United Utilities has delivered a robust underlying financial performance for the half year to 30 September 2024, according to its latest financial results report released this morning.
Revenue increased 11 per cent, up £107 million, at £1,082 million, mainly driven by the inflationary mechanism and the impact of prior period adjustments in respect of consumption. The revenue increase, partly offset by an increase in underlying operating costs, resulted in an underlying operating profit of £336 million, a 24 per cent increase compared to the prior half year.
Reported operating profit increased by £93 million to £333 million on the same period last year, reflecting the £65 million increase in underlying operating profit as well as a reduction in the impact associated with responding to a fractured outlet pipe in June 2023 at the company’s Fleetwood Wastewater Treatment Works of £28 million compared to the prior half year.
United Utilities said its balance sheet continues to be one of the strongest in the sector, commenting:
“With RCV gearing at 60% and £2.6 billion of liquidity extending into FY27, alongside solid credit ratings, we have future flexibility as we approach AMP8.”
Commenting on Ofwat’s Draft Determination on its AMP8 Business Plan in the context of risk and return – United Utilities said although the draft determination did reflect an uplift compared with the early view WACC, it was concerned that it was still set at an unattractive level.
“Given the very substantial investment requirements across the sector in AMP8 and for the next 20 years, the risk and return balance needs to be set in a way that encourages the debt and equity that is needed,” the report says.
Underlying profit before tax of £183 million compared to a £90 million profit before tax in the first half of last year. The £93 million difference reflects the £65 million increase in underlying operating profit and a £26 million decrease in underlying net finance expense. The underlying profit after tax of £183 million was £93 million higher than the £90 million underlying profit after tax in the first half of last year, reflecting the £93 million increase in underlying profit before tax.
The Board has announced an interim dividend of 17.28 pence per ordinary share in respect of the six months ended 30 September 2024. This is an increase of 4.2 per cent compared with the interim dividend last year, in line with the group's dividend policy of targeting a growth rate of CPIH inflation each year through to 2025.
The interim dividend is expected to be paid on 13 January 2025 to shareholders on the register at the close of business on 29 November 2024.
Operational review
Operational highlights during the period flagged up in the report include:
- Highest ODI5 reward in the sector in FY24, and on track to perform at least as well in FY25
- 4-star status in the EA's latest Environmental Performance Assessment for 2023
- Accelerating spill reductions, making improvements at over 1,100 storm overflows by 2030
- Continued focus on leakage, with innovative techniques helping us to fix more leaks
- Supporting customers, with over 475,000 households on Priority Services register and almost 400,000 customers supported through affordability schemes so far this AMP
- Strong performance across Measures of Experience, ranking 1st place for the first time on developer experience (D-MeX) and 1st placed WaSC6 for retailer experience (R-MeX)
The operational review says that improving rivers across the North West is one of the company’s strategic priorities. United Utilities has put forward one of the most ambitious AMP8 storm overflow reduction programmes in the sector, targeting improvements at more than 440 locations – the utility is already making early progress on 154 overflows as part of the accelerated infrastructure delivery programme approved by Ofwat last year.
United Utilities AMP8 Business Plan plan put forward for 2025-30 targets a 30,000 spill reduction by 2030. Last week, the company announced it is taking the accelerated programme further, bringing forward work to reduce spills from an additional 700 overflows, meaning it will now be making improvements at more than 1,100 sites by 2030.
Alongside spill reductions and phosphorus removal, United Utilities is also focused on continuing to minimise pollution and will be using innovative thermal imaging drones and state-of-the-art artificial intelligence to help predict, spot, and prevent pollution incidents.
The company says it remains committed to reducing leakage across the network, delivering a programme of improvement with an increasing focus in the second half. Real benefits are being seen from satellite imagery of all its water mains, which is accelerating the time to locate and fix leaks. United Utilities also has further innovative projects and opportunities from partnership-working and using telecoms fibre networks to detect leaks.
United Utilities most significant event-based risks
The report also sets out the most significant event-based risks which represent the ten highest-ranked risks by exposure (likelihood of occurrence of the event multiplied by the most likely financial impact) and those risks which have been assessed as having a significantly high impact, but low likelihood. Depending on the circumstances, financial impacts will include loss of revenue, additional costs, fines, regulatory penalties and compensation. Reputational impact represents the impact on stakeholder trust and the six capitals.
Summarised below are the top ten highest ranking risks:
- Price Review 2024 outcome
- Failure of the Haweswater Aqueduct
- Credit Rating
- Recycling of biosolids to agriculture
- Failure to treat wastewater
- Wastewater network failure
- Capital Delivery programme
- Cyber
- Water availability
- Failure to treat sludge
Commenting on the prospect of material litigation, the report says that the directors remain of the opinion that “the likelihood of a material adverse impact on the group's financial position is remote.” However, based on the facts currently known to the company and the provisions in the financial statements, the report flags up three cases as “worthy of note”, including collective proceedings in the Competition Appeal Tribunal (CAT) issued on 8 December 2023 against UUW and United Utilities Group PLC on behalf of approximately 5.6 million domestic customers following an application by the Proposed Class Representative (PCR), Professor Carolyn Roberts.
The estimated total aggregate amount the PCR is claiming against UUW (including interest) is at least £141 million. The certification hearing for the claim to determine whether or not it should be allowed to proceed, was held in late September 2024 and the outcome of this is expected in 2025. United Utilities said it believes the claim is without merit and will robustly defend it should it be certified.
CEO Louise Beardmore: "We have delivered a robust set of operational and financial results"
Commenting on the results, Louise Beardmore, United Utilities' Chief Executive Officer, said:
"We have delivered a robust set of operational and financial results. In October we were confirmed as the leading water and sewerage company by Ofwat on a suite of performance measures (ODIs) in 2023/24, delivering on the things that matter most to customers. In July the Environment Agency awarded us the top 4-star rating in its 2023 assessment, and we continue to support customers with affordability assistance having helped over 400,000 families since 2020.
"Improving rivers continues to be a key area of focus. We are already making progress at reducing spills from storm overflows, having commenced a programme of accelerated solutions. Our five-year plan builds on this, with a step-change in investment, and last week we announced that we would go further and faster, accelerating more work to reduce spills. By 2030, we will deliver improvements at more than 1,100 overflows across the North West.
"Looking ahead, we continue to evolve our plan for the next five years, with ambitious investment proposals to build a stronger, greener and healthier North West. This will see us invest significantly in new infrastructure, supporting 30,000 jobs and aligning with the Government's ambitions for economic growth in the region."
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