United Utilities profits get watered down

WATER company United Utilities has warned underlying operating profits will be lower this year, citing the costs incurred by “unprecedented” flooding incidents in December and price controls.

The Warrington-based group, the North West’s biggest company by market value, said that despite the impact of lower allowed regulated revenue for 2015/16, revenue for the year ending March 31, 2016 will be slightly up on last year because of higher than assumed volumes and an increase in sales in its non-regulated business.

Although operating profits will be affected by the floods, UU did add that these charges are expected to be largely offset by insurance proceeds.
 
Costs relating to business retail market reform are expected to be around £10m for the full year, of which £5m was recognised in the first half.

The company also incurred £25m in costs as a result of a water quality incident over the summer, where 300,000 properties were advised to boil water before drinking it.These costs were recorded in the first half of the 2015/16 financial year.

UU said there would be a modest increase in group net debt at the end of the financial year, as the company continues to invest in its asset base.

Regulatory capital investment for 2015/16, including infrastructure renewals expenditure, is expected to be around £800m.

The company said that early investment along with a strong management focus is leading to further improvement in underlying operational performance, particularly in the wastewater business.

Earlier this month it was announced that United Utilities had entered into a joint venture agreement with Severn Trent to combine the two companies’ non-household water and wastewater retail businesses, principally comprising billing and customer service activities, into one business.

The joint venture is subject to clearance from the Competition and Markets Authority, which is expected later this spring.

The company will announce its full results on May 26.

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