United Utilities Group Plc · LSE:UU.
United Utilities — FY2015 Earnings Presentation
50 slides from United Utilities's earnings presentation, May 2015
Slide 1: United Utilities Group PLC Full year results
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Slide 2: Welcome and introduction to full year results
Good morning ladies and gentlemen and welcome to our full year results presentation. Russ and I gave our first of these in 2011 – only a few months after I joined the company. We set out our objectives for AMP5, with a view to becoming one of the best water and wastewater companies in the UK and, as
Slide 3: Agenda
This is the agenda. I’ll briefly cover our AMP5 achievements and then hand over to Russ to take you through our financial performance. I’ll touch on some of the key points from the price review before covering the changes to the way we run the business – we refer to it as ‘systems thinking’ – and th
Slide 4: AMP5 achievements
In AMP5, we set out to significantly improve performance and give ourselves a good platform for the 2015-20 period. I will pick out just a few of the key achievements from this slide. We were the most improved water company for customer satisfaction and ended last year with another upper quartile pe
Slide 5: Thank you, Steve. Good morning.
Thank you, Steve. Good morning. 5
Slide 6: Looking at the financials
So, looking at the financials. 6
Slide 7: Financial highlights
This is another good set of results. A 2 per cent increase in revenue along with tight cost control contributed to a 5 per cent increase in underlying operating profit. This is after the impact of the previously announced special one-off customer discount, which is part of our responsible approach t
Slide 8: Adjustments to reported 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 £105 million fair value loss in the year, largely due to losses on the swap portfolio which fixes rates for the regulatory per
Slide 9: Underlying income statement
This is a summary of the underlying income statement after making the adjustments shown on the previous slide. Revenue for the year of £1.72 billion was up £31 million, or 1.9 per cent, after adjusting for the special customer discount of £21 million. Underlying operating profit of £664 million was
Slide 10: Operating costs
We have continued to manage our cost base tightly. Overall, our total operating expenses, including IRE and depreciation, was virtually unchanged. As you can see on the slide, there were a number of offsetting cost movements between the two years. I will not focus on each item individually, but I wo
Slide 11: Bad debt
We highlighted in May 2014 that debt collection was likely to become more challenging for UU, particularly as our region suffers from high levels of income deprivation. Notwithstanding our industry-leading debt management processes and wide-ranging schemes to help customers struggling to pay, depriv
Slide 12: Statement of financial position
Turning now to the statement of financial position. Property, plant and equipment was up £398 million in the year to £9.7 billion, reflecting our large capital programme. Cash and short term deposits of £244 million were £128 million higher than last year, mainly as a result of our new £100 million
Slide 13: RCV and gearing
This chart shows our RCV and gearing level. The blue bars show the growth in our RCV. The green line shows the movement in RCV gearing since we completed our non- regulated disposal programme. Our gearing has increased by around one per cent over the course of the year and is now 59 per cent, reflec
Slide 14: Cash flow
Moving on to cash flow. Net cash generated from operating activities was £707 million, a reduction of £91 million compared with last year. This decrease mainly reflects the one-off tax rebate received in the prior year. Cash used in investing activities increased mainly because of the planned increa
Slide 15: Financing requirements and activity
Over AMP6 we have financing requirements totalling around £2.5 billion, to meet a combination of refinancing and incremental debt, to help fund our 2015-20 investment programme. We are already off to a very good start. During 2014/15, we drew down an additional £250 million on our £500 million EIB l
Slide 16: Hedging update
And finally, an update on our hedging. As a reminder, we leave the equity portion of the RCV exposed to RPI inflation by hedging the debt portion of the RCV for inflation through index-linked debt and the effect of our pension scheme liabilities. Reflecting our strength in treasury management over m
Slide 17: Financial summary
So, in summary: • this is another good set of results; • we have exceeded our 2010-15 regulatory outperformance targets; • we have a strong balance sheet and solid credit ratings; • we have a made a very good start on our financing requirements for the next regulatory period; • we have locked in a l
Slide 18: Steve Mogford, Chief Executive
CHIEF EXECUTIVE Steve Mogford Thanks, Russ. @ United Utilities 18
Slide 19: Overview of final determination
Before looking at the changes in the way we are running the business, I will give you a brief overview of our final determination. 19
Slide 20: Steps toward AMP6 totex allowance
This picture illustrates the steps toward our AMP6 totex allowance. Our original business plan, submitted in December 2013, proposed water and wastewater totex of approximately £5.9 billion. Ofwat responded with an initial assessment of around £4.7 billion – a gap of £1.2 billion – and identified th
Slide 21: Outcome Delivery Incentives
Another new development for this regulatory period is Outcome Delivery Incentives or ODIs. Our final determination includes 18 wholesale ODIs. This chart identifies the potential outturn range for each ODI, covering 80 per cent of the probability range. You can see that the risk is skewed to the dow
Slide 22: Transforming the way we run the company
The turnaround of the business in AMP5 has its origins in good management practice – constancy of purpose, clear objectives, attention to detail, good people and performance management. But it was also clear to us that we could be even better if we transformed the way we run the company, breaking aw
Slide 23: Systems thinking key areas of focus
As I mentioned earlier, we have been progressively transforming the way we work over the last four years. This slide shows five of the key areas of focus. The first is to think of the assets across our region as components in a big system. This ‘systems thinking’ drives out benefits from integration
Slide 24: Real-time visibility of asset performance
Our people have responded positively to our production line approach, embracing the focussed responsibility and empowerment it has conveyed on production teams. Rather than simply operating the assets they were given, teams are now focussed on optimising the cost of delivery of our services at presc
Slide 25: Integrated control centre and asset reliability
Our new integrated control centre, or ICC, opened last month. We’ve been driving this hard over the last couple of years, investing in a new digital network with over 3,000 facilities now able to talk to each other and the ICC over our data highway. We are now beginning to share real time informatio
Slide 26: Wholesale water
First, our wholesale water business area. I have previously said that we have one of the most integrated water networks in the UK. This provides an excellent opportunity to apply systems thinking. In water we have implemented a new planning and control system across our 93 water factories. This brin
Slide 27: Wholesale wastewater and sludge to energy
Next our wholesale wastewater business. Here we have undertaken pilot projects to manage production across a catchment from control centres on large sites. This has proven to be particularly effective in our rural catchments where we have large numbers of small remote sites that would otherwise requ
Slide 28: Energy
Energy is the third of our wholesale business areas. Supplementing the electricity we generate from sludge, we created an energy business to exploit other opportunities using the company’s land and assets. Including our sludge to energy programmes, we have increased energy production from our facili
Slide 29: Capital delivery
The improvements in our project management capability in the last regulatory period were a key factor in delivering our asset serviceability commitments without penalty – reversing the historic trend. Our time cost and quality index, TCQi, for 2014/15 was again very good at over 95 per cent, across
Slide 30: Looking at our retail businesses
Now, looking at our retail businesses. 30
Slide 31: Household retail
We made enormous strides in the last regulatory period to improve domestic retail customers’ experience of doing business with us. As a result, customer complaints are down by approximately 75 per cent across the 2010-15 period, enabling us to reduce headcount in our domestic retail area by around 1
Slide 32: Business retail
And last but not least, business retail. Our early preparation for opening of the business retail market places us in a strong position. We continue to win business in the Scottish market having secured over 200 customers covering over 2,800 sites across Scotland and representing future annual reven
Slide 33: KPIs for 2015-20
Before finishing I’d like to take you through the KPIs we plan to use to provide you with transparency of our performance across 2015-20. We’ll be using a mix of existing and new measures, which reflect the revised structure, features and value drivers of this price control. We have again categorise
Slide 34: KPIs: customer service
Here is the first set of KPIs. For our ODIs, to keep things simple, we will report one aggregate number each year, which represents our composite performance, providing a net reward or penalty position. This supersedes the previous serviceability KPI. SIM will remain a KPI and will be measured for t
Slide 35: KPIs: lowest sustainable cost
Our KPIs have evolved to reflect the opportunities under the new totex price control. Totex outperformance measures for water and wastewater will replace the previous separate opex and capex outperformance measures. The targets we set will be based around a five-year cumulative position, similar to
Slide 36: KPIs: responsible manner
Although leakage is included within our ODIs, we will continue to report this separately as it remains a matter of great interest to stakeholders. Our environmental performance is also of great interest to the communities we serve and we will publish this aspect of our performance as measured by the
Slide 37: Summary and outlook
And finally, I’ll now finish with a brief summary and outlook. 37
Slide 38: Summary and outlook
We can report another good year of performance and a pleasing end to AMP5. We’ve achieved good progress by any measure over the last regulatory period, with significant improvements in customer satisfaction, upper quartile operational and environmental performance and substantial improvements in cap
Slide 39: Questions
That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 39
Slide 40: 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 Y United Utilities 40
Slide 41: Income statement - reported
Income statement — reported Tax credits enhance prior year earnings £m Year ended 31 March Continuing operations Revenue 1,720.2 Operating expenses (714.3) EBITDA 1,005.9 Depreciation and amortisation (352.6) Operating profit 653.3 Investment income and finance expense (316.8) Share of profits of jo
Slide 42: Underlying profit before tax
nderlying profit before tax Increase on last year £m Year ended 31 March Continuing operations Operating profit Investment income and finance expense Share of profits of joint ventures Profit before tax Adjustments: One-off items? Net fair value losses/(gains) on debt and derivative instruments Inte
Slide 43: Finance expense
Finance expense Underlying interest charge lower £m Year ended 31 March Continuing operations Investment income Finance expense Less net fair value losses/(gains) on debt and derivative instruments Adjustment for interest on swaps and debt under fair value option Adjustment for net pension interest
Slide 44: Finance expense: index-linked debt
Finance expense: index-linked debt Cash benefit for the group £m Year ended 31 March 2014 Continuing operations (Restated') Cash interest on index-linked debt (50.0) (49.0) RPI adjustment to index-linked debt principal - 3 month lag” (21.9) (52.6) RPI adjustment to index-linked debt principal - 8 mo
Slide 45: Derivative analysis
Derivative analysis Derivatives intrinsically linked to debt £m At31 March 20 2014 Derivatives hedging debt 677.6 482.5 Derivatives hedging interest rates to 2015 (6.7) (59.3) Derivatives hedging interest rates beyond 2015 (189.2) (3.1) Derivatives hedging commodity prices (4.3) (10.3) Total derivat
Slide 46: Movement in net debt
Movement in net debt* Moderate increase in line with expectations Net debt at Net capex Dividends interest & tax Non-cash Operating cash Net debt at 3103/14 "* movements & flow 3103/15 other * Net debt includes derivatives which incorporate regulatory swaps ** The comparatives have been restated to
Slide 47: Financing and liquidity at March 2015
ancing and liquidity at 31 March 2015 Gross debt = £6,645.4m Other — Yankee - borrowings, bonds Other EIB" ¢5g6.2m (USD), loans £782.5m £350.0m Euro bonds EIB index- (EUR), linked and £424.1m other index- linked loans, £1,372.5m 7 GBP bonds, SEP index £1,718.8m linked bonds, £1,711.3m Headroom / pre
Slide 48: Term debt maturity profile
Term debt maturity profile’ Average term to maturity of over 20 years 3,000 1,000 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 2055-60 Years Future repayments of inked debt include inflation based on an average annual RPI rate of 3%
Slide 49: Debt structure at March 2015
Debt structure at 31 March 2015 + index-linked finance Euro MTNs: + £50min 32s" +£100min 35s" +£35min 37s" +£70min 39s" *£100min 40s" +£50min 41s" United Utilities Group PLC United Utilities PLC stable; BBB- stable Yankees: United Utilities Rii anced and *£100min 42s* +£50min 43s' +£50min 46s" *£50m
Slide 50: 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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