United Utilities has reported an underlying pre-tax loss of £34.3 million pounds for the year to the end of March compared with a profit of £301.9 million during the previous twelve months, according to the company’s final results for 2022/23 published this morning.

Profit before tax fell by 42% to 256.3 million (£439.9 million in 2021/22) while underlying operating profit fell 28 per cent to £441 million – down £169 million compared to £610 million during 2022/23, primarily due to the reduction in revenue and inflationary pressures on core costs, particularly power and chemicals,

According to the water company, this has been a challenging year for the business. Revenue declined 2 per cent to £1,824 million, largely reflecting lower consumption and more than offsetting the allowed regulatory revenue increase.

Underlying operating profit fell 28 per cent or £169 million – down to £441 million from £610 million in 2021/22. primarily due to the reduction in revenue and inflationary pressures on core costs, particularly power and chemicals. Inflationary pressures have impacted input costs resulting in a £81 million increase with the largest increases attributed to the following additional costs:

• power - £27 million
• chemical - £25 million
• regulatory fees - £8 million
• labour costs - £8 million

The utility experienced smaller inflationary increases to other costs of £13 million on a cost base of £518 million.

Operating profit for 2022/23 at £441 million was £169 million lower than last year, largely reflecting a decrease in revenue, inflation impacting the company’s core cost base and the impact of operational incidents as a result of extreme weather during the year.

However, return on regulated equity (RoRE) rose 3% to 11.0% real for 2022/23, reflecting strong financing, customer ODI and tax outperformance which more than outweighed total expenditure (totex) underperformance driven by additional investment in service and environmental improvements.

United Utilities expecting to see capital expenditure in 2023/24 between £720 million to £800 million

Capital expenditure (capex) in the current financial year 2023/24 is expected to be in the range of £720 million to £800 million. In addition to United Utilities’ AMP7 base programme, this reflects capex for the year in relation to additional investment, including Green Recovery and investment supporting the Better Rivers programme and its AMP8 acceleration capital programmes.

Operational performance highlights reported in the results include:

• Best performance to date against our leakage performance commitment, with average leakage over the last three years at its lowest ever level and earning a customer ODI reward for the year.
• 39% reduction in reported activations from storm overflows compared to our 2020 baseline, with monitoring in place on 97% of overflows and on track to achieve full coverage by end of calendar year.
• Won support from regulators to bring forward c.£200m of AMP8 investment for key environmental improvements in the region. Accelerated infrastructure delivery project will allow the firm to make an early start on improving a third of the overflows targeted for improvement between now and 2030.
• Remain sector leader in reducing serious pollution incidents, achieving zero in 2022/23 and zero in 3 of the last 4 years. Remain the only company in the sector to achieve zero serious pollution incidents in consecutive years.
• 4 star performance in the Environment Agency's most recent Environmental Performance Assessment, meaning "industry leading" status achieved in 5 of the last 7 years.
• Internal sewer flooding reduced by 46% during the current regulatory period, with 39% fewer repeat incidents this year demonstrating benefits of successful implementation of Dynamic Network Management.
• Best water quality performance, posting 26% improvement in water quality contacts. Investment in water quality, principally to avoid discolouration, contributes to ODI performance.
• Provided affordability support to more than 330,000 households so far in this regulatory period with our industry leading financial assistance support, helping customers to manage the rising cost of living.
• 83% of ODI performance commitments delivered for the year.

Commenting in its operational review, United Utilities said:

“We are acutely aware that this is a critical time for the water sector, with many challenges facing us, especially around river health. We have delivered significant environmental improvements in recent years in areas such as improving beaches, reducing pollution and reducing leakage, but we should all have acted sooner to recognise and address the impact of storm overflows.”

“In the North West, we have delivered a 39 per cent reduction in reported activations from storm overflows compared to the 2020 baseline, but there is a lot more to do and we have ambitious plans to go further and faster to drive a real step change. This won't happen overnight, it will take sustained effort and investment over time, but we are committed to acting as fast as we can. With the support of our regulators we are accelerating investment, making a start on improvements at one third of the overflows we are targeting in AMP8. As a result we will be investing a further £200 million in the next two years.

Explaining that the North West has more rainfall and more combined sewers than elsewhere in the country, as well as a very large network, United Utilities said that delivering further reductions in reported activations on storm overflows would get “progressively tougher” as the company focus on more challenging overflows.

The company currently monitor 97 per cent of overflows and says it will achieve full coverage before the end of this calendar year.

Forward look at AMP8 investment plans says "our supply chain will be critical"

Having gained Ofwat support to make an early start on its AMP8 investment programme, United Utilities expects to spend £200 million over the final two years of AMP7 and make an early start on improving a third of the overflows targeted for improvement between now and 2030.

The water company owns and manages 56,000 hectares of land, which provides scope for the development of renewable and other clean technologies. Having previously delivered a portfolio of renewable assets across the North West, United Utilities said it is now moving to the next stage of the journey to net zero. As an initial step, it is working on plans to develop 150 megawatts of new installed capacity by 2030 via a programme which could comprise a combination of solar, wind and batteries.

Commenting on its plans for the upcoming AMP8 2025-30 period, United Utilities said the proposed programme of work is “substantially larger” than it has ever delivered before. The company has already appointed five new area stakeholder managers, one for each county in its region, who are working on early engagement with communities and planning approval. It has also brought in additional experience and knowledge to assist colleagues in its engineering, capital delivery and commercial teams. United Utilities added:

“Our supply chain will be critical, and we have appointed an AMP8 mobilisation and organisational readiness partner to ensure that we have the skills and capabilities to successfully deliver AMP8.”

Reducing the use of storm overfl ows is a key component of the plan, which proposes improvements to over 400 sites by the end of AMP8. This would represent a reducti on of over 70,000activations per annum, around a 60 per cent reduction against the 2020 baseline. The plan also includes investment to reduce phosphorous and address nutrient imbalance, delivery targets set by the Environment Act 2021, further improving river health in the North West.

CEO Louise Beardmore - "we need to go faster and drive a step change in performance"

Commenting on the results, Louise Beardmore, Chief Executive Officer, said:

"Despite a challenging year of cost pressures, we have delivered our best ever performance on a range of measures that matter most to customers, including leakage, water quality and serious pollution incidents….

“I understand and share concerns about the use of storm overflows and I am committed to respond to the challenges we face. We have already achieved a 39% reduction in reported activations since 2020, but we need to go faster and drive a step change in performance. We have won support from regulators and are able to make an early start on over £900 million of investment. This will allow us to commence work now on one third of the overflows we are targeting in our AMP8 plans.

“In October we will be putting forward an ambitious plan for the next regulatory period, including our biggest environmental programme yet, targeting a significant improvement in storm overflow performance.”

The Board has proposed payment of a final dividend of 30.34 pence per ordinary share in respect of the year ended 31 March 2023. Taken together with the interim dividend of 15.17 pence per ordinary share, paid in February, this results in a total dividend per ordinary share for 2022/23 of 45.51 pence.

This is an increase of 4.6 per cent compared with the dividend relating to last year, in line with the group's dividend policy of targeting a growth rate of CPIH inflation each year through to 2025. The final dividend is expected to be paid on 1 August 2023 to shareholders on the register at the close of business on 26 June 2023.

The net cash generated from continuing operating activities supports the dividends paid for the year of £301 million and partially funds some of the group's net capital expenditure of £690 million, with the balance being funded by net borrowings and cash and cash equivalents. This forms part of a £2.0 billion capital programme undertaken in the first three years of the period, representing 62 per cent delivery of United Utilities’ AMP7 programme.