United Utilities Group PLC

Ladies and gentlemen, welcome to the United Utilities 2020 Four-Year Results Call. My name is Rachel, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing Start, followed by 1 on your telephone keypad, or alternatively via the webcast. I will now hand over to your host, the Chairman, Sir David Higgins, to begin.

Thanks, Rachel. And good morning. Welcome to United Utilities Four-Year Results Presentation. This is the first opportunity I've had to speak to many of you since becoming Chairman of United Utilities. I'm sorry that we can't meet due to the current social distancing restrictions, but I look forward to seeing you at future events. Inevitably, the immediate focus of many people is the impact of COVID-19 and how it's happening on the company's operations and the world economy more generally. Teams right across the organization have worked tirelessly throughout this period in order to maintain service, support customers, and protect our colleagues, and we're very proud of the resilience and adaptability that that demonstrated. Whilst a significant degree of uncertainty remains in relation to the extent and duration of COVID-19, it's also important to reflect upon the strong performance we have delivered in the year. Having accepted the final determination in January, this closes out the 2015-2020 period in which we've reinforced our position as a leading company and given ourselves the best possible start to achieve our targets in the next period. Recognizing this, the board proposes an increase of 2.3% in the final dividend in line with our policy. This takes the total dividend for the year to 42.6 pence per share. Thank you, and I'll now hand over to Steve.

Thank you, Chairman, and good morning, ladies and gentlemen, and a warm welcome to United Utilities' four-year results presentation for the year 2019-20. Before taking you through the results, I'll briefly touch on the unprecedented circumstances in relation to COVID-19. Here at UU, we've been focused on supporting customers through these difficult times, offering the widest range of assistance schemes to help those struggling to pay their bills, whilst continuing to deliver water and wastewater services vital for public health. None of this would have been possible without the incredible team at UU, and I'd like to pay tribute to the hard work and dedication of colleagues throughout the crisis. Their loyalty and commitment has never been more needed, and I feel tremendously proud that customer service has been maintained through the lockdown. The year itself has been about delivering on our promises for the last regulatory period, AMP 6, and preparing for the next, AMP 7. And we've made tremendous progress on both. Customer satisfaction's up. Operational improvements have improved for yet another year. Operational performance has improved for yet another year. And we start AMP 7 with all the benefits of achieving fast track status for our AMP 7 business plan, having invested $100 million over the last year to get a flying start against our AMP7 targets. This has been achieved whilst maintaining a strong balance sheet, healthy liquidity, and a pension scheme in surplus. A great place to be as we start AMP7. I'm extremely proud of the UU team and what we've achieved in delivering a transformation in business performance. The journey we started together in AMP5 ensures that customers across the Northwest can be confident they're being served by one of the best in our sector, sensitive to their needs and continuously improving our service offering. This team has delivered over 1 billion of outperformance over the last two regulatory periods, sharing over 600 million with customers through reinvestment in our services. But what I find so exciting is that we know there's so much more that we can do. Our innovative systems thinking approach has been a key enabler to many of our improvements, but we're still early in its development with new tools and technologies to improve customer service emerging every day. We know that we lead the sector with systems thinking and we intend to continue pushing ahead in this area to the benefit of all of our stakeholders. Moving to the next slide and turning specifically to COVID-19 and how we've continued to provide a great service to customers through these challenging times. None of our employees have been furloughed, with around 80% of our total workforce designated as key workers. Around 60% are currently working from home, and those attending work are following government guidelines regarding social distancing, sanitation and PPE. Non-essential tasks have been postponed, but construction activities have continued where possible and whilst protecting people's safety. Recognising that some of our employees face challenging financial issues, within their own families as a result of changing circumstances, we created a staff outreach scheme to provide one-off grants through a confidential application process. We recognise that many of our customers are suffering as a result of the economic impact of COVID-19, and we've increased the number of customers eligible for social tariff support and made 3.5 million available immediately for those most in need. We've accelerated payments for our suppliers, and as a leading player in the sector's incident response team, we're paying particular attention to the more fragile elements of our critical supply chain. The most pressing issue for the sector has been the business retail market, which was subject to the introduction of competition from 2017. The closure of businesses under lockdown is interrupting payments to retailers, and we've worked closely with the market participants, including Ofwat, which has now shown its intent to cap the exposure for both retailers and wholesalers. However, there remains a possibility that one or more retailers won't be able to refinance their business in these circumstances. And we have about 80% of our non-household wholesale sales to our joint venture, WaterPlus. And Russ will cover the implications for WaterPlus in more detail later. The future is uncertain, but we'll continue to implement our delivery plans adapting as necessary as a clearer view emerges. We're a significant employer in our region. We're supporting customers through a variety of system schemes we offer, and we look to accelerate our AMP7 investment program, as we did successfully in AMP6, playing our part in the recovery of the Northwest economy. Turning to the next slide, whilst our attention is turning to AMP7, I thought it would be useful to close out AMP6. where it's clear that our strategy for AMP6 has been a success. A relentless focus on customer satisfaction has transformed the culture within the business. A key strength is our workforce, who demonstrate high levels of engagement well above the utility sector norm. Our approach to innovation, and specifically systems thinking, alongside accelerating investment, has delivered improvements in performance and efficiency that underpin our AMP7 business plan securing fast-track status in PR19. As a result, we've delivered outperformance against all areas of the regulatory contract, and as a consequence, have shared that outperformance with customers through reinvestment of $350 million, $100 million of which has given us a flying start against our targets in AM7. But I'm also proud of the way in which we've delivered performance. Scratch the surface of the business and you'll find our values and beliefs. They've always been there and they drive everything we do. Integrity is key, as is transparency and openness. And our employees recognise that customers deserve respect and the best possible service. Our relationship with the environment is so very sensitive and will become more so as climate change continues to bite. So we must continually balance the impact we have on the environment with continuity of the vital service we provide. And we must balance all these needs with those of our debt and equity investors who deserve a return for their support to the business. Our approach is clear and enduring. We simply refer to it as behaving responsibly. Moving to the next slide, at the heart of behaving responsibly is our track record of delivering the best possible service to customers. Throughout AMP6, we continued on the improvement path that began in AMP5. By the time we hit the last year of off-what service incentive mechanism, or SIM, we were up a quartile in the sector and awarded a SIM reward. It's been pleasing to see our operational improvements reflected in year-on-year reduction in complaints, but we're particularly pleased that the transformation of our service offerings is being recognized by many different organizations looking at excellence across multiple sectors in areas which include customer service, collections, and debt management, with us winning 25 awards in this space and three accreditations. The SIEM Incentive Scheme, C-STEM 6, will be replaced by CMEX, measuring domestic customer satisfaction, and DMEX, measuring developer satisfaction with the service they're receiving from water companies. of what's been piloting CMEX over the last year of AMP6, in effect the shadow year, to refine the process before implementation in the first year of AMP7. The AMP7 incentive rate has been increased for CMEX over SIEM, with the maximum potential reward now being 66 million available over AMP7. We're very pleased to have ranked third out of the water and wastewater companies overall across the shadow year, with ongoing improvement resulting us being first overall in both the third and fourth quarter surveys of customers who contacted us. There's a long way to go, and we should expect an upward trend in sector performance over the AMP, but our performance to date gives us confidence that we can achieve reward territory in AMP 7. Next, in turning to our impact on society, we have a wide range of schemes many of which are first for the industry to help those customers who need it most. A number of examples are shown on the slide, including our Hardship Hub, developed with experts, including Citizens Advice, to give those advisors supporting the public a one-stop shop for local assistance schemes. This is more important than ever, as we help those customers who are facing financial difficulties as a result of the COVID crisis. Around 120,000 customers now benefit from what is the sector's most comprehensive range of affordability schemes, and we're delighted to extend the eligibility for social tariff support to include an additional 35,000 customers. We led the sector in establishing our Priority Services Scheme, designed to provide additional support to customers with health, mental or financial difficulties during an incident. Over 100,000 customers are now registered for this support, with more joining every day. Over AMP 6, we contributed over 35 million to our communities by a variety of schemes, and we've committed to provide 71 million from profit to help customers in difficulty over AMP 7. As I mentioned earlier, 3.5 million of which has already been made available in advance of the worst effects of the pandemic. It's motivating to work for a responsible, successful company. and we were therefore delighted to be voted one of the top 20 places to work in 2020 by past, present, and prospective employees. And as you've hopefully already recognized, we have a longstanding commitment and track record in delivering the environment. We reduced our carbon footprint by 73% since 2005-6, and this is ahead of the target we set ourselves for 2020, thanks in no small part to 95% of our electricity usage being generated from renewable sources. For many years, we've led the sector in our approach to catchment management. Firstly, through our award-winning Sustainable Catchment Management Programme, or SCAMP, and now taking this further with Catchment Systems Thinking, working with the Environment Agency and other stakeholders. This approach delivers the best water quality and environmental outcomes in the most efficient way possible. And in the EA's annual assessment, we've been a top performer over the last five years, with particularly strong performance in the way we minimise pollution. Moving on, looking at ESG, good governance is in our DNA. Our annual report continues to win awards in an array of investor indices, some of which are shown on the slide. We're particularly proud to have achieved world-class status in the Dow Jones Sustainability Index for 13 consecutive years. We have a strong track record on the trust and confidence that customers and regulators can place in the quality and transparency of our reporting. And we place great value on financial resilience. We have the strongest credit rating in the sector and a pension position that compares favorably to the most, if not all, companies in the FTSE. We talk much more about the transformation of our operational performance over AMP6 at a Capital Markets Day earlier this year. And I won't, therefore, repeat those sessions today, but I've just selected a few examples, which you can see on the slide. A focus on investing for resilience has paid off. Significant water quality incidents are down 69% across the AMP. And as you can see on the slide, interruptions to water supply have been reduced by 39% through use of systems thinking innovation and investment in a large fleet of tankers or water on wheels. This is a critical measure under our M7 ODIs, and our performance in this area gives us an excellent start against this tough target. I've spoken previously about our West Cumbria pipeline project, which is changing our raw water source for this community from Ennerdale to Thirlmere, and I'm delighted to report that we hit or beat all of our M6 ODI targets on this hugely complex project, earning a reward of £21.6 million. Moving on to wastewater, this business is also transformed. The net AMP6 ODI reward for wastewater around 45 million is an improvement of over 130 million on our most likely outcome at the start of AMP6. We've been the top performing company alongside Wessex under the Environment Agency's annual assessment with a top four star rating in three of the last four years. And we're a leader in our sector in reducing pollution and have delivered a 95% reduction in hydraulic internal sewer flooding. This is another key ODI measure for AMP7, and we're planning to do more in this area across the next five years. As you know, our AMP6 ODIs represented a significant challenge being heavily skewed to the downside. When we started the AMP, the most likely net outcome was a penalty of over $100 million. A combination of determination, innovation, and huge employee engagement to achieve better has turned that around and delivered a net 44 million reward. We have, on the whole, performed very well against our wastewater ODIs, and while some of our water measures have suffered from significant one-off events, we've performed well and have been particularly pleased that our use of innovation has delivered strong performance against our leakage and average minutes loss measures, both key ODIs in AB7. As I mentioned earlier, the delivery of the West Cumbria project has not only earned us the £21.6 million reward, but also through major investment in a new pipeline and treatment works, we've been able to establish a new benchmark for the advanced operation of a water system using systems thinking. Overall, a fantastic achievement on the part of the whole team, and our performance for the AMP is likely to place us in the upper quartile of top ODI owners in the sector. At a capital markets day, we're able to go more fully into how systems thinking is giving us a competitive advantage as we transform the business. It provides us with a framework against which to prioritize those investments in processes, technology, and people, which deliver the best return for customers, shareholders, and the environment. Fundamental to our approach is the strong innovation culture we've developed, which ensures that we actively search out and rapidly test new ideas for application against our framework One example of breakthrough technology that we've recently developed in partnership with a global supplier through our innovation lab is the use of mobile sensors for leak detection. Rather than relying entirely on fixed sensing that can become obsolete, three mobile sensors can be inserted at one end of the water network and extracted at the other. As they flow through the system, the three sensors triangulate, sending a reading every millisecond for analysis by artificial intelligence software at our integrated control center to pinpoint leaks and determine the likely severity. Leakage is a key focus for the industry, and this is a low-cost, highly accurate, and efficient technique that supplements others we're already using. Over AMP7, we have a stretching target to reduce leakage by 15%, and using innovation like this gives us the best opportunity to perform well against the ODI that carries a reward potential of up to $15 million. Now over to Russ.