United Utilities has announced a “strong and confident start” to AMP7 with the publication this morning of its half year results for the six months ended 30 September 2020.

Photo: Haweswater Tunnel

The water company is reporting a strong financial performance and robust balance sheet with underlying profit after tax of £174 million down 16%, reflecting the new price control set by Ofwat in its 2019 Price Review.

The company has retained its A3 stable credit rating with Moody's ratings agency.

Key financials for the six months ended 30 September 2020 include:     

Operational performance and the supply chain

United Utilities’ AMP7 business plan includes 46 customer commitments which are measured through outcome delivery incentives (ODIs). According to the results, the firm is delivering strong performance against a number of measures including its pollution and hydraulic flooding risk ODIs.

However, the company has acknowledged that in some areas such as leakage, interruptions to water supply and internal sewer flooding, the targets are challenging. In recognition that there is more to do to improve in these areas, United Utilities invested an additional £100 million in 2019/20, targeted at improving performance. Overall, based on current performance across the full basket of ODIs, it anticipates earning a net ODI reward for 2020/21 of around £10 million.

In the first year of C-MeX performance against Ofwat's C-MeX measure, the key performance indicator to measure customer satisfaction over AMP7, United Utilities is targeting being in positive reward territory. During the first half of the year the utility, the highest listed company, ranked 6th out of 17 companies.

United Utilities is also launching a new approach to responsible supply chain management for AMP7 called United Supply Chain (USC). USC recognises suppliers as an extension of the United Utilities family and suppliers are being asked to become signatory to its Responsible Sourcing Principles as a minimum.

The suppliers who are integral to its operations are also expected to become leaders and to work jointly with the utility to deliver improvements across economic, social and governance areas and improve value to customers. United Utilities said it will be offering suppliers free resources to learn more about the Responsible Sourcing Principles via its partnership with Supply Chain Sustainability School

Joint ventures

Reporting on Water Plus its joint venture with Severn Trent in the business water retail market, for the year to 31 March 2020, United Utilities’share of Water Plus losses amounted to £51 million of which £46 million was recognised in the income statement, comprising £14 million share of Water Plus's underlying losses and a £32 million share of Water Plus losses arising as a result of COVID-19.

Further losses, including £5 million of its share of Water Plus's underlying losses for the year to 31 March 2020 and a further £6 million share of losses for the six months to 30 September 2020, are not recognised in the utility’s income statement.

Dividend per share

The Board has proposed an interim dividend of 14.41 pence per ordinary share in respect of the six months ended 30 September 2020 - an increase of 1.5 per cent compared with the 14.20 interim dividend for the same period last year.mThe interim dividend is expected to be paid on 1 February 2021 to shareholders on the register at the close of business on 18 December 2020.

The company has also now published its new sustainable finance framework, through which it expects to raise financing based on its strong ESG credentials alongside conventional issuance. This replaces the green funding previously secured through the European Investment Bank (EIB), which is no longer available post-Brexit.

Accelerated capital investment plans, with plans to spend more over early years of AMP7 

Commenting on its overall position to date, United Utilities said:

“We have accelerated our capital investment plans, with plans to spend more over the early years of AMP7 than our original business plan in order to secure improvements earlier in the period for customers and the environment, along with accompanying ODI rewards and contributing to the 'Green recovery' in a region heavily affected by the pandemic.”

The company has incurred £3 million of extra COVID related costs, which along with the £3 million of adverse weather related expenditure, has been absorbed within its cost base.

Steve Mogford, Chief Executive Officer, said the company’s focus throughout the COVID-19 pandemic has been on supporting customers, protecting our colleagues and maintaining essential services. He commented:

"Despite the pandemic, our operational performance in this first year of the new regulatory period is on track. We are accelerating our capital expenditure to bring forward benefits and help support 17,700 jobs in the supply chain.

"We now have a clearer understanding of the impact of COVID-19 on our business which remains robust and supported by a strong balance sheet. This, together with a stabilised inflation outlook supported by central bank policy and government actions, gives us the confidence to reaffirm our responsible AMP7 dividend policy of growth in line with CPIH inflation."