United Utilities Group Plc · LSE:UU.
United Utilities — Debt Investor Presentation (May 2023)
42 slides from United Utilities's debt investor presentation, May 25, 2023
Slide 1: Investor presentation
Investor presentation United Utilities Summer 2023 Manchester Bioresource Centre The new UU Thurs 25 May 2023
Slide 2: Contents
Contents Background 3–8 Environmental, Social and 9 – 15 Governance (ESG) Economic regulation 16 – 23 Outcome Delivery Incentives (ODIs) 24 – 32 Financial summary 33 – 40 Glossary 41 Cautionary statement 42 Investor presentation • 2
Slide 3: Background
Background Manchester Bioresource Centre
Slide 4: Where we operate
Where we operate Regulated UK water and wastewater business Around Regional population of 3m households around and 200,000 7.3m people In the North West of business England customer premises Serving the North West since privatisation in 1989 Investor presentation • 4
Slide 5: Our Board
Our Board Breadth and depth of experience Phil Aspin, Chief Financial Officer Sir David Higgins, Chair Louise Beardmore, Chief Executive Officer Treasury committee Nomination Committee Over 25 years’ experience at United Utilities. Prior to his ESG Committee Sir David has spent his career overseeing
Slide 6: Our regulation
Our regulation Strong performance in early part of AMP7 We operate in 5-year regulatory There are four main areas in which We have transformed our cycles called Asset Management Periods companies can outperform by delivering a performance in recent years and we exited (AMPs) superior level of perfor
Slide 7: Stronger Greener Healthier
Strategic purpose Water makes the North West Stronger Greener Healthier Investor presentation • 7
Slide 8: Why invest in United Utilities
Why invest in United Utilities Regulatory Use of technology Strong outperformance and data management team Sustainable performance Use of technology, data and Extensive commercial, improvements and track machine intelligence, which operational and regulatory record of outperformance in provides us w
Slide 9: Environmental, Social and Governance (ESG)
Environmental, Social and Governance (ESG) Manchester Bioresource Centre
Slide 10: Strong track record of leading on ESG
Strong track record of leading on ESG Significant achievements against environment, social and governance 2009 Business in 2000 the Community ‘Company Business in the of the year’ Community ‘Company of the year’ AMP3 AMP4 AMP5 AMP6 2014 2019 2001 2005 2006 Early adopter of 2016 Achieved Established
Slide 11: Behaving responsibly: Delivering for customers and the community
Behaving responsibly Delivering for customers and the community 1 3 5 Upper quartile AMP incentive range for AMP6 achieving 3 accreditations +/- £66m SIM outperformance 2 4 30+ awards Strong C-MeX across customer performance to date, service, collections and record £3.0m reward debt management in 20
Slide 12: Behaving responsibly: Supporting customers
Behaving responsibly Supporting customers Driving innovation to enhance experience and Debt affordability schemes building social capital reduce cost 330,000 customers Use of Open Banking £280m customer Void app secured helped so far this and other digital support over AMP7 £28m ODI reward AMP techn
Slide 13: Behaving responsibly: Investing in colleagues
Behaving responsibly Investing in colleagues 1 3 5 Only UK Utility 82% engagement, Technical Training to be ranked in top above UK and Utilities Academy 100 in FT inclusive Norms leaders index 2023 2 4 Record graduate and UK Apprentice of the apprentice year recruitment Investor presentation • 13
Slide 14: Behaving responsibly: Delivering for the environment
Behaving responsibly Delivering for the environment Top performer on EPA Leading performance in minimising pollution with zero serious incidents in AMP6 Achieved 4* industry leading status on the Environment Agency’s environmental performance Sector leading assessment catchment management for 2021 –
Slide 15: Behaving responsibly: Recognised for best practice corporate governance
Behaving responsibly Recognised for best practice corporate governance Consistently recognised as going above and beyond the minimum and early adopters of best practice Investor presentation • 15
Slide 16: Economic regulation
Economic regulation Manchester Bioresource Centre
Slide 17: Ofwat's legal duties
Ofwat’s legal duties 1 2 Primary Secondary Ensure companies properly Promoting economy and efficiency carry out their functions Contributing to the achievement Ensure companies can finance of sustainable development their functions Ensure Ofwat gives Protect interests of consumers, wherever no undue
Slide 18: Exceeded our targets in AMP6
Exceeded our targets in AMP6 Executed and delivered our purpose Accelerated Delivered investment outperformance Systems Thinking & Innovation Fast track business plan Relentless focus on customers Sharing Motivated and engaged outperformance workforce To provide great water for a stronger, greener,
Slide 19: Summary of UUW's AMP7 final determination
Summary of UUW’s AMP7 final determination A balanced settlement overall Increasing resilience through Haweswater Aqueduct +1.5% 13.8% Resilience Programme (HARP) real reduction in average bills Delivering for 110km long the environment Targeting -1.8% UUG dividend £5.8bn 20% reduction in pollution m
Slide 20: AMP7 totex allowance increased from draft determination
AMP7 totex allowance increased from draft determination £5.8bn AMP7 totex allowance AMP7 net totex allowances (£m) 50:50 customer sharing ratio Wholesale Retail £5,798m £5,564m £475 m Weighted average PAYG of 59.6% £508 m - aligned to the natural rate £5,323 m £5,056 m £57m HARP allowance and £44m f
Slide 21: Totex run rate on target
Totex run rate on target AMP6 investment delivering efficiencies to be sustained into AMP7 Totex1 1,600 1,400 1,200 Capex 1,000 Capex Capex £m 800 600 400 Opex Opex Opex & IRE & IRE & IRE 200 0 2015/16 2019/20 AMP7 FD average Source: Company PR19 business plan submission, September 2018 and Final De
Slide 22: Delivering efficiencies
Delivering efficiencies AMP6 focus on innovation, market testing and cost challenge delivered efficiencies required for AMP7 Innovation Market testing Cost challenge Identified as having the most Market Engagement Methodology to Risk and value assessment across all embedded culture of innovation pro
Slide 23: PR24 Timetable
PR24 Timetable Business plan submission 2 October 2023 Source: Ofwat’s draft methodology published 7 July 2022 Investor presentation • 23
Slide 24: Outcome Delivery Incentives (ODIs)
Outcome Delivery Incentives (ODIs) Manchester Bioresource Centre
Slide 25: ODI reset: Lessons learned from AMP6
ODI reset Lessons learned from AMP6 Reward / (Penalty) in 5 years 2015-20 (£m) Outperformance Private sewers service index 36.9 P90 +£140m Wastewater category 3 pollution incidents 16.4 £43.9m Sewer flooding index (9.3) Thirlmere transfer to West Cumbria 21.6 Total leakage at or below target 13.1 Mo
Slide 26: ODI reset: Cumulative ODI incentives over AMP6
ODI reset Lessons learned from AMP6 Cumulative ODI incentives over AMP6 ODIs have Incentives to be 200 incentivised reset with 150 company greater 100 behaviour consistency 50 0 required -50 Cross sector ODIs are not a £m comparison proxy for -100 -150 -200 requires operational -250 harmonised effic
Slide 27: AMP7: Customer commitments: Outcome Delivery Incentives (ODIs)
AMP7: Customer commitments: Outcome Delivery Incentives (ODIs) 7 comparative -£252m to Measuring against the sector with comparative targets +£128m 46 commitments 5 Common Measuring against the sector with rewards based on company across our full end to end -£69m to +£31m service delivering the spec
Slide 28: Robust plans across common AMP7 ODIs
Robust plans across common AMP7 ODIs £100m flying start investment targeted improved performance in key areas Accelerated Smarter networks, increased investment with a visualisation and predictability flying start Central planning and decision making capability Systems Thinking & Innovation Embedded
Slide 29: Opportunities across bespoke AMP7 ODIs
Opportunities across bespoke AMP7 ODIs Opportunities to unlock outperformance across bespoke ODI measures £m impact P10 penalties P90 rewards Optimised investment plan for multiple benefit Industry leading technologies backed by industry leading innovation culture Data driven proactive approach Proj
Slide 30: Ambition and innovation across our performance commitments (PCs)
Ambition and innovation across our performance commitments (PCs) We co-developed with our customers some really innovative PCs that are important to them, they are industry leading and with incentives that provide good opportunities for outperformance First in the industry to commit to tackling Redu
Slide 31: Customer service performance commitments
Customer service performance commitments 12 of United Utilities’ performance commitments are focused on customer services, delivering the outcomes that are important to customers with rewards available for outperformance on specific performance commitments. 4 Common Measuring against sector, with re
Slide 32: Transition from SIM to C-MeX and D-MeX
Transition from SIM to C-MeX and D-MeX Old SIM measure New C-MeX measure Customer Contactor Customer Experience Satisfaction Survey of Survey, survey of any customer customers who have contacted across the Satisfaction survey of us (similar to SIM) North West customers who have contacted us 50% 50%
Slide 33: Financial summary
Financial summary Manchester Bioresource Centre
Slide 34: Best in class treasury management
Best in class treasury management Track record of delivering significant financing outperformance Financing outperformance1 AMP7 in AMPs 5 and 6 AMP5 AMP6 Confident of delivering further outperformance >£500m >£500m Quantum subject to outturn inflation AMP5 AMP6 1 Pre-tax on an actual company basis
Slide 35: Benefit of our treasury policies and excellence
Benefit of our treasury policies and excellence We typically outperform the index for new debt by 50-100 bps Investor presentation • 35
Slide 36: Credit rating summary
Credit rating summary Aim to at least retain UUW credit ratings to support efficient access to debt capital markets Moody’s Fitch S&P UUW1 rated A3 UUW1 rated2 A- UUW1 rated BBB+ UU PLC rated Baa1 UU PLC rated2 A- UU PLC rated BBB- A3 threshold: net debt to A- threshold: net debt to RCV RCV ratio <6
Slide 37: Weighted average cost of capital (WACC)
Weighted average cost of capital (WACC) Aim to at least retain UUW credit ratings to support efficient access to debt capital markets AMP6 AMP7 AMP7 Industry average WACC based on Real (RPI) Real (RPI 3%) Real (CPI 2%) notional company with Cost of equity 60% gearing Cost of debt Cost of debt Cost o
Slide 38: Risk reduction – Interest rate hedging policy
Risk reduction – Interest rate hedging policy Aims to minimise regulatory risk 10-year rolling interest rate profile • AMP7 cost of debt set through PR19 process Lock in rolling 10-year average interest rate on nominal debt • We target around half of our debt to be in index-linked Illustrative net d
Slide 39: Pensions
Pensions United Utilities’ pensions are fully funded on a low dependency basis IFRS pension surplus 5000 £699m £654m £215m £344m surplus surplus £821m £1,017m Low risk assets, 4500 surplus £248m surplus £484m £754m £689m surplus surplus IAS19 surplus, no hedged for inflation 4000 surplus £220m £326m
Slide 40: Impact of inflation
Impact of inflation Short term timing differences – for 2023/24 year end Regulated Regulatory Index-linked revenue Dividends capital value debt4 (RCV) Price limits are based on Dividends are linked to the Opening RCV is inflated by the RPI 3 month lag: the movement in CPIH3 same inflation as regulat
Slide 41: Glossary
Glossary Term Description Term Description AMP6 / Asset Management Plan periods. The five-year regulatory price control periods since PAYG Pay-as-you-go ratio. The allocation of expenditure between that recovered through AMP7 privatisation. AMP6 runs from 01/04/2015 to 31/03/2020. AMP7 runs from rat
Slide 42: 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
United Utilities Group — Debt Investor Presentation (May 2023) on 6ix