united-utilities-annual-report-2015

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UNITED UTILITIES GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2015Stock Code: UU.unitedutilities.comChairman’s and Chief ExecutiveOfficer’s statementPictured: Our new £1.5 million purpose-builttechnical training centre in Bolton is part ofour training and apprenticeship programmeto source the next generation of waterengineers. Facilities include mechanical andelectrical workshops, a laboratory and amock sewer system, with around 70 traineesattending each day.Sharing successWe have sought to share the benefitsof our improvements over the lastfive years between customers, theenvironment and shareholders.Around £200 million of capitalsavings has been reinvested inprojects that deliver benefits tocustomers or the environment.We have also used a portion of ourfinancing outperformance to supportour private sewer network.We received a cash tax refundfrom HMRC in 2013/14 and wehave committed to share this withcustomers. We provided a specialcustomer discount in 2014/15of around £20 million and havecommitted further support to helpcustomers struggling to pay theirbills.Our customers are set to benefitfrom both continued significantlevels of investment and belowinflation growth in averagehousehold bills for the decade to2020.Price ReviewThe 2015–20 Price Reviewrepresented a significant departurefrom previous reviews and proved to bea demanding period for both companiesand regulators. Building on some of thechanges introduced in the Water Act2014, the Price Review introduced:• significantly enhanced customerconsultation on the content andpricing of companies’ businessplans;• a new pricing structure involvingfour price caps: business retail,domestic retail, wholesale water andwholesale wastewater;• new outcome delivery incentives(ODIs) providing penalties orrewards for company performancein aspects of its performanceidentified by customers as apriority;• a new SIM measure providingcontinuing focus on customersatisfaction; and• preparation for full opening ofthe retail market for businesscustomers.In formulating our 2015–20 businessplan, we sought the views of over27,000 customers, as well as theviews of our regulators and otherstakeholders, to shape a plan thatstrikes the right balance for all ourstakeholders. We worked closelywith our regulators over the lastyear and our final plan resubmissionin October 2014 took account ofOfwat’s upper-quartile efficiencytargets across many aspects of ouroperations. Ofwat’s final determinationin December represented a furtherefficiency challenge of £188 million,in the context of a wholesale totalexpenditure (totex) allowance of £5.3billion. Whilst challenging to deliver, thefinal determination has not requiredus to revisit the key components of ourbusiness plan.In the final analysis, the boardconsidered Ofwat’s proposal tough but,on balance, acceptable and confirmedits acceptance in January 2015.Attractive to shareholdersWe set out to deliver improvedperformance for customers andshareholders over the last five-yearperiod. We delivered for both sets ofstakeholders with improved customersatisfaction, better underlyingoperational performance and effectivecapital programme management.Revenue increased by 1.9 per cent to£1.72 billion and underlying operatingprofit was up 4.7 per cent to £664million. Underlying earnings per shareincreased by 16 per cent to 51.9 pence.We exceeded our outperformancetargets for the five years, supportingour dividend growth target throughoutthe period and building dividendcover as we approached the changesintroduced in the 2015–20 Price Review.The board is proposing a final dividend of25.14 pence per ordinary share, makinga total of 37.70 pence per ordinaryshare for the 2014/15 financial year.08
UNITED UTILITIES GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2015Stock Code: UU.unitedutilities.comThis represents an increase of 4.6per cent compared with last year. Thefinal dividend is expected to be paid toshareholders on 3 August 2015.In accepting our final determination,the board approved a policy ofmaintaining the existing level ofdividend and targeting a growth rate ofat least RPI inflation each year throughto 2020.To support the retention of a robustcapital structure, we aim to maintainefficient access to debt capitalmarkets throughout the economiccycle. The board believes that it isappropriate to keep gearing, measuredas net debt to regulatory capital value,within our existing target range of 55to 65 per cent. We also aim to maintain,as a minimum, our existing creditratings of A3 with Moody’s and BBB+with Standard & Poor’s for UnitedUtilities Water Limited.2015–20 performanceWe are focused on continuousimprovement and our new operatingmodel for our wholesale business isemploying technology and new workprocesses to deliver enhanced customersatisfaction and operational efficiency.Measurement of our progress acrossthe next five years will use a mix ofexisting and new measures, whichreflect the revised structure andfeatures of this price control. Thisforthcoming period will see a greateremphasis on operational excellence as ameans of earning financial rewards.We expect that our environmentaland water quality regulators, theEA and the DWI respectively, willcontinue to use a basket of establishedmeasures to assess our performance.New for the next period is a revisedSIM measure and a series of ODIs,to which are attached penalties andrewards. We will also focus more ontotal expenditure, rather than on theindividual measures of opex and capex ,in line with Ofwat’s move to this way ofassessing costs.We have refined our key performanceindicators (KPIs) for the 2015–20period, which will recognise thetougher operational and financialtargets inherent in the finaldetermination settlement. We donot intend to set targets for the2015–20 period until we have moreexperience of operating under thenew arrangements. However, moredetail of these KPIs is provided withinthis report on pages 50 and 51 andwe intend to publish our performanceannually.Responsible businessOur aim is to operate in anenvironmentally sustainable,economically beneficial and sociallyresponsible manner. In recognitionof this focus, we retained our ‘WorldClass’ rating as measured by the DowJones Sustainability Index, achievingindustry leading status in the multiutility/watersector in the most recentassessment.We are delighted to have led aNorth West pilot for the Energy andEfficiency Industrial Partnership,backed by UK Skills, in which weleveraged our investment in a newapprentice skills training facilityin Bolton to help young people findemployment. The programme involvesskills training, interview technique andwork experience and early trials haveshown an over 60 per cent success ratein finding full-time employment forparticipants. Following the success ofthe pilot, the programme is now beingrolled out across the UK.Our employeesNone of our progress over the last12 months would have been achievedwithout the enthusiasm and commitmentof the people who work for UnitedUtilities – both our employees and thoseworking for our sub-contracting partnersthat represent us in the field. We wouldlike to thank them for their dedicationand hard work in supporting customersand the environment every day of theyear.We work hard to sustain high levels ofengagement by our employees. Thecompany has seen significant changeover the last four years and our planswill engage our teams for furtherimprovements. Employee engagementis 79 per cent, well above the UKtransitional norm and just below thenorm for high performing UK companies.Health and safety remains a key focusarea. This year we placed greateremphasis on the ‘health’ component withinvestment in a new gym at our mainoffice, along with measures to assist ouremployees in assessing their health andin securing faster access to treatmentshould it be necessary.Our boardWe strive to operate in a manner thatreflects the highest standards ofcorporate governance. Our companystructure and governance standardsare designed to ensure that ourboard continues to provide sound andprudent governance in compliance withthe principles of the UK CorporateGovernance Code.We are pleased to welcome LordStephen Carter to the board followinghis appointment in September 2014 asan independent non-executive director.Stephen is Chief Executive at Informaplc and his operational expertise andprevious public services roles will be anasset to the board.OutlookWe are encouraged by our operationaland customer service performanceimprovements and believe we canimprove further. Substantial investmentin our assets will continue, deliveringadditional benefits for our customersand the environment. We have madesignificant and sustained performanceimprovements over the last five yearsand, combined with our ‘systemsthinking’ approach to operating thebusiness, this provides a solid foundationfor the future.Dr John McAdamChairmanSteve MogfordChief ExecutiveOfficerSHAREHOLDER INFORMATION FINANCIAL STATEMENTS GOVERNANCE STRATEGIC REPORTThe strategic report on pages 4 to 55 was approved at a meeting of the board on 20 May 2015 and signed off on itsbehalf by Steve Mogford, Chief Executive Officer.09
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