United Utilities Group PLC

Good morning, everyone, and welcome, and thank you for joining us at such short notice this morning. This morning we've released preliminary fiscal 26 financial results, slightly ahead of schedule, and launched an $800 million equity pricing to accompany upgraded capital expenditure guidance. We have around 45 minutes for today's call, giving us plenty of time for you to ask questions. And with that, I'll hand straight over to Lou and Phil.

Lou? Great. Good morning. Thanks, Chris. Look, good morning, everybody, and thank you for joining Phil and I to talk through our FY26 results and details of the additional AMP8 growth submission and equity raise that we have launched this morning. I'm really keen to talk through our results and to share more about the exciting plans that we've submitted to Ofwat today. As we move through the deck, you will hear three key messages. Number one, we've made a really great start to AMP8. and we are delivering on the things that matter most to our customers, our communities, and the environment. We've delivered a strong set of financial results, with a 7.5% asset growth, coupled with a 42% increase in underlying EPS. We're delivering improved environmental and operational performance, and our supply chain is mobilised, and our delivery pathways are well established. Number two. Our supportive regulatory backdrop and a new approach to incremental investment provides the opportunity for rolling submissions. This has enabled us to announce investment plans of 1.4 billion as part of Ofwat's 2026 re-opener process, representing the first phase of our incremental investment programme. With this investment, we're focused on providing the water infrastructure for thousands of new homes, powering data centres, enabling clean energy and strengthening the resilience of our infrastructure. Due to this, we have added an additional circa £2.5 billion to our CAPEX guidance, the balance of which is expected by future reopeners as we continue to invest further in the North West through the AMP. Incremental CAPEX is to be fully funded with an £800 million equity placement that we have launched this morning. of which £400 million is a cornerstone investment from Atlas with the Future Fund. And lastly, I'm pleased to announce our upgraded financial framework. Our asset base is growing to £25 billion by 2030, equating to a compound growth rate of around 10%. This growth is fully funded, and we're now guiding to regulated return of 10% to 11% across AMP8, which is an increase of 100 basis points. So let's start with year one performance. Look, I'm not going to cover everything that's on this slide, but I'm really keen to pull out a few key highlights. While the UK experienced a relatively dry year, the North West still saw average rainfall. Despite this, our spill performance improved despite that above average rainfall and with activations falling 23% and durations falling 27% versus the prior year. The focus on pollution incidents remained. But importantly, we've recorded no Category 1 pollutions, the most serious form of pollution. We've seen an 80% year-on-year improvement in our performance measures. And this year, we fixed more leaks than we've ever done before. We replaced over 150 kilometres of mains, more than in the previous five years combined, supporting long-term leakage reduction and fewer supply interruptions. Our in-year leakage performance is the best the North West has ever seen, but despite this progress, we do expect to miss our regulatory three-year rolling average target for FY26, because that reflects the impact of prior years and the time it then takes for the rolling methodology to capture this year's really good improvements. Our in-year ODI penalty of £35 million is aligned with management expectations for the year one, and we're confident in delivering net rewards across the AMPAPE period. Delivering a high-quality service every time for customers is really important, and it's central to building trust. We've got a Trustpilot score of 4.5, which is excellent, and we remain above median and in reward position across all regulatory customer service measures. With bills rising this year, we are focused on robust credit control, and our bad debt charge is in line with expectations at 1.8%. With the size and scale of our capital programme, health and safety remains our top priority. Our lost time injury rate has reduced by 30% during the year, reflecting strong continuous improvement. Engaged, committed colleagues are central to our success and we're really proud to report an outstanding 90% engagement score, well above global and UK high performance benchmarks. And our strong culture is also reflected in our Glassdoor rating of 4.6 out of 5. The strength of our brand as an employer is really critical to ensure that we retain and that we attract the very best talent we need to deliver our ambitious plans. And lastly, on financial performance, we've delivered a 42% uplift on underlying EPS compared to the prior year, coming in at 107.1 pence. We're making real strides on our CapEx delivery with spend in line with expectations of 1.5 billion. We've delivered asset-based growth of 7.5% and a regulatory return of 13%. And our balance sheet remains strong with gearing at 60% and a final dividend of 35.78 pence per share. So look, let's move on to the capital programme. As we've transitioned into AMP8, we've made a great start managing the ramp-up in the capital investment. We've successfully recruited over 1,300 new colleagues to join United Utilities, whilst at the same time onboarding over 100 suppliers that's helped us deliver our ambitious AMP8 programme. And the scale-up of our activity, which you can see demonstrated here on the graph on the left-hand side, hasn't impacted the quality of our outputs. Our effective and efficient delivery of the capital programme has enabled us to achieve our year one regulatory outcomes and our spend is in line with profile. As the pie chart shows on the right hand side, AMPaint is scaling up with projects progressing through the delivery cycle and our award winning approach to standardisation project blueprint is playing a really vital role in the key stages of project delivery. The methodology and focus is keeping us within cost and quality allowances while accelerating delivery for customers and our communities. By standardising those designs and bulk purchasing materials and embedding more efficient maintenance regimes, we're cutting cost and time across multiple projects. This approach allows us to identify repeatable solutions, streamline design and secure critical components early. Government policy and regulation is now underpinning a multi-decade of growth. And the opportunities, as we see, with tightening environmental standards, a need for greater asset replacement, coupled with new housing and industrial growth targets, focus here in the North West, a region that has some of the strongest growth of anywhere in the UK. The recommendations from the Cunliffe Review provide the conditions for a new direction for water, resetting regulation with a single integrated regulator, and the need for balanced risk and reward. Today, we submitted to Ofwat our proposals for additional investment to support growth in housing, the new green economy here in the North West, coupled with proactive asset replacement. And the new regulatory landscape I just outlined is evidenced by Ofwat's new approach to in-period adjustments. This new and much-welcomed change allows us to now address new and emerging requirements that have been established since our PR24 determination. in a way that is more agile, enabling us to respond to national and regional growth requirements, whilst also supporting a more sustained capital delivery profile, as demonstrated in the chart. The additional capex that is proposed for AMP8 enables us to maintain and strengthen the supply chain, and support economic growth as we transition into AMP9. and the delivery of a sizeable future investment programme that will be supported by this retained and deployed supply chain capacity. The £1.4 billion programme submitted today sets out how we will deliver the vital infrastructure required for thousands of new homes across the North West region, unlock capacity for data centre expansion and facilitate decarbonisation. We've also outlined investment in our gated delivery schemes to drive improvements at Lake Windermere, as well as investments in our assets to strengthen the resilience and reliability of our networks, treatment works and services. Beyond this, there are additional regulatory windows in 2027 and 2028, and to propose further investment to support asset health and regional growth, alongside other targeted areas specified in the AMPATE determinations. Taken together with the prospect of additional investment in the final years of the AMP, we expect this to lead to circa 1.2 billion incremental investment in AMP8. And subject to approvals, in total this would deliver an additional 2.5 billion of capital investment on top of the current AMP8 programme previously announced. That supports a circa 10% compound growth in the asset base between 2025 and 2030. The growth will be facilitated by an equity placement of £800 million that has been launched today, so we expect to remain within our gearing target of 55% to 65% throughout Amp8. The visual shows the communicated timeline for decisions and also dates for future in-period submissions. We expect a draft decision in August for the submission we have made today and the final decision during December. Our focus has been on ensuring we have a high-quality submission that reflects the categories and investment areas that Ofquart has identified and expects to see. We're really encouraged to see the changes to in-period adjustments that Ofquart has embraced and the signal that this sends about the changing landscape ahead. This will help us to deliver, with pace and flexibility, the infrastructure that's needed to support the rate of growth that we're seeing here in the North West. I'm now going to hand over to Phil.

Thanks, Lou, and good morning, everyone. So now turning to the FY26 financial highlights. At the headline level, underlying EPS was up 42% in the prior year, coming in at 107.1 pence. This was driven by rising tariffs, resulting in 20% revenue growth, partly offset by rising costs, which I'll come to in a moment. We're making real strides in our capital program, and our capex stepped up around half a billion this year, with the same increment coming through to take us up to the 2 billion mark for FY27. Lastly, and importantly, our dividend continues to grow in line with inflation. Next, turning to the underlying profit bridge. Underlying operating profit was up $274 million, in line with expectations. Underlying revenue increased by £431 million, reflecting the PR24 final determination. Consistent with the typical regulatory approach to setting prices, there's a big step up in allowed revenues in the first year of the AMP, with increases in revenue allowances over subsequent years expected to be lower. This is partly offset by a £40 million adjustment relating to diversions activity to accommodate the now aborted northern leg of HS2. And as I mentioned earlier, operating costs were up year on year, primarily due to three factors. Expenditure associated with the expansionary impact of the AMP to Totex programme. Inflation with pressures impacting the cost base and specifically employee costs, rates and regulatory fees. And with other costs, including both the step-up in contributions to Ofwat's Innovation Fund and the impact of dry weather last summer. We continue to maintain financial discipline, with balance sheet gearing at 60% benefiting from near-term inflation. Our capital investment programme is progressing well, resulting in the RCV growing to £16.5 billion, a 7.5% increase year-on-year, with net debt at £9.9 billion at March 2026. In the year, we raised around £1.5 billion in term funding, outperforming the off-what debt indexation mechanism by around 80 basis points and locking in sustained benefit across all five years of the unpaid period. This funding, together with the renewal of committed bank facilities, extends our liquidity profile to the second half of FY28. In the first year of this new regulatory period, our regulatory returns strengthened to 13%, supported by near-term inflation. Financing performance continues to be a robust underpin to our return on regulated equity, or RORI, while we also benefit from both a gearing impact given the notional company's gearing of 55% and the higher level of near-term inflation when calculating the nominal regulatory return on the actual capital structure. Now turning to look ahead, I'm pleased to set out here our near-term technical guidance. Underlying revenue next year is expected to be between £2.7 and £2.8 billion, with underlying operating costs increasing by around £100 million in line with a regulatory allowance. We continue to benefit from our disciplined and prudent energy hedging. Our hedging levels remain above policy minimums, reflecting proactive execution during the benign market conditions, which means we're fully hedged for summer 26 and over 90% hedged for winter 26-27. Depreciation will be up by 50 to 60 million, reflecting the continued asset-based growth, while underlying finance expense will be lower and underlying tax is expected to be negligible due to full expensing. As I've already mentioned, CapEx will step up again significantly to around 2 billion next year, resulting in asset-based growth of around 10%. ODIs are expected to improve markedly, resulting in a lower net penalty. We remain on track for a cumulative reward over the AMP. And lastly, our total dividends for next year is expected to be 55.54 pence per share. Complementing our near-term technical guidance, we have our medium-term financial framework. I'm pleased to be able to upgrade our financial framework today, reflecting both the revised outlook for capital investment and the associated 800 million capital raise also announced today. Key aspects of the upgrade for the AMP8 financial framework are Regulatory returns expected to be in the range of 10% to 11%, an increase of 100 basis points in the level of outperformance. AMP8 capital investment is now expected to be around £11.5 billion, an increase of £2.5 billion. And that results in an RCV annualised growth over AMP8 accelerating to around 10%, an increase of 3% in the compound annual growth rate. Thanks, and I'll now pass back to Lou to take questions.