November 20, 2019 / 7:34 AM / 19 days ago

United Utilities profit gains on regulatory incentives

FILE PHOTO: A United Utilities engineer arrives at the scene of a burst water main in Liverpool northern England, March 31, 2016. REUTERS/Phil Noble

(Reuters) - British water supplier United Utilities Group Plc (UU.L) reported a 6.5% rise in first-half underlying earnings on Wednesday, driven by target-based incentives from regulator Ofwat and lower infrastructure-related costs.

The region’s largest listed water company said underlying operating profit rose to 391.7 million pounds ($505.84 million) for the six months ended Sept. 30, compared with 367.8 million pounds a year earlier.

UK water regulator Ofwat pays incentives to utilities for meeting or exceeding targets like project completions and standards of customer service, which are set as per multi-year business plans.

United Utilities said it has exceeded its earlier expectations for net outperformance delivery incentives (ODIs), recording 21.4 million pounds so far in the 2015-2020 regulatory period, adding that it would rake in net ODIs of around 50 million pounds by next year, which will in turn boost the company’s earnings.

The company’s shares were up 1% at the top of FTSE 100 index, extending a 19% rise so far this year, while its main rival Severn Trent (SVT.L) rose 0.6% and outperformed a wider fall across UK shares.

The blue-chip utility, which services 3.2 million homes and 200,000 businesses, now faces an increased risk from the re-nationalisation plan, after Prime Minister Boris Johnson won parliamentary approval for a December election.

The utilities could be re-nationalised at a significant discount to their market value in case the Labour Party wins a surprise majority.

United Utilities and Severn Trent have earlier expressed their concerns about the plan. On Wednesday, the company reiterated that uncertainties remain on that front, under its risk factors.

Reporting by Safia Infant, additional reporting by Muvija M in Bengaluru; editing by Uttaresh.V

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