- United Utilities’ half-year revenue of £982.0m, up 6.8%
- Underlying operating profit grew 4.9% to £271.1m
- Net debt increased by 9.1% to £8.5bn
Aarin Chiekrie, equity analyst at Hargreaves Lansdown:
“In return for providing a reliable and affordable water supply to the Northwest of England, the regulator allows United Utilities to earn an acceptable financial return. At the half-year mark, higher revenue is being driven by the inflation increase allowed as part of the group’s revenue cap. But inflationary pressures are having an even larger impact on costs, particularly power, labour and chemical costs, meaning profits are growing at a slightly slower rate. United Utilities is on track to deliver its best-ever year in terms of customer outcome delivery incentives, which are effectively bonuses for delivering above and beyond their committed levels of service to customers, which should help offset some of these higher costs.
Net debt has increased but the balance sheet remains stable for now, but given the group’s ambitious £13.7bn plans to expand and upgrade its assets between 2025-2030, United Utilities needs to raise around £5.2bn of cash. That’ll require issuing new debt and will likely push debt levels towards the top of the group’s target range, potentially putting pressure on the group’s generous dividend yield.
It’s also worth keeping in mind that high levels of inflation have mixed impacts for United Utilities. On one hand, it impacts customers’ ability to pay their bills, which are expected to rise by £22 per customer per year. United Utilities has announced affordability schemes which should help more than one in six of its struggling customers. But over the medium term, high levels of inflation are likely to be a net benefit for the group. That’s because inflation increases the amount of revenue the group’s allowed to earn on its asset base. The mammoth investment plan should help on that front too, raising the group’s assets by 50% before the end of this decade.”
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