United Utilities is reporting increased outperformance and its intention to keep customer bills flat for 2022-23 with the publication of its full year results for the year ended 31 March 2022.

Revenue was up £55 million, at £1,863 million, largely reflecting higher consumption with the return of business activity to prepandemic levels. Underlying and reported operating profit at £610 million was £8 million higher than last year. The £55 million increase in revenue was mostly offset by higher power costs and inflationary pressures increasing the utility’s underlying cost base, predominantly in respect of materials and labour.

Power costs - a significant cost for the business - have increased by £16 million this year, largely in relation to higher prices. Via hedging policy and self-generation, United Utilities locked in the cost of the majority of its consumption for 2021/22 before the most recent energy price rises, securing an average rate of £65 per megawatt hour (MWh) for the year.

This is significantly lower than the current market rate of over £200 per MWh for next year and has been fundamental to United Utilities’ ability to minimise the impact on its cost base. The company said it is also locked-in on over 90 per cent of expected consumption for 2022/23, and around two-thirds of expected consumption across the final two years of AMP7, at rates that compare favourably to the current market rate.

The Board has proposed a final dividend of 29.0 pence per ordinary share in respect of the year ended 31 March 2022. Taken together with the interim dividend of 14.5 pence per ordinary share, paid in February, this results in a total dividend per ordinary share for 2021/22 of 43.5 pence, an increase of 0.6 per cent compared with the dividend relating to last year.

The group's net capital expenditure was £627 million, principally in the regulated water and wastewater investment programmes. This excludes infrastructure renewals expenditure, which is treated as an operating cost.

 Accelerating AMP7 capital programme and investing an additional £765 million over the AMP7 period

United Utilities said it is accelerating its AMP7 capital programme and investing an additional £765 million over the regulatory period to help deliver even more sustainable improvements in customer and environmental performance, and to get ahead of the requirements coming into force through the Environment Act.

The results show the utility is earning higher outperformance thanks to strong operational performance against customer outcome delivery incentives as well as financial outperformance.

The water company has achieved its best ever performance against customer outcome delivery incentives (ODIs), earning a £25 million reward against customer ODIs, the highest annual reward it has achieved to date. It is also on track to deliver its AMP7 environmental improvement programme, which will improve river and bathing water quality in the North West.

United Utilities anticipates earning total customer ODI rewards over AMP7 of £200 million, a third higher than estimated in last year's report.

However, the utility is warning about increased costs, saying that the economic environment as the world emerges from a global pandemic, as well as the war in Ukraine, has driven higher costs in its supply chain, commenting:

“We are starting to see significant cost increases in power and chemicals....We continue to seek efficiencies and exploit technology and innovation to help us deliver our total expenditure (totex) efficiently.”

Significant investment needed for the environment

Looking further ahead, United Utilities has also flagged up the prospect of significant levels of needed investment, pointing out that new and emerging requirements reflect the increased importance being given by the Government to the environmental agenda.

The water company said the Environment Act 2021 introduces several new challenges for the sector, including a requirement for water companies to secure a progressive but very substantial reduction in the average number of spills from storm overflows, and controlling nutrient pollution by reducing phosphate release from wastewater treatment works.

The report states:

“Specific targets for the next regulatory period have not yet been agreed, but it is already clear that there is an ambition to deliver a fundamental change in the way drainage network systems were originally configured.

“The investment needed to deliver these changes will be significant for the industry as a whole, but particularly for the North West, where we have a much higher proportion of combined sewers.”

Commenting on its flagship project the Haweswater Aqueduct Resilience Programme (HARP), an industry-first Direct Procurement for Customers (DPC) programme to design and build six replacement tunnel sections of the Haweswater Aqueduct, United Utilities says the initial design was developed following extensive ground investigation work to plot the best route.

The planning applications have now all been submitted with decisions expected later this year. During early 2022, the company has been finalising tender documents with procurement expected to start in the summer of 2022.

With regard to customer bills, the average household bill for 2022/23 is not increasing, with the company offering more support than ever before through an extensive range of affordability and vulnerability schemes, helping over 200,000 households this year and providing around £280 million of affordability support over AMP7.

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

"We are very conscious of our responsibility to support customers at a time when households are seeing significant rises in the cost of living. Despite the high levels of inflation, we expect no increase in average household water bills in our region in the coming financial year and we are offering more financial support to customers in need than ever before. We are a leading supporter of the Consumer Council for Water's drive for a national social tariff and believe the right support should be provided to customers who struggle to pay their bill regardless of where they live in the country.

"We take our role in the North West very seriously, and firmly believe that responsibly sharing our successes is the right thing to do for all our stakeholders. Our improving performance together with an environment of higher inflation is yielding a greater level of outperformance, and so we will be investing an additional £400 million to improve the service we provide to customers and to accelerate the delivery of environmental outcomes. We recently published our river revival plan which progressively reduces the impact our operations have on river health. Our four-point strategy details how we will work with others to transform the rivers and waterways across our region.

"The maturing of our Systems Thinking approach - which uses innovative technology to deliver a better service for customers - continues to create value through sustainable performance improvements. This has contributed to another strong outcome delivery incentive (ODI) reward for the year and underpins our confidence in increasing our total AMP7 ODI target by a third, to £200 million. Financial performance has again been good, demonstrating resilience in a challenging environment and, together with the sustainable improvements in our performance, is delivering value for our stakeholders today as well as creating further value to be received in AMP8 and beyond."

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