22nd Mar 2016 13:58
LONDON (Alliance News) - United Utilities Group PLC Tuesday warned its profit for the current financial year will be adversely impacted by the severe flooding in North West England and by the parasite outbreak at its water system in Lancashire in the second half of 2015.
The FTSE 100-listed water and sewage utility said its operating profit for the financial year due to end this month will be hit by additional costs and impairments related to the unprecedented flooding incidents which occurred during December 2015 and by a GBP25.0 million cost related to the "water quality" incident last summer.
That GBP25.0 million cost, which was booked in the first half of the financial year, looks set to cause the biggest impact to full year profit as United Utilities said it expects the charges to be booked in relation to flooding to be "largely offset" by insurance proceeds.
United Utilities reported its water had been contaminated with a parasite back in August, impacting around 300,000 customers in Lancashire. The GBP25.0 million cost is made up of compensation payments and the costs to rectify the problem.
United Utilities said Tuesday that its overall customer satisfaction scores have "improved slightly" compared to last year despite the incident in Lancashire.
A GBP10.0 million cost will also be booked in 2015 related to business retail market reform, the company said, with GBP5.0 million already booked in the first half of the financial year.
However, potentially helping to offset those costs will be "marginally higher" revenue in the year, with increased assumed volumes and more sales in its non-regulated business offsetting lower allowed regulated revenue.
However, underlying operating profit, which excludes one-off and exceptional items such as those charges, will also be lower year-on-year but in line with expectations, the company said.
United Utilities said the underlying operating profit has been hit by the new regulated price controls introduced in the period, depreciation charges, alongside changes in employee and operating costs.
A rise in infrastructure renewals expenditure will also negatively hit those underlying results, and is expected to be GBP20.0 million higher than the previous year when it spent GBP148.0 million - implying it will total around GBP168.0 million.
To put the warning about profit into some form perspective, United Utilities reported an underlying operating profit of GBP664.3 million in the last financial year, which was the third consecutive year that result had risen.
United Utilities said regulatory capital investment in the current financial year, including infrastructure renewals expenditure, is expected to be around GBP800.0 million, which can be compared to the GBP869.0 million spent the year before.
On a more positive note, the company said its underlying net finance expense is expected to be around GBP20.0 million lower than the previous year, when the net finance expense totalled GBP222.0 million - implying it will be around GBP202.0 million this year.
The reduction reflects the impact of lower RPI inflation on the company's index-linked debt and a lower rate of interest locked-in on its nominal debt.
However, net debt is expected to have risen "modestly" from the GBP6.01 billion reported at the end of September 2015, as United Utilities has continued to invest in its asset base. However, United Utilities said gearing "remains comfortably" within its target range of 55% to 65% net debt to regulatory capital value.
United Utilities also said the proposed joint venture with Severn Trent PLC, which will combine the two companies' non-household water and wastewater retail businesses, is expected to receive a decision on whether the venture will be cleared by the Competition & Markets Authority "later this Spring," it said.
"With the non-household retail market in England opening for competition in 2017, this joint venture will combine the complementary skills of both companies, including business strategy, sales, customer service and credit management, to deliver an attractive proposition for large and small business customers across England and Scotland," the company said.
The group will publish its final results for the financial year ended March on May 26.
United Utilities shares were down 0.4% to 917.50 pence per share on Tuesday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance
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