United Utilities Group PLC · LSE:UU.
United Utilities — FY2020/21 Earnings Presentation
47 slides from United Utilities's earnings presentation, 2021
Slide 1: Chairman's welcome to full year results
Good morning and welcome to United Utilities’ full year results presentation – the third set of results we have now delivered virtually. We hope to be able to present our next set of results in person but in the meantime, I trust you continue to find our virtual presentations informative and engagin
Slide 2: Introduction and highlights
Thanks David and good morning ladies and gentlemen. Welcome to United Utilities full year results presentation for the financial year 2020/2021, the first year of the AMP7 regulatory period. I’m pleased to report that the United Utilities team has addressed the unprecedented challenges brought about
Slide 3: Key messages: digital utility, ESG, investment
We’re delivering our vision of being a digital utility. Our Systems Thinking approach uses real-time data, supported by sector leading innovation and technology, to take a holistic approach to the operation and optimisation of our network. This is enabling significant performance improvement, effici
Slide 4: Operational performance in water and wastewater
Our digital transformation is yielding excellent results. Here are just a few examples: In water: • Supply interruptions to customers have been halved. • We have delivered our lowest ever level of leakage. • We have made substantial improvements in our water regulator’s risk scores, CRI and ERI, ref
Slide 5: Customer service and help to pay
This has been a year in which customer service has never been more important – and one in which we have seen a demographic shift from the work to home environment along with a change in usage patterns. The pandemic has also led to increasing financial hardship for many customers – unwelcome in a reg
Slide 6: AMP7 net regulated capex profile
On this slide we’re showing our net regulated capex profile for AMP7. We’re comparing our Final Determination profile – shown as the green line – against our actual year one and forecast spend profile. Our investment strategy is clear and enduring – we invest for long term sustainable performance fo
Slide 7: Dynamic Network Management
Those of you who attended our capital markets day earlier this year will have heard us talk about Dynamic Network Management – a new and exciting application of Systems Thinking not seen anywhere else in the world. Application of this new digital capability will shift us from reactive management of
Slide 8: Customer ODI performance
Turning to the broad set of customer ODIs, this slide shows the principal ODIs contributing to our year one reward. You can now see that our investment strategy and digital transformation is delivering value across the board of our activity. We have had a great start to the AMP, having met or exceed
Slide 9: Climate change and carbon pledges
The company’s intimate relationship with the environment means that the climate change journey is one we’ve been on for many years. Having exceeded our climate change objectives for 2020 – reducing greenhouse gas emissions by 73 per cent – we have made 6 carbon pledges, including a clear commitment
Slide 10: Non-regulated portfolio and renewable energy
We sold the vast majority of our non-regulated portfolio over ten years ago and, as we have previously announced, we completed the sale of our largest residual investment – our Tallinn joint venture – in March for a consideration of 100 million Euros. You will be aware that in recent years we have b
Slide 11: Employee engagement and diversity
Strong employee engagement is critical to business performance and over the past year our survey score positioned us above the norm for UK high performing companies – remarkable in a Covid year and testimony to the cohesiveness of the UU team. 92 per cent of employees would recommend UU to friends a
Slide 12: CFO introduction
Thanks Steve. Good morning everyone. I’m delighted to be presenting my first full year set of results this morning and having this opportunity to build on the relationship that I’ve established with many of you over the course of the last year. I also hope you find the changes we have made to: the d
Slide 13: Key financial highlights
These are the key financial highlights for the year. Revenue of £1.8 billion is down on the prior year, largely reflecting the known price reduction in this, the first year of the new regulatory period. Household bad debt is 2.2 per cent of regulated revenue, representing a marginal increase of £5 m
Slide 14: Revenue bridge
Here we provide a bridge of revenue, from last year to this year. In summary, revenue of £1.8 billion is £51 million lower than last year, largely reflecting the known price reduction in this, the first year of the new regulatory period. Now turning to each of the components in the bridge. Revenue i
Slide 15: Household cash collection and bad debt
I will now talk through our household cash collection and bad debt performance for the year. The chart on the left hand side of this slide shows our household bad debt charge for the year at 2.2 per cent. This is a marginal increase on the underlying charge of last year reflecting the ongoing uncert
Slide 16: Underlying operating profit bridge
On this slide we provide a bridge of underlying operating profit from last year to this year. Underlying operating profit of £602 million is down £130 million. This principally reflects the £51 million reduction in revenue and a £22 million increase in infrastructure renewals expenditure as a result
Slide 17: Income statement below operating profit
Focusing next on the remaining key lines of the income statement. Our underlying net finance expense is £133 million. This reflects the changes we have made to alternative performance measures as highlighted in our March trading update and is £58 million lower than last year on a like-for-like basis
Slide 18: Financing performance
Now looking more closely at financing performance. Over AMP7 we have around £2.4 billion of financing to raise and in the first year we have made a great start raising around £900 million, taking advantage of attractive rates and extending our liquidity position out to August-23. Our effective inter
Slide 19: Debut sustainable bond
This slide shows some of the details of our £300 million sustainable bond. The transaction is a superb illustration of our agile approach and how demand for our financing is enhanced by being a company delivering a strong public purpose. Recognising our excellent ESG credentials, there was a huge am
Slide 20: Financing outperformance versus regulatory index
So let’s have a look at how this latest financing transaction stacks up. As you can see from the bottom right of this chart, the £300 million sustainable bond issued in January, outperformed the index used for regulatory assumptions for AMP7 new cost of debt by around 150 basis points. You can also
Slide 21: Customer receivables position
Now an update on our customer receivables position. We anticipate the recoverability of household debtors will continue to be a key area of focus for investors and analysts as we emerge from lockdown and government support is gradually withdrawn. That’s because the balance sheet position provides im
Slide 22: Net debt bridge
This slide bridges the net debt from March-20 to March-21. Net debt of £7.3 billion has reduced by £55 million since March-20. This incorporates a change to our definition that we highlighted at the half year to exclude the impact of derivatives that are not hedging specific debt instruments and the
Slide 23: Pensions
Now looking at pensions in more detail. As at March-21 we had an IFRS pensions surplus of £689 million and perhaps more importantly, we are fully funded on a low dependency basis – a position we do not expect to change given our approach to hedging market risk. Since being appointed CFO last year th
Slide 24: Return on regulated equity
So let’s now have a look at return on regulated equity. The chart here shows our reported RoRE for the year of 4.3 per cent on a real basis. This principally comprises the base return of 3.9 per cent, including our 11 basis point fast track reward that we receive in each of the five years of the AMP
Slide 25: Outlook for 2021/22
This slide sets out our outlook for the year to March-22. We would expect revenue to be marginally lower reflecting the November 2020 CPIH of 0.6 per cent offset by the regulatory revenue reduction of 2.0 per cent. Underlying operating costs are expected to be marginally higher year-on-year reflecti
Slide 26: CFO conclusion
So to conclude: We have delivered another robust financial performance in the year. Our household cash collection and bad debt position have remained resilient. We have delivered some great financing transactions throughout the year, locking in debt at low rates compared with the price review assump
Slide 27: Chief Executive summary
Steve Mogford Chief Execttive Thanks Phil. 27
Slide 28: Summary
So in summary, in a year characterised by many as ‘unprecedented’ the highly motivated and engaged UU team has shown agility, courage and resilience in stepping up to and delivering excellent performance in a region hard hit by the pandemic, leveraging our extensive preparations for the first year o
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Slide 30: 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 31: Supporting information
Supporting information Underlying income statement Underlying operating costs Profit before tax reconciliation Profit after tax reconciliation Finance expense Finance expense: index-linked debt Derivative analysis Statement of financial position Reconciliation of net debt . Household debtors reconci
Slide 32: Underlying income statement
Underlying income statement Revenue Operating expenses Infrastructure renewals expenditure EBITDA Depreciation and amortisation Operating profit Net finance expense Share of profits / (losses) of joint ventures Profit before tax Tax Profit after tax Earnings per share (pence) Interim dividend per or
Slide 33: Underlying operating costs
Revenue Employee costs Hired and contracted services Property rates Power Materials Bad debts Regulatory fees Other expenses Infrastructure renewals expenditure (IRE) Depreciation and amortisation Total underlying operating expenses Underlying operating profit Underlying operating costs 1,808.0 (161
Slide 34: Profit before tax reconciliation
Profit before tax reconciliation Operating profit 630.3 630.3 Investment income and finance expense (289.0) (289.0) Share of profits/(losses) of joint ventures (38.1) (38.1) Profit on disposal of joint ventures - - Reported profit before tax 303.2 303.2 Adjustments: Bioresources asset write down 82.
Slide 35: Profit after tax reconciliation
Profit after tax reconciliation Reported profit after tax Adjustments: Bioresources asset write down COVID-19 Restructuring costs Fair value (gains)/losses on debt and derivative instruments, excluding interest on derivatives and debt under fair value option Net fair value losses on debt and derivat
Slide 36: Finance expense
Finance expense Investment income 25.0 24.0 Finance expense (103.5) (313.0) (78.5) (289.0) Less net fair value losses on debt and derivative instruments (74.5) 76.3 Adjustments for interest on swaps and debt under fair value option 20.2 16.5 Adjustment for the allowance of expected credit losses on
Slide 37: Finance expense: index-linked debt
Finance expense: index-linked debt Interest on index-linked debt RPI adjustment to index-linked debt principal - 3 month lag CPI adjustment to index-linked debt principal - 3 month lag? RPI adjustment to index-linked debt principal - 8 month lag? Finance expense on index-linked debt* Interest on oth
Slide 38: Derivative analysis
Derivative analysis Derivatives hedging debt 402.7 596.4 Derivatives hedging interest rates (99.2) (120.6) Derivatives hedging commodity prices 6.5 (2.2) Total derivative assets and liabilities 310.0 473.6 * Derivatives hedging debt; hedge our non index-linked debt into sterling, floating interest r
Slide 39: Statement of financial position
Property, plant and equipment Retirement benefit surplus Other non-current assets Cash Other current assets Total derivative assets Total assets Gross borrowings Other non-current liabilities Other current liabilities Total derivative liabilities Total liabilities TOTAL NET ASSETS Share capital Shar
Slide 40: Reconciliation of net debt
Reconciliation of net debt Cash Total derivative assets Gross borrowings Total derivative liabilities Net debt on previous definition Exclude the fair value impact of: Interest rate derivatives fixing future nominal interest rates Inflation derivatives fixing future real interest rates Electricity d
Slide 41: Household debtors reconciliation
Household debtors reconciliation Household net debtors Household accrued income Non household net debtors Other sundry net debtors Total net debtors (including related parties) Less related party debtors Less total accrued income Net debtors per UUW statutory accounts United Utiities + 2020/21 fully
Slide 42: Strong balance sheet — pensions
Strong balance sheet — pensions The ESG journey to remove the “pensions iceberg” at UU IFRS deficit IFRS £754m Extra funding deficit Discount rate of 2.05% [= Silts+75bps Funding £nil Mar-21 i t Discount rate of 1.65% = Gilts +35bps Position today Pension scheme fully funded on a low dependency basi
Slide 43: Financing and liquidity
Financing and liquidity Gross debt = £8,451.8m £161.2m, Shortterm Headroom / prefunding = £806.2m debt £373.6m, Yankee bonds £239.1m, Other £60.0m, Lease (usp) borrowings. Obligations £183.3m, Euro bonds (EUR) £529.7m, Other E18 loans Cash and short-term deposits £689.5m, GBP Fixed £244.4m, HKD rate
Slide 44: Debt structure
Debt structure United Utilities Group PLC United Utilities PLC Other debt: table; BBB- stable; A- stable United Utilities Water Limited A3 stable; BBB+ stable; A- stable and regulated by Ofwat United Utilities Water Finance PLC Guaranteed by United Utilities Water Ltd RPI linked finance +£100m and £
Slide 45: Term debt maturity profile
Term debt maturity profile Average term to maturity of approximately 18 years To31Mar 2025-30 2030-35 2035-40 2040-45 2045-50 2050-55 2055-60 2025 Years Future repayments of index-linked debt include RPI/CPI/CPIH market derived forecasts out to 2025, subsequently transitioning average annual RPI rat
Slide 46: AMP7 maturity profile
AMP7 maturity profile To 31 Mar 2022 To 31 Mar 2023 To 31 Mar 2024 To 31 Mar 2025 EIB Other Notes Future repayments of RPI linked debt include market derived forecasts out to 2025 Light green areas represent EIB debt maturing whereas dark green areas represent other debt maturing. United Utilities +
Slide 47: EIB funding maturity profile
EIB funding maturity profile EIB funding maturity profile To 31 Mar 2025 2025-30 2030-35 2035-40 Notes Future repayments of E1B RPI linked debt include market derived forecasts out to 2025, subsequently transitioning to an average annual RPI rate of 3% United Utities + 2020/21 ful year results +» 47
United Utilities Group — FY2020/21 Earnings Presentation on 6ix