United Utilities Group Plc · LSE:UU.
United Utilities — H1 2019/20 Earnings Presentation
47 slides from United Utilities's earnings presentation, November 2019
Slide 1: Half year results
United Utilities Group PLC Half year results Six months ended 30 September 2019 Grasmere
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 Thirlmere
Slide 4: Delivering in AMP6, well prepared for AMP7
Delivering in AMP6, well prepared for AMP7 Delivering against our AMP6 targets and more Consistently improving customer Delivering against tough targets; AMP6 satisfaction; outperforming on SIM ODI outperformance of around in AMP6 £50m anticipated Sharing outperformance through £100m totex outperfor
Slide 5: Transformation in performance
Transformation in performance Significant improvements in operational performance and customer service Measure Improvement1 CCW Water Investigations 100% 2nd level written complaints 97% SIM 82% Customer minutes lost 64% DWI category 3 or higher events 79% Properties internally flooded (hy
Slide 6: Leading customer service
Leading customer service Customer satisfaction in the upper quartile SIM ranking 1 3 5 7 9 11 13 15 17 19 21 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 United Utilities ranking Average WaSC position United Utilities • 2019/20 half year results 6
Slide 7: Strong SIM performance
Strong SIM performance Eligible for SIM outperformance payment 2018/19 SIM performance 74.00 76.00 78.00 80.00 82.00 84.00 86.00 88.00 90.00 Improving customer Anglian Portsmouth satisfaction United Utilities South West Bournemouth Wessex 22% fewer contacts Welsh Water than industry average South St
Slide 8: Good service costs less
Good service costs less Driving down bad debt and cost to serve whilst improving customer service Driving down bad debt Efficient costs Household bad debt as a percentage On track to hit AMP6 average cost to of regulated revenue reduced to 1.8% serve allowance 1.8% for H1 2019/20 from 2.1% for H1
Slide 9: Leading ODI outperformance for 2018/19
Leading ODI outperformance for 2018/19 Earned the highest ODI outperformance in the sector for 2018/19 performance 2018/19 ODI performance Reward / (Penalty) £m (60) (50) (40) (30) (20) (10) 0 10 20 Top performing United Utilities company on ODIs in Anglian Yorkshire 2018/19 South West Wessex Provid
Slide 10: AMP6 ODI outperformance
AMP6 ODI outperformance Anticipate cumulative AMP6 outperformance of around £50m Cumulative AMP6 Accelerated investment £50m outperformance Delivering sustained expected improvements in Systems Thinking, Driven performance performance against innovation and new to top end of the tougher targets ways
Slide 11: Systems Thinking delivering performance
Systems Thinking delivering performance Case study: Burst on water main affecting water supply to 32,500 households A traditional water Process with company process Systems Thinking 12 12 11 1 11 1 10 2 10 2 9 3 9 3 8 4 8 4 7 5 7 5 6 6 7 hour loss of supply 2 hours proactive planning in ICC 32,500 h
Slide 12: West Cumbria strategy
West Cumbria strategy Long-term resilience project on track to deliver £22.5m ODI outperformance Environmental driver 98km pipeline, 80ML/d treatment works, 2 service reservoirs, 2 pumping stations £300m scope project West Cumbria Innovation delivered throughout pipeline On track to deliver early an
Slide 13: Public interest at our heart
Public interest at our heart Delivering responsibly for customers, the environment and society Operating in the public interest United Utilities • 2019/20 half year results 13
Slide 14: Russ Houlden, Chief Financial Officer
Russ Houlden Chief Financial Officer 14 Haweswater Reservoir
Slide 15: Underlying income statement
Underlying income statement Six months ended 30 September 2019 2018 Movement £m Revenue 935.5 916.4 19.1 Operating expenses (276.5) (276.8) Infrastructure renewals expenditure (68.0) (80.8) EBITDA 591.0 558.8 Depreciation and amortisation (199.3) (191.0) Operating profit 391.7 367.8 23.9 Net finance
Slide 16: Underlying operating costs
Underlying operating costs Six months ended 30 September 2019 2018 Movement £m Revenue 935.5 916.4 19.1 Employee costs (73.3) (75.4) 2.1 Hired and contracted services (47.2) (45.7) (1.5) Property rates (39.3) (45.6) 6.3 Materials (36.9) (38.2) 1.3 Power (36.6) (32.5) (4.1) Regulatory fees (14.1) (16
Slide 17: Financial position
Financial position At 30 Sep 2019 31 Mar 2019 Movement £m Property, plant and equipment 11,359 11,153 206 Retirement benefit surplus 699 484 215 Other non-current assets 416 442 (26) Cash 622 339 283 Other current assets 306 281 25 Total derivative assets 696 489 207 Total assets 14,098 13,188 910 G
Slide 18: Pensions
Pensions United Utilities’ pensions are fully funded on a self-sufficiency basis IAS19 surplus, no funding IFRS pensions surplus deficit 5,000 £699m surplus 4,500 £215m £344m £484m £248m surplus £220m £326m surplus 4,000 surplus surplus surplus surplus Low risk assets, hedged for £79m £275m 3,500 su
Slide 19: The pensions valuation gap
The pensions valuation gap Company pension position is a significant component of economic value 2016 2019 Full normalised IFRS 0 2 132p per share 0 1 Full IFRS 1 4 102p per share 10 8 No adjustment 8 0 0p per share United Utilities • 2019/20 half year results 19
Slide 20: RCV
RCV Net additions and inflation driving RCV growth Regulatory Capital Value (RCV) RCV growth driven by 13,000 investment and inflation 12,000 11,000 Additional outperformance £m 10,000 investment is contributing to 9,000 RCV growth 8,000 7,000 Indexation of RCV is part of Sep-11 Sep-12 Sep-13 Sep-14
Slide 21: RCV gearing
RCV gearing RCV gearing supports robust capital structure RCV gearing 75% 70% 65% RCV gearing within our 60% target range, supporting a solid A3 credit rating 55% 50% 45% Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Uni
Slide 22: Cash flow statement
Cash flow statement Six months ended 30 September 2019 2018 £m Net cash generated from operating activities 364.1 438.2 Net cash used in investing activities (306.0) (300.6) Net cash generated from / (used in) financing activities 221.4 (399.4) Net movement in cash 279.5 (261.8) United Utilities • 2
Slide 23: Financing
Financing Prefunding AMP7 with headroom out to 2021 Committed bank Index-linked Nominal facilities CPI-linkage increased to £250m public bond issue New £50m committed bank with 14-year maturity facilities signed for initial 5-year £465m through £100m tap term of 2031 public bond and swapped to CPI £
Slide 24: Cost of debt and hedging
Cost of debt and hedging Delivering significant financing outperformance Inflation Interest rate Hedging c50% of net debt to be maintained in Maintain a fixed rate, 10 year policy index-linked form reducing balance on nominal debt c£3.5bn of RPI- c£0.5bn of CPI- Debt linked debt at an linked debt at
Slide 25: Financial summary
Financial summary Delivering in AMP6 and prepared for AMP7 Fully funded pension on a self- Good set of results, maintaining sufficiency basis – a significant tight cost control component of economic value Delivering financing Sector leading financial resilience outperformance in AMP6 and for the lon
Slide 26: Steve Mogford, Chief Executive
Steve Mogford Chief Executive Thirlmere
Slide 27: Totex run rate on target
Totex run rate on target AMP6 investment delivering efficiencies to be sustained in AMP7 Totex1 1,400 DPC 1,200 1,000 Capex 800 Capex Capex £m 600 IRE IRE IRE 400 200 Opex Opex Opex 0 2015/16 2019/20 AMP7 average Source: Company PR19 business plan submission, September 2018 1 2017/18 prices, includi
Slide 28: Network delivery transformation
Network delivery transformation Already delivering efficiencies underpinning PR19 business plan Integration with Better financial deal Single contract customer service teams Closer to the Consistent approach for customer customer interaction Multiple smaller contracts Ability to work across Increase
Slide 29: AMP7 capital delivery approach
AMP7 capital delivery approach Capital delivery partners appointed Appointed two capital delivery partners as preferred bidders for over £300m of AMP7 capital programme Closer more Leveraging design collaborative working efficiencies and delivering relationship with partners significant cost savings
Slide 30: Prepared for AMP7
Prepared for AMP7 Progressing with £100m investment to give a flying start to AMP7 Targeted investment £100m reinvestment impacting key ODIs already committed • Noise loggers • Installation of new pipes • High frequency pressure Leakage and supply loggers interruptions Total • Pressure management va
Slide 31: Summary
Summary Delivering against our AMP6 targets and more Delivered in AMP6 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Prepared for AMP7 United Utilities • 2019/20 half year results 31
Slide 32: Any questions?
Any questions?
Slide 33: Supporting information
Supporting information 1. Revenue analysis 2. Profit before tax reconciliation 3. Profit after tax reconciliation 4. Finance expense 5. Finance expense: index-linked debt 6. Derivative analysis 7. IFRS pension surplus (normalised) 8. Net regulatory capital spend profile 9. Impact of IFRS16 10. Movem
Slide 34: Revenue analysis
Revenue analysis Six months ended 30 September 2019 2018 £m Wholesale water charges 398.4 383.4 Wholesale wastewater charges 465.4 460.7 Residential retail charges 44.7 45.9 Other 27.0 26.4 Revenue 935.5 916.4 United Utilities • 2019/20 half year results 34
Slide 35: Profit before tax reconciliation
Profit before tax reconciliation Six months ended 30 September 2019 2018 £m Operating profit 383.0 339.1 Investment income and finance expense (182.2) (82.9) Share of profits of joint ventures (5.7) 3.4 Reported profit before tax 195.1 259.6 Adjustments: Dry weather event - 25.0 Restructuring costs
Slide 36: Profit after tax reconciliation
Profit after tax reconciliation Six months ended 30 September 2019 2018 £m Reported profit after tax 158.6 212.5 Adjustments: Dry weather event - 25.0 Restructuring costs 8.7 3.7 Net fair value losses / (gains) on debt and derivative instruments 62.6 (43.7) Interest on derivatives and debt under fai
Slide 37: Finance expense
Finance expense Six months ended 30 September 2019 2018 £m Investment income 11.7 7.8 Finance expense (193.9) (90.7) (182.2) (82.9) Less net fair value losses / (gains) on debt and derivative instruments 62.6 (43.7) Adjustments for interest on derivatives and debt under fair value option 10.1 18.7 A
Slide 38: Finance expense: index-linked debt
Finance expense: index-linked debt Six months ended 30 September 2019 2018 £m Interest on index-linked debt (25.5) (24.3) RPI adjustment to index-linked debt principal – 3 month lag1 (61.8) (56.4) CPI adjustment to index-linked debt principal – 3 month lag2 (4.9) (2.2) RPI adjustment to index-linked
Slide 39: Derivative analysis
Derivative analysis At 30 September 2019 2018 £m Derivatives hedging debt 683.4 546.1 Derivatives hedging interest rates (139.8) (25.4) Derivatives hedging commodity prices 1.0 12.4 Total derivative assets and liabilities (slide 17) 544.6 533.1 • Derivatives hedging debt; hedge our non index-linked
Slide 40: IFRS pension surplus normalised
IFRS pension surplus normalised UU IFRS pension surplus (normalised1) 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 UU - IFRS position UU normalised to SVT UU normalised to PNN Source: Companies’ annual report and accounts 1 Normalised for inflation, discount
Slide 41: Net regulatory capital spend profile
Net regulatory capital spend profile 900 800 700 600 500 400 300 200 100 - 2015/16 2016/17 2017/18 2018/19 2019/20 FD scope capex Outperformance sharing Dry weather FD assumed capex The UU AMP6 investment programme on this chart does not constitute a forecast and is subject to change. United Utiliti
Slide 42: Impact of IFRS 16
Impact of IFRS 16 • IFRS 16 effective from 1 April 2019 • £55m lease liability brought onto the statement of financial position as at 1 April 2019 • Corresponding £55m lease asset also brought onto the statement of financial position as at 1 April 2019 • In 2019/20, expect the lease asset to be depr
Slide 43: Movement in net debt
Movement in net debt 7,500 21.4 2.8 7,346.3 70.9 54.5 101.1 7,067.3 465.2 187.7 7,000 321.3 £m 9.9 6,500 6,000 Net debt at Operating Loans to joint Net capex Dividends Interest and Inflation Movement in Fair value Other Net debt at 31/03/2019 cash flow ventures taxation uplift on lease movements 30/
Slide 44: Financing and liquidity as at 30 September 2019
Financing and liquidity as at 30 September 2019 Gross debt = £8,512.5m Headroom / prefunding = £716.1m £54.5m, Lease Obligations £686.8m, Other borrowings £409.6m, Yankee bonds (USD) £590.7m, Other EIB loans £m £642.0m, Euro bonds (EUR) £220.0m, GBP Fixed rate & RPI Cash and short-term deposits 621.
Slide 45: Term debt maturity profile as at 30 September 2019
Term debt maturity profile as at 30 September 20191 Average term to maturity of just under 20 years 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 • 2019/20 half year results 45
Slide 46: Debt structure at 30 September 2019
Debt structure at 30 United Utilities Group PLC September 2019 United Utilities PLC Baa1 stable; BBB negative; A- stable6 Yankees: Other debt: • $400m in 28s • Short-term loans £100m United Utilities Water Limited A3 stable; A- negative; A- stable6 Ring-fenced and regulated by Ofwat Euro MTNs: Other
Slide 47: EIB funding maturity profile
EIB funding maturity profile Notes Future repayments of EIB RPI linked debt include inflation based on an average annual RPI rate of 3%. Dark blue areas represent EIB loans currently drawn and outstanding. Light blue areas represent a further £250m AMP6 loan assuming this will be signed and drawn in
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