UU chief financial officer to retire; Moodys predicts lower penalties

Russ Houlden, chief financial officer at United Utilities, is to retire after a decade in the role.

Houlden will also step down from the board following the company’s annual general meeting to pursue “non-executive opportunities”.

UU chief executive Steve Mogford said: “’Russ has been an integral part of the work we have done in recent years to transform the organisation, helping us to deliver best ever levels of customer service, a more resilient network and real gains in operational performance and efficiency.  Alongside this, Russ has helped secure a robust and sustainable financial profile for the company, including securing a fully funded pension scheme on a self-sufficiency basis.”

A successor is yet to be appointed for the position.

The company was the second to accept its final determination from Ofwat, which ratings agency Moodys predicted is likely to see the company incurring lower cumulative penalties than the draft determination. Moodys estimated cumulative penalties of £120 million would be incurred across the investment period, a drop from the £150 million estimated at the draft determination.

A number of UU’s bespoke commitments are negatively skewed in the final determination while the majority of the common outcome delivery incentives (ODIs) moved in UU’s favour. Moodys said this resulted in overall p10 – p90 incentive range of minus £515 million – to plus £210 million.

The fast-track company will transition immediately from having its asset value linked to the Retail Prices Index (RPI) to one linked to the Consumer Price Index,  including housing costs (CPIH). Moodys estimates this will result in an average allowed cash return of around 2.49 per cent over AMP7.

Moodys said the move from RPI to CPIH will have limited impact on the company’s credit rating.

“While this move will increase the company’s cash flow from operations, aiding liquidity, we do not view the change as fundamentally improving credit quality because RCV growth and future cash flow will be reduced. To maintain comparability with other water companies during AMP7, we will continue to deduct the full amount of the RCV run-off when calculating our adjusted cash interest cover ratio (AICR).”

Moodys said: “UU’s final determination represents a modest improvement from its draft determination. Changes to outcome delivery incentives would reduce penalties by £50 million, compared to draft determinations, if the company performed in line with its original business plan. But UU has made significant investments to improve performance since submitting its business plan and, in an investor call, management expressed confidence that it will be able to achieve rewards on some measures.”