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UPDATE 1-United Utilities expects annual costs to rise as lockdowns, higher spend hit profit

(Adds CEO comment, details from statement, sector background)

May 27 (Reuters) - UK’s United Utilities Group on Thursday forecast marginally higher costs for the current year, as it reported an about 18% drop in annual profit hit by lower water consumption after offices closed due to lockdowns and rise in expenses.

The company, one of the largest publicly traded water utilities in the country, said underlying operating profit dropped to 602.1 million pounds ($849.62 million) for 12 months ended March 31 from a year earlier.

While the pandemic has hurt water companies’ operations and mounted pressure on finances after rising bad debt in recent years, they still attract investors because of their stable cashflow and dividend payment.

United Utilities in its results statement proposed to pay shareholders a total payout of 43.24 pence per share for the year, compared to 42.60 pence last year.

“Our transformation to ... digital utility has helped deliver another year-on-year improvement against key targets,” Chief Executive Officer Steve Mogford said, adding, the firm expects a fully green fleet of vehicles by 2028 as focus on climate and sustainability grows.

Earlier this month, Britain's water regulator set out a 2.8 billion pound green investment plan reut.rs/3fKZUZV, as it aims to lower pollution by utilities.

United Utilities also predicted marginally lower revenue for the year ending March 2022, because of regulatory changes in inflation accounting. For the reported period, revenue slipped 2.8%.

The sector regulator Ofwat not only determines water prices, but also pays incentives to companies in Britain for meeting or exceeding targets such as project completions and quality of customer service.

United said it was targeting a net customer outcome delivery incentives reward of around 20 million pounds for the current year.

$1 = 0.7087 pounds Reporting by Shanima A and Pushkala Aripaka in Bengaluru; Editing by Rashmi Aich

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