United Utilities Annual Report and Financial Statements for the Year Ended 31 March 2014
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UNITED UTILITIES GROUP PLC h Annual Report and Financial Statements e lp w smoo for the year ended 31 March 2014 ing life flo thly United Utilities at a glance United Utilities Group PLC is the UK’s largest listed water company. Through its Carlisle subsidiary, United Utilities Water PLC, it manages the regulated water and Workington Whitehaven wastewater network in the North West of England, providing services Kendal to around seven million people and Barrow-in-Furness businesses. The vast majority of the group’s assets Lancaster Burnley Where we Blackpool and profit are derived Preston from its regulated operate Blackburn UK water business. Bolton Liverpool Manchester Stockport Warrington Chester Crewe Key facts • We look after >55,000 hectares of catchment land, helping to protect the quality of our water resources • We manage around 120,000 km of water pipes and sewers to help our customers’ lives flow smoothly • Our 570 wastewater treatment works help to ensure that the water returned to the environment meets all UK and European legislation • Our 93 water treatment works deliver around 1,700 million litres of water to 3.2 million customers every day • We own 179 reservoirs, ensuring our customers can enjoy a resilient water supply • We’re investing >£3.5 billion in 2010–2015 which delivers significant customer and environmental benefits and grows the regulatory capital value Strategic Report United Utilities at a glance Opposite Reasons to invest 01 Reasons to invest Chairman’s and Chief Executive Officer’s statement 04 • We have a clear vision to be a leading North West service provider Our vision and strategy 10 Our highlights 2013/14 13 and one of the best UK water and wastewater companies How we create value 14 • Our revenue and asset base is linked to RPI inflation Our approach to doing business 18 Our operating environment 20 • Our management team has extensive operational and regulatory Our journey so far 28 Key performance indicators 30 experience Our performance 32 Our business plan 2015–20 46 • We’ve made significant improvements in customer service and Principal risks and uncertainties 48 operational performance, with more to come • Externally recognised responsible business credentials Governance Letter from the Chairman 54 • We’re delivering customer and environmental benefits through Board of directors 56 substantial capital investment, which drives long-term growth in Corporate governance report 58 Nomination committee 62 the regulatory capital value Audit committee 68 Corporate responsibility • We’re committed to transparency on regulatory outperformance committee 76 Annual statement from the and we’re ahead of schedule in delivering our targets remuneration committee chair 78 • We have a robust capital structure: stable A3 credit rating Directors’ remuneration policy 80 Annual report on remuneration 87 • Our dividend policy targets a real growth rate of RPI inflation Directors’ report 99 Statement of directors’ +2 per cent per annum to at least 2015 responsibilities 105 • Total dividend per share of 36.04p for 2013/14 Financial Statements Independent auditor’s report 108 Consolidated income statement 112 Consolidated statement of comprehensive income 113 Consolidated and company statements of financial position 114 BBC documentary goes behind the scenes with our employees Consolidated statement of Earlier this year, United Utilities was the focus of a six-part BBC2 documentary changes in equity 115 entitled ‘Watermen: A Dirty Business’. Throughout this report, we feature Company statement of photographs of some of the many dedicated employees who took part in this changes in equity 116 Consolidated and company documentary - including wastewater customer service technicians Vicky Thorpe statements of cash flows 117 and Barbara McAuley, who are featured on the cover of this year’s report. As well Accounting policies 118 as giving viewers a better understanding of what goes on behind the scenes of Notes to the financial statements 121 our business, the programme has helped to raise awareness of some of the key Shareholder information issues being faced by the water industry. Shareholder information 162 Important Information Look out for these icons Cautionary statement: The Annual Report and Financial Statements (the Annual Report) contains certain forward-looking statements with respect to the Read more online at operations, performance and financial condition of the group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements corporate.unitedutilities.com reflect knowledge and information available at the date of preparation of this Annual Report and the company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast. Certain regulatory Read more in performance data contained in this Annual Report is subject to regulatory audit. Strategic Report Terms used in this report: Unless expressly stated otherwise, the ‘group’, ‘United Utilities’ , ‘UU’ or ‘the company’ means United Utilities Group PLC and its subsidiary Read more in undertakings; the ‘regulated business’, ‘regulated activities’ or ‘UUW’ means the licensed water and wastewater activities undertaken by United Utilities Water PLC in the North West of England. Governance Read more in Financial statements www.unitedutilities.com Stock Code: UU. 01 Strategic report Detailing the past year’s performance and how it has been achieved alongside our future vision and strategy, the Strategic Report gives a comprehensive picture of where the business is and where it is going. PHOTOGRAPH: Water business analyst Andrew Bent, who helps to plan and oversee some of our water investment projects. Chairman’s and Chief Executive Officer’s statement Delivering benefits for customers and shareholders Capital investment 2013-2014 £836m See further information online Read more at corporate.unitedutilities.com See further information Read more in our Governance section on pages 52–105 Read more about our Performance on pages 32–45 United Utilities Group PLC 04 Annual Report and Financial Statements 2014 Strategic report > Business overview > Chairman’s and Chief Executive Officer’s statement Even so, we don’t always get it right, Around £40 million of our financing and customer satisfaction will remain outperformance is supporting our an area of focus for us – reducing private sewer network and we have service failure benefits both customers committed a £75 million cash tax and shareholders. refund from HMRC to assist customers struggling to return to regular Targeted investment in our people, report Strategic payment. We believe that this reflects assets and processes is delivering a responsible approach to sharing the results and we are ahead of Dr John McAdam Steve Mogford benefits of outperformance between schedule in delivering our regulatory Chairman Chief Executive Officer customers and shareholders. outperformance targets. Performance The North West remains a region Asset serviceability has again been with the highest proportion of We are pleased to have stable or improving over the last twelve disadvantaged households in England delivered another year of months and we have met our leakage and reducing customer indebtedness target for the eighth consecutive year. good performance in what continues to be a major challenge Water quality over the year reflects our remains a difficult economic for us. Our collection teams have best performance for many years. The worked hard in another difficult year Governance environment for customers Environment Agency assessed us as to hold bad debt levels at 2.2 per an upper quartile company in 2012/13, in the North West of cent of revenue, with over 30,000 and we have made more progress over England. Underpinning all we customers taking advantage of our the last twelve months. do is our vision of becoming many assistance schemes. Containing a leading North West service Much of our capital programme of over bad debt at this level will remain a £3.5 billion for the period 2010–15 challenge as benefit reforms continue provider and one of the best supports renewal and upgrade of our to roll out across our region. UK water and wastewater asset base to maintain serviceability companies and we have but a significant proportion also made progress against this delivers our capability to meet new environmental standards. We objective on a broad front. delivered our largest annual capital “ Our good performance programme for a decade, investing in this five-year High levels of customer satisfaction £836 million – £49 million more than regulatory period has remain our core objective. We have the previous year – in areas that Financial statements again delivered a year of improvement included contributions to river and created the ability for as measured by our regulator, Ofwat’s, bathing water quality and inspecting us to reinvest.” Service Incentive Mechanism (SIM). the Haweswater aqueduct for the This places us as one of the most first time since it was built in the mid improved companies for customer 1900s. We measure the effectiveness satisfaction over the last three years. of our investment using our Time, Cost We were ranked and Quality index, TCQi, and we scored Whilst comparison with other 98 per cent for the year – ahead of our water and sewerage companies is targets and a significant improvement 3rd an important benchmark for us, we on our performance of three years ago. recognise that customer expectations out of 10 leading North are often set by standards of service Our good performance in this five- West service providers, delivered by other companies year regulatory period, AMP5, has operating in the North West. So created the ability for us to re-invest. behind only John Lewis we conduct a brand tracker survey We are investing around £200 million and Marks & Spencer Shareholder information and we are happy to find ourselves of capital savings into projects which consistently ranked third out of ten improve service to customers or leading companies, just behind the benefit the environment.