Shares of Warrington-based water giant United Utilities fell about 3% on Tuesday after it published a trading update ahead of its half year results on November 23, 2022.
“Due to moderately lower than forecast consumption, group revenue for the first half of 2022/23 is expected to be around 1 per cent lower than the first half of last year,” said the company.
“We expect this lower consumption to continue into the second half of the year and therefore full year group revenue is expected to be lower than the guidance that we gave in May.
“We previously guided to around £100 million increase in underlying operating costs for the 2022/23 financial year, with around half in relation to previously announced additional investment and half inflationary cost increases.
“Inflationary increases in our input costs, particularly on chemicals and power, are now expected to be somewhat higher than the forecast used to derive this guidance.
“We actively manage the impact of inflation on our cost base and while we are in a strong position for 2022/23 with wage deals agreed and the majority of our power consumption hedged.
“As highlighted at our full year results, we started the year with around 10 per cent of unhedged consumption exposed to market rates.
“As a result of these factors, underlying operating costs are now expected to be £65 million higher for the first half of 2022/23 leading to a lower underlying operating profit than the first half of last year.
“We expect these factors to also impact the second half of the year, however we continue to closely monitor the impact of ongoing volatility in power costs and await clarity on the impact of the Energy Bill Relief Scheme for non-household customers.
“Our regulatory determination for AMP7 allows for inflation through CPIH indexation of the RCV and the totex allowance.
“This provides mitigation of non-cash indexation on the group’s index-linked debt and mitigation against higher cash operating costs over time.
“We expect the underlying net finance expense for the first half of 2022/23 to be around £135 million higher than the first half of last year, largely as a consequence of higher inflation rates.
“Cash interest is expected to remain stable when compared with the first half of last year.
“As a result of the impact of capital allowances, including the temporary super deductions available for the current year, we would expect an underlying tax charge close to £nil for both the first half of the year and the full year.
“We expect an increase in group net debt at 30 September 2022 compared with the position as at 31 March 2022.
“This largely reflects the impact of higher inflation leading to a higher indexation of principal on our index-linked debt along with the group’s ongoing investment in its asset base, partly offset by the expected receipt of proceeds in relation to the previously announced sale of our renewable energy business United Utilities Renewable Energy Limited.
“Our responsible approach to financial risk management continues to deliver benefits, including a strong balance sheet and gearing within our target range.
“This supports a solid A3 credit rating for United Utilities Water with Moody’s and our AMP7 dividend policy.”