United Utilities Group PLC · LSE:UU.
United Utilities — H1 FY2012 Earnings Presentation
49 slides from United Utilities's earnings presentation, November 2011
Slide 1: United Utilities Group PLC Half year results
United Utilities Group PLC Half year results Six months ended 30 September 2011 0
Slide 2: Chief Executive Steve Mogford
CHIEF EXECUTIVE Steve Mogford 1 Good morning and welcome ladies and gentlemen to our half year results presentation. When I presented our results last May, I said that our focus is now on turning UU into one of the UK’s leading water and wastewater service providers with the customer at the core of
Slide 3: Agenda
Agenda Overview Operational performance Political and regulatory update Financial performance Summary Q&A 2 This is the agenda for this morning’s presentation. I’ll provide an update on the business and touch on recent political and regulatory developments, before handing over to Russ who will take
Slide 4: Overview: Operational focus driving improved performance
Overview Operational focus driving improved performance Good financial performance Customer service improving Operational performance improving Regulatory outperformance on track Continued good progress on capex programme Robust capital structure: stable A3 credit rating Sustainable dividend policy:
Slide 5: Operational focus: Early achievements
Operational focus Early achievements Leakage target met in a 1 in a 100 year winter Underlying bad debt reduced from 2.5% to 2.1% of revenue £10m opex outperformance delivered 10/11; £10m on track 11/12 Relative efficiency improved to band A on water service SIM quantitative measure improved by a fu
Slide 6: United Utilities management structure
United Utilities management structure Focus on accountability and delivery Process aligned structure Integrated approach for performance improvements One whole company scorecard with standard KPIs • incentive arrangements aligned with operational performance • range of KPI performance thresholds wit
Slide 7: Operational performance: Best service to customers
Operational performance Best service to customers Lowest sustainable cost Responsible manner 6 We aim to deliver long-term shareholder value by providing the best service to customers, at the lowest sustainable cost and in a responsible manner. So, starting with customer performance. 6
Slide 8: Reduction in customer complaints
Best service to customers Reduction in customer complaints Substantial reduction in escalated complaints in 2010/11 20% reduction in total number of complaints in first half of 2011/12 Significant further reduction in complaints assessed by CCW1 Complaints to CCW Investigations by CCW 350 50 300 Num
Slide 9: Service Incentive Mechanism: Quantitative
Best service to customers - Service Incentive Mechanism Early improvements delivered but more to do Quantitative 44% improvement in 2010/11 vs 2009/10 indicative score Further improvements delivered in first half of 2011/12 4th quartile but making good progress United Utilities Ofwat SIM Quantitativ
Slide 10: Service Incentive Mechanism: Qualitative
Best service to customers - Service Incentive Mechanism Early improvements delivered but more to do Qualitative Improving trend – UU moves up one place into 9th position vs WaSCs1 Good Ofwat SIM Qualitative Performance performer 5 2010/11average 4.8 Q12011/12 4.6 Q2 2011/12 4.4 SIM points 4.2 4 3.8
Slide 11: Ofwat's assessment: first quartile performance
Best service to customers - Ofwat’s assessment UU delivers first quartile performance Consumer experience Reliability and availability Environmental impact Customer Supply Drinking Sewer Serviceability Security of Leakage Measuring Pollution Satisfactory complaints interruptions water flooding suppl
Slide 12: Adoption of private sewers
Best service to customers - Adoption of private sewers Early experience broadly in line with expectations New operating model launched 1 October with extended customer hours Customer contacts broadly in line with expectations Increase in work volumes broadly in line with expectations No change to in
Slide 13: Operational performance: Lowest sustainable cost
Operational performance Best service to customers Lowest sustainable cost Responsible manner 12 Moving on to efficiency. 12
Slide 14: Operational focus delivering improvements
Lowest sustainable cost Operational focus delivering improvements Relative efficiency improvements1 across both services • Band A for water – improved to 2nd position from 5th out of 10 companies • Band C for wastewater – improved one place to 9th position out of 10 companies Water Opex Efficiency 2
Slide 15: Robust supply and demand performance
Lowest sustainable cost Robust supply and demand performance One of only four WaSCs to meet 2010/11 leakage target Year round operational focus on leakage – buffer for winter 1 Ml/d COMPARISON OF WEEKLY DMA LEAKAGE 625 600 575 550 525 500 475 450 425 400 375 350 325 300 275 250 1 3 5 7 9 11 13 15 17
Slide 16: Capital delivery: More disciplined approach
Lowest sustainable cost - Capital delivery More disciplined approach to spend and outputs Time Introduced a Time: Cost: Quality index (TCQi) Sharper focus of delivering commitments Cost Quality TCQi performance up from c50% in 2010/11 to >70% in 2011/12 On track for up to £700m of capex in full year
Slide 17: Operational performance: Responsible manner
Operational performance Best service to customers Lowest sustainable cost Responsible manner 16 Sustainability is fundamental to the way we do business. 16
Slide 18: Improved performance on EA composite index
Responsible manner Improved performance on EA composite index UU moved into a mid-ranking position from fourth quartile Environm ent Agency Overall Perform ance Score Poor performer 90 80 70 EA Points 60 50 40 30 20 10 0 UU Good Year to Dec 08 performer Wa S C Year to Dec 09 Year to Dec 10 17 Enviro
Slide 19: UU leading water company on BiTC and Dow Jones
Responsible manner UU leading water company on BiTC and Dow Jones Business in the Community Platinum Plus ranking World Class rating in Dow Jones Sustainability Index Only six FTSE 100 companies hold both: 18 UU has for many years included corporate responsibility factors as a strategic consideratio
Slide 20: Political and regulatory developments
Political and regulatory developments Key areas of focus Climate change and sustainability • resilience of assets and networks • explore role of water trading and storage options • clarity on accountability and impact of legislation Affordability • proportionate approach to implementing legislation
Slide 21: Chief Financial Officer Russ Houlden
CHIEF FINANCIAL OFFICER Russ Houlden 20 Thank you, Steve. Good morning. Before I start, I’d just like to remind you that, since our regulated water business accounts for virtually all of the group’s revenue and operating profit, we have now adopted a single segment for financial reporting purposes.
Slide 22: Financial performance
Financial performance Half year results Financial risk reduction Financial outperformance vs Final Determination 21 I’ll begin with the half year financial results and then talk about a few changes we have made to reduce risk in the areas of power costs, financing costs and pensions. I’ll then provi
Slide 23: Financial highlights
Financial highlights Good results in a tough economic climate Underlying operating profit of £324m, down 1% Underlying profit before taxation of £185m, down 5% Deferred tax credit of £50m resulting from change in taxation rate Underlying EPS of 19.9 pence, down 2% Interim dividend of 10.67 pence per
Slide 24: Income statement – underlying
Income statement – underlying Good financial performance £m Six months ended 30 September 2011 2010 Continuing operations REVENUE 792.7 762.4 Underlying operating expenses (321.9) (293.0) UNDERLYING EBITDA 470.8 469.4 Depreciation and amortisation (146.6) (141.7) UNDERLYING OPERATING PROFIT 324.2 32
Slide 25: Operating costs
Operating costs IRE up as planned; controllable costs on track £m 2011 2010 Revenue 792.7 762.4 Employee costs (66.0) (67.9) Power (24.4) (24.7) Property rates (37.6) (33.7) 1 (18.0) (17.8) Bad debts Other expenses (109.5) (100.9) (255.5) (245.0) Infrastructure renewals expenditure (IRE) (66.4) (48.
Slide 26: Bad debts and cash collection
Bad debts and cash collection Improvements sustained £m 2009/10 2010/11 2011/12 H1 Regulated revenue1 1,521 1,477 774 Regulated bad debt expense1 38 31 16 Bad debt / regulated revenue 2.5% 2.1% 2.1% Cash collection initiative – 10 point plan progressing well Underlying improvement of £6m+ in bad deb
Slide 27: Financial position
Financial position Robust capital structure £m 30 Sep 11 31 Mar 11 Non-current assets 8,484.3 8,376.1 Retirement benefit surplus 27.9 - Cash 325.2 255.2 Other current assets 389.4 344.4 Total derivative assets 650.2 365.3 Total assets 9,877.0 9,341.0 Gross borrowings (5,833.1) (5,313.3) Other non-cu
Slide 28: RCV and gearing
RCV and gearing1 RCV gearing supports robust capital structure 8600 67% £m 8400 65% 8200 8000 63% 7800 Gearing in the 61% middle of Ofwat’s 7600 range, supporting a solid A3 credit 7400 59% rating 7200 57% 7000 6800 55% 31/03/2010 30/09/2010 31/03/2011 30/09/2011 RCV Gearing 27 1 RCV gearing calcula
Slide 29: Cash flow statement
Cash flow statement Cash flow broadly covers investing activities £m Six months ended 30 September 2011 2010 Net cash generated from operating activities 218.2 330.5 Net cash used in investing activities (225.1) (230.3) 1 80.4 (187.5) Net cash generated from/(used in) financing activities Net moveme
Slide 30: Liquidity
Liquidity Robust financing position Prudent liquidity policy: financing headroom into 2014 Accelerated c£100m of previously agreed pension deficit payments • provides a higher investment return than via short-term deposits • improves pensions position: £28m IAS 19 surplus at 30 September 2011 £400m
Slide 31: Financial risk reduction
Financial performance Half year results Financial risk reduction Financial outperformance vs Final Determination 30 We’ve mentioned previously that we are focusing on improving performance across a broad front. As part of this improvement process, we have been assessing opportunities to reduce furth
Slide 32: Risk reduction - Energy hedging
Risk reduction - Energy hedging Secures opex outperformance UU’s energy hedging strategy extended to cover period to 2015 Majority of electricity prices now fixed to end of five-year period • 2011/12: c100% • 2012/13: c95% • 2013/14: c80% • 2014/15: c75% Key contributor to opex outperformance • sign
Slide 33: Risk reduction – Interest rate hedging policy
Risk reduction – Interest rate hedging policy Debt mix profile seeks to minimise regulatory risk Old policy New policy Fix interest rate on nominal debt at Lock in rolling 10-year average start of 5-year regulatory period (AMP) interest rate on nominal debt Position 3 years into AMP1 Position 3 year
Slide 34: Risk reduction – Pensions
Risk reduction – Pensions Innovative mechanism reduces funding risk Innovative inflation funding mechanism designed to facilitate: • use of UU’s natural RPI hedge • a lower risk investment strategy Natural RPI hedge • pension scheme deficit funding based on fixed 2.75% inflation assumption • UU cont
Slide 35: Financial outperformance vs Final Determination
Financial performance Half year results Financial risk reduction Financial outperformance vs Final Determination 34 I’d like now to provide a brief update on regulatory outperformance, before handing back to Steve. 34
Slide 36: Financial outperformance vs Final Determination
Financial outperformance vs Final Determination On track to deliver targets On track to deliver £50m of opex outperformance across 2010-15 • £10m achieved in 2010/11 • on track for a further £10m in 2011/12 On track to deliver capex for regulatory allowance Financing outperformance of c£300m at RPI
Slide 37: Chief Executive Steve Mogford
CHIEF EXECUTIVE Steve Mogford 36 Thank you, Russ. 36
Slide 38: Summary
Summary Operational focus driving improved performance Good financial performance Delivering operational improvements Improving trend on relative efficiency and customer service On track to deliver outperformance targets Robust capital structure and sustainable dividend policy Interim ordinary divid
Slide 39: Q&A
Q&A 38 That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 38
Slide 40: Supporting information
Supporting information Reported income statement Underlying profit before tax Finance expense Movement in net debt Financing and liquidity Term debt maturity profile Debt structure 39 39
Slide 41: Income statement – reported
Income statement – reported Deferred tax credit enhances earnings £m Six months ended 30 September 2011 2010 Continuing operations REVENUE 792.7 762.4 Operating expenses (323.5) (309.2) EBITDA 469.2 453.2 Depreciation and amortisation (146.6) (141.7) OPERATING PROFIT 322.6 311.5 Investment income an
Slide 42: Profit before tax
Profit before tax Reflects inflationary impact on finance expense £m 2011 2010 Operating profit 322.6 311.5 Investment income and finance expense (198.2) (189.3) Profit before tax 124.4 122.2 Adjustments: 1 One-off items 1.6 16.2 Net fair value losses on debt and derivative instruments 55.9 53.2 Int
Slide 43: Finance expense
Finance expense Underlying interest rate broadly flat £m 2011 2010 Investment income 1.7 1.2 Finance expense (199.9) (190.5) (198.2) (189.3) Less net fair value losses on debt and derivative instruments 55.9 53.2 Adjustment for interest on swaps and debt under fair value option 3.8 2.0 Adjustment fo
Slide 44: Finance expense: index-linked debt
Finance expense: index-linked debt Cash benefit for the group £m 2011 2010 Cash interest on index-linked debt (21.5) (19.5) 1 (35.6) (32.2) RPI adjustment to index-linked debt principal - 3 month lag 2 (21.2) (17.7) RPI adjustment to index-linked debt principal - 8 month lag Finance expense on index
Slide 45: Movement in net debt
Movement in net debt1 Increase in line with expectations 6,000 90.4 312.6 £m 94.4 136.3 224.0 5,010.3 5,000 4,777.8 4,000 Net debt at Net capex Dividends Interest & tax Non-cash Operating cash Net debt at 1/4/11 movements & flow 30/9/11 other 44 1 Net debt includes derivatives which incorporate regu
Slide 46: Financing & liquidity as at 30 September 2011
Financing & liquidity as at 30 September 2011 Gross debt = £5,833.1m Headroom / prefunding = £508.8m 1 Other borrowings, £348.4m Yankee bonds £m (USD), £744.0m EIB loans, £200.0m Euro bonds (EUR), Cash and short-term deposits 325.2 £477.2m EIB index-linked 2 loans, £868.9m Medium-term committed bank
Slide 47: Term debt maturity profile
Term debt maturity profile1 Average term to maturity over 25 years 3,000 2,000 £m 1,000 0 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 2055-60 Years 46 1 Future repayments of index-linked debt include inflation based on an average annual RPI rate of 2.75% 46
Slide 48: Debt structure at 30 September 2011
Debt structure at 30 September 2011 United Utilities Group PLC United Utilities PLC Baa1 stable; BBB- stable Yankees: Euro MTN: Other debt: • $250m in 18’s •£6.5m in 13’s • Short-term loans £71m • $350m in 19’s • $400m in 28’s United Utilities Water PLC A3 stable; BBB+ stable Ring-fenced and regulat
Slide 49: 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
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