Exhibit 10.1

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Operating reviewLicensed multi-utility operations

United Utilities Service Delivery

|                                         | aligningresources                                                                                                                
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------
|John
      Roberts Chief
      executive |                                                                                                                                  
|                                         | Over the past year, the
      multi-utility team 
      has made massive strides to standardise both 
      assets and processes.



BUSINESS
          
          OBJECTIVES
        OUTPERFORMING
          
          REGULATORY 
          CONTRACTS
        ALIGNING 
          RESOURCES 
          TO ACHIEVE 
          SYNERGY 
          SAVINGS
        IMPROVING 
          CUSTOMER 
          SERVICE 
          PERFORMANCE*
      Segmental
        operating profit/loss is defined as the profit/loss from continuing operations
        before non-operating items, goodwill amortisation, exceptional items,
        interest and tax for a segment as shown in note 2 of the financial statements.




Business
      overviewUnited Utilities Service Delivery
      owns and operates our licensed electricity distribution, water and wastewater
      networks in north west England.Service Delivery
      is carrying out the most extensive capital investment programme in the UK
      utility sector. Between 2000 and 2005, the business is investing more than
      £3.5 billion  a quarter of all the money being spent in England
      and Wales on improving the water and electricity infrastructure. It is the
      equivalent of nearly £2 million a day, every day, for five years.
      At its peak, it is estimated that the programme will require more investment
      in the north wests infrastructure than is being proposed in the rail,
      gas, road and air travel industries combined.Business
      objectivesJohn is very clear about Service Deliverys
      goal. The business must create value through efficient management
      of our assets. The three key objectives are:
    to focus on the delivery and
      out-performance of the regulatory contracts;
    to deliver synergy savings
      by aligning our resources within the common geography of our three utility
      networks; and
    to deliver improvements to
      customer service performance.The past twelve
      months were a challenging period for Service Delivery, but John believes
      the business strategy is sound.




“Managing our capital investment programme
    and ensuring value for money for our customers  will help us exceed
    our regulatory targets.” “THE BUSINESS
    HAS A CLEAR GOAL: TO CREATE VALUE THROUGH EFFICIENTMANAGEMENT
    OF OUR ASSETS.” The business has made significant strides to
    improve its procurement processes and expects to achieve substantial savings
    over the next three years. “We now have software that will enable us
    to implement secure online tendering and auction processes for a large number
    of goods and services.” The Master Asset Management System (MAMS),
    consolidating some 20 asset management IT systems into a single system, enables
    the business to manage its information in a more effective way. John does
    not underestimate the importance of the project. “Our strategies are
    all about extracting the benefits from our multi-utility status, integrating
    our systems and procedures so they operate at maximum efficiency. Successful
    delivery of the MAMS project gives us the basis for future efficiencies.” In electricity distribution, our asset replacement
  strategy focuses on stabilising fault rates. We are successfully reducing fault
  rates across most elements of our network. Business impactsWhen assessing future business impacts, John
    believes the next price reviews are a key factor. “This is the biggest
    issue on the horizon for Service Delivery right now. We operate two regional
    monopolies and


4United
  Utilities Annual Report & Accounts 2003

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Operating reviewLicensed multi-utility
  operations

United Utilities
  Service Delivery (continued)

the price reviews are the regulators
  way of ensuring we provide value for money. It is essential that we achieve
  a sensible outcome. Its not just about maximising profits for our shareholders,
  we must deliver for all our stakeholders. If we can outperform the regulators
  requirements in both delivery and value terms, we are giving ourselves the best
  chance of maintaining and improving shareholder value in the future. THE
    NEXT PRICE REVIEWS ARE THE BIGGEST ISSUE ON THE HORIZON FOR SERVICE DELIVERY
    RIGHT NOW. When John joined the group, the
  electricity and water teams were divided physically and culturally. Through
  strong leadership and implementation of the United Utilities culture change
  programme (UCan), the teams are now working closer together and clearly understand
  the challenges of the future. UCan has been extremely well received and
  we are seeing the benefits of this programme. People are taking responsibility
  for their actions and living our values. Although he admits there is still
  some way to go, he is determined to support this programme. In order to
  succeed as a business, our employees must be with us  they are vital to
  our success. Business performanceJohn is proud of the hard work the Service
  Delivery team has put into delivering regulatory outputs this year. We
  are ahead of target, despite the challenges of the largest capital investment
  programme in the UK water sector. And we are already starting to see results.
  With £1.65 billion being spent in the current regulatory period on improving
  wastewater treatment, more coastal waters than ever before around north west
  England are satisfying the EUs directive on bathing waters. The Environment
  Agency has announced that river water quality in the region is the best it has
  been for over 200 years. By 31 March 2003, United Utilities
  had delivered around a third of the 1,200 regulatory capital outputs required
  through its AMP3 programme over the 2000-05 period, and was ahead of the schedule
  set by the water regulator. All remaining projects have been started, with the
  vast majority currently at the construction or detailed design stage. Capital investment is anticipated
  to peak this year at almost £3 million per day, with United Utilities
  expecting to deliver around 300 combined sewer overflow and quality




enhancement outputs at its water
  and wastewater treatment works. Although capital expenditure is expected to
  fall in 2004/05, the number of outputs delivered is expected to peak as we finish
  schemes that were started earlier in the regulatory period and complete work
  on a large number of small projects. In 2002, one of our biggest
  challenges and successes was the Commonwealth Games. United Utilities
  supplied the utility infrastructure to the main stadium and spent two years
  planning for the event, evaluating and managing risks to ensure continuity of
  supplies. However, he believes that the real success was the effect the Games
  had on our employees. Our people were proud to be involved in such a prestigious
  event. Their dedication and teamwork helped us to play a significant role in
  the Games and was a fine example of how we can work together in a united way.
  The event will leave an imprint on our employees for years to come. IN
    ORDER TO SUCCEED AS A BUSINESS OUR EMPLOYEES MUST BE WITH US  THEY ARE
    VITAL TO OUR SUCCESS. Whilst 2002/03 was the most challenging
  year in the price profile of the current regulatory period, the next two years
  will be the most challenging in terms of delivery of outputs. United Utilities
  has already put in place robust processes to address this challenge, such as
  framework agreements with contractors and standardisation of the design and
  construction of its assets.




Financial
  summary Turnover increased
  by 1.8 per cent to £1,230.1 million, despite water and wastewater prices
  remaining constant in real terms and a 3.0 per cent real reduction in electricity
  distribution prices. This compared with growth of 0.6 per cent in 2001/02 when
  the regulatory price reduction of 1.0 per cent in water charges was applied. Segmental operating
  profit*, reduced by 5.1 per cent in 2002/03 reflecting the regulatory price
  profiles and increased costs associated with the acceleration in the capital
  investment programme. Segmental operating profit* increased by 5.7 per cent
  in 2001/02, as cost savings more than offset price reductions. Our target for
  cost savings over the five-year period to 2005 was increased by £30 million
  to £480 million in 2001/02. Our performance in 2002/03 has remained on
  track to achieve this goal. Capital investment
  for the year was £713 million. £591 million of this related to water
  and wastewater and £122 million to electricity distribution.


United Utilities
  Annual Report & Accounts 20037

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Operating review Licensed multi-utility operations

United Utilities Customer Sales

|Bob ArmstrongManaging director | Bob Armstrongs
      vision for the business is 
      to be the first service provider to emerge from 
      the water sector with an outstanding record for 
      creating value from our customer relationships.
|------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

BUSINESS
    
    OBJECTIVES MAXIMISE 
    PROFITABILITY 
    AND CASH FLOW MAINTAIN AND 
    IMPROVE SERVICE 
    LEVELS TO EXCEED 
    CUSTOMEREXPECTATIONS MANAGE OUR 
    REPUTATION AND 
    INFLUENCE THE 
    REGULATORY 
    AGENDA




Business overview
    United Utilities Customer Sales is responsible
    for a regulated customer base of 2.9 million domestic households and business
    premises in north west England. It is also a major provider of water and wastewater
    services in the competitive industrial market throughout the UK. Business objectives
    Business targets for the year reflect the vision
    for the business. Our objectives are to maximise profitability and cash
    flow; to maintain and improve our levels of customer service; and to manage
    our reputation and influence the regulatory agenda. Often working in partnership with other parts
    of the group, Customer Sales aims to increase revenues. This includes cross-selling
    non-regulated products and services to domestic customers and building upon
    the groups presence in the industrial market. In addition to increasing
    sales, the aim is to reduce costs. We are introducing a new customer
    billing system to bring down costs further. A new payment card system was
    successfully delivered to 450,000 customers this year too, supporting our
    drive to improve income and debt management. Business impacts With robust planning, Bob believes Customer
    Sales can achieve a positive outcome in the price review. We have teams
    developing strategies to influence regulatory proposals and standards.
    A programme of stakeholder engagement, including lobbying of government and
    regulators, will benefit the business. We are working hard to ensure
    the outcome is balanced for our customers and the environment. As chair
    of Water UK, a representative organisation which brings together all of the
    UKs water and wastewater utilities, Bob is actively engaged in the debate
    on water regulation at an industry level. We also have to keep a keen eye on
    competition. Customer service improvements, product development and the groups




reputation will put us in a strong position to thrive where competitive markets develop. I AM CONFIDENT THAT
    THE 
    BUSINESS IS IN A STRONG 
    POSITION TO MAINTAIN AND 
    IMPROVE ITS PERFORMANCE. Business performance
    Putting customers at the heart of our
    business is the key to continued success. Our Future Customer Experience
    pilot has confirmed the customer service expectations of our domestic customers
    and sets the business new goals. We are working to deliver a high level of
    customer service that is both valued by our customers and is cost effective
    for our business. The business has also developed new products  launching a home telephone service for domestic water customers using Your Communications network. Looking to the future, Bob is confident that the business is in a strong position to maintain and improve its performance. Were focusing on increasing profitability and cash flow through a variety of
initiatives. We are improving the customer experience and will be working hard with the regulator on the price review and other regulatory developments for the benefit of the business and its stakeholders.


United Utilities
  Annual Report & Accounts
  20039

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Operating review Infrastructure management

United Utilities Contract Solutions

Gordon Waters
    Managing director




exploitingstrengths Gordon Waters manages the
    fastest growing 
    and most diverse business within the group. 
    Essentially, we take United Utilities core 
    management and operational skills and 
    experience out into competitive markets.


BUSINESS OBJECTIVES MAXIMISE 
    RETURNS 
    FROM OUR MANAGEMENT EXPERTISE AND MINIMISE RISKS 
    ON CAPITAL EXPLOIT 
    SKILLS FROM 
    OUR LICENSED BUSINESSES AND APPLY THEM TO GROWTH MARKETS SECURE LONG-
    TERM INCOME STREAMS FOR 
    THE BUSINESS




Business
        overviewUnited Utilities Contract Solutions
        is a rapidly growing infrastructure management business which operates
        and manages utility activities serving over ten million people throughout
        the UK and overseas. The business operates in three market areas.
      Operations Management develops
        and operates contracts in selected markets. It includes: our International
        business; the provision of operations and maintenance services to Welsh
        Water; and the Industrial business, which offers a waste management service
        to industry.
      Green Energy develops and
        operates renewable energy generation projects. Traditionally, these have
        been in the areas of landfill gas and small hydro schemes, but the business
        sees onshore and offshore wind projects as the way forward.
      Networks is a multi-utility
        metering and connections business. Our connections arm offers multi-utility
        connection services to developers in the domestic housing and the industrial
        and commercial markets. The metering activity offers a range of services
        for the provision, ownership and operation of meters for energy supply
        companies. The business also provides an energy efficiency service to
        small and medium sized companies and local authorities.Business
        objectivesThe role of Contract Solutions is
        to grow non-regulated earnings from the groups infrastructure management
        expertise. By applying the core skills of the licensed multi-utility business
        to other markets,




Contract Solutions seeks to grow without materially
    increasing the risk portfolio within the group. Gordon is positive about the recent Energy
    White Paper. The government is committed to the reduction of greenhouse
    gases. The paper is very supportive of renewables, so we should expect a massive
    expansion in the renewable generation market. Contract Solutions is
    well placed to play a leading role in this expansion. The business aims to
    develop its renewable energy capacity from 62 MW to 250 MW in the medium-term. European legislation offers another opportunity,
    particularly the changes in environmental legislation, which mean that many
    liquid wastes currently put to landfill will have to be treated. This
    creates a huge opportunity for our Industrial business, which is expanding
    out of its traditional areas of Wales and north west England and aims to become
    a truly national player. The changing nature of the utility sector
    in the UK also presents real growth opportunities. Different financial
    structures aligned with commercial pressures mean that companies are seeking
    new ways of providing services. I believe this will open up new outsourcing
    opportunities. Eastern and central Europe also offer significant
    opportunity for growth in operations management. The accession of new
    countries to the European Union gives our business real expansion possibilities.




10United
  Utilities Annual Report & Accounts 2003

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---







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Operating review Infrastructure management

United Utilities Contract Solutions
  (continued)



Business impacts
    Gordon believes that Contract Solutions offers
    the group excellent prospects for sustained and controlled growth but recognises
    that a number of external issues are key to future performance. “A key area is the conflict
  between the governments renewables targets and the negative reaction encountered
  in many parts of the country to wind farm developments, both onshore and offshore.
  Green Energy has a significant number of projects awaiting or about to be submitted
  for planning approval. If the government is as serious about reducing carbon
  dioxide as it appears to be, then it needs to address some of the planning issues
  which are arising.” Despite these planning obstacles, it is anticipated
  that some of these projects will move into construction during the coming year. Business performance
    Looking back on what has been a hectic, but
    successful year, Gordon reflects on how much the business has changed. “Our
    Welsh operations have performed extremely well and it is particularly satisfying
    to have built on this success by becoming one of the preferred bidders to
    partner Scottish Water.” The partnership will be responsible
  for managing Scottish Waters capital investment requirements to improve
  drinking water quality and meet environmental obligations. The contract is in
  the final stages of negotiation and it is expected it will be signed in the
  near future. Scotland is not new territory for the business. Six plants commissioned
  as part of three existing contracts are performing well and profitably. United Utilities is expanding
  its operations in Australia through a wastewater treatment contract with the
  city of Onkaparinga. It has also been named as preferred bidder to build, own
  and operate a wastewater treatment plant at Victor Harbour, and provide operations
  and management services for Coliban Regional Water Authority. The combined value
  of these contracts is approximately £80 million. The legal dispute between NOSS
  Consortium, in which North West Water International Limited is a partner, and
  the Bangkok Metropolitan Authority is now proceeding into full arbitration.
  It relates to a contract which was terminated by NOSS Consortium in March 1998.
  No outcome is expected within the next financial year. United Utilities Networks has
  strengthened its position as the UKs leading provider of




multi-utility connections through
  the recent acquisition of Connections Plus (which provides gas connections services
  to industrial and commercial customers) from National Grid Transco PLC. The
  business has annualised revenues of around £7 million. The £225 million five-year
  contract with British Gas Trading (BGT) began in November. It involves the provision
  of metering services to around five million customers in north west and north
  east England and north Wales. CONTRACT
    SOLUTIONSOFFERS THE GROUP
    EXCELLENT PROSPECTS FOR SUSTAINED AND CONTROLLED GROWTH. During the year, the business
  chose to withdraw from the Americas to concentrate on the UK, central and eastern
  Europe. Concessions in central and eastern Europe continue to perform well in
  terms of cost and service levels. And what of the future? Gordon
  predicts another year of profitable growth ahead, one in which the business
  will focus increasingly on its people. “A growth business needs
  to have the right people with the right approach to help it grow. One of our
  key goals in the coming year will be to develop our employees to help them operate
  more effectively in a customer-centric, competitive environment. All our senior
  managers have attended development centres and we are putting training and support
  services in place to ensure we have the right people with a range of skills
  to deliver continuing high performance.”




Financial summary Turnover increased
  by 2.9 per cent to £397.1 million. Excluding turnover from operations
  in the Americas, turnover increased by 18.5 per cent to £389.4 million.
  This was due to the British Gas Trading contract and increased revenues from
  other contracts within the Operations Management division. This compares with
  an increase in turnover of 95.3 per cent in 2001/02 achieved largely as a result
  of the first year of the Welsh Water contract. Segmental operating
    profit* increased by 96 per cent to £58.8 million, as the period of
    start-up costs which accompanied last years growth in turnover has come
    to an end. This compares with an increase of 50.0 per cent to £30.0
    million in 2001/02, reflecting first year contributions from the Welsh Water
    contract and concessions in Bulgaria, Estonia and Scotland.


United Utilities
  Annual Report & Accounts 200313

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Operating review Business process outsourcing

Vertex

|                                  | customerdiversification                                                                                                                                                                                                                                              
|--------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tom Drury
      Managing director |                                                                                                                                                                                                                                                                      
|                                  | Tom Drury has been at the
      helm of Vertex since its inception. The vision for the future is to
      be successful, trusted and respected in the UK and internationally as a
      leading transformational outsourcing business in our chosen market sectors.
|                                  |                                                                                                                                                                                                                                                                      



BUSINESS 
  OBJECTIVES DEVELOPBROADER BASEDBUSINESS PROCESS 
  OUTSOURCING 
  SERVICES TARGET
  GROWTH 
  IN THE PUBLIC AND 
  FINANCIAL SERVICES
  SECTORS DEVELOP
  OUR 
  POSITION IN NORTH 
  AMERICA THROUGH 
  PARTNERSHIPS




Business overview
  When Vertex was created seven years ago, the
  business was predominantly an in-house provider of traditional customer service
  functions. Today, it provides a broader business process outsourcing (BPO) service
  to clients in the UK and overseas. Vertex is the leading UK provider of customer
  management outsourcing services, operating across the utility, commercial and
  public sectors. From a start-up base of 2,500
  people in three north west locations, Vertex now employs over 9,000 people across
  32 locations on three continents, with over two-thirds of its revenue generated
  from outside the United Utilities group. In the last year, Vertex was awarded
  new contracts worth £600 million. Over the last five years it has achieved
  compound annual growth in turnover of 17 per cent and segmental operating margins*
  have increased by 70 per cent over the last two years. Business objectives
  In order to protect the business from market
  fluctuations, Tom intends to develop a portfolio of clients across different
  geographic and business sectors. Measured expansion will allow us to increase
  our opportunities in markets we understand. We are also broadening our capabilities
  to complement our existing customer management operations. At the same time,
  we are targeting the financial services sector and significantly increasing
  our presence in the public sector. The intention is to grow the business
  by around 15 per cent per annum and at the same time increase margins and cash
  flow.




He sees Vertex as a company that
  engenders trust by acting with integrity and honesty; a company with a culture
  that attracts and manages the industrys brightest talents. We want
  to be renowned for getting the basics right and adding value to shareholders
  and clients alike. 
      OUR EXPERTISE
        IN THE UK UTILITY SECTOR 
        WILL STAND US IN GOOD STEAD AS UTILITY MARKETS ELSEWHERE DEREGULATE. Business
    issues As with any business enjoying significant growth,
    the voyage from start-up to maturity has not always been smooth. The last year has been particularly
  challenging but we have coped extremely well due, in no small part, to an excellent
  senior management team and dedicated, flexible professionals at the front line
  delivering exceptional customer service. We have experienced the effects of
  recent economic disturbances with some of our clients, most notably in the mobile
  telecommunications market. This is a sector where the business has a significant
  presence. By adopting effective business
  strategies, Tom believes that these challenges will actually lead to more opportunities
  for Vertex to contribute sustained growth to the group. Our expertise
  in the UK utility sector, particularly our experience of deregulated markets,
  will stand us in good stead as utility markets elsewhere deregulate. The business will increasingly
  offer a broader range of services. We see partnerships as the


14United
  Utilities Annual Report & Accounts 2003

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Operating review Business process outsourcing

Vertex (continued)

solution to meet our clients
  demands for more complex services and plan to continue working collaboratively
  with Cap Gemini Ernst & Young UK as our preferred IT partner. At the same
  time, we will seek to build relationships with new partners in related fields
  to enable us to deliver a comprehensive service portfolio. Business performanceThe success of Vertexs strategy
  over the last twelve months is demonstrated by the companys expansion
  into North America and India. Vertex continues to seek suitable acquisition
  targets and growth opportunities. During the year, Vertex purchased
  the UK contact centre operator, 7C, and its shareholding in 7C India. The acquisition
  included the transfer of 7Cs key clients including lastminute.com, Vodafone
  and Freeview. The business has been successfully integrated into the existing
  organisation and is now aiming to optimise its Indian contact centre capacity.
  Tom is delighted with the acquisition and looks forward to building a strong
  relationship with GE Capital  a financial services company with a strategic
  investment in 7C India. In addition, the business has
  won nearly £500 million of business in the public sector in the last twelve
  months. The contract with the Department for Work and Pensions, which promotes
  the payment of state benefits directly into bank accounts, began successfully
  in October. This included the delivery of IT systems to time, scope and budget.
  Around 200 employees are currently working on the contract and this figure is
  expected to increase to 800 during the peak months towards the end of this year. The second phase of the Westminster
  City Council contract began successfully in February. The contract, worth up
  to £422 million over 15 years, covers the integration and delivery of
  67 council services in seven departments. Over 650 employees have transferred
  to the business and its partners as part of the contract, and a new flagship
  contact centre has been opened in Westminster. Vertex has also recently been
  awarded a contract to provide customer management services to Tesco PLC, in
  support of its new service, Tesco Telecom. The multi-million pound contract
  is scheduled to begin in early summer 2003 and will last for five years. In September, Vertex signed an
  extended contract with TXU Europe. Although Powergen




acquired TXU Europes retail
  business in October 2002, Vertex continues to supply customer management services
  under the contract. Powergen and Vertex have recently signed a memorandum of
  understanding, and based on this, good progress is being made to finalise a
  new contract. 
      THE BUSINESS HAS
        PERFORMED WELL IN A TOUGH MARKET AND IS ON TARGET TO ACHIEVE ITS STRATEGIC
        GOALS. Tom is confident that the business
  is in a strong position to withstand any future economic downturn. He predicts
  that the market will continue to grow strongly as organisations seek the strategic
  advantages that outsourcing can bring. There is a trend away from
  pure transactional processing to full business process management. Service providers
  have to be actively involved in changing customers businesses  transformational
  outsourcing  rather than simply delivering service to specification. Our
  response is to seek both repeatable, low-risk, transactional work with a modest
  margin and more bespoke, higher risk, transformational work at higher-margins. Tom believes the business has
  performed well in a tough market We are on target to achieve our strategic
  goals and to continue to grow in a sustainable and profitable manner.




Financial summary Sales increased by 8.7 per cent
  to £307.6 million primarily through new contracts secured in the year
  for the Department for Work and Pensions and for Westminster City Council. This
  compares with an increase of 33.9 per cent in 2001/02 when new contracts were
  entered into with Companies House, Birmingham City Council and Marks and Spencer. Segmental operating profit*
  has improved by 33.3 per cent to £18.8 million reflecting the flow through
  of increased turnover and margins. This compared with an increase of 85.5 per
  cent in 2001/02 as cost efficiencies were generated on internal contracts and
  activity on external contracts increased. Vertexs segmental operating
  margin* improved to 6.1 per cent from 5.0 per cent last year and from 3.6 per
  cent in 2000/01, reflecting the increasing maturity of the external contract
  portfolio and cost reductions in intra-group contracts.


United Utilities
  Annual Report & Accounts 200317

---



Operating reviewTelecommunications

Your Communications

|                                   | speakingdirectly                                                                                                                                                                                                                                                               
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Hugh Logan Managing
      director |                                                                                                                                                                                                                                                                                
|                                   | Hugh Logan is confident
      about the prospects for Your Communications  even though conditions
      have been tough in the telecommunications market. We are aiming to
      be a net contributor of cash to the group on a post-tax basis by this time
      next year.

BUSINESS 
  OBJECTIVES MAXIMISE 
  PROFITABILITY 
  THROUGH 
  BUSINESS 
  EFFICIENCIES OFFER NEW 
  SERVICES TO 
  STRENGTHEN 
  EXISTING CLIENT 
  RELATIONSHIPS DEVELOP A 
  MULTI-CHANNEL 
  SALES APPROACH 
  TO WIN NEW 
  BUSINESS IN OUR 
  TARGET MARKETS




Business overviewIn the UK telecommunications market, Your Communications
    remains a medium-sized alternative network, which operates in the business-to-business
    sector. Hugh is pleased that the business
  has been able to maintain positive growth while many competitors have faced
  very severe trading difficulties. Your Communications has continued to
  grow year-on-year with seven out of eight sales channels making significant
  improvement. 
      THE BRIEF
        NOW IS TO ADD 
        VALUE, INCREASE REVENUE 
        STREAMS AND STRENGTHEN
        CUSTOMER RELATIONSHIPS. Business objectivesHugh has a clear focus for the year ahead.
    We have to organise the business to be as efficient as it can be. We
    must direct our energies to winning new work without neglecting our existing
    business.




One clear strategy for maintaining and improving
  performance is to use existing technology and systems, such as the new customer
  support system. We aim to get further into the customer base and cross-sell
  our voice, data, mobile and internet products. The brief now is to add value,
  increase revenue streams and strengthen customer relationships. Business issuesHugh sees the state of the UK market as the
    key issue facing his business. The main influence has been the economic
    downturn. Our customers have been reluctant to invest in new telecommunications
    products and services to improve their efficiency. However, they are increasingly
    beginning to realise that, if they are going to find a way out of the downturn,
    they must invest in new technology. He cites other influences, not least the regulatory
  environment. Over the past year Oftel has made some important regulatory
  policy decisions which






82.2%BUSINESS SALESLAST
        YEAR: 72.4%Proportion
        of turnover relating to business sales




2.67bnMINUTES
          OF NETWORK USAGELAST
          YEAR: 2.01bnNumber
          of minutes carried on our network in the year


18United Utilities Annual Report & Accounts 2003

---



have had a positive impact on our business.
    The draft Communications Bill published on 7 May 2002 proposes a new unified
    regulator Ofcom and there have been a number of related legislative
    initiatives. We will be monitoring and assessing developments closely, especially
    the review of the communications market being undertaken by Oftel.” Business performanceHugh believes a steady focus on immediate business
    objectives has resulted in solid performance. “Our objective over the
    last year was to complete our network. Having built this we now have a highly
    flexible state-of-the-art infrastructure with which we can connect, manage
    and switch our customers traffic.” 
      HAVING COMPLETED
        OUR NETWORK WE NOW HAVE A HIGHLY FLEXIBLE STATE-OF-THE-ART INFRASTRUCTURE
        WITH WHICH WE CAN CONNECT, MANAGE AND SWITCH OUR CUSTOMERS TRAFFIC. “The completion
    of the network is an important element in attaining profitability. This will
    allow us to grow and develop new services for our portfolio  for example,
    Carrier Pre Select, our new advanced indirect service, will enable us to reach
    a wider target sector both geographically and in terms of the size of business
    we can service.”  £25m
         NET CASH INVESTMENTLAST
        YEAR: £45mNet
        cash investment in Your Communications fell
            as the business completed its network build phase




“In essence, what we have
    done, whilst maintaining a high degree of network efficiency and reliability,
    is endeavour to increase the traffic coming across the network.” The
    key, for Hugh, has been to develop a multi-channel sales approach to help
    win new customers, whilst retaining and growing the relationship with existing
    customers. “This is delivering results
    and I believe it will continue to do so. Market conditions remain tough in
    this sector, mostly due to over-capacity, but our business strategies are
    helping us to improve results. Our immediate financial target is to become
    a net contributor of cash to the group, on a post-tax basis, in 2003/04.”




Financial summary Turnover grew by 7.5 per cent
  in the year to £161.7 million. This is a result of further improved performance
  in the wholesale and retail markets. Sales growth in 2001/02 was 31.6 per cent,
  largely attributable to increased focus on business sales from voice and data
  services. Segmental operating losses* reduced in the year by 18.1 per cent to
  £19.5 million compared with a reduction of 5.2 per cent in 2001/02. This
  was due to both increased sales and an improved product mix as higher margin
  business sales continued to increase as a proportion of total sales. Business customers now make
  up 82.2 per cent of sales. Business sales from voice and data services increased
  by 22.2 per cent to £133.0 million, whilst premium rate services fell
  by 30.8 per cent to £28.7 million. With the network building phase
  completed, net cash investment in the business fell to £25 million, compared
  with £45 million in the previous year. As ongoing capital investment requirements
  continue to fall, the business has a target to be a net cash contributor to
  the group, on a post-tax basis, in 2003/04.


United Utilities
  Annual Report & Accounts 200319

---



Financial review

| | The groups
      support services 
       businesses have made significant 
       progress during the year.
| | ---------------------------------------------------------------------------------------------------------------



Simon BateyGroup finance director The dividend for 
     the year is 47.6 
     pence, an increase 
     of 1.3 per cent. *Segmental operating profit/loss
    is 
     defined as the profit/loss from continuing 
     operations before non-operating items, 
     goodwill amortisation, exceptional items, 
     interest and tax for a segment as shown
     in note 2 of the financial statements.




Overview
    The groups support services businesses have made significant
    progress during the year. This performance has more than offset the expected
    fall in operating profits from our regulated businesses. We have changed the names of
    the asset management services and customer management outsourcing segments
    to infrastructure management and business process outsourcing, reflecting
    the development of these activities into wider markets. Infrastructure management turnover
    and segmental operating profit* grew substantially as the period of start-up
    costs which accompanied last years growth in turnover came to an end.
    Our £225 million contract with British Gas Trading has been mobilised
    and we have been named as one of the preferred bidders to partner with Scottish
    Water in the delivery of their four year £1.8 billion capital investment
    programme. The businesss order book now stands at nearly £2.5
    billion. Business process outsourcing
    turnover grew by nearly nine per cent principally due to the Westminster City
    Council and Department for Work and Pensions contracts, which commenced during
    the year. In addition, Vertex purchased the UK contact centre operator, 7C
    and its shareholding in 7C India and is now pursuing a number of opportunities
    to utilise its Indian contact centre capacity in conjunction with its current
    and prospective clients. Vertexs segmental operating margins* have increased
    by 70 per cent over the last two years, standing at over six per cent in 2002/03,
    reflecting the increasing maturity of the external contract portfolio. The growth in telecommunications
    turnover has continued and segmental operating losses* have reduced reflecting
    the trend towards a cash positive position. As capital investment requirements
    continue to fall, we are targeting the business to be a net cash contributor
    to the group after taxation in 2003/04. Our licensed businesses remain
    on track to meet our £480 million operating cost saving




target over the 2000-05 regulatory
    period. Our capital investment programme is ahead of schedule in respect of
    outputs, with investment of £713 million made during the year. New financial
    reporting standards and changes in accounting policiesUrgent Issues Task Force
    (UITF) Abstract 34 Pre-contract costsWe have adopted Urgent Issues Task Force (UITF) Abstract 34 within these financial
    statements. The application of this abstract is reflected in the year and
    in the appropriate restatement of the results for the years ended 31 March
    2001 and 2002. UITF 34 requires that pre-contract costs should only be recognised
    as an asset after the point where it is virtually certain that a contract
    will be entered into with net cash inflows that will recover the costs capitalised.
    Previously, the groups policy was to capitalise and fully provide against
    pre-contract costs until their recovery was considered to be secured by profitable
    contracts. Once the contract was secured, the provision was released and capitalised
    costs amortised over the expected life of the contract. The effect of adopting UITF
    34 is a reduction of shareholders funds by £12.6 million at 31
    March 2002 and a reduction in profit for years ended 31 March 2003 by £1.5
    million, 31 March 2002 by £1.4 million and 31 March 2001 by £2.3
    million (net of tax). Telecommunications
    network capacity salesWhere there is excess capacity in the telecommunications network, Your Communications
    may sell this capacity to third parties. Previously, where substantially all
    of the risks and rewards of ownership were transferred to the purchaser over
    the economic life of the asset, these transactions had been accounted for
    as a sale and recognised in turnover when all relevant conditions of the contract
    had been met. Having reviewed current accounting
    practice, the group concluded that an accounting policy that treats such transactions
    as grants of operating leases (unless legal title passes) rather than as sales
    is more appropriate as it




26United
  Utilities Annual Report & Accounts 2003

---



reflects the long-term nature
    of the transaction. This accounting policy is aligned with the subsequently
    issued UITF Abstract 36 Contracts for sales of capacity. The effect of this change in
    accounting policy is a reduction of shareholders funds by £4.5
    million at 31 March 2002 and a reduction in profit and turnover for years
    ended 31 March 2003 by £1.0 million (net of tax) and £3.0
    million respectively, 31 March 2002 by £1.8 million (net of tax) and
    £4.8 million respectively and 31 March 2001 by £2.6 million (net
    of tax) and £5.2 million respectively. Financial Reporting
    Standard 17 Retirement benefitsThe group applies SSAP 24 as the basis
    for accounting for pension costs, and continues to make the required transitional
    disclosures for Financial Reporting Standard (FRS) 17 as disclosed in note
    25 of the financial statements. During the year, the Accounting Standards




Board has deferred mandatory
    implementation of FRS 17 pending a review of the equivalent International
    Financial Reporting Standard. Primarily due to the deterioration
    in the equity markets and lower interest rates during the year, the valuation
    of the groups schemes under FRS 17 result in a net pension liability
    at 31 March 2003 of £298.1 million compared with a net asset of £15.1
    million at 31 March 2002. In light of this funding position, the group has
    increased its contributions to the schemes with effect from 1 April 2003. International
    Financial Reporting StandardsAs a European listed company, the group
    will be required, subject to enabling UK legislation, to adopt International
    Financial Reporting Standards (IFRS) for the year ending 31 March 2006. The
    group will continue to assess the impact of adopting IFRS on an ongoing basis
    given that both UK and International Standards




are undergoing a period of rapid
    change to assist harmonisation. Group results
    Turnover from continuing operations increased by 2.6 per cent
    to £1,920.5 million in 2002/03 compared with an increase of 19.3 per
    cent in 2001/02. The movement in both years reflects growth in business process
    outsourcing, infrastructure management and telecommunications, offset by real
    price reductions in the allowed regulatory revenues. Turnover in 2002/03 was
    reduced by the withdrawal from infrastructure management in the Americas,
    whereas 2001/02 was boosted by the Welsh Water contract. Operating profit from continuing
    operations (defined as profit from continuing operations before non-operating
    items, goodwill amortisation, exceptional items, interest and tax  see
    note 2 below) increased by 1.5 per


|                                                                                   |  |         |   |                         |   |                         |  
|---------------------------------------------------------------------------------- |  | ------- | - | ----------------------- | - | ----------------------- | -
|Financial
      highlights                                                         |  | 2003£m  |   | 2002Restated
        £m |   | 2001Restated
        £m |  
|                                                                                   | 
|Turnover from continuing operations(1)                                             |  | 1,920.5 |   | 1,871.6                 |   | 1,569.2                 |  
|Profit from continuing operations before
      non-operating items, goodwill,      |  |         |   |                         |   |                         |  
|exceptional items, interest and tax(2)                                             |  | 561.7   |   | 553.3                   |   | 505.8                   |  
|Profit from continuing operations before
      goodwill, exceptional items and tax |  | 330.3   |   | 322.7                   |   | 289.5                   |  
|Profit before tax                                                                  |  | 327.5   |   | 302.8                   |   | 477.7                   |  
|Profit after tax                                                                   |  | 280.1   |   | 263.4                   |   | 341.3                   |  
|                                                                                   | 
|Basic earnings per share                                                           |  | 50.0    | p | 47.3                    | p | 61.9                    | p
|Adjusted basic earnings per share(3)                                               |  | 48.8    | p | 50.9                    | p | 40.3                    | p
|Dividends per share                                                                |  | 47.6    | p | 47.0                    | p | 46.1                    | p
|                                                                                   | 
|Interest cover(4)                                                                  |  | 2.43    |   | 2.40                    |   | 2.30                    |  
|                                                                                   | 
|Adjusted dividend cover(5)                                                         |  | 1.03    |   | 1.08                    |   | 0.87                    |  
|                                                                                   | 

|Notes
|-----
|1.   
|2.   

|                                                                                                |                 |   |                         |  |                         |  
|----------------------------------------------------------------------------------------------- | --------------- | - | ----------------------- |  | ----------------------- | -
|                                                                                                | 2003
        £m |   | 2002Restated
        £m |  | 2001Restated
        £m |  
|                                                                                                |                
|Profit on ordinary activities
      before interest                                             | 558.9           |   | 533.4                   |  | 698.0                   |  
|Exceptional items                                                                               | (4.7            | ) | 11.9                    |  | (174.6                  | )
|Discontinued operations                                                                         |                |   |                        |  | (21.6                   | )
|Goodwill amortisation                                                                           | 7.5             |   | 8.0                     |  | 4.0                     |  
|Operating profit from continuing
      operations (defined as profit from continuing operations |                 |   |                         |  |                         |  
|before non-operating items,
      goodwill amortisation, exceptional items, interest and tax)   | 561.7           |   | 553.3                   |  | 505.8                   |  
|                                                                                                |                
|                                                                                               

|3. | Adjusted basic earnings
      per share excludes discontinued operations, exceptional items and goodwill
      amortisation. The calculation of the adjusted earnings per share is set
      out in note 10 to the accounts.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | Interest cover is the number
      of times the interest charge is covered by profit from continuing operations
      before non-operating items, goodwill amortisation, exceptional items, interest
      and tax.         
|5. | Adjusted dividend cover
      is calculated as adjusted basic earnings per share divided by dividend per
      share.                                                                                                       

United Utilities
  Annual Report & Accounts 2003     27

---





Financial review (continued)





2003
      
      2002Restated
      
      2001RestatedSummary cash flow
      £m
      £m
      £mNet cash inflow from operating activities
      851.5
      
      799.8
      
      841.7Income from joint ventures
      2.8
      
      2.1
      
      Returns on investment and servicing of
        finance
      (218.9
      )
      (223.7
      )
      (190.1
      )Taxation
      
      
      (2.4
      )
      (1.7
      )Capital expenditure and financial investment
      (697.9
      )
      (583.6
      )
      (572.9
      )Acquisitions and disposals
      3.0
      
      (9.8
      )
      195.4Dividends
      (262.0
      )
      (256.1
      )
      (250.1
      )Cash (outflow)/inflow before use of liquid
        resources and financing
      (321.5
      )
      (273.7
      )
      22.3Issue of shares, exchange and other non-cash
        adjustments
      8.4
      
      19.3
      
      7.7Movement in net debt
      (313.1
      )
      (254.4
      )
      30.0Opening net debt
      (3,060.8
      )
      (2,806.4
      )
      (2,836.4
      )Closing net debt
      (3,373.9
      )
      (3,060.8
      )
      (2,806.4
      )  Profit
        before 
         tax increased by 
         8.2 per cent to 
         £327.5 million.
      
      cent in 2002/03 to £561.7
          million reflecting improved segmental operating profits* in infrastructure
          management and business process outsourcing, offset by an anticipated
          fall in the licensed businesses due to the real regulatory price reductions
          and cost growth as the capital programme accelerates. Telecommunications
          segmental operating losses* reduced in 2002/03 as the business continued
          to focus on higher margin business sales. Operating profit from continuing
          operations (defined as profit from continuing operations before non-operating
          items, goodwill amortisation, exceptional items, interest and tax see
          note 2 on page 27) increased by 9.4 per cent in 2001/02 mainly due to
          the effect of operating cost reductions in the licensed multi-utility
          operations, increased volumes in our support services businesses and
          improved segmental operating margins* in business process outsourcing.
        Net interest expense for
          the year was £231.4 million, compared with £230.6 million
          in 2001/02 and £220.3 million in 2000/01. The increase in 2002/03
          reflects increasing net debt and the additional marginal cost of prefunding
          a substantial proportion of the groups future financing requirements
          in its regulated businesses, offset by a reduction in floating rates.
          The larger increase in 2001/02 reflected the full year effect of the
          increase in net debt in 2000/01 and a smaller reduction in floating
          rates.
        During 2002/03, the group
          completed its withdrawal from infrastructure management in the Americas
          by selling its 50 per cent interest in US Water and withdrawing from
          IEBA, the Argentine electricity utility, which, with effect




from August 2002, ceased to
    be accounted for as a joint venture even though the group legally retained
    a minority interest in IEBA of 45 per cent. The withdrawal from infrastructure
    management in the Americas resulted in a net exceptional credit to the profit
    and loss account of £34.0 million. With the construction of the
    telecommunications network now completed, the group has reviewed the carrying
    value of its telecommunications assets, in accordance with FRS 11 Impairment
    of fixed assets and goodwill. Based on an assumed pre-tax nominal weighted
    average cost of capital of 16 per cent, and a long-term real growth rate of
    2.25 per cent, an adjustment to value of £25.5 million has been made. Profit before tax in 2002/03
    increased by 8.2 per cent to £327.5 million. This is stated after an
    exceptional credit of £4.7 million, relating to the withdrawal from
    infrastructure management in the Americas and the adjustment to the carrying
    value of telecommunications assets discussed above and also after restructuring
    charges primarily in the telecommunications business following the completion
    of its network building phase. The increase in profit before tax is driven
    by improved segmental operating profits* in the groups support services
    businesses. Profit before tax in 2001/02 included exceptional restructuring
    charges of £11.9 million. Profit before tax reduced by
    36.6 per cent to £302.8 million in 2001/02. The reduction was principally
    due to the exceptional profit on sale of our energy supply business of £191.2
    million and the results of the discontinued business of £17.6 million
    included in 2000/01. Profit before tax in 2000/01 included exceptional restructuring
    charges of £16.6 million. Basic earnings per share in
    2002/03 improved by 5.7 per cent to 50.0 pence, compared with a fall of 23.6
    per cent in 2001/02. Adjusted basic earnings per
    share decreased by 4.1 per cent to 48.8 pence principally reflecting the higher
    deferred tax charge offsetting the increased operating profits from continuing
    operations discussed above. This compares with an increase of 26.3 per cent
    in 2001/02 reflecting the impact of increased operating profits from continuing
    operations and the benefit of a higher deferred tax discount rate. The calculation
    of the adjusted earnings per share is set out in note 10 to the financial
    statements. The dividend for the year is
    47.6 pence, an increase of 1.3 per cent.




---



Taxation
  The current UK mainstream
  corporation tax credit in 2002/03 and low charges in 2001/02 and 2000/01 reflect
  the effects of the high level of accelerated tax allowances arising from the
  capital investment undertaken by the group and the benefits of ACT tax planning
  established in earlier years. A tax credit position has arisen in the current
  year following agreement of prior year tax returns. The
  effective current ordinary tax credit (excluding exceptional items) is 9.0 per
  cent compared with a charge of 5.2 per cent and 3.8 per cent in 2001/02 and
  2000/01 respectively. The effects of deferred tax increase the effective ordinary
  tax charge (excluding exceptional items) to 17.6 per cent compared with 12.5
  per cent and 22.2 per cent in 2001/02 and 2000/01 respectively. An exceptional
  credit in 2002/03 of £9.4 million (including £3.1 million deferred
  tax) arises primarily on the adjustment to value in the telecommunications business.
  Exceptional tax of £69.0 million on business disposals was also charged
  in 2000/01, including £24.0 million of deferred tax. Deferred
  tax (excluding exceptional deferred tax) is £85.9 million in 2002/03 compared
  with £23.0 million and £56.0 million in 2001/02 and 2000/01 respectively.
  The increased charge in 2002/03 is principally due to the effects of lower gilt
  interest rates on the discount of the full liability whereas the reduced charge
  in 2001/02 reflects the effect of a higher discount rate compared with 2000/01. Cash
  flows Net cash inflow
  from operating activities increased to £851.5 million, from £799.8
  million in 2001/02 and £841.7 million in 2000/01. The increase in 2002/03
  reflects the increased turnover and operating profits. The reduction in 2001/02
  was principally as a result of increased operating profits offset by an increase
  in working capital mainly relating to the settlement of outstanding cash balances
  following the disposal of the energy supply business. Tax
  payments remain very low reflecting the benefits of previous tax planning and
  the current tax charge discussed above. A
  significant level of investment continues to be made, mainly as a result of
  the water and wastewater capital investment programme. Cash
  receipts in respect of acquisitions and disposals in 2002/03 included the proceeds
  from the disposal of our investment in US Water offset by the investment in
  7C. In 2001/02, the




acquisitions
  and disposals cash flow included cash settlements on the disposal of our energy
  supply business and deferred consideration on earlier telecommunications acquisitions.
  Acquisitions and disposals cash flow was boosted in 2000/01 by the proceeds
  from the sale of the energy supply business in August 2000, offset by the purchase
  of Hyder Industrial in December 2000, and the investment in our joint venture
  in Tallinn, Estonia. Dividend
  payments in 2002/03 represent an increase in line with our dividend policy. As
  a result of the above, net borrowings increased by £313.1 million to £3,373.9
  million at the year end. Gearing, measured as net debt divided by total capital
  employed (being equity shareholders' funds plus net debt), increased to 57.1
  per cent, compared with 54.9 per cent at 31 March 2002 and 52.1 per cent at
  31 March 2001. Treasury
  policy Operating within
  policies approved by the board, the groups treasury function does not
  act as a profit centre and does not undertake any speculative trading activity.
  It seeks to ensure sufficient funding is available to meet foreseeable needs
  and maintains reasonable headroom for contingencies. Long-term borrowings are
  structured or hedged to match earnings, which are largely in sterling, indexed
  to inflation and subject to regulatory price reviews every five years. Exposure
  to interest rate movements for the following twelve months is largely eliminated
  at the start of each financial year using short-term hedges. The credit quality
  of counterparties and individual aggregate exposures are reviewed annually. Debt
  financing Moodys Investor
  Service rates the credit of United Utilities PLC as A3 on a long-term basis
  with a stable outlook and P-2 on a short-term basis. Equivalent ratings published
  by Standard and Poors Rating Services are BBB+ long-term with a positive
  outlook and A-2 short-term. The groups €4 billion
    medium-term and US$1.5 billion short-term note issuance programmes continue
    to provide efficient sources of funding. In addition, the group has a US$2
    billion shelf registration in the name of the holding company with the United
    States Securities and Exchange Commission, which provides access to the US
    bond market in a similar way to the European medium-term note programme and
    increases the flexibility of the group to raise finance. During
  the year the group arranged £663 million




in
  term funding. This comprised £400 million in various long-dated bonds;
  £28 million in five year bonds; £10 million of additional European
  Investment Bank facilities; £75 million in bank term loans; and time extensions
  for existing medium-term committed bank facilities of £150 million. Cash
  and short-term investments at 31 March 2003 were £689 million. Medium-term
  bank facilities maturing in more than one year, net of any uncommitted borrowings,
  totalled £576 million. This, together with £60 million of contracted,
  but undrawn, term funding provides substantial pre-funding for the groups
  capital investment programme. The
  groups net debt of £3,373.9 million at 31 March 2003 comprised £2,925.1
  million of bonds, £715.8 million of loans from EIB, our largest investor,
  £189.8 million of long-term leasing, £232.5 million of bank loans
  and commercial paper, offset by £689.3 million of cash and short-term
  investments. Interest
  rate management We manage interest
  rate exposure by seeking to match financing costs as closely as possible with
  the revenues generated by our assets. Our exposure to interest rate fluctuations
  is managed in the medium-term through the use of interest rate swaps, and the
  use of financial futures contracts traded on LIFFE. The average interest rate
  for 2002/03 was 6.9 per cent, compared with 7.3 per cent in 2001/02 and 7.4
  per cent in 2000/01.  Simon
  Batey 
  Group finance director


United Utilities
  Annual Report & Accounts 200329

---



Back to Contents

1 Sir Richard Evans(age
  60)ChairmanSir Richard Evans was appointed a non-executive
    director in September 1997 and chairman in January 2001. Born in north west
    England, he has worked in the aircraft and aerospace industry for more than
    30 years. He was appointed chairman of British Aerospace plc (now BAE SYSTEMS
    plc) in May 1998. He has had a long association, through BAC and BAe, with
    their Warton division in Lancashire, where he was deputy managing director
    from 1983 to 1986. He joined the board of British Aerospace in 1987 as marketing
    director. He was a director of the programme management companies for the
    Anglo/French Jaguar aircraft and for the Anglo/German/Italian Tornado aircraft,
    and a director of the Airbus company.




2 John Roberts(age 57)Chief executiveJohn Roberts joined the board
  as chief executive in September 1999. He had previously been a director of Hyder
  plc and chief executive of Hyder Utilities, and before that, chief executive
  of South Wales Electricity after its acquisition by Hyder. Before joining Hyder
  in 1996, John had been chief executive of Manweb Plc from 1992. Having graduated
  from Liverpool University, he joined Manweb in 1967, where he was appointed
  finance director in 1984 and managing director in 1991. John is a non-executive
  director of Volex Plc. He has been president of the Electricity Association,
  chairman of the Electricity Pension Trustees Limited, a member of the CBI Wales
  Council and a member of the Royal Commission on Environmental Pollution.




3 Simon Batey(age
  49)Group finance directorSimon Batey joined the board as group finance director in April 2000. He had previously been group finance director of AMEC Plc from 1992 and prior to that deputy finance director. He was closely involved in the
reshaping of that group through a number of major investments and disposals and the development of its policy towards private finance initiatives. He also served on the boards of Fairclough Homes Group Limited and the major French electrical
contractor SPIE SA. After graduating from Oxford, Simon joined Armitage & Norton (now part of KPMG) where he trained and qualified as a chartered accountant, and worked in a number of management posts.




4 Gordon Waters(age
  55)Managing director
United Utilities Contract SolutionsGordon Waters is responsible for the groups
    infrastructure management business. He joined the group in 1996, and was appointed
    to the board in 1997. A qualified civil engineer and structural engineer,
    he graduated from the City University London in 1969. He joined a major UK
    consulting engineering practice before working for a number of major UK construction
    companies. From 1987 to 1996, he worked for Tarmac Construction Limited, becoming
    managing director of the civil engineering division in 1992, and joining the
    board of Tarmac Construction Limited in 1993. He was responsible for all their
    major projects and regional civil engineering companies and specialist companies
    both in the UK and overseas. He is a non-executive director of The Carbon
    Trust.




5 Norman Broadhurst(age 61)Chairman of the audit committeeNorman Broadhurst was appointed
  as a non-executive director in April 1999. He retired from his position as finance
  director with Railtrack Group PLC in March 2000. Before joining Railtrack in
  1994, he was joint deputy chief executive, finance/commercial, with VSEL Plc
  and prior to that, finance director. He worked for Platt Saco Lowell Limited
  for 11 years from 1970, becoming finance director. He joined the China Light
  and Power Company Limited in Hong Kong in 1981 as financial controller and then
  divisional manager, finance and administration. In 1986, he was appointed finance
  director of United Engineering Steels Limited. He joined VSEL in 1990. He is
  chairman of Chloride Group plc and Freightliner Limited and is also a non-executive
  director of Cattles PLC, Old Mutual PLC and Tomkins PLC and deputy chairman
  of Taylor Woodrow PLC.




6 Sir Peter Middleton(age 69)
Deputy chairman and senior
  independent directorSir Peter Middleton joined the board as a non-executive director in January
  1994. After National Service, he joined HM Treasury, serving as permanent secretary
  from 1983 to 1991. He is chairman of Barclays plc and was deputy chairman of
  Barclays Bank and chairman of Barclays Capital from 1991 to May 1998. He has
  been a member of the Council of the Manchester Business School, the Financial
  Reporting Council and the London Business School. He is Chancellor of Sheffield
  University and is chairman of Sheffield One.




7 Jane Newell, OBE(age
  59)Non-executive director Jane Newell joined the board as a non-executive director in September 1996. She is chairman of the United Utilities Pension Scheme and the United Utilities group of the Electricity Supply Pension Scheme. After 10 years
as an international civil servant, she joined the Liverpool School of Tropical Medicine, and became chairman of Council from 1995 to 1997. In 1992, she was appointed founder trustee and subsequently chairman of the Maxwell Pensioners Trust and in
1997 received the OBE for this work. She is also a trustee of the GlaxoSmithKline Pension Plan, trustee of the Dixon Groups Pension Scheme, an external assessor for the Home Office for promotions in the police, prison and fire services,
pro-chancellor and chairman of the board of governors of London South Bank University and a J.P.




8 John Seed(age 64)Chairman of the
  remuneration committeeJohn Seed joined
  the board as a non-executive director in March 1996. He was formerly chief executive
  of South Western Electricity plc. A chartered engineer, he spent 29 years in
  a number of engineering and general management posts with Eastern Electricity.
  He was appointed deputy chairman of South Western Electricity in 1986, becoming
  managing director at privatisation and then chief executive in 1992. He is also
  a non-executive director of British Smaller Companies VCT plc, Waste Power Limited,
  Frazer-Nash Consultancy Limited and South West Ventures. He was chairman of
  Great Western Assured Growth plc from 1991 to 1997, of Windelectric Limited
  from 1996 to 1999 and of Warren Associates Limited from 1998 to 2001. He has
  held a number of other non-executive directorships in the public and private
  sectors.




9 Andrew Pinder(age
  56)Non-executive director
Andrew Pinder was appointed a non-executive director on 1 September 2001. He has been the Governments e-Envoy since October 2000. He previously worked for 18 years in the Inland Revenue before moving to the
private sector, working for the Prudential Corporation as director of systems and business processes and then as head of operations and technology for western Europe at Citibank. After performing other roles in Citibank, including spells in New
York, continental Europe and Dublin, Andrew left the bank in 1999. Since leaving Citibank, he has been involved in new technology related start-ups, as a partner in a venture capital firm, as well as carrying out a number of management consultancy
assignments for the government including work on UK online.


United Utilities
  Annual Report & Accounts 200331

---



Report on governance



The Combined CodeThe board is committed to high standards of
  corporate governance. Throughout the year to 31 March 2003, the company has
  been in compliance with the provisions set out in Section 1 of The Combined
  Code Principles of Good Governance and Code of Best Practice issued by
  the Financial Services Authority. This statement together with the remuneration
  report on pages 38 to 44 describes the way in which these principles of governance
  are applied within the company. The boardThe board is scheduled to meet ten times each
  year with additional meetings called if required. The board has a formal schedule of matters
  reserved to it, which ensures that it takes all major strategy, policy and investment
  decisions affecting the group. In particular it is responsible for business
  planning and risk management and for the development of group policies including
  such areas as health and safety, and on social, environmental and ethical issues. The board has adopted policies governing the
  rights of directors to obtain independent professional advice. The board also
  has access to the services of the company secretary who is responsible to the
  board for ensuring that board procedures are followed and that applicable rules
  and regulations are complied with. The appointment or removal of the company
  secretary is a matter reserved for the decision of the board. The board has established a governance framework
  which encourages all directors to bring an independent judgement to bear on
  issues of strategy, performance, resources, including key appointments and standards
  of conduct. Suitable training is made available to all
  directors upon first appointment and subsequently as necessary. Delegating and working through
  committeesThe directors of subsidiary companies are responsible
  at law for those business entities. They are tasked with the delivery of the
  targets set within the budgets approved by the group board and for the implementation
  of group strategy and policy across their businesses. United Utilities Water
  PLC, for example, is a sizeable business in its own right and its board includes
  two independent non-executive directors (Phillida Entwistle and Deborah Morton). The groups governance structure ensures
  that all decisions are made by the most appropriate people in such a way that
  the decision-making process itself does not unnecessarily delay progress. The
  board has formally delegated specific responsibilities to board committees,
  including the audit, remuneration, approvals, nomination and treasury committees. The roles of the audit and remuneration committees
  are described on pages 36 and 39 respectively. The approvals committee considers and approves
  expenditure and investment proposals within limits delegated by the board. Its
  members are the executive directors, the group strategic planning director and
  the company secretary. The nomination committee meets on an ad hoc
  basis and considers and makes recommendations to the board on the composition,
  balance and membership of the board. Its members are the non-executive directors,
  including the chairman (who is chairman of the committee) together with the
  chief executive. The treasury committee considers and approves
  borrowing, leasing, bonding and other banking facilities within limits set by
  the board. Its members are the chairman, the chief executive, the group finance
  director and one of the other executive directors together with, for more significant
  or complex transactions, one other non-executive director. Chairman and chief executiveSeparate individuals have been appointed to
  the positions of chairman and of chief executive. The board has agreed clearly
  defined responsibilities for the roles


and has adopted a set of guiding principles
  to govern the relationship between them. The chairman is primarily responsible
  for the working of the board. The chief executive is responsible for running
  the business and for implementing board strategy and policy. Senior independent directorSir Peter Middleton has been appointed as senior
  independent director. The terms of reference of the senior independent director
  state that his primary duty is to ensure that the views of each non-executive
  director are given due consideration. Other duties of the post include authority
  to call a meeting of the non-executive directors and to conduct periodic performance
  appraisals of the chairman. Board balanceThe board aims to maintain a balance of executive
  and non-executive directors. The directors have a wide and diverse range of
  business experience and expertise as their biographies on page 31 demonstrate.
  There are presently three executive and six non-executive directors. All non-executive
  directors are independent and free from any business or other relationship that
  could compromise their independent judgement. Supply of informationThe quality of the contribution that directors,
  particularly non-executives, can make is directly dependent on the quality of
  the information they receive. Accordingly, all directors receive comprehensive
  information on a regular basis. Board papers are normally distributed a week
  in advance of the relevant meeting to allow sufficient time for directors to
  be fully briefed. The papers are sufficiently detailed to enable the directors
  to obtain a thorough grasp of the management and financial performance of the
  company and the operating businesses. Minutes of committee meetings are circulated
  to all board members. Appointments to the boardThe board initially appoints all new directors,
  having first considered recommendations made to it by the nomination committee.
  Following such appointment, the director is required to retire and seek election
  at the next annual general meeting. There is a process of rotation which ensures
  that approximately one-third of all directors are required to retire and seek
  re-election at each annual general meeting, and that no director serves for
  more than three years without being proposed for re-election at an annual general
  meeting. ShareholdersPublications and the webThe interim report, the annual report and the
  annual review remain the primary means the board has of communicating during
  the year with all the companys shareholders. However, the board recognises
  the importance of the internet as a means of communicating widely, quickly and
  cost-effectively. A library of information about the company is available 24
  hours-a-day, world-wide at www.unitedutilities.com. Financial news releases
  are made available on the site contemporaneously with release through other
  news channels and anyone with an email address can register free of charge to
  receive an email alert upon the posting of each new release. Institutional shareholdersThere is a programme of investor meetings and
  presentations which take place throughout the year, both in the UK and overseas.
  During the year, representatives of the board met, or offered to meet with,
  95 different funds, representing 50 per cent of the companys issued share
  capital. This, together with regular announcements of significant events affecting
  the group and frequent updates on current trading, emphasises our commitment
  to keep our equity and debt investors informed of developments affecting the
  group. The board regards this programme as important to improve investors
  awareness of the business and for the board to gain an understanding of investors
  priorities.


United Utilities
  Annual Report & Accounts 200335

---



Report on governance (continued)



The annual general meetingThe board encourages shareholders
    to exercise their right to vote at the annual general meeting. The notice
    calling the meeting is sent to shareholders at least 20 working days before
    the meeting and separate resolutions are proposed on each substantially separate
    issue. Presentations are made on the progress and performance of the business
    prior to the formal business of the meeting. Shareholders are encouraged to
    participate through a question and answer session and individual directors
    or, where appropriate, the chairman of the relevant committee, respond to
    those questions directly. For the first time at the 2003 annual general meeting,
    voting on all resolutions will take place by means of a poll which will ensure
    that the votes of those shareholders who are unable to attend the meeting
    are taken into account according to the number of shares they hold. Shareholders
    have the opportunity to talk informally to the directors before and after
    the formal proceedings. Accountability and auditStatement of directors
    responsibilities for the accounts The directors are responsible for preparing,
    in accordance with the Companies Act 1985, financial statements for each financial
    year which give a true and fair view of the companys and the groups
    state of affairs as at the end of the financial year, and of the profit or
    loss and cash flows for the financial year. The directors consider that, in preparing the financial statements, the group has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates. All
applicable accounting standards have been followed, subject to any departure and explanation described in the notes to the accounts. The directors have a legal responsibility for ensuring that the company keeps accounting records which disclose, with reasonable accuracy at any time, the companys and the groups financial position and
which enable them to ensure the financial statements comply with the Companies Act 1985. The directors also have a general legal responsibility for taking such steps as are reasonably open to them to safeguard the companys and the groups
assets and to prevent and detect fraud and other irregularities. The external auditors statement about its reporting responsibilities is set out on page 45. Financial reporting and going concernIn presenting the annual and
    interim financial statements and similar significant publications, the directors
    aim to present a balanced and understandable assessment of the companys
    position and prospects. The directors have adopted the going concern basis
    in preparing these financial statements. This is based upon a review of the
    groups budget for 2003/04, the five-year business plan and investment
    programme, together with the cash and committed borrowing facilities available
    to the group. The board also took into account potential contingent liabilities
    and other risk factors as interpreted by the Guidance on Going Concern
    and Financial Reporting for Directors of Listed Companies registered in the
    United Kingdom, published in November 1994. Internal control system  evaluating
    and managing riskThe board is responsible for
    the groups internal control framework and for reviewing its effectiveness.
    Throughout the year under review and up to the date of this report, the board
    has operated procedures meeting the requirements of the Combined Code relating
    to internal control as set out in the September 1999 guidance Internal
    Control Guidance for Directors on the Combined Code produced by the
    Institute of Chartered Accountants in England and Wales. Each year the board
    reviews all controls, including financial, operational and compliance controls
    and risk management procedures. The internal control system is designed to
    manage, rather than to eliminate, the risk of failure to achieve the groups
    business objectives and can only provide reasonable, and not absolute, assurance
    against material misstatement or loss.


The key features
        of the internal control system are:
      A control environment with
        clearly defined organisation structures operating within a framework of
        policies and procedures covering every aspect of the business;
      Comprehensive business planning,
        risk assessment and financial reporting procedures including the annual
        preparation of detailed operational budgets for the year ahead and projections
        for subsequent years;
      A monthly board review of
        financial and non-financial key performance indicators to assess progress
        towards objectives;
      Monthly meetings prior to
        each board meeting of the executive leadership team, a forum in which
        the executive directors, the managing directors of the groups businesses,
        the group functional directors and the company secretary exchange information
        and discuss strategic and operational issues which are of group-wide importance;
      Regular monitoring of risks
        and control systems throughout the year by the operating businesses, supported
        by the use of risks and issues databases;
      A self-certification process,
        subject to internal audit, whereby the operating businesses are required
        to confirm that the system of internal control is operating effectively;
      An internal audit function
        to provide independent scrutiny of internal control systems and risk management
        procedures;
      A bi-monthly risk management
        forum chaired by the group finance director, and comprising the company
        secretary, the group internal audit manager, the group health and safety
        manager and senior representatives from each of the operating businesses,
        to scrutinise key risks in depth;
      A quarterly sustainable
        development panel chaired by the chief executive, and comprising the managing
        directors of United Utilities Service Delivery and United Utilities Contract
        Solutions, the head of environment and the community and three external
        professional specialists, Walter Menzies, Clive Jeanes and Dr Mark Everard.
        The role of the forum is to advise on environmental policy and, in particular,
        to identify risks to the environment, recommend targets, and monitor performance
        against those targets;
      An annual risk assessment
        exercise involving self-assessment by management of all business risks
        in terms of impact, likelihood and control strength and an objective challenge
        of that assessment by the internal audit team;
      An annual health and safety
        performance review carried out by our in-house safety professionals in
        addition to the normal health and safety risk assessment and management
        processes carried on within each of the operating businesses;
      Centralised treasury operations
        operating within defined limits and subject to regular reporting requirements
        and internal audit reviews; and
      Established procedures,
        set out in a group internal control manual, for planning, approving and
        monitoring major capital expenditure, major projects and the development
        of new business which includes short and long-term budgets, risk evaluation,
        detailed appraisal and review procedures, defined authority levels and
        post-investment performance reviews.The
        audit committee and the auditorThe audit committee has written terms of reference which clearly set out
        its authority and duties. The members of the committee are the non-executive
        directors, including the chairman, all of whom are independent. Norman
        Broadhurst is its chairman. The committee met four times in the year to
        31 March 2003.The audit committee
        reviews the internal and external audit activities, monitors compliance
        with statutory requirements for financial reporting and reviews the half-year
        and annual financial statements before they are submitted to the board
        for approval. It also keeps under review the effectiveness of the groups
        internal control systems (including financial, operational and compliance
        controls and risk management




36United
  Utilities Annual Report & Accounts 2003

---





procedures). It also considers reports from
    the internal and external auditors and from management and reports and makes
    recommendations to the board. The audit committee keeps under review the
    scope and results of the external audit, its cost effectiveness, the independence
    and objectivity of the auditor and the nature and extent of non-audit services
    supplied to the group by the external auditor, seeking to balance the maintenance
    of objectivity and value for money. In May 2002, the board began a formal tender
    process for audit services to ensure that the company continued to receive
    best value. As a result Deloitte & Touche were appointed in place of KPMG
    Audit Plc as auditor to the company on 9 September 2002. In the year under
    review the fees paid to the continuing and retiring auditors were as follows: Fees payable to the former auditor,
    KPMG Audit Plc, up to date of resignation: 2003
      
      2002Item
      £000
      
      £000Audit fees
      
      
      395Audit related fees
      310
      
      538Tax fees
      97
      
      33Other fees
      90
      
      76Total
      497
      
      1,042 Fees payable to Deloitte & Touche following appointment as auditor: 2003Item
      £000Audit fees
      505Audit related fees
      168Tax fees
      200Other fees
      149Total
      1,022 Notes:
      Audit related fees are fees
        billed for assurance work reasonably related to the statutory audit, including
        due diligence and assurance work, work associated with raising finance
        and securities filing work.
      Tax fees are fees incurred
        for tax compliance, tax advice and related tax work.
      Other fees incurred relate
        to project and financial modelling work.
      In 2003, £265,000
        of tax and other fees were paid to Deloitte & Touche under engagements
        commenced prior to their appointment as auditor which have subsequently
        been completed. All non-statutory audit or non-statutory tax
    compliance services provided by the auditor must be reported to the audit
    committee and prior approval is required from the senior independent director
    for any such projects. In granting such approval, he is required to consider
    the cumulative proportion of fees paid for such work compared with the statutory
    audit fees. New developments in the field
    of corporate governanceIn the past year there have
    been a number of new initiatives in the field of corporate governance. In
    the UK, the Higgs Report and the Smith Report on Audit Committees have been
    published. The board has considered the recommendations carefully and has
    participated in the consultation process. It will consider any necessary changes
    upon publication of the final combined code. In the USA, where the company
    maintains a listing, the main developments were the passing of the Sarbanes-Oxley
    Act of 2002 and also the introduction of new listing exchange requirements.
    The board is implementing regulations under the Act as they are brought into
    force and in the light of emerging best practice.




United Utilities
  Annual Report & Accounts 200337

---





Directors remuneration report

REWARD PHILOSOPHY
  To ensure corporate success and enhance shareholder value, the
  group needs people of the right calibre able to meet and beat the challenges
  it faces. So the group must ensure its remuneration arrangements attract and
  keep the right people.

The groups overall philosophy
  is to:


      attract, develop, motivate
        and keep talented people at all levels;
      pay competitive salaries
        and benefits to all its staff;
      encourage its staff to hold
        shares in the company; and
      focus remuneration arrangements
        to help each business in the group meet its specific challenges.


When pay levels are set, account
  is taken of the work an employee does, what is paid in other companies for that
  work and how well the groups businesses are performing. The board believes
  that share ownership is an effective way of bringing together the interests
  of employees and shareholders. The company promotes greater ownership of its
  shares by offering employees the opportunity to build up a shareholding through
  its share schemes  the company share option plan 1999, the ShareSave
  SAYE share option scheme and the share incentive plan, ShareBuy.

NON-EXECUTIVE DIRECTORS

Board committeesA committee of the board decides the remuneration of the non-executive
  directors (other than the chairman). Its members are the chairman (Sir Richard
  Evans) and the executive directors (John Roberts, Simon Batey and Gordon Waters).
  Les Dawson also served as a member of the committee up to 25 March 2003.

A separate committee of the board
  decides the remuneration of the chairman. This committee comprises the chief
  executive (John Roberts) and five non-executive directors: Norman Broadhurst,
  Sir Peter Middleton, Jane Newell, Andrew Pinder and John Seed.

Both committees may take independent
  advice. The committees are also advised by the groups human resources
  director (David Scott to 31 December 2002; Linda Booth from 1 January 2003).
  Both committees met once during the year.

Terms of appointmentNon-executive directors are appointed for an initial period of
  three years, which may be renewed for further three-year terms thereafter. However,
  as with all directors, they are subject to re-election at an annual general
  meeting at least every three years. They do not have contracts of service and,
  in the event of early termination of their appointment for whatever reason,
  they are not entitled to compensation.

|Table 1:
      Non-executive directors terms of appointment | Date
        firstappointedto board |  | Date
        of lastappointmentAGM in |  | Re-electionno later thanAGM in |  | Notice
        period |  | Compensationupon earlytermination | 
|------------------------------------------------------------ | ----------------------------------- |  | ------------------------------------- |  | ------------------------------ |  | --------------------- |  | --------------------------------- | 
|                                                            
|Sir Richard Evans                                            | 01.09.1997                          |  | 2001                                  |  | 2004                           |  | none                  |  | none                             
|                                                            
|Sir Peter Middleton                                          | 01.01.1994                          |  | 2001                                  |  | 2004                           |  | none                  |  | none                             
|                                                            
|Norman Broadhurst                                            | 01.04.1999                          |  | 2002                                  |  | 2005                           |  | none                  |  | none                              | 
|                                                            
|Jane Newell                                                  | 01.09.1996                          |  | 2000                                  |  | 2003                           |  | none                  |  | none                              | 
|                                                            
|Andrew Pinder                                                | 01.09.2001                          |  | 2002                                  |  | 2005                           |  | none                  |  | none                              | 
|                                                            
|John Seed                                                    | 01.03.1996                          |  | 2002                                  |  | 2005                           |  | none                  |  | none                              | 
|                                                            
|                                                            

Policy statement on non-executive
  directors remuneration The companys policy is to pay annual fees which reflect the
  responsibilities placed upon the non-executive directors. Fees are reviewed
  periodically. When reviewing fees, account is taken of the level of fees paid
  in companies of similar size and complexity. There are separate annual fees
  for the chairman, deputy chairman and the other non-executive directors. Additional
  fees are paid to the chairmen of the audit and remuneration committees (Norman
  Broadhurst and John Seed respectively). The fee paid to Jane Newell includes
  an amount to reflect additional responsibilities as chairman of the trustees
  of the companys major pension schemes.

Non-executive directors do not
  participate in any bonus or incentive plan, the pension scheme, the healthcare
  arrangements, the company share option plan 1999, ShareSave scheme or ShareBuy.
  The company repays the reasonable expenses they incur in carrying out their
  duties as directors.

Non-executive directors
  remunerationNon-executive directors fees, with the exception of those
  of the chairman, were increased on 1 May 2002. The previous review was in May
  1999. Sir Richard Evans declined a proposed increase in his fee as chairman.
  The annual fee paid to Sir Peter Middleton, deputy chairman, was increased from
  £50,000 to £60,000. The fee paid to Jane Newell was increased from
  £45,000 to £55,000. The annual fee paid to the remaining non-executive
  directors was increased from £30,000 to £35,000. The additional
  fee paid to the chairmen of the audit and remuneration committees was unchanged
  at £5,000 a year. The next review is due in May 2004.

Non-executive directors
  remuneration for the year to 31 March 2003 is set out in table 2.

38     United
  Utilities Annual Report & Accounts 2003

---



|Table 2: Non-executive directors
      fees (audited information)                                                 |                  |  | Total
        fees | 
|------------------------------------------------------------------------------------------------------------------ | ---------------- |  | ------------------ | 
|                                                                                                                   |                  | 
|                                                                                                                   | 2003
      £000 |  | 2002
      £000   | 
|                                                                                                                   |                 
|Sir Richard Evans                                                                                                  | 180.0            |  | 180.0              | 
|                                                                                                                   |                 
|Norman Broadhurst                                                                                                  | 39.6             |  | 35.0               | 
|                                                                                                                   |                 
|Sir Peter Middleton                                                                                                | 59.2             |  | 50.0               | 
|                                                                                                                   |                 
|Jane Newell                                                                                                        | 54.2             |  | 45.0               | 
|                                                                                                                   |                 
|Andrew Pinder                                                                                                      | 34.6             |  | 17.5               | 
|                                                                                                                   |                 
|John Seed                                                                                                          | 39.6             |  | 35.0               | 
|                                                                                                                   |                 
|Totals                                                                                                             | 407.2            |  | 362.5              | 
|                                                                                                                   |                 
|Notes:  £50,000 of Sir Richard Evans total annual
      fee of £180,000 for 2002/03 was paid to BAE Systems plc. |                 

EXECUTIVE DIRECTORS

The remuneration committeeThe remuneration committee makes recommendations to the board on
  the groups framework of executive remuneration and its cost. The committee
  approves, on the boards behalf, the general recruitment terms, remuneration
  benefits, employment conditions and severance terms for executive management.
  It decides the specific recruitment terms, remuneration benefits, employment
  conditions, pension rights, compensation payments and severance terms for the
  executive directors and for other senior executives.

The committees members are Norman Broadhurst,
  Sir Richard Evans, Sir Peter Middleton, Jane Newell, Andrew Pinder and John
  Seed (who is the committees chairman). They are all independent non-executive
  directors. They have no personal financial interest in the company other than
  as shareholders and the fees paid to them as non-executive directors. They have
  no conflicts of interest arising from cross directorships and are not involved
  in the day-to-day running of the groups businesses.

The committee has appointed Mercer Human Resource
  Consulting to advise it on executive remuneration. They are also the actuaries
  to one of the companys pension schemes (United Utilities Pension Scheme
  (UUPS)) and advise the company on matters relating to its operation. Addleshaw
  Goddard provide legal advice on the operation of the groups share incentive
  and share option plans, including drafting the rules and advising on their interpretation.
  They also provide general legal advice to the company and other companies in
  the group.

The committee is also assisted by the chief
  executive (John Roberts) who is consulted on proposals relating to the remuneration
  of the other executive directors and senior executives. Assistance is provided
  by the group human resources director (David Scott to 31 December 2002; Linda
  Booth from 1 January 2003). The chief executive and group human resources director
  attend meetings except when the committee discusses matters relating to their
  own remuneration.

In its work, the committee considers fully
  the principles of good governance and the code of best practice. The committee
  met five times in the year to 31 March 2003. The board accepted the committees
  recommendations without amendment. The chairman of the board ensures the company
  talks to its major shareholders, when appropriate, about matters to do with
  remuneration.

Policy statement on executive directors
  remunerationThe boards policy for executive directors and senior
  executives remuneration is to:

| | pay a basic salary which competes
      with other companies of about the same size and complexity;                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | use short and long-term incentives
      to encourage executives to outperform key targets, thereby giving them the
      opportunity to increase their earnings;                                              
| | encourage executives to hold
      shares in the company; and                                                                                                                                                  
| | overall, reward executives
      fairly and responsibly for their contribution to the groups short
      and long-term performance and avoid paying more than is necessary for achieving
      this objective.

In deciding the executive directors total
  remuneration package and individual elements of it, the remuneration committee
  assesses where the company should be positioned relative to other companies.
  It makes appropriate comparisons but treats them with caution. The company aims
  to pay about the market median but may pay more for an outstanding performer
  or to attract executives of the right calibre. Earnings may be increased through
  the operation of annual and long-term incentive plans. The incentive plans are
  designed to encourage and reward out-performance. They link executives
  rewards directly to the groups performance and shareholders interests.
  The company expects executive directors and other senior executives to acquire
  and hold shares at least to the value of their basic pay. To assist them in
  satisfying this minimum share ownership target, it may pay incentive awards
  partly or wholly in shares.

The committee aims for an appropriate balance
  between fixed and variable rewards. Fixed rewards include:

| | basic salary;                                                     
|- | ------------------------------------------------------------------
| | a car allowance or company
      car and fuel for private mileage;
| | medical insurance; and                                            
| | pension benefits.                                                 

The taxable value of the car, fuel, medical
  insurance and life insurance element of pension benefits are included in other
  benefits in the table opposite.

Variable rewards take the form of the annual
  bonus and the performance share plan. These rewards are performance based and
  provide each executive director with the opportunity to earn up to a further
  60 per cent and 80 per cent of basic salary respectively each year. Together,
  this is almost 60 per cent of their total annual reward opportunity (excluding
  pension benefits). Detailed policy in relation to each element of executive
  directors remuneration is set out below. The board continually reviews
  its policy in the light of emerging best practice.

United Utilities
  Annual Report & Accounts 2003     39

---





Directors remuneration
  report (continued)

Executive directors remuneration
  
  Executive directors remuneration during the year ended 31 March 2003 is
  shown in table 3.

|                                                                      
|----------------------------------------------------------------------
|Table 3: Executive
      directors remuneration (audited information)
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|£000                                                                 
|                                                                      
|John Roberts                                                          
|                                                                      
|Simon Batey                                                           
|                                                                      
|Les Dawson                                                            
|                                                                      
|Gordon Waters                                                         
|                                                                      
|Totals                                                                
|                                                                      

|      
|------
|Notes:
|     
|     
|     
|     
|      

A Salary 
  The committee reviews salaries each year taking account of group and personal
  performance. Any changes are made with effect from 1 September. The committee
  commissions independent assessments of market rates based on the practice of
  other utility companies and companies of a similar size and complexity. The
  committee also takes account of the levels of pay awards elsewhere in the group.

Following its annual review in 2002, the committee
  agreed the following changes to the annual salaries of executive directors:

|Table 4: Executive directors
      salary review | 1 September
      2002 |       | 1 September
      2001 | 
|------------------------------------------------- | ---------------------- | ----- | ---------------------- | 
|                                                  | £000                  | £000
|                                                  |                        |       |                        | 
|John Roberts                                      | 450.0                  |       | 400.0                  | 
|                                                  |                        |       |                        | 
|Simon Batey                                       | 300.0                  |       | 280.0                  | 
|                                                  |                        |       |                        | 
|Les Dawson                                        | 235.0                  |       | 215.0                  | 
|                                                  |                        |       |                        | 
|Gordon Waters                                     | 230.0                  |       | 210.0                  | 
|                                                  |                        |       |                        | 

B Annual bonusThe annual bonus is designed to motivate executive
  directors and other senior executives to achieve the groups key operational
  and strategic objectives. The maximum award is 60 per cent of annual salary.
  Directors are rewarded according to the companys financial and non-financial
  performance for the year and the achievement of individual targets. Targets
  are set each year. The non-financial and individual targets may include measures
  related to customer service and environmental performance and performance against
  other key stakeholder measures. Annual bonus awards may be made partly or wholly
  in shares where a participant has still to satisfy the companys minimum
  share ownership target.

(a) 2003/04The financial performance measures to be used
  for determining annual bonuses for 2003/04 are profit before exceptional items,
  interest and tax (PBEIT) and profit before exceptional items and tax (PBET).
  A maximum award of 24 per cent of salary is allocated to each measure. One-quarter
  of the maximum awards becomes payable when threshold targets are met. Awards
  increase in value on a straight line basis until half of the maximum award is
  payable for achieving a target midway between the threshold and stretch targets.
  Awards continue to increase in value on a straight line basis between the intermediate
  and stretch targets at which point the maximum award is payable. Thus, there
  is greater incentivisation to achieve stretch targets. The stretch targets are
  demanding and achievement represents results which are in excess of expectations.
  One-fifth of the annual bonus, accounting for 12 per cent of salary, will depend
  on: achieving improvements in environmental performance measured by the groups
  score in the Business in the Environment (BiE) index; employee related targets,
  measured by results achieved in the groups culture change programme; and
  the achievement of individual objectives.

(b) 2002/03The financial measures for the determination
  of annual bonuses for 2002/03 were also PBEIT and PBET. The maximum bonus opportunity
  allocated to these targets was 48 per cent, the same as for 2003/04. The results
  for the year showed that although the stretch PBET target was achieved, the
  stretch PBEIT was not. The total payable for performance against financial targets
  was, therefore, 47.18 per cent. Non-financial targets accounted for up to 12
  per cent of salary. 6 per cent was divided between three customer service targets
  (interruptions in electricity supply, achievement of Ofwat levels of service
  for water supply and population served by failing wastewater treatment works),
  3 per cent was based on the group score in the BiE index and 3 per cent based
  on UCan group scores in the 2003 culture profile employee questionnaire. The
  environmental and employee-related targets were achieved; the customer service
  targets were not. Therefore 6 per cent bonus was payable bringing the overall
  bonus payable to a total of 53.18 per cent of salary.

(c) Prior year annual bonuses paid in
  deferred sharesThe whole of the annual bonus awards for John
  Roberts and Gordon Waters in 2000 and half of the value of awards for all of
  the executive directors in 2001 were satisfied by the grant of contingent rights
  to receive shares in the company to be purchased in the market by the companys
  employee share trust. The right to these shares may be forfeited in certain
  circumstances if an executive is not in the companys employment when the
  shares are due to be transferred to him from the trust. The company does not
  match the number of deferred shares and there are no additional performance
  measures associated with the release of these shares (see table 5).

40      United
  Utilities Annual Report & Accounts 2003

---



|Table
      5: Executive directors contingent interests in deferred shares relating
      to past bonus awards (audited information) |                    |  |                                 |  |                                |  |                                     
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------ |  | ------------------------------- |  | ------------------------------ |  | ------------------------------------
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|                                                                                                                                      | Award
        in   |  | Contingent
        interest in  |  | Contingent
        interest in |  | Contingent
        interest in      
|                                                                                                                                      | respect
        of |  | shares
        at date of award |  | shares
        at 1 April 2002 |  | shares
        added during the year
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|                                                                                                                                      |                    |  |                                 |  | Value                          |  |                                     
|                                                                                                                                      |                    |  | No.                             |  | £000                          |  | No.                                 
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|John Roberts                                                                                                                          | 2000               |  | 10,471                          |  | 69.8                           |  | 12,050                              
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|                                                                                                                                      | 2001               |  | 12,906                          |  | 84.15                          |  | 13,997                              
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|Simon Batey                                                                                                                           | 2001               |  | 10,766                          |  | 70.2                           |  | 11,675                              
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|Les Dawson                                                                                                                            | 2001               |  | 3,450                           |  | 22.5                           |  | 3,741                               
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|Gordon Waters                                                                                                                         | 2000               |  | 6,008                           |  | 40.1                           |  | 6,913                               
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     
|                                                                                                                                      | 2001               |  | 7,484                           |  | 48.8                           |  | 8,116                               
|                                                                                                                                      |                    |  |                                 |  |                                |  |                                     

|Notes:
|------
|     
|     
|     
|     
|     
|     
|     

C Other benefitsDirectors are paid a car allowance (or
  have the use of a company car where business use warrants it), are reimbursed
  fuel for business and private use and are provided with medical and life insurance.

D Long-term incentives(a) Performance share planThe performance share plan, adopted
  at the annual general meeting held on 21 July 2000, is the long-term incentive
  scheme for executive directors and a restricted number of other senior executives.
  Participation is at the discretion of the plans trustee (United Utilities
  Employee Share Trust Limited) on the recommendation of the remuneration committee.
  Participants are awarded a right to acquire shares (or, at the discretion of
  the trustee, the cash equivalent) normally worth up to 80 per cent of an executives
  yearly salary at the date of the award. The number of shares awarded is based
  on the market price of a share at that time. The proportion of the award that
  will vest depends on the groups performance against specified targets
  over a performance period. This period is usually not less than three years
  duration, beginning at the start of the financial year during which the award
  is made.

For the 2003/04 financial year, it is proposed
  that each director will be awarded an option to acquire shares worth up to 80
  per cent of their annual salary at the date of the award at no cost to them.
  The extent to which awards will vest will depend on the companys total
  shareholder return (TSR) performance when compared with the TSR performance
  of a group of other companies over the period 1 April 2003 to 31 March 2006
  and on underlying business performance measures. TSR is widely accepted as an
  easily understood and externally verifiable measure of a shareholders
  return. Relating awards to the companys relative TSR performance supports
  the policy objectives of linking executives rewards directly to the groups
  performance and shareholders interests and giving executives the opportunity
  to increase their earnings by meeting and out-performing key long-term measures.

The inclusion of appropriate companies in the
  comparator group is critical for relative performance to be meaningful. However,
  it is also important that the comparator group should be of a reasonable size
  to avoid the performance of a very few companies having a disproportionate impact
  on the outcome of the plan, to be able to accommodate changes in the comparator
  group (for example following a takeover or merger) and to avoid too high a leverage
  between the companys relative position in the group and the proportion
  of the award that vests. Companies are included if they provide essential services
  in well-established, mature markets with high barriers to entry, have a large
  customer and/or asset base, exhibit similar characteristics to the group in
  terms of share price volatility, have similar levels of gearing or are subject
  to regulatory review. Accordingly, it is anticipated that for the 2003/04 award,
  the comparator group will comprise the following 15 companies in addition to
  United Utilities, BAA, BG Group, The Boots Company, British Energy, Centrica,
  International Power, J Sainsbury, Kelda Group, Morrison Supermarkets, National
  Grid Transco, Scottish & Southern Energy, Scottish Power, Severn Trent,
  Tesco and Viridian.

No award will vest if the companys TSR
  performance is below median. If the companys TSR performance is between
  median and upper quartile, the proportion of the maximum award which the participant
  may receive will be calculated on a straight-line basis between 33 per cent
  and 100 per cent. However, awards will not vest unless the remuneration committee
  is satisfied that the companys recorded TSR performance is consistent
  with the achievement of appropriate measures of underlying business performance
  such as performance against the earnings per share, dividend cover and interest
  cover targets for 2005/06 set out in the groups five year business plan
  to 2007/08. The awards are scheduled to vest after 31 March 2006.

Directors scheme interests in the performance
  share plan, including those awarded during the year, are set out in table 6.

United Utilities
  Annual Report & Accounts 200341

---





Directors remuneration report
  (continued)



|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|------------------------ | -------------------------------------------------------------------------------------------------------------- | --------------------- | -------------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- |  | ------------------------ |  | ------------------------ |  | ---------------------- |  | ------------------------ |  | ---------------------- |  | ------------------------ | 
|                         | Table
      6: Executive directors scheme interests in the performance share plan
      (audited information) |                      
|                         |                                                                                                                |                      
|                         |                                                                                                                | Award
        details | Contingent scheme interest
      
      
      at 1 April 2002 | Contingent scheme interest
      awarded during the year | Contingent scheme
        interest
      at 31 March 2003
        (note c) |                                                                                            
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          | 
|                         |                                                                                                                |                       |                                                                |                                                          | Maximum
        value at award date                                        | Market price
      
      
      
      of a share
      
      at award
      
      pence |  | Max. no.
      of shares |  | Max. no.
      of shares |  | Max. value
      £000 |  | Max. no.
      of shares |  | Max. value
      £000 |  | Max. no.
      of shares | 
|Performance
      period |                                                                                                                |                      
|Award
        date       | %
        of salary                                                                                            |                       | £000                                                         
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | John
      Roberts                                                                                             |                      
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2000/01                                                                                                        | 29.3.01               |                                                                | 1.4.00
        to 31.3.03                                |                                                                            | 80                                                                                          |  | 256.0                    |  | 607.5                    |  | 42,139                 |  | 42,139                   |  | 257.5                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2001/02                                                                                                        | 9.7.01                |                                                                | 1.4.01
        to 31.3.04                                |                                                                            | 80                                                                                          |  | 256.0                    |  | 652.0                    |  | 39,263                 |  | 39,263                   |  | 239.9                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2002/03                                                                                                        | 1.10.02               |                                                                | 1.4.02
        to 31.3.05                                |                                                                            | 80                                                                                          |  | 360.0                    |  | 587.5                    |  | 61,276                 |  |                         |  |                       |  | 61,276                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Total                                                                                                          |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  | 142,678                |  | 81,402                   |  | 497.4                  |  | 61,276                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Simon
      Batey                                                                                              |                      
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2000/01                                                                                                        | 29.3.01               |                                                                | 1.4.00
        to 31.3.03                                |                                                                            | 80                                                                                          |  | 208.0                    |  | 607.5                    |  | 34,238                 |  | 34,238                   |  | 209.2                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2001/02                                                                                                        | 9.7.01                |                                                                | 1.4.01
        to 31.3.04                                |                                                                            | 80                                                                                          |  | 208.0                    |  | 652.0                    |  | 31,901                 |  | 31,901                   |  | 194.9                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2002/03                                                                                                        | 1.10.02               |                                                                | 1.4.02
        to 31.3.05                                |                                                                            | 80                                                                                          |  | 240.0                    |  | 587.5                    |  | 40,851                 |  |                         |  |                       |  | 40,851                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Total                                                                                                          |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  | 106,990                |  | 66,139                   |  | 404.1                  |  | 40,851                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Les
      Dawson                                                                                               |                      
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2000/01                                                                                                        | 29.3.01               |                                                                | 1.4.00
        to 31.3.03                                |                                                                            | 65                                                                                          |  | 130.0                    |  | 607.5                    |  | 21,399                 |  | 21,399                   |  | 130.7                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2001/02                                                                                                        | 9.7.01                |                                                                | 1.4.01
        to 31.3.04                                |                                                                            | 80                                                                                          |  | 160.0                    |  | 652.0                    |  | 24,539                 |  | 24,539                   |  | 149.9                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2002/03                                                                                                        | 1.10.02               |                                                                | 1.4.02
        to 31.3.05                                |                                                                            | 80                                                                                          |  | 188.0                    |  | 587.5                    |  | 32,000                 |  |                         |  |                       |  | 32,000                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Total                                                                                                          |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  | 77,938                 |  | 45,938                   |  | 280.6                  |  | 32,000                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Gordon
      Waters                                                                                            |                      
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2000/01                                                                                                        | 29.3.01               |                                                                | 1.4.00
        to 31.3.03                                |                                                                            | 80                                                                                          |  | 146.4                    |  | 607.5                    |  | 24,098                 |  | 24,098                   |  | 147.2                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2001/02                                                                                                        | 9.7.01                |                                                                | 1.4.01
        to 31.3.04                                |                                                                            | 80                                                                                          |  | 146.4                    |  | 652.0                    |  | 22,453                 |  | 22,453                   |  | 137.2                  |  |                         | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | 2002/03                                                                                                        | 1.10.02               |                                                                | 1.4.02
        to 31.3.05                                |                                                                            | 80                                                                                          |  | 184.0                    |  | 587.5                    |  | 31,319                 |  |                         |  |                       |  | 31,319                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 
|                         | Total                                                                                                          |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  | 77,870                 |  | 46,551                   |  | 284.4                  |  | 31,319                   | 
|                         |                                                                                                                |                       |                                                                |                                                          |                                                                            |                                                                                             |  |                          |  |                          |  |                        |  |                          |  |                        |  |                          | 

| | Notes: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)    | No awards were due to vest
      during the year. The first awards under the performance share plan are scheduled
      to vest during 2003/04.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b)    | The maximum values shown for
      1 April 2002 and 31 March 2003 have been calculated using the mid-market
      price of a United Utilities PLC share on close of business on the relevant
      date or, if not a trading day, the last trading day immediately prior to
      that date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (c)    | In the case of Les Dawson,
      the value of the contingent plan interest is stated as at 25 March 2003,
      being the date on which he resigned as a director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (d)    | The market price of a share
      at award is the mid-market price of a United Utilities PLC share on close
      of business on the last trading day immediately prior to the award date.
      This is used to calculate the maximum number of shares comprised in the
      award.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (e)    | The above awards were granted
      as option awards, whereby the participant is granted an option
      to acquire the number of shares which vests under the plan. The options
      are exercisable over a period of three months from the vesting date. No
      consideration is payable by the executives either upon grant of the option
      award or upon the subsequent exercise of the option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (f)    | During the year, awards were
      made to directors in respect of the 2002/03 performance share plan. The
      extent to which the awards will vest is on the same basis as that proposed
      for 2003/04, except the companys TSR performance will be compared
      with a group of companies over the period 1 April 2002 to 31 March 2005.
      At the beginning of the performance period the comparator group comprised
      the following 18 companies: AWG, BAA, BG Group, The Boots Company, British
      Energy, Centrica, International Power, J Sainsbury, Kelda Group, Lattice
      Group, Morrison Supermarkets, National Grid Group, Safeway, Scottish &
      Southern Energy, Scottish Power, Severn Trent, Tesco and Viridian. During
      the year, the merger of National Grid Group and Lattice Group was announced.
      Lattice Group has therefore, been excluded. National Grid Group has been
      retained as National Grid Transco. The comparator group, therefore, currently
      comprises 17 companies. The test against measures of underlying business
      performance will include performance against the earnings per share, dividend
      cover and interest cover targets for 2004/05 set out in the groups
      5 year business plan to 2006/07. The awards are scheduled to vest after
      31 March 2005.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

(b) Long-term incentive plan (LTIP)The long-term incentive plan has been replaced
  by the performance share plan. The final awards were due to vest during the
  year for John Roberts, Simon Batey and Gordon Waters in respect of performance
  periods ended on 31 March 2002. However, as anticipated in last years
  annual report, no awards vested because the performance criteria were not met.

Details of directors interests under
  the LTIP which had been due to vest during the year, are set out in table 7.

42    United
  Utilities Annual Report & Accounts 2003

---



|Table 7: Executive directors
      LTIP awards (audited information) | Contingent
        scheme interest |  | Awarded
      during the year
      Max. value |  | Contingent
        scheme interest at | 
|--------------------------------------------------------------------- | ---------------------------------- |  | ---------------------------------------------- |  | ------------------------------------- | 
|                                                                      |                                    |  |                                                |  |                                       | 
|                                                                      |                                    |  |                                                |  |                                      
|                                                                      | Award
        date                 |  | Performance
        period                     |  | % of
        salary                   | 
|                                                                      |                                   
|John Roberts                                                          | 20.7.00                            |  | 1.4.00
        to 31.3.02                      |  | 87.5                                  | 
|                                                                      |                                   
|Simon Batey                                                           | 20.7.00                            |  | 1.4.00
        to 31.3.02                      |  | 70                                    | 
|                                                                      |                                   
|Gordon Waters                                                         | 25.7.01                            |  | 1.4.99
        to 31.3.02                      |  | 70                                    | 
|                                                                      |                                   

|Notes:
|------
|     

Performance graphThe following graph compares the companys
  annual total shareholder return (TSR) performance for the past five years against
  the FTSE 100 Index, the most appropriate broad equity market index. The TSR
  indices used in the chart have been calculated in accordance with the Directors
  Remuneration Report Regulations 2002 relative to a base date of 1 April 1998.



Share optionsThe executive directors can join the all-employee
  ShareSave scheme. They do not participate in the company share option plan 1999.
  Neither the award nor the exercise of ShareSave options is dependent upon the
  satisfaction of performance conditions. Further details of ShareSave options
  are shown in table 8.

|Table 8: Directors
      ShareSave options (audited information) |                 |  |                                        |  |                                 |  |                                 |  |                                      |   |                              |  |                            
|----------------------------------------------------------------- | --------------- |  | -------------------------------------- |  | ------------------------------- |  | ------------------------------- |  | ------------------------------------ | - | ---------------------------- |  | ---------------------------
|                                                                  | At 1 April 2002 |  | Granted/(lapsed)
      during the year |  | Exercised during
      the year |  | At 31 March 2003
      (note c) |  | Exercise price
      per share pence |   | First date
      exercisable |  | Last date
      exercisable
|                                                                  |                
|John Roberts                                                      |                 |  |                                        |  |                                 |  |                                 |  |                                      |   |                              |  |                            
|                                                                  |                
|ShareSave 2000                                                    | 3,579           |  |                                       |  |                                |  | 3,579                           |  | 471.5                                | p | 01.03.2005                   |  | 31.08.2005                 
|                                                                  |                
|Total                                                             | 3,579           |  |                                       |  |                                |  | 3,579                           |  |                                      |   |                              |  |                            
|                                                                  |                
|Simon Batey                                                       |                 |  |                                        |  |                                 |  |                                 |  |                                      |   |                              |  |                            
|                                                                  |                
|ShareSave 2001                                                    | 1,740           |  |                                       |  |                                |  | 1,740                           |  | 556.5                                | p | 01.03.2004                   |  | 31.08.2004                 
|                                                                  |                
|Total                                                             | 1,740           |  |                                       |  |                                |  | 1,740                           |  |                                      |   |                              |  |                            
|                                                                  |                
|Les Dawson                                                        |                 |  |                                        |  |                                 |  |                                 |  |                                      |   |                              |  |                            
|                                                                  |                
|ShareSave 2001                                                    | 3,032           |  |                                       |  |                                |  | 3,032                           |  | 556.5                                | p | 01.03.2006                   |  | 31.08.2006                 
|                                                                  |                
|Total                                                             | 3,032           |  |                                       |  |                                |  | 3,032                           |  |                                      |   |                              |  |                            
|                                                                  |                
|Gordon Waters                                                     |                 |  |                                        |  |                                 |  |                                 |  |                                      |   |                              |  |                            
|                                                                  |                
|ShareSave 2002                                                    | 2,290           |  |                                       |  |                                |  | 2,290                           |  | 500.0                                | p | 01.03.2007                   |  | 01.08.2007                 
|                                                                  |                
|ShareSave 2003                                                    |                |  | 331                                    |  |                                |  | 331                             |  | 490.0                                | p | 01.03.2006                   |  | 01.08.2006                 
|                                                                  |                
|Total                                                             | 2,290           |  | 331                                    |  |                                |  | 2,621                           |  |                                      |   |                              |  |                            
|                                                                  |                

|Notes:
|------
|(a)   
|(b)   
|(c)   
|(d)   

United Utilities
  Annual Report & Accounts 2003     43

---





Directors remuneration report
  (continued)

Pension arrangementsThe United Utilities Pension Scheme is open to
  all eligible employees. It provides pensions and other benefits to members within
  Inland Revenue limits. All the current executive directors are members of, and
  contribute to, the defined benefit section of the scheme. It provides a pension
  for them on normal retirement at age 60 equal to 1/30th of pensionable earnings
  for each completed year of service. The maximum pension is two-thirds of pensionable
  earnings. Early retirement is possible from age 50 if the company agrees.

The Finance Act 1989 restricts the pension
  benefits that can be paid by the scheme to the executive directors as the earnings
  cap limits pensionable earnings for calculating benefits. The company has put
  in place separate arrangements the effect of which is to provide pension benefits
  calculated on the same basis as for executives whose pensionable earnings are
  not limited by the cap. These arrangements are unfunded.

Although pension benefits are calculated on
  basic salary only, to protect his contractual entitlement, the calculations
  are adjusted for Gordon Waters, whose annual bonus had been pensionable before
  the incentive plan was introduced.

The pension benefits earned by directors during
  the year are shown in table 9.

|Table 9: Executive directors
      pension benefits (audited information) |                                 | Increase in accrued
      pension during the year |              |                   |                                |                  |                                
|-------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------------- | ------------ | ----------------- | ------------------------------ | ---------------- | -------------------------------
|                                                                           |                                 |                                                   |              |                   |                                |                  |                                
|                                                                           | Accumulated total
      accrued |                                                   |              | Transfer value    |                                | Total change     | Accumulated
      total accrued
|pension at 1 April
      2002                                              |                                 |                                                   | of increase  | in transfer value | pension at
      31 March 2003
|                                                                           |                                 |                                                   | Increase net | Member            | (net of member                 | (net of member   |                                
|                                                                           |                                 | Transfer value                                    | of inflation | contributions     | contributions)                 | contributions)   |                                
|£000
      p.a.                                                           | £000                           | £000
      p.a. (1)                              | £000        | £000
      (2)   | £000
      (3)                | £000
      p.a. | £000                          
|                                                                           |                                 |                                                   |              |                   |                                |                  |                                
|John Roberts                                                               | 31.5                            |                                                   | 458.3        |                   | 18.8                           |                  | 14.6                           
|                                                                           |                                 |                                                   |              |                   |                                |                  |                                
|Simon Batey                                                                | 18.1                            |                                                   | 186.4        |                   | 10.5                           |                  | 14.6                           
|                                                                           |                                 |                                                   |              |                   |                                |                  |                                
|Les Dawson                                                                 | 9.8                             |                                                   | 83.9         |                   | 8.1                            |                  | 11.3                           
|                                                                           |                                 |                                                   |              |                   |                                |                  |                                
|Gordon Waters                                                              | 51.7                            |                                                   | 714.9        |                   | 13.6                           |                  | 14.6                           
|                                                                           |                                 |                                                   |              |                   |                                |                  |                                

|Notes:
|------
|     
|     
|     
|     
|     
|     

Contracts of service and compensation
  for terminationThe companys policy is that the executive
  directors normally have rolling one-year notice periods. The company may offer
  a longer notice period if it considers that necessary to recruit a new director.
  If it offers an initial notice period of more than one year, it will usually
  reduce that to a rolling one year after the initial period. Contracts terminate
  automatically upon the director reaching age 60 unless the company agrees that
  a director may continue to work after attaining age 60. No special arrangements
  apply if there is a change of control.

Service contracts do not provide explicitly
  for termination payments (other than for holidays due but not taken), liquidated
  damages or payments in lieu of notice. If a contract is to be terminated, the
  remuneration committee will, in each circumstance, determine the compensation
  that may be paid after applying such mitigation it considers is fair and reasonable.
  It will take into account the best practice provisions of the Combined Code
  and will take legal advice on the companys liability to pay compensation
  and the amount of the compensation in each case. The committee reviews this
  policy each year. No changes were made during the year. Details of directors
  contracts are set out in table 10.

|Table 10: Executive directors
      service contracts |                        |                                        
|------------------------------------------------------ | ---------------------- | ---------------------------------------
|                                                       |                        |                                        
|                                                       | Date
      of contract | Unexpired
      term (to 60th birthday)
|                                                      
|John Roberts                                           | 01.09.99               | 2 March 2006                           
|                                                      
|Simon Batey                                            | 01.04.00               | 4 September 2013                       
|                                                      
|Les Dawson                                             | 01.11.00               | 13 February 2017                       
|                                                      
|Gordon Waters                                          | 01.03.96               | 6 June 2006                            
|                                                       |                        |                                        

Policy on external appointmentsThe company recognises that its executive directors
  may be invited to become non-executive directors of companies outside the group
  and that exposure to such non-executive duties can broaden experience and knowledge,
  which will be to the benefit of the company. Subject to board approval (which
  will not be given if the proposed appointment is with a competing company, would
  otherwise lead to a conflict of interest or could have a detrimental effect
  on a directors performance), executive directors are allowed to accept
  a non-executive directorship and to retain the fees.

Approved by the board of directors on 21 May
  2003 and signed on its behalf by

John SeedRemuneration committee chairman

44       United
  Utilities Annual Report & Accounts 2003

---





Consolidated profit and loss account

---

|                                                          |       |  |                    |   |                             |   |          |   |                       |   |                       |   |            |   |              |   |             |   | Discontinued |   |          |  
|--------------------------------------------------------- | ----- |  | ------------------ | - | --------------------------- | - | -------- | - | --------------------- | - | --------------------- | - | ---------- | - | ------------ | - | ----------- | - | ------------ | - | -------- | -
|                                                          |       |  |                    |   | Continuing
      operations |   |          |   | Continuing operations |   | Continuing operations |   | operations |   |              |  
|                                                          |       |  |                    |   |                             |   |          |   |                       |   |                       |  
|                                                          |       |  | Before             |   | Goodwill                    |   |          |   | Before                |   | Goodwill              |   |            |   | Before       |   | Goodwill    |   |              |   |          |  
|                                                          |       |  | goodwill
      and |   | and                         |   |          |   | goodwill and          |   | and                   |   | Restated   |   | goodwill and |   | and         |   |              |   | Restated |  
|                                                          |       |  | exceptional        |   | exceptional                 |   | 2003     |   | exceptional           |   | exceptional           |   | 2002       |   | exceptional  |   | exceptional |   |              |   | 2001     |  
|                                                          |       |  | items              |   | items                       |   | Total    |   | items                 |   | items                 |   | Total      |   | items        |   | items       |   |              |   | Total    |  
|For the
      year ended 31 March                         | Note  |  | £m                 |   | £m                          |   | £m       |   | £m                    |   | £m                    |   | £m         |   | £m           |   | £m          |   | £m           |   | £m       |  
|                                                          |      
|Turnover: group and share
      of joint ventures         | 2     |  | 1,920.5            |   |                            |   | 1,920.5  |   | 1,871.6               |   |                      |   | 1,871.6    |   | 1,569.2      |   |            |   | 201.5        |   | 1,770.7  |  
|                                                          |      
|Less: share of joint venture
      turnover               |       |  | (41.7              | ) |                            |   | (41.7    | ) | (85.4                 | ) |                      |   | (85.4      | ) | (78.3        | ) |            |   |             |   | (78.3    | )
|                                                          |      
|Group
      turnover                                      |       |  | 1,878.8            |   |                            |   | 1,878.8  |   | 1,786.2               |   |                      |   | 1,786.2    |   | 1,490.9      |   |            |   | 201.5        |   | 1,692.4  |  
|                                                          |      
|Net operating costs                                       | 3     |  | (1,332.7           | ) | (36.1                       | ) | (1,368.8 | ) | (1,245.4              | ) | (19.2                 | ) | (1,264.6   | ) | (993.8       | ) | (20.6       | ) | (179.9       | ) | (1,194.3 | )
|                                                          |      
|Group
      operating profit                              |       |  | 546.1              |   | (36.1                       | ) | 510.0    |   | 540.8                 |   | (19.2                 | ) | 521.6      |   | 497.1        |   | (20.6       | ) | 21.6         |   | 498.1    |  
|                                                          |      
|Share of operating profit
      of joint ventures         | 2, 13 |  | 15.6               |   | (0.7                        | ) | 14.9     |   | 12.5                  |   | (0.7                  | ) | 11.8       |   | 8.7          |   |            |   |             |   | 8.7      |  
|                                                          |      
|Profit
      before non-operating items, interest and tax | 2     |  | 561.7              |   | (36.8                       | ) | 524.9    |   | 553.3                 |   | (19.9                 | ) | 533.4      |   | 505.8        |   | (20.6       | ) | 21.6         |   | 506.8    |  
|                                                          |      
|Profit on sale or termination
      of operations         | 4     |  |                   |   | 34.0                        |   | 34.0     |   |                      |   |                      |   |           |   |             |   |            |   | 191.2        |   | 191.2    |  
|                                                          |      
|Profit
      on ordinary activities before interest       |       |  | 561.7              |   | (2.8                        | ) | 558.9    |   | 553.3                 |   | (19.9                 | ) | 533.4      |   | 505.8        |   | (20.6       | ) | 212.8        |   | 698.0    |  
|                                                          |      
|Net interest payable and similar
      charges:           |       |  |                    |   |                             |   |          |   |                       |   |                       |   |            |   |              |   |             |   |              |   |          |  
|                                                          |      
|Group                                                     | 7     |  | (220.1             | ) |                            |   | (220.1   | ) | (216.7                | ) |                      |   | (216.7     | ) | (204.7       | ) |            |   | (4.0         | ) | (208.7   | )
|                                                          |      
|Joint ventures                                            | 7, 13 |  | (11.3              | ) |                            |   | (11.3    | ) | (13.9                 | ) |                      |   | (13.9      | ) | (11.6        | ) |            |   |             |   | (11.6    | )
|                                                          |      
|                                                          | 7     |  | (231.4             | ) |                            |   | (231.4   | ) | (230.6                | ) |                      |   | (230.6     | ) | (216.3       | ) |            |   | (4.0         | ) | (220.3   | )
|                                                          |      
|Profit
      on ordinary activities before taxation       |       |  | 330.3              |   | (2.8                        | ) | 327.5    |   | 322.7                 |   | (19.9                 | ) | 302.8      |   | 289.5        |   | (20.6       | ) | 208.8        |   | 477.7    |  
|                                                          |      
|Current taxation credit/(charge)
      on profit on       |       |  |                    |   |                             |   |          |   |                       |   |                       |   |            |   |              |   |             |   |              |   |          |  
|ordinary activities                                       | 8     |  |                    |   |                             |   | 29.1     |   |                       |   |                       |   | (16.4      | ) |              |   |             |   |              |   | (11.4    | )
|                                                          |      
|Deferred taxation charge on
      ordinary activities     | 8     |  |                    |   |                             |   | (85.9    | ) |                       |   |                       |   | (23.0      | ) |              |   |             |   |              |   | (56.0    | )
|                                                          |      
|Exceptional taxation credit/(charge)                      | 8     |  |                    |   |                             |   | 9.4      |   |                       |   |                       |   |           |   |              |   |             |   |              |   | (69.0    | )
|                                                          |      
|Taxation
      on profit on ordinary activities           | 8     |  |                    |   |                             |   | (47.4    | ) |                       |   |                       |   | (39.4      | ) |              |   |             |   |              |   | (136.4   | )
|                                                          |      
|Profit
      on ordinary activities after taxation        |       |  |                    |   |                             |   | 280.1    |   |                       |   |                       |   | 263.4      |   |              |   |             |   |              |   | 341.3    |  
|                                                          |      
|Equity minority interest                                  |       |  |                    |   |                             |   | (2.3     | ) |                       |   |                       |   | (1.6       | ) |              |   |             |   |              |   |         |  
|                                                          |      
|Profit
      for the financial year                       | 24    |  |                    |   |                             |   | 277.8    |   |                       |   |                       |   | 261.8      |   |              |   |             |   |              |   | 341.3    |  
|                                                          |      
|Dividends                                                 | 9, 24 |  |                    |   |                             |   | (264.8   | ) |                       |   |                       |   | (260.9     | ) |              |   |             |   |              |   | (254.9   | )
|                                                          |      
|Retained
      profit for the financial year              |       |  |                    |   |                             |   | 13.0     |   |                       |   |                       |   | 0.9        |   |              |   |             |   |              |   | 86.4     |  
|                                                          |      
|Basic earnings per share                                  | 10    |  |                    |   |                             |   | 50.0     | p |                       |   |                       |   | 47.3       | p |              |   |             |   |              |   | 61.9     | p
|                                                          |      
|Adjusted basic earnings per
      share                   | 10    |  |                    |   |                             |   | 48.8     | p |                       |   |                       |   | 50.9       | p |              |   |             |   |              |   | 40.3     | p
|                                                          |      
|Diluted earnings per share                                | 10    |  |                    |   |                             |   | 49.8     | p |                       |   |                       |   | 47.2       | p |              |   |             |   |              |   | 61.6     | p
|                                                          |      
|Adjusted diluted earnings
      per share                 | 10    |  |                    |   |                             |   | 48.6     | p |                       |   |                       |   | 50.7       | p |              |   |             |   |              |   | 40.1     | p
|                                                          |      

See accompanying notes to the
  accounts.

There were no differences between
  reported profits and historical cost profits on ordinary activities before taxation
  in any of the above financial years. The results of subsidiary acquisitions
  have not been disclosed separately as they do not form a significant part of
  the groups results.

Prior years results have
  been restated to show the effects of applying UITF 34 Pre-contract costs
  and the change in accounting policy for telecommunications network capacity
  sales as explained in note 1(a).

Prior years profit and loss
  accounts have been re-presented in line with the current disclosure to show
  profit on ordinary activities before taxation on both a pre and post goodwill
  amortisation and exceptional items basis.

46United
  Utilities Annual Report & Accounts 2003

---



Balance sheets

|                                                                |      |  |          |   | Group    |   |          |   | Company  |  
|--------------------------------------------------------------- | ---- |  | -------- | - | -------- | - | -------- | - | -------- | -
|                                                                |      |  |          |   |          |   |          |   |          |  
|                                                                |      |  |          |   | Restated |   |          |   |          |  
|                                                                |      |  | 2003     |   | 2002     |   | 2003     |   | 2002     |  
|At
        31 March                                             | Note |  | £m       |   | £m       |   | £m       |   | £m       |  
|                                                                |     
|Fixed
        assets                                            |      |  |          |   |          |   |          |   |          |  
|                                                                |     
|Intangible
        assets                                       | 11   |  | 69.2     |   | 81.2     |   |         |   |         |  
|                                                                |     
|Tangible
        assets                                         | 12   |  | 7,087.3  |   | 6,673.1  |   | 1.0      |   | 1.1      |  
|                                                                |     
|Investments
        in subsidiary undertakings                  | 13   |  |         |   |         |   | 5,554.8  |   | 5,565.6  |  
|                                                                |     
|Investments
        in joint ventures:                          |      |  |          |   |          |   |          |   |          |  
|                                                                |     
|
        share of gross assets                                 |      |  | 220.8    |   | 271.4    |   |         |   |         |  
|                                                                |     
|
        share of gross liabilities                            |      |  | (180.6   | ) | (218.4   | ) |         |   |         |  
|                                                                |     
|                                                                | 13   |  | 40.2     |   | 53.0     |   |         |   |         |  
|                                                                |     
|Other
        investments                                       | 13   |  | 19.4     |   | 26.4     |   | 3.9      |   | 3.9      |  
|                                                                |     
|                                                                |      |  | 7,216.1  |   | 6,833.7  |   | 5,559.7  |   | 5,570.6  |  
|                                                                |     
|Current
        assets                                          |      |  |          |   |          |   |          |   |          |  
|                                                                |     
|Stocks                                                          | 14   |  | 20.6     |   | 8.8      |   |         |   |         |  
|                                                                |     
|Debtors                                                         | 15   |  | 446.9    |   | 414.6    |   | 1,842.7  |   | 1,672.1  |  
|                                                                |     
|Investments                                                     | 16   |  | 668.9    |   | 389.5    |   | 37.1     |   | 80.4     |  
|                                                                |     
|Cash at
        bank and in hand                                |      |  | 38.5     |   | 18.9     |   | 12.2     |   | 17.6     |  
|                                                                |     
|                                                                |      |  | 1,174.9  |   | 831.8    |   | 1,892.0  |   | 1,770.1  |  
|                                                                |     
|Creditors:
        amounts falling due within one year          | 17   |  | (1,424.1 | ) | (1,341.8 | ) | (1,659.7 | ) | (1,900.3 | )
|                                                                |     
|Net
        current (liabilities)/assets                        |      |  | (249.2   | ) | (510.0   | ) | 232.3    |   | (130.2   | )
|                                                                |     
|Total
        assets less current liabilities                   |      |  | 6,966.9  |   | 6,323.7  |   | 5,792.0  |   | 5,440.4  |  
|                                                                |     
|Creditors:
        amounts falling due after more than one year | 18   |  | (4,070.6 | ) | (3,478.2 | ) | (768.5   | ) | (753.1   | )
|                                                                |     
|Provisions
        for liabilities and charges                  | 20   |  | (345.0   | ) | (311.1   | ) |         |   | (4.1     | )
|                                                                |     
|Net
        assets                                              |      |  | 2,551.3  |   | 2,534.4  |   | 5,023.5  |   | 4,683.2  |  
|                                                                |     
|Capital
        and reserves                                    |      |  |          |   |          |   |          |   |          |  
|                                                                |     
|Called
        up share capital                                 | 24   |  | 556.5    |   | 555.9    |   | 556.5    |   | 555.9    |  
|                                                                |     
|Share
        premium account                                   | 24   |  | 674.3    |   | 671.6    |   | 674.3    |   | 671.6    |  
|                                                                |     
|Profit
        and loss account                                 | 24   |  | 1,302.8  |   | 1,291.7  |   | 1,247.9  |   | 910.9    |  
|                                                                |     
|Other
        reserves                                          | 24   |  |         |   |         |   | 2,544.8  |   | 2,544.8  |  
|                                                                |     
|Equity
        shareholders funds                              |      |  | 2,533.6  |   | 2,519.2  |   | 5,023.5  |   | 4,683.2  |  
|                                                                |     
|Equity
        minority interest                                | 31   |  | 17.7     |   | 15.2     |   |         |   |         |  
|                                                                |     
|Capital
        employed                                        |      |  | 2,551.3  |   | 2,534.4  |   | 5,023.5  |   | 4,683.2  |  
|                                                                |     

See accompanying notes to the accounts.

Prior year figures have been restated to show
  the effects of applying UITF 34 Pre-contract costs and the change
  in accounting policy for telecommunications network capacity sales as explained
  in note 1(a).

Approved by the board of directors on 21 May
  2003 and signed on its behalf by

|Sir Richard Evans | Simon
        Batey   
|----------------- | ----------------------
|Chairman          | Group finance director

United Utilities
  Annual Report & Accounts 200347

---



Consolidated cash flow statement

|For
      the year ended 31 March                                        |        |        |    | Restated |   | Restated |  
|------------------------------------------------------------------------ | ------ | ------ | -- | -------- | - | -------- | -
|2003                                                                     | 2002   | 2001  
|Note                                                                     | £m     | £m     | £m
|                                                                         |        |        |    |          |   |          |  
|Net cash inflow from operating
      activities                          | 28     | 851.5  |    | 799.8    |   | 841.7    |  
|                                                                         |        |        |    |          |   |          |  
|Income from joint ventures                                               |        | 2.8    |    | 2.1      |   |         |  
|                                                                         |        |        |    |          |   |          |  
|Returns on investments
      and servicing of finance                    | 29     | (218.9 | )  | (223.7   | ) | (190.1   | )
|                                                                         |        |        |    |          |   |          |  
|Taxation                                                                 |        |       |    | (2.4     | ) | (1.7     | )
|                                                                         |        |        |    |          |   |          |  
|Capital expenditure and
      financial investment                       | 30     | (697.9 | )  | (583.6   | ) | (572.9   | )
|                                                                         |        |        |    |          |   |          |  
|Acquisitions and disposals                                               |        |        |    |          |   |          |  
|                                                                         |        |        |    |          |   |          |  
|Acquisitions                                                             | 31     | (4.9   | )  | (2.8     | ) | (117.1   | )
|                                                                         |        |        |    |          |   |          |  
|Disposals                                                                | 31     | 7.9    |    | (7.0     | ) | 312.5    |  
|                                                                         |        |        |    |          |   |          |  
|                                                                         |        | 3.0    |    | (9.8     | ) | 195.4    |  
|                                                                         |        |        |    |          |   |          |  
|Equity dividends paid                                                    |        | (262.0 | )  | (256.1   | ) | (250.1   | )
|                                                                         |        |        |    |          |   |          |  
|Cash (outflow)/inflow before
      use of liquid resources and financing |        | (321.5 | )  | (273.7   | ) | 22.3     |  
|                                                                         |        |        |    |          |   |          |  
|Management of liquid resources                                           | 32     | (282.0 | )  | 13.4     |   | (328.7   | )
|                                                                         |        |        |    |          |   |          |  
|Financing                                                                |        |        |    |          |   |          |  
|                                                                         |        |        |    |          |   |          |  
|Issues of shares                                                         | 33     | 3.3    |    | 18.0     |   | 13.9     |  
|                                                                         |        |        |    |          |   |          |  
|Increase in debt                                                         | 33, 34 | 610.5  |    | 202.1    |   | 318.1    |  
|                                                                         |        |        |    |          |   |          |  
|                                                                         |        | 613.8  |    | 220.1    |   | 332.0    |  
|                                                                         |        |        |    |          |   |          |  
|Increase/(decrease) in
      cash                                        |        | 10.3   |    | (40.2    | ) | 25.6     |  
|                                                                         |        |        |    |          |   |          |  
|                                                                        



Reconciliation of net cash flow to
  movement in net debt

|For
      the year ended 31 March                               |    | 2003     |    | 2002     |   | 2001     |  
|--------------------------------------------------------------- | -- | -------- | -- | -------- | - | -------- | -
|Note                                                            | £m | £m       | £m
|                                                                |    |          |    |          |   |          |  
|Increase/(decrease) in
      cash                               |    | 10.3     |    | (40.2    | ) | 25.6     |  
|                                                                |    |          |    |          |   |          |  
|Cash inflow from increase
      in debt and lease financing     |    | (610.5   | )  | (202.1   | ) | (318.1   | )
|                                                                |    |          |    |          |   |          |  
|Cash outflow/(inflow) from
      management of liquid resources |    | 282.0    |    | (13.4    | ) | 328.7    |  
|                                                                |    |          |    |          |   |          |  
|Change in net debt resulting
      from cash flows              |    | (318.2   | )  | (255.7   | ) | 36.2     |  
|                                                                |    |          |    |          |   |          |  
|Exchange and other non-cash
      adjustments                   | 34 | 5.1      |    | 1.3      |   | (6.2     | )
|                                                                |    |          |    |          |   |          |  
|Movement in net debt                                            |    | (313.1   | )  | (254.4   | ) | 30.0     |  
|                                                                |    |          |    |          |   |          |  
|Opening net debt                                                |    | (3,060.8 | )  | (2,806.4 | ) | (2,836.4 | )
|                                                                |    |          |    |          |   |          |  
|Net debt at 31 March                                            | 34 | (3,373.9 | )  | (3,060.8 | ) | (2,806.4 | )
|                                                                |    |          |    |          |   |          |  
|                                                               

48United
  Utilities Annual Report & Accounts 2003

---



Statement of total recognised gains and losses

|                                                                                  |        |  |       |   |          |   | Group    |  
|--------------------------------------------------------------------------------- | ------ |  | ----- | - | -------- | - | -------- | -
|                                                                                  |        |  |       |   |          |   |          |  
|                                                                                  |        |  |       |   | Restated |   | Restated |  
|                                                                                  |        |  | 2003  |   | 2002     |   | 2001     |  
|For the year ended 31 March                                                       | Note   |  | £m    |   | £m       |   | £m       |  
|                                                                                  |        |  |       |   |          |   |          |  
|Profit/(loss) for financial
      year:                                           |        |  |       |   |          |   |          |  
|                                                                                  |        |  |       |   |          |   |          |  
|Group                                                                             |        |  | 275.9 |   | 266.3    |   | 347.3    |  
|                                                                                  |        |  |       |   |          |   |          |  
|Joint ventures                                                                    |        |  | 1.9   |   | (4.5     | ) | (6.0     | )
|                                                                                  |        |  |       |   |          |   |          |  
|                                                                                  | 24     |  | 277.8 |   | 261.8    |   | 341.3    |  
|                                                                                  |        |  |       |   |          |   |          |  
|Unrealised gain on sale of
      minority interest in Vertex Data Science Limited | 24, 31 |  |      |   |         |   | 34.4     |  
|                                                                                  |        |  |       |   |          |   |          |  
|Currency translation adjustment
      on equity investment in Argentina           | 4, 24  |  | (6.8  | ) | (78.6    | ) |         |  
|                                                                                  |        |  |       |   |          |   |          |  
|Other exchange adjustments                                                        |        |  | 4.0   |   | 0.9      |   | (6.0     | )
|                                                                                  |        |  |       |   |          |   |          |  
|Total recognised gains and
      losses for the financial year                    |        |  | 275.0 |   | 184.1    |   | 369.7    |  
|                                                                                  |        |  |       |   |          |   |          |  
|Prior year adjustment 
      Pre-contract costs                                  |        |  | (12.6 | ) |          |   |          |  
|                                                                                  |        |  |       |   |         
|Prior year adjustment 
      Telecommunications network capacity sales           |        |  | (4.5  | ) |          |   |          |  
|                                                                                  |        |  |       |   |         
|Total gains and losses recognised
      since last annual report                  |        |  | 257.9 |   |          |   |          |  
|                                                                                  |        |  |       |   |         
|                                                                                  |        |  |       |   |         
|                                                                                  |        |  |       |   |         

Reconciliations of movements in equity shareholders funds

|                                                                                  | Group   |   | Company  |  
|--------------------------------------------------------------------------------- | ------- | - | -------- | -
|                                                                                  |         |   |          |  
|                                                                                  |         |   | Restated |  
|                                                                                  | 2003    |   | 2002     |  
|                                                                                  | £m      |   | £m       |  
|For the year ended 31 March                                                       |         |   |          |  
|                                                                                  |         |   |          |  
|Profit/(loss) for financial
      year                                            | 277.8   |   | 261.8    |  
|                                                                                  |         |   |          |  
|Dividends                                                                         | (264.8  | ) | (260.9   | )
|                                                                                  |         |   |          |  
|Retained profit/(loss) for
      the financial year                               | 13.0    |   | 0.9      |  
|                                                                                  |         |   |          |  
|New share capital issued                                                          | 3.3     |   | 18.0     |  
|                                                                                  |         |   |          |  
|Capitalisation of reserves
      in respect of shares issued via QUEST            |        |   | (5.0     | )
|                                                                                  |         |   |          |  
|Goodwill on business disposals                                                    | 0.9     |   |         |  
|                                                                                  |         |   |          |  
|Unrealised gain on sale of
      minority interest in Vertex Data Science Limited |        |   |         |  
|                                                                                  |         |   |          |  
|Currency translation adjustment
      on equity investment in Argentina           | (6.8    | ) | (78.6    | )
|                                                                                  |         |   |          |  
|Other exchange adjustments                                                        | 4.0     |   | 0.9      |  
|                                                                                  |         |   |          |  
|Net increase/(decrease) in
      equity shareholders funds for the year          | 14.4    |   | (63.8    | )
|                                                                                  |         |   |          |  
|Opening equity shareholders
      funds as restated                              | 2,519.2 |   | 2,583.0  |  
|                                                                                  |         |   |          |  
|Equity shareholders
      funds at 31 March                                      | 2,533.6 |   | 2,519.2  |  
|                                                                                  |         |   |          |  

Effect of prior year adjustments on opening equity shareholders funds:

|                                                                        | Group   |   |         |   |        
|----------------------------------------------------------------------- | ------- | - | ------- | - | -------
|                                                                        |         |   |         |   |        
|                                                                        | 2003    |   | 2002    |   | 2001   
|                                                                        | £m      |   | £m      |   | £m     
|                                                                        |         |   |         |  
|Opening equity shareholders
      funds as previously stated           | 2,536.3 |   | 2,597.5 |   | 2,364.4
|                                                                        |         |   |         |  
|Prior year adjustment 
      Pre-contract costs                        | (12.6   | ) | (11.9   | ) | (9.6   
|                                                                        |         |   |         |  
|Prior year adjustment 
      Telecommunications network capacity sales | (4.5    | ) | (2.6    | ) |       
|                                                                        |         |   |         |  
|Opening equity shareholders
      funds as restated                    | 2,519.2 |   | 2,583.0 |   | 2,354.8
|                                                                        |         |   |         |  

United Utilities
  Annual Report & Accounts 200349

---



Notes to the accounts



1ACCOUNTING
  POLICIES The following accounting policies have been
    applied consistently in dealing with items which are considered material in
    relation to the groups financial statements. (a)  Basis of preparation
    of financial statementsThe consolidated financial statements of United
    Utilities PLC and its subsidiaries (the group) set out on pages 46 to 74 have
    been prepared under the historical cost convention and in accordance with
    applicable accounting standards and the Companies Act 1985 except as noted
    below under item (h). Unless otherwise stated, the acquisition method
    of accounting has been adopted. Under this method, the results of subsidiary
    undertakings acquired or disposed of in the year are included in the consolidated
    profit and loss account from the date of acquisition or up to the date of
    disposal. The preparation of financial statements in
    conformity with generally accepted accounting principles in the United Kingdom
    requires management to make estimates and assumptions that affect the: 
      reported amounts of assets
        and liabilities;
      disclosure of contingent
        assets and liabilities at the date of the financial statements; and
      reported amounts of revenues
        and expenses during the reporting period.Actual results
        could differ from those estimates. In the year ended 31 March 2003 the group
    has adopted Urgent Issues Task Force (UITF) Abstract 34 Pre-contract
    costs the application of which is reflected in the current and prior
    years reported results. UITF 34 requires that pre-contract costs should only
    be recognised as an asset after the point where it is virtually certain that
    a contract will be entered into with net cash inflows that will recover the
    costs capitalised. Previously, the groups policy was to capitalise and
    fully provide against pre-contract costs until their recovery was considered
    to be secured by profitable contracts. Once the contract was secured, the
    provision was released and capitalised costs amortised over the expected life
    of the contract. The impact of adopting UITF 34 is to reduce the profit for
    the year ended 31 March 2003 by £1.5 million (net of tax). The results
    for the previous years have also been amended to reflect the requirements
    of UITF 34, with the results for the year ended 31 March 2002 reduced by £1.4
    million (net of tax) and 31 March 2001 reduced by £2.3 million (net
    of tax). During the year the group reviewed its policy
    in respect of accounting for network capacity sales. Your Communications owns
    a telecommunication network and where there is excess capacity it may sell
    this capacity to third parties. Previously, where substantially all of the
    risks and rewards of ownership were transferred to the purchaser over the
    economic life of the asset, these transactions had been accounted for as a
    sale and recognised in turnover when all relevant conditions of the contract
    had been met. Having reviewed current accounting practice,
    the group concluded that an accounting policy which treats such transactions
    as grants of operating leases (unless legal title passes) rather than as sales,
    is more appropriate as it reflects the long-term nature of the transaction.
    The current policy is aligned with the subsequently issued UITF 36 Contracts
    for sales of capacity. The impact of the change in accounting policy
    on the results for the year ended 31 March 2003 is a reduction in profit of
    £1.0 million (net of tax), and a reduction in turnover of £3.0
    million. The results for the previous years have also been amended to reflect
    this change in accounting policy, with the profit for the years ended 31 March
    2002 reduced by £1.8 million (net of tax) and turnover reduced by £4.8
    million. The profit for the year ended 31 March 2001 reduced by £2.6
    million (net of tax) and turnover reduced by £5.2 million. (b)  CashIn the consolidated cash flow statement and
    related notes, cash includes cash at bank, deposits repayable on demand and
    overdrafts; deposits are repayable on demand if they are in practice available
    within 24 hours without penalty.


(c)  TurnoverTurnover represents the income receivable in
    the ordinary course of business for goods or services provided, which where
    relevant, includes an estimate of the sales value of units supplied to customers
    between the date of the last meter reading and the year end, exclusive of
    value added tax and foreign sales tax. (d)  Research and developmentExpenditure on research and development is
  expensed as incurred. (e)  Pre-contract costsCosts incurred in the development of activities
    are treated in accordance with UITF 34 Pre-contract costs, which
    requires that pre-contract costs should only be recognised as an asset after
    the point where it is virtually certain that a contract will be entered into
    with net cash inflows that will recover the costs capitalised. Such capitalised
    costs are amortised over the expected contract period. (f)  GoodwillPurchased goodwill (both positive and negative)
    arising on consolidation in respect of acquisitions before 1 April 1998, when
    Financial Reporting Standard (FRS) 10 Goodwill and intangible assets
    was adopted, was written off to reserves in the year of acquisition. When
    a subsequent disposal occurs, any related goodwill previously written off
    to reserves, as a matter of accounting policy, is written back through the
    profit and loss account as part of the profit or loss on disposal. Purchased goodwill (representing the excess
    of the fair value of the consideration and associated costs over the fair
    value of the separable net assets acquired) arising on consolidation in respect
    of acquisitions since 1 April 1998 is capitalised. Positive goodwill is amortised
    to nil by equal annual instalments over its estimated useful life, generally
    not exceeding 20 years. On the subsequent disposal or termination of
    a business acquired since 1 April 1998, the profit or loss on disposal or
    termination is calculated after charging/ (crediting) the unamortised amount
    of any related goodwill/(negative goodwill). In the companys financial statements,
    investments in subsidiary undertakings and joint ventures are stated at cost
    less provision for any impairment. (g)  Tangible fixed assetsTangible fixed assets comprise infrastructure
    assets (mains, sewers, impounding and pumped raw water storage reservoirs,
    dams, sludge pipelines and sea outfalls) and other assets (including properties,
    overground plant and equipment and electricity operational assets). Infrastructure assetsInfrastructure assets comprise a network of
    water and wastewater systems. Expenditure on infrastructure assets relating
    to increases in capacity or enhancements of the network and on maintaining
    the operating capability of the network in accordance with defined standards
    of service is treated as an addition, which is included at cost after deducting
    related grants and contributions. The depreciation charge for infrastructure
    assets is the estimated level of annual expenditure required to maintain the
    operating capability of the network which is based on the groups independently
    certified asset management plan. Employee costs incurred in implementing the
    capital schemes of the group are capitalised within fixed assets. Other assetsAdditions are included at cost. Freehold land
    is not depreciated. Other assets are depreciated by writing off their cost
    less their estimated residual value evenly over their estimated economic lives,
    based on managements judgement and experience, which are principally
    as follows: Buildings
      30-60
          yearsOperational
          assets
      5-80
          yearsFixtures,
          fittings, tools and equipment
      3-40
          yearsComputer
          software
      3-10
          years


50United
  Utilities Annual Report & Accounts 2003

---





Carrying value of tangible fixed assets
The carrying values of fixed assets are reviewed for impairment wherever circumstances indicate that the carrying value of such assets may not be recoverable. (h)   Grants and contributions
    Capital contributions towards infrastructure
    assets are deducted from the cost of those assets. This is not in accordance
    with Schedule 4 to the Companies Act 1985 under which the infrastructure assets
    should be stated at their purchase price or production cost and the capital
    contributions treated as deferred income and released to the profit and loss
    account over the useful life of the corresponding assets. The directors are
    of the opinion that, although provision is made for depreciation of infrastructure
    assets (see note (g) above), these assets have no finite economic lives and
    the capital contributions would therefore remain in the balance sheet in perpetuity.
    The treatment otherwise required by the Companies Act 1985 would not present
    a true and fair view of the groups effective investment in infrastructure
    assets. The financial effect of this accounting policy is set out in note
    12. Grants receivable in respect of other tangible fixed assets are treated as deferred income, which is credited to the profit and loss account over the estimated economic lives of the related assets. (i)   Leased assets
    Assets financed by leasing arrangements which
    transfer substantially all the risks and rewards of ownership to the lessee
    (finance leases) are capitalised in the consolidated balance sheet and the
    corresponding capital cost is shown as an obligation to the lessor. Leasing
    repayments comprise both a capital and a finance element. Where the lease
    is of a fixed interest rate nature, the finance element is written off to
    the profit and loss account so as to produce an approximately constant periodic
    rate of charge on the outstanding obligation. Where the lease is of a floating
    interest rate nature, the finance element written off to the profit and loss
    account reflects the floating interest rate charge incurred during the period
    on the outstanding obligation. Such assets are depreciated over the shorter
    of their estimated useful lives and the period of the lease. Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease. (j)   Fixed asset investments
    Fixed asset investments, except for investments
    in joint ventures, are stated at the lower of cost and recoverable amount.
    The consolidated profit and loss account includes the groups share of
    the profits less losses, interest and taxation of joint ventures. The group
    balance sheet includes the investment in joint ventures at the groups
    share of their net assets in accordance with FRS 9 Associates and Joint
    Ventures. (k)   Current asset investments
    Current asset investments are stated at the
    lower of cost and net realisable value. (l)   Stocks
    Stocks are stated at cost less any provision
    necessary to recognise damage and obsolescence. Finished goods and goods for resale are stated at the lower of cost, including appropriate production overheads, and net realisable value. (m)   Pensions
    The group operates a number of defined benefit
    schemes, which are independent of the groups finances, for the substantial
    majority of its employees. Actuarial valuations of the schemes are carried
    out as determined by the trustees at intervals of not more than three years,
    the rates of contribution payable and the pension cost being determined on
    the advice of the actuaries, having regard to the results of these valuations.
    In any intervening years, the actuaries review the continuing appropriateness
    of the contribution rates. The cost of providing pensions is expensed over employees working lives. Variations from regular cost are allocated over the average remaining service lives of current employees. Any difference between the charge
to the profit and loss


account in respect of funded plans and the contributions payable to each plan is recorded in the consolidated balance sheet as a prepayment or provision. The group has included the disclosure requirements of FRS 17 Retirement Benefits in note 25, together with details of pension and funding arrangements. (n)   Foreign currency
    Transactions in foreign currencies are recorded
    at the exchange rates ruling on the dates of the transactions, adjusted for
    the effects of any hedging arrangements. Assets and liabilities denominated
    in foreign currencies are translated into sterling at the relevant rates of
    exchange ruling at the consolidated balance sheet date. On consolidation, the balance sheets of overseas subsidiaries and joint ventures are translated into sterling at exchange rates applicable at the year end. The profit and loss accounts are translated into sterling
using the average rate. Exchange differences resulting from the translation of such balance sheets at rates ruling at the beginning and end of the year, together with the differences between profit and loss accounts translated at average rates and
rates ruling at 31 March, are dealt with as movements on group reserves. Where net investments in overseas subsidiaries are matched in whole or in part by foreign currency borrowings, the exchange differences arising on the re-translation of such borrowings are also recorded as movements on
group reserves to the extent allowed by Statement of Standard Accounting Practice (SSAP) 20 Foreign Currency Translation. Any excess is taken to the profit and loss account. (o)   Taxation
    Current tax, including UK corporation tax and
    foreign tax, is provided at amounts expected to be paid (or recovered) using
    the tax rates and laws that have been enacted or substantially enacted by
    the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or
a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the groups taxable profits and its results as stated in the financial statements that arise from the inclusion of gains
and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is measured on a discounted basis to reflect the time value of money over the period between the balance sheet date and the dates on which it is estimated that the underlying timing differences will
reverse. The discount rates used reflect the post-tax yields to maturity that can be obtained on government bonds with similar maturity dates and currencies to those of the deferred tax assets or liabilities. (p)   Joint ventures
    Joint ventures are entities in which United
    Utilities PLC holds an interest on a long-term basis and which are jointly
    controlled with one or more other parties under a contractual arrangement.
    The groups share of profits less losses of joint ventures is included
    in the profit and loss account on the gross equity accounting basis. (q)   Financial instruments
    Debt instruments New borrowings are stated at net proceeds received
    after deduction of issue costs. The issue costs of debt instruments are amortised
    at a constant rate over the life of the instrument. Interest rate swaps and financial futures
Interest rate swap agreements and financial futures are used to manage interest rate exposure. Instruments that are designed as a hedge of a debt are accounted for on an accruals basis, with amounts payable or
receivable in respect of these instruments being recognised as adjustments to interest expense of the designated liability.




United Utilities
  Annual Report & Accounts 200351

---



Notes to the accounts (continued)



Realised gains and losses that occur from the
  early termination of such instruments designated as a hedge are deferred and
  are amortised to interest expense over the period of the hedged position, to
  the extent that the originally designated liability remains outstanding. In order to qualify for hedge accounting, the
  notional amount of the groups interest rate swaps and financial futures
  must not exceed the amount of its existing variable rate debt, must change the
  interest rate characteristics of the underlying debt and the contractual maturities
  cannot exceed the maturities of the debt. Currency swapsThe group enters into currency
    swaps to manage its exposure to fluctuations in currency rates. Principal
    amounts are revalued at exchange rates ruling at the date of the group balance
    sheet and included in the sterling value of debt. In order for such swaps
    to qualify for hedge accounting, the forward contract/currency swap must relate
    to an existing asset, liability or firm commitment, be in the same currency
    as the hedged item and reduce the risk of foreign currency exchange movements
    to the groups operations. Where they do, exchange gains and losses are
    taken directly to reserves and are included in the statement of total recognised
    gains and losses in accordance with SSAP 20 Foreign Currency Translation. (r) Share-based compensation arrangementsShares issued as a result of the
    exercise of options granted in accordance with the rules of the schemes (see
    note 24) are recorded in share capital and share premium at their exercise
    price at the date the option is exercised. A compensation expense is recorded
    in respect of the executive share option schemes for the difference, if any,
    between the exercise price and the share price at the date of grant.


The costs of short-term and long-term incentive
  awards to executive directors in accordance with the incentive plan (see the
  report on remuneration) are expensed on a straight line basis over the period
  in which performance is measured. The amount to be expensed is based upon managements
  estimate of the probability that the performance criteria will be met. In respect of the groups ShareSave schemes
  no compensation expense is recorded for the difference between the exercise
  price and the share price at the date of grant or exercise, as the group is
  taking advantage of the exemption permitted by UITF 17 Employee share
  schemes in respect of Inland Revenue approved SAYE schemes. (s) Environmental remediationEnvironmental expenditure that relates
    to current or future revenues is expensed or capitalised as appropriate. Expenditure
    that relates to an existing condition caused by past operations and does not
    contribute to current or future earnings is expensed. Liabilities for environmental costs are recognised
  when environmental assessments or clean-ups are probable and the associated
  costs can be reasonably estimated. Generally, the timing of these provisions
  coincides with the commitment to a formal plan of actions or, if earlier, on
  divestment or on closure of inactive sites. (t) Recent UK accounting pronouncementsFRS 17, Retirement Benefits
    was issued in December 2000, however mandatory implementation has been deferred
    by the Accounting Standards Board. This standard requires an asset or a liability
    to be recognised in the group accounts for any surplus or deficit in a defined
    benefit scheme. The group has adopted the disclosure requirements of FRS 17
    as set out in note 25.




52     United
  Utilities Annual Report & Accounts 2003

---



2SEGMENTAL
  INFORMATION

Turnover, profit before non-operating items,
  interest and tax and net operating assets for each class of business and by
  geographical origin are set out below:

|                                                         |      |  |         |   |          |   |               |   | Profit/(loss)
        before non-operating |   |                                      |   |          |   |                                   |  
|-------------------------------------------------------- | ---- |  | ------- | - | -------- | - | ------------- | - | ------------------------------------------ | - | ------------------------------------ | - | -------- | - | --------------------------------- | -
|                                                         |      |  |         |   |          |   | Turnover 2(a) |   |                                            |   | items, interest
        and tax 2(b) |   |          |   | Net operating
        assets 2(c) |  
|                                                         |      |  |         |   |          |   |               |  
|                                                         |      |  |         |   | Restated |   | Restated      |   |                                            |   | Restated                             |   | Restated |   |                                   |  
|                                                         |      |  | 2003    |   | 2002     |   | 2001          |   | 2003                                       |   | 2002                                 |   | 2001     |   | 2003                              |  
|                                                         | Note |  | £m      |   | £m       |   | £m            |   | £m                                         |   | £m                                   |   | £m       |   | £m                                |  
|                                                         |     
|Continuing
        businesses:                           |      |  |         |   |          |   |               |   |                                            |   |                                      |   |          |   |                                   |  
|                                                         |     
|Licensed
        multi-utility operations                |      |  | 1,230.1 |   | 1,208.9  |   | 1,201.6       |   | 502.8                                      |   | 529.6                                |   | 500.9    |   | 6,553.7                           |  
|                                                         |     
|Infrastructure
        management                        |      |  | 397.1   |   | 385.9    |   | 197.6         |   | 58.8                                       |   | 30.0                                 |   | 20.0     |   | 82.8                              |  
|                                                         |     
|Business
        process outsourcing                     |      |  | 307.6   |   | 282.9    |   | 211.2         |   | 18.8                                       |   | 14.1                                 |   | 7.6      |   | 121.6                             |  
|                                                         |     
|Telecommunications                                       |      |  | 161.7   |   | 150.4    |   | 114.3         |   | (19.5                                      | ) | (23.8                                | ) | (25.1    | ) | 197.1                             |  
|                                                         |     
|Other
        activities                                 |      |  |        |   | 4.6      |   | 9.4           |   | 5.1                                        |   | 7.4                                  |   | 6.3      |   | (46.9                             | )
|                                                         |     
|Corporate
        costs                                  |      |  |        |   |         |   |              |   | (4.3                                       | ) | (4.0                                 | ) | (3.9     | ) |                                  |  
|                                                         |     
|                                                         |      |  | 2,096.5 |   | 2,032.7  |   | 1,734.1       |   | 561.7                                      |   | 553.3                                |   | 505.8    |   | 6,908.3                           |  
|                                                         |     
|Goodwill
        amortisation                            |      |  |        |   |         |   |              |   | (7.5                                       | ) | (8.0                                 | ) | (4.0     | ) |                                  |  
|                                                         |     
|Inter-business
        eliminations                      | 2(d) |  | (176.0  | ) | (161.1   | ) | (164.9        | ) |                                           |   |                                     |   |         |   |                                  |  
|                                                         |     
|Continuing
        operations, before exceptional charge |      |  | 1,920.5 |   | 1,871.6  |   | 1,569.2       |   | 554.2                                      |   | 545.3                                |   | 501.8    |   | 6,908.3                           |  
|                                                         |     
|Discontinued
        operations                          |      |  |        |   |         |   | 201.5         |   |                                           |   |                                     |   | 21.6     |   |                                  |  
|                                                         |     
|Exceptional
        items                                | 2(e) |  |        |   |         |   |              |   | (29.3                                      | ) | (11.9                                | ) | (16.6    | ) |                                  |  
|                                                         |     
|                                                         |      |  | 1,920.5 |   | 1,871.6  |   | 1,770.7       |   | 524.9                                      |   | 533.4                                |   | 506.8    |   | 6,908.3                           |  
|                                                         |     
|By
        geographical origin:                          | 2(f) |  |         |   |          |   |               |   |                                            |   |                                      |   |          |   |                                   |  
|                                                         |     
|United
        Kingdom                                   |      |  | 1,868.3 |   | 1,784.6  |   | 1,678.1       |   | 515.3                                      |   | 521.7                                |   | 499.7    |   | 6,862.1                           |  
|                                                         |     
|Europe                                                   |      |  | 12.5    |   | 10.1     |   | 4.5           |   | 2.1                                        |   | 3.8                                  |   | (1.5     | ) | 32.0                              |  
|                                                         |     
|The Americas                                             |      |  | 14.8    |   | 58.3     |   | 65.7          |   | 7.1                                        |   | 3.1                                  |   | 4.5      |   | 0.8                               |  
|                                                         |     
|Rest of
        the world                                |      |  | 24.9    |   | 18.6     |   | 22.4          |   | 0.4                                        |   | 4.8                                  |   | 4.1      |   | 13.4                              |  
|                                                         |     
|                                                         |      |  | 1,920.5 |   | 1,871.6  |   | 1,770.7       |   | 524.9                                      |   | 533.4                                |   | 506.8    |   | 6,908.3                           |  
|                                                         |     

|The accounting
      policies for each segment are the same as those appearing on pages 50 to
      52.
|-------------------------------------------------------------------------------------------------------
|                                                                                                       
|(a)                                                                                                    
|                                                                                                       
|(b)                                                                                                    
|                                                                                                       
|                                                                                                       
|                                                                                                       
|(c)                                                                                                    
|                                                                                                       
|(d)                                                                                                    
|                                                                                                       
|(e)                                                                                                    
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|(f)                                                                                                    

United Utilities
  Annual Report & Accounts 200353

---



Notes to the accounts (continued)

|3     NET
      OPERATING COSTS                                       |      |            |   |            |   |            |   |              |  |          |  
|--------------------------------------------------------------------- | ---- | ---------- | - | ---------- | - | ---------- | - | ------------ |  | -------- | -
|                                                                      |      | 2003       |   | 2002       |   |            |   |              |  | 2001     |  
|                                                                      |      |            |   |            |   |            |  
|                                                                      |      |            |   | Restated   |   | Restated   |   |              |  | Restated |  
|                                                                      |      | Continuing |   | Continuing |   | Continuing |   | Discontinued |  |          |  
|                                                                      |      | operations |   | operations |   | operations |   | operations   |  |          |  
|                                                                      |      | Total      |   | Total      |   |            |   |              |  | Total    |  
|                                                                      | Note | £m         |   | £m         |   | £m         |   | £m           |  | £m       |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Employee costs:                                                       | 3(a) |            |   |            |   |            |   |              |  |          |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Wages and salaries                                                    |      | 329.8      |   | 326.0      |   | 252.2      |   | 3.9          |  | 256.1    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Social security costs                                                 |      | 24.6       |   | 24.8       |   | 21.0       |   | 0.1          |  | 21.1     |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Pension contributions                                                 | 25   | 8.2        |   | 5.0        |   | 6.3        |   | 0.4          |  | 6.7      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      | 362.6      |   | 355.8      |   | 279.5      |   | 4.4          |  | 283.9    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Capital schemes                                                       |      | (69.8      | ) | (67.6      | ) | (50.9      | ) |             |  | (50.9    | )
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      | 292.8      |   | 288.2      |   | 228.6      |   | 4.4          |  | 233.0    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Depreciation and amortisation:                                        | 3(b) |            |   |            |   |            |   |              |  |          |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Owned fixed assets                                                    |      | 345.6      |   | 312.2      |   | 311.4      |   | 0.4          |  | 311.8    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Fixed assets held under finance
      leases                          |      | 4.2        |   | 4.4        |   | 4.7        |   |             |  | 4.7      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Amortisation of intangible
      assets                               |      | 7.1        |   | 7.4        |   | 4.0        |   |             |  | 4.0      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      | 356.9      |   | 324.0      |   | 320.1      |   | 0.4          |  | 320.5    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Other operating costs                                                 |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Auditors remuneration                                                |      | 0.5        |   | 0.4        |   | 0.3        |   |             |  | 0.3      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Research and development                                              |      | 0.8        |   | 1.5        |   | 2.6        |   |             |  | 2.6      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Operating leases:                                                     |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
| hire of plant and machinery                                         |      | 4.5        |   | 4.1        |   | 2.9        |   |             |  | 2.9      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
| land and buildings                                                  |      | 8.2        |   | 7.5        |   | 5.9        |   |             |  | 5.9      |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Electricity purchases                                                 |      |           |   |           |   |           |   | 150.0        |  | 150.0    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Cost of sales                                                         |      | 451.2      |   | 423.2      |   | 229.2      |   | 20.4         |  | 249.6    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Rents and rates                                                       |      | 75.7       |   | 68.0       |   | 76.2       |   | 0.2          |  | 76.4     |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|General, administration and
      other costs                         |      | 163.8      |   | 147.7      |   | 140.7      |   | 4.5          |  | 145.2    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      | 704.7      |   | 652.4      |   | 457.8      |   | 175.1        |  | 632.9    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Other income                                                          | 5    | (14.9      | ) | (11.9      | ) | (8.7       | ) |             |  | (8.7     | )
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      | 689.8      |   | 640.5      |   | 449.1      |   | 175.1        |  | 624.2    |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Net operating costs before
      exceptional items                    |      | 1,339.5    |   | 1,252.7    |   | 997.8      |   | 179.9        |  | 1,177.7  |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Exceptional items:                                                    |      |            |   |            |   |            |   |              |  |          |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
| business restructuring                                              | 3(a) | 3.8        |   | 11.9       |   | 16.6       |   |             |  | 16.6     |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
| adjustment to the carrying
      value of telecommunications assets | 3(b) | 25.5       |   |           |   |           |   |             |  |         |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  
|Total net operating costs                                             |      | 1,368.8    |   | 1,264.6    |   | 1,014.4    |   | 179.9        |  | 1,194.3  |  
|                                                                      |      |            |   |            |   |            |   |              |  |          |  

|Fees payable to
      Deloitte & Touche and its associates for non-audit services from the
      date of their appointment as auditors were £0.5 million primarily
      relating to due diligence and tax work. The audit fee for 2003 in relation
      to the company amounted to £74,000.                                                                                
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                             
|Fees payable to
      the groups former auditors KPMG Audit Plc and its associates for non-audit
      services, up to the date of their resignation in 2003, were £0.5 million
      (2002  £0.6 million; 2001  £0.7 million) primarily
      relating to due diligence and regulatory work. The audit fee for 2002 in
      relation to the company amounted to £77,000.
|                                                                                                                                                                                                                                                                                                                                                                             
|Employee costs
      are included above on a gross basis before removing those components capitalised
      in connection with the groups capital schemes. The adjustments made
      in the above table for Capital schemes are capitalised during
      the relevant period and included within tangible fixed asset additions.                                         
|                                                                                                                                                                                                                                                                                                                                                                             
|Information
      relating to the emoluments, long-term incentives, share options and pension
      entitlements of the directors is contained in the report on remuneration.                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                             
|(a)                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                             
|(b)                                                                                                                                                                                                                                                                                                                                                                          



54United
  Utilities Annual Report & Accounts 2003

---



4     PROFIT
  ON SALE OR TERMINATION OF OPERATIONS

|                                                                          |      |      |      | 2003 |   | 2002 |       | 2001 | 
|------------------------------------------------------------------------- | ---- | ---- | ---- | ---- | - | ---- | ----- | ---- | 
|                                                                          |      | Note |      | £m   |   | £m   |       | £m  
|                                                                          |      |      |      |      |   |      |       |     
|Withdrawal from
      infrastructure managementactivities in the Americas | 4(a) |      | 34.0 |      |  |      |      |     
|                                                                          |      |      |      |      |   |      |       |     
|Profit on disposal
      of energy supply business                        | 4(b) |      |     |      |  |      | 191.2 |     
|                                                                         

|(a) | IEBA, the Argentine electricity
      utility for which United Utilities has been technical operator, and in which
      the group has a minority interest, defaulted on its repayments to bondholders
      in September 2002. There is no recourse to United Utilities in respect of
      these debts and the group has no further balance sheet exposure to IEBA.
      Following the Argentine Governments dissolution of the Peso/US Dollar
      link, the subsequent devaluation of the Argentine Peso and the restrictions
      placed on the utilitys pricing policies, there is no expectation of
      a financial restructuring of the utility in which United Utilities would
      choose to participate. United Utilities has notified IEBA and its majority
      shareholder, Gruppo Camuzzi, that it will neither inject any additional
      equity into the company nor, with the exception of meeting the groups
      obligations under the technical support contract, participate in the future
      management of IEBA and its operating subsidiary, EDEA. United Utilities
      has therefore concluded that it no longer has a participating interest in
      IEBA. The accounting provision that existed at 31 March 2002 in respect
      of the investment in Argentina has been taken to the profit and loss account
      which, along with the disposal of US Water and costs associated with withdrawing
      from infrastructure management in the Americas, gives rise to an exceptional
      credit of £34.0 million.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(b) | In the year ended 31 March
      2001 the group sold its energy supply business to TXU Europe for a cash
      consideration of £310 million realising a profit of £191.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

5     OTHER
  INCOME

|                                                | 2003 |    | 2002 |  | 2001 |  
|----------------------------------------------- | ---- | -- | ---- |  | ---- | -
|£m                                              | £m   | £m
|                                                |      |    |      |  |      |  
|Profit/(loss) on disposal
      of fixed assets | 4.5  |    | 3.6  |  | (0.5 | )
|                                                |      |    |      |  |      |  
|Net rents receivable                            | 7.3  |    | 6.9  |  | 6.3  |  
|                                                |      |    |      |  |      |  
|Dividend income                                 | 2.6  |    | 0.8  |  | 1.2  |  
|                                                |      |    |      |  |      |  
|Other                                           | 0.5  |    | 0.6  |  | 1.7  |  
|                                                |      |    |      |  |      |  
|                                                | 14.9 |    | 11.9 |  | 8.7  |  
|                                                |      |    |      |  |      |  

6 EMPLOYEES

|                                                                      | 2003   |  | 2002   |  | 2001   | 
|--------------------------------------------------------------------- | ------ |  | ------ |  | ------ | 
|                                                                      |        |  |        |  |        | 
|Licensed multi-utility operations                                     | 4,269  |  | 4,368  |  | 4,764  | 
|                                                                      |        |  |        |  |        | 
|Infrastructure management                                             | 2,163  |  | 2,076  |  | 407    | 
|                                                                      |        |  |        |  |        | 
|Business process outsourcing                                          | 6,540  |  | 6,576  |  | 5,015  | 
|                                                                      |        |  |        |  |        | 
|Telecommunications                                                    | 681    |  | 743    |  | 618    | 
|                                                                      |        |  |        |  |        | 
|Other activities                                                      | 149    |  | 130    |  | 109    | 
|                                                                      |        |  |        |  |        | 
|Discontinued activities:                                              |        |  |        |  |        | 
|                                                                      |        |  |        |  |        | 
|Energy supply                                                         |       |  |       |  | 114    | 
|                                                                      |        |  |        |  |        | 
|Other                                                                 |       |  |       |  | 25     | 
|                                                                      |        |  |        |  |        | 
|Average number of persons
      employed by the group during the year | 13,802 |  | 13,893 |  | 11,052 | 
|                                                                      |        |  |        |  |        | 

7     NET
  INTEREST PAYABLE AND OTHER SIMILAR CHARGES

|                                                                                | 2003  |   | 2002  |   | 2001  |  
|------------------------------------------------------------------------------- | ----- | - | ----- | - | ----- | -
|                                                                                | £m    |   | £m    |   | £m   
|                                                                                |       |   |       |   |       |  
|Interest payable:                                                               |       |   |       |   |       |  
|                                                                                |       |   |       |   |       |  
|Group:                                                                          |       |   |       |   |       |  
|                                                                                |       |   |       |   |       |  
| on bank loans, overdrafts
      and other loans                               | 243.8 |   | 220.8 |   | 205.5 |  
|                                                                                |       |   |       |   |       |  
| on finance leases                                                             | 2.2   |   | 8.0   |   | 10.1  |  
|                                                                                |       |   |       |   |       |  
| finance element of
      onerous contract provision (discontinued operations) |      |   |      |   | 4.0   |  
|                                                                                |       |   |       |   |       |  
|Joint ventures                                                                  | 11.3  |   | 13.9  |   | 11.6  |  
|                                                                                |       |   |       |   |       |  
|Total interest payable                                                          | 257.3 |   | 242.7 |   | 231.2 |  
|                                                                                |       |   |       |   |       |  
|Interest receivable
      and similar income                                    | (25.9 | ) | (12.1 | ) | (10.9 | )
|                                                                                |       |   |       |   |       |  
|Net interest payable and other
      similar charges                            | 231.4 |   | 230.6 |   | 220.3 |  
|                                                                                |       |   |       |   |       |  

United Utilities
  Annual Report & Accounts 200355

---



Notes to the accounts (continued)



8TAXATION
  ON PROFIT ON ORDINARY ACTIVITIES

|                                                                                                                                                    |       |   | Restated |   | Restated |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | - | -------- | - | -------- | -
|                                                                                                                                                    | 2003  |   | 2002     |   | 2001     |  
|                                                                                                                                                    | £m    |   | £m       |   | £m       |  
|                                                                                                                                                    |       |   |          |   |          |  
|Ordinary tax:                                                                                                                                       |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|Current tax:                                                                                                                                        |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|UK corporation tax at 30 per cent                                                                                                                   | 11.0  |   | 13.6     |   | 7.4      |  
|                                                                                                                                                    |       |   |          |   |          |  
|Overseas tax                                                                                                                                        | 0.1   |   | 0.4      |   | 0.9      |  
|                                                                                                                                                    |       |   |          |   |          |  
|Share of joint ventures tax                                                                                                                        | 1.7   |   | 2.4      |   | 3.1      |  
|                                                                                                                                                    |       |   |          |   |          |  
|Prior years tax adjustments                                                                                                                         | (41.9 | ) |         |   |         |  
|                                                                                                                                                    |       |   |          |   |          |  
|Total ordinary current tax                                                                                                                          | (29.1 | ) | 16.4     |   | 11.4     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Deferred tax:                                                                                                                                       |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|Origination and reversal of timing differences                                                                                                      | 88.2  |   | 82.8     |   | 89.0     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Decrease/(increase) in discount                                                                                                                     | 0.3   |   | (59.8    | ) | (33.0    | )
|                                                                                                                                                    |       |   |          |   |          |  
|Prior years tax adjustments                                                                                                                         | (2.6  | ) |         |   |         |  
|                                                                                                                                                    |       |   |          |   |          |  
|Total ordinary deferred tax                                                                                                                         | 85.9  |   | 23.0     |   | 56.0     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Total ordinary tax                                                                                                                                  | 56.8  |   | 39.4     |   | 67.4     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Exceptional tax:                                                                                                                                    |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|Current tax:                                                                                                                                        |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|Exceptional tax on restructuring of businesses                                                                                                      | (6.3  | ) |         |   | 45.0     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Deferred tax:                                                                                                                                       |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|Origination and reversal of timing differences                                                                                                      | (4.5  | ) |         |   | 24.0     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Decrease in discount                                                                                                                                | 1.4   |   |         |   |         |  
|                                                                                                                                                    |       |   |          |   |          |  
|Total exceptional tax                                                                                                                               | (9.4  | ) |         |   | 69.0     |  
|                                                                                                                                                    |       |   |          |   |          |  
|Tax on profit on ordinary
      activities                                                                                                          | 47.4  |   | 39.4     |   | 136.4    |  
|                                                                                                                                                    |       |   |          |   |          |  
|                                                                                                                                                    |       |   |          |   |          |  
|The table below reconciles
      the notional tax charge at the UK corporation tax rate for the year to the
      actual current rate for taxation. |       |   |          |   |          |  



|                                                                |       |   | Restated |   | Restated |  
|--------------------------------------------------------------- | ----- | - | -------- | - | -------- | -
|                                                                | 2003  |   | 2002     |   | 2001     |  
|                                                                | £m    |   | £m       |   | £m       |  
|                                                                |       |   |          |   |          |  
|Profit on ordinary activities
      before tax                  | 327.5 |   | 302.8    |   | 477.7    |  
|                                                                |       |   |          |   |          |  
|                                                                | %     |   | %        |   | %        |  
|                                                                |       |   |          |   |          |  
|UK corporation tax rate                                         | 30.0  |   | 30.0     |   | 30.0     |  
|                                                                |       |   |          |   |          |  
|Capital allowances in excess
      of depreciation              | (24.2 | ) | (28.6    | ) | (15.2    | )
|                                                                |       |   |          |   |          |  
|Other timing differences                                        | (1.4  | ) | 1.7      |   | (8.1     | )
|                                                                |       |   |          |   |          |  
|Disposal of businesses                                          |      |   |         |   | 2.5      |  
|                                                                |       |   |          |   |          |  
|Withdrawal from infrastructure
      management in the Americas | (4.0  | ) |         |   |         |  
|                                                                |       |   |          |   |          |  
|Prior years tax adjustments                                     | (12.8 | ) |         |   |         |  
|                                                                |       |   |          |   |          |  
|Net costs not deductible for
      tax purposes                 | 1.6   |   | 2.3      |   | 2.6      |  
|                                                                |       |   |          |   |          |  
|Actual current tax rate                                         | (10.8 | ) | 5.4      |   | 11.8     |  
|                                                                |       |   |          |   |          |  
|                                                               



|9DIVIDENDS                                                                         |       |  |       |  |       | 
|---------------------------------------------------------------------------------- | ----- |  | ----- |  | ----- | 
|                                                                                   | 2003  |  | 2002  |  | 2001  | 
|                                                                                   | £m    |  | £m    |  | £m    | 
|                                                                                   |       |  |       |  |       | 
|Interim dividend of 15.5 pence
      (2002  15.3 pence; 2001  15.0 pence)        | 86.2  |  | 84.7  |  | 82.9  | 
|                                                                                   |       |  |       |  |       | 
|Final dividend of 32.1 pence
      proposed (2002  31.7 pence; 2001  31.1 pence) | 178.6 |  | 176.2 |  | 172.0 | 
|                                                                                   |       |  |       |  |       | 
|                                                                                   | 264.8 |  | 260.9 |  | 254.9 | 
|                                                                                   |       |  |       |  |       | 

56United
  Utilities Annual Report & Accounts 2003

---



|10     EARNINGS
      PER SHARE                                                |        |   |          |   |          |  
|------------------------------------------------------------------------------ | ------ | - | -------- | - | -------- | -
|                                                                               |        |   | Restated |   | Restated |  
|                                                                               | 2003   |   | 2002     |   | 2001     |  
|                                                                               |       
|                                                                               |        |   |          |   |          |  
|Profit for the financial year
      attributable to ordinary shareholders      | £277.8 | m | £261.8   | m | £341.3   | m
|                                                                               |       
|Basic earnings per ordinary
      share                                        | 50.0   | p | 47.3     | p | 61.9     | p
|                                                                               |       
|Diluted earnings per ordinary
      share                                      | 49.8   | p | 47.2     | p | 61.6     | p
|                                                                               |       
|Adjusted basic earnings
      per share:                                       | £m     |   | £m       |   | £m       |  
|                                                                               |       
|Profit for the financial year
      attributable to ordinary shareholders      | 277.8  |   | 261.8    |   | 341.3    |  
|                                                                               |       
|Adjustments:                                                                   |        |   |          |   |          |  
|                                                                               |       
|Discontinued operations                                                        |       |   |         |   | (17.6    | )
|                                                                               |       
|Exceptional items:                                                             |        |   |          |   |          |  
|                                                                               |       
| business restructuring                                                       | 3.8    |   | 11.9     |   | 16.6     |  
|                                                                               |       
| withdrawal from infrastructure
      management in the Americas              | (34.0  | ) |         |   |         |  
|                                                                               |       
| adjustment to the carrying
      value of telecommunications assets          | 25.5   |   |         |   |         |  
|                                                                               |       
|Profit on disposal of businesses                                               |       |   |         |   | (191.2   | )
|                                                                               |       
|Exceptional taxation                                                           | (9.4   | ) |         |   | 69.0     |  
|                                                                               |       
|Amortisation of goodwill                                                       | 7.5    |   | 8.0      |   | 4.0      |  
|                                                                               |       
|Adjusted profit for financial
      year attributable to ordinary shareholders | 271.2  |   | 281.7    |   | 222.1    |  
|                                                                               |       
|Adjusted basic earnings per
      ordinary share                               | 48.8   | p | 50.9     | p | 40.3     | p
|                                                                               |       
|Adjusted diluted earnings
      per ordinary share                             | 48.6   | p | 50.7     | p | 40.1     | p
|                                                                               |       

Basic earnings per ordinary share and the adjusted
  basic earnings per ordinary share have been calculated by dividing profit and
  the adjusted profit for the financial year attributable to ordinary shareholders
  by 556.1 million, being the weighted average number of shares in issue during
  the year (2002  553.5 million; 2001  551.1 million).

Diluted earnings per ordinary share and adjusted
  diluted earnings per ordinary share have been calculated by dividing profit
  and the adjusted profit for the financial year attributable to ordinary shareholders
  by 557.6 million, being the weighted average number of shares in issue during
  the year including dilutive shares (2002  555.2 million; 2001  553.7
  million).

Adjusted earnings per share is being presented
  to provide additional information on the groups underlying performance.

The weighted average number of shares can be
  reconciled to the weighted average number of shares including dilutive shares
  as follows:

|                                                                          | 2003    |   | 2002    |   | 2001    |  
|------------------------------------------------------------------------- | ------- | - | ------- | - | ------- | -
|                                                                          | million |   | million |   | million |  
|                                                                          |        
|                                                                          |         |   |         |   |         |  
|Average number of ordinary
      shares in issue  basic                  | 556.1   |   | 553.5   |   | 551.1   |  
|                                                                          |        
|Average number of ordinary
      shares under option                      | 9.6     |   | 10.0    |   | 12.8    |  
|                                                                          |        
|Number of ordinary shares
      that would have been issued at fair value | (8.1    | ) | (8.3    | ) | (10.2   | )
|                                                                          |        
|Average number of ordinary
      shares in issue  diluted                | 557.6   |   | 555.2   |   | 553.7   |  
|                                                                          |        
|                                                                         

|11     INTANGIBLE
      FIXED ASSETS |          |   |             |  |       |  
|------------------------------------ | -------- | - | ----------- |  | ----- | -
|                                     |          |   | Other       |  |       |  
|                                     | Goodwill |   | intangibles |  | Total |  
|                                     | £m       |   | £m          |  | £m    |  
|                                     |         
|                                     |          |   |             |  |       |  
|Cost:                                |          |   |             |  |       |  
|                                     |         
|At 1 April 2002                      | 84.0     |   | 9.0         |  | 93.0  |  
|                                     |         
|Additions                            | 7.2      |   |            |  | 7.2   |  
|                                     |         
|Revaluations                         | (1.2     | ) |            |  | (1.2  | )
|                                     |         
|At 31 March 2003                     | 90.0     |   | 9.0         |  | 99.0  |  
|                                     |         
|Amortisation:                        |          |   |             |  |       |  
|                                     |         
|At 1 April 2002                      | 11.7     |   | 0.1         |  | 11.8  |  
|                                     |         
|Charge for the year                  | 6.8      |   | 0.3         |  | 7.1   |  
|                                     |         
|Revaluations                         | 2.3      |   | 8.6         |  | 10.9  |  
|                                     |         
|At 31 March 2003                     | 20.8     |   | 9.0         |  | 29.8  |  
|                                     |         
|Net book value:                      |          |   |             |  |       |  
|                                     |         
|At 31 March 2003                     | 69.2     |   |            |  | 69.2  |  
|                                     |         
|At 31 March 2002                     | 72.3     |   | 8.9         |  | 81.2  |  
|                                     |         

United Utilities
  Annual Report & Accounts 200357

---



Notes to the accounts (continued)

|12     TANGIBLE
      FIXED ASSETS          |           |    |                |    |             |    |                 |    |              |    |          |  
|------------------------------------------- | --------- | -- | -------------- | -- | ----------- | -- | --------------- | -- | ------------ | -- | -------- | -
|                                            |           |    |                |    |             |    | Fixtures,       |    | Assets in    |    |          |  
|                                            | Land and  |    | Infrastructure |    | Operational |    | fittings, tools |    | course of    |    |          |  
|Group                                       | buildings |    | assets         |    | assets      |    | and equipment   |    | construction |    | Total    |  
|£m                                          |           | £m |                | £m |             | £m |                 | £m |              | £m |         
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Cost:                                       |           |    |                |    |             |    |                 |    |              |    |          |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|At 31 March 2002 as previously
      stated | 249.0     |    | 3,278.6        |    | 4,368.1     |    | 729.6           |    | 823.3        |    | 9,448.6  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Restatements                                |          |    |               |    | (7.2        | )  |                |    |             |    | (7.2     | )
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Restated at 1 April 2002                    | 249.0     |    | 3,278.6        |    | 4,360.9     |    | 729.6           |    | 823.3        |    | 9,441.4  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Acquisitions                                |          |    |               |    |            |    | 3.1             |    |             |    | 3.1      |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Additions                                   | 6.2       |    | 65.5           |    | 156.5       |    | 56.5            |    | 502.6        |    | 787.3    |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Grants and contributions                    |          |    | (9.1           | )  |            |    |                |    |             |    | (9.1     | )
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Transfers                                   | 91.5      |    | 101.5          |    | 238.3       |    | 99.9            |    | (531.2       | )  |         |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Disposals                                   | (1.9      | )  |               |    | (20.9       | )  | (52.1           | )  |             |    | (74.9    | )
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|At 31 March 2003                            | 344.8     |    | 3,436.5        |    | 4,734.8     |    | 837.0           |    | 794.7        |    | 10,147.8 |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Depreciation:                               |           |    |                |    |             |    |                 |    |              |    |          |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|At 31 March 2002 as previously
      stated | 59.8      |    | 1,044.6        |    | 1,263.2     |    | 400.5           |    |             |    | 2,768.1  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Restatements                                |          |    |               |    | 0.2         |    |                |    |             |    | 0.2      |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Restated at 1 April 2002                    | 59.8      |    | 1,044.6        |    | 1,263.4     |    | 400.5           |    |             |    | 2,768.3  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Charge for the year                         | 11.9      |    | 96.7           |    | 161.2       |    | 80.0            |    |             |    | 349.8    |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Transfers                                   | 24.3      |    |               |    | (30.8       | )  | 6.5             |    |             |    |         |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Disposals                                   | (1.6      | )  |               |    | (19.3       | )  | (51.3           | )  |             |    | (72.2    | )
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Revaluations                                |          |    |               |    | 14.6        |    |                |    |             |    | 14.6     |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|At 31 March 2003                            | 94.4      |    | 1,141.3        |    | 1,389.1     |    | 435.7           |    |             |    | 3,060.5  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|Net book value:                             |           |    |                |    |             |    |                 |    |              |    |          |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|At 31 March 2003                            | 250.4     |    | 2,295.2        |    | 3,345.7     |    | 401.3           |    | 794.7        |    | 7,087.3  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  
|At 31 March 2002 as restated                | 189.2     |    | 2,234.0        |    | 3,097.5     |    | 329.1           |    | 823.3        |    | 6,673.1  |  
|                                            |           |    |                |    |             |    |                 |    |              |    |          |  

Grants and contributions received
  relating to infrastructure assets have been deducted from the cost of fixed
  assets in order to show a true and fair view (accounting policy note 1(h)).
  As a consequence, the net book value of fixed assets is £99.4 million
  (2002  £90.3 million) lower than it would have been had this treatment
  not been adopted.

|Within tangible fixed assets are assets
      held under finance leases at the following amounts: |       |  |       | 
|------------------------------------------------------------------------------------------------- | ----- |  | ----- | 
|                                                                                                  | 2003  |  | 2002  | 
|                                                                                                  | £m    |  | £m    | 
|                                                                                                  |       |  |       | 
|Cost:                                                                                             |       |  |       | 
|                                                                                                  |       |  |       | 
|Operational assets                                                                                | 250.8 |  | 250.8 | 
|                                                                                                  |       |  |       | 
|Fixtures, fittings, tools
      and equipment                                                     | 0.7   |  | 6.8   | 
|                                                                                                  |       |  |       | 
|At 31 March                                                                                       | 251.5 |  | 257.6 | 
|                                                                                                  |       |  |       | 
|Accumulated depreciation:                                                                         |       |  |       | 
|                                                                                                  |       |  |       | 
|Operational assets                                                                                | 81.4  |  | 77.2  | 
|                                                                                                  |       |  |       | 
|Fixtures, fittings, tools
      and equipment                                                     | 0.5   |  | 0.6   | 
|                                                                                                  |       |  |       | 
|At 31 March                                                                                       | 81.9  |  | 77.8  | 
|                                                                                                  |       |  |       | 
|Net book value:                                                                                   |       |  |       | 
|                                                                                                  |       |  |       | 
|Operational assets                                                                                | 169.4 |  | 173.6 | 
|                                                                                                  |       |  |       | 
|Fixtures, fittings, tools
      and equipment                                                     | 0.2   |  | 6.2   | 
|                                                                                                  |       |  |       | 
|At 31 March                                                                                       | 169.6 |  | 179.8 | 
|                                                                                                  |       |  |       | 
|                                                                                                 

|Capital commitments at 31 March 2003 were
      as follows: |       |  |       | 
|----------------------------------------------------------- | ----- |  | ----- | 
|                                                            | 2003  |  | 2002  | 
|                                                            | £m    |  | £m    | 
|                                                            |       |  |       | 
|Capital commitments:                                        |       |  |       | 
|                                                            |       |  |       | 
|Contracted but not provided
      for                       | 402.7 |  | 173.8 | 
|                                                            |       |  |       | 
|                                                           

58United
  Utilities Annual Report & Accounts 2003

---





|Company                                 | Fixtures,
      fittings,
      tools and equipment£m | 
|--------------------------------------- | ----------------------------------------------------- | 
|                                        |                                                       | 
|Cost:                                   |                                                       | 
|                                        |                                                       | 
|At 1 April 2002 and 31 March
      2003 | 4.8                                                   | 
|                                        |                                                       | 
|Depreciation:                           |                                                       | 
|                                        |                                                       | 
|At 1 April 2002                         | 3.7                                                   | 
|                                        |                                                       | 
|Charge for the year                     | 0.1                                                   | 
|                                        |                                                       | 
|At 31 March 2003                        | 3.8                                                   | 
|                                        |                                                       | 
|Net book value:                         |                                                       | 
|                                        |                                                       | 
|At 31 March 2003                        | 1.0                                                   | 
|                                        |                                                       | 
|At 31 March 2002                        | 1.1                                                   | 
|                                        |                                                       | 

The company had no capital commitments in the
  years ended 31 March 2003 and 31 March 2002.

|13     FIXED
      ASSET INVESTMENTS        |                      |   |                         |   |         |   |            |   |          |   |         |   |         |  
|------------------------------------------- | -------------------- | - | ----------------------- | - | ------- | - | ---------- | - | -------- | - | ------- | - | ------- | -
|                                            | Joint
      ventures |   | Other
      investments |   |         |  
|                                            |                      |   |                         |   |         |  
|Group                                       | Unlisted£m           |   | Loans£m                 |   | Total£m |   | Unlisted£m |   | Listed£m |   | Total£m |   | Total£m |  
|                                            |                     
|At 31 March 2002 as previously
      stated | 48.5                 |   | 8.6                     |   | 57.1    |   | 18.6       |   | 7.8      |   | 26.4    |   | 83.5    |  
|                                            |                     
|Restatements                                | (4.1                 | ) |                        |   | (4.1    | ) |           |   |         |   |        |   | (4.1    | )
|                                            |                     
|Restated at 1 April 2002                    | 44.4                 |   | 8.6                     |   | 53.0    |   | 18.6       |   | 7.8      |   | 26.4    |   | 79.4    |  
|                                            |                     
|Additions                                   | 1.2                  |   | 5.0                     |   | 6.2     |   | 1.0        |   |         |   | 1.0     |   | 7.2     |  
|                                            |                     
|Share of profits                            | 1.9                  |   |                        |   | 1.9     |   |           |   |         |   |        |   | 1.9     |  
|                                            |                     
|Disposals                                   | (7.0                 | ) |                        |   | (7.0    | ) |           |   | (7.8     | ) | (7.8    | ) | (14.8   | )
|                                            |                     
|Distributions and loan repayments           | (11.9                | ) | (2.0                    | ) | (13.9   | ) |           |   |         |   |        |   | (13.9   | )
|                                            |                     
|Exchange adjustments                        | (0.1                 | ) | 0.1                     |   |        |   | (0.2       | ) |         |   | (0.2    | ) | (0.2    | )
|                                            |                     
|At 31 March 2003                            | 28.5                 |   | 11.7                    |   | 40.2    |   | 19.4       |   |         |   | 19.4    |   | 59.6    |  
|                                            |                     

Included within unlisted joint ventures is
  £7.7 million of goodwill (net of £1.3 million amortisation) in respect
  of the groups investment in AS Tallinna Vesi and £1.1 million (net
  of £0.1 million amortisation) in respect of the groups investment
  in International Water UU (Highland) Limited.

Share of profits comprise share of operating
  profits £14.9 million, share of interest charge £11.3 million and
  share of taxation charge £1.7 million.

|Company          | Shares
      in
      subsidiary
      undertakings£m |   | Other
      investments£m |  | Total£m |  
|---------------- | ----------------------------------------------------- | - | ------------------------- |  | ------- | -
|                 |                                                      
|Cost:            |                                                       |   |                           |  |         |  
|                 |                                                      
|At 1 April 2002  | 5,565.6                                               |   | 3.9                       |  | 5,569.5 |  
|                 |                                                      
|Revaluation      | (10.8                                                 | ) |                          |  | (10.8   | )
|                 |                                                      
|At 31 March 2003 | 5,554.8                                               |   | 3.9                       |  | 5,558.7 |  
|                 |                                                      

United Utilities
  Annual Report & Accounts 200359

---





Notes to the accounts (continued)

Details of principal operating subsidiary undertakings
  and joint ventures, all of which are unlisted, are set out below.

These undertakings are included within the
  consolidated group financial statements.

---

|                                                                | Class
      of share      |          | Proportion
      of share capital |  | Nature
      of                                                                 
|--------------------------------------------------------------- | ------------------------- | -------- | --------------------------------- |  | --------------------------------------------------------------------------------
|capital held                                                    | owned/voting
      rights | business
|                                                               
|Subsidiary undertakings:                                        |                           |          |                                   |  |                                                                                 
|                                                               
|Great Britain:                                                  |                           |          |                                   |  |                                                                                 
|                                                               
|United Utilities Water PLC                                      | Ordinary                  |          | 100%*                             |  | Water and wastewater services
      and network management                      
|                                                               
|United Utilities Electricity
      PLC                          | Ordinary                  |          | 100%*                             |  | Electricity distribution and
      related services                             
|                                                               
|Your Communications Limited                                     | Ordinary                  |          | 100%*                             |  | Telecommunications                                                              
|                                                               
|Vertex Data Science Limited                                     | Ordinary                  |          | 85.6%                             |  | Business process outsourcing                                                    
|                                                               
|Vertex Customer Management
      (UK) Limited                   | Ordinary                  |          | 85.6%*                            |  | Business process outsourcing                                                    
|                                                               
|United Utilities International
      Limited                    | Ordinary                  |          | 100%*                             |  | Consulting services and project
      management                                
|                                                               
|United Utilities Green Energy
      Limited                     | Ordinary                  |          | 100%*                             |  | Renewable energy services                                                       
|                                                               
|United Utilities Industrial
      Limited                       | Ordinary                  |          | 100%*                             |  | Water treatment operations                                                      
|                                                               
|United Utilities Facilities
      and Property Services Limited | Ordinary                  |          | 100%                              |  | Property and facilities management                                              
|                                                               
|United Utilities
      Operational Services Limited             | Ordinary                  |          | 100%*                             |  | Operation and maintenance
      of water and wastewater assetsof
      Dwr Cymru
|                                                               
|United Utilities Operational
      Services (Highland) Limited  | Ordinary                  |          | 100%*                             |  | Operation and maintenance
      of wastewater assets                            
|                                                               
|United Utilities Operational
      Services (Tay) Limited       | Ordinary                  |          | 100%*                             |  | Operation and maintenance
      of wastewater assets                            
|                                                               
|United Utilities Operational
      Services (Moray) Limited     | Ordinary                  |          | 100%*                             |  | Operation and maintenance
      of wastewater assets                            
|                                                               
|Australia:                                                      |                           |          |                                   |  |                                                                                 
|                                                               
|United Utilities Macarthur
      Operations Pty Limited         | Ordinary                  |          | 100%*                             |  | Technical and management services                                               
|                                                               
|Yabulu Water Pty Limited                                        | Ordinary                  |          | 100%*                             |  | Technical and management services                                               
|                                                               
|Canada:                                                         |                           |          |                                   |  |                                                                                 
|                                                               
|Vertex Customer Management
      (Canada) Limited               | Ordinary                  |          | 85.6%*                            |  | Business process outsourcing                                                    
|                                                               
|India:                                                          |                           |          |                                   |  |                                                                                 
|                                                               
|7C Customer Services India
      Private Limited                | Ordinary                  |          | 64.2%*                            |  | Business process outsourcing                                                    
|                                                               
|Joint ventures:                                                 |                           |          |                                   |  |                                                                                 
|                                                               
|Great Britain:                                                  |                           |          |                                   |  |                                                                                 
|                                                               
|Catchment Limited                                               | Ordinary                  |          | 50%*                              |  | Contract operations and maintenance
      services                              
|                                                               
|Catchment (Tay) Limited                                         | Ordinary                  |          | 33%*                              |  | Contract operations and maintenance
      services                              
|                                                               
|Catchment (Moray) Limited                                       | Ordinary                  |          | 33%*                              |  | Contract operations and maintenance
      services                              
|                                                               
|Meter Serve (North West) Limited                                | Ordinary                  |          | 50%*                              |  | Metering services                                                               
|                                                               
|Meter Serve (North East) Limited                                | Ordinary                  |          | 50%*                              |  | Metering services                                                               
|                                                               
|Australia:                                                      |                           |          |                                   |  |                                                                                 
|                                                               
|Yan Yean Water Pty Limited                                      | Ordinary                  |          | 50%*                              |  | Water treatment operations                                                      
|                                                               
|Macarthur Water Pty Limited                                     | Ordinary                  |          | 50%*                              |  | Water treatment operations                                                      
|                                                               
|Riverland Water Pty Limited                                     | Ordinary                  |          | 50%*                              |  | Water treatment operations                                                      
|                                                               
|Estonia:                                                        |                           |          |                                   |  |                                                                                 
|                                                               
|AS Tallinna Vesi                                                | Ordinary                  |          | 25.2%*                            |  | Contract operations and maintenance
      services                              
|                                                               
|Bulgaria:                                                       |                           |          |                                   |  |                                                                                 
|                                                               
|Sofijska Voda A.D.                                              | Ordinary                  |          | 39.5%*                            |  | Contract operations and maintenance
      services                              
|                                                               

* Shares are held directly by United Utilities
  PLC except where marked with an asterisk where they are held by subsidiary undertakings.

A full list of the companys subsidiary
  undertakings is included within the companys annual return.

60United
  Utilities Annual Report & Accounts 2003

---





|Acquisitions                                 |            |   |             |   |            |  
|-------------------------------------------- | ---------- | - | ----------- | - | ---------- | -
|                                             |            |   | Revaluation |   | Fair value |  
|                                             | Book value |   | adjustments |   | to group   |  
|                                             | £m         |   | £m          |   | £m         |  
|                                             |           
|                                             |            |   |             |   |            |  
|Tangible fixed assets                        | 5.1        |   | (2.0        | ) | 3.1        |  
|                                             |           
|Debtors                                      | 0.2        |   |            |   | 0.2        |  
|                                             |           
|Cash                                         | 0.3        |   |            |   | 0.3        |  
|                                             |           
|Creditors falling due within
      one year  | (2.3       | ) | (0.3        | ) | (2.6       | )
|                                             |           
|Provisions for liabilities
      and charges | (1.0       | ) | (5.2        | ) | (6.2       | )
|                                             |           
|Deferred tax asset                           |           |   | 3.2         |   | 3.2        |  
|                                             |           
|Minority interest                            | (0.2       | ) |            |   | (0.2       | )
|                                             |           
|Net assets/(liabilities)                     | 2.1        |   | (4.3        | ) | (2.2       | )
|                                             |           
|Consideration:                               |            |   |             |   |            |  
|                                             |           
|Cash                                         |            |   |             |   | 5.0        |  
|                                             |           
|Goodwill arising                             |            |   |             |   | 7.2        |  
|                                             |           

Vertex Data Science Limited acquired the business
  and assets of the UK contact centre operator, 7C, and its 75 per cent shareholding
  in 7C India Ltd on 2 December 2002. Above is an analysis of the net assets acquired
  and the fair value to the group.

The results and cashflows of the acquisition
  have not been disclosed separately in the profit and loss account or cash flow
  statement as they do not form a significant part of the groups results.

|14STOCKS                               |      |  |          | 
|-------------------------------------- | ---- |  | -------- | 
|                                       |      |  | Group    | 
|                                       |      | 
|                                       |      |  |          | 
|                                       |      |  | Restated | 
|                                       | 2003 |  | 2002     | 
|                                       | £m   |  | £m       | 
|                                       |     
|                                       |      |  |          | 
|Raw materials and
      finished goods | 8.5  |  | 6.1      | 
|                                       |     
|Work in progress                       | 12.1 |  | 2.7      | 
|                                       |     
|                                       | 20.6 |  | 8.8      | 
|                                       |     

|15DEBTORS                                     |       |   |       |   |         |  |         | 
|--------------------------------------------- | ----- | - | ----- | - | ------- |  | ------- | 
|                                              |       |   | Group |   |         |  | Company | 
|                                              |       |   |       |  
|                                              |       |   |       |   |         |  |         | 
|                                              | 2003  |   | 2002  |   | 2003    |  | 2002    | 
|                                              | £m    |   | £m    |   | £m      |  | £m      | 
|                                              |      
|                                              |       |   |       |   |         |  |         | 
|Amounts falling
      due within one year:    |       |   |       |   |         |  |         | 
|                                              |      
|Trade debtors                                 | 313.6 |   | 327.6 |   |        |  |        | 
|                                              |      
|Provisions for doubtful
      debts           | (93.9 | ) | (70.6 | ) |        |  |        | 
|                                              |      
|                                              | 219.7 |   | 257.0 |   |        |  |        | 
|                                              |      
|Amounts owed by
      subsidiary undertakings |      |   |      |   | 1,841.0 |  | 1,662.1 | 
|                                              |      
|Other debtors                                 | 8.6   |   | 16.8  |   |        |  | 6.6     | 
|                                              |      
|Prepayments and
      accrued income          | 218.6 |   | 140.8 |   | 1.7     |  | 3.4     | 
|                                              |      
|                                              | 446.9 |   | 414.6 |   | 1,842.7 |  | 1,672.1 | 
|                                              |      

Within prepayments and accrued income is £59.6
  million which falls due after more than one year (2002  £36.9 million).

United Utilities
  Annual Report & Accounts 200361

---



Notes to the accounts (continued)



|16     CURRENT
      ASSET INVESTMENTS         |       |  |       |  |      |  |         | 
|---------------------------------------------- | ----- |  | ----- |  | ---- |  | ------- | 
|                                               |       |  | Group |  |      |  | Company | 
|                                               |       |  |       | 
|                                               | 2003  |  | 2002  |  | 2003 |  | 2002    | 
|                                               | £m    |  | £m    |  | £m   |  | £m      | 
|                                               |       |  |       |  |      |  |         | 
|Managed funds and short-term
      investments | 650.8 |  | 368.8 |  | 37.1 |  | 80.4    | 
|                                               |       |  |       |  |      |  |         | 
|Other current asset investments                | 18.1  |  | 20.7  |  |     |  |        | 
|                                               |       |  |       |  |      |  |         | 
|                                               | 668.9 |  | 389.5 |  | 37.1 |  | 80.4    | 
|                                               |       |  |       |  |      |  |         | 



|17     CREDITORS:
      AMOUNTS FALLING DUE WITHIN ONE YEAR |         |  |          |  |         |  |         | 
|----------------------------------------------------------- | ------- |  | -------- |  | ------- |  | ------- | 
|                                                            |         |  | Group    |  |         |  | Company | 
|                                                            |         |  |          | 
|                                                            |         |  | Restated |  |         |  |         | 
|                                                            | 2003    |  | 2002     |  | 2003    |  | 2002    | 
|                                                            | £m      |  | £m       |  | £m      |  | £m      | 
|                                                            |         |  |          |  |         |  |         | 
|Loans                                                       | 35.9    |  | 71.0     |  |        |  |        | 
|                                                            |         |  |          |  |         |  |         | 
|Bank overdrafts and temporary
      borrowings              | 157.5   |  | 164.9    |  | 124.8   |  | 142.3   | 
|                                                            |         |  |          |  |         |  |         | 
|Obligations under finance
      leases                      | 108.7   |  |         |  |        |  |        | 
|                                                            |         |  |          |  |         |  |         | 
|Trade creditors                                             | 61.2    |  | 72.1     |  |        |  |        | 
|                                                            |         |  |          |  |         |  |         | 
|Amounts owed to subsidiary
      undertakings               |        |  |         |  | 1,295.2 |  | 1,520.5 | 
|                                                            |         |  |          |  |         |  |         | 
|Dividends                                                   | 179.7   |  | 178.4    |  | 179.7   |  | 178.5   | 
|                                                            |         |  |          |  |         |  |         | 
|Corporation taxation                                        | 148.9   |  | 186.8    |  |        |  |        | 
|                                                            |         |  |          |  |         |  |         | 
|Other taxation and social
      security                    | 3.3     |  | 7.5      |  | 4.5     |  | 2.6     | 
|                                                            |         |  |          |  |         |  |         | 
|Accruals and deferred income                                | 728.9   |  | 661.1    |  | 55.5    |  | 56.4    | 
|                                                            |         |  |          |  |         |  |         | 
|                                                            | 1,424.1 |  | 1,341.8  |  | 1,659.7 |  | 1,900.3 | 
|                                                            |         |  |          |  |         |  |         | 



|18     CREDITORS:
      AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR |         |  |         |  |       |  |         | 
|-------------------------------------------------------------------- | ------- |  | ------- |  | ----- |  | ------- | 
|                                                                     |         |  | Group   |  |       |  | Company | 
|                                                                     |         |  |         | 
|                                                                     | 2003    |  | 2002    |  | 2003  |  | 2002    | 
|                                                                     | £m      |  | £m      |  | £m    |  | £m      | 
|                                                                     |         |  |         |  |       |  |         | 
|Loans                                                                | 3,680.0 |  | 3,012.0 |  | 768.5 |  | 753.1   | 
|                                                                     |         |  |         |  |       |  |         | 
|Obligations under finance
      leases                               | 81.1    |  | 200.6   |  |      |  |        | 
|                                                                     |         |  |         |  |       |  |         | 
|Other creditors                                                      | 24.0    |  |        |  |      |  |        | 
|                                                                     |         |  |         |  |       |  |         | 
|Deferred grants and contributions
      (note 19)                    | 285.5   |  | 265.6   |  |      |  |        | 
|                                                                     |         |  |         |  |       |  |         | 
|                                                                     | 4,070.6 |  | 3,478.2 |  | 768.5 |  | 753.1   | 
|                                                                     |         |  |         |  |       |  |         | 



|19     DEFERRED
      GRANTS AND CONTRIBUTIONS       |       |  
|---------------------------------------------------- | ----- | -
|                                                     | £m    |  
|                                                     |       |  
|At 1 April 2002                                      | 265.6 |  
|                                                     |       |  
|Received in the year                                 | 29.0  |  
|                                                     |       |  
|Credit to profit and loss
      account for the year | (9.1  | )
|                                                     |       |  
|At 31 March 2003                                     | 285.5 |  
|                                                     |       |  



62United
  Utilities Annual Report & Accounts 2003

---



|20PROVISIONS FOR LIABILITIES AND CHARGES |          |   |               |   |                |   |       |   |       |   |         |  
|---------------------------------------- | -------- | - | ------------- | - | -------------- | - | ----- | - | ----- | - | ------- | -
|                                         |          |   |               |   |                |   |       |   | Group |   | Company |  
|                                         |          |   |               |  
|                                         |          |   |               |   | Share of net   |   |       |   |       |   |         |  
|                                         |          |   |               |   | liabilities of |   |       |   |       |   |         |  
|                                         | Deferred |   |               |   | joint venture  |   |       |   |       |   |         |  
|                                         | tax      |   | Restructuring |   | (Argentina)    |   | Other |   | Total |   | Other   |  
|                                         | £m       |   | £m            |   | £m             |   | £m    |   | £m    |   | £m      |  
|                                         |         
|At 31 March 2002                         | 256.0    |   | 8.9           |   | 38.0           |   | 7.9   |   | 310.8 |   | 4.1     |  
|                                         |         
|Restatements                             |         |   |              |   | 0.3            |   |      |   | 0.3   |   |        |  
|                                         |         
|Restated at 1 April 2002                 | 256.0    |   | 8.9           |   | 38.3           |   | 7.9   |   | 311.1 |   | 4.1     |  
|                                         |         
|Arising on acquisitions                  | (3.2     | ) | 3.3           |   |               |   | 2.9   |   | 3.0   |   |        |  
|                                         |         
|Utilised                                 |         |   | (7.1          | ) |               |   | (8.0  | ) | (15.1 | ) | (4.1    | )
|                                         |         
|Profit and loss account                  | 82.8     |   | 1.5           |   | (38.3          | ) |      |   | 46.0  |   |        |  
|                                         |         
|At 31 March 2003                         | 335.6    |   | 6.6           |   |               |   | 2.8   |   | 345.0 |   |        |  
|                                         |         

The restructuring provisions are for costs
  of restructuring within the telecommunications business, and in relation to
  the 7C acquisition which are expected to be utilised within the following twelve
  months.

|21     DEFERRED
      TAX                     |         |   |         |  
|--------------------------------------------- | ------- | - | ------- | -
|                                              |         |   |         |  
|                                              | 2003    |   | 2002    |  
|                                              | £m      |   | £m      |  
|                                              |        
|                                              |         |   |         |  
|Accelerated capital allowances                | 1,183.4 |   | 1,106.9 |  
|                                              |        
|Short-term timing differences                 | (80.7   | ) | (82.1   | )
|                                              |        
|Undiscounted provision for
      deferred tax | 1,102.7 |   | 1,024.8 |  
|                                              |        
|Discount                                      | (767.1  | ) | (768.8  | )
|                                              |        
|Discounted provision for deferred
      tax   | 335.6   |   | 256.0   |  
|                                              |        

22BORROWINGS

Below is an analysis of gross debt which, after taking into account cash and short-term investments of £689.3 million, reduces to net debt of £3,373.9.

|                                               |      |   |         |  | 2003    |   | 2002    | 
|---------------------------------------------- | ---- | - | ------- |  | ------- | - | ------- | 
|                                               |      |   |         |  | £m      |   | £m      | 
|                                               |     
|                                               |      |   |         |  |         |   |         | 
|Bank overdrafts and temporary
      borrowings |      |   |         |  | 157.5   |   | 164.9   | 
|                                               |     
|Term loans                                     |      |   |         |  | 3,715.9 |   | 3,083.0 | 
|                                               |     
|Finance leases                                 |      |   |         |  | 189.8   |   | 200.6   | 
|                                               |     
|                                               |      |   |         |  | 4,063.2 |   | 3,448.5 | 
|                                               |     
|                                               |      |   | 2003    |  |         |   | 2002    | 
|Repayments fall due as follows:                | Year |   | £m      |  | Year    |   | £m      | 
|                                               |     
|After five years                               | 2009 | + | 2,291.0 |  | 2008    | + | 2,614.4 | 
|                                               |     
|From four to five years                        | 2008 |   | 901.2   |  | 2007    |   | 56.6    | 
|                                               |     
|From three to four years                       | 2007 |   | 50.9    |  | 2006    |   | 448.8   | 
|                                               |     
|From two to three years                        | 2006 |   | 468.1   |  | 2005    |   | 54.4    | 
|                                               |     
|From one to two years                          | 2005 |   | 49.9    |  | 2004    |   | 38.4    | 
|                                               |     
|After more than one year                       |      |   | 3,761.1 |  |         |   | 3,212.6 | 
|                                               |     
|Within one year                                | 2004 |   | 302.1   |  | 2003    |   | 235.9   | 
|                                               |     
|                                               |      |   | 4,063.2 |  |         |   | 3,448.5 | 
|                                               |     

Bank overdrafts and temporary
  borrowingsThe bank overdrafts and temporary borrowings
  are repayable in less than one year. The weighted average rate of interest on
  bank overdrafts and temporary borrowings was 4.25 per cent (2002  4.8
  per cent). The group had available committed bank facilities of £935.0
  million (2002  £1,010.0 million) of which £934.2 million was
  unutilised at 31 March 2003 (2002  £986.2 million). Of the amounts
  unutilised, £200.0 million expire within one year, £160.0 million
  expire after one year but in less than two years, and the remaining £574.2
  million expire in more than two years. In addition, the company has contracted
  but not yet issued, £50.0 million of long-term debt securities and a £10.0
  million long-term loan had not been drawn down at 31 March 2003.

Term loansAmounts repayable after more than five years
  comprise bank and other loans repayable between 2009 and 2053. Interest rates
  range from 3.375 per cent to 14.83 per cent on £1,932.0 million (2002
   £2,386.0 million) and are at floating rates on £359.0 million
  (2002  £228.4 million).

United Utilities
  Annual Report & Accounts 200363

---



Notes to the accounts (continued)

On total borrowings, interest rates range from
  0.75 per cent to 14.83 per cent on £3,264.6 million and are at floating
  rates on £798.6 million.

The analysis of net debt prior to the effect
  of derivative instruments, and its interest rate profile, is as follows:

|                           |                        |   |                                          |                         | Weighted average interest | Weighted average period for
|-------------------------- | ---------------------- | - | ---------------------------------------- | ----------------------- | ------------------------- | ---------------------------
|                           | Borrowings at 31 March |   | rate at which borrowings are
      fixed | which interest is fixed
|                           |                        |   |                                          |                        
|                           | 2003                   |   | 2002                                     |                         | 2003                      | 2002                       
|                           | £m                     |   | £m                                       |                         | %                         | %                          
|                           |                        |   |                                          |                         |                           |                            
|Fixed rate borrowings:     |                        |   |                                          |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Sterling                   | 1,308.7                |   | 978.8                                    |                         | 7.5                       | 8.2                        
|                           |                        |   |                                          |                         |                           |                            
|United States dollars *    | 753.0                  |   | 753.0                                    |                         | 6.5                       | 6.5                        
|                           |                        |   |                                          |                         |                           |                            
|Euros *                    | 1,102.3                |   | 1,091.6                                  |                         | 5.9                       | 5.9                        
|                           |                        |   |                                          |                         |                           |                            
|Japanese yen *             | 100.6                  |   | 84.0                                     |                         | 3.1                       | 3.6                        
|                           |                        |   |                                          |                         |                           |                            
|                           | 3,264.6                |   | 2,907.4                                  |                         | 6.6                       | 6.7                        
|                           |                        |   |                                          |                         |                           |                            
|Floating rate borrowings:  |                        |   |                                          |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Sterling                   | 641.0                  |   | 484.5                                    |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Japanese yen *             | 12.3                   |   | 12.3                                     |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|United States dollars *    | 13.8                   |   | 44.3                                     |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Euro *                     | 119.0                  |   |                                         |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Hong Kong dollars *        | 12.5                   |   |                                         |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|                           | 798.6                  |   | 541.1                                    |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Floating rate investments: |                        |   |                                          |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Sterling (including cash)  | (689.3                 | ) | (387.7                                   | )                       |                           |                            
|                           |                        |   |                                          |                         |                           |                            
|Net debt at 31 March       | 3,373.9                |   | 3,060.8                                  |                         |                           |                            
|                           |                        |   |                                          |                         |                           |                            

* Currency items are recorded in the balance
  sheet at the hedged rate.

Included in the above table is a loan with
  Japanese yen principal paying a United States dollar coupon. Included in fixed
  rate borrowings is a loan of £50.0 million for which the principal and
  interest is linked to the Retail Price Index.

The fair values of the groups financial
  instruments are shown on page 65.

Taking into account derivative instruments,
  net debt can be analysed as follows:

|                           |                              |   |                                          |                               | Weighted average
      interest | Weighted average
      period for
|-------------------------- | ---------------------------- | - | ---------------------------------------- | ----------------------------- | ------------------------------- | ---------------------------------
|                           | Borrowings at
      31 March |   | rate at which
      borrowings are fixed | which interest
      is fixed
|                           |                              |   |                                          |                              
|                           | 2003                         |   | 2002                                     |                               | 2003                            | 2002                             
|                           | £m                           |   | £m                                       |                               | %                               | %                                
|                           |                              |   |                                          |                               |                                 |                                  
|Fixed rate borrowings:     |                              |   |                                          |                               |                                 |                                  
|                           |                              |   |                                          |                               |                                 |                                  
|Sterling                   | 2,938.8                      |   | 2,569.5                                  |                               | 7.3                             | 7.4                              
|                           |                              |   |                                          |                               |                                 |                                  
|Floating rate borrowings:  |                              |   |                                          |                               |                                 |                                  
|                           |                              |   |                                          |                               |                                 |                                  
|Sterling                   | 1,124.4                      |   | 879.0                                    |                               |                                 |                                  
|                           |                              |   |                                          |                               |                                 |                                  
|Floating rate investments: |                              |   |                                          |                               |                                 |                                  
|                           |                              |   |                                          |                               |                                 |                                  
|Sterling (including cash)  | (689.3                       | ) | (387.7                                   | )                             |                                 |                                  
|                           |                              |   |                                          |                               |                                 |                                  
|Net debt at 31 March       | 3,373.9                      |   | 3,060.8                                  |                               |                                 |                                  
|                           |                              |   |                                          |                               |                                 |                                  

Floating interest rates are based
  on LIBOR.

CompanyExcluding amounts owed to subsidiary
  undertakings, the company has borrowings totalling £893.3 million (2002
   £895.4 million) of which £124.8 million falls due within
  one year. The remaining loans totalling £768.5 million comprise £212.1
  million repayable in the year ending 2006, £15.3 million repayable in
  the year ending 2008, £298.7 million repayable in the year ending 2009
  and £242.4 million repayable in the year ending 2028.

The loan repayable in the year
  ending 2006 is at a fixed rate of interest of 6.25 per cent, the loan repayable
  in the year ending 2008 is at a floating rate. The loan repayable in the year
  ending 2009 is at a fixed rate of interest of 6.45 per cent. The loan repayable
  in the year ending 2028 is at a fixed rate of interest of 6.875 per cent.

64United
  Utilities Annual Report & Accounts 2003

---






23FINANCIAL
  INSTRUMENTS AND RISK MANAGEMENT

The primary financial risks faced
  by the group are interest rate risk and exchange rate risk.

The board has reviewed and agreed
  policies for managing each of these risks as summarised below. The board has
  also approved all of the classes of financial instruments used by the group.
  The groups treasury function, which is authorised to conduct the day-to-day
  treasury activities of the group, reports at least annually to the board.

The group uses a variety of financial
  instruments, including derivatives, to raise finance for its operations and
  to manage the risks arising from those operations.

The group borrows in the major
  global debt markets in a range of currencies at both fixed and floating rates
  of interest, using derivatives where appropriate to generate the desired effective
  currency profile and interest basis. The effect of the use of derivatives is
  illustrated in note 22.

Under an interest rate swap, the
  group agrees with another party to exchange at specific intervals the difference
  between fixed rate and floating rate interest amounts calculated by reference
  to an agreed notional principal amount. The notional principal of these instruments
  reflects the extent of the groups involvement in the instruments, but
  does not represent its exposure to credit risk which is assessed by reference
  to the fair value.

Under a currency swap, the group
  agrees with another party to exchange the principal amount of two currencies
  together with interest amounts in the two currencies agreed by reference to
  a specific interest rate basis and the principal amount. The principal of these
  instruments reflects the extent of the groups involvement in the instruments,
  but does not represent its exposure to credit risk which is assessed by reference
  to the fair value.

All transactions are undertaken
  to manage the risks arising from underlying business activities and no speculative
  trading is undertaken. The counterparties to these instruments generally consist
  of financial institutions and other bodies with good credit ratings. Although
  the group is potentially exposed to credit loss in the event of non-performance
  by counterparties, such credit risk is controlled through credit rating reviews
  of the counterparties and by limiting the total amount of exposure to any one
  party. The group does not believe it is exposed to any material concentrations
  of credit risk.

As noted above, the group uses
  derivatives to manage its exposure to currency risk on its borrowings. Subsidiary
  undertakings make no significant sales or purchases in currencies other than
  that of the country in which they operate. Accordingly, the group has no material
  unhedged foreign currency exposures.

Financial instruments utilised
  by the group can be summarised as follows:

Interest rate swapsInterest rate swaps are used solely
  to manage floating rate borrowings in order to reduce the financial risk to
  the group from potential future changes in medium-term interest rates.

Financial futuresFinancial futures are used to manage
  the groups exposure to possible future changes in short-term interest
  rates.

Forward contractsThe group generally hedges foreign
  exchange transaction exposures up to one year forward. Hedges are put in place
  using forward contracts at the time that the forecast exposure becomes reasonably
  certain.

Currency swapsThe group uses currency swaps to
  hedge currency exposure where debt is raised in one currency to fund in a different
  currency.

Fair values of financial
  instrumentsFair value estimates are made
  at a specific point in time, based on relevant market information and information
  about the financial instrument. These estimates are subjective in nature and
  involve uncertainties and matters of significant judgement and therefore cannot
  be determined precisely. Changes in assumptions could significantly affect the
  estimates.

2003
      
      
      
      2002At 31 March
      Book value
        £m
      
      Fair
        value
        £m
      
      Book value
        £m
      
      Fair
        value
        £mShort-term
          debt and current portion of long-term debt
      302.1
      
      302.1
      
      235.9
      
      235.9Long-term
          debt
      3,761.1
      
      4,230.2
      
      3,212.6
      
      3,383.64,063.2
      
      4,532.3
      
      3,448.5
      
      3,619.5Interest
          rate swaps
      
      
      27.7
      
      
      
      87.3Foreign
          exchange contracts and currency swaps
      
      
      (240.3
      )
      
      
      (93.6
      )Total
          borrowings
      4,063.2
      
      4,319.7
      
      3,448.5
      
      3,613.2


Fair values have been estimated
  using the following methods and assumptions:

Long-term investmentsThe fair value of investments for
  which there are no quoted market prices, approximate to their carrying value
  of £59.6 million.

Current assets and liabilitiesFinancial instruments included
  within current assets and liabilities (excluding cash and borrowings) are generally
  short-term in nature and accordingly their fair values approximate to their
  book values.

Long-term receivables
  and liabilitiesThe fair values of financial instruments
  included within long-term receivables and liabilities (excluding borrowings)
  are based on discounted cash flows using appropriate market interest rates.

United Utilities
  Annual Report & Accounts 200365

---





Notes to the accounts (continued)

Net borrowings and
  non-equity interests (excluding foreign exchange contracts)The carrying values of cash and
  short-term borrowings and current asset investments approximate to their fair
  values because of the short-term maturity of these instruments. The fair value
  of quoted long-term borrowings and guaranteed preferred securities is based
  on year end mid-market quoted prices. The fair value of other long-term borrowings
  is estimated by discounting the future cash flows to net present values using
  appropriate market interest rates prevailing at the year end.

Currency and interest
  rate swapsThe group enters into currency
  and interest rate swaps in order to manage its foreign currency and interest
  rate exposures.

The fair value of these financial
  instruments is estimated by discounting the future cash flows to net present
  values using appropriate market interest rates prevailing at the year end. The
  carrying and fair values of currency and interest rate swaps include the related
  accrued interest receivables and payables.

HedgesUnrecognised gains and losses
  on financial assets and liabilities for which hedge accounting has been used
  at the balance sheet date were £379.3 million and £166.7 million
  respectively (2002  £191.7 million and £185.4 million).

The group anticipates that £58.9
  million of these gains and £87.2 million of these losses will be realised
  in the forthcoming financial year. Of the unrecognised gains and losses on hedges
  as at 1 April 2002 the net loss recognised in the profit and loss account for
  the year ended 31 March 2003 was £14.1 million.

24     CAPITAL
  AND RESERVES

The movements in shareholders
  equity as restated are as follows:

|                                                      | Group
      and company |  | Group   |  | Company  |  
|----------------------------------------------------- | ----------------------- |  | ------- |  | -------- | -
|                                                      |                         |  |         |  |          |  
|                                                      | Called up               |  | Share   |  | Profit   |  
|                                                      | share                   |  | premium |  | and loss |  
|                                                      | capital                 |  | account |  | account  |  
|                                                      | £m                      |  | £m      |  | £m       |  
|                                                      |                        
|At 31 March 2000                                      | 550.5                   |  | 645.1   |  | 1,168.8  |  
|                                                      |                        
|Restatement                                           |                        |  |        |  | (9.6     | )
|                                                      |                        
|Restated profit/(loss) for
      financial year       |                        |  |        |  | 341.3    |  
|                                                      |                        
|Dividends on ordinary shares                          |                        |  |        |  | (254.9   | )
|                                                      |                        
|Shares issued net of costs                            | 2.4                     |  | 11.5    |  |         |  
|                                                      |                        
|Capitalisation of reserves
      in respect of shares |                         |  |         |  |          |  
|issued via QUEST                                      |                        |  |        |  | (1.5     | )
|                                                      |                        
|Goodwill on business disposals                        |                        |  |        |  | 101.0    |  
|                                                      |                        
|Unrealised gain on sale of
      minority interest in |                         |  |         |  |          |  
|Vertex Data Science Limited                           |                        |  |        |  | 34.4     |  
|                                                      |                        
|Exchange adjustments                                  |                        |  |        |  | (6.0     | )
|                                                      |                        
|At 31 March 2001                                      | 552.9                   |  | 656.6   |  | 1,373.5  |  
|                                                      |                        
|Restated profit/(loss) for
      financial year       |                        |  |        |  | 261.8    |  
|                                                      |                        
|Dividends on ordinary shares                          |                        |  |        |  | (260.9   | )
|                                                      |                        
|Shares issued net of costs                            | 3.0                     |  | 15.0    |  |         |  
|                                                      |                        
|Capitalisation of reserves
      in respect of shares |                         |  |         |  |          |  
|issued via QUEST                                      |                        |  |        |  | (5.0     | )
|                                                      |                        
|Currency translation adjustment
      on equity       |                         |  |         |  |          |  
|investment in Argentina                               |                        |  |        |  | (78.6    | )
|                                                      |                        
|Exchange adjustments                                  |                        |  |        |  | 0.9      |  
|                                                      |                        
|At 31 March 2002                                      | 555.9                   |  | 671.6   |  | 1,291.7  |  
|                                                      |                        
|Profit for financial year                             |                        |  |        |  | 277.8    |  
|                                                      |                        
|Dividends on ordinary shares                          |                        |  |        |  | (264.8   | )
|                                                      |                        
|Shares issued net of costs                            | 0.6                     |  | 2.7     |  |         |  
|                                                      |                        
|Goodwill written back on the
      sale of US Water   |                        |  |        |  | 0.9      |  
|                                                      |                        
|Currency translation adjustment
      on equity       |                         |  |         |  |          |  
|investment in Argentina                               |                        |  |        |  | (6.8     | )
|                                                      |                        
|Exchange adjustments                                  |                        |  |        |  | 4.0      |  
|                                                      |                        
|At 31 March 2003                                      | 556.5                   |  | 674.3   |  | 1,302.8  |  
|                                                      |                        

As allowed by section 230(4) of
  the Companies Act 1985, the company has not presented its own profit and loss
  account. The amount of group profit for the financial year dealt with in the
  companys profit and loss account is £601.8 million (2002 
  £24.0 million loss; 2001  £194.4 million loss) after accounting
  for dividends receivable from subsidiary undertakings of £958.6 million
  (2002  £6.9 million; 2001  £23.1 million).

66United
  Utilities Annual Report & Accounts 2003

---






The cumulative amount of goodwill
  included in reserves resulting from acquisitions during the years ended 2003,
  2002, 2001 and prior years, before FRS 10 became effective, net of goodwill
  attributable to subsidiaries or businesses demerged or disposed of prior to
  31 March 2003, amounts to £1,023.0 million (2002  £1,023.9
  million; 2001  £1,023.9 million). Consolidated retained earnings
  at 31 March 2003 include retained losses of joint ventures and associated undertakings
  of £12.5 million (2002 as restated  £14.4 million; 2001 as
  restated  £10.9 million). The cumulative amount of exchange adjustments
  included within consolidated retained earnings is £(7.3) million (2002
   £(11.3) million; 2001  £(12.2) million).

Apart from dividends from United
  Utilities Water PLC and United Utilities Electricity PLC, which are subject
  to certain regulatory restrictions, there are no significant statutory or contractual
  restrictions on the distribution of current profits of subsidiary or joint venture
  undertakings; undistributed profits of prior years are, in the main, permanently
  employed in the businesses of these undertakings. The undistributed profits
  of group undertakings overseas may be liable to overseas taxes and/or UK taxation
  (after allowing for double taxation relief) if they were to be distributed as
  dividends. No provision has been made in respect of potential taxation liabilities
  on realisation of assets at restated or revalued amounts or on realisation of
  joint venture undertakings at equity accounted value.

The authorised ordinary share
  capital of the company was 800,000,000 ordinary shares of £1 each. The
  allotted and fully paid share capital of the company at 31 March 2003 was 556,526,651
  ordinary shares (555,942,338 ordinary shares at 31 March 2002; 552,901,025 ordinary
  shares at 31 March 2001).

584,313 ordinary shares were allotted
  during the year ended 31 March 2003 (2002  3,041,313 ordinary shares;
  2001  2,389,139 ordinary shares) for the exercise of options in accordance
  with the rules of the employee ShareSave schemes and the executive share option
  scheme for a total consideration of £3.3 million (2002  £18.0
  million; 2001 £13.9 million).

Since 31 March 2003, 168,762 shares
  have been allotted on the exercise of options and at 21 May 2003, the companys
  issued share capital, credited as fully paid, was £556,695,413.

During the year ended 31 March
  2001, an internal restructuring resulted in a profit of £2,544.8 million
  in the companys accounts. This profit, as it arose on an internal restructuring,
  is not distributable and is shown within other reserves. The restructuring has
  had no effect on the group accounts. Certain assets of a subsidiary, United
  Utilities Electricity PLC, were transferred to other subsidiaries of the company.
  Under the Companies Acts this transfer would have required the company to recognise
  an impairment in the carrying value of United Utilities Electricity PLC and
  a reduction in the profit and loss account by that amount. As the transfer did
  not result in any overall loss in value of the companys investments, in
  order to show a true and fair view, it is necessary to depart from the Act and
  reallocate an amount from the cost of investment in United Utilities Electricity
  PLC to other subsidiaries. There is no effect on the group accounts.

The employee ShareSave scheme
  is available to all eligible employees and the company share option scheme 1999
  is for senior executives (excluding, with effect from the introduction of the
  groups long-term incentive plan, executive directors and other executives
  participating in that plan and its successor, the perfomance share plan). The
  ShareSave scheme is based on SAYE savings contracts with options exercisable
  within a six-month period from the conclusion of a three or five-year period
  as appropriate from the date of grant. Under the terms and conditions of this
  scheme, for every month (up to no more than six months) an employee fails to
  contribute the agreed monthly amount determined under the rules of the scheme,
  the last date exercisable will be delayed by one month. Options under the company
  share option scheme 1999 are exercisable in a period beginning no earlier than
  three years (five years for discounted options under the former executive share
  option scheme, which are no longer granted) and ending no later than ten years
  from the date of grant. Options outstanding under the share option schemes at
  31 March, together with their exercise prices and dates, were (as set out overleaf):

United Utilities
  Annual Report & Accounts 200367

---





Notes to the accounts (continued)

|                                       |            |            | Exercise   | Normal
      dates
|-------------------------------------- | ---------- | ---------- | ---------- | ------------------
|                                       | 2003       | 2002       | price      | of exercise       
|                                       |            |            |            |                   
|Employee ShareSave scheme              |           | 7,848      | 404.8p (1) | 2000 or 2002      
|                                       |            |            |            |                   
|                                       |           | 99,720     | 476.0p (1) | 2002              
|                                       |            |            |            |                   
|                                       | 578,707    | 682,778    | 616.5p (1) | 2001 or 2003      
|                                       |            |            |            |                   
|                                       | 260,356    | 391,203    | 707.5p (1) | 2002 or 2004      
|                                       |            |            |            |                   
|                                       | 2,560,664  | 3,841,976  | 471.5p (1) | 2003 or 2005      
|                                       |            |            |            |                   
|                                       | 1,429,551  | 1,678,910  | 556.5p (1) | 2004 or 2006      
|                                       |            |            |            |                   
|                                       | 1,797,600  | 1,971,047  | 500.0p (1) | 2005 or 2007      
|                                       |            |            |            |                   
|                                       | 1,976,405  |           | 490.0p (1) | 2006 or 2008      
|                                       |            |            |            |                   
|Executive share option scheme          |           | 2,713      | 392.7p (3) | 1995 to 2002      
|                                       |            |            |            |                   
|                                       |           | 904        | 334.2p (2) | 1997 to 2002      
|                                       |            |            |            |                   
|                                       | 2,131      | 12,978     | 463.4p (3) | 1996 to 2003      
|                                       |            |            |            |                   
|                                       | 4,197      | 18,038     | 394.2p (2) | 1998 to 2003      
|                                       |            |            |            |                   
|                                       | 4,650      | 4,650      | 446.9p (3) | 1996 to 2003      
|                                       |            |            |            |                   
|                                       | 2,647      | 7,942      | 380.2p (2) | 1998 to 2003      
|                                       |            |            |            |                   
|                                       | 58,519     | 120,718    | 566.9p (3) | 1997 to 2004      
|                                       |            |            |            |                   
|                                       | 41,018     | 66,262     | 482.2p (2) | 1999 to 2004      
|                                       |            |            |            |                   
|                                       | 38,912     | 38,912     | 530.1p (3) | 1997 to 2004      
|                                       |            |            |            |                   
|                                       | 23,510     | 32,617     | 450.8p (2) | 1999 to 2004      
|                                       |            |            |            |                   
|                                       | 23,441     | 45,518     | 479.8p (3) | 1997 to 2004      
|                                       |            |            |            |                   
|                                       | 31,165     | 43,420     | 408.2p (2) | 1999 to 2004      
|                                       |            |            |            |                   
|                                       | 56,155     | 56,155     | 564.0p (3) | 1998 to 2005      
|                                       |            |            |            |                   
|                                       | 21,252     | 21,252     | 479.8p (2) | 2000 to 2005      
|                                       |            |            |            |                   
|                                       | 136,449    | 151,450    | 584.5p (3) | 1998 to 2005      
|                                       |            |            |            |                   
|                                       | 168,126    | 178,448    | 544.5p (3) | 1999 to 2006      
|                                       |            |            |            |                   
|                                       | 304,909    | 328,909    | 628.0p (3) | 2000 to 2007      
|                                       |            |            |            |                   
|                                       | 169,500    | 169,500    | 632.0p (3) | 2000 to 2007      
|                                       |            |            |            |                   
|                                       | 528,249    | 562,249    | 768.5p (3) | 2000 to 2007      
|                                       |            |            |            |                   
|                                       | 155,750    | 155,750    | 886.0p (3) | 2001 to 2008      
|                                       |            |            |            |                   
|                                       | 297,750    | 310,250    | 868.0p (3) | 2001 to 2008      
|                                       |            |            |            |                   
|                                       | 949,634    | 968,451    | 768.0p (3) | 2002 to 2009      
|                                       |            |            |            |                   
|Company share option scheme
      1999 | 399,089    | 402,728    | 615.5p (3) | 2002 to 2009      
|                                       |            |            |            |                   
|                                       | 990,905    | 1,005,559  | 680.0p (3) | 2003 to 2010      
|                                       |            |            |            |                   
|                                       | 527,293    | 527,293    | 666.0p (3) | 2003 to 2010      
|                                       |            |            |            |                   
|                                       | 978,400    | 983,462    | 652.0p (3) | 2004 to 2011      
|                                       |            |            |            |                   
|                                       | 542,814    | 542,814    | 589.0p (3) | 2005 to 2012      
|                                       |            |            |            |                   
|                                       | 725,061    |           | 611.0p (3) | 2005 to 2012      
|                                       |            |            |            |                   
|                                       | 1,296,085  |           | 630.0p (3) | 2005 to 2012      
|                                       |            |            |            |                   
|                                       | 17,080,894 | 15,432,424 |            |                   
|                                      

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------
|(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | The exercise price represents
      80 per cent of the market price as at the date the option was granted.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                           
|(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | The exercise price represents
      85 per cent of the market price as at the date the option was granted.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                           
|(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | The exercise price equalled
      the market price at the date the option was granted.                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|An opportunity
      to join the employee ShareSave scheme was offered during the years ended
      31 March 2003, 31 March 2002 and 31 March 2001, and options were also granted
      under the company share option scheme 1999. In the year ended 31 March 2003,
      options were granted under the option schemes in respect of a total of 4,016,642
      ordinary shares (2002  3,538,123 ordinary shares, 2001  3,636,897
      ordinary shares), options for 1,447,851 ordinary shares (2002  3,079,711
      ordinary shares, 2001  2,179,862 ordinary shares) were exercised and
      options for 349,451 ordinary shares (2002  1,386,409 ordinary shares,
      2001  1,999,714 ordinary shares) lapsed or were cancelled.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|United Utilities
      established a Qualifying Employee Share Ownership Trust (QUEST) in 1998,
      an employee benefit trust complying with requirements of the Finance Act
      1989. The QUEST trustee assumed the obligation to satisfy options granted
      under the existing United Utilities ShareSave scheme. During the year, shares
      held by the QUEST were used to satisfy all grants under the continuing United
      Utilities ShareSave scheme. All finance costs and administration expenses
      connected with the operation of the QUEST were written                                                                                                                                                             

68United
  Utilities Annual Report & Accounts 2003

---



off to the profit and loss account
  as they accrued. All dividends have been waived in accordance with the trust
  deed between United Utilities PLC and United Utilities QUEST Trustee Limited
  as trustee. The QUEST is not leveraged. There were no shares held in the QUEST
  at 31 March 2003. As a result of changes in the tax regime, shares have been
  allotted directly to ShareSave participants since 1 April 2003 and arrangements
  are now being made to wind up the QUEST.

25PENSIONS

The group participates in a number
  of pension schemes principally in the UK. The major schemes are funded defined
  benefit schemes  the United Utilities Pension Scheme (UUPS) and the Electricity
  Supply Pension Scheme (ESPS) (the Schemes), of which the ESPS is
  closed to new employees. UUPS also includes a defined contribution section which
  constitutes less than 0.5 per cent of the total asset value. The assets of these
  Schemes are held in trust funds independent of group finances.

For UUPS and ESPS, the pension
  cost under the accounting standard SSAP 24 have been assessed in accordance
  with the advice of a firm of actuaries, Mercer Human Resource Consulting, using
  the projected unit method. For this purpose, the actuarial assumptions adopted
  are based upon investment growth of 6.0 per cent per annum, pay growth of 4.0
  per cent per annum and increases to pensions in payment and deferred pensions
  of 2.5 per cent per annum. The actuarial value of the assets was taken as the
  market value of the assets.

The last actuarial valuations
  of the two Schemes were carried out as at 31 March 2001. The combined market
  value of the groups share of the assets of the two Schemes at the valuation
  date was £1,833.0 million. Using the assumptions adopted for SSAP 24 the
  combined actuarial value of the assets represented 113 per cent of the value
  of the accrued benefits after allowing for expected future earnings increases.
  In deriving the pension cost under SSAP 24, the surplus in the Schemes is being
  spread over the future working lifetime of the existing members.

For UUPS, the employers
  contributions have been assessed in accordance with the advice of Mercer Human
  Resource Consulting using different assumptions to those described above. For
  ESPS, the employers contributions have been assessed in accordance with
  the advice of a firm of actuaries, Hewitt Bacon and Woodrow, using different
  assumptions and methods to those described above.

The group also operates a series
  of unfunded, unapproved retirement benefit schemes. The cost of the unfunded,
  unapproved retirement benefit schemes is included in the total pension cost,
  on a basis consistent with SSAP 24 and the assumptions set out above. In accordance
  with these unfunded arrangements, the group has made payments to former directors,
  including lump sum payments, of £207,387 in total in the year ended 31
  March 2003 (2002  £205,946; 2001  £231,388). The total
  pension cost for the period was £8.2 million (2002  £5.0 million;
  2001  £6.7 million). A prepayment of £58.5 million is included
  in the balance sheet at 31 March 2003 (2002  £36.9 million). Information
  about the pension arrangements for executive directors is contained in the report
  on remuneration.

FRS 17 Transitional disclosures
  GroupThe pension cost figures used
  in these accounts comply with the current pension cost accounting standard SSAP
  24. A new pension cost accounting standard, FRS 17 Retirement Benefits,
  was originally intended to be applied in the accounts for the year ending 31
  March 2004 and subsequent years. However, during the year, the Accounting Standards
  Board (ASB) has deferred the full implementation of FRS 17. Under transitional
  arrangements, the group is required to disclose the following information about
  its pension arrangements and the figures that would have been shown under FRS
  17 in the financial statements.

The latest formal valuations of
  the Schemes were carried out as at 31 March 2001. The valuation of liabilities
  detailed below has been derived by projecting forward the position at 31 March
  2001 and has been performed by an independent actuary, Mercer Human Resource
  Consulting. FRS 17 gives the present value of pension liabilities by discounting
  pension commitments (including an allowance for salary growth), at an AA corporate
  bond yield. Deferred pensions are revalued to retirement age in line with the
  Schemes rules and statutory requirements. The major financial assumptions
  used by the actuary were as follows:

At 31 March
      
      At 31 March2003
      
      2002Discount rate
      5.50
      %
      6.00
      %Pensionable salary growth
      4.00
      %
      4.30
      %Pension increases
      2.50
      %
      2.80
      %Price inflation
      2.50
      %
      2.80
      % The assets and liabilities
        of the Schemes, along with the expected rates of return on the Schemes
        assets as at 31 March 2003 and 31 March 2002 were as follows:At 31 March
        2003
      
      
      
      At 31 March
        2002Expected
      
      
      
      Expectedrate of
      
      Total
      
      rate of
      
      Totalreturn
      
      £m
      
      return
      
      £mEquities
      7.50
      %
      1,008.0
      
      8.25
      %
      1,137.5Property
      7.50
      %
      3.5
      
      8.25
      %
      73.5Bonds
      5.50
      %
      217.4
      
      6.00
      %
      233.0Gilts
      4.50
      %
      314.3
      
      5.25
      %
      302.5Other
      4.50
      %
      24.2
      
      5.25
      %
      28.3Market value of assets
      
      
      1,567.4
      
      
      
      1,774.8Present value of Schemes
        liabilities
      
      
      (1,993.2
      )
      
      
      (1,753.2
      )Implied (deficit)/surplus
        in the Schemes
      
      
      (425.8
      )
      
      
      21.6Related deferred tax asset/(liability)
      
      
      127.7
      
      
      
      (6.5
      )Net pension (liability)/asset
        under FRS 17
      
      
      (298.1
      )
      
      
      15.1


United Utilities
  Annual Report & Accounts 200369

---



Notes to the accounts (continued)

|If the above amounts
      had been recognised in the financial statements, the groups net assets
      and profit and loss reserve as at 31 March 2003 and 31 March 2002 would
      be as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Net assets excluding pension
      (liability)/asset                                                                                                                                                 
|                                                                                                                                                                                                     
|SSAP 24 prepayment, net of
      deferred tax                                                                                                                                                        
|                                                                                                                                                                                                     
|Accruals for unfunded scheme                                                                                                                                                                         
|                                                                                                                                                                                                     
|Pension (liability)/asset                                                                                                                                                                            
|                                                                                                                                                                                                     
|Net assets including pension
      (liability)/asset                                                                                                                                                 
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Profit and loss reserve excluding
      pension (liability)/asset                                                                                                                                    
|                                                                                                                                                                                                     
|SSAP 24 prepayment, net of
      deferred tax                                                                                                                                                        
|                                                                                                                                                                                                     
|Accruals for unfunded scheme                                                                                                                                                                         
|                                                                                                                                                                                                     
|Pension (liability)/asset                                                                                                                                                                            
|                                                                                                                                                                                                     
|Profit and loss reserve including
      pension (liability)/asset                                                                                                                                    
|                                                                                                                                                                                                     

The amounts which, on full implementation of
  FRS 17, will be required in the financial statements are as follows:

|Analysis
      of the amount charged to operating profit | 2003 | 
|-------------------------------------------------------- | ---- | 
|£m                                                      
|                                                         |      | 
|Current service cost                                     | 41.4 | 
|                                                         |      | 
|Past service cost                                        | 2.6  | 
|                                                         |      | 
|Total operating charge                                   | 44.0 | 
|                                                         |      | 

|Analysis
      of other finance costs:         | 2003   |  
|---------------------------------------------- | ------ | -
|£m                                            
|                                               |        |  
|Expected return on pension
      scheme assets | 129.5  |  
|                                               |        |  
|Interest on pension scheme
      liabilities   | (104.4 | )
|                                               |        |  
|Net return                                     | 25.1   |  
|                                               |        |  

|Analysis
      of amount recognised in statement of total recognised gains and losses | 2003   |  
|------------------------------------------------------------------------------------- | ------ | -
|£m                                                                                   
|                                                                                      |        |  
|Actual return less expected
      return on pension scheme assets                     | (395.4 | )
|                                                                                      |        |  
|Experience gains and losses
      arising on the scheme liabilities                   | (3.3   | )
|                                                                                      |        |  
|Changes in assumptions underlying
      the present value of the scheme liabilities   | (59.0  | )
|                                                                                      |        |  
|Actuarial loss                                                                        | (457.7 | )
|                                                                                      |        |  

|History
      of experience of gains and losses                                  |        |  
|-------------------------------------------------------------------------------- | ------ | -
|2003                                                                            
|                                                                                 |        |  
|Difference between the expected
      and actual return on scheme assets:        |        |  
|                                                                                 |        |  
|Amount (£m)                                                                      | (395.4 | )
|                                                                                 |        |  
|Percentage
      of scheme assets                                                | (25.2% | )
|                                                                                 |        |  
|Experience gains and losses
      on scheme liabilities:                         |        |  
|                                                                                 |        |  
|Amount (£m)                                                                      | (3.3   | )
|                                                                                 |        |  
|Percentage
      of the present value of the schemes liabilities                 | (0.2%  | )
|                                                                                 |        |  
|Total amount recognised in
      statement of total recognised gains and losses: |        |  
|                                                                                 |        |  
|Amount (£m)                                                                      | (457.7 | )
|                                                                                 |        |  
|Percentage
      of the present value of the scheme liabilities                  | (23.0% | )
|                                                                                 |        |  

In addition, £1.5 million
  is included for pension severance benefits, within the business restructuring
  exceptional item.

During the year to 31 March 2003
  the group contributed to UUPS at rates which ranged from 12.8 per cent to 28.3
  per cent of pensionable salaries dependent on benefit category. Since 1 April
  2003 the group is contributing an additional 2 per cent of pensionable pay.
  In addition, further contributions are made to cover the cost of additional
  severance benefits granted. No company contributions were paid to ESPS during
  the year to 31 March 2003. Since 1 April 2003 the group has resumed contributions
  to ESPS at a rate of 19 per cent of pensionable salaries. During the year to
  31 March 2003, member contributions to ESPS were reduced from their normal rates
  by 2.5 per cent of pensionable salaries. Since 1 April 2003 member contributions
  to ESPS have returned to normal rates.

CompanyThe companys assets and liabilities are
  included in the Schemes but its share of underlying assets and liabilities cannot
  be separately identified.

70United
  Utilities Annual Report & Accounts 2003

---



26LEASE
  COMMITMENTS

Subsidiary undertakings are committed to making the following payments under operating leases during the next 12 months:

|                           |           |           | 31
      March 2003 |  |          |  | 31
      March 2002 | 
|-------------------------- | --------- | --------- | ------------------- |  | -------- |  | ------------------- | 
|                           |           |           |                     |  |          |  |                     | 
|                           | Land and  |           | Plant and           |  | Land and |  | Plant and           | 
|buildings                  | machinery | buildings | machinery          
|£m                         | £m        | £m        | £m                 
|                           |           |           |                     |  |          |  |                     | 
|Leases which expire:       |           |           |                     |  |          |  |                     | 
|                           |           |           |                     |  |          |  |                     | 
|Within one year            | 0.3       |           | 0.6                 |  | 0.1      |  | 0.8                 | 
|                           |           |           |                     |  |          |  |                     | 
|Between two and five years | 2.4       |           | 3.4                 |  | 2.2      |  | 6.7                 | 
|                           |           |           |                     |  |          |  |                     | 
|After five years           | 4.6       |           |                    |  | 9.9      |  |                    | 
|                           |           |           |                     |  |          |  |                     | 
|                           | 7.3       |           | 4.0                 |  | 12.2     |  | 7.5                 | 
|                           |           |           |                     |  |          |  |                     | 

Minimum future lease payments under finance leases and minimum rental commitments under non-cancellable operating leases of property, plant and equipment at 31 March 2003 were as follows:

|           | Finance |  | Operating | 
|---------- | ------- |  | --------- | 
|leases     | leases 
|£m         | £m     
|           |         |  |           | 
|2004       | 108.7   |  | 11.3      | 
|           |         |  |           | 
|2005       |        |  | 8.9       | 
|           |         |  |           | 
|2006       | 0.8     |  | 6.4       | 
|           |         |  |           | 
|2007       | 5.1     |  | 5.2       | 
|           |         |  |           | 
|2008       | 6.3     |  | 4.5       | 
|           |         |  |           | 
|Thereafter | 68.9    |  | 179.5     | 
|           |         |  |           | 
|Total      | 189.8   |  | 215.8     | 
|           |         |  |           | 

27CONTINGENT
  LIABILITIES

The company guaranteed certain loans and overdrafts
  of group undertakings up to a maximum amount of £715.8 million (2002 
  £508.4 million), including £625.8 million (2002  £505.8
  million) relating to United Utilities Water PLCs loans from European Investment
  Bank and £90.0 million (2002  £nil) relating to United Utilities
  Electricity PLCs loans from European Investment Bank.

The company has entered into performance bonds
  in the ordinary course of business.

28     RECONCILIATION
  OF OPERATING PROFIT TO OPERATING CASHFLOWS

|                                                         |      |       |      | Restated |   | Restated |  
|-------------------------------------------------------- | ---- | ----- | ---- | -------- | - | -------- | -
|                                                         | 2003 | 2002  | 2001
|Note                                                     | £m   | £m    | £m  
|                                                         |      |       |      |          |   |          |  
|Group operating profit                                   |      | 510.0 |      | 521.6    |   | 498.1    |  
|                                                         |      |       |      |          |   |          |  
|Exceptional charges within
      operating profit        |      | 29.3  |      | 11.9     |   | 16.6     |  
|                                                         |      |       |      |          |   |          |  
|Operating profit before exceptional
      charges        |      | 539.3 |      | 533.5    |   | 514.7    |  
|                                                         |      |       |      |          |   |          |  
|Depreciation                                             | 3    | 349.8 |      | 316.6    |   | 316.5    |  
|                                                         |      |       |      |          |   |          |  
|Amortisation of goodwill and
      intangible assets     | 3    | 7.1   |      | 7.4      |   | 4.0      |  
|                                                         |      |       |      |          |   |          |  
|(Profit)/loss on disposal
      of tangible fixed assets |      | (4.5  | )    | (3.6     | ) | 0.5      |  
|                                                         |      |       |      |          |   |          |  
|Stocks (increase)/decrease                               |      | (11.8 | )    | 0.5      |   | (1.0     | )
|                                                         |      |       |      |          |   |          |  
|Debtors (increase)/decrease                              |      | (21.9 | )    | 3.4      |   | (65.8    | )
|                                                         |      |       |      |          |   |          |  
|Creditors increase/(decrease)                            |      | 0.6   |      | (41.0    | ) | 73.6     |  
|                                                         |      |       |      |          |   |          |  
|Outflow related to exceptional
      items               |      | (7.1  | )    | (17.0    | ) | (0.8     | )
|                                                         |      |       |      |          |   |          |  
|                                                         |      | 851.5 |      | 799.8    |   | 841.7    |  
|                                                         |      |       |      |          |   |          |  

United Utilities
  Annual Report & Accounts 200371

---



Notes to the accounts (continued)

29RETURNS
  ON INVESTMENTS AND SERVICING OF FINANCE

|                                                                | 2003   |   | 2002   |   | 2001   |  
|--------------------------------------------------------------- | ------ | - | ------ | - | ------ | -
|                                                                | £m     |   | £m     |   | £m     |  
|                                                                |        |   |        |   |        |  
|Interest
        received                                       | 26.8   |   | 12.1   |   | 1.2    |  
|                                                                |        |   |        |   |        |  
|Interest
        paid on bank loans, overdrafts and other loans | (233.2 | ) | (227.8 | ) | (181.2 | )
|                                                                |        |   |        |   |        |  
|Interest
        paid on finance leases                         | (12.1  | ) | (8.0   | ) | (10.1  | )
|                                                                |        |   |        |   |        |  
|Dividends
        paid to minority equity interest              | (0.4   | ) |       |   |       |  
|                                                                |        |   |        |   |        |  
|                                                                | (218.9 | ) | (223.7 | ) | (190.1 | )
|                                                                |        |   |        |   |        |  

30     CAPITAL
  EXPENDITURE AND FINANCIAL INVESTMENT

|                                                                           |        |   | Restated |   | Restated |  
|-------------------------------------------------------------------------- | ------ | - | -------- | - | -------- | -
|                                                                           | 2003   |   | 2002     |   | 2001     |  
|                                                                           | £m     |   | £m       |   | £m       |  
|                                                                           |        |   |          |   |          |  
|Purchase
        of tangible fixed assets, net of grants and contributions | (718.2 | ) | (588.2   | ) | (592.9   | )
|                                                                           |        |   |          |   |          |  
|Sale of
        tangible fixed assets                                      | 7.2    |   | 12.2     |   | 32.2     |  
|                                                                           |        |   |          |   |          |  
|Purchase
        of intangible fixed assets                                |       |   |         |   | (9.0     | )
|                                                                           |        |   |          |   |          |  
|Purchase
        of fixed asset investments                                | (0.4   | ) | (20.4    | ) | (6.6     | )
|                                                                           |        |   |          |   |          |  
|Financial
        restructuring of joint ventures                          | 5.7    |   |         |   |         |  
|                                                                           |        |   |          |   |          |  
|Sale of
        fixed asset investments other than joint ventures          | 7.8    |   | 12.8     |   | 3.4      |  
|                                                                           |        |   |          |   |          |  
|                                                                           | (697.9 | ) | (583.6   | ) | (572.9   | )
|                                                                           |        |   |          |   |          |  

31     ACQUISITIONS
  AND DISPOSALS

|                                                                          | Acquisitions |   | Disposals |  
|------------------------------------------------------------------------- | ------------ | - | --------- | -
|                                                                          |              |   |           |  
|                                                                          | 2003£m       |   | 2002£m    |  
|                                                                          |              |   |           |  
|Fixed assets                                                              | (3.1         | ) |          |  
|                                                                          |              |   |           |  
|Net current liabilities/(assets)                                          | 2.1          |   | (2.8      | )
|                                                                          |              |   |           |  
|Provisions for liabilities
      and charges                              | 3.0          |   |          |  
|                                                                          |              |   |           |  
|Fair value of net assets acquired/book
      value of net assets disposed | 2.0          |   | (2.8      | )
|                                                                          |              |   |           |  
|Cost of disposal                                                          |              |   |           |  
|                                                                          |              |   |           |  
|Goodwill acquired/written
      back on disposal                          | (7.2         | ) |          |  
|                                                                          |              |   |           |  
|Consideration for undertakings
      acquired                             | (5.2         | ) | (2.8      | )
|                                                                          |              |   |           |  
|Profit on disposals                                                       |              |   |           |  
|                                                                          |              |   |           |  
|                                                                          | (5.2         | ) | (2.8      | )
|                                                                          |              |   |           |  
|Less:                                                                     |              |   |           |  
|                                                                          |              |   |           |  
| Cash included in undertakings
      acquired/disposed                   | 0.3          |   |          |  
|                                                                          |              |   |           |  
| Deferred consideration                                                  |             |   |          |  
|                                                                          |              |   |           |  
|Cash consideration                                                        | (4.9         | ) | (2.8      | )
|                                                                          |              |   |           |  
|Comprising:                                                               |              |   |           |  
|                                                                          |              |   |           |  
| (Outflow)/inflow arising
      on:                                      |              |   |           |  
|                                                                          |              |   |           |  
| current year acquisitions/disposals                                     | (4.7         | ) |          |  
|                                                                          |              |   |           |  
| previous year acquisitions/disposals                                    | (0.2         | ) | (2.8      | )
|                                                                          |              |   |           |  
|                                                                          | (4.9         | ) | (2.8      | )
|                                                                          |              |   |           |  

On 2 December 2002, Vertex Data
  Science Limited acquired the business and assets of the UK contact centre operator,
  7C, and its 75 per cent shareholding in 7C India Limited as shown in note 13.
  The cashflows in respect of that acquisition are shown above. On 31 July 2002,
  the group sold its joint venture shareholding in US Water, effectively completing
  the groups withdrawal from infrastructure management in the Americas.
  The cashflows in respect of that sale are included above.

On 31 March 2001 the group acquired
  the business process outsourcing business of Cap Gemini Ernst & Young. The
  consideration for the acquisition consisted of a maximum 15 per cent interest
  in a subsidiary, Vertex Data Science Limited depending on the size of the business
  transferred and the achievement of certain business performance objectives over
  the following three years. The transactions did not affect group cashflow. The
  gain resulting from the exchange of assets was reflected in the statement of
  total recognised gains and losses. A put option was granted to Cap Gemini Ernst
  & Young in respect of the shareholding in Vertex Data Science Limited and
  Cap Gemini Ernst & Young granted a call option to the group over the same
  shareholding. The put and call options may be exercised, subject to certain
  conditions, in the period July 2003 to June 2005.

In the year ended 31 March 2001
  the group sold its energy supply business to TXU Europe and acquired Netforce
  Group plc, Hyder Industrial Limited and Hyder Energy Services Limited.

72United
  Utilities Annual Report & Accounts 2003

---



|32                                                                                    | MANAGEMENT
      OF LIQUID RESOURCES |      |      |      |        |      | 
|------------------------------------------------------------------------------------- | ------------------------------------ | ---- | ---- | ---- | ------ | ---- | 
|                                                                                      |                                      | 2003 |      | 2002 |        | 2001 | 
|£m                                                                                    | £m                                   | £m  
|                                                                                      |                                      |      |      |      |        |      | 
|(Increase)/decrease
      in bank deposits, certificates of deposit and managed funds | (282.0                               | )    | 13.4 |      | (328.7 | )   
|                                                                                      |                                      |      |      |      |        |     

|                                            
|--------------------------------------------
|33                                          
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|Share                                       
|capital                                     
|£m                                          
|                                            
|At 31 March 2000                            
|                                            
|Exchange and other                          
|non-cash adjustments                        
|                                            
|Financing:                                  
|                                            
| New finance                               
|                                            
| Finance
      repaid                      
|                                            
|Cash flow                                   
|                                            
|At 31 March 2001                            
|                                            
|Exchange and othernon-cash adjustments      
|                                            
|Financing:                                  
|                                            
| New finance                               
|                                            
| Finance
      repaid                      
|                                            
|Cash flow                                   
|                                            
|At 31 March 2002                            
|                                            
|Exchange and othernon-cash
      adjustments
|                                            
|Financing:                                  
|                                            
| New finance                               
|                                            
| Finance
      repaid                      
|                                            
|Cash flow                                   
|                                            
|At 31 March 2003                            
|                                            

|            
|------------
|            
|dates       
|            
|Loans repaid
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            

United Utilities
  Annual Report & Accounts 200373

---



Notes to the accounts (continued)

34     ANALYSIS
  OF NET DEBT

|                                             |       |   |           |   |            |   |            |   |                        |   |             |   | Current asset |   |          |  
|-------------------------------------------- | ----- | - | --------- | - | ---------- | - | ---------- | - | ---------------------- | - | ----------- | - | ------------- | - | -------- | -
|                                             | Cash  |   |           |   |            |   |            |   | Financing
       debt |   | investments |   | Net debt      |  
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|                                             |       |   |           |   | Loans      |   |            |   |                        |   |             |   |               |   |          |  
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|                                             |       |   |           |   |            |   | Short-term |   |                        |   |             |   |               |   |          |  
|                                             |       |   |           |   |            |   | borrowings |   |                        |   |             |   |               |   |          |  
|                                             |       |   | Due after |   | Due within |   | other than |   | Finance                |   |             |   |               |   |          |  
|                                             |       |   | one year  |   | one year   |   | overdrafts |   | leases                 |   | Total       |   |               |   |          |  
|                                             | £m    |   | £m        |   | £m         |   | £m         |   | £m                     |   | £m          |   | £m            |   | £m       |  
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|At 31 March 2000                             | 4.8   |   | (2,002.2  | ) | (52.3      | ) | (640.1     | ) | (200.1                 | ) | (2,894.7    | ) | 53.5          |   | (2,836.4 | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|Exchange and othernon-cash adjustments       | (0.9  | ) |          |   | (5.5       | ) | 0.2        |   |                       |   | (5.3        | ) |              |   | (6.2     | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|Cash flow                                    | 25.6  |   | (638.5    | ) | (77.9      | ) | 398.8      |   | (0.5                   | ) | (318.1      | ) | 328.7         |   | 36.2     |  
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|At 31 March 2001                             | 29.5  |   | (2,640.7  | ) | (135.7     | ) | (241.1     | ) | (200.6                 | ) | (3,218.1    | ) | 382.2         |   | (2,806.4 | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|Exchange and othernon-cash
      adjustments | 0.1   |   | 1.2       |   |           |   |           |   |                       |   | 1.2         |   |              |   | 1.3      |  
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|Cash flow                                    | (40.2 | ) | (372.5    | ) | 64.7       |   | 105.7      |   |                       |   | (202.1      | ) | (13.4         | ) | (255.7   | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|At 31 March 2002                             | (10.6 | ) | (3,012.0  | ) | (71.0      | ) | (135.4     | ) | (200.6                 | ) | (3,419.0    | ) | 368.8         |   | (3,060.8 | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|Exchange and othernon-cash adjustments       | 0.2   |   |          |   |           |   |           |   | 4.9                    |   | 4.9         |   |              |   | 5.1      |  
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|Cash flow                                    | 10.3  |   | (668.0    | ) | 35.1       |   | 16.5       |   | 5.9                    |   | (610.5      | ) | 282.0         |   | (318.2   | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  
|At 31 March 2003                             | (0.1  | ) | (3,680.0  | ) | (35.9      | ) | (118.9     | ) | (189.8                 | ) | (4,024.6    | ) | 650.8         |   | (3,373.9 | )
|                                             |       |   |           |   |            |   |            |   |                        |   |             |   |               |   |          |  

|                               |              |   |            |   |                       |   |           |   |             |   | Cash         |  
|------------------------------ | ------------ | - | ---------- | - | --------------------- | - | --------- | - | ----------- | - | ------------ | -
|                               |              |   |            |   |                       |   |           |   |             |   | (at bank and |  
|Cash and short-term borrowings | Cash at bank |   |            |   | Short-term borrowings |   | Net total |   | overdrafts) |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|                               |              |   | Overdrafts |   | Other                 |   | Total     |   |             |   |              |  
|                               | £m           |   | £m         |   | £m                    |   | £m        |   | £m          |   | £m           |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|At 31 March 2000               | 30.5         |   | (25.7      | ) | (640.1                | ) | (665.8    | ) | (635.3      | ) | 4.8          |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|Exchange adjustments           | (0.9         | ) |           |   | 0.2                   |   | 0.2       |   | (0.7        | ) | (0.9         | )
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|Cash flow                      | 21.1         |   | 4.5        |   | 398.8                 |   | 403.3     |   | 424.4       |   | 25.6         |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|At 31 March 2001               | 50.7         |   | (21.2      | ) | (241.1                | ) | (262.3    | ) | (211.6      | ) | 29.5         |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|Exchange adjustments           | 0.1          |   |           |   |                      |   |          |   | 0.1         |   | 0.1          |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|Cash flow                      | (31.9        | ) | (8.3       | ) | 105.7                 |   | 97.4      |   | 65.5        |   | (40.2        | )
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|At 31 March 2002               | 18.9         |   | (29.5      | ) | (135.4                | ) | (164.9    | ) | (146.0      | ) | (10.6        | )
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|Exchange adjustments           | 0.2          |   |           |   |                      |   |          |   | 0.2         |   | 0.2          |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|Cash flow                      | 19.4         |   | (9.1       | ) | 16.5                  |   | 7.4       |   | 26.8        |   | 10.3         |  
|                               |              |   |            |   |                       |   |           |   |             |   |              |  
|At 31 March 2003               | 38.5         |   | (38.6      | ) | (118.9                | ) | (157.5    | ) | (119.0      | ) | (0.1         | )
|                               |              |   |            |   |                       |   |           |   |             |   |              |  

35     RELATED
  PARTY TRANSACTIONS

Sales and recharges to joint ventures
  on normal trading terms during the year ended 31 March 2003 were £22.8
  million (31 March 2002  £22.4 million), of these amounts £8.6
  million was outstanding at the year end (2002  £5.1 million).

Movements on loans and investments
  with joint ventures are included in note 13 of the accounts.

There were no other material related
  party transactions during the year.



74United
  Utilities Annual Report & Accounts 2003

---



THIS PAGE DOES NOT APPEAR IN UNITED UTILITIES
  PLCS ANNUAL REPORT & ACCOUNTS 2003

|36 | SUMMARY OF DIFFERENCES
      BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND
      THE UNITED STATES OF AMERICA
|-- | ------------------------------------------------------------------------------------------------------------------------------------------

The groups consolidated financial statements
  are prepared in accordance with accounting principles generally accepted in
  the United Kingdom (UK GAAP), which differ in certain respects from
  accounting principles generally accepted in the United States of America (US
  GAAP). Differences which have a significant effect on the consolidated
  net income, shareholders equity and financial position of the group are
  set out below. Certain re-classifications have been made to prior year balances
  to conform to the current year presentation.

As described in note 1(a) to the groups
  consolidated financial statements, the group has changed its accounting policy
  with respect to telecommunications network capacity sales. Consequently the
  results under UK GAAP have been restated. The telecommunications network capacity
  sales change in accounting policy results in a UK GAAP policy that is aligned
  to US GAAP. As a result, there is no longer a US GAAP adjustment in relation
  to telecommunications network capacity sales. Under UK GAAP, the group has adopted
  UITF34 Pre-contract costs, the application of which is reflected
  in the current and prior year reported results. The UK GAAP accounting policy
  for pre-contract costs is aligned to US GAAP.

The group has adopted Statement of Financial
  Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible
  Assets, SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
  SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities and
  Financial Accounting Standards Board Interpretation No. 45, Guarantors
  Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees
  of Indebtedness of Others.

Effect on net income of differences between
  UK and US GAAP

|For the year ended
      31 March                                                              | Note |  | 2003
        £m |   | Restated2002
        £m |   | Restated2001
        £m |  
|---------------------------------------------------------------------------------------------- | ---- |  | --------------- | - | ----------------------- | - | ----------------------- | -
|                                                                                               |      |  |                 |   |                         |   |                         |  
|Net income in accordance with UK GAAP                                                          |      |  | 277.8           |   | 261.8                   |   | 341.3                   |  
|                                                                                               |     
|US GAAP adjustments:                                                                           |      |  |                 |   |                         |   |                         |  
|                                                                                               |     
| Pensions                                                                                     | (a)  |  | (7.5            | ) | 16.5                    |   | (4.0                    | )
|                                                                                               |     
| Infrastructure renewals                                                                      | (b)  |  | 39.5            |   | 25.7                    |   | 22.1                    |  
|                                                                                               |     
| Depreciation of infrastructure assets                                                        | (c)  |  | (23.8           | ) | (23.2                   | ) | (22.4                   | )
|                                                                                               |     
| Provisions                                                                                   | (d)  |  | (38.3           | ) |                        |   | (10.0                   | )
|                                                                                               |     
| Capitalisation of interest                                                                   | (e)  |  | 58.4            |   | 47.9                    |   | 44.0                    |  
|                                                                                               |     
| Amortisation of capitalised interest                                                         | (e)  |  | (10.5           | ) | (9.4                    | ) | (8.4                    | )
|                                                                                               |     
| Amortisation of goodwill                                                                     | (f)  |  | 7.5             |   | (26.7                   | ) | (27.6                   | )
|                                                                                               |     
| Impairment of long-lived assets                                                              | (g)  |  | 23.8            |   |                        |   |                        |  
|                                                                                               |     
| Profit on disposal of the energy
      supply business                                       | (h)  |  |                |   |                        |   | (24.2                   | )
|                                                                                               |     
| Fair value of derivative instruments                                                         | (i)  |  | 198.3           |   | (41.6                   | ) |                         |  
|                                                                                               |     
| Currency translation adjustments                                                             | (j)  |  | (6.8            | ) | (41.3                   | ) |                        |  
|                                                                                               |     
| Share compensation costs                                                                     | (l)  |  | (2.0            | ) | 0.4                     |   | (4.8                    | )
|                                                                                               |     
| Revenue and profit recognition                                                               | (m)  |  | (31.4           | ) |                        |   |                        |  
|                                                                                               |     
| Deferred taxes                                                                               | (k)  |  | (0.8            | ) | (55.4                   | ) | (116.4                  | )
|                                                                                               |     
| Pre-contract costs                                                                           | (p)  |  |                |   | 1.4                     |   | 2.3                     |  
|                                                                                               |     
| Tax effect of US GAAP adjustments                                                            | (k)  |  | (68.5           | ) | (5.9                    | ) | 5.9                     |  
|                                                                                               |     
|Net income in accordance with US GAAP                                                          |      |  | 415.7           |   | 150.2                   |   | 197.8                   |  
|                                                                                               |     
|                                                                                               |      |  |                 |   |                         |   |                         |  
|Net income in accordance with US GAAP
      from:                                              |      |  |                 |   |                         |   |                         |  
|Continuing operations                                                                          |      |  | 415.7           |   | 150.2                   |   | 72.6                    |  
|                                                                                               |     
|Discontinued operations                                                                        |      |  |                |   |                        |   | 125.2                   |  
|                                                                                               |     
|Total                                                                                          |      |  | 415.7           |   | 150.2                   |   | 197.8                   |  
|                                                                                               |     
|                                                                                               |      |  |                 |   |                         |   |                         |  
|Net income per £1 ordinary share
      (pence) in accordance with US GAAP basic method from:   |      |  |                 |   |                         |   |                         |  
|Continuing operations                                                                          |      |  | 74.8            |   | 27.1                    |   | 13.2                    |  
|                                                                                               |     
|Discontinued operations                                                                        |      |  |                |   |                        |   | 22.7                    |  
|                                                                                               |     
|Total                                                                                          | (n)  |  | 74.8            |   | 27.1                    |   | 35.9                    |  
|                                                                                               |     
|                                                                                               |      |  |                 |   |                         |   |                         |  
|Net income per £1 ordinary share
      (pence) in accordance with US GAAP diluted method from: |      |  |                 |   |                         |   |                         |  
|Continuing operations                                                                          |      |  | 74.5            |   | 27.1                    |   | 13.1                    |  
|                                                                                               |     
|Discontinued operations                                                                        |      |  |                |   |                        |   | 22.7                    |  
|                                                                                               |     
|Total                                                                                          | (n)  |  | 74.5            |   | 27.1                    |   | 35.8                    |  
|                                                                                               |     

United Utilities Annual Report
  on Form 20-F 2003     74a

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  ANNUAL REPORT & ACCOUNTS 2003

Cumulative effect on shareholders
  equity of differences between UK and US GAAP

|                                                      |     |    |         |    | Restated |  
|----------------------------------------------------- | --- | -- | ------- | -- | -------- | -
|At
      31 March                                     |     |    | 2003    |    | 2002     |  
|Note                                                  |     | £m |         | £m |         
|                                                      |     |    |         |    |          |  
|Shareholders equity in accordance
      with UK GAAP |     |    | 2,533.6 |    | 2,519.2  |  
|                                                      |     |    |         |    |          |  
|US GAAP adjustments:                                  |     |    |         |    |          |  
|                                                      |     |    |         |    |          |  
| Pensions                                            | (a) |    | (377.3  | )  | (19.4    | )
|                                                      |     |    |         |    |          |  
| Infrastructure renewals                             | (b) |    | 131.7   |    | 92.2     |  
|                                                      |     |    |         |    |          |  
| Depreciation of infrastructure assets               | (c) |    | (221.6  | )  | (197.8   | )
|                                                      |     |    |         |    |          |  
| Provisions                                          | (d) |    |        |    | 38.0     |  
|                                                      |     |    |         |    |          |  
| Capitalisation of interest                          | (e) |    | 525.9   |    | 467.5    |  
|                                                      |     |    |         |    |          |  
| Amortisation of interest                            | (e) |    | (63.0   | )  | (52.5    | )
|                                                      |     |    |         |    |          |  
| Goodwill                                            | (f) |    | 904.4   |    | 897.8    |  
|                                                      |     |    |         |    |          |  
| Impairment of long-lived assets                     | (g) |    | 23.8    |    |         |  
|                                                      |     |    |         |    |          |  
| Fair value of derivative instruments                | (i) |    | 95.9    |    | (133.5   | )
|                                                      |     |    |         |    |          |  
| Share compensation costs                            | (l) |    | 3.5     |    | (4.4     | )
|                                                      |     |    |         |    |          |  
| Revenue and profit recognition                      | (m) |    | (31.4   | )  |         |  
|                                                      |     |    |         |    |          |  
| Deferred taxes                                      | (k) |    | (829.8  | )  | (829.0   | )
|                                                      |     |    |         |    |          |  
| Dividends                                           | (o) |    | 178.6   |    | 176.2    |  
|                                                      |     |    |         |    |          |  
| Pre-contract costs                                  | (p) |    |        |    | 12.6     |  
|                                                      |     |    |         |    |          |  
| Tax effect of US GAAP adjustments                   | (k) |    | (19.5   | )  | (46.8    | )
|                                                      |     |    |         |    |          |  
|Shareholders equity in accordance
      with US GAAP |     |    | 2,854.8 |    | 2,920.1  |  
|                                                      |     |    |         |    |          |  

(a) PensionsUnder UK and US GAAP, pensions costs
  are determined on a systematic basis over the length of service of employees.
  The group accounts for the costs of pensions under the rules set out in UK GAAP.
  US GAAP is more prescriptive in respect of the actuarial assumptions which must
  be used and the allocation of costs to accounting periods. Furthermore, the
  actuarial valuation under US GAAP must be carried out on an annual basis.

Under UK GAAP, the pension cost is calculated
  based upon the actuarys best estimate of the assumptions taken as a whole.
  The annual cost charged to the profit and loss account comprises the regular
  cost and variations. The regular cost is calculated so that it represents a
  reasonably stable percentage of pensionable payroll. Variations from the regular
  cost of providing pensions are generally spread over the expected remaining
  service lives of current employees in the scheme.

US GAAP requires each significant assumption
  to determine annual pension cost to be a best estimate with respect to that
  individual assumption. For example, the discount rate used should be that for
  AA rated bonds with a similar maturity to the pension obligations
  and the value of the scheme assets should be based upon market values at each
  balance sheet date. Whilst US GAAP also adopts a spreading approach to allocating
  variations, it is more restrictive. As a result, certain variations, for example
  refunds from the scheme, would be recognised immediately rather than being spread
  forward. US GAAP treats increases in pensions as a prior service cost and accordingly
  amortises its effects over the working lives of the members after the increase
  is awarded. UK GAAP encourages expected increases to be provided for in advance
  by being built into the actuarial assumptions.

US GAAP requires a liability, the minimum pension
  liability, to be recognised that is at least equal to the unfunded accumulated
  benefit obligation. The corresponding entries are to intangible assets, to the
  extent of the unrecognised prior service cost, and other comprehensive income,
  a component of shareholders equity.

Under UK GAAP, the group has recognised a pre-paid
  pension cost of £58.5 million and £36.9 million as of 31 March 2003
  and 2002, respectively. Under US GAAP, the group has recognised a pension liability
  of £322.9 million (net of prepayment of £31.6 million) and £nil
  as of 31 March 2003 and 2002 respectively, of which £350.4 million and
  £nil has been recorded within accumulated other comprehensive income as
  of 31 March 2003 and 31 March 2002 respectively. £4.1 million and £nil
  has been recorded as an intangible asset at 31 March 2003 and 2002 respectively.
  £17.5 million was recorded as a prepayment at 31 March 2002.

(b) Infrastructure renewalsUnder UK GAAP, the charge to the profit and loss
  account for depreciation reflects the planned level of expenditure for infrastructure
  renewals. The charge is adjusted under US GAAP to reflect actual expenditure
  in the year.

Under UK GAAP, enhancement expenditure classified
  as infrastructure renewals expenditure is capitalised and depreciated in line
  with the policy on infrastructure renewals accounting. Under US GAAP, enhancement
  expenditure is capitalised and depreciated over its estimated useful life.

(c) Depreciation of infrastructure assetsUnder UK GAAP, the depreciation charge
  for infrastructure assets is the estimated level of annual expenditure required
  to maintain the operating capability of the network which is based on the companys
  independently certified asset management plan. Under US GAAP, depreciation is
  charged on infrastructure assets using the straight-line method over a period
  of 100 years, being the estimated economic life under US GAAP.

74b     United Utilities
  Annual Report on Form 20-F 2003

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  PLCS ANNUAL REPORT & ACCOUNTS 2003

(d)   ProvisionsProvision accounting under UK GAAP is the same
  as under US GAAP, except as follows:

Onerous contractsFollowing the adoption of Financial Reporting
  Standard (FRS) 12 in 1999, the onerous contract provision was restated
  under UK GAAP, as a prior period adjustment, to charge the discount element
  as a financing cost for the period 1996 to 1998. Under US GAAP no adjustment
  would have been made for the discount in this period. The onerous contract provision
  was released to the disposal account on the sale of the energy supply business
  in August 2000, as discussed in note (h).

Provisions for net liabilities of joint
  venturesUnder UK GAAP, an investor is required to account
  for its proportionate share of net liabilities in a loss-making joint venture,
  even when there is no obligation to fund those liabilities. Where this is the
  case, an investors share of net liabilities of an investment is shown
  as a provision rather than a negative fixed asset. The group held within provisions
  £38.3 million (restated for UITF 34 Pre-contract costs) at 31 March 2002
  to reflect its proportionate share of net liabilities in IEBA, the Argentine
  electricity utility. In the year ended 31 March 2003, the group concluded it
  no longer had a participating interest in IEBA and has therefore ceased to account
  for the investment as a joint venture. This conclusion gave rise to a release
  of the share of net liabilities of IEBA held at 1 August 2002.

Under US GAAP, an investor should discontinue
  recording losses of an investment when the investment has been reduced to zero,
  unless the investor has an obligation or commitment to fund those liabilities.
  As the group was not obligated or committed to funding the net liabilities of
  this investment, no such provision was recorded under US GAAP as at 31 March
  2002. Consequently, the exceptional credit to the income statement in the year
  ended 31 March 2003 from the withdrawal from IEBA does not arise under US GAAP
  since the provision was not recorded under US GAAP.

(e)   Capitalisation of interestUnder UK GAAP, the capitalisation of interest
  is not required and the group expenses interest charges to the profit and loss
  account in the year in which they are incurred. Under US GAAP, interest charges
  on funds invested in the construction of qualifying assets during the time required
  to prepare them for their intended use are capitalised and amortised over the
  life of the respective assets.

(f)   GoodwillUnder UK GAAP, goodwill arising on acquisitions
  after 1 April 1998 is accounted for in accordance with FRS 10 and capitalised
  and amortised. Prior to that date, goodwill arising on acquisitions was, and
  remains, written off against shareholders equity (reserves) in the year
  of the acquisition. On disposal or closure of all or part of a previously acquired
  business, any goodwill previously written off to reserves is included in calculating
  the profit or loss on disposal. Where capitalised goodwill is regarded as having
  a limited useful economic life, FRS 10 requires the cost to be amortised on
  a straight-line basis over that life, of up to 20 years.

Goodwill previously written off to reserves
  in the years ended 31 March 2003, 2002 and 2001 of £0.9 million, £nil,
  and £101.0 million respectively was released from reserves in relation
  to disposals under UK GAAP. The disposal of the energy supply business in the
  year ended 31 March 2001 is discussed further in note (h).

Under US GAAP, prior to 1 April 2002, all goodwill
  was recognised in the balance sheet and amortised to the profit and loss account
  over its estimated useful life not exceeding 40 years. With effect from 1 April
  2002, the group adopted SFAS 142, Goodwill and Other Intangible Assets. Under
  SFAS 142, the group is no longer required to amortise goodwill, including that
  related to investments in joint ventures, and other intangible assets with indefinite
  lives but will be required to subject these assets to periodic testing for impairment.

SFAS 142 requires completion of a transitional
  goodwill impairment test within six months from the date of adoption. It establishes
  a new method of testing goodwill for impairment on an annual basis or on an
  interim basis if an event occurs or circumstances change that would reduce the
  fair value of a reporting unit below its carrying value. The goodwill test for
  impairment consists of a two-step process that begins with an estimation of
  the fair value of a reporting unit. The first step is a screen for potential
  impairment and the second step measures the amount of impairment, if any, by
  determining the implied fair value of goodwill. The initial evaluation of impairment
  of existing goodwill indicated no impairment under US GAAP at the date of adoption.
  The group, in accordance with the provisions of SFAS 142, will conduct impairment
  testing in April of each year. Any impairments will be charged to the profit
  and loss account.

Under US GAAP the gross goodwill adjustment
  as at 31 March 2003 and 2002 was £1,068.4 million and £1,069.3 million
  respectively. The accumulated amortisation adjustment under US GAAP as at 31
  March 2003 and 2002 was £164.0 million and £171.5 million respectively.

Goodwill amortisation including that related
  to investments in joint ventures under UK GAAP in the years ended 31 March 2003,
  2002 and 2001 was £7.5 million, £8.0 million and £4.0 million,
  respectively. Under US GAAP, goodwill amortisation in the years ended 31 March
  2003, 2002 and 2001 was £nil, £34.7 million and £31.6 million,
  respectively.

(g)   Impairment of long-lived assetsUnder UK GAAP, all long-lived assets are assessed
  for impairment under FRS 11, Impairment of Fixed Assets and Goodwill, whenever
  events or circumstances indicate that an asset may be impaired. Any impairment
  is determined by comparing the carrying value of the asset with its recoverable
  amount, which is determined by reference to the estimated discounted cash flows
  to be generated from its use. If the events or circumstances that triggered
  the impairment no longer exist, the impairment may be reversed in subsequent
  periods.

Under US GAAP, long-lived assets, other than
  goodwill and intangible assets with an indefinite life, are assessed for impairment
  under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
  Goodwill and intangible assets with an indefinite life are assessed for impairment
  under SFAS 142 under US GAAP as discussed in note (f) above. Under SFAS 144,
  assets are assessed for impairment by comparing the carrying value of the asset
  with the estimated undiscounted cash flows to be generated by the asset. If
  this test indicates a deficit, any impairment is calculated by comparing the
  carrying value of the asset with its fair value, which is usually determined
  by reference to estimated discounted cash flows. Under US GAAP the restoration
  of a previously recognised impairment loss is prohibited.

United Utilities Annual Report
  on Form 20-F 2003     74c

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  ACCOUNTS 2003

As described in note 2 of the consolidated
  financial statements, in accordance with FRS 11 the group has performed an impairment
  review within its telecommunications business. This resulted in an exceptional
  adjustment to value of £25.5 million representing tangible assets of £14.6
  million, intangible assets of £8.6 million and goodwill of £2.3
  million. Under US GAAP, there was no indication of impairment of tangible or
  intangible assets, other than goodwill, in the telecommunications business on
  an undiscounted cash flow basis in accordance with SFAS 144. In addition, no
  impairment of goodwill under SFAS 142 was required, as stated in note (f) above.
  The tangible and intangible assets continue to be depreciated under US GAAP
  resulting in a charge to income of £1.7 million in the year ending 31
  March 2003. There were no impairments of goodwill in 2002 or 2001 under UK GAAP
  or US GAAP.

(h)   Profit on disposal of energy supply
  businessUnder UK GAAP, goodwill attributable to the energy
  supply business of £101.0 million had been previously written off directly
  to reserves. On disposal in August 2000 this goodwill was included in the profit
  and loss account as a realised cost of disposal. Under US GAAP this goodwill
  was capitalised and amortised and the net goodwill of £89.2 million (after
  charging amortisation of £11.8 million) was treated as a cost of disposal.

As described in note (d) the onerous contract
  provision was treated differently under US GAAP than under UK GAAP. Consequently,
  the provision released on the disposal of the energy supply business was £36
  million lower under US GAAP than under UK GAAP.

(i)   Fair value of derivative instrumentsUnder UK GAAP, the group does not recognise derivatives
  at fair value on the balance sheet nor are mark to market amounts recorded in
  net income. Interest differentials on derivative instruments are charged to
  the profit and loss account as interest costs in the period in which they are
  realised. Changes in the market value of futures trading contracts are reflected
  in the profit and loss account in the period in which the change occurs.

Under US GAAP the group adopted SFAS 133, Accounting
  for Derivatives Instruments and Hedging Activities, as amended by SFAS 137 and
  138 (SFAS 133) on 1 April 2002. SFAS 133 requires that all derivative
  instruments are recognised as assets or liabilities on the balance sheet and
  measured at fair value, regardless of the purpose or intent in holding them.
  Changes in the fair value of derivative instruments are recognised periodically
  either in earnings or shareholders equity (as a component of other comprehensive
  income), depending on whether the derivative is designated as a hedge of changes
  in fair value or cash flows. For derivatives designated as fair value hedges,
  changes in fair value of the hedged item and the derivative are recognised currently
  in earnings. For derivatives designated as cash flow hedges, fair value changes
  of the effective portion of the hedging instrument are recognised in accumulated
  other comprehensive income on the balance sheet until the hedged item is recognised
  in earnings. The ineffective portion of the fair value changes are recognised
  in earnings immediately. Changes in the fair value of the underlying debt instruments
  are not recognised in net income or shareholders equity.

In accordance with the transition provisions
  of SFAS 133, the group recorded, at 1 April 2001, a net-of-tax cumulative-effect
  reduction of £88.1 million in accumulated other comprehensive income within
  shareholders equity to recognise at fair value all derivatives that were
  previously designated as cash flow type hedging instruments. Of the transition
  adjustment of £88.1 million in accumulated comprehensive income, £45.5
  million has been re-classified into earnings at 31 March
  2003 (£23.7 million at 31 March 2002).

Additionally, a fair value adjustment recognised
  in accordance with the transition provisions of SFAS 133 increased debt by £163.0
  million which was offset by a corresponding amount to record derivatives previously
  designated as fair value type hedging instruments. The fair value adjustment
  to debt is being amortised over the period of the debt in accordance with the
  transitional rules.

The group has elected not to designate any
  of its derivative instruments as hedges under SFAS 133 as of 1 April 2001. As
  a result, all derivative contracts have been recorded in the balance sheet at
  market value at the year end (with changes in fair value recorded in earnings)
  and all monetary assets and liabilities have been re-translated at spot rates.
  The groups earnings under US GAAP will be more volatile because of the
  effect of derivative instruments.

At 31 March 2003 and 2002, the balance sheet
  includes current derivative assets of £379.3 million and £191.7
  million, current derivative liabilities of £23.2 million and £23.2
  million and non-current derivative liabilities of £260.2 million and £302.0
  million, respectively.

(j)   Currency translation adjustmentsUnder UK GAAP, currency translation adjustments
  on net borrowings used to finance foreign investments are taken to the statement
  of total recognised gains and losses to offset the foreign exchange exposure
  on foreign investments.

Under US GAAP, this offset is not available
  since the company elected not to designate derivative instruments as hedges
  in the year ended 31 March 2002. In the year ended 31 March 2003, there is no
  currency translation adjustment resulting from the investment in IEBA since
  the investment has been reduced to zero.

(k)   Deferred taxesUnder UK GAAP, the group provides for deferred
  tax on a discounted basis in respect of timing differences that have originated
  but not reversed at the balance sheet date, where transactions or events that
  result in an obligation to pay more tax in the future or a right to pay less
  tax in the future have occurred at the balance sheet date. A net deferred tax
  asset is regarded as recoverable and therefore recognised only when, on the
  basis of available evidence, it is regarded as more likely than not that there
  will be suitable taxable profits against which to recover carried forward tax
  losses and from which the future reversal of underlying timing differences can
  be deducted.

Under US GAAP, deferred taxation is provided
  for all temporary differences (differences between the carrying value of assets
  and liabilities and their corresponding tax bases) on a full liability basis.
  Deferred tax assets are also recognised (net of a valuation allowance) to the
  extent that it is more likely than not that the benefit will be realised. Under
  US GAAP, discounting of deferred taxes is prohibited.

74d     United Utilities Annual Report on Form
  20-F 2003

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  PLCS ANNUAL REPORT & ACCOUNTS 2003

(l)   Share compensation costsUnder UK GAAP, the groups UK ShareSave
  scheme is exempt from the requirement to recognise any compensation expense
  and is therefore accounted for as a non-compensatory plan. Compensation expense
  is recorded in respect of the executive share option schemes for the difference,
  if any, between the exercise price and the share price at the date of grant.
  Compensation expense is recorded for the performance share plan on a straight-line
  basis over the period in which performance is measured.

Under US GAAP, the group accounts for stock
  issued to employees in accordance with Accounting Principles Board Opinion No.
  25 (APB 25), Accounting for Stock Issued to Employees. Under APB
  25, options granted under the UK ShareSave scheme are treated as compensatory.
  Also, under APB 25, the executive share option scheme and the performance share
  plan have been treated as variable plans due to performance conditions attached
  to the plans. Accordingly, compensation expense has been recognised under US
  GAAP for the ShareSave scheme, the executive share option scheme and the performance
  share plan. For all options that include performance-related criteria the cost
  is calculated as the difference between the option price and the market price
  at the end of the reporting period. In respect of the ShareSave scheme, the
  cost is calculated as the difference between the option price and the market
  price at the date of grant. The cost is amortised over the period from the date
  the options are granted to the date they are first exercisable, that is, the
  vesting date.

Unearned compensation expense under UK GAAP
  for the performance share plan is recorded as a liability. Under US GAAP, unearned
  compensation expense is recorded as a credit to shareholders equity.

(m)   Revenue and profit recognitionUnder UK GAAP, non-refundable set up fees received
  from clients as a contribution to transition costs incurred at the commencement
  of a contract are offset against transition costs actually incurred, with any
  excess recognised as revenues over the period of the contract in line with forecast
  activity levels. Under US GAAP, non-refundable set up fees received at the commencement
  of a contract are deferred and recognised on a straight-line basis over the
  period of the expected client relationship.

Under UK GAAP, fixed fee elements within contractually
  defined revenues are recognised in the period in which services are billed in
  accordance with the pricing terms. Under US GAAP, the fixed fee elements are
  recognised on a straight-line basis over the period of the contract, unless
  evidence suggests that the revenue is earned or that obligations are fulfilled
  in a different pattern.

The reduction in revenue under US GAAP is £40.9
  million in the year ended 31 March 2003 (£nil in the years ended 31 March
  2002 and 2001).

Under UK GAAP, provision is required to be
  recognised for a contract where the unavoidable costs of meeting the obligations
  under the contract exceed the benefits expected to be received. The provision
  is measured at the value of the net obligations and is recorded within operating
  expenses. Under US GAAP, such a provision may not be recognised due to the different
  revenue recognition policies.

(n)   Earnings per share (EPS)Under UK GAAP, basic EPS is based on the weighted
  average number of ordinary shares outstanding during the year. EPS is the profit
  in pence attributable to each equity share, based on the profit for the financial
  year attributable to ordinary shareholders divided by the weighted average number
  of shares in issue during the year and ranking for dividend in respect of the
  period. This method is also used for basic EPS under US GAAP. Under UK GAAP,
  FRS14 expressly permits the disclosure of an additional earnings per share provided
  that the unadjusted earnings per share is given at least equal prominence and
  it is calculated on a consistent basis over time. The adjustment to profit and
  basic earnings per share has been made to eliminate the impact of exceptional
  items, discontinued operations and goodwill amortisation.

Under UK and US GAAP, diluted EPS must be disclosed.
  This is based on net income and computed using the weighted average number of
  shares in issue during the year and the dilutive effect of all share options
  and ordinary share equivalents. This method is similar to the treasury stock
  method used to calculate diluted EPS for US GAAP purposes.

Earnings per share computed in accordance with
  US GAAP has been based on the following number of shares:

|                                                                    | 2003
      million |  | 2002
      million |  | 2001
      million | 
|------------------------------------------------------------------- | ------------------ |  | ------------------ |  | ------------------ | 
|                                                                    |                   
|Weighted average number of shares under
      US GAAP  basic EPS   | 556.1              |  | 553.5              |  | 551.1              | 
|                                                                    |                   
|Common stock equivalents  dilutive
      share options             | 2.1                |  | 1.7                |  | 1.2                | 
|                                                                    |                   
|Weighted average number of shares under
      US GAAP  diluted EPS | 558.2              |  | 555.2              |  | 552.3              | 
|                                                                    |                   

(o)   Ordinary dividendsUnder UK GAAP, the proposed dividends on ordinary
  shares, as recommended by the directors, are deducted from shareholders
  equity and shown as a liability in the balance sheet at the end of the period
  to which they relate. Under US GAAP, such dividends are only deducted from shareholders
  equity at the date of declaration of the dividend.

(p)   Pre-contract costsUnder UK GAAP, the group has adopted UITF34 Pre-contract
  costs, the application of which is reflected in the current and prior year reported
  results. The UK GAAP accounting policy for pre-contract costs is aligned to
  US GAAP. In previous years, there was no material difference between UK and
  US GAAP in respect of this item.

United Utilities Annual Report
  on Form 20-F 2003     74e

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  ANNUAL REPORT & ACCOUNTS 2003

(q)   New US Accounting
  Standards and pronouncements not yet effective

Statement of Financial Accounting Standards
  No.143 (SFAS 143), Accounting for Asset Retirement ObligationsSFAS 143 requires an enterprise
  to record the fair value of an asset retirement obligation as a liability in
  the period in which it incurs a legal obligation associated with the retirement
  of tangible long-lived assets that result from the acquisition, construction,
  development and/or normal use of the assets. The enterprise also is required
  to record a corresponding increase to the carrying amount of the related long-lived
  asset (i.e. the associated asset retirement costs) and to depreciate that cost
  over the life of the asset. The liability is changed at the end of each period
  to reflect the passage of time (i.e. accretion expense) and changes in the estimated
  future cash flows underlying the initial fair value measurement. Because of
  the extensive use of estimates, most enterprises will record a gain or loss
  when they settle the obligation. Enterprises are required to adopt SFAS 143
  for fiscal years beginning after 15 June 2002. The group, which will adopt SFAS
  143 with effect from 1 April 2003, has not fully evaluated the impact, if any,
  of adopting this standard on the consolidated financial statements, results
  of operations or cash flows.

Statement of Financial Accounting Standards
  No.145 (SFAS 145), Rescission of FASB Statement Nos. 4, 44 and 64,
  Amendment of FASB Statement No. 13, and Technical Corrections.SFAS 145, issued in April 2002
  provides for the rescission of several previously issued accounting standards,
  new accounting guidance for the accounting for certain lease modifications and
  various technical corrections that are not substantive in nature to existing
  pronouncements. SFAS 145 was adopted on 1 April 2003, except for the provisions
  relating to the amendment of Statement No. 13, which has been adopted for transactions
  occurring subsequent to 15 May 2002. Adoption of SFAS 145 is not expected to
  have a material impact on the consolidated financial position, results of operations
  or cash flows.

Statement of Financial Accounting Standard
  No. 149 (SFAS 149), Amendment to Statement 133 on Derivative Instruments
  and Hedging Activities.In April 2003, the FASB issued
  SFAS 149 which amends and clarifies accounting for derivative instruments, including
  certain derivative instruments embedded in other contracts, and for hedging
  activities under SFAS 133. SFAS 149 is applied prospectively and is effective
  for contracts entered into or modified after 30 June 2003, except for SFAS 133
  implementation issues that have been effective for fiscal quarters that began
  prior to 15 June 2003 and certain provisions relating to forward purchases and
  sales on securities that do not yet exist. The group has not determined the
  effect, if any, that SFAS 149 will have on its consolidated financial position,
  results of operations or cash flows.

Statement of Financial Accounting Standard
  No. 150 (SFAS 150), Accounting for Certain Financial Instruments
  with Characteristics of both Liabilities and Equity.In May 2003, the FASB issued SFAS
  150 which establishes standards for classification and measurement in the statement
  of financial position of certain financial instruments with characteristics
  of both liabilities and equity. The statement is effective for financial instruments
  entered into or modified after 31 May 2003. The group has not determined the
  effect, if any, that SFAS 150 will have on its consolidated financial position,
  results of operations or cash flows.

FASB Interpretation No.46 (FIN
  46), Consolidation of Variable Interest Entities.FIN 46, issued in January 2003,
  provides guidance for identifying a controlling interest in a Variable Interest
  Entity (VIE) established by means other than voting interests. FIN 46 also requires
  consolidation of a VIE by an enterprise that holds such a controlling interest.
  The effective date for this Interpretation will be 1 July 2003. The group does
  not expect the adoption of FIN 46 to have a material effect on the consolidated
  financial position, results of operations or cash flows.

(r)   Classification differences
  between UK and US GAAPIn addition to the differences between
  UK and US GAAP related to the recognition and measurement of transactions by
  the group, there are also a number of differences in the manner in which items
  are classified in the consolidated profit and loss account and consolidated
  balance sheet. These classification differences have no impact on net income
  or shareholders equity.

Provisions for liabilities and chargesProvisions for liabilities and
  charges under UK GAAP include £9.4 million (2002: £16.8 million,
  2001: £19.5 million) which are due within one year and which would be
  reclassified to current liabilities under US GAAP. The remainder of the provisions
  would be reclassified as long-term liabilities under US GAAP.

GrantsUnder UK GAAP, grants (other than
  capital contributions towards infrastructure assets) are disclosed within deferred
  grants and contributions as creditors in the balance sheet. Under US GAAP, these
  amounts are classified differently and would be set against the assets to which
  they relate. Consequently £285.5 million (2002: £265.6 million)
  would be classified within tangible fixed assets under US GAAP, rather than
  as a long-term liability under UK GAAP.

Exceptional itemsUnder UK GAAP, exceptional items are material
  items which derive from events or transactions that fall within the ordinary
  activities of a reporting entity and which individually or, if of a similar
  type, in aggregate, need to be disclosed by virtue of their size or incidence
  if the financial statements are to give a true and fair view. US GAAP requires
  a different presentation of exceptional items. Exceptional items under UK GAAP
  in the year ended 31 March 2003 amount to a credit of £4.7 million and
  comprise £3.8 million business restructuring charges, £34.0 million
  credit arising from the withdrawal from infrastructure management in the Americas
  and £25.5 million adjustment to the carrying value of the telecommunications
  assets. In the years ended 31 March 2003 and 2001, the profit on disposal or
  termination of businesses was disclosed as an exceptional item, after operating
  profit.

Under US GAAP, all exceptional items, except
  for the gain on sale of the energy supply business which qualifies as a discontinued
  operation, would have been reflected within operating profit. In 2003, a profit
  of £nil (2002: profit of £nil, 2001: profit of £167.0 million)
  would have been included within discontinued operations.

Discontinued operationsUK GAAP requires disclosure as discontinued operations
  any business ceased or disposed of before the earlier of the approval of the
  financial statements and three months from the end of the financial period.
  Under US GAAP, discontinued operations include those operations where management
  has, inter alia, committed to a formal plan of disposal, initiated an active
  programme to locate a buyer and the business is expected to be sold within one
  year of the balance sheet date or the business was disposed of or ceased by
  the balance sheet date.

Under UK GAAP, discontinued operations are presented
  within the financial statements by analysing the relevant line items.

US GAAP requires that net income/loss, net of
  tax, for a discontinued operation be presented on a single line in the income
  statement and that the net current assets/liabilities of the discontinued operation
  be presented on a single line and net non-current assets/liabilities of the
  discontinued operation be presented on a single line in the balance sheet for
  all periods presented.

74f     United Utilities
  Annual Report on Form 20-F 2003

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THIS PAGE DOES NOT APPEAR IN UNITED UTILITIES
  PLCS ANNUAL REPORT & ACCOUNTS 2003

Equity method investmentsUnder UK GAAP, the share of joint
  ventures operating results excludes share of joint ventures interest
  and share of joint ventures tax. These amounts are included within Interest
  payable and similar charges and Taxation charge respectively.
  Under US GAAP all of these amounts are included within Equity in earnings/(losses)
  of affiliates.

Under UK GAAP investments in joint ventures
  are classified under the heading investments within fixed assets. Under US GAAP
  investments in joint ventures are classified as investments in equity affiliates.

(s)   Cash flowsUnder UK GAAP, the group complies with FRS 1
  (Revised), Cash Flow Statements, the objective and principles of which are similar
  to those set out in SFAS 95, Statement of Cash Flows. The principal difference
  between the two standards is in respect of classification. Under FRS 1 (Revised),
  the group presents its cash flows for (a) operating activities; (b) returns
  on investments and servicing of finance; (c) taxation; (d) capital expenditure
  and financial investment; (e) acquisitions and disposals; (f) dividends to ordinary
  shareholders; (g) management of liquid resources; and (h) financing activities.
  SFAS 95 is less prescriptive and recognises only three categories of cash flow
  activity (a) operating; (b) investing; and (c) financing.

Cash flows arising from taxation and returns
  on investments and servicing of finance under FRS 1 (Revised) would be included
  as operating activities under SFAS 95; dividend payments would be included as
  a financing activity under SFAS 95 and cash flows from capital expenditure,
  long-term investments, acquisitions and disposals would be included as investing
  activities under SFAS 95. In addition, under FRS 1 (Revised), cash represents
  cash at bank and in hand, less bank overdrafts; cash equivalents (i.e. liquid
  resources) are not included with cash. Movements of liquid resources are included
  under a separate heading. Under US GAAP, cash is not offset by bank overdrafts
  repayable within 24 hours from the date of the advance. Such overdrafts are
  classified within financing activities under US GAAP.

Set out below is a summary consolidated statement
  of cash flows under US GAAP:

|                                                 | 2003   |   | 2002   |   | 2001   |  
|------------------------------------------------ | ------ | - | ------ | - | ------ | -
|                                                 | £m     |   | £m     |   | £m     |  
|                                                 |        |   |        |   |        |  
|Net cash provided by operating activities        | 635.4  |   | 578.2  |   | 650.7  |  
|                                                 |        |   |        |   |        |  
|Net cash used in investing activities            | (694.9 | ) | (595.8 | ) | (378.3 | )
|                                                 |        |   |        |   |        |  
|Net cash provided/(used) by financing activities | 78.9   |   | (14.3  | ) | (251.3 | )
|                                                 |        |   |        |   |        |  
|Effect of exchange rate changes on cash          | 0.2    |   | 0.1    |   | (0.9   | )
|                                                 |        |   |        |   |        |  
|Net increase/(decrease) in cash                  | 19.6   |   | (31.8  | ) | 20.2   |  
|                                                 |        |   |        |   |        |  
|Cash at beginning of year                        | 18.9   |   | 50.7   |   | 30.5   |  
|                                                 |        |   |        |   |        |  
|Cash at end of year                              | 38.5   |   | 18.9   |   | 50.7   |  
|                                                 |        |   |        |   |        |  

In 2003, a non-cash item of £4.9 million
  arises in relation to financing activities.

(t)   Provision for doubtful
  debts

|                                       | Balance      |          |           |               |              |           | Balance | 
|-------------------------------------- | ------------ | -------- | --------- | ------------- | ------------ | --------- | ------- | 
|For the
      year ended 31 March 2003 | at beginning |          | Additions |               | Utilisations |           | at end  | 
|of period                              |              | note (a) |           | notes (b),(c) |              | of period |        
|                                       |              |          |           |               |              |           |         | 
|Provision for doubtful debts           | 70.6         |          | 52.1      |               | (28.8        | )         | 93.9    | 
|                                       |              |          |           |               |              |           |         | 
|                                       |              |          |           |               |              |           |         | 
|For the year ended 31 March 2002       |              |          |           |               |              |           |         | 
|                                       |              |          |           |               |              |           |         | 
|Provision for doubtful debts           | 64.4         |          | 35.9      |               | (29.7        | )         | 70.6    | 
|                                       |              |          |           |               |              |           |         | 
|                                       |              |          |           |               |              |           |         | 
|For the year ended 31 March 2001       |              |          |           |               |              |           |         | 
|                                       |              |          |           |               |              |           |         | 
|Provision for doubtful debts           | 92.0         |          | 32.4      |               | (60.0        | )         | 64.4    | 
|                                       |              |          |           |               |              |           |         | 

|Note:
|-----
|(a)  
|(b)  
|(c)  

The financial information set
  out in this exhibit relating to the year ended 31 March 2003 does not constitute
  statutory accounts for that period. Full audited accounts of United Utilities
  PLC in respect of that financial period (which received an unqualified audit
  opinion and did not contain a statement under either section 237(2) or (3) of
  the Companies Act 1985) will be delivered to the Registrar of Companies.

United Utilities Annual Report
  on Form 20-F 2003     74g

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