United Utilities Group PLC · LSE:UU.
United Utilities — Investor Presentation (July 2005)
52 slides from United Utilities's investor presentation, Jul 19, 2005
Slide 1: International Financial Reporting Standards (IFRS) Presentation to Analysts and Investors
United Utilities PLC International Financial Reporting Standards (IFRS) Presentation to Analysts and Investors 19 July 2005 www.unitedutilities.com 1
Slide 2: Cautionary statement
Cautionary statement International Financial Reporting Standards (‘IFRS’) are being applied in the European Union for the first time. New standards and interpretations may be issued by IASB and / or endorsed by the EU prior to the completion of our first full reporting period under IFRS on 31 March
Slide 3: Simon Batey, Group Finance Director
Simon Batey Group Finance Director Good morning ladies and gentlemen, and welcome to our presentation on the impacts of International Financial Reporting Standards. With me on the platform is Martin Beesley, Finance Director of our United Utilities North West business, the business which contributes
Slide 4: Agenda
Agenda Simon Batey, • Headlines Group Finance • Background to IFRS Director • United Utilities’ basis of preparation Martin Beesley, Finance Director • Major IFRS adjustments United Utilities • Impact assessment North West • Earnings • Distributable reserves Simon Batey, • Key ratios and financials
Slide 5: IFRS conversion timetable
IFRS conversion timetable 31/03/04 30/09/04 31/03/05 30/09/05 31/03/06 30/09/06 First IFRS Publish First UK GAAP Results Annual Report H1 05/06 and Accounts IFRS Restatement IFRS Reporting Transitional Adoption Date of Date for IFRS IAS 32 and IAS 39 under transitional rules 5 This chart outlines th
Slide 6: Summary
Summary • Overall impact on profit before tax in 2004/05 is not material • Whilst earnings are affected by an increase in reported deferred tax, there is no impact on the group’s cash flow position or financing arrangements • A potential increase in volatility to the income statement is anticipated,
Slide 7: IFRS headlines – effect on 2004/05 income
IFRS headlines – effect on 2004/05 income 800 700 Primarily due to an increase in the deferred 600 tax charge, which is a non-cash item £m (2004/05) 500 400 300 200 100 0 Operating Profit* Profit before Tax* Profit after Tax UK GAAP IFRS 7 * before deferred tax and goodwill and exceptional items (UK
Slide 8: IFRS headlines – summary impact
IFRS headlines – summary impact IFRS UK GAAP Movement Full Year 2004/05 Operating profit £676m1 £692m2 (2%) Profit before tax £395m1 £408m2 (3%) Adjusted Basic EPS 59.5p3 61.4p4 (3%) Basic EPS 36.5p 46.8p (22%) As at 31 March 2005 Net assets £2,144m £3,119m (31%) Net debt £4,279m £4,141m 3% United U
Slide 9: Segmental operating profit
Segmental operating profit £m IFRS1 UK GAAP2 Movement Year ended 31 March 2005 Licensed multi-utility operations 562 588 (26) Infrastructure management 90 79 11 Business process outsourcing 24 26 (2) Telecommunications (5) (5) 0 Other activities 8 8 0 Corporate costs (3) (4) 1 Total operating profit
Slide 10: Martin Beesley
Martin Beesley Finance Director, United Utilities North West Thank you Simon, and good morning ladies and gentlemen. 10
Slide 11: United Utilities' basis of preparation
United Utilities’ basis of preparation • Under IFRS transitional rules, United Utilities has made the following principal choices: – to apply IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Measurement), from 1 April 2005; – to use the f
Slide 12: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 13: Infrastructure Accounting (IAS 16)
Infrastructure Accounting (IAS 16) • Accounting policies applied under UK GAAP in respect of all fixed assets, aside from water and wastewater infrastructure assets, are compliant with IFRS and remain the most representative mechanism by which to record those assets Options Available • In respect of
Slide 14: Infrastructure Accounting (IAS 16) – basis of preparation
Infrastructure Accounting (IAS 16) Basis of Preparation • Under FRS 15: – each infrastructure network is assumed to be one asset – depreciation charged is based on the estimated annual expenditure required to maintain the operating capacity of the network – actual expenditure is then capitalised as
Slide 15: Infrastructure Accounting (IAS 16) – impact
Infrastructure Accounting (IAS 16) Impact • No change to treatment of enhancement and maintenance expenditure – increases in capacity or enhancements of the network are treated as additions – amounts incurred in maintaining the operating capability of the network are expensed in the year • Opening b
Slide 16: IFRS impact – 2004/05 operating profit
IFRS impact – 2004/05 operating profit* 700 £646m (£27m) 650 Operating Profit (£m) 600 550 500 450 400 P ts AA se As G K e U ur ct ru st fra In 16 * after exceptional items and intangibles previously classified as goodwill under UK GAAP and restructuring costs This chart shows the adjustment to oper
Slide 17: IFRS impact – net assets at March 2005
IFRS impact – net assets at 31 March 2005 3500 £3,119m £145m 3000 2500 Net Assets (£m) 2000 1500 1000 500 0 P ts AA se As G K e U ur ct ru st fra In 17 As you can see, net assets increase by around £145 million, net of deferred tax. 17
Slide 18: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 19: Interests in Joint Ventures (IAS 31)
Interests in Joint Ventures (IAS 31) • Under IAS 31 we have the option of adopting equity accounting or proportional consolidation • United Utilities has elected to apply proportional consolidation – this is more representative of the group’s activities – joint venture interest and tax is reflected
Slide 20: Interests in Joint Ventures (IAS 31) adjustments to income
Interests in Joint Ventures (IAS 31) adjustments to income • Proportional consolidation adjusts certain items in the income statement, but the net effect is no impact on profit £m UK GAAP Adjustments IFRS Revenue: group and share of joint ventures 114.3 (30.8) 83.5 Less: share of joint ventures (114
Slide 21: Interests in Joint Ventures (IAS 31) adjustments to assets
Interests in Joint Ventures (IAS 31) adjustments to assets • Proportional consolidation increases non-current assets by £147m and current assets by £75m, offset by an adjustment of £39m to current liabilities and £183m to long-term liabilities £m Adjustments £m Adjustments Intangible assets 11.3 Cur
Slide 22: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 23: Defined Benefit Pension Scheme Accounting (IAS 19)
Defined Benefit Pension Scheme Accounting (IAS 19) • Pension scheme surplus or deficit must be recognised as an asset or liability on the balance sheet – increases profit before tax by £4m, of which £3m relates to a reduction in interest and £1m to an increase in operating profit – reduces net asset
Slide 24: IFRS impact – 2004/05 operating profit
IFRS impact – 2004/05 operating profit* 700 £646m (£27m) 650 £1m Operating Profit (£m) 600 550 500 450 400 P ts ns AA se io ns As G Pe K e U ur ct ru st fra In 24 * after exceptional items and intangibles previously classified as goodwill under UK GAAP and restructuring costs Here you can see a mino
Slide 25: IFRS impact – net assets at March 2005
IFRS impact – net assets at 31 March 2005 3500 £3,119m £145m (£332m) 3000 2500 Net Assets (£m) 2000 1500 1000 500 0 P ts ns AA se io ns As G Pe K e U ur ct ru st fra In 25 This chart highlights the reduction in net assets of £332 million, representing around 10 per cent of the net assets value under
Slide 26: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 27: Business Combinations (IAS 38 / IFRS 3)
Business Combinations (IAS 38 / IFRS 3) • Under IFRS, the recognition test for intangible fixed assets acquired in business combinations is less restrictive than that of UK GAAP – therefore, more intangible assets will be separately identified from goodwill • Goodwill is not amortised under IAS 38,
Slide 28: IFRS impact – 2004/05 operating profit
IFRS impact – 2004/05 operating profit* 700 £646m (£27m) 650 £5m Operating Profit (£m) £1m 600 550 500 450 400 P ns ts ns AA se io tio ns As G na Pe K bi e U ur om ct C ru ss st fra ne In si Bu 28 * after exceptional items and intangibles previously classified as goodwill under UK GAAP and restructu
Slide 29: IFRS impact – net assets at March 2005
IFRS impact – net assets at 31 March 2005 3500 £3,119m £145m (£332m) £3m 3000 Net Assets (£m) 2500 2000 1500 1000 500 0 P ns ts ns AA se io tio ns As G na Pe K bi e U ur om ct C ru ss st fra ne In si Bu 29 As I said, there is a minimal impact on net assets. 29
Slide 30: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 31: Deferred Tax (IAS 12)
Deferred Tax (IAS 12) • IAS 12 does not permit discounting of deferred tax – increases the deferred tax position by £952m; and – increases the 2004/05 tax charge by £66m • Increase in deferred tax liability reduces consolidated retained profit by a corresponding £952m • However, this does not affect
Slide 32: IFRS impact – net assets at March 2005
IFRS impact – net assets at 31 March 2005 3500 £3,119m £145m (£332m) £3m (£952m) 3000 Net Assets (£m) 2500 2000 1500 1000 500 0 P ns ts ns x Ta AA se io tio ns As G d na re Pe K bi e er U ur om ef ct D C ru ss st fra ne In si Bu 32 As you can see, net assets are reduced by around 30 per cent as a re
Slide 33: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 34: Dividends (IAS 10)
Dividends (IAS 10) • IAS 10 deals with events after the balance sheet date • Dividends may not be recognised until they have been appropriately authorised • Since this normally occurs after the balance sheet date, the dividends are not recognised as a liability at the balance sheet date – final divi
Slide 35: IFRS impact – net assets at March 2005
IFRS impact – net assets at 31 March 2005 3500 £3,119m £145m (£332m) £3m (£952m) 3000 Net Assets (£m) 2500 £219m 2000 1500 1000 500 0 ds P ns ts ns x Ta AA se en io tio ns As G d na id re Pe iv K bi e er D U ur om ef ct D C ru ss st fra ne In si Bu 35 The reversal of the 2004/05 final dividend, as a
Slide 36: Major IFRS adjustments representing material differences from UK GAAP
Major IFRS adjustments representing material differences from UK GAAP • Infrastructure Accounting (IAS 16) • Interests in Joint Ventures (IAS 31) • Defined Benefit Pension Scheme Accounting (IAS 19) • Business Combinations (IAS 38 / IFRS 3) • Deferred Tax (IAS 12) • Dividends (IAS 10) • Accounting f
Slide 37: Accounting for Derivatives (IAS 39) – hedging policy
Accounting for Derivatives (IAS 39) United Utilities’ hedging policy • The group typically swaps fixed interest rate and currency debt to a sterling floating interest rate basis at the time of issue (the “Debt Swaps”) – this is a proxy for the index-linked nature of its sterling income streams • The
Slide 38: Accounting for Derivatives (IAS 39) – impact
Accounting for Derivatives (IAS 39) Impact of IAS 39 • United Utilities has elected to apply IAS 39 from 1 April 2005 – the 2004/05 IFRS financial statements therefore reflect derivatives under the existing UK GAAP accounting policy • Under IAS 39, debt is carried at amortised cost whilst derivative
Slide 39: Accounting for Derivatives (IAS 39) – impact
Accounting for Derivatives (IAS 39) Impact of IAS 39 • Due to the restrictions within IAS 39 on demonstrating hedge effectiveness, it will not be possible to apply hedge accounting in respect of the Regulatory Swaps or a small proportion of the Debt Swaps • As a result of IAS 39 adoption, liabilitie
Slide 40: Other IFRS adjustments
Other IFRS adjustments • Other IFRS adjustments affecting United Utilities include: – the impact of fair valuing share options, granted after 7 November 2002, which will have a progressive impact going forward; – adjustments to depreciation and amortisation due to differences between FRS 11 and IAS
Slide 41: IFRS impact – 2004/05 operating profit
IFRS impact – 2004/05 operating profit* Operating profit movement of 1% 700 £646m (£27m) 650 £5m £11m £637m** Operating Profit (£m) £1m 600 550 500 450 400 er P ns ts ns S AA R se th io tio IF O ns As G na Pe K bi e U ur om ct C ru ss st fra ne In si Bu 41 * after exceptional items and intangibles p
Slide 42: IFRS impact – 2004/05 profit before tax
IFRS impact – 2004/05 profit before tax* 450 400 £370m (£27m) Profit Before Tax (£m) £4m £5m £3m £356m** 350 300 250 200 150 100 er P ns ts ns S AA R se th io tio IF O ns As G na Pe K bi e U ur om ct C ru ss st fra ne In si Bu 42 * after exceptional items and intangibles previously classified as goo
Slide 43: IFRS impact – net assets at March 2005
IFRS impact – net assets at 31 March 2005 3500 £3,119m £145m (£332m) £3m (£952m) 3000 Net Assets (£m) 2500 £219m (£58m) £2,144m 2000 1500 1000 500 0 er ds P ns ts ns x S Ta AA R se th en io tio IF O ns As G d na id re Pe iv K bi e er D U ur om ef ct D C ru ss st fra ne In si Bu 43 Whilst net assets
Slide 44: Simon Batey
Simon Batey Group Finance Director Thank you Martin. 44
Slide 45: IFRS impact – 2004/05 earnings per share
IFRS impact – 2004/05 earnings per share Primarily due to an 70 increase in the deferred tax charge, which is a 60 non-cash item 50 pence per share 40 30 20 10 0 Adjusted Basic EPS* Basic EPS UK GAAP IFRS 45 * before deferred tax and goodwill and exceptional items (UK GAAP) and, before deferred tax
Slide 46: Treatment of subsidiary companies under IFRS
Treatment of subsidiary companies under IFRS • IFRS is being adopted by United Utilities PLC (consolidated accounts and parent company accounts) and United Utilities Electricity PLC with effect from 1 April 2005 due to the issuance of listed equity or debt by those entities and the requirement to pr
Slide 47: Retained Earnings
Retained Earnings • The consolidated retained earnings decrease from £1,363m to £225m as a result of IFRS adoption. This is due to: – disallowance of deferred tax discounting (£952m); – recognition of the pensions deficit under IAS 19 (£59m); – derecognition of the SSAP 24 prepayment (£272m); and –
Slide 48: Movement in 2004/05 retained earnings
Movement in 2004/05 retained earnings 1800 No impact on dividend capacity as United Utilities PLC parent company 1600 balance sheet largely unaffected 1400 2004/05 Retained Earnings (£m) 1200 1000 Consolidated 800 United Utilities PLC Parent Company 600 400 200 0 UK GAAP IAS 10 Dividends IAS 12 Defe
Slide 49: IFRS impact on key ratios and financials
IFRS impact on key ratios and financials IFRS UK GAAP Movement EBITDA £1,078m1 £1,058m2 £20m Operating Margin 28.9%1 30.7%2 (1.8%) Interest Cover 2.4x1 2.4x2 - Dividend Cover 1.3x 1.3x - (pre-deferred tax) Dividend Cover 0.9x3 1.1x4 (0.2x) Net Debt £4,279m £4,141m (£138m) Net Debt (excluding £4,141m
Slide 50: Commercial impact
Commercial impact • Regulatory contracts not affected – regulated on a cash tax basis, therefore no deferred tax impact – explicit allowance is made for funding of the relevant elements of the pension scheme deficits • No cash flow or financing implications • No impact on financial covenants • Incre
Slide 51: Summary
Summary • Overall impact on profit before tax in 2004/05 is not material • Whilst earnings are affected by an increase in reported deferred tax, there is no impact on the group’s cash flow position or financing arrangements • A potential increase in volatility to the income statement is anticipated,
Slide 52: 0, United
0, United Utilities
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