Costs dominate United Utilities' first half as underlying pre tax profit slips 7.7%


First half-year underlying pre tax earnings at United Utilities were down 7.7% at £189m on the same period in 2015 after a near 18% leap in finance costs to £125m.

Underlying operating costs and renewals expenditure for the six months to 30 September 2016 were, at £362.5m, down £6m year-on-year with revenue near unchanged at at £853m. So underlying operating profit ticked up £4m to £312.5m assisted by a £7m fall in depreciation and amortisation..

According to chief executive Steve Mogford (pictured), United has delivered, "improvements in customer service, operational and environmental performance and these areas will remain top priorities as we move through the 2015-20 regulatory period."

United's reported operating profit was up on 2015 by £25m at £303.6m, helped by an £18m fall in reported operating costs to £371m. These figures were flattered by a near £25m hit in 2015 flowing a cryptosporidium contamination incident that year.

The now familiar distortion of day-to-day operational performance created by financial reporting rules was apparent as reported financing costs – including fair value movements of derivative instruments – increased by £103m to £168m. That left reported profit before tax down 26.5% at £158.4m with a £20.9m boost from United’s disposal of its non-household retail business to its business supply joint venture with Severn Trent, Water Plus.

A tax credit of of £44.2m – for government planned tax changes – following a 2015 tax bill of £43.7m – lifted reported net profits to £30m above last year’s figure at £202.6m. After adjustments including those for: a £91m slump from gain to loss on debt and derivative instruments; the deferred tax credit; profit from the sale of the business retail operation; and costs of the cryptosporidium incident i underlying net profit was £12 m on the same period last year.

The company highlighted customer service improvements over the six months of the report as demonstrated by SIM score. It estimated its quanitiative scores to be up 20% and reported that it had exceeded its earlier best qualitative scores in the first two quarterly surveys of 2016/17.

Key financials

30 September 2016 30 September 2015

Revenue £853.0m £857.0m

Underlying operating profit £312.5m £308.6m

Operating profit £303.6m £278.3m

Interim dividend per ordinary share 12.95p 12.81p

RCV gearing2 62% 59%