Capital Markets Event United Utilities Group PLC Steve Mogford Chief Executive Introduction United Utilities Group PLC Capital Markets Event 15 March 2018
Crummock Water The paradigm shift
Focus on Significant Invested in our customer transformation people ͞If you always do what you always service programme Graduate and apprentice did, you will programmes and external Systems Thinking recruitment always get what you always got.͟
Capital Markets Event Introduction United Utilities is leading the way
The industry faces many challenges
Maintaining United Utilities is now a Environmental Affordability shareholder Reputational leader among the WASCs returns
United Utilities is ideally placed to meet these challenges and our innovation capabilities are at the heart of this.
Today will demonstrate how innovation and our Systems Thinking We have a clear vision and approach is central to our strategy and will deliver long term value for a long term strategy customers, the environment and shareholders.
Capital Markets Event Introduction Ofwat͛s SIM measure What we mean Customer UK CSI satisfaction CCWater customer satisfaction research by leading Recognition cross sector
Porter͛s Efficient Frontier Water Environmental quality A* Low New Efficient Innovation DWI recognition Frontier Set A 4* industry leading Industry leading status with the approach to Environment Agency resilience Cost
Holistic Systems B Thinking Innovation Centre Less Than Capital More efficient delivery Best Practice Embedded culture High Using competition delivery Quality High
Source: !dapted from Michael Porter, “What is Strategy?” Harvard Business Review, November-December 1996
Capital Markets Event Introduction Agenda
Overview Systems Thinking Engineering and Customer Service 11:10 – 11:30 & Innovation Capital Delivery 13:25 – 13:50 11:30 – 12:00 13:00 – 13:25
Steve Fraser Simon Chadwick Richard Ratcliff Louise Beardmore Chief Operating Officer Central Operations Director Engineering Delivery Director Customer Services & People Director Steve joined United Utilities in 2005 Simon joined United Utilities in 1997 Richard has worked as a process Working as Customer Services & from the power and utilities service and since then has held a variety of engineer throughout the world for 24 People Director at United Utilities, provider Bethell Group, where he roles in the wholesale and retail years. He joined United Utilities in Louise has held a number of senior was Operations Director. Steve, a areas of the business. Simon now 2015 as Head of Engineering and positions at North West Water, member of the United Utilities Group heads up Central Operations at Technical disciplines. In 2017 Richard Norweb Plc, Vertex and United Board, is currently the Chief United Utilities, focusing on took on the role of Engineering Utilities, leading business in Operating Officer responsible for the transforming the business through Delivery Director at United Utilities, operations, customer services and HR regulated water and wastewater technology led innovations. managing the engineering and in the UK and internationally. Louise business, having previously worked delivery aspects across the regulated is a huge advocate of the power of as Managing Director of the water and wastewater business. employee engagement to drive wholesale business and, prior to that, improved customer service and is a as Managing Director of the energy & Non-Executive Director of Engage for contracting services division of Success as well as a Vice President of United Utilities. the Institute of Customer Service.
Capital Markets Event Introduction Steve Fraser Chief Operating Officer Overview
Manchester Square Pumping Station Strength in financial risk management
61%
Maintaining a Appropriate gearing One of the Stable IFRS stable A3 credit aligned with Ofwat͛s lowest financing costs pension surplus rating notional structure in the sector
Capital Markets Event Overview No longer in catch AMP7 • Evolution of regulatory regime • Reset of ODI and totex up; now a leader mechanisms with increased opportunity for reward • Extending the lead on Systems AMP6 Thinking • No longer in ͚catch up͛ mode • Aiming for more balanced regulatory outperformance • Upper quartile against most operational and customer service metrics • Five year lead on Systems AMP5 Thinking • Refocus on operational • Regulatory outperformance biased towards financing AMP4 performance • Catching up with leading • Operational laggard performers • Sale of non -regulated business
Capital Markets Event Overview PR14; a challenging settlement
ODI͛s Rewards/Penalty ranges 6,500 200 +140m +50m 100 +30m +30m 6,000 UU proposed totex c£600m sustainable cost reductions delivered 0 £m through more efficient capital delivery and 5,500 Systems Thinking -100 -£100m -£70m -£50m
Totex Totex (£m) -200 5,000 -300 Ofwat proposed totex 4,500 -400
4,000 -500 -£470m
P10/P90 range Soft guidance Target Target PR14 May 2015 May 2016 May 2017 Jul 14 Jan 14 Jan 15 Jan Jun 14 Oct 14 Feb 14 Apr 14 Sep 14 Dec 13 Dec 14 Dec Aug 14 Nov 14 Nov Mar 14 Mar May 14 May
£600m efficiencies vs. original business plan ODI package heavily skewed to the downside
Capital Markets Event Overview Delivering our strategy for AMP6
Net regulatory capex
2015/16 2016/17 2017/18 2018/19 2019/20
Planned acceleration of capital programme Net cumulative ODI reward in years 1 and 2
Capital Markets Event Overview Sustained improvement
5 year improvement 5 year improvement Water performance measure1 Wastewater performance measure to 2016/17 to 2016/17
WTW Coliform infringements +67% Cat 1-2 pollution +75% WTW Turbidity infringements +67% Cat 3 pollution +53% SR Coliform infringements +47% Failing Flow to Full Treatment +18% DWI Category 3 or above events +29% Bathing water failures +100% Total number of water quality infringements +34% Maintenance - proactive / reactive +29% Customer Contacts Discoloured Water +22% SIM Quantitative +22% Customer Contacts Taste and Odour +10% SIM Qualitative +10% Leakage (Ml/d) +3% Written Complaints +34% SIM Qualitative +6% SIM Quantitative +56% Stage 2 complaints +55% Written complaints +24% Internal flooding - other causes +25% Stage 2 complaints +73% Sewer blockages +43%
1 DWI Measures are calendar year
Capital Markets Event Overview Heading into AMP7 as a high performing company
We͛ve come We͛re delivering on Our Systems Thinking This is delivering our This gives us from being a our AMP6 strategy; approach is a current leading confidence laggard to delivering more competitive performance and we also have further heading into catching up to for less and advantage and is 5 now leading applications that will AMP7 and sustainable year on years ahead of the beyond. the industry. year improvements. rest of the industry. help extend our lead.
Capital Markets Event Overview
Simon Chadwick Central Operations Director Systems Thinking & Innovation Innovation in United Utilities
Implementing Systems Systems Thinking Innovation Thinking Using digital technology to accelerate delivery of Systems Thinking Sharing our Overview and our Case studies approach learning to date Case studies
Capital Markets Event Systems Thinking & Innovation Systems Thinking Innovation in our operation strategy An introduction to Systems Thinking Traditional analysis focuses on the individual pieces of what is Components of a system being studied Systems Thinking focuses on how the things being studied interact with the other constituents of the system. Instead of isolating smaller and smaller parts of the systems being studied, Elements Interconnections Functions Systems Thinking works by expanding its view to consider larger and larger numbers of interactions as an issue is being studied.
Capital Markets Event Systems Thinking & Innovation Integrated catchments A Systems Thinking approach to catchment management Systems Thinking in an environmental Systems Thinking catchment at catchment scale The Petteril integrated Holistic risk assessment catchment case study Enhanced modelling Intensive monitoring Benchmarking Stakeholder engagement
Innovation Partnership Multiple benefits Innovative permitting approach Co-delivery of catchment interventions Targeted asset + catchment New low tech asset for Phosphorous removal Match funding opportunities interventions Natural capital pilot Petteril steering group Match funding Nutrient trading Community engagement opportunities More for less Flooding and water quality improvements Added natural capital value Long-term benefits to the catchment
Capital Markets Event Systems Thinking & Innovation Carlisle Beyond asset solutions 56% Flooding and quality interventions Opportunities for integrating Green infrastructure other activities reduction Customer engagement Southwaite M6 services in totex Work with Highways & Moto Load impact on Wastewater Treatmentworks Original (traditional) solution Blackrack Beck £17.878m Capex Septic tanks investigations & EA partnership £0.266m/yr Opex Calthwaite Beck £23.198m Totex Catchment interventions as additional measures to tackle P (beyond asset solution) Systems Thinking solution £6.308m Capex Bowscar Catchment interventions to protect abstraction £0.164m/yr Opex point and reduce diffuse phosphorous pollution £0.508m One off Opex £10.096m Totex Petteril integrated £1.7m additional NATURAL CAPITAL BENEFIT catchment plan
Capital Markets Event Systems Thinking & Innovation Ellen Petteril
In AMP7 we will apply Systems Thinking to a further 13 catchments Hodder
These 13 catchments have been identified across Crossens our region as part of our AMP7 programme. Lower Irk Lower Alt Irwell
Upper Alt Bollin Hornsmill Brook Dane-Wheelock
Gowy
Upper weaver
Capital Markets Event Systems Thinking & Innovation Wastewater network management A Systems Thinking approach to network management 1. THE WASTEWATER NETWORK VISION
Collecti Transport Deliver Future Ways of Working on y • We know everything about our sewer network and assets to enable us to manage them effectively and efficiently
• Our critical & high risk assets are monitored in real time with trigger levels and interventions appropriate for each asset
• Our Maintenance regimes are reliability centred with scheduled Wastewater activities linked to our ability to recover from triggers levels and agile enough to respond proactively in anticipation of events
Network • We are clear on how an area drains and use historic, modelled, real A trailblazer for Systems Thinking time and forecast data to predict areas of our network that will be at risk
The project is looking at how the holistic • All new connections to our network or network assets are built to drainage system can be optimised to reduced minimum standards with clear and appropriate O&M regimes totex and improve service. incorporated into our drainage area plans
The underlying principle is to understand the • The majority of new schemes are foul only and we work in a tripartite network and how it delivers services to way to ensure surface water is managed sustainably customers, as part of a broader system. • We have a comprehensive understanding of flood risk for all our customers and manage this proactively
• Our investment is prioritised to ensure that every pound is spent on the most important thing at that time
Capital Markets Event Systems Thinking & Innovation Implementing Systems Thinking
STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 Facilities & Asset Area information Connecting the System monitoring Next evolution is Assessment components and and control an A.I. running relationships the system
Capital Markets Event Systems Thinking & Innovation Repeat sewer Customer behaviour flooding events clusters targeted FRECKLETON L- in -L PS CATCHMENT cleansing and customer engagement Pilot results:
49% reduction in totex 70% improvement in service
Multiple point assets suffering frequent blockage issues
80% actual Totex efficiency Risk management Systems Thinking: blockage reduction in Systems Thinking Cause effect 49% reduction in Totex Forecasts customer service issue Totex AMP6 saving £4.4m Traditional flooding solution cost reduction of 70% £m͛s. Risk mitigation for £10k
The pilot results are promising, however this is a long term strategy over multiple AMPs to implement across our business
Capital Markets Event Systems Thinking & Innovation Pilot Results: 89% saving in cost to repair
Through Systems Thinking we can identify areas where service performance is susceptible to external factors
We are using satellite data processed through advanced image analytics to identify ground movements that indicate the risk of sewer collapses. The potential benefits are significant in terms of cost and customer disruption. Reactive repair Pro-active repair
£550k £60k
6 week road closure 3 day lane closure
Capital Markets Event Systems Thinking & Innovation Systems Thinking A framework for implementation We have scanned different business sectors for advanced technology to accelerate our implementation of Systems Thinking
Digital workers Intelligent and integrated plant and network Digital customer
Connected worker Digital learning Liquid workforce Digital asset Digital event Market facing Mobile and wearable Enables collaborative and Optimises supply and demand management management platforms technologies combined with personalised learning through and skills mix across locations. analytics, augmented reality online portals, gamification Enables flexible workforce via IT/OT integration allowing Predictive analysis and digital Digital trading platforms that and artificial intelligence and virtual reality online marketplaces asset/network visualisation, communication channels to enable energy optimisation predictive maintenance and enable event prediction and and participation in energy automation customer pre-warning. Includes and bioresource markets site imaging and virtual assistants
Digital enterprise
Digital foundation Digital inventory Process automation Provides the foundation for big data capture, Tracking of materials and parts, inventory Rapid automation of manual, rules based, back office storage, processing analysis and visualisation visualisation and 3D printing administrative processes using software ͚robots͛
Capital Markets Event Systems Thinking & Innovation Robotics is an example technology to accelerate implementation of Business process Systems Thinking automation Based on software tools to Our research identified automate specific manual areas of digital opportunity processes (BPA)
Rapid automation of manual, rules based, back office administrative processes using software ͚robots͛. Robotic process automation Automation of manual (even complex ones) processes in corporate functions of field operations
Capital Markets Event Systems Thinking & Innovation Capability model design
Our capability model Asset planning System optimisation Work execution and delivery defines the set of and provision capabilities required to deliver our Systems Customer experience Thinking operating strategy – it has been Operational Water Water informed through our monitoring resources network+ digital research Asset Production Operational Wastewater lifecycle planning & Work Bioresources management optimisation scheduling control network+
Enabling capabilities
Data and information management Process excellence
Capital Markets Event Systems Thinking & Innovation Wastewater Bringing the Robotic Process Network AMP6 Automation Management capability Wastewater (Implementation) (Proof of concept) AMP6 Treatment Works Alarm handling hub model model to life (in full operation) (Implementation) Event Recognition in Water The operational (Implementation) 5 monitoring capability maturity model 4 3 2
1 Remote Remote Predictive A.I Remote visibility of visibility of analytics on monitoring of visibility of asset status system system system asset status performance performance performance performance Local Centralised system Human-led Machine-led Inconsistent Integrated Asset focused Predicative Lagging
Capital Markets Event Systems Thinking & Innovation Systems Thinking Maturing our capability Example projects thus far
Event Recognition in Water Network (ERWAN) The Power of Advanced Technology Machine Learning
ERWAN (Event Recognition in Water Network)
ERWAN is the first example of We have 200 million readings Obtaining insight from this data Machine Learning and is a self per year through our is key to predict and respond to learning system that learns the advanced sensor network. network changes that could ͚normal͛ system signature within our impact customers. water network and sends an alert as soon as it sees a deviation in.
Capital Markets Event Systems Thinking & Innovation Process without Process with ERWAN ERWAN & ICC ERWAN & ICC CASE STUDY Reactive scenario
Wednesday 31 May there was a failure of a 450mm diameter main on the Formby bypass. This affected 261 minutes 151 minutes 10,600 properties.
This reduced the duration of the supply interruption to customers by 42% from 261 minutes to 151 minutes and provided an ODI benefit of £602k
Capital Markets Event Systems Thinking & Innovation Systems Thinking Maturing our capability Example projects thus far
Robotic process automation (RPA) Robotic process automation (RPA) Wastewater tracker RPA is new technology to use machines Taking inputs from multiple systems to create a schedule update report to undertake task previously done by humans it can: Process now in production Currently takes 8 people c.11 hours per day • Improve operational performance • Reduce totex Appointment reminder text message Schedulers provide appointment updates to customers and update the customer interaction record in the customer management system
Process now in production Currently takes 8 people c.8 hours per day This is an emerging technology area with the potential for significant benefits. Free meter applications We already have the first robots working Staff work through customer online applications, look up customer average consumption for us/ information and calculate Free Meter eligibility based on estimated savings
Process now in production Currently takes c.5 hours per day
Capital Markets Event Systems Thinking & Innovation Robotics process innovation Meet the robots Business Process Overview Complexity Benefit Hours back Our next Area Level p.a. Central Ops Alarms (WW) Manual check and reset of High High 7280 alarms in the strategic phase will save telemetry systems
Central Ops Water Site Control & Automate telemetry High High 3362 18,989 hours of Data Acquisition readings Tours for 58 sites manual work Central Ops Clean Water Tracker Collation of data in Click Medium Medium 2000 Commercial Goods receipting Send chaser emails for Low Medium 2000 !nd we͛ll deliver 8 production Email reminders goods receipts processes through the next Developer Meter Releasing Create work orders for Medium Medium 2000 Services meter installations through implementation phase of Robotic to delivery partner process automation (RPA) Domestic Automated Speech Text customers who have Medium Low 347 Retail Recognition had a failed transaction Transactions
Wastewater Water samples Scheduling Engineers to take Medium Medium 2000 Services water samples
TOTAL 18,989 hours back to the business p.a.
Capital Markets Event Systems Thinking & Innovation Innovation Our approach Innovation overview Cheaper, faster, better, safer
Our Strategy
Accessing the Prototyping Working with Inspiring innovation breakthrough academia innovation ecosystem technology New entrants Triage Dedicated team Stimulating research Employees Idea scouts Trial zones Applying research Value Innovation Lab Adapting Leveraging funding Innovation Centre
Harnessing and exploiting good ideas – big and small - to improve performance and reduce totex
Capital Markets Event Systems Thinking & Innovation Innovation lab Encouraging new entrants Accelerating technology development Innovation lab The first ever innovation lab in the water sector
New procurement Our first 5 problem areas Innovative partnership procedure
Connected water Proactive Predictive asset Safe and healthy Future of and customer customer actions maintenance worker water
in partnership with
Capital Markets Event Systems Thinking & Innovation Written Short - Pitch Lab Advertise application Continue? Implement Innovation lab day period list
1500 suppliers
80 applied
55 new to UU
22 presented
7 to join the lab UV LED Pipes with Water Motor AI for water Sewer Drones for treatment built in efficient condition management condition safety sensors showerhead monitoring
Capital Markets Event Systems Thinking & Innovation Capital Markets Event Systems Thinking & Innovation One of our magnificent 7
Worlds first utilities scale UV Up to LED Water treatment systems 90% energy saving • Effective against biological over existing contaminants including chlorine systems resistant microorganisms • Effective against organic pollutants, pesticides, pharmaceutical residuals, hydro carbons • Applicable for both clean and waste water treatment
Capital Markets Event Systems Thinking & Innovation Punching through the Porter͛s Efficient Frontier
efficiency A* Low New Efficient frontier Frontier Set A
Cost B
Less Than Best Practice High Quality High
Source: !dapted from Michael Porter, “What is Strategy?” Harvard Business Review, November-December 1996
Capital Markets Event Systems Thinking & Innovation Lunch Break Integrated Control Centre (ICC) tours
Group 1 Group 2 Group 3 12:00 – 12:20 12:00 – 12:20 12:20– 12:40
Rikard Dahle Richard Hughes Verity Mitchell James Brand Michael Stiasny Guy MacKenzie Stephen Hunt Chris Laybutt Rui Dias Maurice Choy Iain Turner Jeremy Wiseman Gavin Kennedy Dominic Nash Fraser McLaren Anna Mills Steve Smith
Capital Markets Event Lunch Richard Ratcliff Engineering Delivery Director Engineering & Capital Delivery
What does TCQi stand for? Time, Cost, Quality index
Time Cost Quality The three elements We will deliver a project We will deliver a project The projects we deliver of TCQi contribute to the regulatory standard within the approved will add quality and be of equally to the within the required original budget. benefit to customer. overall score. time frame.
Capital Markets Event Engineering and Capital Delivery AMP5 and AMP5/AMP6 TCQi Historic Performance
AMP6 TCQi 100 performance 80 Achieving and maintaining industry leading TCQi Change in 60 performance Methodology
40
TCQi Reported Position 20
Equivalent to AMP5 0 Methodology Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 AMP5 AMP6
Capital Markets Event Engineering and Capital Delivery Closing the gap and accelerating the capital programme
6,500 Net regulatory capex
6,000 UU proposed totex c£600m sustainable cost reductions delivered through more efficient capital delivery and 5,500 Systems Thinking
Totex Totex (£m) 5,000
Ofwat proposed totex 4,500
4,000 2015/16 2016/17 2017/18 2018/19 2019/20
Jul 14 Jan 14 Jan 15 Jan Jun 14 Oct 14 Feb 14 Apr 14 Sep 14 Dec 13 Dec 14 Dec Aug 14 Nov 14 Nov Mar 14 Mar May 14 May
£600m efficiencies vs. original business plan Planned acceleration of capital programme
Capital Markets Event Engineering and Capital Delivery Driving £300m of efficiency into the Based on 40% of major capital the programme programme
(£2.3bn) Competitive New Processes - £20m Embedding tender and Delivering Continuous innovation - £20m risk and batching innovation - DfMA - £20m value - £34m (20 -35%) £60m
Driving a Reducing Changing ͞best athlete͟ time related delivery approach - costs model - £66m £55m BIM DfMA Changing to Design & Build Collaborative Planning and expert client
Capital Markets Event Engineering and Capital Delivery Driving holistic solutions through Risk and Value Embracing totex and shifting from a capital Risk & Value has been about establishing a mind-set, to ensure that we keep challenging and validating both the need for our projects and bias through the tools that we use and the way we deliver them. The principal of R&V is to maximise value, but pervasive engineering we have also been successful in creating CAPEX efficiency with significant potential to drive further benefits.
What does What's How much How much What have we achieved so far, and how much is left to do? the future happening do we need risk are we look like? right now? to invest? willing take? 121 £24m £10m+ >200 87 RV Studies held LBE Reduction Further Opportunities Workshops still across the through R&V Opportunity discovered and to deliver in programme Forecast being AMP6 Needs Asset Solution & Opportunity developed Verification Review Cost review Development Business Value (RVO) (RV1) (RV2) (RV3)
What is next? Set up for AMP7 success – R&V has already been used as a key Strategic Area TOTEX Risk and function of PR19, and we aim to fully establish within our AMP7 Focus Focus Focus Opportunity Focus delivery framework
Capital Markets Event Engineering and Capital Delivery AMP6 Design & Build delivery Industry Industry AMP6 AMP6 Average Best model (Year 1) (Year 2) AMP7 Performance Performance Driving towards industry best performance UU labour/non labour and capital overhead costs £0.41 £0.36 £0.25 £0.32 £0.25
• Changing from Alliance based model to Design Indirect construction costs & Build model has reduced indirect construction costs (AMP5 £0.41 to AMP6 £0.35) to align with £0.35 £0.35 £0.35 £0.41 £0.35 industry best performance. Direct construction costs • Change to Design & Build model has enabled UU to better industry average overall performance £1.00 £1.00 £1.00 £1.00 £1.00 and drive to industry best performance. £ in the ground
£1.76 £1.71 £1.60 £1.73 £1.60
Capital Markets Event Engineering and Capital Delivery Innovating the way we deliver our capital programme Nereda To date Nereda has saved £15m of CAPEX, will save £1.9m of OPEX per year and set up four sites for Systems Thinking
Kendal WwTW Morcambe WwTW Failsworth WwTW Blackburn WwTW Estimated £1m CAPEX saving Estimated £6.3m CAPEX saving Lowest Whole Life Cost Estimated £7m CAPEX saving compared to conventional solution through use of Nereda compared to conventional solution Future OPEX saving of £240k Future OPEX saving of £308k Future OPEX saving of £54k per year per year Future OPEX saving of £1.3m per year per year Reduced need to acquire new Future proofed for phosphorus Lower risk solution due to reduced land / build tidal storage removal and product recovery Future proofed for phosphorus existing assets offline in construction removal and product recovery Programme improvement as no EIA Largest UK reference when built required compared to conventional Largest reference in Europe when built
Capital Markets Event Engineering and Capital Delivery DfMA and standard products move from innovation to BAU To date £20m of CAPEX savings have been achieved, time related costs are additional. Advance C2V+ MMB LiMA 1 1 1 1
Chorley Settlement DfMA MCC Kiosk, duct pit and tanks design. pre-fabricated transformer walls.
2 2 Valve in a bin installed on Jackson Edge service reservoir Windermere Project. Pipex DfMA distribution chamber and 2 DfMA MCC Hesketh kiosk. 2 Bank Shay Murth / WPL Dutchland 3 prefabricated post treatment tensioned system critical tank one enabler on the of the first Preston Pre-assembled Halton East of it͛s in storm tanks. pipe bridges. project. the UK.
Capital Markets Event Engineering and Capital Delivery Embracing the digital world Building Information Modelling (BIM) driving asset centric data into an operational world and delivering CAPEX time related savings
2000 2005 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025
BIM Level 2 3D First VR BIM 3D modelling first Liverpool BIM BIM strategy Employer͛s !LM͛s as written into ALM on a excellence ‘On the Shoulder͛ 3D ALM reviews flagship project paper information BAU published requirement AMP6 project programme Collaboration specification contract issued (S13)
3D Modelling on all AMP5 projects Common data UU͛s Common Data Intelligent environment Design Data Environment launched (BS1192) moving to the Connected Asset for all project 3D ALM Reviews cloud Register Information delivery Models
Sharing Information O&M GIS Data with Field Service Data Engineers Liverpool WwTW – Flagship AMP5 BIM Project
Standard Digital products - BIM Adoption throughout the Co-written BIM4Water Immersive ALM Review supply chain Industry guidance document
Capital Markets Event Engineering and Capital Delivery Embracing the digital world
We are the only water company to have • Written BIM into the AMP6 contracts • Provisioned a client owned Common Data Environment 1st • Documented our Information requirements (S13 specification) • Our own BIM professionals in house • Made 3D modelling and intelligent schematics the default way of working • Achieved BIM Level 2
Why are we doing this? • Improve resilience of our infrastructure Kendal Kendal • Optimise the lifecycle performance of our assets. ͞3D Print͟ ͞VR !LM͟ • Reduce risk and improve health and safety performance. • Reduce cost and time to deliver projects e.g. • Liverpool – Savings £1m • Davyhulme – saved 11,000 working days on site. • Ensure that UU remains at the forefront of digital working and are ready to exploit future opportunities.
Capital Markets Event Engineering and Capital Delivery West Cumbria strategy Driving programme innovation through planning, procurement and stakeholder management
Project Driver • European Habitats directive • Infraction proceedings • Ennerdale Environmental drivers, (compensatory measures) • Examination in Public • Long term resilience for West Cumbria Project Particulars and status Delivery through innovation • £300 million scope, current LBE significantly beating budget • Project task team approach and early • EA want us to stop using Ennerdale engagement water by 31st March 2022 • Project currently in implementation, year 2 construction • Regulatory PIU 31st March 2022, target 31st March 2021 • Extensive stakeholder management • Early contractor involvement ODI ͚s • 9 year duration, (5 years construction on site) • 95km pipeline, (33km of twin 900mm, 62km single 800mm / 600mm) • Contract strategy • Only project in the UU programme with its • Collaborative planning own set of distinct ODI͛s • 80 Ml/d water treatment works • 3 service reservoirs, 2 pumping stations • DFMA, 3 / 4 d modelling and virtual • 16 ODI͛s in total, 5 achieved, remaining on visualisation target to outperform • Renewable energy, (hydro and solar) • What͛s in it for Cumbria • Incentive of £22.5 million • Planning achieved, unanimous decision from all planning authorities
Capital Markets Event Engineering and Capital Delivery Sharing Outperformance Delivering industry leading long term water resilience.
Covering of all filters & chambers Engineer lead HAZREV completed at downstream of first stage filters highest risk sites, with ALL WTWs on track for completion
Installation of Shut down and Start up Robust service reservoir facilities at ALL WTWs assessments & repair
UV installed at WTWs and ability to deploy it everywhere underway
Capital Markets Event Engineering and Capital Delivery Haweswater It is UU͛s most It carries treated £235 million Aqueduct significant supply asset drinking water over 93km investment enabled built between 1930 -1955. from the Lake District to the HA to be taken out The need for Serving over 2 million Manchester, supplying parts of supply and more resilience people. of Cumbria and Lancashire inspected. along the way.
Recent inspections of the HA discovered issues with tunnel lining in places, some targeted remedial works have been completed but there are still a number of areas requiring additional work. Due to the age of the HA, there is an increasing risk of service failure to customers served: water quality problems and/or supply disruption. Medium term fixes are underway, but there will remain a substantial risk unless long term investment is made. We have identified five options which we are consulting customers and stakeholders on. We are preparing a special factor claim and potential direct procurement submission as part of PR19.
Capital Markets Event Engineering and Capital Delivery Louise Beardmore Customer Service and People Director Customer service Customer Service Strategy Great Service Costs Less
We have a clear strategy in place delivering new services and capabilities to position us now and in the future/ Reducing costs
/and at the same time we are Improving responding to the unique Service demographics of our region.
Capital Markets Event Customer Service Customer Service We have improved service, building trust and demonstrating our ability to respond to the needs of our region
Speed Friendliness Complaints Customers don͛t have Building trust with our Service recovery in opening hours customers place for when we get it wrong
Results evident in our UK Research
Capital Markets Event Customer Service Industry leading Ethnographic research identified digital capability potential for the App. Piloted with customer panel Informed by customers and launched in May – first More than 750,000 fully integrated app in sector. customers now registered for our online customer portal, My Account. Our digital channels have grown in scale and sophistication. Further customer feedback has prompted the trial with Advizzo We have engaged our 7,500 strong which will deliver home usage customer panel as early adopters of reports for metered customers. new capability. The only digital trial at scale of water consumers in the UK Launched the sector͛s first truly integrated mobile app.
Capital Markets Event Customer Service Registrations remain There are now more Launched industry Driving Priority strong and embedded than 50,000 Priority pilot with Electricity within core customer Services customers North West to share Service offering for priority services data our customers and touchpoints registered
the Utility Sector Engagement with agencies and third The new Priority services proposition sector organisations such as Public Health England, Local Authorities (county, district, has been shaped by insight/ unitary), MPs, Citizens Advice Bureau, Red Learning from all our insight and Cross, AgeUK, Salvation Army who gave us customer experiences, we identified the some insightful feedback. They told us: need to review and enhance the services offered to customers in vulnerable • The old Extra Care brand was Physical Mental health Life events situations and to engage multi-agencies confusing for customers with vulnerable needs and the third sector in the identification • The sign up process was complicated of these customers. and intrusive • Organisations didn͛t believe that the Language Financial benefits of schemes were clear to the customer. A complete and dedicated service • The scheme was one dimensional and when our customers need it most focussed on physical vulnerability Working with partners, stakeholders and charities to drive registration. Training for employees to spot and support those customers who are ͚suffering silently͛
Capital Markets Event Customer Service SIM Qualitative Performance Year to date against the W!SC͛s we are seeing strong performance and encouragingly are significantly ahead of the other two listed companies
SIM Qualitative UU Qualitative SIM score vs Industry average WASC Positioning 2017/18 YTD 4.55 4.55 4.49 4.52 4.51 (listed) 4.48 4.50 4.50 4.47 4.42 4.42 (listed) 4.45 4.45 4.33 (listed) 4.32 4.40 4.40 4.35 4.35 4.17 4.30
4.30 4.25
4.25 4.20 4.15 4.20 Anglian Wessex United Northumbrain Welsh Yorkshire South Severn Southern Thames 15/16 16/17 17/18 Water Utilities Water West Trent
Ind Average UU
Capital Markets Event Customer Service SIM Qualitative All Companies - Upper Quartile
SIM Qualitative All Company Positioning 2017/18 YTD
4.60 4.49 4.52 4.51 (listed) 4.48 4.48 4.47 4.50 4.46 4.45 4.42 4.44 4.42 (listed) 4.40 4.38 4.38 4.33 (listed) 4.32 4.30 4.26
4.20 4.17 4.16
4.10
4.00
Anglian Wessex United Portsmouth Northumbrian Welsh Bournemouth Dee South Yorkshire South Bristol South Severn Southern Affinity Thames Sutton & East Water Utilities Water Valley Staffs West East Trent Surrey
Capital Markets Event Customer Service SIM Quantitative
Performance Complaints – Stage 1 How are we performing? We have made significant improvements – reducing complaints by over 32% in 2 years We have set ourselves challenging targets on service recovery and continue to see a declining number of complaints across all areas.
Complaints – Stage 2 Stage 2 complaints have reduced by 62% over 2 years We are running at 2% repeat rate which is in line with industry best performance CCW reported up to end September they have seen a 44% reduction in complaints directly to CCW which is the largest decrease of any of the WASCs
Capital Markets Event Customer Service Organisation Ranking Jan-18 Jan-17 Change UK all-sector average 78.1 77.8 0.3 Not just Utilities 74.4 74.4 0.0 OVO Energy 81.5 82.5 -1.0 Utility Warehouse 78.9 78.4 0.5 water leading Bristol Water 77.4 N/A N/A M & S Energy 77.4 77.0 0.4 Institute of Customer Service Yorkshire Water 77.4 80.1 -2.7 United Utilities (water) 77.3 69.9 7.4 We are the most UKCSI results Scottish Water 76.9 74.1 2.8 First Utility 76.8 77.4 -0.6 improved Utility Wessex Water 76.7 79.5 -2.8 company against a We have made significant Anglian Water 76.4 77.0 -0.6 Dwr Cymru (Welsh Water) 76.4 75.3 1.1 backdrop of declining progress in the latest UK Affinity Water 76.3 N/A N/A Customer Satisfaction Index, Severn Trent Water 76.0 78.0 -2.0 performance for many nd Power NI 75.9 76.9 -1.0 2 of the 10 WASCs. Northumbrian Water 75.6 76.1 -0.5 British Gas 75.1 75.4 -0.3 One of the most The Co-operative Energy 74.8 70.0 4.8 EDF Energy 74.3 74.1 0.2 improved of all brands Scottish and Southern Energy (SSE) 73.8 75.3 -1.5 Scottish Gas 73.8 74.0 -0.2 Essex and Suffolk Water 73.1 N/A N/A South West Water 73.0 75.8 -2.8 E.ON (energy) 72.5 75.0 -2.5 Thames Water 71.5 71.8 -0.3 Scottish Power 70.5 68.0 2.5 Southern Water 69.7 72.5 -2.8 npower 69.5 67.5 2.0
Capital Markets Event Customer Service Leading the sector on Service
Qualitative + Quantitative Step change in ranking and Leading listed performance trending performance water company for significantly above industry + 7.4 point increase in CCWater customer average 12 months satisfaction research United Utilities is now a leader The most improved amongst all companies Utility company
Best listed Most Best listed performer improved performer
Capital Markets Event Customer Service Affordability Regional Levels of Deprivation 1% most 5% most 10% 20% is a challenge deprived deprived most most deprived deprived
We have increased the reach of our financial North 52% 35% 28% 22% assistance schemes more than double the West number of customers we had originally North 12% 10% 9% 8% forecast in our FD. East Yorkshire 17% 18% 17% 14%
Number of customers on Financial Assistance Schemes East 5% 17% 6% 7% compared to FD assumption Midlands
140,000 West 9% 2% 17% 15% 120,000 114,772 105,182 Midlands 95,593 100,000
80,000 67,603 East of 2% 7% 3% 4% England 60,000 45,954 40,000
Number of customers customers of Number Households in the North West sit in London 0% 4% 12% 19% 20,000 the top decile of arrears risk 0 according to external data South 3% 4% 4% 6% 15/16 16/17 17/18 18/19 19/20 from Equifax East Actual/LBE FD assumption South 2% 3% 4% 4% West
Capital Markets Event Customer Service Our Industry leading ͞Weight off our shoulders͟ Town action Specialist ͞Guy was brilliant, approach to Can͛t advice really helpful͟ planning on the doorstep ͞Lovely, absolutely brilliant, Pay customers so nice, helpful͟ 45k visits – 100k visits We have fundamentally changed our approach to help Sustainable Town those that can͛t pay, redesigning 50% contact payment action and introducing new schemes plans focused and taking them out to Able to agree payment customers who need them most plans there and then Winner of Responsible Approach to Consumers Award 75% still on track CICM British Credit Awards 2018
Winner of Excellence in Treating Customer Vulnerability The Credit Awards 2017
Shortlisted for Best vulnerable customer support team U&T Awards 2017
Capital Markets Event Customer Service Engage the wider Stakeholders debt community Charities Our first ever North West affordability Foodbanks summit – launched on ͚blue Monday͛ Citizens Advice StepChange DWP Credit unions Debt agencies Housing associations Councils MP/ House of Lords Other utility companies UU Board members
Capital Markets Event Customer Service
Household regulatory bad debt charge across AMP6 (£m) Tackling 80 6.5% 6.3%
customer 75 6.0% 75 bad debt 70 5.5%
65 5.1% We have delivered substantial 5.0% reductions in regulatory bad 60 debt charges and bad debt as £m 60 a % of revenue. Since 2014/15 4.3% 4.5% we have reduced household 55 regulatory bad debt by £24m/yr. 4.0% 50 51
45 3.5%
40 3.0% 2014/15 2015/16 2016/17
Household regulatory bad debt charge (£m) Household regulatory bad debt charge as % of revenue
Capital Markets Event Customer Service Addressing the Cost to Serve - £ per customer 55 AMP6 Cost to 50 45 £ Serve challenge 40 35 Reducing Cost to Serve continues to be a main area 30 of focus. In the last three years we have effectively 14/15 15/16 16/17 17/18 18/19 19/20 reduced Cost to Serve per a customer from over Actual PR14 Allowed £50/Hh to £39/Hh.
Driving down Cost to Serve % of automated/self serve transactions 50% We have put in place a series of initiatives to reduce costs without negative impact on customer service: 45% • Delivering operational efficiencies • Growing digital penetration 40% • Improved revenue management • Improved affordability propositions 35% • Stronger won͛t pay debt management 30% • Customers choosing to use self service channels continues to grow. 2014/15 2015/16 2016/17 2017/18
Capital Markets Event Customer Service Responding Improved cost drivers Old Cost to Serve model* Econometric proposed factors
to the future Number of unique customers Number of unique customers challenges Meter penetration Meter penetration Percentage dual service customers
Econometric models for Household Retail Average deprivation levels
Extreme deprivation levels At the last price review Ofwat based retail cost allowances on simple Cost to Serve models. Average bill size These models can not easily account for many important factors that drive retail costs. A small number of additional cost drivers substantially improves the quality of retail cost models. We have presented Ofwat with robust econometric models demonstrating that *Ofwat also made a top down adjustment for dual service customer numbers extreme deprivation and household bill size are important factors in modelling retail costs. Ofwat methodology Previous retail Cost to Serve models proved too Ofwat has signalled in their Final Ofwat have indicated that these factors are basic at the last price review. Many companies, Methodology and Cost Assessment being considered as part of design options for including UU successfully argued for special consultation that they will move away from final PR19 cost models. They will consult on adjustments. Ofwat have been working closely with a simple Cost to Serve unit cost, and instead draft cost models on 29th March. companies in the run up to PR19 to develop more use econometric models for retail functions effective cost assessment methodologies. at PR19.
Capital Markets Event Customer Service Well placed for Service Cost Innovation Since 2014/15 we have reduced Highest digital presence with regulatory bad debt 44% of customer the next AMP by £24m/yr contacts automated Improving service and reducing Industry Leading costs for customers today and The highest DD penetration across the industry at 69.8% our future customers despite our affordability challenges First ever North West Affordability Summit UU and ENW first utility data share for Priority Services customers Using segmentation and external data to drive + efficient service and cash + Co-creation with our 7,300 Water collection Talk panel helping design our services and propositions
over Reduced 50,000 Stage 1 customers complaints First fully registered by 32% integrated 750,000 Stage 2 by 62% customer registered app in for My Account over two sector portal years
More than 100,000 customers being helped through one of our support schemes Institute of Customer Service: Reduced Cost to Serve per UKCSI results – January 2018 a customer from over 4th most improved company £50 to £39
Capital Markets Event Customer Service WOW! Cash Collection External Best rising star - Victoria Chester from our Excellence in Treating Customer Vulnerability contact centre in Whitehaven. – Collections & Debt Management Credit Awards WINNER May 2017 recognition 100 Club - 30 of our Field staff won the 100 award as they have received over a 100 Water Team of the Year for our great personal nominations each direct from U&T Awards WINNER October customers. 2017 Best Vulnerable Customer Support Team U&T Awards performance Customer experience delivery of the year - Finalist October 2017 best large business Innovative approaches to We are receiving external WOW! Awards WINNERS November 2017 customer engagement and recognition for best practice in satisfaction Customer Services, Collections Social Market Research Society Awards and Debt Management and Shortlisted September 2017 Complaint Handling. Responsible approach to #1 in the January Consumers Project of 2018 water brand the Year influence report 2018 CICM British Credit Awards Finalist February 2018
Utility Week Complaint Handling
Team of the Year – Best Utilities customer facing Customer Pro-active Complaint Handling – Care Award Utilities Team – Utilities, Trains Utility Week Awards Finalist December 2017 & Housing UK Complaint Handling Awards Finalist February 2018
Capital Markets Event Customer Service Steve Mogford Chief Executive Summary United Utilities Group PLC Capital Markets Event 15 March 2018
Crummock Water United Utilities is leading the way
The industry faces many challenges
Maintaining United Utilities is now a Environmental Affordability shareholder Reputational leader among the WASCs returns
United Utilities is ideally placed to meet these challenges and our innovation capabilities are at the heart of this.
Innovation and our Systems Thinking approach is central to our We have a clear vision and strategy and will deliver long term value for customers, the a long term strategy environment and shareholders.
Capital Markets Event Introduction Any questions? Cautionary statement
This presentation contains certain forward-looking statements with respect to the operations, performance and financial condition of the group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this presentation and the company undertakes no obligation to update these forward-looking statements. Nothing in this presentation should be construed as a profit forecast. Certain regulatory performance data contained in this presentation 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.
Capital Markets Event Summary