REG - United Utilities Grp - Half-year Report
16/11/2023 07:00
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RNS Number : 6132T United Utilities Group PLC 16 November 2023
2023/24 Half Year Results Statement
16 November 2023: United Utilities today announces half year results for the
six-month period to 30 September 2023.
Louise Beardmore, Chief Executive Officer, said:
"We are announcing a robust set of underlying financial and operational
results today, in what has been a busy six months, including submission of our
ambitious business plan for 2025-30.
We continue to focus on delivering for our customers, communities and the
environment - and creating a stronger, greener and healthier North West. We
are providing affordability support to over 350,000 customers - more than ever
before - and we are on track to achieve our best ever year on customer outcome
delivery incentives. We are doing more to protect and enhance the North West's
waterways and natural habitats and we're on course to attain the highest
4-star rating from the Environment Agency for 2023.
Last month, we set out an ambitious £13.7 billion plan for 2025-30, a plan
that will transform the delivery of services for customers and the environment
in the North West and at the same time supporting 30,000 jobs, 7,000 of which
will be new. Our strong balance sheet and liquidity puts us in a great
position to deliver it, and we aren't waiting - we have made an early start on
overflows, representing £1.2 billion of our proposed programme, and allowing
us to press ahead with work to reduce storm overflow spills and deliver the
step change we all want to see."
Key financials - six months ended 30 September
Reported Underlying(1)
£m 2023 2022 % change 2023 2022 % change
Revenue 982.0 919.3 +6.8% 982.0 919.3 +6.8%
Operating profit 240.6 258.5 -6.9% 271.1 258.5 +4.9%
Profit/(loss) before tax 160.0 426.3 -62.5% 90.3 (7.9) n/a
Profit/(loss) after tax 116.8 353.0 -66.9% 90.3 (12.2) n/a
EPS (pence) 17.1 51.8 -67.0% 13.2 -1.8 n/a
2023 2022 % change
Interim DPS (pence) 16.59 15.17 +9.4%
Net regulatory capex (£m) 371.8 334.5 +11.2%
RCV(2) (£m) 14,406 13,458 +7.0%
Net debt (£m) 8,541 7,829 +9.1%
RCV gearing(3) (%) 59% 58% +1.7%
Operational highlights
· Forecasting to double our ODI reward this year, in line with guidance
at over £50m
· On track to achieve 4 star status for 2023 in the EA's Environmental
Performance Assessment
· Going further and faster on tackling overflows, following regulatory
approvals to accelerate delivery of infrastructure investment
· Progressing well with leakage programme, forecasting to achieve our
best ever performance
· Ranked 1st WaSC(4) and 4th utility company out of 30 in the UK
Customer Satisfaction Index(5)
· Supporting more customers, with over 370,000 households on Priority
Services register and over 350,000 customers supported through affordability
schemes so far this AMP
· Progressing plans for pioneering carbon-capture facility, supporting
net zero plans and making an important contribution to the UK's carbon-capture
potential
· High quality PR24 business plan submission for 2025-30, with strong
customer support and ambitious targets to create a stronger, greener and
healthier North West
Financial highlights
· Underlying operating profit of £271m, reported operating profit of
£241m
· Underlying EPS of 13.2p, up from -1.8p, reported EPS of 17.1p
· Low level of gearing at 59% and solid credit ratings providing future
financial flexibility
· Pension scheme buy-in transaction, covering around 2/3rds of
liabilities and representing a significant milestone in our de-risking journey
· AMP7 funding in place, liquidity extending into 2026
· Recommended interim dividend of 16.59p, in line with policy
Reiterate financial framework guidance for current AMP7 regulatory period
· Continue to target AMP7 net ODI reward of around £200m
· Forecast average real RoRE(6) of 6-8%
· RCV growth of 4-5% nominal compound annual growth rate
· Targeting dividend growth in line with CPIH
· Maintain gearing within target range of 55-65%
Enquiries
Investors and Analysts
Chris Laybutt - Investor Relations and Clean Energy Strategy Director +44 7769 556 858
Anna Oberg - Investor Relations Manager +44 7435 939 112
Media
Gaynor Kenyon - Corporate Affairs Director +44 7753 622 282
Graeme Wilson - Teneo Communications +44 207 260 2700
Half Year Results presentation webcast
We will be hosting a webcast presentation for investors and analysts starting
at 9.00am on Thursday 16 November 2023, which can be accessed using the
following details:
https://us06web.zoom.us/j/81196837873?pwd=cF5Haal0ajFnYigfwjmMLntbay0gn7.1
(https://urldefense.com/v3/__https:/us06web.zoom.us/j/81196837873?pwd=cF5Haal0ajFnYigfwjmMLntbay0gn7.1__;!!FvJKb9TgAvphWVQ!buT2_xSE6XC9Cujn9NiZEybCYecz32ZEkkpsm6r29N9n1ud9cmdmVI1hjJJv898_2iqEO8_6j1UgwocOL8IzyYsB$)
Meeting ID: 811 9683 7873, Passcode: 978727
The presentation slides will be available on our website shortly before the
presentation commences at the following link:
https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/
(https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/)
Notes
(1) Underlying measures are defined in the underlying profit tables.
(2) United Utilities Water Limited's adjusted RCV (adjusted for actual spend,
timing differences and including full expected value of AMP7 ex-post
adjustment mechanisms). Prior year figures have been re-presented for
comparative purposes.
(3) RCV gearing calculated as group net debt including loan receivable from
joint venture/United Utilities Water Limited's adjusted RCV (adjusted for
actual spend, timing differences and including full expected value of AMP7
ex-post adjustment mechanisms). Prior period figures have been re-presented
for comparative purposes.
(4) Water and Sewerage Company
(5) UKCSI is an Institute for Customer Service measure
(6) Return on regulated equity
OPERATIONAL REVIEW
Submitting our most ambitious plan
Last month, we submitted a high quality and ambitious business plan to our
regulator, Ofwat, for 2025-30, through which we are proposing the largest
investment in the region's water and wastewater infrastructure in over 100
years. Highlights from our United Utilities Water plan include:
· £13.7 billion total expenditure across 2025-30, with 93% of
enhancement spend driven by statutory requirements, resulting in 8.7% nominal
RCV growth per annum, equating to over 50% growth across the five-year period;
· Improving water and wastewater services, increasing resilience,
protecting and enhancing the environment, and reducing greenhouse gas
emissions;
· Proposing to double our support package to £525 million, with
financial support for one in six customers, reducing the risk of hardship from
the necessary bill increases;
· Financing the investment in a responsible and sustainable way, with
financial flexibility to finance the plan with average gearing of 65% over the
AMP, based on Ofwat's September 2022 'early view' WACC assumption, and without
assuming new equity;
· Strong levels of customer support at 74%, following a regional
approach and engaging with 95,000 people across our five great counties; and
· Real opportunities for the North West regional economy, with a chance
to drive inward investment and our plan supporting 30,000 jobs.
Supporting customers, employees and communities for a stronger North West
We recognise that affordability is a hugely important issue for customers,
particularly against a backdrop of rising household costs and economic
uncertainty. We are seeing sustained demand for financial support from
customers and have helped over 350,000 customers with financial support so far
during AMP7. We continue to work with the Department for Work and Pensions
(DWP) to identify hard to reach customers eligible for our support schemes and
proactively apply lower bill tariffs. We continue to develop our multi-award
winning Priority Services offering, which helps vulnerable customers in our
region. We now have over 370,000 customers on our Priority Services register
and are on track to meet our full year target, and have lifted around 100,000
customers out of water poverty so far this AMP. Our team was rated number one
WaSC, and fourth utility company overall, for customer service in the latest
independent UK Customer Satisfaction Index (UKCSI).
We have welcomed more than 80 new graduates and apprentices in our September
intake, including our first digital cohort, and this year we have announced
additional graduate opportunities in our newly formed rainwater management
team, supporting our commitments to river health. We were also recently
awarded the Water Industry Skills Employer of the Year, in recognition of our
technical competence and assessment programmes, key health and safety
practical training, and award-winning internally-delivered apprenticeship
pathways.
The Lake District is a special place in our region, with Lake Windermere at
the heart of the National Park. Over the summer we opened our first ever shop
on the Windermere High Street, welcoming anyone who wants to drop by. For
questions or advice on anything from overflows to water bills, career
opportunities to property development, we are on hand for the people of our
region.
We have been accredited with the Fair Tax Mark for five years in a row,
maintain upper quartile performance across a range of trusted ESG ratings,
including MSCI and Sustainalytics, and we have once again been categorised as
having the highest financial resilience status in Ofwat's latest Monitoring
Financial Resilience assessment.
Protecting and enhancing the environment for a greener North West
Our core business is inextricably linked to the natural environment and we
recognise the responsibility and opportunity we have to improve and enhance
the environment. We have completed 67% of our AMP7 environmental improvement
programme, and we are currently on track to attain the highest 4-star rating
in the Environment Agency's Environmental Performance Assessment (EPA) for
2023.
Our PR24 submission included the UK's biggest storm overflow spill reduction
plan, targeting a 60% reduction in the decade to 2030. We have made a fast
start through our 'Better Rivers' programme, supported by additional
reinvestment of outperformance, and had made good progress as at the end of
the 2023 financial year with a 39% reduction in reported spills against the
2020 baseline. As part of the Accelerated Infrastructure Delivery Project
earlier this year, Ofwat gave approval for the company to progress with 154
priority projects during 2023-25. This means we are able to progress work on
around £200 million worth of projects during 2023-25.
Despite experiencing a number of storm events and severe rainfall, we are on
track to deliver a reduction in average spills per overflow again this year.
These storms have, however, impacted our flooding performance. As a result
we expect to be in penalty position on our annual internal sewer flooding
performance commitment.
In June, we experienced a fractured outlet pipe at our Fleetwood Wastewater
Treatment Works. Given the location and difficulty of the repair, the
engineering solution was more complex than usual. To minimise any impact as
best we could, our teams worked night and day to optimise the network and
constructed a 2 kilometre, 5 lane bypass around the fractured pipe. During
this time, flows were diverted to alternative sites and the Environment Agency
issued precautionary advice in relation to the bathing water along the Fylde
coast. The site is now operating at full capacity while the permanent repair
is ongoing. This has resulted in £30 million of additional operating and
infrastructure renewals expenditure in the period, which has been excluded
from underlying results as shown in the underlying profit measure tables.
A pioneering carbon-capture facility recently received planning permission to
be constructed at our head office in Warrington. Funded by the UK's Department
for Energy Security and Net Zero through their Direct Air Capture and
Greenhouse Gas Removal
(https://www.gov.uk/government/publications/direct-air-capture-and-other-greenhouse-gas-removal-technologies-competition)
innovation programme, we are excited to host this innovative project, and to
play a part in the UK's plans for Net Zero by 2050. The vision for the site is
that nothing will go to waste - once the facility's carbon-capture
capabilities are proven, the heat and power generated by the process will be
redirected to heat United Utilities' on-site buildings as part of our
long-term sustainability goals.
Providing a great quality and reliable water service for a healthier North
West
Ensuring we provide great quality, wholesome drinking water at all times is a
priority for us, and this is at the heart of our Water Quality First
programme. As part of the initiative, this summer we completed a rigorous
eight-year programme of inspecting and cleaning every storage reservoir before
returning them to full capacity. Having achieved this milestone, we have
implemented an ongoing cleaning programme, with a rolling schedule to ensure
the water we provide is of the best quality at all times.
In July this year, the Drinking Water Inspectorate published its Drinking
Water 2022 report, in which it commended our efforts in taking positive action
to put water quality first, and we won the Drinking Water Initiative of the
Year in the 2023 Water Industry Awards. Water Quality First is also having a
measurable benefit in customer contacts as we continue to outperform on this
performance commitment.
Leakage performance has also been strong so far this year, as we progress at
pace with our detailed programme, which is enabling us to fix more leaks. We
are forecasting to achieve our best ever leakage performance this year, and an
ODI reward on this measure. Water supply levels remain strong as we enter the
winter period, helped by higher levels of rainfall over the summer and our
integrated supply network, which has built flexibility into our system to
balance supply and demand needs.
AMP7 FINANCIAL FRAMEWORK
Our five-year financial framework captures anticipated performance in the five
years to 31 March 2025. This period aligns with the AMP7 regulatory period.
Our financial framework below is unchanged from 2022/23 full year results.
Investment and regulated asset growth
We expect to deliver a number of capital programmes in AMP7, in addition to
our base totex (total expenditure) programme. These include Green Recovery,
the Accelerated Infrastructure Delivery Project spend and AMP8 transitional
investment. Combined with the impact of inflation, our regulated assets are
expected to grow at a compound annual growth rate of 4 to 5 per cent across
the five years to March 2025.
Return on regulated equity
The return on regulatory equity (RoRE) metric measures returns (after tax and
interest) earned by reference to notional regulated equity. Overall returns
comprise a base return on equity plus a contribution from outcome delivery
incentives, operating efficiency, financing and tax efficiency and customer
service. We currently expect to deliver average returns of between 6 and 8 per
cent in AMP7, on a real RPI/CPIH blended basis.
Balance sheet
The board has set a target gearing range for the AMP7 regulatory period of 55
to 65 per cent net debt to regulated capital value. As at 30 September 2023
our gearing is in the lower half of this range at 59 per cent.
Dividend policy
The group maintains a dividend policy to target a growth rate of CPIH
inflation each year through to 2025. The annual increase in the dividend is
based on the CPIH element included within allowed regulated revenue for the
current financial year. This is calculated as using the CPIH annual rate from
the November prior (i.e. the 2023/24 dividend is equal to the 2022/23 dividend
indexed for the movement in CPIH between November 2021 and November 2022).
OUTLOOK AND GUIDANCE
ODI rewards
We are forecasting to achieve a net customer ODI reward of over £50m in FY23
and targeting a net reward of around £200 million in total over AMP7.
Revenue
Revenue is expected to increase by around £150 million in 2023/24, largely
reflecting the November 2022 CPIH inflation of 9.4 per cent, partially offset
by a £20 million net impact of over/under-recovery during 2022/23 and 2021/22
(under-recovery in 2022/23, for which we have re-baselined in 2023/24, and an
over-recovery in 2021/22).
Underlying operating costs
Operating costs are expected to be around £60 million higher year-on-year.
This increase is largely driven by inflation, with the largest inflationary
pressures impacting power, labour, and chemicals costs. The remaining increase
reflects the 2023/24 operating cost impact of additional investments,
including our Better Rivers programme.
Underlying net finance expense
Underlying net finance expense is expected to be at least £150 million lower
year-on-year, due to the impact of falling inflation. As at 31 March 2023, we
had £4.5 billion of index-linked debt exposure, giving rise to a £45m swing
in our annual interest charge for every 1 per cent change in inflation. Our
cash interest in 2022/23 was £102 million and we expect this to be slightly
higher in 2023/24.
Underlying tax
Our current tax charge is expected to be nil in 2023/24, reflecting expected
benefits following the spring budget in relation to "full expensing" and the
50 per cent first year allowances on longer life assets.
Capital expenditure
Capex in 2023/24 is expected to be in the range of £720 million to £800
million. In addition to our AMP7 base programme, this reflects capital
expenditure for the year in relation to our additional investment (including
Green Recovery and investment supporting our Better Rivers programme), and
AMP8 acceleration capital programmes.
FINANCIAL REVIEW
Key financials (£m) - six months ended 30 September
Reported Underlying(1)
2023 2022 % change 2023 2022 % change
Revenue 982.0 919.3 +6.8% 982.0 919.3 +6.8%
Operating expenses (421.9) (361.8) +16.6% (401.3) (361.8) +10.9%
Infrastructure renewals expenditure (106.1) (92.2) +15.1% (96.2) (92.2) +4.3%
Depreciation and amortisation (213.4) (206.8) +3.2% (213.4) (206.8) +3.2%
Operating profit 240.6 258.5 -6.9% 271.1 258.5 +4.9%
Net finance (expense)/income (79.5) 136.4 n/a (179.7) (266.6) -32.6%
Share of (losses)/profits of JVs (1.1) 0.2 n/a (1.1) 0.2 n/a
Profit on disposal of subsidiary - 31.2 n/a - - -
Profit/(loss) before tax 160.0 426.3 -62.5% 90.3 (7.9) n/a
Tax charge (43.2) (73.3) -41.1% - (4.3) n/a
Profit/(loss) after tax 116.8 353.0 -66.9% 90.3 (12.2) n/a
EPS (pence) 17.1 51.8 -67.0% 13.2 -1.8 n/a
( )
2023 2022 % change
Interim DPS (pence) 16.59 15.17 +9.4%
Net regulatory capex (£m) 371.8 334.5 +11.2%
RCV(2) (£m) 14,406 13,458 +7.0%
Net debt (£m) 8,541 7,829 +9.1%
RCV gearing(3) (%) 59% 58% +1.7%
( )
(1) Underlying measures are defined in the underlying profit tables.
(2) United Utilities Water Limited's adjusted RCV (adjusted for actual spend,
timing differences and including full expected value of AMP7 ex-post
adjustment mechanisms). Prior period figures have been re-presented for
comparative purposes.
(3) RCV gearing calculated as group net debt including loan receivable from
joint venture/United Utilities Water Limited's adjusted RCV (adjusted for
actual spend, timing differences and including full expected value of AMP7
ex-post adjustment mechanisms). Prior period figures have been re-presented
for comparative purposes.
( )
We have delivered robust underlying financial performance for the half year.
Revenue increased 7 per cent, mainly driven by the inflation increase allowed
as part of our revenue cap. Inflationary pressures have once again increased
our operating costs, however we continue to work hard to contain the inflation
impact on overall costs within the totex inflation allowance allowed for in
our regulatory model. The combined effect of the higher revenue, partly offset
by inflation increases to costs resulted in underlying operating profit
increasing 5 per cent to £271 million. Reported operating profit was £30
million lower at £241 million reflecting an adjusting item in respect of
costs associated with a fractured outlet pipe at our Fleetwood Wastewater
Treatment Works.
Non-cash interest expense on our index-linked debt declined, resulting in an
underlying profit of £90 million and an underlying earnings per share of 13.2
pence. Reported profit after tax was higher at £117 million, with reported
earnings per share of 17.1 pence per share. Adjusted items between underlying
and reported are set out in the underlying profit tables.
Our balance sheet continues to be one of the strongest in the sector. During
the half year we completed a pension scheme buy-in transaction with Legal
& General, covering 2/3rds of scheme liabilities and representing a
significant milestone in our de-risking journey. We have fully pre-funded our
AMP7 investment requirements, and this, alongside our low level of gearing at
59% and solid credit ratings provide us with future flexibility as we approach
AMP8.
Revenue
£m
Six months to 30 September 2022 919.3
Regulatory revenue impact 52.7
Other impacts 10.0
Six months to 30 September 2023 982.0
Revenue was up £63 million, at £982 million, largely reflecting the
inflation increase allowed as part of our revenue cap.
In the first half of 2023/24, we had a £53 million increase in the revenue
cap due to regulatory adjustments, largely driven by a 9.4 per cent
CPIH-linked increase partly offset by 1.4 per cent real reduction in allowed
wholesale revenues as set out in our PR19 Final Determination.
Other revenue impacts largely reflect increases in consumption.
Operating profit
£m
Underlying - Six months to 30 September 2022 258.5
Revenue increase 62.7
Inflationary increases on operating costs (35.7)
Depreciation increase (6.6)
Costs driving ODI performance (4.9)
Other (2.9)
Underlying operating profit -Six months to 30 September 2023 271.1
Adjusted items* (30.5)
Reported - Six months to 30 September 2023 240.6
* Adjusted items are set out in the underlying profit tables
Underlying operating profit at £271 million was £13 million higher than the
first half of last year, largely reflecting the increase in revenue, offset by
inflationary pressures on our core costs.
Inflationary pressures continue to impact our operating costs and resulted in
a £36 million increase for the first half of the year. The largest increases
continue to be to power, labour and chemical costs, where we incurred an
additional £13 million, £10 million and £6 million respectively.
As our asset base continues to grow, depreciation charge for the half year
increased by £7 million.
The £5 million of additional expenditure driving improvements to ODI
performance is primarily in relation to investment in Dynamic Network
Management to drive improvements in management of our sewer network.
Reported operating profit decreased by £18 million on the same period last
year, reflecting the £13 million increase in underlying operating profit
offset by £30 million of costs associated with responding to a fractured
outlet pipe at our Fleetwood Wastewater Treatment Works. The scale of the
activity involved in remediating this failure, and the associated cost was not
representative of normal business activity, and as such the costs were
excluded in arriving at underlying operating profit.
Our industry-leading affordability schemes, combined with effective credit
collection practices and utilisation of technology have meant that current
year cash collection has been strong. Our bad debt position remains stable at
1.8 per cent of statutory revenue.
Profit/(loss) before tax
£m
Underlying - Six months to 30 September 2022 (8.0)
Underlying operating profit increase 12.6
Underlying net finance expense decrease 87.0
Share of JVs losses increase (1.3)
Underlying profit before tax - Six months to 30 September 2023 90.3
Adjusted items * 69.7
Reported - Six months to 30 September 2023 160.0
* Adjusted items are set out in the underlying profit tables.
Underlying profit before tax of £90 million compared to a £8 million
underlying loss before tax in the first half of last year. The £98 million
difference reflects the £13 million increase in underlying operating profit
and a £87 million decrease in underlying net finance expense, partly offset
by a small increase in the share of losses of joint ventures of £1 million
(from a £0.2 million share of profits in the prior half year to a £1.1
million share of losses in the current half year). Underlying profit before
tax reflects presentational adjustments as outlined in the underlying profit
tables below.
Reported profit before tax decreased by £266 million to £160 million
reflecting an £18 million decrease in reported operating profit and a £216
million increase in reported net finance expense (from a £136 million
reported net finance income to a £80 million reported net finance expense), a
£31 million profit on disposal of our subsidiary United Utilities Renewable
Energy Limited recognised in the previous first half, and a small increase in
the share of losses of joint ventures of £1 million, as noted above.
· Net finance expense
The underlying net finance expense of £180 million was £87 million lower
than the same period last year mainly due to significantly lower inflation
resulting in a £106 million decrease in the non-cash indexation on our debt
and derivative portfolio, partly offset by a reduction in capitalised interest
of £7 million, and rising interest rates resulting in higher net interest
payable of £12 million.
Cash interest of £60 million was £6 million higher than the first half of
last year. Cash interest excludes non-cash items mainly comprising the
indexation on our debt and derivative portfolio, capitalised interest and net
pension interest income.
Reported net finance expense of £80 million was £216 million higher than the
first half of last year, reflecting a £303 million reduction in net fair
value gains on debt and derivatives (excluding interest on debt and
derivatives under fair value option) from £403 million last year to £100
million this year, partly offset by the £87 million decrease in underlying
net finance expense.
· Joint ventures
The group incurred a share of the losses of Water Plus for the six months
ended 30 September 2023 of £1.1 million all of which has been recognised in
the income statement. This compares to a share of the profits of Water Plus of
£0.2 million for the six months ended 30 September 2022, with the difference
largely as a result of the impact of higher interest rates.
Profit/(loss) after tax and earnings per share
PAT Earnings per share
£m Pence/share
Underlying - Six months to 30 September 2022 (12.2) (1.8)
Underlying profit before tax increase 98.2
Reduction in underlying tax charge 4.3
Underlying profit after tax - Six months to 30 September 2023 90.3 13.2
Adjusted items * 26.5
Reported - Six months to 30 September 2023 116.8 17.1
* Adjusted items are set out in the underlying profit tables.
The underlying profit after tax of £90 million was £102 million higher than
the £12 million underlying loss in the first half of last year, reflecting
the £98 million increase in underlying profit before tax and a £4 million
reduction in underlying tax charge, resulting in a nil tax charge for the half
year.
Reported profit after tax was higher at £117 million and reported earnings
per share at 17.1 pence per share with the adjusted items between underlying
and reported set out in the underlying profit tables.
· Tax
We continue to be fully committed to paying our fair share of tax and acting
in an open and transparent manner in relation to our tax affairs, and are
delighted to have been accredited with the Fair Tax Mark again in 2023 for the
fifth year running.
In addition to corporation tax, the group makes further contributions to the
public finances, typically of around £230 million per annum, in the form of
business rates, employer's national insurance contributions, environmental
taxes, other regulatory service fees such as water abstraction charges as well
as employment taxes on behalf of our 6,000 strong workforce.
For the current period, no cash tax was paid due to the impact of the
capital allowances first year allowances, announced in the March 2023
Chancellor's Budget. The key reconciling item to the headline rate of
corporation tax continues to be allowable tax deductions on capital
investment, these being deductions put in place by successive governments to
encourage such investment and thus reflecting responsible corporate behaviour
in relation to taxation.
The current tax charge was nil in the six months to 30 September 2023,
compared with £4 million in the previous half year.
For the six months to 30 September 2023, we recognised a deferred tax charge
of £43 million, compared with £69 million for the same period last year.
The total effective tax rate, was 27 per cent for the six months to 30
September 2023, compared with 17 per cent in the previous half year; the
increase being mainly due to the non-taxable profit on the disposal of United
Utilities Renewable Energy Ltd and capital allowance "super deductions" in the
prior year and an increase in the corporation tax rate to 25 per cent in the
current year.
In the period, there were £127 million of tax adjustments taken to equity,
primarily relating to remeasurement movements on the group's defined benefit
pension schemes and on hedge effectiveness.
Dividend per share
The Board has proposed an interim dividend of 16.59 pence per ordinary share
in respect of the six months ended 30 September 2023. This is an increase of
9.4 per cent compared with the interim dividend last year, in line with the
group's dividend policy of targeting a growth rate of CPIH inflation each year
through to 2025. The 9.4 per cent increase is based on the CPIH element
included within allowed regulated revenue for the 2023/24 financial year (i.e.
the movement in CPIH between November 2021 and November 2022).
The interim dividend is expected to be paid on 1 February 2024 to shareholders
on the register at the close of business on 22 December 2023. The ex-dividend
date for the interim dividend is 21 December 2023. The election date for the
Dividend Reinvestment Plan is 11 January 2024.
Cash flow
Net cash generated from operating activities for the six months to 30
September 2023 was £381 million, £20 million lower than £401 million in the
same period last year, principally as a result of net tax receipts in the
prior half year. The net cash generated from continuing operating activities
supports the dividends paid of £207 million and partially funds some of the
group's net capital expenditure of £360 million, with the balance being
funded by net borrowings and cash and cash equivalents.
Pensions
As at 30 September 2023, the group had an IAS 19 net pension surplus of £269
million, compared with a surplus of £601 million at 31 March 2023. This £332
million decrease principally reflects the impact of the purchase of bulk
annuities as part of a buy-in transaction completed in July with Legal &
General leading to around a £220 million reduction in the surplus. The
remaining reduction relates to an increase in the value of the schemes'
liabilities due to actual inflation being higher than assumed at 31 March
2023. Further detail on pensions is provided in note 10 ('Retirement benefit
surplus') of these condensed consolidated financial statements.
Financing
Net debt £m
At 31 March 2023 8,200.8
Cash generated from operations (440.7)
Net capital expenditure 359.0
Dividends 206.9
Indexation 160.0
Interest 59.8
Fair value movements 8.4
Exchange rate movements on bonds and term borrowings (16.6)
Other 3.0
At 30 September 2023 8,540.6
Net debt at 30 September 2023 was £8,541 million, compared with £8,201
million at 31 March 2023. This comprises gross borrowings with a carrying
value of £9,149 million, net derivative liabilities hedging specific debt
instruments of £112 million and total indexation on inflation swaps of £108
million and is net of cash and bank deposits of £829 million.
Gearing, measured as group net debt including a £74 million loan receivable
from joint venture divided by UUW's adjusted RCV (adjusted for actual spend,
timing differences and including full expected value of AMP7 ex-post
adjustment mechanisms) of £14.4 billion, was 59 per cent at 30 September
2023, slightly higher than the 58 per cent at 31 March 2023, and remains
within our target range of 55 to 65 per cent.
· Cost of debt
As at 30 September 2023, the group had approximately £3.5 billion of
RPI-linked instruments and £0.5 billion of CPI or CPIH-linked instruments
held as debt. Including swaps, the group has RPI-linked debt exposure of £3.4
billion at an average real rate of 1.4 per cent, and £1.3 billion of CPI or
CPIH-linked debt exposure at an average real rate of -0.6 per cent.
A significantly lower RPI inflation charge compared with the same period last
year contributed to the group's average effective interest rate of 6.0 per
cent being lower than the rate of 9.0 per cent last half year. More
information on this can be found in the underlying profit tables below.
The group has fixed the interest rates on its non index-linked debt in line
with its 10-year reducing balance basis at a net effective nominal interest
rate of 2.6 to 2.8 per cent for the remainder of the AMP7 regulatory period.
· Credit ratings
UUW's senior unsecured debt obligations are rated A3 with Moody's Investors
Service (Moody's), A- with Fitch Ratings (Fitch) and BBB+ with Standard &
Poor's Ratings Services (S&P) and all on stable outlook. United Utilities
PLC's senior unsecured debt obligations are rated Baa1 with Moody's, A- with
Fitch and BBB- with S&P, all on stable outlook.
· Debt financing
The group has access to the international debt capital markets through its
£10 billion medium-term note (MTN) programme. The group has fully pre-funded
its AMP7 investment requirements, and has begun funding its AMP8 (2025-30)
investment programme.
In the half year to September 2023, we raised £750 million of term funding. A
15.5 year £300 million sustainable public bond in April, a 9 year £100
million bilateral loan with a relationship bank in April, and a 13 year £350
million sustainable public bond in June. We renewed £100 million of
relationship bank revolving credit facilities with an initial 5-year term.
· Interest rate management
Long-term sterling inflation index-linked debt provides a natural hedge to
assets and earnings under the regulatory model. At 30 September 2023,
approximately 40 per cent of the group's net debt was in RPI-linked form,
representing around 24 per cent of UUW's regulatory capital value, with an
average real interest rate of 1.4 per cent. A further 15 per cent of the
group's net debt was in CPI or CPIH-linked form, representing around 9 per
cent of UUW's RCV, with an average real rate of -0.6 per cent. The long-term
nature of this funding also provides a good match to the company's long-life
infrastructure assets and is a key contributor to the group's average term
debt maturity profile, which is around 17 years.
Our inflation hedging policy is to target around 50 per cent of net debt to be
maintained in index-linked form. This reflects a balanced assessment across a
range of factors.
Where nominal debt is raised in a currency other than sterling and/or with a
fixed interest rate, the debt is generally swapped to create a floating rate
sterling liability for the term of the debt. To manage exposure to medium-term
interest rates, the group fixes underlying interest costs on nominal debt out
to ten years on a reducing balance basis.
· Liquidity
Short-term liquidity requirements are met from the group's normal operating
cash flow and its short-term bank deposits and supported by committed but
undrawn credit facilities. Our MTN programme provides further support.
At 30 September 2023, we had liquidity out into 2026, comprising cash and bank
deposits, plus committed undrawn revolving credit facilities. This gives us
flexibility in terms of when and how further debt finance is raised to help
refinance maturing debt and support the delivery of our ongoing capital
investment programme.
Underlying profit
The underlying profit measures in the following table represent alternative
performance measures (APMs) as defined by the European Securities and Markets
Authority (ESMA). These measures are linked to the group's financial
performance as reported in accordance with UK-adopted international accounting
standards and the requirements of the Companies Act 2006 in the group's
consolidated income statement. As such, they represent non-GAAP measures.
These APMs can assist in providing a representative view of business
performance, and may not be directly comparable with similarly titles measures
presented by other companies. The group determines adjusted items in the
calculation of its underlying measures against a framework which considers
significance by reference to profit before tax, in addition to other
qualitative factors such as whether the item is deemed to be within the normal
course of business, its assessed frequency of reoccurrence and its volatility
which is either outside the control of management and/or not representative of
current year performance.
In addition, a reconciliation of the group's average effective interest rate
has been presented, together with a prior period comparison. In arriving at
net finance expense used in calculating the group's effective interest rate,
underlying net finance expense is adjusted to add back net pension interest
income and capitalised borrowing costs in order to provide a view of the
group's cost of debt that is better aligned to the return on capital it earns
through revenue.
Adjusted item Rationale
Adjustments not expected to recur
Fleetwood outfall pipe fracture In June 2023 the group suffered a large-scale outfall pipe fracture at a major
wastewater treatment works at Fleetwood. The scale of the activity involved in
remediating this failure, and the associated cost (which was incurred across
both operating expenditure and infrastructure renewals expenditure) was not
representative of normal business activity and therefore the costs are
excluded in arriving at underlying operating profit.
Profit on disposal of subsidiary This relates to the disposal of the group's subsidiary United Utilities
Renewable Energy Limited, which represents a significant, atypical event and
as such is not considered to be part of the normal course of business.
Consistently applied presentational adjustments
Fair value (gains)/losses on debt and derivative instruments, excluding Fair value movements on debt and derivative instruments can be both very
interest on derivatives and debt under fair value option significant and volatile from one period to the next, and are therefore
excluded in arriving at underlying net finance expense as they are determined
by macro-economic factors which are outside of the control of management and
relate to instruments that are purely held for funding and hedging purposes
(not for trading purposes). Included within fair value movement on debt and
derivatives is interest on derivatives and debt under fair value option. In
making this adjustment it is appropriate to add back interest on derivatives
and debt under fair value option to provide a view of the group's cost of debt
which is better aligned to the return on capital it earns through revenue.
Taking these factors into account, management believes it is useful to adjust
for these fair value movements to provide a more representative view of
performance.
Deferred tax adjustment Management adjusts to exclude the impact of deferred tax in order to provide a
more representative view of the group's profit after tax and tax charge for
the year given that the regulatory model allows for cash tax to be recovered
through revenues, with future revenues allowing for cash tax including the
unwinding of any deferred tax balance as it becomes current. By making this
adjustment, the group's underlying tax charge does not include tax that will
be recovered through revenues in future periods, thus reducing the impact of
timing differences.
Tax in respect of adjustments to underlying profit / (loss) before tax Management adjusts for the tax impacts of the above adjusted items to provide
a more representative view of current year performance.
Underlying profit 6 months ended 6 months ended Year ended
30 September 2023 30 September 2022 31 March 2023
£m £m £m
Operating profit per published results 240.6 258.5 440.8
Fleetwood outfall pipe fracture 30.5 - -
Underlying operating profit 271.1 258.5 440.8
Net finance expense
£m £m £m
Finance (expense)/income (119.9) 117.3 (262.7)
Investment income 40.4 19.1 47.0
Net finance expense per published results (79.5) 136.4 (215.7)
Adjustments:
Fair value gains on debt and derivative instruments, excluding interest on (100.2) (403.0) (259.4)
derivatives and debt under fair value option
Underlying net finance expense (179.7) (266.6) (475.1)
£m £m £m
Share of (losses)/profits of joint ventures (1.1) 0.2 -
Profit on disposal of business - 31.2 31.2
Adjustments:
Profit on disposal of subsidiary - (31.2) (31.2)
Underlying profit on disposal of subsidiary - - -
Profit before tax per published results 160.0 426.3 256.3
Adjustments:
In respect of operating profit 30.5 - -
In respect of net finance expense (100.2) (403.0) (259.4)
In respect of profit on disposal of subsidiary - (31.2) (31.2)
Underlying profit/(loss) before tax 90.3 (7.9) (34.3)
Profit after tax per published results 116.8 353.0 204.9
Adjustments:
In respect of profit before tax (69.7) (434.2) (290.6)
Deferred tax adjustment 43.2 69.0 76.6
Tax in respect of adjustments to underlying profit before tax - - 0.4
Underlying profit/(loss) after tax 90.3 (12.2) (8.7)
Earnings per share
£m £m £m
Profit after tax per published results (a) 116.8 353.0 204.9
Underlying profit / (loss) after tax (b) 90.3 (12.2) (8.7)
Weighted average number of shares in issue, in millions (c) 681.9m 681.9m 681.9m
Earnings per share per published results, in pence (a/c) 17.1 51.8 30.0
Underlying earnings per share, in pence (b/c) 13.2 (1.8) (1.3)
Dividend per share, in pence 16.59p 15.17p 45.51p
In arriving at net finance expense used in calculating the group's effective
interest rate, management adjusts underlying net finance expense to add back
pension income and capitalised borrowing costs in order to provide a view of
the group's cost of debt that is better aligned to the return on capital it
earns through revenue.
6 months ended 6 months ended Year ended
Average effective interest rate 30 September 2023 30 September 2022 31 March
2023
£m £m £m
Underlying net finance expense (179.7) (266.6) (475.1)
Adjustments:
Net pension interest income (14.2) (14.4) (28.7)
Adjustment for capitalised borrowing costs (55.8) (62.9) (127.5)
Net finance expense for effective interest rate (249.7) (343.9) (631.3)
Average notional net debt(1) (8,351) (7,679) (7,849)
Average effective interest rate 6.0% 9.0% 8.0%
Effective interest rate on index-linked debt 8.0% 13.7% 12.4%
Effective interest rate on other debt 3.4% 2.5% 2.2%
( )
(1) Notional net debt is calculated as the principal amount of debt to be
repaid, net of cash and bank deposits, taking: the face value issued of any
nominal sterling debt, the inflation accreted principal on the group's index
linked debt, and the sterling principal amount of the cross currency swaps
relating to the group's foreign currency debt.
PRINCIPAL RISKS AND UNCERTAINTIES
Our approach to risk management
Our approach to risk management, including how we identify and assess risk,
the oversight and governance process, and focus on continual improvement
remains unchanged from that detailed in our Annual Report for the year ended
31 March 2023.
Risk profile
The business risk profile is based on the value chain of the company, with the
ten inherent risk areas (primary and supportive) where value can be gained,
preserved or lost relative to the performance, future prospects or reputation
of the company. Underpinning these inherent risk areas, the profile consists
of approximately 100 event-based risks, each of which is allocated based on
the context of the event, enabling the company to consider interdependency and
correlation of common themes and control effectiveness. Although the profile
remains relatively static in terms of its headline inherent risk factors, risk
assessment remains dynamic by reflecting new and emerging circumstances, as
outlined below:
The sector continues to be under significant scrutiny, linked largely to
issues arising from political and public concern over water quality and storm
overflows, and the significant environmental investment needs for the next AMP
and beyond. Aligned with these concerns, changes to legislation and the
interpretation thereof leads to uncertainty over existing business models
notably in bioresources.
Our risk assessment process considers both financial and reputational
implications of the changing business environment and the increased
uncertainty that this brings over both the short and long term. The half year
review of the risk profile highlighted storm overflows, Bioresources and AMP8
preparedness as three concurrent themes of uncertainty, with macro-economic
and geopolitical tensions compounding these sector issues. These factors
have been considered in the reassessment of the company's most significant
event-based risks.
The company's most significant event-based risks
The most significant event-based risks represent the ten highest-ranked risks
by exposure (likelihood of occurrence of the event multiplied by the most
likely financial impact) and those risks which have been assessed as having a
significantly high impact, but low likelihood. Depending on the circumstances,
financial impacts will include loss of revenue, additional or extra cost,
fines, regulatory penalties and compensation. Reputational impact relative to
our multiple stakeholders is also assessed, reported and considered as part of
the mitigation.
Summarised below are the top ten ranking risks (1 - 10), and those assessed as
having high impact, but low likelihood (A - F):
1. Price Review 2024 outcome
Risk exposure: The capacity and capability to develop a business plan that
creates value for customers, communities, and the environment that is
sustainable and resilient for the long term relative to the unique
characteristics of the region we serve, in light of multiple influencing
factors - notably changing demographics, climate change and asset health.
Control/mitigation: We have established cross-cutting work streams and theme
owners to identify the products and evidence required for the submission and
we will maintain a close dialogue with Ofwat throughout the process.
Assurance: Extensive customer research and several external providers were
commissioned for technical optioneering. Second line assurance is provided
through a dedicated price review team and a PR24 programme board. There was a
blend of internal audit and external assurance focused on the quality of the
submission.
2. Failure of the Haweswater Aqueduct
Risk exposure: The Haweswater Aqueduct is a key asset with current low
resilience due to deterioration, with failure potentially resulting in water
quality issues and/or supply interruptions to a large proportion of the United
Utilities customer base.
Control/mitigation: A capital project to replace the tunnel sections of the
aqueduct has already commenced with the completion in November 2020 of one
section. The remaining sections are due to be replaced as part of Haweswater
Aqueduct Resilience Programme (HARP).
Assurance: Technical and geological advice and modelling have been sought
throughout the programme development, with second line assurance including
engineering technical governance. Independent assurance is provided by
internal audits and external assurance over the HARP procurement process.
3. Recycling of biosolids to agriculture
Risk exposure: Represents various impact scenarios including operational
failures, increased restrictions or total ban of recycling biosolids to
agriculture. The risk considers the Environment Agency's interpretation of the
Farming Rules for Water regulations and the increasing threat to recycling of
biosolids to land.
Control/mitigation: Treatment, sampling and testing regimes ensure that
biosolids meets acceptable standards for application. We work closely with
farmers, landowners and contractors to ensure compliance with regulations such
as Farming Rules for Water and our standard operating procedures are met.
Assurance: Bioresources production planning team undertakes first line
assurance against UK Biosolids Assurance Scheme (BAS) accreditation, and other
codes of practice such as the safe sludge matrix which certifies our recycling
activities. Second and third line assurance is also undertaken by the
assurance and internal audit teams respectively.
4. Wastewater network failure
Risk exposure: Blockages, operational issues or inadequate hydraulic capacity
relative to population growth, extreme weather, asset health, and
legal/regulatory change, resulting in unpermitted storm overflow activations,
sewer flooding and environmental damage.
Control/mitigation: Preventative maintenance and inspection regimes, customer
campaigns, sewer rehabilitation programme and Better Rivers programme.
Assurance: Second line assurance provided by wholesale assurance, engineering
technical governance and flood review panel. Subject to regular internal
audits and external assurance of regulatory reporting.
5. Failure to treat sludge
Risk exposure: Relates to the impact of changing demographics, asset health
and legislative / regulatory change (such as the Industrial Emissions
Directive (IED) now applying to biological treatment of sewage sludge) on our
ability to sustainably treat sludge.
Control/mitigation: We look to maximise our treatment capacity by adopting a
Throughput, Reliability, Availability and Maintainability (T-RAM) approach for
our facilities. We also undertake a digester and tank clean programme, regular
testing and analysis of sludge, and balance capacity and demand through the
bioresources production planning team.
Assurance: Bioresources production planning team undertakes first line
assurance relative to codes of practice such as the safe sludge matrix which
certifies our treatment. Second and third line assurance is also undertaken by
the assurance and internal audit teams respectively.
6. Cyber
Risk exposure: Data and technology assets compromised due to malicious or
accidental activity, leading to a major impact to key business processes and
operations.
Control/mitigation: Multiple layers of control, including a secure perimeter,
segmented internal network zones, access controls, constant monitoring and
forensic response capability.
Assurance: Security measures reflect multiple sources of threat intelligence.
The security steering group provides second line assurance, with independent
assurance provided by cyclical internal audits and various technical audits by
external specialist.
7. Failure to meet the totex efficiency challenge
Risk exposure: Totex efficiencies designed for AMP7 are challenged through a
combination of factors including supply chain issues, inflationary pressures,
and additional investment to deliver performance improvements.
Control/mitigation: Strategic Portfolio Board (SPB) planning and risk-based
investment prioritisation and the company business planning process all
contribute to efficient delivery of services and the capital programme. In
addition, there are number of executive led initiatives to realise efficiency
opportunities.
Assurance: First line assurance is undertaken through executive led meetings,
with the strategic portfolio board, and monthly executive performance review
meetings providing second line governance and assurance. Third line assurance
is undertaken through cyclical internal audits.
8. Water sufficiency event
Risk exposure: Water sufficiency is one of the most sensitive risks to climate
change, with the increased frequency of hot and dry weather being evidence of
changing circumstances. Extended periods of low rainfall and exceptionally hot
weather, with accompanying increased customer demand, impacts our water
resources which can result in the need to implement water use restrictions.
Control/mitigation: We produce a Water Resources Management Plan (WRMP) every
five years, which forecasts future demand and water availability under repeats
of historic droughts, adjusted for climate change. A statutory Drought Plan is
also developed every five years, setting out the actions we will take in a
drought situation.
Assurance: The WRMP and Drought Plan are subject to various second and third
line assurance activities prior to publication.
9. Credit Rating
Risk exposure: Credit ratings fall below internal targets, due to
deterioration in financial and/ or operational performance and/or external
factors (such as inflation), resulting in more expensive funding.
Control/mitigation: Continuous monitoring of markets, and the management of
key financial risks within defined policy parameters.
Assurance: Second line assurance provided by financial control and monthly
executive performance review meetings, with oversight provided by the treasury
committee. The treasury function is subject to regular internal audits.
10. Failure of Technology Systems
Risk exposure: Represents various impact scenarios as a result of the pace of
technological change across a complex technology estate, which is increasingly
more essential for enabling key business processes as the company becomes more
reliant on connected technology.
Control/mitigation: Architectural design to assure service availability,
defined criticality of services, continuous monitoring, and risk assessment
together with maintenance and replacement strategies / roadmaps against
target state architecture.
Assurance: First line assurance is carried out by the Technology Services team
with independent assurance provided by cyclical internal audits and various
technical audits by external specialists.
A. Dam failure
Risk exposure: Uncontrolled release of a significant volume of water from
reservoirs due to flood damage, overtopping, earthquake or erosion leading to
catastrophic impacts downstream.
Control/mitigation: Each reservoir is regularly inspected by engineers. Where
appropriate, risk management activities are applied and risk reduction
interventions are implemented through a prioritised investment programme.
Assurance: Various sources of second line assurance, including supervising
engineers, dam safety group, assurance team and regular board reviews.
Independent assurance is provided by panel engineers and internal audit.
B. Financial Outperformance
Risk exposure: Failure to achieve financial outperformance due to macro
economic conditions and efficiency challenges, impacting the cost of debt and
delivery of the company business plan.
Control/mitigation: Interest rate and inflation management, ongoing monitoring
of markets and regulatory developments, and company business planning.
Assurance: Second line assurance and oversight is provided by the board and
treasury committee in addition to monthly executive performance meetings.
Subject to cyclical internal audit reviews.
C. Disease pandemic
Risk exposure: Serious illness in a large proportion of the UK population and
consequences to our workforce, the wider supply chain and macro economy.
Control/mitigation: The incident management process would be invoked,
supported by the Pandemic Response Plan. This includes the implementation of
multi-channel communication with non-pharmaceutical interventions as per
government guidance.
Assurance: Wholesale assurance provides second line assurance, with internal
audit undertaking various reviews.
D. Terrorism
Risk exposure: A significant asset to be compromised by terrorist activity
leading to loss of supply, contamination and/or pollution.
Control/mitigation: A risk-based protection of assets in line with the
Security and Emergency Measures Direction (SEMD) and close liaison with the
Protective Security Authority (NPSA), regional counter terrorist units, local
agencies and emergency services.
Assurance: Security posture is based on various threat advisors. Second line
assurance is provided by the security steering group. In addition, internal
audit undertake cyclical audits with external technical assurance being
delivered by specialists.
E. Process Safety
Risk exposure: United Utilities' activities include processes which are
inherently hazardous including the storage of toxic and explosive gases
across multiple sites, including two which fall under Control of Major
Accident Hazard (COMAH) regulations.
Control/mitigation: Multi layers of protection are in place including: design
standards; maintenance and operating regimes; permit to work / work
authorisation procedures; emergency planning and training.
Assurance: Second line assurance is undertaken by both the assurance and
health & safety teams, with third line assurance being undertaken through
periodic internal audits. The Health & Safety Executive also carry out
regulatory inspections.
Material litigation
The group robustly defends litigation where appropriate and seeks to minimise
its exposure by establishing provisions and seeking recovery wherever
possible. Litigation of a material nature is regularly reported to the group
board. While our directors remain of the opinion that the likelihood of a
material adverse impact on the group's financial position is remote, based on
the facts currently known to us and the provisions in our statement of
financial position, the following three cases are worthy of note:
· In relation to the Manchester Ship Canal Company matter reported in
previous years, a hearing was held in the Court of Appeal in 2022 and the main
additional points raised by MSCC were dismissed, although MSCC were granted
leave to appeal to the Supreme Court. The final appeal was heard in early
March 2023 and the Court's decision is awaited. This may provide further
clarity in relation to the rights and remedies afforded to the parties and
others in relation to discharges by water companies into the canal and other
watercourses;
· As reported in previous years, in February 2009, United Utilities
International Limited (UUIL) was served with notice of a multiparty 'class
action' in Argentina related to the issuance and payment default of a US$230
million bond by Inversora Eléctrica de Buenos Aires S.A. (IEBA), an Argentine
project company set up to purchase one of the Argentine electricity
distribution networks which was privatised in 1997. UUIL had a 45 per cent
shareholding in IEBA which it sold in 2005. The claim is for a non-quantified
amount of unspecified damages and purports to be pursued on behalf of
unidentified consumer bondholders in IEBA. Starting in May 2023, the Argentine
Court scheduled various hearings to receive the testimony of fact witnesses
and experts. UUIL has filed its response and preliminary motions to dismiss
the claim, vigorously resist the proceedings given the robust defences that
UUIL has been advised that it has on procedural and substantive grounds; and
· A Letter Before Action was received by UUW in February 2023 in
respect of potential collective proceedings before the Competition Appeal
Tribunal. We are informed that the Proposed Class Representative (PCR) is
intending to bring a claim on behalf of a class comprising consumers of UUW
(on an opt-out basis) who have allegedly been overcharged for sewerage
services as a result of an alleged abuse of a dominant position. We have been
informed that the PCR also intends to bring the claim against United Utilities
Group PLC, as the ultimate parent company of UUW. Proceedings have not yet
been issued.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This financial report contains certain forward-looking statements with respect
to the operations, performance and financial condition of the group. By their
nature, these statements involve uncertainty since future events and
circumstances can cause results and developments to differ materially from
those anticipated. These forward-looking statements include without limitation
any projections or guidance relating to the results of operations and
financial conditions of the group as well as plans and objectives for future
operations, expected future revenues, financing plans, expected expenditure
and any strategic initiatives relating to the group, as well as discussions of
our business plan and our assumptions, expectations, objectives and resilience
with respect to climate scenarios. The forward-looking statements reflect
knowledge and information available at the date of preparation of this
financial report and the company undertakes no obligation to update these
forward-looking statements. Nothing in this financial report should be
construed as a profit forecast.
Certain regulatory performance data contained in this financial report is
subject to regulatory audit.
This announcement contains inside information, disclosed in accordance with
the Market Abuse Regulation which came into effect on 3 July 2016 and for UK
Regulatory purposes the person responsible for making the announcement is
Simon Gardiner, Company Secretary.
LEI 2138002IEYQAOC88ZJ59
Classification - Half Year Results
Consolidated income statement
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m £m £m
Revenue (note 3) 982.0 919.3 1,824.4
Staff costs (104.8) (95.2) (192.2)
Other operating costs (note 4) (306.2) (257.6) (556.4)
Allowance for expected credit losses - trade and other receivables (12.6) (11.2) (22.7)
Other income 1.7 2.2 4.8
Depreciation and amortisation expense (213.4) (206.8) (423.6)
Infrastructure renewals expenditure (106.1) (92.2) (193.5)
Total operating expenses (741.4) (660.8) (1,383.6)
Operating profit 240.6 258.5 440.8
Investment income (note 5) 40.4 19.1 47.0
Interest payable (note 6) (214.8) (262.6) (497.7)
Net fair value gains on debt and derivatives (note 6) 94.9 379.9 235.0
Investment income and finance expense (79.5) 136.4 (215.7)
Profit on disposal of business - 31.2 31.2
Share of profits / (losses) of joint ventures (1.1) 0.2 -
Profit before tax 160.0 426.3 256.3
Current tax (charge)/credit - (4.3) 25.2
Deferred tax charge (43.2) (69.0) (76.6)
Tax (note 7) (43.2) (73.3) (51.4)
Profit after tax 116.8 353.0 204.9
All of the results shown above relate to continuing operations.
Earnings per share (note 8)
Basic 17.1p 51.8p 30.0p
Diluted 17.1p 51.6p 30.0p
Dividend per ordinary share (note 9) 16.59p 15.17p 45.51p
Consolidated statement of comprehensive income
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m £m £m
Profit after tax 116.8 353.0 204.9
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Cash flow hedges - effective portion of fair value movements (25.5) 207.0 (50.6)
Tax on items that may be reclassified to profit or loss 6.4 (51.8) 12.7
Reclassification of items taken directly to equity (0.2) (24.0) (36.6)
Tax reclassified to income statement 0.1 4.6 7.0
Other comprehensive income that may be reclassified to profit or loss (19.2) 135.8 (67.5)
(347.6) (208.2)
Items that will not be reclassified to profit or loss in subsequent periods:
Remeasurement losses on defined benefit pension
schemes (note 10)
(445.3)
Change in credit assumptions for debt reported at fair value through profit or 6.9 16.4 4.8
loss
Cost of hedging - cross currency basis spread adjustment (1.4) 0.1 6.3
Tax on items taken directly to equity 120.6 68.5 151.5
Other comprehensive income that will not be reclassified to profit or loss (221.5) (123.2) (282.7)
Total comprehensive income (123.9) 365.6 (145.3)
Consolidated statement of financial position
30 September 30 September 31 March
2023 2022 2023
£m
£m
£m
ASSETS
Non-current assets
Property, plant and equipment 12,823.9 12,321.2 12,570.7
Intangible assets 127.9 149.0 142.3
Interests in joint ventures and other investments 15.4 16.8 16.5
Inventories 8.0 0.7 1.2
Trade and other receivables 74.4 73.7 75.7
Retirement benefit surplus (note 10) 268.9 823.5 600.8
Derivative financial instruments 457.4 754.2 428.6
13,775.9 14,139.1 13,835.8
Current assets
Inventories 12.5 24.0 13.1
Trade and other receivables 267.7 231.1 190.5
Current tax asset 98.9 60.7 98.9
Cash and bank deposits (note 11) 828.8 532.2 340.4
Derivative financial instruments 31.0 156.8 48.5
1,238.9 1,004.8 691.4
Total assets 15,014.8 15,143.9 14,527.2
LIABILITIES
Non-current liabilities
Trade and other payables (913.4) (868.0) (892.4)
Borrowings (note 12) (8,979.2) (7,943.2) (8,259.0)
Deferred tax liabilities (1,964.2) (2,190.4) (2,048.1)
Derivative financial instruments (294.2) (290.8) (243.1)
(12,151.0) (11,292.4) (11,442.6)
Current liabilities
Trade and other payables (495.2) (395.3) (376.7)
Borrowings (note 12) (169.4) (320.6) (176.4)
Provisions (13.9) (12.8) (13.1)
Derivative financial instruments (11.0) - (9.7)
(689.5) (728.7) (575.9)
Total liabilities (12,840.5) (12,021.1) (12,018.5)
Total net assets 2,174.3 3,122.8 2,508.7
EQUITY
Share capital 499.8 499.8 499.8
Share premium account 2.9 2.9 2.9
Other reserves (note 16) 333.2 552.1 353.4
Retained earnings 1,338.4 2,068.0 1,652.6
Shareholders' equity 2,174.3 3,122.8 2,508.7
Consolidated statement of changes in equity
Six months ended 30 September 2023
Share capital Share premium account Retained earnings Total
£m £m ((1))Other £m £m
reserves
£m
At 1 April 2023 499.8 2.9 353.4 1,652.6 2,508.7
Profit after tax - - 116.8 116.8
Other comprehensive income/(expense)
Remeasurement losses on defined benefit pension schemes (note 10) - - - (347.6) (347.6)
Change in credit assumption for debt reported at fair value - - - 6.9 6.9
through profit or loss
Cash flow hedges - effective portion of fair value movements - - (25.5) - (25.5)
Cost of hedging - cross-currency basis spread adjustment - - (1.4) - (1.4)
Tax on items recorded within other comprehensive income - - 6.8 120.2 127.0
Reclassification of items taken directly to equity - - (0.2) - (0.2)
Tax reclassified to income statement - - 0.1 - 0.1
Total comprehensive income - - (20.2) (103.7) (123.9)
Dividends (note 9) - - - (206.9) (206.9)
Equity-settled share-based payments - - - 0.2 0.2
Exercise of share options - purchase of shares - - - (3.8) (3.8)
At 30 September 2023 499.8 2.9 333.2 1,338.4 2,174.3
Six months ended 30 September 2022
Share capital Share premium account Retained earnings Total
£m £m ((1))Other £m £m
reserves
£m
At 1 April 2022 499.8 2.9 416.2 2,038.5 2,957.4
Profit after tax - - - 353.0 353.0
Other comprehensive income/(expense)
Remeasurement losses on defined benefit pension schemes (note 10) - - - (208.2) (208.2)
Change in credit assumption for debt reported at fair value - - - 16.4 16.4
through profit or loss
Cash flow hedges - effective portion of fair value movements - - 207.0 - 207.0
Cost of hedging - cross-currency basis spread adjustment - - 0.1 - 0.1
Tax on items recorded within other comprehensive income - - (51.8) 68.5 16.7
Reclassification of items taken directly to equity - - (24.0) - (24.0)
Tax reclassified to income statement - - 4.6 - 4.6
Total comprehensive income - - 135.9 229.7 365.6
Dividends (note 9) - - - (197.7) (197.7)
Equity-settled share-based payments - - - 2.8 2.8
Exercise of share options - purchase of shares - - - (5.3) (5.3)
At 30 September 2022 499.8 2.9 552.1 2,068.0 3,122.8
Year ended 31 March 2023
Share capital Share premium account ((1))Other reserves Retained earnings Total
£m £m £m £m £m
At 1 April 2022 499.8 2.9 416.2 2,038.5 2,957.4
Profit after tax - - - 204.9 204.9
Other comprehensive income/(expense)
Remeasurement losses on defined benefit pension schemes (note 10) - - - (445.3) (445.3)
Change in credit assumption for debt reported at fair value through profit or - - - 4.8 4.8
loss
Cash flow hedges - effective portion of fair value movements - - (50.6) - (50.6)
Cost of hedging - cross-currency basis spread adjustment - - 6.3 - 6.3
Tax on items recorded within other comprehensive income - - 11.1 153.1 164.2
Reclassification of items taken directly to equity - - (36.6) - (36.6)
Tax reclassified to income statement - - 7.0 - 7.0
Total comprehensive income - - (62.8) (82.5) (145.3)
Dividends (note 9) - - - (301.2) (301.2)
Equity-settled share-based payments - - - 4.6 4.6
Purchase of shares to satisfy exercise of share options - - - (6.8) (6.8)
At 31 March 2023 499.8 2.9 353.4 1,652.6 2,508.7
((1) ) Other reserves comprise the group's capital redemption
reserve, merger reserve, cost of hedging reserve, and cash flow hedging
reserve. Further detail of movements in these reserves is included in note 16.
Consolidated statement of cash flows
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m £m £m
Operating activities
Cash generated from operations (note 14) 440.7 439.0 882.6
Interest paid (77.3) (57.7) (118.2)
Interest received and similar income 17.5 4.0 15.8
Tax paid - (2.3) (10.8)
Tax received - 17.6 17.6
Net cash generated from operating activities 380.9 400.6 787.0
Investing activities
Purchase of property, plant and equipment (356.8) (323.4) (675.9)
Purchase of intangible assets (3.1) (8.3) (18.1)
Grants and contributions received 1.0 1.0 5.1
Loans repaid by joint ventures 1.5 7.8 5.0
Net cash income on disposal of subsidiary - 90.5 90.5
Net cash used in investing activities (357.4) (232.4) (593.4)
Financing activities
Proceeds from borrowings net of issuance costs 749.2 396.3 501.1
Repayment of borrowings (70.1) (61.5) (278.1)
Dividends paid to equity holders of the company (note 9) (206.9) (197.7) (301.2)
Placement of deposits with >90 days maturity (445.0) - -
Exercise of share options - purchase of shares (3.8) (5.3) (6.8)
Net cash generated from/(used in) financing activities 23.4 131.8 (85.0)
Effects of exchange rate changes - - (0.8)
Net increase in cash and cash equivalents 46.9 300.0 107.8
Cash and cash equivalents at beginning of the period((1)) 327.9 220.1 220.1
Cash and cash equivalents at end of the period((1)) 374.8 520.1 327.9
((1) ) Cash and cash equivalents is stated net of £9.0 million (30
September 2022: £20.3 million; 31 March 2023: £20.8 million; 1 April 2022:
£10.5m) of book overdrafts, which are included in borrowings in the statement
of financial position, and does not include £445.0 million of bank deposits
maturing in more than 90 days (30 September 2022, 31 March 2023, 1 April 2022:
£nil). See note 11 for further details.
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. Basis of preparation and accounting policies
The condensed unaudited consolidated financial statements for the six months
ended 30 September 2023 have been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority and International
Accounting Standard 34 'Interim Financial Reporting' (IAS 34) as published by
the International Accounting Standards Board (IASB) and adopted by the UK.
The condensed unaudited consolidated financial statements do not include all
of the information and disclosures required for full annual financial
statements, do not comprise statutory accounts within the meaning of section
434 of the Companies Act 2006, and should be read in conjunction with the
group's annual report and financial statements for the year ended 31 March
2023.
The comparative figures for the year ended 31 March 2023 do not comprise the
group's statutory accounts for that financial year. Those accounts have been
reported upon by the group's auditor and delivered to the registrar of
companies. The report of the auditor was unqualified, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
The annual financial statements for the year ended 31 March 2023 were prepared
in accordance with the requirements of the Companies Act 2006, and with
UK-adopted international accounting standards. They were prepared on the going
concern basis under the historical cost convention, except for the revaluation
of financial instruments, accounting for the transfer of assets from customers
and the revaluation of infrastructure assets to fair value on transition to
IFRS.
The accounting policies, presentation and methods of computation used in these
condensed consolidated interim financial statements are the same as those used
in the audited financial statement of United Utilities Group PLC for the year
ended 31 March 2023.
Adoption of new and revised standards
There were no new standards, interpretations and amendments, effective for the
six months ended 30 September 2023, that were relevant to the group or that
have a material impact on the group's financial statements, or that were not
early-adopted in previous years.
IFRS 17 'Insurance Contracts'
IFRS 17 'Insurance Contracts' establishes new principles for the recognition,
measurement, presentation, and disclosure of insurance and reinsurance
contracts and is mandatory for annual reporting periods beginning on or after
1 January 2023. The impact for the Group's financial statements has been
assessed as being immaterial, with existing financial guarantees, as issued by
companies within the Group, outside the scope of the standard on the basis
that these have not previously been accounted for as insurance contracts.
Going concern
The interim condensed consolidated financial statements for the six months
ended 30 September 2023 have been prepared on the going concern basis as the
directors have a reasonable expectation that the group has adequate resources
for a period of at least 12 months from the date of their approval, and that
there are no material uncertainties to disclose.
In assessing the appropriateness of the going concern basis of accounting, the
directors have reviewed the resources available to the group in the form of
cash and committed bank facilities, as well as considering the group's capital
adequacy, along with a baseline plan reflecting current best estimates of
forecasted future business performance. Liquidity forecasts used in the
directors' going concern assessment reflect best estimates of the impact of
high levels of inflation and interest (and volatility thereon) currently being
experienced, and how this would be expected to impact the resources available
to the group.
The directors have considered the magnitude of potential impacts resulting
from uncertain future events or changes in conditions, and the likely
effectiveness of mitigating actions that the directors would consider
undertaking.
The baseline position has been subjected to a number of severe but plausible
downside scenarios in order to assess the group's ability to operate within
the amounts and terms (including relevant covenants) of existing facilities.
These scenarios consider: the potential impacts of increased totex costs,
including a significant one-off totex impact of £500 million arising in the
assessment period; lower CPIH inflation; elevated levels of bad debt of £15
million per annum; outcome delivery incentive penalties equivalent to 1.0 per
cent of RoRE per annum; and the impact of these factors materialising on a
combined basis. Mitigating actions were considered to include deferral of
capital expenditure; a reduction in other discretionary totex spend; the close
out of derivative asset balances; and the deferral or suspension of dividend
payments.
Consequently, the directors are satisfied that the group will have sufficient
funds to continue to meet its liabilities as they fall due for at least 12
months from the date of approval of the interim condensed consolidated
financial statements, and that the severe but plausible downside scenarios
indicate that the group will be able to operate within the amounts and terms
(including relevant covenants) of existing facilities. The interim condensed
consolidated financial statements have therefore been prepared on a going
concern basis.
Update on critical accounting judgements and key sources of estimation
uncertainty
As the impact of inflationary pressures continue to be felt, particularly
interest rate rises in response to persistent high inflation, there remains a
great deal of uncertainty in the current geopolitical and economic
environment. We are mindful that inflation levels are likely to continue to
drive increases in the cost of living and may have a significant impact on
many of the group's customers. The following are the critical accounting
judgements and key sources of estimation uncertainty considered most likely to
have an impact in the next 12 months, or that have been significant in recent
years and may be impacted by ongoing developments:
Accounting estimate - retirement benefit obligations:*
The group operates two defined benefit pension schemes which are independent
of the group's finances. Actuarial valuations of the schemes are carried out
as determined by the trustees at intervals of not more than three years.
Profit before tax and net assets are affected by the actuarial assumptions
used. The key assumptions include: discount rates, pay growth, mortality, and
increases to pensions in payment and deferred pensions. It should be noted
that actual rates may differ from the assumptions used due to changing market
and economic conditions and longer or shorter lives of participants and, as
such, this represents a key source of estimation uncertainty.
Over the half year to 30 September 2023, the defined benefit pension surplus
recorded on the statement of financial position reduced significantly, driven
largely by the IAS 19 impact of the purchase of bulk annuity policies as part
of a partial buy-in transaction since the previous year end, with the aim of
insuring a significant portion of the schemes' defined benefit pension
liabilities. The purchase of the policies has resulted in a material reduction
in the value of the group's defined benefit pension assets under IAS 19. Under
IAS 19, the fair value of the buy-in assets at the date of the transaction was
considered to be equal to the IAS 19 value of the insured liabilities, and
subsequently the fair value of the insurance assets is pegged to the present
value of the liabilities being insured. As the fair value of the buy-in assets
is significantly less than the buy-in premium paid to the insurer, this
results in an asset loss for accounting purposes, which is recorded in Other
Comprehensive Income (OCI). This is because the transaction constitutes an
investment decision made by the Trustees of the schemes and therefore has not
resulted in a settlement or change in benefits payable to scheme members under
IAS 19.
Details of the assumptions used in calculating the schemes' assets and
liabilities are set out in note 10.
Accounting estimate - non-household credit note provisioning:**
In accordance with IFRS 15 'Revenue from contracts with customers', revenue is
only recognised where it is deemed probable of recovery. Any gross debt
relating to revenue that had initially been recognised but that is
subsequently not expected to be recovered through future cash collection must
be provided against through either an allowance for expected credit losses
(non-collection) or credit note provision (incorrectly billed).
For any period, the credit note provision is built up across two types of loss
which can be incurred against non-household revenue: allowances pending
payment, and future post-RF allowances. These post-RF allowances relate to
data changes following the final bill issued for a period (referred to as 'RF'
within the market mechanisms and received around 16 months after the initial
estimate).
At 30 September 2023 the total credit note provision in respect of
non-household revenue was £18.1 million, compared with £24.0 million at 31
March 2023 and £18.0 million at 30 September 2022. While the provision has
fallen by £5.9 million since 31 March 2023, this includes the impact of
payments to non-household retailers of £8.0 million during the period in
respect of allowances relating to periods from April 2017 to April 2022. The
size of payments made in respect of these periods and additional claims
received in respect of historic periods has therefore increased the average
daily allowance values that are now reflected in the credit note provision.
This increase partially offsets the reduction that might have been expected
based on payments made in the year.
Determining the ageing analysis of allowances raised since the opening of the
non-household market is not straightforward, and work is ongoing between
wholesalers and retailers to improve the quality of market data.
Notwithstanding the increases seen in the average daily allowance values, it
is therefore reasonable to expect that the value of allowances relating to
final bills ('RF') for a period to reduce over time, as data for more recent
periods since the opening of the water retail market should not be subject to
the same legacy issues as earlier periods. Had it been assumed that future
average daily allowances continue at the current daily average, the credit
note provision recorded at 30 September would have been £2.0 million higher
than that recorded.
The forecast does not consider the impact of any large one-off allowances that
could be received in the future, but we have no evidence from the data
available to suggest that this would be probable.
Accounting estimate - allowance for expected credit losses in respect of
household trade receivables:**
We have not experienced a significant deterioration in cash collection
performance, but recoverability of household trade receivables may be impacted
by cost of living pressures as increased energy prices, higher mortgage rates
and other inflationary pressures could impact some customers' ability to pay.
A range of collection scenarios have been used to inform the allowance for
expected credit losses charged to the income statement during the period. The
cash collection rates in the current year take account of current levels of
economic uncertainty as well as incorporating impacts of the Covid-19 pandemic
to provide a range of views as to how recoverability of household receivables
may be impacted by different conditions.
Cash collection over the shorter term can be impacted by factors that are not
replicated in future. We have therefore used a three year average of
collection to inform the provision required as this incorporates collection
data that reflects the impact of the Covid-19 pandemic (which had a
significant advese effect on cash collection) and subsequent recovery on
collections over the past three years, and normalises collection performance
for factors that occur over a longer period of time.
Recognising that there is uncertainty regarding the impact of cost of living
pressures on future collection, we have also considered how this could impact
our future assessment of cash collection. In making this assessment, we have
assumed that future collection could drop to levels last experienced in
2020/21 when collection was impacted by the Covid-19 pandemic and dropped to
the lowest levels in recent history. We consider this represents a best
estimate of the possible impact on collections arising from significant
challenges to customer affordability.
The assessment of future collection at 30 September supports a charge ranging
from 1.1 per cent to 1.4 per cent of household revenue. However, due to the
level of uncertainty associated with current economic conditions, an overlay
has been applied to this assessment resulting in a charge equivalent to around
1.8 per cent of household revenue, which is consistent with the position at 31
March 2023 and 30 September 2022. Had a charge of 1.4 per cent of household
revenue been used, the charge to the income statement would have been £2.5m
lower.
Additional collection data gathered over the next three months will be used to
develop the assumptions made in forecasting the year end debt position upon
which the allowance for expected credit losses 31 March 2024 will be based.
*Judgements/estimates that could reasonably give rise to a material adjustment
to the carrying value of assets or liabilities in the short term.
**Other judgements/estimates considered less likely to give rise to a material
adjustment to the carrying value of assets or liabilities in the short term.
2. Segmental reporting
The board of directors of United Utilities Group PLC is provided with
information on a single operating segment basis for the purposes of assessing
performance and allocating resources. The group's performance is measured
against financial and operational key performance indicators, underlying
operating profit, operating profit, assets and liabilities, regulatory capital
expenditure, and regulatory capital value gearing at a consolidated level. In
light of this, the group has a single segment for financial reporting purposes
and therefore no further detailed segmental information is provided in this
note.
3. Revenue
30 September 30 September 31 March
2023 2022 2023
£m
£m
£m
Wholesale water charges 411.4 381.4 758.1
Wholesale wastewater charges 500.1 459.8 914.7
Household retail charges 46.3 43.4 83.0
Other 24.2 34.7 68.6
982.0 919.3 1,824.4
The £63 million increase in revenue for the half year ended 30 September 2023
compared with the prior year is largely attributable to the allowed
inflationary increase. Tariffs have been set for the current year to recover
revenue in line with the revenue cap, taking into account the latest
consumption trends and customer numbers.
Other revenues comprise a number of smaller non-core income streams including
those relating to energy generation and export, property sales, and those
associated with activities, typically performed opposite property developers,
which impact the group's capital network assets including diversions works to
relocate water and wastewater assets, and activities that facilitate the
creation of an authorised connection through which properties can obtain water
and wastewater services.
4. Other operating costs
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Power 74.3 54.7 130.8
Hired and contracted services 69.1 48.7 103.7
Materials 67.8 61.7 132.7
Property rates 42.0 45.7 87.1
Regulatory fees 18.9 18.3 36.7
Insurance 10.6 9.6 19.7
Loss on disposal of property, plant and equipment 4.2 1.9 4.2
Accrued innovation costs 2.9 2.3 6.1
Cost of properties disposed - 1.2 1.4
Other expenses 16.4 13.5 34.0
306.2 257.6 556.4
In June 2023 the group experienced a significant outfall pipe fracture at a
major wastewater treatment works at Fleetwood, for which the remediation and
associated activity resulted in costs of £30.5 million being incurred to 30
September 2023. These costs have been presented as an adjusting item in
arriving at the group's underlying operating profit position as included in
its Alternative Performance Measures.
The £30.5 million of costs is split into £20.6 million of operating costs
included in the above total, and £9.9 million of infrastructure renewal
expenditure. The majority of the £20.6 million of operating costs are
reflected within hired and contracted services, including the cost of
tankering to reduce the volume of sewage spills along the Fylde Coast while
remediation activity was undertaken.
In addition to the costs relating to the incident at Fleetwood, other
operating costs have increased compared with the same period in the prior year
predominantly due to inflationary pressures, in particular on the cost of
energy which has increased the group's power costs, and on chemical prices
that have increased materials costs.
5. Investment income
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Interest receivable 26.2 4.7 18.3
Net pension interest income (note 10) 14.2 14.4 28.7
40.4 19.1 47.0
6. Finance expense
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Interest 214.8 262.6 497.7
payable
Net fair value gains on debt and derivatives (94.9) (379.9) (235.0)
119.9 (117.3) 262.7
Interest payable is stated net of £55.8 million (30 September 2022: £62.9
million; 31 March 2023: £127.5 million) of borrowing costs capitalised in the
cost of qualifying assets within property, plant and equipment and intangible
assets during the period. Interest payable includes £160.0 million (30
September 2022: £251.7 million; 31 March 2023: £463.5 million) non-cash
inflation expense in relation to the group's index-linked debt.
Net fair value gains on debt and derivative instruments includes £17.7
million income (30 September 2022: £14.7 million income; 31 March 2023:
£24.4 million income) due to net interest on derivatives and debt held under
fair value option, and £23.0 million expense (30 September 2022: £37.8
million expense; 31 March 2023: £56.2 million expense) due to non-cash
inflation uplift on the group's index-linked derivatives.
7. Tax
The total effective tax rate for the six months to 30 September 2023 was 27
per cent, compared with 17 per cent for the same period in the prior year.
This increase is mainly due to the non-taxable profit on the disposal of
United Utilities Renewable Energy Limited and capital allowances "super
deductions" in the prior year, and the increase in the corporation tax rate to
25 per cent in the current year. The split of the total tax charge between
current and deferred tax was due to ongoing timing differences in relation to
tax deductions on capital investment and unrealised gains and losses on
treasury derivatives.
The current tax charge of nil for the six months to 30 September 2023 mainly
reflects the impact of the capital allowances "first year allowances",
announced in the March 2023 Chancellor's Budget and affecting our eligible
plant and machinery additions.
The current tax asset recognised in the statement of financial position
reflects the amount of tax expected to be recoverable based on judgements made
regarding the application of tax law, and the current status of negotiations
with, and enquiries from, tax authorities.
The tax adjustments taken to equity primarily relate to remeasurement
movements on the group's defined benefit pension schemes and on hedging
effectiveness.
8. Earnings per share
Basic and diluted earnings per share are calculated by dividing profit after
tax by the weighted average number of shares in issue during the period.
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Profit after tax attributable to equity holders of the company - continuing
operations
116.8 353.0 204.9
Weighted average number of shares in issue in millions
Basic 681.9 681.9 681.9
Diluted 683.2 684.2 684.1
Earnings per share in pence
Basic 17.1 51.8 30.0
Diluted 17.1 51.6 30.0
In accordance with IAS33 'Earnings per share', when potential ordinary shares
increase earnings per share, or decrease loss per share upon their conversion
to ordinary shares, they are considered antidilutive. Antidilutive potential
ordinary shares are therefore excluded from the calculation of diluted
earnings per share.
9. Dividends
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Dividends relating to the period comprise:
Interim dividend 113.1 103.4 103.4
Final dividend - - 206.9
( ) 113.1 103.4 310.3
Dividends deducted from shareholders' equity comprise:
Interim dividend - - 103.4
Final dividend 206.9 197.7 197.8
( ) 206.9 197.7 301.2
The interim dividends for the six months ended 30 September 2023 and 30
September 2022, and the final dividend for the year ended 31 March 2023, have
not been included as liabilities in the respective condensed consolidated
financial statements at 30 September 2023 and 30 September 2022, and the
consolidated financial statements at 31 March 2023, because they were approved
after the reporting date.
The interim dividend of 16.59 pence per ordinary share (year ended 31 March
2023: interim dividend of 15.17 pence per ordinary share, final dividend of
30.34 pence per ordinary share) is expected to be paid on 1 February 2024 to
shareholders on the register at the close of business on 22 December 2023. The
ex-dividend date for the interim dividend is 21 December 2023.
10. Retirement benefit surplus
The main financial assumptions used by the group's actuary to calculate the
defined benefit surplus of the United Utilities Pension Scheme ("UUPS") and
the United Utilities PLC Group of the Electricity Supply Pension Scheme
("ESPS") were as follows:
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
% p.a.
% p.a. % p.a.
Discount rate 5.45 5.35 4.70
Pension increases 3.40 3.80 3.40
Pensionable salary growth (pre-2018 service):
ESPS 3.40 3.80 3.40
UUPS 3.40 3.80 3.40
Pensionable salary growth (post-2018 service):
ESPS 3.40 3.80 3.40
UUPS 2.85 3.15 2.85
Price inflation - RPI 3.40 3.80 3.40
Price inflation - CPI((1)) 2.85 3.15 2.85
((1)) The CPI price inflation assumption represents a single weighted average
rate derived from an assumption of 2.90 per cent pre-2030 and 3.70 per cent
post-2030.
As indicated in the annual report for the year ending 31 March 2023, the group
and trustees continue to actively engage in exploring de-risking options in
respect of the group's defined benefit pension schemes, including in relation
to longevity risk. As part of this de-risking activity, a partial buy-in took
place on 3 July 2023. This was a £1.8 billion transaction between the
trustees of two pension schemes sponsored by United Utilities, UUPS and ESPS,
and an insurer. The transaction provides the schemes with secure income that
covers around two thirds of their liabilities through the purchase of bulk
annuity policies, thus providing a greater degree of certainty for the group,
the trustees, and members of the schemes. For ESPS, the buy-in was estimated
to cover c.93% of pensioner liabilities, and for UUPS c.80% of deferred and
pensioner members.
The £1.8 billion paid for the bulk annuity policies reflects a Trustee
investment. The amount includes a premium equivalent to c£220 million paid in
excess of the present value of the liabilities covered, which reflects a
reduction in the schemes' risk profile. This has resulted in an overall
decrease in the defined benefit pension surplus recorded on the statement of
financial position because scheme assets were used to purchase the policies.
Under IAS 19, the fair value of the buy-in assets at the date of the
transaction was considered to be equal to the IAS 19 value of the insured
liabilities, and subsequently the fair value of the insurance assets is pegged
to the present value of the liabilities being insured. As the fair value of
the buy-in assets is significantly less than the buy-in premium paid to the
insurer, this results in an asset loss for accounting purposes, which is
recorded in Other Comprehensive Income ('OCI'). This is because the
transaction has not resulted in a settlement or a change in benefits payable
to scheme members.
As at 30 September 2023 corporate bond yields have increased relative to 31
March 2023, leading to a higher IAS 19 discount rate. As the schemes are more
than 100% hedged on an IAS 19 basis, the assets have fallen more than the
Defined Benefit Obligation ('DBO'). Further, credit spreads have narrowed
since the year end, which, all else being equal, increases the DBO by more
than the value of the assets. Inflation has also remained above the assumption
made at the previous year end. This has been partially offset by updates to
the demographic assumptions to reflect shorter life expectancies under the
latest future mortality projections.
The discount rate is consistent with a high quality corporate bond rate, with
5.45 per cent being equivalent to gilts + 70bps (30 September 2022: 5.35 per
cent being equivalent to gilts + 160bps; 31 March 2023: 4.70 per cent being
equivalent to gilts + 95bps).
In line with previous reporting periods, mortality assumptions continue to be
based on the latest available Continuous Mortality Investigation's (CMI)
mortality tables. As at 30 September 2023, these assumptions are based on the
CMI2022 base tables with a 1.25% p.a. rate of improvement, and factoring in a
w2022 weighting of 25% to take account of the continued increased mortality
rates following the impact of the Covid-19 pandemic in the medium term,
including pressures on the NHS (for example, ambulance waiting times, longer
waiting lists, slower diagnosis etc) and the high flu rate in 2022. Compared
against the year-end mortality assumptions, the Core CMI2022 model sees a
reduction in life expectancies resulting in a reduction in the DBO of around
1-1.5%. It should be noted, however, that post buy-in any changes in the life
expectancy assumptions for insured members will be offset by a corresponding
change in the value of the buy-in bulk annuity policies on an the IAS 19
basis. As such, relative to prior years the statement of financial position is
expected to be less sensitive to mortality assumptions going forward.
The net pension income before tax in the income statement in respect of the
defined benefit schemes is summarised as follows:
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Current service cost 1.5 3.0 6.0
Administrative expenses 1.7 1.1 2.5
Pension expense charged to operating profit 3.2 4.1 8.5
Net pension interest income credited to investment income (note 5) (14.2)
(14.4) (28.7)
Net pension income credited to the income statement before tax
(11.0) (10.3) (20.2)
The reconciliation of the opening and closing net pension surplus included in
the statement of financial position is as follows:
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
At the start of the period 600.8 1,016.8 1,016.8
Net income recognised in the income statement 11.0 10.3 20.2
Contributions less unregistered pension promise payments 4.7 4.6 9.1
Remeasurement losses gross of tax (347.6) (208.2) (445.3)
At the end of the period 268.9 823.5 600.8
The closing surplus at each reporting date is analysed as follows:
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Fair value of schemes' assets 2,375.4 2,941.9 2,931.3
Present value of defined benefit obligations (2,106.5) (2,118.4) (2,330.5)
Net retirement benefit surplus 268.9 823.5 600.8
The overall reduction in the net retirement benefit surplus has been driven
mainly by the £347.6 million of remeasurement losses, of which c£220 million
relates to the IAS 19 impact of the buy-in transaction. The remaining
reduction of the IAS 19 surplus is attributable to experience losses
recognised in the period due to actual inflation being higher than assumed at
31 March 2023, which has resulted in an increase in the defined benefit
obligation. Increases in the discount rate assumption are more than offset by
increases in net yields reducing the schemes' assets by a greater amount than
the liabilities.
The latest finalised funding valuation was carried out as at 31 March 2021,
and determined that the schemes were fully funded on a low-dependency basis
without any funding deficit that requires additional contributions from the
company over and above those related to current service and expenses.
The results of the latest funding valuation at 31 March 2021 have been used to
inform the group's best estimate assumptions to use in calculating the defined
benefit pension position reported on an IAS 19 basis at 30 September 2023. The
results of the funding valuation have been adjusted to take account of
experience over the period, changes in market conditions, and differences in
the financial and demographic assumptions. The present value of the defined
benefit obligation, and the related current service costs, were measured using
the projected unit credit method.
Member data used in arriving at the liability figure included within the
overall IAS 19 surplus has been based on the finalised actuarial valuations as
at 31 March 2021 for both UUPS and ESPS. As part of each actuarial valuation
and, more frequently, as required by the trustees, member data is reassessed
for completeness and accuracy and to ensure it reflects any relevant changes
to benefits entitled by each member.
Defined contribution schemes
During the period the group made £16.0 million (30 September 2022: £14.4
million; 31 March 2023: £29.2 million) of contributions to defined
contribution schemes, which are included in employee benefits expense.
11. Cash and bank deposits
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
( )
Cash at bank and in hand 5.4 5.6 2.6
Bank deposits 823.4 526.6 337.8
Cash and bank deposits - statement of financial position 828.8 532.2 340.4
Bank deposits with maturity >90 days (445.0) - -
Book overdrafts (included in borrowings - see note 12) (9.0) (12.1) (12.5)
Cash and cash equivalents - statement of cash flows 374.8 520.1 327.9
Cash and cash equivalents includes cash at bank and in hand and demand
deposits, as well as short-term highly liquid investments that are readily
convertible into known amounts of cash and have a maturity of 90 days or less.
During the period the group entered into a number of new bank deposits that
have scheduled maturities before 31 March 2024 but more than 90 days from the
placement date. As these deposits are not held for the purpose of meeting
short-term cash commitments (i.e. arising within 90 days), they do not meet
the definition of cash equivalents and so have been excluded from the cash and
cash equivalents figure included in the statement of cash flows. They do,
however, represent liquid assets expected to be realised within the current
financial year and so are included in the calculation of the group's net debt
(see note 15).
Book overdrafts, which result from normal cash management practices, represent
the value of cheques issued and payments initiated that had not cleared as at
the reporting date.
The carrying amounts of cash and bank deposits approximate their fair value.
12. Borrowings
New borrowings raised during the six months ended 30 September 2023 were as
follows:
· On 6 April 2023, the group issued £300 million fixed rate notes, due
October 2038.
· On 27 April 2023, the group executed and drew down on a £100 million
loan facility, due April 2032.
· On 19 June 2023, the group issued £350 million fixed rate notes, due
June 2036.
The group entered into two undrawn committed borrowing facilities in the
period, and extensions to existing facilities were approved on a further four,
with amounts available under these facilities totalling £200 million.
Borrowings at 30 September 2023 include £58.5 million in relation to lease
liabilities (30 September 2022: £59.5 million; 31 March 2023: £58.3
million), of which £55.4 million (30 September 2022: £55.9 million; 31 March
2023: £55.2 million) was classified as non-current and £3.1 million (30
September 2022: £3.6 million; 31 March 2023: £3.1 million) was classified as
current.
13. Fair values of financial instruments
The fair values of financial instruments are shown in the table below.
31 March 2023
30 September 2023 30 September 2022
Fair Carrying value Fair Carrying value Fair Carrying value
value £m value £m value £m
£m £m £m
Financial assets at fair value through profit or loss
Derivative financial assets - fair value hedge 44.7 44.7 88.3 88.3 65.4 65.4
Derivative financial assets - held for trading 411.1 411.1 523.2 523.2 352.0 352.0
Derivative financial assets - cash flow hedge 32.6 32.6 299.5 299.5 59.7 59.7
Investments - - 0.1 0.1 - -
Financial liabilities at fair value through profit or loss
Derivative financial liabilities - fair value hedge (272.3) (272.3) (281.2) (281.2) (215.3) (215.3)
Derivative financial liabilities - held for trading - - - - (3.4) (3.4)
Derivative financial liabilities - cash flow hedge (32.9) (32.9) (9.6) (9.6) (34.1) (34.1)
Financial liabilities designated at fair value through profit or loss (341.0) (341.0) (384.7) (384.7) (361.0) (361.0)
Financial instruments for which fair value does not approximate carrying value
Financial liabilities in fair value hedge relationships (2,583.5) (2,576.2) (2,193.2) (2,187.7) (2,310.1) (2,332.3)
Other financial liabilities at amortised cost (5,407.5) (6,231.4) (5,271.0) (5,691.3) (5,400.0) (5,742.1)
(8,148.8) (8,965.4) (7,228.6) (7,643.5) (7,846.8) (8,211.1)
The group has calculated fair values using quoted prices where an active
market exists, which has resulted in 'level 1' fair value liability
measurements under the IFRS 13 'Fair Value Measurement' hierarchy of £2,281.6
million (30 September 2022: £1,775.6 million; 31 March 2023: £1,936.1
million) for financial liabilities in fair value hedge relationships, and
£1,997.9 million (30 September 2022: £529.3 million; 31 March 2023:
£2,541.3 million) for other financial liabilities at amortised cost.
The £197.9 million decrease in 'level 1' fair value liability measurements
compared with the position at 31 March 2023 (30 September 2022: £2,285.5
million decrease compared with 31 March 2022; 31 March 2023: £113.0 million
decrease compared with 31 March 2022) primarily reflects the rise in interest
rates during the year.
In the absence of an appropriate quoted price, the group has applied
discounted cash flow valuation models utilising market available data, which
are classified as 'level 2' valuations. More information in relation to the
valuation techniques used by the group and the IFRS 13 hierarchy can be found
in the audited financial statements of United Utilities Group PLC for the year
ended 31 March 2023.
The principal reason for the increase in the difference between the fair value
and carrying value of the group's borrowings at 30 September 2023 compared
with the position at 31 March 2023 is due to an increase in the risk free
rate.
14. Cash generated from operations
Six months ended Six months ended Year ended
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Operating profit 240.6 258.5 440.8
Adjustments for:
Depreciation of property, plant and equipment 195.9 186.8 385.5
Amortisation of intangible assets 17.5 20.0 38.1
Loss on disposal of fixed and intangible assets 4.2 1.9 4.2
Amortisation of deferred grants and contributions (8.3) (7.0) (16.2)
Equity-settled share-based payments charge 0.2 2.8 4.6
Pension contributions paid less pension expense charged to operating profit (1.5) (0.5)
0.4
Changes in working capital:
(Increase)/decrease in inventories (6.2) (6.5) 3.9
(Increase)/decrease in trade and other receivables (69.2) (15.8) 27.2
Increase/(decrease) in trade and other payables 66.7 0.5 (5.5)
Increase/(decrease) in provisions 0.8 (1.7) (0.4)
Cash generated from operations 440.7 439.0 882.6
15. Net debt
Movements in net debt during the period were as follows:
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
At the start of the period 8,200.8 7,570.0 7,570.0
Net capital expenditure 359.0 330.7 688.9
Dividends (note 9) 206.9 197.7 301.2
Interest 59.8 53.7 102.4
Inflation expense on index-linked debt (note 6) 160.0 251.7 463.4
Exchange rate movement on bonds and term borrowings (16.6) 53.8 20.6
Net tax receipt - (15.4) (6.8)
Repayment of loans by joint ventures (1.5) (7.8) (5.0)
Net proceeds from disposal of subsidiary - (90.5) (90.5)
Non-cash movements in lease liabilities 0.5 0.8 (1.1)
Other 4.0 2.0 8.0
Fair value movements 8.4 (79.0) 32.3
Cash generated from operations (note 14) (440.7) (439.0) (882.6)
At the end of the period 8,540.6 7,828.7 8,200.8
Movements in net debt during the period are impacted by net cash generated
from financing activities as disclosed in the consolidated statement of cash
flows.
Net debt at the end of each period comprised:
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Borrowings 9,148.6 8,263.8 8,435.4
Derivative financial instruments (liabilities) 305.2 290.8 252.8
Derivative financial instruments (assets) (488.4) (911.0) (477.1)
Cash and bank deposits (see note 11) (828.8) (532.2) (340.4)
Net debt - as agreed to statement of financial position 8,136.6 7,111.4 7,870.7
Adjustments to exclude the fair value impact of:
Interest rate derivatives fixing future nominal interest rates 255.7 294.5 201.3
Inflation derivatives fixing future real interest rates 148.6 132.8 103.2
Electricity derivatives fixing future electricity costs (0.3) 290.0 25.6
Net debt - as adjusted to align to the group's definition 8,540.6 7,828.7 8,200.8
The group defines net debt as the sum of borrowings and derivative financial
instruments, net of cash and bank deposits, and adjusted to exclude the impact
of derivatives that are not hedging specific debt instruments. In presenting
net debt in this way, the group aims to give a fair reflection of the net debt
amount the group is contractually obliged to repay, consistent with the
approach taken by credit rating agencies, and the regulatory economics of the
group's arrangements. As the impact of derivatives that are not hedging
specific debt instruments is excluded from the group's definition of net debt,
fair value movements associated with these derivatives are not included in the
above reconciliation from the opening to closing net debt position.
16. Other reserves
Six months ended 30 September 2023
Capital redemption reserve Merger reserve Cost of hedging reserve Cash flow hedge reserve Total
£m £m £m £m £m
At 1 April 2023 1,033.3 (703.6) 5.1 18.6 353.4
Changes in fair value recognised in other comprehensive income - - (1.4) (25.5) (26.9)
Amounts reclassified from other comprehensive income to profit or loss - - - (0.2) (0.2)
Tax on hedge effectiveness taken directly to equity - - - 6.4 6.4
Tax on reclassifications to consolidated income statement - - 0.4 0.1 0.5
At 30 September 2023 1,033.3 (703.6) 4.1 (0.6) 333.2
Six months ended 30 September 2022
Capital redemption reserve Merger reserve Cost of hedging reserve Cash flow hedge reserve Total
£m £m £m £m £m
At 1 April 2022 1,033.3 (703.6) 0.4 86.1 416.2
Changes in fair value recognised in other comprehensive income - - 0.1 207.0 207.1
Amounts reclassified from other comprehensive income to profit or loss - - - (24.0) (24.0)
Tax on hedge effectiveness taken directly to equity - - - (51.8) (51.8)
Tax on reclassifications to consolidated income statement - - - 4.6 4.6
At 30 September 2022 1,033.3 (703.6) 0.5 221.9 552.1
Year ended 31 March 2023
Capital redemption reserve Merger reserve Cost of hedging reserve Cash flow hedge reserve Total
£m £m £m £m £m
At 1 April 2022 1,033.3 (703.6) 0.4 86.1 416.2
Changes in fair value recognised in other comprehensive income - - 6.3 (50.6) (44.3)
Amounts reclassified from other comprehensive income to profit or loss - - - (36.6) (36.6)
Tax on items recorded within other comprehensive income - - (1.6) 19.7 18.1
At 31 March 2023 1,033.3 (703.6) 5.1 18.6 353.4
The capital redemption reserve arose as a result of a return of capital to
shareholders following the reverse acquisition of United Utilities PLC by
United Utilities Group PLC in the year ended 31 March 2009. The merger reserve
arose in the same year on consolidation and represents the capital adjustment
to reserves required to effect the reverse acquisition.
The group recognises the cost of hedging reserve as a component of equity.
This reserve reflects accumulated fair value movements on cross-currency swaps
resulting from changes in the foreign currency basis spread, which represents
a liquidity charge inherent in foreign exchange contracts for exchanging
currencies and is excluded from the designation of cross-currency swaps as
hedging instruments.
On adoption of IFRS 9 'Financial instruments', the group designated a number
of swaps hedging non-financial risks in cash flow hedge relationships in order
to give a more representative view of operating costs. The cash flow hedge
reserve reflects fair value movements relating to the effective part of swaps
hedging non-financial risks that have been designated in cash flow hedge
relationships in order to give a more representative view of operating costs.
17. Commitments and contingent liabilities
At 30 September 2023 there were commitments for future capital expenditure
contracted but not provided for of £377.4 million (30 September 2022:
£337.5 million; 31 March 2023: £338.9 million).
Since 2016, the group has received indications from a number of property
search companies (PSCs) that they intend to claim compensation for amounts
paid in respect of CON29DW water and drainage search reports, which they
allege should have been provided to them either free of charge or for a
nominal fee in accordance with the Environmental Information Regulations. In
April 2020 a group of over 100 PSCs, comprising companies within the groups
that had previously issued notice of intended claims, served proceedings on
all of the water and sewerage undertakers in England and Wales, including
United Utilities Water Limited, for an unspecified amount of compensation.
This is an industry-wide issue, and the litigation has been progressing during
the year. The phase 1 trial for the EIR legal issues is scheduled for November
2023. The likelihood of the claim's success is considered to be low, and any
potential outflow is not expected to be material.
The group has credit support guarantees as well as general performance
commitments and potential liabilities under contract that may give rise to
financial outflow. The group has determined that the possibility of any
outflow arising in respect of these potential liabilities is remote and, as
such, no contingent liabilities are disclosed (30 September 2022 and 31 March
2023: none).
18. Related party transactions
The related party transactions with the group's joint ventures and other
interests during the period, and amounts outstanding at the period end date,
were as follows:
Six months ended Six months ended Year ended
31 March
30 September 30 September
2023
2023 2022
£m
£m £m
Sales of services 140.1 173.0 335.1
Charitable contributions advanced to related parties 0.1 0.1 0.2
Purchases of goods and services - - (1.3)
Interest income and fees recognised on loans to related parties 2.8 1.8 4.7
Amounts owed by related parties 101.3 100.5 102.2
Amounts owed to related parties - - -
Sales of services to related parties mainly represent non-household wholesale
charges to Water Plus Group Limited ('Water Plus'), a joint venture owned and
controlled on a 50/50 basis by the group and Severn Trent PLC under a joint
venture agreement, that were billed and accrued during the period. These
non-household wholesale charge transactions were on market credit terms, which
are governed by the wholesale charging rules issued by Ofwat.
At 30 September 2023 amounts owed by joint ventures, as recorded within trade
and other receivables in the statement of financial position, were £101.3
million (30 September 2022: £100.5 million; 31 March 2023: £102.2 million),
comprising £26.9 million (30 September 2022: £27.8 million; 31 March 2023:
£26.7 million) of trade balances, which are unsecured and will be settled in
accordance with normal credit terms, and £74.4 million (30 September 2022:
£72.7 million; 31 March 2023: £75.5 million) relating to loans.
Included within these loans receivable were the following amounts owed by
Water Plus:
· £72.7 million outstanding on a £95.0 million revolving credit
facility provided by United Utilities PLC, with a maturity date of December
2026, bearing a floating interest rate of the Bank of England base rate plus a
credit margin. This balance comprises £74.0 million outstanding, net of a
£1.0 million allowance for expected credit losses; and
· £1.6 million receivable being the £11.2 million fair value of
amounts owed in relation to a £12.5 million unsecured loan note held by
United Utilities PLC, with a maturity date of 28 March 2027, net of a £0.1
million allowance for expected credit losses and £9.5 million of the group's
share of joint venture losses relating to historic periods as the loan note is
deemed to be part of the group's long-term interest in Water Plus. This is a
zero coupon shareholder loan with a total amount outstanding at 30 September
2022 of £12.5 million, comprising £11.2 million receivable measured at fair
value, and £1.3 million recorded as an equity contribution to Water Plus
recognised within interests in joint ventures.
A further £0.1 million of non-current receivables was owed by other related
parties at 30 September 2023.
During the period, United Utilities PLC provided guarantees in support of
Water Plus in respect of certain amounts owed to wholesalers. The aggregate
limit of these guarantees was £48.9 million, of which £26.0 million related
to guarantees to United Utilities Water Limited.
19. Events after the reporting period
There have been no material events subsequent to 30 September 2023 that either
require adjustment to the amounts disclosed in the interim financial
statements or disclosure on the basis that they could materially affect users'
understanding of the interim financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
Responsibilities Statement
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted in the UK;
- the interim management report includes a fair review of the
information required by:
· DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
· DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The directors of United Utilities Group PLC at the date of this announcement
are listed below:
Sir David Higgins
Louise Beardmore
Phil Aspin
Liam Butterworth
Kath Cates
Alison Goligher
Michael Lewis
Paulette Rowe
Doug Webb
This responsibility statement was approved by the board and signed on its
behalf by:
Louise Beardmore Phil Aspin
15 November 2023 15 November 2023
Chief Executive Officer Chief Financial Officer
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