United Utilities trading update

United Utilities trading update
28 March 2017

Current trading is in line with the group’s expectations for the year ending 31 March 2017.  
Accelerated investment delivering results

Further improvements in operational performance and customer satisfaction are being delivered through continued acceleration of investment in our assets across this five-year regulatory period.  Regulatory capital investment in 2016/17, including infrastructure renewals expenditure (IRE), is expected to be around £800 million this year and in line with our plan.

Service delivery across our wastewater business has again been very good throughout the year, particularly in the areas of private sewers and pollution incidents.  Underlying performance across our water system has also improved year-on-year, reflecting our significant investment and focus in this area, despite experiencing a small number of bursts which affect our water service outcome delivery incentives (ODIs).  As a result of our good overall performance, we now expect to deliver a small net reward from our ODIs this year.

Our operational performance improvements and strong customer focus continue to deliver measurable advances in customer satisfaction.  This is reflected in our Service Incentive Mechanism (SIM) performance and our latest scores indicate that we are in a leading position on Ofwat’s quantitative SIM among the water and sewerage companies.  We are also one of the most improved companies this year on qualitative SIM, having achieved our best ever score. This means that we expect to be the top performing listed water and sewerage company on SIM for 2016/17.

Our region suffers from high levels of income deprivation and we continue to offer wide-ranging schemes to help customers struggling to pay.  We are particularly pleased with the results from our billing and collections improvement initiatives, along with innovations in this area that are facilitating enhanced engagement with customers.  This is all contributing to improved customer payments, with beneficial implications for bad debt.

Our innovative Systems Thinking approach is continuing to deliver benefit across the business providing us with improved visibility of asset performance, reducing the number of asset failures and delivering improved service standards for customers. We are on target to deliver the efficiency improvements enabled by Systems Thinking through this regulatory period.

Group revenue is expected to be slightly lower than last year, reflecting the accounting impact of our Water Plus business retail joint venture, which completed on 1 June 2016, partly offset by our allowed regulatory revenue changes.

Underlying operating profit for 2016/17 is expected to be moderately higher than 2015/16.  IRE has increased slightly in the second half of the year, although full year IRE for 2016/17 is expected to be moderately lower than last year mainly due to a slightly different mix of capital investment.

Reported operating profit will be impacted by costs relating to non-household retail market reform and also restructuring within the business.  These costs are expected to total around £16 million for the full year, of which £8 million was recognised in the first half. To provide a more representative view of business performance, these adjusting items will be excluded from the underlying profit measures.

RPI inflation has increased this year, which has the beneficial effect of increasing the company’s regulatory capital value.  Since United Utilities is well hedged for inflation, there is also an impact of higher RPI inflation on our index-linked debt and we expect the underlying net finance expense for 2016/17 to be around £240 million.

As the company continues to invest in its asset base, we expect a small increase in group net debt at 31 March 2017 compared with the position at 30 September 2016.  This principally reflects capital expenditure, payment of the 2016/17 interim dividend and payments in relation to interest and tax, largely offset by operational cash flows.  Gearing remains comfortably within our target range of 55% to 65% net debt to regulatory capital value, supporting a solid A3 credit rating for United Utilities Water, and the group has financing headroom into 2019.
Full year results

United Utilities will announce its 2016/17 full year results on 25 May 2017.
United Utilities contacts:

Gaynor Kenyon, Corporate Affairs Director    +44 (0) 7753 622282

Darren Jameson, Head of Investor Relations    +44 (0) 1925 237033

Peter Hewer, Tulchan Communications    +44 (0) 20 7353 4200

LEI  2138002IEYQAOC88ZJ59

Classification – Trading update