United Utilities’ full-year underlying revenue grew by 10.0% to £2.1bn. Growth was driven by regulatory adjustments, including 4.2% of inflation-linked price increases.
Underlying operating profit rose by 22.4% to £634mn, as revenue grew ahead of rising costs.
Free cash flow declined from breakeven to an outflow of £69mn. Net debt moved £0.6bn higher to £9.3bn.
In 2026, revenue is expected to grow to between £2.5-2.6bn, and infrastructure investment is set to exceed £1.5bn.
A final dividend of 34.57p per share was announced, taking the full-year total to 51.85p, up 4.2%.
The shares rose 1.0% in early trading.
Our view
United Utilities delivered double-digit profit growth last year, helped by inflation-linked revenue increases and a tight grip on costs. Revenue’s expected to grow by at least 19% this year, but the market reaction was muted on the day as the water industry continues to be plagued by weak investor sentiment.
In return for providing a reliable and affordable water supply to Northwest England, Ofwat allows United Utilities to earn an acceptable financial return. Over the medium term, the group's allowed to increase prices alongside inflation, providing a natural hedge to rising costs. The caveat here is that the funds are only received two years later.
We’re seeing the positive impact of these high inflation-linked increases on the group's revenue now, which is more than offsetting higher costs and helping profits grow at a faster pace. That’s a tailwind that looks set to continue in the near term and beyond, with 32% increases in pricing mandated by 2030 to help cover investment commitments.
United Utilities received an Outcome Delivery Incentive (ODI) payment in each of the last five years. ODIs are bonuses received for delivering above-and-beyond committed levels of service to customers. That figure is set to swing to a penalty this year, as new regulation raises the bar on what utility companies must deliver for customers. That highlights the need to move quickly to build out its infrastructure, improve service, and reduce spills.
The balance sheet remains stable, with debt levels in the middle of the group’s target range. This helps support the group's ambitious £13bn plans to expand and upgrade its assets between 2025-2030. However, United Utilities still needs to raise a large chunk of cash, which will require issuing new debt and likely push debt levels towards the top end of its target range.
With more price rises ahead, affordability pressures impacting customers' ability to pay their bills is also something to be wary of. The company’s set aside cash to help support customers, with additional government funding in place. But United Utilities is calling for this to be more fairly distributed, with some of the country's most deprived communities being within the areas it services.
All in, the group runs a tight ship, with some of the best margins relative to peers. Its regular cash flows and inflation-linked revenue are enviable assets to have in an uncertain environment. But the group's not immune to missteps. Adverse weather and sewage leaks could continue to present challenges, and increase the risk of reputational damage.
Environmental, social and governance (ESG) risk
The utilities industry is high-risk in terms of ESG. Management of these risks tends to be strong, with European firms outperforming their overseas counterparts. Environmental risks like carbon emissions, resource use and non-carbon emissions and spills tend to be the most significant risks for this industry. Employee health and safety and community relations are also key risks to monitor.
According to Sustainalytics, United Utilities’ management of ESG risk is strong.
In 2023, it was a lead performer in preventing pollution incidents, with the lowest number of incidents relative to peers per 10,000km of sewers. However, United Utilities’ ageing infrastructure means it’s exposed to climate impacts such as heavy rainfall and flooding. It has also been implicated in occasional drinking water contamination issues and some releases of untreated sewage, resulting in an ongoing investigation by regulators.
United Utilities key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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