United Utilities Group PLC (LON:UU.) said it has a “robust” liquidity position but that the economic effects of the coronavirus crisis are expected to significantly increase its pension surplus.
The water company said it expects revenue and underlying operating profit in 2020 to be higher than last year, reflecting regulatory changes, though reported profit will be hit by an £80mln depreciation charge.
Regulatory outcome delivery incentives are expected to be around £40mln this year, rather than £50mln previously, as some service interruptions followed the severe winter storms, though no material incremental costs are expected from the repairs to the water network.
In response to the coronavirus epidemic, the North West water company said it has put in place measures designed to protect employees, while also offering innovative affordability schemes for customers experiencing difficulty in the current economic climate.
UU’s robust liquidity position extends out for 24 months “at the upper end of our policy range” to leave the business “well protected against financial shocks that may be experienced as a result of the outbreak in the short to medium term”, though the wider economic situation remains highly uncertain.
While net debt at 31 March is expected to be “broadly flat” since September, the company said the current economic climate has resulted in an increase in credit spreads which is expected to significantly increase the group pension surplus at the end of this month, as well as affecting the ability of business customers to pay joint venture company, Water Plus, meaning its recovery plan “is now likely to be far more challenging, take longer and be less certain”.
Shares in the company were up 2% to 819.38p on Wednesday morning, down 14% so far this year.
“Utility companies are defensive for a reason," said Neil Wilson, market analyst at Markets.com. "Revenues are fixed for five years, so it can recover any losses in subsequent years.”
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