United Utilities to end year a 'high performing company'
By Josh White
Date: Wednesday 25 Mar 2020
(Sharecast News) - United Utilities updated the market on its trading ahead of its full-year results on Wednesday, saying it was currently in line with its expectations for the year ending 31 March.
The FTSE 100 water company said it was ending Asset Management Period 6 (AMP6) as a "high performing company", having delivered sustainable improvements in service, resilience and efficiency for customers over the last 10 years.
"Customers are always at the heart of everything we do and our innovative systems thinking approach has been fundamental to the transformation of our operational performance," the board said in its statement.
"We expect to deliver further improvements in AMP7 and beyond."
United said that, having been awarded 'fast track' status in the 2019 price review, it was "well prepared" for AMP7.
It said it had invested ?100m in the last 12 months to accelerate planned improvements and achieve a "flying start" to the period, accepting its final determination from the regulator Ofwat in January.
Through February, United Utilities noted that the UK experienced a succession of severe winter storms.
It said its workforce worked throughout this period to minimise the impact on customers and the environment.
"We do not expect the storms to result in any material incremental costs but they did cause some service interruptions that will reduce our anticipated outcome delivery incentives (ODIs) for AMP6 to a net reward of around ?40m, from around ?50m previously."
United Utilities said it had enacted its "robust" contingency plans in response to the Covid-19 coronavirus pandemic.
Those, it said, were designed to protect its employees so that it could continue to provide a public service to customers.
It said it offered some of the sector's "most innovative" affordability schemes, and would continue to make those available to customers experiencing difficulty in the current economic climate.
The firm's revenues were fixed under the regulatory revenue control for the next five years, with shortfalls in any year being recoverable in later years.
In addition, United Utilities said it had a "robust" liquidity position extending out for 24 months, which was at the upper end of its policy range.
"This means that we are well protected against financial shocks that may be experienced as a result of the outbreak in the short to medium term.
"However, we recognise that there is a significant degree of uncertainty associated with how the current situation develops and we will therefore continue to closely monitor our position and approach."
Looking at the financials, the company said group revenue was expected to be higher than last year, largely reflecting its allowed regulatory revenue changes.
Underlying operating profit for the 2020 financial year was anticipated to be higher than 2019, and underlying infrastructure renewals expenditure in the second half of 2020 was expected to be higher than the first half of the year.
United Utilities said reported operating profit would be impacted by an accelerated depreciation charge of around ?80m in relation to bioresources assets, consistent with the expected level and allocation of regulatory capital value (RCV) to bioresources included in its business plan submissions and final determination.
"To provide a more representative view of business performance, this accelerated depreciation will be excluded from the underlying profit measures."
The current economic climate had resulted in an increase in credit spreads, which was expected to significantly increase the group IFRS pension surplus as at 31 March.
United Utilities said the economic climate was also expected to affect the ability of business customers to pay its joint venture company, Water Plus, and so despite making "good progress" on the issues that impacted the underlying operating performance in the first half of the year, its recovery plan was now likely to be "far more challenging", take longer and be less certain.
The RPI inflation that was applied to the group's index-linked debt was higher than last year, and the board said it therefore expected the underlying net finance expense for 2020 to be around ?15m higher than 2019.
"We expect group net debt at 31 March to be broadly flat compared with the position as at 30 September," the board said.
"Our responsible approach to financial risk management continues to deliver benefits including a strong balance sheet and gearing comfortably within our target range of 55% to 65% net debt-to-RCV, supporting a solid A3 credit rating for United Utilities Water with Moody's."
United Utilities said it was expected to deliver its full-year results for the year ending 31 March on 22 May.
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