TIDMUU.
RNS Number : 5711A
United Utilities Group PLC
25 May 2023
Building a stronger, greener, healthier North West
25 May 2023 : United Utilities today announces Full Year results
for the period to 31 March 2023.
Louise Beardmore, Chief Executive Officer, said:
"As the new CEO, it is an honour and privilege to lead United
Utilities. I am very clear about our ambition to build a stronger,
greener, healthier North West on behalf of customers, communities
and the environment. Despite a challenging year of cost pressures,
we have delivered our best ever performance on a range of measures
that matter most to customers, including leakage, water quality and
serious pollution incidents. To help ease cost of living pressures,
we have provided financial support to over 330,000 customers so far
this regulatory period and have continued to play a key role in the
wider economy of the North West, supporting 22,000 jobs across the
region.
I understand and share concerns about the use of storm overflows
and I am committed to respond to the challenges we face. We have
already achieved a 39% reduction in reported activations since
2020, but we need to go faster and drive a step change in
performance. We have won support from regulators and are able to
make an early start on over GBP900 million of investment. This will
allow us to commence work now on one third of the overflows we are
targeting in our AMP8 plans.
In October we will be putting forward an ambitious plan for the
next regulatory period, including our biggest environmental
programme yet, targeting a significant improvement in storm
overflow performance. It is clear that we need to invest in
infrastructure, assets and our people to meet new environmental
targets and deliver the further performance improvements customers
and communities want to see. Along with all my colleagues, we are
committed to delivering even better performance and we are looking
forward to the opportunity to do so."
Key financials (GBPm) - Year ended 31 March
Reported Underlying(1)
==================================== =============================
2023 2022 % change 2023 2022 % change
============================= ======== ========= ========= ======== ======== =========
Revenue 1,824.4 1862.7 -2.1% 1,824.4 1,862.7 -2.1%
============================= ======== ========= ========= ======== ======== =========
Operating profit 440.8 610.0 -27.7% 440.8 610.0 -27.7%
============================= ======== ========= ========= ======== ======== =========
Profit/(loss) before tax 256.3 439.9 -41.7% (34.3) 301.9 -111.4%
============================= ======== ========= ========= ======== ======== =========
Profit/(loss) after tax 204.9 (56.8) n/a (8.7) 367.0 n/a
============================= ======== ========= ========= ======== ======== =========
EPS (pence) 30.0 (8.3) n/a (1.3) 53.8 n/a
============================= ======== ========= ========= ======== ======== =========
2023 2022 % change
============================= ======= ========= =========
Total DPS (pence) 45.51 43.50 +4.6%
============================= ======= ========= =========
Net regulatory capex (GBPm) 693.9 644.5 +7.7%
============================= ======= ========= =========
RCV(2) (GBPm) 14,000 12,725 +10.0%
============================= ======= ========= =========
Net debt (GBPm) 8,201 7,570 +8.3%
============================= ======= ========= =========
RCV gearing(3) (%) 58% 59% -1%
============================= ======= ========= =========
RoRE(4) (%) 11.0% 7.7% +3.3%
============================= ======= ========= =========
2022/23 Financial highlights
-- Revenue in line with guidance -2% to GBP1,824m largely
reflecting lower consumption more than offsetting the allowed
regulatory revenue increase. Around GBP40m of the reduction will be
recoverable in two years' time under the revenue control.
-- Underlying operating profit of GBP441m , down from GBP610m
driven by lower revenue and the inflationary impact on operating
costs, in particular procurement of electricity and chemicals.
-- Underlying EPS of -1.3p , down from 53.8p due to the impact
of inflation on debt indexation and the operating result.
-- Return on regulated equity (RoRE) +3% to 11.0% real for
2022/23 , reflecting strong financing, customer ODI and tax
outperformance which more than outweighed total expenditure (totex)
underperformance driven by additional investment in service and
environmental improvements .
-- Strong balance sheet with RCV +10.0% to GBP14.0bn and RCV
gearing at 58% , slightly lower than the prior year equivalent 59%
and within our target range of 55-65%.
-- ODI reward in line with guidance at approximately GBP25m for FY23.
-- Recommended final dividend of 30.34p , to bring full year
dividend to 45.51p, up +4.6% in line with policy.
Performance highlights
-- Best performance to date against our leakage performance
commitment, with average leakage over the last three years at its
lowest ever level and earning a customer ODI reward for the year
.
-- 39% reduction in reported activations from storm overflows
compared to our 2020 baseline, with monitoring in place on 97% of
overflows and on track to achieve full coverage by end of calendar
year.
-- Won support from regulators to bring forward c.GBP200m of
AMP8 investment for key environmental improvements in the region.
Accelerated infrastructure delivery project allows us to make an
early start on improving a third of the overflows targeted for
improvement between now and 2030.
-- Remain sector leader in reducing serious pollution incidents
, achieving zero in 2022/23 and zero in 3 of the last 4 years.
Remain the only company in the sector to achieve zero serious
pollution incidents in consecutive years.
-- 4 star performance in the Environment Agency's most recent
Environmental Performance Assessment , meaning "industry leading"
status achieved in 5 of the last 7 years .
-- Internal sewer flooding reduced by 46% during the current
regulatory period, with 39% fewer repeat incidents this year
demonstrating benefits of successful implementation of Dynamic
Network Management .
-- Best water quality performance, posting 26% improvement in
water quality contacts. Investment in water quality, principally to
avoid discolouration, contributes to ODI performance.
-- Provided affordability support to more than 330,000
households so far in this regulatory period with our industry
leading financial assistance support, helping customers to manage
the rising cost of living.
-- 83% of ODI performance commitments delivered for the year.
Outlook for current regulatory period
-- Forecasting to achieve an AMP7 average real RoRE of 6-8%
-- Expect to deliver AMP7 asset growth of 4-5% nominal CAGR(5)
-- Continue to target AMP7 total net ODI reward of around GBP200m
-- Targeting dividend growth in line with CPIH
-- Policy to target 55-65% net debt / RCV gearing
Enquiries
Investors and Analysts
Chris Laybutt - Investor Relations and Clean Energy
Strategy Director +44 7769 556 858
Anna Oberg - Investor Relations Manager +44 7435 939 112
Media
Gaynor Kenyon - Corporate Affairs Director +44 7753 622 282
Graeme Wilson - Teneo Communications +44 2073 534 200
Results and Strategy Update presentation webcast
We will be hosting a presentation of our results and strategy
update to investors and analysts at 10.00am on Thursday 25 May
2023, at the Rothschild Sky Pavilion, New Court, St Swithin's Lane,
London, EC4N 8AL.
This presentation can be accessed as a webcast here
https://primetime.bluejeans.com/a2m/live-event/zathatwh
The presentation slides will be available on our website shortly
before the presentation commences at the following link:
https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/
Notes
(1) Underlying measures are defined in the underlying profit
section below.
(2) United Utilities Water Limited's adjusted RCV (adjusted for
actual spend, timing differences and including full expected value
of AMP7 ex-post adjustment mechanisms). Prior year figures have
been re-presented for comparative purposes.
(3) RCV gearing calculated as group net debt including loan
receivable from joint venture/United Utilities Water Limited's
adjusted RCV (adjusted for actual spend, timing differences and
including full expected value of AMP7 ex-post adjustment
mechanisms). Prior year figures have been re-presented for
comparative purposes.
(4) Return on regulated equity
(5) Compound annual growth rate
OPERATIONAL REVIEW
We have delivered our best ever performance for customers,
having met or exceeded more of our performance commitments this
year than ever before. We were once again the top performing listed
company for customer satisfaction as assessed by Ofwat's C-MeX
measure. We have provided affordability support to more than
330,000 households so far in this regulatory period to support
customers who are understandably struggling with cost of living
pressures.
We are acutely aware that this is a critical time for the water
sector, with many challenges facing us, especially around river
health. We have delivered significant environmental improvements in
recent years in areas such as improving beaches, reducing pollution
and reducing leakage, but we should all have acted sooner to
recognise and address the impact of storm overflows.
In the North West, we have delivered a 39 per cent reduction in
reported activations from storm overflows compared to the 2020
baseline, but there is a lot more to do and we have ambitious plans
to go further and faster to drive a real step change. This won't
happen overnight, it will take sustained effort and investment over
time, but we are committed to acting as fast as we can. With the
support of our regulators we are accelerating investment, making a
start on improvements at one third of the overflows we are
targeting in AMP8. As a result we will be investing a further
GBP200 million in the next two years.
In October we will be putting forward our business plan with the
biggest environmental improvement programme we will have ever
proposed. Along with all my colleagues, we are looking forward to
the opportunity to build a stronger, greener and healthier North
West.
Strengthening our industry-leading affordability support for
customers
We are passionate about protecting customers in vulnerable
circumstances through our comprehensive suite of support schemes
and an industry-leading GBP280 million(1) package of affordability
support. The cost of living crisis has made things even more
challenging for deprived communities in our region. With a growing
number of customers asking for help with their water bill, we have
been working hard to increase awareness of available support, the
option of flexible payment plans, and to provide water efficiency
advice.
We are determined to play a role in making the North West
stronger. This is the fourth year we have taken a leading role
across our region, bringing together all stakeholders and
communities to focus on affordability and vulnerability issues.
Delivering improvements in performance for customers and the
environment
Our operational performance has been strong this year - we have
met or exceeded 83 per cent of our performance commitments, earning
a net customer ODI reward of approximately GBP25 million. This
reflects strong delivery for customers and the environment in the
North West.
Our investment in improving water quality - principally to avoid
discolouration - has supported a 26 per cent improvement in water
quality contacts this year. This is contributing towards our ODI
performance, alongside other water measures such as water service
resilience and supporting the removal of lead pipes from customers'
properties.
Reducing leakage is of huge importance for our stakeholders and
for us as an organisation. This year we have delivered our best
performance to date against our performance commitment, resulting
in an ODI reward. While we are making great progress, we recognise
we continue to have a high absolute level of leakage. We are
challenging ourselves to go further in reducing leakage - from our
network and in customer properties - as it is critical to helping
us better manage and conserve water resources. Alongside this we
have delivered our largest ever reduction in Per Capita Consumption
(PCC), supported by help and advice to encourage customers to use
less water and amplify the link between heating water and energy
bills.
Our basket of measures for avoiding flooding is also delivering
a net ODI reward, and we continue to make great progress in
reducing flooding incidents. We have nearly halved the number of
internal sewer flooding incidents since the start of AMP7. This
year's performance includes a 39 per cent reduction in repeat
internal flooding incidents(2) . This has been supported by our
investment in Dynamic Network Management (DNM).
In the winter, we experienced a rapid and severe freeze-thaw
event that resulted in burst pipes across the region. Our teams and
partners worked exceptionally hard to minimise the disruption and
we deployed significant resources to sustain services. However,
some customers experienced short-term interruptions to their water
supply, leading to an ODI penalty against this performance
commitment and additional costs.
The great service we have delivered for customers has been
reflected in further improvement in our performance against Ofwat's
measure of customer satisfaction, C-MeX. We were the top listed
company, ranked fourth of the water and wastewater companies and
fifth out of 17 companies overall. As a result of this performance
we expect to achieve a record GBP3 million reward. Customer service
is hugely important to us, and are proud to be the first company
ever to receive 100,000 commendations from customers through the
WOW! Awards scheme, where customers provide independent, proactive
feedback on the service we provide.
We look after important urban and rural landscapes and we
continue to stretch ourselves to improve environmental performance,
to create a greener North West. Our environmental performance this
year has remained strong. We have also delivered all of our Water
Industry National Environment Programme (WINEP) schemes by their
planned delivery date since the beginning of AMP7, including 137
schemes in this year alone.
We have also achieved the top, 4 star rating in the
Environmental Performance Assessment from the Environment Agency
(EA) in five of the last seven years. This includes being assessed
as an "industry leading" company in the most recent assessment for
2021. This was a significant achievement given that the criteria
used to assess company performance becomes more challenging each
year. We have consistently improved our performance when it comes
to minimising pollution, having reduced the number of pollution
incidents by over 50 per cent in the last decade and achieving zero
serious pollution incidents in three of the last four years.
(1) 50% company funded, over the course of the 2020-25
regulatory period (AMP7)
(2) These are incidents affecting a customer that has already
experienced a previous incident
Driving a step change in river health
Communities are concerned about the country's rivers and
particularly the impact of storm overflows. We have listened,
understand the strength of feeling and we agree that we need to go
further and faster to reduce the number of storm overflow
activations.
Overflows have been a core feature of the sewer network in the
UK and around the world for more than a century. We recognise that
the time has come to change this and a step change is needed.
Achieving this will take significant time and sustained, new
investment. The North West has more rainfall and more combined
sewers than elsewhere in the country, as well as a very large
network. We are committed to delivering the changes needed as
quickly and effectively as possible.
Last year, we announced our 'Better Rivers: Better North West'
programme, supported by additional reinvestment of outperformance,
to take action to improve river health across our region. We have
made good progress so far and have delivered a 39 per cent
reduction in reported activations compared to the 2020 baseline.
This will get progressively tougher as we focus on more challenging
overflows. Key to delivering this is our improvement in monitoring
and operation of storm overflows. We currently monitor 97 per cent
of overflows and will achieve full coverage before the end of this
calendar year.
We have also won regulatory support to make an early start on
our AMP8 investment. This means we expect to spend GBP200 million
over the final two years of AMP7, making an early start on
improving a third of the overflows targeted for improvement between
now and 2030.
Creating a greener future
We continue to work towards our 2050 net zero ambition,
underpinned by ambitious science-based targets. We are making good
progress against our six carbon pledges, and have reduced our scope
1 and 2 greenhouse gas (GHG) emissions by a further 1.5 per cent
this year. Our peatland restoration and woodland creation
programmes help to protect water and other natural resources,
support nature, and enable recreational access, as well as acting
as natural carbon 'sinks' to help mitigate climate change.
We own and manage 56,000 hectares of land, which provides scope
for the development of renewable and other clean technologies.
Having previously delivered a portfolio of renewable assets across
the North West, we are now moving to the next stage of the journey
to net zero. As an initial step, we are working on plans to develop
150 megawatts of new installed capacity by 2030. This programme
could comprise a combination of solar, wind and batteries, helping
to deliver emissions reductions and further improve both operating
and financial resilience.
Supported by a talented, diverse and engaged workforce
Our colleagues are at the heart of our current and future
success, and we are committed to providing a safe and great place
to work. Colleague engagement has been strong this year, and at 82
per cent we scored higher than UK Norm and Utilities Norm
benchmarks. We have recruited record levels of graduates and
apprentices onto our award winning programmes this year, and are
proud that one of our own colleagues has been awarded the UK's
apprentice of the year. We have also launched our new green
apprenticeship scheme to recruit 100 apprentices by 2025, who will
actively contribute to our environmental delivery.
The safety of our colleagues has been, and always will be, a top
priority for us, and we are pleased to have delivered sustained
year-on-year improvements in employee accident frequency rates for
the last five years. In recognition of our commitment to health and
safety, we have been awarded the Royal Society for the Prevention
of Accidents (RoSPA) gold standard medal for the 11(th) consecutive
year.
We are ranked in the top 100 companies in the Financial Times
Inclusive Leaders Index 2023, having improved on our position from
last year, and are the only UK utility company in the top 100. We
are recognised as one of the top 15 FTSE companies when it comes to
women in leadership, having exceeded the 40 per cent target for
Women on Board and Women Leaders set by the FTSE 100 Women Leaders
Review.
Building an ambitious future plan
Enhanced environmental standards, population growth and climate
change are driving significant new investment needs. Our plan for
the next regulatory period will be submitted in October with a
substantial programme of work targeting a wide range of customer
service and environmental benefits.
Reducing the use of storm overflows is a key component of our
plan, which proposes improvements to over 400 sites by the end of
AMP8. We expect this would represent a reduction of over 70,000
activations per annum, around a 60 per cent reduction against the
2020 baseline. Our plan also includes investment to reduce
phosphorous and address nutrient imbalance, delivery targets set by
the Environment Act 2021, further improving river health in the
North West.
Our proposed programme of work is substantially larger than we
have ever delivered before, and we are already working hard to
prepare and mobilise to deliver this ambitious plan. We have
appointed five new area stakeholder managers, one for each county
in our region, who are working on early engagement with communities
and planning approval. We have also brought in additional
experience and knowledge to assist colleagues in our engineering,
capital delivery and commercial teams. Our supply chain will be
critical, and we have appointed an AMP8 mobilisation and
organisational readiness partner to ensure that we have the skills
and capabilities to successfully deliver AMP8.
Our engagement with customers shows their support for investment
in environmental improvements, but the recent rises in cost of
living are clearly putting pressure on household budgets and a plan
of this size will inevitably drive an increase in customer bills.
We are challenging ourselves to embed the highest levels of
efficiency into the plan and identify the best value solutions. We
also recognise the need to support customers with affordability
challenges and we are planning to strengthen our industry-leading
affordability support package as we head into AMP8.
We are confident that our strong and resilient corporate and
financial structure, together with a highly competent and engaged
team, means that we are well positioned to continue to deliver for
all our stakeholders in AMP8 and beyond.
AMP7 FINANCIAL FRAMEWORK
Our five year financial framework captures anticipated
performance in the five years to 31 March 2025. This period aligns
with the AMP7 regulatory period.
Investment and regulated asset growth
We expect to deliver a number of capital programmes in AMP7, in
addition to our base totex programme. These include Green Recovery
and the recently approved AMP8 accelerated environmental
enhancement programmes. Combined with the impact of inflation, our
regulated assets are expected to grow at a compound annual growth
rate of 4 to 5 per cent across the five years to March 2025.
Return on regulated equity
The return on regulatory equity (RoRE) metric measures returns
(after tax and interest) earned by reference to notional regulated
equity. Overall returns comprise a base return on equity plus a
contribution from outcome delivery incentives, operating
efficiency, financing efficiency and customer service. We currently
expect to deliver average returns of between 6 and 8 per cent in
AMP7, on a real RPI/CPIH blended basis.
Balance sheet
The board has set a target gearing range for the AMP7 regulatory
period of 55 to 65 per cent net debt to regulated capital value. As
at 31 March 2023 our gearing is in the lower half of this range at
58 per cent.
Dividend policy
The group maintains a dividend policy to target a growth rate of
CPIH inflation each year through to 2025. The annual increase in
the dividend is based on the CPIH element included within allowed
regulated revenue for the current financial year. This is
calculated as using the CPIH annual rate from the November prior
(i.e. the 2022/23 dividend is equal to the 2021/22 dividend indexed
for the movement in CPIH between November 2020 and November
2021).
OUTLOOK AND GUIDANCE
ODI rewards
We are targeting a net customer ODI reward of around GBP200
million in total over AMP7.
Revenue
Revenue is expected to increase by around GBP150 million in
2023/24, largely reflecting the November 2022 CPIH inflation of 9.3
per cent, partially offset by a GBP20 million net impact of
over/under-recovery during 2022/23 and 2021/22.
Underlying operating costs
Operating costs are expected to be around GBP60 million higher
year-on-year. This increase is largely driven by inflation, with
the largest inflationary pressures impacting power and labour
costs. The remaining increase reflects the 2023/24 operating cost
impact of additional investments, including our Better Rivers
programme.
Underlying net finance expense
Underlying net finance expense is expected to be at least GBP150
million lower year-on-year, due to the impact of falling inflation.
As at 31 March 2023, we had GBP4.5 billion of index-linked debt
exposure, giving rise to a GBP45m swing in our interest charge for
every 1 per cent change in inflation. Our cash interest in 2022/23
was GBP102 million and we expect this to be slightly higher in
2023/24.
Underlying tax
Our current tax charge is expected to be zero in 2023/24,
reflecting expected benefits following the spring budget in
relation to "full expensing" and the 50 per cent first year
allowances on longer life assets.
Capital expenditure
Capex in 2023/24 is expected to be in the range of GBP720
million to GBP800 million. In addition to our AMP7 base programme,
this reflects capital expenditure for the year in relation to our
additional investment (including Green Recovery and investment
supporting our Better Rivers programme), and AMP8 acceleration
capital programmes.
FINANCIAL REVIEW
Key financials (GBPm)
Reported Underlying(1)
============================== ==============================
2023 2022 % change 2023 2022 % change
===================================== ======== ========= ========= ======== ========= =========
Revenue 1,824.4 1862.7 -2.1% 1,824.4 1862.7 -2.1%
===================================== ======== ========= ========= ======== ========= =========
Operating expenses (766.5) (665.0) +15.2% (766.5) (665.0) +15.2%
===================================== ======== ========= ========= ======== ========= =========
Infrastructure renewals expenditure (193.5) (169.5) +14.2% (193.5) (169.5) +14.2%
===================================== ======== ========= ========= ======== ========= =========
Depreciation and amortisation (423.6) (418.2) +1.3% (423.6) (418.2) +1.3%
===================================== ======== ========= ========= ======== ========= =========
Operating profit 440.8 610.0 -27.7% 440.8 610.0 -27.7%
===================================== ======== ========= ========= ======== ========= =========
Net finance expense (215.7) (168.3) +28.2% (475.1) (306.3) +55.1%
===================================== ======== ========= ========= ======== ========= =========
Share of losses of JVs - (1.8) n/a - (1.8) n/a
===================================== ======== ========= ========= ======== ========= =========
Profit on disposal of subsidiary 31.2 - n/a - - n/a
===================================== ======== ========= ========= ======== ========= =========
(Loss)profit before tax 256.3 (439.3) -n/a (34.3) 301.9 n/a
===================================== ======== ========= ========= ======== ========= =========
Tax credit/(charge) (51.4) (496.7) +89.7% 25.6 65.1 -60.7%
===================================== ======== ========= ========= ======== ========= =========
(Loss)/profit after tax 204.9 (56.8) n/a (8.7) 367.0 n/a
===================================== ======== ========= ========= ======== ========= =========
EPS (pence) 30.0 (8.3) n/a (1.3) 53.8 n/a
===================================== ======== ========= ========= ======== ========= =========
2023 2022 % change
============================= ======= ======= =========
Total DPS (pence) 45.51 43.50 +4.6%
============================= ======= ======= =========
Net regulatory capex (GBPm) 693.9 644.5 +7.7%
============================= ======= ======= =========
RCV(2) (GBPm) 14,000 12,725 +10.0%
============================= ======= ======= =========
Net debt (GBPm) 8,201 7,570 +8.3%
============================= ======= ======= =========
RCV gearing(3) (%) 58% 59% -1%
============================= ======= ======= =========
RoRE(4) (%) 11.0% 7.7% +3.3%
============================= ======= ======= =========
(1) Underlying measures are defined in the underlying profit
section below
(2) United Utilities Water Limited's adjusted RCV (adjusted for
actual spend, timing differences and including full expected value
of AMP7 ex-post adjustment mechanisms). Prior year figures have
been re-presented for comparative purposes.
(3) RCV gearing calculated as group net debt including loan
receivable from joint venture/United Utilities Water Limited's
adjusted RCV (adjusted for actual spend, timing differences and
including full expected value of AMP7 ex-post adjustment
mechanisms). Prior year figures have been re-presented for
comparative purposes.
(4) Return on regulated equity
This has been a challenging year for the business. Revenue
declined 2 per cent, mainly driven by lower than expected
consumption while underlying operating profit fell 28 per cent or
GBP169 million, primarily due to the reduction in revenue and
inflationary pressures on core costs, particularly power and
chemicals. The higher inflation has also significantly increased
non-cash interest expense on our index-linked debt, which alongside
the lower operating profit, has resulted in a small underlying loss
for the year of GBP9m and an underlying earnings per share of minus
1.3 pence.
However, the inflation linkage for both the Regulatory Capital
Value (RCV) and the allowance for total expenditure (Totex),
provides additional longer term value that is not reflected in the
income statement. This has contributed to a robust economic
performance, including an increase in our return on regulated
equity of 11.0 per cent. This extra value accruing to the RCV has
resulted in a reduction in RCV gearing to 58 per cent, consistent
with our strong balance sheet and supporting our dividend
policy.
Revenue
GBPm
Year to 31 March 2022 1,862.7
--------
Regulatory revenue 4.6 per cent uplift in line
with CPIH inflation partly offset by -1.3 per
cent real reduction in allowed wholesale revenues 69.7
--------
Non-household consumption impact (80.1)
--------
Household consumption impact (22.3)
--------
Other (5.6)
--------
Year to 31 March 2023 1,824.4
--------
Revenue was down GBP38 million, at GBP1,824 million, largely
reflecting lower consumption more than offsetting the allowed
regulatory revenue increase.
In 2022/23 we had a GBP70 million increase in the revenue cap
due to regulatory adjustments, incorporating GBP21 million in
relation to ODI rewards earned in 2020/21 and a 4.6 per cent
CPIH-linked increase partly offset by 1.3 per cent real reduction
in allowed wholesale revenues as set out in our PR19 Final
Determination.
Non-household revenue has decreased by GBP80 million compared
with last year and household consumption has decreased by GBP22
million, as consumption across both customer groups has changed
since charges and tariffs for the year were set in December 2021.
Taking into consideration the regulatory adjustments, revenue for
the year represents a GBP41 million under-recovery against allowed
revenue, which, under the revenue control, will be recoverable in
two years' time.
Operating profit
GBPm
Year to 31 March 2022 610.0
-------
Revenue decrease (38.3)
-------
Inflationary increases (80.9)
-------
Extreme weather costs (19.5)
-------
Costs driving ODI performance (4.9)
-------
Other (25.6)
-------
Year to 31 March 2023 440.8
-------
Operating profit at GBP441 million was GBP169 million lower than
last year, largely reflecting the decrease in revenue, inflation
impacting our core cost base and the impact of operational
incidents as a result of extreme weather during the year.
Inflationary pressures have impacted input costs resulting in a
GBP81 million increase. The largest increases have been to power,
chemical, labour costs and regulatory fees, where we have incurred
an additional GBP27 million, GBP25 million, GBP8 million and GBP8
million respectively. We have experienced smaller inflationary
increases to other costs of GBP13 million, which on a cost base of
GBP518 million represents an inflationary impact of 3 per cent,
which was less than CPIH inflation.
Our regulatory model allows for indexation of our overall totex
allowance (including capital expenditure) and with average CPIH of
8.9 per cent, we are managing to contain the inflation impact on
overall costs within the totex inflation allowance.
Extreme weather events adversely impacted not only our ODI
performance, but also drove an adverse operating cost impact of
GBP20 million.
The GBP5 million of additional expenditure driving improvements
to ODI performance was primarily in relation to infrastructure
renewals expenditure (IRE) investment in Dynamic Network Management
(DNM) - our innovative approach to managing our sewer network - and
improving water quality.
The rising cost of living increases the strain on customers'
ability to pay their bills and therefore cash collection. However,
we have 81 per cent of household customers on direct debit and
other payment plans and, with the help of proactive engagement,
innovative solutions and tailored assistance, we have achieved our
best ever performance for cash collection. This has contributed to
bad debt remaining at an all time low 1.8 per cent of household
revenue.
Profit/(loss) before tax
GBPm
Underlying - year to 31 March 2022 301.9
--------
Underlying operating profit decrease (169.2)
--------
Underlying net finance expense increase (168.8)
--------
Share of JVs losses decrease 1.8
--------
Underlying loss before tax - year to 31 March
2023 (34.3)
--------
Adjusted items * 290.6
--------
Reported - year to 31 March 2023 256.3
--------
* Adjusted items are set out in the underlying profit table
below.
Underlying loss before tax of GBP34 million compared to a GBP302
million underlying profit before tax last year. The GBP336 million
difference reflects the GBP169 million reduction in underlying
operating profit and a GBP169 million increase in underlying net
finance expense, partly offset by a decrease in the share of losses
of joint ventures of GBP2 million. Underlying profit before tax
reflects consistently applied presentational adjustments as
outlined in the underlying profit table below.
Reported profit before tax decreased by GBP184 million to GBP256
million reflecting the GBP169 million decrease in reported
operating profit and a GBP48 million increase in reported net
finance expense, partly offset by a GBP31 million profit on
disposal of our subsidiary United Utilities Renewable Energy
Limited, and a decrease in the share of losses of joint ventures of
GBP2 million.
-- Net finance expense
The underlying net finance expense of GBP475 million was GBP169
million higher than last year mainly due to significantly higher
inflation resulting in a GBP520 million increase in the non-cash
indexation on our debt and derivative portfolio, partly offset by
higher capitalised interest of GBP127 million (2021/22: GBP53
million) and higher net pension interest income of GBP29 million
(2021/22: GBP14 million).
Cash interest of GBP102 million was GBP16 million lower than
last year. Cash interest excludes non-cash items mainly comprising
the indexation on our debt and derivative portfolio, capitalised
interest and net pension interest income.
Reported net finance expense of GBP216 million was GBP48 million
higher than last year, reflecting the GBP169 million increase in
the underlying net finance expense, partly offset by a GBP123
million increase in net fair value gains on debt and derivatives
(excluding interest on debt and derivatives under fair value
option) from GBP138 million last year to GBP261 million this
year.
-- Joint ventures
In the prior year we recognised a GBP1.8 million net share of
losses from joint ventures primarily in relation to Water Plus. For
the year to 31 March 2023, Water Plus's financial performance has
improved to a breakeven position, and we therefore recognise
neither a share of profit or loss in our income statement.
Profit/(loss) after tax and earnings per share
PAT Earnings
GBPm per share
Pence/share
Underlying - year to 31 March 2022 367.0 53.8p
-------- -------------
Underlying profit before tax decrease (336.2)
-------- -------------
Reduction in underlying tax credit (39.5)
-------- -------------
Underlying loss after tax - year to 31
March 2023 (8.7) (1.3)p
-------- -------------
Adjusted items * 214.0
-------- -------------
Reported - year to 31 March 2023 204.9 30.0p
-------- -------------
* Adjusted items are set out in the underlying profit section
below.
The underlying loss after tax of GBP9 million is GBP376 million
lower than the underlying profit after tax of GBP367 million last
year, reflecting the GBP336 million reduction in underlying profit
before tax and a GBP40 million reduction in underlying tax
credit.
Reported profit after tax is higher at GBP205 million and
reported earnings per share at 30.0 pence per share with the
adjusted items between underlying and reported profit after tax set
out in the underlying profit section below.
-- Tax
The group continues to be fully committed to paying its fair
share of tax and acting in an open and transparent manner in
relation to its tax affairs and we are delighted to have retained
the Fair Tax Mark independent certification for a fourth year.
In addition to corporation tax, the group pays significant other
contributions to the public finances on its own behalf as well as
collecting and paying over further amounts for its over 5,000
strong workforce. The total payments for 2022/23 were around GBP229
million and included business rates, employment taxes,
environmental taxes and other regulatory service fees such as water
abstraction charges.
In the current year, we received a net corporation tax repayment
of GBP1 million which represents an effective cash tax rate of 0
per cent. The key reconciling item to the headline rate of
corporation tax continues to be allowable tax deductions on capital
investment including the temporary capital allowance 'super
deductions'.
The group recognised a current tax credit of GBP25 million,
mainly due to a prior year adjustment to recognise the utilisation
of tax losses previously assumed to be carried forwards.
The deferred tax charge of GBP77 million is GBP486 million lower
than last year primarily due to a GBP403 million charge in the
prior year relating to the increase in the tax rate from 19 per
cent to 25 per cent from 1 April 2023.
There are GBP171 million of tax adjustments recorded within
other comprehensive income, primarily relating to remeasurement
movements on the group's defined benefit pension schemes. As in the
prior year the rate at which the deferred tax liabilities are
measured on the group's defined benefit pension scheme is 35 per
cent, being the rate applicable to refunds from a trust.
Dividend per share
The Board has proposed a final dividend of 30.34 pence per
ordinary share in respect of the year ended 31 March 2023 . Taken
together with the interim dividend of 15.17 pence per ordinary
share, paid in February, this results in a total dividend per
ordinary share for 2022/23 of 45.51 pence. This is an increase of
4.6 per cent compared with the dividend relating to last year, in
line with the group's dividend policy of targeting a growth rate of
CPIH inflation each year through to 2025. The 4.6 per cent increase
is based on the CPIH element included within allowed regulated
revenue for the 2022/23 financial year (i.e. the movement in CPIH
between November 2020 and November 2021).
The final dividend is expected to be paid on 1 August 2023 to
shareholders on the register at the close of business on 26 June
2023. The ex-dividend date is 22 June 2023. The election date for
the Dividend Reinvestment Plan is 11 July 2023.
Cash flow
Net cash generated from continuing operating activities for year
to 31 March 2023 was GBP788 million, GBP146 million lower than
GBP934 million last year, principally due to the reduced revenue of
GBP38 million and inflationary impacts on costs of GBP81
million.
The net cash generated from continuing operating activities
supports the dividends paid for the year of GBP301 million and
partially funds some of the group's net capital expenditure of
GBP690 million, with the balance being funded by net borrowings and
cash and cash equivalents. This forms part of a GBP2.0 billion
capital programme undertaken in the first three years of the
period, representing 62 per cent delivery of our AMP7 programme. We
have been able to deliver this expenditure effectively, scoring
92.9 per cent against our Capital Programme Delivery incentive
(CPDi) measure this year.
Pensions
As at 31 March 2023, the group had an IAS 19 net pension surplus
of GBP601 million, compared with a surplus of GBP1,017 million at
31 March 2022. This GBP416 million decrease principally reflects a
decrease in the value of the schemes' assets due to changes in
financial conditions over the course of the financial year, as well
as experience losses resulting from actual inflation being higher
than assumed at 1 April 2022. This more than offsets the
significant reduction in the schemes' liabilities during the year
due to an increase in the average discount rate since the start of
the year and a lower long term RPI assumption.
Further detail on pensions is provided in note 12 ('Retirement
benefit surplus') of these condensed consolidated financial
statements.
Financing
Net debt GBPm
At 31 March 2022 7,570.0
--------
Cash generated from operations (883.1)
--------
Proceeds from disposal of subsidiary (90.5)
--------
Net capital expenditure 688.9
--------
Indexation 463.4
--------
Dividends 301.2
--------
Interest 102.4
--------
Fair value movements 32.3
--------
Exchange rate movements on bonds and term borrowings 20.6
--------
Other (4.4)
--------
At 31 March 2023 8,200.8
--------
Net debt at 31 March 2023 was GBP8,201 million, compared with
GBP7,570 million at 31 March 2022. This comprises gross borrowings
with a carrying value of GBP8,435 million and net derivative
liabilities hedging specific debt instruments of GBP106 million net
of cash and short-term deposits of GBP340 million.
Underlying movements in net debt are largely a result of net
operating cash inflows offset by our net capital expenditure,
dividends, indexation and cash interest.
Gearing, measured as group net debt including a GBP76 million
loan receivable from joint venture divided by UUW's adjusted RCV
(adjusted for actual spend, timing differences and including full
expected value of AMP7 ex-post adjustment mechanisms) regulatory
capital value of GBP14.0 billion, was 58 per cent at 31 March 2023,
slightly lower than the equivalent 59 per cent at 31 March 2022,
and remains within our target range of 55 to 65 per cent.
-- Cost of debt
As at 31 March 2023, the group had approximately GBP3.4 billion
of RPI-linked instruments and GBP0.5 billion of CPI or CPIH-linked
instruments held as debt Including swaps, the group has RPI-linked
debt exposure of GBP3.3 billion at an average real rate of 1.3 per
cent, and GBP1.2 billion of CPI or CPIH-linked debt exposure at an
average real rate of -0.6 per cent.
A significantly higher RPI inflation charge compared with the
same period last year contributed to the group's average effective
interest rate of 8.0 per cent being higher than the rate of 5.1 per
cent last year.
The group has fixed the interest rates on its non index-linked
debt in line with its 10-year reducing balance basis at a net
effective nominal interest rate of 2.2 to 2.9 per cent for the
remainder of the AMP7 regulatory period.
-- Credit ratings
UUW's senior unsecured debt obligations are rated A3 with
Moody's Investors Service (Moody's), A- with Fitch Ratings (Fitch)
and BBB+ with Standard & Poor's Ratings Services (S&P) and
all on stable outlook. United Utilities PLC's (UU PLC's) senior
unsecured debt obligations are rated Baa1 with Moody's, A- with
Fitch and BBB- with S&P, all on stable outlook.
-- Debt financing
The group has access to the international debt capital markets
through its GBP10 billion medium-term note (MTN) programme.
In total over 2020-25, we expect to raise around GBP2.7 billion
to cover refinancing and incremental debt, supporting our five-year
investment programme. So far in AMP7, we have raised around GBP1.8
billion, taking advantage of attractive funding opportunities
available and extending our liquidity out to August 2025.
In the year to March 2023 we raised GBP638 million of term
funding including new/renewed bank facilities.
Following the year end we issued a further GBP400m of term
funding, with the proceeds of a GBP300m sustainable public bond
being received on 6 April and executing a GBP100m 9 year maturity
bilateral loan with one of the group's relationship banks during
April 2023.
-- Interest rate management
Long-term sterling inflation index-linked debt provides a
natural hedge to assets and earnings under the regulatory model. At
31 March 2023, approximately 40 per cent of the group's net debt
was in RPI-linked form, representing around 25 per cent of UUW's
regulatory capital value, with an average real interest rate of 1.3
per cent. A further 15 per cent of the group's net debt was in CPI
or CPIH-linked form, representing around 9 per cent of UUW's RCV,
with an average real rate of -0.6 per cent. The long-term nature of
this funding also provides a good match to the company's long-life
infrastructure assets and is a key contributor to the group's
average term debt maturity profile, which is around 17 years.
Our inflation hedging policy is to target around 50 per cent of
net debt to be maintained in index-linked form. This reflects a
balanced assessment across a range of factors.
Where nominal debt is raised in a currency other than sterling
and/or with a fixed interest rate, the debt is generally swapped to
create a floating rate sterling liability for the term of the debt.
To manage exposure to medium-term interest rates, the group fixes
underlying interest costs on nominal debt out to ten years on a
reducing balance basis.
-- Liquidity
Short-term liquidity requirements are met from the group's
normal operating cash flow and its short-term bank deposits and
supported by committed but undrawn credit facilities. Our MTN
programme provides further support.
At 31 March 2023, we had liquidity out to August 2025,
comprising cash and short-term deposits, plus committed undrawn
revolving credit facilities. This gives us flexibility in terms of
when and how further debt finance is raised to help refinance
maturing debt and support the delivery of our capital investment
programme.
Return on Regulated Equity (RoRE)
Reported RoRE for 2022/23 was 11.0 per cent on a real, RPI/CPIH
blended basis.
This comprises the base return of 4.0 per cent (including our 11
basis point fast track reward that we receive in each of the five
years of the AMP), financing outperformance of 4.7 per cent, tax
outperformance of 2.5 per cent, and customer ODI outperformance of
0.5 per cent, partially offset by the total expenditure (totex)
impact on RoRE of -0.8 per cent as a result of our additional
investment to improve operational and environmental
performance.
-- Totex performance
The totex impact on RoRE of -0.8 per cent, largely reflects the
year three impact of the additional investment we are making
outside the scope of our Final Determination (FD) to improve
operational and environmental performance. This includes, for
example, our investment in Dynamic Network Management and
investment as part of our Better Rivers programme.
Our AMP7 business plan was assessed by Ofwat as being amongst
the most efficient in the sector, and our performance improvements
over AMP6 meant we started AMP7 at a totex run rate that supported
delivery of the stretching efficiency challenge in our FD
allowance. Our totex allowance increases with inflation, which
helps to mitigate some of the cost pressures experienced this year,
and we continue to exploit technology and innovation to help us
deliver our investment efficiently.
-- Customer outcome delivery incentives (ODIs)
Customer ODI outperformance of 0.5 per cent reflects a net
reward of GBP25 million(1) . Our customer ODI performance has been
strong across the board, meeting or exceeding 83 per cent of our
performance commitments, our best ever performance. We continue to
target a total a cumulative net ODI reward over this five-year
period of around GBP200 million.
Customer ODI rewards and penalties in AMP7 will be adjusted in
revenues on a two-year lag, therefore the net reward earned this
year will be reflected in an increase to revenues earned in 2024/25
through allowed increases in the rates charged to customers in that
financial year, in accordance with the regulatory mechanism.
-- Tax outperformance
The 2.5 per cent outperformance on tax reflects the current year
underlying tax credit, including capital allowances associated with
temporary 'super deductions'.
-- Financing outperformance
We earned financing outperformance this year of 4.7 per cent. We
have consistently issued debt at efficient rates that compare
favourably with the industry average, thanks to our leading
treasury management, clear and transparent financial risk
management policies, and ability to act swiftly to access pockets
of opportunity as they arise. This delivered significant financing
outperformance during AMP6 and the rates we have locked-in for AMP7
compare favourably with the price review assumptions. Our financing
outperformance this year has also been supported by the recent high
level of inflation, which increases the benefit of the roughly GBP3
billion fixed rate debt we have locked in.
(1) Excluding per capita consumption, which Ofwat will be
revisiting at the next price review once there is a better
understanding of the impact of COVID 19 and any enduring
effects
Underlying profit
The underlying profit measures in the following table represent
alternative performance measures (APMs) as defined by the European
Securities and Markets Authority (ESMA). These measures are linked
to the group's financial performance as reported in accordance with
UK-adopted international accounting standards and the requirements
of the Companies Act 2006 in the group's consolidated income
statement, which can be found below in the Group's consolidated
income section. As such, they represent non-GAAP measures.
These APMs can assist in providing a representative view of
business performance, and may not be directly comparable with
similarly titles measures presented by other companies. The group
determines adjusted items in the calculation of its underlying
measures against a framework which considers significance by
reference to profit before tax, in addition to other qualitative
factors such as whether the item is deemed to be within the normal
course of business, its assessed frequency of reoccurrence and its
volatility which is either outside the control of management and/or
not representative of current year performance.
In addition, a reconciliation of the group's average effective
interest rate has been presented, together with a prior period
comparison. In arriving at net finance expense used in calculating
the group's effective interest rate, underlying net finance expense
is adjusted to add back net pension interest income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
Adjusted Rationale
item
Adjustments not expected to recur
Profit on This relates to the disposal of the group's subsidiary
disposal of United Utilities Renewable Energy Limited, which
subsidiary represents a significant, atypical event and as
such is not considered to be part of the normal
course of business.
--------------------------------------------------------
Consistently applied presentational adjustments
Fair value Fair value movements on debt and derivative instruments
(gains)/losses can be both very significant and volatile from
on debt and one period to the next, and are therefore excluded
derivative in arriving at underlying net finance expense
instruments, as they are determined by macro-economic factors
excluding which are outside of the control of management
interest on and relate to instruments that are purely held
derivatives for funding and hedging purposes (not for trading
and debt under purposes). Included within fair value movement
fair value on debt and derivatives is interest on derivatives
option and debt under fair value option. In making this
adjustment it is appropriate to add back interest
on derivatives and debt under fair value option
to provide a view of the group's cost of debt
which is better aligned to the return on capital
it earns through revenue. Taking these factors
into account, management believes it is useful
to adjust for these fair value movements to provide
a more representative view of performance.
--------------------------------------------------------
Deferred tax Management adjusts to exclude the impact of deferred
adjustment tax in order to provide a more representative
view of the group's profit after tax and tax charge
for the year given that the regulatory model allows
for cash tax to be recovered through revenues,
with future revenues allowing for cash tax including
the unwinding of any deferred tax balance as it
becomes current. By making this adjustment, the
group's underlying tax charge does not include
tax that will be recovered through revenues in
future periods, thus reducing the impact of timing
differences.
--------------------------------------------------------
Tax in respect Management adjusts for the tax impacts of the
of adjustments above adjusted items to provide a more representative
to underlying view of current year performance.
profit / (loss)
before tax
--------------------------------------------------------
Year ended Year ended
31 March 31 March
Underlying profit 2023 2022
GBPm GBPm
Operating profit per published results 440.8 610.0
Underlying operating profit 440.8 610.0
----------- -----------
Net finance expense
GBPm GBPm
Finance expense (262.7) (187.7)
Investment income 47.0 19.4
Net finance expense per published results (215.7) (168.3)
----------- -----------
Adjustments:
Fair value (gains) on debt and derivative
instruments, excluding interest on derivatives
and debt under fair value option (259.4) (138.0)
Underlying net finance expense (475.1) (306.3)
----------- -----------
GBPm GBPm
Share of profits/(losses) of joint ventures - (1.8)
Profit on disposal of business 31.2 -
Adjustments:
Profit on disposal of subsidiary (31.2) -
----------- -----------
Underlying profit on disposal of subsidiary - -
----------- -----------
Profit before tax per published results 256.3 439.9
Adjustments:
In respect of operating profit - -
In respect of net finance expense (259.4) (138.0)
In respect of profit on disposal of subsidiary (31.2) -
----------- -----------
Underlying profit before tax (34.3) 301.9
----------- -----------
Profit/(Loss) after tax per published
results 204.9 (56.8)
Adjustments:
In respect of profit before tax (290.6) (138.0)
Deferred tax adjustment 76.6 562.5
Tax in respect of adjustments to underlying
profit before tax 0.4 (0.7)
Underlying (loss)/profit after tax (8.7) 367.0
----------- -----------
Earnings per share
GBPm GBPm
Profit/(Loss) after tax per published
results (a) 204.9 (56.8)
Underlying (loss) / profit after tax (b) (8.7) 367.0
Weighted average number of shares in issue,
in millions (c) 681.9m 681.9m
Earnings per share per published results,
in pence (a/c) 30.0 (8.3)
Underlying earnings per share, in pence
(b/c) (1.3) 53.8
Dividend per share, in pence 45.51p 43.50p
In arriving at net finance expense used in calculating the
group's effective interest rate, management adjusts underlying net
finance expense to add back pension income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
Year ended Year ended
Average effective interest rate 31 March 2023 31 March
2022
-------------- -----------
GBPm GBPm
-------------- -----------
Underlying net finance expense (475.1) (306.3)
-------------- -----------
Adjustments:
-------------- -----------
Net pension interest income (28.7) (14.3)
-------------- -----------
Adjustment for capitalised borrowing
costs (127.5) (52.7)
-------------- -----------
Net finance expense for effective
interest rate (631.3) (373.3)
-------------- -----------
Average notional net debt (7,849) (7,368)
-------------- -----------
Average effective interest rate 8.0% 5.1%
-------------- -----------
The table below provides a reconciliation between group
underlying operating profit and United Utilities Water Limited
(UUW) historical cost regulatory underlying operating profit
(non-GAAP measures) as follows:
Year ended Year ended
31 March 2023 31 March
2022
GBPm GBPm
Group underlying operating profit 440.8 610.0
Underlying operating profit not relating
to UUW 3.1 (8.3)
UUW statutory underlying operating
profit (unaudited) 443.9 601.7
Revenue recognition 9.3 6.2
Capitalised borrowing costs 7.5 7.8
Reclassification of regulatory other
income (not included in UUW operating
profit) (32.8) (26.9)
Reversal of the innovation fund 6.4 15.4
Other differences (including non-appointed
business) (0.2) (0.8)
UUW regulatory underlying operating
profit (unaudited) 434.1 603.1
Return on Regulated Equity (RoRE)
UUW's RoRE, presented on a real return basis :
Year ended AMP7
31 March 2023 To date
Base return 3.97% 3.94%
Totex performance (0.80)% (0.76)%
Customer ODI performance 0.51% 0.46%
Tax performance 2.54% 1.70%
Financing performance 4.74% 2.52%
Reported RoRE 2 10.96% 7.86%
-------------------------- -------------- --------
PRINCIPAL RISKS AND UNCERTAINTIES
Our approach to risk management
Our overall approach to risk management, including how we
identify and assess risk, the oversight and governance process, and
focus on continual improvement remains unchanged and is detailed in
our Annual Report for the year ended 31 March 2023.
Risk profile
The business risk profile is based on the value chain of the
company, with the ten principal risks representing inherent risk
areas (primary and supportive) where value can be gained, preserved
or lost relative to the performance, future prospects or reputation
of the company. Underpinning the principal risks, the profile
consists of approximately 100 event-based risks, each of which is
allocated to one of the ten inherent risk areas based on the
context of the event, enabling the company to consider
interdependency and correlation of common themes and control
effectiveness. Although the profile remains relatively static in
terms of its headline inherent risk factors, risk assessments
remains dynamic by reflecting new and emerging circumstances.
The common themes are under continuous review, however at
present they are:
-- Causal factor themes : Asset health; Culture; Demographic
change; Economic conditions; Extreme weather/climate change;
Legislative and regulatory change; and Technology.
-- Consequence themes : Colleagues; Customers; Environment; Investors and Suppliers.
The company's most significant event-based risks
The most significant event-based risks represent the ten
highest-ranked risks by exposure (likelihood of occurrence of the
event multiplied by the most likely financial impact) and those
risks which have been assessed as having a significantly high
impact, but low likelihood. Depending on the circumstances,
financial impacts will include loss of revenue, additional or extra
cost, fines, regulatory penalties and compensation. . Reputational
impact relative to our multiple stakeholders and the five
non-financial capitals (Human, Intellectual, Manufactured, Natural
and Social) is also assessed, reported and considered as part of
the mitigation.
Summarised below are the top ten ranking risks (1 - 10), and
those assessed as having high impact, but low likelihood (A -
E):
1. Price Review 2024 outcome
Risk exposure : The capacity and capability to develop a
business plan that creates value for customers, communities, and
the environment that is sustainable and resilient for the long term
relative to the unique characteristics of the region we serve, in
light of multiple influencing factors - notably changing
demographics, climate change and asset health.
Control/mitigation : We have established cross-cutting work
streams and theme owners to identify the products and evidence
required for the submission and we will maintain a close dialogue
with Ofwat throughout the process.
Assurance : Extensive customer research and several external
providers have been commissioned for technical optioneering. Second
line assurance is provided through a dedicated price review team
and a PR24 programme board. There is a blend of internal audit and
external assurance focused on the quality of the submission.
2. Failure of the Haweswater Aqueduct
Risk exposure : The Haweswater Aqueduct is a key asset with
current low resilience due to deterioration, with failure
potentially resulting in water quality issues and/or supply
interruptions to a large proportion of the United Utilities
customer base.
Control/mitigation : A capital project to replace the tunnel
sections of the aqueduct has already commenced with the completion
in November 2020 of one section. The remaining sections are due to
be replaced as part of Haweswater Aqueduct Resilience Programme
(HARP).
Assurance : Technical and geological advice and modelling have
been sought throughout the programme development, with second line
assurance including engineering technical governance. Independent
assurance is provided by internal audits and external assurance
over the HARP procurement process.
3. Wastewater network failure
Risk exposure : Blockages, operational issues or inadequate
hydraulic capacity relative to population growth, extreme weather,
asset health, and legal/regulatory change, resulting in unpermitted
storm overflow activations, sewer flooding and environmental
damage.
Control/mitigation : Preventative maintenance and inspection
regimes, customer campaigns, sewer rehabilitation program and
Better Rivers programme.
Assurance : Second line assurance provided by wholesale
assurance, engineering technical governance and flood review panel.
Subject to regular internal audits and external assurance of
regulatory reporting.
4. Totex efficiency challenge
Risk exposure : Totex efficiencies designed for AMP7 are under
significant challenge through a combination of factors including
supply chain issues, inflationary pressures, and additional
investment to deliver performance improvements.
Control/mitigation : Integrated Business Planning (IBP),
risk-based investment prioritisation and the company business
planning process all contribute to efficient delivery of services
and the capital programme. In addition, there are number of
executive led initiatives to realise efficiency opportunities.
Assurance : First line assurance is undertaken through monthly
price control meetings, with the strategic programme board, monthly
executive performance review meetings and quarterly business
reviews providing second line governance and assurance. Third line
assurance is undertaken through cyclical internal audits.
5. Cyber
Risk exposure : Data and technology assets compromised due to
malicious or accidental activity, leading to a major impact to key
business processes and operations.
Control/mitigation : Multiple layers of control, including a
secure perimeter, segmented internal network zones, access
controls, constant monitoring and forensic response capability.
Assurance : Security measures reflect multiple sources of threat
intelligence. The security steering group provides second line
assurance, with independent assurance provided by cyclical internal
audits and various technical audits by external specialists.
6. Water sufficiency
Risk exposure : Water sufficiency is one of the most sensitive
risks to climate change, with the increased frequency of hot and
dry weather being evidence of changing circumstances. Extended
periods of low rainfall and exceptionally hot weather impacts, with
accompanying increased customer demand, impacts our water resources
which can result in the need to implement water use
restrictions.
Control/mitigation : We produce a Water Resources Management
Plan (WRMP) every five years, which forecasts future demand and
water availability under repeats of historic droughts, adjusted for
climate change. A statutory Drought Plan is also developed every
five years, setting out the actions we will take in a drought
situation.
Assurance : The WRMP and Drought Plan are subject to various
second and third line assurance activities prior to
publication.
7. Carbon commitments
Risk exposure : The capacity and capability to decarbonise water
and wastewater activity to meet commitments and legal obligations
across the various time horizons of 2030, 2035 and 2050 in light of
expected population growth pressures and uncertainty regarding the
required technological advances to decarbonise operational
activity.
Control/mitigation : In the near-term we are creating woodland,
restoring peatland and have initiatives to address process and
energy emissions. We are working with suppliers and industry
partners to better understand and optimise decarbonisation
opportunities and pathways.
Assurance : First line assurance by Carbon team using water
industry team for technical support and guidance. Climate change
mitigation steering group and corporate risk framework provides
second line assurance. Our Science Based Targets, energy and carbon
reporting are subject to external assurance and verification.
8. Recycling of biosolids to agriculture
Risk exposure : Represents various impact scenarios including
operational failures, increased restrictions or total ban of
recycling biosolids to agriculture. The risk considers the
Environment Agency's interpretation of the Farming Rules for Water
regulations and the increasing threat to recycling a large
proportion of biosolid to land.
Control/mitigation : Treatment, sampling and testing regimes
ensure that sludge meets acceptable standards for application with
formal service level agreements between wastewater and
bioresources. We work closely with farmers, land owners and
contractors to ensure regulations such as Farming Rules for Water
and the standard operating procedures are met.
Assurance : Bioresource production planning team undertake first
line assurance against UK Biosolids Assurance Scheme (BAS)
accreditation, and other codes of practice such as the safe sludge
matrix which certifies our recycling activities. Second and third
line assurance is also undertaken by the assurance and internal
audit teams respectively.
9. Failure to treat sludge
Risk exposure : Relates to the interdependency between
wastewater and bioresource treatment activity in light of changing
demographics, asset health and legislative/regulatory change such
as the Industrial Emissions Directive (IED) now applying to
biological treatment of sewage sludge.
Control/mitigation : We look to maximise our treatment capacity
by adopting a Throughput, Reliability, Availability and
Maintainability (T-RAM) approach for our facilities. We also
undertake a digester and tank clean programme, regular testing and
analysis of sludge, and balance capacity and demand through the
bioresource production planning team.
Assurance : Bioresource production planning team undertake first
line assurance against UK Biosolids Assurance Scheme (BAS)
accreditation, and other codes of practice such as the safe sludge
matrix which certifies our treatment. Second and third line
assurance is also undertaken by the assurance and internal audit
teams respectively.
10. Credit ratings
Risk exposure : Credit ratings below internal targets, due to
deterioration in financial and/ or operational performance and/or
external factors (such as inflation), resulting in more expensive
funding.
Control/mitigation : Continuous monitoring of markets, and the
management of key financial risks within defined policy
parameters.
Assurance : Second line assurance provided by financial control
and quarterly business reviews, with oversight provided by the
treasury committee. The treasury function is subject to regular
internal audits.
High impact, low likelihood risks
A. Erosion of pension scheme surplus
Risk exposure : The potential for the pension scheme funding to
increase because of life expectancy rates leading to additional
contributions.
Control/mitigation : Constant monitoring combined with hedging
against interest rates, inflation and growth asset risk.
Assurance : Policy and oversight is led by the pensions review
management group, taking into account advice from accountancy and
law firms. Pension governance is subject to periodic internal
audits.
B. Financial outperformance
Risk exposure : Failure to achieve financial outperformance due
to macro-economic conditions and efficiency challenges, impacting
the cost of debt and delivery of the company business plan.
Control/mitigation : Interest rate and inflation management,
ongoing monitoring of markets and regulatory developments, and
sensitivity testing as part of our company business planning
process relative to assumed periods of low inflation both in
isolation and in conjunction with the realisation of severe but
plausible risks.
Assurance : First line assurance is undertaken by the finance
team as part of the company business planning process, with second
line assurance undertaken at monthly executive level meetings.
Further oversight is provided by the group board and treasury
committee and third line assurance is provided through cyclical
internal audit reviews.
C. Dam failure
Risk exposure : Uncontrolled release of a significant volume of
water from reservoirs due to flood damage, overtopping, earthquake
or erosion leading to catastrophic impacts downstream.
Control/mitigation : Each reservoir is regularly inspected by
engineers. Where appropriate, risk reduction interventions are
implemented through a prioritised investment programme.
Assurance : Various sources of second line assurance, including
supervising engineers, dam safety group, assurance team and regular
board reviews. Independent assurance is provided by panel engineers
and internal audit.
D. Disease pandemic
Risk exposure : Serious illness in a large proportion of the UK
population, with consequences to our workforce, the wider supply
chain and macro economy.
Control/mitigation : We have a pandemic contingency plan which
is regularly reviewed and was updated to reflect lessons learned
from COVID-19. The plan includes multi-channel communication with
non-pharmaceutical interventions.
Assurance : The assurance team second line assurance, with
internal audit undertaking various reviews.
E. Terrorism
Risk exposure : A significant asset to be compromised by
terrorist activity leading to loss of supply, contamination and/or
pollution.
Control/mitigation : A risk-based protection of assets in line
with the Security and Emergency Measures Direction (SEMD) and close
liaison with the Centre for the Protection of National
Infrastructure (CPNI), regional counter terrorist units, local
agencies and emergency services.
Assurance : Security measures are reviewed on a regular basis by
our internal asset owners in conjunction with the central security
team. Second line assurance is provided by the cross business
security steering group. In addition, internal audit undertakes
cyclical audits with external technical assurance being delivered
by specialists.
Material litigation
The group robustly defends litigation where appropriate and
seeks to minimise its exposure by establishing provisions and
seeking recovery wherever possible. Litigation of a material nature
is regularly reported to the group board. While our directors
remain of the opinion that the likelihood of a material adverse
impact on the group's financial position is remote, based on the
facts currently known to us and the provisions in our statement of
financial position, the following three cases are worthy of
note:
-- In relation to the Manchester Ship Canal Company matter
reported in previous years, a hearing was held in the Court of
Appeal in 2022 and the main additional points raised by MSCC were
dismissed, although MSCC were granted leave to appeal to the
Supreme Court. The final appeal was heard in early March 2023 and
the Court's decision is awaited. This may provide further clarity
in relation to the rights and remedies afforded to the parties and
others in relation to discharges by water companies into the canal
and other watercourses;
-- As reported in previous years, in February 2009, United
Utilities International Limited (UUIL) was served with notice of a
multiparty 'class action' in Argentina related to the issuance and
payment default of a US$230 million bond by Inversora Eléctrica de
Buenos Aires S.A. (IEBA), an Argentine project company set up to
purchase one of the Argentine electricity distribution networks
which was privatised in 1997. UUIL had a 45 per cent shareholding
in IEBA which it sold in 2005. The claim is for a non-quantified
amount of unspecified damages and purports to be pursued on behalf
of unidentified consumer bondholders in IEBA. The Argentine Court
has recently scheduled various hearings to receive the testimony of
fact witnesses and experts (starting in May). UUIL will vigorously
resist the proceedings given the robust defences that UUIL has been
advised that it has on procedural and substantive grounds; and
-- A Letter Before Action was received by UUW in February 2023
in respect of potential collective proceedings before the
Competition Appeal Tribunal. We are informed that the Proposed
Class Representative (PCR) is intending to bring a claim on behalf
of a class comprising consumers of UUW (on an opt-out basis) who
have allegedly been overcharged for sewerage services as a result
of an alleged abuse of a dominant position. We have been informed
that the PCR also intends to bring the claim against United
Utilities Group PLC, as the ultimate parent company of UUW.
Proceedings have not yet been issued.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This financial report 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 those
anticipated. These forward-looking statements include without
limitation any projections or guidance relating to the results of
operations and financial conditions of the group as well as plans
and objectives for future operations, expected future revenues,
financing plans, expected expenditure and any strategic initiatives
relating to the group, as well as discussions of our business plan
and our assumptions, expectations, objectives and resilience with
respect to climate scenarios. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this financial report and the company undertakes no
obligation to update these forward-looking statements. Nothing in
this financial report should be construed as a profit forecast.
Certain regulatory performance data contained in this financial
report is subject to regulatory audit.
This announcement contains inside information, disclosed in
accordance with the Market Abuse Regulation which came into effect
on 3 July 2016 and for UK Regulatory purposes the person
responsible for making the announcement is Simon Gardiner, Company
Secretary.
LEI 2138002IEYQAOC88ZJ59
Classification - Full Year Results
Consolidated income statement
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
Revenue 1,824.4 1,862.7
----------- -----------
Staff costs (192.2) (184.3)
Other operating costs (note 4) (556.4) (461.7)
Allowance for expected credit losses - trade
and other receivables (22.7) (23.4)
Other income 4.8 4.4
Depreciation and amortisation expense (423.6) (418.2)
Infrastructure renewals expenditure (193.5) (169.5)
Total operating expenses (1,383.6) (1,252.7)
----------- -----------
Operating profit 440.8 610.0
Investment income (note 5) 47.0 19.4
Finance expense (note 6) (262.7) (187.8)
Allowance for expected credit losses - loans
to joint ventures - 0.1
Investment income and finance expense (215.7) (168.3)
----------- -----------
Share of losses of joint ventures (note 11) - (1.8)
Profit on disposal of business (note (7) 31.2 -
Profit before tax 256.3 439.9
Current tax credit 25.2 65.8
Deferred tax charge (76.6) (562.5)
Tax (note 8) (51.4) (496.7)
Profit/(loss) after tax 204.9 (56.8)
----------- -----------
All of the results shown above relate to continuing
operations.
Earnings per share (note 9)
Basic 30.0p (8.3)p
Diluted 30.0p (8.3)p
Dividend per ordinary share (note 10) 45.51p 43.50p
Consolidated statement of comprehensive income
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
Profit/(loss) after tax 204.9 (56.8)
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Cash flow hedges - effective portion of fair value movements (50.6) 106.7
Tax on items recorded within other comprehensive income 12.7 (26.8)
Reclassification of cash flow hedge effectiveness to consolidated income statement (36.6) -
Tax on reclassification to consolidated income statement 7.0 -
Other comprehensive income that may be reclassified to profit or loss (67.5) 79.9
Items that will not be reclassified to profit or loss in subsequent periods:
Remeasurement (losses)/gains on defined benefit pension schemes (note 12) (445.3) 313.6
Change in credit assumption for debt reported at fair value through profit and loss 4.8 (4.1)
Cost of hedging - cross currency basis spread adjustment 6.3 -
Tax on items recorded within other comprehensive income 151.5 (109.4)
Other comprehensive income that will not be reclassified to profit or loss (282.7) 200.1
Total comprehensive income (145.3) 223.2
----------- -----------
Consolidated statement of financial position
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 12,570.7 12,147.5
Intangible assets 142.3 160.8
Interests in joint ventures and other investments
(note 11) 16.5 16.6
Inventories 1.2 0.4
Trade and other receivables 75.7 81.7
Retirement benefit surplus (note 12) 600.8 1,016.8
Derivative financial instruments 428.6 399.4
13,835.8 13,823.2
----------- -----------
Current assets
Inventories 13.1 17.8
Trade and other receivables 190.5 222.7
Current tax asset 98.9 74.4
Cash and short-term deposits 340.4 240.9
Derivative financial instruments 48.5 58.0
691.4 613.8
Total assets 14,527.2 14,437.0
----------- -----------
LIABILITIES
Non-current liabilities
Trade and other payables (892.4) (835.2)
Borrowings (note 13) (8,259.0) (7,671.0)
Deferred tax liabilities (2,048.1) (2,148.1)
Derivative financial instruments (243.1) (136.7)
(11,442.6) (10,791.0)
----------- -----------
Current liabilities
Trade and other payables (376.7) (365.8)
Borrowings (note 13) (176.4) (308.8)
Provisions (13.1) (13.5)
Derivative financial instruments (9.7) (0.5)
(575.9) (688.6)
Total liabilities (12,018.5) (11,479.6)
----------- -----------
Total net assets 2,508.7 2,957.4
----------- -----------
EQUITY
Share capital 499.8 499.8
Share premium account 2.9 2.9
Other reserves (note 17) 353.4 416.2
Retained earnings 1,652.6 2,038.5
Shareholders' equity 2,508.7 2,957.4
----------- -----------
Consolidated statement of changes in equity
Year ended 31 March 2022
Share capital Share premium account (1) Other reserves Retained earnings Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2021 499.8 2.9 336.3 2,192.0 3,031.0
--------------------------- -------------- ---------------------- ------------------- ------------------ --------
Loss after tax - - - (56.8) (56.8)
Other comprehensive income
Remeasurement gains on
defined benefit pension
schemes (note 12) - - - 313.6 313.6
Change in credit
assumption for debt
reported at fair value
through profit or loss - - - (4.1) (4.1)
Cash flow hedges -
effective portion of fair
value movements - - 106.7 - 106.7
Tax on items recorded
within other
comprehensive income
(note 8) - - (26.8) (109.4) (136.2)
Total comprehensive income - - 79.9 143.3 223.2
--------------------------- -------------- ---------------------- ------------------- ------------------ --------
Dividends (note 10) - - - (295.5) (295.5)
Equity-settled share-based
payments - - - 4.8 4.8
Exercise of share options
- purchase of shares - - - (6.1) (6.1)
At 31 March 2022 499.8 2.9 416.2 2,038.5 2,957.4
--------------------------- -------------- ---------------------- ------------------- ------------------ --------
(1) Other reserves comprise the group's cumulative exchange
reserve, capital redemption reserve, merger reserve, cost of
hedging reserve, and cash flow hedging reserve. Further detail of
movements in these reserves is included in note 17.
Share (1)
Share premium Other Retained
Year ended 31 March 2023 capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2022 499.8 2.9 416.2 2,038.5 2,957.4
-------------------------------------------------- --------- --------- ---------- ---------- --------
Profit after tax - - - 204.9 204.9
Other comprehensive income
Remeasurement losses on defined benefit pension
schemes (note 12) - - - (445.3) (445.3)
Change in credit assumption for debt reported
at fair value through profit and loss - - - 4.8 4.8
Cash flow hedges - effective portion of fair
value movements - - (50.6) - (50.6)
Cost of hedging - cross-currency basis spread
adjustment - - 6.3 - 6.3
Tax on items recorded within other comprehensive
income (note 8) - - 11.1 153.1 164.2
Reclassification of items recorded directly
in equity - - (36.6) - (36.6)
Tax on reclassification to income statement - - 7.0 - 7.0
Total comprehensive income - - (62.8) (82.5) (145.3)
-------------------------------------------------- --------- --------- ---------- ---------- --------
Dividends (note 10) - - - (301.2) (301.2)
Equity-settled share-based payments - - - 4.6 4.6
Purchase of shares to satisfy exercise of share
options - - - (6.8) (6.8)
At 31 March 2023 499.8 2.9 353.4 1,652.6 2,508.7
-------------------------------------------------- --------- --------- ---------- ---------- --------
Consolidated statement of cash flows
Year ended Year ended
31 March 31 March
2023 2022
GBPm GBPm
Operating activities
Cash generated from operations (note 15) 883.1 1,061.6
Interest paid (118.2) (121.9)
Interest received and similar income 15.8 3.6
Tax paid (10.8) (8.9)
Tax received 17.6 -
Net cash generated from operating activities 787.5 934.4
----------- -----------
Investing activities
Purchase of property, plant and equipment (675.9) (609.0)
Purchase of intangible assets (18.1) (19.5)
Grants and contributions received 5.1 1.8
Extension of loans to joint ventures (note
19) 5.0 (13.0)
Proceeds from disposal of investments (note
7) 90.5 -
Net cash used in investing activities (593.4) (639.7)
----------- -----------
Financing activities
Proceeds from borrowings net of issuance
costs 501.0 173.7
Repayment of borrowings (278.0) (681.8)
Dividends paid to equity holders of the company
(note 10) (301.2) (295.5)
Exercise of share options - purchase of shares (6.8) (6.1)
Net cash used in financing activities (85.0) (809.7)
----------- -----------
Effects of exchange rate changes (1.3) 1.5
----------- -----------
Net increase/(decrease) in cash and cash
equivalents 107.8 (513.5)
----------- -----------
Cash and cash equivalents at beginning of
the year 220.1 733.6
----------- -----------
Cash and cash equivalents at end of the
year 327.9 220.1
----------- -----------
NOTES
1. Basis of preparation and accounting policies
The condensed consolidated financial statements for the year
ended 31 March 2023 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority.
The condensed consolidated financial statements do not include
all of the information and disclosures required for full annual
financial statements and do not comprise statutory accounts within
the meaning of section 434 of the Companies Act 2006, but are
derived from the audited financial statements of United Utilities
Group PLC for the year ended 31 March 2023, for which the auditors
have given an unqualified opinion.
The comparative figures for the year ended 31 March 2022 do not
comprise the group's statutory accounts for that financial year.
Those accounts have been reported upon by the group's auditor and
delivered to the registrar of companies. The report of the auditor
was unqualified and did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and did not contain a statement under
section 498(2) or (3) of the Companies Act 2006.
The condensed consolidated financial statements have been
prepared in accordance with the requirements of the Companies Act
2006, and with UK-adopted international accounting standards. They
have been prepared on the going concern basis under the historical
cost convention, except for the revaluation of financial
instruments, accounting for the transfer of assets from customers
and the revaluation of infrastructure assets to fair value on
transition to IFRS.
The accounting policies, presentation and methods of computation
are prepared in accordance with International Financial Reporting
Standards as adopted by the United Kingdom, and are consistent with
those applied in the audited financial statement of United
Utilities Group PLC for the year ended 31 March 2022.
Going concern
The financial statements have been prepared on the going concern
basis as the directors have a reasonable expectation that the group
has adequate resources for a period of at least 12 months from the
date of the approval of the financial statements and that there are
no material uncertainties to disclose.
In assessing the appropriateness of the going concern basis of
accounting the directors have reviewed the resources available to
the group in the form of cash and committed facilities as well as
consideration of the group's capital adequacy, along with a
baseline plan that incorporates latest views of the current
economic climate. The directors have considered the magnitude of
potential impacts resulting from uncertain future events or changes
in conditions, and the likely effectiveness of mitigating actions
that the directors would consider undertaking. The baseline
position has been subjected to a number of severe but plausible
downside scenarios in order to assess the group's ability to
operate within the amounts and terms (including relevant covenants)
of existing facilities. These scenarios consider: the potential
impacts of increased totex costs, including a significant one-off
totex impact of GBP500 million arising in the assessment period;
elevated levels of bad debt of GBP15 million per annum; outcome
delivery incentive penalties equivalent to 1.0 per cent of RoRE per
annum; and the impact of these factors materialising on a combined
basis. Mitigating actions were considered to include deferral of
capital expenditure; a reduction in other discretionary totex
spend; the close out of derivative asset balances; and the deferral
or suspension of dividend payments.
Consequently, the directors are satisfied that the group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements, and that the severe but plausible downside
scenarios indicate that the group will be able to operate within
the amounts and terms (including relevant covenants) of existing
facilities. The financial statements have therefore been prepared
on a going concern basis.
Update on critical accounting judgements and key sources of
estimation uncertainty associated with Covid-19 and increases in
the cost of living
The group disclosed a number of critical accounting judgements
and key sources of estimation uncertainty in its annual reports and
financial statements for the year ended 31 March 2022. The area
most impacted by developments during the year relates to the
group's allowance for expected credit losses in respect of
receivables.
Judgements and estimates have been kept under review during the
year to 31 March 2023 in order to ensure that they reflect the most
up-to-date information available, including changes in the broader
economic outlook, particularly the inflationary pressures across
most industries and sectors which have increased the cost of
living. These significant increases in the cost of living have
largely superseded the direct effects of the Covid-19 pandemic as
the key source of uncertainty. An update on these judgements and
estimates is as follows:
Accounting estimate - allowance for expected credit losses in
respect of household trade receivables:
As a result of the Covid-19 pandemic and more recently ongoing
cost of living pressures, recent years have seen a higher level of
uncertainty around how economic conditions may impact the
recoverability of household receivables for a significant
proportion of the Group's customer base. A range of collection
scenarios have been used to inform the allowance for expected
credit losses charged to the income statement during the period.
These take account of cash collection rates in the current year as
well as in recent years incorporating the onset of the Covid-19
pandemic, periods of lockdown, and periods of recovery, as well as
current levels of economic uncertainty in order to provide a range
of views as to how recoverability of household receivables may be
impacted by different conditions.
The group has historically used the average collection evidenced
in the previous two years as a basis for estimating future
collection, however cash collection during the current year has
been particularly strong and therefore may not be reflective of the
impact of cost of living challenges experienced by customers that
may impact cash collection in the near future. The two year
look-back period broadly reflects periods of recovery following the
Covid-19 pandemic, and so may not provide a representative view of
future cash collection in light of current levels of economic
uncertainty. Accordingly, we have calculated the allowance for
expected credit losses based on the average cash collection history
over the last three years, which is considered to give a more
balanced position as it includes periods of relatively strong cash
collection but also periods where cash collection was more
challenging during the Covid-19 pandemic. Recognising the current
levels of economic uncertainty and that it is reasonably possible
that cash collection could become more challenging in the near
future, this three year look-back period is considered to give a
reasonable view of what cash collection
on a forward-looking basis could look like.
This supports a charge equivalent to around 1.8 per cent of
household revenue recorded during the period, which is broadly
consistent with the position at 31 March 2022.
2. Segmental reporting
The board of directors of United Utilities Group PLC (the board)
is provided with information on a single segment basis for the
purposes of assessing performance and allocating resources. The
group's performance is measured against financial and operational
key performance indicators (KPIs), with operational KPIs aligned to
the group's purpose, and financial KPIs focused on profitability
and financial sustainability. The board reviews revenue, operating
profit, and gearing, along with operational drivers, at a
consolidated level. In light of this, the group has a single
segment for financial reporting purposes.
3. Revenue
2023 2022
GBPm GBPm
Wholesale water charges 758.1 776.5
Wholesale wastewater charges 914.7 946.3
Household retail charges 83.0 68.9
Other 68.6 71.0
--------
1,824.4 1,862.7
-------- --------
In accordance with IFRS 15, revenue has been disaggregated based
on what is recognised in relation to the core services of supplying
clean water and the removal and treatment of wastewater. Each of
these services is deemed to give rise to a distinct performance
obligation under the contract with customers, though following the
same pattern of transfer to the customer who simultaneously
receives and consumes both of these services over time.
Wholesale water and wastewater charges relate to services
provided to household customers and non-household retailers.
Household retail charges relate solely to the margin applied to the
wholesale amounts charged to residential customers. These wholesale
charges and the applicable retail margin are combined in arriving
at the total revenues relating to water and wastewater services
provided to household customers. No margin is applied to wholesale
water and wastewater services provided to non-household
retailers.
Other revenues comprise a number of smaller non-core income
streams including those relating to energy generation and export,
property sales, and those associated with activities, typically
performed opposite property developers, which impact the group's
capital network assets including diversions works to relocate water
and wastewater assets, and activities that facilitate the creation
of an authorised connection through which properties can obtain
water and wastewater services.
4. Other operating costs
2023 2022
GBPm GBPm
Materials 132.7 90.8
Power 130.8 99.6
Hired and contracted services 103.7 95.4
Property rates 87.1 90.5
Regulatory fees 36.7 28.4
Insurance 19.7 16.9
Accrued innovation costs 6.1 5.9
Loss on disposal of property, plant and
equipment 4.2 3.9
Cost of properties disposed 1.4 3.0
Other expenses 34.0 27.3
556.4 461.7
------ ------
During the year ended 31 March 2023, the group experienced
inflationary pressures across much of its operating cost base. This
was most notable in relation to materials costs for consumables
such as chemicals, and power costs, which increased by GBP41.9
million and GBP31.2 million respectively compared with the prior
year.
Included within operating costs for the year are GBP8.4 million
relating to operational incidents over the dry summer period in
2022, and GBP11.1 million relating to the group's response to
periods of extreme cold weather over the winter of 2022/23,
including a rapid freeze-thaw in December 2022 leading to burst
pipes. The costs associated with this response include the cost of
emergency network repairs, customer compensation where short-term
supply interruptions were experienced, and the provision of bottled
water.
Research and development expenditure for the year ended 31 March
2023 was GBP1.2 million (2022: GBP1.2 million). In addition, GBP6.1
million (2022: GBP5.9 million) of costs have been accrued by United
Utilities Water Limited in relation to the Innovation in Water
Challenge scheme operated by Ofwat for AMP7. These expenses offset
amounts recognised in revenue during each year intended to fund
innovation projects across England and Wales as part of an
industry-wide scheme to promote innovation in the sector. The
amounts accrued will either be spent on innovation projects that
the group successfully bids for or will be transferred to other
successful water companies in accordance with the scheme rules.
5. Investment income
2023 2022
GBPm GBPm
Interest receivable 18.3 5.1
Net pension interest income (note 12) 28.7 14.3
47.0 19.4
----- -----
6. Finance expense
2023 2022
GBPm GBPm
Interest payable 497.7 330.7
Net fair value gains on debt and derivative
instruments (235.0) (142.9)
262.7 187.8
-------- --------
Inte rest payable is stated net of GBP127.5 million (2022:
GBP52.7 million) borrowing costs capitalised in the cost of
qualifying assets within property, plant and equipment and
intangible assets during the year. This has been calculated by
applying an average capitalisation rate of 7.9 per cent (2022: 4.2
per cent) to expenditure on such assets as prescribed by IAS 23
'Borrowing Costs'.
Interest payable includes a GBP463.5 million (2022: GBP227.9
million) non-cash inflation expense in relation to the group's
index-linked debt.
In addition to the GBP262.6 million finance expense, the
allowance for expected credit losses in relation to loans extended
to the group's joint venture, Water Plus, has decreased by GBPnil
million during the current year (2022: decrease of GBP0.1
million).
Net fair value gains on debt and derivative instruments includes
GBP31.8 million income (2022:
GBP33.2 million income) due to net interest on derivatives and
debt under fair value option, and GBP56.2 million expense (2022:
GBP28.3 million expense) due to non-cash inflation changes on the
group's index-linked derivatives.
Underlying finance expense, which forms part of the group's
alternative performance measures (APMs) is calculated by adjusting
net finance expense and investment income of GBP215.7 million
(2022: GBP168.3 million) reported in the Income Statement to
exclude the GBP235.0 million of fair value gains in the above
table, but include GBP31.8 million income due to net interest on
derivatives and debt under fair value option, and GBP56.2 million
expense due to non-cash inflation uplift on index-linked
derivatives.
7. Disposal of subsidiary
On 29 September 2022 the group sold the entire issued share
capital of its wholly-owned subsidiary United Utilities Renewable
Energy Limited (UURE) to SEEIT Holdco Limited.
Profit on disposal is shown below and included within the
group's consolidated income statement:
2023
GBPm
Total consideration received 98.5
Total net assets disposed (63.8)
Fees and transaction costs (3.5)
Profit on disposal of subsidiary 31.2
-------
Management does not consider UURE to meet the definition of a
discontinued operation as set out in IFRS 5 'Non-current assets
held for sale and discontinued operations' as it is not considered
a separate major line of business for the group, accounting for
around GBP3.5 million of external revenue included in the group's
consolidated financial statements for part of the financial year in
which UURE was a part of the group (year to 31 March 2022: GBP3.5
million), with the majority of UURE's revenue relating to a
long-term power purchase agreement with UUW that continues in place
following the disposal. As such, no separate disclosures relating
to discontinued operations have been included in the group's income
statement or the notes to the interim financial statements.
The total consideration received in relation to the disposal of
UURE is reconciled to the net cash income on disposal of the
subsidiary per the consolidated statement of cash flows as
follows:
GBPm
Total consideration received 98.5
Cash and cash equivalents held by UURE
disposed of (4.5)
Fees and transaction costs (3.5)
Net cash income on disposal of subsidiary 90.5
------
8. Tax
During the year ended 31 March 2023 there was a current tax
credit of GBP25.2 million (31 March 2022: GBP72.5 million) and a
deferred tax charge of GBP32.5 million (31 March 2022: GBP66.9
million) relating to prior years. The current year figure mainly
relates to the utilisation of tax losses. The prior year mainly
relates to optimising the available tax incentives on our
innovation related expenditure, for multiple earlier years.
The split of the total tax charge between current and deferred
tax was due to ongoing timing differences in relation to deductions
on capital investment, and unrealised gains and losses on treasury
derivatives. Going forward, we expect the total effective tax rate,
ignoring non-recurring items such as the current year rate change
adjustment, to remain broadly in line with the headline rate.
The tax adjustments taken to equity primarily relate to
remeasurement movements on the group's defined benefit pension
schemes. As in the prior year the rate at which the deferred tax
liabilities are measured on the group's defined benefit pension
scheme is 35 per cent, being the rate applicable to refunds from a
trust.
9. Earnings per share
Basic and diluted earnings per share are calculated by dividing
profit/(loss) after tax by the weighted average number of shares in
issue during the year.
2023 2022
GBPm GBPm
Profit/(loss) after tax attributable to equity
holders of the company 204.9 (56.8)
Weighted average number of shares in issue
in millions
Basic 681.9 681.9
Diluted 684.1 683.8
Earnings per share in pence
Basic 30.0 (8.3)
------ -------
Diluted 30.0 (8.3)
------ -------
10. Dividends
2023 2022
GBPm GBPm
Dividends relating to the year comprise:
Interim dividend 103.4 98.9
Final dividend 206.9 197.8
310.3 296.7
------ ------
Dividends deducted from shareholders' equity
comprise:
Interim dividend 103.4 98.9
Final dividend 197.8 196.6
301.2 295.5
------ ------
The proposed final dividends for the years ended 31 March 2023
and 31 March 2022 were subject to approval by equity holders of
United Utilities Group PLC as at the reporting dates, and therefore
have not been included as liabilities in the consolidated financial
statements as at 31 March 2023 and 31 March 2022 respectively.
The final dividend of 30.34 pence per ordinary share (2022:
29.00 pence per ordinary share) is expected to be paid on 1 August
2023 to shareholders on the register at the close of business on 24
June 2023. The ex-dividend date for the final dividend is 23 June
2023.
The interim dividend of 15.17 pence per ordinary share (2022:
14.50 pence per ordinary share) was paid on 1 February 2023 to
shareholders on the register at the close of business on 17
December 2022.
11. Joint ventures and other investments
2023 2022
GBPm GBPm
Joint ventures at the start of the year 16.5 -
Additions - 18.3
Share of losses of joint ventures - (1.8)
Joint ventures at the end of the year 16.5 16.5
Other investments - 0.1
----- ------
Interest in joint ventures and other investments 16.5 16.6
----- ------
The group's interests in joint ventures mainly comprises its 50
per cent interest in Water Plus Group Limited (Water Plus), which
is jointly owned and controlled by the group and Severn Trent PLC
under a joint venture agreement. The group also has a 50 per cent
interest in Lingley Mere Business Park Development Company Limited,
which is jointly owned and controlled by the group and Muse
Developments Limited under a joint venture agreement.
The group's total share of Water Plus profits for the year was
GBPnil (2022: GBP1.8 million share of losses, all of which is
recognised in the income statement). The group incurred a share of
the losses of Lingley Mere Business Park Development Company
Limited for the year of GBP0.4 million (2022: nil), which have not
been recognised as at 31 March 2023. This is unrecognised as the
brought forward carrying amount of the group's interest in the
joint venture is nil.
Additions in the prior year relate to an equity investment in
Water Plus following the conversion of the existing fully drawn
facility to equity share capital as executed on 23 April 2021.
The group recognised a disposal in the year of GBP0.1 million
(2022: GBPnil) in its other investments.
Details of transactions between the group and its joint ventures
are disclosed in note 19.
12. Retirement benefit surplus
The main financial assumptions used by the company's actuary to
calculate the defined benefit surplus of the United Utilities
Pension Scheme (UUPS) and the United Utilities PLC Group of the
Electricity Supply Pension Scheme (ESPS) were as follows:
2023 2022
%pa %pa
Discount rate 4.70 2.80
Pension increases 3.40 3.75
Pensionable salary growth (pre-2018 service):
ESPS 3.40 3.75
UUPS 3.40 3.75
Pensionable salary growth (post-2018 service):
ESPS 3.40 3.75
UUPS 2.85 3.20
Price inflation - RPI 3.40 3.75
Price inflation - CPI (1) 2.85 3.20
Note:
(1) The CPI price inflation assumption represents a single
weighted average rate derived from an assumption of 2.50 per cent
pre-2030 and 3.30 per cent post-2030 (31 March 2022: 2.85 per cent
pre-2030 and 3.65 per cent post-2030).
The discount rate is consistent with a high quality corporate
bond rate, with 4.70 per cent being equivalent to gilts plus 95
basis points (2022: 2.80 per cent being equivalent to gilts plus
110 basis points).
In September 2019, the Chancellor of the Exchequer highlighted
the UK Statistics Authority's proposals to change RPI to align with
CPIH (Consumer Prices Index, including housing costs). Plans to
reform RPI and bring it in line with CPIH from 2030 were confirmed
on 25 November 2020, though this is subject to judicial review.
Broadly CPIH increases are expected to average around 1 per cent
per annum below RPI in the long term (about the same as CPI), so
this change could have a significant impact on many pension
schemes. In arriving at the company's best estimate for RPI, an
inflation risk premium of 0.2 per cent (2022: 0.2 per cent) has
been deducted from the breakeven inflation rate for the year ended
31 March 2023. The deduction of this 0.2 per cent inflation risk
premium has resulted in a reduction in the fair value of defined
benefit obligations of around GBP61 million, and therefore an
increase in the net retirement benefit surplus of around GBP61
million, compared with no inflation risk premium being deducted.
There is no allowance for any change in the inflation risk premium
post 2030 as a result of RPI reform.
The assumption for CPI inflation is set by deducting a 'wedge'
from the RPI inflation assumption to reflect structural
differences. For pre-2030 inflation this wedge has been estimated
at 0.9 per cent per annum, reducing to 0.1 per cent per annum
post-2030 given that RPI and CPI are expected to converge. The
impact of this reduction in the post-2030 wedge as a result of the
confirmation of RPI reforms is a circa GBP7 million increase to the
defined benefit obligation and therefore a decrease in the defined
benefit surplus compared with the wedge remaining at 0.9 per cent
per annum after 2030. A reduction in RPI will result in a reduction
to pension scheme liabilities. However, as the group's pension
schemes are hedged for RPI inflation, this will also result in a
comparable reduction to pension scheme assets.
At 31 March 2023, as in the prior year, the base tables used for
the mortality in retirement assumption are the Continuous Mortality
Investigation's (CMI) S3PA (2022: S3PA) year of birth tables, with
a scaling factor of 109 per cent (2022: 109 per cent) and 115 per
cent (2022: 115 per cent) for male pensioners and non-pensioners
respectively and 110 per cent (2022: 110 per cent) and 111 per cent
(2022: 111 per cent) for female pensioners and non-pensioners
respectively, reflecting the profile of the membership. At 31 March
2023, future improvements in mortality are based on the extended
CMI 2021 (2022: CMI 2021) projection model, with a long-term annual
rate of improvement of 1.25 per cent (2022: 1.25 per cent). The
long-term annual rate of improvement is a subjective estimate, and
an increase in this rate to 1.50 per cent would have resulted in a
circa GBP16.5 million increase in the fair value of defined benefit
obligations, and therefore a reduction in the overall retirement
benefit surplus.
The CMI 2022 tables are not expected to be released until the
summer of 2023 and have therefore not been incorporated into the
mortality assumptions used in arriving at the 31 March 2023
year-end accounting figures. There remains considerable uncertainty
around the long-term impact and the choice of appropriate
adjustment remains subjective and is limited to the available
parameters within the CMI model. As such, in arriving at mortality
assumptions for 31 March 2023, the group has retained the same
assumptions as used for the 31 March 2022.
Although the long-term impacts of the COVID-19 pandemic are not
yet fully known, mortality over 2022 and the early part of 2023 has
remained above pre-pandemic levels. This suggests that the general
level of mortality in the population will be higher than had
previously been projected pre-pandemic. Accordingly, the group has
retained its COVID-19 adjustment of a w2021 parameter of 10 per
cent within the CMI 2021 projections.
The net pension income before tax in the income statement in
respect of the defined benefit schemes is summarised as
follows:
2023 2022
GBPm GBPm
Current service cost 6.0 7.5
Curtailments/settlements - -
Administrative expenses 2.5 2.1
Pension expense charged to operating profit 8.5 9.6
------- -------
Net pension interest credited to investment
income (note 6) (28.7) (14.3)
------- -------
Net pension income credited before tax (20.2) (4.7)
------- -------
The reconciliation of the opening and closing net pension
surplus included in the statement of financial position is as
follows:
2023 2022
GBPm GBPm
At the start of the year 1,016.8 689.0
Income recognised in the income statement 20.2 4.7
Contributions 9.1 9.5
Remeasurement (losses)/gains gross of tax (445.3) 313.6
At the end of the year 600.8 1,016.8
---------- ----------
The closing surplus at each reporting date
is analysed as follows:
2023 2022
GBPm GBPm
Present value of defined benefit obligations (2,330.5) (3,018.9)
Fair value of schemes' assets 2,931.3 4,035.7
Net retirement benefit surplus 600.8 1,016.8
---------- ----------
The IAS 19 remeasurement loss of GBP445.3 million (2022:
GBP313.6 million gain) has largely resulted from an increase to the
average discount rate by 1.9 per cent since the start of the year
and a 0.35% decrease to long-term RPI assumptions have led to
significant reduction in the value of the schemes' defined benefit
obligations. This has been offset by a decrease in the fair value
of the schemes' assets due to changes in financial conditions over
the course of the reporting year, as well as experience losses
resulting from actual inflation being greater than previously
assumed, including the impact of pension increases.
The schemes' investment strategies have been designed such that
the assets are fully hedged against the schemes' Technical
Provisions funding positions, and are therefore more than 100%
hedged on an IAS19 basis. As a result, increases in net yields are
expected to reduce the Schemes' assets by a greater amount than the
IAS19 liabilities. Further details on the approach to managing
pension scheme risk are set out in the audited consolidated
financial statements of United Utilities Group PLC for the year
ended 31 March 2023.
The latest finalised funding valuation was carried out as at 31
March 2021, and determined that the schemes were fully funded on a
low-dependency basis without any funding deficit that requires
additional contributions from the company over and above those
related to current service and expenses.
Member data used in arriving at the liability figure included
within the overall IAS 19 surplus has been based on the finalised
actuarial valuation as at 31 March 2021 for both the group's ESPS
and UUPS schemes.
Defined contribution schemes
During the year, the group made GBP29.2 million (2022: GBP26.1
million) of contributions to defined contribution schemes which are
included in staff costs.
13. Borrowings
New borrowings raised during the year ended 31 March 2023 were
as follows:
-- On 26 April 2022, the group executed a GBP100 million loan facility, due April 2030.
-- On 29 July 2022, the group executed a GBP150 million loan facility, due June 2032.
-- On 30 August, the group executed a GBP135 million loan facility, due August 2030.
-- On 16 December 2022, the group issued a JPY8.5 billion fixed
rate notes, due December 2037. On issue, the JPY bond was
immediately swapped to GBP51.1 million of principal
outstanding.
-- On 31 January 2023, the group issued GBP75 million fixed rate
notes as a fungible increase to GBP250 million fixed rate notes
issued previously, due February 2038.
On 6 April 2023, the group issued GBP300 million fixed rate
notes, due October 2038.
On 27 April 2023, the group executed a GBP100 million loan
facility, due April 2032.
Notes were issued through private placement under the Euro
Medium-Term Note Programme .
The group entered into two undrawn committed borrowing
facilities in the period, and a further four were renewed, with
amounts available under these facilities totalling GBP150
million.
Borrowings at 31 March 2023 include GBP59.5 million in relation
to lease liabilities (2022: GBP60.9 million), of which GBP55.9
million (2022: GBP57.6 million) was classified as non-current and
GBP3.6 million (2022: GBP3.3 million) was classified as
current.
14. Fair values of financial instruments
The fair values of financial instruments are shown in the table
below.
2023 2022
Fair Carrying Fair Carrying
value value value value
GBPm GBPm GBPm GBPm
Financial assets at fair value
through profit or loss
Derivative financial assets - fair
value hedge 65.4 65.4 156.3 156.3
Derivative financial assets - held
for trading 352.0 352.0 190.1 190.1
Derivative financial assets - cash
flow hedge 59.7 59.7 111.0 111.0
Investments 0.1 0.1 0.1 0.1
Financial liabilities at fair value
through profit or loss
Derivative financial liabilities
- fair value hedge (215.3) (215.3) (87.4) (87.4)
Derivative financial liabilities
- held for trading (3.4) (3.4) (49.8) (49.8)
Derivative financial liabilities
- cash flow hedge (34.1) (34.1) - -
Financial liabilities designated
as fair value through profit or
loss (361.0) (361.0) (369.9) (369.9)
Financial instruments for which
fair value does not approximate
carrying value
Financial liabilities in fair value
hedge relationships (2,310.1) (2,332.3) (2,511.5) (2,494.0)
Other financial liabilities at amortised
cost (5,400.0) (5,742.1) (6,283.7) (5,115.9)
(7,846.7) (8,211.0) (8,844.8) (7,659.5)
---------- ---------- ---------- ----------
The group has calculated fair values using quoted prices where
an active market exists, which has resulted in 'level 1' fair value
liability measurements under the IFRS 13 'Fair Value Measurement'
hierarchy of GBP1,936.1 million (2022: GBP2,206.6 million) for
financial liabilities in fair value hedge relationships, and
GBP2,541.3 million (2022: GBP2,383.8 million) for other financial
liabilities at amortised cost.
The GBP113.0 million decrease (2022: GBP497.2 million decrease)
in 'level 1' fair value liability measurements primarily reflects
the significant rise in interest rates during the year.
In the absence of an appropriate quoted price, the group has
applied discounted cash flow valuation models utilising market
available data, which are classified as 'level 2' valuations. More
information in relation to the valuation techniques used by the
group and the IFRS 13 hierarchy can be found in the audited
financial statements of United Utilities Group PLC for the year
ended 31 March 2023.
The reason for the decrease in the difference between the fair
value and carrying value of the group's borrowings at 31 March 2023
compared with the position at 31 March 2022 is due to an increase
in both the risk free rate and credit spreads.
15. Cash generated from operations
2023 2022
GBPm GBPm
Operating profit 440.8 610.0
Adjustments for:
Depreciation of property, plant and equipment 385.5 377.0
Amortisation of intangible assets 38.1 41.2
Loss on disposal of property, plant and
equipment 4.2 3.9
Amortisation of deferred grants and contributions (16.2) (15.8)
Equity-settled share-based payments charge 5.1 4.8
Changes in working capital:
Increase/(decrease) in inventories 3.9 0.1
Decrease in trade and other receivables 27.2 13.2
Increase/(decrease) in trade and other
payables (5.5) 24.7
Increase/(Decrease) in provisions (0.4) 2.4
Pension contributions paid less pension
expense charged to operating profit 0.4 0.1
Cash generated from operations 883.1 1,061.6
------- --------
16. Net debt
2023 2022
GBPm GBPm
At the start of the year 7,570.0 7,305.8
Net capital expenditure 688.9 626.7
Dividends (note 10) 301.2 295.5
Interest 102.4 118.3
Inflation expense on index-linked debt
(note 7) 463.4 227.9
Exchange rate movement on bonds and term
borrowings 20.6 4.3
Tax (6.8) 8.9
Non-cash movements in lease liabilities (1.1) 2.4
Extension of loans to joint ventures (5.0) 13.0
Proceeds from disposal of subsidiary (90.5) -
Other 8.5 0.1
Fair value movements 32.3 28.7
Cash generated from operations (note 15) (883.1) (1,061.6)
-------- ----------
At the end of the year 8,200.8 7,570.0
-------- ----------
Fair value movements includes the indexation credit relating to
the group's inflation swap portfolio of GBP85.3 million (2022:
GBP29.9 million). The remaining fair value and foreign exchange
movements in the year on the group's bond and bank borrowings are
materially hedged by the fair value swap portfolio.
Notional net debt totals GBP8,193.3 million as at 31 March 2023
(2022: GBP7,534.3 million). Notional net debt is calculated as the
principal amount of debt to be repaid, net of cash and short-term
deposits, taking: the face value issued of any nominal sterling
debt; the inflation accreted principal of the group's index-linked
debt; and the sterling principal amount of the cross-currency swaps
relating to the group's foreign currency debt.
17. Other reserves
Year ended 31 March 2023
Capital Merger Cost Cash Total
redemption reserve of hedging flow
reserve reserve hedge
reserve
GBPm GBPm GBPm GBPm GBPm
At 1 April 2022 1,033.3 (703.6) 0.4 86.1 416.2
Changes in fair value
recognised in other comprehensive
income - - 6.3 (50.6) (44.3)
Amounts reclassified from
other comprehensive income
to profit and loss - - - (36.6) (36.6)
Tax on items recorded
within other comprehensive
income - - (1.6) 19.7 18.1
At 31 March 2023 1,033.3 (703.6) 5.1 18.6 353.4
------------------------------------ ------------ --------- ------------ --------- -------
Year ended 31 March 2022
Capital Merger Cost Cash Total
redemption reserve of hedging flow
reserve reserve hedge
reserve
GBPm GBPm GBPm GBPm GBPm
At 1 April 2021 1,033.3 (703.6) 0.4 6.2 336.3
Changes in fair value
recognised in other comprehensive
income - - - 108 108
Amounts reclassified from
other comprehensive income
to profit and loss - - - (1.3) (1.3)
Tax on items recorded
within other comprehensive
income - - - (26.8) (26.8)
At 31 March 2022 1,033.3 (703.6) 0.4 86.1 416.2
------------------------------------ ------------ --------- ------------ --------- -------
The capital redemption reserve arose as a result of a return of
capital to shareholders following the reverse acquisition of United
Utilities PLC by United Utilities Group PLC in the year ended 31
March 2009. The merger reserve arose in the same year on
consolidation and represents the capital adjustment to reserves
required to effect the reverse acquisition.
The group recognises the cost of hedging reserve as a separate
component of equity. This reserve reflects accumulated fair value
movements on cross-currency swaps resulting from changes in the
foreign currency basis spread, which represents a liquidity charge
inherent in foreign exchange contracts for exchanging currencies
and is excluded from the designation of cross-currency swaps as
hedging instruments.
The group designates a number of swaps hedging non-financial
risks in cash flow hedge relationships in order to give a more
representative view of operating costs. Fair value movements
relating to the effective part of these swaps are recognised in
other comprehensive income and accumulated in the cash flow hedging
reserve.
18. Commitments and contingent liabilities
At 31 March 2023, there were commitments for future capital
expenditure contracted but not provided for of GBP338.9 million
(2022: GBP292.8 million).
Since 2016, the group has received indications from a number of
property search companies (PSCs) that they intend to claim
compensation for amounts paid in respect of CON29DW water and
drainage search reports, which they allege should have been
provided to them either free of charge or for a nominal fee in
accordance with the Environmental Information Regulations. In April
2020, a group of over 100 PSCs, comprising companies within the
groups that had previously issued notice of intended claims, served
proceedings on all of the water and sewerage undertakers in England
and Wales, including United Utilities Water Limited, for an
unspecified amount of compensation. This is an industry-wide issue,
and while the litigation has progressed during the year it remains
in its early stages. The litigation's likely direction and the
quantum of any compensation being claimed is uncertain at this
stage, however, based on the information currently available, the
likelihood of the claim's success is considered to be low, and any
potential outflow is not expected to be material.
The group has credit support guarantees as well as general
performance commitments and potential liabilities under contract
that may give rise to financial outflow. The group has determined
that the possibility of any outflow arising in respect of these
potential liabilities is remote and, as such, there are no
contingent liabilities to be disclosed in this regard (2022:
none).
19. Related party transactions
The related party transactions with the group's joint ventures
during the period and amounts outstanding at the period end date
were as follows:
2023 2022
GBPm GBPm
Sales of services 335.1 363.1
Charitable contributions advanced to related
parties 0.2 0.1
Purchases of goods and services (1.3) -
Interest income and fees recognised on loans
to related parties 4.7 2.8
Amounts owed by related parties 102.2 116.4
Amounts owed to related parties - -
Sales of services to related parties mainly represent
non-household wholesale charges to Water Plus that were billed and
accrued during the period. These transactions were on market credit
terms in respect of non-household wholesale charges, which are
governed by the wholesale charging rules issued by Ofwat.
Charitable contributions advanced to related parties during the
year relate to amounts paid to Rivington Heritage Trust, a
charitable company limited by guarantee for which United Utilities
Water is one of three guarantors.
At 31 March 2023, amounts owed by joint ventures, as recorded
within trade and other receivables in the statement of financial
position, were GBP102.2 million (March 2022: GBP116.4 million),
comprising GBP26.7 million (March 2022: GBP28.5 million) of trade
balances, which are unsecured and will be settled in accordance
with normal credit terms, and GBP75.5 million (March 2022: GBP80.4
million) relating to loans.
Included within these loans receivable were the following
amounts owed by Water Plus:
-- GBP74.4 million (2022: GBP79.4 million) outstanding on a
GBP95.0 million revolving credit facility provided by United
Utilities PLC, with a maturity date of December 2026, bearing a
floating rate interest rate of the Bank of England base rate plus a
credit margin. This balance comprises GBP75.5 million outstanding,
net of a GBP1.1 million allowance for expected credit losses (2022:
GBP80.5 million net of a GBP1.1 million allowance for expected
credit losses); and
-- GBP1.4 million (2022: GBP1.0 million) receivable being the
GBP11.0 million (2022: GBP10.6 million) fair value of amounts owed
in relation to a GBP12.5 million unsecured loan note held by United
Utilities PLC, with a maturity date of 28 March 2027, net of a
GBP0.1 million (2022: GBP0.1 million) allowance for expected credit
losses and GBP9.5 million of the group's share of joint venture
losses relating to historic periods as the loan note is deemed to
be part of the group's long-term interest in Water Plus. This is a
zero coupon shareholder loan with a total amount outstanding at 31
March 2023 and 31 March 2022 of GBP12.5 million, comprising a
GBP11.0 million (2022: GBP10.6 million) receivable representing the
present value of the GBP12.5 million payable at maturity discounted
using an appropriate market rate of interest at the inception of
the loan, and GBP1.5 million (2022: GBP1.9 million) recorded as an
equity contribution to Water Plus recognised within interests in
joint ventures.
A further GBP0.1 million (2022: GBP1.4 million) of non-current
receivables was owed by other related parties at 31 March 2023.
During the year, United Utilities PLC provided guarantees in
support of Water Plus in respect of certain amounts owed to
wholesalers. The aggregate limit of these guarantees was GBP48.9
million, of which GBP26.0 million related to guarantees to United
Utilities Water Limited.
At 31 March 2023, amounts owed to related parties were GBPnil
(March 2022: GBPnil).
20. Events after the reporting period
With the exception of the new borrowings and entering into of a
new undrawn committed borrowing facilities as described in note 12,
there were no significant events after the reporting period
requiring disclosure or any adjustments to the financial position,
financial performance, or cash flows reported as at 31 March
2023.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The responsibility statement below has been prepared in
connection with the group's full annual report for the year ended
31 March 2023. Certain parts thereof are not included within this
announcement.
Responsibilities Statement
We confirm that to the best of our knowledge:
- the financial statements have been prepared in accordance with
UK-adopted international accounting standards ; give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the company and the undertakings included in the
consolidation taken as a whole; and
- the strategic report includes a fair review of the development
and performance of the business and the position of the issuer and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
We consider the annual report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the group's position and performance,
business model and strategy.
The directors of United Utilities Group PLC at the date of this
announcement are listed below:
Sir David Higgins
Louise Beardmore
Phil Aspin
Alison Goligher
Liam Butterworth
Kath Cates
Michael Lewis
Paulette Rowe
Doug Webb
This responsibility statement was approved by the board and
signed on its behalf by:
Louise Beardmore Phil Aspin
24 May 2023 24 May 2023
Chief Executive Officer Chief Financial Officer
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