UU says it is trading in line with expectations
United Utilities (UU) has announced current trading is in line with its expectations for the year to March 31, 2015 with revenue expected to be slightly higher than the previous 12 months, reflecting the regulated price allowance for 2014/15 partly offset by the impact of the previously announced one-off special customer discount of around £20M. A modest increase in underlying operating profit is also expected.
In a trading statement, UU said its capital delivery performance in the current regulatory period "has been very good", as it has invested to maintain and improve services for customers and deliver further environmental benefits. Regulatory capital investment for 2014/15, including infrastructure renewals expenditure and transitional investment, is expected to be more than £850M.
The group said customer service remains a primary area of focus and it continues to make progress, reflected in a further reduction in customer complaints. Under Ofwat’s key indicators, its asset serviceability performance has been good, with all four major asset classes rated either ‘stable’ or ‘improving’. This strong performance was recognised in Ofwat’s final determination in December 2014, with no penalties relating to asset serviceability or the service incentive mechanism (SIM).
The underlying net finance expense for 2014/15 is anticipated to be markedly lower than 2013/14, mainly as a result of the impact of lower RPI inflation on our index-linked debt.
As the company continues to invest in its asset base, UU said it expects a modest increase in group net debt at March 31, 2015 compared with the position at September 30, 2014. This principally reflects regulatory capital expenditure, payment of the 2014/15 interim dividend and payments in relation to interest and tax, alongside fair value losses on the group’s debt and derivative instruments, largely offset by operational cash flows. Gearing remains well within our target range of 55% to 65% net debt to regulatory capital value, supporting a solid A3 credit rating for United Utilities Water.
As outlined previously, from April 1, 2014, a change under IFRS11 impacts the accounting treatment of the group's investment in Tallinn Water (moving from proportional consolidation to equity accounting). To reflect the new accounting treatment, the prior year financials will be restated (consistent with the restatements made at the half year results). This reduces underlying operating profit for 2013/14 by £7M, but with minimal impact on underlying pre-tax profit.
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