REG - United Utilities Grp - Final Results
16/05/2024 07:00
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RNS Number : 6168O United Utilities Group PLC 16 May 2024
2023/24 FULL YEAR RESULTS STATEMENT
16 May 2024: United Utilities today announces full year results for the year
to 31 March 2024.
Louise Beardmore, Chief Executive Officer, said:
"Colleagues have worked exceptionally hard throughout the year to deliver for
our customers, communities and the environment. As a result, operational
performance has been strong, and I am pleased to report that we have met or
exceeded around 80% of our regulatory targets, and we have also been ranked as
the number one water and sewerage company for customer service in the
independent UK Customer Service Index. In addition, we are providing over
375,000 customers with affordability support against the backdrop of
significant increases in the cost of living.
We take our role in protecting the environment very seriously; our ambitious
business plan would see us investing more than ever before to improve services
across the five counties of the North West. This would deliver a genuine
step-change in infrastructure for the benefit of customers and the
environment, and support 30,000 jobs.
Our finances are robust with one of the lowest levels of gearing in the
sector. We are readying our supply chain, and bringing forward around £400
million of AMP8 investment to reduce spills at more than 150 storm overflows,
and to accelerate environmental schemes in communities such as Windermere,
where we are fast-tracking investment to drive improvements earlier. This is
on top of the river health improvements we are already delivering through our
Better Rivers programme and accelerated environmental improvements funded
through reinvestment of our AMP7 outperformance."
Key financials - year ended 31 March
Reported Underlying(1)
£m 2024 2023 % change 2024 2023 % change
Revenue(2) 1,949.5 1,804.2 +8.1% 1,949.5 1,804.2 +8.1%
Operating profit 480.2 440.8 +8.9% 517.8 440.8 +17.5%
Profit/(loss) before tax 170.0 256.3 -33.7% 220.5 (34.3) n/a
Profit/(loss) after tax 126.9 204.9 -38.1% 227.3 (8.7) n/a
EPS (pence) 18.6 30.0 -38.0% 33.3 (1.3) n/a
2024 2023 % change
DPS (pence) 49.78 45.51 +9.4%
Net regulatory capex (£m) 737.1 693.9 +6.2%
RCV(3) (£m), 14,664 14,000 +4.7%
Net debt (£m) 8,763 8,201 +6.9%
RCV gearing(4) (%) 59% 58% +1%
RoRE(5) (%) 8.5% 10.9% -2.4%
Operational highlights
· Accelerating c.£400m(6) of AMP8 investment, which includes
prioritising work on more than 150 storm overflows; implementing accelerated
solutions to achieve spill reductions faster
· ODI reward for FY24 of £34m, our highest ever reward despite the
impact of exceptionally high rainfall
· Ranked as the top water and sewerage company, and retained top five
position out of 31 utilities in the UK Customer Satisfaction Index(7)
· Helped more than 375,000 customers with affordability support so far
this AMP, and over 400,000 households on Priority Services register
· Strong leakage performance, meeting regulatory target for the 18th
year and fixing six leaks every 30 mins
· Achieved 3 or 4 star EPA rating since records began - our 2023
performance will be confirmed in July but we believe we are on track for 4
star in the EA's Environmental Performance Assessment
Financial highlights
· Underlying operating profit of £518m, reported operating profit of
£480m
· Underlying EPS of 33.3p, up from -1.3p, and reported EPS of 18.6p
· Low level of gearing at 59% and solid credit ratings
· Re-entered the Euro bond market, pricing a €650m 10.25yr green bond
- 3.8x oversubscribed
· Liquidity extending into 2026; AMP8 funding underway
· Recommended final dividend of 33.19p, in line with policy
Financial framework guidance for current AMP7 regulatory period
· Targeting to achieve an FY25 net ODI reward at least in line with
FY24
· Continue to forecast average real RoRE of 6-8%
· Unchanged RCV growth guidance of 4-5% nominal compound annual growth
rate
· Targeting dividend growth in line with CPIH
· Maintain gearing within target range of 55-65%
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 +44 207 260 2700
Notes
(1) Underlying measures are defined in the underlying profit section below.
(2) Revenue for the year to 31 March 2023 has been re-presented so as to
include £20.2 million of income not derived from the output of the group's
ordinary activities in Other income rather than in revenue. This income
relates to amounts receivable under government renewable energy schemes and
the sale of energy generated to the grid.
(3)United Utilities Water Limited's adjusted RCV (adjusted for actual spend,
timing differences and including full expected value of AMP7 ex-post
adjustment mechanisms)
(4) 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)
(5) Return on regulated equity
(6) Comprising c.£200m through Accelerated Infrastructure Delivery Project
and c.£200m of transitional investment submitted in our PR24 business plan
(7) UKCSI is an Institute of Customer Service measure
OPERATIONAL REVIEW
It has been an extremely busy year, in which we have submitted a high-quality
and ambitious business plan for the 2025-30 period (AMP8) while continuing to
deliver for customers and the environment in the face of challenging weather
conditions.
The water industry continues to find itself in the spotlight and we recognise
that there is significant work to do in restoring public confidence and trust,
and improving services for the benefit of customers, communities and the
environment. We have put forward an ambitious plan to enrich services across
the five diverse counties that make up the North West. This would see us
invest significantly over the 2020-25 period to deliver the step change we all
want to see.
Our AMP8 plan targets the largest reduction in spills from storm overflows of
any company, and we aren't waiting. We have got to work already, bringing
forward around £400 million of AMP8 investment to reduce spills at more than
150 overflows and accelerate other environmental programmes. We have started
work on some rapid solutions to achieve spill reductions faster. These
initiatives have been extremely successful, and we are now rolling them out to
a further 29 locations.
At the same time, we are accelerating a groundbreaking Integrated Water
Management Plan. This initiative sees us working closely with the Greater
Manchester Combined Authority and the Environment Agency (EA) to establish a
new partnership and new way of working to ensure the best management of water
resources across Greater Manchester.
We have delivered strong performance across a number of our commitments for
customers in areas such as customer service, affordability support, leakage
and water quality. At the same time, we rank highly in a range of ESG indices
- rated World Class in the Dow Jones Sustainability Index, maintaining our
Fair Tax Mark accreditation and CDP Climate disclosures score at A-
(environmental leadership), and we were categorised as having the highest
financial resilience status in Ofwat's latest Monitoring Financial Resilience
assessment.
Any service is underpinned by the people who deliver it and we are pleased to
have achieved UK High Performance levels of employee engagement and were
awarded the Water Industry Skills Employer of the Year 2023 award in
recognition of our commitment and dedication to training and development.
Delivering great service for all our customers
We continue to focus on delivering great service. In the summer we completed a
rigorous eight-year programme of inspecting and cleaning every storage
reservoir as part of our Water Quality First programme, with our efforts to
improve water quality being recognised by the Drinking Water Inspectorate
(DWI) and leading to the award for the Drinking Water Initiative of the Year
in the 2023 Water Industry Awards. We have met our regulatory leakage target
for the 18th consecutive year, now fixing on average six leaks every 30
minutes. Building on the strong overall level of service we have delivered
this year, we are reorganising our water and wastewater services to align with
our county-based approach to drive further improvements for customers.
In the latest Customer Service Index (an independent survey from the Institute
of Customer Service that benchmarks over 280 organisations across many
sectors), we were ranked as the top water and sewerage company and retained
our top five position amongst the 31 utility companies.
Supporting customers with affordability and vulnerability continues to be an
area of important focus, particularly against a backdrop of rising household
costs. We have helped around 375,000 customers with affordability support so
far this AMP, and our proposals for AMP8 include our biggest ever support
package, which would see us provide over £500 million of support, helping one
in six customers. We also support over 400,000 vulnerable customers on the
Priority Service Register, and will publish our new vulnerability strategy
this year.
Weather during the year has brought challenges, with dry weather in the early
summer triggering actions under our drought plan, and then shifting suddenly
to a prolonged period of heavy rainfall over autumn and winter, followed by a
sharp freeze-thaw event in January. Annual rainfall in 2023 was exceptionally
high across the North West - it was the wettest for the last 69 years, with
parts of our region experiencing rainfall up to a third higher than the
long-run average - and this had an adverse impact on service for customers,
with increased instances of flooding and spills from storm overflows.
In June, we experienced a fractured outlet pipe at our Fleetwood wastewater
treatment works that required a complex engineering solution. We worked
quickly and safely to construct a two-kilometre five-lane bypass around the
damaged pipe in two weeks to minimise the environmental impact and allow us to
then safely replace the damaged pipe. Despite our significant efforts and
commitment to recover services to the area, pending a permanent solution, the
loss of amenity caused disruption to the community and its visitors. We worked
hard to keep residents up to date through a variety of communication channels
- from social media to drop-in centres and we have made contributions to local
communities after the event, as well as successfully repairing the pipe and
returning the site to full service. The bypass and repair resulted in £38
million of additional operating and infrastructure renewals expenditure in the
period.
Improving rivers across the North West
We continue to drive forward with improvements to protect and enhance the
North West's waterways and natural habitats. We met our target of monitoring
100 per cent of our overflows before the end of 2023, and we have made some
great inroads, thanks to the dedicated effort that our team has delivered,
including our interventions at Cargo, one of our highest spilling sites, where
we have reduced spills from 343 in 2022 to just nine between September 2023
and the year-end.
With significantly higher rainfall in 2023 than the previous year, and with
more monitoring providing increased visibility of overflow activations,
despite the underlying improvements we have delivered spills increased to
97,537, which was 41 per cent higher than the much drier 2022. Our investment
in wastewater treatment and networks, alongside improvements in data and
operational processes, has reduced average spills per monitored overflow to
45, down by 24 per cent compared to our baseline year of 2020, which was also
a comparably wet year. We remain on track to meet our target of a one-third
reduction by 2025.
There is still a lot to do, and our business plan includes £3.1 billion of
proposed investment dedicated to tackling storm overflows in AMP8 - the UK's
biggest spill reduction plan, targeting a 60 per cent reduction across the
decade to 2030. As part of Defra's Accelerated Infrastructure Delivery
project, Ofwat gave approval for us to progress with more than 150 priority
projects during 2023-25. This early investment, alongside our Better Rivers
programme, is helping us to deliver the step change that we and our
stakeholders want to see - replumbing the wastewater network to suit the
modern world we live in.
We are focused on agile solutions that enable us to make meaningful progress
quickly, while our longer-term plans look at 'blue-green' nature-based
solutions as well as the traditional 'grey' options like storm tanks. We have
appointed a dedicated Better Rivers Director and established a new storm
overflow integrated delivery team to accelerate our improvement plan and
reduce spills from storm overflows as quickly as possible.
Creating a greener future
We take our environmental commitments very seriously and are proud to have a
sector-leading track record on minimising pollution for over a decade.
We have achieved the upper ratings (3-star 'good' and 4-star 'industry
leading') in the EA's Environmental Performance Assessment in every year since
it began in 2011. This includes the top 4-star rating secured in five of the
last eight years, representing a strong environmental performance against
increasingly challenging criteria. We were rated 3-star in the latest
assessment for 2022, but were pleased that our performance across a number of
measures improved. Our rating for 2023 will be confirmed in July and we are on
track to return to 4 star.
We also continue to deliver our Water Industry National Environment Programme
(WINEP), having met all our commitments for environmental improvements in
2023. We are an early adopter of the Task force for Nature-related Financial
Disclosures (TNFD) recommendations, and published our Corporate Natural
Capital Account during the year setting out the value our land provides to the
North West.
Climate change is already affecting our business, with increasingly volatile
weather. We are dedicated to both adaptation and mitigation activities,
increasing our resilience to a changing climate and playing our part in the
UK's plans for net zero by 2050. For the third year running, we have performed
strongly in the Financial Times Climate Leaders' Report on 500 European
companies; with United Utilities leading the utility sector.
We will submit our fourth climate change risk assessment (Adaptation Report)
in the next 12 months. We continue to work with customers to help drive a
reduction in water consumption, including testing a new rising block tariff -
as well as a non-household demand reduction programme that includes direct
messages to those businesses with a continuous flow, business visits and
self-help training guides for leak identification and resolution.
We continue to make good progress against our carbon pledges and science-based
targets to reduce greenhouse gas emissions. Over the next five years we will
continue to focus on opportunities for biodiversity net gain, peatland
restoration and tree planting, and best use of our land including for
renewable energy generation. We are also progressing plans for a pioneering
carbon-capture facility that will be hosted at our head office in Warrington -
an innovative project funded by the UK's Department for Energy Security and
Net Zero. The vision for the site is that nothing will go to waste and the
heat and power generated by the process will be redirected to heat our on-site
buildings as part of our long-term sustainability goals.
AMP7 regulatory performance
We have delivered improved performance for customers and the environment,
meeting or beating 80 per cent of our performance commitments, resulting in a
significant uplift in outcome delivery incentives (ODIs), with our highest
ever net ODI reward of £34 million. This includes strong performance on water
quality improvements through a programme of cleaning and re-lining of our
Vyrnwy Aqueduct, improving hydraulic flood risk resilience, enhanced water
service resilience, reducing sewer blockages, reducing voids, and reducing
lead risk. Exceptionally high rainfall has adversely impacted performance on
our flooding and pollution performance commitments.
While this net reward reflects strong delivery for customers, it is lower than
previously anticipated as the extreme weather (with 14 named storms since the
beginning of 2023) has had a £30 million adverse impact on what we otherwise
expected. We have earned a cumulative net ODI reward of £103 million so far
in AMP7, already significantly higher than our AMP6 reward of £44 million,
and we are guiding to a net reward in FY25 at least in line with FY24.
Return on regulated equity (RoRE) for 2023/24 was 8.5 per cent on a real,
RPI/CPIH blended basis, outperforming the base return of 4.0 per cent
(including our 11 basis point fast track reward). More details on our RoRE
performance can be found below.
Submitted a high-quality and ambitious business plan
In October 2023, we submitted our AMP8 business plan to Ofwat. It is a plan
that delivers benefits for customers, communities and the environment, and was
shaped by county-based engagement with customers and other stakeholders. This
proposed plan demonstrates extensive ambition and would see us deliver the
largest investment in water and wastewater infrastructure in more than a
century, investing in assets and delivering improved services for customers
and the environment. If approved, it will deliver a step change in tackling
those issues that matter the most - from reliable water supplies to cleaner
rivers and bathing waters - helping to make the North West greener, healthier
and stronger.
We are proposing to:
· Safeguard supplies for three million people - as we improve water
quality and the security of future water supplies, increasing resilience and
halving the chance of a hosepipe ban in the future;
· Protect and enhance more than 500km of rivers and bathing waters -
delivering the largest spill reduction programme in the UK, reducing storm
overflow spills by 60 per cent from the 2020 baseline;
· Reduce leakage - building a more resilient water network, fixing
leaks and replacing old pipes, targeting a reduction in leakage of 25 per cent
over the decade to 2030; and
· Respond to the challenges of climate change - strengthening our
network to reduce flooding of homes and businesses, improving services for
customers, protecting the environment and reducing greenhouse gas emissions.
The plan would support 30,000 jobs, of which 7,000 would be new jobs within
the company and
wider supply chain, bringing investment in skills and opportunities to the
heart of our local communities and giving a boost to the regional economy,
contributing £35 billion of economic value to the North West, and our
proposed investment would lead to 50 per cent growth in nominal RCV across the
five-year period. Importantly, we have taken robust action to make bills as
affordable as possible despite delivering record levels of investment. Our
plan would see average bill increases of £22 per year, and we are proposing
to provide more support for hard-pressed households than ever before, with
£525 million of support so we can help more than one in six customers. Our
engagement has been robust - we have spoken with 95,000 customers, securing
strong advocacy with 74 per cent support for the plan. We have also conducted
79 research projects driving innovation and opportunity.
Following submission of our business plan, Ofwat is now reviewing our
proposals. It is expected to publish a draft determination on 12 June 2024
and, having taken account of representations, a final determination in
December 2024. Our strong balance sheet and liquidity puts us in a great
position to deliver our plan, and at the same time as building the plan we
have been building capability. In addition to our existing strong team, we
have recruited some fantastic new talent. Our in-house rainwater management
and modelling team, new regulatory and compliance function, and county-level
stakeholder managers are mobilising ahead of the start of AMP8. Our
accelerated investment has enabled us to press ahead with our storm overflow
reduction programme.
Spending customers' money wisely
Our capital programme performance is measured through our capital delivery
programme incentive (CDPi) KPI, which places strong emphasis on efficiency as
well as reducing the carbon impact of our enhancement projects. We have
improved our performance, delivering a strong score of 98 per cent this year,
demonstrating that we are spending money wisely. This has been achieved in
part through the application of value engineering techniques, innovation and
supply chain opportunities.
We have revolutionised our supply chain approach leading into AMP8, and have
expanded our number of delivery partners tenfold to underpin deliverability of
our significant capital programme and ensure we are able to secure the best
value for money for customers. We have awarded two strategic optimisation
partnerships with mobilisation underway, and we are in the process of
appointing capital delivery partners for AMP8. Other workstreams have been
mobilised ready to start on our AMP8 plans, including the development of
standard products and designs to secure maximum efficiency of designs and
optimise our capital programme.
Contributing to our communities
We are proud to be the longest serving FTSE100 company in the region, and we
continue to play a key role in the North West economy. Our AMP8 plan would see
this increase further, with our investment plans supporting 30,000 jobs within
the company and our supply chain.
We invest in local communities with financial investment in environmental and
community partnerships, delivery of education in schools, and time volunteered
by colleagues across the business. We have directly invested £11.8 million in
communities so far in AMP7, as well as additional contributions to our UU
Trust Fund to help those struggling to pay.
The Lake District is a special place in our region, with Windermere at the
heart of the National Park. Over the summer, we opened an information centre
on Windermere High Street, increasing engagement and visibility of the
important work we are delivering in this community.
Each of our five counties has very different challenges and needs, and our
AMP8 business plan reflects these differences. Customer and stakeholder
engagement in each of our diverse counties has helped us to build and adapt
five targeted county-based plans that deliver what matters to each of them.
This five counties engagement has not just actively informed the development,
engagement and support for our plan, it is also at the heart of how we intend
to deliver the step change that we all want to see. We are organising
ourselves into 'county delivery squads' so we are ready to deliver our county
plans at pace and with purpose, and we have already moved to this new team
structure.
Providing a safe and great place to work
Our colleagues are key to delivering great service for customers and,
following submission of our business plan this year, we hosted an event in
Blackpool open to everyone across the organisation to hear about our plans and
ask questions. We also launched a new 'Call it Out' initiative this year to
encourage colleagues to raise ideas for improving efficiency and performance,
and this is already delivering improvements. Our engagement was very
positively received, and helpful in bringing all our people along on the
transformation journey as we enter AMP8.
The most important thing is that every colleague goes home safe and well, and
we continue to have a strong focus on health, safety and wellbeing. We have
introduced additional benefits for all colleagues this year, including a
virtual GP service and menopause support app, and we continue to focus on
mental as well as physical health.
We are focused on training and development opportunities, and were awarded
Water Industry Skills Employer of the Year 2023, with the judge recognising
United Utilities as a company that visibly attracts, develops and retains
talent, and as an employer of choice. We continue to recruit and train new
talent through our graduate and apprentice programmes. We welcomed more than
80 new graduates and apprentices in our September 2023 intake and we have
launched our largest ever apprenticeship recruitment process with more than 90
new opportunities available in 2024.
We have been recognised for our focus on wellbeing and awarded the National
Workplace Wellbeing Charter, demonstrating our commitment to proactively
championing a healthy workplace. We continue to perform well in ShareAction's
Workforce Disclosure Initiative, with our score of 89 per cent exceeding the
UK and utilities averages, and our continued dedication to equity, diversity
and inclusion was reflected in us being ranked highest in the Inclusive Top 50
UK Employers List 2022/23.
Service is underpinned by the people who deliver it, and it's encouraging to
see that we have achieved 81 per cent employee engagement in our annual
survey, which is in line with the UK High Performance Norm.
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 (total expenditure) programme. These include the £765 million
additional investment programme announced in May 2022, the Accelerated
Infrastructure Delivery Project spend and AMP8 transitional investment.
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 and tax 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 2024, our
gearing is in the lower half of this range at 59 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 2023/24 dividend is equal to the 2022/23 dividend
indexed for the movement in CPIH between November 2021 and November 2022).
OUTLOOK AND GUIDANCE
ODI rewards
We are forecasting to achieve a net customer ODI reward for 2024/25 at least
in line with FY24.
Revenue
Revenue is expected to increase by around 10 per cent in 2024/25, with around
3 per cent due to inflation offset by k factor, and 7 per cent due to timing.
Underlying operating costs
Operating costs including IRE are expected to increase by more than inflation
due to business rates, regulatory charges and IRE.
Depreciation
With continued growth in our asset base and accelerated investments ahead of
AMP8, depreciation is expected to increase by £30 million to £40 million.
Underlying net finance expense
Underlying net finance expense is expected to be broadly unchanged year on
year. As at 31 March 2024, we had £4.7 billion of index-linked debt exposure,
giving rise to a £47 million swing in our annual interest charge for every 1
per cent change in inflation.
Underlying tax
Our current tax charge is expected to be nil in 2024/25, reflecting expected
benefits in relation to 'full expensing' and the 50 per cent first year
allowances on longer life assets.
Capital expenditure
Capex in 2024/25 is expected to be in the range of £850 million to £1.1
billion. In addition to our AMP7 base programme, this reflects capital
expenditure for the year in relation to the c.£400 million of investment
brought forward from AMP8 (including Accelerated Infrastructure Delivery
Project and AMP8 transitional investment) as well as our additional investment
(including supporting our Better Rivers programme).
FINANCIAL REVIEW
Key financials (£m) - year ended 31 March
Reported Underlying(1)
2024 2023 % change 2024 2023 % change
Revenue(2) 1,949.5 1,804.2 +8.1% 1,949.5 1,804.2 +8.1%
Operating expenses(2) (810.7) (746.3) +8.6% (787.1) (746.3) +5.5%
Infrastructure renewals expenditure (219.8) (193.5) +13.6% (205.8) (193.5) +6.4%
Depreciation and amortisation (438.8) (423.6) +3.6% (438.8) (423.6) +3.6%
Operating profit 480.2 440.8 +8.9% 517.8 440.8 +17.5%
Net finance expense (306.1) (215.7) +41.9% (293.2) (475.1) -38.3%
Share of losses of JVs (4.1) - n/a (4.1) - n/a
Profit on disposal of subsidiary - 31.2 n/a - - -
Profit/(loss) before tax 170.0 256.3 -33.7% 220.5 (34.3) n/a
Tax (charge)/credit (43.1) (51.4) -16.1% 6.8 25.6 -73.4%
Profit/(loss) after tax 126.9 204.9 -38.1% 227.3 (8.7) n/a
EPS (pence) 18.6 30.0 -38.0% 33.3 (1.3) n/a
( )
2024 2023 % change
DPS (pence) 49.78 45.51 +9.4%
Net regulatory capex (£m) 737.1 693.9 +6.2%
RCV(3) (£m) 14,664 14,000 +4.7%
Net debt (£m) 8,763 8,201 +6.9%
RCV gearing(4) (%) 59% 58% +1%
RoRE(5) (%) 8.5% 10.9% -2.4%
( )
(1) Underlying measures are defined in the underlying profit section below
(2) Revenue and operating costs for the year ended 31 March 2023 have been
re-presented to reflect £20.2m of income not derived from the output of the
group's ordinary activity in Other income rather than Revenue. These balances
were previously reported as £4.8m and £1,824.4m respectively.
(3) United Utilities Water Limited's adjusted RCV (adjusted for actual spend,
timing differences and including full expected value of AMP7 ex-post
adjustment mechanisms).
(4) 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).
(5) Return on regulated equity
We delivered robust underlying financial performance this year. Revenue
increased 8 per cent, mainly driven by the inflation increase allowed as part
of our revenue cap. This revenue increase, partly offset by inflationary
increases to costs resulted in underlying operating profit increasing by £77
million to £518 million. Reported operating profit was £38 million lower
than underlying, at £480 million, reflecting an adjusting item in respect of
costs associated with a fractured outlet pipe at our Fleetwood Wastewater
Treatment Works.
Non-cash interest expense on our index-linked debt declined, resulting in an
underlying profit of £227 million and an underlying earnings per share of
33.3 pence. Reported profit after tax was lower at £127 million, with
reported earnings per share of 18.6 pence per share. Adjusted items between
underlying and reported are set out on in the underlying profit section below.
We have one of the strongest balance sheets in the sector, providing us with
future flexibility. During the year, we completed a pension scheme buy-in
transaction with Legal & General, covering two-thirds of scheme
liabilities and representing a significant milestone in our de-risking
journey. Our AMP7 investment requirements are fully pre-funded, and with
gearing of 59 per cent and solid credit ratings we approach AMP8 in a strong
position.
Revenue
£m
Year to 31 March 2023* 1,804.2
Regulatory revenue impact 102.6
Other impacts 42.7
Year to 31 March 2024 1,949.5
* Revenue for the year to 31 March 2023 has been re-presented so as to include
£20.2 million of income not derived from the output of the group's ordinary
activities in Other income rather than in revenue. This income relates to
amounts receivable under government renewable energy schemes and the sale of
energy generated to the grid.
Revenue was up £145 million, at £1,950 million, largely reflecting the
inflation increase allowed as part of our revenue cap.
In 2023/24, we had a £103 million increase in the revenue cap due to
regulatory adjustments, largely driven by a 9.4 per cent CPIH-linked increase
partly offset by 1.4 per cent real reduction in allowed wholesale revenues as
set out in our PR19 Final Determination.
Other revenue impacts largely reflects increases in consumption.
Operating profit
£m
Underlying - year to 31 March 2023 440.8
Revenue increase 145.3
Operating cost increases (40.8)
IRE increase (12.3)
Depreciation increase (15.2)
Underlying operating profit - year to 31 March 2024 517.8
Adjusted items* (37.6)
Reported - year to 31 March 2024 480.2
* Adjusted items are set out in the underlying profit section below.
Underlying operating profit at £518 million was £77 million higher than last
year, largely reflecting the increase in revenue, offset by inflationary
pressures on our core costs.
Inflationary pressures on our operating costs have resulted in a £41 million
increase. The largest increases have been to power and labour costs, where we
incurred an additional £34 million and £13 million respectively. Other costs
have been tightly controlled, partly mitigating the inflationary increases and
leading to a £6 million cost reduction.
As our asset base continues to grow, IRE increased by £12 million and our
depreciation charge for the year increased by £15 million.
Reported operating profit increased by £39 million compared to last year,
reflecting the £77 million increase in underlying operating profit offset by
£38 million of costs associated with responding to a fractured outlet pipe at
our Fleetwood Wastewater Treatment Works. The specific nature, and the
activity involved in remediating this failure was unlike anything that would
typically be experienced. As such, the associated costs were not
representative of normal business activity and were excluded in arriving at
underlying operating profit.
Current year cash collection has been strong, supported by our
industry-leading affordability schemes, effective credit collection practices
and utilisation of technology. As a result, our bad debt position has reduced
to 1.6 per cent of statutory revenue.
Profit/(loss) before tax
£m
Underlying loss before tax - year to 31 March 2023 (34.3)
Underlying operating profit increase 77.0
Underlying net finance expense decrease 181.9
Share of JVs losses increase (4.1)
Underlying profit before tax - year to 31 March 2024 220.5
Adjusted items * (50.5)
Reported - year to 31 March 2024 170.0
* Adjusted items are set out in the underlying profit section below.
Underlying profit before tax of £221 million compared to a £34 million
underlying loss before tax last year. The £255 million difference reflects
the £77 million increase in underlying operating profit and a £182 million
decrease in underlying net finance expense, partly offset by a small increase
in the share of losses of joint ventures of £4 million. Underlying profit
before tax reflects presentational adjustments as outlined in the underlying
profit section below.
Reported profit before tax decreased by £86 million to £170 million
reflecting a £90 million increase in reported net finance expense, a £31
million profit on disposal of our subsidiary United Utilities Renewable Energy
Limited recognised in the prior year, and a small increase in the share of
losses of joint ventures of £4 million, partly offset by an £39 million
increase in reported operating profit.
Net finance expense
Underlying net finance expense of £293 million was £182 million lower than
last year mainly due to significantly lower inflation resulting in a £268
million decrease in the non-cash indexation on our debt and derivative
portfolio, partly offset by a reduction in capitalised interest of £47
million, and rising interest rates resulting in higher net interest payable on
debt, derivatives and cash of £39 million.
Cash interest of £125 million was £23 million higher 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 £306 million was £90 million higher than
last year, reflecting a £272 million reduction in net fair value gains on
debt and derivatives (excluding interest on debt and derivatives under fair
value option) from £259 million net fair value gain last year to £13 million
net fair value loss this year, partly offset by the £182 million decrease in
underlying net finance expense.
Joint ventures
The group incurred a share of the losses of Water Plus for the year ended 31
March 2024 of £4 million, all of which has been recognised in the income
statement. This compares to a share of the profits of Water Plus of nil for
the year ended 31 March 2023, with the deterioration this year largely as a
result of the impact of higher interest rates.
Profit/(loss) after tax and earnings per share
PAT Earnings per share
£m Pence/share
Underlying loss after tax - year to 31 March 2023 (8.7) (1.3)
Underlying profit before tax increase 254.8
Reduction in underlying tax credit (18.8)
Underlying profit after tax - year to 31 March 2024 227.3 33.3
Adjusted items * (100.4)
Reported - year to 31 March 2024 126.9 18.6
* Adjusted items are set out in the underlying profit section below.
The underlying profit after tax of £227 million was £236 million higher than
the £9 million underlying loss last year, reflecting the £255 million
increase in underlying profit before tax and a £19 million reduction in
underlying tax credit.
Reported profit after tax was lower at £127 million and reported earnings per
share at 18.6 pence per share with the adjusted items between underlying and
reported set out in the underlying profit section below.
Tax
We continue to be fully committed to paying our fair share of tax and acting
in an open and transparent manner in relation to our tax affairs, and are
delighted to have retained the Fair Tax Mark independent certification for a
fifth year.
The group makes significant contributions to the public finances on its own
behalf as well as collecting and paying over further amounts for its over
6,000 strong workforce. The total payments for 2023/24 were around £240
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 £5
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 full expensing
introduced in 2023.
The group recognised a current tax credit of £6 million, mainly due to prior
year adjustment in relation to optimising the available research and
development tax allowances on our innovation- related expenditure, for
multiple prior years.
For the year to 31 March 2024, we recognised a deferred tax charge of £49
million, compared with £77 million last year.
The total effective tax rate, excluding prior year adjustments was 26 per cent
for the year to 31 March 2024 compared with the headline rate of 25 per cent.
There are £166 million of tax adjustments recorded within other comprehensive
income, primarily relating to remeasurement movements on the group's defined
benefit pension schemes. The rate at which the deferred tax liabilities are
measured on the group's defined benefit pension scheme is 25 per cent (2023:
35 per cent), being the rate applicable to refunds from a trust.
Dividend per share
The Board has proposed a final dividend of 33.19 pence per ordinary share in
respect of the year ended 31 March 2024. This is an increase of 9.4 per cent
compared with the dividend last year, in line with the group's dividend policy
of targeting a growth rate of CPIH inflation each year through to 2025. The
9.4 per cent increase is based on the CPIH element included within allowed
regulated revenue for the 2023/24 financial year (i.e. the movement in CPIH
between November 2021 and November 2022).
The final dividend is expected to be paid on 1 August 2024 to shareholders on
the register at the close of business on 21 June 2024. The ex-dividend date
for the final dividend is 20 June 2024. The election date for the dividend
reinvestment plan is 11 July 2024. A dividend reinvestment plan (DRIP) is
provided by Equiniti Financial Services Limited. The DRIP enables the
company's shareholders to elect to have their cash dividend payments used to
purchase the company's shares. More information can be found at
www.shareview.co.uk/info/drip
(https://urldefense.com/v3/__http:/www.shareview.co.uk/info/drip__;!!FvJKb9TgAvphWVQ!ZQcXqVPW7-CX6Mu2eJ844HadQqtQxFVhRWSvtDb2G_pkAJ6eNPrgzFZFKed_52ajmgKBNPFW-6xBGoefNhMz9Hbe1mP4vZAU_wSb$)
.
Cash flow
Net cash generated from operating activities for the year to 31 March 2024 was
£745 million, £43 million lower than £788 million last year, principally
due to higher net interest paid resulting from the rise in interest rates, and
changes in working capital decreasing cash generated from operations. The net
cash generated from continuing operating activities supports the dividends
paid of £320 million and partially funds some of the group's net capital
expenditure of £731 million, with the balance being funded by net borrowings
and cash and cash equivalents.
The group's consolidated statement of cash flows can be found in the condensed
consolidated financial statements.
Pensions
As at 31 March 2024, the group had an IAS 19 net pension surplus of £268
million, compared with a surplus of £601 million at 31 March 2023. This £333
million decrease principally reflects the impact of the purchase of bulk
annuities as part of a buy-in transaction completed in July 2023 with Legal
& General leading to around a £220 million reduction in the surplus. The
partial buy-in represents a significant milestone in our de-risking journey
for the benefit of the pension schemes, their members, and the group, by
working as a near-perfect economic hedge, removing interest rate, inflation
and longevity risks for the portion of liabilities secured. The remaining
reduction materially relates to changes in financial conditions over the
period, which have seen a fall in the value of the schemes' assets and the
impact of inflation remaining above the assumption made at 31 March 2023.
Further detail on pensions is provided in note 11 ('Retirement benefit
surplus') of these condensed consolidated financial statements.
Financing
Net debt £m
At 31 March 2023 8,200.8
Cash generated from operations (865.4)
Net capital expenditure 731.4
Dividends 320.0
Indexation 251.9
Interest 124.8
Fair value movements 35.1
Exchange rate movements on bonds and term borrowings (35.2)
Other (0.7)
At 31 March 2024 8,762.7
Net debt at 31 March 2024 was £8,763 million, compared with £8,201 million
at 31 March 2023. This comprises gross borrowings with a carrying value of
£10,001 million, net derivative liabilities hedging specific debt instruments
of £50 million and total indexation on inflation swaps of £111 million, and
is net of cash and bank deposits of £1,399 million.
Gearing, measured as group net debt including a £74 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) of £14.7 billion, was 59 per cent at 31 March 2024,
slightly higher than the 58 per cent at 31 March 2023 but remaining within our
target range of 55 to 65 per cent.
Cost of debt
As at 31 March 2024, the group had approximately £3.6 billion of RPI-linked
instruments and £0.5 billion of CPI or CPIH-linked instruments held as debt.
Including swaps, the group has RPI-linked debt exposure of £3.4 billion at an
average real rate of 1.4 per cent, and £1.3 billion of CPI or CPIH-linked
debt exposure at an average real rate of -0.6 per cent.
A significantly lower RPI inflation charge compared with last year contributed
to the group's average effective interest rate of 4.7 per cent being lower
than the rate of 8.0 per cent last year. More information on this can be found
in the average effective interest rate table below.
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 2.7 to 3.1 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 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
£10 billion medium-term note (MTN) programme. The group has fully pre-funded
its AMP7 investment requirements, and has begun funding its AMP8 (2025-30)
investment programme.
In the year to March 2024, we raised c.£1.6 billion of term funding. A 15.5
year £300 million sustainable public bond in April, a 9 year £100 million
bilateral loan with a relationship bank in April, a 13 year £350 million
sustainable public bond in June, a 22 year £250 million public bond in
January, a £50m tap of 12.3 year sustainable public bond in February and a
EUR650 million sustainable public bond in February. In addition, we renewed
£100 million of relationship bank revolving credit facilities with an initial
5-year term. Further in March we repurchased and cancelled c.£110 million of
bonds that had an original maturity date of February 2025.
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 2024,
approximately 39 per cent of the group's net debt was in RPI-linked form,
representing around 23 per cent of UUW's regulatory capital value, with an
average real interest rate of 1.4 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 16 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 2024, we had liquidity out to March 2026, comprising cash and bank
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 ongoing capital
investment programme.
Return on Regulated Equity (RoRE)
RoRE for 2023/24 was 8.5 per cent on a real, RPI/CPIH blended basis. In
addition to 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), we
delivered net outperformance of 4.5 per cent comprising:
Financing outperformance
We earned financing outperformance this year of 4.3 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. As in the prior year, our
financing outperformance this year has been supplemented by higher levels of
inflation, which increases the benefit of the roughly £4 billion fixed rate
debt we have locked in.
Tax outperformance
The 2.1 per cent outperformance on tax reflects the small current year
underlying tax credit, and includes allowable tax deductions on capital
investment including full expensing introduced in 2023.
Customer outcome delivery incentives (ODIs)
Customer ODI outperformance of 0.7 per cent reflects a net reward of £34
million(2). Our overall performance was strong this year, meeting or exceeding
80 per cent of our performance commitments. However, exceptionally high
rainfall during the year adversely impacted performance such as flooding and
we expect to receive penalties against these commitments for FY24. The extreme
weather we experienced meant that while our net reward reflects strong
delivery for customers, it is around £30 million lower than we previously
anticipated.
Customer ODI rewards and penalties are applied to revenues with a two-year
lag. As we are approaching the end of the AMP7 regulatory period, the payments
earned in 2023/24 and 2024/25 reporting year will be considered during the
determination processes for the next regulatory period and will be reflected
in adjustments to revenues during AMP8.
Totex performance(1)
The totex impact on RoRE of -2.2 per cent reflects the combined impact of the
in-year portion of the £765 million investment programme announced in May
2022, accelerated investment brought forward from AMP8 and inflationary
pressures, partly offset by the inflationary uplift within the totex
mechanism. We continue to robustly challenge our costs to help us deliver our
investment as efficiently as possible.
1 Tax benefits directly attributable to £765m additional investments netted
against totex performance.
2 Excluding per capita consumption, which Ofwat is considering as part of its
final determination process in the context of a full understanding of the
enduring impact of COVID-19 effects.
Retail performance
The retail impact on RoRE of -0.4 per cent reflects a small underperformance
in household retail resulting from the impacts of cost of living and
inflationary cost pressures.
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 in the condensed
consolidated financial statements below. 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 titled measures
presented by other companies. The group determines adjusted items in the
calculation of its underlying measures against a framework that 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 item Rationale
Adjustments not expected to recur
Fleetwood outfall pipe fracture In June 2023, the group suffered a large-scale outfall pipe fracture at a
major wastewater treatment works at Fleetwood. The specific nature of this
incident, and the activity involved in remediating this failure was unlike
anything that would be typically experienced. As such, the associated costs,
which were incurred across both operating expenditure and infrastructure
renewals expenditure, were not representative of normal business activity and,
therefore, the costs are excluded in arriving at underlying operating profit.
Profit on disposal of subsidiary This relates to the disposal of the group's subsidiary United Utilities
Renewable Energy Limited during the prior year, which 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 (gains)/losses on debt and derivative instruments, excluding Fair value movements on debt and derivative instruments can be both very
interest on derivatives and debt under fair value option significant and volatile from one period to the next, and are, therefore,
excluded in arriving at underlying net finance expense as they are determined
by macro-economic factors, which are outside of the control of management and
relate to instruments that are purely held for funding and hedging purposes
(not for trading purposes). Included within fair value movement on debt and
derivatives is interest on derivatives 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 adjustment Management adjusts to exclude the impact of deferred 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 of adjustments to underlying profit/ (loss) before tax Management adjusts for the tax impacts of the above adjusted items to provide
a more representative view of current year performance.
Year ended Year ended
Underlying profit 31 March 31 March
2024 2023
£m £m
Operating profit per published results 480.2 440.8
Fleetwood outfall pipe fracture 37.6 -
Underlying operating profit 517.8 440.8
Net finance expense
£m £m
Finance (expense)/income (389.3) (262.7)
Allowance for expected credit losses - loans to joint ventures (2.4) -
Investment income 85.6 47.0
Net finance expense per published results (306.1) (215.7)
Adjustments:
Fair value gains on debt and derivative instruments, excluding interest on 12.9 (259.4)
derivatives and debt under fair value option
Underlying net finance expense (293.2) (475.1)
£m £m
Share of (losses) of joint ventures (4.1) -
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 170.0 256.3
Adjustments:
In respect of operating profit 37.6 -
In respect of net finance expense 12.9 (259.4)
In respect of profit on disposal of subsidiary - (31.2)
Underlying profit/(loss) before tax 220.5 (34.3)
Profit after tax per published results 126.9 204.9
Adjustments:
In respect of profit before tax 50.5 (290.6)
Deferred tax adjustment 48.9 76.6
Tax in respect of adjustments to underlying profit before tax 1.0 0.4
Underlying profit/(loss) after tax 227.3 (8.7)
Earnings per share
£m £m
Profit after tax per published results (a) 126.9 204.9
Underlying profit / (loss) after tax (b) 227.3 (8.7)
Weighted average number of shares in issue, in millions (c) 681.9m 681.9m
Earnings per share per published results, in pence (a/c) 18.6 30.0
Underlying earnings per share, in pence (b/c) 33.3 (1.3)
Dividend per share, in pence 49.78p 45.51p
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 31 March
2024 2023
£m £m
Underlying net finance expense (293.2) (475.1)
Adjustments:
Net pension interest income (28.6) (28.7)
Adjustment for capitalised borrowing costs (81.0) (127.5)
Net finance expense for effective interest rate (402.8) (631.3)
Average notional net debt(3) (8,504) (7,849)
Average effective interest rate 4.7% 8.0%
Effective interest rate on index-linked debt 6.2% 12.4%
Effective interest rate on other debt 2.9% 2.2%
( )
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 2024 31 March 2023
£m £m
Group underlying operating profit 517.8 440.8
Underlying operating profit not relating to UUW 6.1 3.1
UUW statutory underlying operating profit (unaudited) 523.9 443.9
Revenue recognition (1.1) 9.3
Capitalised borrowing costs 11.2 7.5
Reclassification of regulatory other income (not included in UUW operating (32.2) (32.8)
profit)
Reversal of the innovation fund 6.5 6.4
Other differences (including non-appointed business) (1.0) (0.2)
UUW regulatory underlying operating profit (unaudited) 507.3 434.1
Return on Regulated Equity (RoRE)
UUW's RoRE, presented on a real return basis:
Year ended AMP7
31 March 2024 To date
Base return 4.0% 4.0%
Financing performance 4.3% 3.0%
Tax performance(4) 2.1% 1.3%
Customer ODI performance 0.7% 0.5%
Totex performance(4) (2.2)% (0.6)%
Retail performance (0.4)% (0.3)%
RoRE 8.5% 7.9%
3 Notional net debt is calculated as the principal amount of debt to be
repaid, net of cash and bank deposits, taking: the face value issued of any
nominal sterling debt, the inflation accreted principal on the group's index
linked debt, and the sterling principal amount of the cross currency swaps
relating to the group's foreign currency debt.
4 Tax benefits directly attributable to £765m additional investments netted
against totex performance.
PRINCIPAL RISKS AND UNCERTAINTIES
Our approach to risk management
Our approach to risk management, including how we identify and assess risk,
the oversight and governance process, and focus on continual improvement
remains largely unchanged from that detailed in our Annual Report.
Risk profile
The business risk profile is based on the value chain of the company, with the
ten 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 these inherent risk areas, the profile consists
of approximately 100 event-based risks, each of which is allocated 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 remain dynamic by reflecting new and emerging circumstances.
The common themes are under continuous review, however at present they are:
· Causal factor themes: Extreme weather / climate change; Asset health;
Economic conditions; Legislative and regulatory change; Demographic change;
Culture; and Technology and Data.
· Consequence themes relate directly to stakeholders: Service delivery;
Non-compliance; Environmental impact; People; Supply chain; and Investors.
The company's principal risks
Our principal risks represent the ten highest-ranked risks by exposure
(likelihood of occurrence of the event multiplied by the most likely financial
impact over the long-term) 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,
fines, regulatory penalties and compensation. Reputational impact relative to
our multiple stakeholders 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 - D):
1. Price Review 2024 outcome
Risk exposure: Following submission of our business plan to Ofwat, the risk
relates to our expenditure allowance, performance incentives and penalties,
and the allowable return on investment at the final determination. Risk
factors include Ofwat's assessment of the quality and ambition of our plan,
including cross company comparisons of stretching performance and delivery
targets alongside efficient costs and alignment to customers' interests.
Control/mitigation: We believe we have presented an ambitious and high quality
business plan with comprehensive supporting evidence and justification, and
continue to liaise and work closely with Ofwat and other stakeholders.
Assurance: Second line assurance has been provided through a dedicated price
review team and a PR24 programme board. There was a blend of internal audit
and external assurance focused on the quality of the PR24 business plan and
related submissions.
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 our
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. Recycling of biosolids to agriculture
Risk exposure: We believe that recycling of biosolids to agriculture is the
most practical environmental option, however a reduction in the agricultural
landbank could have significant implications to operations and expenditure
into the long-term, with a total ban being the worst case scenario. Threats
include the quality of biosolids, and changes in, or the interpretation of,
regulations.
Control/mitigation: Treatment, sampling and testing ensures that quality
standards are met, and we work closely with farmers, landowners and
contractors to ensure compliance with regulations. In addition, we work
closely with regulators and lawmakers to influence policy from an informed
position.
Assurance: The bioresources team ensures compliance with the UK Biosolids
Assurance Scheme (BAS) and other codes of practice. Second line assurance is
undertaken by the assurance team, with third line assurance provided by
internal audit, and external auditors certifying our BAS accreditation.
4. Credit rating
Risk exposure: Credit ratings are important for access to capital, meeting
regulatory requirements and to give confidence to investors of our financial
health. A potential downgrade in credit rating, leading to increased cost of
funding, can occur due to external factors (such as inflation and/or a change
in sector risk assessment by a ratings agency), financial and/or operational
performance; and a large capital programme which is not matched by equity
support where necessary.
Control/mitigation: We continuously monitor financial markets, manage key
financial and treasury risks within defined policy parameters, and we will
review the capital structure once we have clarity following Ofwat's Final
Determination for Price Review 2024.
Assurance: Second line assurance is provided by financial control and monthly
executive performance review meetings, with oversight provided by the treasury
committee. The treasury function is subject to regular internal audits.
5. Wastewater network failure
Risk exposure: Our sewer network can fail to operate effectively, resulting in
unpermitted storm overflow activations, sewer flooding and environmental
damage. Causes include blockages, operational failures or inadequate hydraulic
capacity relative to population growth, extreme weather, asset health, and
legal / regulatory change.
Control/mitigation: Key preventative measures include proactive maintenance
and inspection regimes, customer campaigns and a sewer rehabilitation
programme. Sewer network performance is subject to dynamic monitoring, and the
Better Rivers programme is improving the capacity of the network.
Assurance: Second line assurance is provided by wholesale assurance,
engineering technical governance and the flood review panel. The risk is
subject to regular internal audits and external assurance of regulatory
reporting.
6. Failure to treat sludge
Risk exposure: Treating sludge to the appropriate quality relates to the
capacity of our assets to cope with increasing volume relative to changing
demographics, asset health and legislative / regulatory change, such as the
Industrial Emissions Directive (IED).
Control/mitigation: We adopt a Throughput, Reliability, Availability and
Maintainability (T-RAM) approach for our facilities, balance capacity and
demand, undertake regular testing and analysis of sludge, and operate a
programme of asset cleaning.
Assurance: Bioresources production planning team provides first line assurance
on managing sludge treatment plant performance and capacity. Second line
assurance is provided through our internal environmental, regulatory and
technical advisers, and assurance team. Third line assurance is undertaken by
the internal audit team.
7. Cyber
Risk exposure: There is an increasing and constantly changing cyber threat
landscape, with the potential for data and technology assets to be
compromised, leading to a major impact to key business processes and
operations.
Control/mitigation: Multiple layers of control exist including a secure
perimeter, segmented internal network zones, training and access controls.
Constant monitoring and forensic response capability also exists.
Assurance: Second line assurance is provided by the security team who monitor
multiple sources of threat intelligence, and the security steering group
provides oversight. Independent assurance is provided by annual internal
audits and various technical audits, including penetration testing, is
regularly undertaken by external specialist.
8. Failure to meet the totex efficiency challenge
Risk exposure: AMP7 totex efficiencies are challenged through a combination of
factors including supply chain issues, inflationary pressures, and additional
investment to deliver performance improvements.
Control/mitigation: Strategic Portfolio Board (SPB) planning, 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 executive led meetings,
with the strategic portfolio board, and monthly executive performance review
meetings providing second line governance and assurance. Third line assurance
is undertaken through cyclical internal audits.
9. Water availability
Risk exposure: The availability of raw water is one of the most sensitive
risks to climate change. Extended periods of low rainfall and exceptionally
hot weather, 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, based on in-house information and regulatory guidelines,
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.
10. Capital Delivery programme
Risk exposure: The delivery of the capital programme to time, cost and quality
is under constant challenge due to ongoing exposure to natural hazards, and
the capacity and capability of third parties and internal resource. This risk
will be amplified with the proposed increased size and scale of the capital
programme in subsequent AMPs.
Control/mitigation: All projects are subject to planning and project
management within a managed programme of capital works. There is a
transformation programme in place to ensure readiness of the significant
increased capital programme in the AMP8.
Assurance: The engineering team provide technical governance and the Programme
Management Office (PMO) assures against delivery obligations. The assurance
team undertake health, safety, environmental and quality inspections, and
internal audit undertake third line assurance against performance metrics as
well as audits of specific projects and programme management.
A. Dam failure
Risk exposure: The integrity of dams is fundamental to water storage and the
safety of society downstream. Flood damage, overtopping, earthquake or erosion
could, in remote circumstances, result in an uncontrolled release of a
significant volume of water with catastrophic implications.
Control/mitigation: Each reservoir is regularly inspected by engineers. Where
appropriate, risk management activities are applied and risk reduction
interventions are implemented through a prioritised investment programme.
Assurance: There are 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.
B. Financial Outperformance
Risk exposure: Inflation is fundamental to the economic regulation of the
water sector affecting wholesale revenues, regulatory asset values, return on
investment, and indexed link debt. Periods of low inflation impact the value
of the company and its profitability.
Control/mitigation: The impact of interest rates and inflation is mitigated
through hedging and forward buying of commodities such as energy. Business
planning, including sensitivity analysis, takes into account ongoing
monitoring of markets and regulatory developments.
Assurance: Second line assurance and oversight is provided by the board and
treasury committee in addition to monthly executive performance meetings. The
risk is also subject to cyclical internal audit reviews.
C. Terrorism
Risk exposure: Terrorism is a threat to our business with terrorist groups
looking to advance their political agendas by causing harm and destruction.
Although deemed remote, there is a risk to our assets leading to the
subsequent loss or contamination of supply and/ or pollution of the
environment.
Control/mitigation: Assets are protected in accordance with the Security and
Emergency Measures Direction (SEMD), and we liaise with the Protective
Security Authority (NPSA), regional counter terrorist units, local agencies,
and emergency services.
Assurance: Second line assurance is provided by the security steering group.
In addition, internal audit undertake cyclical audits with external technical
assurance being delivered by specialists.
D. Process Safety
Risk exposure: Our activities include processes that are inherently hazardous
with the storage of toxic and explosive gases across multiple sites (two of
which fall under the Control of Major Accident Hazard (COMAH) regulations).
Control/mitigation: Multi layers of protection are in place including: design
standards; maintenance and operating regimes; work authorisation procedures;
and emergency planning and training.
Assurance: Second line assurance is undertaken by both the assurance and
health and safety teams, with third line assurance being undertaken through
periodic internal audits. The Health and Safety Executive also carries out
regulatory inspections.
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 financial
statements, 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 that 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 scheduled
various hearings to receive the testimony of fact witnesses and experts
(starting in May 2023 and ongoing). UUIL will vigorously resist the
proceedings given the robust defences that UUIL has been advised that it has
on procedural and substantive grounds.
· Collective proceedings in the Competition Appeal Tribunal (CAT) were
issued on 8 December 2023 against UUW and United Utilities Group PLC on behalf
of approximately 5.6 million domestic customers following an application by
the Proposed Class Representative, Professor Carolyn Roberts. It is alleged
that customers have collectively paid an overcharge for sewerage services
during the claim period (which runs from 1 April 2020 and may continue into
the early years of the PR24 period) as a result of UUW allegedly abusing a
dominant position by allegedly providing misleading information to regulatory
bodies. A hearing is currently scheduled in late September 2024 to deal with
certification of the claim and any possible preliminary issue or strike out
arguments in respect of the claim. UUW believes the claim is without merit and
will defend it robustly. Similar claims have also been issued and served
against five other water and wastewater companies.
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 Re-presented*
31 March
2024 Year ended
31 March
2023
£m £m
Revenue (note 3) 1,949.5 1,804.2
Other income 18.8 25.0
Staff costs (205.1) (192.2)
Other operating costs (note 4) (602.4) (556.4)
Allowance for expected credit losses - trade and other receivables (22.0) (22.7)
Depreciation of property, plant and equipment (406.1) (385.5)
Amortisation of intangible assets (32.7) (38.1)
Infrastructure renewals expenditure (219.8) (193.5)
Total operating expenses (1,469.3) (1,363.4)
Operating profit 480.2 440.8
Investment income (note 5) 85.6 47.0
Finance expense (note 6) (389.3) (262.7)
Allowance for expected credit losses - loans to joint ventures (2.4) -
Investment income and finance expense (306.1) (215.7)
Share of losses of joint venture (note 10) (4.1) -
Profit on disposal of business - 31.2
Profit before tax 170.0 256.3
Current tax credit 5.8 25.2
Deferred tax charge (48.9) (76.6)
Tax (note 7) (43.1) (51.4)
Profit after tax 126.9 204.9
Earnings per share (note 8)
Basic 18.6p 30.0p
Diluted 18.6p 30.0p
Dividend per ordinary share (note 9) 49.78p 45.51p
All of the results shown above relate to continuing operations.
*The consolidated income statement for the year ended 31 March 2023 has been
re-presented to reflect £20.2 million of income not derived from the output
of the group's ordinary activities in Other income rather than in Revenue.
These balances were previously reported as £4.8 million and £1,824.4 million
respectively. See note 3 for further details.
Consolidated statement of comprehensive income
Year ended Re-presented*
31 March Year ended
2024 31 March
2023
£m £m
Profit after tax 126.9 204.9
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Cash flow hedges - effective portion of fair value movements (63.0) (50.6)
Tax on items recorded within other comprehensive income 15.8 12.7
Reclassification of cash flow hedge effectiveness to consolidated income 1.8 (36.6)
statement
Tax on reclassification to consolidated income statement (0.5) 7.0
(45.9) (67.5)
Items that will not be reclassified to profit or loss in subsequent periods:
Remeasurement losses on defined benefit pension schemes (note 11) (368.5) (445.3)
Change in credit assumption for debt reported at fair value through profit and 0.7 4.8
loss
Cost of hedging - cross currency basis spread adjustment 4.8 6.3
Tax on items recorded within other comprehensive income 151.1 151.5
(211.9) (282.7)
Total comprehensive income (130.9) (145.3)
Consolidated statement of financial position
Year ended Year ended
31 March 31 March
2024 2023
£m £m
ASSETS
Non-current assets
Property, plant and equipment 13,044.3 12,570.7
Intangible assets 124.5 142.3
Interests in joint ventures (note 10) 12.4 16.5
Inventories - other - 1.2
Trade and other receivables 73.7 75.7
Retirement benefit surplus (note 11) 268.0 600.8
Derivative financial instruments 361.5 428.6
13,884.4 13,835.8
Current assets
Inventories - properties held for resale 3.0 4.2
Inventories - other 18.5 8.9
Trade and other receivables 226.8 190.5
Current tax asset 100.1 98.9
Cash and cash equivalents 1,399.3 340.4
Derivative financial instruments 21.3 48.5
1,769.0 691.4
Total assets 15,653.4 14,527.2
LIABILITIES
Non-current liabilities
Trade and other payables (957.9) (892.4)
Borrowings (note 12) (9,345.8) (8,259.0)
Deferred tax liabilities (1,930.6) (2,048.1)
Derivative financial instruments (255.2) (243.1)
(12,489.5) (11,442.6)
Current liabilities
Trade and other payables (413.3) (376.7)
Borrowings (note 12) (655.6) (176.4)
Provisions (13.5) (13.1)
Derivative financial instruments (25.4) (9.7)
(1,107.8) (575.9)
Total liabilities (13,597.3) (12,018.5)
Total net assets 2,056.1 2,508.7
EQUITY
Share capital 499.8 499.8
Share premium account 2.9 2.9
Other reserves (note 16) 311.1 353.4
Retained earnings 1,242.3 1,652.6
Shareholders' equity 2,056.1 2,508.7
Consolidated statement of changes in equity
Year ended 31 March 2024
Share Share (1)Other Retained Total
capital Premium reserves earnings
account
£m £m £m £m £m
At 1 April 2023 499.8 2.9 353.4 1,652.6 2,508.7
Profit after tax - - - 126.9 126.9
Other comprehensive income
Remeasurement gains on defined benefit pension schemes (note 11) - - - (368.5) (368.5)
Change in credit assumption for debt reported at fair value through profit or - - - 0.7 0.7
loss
Cash flow hedges - effective portion of fair value movements - - (63.0) - (63.0)
Cost of hedging - cross-currency basis spread adjustment - - 4.8 - 4.8
Tax on items recorded within other comprehensive income (note 7) - - 14.6 152.3 166.9
Reclassification of items recorded directly in equity - - 1.8 - 1.8
Tax on reclassification to income statement - - (0.5) - (0.5)
Total comprehensive income - - (42.3) (88.6) (130.9)
Dividends (note 9) - - - (320.0) (320.0)
Equity-settled share-based payments - - - 2.1 2.1
Exercise of share options - purchase of shares - - - (3.8) (3.8)
At 31 March 2024 499.8 2.9 311.1 1,242.3 2,056.1
Share Share (1)Other Retained Total
Year ended 31 March 2023 capital Premium reserves earnings
account
£m £m £m £m £m
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 11) - - - (445.3) (445.3)
Change in credit assumption for debt reported at fair value through profit or - - - 4.8 4.8
loss
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 - - 11.1 153.1 164.2
income (note 7)
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 9) - - - (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
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 16.
Consolidated statement of cash flows
Year ended Year ended
31 March 31 March
2024 2023
£m £m
Operating activities
Cash generated from operations (note 14) 865.4 883.1
Interest paid (175.6) (118.2)
Interest received and similar income 50.7 15.8
Tax paid - (10.8)
Tax received 4.6 17.6
Net cash generated from operating activities 745.1 787.5
Investing activities
Purchase of property, plant and equipment (749.5) (675.9)
Purchase of intangible assets (14.6) (18.1)
Grants and contributions received 27.9 5.1
Proceeds from disposal of property, plant and equipment 4.8 -
Repayment of loans to joint ventures (note 18) - 5.0
Proceeds from disposal of subsidiary - 90.5
Net cash used in investing activities (731.4) (593.4)
Financing activities
Proceeds from borrowings net of issuance costs 1,610.0 501.0
Repayment of borrowings (248.5) (278.0)
Dividends paid to equity holders of the company (note 9) (320.0) (301.2)
Exercise of share options - purchase of shares (3.8) (6.8)
Net cash generated from/(used in) financing activities 1,037.7 (85.0)
Effects of exchange rate changes - (1.3)
Net increase in cash and cash equivalents 1,051.4 107.8
Cash and cash equivalents at beginning of the year 327.9 220.1
Cash and cash equivalents at end of the year 1,379.3 327.9
NOTES
1. Basis of preparation and accounting policies
The condensed consolidated financial statements for the year ended 31 March
2024 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 2024, for which the
auditors have given an unqualified opinion.
The comparative figures for the year ended 31 March 2023 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
2024.
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 £400 million arising in the assessment period; elevated levels of bad debt
of £15 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
The group discloses 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 2024. 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 2024 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. An update on these judgements and
estimates is as follows:
Accounting estimate - allowance for expected credit losses in respect of
household trade receivables: Recent years have seen a high level of
uncertainty as to how economic conditions may impact the recoverability of
household receivables for a significant proportion of the group's customer
base. We are mindful that increased energy prices, higher interest rates and
other inflationary pressures may adversely impact some customers'
affordability.
A range of collection scenarios have been used to inform the allowance for
expected credit losses and the charge 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 periods which include the impacts of
Covid-19 recovery and more recent cost of living pressures, to provide a range
of views as to how recoverability of household receivables may be impacted.
The group continues to use the average cash collection over the preceding
three years as a basis for estimating future collection, which is consistent
with the prior year. This look-back period includes periods of relatively
strong cash collection but also periods where cash collection has been more
challenging, particularly due to recent cost of living pressures, and thus
incorporates the variability of factors that can impact collection over the
life of the receivable. 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.
The forward-looking assessment resulted in the release of a significant
portion of the management overlay which had previously been recognised in
light of the uncertainty arising initially from the onset of the Covid-19
pandemic, as described within the Annual Report for the year ended 31 March
2020, and subsequently maintained to address the collection risk arising from
recent cost of living pressures and the associated adverse impact on customer
affordability. A review of cash collection performance in the current year has
led to an increase in the modelled provisioning rates as this data is
incorporated within the model. We continue to monitor the impact of cost of
living pressures on the recoverability of household receivables.
Together, this supports a charge equivalent to around 1.6 per cent of
household revenue recorded during the period, which is slightly lower than the
position at 31 March 2023.
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
2024 Re-presented*
2023
£m £m
Wholesale water charges 819.9 758.1
Wholesale wastewater charges 990.8 914.7
Household retail charges 93.1 83.0
Other 45.7 48.4
1,949.5 1,804.2
*Revenue for the year ended 31 March 2023 has been re-presented so as to
include £20.2 million of income not derived from the output of the group's
ordinary activities in other income rather than in revenue. This income, which
had previously been included in the 'other' category in the above table,
related to amounts receivable under government renewable energy schemes and
the sale of energy generated to the grid, which is a by-product, rather than
an output, of the group's ordinary activities. As such it does not meet the
criteria to be recognised as revenue from contracts with customers in
accordance with IFRS 15 and so has instead been reflected as other income in
the consolidated statement of comprehensive income.
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,
although following the same pattern of transfer to the customer who
simultaneously receives and consumes both of these services over time.
Other revenues comprise a number of smaller non-core income streams, including
property sales and income from activities, typically performed opposite
property developers, which impact the group's capital network assets. This
includes diversion 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
2024 2023
£m £m
Power 164.3 130.8
Hired and contracted services 128.7 103.7
Materials 127.1 132.7
Property rates 82.0 87.1
Regulatory fees 39.3 36.7
Insurance 13.3 19.7
Loss on disposal of property, plant and equipment 6.7 4.2
Accrued innovation costs 6.0 6.1
Cost of properties disposed - 1.4
Other expenses 35.0 34.0
602.4 556.4
In June 2023, the group experienced a significant outfall pipe fracture at a
major wastewater treatment works at Fleetwood, for which the remediation and
associated activity resulted in costs of £37.6 million being incurred during
the year. These costs have been presented as an adjusting item in arriving at
the group's underlying operating profit position as included in its
Alternative Performance Measures.
The £37.6 million of costs is split into £23.6 million of operating costs
included in the above total, and £14.0 million of infrastructure renewal
expenditure. The majority of the £23.6 million of operating costs are
reflected within hired and contracted services, including the cost of
tankering to reduce the volume of sewage spills along the Fylde Coast while
remediation activity was undertaken.
In addition to the costs relating to the incident at Fleetwood, other
operating costs have increased compared with the same period in the prior
year, predominantly due to changes in energy prices, which have resulted in an
increase in the group's power costs on a hedged basis.
Research and development expenditure for the year ended 31 March 2024 was
£0.7 million (2023: £1.2 million). In addition, £6.0 million (2023: £6.1
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
2024 2023
£m £m
Interest receivable 57.0 18.3
Net pension interest income (note 11) 28.6 28.7
85.6 47.0
6. Finance expense
2024 2023
£m £m
Interest payable 379.8 497.7
Net fair value losses/(gains) on debt and derivative instruments 9.5 (235.0)
389.3 262.7
Interest payable is stated net of £81.0 million (2023: £127.5 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 6.1 per cent (2023:
7.9 per cent) to expenditure on such assets as prescribed by IAS 23 'Borrowing
Costs'.
Interest payable includes a £225.9 million (2023: £463.5 million) non-cash
inflation expense in relation to the group's index-linked debt.
In addition to the £389.3 million finance expense, the allowance for expected
credit losses in relation to loans extended to the group's joint venture,
Water Plus, has increased by £2.4 million during the current year (2023:
£nil).
Net fair value losses on debt and derivative instruments includes £29.3
million income (2023:
£31.8 million income) due to net interest on derivatives and debt under fair
value option, and £25.9 million expense (2023: £56.2 million expense) due to
non-cash inflation uplift 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 £306.1 million (2023: £215.7 million) reported in
the Consolidated Income Statement to exclude the £9.5 million of fair value
losses in the above table, but include £29.3 million income due to net
interest on derivatives and debt under fair value option, and £25.9 million
expense due to non-cash inflation uplift on index-linked derivatives.
7. Tax
During the year ended 31 March 2024 there was a current tax credit of £5.8
million (2023: £25.2 million) and a deferred tax charge of £4.6 million
(2023: £32.5 million) relating to prior years. The current year figure mainly
relates to optimising the available tax incentives on our innovation related
expenditure, for multiple earlier years. The prior year mainly relates to the
utilisation of tax losses.
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 current tax asset recognised in the statement of financial position
reflects the amount of tax expected to be recoverable based on judgements made
regarding the application of tax law, and the status of negotiations with, and
enquiries from, tax authorities.
The tax adjustments taken to equity primarily relate to remeasurement
movements on the group's defined benefit pension schemes. The rate at which
the deferred tax liabilities are measured on the group's defined benefit
pension scheme is 25 per cent (2023: 35 per cent), being the rate applicable
to refunds from a trust.
8. 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.
2024 2023
£m £m
Profit after tax attributable to equity holders of the company 126.9 204.9
Weighted average number of shares in issue in millions
Basic 681.9 681.9
Diluted 683.5 684.1
Earnings per share in pence
Basic 18.6 30.0
Diluted 18.6 30.0
9. Dividends
2024 2023
£m £m
Dividends relating to the year comprise:
Interim dividend 113.1 103.4
Final dividend 226.3 206.9
339.4 310.3
Dividends deducted from shareholders' equity comprise:
Interim dividend 113.1 103.4
Final dividend 206.9 197.8
320.0 301.2
The proposed final dividends for the years ended 31 March 2024 and 31 March
2023 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 2024 and 31 March 2023
respectively.
The final dividend of 33.19 pence per ordinary share (2023: 30.34 pence per
ordinary share) is expected to be paid on 1 August 2024 to shareholders on the
register at the close of business on 21 June 2024. The ex-dividend date for
the final dividend is 20 June 2024.
The interim dividend of 16.59 pence per ordinary share (2023: 15.17 pence per
ordinary share) was paid on 1 February 2024 to shareholders on the register at
the close of business on 22 December 2023.
10. Interests in joint ventures
2024 2023
£m £m
Joint ventures at the start of the year 16.5 16.5
Share of losses of joint ventures (4.1) -
Joint ventures at the end of the year 12.4 16.5
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's total share of Water Plus losses for the year was £4.1 million
(2023: £nil), all of which is recognised in the income statement.
Details of transactions between the group and its joint ventures are disclosed
in note 18.
11. 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:
2024 2023
%pa %pa
Discount rate 4.80 4.70
Pension increases 3.25 3.40
Pensionable salary growth (pre-2018 service):
ESPS 3.25 3.40
UUPS 3.25 3.40
Pensionable salary growth (post-2018 service):
ESPS 3.25 3.40
UUPS 2.80 2.85
Price inflation - RPI 3.25 3.40
Price inflation - CPI(1) 2.80 2.85
Note:
((1))The CPI price inflation assumption represents a single weighted average
rate derived from an assumption of 2.35 per cent pre-2030 and 3.05 per cent
post-2030 (2023: 2.50 per cent pre-2030 and 3.30 per cent post-2030).
As part of the group's and trustees' ongoing de-risking activities, a partial
buy-in took place on 3 July 2023. This was a £1.8 billion transaction between
an insurer and the trustees of two pension schemes sponsored by United
Utilities, UUPS and ESPS. The transaction provides the schemes with secure
income that covers around two thirds of their liabilities through the purchase
of bulk annuity policies, thus providing a greater degree of certainty for the
group, the trustees, and members of the schemes. For ESPS, the buy-in was
estimated to cover c.93% of pensioner liabilities, and for UUPS c.80% of
deferred and pensioner members, as at the date of the transaction on a
technical provisions basis. The split on an IAS 19 basis is expected to be
broadly consistent.
The £1.8 billion paid for the bulk annuity policies reflects a Trustee
investment. The amount includes a premium equivalent to c.£220 million paid
in excess of the present value of the liabilities covered, which reflects a
reduction in the schemes' risk profile. This has resulted in an overall
decrease in the defined benefit pension surplus recorded on the statement of
financial position because scheme assets were used to purchase the policies.
Under IAS 19, the fair value of the buy-in assets at the date of the
transaction was considered to be equal to the IAS 19 value of the insured
liabilities, and subsequently the fair value of the insurance assets is pegged
to the present value of the liabilities being insured. As the fair value of
the buy-in assets is significantly less than the buy-in premium paid to the
insurer, this results in an asset loss for accounting purposes, which is
recorded in Other Comprehensive Income ('OCI'). This is because the
transaction has not resulted in a settlement or a change in benefits payable
to scheme members.
The discount rate is consistent with a high quality corporate bond rate, with
4.80 per cent being equivalent to gilts + 50bps (2023: 4.70 per cent being
equivalent to gilts + 95bps).
Corporate bond yields have increased relative to 31 March 2023, leading to a
higher IAS 19 discount rate. As the schemes are more than 100% hedged on an
IAS 19 basis, the assets have fallen more than the Defined Benefit Obligation
('DBO'). Further, credit spreads have narrowed since the year end, which, all
else being equal, increases the DBO by more than the value of the assets.
Inflation has also remained above the assumption made at the previous year
end. This has been partially offset by updates to the demographic assumptions
to reflect shorter life expectancies under the latest future mortality
projections.
In line with previous reporting periods, mortality assumptions continue to be
based on the latest available Continuous Mortality Investigation's ('CMI')
mortality tables. As at 31 March 2024, these assumptions are based on the
CMI2022 base tables with a 1.25% p.a. rate of improvement (2023: 1.25% p.a.),
and factoring in a w2022 weighting of 40% (2023: w2021 weighting of 10%) to
take account of the continued increased mortality rates following the impact
of the Covid-19 pandemic in the medium term, including pressures on the NHS
and the high flu rate in 2022. Compared against the prior year mortality
assumptions, the Core CMI2022 model sees a reduction in life expectancies
resulting in a reduction in the DBO of around 1-1.5%. It should be noted,
however, that post buy-in any changes in the life expectancy assumptions for
insured members will be offset by a corresponding change in the value of the
buy-in bulk annuity policies on an the IAS 19 basis. As such, relative to
prior years, the statement of financial position is expected to be less
sensitive to mortality assumptions going forward.
The net pension income before tax in the income statement in respect of the
defined benefit schemes is summarised as follows:
2024 2023
£m £m
Current service cost 2.8 6.0
Past service cost (4.6) -
Administrative expenses 4.0 2.5
Pension expense charged to operating profit 2.2 8.5
Net pension interest credited to investment income (note 5) (28.6) (28.7)
Net pension income credited before tax (26.4) (20.2)
The reconciliation of the opening and closing net pension surplus included in
the statement of financial position is as follows:
2024 2023
£m £m
At the start of the year 600.8 1,016.8
Income recognised in the income statement 26.4 20.2
Contributions 9.3 9.1
Remeasurement losses gross of tax (368.5) (445.3)
At the end of the year 268.0 600.8
The closing surplus at each reporting date is analysed as follows:
2024 2023
£m £m
Fair value of schemes' assets 2,552.4 2,931.3
Present value of defined benefit obligations (2,284.4) (2,330.5)
Net retirement benefit surplus 268.0 600.8
The overall reduction in the net retirement benefit surplus has been driven
mainly by the £368.5 million of remeasurement losses, of which c.£220
million relates to the IAS 19 impact of the buy-in transaction. The remaining
reduction of the IAS 19 surplus is largely attributable to changes in
financial conditions over the period, which have seen a fall in the value of
the schemes' assets, which fully hedged against the schemes' technical
provisions funding positions, and are therefore more than 100% hedged on an
IAS 19 basis meaning that increases in net yields are expected to reduce the
schemes' assets by a greater amount than the IAS 19 liabilities. These
remeasurement losses are partially offset by actuarial gains from changes in
demographic assumptions, which have seen overall life expectancies lower than
assumed at the previous year-end.
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.
The results of the latest funding valuation at 31 March 2021 have been used to
inform the group's best estimate assumptions to use in calculating the defined
benefit pension position reported on an IAS 19 basis at 31 March 2024. The
results of the funding valuation have been adjusted to take account of
experience over the period, changes in market conditions, and differences in
the financial and demographic assumptions. The present value of the defined
benefit obligation, and the related current service costs, were measured using
the projected unit credit method.
Member data used in arriving at the liability figure included within the
overall IAS 19 surplus has been based on the finalised actuarial valuations as
at 31 March 2021 for both UUPS and ESPS. As part of each actuarial valuation
and, more frequently, as required by the trustees, member data is reassessed
for completeness and accuracy and to ensure it reflects any relevant changes
to benefits entitled by each member.
Defined contribution schemes
During the period the group made £32.4 million (2023: £29.2 million) of
contributions to defined contribution schemes, which are included in employee
benefits expense.
12. Borrowings
New borrowings raised during the year ended 31 March 2024 were as follows:
· On 6 April 2023, the group issued £300 million fixed rate notes, due
October 2038.
· On 27 April 2023, the group executed and drew down on a £100 million
loan facility, due April 2032.
· On 26 June 2023, the group issued £350 million fixed rate notes, and
on 7 February 2024, the group issued £50 million as a fungible increase to
these notes, due June 2036.
· On 22 January 2024, the group issued £250 million fixed rate notes,
due January 2046.
· On 23 February 2024, the group issued EUR650 million fixed rate
notes, due May 2034. On issue, the EUR bond was immediately swapped to £556.2
million of principal outstanding.
Notes were issued under the Euro Medium-Term Note Programme.
During the year, the group underwent a liability management exercise, and
£110.1 million of the £450 million fixed rate notes due 2025 were re-paid
ahead of maturity in February 2025.
The group entered into two undrawn committed borrowing facilities in the
period totalling £100 million, and extensions to existing facilities were
approved on a further eight (totalling £200 million).
Borrowings at 31 March 2024 include £59.2 million in relation to lease
liabilities (2023: £58.3 million), of which £56.2 million (2023: £55.2
million) was classified as non-current and £3.0 million (2023: £3.1 million)
was classified as current.
13. Fair values of financial instruments
The fair values of financial instruments are shown in the table below.
2024 2023
Fair value Carrying value Fair value Carrying value
£m £m £m £m
Financial assets at fair value through profit or loss
Derivative financial assets - fair value hedge 74.7 74.7 65.4 65.4
Derivative financial assets - held for trading 298.9 298.9 352.0 352.0
Derivative financial assets - cash flow hedge 9.2 9.2 59.7 59.7
Investments - - 0.1 0.1
Financial liabilities at fair value through profit or loss
Derivative financial liabilities - fair value hedge (232.2) (232.2) (215.3) (215.3)
Derivative financial liabilities - held for trading (4.5) (4.5) (3.4) (3.4)
Derivative financial liabilities - cash flow hedge (43.9) (43.9) (34.1) (34.1)
Financial liabilities designated as fair value through profit or loss (338.9) (338.9) (361.0) (361.0)
Financial instruments for which fair value does not approximate carrying value
Financial liabilities in fair value hedge relationships (3,459.0) (3,414.6) (2,310.1) (2,332.3)
Other financial liabilities at amortised cost (5,785.5) (6,247.9) (5,400.0) (5,742.1)
(9,481.2) (9,899.2) (7,846.7) (8,211.0)
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 £3,158.5
million (2023: £1,936.1 million) for financial liabilities in fair value
hedge relationships, and £2,573.4 million (2023: £2,541.3 million) for other
financial liabilities at amortised cost.
The £1,254.5 million increase (2023: £113.0 million decrease) in 'level 1'
fair value liability measurements primarily reflects the debt issuances in 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 2024.
The reason for the increase in the difference between the fair value and
carrying value of the group's borrowings at 31 March 2024 compared with the
position at 31 March 2023 is due to an increase in risk free rates.
14. Cash generated from operations
2024 2023
£m £m
Operating profit 480.2 440.8
Adjustments for:
Depreciation of property, plant and equipment 406.1 385.5
Amortisation of intangible assets 32.7 38.1
Loss on disposal of property, plant and equipment 6.7 4.2
Amortisation of deferred grants and contributions (17.4) (16.2)
Equity-settled share-based payments charge 2.1 5.1
Pension contributions paid less pension expense charged to operating profit (7.1) 0.4
Changes in working capital:
(Increase)/Decrease in inventories (7.2) 3.9
(Increase)/Decrease in trade and other receivables (26.9) 27.2
Decrease in trade and other payables (4.2) (5.5)
Increase/(Decrease) in provisions 0.4 (0.4)
Cash generated from operations 865.4 883.1
15. Net debt
2024 2023
£m £m
At the start of the year 8,200.8 7,570.0
Net capital expenditure 731.4 688.9
Dividends (note 9) 320.0 301.2
Interest 124.8 102.4
Inflation expense on index-linked debt and swaps (note 6) 251.9 519.6
Exchange rate movement on bonds and term borrowings (35.2) 20.6
Tax (4.6) (6.8)
Non-cash movements in lease liabilities 3.8 (1.1)
Repayment of loans to joint ventures - (5.0)
Proceeds from disposal of subsidiary - (90.5)
Other 0.1 8.5
Fair value movements 35.1 (23.9)
Cash generated from operations (note 14) (865.4) (883.1)
At the end of the year 8,762.7 8,200.8
Fair value movements include the indexation credit relating to the group's
inflation swap portfolio of £111.3 million (2023: £85.3 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 £8,727.4 million as at 31 March 2024 (2023:
£8,193.3 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.
16. Other reserves
Year ended 31 March 2024
Capital redemption reserve Merger reserve Cost of hedging reserve Cash flow hedge reserve Total
£m £m £m £m £m
At 1 April 2023 1,033.3 (703.6) 5.1 18.6 353.4
Changes in fair value recognised in other comprehensive income - - 4.8 (63.0) (58.2)
Amounts reclassified from other comprehensive income to profit and loss - - - 1.8 1.8
Tax on items recorded within other comprehensive income - - (1.2) 15.3 14.1
At 31 March 2024 1,033.3 (703.6) 8.7 (27.3) 311.1
Year ended 31 March 2023
Capital redemption reserve Merger reserve Cost of hedging reserve Cash flow hedge reserve Total
£m £m £m £m £m
At 1 April 2022 1,033.3 (703.6) 0.4 86.1 416.2
Changes in fair value recognised in other comprehensive income (50.6) (44.3)
- - 6.3
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
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.
17. Commitments and contingent liabilities
At 31 March 2024, there were commitments for future capital expenditure and
infrastructure renewals expenditure contracted, but not provided for, of
£342.7 million (2023: £339.0 million).
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
(2023: none).
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 UUW,
for an unspecified amount of compensation. The litigation is being dealt with
on a phased basis, with questions on whether the requested information falls
within EIR being decided first (Phase 1). The trial of Phase 1 was concluded
in December 2023 and UUW is awaiting the judgement which is likely to be due
at the end of spring 2024. Regardless of the outcome of the initial phase, no
damages would be assessed or awarded until later phases in the litigation.
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.
Collective proceedings in the Competition Appeal Tribunal ('CAT') were issued
on 8 December 2023 against UUW and United Utilities Group PLC on behalf of
approximately 5.6 million domestic customers following an application by the
Proposed Class Representative, Professor Carolyn Roberts. It is alleged that
customers have collectively paid an overcharge for sewerage services during
the claim period (which runs from 1 April 2020 and may continue into the early
years of the 2025-30 regulatory price control period) as a result of UUW
allegedly abusing a dominant position by allegedly providing misleading
information to regulatory bodies. There will be a hearing in late September
2024 to deal with certification of the claim and any possible preliminary
issue or strike out arguments in respect of the claim. UUW believes the claim
is without merit and will defend it robustly. Similar claims have also been
issued and served against five other water and wastewater companies.
18. 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:
2024 2023
£m £m
Sales of services 334.4 335.1
Charitable contributions advanced to related parties 0.2 0.2
Purchases of goods and services - (1.3)
Interest income and fees recognised on loans to related parties 5.6 4.7
Amounts owed by related parties 100.8 102.2
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 2024, amounts owed by joint ventures, as recorded within trade and
other receivables in the statement of financial position, were £100.8 million
(2023: £102.2 million), comprising £27.1 million (2023: £26.7 million) of
trade balances, which are unsecured and will be settled in accordance with
normal credit terms, and £73.7 million (2023: £75.5 million) relating to
loans.
Included within these loans receivable were the following amounts owed by
Water Plus:
· £72.3 million (2023: £74.4 million) outstanding on a £95.0 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 £75.5 million
outstanding, net of a £3.2 million allowance for expected credit losses
(2023: £75.5 million net of a £1.1 million allowance for expected credit
losses); and
· £1.4 million (2023: £1.4 million) receivable being the £11.3
million (2023: £11.0 million) fair value of amounts owed in relation to a
£12.5 million unsecured loan note held by United Utilities PLC, with a
maturity date of 28 March 2027, net of a £0.4 million (2023: £0.1 million)
allowance for expected credit losses and £9.5 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 2024 and
31 March 2023 of £12.5 million, comprising a £11.3 million (2023: £11.0
million) receivable representing the present value of the £12.5 million
payable at maturity discounted using an appropriate market rate of interest at
the inception of the loan, and £1.2 million (2023: £1.5 million) recorded as
an equity contribution to Water plus recognised within interests in joint
ventures.
A further £0.1 million (2023: £0.1 million) of non-current receivables was
owed by other related parties at 31 March 2024.
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 £48.9 million, of which £26.0 million related to
guarantees to United Utilities Water Limited.
At 31 March 2024, amounts owed to related parties were £nil (March 2023:
£nil).
19. Events after the reporting period
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 2024.
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 2024. 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
Clare Hayward
Michael Lewis
Paulette Rowe
Doug Webb
This responsibility statement was approved by the board and signed on its
behalf by:
Louise Beardmore Phil Aspin
15 May 2024 15 May 2024
Chief Executive Officer Chief Financial Officer
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