United Utilities has used the early clarity provided by Ofwat’s fast track status for its company business plan to refine and move forward with its AMP7 implementation plans, according to its latest trading update published this morning.
Ahead of its interim results on 20 November 2019, the utility said that current trading is in line with the group's expectations for the six months ending 30 September 2019.
Group revenue is expected to be higher than the first half of last year, largely reflecting Ofwat's allowed regulatory revenue changes.
Underlying operating profit for the first half of 2019/20 is expected to be higher than the first half of 2018/19, reflecting the higher revenue and lower infrastructure renewals expenditure (IRE). United Utilities is also expecting a small share of losses of joint ventures.
Commenting on its AMP6 performance, the company said its strategy of accelerating investment into the early years of AMP6, together with a deeply embedded innovation culture, is delivering enhanced levels of service and resilience for customers along with sustainable improvements in efficiency.
“Our strong performance means that we are well placed to deliver against our targets for the current regulatory period with no material change to prior guidance on our overall level of regulatory outperformance,” the update says.
United Utilities has committed to sharing the benefit of anticipated outperformance through a total of £350 million of additional investment with its customers. This includes the £100 million of additional investment the utility announced in May 2019 which targets areas where the firm has the opportunity to deliver improved performance earlier in AMP7.
“We are progressing well with this programme of spend,” United Utilities said.
The utility expects group net debt to increase by around £250 million at 30 September 2019 compared with the position as at 31 March 2019. This largely reflects the prepayment of around £100 million in April 2019 of the agreed deficit recovery contributions in relation to the group's defined benefit pension schemes, the impact of IFRS16 which results in the recognition of a £55 million lease liability included in net debt, and the group's ongoing investment in its asset base.
The update says a responsible approach to financial risk management is continuing to deliver benefits including a strong balance sheet, pension schemes that are now fully funded on a self-sufficiency basis and gearing comfortably within a target range of 55 per cent to 65 per cent net debt to RCV, supporting a solid A3 credit rating for United Utilities Water with Moody's.
United Utilities said it was continuing to engage constructively with Ofwat and awaited the final determinations to be published on 11 December 2019.
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