United Utilities Group Plc · LSE:UU.
United Utilities — H1 2012/13 Earnings Presentation
43 slides from United Utilities's earnings presentation, Nov 28, 2012
Slide 1: United Utilities Group PLC Half year results
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Slide 2: Welcome to half year results presentation
Good morning and welcome ladies and gentlemen to our half year results presentation. The first half of this financial year has been a very busy period for us. I will be talking about political and regulatory developments later in the presentation, but will first update you on what has been another g
Slide 3: Agenda
This is the agenda for this morning’s presentation. I’ll start by providing an overview of our recent progress. 3
Slide 4: Improving customer satisfaction and capital programme progress
Improving customer satisfaction remains a key focus area for us. Last year we delivered the highest sector improvement in our overall SIM score – Ofwat’s measure of customer satisfaction. This took us to 16th place in the sector. We have built on this momentum and at the half year have moved up agai
Slide 5: Customer performance
Our aim is 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. 5
Slide 6: Ofwat service incentive mechanism (SIM) overview
As a reminder, Ofwat’s service incentive mechanism comprises a quantitative assessment, based upon complaints and other customer contact measures, and a qualitative assessment that seeks to measure our customers’ perceptions of how we handle their enquiries. This chart shows the significant improvem
Slide 7: Qualitative SIM score first half
This chart shows our qualitative SIM score for the first half of this financial year. UU has moved up a further three places to joint 13th position in the sector and 5th position among the ten water and sewerage companies. 2012/13 is the second year of the three years over which companies’ SIM score
Slide 8: Quantitative SIM performance
Quantitative SIM scores are not available for the sector until after year end, but we have provided this chart to indicate the improvement we have made in the first half. On an absolute SIM points basis, the lower the points the better the performance. As you can see, we have delivered continuous im
Slide 9: Reduction in complaints escalated to CCW
A significant driver of quantitative SIM performance is the number of customer complaints escalated to the Consumer Council for Water (CCW) which can score heavily under the SIM framework. These two charts show how our revised customer handling arrangements are delivering a significant and sustained
Slide 10: Ofwat overall KPIs assessment
Turning to overall operational performance. This table shows Ofwat’s overall KPIs assessment for the ten water and sewerage companies for the year 2011/12. As you can see, UU has eleven areas highlighted as ‘Green’, four as ‘Amber’, and, importantly, no areas highlighted as ‘Red’. This indicates an
Slide 11: Retail competition for business customers
UU, and the industry, welcomes the expansion of retail competition for business customers and I’d now like to update you on the progress we have made in this area. Following the publication of the Water White Paper in December 2011, the government reduced the threshold at which industrial and commer
Slide 12: Lowest sustainable cost
Moving on to the area of lowest sustainable cost. 12
Slide 13: Capital delivery and TCQi
I’ll discuss capital delivery and Russ will talk about our opex performance later in the presentation. We continue to drive efficient delivery of our capital programme, with a strong focus on delivering our commitments on time and within budget. This is reflected in a sustained high score in our per
Slide 14: Private sewers
Turning to private sewers. The volume of work and the level of expenditure continues to be a little below our expectations for this year. The mix of work is related more to enhancement capex than opex, compared with our initial expectations, and our operating model has evolved to reflect the work sc
Slide 15: Responsible manner
Operating in a responsible manner is fundamental to the way we do business. We play a key role in public health and the environment across the North West and take our role in the wider regional community very seriously. 15
Slide 16: Sustainability ratings and awards
We are therefore delighted to have retained the ‘World Class’ rating in the Dow Jones Sustainability Index for the fifth consecutive year, recording our highest ever score. We have also retained the top Platinum Plus ranking in Business in the Community’s Corporate Responsibility Index. In addition,
Slide 17: Financial presentation
Thank you, Steve. Good morning and onto the numbers. 17
Slide 18: Financial highlights
This slide shows the financial highlights for the half year – a good set of results in a tough economic climate. Underlying operating profit was down £8 million at £316 million. This is after absorbing an increase of £12 million in IRE investment and the opex impact of private sewers of £3 million,
Slide 19: Reconciliation of reported to underlying profit
This table shows the reconciliation between reported profit after tax of £154 million and underlying profit after tax of £142 million. As usual, we have adjusted for the items shown in the table, to provide a more representative view of underlying performance. Overall, the adjustments were similar i
Slide 20: Underlying income statement
This is a summary of the underlying income statement after making the adjustments shown on the previous slide. Revenue for the half year of £823 million was up £30 million or 3.8 per cent on the first half of last year. The allowed regulated price increase for 2012/13 was 5.8 per cent nominal (5.2 p
Slide 21: Operating costs
Now, let’s look at our costs in a bit more detail. Reflecting further progress on the capital investment programme, infrastructure renewals expenditure was up £12 million with a £6 million increase in line with the planned phasing of the programme and a further £6 million in relation to private sewe
Slide 22: Bad debt performance
Now, on to our bad debt performance. The North West faces a particularly tough economic environment with unemployment having increased at a faster rate than any other UK region in 2011/12, particularly in the second half, resulting in an adverse impact on ability to pay in the first half of this yea
Slide 23: Statement of financial position
Turning now to the statement of financial position. Property, plant and equipment is up £141 million over the six month period to just under £8.8 billion, as we continue with our good progress on our capital investment programme. Cash and short term deposits of £153 million were £169 million lower t
Slide 24: RCV and gearing
This chart shows our RCV and gearing level. The blue bars, representing RCV, have been adjusted to reflect actual capital expenditure to date, consistent with the regulatory treatment expected at the next price review. The bars show our steady growth in RCV. The green line shows the movement in gear
Slide 25: Cash flow
Moving on to cash flow. Net cash generated from operating activities was £265 million, up £53 million compared with the first half of last year. This increase was mainly as a result of total pension contributions in the first half of this year of £84 million, being lower than the corresponding perio
Slide 26: Robust financing position
We continue to benefit from a robust financing position. The average cost of our £2.7 billion, long-term, index-linked debt portfolio is only 1.7 per cent real. We have substantially paid all term debt due in the current regulatory period and have financing headroom into 2014. This provides us with
Slide 27: Outperformance targets
Our recent performance has reinforced our confidence in delivering our outperformance targets. In respect of opex outperformance, we are targeting to deliver a total of at least £50 million, or approximately two per cent of the regulatory allowance, over the 2010-15 period. As a reminder, this is ov
Slide 28: Regulatory update
Steve Mogford Q United Utilities Thank you, Russ.
Slide 29: Draft Water Bill and competition
The UK Government published a draft Water Bill in July 2012. This proposes the introduction of both retail competition and wholesale, or upstream, competition. The UK Government is considering the responses it has received from various interested parties to the draft Water Bill and the pre-legislati
Slide 30: Ofwat licence modification proposals
We advised Ofwat and the market last Friday that, after careful consideration, we have concluded that we are unable to accept Ofwat’s ‘Section 13’ licence modification proposals because we believe that, in their current form, they are not in the best interests of customers, investors and wider stake
Slide 31: Summary
So, in summary, our sustained focus on operational performance is delivering results. Following a marked improvement in customer satisfaction last year, we have maintained momentum and made further progress on Ofwat’s SIM assessment in the first half of this year. We know, however, that we have more
Slide 32: Questions
That concludes our results presentation. Thank you for listening. We suspect that recent regulatory developments will feature in questioning, but we would like to begin with questions on operational and financial performance before touching on regulation. Thank you. 32
Slide 33: Supporting information
Supporting information Reported income statement Underlying profit before tax Finance expense Derivative analysis Movement in net debt Financing and liquidity Term debt maturity profile Debt structure United Utilities 33
Slide 34: Income statement - reported
Income statement - reported Deferred tax credit enhances earnings £m Six months ended 30 September 2012 2011 Contmwng operat1ons REVENUE 822.9 792.7 Operating expenses (347.6) (323.5) EBITDA 475.3 469.2 Depreciation and amortisation (160.2) (146.6) OPERATING PROFIT 315.1 322.6 Investment income and
Slide 35: Underlying profit before tax
Underlying profit before tax Small increase on first half of last year Em Six months ended 30 September 2012 2011 Contmumg opera/tons Operating profit 315.1 322.6 Investment income and finance expense (179.5) (198.2) Profit before tax 135.6 124.4 Adjustments: 1 One-off items 0.6 1.6 Net fair value l
Slide 36: Finance expense
Finance expense Underlying interest rate down reflecting RP/ £m Six months ended 30 September 2012 2011 Continuing operations Investment income 1.3 1.7 Finance expense (180.8) (199.9) (179.5) (198.2) Less net fair value losses on debt and derivative instruments 49.4 55.9 Adjustment for interest on s
Slide 37: Index-linked debt cash interest and indexation
£m Six months ended 30 September 2012 2011 Continuing operations Cash interest on index-linked debt (23.4) (21 .5) 1 RPI adjustrrent to index-linked debt principal- 3 rmnth lag (29.7) (35.6) 2 (21 .2) RPI adjustrrent to index-linked debt principal- 8 rmnth lag (13.0) Finance expense on index-linked
Slide 38: Derivative analysis
£m 30Sep12 31 Mar12 Derivatives hedging debt 712.4 617.4 Derivatives hedging interest rates to 2015 (141.5) (137.0) Derivatives hedging interest rates beyond 2015 (60.2) (18.2) Derivatives hedging commodity prices (6.7) (4.6) Total derivatives assets and liabilities (slide 23) 504.0 457.6 • Derivati
Slide 39: Movement in net debt
6,000 - 72.1 347.5 82.4 145.5 293.9 5,322.8 £m 5,076.4 5,000 4 ,000 Net debt at Netcapex Dividends Interest & tax Non-cash Operating cash Net debt at 31 /03/12 movements & flow 30/09/12 other 1 Net debt includes derivatives which incorporate regulatory swaps 39 39
Slide 40: Financing and liquidity headroom
Headroom I prefunding = £414.4m , Gross debt= £5,979.3m Other borroWings, • •• • t £349 .~ ·-· _ ,...._ _ £m EI B Index-linked loans, £1,101.7 . .... Cash and short-term deposits 152.5 Medium-term committed bank facilities 2 420.0 ,. Short-term debt (126.9) Term debt maturing within one year (31 .2)
Slide 41: Term debt maturity profile
Term debt maturity profile 1 Average term to maturity of c25 years 3.000 2,000 £m 1,000 2010-15 2015 -20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 2055-60 Years , Future repayments of index-linked debt include inflation based on an average annual RP! rate of 2 75% 41 41
Slide 42: Debt structure
Yankees: Euro MTN: Other debt: • $250m in 18s • £6.5m in 13s • Short-term loans £66m • $350m in 19s • $400m in 28s United Utilities Water PLC A3 stable; 888+ stable Rmg-fenced and regulated by Ofwat Euro MTNs: Other debt: • ¥3bn in 13s • £50m in 32s 1 • £100m in 42s1 • EIB index-linked loans £1 ,000
Slide 43: Forward-looking statements
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 differ materially from tho
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