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 £13.7 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 £1.2 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 | Underlying1 | |||||
| £m | 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 (£m) | 371.8 | 334.5 | +11.2% |
| RCV2 (£m) | 14,406 | 13,458 | +7.0% |
| Net debt (£m) | 8,541 | 7,829 | +9.1% |
| RCV gearing3 (%) | 59% | 58% | +1.7% |
Operational highlights
· Forecasting to double our ODI reward this year, in line with guidance at over £50m
· 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 WaSC4 and 4th utility company out of 30 in the UK Customer Satisfaction Index5
· 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 £271m, reported operating profit of £241m
· 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 £200m
· Forecast average real RoRE6 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:
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:
· £13.7 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 £525 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. We 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 £200 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 £30 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 £50m in FY23 and targeting a net reward of around £200 million in total over AMP7.
Revenue
Revenue is expected to increase by around £150 million in 2023/24, largely reflecting the November 2022 CPIH inflation of 9.4 per cent, partially offset by a £20 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 £60 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 £150 million lower year-on-year, due to the impact of falling inflation. As at 31 March 2023, we had £4.5 billion of index-linked debt exposure, giving rise to a £45m swing in our annual interest charge for every 1 per cent change in inflation. Our cash interest in 2022/23 was £102 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 £720 million to £800 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 (£m) – six months ended 30 September
| Reported | Underlying1 | |||||
| 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 (£m) | 371.8 | 334.5 | +11.2% |
| RCV2 (£m) | 14,406 | 13,458 | +7.0% |
| Net debt (£m) | 8,541 | 7,829 | +9.1% |
| RCV gearing3 (%) | 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.