Analysis: re-openers may be a key theme of full-year results

(by Verity Mitchell)

United Utilities’ surprise announcement of preliminary results on 30 April, with an £800m capital increase, contained many interesting new elements. As the reporting season for the year ended 31 March 2026 begins for the sector, what trends might we expect?

AMP8 has precipitated a flurry of new equity pledges or (in the case of Yorkshire Water) new owners willing to fund accelerated asset growth across the sector. While restoring the sector’s reputation with the public remains a challenge, some thawing of negativity must have occurred to enable United Utilities to attract £400m of new retail investors’ equity in addition to £400m of institutional new money.

United Utilities is the first company to confirm that it has formally approached Ofwat with a request for price re-openers. The final determination for PR24 set out specific “critical cost areas” that justified price re-openers, such as additional funding for major gated projects; improved cyber security; and reduced PFAS and other forever chemicals in the water system. Ofwat has also been working on allowing price re-openers to improve asset resilience. Performance failure from systemic long-term underinvestment was a central conclusion of the Cunliffe report.

Ofwat is also allowing companies to make additional growth investment cost change requests in 2026, 2027, and 2028, with submission due in a window from 1 March to 1 May in each year. Rising demand in the North West from new housing, data centres and defence companies was highlighted by United Utilities in its submission.

Ofwat will publicly summarise the companies’ requests for price re-openers and has committed to make public its draft decisions on them by 15 August and final decisions by 15 December each year.

On its results call for financial analysts, United Utilities’ management was keen to stress that these new economic growth drivers in the North West would justify three sets of re-openers between now and 2028. Ofwat has been keen to promote water as a growth industry to the current government.  Other companies may also be planning to facilitate additional economic growth in their respective regions by requesting additional funding for new water resources.

Accelerating investment through price re-openers will require more equity injections from shareholders. Shareholders, encouraged by the resulting higher Regulatory Capital Value growth in AMP8 from these re-openers, may prove willing to subscribe more equity in the coming months to stabilise credit metrics.

Higher-than anticipated inflation in year one of AMP8, compared to Ofwat’s expectations in setting prices, is expected to continue in year two because of current instability in the Middle East. This will continue to positively affect companies’ return on regulatory equity metrics through the mechanical indexation of revenues and regulated assets. This will also generate some headroom against key debt metrics. It will have no effect on ODIs, which are expected to remain in negative territory for most companies, given the need to invest to improve key metrics such as leakage reduction. The effect of higher energy prices will only be reflected in earnings dilution once each company’s forward purchases of energy need renewing.

Investors will expect some detailed explanation of the completeness of the supply chain needed to deliver AMP8 investments for each company. Regulators, customers and shareholders will expect to know whether companies are on track to deliver the improvements in line with the timescale set out in their business plans. Some companies have already flagged problems in this area and, as with AMP7, may struggle to deliver schemes on time.

AMP8 delivery must be on track to be completed by 2030, for in-period adjustments from 2027. This remains a significant challenge that might limit any growth upside for some companies unable to complete their AMP8 investment plans in time.

Delays may also increase the lag on achieving ODI rewards, which can only be earned through a substantial and timely increase in investment to improve company performance.

The companies will need to show: an improved performance, especially in areas of public approbation such as sewer spills, pollution incidents, leakage reduction and mains replacement; that they are in a less financially parlous state with new shareholder support; and that dividends and management remuneration are appropriate for the level of performance that they have recorded over the last 12 months.