Slide 1: United Utilities Group PLC Full year results
United Utilities Group PLC Full year results Year ended 31 March 2012 1
Slide 2: Chief Executive Steve Mogford
CHIEF EXECUTIVE Steve Mogford 2 Good morning and welcome ladies and gentlemen to our full year results presentation. When Russ and I first presented to you a year ago, I said that our objective is for UU to be considered as a leading North West service provider and to become one of the best UK water
Slide 3: Agenda
Agenda • Overview • Operational performance • Financial performance • Political and regulatory developments • Summary • Q&A 3 This is the agenda for this morning’s presentation. I’ll start by providing an overview of our recent achievements. 3
Slide 4: Overview: Delivering for our customers
Overview Delivering for our customers • Marked shift in customer satisfaction delivered • Joint highest improvement on qualitative SIM measure in 2011/12 • SIM quantitative measure improved by 49% in 2011/12 • Regulatory leakage target delivered for sixth consecutive year • £680m invested in capex p
Slide 5: Overview: Delivering our promises
Overview Delivering our promises • On track to meet regulatory outperformance targets • Confident of delivery of at least £50m opex outperformance over 2010-15 • Cumulative opex outperformance of >£20m delivered across 2010-12 • Capital delivery TCQi* performance up from c50% to >80% • Bad debt at 2
Slide 6: Operational performance
Operational performance • Best service to customers • Lowest sustainable cost • Responsible manner 6 We aim to deliver long-term shareholder value by providing the best service to customers, at the lowest sustainable cost and in a responsible manner. So, starting with customer performance. 6
Slide 7: Service Incentive Mechanism: Score halved again for second year
Service Incentive Mechanism Score halved again for second year Quantitative • 49% improvement in 2011/12 vs 2010/11 score • Continued improvement across second half United Utilities Ofwat SIM Quantitative Performance 1,200 Poor performer 1,000 800 SIM points 600 400 200 0 2009/10 2010/11 2011/12 Goo
Slide 8: Service Incentive Mechanism: Encouraging progress to date
Service Incentive Mechanism Encouraging progress to date Qualitative • 0.39 point current year improvement – joint best of all 21 water companies • Improving trend – up from 21st to 16th position for the current year Good Ofwat SIM Qualitative Performance 2011/12 performer 5.00 4.80 4.60 Improvement
Slide 9: Service Incentive Mechanism: Second half run rate
Service Incentive Mechanism Second half run rate = mid-ranking position Qualitative • UU moves up to a mid-ranking position for H2 2011/12 Ofwat SIM Qualitative Performance H2 2011/12 Good 5.00 performer 4.80 Further improvement in the 4.60 second half of 2011/12 4.40 4.20 SIM points 4.00 3.80 3.60
Slide 10: Reduction in customer complaints
Reduction in customer complaints Improving trend continuing • Substantial reduction in escalated complaints • Further reduction of 27% in total number of complaints to CCW1 in 2011/12 • Further reduction in contacts considered by CCW1 to warrant investigation Complaints to CCW Investigations by CCW
Slide 11: Operational performance
Operational performance • Best service to customers • Lowest sustainable cost • Responsible manner 11 Moving on to efficiency. 11
Slide 12: Cost control initiatives
Cost control initiatives On track • Customer service – improving customer experience and efficiency • Debt collection – detailed action plan being implemented • Proactive asset management – identify and address issues before they impact • Asset optimisation programme – optimising chemical and power
Slide 13: Capital delivery
Capital delivery Spend and outputs on track • Focus on delivering commitments efficiently and on time • TCQi performance up from c50% in 2010/11 to over 80% for 2011/12 • £1.3bn of capex delivered in first two years of regulatory period • Spend broadly in line with regulatory allowance after adjusti
Slide 14: Outperformance: On track to deliver targets
Outperformance On track to deliver targets • On track to deliver at least £50m of opex outperformance across 2010-15 – over £20m achieved in 2010-12 period • On track to deliver capex for regulatory allowance (adjusted for COPI) • Financing outperformance of >£300m at RPI of c2.5% p.a. – c£400m outp
Slide 15: Adoption of private sewers
Adoption of private sewers Expenditure slightly lower than expectations • New operating model launched 1 October and evolved since then • Customer contacts, activity levels and expenditure a little below expectations • Mix of work different: less opex and more enhancement capex • Half year expenditu
Slide 16: Operational performance
Operational performance • Best service to customers • Lowest sustainable cost • Responsible manner 16 Operating in a responsible manner is fundamental to the way we do business. We play a key part in the North West and as the only FTSE 100 company headquartered in the region are acutely aware of our
Slide 17: Water supply and demand: Robust leakage performance
Water supply and demand Robust leakage performance • Met or beat regulatory leakage target for sixth consecutive year • Year round operational focus on leakage United Utilities Regulatory Leakage Performance 475 Actual leakage Met or outperformed reducing Ofwat target 470 leakage target each year Le
Slide 18: Liverpool WwTW enhancement
Liverpool WwTW enhancement Delivering environmental benefits and growth • £200m expansion works to existing wastewater treatment plant • Serving over half a million customers • Capacity to cope with 11,000 litres per second of wastewater • Creating up to 350 jobs during the construction period • Imp
Slide 19: Renewable energy programme
Renewable energy programme Clear targets • On track to meet target1 of a 21% reduction in carbon emissions by 2015 • Over 100 GWh of renewable energy generated each year • Renewable generation equates to c14% of our energy use • Reduced energy purchases by over 20 GWh in 2011/12 • Plans to increase
Slide 20: Chief Financial Officer Russ Houlden
CHIEF FINANCIAL OFFICER Russ Houlden 20 Thank you, Steve. Good morning. I’ll cover the three key financial statements and provide some specific updates in the areas of bad debt and financing. I’ll then hand back to Steve who will discuss regulatory and political developments and finish with a summar
Slide 21: Financial highlights
Financial highlights Good results in a tough economic climate • Underlying operating profit down £2m at £594m • Underlying profit before taxation of £327m, down 1% • Infrastructure renewals expenditure up £24m • Deferred tax credit of £105m resulting from change in taxation rate • Underlying EPS of
Slide 22: Income statement – underlying
Income statement – underlying Good financial performance £m Year ended 31 March 2012 2011 Continuing operations REVENUE 1,564.9 1,513.3 Underlying operating expenses (673.0) (626.4) UNDERLYING EBITDA 891.9 886.9 Depreciation and amortisation (297.8) (290.5) UNDERLYING OPERATING PROFIT 594.1 596.4 Un
Slide 23: Operating costs
Operating costs IRE up as planned, controllable costs on track £m Year ended 31 March 2012 2011 Continuing operations Revenue 1,564.9 1,513.3 Employee costs (135.4) (142.8) Power (50.3) (49.1) Property rates (79.4) (65.1) 1 (34.5) (30.6) Bad debts Other expenses (219.0) (208.4) (518.6) (496.0) Infra
Slide 24: Bad debts and cash collection
Bad debts and cash collection Good performance despite tough NW economy • Ten point plan progressing well • Small increase in bad debts in 2011/12 despite tough economic climate • Overall, a good performance – continued strong focus £m 2009/10 2010/11 2011/12 Regulated revenue1 1,521 1,477 1,527 Reg
Slide 25: Financial position: Robust capital structure
Financial position Robust capital structure £m At 31 March 2012 2011 Non-current assets 8,743.4 8,376.1 Cash 321.2 255.2 Other current assets 348.8 344.4 Total derivative assets 617.4 365.3 Total assets 10,030.8 9,341.0 Gross borrowings (5,855.2) (5,313.3) Other non-current liabilities (1,627.2) (1,
Slide 26: RCV and gearing
RCV and gearing RCV gearing supports robust capital structure 9,000 67% 65% 8,500 63% Gearing1 in the RCV middle of Ofwat’s £m 61% range, supporting 8,000 a solid A3 credit 59% rating 57% 7,500 55% 7,000 53% 31/03/2010 30/09/2010 31/03/2011 30/09/2011 31/03/2012 RCV RCV gearing • Including pensions
Slide 27: Cash flow statement
Cash flow statement Cash flow covers investing activities £m Re-presented Year ended 31 March 2012 2011 Continuing operations Net cash generated from operating activities 559.8 562.7 Net cash used in investing activities (498.4) (307.6) Net cash generated from/(used in) financing activities 1 6.3 (2
Slide 28: Liquidity: Robust financing position
Liquidity Robust financing position • £400m of index-linked borrowings agreed so far in AMP5 with EIB at best ever rates – £200m agreed in March 2011 with average real interest rate of 1.2% – £200m agreed in November 2011 with average real interest rate of 0.9% • Average cost of our £2.7bn index-lin
Slide 29: Steve Mogford
CHIEF EXECUTIVE Steve Mogford 29 Thank you, Russ. 29
Slide 30: Political and regulatory developments: Key areas of focus
Political and regulatory developments Key areas of focus • Evolutionary change • Water abstraction • Water resource planning • Water efficiency • Competition 30 I’d now like to touch on what continues to be a very busy political and regulatory agenda for the water sector. We welcomed the UK Governme
Slide 31: Political and regulatory developments: ongoing consultation
Political and regulatory developments Key areas of ongoing consultation • Retain investor confidence • Licence modifications • Retail average cost to serve • Replacement of ‘costs principle’ 31 As I said earlier, the government has recognised the need to retain investor confidence in the sector. Thi
Slide 32: Summary: Operational focus delivering results
Summary Operational focus delivering results • Improving trend on customer service, with significant SIM improvement • Strong operational performance • Good financial performance • On track to deliver outperformance targets • Robust capital structure and sustainable dividend policy 32 So, in summary
Slide 33: Q&A
Q&A 33 That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 33
Slide 34: Supporting information
Supporting information Reported income statement Statutory to regulatory underlying operating profit reconciliation Underlying profit before tax Finance expense Derivative analysis Movement in net debt Financing and liquidity Term debt maturity profile Debt structure 34 34
Slide 35: Income statement – reported
Income statement – reported Deferred tax credit enhances earnings £m Year ended 31 March 2012 2011 Continuing operations REVENUE 1,564.9 1,513.3 Operating expenses (675.6) (642.6) EBITDA 889.3 870.7 Depreciation and amortisation (297.8) (290.5) OPERATING PROFIT 591.5 580.2 Investment income and fina
Slide 36: Underlying operating profit: Statutory to regulatory reconciliation
Underlying operating profit Statutory to regulatory reconciliation £m Year ended 31 March 2012 Continuing operations Group underlying operating profit 594.1 Underlying operating profit not relating to United Utilities Water (10.9) Infrastructure renewals accounting 40.2 Other differences (3.9) Unite
Slide 37: Underlying profit before tax
Underlying profit before tax Broadly in line with prior year £m Year ended 31 March 2012 2011 Continuing operations Operating profit 591.5 580.2 Investment income and finance expense (311.1) (253.1) Profit before tax 280.4 327.1 Adjustments: 1 One-off items 2.6 16.2 Net fair value losses/(gains) on
Slide 38: Finance expense
Finance expense Underlying interest rate down reflecting RPI £m Year ended 31 March 2012 2011 Continuing operations Investment income 4.4 2.8 Finance expense (315.5) (255.9) (311.1) (253.1) Less net fair value losses/(gains) on debt and derivative instruments 43.2 (19.2) Adjustment for interest on s
Slide 39: Finance expense: index-linked debt
Finance expense: index-linked debt Cash benefit for the group £m Year ended 31 March 2012 2011 Continuing operations Cash interest on index-linked debt (43.9) (39.4) 1 (56.8) (62.5) RPI adjustment to index-linked debt principal - 3 month lag 2 (43.6) (40.1) RPI adjustment to index-linked debt princi
Slide 40: Derivative analysis
Derivative analysis Derivatives intrinsically linked to debt £m At 31 March 2012 2011 Derivatives hedging debt 617.4 365.3 Derivatives hedging interest rates to 2015 (137.0) (85.0) Derivatives hedging interest rates beyond 2015 (18.2) - Derivatives hedging commodity prices (4.6) - Total derivatives
Slide 41: Movement in net debt
Movement in net debt1 Increase in line with expectations 6,000 147.7 727.4 167.6 209.0 501.7 £m 5,076.4 5,000 4,777.8 4,000 Net debt at Net capex Dividends Interest & tax Non-cash Operating cash Net debt at 01/04/11 movements & other flow 31/03/12 1 Net debt includes derivatives which incorporate re
Slide 42: Financing & liquidity as at 31 March 2012
Financing & liquidity as at 31 March 2012 Gross debt = £5,855.2m Headroom / prefunding = £614.1m 1 Yankee bonds £m Other borrowings, £334.4m (USD), £725.3m Cash and short-term deposits 321.2 Euro bonds (EUR), EIB index-linked £471.7m 2 loans, £1,083.6m Medium-term committed bank facilities 420.0 Sho
Slide 43: Term debt maturity profile
Term debt maturity profile1 Average term to maturity of c25 years 3,000 2,000 £m 1,000 0 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 2055-60 Years 1 Future repayments of index-linked debt include inflation based on an average annual RPI rate of 2.75% 43 43
Slide 44: Debt structure at 31 March 2012
Debt structure at 31 March 2012 United Utilities Group PLC United Utilities PLC Baa1 stable; BBB- stable Yankees: Euro MTN: Other debt: • $250m in 18’s • £6.5m in 13’s • Short-term loans £70m • $350m in 19’s • $400m in 28’s United Utilities Water PLC A3 stable; BBB+ stable Ring-fenced and regulated
Slide 45: Cautionary statement
Cautionary statement This presentation contains certain forward-looking statements with respect to the operations, performance and financial condition of the group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to diffe