United Utilities’ has said it expects to earn “significantly better” rewards on outcome delivery incentive (ODI) payments in AMP7 than it did in AMP6.
Steve Mogford, chief executive of the company, which forecast £20 million in rewards for the first year of the cycle, would not commit to a figure on ODI payments but anticipated it to exceed the £44 million earned in 2015-20.
He said the company was performing particularly strongly on customer ODIs and anticipated earning in the region of £24 million over the AMP for those.
Chief financial officer Phil Aspin said financing outperformance will be lower than previous AMPs because Ofwat reduced the overall rate allowed, but UU still expects “substantial outperformance”.
At this stage in AMP6 the company had earned £2 million in ODIs so it is already far ahead of its previous performance.
In its update to the capital markets the company reported being in a strong financial position despite the challenging first year.
UU raised £600 million of new finance in the first half of year one via the sustainable finance framework, which superseded the company’s use of European Investment Bank.
This included the issue of its first sustainable bond in January which was three times oversubscribed and gave the company its lowest ever cost of debt, which Aspin said reflected the business’ ESG credentials and investors’ growing interest the same.
“That was our lowest ever cost of debt from the bond subscription at 0.875 per cent that’s not just our lowest ever coupon but the lowest ever of any UK corporate of that maturity,” Aspin said.
Reflecting on the four companies awaiting a re-determination from the Competition and Markets Authority, Mogford said the need for infrastructure in the UK meant the sector had to remain attractive to investors, especially because – post-Covid 19, the public purse will not afford the work.
“The CMA position is clear that equity cost is an art rather than a science,” Aspin added.
The company said it would not formalise a social contract because its actions already demonstrate its purpose through actions and Aspin added “we don’t really feel we need to go that stage further to a social contract”.
Mogford said: “It’s about what you do rather than what you say and we have demonstrated our commitment to responsible capitalism through our engagement with and support of communities, schools, and the environment.”