United Utilities continues to trade in line in first half

United Utilities issued a trading update on Tuesday, reporting that current trading remained in line with the group's expectations for the six months to 30 September.

The FTSE 100 company said its operational performance was “delivering value” for customers, shareholders and the environment.

It noted that in July, it was one of two companies to retain the 'Industry Leading Company' status as measured through the Environment Agency's annual assessment and, earlier in September, it retained its Dow Jones Sustainability Index 'World Class' rating for the 10th consecutive year.

“The acceleration of investment in our assets across this regulatory period has helped secure the benefit of operational efficiencies early and deliver the cost savings underpinning our business plan,” its board said in its statement.

“Total regulatory capital investment for 2017/18, including infrastructure renewals expenditure (IRE), is expected to be around £800m.

“This continued high level of investment will help deliver further improvements in operational performance and customer satisfaction and includes the first £20m of the additional investment in resilience for the benefit of customers as announced in our full year results.”

United said it was continuing to roll out further capability through its ‘innovative Systems Thinking’ approach, which enabled it to manage its entire network as a system using its integrated control centre, delivering operational improvements and cost savings across the regulatory period.

“Last year we successfully implemented a number of industry leading innovations in our customer service offering.

“We are on track to implement further initiatives this year, harnessing the opportunity for co-design with customers where appropriate.”

United Utilities noted that as expected, Ofwat published its consultation on the PR19 methodology on 11 July, to which it responded on 30 August.

Alongside its engagement with Ofwat, the company said it continued to conduct “extensive engagement” with customers as it developed and shaped its business plan submission.

Looking at the financials, the United board said group revenue was expected to be just under 3% higher than the first half of last year, reflecting its allowed regulatory revenue changes, partly offset by the accounting impact of the Water Plus business retail joint venture, which completed on 1 June 2016.

Underlying operating profit for the first half of 2017/18 was expected to be higher than the first half of 2016/17, the board added.

“It is anticipated that IRE in the first half of 2017/18 will be slightly lower than the first half of last year.

“In line with our planned capital investment phasing, we expect an increase in IRE in the second half of 2017/18, compared with the first half of the year.”

United noted that RPI inflation had increased further in the first half of the year, which had the effect of increasing the company's regulatory capital value (RCV).

Since United Utilities was “well-hedged” for inflation, there was also an impact of higher RPI inflation on its index-linked debt, and the company expected the underlying net finance expense for the first half of 2017/18 to be around £30m higher than the first half of last year.

“As the company continues to invest in its asset base, we expect a small increase in group net debt at 30 September 2017 compared with the position at 31 March 2017.”

In July, United Utilities' credit ratings were upgraded by Standard & Poor's, with United Utilities Water being raised one notch to A- from BBB+.

The board said its operational performance was supported by a “robust” capital structure and effective pensions hedging.

“Gearing remains comfortably within our target range of 55% to 65% net debt to RCV, supporting a solid A3 credit rating for United Utilities Water with Moody's, and the group has financing headroom into 2019.”

United Utilities said it would announce its 2017/18 half-year results on 22 November.