REG - United Utilities Grp - PR24 Submission and Trading Update

United UtilitiesAnnouncement

02/10/2023 07:00

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RNS Number : 2663O  United Utilities Group PLC  02 October 2023

2 October 2023

 

UNITED UTILITIES

PR24 BUSINESS PLAN SUBMISSION & TRADING UPDATE

 

United Utilities Water Limited has today submitted its business plan covering
the 2025-30 period.

·    £13.7 billion total expenditure across 2025-30, driving significant
RCV growth at 8.7% per annum, which equates to over 50% nominal across the
period

·    Boosting the North West economy - our plan will support 30,000 jobs,
7,000 of which are new

·    Supporting more customers with affordability schemes worth £525
million, helping more than 1 in 6 customers

·    Strong balance sheet - 58% gearing today provides flexibility to
finance the full plan with average gearing of 65% over the AMP, based on
Ofwat's WACC assumptions, and without assuming new equity

·    Plan delivering on what matters to customers, communities and the
environment, with the UK's biggest CSO spill reduction plan, safeguarding
supplies for over 3 million households and halving the chances of a hosepipe
ban in the future

 

Louise Beardmore, CEO said: "We've been listening to customers and communities
right across our region to understand what really matters. What's clear is
that we need to improve services for customers and the environment. That's why
we are proposing the largest investment in water and wastewater infrastructure
in over 100 years, with £13.7 billion planned between 2025 and 2030 to build
a stronger, greener and healthier North West for everyone.

 

It's a hugely ambitious plan, and we've engaged with 95,000 people across our
five great counties of Cumbria, Lancashire, Merseyside, Greater Manchester and
Cheshire, to make sure we get it right, shaping our plans for each county to
address the things that they've told us matter most.

 

Our plan will secure water supplies for the future, halving the need for
hosepipe bans, reduce storm overflow spills into our rivers and seas and
upgrade our water network to cut leakage and service interruptions for
customers.

 

This historic investment will deliver a significant boost to the economy of
the North West, supporting 30,000 jobs, of which 7,000 are new roles. We will
also double our support for those struggling to pay their bills, with more
than half a billion pounds of extra help - enabling us to support more than
one in six households.

 

Today's announcement is the first step in a long process but our robust
balance sheet, low gearing and solid credit ratings mean we are in a very
strong position to deliver our plan - and we are already underway after
bringing forward £1.2 billion of investment earlier this year. We are now
ready to move forward and deliver the step change we all want to see."

 

PR24 Business Plan Submission

This business plan is our most ambitious yet. It is a high quality plan,
meeting all our statutory and regulatory requirements and delivers on what
matters most to our customers. Our proposed £13.7 billion totex plan is both
ambitious and stretching. The investment in our asset base will result in
significant growth in our RCV, at 8.7% per annum, which equates to over 50%
nominal across the AMP.

 

The plan will see us improve the things that matter most to our customers

·    Safeguarding supplies for 3 million households as we improve water
quality and security of future supplies and halve the chance of needing a
hosepipe ban in the future

·    The biggest CSO spill reduction programme across the country with a
60% reduction in spills in the decade to 2030, alongside protecting and
enhancing over 500km of rivers and bathing waters

·    Pushing the frontier forward on avoiding pollution incidents with a
further 25% improvement between 2025-30

·    Delivering a 25% decrease in leakage over the decade to 2030 as we
invest to build a more resilient water network, replacing over 950 km of pipes
and mains and fixing leaks

·    Responding to the challenges of climate change and reducing internal
flooding of homes and businesses by 32%

·    Making bills as affordable as possible for customers, with an average
real bill increase of around £22 every year despite delivering record levels
of investment

·    Proposing a comprehensive £525 million package of affordability
support, enabling us to help more than 1 in 6 customers meaning we expect no
increase in water poverty despite the increase in bills

·    Igniting the North West economy, by supporting 30,000 jobs, of which
7,000 are new.

 

Financing the plan

We approach the plan from a robust position, with one of the lowest gearing
levels in the sector at 58% today. This uniquely positions us to tackle the
challenge of delivering and funding our investment programme in AMP8 and
beyond, and what is clear is that we have options and flexibility around
funding this capital requirement.

 

In order to align with the Ofwat methodology, our PR24 submission assumes that
the programme is funded with equity and debt, with equity sized to maintain
our current A3 rating with Moody's /A- senior unsecured debt rating with
Fitch. Recognising that Ofwat will be updating their WACC assumption for draft
determinations next summer, we have adopted Ofwat's 'early view' cost of
capital in our business plan submission. On this regulatory basis, our PR24
submission assumes notional equity of £1.35 billion, out of a total capital
requirement of around £5.2 billion. This gives rise to average gearing across
the AMP of 63%.

 

Alternatively, if the investment programme was funded entirely with cash and
senior debt, we would expect gearing to average around 65% across the AMP.
This is based on our full £13.7 billion totex plan, coupled with Ofwat's
early view WACC. This also assumes a continuation of our current dividend
policy, and no outperformance or rewards.

 

By way of illustration, if the WACC was c.60 bps higher - in line with an AMP8
independent WACC assessment undertaken by Frontier Economics c.3.9% - we would
see average gearing levels around 1.5% lower across the AMP. If adaptive
planning decisions led to a £1 billion deferral of totex into AMP9, then that
would result in a further 1% reduction on average. The combination of both
would see group gearing averaging 63% over the AMP, and remaining within our
target range of 55-65%.

 

We are proposing an ambitious and value for money service package for
customers, resulting in a notional company RoRE incentive range of -6.3% to
+4.4%.

 

Next Steps

Our plan today represents an important milestone in the price review process
and will frame ongoing discussions as we continue to work with regulators and
Government. What is clear is that we have options and flexibility to fund the
capital requirement. We expect Ofwat to publish draft determinations in
May/June 2024 and final determinations in December 2024. As in previous price
reviews, following final determinations, we would announce our dividend
policy.

 

Trading update

Current trading is in line with the group's expectations for the year ending
31 March 2024, and we reiterate technical guidance for underlying performance
provided at our full year results on 25 May 2023.

 

 

Contacts

 

 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                                   +44 207 353 4200

 

 

Our full PR24 business plan can be accessed at the following link:

https://www.unitedutilities.com/corporate/about-us/our-future-plans/our-business-plan-submissions/our-business-plan-submissions-for-2025-2030
(https://www.unitedutilities.com/corporate/about-us/our-future-plans/our-business-plan-submissions/our-business-plan-submissions-for-2025-2030)

 

We will be hosting a webcast presentation for investors and analysts starting
at 9.00am on Monday 2 October 2023, which can be accessed using the following
details:

 

https://us06web.zoom.us/j/84466713632?pwd=TmlRNmY4aEdpYS81MDk3ZWRIRTNhZz09
(https://urldefense.com/v3/__https:/us06web.zoom.us/j/84466713632?pwd=TmlRNmY4aEdpYS81MDk3ZWRIRTNhZz09__;!!FvJKb9TgAvphWVQ!e-NoUWmwQwtCArC7F4SjkrfRAobl3P8w3CYMqc70FSWXgRN7l56ssgVdQZGYL4KVh2GqmJeYGIHiOHQ-jHw1BRXH$)

 

Meeting ID: 844 6671 3632

Passcode: 317444

 

This announcement and the associated presentation will be available at:

https://www.unitedutilities.com/corporate/investors/

 

 

 

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