United Utilities Group Plc · LSE:UU.
United Utilities — FY2020 Earnings Presentation
53 slides from United Utilities's earnings presentation, May 22, 2020
Slide 1: Full year results
Full year results Year ended 31 March 2020 United Utilities Group PLC
Slide 2: Sir David Higgins, Chairman
2019/20 full year results Sir David Higgins Chairman
Slide 3: Steve Mogford, Chief Executive
2019/20 full year results Steve Mogford Chief Executive
Slide 4: COVID-19
COVID-19 Great service in challenging times Around 60% of workforce working from home Increasing the number of customers eligible for social tariff support £3.5m available immediately for those most in need Accelerating payments to suppliers Limited exposure to business retail failure United Utiliti
Slide 5: Exceeded our targets in AMP6
Exceeded our targets in AMP6 Executed and delivered our strategy Relentless focus on Delivered customers outperformance Accelerated Systems Thinking Fast track investment and innovation business plan Motivated and engaged Sharing workforce outperformance To provide great water and more for the North
Slide 6: Behaving responsibly
Behaving responsibly 4 year qualitative SIM scores 2015-2019 4.60 Delivering for customers and the community 4.50 4.40 Upper quartile for AMP6, 4.30 achieving SIM outperformance 4.20 2015/16 2016/17 2017/18 2018/19 25 awards across customer service, Industry Ave UU collections and debt management Co
Slide 7: Behaving responsibly: delivering for customers and the community
Behaving responsibly Delivering for customers and the community £71m £35m A contribution of over £35m to our local communities during AMP61 £71m voluntary funding in AMP7 to provide financial assistance to customers that need it 120,000 Motivated and engaged workforce Receiving help from the sector’
Slide 8: Behaving responsibly: delivering for the environment
Behaving responsibly Delivering for the environment Carbon footprint reduced by 73% since 2005/06 Sector leading catchment management 73% 1st Over 95% electricity usage from renewable sources Led sector’s approach to catchment management through SCaMP Catchment Systems Thinking delivers an optimised
Slide 9: Behaving responsibly: delivering on governance
Behaving responsibly Delivering on governance Award winning annual report Strong track record and strong performance on Quality and transparency of reporting investor indices Financial resilience Prudent financial risk management A3 credit rating with Moody’s Pension fund already achieved low depend
Slide 10: Operational transformation: Water
Operational transformation: Water Leading performance on Water Interruptions to water supply 39% reduction in supply interruptions since start of AMP6 25 Focus on 3Rs: 20 Response 15 Restoration 10 Repair 5 ICC support 0 2015/16 2016/17 2017/18 2018/19 2019/20 Growing fleet of ASVs Industry average
Slide 11: Operational transformation: Wastewater
Operational transformation: Wastewater Leading performance on Wastewater Environmental Performance Assessment Performance Rating 2014 2015 2016 2017 2018 Anglian 3 3 3 3 3 Northumbrian Water 3 3 2 2 4 Severn Trent Water 3 4 3 4 3 Southern Water 2 3 3 3 2 South West Water 2 1 2 2 2 Thames Water 3 3 2
Slide 12: Outcome Delivery Incentives (ODIs)
Outcome Delivery Incentives (ODIs) AMP6 performance well in excess of our original most likely outcome Reward / (Penalty) (£m) Outperformance £43.9m 1 year 5 years 2019-20 2015-20 Private sewers service index 7.4 36.9 P90 +£140m Wastewater category 3 pollution incidents 3.3 16.4 Sewer flooding index
Slide 13: Systems Thinking is a competitive advantage
Systems Thinking is a competitive advantage Approach to Systems Thinking, innovation and digital delivers best performance Systems Thinking Innovation Digital Benchmarking suggests sector An established innovation model Leveraging value through AMP6 shifting improvements can be delivering £445m savi
Slide 14: Breakthrough innovation to tackle leakage
Maturity level 4 Breakthrough innovation to tackle leakage Machine-led system analytics and system management Mobile sensors supplementing other innovations Supplements existing activities Customer leak finder app Three mobile sensors Sniffer dogs Reading taken every millisecond Satellites Artificia
Slide 15: Russ Houlden, Chief Financial Officer
2019/20 full year results Russ Houlden Chief Financial Officer
Slide 16: Underlying income statement
Underlying income statement Year ended 31 March 2020 2019 Movement £m Revenue 1,859.3 1,818.5 40.8 Operating expenses (571.9) (575.9) Infrastructure renewals expenditure (143.0) (164.6) EBITDA 1,144.4 1,078.0 Depreciation and amortisation (400.5) (393.2) Operating profit 743.9 684.8 59.1 Net finance
Slide 17: COVID-19 impacts
COVID-19 impacts Revenue reduced and costs increased in 2019/20 Impact on Description Income statement line Adjusted item profit Revenue Revenue £5m Incremental operating costs Operating costs £1m Incremental C-19 HH bad debt (ECL) Bad debts £17m Incremental C-19 NHH bad debt (ECL) Bad d
Slide 18: Adjusted items
Adjusted items Year ended 31 March 2020 2019 £m Reported profit after tax 106.8 363.4 Adjustments not expected to recur: Dry weather event - 36.1 GMP equalisation - 6.6 Bioresources asset write down 82.6 - COVID-19 56.2 - Consistently applied presentational adjustments: Restructuring costs 11.8 7.2
Slide 19: Underlying operating costs
Underlying operating costs Year ended 31 March 2020 2019 Movement £m Revenue 1,859.3 1,818.5 40.8 Employee costs (149.6) (154.4) 4.8 Hired and contracted services (96.5) (96.2) (0.3) Power (78.9) (70.0) (8.9) Property rates (75.9) (94.7) 18.8 Materials (73.9) (72.9) (1.0) Regulatory fees (28.3) (32.
Slide 20: Statement of financial position
Statement of financial position At 31 March 2020 2019 Movement £m Property, plant and equipment 11,510.9 11,153.4 357.5 Retirement benefit surplus 754.1 483.9 270.2 Other non-current assets 332.9 441.3 (108.4) Cash 528.1 339.3 188.8 Other current assets 300.2 280.8 19.4 Total derivative assets 617.9
Slide 21: The pensions valuation gap
The pensions valuation gap Company pension position is a significant component of economic value 2016 2020 No. of analysts No. of analysts Full normalised IFRS 0 2 141p/share1 0 1 Full IFRS 1 4 111p/share 10 7 No adjustment 8 1 0p/share 1 Based on normalisation as at 31 March 2019 being the most rec
Slide 22: Defined Benefit Funding Consultation – March 2020
Defined Benefit Funding Consultation – 3 March 2020 Fast Track compared with Bespoke valuations Long term objective (LTO) Covenant Investment strategy Low dependency by time scheme is Stronger covenants can take more risk but Consideration of investment risk including significantly mature trustees r
Slide 23: Defined Benefit Funding Consultation – March 2020
Defined Benefit Funding Consultation – 3 March 2020 Fast Track compared with Bespoke valuations Long term objective (LTO) Covenant Investment strategy Low dependency by time scheme is Stronger covenants can take more risk but Consideration of investment risk including significantly mature trus
Slide 24: RCV gearing
RCV gearing RCV gearing supports robust capital structure RCV gearing 75% 70% 65% RCV gearing within our 60% target range, supporting a stable 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 Ma
Slide 25: Cash flow statement
Cash flow statement Year ended 31 March 2020 2019 £m Net cash generated from operating activities 810.3 832.3 Net cash used in investing activities (593.9) (627.7) Net cash used in financing activities (27.8) (377.4) Net movement in cash 188.6 (172.8) United Utilities • 2019/20 full year results 25
Slide 26: Financing
Financing Prefunding our AMP7 requirement Committed bank Index-linked Nominal facilities CPI-linkage increased to £250m public bond issue £50m committed bank facilities with 18-year maturity renewed for 5-year term £515m through £50m tap of 2033 public bond and £100m committed bank facility swapped
Slide 27: Cost of debt and hedging
Cost of debt and hedging Prudent financial risk management 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 an c£3.1bn of
Slide 28: Debt maturity profile
Debt maturity profile Funding target of between £500m and £800m in 2020/21 AMP7 debt maturity profile (£m) 1,400 1,200 1,000 800 600 400 200 - Liquidity at Mar-20 2020/21 2021/22 2022/23 2023/24 2024/25 EIB Other Future repayments of RPI linked debt include inflation based on an average annual RPI r
Slide 29: Financial summary
Financial summary Strong track record, well positioned for the future Treasury policies Delivered significant Good set of Pensions a financing underpin financial results, maintaining significant driver of outperformance and tight cost control relative value resilience for the long term well position
Slide 30: Steve Mogford, Chief Executive
2019/20 full year results Steve Mogford Chief Executive
Slide 31: Planned acceleration of AMP7 capex
Planned acceleration of AMP7 capex Adopting AMP6 approach to deliver improvements early again Net regulatory capex 2020/21 2021/22 2022/23 2023/24 2024/25 Proposed capex profile FD capex profile AMP7 net regulatory capex excludes IRE The AMP7 net regulatory capex profile shown on the chart does not
Slide 32: Robust plans across common AMP7 ODIs
Robust plans across common AMP7 ODIs £100m flying start investment targeting improved performance in key areas £m impact P10 penalties P90 rewards Smarter networks, increased visualisation Accelerated and predictability investment with a flying start Central planning and decision making Systems capa
Slide 33: Opportunities across bespoke AMP7 ODIs
Opportunities across bespoke AMP7 ODIs Opportunities to unlock outperformance across bespoke ODI measures £m impact P10 penalties P90 rewards Optimised investment plan for multiple benefit Industry leading technologies backed by industry leading innovation culture Systems Thinking enabling a data dr
Slide 34: Summary: Systems Thinking is a competitive differentiator
Summary AMP6 strategy has delivered, confident heading into AMP7 AMP6 AMP7 AMP6 strategy has delivered Confidence for AMP7 Delivered for customers, shareholders and the Responded well to COVID environment Resilient operational performance and strong balance sheet Delivered outperformance Well pr
Slide 35: Any questions?
2019/20 full year results Any questions?
Slide 36: 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 37: Supporting information
Supporting information 1. Revenue analysis 2. Profit before tax reconciliation 3. Profit after tax reconciliation 4. UUW underlying operating profit reconciliation 5. Finance expense 6. Finance expense: index-linked debt 7. Derivative analysis 8. IFRS pension surplus (normalised) 9. Net regulatory c
Slide 38: Revenue analysis
Revenue analysis Year ended 31 March 2020 2019 £m Wholesale water charges 784.8 767.4 Wholesale wastewater charges 939.5 905.8 Household retail charges 83.8 86.7 Other 51.2 58.6 Revenue 1,859.3 1,818.5 United Utilities • 2019/20 full year results 38
Slide 39: Profit before tax reconciliation
Profit before tax reconciliation Year ended 31 March 2020 2019 £m Operating profit 630.3 634.9 Investment income and finance expense (289.0) (205.4) Share of (losses)/profits of joint ventures (38.1) 6.7 Reported profit before tax 303.2 436.2 Adjustments: Dry weather event - 36.1 GMP equalisation -
Slide 40: Profit after tax reconciliation
Profit after tax reconciliation Year ended 31 March 2020 2019 £m Reported profit after tax 106.8 363.4 Adjustments: Dry weather event - 36.1 GMP equalisation - 6.6 Bioresources asset write down 82.6 - COVID-19 56.2 - Restructuring costs 11.8 7.2 Net fair value losses / (gains) on debt and derivative
Slide 41: UUW underlying operating profit reconciliation
UUW underlying operating profit reconciliation Year ended 31 March 2020 2019 £m Group underlying operating profit 743.9 684.8 Underlying operating profit not relating to UUW (3.5) (11.3) UUW statutory underlying operating profit (unaudited) 740.4 673.5 Revenue recognition (5.0) 0.7 Capitalised borro
Slide 42: Finance expense
Finance expense Year ended 31 March 2020 2019 £m Investment income 24.0 17.1 Finance expense (313.0) (222.5) (289.0) (205.4) Less net fair value gains on debt and derivative instruments 76.3 (9.5) Adjustments for interest on derivatives and debt under fair value option 16.5 30.6 Adjustment for expec
Slide 43: Finance expense: index-linked debt
Finance expense: index-linked debt Year ended 31 March 2020 2019 £m Interest on index-linked debt (50.4) (48.8) RPI adjustment to index-linked debt principal – 3 month lag1 (72.7) (71.1) CPI adjustment to index-linked debt principal – 3 month lag2 (6.1) (3.1) RPI adjustment to index-linked debt prin
Slide 44: Derivative analysis
Derivative analysis At 31 March 2020 2019 £m Derivatives hedging debt 596.4 479.6 Derivatives hedging interest rates (120.6) (69.9) Derivatives hedging commodity prices (2.2) (0.5) Total derivative assets and liabilities (slide 20) 473.6 409.2 • Derivatives hedging debt; hedge our non index-linked d
Slide 45: IFRS pension surplus
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 Mar-20 UU - IFRS position UU normalised to SVT UU normalised to PNN Source: Companies’ annual reports and accounts 1 Normalised for inflation
Slide 46: Net regulatory capital spend profile
Net regulatory capital spend profile 900 800 700 600 500 £m 400 300 200 100 - 2015/16 2016/17 2017/18 2018/19 2019/20 FD scope capex Outperformance sharing Dry weather FD assumed capex United Utilities • 2019/20 full year results 46
Slide 47: Impact of IFRS16
Impact of IFRS16 • IFRS 16 effective from 1 April 2019 • £54m lease liability brought onto the statement of financial position as at 1 April 2019 • Corresponding £54m lease asset also brought onto the statement of financial position as at 1 April 2019 • In 2019/20, the lease asset has been depreciat
Slide 48: Regulatory Capital Value (RCV)
Regulatory Capital Value (RCV) Regulatory Capital Value (RCV) 13,000 12,000 11,000 £m 10,000 9,000 8,000 7,000 United Utilities Water’s regulatory capital value (based on shadow RCV for AMP6, updated for actual spend) and presented in outturn prices. Shadow RCV at 31 March 2020 = £11,886m United Uti
Slide 49: Movement in net debt
Movement in net debt 7,500 58.8 5.5 7,361.4 60.9 100.8 55.7 7,067.3 1,005.5 139.5 7,000 284.5 645.3 6,500 £m 34.5 12.0 4.9 6,000 5,500 5,000 Net debt as Operating Repayment Proceeds Dividends Net capex Dividends Interest Indexation Tax Non-cash Fair value Other Net debt as at 31 March cash flow of l
Slide 50: Financing and liquidity at March 2020
Financing and liquidity at 31 March 2020 Gross debt = £8,363.1m Headroom / prefunding = £436m £57.6m, Lease Obligations £207.1m, Short term debt £233.6m, Other borrowings £397.5m, Yankee bonds (USD) £572.0m, Other EIB loans £275.3m, GBP Fixed rate & RPI £m linked bonds swapped to CPI £193.4m, Euro b
Slide 51: Debt structure at March 2020
Debt structure at 31 March 2020 United Utilities Group PLC United Utilities PLC Baa1 stable; BBB- stable; A- stable7 Yankees: Other debt: • $400m in 28s • Short-term loans £120m United Utilities Water Limited A3 stable; BBB+ stable; A- stable7 Ring-fenced and regulated by Ofwat Euro MTNs: Other debt
Slide 52: Term debt maturity profile
Term debt maturity profile as at 31 March 20201 Average term to maturity of approximately 18 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 full year results 52
Slide 53: 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%. United Utilities • 2019/20 full year results 53
United Utilities Group — FY2020 Earnings Presentation on 6ix