UU: Uncertainty will slow the recovery of Water Plus

United Utilities has warned that a recovery plan for its business retail joint venture, Water Plus, has been thrown into uncertainty because of the coronavirus impact on its customers.

In a trading update ahead of its full year results in May, the company said Water Plus had been impacted by the current economic climate and despite making good progress its recovery plan was expected to be slower, more challenging and “be less certain”.

Water Plus is jointly owned by UU and Severn Trent. In its most recent financial results (to March 2019) it recorded a £1.4m pre-tax loss. It has also continued to receive sector-high levels of complaints, accounting for 45 per cent of all complaints in the third quarter of 2019/20.

UU said it expects a higher group revenue than last year reflecting allowed regulatory changes with underlying profit and infrastructure renewals expenditure anticipated to be higher than 2018/19.

UU said an increase in credit spread caused by current economic uncertainty is expected to “significantly” grow its pension surplus, which stood at £484 million at the end of last year.

Despite the uncertainty the company said regulatory revenue control means any shortfalls in a particular year can be recovered in later years. Combined with a sturdy liquidity position over two years the company said it is “well protected” against any financial shocks as a result of the outbreak in the short to medium term.

UU reported being hit hard by the winter storms that saw its staff working around the clock to minimise disruption and damage for customers and the environment. It said it did not anticipate any material incremental costs from the weather but the incidents will affect the company’s Outcome Delivery Incentives (ODIs) with a net reward £10 million lower than expected.

The outbreak of coronavirus forced the company to implement contingency plans and offer customers a range of financial aid to stay on top of their water bills.

Looking toward the new AMP cycle, which starts on 1 April, the company said its investment of £100 million over the past 12 months will “accelerate planned improvements and achieve a flying start to the period”.

The company’s reported operating profit will be impacted by a depreciation charge of around £80 million in relation to UU’s Bioresources assets. It said this is consistent with the expected level in the business plan submissions.