United Utilities Group Plc - Trading Update
Fast-track status achieved
We are pleased to have been awarded fast-track status when Ofwat published its initial assessment of company business plans for the 2020-25 period. Our plan received the highest grades overall for the sector with Ofwat commending it in many areas including customer engagement, affordability and vulnerability, resilience, innovation and confidence and assurance.
As a fast-track company, we now have greater clarity with a year to go before the start of the next regulatory period. We will use this time to refine our plan in order to make a flying start to delivering our proposals for AMP7.
Delivering on our targets for AMP6
Our approach to innovation and the use of advanced technology from around the world alongside our capital investment is delivering better service, greater resilience and improved efficiency for customers. The progress we have made positions us well to deliver against our targets for the remainder of the current regulatory period with no material change to prior guidance on totex, outcome delivery incentives (ODIs) or service incentive mechanism (SIM).
In January, Ofwat published the results of its annual company monitoring framework assessment which measures the quality and transparency of company reporting and the level of trust and confidence that customers and other stakeholders can place in it. We are delighted to have retained "self assurance" status in this assessment. This is the highest category available and we are the only company in the sector to have held this status for three consecutive years.
Group revenue is expected to be higher than last year, largely reflecting our allowed regulatory revenue changes.
Underlying operating profit for 2018/19 is expected to be higher than 2017/18. Underlying infrastructure renewals expenditure (IRE) in the second half of the year is expected to be broadly consistent with the first half of the year.
Reported operating profit will be impacted by costs relating to the exceptional period of dry weather in the summer of 2018, guaranteed minimum pension (GMP) equalisation and restructuring within the business. To provide a more representative view of business performance, operating costs associated with these items will be excluded from the underlying profit measures. These adjusted items are expected to total £52 million for the full year, of which £29 million was recognised in the first half.
The RPI inflation that is applied to the group's index-linked debt is lower than last year and we therefore expect the underlying net finance expense for 2018/19 to be around £45 million lower than 2017/18.
As the company continues to invest in its asset base, we expect a small increase in group net debt at 31 March 2019 compared with the position as at 30 September 2018.
Our responsible approach to financial risk management continues to deliver benefits including a strong balance sheet, a stable IFRS pension surplus and gearing comfortably within our target range of 55 per cent to 65 per cent net debt to RCV, supporting a solid A3 credit rating for United Utilities Water with Moody's.