United Utilities has reported underlying operating profit of £333 million – a 4% increase from £318.5 milllion for the same period last year – with the publication this morning of its half year results for the six months ended 30 September 2021.

Revenue rose by £38 million to £932 million, up 4 per cent on the same period last year, largely reflecting higher consumption as business activity returns to pre-pandemic levels.

In the first half of 2021/22, United Utilities has invested £303 million in net regulatory capital expenditure (excluding infrastructure renewals expenditure), representing the continued acceleration of its AMP7 investment programme.

United Utilities was given a £5.3 billion totex allowance in its AMP7 final determination. The firm has subsequently had regulatory approvals for extensions to its investment programme to allow for the confirmed need of schemes at Bolton and Vyrnwy amounting to around £150 million, and a further £65 million in relation to its Green Recovery proposals.

It has also elected to spend a further £150 million on Dynamic Network Management and other projects driving ODI performance. United Utilities said that while this expenditure is subject to the totex sharing mechanism - meaning 50 per cent is company funded, it is “more than compensated for” by improved ODI performance in AMP7.

The company said that with many more businesses able to operate compared with the first half of last year, when the impact of the initial lockdown was significant, non-household revenue has increased by £68 million. In contrast, although higher than pre-pandemic norms, consumption from households, decreased by £20 million in the first half of this year.

Like many companies, United Utilities has experienced inflationary pressures on input costs such as power, chemicals and labour. since the onset of the COVID-19 pandemic. However, the utility said it has managed to mitigate much of the cost increase to date via hedging, constructive cost challenge and commercial negotiations - particularly on power where it has hedged around 95 per cent of the power commodity price for the current year.

Strong operational performance

The company is reporting strong operational performance – its key performance indicator to measure customer satisfaction over AMP7 is Ofwat’s C-MeX measure, where it targets being in positive reward territory. In 2020/21 United Utilities earned a £2.1 million reward and is currently on track to deliver a higher level of reward for the first six months of this year. The firm continues to be the highest performing listed company.

United Utilities has installed a network of 70,000 sensors delivering real-time data to its integrated control centre (ICC) and allowing it to optimise the performance of the water network. As a result, leakage is at its all-time lowest ever level and currently 5 per cent lower than at the start of AMP7.

As part of its AMP7 plans, United Utilities is investing around £100 million in Dynamic Network Management (DNM) –describing this as “a ground breaking application of Systems Thinking using state of the art sensors and predictive machine intelligence to move to a more proactive management of its wastewater network.”

Plans progressing on Haweswater Aqueduct Resilience Programme 

In November 2020, United Utilities successfully completed the replacement of the Hallbank section of the Haweswater Aqueduct - the first milestone in the much larger Haweswater Aqueduct Resilience Programme (HARP).

Work to replace the tunnel sections of the aqueduct is expected to be undertaken using a direct procurement for customers (DPC) approach. Under DPC the utility is competitively tendering for services in relation to the delivery of HARP for a third-party competitively appointed provider to deliver the design, build, maintenance and also financing for the replacement of six tunnel sections of the Haweswater Aqueduct.

United Utilities has been progressing its plans to start the DPC tender in 2022. If the tender process proceeds as planned, contract award is anticipated in 2023, with construction starting later in the AMP7. The contract will be in place for a 25 year term following the completion of the construction.

Pollution performance - no serious pollution incidents in 2020

Describing its pollution performance as industry leading, United Utilities said for the second year running it had no serious pollution incidents in 2020.

Commenting on sewage discharges, United Utilities explained it was permitted to spill excess storm water from Combined Sewer Overflows (CSOs) to help prevent the flooding of streets, homes and businesses during storm conditions, when sewers and treatment plants are operating at full capacity.

“We take our environmental responsibilities very seriously and are highly transparent about our performance as evidenced by our high levels of self-reporting on pollution” the company said.

United Utilities to work with supply chain on carbon reduction

As part of its commitment to tackling climate change, United Utilities has set science-based targets for all emission scopes which have been approved by the Science Based Targets initiative (SBTi).

The firm’s scope 1 and 2 emissions target is to reduce emissions by 42 per cent from its 2019/20 baseline by 2030 and to continue to reduce this towards zero emissions by 2050. The utility has set a scope 3 target that 66 per cent of its capital goods suppliers (by emissions) will have science-based targets by 2025. For all other scope 3 categories, United Utilities will work with the supply chain to achieve a 25 per cent reduction in emissions by 2030 from a 2019/20 baseline.

In 2020 the utility launched a new approach to responsible supply chain management for AMP7 – known as United Supply Chain (USC).

Under USC recognises suppliers are asked to become a signatory to its Responsible Sourcing Principles as a minimum - at the beginning of October 2021 it had signed 88 per cent of its targeted suppliers to the Principles and is continuing to pursue the remaining suppliers to reach its target of 100 per cent.

100 per cent of the electricity the company uses is now from renewable technologies - either self-generated power or certified green electricity purchase.

In 2020/21 the company generated the equivalent of 205 GWh of renewable electricity with a mix of generation from wind, hydro, solar photovoltaics and energy recovery from bioresources (using sewage sludge to power combined heat and power generators).

Other issues highlighted in the interim results include:

Climate resilience

United Utilities says that via investment in becoming a digital utility, it has demonstrated it is “better placed to deal with the extremes of weather” now being experienced more frequently. In AMP6 the firm invested an additional £250 million targeted to increase resilience against climate change.

In the coming months United Utilities will publish an overview of its climate risks and plans in its third adaptation report, which it expects to be a key feature of the firm’s AMP8 business plan for PR24, driving ongoing investment needs and growth.

The summer of 2021 was one of the driest on record in the Lake District - combined with higher consumption, this saw storage levels in its strategic water resources in the Lake District reduced to below their operating norm. Resources have now recovered to average autumn levels as a result of actions taken to supplement normal water resources operations outlined in its statutory drought plan, together with rainfall in October.

Helping more innovative businesses grow through Innovation Lab 4.0

Reporting on the Innovation Lab set up with the aim of attracting new entrants to United Utilities, to find ideas that others miss and fast-tracking them to trial and adoption, the company said it is supporting the development of some of the most successful outcomes in the water industry.

Typhon won a UK Water Industry Award for Drinking Water Initiative of the Year, for a UV LED disinfection system. FIDO Tech, the world’s only AI to detect water leaks and their size by the noise signal from acoustic loggers, was the UK nomination and recently announced as runner up in the KPMG Global Tech innovation competition at the Web Summit in Lisbon.

Both suppliers have contracts with United Utilities for ongoing optimisation and new idea development, with the water company having first mover advantage.

CEO Steve Mogford – “we’ve continued with the great start that we’ve made to AMP7”

Commenting on the results, Steve Mogford, Chief Executive Officer, said:

“Climate change and population growth are challenges we must all confront, and we will continue to invest to make our services more resilient and strengthen our ability to respond to, and recover from, extreme weather events. Our £2 billion investment programme will also help our region’s economy to grow, generate jobs and develop skills in our communities.

“We’re committed to delivering our six carbon pledges, which will help us achieve our ambition of net zero by 2030. We have already delivered our pledge to source 100 per cent of our electricity from renewable sources. As well as reducing our carbon footprint, we are committed to protecting the natural environment and ensuring no net loss of biodiversity.

“We’ve continued with the great start that we’ve made to AMP7, benefitting from the acceleration of our capital programme and investment in Systems Thinking. Our strong operational performance delivers efficiency gains and improvements to outcome delivery incentives, and is enabling us to drive further value for our shareholders.”

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