Revenue hit by consumption, operating costs impacted by inflation & power Due to moderately lower than forecast consumption, UU expects 1H23 revenue to be around 1% lower than 1H22. Lower consumption is expected to continue into 2H, and FY revenue is expected to be lower than May’s guidance. Our pre-existing estimates pointed to a 1.1% increase for FY23E. UU previously guided to a c.£100m increase in underlying operating costs for FY23, with around half in relation to previously announced additional investment and half to inflationary cost increases. Inflationary increases on input costs, particularly chemicals and power, are now expected to be somewhat higher than the forecast used to derive this guidance. 1H underlying operating costs are now expected to be £65m higher for 1H23, leading to lower underlying operating profit than in 1H22, with this also expected to impact 2H. Our current FY23E points to a 7.9% drop in operating profit. Net finance expense in 1H23 is expected to be c.£135m higher due to higher inflation on index-linked debt. Directionally, this is something we have captured in our estimates, which sees a £190m jump for FY23E, although UU has not provided guidance. The effective tax rate for 1H23 is expected to be close to nil for both 1H23 and FY23. Net debt is expected to rise vs. end-March, consistent with our view that FY23E net debt will be higher than FY22A. No change in AMP7 guidance, caution on ODIs UU has indicated that guidance on regulatory performance for AMP7 remains unchanged from that given at the FY22 results in May. ODI guidance for the year is maintained, although UU has cautioned that performance against particular measures can be sensitive to weather and one-off events during the year, and particularly during the winter months. In light of the points noted above, we have placed our estimates and TP under review.