United Utilities Group Plc · LSE:UU.
United Utilities — FY2023 Earnings Presentation
61 slides from United Utilities's earnings presentation, May 25, 2023
Slide 1: Full year results
Full year results Year ended 31 March 2023 Thurs 25 May 2023 Manchester Bioresource Centre The new UU Thurs 25 May 2023
Slide 2: Sir David Higgins, Chair
Sir David Higgins Chair Manchester Bioresource Centre
Slide 3: Today's agenda
Today’s agenda 1. Operating performance 2. Financial performance 3. Strategy update Q&A 2022/23 full year results • 3
Slide 4: Louise Beardmore, Chief Executive
Louise Beardmore Chief Executive Manchester Bioresource Centre
Slide 5: Under the spotlight but a more balanced debate is emerging
Under the spotlight but a more balanced debate is emerging 2022/23 full year results • 5
Slide 6: Playing a pivotal role in the North West
Playing a pivotal role in the North West Blackpool Dovestone St Helens Liverpool 2022/23 full year results • 6
Slide 7: Stronger Greener Healthier
Shaping our Purpose Water makes the North West … Stronger Greener Healthier 2022/23 full year results • 7
Slide 8: AMP7 Financial Framework
AMP7 Financial Framework RoRE1,2 6 – 8% real RCV Growth1,3 4 – 5% CAGR Moody’s A3 / stable Dividend Growth Growing in line with CPIH Fitch A- / stable Standard & Poor’s Strong Balance Sheet Policy target 55 – 65% gearing BBB+ / stable 1. Based on CPIH of 2.9% at Mar-24 and 2.2% a Mar-25 2. Average R
Slide 9: Water performance
Water performance Leakage Performance1 450 Best ever performance against 445 our leakage performance Trailing three-year average (Ml/d) 440 commitment 435 430 Additional investment -9% in PCC2 supporting biggest reduction we 425 420 26% have delivered – 415 improvement linking water and in water qua
Slide 10: Wastewater performance
Wastewater performance Reported storm overflow activations 120 c£250m investment1 Number of recorded activations (‘000) 100 -39% 39% reduction in reported storm 80 overflow activations since 2020 60 41% reduction 97% of storm 40 in duration overflows since 2020 monitored 20 100% by end of 2023 0 202
Slide 11: Wastewater performance
Wastewater performance Sector leading elimination of serious pollution incidents Sector leader Serious Pollution Incidents1 on eliminating serious pollution incidents 14 12 Zero serious Reduced Number per annum 10 8 pollutions pollution 6 in this year incidents 4 by 39% 2 in AMP7 so far 0 UK Water a
Slide 12: Wastewater performance
Wastewater performance Internal sewer flooding External sewer flooding 1,600 7,000 1,400 6,500 - 14% 1,200 - 46% 6,000 1,000 800 5,500 600 5,000 400 4,500 200 0 4,000 FY21 FY22 FY23 FY21 FY22 FY23 Best ever internal performance Reduction in external flooding 46% reduction since start of AMP7 14% red
Slide 13: Customer performance
Customer performance Household statutory bad debt 4.0% 3.7% Best ever C-MeX 3.5% position Bad Debt (% Household Revenue) 3.0% and £3 million reward 2.5% 2.0% 1.8% £280m package 1.8% bad debt of support charge 1.5% supporting over supported by best ever 330,000 customers current year cash 1.0% FY15 F
Slide 14: People
People Always put safety first Strong engagement, talent and diversity strength 0.16 0.14 0.12 82% Talent +4% higher than UK norm benchmark 0.1 colleague UK apprentice RIDDOR AFR1 0.08 engagement of the year 0.06 0.04 0.02 Only UK Utility 0 to be ranked in top 100 FY19 FY20 FY21 FY22 FY23 companies
Slide 15: ESG performance
ESG performance Protecting and enhancing the environment E • EPA rating – 4* in five of the last seven years • Achievement of Better Rivers commitments – 39% reduction in reported activations Supporting society S • Customers supported – supporting over 330,000 customers with £280m package • Graduate
Slide 16: ODI performance
ODI performance Best ever year with Strong 83% performance of performance on voids, pollutions and commitments flooding delivered Resulting in AMP7 guidance: £25m £200m total ODI reward1 FY23 net customer ODI reward1 1 Excluding per capita consumption, which Ofwat will be revisiting once there is a
Slide 17: Operational performance summary
Operational performance summary Best ever performance 39% reduction in storm Zero serious pollution against our leakage overflow activations incidents in 2022/23 performance commitment 4 star 330,000 customers supported Leading customer service Environmental Performance so far this AMP with Assessme
Slide 18: Phil Aspin, CFO
Phil Aspin CFO Manchester Bioresource Centre
Slide 19: Financial highlights
Financial highlights RoRE Revenue Underlying EPS3 11.0% real £1,824m (1.3)p FY22: FY22: FY22: 7.9% real £1,863m 53.8p RCV gearing1 Operating profit2 DPS 58% £441m 45.51p FY22: FY22: FY22: 59% £610m 43.5p 1. RCV gearing calculated as group net debt including loan receivable from joint venture/United
Slide 20: AMP7 Financial Framework
AMP7 Financial Framework RoRE1,2 6 – 8% real RCV Growth1,3 4 – 5% CAGR Moody’s A3 / stable Dividend Growth Growing in line with CPIH Fitch A- / stable Standard & Poor’s Strong Balance Sheet Policy target 55 – 65% gearing BBB+ / stable 1. Based on CPIH of 2.9% at Mar-24 and 2.2% a Mar-25 2. Average R
Slide 21: Return on regulated equity (RoRE)
Return on regulated equity (RoRE) FY23 RoRE 11.0% real RoRE progression2 ODI1 0.5% Tax 2.5% 12.0% 10.0% Financing 8.0% 4.7% 6.0% 4.0% Base 2.0% return 4.0% 0.0% FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Totex -0.7% AMP7 guidance3 1 Excluding per capita consumption, which Ofwat will be revisiting once
Slide 22: Underlying operating profit
Underlying operating profit 27 Power Revenue: £1,824m 25 Chemicals • £41m recovered in FY25 £m (39) • FY24 revenue up by c.£150m 8 Labour (81) 8 Reg. fees 3% 13 Other Power: £131m (20) • FY23 actual price £91/MWh (5) (24) • FY24 hedged 90% at £110/MWh 610 • FY24 forecast c.£150m 441 Chemicals: £57m
Slide 23: Interest, tax and earnings
Interest, tax and earnings Underlying net finance Underlying tax Underlying (loss)/profit expense after tax FY23: £475m FY23: £25m credit FY23: £(8.7)m FY22: £306m FY22: £65m credit FY22: £367m Inflation charge on index-linked Reflects ‘capital allowance super Underlying EPS of -1.3p debt of £520m (
Slide 24: Balance sheet
Balance sheet RCV1 (£bn) RCV growth1 RCV gearing2 14.0 12.7 10.0% 58% FY22: 7.8% FY22: 59% FY22 FY23 Net debt (£bn) Funding raised in the year Liquidity 8.2 c. £500m c. £900m 7.6 £300m sustainable bond raised Cash coverage to August 2025 FY22 FY23 1. Includes the full expected value of AMP7 ex-post
Slide 25: Financial summary
Financial summary Strong Returns Strong Balance Sheet • FY23 RoRE: 11.0% real • RCV Gearing: 58%1 • AMP7 Guidance: 6-8% real • Policy to target 55-65% Growth Accelerating Dividend • AMP7 RCV Growth: 4-5% CAGR • FY23: 45.51p • Acceleration in AMP8 • Policy of growth in line with CPIH 1. RCV gearing c
Slide 26: Strategy update
Strategy update Louise Beardmore Chief Executive
Slide 27: Strategy update
Strategy update Building our future plan Better Rivers: Better North West Greener future 2022/23 full year results • 27
Slide 28: Building our future plan
Building our future plan The Past The Future UK Water Average Investment £bn, real Customer expectations 1 12.0 • Improved services 10.0 8.0 Population growth and climate change 2 6.0 • 1m increase by 2050 4.0 • Resilience 2.0 Enhanced environmental standards 3 0.0 • Storm overflows AMP1 AMP2 AMP3 A
Slide 29: Building our future plan: PR24 Business Plan
Building our future plan PR24 Business Plan DRAINAGE & ENVIRONMENT DRINKING WATER WATER RESOURCES WASTEWATER (WINEP) • Improve water quality • Smart meters • Sewer flooding • Storm overflows • Lead pipe removal • New water resources • improvements • Phosphate reductions Vyrnwy aqueduct • Leakage red
Slide 30: Building our future plan: draft WINEP submission
Building our future plan Our draft WINEP submission • Phosphate removal £bn • Improving bathing waters 7.0 • Nutrient neutrality 6.0 5.0 4.0 3.0 2.0 Includes c£3bn storm overflow plan 1.0 0.0 AMP6 AMP7 AMP8 DRAFT AMP8 Accelerated Infrastructure Project 2022/23 full year results • 30
Slide 31: Building our future plan
Building our future plan Number of considerations for a plan of this size 1 3 5 7 Carbon and Customer and Planning Capability emission impacts community impacts 2 4 6 Supply Chain Need for ‘Green’ Outage Capacity Innovation Management 2022/23 full year results • 31
Slide 32: Three C's plan for delivery
Building our future plan Three C’s plan for delivery Challenge Capability Capacity • Commissioned a • Introduced stakeholder • Storm overflow delivery WINEP independent scrutiny managers in each of our 5 team mobilising – 500 strong and optimisation panel counties end of this year • Recruited new de
Slide 33: Customer bill impact
Building our future plan Customer bill impact Potential bill impacts from 2025: £20 bill increase each year (before inflation) Our plan seeks to ensure substantial financial support will be available Building on our track record of affordability and vulnerability support for customers 2022/23 full y
Slide 34: Next steps
Building our future plan Next steps June 2023 2 October 2023 May/June 2024 December 2024 ‘Your water, your say’ session Business plan submissions Draft determinations Final determinations We will provide more detail on our plan in October 2022/23 full year results • 34
Slide 35: Strategy update
Strategy update Building our future plan Better Rivers: Better North West Greener future 2022/23 full year results • 35
Slide 36: Storm Overflows in the North West
Better Rivers: Better North West Storm Overflows in the North West c£56bn About Storm Overflows Changing Pressures Government1 They have been Over the next a feature of sewer systems estimate of for over 25yrs investment we expect more severe rainfall required 150yrs events more often Of the c£56bn
Slide 37: Our AMP8 proposed plan: Storm Overflow Investment Plan to 2030
Better Rivers: Better North West Our AMP8 proposed plan: Storm Overflow Investment Plan to 2030 120 Improving over 400 Total Annual Storm Overflow Activations (k) 100 80 storm overflows Targeting a 60 40 c.60% reduction 2020 baseline 20 From 0 2020 2021 2022 Targeted reductions 59 to 20 activations
Slide 38: Accelerated infrastructure project allows us to go further & faster
Better Rivers: Better North West Accelerated infrastructure project1 allows us to go further & faster Over £900m of AMP8 Around £200m Mostly on investment accelerated into reducing provisionally 2023-25 storm overflows approved To deliver Representing improvements to 154 around Allowing us to storm
Slide 39: Utilising sustainable solutions to reduce, recycle and rethink
Better Rivers: Better North West Utilising sustainable solutions to reduce, recycle and rethink Slowing the flow Rethinking our network • Undertaking the largest UK smart water butt trial • Rethinking how we manage our network through DNM • Solar powered, using technology that forecasts rainfall • D
Slide 40: We are stepping out into our communities
Better Rivers: Better North West We are stepping out into our communities In our high streets and By our rivers Come and see for yourself church halls 2022/23 full year results • 40
Slide 41: Strategy update
Strategy update Building our future plan Better Rivers: Better North West Greener future 2022/23 full year results • 41
Slide 42: Greener future: adjacent opportunity to core water business
Greener future Adjacent opportunity to core water business Strong track record of delivery England’s largest corporate land owner Generation Capacity1 (MW) 120 56,000 Ha 140 sites of land identified for 100 development 80 Strategic focus on Our future business 60 resilience plan will drive up our 40
Slide 43: Clean energy strategy
Greener future Clean energy strategy Our clean energy strategy… Gross clean energy additions1 ̴150MW By end of decade Targeting 50% 150MW development plan self-generation by 2030 222 by 2030 Combination of Behind the solar and meter batteries and 72 grid connected 2022 2030 …funds recycled from sale
Slide 44: Stronger Greener Healthier
Water makes the North West … Stronger Greener Healthier 2022/23 full year results • 44
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
Slide 46: Supporting information
Supporting information 1. Technical guidance 2023/24 9. Finance expense: index-linked debt 2. AMP7 additional investment 10. Derivative analysis 3. RCV gearing 11. Statement of financial position 4. Underlying income statement 12. Reconciliation of net debt 5. Underlying operating costs 13. Financin
Slide 47: Technical guidance 2023/24
Technical guidance 2023/24 FY23 y-o-y Expected to increase by around £150m, largely reflecting Revenue £1,824m CPIH inflation of 9.3%, partially offset by £20m net impact of over/under-recovery in FY23 and FY22 Expected to be around £60m higher, largely driven by Underlying operating costs £960m inf
Slide 48: AMP7 additional investment
AMP7 additional investment Previously announced investment: AMP8 accelerated investment: Approved incremental base investment Subject to existing regulatory mechanisms Accelerated Infrastructure Project established at PR19 and Green Recovery In April 2023, Ofwat gave draft approval to bring e.g. WIN
Slide 49: RCV gearing
RCV gearing Net debt £m RCV £m 8,500 £m 102 50 ( 76 ) FD RCV (17/18 prices) 10,859 8,000 301 Inflation 2,558 7,500 463 AMP7 ex-post adjustments 583 (883) 8,201 Mar-23 Adjusted RCV 14,000 8,125 7,000 689 7,570 (91) 6,500 RCV gearing: 58% 6,000 Mar-22 Operating Disposal Net capex IndexationDividends I
Slide 50: Underlying income statement
Underlying income statement Year ended 31 March 2023 2022 Change (%) £m Revenue 1,824.4 1,862.7 -2% Operating expenses (766.5) (665.0) Infrastructure renewals expenditure (193.5) (169.5) EBITDA 864.4 1,028.2 -16% Depreciation and amortisation (423.6) (418.2) Operating profit 440.8 610.0 -28% Net fin
Slide 51: Underlying operating costs
Underlying operating costs Year ended 31 March 2023 2022 Change (%) £m Revenue 1,824.4 1,862.7 -2% Employee costs (192.2) (184.3) +4% Power (130.8) (99.6) +31% Hired and contracted services (103.7) (95.4) +9% Materials (132.7) (90.8) +46% Property rates (87.1) (90.5) -4% Regulatory fees (36.7) (28.4
Slide 52: Profit before tax reconciliation
Profit before tax reconciliation Year ended 31 March 2023 2022 £m Operating profit 440.8 610.0 Investment income and finance expense (215.7) (168.3) Share of losses of joint ventures - (1.8) Profit on disposal of United Utilities Renewable Energy 31.2 - Reported profit before tax 256.3 439.9 Adjustm
Slide 53: Profit after tax reconciliation
Profit after tax reconciliation Year ended 31 March 2023 2022 £m Reported profit/(loss) after tax 204.9 (56.8) Adjustments: Fair value (gains)/losses on debt and derivative instruments, excluding interest on derivatives and debt (259.4) (138.0) under fair value option Deferred tax adjustment 76.6 56
Slide 54: Finance expense
Finance expense Year ended 31 March 2023 2022 £m Investment income 47.0 19.4 Finance expense (262.7) (187.7) (215.7) (168.3) Fair value (gains)/losses on debt and derivative instruments, excluding interest on derivatives and debt under (259.4) (138.0) fair value option Underlying net finance expense
Slide 55: Finance expense: index-linked debt
Finance expense: index-linked debt Year ended 2023 2022 £m Interest on index-linked debt (21.4) (35.7) RPI adjustment (£2.3bn debt at Mar-22/13.4% charge; £2.2bn debt at Mar-21/7.8% charge) – 3 month lag1 (302.6) (166.9) CPI adjustment (£1.1bn debt at Mar-22/10.0% charge; £1.1bn debt at Mar-21/5.4%
Slide 56: Derivative analysis
Derivative analysis At 31 March 2023 2022 £m Derivatives hedging debt (20.3) 198.5 Derivatives hedging interest rates 219.0 10.7 Derivatives hedging commodity prices 25.6 111.0 Total derivative assets and liabilities 224.3 320.2 • Derivatives hedging debt; hedge our non index-linked debt into sterli
Slide 57: Statement of financial position
Statement of financial position At 31 Mar 2023 31 Mar 2022 Change (%) £m Property, plant and equipment 12,570.7 12,147.5 +3% Retirement benefit surplus 600.8 1,016.8 -41% Other non-current assets 235.7 259.5 -9% Cash 340.4 240.9 +41% Other current assets 302.5 314.9 -4% Total derivative assets 477.1
Slide 58: Reconciliation of net debt
Reconciliation of net debt At 31 Mar 2023 31 Mar 2022 £m Cash 340.4 240.9 Total derivative assets 477.1 457.4 Gross borrowings (8,435.4) (7,979.8) Total derivative liabilities (252.8) (137.2) Balance sheet net debt (7,870.7) (7,418.7) Exclude the fair value impact of: Interest rate derivatives fixin
Slide 59: Financing and liquidity at 31 March 2023
Financing and liquidity at 31 March 2023 Gross Debt = £8,435.4m Headroom / prefunding = £867m Other borrowings including lease EIB & other floating GBP obligations and short- loans term debt £829.4m £220.4m £m GBP fixed bonds GBP CPI linked bonds and £2,082.9m Cash and short-term deposits 1 340.3 lo
Slide 60: Debt structure at 31 March 2023
Debt structure at 31 March 2023 United Utilities Group PLC United Utilities Group PLC United Utilities PLC Yankees: • $400m in 28s Baa1 stable; BBB- stable; A- stable7 Euro MTNs: Other debt: • £300m in 27s • £100m in 40s1 • £510m in 56s1 • EIB RPI-linked loans £419m1 United Utilities Water Limited •
Slide 61: Term debt maturity profile as at March 2023
Term debt maturity profile as at 31 March 20231 Average term to maturity of approximately 17 years 1 Future repayments of index-linked debt include RPI/CPI/CPIH market derived forecasts out to 2027, subsequently transitioning to an average annual RPI rate of 3% and an average annual CPI/CPIH rate of
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