United Utilities Group Plc · LSE:UU.
United Utilities — Investor Day (March 2018)
83 slides from United Utilities's investor day presentation, Mar 15, 2018
Slide 1: Capital Markets Event
Capital Markets Event United Utilities Group PLC
Slide 2: Introduction
Steve Mogford Chief Executive Introduction United Utilities Group PLC Capital Markets Event 15 March 2018 Crummock Water
Slide 3: The paradigm shift
The paradigm shift Focus on Significant Invested in our “If you always do customer transformation people what you always service programme Graduate and apprentice did, you will programmes and external Systems Thinking recruitment always get what you always got.” Capital Markets Event Introduction
Slide 4: United Utilities is leading the way
United Utilities is leading the way The industry faces many challenges Maintaining United Utilities is now a Environmental Affordability shareholder Reputational returns leader among the WASCs United Utilities is ideally placed to meet these challenges and our innovation capabilities are at the hear
Slide 5: What we mean by leading
What we mean Customer Ofwat’s SIM measure UK CSI by leading satisfaction CCWater customer satisfaction research Recognition cross sector Porter’s Efficient Frontier Water Environmental quality A* Low New Efficient Innovation DWI recognition Frontier Set 4* industry leading A Industry leading status
Slide 6: Agenda
Agenda Overview Systems Thinking Engineering and Customer Service 11:10 – 11:30 & Innovation Capital Delivery 13:25 – 13:50 11:30 – 12:00 13:00 – 13:25 Steve Fraser Simon Chadwick Richard Ratcliff Louise Beardmore Chief Operating Officer Central Operations Director Engineering Delivery Director Cust
Slide 7: Overview
Steve Fraser Chief Operating Officer Overview Manchester Square Pumping Station
Slide 8: Strength in financial risk management
Strength in financial risk management 61% Maintaining a Appropriate gearing One of the Stable IFRS stable A3 credit aligned with Ofwat’s lowest financing costs pension surplus rating notional structure in the sector Capital Markets Event Overview
Slide 9: No longer in catch up; now a leader
No longer in catch AMP7 • Evolution of regulatory regime up; now a leader • Reset of ODI and totex mechanisms with increased opportunity for reward • Extending the lead on Systems AMP6 Thinking • No longer in ‘catch up’ mode • Aiming for more balanced regulatory outperformance • Upper quartile again
Slide 10: PR14; a challenging settlement
PR14; a challenging settlement ODI’s Rewards/Penalty ranges 6,500 200 +140m 100 +50m UU proposed totex +30m +30m 6,000 £m c£600m sustainable cost reductions delivered 0 Totex (£m) through more efficient capital delivery and 5,500 Systems Thinking -100 -£100m -£70m -£50m -200 5,000 -300 Ofwat propose
Slide 11: Delivering our strategy for AMP6
Delivering our strategy for AMP6 Net regulatory capex 2015/16 2016/17 2017/18 2018/19 2019/20 Planned acceleration of capital programme Net cumulative ODI reward in years 1 and 2 Capital Markets Event Overview
Slide 12: Sustained improvement
Sustained improvement 5 year improvement 5 year improvement Water performance measure1 Wastewater performance measure to 2016/17 to 2016/17 WTW Coliform infringements +67% Cat 1-2 pollution +75% WTW Turbidity infringements +67% Cat 3 pollution +53% SR Coliform infringements +47% Failing Flow to Full
Slide 13: Heading into AMP7 as a high performing company
Heading into AMP7 as a high performing company We’ve come We’re delivering on Our Systems Thinking This is delivering our This gives us from being a our AMP6 strategy; approach is a current leading confidence laggard to delivering more competitive performance and we also have further heading into ca
Slide 14: Systems Thinking & Innovation
Simon Chadwick Central Operations Director Systems Thinking & Innovation
Slide 15: Innovation in United Utilities
Innovation in United Utilities Implementing Systems Systems Thinking Innovation Thinking Using digital technology to accelerate delivery of Systems Thinking Sharing our Overview and our Case studies approach learning to date Case studies Capital Markets Event Systems Thinking & Innovation
Slide 16: Systems Thinking
Systems Thinking Innovation in our operation strategy
Slide 17: An introduction to Systems Thinking
An introduction to Systems Thinking Traditional analysis focuses on the individual pieces of what is Components of a system being studied Systems Thinking focuses on how the things being studied interact with the other constituents of the system. Instead of isolating smaller and smaller parts of the
Slide 18: Integrated catchments
Integrated catchments A Systems Thinking approach to catchment management
Slide 19: Systems Thinking in an environmental catchment
Systems Thinking in an environmental catchment Systems Thinking at catchment scale The Petteril integrated Holistic risk assessment catchment case study Enhanced modelling Intensive monitoring Benchmarking Stakeholder engagement Innovation Partnership Multiple benefits Innovative permitting approach
Slide 20: 56% reduction in totex
56% Carlisle Flooding and quality interventions Green infrastructure Beyond asset solutions Opportunities for integrating other activities reduction Customer engagement in totex Southwaite M6 services Work with Highways & Moto Load impact on Wastewater Treatmentworks Original (traditional) solution
Slide 21: In AMP7 we will apply Systems Thinking to a further 13 catchments
Ellen Petteril In AMP7 we will apply Systems Thinking to a further 13 catchments Hodder Crossens These 13 catchments have been identified across our region as part of our AMP7 programme. Lower Alt Lower Irk Irwell Upper Alt Bollin Hornsmill Brook Dane-Wheelock Gowy Upper weaver Capital Markets Event
Slide 22: Wastewater network management
Wastewater network management A Systems Thinking approach to network management
Slide 23: Wastewater Network
Wastewater Network A trailblazer for Systems Thinking The project is looking at how the holistic drainage system can be optimised to reduced totex and improve service. The underlying principle is to understand the network and how it delivers services to customers, as part of a broader system. Capita
Slide 24: Implementing Systems Thinking
Implementing Systems Thinking STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 Facilities & Asset Area information Connecting the System monitoring Next evolution is Assessment components and and control an A.I. running relationships the system Capital Markets Event Systems Thinking & Innovation
Slide 25: Pilot results
Repeat sewer Customer behaviour flooding events clusters targeted FRECKLETON L-in-L PS CATCHMENT cleansing and customer engagement Pilot results: 49% reduction in totex 70% improvement in service Multiple point assets suffering frequent blockage issues 80% actual Totex efficiency Risk management Sys
Slide 26: Pilot Results: 89% saving in cost to repair
Pilot Results: 89% saving in cost to repair Through Systems Thinking we can identify areas where service performance is susceptible to external factors We are using satellite data processed through advanced image analytics to identify ground movements that indicate the risk of sewer collapses. The p
Slide 27: Systems Thinking: A framework for implementation
Systems Thinking A framework for implementation
Slide 28: Scanning business sectors for advanced technology
We have scanned different business sectors for advanced technology to accelerate our implementation of Systems Thinking Digital workers Intelligent and integrated plant and network Digital customer Connected worker Digital learning Liquid workforce Digital asset Digital event Market facing Mobile an
Slide 29: Robotics as an example technology
Robotics is an example technology to accelerate implementation of Business process Systems Thinking automation Based on software tools to Our research identified automate specific manual areas of digital opportunity processes (BPA) Rapid automation of manual, rules based, back office administrative
Slide 30: Capability model design
Capability model design Our capability model Asset planning System optimisation Work execution and delivery defines the set of and provision capabilities required to deliver our Systems Customer experience Thinking operating strategy – it has been Operational Water Water informed through our monitor
Slide 31: Bringing the capability model to life
Bringing the Robotic Process Wastewater Network capability AMP6 AMP6 Wastewater Treatment Works Automation (Implementation) Management (Proof of concept) model to life Alarm handling (in full operation) hub model (Implementation) Event Recognition The operational in Water (Implementation) 5 monitori
Slide 32: Systems Thinking: Maturing our capability
Systems Thinking Maturing our capability Example projects thus far Event Recognition in Water Network (ERWAN)
Slide 33: The Power of Advanced Technology
The Power of Advanced Technology Machine Learning ERWAN (Event Recognition in Water Network) ERWAN is the first example of We have 200 million readings Obtaining insight from this data Machine Learning and is a self per year through our is key to predict and respond to learning system that learns th
Slide 34: ERWAN
ERWAN Process without ERWAN & ICC Process with ERWAN & ICC CASE STUDY Reactive scenario Wednesday 31 May there was a failure of a 450mm diameter main on the Formby bypass. This affected 261 minutes 151 minutes 10,600 properties. This reduced the duration of the supply interruption to customers by 42
Slide 35: Systems Thinking: Robotic process automation
Systems Thinking Maturing our capability Example projects thus far Robotic process automation (RPA)
Slide 36: Robotic process automation (RPA)
Robotic process automation (RPA) Wastewater tracker Taking inputs from multiple systems to create a schedule update report RPA is new technology to use machines to undertake task previously done by humans it can: Process now in production Currently takes 8 people c.11 hours per day • Improve operati
Slide 37: Our next phase will save 18,989 hours of manual work
Our next Business Area Process Overview Complexity Benefit Level Hours back p.a. phase will save Central Ops Alarms (WW) Manual check and reset of alarms in the strategic telemetry systems High High 7280 18,989 hours of Central Ops Water Site Control & Data Acquisition Tours for 58 sites Automate te
Slide 38: Innovation: Our approach
s Innovation Our approach
Slide 39: Innovation overview
Innovation overview Cheaper, faster, better, safer Our Strategy Accessing the Prototyping Working with Inspiring innovation breakthrough academia innovation ecosystem technology New entrants Triage Dedicated team Stimulating research Employees Idea scouts Trial zones Applying research Value Innovati
Slide 40: Innovation lab
Innovation lab Encouraging new entrants Accelerating technology development
Slide 41: Innovation lab
Innovation lab The first ever innovation lab in the water sector New procurement Our first 5 problem areas Innovative partnership procedure Connected water Proactive Predictive asset Safe and healthy Future of and customer customer actions maintenance worker water in partnership with Capital Markets
Slide 42: Innovation lab
Innovation lab Advertise Written application Short- list Pitch day Lab period Continue? Implement 1500 suppliers 80 applied 55 new to UU 22 presented 7 to join the lab UV LED Pipes with Water Motor AI for water Sewer Drones for treatment built in efficient condition management condition safety senso
Slide 43: One of our magnificent 7
One of our magnificent 7 Worlds first utilities scale UV Up to LED Water treatment systems • Effective against biological 90% energy saving over existing contaminants including chlorine systems resistant microorganisms • Effective against organic pollutants, pesticides, pharmaceutical residuals, hyd
Slide 44: Punching through the efficiency frontier
Punching Porter’s Efficient Frontier through the efficiency Low A* frontier New Efficient Frontier Set A Cost B Less Than Best Practice High Quality High Source: Adapted from Michael Porter, “What is Strategy?” Harvard Business Review, November-December 1996 Capital Markets Event Systems Thinking &
Slide 45: Lunch Break
Lunch Break
Slide 46: Integrated Control Centre (ICC) tours
Integrated Control Centre (ICC) tours Group 1 Group 2 Group 3 12:00 – 12:20 12:00 – 12:20 12:20– 12:40 Rikard Dahle Richard Hughes Verity Mitchell James Brand Michael Stiasny Guy MacKenzie Stephen Hunt Chris Laybutt Rui Dias Maurice Choy Iain Turner Jeremy Wiseman Gavin Kennedy Dominic Nash Fraser M
Slide 47: Engineering & Capital Delivery
Richard Ratcliff Engineering Delivery Director Engineering & Capital Delivery
Slide 48: What does TCQi stand for?
What does TCQi stand for? Time, Cost, Quality index Time Cost Quality The three elements We will deliver a project We will deliver a project The projects we deliver of TCQi contribute to the regulatory standard within the approved will add quality and be of equally to the within the required origina
Slide 49: AMP5 and AMP6 TCQi performance
AMP5 and AMP5/AMP6 TCQi Historic Performance AMP6 TCQi 100 performance 80 Achieving and maintaining industry leading TCQi Change in performance 60 Methodology 40 TCQi Reported Position 20 Equivalent to AMP5 0 Methodology Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 AMP5 AMP6 Capital Marke
Slide 50: Closing the gap and accelerating the capital programme
Closing the gap and accelerating the capital programme 6,500 Net regulatory capex 6,000 UU proposed totex c£600m sustainable cost reductions delivered Totex (£m) through more efficient capital delivery and 5,500 Systems Thinking 5,000 Ofwat proposed totex 4,500 4,000 Jun 14 Sep 14 Dec 13 Jan 14 Feb
Slide 51: Driving £300m of efficiency into the major capital programme
Driving £300m of efficiency into the major capital Based on 40% of the programme programme (£2.3bn) Competitive New Processes - £20m Embedding tender and Delivering Continuous innovation - £20m risk and batching innovation - DfMA - £20m value - £34m (20-35%) £60m Driving a Reducing Changing “best at
Slide 52: Driving holistic solutions through Risk and Value
Driving holistic solutions through Risk and Value Embracing totex and shifting from a capital Risk & Value has been about establishing a mind-set, to ensure that we keep challenging and validating both the need for our projects and bias through the tools that we use and the way we deliver them. The
Slide 53: AMP6 Design & Build delivery model
AMP6 Design & Build delivery model AMP6 (Year 1) AMP6 (Year 2) AMP7 Industry Average Performance Industry Best Performance Driving towards industry best UU labour/non labour and capital overhead costs performance £0.41 £0.36 £0.25 £0.32 £0.25 • Changing from Alliance based model to Design Indirect c
Slide 54: Innovating the way we deliver our capital programme
Innovating the way we deliver our capital programme
Slide 55: Nereda
Nereda To date Nereda has saved £15m of CAPEX, will save £1.9m of OPEX per year and set up four sites for Systems Thinking Kendal WwTW Morcambe WwTW Failsworth WwTW Blackburn WwTW Estimated £1m CAPEX saving Estimated £6.3m CAPEX saving Lowest Whole Life Cost Estimated £7m CAPEX saving compared to co
Slide 56: DfMA and standard products move from innovation to BAU
DfMA and standard products move from innovation to BAU To date £20m of CAPEX savings have been achieved, time related costs are additional. Advance C2V+ MMB LiMA 1 1 1 1 Chorley Settlement DfMA MCC Kiosk, duct pit and tanks design. pre-fabricated transformer walls. 2 2 Valve in a bin installed on Ja
Slide 57: Embracing the digital world
Embracing the digital world Building Information Modelling (BIM) driving asset centric data into an operational world and delivering CAPEX time related savings 2000 2005 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 BIM Level 2 3D First VR BIM 3D modelling first Liverpool BIM BIM strat
Slide 58: Embracing the digital world
Embracing the digital world We are the only water company to have • Written BIM into the AMP6 contracts • Provisioned a client owned Common Data Environment 1st • Documented our Information requirements (S13 specification) • Our own BIM professionals in house • Made 3D modelling and intelligent sche
Slide 59: West Cumbria strategy
West Cumbria strategy Driving programme innovation through planning, procurement and stakeholder management Project Driver • European Habitats directive • Infraction proceedings • Ennerdale Environmental drivers, (compensatory measures) • Examination in Public • Long term resilience for West Cumbria
Slide 60: Sharing Outperformance
Sharing Outperformance Delivering industry leading long term water resilience. Covering of all filters & chambers Engineer lead HAZREV completed at downstream of first stage filters highest risk sites, with ALL WTWs on track for completion Installation of Shut down and Start up Robust service reserv
Slide 61: Haweswater Aqueduct
Haweswater Aqueduct It is UU’s most significant supply asset built between 1930 -1955. It carries treated drinking water over 93km from the Lake District to £235 million investment enabled the HA to be taken out The need for Serving over 2 million Manchester, supplying parts of supply and more resil
Slide 62: Customer service
Louise Beardmore Customer Service and People Director Customer service
Slide 63: Customer Service Strategy
Customer Service Strategy Great Service Costs Less We have a clear strategy in place delivering new services and capabilities to position us now and in the future… Reducing costs …and at the same time we are Improving responding to the unique Service demographics of our region. Capital Markets Event
Slide 64: Customer Service
Customer Service We have improved service, building trust and demonstrating our ability to respond to the needs of our region Speed Friendliness Complaints Customers don’t have Building trust with our Service recovery in opening hours customers place for when we get it wrong Results evident in our U
Slide 65: Industry leading digital capability
Industry leading Ethnographic research identified digital capability potential for the App. Piloted with customer panel Informed by customers and launched in May – first fully integrated app in sector. Our digital channels have grown in scale and sophistication. More than 750,000 We have engaged our
Slide 66: Driving Priority Service offering for our customers
Driving Priority Registrations remain strong and embedded There are now more than 50,000 Priority Launched industry pilot with Electricity Service offering for within core customer touchpoints Services customers registered North West to share priority services data our customers and the Utility Sect
Slide 67: SIM Qualitative Performance
SIM Qualitative Performance Year to date against the WASC’s we are seeing strong performance and encouragingly are significantly ahead of the other two listed companies SIM Qualitative UU Qualitative SIM score vs Industry average WASC Positioning 2017/18 YTD 4.55 4.55 4.49 4.52 4.51 (listed) 4.50 4.
Slide 68: SIM Qualitative All Companies - Upper Quartile
SIM Qualitative All Companies - Upper Quartile SIM Qualitative All Company Positioning 2017/18 YTD 4.60 4.49 4.52 4.51 (listed) 4.50 4.48 4.48 4.47 4.46 4.45 4.42 4.44 4.42 (listed) 4.40 4.38 4.38 4.33 (listed) 4.32 4.30 4.26 4.20 4.17 4.16 4.10 4.00 Anglian Wessex United Portsmouth Northumbrian Wel
Slide 69: SIM Quantitative Performance Complaints
SIM Quantitative Performance Complaints – Stage 1 How are we performing? We have made significant improvements – reducing complaints by over 32% in 2 years We have set ourselves challenging targets on service recovery and continue to see a declining number of complaints across all areas. Complaints
Slide 70: Not just water leading
Organisation Ranking Jan-18 Jan-17 Change Not just UK all-sector average Utilities 78.1 74.4 77.8 74.4 0.3 0.0 water leading OVO Energy Utility Warehouse Bristol Water M & S Energy 81.5 78.9 77.4 77.4 82.5 78.4 N/A 77.0 -1.0 0.5 N/A 0.4 Institute of Customer Service Yorkshire Water United Utilities
Slide 71: Leading the sector on Service
Leading the sector on Service Qualitative + Quantitative Step change in ranking and Leading listed performance trending performance water company for significantly above industry + 7.4 point increase in CCWater customer average 12 months satisfaction research United Utilities is now a leader The mos
Slide 72: Affordability is a challenge
Affordability Regional Levels of Deprivation is a challenge 1% most 5% most 10% deprived deprived most 20% most deprived deprived We have increased the reach of our financial North 52% 35% 28% 22% assistance schemes more than double the West number of customers we had originally North 12% 10% 9% 8%
Slide 73: Our Industry leading approach to Can’t Pay customers
Our Industry leading “Weight off our shoulders” Town action approach to Can’t planning Specialist advice “Guy was brilliant, really helpful” on the Pay customers 45k visits – 100k visits doorstep “Lovely, absolutely brilliant, so nice, helpful” We have fundamentally changed our approach to help Sust
Slide 74: Engage the wider debt community
Engage the wider Stakeholders debt community Charities Our first ever North West affordability Foodbanks summit – launched on ‘blue Monday’ Citizens Advice StepChange DWP Credit unions Debt agencies Housing associations Councils MP/ House of Lords Other utility companies UU Board members Capital Mar
Slide 75: Tackling customer bad debt
Household regulatory bad debt charge across AMP6 (£m) Tackling 80 6.3% 6.5% customer 75 6.0% bad debt 75 70 5.5% 65 5.1% We have delivered substantial 5.0% reductions in regulatory bad £m debt charges and bad debt as 60 60 a % of revenue. Since 2014/15 4.3% 4.5% we have reduced household 55 regulato
Slide 76: Addressing the AMP6 Cost to Serve challenge
Addressing the 55 Cost to Serve - £ per customer AMP6 Cost to 50 45 Serve challenge £ 40 35 Reducing Cost to Serve continues to be a main area 30 of focus. In the last three years we have effectively 14/15 15/16 16/17 17/18 18/19 19/20 reduced Cost to Serve per a customer from over Actual PR14 Allow
Slide 77: Responding to the future challenges
Responding Improved cost drivers to the future Old Cost to Serve model* Number of unique customers Econometric proposed factors Number of unique customers challenges Meter penetration Meter penetration Percentage dual service customers Econometric models for Household Retail Average deprivation leve
Slide 78: Well placed for the next AMP
Well placed for Service Cost Innovation the next AMP Since 2014/15 we have reduced Highest digital presence with regulatory bad debt 44% of customer contacts automated by £24m/yr Industry Leading Improving service and reducing costs for customers today and The highest DD penetration across the indus
Slide 79: External recognition for our great performance
External WOW! Best rising star - Victoria Chester from our Cash Collection Excellence in Treating Customer Vulnerability recognition contact centre in Whitehaven. 100 Club - 30 of our Field staff won the 100 – Collections & Debt Management Credit Awards WINNER May 2017 for our great award as they ha
Slide 80: Summary
Steve Mogford Chief Executive Summary United Utilities Group PLC Capital Markets Event 15 March 2018 Crummock Water
Slide 81: United Utilities is leading the way
United Utilities is leading the way The industry faces many challenges Maintaining United Utilities is now a Environmental Affordability shareholder Reputational returns leader among the WASCs United Utilities is ideally placed to meet these challenges and our innovation capabilities are at the hear
Slide 82: Any questions?
Any questions?
Slide 83: 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