United Utilities Group Plc · LSE:UU.
United Utilities — H1 2014/15 Earnings Presentation
34 slides from United Utilities's earnings presentation, September 2014
Slide 1: United Utilities Group PLC Half year results
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Slide 2: Introduction and AMP6 outlook
Good morning ladies and gentlemen and welcome to our half year results presentation. We are four months away from the end of AMP5 and we are very pleased with the progress we've made over this regulatory period. We set out to enter AMP6 underpinned by a strong platform of sustainable performance and
Slide 3: Agenda
This is the agenda for this morning's presentation. I will provide an overview of our operational progress and Russ will then cover our financial performance. I will then remind you of the key features from our October draft determination response, before summarising. 3
Slide 4: Operational highlights
Here are the highlights: • You know that we have delivered significant improvements in customer satisfaction this AMP, as measured by Ofwat’s Service Incentive Mechanism (SIM). We were delighted to see this recognised in our draft determination where Ofwat confirmed that our performance took us out
Slide 5: Customer satisfaction SIM score
You will know that the sector uses the SIM score as its principal measure of customer satisfaction. Ofwat published, in the summer, the combined SIM scores for 2013/14, the last of the three years of performance measurement to determine whether companies receive a reward or penalty. This chart shows
Slide 6: Business retail competition
We have been building our capability over the last two years to help ensure that we are in a strong position as competition evolves. The Scottish business retail market for water has been open for several years and the English business retail market for water and wastewater is due to open fully in 2
Slide 7: Ofwat KPI assessment
This table shows Ofwat’s latest KPIs assessment for the ten water and sewerage companies, covering a broad range of operational metrics. Once again we have delivered a leading performance and the best amongst the listed companies, with predominantly green assessments. The EA’s environmental performa
Slide 8: Capital delivery
I’ll cover capital delivery and Russ will discuss our opex performance later in the presentation. Delivery of our capital programme continues to go well, benefiting from our sustained focus on delivering commitments on time and within budget, and the improvements we have made in our project and risk
Slide 9: ESG recognition
Operating in a responsible manner is fundamental to the way in which we run our business. We have always placed significant emphasis on governance and we are pleased to see that our strong ESG performance continues to receive external recognition. We have retained our ‘World Class’ rating in the Dow
Slide 10: Financial review
Thank you, Steve. Good morning. 10
Slide 11: Financial highlights
This is another good set of results in a tough North West economic climate. A two per cent increase in revenue, tight cost control and a lower tax rate combined to increase underlying operating profit by one per cent, underlying profit before tax by three per cent and underlying EPS by four per cent
Slide 12: Adjustments to underlying profit
As usual, we have made some adjustments to reported profit to get to underlying profit, which we believe gives a more representative view of underlying performance. We had a £20 million fair value loss in the half year, largely due to losses on the swap portfolio which fixes rates for the regulatory
Slide 13: Underlying income statement
This is a summary of the underlying income statement after making the adjustments shown on the earlier slide. Revenue for the half year of £859 million was up £14 million, or 1.6 per cent, after adjusting for the special customer discount, of which £13 million was applied in the first half. Underlyi
Slide 14: Operating expenses
We have continued to manage our cost base tightly. Overall, our total operating expenses, including IRE and depreciation, increased by £10 million or just two per cent. As you can see on the slide, there were a number cost movements between the two periods. I will not focus on each item individually
Slide 15: Bad debt
We highlighted in May 2014 that debt collection was likely to become more challenging for UU, particularly as our region suffers from high levels of income deprivation. Even as the North West economy recovers it is unlikely to have much impact on deprivation, which is the principal driver of our hig
Slide 16: Statement of financial position
Turning now to the statement of financial position. Property, plant and equipment was up £191 million in the first half of the year to £9.5 billion, as we continue to make good progress on our capex programme. Cash and short term deposits of £111 million were similar to the position at March year en
Slide 17: 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. The September 2014 RCV has also been adjusted to reflect information contained within Ofwat’s recent draft determination. These bars show the growth in our R
Slide 18: Cash flow
Moving on to cash flow. Net cash generated from operating activities was £369 million, a reduction of £10 million compared with the first half of last year. This small decrease mainly reflects an increase in tax paid between the two periods. Cash used in investing activities was similar, as our capi
Slide 19: Hedging and financing
And finally, an update on our hedging and financing. Looking first at our hedging policy. As a reminder, we leave the equity portion of the RCV exposed to RPI inflation by hedging the debt portion of the RCV for inflation through index- linked debt and the effect of our pension scheme liabilities. W
Slide 20: AMP6 business plan progress
Thank you, Russ. I’ll provide a brief reminder as to how our AMP6 business plan is progressing, before summarising our performance. 20
Slide 21: Draft determination representations
As you know, we submitted our representations in response to our draft determination in early October and in doing so made a number of revisions to our business plan. Our submission represented a comprehensive response to the points raised by Ofwat in our draft determination and in discussions there
Slide 22: Summary
So, in summary, we have delivered another good financial performance. Our improvement in customer satisfaction during AMP5 has taken us out of the SIM penalty zone. We have again delivered strong operational, environmental and capital delivery performance. We are delivering or exceeding our AMP5 out
Slide 23: Questions
That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 23
Slide 24: 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 y United Utilities 24
Slide 25: Income statement — reported
Income statement — reported Tax credits enhance pnor year earnings 2013 Continuing operations (Restated') Revenue 859.4 845.7 Operating expenses (346.2) (345.3) EBITDA 513.2 500.4 Depreciation and amortisation (172.7) (162.1) Operating profit 340.5 338.3 Investment income and finance expense (138.3)
Slide 26: Underlying profit before tax
Underlying profit before tax Increase on first half of last year £m Six months ended 30 September Continuing operations Operating profit 340.5 Investment income and finance expense (138.3) Share of profits of joint ventures 25 Profit before tax — 204.7—~C*<“i«‘“‘«C SS Adjustments: One-off items” 26
Slide 27: Finance expense
Finance expense Underlying interest charge slightly lower £m Six months ended 30 September 2014 2013 Continuing operations (Restated’) Investment income 0.6 1.0 Finance expense (138.9) (7.8) (138.3) (6.8) Less net fair value losses/(gains) on debt and derivative instruments 19.9 (100.0) Adjustment f
Slide 28: Finance expense: index-linked debt
Finance expense: index-linked debt Cash benefit for the group £m Six months ended 30 September 2013 Continuing operations (Restated") Cash interest on index-linked debt (25.0) (24.4) RPI adjustment to index-linked debt principal - 3 month lag” (26.2) (30.0) RPI adjustment to index-linked debt princi
Slide 29: Derivative analysis
Derivative analysis Denvatives intrinsically linked to debt Mar 482.5 (69.3) (3.1) (10.3) At 30 Sep 14 Derivatives hedging debt 546.6 Derivatives hedging interest rates to 2015 (34.3) Derivatives hedging interest rates beyond 2015 (62.4) Derivatives hedging commodity prices (5.2) Total derivatives a
Slide 30: Movement in net debt
Movement in net debt’ Moderate increase in line with expectations 7,000 6,500 102.9 163.8 ¢ P| £m_ 6,000 - 5,684.1 5,515.9 5,500 5,000 4,500 Net debt at Net capex Dividends Interest & tax Non-cash Operating cash _— Net debt at 31/03/14" movements & flow 30/09/14 other * Net debt includes derivatives
Slide 31: Financing & liquidity
Financing & liquidity at 30 Septem Gross debt = £6,249.4m EIB and Yankee other bonds borrowings, (USD), £478.0M_ —_ £704.4m EIB index- Euro bonds linked and (EUR), other index- £457.8m linked loans, £1,271.3m GBP index- GBP bonds, linked bonds, £1,634.6m £1,703.3m ' Excludes £100m facilities maturin
Slide 32: Term debt maturity profile
Term debt maturity profile’ Average term to maturity of close to 25 years 4,000 3,000 £m 2,000 1,000 0 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 Years Future repayments of index-linked debt include inflation based on an average annual RPI rate of 3% 2050-55, 2055-60 32 32
Slide 33: Debt structure at September
ucture at 30 September 20 United Utilities Group PLC United Utilities PLC Baa1 stable; BBB- stable Other debt: + Short-term loans £47m ; sick Regen: United Utilities Water Limited A3 stable; BBB+ stable Ring-fenced and regulated by Ofwat Euro MTNs: +£425min 15s + £50min 32s! + £100min 42s" Other deb
Slide 34: 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
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