NTDUIIISGOPPLC GROUP UTILITIES UNITED
United Utilities Group PLC
NULRPR N IACA TTMNSFRTEYA NE 1MRH2019 MARCH 31 ENDED YEAR THE FOR STATEMENTS FINANCIAL AND REPORT ANNUAL Annual Report and Financial Statements for the year ended 31 March 2019
Cover photo: The cycle of our water and wastewater services, much of which are designed to use gravity to move the water naturally in the most efficient way
United Utilities Strategic.indd 3 31/05/2019 18:48:32 Job Number 31 May 2019 6:47 pm Proof Number Job Number 31 May 2019 6:47 pm Proof Number Job Number 31 May 2019 6:47 pm Proof Number Cover photo: The cycle of our water and wastewater services, much of which are designed to use gravity to move the water naturally in the most efficient way
Job Number 31 May 2019 6:47 pm Proof Number
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Contents Chairman and Chief Executive Officer’s review 2018/19 highlights
Strategic report What we do Our purpose and strategy Our marketplace Our competitive advantages Our economic regulation Our business plan submission for 2020–25 Our business model How we create value for stakeholders Our planning horizons How we measure our performance Our performance in 2018/19 Our risk management
Governance Corporate governance report Board of directors Letter from the Chairman Nomination committee report Audit committee report Corporate responsibility committee report Remuneration committee report Tax policies and objectives Directors’ report Non-financial information statement s172(1) statement Statement of directors’ responsibilities
Financial statements Independent auditor’s report to the members of United Utilities Group PLC only Consolidated income statement Consolidated statement of comprehensive income Consolidated and company statements of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated and company statements of cash flows Guide to detailed financial statements disclosures Accounting policies Notes to the financial statements Notes to the financial statements – appendices Five-year summary – unaudited
Shareholder information Look out for Read more content within our Annual Report
You can read more in our online Annual Report at unitedutilities.com/corporate where we maintain a wide range of information of interest to institutional and private investors including: › Latest news and press releases; › Reports and publications; and › Corporate responsibility content.
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Welcome to our Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities is the UK’s largest listed water and wastewater company. Our purpose is to provide great service to customers and communities in the North West, creating longterm value for all of our stakeholders.
We provide essential services that are relied on by millions of people every day, and our embedded innovation culture and pioneering Systems Thinking approach help us create value for a range of stakeholders.
We continually strive to improve our services, delivering more for less, helping vulnerable customers, and investing to build resilience for the long term benefit of future generations.
Materiality Integrated Report Our Annual Report and Financial Statements aim to meet the This Annual Report is an Integrated Report and has been prepared information needs of our investors to help them make informed and presented in accordance with the International
United Utilities Strategic.indd 6 31/05/2019 18:48:36 Job Number 31 May 2019 6:47 pm Proof Number Job Number 31 May 2019 6:47 pm Proof Number Job Number 31 May 2019 6:47 pm Proof Number We have submitted our business plan for the 2020–25 regulatory period
We received the highest grades in the sector against the test areas in Ofwat's initial assessment of plans, and were one of only three companies to be awarded a fasttrack rating. We see this achievement as recognition of the quality of our plan and of the transformation we have made as a business, which has been delivered through a consistent customerfocused approach and a drive for continuous improvement.
We were the only company to retain selfassurance status in Ofwat’s Company Monitoring Framework assessment. We have now held this top rating for three years in a row, recognising the consistently high level of trust and confidence that stakeholders can place in the quality and transparency of our reporting.
What to look for in this Annual Report
Consistent approach Continuous improvement We maintain a consistent and sustainable approach that provides a We strive for continuous improvement in our strong foundation stakeholders can rely on. performance and in our reporting.
Carlisle
Workington Page 15 Whitehaven Our purpose and strategy Kendal
Barrowin Furness Look out for our strategic themes Lancaster Blackpool Page 19 throughout this report: Burnley Preston The best service to customers Blackburn Our business plan submission Bolton Liverpool Manchester At the lowest sustainable cost for 2020–25 Warrington Stockport In a responsible manner Chester
Crewe Our strategy is broken down into these three themes, which form the framework through which we create value for our stakeholders. These strategic themes are embedded throughout this report. Our performance measurement, risk assessment and Page 39 remuneration policy are all aligned to them, often to more than one of the three themes, How we create value for such is the interconnectivity of what we do. stakeholders
Page 17 Page 24 Page 152 Our competitive advantages Our business model Our s172(1) statement
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United Utilities Strategic.indd 1 31/05/2019 18:48:41 Job Number 31 May 2019 6:47 pm Proof Number Proud to be leading the industry across a host of measures
Add logos next to each bullet, all Ofwat except Most Environment Agency one embedded innovation culture Fast Sector tracked leading business plan approach to with highest affordability and overall grades vulnerability
nd r rou ll yea nce a … resilie all whi ding le maintaining sector lea
02
United Utilities Strategic.indd 2 31/05/2019 18:48:41 Job Number 31 May 2019 6:47 pm Proof Number Read more about our business plan on pages 19 to 23
Read more about our operational performance on pages 56 to 61
Sector High leading quality rating with the approach to Environment customer Agency Highest engagement levels of trust and confidence in our reporting
nd r rou ll yea nce a … resilie all whi ding le maintaining sector lea
03
United Utilities Strategic.indd 3 31/05/2019 18:48:42 Job Number 31 May 2019 6:47 pm Proof Number Chairman and Chief Executive Officer’s review
Our consistent focus on customers and pioneering Systems Thinking approach have helped us go from strength to strength.
Pictured: Dr John McAdam, Chairman and Steve Mogford, Chief Executive Officer
Overview We achieved our best ever Service Incentive Our efforts are being recognised externally. This has been a busy year. Extreme weather Mechanism (SIM) scores this year, and our We were awarded the Institute of Customer caused operational challenges for the sector as performance across the first four years of this Service ‘Service Mark with Distinction’. We a whole, and we submitted our business plan regulatory period means we expect to be eligible were the first water company accredited by for the next regulatory period. Throughout for a financial reward of around £16 million. the Chartered Institute of Credit Management for our work with customers struggling to these competing priorities, we maintained Proving that good service costs less, we have pay; and we achieved Shaw Trust Accessibility a resilient and high-quality service and grew reduced the amount it costs to serve our status as a further recognition of our stronger as a company. customers by 27 per cent since the start of this work supporting customers in vulnerable regulatory period, as a result of our improved We made further improvements in circumstances. customer satisfaction and delivered our best operational performance, digital strategy, and performance to date against our outcome driving down bad debt. Rising to challenges and delivery incentives, despite our targets Our household bad debt has reduced from improving our resilience being tougher this year. We met our leakage 3.6 per cent of regulated revenue in 2014/15 2018 was a year of unprecedented extremes target for the 13th consecutive year, and we to 2.1 per cent in 2018/19, and customer bills of weather, with a deep freeze and rapid thaw maintained high standards of environmental have reduced in real terms since 2010. in the early part of the calendar year swiftly performance and drinking water quality. followed by an intense heatwave in the summer. We have taken the lead in transforming how It was the driest summer for our region since Our 2020–25 business plan submission the sector supports customers, particularly modern records began in 1961, meaning our received the highest grades in the sector and those in vulnerable circumstances. We have impounding reservoirs were at much lower a fast-track rating in Ofwat’s initial assessment. the sector’s most innovative and ambitious levels than usual. The soaring temperatures assistance schemes, supporting over 100,000 These achievements are a testament to the contributed to a huge increase in demand for customers struggling to pay. We held the transformation we have delivered over recent water. years and the hard work of all our team. second North West Affordability Summit this year, launching the North West Hardship Hub, We undertook a series of actions to minimise Continuing to improve the first of its kind in the country. This platform any impact on customers and protect water service for customers helps the money advice community in our resources. We increased communication to region locate cross-sector assistance schemes Our purpose and strategy are centred around encourage customers to use water wisely. all in one place, making it easier for them to customers. This has been our focus for many We significantly increased our leak detection find the best help for their clients. years and underpins customer satisfaction efforts to help manage leakage. We used our fleet of Alternative Supply Vehicles (ASVs) to improvements year after year. Read more about how we are working together to support those in need on page 57 help maintain pressure in the network at peak
04 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 4 31/05/2019 18:48:44 Job Number 31 May 2019 6:47 pm Proof Number times. We brought back into service groundwater confirmed in the most recent triennial valuation, signed supplies such as boreholes that had not been used off as at 31 March 2018, that these contributions KEY FACTS for many years, and we used our West East Link Main would address the funding deficit by December 2021. to pump water around our region. However, in April 2019, we prepaid the remaining agreed deficit recovery contributions at a discount, Read more about how we are responding to extreme meaning we are now in a pension surplus position on weather conditions on page 30 an IAS 19 basis and have eliminated the deficit on a £350 The tireless hard work of our employees, together funding basis, achieving self-sufficiency. with the support of customers and regulators over this period, meant we were able to maintain This is a responsible approach, mitigating risk for all of our stakeholders at a time when regulators, million an unrestricted service to customers. Our ability additional investment to manage these extreme conditions further including Ofwat and The Pensions Regulator, are of outperformance demonstrates the benefits of our Systems Thinking highlighting the importance of this area and in approach. Many of the actions we took to protect some cases, intervening to protect pension scheme service to customers would not have been possible members and customers. without it. As part of our business plan submission for the next regulatory period, we have set out a range of £19 Our actions resulted in one-off additional costs of around £80 million, which has further improved the considerations that will determine the future level of high level of resilience we have already embedded dividends paid. One of these is the impact of pension deficits. With our historic well managed approach million into our service. For example, our investment in ASVs to pensions and strong level of funding, we do not ODI reward for 2018/19 has been critical to improving our water service, an against tougher targets efficient way of helping to keep customers supplied expect future funding of our pension scheme to act during planned and unplanned interruptions. as a constraint in the 2020–25 period. We have a consistent policy of targeting gearing of Delivering strong and sustainable 55–65 per cent, measured as net debt to regulatory financial performance capital value. This has been supportive of United £16 Our financial performance from a statutory perspective Utilities Water Limited’s A3 credit rating with has been very good this year. Moody’s, which affirmed a stable outlook on our million credit rating following Ofwat’s initial assessment of Underlying earnings per share is 55.5 pence, an business plans, despite retaining a negative outlook expected SIM reward increase of 24 per cent and more than covering the on the sector in general. for the 2015–20 period dividend for the year. The main drivers of this increase are our allowed regulatory revenue profile and a This, alongside our pension position, gives us an decrease in the underlying net finance expense extremely robust capital base and provides a high due to lower RPI inflation applied to our index- degree of resilience and financial flexibility as we Fast linked debt, partly offset by increases in infrastructure look to the future. renewals expenditure and depreciation. Performing well against our Reported earnings per share is 53.3 pence, which is track slightly lower than the underlying figure, mainly due regulatory contract business plan to exceptional costs associated with the dry weather From an economic perspective, there are four key for 2020–25 period and fair value movements. Adjusting items drivers of value – total expenditure (totex), SIM are outlined in the reconciliation table on pages performance, outcome delivery incentives (ODIs), 66 and 67. The £80 million additional dry weather and financing. We are delivering good results against costs include £25.6 million operating costs and £10.5 all of these areas, demonstrating strong all-round performance in the current regulatory period. Top million infrastructure renewals expenditure, with the remainder being capital expenditure. As previously mentioned, we anticipate being eligible for a SIM reward of around £16 million thanks to our rating Read more about our financial performance for improved performance for customers. 2018/19 on pages 62 to 67 for the high quality The board has proposed a final dividend of 27.52 On financing, the low cost of debt we have locked- and transparency pence per ordinary share, taking the total dividend in places us in a strong position to outperform of our reporting for 2018/19 to 41.28 pence. This is an increase of 3.9 the industry allowed cost of debt in the current per cent, in line with our policy for this regulatory regulatory period, and into the next period. period of targeting an annual growth rate of at least On totex, we remain confident in outperforming our RPI inflation through to 2020. totex allowance by £100 million against the scope of We have had a pension surplus on an IAS 19 basis for our 2015–20 final determination. many years and this is well controlled through our Sitting outside the scope of the final determination is asset-liability matching approach. The IAS 19 surplus an additional £350 million we have committed to invest increased to £484 million at 31 March 2019. from our total outperformance, including £250 million The funding position is assessed using a different in resilience that we had committed to previously basis to value liabilities. While maintaining a pension and £100 million to give us a flying start for the next surplus on an IAS 19 basis, we have had a deficit on a regulatory period, and the £80 million additional totex funding basis, and have been making deficit recovery related to the dry weather event. contributions of around £40 million per year. It was
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United Utilities Strategic.indd 5 31/05/2019 18:48:44 Job Number 31 May 2019 6:47 pm Proof Number Chairman and Chief Executive Officer’s review
Although our ODI reward-penalty range was This achievement demonstrates the As well as physical health, we focus on skewed to the downside, we expect to earn transformaƟon we have achieved in mental health. We offer free confidential a net reward of around £30 million for the recent years, both in terms of operaƟonal support services for employees, and have 2015–20 period. This year’s performance performance and eĸciency, as well as the high trained mental health champions and first was our best so far, with a net reward of quality of our plan and our ambiƟon for further aiders across the business. We joined other £19.2 million bringing our cumulative position improvement in the next regulatory period. businesses in the year in an initiative aimed for the first four years of the period to a net at ending the stigma of talking about mental reward of £21.4 million. Read more about our business plan submission health in the workplace. for 2020–25 on pages 19 to 23 This performance, across the range of our As previously menƟoned, we have commiƩed Our progress in this area has been recognised ODIs, demonstrates the benefit of the an addiƟonal £100 million investment towards externally. We were named one of Britain’s accelerated investment we made early in a Ňying start to the 2020–25 period. The main Healthiest Workplaces 2018 and the third most the period. It is particularly pleasing given prioriƟes for this investment include three of improved organisation; we were reaccredited we were delivering against increasingly our toughest performance targets: leakage, with the Workplace Wellbeing Charter in 2018; challenging targets and dealing with extremes supply interrupƟons and sewer Ňooding. and we received two employee wellbeing of weather. Our expected out-turn position accolades at the Reward and Employee equates to performance towards the top end Supporting employees’ Benefits Association (REBA) awards for physical of our estimates, providing a solid foundation health and wellbeing wellbeing and mental wellbeing. for the next regulatory period. We are committed to protecting the health Read more about how we are creating a healthy Achieving a fasttrack rating and wellbeing of our employees, and have workplace on page 33 made significant efforts in this area over for our business plan recent years. Maintaining high standards Our business plan submission for the 2020–25 of corporate governance We engage with employees to help them with period received the highest grades for the We consistently operate in a manner that lifestyle choices. For example, we help them sector against the test areas set out in Ofwat’s aims to deliver the highest levels of corporate to quit smoking and offer incentives for those iniƟal assessment, and was commended as governance. Our board continues to provide who stay smoke-free for six months. We have industry leading in many areas. sound and prudent governance, consistent reduced employee inactivity rates through with the principles of the UK Corporate initiatives such as standing desks and walking Governance Code. meetings, as well as offering discounted gym memberships and an onsite gym at our head We continued to demonstrate good drinking office. We offer nutritional programmes and water quality compliance, as assessed by have health kiosks where employees can the Drinking Water Inspectorate. We have measure their weight and blood pressure. delivered a range of improvements in our water transformation programme, which has driven a significant reduction in the risk of water quality events. We once again retained Industry
Pictured: Manchester skyline
06 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 6 31/05/2019 18:48:46 Job Number 31 May 2019 6:47 pm Proof Number Leading Company status in the Environment We are proud of the transformation we have Agency’s annual assessment, and we achieved a delivered and the performance of our team World Class rating in the Dow Jones Sustainability during the year. We are excited about the Index for the eleventh consecutive year. opportunity the 2020–25 period represents as we deliver our purpose to provide great Ofwat’s Company Monitoring Framework service to customers and communities in the Assessment provides an assessment of the North West, creating long-term value for all of trust and confidence stakeholders can have in our stakeholders. the accuracy, completeness and transparency of company reporting. Integrity is one of our We would like to express our gratitude to our core values and we were delighted to be employees for their hard work and dedication, awarded the top self-assurance rating again and to customers and other stakeholders for this year, the only company to have held this their continued support. for three consecutive years. Outlook The acceleration of investment we made in the current regulatory period, along with our additional investment, Systems Thinking approach and financial risk management, Dr John McAdam Steve Mogford are delivering sustainable improvements in Chairman Chief Executive Officer performance and resilience. Our customer satisfaction is among the top of the water and The strategic report on pages 10 to 77 was approved at a wastewater companies in the sector. meeting of the board on 22 May 2019 and signed off on its behalf by Steve Mogford, Chief Executive Officer. The benefit of accelerated investment to deliver earlier improvements to service is clear to see. Given our total anƟcipated outperformance for the 2015–20 regulatory period, we are reinvesƟng £350 million of our outperformance to deliver enhanced resilience and improved performance earlier in the next regulatory period.
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United Utilities Strategic.indd 7 31/05/2019 18:48:47 Job Number 31 May 2019 6:47 pm Proof Number 2018/19 highlights Operational highlights
We have delivered Yearonyear improvements in customer another strong satisfaction and lower bills performance › Our pioneering Systems Thinking approach has delivered against a more sustained year-on-year improvements in service for customers challenging › We achieved our best ever Service Incentive Mechanism (SIM) scores, ranking us among the best water and wastewater backdrop companies, and we anticipate being eligible for a SIM reward of around £16 million for the 2015–20 regulatory period › We have delivered these improvements at lower cost, with a 27 per cent reduction in cost to serve, and customer bills have reduced in real terms since 2010 Transforming how the sector supports The best service vulnerable customers › We have the sector’s most innovative and ambitious assistance to customers schemes supporting over 100,000 customers struggling to pay Read more about our performance › We launched the North West Hardship Hub, a one-stop-shop in 2018/19 against this strategic theme platform to help the money advice community easily locate on page 56 the best cross-sector assistance schemes for vulnerable people
Best performance on outcome delivery incentives against a tougher backdrop › We have achieved our best performance yet on our outcome delivery incentives (ODIs) against a backdrop of increasingly challenging targets and periods of extreme weather › We earned a net ODI reward of £19.2 million for the year, and we now expect a cumulative ODI reward for the 2015–20 period of around £30 million, at the top end of our previously indicated range Made strides in operational efficiency › Our business plan for 2020–25 was assessed as among the most efficient in Ofwat’s Initial Assessment of Plans versus its own view of efficient costs, helping us attain a fast-track rating At the lowest › We are on track to deliver £100 million in total expenditure sustainable cost (totex) outperformance against the scope of our 2015–20 final determination, and secure a run rate that supports our Read more about our performance business plan submission for base totex as we transition into in 2018/19 against this strategic theme on page 58 the next regulatory period
Sectorleading approach delivers all round resilience › We have met our leakage target for 13 consecutive years › We are investing £250 million of our outperformance in the current regulatory period to improve resilience further, and have committed to invest an additional £100 million to get a fast start for the next regulatory period › We have a stable pension surplus on an IAS 19 basis, and in April 2019 we eliminated our funding deficit and achieved self- sufficiency by prepaying the remaining agreed contributions › Our robust capital structure and relatively low gearing provide long-term financial resilience and future financial flexibility In a responsible Consistently trusted reporting › We have been awarded the top self-assurance status for three manner years in a row in Ofwat’s Company Monitoring Framework assessment, demonstrating that stakeholders can place the Read more about our performance in 2018/19 against this strategic theme highest levels of trust and confidence in the accuracy and on page 60 completeness of our reporting
08 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 8 31/05/2019 18:48:49 Job Number 31 May 2019 6:47 pm Proof Number 2018/19 highlights Financial highlights
Tight cost control Revenue Underlying operating profit* helped us deliver a strong result and 2018/19 £1,819m 2018/19 £684.8m we maintain sector leading financial 2017/18 £1,736m 2017/18 £645.1m resilience 2016/17 £1,704m 2016/17 £622.9m
2015/16 £1,730m 2015/16 £604.1m
2014/15 £1,720m 2014/15 £664.3m
Revenue of £1,819 million increased by Underlying operating profit of £685 million £83 million, largely reflecting the allowed increased by £40 million, mainly due to the regulatory revenue profile in our final revenue increase partly offset by increases determination for this financial year in infrastructure renewals expenditure and depreciation for the year
Reported operating profit* Total dividend per share
2018/19 £634.9m 2018/19 41.28p
2017/18 £636.4m 2017/18 39.73p
2016/17 £605.5m 2016/17 38.87p
2015/16 £567.9m 2015/16 38.45p
2014/15 £653.3m 2014/15 37.70p
Read more about our financial performance on pages 62 to 65 Reported operating profit of £635 million Total dividend per ordinary share of 41.28 pence decreased by £1 million, mainly as a result of the increased by 3.9 per cent in line with our policy * A guide to alternative performance increase in underlying operating profit offset by of targeting an annual growth rate of at least RPI measures and a reconciliation between underlying operating profit exceptional one-off costs associated with the inflation through to 2020 and reported operating profit is extreme dry weather in the summer of 2018 shown on pages 66 and 67.
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United Utilities Strategic.indd 9 31/05/2019 18:48:50 Job Number 31 May 2019 6:47 pm Proof Number Strategic report The strategic report details our performance over the past year and how it has been achieved in line with our business model and strategy.
What we do 12 Our purpose and strategy 15 Our marketplace 16 Our competitive advantages 17 Our economic regulation 18 Our business plan submission for 2020–25 19 Our business model 24 How we create value for stakeholders 39 Our planning horizons 48 How we measure our performance 51 Our performance in 2018/19 56 Our risk management 68
United Utilities Strategic.indd 10 31/05/2019 18:48:51 Job Number 31 May 2019 6:47 pm Proof Number Our reservoir at Ennerdale Water - photograph taken by our water services network colleague Ian Greenwood
United Utilities Strategic.indd 11 31/05/2019 18:48:52 Job Number 31 May 2019 6:47 pm Proof Number What we do
Our wholesale water team maintains reservoirs and water Our wholesale wastewater team maintains hundreds of treatment works across the region and thousands of kilometres of treatment works and thousands of kilometres of wastewater pipes water pipes in order to collect, treat, store and deliver billions of in order to collect wastewater from homes, businesses and surface litres of reliable, clean drinking water to millions of customers 24 water runoff, transport and treat it, and return treated water to hours a day. protect our natural environment.
Our household retail team deals with new connections, metering and billing for millions of customers as well as helping vulnerable customers with our Priority Services and other assistance schemes. Strategic report
CLEANING AND RETURNING WASTEWATER
W t s e c ee tore oll m it i ect to d n re w 569 er an se at at ts rv er wastewater w n t. oi f te se en p rs ro s on m ro . W m treatment works a c on v e t w al ir id h al t v in al e u n en g so e d e l a n i m ra c o v s n ce p ir re o tu e o r a ss n n e i n h v to o m t n e n Co u e h ur ll n r e 7,000 n t t e a n t e c l a n o R t t a t kilometres e t u n , l e r d t c g it e r n . t e of rivers e i n a r r o t t W u t s t h a e e n r d p
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s a s C e t l e W REMOVING WASTEWATER y o w c r h a AND GENERATING ENERGY G l u t e W e e O r n e r a t r e s e e t b a ip 77,000 i w o W p r r f g kilometres of e e e d o in s r wastewater pipes u o e s k . c u e n e e m r i s r t r u o c o e d e v o u s e R m y t r t e lo it c o w m e i l n a a o s k a o r g s ve U f u i b e te o q g o n s h re n e w d g 190,000 r a n i r fo at te a h u tonnes of sewage o e r s r o t r a ou e s p e n h liv os sludge every year ri ne d t e r n w se ain d ac t a a pa nt e s n bl ra ai h w er d e te m ic m en en We h to e erg h w us rgy y t oug r c co o thr fo 37 sts. renewable energy facilities
12 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 12 31/05/2019 18:48:56 Job Number 31 May 2019 6:47 pm Proof Number Did you know? We are investing £3.9 billion over 2015–20, including £350 million additional investment of outperformance earned over the period. Strategic report
COLLECTING AND TREATING WATER
W t s e c ee tore oll m it i ect to d n re w er an se at 56,000 at ts rv er w n t. oi f hectares te se en p rs ro s on m ro . W m a c on v e t of land w al ir id h al t v in al e u n en g so e d e l a n i m ra c o v s n ce p ir re o tu e o r a ss n n e i n h v C to o m t n e rn o u e 165 e h u lle n r n t t et c a l n a n o t t a t reservoirs e t R u n , l e r d t c g it e r n . t e e i n a r r o t t W u t s t h a e e n r d p
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e r D s e e t b a ip i w 42,000 o W p r r f g e e e kilometres of d o in s r u o e s k . water pipes c u e n e e m r i s r t r u o c o e d e v o u s e R m y t r t e lo it c o w m e i l n a a o s k a o g s v U f u i rb e t e o q g o n e e billion e w s h r 1.7 n d g r a n i r fo at te a h u litres of clean o e r s r o t r a ou e s p e n h liv os water every day ri ne d t e r n w se ain d ac t a a pa nt e s n bl ra ai h w er d e te m ic m en en We h to e erg h w us rgy y t oug r c co o thr fo 7.2 million sts. customers served 24 hours a day
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United Utilities Strategic.indd 13 31/05/2019 18:49:01 Job Number 31 May 2019 6:47 pm Proof Number What we do We work in the North West, for the North West. This means understanding the key factors that make our region unique
Economic factors We are building resilience to continue serving our growing population and support jobs and the tourism industry
7.2million population expected to grow significantly in the next 25 years Strategic report Carlisle 17,500 jobs actively supported by our work, with over 5,000 direct employees Workington Whitehaven Tourism relied on by Lake District, Liverpool and coastal areas
Kendal
Barrowin Furness
Social factors Lancaster We are leading the sector on affordability and vulnerability Blackpool Burnley Preston 41% of the most deprived areas in the country Blackburn Bolton 47% of households have less Liverpool Manchester than £100 savings to cope with unexpected bills Warrington Stockport 18% of households are affected Chester by water poverty, 20% higher then the national average Crewe
Environmental factors We have a large coastline, protected rural areas and dense urban areas, all of which create different demands
30% of land is National Park or Area of Outstanding Natural Beauty or Sites of Special Scientific Interest
31 designated bathing waters with 25 ‘good’ or ‘excellent’ and 6 ‘sufficient’
830mm higher than average UK rainfall each year
14 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 14 31/05/2019 18:49:04 Job Number 31 May 2019 6:47 pm Proof Number Our purpose and strategy Our core values and strategic themes demonstrate the way we operate in order to work towards our vision and deliver our purpose
We are a purpose-driven organisation. This is the reason we exist, and is what drives us to continually improve our Strategic report performance and the creation of value.
Read more about how we create value for stakeholders on pages 39 to 46
To provide great service to customers and Our strategy is broken down O u r communities in the into three themes which form purpose North West, creating the framework for how we work long term value for all towards our vision. Our operational of our stakeholders. performance measurement, risk assessment and remuneration policy are all aligned to these strategic themes.
Read more about our
To be the best UK operational performance O u r on pages 56 to 61 water and wastewater vision company. Read more about how we manage risk on pages 68 to 76
Read more in our remuneration report on pages 116 to 143
O u r The best At the lowest In a service to sustainable responsible strategic themes customers cost manner
Customer focus Innovation Integrity O u r Customers are at the heart of We continually look for We make promises everything we do, and we aim new ways to make our knowingly and keep them, core values to provide a great and resilient services better, safer, behaving responsibly towards service at the most efficient cost. faster and cheaper. all of our stakeholders.
Our core values provide the cultural framework we operate in and we encourage our employees to live these values in everything they do in their daily work.
Read more about our values and culture on pages 92 and 93
Stock Code: UU. unitedutilities.com/corporate 15
United Utilities Strategic.indd 15 31/05/2019 18:49:06 Job Number 31 May 2019 6:47 pm Proof Number Our marketplace We are the water and wastewater provider in the Nor th West of England and are subject to economic, quality and environmental regulation
Our industry and market Our competitive environment KEY FACTS Customers in England and Wales are served by Our main competitors are the other water and ten licensed water and wastewater companies, wastewater companies in England and Wales. Our making up around 95 per cent of the industry, with vision is to be the best UK water and wastewater the remainder being smaller licensed companies company, and so we regularly benchmark our providing water-only services. performance against these peers. 50 Since privatisation in 1989, the water industry has Our regulators assess our comparative operational invested over £130 billion and delivered a significant performance against the other water and Strategic report million contribution to improvements in public health. This wastewater companies in England and Wales: investment has led to improvements in the quality › The Drinking Water Inspectorate (DWI) assesses household and non of services, significantly higher environmental our performance in the water business; household customers standards, and superior quality drinking water. in England and Wales › The Environment Agency (EA) assesses our The advancement of technology and innovation performance in the wastewater business; and makes way for more improvements as we continue › Ofwat assesses our customer service to invest to improve services for the long term. performance through its qualitative and Customer bills have declined in real terms in the quantitative Service Incentive Mechanism (SIM) 10 current and last regulatory periods. licensed water and scores. The water and wastewater companies are split wastewater companies The EA performance assessment and qualitative regionally based on river catchment areas. United and quantitative SIM scores are included in our Utilities Water Limited (UUW) operates in the North operational key performance indicators (KPIs). West of England, and is the second largest of these companies based on the size of our asset base, Read more about our operational KPIs on pages 52 and 53 >£130 measured by Regulatory Capital Value (RCV). As well as assessment against our water peers, We provide water and wastewater services to we benchmark our customer service performance billion a population of over seven million people, with against other leading service providers in our region. invested in maintaining over three million household customers making As a FTSE 100 public listed company, the other UK and improving assets up around two-thirds of our total revenue, and and worldwide utilities are competitors from an and services since over 200,000 businesses, ranging in size from large investment perspective. privatisation manufacturing companies to small shops.
mic regu Econo lation
Our political and regulatory environment We are subject to regulation of price and performance by economic, quality and environmental regulators, E as set out in the diagram. These n v
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u enables us to engage positively in Q order to influence future policy with the aim of achieving the best outcome for all of our stakeholders.
Read more about how we create value for stakeholders on pages 39 to 46.
16 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 16 31/05/2019 18:49:07 Job Number 31 May 2019 6:47 pm Proof Number Our competitive advantages Our pioneering Systems Thinking approach and prudent financial risk management give us a clear competitive advantage
Systems Thinking improves efficiency and operational resilience. Prudent financial risk management delivers longterm predictability and resilience to financial shocks. These competitive advantages help us to deliver sustainable longterm value for stakeholders.
Systems Thinking
What do we do? Why is this a differentiator? Strategic report Systems Thinking looks at how each individual element interacts with The water industry was consolidated into its current regions in 1973 the other constituents of the system in which it operates. Instead of and a lot of our assets were originally built a long time ago when isolating smaller and smaller elements of the system, Systems Thinking water and wastewater services were managed by local authorities expands its view to consider larger and larger numbers of interactions with little coordination at a regional or national level. over time as a particular issue is being studied. It takes considerable time and investment to install the telemetry and We use this pioneering approach to operate our business. For a water interconnections across a water and wastewater network to enable a and wastewater company this means, rather than assessing and Systems Thinking approach to be used. No other UK water company operating each asset or individual treatment works in isolation, we use does this at the holistic level we do, and we are continuing to extend all the data from the telemetry backbone we have installed across our our lead, with new developments and further rollouts in the pipeline. network to analyse the entire system and all its linkages, enabling us to find the best overall long-term solutions. What value does it create? Using network-wide real-time data and operating our network in this Our field engineers across the region are linked by an Integrated way enables us to optimise cost and service performance. Control Centre (ICC) at head office, from which we plan, monitor and control our operations. We process enormous amounts of real-time Systems Thinking is improving the reliability and resilience of our data in the ICC from right across our network, as well as factoring assets, reducing unplanned service interruptions, and helping us move in other source data such as weather forecasts, and we have begun away from the traditional reactive approach to address problems using artificial intelligence and machine-learning to process this data proactively before they affect customers. and spot issues so that we can work to resolve them before they This approach is helping us deliver operational improvements and impact customers. We allocate resources to production teams with full £100 million cost savings versus our original business plan for the accountability for asset and system performance, helping to embed current regulatory period. Further development of Systems Thinking is this way of thinking within our operational teams. embedded into our business plan submission for the 2020–25 period. Read more about the rollout of artificial intelligence across our water It is part of our long-term strategy to continue delivering benefits for network on page 35 — just one example of Systems Thinking in action. customers and other stakeholders well into the future.
Prudent financial risk management
What do we do? Why is this a differentiator? Inflation — we maintain around half our debt in index-linked form, Different companies have different levels of risk exposure as a result offering good relative value and hedging the impact of inflation on of preference and/or analysis of the costs and benefits of moving away a portion of our regulatory capital value (RCV) and revenue. Most of from a historically different approach. Our prudent approach offers a this is RPI-linked, reflecting the current regulatory model. From 2020 lower risk exposure than many other companies. Ofwat will transition towards consumer price inflation including owner occupiers' housing costs (CPIH), so we will gradually increase our CPI What value does it create? exposure, subject to cost and availability, as CPI is the best available Effective financial risk management delivers long-term resilience and proxy for CPIH in the absence of a CPIH debt capital market. our clearly articulated policies, covering a variety of market risks, help us reduce our exposure to the economic and regulatory environment, Interest rates — we fix the underlying interest cost on our remaining providing more predictable returns to investors. nominal debt out to ten years, on a reducing balance basis. We have previously supplemented this by substantively fixing interest rates for Our approach to debt financing and interest rate risk management each forthcoming regulatory period when Ofwat publishes the final enables us to consistently lock in long-term debt at good relative determination, including the cost of debt allowance. From 2020 Ofwat value, manage uncertainty in Ofwat’s approach to setting the cost of will apply debt indexation to the portion of debt assumed to be new debt at each price review, and maintain resilience to financial shocks. debt, so this supplement will not be necessary for the 2020–25 period. Our asset-liability matching approach reduces the volatility of the required funding level of our defined benefit pension schemes, and Pensions — we adopt an asset-liability matching approach for our self-sufficiency means our employees and pensioners are in a very defined benefit pension schemes by investing in assets, such as secure position and shareholders are well protected. corporate bonds and gilts and the use of interest rate swaps, that perform in line with the liabilities, providing a hedge against changes in All of this underpins our target to maintain gearing (measured as net swap and gilt yields and therefore stability in our pensions position. The debt to RCV) within a range of 55 to 65 per cent, which supports a schemes have hedged inflation exposure through RPI gilts and swaps, solid A3 credit rating with Moody’s for United Utilities Water Limited, and in April 2019 we prepaid all remaining deficit repair contributions and enables us to maintain efficient access to the debt capital markets meaning the schemes are now self-sufficient. across the economic cycle.
Stock Code: UU. unitedutilities.com/corporate 17
United Utilities Strategic.indd 17 31/05/2019 18:49:07 Job Number 31 May 2019 6:47 pm Proof Number Our economic regulation Ofwat sets the regulatory contract that we will deliver in each fiveyear period
Setting our regulatory contract Delivering that contract KEY FACTS Water and wastewater companies in England and In order to incentivise companies to deliver Wales operate within five-year regulatory periods sustainably better and more efficient performance, known as Asset Management Plan periods (AMPs). Ofwat gives companies the opportunity to earn Price, service and incentive levels are set by our a higher return where they outperform their economic regulator, Ofwat, prior to the start of each regulatory contract, and the risk of earning a lower 5year regulatory period following a period of consultation return where they underperform. The opportunity and planning known as a price review. for outperformance allows us to create further value regulatory contracts for customers, shareholders and wider stakeholders.
Strategic report During the price review, Ofwat consults with set by Ofwat for Asset We can outperform through: Management Plan stakeholders, including water and wastewater (AMP) periods companies, and sets out its methodology, which › Totex – delivering the agreed outcomes while details its key areas of focus and an indication of how spending less than the allowed totex through prices, service and incentive levels will be set. innovation and efficiency initiatives. Totex outperformance is shared roughly 50:50 Companies consult with customers and other between customers and the company. stakeholders, including environmental and quality AMP6 regulators, and prepare a detailed business plan that › Outcome delivery incentives (ODIs) – beating the covers 1 April 2015 to stretching target levels agreed for an assortment 31 March 2020, with sets out the proposed price and service package they will deliver over the period. of measures, mainly of customer service and four of these five years environmental performance. now delivered These plans are submitted to Ofwat, which › Customer satisfaction – delivering a great level scrutinises and challenges them and ultimately sets of customer service that is favourable relative a regulatory contract for each company, known as to the other water and wastewater companies, the final determination (FD). The FD sets the price, currently measured through Ofwat’s quarterly in terms of total expenditure (totex) and customer AMP7 service incentive mechanism (SIM) surveys. bills, level of service, and incentive package that covers 1 April 2020 to companies must deliver over the period. It gives › Financing – raising debt finance at a cost below 31 March 2025, with an allowed return companies can earn, which is the industry allowed cost of debt, which forms business plans already expressed as a percentage of Regulatory Capital part of the overall allowed return. well progressed and Value (RCV). › Household retail – minimising the cost to serve final determinations our household customers relative to the allowed We base our plan on continuous customer insight due in December 2019 revenue for household retail activities. and bespoke research and consultation on customer priorities, factoring in long-term planning as well We include our performance against each of the as what is needed in just that five-year period. This above areas in our operational KPIs, including our means we can submit a robust and balanced plan targets for the 2015–20 regulatory period. Since to Ofwat. This helps ensure we receive a regulatory the start of AMP6 we have published an Annual contract that targets the best overall outcomes for Performance Report (APR), which reports our our customers and all our stakeholders, and which regulatory performance in a format that helps effectively incentivises us to continually improve our customers and other stakeholders understand it and performance. compare it with other companies in the sector. This includes reporting of Return on Regulated Equity We have just delivered the fourth year of the sixth (RoRE), which is made up of the base allowed return asset management plan period (AMP6) that covers and any outperformance/underperformance in the the 2015–20 regulatory period. The 2019 price above areas. review (PR19) that will set the regulatory contract for the 2020–25 period (AMP7) is well under way. Our APRs are published in July each year at Key dates in the PR19 process can be seen on the unitedutilities.com/corporate/about-us/ performance timeline below. Information on companies’ regulatory performance can also be found at discoverwater.co.uk
31 Jan 2019 3 Sept 2018 Publication of Ofwat’s 11 Apr 2019 Submission of initial assessment of Publication of draft company business company business plans determinations for fast- plans to Ofwat track companies
AMP7 Planning and preparation
AMP6 Delivery – Year 4 of 5 AMP6 Delivery – Year 5 of 5
31 March 2018 31 March 2019
18 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 18 31/05/2019 18:49:07 Job Number 31 May 2019 6:47 pm Proof Number Our business plan submission for 2020–25 Meeting the high hurdle to achieve a fasttrack assessment
Overview to even more stretching targets, such as reducing We submitted our business plan for the 2020–25 leakage, a further 3 per cent reduction in total KEY FACTS period in September 2018, and Ofwat published its expenditure, and provide more information on our initial assessment (IAP) on 31 January 2019, in which proposals. We will continue to work constructively we were one of only three companies to achieve a with Ofwat through to our final determination in fast-track assessment. This achievement reflects the December 2019. transformation we have delivered in recent years as A fast-track assessment brings reputational, financial Fast well as the quality of our plan. and procedural benefits. Most importantly, it gives us greater clarity earlier in the process, and we have Our plan received the highest overall grades for Strategic report committed a further £100 million investment in track the sector, as can be seen in the table below. It was commended as high quality and industry-leading 2019/20 to make a flying start in delivering our plan. rating received for in many areas, including innovation, affordability our high quality and Ofwat published its latest annual Company ambitious plan and vulnerability, customer engagement, and Monitoring Framework assessment, in which we resilience. We committed to deliver more for less retained the highest category of ‘self-assurance’. We for customers, with stretching service level targets have achieved this three years in a row – the only alongside a significant bill reduction in real terms. company to do so – demonstrating the consistently high level of trust and confidence that customers Lower As part of the IAP, all three fast-track companies accepted targeted actions from Ofwat. There were and other stakeholders can have in the quality and areas of our plan where we were asked to commit transparency of our reporting. bills for customers in real Ofwat’s assessment of company performance against key test areas terms to 2025 Water only Water and sewerage companies companies £100 million additional investment in 2019/20 to facilitate
Test Area Anglian Water Dwr Cymru Dyfrdwy Hafren Northumbrian Water Water Trent Severn Water South West Southern Water Thames Water Utilities Water United Water Wessex Water Yorkshire Affinity Water Water Bristol Water Portsmouth Water South East Water South Staffs Water SES a flying start to AMP7 Engaging customers AB CB B B C C B BB CB C CBC Addressing affordability and vulnerability B B D B B B B C A B C C C C B C B Delivering outcomes for customers BC D C CBC C C CC C C CBC C Securing long-term resilience C CDC C BD D B CC DC C CDC Targeted controls, markets and innovation BCCCCCC C B BB CCC B CC Securing cost efficiency DD B CB B D D B CC C CBC CD Aligning risk and return* CCD B C B C C C DC D CCCCC Accounting for past delivery* B CDC BD D D B BB CDCD B B Securing confidence and assurance DA C CBC CC B CC C C CBC D * Highest possible assessment for these test areas was B Source: Ofwat, PR19 Initial assessment of plans: Summary of test area assessment A = High-quality, ambitious and innovative plan with evidence C = Concerns with the plan: Plan falls short of high quality and/ that overall is sufficient and convincing or evidence is insufficient and/or unconvincing in some areas B = High-quality plan, not sufficiently ambitious and innovative D = Substantial concerns with the plan: Plan falls significantly to be exceptional with evidence that overall is sufficient short of required quality and/or little or no evidence, or no and convincing convincing evidence
18 July 2019 Jan 2020 Publication of draft determinations 11 Dec 2019 Companies announce for slow-track and significant Publication of final whether they accept their scrutiny companies, and update on final determination determinations for April 2020 Ofwat cost of capital assessment all companies Start of AMP7 period
AMP7 Delivery – Year 1 of 5
AMP6 Delivery – Year 5 of 5
31 March 2020
Stock Code: UU. unitedutilities.com/corporate 19
United Utilities Strategic.indd 19 31/05/2019 18:49:07 Job Number 31 May 2019 6:47 pm Proof Number Our business plan submission for 2020–25 High quality and sector leading across a range of areas
Innovation Our approach to innovation is deeply embedded throughout the entire organisation and we were the “United Utilities only company to receive the highest possible grade in the sub-test for innovation. We are delivering technology and processes that are not seen elsewhere in the industry. shows the most embedded We have delivered enhanced capabilities through our pioneering Systems Thinking approach, which has delivered both efficiency and improved performance, underpinning the transformation we have delivered innovation culture, in recent years. Our business plan includes significant savings to be delivered from our innovation with an ambitious initiatives. Strategic report and sector We are actively working with global innovators, from small start-ups to large, established corporations, leading approach reaching far beyond the water sector. Through our Innovation Lab, we have gained unprecedented access to very small businesses with very big ideas – companies across the world that would normally struggle to to innovation interact with a large utility. capability”
Read more about our Innovation Lab on page 37 Source: Ofwat, PR19 IAP – Overview of company We will exit the current regulatory period as a high-performing and efficient company, and we have categorisation achieved this in part by being at the frontier of innovation and technology.
Affordability and vulnerability Our ambitious and innovative approach to addressing affordability and vulnerability is seen by Ofwat as “United Utilities’ sector-leading and we received the highest available grade in this key test area. plan includes Our plan represents a strong value for money proposition, supported by over 80 per cent of customers. ambitious, Average customer bills are lower with a real reduction of over 10 per cent between 2020 and 2025 supported by targeted financial assistance for those who need it most, while service and environmental quality continue innovative and to improve. sectorleading Our region is home to some of the most deprived communities in England and Wales. We have worked proposals to make hard to put in place some of the most innovative and ambitious affordability schemes in the industry, customers’ bills and have taken a lead on transforming the sector’s approach to supporting customers in vulnerable affordable and on circumstances. Our plan will push the industry frontier through innovative affordability schemes, such as our Lowest Bill Guarantee, which gives confidence to customers that a meter would save money, as well providing support as water. for vulnerable This year we hosted the second North West Affordability Summit, working alongside charities, local customers” authorities and support agencies to find ways to help customers in need. At this second summit we Source: Ofwat, PR19 IAP: United launched the North West Hardship Hub, a one-stop-shop portal for cross-sector information and financial Utilities company categorisation assistance schemes to help the money advice community find the right support for vulnerable people.
Read more about this North West Hardship Hub on page 57
Customer engagement Our high-quality approach to customer engagement was recognised by Ofwat in its assessment, as was “United Utilities’ our ambition and innovation in bringing research findings together with other sources of customer data to gauge customer support for our plan. One test area Ofwat asked us to improve was delivering plan reflects high outcomes for customers, with more evidence on some performance commitments and commit to more quality customer challenging targets to align with the results of customer feedback and the industry frontier. engagement and Our plan reflected unprecedented engagement with customers, regulators and other stakeholders. participation. Over 140,000 people from all walks of life were involved in informing our plan through over 90 bespoke engagement exercises. We used a range of research techniques, including online surveys, co-creation It uses a range events and online panels tailored to the target audience. Our use of new techniques, such as immersive of research research and behavioural economics, to get better insight into customers’ preferences and to supplement techniques . . . stated preference approaches, was highlighted by Ofwat as ambitious and innovative. Over 2 million individual data points, from day-to-day interaction with customers, were used to create our plan. tailored to the target audience” The independent customer challenge group, YourVoice, monitored our performance during the current regulatory period and was deeply involved in challenging our plan for 2020–25. Source: Ofwat, PR19 IAP – Overview of company Read more on pages 22 and 23 about how we used this engagement to help shape our business plan categorisation
20 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 20 31/05/2019 18:49:08 Job Number 31 May 2019 6:47 pm Proof Number Resilience in the round We have seen record-breaking extremes of weather in the last few years that have tested the industry. “United Utilities has Learning from this, we have already made significant progress in enhancing operational resilience, and we are investing an additional £250 million in the current regulatory period to improve this further. a sectorleading
Read more about our response to these challenges on page 30 approach to resilience . . . and We were assessed as an industry leader in our approach to securing long-term operational, corporate set the standard for and financial resilience. Our Systems Thinking approach has been fundamental to this assessment, and our robust capital structure, appropriate level of gearing, prudent financial risk management and strong other companies to Strategic report pensions position contribute to the strength of our long-term resilience. reach” Our plan proposed a major water resilience scheme in Manchester and the Pennines, which will mitigate the Source: Ofwat, PR19 IAP most significant operational risk that we face. Ofwat recognises the need for investment to deliver resilience – Overview of company and welcomed the fact that we have embraced the direct procurement approach in our proposal. Given its categorisation scale and complexity, this will be addressed outside the constraints of the fast-track timetable. As a contribution to national resilience, we devised a large-scale north-south water transfer scheme some time ago. Ofwat is proposing to allow up to £25.7 million to further investigate this scheme in collaboration with two other water companies to determine whether it would be a strong value-for-money proposition.
Aligning risk and return Our plan provides for a fair balance of risk and return, with rewards available for the delivery of stretching “United Utilities’ performance. We have a responsible corporate structure aligned with industry-leading environmental performance and strong financial resilience, and we provided strong evidence about the financeability of plan demonstrates our proposed business plan. high quality We committed to provide £71 million of company funding over the period toward financial assistance and ambition schemes for customers in need, building on our sector-leading approach to affordability and vulnerability. in its approach In addition, we proposed a clearly defined benefit sharing mechanism through our ‘CommUnity Share’ to aligning the scheme, which offers to match benefits for customers if dividends are much higher than assumed in our interests of the business plan. We will consult with customers and stakeholders, under the supervision of the independent customer challenge group, YourVoice, about how this funding will be used, with transparency about how company and its this funding would be used for customer benefit. investors with This builds on the voluntary reinvestment of over £600 million that we have already committed across the customers” current and previous regulatory periods. Ofwat recognises that this approach puts us among the leading Source: Ofwat, PR19 IAP – companies in terms of voluntary benefit sharing with customers. Summary of test area assessment
Stretching service levels and efficient cost Driving efficiency is a key focus for management and Ofwat found ours to be one of the most efficient plans “United Utilities when compared with its own view of efficient costs. provides a Our business plan represented a reduction of over £1 billion in expenditure compared with AMP5 (covering highquality 2010–15), driven by innovation, use of market mechanisms, and the significant improvement that we have made in efficiency in recent years. All three fast-track companies were asked to reduce their cost proposals plan and made by about 3 per cent. This compares with the industry average that was 15 per cent above Ofwat’s view of strides towards efficient costs. cost efficiency In household retail, we have substantially reduced our cost base in recent years, primarily through tackling compared to the levels of household bad debt, and we were pleased to see that our cost projections aligned with Ofwat’s own assessment. last price review” Source: Ofwat, PR19 IAP There are 14 common Outcome Delivery Incentives (ODIs) for the industry, where targets are based on – Summary of test area upper quartile performance expectations, alongside a suite of innovative, company-specific measures. assessment The targets for common ODIs were updated with Ofwat’s latest view based on plan submissions, and may change further as the price review process continues for all companies.
Stock Code: UU. unitedutilities.com/corporate 21
United Utilities Strategic.indd 21 31/05/2019 18:49:08 Job Number 31 May 2019 6:47 pm Proof Number If it matters to you, it matters to us
We asked over 140,000 customers and stakeholders across our region what matters most to them, and used this feedback to help shape our business plan for 2020–25. These are just a few examples of what they told us and how we responded.
Read more online at
Strategic report unitedutilities.com/corporate/about- us/our-future-plans/our-proposed-business-plan/
YOU TOLD US… Replacing old pipes matters
YOU TOLD US… THAT'S WHY… Providing extra support for those We’ve committed to a in need matters long-term aim of eliminating lead pipes THAT’S WHY… across the network We’ve introduced payment breaks and pledged to help 250,000 customers out of water poverty
YOU TOLD US… Protecting the environment matters THAT'S WHY… We’re playing our part in improving the quality of the region’s river and bathing waters
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United Utilities Strategic.indd 22 31/05/2019 18:49:11 Job Number 31 May 2019 6:47 pm Proof Number YOU TOLD US… Reducing leaks matters THAT'S WHY… We’ve increased our team of leak detectives across the region Strategic report – including our team of leak detection sniffer dogs YOU TOLD US… Lower bills matter THAT'S WHY… We’ve proposed our largest ever bill reduction of over 10 per cent, reducing average bills in real terms by 2025
YOU TOLD US… Reducing internal flooding matters THAT'S WHY… We’ve pledged to drive down the amount of internal sewer flooding incidents over the next five years
Stock Code: UU. 23
United Utilities Strategic.indd 23 31/05/2019 18:49:13 Job Number 31 May 2019 6:47 pm Proof Number Our business model
We consult and plan for short, medium and long term horizons
We provide essential water and wastewater services to millions of customers every day, and this relies Read more about our key resources on a variety of key resources. How we manage these is influenced by external drivers and relationships and the impact of external drivers on pages 28 to 34 with a variety of stakeholders.
Consultation with customers and other stakeholders forms an integral part of our planning process Read more about our planning across the short, medium and long term, and our work delivers a range of long-term benefits for many horizons on pages 48 to 50 different stakeholder groups. This value creation feeds back into the continuous cycle of what we do. Strategic report Our external drivers and relationships
Natural environment Technology and innovation › The natural environment is constantly changing, and we must › New technologies and innovative ideas present adapt and prepare for future impacts such as climate change and opportunities for us to make things faster, better, population growth. Our use and return of water to the environment safer and cheaper. These can come from all over, is a continuous cycle, and returning water cleanly and safely, as well which is why we encourage innovation externally and as managing our catchment land effectively, allows this cycle to internally at all levels of the business, from our annual begin again from the best starting point. CEO Challenge and dedicated innovation team to our Innovation Lab.
Stakeholders Natural resources Assets › Our work and the huge areas › We rely on natural sources of water that › Our significant capital investment of land we manage puts us at we collect for treatment, and manage large programme helps to grow our business the heart of communities in areas of catchment land in a sustainable while building resilience and maintaining our region, and impacts a large way. We rely on watercourses where we and enhancing sustainable long-term variety of stakeholders. We return wastewater safely and cleanly to the assets. We use telemetry across the build relationships and consult environment, and we process bioresources network to manage our assets as one with them in developing and from wastewater to generate renewable integrated network from our Integrated executing our plans. energy, which helps to reduce our carbon Control Centre as part of our Systems footprint and energy costs. Thinking approach.
Our key resources Regulatory environment People Financing › Sustainable business › We rely on employees and suppliers › Financing allows us to preserve means preparing for future to deliver our services to customers. intergenerational equity for customers market reforms as well as We are committed to attracting, developing, while funding long-term capital meeting current regulatory training and motivating a diverse and skilled investment. We maintain a robust commitments. We place great workforce. We build effective relationships capital structure with an appropriate value on our relationships and work with suppliers who share our level of gearing level and prudent risk with economic, quality and values. We have management incentives management. We have long-term debt environmental regulators, based on performance and a long-term locked in at good relative value and engaging actively and influencing incentive plan. maintain access to a range of markets. where we can. We proactively engage with equity and credit investors.
Political environment Economic environment › We engage with regional and national politicians as well as policy › We are impacted by market rate movements, such makers, through regular meetings and conferences, in relation as interest rates and inflation, and seek to manage to areas such as our local investment schemes, our economic these prudently to reduce risk as far as practical. contribution to the North West, and key policy issues affecting the We operate in an area with high levels of extreme water industry. deprivation, so helping vulnerable customers is particularly important for us.
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United Utilities Strategic.indd 24 31/05/2019 18:49:13 Job Number 31 May 2019 6:47 pm Proof Number We deliver the outcomes set out in our regulatory contract
What we do is set out in our regulatory contract, which details the price and service We review progress on outcomes we package we will deliver in each five-year period split out by price control areas have promised to deliver for customers – wholesale water, wholesale wastewater and household retail. The fourth price in the regulatory period, and we measure control, non-household retail, sits within our joint venture, Water Plus. our performance against operational KPIs as well as financial measures. How we do it is set out in our strategic themes, and everything we do is underpinned by our values and culture, and our governance and risk management. These outcomes and KPIs fit within the Our pioneering Systems Thinking approach to operating our business is a framework of our three strategic themes. competitive advantage.
How we operate Our outcomes and KPIs
The best service What we do to customers Read more about Outcomes what is involved in the provision › Provide great water; of wholesale and › Dispose of wastewater; and retail services in › Deliver a service customers can rely on. our water cycle on KPIs pages 12 and 13 › Wholesale ODI composite; › SIM – qualitative; and › SIM – quantitative.
At the lowest sustainable cost
Outcomes › Value for money; and › Improved efficiency. KPIs › Totex outperformance; › Financing outperformance; and › Household retail cost to serve.
In a responsible manner
Outcomes › Protect and enhance the environment; › Support local communities; and › Support employees in a safe workplace. KPIs › Leakage; How we do it › EA performance assessment; and Read more about
our strategy on page › Dow Jones Sustainability Index. 15, and more about our competitive advantages on page 17
We review and measure our progress
United Utilities Strategic.indd 25 31/05/2019 18:49:14 Job Number 31 May 2019 6:47 pm Proof Number We create long term value for a range of stakeholders
The work we do delivers a wide range of benefits to a variety of stakeholders, Read more on pages 39 to 46 creating long-term sustainable value for many people.
Responsible business runs through everything we do, as evidenced by our Read more at unitedutilities.com/ business principles. corporate/responsibility/our-approach Strategic report
For shareholders › Many of our shareholders are pension funds and For customers charities and the income that we provide is relied › Through innovation and efficiency we provide a on by millions of people every day. We manage great service at a lower cost. We support thousands risk prudently and provide an appropriate return, of vulnerable customers through a wide range of investing in our assets for growth and sustainability assistance schemes
For employees For the environment › We focus on attracting, developing and retaining a › We maintain and enhance reservoirs, catchment diverse workforce, and ensuring that we look after land, rivers and bathing waters that provide a home their health, safety and wellbeing. To help ensure for wildlife, areas for recreation, and a major pull the next generation of skilled employees, we run for tourism. We strive to reduce our environmental graduate and apprenticeship programmes impact and generate renewable energy
For communities For suppliers › We build partnerships and work with schools to › We invest in the North West ’s infrastructure and develop skills and help people back to work. We generate jobs, skills and income through our supply encourage employee volunteering programmes to chain that supports the local economy. We treat all help create better places, stronger communities, and suppliers fairly and are a signatory to the Prompt accomplish more to address local issues together Payment Code
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United Utilities Strategic.indd 26 31/05/2019 18:49:27 Job Number 31 May 2019 6:47 pm Proof Number horizons W term e d ong eliv d l er an th m e iu ou ed t co , m m rt e o s sh se r t o o f u n t la in
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Open the flap to see our business model in full
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United Utilities Strategic.indd 27 31/05/2019 18:49:34 Job Number 31 May 2019 6:47 pm Proof Number Our business model Key resources and the impact of external drivers
Natural resources north-south transfer of water as part of the frequent and/or severe drought events We rely on a variety of natural resources to development of strategic water resources predicted in summer. options for the south and south east. deliver water and wastewater services, and We have first-hand experience of the impacts we impact those natural resources through The main risks are the impact of prolonged of extreme weather events on our operations our operations, such is the circular nature of severe dry periods, which constrain water and customers – during 2018 we experienced the water cycle. We also generate renewable resources, and intense periods of heavy two weather extremes, with a deep freeze energy from the sun and wind. rainfall, which increase the risk of flooding followed by rapid thaw in the early part of the We rely on natural sources of water to supply and pollution incidents. year, and then extremely hot, dry weather coupled with significantly increased demand customers. We hold abstraction licences for Our response to climate change risk can for water over the summer. a number of reservoirs, rivers and boreholes be split into two areas: mitigation and that permit us to take water from the adaptation. Read more about these weather extremes in our environment in a safe and sustainable way, business insight on page 30 › Mitigation – reducing carbon emissions which we then treat, store and transport Coping with extreme hot, dry periods requires across the region. to minimise our contribution to climate change. action in relation to both supply and demand. Nearly half the water we abstract originates The key contributor to climate change is an Supply is managed by ensuring we continue from land we own and manage. Run-off to have resilient water resources and from this land impacts the quality of the increase in greenhouse gases. There is global scientific agreement that as a result of human infrastructure capable of moving water water, so managing it well helps us provide efficiently around the region. We have an reliable and clean water, reducing risk and activity the amount of greenhouse gases in the atmosphere is increasing and affecting integrated supply zone covering the majority increasing our resilience. We help protect of our region operated using our Systems habitats and species designated as nationally the global climate. We have been driving down our carbon footprint (net operational Thinking approach. This helps us to manage and internationally important, many of which water supply and demand and, where there make their homes on this land. emissions in 2018/19 were over 70 per cent lower than 2005/06) and have plans to reduce is any potential shortfall, we bring more We rely on watercourses to take effluent back it further, mainly through our energy strategy. supplies online to meet demand. Generally into the environment after extensive cleaning this system is proficient, but there are areas to ensure it meets environmental consents. We have assessed our operational sites for that require further improvements to deal This protects the health of the natural their potential to generate renewable energy with future challenges. Our West East Link environment, which enhances recreational through either solar panels or wind turbines. Main pipeline runs between Manchester and value for our communities, protects rare We are working on plans to substantially Liverpool, allowing transfer of water across species and wildlife habitats, and provides increase our renewable energy production our region, and the extreme dry weather in economic benefits such as underpinning the across the current regulatory period to 2020, 2018 gave us cause to increase the capacity local tourism industry. mainly from solar, and this year we generated of this pipeline, as well as bringing additional the equivalent of over 20 per cent of our groundwater sources online, both of which We extract bioresources from wastewater, electricity consumption through renewable increased our resilience. using anaerobic digestion to break it down energy. This provides environmental benefits into biogas and biosolids. Biogas is used as well as energy cost savings. Demand is managed by encouraging and to generate renewable energy through supporting customers to use water efficiently. combined heat and power plants, reducing The anaerobic digestion of bioresources We have increased our efforts in this area our energy costs and carbon footprint. reduces our carbon emissions as well as and ran a number of high profile campaigns Biosolids are treated to provide a valuable saving energy costs and producing a high- in summer 2018 when demand was much source of nutrients and organic matter as quality fertiliser. Our advanced digestion higher than normal. We encourage customers high-quality fertiliser for farmers. facility at Davyhulme wastewater treatment to save water through education initiatives works is one of the largest of its type, making to raise awareness, sharing water saving tips Impact of external drivers the site energy self-sufficient, with surplus on our website and through social media, Natural environment energy exported to the national grid. and providing free water-saving devices. We Our long-term planning looks far into the work with external partners to expand our › Adaptation – improving the resilience in future to ensure we are prepared for the messaging further afield, and have increased our water and wastewater business. challenges of a changing natural environment. the number of water meters installed, with The most significant anticipated impact comes The potential effect of climate change on 44 per cent of households in our region now from climate change, and in particular the our future water resources is considered in fitted with meters. long-term changes in average temperature our 25-year Water Resources Management Coping with periods of intense heavy rainfall and rainfall. Water companies must adapt to Plan, and we published two adaptation requires action to cope with excess surface meet the challenges climate change presents, reports in 2011 and 2015 outlining our water drainage while minimising the risk of and this creates both risks and opportunities. holistic, integrated and partnership approach sewer flooding, pollution and spills. to a range of short, medium and long-term The main opportunity is the potential for challenges including climate change. Traditional interventions, such as storage tanks water sharing. Our region typically receives and enlarging sewers, are costly and subject higher average rainfall than other parts of Read more about our long-term planning to constraints for space, particularly in urban the country, meaning the availability of raw on page 48 areas with little permeable ground. Innovation water tends to be less constrained than in the It is predicted that climate change will result is needed to find new solutions, which is why comparatively drier south. Ofwat indicated in the North West experiencing higher we have increased our focus on the use of in its initial assessment of company business daily temperatures all year, and a shift in sustainable drainage solutions in recent years, plans for 2020–25 that it would provide us our rainfall from summer to winter. More working with partners to transform hard-grey with £25.7 million funding for feasibility and occurrences of heavy rainfall are expected, areas into living planted places. planning work with respect to a potential with higher rainfall in winter but more
28 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 28 31/05/2019 18:49:34 Job Number 31 May 2019 6:47 pm Proof Number Our operations produce sludges, excavated Technology and innovation Management and measurement materials and general office waste, which we Innovation is one of our core values, and we We have an ISO-accredited environment are committed to managing in a sustainable embrace new treatment technologies and management system that covers the whole way. Less than five per cent of our waste goes efficient approaches that use less resources. business, and is externally certified through to landfill, we use recycled products where The development of connected technologies six-monthly surveillance visits. practical, and are working to reduce the use of and Systems Thinking enables greater control We have a comprehensive set of plastics. We look for ways to reduce our use of and flexibility to operate our networks and environmental strategies covering our raw materials to minimise our environmental assets to reduce our environmental impact. impact and increase efficiency. approach to carbon management, waste and
Regulatory environment resources, biodiversity and water use. Strategic report Stakeholders Our regulatory framework shapes the way we Our environmental policy is available Our catchment land is open to the public manage natural resources and our interaction on our website at: unitedutilities.com/ corporate/responsibility/environment with an estimated nine million visits a with the environment, and we work with our year, providing access to the beauty and environmental regulators to agree long-term We manage our own woodland in a recreational benefits that the natural plans. The Environment Agency (EA) assesses sustainable way to protect water quality, environment offers, and boosting the local water companies’ performance across a basket conservation, access, recreation and timber, tourism industry. of measures including regulatory compliance, and have been Forest Stewardship Council® (FSC®) certified since 2003. Much of our catchment land is managed pollution incidents and improvement plans. by tenant farmers, or in partnership with Political environment A number of our operational KPIs are directly other organisations such as the RSPB and Many of our environmental regulations are linked to the protection and enhancement of Wildlife Trusts. We are increasingly looking based on EU legislation; therefore, there the natural environment, such as leakage, EA at integrated catchment solutions, taking may be changes after the UK leaves the EU. performance assessment, and some of our a holistic view of issues and solutions The UK government published its 25-year wholesale outcome delivery incentives, such within catchments, working with others to Environment Plan for England and Wales in as measures of our contribution to improving improve the lakes, rivers and coastal waters 2017, setting out its environmental ambitions. rivers and bathing waters, and pollution in our region, and often utilising the natural This plan, subject to any changes following exit incidents. environment as part of the solution. We have from the EU, influences our activities and long See how we are performing against our operational a long history of doing this through our award- term investment plans. KPIs on pages 52 and 53 winning sustainable catchment management We measure and report on our wider programme (SCaMP), which has shown we can The influence of devolved metro mayors in environmental performance. Those most manage our catchment land to protect and our region is starting to impact development relevant to our stakeholders can be found on enhance water quality and to provide other and spatial planning, including the natural page 55, and information is available on our benefits such as an improving biodiversity. environment. Maintaining a close working website at: unitedutilities.com/corporate/ relationship helps us work together to improve responsibility/environment/environment- We are one of many organisations with a the natural environment in the region. performance role to play in boosting the quality of bathing water along the North West coast. With Global politics also has an impact on what we The principal risks and uncertainties that strict bathing water standards, we continue do. See page 46 for how we are contributing relate to this key resource are ‘Health, safety to work with partners to improve the quality to the UN’s Sustainable Development Goal to and environmental risk’, ‘Water service risk’ of rivers and coastal waters, and we give the ‘Ensure access to water and sanitation for all’. and ‘Wastewater service risk’. public real-time information on bathing water Read more about how we manage risk on pages quality. 68 to 76.
Link to our strategic themes
The best service to customers At the lowest sustainable cost rs. In a responsible manner Customers have told us they value the natural Our embedded innovation culture helps us Managing our dependency, use and impact environment and want us to protect and find new ways of working that simultaneously on natural resources is a key expectation of enhance the region’s natural resources as reduce costs and protect natural resources. many of our stakeholders. Our monitoring part of our activities, and this was one of the Our approach to catchment management aims and management of leakage from our water outcomes that we committed to deliver as to address issues at source rather than through network is a crucial part of responsible water part of our business plan for the 2015–20 increasingly expensive treatment methods. management. We comply with abstraction regulatory period. Many of our outcome This approach, as well as our renewable energy licences and environmental discharge consents delivery incentives are directly linked to generation, makes us less reliant on power and set by independent regulators to safeguard the the environmental impacts of our water chemicals, which reduces treatment costs as responsible management of the environmental and wastewater services and to protecting well as carbon emissions and use of natural impact of the water and wastewater services and enhancing the environment. We help resources. The work we do to prepare our we provide. In addition, our efforts to reduce customers do their bit for the environment network to sustainably cope with extreme our carbon footprint and use of plastics makes and save money on their bills through our weather and the challenges of climate change an important contribution to protecting and water-saving initiatives and ‘what not to flush’ can save repair and recovery costs as well as enhancing the natural environment and campaigns to prevent sewer blockages. ensuring a more resilient service for customers. mitigating climate change.
Stock Code: UU. unitedutilities.com/corporate 29
United Utilities Strategic.indd 29 31/05/2019 18:49:34 Job Number 31 May 2019 6:47 pm Proof Number Business insight Responding to extreme weather conditions
Keeping the taps flowing during a year when weather conditions swung from blizzards to the longest heatwave since 1976
From sub-zero temperatures, high winds and blizzards These intense hot and dry conditions had followed to the longest heatwave since 1976, 2018 was a year on from several weeks of freezing conditions during “Intense hot and of extreme weather challenges. As we worked to the 'Beast from the East' in March. Pipe movements maintain water supplies, tackle leakage and encourage caused by the frozen ground resulted in high levels dry conditions customers to play their part by using water wisely, we of background leakage, and as the ground continued followed on from Strategic report faced intense media scrutiny. to dry out over the summer this exacerbated the issue further. Customer calls about leaks increased as Between May and August 2018 there was several weeks they became easier to spot against the dry ground. significantly lower rainfall than average, and this was In response to the rising levels of leakage we had felt most acutely in North West England. It was the of freezing already recruited additional leak detection and repair driest start to the summer since modern records crews and by mid-July we were repairing 750 leaks a began in 1961 and soaring temperatures contributed conditions during week with double the number of teams working 24 to a huge demand for water. At the height of the hours a day. hot weather in June the demand for water rose by the Beast from 500Ml/d – 25 per cent more than usual. To minimise any impact on customers we invoked our the East” Drought Management Plan which sets out a series of At one stage there was a possibility that we might pre-agreed actions that must be followed once certain have had to impose a temporary use ban if the trigger levels are crossed in our impounding reservoirs. extreme dry weather and increased demand had continued. Due to our own efforts, and those of our This included pumping water from the south of our customers who responded to our calls to use water region through the West East Link Main to ease efficiently, this was avoided and we successfully pressure on our key reservoir at Haweswater. We maintained an unrestricted service. also carried out a number of capital projects to bring back into service borehole supplies that had not been The high demand caused localised problems with used for many years. We increased communication low pressure which we overcame using our fleet of with customers to ask them to use water wisely, alternative supply vehicles (ASVs). From the end of through regional and national media, and we applied May to the beginning of September our ASVs worked to the Environment Agency for drought permits so 24 hours a day to pump into the supply network and that we could increase levels of water abstraction. help maintain water pressure. Our mitigation plan continued through the winter – by March 2019 reservoir levels had recovered to normal levels and we met our leakage target.
30 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 30 31/05/2019 18:49:35 Job Number 31 May 2019 6:47 pm Proof Number Our business model Key resources and the impact of external drivers
Assets building these long-term assets between the of robots in managing the water network has Our network assets and treatment works are generations that will benefit from them. improved efficiency and customer service, and we are using drones to inspect assets with essential to delivering water and wastewater Our RCV is over £11 billion, but the gross restricted access, which improves health and services to customers and protecting public replacement cost of our fixed assets (including safety as well as reducing time and costs. health, and our energy assets enable us to all our reservoirs, treatment works and pipes), generate energy, which helps reduce costs and i.e. the estimated amount it would cost for We use technology for renewable energy self- minimise our environmental impact. another company to build similar assets and generation, for example our Davyhulme sludge We are investing around £3.9 billion across the networks, is around £90 billion. recycling centre employs a groundbreaking configuration of thermal hydrolysis to 2015–20 period, and we expect to continue Strategic report Stakeholders maximise energy generation from sludge; and with a substantial investment programme for Many of our reservoirs are areas of natural the foreseeable future to meet increasingly we built Europe’s largest floating solar array on beauty and we permit the public to enjoy our reservoir in Godley, Greater Manchester. stringent environmental standards and to access to this land, bringing recreational maintain and improve our assets and services. and health benefits. Other assets, such as Technological advances can give rise to new Impact of external drivers our wastewater treatment plants, are close risks as well as opportunities. Cyber crime has been on the increase in recent years and, as Natural environment to residential areas and we work hard to minimise odours and other impacts. the holder of customer information, is a threat We must build increased resilience into all our we take very seriously. assets to cope with the anticipated impacts of New infrastructure projects, such as our a changing climate in the long term, including West Cumbria pipeline, can impact local Read more about our approach to ‘Mitigating the risk of cyber crime’ on page 71 improvements to flood defences. Our assets communities and we go to great lengths to must be prepared to continue to comply consult in the planning stage. Management and measurement with increasingly challenging environmental Political environment Our asset management policy, available to all constraints in areas such as water abstraction employees on our intranet, details how we will UK government priorities, including those of and wastewater treatment levels. operate, maintain and invest in our assets with the National Infrastructure Commission, will the aim of delivering our customer promises Economic environment impact the planning of large infrastructure and associated outcomes, as agreed at the When making strategic investment decisions projects. We anticipate an increase in the price review for the current regulatory period. we must consider the impact on customers’ North West’s population of around one million bills and ensure we maintain affordability. by 2045 (more than the population of a large We monitor the condition and performance A phased, long-term approach to address city such as Liverpool). We are planning to of our assets and assess the risk to service all of the concerns and interests of our ensure our services and infrastructure are able provision. Our proactive and reactive many stakeholders, including environmental to meet the needs of this growing population, maintenance programmes, and focus on asset regulators, ensures that the necessary work including new connections and higher demand health performance measures, ensure we are can be delivered without the costs placing on our water and wastewater networks. managing our assets in the most efficient way. too much pressure on customer bills. For See page 46 for how we are contributing to the Our wholesale outcome delivery incentives, example, we have agreed to spread some of UN’s Sustainable Development Goal to ‘Build which feature as one of our operational KPIs, the environmental spend required by current resilient infrastructure, promote sustainable include measures of asset health such as the legislation over the next 15 years. industrialisation and foster innovation’ resilience of our impounding reservoirs and maintaining our wastewater treatment works. Regulatory environment Technology and innovation Many of our assets are very long-term in It is important we have the right systems and The principal risks and uncertainties that nature, such as our impounding reservoirs procedures in place to monitor and control our relate to this key resource are ‘Security risk’, that can last hundreds of years. Through our assets efficiently and effectively. We embrace ‘Water service risk’, ‘Wastewater service economic regulation framework we earn a the opportunity that new technology and risk’, ‘Compliance risk’, and ‘Supply chain and return, received through revenue, based on innovation presents. This is at the heart of our programme delivery’. a measure of the value of our capital asset Systems Thinking approach. Read more about how we manage risk on pages base, Regulatory Capital Value (RCV). This 68 to 76 The new Nereda process has transformed mechanism allows us to share the cost of the wastewater treatment process, our use
Link to our strategic themes
The best service to customers At the lowest sustainable cost In a responsible manner
Maintaining and enhancing our assets is We manage our assets in a holistic way that We are committed to managing and operating essential in order for us to provide the best seeks to minimise whole life costs, helping our assets in a way that continues to create service to customers. Since privatisation us deliver efficient total expenditure (totex) long-term value for all our stakeholders. in 1989, we have invested billions in our without compromising on quality of service or Effective capital investment helps us to assets and this has provided substantial long-term resilience. This approach helps us meet increasingly stringent environmental benefits to customers, including reduced to save future operating costs, reduce future standards, which helps to enhance the region’s supply interruptions, reduced sewer flooding customer bills, and continue to operate in a environment, improving bathing waters and incidents, and improved water quality. sustainable manner. protecting indigenous wildlife and habitats.
Stock Code: UU. unitedutilities.com/corporate 31
United Utilities Strategic.indd 31 31/05/2019 18:49:35 Job Number 31 May 2019 6:47 pm Proof Number Our business model Key resources and the impact of external drivers
People Group board1 Executive team2 Prompt Payment Code, and will fully comply with We support thousands of jobs in the rules on reporting payments to suppliers. North West, including a growing graduate Technology and innovation programme and we have been named one of We have an embedded culture of innovation, the top 100 apprenticeship employers, helping 7 3 2 2 and it is one of our core values. We encourage to secure a legacy for the future in our region. Senior managers3 Wider employees4 ideas from our people as well as from outside We believe that the most effective decision- our business, both ad hoc and formally through making comes from access to a diverse range programmes such as our annual CEO challenge. of people with a broad set of viewpoints. Strategic report Management and measurement Fundamental to the performance we deliver 3,491 1,891 We measure employee engagement through is a skilled, engaged and motivated team 35 6 an annual survey, and regularly achieve of employees, suppliers and contractors. 1) Group board as at 31 March 2019. engagement levels higher than the UK We provide comprehensive training and 2) Executive team excludes CEO, CFO and COO, who are norm. We monitor and measure employee development opportunities for our employees. included in group board figures. performance through annual reviews, and Competitive wages, benefits and long-term 3) As at 31 March 2019, there were 11 male and 3 employees at all levels of the company incentives have been shown to enhance female employees appointed as statutory directors of subsidiary group companies but who do not fulfil the participate in the bonus scheme, so they quality of work, increase employee retention, Companies Act 2006 definition of ‘senior managers’. benefit from company success. The bonus and reduce absenteeism, as well as providing 4) Employees of each sex as at 31 March 2019. performance measures are the same for societal benefits. Employee retention also Further information on diversity can be found on all employees as those for the executive helps ensure efficient and effective training page 98 directors, and can be found on page 132. and higher levels of performance. Applicants with disabilities are given equal We maintain a comprehensive A–Z suite of consideration in our application process, and Impact of external drivers policies, which are available to all employees disabled colleagues have equipment and Stakeholders on our intranet. Our policies on maternity, working practices modified for them as far as We are committed to protecting the health, safety paternity, adoption, personal and special leave possible where it is safe and practical to do so. and wellbeing of our people. This is fundamental go beyond the minimum required by law. For to their welfare and to the reputation and See page 46 for how we are contributing to the UN’s disabled applicants, and existing employees, performance of the company, and remains Sustainable Development Goal to ‘Promote inclusive and sustainable economic growth, employment and we are committed to fulfilling our obligations an area of focus as we strive for continuous decent work for all’ in accordance with the relevant legislation. improvement. We have implemented a number of initiatives over recent years to improve health Economic environment We convened a cross-company working group and safety conditions for our employees, and have The availability of skilled engineers depends on to draft our human rights policy statement been awarded the workplace wellbeing charter. economic and social conditions. Our award- and assess risks and potential impacts on winning apprentice scheme and graduate our stakeholders. These are mapped to, and We promote diversity and equal opportunity programme help ensure we can continue to managed within, our corporate risk register. to drive a comprehensive and balanced skill attract and train a high calibre of engineers, in Our human rights policy can be found on our set, and we recruit and promote employees a profession which has seen declining numbers website, and this has links to other related on the basis of merit. Over the last few years, in the UK in recent years. Our employees are policies including our modern slavery policy we have been striving to improve diversity paid a competitive base salary plus benefits and and slavery and human trafficking statement, across all types of role and all levels within our the opportunity to join the employee healthcare and sustainable supply chain charter. business. We established a Gender Equality scheme and our share incentive plan. Read more at unitedutilities.com/corporate/ Network in 2015 to provide role models, responsibility/our-approach/human-rights mentoring and opportunities. We target We work with suppliers and contractors whose diverse shortlists and attraction campaigns for business principles, conduct and standards align The principal risks and uncertainties that our apprentice and graduate schemes. with our own. Our key suppliers have committed relate to this key resource are ‘Health, safety to our sustainable supply chain charter. We and environmental risk’ and ‘Resource risk’. Women are represented at all levels of our support the appointment of a small business Read more about how we manage risk on pages company. Over a third of our combined board commissioner to investigate companies who do 68 to 76 and executive team is female. See chart. not treat suppliers fairly, are a signatory to the
Link to our strategic themes
The best service to customers At the lowest sustainable cost In a responsible manner
Our employees and our supply chain act as the Comprehensive training and development We work with schools, including encouraging face of our business, and therefore are a crucial opportunities for our employees help to the next generation of women into science, part of delivering the best service to customers improve our internal skills base and therefore technology, engineering and mathematics across our entire business. Customer focus quality of work at an efficient cost, as well careers, and with our supply chain partners is one of our core values that we encourage as creating a more engaged workforce. to give young people not in education, our people to live by, and we recognise great Management has a range of incentives that focus employment or training the chance to gain customer service from individuals, such as on performance over a number of years, rather hands-on experience and basic skills training through participation in the WOW! Awards. than just the current year, to encourage the in the workplace. We are a signatory to the delivery of benefits over the longer term. Prompt Payment Code for our suppliers.
32 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 32 31/05/2019 18:49:35 Job Number 31 May 2019 6:47 pm Proof Number Business insight Creating a healthy workplace
Working hard to improve the wellbeing of our employees
In January we were named one of Britain’s Healthiest We won the prize for Best Mental Wellbeing, for Workplaces 2018, following the largest and most a company with 5,000 employees or more, for “In 2018 we were comprehensive workplace wellbeing survey in the UK. identifying specific issues in our workforce, setting out a clear approach to building a supportive culture, also reaccredited Britain’s Healthiest Workplace 2018 incorporated and for putting good data analytics in place to data from 129 organisations and 26,432 employees, with the measure progress. The judges praised our ‘mental Strategic report and ranked United Utilities as the third most health selfies’ as an excellent way of encouraging improved organisation. The award recognised our Workplace staff to engage with their own mental wellbeing, and increased efforts over the past four years to improve were impressed by the support network we have the wellbeing of our employees. This includes helping Wellbeing built for mental health first aiders. employees quit smoking, offering discounted gym membership, nutritional programmes, and training In May 2018 we joined other businesses, including Charter” mental health champions and first aiders. Barclays, PwC and BNFL Sellafield, along with football clubs and mental health charities in an initiative In 2018 we were reaccredited with the Workplace aimed at ending the stigma of talking about mental Wellbeing Charter, reflecting our continued health in the workplace. ‘This is Me’ launched in commitment to health and wellbeing. We fully met Manchester to coincide with the start of Mental 90 of the 95 standards set out in the charter, which Health Awareness Week. The campaign challenges are based on best practice, research and commercial the stigma around mental health at work aiming to benefit. break the culture of silence by supporting people to We picked up two employee wellbeing accolades tell their own personal stories. at the Reward and Employee Benefits Association Approximately one in four people in the UK (REBA) awards. We won the award for Physical experience a mental health problem each year. As a Wellbeing for our “superb reductions in inactivity responsible business, we have an obligation to get rates” among employees, made possible by initiatives involved and take an active interest in the wellbeing including standing desks and walking meetings. At of our staff and create an environment where those our Warrington headquarters we have an onsite gym, in need can get help and support. health kiosks so staff can accurately measure their weight and blood pressure, incentives for employees who stay smoke-free for six months, and we organised activity challenges including a Mighty Hike, Billion Step and Walking Home for Christmas.
Stock Code: UU. unitedutilities.com/corporate 33
United Utilities Strategic.indd 33 31/05/2019 18:49:36 Job Number 31 May 2019 6:47 pm Proof Number Our business model Key resources and the impact of external drivers
Financing Regulatory environment Technology and innovation As a result of the long-term nature of our Our ability to raise efficient financing at a cost New innovative ways of raising finance often assets and the need to spread the cost cheaper than many of our peers provides the emerge, for example accessing pockets of between the generations of customers that potential to outperform the industry-allowed untapped investor demand via our Euro benefit from them, it is necessary to raise cost of debt, and we have a long track record Medium Term Note (EMTN) programme, financing in order to fund this investment. of aligning our financial risk management CPI-linked financing, and green bonds have policies with the regulatory model. become more prevalent in recent years. We We adopt a prudent approach to managing monitor and assess these developments We maintain an appropriate level of gearing, financial risks, with clear and transparent and continue to maintain access to a broad
Strategic report measured as net debt to regulatory capital hedging policies, and our debt portfolio has a and diverse range of sources of finance in a value (RCV), within a target range of 55–65 per very long average life. We maintain a robust number of markets, across which we seek the cent, which is broadly in line with regulatory and sustainable capital structure, balancing best relative value when issuing new debt. both equity and debt financing, which helps us assumptions for the ‘notional company’. Management and measurement maintain a strong and stable investment grade Our inflation hedging policy aligns with the credit rating. This enables efficient access to current RPI-linked regulatory framework, We have clearly articulated financial risk the debt capital markets across the economic and we have evolved our policy and began management policies, covering credit, liquidity, cycle, long-term financial resilience, and introducing CPI-linked debt in line with Ofwat's interest rate, inflation and currency risk. reduces our exposure to fluctuating market transition towards CPIH inflation for the conditions and regulatory changes. Read more about our financial risk management 2020–25 period. We issued the first ever CPI- policies on pages 190 to 197 linked notes by a UK utility in 2017 and have Impact of external drivers We maintain relationships with a diverse continued to increase our CPI exposure where Economic environment range of banks, and we periodically refresh there are good relative value opportunities, Changes in economic conditions and financial our EMTN programme to enable efficient debt but we expect our index-linked debt to remain markets can influence our ability to create issuance under pre-agreed contractual terms. mostly in RPI-linked form until CPI or CPIH value through financing. We mitigate some The board delegates authority to the CFO, debt and swaps become available in sufficient of the impact through our financial hedging allowing us to respond quickly to attractive size at an economic cost. strategies, including our approach to hedging financing opportunities. inflation and interest rates. Our interest rate hedging policy is to fix We aim to avoid a concentration of refinancing nominal debt out to 10 years on a reducing Interest rates have been comparatively low in any one year, and fund long-term where balance basis, reducing our exposure in recent years, and through our interest rate possible. We monitor liquidity forecasts, with to market fluctuations while managing hedging policy we have progressively locked a policy of having available resources to cover uncertainty in Ofwat's approach to setting the in these lower rates on our debt portfolio, the next 15–24 months of projected cash flows cost of debt at future price reviews. For 2015– benefiting our future cost of debt. to ensure forward funding needs are met. 20 we also substantively fixed all our nominal Our revenue and regulatory capital value (RCV) debt to the end of the period once the cost of As part of our planning process, we review key are linked to RPI inflation during the current debt was known, but we will not do this for credit ratios against required thresholds for regulatory period. Our inflation hedging policy 2020–25 as a result of Ofwat's introduction of our target credit ratings. Performance against aims to maintain around half our net debt in indexation on new debt. these ratios is regularly monitored, and we index-linked form (where it is economic to do maintain relationships with the credit rating so), as this provides a partial economic offset Stakeholders agencies to understand methodology changes. for our inflation exposure. Periods of lower As a FTSE 100 listed company, we have open The principal risk that relates to this key inflation mean lower growth in revenue and and transparent reporting around all of our resource is ‘Financial risk’. the RCV, but also lower finance costs, and the equity and debt financing arrangements, reverse is true in periods of higher inflation. which helps to build trust with long-term Read more about how we manage risk on pages investors as well as our regulator. 68 to 76 Market sentiment can impact our financing. While much of this can be outside of our direct We have proactive engagement programmes control, we can help inform and influence with equity and debt investors, through investor opinion through regular engagement. which we update them on developments in our business and seek their views, which we consider in our strategic planning.
Link to our strategic themes
The best service to customers At the lowest sustainable cost In a responsible manner
Customers benefit from receiving service Locking in long-term debt and swaps at good Our environmental, social and governance improvements earlier as a result of our ability relative value helps keep our finance costs performance and robust capital structure give to pre-fund investment in long-term assets, low, and we monitor liquidity and headroom equity and debt investors confidence in the and keeping finance costs down helps us to regularly to maintain adequate funding. Our long-term sustainability of our business, which ensure bills remain affordable. The financial approach and financial risk management reduces their investment risk. We do not use resilience we build through our financial risk reduce our risk exposure and help ensure the offshore financing vehicles, and our open and management helps to ensure we can continue sustainability of our ability to efficiently finance transparent reporting is trusted by Ofwat who to provide great service long into the future. our business. rated us ‘self-assurance’ three years in a row.
34 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 34 31/05/2019 18:49:36 Job Number 31 May 2019 6:47 pm Proof Number Business insight Introducing artificial intelligence to our network
Using selflearning technology to bring to life the benefits of Systems Thinking
We are the first water company in the UK to region. Oldham was chosen as we needed a test introduce large-scale artificial intelligence into site that was large enough to deliver real benefit “HARVI has operational systems. to customers, had an identified opportunity for delivering further efficiencies, and already had shown huge Every day we pump water from our service reservoirs Systems Thinking capability. Oldham District Metered to customers. The calculation of pump schedules potential to Zone produces 55 mega litres of drinking water a day Strategic report (when to turn pumps on and off) is manually for over 180,000 domestic customers, has Systems intensive and requires skilled analysts for several help reduce Thinking capability by way of remote monitoring and hours a day. This manual process cannot cope with control technology, and is one of our high energy the many variables required to make balanced our operational intensive zones. In the 12-week trial, taking into decisions, and energy use is too complex to calculate account the optimum times to pump water across our manually. Our water leadership team recognised the costs” network, HARVI demonstrated it could achieve energy need to find a better solution and this was set as one savings of 22 per cent. of the challenges in our Innovation Lab. Water networks are complex systems, and technology We worked with a Canadian start-up company, like this is going to play an integral role in the further EMAGIN, through our Innovation Lab last year to development of our Systems Thinking approach, apply HARVI (Hybrid Adaptive Real-time Virtual helping us make more sense and better use of large Intelligence), a real-time analytics dashboard, to our amounts of data. It will also free up our people to water network pump scheduling. be more proactive, which will have a direct impact HARVI uses artificial intelligence and machine learning on levels of service for customers. Water companies to assess vast amounts of data on a wide range of need to be thinking in this way and embracing new factors such as weather, demand for water, pump technology if we are to meet customers’ expectations performance and electricity prices. on value and reliability. This is used to help our system operators make HARVI has shown huge potential to help reduce our decisions on the most cost-effective and efficient way operational costs through the Innovation Lab pilot to run water pumps, detect burst pipes and minimise phase. We are now working with EMAGIN to develop the risk of discoloured water. a plan to roll this technology out in phases to the rest of our water network. We tested this innovative technology in Oldham, Greater Manchester – one of the 33 zones in our
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United Utilities Strategic.indd 35 31/05/2019 18:49:36 Job Number 31 May 2019 6:47 pm Proof Number Our business model Internal drivers
Systems Governance and Values and Thinking risk management culture Our pioneering approach to operating our Good governance lies at the heart of all Our core values of customer focus, integrity business, which we call Systems Thinking, is successful organisations and leads to better and innovation start at the top and cascade one of our competitive advantages and we management decisions. We strive to operate through all levels of our business. They are set out more detail on this on page 17. in a manner that reflects the highest standards interrelated – innovating to improve our of corporate governance, accountability and services and acting with integrity in the Systems Thinking is one of the main transparency. Our company structure and way we conduct our activities helps us to drivers of the operational performance Strategic report governance standards are designed to ensure continually improve customer service. improvements we have delivered in our board continues to observe sound and recent years, as well as helping us achieve prudent governance in compliance with the UK Customer focus significant cost savings. Corporate Governance Code. We have instilled a customer-centric approach right across our organisation, We have embedded this way of thinking Read more about our approach to governance throughout our business, to put in place the in our Governance report on pages 80 to 144 and this has been a key driver of the major telemetry backbone across our network, improvement in customer service. Putting Our board members have diversity in terms of customers at the heart of what we do has to gather and analyse data, and to set up experience, skills and personal attributes, and our Integrated Control Centre (the ‘digital helped deliver benefits for shareholders and in terms of age, gender and ethnicity, helping wider stakeholders. brain’ of our network) to remotely monitor to bring a breadth of views in considering and control our assets from our head office. strategic decisions and priorities. Integrity This time and investment has given us a Acting with integrity, both at board level and We have an anti-bribery policy that all our significant advantage. as a company, underpins our approach to employees must follow, and processes in responsible business and building trust. We The best way to demonstrate what Systems place to monitor compliance with the policy. actively encourage our employees to express Thinking means in practice and the benefits We operate an independently provided, their opinions and ideas through various it delivers is to give detailed operational confidential reporting helpline and web portal engagement and social channels, such as our examples. for employees to raise matters of concern employee engagement surveys, intranet, and in relation to fraud, dishonesty, corruption, Since 2015, we have included business social media collaboration tool ‘Yammer’. insights in each year’s annual report theft, security and bribery, and all claims are covering our integrated control centre, fully investigated. Our audit committee has Innovation our network sensors and telemetry oversight of the policies and procedures in Innovation is a critical enabler in creating value. backbone, our system-wide approach to relation to anti-bribery and fraud. We welcome new ideas and technologies from sludge treatment, and our use of artificial Our anti-bribery policy is available to view all levels of our business with employees given intelligence to deliver advanced water online at: unitedutilities.com/corporate/ the opportunity to develop and present ideas network management. about-us/governance to senior management, from our supply chain, and from industries across the world, including This year, read more on page 35 about how Our employees and representatives of our via our Innovation Lab, as detailed on the next we are rolling out artificial intelligence across suppliers must comply with our sustainable page. our entire water network through a platform supply chain charter. This explains that that can assess vast amounts of data on we will not tolerate corruption, bribery or See how our core values underpin our strategic a wide range of factors such as weather, anti-competitive actions, and we expect our themes and contribute towards delivering our demand for water, pump performance and suppliers to comply with applicable laws purpose and working towards our vision on electricity prices. This was an idea developed and regulations and, in particular, never to page 15. through our Innovation Lab, and helps offer or accept any undue payment or other The culture of our company is a make decisions on the most cost-effective consideration, directly or indirectly, for the combination of our values, attitudes and and efficient way to run water pumps, purposes of inducing any person or entity behaviours, manifested in our operations detect burst pipes, and minimise the risk of to act contrary to their prescribed duties. and relations with all our stakeholders. discoloured water. Given the complex legal and regulatory Read more about how we create value for environment within which we operate, stakeholders on pages 39 to 46 and the critical nature of our infrastructure and service provision, we are exposed to a See how we are contributing to the UN’s broad variety of risks. Mitigating exposure to Sustainable Development Goal to ‘Promote potential risks helps us improve our resilience. just, peaceful and inclusive societies and institutions’ on page 46. Accepting some level of risk is a normal and necessary consequence for a commercial The United Utilities way of doing things is to organisation in order to run the business in behave as a responsible business and is set a cost-effective way. However, as you would out in our ‘Business Principles’ document, expect of the provider of an essential service, which can be found on our website at: we adopt a prudent approach to managing unitedutilities.com/corporate/about-us/ risks to our business. governance/business-principles
See pages 68 to 76 for what we consider to be Read more about our board’s approach to values our principal risks and uncertainties, and how we and culture on page 92 and 93 manage and mitigate these
36 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 36 31/05/2019 18:49:37 Job Number 31 May 2019 6:47 pm Proof Number Business insight Accelerating the drive for new ideas
Running our Innovation Lab is helping us find new ways of improving services
Water companies have been challenged to push the › Safe and healthy worker: protecting our boundaries of ‘business as usual’ during the price employees when they are working alone, at “The process review process for the next regulatory period. To night, or in dangerous locations. has proved so deliver more for less, we have to do things differently. › Future of water: this final category was The biggest challenge is how to find new innovations intended to be a ‘catch all’ to attract ideas, successful for Strategic report when, historically, it has been difficult for new entrants however radical, that could have applications to implement their ideas in the water industry. Our for the water industry. finding and procurement processes are set up to define the scope The Innovation Lab provided a safe, supportive of the services we want very precisely, which can environment for the shortlisted suppliers to access proving new be counterproductive to creativity. To address this, our sites, data, systems, experts and experienced last year, we ran the UK water industry ’s very first senior employees. It helped foster a culture where innovations Innovation Lab, working with technology accelerator we work together to bring these ideas to fruition. partner L Marks. that we are We advertised the Lab to some 1,500 fledgling, Our first challenge was to loosen the procurement small and large businesses and received applications repeating it.” constraints. We used EU Innovation Partnership from 80 organisations. We narrowed that down to Procedure legislation to develop a revolutionary new a shortlist of 22 ideas from UK and international procurement framework for the industry, which won applicants. Seven finalists joined us at our head office the Utility Week award for Supply Chain Excellence. for an intensive 10-week Lab process. Five of these This allowed us to procure ideas rather than specific suppliers were new entrants to the UK water sector. services. The Innovation Lab did not look for fully So far, we have signed contracts with three of formed new services or technologies. We were clear the suppliers. UK-based firm Typhon is installing from the outset that we wanted ideas that could a power-efficient LED UV system for water be nurtured and co-created with and for the water treatment. Canadian firm EMAGIN is rolling out its industry. artificial intelligence platform HARVI to all of our We defined five areas where we had identified a water pumping stations across the North West. challenge in need of a solution: Manchester-based Datatecnics is rolling out its intelligent pipe system that uses printed electronics › Connected customer: such as smart devices and and artificial intelligence to report pipe integrity and ‘Internet of Things’ – water is lagging behind predict pipe failures. other utilities in this area. › Proactive customer: providing better and more This process has proved so successful for finding and timely updates for customers when they need to proving new innovations that we are repeating it. We hear from us. launched our second Innovation Lab in April 2019 to find more great ideas that we can co-create with › Predictive asset maintenance: finding less their originators for the benefit of our company, our invasive ways to monitor performance of our customers and other stakeholders, and the water assets without needing to dig them up or switch industry as a whole. them off.
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United Utilities Strategic.indd 37 31/05/2019 18:49:37 Job Number 31 May 2019 6:47 pm Proof Number Business insight Alerting communities to what not to flush
Local campaign delivered dramatic results in drive to reduce sewer flooding
Every year there are 25,000 sewer blockages across › Held a number of events in supermarkets, a the North West and around 1,000 homes and 6,000 Christmas fayre, and a heritage weekend in the “In 2018 we gardens are affected by sewer flooding. summer; trialled a new Things like wipes and nappies do not just disappear › Engaged with local children by holding ‘Mad down the u-bend and dissolve, they clump together Science’ assemblies in primary schools and a talk community Strategic report and can cause havoc in the sewers, causing distress at the village holiday club; for people whose homes and gardens have been › Visited food outlets to talk to owners about their focused flooded by blocked sewers. methods of dealing with fats, oil and grease; approach to As well as blocking sewers, many of these items can › Provided local nurseries and baby groups with end up in our rivers and on our beaches, which has potty training packs containing advice and reducing sewer far-reaching impacts on nature and the environment. information about not flushing wipes; › Placed adverts in local magazines about the flooding” In 2018 we trialled a new community- focused importance of not flushing wet wipes; and approach to reducing sewer flooding in Burscough, Lancashire, an area with flooding issues mainly due › Worked closely with other agencies, such as West to sewer blockages caused by wet wipes. Lancashire District Council and the Environment Agency, to discuss local flooding issues and For a six-month period, our customer team went out future developments in Burscough. and about meeting customers and working with the community to spread the message about what not Our network teams carried out regular cleaning to flush and showing them how we can all do our bit across the area and looked at ways to reduce the risk to help. of further flooding. The campaign delivered excellent results, with an The Burscough project worked so well that we impressive 90 per cent reduction in wet wipes and are planning to roll it out to other problem areas, other non-flushable items entering our sewers. engaging with customers and communities to help change behaviours around ‘what not to flush’. As part of the campaign we: › Sent a ‘Burscough Better Together’ leaflet to 6,000 residents in the area;
38 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 38 31/05/2019 18:49:38 Job Number 31 May 2019 6:47 pm Proof Number How we create value for stakeholders Identifying who our stakeholders are and engaging to understand what matters to them helps enable us to create longterm value
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Why stakeholder engagement matters Our purpose is to provide great service to Politicians and the media can influence The relationships we build are subject to customers and communities in the North our priorities and the perceptions of our robust governance to ensure the insights West, creating long-term value for all of stakeholders. During the year there has been generated are taken into account in decision- our stakeholders. To create this value, it is increased focus on the water sector, from making at executive and board level. important to understand our stakeholders and several perspectives including corporate Read more on page 152. This is important what matters to them. governance, resilience and levels of leakage. to building trust. The board’s corporate responsibility committee meets four times The provision of water and wastewater We recognise that we do not operate in a year and stakeholder engagement is one services creates a deep connection between isolation and it is not our decision alone to of its standing agenda items. The chair of the company and the communities we serve. determine what the region needs us to deliver. the independent customer challenge group, Our work generates value for the North West This is why it is essential we engage with YourVoice, attends board meetings to provide economy, for example through job creation stakeholders across the North West, so we can its perspective. and delivering environmental improvements, identify shared solutions to shared challenges. which underpin the region’s tourist economy. The following pages detail how we engage Understanding what matters to stakeholders with, and are influenced by, each of our key We rely on shareholders to finance our will only be achieved by building strong, stakeholder groups, and the value we create activities, and we agree commitments constructive relationships and engaging for them. Our analysis of what matters most with economic, quality and environmental regularly. We value the diverse perspectives to stakeholders, and how these issues affect regulators about what we will deliver within that a broad range of stakeholders, our ability to create long-term value in line given time frames. representing different and often competing with our purpose statement, is set out in our interests, can bring to our decision-making. material issues matrix on page 45.
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United Utilities Strategic.indd 39 31/05/2019 18:49:45 Job Number 31 May 2019 6:47 pm Proof Number How we create value for stakeholders
Shareholders How we engage with and are influenced by shareholders It is important that shareholders have confidence in the company and how it is managed, given their investment in the business. By providing updates on our strategy and performance, we can assist in their understanding and decision-making. Similarly, engagement with shareholders gives us a broad insight into their priorities, which influences our own decision-making and our strategic direction.
Strategic report Through our investor relations programme, we actively engage with shareholders and sell- side analysts who write research reports on our company and industry. Details of this can be found on page 99. Regular engagement activities are supplemented by ad hoc events, such as the webcasts held this year in relation to the price review process for the 2020–25 period. We complete several investor-led indices on environmental, social and governance matters, such as the Dow Jones Sustainability Index. Top three material issues for shareholders* Customer service and Political and regulatory Financial risk operational performance environment management
Customers How we engage with and are influenced by customers To deliver a great service in a way that customers value, we need to listen and engage with them in building new solutions. We engage with customers through a variety of channels, including webchat, text and social media. We get feedback on customer interactions every day, and conduct more detailed weekly research on key themes that are important to them. We have changed how we communicate and deliver services based on customer feedback, such as the introduction of our customer app and redesign of customer bills. Our business plan for 2020–25 was shaped by unprecedented levels of customer engagement.
Read more on pages 19 to 23 The independent customer challenge group, ‘YourVoice’, aims to ensure customers are at the heart of our business planning engagement, and the Chair regularly attends our board meetings. YourVoice continues to provide challenge and critical support on our delivery of commitments for the 2015–20 period as well as contributing to our business plan for 2020–25. Top three material issues for customers* Customer service and Affordability and Leakage and water operational performance vulnerability efficiency
Communities How we engage with and are influenced by communities Our work puts us at the heart of local communities, places where customers and employees live and work. When communities come together, whether that is around a particular issue or location, they can often make powerful representations to the company. We seek to develop strong relationships based on mutual trust, respect and an understanding of the impact our work has on everyday lives. We play a constructive role in tackling issues through engagement and investment, and by identifying the water-related issues that matter most to communities we can develop solutions in partnership with them. We engage through facilitated workshops and community partnerships, such as the North West Hardship Hub to help customers in vulnerable circumstances. Read more on page 57. Issues raised by communities can present opportunities to improve what we do or to help others, while others can be complex and difficult to handle, with competing interests between different stakeholder groups, and require time and effort to work through. Top three material issues for communities* Land management Community Trust, transparency and access investment and legitimacy
* Read about how we manage our material issues on page 45
40 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 40 31/05/2019 18:49:48 Job Number 31 May 2019 6:47 pm Proof Number Strategic themes Material issues Best service to customers External factor At the lowest sustainable cost Internal factor In a responsible manner Both an external and internal factor
How we create value for shareholders Shortterm Longterm Link to strategic themes › Since many of our shareholders are pension › Our shareholders have placed their money Our regulatory return varies dependent funds, charities and employees, the income into our business as a long-term investment on our performance for customers, we provide through dividends is relied on and we provide an appropriate sustainable aligning shareholders’ interests with by millions of people every year return through a combination of short-term delivering the best service to customers
› We are committed to high ethical dividend income and long-term growth Strategic report standards of business conduct, strong › We plan far into the future and invest in our By reducing costs in a sustainable way corporate governance and acting with infrastructure to ensure the sustainability through innovation and efficiency, we can integrity so shareholders can have of the business and the services we provide target outperformance of our allowed expenditure in the long term without confidence in the way we do business › We manage risk prudently so shareholders compromising operational performance › We maintain a high level of quality and can have confidence in our stability and transparency, enabling shareholders to resilience in the round Our strong corporate governance, have trust and confidence in what we › Our innovation culture drives continuous report. This was recognised by Ofwat, prudent risk management, and clear and improvements, enabling us to be at the transparent reporting help create a lower which has rated us in its top 'self frontier of our industry and ahead of peers assurance' category three years in a row risk investment and build trust
How we create value for customers Shortterm Longterm Link to strategic themes › We focus on delivering a reliable service so › Our water and wastewater services make a Engaging with customers helps us customers can simply get on with their lives major contribution to the long-term health understand what they value most so that and not have to worry about their water and wellbeing of customers in our region we can target our services accordingly and wastewater services › Through long-term financing and the › When they do need to contact us, regulatory framework, we are delivering By achieving sustainable cost reductions we provide a helpful service, talking multi-million pound infrastructure projects, we can provide an efficient service, and listening to customers so we can to improve our services and resilience for keeping bills low and enabling us to help understand and meet their expectations the long term. We ensure the cost of this is vulnerable customers › We maintain bills that are good value for shared fairly and affordably between those money through innovation and efficiency that benefit now and in the future Customers value a company they can trust, and they care about protecting › We focus on earning the trust of customers, › Where customers are struggling with vulnerable people in society. They value affordability and vulnerability, we provide for example by keeping personal details safe and through transparent reporting, the support we provide through our many tailored support through Priority Services assistance schemes and payment assistance schemes to ensure they can have complete peace of mind
How we create value for communities Shortterm Longterm Link to strategic themes › We look after beautiful landscapes and › The health and wellbeing benefits Customers live and work in the local beaches and open our land to the public, through our provision of access to nature communities we serve and so they value which supports the regional tourism for recreation and relaxation helps the work we do to tackle issues together industry and gives communities the reduce the burden on health services health and wellbeing benefits through › We make a significant contribution to the By operating at the lowest sustainable access to relaxation and recreation regional economy through our activities, cost we are able to continue investing in › We encourage employees to volunteer the people we employ, and the money local communities for the long term on projects that address local issues, we spend in our supply chain helping to create better places and › We work with teachers and children to As they encompass a breadth and depth stronger communities raise awareness about water and the of people, communities bring a variety of › Working in partnership with others natural environment, giving the next views and issues to our attention, helping means we can accomplish more generation an understanding of the true us find the most balanced approach in the together to tackle mutual issues, such as value water brings and how we can all best interests of all partnering to develop employability skills play our part in protecting the services for those who need it most nature provides
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United Utilities Strategic.indd 41 31/05/2019 18:49:49 Job Number 31 May 2019 6:47 pm Proof Number How we create value for stakeholders
Employees How we engage with and are influenced by employees Our employees are the face of the company and we could not deliver our services without them. It is essential we build productive relationships based on trust, develop our employees and keep them engaged and motivated so we can meet the stretching objectives we set ourselves. Employees know our business better than anyone, with a diverse range of views and experience, making them well placed to identify opportunities for improvement. Strategic report We have a highly engaged workforce who take pride in their work, value opportunities to learn new skills, and maintain an open and honest dialogue with unions and the business. Line managers play a vital role in supporting employees, with regular one-to-one meetings, and our engagement survey regularly scores above the UK norm. Our new ‘employee voice’ will ensure their perspective is heard by the board. We have employee-led networks such as for gender, LGBT and disability, and encourage employees to share innovative ideas via many forums. Top three material issues for employees* Health, safety and Diverse and skilled Employee relations wellbeing workforce
Environment How we engage with and are influenced by the environment We rely on the environment as one of our key resources so it is important for the sustainability of our business that we protect and enhance it. For example, climate change will affect how much water is available and stakeholders are concerned about the resilience of supplies and look to water companies to adapt and take the necessary steps to reduce flood risk. Given the environment has no voice of its own, we engage with interested groups such as environmental regulators, non-governmental organisations, customers and communities. We conduct facilitated workshops with stakeholders to understand their priorities and have undertaken a large number of customer research projects. We work with environmental partners across the North West to identify new ways to deliver improvements, and engage with several groups to explore opportunities to deliver shared environmental outcomes. Top three material issues for the environment* Resilience Environmental Climate change impacts
Suppliers How we engage with and are influenced by suppliers As well as employees, we rely on suppliers to deliver our services, and the availability of goods and services in the market influences our strategy and how we operate. Good relationships with suppliers help ensure projects are delivered on time, to good quality, at efficient costs, and can bring innovative approaches and solutions that create shared value. We engage through supplier workshops, including targeted sessions on innovation, and suppliers sign up to our sustainable supply chain charter and support the commitments set out within it, as they recognise the importance of acting responsibly. They often suggest new ways we can meet some of our own responsible business targets. Feedback from suppliers revealed it can be difficult to access the company, especially when they have new products and services that could help us be more efficient and deliver better service. We established our Innovation Lab to help address this issue.
Read more on page 37 Top three material issues for suppliers* NW regional Responsible supply Human rights economy chain
* Read about how we manage our material issues on page 45
42 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 42 31/05/2019 18:49:51 Job Number 31 May 2019 6:47 pm Proof Number Strategic themes Material issues Best service to customers External factor At the lowest sustainable cost Internal factor In a responsible manner Both an external and internal factor
How we create value for employees Shortterm Longterm Link to strategic themes › We have a strong focus on health, safety › Looking after the health, safety and Well-trained, engaged and motivated and wellbeing. We firmly believe that wellbeing of our employees in the short employees who take pride in their work nothing we do is worth getting hurt for, term, by encouraging them to lead fitter have the ability and drive to deliver the and we aim to ensure all employees go and healthier lives and work in ways best service to customers
home safe and well at the end of the day that reduce accidents, creates long-term Strategic report › We invest in training and development to health benefits which, in turn, reduces Encouraging innovative ideas from enable our employees to grow their skills the burden on healthcare services employees can lead to cost reductions, and to help keep them motivated › Health, safety and wellbeing extends to and improving employee satisfaction reduces turnover which ensures training › Listening to our employees helps create mental as well as physical health, and we and development costs are efficient an engaged workforce, increasing job promote awareness of stress and other satisfaction, and through employee mental health issues, promoting an all- communications and conferences round healthy lifestyle in the long term We take a responsible approach to we update our people on business › We provide pension offerings that help protecting the health, safety and developments so they feel part of a team support employees in later life wellbeing of our employees
How we create value for the environment Shortterm Longterm Link to strategic themes › We meet increasingly stringent › Our investment in renewable energy Customers care about the environment so environmental consent levels, which generation is reducing our carbon providing the best service to customers help to improve the quality of rivers and footprint and contribution to climate involves protecting the places they live bathing waters and so support tourism in change and love the region › We innovate and invest in new › We manage our land in a way that technologies to solve environmental Many of the ways we protect the safeguards habitats for indigenous challenges for future generations environment also help us reduce cost, for example renewable energy generation wildlife, as well as protecting wildlife that › We are working on campaigns to educate reduces our energy costs as well as our makes its home in rivers and other water the public and younger generations on carbon footprint bodies water usage to protect this valuable › We have invested in new infrastructure, resource and reduce usage over time We manage water and wastewater in such as our West East Link Main, to allow › We plan far ahead to ensure our activities us to transfer water around the region a responsible way that protects the and investment enhance the long-term environment and enhances its resilience more efficiently to avoid depletion of resilience of the environment individual water sources
How we create value for suppliers Shortterm Longterm Link to strategic themes › We spend significant amounts with › Supporting jobs through our supply Working on our behalf, suppliers are a our suppliers each year to help deliver chain in the short term catalyses the face for our business. Ensuring they are maintenance and enhancement projects development of skills and jobs in the motivated to deliver good quality work across our asset base, and this helps North West, providing a stimulus to is enormously important to us when support thousands of jobs in our region benefit the regional economy in the long delivering the best service to customers › By investing in our infrastructure we are term helping to keep the economy flowing. › Working together to develop innovations Ensuring our suppliers deliver efficient We generate jobs through our capital and new technologies means we can cost is integral to delivering a sustainable programme and provide income for identify solutions that will make our low cost for customers, and the shared workers in the region services better in the future value of developing innovations together with suppliers can assist with this › While our operations and suppliers are › We act with integrity, giving suppliers mainly UK and European, they work confidence in the way we do business, Working with responsible suppliers helps closely with us to address human rights, which translates to transparency and us achieve more and succeed together in in particular modern slavery fairness for our suppliers tackling environmental and social issues
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United Utilities Strategic.indd 43 31/05/2019 18:49:51 Job Number 31 May 2019 6:47 pm Proof Number How we create value for stakeholders
Politicians How we engage with and are influenced by politicians Politicians influence the long-term national water strategy and environmental priorities, as well as other matters that affect how all businesses operate. Engagement with national and local government, as well as elected representatives and devolved administrations, on topics of public interest helps us to understand their issues so we can seek solutions to shared environmental, social, economic and governance issues. We engage with regional and national politicians in different political parties on topics of
Strategic report shared interest. We play an active role in trade association Water UK. Top three material issues for politicians Political and regulatory Leakage and water Trust, transparency environment efficiency and legitimacy
Regulators How we engage with and are influenced by regulators Through proactive, constructive engagement with economic, quality and environmental regulators, we agree to deliver commitments over specified time frames. Read more about our regulatory environment on page 16. We actively engage to shape the policy and regulatory framework within which we operate, covering customer, economic, environmental, social and governance matters. These priorities need to be balanced and viewed over a long-term horizon and maintaining relationships is key to this. The priorities and objectives of regulators can change over time so active engagement to provide our perspective around future policy is important to us. We hold regular meetings with all our regulators, including working on joint projects such as Natural Course, which aims to build capacity to protect and improve the North West water environment. Read more at naturalcourse.co.uk
Top three material issues for regulators Political and regulatory Resilience Trust, transparency environment and legitimacy
Media How we engage with and are influenced by the media The media is intrinsically linked with all our other stakeholders, being influenced by the issues that matter to those stakeholders as well as influencing them through what it reports. It is through the media, and increasingly its social media platforms, that many of our stakeholders receive their information about us and our activities. Given the essential nature of our services, it is important that coverage is fair, balanced and accurate, and this requires effective two-way dialogue between the company and the media. This is achieved through proactive engagement by our media team, which is available 24/7, providing content to media outlets, as well as dedicated resources to drive proactive messaging on social media channels. Top three material issues for the media Political and regulatory Leakage and water Social media environment efficiency
Material issues External factor Internal factor Both an external and internal factor
44 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 44 31/05/2019 18:49:53 Job Number 31 May 2019 6:47 pm Proof Number Managing our material issues Our approach to materiality In defining the strategic relevance of an experts from the company on an ongoing Understanding what matters most to our issue to the company, we have adopted the basis, as well as the extensive insights stakeholders is a fundamental part of our integrated reporting framework definition gathered for the regulatory price review planning and day-to-day service delivery. We of materiality, which states: “A matter is process. material if it could substantively affect the consider these stakeholder priorities alongside We have cross-referenced and aligned organisation’s ability to create value in the our own assessment of what has the biggest these issues with our principal risks and short, medium or long term”. Value, in this impact on the company and its ability to uncertainties, and our approach was reviewed
context, may be created internally (for the Strategic report create value, and the output is presented in by responsible business consultancy Corporate company, shareholders and employees) and the material issues matrix below. Citizenship, which commented that “alignment there can be external value (for customers, with UU’s way of creating value gives life and This stakeholder materiality assessment communities, suppliers and the environment). credibility to the materiality matrix” and this informs decisions about what we report Value may also be financial or non-financial. in documents such as this Annual Report. sends a very distinctive message about our Setting out issues in this way helps ensure Our assessment of the level of interest to business model and what we value. we understand key stakeholder priorities and stakeholders is based on a balance of views consider their interests in strategic decision- obtained from customers, shareholders, making, helping us create long-term value. regulators, communities, and subject matter
Material issues matrix We consolidated feedback from our various stakeholder groups, as detailed above, which resulted in a list of 26 material issues. These issues are impacted by factors that may be external, internal or both — for example, affordability and vulnerability affects customers due to external social and economic factors, and the support services we provide those customers with are an internal factor, so this issue is impacted by both. The 26 issues are plotted on the matrix below, from lower to higher in terms of level of interest to stakeholders and how much it can affect our ability to create value.
External factors 3 1 5 PoliƟcal and regulatory environment Higher 2 10 Climate change 6 4 12 Cyber security 5 15 NW regional economy 17 Natural resources 21 Social media 24 Land management and access 13 7 26 ,uman rights 14 8 10 9 15 1011 Internal factors 12 2 Resilience 8 Financial risk management 9 Corporate governance and business conduct 11 InnovaƟon 14 Data security 18 16 16 Energy use 21 19 17 18 Responsible supply chain 19 ,ealth, safety and wellbeing Level of interest to stakeholders 22 20 22 Employee relaƟons
23 25 Community investment 24 25 Both external and internal factors 26 1 Trust, transparency and legiƟmacy 3 Customer service and operaƟonal performance
Based on a balance of views from customer research, shareholder engagement, environment regulators and communiƟes regulators environment shareholder engagement, on a balance of views from customer research, Based 4 Leakage and water eĸciency Lower Lower Higher 6 Aīordability and vulnerability 7 Sewer Ňooding Effect on our ability to create value Based on the potenƟal eīect on our ability to create value over the short, medium and long term. salue can be created for UU, 13 Environmental impacts shareholders, regulators, employees, the public, and/or the environment. salue can be Įnancial and non-Įnancial. 20 CompeƟƟve markets 23 Diverse and skilled workforce
Read our stakeholder metrics table on Read about how the board considers page 55 stakeholders in its decision-making in our section 172 statement on page 152
Stock Code: UU. unitedutilities.com/corporate 45
United Utilities Strategic.indd 45 31/05/2019 18:49:53 Job Number 31 May 2019 6:47 pm Proof Number How we create value for stakeholders UN Sustainable Development Goals
KEY FACTS
The Sustainable Development Goals (SDGs) are a collection of 17 global goals to be achieved by the year 2030, and were adopted by a summit of the United Nations (UN) in 2015. They are 17 designed to be the blueprint to achieve a better and more sustainable future for all, aiming to end global goals adopted poverty, fight inequality and tackle climate change.
Strategic report by the United Nations Since they were published, stakeholder interest has increased in the contributions companies are to be achieved by 2030 making to the UN SDGs. While our work contributes across all of the goals, we have identified five goals that are the most material to our business and the nature of the essential services that we provide. Our approach to operating in a responsible manner aligns quite naturally with these goals. We will increasingly 5 need to work in partnership with all our stakeholders in order to achieve these goals. identified where we The following details show the steps we are taking to meet each of these five SDGs. contribute most as a business Read more at unitedutilities.com/sdgs
Clean water and sanitation – Ensure availability and sustainable management of water and sanitation for all This is our core function and the reason we exist – providing safe, resilient and affordable water and wastewater services to customers across the North West of England. Part of this goal is about avoiding wasting water, and we promote water efficiency through campaigns, advice, education and free water-saving gadgets for customers. We protect and enhance water-related ecosystems across our region.
Decent work and economic growth – Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all Our daily operations provide direct and indirect employment for thousands of people, and we are a big contributor to the North West economy. We provide training and development opportunities in safe, secure working environments, graduate and apprentice opportunities, offer equal opportunities to all and value diversity among our employees. Read more on page 98.
Industry, innovation and infrastructure – Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation We invest heavily in infrastructure, including £250 million additional investment in 2015–20 to increase our resilience. Read more about our approach to resilience on pages 50. Ensuring the region where we operate has reliable, sustainable and resilient infrastructure for the long term requires innovation to keep pace with an increasingly digital world. Read about our Innovation Lab on page 37.
Sustainable cities and communities – Make cities and human settlements inclusive, safe, resilient and sustainable We use our understanding of customer needs and priorities to deliver services that meet their expectations and engage with communities to enhance participation in what we do. We plan far into the future to prepare for increases in the population and new housing that will need connections for water and wastewater services. To find out more about our community activity see
https://www.unitedutilities.com/globalassets/documents/pdf/community-activity-booklet.pdf
Peace, justice and strong institutions – Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels We run our business with integrity, and this is one of our core values. We have high levels of transparency in our reporting and ethical standards of business conduct and corporate governance – those systems and processes through which our organisation is managed, controlled and held accountable.
46 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 46 31/05/2019 18:49:56 Job Number 31 May 2019 6:47 pm Proof Number Business insight Collaborating with the community to improve reservoir safety Throwlines have been installed around reservoirs across Greater Manchester and Lancashire and dedicated to the memory of someone who lost their life.
We have 180 reservoirs across the North West, many as part of a special pilot. The throwlines can buy in beautiful locations. The land around our reservoirs valuable time and help people keep their head "Together we've is a wonderful natural resource and we want to do above the water until firefighters arrive to help.
everything possible to encourage people to visit and Each throwline also has an information board with come up with Strategic report enjoy the health and wellbeing benefits of being out advice on how to help in an emergency and accurate a new pilot in the countryside. location details for the fire and rescue services. But while reservoirs are wonderful places to visit for The scheme has received widespread media coverage scheme which a picnic or walk, they are one of the worst possible and praise. Water safety campaigner Beckie Ramsay places to take a swim. As well as dangerous hidden has been raising awareness of the dangers of open will help prevent machinery under the surface and no lifeguard on water swimming following the death of her son, duty, the water can be deceptively cold. If you jump Dylan, in 2011. She said: “I hope when people see loss of life." in, the chances are you won’t be able to get out. The the throwlines and the dedications written by the water is so cold it can literally take your breath away bereaved families it will make them think twice. If it and force your body into a spasm known as ‘cold stops just one youngster taking that chance it will be water shock’. a success.” Despite our best efforts to raise awareness of the Mark Hutton, from Lancashire Fire and Rescue dangers, there are always a few who will take a Service, added: “We are really pleased to see a major chance. Sadly, in the last two years four people have utility provider deciding to install water safety boards lost their lives swimming in reservoirs in the North and by doing so recognising just how important West alone. they can be in preventing loss of life, both in terms of the important safety messages they convey, and As a responsible business, we want to do more to also their life-saving function in the event of an prevent these needless tragedies. That ’s why we’ve emergency.” been working with bereaved families, water safety campaigners and representatives from the North If the throwline pilot scheme is a success we will West ’s fire and rescue services to identify what can consider rolling it out to other reservoir sites around be done to help reduce the number of drdrowningo wning the North WWest.es t. incidents in the region’s reservoirs. Together we’ve come up with a new pilot scheme which will help prevent loss of life. New throwlines have been installed at 20 locations around eight reservoirs across Greater Manchester and Lancashire
Stock Code: UU. unitedutilities.com/corporate 47
United Utilities Strategic.indd 47 31/05/2019 18:49:58 Job Number 31 May 2019 6:47 pm Proof Number Our planning horizons
Our approach to planning Our three business areas – wholesale water, 25+ years – reflecting the long-term nature wholesale wastewater, and household retail – of our business, which provides an essential align with the distinct price controls in Ofwat’s service to customers, and helping us to regulatory model. Each area undertakes long, – reflecting the regulatory review define what we need 5 years medium and short-term planning. periods within which our revenue allowances to deliver in each are set, and helping us move towards Long-term (25+ years) planning identifies five-year regulatory achievement of requirements to cope with challenges and period to ensure our long-term Strategic report opportunities in line with our strategy. This long-term resilience 1 year – reflecting the annual targets we influences our medium-term planning, which goals set to help move us towards achievement sets out how we will deliver the commitments of our five-year goals agreed for each five-year regulatory period. Short-term (one year) planning enables us to monitor and measure progress towards those Our plans take into account the internal and We continuously assess our performance regulatory commitments. We retain flexibility external drivers and relationships shown in against our plans using key performance in these short-term plans to ensure we meet our business model, and we consult with and indicators (KPIs) and other performance those commitments in the most effective and consider the interests of all our stakeholders. metrics of interest to our stakeholders. efficient way as circumstances change. Read more about how we create value for Read more about how we measure our stakeholders on pages 39 to 46 performance on pages 51 to 55
Longterm planning There is a section of our website that deals We create long-term value for stakeholders by: with our future plans, where we examine the › Systems Thinking and innovation; (25+ years) challenges ahead and how we will focus our In order to maintain a reliable, high-quality resources and talents in order to meet them. › Long-term planning and responding to service for customers far into the future, we challenges and opportunities, including have to look a long way ahead to anticipate Read more online at unitedutilities.com/ management of water resources; and plan for the changes and core issues that corporate/about-us/our-future-plans › Sustainable catchment management; are likely to impact on our activities. This includes our 25-year Water Resources › Disciplined investment, based on a Over the next 25+ years we will face many Management Plan (WRMP). Our current plan sustainable whole-life cost modelling challenges and opportunities, including: was published in 2015 covering the 2015–40 approach, to ensure the resilience of our › Climate change; period, and we consulted with stakeholders assets and network; › Population growth; during the year on our new draft WRMP › Investing in our employees to maintain a covering the 2020–45 period. These long skilled, healthy and motivated workforce; › The UK’s exit from the European Union; term plans set out the investment needed to › Close collaboration with suppliers; and › A more open, competitive market; ensure we have sufficient water to continue › Maintaining a robust and appropriate mix supplying our customers, taking into account › More stringent environmental regulations; of debt and equity financing. › Developments in technology; and the potential impact of climate change. › Combining affordable bills with a modern, responsive service.
We will extend our integrated water supply network into West Cumbria 2020+ 2022 2025
We will continue to contribute We will halve the risk of to improving bathing water requiring drought permits to quality augment supply
48 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 48 31/05/2019 18:50:00 Job Number 31 May 2019 6:47 pm Proof Number Mediumterm planning Wholesale water › Limiting the customer impact of (5 years) Our wholesale water team are: increases in operating costs, such as Each five-year business plan aims to help chemicals and rates, by making cost us work towards our long-term plans and › Maintaining high levels of reliability and savings elsewhere through continuous ultimately to achieve our vision. water quality, and reducing the number improvement in operational efficiency; of times customers need to contact us; and We submit a balanced plan to Ofwat in order › Making better use of technology for › Linking 150,000 customers in West to agree a regulatory contract that allows for remote monitoring and control of assets; Cumbria to Thirlmere reservoir to protect the best overall outcomes for our customers,
sensitive ecology in their previous water Strategic report shareholders and the environment. › Maintaining leakage at or below the sustainable economic level; source and ensure a long-term, reliable Read more about our economic regulation supply of drinking water. on page 18 Once each regulatory contract is set, we create value principally by delivering, or Wholesale wastewater to support them in delivering outperforming, that contract by providing Our wholesale wastewater team are: improvements to our region’s beaches; the best service to customers, at the lowest › Improving water quality in rivers and › Making better use of technology, sustainable cost, in a responsible manner. lakes and engaging with others in our automation and control to drive better innovative catchment management In the 2015–20 period we are delivering: customer service at lower costs; approach; › Reducing the number of customers’ The best service to customers › Increasing the production of renewable properties exposed to sewer flooding, energy from waste; and › Improving customer service further, working in partnerships to deliver cost- fixing issues proactively before they effective schemes and promoting the use › Constraining the costs of taking impact customers, reducing the number of more sustainable drainage systems; responsibility for all private sewers and of complaints, and improving our private pumping stations in the region. › Improving bathing water quality and communication channels working with other organisations At the lowest sustainable cost › Minimising our total costs on a sustainable Household retail › Reducing the debt burden for customers basis, enhancing debt collection activities Our household retail team are: and the company by engaging with those to deliver a more efficient retail service, who are struggling to pay, helping them › Continuing to improve the customer raising low-cost finance and managing return to sustained payment behaviour; experience by being more proactive, financial risk to reduce volatility › Expanding our assistance offerings, anticipating problems before they including the social tariff, and contributing materialise, and improving our to our trust fund, ‘Restart’, which has In a responsible manner communication channels in line with proven effective in helping customers in customer preference; › Meeting regulatory commitments to difficulty return to regular payment; and protect and enhance the environment, › Further reducing the number of customer › Reducing the cost to serve our increasing our renewable energy complaints, and resolving them whenever customers. generation to reduce our carbon footprint, we can to avoid the need for referral to and providing the best support for the Consumer Council for Water; vulnerable customers Our plans for the 2020–25 period are set out in our business plan submission. Read more on pages 19 to 23
We will work to enable future 75 We will install additional water national water trading meters to achieve coverage of around 75 per cent of households 2025+ 2030 2045
We will work with others to achieve ‘Blue Flag’ beaches along our coastline
Stock Code: UU. unitedutilities.com/corporate 49
United Utilities Strategic.indd 49 31/05/2019 18:50:00 Job Number 31 May 2019 6:47 pm Proof Number Our planning horizons
Shortterm planning directors are also assessed against three-year in order to prioritise expenditure and allow performance, covering total shareholder return, our people to spend their time dealing with (1 year) sustainable dividends and customer service, any unexpected challenges that arise. Short-term planning helps us work towards through long-term incentive plans. Details of For example, during 2018/19 we needed to our medium and long-term goals and is the 2018/19 annual bonus and vested long allocate additional resources to deal with important to monitor and assess our progress term incentive plans for our executive directors the impact of extreme weather events. We against these. This approach helps us ensure are shown on pages 132 and 135. the long-term resilience and sustainability of entered the year having experienced a deep our business through short and medium-term The executive directors hold quarterly business freeze followed by a rapid thaw, which had an goals that we can monitor and measure our review meetings with senior managers across impact on our levels of leakage, and it was not Strategic report progress against. the business to monitor and assess our long before we entered a period of intense performance against our annual targets, helping hot, dry weather that depleted reservoir levels Before the start of each financial year, we to ensure that we are on track to deliver our and saw a surge in water demand. develop a business plan for that year, which is targets for the year, and longer term. reviewed and approved by the board. This sets In response, we substantially increased our our annual targets, which are designed to help It is vital that we retain flexibility within this leak detection teams and allocated resources deliver further improvements in service delivery short-term planning so we can adapt to meet to bring additional water resources into and efficiency, and to help move us towards challenges that may arise during each year, operation and increase pumping around the achievement of the five-year goals. and deliver high-quality and resilient services region to balance risk and support the worst to customers in the most effective and cost- affected areas. This resulted in us needing to Performance against these annual targets efficient way possible. commit to additional expenditure, as detailed determines annual bonuses for executive on page 62, but was managed in a way that This may involve bringing enhancements directors and employees right through the maintained service for customers and we forward to deliver improvements for organisation. To avoid short-term decision- successfully met our leakage target for the customers early, investing further into the making and ensure management is focused on year despite these challenges. the long-term performance of the company, business to maintain service or delaying as well as these annual targets executive projects to occur later in the regulatory period
Our approach to resilience Operational resilience Skills resilience As detailed on page 21, in its initial assessment The main risks to the resilience of our We have some key highly skilled roles, and of our business plan for 2020–25, Ofwat operational assets are the potential for failure our talent succession pipeline is critical to the commended our approach to resilience as of ageing infrastructure and the challenges seamless transfer of skills from one generation sector-leading and said we set the standard for presented by predictions for climate change of employees to another. other companies to aspire to. and population growth. We have active graduate and apprenticeship Innovation is a critical enabler for resilience, Our business plan submission for 2020–25 programmes, we have partnered with Teach and our Systems Thinking approach gives us contains proposals to address our biggest First, and we are an active participant in the an advantage. Sensors across our network operational asset risk, the Haweswater STEM (science, technology, engineering and and remote monitoring and control from the Aqueduct that transports water from the Lake mathematics) programme encouraging the Integrated Control Centre at head office allows District to Greater Manchester. Read more on younger generation to study and pursue us to spot issues and respond proactively page 21. careers in these fields. before customers are impacted and/or the Our draft 2019 Water Resources Management issue becomes more serious. For example, Corporate and financial Plan considered a range of future challenges, spotting changes in pressure in the network to including: resilience identify issues so that we can send a team out As a public listed company, we consistently to repair them before customers are affected. › Extreme drought, freeze-thaw, and adhere to the highest levels of governance, flooding; As well as our use of innovation, we have accountability and transparency.
enhanced our approach to resilience through › Climate change (100 scenarios under the Long-term financial resilience starts with lessons learned from previous events. latest UK climate projections at the time a strong and robust balance sheet and a We introduced new incident management of creating the plan, UKCP09); and prudent risk management approach, and we procedures with detailed contingency plans › Demand (population growth, economic believe we are at the frontier in this respect. and a director-led incident review board in trends and patterns of water use). We have maintained a responsible level of response to events in 2015 and 2016. This was We assessed risks over the 2020–45 planning gearing and well-controlled pension position instrumental in the way we coped with extreme period and looked beyond this into the 2080s. for many years, and our prudent financial weather events in 2018, including both the We published two adaptation reports, in risk management is one of our competitive freeze-thaw and the hot, dry summer. 2011 and 2015, which outline our holistic, advantages. integrated and partnership approach to a Read more about how we responded to the Read more about our competitive advantages challenges of climate-change on page 30 range of short and long-term challenges, on page 17 including a changing climate. Another development in our approach as a result of lessons learned was the introduction of Read more online at unitedutilities.com/ Priority Services, which offers tailored support corporate/responsibility/environment/ to the more vulnerable members of society in climate-change/ emergencies.
50 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 50 31/05/2019 18:50:00 Job Number 31 May 2019 6:47 pm Proof Number How we measure our performance Key performance indicators and other stakeholder metrics
We have a range of key performance indicators (KPIs) encompassing the important areas of customer service and environmental performance, as well as financial indicators. Our operational KPIs are aligned with our strategic themes, and our financial KPIs assess both the profitability and sustainability of our business.
Further detail on our performance against our regulatory commitments is published in July of each year in our Annual Performance Report. In addition to our KPIs and regulatory commitments, we monitor our performance against an assortment of metrics that are of interest to our many Strategic report stakeholders, and report against these within this report and on our corporate website.
Our key performance Annual Performance Other performance indicators (KPIs) Report (APR) indicators To help measure progress on how well we Performance against our regulatory contract Our KPIs provide a snapshot of our are delivering the outcomes described in our is monitored and assessed each year, and performance across a variety of areas, but business model and adding value for all our reported within an Annual Performance these are by no means the only metrics by stakeholders, we focus on a range of financial Report (APR). This has been a requirement which we monitor and assess our performance and operational KPIs. Our executive bonuses from Ofwat for all water companies since on a regular basis, and we report against other and long-term incentives are closely aligned the start of the current regulatory period in metrics both internally and externally. to our financial and operational performance financial year 2015/16, when this replaced the As discussed on pages 39 to 45, we engage KPIs, as highlighted in the remuneration report previous ‘regulatory accounts’. with a variety of stakeholders and this gives on page 123. The majority of our operational KPIs relate to us a view of what matters most to them. We We set operational KPIs for the five-year this regulatory performance on a high level, report on a selection of other stakeholder regulatory period. These align with our three and it is within the APR that more detail can metrics on page 55 of this report, based on strategic themes, and reflect the outcomes we be found on the components within these the measures shown to be of highest interest have committed to deliver for customers and measures, as well as narrative detail about our to our stakeholders. other stakeholders, including the environment. performance during the year. For example, on customer service our KPIs A description of these operational KPIs, our There is also financial information contained are Ofwat’s measures, the qualitative and targets for each, and our performance against within the APR. This relates only to the quantitative Service Incentive Mechanism these targets can be seen on the following regulated company and its appointed (SIM), but our stakeholder metrics table also pages. These operational KPIs remain activities, and is calculated and prepared in reports on the level of customer complaints, consistent with last year. accordance with the regulatory accounting use of digital communication channels, We set financial KPIs that assess both the framework, which differs from IFRS reporting; customers helped through assistance schemes, profitability and sustainability of our business however, a reconciliation to IFRS reporting and the impact of water efficiency measures. from a financial perspective. A description of is provided in our APR. For the purposes of On environmental performance, our KPIs these financial KPIs and our performance against clarification, our financial KPIs relate to our include performance against our leakage these targets can be seen on page 54. We set performance at the group level, and are target and the overall assessments by internal budgets for financial KPIs but we do not calculated in line with the definitions given in the Environment Agency and Dow Jones have externally declared targets for these. this report. Sustainability Index, but our stakeholder This year we have changed one of our financial Our APRs for previous years are available on metrics table also reports on more specific KPIs. We have removed revenue from the list, our external website, and the APR for 2018/19 environmental performance indicators, such recognising that the movements in revenue will be published in July 2019. as carbon footprint, proportion of waste going are dependent on the regulatory mechanism to beneficial use rather than landfill, and Read more online at unitedutilities.com/ rather than management control, and replaced corporate/about-us/performance measures of natural capital. this with total shareholder return, a measure We also regularly report on numerous of movements in the share price plus dividends corporate responsibility performance over the year, which is more important for measures on our external website. shareholders. This measure is used for our executive remuneration through the long-term Read more online at unitedutilities.com/ plan, although the time frame of calculation corporate/responsibility/our-approach/cr- performance and comparators are different for the one-year KPI and the three-year incentive plan.
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United Utilities Strategic.indd 51 31/05/2019 18:50:01 Job Number 31 May 2019 6:47 pm Proof Number How we measure our performance Our operational KPIs
The best service Wholesale outcome delivery to customers incentive (ODI) composite Definition Net reward/(penalty) accrued across United Utilities’ 19 wholesale financial ODIs, more detail of which can be found in our Annual Performance Report. Target Performance Strategic report End the 2015–20 regulatory 2018/19: £19.2 million reward period with around £30 million (cumulative £21.4 million cumulative net ODI reward. reward) Link to bonus/LTP 2017/18: £7.0 million penalty Bonus – direct (cumulative £2.2 million reward) LTP – indirect 2016/17: £6.7 million reward Status (cumulative £9.2 million reward) Achieved/confident 2015/16: £2.5 million reward of achieving target
At the lowest Total expenditure (totex) sustainable cost outperformance Definition Progress to date on delivering our promises to customers within the cumulative 2015–20 wholesale totex final determination allowance. Target Performance To outperform Ofwat’s final 2015–20: Confident of determination totex allowance outperforming the final by £100 million over the determination allowance by 2015–20 regulatory period. £100 million over the 2015–20 regulatory period Link to bonus/LTP Bonus – indirect Totex was a new measure for LTP – indirect the 2015–20 period, hence no prior years’ comparators Status Achieved/confident of achieving target
In a responsible Leakage – manner average annual leakage Definition Average annual water leakage from our network quantified in megalitres (Ml) per day. Target Performance * To meet our regulatory leakage 2018/19: Met target target of 462.65 Ml per day 2017/18: Met target for each year in the 2015–20 2016/17: Met target regulatory period, as set by 2015/16: Met target Ofwat. 2014/15: Met target Link to bonus/LTP * Final figure for leakage will be Bonus – indirect reported in our Annual Performance Report, available on our website in July Status Achieved/confident of achieving target
52 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 52 31/05/2019 18:50:03 Job Number 31 May 2019 6:47 pm Proof Number Service incentive mechanism (SIM) – Service incentive mechanism (SIM) – qualitative quantitative
Definition Definition Ofwat-derived index based on quarterly customer satisfaction Ofwat-derived composite index based on the number of customer surveys, measuring the absolute and relative performance of the 18 contacts, assessed by type, measuring the absolute and relative water companies. Each company receives a score in the range of zero performance of the 18 water companies. Each company receives a SIM to five, with five being the best attainable score. point total, where the lowest score represents the best performance.
Target Performance Target Performance * Strategic report S e c tor or st S e c tor or st To move towards the upper 2018/19 4.53 S e c tor b e stTo move towards the upper 2018/19 70 S e c tor b e st quartile in the medium term. quartile in the medium term.
Link to bonus/LTP Link to bonus/LTP Bonus – direct Bonus – direct LTP – direct LTP – direct Status Status S e c tor or st 2018/19 70 S e c tor or st Achieved/confident2018/19 4.53 S e c tor b e st Achieved/confident S e c tor b e st of achieving target of achieving target * Sector best and worst figures for quantitative SIM are not yet available for 2018/19 Financing Household retail outperformance cost to serve
Definition Definition Progress to date on financing expenditure outperformance secured Cost to serve in our household retail business compared with Ofwat’s versus Ofwat’s industry allowed cost of debt of 2.59 per cent real revenue allowance (including margin). over the 2015–20 period. Target Performance Target Performance To minimise costs compared 2018/19: £5 million To beat Ofwat’s industry allowed 2015–20: On track to beat with Ofwat’s revenue allowance. outperformance cost of debt. Ofwat allowance Link to bonus/LTP 2017/18: £9 million Link to bonus/LTP 2010–15: Exceeded our £300 Bonus – indirect outperformance million target outperformance LTP – indirect LTP – indirect 2016/17: £14 million Status Status outperformance Achieved/confident Achieved/confident 2015/16: £10 million of achieving target of achieving target outperformance
Environment Agency Dow Jones performance assessment Sustainability Index rating
Definition Definition Composite assessment produced by the Environment Agency, Independent rating awarded using sustainability metrics covering measuring the absolute and relative performance of the 10 water economic, environmental, social and governance performance. and wastewater companies across a broad range of areas, including pollution. Target Performance To retain ‘World Class’ rating 2018/19: ‘World Class’ Target Performance* each year 2017/18: ‘World Class’ To be a first quartile performer 2017: Joint 1st 2016/17: ‘World Class’ (i.e. at least 4th) on a consistent 2016: Joint 1st Status 2015/16: ‘World Class’ basis. 2015: Joint 2nd Achieved/confident 2014/15: ‘World Class’ 2014: 2nd of achieving target Link to bonus/LTP 2013: 2nd Bonus – indirect * Assessment for the 2017 calendar Status year was published in July 2018 and Achieved/confident is the most recent available. of achieving target
Stock Code: UU. unitedutilities.com/corporate 53
United Utilities Strategic.indd 53 31/05/2019 18:50:03 Job Number 31 May 2019 6:47 pm Proof Number How we measure our performance Our financial KPIs
Underlying operating profit Underlying earnings per share
Definition Definition The underlying operating profit measure excludes from the reported This measure deducts underlying net finance expense and operating profit any restructuring costs and significant non-recurring underlying taxation from underlying operating profit to calculate items. The group determines adjusted items consistently in the underlying profit after tax and then divides this by the average calculation of its underlying operating profit measure against a number of shares in issue during the year. Underlying net finance framework which considers significance by reference to profit before expense makes consistent adjustments to the reported net finance tax, in addition to other qualitative factors such as whether the item expense, including the stripping out of fair value movements. Strategic report is deemed to be within the normal course of business, its assessed Underlying taxation strips out any prior year adjustments, frequency of reoccurrence, and its volatility, which is either outside exceptional tax or any deferred tax credits or debits arising from the control of management and/or not representative of the current changes in the tax rate from reported taxation. Reconciliations to the year performance. A reconciliation is shown on pages 66 to 67. underlying measures above are shown on pages 66 to 67. Link to bonus/LTP Performance Link to bonus/LTP Performance Bonus – direct LTP – indirect 2018/19 £685m 2018/19 55.5p LTP – indirect 2017/18 £645m Status 2017/18 44.7p
Status 2016/17 £623m Achieved/confident 2016/17 46.0p Close to achieving target of achieving target 2015/16 £604m 2015/16 47.7p but more work to be done 2014/15 £664m 2014/15 51.9p
Dividend per share Gearing: net debt to RCV
Definition Definition This measure divides total dividends declared by the average Group net debt (including derivatives) divided by UUW’s regulatory number of shares in issue during the year. capital value (RCV). From 2016/17 onwards this uses shadow RCV, adjusted for actual spend, while prior years used Ofwat’s published Link to bonus/LTP Performance RCV in out-turn prices as per previous methodology. LTP – direct 2018/19 41.28p Target Performance Status 2017/18 39.73p Maintain gearing within a range 2018/19 61% Achieved/confident of 55 per cent to 65 per cent. 2016/17 38.87p 2017/18 61% of achieving target 2015/16 38.45p Status 2016/17 61%
2014/15 37.70p Achieved/confident 2015/16 61%
of achieving target 2014/15 59%
Total shareholder return
Definition This measure calculates the return to shareholders based on the movement in the share price plus dividends over each financial year. Link to bonus/LTP Performance LTP – direct 2018/19 120% Status 2017/18 75% Close to achieving target 2016/17 119% Note 1: For both our Operational and Financial KPIs, where we have declared external 2015/16 102% but more work to be done targets we assess our performance against the most recent public targets. Where there 2014/15 121% are no externally declared targets we assess our performance against our internal budget; however, our internal budget is not disclosed. Green status indicates that we have achieved or are confident of achieving our target. Amber status indicates that we are close to achieving our target but there remains some work to be done. Red status indicates that we are missing our target.
Note 2: In some instances the remuneration committee has used metrics with similar names but calculation methodologies which they consider more appropriate for executive remuneration, as set out in the remuneration report on pages 116 to 143.
54 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 54 31/05/2019 18:50:04 Job Number 31 May 2019 6:47 pm Proof Number Stakeholder metrics table
We have a wide range of stakeholders who take an interest in the way we do business. The following table provides a broad set of performance measures covering Environmental, Social and Governance issues that are of interest to our stakeholders. Further information on how we manage our business in a responsible manner can be found in the responsibility pages of our corporate website. Data Theme Area Measure metric Further information Shareholders Compliance 2016 UK Corporate Governance Code Compliant Directors’ report – statutory and other information Dow Jones Sustainability Indices World Our performance - in a responsible manner section Index Customers Complaints Total number of domestic customer 7,007 Our performance - best service to customers section complaints Strategic report Average speed of complaint resolution 3 days Our performance - best service to customers section Fines Drinking Water Inspectorate (DWI) fines 2 Related to two drinking water incidents at Sweetloves (£150,000 water treatment works in 2015 and £50,000) Digital Number of customers using online 860,648 Our performance - best service to customers section services – My Account Customer assistance Number of customers assisted by Priority 74,505 Our performance - best service to customers section Services Customer water Total customer water savings from 4.43 Ml/d Our key resources section efficiency measures promoted by United Utilities Environment Carbon and energy Carbon footprint 167,856 Directors' report – energy and carbon
tCO2e Energy used 976 GWh Directors' report – energy and carbon Waste Total waste 694,846 Responsibility pages of our website tonnes Waste to beneficial use 96% Responsibility pages of our website Leakage Total leakage at or below target of Met target Annual Performance Report published in July 462.65 Ml/d Fines Number of incidents resulting in fines 0 Our performance - in a responsible manner section Enforcement undertakings 5 Our performance - in a responsible manner section (£1.5m) Natural capital Number of trees planted on catchment 27,190 Responsibility pages of our website land No net loss of biodiversity across capital 100% Responsibility pages of our website programme Employees Employee engagement Overall employee engagement 81% Our performance - in a responsible manner section Percentage of employees with trade union 45% Our key resources section membership* Workforce profile 83% White 2% BAME 15% Non-disclosed 65% Male 35% Female <1% Disability (including long-term health conditions) Gender pay reporting Mean gender pay gap 13.1% Gender Pay Report on our website Median gender pay gap 15.3% Gender Pay Report on our website Employee development Average number of days of training per 3.57 days Our performance - in a responsible manner section FTE per year Health and safety Employee Accident Frequency Rate 0.152 Our performance - in a responsible manner section (per 100,000 hours) Contractor Accident Frequency Rate 0.092 Our performance - in a responsible manner section (per 100,000 hours) Suppliers Payment statistics Average time taken to pay invoices 25 days Suppliers pages of our website Suppliers paid on time 98.57% Suppliers pages of our website Communities Charity Match funding to charity through £157,046 Responsibility pages of our website employee efforts Community investment How investment was made: (LBG data) Cash £2,717,856 Time £52,409 Management costs £161,214 Total £2,931,479 Type of support: Charitable gift £159,545 Community investment £2,610,719 Commercial initiative £0 Employee volunteering Number of hours’ employee volunteering 2,620 Responsibility pages of our website *Based on employees who pay their union subscriptions via their payroll.
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United Utilities Strategic.indd 55 31/05/2019 18:50:04 Job Number 31 May 2019 6:47 pm Proof Number Our performance in 2018/19 Operational performance
first for being environmentally responsible. Overall, performance was again good against The best service to customers We are behind only Marks & Spencer and Aldi, our wastewater measures, and significantly and ahead of seven other major organisations improved against our water measures with a Customer service – sitting at the core of across utilities, telecoms, media and banking. net reward achieved in both areas. everything we do, our strong focus on Robust water supply – customers benefit We are pleased with our cumulative customer service has helped us deliver from our robust water supply and demand performance over the first four years of substantial improvements in recent years, balance, along with high levels of water the current regulatory period, which have becoming the most improved company in the supply reliability. Our overall water quality resulted in a net reward of £21.4 million, 2010–15 regulatory period with a reduction continues to be good with an improvement exceeding our initial expectations. WhilE a Strategic report of over 70 per cent in the overall number of in our water quality service index compared number of our ODI measures are susceptible customer complaints. with the prior year. It is tracking above our to one-off events and, on the whole, our ODI We have continued to improve at a faster historical average with plans in place to targets get tougher each year, our strong rate than the industry average in AMP6, deliver further improvements going forward. performance to date coupled with continued positioning us as one of the leading water and We have delivered a reliable water service targeted investment, alongside our Systems wastewater companies. This year, we have and although we inevitably experience some Thinking and innovative approach to the way again gone from strength to strength in our water no-supply incidents, our Systems we operate, gives us confidence that we will customer satisfaction performance, achieving Thinking approach is helping us to reduce achieve a cumulative net ODI outcome over our highest ever scores against Ofwat’s the frequency and severity of such events the 2015-20 regulatory period of around qualitative Service Incentive Mechanism and respond to them in a way that minimises £30 million. (SIM) measure and finishing fourth out of the customer impact. Our main areas of reward to date have water and wastewater companies for the year During 2018/19, the UK experienced come through our performance in the areas overall. This performance is mirrored in the unprecedented extremes of weather of private sewers, pollution and leakage. number of complaints that we receive. Since beginning with a deep freeze and rapid Our main penalty has been on reliable 2015/16 we have seen a 30 per cent reduction thaw followed by the driest summer for water service and water quality service, in complaints and a 64 per cent reduction in our region since modern records began. although particularly pleasing this year was repeat complaints. Thanks to interventions that we were able a significantly improved performance against During AMP6, we have developed new to make, alongside the support of customers our reliable water service index where we are services that increase the speed and quality and regulators, we were able to minimise seeing the benefit of our targeted investment of the customer service we provide. These the impact of these events and maintain and Systems Thinking approach. include a new system that enables us to unrestricted service to customers. › Service incentive mechanism (SIM) proactively keep customers informed of events Reducing sewer flooding – we have continued on our network, increasing the hours we are We have previously stated our target was to invest heavily in schemes, projects and available for customers to contact us, and to move towards the upper quartile in the programmes of work designed to reduce increasing the channels by which they can medium term, and we are particularly pleased the risk of flooding of customers’ homes, contact us so they do not always need to call. with the progress we have made over AMP6, including incidence-based targeting on areas ending the four-year period to 2018/19 We have driven an increase in digital more likely to experience flooding and defect in fourth place overall for the water and engagement through a new customer-centric identification through CCTV sewer surveys wastewater companies. This means we should website, the introduction of an easy-to-use and other innovative technologies. Our plan be eligible for a reward of around £16 million mobile app and a substantially enhanced for the 2015–20 regulatory period includes a assuming that Ofwat applies the same social media presence on commonly used target of reducing sewer flooding incidents methodology as at PR14. platforms such as Facebook and Twitter. In by over 40 per cent, in line with customers’ support of our most vulnerable customers we affordability preferences, and we are making Qualitative: Ofwat has undertaken the four launched our Priority Services proposition, good progress. We achieved our best ever five- surveys for 2018/19 and we have improved setting up dedicated teams for those that year performance on our repeat flooding and our score to 4.53 points, compared with 4.49 need it most. In January, we hosted the second internal operational flooding measures. points in 2017/18, putting us in fifth position North West Affordability Summit, engaging for the year out of the 18 water companies, Our wastewater network will continue to with customers and key stakeholders. and fourth position out of the 11 companies benefit from significant investment going providing both water and wastewater services. We have received external recognition for the forward and we will continue to seek to work In particular, customers scored us highly for improvements made in the quality of service in collaboration with other external flood our billing services. we deliver to customers. We are the first water authorities and associated partners to address company to receive Shaw Trust Accessibility the widespread flooding events that hit our Quantitative: the quantitative assessment status for our website, we received the Service region, as we aim to help mitigate the effect of measures customer contacts, and Mark with Distinction from the Institute of changing weather patterns likely to result from performance is assessed on both an absolute Customer Service and we won three gold climate change. and relative basis. WhilE relative performance awards at the UK Complaint Handling Awards. can only be assessed in full following the Key performance indicators: end of each financial year when the other Leading North West service provider – we are › Outcome delivery incentives (ODIs) companies publish their respective results, on consistently ranked third out of ten leading absolute performance for 2018/19, our score We have 19 wholesale financial ODIs, of organisations in the North West, through of 70 points represents a further improvement which ten provide the potential to earn a an independent brand tracker survey which on our 2017/18 score of 71 points. For the first reward in the 2015–20 regulatory period. In is undertaken three times per year. This nine months of the year, of the companies that 2018/19 we have delivered our best annual covers key attributes such as reputation, share data on quantitative SIM, we were first performance against ODIs resulting in a net trustworthiness and customer service and in of the seven water and wastewater companies reward of £19.2 million, reflecting great the most recent survey, we have been ranked and fourth of the 11 water companies. operational performance across the board. 56 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 56 31/05/2019 18:50:04 Job Number 31 May 2019 6:47 pm Proof Number Business insight Working together to support those in need
North West Hardship Hub gives advisers onestopshop for local assistance schemes
With recent reports showing household debt is strive to improve our services in order to help those pushing millions of UK families into the red, we who need it most. “A valuable new met with organisations who deal with customers in Some customers need additional support at times. challenging circumstances to discuss what more can resource for the This could be due to age, ill health, disability, mental be done to support those struggling financially. We health problems, financial worries or language money advice believe that a collaborative regional partnership can go Strategic report barriers. Our Priority Services scheme allows us to way beyond what any one organisation can do alone. respond quickly and considerately to their particular community In 2018 and 2019, we held Affordability Summits on needs. Priority Services free benefits are available to ‘Blue Monday’ in January, which is typically the most all eligible customers living in the North West. in our region financially depressing calendar date of the year. These At present, Priority Services are provided by both events were attended by over 100 representatives from and the first of water and energy companies across the UK, and from across the North West, including debt advice charities, April 2020 a joint water and energy sector project food banks, credit unions and housing associations. its kind in the will align all existing Priority Services arrangements At this year ’s Affordability Summit, which was held in the two sectors so that customers benefit from country” in Manchester and opened by the Mayor of Greater consistent support without needing to register with Manchester, we launched the North West financial each of their utility providers separately. Hardship Hub. This is a valuable new resource for the In 2018 we became the first water company to share money advice community in our region and the first consented Priority Services data with the energy of its kind in the country. sector, and successfully completed a pilot with The Hardship Hub is simple to use and has been Electricity North West that tested single registration, developed in conjunction with experts including as well as the legal and operational principles that Citizens Advice and housing associations. It has been support the joint UK project. This successful trial dubbed a ‘TripAdvisor’ for financial advice, and will continue up to commencement of the joint UK advisers can use it to search for all the available help project in 2020. in their local area and can also rate schemes and recommend them to colleagues. Read more about all the financial assistance we provide at unitedutilities.com/difficulty-paying-bill Providing support for customers in vulnerable circumstances is more important than ever and, as a responsible business, we have a duty to continually
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United Utilities Strategic.indd 57 31/05/2019 18:50:05 Job Number 31 May 2019 6:47 pm Proof Number Our performance in 2018/19 Operational performance
Pensions – United Utilities has taken Key performance indicators: At the lowest sustainable cost progressive steps to de-risk its pension › Total expenditure (totex) performance provision. The group had an IFRS retirement Power and chemicals – our asset optimisation benefit surplus of £484 million as at 31 March Our totex allowance for the 2015–2020 programme continues to provide the benefits 2019, compared with a surplus of £344 million regulatory period represented a significant of increased and more effective use of as at 31 March 2018. Further details of the challenge compared with the costs we operational site management to optimise group’s pension provision are provided in the originally submitted as part of our business power and chemical use and the development pensions section on pages 197 to 201. plan. We have not only closed the gap of more combined heat and power assets to to our allowance but we are now also From 1 April 2018, the majority of active Strategic report generate renewable energy. In addition to the confident of outperforming that allowance by members in the defined benefit sections of electricity we generate from bioresources, £100 million. This has been achieved through the United Utilities Pension Scheme (UUPS) we are developing other renewable energy a combination of driving efficiency into our transitioned to a hybrid section comprising a facilities. This is primarily in the area of solar, capital programme and also through Systems capped defined benefit element and a top-up where we have invested £59 million in the first Thinking. defined contribution component. Pension four years of the 2015–20 regulatory period. benefits under the defined benefit element › Financing outperformance We have also substantially locked in our power of the new UUPS hybrid section that became The low cost of debt we have already locked commodity costs across 2015–20, providing effective for pensionable service from 1 April in places United Utilities in a strong position greater cost certainty for the regulatory 2018 are linked to CPI rather than RPI. to deliver significant outperformance for the period. 2015–20 regulatory period compared with the Capital delivery and regulatory commitments Proactive network management – through industry allowed cost. – we are strongly focused on delivering our our Systems Thinking approach we are commitments efficiently and on time, and › Household retail cost to serve more proactive in the management of our have a robust commercial capital delivery assets and networks. We have improved our We continue to deliver against a challenging framework in place. Across the 2015–20 predictive modelling and forecasting through benchmark set for AMP6. Our target is regulatory period, we are working with a better use of sensors in our network and to minimise our costs compared with our single engineering partner and four design better analysis of other data, such as weather revenue allowance and we have delivered a and construction partners to deliver our forecasting, enabling us to address more asset good performance in 2018/19, outperforming regulatory capital investment programme and network problems before they affect this year’s revenue allowance (including of around £3.9 billion. We are involving our customers. This reduces the level of reactive margin) by around £5 million. By 2020, we partners much earlier in project definition and work and improves our performance and are forecasting a cost to serve in line with packaging projects by type, geography and efficiency. the regulatory cost allowance and we are timing in order to deliver efficiencies. Projects confident that our cost plans will move us Debt collection – our region suffers from high are allocated on an incentive or competitive towards upper quartile performance in AMP7. levels of income deprivation and we offer basis leading to our partners presenting a wide-ranging schemes to help customers range of solutions, innovations and pricing. struggling to pay. We now have over 100,000 We have accelerated our 2015–20 investment customers on affordability schemes, almost programme in order to improve services for double the commitment we made at the customers and deliver early operational and start of AMP6. Notwithstanding our industry- environmental benefits. Regulatory capital leading debt management processes, investment in 2018/19 was £821 million. deprivation remains the principal driver of our This includes £165 million of underlying higher than average bad debt and we expect IRE, £40 million additional capex and IRE this to continue to be a challenging area for us. associated with the dry weather in the Reflecting our ongoing focus on bad debt summer of 2018 and £60 million of additional through initiatives such as our affordability investment made available through sharing schemes, our household bad debt expense has our net outperformance. This, combined with reduced to 2.1 per cent of revenue from 2.3 £2.4 billion invested in the first three years per cent last year. of the regulatory period, brings our total spend to around £3.2 billion of our expected £3.9 billion capital investment across the 2015–20 regulatory period. We are also driving more effective and efficient delivery of our capital programme and applying a tougher measurement mechanism to our Time: Cost: Quality index (TCQi) score for this regulatory period. Despite this tougher approach, our TCQi score remains high at 95 per cent, representing very good performance.
58 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 58 31/05/2019 18:50:05 Job Number 31 May 2019 6:47 pm Proof Number Business insight Pioneering UV LED treatment technology
Gamechanging innovation for water and wastewater treatment
We have been working with Typhon Treatment manner possible. The aim of the trial was to prove Systems on a game-changing innovation for water whether energy-efficient LED bulbs could be used for “Our and wastewater treatment since 2015. In the last UV treatment and whether these would outperform year we have supported their technology to develop traditional solutions. collaboration has it at a faster pace and move it out of the laboratory Our work with Typhon enabled them to take a theory helped prove and into a commercial product. Strategic report and apply it across two trials over a 12-month period, Typhon, a start-up business based in Penrith, has which is significantly faster than traditional water its viability for developed a UV LED water treatment reactor sector technology development. The trials proved the that significantly reduces the power and chemical viability of the UV LED rig for advanced oxidation to the benefit of consumption of traditional water treatment remove taste and smell compounds as an alternative techniques – non-LED UV light disinfection and to conventional treatment processes. the global water activated carbon – which have been the mainstay of Now proven for water treatment, we are working water and wastewater treatment processes for the industry” hard to find the best site for our first full-scale last 20 years. implementation – and encouraged to work with UV light is used to protect the water we use Typhon to further develop and apply this technology from dangerous microscopic organisms and into wastewater applications. The Typhon system hazardous chemical pollutants such as pesticides or uses smart computing to optimise the system locally. pharmaceuticals. Activated carbon is used for issues Our Systems Thinking vision is to have all our Typhon that can lead to taste and smell problems in water installations remotely monitored, controlled and treatment. While both technologies are reliable optimised. and scalable, they are difficult to control and can be Working together, United Utilities and Typhon extremely costly for customers, as they have high accelerated the technological development of LED energy needs and carbon emissions. UV systems for municipal scale applications and We started working with Typhon to accelerate the delivered the world’s first validated LED UV system. development of the technology by building and We firmly believe in this technology and our providing access to a test facility on a live operational collaboration has helped prove its viability for the site, giving them access to our expert asset benefit of the global water industry. management, engineering, scientific and innovation skills and supplying equipment and services to allow the field testing to be carried out in the most efficient
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United Utilities Strategic.indd 59 31/05/2019 18:50:05 Job Number 31 May 2019 6:47 pm Proof Number Our performance in 2018/19 Operational performance
Carbon footprint – by 2020, we aim to reduce Communities – we continue to support In a responsible manner our carbon footprint by 50 per cent compared partnerships, both financially and in terms with a 2005/06 baseline. This year our carbon of employee time through volunteering with Behaving responsibly is fundamental to the footprint has reduced to 167,856 tonnes of other organisations across the North West. manner in which we undertake our business, carbon dioxide equivalent, a reduction of 71 Our approach to integrated catchments helps and the group has for many years included per cent since 2005/06 and we have therefore to tackle water quality issues in lakes, rivers corporate responsibility factors in its strategic achieved our emissions target early. This and coastal waters across the North West, decision-making. Our environmental, social has been as a result of purchasing certified and our LoveMyBeach contribution includes and governance performance across a broad renewable electricity, with over 95 per cent of employees volunteering to help to keep our
Strategic report front has received external recognition. the electricity we use having zero emissions. region’s beaches tidy. We continue to support Earlier in the 2018/19 financial year, United local communities through contributions In addition, we generated the equivalent of Utilities retained a World Class rating in the and schemes such as providing debt advisory 173 gigawatt hours, an increase of 6 gigawatt Dow Jones Sustainability Index for the 11th services, and our community partnership with hours on the previous year. This illustrates consecutive year, again achieving industry- Youth Focus North West has addressed one good progress in our energy strategy to use leading performance status in the multi-utility/ of our region’s major issues of affordability less and generate more renewable energy. water sector. We look at our performance through co-creating the ‘managing your across a range of other Environmental, Social Employees – we continue to work hard money’ training module. and Governance (ESG) indices, where we also to engage all of our employees in the Key performance indicators: perform well. transformation of the group’s performance. Employee engagement was at 81 per cent › Leakage Leakage – we have continued our strong this year, higher than the UK norm. We operational focus on leakage, alongside our Although leakage is included within our remain focused on maintaining high levels of network resilience improvements and a outcome delivery incentives, we intend to employee engagement. range of initiatives such as active pressure continue publishing our leakage position management, satellite technology and the We have been successful in attracting and separately, with it being an important measure UK’s first leakage sniffer dogs, specially trained retaining people and have continued with from a corporate responsibility perspective. to pinpoint the exact location of leaks. our apprentice and graduate programmes for In 2018/19 we have again met our regulatory 2018/19. We now have a total of 39 graduates leakage target of 463 megalitres per day. One of the consequences of the extreme and 116 apprentices across the business. weather events that we faced during 2018/19 › Environmental performance Our investment in recruiting graduates and was an increased level of pipe movements On the Environment Agency’s latest annual apprentices is already benefiting the company, in the ground. We significantly increased our assessment, published in July 2018, we were with 214 employees who have previously been leakage detection and repair efforts in order awarded Industry Leading Company status on either the graduate or apprentice scheme to combat the higher levels of background across the range of operational metrics for the having secured permanent roles across our leakage that resulted from this. This has third year running. This indicates we were in business. delivered good performance against our joint first position among the nine water and leakage targets in what has been a very Over the last year, we have continued wastewater companies assessed, and aligns challenging year. our sustained focus on health, safety and with our medium-term goal of being a first wellbeing. We’ve started our new campaign, quartile company on a consistent basis. Additionally, we continue to encourage Home Safe and Well, which includes a customers to save water through water › Corporate responsibility significant focus on employee behaviour and efficiency programmes as this not only enables organisational culture in relation to Health and United Utilities has a strong focus on operating them to help preserve this precious resource Wellbeing, Personal Safety and Process Safety. in a responsible manner and is the only UK but can also save money on their water bill. In 2018/19, we retained our Gold award status water company to have a World Class rating We are particularly grateful for customer with the Royal Society for the Prevention of as measured by the Dow Jones Sustainability support in protecting our water resources Accidents for the seventh year and our status Index. In 2018/19, United Utilities retained its through the dry weather period. under the UK workplace wellbeing charter. World Class rating for the 11th consecutive Environmental performance – this is a high We have also won REBA awards for our work year. priority for United Utilities and we were on Mental and Physical Health and been delighted to have retained our Industry recognised by Britain’s Healthiest Workplace Leading Company status in the Environment for all the improvements we have made over Agency’s latest performance metrics, as the last year. described in the KPIs section below. This is a Our employee accident frequency rate for result of our approach to managing our assets 2018/19 increased to 0.152 accidents per in an integrated way to minimise the number 100,000 hours, compared with a rate of of environmental incidents. 0.101 in 2017/18. For the same period, our contractor accident frequency rate remained the same at 0.092 per 100,000 hours. While it is disappointing that these accident frequency rates have not improved since last year, they still demonstrate an improved performance against our historical average. We recognise that there is always more to do, and health, safety and wellbeing will continue to be a significant area of focus as we strive to ensure that everyone gets home safe and well.
60 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 60 31/05/2019 18:50:05 Job Number 31 May 2019 6:47 pm Proof Number Business insight Coordinating our efforts to fight moorland fires
Joining forces with regional stakeholders to limit damage to affected areas
In June 2018 there was extensive media coverage but the longer-term recovery and resilience of these of two large moorland fires in the hills above areas will take time to secure and achieve. “A wide range Manchester, showing images of the fires, the The visible surface damage is only part of the story. ecological devastation they caused, and the brave of stakeholders Many of the benefits we all derive from these special and exhausted firefighters tackling the blaze. habitats will take longer to re-establish. Deep burns have an interest Strategic report Between them, the fires at Stalybridge and Winter across areas of peat caused serious releases of in the recovery Hill covered a huge area – the equivalent of 2,300 sequestered carbon. The amount of CO2 released is football pitches. Over half of the affected area is estimated at over 26,000 tonnes, with an estimated designated as a Site of Special Scientific Interest. value of more than £1.5 million. To restore this of the moorland” Both sites are also popular recreational spots for local peatland to a point where it is again actively locking communities, and much of the area is catchment up carbon will take time, effort and investment. land for drinking water supplies. A wide range of stakeholders have an interest in the The response during the fires was impressive with recovery of the moorland. Government funding has emergency services, local authorities, landowners been made available to help the restoration and and tenants all working together to limit the damage efforts to make the moorland more resilient. as best they could. Our own land management, The immediate response to the wildfires and the emergency response and grounds maintenance subsequent recovery have required unprecedented teams, along with three helicopters we hired, added levels of partnership working and will continue to to the firefighting effort being coordinated by Greater need well-coordinated and consistent management Manchester Fire and Rescue Service. and communications for the foreseeable future. The fires caused significant damage to surface We hope that restoration of ‘blanket bog’ can be vegetation and to the infrastructure used to protect achieved so that once again it can provide the and manage the area, including fences and access wide range of benefits to all stakeholders. Just as routes. The aftermath was distressing for the important is making sure any activities improve the organisations whose efforts to restore these valuable resilience of this wonderful habitat. landscapes had been left in ashes. Nature itself can be quite resilient, as the green shoots present a few weeks after the fires showed,
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United Utilities Strategic.indd 61 31/05/2019 18:50:05 Job Number 31 May 2019 6:47 pm Proof Number Our performance in 2018/19 Financial performance
United Utilities delivered a strong set of Revenue financial results for the year ended 31 March 2019. 2018/19 £1,819m Revenue 61% Revenue was up £83 million, at £1,819 million, RCV gearing(2) (%)
largely reflecting our allowed regulatory 2017/182017/18 £1,736m revenue changes. As a result of Ofwat’s annual wholesale (1) Strategic report Underlying operating profit 41.28p revenue forecasting incentive mechanism Total dividend per (WRFIM), we have reduced revenue by share ordinary share £8 million in 2018/19 and will reduce revenue by a further £14 million in 2019/20 (out-turn 2018/19 £684.8m (pence) prices). This consists of two components; firstly reflecting actual volumes being 2017/18 £645.1m (1) Underlying profit measures have higher than our original assumptions during been provided to give a more AMP6, and secondly reductions relating representative view of business to the 2014/15 'AMP5 blind year', which performance and are defined in the are £4 million in 2018/19 and £5 million in Reported operating profit underlying profit measure tables on 2019/20. pages 66 and 67. (2) Regulatory capital value (RCV) Operating profit 2018/19 £634.9m gearing calculated as group net Underlying operating profit at £685 million debt/United Utilities Water Limited was £40 million higher than last year. This shadow RCV (out-turn prices). 2017/18 £636.4m reflects our allowed regulatory revenue changes, partly offset by an £18 million increase in IRE and a £16 million increase in depreciation. The remaining cost base has increased by £9 million as a result of small increases in employee costs, materials, bad The lower RPI inflation charge compared with Tax debts and property rates, partly offset by a last year contributed to the group’s average In addition to corporation tax, the group credit resulting from the settlement of an underlying interest rate of 3.3 per cent being pays significant other contributions to the historical commercial claim. lower than the rate of 4.2 per cent for the year public finances on its own behalf as well as ended 31 March 2018. The average underlying collecting and paying further amounts for its Reported operating profit decreased by interest rate represents the underlying net 5,000 strong workforce. The total payments £1 million, to £635 million, reflecting the finance expense divided by average debt. for 2018/19 were around £241 million and increase in underlying operating profit being included business rates, employment taxes, more than offset by an increase in adjusted Reported net finance expense of £205 million environmental taxes and other regulatory items. Adjusted items for 2018/19 included was broadly in line with the £207 million service fees such as water abstraction charges £36 million of costs associated with the dry expense in 2017/18, principally reflecting a as well as corporation tax. weather of 2018, £7 million associated with decrease in the fair value gains on debt and the equalisation of pension benefits between derivative instruments, from a £47 million In 2018/19, we paid corporation tax of males and females in relation to Guaranteed gain in 2017/18 to a £9 million gain in 2018/19 £28 million, which represents an effective cash Minimum Pension (GMP) benefits, and offset by the £39 million decrease in the tax rate on underlying profits of 6 per cent, £7 million of restructuring costs. Adjusted indexation charge in the year. which is 13 per cent lower than the headline items in the prior year amounted to £9 million, The group has fixed the interest rates on most rate of corporation tax of 19 per cent. We have of which £6 million related to restructuring of its non-index-linked debt for the 2015–20 expressed the effective cash tax rate in terms costs. regulatory period. of underlying profits as this measure excludes fair value movements on debt and derivative Investment income and Profit before tax instruments and thereby enables a medium- finance expense Underlying profit before tax was £460 million, term cash tax rate forecast. The underlying net finance expense of £90 million higher than last year, primarily Our normal effective cash tax rate on £231 million was £46 million lower than last reflecting the £40 million increase in underlying profits is around 11 per cent with year, mainly due to the impact of lower RPI underlying operating profit and the £46 million the key reconciling items to the headline rate inflation on the group’s index-linked debt. decrease in underlying net finance expense. of corporation tax (currently at 19 per cent) This underlying measure excludes the adjusted Interest of £84 million on non-index-linked being allowable tax deduction on capital items, as outlined in the underlying profit investment and pension payments, these debt was £8 million lower than last year, due measures table on pages 66 and 67. to the lower rates locked in, including the being deductions put in place by successive full year impact of re-couponing a portion of Reported profit before tax increased by governments to encourage such investment the group's regulatory swap portfolio in the £4 million to £436 million reflecting the and thus reflecting responsible corporate prior year. The indexation of principal on £1 million reduction in reported operating behaviour in relation to taxation. index-linked debt amounted to a net charge profit more than offset by a £1 million in the income statement of £98 million, reduction in reported net finance expense compared with a net charge of £138 million including fair value movements and a last year. As at 31 March 2019, the group had £4 million increase in our share of profits from approximately £3.8 billion of index-linked debt joint ventures. at an average real rate of 1.3 per cent.
62 United Utilities Group PLC Annual Report and Financial Statements for the year ended 31 March 2019
United Utilities Strategic.indd 62 31/05/2019 18:50:06 Job Number 31 May 2019 6:47 pm Proof Number RPI between November 2016 and November Summary of net debt movement 2017).