United Utilities Group Plc · LSE:UU.
United Utilities — H1 2013/14 Earnings Presentation
43 slides from United Utilities's earnings presentation, Nov 27, 2013
Slide 1: Half year results, six months ended 30 September 2013
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Slide 2: Welcome and overview of progress over the last six months
Good morning and welcome ladies and gentlemen. This morning Russ and I will provide you with a brief overview of our progress over the last six months. It has been another good period for the business with us making progress against our strategy on all fronts. You will see that customer satisfaction
Slide 3: Agenda
This is the agenda for this morning's presentation. 3
Slide 4: Customer centric strategy and AMP6 sector change
Two years ago we adopted a customer centric strategy focussed on delivering class leading customer satisfaction. We have made good progress and, as you will see in a few moments, we are no longer the sector laggard. In fact, we are the most improved water and wastewater company in the sector. We kno
Slide 5: Domestic retail: Ofwat SIM performance
So, starting with our domestic retail business. The Ofwat Service Incentive Mechanism, or SIM, has provided us with a great litmus test of how well we are delivering. Over the last two years of SIM measurement we have progressed from last, among the ten water and sewerage companies, to joint fifth l
Slide 6: Quantitative SIM trendlines
This chart shows the exponential trendlines of water and sewerage companies’ quantitative SIM scores, using performance to date. You will recall that quantitative SIM measures the avoidable contacts companies receive from customers. As you can see, all companies have improved with us improving the m
Slide 7: Qualitative SIM trendlines
You will recall that the qualitative SIM score measures customers’ satisfaction with how their contact with a company was handled. Again, we are one of the most improved companies and on a convergence path with the best. High performing companies are now clustered with very few SIM points between th
Slide 8: Improving the customer experience
Since 2010, every year we have continued to improve the customer experience. Customers dissatisfied with our handling of their complaint can refer the matter to the Consumer Council for Water (CCW). It is testimony to our improved handling arrangements that the number of such referrals has reduced s
Slide 9: Opening of the business retail market to competition
In 2011 we undertook a detailed study into the implications of opening the business retail market to wider competition. This led to the recruitment of a team experienced in retail competition in the utility and other sectors to deliver our strategy for this area. Over this period the UK Government r
Slide 10: Scottish business retail market wins
In October 2012, we were granted a licence to trade in Scotland and have since won customers with over 1,500 sites representing an annual revenue of around £6 million. In this short period we have become the second largest water retailer in Scotland after the incumbent, Business Stream, and we conti
Slide 11: Wholesale business
Now, onto our Wholesale business. 11
Slide 12: Ofwat KPI assessment
This table shows Ofwat’s latest KPI assessment for the ten water and sewerage companies. Once again we have delivered an above average performance and the best among the listed companies. In the previous year, we had four amber scores and no reds. In 2012/13 we halved our amber scores, but we did ha
Slide 13: Capital delivery and TCQi performance
I’ll briefly cover capital delivery and Russ will talk in more detail about our opex performance later in the presentation. In previous presentations I have talked about how we use our Time, Cost and Quality index, or TCQi, to measure how well we are delivering our capital programme. We have made go
Slide 14: Wholesale target operating model
Our Wholesale business has seen a lot of change over the last two years. The fact that we have delivered significant improvement in performance whilst undergoing considerable change in process, technology, organisation and people is testament to the commitment of our Wholesale team. We have develope
Slide 15: Sharing benefits with customers
Before passing over to Russ, I would like to touch on how we are sharing benefits with our customers. 15
Slide 16: Sharing tax refund and outperformance with customers
We previously announced £240 million of capex and financing outperformance reinvestment for the benefit of customers and the environment. In addition to this, there has been a recent development in the sector in respect of taxation. HMRC and water companies have recently reached an agreement regardi
Slide 17: Financial review
Thank you, Steve. Good morning. 17
Slide 18: Financial results summary and interim dividend
This is another good set of results in a tough economic climate. An increase in revenue, tight cost control and a lower tax rate combined to increase underlying operating profit by 9 per cent, underlying profit before tax by 14 per cent and underlying EPS by 19 per cent. We have responsible financin
Slide 19: Adjustments from reported to underlying profit
As usual we have made some adjustments to reported profit to get to underlying profit, which we believe gives a more representative view of underlying performance. We had a £100 million fair value gain in the half year, largely due to gains on the regulatory swap portfolio, resulting from a signific
Slide 20: HMRC tax agreement
As Steve mentioned, we have recently reached agreement with HMRC on historical tax matters covering a period of over ten years. The agreement principally relates to revised tax treatment in respect of capital expenditure, particularly regarding the abolition of industrial buildings allowances, or IB
Slide 21: Underlying income statement
This is a summary of the underlying income statement after making the adjustments shown on the earlier slide. Revenue for the half year of £853 million was up £30 million, or 3.7 per cent, similar to the allowed regulated price increase of 4.0 per cent nominal (3.0 per cent RPI inflation plus a 1.0
Slide 22: Operating cost performance
Our cost performance in this period has been good. Employee costs have decreased by £5 million, mainly reflecting an increased proportion of capex activity, supported by a tightly controlled pay award. Power costs have increased by £1 million and rates and bad debts were similar to the first half of
Slide 23: Bad debt performance
On to our bad debt performance. We recognise the financial difficulties facing many of our customers and provide a range of options to help those who are struggling to pay their bills. However, we continue with our robust approach to those customers who can afford to pay but choose not to. We have d
Slide 24: Statement of financial position
Turning now to the statement of financial position. Property, plant and equipment was up £185 million in the first half of the year to just over £9 billion, as we continue to make good progress on our capex programme. Cash and short term deposits of £53 million were £149 million lower than the posit
Slide 25: RCV and gearing
This chart shows our RCV and gearing level. The blue bars, representing RCV, have been adjusted to reflect actual capital expenditure to date, consistent with the regulatory treatment expected at the next price review. These bars show our steady growth in RCV. The green line shows the movement in RC
Slide 26: Cash flow
Moving on to cash flow. Net cash generated from operating activities was £383 million, up £118 million compared with the first half of last year. This increase was mainly as a result of lower pension contributions and an increase in operating profit. Cash used in investing activities increased mainl
Slide 27: Performance against regulatory financial targets
And finally, an update on our performance against our key regulatory financial targets and how our good performance is benefiting customers. We have now delivered cumulative opex outperformance of over £50 million in the first three and a half years of this regulatory period. In respect of capex, we
Slide 28: Thank you, Russ
Steve Mogford Q United Utilities Thank you, Russ.
Slide 29: AMP6 business plan and customer priorities
Companies are due to release their AMP6 business plans by Monday 2 December. In building our plan we have taken account of the views of over 27,000 customers and other stakeholders to understand their priorities. An overriding message that came back from customers is that they are content with exist
Slide 30: Affordability as driver of AMP6 plan
Affordability has been the principal concern for customers and the overriding driver for our plans. 86 per cent of domestic customers surveyed expressed support for a plan in which prices increased by no more than inflation over AMP6. And three quarters of business customers support a plan where ave
Slide 31: Summary
So in summary, we have delivered another good financial performance and are on track to deliver our objectives for AMP5. We said that we would significantly improve customer satisfaction and we are the most improved water and waste water company, with opportunity to do more. We said that we would im
Slide 32: Questions
That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 32
Slide 33: Supporting information
Supporting information Reported income statement Underlying profit before tax Finance expense Derivative analysis Movement in net debt Financing and liquidity Term debt maturity profile Debt structure United Utilities 33
Slide 34: Income statement - reported
Income statement - reported Tax credits enhance reported earnings £m Six months ended 30 September 2013 2012 Contmumg operatiOns (Restated') Revenue 853.3 822.9 Operating expenses (348.3) (348.6) EBITDA 505.0 474.3 Depreciation and amortisation (163.3) (160.2) Operating profit 341 .7 314.1 Investmen
Slide 35: Underlying profit before tax
£m Six months ended 30 September 2013 2012 Contmumg operations 1 Operating profit 341 .7 314.1 2 Investment income and finance expense (6.7) (174.7) 12 Profit before tax ' 335.0 139.4 Adjustments: 3 One-off items 1.5 0.6 Net fair value (gains)/losses on debt and derivative instruments (100.0) 49.4 I
Slide 36: Finance expense
Finance expense Underlying interest rate similar to prior period £m Six months ended 30 September 2013 2012 Contmwng operations Investment income 1.2 1.3 1 (7.9) (176.0) Finance expense (6.7) (174.7) Less net fair value (gains)/losses on debt and derivative instruments (100.0) 49.4 Adjustment for in
Slide 37: Underlying finance expense on index-linked debt
£m Six months ended 30 September 2013 2012 Continuing operations Cash interest on index-linked debt (24.4) (23.4) 1 RPI adjustrrent to index-linked debt principal - 3 rmnth lag (30.0) (29.7) 2 (14.5) (13.0) RPI adjustrrent to index-linked debt principal- 8 rmnth lag Finance expense on index-linked d
Slide 38: Derivative analysis
£m 30 Sep 13 31 Mar 13 Derivatives hedging debt 551.2 719.0 Derivatives hedging interest rates to 2015 (86.8) (120.9) Derivatives hedging interest rates beyond 2015 (3.6) (70.8) Derivatives hedging commodity prices (7.1) (6.1) Total derivatives assets and liabilities (slide 24) 453.7 521 .2 • Deriva
Slide 39: Movement in net debt
Movement in net debt* Small increase in line with expectations 6,500 - 93.6 74.2 6,000 156.0 476.7 335.2 £m 5,450.6 5,484.5 5,500 5,000 4,500 Net debt at Net capex DIVIdends Interest & tax Non~sh Operating cash Net debt at 31/03113 movements & flow 30/0911 3 other- " Net debt includes derivatives wh
Slide 40: Financing and liquidity
Gross debt = £5,991.2m Headroom I prefunding =£273.1 m .. .; ,r . . EIB and other borrowings, £304.lm ...... • Euro bonds (EUR), £477.3m Cash and short-term deposits Medium-term committed bank facilities Short-term debt 2 £m 53.0 350.0 (129.6) / Term debt maturing within one year (0.3) ... ... ... .
Slide 41: Term debt maturity profile
Term debt maturity profile 1 Average term to maturity of c25 years 4,000 3,000 £m 2 .000 1,000 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 2055-QO Years 1 Future repayments of index-linked debt include 1nflation based on an average annual RPI rate of 3% 41 41
Slide 42: United Utilities Water PLC debt structure
Yankees: Other debt: • $250m in 18s • Short-te rm loans £56m • $350m in 19s • $400m in 28s United Utilities Water PLC A3 stable, BBB+ pos1t1ve outlook R1ng-fenced and regulated by Ofwat Euro MTNs: Other debt: • £425m in 15s • £50m in 32s 1 • £100m in 42s1 • EIB index-linked loans £1 ,000m1 • ¥5bn in
Slide 43: Forward-looking statements
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 differ materially from tho
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