United Utilities Group Plc · LSE:UU.
United Utilities — H1 2018/19 Earnings Presentation
47 slides from United Utilities's earnings presentation, November 2018
Slide 1: Half year results
United Utilities Group PLC Half year results Six months ended 30 September 2018
Slide 2: 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 3: Steve Mogford, Chief Executive
Steve Mogford Chief Executive United Utilities Group PLC Capital Markets Event 15 March 2018 Crummock Water
Slide 4: AMP6 targets on track
AMP6 targets on track Totex Outcome Delivery Incentives (ODIs) AMP6 net reward of £0 - £30m expected £100m outperformance against FD assumption Systems Thinking Successfully mitigated downside risk and driving efficiency into the Forecast performance around the top quartile – £250m capital programme
Slide 5: Sustained excellence
Sustained excellence Significant and wide ranging evidence across many areas of strong operational performance Environment Drinking water quality Assessed as 4* by the EA for three consecutive Top WaSC for Mean Zonal Compliance years Most improved company in 2017 Resilience Leakage One of the best p
Slide 6: Leading customer service
Leading customer service Now expect to be eligible for a SIM reward of £11 million or more in AMP6 88.00 87.15 86.33 85.85 3 year average combined SIM 34% 86.00 84.62 (listed) 83.50 34% reduction in 84.00 83.50 (listed) 83.44 Industry average1 stage 1 complaints 81.61 82.00 80.00 78.00 76.00 77.47 7
Slide 7: Innovation in customer service
Innovation in customer service Improved customer service whilst reducing cost – cost to serve reduced from over £50 to £38 51,133 Registered for UU app £4.2 million Payments made via app to date Over 750,000 customers 92 customers registering for the app, registered for My Account on average, every
Slide 8: Bad debt and cash collection
Bad debt and cash collection Driving down bad debt Household bad debt as a Industry leading approach to percentage of regulated revenue affordability support reduced to 2.1% for H1 2018/19 from 2.5% for H1 Winner of 2017/18 Responsible Approach to Consumers CICM British Credit Awards 2018 Improving
Slide 9: Service recognition
Service recognition Only listed water to achieve Service Mark with Distinction Customer sentiment scores well compared with leading brands Step change in ranking and performance Most improved utility First out of the 10 water and wastewater companies Only listed water to achieve Service Mark with Di
Slide 10: Technology enabled performance
Technology enabled performance Innovation and Systems Thinking making a difference to sustainable long-term performance A ‘digital twin’ Virtual Reality (VR) Employee / Augmented ‘ideas pool’ Reality (AR) Artificial Intelligence Laser scanning to produce Employee innovation app 3D models Scalability
Slide 11: Resilient services
Resilient services Systems Thinking helping combat the challenge of climate change Integrated Control Intelligent network Production Centre (ICC) management planning 2018 has seen some exceptional System Alternative Supply Proactive customer periods of severe weather. The visualisation Vehicles comm
Slide 12: Phil Aspin, Group Controller
Phil Aspin Group Controller 12 Haweswater Reservoir
Slide 13: Reported income statement
Reported income statement Six months ended 30 September 2018 2017 Movement £m Revenue 916.4 876.0 Operating expenses (386.3) (348.9) EBITDA 530.1 527.1 Depreciation and amortisation (191.0) (185.3) Operating profit 339.1 341.8 Investment income and finance expense (82.9) (104.6) Share of profits of
Slide 14: Underlying income statement
Underlying income statement Six months ended 30 September 2018 2017 Movement £m Revenue 916.4 876.0 40.4 Operating expenses (276.8) (276.9) Infrastructure renewals expenditure (80.8) (69.8) EBITDA 558.8 529.3 Depreciation and amortisation (191.0) (185.3) Operating profit 367.8 344.0 23.8 Net finance
Slide 15: Underlying operating costs
Underlying operating costs Six months ended 30 September 2018 2017 Movement £m Revenue 916.4 876.0 Employee costs (75.4) (72.6) (2.8) Hired and contracted services (45.7) (46.1) 0.4 Property rates (45.6) (42.6) (3.0) Materials (38.2) (32.6) (5.6) Power (32.5) (31.9) (0.6) Bad debts (13.2) (14.8) 1.6
Slide 16: Financial position
Financial position At 30 Sep 2018 31 Mar 2018 Movement £m Property, plant and equipment 10,944.3 10,790.5 153.8 Retirement benefit surplus 326.3 344.2 Other non-current assets 443.9 421.1 Cash 259.6 510.0 (250.4) Other current assets 305.5 302.2 Total derivative assets 607.3 635.5 (28.2) Total asset
Slide 17: Pensions
Pensions Fully hedged for inflation and interest rates IFRS pensions surplus 4,500 £215m £248m £344m 4,000 surplus surplus £220m surplus £326m Low risk corporate surplus surplus £275m bonds and gilts 3,500 £79m surplus surplus £126m surplus 3,000 2,500 Interest rate risk fully £m 2,000 hedged in the
Slide 18: RCV gearing
RCV gearing RCV gearing supports robust capital structure 75% 70% 65% RCV gearing within our 60% target range, supporting a solid A3 credit rating 55% 50% 45% United Utilities • 2018/19 half year results 18
Slide 19: Cash flow statement
Cash flow statement Six months ended 30 September 2018 2017 £m Net cash generated from operating activities 438.2 411.6 Net cash used in investing activities (300.6) (330.6) Net cash used in financing activities (399.4) (228.4) Net movement in cash (261.8) (147.4) United Utilities • 2018/19 half yea
Slide 20: Financing
Financing Headroom out to 2020 Index-linked £165m CPI-linked raised previously £711m RPI-linked raised previously c£2.3bn of Nominal c£2.5bn AMP6 £1,433m raised previously financing already raised £50m additional tap of £300m public bond during period Headroom to Committed bank facilities 2020 £50m
Slide 21: Cost of debt and hedging
Cost of debt and hedging Delivering significant financing outperformance Inflation hedging Index-linked debt c50% of net debt c£3.8bn maintained in index-linked index-linked Average cost of form 1.3% real Interest rate hedging Nominal debt Maintain a c£3.2bn fixed rate, 10 year nominal debt reducing
Slide 22: Financial summary
Financial summary Delivering in AMP6 and prepared for AMP7 Good results Financing outperformance Good set of results, maintaining tight Delivering significant financing cost control outperformance in AMP6 Financial resilience Prepared for AMP7 Sector leading financial resilience for Current position
Slide 23: Steve Mogford, Chief Executive
Steve Mogford Chief Executive United Utilities Group PLC Capital Markets Event 15 March 2018 Crummock Water
Slide 24: PR19 – our business plan for 2020-2025
PR19 – our business plan for 2020-2025 Trusted to deliver value, transparently, every day Executive summary Voice of the Addressing Delivering long- Great service to – trusted to deliver customer: our affordability and term resilience customers value, transparently, approach to vulnerability every d
Slide 25: Delivering in all key areas
Delivering in all key areas A compelling proposition of lowering prices and improving services Customer Affordability Resilience Innovation service 10.5% real terms price Stretching performance Reducing operational risk Foundations laid in AMP5 reduction targets Exemplar corporate and Innovation Hub
Slide 26: Efficiency in wholesale, efficiency in retail
Efficiency in wholesale, efficiency in retail We have stepped up to the efficiency challenge ahead of AMP7 6600 200 180 6400 160 33.1 6200 445 53.8 140 6000 120 359 27.2 5800 £m £m 100 6,469 5600 80 231 145.8 60 5400 97.9 40 5200 5,434 20 5000 0 AMP5 Innovation Market Cost AMP7 2014/15 Input price B
Slide 27: ODI opportunity
ODI opportunity Forecast performance at 0 to +£30m AMP6 £140m reward potential P10 P50 P90 £416m reward AMP7 proposal potential P10 P50 P90 United Utilities • 2018/19 half year results 27
Slide 28: Opportunity in retail
Opportunity in retail Forecast performance at +£11m AMP6: £37m reward SIM potential P10 P50 P90 AMP7 proposal: £71m reward C-MeX & D- potential MeX P10 P50 P90 United Utilities • 2018/19 half year results 28
Slide 29: Summary
Summary High performing in AMP6 and confident for AMP7 Operational performance Systems Thinking Wide ranging evidence across many Systems Thinking is making a substantive areas of strong operational difference to long-term, sustainable, performance operational performance and financial performance O
Slide 30: Any questions?
Any questions?
Slide 31: Supporting information
Supporting information 1. Revenue analysis 2. Profit before tax reconciliation 3. Profit after tax reconciliation 4. Dry weather event costs 5. Finance expense 6. Finance expense: index-linked debt 7. Derivative analysis 8. IFRS pension surplus (normalised) 9. Net regulatory capital spend profile 10
Slide 32: Revenue analysis
Revenue analysis Six months ended 30 September 2018 2017 £m Wholesale water charges 383 361 Wholesale wastewater charges 461 436 Household retail charges 46 46 Other appointed revenue 15 13 UU Water appointed 905 856 UU Water non-appointed 3 4 Non-UU Water 8 16 Revenue 916 876 United Utilities • 201
Slide 33: Profit before tax reconciliation
Profit before tax reconciliation Six months ended 30 September 2018 2017 £m Operating profit 339.1 341.8 Investment income and finance expense (82.9) (104.6) Share of profits of joint ventures 3.4 5.1 Reported profit before tax 259.6 242.3 Adjustments: Flooding incidents in Dec 15 (net of insurance
Slide 34: Profit after tax reconciliation
Profit after tax reconciliation Six months ended 30 September 2018 2017 £m Reported profit after tax 212.5 197.4 Adjustments: Flooding incidents in Dec 15 (net of insurance proceeds recognised) - (0.1) Non-household retail market reform1 - 1.0 Dry weather event 25.0 - Restructuring costs 3.7 1.3 Net
Slide 35: Dry weather event costs
Dry weather event costs Six months ended 30 September 2018 £m Capex 8.8 IRE 6.8 Opex 18.2 Totex 33.8 £25m of costs recognised as an adjusting item for the 6 months to 30 September 2018 Total dry weather event costs are estimated to be c£80m with the majority of spend in the second half of the year r
Slide 36: Finance expense
Finance expense Six months ended 30 September 2018 2017 £m Investment income 7.8 5.2 Finance expense (90.7) (109.8) (82.9) (104.6) Less net fair value gains on debt and derivative instruments (43.7) (34.5) Adjustments for interest on derivatives and debt under fair value option 18.7 8.8 Adjustment f
Slide 37: Finance expense: index-linked debt
Finance expense: index-linked debt Six months ended 30 September 2018 2017 £m Cash interest on index-linked debt (24.3) (23.9) RPI adjustment to index-linked debt principal – 3 month lag1 (56.4) (75.3) CPI adjustment to index-linked debt principal – 3 month lag2 (2.2) (1.8) RPI adjustment to index-l
Slide 38: Derivative analysis
Derivative analysis At 30 September 2018 2017 £m Derivatives hedging debt 546.1 723.6 Derivatives hedging interest rates (25.4) (85.9) Derivatives hedging commodity prices 12.4 (6.1) Total derivative assets and liabilities (slide 16) 533.1 631.6 • Derivatives hedging debt; hedge our non index-linked
Slide 39: IFRS pension surplus normalised
IFRS pension surplus normalised UU IFRS pension surplus (normalised1) 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 Mar-15 Mar-16 Mar-17 Mar-18 UU - IFRS position UU normalised to SVT UU normalised to PNN Source: Companies’ annual report and accounts 1 Normalised for inflation, discount rate and mor
Slide 40: Net regulatory capital spend profile
Net regulatory capital spend profile 900 800 700 £m 600 500 400 2015/16 2016/17 2017/18 2018/19 2019/20 Total Net Reg capex FD assumed capex The UU AMP6 investment programme on this chart does not constitute a forecast and is subject to change United Utilities • 2018/19 half year results 40
Slide 41: Regulatory capital value (RCV)
Regulatory capital value (RCV) Inflation and net additions driving RCV growth Regulatory Capital Value (RCV) 12,000 11,500 11,000 10,500 10,000 £m 9,500 9,000 8,500 8,000 7,500 7,000 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Unite
Slide 42: Movement in net debt
Movement in net debt 7,000 67.1 6.0 2.5 6,914.1 6,867.8 507.1 68.9 180.6 297.5 6,500 69.2 £m 6,000 5,500 5,000 Net debt at Operating Fair value Net capex Dividends Interest and Inflation uplift Loans to joint Other Net debt at 31/03/18 cash flow movements taxation on index- ventures 30/09/18 linked
Slide 43: Financing and liquidity
Financing and liquidity Gross debt = £7,706.8m Headroom / prefunding = £426.5m £625.5m, Other borrowings £630.1m, Yankee bonds (USD) £m £637.3m, Euro bonds (EUR) £621.9m, Other EIB loans Cash and short-term deposits 259.6 Medium-term committed bank facilities 1 650.0 Short-term debt (205.1) £1,579.3
Slide 44: Term debt maturity profile
Term debt maturity profile 1 Future repayments of index-linked debt include inflation based on an average annual RPI rate of 3% and an average annual CPI rate of 2% United Utilities • 2018/19 half year results 44
Slide 45: Debt structure
Debt structure United Utilities Group PLC United Utilities PLC Baa1 stable; BBB stable Yankees: Other debt: • $350m in 19s • Short-term loans £131m • $400m in 28s United Utilities Water Limited A3 stable; A- stable Ring-fenced and regulated by Ofwat Euro MTNs: Other debt: • €500m in 20s • £35m in 37
Slide 46: EIB funding maturity profile
EIB funding maturity profile EIB funding maturity profile 1200 1000 £m 800 600 400 200 0 To 31 Mar 2020 2020-25 2025-30 2030-35 2035-40 Existing EIB funding Additional EIB funding Notes Future repayments of EIB RPI linked debt include inflation based on an average annual RPI rate of 3%. Light blue a
Slide 47: PR19 timetable
PR19 timetable Ofwat’s initial assessment of business plans expected in January 2019 Ofwat initial assessment of Slow track draft business plans determination 31 Jan 2019 July 2019 Exceptional / Fast track Final determination draft determination Dec 2019 Mar/Apr 2019 Oct Nov Dec Jan Feb Mar Apr May
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