Shares in water company United Utilities (UU.) jumped 4.6% on Wednesday to 937.4p after the company reaffirmed its dividend payment in line with consumer price inflation out to 2025 and sounded an upbeat tone on operating performance.

Chief executive Steve Mogford commented: ‘We now have a clearer understanding of the impact of COVID-19 on our business which remains robust and supported by a strong balance sheet.

‘This, together with a stabilised inflation outlook supported by central bank policy and government actions, gives us the confidence to reaffirm our responsible AMP7 dividend policy of growth in line with CPIH inflation.’

Reflecting the increased confidence, the company has accelerated investment plans to secure improvements and contribute to the ‘Green recovery’ in a region heavily affected by the pandemic.

RESILIENT FIRST HALF

In the first half to 30 September revenues dropped 4% or £41 million to £894 million. The bulk of the fall (£39.7 million) was down to the new regulatory price regime which incorporates a 6.6% real reduction in average customer bills and a 1.5% increase in inflation.

The company expects full-year revenues to 31 March 2020 to be between £60 million and £100 million lower than last year as household income consumption falls in the second half. The volume related impact of between £10 million and £60 million is recoverable under the revenue control regime.

Operating profits fell 18.7% to £318.5 million, as a result of the revenue shortfall and an accelerated investment of £15 million to increase the efficiency of the network.

Bad debts remained low at 1.8% of revenues and cash collections were said to be higher than at the same time last year.

STABLE OUTLOOK

The board has proposed a 1.5% increase in the interim dividend to 14.41p per share and confirmed its policy of increasing the annual payout equivalent to consumer price inflation to 2025.

Operating cash flows of £399 million were broadly in line with the £354 million last year.

The group had cash of £899 million and net debt was unchanged at £7.4 billion, representing a gearing ratio of 63%, within the target range of 55% to 65%. Gearing is defined as net debt divided by regulated capital.

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Issue Date: 25 Nov 2020