TIDMUU.
RNS Number : 8845P
United Utilities Group PLC
23 November 2016
United Utilities Group PLC
23 November 2016
Strong performance and on track to meet our targets
HALF Year RESULTS FOR THE six monthsED 30 SEPTEMBER 2016
Highlights
-- Further improvements in customer satisfaction: our best AMP6
score on Ofwat's service incentive mechanism
-- Effective acceleration of capital investment continues:
GBP383m invested in first half, cGBP800m planned for full year
-- On track to meet our 2015-20 totex and outcome delivery incentives (ODI) targets
-- Innovation and new technology through Systems Thinking
approach driving further operational improvements
-- Attained industry leading company status as measured by the Environment Agency
-- Operating profit slightly ahead of last year
-- Good financial performance, robust capital structure and effective pensions hedging
-- Interim dividend of 12.95 pence per share, an increase of 1.1% in line with policy
Key financials
Six months ended
------------------------- ----------------------------
30 September 30 September
2016 2015
------------------------- ------------- -------------
Revenue GBP853.0m GBP857.0m
------------------------- ------------- -------------
Underlying operating GBP312.5m GBP308.6m
profit(1)
------------------------- ------------- -------------
Operating profit GBP303.6m GBP278.3m
------------------------- ------------- -------------
Interim dividend per
ordinary share (pence) 12.95p 12.81p
------------------------- ------------- -------------
RCV gearing(2) 62% 59%
------------------------- ------------- -------------
(1) Underlying profit measures have been provided to give a more
representative view of business performance and are defined in the
underlying profit measure table
(2) Regulatory capital value or RCV gearing calculated as group
net debt/UUW's shadow RCV (outturn prices)
Steve Mogford, Chief Executive Officer, said:
"This has been a strong first half performance in which we made
significant progress towards meeting our customer, environmental
and financial targets.
"Customer service has again improved, resulting in our best
score under Ofwat's revised service incentive mechanism. We're
continuing to enhance our customer service offering and recently
launched Priority Services, to provide dedicated support for those
who are experiencing short or long-term personal or financial
challenges.
"The acceleration of our capital investment programme continues
to deliver early customer service and operational benefits. We have
invested GBP383 million in the first half of this year and remain
on track to invest around GBP800 million for the full year. Our
Systems Thinking approach to running the business continues to
drive innovation into our operations and we are rolling out further
capability this year, including new process technology.
"Our environmental performance has remained consistently high
and we were delighted to attain industry leading company status
from the Environment Agency.
"Overall, we are encouraged by our progress in the early part of
this regulatory period. We have a robust financial position and are
confident that we can deliver our targets for both customers and
shareholders."
For further information on the day, please contact:
Gaynor Kenyon - Corporate Affairs Director +44 (0) 7753 622282
Darren Jameson - Head of Investor Relations +44 (0) 7733 127707
+44 (0) 20 7353
Peter Hewer - Tulchan Communications 4200
A presentation to investors and analysts starts at 9.00am on
Wednesday 23 November 2016, at the Auditorium, Deutsche Bank,
Winchester House, 1 Great Winchester Street, London, EC2N 2DB. The
presentation can be accessed via a live listen in conference call
facility by dialling: +44 (0) 20 7162 0125, access code 960611. A
recording of the call will be available for seven days following
Wednesday 23 November 2016 on +44 (0) 20 7031 4064, access code
960611.
This results announcement and the associated presentation will
be available on the day at:
http://corporate.unitedutilities.com/investors.aspx
KEY OPERATIONAL PROGRESS
We continue to deliver improvements in customer service,
operational and environmental performance and these areas will
remain top priorities as we move through the 2015-20 regulatory
period.
-- Further improvements in customer satisfaction- we have
significantly improved the customer experience over recent years
and are pleased to have improved our service incentive mechanism
(SIM) performance further, as measured through both Ofwat's wave
one and wave two 2016/17 qualitative scores. We achieved our best
score so far in this regulatory period, placing us above the
industry average, with our customers rating us highly for our
billing and wastewater services.
We recently launched our Priority Services offering, to provide
targeted support to customers who are experiencing short or long
term difficulty in their lives, such as suffering physical or
mental illness, as well as those in financial difficulty. This is
in addition to the wide range of initiatives we currently offer
those customers struggling to pay, to help them get back into
regular payment.
Improving customer service continues to be a key area of focus
and our new management team has identified a range of opportunities
to deliver further benefits for our customers.
-- Innovation through Systems Thinking - as part of our Systems
Thinking approach to the way we run our business, we are being more
proactive in the management of our assets and networks and are
driving innovation through integrating the use of our assets,
leveraging data intelligence and employing new technology and work
processes. We aim to improve our predictive modelling through
better use of sensors in our network and better analysis of other
data, such as weather forecasting, to enable us to address more
asset and network problems before they affect customers, thereby
reducing the level of reactive work and improving performance and
efficiency.
Our new telemetry backbone has been successfully installed
across our region. This provides the data highway between our sites
and our integrated control centre, enabling enhanced monitoring and
intervention. We have full regional production planning up and
running for both water production and sludge processing, supported
by more enhanced decision-making systems capability at site
level.
We piloted design for manufacture and assembly (DfMA) in AMP5,
the prefabrication of a significant proportion of projects off-site
and are targeting over 75% of our projects in AMP6 to employ this
approach. DfMA delivers improvements in safety, quality and
maintainability and reduces build time on site, lessening
disruption to the local community and site operations. DfMA also
supports product standardisation and we are increasingly using
common designs across our supply base, saving duplicated design
costs and offering production and maintenance efficiencies.
Following successful trials, we are using a new process
technology innovation, Nereda, that offers significant efficiency
and cost saving benefits in wastewater treatment. Not only does it
reduce the time wastewater has to sit in the tank as it goes
through the activated sludge process, it also requires less oxygen
which reduces power consumption. We recently contracted for our
first Nereda plant in Kendal, the first in the UK of significant
size. We are targeting up to a 20% through life cost reduction by
using this technology. Other site applications will follow.
-- Leading operational and environmental performance - in July,
we attained industry leading company status, as measured through
the Environment Agency's (EA) annual assessment. In particular, we
delivered another strong performance in the area of pollution and
are one of only two companies to attain a Green rating for serious
pollution incidents. In addition, we are committed to reducing our
carbon footprint and increasing our generation of renewable energy.
We reduced our carbon footprint by 22% over the last 10 years and
progress in the first half of 2016/17 is encouraging.
-- Effective acceleration and delivery of investment plan -
acceleration of our 2015-20 investment programme continues to
deliver early customer service, operational and environmental
benefits, enhance resilience and optimise performance under our
ODIs. We continue to drive more effective and efficient delivery of
our capital programme and this is reflected in our Time: Cost:
Quality index (TCQi) score which remains high at over 90%, despite
a tougher measurement mechanism being applied for this regulatory
period.
-- Improving our bad debt performance - we maintained our strong
focus on managing bad debt and cash collection and improved our
performance in the first half of 2016/17 and reduced household bad
debt to 2.8% of regulated revenue, from 3.0% in the first half of
last year. We have made a good start to the year. However,
notwithstanding our industry-leading debt management processes and
wide-ranging schemes to help customers struggling to pay, as our
region suffers from high levels of income deprivation, this will
remain a principal challenge for us.
-- Delivering shareholder value through regulatory
outperformance - the low cost of debt we have already locked-in
places UU in a strong position to deliver our target for the
2015-20 period of beating Ofwat's industry allowed cost of debt. We
are making good progress, implementing initiatives to deliver over
GBP400 million of savings to meet our totex allowance.
Operationally, we delivered a good performance on our ODIs in
2015/16 and are making good progress this year. We are pleased to
see continued strong performance in the areas of private sewers and
pollution incidents.
-- Environmental focus on leakage - we have consistently met or
outperformed our regulatory leakage targets and performance to date
keeps us on track to meet our 2015-20 targets, as set by Ofwat.
-- Strong environmental, social & governance (ESG)
credentials - we have received external recognition for our strong
corporate responsibility and environmental credentials. In
September 2016, we retained World Class rating in the Dow Jones
Sustainability Index for the ninth consecutive year, a very good
achievement in light of the ever evolving standards. In addition,
at the Finance for the Future Awards in October 2016, UU won the
Communicating Integrated Thinking award. This international award
was sponsored by Deloitte, Accounting for Sustainability and the
Institute of Chartered Accountants in England and Wales. This
follows on from the PwC 2015 Building Public Trust Awards, when UU
was selected as joint winner for Excellence in reporting in the
FTSE 100.
-- Non-household retail: Water Plus JV with Severn Trent
completed on 1 June 2016 - we have been building our capability to
ensure that we are in a strong position as the competitive
non-household retail market evolves. Our Water Plus JV with Severn
Trent, which completed on 1 June 2016, reinforces this position and
gives us first mover advantage ahead of full market opening in
April 2017. Water Plus combines the complementary skills of both
companies to deliver an attractive proposition for customers and
will create synergies to provide an efficient and cost-effective
operation focussed on improved customer service and growth. The new
Water Plus operations are up and running and we are well placed to
compete.
Outlook
We are encouraged by our continued strong operational and
environmental performance, as well as our improvements in customer
satisfaction. We have plans to improve further, supported by our
Systems Thinking approach to operating the business and the
acceleration of our capital investment programme. Overall, we are
encouraged by our progress in the early part of this regulatory
period. We have a robust financial position and are confident that
we can deliver our targets for both customers and shareholders.
Financial overview
The group has delivered a good set of financial results for the
six months ended 30 September 2016.
-- Revenue - was down GBP4 million, as expected, at GBP853
million, reflecting the accounting impact of our Water Plus JV,
which completed on 1 June 2016, partly offset by our allowed
regulatory revenue changes.
-- Operating profit - underlying operating profit was up GBP4
million, at GBP313 million. This reflects the new regulated price
controls, slightly lower infrastructure renewals expenditure, a
small decrease in depreciation, as we recognised some accelerations
in depreciation in the first half of last year, and a small
decrease in the remaining cost base, partly offset by the
accounting impact of our Water Plus JV. Reported operating profit
was GBP304 million, up GBP25 million, mainly as a result of reduced
profit in the first half of last year principally due to costs
associated with the water quality incident.
-- Capex - total regulatory capital investment in the first half
of the year, including GBP73 million of infrastructure renewals
expenditure, was GBP383 million, in line with the company's plans
to accelerate the 2015-20 investment programme, and we remain on
track to deliver a total of around GBP800 million of regulatory
capital investment for the full year. In addition to our cGBP3.5
billion five-year regulatory capex programme, we plan to invest
over GBP100 million in non-regulated projects across 2015-20,
subject to acceptable returns, principally relating to solar power,
and we have now invested a total of GBP37 million during the last
18 months.
-- Profit before tax - underlying profit before tax was down
GBP16 million to GBP189 million, as the GBP4 million increase in
underlying operating profit was more than offset by a GBP19 million
increase in underlying net finance expense. The increase in
underlying net finance expense is mainly due to the impact of
higher RPI inflation on our index-linked debt. Reported profit
before tax was GBP158 million, reflecting fair value movements and
other adjusting items as outlined in the underlying profit measures
table.
-- Profit after tax - underlying profit after tax was down by
GBP11 million to GBP152 million. Reported profit after tax was
higher at GBP203 million, mainly reflecting a deferred tax credit
as a result of the UK Government's future planned reduction in the
mainstream rate of corporation tax.
-- Capital structure - the group has a robust capital structure
with gearing of 62% as at 30 September 2016 (measured as group net
debt to 'shadow' regulatory capital value). Our shadow RCV adjusts
for actual spend and was GBP10.5 billion as at 30 September 2016.
This gearing level is comfortably within our target range, of 55%
to 65%, supporting a solid investment grade credit rating. United
Utilities Water Limited (UUW) has long-term credit ratings of A3
with Moody's, on stable outlook, and BBB+ with Standard &
Poor's, on positive outlook.
-- Financing headroom - the group now benefits from headroom to
cover its projected needs into 2019, enhanced by the recent raising
of new finance. This headroom provides good flexibility in terms of
when and how further debt finance is raised to help refinance
maturing debt and support the delivery of our regulatory capital
investment programme.
-- Dividend - the board has declared an interim dividend of
12.95 pence per ordinary share, an increase of 1.1%, in line with
our policy of targeting an annual growth rate of at least RPI
inflation through to 2020.
KEY PERFORMANCE INDICATORS
United Utilities aims to deliver long-term shareholder value by
providing:
-- The best service to customers
-- At the lowest sustainable cost
-- In a responsible manner
We have a number of KPIs within each of these strategic themes
to help measure and drive performance.
Best service to customers
-- Outcome delivery incentives (ODIs) - our ODIs form an
important KPI composite to monitor the operational performance of
our wholesale business. There are 19 wholesale financial ODIs and
the risk is skewed to the downside, with ten attracting a penalty
only, and our ODI targets get tougher as we move through the
five-year regulatory period. We were pleased to deliver a net
reward of GBP2.5 million for 2015/16 on our ODIs. In the first half
of 2016/17 we have seen continued strong performance in the areas
of private sewers and pollution incidents. We will provide a more
comprehensive update of overall ODI performance at our full year
results next May, including net reward/penalty quantification.
Nonetheless, our progress so far gives us confidence in delivering
our target of a cumulative net ODI outcome over the 2015-20 period
of between plus GBP30 million and minus GBP70 million.
-- Service incentive mechanism (SIM) - UU was the most improved
company on SIM during the 2010-15 regulatory period and our target
is to move towards the upper quartile in the medium-term.
Qualitative: based on the four Ofwat surveys in 2015/16, UU
improved its score to 4.27 points, compared with 4.24 points in
2014/15 (higher score is better). We have made further progress in
the first half of 2016/17, with a wave one score of 4.33 points and
another improvement to 4.42 points for wave two, taking UU above
the industry average. In particular, customers scored us highly for
billing and wastewater service.
Quantitative: the quantitative assessment measures customer
contacts and performance is assessed on both an absolute and
relative basis. Relative performance can only be assessed following
the end of each full financial year when the other companies
publish their respective results. On absolute performance (lower
score is better), for the first half of 2016/17, we achieved a
score of 40 points, representing an encouraging improvement on the
first half of 2015/16 when our score was 50 points.
-- Non-household customer retail growth - Ofwat introduced a
separate price control for non-household retail for the 2015-20
period and, with the expansion of competition, we initially
included a new KPI measuring the impact of customer gains and
losses. However, due to the JV between UU and Severn Trent, which
completed on 1 June 2016, we no longer believe that this KPI is
appropriate for future reporting. The contribution from this JV is
now included within the share of profits of joint ventures line
within the income statement.
Lowest sustainable cost
-- Financing outperformance - the low cost of debt we have
already locked-in places UU in a strong position to deliver our
target for the 2015-20 period of beating Ofwat's industry allowed
cost of debt.
-- Total expenditure (totex) outperformance - although our totex
allowance is tough, progress during the first 18 months of this
regulatory period has been good and we are confident of delivering
our target of meeting our 2015-20 wholesale totex final
determination allowance.
-- Household retail cost to serve - with the household retail
price control now being separated for the 2015-20 period, we
introduced a new KPI to measure our costs in this area. Overall, it
will be very challenging to meet the regulatory assumptions for
household retail costs. This is primarily due to Ofwat's price
review methodology at PR14 which made no allowance for inflation in
the household retail business and, in our view, made insufficient
allowance for dual service (water and wastewater) companies. The
regulatory assumptions for household retail costs become
progressively tougher as we move through the 2015-20 period. Our
target is to minimise our costs compared with Ofwat's revenue
allowance. We are continuing with our strong focus on this target
and will provide an update for 2016/17 at our full year results
next May.
Responsible manner
-- Leakage - although leakage is included within our ODIs, we
intend to continue publishing our leakage position separately, with
it being an important measure from a corporate responsibility
perspective. We delivered a good performance in 2015/16, meeting
our regulatory leakage target of 463 megalitres per day, and remain
on track to meet it again in 2016/17.
-- Environmental performance - UU has consistently been a first
quartile company over recent years and on the Environment Agency's
latest assessment (2015/16 report), which covers a broad range of
operational metrics, we improved our performance further by
attaining Industry Leading Company status. Based on our performance
across the range of metrics, this indicates we were in joint 2(nd)
position among the ten water and sewerage companies and aligns with
our medium-term goal of being a first quartile company on a
consistent basis.
-- Corporate responsibility - UU has a strong focus on operating
in a responsible manner and is the only UK water company to have
World Class rating as measured by the Dow Jones Sustainability
Index, retaining this rating for the ninth consecutive year in
2016/17.
FINANCIAL PERFORMANCE
Revenue
UU delivered a good set of financial results for the six months
ended 30 September 2016. Revenue was down GBP4 million, as
expected, at GBP853 million, reflecting the accounting impact of
our Water Plus JV, which completed on 1 June 2016, partly offset by
our allowed regulatory revenue changes.
We have recently responded to Ofwat's "Consultation on the final
2010-15 reconciliation" published in October 2016. With regard to
Ofwat's revenue correction mechanism, relating to the 2014/15
financial year, we have GBP9.5 million to return to customers and
have carefully considered options based on customers' interests. We
propose to return the GBP9.5 million to customers through revenue
reductions of cGBP3 million in 2017/18, cGBP3 million in 2018/19
and cGBP3 million in 2019/20 to help aid a smoother bill
profile.
Separately, consistent with Ofwat's annual wholesale revenue
forecasting incentive mechanism (WRFIM), we will also be reducing
2017/18 revenue by GBP7 million as actual volumes in 2015/16 were
higher than our assumptions increasing revenue by 0.4%.
Operating profit
Underlying operating profit at GBP313 million was GBP4 million
higher than the first half of last year. This reflects the new
regulated price controls, slightly lower infrastructure renewals
expenditure, a small decrease in depreciation, as we recognised
some accelerations in depreciation in the first half of last year,
and a small decrease in the remaining cost base, partly offset by
the accounting impact of our Water Plus JV. The JV completed on 1
June 2016 and, from that date, its contribution is no longer
included within operating profit and is, instead, included within
the share of profits of joint ventures line in the income
statement. However, as expected, due to start-up costs, our Water
Plus JV made a small loss of GBP0.9 million in the first half of
2016/17.
Reported operating profit increased by GBP25 million, to GBP303
million, mainly due to a number of adjusting items and the small
increase in underlying operating profit. Adjusting items for the
first half of 2016/17 included GBP3 million of market reform costs
and GBP5 million of restructuring costs. Adjusting items in the
first half of last year amounted to GBP30 million, GBP25 million of
which related to the water quality incident, which reduced reported
operating profit in that period.
Investment income and finance expense
The underlying net finance expense of GBP125 million for the
first half of 2016/17 was GBP19 million higher than the first half
of last year, mainly reflecting the impact of higher RPI inflation
on our index-linked debt, particularly on the portion of
index-linked debt with a three month lag.
The indexation of the principal on our index-linked debt
amounted to a net charge in the income statement of GBP45 million,
compared with a net charge of GBP24 million in the first half of
last year. As at 30 September 2016, the group had approximately
GBP3.4 billion of index-linked debt at an average real rate of
1.4%.
The higher RPI inflation charge, compared with the first half of
last year, contributed to the group's average underlying interest
rate of 4.1% being higher than the rate of 3.7% for the six months
ended 30 September 2015. The average underlying interest rate
represents the underlying net finance expense divided by average
net debt on a notional value basis.
Reported net finance expense of GBP168 million was significantly
higher than the GBP65 million expense in the first half of 2015/16.
This GBP103 million increase principally reflects a change in the
fair value gains and losses on debt and derivative instruments,
from a GBP37 million gain in the first half of 2015/16 to a GBP55
million loss in the first half of 2016/17.
The fair value losses in the first half of 2016/17 were largely
due to a decrease in market interest rates, which impact our
derivatives hedging interest rates. The group uses these swaps to
fix interest rates on a substantial proportion of its nominal debt
to better match the financing cash flows allowed by the regulator
at each price review. The group has fixed a substantial majority of
its nominal debt for the 2015-20 regulatory period.
Profit before tax
Underlying profit before tax was GBP189 million, GBP16 million
lower than the first half of last year, as the GBP4 million
increase in underlying operating profit was more than offset by a
GBP19 million increase in underlying net finance expense. This
underlying measure reflects the adjusting items, as outlined in the
operating profit section above, and other items such as fair value
movements in respect of debt and derivative instruments, as
outlined in the underlying profit measures table. Reported profit
before tax decreased by GBP57 million to GBP158 million, mainly due
to the aforementioned fair value movements partly offset by a
profit on disposal relating to the Water Plus JV.
Tax
In the first half of 2016/17, we paid corporation tax of GBP22
million, which represents an effective cash tax rate on underlying
profit before tax of 12%, 8% lower than the headline rate of
corporation tax of 20%. As a major investor in the North West's
infrastructure, we benefit from the UK Government's allowable tax
deductions on net capital investment. Consistent with prior years,
this is the key reconciling item to the headline rate. We would
expect the average cash tax rate on underlying profits through to
the end of the current regulatory period in March 2020 to be around
15%. The key risk to sustaining this rate is any unexpected changes
in tax legislation or practice and, as necessary, we would actively
engage with the relevant authorities in order to manage this
risk.
The current tax charge was GBP7 million in the first half of
2016/17, compared with a charge of GBP23 million in the
corresponding period last year, the main difference being a current
period tax credit of GBP14 million following agreement with the tax
authorities of prior years' tax matters.
In the first half of 2016/17, the group recognised a deferred
tax charge of GBP6 million, compared with a charge of GBP21 million
in the first half of the previous year, the main difference being
in relation to the net fair value movements on debt and derivative
instruments. In addition, in the first half of this year, the group
recognised a deferred tax credit of GBP57 million relating to the
enacted further reduction in the headline rate of corporation tax
to 17% from 1 April 2020.
The total tax credit in the first half of 2016/17 was GBP44
million, compared to a total tax charge of GBP44 million in the
first half of last year, the main differences being the above
deferred tax credit relating to the change in tax rate, reducing
the rate by a further 1% to 17% from 1 April 2020 and the agreement
of prior years' tax matters. For both periods, the total underlying
tax effective rate was in line with the headline rate (currently at
20%) and subject to any legislative or tax practice changes, we
would expect this to continue for the medium term.
In addition to corporation tax, the group pays and bears further
annual economic contributions, typically of around GBP140 million
per annum, in the form of business rates, employer's national
insurance contributions, environmental taxes and other regulatory
service fees such as water abstraction charges.
Profit after tax
Underlying profit after tax of GBP152 million was GBP11 million
lower than the first half of last year, principally reflecting the
GBP16 million decrease in underlying profit before tax partly
offset by lower underlying tax on lower profits. Reported profit
after tax was higher at GBP203 million, compared with GBP172
million in the first half of last year, as the reduction in
underlying profit was more than offset by the GBP57 million
deferred tax credit in the first half of 2016/17 associated with
the enactment of the reduction in corporation tax, from 18% to 17%,
with effect from 1 April 2020.
Earnings per share
Underlying earnings per share decreased from 23.9 pence to 22.2
pence. This underlying measure is derived from underlying profit
after tax. Basic earnings per share increased from 25.2 pence to
29.7 pence, for the same reasons that increased reported profit
after tax.
Dividend per share
The Board has declared an interim dividend of 12.95 pence per
ordinary share in respect of the six months ended 30 September
2016. This is an increase of 1.1%, compared with the interim
dividend relating to last year, in line with the group's dividend
policy of targeting a growth rate of at least RPI inflation each
year through to 2020. The inflationary increase of 1.1% is based on
the RPI element included within the allowed regulated revenue
increase for the 2016/17 financial year (i.e. the movement in RPI
between November 2014 and November 2015).
The interim dividend is expected to be paid on 1 February 2017
to shareholders on the register at the close of business on 16
December 2016. The ex-dividend date is 15 December 2016.
In light of the Financial Reporting Lab's recent report entitled
'Disclosure of dividends - policy and practice' which provided best
practice guidance, we enhanced our dividend policy disclosure, at
the 2015/16 full year results, as outlined below.
-- Dividend policy - a growth rate target of at least RPI inflation each year through to 2020.
-- Policy period - the dividend policy aligns with the five-year
regulatory period which runs from 1 April 2015 to 31 March
2020.
-- Policy approval process - the dividend policy was considered
and approved by the UU Group PLC Board in January 2015, as part of
a comprehensive review of the 2015-20 regulatory final
determination in the context of a detailed business planning
process, with due regard for the group's financial metrics, credit
ratings and long-term financial stability, and is reviewed at least
annually.
-- Distributable reserves - as at 30 September 2016, the company
had distributable reserves of GBP3,192 million. The total external
dividends relating to the 2015/16 financial year amounted to GBP262
million. The company distributable reserves support over 12 times
this annual dividend.
-- Financing headroom - supporting the group's cash flow, UU
adopts a funding/liquidity headroom policy of having available
resources to cover the next 15-24 months of projected cash
outflows.
-- Cash flows from subsidiaries - the directors consider that
the group's principal operating subsidiary, United Utilities Water
Limited, has sufficient resources to pay dividends to United
Utilities Group PLC for the duration of the current dividend policy
period to support the external payment of dividends to
shareholders.
-- Financial stability - the water industry has invested
significant capital since privatisation in 1989 to improve services
for customers and provide environmental benefits, a large part of
which is driven by legislation. Water companies have typically
raised borrowings to help fund the capital investment programme.
Part of total expenditure is additive to the regulatory capital
value, or RCV, on which water companies earn a return allowed by
the economic regulator, Ofwat. RCV gearing is useful in assessing a
company's financial stability in the UK water industry and is one
of the key credit metrics that the credit rating agencies focus on.
UU has had a relatively stable RCV gearing level over the last five
years, always comfortably within its target range of 55% to 65%,
supporting a solid A3 credit rating for UUW with Moody's. RCV
gearing at 30 September 2016 was 62% and the movement in net debt
is outlined in the cash flow section below.
-- Dividend sustainability - in approving the policy, the Board
is satisfied that across the current regulatory period, the
projected dividend is adequately covered by underlying profit after
tax. Separately, the executive directors' long-term remuneration
plan is directly linked to a measure of sustainable dividends.
Whilst specific targets are not disclosed in advance, for
commercial sensitivity reasons, there is a major focus on the
creation of strong earnings that ensure the sustainability of
dividends.
-- Viability statement - the dividend policy is underpinned by
the group's long-term viability statement (contained within the
group's annual report and financial statements). Assurance
supporting this statement is provided by the review of: the group's
key financial measures; the key credit financial metrics; the
group's liquidity position; and the contingent liabilities of the
group.
-- Annual dividend approval process - the group places
significant emphasis on strong corporate governance, and before
declaring interim and proposing final dividends, the UU Group Board
undertakes a comprehensive assessment of the group's key financial
metrics.
-- Policy sustainability
2015-20
o the policy is considered by the Board to be robust to
reasonable changes in assumptions, such as inflation, opex, capex
and interest rates.
o extreme economic, regulatory, political or operational events,
which could lead to a significant deterioration in the group's
financial metrics during the policy period, may present risks to
policy sustainability.
2020-25
o a dividend policy for the post 2020 period will be formulated
when the outcome of the next regulatory price review is known.
Cash flow
Net cash generated from operating activities for the six months
ended 30 September 2016 was GBP420 million, compared with GBP370
million in the first half of last year. This increase mainly
reflects higher profit in the first half of this year, principally
due to the impact of the additional costs associated with the
operational incidents in the first half of last year, an
improvement in working capital cash flows and, to a lesser extent,
lower corporation tax paid, partly offset by an increase in net
interest paid. The group's net capital expenditure was GBP330
million, principally in the regulated water and wastewater
investment programmes. This excludes infrastructure renewals
expenditure which is treated as an operating cost under IFRS. Cash
flow capex differs from regulatory capex, since regulatory capex is
based on capital projects commissioned in the period, rather than
actual cash spent.
Net debt including derivatives at 30 September 2016 was GBP6,477
million, compared with GBP6,261 million at 31 March 2016. This
increase reflects accelerated regulatory capital expenditure,
payments of dividends, interest and tax, the inflationary uplift on
index-linked debt, the impact of fair value movements and loans to
joint ventures, partly offset by operating cash flows.
Fair value of debt
The group's gross borrowings at 30 September 2016 had a carrying
value of GBP7,317 million. The fair value of these borrowings was
GBP8,578 million. This GBP1,261 million difference, which has
increased from GBP483 million at 31 March 2016, principally
reflects the significant fall in real interest rates, compared with
the rates at the time we raised our index-linked debt.
Debt financing and interest rate management
Gearing (measured as group net debt divided by UUW's shadow
regulatory capital value) was 62% at 30 September 2016, marginally
ahead of the position at 31 March 2016, and remaining comfortably
within our target range of 55% to 65%. Our 'shadow' RCV adjusts for
actual spend and was GBP10.5 billion as at 30 September 2016 (in
outturn prices). The small increase in gearing mainly reflects an
increase in net debt, as explained in the cash flow section
above.
UUW has long-term credit ratings of A3/BBB+ and United Utilities
PLC has long-term credit ratings of Baa1/BBB- with Moody's
Investors Service (Moody's) and Standard & Poor's Ratings
Services (S&P) respectively. The split rating reflects
differing methodologies used by the credit rating agencies. Moody's
has the group's ratings on a stable outlook, and S&P has the
group's ratings on a positive outlook.
The group has access to the international debt capital markets
through its EUR7 billion euro medium-term note (EMTN) programme.
The EMTN programme does not represent a funding commitment, with
funding dependent on the successful issue of the notes.
Cash and short-term deposits at 30 September 2016 amounted to
GBP237 million. Over 2015-20 we have financing requirements
totalling around GBP2.5 billion to cover refinancing and
incremental debt, supporting our five-year investment programme and
we have already raised over GBP1.5 billion of this requirement. We
have supplemented our funding position in the first half of this
year with further new financing, as outlined below.
In April 2016, UUW signed a GBP250 million index-linked term
loan facility with the EIB to support the delivery of UUW's AMP6
investment programme. As at 30 September 2016, GBP75 million had
been drawn down. This is an amortising facility with an average
loan life of 10 years and a final maturity of 18 years from draw
down and is the first tranche of an anticipated GBP500m funding
package for AMP6 from the EIB, with the second tranche expected to
be made available for signature later in the AMP.
In June 2016, UUW's financing subsidiary, United Utilities Water
Finance PLC (UUWF), raised cGBP76 million of term funding, via the
issue of EUR30m and HKD600m private placement notes, both with a
15-year maturity, off our EMTN programme. In September 2016, UUWF
raised cGBP53 million of term funding, via the issue of 12-year and
20-year private placement notes, in index-linked form, off our EMTN
programme, at the group's best ever real interest rates. In
addition, since March 2016, the group has agreed GBP100 million of
new 7-year committed bank facilities and extended a further GBP100m
for an initial term of 5-years. The group now has headroom to cover
its projected financing needs into 2019.
Long-term borrowings are structured or hedged to match assets
and earnings, which are largely in sterling, indexed to UK retail
price inflation and subject to regulatory price reviews every five
years.
Long-term sterling inflation index-linked debt provides a
natural hedge to assets and earnings. At 30 September 2016,
approximately 53% of the group's net debt was in index-linked form,
representing around 32% of UUW's regulatory capital value, with an
average real interest rate of 1.4%. 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 20 years.
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. This is supplemented by fixing
substantially all remaining floating rate exposure across the
forthcoming regulatory period around the time of the price control
determination.
In line with this, the group has fixed interest costs for
substantially all of its floating rate exposure over the 2015-20
period, locking in an average annual interest rate of around 3.6%
(inclusive of credit spreads). For 2015/16, the rate was slightly
higher, as we transitioned between the two regulatory periods.
Liquidity
Short-term liquidity requirements are met from the group's
normal operating cash flow and its short-term bank deposits and are
supported by committed but undrawn credit facilities. The group's
EUR7 billion EMTN programme provides further support.
Available headroom at 30 September 2016 was GBP610 million based
on cash, short-term deposits, committed bank facilities, along with
the undrawn portion of any signed EIB term loan facilities, net of
short-term debt plus term debt falling due within 12 months, and
excluding any committed facilities due to expire within 12
months.
UU considers that it operates a prudent approach to managing
banking counterparty credit risk. Counterparty risk, in relation to
both cash deposits and derivatives, is controlled through the use
of counterparty credit limits. UU's cash is held in the form of
short-term money market deposits with prime commercial banks.
UU operates a bilateral, rather than a syndicated, approach to
its core relationship banking facilities. This approach spreads
maturities more evenly over a longer time period, thereby reducing
refinancing risk and providing the benefit of several renewal
points rather than a large single refinancing requirement.
Pensions
As at 30 September 2016, the group had an IAS 19 net pension
surplus of GBP215 million, compared with a net pension surplus of
GBP275 million at 31 March 2016. This GBP60 million reduction in
the surplus mainly reflects the impact of a decrease in credit
spreads, increasing the IAS19 pension liability, partially offset
by a better return than assumed on the pension schemes' assets.
Further detail on pensions is provided in note 11 ("Retirement
benefit surplus") of these condensed consolidated financial
statements.
Underlying profit
In considering the underlying results for the period, the
directors have adjusted for the items outlined in the table below
to provide a more representative view of business performance
(non-GAAP measures). The group determines adjusted items in the
calculation of its underlying measures against a framework which
considers significance by reference to profit before tax, in
addition to other qualitative factors such as whether the item is
deemed to be within the normal course of business, its assessed
frequency of reoccurrence and its volatility which is either
outside the control of management and/or not representative of
current year performance.
Operating profit Six months Six months
ended ended
30 September 30 September
2016 2015
GBPm GBPm
Operating profit per published
results 303.6 278.3
Water quality incident - 24.8
Flooding incidents in Dec 15 0.9 -
(net of insurance proceeds recognised)
Non-household retail market reform 3.4 5.4
Restructuring costs 4.6 0.1
Underlying operating profit 312.5 308.6
--------------- ---------------
Net finance expense
GBPm GBPm
Finance expense (174.6) (67.4)
Investment income 6.6 2.5
--------------- ---------------
Net finance expense per published
results (168.0) (64.9)
Adjustments:
Net fair value losses/(gains)
on debt and derivative instruments 54.8 (36.9)
Interest on swaps and debt under
fair value option 8.5 7.9
Net pension interest income (4.8) (1.4)
Capitalised borrowing costs (15.9) (10.8)
Underlying net finance expense (125.4) (106.1)
---------------
Profit before tax
GBPm GBPm
Profit on disposal of non-household 20.9 -
retail business
Share of profits of joint ventures 1.9 2.2
Profit before tax per published
results 158.4 215.6
Adjustments:
Water quality incident - 24.8
Flooding incidents in Dec 15 0.9 -
(net of insurance proceeds recognised)
Non-household retail market reform 3.4 5.4
Restructuring costs 4.6 0.1
Profit on disposal of non-household (20.9) -
retail business
Net fair value losses/(gains)
on debt and derivative instruments 54.8 (36.9)
Interest on swaps and debt under
fair value option 8.5 7.9
Net pension interest income (4.8) (1.4)
Capitalised borrowing costs (15.9) (10.8)
Underlying profit before tax 189.0 204.7
--------------- ---------------
Profit after tax
GBPm GBPm
Underlying profit before tax 189.0 204.7
Reported tax credit/(charge) 44.2 (43.7)
Deferred tax credit - change (57.1) -
in tax rate
Agreement of prior years' tax (14.3) -
matters
Tax in respect of adjustments
to underlying profit before tax (10.3) 2.2
--------------- ---------------
Underlying profit after tax 151.5 163.2
--------------- ---------------
Earnings per share
GBPm GBPm
Profit after tax per published
results (a) 202.6 171.9
Underlying profit after tax (b) 151.5 163.2
Weighted average number of shares
in issue, in millions (c) 681.9m 681.9m
Earnings per share per published
results, in pence (a/c) 29.7p 25.2p
Underlying earnings per share,
in pence (b/c) 22.2p 23.9p
PRINCIPAL RISKS AND UNCERTAINTIES
As a business our strategy is to deliver value by providing the
best service to customers, at the lowest sustainable cost and in a
responsible manner. In doing so the group is exposed to a range of
internal and external risks of varying types which can impact upon
these objectives. We therefore maintain a risk management framework
to continually identify, assess and manage risks.
All parts of the group use the same risk management framework
ensuring consistency of approach and supporting risk management and
monitoring. The framework includes: an embedded governance and
reporting process; an assessment and management process which is
aligned to ISO 31000: 2009; and a central database, tools and
guidance to further support consistency, embedment and continuous
improvement.
Leaders within the group's individual business areas and
functions are responsible for the assessment and management of risk
including the identification and escalation of new/emerging
circumstances and the monitoring and reporting on risk and control
effectiveness. All event types (strategic, financial, operational,
compliance and hazard) are considered in the context of their
potential impact on the delivery of our business objectives. The
assessment is based on the likelihood of an event occurring and the
financial and reputational impact should the event occur. The
assessment takes into account a gross position (without controls or
assuming that all controls fail), a current position benefiting
from existing controls and a targeted position where further
mitigation is required to meet objectives or obligations.
The resulting risk profile is reported to the group board twice
a year. The report covers four areas: the ten highest ranked risks
and the top ten operational risks (both based on likelihood x
impact); a further five risks included due to the potential
severity of their impact; risks that fall outside these categories
but are included due to potential reputational impact or
new/emerging circumstances; and a summary of all of the event-based
risks within the profile relative to ten principal risks (see
below) that could seriously affect the performance, future
prospects or reputation of the business.
This approach is in line with the principles of the UK Corporate
Governance Code and involves reporting to the group board for each
full and half year statutory accounting period, allowing the board
to:
-- determine the nature and extent of the principal risks it is
willing to take in achieving its strategic objectives;
-- continuously monitor and oversee the management of those
risks and provide challenge to executive management where
appropriate;
-- express an informed opinion on the long term viability of the company; and
-- monitor risk management and internal control systems and review their effectiveness.
Our risk profile currently consists of around 200 event-based
risks. By their nature, these will include all combinations of high
to low likelihood and high to low impact. Heat maps are typically
used in various managerial and group reports either as a method to
collectively evaluate the extent of multiple risks within a certain
profile or to evaluate the effectiveness of mitigation for a single
risk relative to the initial gross position.
Key features and developments
Regulatory, operational, compliance and delivery risks remain
key features of the group's risk profile. The introduction of
outcome delivery incentives by Ofwat after PR14 creates a regime of
potential penalties and rewards based on meeting targets for the
delivery of operational and capital programmes. In the context of
customer service and operational performance, the Lancashire water
quality incident in the summer of 2015 reinforced the requirement
to consistently deliver clean, safe drinking water and to further
mitigate risks to a continuous service through implementing greater
resilience in the asset base.
Market Reform and the introduction of non-household retail
competition in April 2017 requires significant preparation so that
the group's retail and wholesale functions are in a position to
compete successfully while continuing to operate compliantly and in
accordance with the 'level playing field'.
Looking further ahead, greater competition in the sector is a
risk to the group. Specific areas include the expected introduction
of competition in sludge and water resource activities, the further
promotion of the existing inset regime, and the UK Government's
consideration (announced November 2015) of legislation to enable
household retail activities to become competitive at some future
date. Climate change is also recognised as one of the sector's
biggest challenges with significant and permanent implications on
the water cycle and the long-term sustainability of the water and
wastewater service including: water abstraction; supply and
treatment capability; drainage and sewer capacity; and wastewater
treatment and discharge efficiency and effectiveness.
Principal risks
The principal risks (aggregated clusters of event-based risks),
reflect the categories of risks that define business activity or
contributing factors where value can be lost or gained and could
have a material impact on the business model, future performance,
solvency or liquidity of the group. In each case the magnitude of
the potential effect is highlighted together with the extent of
management/mitigation. To ensure relevance with the current
environment, issues or areas of uncertainty associated with each
principal risk are also illustrated.
These principal risks were set out on pages 46-49 of the 2016
United Utilities Group PLC Annual Report and Financial Statements
and are: (1) Regulatory environment and framework; (2) Corporate
governance and legal compliance; (3) Water service; (4) Wastewater
service; (5) Security (cyber or physical); (6) Resource (human,
technological and physical); (7) Financial; (8) Programme delivery;
(9) Revenue; and (10) Health, safety and environmental.
Britain's potential exit from the EU was recognised as a risk in
our last Annual Report and the Referendum result has crystallised
that risk, but the full impact will depend upon the outcome of the
exit negotiation.
Material Litigation
There continue to be two ongoing pieces of material litigation
worthy of note, as outlined on page 47 of the 2016 United Utilities
Group PLC Annual Report and Financial Statements. However, based on
the facts currently known to us and the provisions in our statement
of financial position, our directors remain of the opinion that the
likelihood of these having a material adverse impact on the group's
financial position is remote.
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. 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.
Consolidated income statement
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Revenue 853.0 857.0 1,730.0
-------------- -------------- ----------
Employee benefits expense (note 3) (78.2) (72.6) (146.9)
Other operating costs (note 4) (222.3) (247.0) (485.8)
Other income 1.6 1.6 3.6
Depreciation and amortisation expense (178.0) (185.1) (363.7)
Infrastructure renewals expenditure (72.5) (75.6) (169.3)
-------------- -------------- ----------
Total operating expenses (549.4) (578.7) (1,162.1)
-------------- -------------- ----------
Operating profit 303.6 278.3 567.9
Investment income (note 5) 6.6 2.5 5.0
Finance expense (note 6) (174.6) (67.4) (224.4)
-------------- -------------- ----------
Investment income and finance expense (168.0) (64.9) (219.4)
Profit on disposal of business (note 7) 20.9 - -
Share of profits of joint ventures 1.9 2.2 5.0
Profit before tax 158.4 215.6 353.5
Current tax charge (6.5) (22.5) (44.3)
Deferred tax charge (6.4) (21.2) (24.2)
Deferred tax credit - change in tax rate 57.1 - 112.5
Tax (note 8) 44.2 (43.7) 44.0
Profit after tax 202.6 171.9 397.5
-------------- -------------- ----------
All of the results shown above relate
to continuing operations.
Earnings per share (note 9)
Basic 29.7p 25.2p 58.3p
Diluted 29.7p 25.2p 58.2p
Dividend per ordinary share (note 10) 12.95p 12.81p 38.45p
Consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Profit after tax 202.6 171.9 397.5
Other comprehensive income
Remeasurement (losses)/gains
on defined benefit pension
schemes (note 11) (83.8) 33.4 160.1
Tax on items taken directly
to equity (note 8) 18.0 (6.7) (26.5)
Foreign exchange adjustments 4.1 0.3 3.0
-------------- --------------
Total comprehensive income 140.9 198.9 534.1
-------------- -------------- ----------
Consolidated statement of financial position
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 10,196.2 9,845.7 10,031.4
Intangible assets 179.8 157.5 162.4
Interests in joint ventures 70.2 29.8 35.1
Investments 9.1 8.5 8.7
Trade and other receivables 51.7 2.5 2.5
Retirement benefit surplus
(note 11) 214.8 126.2 275.2
Derivative financial instruments 937.6 663.3 765.5
--------------- --------------- -----------
11,659.4 10,833.5 11,280.8
--------------- --------------- -----------
Current assets
Inventories 29.2 38.4 29.3
Trade and other receivables 337.2 379.9 367.4
Current tax asset 7.8 - -
Cash and short-term deposits 237.4 356.4 213.6
Derivative financial instruments 0.3 - 0.1
Assets classified as held
for sale (note 7) - - 15.6
--------------- --------------- -----------
611.9 774.7 626.0
--------------- --------------- -----------
Total assets 12,271.3 11,608.2 11,906.8
--------------- --------------- -----------
LIABILITIES
Non-current liabilities
Trade and other payables (567.3) (503.0) (530.5)
Borrowings (note 12) (7,014.5) (5,997.7) (6,508.8)
Deferred tax liabilities (998.0) (1,151.7) (1,062.0)
Derivative financial instruments (328.3) (186.2) (255.8)
-----------
(8,908.1) (7,838.6) (8,357.1)
--------------- --------------- -----------
Current liabilities
Trade and other payables (365.2) (428.0) (341.7)
Borrowings (note 12) (302.4) (845.3) (469.2)
Current tax liabilities - (16.9) (12.3)
Provisions (18.6) (18.5) (15.1)
Derivative financial instruments (6.7) (3.4) (5.9)
(692.9) (1,312.1) (844.2)
--------------- --------------- -----------
Total liabilities (9,601.0) (9,150.7) (9,201.3)
--------------- --------------- -----------
Total net assets 2,670.3 2,457.5 2,705.5
--------------- --------------- -----------
EQUITY
Share capital 499.8 499.8 499.8
Share premium account 2.9 2.9 2.9
Treasury shares - (0.4) -
Cumulative exchange reserve (1.6) (8.4) (5.7)
Merger reserve 329.7 329.7 329.7
Retained earnings 1,839.5 1,633.9 1,878.8
Shareholders' equity 2,670.3 2,457.5 2,705.5
--------------- --------------- -----------
Consolidated statement of changes in equity
Six months ended 30 September 2016
Share Cumulative
Share premium exchange Merger Retained
capital account reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2016 499.8 2.9 (5.7) 329.7 1,878.8 2,705.5
Profit after tax - - - - 202.6 202.6
Other comprehensive
income
Remeasurement losses
on defined benefit
pension schemes
(note 11) - - - - (83.8) (83.8)
Tax on items taken
directly to equity
(note 8) - - - - 18.0 18.0
Foreign exchange
adjustments - - 4.1 - - 4.1
Total comprehensive
income - - 4.1 - 136.8 140.9
----------------------------- --------- --------- ----------- --------- ---------- --------
Dividends (note
10) - - - - (174.8) (174.8)
Equity-settled share-based
payments - - - - 1.1 1.1
Exercise of share
options - purchase
of shares - - - - (2.4) (2.4)
----------------------------- --------- --------- ----------- --------- ---------- --------
At 30 September
2016 499.8 2.9 (1.6) 329.7 1,839.5 2,670.3
----------------------------- --------- --------- ----------- --------- ---------- --------
Six months ended 30 September 2015
Share Cumulative
Share premium Treasury exchange Merger Retained
capital account shares reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2015 499.8 2.9 - (8.7) 329.7 1,610.7 2,434.4
Profit after tax - - - - - 171.9 171.9
Other comprehensive
income
Remeasurement gains
on defined benefit
pension schemes
(note 11) - - - - - 33.4 33.4
Tax on items taken
directly to equity
(note 8) - - - - - (6.7) (6.7)
Foreign exchange
adjustments - - - 0.3 - - 0.3
Total comprehensive
income - - - 0.3 - 198.6 198.9
---------------------------- --------- --------- --------- ----------- --------- ---------- --------
Dividends (note
10) - - - - - (171.4) (171.4)
Purchase of shares - - (0.4) - - - (0.4)
Equity-settled share-based
payments - - - - - 1.2 1.2
Exercise of share
options - purchase
of shares - - - - - (5.2) (5.2)
---------------------------- --------- --------- --------- ----------- --------- ---------- --------
At 30 September
2015 499.8 2.9 (0.4) (8.4) 329.7 1,633.9 2,457.5
---------------------------- --------- --------- --------- ----------- --------- ---------- --------
Year ended 31 March 2016
Share Cumulative
Share premium exchange Merger Retained
capital account reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2015 499.8 2.9 (8.7) 329.7 1,610.7 2,434.4
Profit after tax - - - - 397.5 397.5
Other comprehensive
income
Remeasurement gains
on defined benefit
pension schemes
(note 11) - - - - 160.1 160.1
Tax on items taken
directly to equity
(note 8) - - - - (26.5) (26.5)
Foreign exchange
adjustments - - 3.0 - - 3.0
Total comprehensive
income - - 3.0 - 531.1 534.1
----------------------------- --------- --------- ----------- --------- ---------- --------
Dividends (note
10) - - - - (258.7) (258.7)
Equity-settled share-based
payments - - - - 2.3 2.3
Exercise of share
options - purchase
of shares - - - - (6.6) (6.6)
----------------------------- --------- --------- ----------- --------- ---------- --------
At 31 March 2016 499.8 2.9 (5.7) 329.7 1,878.8 2,705.5
----------------------------- --------- --------- ----------- --------- ---------- --------
Consolidated statement of cash flows
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Operating activities
Cash generated from operations
(note 15) 517.4 461.6 905.5
Interest paid (77.5) (65.9) (168.7)
Interest received and similar
income 1.7 1.0 1.9
Tax paid (21.9) (26.7) (53.1)
Net cash generated from
operating activities 419.7 370.0 685.6
-------------- --------------
Investing activities
Purchase of property, plant
and equipment (315.0) (299.4) (634.2)
Purchase of intangible assets (29.8) (27.1) (66.1)
Proceeds from sale of property,
plant and equipment 0.8 0.5 1.4
Grants and contributions
received 14.3 8.4 17.3
Loans to joint ventures (46.0) - -
Purchase of investment in
joint ventures (10.0) - -
Proceeds from disposal of
business (note 7) 4.1 - -
Dividends received from
joint ventures 5.4 4.6 4.6
Proceeds from investments 0.4 - 0.2
--------------
Net cash used in investing
activities (375.8) (313.0) (676.8)
--------------
Financing activities
Proceeds from borrowings 505.4 261.3 693.0
Repayment of borrowings (341.9) (34.1) (474.1)
Dividends paid to equity
holders of the company (note
10) (174.8) (171.4) (258.7)
Purchase of shares (2.4) (5.6) (6.6)
Net cash (used in)/generated
from financing activities (13.7) 50.2 (46.4)
-------------- -------------- ----------
Net increase/(decrease)
in cash and cash equivalents 30.2 107.2 (37.6)
Cash and cash equivalents
at beginning of the period 182.1 219.7 219.7
-------------- -------------- ----------
Cash and cash equivalents
at end of the period 212.3 326.9 182.1
-------------- -------------- ----------
NOTES
1. Basis of preparation and accounting policies
The condensed consolidated financial statements for the six
months ended 30 September 2016 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and International Accounting Standard 34 'Interim
Financial Reporting' (IAS 34).
The accounting policies, presentation and methods of computation
are consistent with those applied in the audited financial
statements of United Utilities Group PLC for the year ended 31
March 2016 and are prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union (EU).
The condensed consolidated financial statements do not include
all of the information and disclosures required for full annual
financial statements, do not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006 and should be read
in conjunction with the group's annual report and financial
statements for the year ended 31 March 2016.
The comparative figures for the year ended 31 March 2016 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.
Going concern
The directors have a reasonable expectation that the group has
adequate resources for a period of at least 12 months from the date
of approval of the condensed consolidated financial statements and
have therefore assessed that the going concern basis of accounting
is appropriate in preparing the condensed consolidated financial
statements and that there are no material uncertainties to
disclose. This conclusion is based upon a review of the resources
available to the group, taking account of the group's financial
projections together with available cash and committed borrowing
facilities as well as consideration of the group's capital
adequacy, consideration of the primary legal duty of United
Utilities Water Limited's economic regulator to ensure that water
and wastewater companies can finance their functions, and any
material uncertainties. In reaching this conclusion, the board has
considered the magnitude of potential impacts resulting from
uncertain future events or changes in conditions, the likelihood of
their occurrence and the likely effectiveness of mitigating actions
that the directors would consider undertaking.
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
board reviews revenue, underlying operating profit, operating
profit, assets and liabilities, regulatory capital expenditure and
regulatory capital value gearing at a consolidated level. In light
of this, the group has a single segment for financial reporting
purposes and therefore no further detailed segmental information is
provided in this note.
3. Employee benefits expense
Included within employee benefits expense were GBP4.6 million
(30 September 2015: GBP0.1 million, 31 March 2016: GBP0.9 million)
of restructuring costs.
4. Other operating costs
Re-presented*
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Hired and contracted services 51.0 53.2 107.5
Property rates 47.2 46.4 86.3
Materials 37.4 34.2 67.2
Power 33.2 30.4 65.3
Charge for bad and doubtful
receivables 17.7 19.7 39.2
Regulatory fees 17.4 10.4 27.9
Legal and professional
expenses 3.6 2.2 5.8
Third party wholesale charges 3.0 6.5 15.1
Operating leases payable 2.4 2.4 5.0
Loss on disposal of property,
plant and equipment 1.9 2.6 5.4
Cost of properties disposed 0.1 2.2 10.5
Impairment of property,
plant and equipment - - 11.4
Impairment of assets classified
as held for sale - - 2.7
Amortisation of deferred
grants and contributions (3.1) (3.3) (6.9)
Compensation from insurers (7.6) - (20.1)
Other expenses 18.1 40.1 63.5
222.3 247.0 485.8
--------------- -------------- -----------
*The comparatives have been re-presented to include additional
categories for amounts previously included within other
expenses.
As a result of two significant flooding incidents caused by
Storms Desmond and Eva in December 2015, there were GBP8.5 million
(31 March 2016: GBP19.5 million) of expenses incurred, comprising
GBP7.3 million (31 March 2016: GBP7.0 million) of operating costs,
GBP0.3 million (31 March 2016: GBP1.1 million) of infrastructure
renewals expenditure and a GBP0.9 million (31 March 2016: GBP11.4
million) impairment of property, plant and equipment. Insurance
compensation of GBP7.6 million (31 March 2016: GBP20.1 million)
relating to the flooding incidents has been recognised and the
group expects there to be further recovery of the flooding incident
costs under its insurance cover in the year ending 31 March 2017,
as further remedial work is undertaken.
In addition, there were GBP3.4 million (30 September 2015:
GBP5.4 million, 31 March 2016: GBP11.1 million) of market reform
restructuring costs incurred preparing the business for open
competition in the non-household retail market and GBPnil (30
September 2015: GBP24.8 million, 31 March 2016: GBP24.8 million) of
costs relating to a large water quality incident, largely
comprising customer compensation payments included within other
expenses.
5. Investment income
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Interest receivable 1.8 1.1 1.9
Net pension interest income
(note 11) 4.8 1.4 3.1
--------------- --------------- -----------
6.6 2.5 5.0
--------------- --------------- -----------
6. Finance expense
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Interest payable 119.8 104.3 198.1
Net fair value losses/(gains)
on debt and derivative
instruments 54.8 (36.9) 26.3
--------------- --------------- -----------
174.6 67.4 224.4
--------------- --------------- -----------
Interest payable is stated net of GBP15.9 million (30 September
2015: GBP10.8 million, 31 March 2016: GBP21.3 million) borrowing
costs capitalised in the cost of qualifying assets within property,
plant and equipment and intangible assets during the period.
Interest payable includes a GBP45.4 million (30 September 2015:
GBP23.8 million, 31 March 2016: GBP37.9 million) non-cash,
inflation uplift charge in relation to the group's index-linked
debt.
Net fair value losses/(gains) on debt and derivative instruments
includes GBP8.5 million income (30 September 2015: GBP7.9 million,
31 March 2016: GBP16.5 million) due to net interest on swaps and
debt designated at fair value.
7. Disposal of non-household retail business
On 3 May 2016 the Competition and Markets Authority approved the
formation of a joint venture, Water Plus, between the group and
Severn Trent PLC. On 1 June 2016 the group completed the disposal
of its non-household water and wastewater retail business,
principally comprising billing and customer service activities, to
Water Plus. This resulted in a GBP20.9 million profit and GBP4.1
million of cash proceeds on disposal of the business, together with
a GBP15.6 million disposal of assets that had been classified as
held for sale. The formation of the joint venture resulted in an
increase in investments of GBP35.6 million, and the subsequent
recognition of a GBP0.9 million share of the joint venture's
losses.
8. Tax
During the period there was a current tax credit of GBP14.3
million (30 September 2015: GBPnil, 31 March 2016: GBP9.0 million)
relating to agreed matters in relation to prior years and a
deferred tax credit of GBP57.1 million (30 September 2015: GBPnil,
31 March 2016: GBP112.5 million) reflecting the substantive
enactment of the reduction in the headline rate of corporation tax
from 18 per cent to 17 per cent from 1 April 2020. In addition, the
profit on disposal of business during the current period was
non-taxable.
After adjusting for the above tax credits and the non-taxable
item, the total effective tax rate for the current and prior
periods was in line with the headline rate of corporation tax of 20
per cent. The split of the total tax charge between current and
deferred tax was due to ongoing timing differences in relation to
tax deductions on pension contributions, capital investment and
unrealised gains and losses on treasury derivatives.
The tax adjustments taken to equity primarily relate to
remeasurement movements on the group's defined benefit pension
schemes.
9. Earnings per share
Basic and diluted earnings per share are calculated by dividing
profit after tax by the weighted average number of shares in issue
during the period. The weighted average number of shares in issue
as at 30 September 2016 for the purpose of the basic earnings per
share was 681.9 million (30 September 2015: 681.9 million, 31 March
2016: 681.9 million) and for the diluted earnings per share was
682.9 million (30 September 2015: 682.8 million, 31 March 2016:
683.0 million).
10. Dividends
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Dividends relating to
the period comprise:
Interim dividend 88.3 87.3 87.3
Final dividend - - 174.8
-------------- -------------- ----------
88.3 87.3 262.1
-------------- -------------- ----------
Dividends deducted from shareholders'
equity comprise:
Interim dividend - - 87.3
Final dividend 174.8 171.4 171.4
-------------- -------------- ----------
174.8 171.4 258.7
-------------- -------------- ----------
The interim dividends for the six months ended 30 September 2016
and 30 September 2015, and the final dividend for the year ended 31
March 2016, have not been included as liabilities in the respective
condensed consolidated financial statements at 30 September 2016
and 30 September 2015, and the consolidated financial statements at
31 March 2016, because they were approved after the reporting
date.
The interim dividend of 12.95 pence per ordinary share (2015:
interim dividend of 12.81 pence per ordinary share, final dividend
of 25.64 pence per ordinary share) is expected to be paid on 1
February 2017 to shareholders on the register at the close of
business on 16 December 2016. The ex-dividend date for the interim
dividend is 15 December 2017.
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:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
%p.a. %p.a. %p.a.
Discount rate 2.3 3.4 3.4
Pensionable salary growth
and pension increases 3.3 3.0 3.2
Price inflation 3.3 3.0 3.2
The net pension expense before tax in the income statement in
respect of the defined benefit schemes is summarised as
follows:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Current service cost 10.2 11.4 22.3
Curtailments/settlements 1.7 0.3 1.1
Administrative expenses 1.6 1.3 2.7
Pension expense charged
to operating profit 13.5 13.0 26.1
Net pension interest income
(note 5) (4.8) (1.4) (3.1)
-------------- -------------- ----------
Net pension expense charged
before tax 8.7 11.6 23.0
-------------- -------------- ----------
The reconciliation of the opening and closing net pension
surplus included in the statement of financial position is as
follows:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
At the start of the period 275.2 79.2 79.2
Expense recognised in the
income statement (8.7) (11.6) (23.0)
Contributions paid 32.1 25.2 58.9
Remeasurement (losses)/gains
gross of tax (83.8) 33.4 160.1
-------------- -------------- ----------
At the end of the period 214.8 126.2 275.2
-------------- -------------- ----------
The closing surplus at each reporting date is analysed as
follows:
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Present value of defined
benefit obligations (3,762.0) (2,834.7) (2,970.4)
Fair value of schemes'
assets 3,976.8 2,960.9 3,245.6
------------- ------------- ----------
Net retirement benefit
surplus 214.8 126.2 275.2
------------- ------------- ----------
In the six month period ended 30 September 2016 the discount
rate decreased by 1.1 per cent, which includes a 0.5 per cent
decrease in credit spreads. The GBP83.8 million remeasurement loss
has resulted from the impact of the decrease in credit spreads
during the period, partially offset by outperformance on the
schemes' assets. Further details on the approach to managing
pension scheme risk are set out in the audited financial statements
of United Utilities Group PLC for the year ended 31 March 2016.
12. Borrowings
New borrowings raised during the six month period ended 30
September 2016 were as follows:
-- On 9 June 2016 the group issued EUR 30.0 million fixed interest rate notes due June 2031.
-- On 13 June 2016 the group issued HKD 600.0 million fixed interest rate notes due June 2031.
-- On 15 June 2016 the group drew down the remaining GBP75.0
million against its existing GBP250.0 million term index-linked
loan facility signed in March 2015 with the European Investment
Bank. This loan is structured on an amortising basis with final
repayment in June 2034.
-- On 17 June 2016 the group drew down GBP75.0 million against
its new GBP250.0 million term index-linked loan facility signed in
April 2016 with the European Investment Bank. This loan is
structured on an amortising basis with final repayment in June
2034.
-- On 30 September 2016 the group issued GBP20.0 million
index-linked notes due October 2028 and GBP26.5 million
index-linked notes due September 2036.
The notes were issued through private placement under the Euro
medium-term note programme.
13. Fair values of financial instruments
The fair values of financial instruments are shown in the table
below.
30 September 30 September 31 March
2016 2015 2016
Fair Carrying Fair Carrying Fair Carrying
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Available for sale
financial assets
Investments 9.1 9.1 8.5 8.5 8.7 8.7
Financial assets
at fair value through
profit or loss
Derivative financial
assets - fair value
hedge 694.9 694.9 509.7 509.7 583.8 583.8
Derivative financial
assets - held for
trading 243.0 243.0 153.6 153.6 181.8 181.8
Financial liabilities
at fair value through
profit or loss
Derivative financial
liabilities - fair
value hedge - - (2.3) (2.3) - -
Derivative financial
liabilities - held
for trading (335.0) (335.0) (187.3) (187.3) (261.7) (261.7)
Financial liabilities
designated as fair
value through profit
or loss (379.6) (379.6) (312.2) (312.2) (338.0) (338.0)
Financial instruments
for which fair value
does not approximate
carrying value
Financial liabilities
in fair value hedge
relationships (2,631.3) (2,609.9) (2,211.1) (2,253.2) (2,293.0) (2,373.0)
Other financial
liabilities at amortised
cost (5,567.4) (4,327.4) (4,775.5) (4,277.6) (4,830.1) (4,267.0)
---------- ---------- ---------- ---------- ---------- ----------
(7,966.3) (6,704.9) (6,816.6) (6,360.8) (6,948.5) (6,465.4)
---------- ---------- ---------- ---------- ---------- ----------
A decrease in underlying interest rates on index-linked debt
during the period is the principal reason for the increase in the
difference between the fair value and carrying value of the group's
borrowings.
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 GBP2,162.4 million (30 September 2015: GBP1,927.8
million, 31 March 2016: GBP2,149.5 million) for financial
liabilities in fair value hedge relationships and GBP1,669.0
million (30 September 2015: GBP1,126.5 million, 31 March 2016:
GBP1,309.9 million) for other financial liabilities at amortised
cost.
The GBP372.0 million increase (30 September 2015: GBP214.8
million reduction, 31 March 2016: GBP1,213.5 million reduction) in
'level 1' fair value liability measurements is largely due to the
increase in fair values at 30 September 2016. 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 2016.
14. Net debt
Re-presented*
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
At start of the period 6,260.5 5,924.0 5,924.0
Net capital expenditure 329.7 317.6 681.6
Dividends (note 10) 174.8 171.4 258.7
Interest 75.8 64.9 166.8
Loans to joint ventures 46.0 - -
Inflation uplift on index-linked
debt (note 6) 45.4 23.8 37.9
Fair value movements 34.9 (54.6) 42.4
Tax 21.9 26.7 53.1
Other 5.0 0.7 1.5
Cash generated from operations
(note 15) (517.4) (461.6) (905.5)
--------------- -------------- -----------
At end of the period 6,476.6 6,012.9 6,260.5
--------------- -------------- -----------
*The comparatives have been re-presented to include additional
categories for amounts previously included within other.
Net debt comprises borrowings, net of cash and short-term
deposits and derivatives.
Fair value movements includes net fair value losses on debt and
derivative instruments of GBP54.8 million (30 September 2015:
GBP36.9 million gain, 31 March 2016: GBP26.3 million loss) less net
payments on swaps and debt designated at fair value of GBP19.9
million (30 September 2015: GBP17.7 million net payment, 31 March
2016: GBP16.1 million net receipt).
15. Cash generated from operations
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Operating profit 303.6 278.3 567.9
Adjustments for:
Depreciation of property,
plant and equipment 164.5 170.3 332.5
Amortisation of intangible
assets 13.5 14.8 31.2
Impairment of property,
plant and equipment - - 11.4
Impairment of assets classified
as available for sale - - 2.7
Loss on disposal of property,
plant and equipment 1.9 2.6 5.4
Amortisation of deferred
grants and contributions (3.1) (3.3) (6.9)
Equity-settled share-based
payments charge 1.1 1.2 2.3
Other non-cash movements (1.4) (2.4) (3.8)
Changes in working capital:
Decrease in inventories 0.1 2.1 11.2
Decrease/(increase) in trade
and other receivables 43.6 (26.5) (14.1)
Increase/(decrease) in trade
and other payables 8.7 30.7 (4.1)
Increase in provisions 3.5 6.0 2.6
Pension contributions paid
less pension expense charged
to operating profit (18.6) (12.2) (32.8)
------------- ------------- ---------
Cash generated from operations 517.4 461.6 905.5
------------- ------------- ---------
16. Commitments and contingent liabilities
At 30 September 2016 there were commitments for future capital
expenditure contracted but not provided for of GBP425.8 million (30
September 2015: GBP450.7 million, 31 March 2016: GBP447.3
million).
Details of the group's contingent liabilities were disclosed in
the audited financial statements of United Utilities Group PLC for
the year ended 31 March 2016. There have been no significant
developments relating to contingent liabilities in the period ended
30 September 2016.
17. Related party transactions
The related party trading transactions with the group's joint
ventures during the period and amounts outstanding at the period
end date were as follows:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Sales of services 167.9 0.5 1.2
Purchases of goods and
services 0.3 0.4 0.7
Amounts owed by related
parties 111.4 2.8 2.9
Amounts owed to related 1.8 - -
parties
Sales of services to related parties during the year mainly
represent non-household wholesale charges and were on the group's
normal trading terms.
At 30 September 2016 amounts owed by joint ventures were
GBP111.4 million, comprising GBP49.1 million of trade balances
settled in accordance with normal credit terms and GBP62.3 million
of unsecured loans maturing within 15 months. Included within these
amounts was GBP46.0 million owed by Water Plus in respect of
amounts drawn down on a GBP75.0 million revolving credit facility
provided by United Utilities Water Limited, which is guaranteed by
United Utilities PLC. No expense or allowance has been recognised
for bad or doubtful receivables in respect of the amounts owed by
related parties.
In addition, the group has issued other guarantees of GBP5.2
million (30 September 2015: GBP2.7 million, 31 March 2016: GBP4.7
million) in support of its joint ventures.
18. Events after the reporting period
There were no events arising after the reporting date that
required recognition or disclosure in the condensed consolidated
financial statements for the period ended 30 September 2016.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the UK Financial Conduct
Authority.
Responsibilities Statement
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting' as adopted
by the EU;
-- the interim management report includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The directors of United Utilities Group PLC at the date of this
announcement are listed below:
Dr John McAdam
Steve Mogford
Stephen A Carter
Mark Clare
Alison Goligher
Russ Houlden
Brian May
Sara Weller
This responsibility statement was approved by the board and
signed on its behalf by:
............................................. .............................................
Steve Mogford Russ Houlden
22 November 2016 22 November 2016
Chief Executive Officer Chief Financial Officer
INDEPENT REVIEW REPORT TO UNITED UTILITIES GROUP PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2016 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of financial position, the
consolidated statement of changes in equity, the consolidated
statement of cash flows and the related explanatory notes. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA"). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2016 is not prepared, in all material respects, in
accordance with IAS 34 as adopted by the EU and the DTR of the UK
FCA.
William Meredith
for and on behalf of KPMG LLP
Chartered Accountants
St Peter's Square
Manchester
M2 3AE
22 November 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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