Slide 1: United Utilities Group PLC Full year results
United Utilities flow smooehy, United Utilities Group PLC WFUlL year result&2 _ ¥ ~ 2Xear.ended 3iMarchz a
Slide 2: Welcome and year overview
Good morning ladies and gentlemen and welcome to our 2016/17 full year results presentation. Before we get into the detail I’d like to make a few comments about the year and our position in the sector. We all know that customer satisfaction is important for any business and none more so than a monop
Slide 3: Sustainable dividend growth
Our objective is to deliver great service to customers and sustainable dividend growth. Backed by a strong balance sheet, we have delivered sustainable dividend growth for shareholders for the last 7 years. The final dividend of 25.92 pence per share takes the total dividend for 2016/17 to 38.87 pen
Slide 4: Additional £100 million investment across AMP6
Before getting into the detail, I will expand upon my comment about investing an additional £100 million across the remainder of AMP6 funded through our anticipated net outperformance against our regulatory contract. We are targeting the investment on projects not covered by the PR14 settlement with
Slide 5: Agenda
Now, onto our agenda for this morning. Under operational performance I will cover customer satisfaction and our investment programme. Steve Fraser, Managing Director of our Wholesale business gave an overview of our ODI performance at our last full year results presentation and this was well receive
Slide 6: Customer satisfaction: qualitative SIM
Over the last six years we have achieved a dramatic cultural shift, placing customers at the core of everything we do. This saw us become the most improved company under Ofwat’s Service Incentive Mechanism, or SIM, over AMP5 and in 2016/17, our new customer facing management team delivered a further
Slide 7: Quantitative SIM results
This chart shows the quantitative SIM results available so far, noting that five companies have opted not to voluntarily share data for quantitative performance and so the final picture for the year will change once their data is available. Ahead of the full data share, we are top among the water an
Slide 8: Accelerated capex investment
This is an update to the chart you saw last year, showing how we have accelerated capex investment in the first two years of the 2015-20 regulatory period compared to the assumptions contained in our final determination – which is represented by the orange line. Our investment in 2016/17, of just ov
Slide 9: Cumulative AMP6 ODI outcome
Moving on to ODIs, and you will no doubt be familiar with this chart which shows how our view has developed for our cumulative AMP6 ODI outcome. Whilst a number of our ODI measures are still susceptible to one off events and, on the whole, our ODIs get tougher each year, we are pleased that we are a
Slide 10: Industry leading operational performance
Our continuous improvement in recent years has taken us to an industry leading position on many operational metrics. In the Environment Agency’s latest annual assessment of water and wastewater company performance, we were awarded Industry Leading Company status and expect to retain this status when
Slide 11: ODI performance introduction
Thank you Steve and good morning everyone. I will provide you with an overview of our ODI performance for 2016/17 and then talk through some of the individual ODIs that have had the most significant impact on our performance in the year.
Slide 12: ODI position for 2016/17
This slide summarises our ODI position for 2016/17. As a reminder, our ODIs are significantly skewed to the downside as this is what our customers were prepared to support at the last price review. Our job has been to mitigate this downside risk and we are pleased with the results to date. We have a
Slide 13: Private sewers and wastewater pollution ODIs
As the charts show, we had another year of strong performance against our private sewers and wastewater pollution ODIs. The planned acceleration of our investment programme is benefitting our performance against our private sewers ODI and helped us achieve a reward in 2016/17 of £7.4 million, only m
Slide 14: Sewer flooding ODI
At our last full year results presentation I highlighted some areas where the ODI measures get tougher in future years. The top chart shows our performance against our sewer flooding ODI where, despite an improved performance in 2016/17, we took a £1.5 million penalty reflecting a tougher target. Ho
Slide 15: Water quality and reliable water service ODIs
These two charts show our water quality service and reliable water service ODIs and were two of the main contributors to our water ODI performance. Whilst overall water quality continues to be good, our performance has slightly deteriorated from our good performance in the prior year, although it st
Slide 16: Leakage performance
Our leakage performance has been relatively stable and broadly consistent with our performance commitment. For 2016/17 we are pleased to report our best ever leakage performance, earning a reward of £9.1 million. This is a direct result of significant operational focus on improving our ability to de
Slide 17: Investment focus
Thanks Steve. I would now like to provide a bit more detail on where our investment has been focussed to date, contributing to the ODI outcomes Steve has just referred to.
Slide 18: Innovation and Davyhulme wastewater works
A culture of exploiting innovation runs right throughout our business and is contributing to the delivery of over £400 million of efficiencies to meet our totex allowance for the 2015-20 period. Our Davyhulme wastewater treatment works in Manchester is one of our largest and where we are currently i
Slide 19: Water resilience: Haweswater aqueduct
In our water business, we have been investing with significant focus on resilience. We took our largest aqueduct, Haweswater, out of supply for a month last October to enable us to carry out a detailed inspection and repairs. This aqueduct normally supplies water to around 2 million people in Centra
Slide 20: Non-household retail market opening
Now turning our attention to the non-household retail market which fully opened to competition on 1 April 2017. Both our United Utilities Wholesale business and our Water Plus joint venture with Severn Trent were well prepared for market opening and we were encouraged that no material issues were en
Slide 21: Thank you Steve
Russ Houlden Thank you Steve.
Slide 22: Financial performance
So moving on to our financial performance.
Slide 23: IFRS reported results
The group has delivered a good set of results for the 2016/17 financial year. In line with the ESMA guidelines, I will start today with our IFRS reported numbers. Reported operating profit of £606 million was up £38 million, mainly as a result of reduced profit in 2015/16 due to costs associated wit
Slide 24: Underlying income statement
Now turning to the underlying income statement which we believe is more representative of underlying business performance. The detailed adjusting items are shown in the profit after tax reconciliation slide in the appendix to this presentation. Revenue of around £1.7 billion was down £26 million, as
Slide 25: Underlying operating expenses
Underlying operating expenses reduced by £45 million compared with last year. Of this, £20 million was simply the effect of the IRE phasing across the AMP, and £12 million was a reduction in third party wholesale charges which is an accounting effect of the transfer of our out-of-area non-household
Slide 26: Household bad debt
The excellent work undertaken by our customer facing team has contributed to a reduction in our household bad debt to its lowest ever level of 2.5 per cent of regulated revenue, from 3.0 per cent last year. Our bad debt performance has benefitted from the improvement in our cash collection performan
Slide 27: Statement of financial position
Turning now to the statement of financial position. As expected, property, plant and equipment was up £374 million and net debt was up £318 million, reflecting expenditure on our large capital programme. Other non-current assets have increased by £176 million and other current assets have decreased
Slide 28: Pensions position
Looking now at our pensions position in a bit more detail, and as a reminder, we believe that sum of the parts valuations should use normalised IFRS as the best available method for cross-company comparisons. We have a clear hedging policy in respect of our pensions schemes, adopting an asset / liab
Slide 29: RCV and gearing
This chart shows our RCV and gearing level. The blue bars show the growth in our RCV and, for this regulatory period, we have adjusted the RCV to reflect the acceleration of our investment programme, as suggested by a number of analysts. The black line shows the movement in RCV gearing over the last
Slide 30: Cash flow
Now moving on to cash flow. In the year, there has been a switch between cash generated from operating activities and cash used in investing activities due to the accounting treatment of our Water Plus JV. As a result, net cash generated from operating activities was £135 million higher than last ye
Slide 31: Financing
Over the 2015-20 regulatory period, we have financing requirements totalling around £2.5 billion, of which we have now raised over £1.7 billion. In December 2016, we were pleased to issue the first ever CPI-linked notes by a UK utility and to date, we are still the only UK water company to have test
Slide 32: Hedging approach
And finally, a reminder of our approach to hedging. Our hedging policy for business exposures is to leave the equity portion of the RCV exposed to RPI inflation by largely hedging the debt portion of the RCV for inflation through index-linked debt and the effect of our pension scheme liabilities. Du
Slide 33: Financial summary
So, in summary: • this is a good set of results and we have continued to maintain tight cost control; • we have seen higher RPI inflation deliver further growth in our RCV, although this has also increased our index-linked financing charge for the year; • our asset / liability matching approach to p
Slide 34: Thank you, Russ
Steve Mogford Thank you, Russ.
Slide 35: PR19 key dates
I thought it would be useful highlighting some key dates that are coming up in the ongoing price review process, or PR19, for the 2020-25 regulatory period.
Slide 36: PR19 calendar of anticipated events
As you can see, there is a lot coming up and this is the calendar of anticipated events. We are engaged with customers, Ofwat and other stakeholders ahead of the next regulatory review period which will set our price and service package for the five year period to April 2025. We look forward to the
Slide 37: Summary and outlook
In summary, it has been a year of strong performance that places us well to deliver further value. • We have seen a step change in customer service, delivering our best ever customer satisfaction scores and ending the year as one of the leading companies in our peer group. • The acceleration of our
Slide 38: Questions
That concludes our presentation. Thank you for listening. We would now like to take questions.
Slide 39: Supporting information
Slide 40: Profit before tax reconciliation
Profit before tax reconciliation £m Year ended 31m 2017 2016 Operating profit 605.5 567.9 Investment income and finance expense (189.0) (219.4) Profit on disposal on non-household retail business 22.1 - Share of profits of joint ventures 3.8 5.0 Reported profit before tax 442.4 353.5 Adjustments: Wa
Slide 41: Profit after tax reconciliation
Profit after tax reconciliation £m Year ended 31 March Reported profit after tax Adjustments: Water quality incident Flooding incidents in Dec 15 (net of insurance proceeds recognised) Non-household retail market reform* Restructuring costs Profit on disposal of non-household retail business Net fai
Slide 42: Finance expense
Finance expense Underlying interest charge lower im Year ended 31 March 2017 2016 Investment income 13.7 5.0 Finance expense (202.7) (224.4) (189.0) (219.4) Less net fair value (gains)/losses on debt and derivative instruments (24.3) 26.3 Adjustment for interest on swaps and debt under fair value op
Slide 43: Finance expense: index-linked debt
Finance expense: index-linked debt Cash benefit for the group £m Year ended 31 March 2017 2016 Cash interest on index-linked debt (48.2) (51.2) RPI adjustment to index-linked debt principal - 3 month lag’ (65.6) (27.7) RPI adjustment to index-linked debt principal - 8 month lag” (15.1) (10.2) Financ
Slide 44: Derivative analysis
Derivative analysis Derivatives intrinsically linked to debt £m At 31 Mar 2017 2016 Derivatives hedging debt 810.0 764.5 Derivatives hedging interest rates beyond 2015 (243.0) (242.1) Derivatives hedging commodity prices (9.0) (18.5) Total derivatives assets and liabilities (slide 27) 558.0 503.9 *
Slide 45: Movement in net debt
Movement in net debt* Moderate increase in line with expectations — | Net debt at Operating Fair value Dividends Interest Tax Netcapex Loansto inflation Other 31/03/16 cash flow movements joint uplift on ventures _index- linked debt * Net debt includes derivatives which incorporate regulatory swaps
Slide 46: Financing and liquidity at March 2017
Financing and liquidity at 31 March 2017 Gross debt = £7,384.5m Headroom / prefunding = £698.9m £557.4m, Other borrowings Om, Yankee onds (USD) Cash and short-term deposits £489.1m, Other. ee 564. es bonds £564 2m, Eur Ly ‘iil Medium-term committed bank facilities (EUR) Undrawn EIB term loan facilit
Slide 47: Term debt maturity profile as at March 2017
Term debt maturity profile as at 31 March 2017! Average term to maturity of around 20 years 3,000 2,000 £m 0 To31 Mar 2020 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 Years + Future repayments of index-linked debt incude inflation based on an average annuaiRP! rate of 3% and an average a
Slide 48: Debt structure at 31 March 2017
Euro ¥5bn in 17s *£50m in 325¢ ++ £200m in 35s *£150m in Bs +£100m in 35s +€500m in 20s *£35min37# #£37Smin Zs +£70min 398 +£300m in 27s *£100min 40 *£50m insist Debt structure at 31 March 2017 Other debt: *£100m in 42st 1+ BB index-linkas loans £2,088m* ‘= £50m in 435° “Other index-tinked loans £30
Slide 49: European Investment Bank funding maturity profile
European Investment Bank funding maturity profile Medium to long-term maturity profile 1200 1000 200 Notes To 31 Mar 2020 EIB funding maturity profile 2020-25 2025-30 2030-35 2035-40 Existing EIB funding —_'™ Additional E1B funding Future repayments of E16 RP! linked debt include inflation based on
Slide 50: 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 51: United Utilities
United Utilities "% yw smi ‘ing ike Xion 0th,