United Utilities Group Plc · LSE:UU.
United Utilities — FY2017/18 Earnings Presentation
49 slides from United Utilities's earnings presentation, 2018
Slide 1: 1
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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 Mog ore Chief Executive ‘ seal WIT YVNTTUNY United Wy y Utilities Na “Ding ise Ow S™OOthyy
Slide 4: Welcome to full year results presentation
Good morning ladies and gentlemen and welcome to our full year results presentation. The water sector is in the spotlight more than it has ever been before, but here at United Utilities, we are well placed to meet the challenges faced by the industry. As you will see in today’s presentation, we are
Slide 5: Highlights from today's presentation
This slide gives the highlights from today’s presentation. Our innovative Systems Thinking approach is radically changing the way we operate, setting new benchmarks for the sector. We have delivered efficiencies in our totex programme to meet our AMP6 allowance and we are now also confident that we
Slide 6: Culture of innovation and Systems Thinking
Now for some of the detail, and firstly, our deeply embedded culture of innovation that is helping to improve the service we provide – putting customers first is always our priority. We are rapid adopters of new technology and our Innovation Lab, where we work closely with suppliers that may have pr
Slide 7: Totex outperformance of £100 million
Moving on now to totex, and as I mentioned earlier, we are now confident of outperforming our totex allowance for AMP6 by £100 million. This has been achieved through a combination of driving efficiency into our capital programme and Systems Thinking. Firstly, we have radically changed the business
Slide 8: Additional investment in resilience
Our position on totex coupled with our financing outperformance means that we are able to share our net outperformance against the AMP6 regulatory contract through additional investment in resilience. We have already committed to investing £100 million of our outperformance in AMP6 and today, we are
Slide 9: Customer satisfaction performance
Now turning to customer satisfaction. We are delighted with another step change in performance this year. We achieved our highest ever scores against Ofwat’s qualitative SIM measure, finishing sector first in the final survey of the year and third for the year overall. On quantitative performance we
Slide 10: Customer service benchmarks
And when we talk about great customer service, we are not only referring to Ofwat’s SIM measure against which we are a leader. Against the cross sector Institute of Customer Service index, we are in an upper quartile position and the most improved utility company. We are the best listed performer ag
Slide 11: Regulator performance metrics
Our leading status is reflected in the key performance metrics used by our quality regulators. We have held the Environment Agency’s top, four star status for the last two years and will retain it once again, for a third time, this year. Our pollution performance is the best in the sector, as is our
Slide 12: Thanks Steve and good morning everybody
Thanks Steve and good morning everybody. 12
Slide 13: Performance against ODIs
This slide summarises our performance against our ODIs for the year, and also the cumulative position over the first three years of AMP6. As you can see, our position over the first three years of the AMP is in positive reward territory; well ahead of our initial expectations. Our performance for th
Slide 14: West Cumbria pipeline project
One of our major capital projects this AMP is the £300 million West Cumbria pipeline project to provide a secure, long-term water supply for the area and to ease pressure on environmentally sensitive local water resources. This project is unique in our capital programme in that it has its own indivi
Slide 15: Leakage performance
Leakage is a measure that is important to customers and will be given significant focus as part of PR19. In the first three years of AMP6, we have performed well against our leakage ODI earning a cumulative reward of just over £9 million, and having beaten our regulatory leakage target for over a de
Slide 16: Thank you Steve and good morning
Thank you Steve and good morning. 16
Slide 17: Reported results for year ended 31 March 2018
We have delivered another good set of results for the year ended 31 March 2018. Reported operating profit of £636 million was up £31 million, mainly due to our allowed regulatory revenue changes and lower operating costs partly offset by a higher depreciation charge. Reported profit before tax of £4
Slide 18: Underlying income statement
Now let’s turn to the underlying income statement, which we believe is more representative of underlying business performance. The detailed adjusted items are shown in the profit after tax reconciliation in the appendix to this presentation. Revenue of £1.7 billion was up £32 million. This largely r
Slide 19: Underlying operating costs
We have again managed to maintain tight cost control on our underlying cost base against a backdrop of rising inflation. Total underlying operating expenses increased by £10 million, or less than 1 per cent compared with last year. This increase is primarily the result of an expected £12 million inc
Slide 20: Household bad debt
The excellent work undertaken by our customer facing team continues with our household bad debt tracking at its lowest ever level of 2.3 per cent of regulated revenue, an improvement from 2.5 per cent for last year and a significant improvement from the 3.7 per cent we experienced in 2014/15. Our ba
Slide 21: Statement of financial position
Turning to the statement of financial position. Property, plant and equipment was up £385 million and net debt was up £289 million, reflecting expenditure on our large capital programme. We continue to have an IAS 19 retirement benefit surplus, which I will talk about on the next slide. Cash and sho
Slide 22: Pensions position
Now let’s take another look at our sector leading pensions position. Pension deficits are a form of debt. The Employer Debt Regulations 2005 legally established deficits as debt. The ratings agencies treat them as debt, and now, Ofwat rightly considers pension deficits to be a debt obligation in its
Slide 23: RCV growth
Moving now to our RCV. This chart shows the growth in our RCV due to inflation and net additions resulting from our investment. For this regulatory period, the RCV has been adjusted to reflect the acceleration of our investment programme. Inflation is a key component of our RCV growth and periods of
Slide 24: RCV gearing
This chart shows the movement in RCV gearing over the last seven years. For many years we have maintained a consistent policy of supporting a solid A3 credit rating with Moody’s by targeting an RCV gearing of 55 – 65 per cent. We believe this to be a responsible position, helping to secure the susta
Slide 25: Cash flow
Turning now to cash flow. Net cash generated from operating activities was £816 million, largely reflecting operating profit adjusted for depreciation. Net cash used in investing activities was £723 million, largely reflecting net capital expenditure in the regulated water and wastewater investment
Slide 26: Financing requirements and raising
Over the 2015-20 regulatory period, we have financing requirements totalling around £2.5 billion, of which we have now raised over £2.2 billion and have financing headroom out to 2020. We remain the sector leader in the issuance of CPI-linked debt having previously raised £165 million, in response t
Slide 27: Cost of debt
And now turning to our cost of debt. The average cost of our £3.7 billion long-term index-linked debt portfolio is 1.3 per cent real, with the most recent issuances at lower rates, reflecting the current interest rate environment. In respect of our nominal debt, this is virtually all fixed for the 2
Slide 28: Hedging policy
And finally, with regards to hedging we have a strong track record of aligning our financial risk management with the regulatory model. Historically, our inflation hedging policy has been to leave the equity portion of the RCV exposed to RPI inflation by largely hedging the debt portion of the RCV f
Slide 29: Summary of financial performance
So to summarise our financial performance: This is another good set of results in which we have continued to maintain tight cost control. Our strong balance sheet, relatively low gearing, financial risk management and pensions position are sector leading and provide financial resilience for the long
Slide 30: Gearing and balance sheet strength
Thanks Russ. So as you can see, our gearing and balance sheet strength put us in a strong position opposite the challenges the sector is facing. 30
Slide 31: Behaving responsibly
I now want to talk about why we believe behaving responsibly is so fundamentally important. In many ways, we have the benefit of being a listed company with all the rigour, scrutiny and transparency that this brings. We do, however, go much further than the requirements of our listed status. Our app
Slide 32: Launch platform for AMP7 and PR19
Although we are still only two thirds of the way through this regulatory period eyes are turning to the next price review, PR19 covering the period 2020 to 2025 – AMP7. We have given ourselves a good launch platform for AMP7. We have used AMP6 to establish ourselves as a leader in the sector. If you
Slide 33: Summary
So, in summary: As attention turns to AMP7 I am delighted with what we have achieved so far in AMP6. Putting customers first has always been our priority and their trust and confidence in us is evident in their feedback – whichever metric one uses. We are a leading performer in the sector. We were c
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Slide 35: Supporting information
Supporting information 2017/18full year results * S Pn Pe & PS Revenue analysis Profit before tax reconciliation Profit after tax reconciliation Finance expense Finance expense: index-linked debt Derivative analysis IFRS pension surplus (normalised) Net regulatory capital spend profile Movement in n
Slide 36: Revenue analysis
Revenue analysis £m Year ended 31 March UU Water appointed UU Water non-appointed Non-UU Water Revenue 36
Slide 37: Profit before tax reconciliation
Profit before tax reconciliation 2018 2017 Operating profit 636.4 605.5 Investment income and finance expense (206.6) (189.0) Profit on disposal of non-household retail business - 22.1 Share of profits of joint ventures 2.3 3.8 Reported profit beforetax 432.1 442.4 Adjustments: Flooding incidents in
Slide 38: Profit after tax reconciliation
Profit after tax reconciliation 2018 2017 Reported profit after tax 356.4 433.9 Adjustments: Floodi lents in Dec 15 (net of insurance proceeds recognised) 17 15 Non-household retail market reform* 1.0 5.8 Restructuring costs 6.0 10.1 Profit on disposal of non-household retail business - (22.1) Net f
Slide 39: Finance expense
Finance expense Investment income Finance expense Less net fair value (gains)/losses on debt and derivative instruments Adjustment for interest on swaps and debt under fair value option Adjustment for net pension interest income Adjustment for capitalised borrowing costs Underlying net finance expen
Slide 40: Finance expense: index-linked debt
Finance expense: index-linked debt £m Year ended 31 March aoe aor Cash interest on inde) (47.8) (48.2) RPI adjustment to index-| pal — 3 month lag* (107.8) (65.6) CPI adjustment to index-linked debt principal — 3 month lag? (3.7) - RPI adjustment to index-linked debt principal — 8 month lag? (26.3)
Slide 41: Derivative analysis
Derivative analysis £m At31 March gore Ce Derivatives hedging debt 585.5 810.0 Derivatives hedging interest rates (50.1) (243.0) Derivatives hedging commodity prices (0.9) Total derivatives assets and liabilities (slide 21) 534.5 * Derivatives hedging debt; hedge our non index-linked debt into sterl
Slide 42: UU IFRS pension surplus normalised
UU IFRS pension surplus normalised for different assumptions UU’s Mar-17 IFRS pension surplus increases by c£350m if normalised? for Severn Trent’s or Pennon’s assumptions 4 Adjusting for inflation, discount rate and mortality assumptions UU IFRS pensions surplus (normalised) 700 Mar-15 Mar-16 ——UU
Slide 43: Net regulatory capital spend profile
Net regulatory capital spend profile 700 E a 400 2015/16 2016/17 2017/18 2018/19 2019/20 mmm UU capex == FD assumed capex NB. The UU AMP6 investment programme shown on this chart does not constitute a forecast and is subject to change 43
Slide 44: Movement in net debt
Movement in net debt? Net debt at Operating Fair value Dividends Interest and Net capex Loans to jointinfiation uplift Other —Net debt at 3103/17 cashflow movements taxation ventures onindex- 3103/18 linked debt 1 Net debt includes derivatives whic! incorporate regulatory swaps 44
Slide 45: Financing and liquidity at March 2018
Financing and liquidity at 31 March 2018 Gross debt = £7,912.3m £584.6m, Other borrowings £780.1m, Yankeebonds (USO) £636.1m, Euro bonds £637.5m, Other EIB loans, (EUR) £1,571.2m, EIB andother RPI Vinked loans £1,544.2m, GBP bonds £168.0m, GBP CPI linked bonds £1,990.6m, GBP RPI linked bonds Headroo
Slide 46: Term debt maturity profile
Term debt maturity profile as at 31 March 20181 Average term to maturity of just under 20 years 3,000 To31Mar 2020 2020-25 2025-30 2030-35 2038-40 2040-45 2045-50 2050-55 2055-60 Years Future repayments of index-linked debt include inflation based on an average annual RPI rate of 3% and an average a
Slide 47: Debt structure
Debt structure at 31 March 2018 1 RPI linked finance 2 CPi linked finance 2 United Utilities Water Finance PLC (UUWF) is 2 financing subsidiary of United Utilities Water Limited (UUW) established to issue new listed debt on behalf of UUW. Notes issued by UUWF are unconditionally and irrevocably guar
Slide 48: European Investment Bank funding maturity profile
E u ro pe a n EIB funding maturity profile 1200 Investment Bank _,,. funding maturity profile ° * = L LL To 31 Mar 2020 2020-25 2025-30 2030-35 2035-40 8 £m m Existing EIB funding —_ = Additional E1B funding Notes Future repayments of EIB RPI linked debt include inflation based on an average annual
Slide 49: PR19 timetable
PR19 timetable Ofwat initial assessment of Slow track draft business plans determination > Late Jan 2019 > suly 2019 Companies submit business Exceptional / Fast track plans > draft determination oa ae 3 Sep 2018 Mar/Apr 2019 2018 2019 2020 49
United Utilities Group — FY2017/18 Earnings Presentation on 6ix