United Utilities bad debt is checked but profit shaved by higher costs

United Utilities unveiled a pre tax profit down nearly 9% on the previous year at £408m. Underlying operating profit was off by a similar degree at £604m which the company attributed to the price reset under PR14 and a £70m increase in operating costs which included a £20m hike in infrastructure renewals expenditure (IRE).

Bad debt costs fell £13.7m to £39.2m but stood at 2.3% of regulated revenue and will “continue to be challenging” owing to poverty in what United described as “the most deprived region in England.”

United’s IRE plan is heavily front-loaded and during the current reported year – the first under AMP 6 – stood at £799m. The company warned this and similar expenditure in the second year will “impact our financial results” in the first half of AMP 6 but that “reverses out” later in the period but suggested little

Company embarked in 2015 on a £400m reduction in totex compared to its June 2014 business plan proposed ahead the final determination of PR14. It said it had, in the past year, found a number of efficiencies to close that gap.

The company reported an outcome delivery incentives reward of £2.5m for the 2015-16. The firm’s inclination to an overall penalty over the full price control period was, it said, based on customers’ unwillingness to pay for improved performance as revealed from consultation. Following the past year’s outcome United’s current thinking it that its ODI outcome will lie between a £30m reward and £70m penalty.