Proactive Investors - United Utilities Group PLC (LON:UU) forecast a hefty rise in full-year operating costs as inflationary pressures continue to bite as it unveiled its interim results.
For the half-year to 30 September, UU saw revenues fall by 1% to £919mln as lower consumption more than offset the allowed regulatory revenue increase.
Non-household revenue decreased by £38mln compared with the first half of last year and household consumption fell by £18mln, both largely a reflection of changes in consumption, which was atypically high in the first half of last year.
Pre-tax profits of £426.3mln were double last year’s £212.7mln but mostly reflected a £255mln decrease in reported net finance expense. On an underlying basis the group swung into the red posting a loss before tax of £8mln, £205mln lower than the underlying profit before tax in the first half of last year.
Input costs rose £36mln in the first half with the largest increases in power and chemical costs while there were inflationary increases to labour and other contract costs.
The dry summer weather also took its toll leading to a number of large water pipe bursts resulting in an £8mln charge.
Looking ahead, UU said full-year revenues are expected to be around 1% lower than 2021/22, while operating costs are expected to be around £130mln higher with £80mln of this reflecting rising power, chemicals, labour, and other contract costs. Underlying finance expense is expected to be around £165mln higher year-on-year.
The group said as of 31 March 2022, it had £4.3 billion of index-linked debt exposure, therefore every 1% increase in inflation equates to £43mln higher interest charges.
Capital expenditure in 2022/23 is expected to be in the range of £660mln to £715mln.
"While the current challenging macro environment is impacting financial performance, the economic performance of our business remains robust, supported by our strong balance sheet, effective hedging policies and tight cost control," the company said.
A dividend of 15.17p was paid, up 4.6%.