TIDMUU.
RNS Number : 8379M
United Utilities Group PLC
26 May 2022
United Utilities Group PLC
26 May 2022
FULL YEAR RESULTS FOR THE YEARED 31 MARCH 2022
Delivering for the North West - Supporting customers,
colleagues, communities and environment
-- No increase in average household bills for 2022/23, despite rapidly rising inflation
-- Extensive affordability schemes providing GBP280m of support
to over 200,000 households over AMP7
-- Leading supporter of the Consumer Council for Water's drive
to launch a national social tariff
-- Improving river health over the next 3 years through our
"Better Rivers: Better North West" plan
-- Continuous apprentice recruitment, including 30 Green
Apprentices to support our climate change plans
-- On track to deliver our bold commitments to reduce carbon
-- Leading utility in The Inclusive Top 50 UK Employers List 2021/22
GBP400m additional investment - Responsibly sharing
outperformance for the benefit of all stakeholders
-- Increased outperformance facilitates further responsible
investment; contributing to 21.4%1 RCV growth
-- Investment beyond the AMP7 final determination increased by a
further GBP400m, now totalling GBP765m2
-- The investment will help to address new and emerging
environmental standards and drive customer ODIs
-- Financial strength and balance sheet headroom to fund additional investment
-- Accelerated AMP7 base capital programme delivering
operational improvements with 90% on contract
Digital transformation - Systems Thinking driving value through
sustainable performance
-- Largest annual customer ODI reward of GBP25m for 2021/22; ahead of guidance
-- Increasing our AMP7 customer ODI guidance by over 30% to cGBP200m in total
-- A sector leading company on outcome delivery as assessed in
Ofwat's Service Delivery Report for 2020/21
-- Innovative Dynamic Network Management delivering reductions
in sewer flooding and pollution events
-- Overall pollution incidents reduced by over a third since the beginning of AMP7
Financial resilience - Strong financial performance and robust
balance sheet
-- Reported and underlying3 operating profit of GBP610m up 1.3%
-- Household bad debt improving to 1.8%; strong customer debtor position
-- Strong balance sheet; stable RCV gearing at 61%; A3 credit rating with Moody's
-- Fully funded, inflation hedged pension scheme; Mar-21
valuation complete, further de-risking progressing
-- Power commodity prices over 90% hedged for 2022/23 and 67% hedged for 2023/24 and 2024/25
-- Optimising government tax initiatives from investment;
underlying tax credit for 2021/22 of GBP65m;
-- 7.9% reported return on regulated equity (RoRE) for 2021/22; underlying RoRE of 7.7%
-- High inflation increases RCV although reduces earnings in the near term
-- Balance sheet to remain strong and cash metrics not impacted
by indexation of index-linked debt
-- Total dividend of 43.50p, in line with AMP7 dividend policy
Key financials
Year ended
31 March 2022 31 March 2021
-------------- ---------------------
Revenue GBP1,862.7m GBP1,808.0m
-------------- ---------------------
Reported and underlying operating GBP610.0m GBP602.1m
profit
-------------- ---------------------
Reported earnings per share(3)
(pence) (8.3)p 66.5p
-------------- ---------------------
Underlying earnings per share(3,4)
(pence) 53.8p 56.2p
-------------- ---------------------
Total dividend per ordinary
share (pence) 43.50p 43.24p
-------------- ---------------------
Net regulatory capital spend GBP644.5m GBP616.5m
-------------- ---------------------
RCV gearing(5) 61% 62%
-------------- ---------------------
(1) RCV growth over AMP7 in nominal prices
(2) GBP365m of additional investment already announced
(3) Reported earnings per share includes a one-off deferred tax
charge of GBP403m in relation to the increase in the headline rate
to 25% from Apr-23
(4) Underlying measures are defined in the tables
(5) Regulatory capital value (RCV) gearing calculated as group
net debt/United Utilities Water Limited's shadow (adjusted for
actual spend and timing difference) RCV
Steve Mogford, Chief Executive Officer, said:
"We are very conscious of our responsibility to support
customers at a time when households are seeing significant rises in
the cost of living. Despite the high levels of inflation, we expect
no increase in average household water bills in our region in the
coming financial year and we are offering more financial support to
customers in need than ever before. We are a leading supporter of
the Consumer Council for Water's drive for a national social tariff
and believe the right support should be provided to customers who
struggle to pay their bill regardless of where they live in the
country.
"We take our role in the North West very seriously, and firmly
believe that responsibly sharing our successes is the right thing
to do for all our stakeholders. Our improving performance together
with an environment of higher inflation is yielding a greater level
of outperformance, and so we will be investing an additional GBP400
million to improve the service we provide to customers and to
accelerate the delivery of environmental outcomes. We recently
published our river revival plan which progressively reduces the
impact our operations have on river health. Our four-point strategy
details how we will work with others to transform the rivers and
waterways across our region.
"The maturing of our Systems Thinking approach - which uses
innovative technology to deliver a better service for customers -
continues to create value through sustainable performance
improvements. This has contributed to another strong outcome
delivery incentive (ODI) reward for the year and underpins our
confidence in increasing our total AMP7 ODI target by a third, to
GBP200 million. Financial performance has again been good,
demonstrating resilience in a challenging environment and, together
with the sustainable improvements in our performance, is delivering
value for our stakeholders today as well as creating further value
to be received in AMP8 and beyond."
Enquiries
For further information on the day, please contact:
+44 (0) 7753
Gaynor Kenyon - Corporate Affairs Director 622 282
+44 (0) 7500
Robert Lee - Head of Investor Relations 087 704
+44 (0) 2073
Graeme Wilson - Tulchan Communications 534 200
Presentation webcast and conference call details
We will be hosting a live virtual presentation at 9.00am on
Thursday 26 May 2022, which can be accessed via the following
link:
http://www.unitedutilitiestv.live/
The presentation slides will be available on our website shortly
before the presentation commences at the following link:
https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/
Following conclusion of the presentation a recording of the
presentation will be available from our website.
OPERATIONAL PERFORMANCE
We are helping over 200,000 households currently struggling with
their bills, and maintaining a high level of service for customers.
We are earning higher outperformance thanks to strong operational
performance against customer outcome delivery incentives as well as
financial outperformance. As a responsible company we are sharing
our success with customers, like we did in 2010-20, by investing an
additional GBP765 million to help accelerate further enhancements
for customers and the environment.
Our team has sustained a strong level of operational performance
this year, delivering value for all our stakeholders. Customer
satisfaction and employee engagement remain high, and we have
achieved our best ever performance against customer outcome
delivery incentives (ODIs). We are on track to deliver our AMP7
environmental improvement programme, which will improve river and
bathing water quality in the North West, and have made good
progress against our carbon pledges. We are upper quartile across a
suite of environmental, social and governance (ESG) indices, and
our robust balance sheet provides long-term financial
resilience.
Helping customers struggling with bills
Many people across the country are facing real challenges as we
emerge from a global pandemic and are faced with significant rises
in the cost of living. We serve many of the most deprived areas in
England and Wales, so it is more important than ever that we are
doing what we can to help customers.
Our average household bill for 2022/23 is not increasing, and we
are offering more support than ever before through our extensive
range of affordability and vulnerability schemes, helping over
200,000 households this year and providing around GBP280 million of
affordability support over AMP7.
There is still more we would like to be able to do, and we are a
passionate supporter of the Consumer Council for Water's drive to
introduce a national social tariff, which would help deliver a more
equitable sharing of support for customers struggling to pay their
bill regardless of where they live in the country.
Sustained high levels of operational and environmental
performance
We were a sector leading company on outcome delivery in Ofwat's
Service Delivery Report for 2020/21, with nine of 11 outcomes(1)
being at or better than target, and were recognised as a top
performer on supply interruptions and pollution incidents - two
areas where we are now seeing the benefits of targeted investment
we made in AMP6. On the two(1) outcomes where our performance was
below target we have plans in place to improve this.
Our customer ODI performance has been strong across the board
this year, meeting or beating over 80 per cent of our performance
commitments. Based on our anticipated reward this year, we will
have earned rewards in both the first two years of AMP7 against
Ofwat's customer satisfaction measure, C-MeX, and we have achieved
our lowest ever level of written complaints this year.
We were pleased to achieve a four star rating in the 2020
Environmental Performance Assessment from the Environment Agency
(EA), meaning we were categorised as an industry leading company in
the most recent annual assessment by the EA, taking into account
performance across a broad range of environmental metrics. It
reflected our best ever performance, and we were the first water
company to achieve green status across all measures since 2015.
We continue to be at the sector frontier on pollution
performance, having reduced overall pollution by a third since the
start of the AMP. Our treatment works compliance remains strong and
we expect to remain green on this measure in the EA's assessment
for 2021.
Performance improvements earning outperformance
We earned a reported return on regulated equity (RoRE) of 7.9
per cent(2) for 2021/22, driven by our continued improvements in
operational performance together with high levels of inflation,
which increases financing outperformance, and tax
outperformance.
Underlying RoRE is slightly lower at 7.7 per cent, and excludes
the tax that will be recovered through the regulatory sharing
mechanism.
Cumulative RoRE for the first two years of AMP7 is 6.2 per cent
on both a reported and underlying basis.
Our strong performance this year earned a GBP25 million
reward(1) against customer ODIs, the highest annual reward we have
achieved to date. We anticipate earning total customer ODI rewards
over AMP7 of GBP200 million, a third higher than we estimated in
last year's report.
We consistently issue debt at efficient rates, and we earned
financing outperformance of 1.6 per cent of regulated equity this
year. We also performed strongly on tax as a result of optimising
government tax incentives.
The economic environment as we emerge from a global pandemic, as
well as the war in Ukraine, has driven higher costs in our supply
chain and we are starting to see significant cost increases in
power and chemicals. We continue to seek efficiencies and exploit
technology and innovation to help us deliver our total expenditure
(totex) efficiently.
(1) Excluding per capita consumption, which Ofwat will be
revisiting at the next price review once there is a better
understanding of the impact of COVID 19 and any enduring
effects
(2) On a real, RPI/CPIH blended basis
Sharing our success with customers
As a responsible company it is right that we should share our
success with customers, and we feel the best way for us to create
more value for customers and other stakeholders is through
investing to accelerate improvements in performance. This is in
line with the approach we have taken historically, sharing over
GBP600 million over the 2010-20 period.
We have increased the investment we are making by a further
GBP400 million meaning that, over the 2020-25 period, we are
investing GBP765 million beyond the scope of our final
determination allowance to help us accelerate environmental and
customer outcomes.
Investing to improve service for customers
GBP250 million of the additional investment is helping us
deliver further improvements to service for customers and better
performance against our customer ODIs.
As mentioned above, our performance has been strong across the
majority of our customer outcomes, but this investment is targeted
at delivering sustainable improvements for customers in two
specific areas where we want to do better - sewer flooding and
water quality (specifically discolouration).
It includes investment in Dynamic Network Management (DNM), an
advancement of Systems Thinking in our wastewater network that will
help us reduce sewer flooding and pollution incidents using
real-time performance data from a network of sensors to enable
predictive and preventative optimisation.
Investing outperformance for environmental improvements
A further GBP250 million of the additional investment is being
used to deliver environmental outcomes. This includes delivering
elements of the new Environment Act requirements earlier, and
improving the health of rivers across the North West.
In July 2021, we launched a collaborative partnership with The
Rivers Trust, a first for any water company in the United Kingdom.
To help kickstart a river revival in the North West we published
'Better Rivers: Better North West', our plan to improve the health
of rivers across our region in the next three years. We are
delivering improvements that support at least a one-third
sustainable reduction in the number of spills recorded from our
storm overflows between 2020 and 2025, with all storm overflows
monitored by 2023 and real time data on their operation made
publicly available. Our plans will lead to 184 kilometres of
improved waterways across the region. We also continue to engage
with the ongoing industry-wide investigations by Ofwat and the
Environment Agency into possible unpermitted sewage discharges.
The remaining GBP265 million of the GBP765 million of additional
investment is for projects where regulatory allowances and
mechanisms have been secured, much of which will deliver further
environmental benefits. For example, around GBP90 million will fund
a project in Bolton that is part of our Water Industry National
Environment Programme (WINEP), and GBP65 million will go towards
supporting the country's green economic recovery in the wake of the
pandemic.
Long-term investment needs for the environment
Protecting and enhancing the natural environment has always been
a key priority for us and many of our stakeholders. In the last 12
months this has received increased public interest, particularly
the health of rivers and the part the water industry can play in
helping to improve this.
New and emerging requirements reflect the increased importance
being given by the Government to the environmental agenda and we
share the Government's ambitious improvement plans.
The Environment Act 2021 introduces several new challenges for
the sector, including a requirement for water companies to secure a
progressive but very substantial reduction in the average number of
spills from storm overflows, and controlling nutrient pollution by
reducing phosphate release from wastewater treatment works. The
Industrial Emissions Directive broadens the scope of activities
covered by compliance requirements, and the Environment Agency's
recent interpretation of Farming Rules for Water restricts the
application of biosolids to land in certain areas at certain times,
requiring more storage capacity or alternative means of
disposal.
We have delivered significant improvements in environmental
performance in recent years, and through our original plans for
AMP7 we will deliver further improvements, with good progress
already having been made. The additional investment we are making
will help accelerate improvements, but there is more that the
industry will need to do.
Specific targets for the next regulatory period have not yet
been agreed, but it is already clear that there is an ambition to
deliver a fundamental change in the way drainage network systems
were originally configured. The investment needed to deliver these
changes will be significant for the industry as a whole, but
particularly for the North West, where we have a much higher
proportion of combined sewers. We are working with the Government
and regulators to determine how these bold ambitions can be met and
by when, recognising that the pace of change must consider customer
affordability.
Resilience to climate change and population growth remains a
material issue for many stakeholders, even more so since COP26, and
this is something that will need to be addressed by water companies
both regionally and nationally. Our Systems Thinking approach and
investment are helping to deliver increased resilience across the
North West, and longer-term we are involved in strategic planning
for a national water transfer scheme.
We have committed to achieve net zero by 2030 with six pledges
to reduce our carbon footprint, underpinned by ambitious
science-based targets for reducing our greenhouse gas emissions,
and we are making good progress against these. We are linking
executive remuneration more tightly to our carbon commitments with
four targets added to the Long Term Plan, and in this year's report
we also include nature-related financial disclosures.
Haweswater Aqueduct Resilience Programme (HARP)
We have continued to develop HARP, an industry-first Direct
Procurement for Customers (DPC) programme to design and build six
replacement tunnel sections of the Haweswater Aqueduct, which
transports water from Cumbria to Manchester.
We have undertaken extensive market engagement throughout the
process - challenging for a project of this scale during the
pandemic - and used innovative ways to manage stakeholder
engagement including the use of digital channels and a virtual
exhibition giving people access to information and the ability to
ask questions remotely.
We developed the initial design following extensive ground
investigation work to plot the best route, and planning
applications have all been submitted with decisions expected later
this year. During early 2022, we have been finalising tender
documents, and we expect to start procurement in the summer of
2022.
Supported by a diverse and highly motivated workforce
We pride ourselves on being a quality employer, and are
committed to maintaining a diverse and inclusive team of people,
recruiting from every part of our community. We scored equal to the
UK high performance norm with 87 per cent employee engagement this
year, are rated 4.6 out of five by Glassdoor, and were the leading
utility company in The Inclusive Top 50 UK Employers List
2021/22.
We believe in the importance of developing younger generations
to keep the talent pool flowing. We have active graduate and
apprentice schemes, including 30 green apprentices helping us work
towards our climate and environmental ambitions. We support young
people not in education, employment or training (NEETs), as well as
being part of the government's Kickstart scheme providing
opportunities to unemployed 16-24 year olds claiming universal
credit.
Our commitment to health, safety and wellbeing has been
recognised with our 10th consecutive Royal Society for the
Prevention of Accidents (RoSPA) gold standard medal, meaning we
have achieved the RoSPA President's award.
Thank you to our stakeholders
We are grateful to our employees for their continued hard work,
and as we look forward at the many new challenges we and the rest
of the sector will be meeting in the next AMP and beyond, we are
delighted to have such a great team behind us. We would also like
to extend our gratitude to our customers and other stakeholders for
their continued support.
Our key performance indicators (KPIs)
Our purpose, to provide great water and more for the North West,
means we aim to create long-term value for all our stakeholders
and, as such, for AMP7 we are reporting against operational KPIs
that are linked to each stakeholder group for whom we create value.
Our performance against these operational KPIs is reported
below.
-- Communities
Our key performance indicator to measure value created for
communities over AMP7 is the level of community investment, and we
target increasing this by at least 10 per cent over 2020 to 2025,
compared with the average of GBP2.56 million per annum between 2010
and 2020. This year, our direct community investment was GBP2.8
million (calculated using the B4SI method).
-- Customers
Our key performance indicator to measure customer satisfaction
over AMP7 is Ofwat's customer measure of experience (C-MeX), in
which we target being in positive reward territory. In 2021/22 we
expect to earn a GBP2.3 million reward and we continue to be the
highest performing listed company.
-- Employees
Our key performance indicator to measure value created for our
employees over AMP7 is our engagement score, in which we target
being upper quartile against the UK Utilities Norm benchmark. Our
overall engagement is at 87 per cent, 5 per cent higher than the UK
Utilities Norm and equal to UK High Performance levels, which we
have now been equal to or above for the last three years.
-- Environment
Our key performance indicator to measure value created for the
environment over AMP7 is our performance against the Environment
Agency's annual performance assessment, in which we target being an
upper quartile performer. The most recent assessment was for 2020,
in which we achieved our best ever performance, green across all
measures - the first water company to achieve this level of
performance since 2015 - and were awarded the maximum 4 star
industry leading company status. The Environment Agency will
publish its annual performance assessment for 2021 in July
2022.
-- Investors
Our key performance indicator to measure value created for our
investors over AMP7 is Return on Regulated Equity (RoRE), and we
will update our targets for individual components of this measure
as we progress through the period. Reported RoRE for 2021/22 was
7.9 per cent on a real, RPI/CPIH blended basis, double the base
return. Underlying RoRE was slightly lower at 7.7 per cent, and
excludes the tax that will be recovered through the regulatory
sharing mechanism.
-- Suppliers
Our key performance indicator to measure value created for our
suppliers over AMP7 is payment within 60 days, and we target at
least 95 per cent of invoices to be paid within this timeframe. In
2021/22, we have continued to exceed our target performance, with
over 99 per cent of our invoices paid within 60 days, and our
average time to pay is 13 days.
FINANCIAL PERFORMANCE
Revenue for the year to 31 March 2022 increased by 3 per cent,
mainly driven by higher non-household consumption as business
activity has returned to pre-pandemic levels. Household bad debt
has returned to 1.8 per cent of regulated revenue, lower than the
2.2 per cent last year and consistent with the level we were
achieving prior to the pandemic, helped by our wide ranging
affordability schemes and effective approach to managing cash
collection. Operating profit was up GBP8 million as the increase in
revenue was largely offset by inflationary increases in power and
other core costs.
While inflation has increased our operating costs and net
finance expense this year, it has also led to a higher level of
financing outperformance and, together with the GBP765 million
additional investment we have announced beyond the scope of our
final determination, will deliver higher regulatory capital value
(RCV) growth over the 2020-25 period.
We have doubled our base return on regulated equity (RoRE) for
2021/22, delivering strong performance on financing, tax and
customer ODIs.
We benefit from having one of the strongest balance sheets in
the sector, with an industry-leading, fully funded pension scheme
on a low dependency basis, a low level of customer debtor risk, and
RCV gearing supporting a stable A3 credit rating with Moody's.
Revenue
GBPm
Year to 31 March 2021 1,808.0
--------
Regulatory revenue changes -1.5 per cent real
reduction in allowed wholesale revenues and 0.6
per cent uplift in line with CPIH inflation (13.5)
--------
Non-household consumption increase 105.9
--------
Household consumption decrease (57.7)
--------
Property sales 8.0
--------
Other 12.0
--------
Year to 31 March 2022 1,862.7
--------
Revenue was up GBP55 million, at GBP1,863 million, largely
reflecting higher consumption as business activity returns to
pre-pandemic levels.
In 2021/22 we have had a GBP14 million reduction in the revenue
cap, incorporating a 1.5 per cent real reduction in allowed
wholesale revenues partly offset by a 0.6 per cent CPIH-linked
increase.
With many more businesses able to operate compared with last
year, when the impact of the initial lockdown was significant,
non-household revenue has increased by GBP106 million. In contrast,
consumption from households, although higher than pre-pandemic
norms, has decreased GBP58 million this year. This is due to
significantly higher consumption particularly during the first half
of last year reflecting the initial impact of people being locked
down at home through the warm weather of late spring 2020.
Operating profit
GBPm
Underlying and Reported - year to 31 March 2021 602.1
-------
Revenue increase 54.7
-------
COVID-related costs in prior year 8.0*
-------
Costs driving ODI performance (17.0)
-------
Power cost increase (16.0)
-------
Other costs, largely due to inflation (16.0)
-------
SaaS costs treated as operating expenses (5.8)
-------
Underlying and Reported - year to 31 March 2022 610.0
-------
* GBP8m COVID-related costs was an estimate in the year ended 31
March 2021 because, with the passage of time and as conditions
brought about by the pandemic have become embedded into normal
business processes, the usefulness of tracking COVID-related costs
specifically has diminished.
Underlying and reported operating profit at GBP610 million was
GBP8 million higher than last year. The GBP55 million increase in
revenue was mostly offset by higher power costs and inflationary
pressures increasing our underlying cost base, predominantly in
respect of materials and labour.
We have a reduction of around GBP8 million in operating costs as
last year saw additional one-off costs incurred in adapting to
operate through the pandemic.
The GBP17 million of additional costs driving ODI performance
are targeted at improving performance against specific customer
ODIs, such as spend associated with Dynamic Network Management.
Power costs have increased by GBP16 million this year, largely
in relation to higher prices. Power is a significant cost for our
business, which is why we manage this risk through a progressive
policy of hedging the commodity price element of power costs to
minimise short term volatility (commodity price makes up around
half of our annual power costs, with the other half relating to the
use-of-system charge and other levies). Through this hedging policy
and self-generation, we locked in the cost on the majority of our
consumption for 2021/22 before the most recent energy price rises,
securing an average rate of GBP65 per megawatt hour (MWh) for the
year, which is significantly lower than the current market rate of
over GBP200 per MWh for next year and has been fundamental to our
ability to minimise the impact on our cost base. We are also
locked-in on over 90 per cent of expected consumption for 2022/23,
and around two-thirds of expected consumption across the final two
years of AMP7, at rates that compare favourably to the current
market rate.
Cost increases of GBP16 million largely stem from higher
inflation in the period. We are not immune to the impact of the
current high inflation environment, but through hedging,
constructive cost challenge and commercial negotiations, we have
managed to mitigate much of the cost increase to date.
During the year, the IFRS Interpretations Committee (IFRIC)
published clarifications on how arrangements in respect of a
specific part of cloud technology - Software as a Service - should
be accounted for, resulting in GBP6 million of costs that would
previously have been accounted for as fixed asset additions now
being treated as operating costs.
Household bad debt is back at our lowest ever level of 1.8 per
cent of regulated revenue, having reduced from 2.2 per cent in the
year to 31 March 2021 as we return to pre-pandemic levels.
Profit before tax
GBPm
Underlying - year to 31 March 2021 460.0
--------
Underlying operating profit increase 7.9
--------
Underlying net finance expense increase (173.5)
--------
Share of JVs losses decrease 7.5
--------
Underlying - year to 31 March 2022 301.9
--------
Adjusted items * 138.0
--------
Reported - year to 31 March 2022 439.9
--------
* Adjusted items are set out in the alternative performance
measures tables.
Underlying profit before tax was GBP 302 million, GBP158 million
lower than last year. This reflects the GBP8 million increase in
underlying operating profit and a decrease in the share of losses
of joint ventures of GBP8 million, more than offset by a GBP174
million increase in underlying net finance expense. Underlying
profit before tax reflects consistently applied presentational
adjustments.
Reported profit before tax decreased by GBP111 million to GBP440
million reflecting the GBP8 million increase in reported operating
profit and an GBP8 million decrease in the share of losses of joint
ventures, more than offset by a GBP90 million increase in reported
net finance expense (including fair value movements), and the
inclusion last year of a GBP37 million profit on disposal of our
share in the joint venture AS Tallinna Vesi.
-- Net finance expense
The underlying net finance expense of GBP306 million was GBP174
million higher than last year, mainly due to the non-cash impact of
significantly higher inflation on our index-linked debt.
The indexation of principal on index-linked debt, excluding the
impact of inflation swaps, amounted to a net charge in the income
statement of GBP228 million, compared with a net charge of GBP53
million last year, resulting in an increase of GBP175 million.
Interest on non index-linked debt of GBP110 million is consistent
with last year, while various smaller year-on-year increases and
decreases broadly offset against one another when considered
together.
The GBP306 million underlying net finance expense included in
the income statement for the year compares with GBP118 million net
cash interest paid included in the statement of cash flows. This
GBP188 million difference is due to non-cash inflation uplifts on
index linked debt and derivatives of GBP256 million, less
capitalised borrowing costs of GBP53 million and net pension
interest income of GBP14 million, both of which are non-cash
items.
Reported net finance expense of GBP168 million was GBP90 million
higher than last year, reflecting the GBP174 million increase in
underlying net finance expense, partially offset by an GBP84
million increase in net fair value gains on our debt and derivative
portfolio, excluding interest on derivatives and debt under fair
value option, from GBP54 million last year to GBP138 million this
year.
-- Joint ventures
For the year to 31 March 2022, we recognised a GBP2 million loss
in the income statement relating to our joint venture Water Plus,
compared with a GBP9 million net share of losses from joint
ventures last year, which included a share of profits from the AS
Tallinna Vesi joint venture prior to its disposal. A profit GBP37
million was recognised on the disposal of our share in AS Tallinna
Vesi, which was completed on 31 March 2021. In the year to 31 March
2021, we also recognised a GBP37 million profit on disposal of our
share in AS Tallinna Vesi, which was completed on 31 March
2021.
Further details can be found in note 11 of these condensed
consolidated financial statements.
Profit/(loss) after tax and earnings per share
PAT Earnings
GBPm per share
Pence/share
Underlying - year to 31 March 2021 383.0 56.2p
-------- -------------
Underlying profit before tax decrease (158.1)
-------- -------------
Tax credit relating to research and development
tax allowances 72.5
-------- -------------
Underlying tax decrease, including the
impact of capital allowance 'super deductions' 69.6
-------- -------------
Underlying - year to 31 March 2022 367.0 53.8p
-------- -------------
Adjusted items * (423.8)
-------- -------------
Reported - year to 31 March 2022 (56.8) (8.3)p
-------- -------------
* Adjusted items are set out in the alternative performance
measures tables.
Underlying profit after tax of GBP367 million was GBP16 million
lower than last year, and underlying earnings per share decreased
from 56.2 pence to 53.8 pence, as the GBP158 million reduction in
underlying profit before tax is partly offset by GBP142 million
lower underlying tax (moving from a charge of GBP77 million last
year to a net credit of GBP65 million this year). The reduction in
underlying tax reflects a GBP73 million tax credit relating to
optimising the available research and development UK tax allowances
on innovation-related expenditure we had incurred in prior years,
and the impact of the capital allowance 'super deductions'
announced in the March 2021 Chancellors Budget, which lowers the
current tax charge significantly in the current period.
The group has a reported loss after tax of GBP57 million this
year, compared with a GBP453 million reported profit after tax last
year. This GBP510 million difference reflects the GBP111 million
decrease in reported profit before tax, and a GBP544 million
increase in deferred tax largely due to a one-off charge to restate
the brought forward deferred tax liability at the new 25 per cent
future headline rate, partially offset by a GBP145 million positive
movement in current tax primarily as a result of adjustments in
respect of optimising available tax incentives on our
innovation-related expenditure in prior years. Reported basic
earnings per share decreased from 66.5 pence to (8.3) pence.
-- Tax
The group continues to be fully committed to paying its fair
share of tax and acting in an open and transparent manner in
relation to its tax affairs and we were delighted to have retained
the Fair Tax Mark independent certification for a third year,
having been only the second FTSE 100 company to be awarded the Fair
Tax Mark in July 2019.
In addition to corporation tax, the group pays significant other
contributions to the public finances on its own behalf as well as
collecting and paying over further amounts for its over 5,000
strong workforce. The total payments for 2021/22 were around GBP230
million and included business rates, employment taxes,
environmental taxes and other regulatory service fees such as water
abstraction charges as well as corporation tax.
In 2021/22, we paid corporation tax of around GBP9 million,
which represents an effective cash tax rate on underlying profits
of 3 per cent, which is 16 per cent lower than the headline rate of
corporation tax of 19 per cent. The key reconciling item to the
headline rate of corporation tax continues to be allowable tax
deductions on capital investment including the new temporary
capital allowance 'super deductions', where the current year tax
benefit was around GBP40m representing a 13 per cent reduction to
the effective cash tax rate. We expect a similar tax benefit from
the temporary super deduction regime for 2023 as well.
We have expressed the effective cash tax rate in terms of
underlying profits as this measure excludes fair value movements on
debt and derivative instruments and thereby enables a medium-term
cash tax rate forecast. We expect the average cash tax rate on
underlying profits to remain below the headline rate of tax for the
medium term.
For 2021/22, the group recognised an overall current tax credit
of GBP66 million in 2021/22. This includes a current tax charge
relating to 2021/22 of GBP7 million this year, compared with GBP80
million in the previous year, key reconciling items being the lower
taxable profits and the availability of capital allowance 'super
deductions' for 2021/22. In addition, in the current year, there
were prior period tax credits of GBP73 million, compared with GBP1
million in 2020/21. The current year credit mainly relates to
optimising the available research and development UK tax allowances
on our innovation-related expenditure for multiple prior years.
For 2021/22, the group recognised a deferred tax charge of
GBP562 million, compared with GBP18 million for 2020/21. For
2021/22, GBP403 million relates to the government's planned
increase in the rate of corporation tax from 19 per cent to 25 per
cent from 1 April 2023. Subject to any legislative or tax practice
changes, we would expect the total effective tax rate to continue
to be broadly in line with the headline rate of corporation tax for
the medium term.
In 2021/22, there are GBP136 million of tax adjustments recorded
within other comprehensive income, primarily relating to
remeasurement movements on the group's defined benefit pension
schemes. As in the prior year the rate at which the deferred tax
liabilities are measured on the group's defined benefit pension
scheme is 35 per cent, being the rate applicable to refunds from a
trust.
Dividend per share
The Board has proposed a final dividend of 29.0 pence per
ordinary share in respect of the year ended 31 March 2022 . Taken
together with the interim dividend of 14.5 pence per ordinary
share, paid in February, this results in a total dividend per
ordinary share for 2021/22 of 43.5 pence. This is an increase of
0.6 per cent compared with the dividend relating to last year, in
line with the group's dividend policy of targeting a growth rate of
CPIH inflation each year through to 2025. The 0.6 per cent increase
is based on the CPIH element included within allowed regulated
revenue for the 2021/22 financial year (i.e. the movement in CPIH
between November 2019 and November 2020).
The final dividend is expected to be paid on 1 August 2022 to
shareholders on the register at the close of business on 24 June
2022. The ex-dividend date is 23 June 2022. The election date for
the Dividend Reinvestment Plan is 11 July 2022.
Cash flow
Net cash generated from continuing operating activities for year
to 31 March 2022 was GBP934 million, GBP75 million higher than
GBP859 million last year. The group's net capital expenditure was
GBP627 million, principally in the regulated water and wastewater
investment programmes. This excludes infrastructure renewals
expenditure, which is treated as an operating cost.
Pensions
As at 31 March 2022, the group had an IAS 19 net pension surplus
of GBP1,017 million, compared with a surplus of GBP689 million at
31 March 2021. This GBP328 million increase principally reflects an
increase in credit spreads during the year, partially offset by a
higher inflation assumption. The group has de-risked its pension
schemes through hedging strategies applied to the underlying
interest rate and future inflation. The IAS 19 position remains
volatile to changes in credit spread and changes in mortality,
neither of which have been hedged at this current time. This is
primarily due to difficulties hedging against credit spread
volatility over long durations, and, for mortality, there is lower
volatility in the short term and relatively high hedging costs. The
scheme specific funding basis does not suffer volatility due to
credit spread movements to the same extent as it uses a prudent,
fixed credit spread assumption.
Further detail on pensions is provided in note 12 ('Retirement
benefit surplus') of these condensed consolidated financial
statements.
Financing
Net debt GBPm
At 31 March 2021 7,305.8
----------
Cash generated from operations (1,061.6)
----------
Net capital expenditure 626.7
----------
Dividends 295.5
----------
Indexation 227.9
----------
Interest 118.3
----------
Fair value movements 28.7
----------
Extension of loans to joint ventures 13.0
----------
Tax 8.9
----------
Other 6.8
----------
At 31 March 2022 7,570.0
----------
Net debt at 31 March 2022 was GBP7,570 million, compared with
GBP7,306 million at 31 March 2021. This comprises gross borrowings
with a carrying value of GBP7,980 million net of cash and
short-term deposits of GBP241 million and net derivative assets
hedging specific debt instruments of GBP169 million.
Underlying movements in net debt are largely a result of net
operating cash inflows offset by our net capital expenditure,
dividends, indexation and cash interest.
Gearing, measured as group net debt divided by UUW's shadow
(adjusted for actual spend and timing difference) regulatory
capital value of GBP12.4 billion, was 61 per cent at 31 March 2022.
This is slightly lower than gearing of 62 per cent as at 31 March
2021, and remains comfortably within our target range of 55 to 65
per cent.
-- Cost of debt
As at 31 March 2022, the group had approximately GBP3.2 billion
of RPI-linked instruments and GBP0.4 billion of CPI or CPIH-linked
instruments held as debt. In recent years, in response to Ofwat's
decision to transition away from RPI inflation linkage, the group
has entered into a number of transactions swapping RPI-linked cash
flows to CPI-linked cash flows or swapping floating rate cash flows
to CPI-linked cash flows. As a result, including these swaps, the
group has RPI-linked debt exposure of GBP3.1 billion at an average
real rate of 1.3 per cent, and GBP1.1 billion of CPI or CPIH-linked
debt exposure at an average real rate of -0.6 per cent.
A significantly higher RPI inflation charge compared with the
same period last year contributed to the group's average effective
interest rate of 5.1 per cent being higher than the rate of 2.5 per
cent last year. The average underlying interest rate represents the
underlying net finance expense adjusted for capitalised borrowing
costs and net pension interest income, divided by average notional
debt.
The group has fixed the interest rates on its non index-linked
debt in line with its 10-year reducing balance basis at a net
effective nominal interest rate of 2.2 to 2.4 per cent for the
remainder of the AMP7 regulatory period.
-- Credit ratings
UUW's senior unsecured debt obligations are rated A3 with
Moody's Investors Service (Moody's), A- with Fitch Ratings (Fitch)
and BBB+ with Standard & Poor's Ratings Services (S&P) and
all on stable outlook. United Utilities PLC's (UU PLC's) senior
unsecured debt obligations are rated Baa1 with Moody's, A- with
Fitch and BBB- with S&P, all on stable outlook.
-- Debt financing
The group has access to the international debt capital markets
through its GBP10 billion medium-term note (MTN) programme. The MTN
programme is updated at least annually and this year's update was
completed in November 2021, at which time the previous EUR7 billion
euro programme limit was increased and redenominated to GBP10
billion. The MTN programme does not represent a funding commitment,
with funding dependent on the successful issue of the notes.
In total over 2020-25, we expect to raise around GBP2.7 billion
to cover refinancing and incremental debt, supporting our five-year
investment programme. So far in AMP7, we have raised around GBP1.4
billion, taking advantage of attractive rates available and
extending our liquidity position (as at 31 March 2022) out to
February 2025.
In November 2020, we published our new sustainable finance
framework, through which we expect to raise financing based on our
strong ESG credentials alongside conventional issuance. This
replaces the green funding we have previously secured through the
European Investment Bank (EIB), which is no longer available
post-Brexit. We issued our debut sustainable bond in January 2021,
raising GBP300 million maturing in October 2029 and subsequently
swapped to CPI-linkage.
In August 2021, we raised around GBP74 million of term funding
via the issue off our MTN programme of a JPY11 billion privately
placed note swapped to GBP with a 9-year maturity, and in September
2021 we priced a GBP100 million fixed note with a 7-year maturity,
the proceeds of which were received in early October.
In April 2022, we raised GBP100 million of term funding with an
8-year maturity via a bilateral loan with Export Development Canada
(EDC). AAA-rated EDC is the Canadian Government's Export
Development Agency that looks to promote trade with Canadian firms
worldwide. This follows collaboration with EDC in relation to some
of the innovation activities that we have undertaken, and we expect
such collaboration to continue.
Since March 2021, we have extended GBP100 million of revolving
credit facilities for a further year, renewed GBP100 million of
revolving credit facilities for a further 5-year term and entered
into GBP50 million of new revolving credit facilities for a 5-year
term. The group has also amended the documentation for all of its
existing revolving credit facilities to remove references to LIBOR
and replace with SONIA.
-- Interest rate management
Long-term borrowings are structured or hedged to match assets
and earnings, which are largely in sterling, indexed to UK 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 31 March 2022,
approximately 41 per cent of the group's net debt was in RPI-linked
form, representing around 25 per cent of UUW's regulatory capital
value, with an average real interest rate of 1.3 per cent. A
further 15 per cent of the group's net debt was in CPI or
CPIH-linked form, representing around nine 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 18 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 2022, we had liquidity out to February 2025,
comprising cash and short-term deposits, plus committed undrawn
revolving credit facilities. This gives us flexibility in terms of
when and how further debt finance is raised to help refinance
maturing debt and support the delivery of our regulatory capital
investment programme. In October 2021, UUW prepaid a GBP100 million
floating rate loan a year ahead of its scheduled maturity, this
being efficient use of our available liquidity.
We consider that we operate a prudent approach to managing
banking counterparty risk. Counterparty risk, in relation to both
cash deposits and derivatives, is controlled through the use of
counterparty credit limits. Our cash is held in the form of
short-term money market deposits with prime commercial banks.
We operate a bilateral rather than a syndicated approach to our
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.
Return on Regulated Equity (RoRE)
Reported RoRE for 2021/22 was 7.9 per cent on a real, RPI/CPIH
blended basis.
This comprises the base return of 3.9 per cent (including our 11
basis point fast track reward that we receive in each of the five
years of the AMP), tax outperformance of 2.7 per cent, financing
outperformance of 1.6 per cent, and customer ODI outperformance of
0.5 per cent, partially offset by the total expenditure (totex)
impact on RoRE of -0.8 per cent as a result of our additional
investment.
Underlying RoRE was slightly lower at 7.7 per cent, and excludes
the tax that will be recovered through the regulatory sharing
mechanism.
-- Totex performance
The totex impact on RoRE of -0.8 per cent, on both a reported
and underlying basis, largely reflects the year two impact of the
additional investment we are making outside the scope of our Final
Determination (FD), for example our investment in Dynamic Network
Management.
Our AMP7 business plan was assessed by Ofwat as being amongst
the most efficient in the sector, and our performance improvements
over AMP6 meant we started AMP7 at a totex run rate that supported
delivery of the stretching efficiency challenge in our FD
allowance. We are not immune to the impact of inflation, both
directly and indirectly through our supply chain, with many of our
costs rising above the headline rate. Our totex allowance does
increase with inflation, which helps to mitigate some of this cost
pressure, and we continue to exploit technology and innovation to
help us deliver our investment efficiently.
In this second year of AMP7, we have invested GBP645 million in
net regulatory capital expenditure (excluding infrastructure
renewals expenditure), representing the continued acceleration of
our AMP7 investment programme and early expenditure against the
extension to our original totex plans as set out above.
Cumulatively, this is GBP1.3 billion in the first two years of the
period, which represents a good start to the delivery of our AMP7
programme. We have been able to deliver this expenditure
effectively, maintaining our high performance scores against our
Time, Cost and Quality index (TCQi) at over 95 per cent.
Our investment strategy delivers long-term efficiency and
sustainable performance improvements, and the additional GBP765
million investment we are making beyond the scope of our FD will
drive further enhancements for customer and environmental
performance. GBP265 million of this investment we expect to be
fully recovered through regulatory mechanisms, including Green
Recovery and projects that form part of our Water Industry National
Environment Programme (WINEP). GBP250 million of this investment is
improving environmental outcomes, funded through investment of
outperformance, and subject to regulatory sharing mechanisms. The
final GBP250 million of this investment will drive improved
performance against customer outcomes and is supported on a
business case basis, delivering improved customer ODI
performance.
While we continue to strive to deliver our investment
efficiently, as we have demonstrated through this additional
investment, we will invest where we are confident we can deliver
improved customer or environmental outcomes and better customer ODI
performance.
-- Customer outcome delivery incentives (ODIs)
Customer ODI outperformance of 0.5 per cent, on both a reported
and underlying basis, reflects a net reward of GBP25 million(1) .
This is our highest ever one-year net reward against customer ODIs,
reflecting our continued improvements in performance for
customers.
Our customer ODI performance has been strong across the board,
meeting or beating over 80 per cent of our performance commitments,
giving us the confidence to increase our total AMP7 ODI guidance by
a third, targeting a cumulative net ODI reward over the five-year
period of around GBP200 million.
The additional investment we are making will help improve
performance in areas where we want to do better. This includes
GBP100 million investment in Dynamic Network Management, which will
help us improve performance on sewer flooding, and around GBP100
million investment in improving water quality.
Customer ODI rewards and penalties in AMP7 will be adjusted in
revenues on a two-year lag, therefore the net reward earned this
year will be reflected in an increase to revenues earned in 2023/24
through allowed increases in the rates charged to customers in that
financial year, in accordance with the regulatory mechanism.
-- Financing outperformance
We earned financing outperformance this year of 1.6 per cent, on
both a reported and underlying basis, compared with 1.2 per cent
last year. This increase mainly results from recent high levels of
inflation, which increases the benefit of the roughly GBP3 billion
fixed rate debt we have locked in.
We have consistently issued debt at efficient rates that compare
favourably with the industry average, thanks to our leading
treasury management, clear and transparent financial risk
management policies, and ability to act swiftly to access pockets
of opportunity as they arise. This delivered significant financing
outperformance during AMP6 and the rates we have locked-in for AMP7
compare favourably with the price review assumptions.
-- Tax outperformance
The 2.7 per cent outperformance on tax on a reported basis
reflects our optimisation of available government tax incentives,
including research and development tax allowances and the temporary
capital allowance 'super deductions', net of the tax impact of
financing outperformance. The 2.5 per cent outperformance on tax on
an underlying basis excludes the tax that will be recovered through
the regulatory sharing mechanism.
OUTLOOK
We have delivered another good year of performance, maintaining
high levels of customer satisfaction underpinned by our Systems
Thinking approach, improving operational performance, and long-term
financial resilience, giving us confidence in our ability to
continue to create value for customers, the environment, and other
stakeholders.
We are accelerating our AMP7 capital programme and investing an
additional GBP765 million over the regulatory period to help us
deliver even more sustainable improvements in customer and
environmental performance, and to get ahead of the requirements
coming into force through the Environment Act. This investment,
together with latest views of inflation, contributes to RCV growth
over AMP7 of 21 per cent on a nominal basis, more than 10 per cent
higher than we expected at the beginning of the period.
Our sustained high level of operational performance is earning
outperformance, and we have increased our target of cumulative net
outperformance against customer ODIs by a third to around GBP200
million in total over AMP7. As a consequence of our performance in
AMP7 and the additional investment we are making, we are generating
around GBP750 million of value that we expect to receive through an
RCV uplift and additional revenues in AMP8.
2022/23 FULL YEAR GUIDANCE
-- Revenue is expected to be around 1 per cent higher than
2021/22, largely reflecting the November 2021 CPIH inflation of 4.6
per cent, largely offset by the regulatory revenue reduction of 1.3
per cent and over-recovery in the current year due to higher than
anticipated consumption.
-- Underlying operating costs are expected to be around GBP100
million higher year-on-year. Approximately half of this increase
relates to inflationary cost pressures on labour, chemicals and
other costs, while the other half largely reflects the 2022/23
operating cost impact of the GBP765 million additional
investment.
-- Underlying finance expense is expected to be around GBP150
million higher year-on-year based on our current inflation
forecast. As at 31 March 2022, we had GBP4.3 billion of
index-linked debt exposure, therefore every 1 per cent increase in
inflation equates to an around GBP43 million higher interest
charge. Our cash interest in 2021/22 was GBP118 million and we
expect this to be broadly the same in 2022/23, with the overall
increase in underlying net finance expense largely relating to the
non-cash indexation of our index-linked debt. Our cash metrics
therefore remain strong and the higher inflation will also apply to
our RCV, of which 70 per cent is exposed to the benefits of higher
inflation, giving shareholders around a 1.75 times leveraged
position to inflation.
-- Underlying tax is expected to be a small charge of up to
GBP10 million in 2022/23, as we continue to optimise the use of
capital allowance 'super deductions'.
-- Capital expenditure (capex) in 2022/23 is expected to be in
the range of GBP640 million to GBP690 million, including the
2022/23 element of incremental capital expenditure in relation to
the GBP765 million additional investment.
-- We are targeting a net customer ODI reward of around GBP30
million, which is consistent with our updated investment plans and
guidance of around GBP200 million reward in total over AMP7.
-- Our AMP7 dividend policy is to grow the dividend in line with
CPIH inflation out to 2025, which for 2022/23 would equate to an
increase of 4.6 per cent based on November 2021 CPIH inflation.
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. As such, they represent non-GAAP measures.
These APMs have been presented in order to provide a more
representative view of business performance. The group determines
adjusted items in the calculation of its underlying measures
against a framework which considers significance by reference to
profit before tax, in addition to other qualitative factors such as
whether the item is deemed to be within the normal course of
business, its assessed frequency of reoccurrence and its volatility
which is either outside the control of management and/or not
representative of current year performance.
In addition, a reconciliation of the group's average effective
interest rate has been presented, together with a prior period
comparison. In arriving at net finance expense used in calculating
the group's effective interest rate, underlying net finance expense
is adjusted to add back net pension interest income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
Adjusted Rationale
item
Adjustments not expected to recur
Profit on This relates to the disposal of the group's 35.3%
disposal of stake in its Estonian joint venture, AS Tallinna
joint ventures Vesi, 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 Fair value movements on debt and derivative instruments
(gains)/losses can be both very significant and volatile from
on debt and one period to the next, and are therefore excluded
derivative in arriving at underlying net finance expense
instruments, as they are determined by macro-economic factors
excluding which are outside of the control of management
interest on and relate to instruments that are purely held
derivatives for funding and hedging purposes (not for trading
and debt under purposes). Included within fair value movement
fair value on debt and derivatives is interest on derivatives
option and debt under fair value option. In making this
adjustment it is appropriate to add back interest
on derivatives and debt under fair value option
to provide a view of the group's cost of debt
which is better aligned to the return on capital
it earns through revenue. Taking these factors
into account, management believes it is useful
to adjust for these fair value movements to provide
a more representative view of performance.
--------------------------------------------------------
Deferred tax Management adjusts to exclude the impact of deferred
adjustment tax in order to provide a more representative
view of the group's profit after tax and tax charge
for the year given that the regulatory model allows
for cash tax to be recovered through revenues,
with future revenues allowing for cash tax including
the unwinding of any deferred tax balance as it
becomes current. By making this adjustment, the
group's underlying tax charge does not include
tax that will be recovered through revenues in
future periods, thus reducing the impact of timing
differences.
--------------------------------------------------------
Tax in respect Management adjusts for the tax impacts of the
of adjustments above adjusted items to provide a more representative
to underlying view of current year performance.
profit before
tax
--------------------------------------------------------
Year ended Year ended
31 March 31 March
Underlying profit 2022 2021
GBPm GBPm
Operating profit per published results 610.0 602.1
Underlying operating profit 610.0 602.1
----------- -----------
Net finance expense
GBPm GBPm
Finance expense (187.7) (103.5)
Investment income 19.4 25.0
----------- -----------
Net finance expense per published results (168.3) (78.5)
----------- -----------
Adjustments:
Fair value (gains) on debt and derivative
instruments, excluding interest on derivatives
and debt under fair value option (138.0) (54.3)
Underlying net finance expense (306.3) (132.8)
----------- -----------
GBPm GBPm
Share of (losses) of joint ventures (1.8) (9.3)
Profit on disposal of joint ventures - 36.7
Adjustments:
Profit on disposal of AS Tallinna Vesi
joint venture - (36.7)
----------- -----------
Underlying profit on disposal of joint - -
ventures
----------- -----------
Profit before tax per published results 439.9 551.0
Adjustments:
In respect of operating profit - -
In respect of net finance expense (138.0) (54.3)
In respect of profit on disposal of joint
ventures - (36.7)
----------- -----------
Underlying profit before tax 301.9 460.0
----------- -----------
(Loss)/Profit after tax per published
results (56.8) 453.4
Adjustments:
In respect of profit before tax (138.0) (91.0)
Deferred tax adjustment 562.5 18.4
Tax in respect of adjustments to underlying
profit before tax (0.7) 2.2
Underlying profit after tax 367.0 383.0
----------- -----------
Earnings per share
GBPm GBPm
(Loss)/profit after tax per published
results (a) (56.8) 453.4
Underlying profit after tax (b) 367.0 383.0
Weighted average number of shares in issue,
in millions (c) 681.9m 681.9m
Earnings per share per published results,
in pence (a/c) (8.3) 66.5
Underlying earnings per share, in pence
(b/c) 53.8 56.2
Dividend per share, in pence 43.50p 43.24p
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 2022 31 March
2021
-------------- -----------
GBPm GBPm
-------------- -----------
Underlying net finance expense (306.3) (132.8)
-------------- -----------
Adjustments:
-------------- -----------
Net pension interest income (14.3) (17.5)
-------------- -----------
Adjustment for capitalised borrowing
costs (52.7) (30.4)
-------------- -----------
Net finance expense for effective
interest rate (373.3) (180.7)
-------------- -----------
Average notional net debt (7,368) (7,315)
-------------- -----------
Average effective interest rate 5.1% 2.5%
-------------- -----------
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:
Continuing operations
Underlying operating profit
Re-presented As reported
Year ended Year ended Year ended
31 March 31 March 31 March
2022 2021 2021
GBPm GBPm GBPm
Group underlying operating profit 610.0 602.1 602.1
Underlying operating profit not relating to
UUW (8.3) (0.4) (0.4)
UUW statutory underlying operating profit
(unaudited) 601.7 601.7 601.7
Revenue recognition 6.2 8.2 8.2
Capitalised borrowing costs 7.8 6.8 6.8
Reclassification of regulatory other income
(not included in UUW operating profit) (26.9) (21.5) (21.5)
Reversal of the innovation fund 15.4 6.2 -
Other differences (including non-appointed
business) (0.8) (1.0) (1.0)
UUW regulatory underlying operating profit
(unaudited) 603.1 600.4 594.2
Reflecting Ofwat's guidance in relation to the reversal of
innovation fund provisions, prior year numbers have been
re-presented for comparative purposes.
Return on Regulated Equity (RoRE)
UUW's RoRE, presented on a real return basis:
Year ended AMP7
31 March To date
2022
Base return 3.94% 3.93%
Totex performance (0.84)% (0.65)%
Customer ODI performance 0.52% 0.43%
Financing performance 1.58% 1.37%
Tax performance 2.71% 1.13%
------------------------------ ----------- --------
Reported RoRE 1 7.91% 6.21%
------------------------------ ----------- --------
Adjustment for impact of tax
true up mechanism (0.24)% (0.06)%
------------------------------ ----------- --------
Underlying RoRE 7.67% 6.15%
------------------------------ ----------- --------
1 Calculated in accordance with RAG 4.10, published in March
2022.
PRINCIPAL RISKS AND UNCERTAINTIES
Our approach to risk and resilience
Successful management of risks and uncertainties enables us to
deliver on our purpose to provide great water and more for the
North West, and be more resilient across our corporate, financial
and operational structures. A key objective of our approach is to
support the sustainable achievement of the strategic themes that
underpin our vision to be the best UK water and wastewater company
delivering:
-- the best service to customers;
-- at the lowest sustainable cost; and
-- in a responsible manner.
Our risk and resilience framework provides the foundation for
the business to anticipate threats to delivering an effective
service in these challenging times, and to respond and recover
effectively when risks materialise. Key components of the framework
include:
-- An embedded group-wide risk management process, which is
aligned to ISO 31000:2018 risk management guidelines;
-- A board-led approach to risk appetite, based on strategic goals;
-- A strong and well-established governance structure giving the
board oversight of the nature and extent of risks the group faces,
as well as the effectiveness of risk management processes and
controls; and
-- A portfolio of policies, procedures, guidance and training to
enable consistent, group-wide participation by our people.
Continuous improvement is a key feature of the framework, which
incorporates a maturity assessment model to identify areas to
enhance. Based on risk management capabilities relative to five
levels of maturity, a recent assessment has supported the
development of a road map of improvements. This includes further
enhancement to risk appetite and tolerance, greater focus and
analysis of cross-cutting themes and improved escalation of data
from operational risk management systems.
Risk appetite and tolerance
Focused on supporting decision-making, the risk appetite and
tolerance framework consists of a package of measures. The General
Risk Appetite represents financial limits against which event-based
risks are compared at each full and half-year assessment and
reporting cycle. In parallel are a series of strategic statements
which align directly to the principal risks. Each statement
reflects the strategic intent, strategic theme, relevant
stakeholders and governance, but fundamentally emphasises the
attitude to risk taking and control relative to four
descriptors:
-- Averse : A strong opposition to accept risk within business
strategy or operational activity.
-- Prudent : A reluctance to accept risk within business
strategy or operational activity, but careful acceptance within
tight boundaries.
-- Moderate : Willingness to accept risk with regard to business
strategy or operational activity provided this is within reasonable
limits.
-- Accepting : Willingness to accept risk with regard to
business strategy or operational activity.
As a regulated company providing essential public services none
of the principal risks have risk accepting as a strategic direction
or approach.
Underpinning each strategic statement, and currently under
development, are a series of more tangible, tactical statements
with specific levels and limits.
How we identify and assess risk
We have a number of mechanisms in place to identify risk. These
include a risk universe, cross-business horizon scanning forums,
consultations with third parties, and comparison with National Risk
Registers.
Each risk is event based and is sponsored by a senior manager
who is responsible for the analysis of the corresponding causal
factors, consequences and the control effectiveness, taking account
of both the internal and external business environment. This
process determines the likelihood of the event occurring and the
full range of potential impacts from a minimum (best case) to a
maximum (worst case). Comparing this position against the desired
target state, in combination with the strengths, weaknesses and
gaps of the control environment, supports the decisions for further
mitigation as appropriate. This ongoing analysis culminates in the
biannual business unit risk assessment (BURA) which forms part of
the governance and reporting process to ensure consistency of
approach and a true reflection of the risk facing the company. It
also serves to calibrate the most significant risks from a
financial and reputational context and to assess how these relate
to our risk appetite.
Governance and reporting process
The board ensures that its oversight of risk remains effective
and in compliance with the UK Corporate Governance Code, through a
number of established reporting routes.
Twice yearly the board receives an extensive update on the risk
profile as part of the full and half-year reporting cycle. This
provides an overview of the nature and extent of risk exposure in
the context of the group's principal risks, and emphasises the most
significant event-based risks in both their current state relative
to the risk appetite, and target state of acceptable exposure. The
board is also advised of new and emerging risks. In addition to the
biannual risk reporting, specific risk topics are reported to the
board to support decision-making. The board is, therefore, able
to:
-- make decisions on the level of risk it is prepared to manage
relative to risk appetite and tolerance in order to deliver on the
group's strategy;
-- engage with the business to ensure appropriate controls and
mitigation are in place, and test the appropriateness of plans;
-- report externally on the long-term viability of the company in an informed manner; and
-- monitor and review the effectiveness of risk management
procedures and internal control systems.
Risk-specific governance and steering groups manage ongoing
individual risks. The operational risk and resilience board
provides oversight of asset and operational process, risk and
resilience capability, escalates risks and issues to the group
audit and risk board (GARB) and contributes to the BURA
process.
The executive-led GARB focuses on: the adequacy, effectiveness
and performance of governance processes; risk management and
internal control; monitoring compliance and assurance activities;
identification of emerging themes and trends; and resilience across
the group.
The audit committee is also a fundamental component of the
governance structure. Supported by company secretariat and the
corporate audit teams, the audit committee reviews the
effectiveness of risk management and internal controls before these
are agreed by the board.
Risk profile
The business risk profile is based on the value chain of the
company, with the ten principal risks representing inherent risk
areas (primary and supportive) where value can be gained, preserved
or lost relative to the performance, future prospects or reputation
of the company. Underpinning the principal risks, the profile
consists of approximately 100 event-based risks, each of which is
allocated to one of the ten inherent risk areas based on the
context of the event, enabling the company to consider
interdependency and correlation of common themes and control
effectiveness
Common themes
Each of the event-based risks has multiple causes and
consequences, which in turn lead to financial and/or reputational
impact. Preventative and responsive controls, which incorporate the
four components of resilience (resistance; reliability; redundancy;
and response/recovery), are applied to reduce the likelihood of the
event occurring and limit the impact if the event were to
materialise. New and emerging circumstances in respect of causes,
consequences and controls make the profile multifaceted and
dynamic. Analysis of the profile highlights common themes, notably
associated with the causes and consequences. These common themes
can then be considered more holistically, which combined with the
analysis of the strengths, weaknesses, gaps and interdependency of
control across the business, enables a more integrated approach to
risk mitigation.
Common causal themes
The event-based risks include multiple causal factors, which
individually or in combination, could trigger the risk event to
occur. Categorisation illustrates six common causal themes:
-- Extreme weather/climate change: In the majority of cases our
water resources, asset base and operations can cope with extreme
weather conditions, although these can become overwhelmed in
intense situations. Climate change projections highlight increased
temperatures, rainfall, wind and more frequent extreme variations
in weather patterns. This means that climate change remains a key
focus for us, because of its impact on our capacity and capability
for service delivery, and because of the effect on the environment
that we strive to protect and enhance. We are committed to the
principles set by the Financial Stability Board's Task Force on
Climate-related Financial Disclosures (TCFD).
-- Demographic changes: Demographic changes, including
population growth and evolving age profiles, can impact the
capacity and capability of water and wastewater treatment and
network assets; can affect demand on water resources; and increase
uncertainty in relation to pension obligations.
-- Legislative and regulatory change: Changes in legislation
and/or regulation can have implications for the business model,
asset base and ways of working. For example: the anticipated
post-Brexit changes in law bring an element of uncertainty; and the
introduction of competition, while positive to customers and
markets, can affect ongoing revenue and the asset base.
-- Economic conditions: Macro events can have multiple financial
implications, including: lower revenue; increased bad debt;
increased operational cost; increased cost of borrowing; and a
reduction in the Regulatory Capital Value. The events can also
impact the wider supply chain with knock-on effects to our service
delivery and cost to serve.
-- Asset health: General use, exposure to natural hazards,
pressure and load all contribute to the deterioration of assets. In
addition, other factors such as technological obsolescence and
operating assets beyond their optimal capacity to cope with
increased demand (population growth and/ or climate change) also
affect asset health. Ageing assets, therefore, provide an
underlying and cross-business risk and uncertainty both to
efficiency and for the long-term resilience of asset integrity and
the associated service capability.
-- Culture: Embedded through processes, reward mechanisms,
values and behaviours, corporate culture is important to maintain
high performance and cuts across the majority of risks in the
profile. In an increasingly challenging business environment, our
focus is to continue to embed a culture of innovation, customer
service and behaving in a responsible manner at the same time as
being open and transparent.
Common consequence themes
Each consequence is analysed for the financial and reputational
implications relative to multiple stakeholders. Categorisation of
the consequences illustrates four common impact themes:
-- Customer : Customers are impacted through our service
offering, the quality of their experience when dealing with us, and
how our operational and capital schemes affect them in the
community.
-- Environment : Our assets, operations and capital programmes
can have a significant impact on the environment in both rural and
urban settings. As a major land owner and operator of a large fleet
of vehicles, the way we manage these also has environmental
implications.
-- Investors : The vast majority of risks in the profile have
financial implications that could affect shareholder investment in
the short and long term. Reputational impact associated with
ethics, environmental protection and efficiency is also relevant
for investors' interest in the company.
-- Employees : Our employees are fundamental to delivering our
service requirements as well as our strategic objectives. Equally,
our employees can be affected by multiple risks across the
business, but primarily in relation to employment and health,
safety and wellbeing risks.
Our principal risks
1. Water service - risk stable
A failure to provide a secure supply of clean, safe drinking
water and the potential for a negative impact on public confidence
in water supply.
Causal factors themes (Drivers/influences of risk)
-- Climate change
-- Demographic change
-- Legal and regulatory change
-- Asset health
Consequence themes and stakeholder groups
-- Customer
-- Environment
-- Investors
Appetite and tolerance
-- Water - Averse
Control/mitigation
-- Strict quality controls and sampling regime
-- Physical and chemical treatment with automation
-- Cleaning, maintenance and replacement of assets
-- Water resources and production planning
-- Pressure/flow management and leak detection
-- Integrated network and response capability
Top five event-based business risk (*most significant group
risks)
-- Failure of Haweswater Aqueduct*
-- Water sufficiency*
-- Failure to treat water
-- Failure of the distribution system (leakage)
-- Dam failure
2. Wastewater service - risk increasing
The failure to remove, treat and return water to the environment
and recycle sludge to land.
Causal factors themes (Drivers/influences of risk)
-- Climate change
-- Demographic change
-- Legal and regulatory change
-- Asset health
Consequence themes and stakeholder groups
-- Customer
-- Environment
-- Investors
Appetite and tolerance
-- Wastewater - Prudent
-- Bioresources - Moderate
Control/mitigation
-- Physical and chemical treatment
-- Odour management systems
-- Drainage and wastewater management plans
-- Wastewater network operating model
-- Cleaning, maintenance and replacement of assets
-- Customer campaigns
Top five event-based business risk (*most significant group
risks)
-- Wastewater network failure (sewer flooding)*
-- Failure to treat sludge*
-- Recycling biosolids to agriculture*
-- Wastewater treatment (permits)
-- Mersey Valley Sludge Pipeline
3. Retail and commercial - risk stable
Failing to provide good and fair service to domestic customers
and third-party retailers or a failure of or issue in relation to
non-United Utilities Water operations or businesses.
Causal factors themes (Drivers/influences of risk)
-- Legal and regulatory change
-- Economic conditions
-- Asset health
-- Culture
Consequence themes and stakeholder groups
-- Customer
-- Investors
Appetite and tolerance
-- Retail - Prudent
-- Commercial - Moderate
Control/mitigation
-- Customer-focused initiatives
-- Best practice collection techniques
-- Customer segmentation
-- Priority Services scheme
-- Data management and data sharing
-- Non-regulated operation governance
Top five event-based business risk (*most significant group
risks)
-- Customer experience
-- Cash collection
-- Billing accuracy
-- Wholesale revenue collection
-- Developer services
4. Supply chain and programme delivery - risk increasing
The potential ineffective delivery of capital, operational or
functional processes/programmes including change.
Causal factors themes (Drivers/influences of risk)
-- Legal and regulatory change
-- Economic conditions
Consequence themes and stakeholder groups
-- Customer
-- Investors
-- Environment
-- Community
-- Suppliers
Appetite and tolerance
-- Supply Chain - Prudent
-- Capital Delivery - Moderate
Control/mitigation
-- Category management
-- Supplier relationship management
-- Capital, change and operational programme management
-- Portfolio, programme and project risk management
Top five event-based business risk (*most significant group
risks)
-- Price volatility*
-- Unfunded developer programmes
-- Security of the supply chain
-- Dispute with supplier
-- Capital delivery programme
5. Resource - risk stable
The potential failure to provide appropriate resources (human,
technological or physical) required to support business
activity.
Causal factors themes (Drivers/influences of risk)
-- Climate Change
-- Legal and regulatory change
-- Economic conditions
-- Asset health
-- Culture
Consequence themes and stakeholder groups
-- Customer
-- Investors
-- Employees
Appetite and tolerance
-- Resource - Moderate
Control/mitigation
-- Adoption of effective technology
-- Multiple communication channels
-- Training and personal development
-- Talent, apprentice and graduate schemes
-- Change programmes and innovative strategies
-- Maintenance, replacement or renovation of assets
Top five event-based business risk (*most significant group
risks)
-- Land management
-- IT asset support
-- Loss or failure of NIS systems
-- Business critical data
-- Employee relations
6. Finance - risk stable
The potential inability to finance the business
appropriately.
Causal factors themes (Drivers/influences of risk)
-- Demographic change
-- Legal and regulatory change
-- Economic conditions
-- Asset health
Consequence themes and stakeholder groups
-- Customer
-- Investors
-- Employees
Appetite and tolerance
-- Finance - Prudent
Control/mitigation
-- Long-term refinancing
-- Liquidity reserves
-- Counterparty credit exposure and settlement limits
-- Hedging strategies
-- Sensitivity analysis
-- Monitoring of the markets
Top five event-based business risk (*most significant group
risks)
-- Credit ratings*
-- Pension scheme funding deficit*
-- Financial outperformance*
-- Tax efficiency/fair share*
-- Totex efficiency challenge*
7. Health, safety and environmental - risk increasing
The potential harm to employees, contractors, the public or the
environment.
Causal factors themes (Drivers/influences of risk)
-- Climate change
-- Asset health
-- Culture
Consequence themes and stakeholder groups
-- Employee
-- Environment
-- Investors
-- Communities
Appetite and tolerance
-- Health, safety and welfare - Averse
-- Environment - Averse
Control/mitigation
-- Strong governance and management systems
-- Certification to ISO 45001 and ISO 14001
-- Benchmarking, auditing and inspections
-- Targeted engagement and improvement programmes
-- Carbon reduction initiatives
-- Self-generation of energy
Top five event-based business risk (*most significant group
risks)
-- Carbon commitments*
-- Disease pandemic*
-- Occupational health exposure
-- Minor injuries
-- Process safety (bioresources and wastewater)
8. Security - risk stable
The potential for malicious activity (physical or technological)
against people, assets or operations.
Causal factors themes (Drivers/influences of risk)
-- Environmental Conditions
-- Asset health
-- Culture
Consequence themes and stakeholder groups
-- Customer
-- Investors
-- Employees
-- Community
Appetite and tolerance
-- CNI and SEMD - Averse
-- Other - Prudent
Control/mitigation
-- Physical and technological security measures
-- Strong governance, inspections and audits
-- Security authority liaison and NIS compliance
-- System and network integration
-- Business continuity and disaster recovery
-- Insurance
Top five event-based business risk (*most significant group
risks)
-- Cyber*
-- Terrorism*
-- Criminality
-- Fraud
-- Data protection
9. Conduct and compliance - risk stable
The failure to adopt or apply ethical standards, or to comply
with legal and regulatory obligations and responsibilities.
Causal factors themes (Drivers/influences of risk)
-- Climate change
-- Demographic change
-- Legal and regulatory change
-- Economic conditions
-- Asset health
-- Culture
Consequence themes and stakeholder groups
-- Customer
-- Environment
-- Investors
-- Employees
-- Community
-- Suppliers
Appetite and tolerance
-- Legislation - Averse
-- Other - Prudent
Control/mitigation
-- Ethical supply chain, diversity and inclusivity policies
-- Data classification and levels of authorisation
-- Stakeholder engagement activities
-- Audits and peer reviews
-- Governance, risk assessment and horizon scanning
-- Brand comparisons and dashboard of culture metrics
Top five event-based business risk (*most significant group
risks)
-- Water Plus
-- Bribery
-- Non-regulated asset
-- Procurement compliance
-- Corporate governance and listing rules compliance
10. Political and regulatory - risk increasing
Developments connected with the political, regulatory and
legislative environment.
Causal factors themes (Drivers/influences of risk)
-- Legal and regulatory change
-- Economic conditions
Consequence themes and stakeholder groups
-- Customer
-- Environment
-- Investors
-- Employees
Appetite and tolerance
Appetite or tolerance cannot be determined due to no genuine
choice or control
Control/mitigation
-- Consultation with government and regulators
-- Communicate with customers
Top five event-based business risk (*most significant group
risks)
-- Price Review 2024 outcome*
-- Upstream competition (bioresources)
-- DPC exit - HARP
-- ASHE index
-- Upstream competition (water resource)
The company's most significant event-based risks
The most significant event-based risks represent the ten
highest-ranked risks by exposure (likelihood of occurrence of the
event multiplied by the most likely financial impact) and those
risks which have been assessed as having a significantly high
impact, but low likelihood.
Depending on the circumstances, financial impacts will include
loss of revenue, additional or extra cost, fines, regulatory
penalties and compensation. Reputational impact relative to our
multiple stakeholders 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-F):
1. Price Review 2024 Outcome
Risk exposure: This risk focuses on the capacity and capability
to develop a business plan that creates value for customers,
communities, and the environment that is sustainable and resilient
for the long term relative to the unique characteristics of the
region we serve, in light of multiple influencing factors notably
changing demographics, climate change and asset health.
Control/mitigation : We have established cross-cutting work
streams and theme owners to identify the products and evidence
required for the submission and we will maintain a close dialogue
with Ofwat throughout the process.
Assurance : Extensive customer research and several external
providers have been commissioned for technical optioneering. Second
line assurance is provided through a dedicated price review team
and a PR24 programme board. An internal audit is scheduled and
external assurance is currently under procurement.
2. Failure of the Haweswater Aqueduct
Risk exposure : The Haweswater Aqueduct is a key asset with
current low resilience due to deterioration, with failure
potentially resulting in water quality issues and/or supply
interruptions to a large proportion of the United Utilities
customer base.
Control/mitigation : A capital project to replace the tunnel
sections of the aqueduct has already commenced with the completion
in November 2020 of one section. The remaining sections are due to
be replaced as part of Haweswater Aqueduct Resilience Programme
(HARP) by 2029.
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 cyclical internal audits and external
assurance over the competitively appointed provider.
3. Wastewater network failure (sewer flooding)
Risk exposure : Equipment failure, collapses/bursts or
inadequate hydraulic/operational capacity to cope with extreme
weather and population growth, resulting in sewer flooding.
Control/mitigation : Preventative maintenance and inspection
regimes, customer campaigns and sewer rehabilitation
programmes.
Assurance : Second line assurance provided by Wholesale
Assurance, Engineering Technical Governance and Flood Review Panel.
Subject to regular internal audits and external assurance of
regulatory reporting.
4. Cyber
Risk exposure : Data and technology assets compromised due to
malicious or accidental activity, leading to a major impact to key
business processes and operations.
Control/mitigation : Multiple layers of control, including a
secure perimeter, segmented internal network zones, access
controls, constant monitoring and forensic response capability.
Assurance : Security stance reflects multiple sources of threat
intelligence. The Security
Steering Group provides second line assurance, with independent
assurance provided by cyclical internal audits and various
technical audits by external specialists.
5. Water sufficiency
Risk exposure : Water sufficiency is one of the most sensitive
risks to climate, with the frequency of recent periods of extended
hot, dry weather being evidence of changing circumstance and the
potential for implementation of water use restrictions on
customers.
Control/mitigation : We produce a Water Resources Management
Plan (WRMP) every five years, which forecasts future demand and
water availability under repeats of historic droughts, adjusted for
climate change. A statutory Drought Plan is also developed every
five years setting out the actions we will take in a drought
situation.
Assurance : The WRMP and Drought Plan are subject to various
second and third line assurance activities prior to
publication.
6. Carbon Commitments
Risk exposure : This risk focuses on the capacity and capability
to decarbonise water and wastewater activity relevant to the Public
Interest Commitments (PIC) to achieve net zero by 2030 in light of
the growth pressures, lack of technological advances or innovation
and the fundamental change of approach required.
Control/mitigation : We will continue to develop near-term
initiatives to address process and energy emissions, and create
woodland and restore peatland, while responding to an evolving
policy and technological landscape. We are also developing a
long-term strategy to reduce emissions and to fully understand and
optimise potential decarbonisation initiatives and pathways.
Assurance : Water industry research and technical support
combined with a Climate Change Mitigation Steering Group provides
second line assurance. An internal audit is scheduled and external
assurance of emissions, regulatory reporting lines and
science-based targets has been established.
7. Failure to treat sludge
Risk exposure : This risk relates to the interdependency between
wastewater and bioresource treatment activity in light of changing
demographics, asset health and legislative/regulatory change.
Industrial Emissions Directive (IED) now applying to biological
treatment of sewage sludge within AMP 7, with no investment
assigned to this requirement is a key factor.
Control/mitigation : The Throughput, Reliability, Availability,
and Maintainability (T-RAM) of our facilities is a key area of
mitigation, with formal Service Level Agreements between the two
core activities. In relation to IEDs, discussions at national level
are being held to move the high capital cost improvements into
PR24.
Assurance : Wholesale Assurance and Engineering Technical
Governance provide second line assurance. Subject to cyclical
internal audit and ad-hoc external strategic reviews.
8. Recycling of biosolids to agriculture
Risk exposure : This risks represents various impact scenarios
including operational failures, increased restrictions or total ban
of recycling biosolids to agriculture. Referencing the EA's
interpretation of the Farming Rules for Water (FRfW) regulations
and the increasing threat to recycling a large proportion of
biosolids.
Control/mitigation : United Utilities is accredited to the UK
Biosolids Assurance Scheme (BAS), which certifies that our
treatment and recycling activities meet regulatory requirements and
best practice. We also work closely with farmers and landowners and
have robust standard operating procedures established with
contractors.
Assurance : Wholesale Assurance and Engineering Technical
Governance provide second line assurance. Subject to both cyclical
internal and external audit.
9. Price volatility
Risk exposure : This risk reflects the inflationary pressures
across all commodities notably Energy, associated with the post
COVID-19 economic bounce back which have been exacerbated further
by the conflict in the Ukraine.
Control/mitigation : Contract provision with suppliers, hedging
policy and supply agreements manage volatility and minimise
vulnerability in the contract and price risk with the suppliers
including periods of agreed fixed pricing and negotiation of CPI/H
uplift on an annual basis.
Assurance : Market analysis and supplier engagement, combined
with quarterly business reviews provide second line assurance. Due
to the scale of procurement an energy governance panel has
oversight over procurement and use.
10. Credit rating
Risk exposure : Credit ratings below internal targets, due to
deterioration in financial and/or operational performance and/or
external factors (such as inflation) resulting in more expensive
funding.
Control/mitigation : Continuous monitoring of markets, and the
management of key financial risks within defined policy
parameters
Assurance : Second line assurance provided by Financial Control
and Quarterly Business Reviews, with oversight provided by the
treasury committee. The treasury function is subject to regular
internal audits.
A. Pensions deficit
Risk exposure : The potential for the pension scheme funding
deficit to increase because of life expectancy rates leading to
additional contributions.
Control/mitigation : Constant monitoring combined with hedging
against interest rates, inflation and growth asset risk.
Assurance : Policy and oversight is led by the Pensions Review
Management Group, taking into account advice from accountancy and
law firms. Pension governance is subject to periodic internal
audits.
B. Financial Outperformance
Risk exposure : Failure to achieve financial outperformance due
to macro-economic conditions and efficiency challenges, impacting
the cost of debt and delivery of the company business plan.
Control/mitigation : Interest rate and inflation management,
ongoing monitoring of markets and regulatory developments, and
company business planning.
Assurance : Second line assurance and oversight is provided by
the board and treasury committee in addition to executive quarterly
business reviews. Subject to cyclical internal audit reviews.
C. Dam failure
Risk exposure : Uncontrolled release of a significant volume of
water from reservoirs due to flood damage, overtopping, earthquake
or erosion leading to catastrophic impacts downstream.
Control/mitigation : Each reservoir is regularly inspected by
engineers. Where appropriate, risk reduction interventions are
implemented through a prioritised investment programme.
Assurance : Various sources of second line assurance, including
Supervising Engineers, Dam Safety Group, Wholesale Assurance and
regular board reviews. Independent assurance is provided by Panel
Engineers and internal audit.
D. Fair payment of tax
Risk exposure : Failure to maximise the available tax
efficiencies and reliefs due to changing mechanisms.
Control/mitigation : Tax policies and objectives cover:
efficient structuring of commercial activities; maintaining a
robust governance and risk management framework; and an open and
transparent relationship with tax authorities.
Assurance : Tax policies are based on advice from multiple
sources, including accountancy firms. Third-party assurance is
provided by internal audit and accountancy firms.
E. Disease pandemic
Risk exposure : Serious illness in a large proportion of the UK
population and consequences to our workforce, the wider supply
chain and macro economy.
Control/mitigation : The incident management process would be
invoked, supported by the Pandemic Response Plan. This includes the
implementation of multi-channel communication with
non-pharmaceutical interventions as per government guidance.
Assurance : Wholesale Assurance provide second line assurance,
with internal audit undertaking various reviews.
F. Terrorism
Risk exposure : A significant asset to be compromised by
terrorist activity leading to loss of supply, contamination and/or
pollution.
Control/mitigation : A risk-based protection of assets in line
with the Security and Emergency Measures Direction (SEMD) and close
liaison with the Centre for the Protection of National
Infrastructure (CPNI), regional counter terrorist units, local
agencies and emergency services.
Assurance : Security posture is based on various threat
advisors. 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.
New and emerging risk
Following horizon scanning activity undertaken by the business,
a watching brief is held over risks/issues which are worthy of note
due to their new, emerging or reputational status, and typically
have too high levels of uncertainty or complexity to quantify.
-- Plastics: Attention on single-use plastic and microplastic
(plastics less than 5 mm) pollution is ongoing, with their presence
in the environment being linked to the water cycle. We are
responding proactively and have formed a two pillar approach to
addressing plastics, focusing on operational plastic waste and
plastic in the water cycle.
-- Perfluoroalkyl and polyfluoroalkyl substances (PFAS): There
is a growing focus on PFAS chemicals including from our public
liability insurers who are looking to exclude related liability
claims. PFAS are manufactured chemicals used in everyday products.
Known as 'forever chemicals', they are persistent, bio accumulate
and may be toxic even at low levels. We have completed an
assessment of the likely presence of PFAS in raw water sources, the
results of which are incorporated into the Drinking Water Safety
Plan and aligned to the requirements set out by the Drinking Water
Inspectorate.
Conflict in Ukraine
The conflict in Ukraine has led to a number of risks emerging
(growing, developing or becoming more prominent) from a security
and economic perspective.
-- Cyber: The likelihood of the cyber risk has been increased to
reflect the rising tensions between Russia and the west, while
taking into account the adoption of increased security measures
which include security operations teams on extended high alert and
the rapid deployment of technical blocking of critical indicators
of compromise.
-- Price volatility: This risk reflects inflationary uplift
across multiple commodities with energy the most volatile.
-- Security of the supply chain: This risk reflects the knock on
impact of inflationary pressure on manufacturing output with some
production facilities reducing operations. It also reflects
sanctions imposed against Russia and Belarus and the restriction or
prevention of access to certain goods.
-- Cash collection: Inflationary pressure is having a
significant impact on the cost of living, affecting customers'
ability to pay bills.
-- Supplier viability: This risk reflects the impact the
unprecedented price increases are having on suppliers who cannot
honour locked prices in contracts and the threat of suppliers going
into administration with a knock-on effect to operations and the
capital delivery programme.
-- Credit rating: Whilst underlying credit quality is not a
concern, the impact of high inflation on finance expense results in
the potential for Credit Agency thresholds to be breached when
combined with other factors such as additional investment spend to
meet environmental and service improvements over and above price
review allowances.
Legislative/regulatory change
In addition to the emerging economic conditions exacerbated by
the conflict in Ukraine, legislative and regulatory change is also
a prominent emerging theme which impacts a number of event-based
risks.
Relatively recent developments include uncertainty associated
with the Environment Agency's interpretation of the Industrial
Emissions Directive (IED) and Farming Rules for Water (FRfW) and
implications for ongoing compliance, process and investment across
wastewater and bioresources risk.
As a responsible company, United Utilities is committed to the
protection and enhancement of the environment and can demonstrate
many previous and current initiatives, the most recent being the
road map to 'better river health' including a pledge to invest
GBP230 million into 184 kilometres of rivers by 2025. We will
continue to work closely with all our regulators and partners to
deliver better solutions including full cooperation with the
ongoing industry wide investigation by Ofwat and the Environment
Agency into possible unpermitted sewage discharges into rivers and
watercourses.
The Environment Act, which was enacted in November 2021, has
potentially far more significant implications for the water sector,
due to it being the UK's new framework of environmental protection.
Depending on how the new legislation will be interpreted and
applied, meeting its requirements may demand a fundamental shift in
the water industry's approach to environmental risks, requiring
significant investment across multiple AMPs.
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.
In relation to the Manchester Ship Canal Company matter reported
in previous years, a hearing was held in the Court of Appeal at the
end of March 2022. A decision is expected during summer 2022, which
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.
Beyond this, there is nothing to report regarding material
litigation, including in respect of the Argentina multiparty 'class
action' reported on in previous years, and to which there have been
no material developments.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This financial report contains certain forward-looking
statements with respect to the operations, performance and
financial condition of the group. By their nature, these statements
involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those
anticipated. These forward-looking statements include without
limitation any projections or guidance relating to the results of
operations and financial conditions of the group as well as plans
and objectives for future operations, expected future revenues,
financing plans, expected expenditure and any strategic initiatives
relating to the group, as well as discussions of our business plan
and our assumptions, expectations, objectives and resilience with
respect to climate scenarios. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this financial report and the company undertakes no
obligation to update these forward-looking statements. Nothing in
this financial report should be construed as a profit forecast.
Certain regulatory performance data contained in this financial
report is subject to regulatory audit.
This announcement contains inside information, disclosed in
accordance with the Market Abuse Regulation which came into effect
on 3 July 2016 and for UK Regulatory purposes the person
responsible for making the announcement is Simon Gardiner, Company
Secretary.
LEI 2138002IEYQAOC88ZJ59
Classification - Full Year Results
Consolidated income statement
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
Revenue 1,862.7 1,808.0
----------- -----------
Staff costs (note 4) (184.3) (173.4)
Other operating costs (note 5) (461.7) (420.3)
Allowance for expected credit losses - trade
and other receivables (23.4) (28.7)
Other income 4.4 3.6
Depreciation and amortisation expense (418.2) (422.3)
Infrastructure renewals expenditure (169.5) (164.8)
Total operating expenses (1,252.7) (1,205.9)
----------- -----------
Operating profit 610.0 602.1
Investment income (note 6) 19.4 25.0
Finance expense (note 7) (187.8) (107.2)
Allowance for expected credit losses - loans
to joint ventures 0.1 3.7
Investment income and finance expense (168.3) (78.5)
----------- -----------
Profit on disposal of joint venture (note 11) - 36.7
Share of profits of joint ventures (note 11) (1.8) (9.3)
Profit before tax 439.9 551.0
Current tax credit/(charge) 65.8 (79.2)
Deferred tax charge (562.5) (18.4)
Tax (note 8) (496.7) (97.6)
(Loss)/Profit after tax (56.8) 453.4
----------- -----------
All of the results shown above relate to continuing
operations.
Earnings per share (note 9)
Basic (8.3)p 66.5p
Diluted (8.3)p 66.3p
Dividend per ordinary share (note 10) 43.50p 43.24p
Consolidated statement of comprehensive income
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
(Loss)/profit after tax (56.8) 453.4
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Cashflow hedge effectiveness 106.7 9.3
Tax on items recorded within other comprehensive income (note 8) (26.8) (1.8)
Foreign exchange adjustments (note 11) - (1.6)
Foreign exchange adjustments reclassified to profit on disposal of joint ventures (note 11) - 4.0
Other comprehensive income that may be reclassified to profit or loss 79.9 9.9
Items that will not be reclassified to profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined benefit pension schemes (note 12) 313.6 (82.7)
Change in credit assumption for debt reported at fair value through profit and loss (4.1) (43.3)
Cost of hedging - cross currency basis spread adjustment - (12.7)
Deferred tax adjustments in respect of prior years on net fair value gains - -
Tax on items recorded within other comprehensive income (note 8) (109.4) 36.6
Other comprehensive income that will not be reclassified to profit or loss 200.1 (102.1)
Total comprehensive income 223.2 361.2
----------- -----------
Consolidated statement of financial position
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 12,147.5 11,799.0
Intangible assets 160.8 181.1
Interests in joint ventures and other investments
(note 11) 16.6 0.1
Inventories 0.4 -
Trade and other receivables 81.7 86.7
Retirement benefit surplus (note 12) 1,016.8 689.0
Derivative financial instruments 399.4 410.3
13,823.2 13,166.2
----------- -----------
Current assets
Inventories 17.8 18.3
Trade and other receivables 222.7 229.2
Current tax asset 74.4 6.9
Cash and short-term deposits 240.9 744.1
Derivative financial instruments 58.0 14.4
613.8 1,012.9
Total assets 14,437.0 14,179.1
----------- -----------
LIABILITIES
Non-current liabilities
Trade and other payables (835.2) (798.3)
Borrowings (note 13) (7,671.0) (7,797.0)
Deferred tax liabilities (2,148.1) (1,449.5)
Derivative financial instruments (136.7) (107.8)
(10,791.0) (10,152.6)
----------- -----------
Current liabilities
Trade and other payables (365.8) (322.7)
Borrowings (note 13) (308.8) (654.8)
Provisions (13.5) (11.1)
Derivative financial instruments (0.5) (6.9)
(688.6) (995.5)
Total liabilities (11,479.6) (11,148.1)
----------- -----------
Total net assets 2,957.4 3,031.0
----------- -----------
EQUITY
Share capital 499.8 499.8
Share premium account 2.9 2.9
Other reserves (note 17) 416.2 336.3
Retained earnings 2,038.5 2,192.0
Shareholders' equity 2,957.4 3,031.0
----------- -----------
Consolidated statement of changes in equity
Share (1)
Share premium Other Retained
Year ended 31 March 2022 capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2021 499.8 2.9 336.3 2,192.0 3,031.0
-------------------------------------------------- --------- --------- ---------- ---------- --------
Loss after tax - - - (56.8) (56.8)
Other comprehensive income
Remeasurement gains on defined benefit
pension schemes (note 12) - - - 313.6 313.6
Change in credit assumption for debt reported
at fair value through profit and loss - - - (4.1) (4.1)
Cashflow hedge effectiveness - - 106.7 - 106.7
Tax on items recorded within other comprehensive
income (note 8) - - (26.8) (109.4) (136.2)
Total comprehensive income - - 79.9 143.3 223.2
-------------------------------------------------- --------- --------- ---------- ---------- --------
Dividends (note 10) - - - (295.5) (295.5)
Equity-settled share-based payments - - - 4.8 4.8
Exercise of share options-purchase of
shares - - - (6.1) (6.1)
At 31 March 2022 499.8 2.9 416.2 2,038.5 2,957.4
-------------------------------------------------- --------- --------- ---------- ---------- --------
Year ended 31 March (1) Other reserves
2021 Share capital Share premium account Retained earnings Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2020 499.8 2.9 336.7 2,122.7 2,962.1
--------------------------- -------------- ---------------------- ------------------- ------------------ --------
Profit after tax - - - 453.4 453.4
Other comprehensive income
Remeasurement losses on
defined benefit pension
schemes (note 12) - - - (82.7) (82.7)
Change in credit
assumption for debt
reported at fair value
through profit or loss - - - (43.3) (43.3)
Cash flow hedge
effectiveness - - 9.3 - 9.3
Cost of hedging - cross
currency basis spread
adjustment - - (12.7) - (12.7)
Tax on items recorded
within other
comprehensive income
(note 8) - - 0.6 34.2 34.8
Foreign exchange
adjustments - - (1.6) - (1.6)
Foreign exchange
adjustments reclassified
to profit on disposal of
joint venture - - 4.0 - 4.0
Total comprehensive income - - (0.4) 361.6 361.2
--------------------------- -------------- ---------------------- ------------------- ------------------ --------
Dividends (note 10) - - - (291.9) (291.9)
Equity-settled share-based
payments - - - 3.6 3.6
Exercise of share options
- purchase of shares - - - (4.0) (4.0)
At 31 March 2021 499.8 2.9 336.3 2,192.0 3,031.0
--------------------------- -------------- ---------------------- ------------------- ------------------ --------
(1) Other reserves comprise the group's cumulative exchange
reserve, capital redemption reserve, merger reserve, cost of
hedging reserve, and cash flow hedging reserve. Further detail of
movements in these reserves is included in note 17.
Consolidated statement of cash flows
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
Operating activities
Cash generated from operations (note 15) 1,061.6 1,037.2
Interest paid (121.9) (136.7)
Interest received and similar income 3.6 7.4
Tax paid (8.9) (75.4)
Tax received - 26.9
Net cash generated from operating activities 934.4 859.4
----------- -----------
Investing activities
Purchase of property, plant and equipment (609.0) (610.4)
Purchase of intangible assets (19.5) (33.6)
Grants and contributions received 1.8 5.0
Extension of loans to joint ventures (note
19) (13.0) (2.0)
Dividends received from joint ventures (note
11) - 6.4
Proceeds from disposal of investments (note
11) - 85.3
Net cash used in investing activities (639.7) (549.3)
----------- -----------
Financing activities
Proceeds from borrowings net of issuance
costs 173.7 909.7
Repayment of borrowings (681.8) (703.5)
Dividends paid to equity holders of the company
(note 10) (295.5) (291.9)
Exercise of share options - purchase of shares (6.1) (4.0)
Net cash used in financing activities (809.7) (89.7)
----------- -----------
Effects of exchange rate changes 1.5 -
----------- -----------
Net increase/(decrease) in cash and cash
equivalents (513.5) 220.4
----------- -----------
Cash and cash equivalents at beginning of
the year 733.6 513.2
----------- -----------
Cash and cash equivalents at end of the
year 220.1 733.6
----------- -----------
NOTES
1. Basis of preparation and accounting policies
The condensed consolidated financial statements for the year
ended 31 March 2022 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 2022, for which the auditors
have given an unqualified opinion.
The comparative figures for the year ended 31 March 2021 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 2021.
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, including high levels of inflation in the near
term. 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 reasonable 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
arising in the assessment period; lower CPIH inflation; elevated
levels of bad debt; outcome delivery incentive penalties; and the
impact of these factors materialising on a combined basis.
Mitigating actions were considered to include deferral of capital
expenditure; a reduction in other discretionary totex spend; the
close out of derivative asset balances; and the deferral or
suspension of dividend payments.
Consequently, the directors are satisfied that the group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements, and that the severe but plausible downside
scenarios indicate that the group will be able to operate within
the amounts and terms (including relevant covenants) of existing
facilities. The financial statements have therefore been prepared
on a going concern basis.
Update on critical accounting judgements and key sources of
estimation uncertainty associated with Covid-19 and increases in
the cost of living
Following the onset of the Covid-19 pandemic at the beginning of
the 2020 calendar year, the group has disclosed a number of
associated critical accounting judgements and key sources of
estimation uncertainty in its annual reports and financial
statements for the years ended 31 March 2020 and 31 March 2021. The
most significant of these related to revenue recognition and the
group's allowance for expected credit losses in respect of
receivables, and accounting for the group's joint venture, Water
Plus, although the level of judgement and estimation associated
with the latter of these has reduced markedly following the
restructuring of Water Plus's financing arrangements by its
shareholders as described in note 11.
These judgements and estimates have been kept under review
during the year to 31 March 2022 in order to ensure that they
reflect the most up-to-date information available as the situation
has developed, including changes in the broader economic outlook;
increased power and food costs, due in large part to the ongoing
conflict in Ukraine, are likely to have a significant impact on
many of the group's customers. The significant increases in the
cost of living have largely superseded the direct effects of the
Covid-19 pandemic as the key source of uncertainty. An update on
these judgements and estimates is as follows:
Accounting estimate - unbilled revenue in respect of measured
customers : The amount of revenue recognised for measured services
(where customers have a water meter) is directly impacted by their
level of consumption. Estimation is required in relation to the
volume of water and wastewater services provided to these customers
where recent meter read data is not available.
Estimated usage is based on historical meter read data,
judgement, and assumptions. Since 2020, consumption patterns have
been significantly impacted by changes brought about by the
Covid-19 pandemic. Household consumption has been above levels
normally seen due to customers spending more time at home, while
non-household consumption has been below normal levels as a result
of temporary business closures resulting from lockdown
measures.
While lockdown measures have now eased, household consumption
remains higher than pre-pandemic levels. Customer behaviours appear
to have changed as a result of the pandemic, with many household
customers choosing to spend more time at home during the year for a
number of reasons, including international travel restrictions that
have been in place, businesses transitioning to hybrid working
arrangements that facilitate increased levels of working from home,
and other businesses moving employees to permanent home working.
However, levels of household consumption have fallen in the final
quarter of the reporting period, suggesting that patterns of future
usage in the longer term are yet to fully crystallise.
However, over the course of the previous financial year, and
through the year to 31 March 2022, the group has seen an increase
in the volume of household meter reads, which have now returned to
pre-pandemic levels. Meter read data collected during the period
therefore reflect the increased consumption brought about by the
pandemic, together with current usage patterns. This in turn has
been captured in actual bills and therefore the level of estimation
has steadily reduced, with the system generated revenue accrual now
largely aligned to independent automated meter read (AMR) data. AMR
data is captured for around 25 per cent of all measured household
customers, and has been extrapolated across the remaining measured
household customer base. The reasonableness of this approach has
been validated through an assessment of bills raised in the
period.
During the prior year a number of code changes were introduced
by Ofwat and MOSL in relation to the non-household retail market.
These included the introduction of annual consumption adjustments
which allowed retailers to reduce or suspend volumetric charges for
customers impacted by the lockdown of their activities. As many of
these adjustments were initially applied by retailers to broad
sector groups, this inevitably included some end users who
continued to consume above their yearly volume estimate. This
resulted in a higher level of estimation being required in relation
to non-household consumption than would normally be the case. These
estimates were based on the latest available consumption
information, considering the vacancy status of all premises during
the period and recognising the number and timing of meter reads
received. In the year to 31 March 2022, we have seen retailers
begin to remove consumption adjustments, which together with an
increase in meter reads has reduced the level of estimation
required. Non-household wholesale revenue recognised during the
period is around GBP10 million higher than the total in-period
revenue estimated in the CMOS system as part of the normal
settlement process (around GBP14 million higher at 31 March
2021).
Accounting estimate - allowance for expected credit losses in
respect of household trade receivables: The onset of the Covid-19
pandemic introduced a high level of uncertainty around how economic
conditions may impact the recoverability of household receivables.
This uncertainty has continued throughout the year to 31 March 2021
and is further compounded in the year to 31 March 2022 and to date
by increases in the cost of living that are likely to impact a
significant proportion of the group's customer base.
Cash collection during the year has been stronger than
previously anticipated, and is higher than the current year
collection rate in the prior year, although the economic situation
remains uncertain. This is particularly the case given increases in
the cost of living that may further impact the ability of some
customers to pay. A range of collection scenarios have been used to
inform the bad debt charge applied. These take account of current
year cash collection rates as well as collection of prior year and
legacy debt and consider experience before the onset of the
Covid-19 pandemic, periods of lockdown, and periods of recovery, as
well as current levels of economic uncertainty. This supports a bad
debt charge of 1.8 per cent of household revenue at the reporting
date, which compares with a charge equivalent to 2.2 per cent of
household revenue recognised for the year ended 31 March 2021.
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 which align with its three strategic
themes to deliver the best service to customers, at the lowest
sustainable cost, in a responsible manner. 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
2022 2021
GBPm GBPm
Wholesale water charges 776.5 751.0
Wholesale wastewater
charges 946.3 941.5
Household retail
charges 68.9 64.1
Other 71.0 51.4
--------
1,862.7 1,808.0
-------- --------
In accordance with IFRS 15, revenue has been disaggregated based
on what is recognised in relation to the core services of supplying
clean water and the removal and treatment of wastewater. Each of
these services is deemed to give rise to a distinct performance
obligation under the contract with customers, though following the
same pattern of transfer to the customer who simultaneously
receives and consumes both of these services over time.
Wholesale water and wastewater charges relate to services
provided to household customers and non-household retailers.
Household retail charges relate solely to the margin applied to the
wholesale amounts charged to residential customers. These wholesale
charges and the applicable retail margin are combined in arriving
at the total revenues relating to water and wastewater services
provided to household customers. No margin is applied to wholesale
water and wastewater services provided to non-household
retailers.
Other revenues comprise a number of smaller non-core income
streams including those relating to energy generation and export,
property sales, and those associated with activities, typically
performed opposite property developers, which impact the group's
capital network assets including diversions works to relocate water
and wastewater assets, and activities that facilitate the creation
of an authorised connection through which properties can obtain
water and wastewater services.
4. Staff costs
In order to give a clearer view of the group's total staff
costs, these now include the cost of non-permanent staff who have
worked for the group, whose costs were previously included within
hired and contracted services presented within other operating
costs, which have also been re-presented (see note 5). Accordingly,
staff costs and other operating costs for the year ended 31 March
2021 have been re-presented, which has resulted in an increase in
staff costs and a reduction in the cost of hired and contracted
services of GBP11.6 million compared with what was presented in the
published financial statements for that year.
Staff costs have increased during the year due primarily to an
increase in the average number of staff employed by the group,
including the impact of in-sourcing of certain activities that were
previously carried out by third parties.
Included within staff costs were GBP0.4 million (2021: GBP1.9
million) of restructuring costs.
5. Other operating costs
2022 2021
GBPm GBPm
Power 99.6 83.6
Hired and contracted services 95.4 84.7
Materials 90.8 82.2
Property rates 90.5 89.4
Regulatory fees 28.4 28.0
Insurance 16.9 13.1
Accrued innovation costs 5.9 6.2
Loss on disposal of property, plant and
equipment 3.9 10.7
Cost of properties disposed 3.0 2.6
Other expenses 27.3 19.8
461.7 420.3
------ ------
During the year ended 31 March 2022, the group experienced
inflationary pressures across much of its operating cost base. This
was most notable in relation to power costs, which increased by
GBP16.0 million compared with the prior year, largely due to price
increases. Through its progressive hedging policy the group was
able to lock in the commodity price on the majority of its
consumption for the year ended 31 March 2022 before the most recent
energy price rises, and therefore secured an average rate over the
year of GBP78 per MWh. This compares favourably with the market
rate of over GBP200 per MWh as at the year-end reporting date and
has been fundamental to the group's ability to minimise the impact
of price rises on its cost base.
Incremental costs totalling GBP5.8 million have been incurred
during the year in relation to the implementation of Software as a
Service (SaaS) arrangements, which are increasingly expected to be
recognised within operating costs in accordance with clarifications
on the appropriate accounting treatment issued by the IFRS
Interpretations Committee (IFRIC) during the year. The majority of
SaaS implementation costs in previous years have been accounted for
as intangible asset additions. These prior year amounts have not
been restated to reflect the group's updated approach as they have
not been material.
Research and development expenditure for the year ended 31 March
2022 was GBP1.2 million (2021: GBP1.0 million). In addition, GBP5.9
million (2021: GBP6.2 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
directly 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.
6. Investment income
2022 2021
GBPm GBPm
Interest receivable 5.1 7.5
Net pension interest income (note 12) 14.3 17.5
19.4 25.0
----- -----
7. Finance expense
2022 2021
GBPm GBPm
Interest payable 330.7 181.7
Net fair value gains on debt and derivative
instruments (142.9) (74.5)
187.8 107.2
-------- -------
Inte rest payable is stated net of GBP52.7 million (2021:
GBP30.4 million) borrowing costs capitalised in the cost of
qualifying assets within property, plant and equipment and
intangible assets during the year. Interest payable includes a
GBP227.9 million (2021: GBP52.6 million) non-cash inflation expense
in relation to the group's index-linked debt.
In addition to the GBP192.6 million finance expense, the
allowance for expected credit losses in relation to loans extended
to the group's joint venture, Water Plus, has decreased by GBP0.1
million during the current year (2021: decrease of GBP3.7
million).
Net fair value gains on debt and derivative instruments includes
GBP33.2 million income (2021: GBP21.5 million income) due to net
interest on derivatives and debt under fair value option, and
GBP28.3 million expense (2021: GBP1.3 million expense) due to
non-cash inflation changes on the group's index-linked
derivatives.
Underlying finance expense, which forms part of the group's
alternative performance measures (APMs) is calculated by adjusting
net finance expense and investment income of GBP168.3 million
(2021: GBP78.5 million) reported in the Income Statement to exclude
the GBP138.0 million of fair value gains (2021: GBP54.3 million
fair value gains) on debt and derivative instruments included in
the above table.
8. Tax
During the year ended 31 March 2022 there was a current tax
credit of GBP72.5 million (31 March 2021: GBP0.6 million) and a
deferred tax charge of GBP66.9 million (31 March 2021: GBP1.8
million credit) 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 split of the total tax charge between current and deferred
tax was due to ongoing timing differences in relation to deductions
on capital investment, and unrealised gains and losses on treasury
derivatives. Going forward, we expect the total effective tax rate,
ignoring non-recurring items such as the current year rate change
adjustment, to remain broadly in line with the headline rate.
The tax adjustments taken to equity primarily relate to
remeasurement movements on the group's defined benefit pension
schemes. As in the prior year the rate at which the deferred tax
liabilities are measured on the group's defined benefit pension
scheme is 35 per cent, being the rate applicable to refunds from a
trust.
9. Earnings per share
Basic and diluted earnings per share are calculated by dividing
profit after tax by the weighted average number of shares in issue
during the year.
2022 2021
GBPm GBPm
(Loss)/Profit after tax attributable to equity
holders of the company (56.8) 453.4
Weighted average number of shares in issue
in millions
Basic 681.9 681.9
Diluted 683.8 683.5
Earnings per share in pence
Basic (8.3) 66.5
------- ------
Diluted (8.3) 66.3
------- ------
10. Dividends
2022 2021
GBPm GBPm
Dividends relating to the year comprise:
Interim dividend 98.9 98.3
Final dividend 197.8 196.6
296.7 294.9
------ ------
Dividends deducted from shareholders' equity
comprise:
Interim dividend 98.9 98.3
Final dividend 196.6 193.6
295.5 291.9
------ ------
The proposed final dividends for the years ended 31 March 2022
and 31 March 2021 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 2022 and 31 March 2021 respectively.
The final dividend of 29.00 pence per ordinary share (2021:
28.83 pence per ordinary share) is expected to be paid on 1 August
2022 to shareholders on the register at the close of business on 24
June 2022. The ex-dividend date for the final dividend is 23 June
2022.
The interim dividend of 14.50 pence per ordinary share (2021:
14.41 pence per ordinary share) was paid on 1 February 2022 to
shareholders on the register at the close of business on 17
December 2021.
11. Joint ventures and other investments
2022 2021
GBPm GBPm
Joint ventures at the start of the year - 46.8
Additions* 18.3 -
Share of losses of joint ventures (1.8) (9.3)
Less: losses allocated to other components
of long-term interest - 14.2
Dividends received from joint ventures - (6.4)
Currency translation differences - (1.6)
Disposal of joint venture - (43.7)
Joint ventures at the end of the year 16.5 -
Other investments 0.1 0.1
------ -------
Interest in joint ventures and other investments 16.6 0.1
------ -------
*Additions of GBP18.3 million comprise a GBP32.5 million
subscription in the equity share capital of Water Plus during the
year, net of GBP14.2 million of the group's share of joint venture
losses recognised in prior years that were allocated against its
long-term interest in Water Plus previously recognised within
amounts owed by related parties (see below).
Following the disposal of the group's overseas investment in AS
Tallinna Vesi (Tallinn Water) in March 2021, 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
GBP1.8 million (2021: GBP8.9 million share of losses), all of which
has been recognised in the income statement.
As reported in the group's annual report and financial
statements for the year ended 31 March 2021, at that date a fully
drawn GBP32.5 million revolving credit facility extended to Water
Plus by United Utilities PLC was considered to form part of the
group's long-term interest in the Water Plus joint venture as there
was a clear expectation that it would be converted into additional
equity share capital. As such, the group's GBP14.2 million share of
losses recognised in the income statement for the year then ended
(comprising the group's share of Water Plus losses for the year of
GBP8.9 million and GBP5.3 million of the group's previously
unrecognised share of losses related to prior years) was allocated
against this fully drawn facility, resulting in a net reported
balance of GBP18.3 million at 31 March 2021, which was included in
amounts owed by related parties. The conversion of this facility to
equity share capital was executed on 23 April 2021 and therefore
the brought forward balance of GBP18.3 million has been included as
an addition to the group's joint ventures balance during the
year.
Details of transactions between the group and its joint ventures
are disclosed in note 19.
12. Retirement benefit surplus
The main financial assumptions used by the company's actuary to
calculate the defined benefit surplus of the United Utilities
Pension Scheme (UUPS) and the United Utilities PLC Group of the
Electricity Supply Pension Scheme (ESPS) were as follows:
2022 2021
%pa %pa
Discount rate 2.80 2.05
Pension increases 3.75 3.35
Pensionable salary growth (pre-2018
service):
ESPS 3.75 3.35
UUPS 3.75 3.35
Pensionable salary growth (post-2018
service):
ESPS 3.75 3.35
UUPS 3.20 2.75
Price inflation - RPI 3.75 3.35
Price inflation - CPI (1) 3.20 2.75
Note:
(1) The CPI price inflation assumption represents a single
weighted average rate derived from an assumption of 2.85 per cent
pre-2030 and 3.65 per cent
post-2030 (31 March 2021: 2.45 per cent pre-2030 and 3.25 per
cent post-2030).
The discount rate is consistent with a high quality corporate
bond rate, with 2.80 per cent being equivalent to gilts plus 110
basis points (2021: 2.05 per cent being equivalent to gilts plus 75
basis points).
In September 2019, the Chancellor of the Exchequer highlighted
the UK Statistics Authority's proposals to change RPI to align with
CPIH (Consumer Prices Index, including housing costs). Plans to
reform RPI and bring it in line with CPIH from 2030 were confirmed
on 25 November 2020, though this is subject to judicial review.
Broadly CPIH increases are expected to average around 1 per cent
per annum below RPI in the long term (about the same as CPI), so
this change could have a significant impact on many pension
schemes. In arriving at the company's best estimate for RPI, an
inflation risk premium of 0.2 per cent (2021: 0.2 per cent) has
been deducted from the breakeven inflation rate for the year ended
31 March 2022. The deduction of this 0.2 per cent inflation risk
premium has resulted in a reduction in the fair value of defined
benefit obligations of around GBP90 million, and therefore an
increase in the net retirement benefit surplus of around GBP90
million, compared with no inflation risk premium being deducted.
There is no allowance for any change in the inflation risk premium
post 2030 as a result of RPI reform.
The assumption for CPI inflation also includes a 0.2 per cent
inflation risk premium (2021: 0.2 per cent) and is set by deducting
a 'wedge' from the RPI inflation assumption to reflect structural
differences. For pre-2030 inflation this wedge has been estimated
at 0.9 per cent per annum, reducing to 0.1 per cent per annum
post-2030 given that RPI and CPI are expected to converge. The
impact of this reduction in the post-2030 wedge as a result of the
confirmation of RPI reforms is a circa GBP8 million increase to the
defined benefit obligation and therefore a decrease in the defined
benefit surplus compared with the wedge remaining at 0.9 per cent
per annum after 2030. A reduction in RPI will result in a reduction
to pension scheme liabilities. However, as the group's pension
schemes are hedged for RPI inflation, this will also result in a
comparable reduction to pension scheme assets.
At 31 March 2022, the base tables used for the mortality in
retirement assumption are the Continuous Mortality Investigation's
(CMI) S3PA (2021: S2PA) year of birth tables, with a scaling factor
of 109 per cent (2021: 106 per cent) and 115 per cent (2021: 109
per cent) for male pensioners and non-pensioners respectively and
110 per cent (2021: 104 per cent) and 111 per cent (2021: 105 per
cent) for female pensioners and non-pensioners respectively,
reflecting the profile of the membership. At 31 March 2022, future
improvements in mortality are based on the extended CMI 2021 (2021:
CMI 2020) projection model, with a long-term annual rate of
improvement of 1.25 per cent (2021: 1.25 per cent). The long-term
annual rate of improvement is a subjective estimate, and an
increase in this rate to 1.50 per cent would have resulted in a
circa GBP30 million increase in the fair value of defined benefit
obligations, and therefore a reduction in the overall retirement
benefit surplus.
To adjust for the impact of circumstances arising as a result of
the COVID 19 pandemic on future mortality trends for the schemes'
membership, an adjustment has been made to reflect an expectation
that the direct and indirect consequences of the pandemic will have
an adverse impact on longevity in the short to medium term.
Accordingly, in arriving at the mortality assumptions for the
current year the group has included a w2021 parameter of 10 per
cent within the CMI2021 projections, which is a subjective estimate
that has an impact of circa GBP30 million decrease in the defined
benefit obligation. All other parameters within the future
improvements model are consistent with prior year.
To adjust for the impact of circumstances arising as a result of
the COVID 19 pandemic on future mortality trends for the schemes'
membership, an adjustment has been made to reflect an expectation
that the direct and indirect consequences of the pandemic will have
an adverse impact on longevity in the short to medium term.
The net pension income before tax in the income statement in
respect of the defined benefit schemes is summarised as
follows:
2022 2021
GBPm GBPm
Current service cost 7.5 4.9
Curtailments/settlements - 0.6
Administrative expenses 2.1 3.0
Pension expense charged to operating profit 9.6 8.5
------- -------
Net pension interest credited to investment
income (note 6) (14.3) (17.5)
------- -------
Net pension income credited before tax (4.7) (9.0)
------- -------
The reconciliation of the opening and closing net pension
surplus included in the statement of financial position is as
follows:
2022 2021
GBPm GBPm
At the start of the year 689.0 754.1
Income recognised in the income statement 4.7 9.0
Contributions 9.5 8.6
Remeasurement gains/(losses) gross
of tax 313.6 (82.7)
At the end of the year 1,016.8 689.0
---------- ----------
The closing surplus at each reporting
date is analysed as follows:
2022 2021
GBPm GBPm
Present value of defined benefit
obligations (3,018.9) (3,295.7)
Fair value of schemes' assets 4,035.7 3,984.7
Net retirement benefit surplus 1,016.8 689.0
---------- ----------
The IAS 19 remeasurement gain of GBP313.6 million (2021: GBP82.7
million loss) has largely resulted from an increase in credit
spreads during the year partially offset by an RPI inflation
assumption increase of 0.4 per cent (2021: 0.55 per cent increase).
The impact of movements in credit spreads is less pronounced on a
scheme funding basis compared with the remeasurement gain
recognised on an IAS 19 accounting basis as the discount rate used
for valuing obligations utilises a fixed credit spread
assumption.
Further details on the approach to managing pension scheme risk
are set out in the audited consolidated financial statements of
United Utilities Group PLC for the year ended 31 March 2022.
The latest finalised funding valuation was carried out as at 31
March 2021, and determined that the schemes were fully funded on a
low-dependency basis without any funding deficit that requires
additional contributions from the company over and above those
related to current service and expenses.
Member data used in arriving at the liability figure included
within the overall IAS 19 surplus has been based on the finalised
actuarial valuation as at 31 March 2021 for both the group's ESPS
and UUPS schemes.
Defined contribution schemes
During the year, the group made GBP26.1 million (2021: GBP23.4
million) of contributions to defined contribution schemes which are
included in staff costs.
13. Borrowings
New borrowings raised during the year ended 31 March 2022, all
of which were issued under the Euro medium-term note programme,
were as follows:
-- On 27 August 2021, the group issued JPY11 billion fixed rate notes due August 2030.
-- On 27 September 2021, the group traded GBP100 million fixed rate notes due October 2028.
On issue, the JPY bond was immediately swapped to GBP73.7
million of principal outstanding.
In April 2022, the group issued a GBP100 million term loan
facility to Export Development Canada due April 2030.
The group renewed four of its undrawn committed borrowing
facilities in the period and extensions to existing facilities were
approved on a further four, with amounts available under these
facilities totalling GBP200 million. Two further facilities were
entered into after the period end with a total amount available of
GBP50 million.
Borrowings at 31 March 2022 include GBP60.9 million in relation
to lease liabilities (2021: GBP60.0 million), of which GBP57.6
million (2021: GBP56.7 million) was classified as non-current and
GBP3.3 million (2021: GBP3.3 million) was classified as
current.
14. Fair values of financial instruments
The fair values of financial instruments are shown in the table
below.
2022 2021
Fair Carrying Fair Carrying
value value value value
GBPm GBPm GBPm GBPm
Financial assets at fair value
through profit or loss
Derivative financial assets - fair
value hedge 156.3 156.3 275.6 275.6
Derivative financial assets - held
for trading 190.1 190.1 142.6 142.6
Derivative financial assets - cash
flow hedge 111.0 111.0 6.5 6.5
Investments 0.1 0.1 0.1 0.1
Financial liabilities at fair value - -
through profit or loss
Derivative financial liabilities
- fair value hedge (87.4) (87.4) (12.6) (12.6)
Derivative financial liabilities
- held for trading (49.8) (49.8) (102.1) (102.1)
Derivative financial liabilities - - - -
- cash flow hedge
Financial liabilities designated
as fair value through profit or
loss (369.9) (369.9) (373.6) (373.6)
Financial instruments for which - -
fair value does not approximate
carrying value
Financial liabilities in fair value
hedge relationships (2,511.5) (2,494.0) (2,913.6) (2,895.5)
Other financial liabilities at amortised
cost (6,283.7) (5,115.9) (6,568.1) (5,182.7)
(8,844.8) (7,659.5) (9,545.2) (8,141.7)
---------- ---------- ---------- ----------
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 GBP2,206.6 million (2021: GBP2,766.0 million) for
financial liabilities in fair value hedge relationships, and
GBP2,383.8 million (2021: GBP2,321.6 million) for other financial
liabilities at amortised cost.
The GBP497.2 million decrease (2021: GBP2,906.2 million
increase) in 'level 1' fair value liability measurements primarily
reflects the maturity of the 5.75% GBP375 million bond in March
2022, which was classified as a 'level 1' fair value measurement in
the prior financial year, and a reduction in the number of
observable quoted bond prices in active markets at 31 March
2022.
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 2022.
The reason for the decrease in the difference between the fair
value and carrying value of the group's borrowings at 31 March 2022
compared with the position at 31 March 2021 is due to an increase
in both the risk free rate and credit spreads.
15. Cash generated from operations
2022 2021
GBPm GBPm
Operating profit 610.0 602.1
Adjustments for:
Depreciation of property, plant and equipment 377.0 379.8
Amortisation of intangible assets 41.2 42.5
Loss on disposal of property, plant and
equipment 3.9 10.7
Amortisation of deferred grants and contributions (15.8) (15.0)
Equity-settled share-based payments charge 4.8 3.6
Changes in working capital:
Increase/(decrease) in inventories 0.1 (1.7)
Decrease in trade and other receivables 13.2 18.1
Increase in trade and other payables 24.7 2.5
Decrease/(increase) in provisions 2.4 (5.3)
Pension contributions paid less pension
expense charged to operating profit 0.1 (0.1)
Cash generated from operations 1,061.6 1,037.2
-------- --------
16. Net debt
2022 2021
GBPm GBPm
At the start of the year 7,305.8 7,227.5
Net capital expenditure 626.7 639.0
Dividends (note 10) 295.5 291.9
Interest 118.3 129.3
Inflation expense on index-linked debt
(note 7) 227.9 52.6
Tax 8.9 48.5
Non-cash movements in lease liabilities 2.4 4.1
Extension of loans to joint ventures 13.0 2.0
Proceeds from disposal of joint ventures
and other investments - (85.3)
Dividends from joint ventures - (6.4)
Other 4.4 5.3
Fair value movements 28.7 34.5
Cash generated from operations (note 15) (1,061.6) (1,037.2)
---------- ----------
At the end of the year 7,570.0 7,305.8
---------- ----------
Fair value movements includes the indexation expense relating to
the group's inflation swap portfolio of GBP29.9 million (2021: a
credit of GBP0.7 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 GBP7,534.3 million as at 31 March 2022
(2021: GBP7,268.5 million). Notional net debt is calculated as the
principal amount of debt to be repaid, net of cash and short-term
deposits, taking: the face value issued of any nominal sterling
debt; the inflation accreted principal of the group's index-linked
debt; and the sterling principal amount of the cross-currency swaps
relating to the group's foreign currency debt.
17. Other reserves
Year ended 31 March 2022
Cumulative Capital Merger Cost Cash Total
exchange redemption reserve of hedging flow
reserve reserve reserve hedge
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2021 - 1,033.3 (703.6) 0.4 6.2 336.3
Changes in fair value
recognised in other comprehensive
income - - - - 108 108
Amounts reclassified from
other comprehensive income
to profit and loss - - - - (1.3) (1.3)
Tax on items recorded
within other comprehensive
income - - - - (26.8) (26.8)
At 31 March 2022 - 1,033.3 (703.6) 0.4 86.1 416.2
------------------------------------ ------------ ------------ --------- ------------ --------- -------
Year ended 31 March 2021
Cumulative Capital Merger Cost Cash Total
exchange redemption reserve of hedging flow
reserve reserve reserve hedge
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2020 (2.4) 1,033.3 (703.6) 10.7 (1.3) 336.7
Changes in fair value
recognised in other comprehensive
income - - - (12.7) 9.3 (3.4)
Tax on items recorded
within other comprehensive
income - - - 2.4 (1.8) 0.6
Foreign exchange adjustments (1.6) - - - - (1.6)
Foreign exchange adjustments
reclassified to profit
on disposal of joint ventures 4.0 - - - - 4.0
At 31 March 2021 - 1,033.3 (703.6) 0.4 6.2 336.3
------------------------------------ ----------- ------------ --------- ------------ --------- ------
The capital redemption reserve arose as a result of a return of
capital to shareholders following the reverse acquisition of United
Utilities PLC by United Utilities Group PLC in the year ended 31
March 2009. The merger reserve arose in the same year on
consolidation and represents the capital adjustment to reserves
required to effect the reverse acquisition.
The group recognises the cost of hedging reserve as a separate
component of equity. This reserve reflects accumulated fair value
movements on cross-currency swaps resulting from changes in the
foreign currency basis spread, which represents a liquidity charge
inherent in foreign exchange contracts for exchanging currencies
and is excluded from the designation of cross-currency swaps as
hedging instruments.
The group designates a number of swaps hedging non-financial
risks in cash flow hedge relationships in order to give a more
representative view of operating costs. Fair value movements
relating to the effective part of these swaps are recognised in
other comprehensive income and accumulated in the cash flow hedging
reserve.
18. Commitments and contingent liabilities
At 31 March 2022, there were commitments for future capital
expenditure contracted but not provided for of GBP292.8 million
(2021: GBP336.7 million).
Since 2016, the group has received indications from a number of
property search companies (PSCs) that they intend to claim
compensation for amounts paid in respect of CON29DW water and
drainage search reports, which they allege should have been
provided to them either free of charge or for a nominal fee in
accordance with the Environmental Information Regulations. In April
2020, a group of over 100 PSCs, comprising companies within the
groups that had previously issued notice of intended claims, served
proceedings on all of the water and sewerage undertakers in England
and Wales, including United Utilities Water Limited, for an
unspecified amount of compensation. This is an industry-wide issue,
and while the litigation has progressed during the year it remains
in its early stages. The litigation's likely direction and the
quantum of any compensation being claimed is uncertain at this
stage; however, based on the information currently available, the
likelihood of the claim's success is considered to be low, and any
potential outflow is not expected to be material.
The group has credit support guarantees as well as general
performance commitments and potential liabilities under contract
that may give rise to financial outflow. The group has determined
that the possibility of any outflow arising in respect of these
potential liabilities is remote and, as such, there are no
contingent liabilities to be disclosed in this regard (2021:
none).
19. Related party transactions
The related party transactions with the group's joint ventures
during the period and amounts outstanding at the period end date
were as follows:
2022 2021
GBPm GBPm
Sales of services 363.1 362.9
Charitable contributions advanced 0.1 -
to related parties
Purchases of goods and services - -
Costs recharged at nil margin under - -
transitional service agreements
Interest income and fees recognised
on loans to related parties 2.8 3.7
Amounts owed by related parties 116.4 113.8
Amounts owed to related parties - 2.4
Sales of services to related parties during the year 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
prior year relate to amounts paid to Rivington Heritage Trust, a
charitable company limited by guarantee for which United Utilities
Water Limited is one of three guarantors.
At 31 March 2022, amounts owed by joint ventures, as recorded
within trade and other receivables in the statement of financial
position, were GBP116.4 million (March 2021: GBP113.8 million),
comprising GBP28.5 million (March 2021: GBP27.1 million) of trade
balances, which are unsecured and will be settled in accordance
with normal credit terms, and GBP80.4 million (March 2021: GBP86.7
million) relating to loans. GBP6.1 million owed by Water Plus
relating to the repayment of amounts surrendered as consortium
relief tax losses is also included within the amounts owed by joint
ventures as at 31 March 2022.
Included within these loans receivable were the following
amounts owed by Water Plus:
-- GBP79.4 million (2021: GBP66.3 million) outstanding on a
GBP100.0 million revolving credit facility provided by United
Utilities PLC, with a maturity date of December 2023, bearing a
floating rate interest rate of the Bank of England base rate plus a
credit margin. This balance comprises GBP80.5 million outstanding,
net of a GBP1.1 million allowance for expected credit losses (2021:
GBP67.5 million net of a GBP1.2 million allowance for expected
credit losses); and
-- GBP1.0 million (2021: GBP0.7 million) receivable being the
GBP10.6 million (2021: GBP10.3 million) fair value of amounts owed
in relation to a GBP12.5 million unsecured loan note held by United
Utilities PLC, with a maturity date of 28 March 2027, net of a
GBP0.1 million (2021: GBP0.1 million) allowance for expected credit
losses and GBP9.5 million of the group's share of joint venture
losses relating to historic periods as the loan note is deemed to
be part of the group's long-term interest in Water Plus. This is a
zero coupon shareholder loan with a total amount outstanding at 31
March 2022 and 31 March 2021 of GBP12.5 million, comprising GBP10.6
million (2021: GBP10.3million) receivable measured at fair value,
and GBP1.9 million (2021: GBP2.2 million) recorded as an equity
contribution to Water Plus recognised within interests in joint
ventures.
In the prior year, amounts owed by Water Plus also included
GBP18.3 million outstanding on a GBP32.5 million revolving credit
facility provided by United Utilities PLC, comprising GBP32.5
million outstanding net of the group's GBP14.2 million share of
Water Plus losses allocated against this amount as at 31 March
2021. At that date, the facility formed part of the group's
long-term interest in the Water Plus joint venture given that there
was a clear expectation that this revolving credit facility would
be replaced with additional share capital, with this transaction
subsequently executed in April 2021. Accordingly, this GBP18.3
million balance ceased to be treated as a related party receivable
and was recognised as an addition to the group's joint ventures
balance during the year ended 31 March 2022 (see note 11).
A further GBP1.4 million (2021: GBP1.4 million) of non-current
receivables was owed by other related parties at 31 March 2022.
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 GBP54.1
million, of which GBP32.1 million related to guarantees to United
Utilities Water Limited.
At 31 March 2022, amounts owed to related parties were nil
(March 2021: GBP2.4 million). The amount outstanding at 31 March
2021 included GBP1.1 million due to Water Plus for the surrender of
consortium relief tax losses, and a small amount of trade balances
settled in accordance with normal credit terms. These amounts were
paid during the current year bringing this balance to a nil
position.
20. Events after the reporting period
In March 2022, the process to market the group's renewable
energy business, United Utilities Renewable Energy Limited (UURE),
for sale commenced having been approved by the group's board of
directors earlier in the year. As at the 31 March 2022 reporting
date, the criteria for presenting the assets and liabilities of the
UURE disposal group as held for sale in accordance with IFRS 5
'Non-current Assets Held for Sale and Discontinued Operations' had
not yet been met as the active programme to locate a buyer and
complete the planned sale was only subsequently initiated in May
2022. The assets that are subject to the sales process primarily
comprise property, plant and equipment with a carrying value of
GBP64.6 million in the group's consolidated statement of financial
position as at 31 March 2022.
In addition to this, after the reporting period the group raised
new borrowings and entered into new undrawn committed borrowing
facilities as described in note 13.
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 2022. 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
Steve Mogford
Phil Aspin
Mark Clare
Louise Beardmore
Liam Butterworth
Stephen Carter
Kath Cates
Alison Goligher
Paulette Rowe
Doug Webb
This responsibility statement was approved by the board and
signed on its behalf by:
Steve Mogford Phil Aspin
25 May 2022 25 May 2022
Chief Executive Officer Chief Financial Officer
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END
FR SEEFWIEESEFI
(END) Dow Jones Newswires
May 26, 2022 02:00 ET (06:00 GMT)
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