Slide 1: United Utilities Group PLC Full year results
United Utilities Group PLC Full year results Year ended 31 March 2014 g, life aging fe flow smoothly ar” el sa" SMOothy, lif oot e flow sm aceon smoothly yo" y nee. ye «8 owl Ae, ebbing | ife flow gino? ao’ helping We * United Utilities “Ring ike OW SMOOthy, Fe e flow Smoothly
Slide 2: Welcome and progress over the period
Good morning ladies and gentlemen and welcome to our full year results presentation. This is the third anniversary of Russ and me presenting our results and I am very pleased with the company’s progress over this period. We are ahead of the targets we outlined three years ago, giving us the sound pl
Slide 3: Agenda
This is the agenda for this morning's presentation. We will provide you with an overview of our operational and financial progress over the last year. And, although we are still in detailed dialogue with Ofwat regarding our AMP6 business plan, we will also provide you with an overview of the key are
Slide 4: Highlights
Here are the highlights: • We have delivered further improvements in customer satisfaction, as measured under Ofwat’s Service Incentive Mechanism (SIM) • At £836 million, capital expenditure this year is the largest we have delivered in a decade and our time, cost and quality performance, at 98 per
Slide 5: Qualitative SIM performance
You will know that the sector uses the SIM score as its principal measure of customer satisfaction. Ofwat will use companies’ SIM scores over a three-year period in AMP5 to determine whether each company will receive an incentive or penalty and 2013/14 is the last year of measurement for this purpos
Slide 6: Quantitative SIM performance
Quantitative SIM measures the avoidable contacts companies receive from customers. Although these scores are not available for the sector until later this summer, this chart shows our continued improvement. For this score, the lower the points the better the performance. We have been the most improv
Slide 7: Business retail competition in Scotland
The opening of the English market to business retail competition in 2017 heralds a significant change for the sector. We have one of the largest business customer communities and we have a strong focus on this developing area. We recruited an experienced retail team and have concentrated on the Scot
Slide 8: Capital delivery
I’ll cover capital delivery and Russ will discuss our opex performance later in the presentation. We have completed another good year in delivering our capital programme, benefiting from the improvements we have made in our project and risk management capability. We have delivered an investment prog
Slide 9: Water quality and environmental performance
Water quality and environmental performance are key focus areas for us. Compliance with new performance requirements from our regulators drives a significant component of our capital expenditure, alongside maintenance of our existing assets. Our attention to detail in these areas is delivering resul
Slide 10: Innovation and renewable energy at Davyhulme
We are focused on embracing innovation to improve our work processes and this also involves looking outside of the water sector to enhance our knowledge and generate new ideas. We have links to other organisations around the world, as we aim to build up a comprehensive understanding of best practice
Slide 11: Sharing outperformance with customers
In what continues to be a difficult time for customers in the North West, we are pleased to share our outperformance with customers, whilst still keeping our promises to shareholders. As we outlined previously, we are reinvesting £200 million of capex outperformance for the benefit of customers and
Slide 12: Thank you, Steve. Good morning.
Thank you, Steve. Good morning. 12
Slide 13: Financial results summary
This is another good set of results in a tough North West economic climate. An increase in revenue, tight cost control and a lower tax rate combined to increase underlying operating profit by 6 per cent, underlying profit before tax by 11 per cent and underlying EPS by 16 per cent. We have responsib
Slide 14: 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 £129 million fair value gain in the year, largely due to gains on the regulatory swap portfolio, resulting from a significant
Slide 15: Underlying income statement
This is a summary of the underlying income statement after making the adjustments shown on the earlier slide. Revenue for the year of £1.7 billion was up £69 million, or 4.2 per cent, similar to the allowed regulated price increase of 4.0 per cent nominal (3.0 per cent RPI inflation plus a 1.0 per c
Slide 16: Operating costs
Our cost performance in this period has again been good. We have managed to keep employee costs at a similar level to last year. Power costs rose by £3 million, as expected, reflecting the upward-sloping forward power price curve at the time we locked in prices. Property rates were up £5 million, ma
Slide 17: Bad debt performance
On to our bad debt performance. As you may be aware, we operate in deprived region. Unemployment rates in the North West have fallen by less than the UK average in 2013/14 and, in any event, evidence suggests that even when the North West economy recovers it is unlikely to have much impact on depriv
Slide 18: Statement of financial position
Turning now to the statement of financial position. Property, plant and equipment was up £371 million in the year to just under £9.4 billion, as we continue to make good progress on our capex programme. Cash and short term deposits of £127 million were £75 million lower than the position at March la
Slide 19: 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. These bars show our steady growth in RCV. The green line shows the movement in RC
Slide 20: Cash flow
Moving on to cash flow. Net cash generated from operating activities was £805 million, up £174 million compared with last year. This increase was mainly as a result of the one-off tax rebate, lower pension contributions and an increase in operating profit. Cash used in investing activities increased
Slide 21: Financing and hedging
We have bolstered our, already, robust financing position with a £500 million loan with the EIB, which we agreed in the second half of the year. Unlike the first £400 million, which we borrowed from the EIB earlier in AMP5, we have chosen not to take this loan in index-linked form as we are already
Slide 22: Regulatory financial targets
And finally, an update on our performance against our key regulatory financial targets and how our good performance is benefiting customers. We are ahead of schedule and have already delivered over £50 million of cumulative opex outperformance over the 2010-15 regulatory period and would expect to e
Slide 23: AMP6 business plan update
Thank you, Russ. I know you are all interested in how our AMP6 business plan is progressing, so I’ll provide a brief update on that before summarising our performance for the year. 23
Slide 24: AMP6 business plan and Ofwat feedback
As you know, we submitted our business plan last December. Ofwat provided an initial view on our plan through its pre-qualification decisions publication in March and subsequently shared detailed feedback with us. We are working through this feedback and are closely engaged with Ofwat, our Customer
Slide 25: Summary
So, in summarising the year, we have delivered another good financial performance. Customer service has again improved over the year, building on the significant achievements made over the last few years. We have continued to deliver strong operational performance, having performed well on Ofwat’s K
Slide 26: Questions
That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 26
Slide 27: 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 I •A united \:;:, Utilities 27
Slide 28: Income statement - reported
Income statement - reported Tax credits enhance reported earnings £m Year ended 31 March 2014 2013 Contmumg operatiOns (Restated') Revenue 1,704.5 1,636.0 Operating expenses (728.4) (705.2) EBITDA 976.1 930.8 Depreciation and amortisation (339.2) (329.2) Operating profit 636.9 601.6 Investment incom
Slide 29: Statutory to regulatory underlying operating profit reconciliation
£m Year ended 31 March 2014 2013 Continuing operations Group underlying operating profit 641 .3 604.2 Underlying operating profit not relating to United Utilities Water (7.1) (0.8) Infrastructure renewals accounting 46.8 32.6 Other differences 2.1 1.9 United Utilities Water statutory underlying oper
Slide 30: Underlying profit before tax
£m Year ended 31 March 2014 2013 Contmwng operatiOnS Operating profie 636.9 601 .6 Investment income and finance expense2 (92.2) (289.8) 12 Profit before tax ' 544.7 311.6 Adjustments: 3 One-off items 4.4 2.6 Net fair value (gains)~osses on debt and derivative instruments (129.2) 41.5 Interest on sw
Slide 31: Finance expense
Finance expense Underlying interest charge similar to last year £m Year ended 31 March 2014 2013 Contmwng operatiOns Investment incorre 7.0 2.3 1 (99.2) (292.1) Finance expense (92.2) (289.8) Less net fair value (gains)/losses on debt and derivative instrurrents (129.2) 41 .5 Adjustment for interest
Slide 32: Index-linked debt finance expense
£m Year ended 31 March 2014 2013 Continuing operations Cash interest on index-linked debt (49.0) (46.9) 1 RPI adjustment to index-linked debt principal - 3 month lag (52.6) (57.1) 2 (29.9) (29.1) RPI adjustment to index-linked debt principal- 8 month lag Finance expense on index-linked debt (131 .5)
Slide 33: Derivative analysis
£m At 31 March 2014 2013 Derivatives hedging debt 482.5 719.0 Derivatives hedging interest rates to 2015 (59.3) (120.9) Derivatives hedging interest rates beyond 2015 (3.1) (70.8) Derivatives hedging commodity prices (10.3) (6.1) Total derivatives assets and liabilities (slide 18) 409.8 521.2 • Deri
Slide 34: Movement in net debt
Movement in net debt* Small increase in line with expectations 7,000 136.3 34.2 941.6 6,500 237.9 683.3 £m 6,000 5,532.3 5,500 5,450.6 5,000 4,500 Net debt at Net capex Dividends Interest & tax Non-cash Operating cash Net debt at 31/03/13 movements & flow 31/03/2014 other.. " Net debt includes deriv
Slide 35: Financing and liquidity
Gross debt = £6,069.3m Headroom I prefunding = £864.3m Yankee Em bonds EIB index ( USD), Cash and short-term deposits 127.2 linked and 2.8m Euro bonds other Medium-term committed bank facilities 2 450.0 (EUR), index £476.2m linked Undrawn EIB term loan facility 400.0 loans, £1,254 .Sm Short-term d
Slide 36: Term debt maturity profile
Term debt maturity profile 1 Average term to maturity of c25 years 4,000 3,000 £m 2,000 1,000 201Q-15 2015-20 202().25 2025-30 203().35 2035-40 204().45 2045-50 205().55 2055-60 Years 1 Future repayments of index-linked debt include 1nflation based on an average annual RPI rate of 3% 36 36
Slide 37: Debt structure
Yankees: Other debt: • $250m in 18s · Short-term loans £47m • $350m in 19s • $400m in 28s United Utilities Water PLC A3 stable, BBB+ pos1t1ve outlook R1ng-fenced and regulated by Ofwat Euro MTNs: Other debt: • £425m in 15s • £50m in 32s 1 • £100m in 42s1 • EIB index-linked loans £1 ,000m1 • ¥5bn in
Slide 38: This presentation contains certain forward-looking statements with respect to the operations, performance and financial
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