. The directors’ powers are conferred on them by UK legislation and by the company’s articles. At the annual general meeting of United Utilities PLC on 25 July 2008, the directors were authorised to issue relevant securities up to an aggregate nominal amount of £293,902,939, and were empowered to allot equity securities for cash on a non pre-emptive basis to an aggregate nominal amount of £44,085,440. Electronic and paper proxy appointment and voting instructions must be received by the company’s registrars not less than 48 hours before a general meeting and when calculating this period, the directors can decide not to take account of any part of a day that is not a working day.

There are no restrictions on the transfer of ordinary shares in the company, nor were there on the B shares whilst they were in issue, nor any limitations on the holding of shares in the company, save (i) where the company has exercised its right to suspend their voting rights or to prohibit their transfer following the omission of their holder or any person interested in them to provide the company with information requested by it in accordance with Part 22 of the Companies Act 2006 or (ii) where their holder is precluded from exercising voting rights by the Financial Services Authority’s Listing Rules or the City Code on Takeovers and Mergers.

There are no arrangements known to the company by which financial rights carried by any shares in the company are held by a person other than the holder of the shares, nor are there known to the company any arrangements between holders of securities that may result in restrictions on the transfer of securities or on voting rights. All issued shares are fully paid.

Major interests in shares

At 20 May 2009, the directors had been notified of the following interests in the company’s issued ordinary share capital in accordance with the Disclosure and Transparency Rules of the Financial Services Authority:

Purchase of own shares

At the annual general meeting of United Utilities PLC held on 25 July 2008, shareholders authorised that company to purchase, in the market, up to 88,170,881 of its own ordinary shares of £1 each. No shares were purchased pursuant to that authority during the year. Such authority from shareholders is normally sought annually. Authorisation will be sought from shareholders of the company at the 2009 annual general meeting to grant authority to purchase up to 68,148,563 of its own ordinary shares of five pence each, such authority to expire at the conclusion of the company’s annual general meeting in 2010 or if earlier on 30 September 2010.

Change of control

The trustee of the United Utilities Employee Share Trust, which administers the performance share plans, matching share plans and deferred share award scheme, has the ability to exercise voting rights at its discretion which relate to shares which it holds under the trust deed constituting the trust. In the event of a takeover offer which could lead to a change of control of the company, the trustee must consult with the company before accepting the offer or voting in favour of the offer. Subject to that requirement, the trustee may take into account a prescribed list of interests and considerations prior to making a decision in relation to the offer, including the interests of the beneficiaries under the trust. In the event of a change of control, the participants in the share incentive plan would be able to direct the trustees how to act on their behalf.

Directors’ indemnities and insurance

The company has in place contractual entitlements for directors of the company and of its subsidiaries to claim indemnification by the company in respect of certain liabilities which might be incurred by them in the course of their duties as directors. Further details of these indemnities can be found in the corporate governance report. The company also maintains an appropriate level of directors’ and officers’ liability insurance.

Political and charitable donations

The group’s policy is not to make any donations for political purposes. However, the Companies Act 2006 requires certain types of expenditure on political events to be pre-approved by shareholders. At the 2008 annual general meeting, an authority was taken to cover such expenditure. Pursuant to that authority, in the year, the group incurred expenditure of £27,702 (2008: £5,314) as part of the process of engaging in dialogue with government regionally and nationally. A similar resolution will be put to the shareholders at the 2009 annual general meeting to authorise the company and its subsidiaries to make such expenditure.

Charitable donations by the group in the year amounted to £4,262,520 (2008: £3,790,569).

Employees

The company’s policies on employee consultation and on equal opportunities for disabled employees are contained within the Employees section of the business review. The board encourages employees to own shares in the company. Details of employee share schemes are in the remuneration report.

Environmental, social and community matters

Details of the company’s approach to corporate responsibility, relating to the environment and social and community issues, can be found in the corporate responsibility section.

Essential contractual relationships

Certain suppliers to the group contribute key goods or services, the loss of which could cause disruption to the group’s services. However, none are so vital that their loss would affect the viability of the group as a whole. Nor is the business of the group overly dependent on any one individual customer.

Policy on payment of creditors

The group’s policy is in line with the CBI Code of Prompt Payment (copies are available from the CBI, Centre Point, 103 New Oxford Street, London WC1A 1DW). Payment terms are specific to the type of contract and the relevant commercial arrangements, and are agreed with suppliers in advance.

As at 31 March 2009, the average credit period taken for trade purchases was 34 days for the group (2008: 29 days). The company has no trade and other payables.

Approach to technology development

The company is committed to using innovative, cost-effective and practical solutions for providing high quality services. It recognises the importance of ensuring that it properly focuses its investment in the development of technology, that it has the right skills to apply technology to achieve sustainable competitive advantage and that it continues to be alert to emerging technological opportunities.

Financial instruments

The risk management objectives and policies of the company can be found  in note 19 to the financial statements.

Fixed assets

The group holds significant land assets; however, the vast majority of these are water catchment assets which are an integral and essential part of the operation of the group’s regulated business. The nature of these assets, which are primarily moorland areas, and which could not be sold by the group, means that it is impractical to obtain meaningful market values for the land. Other land owned by the group does not have a market value materially different from historic cost.

Events occurring after the balance sheet date

Details of events after the balance sheet date are included  in note 31 to the consolidated financial statements.

Information given to the auditors

Each of the persons who is a director at the date of approval of this report confirms that:
(1)  so far as he or she is aware, there is no relevant audit information of which the company’s auditors are unaware; and
(2)  he or she has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. This confirmation is given, and should be interpreted, in accordance with the provisions of s418 of the Companies Act 2006.

Reappointment of auditors

On 1 December 2008 Deloitte & Touche LLP changed its name to Deloitte LLP. The board is proposing that shareholders reappoint Deloitte LLP as auditors at the forthcoming annual general meeting and authorise the directors to fix the auditors’ remuneration.

Approved by the board on 27 May 2009 and signed on its behalf by:

Tom Keevil
Company secretary