TIDMUU.
RNS Number : 6132T
United Utilities Group PLC
16 November 2023
2023/24 Half Year Results Statement
16 November 2023 : United Utilities today announces half year
results for the six-month period to 30 September 2023.
Louise Beardmore, Chief Executive Officer, said:
"We are announcing a robust set of underlying financial and
operational results today, in what has been a busy six months,
including submission of our ambitious business plan for
2025-30.
We continue to focus on delivering for our customers,
communities and the environment - and creating a stronger, greener
and healthier North West. We are providing affordability support to
over 350,000 customers - more than ever before - and we are on
track to achieve our best ever year on customer outcome delivery
incentives. We are doing more to protect and enhance the North
West's waterways and natural habitats and we're on course to attain
the highest 4-star rating from the Environment Agency for 2023.
Last month, we set out an ambitious GBP13.7 billion plan for
2025-30, a plan that will transform the delivery of services for
customers and the environment in the North West and at the same
time supporting 30,000 jobs, 7,000 of which will be new. Our strong
balance sheet and liquidity puts us in a great position to deliver
it, and we aren't waiting - we have made an early start on
overflows, representing GBP1.2 billion of our proposed programme,
and allowing us to press ahead with work to reduce storm overflow
spills and deliver the step change we all want to see."
Key financials - six months ended 30 September
Reported Underlying(1)
============================ ==========================
GBPm 2023 2022 % change 2023 2022 % change
========================== ====== ========= ========= ====== ======= =========
Revenue 982.0 919.3 +6.8% 982.0 919.3 +6.8%
========================== ====== ========= ========= ====== ======= =========
Operating profit 240.6 258.5 -6.9% 271.1 258.5 +4.9%
========================== ====== ========= ========= ====== ======= =========
Profit/(loss) before tax 160.0 426.3 -62.5% 90.3 (7.9) n/a
========================== ====== ========= ========= ====== ======= =========
Profit/(loss) after tax 116.8 353.0 -66.9% 90.3 (12.2) n/a
========================== ====== ========= ========= ====== ======= =========
EPS (pence) 17.1 51.8 -67.0% 13.2 -1.8 n/a
========================== ====== ========= ========= ====== ======= =========
2023 2022 % change
============================= ======= ========= =========
Interim DPS (pence) 16.59 15.17 +9.4%
============================= ======= ========= =========
Net regulatory capex (GBPm) 371.8 334.5 +11.2%
============================= ======= ========= =========
RCV(2) (GBPm) 14,406 13,458 +7.0%
============================= ======= ========= =========
Net debt (GBPm) 8,541 7,829 +9.1%
============================= ======= ========= =========
RCV gearing(3) (%) 59% 58% +1.7%
============================= ======= ========= =========
Operational highlights
-- Forecasting to double our ODI reward this year, in line with guidance at over GBP50m
-- On track to achieve 4 star status for 2023 in the EA's Environmental Performance Assessment
-- Going further and faster on tackling overflows, following
regulatory approvals to accelerate delivery of infrastructure
investment
-- Progressing well with leakage programme, forecasting to achieve our best ever performance
-- Ranked 1st WaSC(4) and 4th utility company out of 30 in the UK Customer Satisfaction Index(5)
-- Supporting more customers, with over 370,000 households on
Priority Services register and over 350,000 customers supported
through affordability schemes so far this AMP
-- Progressing plans for pioneering carbon-capture facility,
supporting net zero plans and making an important contribution to
the UK's carbon-capture potential
-- High quality PR24 business plan submission for 2025-30, with
strong customer support and ambitious targets to create a stronger,
greener and healthier North West
Financial highlights
-- Underlying operating profit of GBP271m, reported operating profit of GBP241m
-- Underlying EPS of 13.2p, up from -1.8p, reported EPS of 17.1p
-- Low level of gearing at 59% and solid credit ratings providing future financial flexibility
-- Pension scheme buy-in transaction, covering around 2/3rds of
liabilities and representing a significant milestone in our
de-risking journey
-- AMP7 funding in place, liquidity extending into 2026
-- Recommended interim dividend of 16.59p, in line with policy
Reiterate financial framework guidance for current AMP7
regulatory period
-- Continue to target AMP7 net ODI reward of around GBP200m
-- Forecast average real RoRE(6) of 6-8%
-- RCV growth of 4-5% nominal compound annual growth rate
-- Targeting dividend growth in line with CPIH
-- Maintain gearing within target range of 55-65%
Enquiries
Investors and Analysts
Chris Laybutt - Investor Relations and Clean
Energy Strategy Director +44 7769 556 858
Anna Oberg - Investor Relations Manager +44 7435 939 112
Media
Gaynor Kenyon - Corporate Affairs Director +44 7753 622 282
Graeme Wilson - Teneo Communications +44 207 260 2700
Half Year Results presentation webcast
We will be hosting a webcast presentation for investors and
analysts starting at 9.00am on Thursday 16 November 2023, which can
be accessed using the following details:
https://us06web.zoom.us/j/81196837873?pwd=cF5Haal0ajFnYigfwjmMLntbay0gn7.1
Meeting ID: 811 9683 7873, Passcode: 978727
The presentation slides will be available on our website shortly
before the presentation commences at the following link:
https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/
Notes
(1) Underlying measures are defined in the underlying profit
tables.
(2) United Utilities Water Limited's adjusted RCV (adjusted for
actual spend, timing differences and including full expected value
of AMP7 ex-post adjustment mechanisms). Prior year figures have
been re-presented for comparative purposes.
(3) RCV gearing calculated as group net debt including loan
receivable from joint venture/United Utilities Water Limited's
adjusted RCV (adjusted for actual spend, timing differences and
including full expected value of AMP7 ex-post adjustment
mechanisms). Prior period figures have been re-presented for
comparative purposes.
(4) Water and Sewerage Company
(5) UKCSI is an Institute for Customer Service measure
(6) Return on regulated equity
OPERATIONAL REVIEW
Submitting our most ambitious plan
Last month, we submitted a high quality and ambitious business
plan to our regulator, Ofwat, for 2025-30, through which we are
proposing the largest investment in the region's water and
wastewater infrastructure in over 100 years. Highlights from our
United Utilities Water plan include:
-- GBP13.7 billion total expenditure across 2025-30, with 93% of
enhancement spend driven by statutory requirements, resulting in
8.7% nominal RCV growth per annum, equating to over 50% growth
across the five-year period;
-- Improving water and wastewater services, increasing
resilience, protecting and enhancing the environment, and reducing
greenhouse gas emissions;
-- Proposing to double our support package to GBP525 million,
with financial support for one in six customers, reducing the risk
of hardship from the necessary bill increases;
-- Financing the investment in a responsible and sustainable
way, with financial flexibility to finance the plan with average
gearing of 65% over the AMP, based on Ofwat's September 2022 'early
view' WACC assumption, and without assuming new equity;
-- Strong levels of customer support at 74%, following a
regional approach and engaging with 95,000 people across our five
great counties; and
-- Real opportunities for the North West regional economy, with
a chance to drive inward investment and our plan supporting 30,000
jobs.
Supporting customers, employees and communities for a stronger
North West
We recognise that affordability is a hugely important issue for
customers, particularly against a backdrop of rising household
costs and economic uncertainty. We are seeing sustained demand for
financial support from customers and have helped over 350,000
customers with financial support so far during AMP7. We continue to
work with the Department for Work and Pensions (DWP) to identify
hard to reach customers eligible for our support schemes and
proactively apply lower bill tariffs. We continue to develop our
multi-award winning Priority Services offering, which helps
vulnerable customers in our region. We now have over 370,000
customers on our Priority Services register and are on track to
meet our full year target, and have lifted around 100,000 customers
out of water poverty so far this AMP. Our team was rated number one
WaSC, and fourth utility company overall, for customer service in
the latest independent UK Customer Satisfaction Index (UKCSI) .
We have welcomed more than 80 new graduates and apprentices in
our September intake, including our first digital cohort, and this
year we have announced additional graduate opportunities in our
newly formed rainwater management team, supporting our commitments
to river health. We were also recently awarded the Water Industry
Skills Employer of the Year, in recognition of our technical
competence and assessment programmes, key health and safety
practical training, and award-winning internally-delivered
apprenticeship pathways.
The Lake District is a special place in our region, with Lake
Windermere at the heart of the National Park. Over the summer we
opened our first ever shop on the Windermere High Street, welcoming
anyone who wants to drop by. For questions or advice on anything
from overflows to water bills, career opportunities to property
development, we are on hand for the people of our region.
We have been accredited with the Fair Tax Mark for five years in
a row, maintain upper quartile performance across a range of
trusted ESG ratings, including MSCI and Sustainalytics, and we have
once again been categorised as having the highest financial
resilience status in Ofwat's latest Monitoring Financial Resilience
assessment.
Protecting and enhancing the environment for a greener North
West
Our core business is inextricably linked to the natural
environment and we recognise the responsibility and opportunity we
have to improve and enhance the environment. We have completed 67%
of our AMP7 environmental improvement programme, and we are
currently on track to attain the highest 4-star rating in the
Environment Agency's Environmental Performance Assessment (EPA) for
2023.
Our PR24 submission included the UK's biggest storm overflow
spill reduction plan, targeting a 60% reduction in the decade to
2030. W e have made a fast start through our 'Better Rivers'
programme, supported by additional reinvestment of outperformance,
and had made good progress as at the end of the 2023 financial year
with a 39% reduction in reported spills against the 2020 baseline.
As part of the Accelerated Infrastructure Delivery Project earlier
this year, Ofwat gave approval for the company to progress with 154
priority projects during 2023-25. This means we are able to
progress work on around GBP200 million worth of projects during
2023-25.
Despite experiencing a number of storm events and severe
rainfall, we are on track to deliver a reduction in average spills
per overflow again this year. These storms have, however, impacted
our flooding performance. As a result we expect to be in penalty
position on our annual internal sewer flooding performance
commitment.
In June, we experienced a fractured outlet pipe at our Fleetwood
Wastewater Treatment Works. Given the location and difficulty of
the repair, the engineering solution was more complex than usual.
To minimise any impact as best we could, our teams worked night and
day to optimise the network and constructed a 2 kilometre, 5 lane
bypass around the fractured pipe. During this time, flows were
diverted to alternative sites and the Environment Agency issued
precautionary advice in relation to the bathing water along the
Fylde coast. The site is now operating at full capacity while the
permanent repair is ongoing. This has resulted in GBP30 million of
additional operating and infrastructure renewals expenditure in the
period, which has been excluded from underlying results as shown in
the underlying profit measure tables.
A pioneering carbon-capture facility recently received planning
permission to be constructed at our head office in Warrington.
Funded by the UK's Department for Energy Security and Net Zero
through their Direct Air Capture and Greenhouse Gas Removal
innovation programme, we are excited to host this innovative
project, and to play a part in the UK's plans for Net Zero by 2050.
The vision for the site is that nothing will go to waste - once the
facility's carbon-capture capabilities are proven, the heat and
power generated by the process will be redirected to heat United
Utilities' on-site buildings as part of our long-term
sustainability goals.
Providing a great quality and reliable water service for a
healthier North West
Ensuring we provide great quality, wholesome drinking water at
all times is a priority for us, and this is at the heart of our
Water Quality First programme. As part of the initiative, this
summer we completed a rigorous eight-year programme of inspecting
and cleaning every storage reservoir before returning them to full
capacity. Having achieved this milestone, we have implemented an
ongoing cleaning programme, with a rolling schedule to ensure the
water we provide is of the best quality at all times.
In July this year, the Drinking Water Inspectorate published its
Drinking Water 2022 report, in which it commended our efforts in
taking positive action to put water quality first, and we won the
Drinking Water Initiative of the Year in the 2023 Water Industry
Awards. Water Quality First is also having a measurable benefit in
customer contacts as we continue to outperform on this performance
commitment.
Leakage performance has also been strong so far this year, as we
progress at pace with our detailed programme, which is enabling us
to fix more leaks. We are forecasting to achieve our best ever
leakage performance this year, and an ODI reward on this measure.
Water supply levels remain strong as we enter the winter period,
helped by higher levels of rainfall over the summer and our
integrated supply network, which has built flexibility into our
system to balance supply and demand needs.
AMP7 FINANCIAL FRAMEWORK
Our five-year financial framework captures anticipated
performance in the five years to 31 March 2025. This period aligns
with the AMP7 regulatory period. Our financial framework below is
unchanged from 2022/23 full year results.
Investment and regulated asset growth
We expect to deliver a number of capital programmes in AMP7, in
addition to our base totex (total expenditure) programme. These
include Green Recovery, the Accelerated Infrastructure Delivery
Project spend and AMP8 transitional investment. Combined with the
impact of inflation, our regulated assets are expected to grow at a
compound annual growth rate of 4 to 5 per cent across the five
years to March 2025.
Return on regulated equity
The return on regulatory equity (RoRE) metric measures returns
(after tax and interest) earned by reference to notional regulated
equity. Overall returns comprise a base return on equity plus a
contribution from outcome delivery incentives, operating
efficiency, financing and tax efficiency and customer service. We
currently expect to deliver average returns of between 6 and 8 per
cent in AMP7, on a real RPI/CPIH blended basis.
Balance sheet
The board has set a target gearing range for the AMP7 regulatory
period of 55 to 65 per cent net debt to regulated capital value. As
at 30 September 2023 our gearing is in the lower half of this range
at 59 per cent.
Dividend policy
The group maintains a dividend policy to target a growth rate of
CPIH inflation each year through to 2025. The annual increase in
the dividend is based on the CPIH element included within allowed
regulated revenue for the current financial year. This is
calculated as using the CPIH annual rate from the November prior
(i.e. the 2023/24 dividend is equal to the 2022/23 dividend indexed
for the movement in CPIH between November 2021 and November
2022).
OUTLOOK AND GUIDANCE
ODI rewards
We are forecasting to achieve a net customer ODI reward of over
GBP50m in FY23 and targeting a net reward of around GBP200 million
in total over AMP7.
Revenue
Revenue is expected to increase by around GBP150 million in
2023/24, largely reflecting the November 2022 CPIH inflation of 9.4
per cent, partially offset by a GBP20 million net impact of
over/under-recovery during 2022/23 and 2021/22 (under-recovery in
2022/23, for which we have re-baselined in 2023/24, and an
over-recovery in 2021/22).
Underlying operating costs
Operating costs are expected to be around GBP60 million higher
year-on-year. This increase is largely driven by inflation, with
the largest inflationary pressures impacting power, labour, and
chemicals costs. The remaining increase reflects the 2023/24
operating cost impact of additional investments, including our
Better Rivers programme.
Underlying net finance expense
Underlying net finance expense is expected to be at least GBP150
million lower year-on-year, due to the impact of falling inflation.
As at 31 March 2023, we had GBP4.5 billion of index-linked debt
exposure, giving rise to a GBP45m swing in our annual interest
charge for every 1 per cent change in inflation. Our cash interest
in 2022/23 was GBP102 million and we expect this to be slightly
higher in 2023/24.
Underlying tax
Our current tax charge is expected to be nil in 2023/24,
reflecting expected benefits following the spring budget in
relation to "full expensing" and the 50 per cent first year
allowances on longer life assets.
Capital expenditure
Capex in 2023/24 is expected to be in the range of GBP720
million to GBP800 million. In addition to our AMP7 base programme,
this reflects capital expenditure for the year in relation to our
additional investment (including Green Recovery and investment
supporting our Better Rivers programme), and AMP8 acceleration
capital programmes.
FINANCIAL REVIEW
Key financials (GBPm) - six months ended 30 September
Reported Underlying(1)
============================== ==============================
2023 2022 % change 2023 2022 % change
===================================== ======== ========= ========= ======== ========= =========
Revenue 982.0 919.3 +6.8% 982.0 919.3 +6.8%
===================================== ======== ========= ========= ======== ========= =========
Operating expenses (421.9) (361.8) +16.6% (401.3) (361.8) +10.9%
===================================== ======== ========= ========= ======== ========= =========
Infrastructure renewals expenditure (106.1) (92.2) +15.1% (96.2) (92.2) +4.3%
===================================== ======== ========= ========= ======== ========= =========
Depreciation and amortisation (213.4) (206.8) +3.2% (213.4) (206.8) +3.2%
===================================== ======== ========= ========= ======== ========= =========
Operating profit 240.6 258.5 -6.9% 271.1 258.5 +4.9%
===================================== ======== ========= ========= ======== ========= =========
Net finance (expense)/income (79.5) 136.4 n/a (179.7) (266.6) -32.6%
===================================== ======== ========= ========= ======== ========= =========
Share of (losses)/profits of JVs (1.1) 0.2 n/a (1.1) 0.2 n/a
===================================== ======== ========= ========= ======== ========= =========
Profit on disposal of subsidiary - 31.2 n/a - - -
===================================== ======== ========= ========= ======== ========= =========
Profit/(loss) before tax 160.0 426.3 -62.5% 90.3 (7.9) n/a
===================================== ======== ========= ========= ======== ========= =========
Tax charge (43.2) (73.3) -41.1% - (4.3) n/a
===================================== ======== ========= ========= ======== ========= =========
Profit/(loss) after tax 116.8 353.0 -66.9% 90.3 (12.2) n/a
===================================== ======== ========= ========= ======== ========= =========
EPS (pence) 17.1 51.8 -67.0% 13.2 -1.8 n/a
===================================== ======== ========= ========= ======== ========= =========
2023 2022 % change
============================= ======= ======= =========
Interim DPS (pence) 16.59 15.17 +9.4%
============================= ======= ======= =========
Net regulatory capex (GBPm) 371.8 334.5 +11.2%
============================= ======= ======= =========
RCV(2) (GBPm) 14,406 13,458 +7.0%
============================= ======= ======= =========
Net debt (GBPm) 8,541 7,829 +9.1%
============================= ======= ======= =========
RCV gearing(3) (%) 59% 58% +1.7%
============================= ======= ======= =========
(1) Underlying measures are defined in the underlying profit
tables.
(2) United Utilities Water Limited's adjusted RCV (adjusted for
actual spend, timing differences and including full expected value
of AMP7 ex-post adjustment mechanisms). Prior period figures have
been re-presented for comparative purposes.
(3) RCV gearing calculated as group net debt including loan
receivable from joint venture/United Utilities Water Limited's
adjusted RCV (adjusted for actual spend, timing differences and
including full expected value of AMP7 ex-post adjustment
mechanisms). Prior period figures have been re-presented for
comparative purposes.
We have delivered robust underlying financial performance for
the half year. Revenue increased 7 per cent, mainly driven by the
inflation increase allowed as part of our revenue cap. Inflationary
pressures have once again increased our operating costs, however we
continue to work hard to contain the inflation impact on overall
costs within the totex inflation allowance allowed for in our
regulatory model. The combined effect of the higher revenue, partly
offset by inflation increases to costs resulted in underlying
operating profit increasing 5 per cent to GBP271 million. Reported
operating profit was GBP30 million lower at GBP241 million
reflecting an adjusting item in respect of costs associated with a
fractured outlet pipe at our Fleetwood Wastewater Treatment
Works.
Non-cash interest expense on our index-linked debt declined,
resulting in an underlying profit of GBP90 million and an
underlying earnings per share of 13.2 pence. Reported profit after
tax was higher at GBP117 million, with reported earnings per share
of 17.1 pence per share. Adjusted items between underlying and
reported are set out in the underlying profit tables.
Our balance sheet continues to be one of the strongest in the
sector. During the half year we completed a pension scheme buy-in
transaction with Legal & General, covering 2/3rds of scheme
liabilities and representing a significant milestone in our
de-risking journey. We have fully pre-funded our AMP7 investment
requirements, and this, alongside our low level of gearing at 59%
and solid credit ratings provide us with future flexibility as we
approach AMP8.
Revenue
GBPm
Six months to 30 September 2022 919.3
------
Regulatory revenue impact 52.7
------
Other impacts 10.0
------
Six months to 30 September 2023 982.0
------
Revenue was up GBP63 million, at GBP982 million, largely
reflecting the inflation increase allowed as part of our revenue
cap.
In the first half of 2023/24, we had a GBP53 million increase in
the revenue cap due to regulatory adjustments, largely driven by a
9.4 per cent CPIH-linked increase partly offset by 1.4 per cent
real reduction in allowed wholesale revenues as set out in our PR19
Final Determination.
Other revenue impacts largely reflect increases in
consumption.
Operating profit
GBPm
Underlying - Six months to 30 September 2022 258.5
-------
Revenue increase 62.7
-------
Inflationary increases on operating costs (35.7)
-------
Depreciation increase (6.6)
-------
Costs driving ODI performance (4.9)
-------
Other (2.9)
-------
Underlying operating profit -Six months to 30
September 2023 271.1
-------
Adjusted items* (30.5)
-------
Reported - Six months to 30 September 2023 240.6
-------
* Adjusted items are set out in the underlying profit tables
Underlying operating profit at GBP271 million was GBP13 million
higher than the first half of last year, largely reflecting the
increase in revenue, offset by inflationary pressures on our core
costs.
Inflationary pressures continue to impact our operating costs
and resulted in a GBP36 million increase for the first half of the
year. The largest increases continue to be to power, labour and
chemical costs, where we incurred an additional GBP13 million,
GBP10 million and GBP6 million respectively.
As our asset base continues to grow, depreciation charge for the
half year increased by GBP7 million.
The GBP5 million of additional expenditure driving improvements
to ODI performance is primarily in relation to investment in
Dynamic Network Management to drive improvements in management of
our sewer network.
Reported operating profit decreased by GBP18 million on the same
period last year, reflecting the GBP13 million increase in
underlying operating profit offset by GBP30 million of costs
associated with responding to a fractured outlet pipe at our
Fleetwood Wastewater Treatment Works. The scale of the activity
involved in remediating this failure, and the associated cost was
not representative of normal business activity, and as such the
costs were excluded in arriving at underlying operating profit.
Our industry-leading affordability schemes, combined with
effective credit collection practices and utilisation of technology
have meant that current year cash collection has been strong. Our
bad debt position remains stable at 1.8 per cent of statutory
revenue.
Profit/(loss) before tax
GBPm
Underlying - Six months to 30 September 2022 (8.0)
------
Underlying operating profit increase 12.6
------
Underlying net finance expense decrease 87.0
------
Share of JVs losses increase (1.3)
------
Underlying profit before tax - Six months to
30 September 2023 90.3
------
Adjusted items * 69.7
------
Reported - Six months to 30 September 2023 160.0
------
* Adjusted items are set out in the underlying profit
tables.
Underlying profit before tax of GBP90 million compared to a GBP8
million underlying loss before tax in the first half of last year.
The GBP98 million difference reflects the GBP13 million increase in
underlying operating profit and a GBP87 million decrease in
underlying net finance expense, partly offset by a small increase
in the share of losses of joint ventures of GBP1 million (from a
GBP0.2 million share of profits in the prior half year to a GBP1.1
million share of losses in the current half year). Underlying
profit before tax reflects presentational adjustments as outlined
in the underlying profit tables below.
Reported profit before tax decreased by GBP266 million to GBP160
million reflecting an GBP18 million decrease in reported operating
profit and a GBP216 million increase in reported net finance
expense (from a GBP136 million reported net finance income to a
GBP80 million reported net finance expense), a GBP31 million profit
on disposal of our subsidiary United Utilities Renewable Energy
Limited recognised in the previous first half, and a small increase
in the share of losses of joint ventures of GBP1 million, as noted
above.
-- Net finance expense
The underlying net finance expense of GBP180 million was GBP87
million lower than the same period last year mainly due to
significantly lower inflation resulting in a GBP106 million
decrease in the non-cash indexation on our debt and derivative
portfolio, partly offset by a reduction in capitalised interest of
GBP7 million, and rising interest rates resulting in higher net
interest payable of GBP12 million.
Cash interest of GBP60 million was GBP6 million higher than the
first half of last year. Cash interest excludes non-cash items
mainly comprising the indexation on our debt and derivative
portfolio, capitalised interest and net pension interest
income.
Reported net finance expense of GBP80 million was GBP216 million
higher than the first half of last year, reflecting a GBP303
million reduction in net fair value gains on debt and derivatives
(excluding interest on debt and derivatives under fair value
option) from GBP403 million last year to GBP100 million this year,
partly offset by the GBP87 million decrease in underlying net
finance expense.
-- Joint ventures
The group incurred a share of the losses of Water Plus for the
six months ended 30 September 2023 of GBP1.1 million all of which
has been recognised in the income statement. This compares to a
share of the profits of Water Plus of GBP0.2 million for the six
months ended 30 September 2022, with the difference largely as a
result of the impact of higher interest rates.
Profit/(loss) after tax and earnings per share
PAT Earnings
GBPm per share
Pence/share
Underlying - Six months to 30 September
2022 (12.2) (1.8)
------- -------------
Underlying profit before tax increase 98.2
------- -------------
Reduction in underlying tax charge 4.3
------- -------------
Underlying profit after tax - Six months
to 30 September 2023 90.3 13.2
------- -------------
Adjusted items * 26.5
------- -------------
Reported - Six months to 30 September
2023 116.8 17.1
------- -------------
* Adjusted items are set out in the underlying profit
tables.
The underlying profit after tax of GBP90 million was GBP102
million higher than the GBP12 million underlying loss in the first
half of last year, reflecting the GBP98 million increase in
underlying profit before tax and a GBP4 million reduction in
underlying tax charge, resulting in a nil tax charge for the half
year.
Reported profit after tax was higher at GBP117 million and
reported earnings per share at 17.1 pence per share with the
adjusted items between underlying and reported set out in the
underlying profit tables.
-- Tax
We continue to be fully committed to paying our fair share of
tax and acting in an open and transparent manner in relation to our
tax affairs, and are delighted to have been accredited with the
Fair Tax Mark again in 2023 for the fifth year running.
In addition to corporation tax, the group makes further
contributions to the public finances, typically of around GBP230
million per annum, in the form of business rates, employer's
national insurance contributions, environmental taxes, other
regulatory service fees such as water abstraction charges as well
as employment taxes on behalf of our 6,000 strong workforce.
For the current period, no cash tax was paid due to the impact
of the capital allowances first year allowances, announced in the
March 2023 Chancellor's Budget. The key reconciling item to the
headline rate of corporation tax continues to be allowable tax
deductions on capital investment, these being deductions put in
place by successive governments to encourage such investment and
thus reflecting responsible corporate behaviour in relation to
taxation.
The current tax charge was nil in the six months to 30 September
2023, compared with GBP4 million in the previous half year.
For the six months to 30 September 2023, we recognised a
deferred tax charge of GBP43 million, compared with GBP69 million
for the same period last year.
The total effective tax rate, was 27 per cent for the six months
to 30 September 2023, compared with 17 per cent in the previous
half year; the increase being mainly due to the non-taxable profit
on the disposal of United Utilities Renewable Energy Ltd and
capital allowance "super deductions" in the prior year and an
increase in the corporation tax rate to 25 per cent in the current
year.
In the period, there were GBP127 million of tax adjustments
taken to equity, primarily relating to remeasurement movements on
the group's defined benefit pension schemes and on hedge
effectiveness.
Dividend per share
The Board has proposed an interim dividend of 16.59 pence per
ordinary share in respect of the six months ended 30 September 2023
. This is an increase of 9.4 per cent compared with the interim
dividend last year, in line with the group's dividend policy of
targeting a growth rate of CPIH inflation each year through to
2025. The 9.4 per cent increase is based on the CPIH element
included within allowed regulated revenue for the 2023/24 financial
year (i.e. the movement in CPIH between November 2021 and November
2022).
The interim dividend is expected to be paid on 1 February 2024
to shareholders on the register at the close of business on 22
December 2023. The ex-dividend date for the interim dividend is 21
December 2023. The election date for the Dividend Reinvestment Plan
is 11 January 2024.
Cash flow
Net cash generated from operating activities for the six months
to 30 September 2023 was GBP381 million, GBP20 million lower than
GBP401 million in the same period last year, principally as a
result of net tax receipts in the prior half year. The net cash
generated from continuing operating activities supports the
dividends paid of GBP207 million and partially funds some of the
group's net capital expenditure of GBP360 million, with the balance
being funded by net borrowings and cash and cash equivalents.
Pensions
As at 30 September 2023, the group had an IAS 19 net pension
surplus of GBP269 million, compared with a surplus of GBP601
million at 31 March 2023. This GBP332 million decrease principally
reflects the impact of the purchase of bulk annuities as part of a
buy-in transaction completed in July with Legal & General
leading to around a GBP220 million reduction in the surplus. The
remaining reduction relates to an increase in the value of the
schemes' liabilities due to actual inflation being higher than
assumed at 31 March 2023. Further detail on pensions is provided in
note 10 ('Retirement benefit surplus') of these condensed
consolidated financial statements.
Financing
Net debt GBPm
At 31 March 2023 8,200.8
--------
Cash generated from operations (440.7)
--------
Net capital expenditure 359.0
--------
Dividends 206.9
--------
Indexation 160.0
--------
Interest 59.8
--------
Fair value movements 8.4
--------
Exchange rate movements on bonds and term borrowings (16.6)
--------
Other 3.0
--------
At 30 September 2023 8,540.6
--------
Net debt at 30 September 2023 was GBP8,541 million, compared
with GBP8,201 million at 31 March 2023. This comprises gross
borrowings with a carrying value of GBP9,149 million, net
derivative liabilities hedging specific debt instruments of GBP112
million and total indexation on inflation swaps of GBP108 million
and is net of cash and bank deposits of GBP829 million.
Gearing, measured as group net debt including a GBP74 million
loan receivable from joint venture divided by UUW's adjusted RCV
(adjusted for actual spend, timing differences and including full
expected value of AMP7 ex-post adjustment mechanisms) of GBP14.4
billion, was 59 per cent at 30 September 2023, slightly higher than
the 58 per cent at 31 March 2023, and remains within our target
range of 55 to 65 per cent.
-- Cost of debt
As at 30 September 2023, the group had approximately GBP3.5
billion of RPI-linked instruments and GBP0.5 billion of CPI or
CPIH-linked instruments held as debt. Including swaps, the group
has RPI-linked debt exposure of GBP3.4 billion at an average real
rate of 1.4 per cent, and GBP1.3 billion of CPI or CPIH-linked debt
exposure at an average real rate of -0.6 per cent.
A significantly lower RPI inflation charge compared with the
same period last year contributed to the group's average effective
interest rate of 6.0 per cent being lower than the rate of 9.0 per
cent last half year. More information on this can be found in the
underlying profit tables below.
The group has fixed the interest rates on its non index-linked
debt in line with its 10-year reducing balance basis at a net
effective nominal interest rate of 2.6 to 2.8 per cent for the
remainder of the AMP7 regulatory period.
-- Credit ratings
UUW's senior unsecured debt obligations are rated A3 with
Moody's Investors Service (Moody's), A- with Fitch Ratings (Fitch)
and BBB+ with Standard & Poor's Ratings Services (S&P) and
all on stable outlook. United Utilities PLC's senior unsecured debt
obligations are rated Baa1 with Moody's, A- with Fitch and BBB-
with S&P, all on stable outlook.
-- Debt financing
The group has access to the international debt capital markets
through its GBP10 billion medium-term note (MTN) programme. The
group has fully pre-funded its AMP7 investment requirements, and
has begun funding its AMP8 (2025-30) investment programme.
In the half year to September 2023, we raised GBP750 million of
term funding. A 15.5 year GBP300 million sustainable public bond in
April, a 9 year GBP100 million bilateral loan with a relationship
bank in April, and a 13 year GBP350 million sustainable public bond
in June. We renewed GBP100 million of relationship bank revolving
credit facilities with an initial 5-year term.
-- Interest rate management
Long-term sterling inflation index-linked debt provides a
natural hedge to assets and earnings under the regulatory model. At
30 September 2023, approximately 40 per cent of the group's net
debt was in RPI-linked form, representing around 24 per cent of
UUW's regulatory capital value, with an average real interest rate
of 1.4 per cent. A further 15 per cent of the group's net debt was
in CPI or CPIH-linked form, representing around 9 per cent of UUW's
RCV, with an average real rate of -0.6 per cent. The long-term
nature of this funding also provides a good match to the company's
long-life infrastructure assets and is a key contributor to the
group's average term debt maturity profile, which is around 17
years.
Our inflation hedging policy is to target around 50 per cent of
net debt to be maintained in index-linked form. This reflects a
balanced assessment across a range of factors.
Where nominal debt is raised in a currency other than sterling
and/or with a fixed interest rate, the debt is generally swapped to
create a floating rate sterling liability for the term of the debt.
To manage exposure to medium-term interest rates, the group fixes
underlying interest costs on nominal debt out to ten years on a
reducing balance basis.
-- Liquidity
Short-term liquidity requirements are met from the group's
normal operating cash flow and its short-term bank deposits and
supported by committed but undrawn credit facilities. Our MTN
programme provides further support.
At 30 September 2023, we had liquidity out into 2026, comprising
cash and bank deposits, plus committed undrawn revolving credit
facilities. This gives us flexibility in terms of when and how
further debt finance is raised to help refinance maturing debt and
support the delivery of our ongoing capital investment
programme.
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 can assist in providing a representative view of
business performance, and may not be directly comparable with
similarly titles measures presented by other companies. The group
determines adjusted items in the calculation of its underlying
measures against a framework which considers significance by
reference to profit before tax, in addition to other qualitative
factors such as whether the item is deemed to be within the normal
course of business, its assessed frequency of reoccurrence and its
volatility which is either outside the control of management and/or
not representative of current year performance.
In addition, a reconciliation of the group's average effective
interest rate has been presented, together with a prior period
comparison. In arriving at net finance expense used in calculating
the group's effective interest rate, underlying net finance expense
is adjusted to add back net pension interest income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
Adjusted Rationale
item
Adjustments not expected to recur
Fleetwood In June 2023 the group suffered a large-scale outfall
outfall pipe pipe fracture at a major wastewater treatment works
fracture at Fleetwood. The scale of the activity involved in
remediating this failure, and the associated cost (which
was incurred across both operating expenditure and
infrastructure renewals expenditure) was not representative
of normal business activity and therefore the costs
are excluded in arriving at underlying operating profit.
-------------------------------------------------------------
Profit on This relates to the disposal of the group's subsidiary
disposal of United Utilities Renewable Energy Limited, which represents
subsidiary 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 one
on debt and period to the next, and are therefore excluded in arriving
derivative at underlying net finance expense as they are determined
instruments, by macro-economic factors which are outside of the
excluding control of management and relate to instruments that
interest on are purely held for funding and hedging purposes (not
derivatives for trading purposes). Included within fair value movement
and debt under on debt and derivatives is interest on derivatives
fair value and debt under fair value option. In making this adjustment
option 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 above
of adjustments adjusted items to provide a more representative view
to underlying of current year performance.
profit / (loss)
before tax
-------------------------------------------------------------
6 months ended 6 months ended Year ended
30 September 30 September 31 March
Underlying profit 2023 2022 2023
GBPm GBPm GBPm
Operating profit per published results 240.6 258.5 440.8
Fleetwood outfall pipe fracture 30.5 - -
--------------- --------------- -----------
Underlying operating profit 271.1 258.5 440.8
--------------- --------------- -----------
Net finance expense
GBPm GBPm GBPm
Finance (expense)/income (119.9) 117.3 (262.7)
Investment income 40.4 19.1 47.0
Net finance expense per published
results (79.5) 136.4 (215.7)
--------------- --------------- -----------
Adjustments:
Fair value gains on debt and derivative
instruments, excluding interest on
derivatives and debt under fair value
option (100.2) (403.0) (259.4)
Underlying net finance expense (179.7) (266.6) (475.1)
--------------- --------------- -----------
GBPm GBPm GBPm
Share of (losses)/profits of joint
ventures (1.1) 0.2 -
Profit on disposal of business - 31.2 31.2
Adjustments:
Profit on disposal of subsidiary - (31.2) (31.2)
--------------- --------------- -----------
Underlying profit on disposal of - - -
subsidiary
--------------- --------------- -----------
Profit before tax per published
results 160.0 426.3 256.3
Adjustments:
In respect of operating profit 30.5 - -
In respect of net finance expense (100.2) (403.0) (259.4)
In respect of profit on disposal
of subsidiary - (31.2) (31.2)
--------------- --------------- -----------
Underlying profit/(loss) before
tax 90.3 (7.9) (34.3)
--------------- --------------- -----------
Profit after tax per published results 116.8 353.0 204.9
Adjustments:
In respect of profit before tax (69.7) (434.2) (290.6)
Deferred tax adjustment 43.2 69.0 76.6
Tax in respect of adjustments to
underlying profit before tax - - 0.4
Underlying profit/(loss) after tax 90.3 (12.2) (8.7)
--------------- --------------- -----------
Earnings per share
GBPm GBPm GBPm
Profit after tax per published results
(a) 116.8 353.0 204.9
Underlying profit / (loss) after
tax (b) 90.3 (12.2) (8.7)
Weighted average number of shares
in issue, in millions (c) 681.9m 681.9m 681.9m
Earnings per share per published
results, in pence (a/c) 17.1 51.8 30.0
Underlying earnings per share, in
pence (b/c) 13.2 (1.8) (1.3)
Dividend per share, in pence 16.59p 15.17p 45.51p
In arriving at net finance expense used in calculating the
group's effective interest rate, management adjusts underlying net
finance expense to add back pension income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
6 months 6 months Year ended
ended ended
Average effective interest rate 30 September 30 September 31 March
2023 2022 2023
------------- ------------- -----------
GBPm GBPm GBPm
------------- ------------- -----------
Underlying net finance expense (179.7) (266.6) (475.1)
------------- ------------- -----------
Adjustments:
------------- ------------- -----------
Net pension interest income (14.2) (14.4) (28.7)
------------- ------------- -----------
Adjustment for capitalised borrowing
costs (55.8) (62.9) (127.5)
------------- ------------- -----------
Net finance expense for effective
interest rate (249.7) (343.9) (631.3)
------------- ------------- -----------
Average notional net debt(1) (8,351) (7,679) (7,849)
------------- ------------- -----------
Average effective interest rate 6.0% 9.0% 8.0%
------------- ------------- -----------
Effective interest rate on index-linked
debt 8.0% 13.7% 12.4%
------------- ------------- -----------
Effective interest rate on other debt 3.4% 2.5% 2.2%
------------- ------------- -----------
(1) Notional net debt is calculated as the principal amount of
debt to be repaid, net of cash and bank deposits, taking: the face
value issued of any nominal sterling debt, the inflation accreted
principal on the group's index linked debt, and the sterling
principal amount of the cross currency swaps relating to the
group's foreign currency debt.
PRINCIPAL RISKS AND UNCERTAINTIES
Our approach to risk management
Our approach to risk management, including how we identify and
assess risk, the oversight and governance process, and focus on
continual improvement remains unchanged from that detailed in our
Annual Report for the year ended 31 March 2023.
Risk profile
The business risk profile is based on the value chain of the
company, with the ten inherent risk areas (primary and supportive)
where value can be gained, preserved or lost relative to the
performance, future prospects or reputation of the company.
Underpinning these inherent risk areas, the profile consists of
approximately 100 event-based risks, each of which is allocated
based on the context of the event, enabling the company to consider
interdependency and correlation of common themes and control
effectiveness. Although the profile remains relatively static in
terms of its headline inherent risk factors, risk assessment
remains dynamic by reflecting new and emerging circumstances, as
outlined below:
The sector continues to be under significant scrutiny, linked
largely to issues arising from political and public concern over
water quality and storm overflows, and the significant
environmental investment needs for the next AMP and beyond. Aligned
with these concerns, changes to legislation and the interpretation
thereof leads to uncertainty over existing business models notably
in bioresources.
Our risk assessment process considers both financial and
reputational implications of the changing business environment and
the increased uncertainty that this brings over both the short and
long term. The half year review of the risk profile highlighted
storm overflows, Bioresources and AMP8 preparedness as three
concurrent themes of uncertainty, with macro-economic and
geopolitical tensions compounding these sector issues. These
factors have been considered in the reassessment of the company's
most significant event-based risks.
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 : 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 were commissioned for technical optioneering. Second line
assurance is provided through a dedicated price review team and a
PR24 programme board. There was a blend of internal audit and
external assurance focused on the quality of the submission.
2. Failure of the Haweswater Aqueduct
Risk exposure : The Haweswater Aqueduct is a key asset with
current low resilience due to deterioration, with failure
potentially resulting in water quality issues and/or supply
interruptions to a large proportion of the United Utilities
customer base.
Control/mitigation : A capital project to replace the tunnel
sections of the aqueduct has already commenced with the completion
in November 2020 of one section. The remaining sections are due to
be replaced as part of Haweswater Aqueduct Resilience Programme
(HARP).
Assurance : Technical and geological advice and modelling have
been sought throughout the programme development, with second line
assurance including engineering technical governance. Independent
assurance is provided by internal audits and external assurance
over the HARP procurement process.
3. Recycling of biosolids to agriculture
Risk exposure : Represents various impact scenarios including
operational failures, increased restrictions or total ban of
recycling biosolids to agriculture. The risk considers the
Environment Agency's interpretation of the Farming Rules for Water
regulations and the increasing threat to recycling of biosolids to
land.
Control/mitigation : Treatment, sampling and testing regimes
ensure that biosolids meets acceptable standards for application.
We work closely with farmers, landowners and contractors to ensure
compliance with regulations such as Farming Rules for Water and our
standard operating procedures are met.
Assurance : Bioresources production planning team undertakes
first line assurance against UK Biosolids Assurance Scheme (BAS)
accreditation, and other codes of practice such as the safe sludge
matrix which certifies our recycling activities. Second and third
line assurance is also undertaken by the assurance and internal
audit teams respectively.
4. Wastewater network failure
Risk exposure : Blockages, operational issues or inadequate
hydraulic capacity relative to population growth, extreme weather,
asset health, and legal/regulatory change, resulting in unpermitted
storm overflow activations, sewer flooding and environmental
damage.
Control/mitigation : Preventative maintenance and inspection
regimes, customer campaigns, sewer rehabilitation programme and
Better Rivers programme.
Assurance : Second line assurance provided by wholesale
assurance, engineering technical governance and flood review panel.
Subject to regular internal audits and external assurance of
regulatory reporting.
5. Failure to treat sludge
Risk exposure : Relates to the impact of changing demographics,
asset health and legislative / regulatory change (such as the
Industrial Emissions Directive (IED) now applying to biological
treatment of sewage sludge) on our ability to sustainably treat
sludge.
Control/mitigation : We look to maximise our treatment capacity
by adopting a Throughput, Reliability, Availability and
Maintainability (T-RAM) approach for our facilities. We also
undertake a digester and tank clean programme, regular testing and
analysis of sludge, and balance capacity and demand through the
bioresources production planning team.
Assurance : Bioresources production planning team undertakes
first line assurance relative to codes of practice such as the safe
sludge matrix which certifies our treatment. Second and third line
assurance is also undertaken by the assurance and internal audit
teams respectively.
6. Cyber
Risk exposure : Data and technology assets compromised due to
malicious or accidental activity, leading to a major impact to key
business processes and operations.
Control/mitigation : Multiple layers of control, including a
secure perimeter, segmented internal network zones, access
controls, constant monitoring and forensic response capability.
Assurance : Security measures reflect multiple sources of threat
intelligence. The security steering group provides second line
assurance, with independent assurance provided by cyclical internal
audits and various technical audits by external specialist.
7. Failure to meet the totex efficiency challenge
Risk exposure : Totex efficiencies designed for AMP7 are
challenged through a combination of factors including supply chain
issues, inflationary pressures, and additional investment to
deliver performance improvements.
Control/mitigation : Strategic Portfolio Board (SPB) planning
and risk-based investment prioritisation and the company business
planning process all contribute to efficient delivery of services
and the capital programme. In addition, there are number of
executive led initiatives to realise efficiency opportunities.
Assurance : First line assurance is undertaken through executive
led meetings, with the strategic portfolio board, and monthly
executive performance review meetings providing second line
governance and assurance. Third line assurance is undertaken
through cyclical internal audits.
8. Water sufficiency event
Risk exposure : Water sufficiency is one of the most sensitive
risks to climate change, with the increased frequency of hot and
dry weather being evidence of changing circumstances. Extended
periods of low rainfall and exceptionally hot weather, with
accompanying increased customer demand, impacts our water resources
which can result in the need to implement water use
restrictions.
Control/mitigation : We produce a Water Resources Management
Plan (WRMP) every five years, which forecasts future demand and
water availability under repeats of historic droughts, adjusted for
climate change. A statutory Drought Plan is also developed every
five years, setting out the actions we will take in a drought
situation.
Assurance : The WRMP and Drought Plan are subject to various
second and third line assurance activities prior to
publication.
9. Credit Rating
Risk exposure : Credit ratings fall 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 monthly executive performance review meetings, with oversight
provided by the treasury committee. The treasury function is
subject to regular internal audits.
10. Failure of Technology Systems
Risk exposure : Represents various impact scenarios as a result
of the pace of technological change across a complex technology
estate, which is increasingly more essential for enabling key
business processes as the company becomes more reliant on connected
technology.
Control/mitigation : Architectural design to assure service
availability, defined criticality of services, continuous
monitoring, and risk assessment together with maintenance and
replacement strategies / roadmaps against target state
architecture.
Assurance : First line assurance is carried out by the
Technology Services team with independent assurance provided by
cyclical internal audits and various technical audits by external
specialists.
A. 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 management activities are
applied and risk reduction interventions are implemented through a
prioritised investment programme.
Assurance : Various sources of second line assurance, including
supervising engineers, dam safety group, assurance team and regular
board reviews. Independent assurance is provided by panel engineers
and internal audit.
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 monthly executive
performance meetings. Subject to cyclical internal audit
reviews.
C. 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 provides second line assurance,
with internal audit undertaking various reviews.
D. 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 Protective Security Authority (NPSA), 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.
E. Process Safety
Risk exposure : United Utilities' activities include processes
which are inherently hazardous including the storage of toxic and
explosive gases across multiple sites, including two which fall
under Control of Major Accident Hazard (COMAH) regulations.
Control/mitigation : Multi layers of protection are in place
including: design standards; maintenance and operating regimes;
permit to work / work authorisation procedures; emergency planning
and training.
Assurance : Second line assurance is undertaken by both the
assurance and health & safety teams, with third line assurance
being undertaken through periodic internal audits. The Health &
Safety Executive also carry out regulatory inspections.
Material litigation
The group robustly defends litigation where appropriate and
seeks to minimise its exposure by establishing provisions and
seeking recovery wherever possible. Litigation of a material nature
is regularly reported to the group board. While our directors
remain of the opinion that the likelihood of a material adverse
impact on the group's financial position is remote, based on the
facts currently known to us and the provisions in our statement of
financial position, the following three cases are worthy of
note:
-- In relation to the Manchester Ship Canal Company matter
reported in previous years, a hearing was held in the Court of
Appeal in 2022 and the main additional points raised by MSCC were
dismissed, although MSCC were granted leave to appeal to the
Supreme Court. The final appeal was heard in early March 2023 and
the Court's decision is awaited. This may provide further clarity
in relation to the rights and remedies afforded to the parties and
others in relation to discharges by water companies into the canal
and other watercourses;
-- As reported in previous years, in February 2009, United
Utilities International Limited (UUIL) was served with notice of a
multiparty 'class action' in Argentina related to the issuance and
payment default of a US$230 million bond by Inversora Eléctrica de
Buenos Aires S.A. (IEBA), an Argentine project company set up to
purchase one of the Argentine electricity distribution networks
which was privatised in 1997. UUIL had a 45 per cent shareholding
in IEBA which it sold in 2005. The claim is for a non-quantified
amount of unspecified damages and purports to be pursued on behalf
of unidentified consumer bondholders in IEBA. Starting in May 2023,
the Argentine Court scheduled various hearings to receive the
testimony of fact witnesses and experts. UUIL has filed its
response and preliminary motions to dismiss the claim, vigorously
resist the proceedings given the robust defences that UUIL has been
advised that it has on procedural and substantive grounds; and
-- A Letter Before Action was received by UUW in February 2023
in respect of potential collective proceedings before the
Competition Appeal Tribunal. We are informed that the Proposed
Class Representative (PCR) is intending to bring a claim on behalf
of a class comprising consumers of UUW (on an opt-out basis) who
have allegedly been overcharged for sewerage services as a result
of an alleged abuse of a dominant position. We have been informed
that the PCR also intends to bring the claim against United
Utilities Group PLC, as the ultimate parent company of UUW.
Proceedings have not yet been issued.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This financial report contains certain forward-looking
statements with respect to the operations, performance and
financial condition of the group. By their nature, these statements
involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those
anticipated. These forward-looking statements include without
limitation any projections or guidance relating to the results of
operations and financial conditions of the group as well as plans
and objectives for future operations, expected future revenues,
financing plans, expected expenditure and any strategic initiatives
relating to the group, as well as discussions of our business plan
and our assumptions, expectations, objectives and resilience with
respect to climate scenarios. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this financial report and the company undertakes no
obligation to update these forward-looking statements. Nothing in
this financial report should be construed as a profit forecast.
Certain regulatory performance data contained in this financial
report is subject to regulatory audit.
This announcement contains inside information, disclosed in
accordance with the Market Abuse Regulation which came into effect
on 3 July 2016 and for UK Regulatory purposes the person
responsible for making the announcement is Simon Gardiner, Company
Secretary.
LEI 2138002IEYQAOC88ZJ59
Classification - Half Year Results
Consolidated income statement
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022
GBPm GBPm GBPm
Revenue (note 3) 982.0 919.3 1,824.4
--------------- --------------- ------------
Staff costs (104.8) (95.2) (192.2)
Other operating costs (note 4) (306.2) (257.6) (556.4)
Allowance for expected credit losses
- trade and other receivables (12.6) (11.2) (22.7)
Other income 1.7 2.2 4.8
Depreciation and amortisation expense (213.4) (206.8) (423.6)
Infrastructure renewals expenditure (106.1) (92.2) (193.5)
--------------- --------------- ------------
Total operating expenses (741.4) (660.8) (1,383.6)
--------------- --------------- ------------
Operating profit 240.6 258.5 440.8
Investment income (note 5) 40.4 19.1 47.0
Interest payable (note 6) (214.8) (262.6) (497.7)
Net fair value gains on debt and derivatives
(note 6) 94.9 379.9 235.0
Investment income and finance expense (79.5) 136.4 (215.7)
--------------- --------------- ------------
Profit on disposal of business - 31.2 31.2
Share of profits / (losses) of joint
ventures (1.1) 0.2 -
Profit before tax 160.0 426.3 256.3
Current tax (charge)/credit - (4.3) 25.2
Deferred tax charge (43.2) (69.0) (76.6)
Tax (note 7) (43.2) (73.3) (51.4)
Profit after tax 116.8 353.0 204.9
--------------- --------------- ------------
All of the results shown above relate to continuing operations.
Earnings per share (note 8)
Basic 17.1p 51.8p 30.0p
Diluted 17.1p 51.6p 30.0p
Dividend per ordinary share (note 9) 16.59p 15.17p 45.51p
Consolidated statement of comprehensive income
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022
GBPm GBPm GBPm
Profit after tax 116.8 353.0 204.9
--------------- --------------- ------------
Other comprehensive income
Items that may be reclassified to profit
or loss in subsequent periods:
Cash flow hedges - effective portion
of fair value movements (25.5) 207.0 (50.6)
Tax on items that may be reclassified
to profit or loss 6.4 (51.8) 12.7
Reclassification of items taken directly
to equity (0.2) (24.0) (36.6)
Tax reclassified to income statement 0.1 4.6 7.0
Other comprehensive income that may
be reclassified to profit or loss (19.2) 135.8 (67.5)
--------------- --------------- ------------
Items that will not be reclassified
to profit or loss in subsequent periods:
Remeasurement losses on defined benefit
pension
schemes (note 10) (347.6) (208.2) (445.3)
Change in credit assumptions for debt
reported at fair value through profit
or loss 6.9 16.4 4.8
Cost of hedging - cross currency basis
spread adjustment (1.4) 0.1 6.3
Tax on items taken directly to equity 120.6 68.5 151.5
--------------- --------------- ------------
Other comprehensive income that will
not be reclassified to profit or loss (221.5) (123.2) (282.7)
--------------- --------------- ------------
Total comprehensive income (123.9) 365.6 (145.3)
--------------- --------------- ------------
Consolidated statement of financial position
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 12,823.9 12,321.2 12,570.7
Intangible assets 127.9 149.0 142.3
Interests in joint ventures and other
investments 15.4 16.8 16.5
Inventories 8.0 0.7 1.2
Trade and other receivables 74.4 73.7 75.7
Retirement benefit surplus (note 10) 268.9 823.5 600.8
Derivative financial instruments 457.4 754.2 428.6
--------------- ---------------
13,775.9 14,139.1 13,835.8
--------------- --------------- -----------
Current assets
Inventories 12.5 24.0 13.1
Trade and other receivables 267.7 231.1 190.5
Current tax asset 98.9 60.7 98.9
Cash and bank deposits (note 11) 828.8 532.2 340.4
Derivative financial instruments 31.0 156.8 48.5
-----------
1,238.9 1,004.8 691.4
--------------- --------------- -----------
Total assets 15,014.8 15,143.9 14,527.2
--------------- --------------- -----------
LIABILITIES
Non-current liabilities
Trade and other payables (913.4) (868.0) (892.4)
Borrowings (note 12) (8,979.2) (7,943.2) (8,259.0)
Deferred tax liabilities (1,964.2) (2,190.4) (2,048.1)
Derivative financial instruments (294.2) (290.8) (243.1)
-----------
(12,151.0) (11,292.4) (11,442.6)
--------------- --------------- -----------
Current liabilities
Trade and other payables (495.2) (395.3) (376.7)
Borrowings (note 12) (169.4) (320.6) (176.4)
Provisions (13.9) (12.8) (13.1)
Derivative financial instruments (11.0) - (9.7)
-----------
(689.5) (728.7) (575.9)
--------------- --------------- -----------
Total liabilities (12,840.5) (12,021.1) (12,018.5)
--------------- --------------- -----------
Total net assets 2,174.3 3,122.8 2,508.7
--------------- --------------- -----------
EQUITY
Share capital 499.8 499.8 499.8
Share premium account 2.9 2.9 2.9
Other reserves (note 16) 333.2 552.1 353.4
Retained earnings 1,338.4 2,068.0 1,652.6
--------------- --------------- -----------
Shareholders' equity 2,174.3 3,122.8 2,508.7
--------------- --------------- -----------
Consolidated statement of changes in equity
Six months ended 30 September 2023
Share (1)
Share premium Other Retained
capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------- --------- --------- ----------- ---------- --------
At 1 April 2023 499.8 2.9 353.4 1,652.6 2,508.7
--------------------------------------------------- --------- --------- ----------- ---------- --------
Profit after tax - - 116.8 116.8
Other comprehensive income/(expense)
Remeasurement losses on defined benefit
pension schemes (note 10) - - - (347.6) (347.6)
Change in credit assumption for debt
reported at fair value
through profit or loss - - - 6.9 6.9
Cash flow hedges - effective portion
of fair value movements - - (25.5) - (25.5)
Cost of hedging - cross-currency basis
spread adjustment - - (1.4) - (1.4)
Tax on items recorded within other comprehensive
income - - 6.8 120.2 127.0
Reclassification of items taken directly
to equity - - (0.2) - (0.2)
Tax reclassified to income statement - - 0.1 - 0.1
Total comprehensive income - - (20.2) (103.7) (123.9)
--------------------------------------------------- --------- --------- ----------- ---------- --------
Dividends (note 9) - - - (206.9) (206.9)
Equity-settled share-based payments - - - 0.2 0.2
Exercise of share options - purchase
of shares - - - (3.8) (3.8)
--------------------------------------------------- --------- --------- ----------- ---------- --------
At 30 September 2023 499.8 2.9 333.2 1,338.4 2,174.3
--------------------------------------------------- --------- --------- ----------- ---------- --------
Six months ended 30 September 2022
Share
Share premium (1) Other Retained
capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------ --------- --------- ------------ ---------- --------
At 1 April 2022 499.8 2.9 416.2 2,038.5 2,957.4
------------------------------------------- --------- --------- ------------ ---------- --------
Profit after tax - - - 353.0 353.0
Other comprehensive income/(expense)
Remeasurement losses on defined benefit
pension schemes (note 10) - - - (208.2) (208.2)
Change in credit assumption for debt
reported at fair value
through profit or loss - - - 16.4 16.4
Cash flow hedges - effective portion
of fair value movements - - 207.0 - 207.0
Cost of hedging - cross-currency basis
spread adjustment - - 0.1 - 0.1
Tax on items recorded within other
comprehensive income - - (51.8) 68.5 16.7
Reclassification of items taken directly
to equity - - (24.0) - (24.0)
Tax reclassified to income statement - - 4.6 - 4.6
Total comprehensive income - - 135.9 229.7 365.6
------------------------------------------- --------- --------- ------------ ---------- --------
Dividends (note 9) - - - (197.7) (197.7)
Equity-settled share-based payments - - - 2.8 2.8
Exercise of share options - purchase
of shares - - - (5.3) (5.3)
------------------------------------------- --------- --------- ------------ ---------- --------
At 30 September 2022 499.8 2.9 552.1 2,068.0 3,122.8
------------------------------------------- --------- --------- ------------ ---------- --------
Year ended 31 March 2023
Share
Share premium (1) Other Retained
capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------ --------- --------- ---------- ---------- --------
At 1 April 2022 499.8 2.9 416.2 2,038.5 2,957.4
------------------------------------------- --------- --------- ---------- ---------- --------
Profit after tax - - - 204.9 204.9
Other comprehensive income/(expense)
Remeasurement losses on defined benefit
pension schemes (note 10) - - - (445.3) (445.3)
Change in credit assumption for debt
reported at fair value through profit
or loss - - - 4.8 4.8
Cash flow hedges - effective portion
of fair value movements - - (50.6) - (50.6)
Cost of hedging - cross-currency basis
spread adjustment - - 6.3 - 6.3
Tax on items recorded within other
comprehensive income - - 11.1 153.1 164.2
Reclassification of items taken directly
to equity - - (36.6) - (36.6)
Tax reclassified to income statement - - 7.0 - 7.0
Total comprehensive income - - (62.8) (82.5) (145.3)
------------------------------------------- --------- --------- ---------- ---------- --------
Dividends (note 9) - - - (301.2) (301.2)
Equity-settled share-based payments - - - 4.6 4.6
Purchase of shares to satisfy exercise
of share options - - - (6.8) (6.8)
------------------------------------------- --------- --------- ---------- ---------- --------
At 31 March 2023 499.8 2.9 353.4 1,652.6 2,508.7
------------------------------------------- --------- --------- ---------- ---------- --------
(1) Other reserves comprise the group's capital redemption
reserve, merger reserve, cost of hedging reserve, and cash flow
hedging reserve. Further detail of movements in these reserves is
included in note 16.
Consolidated statement of cash flows
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022
GBPm GBPm GBPm
Operating activities
Cash generated from operations (note
14) 440.7 439.0 882.6
Interest paid (77.3) (57.7) (118.2)
Interest received and similar income 17.5 4.0 15.8
Tax paid - (2.3) (10.8)
Tax received - 17.6 17.6
-------------- --------------
Net cash generated from operating
activities 380.9 400.6 787.0
-------------- -------------- ------------
Investing activities
Purchase of property, plant and
equipment (356.8) (323.4) (675.9)
Purchase of intangible assets (3.1) (8.3) (18.1)
Grants and contributions received 1.0 1.0 5.1
Loans repaid by joint ventures 1.5 7.8 5.0
Net cash income on disposal of subsidiary - 90.5 90.5
-------------- --------------
Net cash used in investing activities (357.4) (232.4) (593.4)
-------------- --------------
Financing activities
Proceeds from borrowings net of
issuance costs 749.2 396.3 501.1
Repayment of borrowings (70.1) (61.5) (278.1)
Dividends paid to equity holders
of the company (note 9) (206.9) (197.7) (301.2)
Placement of deposits with >90 days
maturity (445.0) - -
Exercise of share options - purchase
of shares (3.8) (5.3) (6.8)
-------------- --------------
Net cash generated from/(used in)
financing activities 23.4 131.8 (85.0)
-------------- -------------- ------------
Effects of exchange rate changes - - (0.8)
-------------- --------------
Net increase in cash and cash equivalents 46.9 300.0 107.8
-------------- --------------
Cash and cash equivalents at beginning
of the period(1) 327.9 220.1 220.1
-------------- -------------- ------------
Cash and cash equivalents at end
of the period (1) 374.8 520.1 327.9
-------------- -------------- ------------
(1) Cash and cash equivalents is stated net of GBP9.0 million
(30 September 2022: GBP20.3 million; 31 March 2023: GBP20.8
million; 1 April 2022: GBP10.5m) of book overdrafts, which are
included in borrowings in the statement of financial position, and
does not include GBP445.0 million of bank deposits maturing in more
than 90 days (30 September 2022, 31 March 2023, 1 April 2022:
GBPnil). See note 11 for further details.
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. Basis of preparation and accounting policies
The condensed unaudited consolidated financial statements for
the six months ended 30 September 2023 have been prepared in
accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and International Accounting Standard
34 'Interim Financial Reporting' (IAS 34) as published by the
International Accounting Standards Board (IASB) and adopted by the
UK.
The condensed unaudited consolidated financial statements do not
include all of the information and disclosures required for full
annual financial statements, do not comprise statutory accounts
within the meaning of section 434 of the Companies Act 2006, and
should be read in conjunction with the group's annual report and
financial statements for the year ended 31 March 2023.
The comparative figures for the year ended 31 March 2023 do not
comprise the group's statutory accounts for that financial year.
Those accounts have been reported upon by the group's auditor and
delivered to the registrar of companies. The report of the auditor
was unqualified, 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 annual financial statements for the year ended 31 March 2023
were prepared in accordance with the requirements of the Companies
Act 2006, and with UK-adopted international accounting standards.
They were 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
used in these condensed consolidated interim financial statements
are the same as those used in the audited financial statement of
United Utilities Group PLC for the year ended 31 March 2023.
Adoption of new and revised standards
There were no new standards, interpretations and amendments,
effective for the six months ended 30 September 2023, that were
relevant to the group or that have a material impact on the group's
financial statements, or that were not early-adopted in previous
years.
IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' establishes new principles for the
recognition, measurement, presentation, and disclosure of insurance
and reinsurance contracts and is mandatory for annual reporting
periods beginning on or after 1 January 2023. The impact for the
Group's financial statements has been assessed as being immaterial,
with existing financial guarantees, as issued by companies within
the Group, outside the scope of the standard on the basis that
these have not previously been accounted for as insurance
contracts.
Going concern
The interim condensed consolidated financial statements for the
six months ended 30 September 2023 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 their approval, 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 bank facilities, as
well as considering the group's capital adequacy, along with a
baseline plan reflecting current best estimates of forecasted
future business performance. Liquidity forecasts used in the
directors' going concern assessment reflect best estimates of the
impact of high levels of inflation and interest (and volatility
thereon) currently being experienced, and how this would be
expected to impact the resources available to the group.
The directors have considered the magnitude of potential impacts
resulting from uncertain future events or changes in conditions,
and the likely effectiveness of mitigating actions that the
directors would consider undertaking.
The baseline position has been subjected to a number of severe
but plausible downside scenarios in order to assess the group's
ability to operate within the amounts and terms (including relevant
covenants) of existing facilities. These scenarios consider: the
potential impacts of increased totex costs, including a significant
one-off totex impact of GBP500 million arising in the assessment
period; lower CPIH inflation; elevated levels of bad debt of GBP15
million per annum; outcome delivery incentive penalties equivalent
to 1.0 per cent of RoRE per annum; and the impact of these factors
materialising on a combined basis. Mitigating actions were
considered to include deferral of capital expenditure; a reduction
in other discretionary totex spend; the close out of derivative
asset balances; and the deferral or suspension of dividend
payments.
Consequently, the directors are satisfied that the group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
interim condensed consolidated 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 interim condensed
consolidated financial statements have therefore been prepared on a
going concern basis.
Update on critical accounting judgements and key sources of
estimation uncertainty
As the impact of inflationary pressures continue to be felt,
particularly interest rate rises in response to persistent high
inflation, there remains a great deal of uncertainty in the current
geopolitical and economic environment. We are mindful that
inflation levels are likely to continue to drive increases in the
cost of living and may have a significant impact on many of the
group's customers. The following are the critical accounting
judgements and key sources of estimation uncertainty considered
most likely to have an impact in the next 12 months, or that have
been significant in recent years and may be impacted by ongoing
developments:
Accounting estimate - retirement benefit obligations:*
The group operates two defined benefit pension schemes which are
independent of the group's finances. Actuarial valuations of the
schemes are carried out as determined by the trustees at intervals
of not more than three years. Profit before tax and net assets are
affected by the actuarial assumptions used. The key assumptions
include: discount rates, pay growth, mortality, and increases to
pensions in payment and deferred pensions. It should be noted that
actual rates may differ from the assumptions used due to changing
market and economic conditions and longer or shorter lives of
participants and, as such, this represents a key source of
estimation uncertainty.
Over the half year to 30 September 2023, the defined benefit
pension surplus recorded on the statement of financial position
reduced significantly, driven largely by the IAS 19 impact of the
purchase of bulk annuity policies as part of a partial buy-in
transaction since the previous year end, with the aim of insuring a
significant portion of the schemes' defined benefit pension
liabilities. The purchase of the policies has resulted in a
material reduction in the value of the group's defined benefit
pension assets under IAS 19. Under IAS 19, the fair value of the
buy-in assets at the date of the transaction was considered to be
equal to the IAS 19 value of the insured liabilities, and
subsequently the fair value of the insurance assets is pegged to
the present value of the liabilities being insured. As the fair
value of the buy-in assets is significantly less than the buy-in
premium paid to the insurer, this results in an asset loss for
accounting purposes, which is recorded in Other Comprehensive
Income (OCI). This is because the transaction constitutes an
investment decision made by the Trustees of the schemes and
therefore has not resulted in a settlement or change in benefits
payable to scheme members under IAS 19.
Details of the assumptions used in calculating the schemes'
assets and liabilities are set out in note 10.
Accounting estimate - non-household credit note
provisioning:**
In accordance with IFRS 15 'Revenue from contracts with
customers', revenue is only recognised where it is deemed probable
of recovery. Any gross debt relating to revenue that had initially
been recognised but that is subsequently not expected to be
recovered through future cash collection must be provided against
through either an allowance for expected credit losses
(non-collection) or credit note provision (incorrectly billed).
For any period, the credit note provision is built up across two
types of loss which can be incurred against non-household revenue:
allowances pending payment, and future post-RF allowances. These
post-RF allowances relate to data changes following the final bill
issued for a period (referred to as 'RF' within the market
mechanisms and received around 16 months after the initial
estimate).
At 30 September 2023 the total credit note provision in respect
of non-household revenue was GBP18.1 million, compared with GBP24.0
million at 31 March 2023 and GBP18.0 million at 30 September 2022.
While the provision has fallen by GBP5.9 million since 31 March
2023, this includes the impact of payments to non-household
retailers of GBP8.0 million during the period in respect of
allowances relating to periods from April 2017 to April 2022. The
size of payments made in respect of these periods and additional
claims received in respect of historic periods has therefore
increased the average daily allowance values that are now reflected
in the credit note provision. This increase partially offsets the
reduction that might have been expected based on payments made in
the year.
Determining the ageing analysis of allowances raised since the
opening of the non-household market is not straightforward, and
work is ongoing between wholesalers and retailers to improve the
quality of market data. Notwithstanding the increases seen in the
average daily allowance values, it is therefore reasonable to
expect that the value of allowances relating to final bills ('RF')
for a period to reduce over time, as data for more recent periods
since the opening of the water retail market should not be subject
to the same legacy issues as earlier periods. Had it been assumed
that future average daily allowances continue at the current daily
average, the credit note provision recorded at 30 September would
have been GBP2.0 million higher than that recorded.
The forecast does not consider the impact of any large one-off
allowances that could be received in the future, but we have no
evidence from the data available to suggest that this would be
probable.
Accounting estimate - allowance for expected credit losses in
respect of household trade receivables:**
We have not experienced a significant deterioration in cash
collection performance, but recoverability of household trade
receivables may be impacted by cost of living pressures as
increased energy prices, higher mortgage rates and other
inflationary pressures could impact some customers' ability to pay.
A range of collection scenarios have been used to inform the
allowance for expected credit losses charged to the income
statement during the period. The cash collection rates in the
current year take account of current levels of economic uncertainty
as well as incorporating impacts of the Covid-19 pandemic to
provide a range of views as to how recoverability of household
receivables may be impacted by different conditions.
Cash collection over the shorter term can be impacted by factors
that are not replicated in future. We have therefore used a three
year average of collection to inform the provision required as this
incorporates collection data that reflects the impact of the
Covid-19 pandemic (which had a significant advese effect on cash
collection) and subsequent recovery on collections over the past
three years, and normalises collection performance for factors that
occur over a longer period of time.
Recognising that there is uncertainty regarding the impact of
cost of living pressures on future collection, we have also
considered how this could impact our future assessment of cash
collection. In making this assessment, we have assumed that future
collection could drop to levels last experienced in 2020/21 when
collection was impacted by the Covid-19 pandemic and dropped to the
lowest levels in recent history. We consider this represents a best
estimate of the possible impact on collections arising from
significant challenges to customer affordability.
The assessment of future collection at 30 September supports a
charge ranging from 1.1 per cent to 1.4 per cent of household
revenue. However, due to the level of uncertainty associated with
current economic conditions, an overlay has been applied to this
assessment resulting in a charge equivalent to around 1.8 per cent
of household revenue, which is consistent with the position at 31
March 2023 and 30 September 2022. Had a charge of 1.4 per cent of
household revenue been used, the charge to the income statement
would have been GBP2.5m lower.
Additional collection data gathered over the next three months
will be used to develop the assumptions made in forecasting the
year end debt position upon which the allowance for expected credit
losses 31 March 2024 will be based.
*Judgements/estimates that could reasonably give rise to a
material adjustment to the carrying value of assets or liabilities
in the short term.
**Other judgements/estimates considered less likely to give rise
to a material adjustment to the carrying value of assets or
liabilities in the short term.
2. Segmental reporting
The board of directors of United Utilities Group PLC is provided
with information on a single operating segment basis for the
purposes of assessing performance and allocating resources. The
group's performance is measured against financial and operational
key performance indicators, underlying operating profit, operating
profit, assets and liabilities, regulatory capital expenditure, and
regulatory capital value gearing at a consolidated level. In light
of this, the group has a single segment for financial reporting
purposes and therefore no further detailed segmental information is
provided in this note.
3. Revenue
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
Wholesale water charges 411.4 381.4 758.1
Wholesale wastewater charges 500.1 459.8 914.7
Household retail charges 46.3 43.4 83.0
Other 24.2 34.7 68.6
------------- -------------
982.0 919.3 1,824.4
------------- ------------- ---------
The GBP63 million increase in revenue for the half year ended 30
September 2023 compared with the prior year is largely attributable
to the allowed inflationary increase. Tariffs have been set for the
current year to recover revenue in line with the revenue cap,
taking into account the latest consumption trends and customer
numbers.
Other revenues comprise a number of smaller non-core income
streams including those relating to energy generation and export,
property sales, and those associated with activities, typically
performed opposite property developers, which impact the group's
capital network assets including diversions works to relocate water
and wastewater assets, and activities that facilitate the creation
of an authorised connection through which properties can obtain
water and wastewater services.
4. Other operating costs
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Power 74.3 54.7 130.8
Hired and contracted services 69.1 48.7 103.7
Materials 67.8 61.7 132.7
Property rates 42.0 45.7 87.1
Regulatory fees 18.9 18.3 36.7
Insurance 10.6 9.6 19.7
Loss on disposal of property,
plant and equipment 4.2 1.9 4.2
Accrued innovation costs 2.9 2.3 6.1
Cost of properties disposed - 1.2 1.4
Other expenses 16.4 13.5 34.0
-------------- -------------- -----------
306.2 257.6 556.4
-------------- -----------
In June 2023 the group experienced a significant outfall pipe
fracture at a major wastewater treatment works at Fleetwood, for
which the remediation and associated activity resulted in costs of
GBP30.5 million being incurred to 30 September 2023. These costs
have been presented as an adjusting item in arriving at the group's
underlying operating profit position as included in its Alternative
Performance Measures.
The GBP30.5 million of costs is split into GBP20.6 million of
operating costs included in the above total, and GBP9.9 million of
infrastructure renewal expenditure. The majority of the GBP20.6
million of operating costs are reflected within hired and
contracted services, including the cost of tankering to reduce the
volume of sewage spills along the Fylde Coast while remediation
activity was undertaken.
In addition to the costs relating to the incident at Fleetwood,
other operating costs have increased compared with the same period
in the prior year predominantly due to inflationary pressures, in
particular on the cost of energy which has increased the group's
power costs, and on chemical prices that have increased materials
costs.
5. Investment income
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Interest receivable 26.2 4.7 18.3
Net pension interest income (note
10) 14.2 14.4 28.7
--------------- ---------------
40.4 19.1 47.0
--------------- --------------- -------------
6. Finance expense
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Interest payable 214.8 262.6 497.7
Net fair value gains on debt and
derivatives (94.9) (379.9) (235.0)
--------------- --------------- -------------
119.9 (117.3) 262.7
--------------- --------------- -------------
Interest payable is stated net of GBP55.8 million (30 September
2022: GBP62.9 million; 31 March 2023: GBP127.5 million) of
borrowing costs capitalised in the cost of qualifying assets within
property, plant and equipment and intangible assets during the
period. Interest payable includes GBP160.0 million (30 September
2022: GBP251.7 million; 31 March 2023: GBP463.5 million) non-cash
inflation expense in relation to the group's index-linked debt.
Net fair value gains on debt and derivative instruments includes
GBP17.7 million income (30 September 2022: GBP14.7 million income;
31 March 2023: GBP24.4 million income) due to net interest on
derivatives and debt held under fair value option, and GBP23.0
million expense (30 September 2022: GBP37.8 million expense; 31
March 2023: GBP56.2 million expense) due to non-cash inflation
uplift on the group's index-linked derivatives.
7. Tax
The total effective tax rate for the six months to 30 September
2023 was 27 per cent, compared with 17 per cent for the same period
in the prior year. This increase is mainly due to the non-taxable
profit on the disposal of United Utilities Renewable Energy Limited
and capital allowances "super deductions" in the prior year, and
the increase in the corporation tax rate to 25 per cent in the
current year. The split of the total tax charge between current and
deferred tax was due to ongoing timing differences in relation to
tax deductions on capital investment and unrealised gains and
losses on treasury derivatives.
The current tax charge of nil for the six months to 30 September
2023 mainly reflects the impact of the capital allowances "first
year allowances", announced in the March 2023 Chancellor's Budget
and affecting our eligible plant and machinery additions.
The current tax asset recognised in the statement of financial
position reflects the amount of tax expected to be recoverable
based on judgements made regarding the application of tax law, and
the current status of negotiations with, and enquiries from, tax
authorities.
The tax adjustments taken to equity primarily relate to
remeasurement movements on the group's defined benefit pension
schemes and on hedging effectiveness.
8. Earnings per share
Basic and diluted earnings per share are calculated by dividing
profit after tax by the weighted average number of shares in issue
during the period.
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Profit after tax attributable to
equity holders of the company -
continuing operations 116.8 353.0 204.9
Weighted average number of shares
in issue in millions
Basic 681.9 681.9 681.9
Diluted 683.2 684.2 684.1
Earnings per share in pence
-------------- -------------- -----------
Basic 17.1 51.8 30.0
-------------- -------------- -----------
Diluted 17.1 51.6 30.0
-------------- -------------- -----------
In accordance with IAS33 'Earnings per share', when potential
ordinary shares increase earnings per share, or decrease loss per
share upon their conversion to ordinary shares, they are considered
antidilutive. Antidilutive potential ordinary shares are therefore
excluded from the calculation of diluted earnings per share.
9. Dividends
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Dividends relating to the period
comprise:
Interim dividend 113.1 103.4 103.4
Final dividend - - 206.9
-------------- ---------------- ------------
113.1 103.4 310.3
-------------- ---------------- ------------
Dividends deducted from shareholders' equity
comprise:
Interim dividend - - 103.4
Final dividend 206.9 197.7 197.8
-------------- ---------------- ------------
206.9 197.7 301.2
-------------- ---------------- ------------
The interim dividends for the six months ended 30 September 2023
and 30 September 2022, and the final dividend for the year ended 31
March 2023, have not been included as liabilities in the respective
condensed consolidated financial statements at 30 September 2023
and 30 September 2022, and the consolidated financial statements at
31 March 2023, because they were approved after the reporting
date.
The interim dividend of 16.59 pence per ordinary share (year
ended 31 March 2023: interim dividend of 15.17 pence per ordinary
share, final dividend of 30.34 pence per ordinary share) is
expected to be paid on 1 February 2024 to shareholders on the
register at the close of business on 22 December 2023. The
ex-dividend date for the interim dividend is 21 December 2023.
10. Retirement benefit surplus
The main financial assumptions used by the group's actuary to
calculate the defined benefit surplus of the United Utilities
Pension Scheme ("UUPS") and the United Utilities PLC Group of the
Electricity Supply Pension Scheme ("ESPS") were as follows:
Six months Six months Year ended
ended ended
30 September 30 September 31 March
2023 2022 2023
% p.a. % p.a. % p.a.
Discount rate 5.45 5.35 4.70
Pension increases 3.40 3.80 3.40
Pensionable salary growth (pre-2018
service):
ESPS 3.40 3.80 3.40
UUPS 3.40 3.80 3.40
Pensionable salary growth (post-2018
service):
ESPS 3.40 3.80 3.40
UUPS 2.85 3.15 2.85
Price inflation - RPI 3.40 3.80 3.40
Price inflation - CPI(1) 2.85 3.15 2.85
(1) The CPI price inflation assumption represents a single
weighted average rate derived from an assumption of 2.90 per cent
pre-2030 and 3.70 per cent post-2030.
As indicated in the annual report for the year ending 31 March
2023, the group and trustees continue to actively engage in
exploring de-risking options in respect of the group's defined
benefit pension schemes, including in relation to longevity risk.
As part of this de-risking activity, a partial buy-in took place on
3 July 2023. This was a GBP1.8 billion transaction between the
trustees of two pension schemes sponsored by United Utilities, UUPS
and ESPS, and an insurer. The transaction provides the schemes with
secure income that covers around two thirds of their liabilities
through the purchase of bulk annuity policies, thus providing a
greater degree of certainty for the group, the trustees, and
members of the schemes. For ESPS, the buy-in was estimated to cover
c.93% of pensioner liabilities, and for UUPS c.80% of deferred and
pensioner members.
The GBP1.8 billion paid for the bulk annuity policies reflects a
Trustee investment. The amount includes a premium equivalent to
cGBP220 million paid in excess of the present value of the
liabilities covered, which reflects a reduction in the schemes'
risk profile. This has resulted in an overall decrease in the
defined benefit pension surplus recorded on the statement of
financial position because scheme assets were used to purchase the
policies. Under IAS 19, the fair value of the buy-in assets at the
date of the transaction was considered to be equal to the IAS 19
value of the insured liabilities, and subsequently the fair value
of the insurance assets is pegged to the present value of the
liabilities being insured. As the fair value of the buy-in assets
is significantly less than the buy-in premium paid to the insurer,
this results in an asset loss for accounting purposes, which is
recorded in Other Comprehensive Income ('OCI'). This is because the
transaction has not resulted in a settlement or a change in
benefits payable to scheme members.
As at 30 September 2023 corporate bond yields have increased
relative to 31 March 2023, leading to a higher IAS 19 discount
rate. As the schemes are more than 100% hedged on an IAS 19 basis,
the assets have fallen more than the Defined Benefit Obligation
('DBO'). Further, credit spreads have narrowed since the year end,
which, all else being equal, increases the DBO by more than the
value of the assets. Inflation has also remained above the
assumption made at the previous year end. This has been partially
offset by updates to the demographic assumptions to reflect shorter
life expectancies under the latest future mortality
projections.
The discount rate is consistent with a high quality corporate
bond rate, with 5.45 per cent being equivalent to gilts + 70bps (30
September 2022: 5.35 per cent being equivalent to gilts + 160bps;
31 March 2023: 4.70 per cent being equivalent to gilts +
95bps).
In line with previous reporting periods, mortality assumptions
continue to be based on the latest available Continuous Mortality
Investigation's (CMI) mortality tables. As at 30 September 2023,
these assumptions are based on the CMI2022 base tables with a 1.25%
p.a. rate of improvement, and factoring in a w2022 weighting of 25%
to take account of the continued increased mortality rates
following the impact of the Covid-19 pandemic in the medium term,
including pressures on the NHS (for example, ambulance waiting
times, longer waiting lists, slower diagnosis etc) and the high flu
rate in 2022. Compared against the year-end mortality assumptions,
the Core CMI2022 model sees a reduction in life expectancies
resulting in a reduction in the DBO of around 1-1.5%. It should be
noted, however, that post buy-in any changes in the life expectancy
assumptions for insured members will be offset by a corresponding
change in the value of the buy-in bulk annuity policies on an the
IAS 19 basis. As such, relative to prior years the statement of
financial position is expected to be less sensitive to mortality
assumptions going forward.
The net pension income before tax in the income statement in
respect of the defined benefit schemes is summarised as
follows:
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Current service cost 1.5 3.0 6.0
Administrative expenses 1.7 1.1 2.5
Pension expense charged to operating
profit 3.2 4.1 8.5
Net pension interest income credited
to investment income (note 5) (14.2) (14.4) (28.7)
-------------- -------------- -----------
Net pension income credited to
the income statement before tax (11.0) (10.3) (20.2)
-------------- -------------- -----------
The reconciliation of the opening and closing net pension
surplus included in the statement of financial position is as
follows:
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
At the start of the period 600.8 1,016.8 1,016.8
Net income recognised in the income
statement 11.0 10.3 20.2
Contributions less unregistered
pension promise payments 4.7 4.6 9.1
Remeasurement losses gross of tax (347.6) (208.2) (445.3)
-------------- -------------- -----------
At the end of the period 268.9 823.5 600.8
-------------- -------------- -----------
The closing surplus at each reporting date is analysed as
follows:
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
Fair value of schemes' assets 2,375.4 2,941.9 2,931.3
Present value of defined benefit
obligations (2,106.5) (2,118.4) (2,330.5)
Net retirement benefit surplus 268.9 823.5 600.8
------------- ------------- ----------
The overall reduction in the net retirement benefit surplus has
been driven mainly by the GBP347.6 million of remeasurement losses,
of which cGBP220 million relates to the IAS 19 impact of the buy-in
transaction. The remaining reduction of the IAS 19 surplus is
attributable to experience losses recognised in the period due to
actual inflation being higher than assumed at 31 March 2023, which
has resulted in an increase in the defined benefit obligation.
Increases in the discount rate assumption are more than offset by
increases in net yields reducing the schemes' assets by a greater
amount than the liabilities.
The latest finalised funding valuation was carried out as at 31
March 2021, and determined that the schemes were fully funded on a
low-dependency basis without any funding deficit that requires
additional contributions from the company over and above those
related to current service and expenses.
The results of the latest funding valuation at 31 March 2021
have been used to inform the group's best estimate assumptions to
use in calculating the defined benefit pension position reported on
an IAS 19 basis at 30 September 2023. The results of the funding
valuation have been adjusted to take account of experience over the
period, changes in market conditions, and differences in the
financial and demographic assumptions. The present value of the
defined benefit obligation, and the related current service costs,
were measured using the projected unit credit method.
Member data used in arriving at the liability figure included
within the overall IAS 19 surplus has been based on the finalised
actuarial valuations as at 31 March 2021 for both UUPS and ESPS. As
part of each actuarial valuation and, more frequently, as required
by the trustees, member data is reassessed for completeness and
accuracy and to ensure it reflects any relevant changes to benefits
entitled by each member.
Defined contribution schemes
During the period the group made GBP16.0 million (30 September
2022: GBP14.4 million; 31 March 2023: GBP29.2 million) of
contributions to defined contribution schemes, which are included
in employee benefits expense.
11. Cash and bank deposits
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Cash at bank and in hand 5.4 5.6 2.6
Bank deposits 823.4 526.6 337.8
-------------- -------------- ------------
Cash and bank deposits - statement
of financial position 828.8 532.2 340.4
Bank deposits with maturity >90 days (445.0) - -
Book overdrafts (included in borrowings
- see note 12) (9.0) (12.1) (12.5)
Cash and cash equivalents - statement
of cash flows 374.8 520.1 327.9
-------------- -------------- ------------
Cash and cash equivalents includes cash at bank and in hand and
demand deposits, as well as short-term highly liquid investments
that are readily convertible into known amounts of cash and have a
maturity of 90 days or less.
During the period the group entered into a number of new bank
deposits that have scheduled maturities before 31 March 2024 but
more than 90 days from the placement date. As these deposits are
not held for the purpose of meeting short-term cash commitments
(i.e. arising within 90 days), they do not meet the definition of
cash equivalents and so have been excluded from the cash and cash
equivalents figure included in the statement of cash flows. They
do, however, represent liquid assets expected to be realised within
the current financial year and so are included in the calculation
of the group's net debt (see note 15).
Book overdrafts, which result from normal cash management
practices, represent the value of cheques issued and payments
initiated that had not cleared as at the reporting date.
The carrying amounts of cash and bank deposits approximate their
fair value.
12. Borrowings
New borrowings raised during the six months ended 30 September
2023 were as follows:
-- On 6 April 2023, the group issued GBP300 million fixed rate notes, due October 2038.
-- On 27 April 2023, the group executed and drew down on a
GBP100 million loan facility, due April 2032.
-- On 19 June 2023, the group issued GBP350 million fixed rate notes, due June 2036.
The group entered into two 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.
Borrowings at 30 September 2023 include GBP58.5 million in
relation to lease liabilities (30 September 2022: GBP59.5 million;
31 March 2023: GBP58.3 million), of which GBP55.4 million (30
September 2022: GBP55.9 million; 31 March 2023: GBP55.2 million)
was classified as non-current and GBP3.1 million (30 September
2022: GBP3.6 million; 31 March 2023: GBP3.1 million) was classified
as current.
13. Fair values of financial instruments
The fair values of financial instruments are shown in the table
below.
30 September 30 September 31 March 2023
2023 2022
Fair Carrying Fair Carrying Fair Carrying
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Financial assets at fair value
through profit or loss
Derivative financial assets
- fair value hedge 44.7 44.7 88.3 88.3 65.4 65.4
Derivative financial assets
- held for trading 411.1 411.1 523.2 523.2 352.0 352.0
Derivative financial assets
- cash flow hedge 32.6 32.6 299.5 299.5 59.7 59.7
Investments - - 0.1 0.1 - -
Financial liabilities at fair
value through profit or loss
Derivative financial liabilities
- fair value hedge (272.3) (272.3) (281.2) (281.2) (215.3) (215.3)
Derivative financial liabilities
- held for trading - - - - (3.4) (3.4)
Derivative financial liabilities
- cash flow hedge (32.9) (32.9) (9.6) (9.6) (34.1) (34.1)
Financial liabilities designated
at fair value through profit
or loss (341.0) (341.0) (384.7) (384.7) (361.0) (361.0)
Financial instruments for
which fair value does not approximate
carrying value
Financial liabilities in fair
value hedge relationships (2,583.5) (2,576.2) (2,193.2) (2,187.7) (2,310.1) (2,332.3)
Other financial liabilities
at amortised cost (5,407.5) (6,231.4) (5,271.0) (5,691.3) (5,400.0) (5,742.1)
---------- ---------- ---------- ---------- ---------- ----------
(8,148.8) (8,965.4) (7,228.6) (7,643.5) (7,846.8) (8,211.1)
---------- ---------- ---------- ---------- ---------- ----------
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 GBP2,281.6 million (30 September 2022: GBP1,775.6
million; 31 March 2023: GBP1,936.1 million) for financial
liabilities in fair value hedge relationships, and GBP1,997.9
million (30 September 2022: GBP529.3 million; 31 March 2023:
GBP2,541.3 million) for other financial liabilities at amortised
cost.
The GBP197.9 million decrease in 'level 1' fair value liability
measurements compared with the position at 31 March 2023 (30
September 2022: GBP2,285.5 million decrease compared with 31 March
2022; 31 March 2023: GBP113.0 million decrease compared with 31
March 2022) primarily reflects the rise in interest rates during
the year.
In the absence of an appropriate quoted price, the group has
applied discounted cash flow valuation models utilising market
available data, which are classified as 'level 2' valuations. More
information in relation to the valuation techniques used by the
group and the IFRS 13 hierarchy can be found in the audited
financial statements of United Utilities Group PLC for the year
ended 31 March 2023.
The principal reason for the increase in the difference between
the fair value and carrying value of the group's borrowings at 30
September 2023 compared with the position at 31 March 2023 is due
to an increase in the risk free rate.
14. Cash generated from operations
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
Operating profit 240.6 258.5 440.8
Adjustments for:
Depreciation of property, plant
and equipment 195.9 186.8 385.5
Amortisation of intangible assets 17.5 20.0 38.1
Loss on disposal of fixed and
intangible assets 4.2 1.9 4.2
Amortisation of deferred grants
and contributions (8.3) (7.0) (16.2)
Equity-settled share-based payments
charge 0.2 2.8 4.6
Pension contributions paid less
pension expense charged to operating
profit (1.5) (0.5) 0.4
Changes in working capital:
(Increase)/decrease in inventories (6.2) (6.5) 3.9
(Increase)/decrease in trade and
other receivables (69.2) (15.8) 27.2
Increase/(decrease) in trade and
other payables 66.7 0.5 (5.5)
Increase/(decrease) in provisions 0.8 (1.7) (0.4)
Cash generated from operations 440.7 439.0 882.6
------------- ------------- ----------
15. Net debt
Movements in net debt during the period were as follows:
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
At the start of the period 8,200.8 7,570.0 7,570.0
Net capital expenditure 359.0 330.7 688.9
Dividends (note 9) 206.9 197.7 301.2
Interest 59.8 53.7 102.4
Inflation expense on index-linked
debt (note 6) 160.0 251.7 463.4
Exchange rate movement on bonds
and term borrowings (16.6) 53.8 20.6
Net tax receipt - (15.4) (6.8)
Repayment of loans by joint ventures (1.5) (7.8) (5.0)
Net proceeds from disposal of
subsidiary - (90.5) (90.5)
Non-cash movements in lease liabilities 0.5 0.8 (1.1)
Other 4.0 2.0 8.0
Fair value movements 8.4 (79.0) 32.3
Cash generated from operations
(note 14) (440.7) (439.0) (882.6)
--------------- --------------- -------------
At the end of the period 8,540.6 7,828.7 8,200.8
--------------- --------------- -------------
Movements in net debt during the period are impacted by net cash
generated from financing activities as disclosed in the
consolidated statement of cash flows.
Net debt at the end of each period comprised:
30 September 30 September 31 March
2023 2022 2023
GBPm GBPm GBPm
Borrowings 9,148.6 8,263.8 8,435.4
Derivative financial instruments
(liabilities) 305.2 290.8 252.8
Derivative financial instruments
(assets) (488.4) (911.0) (477.1)
Cash and bank deposits (see note
11) (828.8) (532.2) (340.4)
Net debt - as agreed to statement
of financial position 8,136.6 7,111.4 7,870.7
Adjustments to exclude the fair
value impact of:
Interest rate derivatives fixing
future nominal interest rates 255.7 294.5 201.3
Inflation derivatives fixing future
real interest rates 148.6 132.8 103.2
Electricity derivatives fixing future
electricity costs (0.3) 290.0 25.6
------------- ------------- ---------
Net debt - as adjusted to align
to the group's definition 8,540.6 7,828.7 8,200.8
------------- ------------- ---------
The group defines net debt as the sum of borrowings and
derivative financial instruments, net of cash and bank deposits,
and adjusted to exclude the impact of derivatives that are not
hedging specific debt instruments. In presenting net debt in this
way, the group aims to give a fair reflection of the net debt
amount the group is contractually obliged to repay, consistent with
the approach taken by credit rating agencies, and the regulatory
economics of the group's arrangements. As the impact of derivatives
that are not hedging specific debt instruments is excluded from the
group's definition of net debt, fair value movements associated
with these derivatives are not included in the above reconciliation
from the opening to closing net debt position.
16. Other reserves
Six months ended 30 September 2023
Cost Cash
Capital of hedging flow
redemption Merger reserve hedge
reserve reserve GBPm reserve Total
GBPm GBPm GBPm GBPm
At 1 April 2023 1,033.3 (703.6) 5.1 18.6 353.4
Changes in fair value recognised
in other comprehensive income - - (1.4) (25.5) (26.9)
Amounts reclassified from
other comprehensive income
to profit or loss - - - (0.2) (0.2)
Tax on hedge effectiveness
taken directly to equity - - - 6.4 6.4
Tax on reclassifications
to consolidated income statement - - 0.4 0.1 0.5
At 30 September 2023 1,033.3 (703.6) 4.1 (0.6) 333.2
------------------------------------ ------------ --------- ------------ --------- -------
Six months ended 30 September 2022
Cost Cash
Capital of hedging flow
redemption Merger reserve hedge
reserve reserve GBPm reserve Total
GBPm GBPm GBPm GBPm
At 1 April 2022 1,033.3 (703.6) 0.4 86.1 416.2
Changes in fair value recognised
in other comprehensive income - - 0.1 207.0 207.1
Amounts reclassified from
other comprehensive income
to profit or loss - - - (24.0) (24.0)
Tax on hedge effectiveness
taken directly to equity - - - (51.8) (51.8)
Tax on reclassifications
to consolidated income statement - - - 4.6 4.6
At 30 September 2022 1,033.3 (703.6) 0.5 221.9 552.1
------------------------------------ ------------ --------- ------------ --------- -------
Year ended 31 March 2023
Cost Cash
Capital of hedging flow
redemption Merger reserve hedge
reserve reserve GBPm reserve Total
GBPm GBPm GBPm GBPm
At 1 April 2022 1,033.3 (703.6) 0.4 86.1 416.2
Changes in fair value recognised
in other comprehensive
income - - 6.3 (50.6) (44.3)
Amounts reclassified from
other comprehensive income
to profit or loss - - - (36.6) (36.6)
Tax on items recorded within
other comprehensive income - - (1.6) 19.7 18.1
At 31 March 2023 1,033.3 (703.6) 5.1 18.6 353.4
----------------------------------- ------------ --------- ------------ --------- -------
The capital redemption reserve arose as a result of a return of
capital to shareholders following the reverse acquisition of United
Utilities PLC by United Utilities Group PLC in the year ended 31
March 2009. The merger reserve arose in the same year on
consolidation and represents the capital adjustment to reserves
required to effect the reverse acquisition.
The group recognises the cost of hedging reserve as a 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.
On adoption of IFRS 9 'Financial instruments', the group
designated a number of swaps hedging non-financial risks in cash
flow hedge relationships in order to give a more representative
view of operating costs. The cash flow hedge reserve reflects fair
value movements relating to the effective part of swaps hedging
non-financial risks that have been designated in cash flow hedge
relationships in order to give a more representative view of
operating costs.
17. Commitments and contingent liabilities
At 30 September 2023 there were commitments for future capital
expenditure contracted but not provided for of GBP377.4 million (30
September 2022: GBP337.5 million; 31 March 2023: GBP338.9
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 the litigation has been progressing during the year. The phase
1 trial for the EIR legal issues is scheduled for November 2023.
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, no contingent
liabilities are disclosed (30 September 2022 and 31 March 2023:
none).
18. Related party transactions
The related party transactions with the group's joint ventures
and other interests during the period, and amounts outstanding at
the period end date, were as follows:
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2023
2023 2022 GBPm
GBPm GBPm
Sales of services 140.1 173.0 335.1
Charitable contributions advanced
to related parties 0.1 0.1 0.2
Purchases of goods and services - - (1.3)
Interest income and fees recognised
on loans to related parties 2.8 1.8 4.7
Amounts owed by related parties 101.3 100.5 102.2
Amounts owed to related parties - - -
Sales of services to related parties mainly represent
non-household wholesale charges to Water Plus Group Limited ('Water
Plus'), a joint venture owned and controlled on a 50/50 basis by
the group and Severn Trent PLC under a joint venture agreement,
that were billed and accrued during the period. These non-household
wholesale charge transactions were on market credit terms, which
are governed by the wholesale charging rules issued by Ofwat.
At 30 September 2023 amounts owed by joint ventures, as recorded
within trade and other receivables in the statement of financial
position, were GBP101.3 million (30 September 2022: GBP100.5
million; 31 March 2023: GBP102.2 million), comprising GBP26.9
million (30 September 2022: GBP27.8 million; 31 March 2023: GBP26.7
million) of trade balances, which are unsecured and will be settled
in accordance with normal credit terms, and GBP74.4 million (30
September 2022: GBP72.7 million; 31 March 2023: GBP75.5 million)
relating to loans.
Included within these loans receivable were the following
amounts owed by Water Plus:
-- GBP72.7 million outstanding on a GBP95.0 million revolving
credit facility provided by United Utilities PLC, with a maturity
date of December 2026, bearing a floating interest rate of the Bank
of England base rate plus a credit margin. This balance comprises
GBP74.0 million outstanding, net of a GBP1.0 million allowance for
expected credit losses; and
-- GBP1.6 million receivable being the GBP11.2 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 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 30
September 2022 of GBP12.5 million, comprising GBP11.2 million
receivable measured at fair value, and GBP1.3 million recorded as
an equity contribution to Water Plus recognised within interests in
joint ventures.
A further GBP0.1 million of non-current receivables was owed by
other related parties at 30 September 2023.
During the period, United Utilities PLC provided guarantees in
support of Water Plus in respect of certain amounts owed to
wholesalers. The aggregate limit of these guarantees was GBP48.9
million, of which GBP26.0 million related to guarantees to United
Utilities Water Limited.
19. Events after the reporting period
There have been no material events subsequent to 30 September
2023 that either require adjustment to the amounts disclosed in the
interim financial statements or disclosure on the basis that they
could materially affect users' understanding of the interim
financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
Responsibilities Statement
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted in
the UK;
- the interim management report includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The directors of United Utilities Group PLC at the date of this
announcement are listed below:
Sir David Higgins
Louise Beardmore
Phil Aspin
Liam Butterworth
Kath Cates
Alison Goligher
Michael Lewis
Paulette Rowe
Doug Webb
This responsibility statement was approved by the board and
signed on its behalf by:
Louise Beardmore Phil Aspin
15 November 2023 15 November 2023
Chief Executive Officer Chief Financial Officer
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR BIBDBRBBDGXU
(END) Dow Jones Newswires
November 16, 2023 02:00 ET (07:00 GMT)
Grafico Azioni United Utilities (LSE:UU.)
Storico
Da Apr 2024 a Mag 2024
Grafico Azioni United Utilities (LSE:UU.)
Storico
Da Mag 2023 a Mag 2024
