United Utilities : 2022/23 Full Year Results

2022/23 Full Year Results Statement

Building a stronger, greener, healthier North West

25 May 2023: United Utilities today announces Full Year results for the period to 31 March 2023.

Louise Beardmore, Chief Executive Officer, said:

"As the new CEO, it is an honour and privilege to lead United Utilities. I am very clear about our ambition to build a stronger, greener, healthier North West on behalf of customers, communities and the environment. Despite a challenging year of cost pressures, we have delivered our best ever performance on a range of measures that matter most to customers, including leakage, water quality and serious pollution incidents. To help ease cost of living pressures, we have provided financial support to over 330,000 customers so far this regulatory period and have continued to play a key role in the wider economy of the North West, supporting 22,000 jobs across the region.

I understand and share concerns about the use of storm overflows and I am committed to respond to the challenges we face. We have already achieved a 39% reduction in reported activations since 2020, but we need to go faster and drive a step change in performance. We have won support from regulators and are able to make an early start on over £900 million of investment. This will allow us to commence work now on one third of the overflows we are targeting in our AMP8 plans.

In October we will be putting forward an ambitious plan for the next regulatory period, including our biggest environmental programme yet, targeting a significant improvement in storm overflow performance. It is clear that we need to invest in infrastructure, assets and our people to meet new environmental targets and deliver the further performance improvements customers and communities want to see. Along with all my colleagues, we are committed to delivering even better performance and we are looking forward to the opportunity to do so."

Key financials (£m) - Year ended 31 March

		Reported			Underlying1
	2023	2022	% change	2023	2022	% change
Revenue	1,824.4	1862.7	-2.1%	1,824.4	1,862.7	-2.1%
Operating profit	440.8	610.0	-27.7%	440.8	610.0	-27.7%
Profit/(loss) before tax	256.3	439.9	-41.7%	(34.3)	301.9	-111.4%
Profit/(loss) after tax	204.9	(56.8)	n/a	(8.7)	367.0	n/a
EPS (pence)	30.0	(8.3)	n/a	(1.3)	53.8	n/a
	2023	2022	% change
Total DPS (pence)	45.51	43.50	+4.6%
Net regulatory capex (£m)	693.9	644.5	+7.7%
RCV2 (£m)	14,000	12,725	+10.0%
Net debt (£m)	8,201	7,570	+8.3%
RCV gearing3 (%)	58%	59%	-1%
RoRE4 (%)	11.0%	7.7%	+3.3%

1

2022/23 Full Year Results Statement

2022/23 Financial highlights

• Revenue in line with guidance -2% to £1,824m largely reflecting lower consumption more than offsetting the allowed regulatory revenue increase. Around £40m of the reduction will be recoverable in two years' time under the revenue control.
• Underlying operating profit of £441m, down from £610m driven by lower revenue and the inflationary impact on operating costs, in particular procurement of electricity and chemicals.
• Underlying EPS of -1.3p, down from 53.8p due to the impact of inflation on debt indexation and the operating result.
• Return on regulated equity (RoRE) +3% to 11.0% real for 2022/23, reflecting strong financing, customer ODI and tax outperformance which more than outweighed total expenditure (totex) underperformance driven by additional investment in service and environmental improvements.
• Strong balance sheet with RCV +10.0% to £14.0bn and RCV gearing at 58%, slightly lower than the prior year equivalent 59% and within our target range of 55-65%.
• ODI reward in line with guidance at approximately £25m for FY23.
• Recommended final dividend of 30.34p, to bring full year dividend to 45.51p, up +4.6% in line with policy.

Performance highlights

• Best performance to date against our leakage performance commitment, with average leakage over the last three years at its lowest ever level and earning a customer ODI reward for the year.
• 39% reduction in reported activations from storm overflows compared to our 2020 baseline, with monitoring in place on 97% of overflows and on track to achieve full coverage by end of calendar year.
• Won support from regulators to bring forward c.£200m of AMP8 investment for key environmental improvements in the region. Accelerated infrastructure delivery project allows us to make an early start on improving a third of the overflows targeted for improvement between now and 2030.
• Remain sector leader in reducing serious pollution incidents, achieving zero in 2022/23 and zero in 3 of the last 4 years. Remain the only company in the sector to achieve zero serious pollution incidents in consecutive years.
• 4 star performance in the Environment Agency's most recent Environmental Performance
  Assessment, meaning "industry leading" status achieved in 5 of the last 7 years.
• Internal sewer flooding reduced by 46% during the current regulatory period, with 39% fewer repeat incidents this year demonstrating benefits of successful implementation of Dynamic Network Management.
• Best water quality performance, posting 26% improvement in water quality contacts. Investment in water quality, principally to avoid discolouration, contributes to ODI performance.
• Provided affordability support to more than 330,000 households so far in this regulatory period with our industry leading financial assistance support, helping customers to manage the rising cost of living.
• 83% of ODI performance commitments delivered for the year.

2

2022/23 Full Year Results Statement

Outlook for current regulatory period

∙ Forecasting to achieve an AMP7 average real RoRE of 6-8%∙ Expect to deliver AMP7 asset growth of 4-5% nominal CAGR5

∙ Continue to target AMP7 total net ODI reward of around £200m ∙ Targeting dividend growth in line with CPIH

∙ Policy to target 55-65% net debt / RCV gearing

Enquiries
Investors and Analysts
Chris Laybutt - Investor Relations and Clean Energy Strategy Director	[phone]
Anna Oberg - Investor Relations Manager	[phone]
Media
Gaynor Kenyon - Corporate Affairs Director	[phone]
Graeme Wilson - Teneo Communications	[phone]

Results and Strategy Update presentation webcast

We will be hosting a presentation of our results and strategy update to investors and analysts at 10.00am on Thursday 25 May 2023, at the Rothschild Sky Pavilion, New Court, St Swithin's Lane, London, EC4N 8AL.

This presentation can be accessed as a webcast here: https://primetime.bluejeans.com/a2m/live- event/zathatwh

The presentation slides will be available on our website shortly before the presentation commences at the following link: https://www.unitedutilities.com/corporate/investors/results-and-presentations/full-and-half-year-results/

Notes

1. Underlying measures are defined in the tables on pages 19 to 20
2. United Utilities Water Limited's adjusted RCV (adjusted for actual spend, timing differences and including full expected value of AMP7 ex-post adjustment mechanisms). Prior year figures have been re-presented for comparative purposes.
3. RCV gearing calculated as group net debt including loan receivable from joint venture/United Utilities Water Limited's adjusted RCV (adjusted for actual spend, timing differences and including full expected value of AMP7 ex-post adjustment mechanisms). Prior year figures have been re-presented for comparative purposes.
4. Return on regulated equity
5. Compound annual growth rate

3

2022/23 Full Year Results Statement

OPERATIONAL REVIEW

We have delivered our best ever performance for customers, having met or exceeded more of our performance commitments this year than ever before. We were once again the top performing listed company for customer satisfaction as assessed by Ofwat's C-MeX measure. We have provided affordability support to more than 330,000 households so far in this regulatory period to support customers who are understandably struggling with cost of living pressures.

We are acutely aware that this is a critical time for the water sector, with many challenges facing us, especially around river health. We have delivered significant environmental improvements in recent years in areas such as improving beaches, reducing pollution and reducing leakage, but we should all have acted sooner to recognise and address the impact of storm overflows.

In the North West, we have delivered a 39 per cent reduction in reported activations from storm overflows compared to the 2020 baseline, but there is a lot more to do and we have ambitious plans to go further and faster to drive a real step change. This won't happen overnight, it will take sustained effort and investment over time, but we are committed to acting as fast as we can. With the support of our regulators we are accelerating investment, making a start on improvements at one third of the overflows we are targeting in AMP8. As a result we will be investing a further £200 million in the next two years.

In October we will be putting forward our business plan with the biggest environmental improvement programme we will have ever proposed. Along with all my colleagues, we are looking forward to the opportunity to build a stronger, greener and healthier North West.

Strengthening our industry-leading affordability support for customers

We are passionate about protecting customers in vulnerable circumstances through our comprehensive suite of support schemes and an industry-leading £280 million1 package of affordability support. The cost of living crisis has made things even more challenging for deprived communities in our region. With a growing number of customers asking for help with their water bill, we have been working hard to increase awareness of available support, the option of flexible payment plans, and to provide water efficiency advice.

We are determined to play a role in making the North West stronger. This is the fourth year we have taken a leading role across our region, bringing together all stakeholders and communities to focus on affordability and vulnerability issues.

Delivering improvements in performance for customers and the environment

Our operational performance has been strong this year - we have met or exceeded 83 per cent of our performance commitments, earning a net customer ODI reward of approximately £25 million. This reflects strong delivery for customers and the environment in the North West.

1 50% company funded, over the course of the 2020-25 regulatory period (AMP7)

4

2022/23 Full Year Results Statement

Our investment in improving water quality - principally to avoid discolouration - has supported a 26 per cent improvement in water quality contacts this year. This is contributing towards our ODI performance, alongside other water measures such as water service resilience and supporting the removal of lead pipes from customers' properties.

Reducing leakage is of huge importance for our stakeholders and for us as an organisation. This year we have delivered our best performance to date against our performance commitment, resulting in an ODI reward. While we are making great progress, we recognise we continue to have a high absolute level of leakage. We are challenging ourselves to go further in reducing leakage - from our network and in customer properties - as it is critical to helping us better manage and conserve water resources. Alongside this we have delivered our largest ever reduction in Per Capita Consumption (PCC), supported by help and advice to encourage customers to use less water and amplify the link between heating water and energy bills.

Our basket of measures for avoiding flooding is also delivering a net ODI reward, and we continue to make great progress in reducing flooding incidents. We have nearly halved the number of internal sewer flooding incidents since the start of AMP7. This year's performance includes a 39 per cent reduction in repeat internal flooding incidents2. This has been supported by our investment in Dynamic Network Management (DNM).

In the winter, we experienced a rapid and severe freeze-thaw event that resulted in burst pipes across the region. Our teams and partners worked exceptionally hard to minimise the disruption and we deployed significant resources to sustain services. However, some customers experienced short- term interruptions to their water supply, leading to an ODI penalty against this performance commitment and additional costs.

The great service we have delivered for customers has been reflected in further improvement in our performance against Ofwat's measure of customer satisfaction, C-MeX. We were the top listed company, ranked fourth of the water and wastewater companies and fifth out of 17 companies overall. As a result of this performance we expect to achieve a record £3 million reward. Customer service is hugely important to us, and are proud to be the first company ever to receive 100,000 commendations from customers through the WOW! Awards scheme, where customers provide independent, proactive feedback on the service we provide.

We look after important urban and rural landscapes and we continue to stretch ourselves to improve environmental performance, to create a greener North West. Our environmental performance this year has remained strong. We have also delivered all of our Water Industry National Environment Programme (WINEP) schemes by their planned delivery date since the beginning of AMP7, including 137 schemes in this year alone.

2 These are incidents affecting a customer that has already experienced a previous incident

5