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RNS Number : 3400T
United Utilities Group PLC
24 November 2021
United Utilities Group PLC
24 November 2021
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2021
Strong purpose - Performing well for customers and
communities
-- 6% real reduction in typical household bills since the start of AMP7
-- Upper quartile for customer satisfaction; on track for a C-MeX reward
-- Backing the Consumer Council for Water's (CCW) drive to launch a national social tariff
-- More than 200,000 customers supported through extensive affordability schemes
-- Welcoming a record 95 apprentices onto our award winning apprentice scheme for 2021
-- Helping 250 young people through the Kickstart scheme
-- Committed GBP300,000 to eight North West charities to improve local rivers
Protecting the environment - Delivering a low carbon future and
enhancing biodiversity
-- Awarded top 4* environmental performance rating for 2020
-- 100% of electricity from renewable sources
-- First in sector to secure Science Based Targets initiative
(SBTi) approval for carbon emissions targets
-- On track to achieve Net Zero by 2030
-- Working in partnership with the Environment Agency to deliver catchment-wide Systems Thinking
-- Enhancing biodiversity; planting 1 million trees and restoring 1,000 ha of peatland
A digital utility - Delivering our AMP7 plans while generating
value
-- Digital transformation continues at pace, delivering value for all stakeholders
-- Accelerating investment to deliver operational improvements earlier
-- Delivering reductions in sewer flooding incidents through
innovative applications of Systems Thinking
-- On track to deliver cGBP20m net customer ODI rewards in
2021/22 and cGBP150m in total for AMP7
Financial resilience - Robust financial performance and
resilient to risks
-- Underlying1 operating profit of GBP333m up 4%
-- Cash collection remains strong with household bad debt
improving to 1.8% in the first half of the year
-- Strong balance sheet; A3 credit rating with Moody's and fully funded pension schemes
-- Hedging policies mitigating risk and delivering sustainable performance
-- Prices locked-in on 80% of AMP7 capital programme
-- Around 95% hedged to power commodity price rises for 2021/22
-- Interim dividend of 14.50p, in line with AMP7 dividend policy
Key financials
Six months ended
30 September 2021 30 September 2020
------------------ ------------------
Revenue GBP932.3m GBP894.4m
------------------ ------------------
Reported operating profit GBP332.8m GBP318.5m
------------------ ------------------
Underlying operating profit(1) GBP332.8m GBP318.5m
------------------ ------------------
Reported earnings per share
(pence) (31.7)p 23.8p
------------------ ------------------
Underlying earnings per share(1)
(pence) 28.4p 29.2p
------------------ ------------------
Interim dividend per ordinary
share (pence) 14.50p 14.41p
------------------ ------------------
Net regulatory capital spend(2) GBP303.2m GBP276.4m
------------------ ------------------
RCV gearing(3) 62% 63%
------------------ ------------------
(1) Underlying measures are defined in the tables within the
underlying profit section and reflect a change in approach to
alternative performance measures (APMs) implemented during the
financial year ended March 2021 with prior period numbers
re-presented for comparability
(2) Net regulatory capital spend excludes infrastructure
renewals expenditure
(3) Regulatory capital value (RCV) gearing calculated as group
net debt/United Utilities Water Limited's shadow RCV (outturn
prices)
Steve Mogford, Chief Executive Officer, said:
"At a time when many families are struggling with a higher cost
of living, we have reduced typical water bills for households in
our region by 6 per cent in real terms over the last two years.
We're also offering more help than ever before for vulnerable
customers and households that are struggling to pay.
"Climate change and population growth are challenges we must all
confront, and we will continue to invest to make our services more
resilient and strengthen our ability to respond to, and recover
from, extreme weather events. Our GBP2 billion investment programme
will also help our region's economy to grow, generate jobs and
develop skills in our communities.
"We're committed to delivering our six carbon pledges, which
will help us achieve our ambition of net zero by 2030. We have
already delivered our pledge to source 100 per cent of our
electricity from renewable sources. As well as reducing our carbon
footprint, we are committed to protecting the natural environment
and ensuring no net loss of biodiversity.
"We've continued with the great start that we've made to AMP7,
benefitting from the acceleration of our capital programme and
investment in Systems Thinking. Our strong operational performance
delivers efficiency gains and improvements to outcome delivery
incentives, and is enabling us to drive further value for our
shareholders."
Enquiries
For further information on the day, please contact:
+44 (0) 7753 622
Gaynor Kenyon - Corporate Affairs Director 282
+44 (0) 7500 087
Robert Lee - Head of Investor Relations 704
+44 (0) 2073 534
Graeme Wilson - Tulchan Communications 200
Presentation webcast and conference call details
We will be hosting a live virtual presentation at 9.00am on
Wednesday 24 November 2021, which can be accessed via the following
link:
http://www.unitedutilitiestv.live/
The presentation slides will be available on our website shortly
before the presentation commences at the following link:
https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/
Following conclusion of the presentation a recording of the
presentation will be available from our website.
OPERATIONAL PERFORMANCE
Our digital transformation and investment in long-term
sustainable performance are helping us to deliver improvements in
service to customers, and to protect and enhance the environment we
operate in. We have built on the strong start to AMP7 that we
delivered in the first year of the regulatory period and remain on
track to deliver our targets. We continue to deliver our services
in an environmentally sustainable, economically beneficial and
socially responsible manner and believe passionately in leveraging
our investment programme to help keep the North West economy moving
as we emerge from the pandemic.
We continue to help those customers who are struggling most to
pay their bills through our extensive suite of support schemes. The
temporary extension to the social tariff that we secured in the
early stages of the pandemic has now been made permanent, meaning
we have an additional GBP15 million of support available in each of
the remaining years of AMP7 to help customers at risk of falling
into debt. To support these customers longer term, we are backing
the Consumer Council for Water's drive for a national social
tariff; a key development for a region like ours that suffers from
extreme deprivation.
Our key performance indicators (KPIs)
Our purpose, to provide great water and more for the North West,
means we aim to create long-term value for all our stakeholders
and, as such, for AMP7 we are reporting against operational KPIs
that are linked to each stakeholder group. We report our
performance below in line with the key stakeholder groups for whom
we create value, along with the KPI for that stakeholder group.
Communities
Our work puts us at the heart of local communities in the North
West of England, where customers and employees live and work. We
understand the impact our work can have on everyday lives across
our region, and we seek to play an active role in tackling the
issues that matter most to these communities. Our approach is to
develop strong relationships and build partnerships where we work
together to generate solutions. We look after beautiful landscapes
and open our land to the public, which supports the regional
tourism industry and offers physical and mental health and
wellbeing benefits for communities through access to relaxation and
recreation.
Our key performance indicator to measure value created for
communities over AMP7 is the level of community investment, and we
target increasing this by at least 10 per cent over 2020 to 2025,
compared with the average between 2010 and 2020. Last year, our
direct community investment was GBP2.1 million (calculated using
the B4SI method) which was slightly lower than we were targeting to
invest, mainly due to lower community activity as a result of the
impact of COVID-19. As we emerge from the pandemic, we expect our
community investment to increase. In addition to the investment
covered by the B4SI method, we make further contributions to our
communities such as payments to our Trust Fund to help those
struggling to pay their bills.
-- Partnerships
We invest in community partnerships to tackle issues more
effectively, to find new solutions to the challenges we face and to
access new funding streams, driving efficiency and a better overall
outcome. Working with a range of partners can often result in our
investment tackling water issues delivering wider value such as
other biodiversity enhancements. This summer we signed two
memorandum of understandings with the RSPB and the Rivers Trust.
These partners, held in high esteem by local communities and with a
broad membership base, enhance the credibility of what we do. The
partnership with the RSPB includes its management of Naddle Farm on
our Haweswater estate where we aim to benefit biodiversity and
water quality and develop a sustainable farming model for the
future. If this proves successful, we aim to replicate this
approach on other areas of our catchment land, tapping into natural
capital markets including green finance initiatives and
environmental land management schemes to leverage funding for
beneficial land management projects.
-- Helping young people
We are supporting the government's Kickstart programme by
providing placements in various roles across the North West. Each
Kickstarter has a dedicated skills coach and receives job-related
and employability skills training. Since April 2021, 45
Kickstarters have joined our business and so far 10 have found full
time employment with us or our suppliers. The government has
extended the scheme to March 2022 and we will continue to provide
opportunities to young people in our region.
In 2021, we have taken on a record 95 apprentices into roles
such as process controllers, field service engineers and customer
service agents and 24 graduates have joined us on our future
leader, finance and engineering schemes. We have made good progress
in recruiting apprentices from more diverse backgrounds - 31 per
cent of apprentices that started with us in September are female
and 18 per cent are from ethnic minorities and in addition, 20 per
cent of apprentices this year disclosed a disability or learning
difficulty. This represents continued success in our efforts to
recruit a more diverse talent pipeline and is a positive result
against a backdrop of low attrition levels, regional variations in
ethnic diversity and difficulties attracting females for science,
technology, engineering and maths (STEM) roles. We are creating a
further 150 jobs, through our entry level opportunities as either
apprentices or graduates who will start with us in 2022 to add to
our existing talent pipeline.
-- Charitable support
We have committed GBP300,000 to community groups across the
North West as part of our Catchment Systems Thinking (CaST) fund.
This funding is linked to our catchment management approach and
supports projects that deliver community engagement with nature or
help shape and promote natural capital markets. One of the first
projects to receive funding is led by the Mersey Rivers Trust and
focuses on establishing community participation on the lower
catchment area of the River Bollin. It aims to increase the number
of people connecting with nature and accessing local blue-green
space for health and wellbeing. The project will also engage
volunteers and landowners in restoring the reed bed habitat at
Tatton Mere, a popular recreational site near Knutsford, in
Cheshire.
-- Community engagement
Directly engaging with communities gives us a chance to hear
what customers think and the opportunity to highlight ways we can
work together to address issues. One of the first events we
attended since pandemic restrictions eased this year was the RHS
Tatton Flower Show where we engaged customers on water saving tips
and sponsored a garden of resilience. The garden addressed the
challenges of extremes of weather and the stresses and strains of
the pandemic. It gave visitors ideas for making outdoor spaces
better able to cope with too much or too little rain and
incorporated ideas to encourage people to take time out and
contemplate their own personal resilience. The garden won three
awards at the show and will continue to inspire gardeners at its
new permanent home at the RHS Bridgewater in Salford.
-- Access to our land for recreational use
In spring we launched a new podcast series to connect people
with the North West's outdoor spaces. Each themed episode of 'Acres
of Nature' takes an in-depth look at the land we manage through the
eyes of people who live, work and visit there. Available to all on
Spotify, Acres of Nature is all about bringing people closer to
nature and podcast themes have included history, nature and
wellbeing.
Since the first COVID-19 lockdown in spring 2020, there has been
an increase in anti-social behaviour on our catchment land with
issues such as wild camping, illegal fires and littering. We have
been working with local groups at several sites to address this. At
Macclesfield Forest, we have joined forces with the rural crime
team from Cheshire Police and rangers from the Peak District
National Park to tackle anti-social behaviour by undertaking joint
patrols at busy times to remind visitors to enjoy the area
responsibly.
Customers
We put customers at the heart of everything we do. This
relentless focus drove us to deliver significant and continuous
improvements over AMP6, ending the period as a leading water and
wastewater company. We have started this AMP strongly with customer
satisfaction remaining high, despite the challenging environment
brought about by the pandemic. Serving many of the most
economically deprived areas in the country, we are always mindful
of the need to help customers who struggle to pay their bills. We
have an extensive range of schemes offering financial assistance
and tailored support for customers struggling with affordability
and vulnerability. We have committed to provide GBP71 million in
financial support to customers over AMP7 and the temporary
extension to the social tariff that we secured at the start of the
COVID-19 pandemic to support those customers most affected has now
been made permanent meaning that we have an additional GBP15
million per annum of support available for each of the remaining
years of AMP7.
Our key performance indicator to measure customer satisfaction
over AMP7 is Ofwat's C-MeX measure, in which we target being in
positive reward territory. In 2020/21 we earned a GBP2.1 million
reward and for the first six months of this year we are on track to
deliver a higher level of reward as we continue to be the highest
performing listed company. We are proud to have been reaccredited
this month with the Institute of Customer Service - Service Mark
with Distinction award and are one of only 15 brands across the UK
to achieve the award with Distinction.
-- Customer service
Our customer service metrics have been strong so far this year
and we are pleased that as a result we have seen a 14 per cent
reduction in written complaints.
We continue to see the benefits of increasing the availability
and performance of our digital channels, driving both service
improvements and cost efficiencies. Over 1 million customers engage
with us digitally and we are pleased to have improved our rating on
google reviews to 4.3 out of 5 and customers rate us 4.7 out of 5
on the App store.
We have been proactive and used targeted communications with
customers to offer support to those impacted financially by the
pandemic and struggling to pay. We have achieved all of our
reputational performance commitments, most notably recertification
to the enhanced BSI standard 18477:2010 for our Priority Services
scheme that supports over 150,000 customers, along with recognition
as providing the best customer support initiative at the Utilities
and Telecoms Awards for the support provided to customers during
the pandemic.
-- Operational performance for customers
Our AMP7 business plan includes 46 customer commitments,
delivering the outcomes that are important to customers and
measured through customer outcome delivery incentives (ODIs).
Our performance has been strong across the broad range of our
activities with us achieving over 80 per cent of our performance
commitments in 2020/21 - the highest in the sector. Having
benefited from the great start we made to AMP7 and the additional
investment we made towards the end of AMP6, our strong performance
so far in the AMP positions us well as the frontier performance
level across common measures inevitably moves forward at PR24.
We have installed a network of 70,000 sensors delivering
real-time data to our integrated control centre (ICC) and allowing
us to optimise the performance of our water network. As a result,
leakage is at its all-time lowest ever level and currently 5 per
cent lower than when we started the AMP. Supply interruptions have
halved since the beginning of AMP7; a significant improvement in
the service we provide to customers, with fewer than ever
experiencing the disruption of a water supply interruption. Both
leakage and supply interruptions are key water ODIs.
As part of our plans, we are investing around GBP100 million in
Dynamic Network Management (DNM) - a ground breaking application of
Systems Thinking using state of the art sensors and predictive
machine intelligence to move to a more proactive management of our
wastewater network. Our investment in DNM is on track and
delivering and as a result, we expect to deliver a net positive ODI
reward across our basket of flooding measures for AMP7.
In AMP7 there are more ODIs related to how we interact with and
support customers. Through the development of an in-house app, we
can better identify unbilled but occupied properties, securing an
ODI reward on voids of GBP28 million over the AMP. The
affordability support we provide to those who need it most has
enabled us to lift a significant number of customers out of water
poverty. We therefore expect to achieve a maximum reward against
this measure.
We continue to work hard to encourage customers to save water
through water efficiency programmes, helping them to preserve this
precious resource and save money on their bills. Customers have
spent more time at home during the pandemic and used more water for
sanitation, increasing per capita consumption (PCC) measures. We
have been driving enhanced customer engagement and over 60,000
customers have now signed up for our 'get water fit' app, helping
customers to save water and save money. This, coupled with a
programme of shadow metering combined with our lowest bill
guarantee, encourages more customers to switch to a water meter and
is changing customer behaviour to reduce consumption. Recognising
that the long term impact of COVID-19 remains uncertain and that
there may also be a variety of drivers of changes in behaviour,
Ofwat has proposed to assess company performance for the PCC
customer ODI at the end of the AMP when fuller facts and evidence
of absolute and relative company performance are available.
-- Haweswater Aqueduct Resilience Programme (HARP)
In November 2020, we successfully completed the replacement of
the Hallbank section of the Haweswater Aqueduct and, along with our
framework contractor, were named Utility Project of the Year by the
Pipeline Industries Guild, one of the world's most respected
pipeline associations. The completion of the work at Hallbank was
the first milestone in the much larger Haweswater Aqueduct
Resilience Programme (HARP). Work to replace the tunnel sections of
the aqueduct is expected to be undertaken using a direct
procurement for customers (DPC) approach. Under DPC we are
competitively tendering for services in relation to the delivery of
HARP for a third party competitively appointed provider (CAP) to
deliver the design, build, maintenance and also financing for the
replacement of six tunnel sections of the Haweswater Aqueduct. The
contract will be in place for a 25 year term following the
completion of the construction, during which the CAP is paid a
monthly Unitary Charge to recover its costs as well as an end of
concession payment at the end of the term to reflect the residual
value of the assets. We have been progressing our plans to start
the DPC tender in 2022. If the tender process proceeds as planned,
contract award is anticipated in 2023, with construction to begin
later in the AMP.
-- Cash collection
Despite the challenging economic environment following the
COVID-19 pandemic, our overall cash collection continues to perform
well. We are encouraged that the number of customers that pay by
direct debit has been maintained at around 70 per cent and remains
one of the highest levels across the industry. Overall, the
proportion of customers on a payment plan has remained stable at
around 80 per cent providing a high level of collection certainty
for a significant proportion of the household customer base.
So far this year we have been extremely pleased to have been
shortlisted for five external awards for our credit management and
collections services. Our industry leading approach to collections
and innovative affordability offerings have ensured we were well
placed to respond to the challenges brought about by the pandemic.
We have further enhanced the use of credit reference agency
partnerships, leveraging additional sophisticated credit insight to
inform our collections strategy. This will facilitate continued
improvements in our collections activity supporting our ability to
collect cash from customers who have the ability to pay, but
attempt to avoid doing so.
-- Affordability
We have an extensive range of schemes available to help
customers and around 200,000 are currently benefitting from that
help. Last year we were able to support 73,000 additional customers
through the swift proactive action we took to secure support and
regulatory approval for an extension to the scale and scope of our
social tariff. This temporary extension has now been made
permanent, meaning we have the additional GBP15 million per annum
of support available for each of the remaining years of AMP7,
providing additional support to help prevent customers from falling
into debt. This supplements the GBP71 million financial support we
committed to provide over AMP7 - the largest of any water
company.
We continually look for ways to enhance our affordability
processes, to make it easier for customers to access the support
that is available to them. We are proud to be the first UK water
company to roll out a real-time Open Banking income verification
tool that makes it easier for us to understand customer eligibility
for reduced-rate social tariffs. This modernises and drives
efficiency into our income verification process with over 40 per
cent of customers we speak to now using this capability. As a
result, we are able to passport customers immediately onto the
right affordability schemes, enhancing the customer experience and
enabling savings on processing costs. Following the success of this
initial phase, we are exploring the wider use of Open Banking in
other customer interactions, for example enhancing payment
conversations with customers to improve the overall sustainability
of payment plans.
We share data with the Department for Work and Pensions (DWP) -
leveraging the new provisions under the Digital Economy Act - to
assist people living in poverty. In doing so, we are able to
identify customers in receipt of state benefits and offer support
to those customers who need our help the most. It is particularly
beneficial in identifying customers eligible for our Help to Pay
tariff as older customers who are struggling to pay are typically
harder to engage with. These new provisions help us to proactively
apply the reduced tariff to their account. The DWP data share
arrangement will also enhance our audit and customer reapplication
processes. The ability to include a benefit check at the point of
on-boarding and reapplication means eligible customers can
automatically continue to benefit from low bill support.
The Consumer Council for Water (CCW) published its independent
Affordability Review in the summer in which it made recommendations
on how to improve the help available to customers who may struggle
to pay their water bills. We are backing CCW's drive for a national
social tariff; a key development for a region like ours that
suffers from extreme deprivation. We are currently working with CCW
on two pilots coming out of the Affordability Review, the first of
which is a trial of a new digital payment plan giving customers
more flexibility over how and when they make their payments. This
gives customers the option to pay at whatever frequency suits their
personal circumstances as long as they meet agreed payment
milestones. We are also leading the Universal Credit transition
pilot; increasing promotion of the support we have available for
customers who are transitioning onto Universal Credit. We are
relaunching the scheme to raise awareness of the help available for
customers struggling to pay while waiting for their first Universal
Credit payment.
Employees
Our people are critical to the success of our business and it is
important we give them the opportunity to develop their skills and
knowledge and support them with the most effective technology. We
made over 300 changes to working arrangements during the pandemic
and we have been focusing in recent months on reviewing what future
ways of working will look like and how hybrid working may look for
some of our employees. We continue to build on our diversity and
inclusion agenda, which underpins all aspects of our organisation.
Increasing the diversity of our workforce ensures we have access to
a broader set of views and we want colleagues to feel valued,
supported and respected in the workplace.
Our key performance indicator to measure value created for our
employees over AMP7 is our engagement score, in which we target
being at least as good as the UK High Performance Norm benchmark.
Our last survey scored 89 per cent engagement, which is five per
cent above the UK High Performance Norm and is the highest
engagement score we have achieved while comparatively tracking
engagement over the last six years. It is also a five per cent
increase from 2020 engagement levels and is 15 per cent better than
the UK Norm and nine per cent better than the Utilities Norm. We
are extremely proud that our recent Glassdoor rating has increased
to 4.7 out of 5, placing us as the leading UK utility company and
is an excellent position for achieving a ranking in Glassdoor's
'Best Company to Work' index. In addition, we have been shortlisted
as finalists for Employer of the Year, Utility Awards 2021 all
testimony to our great employees and the focus on making United
Utilities a brilliant place to work.
-- Committed to equality, diversity and inclusion
We continue to play an important role in evolving our inclusive
culture, with a growing membership and executive sponsors for each
of the four employee network groups. We have a strong focus on
educating, raising awareness and celebrating cultural events.
Recognising that our leaders are pivotal to creating the right
environment for inclusion right across the business, we have
invested in inclusive leadership training for all leaders and
managers. We have been bringing the outside in with guest speakers
to stimulate and challenge ourselves.
We are building an inclusive culture to ensure our employees can
bring their whole selves to work. In July 2021, we launched our
first diversity survey, 'All About Me' , with over 2,000 employees
sharing data about themselves beyond their role. We will continue
to build on our diversity data, collecting information as part of
our ongoing recruitment approach. This will help inform what we
might do differently to support employees, such as launching an
Employee Ability Passport, and it creates a strong baseline for any
future diversity reporting.
We have made bold public commitments such as the Race at Work
Charter, the Valuable 500 pledge and joining the 10,000 Black
Intern Programme, offering 40 roles to black students next summer
across many different business areas. For the second year running,
we are listed in the Financial Times Diversity Leaders Ranking
which recognises Europe's most inclusive companies, reflecting our
focus on inclusive leadership.
Achieving the Armed Forces Gold Award once again, United
Utilities has had its Employer Recognition Scheme (ERS)
reaccredited, recognising our considerable commitment to supporting
the Armed Forces community.
-- Training and development
Our award winning technical training centre continues to go from
strength to strength. We are the only technical training centre in
the water sector accredited by Ofsted meaning we can maximise the
apprentice levy. As part of our further capability development we
have launched our Digital Skills Academy, a new learning portal for
employees to access digital learning content to upskill them for
their roles now and in the future. This helps to ensure we have
skilled and competent colleagues able to embrace new and next ways
of working.
-- Adapting to a hybrid way of working
We have an active Employee Voice Panel, chaired by Alison
Goligher, one of our Non-Executive Directors, with representatives
from across the business areas and at all levels. The panel has
continued to meet during the pandemic, holding virtual sessions
with invites extended to all our Non-Executive Directors. In the
last panel in September, key topics discussed included next ways of
working and the key strategic challenges for the Board. After
facilitating home working for over 3,000 of our employees, over 330
colleagues have piloted new ways of working, shaping a new hybrid
way of working that maintains business performance, enhances
engagement and aligns to our digital utility strategy without
impacting on productivity or wellbeing.
Environment
We are fortunate to have many areas of natural beauty within our
region, and these are important in offering health, fitness and
wellbeing benefits to local communities and drivers for tourism in
the area, as well as being essential for us to deliver our services
to customers. We have a deep, symbiotic relationship with the
environment in which we operate and it is of great importance that
we continue to protect and enhance the environment across the North
West, and manage our land responsibly to improve the environment in
our region for future generations. We have agreed an environmental
improvement programme to be delivered in AMP7 that will continue to
improve the river, bathing and shellfish water quality for the
benefit of customers and visitors to the North West as well as
society as a whole. We remain on track for the improvements we have
committed to.
Our key performance indicator to measure value created for the
environment over AMP7 is our performance against the Environment
Agency's annual performance assessment, in which we target being an
upper quartile performer. In the assessment for 2020, we were
awarded the maximum 4 stars, with high performance on every
measure, and we are classed by the Environment Agency as an
industry leading company.
-- Pollution performance
Our pollution performance continues to be industry leading, and
in 2020, we had no serious pollution incidents for the second year
running in line with the Environment Agency's stated expectation
for the sector to trend to zero by 2020. We have been green in our
serious incident performance for the last seven consecutive years -
the only company to have achieved this. We also had our best ever
performance on minimising the total number of pollution incidents,
with our largest ever reduction, all delivered whilst we maintained
our excellent self-reporting performance.
During storm conditions, when sewers and treatment plants are
operating at full capacity, we are permitted to spill excess storm
water from Combined Sewer Overflows (CSOs) to help prevent the
flooding of streets, homes and businesses. Since 2000, we have
invested GBP1.2 billion to improve overflow discharges to reduce
spill frequency, volume and impact upon the natural environment.
Our existing plans are focused on securing further improvement and
have been supplemented by our Green Recovery proposals. The quality
of water in rivers and the sea in the North West is impacted by
many stakeholders, and we are working collaboratively with farmers,
government, regulators and others to secure the healthy, thriving
rivers that everyone wants.
Earlier this month, the Environment Agency and Ofwat launched an
investigation into possible unpermitted sewage discharges into
rivers and watercourses involving sewage treatment works across the
country. We take our environmental responsibilities very seriously
and are highly transparent about our performance as evidenced by
our high levels of self-reporting on pollution.
-- Carbon reduction
As part of our commitment to tackling climate change, in 2020 we
made six climate pledges covering emission targets and action on
energy, transport and emissions removal schemes such as creating
woodland and peatland restoration. Central to these pledges was to
set science-based targets for all emission scopes and we are proud
that these targets have been approved by the Science Based Targets
initiative (SBTi) and that we were the first UK water company to
have done so. Our scope 1 and 2 emissions target is to reduce
emissions by 42 per cent from our 2019/20 baseline by 2030 and to
continue to reduce this towards zero emissions by 2050. We have set
a scope 3 target that 66 per cent of our capital goods suppliers
(by emissions) will have science-based targets by 2025. For all
other scope 3 categories, we will work with our supply chain to
achieve a 25 per cent reduction in emissions by 2030 from a 2019/20
baseline. We are also part of the global movement of 'Business
Ambition for 1.5degC: Our Only Future', are signatories to the UN
Race to Zero campaign and are proud to be contributing to the UK
water industry's commitment to be net zero by 2030.
We have demonstrated our capability to reduce our greenhouse gas
emissions having reduced them by over 70 per cent since 2005/06,
largely from working to balance our energy consumption,
self-generation and being smart about how we operate our assets to
get best value while maintaining security of supply. In 2020/21 we
generated the equivalent of 205 GWh of renewable electricity with a
mix of generation from wind, hydro, solar photovoltaics and energy
recovery from bioresources (using sewage sludge to power combined
heat and power generators). 100 per cent of the electricity we use
is now from renewable technologies from either self-generated power
or certified green electricity purchase.
In working towards meeting our other carbon pledges we are
restoring peatland and planting new woodlands which will have a net
greenhouse gas emission reduction, trialling alternatives to fossil
fuels in our treatment processes and transportation, innovating to
create made-to-measure objects out of sustainable concrete
alternatives on site through 3D printing and encouraging employees
to understand and do more to limit their impact through carbon
education.
In the last six months, the Environment Agency has sought to
restrict the disposal to land of organic matter such as farmyard
manures, slurry and biosolids from wastewater treatment. This will
potentially require the water industry to manage the recycling of
biosolids in a different way, such as incineration. Given the
impact on both investment costs and carbon emissions, the industry
has challenged the Environment Agency on this and is working to
develop a long term strategy for sludge and bioresources.
-- Climate resilience
In recent years we have felt the impact of climate change
through wetter winters and drier summers. Through our investment in
becoming a digital utility, we have demonstrated we are better
placed to deal with the extremes of weather that we are
experiencing more frequently. In AMP6 we invested an additional
GBP250 million targeted to increase resilience against climate
change, and we continue to invest across our business to protect
and enhance the climate resilience of our assets, processes and
customer services. We are working to further mature our already
advanced level of climate risk understanding. In the coming months
we will be publishing an overview of our climate risks and plans in
our third adaptation report. This will be followed by a period of
consultation and engagement with stakeholders on how to maximise
value as we take account of these risks in our long term business
planning process leading up to our next price control submission.
We expect our third adaptation report to be a key feature of our
business plan for PR24, driving ongoing investment needs and growth
as the sector and society more broadly tackles this critical
issue.
The summer of 2021 was one of the driest on record in the Lake
District. This, combined with higher consumption as many customers
continued to work from home and consumption from businesses
returned to pre-pandemic levels, meant that the storage levels in
our strategic water resources in the Lake District reduced to below
their operating norm. We supplemented our usual water resources
operations with actions outlined in our statutory drought plan, and
this, together with rainfall in October, has resulted in resources
now having recovered to average autumn levels.
-- Biodiversity
As the largest private land owner in the UK, and an organisation
delivering significant development in the North West, we have made
significant investment over the last two decades in improving
biodiversity on our 56,000 hectare estate. We are committed to
deliver net gain for biodiversity in the delivery of our capital
programme and across our landholdings. This approach includes all
development activities we undertake. We are working closely to
understand the additional requirements that are expected through
the Environment Bill and will ensure that we will meet these
requirements and deliver at least a 10 per cent net gain in
biodiversity and the provision of a 30 year maintenance plan for
biodiversity gains where needed.
Investors
Our clear and enduring investment strategy and focus on digital
transformation, underpinned by our pioneering Systems Thinking
approach, is delivering long-term sustainable improvement in the
service we provide. Last year was our best year of operational
performance for customers and the environment, manifesting itself
in a net reward against our customer ODIs for the year of around
GBP20 million. Our strategy will help us to deliver strong ODI
performance throughout AMP7 and also provides the foundations for
continued high levels of performance in AMP8 and beyond. We
continue to accelerate our AMP7 investment programme to deliver
benefits for customers earlier which brings significant capital
investment into this year and next that is eligible for the super
deductibility of capital allowances. We have already locked-in
around 80 per cent of our total AMP7 programme, helping to mitigate
risk in terms of supply issues and inflation. We have delivered
another year of robust financial performance and we continue to
raise finance effectively, locking-in rates favourable to the price
review assumptions.
Our key performance indicator to measure value created for our
investors over AMP7 is Return on Regulated Equity (RoRE), and we
will update our targets for individual components of this measure
as we progress through the period. RoRE is an annual measure so we
will report on our performance for 2021/22 at the end of the
financial year.
-- Total expenditure (totex)
In our AMP7 final determination, we were given a GBP5.3 billion
totex allowance to deliver the required level of service to our
customers and we are confident that we can deliver the scope of the
final determination within this allowance. Our investment strategy
delivers long-term sustainable performance improvements and
efficiency. Subsequent to our AMP7 final determination, we have had
regulatory approvals for extensions to our investment programme to
allow for the confirmed need of schemes at Bolton and Vyrnwy
amounting to around GBP150 million, and a further GBP65 million in
relation to our Green Recovery proposals. These are schemes that
will deliver improvements for customers and the environment during
this AMP. In addition, we have elected to spend a further GBP150
million on Dynamic Network Management and other projects driving
ODI performance. While this expenditure is subject to the totex
sharing mechanism meaning 50 per cent is company funded, it is more
than compensated for by improved ODI performance in AMP7 and beyond
and a proportion of the spend is also eligible for capital
allowances super deductions in this year and next, providing
further benefits. Our financial strength and balance sheet headroom
enable us to fund this investment now, improving performance for
customers and the environment today, while also generating value
for shareholders.
In the first half of 2021/22, we have invested GBP303 million in
net regulatory capital expenditure (excluding infrastructure
renewals expenditure (IRE)), representing the continued
acceleration of our AMP7 investment programme and bringing
significant capital investment into this year and next that is
eligible for the super deductibility of capital allowances. A
further benefit of our decision to accelerate our investment
profile is the mitigation of risk in terms of supply issues and
inflation with 80 per cent of our capital programme already
locked-in and contracted for with our delivery partners.
-- Customer outcome delivery incentives (ODIs)
In the first year of AMP7 we earned a net ODI reward of around
GBP20 million, representing upper quartile performance in the
sector both in terms of absolute reward earned and as a percentage
of return on regulated equity.
The Customer section above provides more detail on our customer
ODI performance. We continue to see opportunities across a number
of ODI targets, and our investment in Dynamic Network Management
(DNM) is helping to drive improvements in some of our most
challenging areas. Our investment in DNM is on track and delivering
with 4,500 sensors installed across the region providing enhanced
monitoring at 600 sites. Across these areas, we have achieved a
significant improvement in performance, with over 400 operational
issues identified and resolved proactively. We anticipate that as a
result of this investment, we will be able to deliver a net ODI
reward across our basket of flooding measures.
Any ODI reward earned this year will be reflected in an increase
to revenues in 2023/24 through allowed increases in the rates
charged to customers in that financial year, in accordance with the
regulatory mechanism. We are targeting a further reward of around
GBP20 million for 2021/22, and around GBP150 million for the
2020-25 period in total. We will continue to focus on driving
operational performance improvements and investing where we see the
opportunity to deliver improved customer or environmental outcomes
and better customer ODI performance.
-- Financing
Thanks to our leading treasury management, clear and transparent
financial risk management policies, and ability to act swiftly to
access pockets of opportunity as they arise, we have consistently
issued debt at rates that compare favourably with the industry
average.
Our debut sustainable bond issued in January 2021 generated a
huge amount of interest in the company and our ESG credentials. We
published our first allocation and impact report in July 2021,
detailing how the proceeds are funding projects with a positive ESG
impact. In further evidence of the link between ESG performance and
investor value, our debut sustainable bond outperformed the index
used for regulatory assumptions for AMP7 new cost of debt by around
150 basis points, securing around GBP40 million of shareholder
value through financing outperformance.
At a time when we observe significant volatility in short-term
inflation forecasts, our transparent and consistent approach to
hedging, including our defined benefit pension schemes being fully
hedged for inflation, continues to mitigate risk for shareholders
and delivers long-term sustainable value through financing
outperformance that is well understood.
-- ESG performance
We actively participate in a broad range of global ESG ratings,
indices and frameworks to benchmark our approach against best
practice and emerging sustainability challenges and we are
consistently assessed as a leader in this space.
In April this year, we were ranked ninth out of 604 global
utilities in the Sustainalytics ESG Risk Rating assessment,
positioning us as the leading water utility in the index. CDP is a
global disclosure system for environmental reporting and in 2020,
our CDP climate change rating improved from B to A-, demonstrating
leadership-level reporting and disclosure. In February, we received
an MSCI ESG rating of AA recognising our ability to manage
industry-specific ESG risks relative to peers and from an employee
perspective, we achieved a significant improvement in the Workforce
Disclosure Initiative, scoring well above the overall average and
receiving special recognition in the 'COVID-19 transparency'
category at its Workforce Transparency Awards.
Suppliers
Suppliers play an important role in maintaining supply for key
parts of our business, and contractors, as well as direct
employees, act as the face of our business for many customers and
communities. Through our capital programme we invest in North West
infrastructure, generating jobs, skills and income across the
region, with the acceleration of around GBP500 million of capital
expenditure into the first three years of AMP7 helping to support
the economy as the country emerges from the COVID-19 pandemic.
Treating our supply chain fairly, through prompt payments and
adequate guidance and support, is something we are fully committed
to.
Our key performance indicator to measure value created for our
suppliers over AMP7 is payment within 60 days, and we target at
least 95 per cent of invoices to be paid within this timeframe. In
the six months to September 2021, in excess of 99 per cent of
invoices were paid within 60 days with the average number of days
taken to pay suppliers being 13 days.
-- Delivering prompt payments to our suppliers
We act fairly and transparently with all our suppliers and are a
signatory to the Prompt Payment Code, fully complying with the
reporting requirements. As a signatory to this Code we are working
to pay 95 per cent of our SME suppliers within 30 days, a new
guideline that came into effect in July 2021. Our efforts have not
gone unnoticed and we have recently been awarded one of the first
'Fast Payer Awards' by Good Business Pays. This award recognises
FTSE350 companies who are fast payers of their invoices and can
demonstrate that over the past 12 months they have paid their
suppliers in less than 30 days as well as paying 95 per cent or
more of all invoices on time.
-- Responsible sourcing through our United Supply Chain
Our new approach to responsible supply chain management for
AMP7, called United Supply Chain (USC), was launched in 2020 and we
are continuing to embed this strategy amongst our supply chain. USC
recognises suppliers as an extension of the United Utilities
family. Suppliers are asked to become a signatory to our
Responsible Sourcing Principles as a minimum, or for those who are
integral to our operation we encourage to become leaders and to
work jointly with us to deliver improvements across environmental,
social and governance areas and improve value to customers. In
September 2021 we held a small USC event where we acknowledged the
efforts of our suppliers and awarded our first USC award in
Customer, Innovation and Integrity.
At the beginning of October 2021 we had signed 88 per cent of
our targeted suppliers to our Responsible Sourcing Principles and
continue to pursue the remaining suppliers to reach our target of
100 per cent. Our partnership with the Supply Chain Sustainability
School has been useful in sharing knowledge of our Responsible
Sourcing Principles with both our commercial colleagues and supply
chain partners.
-- Helping more innovative businesses grow through Innovation Lab 4.0
We set up our Innovation Lab with the aim of attracting new
entrants to United Utilities, finding ideas that others miss and,
by fast-tracking them to trial and adoption, supporting their
growth. With previous participants in the programme going on to
great things, we are supporting the development of some of the most
successful outcomes in the water industry. Typhon won a UK Water
Industry Award for Drinking Water Initiative of the Year, for a UV
LED disinfection system and FIDO Tech, the world's only AI to
detect water leaks and their size by the noise signal from acoustic
loggers, was the UK nomination and recently announced as runner up
in the KPMG Global Tech innovation competition at the Web Summit in
Lisbon. Both suppliers have contracts with us for ongoing
optimisation and new idea development, with UU having first mover
advantage.
With the UK hosting the COP26 global summit on climate change
earlier this month, one of the areas we are keen to delve into for
our fourth Innovation Lab programme is net zero and natural
solutions. We are working in partnership with the Environment
Agency to explore topics such as biodiversity, natural flood
management and community engagement and we have received another
high volume of ideas to review to support our low carbon mission to
net zero.
FINANCIAL PERFORMANCE
Revenue for the six months to 30 September 2021 was up 4 per
cent on the same period last year, largely reflecting higher
consumption as business activity returns to pre-pandemic levels.
Household cash collection and our bad debt position have remained
robust, and we are providing further financial assistance to
customers with the extension to our social tariff providing an
additional GBP15 million of support per annum to customers
struggling with the effects of the pandemic now having been made
permanent.
For the year ended 31 March 2021, we simplified our approach to
alternative performance measures (APMs) and will no longer, as a
matter of course, adjust our underlying earnings for restructuring
costs, net pension interest, capitalised borrowing costs and
routine prior years' tax matters. In the commentary that follows in
relation to underlying measures, we show the prior period results
based on the latest definition of APMs for comparative purposes.
The reconciliation in the underlying profit section shows the APMs
for the prior period based on the latest definition of APMs.
We continue to invest in our asset base and we are bringing
forward capital expenditure in the five year regulatory period.
Underlying operating profit has increased 4 per cent compared with
the same period last year, largely reflecting higher revenue partly
offset by small increases in our core costs. Our financing
performance remains strong and we continue to benefit from our
robust financial risk management, delivering long-term sustainable
performance and shareholder value through financing
outperformance.
Our balance sheet remains one of the strongest in the sector,
with an industry-leading, fully funded pension scheme on a low
dependency basis, and RCV gearing supporting a stable A3 credit
rating with Moody's.
Revenue
GBPm
Six months to 30 September 2020 894.4
-------
Regulatory revenue changes -1.5 per cent real
reduction in allowed wholesale revenues and 0.6
per cent uplift in line with CPIH inflation (6.3)
-------
Non-household consumption increase 67.8
-------
Household consumption decrease (20.3)
-------
Other (3.3)
-------
Six months to 30 September 2021 932.3
-------
Revenue was up GBP38 million, at GBP932 million, largely
reflecting higher consumption as business activity returns to
pre-pandemic levels.
In the first half of 2021/22 we have had a GBP6 million
reduction in the revenue cap, incorporating a 1.5 per cent real
reduction in allowed wholesale revenues and a 0.6 per cent
CPIH-linked increase.
With many more businesses able to operate compared with the
first half of last year, when the impact of the initial lockdown
was significant, non-household revenue has increased by GBP68
million. In contrast, consumption from households, although higher
than pre-pandemic norms, has decreased GBP20 million in the first
half of this year. This is due to significantly higher consumption
during the first half of last year reflecting the initial impact of
people being locked down at home through the warm weather of late
spring 2020.
Operating profit
GBPm
Underlying and Reported - six months to 30 September
2020 318.5
------
Revenue increase 37.9
------
Inflationary cost increases (9.2)
------
Depreciation and amortisation increase (4.8)
------
Increased costs driving ODI performance (3.9)
------
Innovation fund increase (3.1)
------
Other underlying operating costs increase (2.6)
------
Underlying and Reported - six months to 30 September
2021 332.8
------
Underlying and reported operating profit at GBP333 million were
GBP14 million higher than the first half last year. This
principally reflects the GBP38 million increase in revenue partly
offset by inflationary increases on our core costs along with other
smaller cost increases.
Since the onset of the COVID-19 pandemic we, and many companies
right across the country, have experienced inflationary pressures
on input costs such as power, chemicals and labour. Through
hedging, constructive cost challenge and commercial negotiations,
we have managed to mitigate much of the cost increase to date. We
are seeing inflationary increases coming through our core costs
resulting in an increase of GBP9 million compared with the first
half of last year. This is a relatively modest increase reflecting
our robust control of costs and hedging policies, particularly on
power where we have hedged around 95 per cent of the power
commodity price for the current year. We will continue to actively
manage our cost base in the second half of the year to mitigate
inflationary cost pressures.
Depreciation was GBP5 million higher, principally reflecting the
ongoing commissioning of our asset base. We expect that
depreciation will be relatively flat for the full year when
compared with the prior year. The rate of increase in depreciation
across the remaining years of the AMP is expected to be much lower
than observed in previous AMPs due to the lower AMP7 capex
programme. We have incurred GBP4 million of costs associated with
driving ODI performance and that will be compensated through ODI
incentive payments.
In AMP7, Ofwat has introduced an Innovation Fund whereby
companies collect an additional amount of revenue from customers
and which is allocated to a central pot which is subsequently
reallocated to companies successfully bidding for funding for
innovative projects. In the first half of this year, we accrued
GBP3 million of costs which is an increase on the first half of
last year as in 2020/21 we did not accrue costs until the full
year. Our total contribution to the central pot since the beginning
of AMP7 is GBP9 million. In contrast, we have led or supported on
projects that have secured funding from the scheme of over GBP30
million, which will reimburse companies funding the successful
projects that drive forward the innovation agenda.
Household bad debt was 1.8 per cent of regulated revenue, and
has therefore reduced from the 2.2 per cent we reported for the
year to 31 March 2021. This represents a return to pre-pandemic
levels as we continue to manage the impact of COVID-19.
Profit before tax
GBPm
Underlying - six months to 30 September 2020 238.2
-------
Underlying operating profit increase 14.3
-------
Underlying net finance expense increase (51.4)
-------
Share of JVs losses (4.3)
-------
Underlying - six months to 30 September 2021 196.8
-------
Adjusted items * 15.9
-------
Reported - six months to 30 September 2021 212.7
-------
* Adjusted items are set out within the underlying profit
section.
Underlying profit before tax was GBP197 million, GBP41 million
lower than the first half of last year. This reflects the GBP14
million increase in underlying operating profit, more than offset
by a GBP51 million increase in underlying net finance expense and
an increase in the share of underlying losses of joint ventures of
GBP4 million, (from a GBP2 million share of gains in the first half
of 2020/21 to a GBP2 million loss in the first half of this
year).
Underlying profit before tax reflects consistently applied
presentational adjustments as outlined below. Reported profit
before tax increased by GBP12 million to GBP213 million reflecting
the GBP14 million increase in reported operating profit and a GBP2
million reduction in reported net finance expense (including fair
value movements), partly offset by the GBP4m increase in the share
of underlying losses of joint ventures.
-- Net finance expense
The underlying net finance expense of GBP134 million was GBP51
million higher than the first half of last year, when we compare on
a consistent basis, mainly due to the impact of higher RPI
inflation on the group's index-linked debt partly offset by lower
interest on index-linked debt.
The indexation of principal on index-linked debt, including the
impact of inflation swaps, amounted to a net charge in the income
statement of GBP103 million, compared with a net charge of GBP41
million last year. Interest on index-linked debt of GBP17 million
was GBP8 million lower than the first half of last year while
interest on non-index linked debt of GBP42 million is the same as
it was for the first half of last year. The remaining GBP3 million
decrease from the last half year primarily relates to movements in
capitalised borrowing costs and pension interest.
Reported net finance expense of GBP118 million was GBP2 million
lower than the first half of last year, reflecting the GBP51
million increase in underlying net finance expense with this being
offset by a GBP53 million increase in net fair value gains on our
debt and derivative portfolio, excluding interest on derivatives
and debt under fair value option, from a GBP37 million net loss in
the first half of last year to a GBP16 million net gain in the
first half of this year.
-- Joint ventures
For the six months to 30 September 2021, we recognised a GBP1.8
million loss in the income statement relating to our joint venture
Water Plus. For the six months to 30 September 2020, our share of
joint venture profits of GBP2.5 million related solely to our share
in AS Tallinna Vesi. On 31 March 2021, the group completed the
disposal of its stake in AS Tallinna Vesi.
Further details can be found in note 10 of these condensed
consolidated financial statements.
Profit after tax and earnings per share
PAT Earnings
GBPm per share
Pence/share
Underlying - six months to 30 September
2020 199.1 29.2p
-------- -------------
Underlying profit before tax decrease (41.4)
-------- -------------
Underlying tax decrease 36.2
-------- -------------
Underlying - six months to 30 September
2021 193.9 28.4p
-------- -------------
Adjusted items * (410.1)
-------- -------------
Reported - six months to 30 September
2021 (216.2) (31.7)p
-------- -------------
* Adjusted items are set out within the underlying profit
section.
Underlying profit after tax of GBP194 million was GBP5 million
lower than the first half of last year, and underlying earnings per
share decreased from 29.2 pence to 28.4 pence, principally
reflecting the GBP41 million reduction in underlying profit before
tax partly offset a GBP36 million lower underlying tax charge
largely due to the impact of the capital allowances super
deductions, announced in the March 2021 Chancellors Budget and
lowering the current tax charge significantly in the current
period.
The group reported a loss after tax of GBP216 million for the
first half of this year, compared with a GBP162 million reported
profit after tax in the first half of last year. This GBP378
million reduction largely reflects the one-off deferred tax charge
of GBP382 million to restate the brought forward tax liability at
the new 25 per cent future headline rate. Reported basic earnings
per share decreased from 23.8 pence to a reported basic earnings
per share of (31.7) pence.
-- 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 2021 for the third year running.
In addition to corporation tax, the group makes further
contributions to the public finances, typically of around GBP200
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 5,000 strong workforce.
We paid corporation tax of GBP7 million in the period, which
represents an effective cash tax rate on underlying profits of 3
per cent, 16 per cent lower than the headline rate of corporation
tax of 19 per cent. The key reconciling item to the headline rate
of corporation tax continues to be allowable tax deductions on
capital investment, these being deductions put in place by
successive governments to encourage such investment and thus
reflecting responsible corporate behaviour in relation to taxation.
For the current period, the cash tax is significantly lower due to
the impact of the capital allowances super deductions, announced in
the March 2021 Chancellors Budget and affecting our eligible plant
and machinery additions in 2022 and 2023.
The current tax charge was GBP5 million in the six months to 30
September 2021, compared with GBP34 million in the previous half
year.
For the six months to 30 September 2021, we recognised a
deferred tax charge of GBP42 million, compared with GBP5 million
for the same period last year. This excludes the GBP382 million
one-off deferred tax charge reflecting the new 25 per cent future
headline rate.
The total effective tax rate, after adjusting for the one-off
deferred tax charge for changes in the headline rate of tax was 22
per cent for the six months to 30 September 2021, compared with 19
per cent in the previous half year; the increase reflecting the
current year deferred tax charge being calculated at 25 per
cent.
In the period, there were GBP56 million of tax adjustments taken
to equity, primarily relating to remeasurement movements on the
group's defined benefit pension schemes.
Dividend per share
The Board has proposed an interim dividend of 14.50 pence per
ordinary share in respect of the six months ended 30 September
2021. This is an increase of 0.6 per cent compared with the interim
dividend relating to last year, in line with the group's dividend
policy of targeting a growth rate of CPIH inflation each year
through to 2025. The inflationary increase of 0.6 per cent is based
on the CPIH element included within the allowed regulated revenue
increase for the 2021/22 financial year (i.e. the movement in CPIH
between November 2019 and November 2020).
The interim dividend is expected to be paid on 1 February 2022
to shareholders on the register at the close of business on 17
December 2021. The ex-dividend date is 16 December 2021. The
election date for the Dividend Reinvestment Plan is 11 January
2022.
Cash flow
Net cash generated from continuing operating activities for the
six months to 30 September 2021 was GBP471 million, GBP72 million
higher than the GBP399 million in the first half of last year. The
group's net capital expenditure was GBP288 million, principally in
the regulated water and wastewater investment programmes. This
excludes infrastructure renewals expenditure which is treated as an
operating cost. Cash flow capex differs from regulatory capex,
since the latter is based on capital work done in the period,
rather than actual cash spent.
Pensions
As at 30 September 2021, the group had an IAS 19 net pension
surplus of GBP821 million, compared with a net pension surplus of
GBP689 million at 31 March 2021. This GBP132 million increase
principally reflects increases in asset returns partly offset by an
increased RPI inflation assumption. The group has de-risked its
pension schemes through hedging strategies applied to the
underlying interest rate and future inflation. The IAS 19 position
remains volatile to changes in credit spread and changes in
mortality, neither of which have been hedged at this current time.
This is primarily due to difficulties hedging against credit spread
volatility over long durations, and, for mortality, there is lower
volatility in the short term and relatively high hedging costs. The
scheme specific funding basis does not suffer volatility due to
credit spread movements to the same extent as it use a prudent,
fixed credit spread assumption.
Further detail on pensions is provided in note 11 ('Retirement
benefit surplus') of these condensed consolidated financial
statements.
Financing
Net debt GBPm
At 31 March 2021 7,305.8
--------
Cash generated from operations (535.5)
--------
Fair value movements (17.6)
--------
Net capital expenditure 288.0
--------
Dividends 196.6
--------
Indexation 92.8
--------
Interest 58.2
--------
Tax 6.7
--------
Other 5.8
--------
At 30 September 2021 7,400.8
--------
The group's gross borrowings at 30 September 2021 had a carrying
value of GBP8,463 million. The fair value of these borrowings was
GBP10,088 million. This GBP1,625 million difference principally
reflects the significant fall in real interest rates compared with
the rates at the time we raised a portion of the group's
index-linked debt. This difference has increased from GBP1,404
million at 31 March 2021 due primarily to a decrease in credit
spreads.
Cash and short-term deposits at 30 September 2021 amounted to
GBP656 million.
Net debt at 30 September 2021 was GBP7,401 million, compared
with GBP7,306 million at 31 March 2021. This comprises gross
borrowings of GBP8,463 million net of cash of GBP656 million and
net derivative assets hedging specific debt instruments of GBP406
million.
Underlying movements in net debt are largely a result of net
operating cash inflows offset by our net capital expenditure,
dividends, cash interest, indexation interest and tax.
Gearing, measured as group net debt divided by UUW's shadow
(adjusted for actual spend) regulatory capital value, was 62 per
cent at 30 September 2021. This is the same level of gearing as at
31 March 2021 and remains within our target range of 55 to 65 per
cent.
-- Cost of debt
As at 30 September 2021, the group had approximately GBP3.1
billion of RPI-linked instruments and GBP0.4 billion of CPI or
CPIH-linked instruments held as debt. In recent years, in response
to Ofwat's decision to transition away from RPI inflation linkage,
the group has entered into a number of transactions swapping
RPI-linked cash flows to CPI-linked cash flows or swapping floating
rate cash flows to CPI-linked cash flows. As a result, including
these swaps, the group has RPI-linked debt exposure of GBP3.0
billion at an average real rate of 1.3 per cent, and GBP1.1 billion
of CPI or CPIH-linked debt exposure at an average real rate of -0.6
per cent.
A higher RPI inflation charge compared with the same period last
year contributed to the group's average effective interest rate of
4.4 per cent being higher than the rate of 3.0 per cent for the six
months to 30 September 2020. The average underlying interest rate
represents the underlying net finance expense adjusted for
capitalised borrowing costs and net pension interest income,
divided by average notional debt.
The group has fixed the interest rates on its non index-linked
debt in line with its 10-year reducing balance basis at a net
effective nominal interest rate of 2.2 to 2.4 per cent for the
remainder of the AMP7 regulatory period.
-- Credit ratings
UUW's senior unsecured debt obligations are rated A3 with
Moody's Investors Service (Moody's), A- with Fitch Ratings (Fitch)
and BBB+ with Standard & Poor's Ratings Services (S&P) and
all on stable outlook. United Utilities PLC's (UU PLC's) senior
unsecured debt obligations are rated Baa1 with Moody's, A- with
Fitch and BBB- with S&P, all on stable outlook.
-- Debt financing
The group has access to the international debt capital markets
through its EUR7 billion euro medium-term note (EMTN) programme.
The EMTN programme is updated at least annually and this year's
update is expected to be completed shortly, which will include an
increase to the programme limit and redenomination to GBP10
billion. The EMTN programme does not represent a funding
commitment, with funding dependent on the successful issue of the
notes.
In total over 2020-25, we expect to raise around GBP2.4 billion
to cover refinancing and incremental debt, supporting our five-year
investment programme. So far in AMP7, we have raised around GBP1.1
billion, taking advantage of attractive rates available and
extending our liquidity position out to February 2025.
In November 2020, we published our new sustainable finance
framework, through which we expect to raise financing based on our
strong ESG credentials alongside conventional issuance. This
replaces the green funding we have previously secured through the
European Investment Bank (EIB), which is no longer available
post-Brexit. We issued our debut sustainable bond in January 2021,
raising GBP300 million maturing in October 2029 and subsequently
swapped to CPI-linkage.
In August 2021, we raised around GBP73 million of term funding
via the issue off our EMTN Programme of JPY11 billion privately
placed note swapped to GBP with a 9-year maturity, and in September
2021 we priced a GBP100 million fixed note with a 7-year maturity,
the proceeds of which were received in early October.
Since March 2021, we have extended GBP100 million of revolving
credit facilities for a further year. The group has also amended
the documentation for all of its existing revolving credit
facilities to remove references to LIBOR and replace with
SONIA.
-- Interest rate management
Long-term borrowings are structured or hedged to match assets
and earnings, which are largely in sterling, indexed to UK price
inflation and subject to regulatory price reviews every five
years.
Long-term sterling inflation index-linked debt provides a
natural hedge to assets and earnings. At 30 September 2021,
approximately 41 per cent of the group's net debt was in RPI-linked
form, representing around 25 per cent of UUW's regulatory capital
value, with an average real interest rate of 1.3 per cent. A
further 15 per cent of the group's net debt was in CPI or
CPIH-linked form, representing around 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 18 years.
Our inflation hedging policy is to target around 50 per cent of
net debt to be maintained in index-linked form. This reflects a
balanced assessment across a range of factors.
Where nominal debt is raised in a currency other than sterling
and/or with a fixed interest rate, the debt is generally swapped to
create a floating rate sterling liability for the term of the debt.
To manage exposure to medium-term interest rates, the group fixes
underlying interest costs on nominal debt out to ten years on a
reducing balance basis.
-- Liquidity
Short-term liquidity requirements are met from the group's
normal operating cash flow and its short-term bank deposits and
supported by committed but undrawn credit facilities. Our EMTN
programme provides further support.
At 30 September 2021, we had liquidity out to February 2025,
comprising cash and short-terms deposits, plus committed undrawn
revolving credit facilities. This gives us flexibility in terms of
when and how further debt finance is raised to help refinance
maturing debt and support the delivery of our regulatory capital
investment programme. In October 2021, UUW prepaid a GBP100 million
floating rate loan a year ahead of its scheduled maturity, this
being efficient use of our available liquidity.
We consider that we operate a prudent approach to managing
banking counterparty risk. Counterparty risk, in relation to both
cash deposits and derivatives, is controlled through the use of
counterparty credit limits. Our cash is held in the form of
short-term money market deposits with prime commercial banks.
We operate a bilateral rather than a syndicated approach to our
core relationship banking facilities. This approach spreads
maturities more evenly over a longer time period, thereby reducing
refinancing risk and providing the benefit of several renewal
points rather than a large single refinancing requirement.
OUTLOOK
We have continued with the great start that we have made to
AMP7, benefitting from the acceleration of our AMP7 investment
programme. This investment, coupled with our Systems Thinking
approach, is delivering operational excellence and regulatory
outperformance, and is enabling us to drive further value for our
shareholders. We remain confident in our target of cumulative net
outperformance of around GBP150 million against our customers ODIs
for AMP7.
2021/22 FULL YEAR GUIDANCE
-- Revenue is expected to be around 2 per cent higher than
2020/21, largely reflecting higher overall consumption by our
customer base.
-- Underlying operating costs are expected to be higher
year-on-year reflecting inflationary increases net of efficiencies
coming through core costs and IRE is expected to increase as we
continue to invest in DNM. We remain confident that we can deliver
our AMP7 scope within our Final Determination totex allowance.
-- Underlying finance expense is expected to be higher
year-on-year as higher inflation impacts our index-linked debt.
-- Capex in 2021/22 is expected to be in the range of GBP625
million to GBP675 million reflecting the ongoing acceleration of
our AMP7 programme, the extension to our AMP7 totex allowance and
our continued investment in long-term sustainable performance.
-- We remain confident in targeting a net customer ODI reward of
around GBP20 million, which is consistent with our overall target
for AMP7 of around GBP150 million reward.
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
international accounting standards in conformity with the
requirements of the Companies Act 2006, and in accordance with
International Financial Reporting Standards (IFRSs) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union as well as adopted by the UK, in the group's
consolidated income statement. As such, they represent non-GAAP
measures.
These APMs have been presented in order to provide a more
representative view of business performance. The group determines
adjusted items in the calculation of its underlying measures
against a framework which considers significance by reference to
profit before tax, in addition to other qualitative factors such as
whether the item is deemed to be within the normal course of
business, its assessed frequency of reoccurrence and its volatility
which is either outside the control of management and/or not
representative of current year performance.
We simplified our approach to APMs and no longer, as a matter of
course, adjust our underlying earnings for restructuring costs, net
pension interest, capitalised borrowing costs and routine prior
years' tax matters. These changes first came into effect for the
full year to March 2021. In the tables that follow we show the
prior period APMs on the updated basis based on our new definition
of APMs for comparative purposes.
In addition, a reconciliation of the group's average effective
interest rate has been presented, together with a prior period
comparison. In arriving at net finance expense used in calculating
the group's effective interest rate, underlying net finance expense
is adjusted to add back net pension interest income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
Adjusted item Rationale
Adjustments not expected to recur
Profit on This relates to the disposal of the group's 35.3% stake in
disposal of its Estonian joint venture, AS Tallinna Vesi, which represents
joint ventures 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 can
(gains)/losses be both very significant and volatile from one period to
on debt and the next, and are therefore excluded in arriving at underlying
derivative net finance expense as they are determined by macro-economic
instruments, factors which are outside of the control of management and
excluding relate to instruments that are purely held for funding and
interest on hedging purposes (not for trading purposes). Included within
derivatives fair value movement on debt and derivatives is interest on
and debt under derivatives and debt under fair value option. In making this
fair value adjustment it is appropriate to add back interest on derivatives
option 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 tax
adjustment 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 adjusted
of adjustments items to provide a more representative view of current year
to underlying performance.
profit before
tax
--------------------------------------------------------------------
6 months Re-presented
ended 6 months ended Year ended
30 September 30 September 31 March
Underlying profit 2021 2020 2021
GBPm GBPm GBPm
Operating profit per published results 332.8 318.5 602.1
Underlying operating profit 332.8 318.5 602.1
-------------- ---------------- -----------
Net finance expense
GBPm GBPm GBPm
Finance expense (127.5) (132.0) (103.5)
Investment income 9.2 12.1 25.0
-------------- ---------------- -----------
Net finance expense per published
results (118.3) (119.9) (78.5)
-------------- ---------------- -----------
Adjustments:
Fair value (gains)/losses on debt
and derivative instruments, excluding
interest on derivatives and debt
under fair value option (15.9) 37.1 (54.3)
Underlying net finance expense (134.2) (82.8) (132.8)
-------------- ---------------- -----------
GBPm GBPm GBPm
Share of (losses)/profits of joint
ventures (1.8) 2.5 (9.3)
Profit on disposal of joint ventures - - 36.7
Adjustments:
Profit on disposal of AS Tallinna
Vesi joint venture - - (36.7)
-------------- ---------------- -----------
Underlying profit on disposal of - - -
joint ventures
-------------- ---------------- -----------
Profit before tax per published results 212.7 201.1 551.0
Adjustments:
In respect of operating profit - - -
In respect of net finance expense (15.9) 37.1 (54.3)
In respect of profit on disposal
of joint ventures - - (36.7)
-------------- ---------------- -----------
Underlying profit before tax 196.8 238.2 460.0
-------------- ---------------- -----------
(Loss)/Profit after tax per published
results (216.2) 162.0 453.4
Adjustments:
In respect of profit before tax (15.9) 37.1 (91.0)
Deferred tax adjustment 423.9 5.1 18.4
Tax in respect of adjustments to
underlying profit before tax 2.1 (5.1) 2.2
Underlying profit after tax 193.9 199.1 383.0
-------------- ---------------- -----------
Earnings per share
GBPm GBPm GBPm
(Loss)/profit after tax per published
results (a) (216.2) 162.0 453.4
Underlying profit after tax (b) 193.9 199.1 383.0
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) (31.7) 23.8 66.5
Underlying earnings per share, in
pence (b/c) 28.4 29.2 56.2
Dividend per share, in pence 14.50p 14.41p 43.24p
In arriving at net finance expense used in calculating the
group's effective interest rate, management adjusts underlying net
finance expense to add back pension income and capitalised
borrowing costs in order to provide a view of the group's cost of
debt that is better aligned to the return on capital it earns
through revenue.
Average effective interest rate 6 months 6 months Year ended
ended ended
30 September 30 September 31 March
2021 2020 2021
GBPm GBPm GBPm
Underlying net finance expense (134.2) (82.8) (132.8)
Adjustments:
Net pension interest income (7.3) (8.7) (17.5)
Adjustment for capitalised borrowing
costs (21.4) (17.0) (30.4)
Net finance expense for effective interest
rate (162.9) (108.5) (180.7)
Average notional net debt (7,372) (7,257) (7,315)
Average effective interest rate 4.4% 3.0% 2.5%
PRINCIPAL RISKS AND UNCERTAINTIES
Our approach to risk management
Our approach to risk management, including how we identify and
assess risk and the oversight and governance process, remains
unchanged from that detailed on pages 100 to 102 of our Annual
Report for the year ended 31 March 2021.
Key developments
Continuous improvement is a key feature of our business risk
management framework. In the past six months we have continued to
promote the cross cutting causal factor and consequence themes (see
page 102 of our Annual Report) in risk assessments to improve
maturity and to enable better understanding of interdependency and
correlation. We have also improved our position on aligning
contingency plans to risk.
Profile features
The risk profile is based on ten principal risks that reflect
the primary and secondary business activities from which value can
be gained, preserved or lost relative to the group's business
model, future performance, solvency, liquidity and reputation.
These principal risks are reported within our Annual Report for the
year ended 31 March 2021 (see pages 103 to 107).
They are underpinned by approximately 100 event-based risks
which have been subject to half year risk assessment reflecting
influences such as climate change; legislative and regulatory
developments; asset deterioration; growth pressures; and challenges
within the supply chain post Brexit and the after effects of the
global pandemic, whilst also looking ahead to the next price review
and our carbon reduction commitments.
The group's most significant event based risks
The most significant event-based risks represent the ten
highest-ranked risks (see 1 to 10 below) 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 (see A to F below).
Depending on the circumstances, financial impacts will include loss
of revenue, additional cost, fines, regulatory penalties and
compensation. Reputational impact relative to our multiple
stakeholders is also assessed, reported and considered as part of
the mitigation.
1. Carbon Commitments: This risk focuses the capacity and
capability to decarbonise Water and Wastewater activity relevant to
the Public Interest Commitments (PIC) to achieve net zero by 2030
in light of the growth pressures, lack of technological advances or
innovation and the fundamental change of approach required.
Control/Mitigation: We will continue to develop near term
initiatives such as process and energy emissions, woodland and
peatland restoration, while responding to changing policy and
technological landscape. We are also developing a long term
strategy to reduce emissions and to fully understand and optimise
potential decarbonisation initiatives and pathways.
2. Price Review 2024: This risk focuses 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 dialog with Ofwat
throughout the process.
3. Failure of the Haweswater Aqueduct: 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 UU customer base.
Control/Mitigation: A capital project to replace the tunnel
sections of the aqueduct has already commenced with the completion
in November 2020 of one section. The remaining sections are due to
be replaced as part of Haweswater Aqueduct Resilience Programme
(HARP) by 2029.
4. Flooding of the Wastewater Network (sewer flooding):
Equipment failure, collapses/bursts or inadequate hydraulic/
operational capacity to cope with extreme weather and population
growth, resulting in sewer flooding. Control/Mitigation:
Preventative maintenance and inspection regimes, customer campaigns
and sewer rehabilitation programmes.
5. Water Sufficiency event (Dry Weather): Water Sufficiency is
one of the most sensitive risks to climate, with the frequency of
recent periods of extended hot, dry weather being evidence of
changing circumstance and the potential for implementation of water
use restrictions on customers. Control/Mitigation: UU produces a
Water Resources Management Plan 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 5 years setting out the actions UU will take
in a drought situation.
6. Failure to treat Sludge: This risk relates to the
interdependency between Wastewater and Bioresource treatment
activity in light of changing demographics, asset health and
legislative / regulatory change. Industrial Emissions Directive
(IED) now applying to biological treatment of sewage sludge within
AMP 7, with no investment assigned to this requirement is a key
factor. Control/Mitigation: The Throughput, Reliability,
Availability, and Maintainability (T-RAM) of our facilities is a
key area of mitigation, with formal Service Level Agreements
between the two core activities. In relation to IEDs, discussions
at national level are being held to move the high capital cost
improvements into PR24.
7. Cybercrime: 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.
8. Recycling of Biosolids to agriculture: This risks represents
various impact scenarios including operational failures, increased
restrictions or total ban of recycling biosolids to agriculture.
Referencing the EA's interpretation of the Farming Rules for Water
(FRfW) regulations and the increasing threat to recycling a large
proportion of biosolids. Control/Mitigation: UU is accredited to
the UK Biosolids Assurance Scheme (BAS) which certifies that our
treatment and recycling activities meet regulatory requirements and
best practice. We also work closely with farmers and landowners and
have robust standard operating procedures established with
contractors.
9. Failure to treat Wastewater: Inadequate capacity and
capability of wastewater treatment works, leading to environmental
permit breaches. Control/mitigation: Improved Effective Operations
and Maintenance (EO&M) programme and operating procedures
including proactive maintenance, operative training and compliance
audits.
10. Mersey Valley Sludge Pipeline: A key asset with current low
resilience due to deterioration, with failure potentially resulting
in serious pollution. Control/Mitigation: Overland inspections,
flow and pressure monitoring take place to detect bursts. Incident
response plans are in place and strategic planning is underway to
determine a long term solution.
High impact, low likelihood risks
A. Pension deficit: The potential for the pension scheme funding
deficit to increase because of life expectancy rates leading to
additional contributions. Control/mitigation: Constant monitoring
combined with hedging against interest rates, inflation and growth
asset risk.
B. Dam failure: Uncontrolled release of a significant volume of
water from reservoirs due to flood damage, overtopping, earthquake
or erosion leading to catastrophic impacts downstream.
Control/mitigation: Each reservoir is regularly inspected by
engineers. Where appropriate, risk reduction interventions are
implemented through a prioritised investment programme.
C. Fair payment of tax: Failure to maximise the available tax
efficiencies and reliefs due to changing mechanisms.
Control/mitigation: Tax policies and objectives cover: efficient
structuring of commercial activities; maintaining a robust
governance and risk management framework; and an open and
transparent relationship with tax authorities.
D. Disease pandemic: 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.
E. Terrorism: A significant asset to be compromised by terrorist
activity leading to loss of supply, contamination and/or pollution.
Control/mitigation: A risk-based protection of assets in line with
the Security and Emergency Measures Direction (SEMD) and close
liaison with the Centre for the Protection of National
Infrastructure (CPNI), regional counter terrorist units, local
agencies and emergency services.
F. Process safety: The unintentional generation and/or release
of dangerous substances and explosive atmospheres in sludge
digestion or other processes, resulting in a catastrophic incident
Control/mitigation: The design and engineering of facilities,
training and maintenance of equipment. Effective control points
exist with alarms monitored remotely and statutory 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. Beyond that reported in
previous years on the Argentina multiparty 'class action' and the
Manchester Ship Canal Company matters (to which there have been no
material developments), there is nothing specific to report on
material litigation.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This financial report contains certain forward-looking
statements with respect to the operations, performance and
financial condition of the group. By their nature, these statements
involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge and
information available at the date of preparation of this financial
report and the company undertakes no obligation to update these
forward-looking statements. Nothing in this financial report should
be construed as a profit forecast.
Certain regulatory performance data contained in this financial
report is subject to regulatory audit.
This announcement contains inside information, disclosed in
accordance with the Market Abuse Regulation which came into effect
on 3 July 2016 and for UK Regulatory purposes the person
responsible for making the announcement is Simon Gardiner, Company
Secretary.
LEI 2138002IEYQAOC88ZJ59
Classification - Half Year Results
Consolidated income statement
Six months Six months ended Year ended
ended 30 September 31 March
30 September 2020 2021
2021
GBPm GBPm GBPm
Revenue (note 3) 932.3 894.4 1,808.0
--------------- ------------------- ------------
Employee benefits expense (82.4) (78.6) (161.8)
Other operating costs (note 4) (217.3) (201.0) (431.9)
Allowance for expected credit losses
- trade and other receivables (12.1) (11.7) (28.7)
Other income 2.5 1.5 3.6
Depreciation and amortisation expense (207.6) (202.8) (422.3)
Infrastructure renewals expenditure (82.6) (83.3) (164.8)
--------------- ------------------- ------------
Total operating expenses (599.5) (575.9) (1,205.9)
--------------- ------------------- ------------
Operating profit 332.8 318.5 602.1
Investment income (note 5) 9.2 12.1 25.0
Finance expense (note 6) (127.5) (132.0) (107.2)
Allowance for expected credit losses
- loans to joint ventures - - 3.7
--------------- ------------------- ------------
Investment income and finance expense (118.3) (119.9) (78.5)
--------------- ------------------- ------------
Share of (losses)/profits of joint ventures
(note 10) (1.8) 2.5 (9.3)
Profit on disposal of joint venture - - 36.7
Profit before tax 212.7 201.1 551.0
Current tax charge (5.0) (34.0) (79.2)
Deferred tax charge (42.3) (5.1) (18.4)
Deferred tax charge - change in tax
rate (381.6) - -
Tax (note 7) (428.9) (39.1) (97.6)
(Loss)/profit after tax (216.2) 162.0 453.4
--------------- ------------------- ------------
All of the results shown above relate to continuing
operations.
Earnings per share (note 8)
Basic (31.7)p 23.8p 66.5p
Diluted (31.6)p 23.7p 66.3p
Dividend per ordinary share (note 9) 14.50p 14.41p 43.24p
Consolidated statement of comprehensive income
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2021
2021 2020
GBPm GBPm GBPm
(Loss)/Profit after tax (216.2) 162.0 453.4
--------------- -------------- ------------
Other comprehensive income
Items that may be reclassified to profit
or loss in subsequent periods:
Cash flow hedge effectiveness 42.9 4.9 9.3
Tax on items taken directly to equity
(note 7) (10.7) (0.9) (1.8)
Foreign exchange adjustments - 1.3 (1.6)
Foreign exchange adjustments reclassified
to profit on disposal of joint ventures - - 4.0
--------------- -------------- ------------
Other comprehensive income that may be
reclassified to profit or loss 32.2 5.3 9.9
--------------- -------------- ------------
Items that will not be reclassified to
profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined
benefit pension
schemes (note 11) 123.4 (109.3) (82.7)
Change in credit assumptions for debt
reported at fair value through profit
or loss (7.5) (30.0) (43.3)
Cost of hedging - cross currency basis
spread adjustment 1.8 (7.5) (12.7)
Tax on items taken directly to equity
(note 7) (44.8) 43.9 36.6
--------------- -------------- ------------
Other comprehensive income that will not
be reclassified to profit or loss 72.9 (102.9) (102.1)
--------------- -------------- ------------
Total comprehensive income (111.1) 64.4 361.2
--------------- -------------- ------------
Consolidated statement of financial position
30 September 30 September 31 March
2021 2020 2021
GBPm GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 11,956.3 11,648.9 11,799.0
Intangible assets 170.4 175.8 181.1
Interests in joint ventures and
other investments (note 10) 16.6 44.4 0.1
Trade and other receivables 68.6 126.6 86.7
Retirement benefit surplus (note
11) 821.1 654.3 689.0
Derivative financial instruments 458.3 661.8 410.3
--------------- ---------------
13,491.3 13,311.8 13,166.2
--------------- --------------- -----------
Current assets
Inventories 18.9 19.0 18.3
Trade and other receivables 244.4 244.7 229.2
Current tax asset 8.6 36.6 6.9
Cash and short-term deposits 655.9 899.0 744.1
Derivative financial instruments 23.0 0.1 14.4
-----------
950.8 1,199.4 1,012.9
--------------- --------------- -----------
Total assets 14,442.1 14,511.2 14,179.1
--------------- --------------- -----------
LIABILITIES
Non-current liabilities
Trade and other payables (825.5) (782.5) (798.3)
Borrowings (note 12) (7,802.1) (8,092.8) (7,797.0)
Deferred tax liabilities (1,928.9) (1,426.6) (1,449.5)
Derivative financial instruments (106.3) (184.2) (107.8)
-----------
(10,662.8) (10,486.1) (10,152.6)
--------------- --------------- -----------
Current liabilities
Trade and other payables (380.6) (323.4) (322.7)
Borrowings (note 12) (660.7) (853.4) (654.8)
Provisions (13.1) (13.1) (11.1)
Derivative financial instruments (3.2) (3.9) (6.9)
-----------
(1,057.6) (1,193.8) (995.5)
--------------- --------------- -----------
Total liabilities (11,720.4) (11,679.9) (11,148.1)
--------------- --------------- -----------
Total net assets 2,721.7 2,831.3 3,031.0
--------------- --------------- -----------
EQUITY
Share capital 499.8 499.8 499.8
Share premium account 2.9 2.9 2.9
Other reserves (note 16) 369.8 335.9 336.3
Retained earnings 1,849.2 1,992.7 2,192.0
--------------- --------------- -----------
Shareholders' equity 2,721.7 2,831.3 3,031.0
--------------- --------------- -----------
Consolidated statement of changes in equity
Six months ended 30 September 2021
Share (1)
Share premium Other Retained
capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- --------- --------- ----------- ---------- --------
At 1 April 2021 499.8 2.9 336.3 2,192.0 3,031.0
---------------------------------------- --------- --------- ----------- ---------- --------
Loss after tax - - - (216.2) (216.2)
Other comprehensive income/(expense)
Remeasurement gains on defined benefit
pension schemes (note 11) - - - 123.4 123.4
Change in credit assumption for debt
reported at fair value through profit
or loss - - - (7.5) (7.5)
Cash flow hedge effectiveness - - 42.9 - 42.9
Cost of hedging - cross currency basis
spread adjustment - - 1.8 - 1.8
Tax on items taken directly to equity
(note 7) - - (11.2) (44.3) (55.5)
Foreign exchange adjustments - - - - -
Total comprehensive income - - 33.5 (144.6) (111.1)
---------------------------------------- --------- --------- ----------- ---------- --------
Dividends (note 9) - - - (196.6) (196.6)
Equity-settled share-based payments - - - 2.6 2.6
Exercise of share options - purchase
of shares - - - (4.2) (4.2)
---------------------------------------- --------- --------- ----------- ---------- --------
At 30 September 2021 499.8 2.9 369.8 1,849.2 2,721.7
---------------------------------------- --------- --------- ----------- ---------- --------
Six months ended 30 September 2020
Share (1)
Share premium Other Retained
capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- --------- --------- ----------- ---------- --------
At 1 April 2020 499.8 2.9 336.7 2,122.7 2,962.1
---------------------------------------- --------- --------- ----------- ---------- --------
Profit after tax - - - 162.0 162.0
Other comprehensive income/(expense)
Remeasurement gains on defined benefit
pension schemes (note 11) - - - (109.3) (109.3)
Change in credit assumption for debt
reported at fair value through profit
or loss - - - (30.0) (30.0)
Cash flow hedge effectiveness - - 4.9 - 4.9
Cost of hedging - cross currency basis
spread adjustment - - (7.5) - (7.5)
Tax on items taken directly to equity
(note 7) - - 0.5 42.5 43.0
Foreign exchange adjustments - - 1.3 - 1.3
Total comprehensive income - - (0.8) 65.2 64.4
---------------------------------------- --------- --------- ----------- ---------- --------
Dividends (note 9) - - - (193.7) (193.7)
Equity-settled share-based payments - - - 1.4 1.4
Exercise of share options - purchase
of shares - - - (2.9) (2.9)
---------------------------------------- --------- --------- ----------- ---------- --------
At 30 September 2020 499.8 2.9 335.9 1,992.7 2,831.3
---------------------------------------- --------- --------- ----------- ---------- --------
Year ended 31 March 2021
Share (1)
Share premium Other Retained
capital account reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------- --------- --------- ---------- ---------- --------
At 31 March 2020 499.8 2.9 336.7 2,122.7 2,962.1
------------------------------------------- --------- --------- ---------- ---------- --------
Profit after tax - - - 453.4 453.4
Other comprehensive income/(expense)
Remeasurement gains on defined benefit
pension schemes (note 11) - - - (82.7) (82.7)
Change in credit assumption for debt
reported at fair value through profit
or loss - - - (43.3) (43.3)
Cash flow hedge effectiveness - - 9.3 - 9.3
Cost of hedging - cross currency basis
spread adjustment - - (12.7) - (12.7)
Tax on items taken directly to equity
(note 7) - - 0.6 34.2 34.8
Foreign exchange adjustments - - (1.6) - (1.6)
Foreign exchange adjustments reclassified
to profit on disposal of joint ventures - - 4.0 - 4.0
Total comprehensive income - - (0.4) 361.6 361.2
------------------------------------------- --------- --------- ---------- ---------- --------
Dividends (note 9) - - - (291.9) (291.9)
Equity-settled share-based payments - - - 3.6 3.6
Exercise of share options - purchase
of shares - - - (4.0) (4.0)
------------------------------------------- --------- --------- ---------- ---------- --------
At 31 March 2021 499.8 2.9 336.3 2,192.0 3,031.0
------------------------------------------- --------- --------- ---------- ---------- --------
(1) Other reserves comprise the group's cumulative exchange
reserve, 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 2021
2021 2020
GBPm GBPm GBPm
Operating activities
Cash generated from operations (note
14) 535.5 495.6 1,037.2
Interest paid (73.1) (68.7) (136.7)
Interest received and similar income 14.9 2.9 7.4
Tax paid (6.7) (31.1) (75.4)
Tax received - - 26.9
Net cash generated from operating
activities 470.6 398.7 859.4
-------------- -------------- ------------
Investing activities
Purchase of property, plant and
equipment (278.7) (315.4) (610.4)
Purchase of intangible assets (9.8) - (33.6)
Grants and contributions received 0.6 2.9 5.0
Loans to joint ventures - (29.5) (2.0)
Dividends received from joint ventures - 6.4 6.4
Proceeds from disposal of investments - - 85.3
-------------- --------------
Net cash used in investing activities (287.9) (335.6) (549.3)
-------------- --------------
Financing activities
Proceeds from borrowings net of
issuance costs 72.7 574.2 909.7
Repayment of borrowings (152.6) (75.1) (703.5)
Dividends paid to equity holders
of the company (note 9) (196.6) (193.7) (291.9)
Exercise of share options - purchase
of shares (4.2) (2.9) (4.0)
Net cash (used in)/generated from
financing activities (280.7) 302.5 (89.7)
-------------- -------------- ------------
Net (decrease)/increase in cash
and cash equivalents (98.0) 365.6 220.4
Cash and cash equivalents at beginning
of the period(1) 733.6 513.2 513.2
-------------- -------------- ------------
Cash and cash equivalents at end
of the period (1) 635.6 878.8 733.6
-------------- -------------- ------------
(1) Cash and cash equivalent is stated net of GBP20.3 million
(30 September 2020: GBP20.2 million; 31 March 2021: GBP10.5
million; 1 April 2020: GBP14.9m) of book overdrafts, which are
included in borrowings in the statement of financial position. 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.
NOTES
1. Basis of preparation and accounting policies
The condensed consolidated financial statements for the six
months ended 30 September 2021 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 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 2021.
The comparative figures for the year ended 31 March 2021 do not
comprise the group's statutory accounts for that financial year.
Those accounts have been reported upon by the group's auditor and
delivered to the registrar of companies. The report of the auditor
was unqualified, 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 2021
were prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006, and
in accordance with International Financial Reporting Standards
(IFRSs) and interpretations (IFRICs) as issued by the IASB and
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union (EU) as well as adopted by the UK. There are
currently no material areas of divergence between UK-adopted and
EU-adopted IFRS, and this was also the case as at 31 March
2021.
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 2021.
Going concern
The interim condensed consolidated financial statements for the
six months ended 30 September 2021 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 that incorporates the expected economic impacts
brought about by the COVID-19 pandemic. The directors have
considered the magnitude of potential impacts resulting from
uncertain future events or changes in conditions, and the likely
effectiveness of mitigating actions that the directors would
consider undertaking. The baseline position has been subjected to a
number of severe but reasonable downside scenarios in order to
assess the group's ability to operate within the amounts and terms
(including relevant covenants) of existing facilities. These
scenarios consider: the potential impacts of increased totex costs,
including a significant one-off totex impact arising in the
assessment period; lower CPIH inflation; elevated levels of bad
debt; outcome delivery incentive penalties; and the impact of these
factors materialising on a combined basis. Mitigating actions were
considered to include deferral of capital expenditure; a reduction
in other discretionary totex spend; the close out of derivative
asset balances; and the deferral or suspension of dividend
payments.
Consequently, the directors are satisfied that the group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
interim condensed consolidated financial statements, and that the
severe but reasonable 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 associated with COVID-19
Since the onset of the COVID-19 pandemic at the beginning of the
2020 calendar year, the group has disclosed a number of associated
critical accounting judgements and key sources of estimation
uncertainty in its annual reports and financial statements for the
years ended 31 March 2020 and 31 March 2021, and its interim
condensed consolidated financial statements for the six months
ended 30 September 2020. The most significant of these related to
revenue recognition and the group's allowance for expected credit
losses in respect of receivables, and accounting for the group's
joint venture, Water Plus, although the level of judgement and
estimation associated with the latter of these has reduced markedly
following the restructuring of Water Plus's financing arrangements
by its shareholders as described in note 10.
These judgements and estimates have been kept under review
during the six months to 30 September 2021 in order to ensure that
they reflect the most up-to-date information available as the
situation has developed. An update on these is as follows:
Accounting estimate - unbilled revenue in respect of measured
customers: The amount of revenue recognised for customers who have
a water meter (measured customers) is directly impacted by their
level of consumption. Estimation is required in relation to the
volume of water and wastewater services provided to these customers
where recent meter read data is not available.
Estimated usage is based on historical meter read data,
judgement, and assumptions. Since 2020, consumption patterns have
been significantly impacted by changes brought about by the
COVID-19 pandemic. Household consumption has been above levels
normally seen due to customers spending more time at home, while
non-household consumption has been below normal levels as a result
of temporary business closures resulting from lockdown
measures.
While lockdown measures have eased during the period, household
consumption remains higher than pre-pandemic levels. Customer
behaviours appear to have changed as a result of the pandemic, with
many household customers choosing to spend more time at home for a
number of reasons, including international travel restrictions,
businesses transitioning to hybrid working arrangements that
facilitate increased levels of working from home, and other
businesses moving employees to permanent home working. As a result,
patterns of future usage in the longer term remain unclear.
However, over the course of the previous financial year, and as
the current financial year has progressed, the group has seen an
increase in the volume of household meter reads, which have now
returned to pre-pandemic levels. Meter read data collected during
the period therefore reflect the increased consumption brought
about by the pandemic, together with current usage patterns. This
in turn has been captured in actual bills and therefore the level
of estimation has steadily reduced, with the system generated
revenue accrual now largely aligned to independent automated meter
read (AMR) data. AMR data is captured for around 25 per cent of all
measured household customers, and has been extrapolated across the
remaining measured household customer base. The reasonableness of
this approach has been validated through an assessment of bills
raised in the period.
During the prior year a number of code changes were introduced
by Ofwat and MOSL in relation to the non-household retail market.
These included the introduction of annual consumption adjustments
which allowed retailers to reduce or suspend volumetric charges for
customers impacted by the lockdown of their activities. As many of
these adjustments were initially applied by retailers to broad
sector groups, this inevitably included some end users who
continued to consume above their yearly volume estimate. This
resulted in a higher level of estimation being required in relation
to non-household consumption than would normally be the case. These
estimates were based on the latest available consumption
information, considering the vacancy status of all premises during
the period and recognising the number and timing of meter reads
received. In the six month period to 30 September 2021, we have
seen retailers begin to remove consumption adjustments, which
together with an increase in meter reads has reduced the level of
estimation required. Non-household wholesale revenue recognised
during the period is around GBP7.5 million higher than the total
in-period revenue estimated in the CMOS system as part of the
normal settlement process (GBP16.1 million higher at 31 March
2021).
Accounting estimate - allowance for expected credit losses in
respect of household trade receivables: The onset of the COVID-19
pandemic introduced a high level of uncertainty around how economic
conditions may impact the recoverability of household receivables,
with this uncertainty continuing throughout the year to 31 March
2021 and to date.
Cash collection over the six months to 30 September 2021 has
been stronger than anticipated, and is higher than the current year
collection rate at the same point in the prior year, although the
economic situation remains uncertain at the interim reporting date.
This is particularly the case as government support schemes such as
furlough unwind, which could result in increased unemployment and
therefore further impact the ability of some customers to pay. A
range of collection scenarios have been considered taking account
of current year cash collection rates as well as collection of
prior year and legacy debt. This supports a bad debt charge of 1.8
per cent of household revenue at the interim reporting date.
This compares with a charge equivalent to 2.2 per cent of
household revenue recognised for the year ended 31 March 2021 based
on the average recovery of household trade receivables evidenced in
that year and the year ended 31 March 2020. This was considered an
appropriate indicator of expected future collection that
encompassed a range of scenarios that have been experienced,
including before the onset of the COVID-19 pandemic, periods of
lockdown, and periods of recovery.
2. Segmental reporting
The board of directors of United Utilities Group PLC (the board)
is provided with information on a single segment basis for the
purposes of assessing performance and allocating resources. The
group's performance is measured against financial and operational
key performance indicators, 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
2021 2020 2021
GBPm GBPm GBPm
Wholesale water charges 393.6 375.5 751.0
Wholesale wastewater charges 477.0 461.8 941.5
Household retail charges 35.0 35.9 64.1
Other 26.7 21.2 51.4
------------- -------------
932.3 894.4 1,808.0
------------- ------------- ---------
The GBP37.9 million increase in revenue for the six months ended
30 September 2021 compared with the same period in the prior year
is largely attributable to the impact of the COVID-19 pandemic and
measures to control the spread of the virus in each period.
Customer tariffs for the 2020/21 financial year were set in
December 2019 before the impact of the pandemic was known, whereas
tariffs for the 2021/22 financial year were set in December 2020
and therefore factored in the forecast COVID-19 impacts on both
household and non-household customers based on the best available
data at that point in time. Actual consumption during the period
has been above amounts forecasted when tariffs were set, with the
impact of this being offset by known regulatory revenue
reductions.
With lockdown restrictions easing during the six months to 30
September 2021, this in turn has resulted in an increase in
non-household wholesale charge revenue compared with the same
period in the prior year of GBP67.8 million, which has been
partially offset by a reduction in household revenue of GBP29.4
million.
Given the nature of the group's operations, revenues are not
typically materially impacted by seasonality or cyclicality, and
therefore revenue recognised for the first half of the financial
year would typically be similar to that recognised in the second
half, though these trends can be impacted by changing patterns of
consumption such as what has been experienced during the COVID-19
pandemic.
4. Other operating costs
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2021
2021 2020 GBPm
GBPm GBPm
Hired and contracted services 50.1 45.9 96.3
Property rates 46.5 45.2 89.4
Materials 40.7 39.5 82.2
Power 38.2 38.5 83.6
Regulatory fees 14.5 14.5 28.0
Accrued innovation costs 3.1 - 6.2
Loss on disposal of property,
plant and equipment 3.0 2.2 10.7
Insurance 3.0 2.6 5.2
Cost of properties disposed 0.1 0.1 2.6
Other expenses 18.1 12.5 27.7
-------------- -------------- -----------
217.3 201.0 431.9
-------------- -----------
Other operating costs have increased compared with the same
period in the prior year for a number of reasons, including
inflationary increases on the group's core cost base, the accrual
of costs relating to the Innovation in Water Challenge scheme
operated by Ofwat for AMP7, which were not accrued in the same
period in the prior year, as well as increased costs associated
with the group's response to a number of incidents affecting
customers. Additional costs have also been incurred during the
period to improve performance for customers and the environment and
therefore deliver a better outcome on our customer outcome delivery
incentives.
During the six months to 30 September 2021 the group incurred
around GBP2.5 million of operating costs that were directly
attributable to its response to the ongoing effects of the COVID-19
pandemic, compared with GBP2.9 million for the six months to 30
September 2020. As such costs are now being incurred as part of the
group's normal business activities, they have not been treated as
adjusting items in arriving at the group's underlying profit
measures included within the alternative performance measures set
out above for either the six month periods ended 30 September 2021
and 30 September 2020, or the year ended 31 March 2021.
This is also the case for the GBP1.7 million of operating costs
and GBP1.5 million of infrastructure renewals expenditure incurred
in the six months to 30 September 2020 in response to a period of
dry weather experienced over the spring and summer of that year
that coincided with the first nationwide lockdown associated with
the pandemic; costs incurred in response to dry weather in the six
months to 30 September 2021 were minimal.
5. Investment income
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2021
2021 2020 GBPm
GBPm GBPm
Interest receivable 1.9 3.4 7.5
Net pension interest income (note
11) 7.3 8.7 17.5
--------------- ---------------
9.2 12.1 25.0
--------------- --------------- -------------
6. Finance expense
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2021
2021 2020 GBPm
GBPm GBPm
Interest payable 147.6 104.9 181.7
Net fair value (gains)/losses
on debt and derivative instruments (20.1) 27.1 (74.5)
--------------- --------------- -------------
127.5 132.0 107.2
--------------- --------------- -------------
Interest payable is stated net of GBP21.4 million (30 September
2020: GBP17.0 million; 31 March 2021: GBP30.4 million) borrowing
costs capitalised in the cost of qualifying assets within property,
plant and equipment and intangible assets during the period.
Interest payable includes a GBP92.8 million (30 September 2020:
GBP39.9 million; 31 March 2021: GBP52.6 million) non-cash inflation
expense in relation to the group's index-linked debt.
Net fair value gains on debt and derivative instruments includes
GBP14.6 million income (30 September 2020: GBP11.4 million income;
31 March 2021: GBP21.5 million income) due to net interest on
derivatives and debt held under fair value option, and GBP10.3
million expense (30 September 2020: GBP1.4 million expense; 31
March 2021: GBP1.3 million expense) due to non-cash inflation
uplift on the group's index-linked derivatives.
7. Tax
The total effective tax rate, after adjusting for the one-off
deferred tax charge to restate the brought forward deferred tax
liability at the new 25 per cent future headline rate of tax, was
22 per cent for the current period, compared with 19 per cent in
the previous half year; the increase being due to the current year
deferred tax also being measured at the new future headline tax
rate of 25 per cent. The split of the total tax charge between
current and deferred tax was due to ongoing timing differences in
relation to tax deductions on capital investment and unrealised
gains and losses on treasury derivatives.
For the current period, the current tax is significantly lower
due to the impact of the capital allowances "super deductions",
announced in the March 2021 Chancellors Budget and effecting our
eligible plant and machinery additions in 2022 and 2023.
The tax adjustments taken to equity primarily relate to
remeasurement movements on the group's defined benefit pension
schemes.
8. Earnings per share
Basic and diluted earnings per share are calculated by dividing
(loss)/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 2021
2021 2020 GBPm
GBPm GBPm
(Loss)/profit after tax attributable
to equity holders of the company -
continuing operations (216.2) 162.0 453.4
Weighted average number of shares
in issue in millions
Basic 681.9 681.9 681.9
Diluted 683.6 683.5 683.5
Earnings per share in pence
-------------- -------------- -----------
Basic (31.7) 23.8 66.5
-------------- -------------- -----------
Diluted (31.6) 23.7 66.3
-------------- -------------- -----------
9. Dividends
Six months ended Six months Year ended
30 September ended 31 March
2021 30 September 2021
GBPm 2020 GBPm
GBPm
Dividends relating to the period
comprise:
Interim dividend 98.9 98.3 98.3
Final dividend - - 196.6
----------------- -------------- ------------
98.9 98.3 294.9
----------------- -------------- ------------
Dividends deducted from shareholders' equity comprise:
Interim dividend - - 98.3
Final dividend 196.6 193.7 193.6
----------------- -------------- ------------
196.6 193.7 291.9
----------------- -------------- ------------
The interim dividends for the six months ended 30 September 2021
and 30 September 2020, and the final dividend for the year ended 31
March 2021, have not been included as liabilities in the respective
condensed consolidated financial statements at 30 September 2021
and 30 September 2020, and the consolidated financial statements at
31 March 2021, because they were approved after the reporting
date.
The interim dividend of 14.50 pence per ordinary share (2020:
interim dividend of 14.41 pence per ordinary share, final dividend
of 28.40 pence per ordinary share) is expected to be paid on 1
February 2022 to shareholders on the register at the close of
business on 17 December 2021. The ex-dividend date for the interim
dividend is 16 December 2021.
10. Interests in joint ventures and other investments
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2021
2021 2020 GBPm
GBPm GBPm
Joint ventures at the start of the
period - 46.8 46.8
Additions 18.3 - -
Share of (losses)/profits of joint
ventures (1.8) 2.5 (9.3)
Less: Share of losses allocated to
other components
of long-term interest in joint ventures - 0.1 14.2
Dividends received from joint ventures - (6.4) (6.4)
Currency translation differences - 1.3 (1.6)
Disposal of joint venture - - (43.7)
-------------- -------------- ------------
Joint ventures at the end of the period 16.5 44.3 -
-------------- -------------- ------------
Other investments 0.1 0.1 0.1
-------------- -------------- ------------
Interests in joint ventures and other
investments 16.6 44.4 0.1
-------------- -------------- ------------
Following the disposal of its interest in AS Tallinna Vesi
(Tallinn Water) in March 2021, joint ventures mainly comprise the
group's 50 per cent interest in Water Plus Group Limited (Water
Plus), which is jointly owned and controlled by the group and
Severn Trent PLC under a joint venture agreement.
As reported in the group's latest annual report, at 31 March
2021 a fully drawn GBP32.5 million revolving credit facility
extended to Water Plus by United Utilities PLC, which was presented
within amounts owed by related parties included within trade and
other receivables, was considered to form part of the group's
long-term interest in the Water Plus joint venture as there was a
clear expectation that it would be converted to additional equity
share capital. As such, the group's GBP14.2 million share of losses
recognised in the income statement for the year then ended
(comprising the groups share of Water Plus losses for the year of
GBP8.9 million and GBP5.3 million of the group's previously
unrecognised share of losses relating to prior years) was allocated
against this fully drawn facility resulting in a net reported
balance of GBP18.3 million. As at 30 September 2020 there was not
the same expectation that this facility would be converted into
additional equity share capital, and therefore no unrecognised
losses relating to prior years were recognised against the related
party receivable balance at that date.
The conversion of this facility to equity share capital was
executed on 23 April 2021 and therefore the brought forward balance
of GBP18.3 million has been included as an addition to the group's
joint ventures balance during the period. Against this, the group
has recognised its GBP1.8 million share of Water Plus losses for
the six month period ended 30 September 2021.
Details of transactions between the group and its joint ventures
are disclosed in note 18.
11. Retirement benefit surplus
The main financial assumptions used by the company's actuary to
calculate the defined benefit surplus of the United Utilities
Pension Scheme (UUPS) and the United Utilities PLC Group of the
Electricity Supply Pension Scheme (ESPS) were as follows:
Six months Six months Year ended
ended ended
30 September 30 September 31 March
2021 2020 2021
% p.a. % p.a. % p.a.
Discount rate 2.05 1.60 2.05
Pensions increases 3.50 3.10 3.35
Pensionable salary growth:
ESPS 3.50 3.10 3.35
UUPS 2.60 1.90 2.45
Price inflation - RPI 3.50 3.10 3.35
Price inflation - CPI(1) 2.90 1.90 2.75
(1) The CPI price inflation assumption represents a single
weighted average rate derived from an assumption of 2.60 per cent
pre-2030 and 3.40 per cent post-2030.
The discount rate is consistent with a high quality corporate
bond rate with 2.05 per cent being equivalent to gilts + 75bps (30
September 2020: 1.60 per cent being equivalent to gilts + 95bps; 31
March 2020: 2.05 per cent being equivalent to gilts + 75bps). In
order to align to emerging market practice and provide a more
robust estimate, the population of high quality corporate bonds
used in deriving the discount rate used to estimate the fair value
of defined benefit obligations was expanded during the prior year
to include those rated at least AA by one or more credit rating
agencies, whereas previously the rate was derived based on bonds
rated AA by two or more agencies.
At 30 September 2021, 31 March 2021 and 30 September 2020,
mortality in retirement is assumed to be in line with the
Continuous Mortality Investigation's (CMI) S2PA year of birth
tables, with scaling factor of 106 per cent and 109 per cent for
male pensioners and non-pensioners respectively, and 104 per cent
and 105 per cent for female pensioners and non-pensioners
respectively, reflecting actual mortality experience. At both 30
September 2021 and 31 March 2021, mortality in retirement is based
on CMI 2020 long-term improvement factors, with a long-term annual
rate of improvement of 1.25 per cent (30 September 2020: CMI 2019,
long-term annual rate of improvement of 1.50 per cent).
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 2021
2021 2020 GBPm
GBPm GBPm
Current service cost 3.7 2.5 4.9
Curtailments/settlements - 0.2 0.6
Administrative expenses 0.8 1.1 3.0
Pension expense charged to operating
profit 4.5 3.8 8.5
Net pension interest income credited
to investment income (note 5) (7.3) (8.7) (17.5)
-------------- -------------- -----------
Net pension income charged before
tax (2.8) (4.9) (9.0)
-------------- -------------- -----------
The reconciliation of the opening and closing net pension
surplus included in the statement of financial position is as
follows:
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2021
2021 2020 GBPm
GBPm GBPm
At the start of the period 689.0 754.1 754.1
Income recognised in the income
statement 2.8 4.9 9.0
Contributions less unregistered
pension promise payments 5.9 4.6 8.6
Remeasurement gains/(losses) gross
of tax 123.4 (109.3) (82.7)
-------------- -------------- -----------
At the end of the period 821.1 654.3 689.0
-------------- -------------- -----------
The closing surplus at each reporting date is analysed as
follows:
30 September 30 September 31 March
2021 2020 2021
GBPm GBPm GBPm
Present value of defined benefit
obligations (3,341.9) (3,550.2) (3,295.7)
Fair value of schemes' assets 4,163.0 4,204.5 3,984.7
------------- ------------- ----------
Net retirement benefit surplus 821.1 654.3 689.0
------------- ------------- ----------
The GBP123.4 million remeasurement gain has principally resulted
from increases in the RPI inflation assumption being more than
offset by increases in asset returns.
As the 2018 valuation basis was consistent with a long-term
target for self-sufficiency, the expectation is that the pension
schemes will be fully funded on a low dependency basis without
additional contributions from the company.
Member data used in arriving at the liability figure included
within the overall IAS 19 surplus has been based on the finalised
actuarial valuation as at 31 March 2018 for both the group's ESPS
and UUPS schemes. The triennial actuarial valuations as at 31 March
2021 were ongoing as at the 30 September 2021 reporting date, and
were not at a sufficiently advanced stage to enable updated
assumption estimates or member data to be incorporated into the
calculation of the overall IAS 19 surplus. It is expected that
progress ahead of the 31 March 2022 reporting date will enable
these updates to be incorporated into the calculation of the IAS 19
surplus at that point.
Defined contribution schemes
During the period, the group made GBP12.8 million (30 September
2020: GBP11.4 million; 31 March 2021: GBP23.4 million) of
contributions to defined contribution schemes which are included in
employee benefits expense.
12. Borrowings
New borrowings raised during the six months ended 30 September
2021, which were issued under the Euro Medium-Term Note programme,
were as follows:
-- On 27 August 2021, the group issued JPY11 billion fixed rate notes due August 2030.
-- On 27 September 2021, the group traded GBP100 million fixed
rate notes due October 2028. These notes have a settlement date of
4 October 2021 and therefore are not included in the consolidated
statement of financial position as at 30 September 2021.
Borrowings at 30 September 2021 include GBP60.6 million in
relation to lease liabilities (30 September 2020: GBP58.0 million;
31 March 2021: GBP60.0 million), of which GBP57.2 million (30
September 2020: GBP55.3 million; 31 March 2021: GBP56.7 million)
was classified as non-current and GBP3.4 million (30 September
2020: GBP2.7 million; 31 March 2021: GBP3.3 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 2021
2021 2020
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 280.8 280.8 459.3 459.3 275.6 275.6
Derivative financial assets
- held for trading 152.4 152.4 200.0 200.0 142.6 142.6
Derivative financial assets
- cash flow hedge 48.1 48.1 2.6 2.6 6.5 6.5
Investments 0.1 0.1 0.1 0.1 0.1 0.1
Financial liabilities at
fair value through profit
or loss
Derivative financial liabilities
- fair value hedge (13.7) (13.7) (0.2) (0.2) (12.6) (12.6)
Derivative financial liabilities
- held for trading (95.8) (95.8) (187.5) (187.5) (102.1) (102.1)
Derivative financial liabilities
- cash flow hedge - - (0.4) (0.4) - -
Financial liabilities designated
at fair value through profit
or loss (388.0) (388.0) (411.2) (411.2) (373.6) (373.6)
Financial instruments for
which fair value does not
approximate carrying value
Financial liabilities in
fair value hedge relationships (3,002.8) (2,940.1) (2,797.9) (2,763.5) (2,913.6) (2,895.5)
Other financial liabilities
at amortised cost (6,697.4) (5,134.7) (7,386.3) (5,771.5) (6,568.1) (5,182.7)
---------- ---------- ----------- ---------- ---------- ----------
(9,716.3) (8,090.9) (10,121.5) (8,472.3) (9,545.2) (8,141.7)
---------- ---------- ----------- ---------- ---------- ----------
The group has calculated fair values using quoted prices where
an active market exists, which has resulted in 'level 1' fair value
liability measurements under the IFRS 13 'Fair Value Measurement'
hierarchy of GBP2,630.0 million (30 September 2020: GBP2,524.7
million; 31 March 2021: GBP2,766.0 million) for financial
liabilities in fair value hedge relationships, and GBP3,761.6
million (30 September 2020: GBP1,689.7 million; 31 March 2021:
GBP2,321.6 million) for other financial liabilities at amortised
cost.
The GBP1,304.0 million increase in 'level 1' fair value
liability measurements compared with the position at 31 March 2021
(30 September 2020: GBP2,033.0 million increase compared with 31
March 2020; 31 March 2021: GBP2,906.2 million increase compared
with 31 March 2020) is largely due to an increase in the number of
observable quoted bond prices in active markets at 30 September
2021. 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 2021.
The principal reason for the increase in the difference between
the fair value and carrying value of the group's borrowings at 30
September 2021 compared with the position at 31 March 2021 is a
decrease in credit spreads during the period.
14. Cash generated from operations
Six months
ended Six months ended Year ended
30 September 30 September 31 March
2021 2020 2021
GBPm GBPm GBPm
Operating profit 332.8 318.5 602.1
Adjustments for:
Depreciation of property, plant
and equipment 186.8 182.2 379.8
Amortisation of intangible assets 20.7 20.6 42.5
Loss on disposal of property, plant
and equipment 3.0 2.2 10.7
Amortisation of deferred grants
and contributions (7.7) (7.1) (15.0)
Equity-settled share-based payments
charge 2.6 1.4 3.6
Changes in working capital:
Increase in inventories (0.6) (2.4) (1.7)
(Increase)/decrease in trade and
other receivables (14.2) 0.6 18.1
Increase/(decrease) in trade and
other payables 11.5 (16.3) 2.5
Increase/(decrease) in provisions 2.0 (3.3) (5.3)
Pension contributions paid less
pension expense charged to operating
profit (1.4) (0.8) (0.1)
------------- ---------------- ----------
Cash generated from operations 535.5 495.6 1,037.2
------------- ---------------- ----------
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 2021
2021 2020 GBPm
GBPm GBPm
At the start of the period 7,305.8 7,227.5 7,227.5
Net capital expenditure 288.0 312.5 639.0
Dividends (note 9) 196.6 193.7 291.9
Interest 58.2 65.8 129.3
Inflation expense on index-linked
debt (note 6) 92.8 39.9 52.6
Fair value movements including foreign
exchange (17.6) (4.6) 34.5
Tax 6.7 31.1 48.5
Extension of loans to joint ventures - 29.5 2.0
Proceeds from disposal of investment - - (85.3)
Non-cash movements in lease liabilities 1.6 1.1 4.1
Other 4.2 1.3 5.3
Dividends from joint ventures - (6.4) (6.4)
Cash generated from operations (note
14) (535.5) (495.6) (1,037.2)
--------------- --------------- -------------
At the end of the period 7,400.8 7,395.8 7,305.8
--------------- --------------- -------------
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
2021 2020 2021
GBPm GBPm GBPm
Borrowings 8,462.8 8,946.2 8,451.8
Derivative financial instruments
(liabilities) 109.5 188.1 114.7
Derivative financial instruments
(assets) (481.3) (661.9) (424.7)
Cash and short-term deposits (655.9) (899.0) (744.1)
------------- ------------- ---------
Net debt - as agreed to statement
of financial position 7,435.1 7,573.4 7,397.7
Adjustments to exclude the fair
value impact of:
Interest rate derivatives fixing
future nominal interest rates (49.9) (152.6) (84.6)
Inflation derivatives fixing future
real interest rates (32.5) (27.2) (13.8)
Electricity derivatives fixing future
electricity costs 48.1 2.2 6.5
------------- ------------- ---------
Net debt - as adjusted to align
to the group's definition 7,400.8 7,395.8 7,305.8
------------- ------------- ---------
The group defines net debt as the sum of borrowings and
derivative financial instruments, net of cash and short term
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
above reconciliation from the opening to closing net debt
position.
16. Other reserves
Six months ended 30 September 2021
Cost Cash
Cumulative Capital of hedging flow
exchange redemption Merger reserve hedge
reserve reserve reserve GBPm reserve Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2021 - 1,033.3 (703.6) 0.4 6.2 336.3
Changes in fair value recognised
in other comprehensive income - - - 1.8 44.2 46.0
Amounts reclassified from
other comprehensive income
to profit or loss - - - - (1.3) (1.3)
Tax on items taken directly
to equity (note 7) - - - (0.5) (10.7) (11.2)
At 30 September 2021 - 1,033.3 (703.6) 1.7 38.4 369.8
---------------------------------- ------------ ------------ --------- ------------ --------- -------
Six months ended 30 September 2020
Cash
Cumulative Capital Cost flow
exchange redemption Merger of hedging hedge
reserve reserve reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2020 (2.4) 1,033.3 (703.6) 10.7 (1.3) 336.7
Changes in fair value recognised
in other comprehensive income - - - (7.5) 4.9 (2.6)
Tax on items taken directly
to equity (note 7) - - - 1.4 (0.9) 0.5
Foreign exchange adjustments 1.3 - - - - 1.3
At 30 September 2020 (1.1) 1,033.3 (703.6) 4.6 2.7 335.9
---------------------------------- ----------- ------------ --------- ------------- --------- ------
Year ended 31 March 2021
Cost Cash
Cumulative Capital of hedging flow
exchange redemption Merger reserve hedge
reserve reserve reserve GBPm reserve Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2020 (2.4) 1,033.3 (703.6) 10.7 (1.3) 336.7
Changes in fair value recognised
in other comprehensive income - - - (12.7) 9.3 (3.4)
Tax on items taken directly
to equity (note 7) - - - 2.4 (1.8) 0.6
Foreign exchange adjustments (1.6) - - - - (1.6)
Foreign exchange adjustments
reclassified to profit on
disposal of joint ventures 4.0 - - - - 4.0
At 31 March 2021 - 1,033.3 (703.6) 0.4 6.2 336.3
---------------------------------- ----------- ------------ --------- ------------ --------- ------
The capital redemption reserve arose as a result of a return of
capital to shareholders following the reverse acquisition of United
Utilities PLC by United Utilities Group PLC in the year ended 31
March 2009. The merger reserve arose in the same year on
consolidation and represents the capital adjustment to reserves
required to effect the reverse acquisition.
The cost of hedging 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, 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 2021 there were commitments for future capital
expenditure contracted but not provided for of GBP319.1 million (30
September 2020: GBP377.3 million; 31 March 2021: GBP336.7
million).
Since 2016, the group has received indications from a number of
groups 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
with the litigation still in its early stages. The water and
sewerage undertakers are working to agree with the claimants a list
of material issues and fact patterns, although the litigation's
likely direction and the quantum of any compensation being claimed
remains uncertain at this stage.
However, based on the information currently available the
likelihood of the claim's success is considered to be low, and any
potential outflow is not expected to be material.
The group has credit support guarantees as well as general
performance commitments and potential liabilities under contract
that may give rise to financial outflow. The group has determined
that the possibility of any outflow arising in respect of these
potential liabilities is remote and, as such, there are no
contingent liabilities to be disclosed (30 September 2020 and 31
March 2021: none).
18. Related party transactions
The related party trading 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 2021
2021 2020 GBPm
GBPm GBPm
Sales of services 183.1 172.5 362.9
Charitable contributions advanced 0.1 - -
to related parties
Interest income and fees recognised
on loans to related parties 1.5 1.2 3.7
Amounts owed by related parties 96.8 154.3 113.8
Amounts owed to related parties 1.9 4.6 2.4
Sales of services to related parties mainly represent
non-household wholesale charges to Water Plus that were billed and
accrued during the period. These transactions were on market credit
terms in respect of non-household wholesale charges, which are
governed by the wholesale charging rules issued by Ofwat.
At 30 September 2021 amounts owed by joint ventures, as recorded
within trade and other receivables in the statement of financial
position, were GBP96.8 million (30 September 2020: GBP154.3
million; 31 March 2021: GBP113.8 million), comprising GBP28.2
million (30 September 2020: GBP29.8 million; 31 March 2021: GBP27.1
million) of trade balances, which are unsecured and will be settled
in accordance with normal credit terms, and GBP68.6 million (30
September 2020: GBP124.5 million; 31 March 2021: GBP86.7 million)
relating to loans.
Included within these loans receivable were the following
amounts owed by Water Plus:
-- GBP66.4 million outstanding on a GBP100.0 million revolving
credit facility provided by United Utilities PLC, with a maturity
date of December 2023, bearing a floating interest rate of the Bank
of England base rate plus a credit margin. This balance comprises
GBP67.5 million outstanding net of a GBP1.1 million allowance for
expected credit losses; and
-- GBP0.8 million receivable being the GBP10.5 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 GBP0.2 million allowance for expected credit
losses, and GBP9.5 million of the group's cumulative recognised
share of joint venture losses as the loan is deemed to be part of
the group's long-term investment (see note 10). No losses were
recognised against this loan during the six months to 30 September
2021 as all of the group's share of Water Plus losses for the
period were recognised against the equity investment in the joint
venture following the conversion of a GBP32.5 million revolving
credit facility to equity share capital in April 2021. This is a
zero coupon shareholder loan with a total amount outstanding at 30
September 2021 of GBP12.5 million, comprising the GBP10.5 million
receivable measured at fair value, and GBP2.0 million recorded as
an equity contribution to Water Plus recognised within interests in
joint ventures.
A further GBP1.4 million of non-current receivables was owed by
other related parties at 30 September 2021.
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 GBP54.1
million, of which GBP32.1 million related to guarantees to United
Utilities Water Limited.
At 30 September 2021, amounts owed to related parties were
GBP1.9 million (30 September 2020: GBP4.6 million; 31 March 2021:
GBP2.4 million). Included within this amount is GBP1.1 million due
to Water Plus for the surrender of consortium relief tax losses.
The amounts outstanding are unsecured and will be settled in
accordance with normal credit terms.
19. Events after the reporting period
Apart from the issuance of GBP100 million fixed rate notes
traded on 27 September 2021 with a settlement date of 4 October
2021, as set out in note 12, there were no material events after
the reporting date that required recognition or disclosure in the
condensed consolidated financial statements for the period ended 30
September 2021. This issuance did not settle until after the
reporting period, and therefore it has not been included in the
condensed consolidated financial statements as it represents a
non-adjusting event.
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
by the EU;
-- the interim management report includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The directors of United Utilities Group PLC at the date of this
announcement are listed below:
Sir David Higgins
Steve Mogford
Phil Aspin
Mark Clare
Stephen Carter
Kath Cates
Alison Goligher
Paulette Rowe
Doug Webb
This responsibility statement was approved by the board and
signed on its behalf by:
Steve Mogford Phil Aspin
23 November 2021 23 November 2021
Chief Executive Officer Chief Financial Officer
INDEPENT REVIEW REPORT TO UNITED UTILITIES GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2021 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of financial position, the
consolidated statement of changes in equity, the consolidated
statement of cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2021 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements
of the group were prepared in accordance with International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union and in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and the next annual
financial statements will be prepared in accordance with UK-adopted
international accounting standards. The directors are responsible
for preparing the condensed set of financial statements included in
the half-yearly financial report in accordance with IAS 34 as
adopted for use in the UK.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Ian Griffiths
for and on behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square
Manchester
M2 3AE
23 November 2021
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