UNITED UTILITIES GROUP PLC GROUP UTILITIES UNITED United Utilities Group PLC ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2019 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 United Utilities Strategic.indd 4 31/05/2019 18:48:34 ww Contents Chairman and Chief Executive Officer’s review 0 4 2018/19 highlights 0 8 Strategic report What we do 1 2 Our purpose and strategy 1 5 Our marketplace 1 6 Our competitive advantages 1 7 Our economic regulation 1 8 Our business plan submission for 2020–25 1 9 Our business model 2 4 How we create value for stakeholders 3 9 Our planning horizons 4 8 How we measure our performance 5 1 Our performance in 2018/19 5 6 Our risk management 6 8 Governance Corporate governance report Board of directors 8 0 Letter from the Chairman 8 4 Nomination committee report 9 4 Audit committee report 1 0 3 Corporate responsibility committee report 1 1 2 Remuneration committee report 1 1 6 Tax policies and objectives 1 4 4 Directors’ report 1 4 5 Non-financial information statement 1 5 1 s172(1) statement 1 5 2 Statement of directors’ responsibilities 1 5 3 Financial statements Independent auditor’s report to the members of United Utilities Group PLC only 1 5 6 Consolidated income statement 1 6 2 Consolidated statement of comprehensive income 1 6 2 Consolidated and company statements of financial position 1 6 3 Consolidated statement of changes in equity 1 6 4 Company statement of changes in equity 1 6 5 Consolidated and company statements of cash flows 1 6 6 Guide to detailed financial statements disclosures 1 6 7 Accounting policies 1 6 8 Notes to the financial statements 1 7 2 Notes to the financial statements – appendices 1 8 7 Five-year summary – unaudited 2 0 9 Shareholder information 2 1 0 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. Job Number 31 May 2019 6:47 pm Proof Number United Utilities Strategic.indd 5 31/05/2019 18:48:35 ww 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 long-term 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 <IR> Framework decisions regarding their participation – for example, whether to buy, published by the International Integrated Reporting Council in sell or hold our shares or bonds, whether to engage with management December 2013. The board, which is responsible for the integrity of on issues, and how to vote their shares. We have included information this report, has considered the preparation and presentation of this that we believe is material to these decisions, which is presented in a report and concluded that it has been prepared and presented in way that we believe is fair, balanced and understandable. accordance with the Framework. We engage with – and recognise that this report will be read by – a wide variety of other stakeholders including customers, suppliers, employees, analysts, regulators, community bodies, politicians, non-governmental organisations, and devolved authorities. Where we believe that a topic is material to a large number of them, Dr John McAdam Steve Mogford which is assessed in part through a matrix approach to stakeholder Chairman Chief Executive Officer materiality as set out on page 45, we either include it in this report or refer the reader to other reports and information (such as our regulatory reports, customer communications, or corporate responsibility web pages). We believe this approach meets the requirements of company law, the UK Corporate Governance Code, IFRS and the International <IR> Framework, and that we go beyond those requirements where we feel it is particularly helpful to do so and where that can be done without making the report unnecessarily lengthy or difficult to read. 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 fast-track 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 customer-focused approach and a drive for continuous improvement. We were the only company to retain self-assurance 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 Barrow-in 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 At the lowest sustainable cost Manchester 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 Stock Code: UU. unitedutilities.com/corporate 01 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.