United Utilities Group Plc · LSE:UU.
United Utilities — FY2013 Earnings Presentation
47 slides from United Utilities's earnings presentation, May 31, 2013
Slide 1: United Utilities Group PLC Full year results
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Slide 2: Welcome and key aspects of our results
Good morning and welcome ladies and gentlemen. This is the second anniversary of Russ and me presenting our annual results and two years since we set our strategy of becoming a leading North West service provider and one of the UK's best water and wastewater companies. This morning we will be talkin
Slide 3: Agenda
This is the agenda for this morning's presentation. Our aim continues to be to deliver long-term shareholder value by providing the best service to customers, at the lowest sustainable cost and in a responsible manner. 3
Slide 4: Improving the service we provide to customers
So, starting with what we are doing to improve the service we provide to our customers. 4
Slide 5: Investing to improve customer service
We've continued to invest in our people, assets, systems and processes to improve the service our customers can expect of us. Calm networks deliver fewer bursts and so we have improved pressure management of our water network to reduce bursts and leakage. Last year was the seventh consecutive year i
Slide 6: Qualitative SIM performance
As you know, we use a number of metrics to help us drive customer satisfaction. The first is Ofwat's qualitative Service Incentive Mechanism, or SIM, where we have made good progress over the last two years. Our score for the last quarter of 2012/13 saw us slip back against the trend achieved in the
Slide 7: SIM position among water companies
As you can see, across the year we achieved 6th position amongst the WaSCs for 2012/13. Our first quarter score for 2013/14 puts us at 5th. Next, quantitative SIM performance. 7
Slide 8: Quantitative SIM scores
Quantitative SIM scores are not available for the sector until later this summer, but this chart shows our continued improvement. For this score, the lower the points the better the performance. We have delivered another year-on-year reduction; this year by 34% compared with last year's result. We k
Slide 9: Complaints escalated to the CCW
Customers dissatisfied with our handling of their complaints can refer to the Consumer Council for Water (or CCW). A measure of our performance is therefore the number of customer complaints escalated to the CCW; and more particularly those where the CCW feels that there is cause for them to investi
Slide 10: Customer perception and awards
The majority of our customers don’t have a choice of their water and sewerage provider and so, whilst comparison of our performance to other companies in the sector is important, one of our targets is to be considered by our customers as a leading service provider in the North West. We therefore mea
Slide 11: Serviceability metrics
We measure how our assets support delivery of our services using four baskets of key measures - our 'serviceability' metrics. Our target is to be at least 'stable' on each of the four measures. Last year I told you that on one measure, relating to our wastewater infrastructure, we had slipped from a
Slide 12: Business retail market reform
One of the early deliverables from the UK Government's regulatory reform programme was the reduction in the threshold at which business customers can compete for their water retailer. In addition, the English and Scottish governments declared their intent to establish a joint retail market for busin
Slide 13: Lowest sustainable cost
Moving on to the area of lowest sustainable cost. 13
Slide 14: Capital delivery and TCQi
I’ll cover capital delivery, and Russ will talk about our opex performance later in the presentation. We're very focused on effective delivery of our capital programme. It is critical to improving the service we provide to our customers and to the impact we have on the environment. Our capital proje
Slide 15: Private sewers
Turning to private sewers. Our approach to private sewers has not been to simply jet sewers to clear the blockage only to have to return another day. Instead, we have equipped our teams to understand the cause of the problem and fix it - where possible in the same visit. We recognised that we would
Slide 16: Liverpool wastewater treatment works expansion
Now, looking at some of our major projects. I talked to you last year about our Liverpool wastewater treatment works expansion, which at around £200 million is our largest capital programme in AMP5. The project is progressing well and is within budget and ahead of schedule. You can see from the slid
Slide 17: Preston storm water tunnel project
In Preston, our £100 million+ project to improve river and bathing water quality is nearing completion. You can see from the photograph the size and scale of the project. It involves building a 3.5 kilometre long storm water storage tunnel, 2.85 metres in diameter, to divert storm water flows to our
Slide 18: Operating in a responsible manner
Operating in a responsible manner is fundamental to the way we do business and we are pleased that our sustainability credentials receive external recognition. 18
Slide 19: Water abstraction reform and river restoration
The Government has stated that it will be reforming water abstraction arrangements in the UK and we are one of the first to participate in delivering such reforms. Last month we launched a pioneering scheme, in conjunction with the Environment Agency, which is restoring two rivers in the Trough of B
Slide 20: Reinvesting capex outperformance
When we set out our outperformance targets for AMP5, two years ago, we said that we would reinvest any capital outperformance in projects that would improve the service we provide to customers and/or benefit the environment. This is what we are doing - not to meet the obligations for which we are al
Slide 21: Financial review
Thank you, Steve. Good morning. 21
Slide 22: Financial results highlights
This is another good set of results in a tough economic climate. Underlying operating profit at £607 million was up 2 per cent, as we kept cost increases below price inflation. Underlying profit before tax of £354 million was up 8 per cent, largely because of the effect of lower RPI inflation. Under
Slide 23: Adjustments 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. Most of the adjustments – such as fair value losses, interest on swaps and debt under fair value option, capitalised borrowing costs and
Slide 24: 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 £1.64 billion was up £71 million or 4.5 per cent on last year. The allowed regulated price increase for 2012/13 was 5.8 per cent nominal (5.2 per cent RPI inflation
Slide 25: Operating costs
Now, let’s look at our costs in a bit more detail. Employee costs have decreased by £8 million, mainly reflecting an increased proportion of IRE and capex activity, supported by a tightly controlled pay award. Power costs have increased by £12 million, as expected, partly due to higher prices and pa
Slide 26: Bad debt performance
Now, on to our bad debt performance. The North West contains over half of the 1 per cent most deprived areas in England. Unemployment increased at a faster rate than any other UK region in 2011/12, particularly in the second half, resulting in an adverse impact on ability to pay this year. Although
Slide 27: Statement of financial position
Turning now to the statement of financial position. Property, plant and equipment is up £346 million over the year to just under £9 billion, as we continue to make good progress on our capital investment programme. Cash and short term deposits of £202 million were £120 million lower than last year.
Slide 28: 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 29: Cash flow
Moving on to cash flow. Net cash generated from operating activities was £631 million, up £71 million compared with last year. This increase was mainly as a result of total pension contributions in this year of £93 million, being lower than last year when we paid £150 million. Cash used in investing
Slide 30: Robust financing position
We continue to benefit from a robust financing position. As a result of our strength in treasury management over many years, the average cost of our £2.9 billion, long-term, index-linked debt portfolio is only 1.7 per cent real. In March, we took the opportunity to add to our index-linked financing
Slide 31: Outperformance targets
Our recent performance has reinforced our confidence in delivering our five-year outperformance targets and we are ahead of schedule. In respect of opex outperformance, we are targeting to deliver a total of at least £50 million, or approximately two per cent of the regulatory allowance, over the 20
Slide 32: Thank you, Russ
Steve Mogford Thank you, Russ. United Utilities 32
Slide 33: Regulatory reform and the 2014 price review
As I mentioned earlier, the regulatory reform agenda being pursued by the UK Government and Ofwat presents both opportunity and challenge to the sector. We will continue to engage in discussions about these reforms to ensure that we can deliver their benefits to our customers, shareholders and other
Slide 34: Summary
So, in summary, our sustained focus on customer satisfaction through sound underlying operational performance is delivering results: • customer satisfaction is continuing to improve; • we have accelerated our capital programme, reducing risk in the last two years of the AMP, and are delivering a muc
Slide 35: Questions
That concludes our results presentation. Thank you for listening. We’ll now be pleased to take questions. 35
Slide 36: Supporting information
Supporting information Reported income statement Statutory to regulatory underlying operating profit reconciliation Underlying profit before tax Finance expense Derivative analysis Movement in net debt Financing and liquidity Term debt maturity profile Debt structure I ~A United ~Utilities 36
Slide 37: Reported income statement
£m Year ended 31 March 2013 2012 Contmwng operations Revenue 1,636.0 1,564.9 Operating expenses (702.3) (675.6) EBITDA 933.7 889.3 Depreciation and amortisation (329.2) (297.8) Operating profit 604.5 591.5 Investment income and finance expense (299.8) (311.1) Profit before tax 304.7 280.4 Taxation (
Slide 38: Statutory to regulatory underlying operating profit reconciliation
£m Year ended 31 March 2013 2012 Continumg operatiOns Group underlying operating profit 607.1 594.1 Underlying operating profit not relating to United Utilities Water (1.8) (10.9) Infrastructure renewals accounting 32.6 40.2 Other differences (3.9) United Utilities Water statutory underlying operati
Slide 39: Underlying profit before tax
£m Year ended 31 March 2013 2012 Contmumg operatiOns Operating profit 604.5 591.5 Investment income and finance expense (299.8) (311.1) Profit before tax 304.7 280.4 Adjustments: 1 One-off items 2.6 2.6 Net fair value losses on debt and derivative instruments 41.5 43.2 Interest on swaps and debt und
Slide 40: Finance expense
Finance expense Underlying interest rate down reflecting RP/ £m Year ended 31 March 2013 2012 Contmuing operations Investment income 2.3 4.4 Finance expense (302.1 ) (315.5) (299.8) (311.1) Less net fair value losses on debt and derivative instruments 41 .5 43.2 Adjustment for interest on swaps and
Slide 41: Index-linked debt finance expense
£m Year ended 31 March 2013 2012 Continuing operations Cash interest on index-linked debt (46.9) (43.9) 1 (57.1) (56.8) RPI adjustment to index-linked debt principal - 3 month lag 2 (29.1) (43.6) RPI adjustment to index-linked debt principal - 8 month lag Finance expense on index-linked debt (133.1)
Slide 42: Derivative analysis
£m At 31 March 2013 2012 Derivatives hedging debt 719.0 617.4 Derivatives hedging interest rates to 2015 (120.9) (137.0) Derivatives hedging interest rates beyond 2015 (70.8) (18.2) Derivatives hedging commodity prices (6.1) (4.6) Total derivatives assets and liabilities (slide 27) 521 .2 457.6 • De
Slide 43: Movement in net debt
6,500 221 1 6.000 223.5 641 7 £m 5.500 5.450.6 5,076.4 5,000 4,500 Net debt at Net capax DIVIdends tn1erest & tax Non-<:ash Operating cash Net debt at 31/03/ 12 movements & flow 31103/13 other 1 Net debt includes derivatives which incorporate regulatory swaps 43 43
Slide 44: Financing and liquidity
Gross debt= £6,173.5m Headroom I prefunding = £335.6m Other ' borrowings, Yankee bonds £355.9m (USD), £m £770.0m Cash and short-term deposits 201.7 Euro bonds ( EUR), loans, f1, 219.3m £49S.Om Medium-term committed bank facilities 2 300.0 Short-term debt (144.8) Term debt maturing within one year (2
Slide 45: Term debt maturity profile
Term debt maturity profile 1 Average term to maturity of c25 years 3 ,000 2 ,000 Em 1.000 2010.15 2015-20 2020.25 2025-30 2030.35 2035-40 2040-45 2045-50 2050.55 2055-60 Years 1 Future repayments of mdex.jmked debt include inflation based on an average annual RPI rate of 2.75% 45 45
Slide 46: United Utilities Water PLC debt structure
Yankees: Other debt: • S250m in 18s • Short-term loans £82m • S350m in 19s • $400m 1n 28s United Utilities Water PLC A3 stable, BBB+ pos1t1ve outlook Rmg-fenced and regulated by Ofwat Euro MTNs: Other debt: • ¥3bnin 13s • £50m in 32s' • £100m in 42s' • EIB index-linked loans £1,000m' • £425m in 15s
Slide 47: 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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