United Utilities
Group PLC
Annual Report and Financial Statements
for the year ended 31 March 2021
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We are a purpose-led
organisation.
United Utilities is the UK’s largest listed
water and wastewater company.
Our purpose is to provide great water
and more for the North West.
Our response to COVID-19
Throughout the pandemic our focus has
been on supporting customers, protecting
colleagues and continuing to deliver
reliable water and wastewater services
across our region.
Our approach to reporting
Being open, honest and transparent in
our reporting is key to building trust and
confidence in what we do.
Read more on pages 13 and 50 to 51
Read more about our response to
COVID-19 on pages 44 to 45
Look out for our key icons throughout this report:
CONTENTS
Our strategic themes
Our strategy is broken down into these three themes, which form the framework
through which we provide great water and more for the North West.
The best service to
customers
At the lowest
sustainable cost
In a responsible
manner
Read more about our strategic themes on pages 16 to 17
Key stakeholders for whom we generate value
There are six key stakeholder groups for whom we create longer-term value and it is
essential we understand what matters most to them.
Communities
Communities
Customers
Customers
Employees
Employees
Environment
Environment
Customers
Environment
Shareholders
Media
Investors
Suppliers
Read more about our stakeholders on pages 22 to 26
Business overview
What it means to be purpose-led
Chairman and Chief Executive
Officer's review
2020/21 highlights
Our approach as a responsible
business
Reporting responsible
business performance
Strategic report
Our purpose, vision, strategy
and values
How we operate
Serving our region
Engaging with our stakeholders
S172(1) Statement
Non-financial information
statement
Our business model
– Our key resources
– Our external drivers and
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relationships
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– How we respond to challenges
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– How we plan for the future
46
How we measure our performance 50
Our performance in 2020/21
52
Being a responsible business
84
Our approach to climate change
86
Principal risks and uncertainties
100
Governance
Corporate governance report
– Board of directors
– Letter from the Chairman
– Nomination committee report
– Audit committee report
– Corporate responsibility
112
116
130
144
committee report
156
– Remuneration committee report 160
– Tax policies and objectives
190
Directors’ report
192
Statement of directors’
responsibilities
Financial statements
Independent auditor’s report
to the members of United Utilities
Group PLC only
Consolidated income statement
200
207
196
Consolidated statement of
comprehensive income
Consolidated and company
statements of financial position
Consolidated statement of
changes in equity
Company statement of changes
in equity
Consolidated and company
statements of cash flows
Guide to detailed financial
statements disclosures
Accounting policies
Notes to the financial statements
Notes to the financial statements
– appendices
Five-year summary – unaudited
Shareholder information
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Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
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BUSINESS OVERVIEW
What it means to be purpose-led:
Our purpose is why we exist and it drives us to focus on what matters to our
stakeholders. There are three elements to our purpose:
Read more about our purpose on pages 16 to 17
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United Utilities Group PLC
unitedutilities.com/corporate
BUSINESS OVERVIEWUnited Utilities Group PLC unitedutilities.com/corporate
To provide great water...
Providing great water means delivering our core water, wastewater and customer services,
reliably and to the highest quality. It is what our customers expect and deserve.
PURPOSE-LED IN ACTION:
Strong and confident start to
AMP7
Earning fast-track status in the PR19
regulatory assessment enabled us to get
a flying start to this investment period.
Read more on page 6
Delivering value for:
Customers
Shareholders
Media
Robust support for customers
during COVID-19
Customers have been able to depend on us
throughout the pandemic. We have adapted
the way we work to maintain resilient and
reliable services.
Extended eligibility for social tariff
We were the first and only water company
by March 2021 to extend our social tariff,
allowing us to support a broader range
of customers whose income has been
affected by COVID-19.
Read more on page 45
Delivering value for:
Read more on page 58
Delivering value for:
Communities
Customers
Employees
Communities
Customers
Customers
Environment
Customers
B
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and more...
Providing ‘more’ means creating value for our stakeholders by understanding what
matters to them through strong and constructive relationships. We do this by:
• supporting communities to be stronger;
• creating a great place to work for all our employees;
• caring for customers through trusted relationships;
• delivering a sustainable return to investors; and
• protecting and enhancing the environment;
• innovating in partnership with suppliers.
PURPOSE-LED IN ACTION:
Embracing environmental
innovation via partnerships
We are working in partnership with
environmental NGOs, local authorities and
other stakeholders to deliver collaborative
solutions to protect and enhance the
environment of the North West.
Read more on page 23
Delivering value for:
Supporting our suppliers during
COVID-19
We have continued to work closely with our
suppliers during the pandemic, including
accelerating payment by seven days.
Read more on page 45
Delivering value for:
Employees
Environment
Media
Introducing our sustainable
finance framework
Following the introduction of the
framework, we successfully launched our
first sustainable bond, allowing us to raise
financing based on our strong responsible
business credentials.
Read more on page 70
Delivering value for:
Customers
Environment
Customers
Environment
Shareholders
Media
for the North West
We are singularly focused on the North West
PURPOSE-LED IN ACTION:
Kickstarting careers for
young people
We are working with our supply chain
to provide an initial 250 placements to
16–24 year olds who are at risk of long-
term unemployment.
Helping families via our
Home Learning Hub
With many of the region's families having
to adapt to home-schooling, our Home
Learning Hub has provided some help for
primary and secondary school children.
Read more on page 54
Read more on page 45
Supporting local communities,
including funding for local
foodbanks
COVID-19 has created even greater need
in the communities we serve. Our support
for FareShare will play a part in helping
communities get through tricky times.
Delivering value for:
Communities
Employees
Customers
Environment
Media
Delivering value for:
Communities
Customers
Environment
Customers
Read more on page 43
Delivering value for:
Communities
Customers
Customers
Media
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
03
03
BUSINESS OVERVIEWStock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021
Chairman and
Chief Executive Officer’s review
We have responded well to the challenges of a year that has
been dominated by the impact of COVID-19 in maintaining
service and support so critical to customers in the North
West. Our operational performance has been strong,
building on the improvements we delivered in the previous
regulatory period and providing us with a great start to
achieving our targets for the new 2020–25 price review
period (AMP7).
This has been an unprecedented year in
which we have had to adapt our operations
to protect customers, employees and supply
chain partners from the impact of COVID-19.
We responded well to the challenges and
delivered our best ever year of operational
performance for customers and the
environment. Customer satisfaction
remains high and we have made a strong
start against our customer outcome
delivery incentives (ODIs). This year has
seen us reduce leakage to its lowest ever
level and supply interruptions to customers
have been halved. We are on track to
achieve the maximum 4 star rating in the
Environment Agency’s assessment for
2020, and have reduced environmental
pollution incidents by around a third.
Our operational performance has been
strong against key metrics and we are
pleased to have met or exceeded over 80
per cent of our performance commitments
for year 1 of AMP7. In those areas where
we have fallen short of our target – such
as sewer flooding – we are innovating
and investing in new technology in order
to improve performance and service to
customers over the longer term.
We witnessed further variability in weather
conditions now characteristic of climate
change. Our region experienced a hot, dry
spring that, coupled with people spending
more time at home, resulted in a high
level of demand for water. We continued
to encourage customers to save water
through water efficiency programmes,
helping them to preserve this precious
resource and save money on their bills.
Throughout this period we maintained
supplies to customers, demonstrating the
benefits of our Systems Thinking approach
and supported by the investment we made
in previous regulatory periods to enhance
the resilience of our services.
We have a deep and strong relationship with
the environment and communities of the
North West. Our plans ensure we protect
and improve the natural environment
and for many years we have been at the
forefront of addressing climate change. We
are proud to be a signatory to the UN’s Race
to Zero campaign and we are delivering
against all of our six carbon pledges. Our
Sir David Higgins
Chairman
Steve Mogford
Chief Executive
Officer
04
purpose drives us to make a real, positive
contribution to the communities we
serve through everything we do, and our
investment programme plays a significant
role in supporting the north west economy.
This excellent start to the delivery of our
AMP7 plans provides a strong platform for us
to play our full part in the economic recovery
of the communities we serve as the country
emerges from the COVID-19 pandemic.
Maintaining excellent service to
customers while supporting our
employees
Our continued focus on delivering the best
service to customers has never been more
important. We delivered significant and
sustainable improvements over AMP6 and
we ended the period as a leading water
and wastewater company. The way Ofwat
measures customer satisfaction in AMP7
has changed, with C-MeX measuring
household customer satisfaction and
D-MeX measuring developer satisfaction.
Despite a challenging operating
environment, customer satisfaction remains
high, earning us an outperformance
payment for both C-MeX and D-MeX and
positioning us in the sector upper quartile
for all-round customer satisfaction.
The impact of COVID-19 has led to many
customers facing increasing financial
hardship. At the start of the pandemic
we saw an increase in the number of
customers needing affordability support
and the initiatives we put in place in
AMP6 enabled us to respond swiftly
and effectively. We were the first water
company to secure support and regulatory
approval for an extension to the scale
and scope of our social tariff, providing
an additional £15 million to help a further
45,000 customers. We had to consider
the appropriateness of continuing our
normal billing and collection activities and
the most suitable means of engagement.
As part of our COVID-19 response, we
proactively encouraged customers to
contact us if they had been impacted
financially by the pandemic. We carried
out targeted activities aligned to specific
customer segments and changes in
customer behaviour to engage with
customers, ensuring they knew they
could talk to us about their water bill, and
highlighting alternative ways to pay.
We could not have delivered such great
service to customers during this time
without highly engaged and motivated
colleagues right across the organisation
who demonstrate tremendous resilience
and adaptability to deliver for a region hard
hit by the pandemic. To keep employees
safe, early on in the year we moved 60 per
cent of our workforce to home working
and the remainder continued working at
BUSINESS OVERVIEWUnited Utilities Group PLC unitedutilities.com/corporate our COVID-19 secure facilities. We have
continued to work in this way in line with
the government roadmap out of lockdown,
while defining and shaping the way for
future working. Our employee engagement
score this year positioned us above the
norm for UK high-performing companies –
a remarkable score given the past year and
testimony to the cohesiveness of the United
Utilities team.
Transforming into a digital utility
Through our Systems Thinking approach
we make use of technology, automation
and machine intelligence to deliver better
performance for customers and the
environment.
Through implementation of Dynamic
Network Management – an example of the
most advanced form of Systems Thinking
in the water sector – we are shifting from
reactive management of our wastewater
network to using a web of sensors that
will provide near real-time performance
information. This new digital capability
will optimise performance in a predictive
and preventative way, delivering greater
efficiency, improved service to customers
and helping to enhance the environment.
We recognise the benefits to be gained
through building digital skills among our
workforce, and our purpose-built technical
training academy, established in 2014,
has provided skills development and
certification to over 2,800 colleagues. The
focus on digital skills means that we have
the in-house ability to develop and deploy
breakthrough technologies at pace and
efficiently.
We make extensive use of apps, many of
which are developed in-house, to create
digital capability for our field and customer-
facing teams. Our new voids app, aimed at
unbilled but occupied properties, has helped
us to earn the maximum customer ODI
outperformance payment on voids this year
as well as securing future year benefits of a
further £24 million over AMP7.
Delivering a robust financial
performance
We have delivered another year of robust
financial performance, supported by the
strength of our balance sheet.
Underlying earnings per share is 56.2
pence, a decrease of 21 per cent but more
than covering the dividend for the year.
The anticipated decrease is due to lower
allowed regulatory revenue in the first
year of the new regulatory period, and
an increase in infrastructure renewals
expenditure due to planned work to
optimise the performance of our network,
higher depreciation reflecting continued
investment in the asset base and a slight
increase in the remaining cost base.
£21m
net customer ODI reward
achieved in 2020/21
£300m
extension to our AMP7
final determination
This is partly offset by a decrease in the
underlying net finance expense reflecting
lower inflation applied to our index-linked
debt. We have simplified our approach
to alternative performance measures
(APMs) this year and are no longer, as a
matter of course, adjusting our underlying
earnings for restructuring costs, net
pension interest, capitalised borrowing
costs and prior years’ tax matters. This
brings our approach more in line with
peers and therefore makes cross-company
comparisons easier.
Reported earnings per share is 66.5
pence per share, which is higher than the
underlying figure, mainly due to fair value
movements. Adjusting items are outlined
in the reconciliation table on pages 82 to
83 and reflect our change in approach
to APMs with prior year numbers re-
presented for comparability.
The board has proposed a final dividend of
28.83 pence per ordinary share, taking the
total dividend for 2020/21 to 43.24 pence.
This is an increase of 1.5 per cent, in line
with our policy in this regulatory period of
targeting an annual growth rate of CPIH
inflation through to 2025.
05
BUSINESS OVERVIEWStock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021 Chairman and
Chief Executive Officer’s review
Our balance sheet continues to be
one of the strongest in the sector, with
low customer debtor risk, net debt to
regulatory capital value within our target
range and a pension scheme that is fully
funded on a low dependency basis.
Given the uncertainty created by the
COVID-19 pandemic, the recoverability of
household debtors has been a key area of
focus. It has been an area of focus for us for
most of the last decade, during which we
have managed the position robustly. This
manifests itself in the balance reducing
from £115 million in 2016 to £78 million
in 2021. Our net debtor balance as at 31
March 2021 is the lowest it has been for
five years and is one of the best managed
positions in the sector. Knowing this gives
us added confidence as we emerge from
the pandemic.
We have retained our policy of targeting
gearing of 55–65 per cent, measured
as net debt to regulatory capital value,
for this new regulatory period and at 62
per cent, our gearing remains within this
target range. During the year, we changed
our definition of net debt to exclude the
impact of derivatives that are not hedging
specific debt instruments. This provides
a better reflection of the debt balances
we are contractually obliged to repay
and is more consistent with the approach
taken by credit rating agencies and the
regulatory economics. Our gearing policy
is supportive of United Utilities Water
Limited’s A3 credit rating with Moody’s and
we have liquidity extending out to August
2023. This provides us with resilience and
financial flexibility as we progress through
AMP7 and demonstrates our prudent and
responsible approach to financial risk
management.
We have eliminated our pension funding
deficit on a low-dependency basis and
our pension position is in surplus on an
IAS 19 basis. Having no pension funding
deficit puts us at an underlying advantage
versus most other companies in the
sector, as well as against many companies
in the Financial Times Stock Exchange
(FTSE), that continue to make cash
contributions into their pension schemes
to achieve a fully-funded position. We
are proud to have already achieved this,
protecting employees past and present
and shareholders from the risk of a large
pension deficit.
In November 2020, we published our
new sustainable finance framework,
which allows us to raise financing based
on our strong environmental, social
and governance (ESG) credentials. This
replaces the green funding we have
previously secured through the European
Investment Bank (EIB), which is no longer
available post-Brexit. We issued our debut
06
sustainable bond in January 2021 and were
extremely pleased by the high level of
interest. As a result, we secured not only
our lowest ever coupon at that particular
maturity, but also the lowest ever coupon
for any UK corporate at that maturity,
locking in financing outperformance.
Good start to the new regulatory
period (AMP7)
We are performing well against the principal
areas of our regulatory contract for AMP7
despite many targets getting tougher.
Our accelerated investment strategy and
digital transformation is delivering value
across the breadth of our customer ODIs.
The £21 million outperformance payment
earned this year is ten times the performance
we delivered in the first year of AMP6.
The net reward earned this year will be
reflected in an increase to revenues earned
in 2022/23. This provides a great platform
for continued delivery against our customer
ODIs for the remainder of the AMP and gives
us the confidence to target a cumulative
outperformance payment of around £150
million for the 2020–25 period.
Thanks to our good performance in AMP6,
we started AMP7 at a total expenditure
(totex) run rate which supports delivery
of our AMP7 scope within our final
determination totex allowance. Since
accepting our final determination, our
investment plan has been extended by a
further £300 million, which we expect to
be fully remunerated through regulatory
mechanisms, with this expenditure
extending our environmental programme,
accelerating our digital transformation and
exploiting spend to save opportunities.
While we continue to seek efficiencies
in the delivery of totex, as we have
demonstrated through the £300 million
extension to our totex plans, we will
invest totex where we are confident
we can deliver improved customer or
environmental outcomes and better
customer ODI performance.
On financing performance, we have
consistently issued debt at efficient rates
that compare favourably with the industry
average, thanks to our leading treasury
management, clear and transparent
financial risk management policies, and
ability to act swiftly to access pockets of
opportunity as they arise. This delivered
significant financing outperformance
during AMP6 and the rates we have already
locked in for AMP7 compare favourably
with the price review assumptions.
ESG at our heart
Our purpose drives us to deliver our
services in an environmentally sustainable,
economically beneficial and socially
responsible manner and what we do creates
BUSINESS OVERVIEWUnited Utilities Group PLC unitedutilities.com/corporate a deep connection with the stakeholders we
serve. We have a long-standing commitment
to deliver against our ESG objectives and we
have a strong track record of doing so. We
are also looking to our supply chain partners
to adopt these values and objectives via
the United Supply Chain (USC) initiative,
a fundamental step change as to how we
engage with them in AMP7 and into AMP8.
Having achieved our climate change
objectives up to 2020, reducing greenhouse
gas emission by 73 per cent, we made
six carbon pledges and have made good
progress against them all. From October of
this year, 100 per cent of our electricity will
be sourced from renewable technologies and
we have set ambitious science-based scope
3 emissions targets that have been submitted
for endorsement by the Science Based
Targets initiative (SBTi).
Our Catchment Systems Thinking (CaST)
approach continues to mature. We have
been working with the Environment
Agency (EA) and other stakeholders to
develop a north west natural capital
baseline and once this process is complete,
we will engage with other partners across
the region to drive a consistent approach to
delivering greater natural capital value. This
year, we pledged a £300,000 CaST Fund,
for which charities and community groups
are able to bid, to boost the idea of working
collaboratively to address the challenges
facing the environment.
We are in a unique position to make a real,
positive contribution to society and have
an ambitious and innovative approach to
addressing affordability and vulnerability.
We have an extensive range of schemes
available to help customers and around
200,000 are currently benefiting from that
help. We are providing more customers
than ever with access to Priority Services
in times of need, with over 133,000 now
on our register. We have committed to
providing £71 million in financial support
over AMP7, and have accelerated payments
this year to provide much needed
assistance to households struggling as
a result of the economic impact of the
pandemic. During the early stages of the
pandemic, recognising the importance
of cash flow to businesses, we took swift
action to accelerate payment terms with
suppliers, paying them within seven days
where possible.
We want fantastic people from a range of
different backgrounds and life experiences
to enable us to deliver a great public
service, and we are committed to creating
a diverse and inclusive workforce, reaching
and recruiting from every part of our
community. We were delighted to be one of
the top one per cent of 15,000 companies
across Europe in the Financial Times’
Statista Survey for Diversity and Inclusion
Leadership and to achieve inclusion in the
Bloomberg Gender Equality Index.
We operate in a manner that aims to maintain
high ethical standards of business conduct
and corporate governance. We have attained
World Class status on the Dow Jones
Sustainability Index for the 14th consecutive
year. We were delighted to retain the Fair
Tax Mark independent certification which
recognises our commitment to paying our
fair share of tax and acting in an open and
transparent manner in relation to our tax
affairs. We continue to focus on our long-
term financial resilience, supported by our
strong balance sheet and prudent approach
to financial risk management, maintaining
a responsible level of gearing and well-
controlled pension position for many years.
Outlook
We started the new regulatory period as
one of the sector’s best performers and
have delivered further improvements this
year, giving us the confidence that we will
continue to be able to meet our targets
across AMP7. Our transformation to a
digital utility is helping us operate more
efficiently and deliver better service to
customers while protecting and improving
the natural environment. Although it
remains uncertain how the country will
emerge from the COVID-19 pandemic, we
have proven to be resilient over this period
and will continue to rise to the challenges
that lie ahead, playing our part in the
recovery of the north west economy.
Grateful to our stakeholders
for their support
We would like to express our gratitude to our
highly engaged and motivated employees
and supply chain partners who have shown
great resilience and adaptability in continuing
to deliver excellent performance over such
a challenging period, and we extend our
thanks to customers, shareholders and other
stakeholders for their continued support.
Sir David Higgins
Chairman
Steve Mogford
Chief Executive Officer
The strategic report on pages 14 to 109 was
approved at a meeting of the board on 26 May
2021 and signed on its behalf by Steve Mogford,
Chief Executive Officer.
INTEGRATED REPORT
AND TCFD DISCLOSURE
This annual report contains information
in line with the recommendations of the
Task Force on Climate-related Financial
Disclosures (TCFD), and is an Integrated
Report prepared and presented in
accordance with the International
Framework published by the
International Integrated Reporting
Council in December 2013. The board,
which is responsible for the integrity
of this report, has considered the
preparation and presentation of this
report and concluded that it has been
prepared and presented in accordance
with the Framework.
MATERIALITY
Our annual report and financial
statements aim to meet the information
needs of our investors to help them
make informed decisions regarding their
participation – for example, whether to
buy, sell or hold our shares or bonds,
whether to engage with management on
issues, and how to vote their shares. We
have included information that we believe
is material to these decisions, which is
presented in a way that we believe is
fair, balanced and understandable. 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, which is assessed
in part through a matrix approach to
stakeholder materiality as set out on
page 27, 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 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.
Read more about our performance
in 2020/21 on pages 52 to 83
07
BUSINESS OVERVIEWStock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021 2020/21 highlights
Operational highlights
Our transformation to an innovative digital utility has helped
us deliver another year-on-year improvement against key
targets that our stakeholders value most.
HOW WE REPORT ON OUR PERFORMANCE
In line with our purpose, we measure our performance by
reference to the value we create for each of our stakeholder
groups. For AMP7, we have selected one operational key
performance indicator (KPI) for each of these groups.
Communities
Customers
Communities
Our work puts us at the
heart of local communities in
the North West of England,
where customers and
employees live and work.
Working in partnership
with others means we
can create better places,
stronger communities, and
accomplish more to address
mutual issues together.
Customers
Customers
We put customers at the
heart of everything we
do. Through innovation
and efficiency we provide
a continually improving
service at an efficient,
low cost, and we support
thousands of vulnerable
customers through a
wide range of assistance
schemes.
KPI STATUS KEY
Our progress this past year
• Committed to supporting the
Government's Kickstart Scheme by
providing 250 placements to young
people, working with our supply chain.
• Hosted the industry's first Social
Mobility Summit.
• Provided ongoing charitable support,
including a donation to the FareShare
charity, supporting them in delivering
600,000 meals to struggling families
across the region.
• Adapted our community engagement
approach in response to COVID-19
restrictions, consulting virtually rather
than traditional face-to face exhibitions.
KPI performance
Community investment
Read more about how our performance in
2020/21 created value for communities on
pages 52 to 53
Read more about how we are supporting
the Kickstart Scheme on page 54
Our progress this past year
• Took swift proactive action to secure an
additional £15 million to help customers
whose incomes had been affected by
COVID-19.
• Accelerated payments of the £71 million
financial support we committed to
provide over AMP7, providing much
needed assistance to struggling families.
• Now supporting around 200,000
customers through our extensive range
of support schemes.
• Significantly increased the availability
and performance of our digital
channels with over 1 million customers
engaging with us digitally.
• Met or exceeded over 80 per cent of
performance commitments in areas
that customers value most.
• Achieved the Utilities and Telecoms
Team of the Year at the 2020 Credit
Awards.
KPI performance
C-MeX
Read more about how our performance
in 2020/21 created value for customers on
pages 55 to 57
Read more about how we are supporting
customers in need on page 58
Met expectation/
target
Close to meeting
expectation/target
Behind
expectation/target
Baseline
year
08
BUSINESS OVERVIEWUnited Utilities Group PLC unitedutilities.com/corporate B
U
S
I
N
E
S
S
O
V
E
R
V
I
E
W
Employees
Environment
Employees
Our people are critical to
enabling us to deliver a
great public service now
and into the future. It is
important we give them the
opportunity to develop their
skills and knowledge and
support them with the most
effective technology.
Our progress this past year
• Facilitated home working for over
3,000 of our employees during the
COVID-19 pandemic.
• Conducted over 390 COVID-secure
risk assessments.
• Our employee accident frequency rate
for 2020/21 was 0.094 accidents per
100,000 hours worked, representing
a 15 per cent improvement on
performance from the prior year.
KPI performance
• Supported the wellbeing needs of our
Employee engagement score
colleagues, delivering initiatives to help
build resilience across our workforce.
•
Included in the top one per cent of
15,000 companies across Europe in
the Financial Times' Statista Survey for
Diversity and Inclusion Leadership.
Read more about how our performance
in 2020/21 created value for employees on
pages 59 to 61
Read more about our commitment to
diversity and inclusion on page 62
Environment
Environment
We have a deep and
strong relationship with
the environment. Our
plans ensure we protect
and enhance the natural
environment in the way
we deliver our services.
Our progress this past year
• Met our leakage target for the 15th
consecutive year, and we are now at
the lowest ever level reported in the
North West.
• Delivered zero serious pollution
incidents for the second year running,
and around one third reduction in
pollution overall.
• Progressing well with our six carbon
pledges, including the use of science-
based targets to reduce our carbon
footprint.
• Committed to the sector's net zero
carbon pledge by 2030, and became a
proud signatory to the UN Race to Zero
campaign.
• Continued to develop our approach
to natural capital, working with
stakeholders to develop a north west
natural capital baseline.
KPI performance
Environment Agency's annual
performance assessment
Read more about how our performance in
2020/21 created value for the environment
on pages 63 to 65
Read more about our approach to climate
change on pages 86 to 99
09
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021
2020/21 highlights
Operational highlights
Shareholders
Investors
Our investment strategy
and digital transformation,
underpinned by our
pioneering Systems
Thinking approach, is
delivering significant
performance improvement
and efficiency. We manage
risk prudently, investing in
our assets for growth and
resilience.
Suppliers
Media
Through our capital
programme we invest in the
north west infrastructure,
generating jobs, skills and
income across the region.
Treating our supply chain
fairly, through prompt
payments and adequate
guidance and support, is
something we are fully
committed to.
KPI STATUS KEY
Our progress this past year
• Achieved a £21 million net customer
ODI reward for 2020/21. The net reward
earned this year will be reflected in an
increase to revenues earned in 2022/23.
• Our AMP7 totex plans will be extended
• Attained World Class rating in Dow
Jones Sustainability Index for the 14th
consecutive year.
• Ranked as leading water utility in
the Sustainalytics' ESG Risk Rating
assessment.
by £300 million, with plans to
accelerate our digital transformation,
extend our environmental
programme and exploit spend to save
opportunities.
• Published our new sustainable finance
framework, allowing us to raise finance
based on our strong ESG credentials,
and subsequently issued our debut
sustainable bond.
KPI performance
Return on Regulated Equity (RoRE)
Read more about how our performance in
2020/21 created value for investors on pages
67 to 69
Read more about our sustainable finance
framework on page 70
Our progress this past year
• Continued to work closely with our
supply chain, protecting our suppliers
and customers while maintaining
delivery of critical services during the
pandemic.
• Supported the north west economy
through acceleration of capital
expenditure in the first year of AMP7,
helping to generate jobs and income.
• Successfully launched our new
responsible approach to supply chain
management for AMP7 called United
Supply Chain (USC), recognising
suppliers as an extension of the United
Utilities family.
• Launched our third Innovation Lab
programme, encouraging innovative
solutions from suppliers around the
world.
KPI performance
Invoices paid within 60 days
Read more about how our performance in
2020/21 created value for suppliers on pages
71 to 72
Read more about United Supply Chain on
page 73
Met expectation/
target
Close to meeting
expectation/target
Behind
expectation/target
Baseline
year
10
BUSINESS OVERVIEWUnited Utilities Group PLC unitedutilities.com/corporate Financial highlights
We delivered a robust set of financial results for the year ended 31 March 2021, supported
by a strong balance sheet with low customer debtor risk, a responsible level of gearing
and a fully-funded pension scheme on a low-dependency basis.
Robust financial performance
£602.1m
Underlying and reported
operating profit(1)
(2020: underlying £732.1m, reported £630.3m)
56.2p
Underlying earnings per share(1)
(2020: 71.3p)
66.5p
Reported earnings per share(1)
(2020: 15.7p)
Underlying operating profit decreased
by £130 million, largely reflecting the
anticipated allowed revenue decrease in
the first year of the new regulatory period,
higher infrastructure renewals expenditure,
as we continue our work to optimise
the performance of our network, higher
depreciation reflecting continued investment
in the asset base and a slight increase in the
remaining cost base. Reported operating
profit is equivalent to underlying operating
profit for the year ended 31 March 2021.
Underlying earnings per share (EPS)
decreased from 71.3 pence to 56.2 pence,
principally reflecting the £130 million
reduction in underlying operating profit,
partially offset by lower underlying net
finance expense as a result of lower
inflation applied to our index-linked debt.
Reported EPS increased from 15.7 pence to
66.5 pence principally reflecting fair value
gains on debt and derivative instruments
and profit on disposal of the group's stake
in the Tallinn Water JV. A reconciliation
between underlying EPS and reported EPS
is shown on page 83.
KPI performance
Underlying operating profit
Underlying earnings per share
B
U
S
I
N
E
S
S
O
V
E
R
V
I
E
W
Strong balance sheet
62%
Gearing: net debt to RCV(2)
(2020: 61%)
Pension
scheme
fully funded on a low-
dependency basis
Appropriate returns
43.24p
Dividend per share
(2020: 42.60p)
+7%
TSR
(2020: +17%)
We maintain a responsible approach to
gearing, with a level that sits within our
target range at 55–65 per cent.
Our pension schemes are fully funded on
a low-dependency basis, meaning that we
are not making deficit repair contributions.
We do not expect this position to change
given our approach to hedging market risk.
KPI performance
Gearing: net debt to RCV
Low dependency pension scheme
KPI performance
Dividend per share
Total shareholder return
Our AMP7 dividend policy targets annual
growth by CPIH inflation. The board has
proposed a final dividend of 23.83 pence,
taking the total dividend to 43.24 pence.
This is an increase of 1.5 per cent, in line
with the group's AMP7 dividend policy.
Total shareholder return calculates the
return to shareholders based on the
movement in share price plus dividends
over each financial year.
Read more about our financial KPIs on pages 74 and 75
Read more about our financial performance on pages 76 to 83
(1) Underlying measures are defined in the tables on pages 82 to 83 and
reflect a change in approach to alternative performance measures
(APMs) with prior year numbers re-presented for comparability.
(2) March 2021 gearing is based on new definition of net debt to exclude
the impact of derivatives that are not hedging specific debt instruments,
with prior year numbers re-presented for comparability.
11
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021
Our approach as a responsible business
The way we act as a business has a profound influence on the social, economic and
environmental wellbeing of the region.
Responsible business is in our DNA
We have a strong track record leading
on environmental, social and governance
(ESG) matters. Over the past 20 years
we have measured ourselves against
national and international benchmarks
of responsible business practice, often
breaking new ground in the way the water
sector approaches challenges such as
catchment management schemes and
support for vulnerable customers.
This long-standing commitment to
responsible business has provided a solid
foundation upon which to evolve existing
programmes, develop new initiatives, and
respond to the changing world in which we
operate.
What is our approach?
We will only deliver our purpose and create
and maintain value for our stakeholders
if we act in a responsible manner. This
comes from understanding what matters
most to them and balancing these different
perspectives in our decision-making.
Our approach isn’t just about what we
do, but how we do it. A key strength is
our commitment to open, honest and
transparent reporting about the continuity
of our approach, underpinned by a clear
purpose and strategic objectives.
Increasingly, stakeholders assess how
companies approach responsible business
through the lens of ESG. We believe
there is a close relationship between ESG
performance and investor value.
Demonstrating how we act
responsibly and create value
Being a purpose-led business it is up
to us to provide the evidence that we
are providing great water and more for
the North West. Our stakeholders are
ultimately the ones who will judge whether
we are delivering on our purpose.
Having tangible, externally recognised
measures of our behaviour and
performance helps retain the trust of
those who take an interest in the way we
do business. It enables us to demonstrate
that we are operating in our stakeholders'
interests. We collate, monitor and report
on a wide range of performance measures,
linked to what stakeholders tell us matter
most, and align ourselves to recognised
management standards and accreditations
to give confidence in the way we are
operating. We report these publicly so
stakeholders can assess our progress.
Alongside this we actively participate in a
range of global ESG ratings, indices and
frameworks to benchmark our approach
against best practice and emerging
sustainability challenges.
As responsible business practice evolves
we look constantly at how we can
improve. For instance, we are currently
exploring whether embedding multi-capital
thinking (manufactured, financial, natural,
social, human and intellectual capital)
into business processes will add value
and better inform our decision-making
processes. This includes how we might
report publicly against these capitals.
12
BUSINESS OVERVIEWUnited Utilities Group PLC unitedutilities.com/corporate Reporting responsible business performance
Evolving market expectations
The way we report on environmental, social and governance
(ESG) issues is evolving as stakeholder interest grows.
TASKFORCE FOR CLIMATE-RELATED
FINANCIAL DISCLOSURES (TCFD)
There is increasing interest in how
companies respond to sustainability
challenges and growing expectations on
how they disclose relevant information
and data on their responsible business
activities. For example, there is more
interest in the disclosure of the ESG
performance of companies and, last year,
we published an investor guide to ESG at
United Utilities in response to that trend.
unitedutilities.com/globalassets/
documents/pdf/united-utilities-esg
-booklet-2020.pdf
The way in which we report has evolved
over the past ten years to incorporate more
ESG information and data through such
action as moving to integrated reporting.
We have looked to do this without making
this report unnecessarily lengthy or difficult
to read. Rather than adopt one specific
framework, our approach is to use the
framework of our purpose-led approach to
disclose performance and data for each of
the stakeholders we create value for. Many of
the ESG indices in which we participate (see
page 84) draw their data from this report.
However, we do recognise that some
stakeholders prefer to have specific data
provided in one place. The following
indicates where further information on
certain frameworks can be found:
World Economic Forum (WEF)
International Business Council (IBC)
The WEF IBC has proposed a set of
common metrics for the consistent
reporting of sustainable value creation in
mainstream annual reports. We already
integrate many of these metrics in our
annual report and to make this easier for
those searching for the information we
have collated them into one place on our
website.
TCFD sets out a framework for
companies to provide stakeholders
with an assessment of the financial
implications of climate change and
what this means for governance,
strategy, risk and metrics. For the
second year, we have included a TCFD
section in our annual report.
unitedutilities.com/wef
Read more on pages 86 to 99
Sustainability Accounting Standards
Board (SASB)
SASB standards aim to standardise
disclosure of material sustainability
information mainly for companies based
in the United States. As many of our
shareholders are located in North America
we are publishing comparable SASB data
on our corporate website. This covers
the main SASB data points for the water
utilities industry of which we are part.
unitedutilities.com/sasb
Sustainable Development Goals
(SDGs)
We have identified six SDGs that are
material to our business. More details can
be found on page 85.
We also complete a variety of issue
and stakeholder-specific rankings and
benchmarks such as the Workforce
Disclosure Initiative (WDI). Disclosure of
these performance scores can be found on
our website.
unitedutilities.com/corporate/
responsibility/our-approach/
cr-performance
13
BUSINESS OVERVIEWStock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021 What it means to be
leading
the way
on service
Our relentless focus on customer service drove us
to deliver significant and continuous improvements
over AMP6, ending the period as a leading water and
wastewater company, and through AMP7 we will not let
this focus falter.
In September we were named by the Consumer Council
for Water (CCW) as the largest of only four companies
that are 'leading the way' in performance on household
customer complaint handling. Delivering our essential
service and getting things right first time for customers is
very important to us.
This year we have significantly increased the availability
and performance of our digital channels with over one
million customers engaging with us digitally, driving both
service improvements and cost efficiencies. Customers
rate us 4.7 out of 5 on the App Store and 4.2 out of 5 on
Google reviews.
Strategic
Report
Our purpose, vision, strategy
and values
How we operate
Serving our region
Engaging with our stakeholders
S172(1) Statement
Non-financial information statement
Our business model
– Our key resources
– Our external drivers and
relationships
– How we respond to challenges
– How we plan for the future
How we measure our performance
Our performance in 2020/21
Being a responsible business
Our approach to climate change
Principal risks and uncertainties
16
18
20
22
28
29
30
34
36
38
46
50
52
84
86
100
Our purpose, vision, strategy and values
Our strategic themes define the way we operate
so we can deliver our purpose and work towards
our vision, and our core values provide the cultural
framework within which we operate.
Our purpose
Why we exist
To provide
great water
and more for the
North West
We are a purpose-led organisation and this drives us to
deliver our services in an environmentally sustainable,
economically beneficial and socially responsible manner,
looking after the interests of the stakeholders
with whom we interact.
Our vision
What we want to achieve
To be the best UK water
and wastewater company
This is what motivates us to improve our services and
deliver more. To achieve this vision, our strategy has three
themes – the best service to customers, at the lowest
sustainable cost, in a responsible manner.
How we deliver our
purpose and vision
The best service
to customers
We put customers at the heart
of everything we do. As well as
delivering a reliable service of
great-tasting water and removing
wastewater, we proactively keep
customers informed about any
work we are doing in their area
and communicate with them in
ways that meet their individual
needs; for example, we now
use ‘push texts’ to send updates
and alerts to customers within a
specified location.
The best service to customers
means being available when
they need to contact us, always
interacting in a friendly and
helpful manner, and offering
tailored support and assistance
for customers when they need
it. As well as these day-to-day
interactions, it means consulting
on what matters to them. This
shapes what we do; for example,
we redesigned our bills based on
customer research and feedback.
16
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Our core values
Fundamental values that
drive decision-making
Customer focused
Customers are at the heart of everything
we do, and we aim to provide a great and
resilient service at the most efficient cost.
Innovative
We continually look for new ways to
make our services better, safer, faster
and cheaper.
Trustworthy
We make promises knowingly and keep
them, behaving with integrity towards all
of our stakeholders.
At the lowest
sustainable cost
In a responsible
manner
To run a resilient business, it
is important to ensure cost
reductions are sustainable so that
we can keep them down without
compromising on resilience or the
quality of service we deliver.
When we develop our plans
and assess different options
for consideration, we look to
minimise the whole-life cost. This
fits with the total expenditure
(totex) model, because the most
cost-effective option can vary
between traditional operating
expenditure (opex) or capital
expenditure (capex) solutions.
Our Systems Thinking approach
helps us look holistically at all
options, and operating our entire
network as a system rather than
discrete assets opens up new
avenues that would otherwise not
have been available.
We will only deliver our purpose
and create and maintain value
for our stakeholders if we act in a
responsible manner.
This means protecting
and enhancing the natural
environment, using natural
solutions where possible, and
reducing our carbon footprint
and waste. It means promoting
a safe, healthy and engaging
workplace for our employees,
supporting their physical and
mental health. It drives us to
support local communities on
issues that matter to them, and
to work with local schools and
training facilities to promote skills
for the future.
Above all it means we are open,
honest and transparent in our
dealings and in reporting our
performance.
Our strategic themes run through everything we do
Our key performance indicators, risk assessment and remuneration policy
are all aligned to these three strategic themes.
Read more about our KPIs on page 51
Read more about our risk management on pages 100 to 109
Read more about our remuneration report on pages 160 to 189
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
17
How we operate
Delivering clean water
We depend on water that we collect
from the natural environment in rivers,
lakes, open reservoirs and boreholes,
but we need to do a lot of work before
this water is safe and clean for customers
to drink. We maintain covered reservoirs,
water treatment works and thousands
of kilometres of water pipes across the
region to collect, treat, store and deliver
billions of litres of reliable, clean drinking
water to millions of customers
24 hours a day.
Removing wastewater
Once the water goes down customers’
drains, or surface water flows into the
sewers, our job begins again as it requires
separation and treatment before it is
clean enough to return to the natural
environment. We maintain wastewater
treatment works and thousands of
kilometres of wastewater pipes to collect,
transport, treat and return water to begin
the cycle again. We waste nothing, turning
sludge by-product into compost for farmers
and capturing gas to generate renewable
energy.
Household retail
We deal with new connections, metering
and billing for millions of household
customers, and help vulnerable customers
with our Priority Services and other
assistance schemes.
Wholesale
For non-domestic customers in the North
West, such as businesses, we provide a
wholesale service to water retailers. Our
wholesale activities include interactions
with new appointments and variations,
known as NAVs.
CLEANING AND RETURNING
WASTEWATER
567
wastewater
treatment works
7,000
kilometres of rivers
1,300
kilometres of
coastline
REMOVING WASTEWATER AND
GENERATING ENERGY
78,000
kilometres of
wastewater pipes
198,000
tonnes of sewage
sludge every year
35
renewable energy
facilities
18
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United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
Our Systems Thinking approach
Traditionally across the water industry,
each asset or treatment works was
operated, managed and assessed in
isolation. Systems Thinking looks at the
entire network, using enormous amounts of
data from the telemetry backbone we have
installed, to consider not just the individual
asset but all its linkages, enabling us to find
the best overall long-term solution. Our
field engineers are linked by an Integrated
Control Centre (ICC) at our head office,
from which we plan, monitor and control
our operations. From our ICC we process
vast amounts of real-time data from across
our network, factoring in other source
data such as weather forecasts, and use
artificial intelligence and machine learning
to process this data and spot issues so
we can resolve them before they impact
customers.
Systems Thinking improves our asset
reliability and resilience, reduces
unplanned service interruptions, and
helps us move away from the traditional
reactive approach to address problems
proactively before they affect customers.
This pioneering approach helped us
deliver operational improvements and cost
savings during AMP6, and we have further
developments planned for AMP7 and
beyond, as Systems Thinking forms part of
our long-term strategy to continue creating
value for customers and stakeholders.
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COLLECTING AND
TREATING WATER
56,000
hectares of land
165
reservoirs
88
water treatment
works
DELIVERING WATER
TO CUSTOMERS
42,000
kilometres of water
pipes
1.8bn
litres of clean water
every day
7.3m
customers served
24 hours a day
19
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
Serving our region
BEING PURPOSE-LED
Bringing value to the
North West
Understanding our wider contribution
helps us to make better decisions.
Through our activities, we make an important contribution
to the environment, society and economy of the North
West. At the start of each five-year investment cycle, we
undertake a study to assess the economic contribution
arising from our proposed spend.
We asked Hatch Regeneris, an independent economics
consultancy, to estimate our contribution to the regional
economy between 2020 and 2025, concluding this will
be around £10.5 billion over the five years. Its report
calculated we will support an average of 22,700 jobs
through direct, indirect and induced employment effects,
which is the people we employ directly, through our
supply chain or arising from employee expenditure.
To put this into context, this equates to one per cent of all
jobs and one in every £80 of gross value add (GVA) in the
North West (pre-COVID-19 numbers). Our estimated GVA
contribution each year of £2.1 billion compares with
£2.8 billion GVA for the whole north west civil engineering
sector.
As the economic effects of the pandemic begin to be felt,
our investment programme offers a reliable economic
contribution and source of employment to the region.
In February, we submitted proposals to support Defra’s
green recovery initiative, including plans to accelerate our
current investment programme. By bringing expenditure
forward, we will support an additional 1,500 to 2,000 jobs
in the earlier years, when we can expect to see the worst
economic effects of the pandemic.
Such analysis gives greater insight into the value we bring
to the North West and enables us to make more informed,
rounded, balanced decisions, shaped by stakeholder
research and engagement. In AMP7, we’ve agreed a target
to generate £4 million of natural capital value through
catchment schemes – alongside water quality benefits,
this work will protect and enhance biodiversity. Our
investment in young people not in education, employment
and training has already yielded over £9 million of social
value through avoided welfare costs.
Looking ahead, we recently assessed the social and
economic value that will arise from our commitment to
reduce flooding occurrences by 2025. We’ve estimated
that £200 million of social value will be generated based
on the avoided impact of internal flooding, which includes
the wellbeing benefits for customers. While further
analysis is required, thinking this way offers additional
insight into how we value future investments plans.
Generating value for:
Communities
Customers
Employees
Environment
Shareholders
Customers
Environment
Media
Our contribution
to the regional
economy between
2020 and 2025 is
estimated to be
around £10.5 billion.
20
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
We serve the
North West
We are committed to
understanding the key
factors that make our
region unique.
Carlisle
Workington
Whitehaven
Kendal
Barrow-in-Furness
ECONOMIC FACTORS
We are building resilience to
continue serving our growing
population and support jobs
and the tourism industry.
7.3m
population expected to grow
significantly in the next 25 years
22,7001
jobs actively supported by
our work, with over 5,000
direct employees
Tourism
relied on by Lake District,
Liverpool and coastal area
Lancaster
Blackpool
Preston
Burnley
Blackburn
Bolton
Liverpool
Manchester
Warrington
Stockport
Chester
Crewe
SOCIAL FACTORS
We are leading the sector on
affordability and vulnerability.
41%
of the most deprived areas
in the country
47%
of households have less than
£100 savings to cope with
unexpected bills
18%
of households are affected
by water poverty, 20 per
cent higher than the national
average
ENVIRONMENTAL FACTORS
We have a long coastline,
protected rural areas and
dense urban areas, all of
which create different
demands.
30%
of land is National Park or
Area of Outstanding Natural
Beauty or Sites of Special
Scientific Interest
29
designated bathing waters
830mm
higher than average UK
rainfall each year
(1) based on our 2020–25 business plan
21
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Engaging with our stakeholders
We actively engage with stakeholders to understand what
matters most to them through strong and constructive
relationships.
To create longer-term value for all it is
essential that we identify and engage
with our stakeholders to understand what
matters most to them.
We do not operate in isolation and it is
not for us alone to determine what the
region needs us to deliver. Engaging
with stakeholders across the North West
enables us to identify shared solutions to
shared challenges. We value the diverse
perspectives that a broad range of
stakeholders, representing different and
often competing interests, can bring to our
decision-making.
Understanding what matters to
stakeholders will only be achieved by
building strong, constructive relationships
and engaging regularly. This is important
to building and maintaining trust. These
relationships are subject to robust
governance to ensure the insights
generated are taken into account in
decision-making at executive and board
level. The board’s corporate responsibility
committee meets four times a year, with
stakeholder engagement as one of its
standing agenda items, and the chair
of the independent customer challenge
group (YourVoice) regularly attends board
meetings to provide its perspective.
The following pages detail how we engage
with, and are influenced by, each of our
key stakeholder groups. Our analysis of
what matters most to stakeholders, and
how these issues affect our ability to create
long-term value, is set out in our material
issues matrix on page 27.
As shown below, there are nine key
stakeholder groups that influence our
planning and activities, and six of these
groups benefit from the value we create.
n
e
I n fl u
c e w h a t we do and benefit fro
E m p loyee
s
Employees
u s t omers
C
Customers
E
Environment
n v i ronm
e
n
Environment
t
m th
e v
a
l
u
e
w
e
c
r
e
a
t
e
I n v estors
Shareholders
Who are our
stakeholders?
S u ppliers
Media
o m munitie
s
Communities
C
Customers
Media
Shareholders
Medi a
Employees
Politici a n s
Influence what we do
Communities
Regula t
o rs
22
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
BEING PURPOSE-LED
Partnership approach
to tackle flooding
Reducing the risk of flooding is especially
challenging in the North West.
Analysis of Met Office data shows that average annual
water run-off in the North West is 28 per cent higher than
the average for England and Wales, meaning more water
runs into our sewers and increasing flood risk.
Covering natural areas with new developments such as house
building makes it harder to manage surface water run-off.
With climate change increasing the frequency and intensity of
storms, tackling flooding is becoming of greater concern for
regional stakeholders. No single organisation can tackle this
problem alone; only by working in partnership will the benefits
from reducing flooding risk to wider society be realised.
One example of partnership working is in Thornton, near
Blackpool, which is in the low-lying, flat and saturated
River Wyre catchment. The area has experienced flooding
from multiple sources and water quality issues from
misconnections. Because the sewer network is combined,
bringing together surface water and sewage from homes
and businesses, there is limited capacity for extra water,
which then has to be pumped to nearby Fleetwood
wastewater treatment works.
The traditional solution to install concrete storage tanks to
reduce the effects of storm flows wasn't cost beneficial or
environmentally sustainable.
In 2019, we engaged with other risk management authorities,
catchment partners such as the Rivers Trust, and the
community group of the Wyre Flood Forum, to develop a plan
to tackle the joint issues in the catchment. We challenged
ourselves to examine how to store and purify flood waters
through natural flood management and how we could realise
multiple benefits through targeted extra investment.
The scope of the agreed solution included:
• 3.3 hectares of wetlands, 1,000m3 of flood storage and
restoring the river to its natural state;
•
1,300m3 of storage and wetlands habitat constructed in
collaboration with McDermott Homes; and
• an investment of £220k to the Wyre Rivers Trust.
This catchment scheme was possible because of strong and
effective partnerships. Support came from the EU LIFE-
funded Natural Course project. Working with the developer
to use land for flood risk management was vitally important,
as was access to alternative funding streams to help realise
wider benefits. Looking ahead, we will monitor the wetlands to
understand the catchment and assess ecological improvement,
with input from local communities.
The success of this collaboration can be applied to other
partnerships across the North West.
Generating value for:
Communities
Customers
Environment
Shareholders
Customers
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
This catchment
scheme was
possible because
of strong
and effective
partnerships.
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
23
Engaging with our
stakeholders
Our approach to engagement extends
across all of our stakeholders, from those
who influence what we do and benefit
from the value we create, to those who just
influence what we do.
Read more about how we manage
our material issues on page 27
Communities
Customers
Communities
Customers
Customers
Employees
Environment
Employees
Why we engage
Our work puts us at the heart of local
communities, places where customers
and employees live and work. We
seek to support communities to be
stronger based on mutual trust, respect
and understanding the impact and
contribution our work has on everyday
life. We play a constructive role in
tackling issues through engagement
and investment, and by identifying what
matters most to communities we can
develop collaborative solutions.
How we engage
Much of our engagement is face-to-
face, although over the past year we
have adapted to using more digital
means of engagement, such as our
online consultation as part of the
Haweswater Aqueduct Resilience
Programme, alongside traditional
methods, such as attending parish
council meetings.
We engage through facilitated
workshops and community partnerships,
such as involving those communities
affected by our construction work.
Issues raised by communities can
present opportunities to improve what
we do or to help others, while some
can be complex and difficult to handle,
especially where competing interests
between different stakeholder groups
are present, and require time and effort
to work through.
Top three material issues
Land management and access
Community investment
Trust, transparency and legitimacy
24
Why we engage
To provide a great service in a way that
customers value, we need to listen
and engage with them to understand
both short-term issues, and longer-
term expectations of us as their water
company. We are always interested to
know what domestic and wholesale
customers think about us so we can
make our services better and address
the issues that matter. As customer
expectations change, we need to evolve
our own services to ensure we meet
those expectations.
How we engage
We interact with customers every day
through our operational call centres,
water retailers and increasingly via
social media channels. We also get
direct feedback through schemes such
as the WOW awards.
Enhancements to our service such as
Priority Services have been developed
through engagement with customers
and groups representing vulnerable
customers, such as Age Concern and
Autism Together.
Our current business plan was
shaped by unprecedented levels of
customer engagement. YourVoice, the
independent customer challenge group,
provided critical support and challenge,
as well as contributing to shape our
plans to 2025.
Top three material issues
Why we engage
It is essential we build productive
relationships with our employees based
on trust. Our employees are the face
of the company and we simply could
not deliver our services without them,
including the 13,000 who form part of
our supply chain in the North West.
Employees know our business better
than anyone, with a diverse range of
views and experience, making them
well placed to identify opportunities for
improvement.
How we engage
Line managers play a vital role in
supporting employees, with regular
one-to-one meetings providing two-way
engagement.
Every year our employee opinion survey
provides an opportunity for employees
to have a say about our company and
to be open and honest with their views
and opinions. The anonymous and
confidential survey is managed by an
independent consulting firm. Results are
provided to all teams with greater than
ten members for them to take action
accordingly.
Our Employee Voice panel consists of
24 members from across the company,
providing a means by which employee
perspectives are heard by the board. We
have several employee-led networks,
including gender equality, multicultural
and LGBT+ groups.
Customer service and operational
performance
Top three material issues
Health, safety and wellbeing
Affordability and vulnerability
Diverse and skilled workforce
Leakage and water efficiency
Employee relations
Why we engage
We rely on the environment and
play a key role in protecting and
Why we engage
Why we engage
It is important that investors have
Good relationships with suppliers help
confidence in the company and how it is
ensure that we get projects delivered on
enhancing it across the region. Given
managed, given their investment in our
time, to good quality, at efficient costs
the environment has no voice of its
business. We provide regular updates
and can identify and realise innovative
own, we engage with interested groups
to debt and equity investors so they can
approaches and solutions. Awareness
such as environmental regulators,
non-governmental organisations,
be assured that the company is being
managed responsibly. Increasingly,
of issues throughout the supply chain
means we can address them together
campaigners and local communities
this includes environmental, social and
and become more resilient. We rely on
to find the best ways to tackle
environmental issues, like climate
change and land management.
governance updates alongside financial
suppliers to deliver our services and
and performance data as investors take
create value for all.
a broader view of value and risk.
How we engage
How we engage
We have formal discussions with both
Our AGM provides a chance for any
discussions with our commercial team
national and regional representatives
shareholder to engage with our board of
as part of our supplier relationship
of environmental regulators to identify
directors and hold them to account.
management (SRM) process. This helps
How we engage
Existing suppliers have regular
undertaken a large number of customer
Regular engagement activities are
and through supplier databases such
priority issues and solutions.
We conduct facilitated workshops
with environmental stakeholders to
understand their priorities and have
research projects.
We work with other companies,
including within the water sector,
landowners and local and national
environmental groups to explore
Through our investor relations
programme, we actively engage with
shareholders and analysts who write
to identify issues and opportunities to
make our relationship flow smoothly.
When re-tendering goods or services,
reports on our company and industry.
we engage with the market directly
supplemented by ad hoc events such as
as Achilles, to get a broad view of best
capital markets days.
practice and market opportunities.
Our treasury team has regular dialogue
Through our United Supply Chain
with the group’s relationship banks
(USC) approach we engage suppliers
and the EIB and credit rating agencies.
on sustainable and ethical issues and
where we have common interests and
Updates are provided to credit investors
performance. Suppliers can join USC by
opportunities to collaborate and deliver
through a programme of meetings and
committing to our responsible sourcing
more together through pilots and
mailings.
principles.
partnerships.
Top three material issues
Resilience
Environmental impacts
Climate change
We supply information to several
investor-led ratings and indices on
Through memberships of organisations
such as the Supply Chain Sustainability
ESG matters, such as the Dow Jones
School and the Chartered Institute
Sustainability Index.
Top three material issues
of Procurement and Supply we keep
abreast of best practice.
Customer service and operational
Top three material issues
performance
North west regional economy
Political and regulatory environment
Responsible supply chain
Financial risk management
Human rights
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
Why we engage
Why we engage
Why we engage
Our work puts us at the heart of local
To provide a great service in a way that
It is essential we build productive
communities, places where customers
customers value, we need to listen
relationships with our employees based
and employees live and work. We
seek to support communities to be
and engage with them to understand
both short-term issues, and longer-
on trust. Our employees are the face
of the company and we simply could
stronger based on mutual trust, respect
term expectations of us as their water
not deliver our services without them,
and understanding the impact and
company. We are always interested to
including the 13,000 who form part of
contribution our work has on everyday
know what domestic and wholesale
life. We play a constructive role in
customers think about us so we can
our supply chain in the North West.
Employees know our business better
tackling issues through engagement
make our services better and address
than anyone, with a diverse range of
and investment, and by identifying what
the issues that matter. As customer
views and experience, making them
matters most to communities we can
expectations change, we need to evolve
well placed to identify opportunities for
develop collaborative solutions.
our own services to ensure we meet
improvement.
How we engage
Much of our engagement is face-to-
face, although over the past year we
have adapted to using more digital
means of engagement, such as our
online consultation as part of the
Haweswater Aqueduct Resilience
Programme, alongside traditional
methods, such as attending parish
council meetings.
those expectations.
How we engage
How we engage
Line managers play a vital role in
We interact with customers every day
supporting employees, with regular
through our operational call centres,
one-to-one meetings providing two-way
water retailers and increasingly via
social media channels. We also get
direct feedback through schemes such
as the WOW awards.
engagement.
Every year our employee opinion survey
provides an opportunity for employees
to have a say about our company and
Enhancements to our service such as
to be open and honest with their views
Priority Services have been developed
and opinions. The anonymous and
We engage through facilitated
through engagement with customers
confidential survey is managed by an
workshops and community partnerships,
and groups representing vulnerable
independent consulting firm. Results are
such as involving those communities
customers, such as Age Concern and
provided to all teams with greater than
affected by our construction work.
Issues raised by communities can
present opportunities to improve what
we do or to help others, while some
can be complex and difficult to handle,
especially where competing interests
between different stakeholder groups
are present, and require time and effort
to work through.
Top three material issues
Land management and access
Community investment
Trust, transparency and legitimacy
Autism Together.
ten members for them to take action
Our current business plan was
accordingly.
shaped by unprecedented levels of
Our Employee Voice panel consists of
customer engagement. YourVoice, the
24 members from across the company,
independent customer challenge group,
providing a means by which employee
provided critical support and challenge,
perspectives are heard by the board. We
as well as contributing to shape our
have several employee-led networks,
plans to 2025.
Top three material issues
Customer service and operational
performance
including gender equality, multicultural
and LGBT+ groups.
Top three material issues
Health, safety and wellbeing
Affordability and vulnerability
Diverse and skilled workforce
Leakage and water efficiency
Employee relations
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Environment
Shareholders
Environment
Investors
Suppliers
Media
Why we engage
We rely on the environment and
play a key role in protecting and
enhancing it across the region. Given
the environment has no voice of its
own, we engage with interested groups
such as environmental regulators,
non-governmental organisations,
campaigners and local communities
to find the best ways to tackle
environmental issues, like climate
change and land management.
How we engage
We have formal discussions with both
national and regional representatives
of environmental regulators to identify
priority issues and solutions.
We conduct facilitated workshops
with environmental stakeholders to
understand their priorities and have
undertaken a large number of customer
research projects.
We work with other companies,
including within the water sector,
landowners and local and national
environmental groups to explore
where we have common interests and
opportunities to collaborate and deliver
more together through pilots and
partnerships.
Top three material issues
Resilience
Environmental impacts
Climate change
Why we engage
It is important that investors have
confidence in the company and how it is
managed, given their investment in our
business. We provide regular updates
to debt and equity investors so they can
be assured that the company is being
managed responsibly. Increasingly,
this includes environmental, social and
governance updates alongside financial
and performance data as investors take
a broader view of value and risk.
How we engage
Our AGM provides a chance for any
shareholder to engage with our board of
directors and hold them to account.
Through our investor relations
programme, we actively engage with
shareholders and analysts who write
reports on our company and industry.
Regular engagement activities are
supplemented by ad hoc events such as
capital markets days.
Our treasury team has regular dialogue
with the group’s relationship banks
and the EIB and credit rating agencies.
Updates are provided to credit investors
through a programme of meetings and
mailings.
We supply information to several
investor-led ratings and indices on
ESG matters, such as the Dow Jones
Sustainability Index.
Top three material issues
Customer service and operational
performance
Why we engage
Good relationships with suppliers help
ensure that we get projects delivered on
time, to good quality, at efficient costs
and can identify and realise innovative
approaches and solutions. Awareness
of issues throughout the supply chain
means we can address them together
and become more resilient. We rely on
suppliers to deliver our services and
create value for all.
How we engage
Existing suppliers have regular
discussions with our commercial team
as part of our supplier relationship
management (SRM) process. This helps
to identify issues and opportunities to
make our relationship flow smoothly.
When re-tendering goods or services,
we engage with the market directly
and through supplier databases such
as Achilles, to get a broad view of best
practice and market opportunities.
Through our United Supply Chain
(USC) approach we engage suppliers
on sustainable and ethical issues and
performance. Suppliers can join USC by
committing to our responsible sourcing
principles.
Through memberships of organisations
such as the Supply Chain Sustainability
School and the Chartered Institute
of Procurement and Supply we keep
abreast of best practice.
Top three material issues
North west regional economy
Political and regulatory environment
Responsible supply chain
Financial risk management
Human rights
25
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021
Engaging with our
stakeholders
We maintain close
relationships with three
stakeholder groups that
influence what we do and
how we do it.
Warrington South MP Andy Carter
meeting our apprentices during
National Apprenticeship Week.
Media
Shareholders
Media
Politicians
Regulators
Employees
Communities
Why we engage
It is through both traditional media
and social media that many of our
stakeholders receive their information
about us and our activities. The media
is influenced by the issues that matter
most to those stakeholders as well
as influencing them through what
it reports. Given the nature of our
services, it is important that coverage
is fair, balanced and accurate. This
requires effective two-way dialogue
between the company and the media.
How we engage
Our media team are available 24/7
to respond to media enquiries and
proactively engage media outlets
providing digital content suitable for
direct media broadcast.
Regular press releases on company
activities help to maintain relationships
with national, regional and local media
outlets.
We have a dedicated social media team
who manage and respond to posts on
our social media channels while driving
proactive messages and articles. We
monitor social media sentiment and
issues related to the company so we can
respond accordingly.
Top three material issues
Political and regulatory environment
Leakage and water efficiency
Social media
Why we engage
Politicians influence the long-
term national water strategy and
environmental priorities, matters that
affect how all businesses operate,
and champion issues raised by their
constituents.
Local government, elected
representatives and devolved
administrations provide insight into
shared social, environmental, economic
and governance issues.
How we engage
We engage with regional and national
politicians across the different political
parties.
Open dialogue with regional MPs
is maintained on specific issues
and we regularly attend meetings
at constituency offices. We have
provided each MP in our region with
a fact sheet with contact details and
information about our activities in their
constituency.
We take part in joint working groups
with devolved administrations and local
authorities on topics such as natural
capital.
As part of our capital programme,
we often attend local parish council
meetings to make the case for our
planning applications.
Top three material issues
Political and regulatory environment
Leakage and water efficiency
Trust, transparency and legitimacy
Why we engage
Through proactive, constructive
engagement with economic, quality
and environmental regulators, we
agree commitments over specified time
periods and finalise the expectations
they have of our business planning and
performance.
We actively engage to shape the policy
and regulatory framework within
which we operate, covering customer,
economic, environmental, social and
governance matters.
How we engage
We hold regular meetings with all of
our regulators to discuss priorities and
objectives which can change over time.
When they seek views through specific
consultations we provide considered
responses where we think there is value
and we have something to contribute.
We work together with regulators to
find new solutions through projects such
as Natural Course, which aims to build
capacity to protect and improve the
water environment of the North West.
Top three material issues
Political and regulatory environment
Resilience
Trust, transparency and legitimacy
26
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Managing our material issues
Our approach to materiality
Understanding what matters most to our
stakeholders is fundamental to being a
purpose-driven organisation. We consider
these stakeholder priorities alongside our
own assessment of what has the biggest
impact on the company and its ability to
create value, and the output is presented in
the material issues matrix below.
This stakeholder materiality assessment
informs decisions about what we report
in documents such as this annual report.
Setting out issues in this way helps ensure
we understand key stakeholder priorities and
consider their interests in strategic decision-
making, helping us create long-term value.
In defining the strategic relevance of an
issue to the company, we have adopted the
integrated reporting framework definition
of materiality, which states: “a matter is
material if it could substantively affect the
organisation’s ability to create value in the
short, medium or long term”. Value, in this
context, may be created internally (for
the company, investors and employees)
and there can be external value (for
customers, communities, suppliers and the
environment). Value may be financial or
non-financial.
Our assessment of the level of interest to
stakeholders is based on a balance of views
obtained from communities, customers,
employees, investors, regulators, and
subject matter experts from the company
on an ongoing basis, as well as the extensive
insights gathered for the regulatory price
review process. We will be undertaking a
thorough review of our material issues and
matrix in the next 12 months.
We have cross-referenced and aligned
these issues with our principal risks
and uncertainties, and our approach
was reviewed by responsible business
consultancy Corporate Citizenship, which
commented that “alignment with United
Utilities’ way of creating value gives life and
credibility to the materiality matrix”, and
this sends a very distinct message about
our business model and what we value.
OUR PRIORITISATION
OF ISSUES
Striking the right balance between
different interests and views is not easy.
Discussions at board and management
level form part of this alongside the
use of tools such as our whole-life cost
model when considering investment
decisions. We are exploring how multi-
capital approaches might help in our
decision-making, and expect a plan of
how this can add the most value to be
completed this year.
Material issues matrix
We consolidated feedback from our various
stakeholder groups, as detailed above,
which resulted in 26 material issues. Due
to the impact and ongoing nature of the
COVID-19 pandemic we have included this
as a new material issue. These issues are
impacted by factors that may be external,
internal or both; for example, the material
issue of a diverse and skilled workforce
has an external dimension of skills and
diversity within the region, whereas the
training and culture within the company
are internal factors. The 27 issues are
plotted on the matrix below, from lower
to higher in terms of level of interest to
stakeholders and how much it can affect
our ability to create value.
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22
23
19
20
21
17
18
24
25
26
27
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Lower
Higher
Effect on our ability to create value
Based on the potential effect on our ability to create value over the short, medium and long term.
Value can be created for United Utilities, investors, regulators, employees, the public, and/or the
environment. Value can be financial and non-financial.
External factors
5
8
13
16
18
22
25
27
Political and regulatory environment
Climate change
Cyber security
North west regional economy
Natural resources
Social media
Land management and access
Human rights
2
9
10
12
Internal factors
Resilience
Financial risk management
Corporate governance and business conduct
Innovation
Data security
Energy use
Responsible supply chain
Health, safety and wellbeing
Employee relations
Community investment
26
20
19
23
15
17
Both external and internal factors
1
3
4
6
7
11
14
21
24
Trust, transparency and legitimacy
Customer service and operational performance
Leakage and water efficiency
Affordability and vulnerability
COVID-19
Sewer flooding
Environmental impacts
Competitive markets
Diverse and skilled workforce
27
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
S172(1) Statement
Statement by the directors in
performance of their statutory
duties in accordance with S172(1)
Companies Act 2006
The board of directors of United Utilities
Group PLC consider, both individually
and together, that they have acted in the
way they consider, in good faith, would be
most likely to promote the success of the
company for the benefit of its members
as a whole and having regard (among
other matters) to factors (a) to (f) S172(1)
Companies Act 2006, in the decisions
taken during the year ended 31 March 2021.
Our key decisions during the year to
31 March 2021 were:
OUR APPROACH
Introduction
Throughout this annual report, we provide examples of how we have thought
about the likely consequences of long-term decisions and how we:
• build relationships with stakeholders and balance their needs and expectations
with those of the business;
• understand the importance of engaging with our employees;
• understand the impact of our operations on the communities in our region and
the environment we depend upon;
• are mindful of the interactions we have with our regulators; and
• understand the importance of behaving responsibly and being consistent with
the company’s purpose, vision and values.
Green recovery
Scope 3 emissions
AMP 7 dividend policy
We had already committed to achieving
science-based targets to reduce our
emissions in line with the UK’s commitment
in the 2008 Climate Change Act (see pages
86 to 97). As part of our carbon strategy
the board has made a series of pledges
to deliver these targets and to setting
further targets across our full value chain,
including transitioning to using 100 per
cent renewable energy by 2021 and a 100
per cent green fleet by 2028.
The board’s view
During the year, we have made a further
commitment by setting science-based
targets for scope 3 emissions. First, we
will reduce our absolute emissions by 25
per cent from the 2020 baseline by 2030,
thereby aligning the group to a trajectory
needed to limit global warming to ‘well
below’ 2⁰C. Secondly, we have set the
target that 66 per cent of our construction
services suppliers should set their own
science-based target by 2025, thereby
helping to escalate a carbon focus in the
construction services sector. The board
believed that committing to our pledges
and delivering against the targets set would
be most likely to promote the long-term
success of the company for the benefit of
its members as a whole.
Our AMP 7 dividend policy for the 2020–25
regulatory period was agreed by the board
and announced on 29 January 2020. When
we announced our full-year results in the
early stages of the pandemic in May 2020,
we undertook to review the AMP7 dividend
policy in light of the uncertainty associated
with the impact of the pandemic that
existed at that time. In November 2020, the
board reaffirmed the AMP7 dividend policy,
targeting a growth rate of CPIH inflation
each year through to 2025.
The board’s view
Over the summer and autumn of 2020,
we had a chance to gain a clearer
understanding of the impact of the
pandemic on the business, which continued
to be robust and supported by a strong
balance sheet, along with a stabilised
inflation outlook supported by central bank
policy and government actions. The board
believed that reaffirmation of the AMP7
dividend policy would provide greater
certainty for our investors and would
be most likely to promote the long-term
success of the company for the benefit of
its members as a whole.
In July 2020, Defra commenced an initiative
through which water companies (among
others) could propose to accelerate
investment to deliver ‘green’ initiatives that
would both benefit the environment and
support the economic recovery from the
COVID-19 pandemic. The requirements for
such proposals were further clarified by
Ofwat, Defra, the Consumer Council for
Water, the Environment Agency and the
Drinking Water Inspectorate in November
2020 and January 2021.
The board’s view
The board believed that the draft investment
proposed would help to contribute to the
Government’s green recovery plans and
bring forward benefits for customers and
the environment, but it would not present
a significant risk to our financial resilience
nor compromise our ability to deliver the
remainder of our AMP7 plan. The board
believed that our proposals were: of high
quality; represented strong outcomes for
customers and the environment; offered
good value for money; could be implemented
alongside existing regulatory and statutory
commitments; and would be most likely
to promote the long-term success of the
company for the benefit of its members as
a whole. If our regulators confirm they are
supportive, the board will further review its
position.
OUR STRATEGIC THEMES
The best service to
customers
At the lowest
sustainable cost
In a responsible manner
28
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
Non-financial information statement
The table below constitutes the company’s non-financial information statement, produced to comply with sections 414CA(1) and 414CB(1) of
the Companies Act 2006. Our purpose-driven approach, as described on pages 16 to 17, sets out how we act as a responsible business and is
applicable to the areas of disclosure required by s414CB(1). The performance tables we publish for each stakeholder that we create value for,
so that we can demonstrate we are fulfilling our purpose (see pages 52 to 73), include data in relation to the areas of disclosure required
by s414CB(1).
Read more about our purpose on our website:
unitedutilities.com/corporate/about-us/what-we-do/our-vision
Reporting requirement
Information necessary to understand
our business and its impact; policies and
due diligence activities; and outcomes
Policies, guidance and standards which
govern our approach (some of which are
only published internally)
Environmental matters
Reflecting the needs of the environment:
• Waste and resource use policy
• Natural resources – see page 34
• Natural environment – see pages 25 and 36
• Reducing our carbon footprint – see
pages 86 to 99
• Environmental policy – see the responsibility
pages on our website
• Water Resources Management Plan –
see page 48
• Emissions target – see pages 86 to 99
Employees
Reflecting the needs of our employees:
• Health and safety policy
• Competitive base salaries and benefits –
see page 173
• Equality, diversity and inclusion policy
• Flexible working arrangements
• Health and safety – see page 61
• Agency worker policy
• Mental wellbeing – see pages 59 to 60
• Mental wellbeing policy
• Gender pay report 2020 – see page 139
• Human rights policy – see page 41
• Engagement – see pages 5, 24, 59, 61 and 194
• Board diversity policy – see pages 132 to 133
• Board diversity – see pages 132 to 133
Respect for human rights
Reflecting the needs of our stakeholders:
• Employee data protection policy
• Suppliers – see page 25
• Diversity within our workforce – see pages
42, 59 to 62, 132 to 133, 137 to 140
• Slavery and human trafficking statement
• Human rights policy – see page 41
Social matters
Reflecting the needs of our stakeholders:
• YourVoice – see page 22
Anti-corruption and
anti-bribery
• Customers – see page 24
• Communities – see page 24
• Environment – see pages 25 and 86
• Suppliers – see page 25
• Regulators – see page 26
• Charitable matched funding guidance
• Volunteering policy
• United Supply Chain – see
pages 41 and 73
• Commercial procurement policy
Reflecting the needs of employees and suppliers:
• Anti-bribery policy
• Employees – see pages 59 and 155
• Suppliers – see page 71
• Fraud investigation and reporting processes
• Whistleblowing policy
•
Internal financial control processes
• Commercial procurement policy
29
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our business model
OUR KEY RESOURCES
Natural resources
We rely on natural resources to supply water and take back
wastewater after treatment, as well as to generate renewable
energy. We own and manage large areas of land.
Assets
We invest significantly to maintain and enhance our assets and
build long-term resilience, and we use telemetry across the
network to monitor and control many assets remotely.
People
We rely on skilled and engaged employees and suppliers to
deliver our services, and must ensure skills are maintained
across the generations through training and development.
Financing
Financing allows us to preserve intergenerational equity for
customers while funding long-term capital investment, and we
maintain access to a range of markets to seek good value.
Read more about our key resources on pages 34 and 35
To provide
great water
and more
for the
North West
Our strategy and core values
Our strategy sets out how we deliver our
purpose, and is broken down into three strategic
themes, which govern everything we do.
Our core values – to be customer-focused,
innovative and trustworthy – provide the cultural
framework within which we operate.
The best service
to customers
At the lowest
sustainable cost
In a responsible
manner
Read more about our strategy and core values on pages 16 to 17
Our planning horizons
We undertake long, medium, and short-term
planning, taking into account our external
drivers and what matters to stakeholders.
Read more about our approach
to planning on pages 48 to 49
Our business is very long
term by nature and we
must build resilience to
ensure we can continue
to provide this essential
service.
Medium-term planning reflects our five-year
regulatory periods, and aims to help us work
towards our long-term plans.
We set annual targets but retain flexibility in these short-
term targets to respond to challenges and meet our five-
year goals in the most effective and efficient way possible.
1 year
5 years
25+ years
OUR EXTERNAL DRIVERS AND RELATIONSHIPS
Natural environment
We must be resilient to changes such as
climate change and population growth,
and ensure our impact on the natural
environment is positive.
Technology and innovation
New technology and innovations create
opportunities for improvements in
service and efficiency, but can also
create risks such as cyber security.
Regulatory environment
Regulators’ priorities drive our five-year
commitments, and we must actively
engage to influence and prepare for
future market reforms in the industry.
Stakeholders
Our work and the huge areas of land
we manage impacts a wide variety of
stakeholders and we consult them to
help develop and execute our plans.
Economic environment
The economy impacts our financing,
through market rate movements such
as interest rates and inflation, and our
customers’ ability to pay their bills.
Political environment
This includes regional and national
politicians as well as policy makers, and
we must understand the key policy issues
affecting our industry.
Read more about external drivers and relationships on pages 36 to 37
30
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
WHAT WE DO
Our core activities are to deliver essential
water and wastewater services for
household and business customers
across the North West.
We maintain and operate thousands
of kilometres of pipes and hundreds of
treatment works, as well as renewable
energy facilities that use our land and
bioresources from wastewater treatment
to generate clean electricity to help
power our operations.
Our customers
We deliver a reliable service to over seven million people, with
over three million household customers and over 200,000
businesses. We supply clean, great-tasting water and remove
wastewater 24 hours a day.
The
water cycle
Read more about our water cycle on pages 18 to 19
HOW WE DO IT
To deliver these essential services in
the most effective way, we take an
integrated approach that considers what
is most material to our stakeholders
and to our ability to create value; our
risk management; our commitment to
environmental, social and governance
matters; and our pioneering Systems
Thinking approach to operating our
network and assets.
Read more about our approach on page 46
Our prioritisation of issues
We engage with our stakeholders to understand
their priorities and balance their different and often
conflicting views.
Our commitment to ESG matters
We operate in an environmentally and socially conscious
manner and uphold the highest standards of corporate
governance.
Our risk management
We manage a wide variety of risks to enable us to focus
on delivering a sustainable and resilient service for the
long term.
Systems Thinking
We operate our network as a system rather than
discrete assets, and we have a backbone of sensors
that enable remote monitoring and control.
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
31
The value
we generate
Communities
Customers
Communities
Customers
Customers
We build partnerships to help
create better places and support
communities to be stronger. We
work with schools and young
people to develop skills and help
people get back to work. Our
land is open to the public and
we encourage people to use it
responsibly.
We put customers at the heart
of everything we do. Through
responding to customers'
needs we provide a continually
improving service at an
efficient, low cost, and we
support thousands of vulnerable
customers through a wide range
of assistance schemes.
How we measure this
• KPI – Community investment
How we measure this
• KPI – C-MeX
• Other metrics, including
partnership leverage,
provision of education and
visitor satisfaction
• Other metrics, including
D-MeX, managing complaints,
vulnerability support and
customer awareness
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Employees
Environment
Employees
Environment
Environment
We focus on attracting,
developing and retaining a diverse
workforce, and ensuring we look
after their health, safety and
wellbeing. We run graduate and
apprenticeship programmes,
and wider training schemes, to
develop skilled employees. We
pay the Living Wage and have a
secure pension provision.
How we measure this
• KPI – Employee engagement
We protect and enhance
reservoirs, catchments, rivers
and bathing waters that provide
a home for wildlife, areas for
recreation, and a major pull for
tourism. We aim to reduce our
impact and generate renewable
energy to protect the environment
for years to come.
How we measure this
• KPI – EA performance
assessment
• Other metrics, including
• Other metrics, including
diversity and inclusion,
learning and development,
and accident frequency rate
leakage reduction, clean air,
carbon footprint and natural
capital value added
Shareholders
Investors
Suppliers
Media
Many of our investors are pension
funds and charities and the income
we provide is relied on by millions.
We manage risk prudently and
provide an appropriate return,
investing in our assets for growth
and resilience. Regulatory incentives
help align shareholder value with
what matters to customers and the
environment.
How we measure this
• KPI – RoRE
• Other metrics, including
performance across investor
indices, gearing and Fair Tax
Mark
Read more about how we deliver value
for our stakeholders on pages 52 to 72
We invest in the North West’s
infrastructure and generate jobs,
skills and income across the region
through our capital programme that
supports the supply chain and the
local economy. We act fairly and
transparently with all our suppliers
and are a signatory to the Prompt
Payment Code.
How we measure this
• KPI – percentage of invoices
paid within 60 days
• Other metrics, including average
time taken to pay invoices and
suppliers signed up to our
United Supply Chain
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
32
Open the page to see how we
deliver our purpose and create
value for all our stakeholders
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Our business model
Our key resources
NATURAL RESOURCES
We rely on natural sources of water, such
as reservoirs, rivers and boreholes, from
which abstraction licences permit us to
take water in a safe and sustainable way
to be treated and supplied to customers.
We rely on natural watercourses to take
wastewater back into the environment
after extensive cleaning. We generate
renewable energy from the sun and wind,
and extract bioresources from wastewater
that we break down into biogas (which is
used to generate renewable energy) and
biosolids (which are treated to provide a
high-quality fertiliser for farmers).
Coping with severe dry periods requires
action in relation to supply (ensuring we have
resilient water resources and infrastructure
to move water efficiently around the region)
and demand (encouraging and supporting
customers to use water more efficiently).
In periods of heavy rainfall we need to deal
with excess surface water drainage and
minimise the risk of sewer flooding,
pollution and spills.
How we manage this key resource
Much of the water we abstract originates
on land before running off into the bodies
of water. We own and manage large areas
of this land, much of which is managed
by tenant farmers, or in partnership with
other organisations, such as the RSPB and
Wildlife Trusts, and we focus on ensuring
it is well managed to improve water quality
and help protect habitats and species that
live there.
Our Systems Thinking approach is central
to how we manage water supply. We
have an integrated supply zone covering
most of our region, our West-East Link
Main allows us to transfer water between
Manchester and Liverpool, and where
there is a potential shortfall we can bring
more supplies online to meet demand.
Forty-six per cent of households in our
region now have water meters installed,
and we encourage customers to save
water by raising awareness, sharing tips,
and providing free water-saving devices.
Link to risks 1 2 7
Traditional interventions to flooding, such
as storage tanks and enlarging sewers, are
costly and subject to space constraints.
We are innovating with new sustainable
drainage solutions by working with
partners to transform hard grey areas into
living planted places. We use integrated
catchment solutions, working with others
to improve the lakes, rivers and coastal
waters in our region, and often using
the natural environment as part of the
solution. We manage our own woodland
in a sustainable way to protect water
quality, conservation, access, recreation
and timber.
Our activities produce various wastes,
including sludges, which we manage
in a sustainable way with more than 97
per cent going to beneficial uses such
as recycling and application to land as a
fertiliser. We use recycled products where
practical, and are working to reduce
our use of plastics and raw materials to
minimise our environmental impact.
Link to risks 5 7
We are committed to protecting the
health, safety and wellbeing of our people,
and have been awarded the workplace
wellbeing charter.
We measure employee engagement
through an annual survey, and regularly
achieve results higher than the UK norm.
We monitor and measure employee
performance through annual reviews, and
employees at all levels of the company
participate in the bonus scheme, so they
benefit from company success. The bonus
performance measures are the same for
all employees as those for the executive
directors, and can be found on page 168.
We provide comprehensive training and
development opportunities, including
digital skills to help with our Systems
Thinking approach and enable remote
working where practical, which has been
more important than ever this year with
restrictions as a result of the COVID-19
pandemic.
We promote diversity and equal
opportunity to drive a comprehensive
and balanced skill set, and we recruit and
promote employees on the basis of merit.
We are committed to being an inclusive
workplace, supporting employees to
reach their full potential whilst feeling
valued and included. Employee networks,
representing certain groups of employees
that may face specific challenges, are
overseen by an executive sponsor and
support employees through their career
progression.
Read more about diversity and inclusion
on pages 60 to 62 and 138 to 140
PEOPLE
Our people are the face of our company
and are essential in delivering our purpose.
We believe the most effective decision-
making comes from a diverse range of
people who feel encouraged to share their
views, and that having a skilled, engaged
and motivated team of employees,
suppliers and contractors is fundamental
to the performance we deliver.
Rewarding employees well has been
shown to enhance quality of work,
increase employee retention, and reduce
absenteeism, as well as providing societal
benefits. Employee retention helps ensure
efficient and effective training and higher
levels of performance.
How we manage this key resource
We support thousands of jobs in the North
West, including graduate and apprenticeship
programmes, helping to secure a legacy
for the future in our region. We are an
accredited Living Wage Foundation
employer, providing our employees
with competitive salaries and benefits,
an attractive pension offering, and the
opportunity to join the employee healthcare
scheme and our share incentive plan.
34
United Utilities Group PLC
unitedutilities.com/corporate STRATEGIC REPORT
ASSETS
Link to risks 1 2 5
Our network assets and treatment works
are essential to delivering our services for
customers and protecting public health,
and our energy assets enable us to generate
renewable energy, which helps reduce costs
and minimise our environmental impact. It
is important we have the right systems and
procedures in place to monitor and control
our assets efficiently and effectively.
Many of our assets are very long term in
nature, such as our impounding reservoirs
that can last hundreds of years. We must
invest to maintain these assets in good
condition so they can continue to provide
for customers in the long term. We need
to make improvements to ensure we can
meet the needs of a growing population,
and increasingly high quality standards and
tighter environmental consents driven by
our quality and environmental regulators.
How we manage this key resource
Since privatisation, the significant
investment we have made in our assets has
provided substantial benefits to customers,
including reduced supply interruptions,
reduced sewer flooding incidents, and
improved water quality, and we expect
to continue with a substantial investment
programme for the foreseeable future as
current environmental legislation requires
continued investment. We plan for the
long term to help us understand where and
when we need to invest in our assets, and
we monitor the condition, performance and
health of our assets.
We manage our assets in a holistic way that
seeks to minimise whole-life costs, and we
embrace new technology and innovation,
which is at the heart of our Systems
Thinking approach. This helps us deliver
efficient total expenditure (totex) without
compromising on quality of service or long-
term resilience, saving future operating
costs and reducing future customer bills.
We saw in AMP6 the benefit of accelerating
our investment to deliver improvements
sooner, and we are taking the same
approach in AMP7, bringing forward £500
million of our capital expenditure into the
first three years of the five-year period.
Our assets and infrastructure projects can
affect people who live nearby. We consult
with these communities in the planning
stage and work hard to minimise odours
from our wastewater treatment works and
other impacts.
FINANCING
Link to risks 6
enable efficient debt issuance under pre-
agreed contractual terms, and the board
delegates authority to the CFO, allowing us
to respond quickly to attractive financing
opportunities. This helps us to consistently
raise efficient financing at a cost cheaper
than many of our peers. This year we
published our new sustainable finance
framework, allowing us to raise debt based
on our strong ESG credentials.
Read more about our sustainable finance
framework on page 70
We aim to avoid a concentration of
refinancing in any one year, and fund long
term where possible. Our debt portfolio
has a very long average life, and we
monitor liquidity forecasts with a policy
of having resources available to cover the
next 15–24 months of projected cash flows
to ensure forward funding needs are met.
We have clear and transparent hedging
policies covering credit, liquidity, interest
rate, inflation and currency risk, and these
are aligned with the regulatory model.
As a result of the long-term nature of our
assets and the need to spread the cost
between the generations of customers that
benefit from them, it is necessary to raise
financing to fund investment in building,
maintaining and improving our assets,
networks and services.
It is important that we are able to raise
finance when needed to preserve adequate
liquidity, and that we manage financial
risks such as our exposure to movements
in interest rates and inflation, to ensure we
maintain long-term financial resilience.
How we manage this key resource
We maintain a robust capital structure,
with a responsible mix of equity and debt
financing. We monitor our performance
against required thresholds for key credit
ratios to help us maintain strong and stable
investment grade credit ratings. This gives
us efficient access to debt capital markets
across the economic cycle.
We maintain relationships with a diverse
range of banks and access to a broad and
diverse range of sources of financing in a
number of markets, across which we seek
the best relative value when issuing new
debt. We periodically refresh our euro
medium-term note (EMTN) programme to
OUR PRINCIPAL RISKS
1 Water service
2 Wastewater service
3 Retail and commercial
4 Supply chain and programme
delivery
5 Resource
6 Finance
7 Health, safety and
environmental
8 Security
9 Conduct and compliance
10 Political and regulatory
RISK EXPOSURE
An indication of the current
exposure of each principal risk
relative to the prior year.
Decreased
Stable
Increased
35
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our business model
Our external drivers and relationships
The way we work is impacted by a number of factors
external to our business that we must consider
and manage.
NATURAL ENVIRONMENT
ECONOMIC ENVIRONMENT
The natural environment is constantly
changing, and we must adapt and
prepare for future impacts such as
climate change and population growth.
We can help mitigate climate change
by minimising our own environmental
impact. Our use and return of water to
the environment is a continuous cycle,
and returning water cleanly and safely,
as well as managing our catchment land
effectively, allows this cycle to begin
again from the best starting point.
Link to challenges
• Protecting and enhancing the natural
environment
We are impacted by market rate
movements, such as interest rates
and inflation, but we seek to manage
these prudently to reduce risk as far as
practical. As well as these direct impacts
on the company, the economic climate
impacts our customers and their ability
to pay their bills. We operate in an area
with high levels of extreme deprivation,
so helping vulnerable customers is
particularly important for us.
Link to challenges
• Protecting corporate and financial
resilience
• Helping customers with affordability
• Adapting to a changing climate
and vulnerability
STAKEHOLDERS
REGULATORY ENVIRONMENT
The nature of our work means we are at
the heart of communities in our region,
and have an impact on a large variety of
stakeholders. We own and manage huge
areas of land in areas of natural beauty
that are valued by locals and tourists
alike. It is important, therefore, that
we give consideration to what matters
to those stakeholders, and we build
relationships and consult with them in
developing and executing our plans.
Link to challenges
• Securing long-term operational
resilience
Sustainable business means
preparing for future market reforms
as well as meeting current regulatory
commitments. We place great value on
our relationships with economic, quality
and environmental regulators. We
engage actively and regularly, both on
our ongoing plans, and on consultations
for future reforms where we offer our
views and influence where we can.
Link to challenges
• Securing long-term operational
resilience
• Maintaining trust and confidence
TECHNOLOGY AND INNOVATION
POLITICAL ENVIRONMENT
New technologies and innovative ideas
present opportunities for us to make
things faster, better, safer and cheaper.
These can come from a variety of
places – across different industries and
countries as well as from within our
business. We encourage innovation
externally and internally at all levels of
our business, from our Innovation Lab to
our annual CEO Challenge. Technology
can also create risks, which is why our
approach to cyber security is so crucial.
Link to challenges
• Delivering a reliable service in a
changing world
Political decisions have the potential to
significantly impact on our operations.
As a responsible business, we ensure
that we abide by the directions set by
government, and stay flexible to adapt
to developments. We engage closely
with politicians and other policymakers
to understand developments which will
affect our business, and to communicate
the value that United Utilities delivers in
the North West, and the UK as a whole.
Link to challenges
• Maintaining trust and confidence
STAKEHOLDERS
One of the key external
drivers is what matters to our
stakeholders, as our plans
and the way we operate are
influenced by their views.
Read more on pages 24 to 26
HOW WE RESPOND TO
CHALLENGES
External factors present
challenges to how we operate
our business. It is important
that we are able to identify
these challenges and develop
plans to respond to them.
Read more on pages 38 to 42
36
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT To provide great water and more for the North West, we
must first consider our economic, quality and environmental
regulation, and the particular characteristics of our region.
10
Our industry and market
Customers in England and Wales are served
by 10 large licensed water and wastewater
companies and smaller companies
providing water-only services.
Our regulated entity, United Utilities Water
Limited, is the second largest, based on the
size of our Regulatory Capital Value (RCV),
which represents the value of accumulated
investment in the company’s asset base. We
serve over seven million people, with over
three million household customers making up
around two-thirds of our revenue, and over
200,000 businesses. In the non-domestic
marketplace, we provide wholesale services
to water retailers. As a monopoly provider
of essential services, we are regulated by
various bodies as set out below.
Our economic regulator (Ofwat) sets the
price, service and incentive package that
companies must deliver in five-year periods,
known as Asset Management Plan periods
(AMPs). These packages are based on
Ofwat’s methodology and priorities, and
consideration and scrutiny of company
business plans. We must therefore engage
constructively with Ofwat on its future
priorities and methodology consultations,
and submit high-quality plans to help ensure
we receive a determination that targets the
best outcomes for us to continue creating
value for customers and all our stakeholders,
and effectively incentivises us to continue
improving performance.
To ensure our plan is robust and balanced,
we consult with customers and other
stakeholders (including quality and
environmental regulators) and factor in
long-term planning and resilience needs.
This was the first year of AMP7, covering
the 2020–25 period, and our focus has
been on delivering and trying to outperform
our final determination through:
• delivering higher customer satisfaction
than the other companies in our
industry;
• beating the outcome delivery
incentive (ODI) targets for operational
performance;
• delivering our AMP7 scope within our
final determination total expenditure
(totex) allowance; and
•
raising debt finance at a cost below the
industry allowed cost of debt.
Since privatisation, the water industry has
invested a significant amount, contributing
to improvements in public health and
environmental standards, better quality
of services, and superior quality drinking
water. In its final determinations for
AMP7, Ofwat allowed a further £51 billion
across the industry to deliver even more
improvements.
Our regulators assess our comparative
operating performance against the other
water and wastewater companies in
England and Wales, with the Drinking
Water Inspectorate (DWI) assessing
performance in water, the Environment
Agency (EA) assessing performance in
wastewater, and Ofwat assessing customer
Our regulators
We are subject to regulation of our price
and performance by economic, quality and
environmental regulators, as shown in the
diagram.
These bodies exist to help protect
the interests of customers and the
environment, but they can have competing
interests. For example, in agreeing
environmental improvements and over
what timeframe these will be delivered, we
must consider how much it will cost and
the need to protect customers from bill
shocks. Balancing these interests requires
open and continuous dialogue.
The regulatory framework can
change significantly in the
long term and we have seen
substantial tightening
of laws and regulations
since privatisation.
While much is outside
our direct control,
maintaining good
relationships enables us
to engage positively with
regulators to influence
future policy, aiming to
achieve the best outcome
for all our stakeholders.
Q
u
a
l
i
t
y
r
e
g
u
l
a
t
i
o
n
large licensed water
and wastewater
companies
2nd
largest waste and
wastewater company
in England and Wales
£51bn
allowance across the
industry to deliver
further improvements
over the 2020–25 period
satisfaction. The latter two are included in
our operational key performance indicators
(KPIs).
Our vision is to be the best UK water and
wastewater company, so we regularly
benchmark our performance against these
peers. As well as assessment against our
water peers, we benchmark our customer
service performance against other leading
service providers in our region.
E c o n o mic regulation
n
ulatio
g
vir o n m ental re
37
Read more about our stakeholder engagement on pages 22 to 26
n
E
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
Our business model
How we respond to challenges
Managing short, medium and long-term challenges facing our business.
Overview
Addressing the challenges we face is key to delivering a resilient service. How we respond to these can be seen in the material issues and
risks identified below.
Delivering a reliable service
in a changing world
Securing long-term
operational resilience
Protecting and enhancing
the natural environment
Link to material issue
Link to material issue
Resilience
Innovation
Customer service and
operational performance
Political and regulatory environment
Resilience
Customer service and
operational performance
Link to risks
1 2 3
Link to risks
4 5
Read more on page 39
Read more on page 39
Link to material issue
Natural resources
Environmental impacts
Land management and access
Link to risks
7 10
Read more on page 40
Helping customers with
affordability and vulnerability
Adapting to a
changing climate
Maintaining trust and
confidence
Link to material issue
North west regional economy
COVID-19
Link to material issue
Climate change
Resilience
Affordability and vulnerability
Leakage and water efficiency
Link to risks
3
Link to risks
1 2
Read more on page 40
Read more on page 41
Protecting corporate and
financial resilience
Responding to the
COVID-19 pandemic
Link to material issue
Financial risk management
Corporate governance and
business conduct
Diverse and skilled workforce
Link to risks
5 6 9
Read more on page 42
Link to material issue
North west regional economy
Health, safety and wellbeing
Affordability and vulnerability
Link to risks
5 7 10
Read more on page 44 to 45
Link to material issue
Cyber security
Corporate governance and
business conduct
Trust, transparency and legitmacy
Link to risks
8 9
Read more on page 41
OUR PRINCIPAL RISKS
1 Water service
2 Wastewater service
3 Retail and commercial
4 Supply chain and programme
delivery
5 Resource
6 Finance
7 Health, safety and
environmental
8 Security
9 Conduct and compliance
10 Political and regulatory
Read more about our material issues on pages 26 to 27
Read more about our approach to risk management on page 100
Read more about our emerging risks on page 109
38
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT CHALLENGE: DELIVERING A RELIABLE SERVICE IN A CHANGING WORLD
In an increasingly digitised and instant
economy, customers expect more from
services now than ever before. This
includes the water sector, with high
expectations for the reliability of services,
the water we supply and the assets we
operate.
Many of our assets are ageing compared to
other utilities. To meet the expectations of
customers and regulators, it is critical that
we combine modern technology into our
networks and management of customer
service. Quick response to issues raised by
stakeholders, often through digital means
such as social media, is part of this growing
expectation.
Ensuring a reliable service in the face of a
growing population, changing climate and
increasing expectations of service requires
integrated long-term thinking and targeting
investment to ensure both short and
longer-term reliability.
How we respond
Our culture of innovation and Systems
Thinking approach drive us to adapt our
assets and the way we operate to use
modern technology and the best new ways
of working. Examples include sensors
across our network that allow remote
monitoring and control from our integrated
control centre, and our fleet of alternative
supply vehicles (ASVs) that can inject
treated water directly into supply while we
undertake repairs. We have a substantially
enhanced social media presence to
respond quickly to stakeholders.
Over one million customers now engage
with us digitally, whether this is through our
website, our mobile app or on social media.
Customers rate us 4.7 our of 5 on the App
Store and 4.2 our of 5 on Google reviews.
We monitor the performance and health
of our assets, with the help of sensors
across the network, and this allows us to
be proactive. For example, by monitoring
pressure in the water network we can spot
issues and fix them before we get a burst,
saving costs and sparing customers the
impact.
Link to strategic themes
We are installing over 100,000
sensors across our networks to
proactively manage issues and
sort them before customers are
impacted.
We balance our capital and
maintenance expenditure to ensure
affordability and reliability over the
short, medium and long term.
We are targeting a 15 per cent
reduction in leakage over the
2020–25 period to further protect
the reliability of service and water
resources.
Our future plans
We have a number of challenging targets
for the 2020–25 period that will help
improve the reliability of our service,
including helping and encouraging
customers to use less water. Wider
deployment of Systems Thinking will
deliver further improvements in the
reliability of services.
CHALLENGE: SECURING LONG-TERM OPERATIONAL RESILIENCE
It is vital to our operational resilience
that we have plans in place to manage
future challenges and maintain the
provision of our essential services to
customers. Our assets must be prepared
to cope with a growing population, and
comply with increasingly challenging
environmental constraints in areas such
as water abstraction and wastewater
treatment levels. We must build increased
resilience to cope with the anticipated
impacts of a changing climate in the long
term, including reducing the risk of sewer
flooding.
Balancing the risk of service interruptions
against investment for the future is a
constant challenge for water companies.
Understanding what matters to stakeholders
to plan our investment programme requires
in-depth engagement and analysis,
especially in the context of longer-term
challenges that span more than five years.
How we respond
It can take many years and require
substantial investment to increase the
resilience of existing assets or build new
ones, which is why our long-term planning
is so important. We have detailed plans in
place to anticipate future challenges and
understand what we need to do to address
these, and we build these needs into our
business plans for each five-year regulatory
period to ensure we can agree the funding
we need to act at the right time. We
invested an additional £250 million over
2015–20, from the outperformance we
earned over that period, to improve our
operational resilience further.
Where possible, we design our assets
to work in tandem with the natural
environment, which provides more
sustainable and efficient solutions, such
as our innovative Catchment Systems
Thinking approach.
Link to strategic themes
Through innovative approaches we
are improving the reliability and
resilience of our assets, helping
to reduce unplanned service
interruptions, and enabling us to be
more proactive.
By monitoring the health and
performance of our assets we can
ensure we invest at the right time
in solutions that offer the lowest
whole-life cost.
We invest in training centres to
build technical skills and promote
future skills through our education
programmes.
Our future plans
Systems Thinking provides opportunities
for us to increase our resilience further.
Our Haweswater Aqueduct Resilience
Programme (HARP) will be progressed
through direct procurement for customers
in AMP7 and AMP8, addressing our biggest
operational risk in a critical pipeline that
transports water from the Lake District to
Greater Manchester.
39
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our business model
How we respond to challenges
CHALLENGE: PROTECTING AND ENHANCING THE NATURAL ENVIRONMENT
The UK Government’s current goal is
to be the first generation to leave the
environment in a better state than we
found it. Water management is a key part
of this and our industry has a leading role to
play. However, the cost of solutions has an
impact on customer bills and so we need to
balance this goal with the need to maintain
affordability and avoid bill shocks.
Environmental regulators set stringent
consents for our activities to ensure the
environment is protected. We take these
obligations seriously and work hard to
maintain compliance. This requires striking
a balance with environmental impacts,
such as the use of natural resources and
emissions of greenhouse gases.
Our region is fortunate to have some of
England’s finest countryside and wildlife,
much of it legally protected being
designated as National Parks and Sites
of Special Scientific Interest. There is
growing realisation, brought further to the
fore by the COVID-19 pandemic, of the
physical and mental health benefits that
access to green space has for people and
communities.
How we respond
The EA assesses water companies’
performance across a basket of measures,
and we are one of the best-performing
companies over the last five years.
Our regulatory framework shapes the way
we manage natural resources and our
interaction with the environment, and we
work with our environmental regulators to
agree long-term plans.
A phased, long-term approach to address
all of the concerns and interests of our
many stakeholders, including environmental
regulators, ensures that the necessary work
can be delivered without placing too much
pressure on customer bills by spreading
some of the spend over several years. We
work with partners to improve the quality
of rivers and bathing waters in our region,
providing access to the recreational benefits
of the natural environment and boosting the
local tourism industry.
Our catchment land is open to the public
with millions of visits a year. National
lockdowns have increased the popularity of
many of our sites and made managing visitor
numbers at certain sites difficult. We have
worked with local interest groups and local
MPs to manage these issues when they arise.
Link to strategic themes
Customer engagement tells us that
they value the natural environment
in our region and want us to protect
and enhance it, while maintaining
affordable bills.
We use pioneering catchment
projects that combine multiple
partners and access to other
sources of funding to achieve more
together for less.
We provide free public access to
our land, much of which is in areas
of outstanding beauty, with over
nine million visits every year.
Our future plans
We are expanding our Catchment Systems
Thinking approach, using more natural
solutions to create more value for the
environment, and we are reviewing our
approach to land management to enable
multiple benefits from a targeted approach.
CHALLENGE: HELPING CUSTOMERS WITH AFFORDABILITY AND VULNERABILITY
The socioeconomic situation in the UK is
still very challenging and water poverty
is an important issue. The COVID-19
pandemic, national lockdowns and
slowdown of the economy will only make
this more difficult for many customers.
How we respond will be crucial to securing
and maintaining customers’ trust and
confidence in the sector in the years ahead.
Our region suffers high levels of extreme
deprivation. Eighteen per cent of
households in the North West are affected
by water poverty, higher than the national
average, and research indicates that
many customers who are behind on water
charges are behind on other bills and many
have a pay-day loan. Our stakeholders are
interested in how we provide support for
customers in vulnerable circumstances
beyond just financial distress, such as
disability, first language not being English,
or temporary vulnerability brought on by
illness or a life event.
How we respond
We have a leading approach to affordability
and vulnerability, with the sector’s widest
range of assistance schemes. We are
helping over 200,000 customers through
our affordability schemes, and through
our assistance schemes 71,000 customers
became water debt free this year.
Customer support has been at the forefront
of our activities throughout COVID-19, such
as increasing the number of customers
eligible for our social tariff, ‘Back on Track’,
and providing the option to request a three-
month payment holiday without affecting
credit scores.
We led the sector in establishing our
Priority Services scheme, with dedicated
teams providing additional support to
customers with physical, mental health, or
financial difficulties during an incident. This
scheme is now accredited by the British
Standards Institute (BSI), and over 128,000
customers are now registered for this
support, with more joining every day.
Link to strategic themes
We have a wide range of schemes
that help customers struggling with
affordability concerns and other
vulnerable circumstances.
Initiatives such as our affordability
schemes help us manage our
household bad debt expense.
Through the charity FareShare
we have provided support that
has enabled 600,000 meals for
struggling families in the North
West.
Our future plans
Through bill reductions and financial
support we will help over 300,000
customers out of water poverty by 2025
whilst extending our Priority Services
offering to over 210,000 customers, and
improving the quality and scale of the
support we provide.
40
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
CHALLENGE: ADAPTING TO A CHANGING CLIMATE
The biggest anticipated impact on our
natural environment comes from climate
change. We must plan well into the future
to understand what changes we are likely
to experience in our region as a result of
climate change, and continually adapt
to meet the risks and opportunities this
presents.
One of the main opportunities is the potential
for water sharing, as our region typically
receives more rainfall than the comparatively
drier south.
The main risks from climate change are the
impact of prolonged severe dry periods,
which constrain water resources, and
intense periods of heavy rainfall, which
increase the risk of flooding and pollution
incidents. We need to ensure we have
access to resilient water resources, reduce
leakage, and encourage less water use in
the future to protect this critical resource.
We need to ensure our infrastructure can
cope with increased surface water to
reduce the risk of flooding.
How we respond
Our response to climate change risk
involves mitigation (minimising our
greenhouse gas emissions) and adaptation
(ensuring our services are resilient to a
changing climate). Where practical, we
generate renewable energy on our sites
through solar panels, wind turbines, and
the use of bioresources at wastewater
treatment works, helping to reduce our
emissions. We have reduced our carbon
footprint considerably since 2005/06
and have set ambitious science-based
targets as part of our continued efforts to
reduce emissions. We have committed to
six pledges to help us achieve significant
further reductions in emissions.
Read more about our approach to climate
change on pages 86 to 99.
We have detailed plans that set out how we
will adapt to meet the challenges of climate
change, and we are targeting a 15 per cent
reduction in leakage over AMP7.
We work with third parties to encourage
sustainable drainage solutions to help cope
with surface water in periods of heavy
rain and are finalising a Drainage and
Wastewater Management Plan with key
authorities across the region.
CHALLENGE: MAINTAINING TRUST AND CONFIDENCE
Strong relationships are based on trust.
Being open, honest and transparent is
key to building and maintaining trust and
legitimacy. As well as reporting openly
this means setting out commitments and
delivering on them. Our stakeholders want
to know that we are treating employees
fairly, protecting customer data, and paying
our fair amount of tax.
The increasing pace of globalisation
means many customers feel disconnected
from many large businesses. This has
led to growing calls for companies to
demonstrate how they are contributing
to society as a whole and operating in the
public interest.
In recent years the UK water sector has
faced challenges to its legitimacy, amplified
by some specific issues at a small number
of companies. Consequently, trust has
been eroded and questions raised about
the ownership structure of the sector, and
Ofwat has called for further transparency
and disclosure around board leadership
and decision-making processes, as well
as starting discussion on companies'
contribution to public value.
How we respond
We have open and transparent reporting
around all of our equity and debt financing
arrangements, do not use offshore
financing vehicles, and we have secured
the Fair Tax Mark independent certification
for the past two years.
We have updated our human rights policy
which can be found on our website, with
links to other related policies, including our
modern slavery policy and whistleblowing
policy.
Cybercrime has been on the increase and,
as the holder of customer information, it
is a threat we take very seriously through
our policies and dedicated data protection
team.
We work with suppliers and contractors
whose principles, conduct and standards
align with our own. Our key suppliers have
committed to United Supply Chain. We are
a signatory to the Prompt Payment Code,
and fully comply with rules on reporting
payments to suppliers.
Link to strategic themes
We help customers use less water,
with advice and free water saving
gadgets, saving them money as
well as this precious resource.
Our renewable energy generation
helps to reduce our reliance on
purchasing energy and therefore
save costs.
We have reduced our carbon
footprint significantly over recent
years and are committed to further
reducing our emissions.
Our future plans
We have a detailed 25-year Water
Resources Management Plan, a Drought
Plan, and we plan to publish our third
adaptation report in 2021 setting out
how we aim to adapt to meet the
challenges of climate change.
Read more at unitedutilities.com/
corporate/about-us/our-future-plans
Link to strategic themes
We engage on a continual basis
with customers to understand their
expectations in relation to service
and behaviour, through activities
like our quarterly brand tracker.
We maintain stable credit ratings
with key agencies which helps us to
retain efficient access to the debt
capital markets.
We set qualitative and quantitative
performance targets across all of
our stakeholders to evidence how
we are delivering on our purpose.
Our future plans
Operating in a responsible manner is a key
driver of trust with our stakeholders. Our
continued compliance with the corporate
governance requirements of a listed
company helps ensure the transparency
of our reporting and behaviour.
41
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our business model
How we respond to challenges
CHALLENGE: PROTECTING CORPORATE AND FINANCIAL RESILIENCE
We believe the most resilient and effective
companies have a diverse, engaged and
motivated workforce, who can bring their
different ideas and perspectives to help us
find solutions.
The availability of skilled engineers
depends on economic and social
conditions, and we need to ensure an
appropriate pipeline of skills in younger
generations too, especially in the areas
of science, technology, engineering
and mathematics (STEM). As the world
becomes increasingly digital, we need to
have the right people and skills to manage
our business in the modern world.
Long-term financial resilience starts with a
robust balance sheet and management of
financial risks. Companies have to be aware
of their own financial situation and make
sure that they understand the financial
resilience of others, such as suppliers and
former employees.
How we respond
We support employees to achieve their
full potential and feel valued and included,
regardless of their gender, age, race,
disability, sexual orientation or social
background.
We build skills resilience internally through
training and development, including digital
skills.
We have graduate and apprentice
schemes, and ambassadors that work
with schools and education institutes to
encourage the younger generation to
pursue STEM careers.
We maintain good relationships with
employees, and employee representatives,
to ensure an engaged and motivated
workforce, and we continually strive to build
diversity across all types of role and all levels
within our business. We have a Gender
Equality Network that helps by providing
role models, mentoring and opportunities.
Women are represented at all levels of our
company, and 38 per cent of our combined
board and executive team is female.
As a public listed company, we consistently
adhere to the highest levels of governance,
accountability and assurance.
We have a strong balance sheet, a secure
pension position, and take a prudent
approach to financial risk management,
which delivers long-term predictability and
resilience to financial shocks.
UU Group board(1)
Executive team(2)
Senior managers (3)
Wider employees(4)
7
3
4
4
29
10
3,724
1,915
Our clearly articulated policies, covering a
variety of market risks, help us reduce our
exposure to the economic and regulatory
environment, providing more predictable
returns.
Link to strategic themes
As we did in AMP6, we are
accelerating our capital programme
into the early years of AMP7 to
deliver service improvements for
customers earlier.
Our robust capital structure,
relatively low gearing and strong
pensions position provide long-
term financial resilience and future
financial flexibility.
We have award-winning training
centres, the only ones in the water
industry approved to run Ofsted-
accredited programmes.
Our future plans
Creating strong relationships with
employees and suppliers will help build
a resilient value chain, and our focus on
good corporate governance and prudent
financial management ensures we have a
basis for long-term success.
(1) Group board as at 31 March 2021
(2) Executive team excludes CEO and CFO,
who are included in group board figures
(3) As at 31 March 2021, there were eight
male and three female employees
appointed as statutory directors of
subsidiary group companies but who
do not fulfil the Companies Act 2006
definition of ‘senior managers’
(4) Wider employees as at 31 March 2021
42
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT BEING PURPOSE-LED
FareShare donations support
communities in need
In shaping our response to COVID-19,
understanding the impact on our
stakeholders has influenced the
measures we adopted.
North west communities, already home to some of the
country’s most social and economically deprived areas,
have suffered as a result of the economic stress and job
losses caused by the pandemic. As a consequence, more
people have turned to food banks to ensure there is food
on their tables. Through our work helping vulnerable
customers across the region and tackling affordability
issues, we have a better understanding of the challenges
faced by some of our communities and we wanted to help
in some way.
Through a combination of director salary sacrifice,
matched by the company, and employee donations,
we have donated £240,000 to food distribution charity
FareShare. The charity helps redistribute surplus food,
which would otherwise go to waste, to 250 charities and
community groups which provide meals to people in need
– including children’s breakfast clubs, domestic violence
refuges, homeless shelters and drug and alcohol rehab
units. Lockdown has been particularly challenging and
FareShare has been especially busy dealing with increased
demand. At the peak of the COVID-19 crisis, FareShare
Greater Manchester was distributing enough food for
around 200,000 meals each week. Two thirds of people
accessing FareShare food are children and families.
Our donation helps FareShare meet this increased
demand and will provide families with 600,000 meals.
Our funds have given FareShare much needed financial
support and the money has been used to purchase a
brand new long-wheel Mercedes Sprinter delivery van.
This will deliver over six tonnes of food per week to
frontline charities, schools and foodbanks across
Greater Manchester.
More details on our response to COVID-19 can be found on
pages 44 to 45
Generating value for:
Communities
Employees
Customers
Environment
At the peak of the
COVID-19 crisis,
FareShare Greater
Manchester was
distributing enough
food for around
200,000 meals
each week.
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
43
STRATEGIC REPORT
Our business model
How we respond to challenges
How our responsible approach has
helped us make a difference during
the COVID-19 pandemic
How we responded
We serve some of England’s most
socioeconomically deprived communities,
many of which have been severely
impacted by COVID-19. We have
prioritised supporting customers, the wider
communities and our colleagues during this
difficult time. Recognising the importance
of water for public health and sanitation,
especially with the emphasis placed on
washing hands, we have maintained
water supplies and wastewater services
throughout the pandemic, keeping our
employees safe while they carried out their
duties.
Our communication with stakeholders
during this time has been more important
than ever, whether that has been
encouraging customers to get in touch if
they have been impacted financially by the
pandemic or issuing guidance reinforcing
government guidelines to protect
employees, suppliers and customers. Our
consultation for the Haweswater Aqueduct
Resilience Programme (HARP) was stopped
in its tracks by COVID-19. We changed
approach, developed a virtual consultation,
and as a result we have seen better
engagement than our traditional approach.
Board oversight
COVID-19 has changed ways of working
for everyone and our board has been no
exception. We have continued to hold
scheduled board meetings in a virtual
format to ensure that the board's oversight
has remained effective. We were able to
hold a number of events during the year,
including a board strategy day, conducting
external board evaluation and providing our
major shareholders with the opportunity to
virtually meet with the Chairman.
Outlook
Lessons we have learnt from the pandemic
will shape how we deliver for stakeholders
in the future. We now have an even better
understanding of our customers and how
we can support them. We have been
challenged to think more creatively about
how we engage with our stakeholders.
The pandemic has accelerated our digital
strategy and changed our ways of working
in such a way that we do not see a return to
how we worked before.
Although there remains a degree of
uncertainty as to how the UK and the
economy will continue to recover after
the pandemic, it has taught us that our
sustainable and responsible approach
to business means we can tackle future
challenges as they emerge.
Our response at a glance
600,000
meals funded via local
foodbanks
7,300
pupils supported via
Home Learning Hub
during school closures
67
apprentices and
graduates recruited
Staff
Outreach
Scheme
supporting colleagues’
struggling families
United Utilities response timeline
Mar 2020
Moved 60% of
our workforce
to working from
home
Employees
Environment
31 March 2020
44
May 2020
Launched Staff
Outreach Scheme
providing financial
support to employees
June 2020
Extended the
scope of our social
tariff, securing an
additional £15m of
support
Employees
Communities
Communities
Customers
Media
Environment
Customers
Customers
Apr 2020
Temporarily
accelerated
payment
terms from
14 to 7 days
May 2020
Launched
our Home
Learning
Hub
June 2020
Innovated
to ensure
apprentices
sat final
exams
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Communities
Communities
Customers
Customers
Communities
Communities
Customers
Customers
Customers
Employees
Communities
Customers
Environment
Employees
How we responded
We have continued to support young people
in our region throughout the pandemic.
Recruitment of apprentices and graduates
has continued uninterrupted and we are
supporting the Kickstart Scheme, offering
training and meaningful work placements,
with the support of our supply chain partners,
to an initial 250 young people.
This year, as part of our ongoing charitable
donations, we supported the FareShare charity
in delivering 600,000 meals to struggling families
via local foodbanks and replaced one of the
charity’s delivery vans, helping to ensure meals
get to families in need over the next eight years.
During school closures our education team
created a Home Learning Hub, providing
teachers and children with home schooling
material.
How we responded
Recognising affordability has been even more
important during the pandemic, we took
swift action and were the first company to
secure support and regulatory approval for an
extension to our social tariff, with an additional
£15 million available to help customers keep
out of debt.
We are committed to providing over £71
million of financial support over AMP7, and
we have accelerated payments this year to
provide much needed assistance to struggling
households.
We have increased the extensive financial
assistance we already provide, for instance
by widening eligibility for our ‘Back on Track’
social tariff.
How we responded
We facilitated home working for over 3,000
of our employees with the remainder of our
workforce continuing to work at COVID-
secure facilities.
A huge focus has been on the wellbeing
needs of our colleagues, in particular mental
health support. We have delivered initiatives
to help build resilience across our workforce,
including e-learning and bitesize webinars.
We have not furloughed any employees, but,
recognising that our employees and their
families have not been immune to the hardships
as a result of changing circumstances, we
created a Staff Outreach Scheme to provide
one-off grants through a confidential application
process.
Environment
Communities
Customers
Environment
Communities
Shareholders
Customers
Investors
Communities
Customers
Media
Suppliers
How we responded
As we emerge from the pandemic, we are
determined to play our part in supporting a
green recovery in the North West. We have
accelerated investment plans, spending more
over the early years of AMP7 than our original
business plan. This will support recovery to
build a greener, more sustainable future, all
while helping the region to recover from the
economic impact of the COVID-19 pandemic.
Our new investment plans include delivering
environmental improvements in rivers,
protecting habitats, combating invasive
species, enhancing water quality, drainage
and reducing pollution. This investment will
generate lasting benefits for the environment,
for customers and for communities.
How we responded
Throughout the pandemic we have maintained
regular contact through calls and video calls
with both existing and new investors. This
year we offered our major shareholders the
opportunity to meet, albeit virtually, with
the Chairman as part of our active investor
relations programme.
We hosted our first virtual capital markets day
in March, allowing us to share updates with
our investor community on developments
within our business. This year focused on
key areas of value creation – innovation and
Systems Thinking, customer service, totex and
financing.
How we responded
We have continued to work closely and
actively engage with our supply chain during
the pandemic. Looking out for the health,
safety and wellbeing of our suppliers has been
as important to us as that of our employees.
We continued with the majority of our
construction programme throughout the
national lockdowns, supporting our supply
chain partners.
We acted swiftly at the beginning of the
pandemic to accelerate payments from 14
days down to seven days to help
with cash flow and offered a range of payment
options.
Key:
Media
Suppliers
Communities
Customers
Communities
Customers
Customers
Employees
Environment
Employees
Nov 2020
Pledged
support to
the Kickstart
Scheme
Jan 2021
Welcomed our
largest ever
apprentice
intake
Communities
Communities
Communities
Communities
Customers
Customers
Customers
Customers
Customers
31 March 2021
July 2020
Virtual
consultation with
local communities
on HARP
Nov 2020
Charitable
donations
made to
FareShare
Jan 2021
Widened
eligibility for
‘Back on Track’
social tariff
45
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our business model
How we plan for the future
MATERIALITY AND
RISK ASSESSMENT
Our plans take into account
the issues that have been
identified as material, and our
assessment of principal risks
and uncertainties.
Read more about our material
issues on page 27 and our risk
management on pages 100
to 109
MONITORING
PERFORMANCE
We continuously assess our
performance against our
plans using key performance
indicators (KPIs) and other
performance metrics of
interest to our stakeholders.
Read more about how we
measure our performance
on pages 50 to 51
Our planning horizons
Our approach to long, medium and short-term planning
horizons helps us continue fulfilling our purpose in a
sustainable and resilient way.
These long-term plans influence our
medium-term (five to ten years) planning,
which sets out how we will deliver the
commitments of our final determination for
each regulatory period, as well as our non-
regulatory activities, such as renewable
energy.
Short-term (one year) planning enables
us to monitor and measure progress
against our five-year plans and regulatory
targets. We retain flexibility in our one-
year plans to meet our five-year targets
in the most effective and efficient way as
circumstances change.
Our approach to planning
We take an integrated approach to
everything we do. To help us create and
prioritise our plans, we consider:
• what the material issues are, to
stakeholders and to our ability to create
value;
• our assessment of principal risks and
uncertainties;
• our environmental, social and
governance (ESG) commitments; and
• how our plans will fit with our Systems
Thinking approach.
We undertake planning for long, medium
and short-term horizons.
Long-term (25+ years) planning helps us
identify what we need to do to address
challenges and opportunities that may
arise, so we can ensure that we are able to
provide our essential service to customers
far into the future.
Our business is very long
term by nature and we
must build resilience to
ensure we can continue
to provide this essential
service.
Medium-term planning reflects our five-year regulatory
periods, and aims to help us work towards our long-
term plans.
We set annual targets but retain flexibility in these short-term
targets to respond to challenges and meet our five-year goals
in the most effective and efficient way possible.
1 year
5 years
25+ years
46
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT 2022
2023
2025
We will extend our
integrated water supply
network into
West Cumbria
We will publish our
Water Resources
Management Plan and
Drainage and Wastewater
Management Plan
We aim to have 210,000
customers registered for our
Priority Services scheme
2025+
2025
We will work to enable
future national water
trading
We aim to improve water
quality in 1,315 kilometres
of rivers across the North
West
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
2030
2030
2030
We will make bills
affordable for all customers
in line with the industry’s
Public Interest Commitment
We will work with others to
achieve ‘Blue Flag’ beaches
along our coastlines
We commit to reducing our
scope 1 and 2 greenhouse
gas (GHG) emissions by
42 per cent in line with our
ambitious science-based
target
2045
2035
We will install additional
water meters to achieve
coverage of around 75 per
cent of households
We will deliver our service
using natural capital in a
sustainable, efficient and
resilient way
2050
2050
2050
We will have reduced water
demand to 110 litres per
person per day
We aim to have reduced
leakage by 50 per cent
We aim to achieve our long-term
science-based target for net zero
GHG emissions aligned to the
Paris Agreement's ambition to
limit global warming to 1.5°C
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
47
Our business model
How we plan for the future
25+
years
Long-term planning
Our approach to long-term
planning ensures we are
responding to long-term
challenges and opportunities.
To maintain a reliable, high-quality service
for customers far into the future, we have
to look a long way ahead to anticipate
and plan for the changes and core issues
that are likely to impact on our activities.
This involves looking at a lot of current and
predictive data from various sources, such
as economic forecasts, expectations for
population growth in certain areas, climate
and weather predictions, legal and regulatory
consultations and changes, as well as the
age and condition of our assets, and keeping
track of innovations and technological
advancements. We review this information
as part of our long-term planning and our risk
management processes.
Over the next 25+ years we have
identified many challenges and
opportunities that we are likely to be
faced with, including:
• Climate change;
• Population growth;
• A more open, competitive market;
• Water trading;
• More stringent environmental
regulations;
• Developments in technology; and
• Combining affordable bills with a
modern, responsive service.
There is a section of our website dealing
with our future plans, where we examine the
challenges ahead and how we will focus our
resources and talents so we can meet them.
Read more at unitedutilities.com/
corporate/about-us/our-future-plans
48
This includes our 25-year Water
Resources Management Plan (WRMP)
covering the 2020–45 period, which
was developed and published in 2019
following consultation with stakeholders,
and our Drought Plan, which was
published in 2018 with an amendment
appendix in 2018/19. These long-term
plans set out the investment needed
to ensure we have sufficient water to
continue supplying our customers, taking
into account the potential impact of
climate change, and the actions we will
take to manage the risk of a drought. In
2023 we will publish an update to our
WRMP and, for the first time, publish a
Drainage and Wastewater Management
Plan (DWMP).
We create long-term value for
stakeholders by:
• Systems Thinking and innovation;
•
long-term planning and responding
to challenges and opportunities,
including management of water
resources;
•
sustainable catchment management;
• disciplined investment, based on a
sustainable whole-life cost modelling
approach, to ensure the resilience of
our assets and network;
•
investing in our employees to
maintain a skilled, healthy and
motivated workforce;
• close collaboration with suppliers;
and
• maintaining a robust and appropriate
mix of debt and equity financing.
5–10
years
Medium-term
Our medium-term planning
aligns with delivery of our
plans as set out in Ofwat’s
final determination.
The majority of the group’s activities
sit within our regulated water and
wastewater business, therefore our
medium-term planning predominantly
sets out how we will deliver against the
final determination (FD) we receive from
Ofwat for each five-year period. The
business plans we submit focus mainly
on the subsequent five-year AMP period
whilst providing a high-level view of the
following AMP. This provides medium-
term planning visibility of between five
and ten years at any one point in time.
It is important that our ambitions align
with those of our regulator, therefore we
carefully evaluate all consultation and
methodology publications from Ofwat
and engage with them to put forward
our views and help ensure a balanced
approach that creates value for all
stakeholders.
Our business plans are designed to
help us work towards our long-term
plans, build and maintain resilience, and
ultimately fulfil our purpose. We engage
in extensive research to ensure the plans
we put forward are robust and balanced,
targeting the best overall outcomes for all
our stakeholders.
Following scrutiny and challenge from
Ofwat, we receive the FD, which sets
the price (in terms of total expenditure
and customer bills), level of service, and
incentive package that we must deliver
over the five-year period, and an allowed
return we can earn (expressed as a
percentage of Regulatory Capital Value).
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT 1
year
planning
When we receive the FD, we refine our
company business plan for any changes,
such as in allowed expenditure or
performance level targets, and we must
decide whether to accept the FD.
Our business plan submission for
2020–25 was awarded fast-track status
by Ofwat and we were given one of the
lowest cost challenges in the sector,
reflecting the efficient totex proposals we
put forward.
We made a flying start to our 2020–25
plans by investing an additional £130
million in 2019/20, helping us deliver
a strong start to this new period. The
acceleration of our capital programme
during the 2015–20 period helped us
deliver improvements early and we
are adopting the same strategy in this
regulatory period with around £500
million of total expenditure brought
forward over years one to three of the
five-year period. Our total expenditure
for this period will be extended by £300
million, with this expenditure extending
our environmental programme.
Our strategy of delivering the best service
to customers at the lowest sustainable
cost in a responsible manner helps us
create value for our stakeholders by
delivering or outperforming the FD.
Since 2015 we have published an Annual
Performance Report (APR), which
reports our regulatory performance in a
format that helps customers and other
stakeholders understand it and compare
it with other companies in the sector.
This includes reporting of Return on
Regulated Equity (RoRE), which is made
up of the base allowed return and any
outperformance/underperformance, on
an annual and cumulative basis for each
five-year period.
Short-term planning
In the short term we set
annual, measurable targets
but we retain flexibility to
enable us to respond to
challenges that may arise.
The executive directors hold quarterly
business review meetings with senior
managers across the business to monitor
and assess our performance against our
annual targets, helping to ensure that we
are on track to deliver our targets for the
year, and longer term.
It is vital that we retain flexibility within
this short-term planning so we can adapt
to meet challenges that may arise during
each year, and deliver high quality and
resilient services to customers in the most
effective and cost-efficient way possible.
This may involve bringing enhancements
forward to deliver improvements for
customers early, investing further into the
business to maintain service, or delaying
projects to occur later in the regulatory
period in order to prioritise expenditure
and allow our people to spend their time
dealing with any unexpected challenges
that arise.
The challenges presented by COVID-19
are a clear example of why this flexibility
is crucial. We enacted our robust
contingency plans, enabling us to quickly
and efficiently move thousands of our
people to home working and introduce
additional safeguarding measures for
those that remained on sites or in the
field, while maintaining reliable water and
wastewater services that are critical for
public health at this time.
Read more about our response to the
challenges of COVID-19 on pages 44 to 45
Short-term planning helps us work
towards our medium and long-term goals
and provides us with measurable targets
so that we can continually monitor
and assess our progress, which helps
us ensure the long-term resilience and
sustainability of our business.
Before the start of each financial year,
we develop a business plan for that
year, which is reviewed and approved
by the board. This sets our annual
targets, designed to help deliver further
improvements in service delivery and
efficiency, and to help move us towards
achievement of our five-year goals.
Performance against these annual targets
determines annual bonuses for executive
directors and employees right through
the organisation, who are remunerated
against the same bonus targets as the
executive team.
To avoid short-term decision-making and
ensure management is focused on the
long-term performance of the company,
as well as these annual targets, executive
directors are remunerated through
long-term incentive plans that assess
three-year performance, measured during
the current period through Return on
Regulated Equity and a customer basket
of measures.
See details of the 2020/21 annual bonus
and vested long-term incentive plans for
our executive directors on pages 168 to 170
Our APRs are published in July each year at
unitedutilities.com/corporate/about-us/performance
Information on companies’ regulatory performance
can be found at discoverwater.co.uk
49
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT How we measure our performance
To measure progress on delivering our purpose and creating
value for all our stakeholders, we monitor and measure our
performance against each stakeholder group.
Read about how we
generated value for
communities on pages
52 to 54
o m munitie
s
C
Communities
Read about how we
generated value for
suppliers on pages
71 to 73
u p pliers
S
Read about how we
generated value for
customers on pages
55 to 58
Customers
C u s tomers
Customers
Media
Shareholders
Investo r
s
Read about how we
generated value for
investors on pages
67 to 70
Delivering
our purpose
Environment
Environ m e
n t
Read about how we
generated value for the
environment on pages
63 to 66
Employees
Environment
Employ e e s
Read about how we
generated value for
employees on pages
59 to 62
50
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
OUR KEY PERFORMANCE INDICATORS
Overview
During the 2015–20 period, we reported
against a range of operational KPIs that
were aligned to our strategic themes to
demonstrate how we realise our purpose
and deliver on our vision.
Our purpose drives us to create long-term
value for all our stakeholders, so between
2020 and 2025 we are measuring our
performance by reference to the value we
create for each of our stakeholder groups.
Operational KPIs
Our operational KPIs include one main
metric for each stakeholder group, based
on the top material issues identified
through stakeholder engagement. A
description of these operational KPIs, our
targets for each, and our performance
against these targets can be seen on pages
52 to 72.
Our executive bonuses and long-term
incentives are closely aligned to financial
and operational KPIs, as highlighted in the
remuneration report on pages 168 to 170.
Financial KPIs
Our financial KPIs assess both profitability
and sustainability of our business from
a financial perspective. They are largely
the same as the 2015–20 period, with the
addition of having low dependency defined
benefit pension schemes with nil deficit.
This recognises the increasing importance
of this strong and secure position for our
people, representing a significant driver of
relative value.
A description of these financial KPIs and
our performance against our targets can be
seen on pages 74 to 75.
OUR OTHER PERFORMANCE INDICATORS
Overview
Our KPIs provide a snapshot of our
performance across a variety of areas, but
these are by no means the only metrics
by which we monitor and assess our
performance on a regular basis, and we
report against other metrics both internally
and externally.
As discussed on pages 22 to 26, we engage
with a variety of stakeholders and this gives
us a view of what matters most to them.
We report on a selection of other metrics
on pages 52 to 72 of this report, based
on the measures shown to be of highest
interest to our stakeholders.
For example, for customers our KPI is Ofwat’s
measure, C-MeX, but on page 57 we report
on Ofwat’s D-MeX measure, the level of
customer complaints, vulnerability support,
customers lifted out of water poverty, and the
impact of water efficiency measures.
On environmental performance, our KPI is
the overall assessment by the Environment
Agency and on page 65 we report on
more specific environmental performance
indicators, such as leakage reduction,
climate change, proportion of waste going
to beneficial use rather than landfill, and
measures of natural capital.
OUR ANNUAL PERFORMANCE REPORT (APR)
Overview
Performance against our regulatory
contract is monitored and assessed each
year, and reported within an Annual
Performance Report (APR), as required by
Ofwat for all water companies since the
start of the current regulatory period in
2015/16, replacing the previous ‘regulatory
accounts’.
Many of our performance indicators relate
to regulatory performance on a high level,
and it is within the APR that more detail
can be found on the components within
these measures, as well as narrative detail
about our performance during the year.
There is financial information contained
within the APR. This relates only to the
regulated company and its appointed
activities, and is calculated and prepared
in accordance with the regulatory
accounting framework. This differs from
IFRS reporting, and a reconciliation to IFRS
reporting is provided in our APR. For the
purposes of clarification, our financial KPIs
relate to our performance at the group
level, and are calculated in line with the
definitions given in this report.
Our APRs for previous years are available
on our external website, and the APR for
2020/21 will be published in July 2021.
FIND MORE INFORMATION ABOUT OUR EXTERNAL ACCREDITATIONS
In addition to our KPIs and regulatory targets, we monitor our performance against
an assortment of ESG metrics that are of interest to our many stakeholders.
We report against these within this report on page 84 and on our website at
unitedutilities.com/corporate/responsibility/our-approach/cr-performance
We regularly report on numerous corporate
responsibility performance measures on
our external website.
All these performance indicators
have received an appropriate level of
assurance, such as independent third-party
verification, regulatory reporting assurance
processes or through our own internal
audit team.
51
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Operational performance
Our performance at a glance
Communities
Customers
Communities
Supporting communities to be stronger – our work puts us at the heart of local
communities in the North West.
How we deliver value to communities
Short term
• We look after beautiful landscapes
and beaches and open our land
to the public, which supports the
regional tourism industry and offers
communities health and wellbeing
benefits through access to relaxation
and recreation.
• Working in partnership with others
means we can accomplish more
in tackling mutual issues, such as
partnering to develop employability
skills for those who need it most.
• Engaging with communities near
our operations and projects builds
understanding and trust between
all involved.
Long term
• Early career and outreach schemes
break down barriers to employment
and increase social mobility, reducing
welfare costs.
• Managing land responsibly means we
leave the north west environment in a
better condition for future generations.
• We work with teachers and children to
raise awareness about water and the
natural environment, giving the next
generation an understanding of the
true value water brings and how we
can all play our part in protecting the
services nature provides.
Link to strategic themes
Promoting our support services
and campaign messages places us
at the heart of communities and
builds trust with hard-to-reach
groups.
By working with community
partners we can share resources,
access new funding opportunities
and achieve more together.
Providing access to our land
enables communities to enjoy the
physical and mental wellbeing
benefits that green spaces can
bring, helping reduce the burden
on health services.
OPERATIONAL KEY PERFORMANCE INDICATOR
READ MORE
Link to material issue
Land management and access
Community investment
Trust, transparency and legitimacy
Read more about our approach to
materiality on page 27
Link to risks
9
Read more about our principal risks
on pages 104 to 107
Our key performance indicator to measure value created for communities during
2020–25 is community investment, and we target increasing our investment by at
least 10 per cent compared with the average between 2010 and 2020.
Community investment
Definition
Total community investment as
measured by the Business for Social
Impact* (B4SI) method (*previously
LBG).
Target
Increasing our investment by at least
10 per cent compared with the average
between 2010 and 2020.
Status
Close to achieving target but more
work to be done
Performance
The average investment between
2010 and 2020 was £2.56 million per
annum and in 2020/21 we supported
communities through direct community
investment of £2.15 million (calculated
using the B4SI method). This is slightly
lower than our target, mainly as a result
of much lower community activity as
a result of the impact of COVID-19.
However, we contributed an additional
£2.7 million from our Trust Fund to help
those struggling to pay their bills and a
further £15 million was made available
to help customers reduce their water
bill to an affordable amount through
extending our social tariff. As we emerge
from the pandemic, and events can safely
recommence, we expect our community
investment to increase.
• 2019/20: £2.26 million
• 2018/19: £2.93 million
• 2017/18: £3.65 million
• 2016/17: £3.59 million
52
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT Overview
Our work puts us at the heart of local
communities in the North West, where
customers and employees live and work. We
understand the impact our work can have
on everyday lives across our region, and we
seek to play an active role in tackling the
issues that matter most to these communities
through active engagement and investment,
developing strong relationships and building
partnerships where we work together
to generate solutions. We also look after
beautiful landscapes and open our land to the
public, which supports the regional tourism
industry and offers physical and mental health
and wellbeing benefits for communities
through access to relaxation and recreation.
Helping young people
We are committed to supporting the
Government’s Kickstart Scheme by providing
250 placements to young people, working
with our supply chain. Our new employees
will have a dedicated placement manager as
well as a Kickstart skills coach, and will also
receive job-related and employability skills
training to enhance their CVs in order to help
secure employment in the future. We work
with local schools and training facilities to
promote skills for the future, including youth
programmes that support young people
not in education, employment and training
(NEETs) to help improve social mobility
in our region and break down barriers in
bringing people from all backgrounds into
employment. It is estimated this programme
has generated over £9 million of social
value through avoided welfare costs and
new employment. During the school
closures brought about by the pandemic
lockdowns, our education team created a
Home Learning Hub that supported teachers
and children across the region, and even
extending overseas, with materials for home
schooling. Recruitment of apprentices and
graduates has continued uninterrupted, with
the help of some online challenges, skills
sessions and live streamed assessments
while face-to-face interaction was limited.
We have continued to create our early
careers pipeline, welcoming 67 apprentices
and graduates in 2020/21.
Social mobility
In October we hosted the sector’s first
Social Mobility Summit, an online event at
which more than 100 organisations joined
us for the launch of our Opportunity Action
Plan – another first for the sector – which
aims to identify and share best practice
and leading-edge thinking from businesses
that are successful in promoting social
mobility, including case studies from our own
employees reflecting the progress we have
already made.
Charitable support
Our ongoing charitable support, including
a voluntary salary reduction by board
members at the height of the COVID-19
pandemic, has helped provide support to
local communities. One of our donations to
the FareShare charity has supported them
in delivering 600,000 meals to struggling
families across the North West via local
foodbanks, and will replace one of the
charity’s delivery vans, helping to ensure 6.4
million meals get to families in need over the
next eight years.
Community engagement
We build trust with local communities
through effective engagement, whether that
is around large capital projects or day-to-
day management of our landholdings. Our
consultation for the Haweswater Aqueduct
Resilience Programme (HARP) was stopped
in its tracks by COVID-19, halfway through
the traditional face-to-face exhibitions. We
changed approach, developed a virtual
consultation, with accessible content
advertised through letters and social
media, and, as a result, we have seen better
engagement. We received over 100 per
cent more feedback compared with the
traditional approach, with over 8,000 hits
to the specific HARP section of the website.
Sixty-nine per cent of all feedback has been
supportive of the plans. Given the success
of this approach, we will continue with
virtual consultations for other aspects of this
project.
OTHER PERFORMANCE INDICATORS
Access to our land for recreational use
As a result of COVID-19 restrictions, there
has been a marked increase in the number
of people visiting our catchment land to
enjoy the countryside and benefit from open
spaces. While the majority of visitors have
respected the countryside, sadly a small
minority have not. Our teams have worked
hard to address this anti-social behaviour
through a variety of methods, including
targeted social media campaigns on issues
such as moorland fire risk, improved site
signage and the creation of local stakeholder
groups. We are currently testing several
ideas to better connect visitors to the
land and to encourage them to behave
responsibly.
250
young people to be
supported through the
Kickstart Scheme
£9m
social value generated
through our youth
programme
Measure
KPI:
Community investment
2025
target
2020/21
performance
Annual
performance
Against 2025
target
Status
10% increase
(£2.82m)
£2.15m
Partnership leverage
1:4
50–60%
Percentage of participants
who remain employed six
months after completing an
early careers or outreach
scheme with United Utilities
1:7
83%
Number of children
benefiting from education
materials
Visitor experience/
satisfaction measure at
recreation sites
Status key:
20,000
19,120
Dependent on
2021 baseline
Baseline in
2021
Annual performance
Against 2025 target
Met expectation/target
Confident of meeting target
Close to meeting expectation/target
Some work to do
Behind expectation/target
Target unobtainable
Baseline year
Baseline year
53
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Operational performance
BEING PURPOSE-LED
Kickstarting careers in
the North West
We’ve committed to supporting the
Government’s Kickstart Scheme,
taking on an initial 250 young
unemployed people over the year and
integrating those with potential into
our apprentice schemes – expanding
our early careers approach.
Kickstart funds six-month placements with firms for 16–24
year olds who are claiming Universal Credit and are at risk
of long-term unemployment. The Government provides a
grant of £1,500 per recruit to support skills development.
The recruits will be found placements in customer service,
operational support, office administration, grounds
maintenance and labs support, and our supply chain
partners will also provide placements to support us to
achieve our aim. All will be recruited on a six-month
fixed-term contract and will have a dedicated placement
manager and a Kickstart skills coach. They will receive
job-related and employability skills training supported by
our learning and development team.
Customer services and people director, Louise Beardmore,
explained: “Kickstart is a brilliant initiative that aims to
help companies give work opportunities to young people
who have borne the brunt of the economic slowdown
during COVID-19.
“We know the North West has some of the highest levels
of deprivation in the UK and this year life has got even
tougher. We’re absolutely certain there are some fantastic
young people out there who just need a break. For many
of the people who apply this will lead to full-time roles,
and others will leave us with some great new skills to take
to other employers.”
We already run several schemes to support young people
into work. We recruit around 30 apprentices every year
from across the North West, and our graduate scheme
recruits people from targeted communities based on
their diversity and inclusion data. We also have a Youth
Programme for young people between 18 and 24 years
who are not in education, employment or training. Around
90 per cent of youth programme participants have a
disability or long-term health condition and are from an
area of low social mobility and high deprivation.
We have taken part in the Department for Work and
Pensions' ‘mentoring circles’ initiative which provides
mentoring, support and coaching to young unemployed
people who are Black, Asian or from ethnic minorities,
have a disability or long-term health condition.
Generating value for:
Communities
Employees
Customers
Environment
Media
Kickstart is a brilliant
initiative that aims to
help companies give
work opportunities
to young people who
have borne the brunt
of the economic
slowdown during
COVID-19.
54
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
Our performance at a glance
Customers
Customers
Caring for customers through trusted relationships – we put customers at the heart
of everything we do.
How we deliver value to customers
Short term
• We focus on delivering a great service
so customers can simply get on with
their lives and not have to worry about
their water and wastewater services.
Long term
• Our water and wastewater services
make a major contribution to the long-
term health and wellbeing of customers
in the North West.
• When they do need to contact us, we
• Through long-term financing and the
are helpful, friendly and supportive,
talking and listening to customers so
we can understand and meet their
expectations.
• We maintain bills that are good value
for money, providing help and support
to those who struggle to pay.
regulatory framework, we are delivering
multi-million pound infrastructure
projects to improve services and
resilience for the long term. We ensure
the cost of this is shared fairly and
affordably between those that benefit
now and in the future.
• Providing additional help to vulnerable
customers builds long-term trust
relationships.
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Link to strategic themes
We will continue to invest in our
assets and people over the next five
years to meet the stretching targets
customers support.
By achieving sustainable cost
reductions we can provide an
efficient service, keeping bills low
and maintaining good value for
money.
We provide assistance schemes to
those who need it most and provide
practical advice on how to manage
water in the home.
OPERATIONAL KEY PERFORMANCE INDICATOR
READ MORE
Our ranking in Ofwat’s customer measure of experience, C-MeX, is our key
performance indicator for customers as it is influenced by a broad range of service
components and so best satisfies the spectrum of what matters to customers.
C-MeX
Definition
Ofwat's customer measure of
experience, comprising two surveys:
the customer service survey; and the
customer experience survey.
Target
To be in positive reward territory.
Status
Achieved/confident of achieving
target
Performance
At the end of the year we are ranked
fifth out of 17 companies, the highest
listed company, achieving a reward of
£2.1 million in the first year of AMP7.
While our written customer complaints
performance for the year has fallen
below our targets, in part reflecting
the higher level of complaints during
the dry spring in 2020 and our focus on
collecting cash from those customers
who are able to pay, but choose not to,
we still expect our relative performance
to be upper quartile compared with the
other water and wastewater companies.
C-MeX has replaced SIM as Ofwat's
measure of customer satisfaction for
AMP7. As 2020/21 is the first year of
the measurement period, prior year
comparators are not provided this year.
Link to material issue
Customer service and
operational performance
Affordability and vulnerability
Leakage and water efficiency
Read more about our approach to
materiality on page 27
Link to risks
1 2 3
Read more about our principal risks
on pages 104 to 107
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
55
Our performance in 2020/21
Operational performance
Overview
We put customers at the heart of
everything we do. This relentless focus
drove us to deliver significant and
continuous improvements over AMP6,
ending the period as a leading water
and wastewater company. Despite
the challenging environment we have
continued to operate in during the
pandemic, customer satisfaction has
remained high. Reliable access to clean
water has been more important than
ever before, and we have continued to
provide a robust service for customers
throughout the year. Serving the most
economically deprived areas in the
country, we are always mindful of the need
to help customers who struggle to pay
their bills. We reduced typical household
bills by 5 per cent this year in real terms,
have committed to providing £71 million
in financial support to customers over
AMP7, and have an extensive range of
schemes offering financial assistance and
tailored support for customers struggling
with affordability and vulnerability. We
are delighted to have received a positive
recommendation for continued certification
to BS 18477:2010, which is the accreditation
for our Priority Services scheme and one of
our customer ODI measures looking at the
quality of services provided to vulnerable
customers.
Customer service
We have significantly increased the
availability and performance of our digital
channels with over 1 million customers
engaging with us digitally, driving both
service improvements and cost efficiencies.
Customers rate us 4.7 out of 5 on the App
Store and 4.2 out of 5 on Google reviews.
We have been proactive and used targeted
communications with customers to offer
£15m
extension to our
social tariff to support
customers affected by
COVID-19
200,000
customers benefiting
from our support
schemes
56
support to those impacted financially
by the pandemic and struggling to pay.
We have achieved all of our reputational
performance commitments, most notably
continued certification to BSI standard for
our Priority Services scheme that supports
over 133,000 customers, and we were
recognised as providing the best customer
support initiative at the Utilities and
Telecoms Awards for the support provided
to customers during the pandemic. We are
one of only 14 brands in the UK with the
Institute of Customer Service Accreditation
with distinction.
For developers, customer experience is
measured in AMP7 by D-MeX, of which
there are two elements: quantitative
(service level agreement performance); and
qualitative (customer satisfaction survey).
For 2020/21, we are ranked first in the sector
for our quantitative performance, with final
qualitative results expected later in the year.
We estimate our overall industry position
to be fourth. This strong performance
reflects the transformation programme we
are delivering in this area that continues to
deliver tangible and much improved results,
benefiting all developers who are building in
the North West.
Operational performance for
customers
Our AMP7 business plan includes 46
customer commitments, delivering the
outcomes that are important to customers
and measured through customer ODIs.
Our performance has been strong across
the broad range of our activities with us
having met or exceeded over 80 per cent
of our performance commitments for the
year. We have delivered particularly strong
performance in the areas of hydraulic flood
risk resilience and pollution, where we have
delivered another year of sector-leading
performance with no serious pollution
incidents for the second consecutive year.
We were also able to deliver leakage at
its lowest ever level and have more than
halved supply interruptions to customers
– outperforming our targets on both these
key service delivery measures.
We entered AMP7 knowing that our biggest
challenge would be against our internal
flooding ODI and this is the measure that has
yielded the largest penalty this year. As part
of the £300 million extension to our AMP7
totex plans, we will be investing around £100
million in Dynamic Network Management
(DNM) – a ground-breaking application
of Systems Thinking using state of the art
sensors and predictive machine intelligence
to move to a more proactive management
of our wastewater network. This new digital
capability is expected to improve service to
customers and improve performance against
our internal flooding ODI.
We work hard to encourage customers
to save water through water efficiency
programmes, helping them to preserve this
precious resource and save money on their
bills. More customers have spent more time
at home during the pandemic and used more
water for sanitation, increasing per capita
consumption (PCC) measures for 2020/21.
Recognising that the long term impact of
COVID-19 remains uncertain and that there
may also be a variety of drivers of changes
in behaviour, Ofwat has proposed to assess
company performance for this customer ODI
at the end of the AMP when fuller facts and
evidence of absolute and relative company
performance are available.
We have our own in-house app
development capability and this is paying
dividends in creating digital capability
for our field and customer-facing teams
with agility, flexibility and at low cost. Our
new voids app which helps us to easily
identify unbilled but occupied properties
has contributed to a 93,000 reduction in
the number of void properties in the year,
helping us earn maximum customer ODI
reward on voids this year and underpins a
further £24 million reward over the AMP.
Haweswater Aqueduct Resilience
Programme (HARP)
In November 2020, we successfully
completed the replacement of the Hallbank
section of the Haweswater Aqueduct, part
of a critical asset that delivers around a
third of our total water production to 2.5
million people in Cumbria, Lancashire and
Greater Manchester. Work to replace the
majority of the aqueduct is expected to be
undertaken using a direct procurement for
customers (DPC) approach and we have
been preparing for a DPC tender in 2021/22.
If the tender process proceeds as planned,
contract award is anticipated in 2023, with
construction to begin later in the AMP.
Cash collection
Despite the impact of COVID-19, our
overall cash collection has performed well
throughout the year. We are encouraged
by the continued growth in our direct debit
volumes, now at 72 per cent and one of
the highest across the industry. Overall,
the proportion of customers on a payment
plan has continued to increase to 82 per
cent despite the challenging economic
environment and providing a high level
of collection certainty for a significant
proportion of the household customer base.
We are recognised as a leader in credit
management and collections across all
industries, not just water. In the year we have
won three external awards for our credit
services, most recently winning the Utilities
and Telecoms Team of the Year at the 2020
Credit Awards. Our industry-leading approach
to collections and innovative affordability
offerings have ensured we were well placed
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT to respond to the challenges brought about by
the pandemic.
OTHER PERFORMANCE INDICATORS
In the current year, we have enhanced our
credit reference sharing process to include
another agency with a greater high street
focus. This has further extended our footprint
and will facilitate improvements in our
collections activity, and is just one example of
our comprehensive approach to collections
activity, supporting our ability to collect cash
from customers who have the ability to pay,
but attempt to avoid doing so.
Affordability
When the country first went into
lockdown we saw an increase in demand
for affordability support. The initiatives
we delivered over AMP6 enabled us to
respond efficiently and effectively, with
our Payment Break scheme giving over
8,000 customers the breathing space they
required.
The nature of the pandemic and the
significant impact it is having on customers’
lives has meant we have had to consider
the appropriateness of continuing our
normal billing and collection activities and
the most suitable means of engagement.
While as an industry we took steps to pause
collection activity, our COVID-19 response
encouraged customers to contact us if
they had been impacted financially by the
pandemic and found themselves struggling
to pay. We carried out targeted activities
aligned to specific customer segments and
changes in customer behaviour to engage
with customers, actively promoting our
range of affordability support, ensuring
customers knew they could talk to us
about their bill, and highlighting alternative
ways to pay. Over the course of the year
we sent over 5 million proactive customer
communications; a 30 per cent increase on
the previous year.
We have an extensive range of schemes
available to help customers and around
200,000 are currently benefiting from that
help. Recognising affordability has been
even more important during the pandemic,
we took swift proactive action and were
the first water company to secure support
and regulatory approval for an extension
to the scale and scope of our social tariff,
allowing us to support a broader range
of customers whose income has been
affected by COVID-19. This augments
our support schemes this year with an
additional £15 million to help customers
keep out of debt and was intended to
support an additional 45,000 customers
who have been furloughed, are claiming
through the self-employed income support
scheme (SEISS) or are now unemployed,
by reducing their water bill to an affordable
amount. Through efficient use of the
additional £15 million funding secured we
2025 target
2020/21
performance
Annual
performance
Against 2025
target
Status
Above industry
median
Above industry
median
Above industry
median
Upper quartile Second quartile
Above industry
median
Upper quartile Upper quartile
Upper quartile Upper quartile*
Measure
KPI:
C-MeX
Additional service
measures:
D-MeX
Market Performance
Standards
Operational Performance
Standards
Managing complaints:
Number of household
written complaints
compared to WASCs
Speed of resolution
5 days
3.5 days
Vulnerability:
Number of households
registered for Priority
Services
BS18477 ‘Inclusive service
provision’ certification for
Priority Services
Affordability:
Number of customers
lifted out of water poverty
Helping customers look
after water in their home
Status key:
Annual performance
In excess of
220,000 (7%)
128,831 (4.1)%
Maintain
certification
Maintained
66,500
71,057
10% increase 13.75%
Against 2025 target
Met expectation/target
Confident of meeting target
Close to meeting expectation/target
Some work to do
Behind expectation/target
Target unobtainable
Baseline year
Baseline year
* Latest comparative data available 2019/20
were able to support 73,000 customers –
62 per cent more than originally estimated
– preventing customers from falling into
debt. This additional support meant that in
the year we supported 160 per cent more
customers via our Back on Track scheme
than the previous year. We promoted the
new scheme directly to customers, via
partner organisations and the Hardship
Hub, to increase overall awareness. The
£71 million financial support we have
committed to providing over AMP7 is the
largest of any water company, and we have
accelerated payments this year to provide
much needed assistance to households
struggling as a result of the economic
impact of the pandemic.
We continually innovate to further enhance
our affordability processes, and we are
piloting a first-of-its-kind real-time income
verification tool to streamline eligibility for
reduced-rate social tariffs. We’re proud
to be the first water company in the UK
to roll out an Open Banking solution for
social tariff applications, modernising our
income verification. In March 2021 we
were the first water company to begin data
sharing with the DWP, leveraging the new
provisions under the Digital Economy Act,
to assist people living in water poverty.
We’re excited to be able to use these
new provisions to continue to proactively
provide lower bill support to customers.
57
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Operational performance
BEING PURPOSE-LED
Support for those
customers in need
During the last year, many customers
have been affected by COVID-19
due to being furloughed or made
redundant, and have contacted us
for support with their bills.
We’ve been able to help many customers get back on
their feet with flexible payment arrangements or payment
breaks. Our Payment Break scheme was used by over
8,000 customers during the early stages of the pandemic.
We also donated £3.5 million into our Trust Fund to
support financially vulnerable customers.
We had regulatory approval to extend our social tariff to help
even more customers impacted by COVID-19, and, as such,
we are currently providing financial assistance to more than
200,000 customers – a significant increase on the previous
year. Through our Payment Matching scheme, another
15,000 customers became water debt free in 2020/21.
Our Lowest Bill Guarantee scheme was rolled out in September
after a successful pilot to ensure customers who choose to
have a meter fitted will not pay more than their current charge
method. Customers have saved over £4.6 million as a result.
Since creating the North West Utilities Together group at the
start of 2020 with Electricity North West, Cadent and Northern
Gas Networks, we have been regularly meeting to discuss ways
to help those customers in vulnerable circumstances.
As part of this, we have once again joined with Electricity
North West in the promotion of our Priority Services
registers on paper medicine bags in over 200 pharmacies
across our region, and have worked with Electricity North
West and Cadent to jointly fund a £50,000 refurbishment of
a mobile advice centre for Age Concern Central Lancashire.
The charity launched this new community outreach
service in March 2021, one year on from the first national
lockdown, in a bid to reach those in need. The mobile
advice centre, which is specially designed to be dementia
friendly, will offer support and help promote our services
to customers in and around the Lancashire area. The three
utility companies involved in the collaboration will be giving
residents free advice on water and energy efficiency, as
well as tips on how to stay safe and warm in their homes.
Suzanne Carr, CEO of Age Concern Central Lancashire,
praised the project: “...we are delighted to have formed
partnerships with the North West's big three utility
companies which in turn means our customers will have
access to a full suite of services, and most importantly,
will be able to access one-to-one support on a range of
important matters from independent living through to
seeking help during an energy crisis.”
Generating value for:
Communities
Customers
Customers
Media
We have worked
with Electricity North
West and Cadent to
jointly fund a £50,000
refurbishment of a
mobile advice centre
for Age Concern
Central Lancashire.
58
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
Our performance at a glance
Employees
Environment
Employees
Creating a great place to work for all our employees – our employees are the face of the
company and we could not deliver our services without them.
How we deliver value to employees
Short term
• We have a strong focus on health,
safety and wellbeing. We firmly believe
that nothing we do is worth getting
hurt for, and we aim to ensure all
employees go home safe and well
at the end of the day.
• We invest in training and development
to enable our employees to grow their
skills and to help keep them motivated.
• Listening to our employees helps
create an engaged workforce,
increasing job satisfaction, and
through employee communications
and conferences we update our people
on business developments so they feel
part of a team.
Long term
•
Investing in the development of
current, and future, employees, means
we will have a workforce with the right
skills for the future.
• Health, safety and wellbeing extends to
mental as well as physical health. We
promote awareness of stress and other
mental health issues, promoting an all-
round healthy lifestyle in the long term
which, in turn, reduces the burden on
health care services.
• We provide pension offerings that
support employees in later life.
• Promoting diversity and inclusion
means we have a workforce that truly
represents the region.
Link to strategic themes
Improving our performance creates
employee pride in a job well done,
enhancing employee satisfaction
and a desire to do more.
Encouraging innovative ideas
from employees can lead to
cost reductions, and improving
employee satisfaction reduces
turnover which ensures training and
development costs are efficient.
We take a responsible approach
to protecting the health, safety
and wellbeing of our employees,
ensuring we send everyone home
each day safe and well.
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OPERATIONAL KEY PERFORMANCE INDICATOR
READ MORE
Our annual employee opinion survey provides a mechanism for formal feedback on
a number of topics, including employee engagement which is our key performance
indicator for employees.
Employee engagement
Definition
Level of employee engagement as
measured by our annual employee
opinion survey.
Target
Upper quartile against UK utilities norm.
Status
Achieved/confident of achieving
target
Performance
This year we achieved 89 per cent
engagement, which is 5 per cent above
the UK high performance norm and is
the highest engagement score we have
achieved while comparatively tracking
engagement over the last six years.
• 2020: 84 per cent
• 2019: 81 per cent
• 2018: 79 per cent
• 2017: 75 per cent
Link to material issue
Health, safety and wellbeing
Diverse and skilled workforce
Employee relations
Read more about our approach to
materiality on page 27
Link to risks
5 7
Read more about our principal risks
on pages 104 to 107
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
59
Our performance in 2020/21
Operational performance
Staff
Outreach
Scheme
established to support
employees
390
COVID-secure
risk assessments
undertaken
96%
of our current female
workforce recommend
United Utilities as an
employer
60
which now includes a specific module on
COVID-19 and isolation, and have produced
new resource packs and initiatives to help
our workers through winter. Crucially, we
engage regularly with managers, providing
awareness of the support services available
and how to make best use of them and the
widely introduced Wellness Action Plans,
to enable managers to have wellbeing
conversations with their teams.
We have not furloughed any employees,
but we are aware that our employees
and their families are not immune from
the hardships caused by the economic
impacts of COVID-19. Therefore, we
have established a staff outreach scheme
(SOS) that provides financial support to
employees whose families are struggling
financially as a direct result of the
pandemic.
Committed to equality, diversity
and inclusion
We want fantastic people to enable us
to deliver a great public service now and
into the future, so we are determined to
make sure we are reaching and recruiting
from every part of our community. We
are supporting employees to achieve
their full potential and feel valued and
included, regardless of their gender, age,
race, disability, sexual orientation or social
background. Our employee diversity
networks, including LGBT+, gender
equality, ability and multicultural groups,
have a growing membership of 730 people,
and play a pivotal role in providing insight,
raising awareness and giving support to
colleagues. We are committed to creating
a diverse and inclusive workforce and so
we are delighted to be one of the top 1 per
cent of 15,000 companies across Europe
in the Financial Times’ Statista Survey for
Diversity and Inclusion Leadership.
We are working hard to improve how
we attract women into the industry, and
developing women within our existing
workforce. We are seeing good progress
with increasing numbers of female
graduates and apprentices in our talent
pipeline, and 96 per cent of our current
female workforce recommend United
Utilities as an employer. Following our 2021
AGM, the measurable targets of 33 per
cent female representation on the board
and one director of non-white ethnicity
will be met. We achieved inclusion in
the Bloomberg Gender Equality Index,
recognising our commitment to gender
equality and transparency.
Overview
Our people are critical to the success of our
business and it is important we give them
the opportunity to develop their skills and
knowledge and support them with the most
effective technology. We have continued
to invest in skills training throughout the
pandemic and have accelerated our digital
strategy to support new ways of working.
The health and wellbeing of our employees
is paramount and keeping them safe remains
our primary concern. During the initial
lockdown in 2020, we moved 60 per cent
of our workforce to home working and
the remainder continued working at our
COVID-secure facilities. Around 80 per cent
of our employees were designated as key
workers, delivering our essential services to
customers. We have largely continued with
business as usual, operating within COVID-19
guidelines and in line with the government
roadmap out of lockdown, while defining and
shaping the way we will work post-COVID-19
based on the changes in the last year.
Protecting colleagues through the
COVID-19 pandemic
During the pandemic, we have facilitated
home working for over 3,000 of our
employees and are providing support for
employees’ health, safety and wellbeing
while temporarily working at home in
extraordinary circumstances. As well
as facilitating home working for more
than half of our employees, we have
introduced a range of measures to ensure
those who are still working on sites and
in the field are able to do so in a COVID-
secure way. We conducted over 390
COVID-secure risk assessments across
all our operational sites and carried out a
number of control measures to ensure they
met the Government’s requirements for
COVID-secure workplaces. This included
temperature checking stations, extra
sanitation provisions, safe desks and one-
way procedures in offices to ensure social
distancing can be maintained. Additional
personal protective clothing has been
provided and we have adapted new ways of
working for our front line field employees.
We adapted the way we carry out our
mandatory health surveillance checks to
virtual assessments and more recently
COVID-secure face-to-face assessments.
With the involvement of over 200 trained
mental health supporters and wellbeing
champions across the business, we have
supported the wellbeing needs of our
colleagues, delivering initiatives to help
build resilience across our workforce.
This includes delivery of several bitesize
webinars on topics such as mental health,
stress control, and managing change to
around 2,000 people over 20 webinars. We
have been encouraged by the take up of
the zero suicide alliance e-learning module
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT OTHER PERFORMANCE INDICATORS
Measure
2025 target
Status
2020/21
performance
Annual
performance
Against 2025
target
KPI:
Employee engagement
Upper quartile
against UK
utilities norm
Upper quartile
against UK
utilities norm
Employee opinion survey
diversity and inclusion
questions score
Employee opinion survey
learning and development
category score
UK high
performance
norm
UK utilities
high
performance
norm
Living Wage accreditation Secure and
Pension Quality Mark +
retain
Retain
accreditation
UK high
performance
norm
UK utilities
high
performance
norm
Secured
accreditation
Retained
Health and safety:
AFR employees
(per 100,000 hours)
AFR contractors
(per 100,000 hours)
Wellbeing Charter
accreditation
Status key:
0.064
0.094
Year-on-year
improvement
in score
Retain
accreditation
0.087
Retained
Annual performance
Against 2025 target
Met expectation/target
Confident of meeting target
Close to meeting expectation/target
Some work to do
Behind expectation/target
Target unobtainable
Baseline year
Baseline year
Training and development
Our technical training academy
established in February 2014 has provided
skills development and certification to
over 2,800 people to date, including
programmes for those individuals not in
education, employment or training (NEETs).
Many people have received multiple
training opportunities such that in total,
around 11,000 technical training sessions
have been delivered over that period. We
are the only water company currently
governed by Ofsted (Office for Standards in
Education), with a “good” overall rating.
Ensuring everyone goes home safe
and well
Over the last couple of years our health,
safety and wellbeing agenda has centred
on behaviours and the part they play
in accidents and the culture across our
organisation. Having spent a number of years
focusing on site standards, asset condition,
training and personal protective equipment,
it was clear from our root cause analysis
that behaviours play a key part in many of
the accidents we have had. We delivered
our 'home safe and well' behavioural safety
programme to everyone in the company and
we are embedding a culture of looking after
ourselves and each other, to ensure we all
go home safe and well.
We are seeing improvements in a number
of important performance measures,
including the number of accidents, the
severity of accidents and an increase
in hazard and near miss reporting. Our
employee accident frequency rate for
2020/21 was 0.094 accidents per 100,000
hours worked, representing a 15 per cent
improvement on performance from the prior
year. Our contractor accident frequency
remained broadly consistent despite an
increased workload at the start of AMP7,
with 0.087 accidents per 100,000 hours
worked, compared to 0.083 last year. Our
aim by 2030 is that no one will be harmed
while working on our behalf, and we will
actively promote, support and improve their
wellbeing.
61
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Operational performance
BEING PURPOSE-LED
Employee networks
helping us to drive
diversity and inclusion
Our aim is to have a workforce that is
representative and understanding of
our communities and the customers
we serve in the North West.
We are committed to driving equality and providing
diverse working environments for all our employees. We
want our people to feel valued for individual differences,
such as social background, disability, gender and sexual
orientation.
Our employee networks play a pivotal role in helping us
to achieve our aim, providing insight and feedback on
our people policies, helping to challenge the status quo,
raising awareness, and giving support to colleagues right
across the organisation.
With so many colleagues working remotely over the year,
our networks worked tirelessly, and creatively. To mark
National Inclusion Week, with its theme for 2020 of ‘Each
One, Reach One’, the groups organised training sessions,
webinars, interviews and support, and emphasised that
it has never been more important to think about the
opportunities we all have to connect and inspire each
other to make inclusion an everyday reality.
We have four active employee network groups with a
growing membership of 730 people. Each network has
a lead and an executive sponsor who supports each
network to drive change across the business.
Our Gender Equality Network is open to men and women
across the company, and works to support, mentor,
develop, inspire and promote all employees.
The Identity LGBT+ Network provides a social and support
network for LGBT+ employees and those who are LGBT+
friendly, helping to create a safe, inclusive and diverse
working environment that encourages respect and
equality for all.
Our Ability Network works to bring people with
disabilities and long-term conditions together. Its aim
is to raise the profile of different disabilities so we
can recognise and better support our employees and
customers living with those conditions.
The Multicultural Network is about celebrating distinct
cultural differences stemming from personal traits such as
race, ethnic origin and religion. The group aims to provide
a voice to all employees with a multicultural background,
and to help ensure everyone feels valued and their talents
fully utilised.
More details on what we have done to improve diversity and
inclusion can be found on pages 138 to 140
Generating value for:
Communities
Employees
Customers
Environment
Media
Our employee
networks play a pivotal
role in helping us to
achieve our aim...
helping to challenge
the status quo.
62
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
Our performance at a glance
Environment
Environment
Protecting and enhancing the environment – we rely on the natural environment and play
a key role in improving the water, land and air of the North West.
How we deliver value to the environment
Short term
• We meet increasingly stringent
environmental consent levels, which
help to improve the quality of rivers and
bathing waters and so support tourism
in the region.
• Our investment in renewable energy
generation is reducing our carbon
footprint and contribution to climate
change.
• We have invested in new infrastructure,
such as our West Cumbria project,
to allow us to transfer water around
the region more efficiently to avoid
depletion of individual water sources.
• Our accredited environmental
management system builds trust
with regulators and partners.
Long term
• By promoting campaigns to educate
the public and younger generations
on water usage, it helps protect this
valuable resource and reduce usage
now and for years to come.
• We innovate and invest in new
technologies to solve environmental
challenges for future generations.
• We manage our land in a way that
safeguards habitats for indigenous
wildlife, as well as protecting wildlife
that makes its home in rivers and other
water bodies.
• We plan far ahead to ensure our
activities and investment enhance
the long-term resilience of the
environment.
Link to strategic themes
Many customers care about the
environment, so providing the
best service to customers involves
protecting the places they live
in and love.
Many ways we protect the
environment reduce cost; for
example, renewable energy
generation reduces our energy
costs as well as our carbon
footprint.
We manage water and wastewater
in a responsible way that protects
the environment and enhances its
resilience.
OPERATIONAL KEY PERFORMANCE INDICATOR
The Environment Agency’s Environmental Performance Assessment (EPA) of water
and wastewater companies in England and Wales comprises a broad range of
performance measures on what matters with regard to environmental performance.
EPA
Definition
Environment Agency assessment
across six key sector environmental
performance measures.
Target
Upper quartile performance within the
water industry each year.
Status
Achieved/confident of achieving
target
Performance
In the assessment for 2020, we expect
to be awarded the maximum 4 star
rating, meaning we would be classed by
the Environment Agency as an “industry
leading company”.
• 2019: Joint third
• 2018: Joint second
• 2017: Joint first
• 2016: Joint first
READ MORE
Link to material issue
Resilience
Environmental impacts
Climate change
Read more about our approach to
materiality on page 27
Link to risks
1 3 5
Read more about our principal risks
on pages 104 to 107
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
63
STRATEGIC REPORT Our performance in 2020/21
Operational performance
15th
consecutive year
meeting our leakage
target
Zero
serious pollution
incidents for the second
year running
4 star
rating expected in the
EA's Environmental
Performance
Assessment for 2020
Overview
We are fortunate to have many areas of
natural beauty within our region, and these
are important in offering health, fitness and
wellbeing benefits to local communities
and drivers for tourism in the area, as
well as being essential for us to deliver
our services to customers. It is of great
importance we continue to protect and
enhance the environment across the North
West, and manage our land responsibly
to improve the environment in our region
for future generations. We delivered a
number of environmental improvements
over AMP6, including improving 338.5
kilometres of rivers, significantly reducing
our carbon footprint, increasing our
renewable energy production and ensuring
zero emissions energy usage. We have
agreed an environmental improvement
programme to be delivered in AMP7
that will continue to improve the river,
bathing and shellfish water quality for the
benefit of customers and visitors to the
North West as well as society as a whole.
Our investment in AMP7 is expected to
result in an improvement in water quality
in 1,315 kilometres of rivers in the North
West. Having completed the first year of
the period, we remain on track for the
improvements we have committed to.
Leakage reduction
We have beaten our leakage target for the
15th consecutive year and we are now at
the lowest ever level of leakage reported in
the North West. Our leakage performance
improvement has been achieved through
a combination of techniques. Alongside
satellite technology to geo-locate potential
leaks in our network and sniffer dogs
to accurately locate the leak, we have
deployed 66,000 acoustic loggers since
2019 with a further 29,000 being installed
over the next year. We have recruited
around 20 per cent additional leakage
detection resources, further supported
this year by our first intake of apprentices
on a bespoke two-year technical training
scheme, mitigating the risk of a national
shortage in leakage technicians. Over
AMP7, we plan to reduce total leakage by
at least 15 per cent, with a delivery plan
that continues to make best use of available
technologies and is flexible to ensure that
we can embrace the heightened level of
innovation in this area.
Pollution performance
In 2020, we had no serious pollution
incidents for the second year running, and
have reduced total pollution incidents by
almost a third. Here, we are seeing the
benefits of delivering the action developed
as part of our Pollution Incident Reduction
Plan which covers a range of interventions,
and for the first time we had no wastewater
treatment works classed by the Environment
Agency as “failing works”, which is
something that has only ever been achieved
across the sector once before.
Greenhouse gas emissions and
climate change
Carbon reduction ('mitigation') and climate
resilience ('adaptation') have influenced
both our strategic and operational
decisions for over two decades. We have
achieved substantial progress over recent
years and we have ambitious plans and
commitments to go much further.
Carbon reduction – We are signatories to
the UN Race to Zero campaign and we are
contributing to the UK water industry’s
commitment to achieve carbon net zero
by 2030. In May 2020 we announced
six carbon pledges including the use of
science-based targets to reduce our carbon
footprint. We have successfully reduced
our operational emissions by over 70 per
cent in recent years, primarily by investing
in our own renewable energy generation
capabilities and purchasing green energy
from the national grid. We continue to
deliver on our commitments to peatland
restoration and woodland creation, recently
establishing two tree nurseries in the
North West. We are also committed to
delivering our green fleet strategy and
have introduced more low-carbon vehicles
and charging.
Our portfolio of renewable energy assets is
operating satisfactorily and our investment
has delivered the returns that we targeted.
Having maximised the opportunities to
date and established long-term contracts
to secure a proportion of our renewable
energy out to 2045, we are now looking at
how we can recycle our investment in order
to achieve further strong returns and take
the next steps in our plans to achieve net
zero by 2030.
64
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT OTHER PERFORMANCE INDICATORS
Measure
KPI:
EA EPA
Leakage reduction
2025 target
2020/21
performance
Annual
performance
Against 2025
target
Status
Upper
quartile
15%(2)
Upper
quartile(1)
On track
% waste to beneficial use 98%
97.3%
Enhancing natural capital
for customers
£4 million
Delivery
scheduled from
2022
Number of trees planted
500,000
216,601
Better air quality: nitrogen
oxides (NOx) emissions
per GWh of renewable
electricity generated
Climate change mitigation:
meeting our science-based
reduction target
1.42
NOx/GWh
1.3
NOx/GWh
14%
1% increase
Climate change adaptation:
multiple measures
Status key:
See TCFD section, pages 86 to 99
Annual performance
Against 2025 target
Met expectation/target
Confident of meeting target
Close to meeting expectation/target
Some work to do
Behind expectation/target
Target unobtainable
Baseline year
Baseline year
(1) For the year 2020, we expect to be awarded the maximum 4 star rating.
(2) As measured against a 2017/18 baseline.
Climate resilience – In AMP6 we invested an
additional £250 million targeted to increase
resilience against climate change, and we
continue to invest across our business to
protect and enhance the climate resilience
of our assets, processes and customer
services. We are working to further mature
our already advanced level of climate risk
understanding. We will soon be publishing
an overview of our climate risks and plans
in our new adaptation report. This will be
released in draft for open consultation
and engagement before we finalise our
submission over the months ahead. Our
latest annual statement in support of the
recommendations of the Taskforce for
Climate-related Financial Disclosures
(TCFD) can be seen on pages 86 to 99,
and provides an update on our performance
this year.
Natural capital and biodiversity
We continue to develop our approach
to natural capital and improve our
understanding to influence investment
decisions, allowing us to assess the full value
of our activity. We have a natural capital ODI
in AMP7, which encourages assessment of
the added natural capital value we deliver
by pursuing nature-based and catchment
solutions. Understanding this value will
help us drive partnership working and
our Catchment Systems Thinking (CaST)
approach, which seeks to understand the
broader needs of a catchment and deliver
outcomes across multiple stakeholders.
As part of this approach we have worked
with stakeholders to develop a north west
natural capital baseline to understand the
natural assets the North West has, the
benefits they provide and the value of them.
Once completed, we will engage with other
partners across the North West to drive
a consistent approach in order to drive
greater natural capital value. To facilitate
this we are seeking to establish a north west
governance group for natural capital.
Biodiversity is a key pillar of natural capital
and plays an important part in our CaST
approach. As the largest private land owner
in the UK, and an organisation delivering
significant development in the North
West, we have committed to no net loss
of biodiversity and delivered significant
investment in improving the condition
of habitats on our land. We are actively
reviewing our approach to how we can best
manage and enhance biodiversity.
65
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT The Lancashire-
born couple, both
from farming
backgrounds, have
big plans to bring
the community into
their venture.
Our performance in 2020/21
Operational performance
BEING PURPOSE-LED
Young couple breathe
new life into farmland
Much of our land is managed on our
behalf by tenant farmers, who do
a great job of handling it in a way
that supports our water quality and
environmental goals.
Through our Sustainable Catchment Management
Programme (SCaMP) and Catchment Systems Thinking
(CaST) approach we have a long history of protecting
and enhancing the water environment, with wildlife and
biodiversity enhancement as key drivers.
During the year, Bradleys Farm, a 103-acre smallholding on
the edge of Rivington Village, became vacant and our land
management team decided to package the farm as an
exciting opportunity, suitable for young farmers interested
in a ‘starter farm’.
The farm sits within the West Pennine Moors Site
of Special Scientific Interest and is included in the
Government’s Higher Level Stewardship Scheme to
promote environmentally beneficial management.
Following enquiries from all over the country and lots of
interesting ideas as to how the farm could be run, the
farm has been let to Arron Parker and his partner Gemma
Coar. The Lancashire-born couple, both from farming
backgrounds, have big plans to bring the community into
their venture.
They’re planning to organise walks and provide educational
visits for the public on farming, conservation, ecology and
water quality as the farm is a gateway site for the main
Rivington reservoirs and associated recreational walks.
“An added aim of our management of the farm is to
maintain and improve areas for visitors to enjoy”,
said Gemma. “As tenants, we have these goals at the
forefront of our farming enterprise and land management
proposals.”
Arron and Gemma can’t wait to get started: “We both
worked closely alongside my parents at their family farm
for many years”, said Gemma, “but have always dreamed
of managing our own family farm. This is our dream
come true. We’re able to manage our own farm, close to
family and friends, in the beautiful area of Rivington. Our
children can grow up in a wonderful place of open space
and countryside and we have our lives ahead to plan,
enjoy and grow.”
Generating value for:
Communities
Environment
Customers
66
United Utilities Group PLC
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STRATEGIC REPORT
Our performance at a glance
Shareholders
Investors
Delivering a sustainable return to investors – through prudent financial risk management and
a strong track record of performance across all components of ESG.
How we deliver value to investors
Short term
• Since many of our shareholders are
Long term
• Our shareholders have placed their
By delivering better performance
Link to strategic themes
pension funds, charities and employees,
the income we provide through dividends
benefits millions of people every year.
• We are committed to high ethical
standards of business conduct, strong
corporate governance and acting with
integrity so investors can have confidence
in the way we do business.
• We maintain a high level of quality
and transparency, building trust and
confidence in what we report.
• Our innovation culture drives continuous
improvements, enabling us to be at the
frontier of our industry and ahead of
peers.
money into our business as a long-
term investment and we provide an
appropriate return through a combination
of short-term dividend income and long-
term growth.
• We plan far into the future and invest
in our infrastructure to ensure the
sustainability of the business and the
services we provide.
• We manage risk prudently so investors
can have confidence in our stability and
resilience in the round.
• We link investors' return to our
environmental and social projects through
our sustainable finance framework.
for customers we are able to
achieve greater regulatory
incentives, aligning improved
service with shareholder return.
By reducing costs in a sustainable
way through innovation and
efficiency, we can target
outperformance of our allowed
expenditure without compromising
operational performance.
Our strong corporate governance,
prudent risk management, and clear
and transparent reporting create
a lower-risk investment and build
trust.
READ MORE
Link to material issue
Customer service and
operational performance
Political and regulatory
environment
Financial risk management
Read more about our approach to
materiality on page 27
Link to risks
6 10
Read more about our principal risks
on pages 104 to 107
OPERATIONAL KEY PERFORMANCE INDICATOR
Return on Regulated Equity (RoRE) expresses the return the company has managed to earn above and beyond expectations
set by the regulator through financial and operational performance.
Return on Regulated Equity
Definition
Key measure encompassing regulatory
out/under performance across financial
and operational efficiency, customer
satisfaction, and regulatory performance
targets.
Target
Our targets will be updated throughout
the period in line with guidance on the
individual components of RoRE.
Status
Achieved/confident of achieving
target
Performance
2020/21 reported RoRE was 4.3 per
cent on a real, RPI/CPIH blended basis,
mainly comprising the base return of
3.9 per cent (including our 11 basis point
fast-track reward that we receive in each
of the five years of the AMP), financing
outperformance of 1.2 per cent and
customer ODI outperformance of 0.3
per cent as a result of our year one net
reward of £21 million.
Our totex performance of -0.3 per
cent represents the year one impact
of the £300 million additional totex
which provides benefits that are not all
reflected in RoRE. Retail performance of
-0.3 per cent reflects a small overspend
this year in adapting to the effects of
COVID-19 and tax performance of -0.5
per cent reflects the Government’s
reversal of the planned reduction in the
rate of corporation tax from 19 per cent
to 17 per cent from 1 April 2020 (which
will be recovered through the tax sharing
mechanism), and the tax impact of our
strong financing outperformance.
Our underlying RoRE is higher at 4.8 per
cent and is adjusted for the tax impact
that will be recovered through the tax
sharing mechanism and the additional
totex that drives better outcomes against
future customer ODIs.
This is a new measure for the 2020-25
period hence no prior year comparators.
These will be provided from 2021/22
onwards.
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
67
STRATEGIC REPORT Our performance in 2020/21
Operational performance
£21m
net customer ODI
reward for 2020/21
£300m
extension to our AMP7
totex plan
Leading
water utility in
Sustainalytics ESG Risk
Rating assessment
Overview
Our investment strategy and digital
transformation, underpinned by our
pioneering Systems Thinking approach,
is delivering significant performance
improvement and efficiency. This has been
our best year of operational performance
for customers and the environment,
manifesting itself in a net reward against
our customer ODIs for the year of £21
million. Since accepting our AMP7 final
determination, we have increased our totex
plan by a further £300 million, all of which
we expect to be remunerated through
regulatory mechanisms, and we continue
to accelerate our overall AMP7 investment
programme to deliver benefits sooner and
boost the regional economy as we emerge
from the worst effects of COVID-19. We
have delivered another robust year of
financial performance and we are raising
finance effectively, locking in rates
favourable to the price review assumptions
and leveraging our strong ESG credentials.
Total expenditure (totex)
Our AMP7 business plan was assessed
by Ofwat as being among the most
efficient in the sector. Thanks to the
strong performance we delivered in
AMP6, we started AMP7 at the target
totex run rate and we are confident that
we can deliver our AMP7 scope within our
final determination totex allowance. Our
investment strategy delivers long-term
sustainable performance improvements
and efficiency and our AMP7 totex plans
will be extended by around £300 million,
which we expect to be fully remunerated
through regulatory mechanisms, with this
investment extending our environmental
programme, accelerating our digital
transformation and exploiting spend to
save opportunities.
In this first year of AMP7, we have invested
£617 million in net regulatory capital
expenditure (excluding infrastructure
renewals expenditure (IRE)), representing
the continued acceleration of our
AMP7 investment programme and early
expenditure against the £300 million
extension to our original totex plans. This
represents a good start to the delivery of
our AMP7 programme, benefiting from
the early start and transition investment
we made in 2019/20 and our ability to
continue working, where it was safe to do
so, during the COVID-19 pandemic. As a
consequence, we have been able to deliver
this expenditure effectively, maintaining our
high performance scores against our Time,
Cost and Quality index (TCQi) at over
95 per cent.
While we continue to seek efficiencies
in the delivery of totex, as we have
demonstrated through the £300 million
extension to our totex plans, we will invest
where we are confident we can deliver
improved customer or environmental
outcomes and better customer ODI
performance.
Customer outcome delivery
incentives (ODIs)
Our digital transformation and investment
strategy are delivering improved
performance and we have made a strong
start to AMP7, achieving a £21 million net
customer ODI reward for 2020/21. This is
ten times the net reward we achieved in
the first year of AMP6 and is particularly
pleasing in light of the tougher targets we
have set.
The earlier 'Customers' section provides
more detail on the customer ODIs where
we are performing well and others where
the targets for AMP7 are challenging.
We see opportunities across a number of
ODI targets, and our Systems Thinking
approach, including new digital capability
driven by Dynamic Network Management
(DNM), increased use of data and analytics
within our retail function, coupled with
early investment, have and will continue to
help us drive performance improvements.
Unlike AMP6, ODI rewards and penalties
in AMP7 will be adjusted in revenues on
a two-year lag, therefore any net reward
earned this year will be reflected in an
increase to revenues earned in 2022/23
through allowed increases in the rates
charged to customers in that financial
year, in accordance with the regulatory
mechanism. Overall, we are targeting
a cumulative net ODI reward over the
2020–25 period of around £150 million, a
significant improvement on the £44 million
achieved in the previous regulatory period.
Financing
On financing performance, we have
consistently issued debt at efficient rates
that compare favourably with the industry
average, thanks to our leading treasury
management, clear and transparent
financial risk management policies, and
ability to act swiftly to access pockets of
opportunity as they arise. This delivered
significant financing outperformance
during AMP6 and the rates we have already
locked in for AMP7 compare favourably
with the price review assumptions.
68
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT In November 2020, we published our new
sustainable finance framework, allowing
us to raise finance based on our strong
ESG credentials and replacing the green
funding that we have previously secured
through the European Investment Bank
(EIB), which is no longer available post-
Brexit. In January 2021, we issued our
debut sustainable bond, generating a huge
amount of interest for the company and our
ESG credentials and delivering a coupon of
0.875 per cent. This is not only our lowest
ever coupon at this maturity, locking in
financing outperformance, but also the
lowest ever coupon for any UK corporate at
this maturity.
ESG performance
We perform well across a broad
range of ESG indices and for 2021 we
attained World Class status on the Dow
Jones Sustainability Index for the 14th
consecutive year. In April 2021, we were
ranked 6th out of 613 global utilities in the
Sustainalytics’ ESG Risk Rating assessment,
positioning us as the leading water utility in
the index. We achieved a score of A- from
the CDP which evaluates how companies
assess climate change-related financial
risks and opportunities, including their
approach to transparency and disclosure.
We were assessed by the Environment
Agency (EA) as the best performing
company on pollution for the second
year in a row with no serious pollution
incidents and we expect to be awarded
industry-leading 4 star rating in the EA’s
Environmental Performance Assessment
for 2020. From an employee perspective,
we achieved a significant improvement
in the Workforce Disclosure Initiative,
scoring well above the overall average
and receiving special recognition in the
'COVID-19 transparency' category at its
Workforce Transparency Awards.
OTHER PERFORMANCE INDICATORS
2025 target
2020/21
performance
Annual
performance
Against 2025
target
Status
Assessed
annually
4.3%
Compliant
Maintain
compliance
Upper quartile Upper quartile
Measure
KPI:
RoRE
UK Corporate Governance
Code
Maintain performance
across a range of trusted
investor indices
Credit rating UUW
(Moody's, S&P, Fitch)
A3, BBB+, A- A3, BBB+, A-
(stable outlook)
Gearing
55–65%
62%
Available
Available/
continued
issuance
Retained
Retain annual
accreditation
Grow by CPIH In line with
commitment
Year on year
improvement
Met
expectation
100%
94%
75%
81%
Maintain sustainable
finance framework
Fair Tax mark
Sustainable dividend
Risk maturity
Anti-bribery: % of
identified employees
completing required
training
Investor engagement: %
met or offered to meet by
value (active targetable
institutional shareholder
base)
Status key:
Annual performance
Against 2025 target
Met expectation/target
Confident of meeting target
Close to meeting expectation/target
Some work to do
Behind expectation/target
Target unobtainable
Baseline year
Baseline year
69
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
Our performance in 2020/21
Operational performance
BEING PURPOSE-LED
Our sustainable
finance framework
Linking investment to our ESG goals.
Historically, the European Investment Bank funded much
of our environmental programme, but following Brexit this
funding is no longer available. We were keen to offer a
wider range of investors a similar ability to more directly
link their investment in us to our environmental and
sustainability goals.
In November we formally launched our sustainable
finance framework. Dovetailing well with our long-
standing and comprehensive ESG strategy, the framework
allows us to more clearly demonstrate how investment in
our business makes a positive impact on the North West’s
environment and society in which we live and operate.
Our ‘use of proceeds’ based framework follows market
principles set out by the International Capital Market
Association and the Loan Market Association, covering
issuance in both bond and loan format. Second-party
opinion was provided by Sustainalytics and was assessed
to be 'credible and impactful'.
Our framework sets out eight eligible categories of
environmental and social spend that can be funded,
covering a wide range of areas from core activities such as
‘sustainable water and wastewater management’ to other
more targeted areas such as ‘clean transportation’ and
‘access to essential services’.
Following two days of engagement with institutional
investors, our first sustainable bond was issued in January
2021, becoming, at the time, the lowest ever 8yr+ GBP
corporate nominal coupon. The £300 million bond was
oversubscribed by more than three times and attracted
notable new investors to the company.
This additional debt finance option has provided value
to both us and investors, and we look forward to giving
additional insight into the projects funded through
sustainable finance in our allocation and impact reports
to be released in 2021.
You can find out more about our sustainable finance
framework on our website: unitedutilities.com/corporate/
investors/credit-investors/sustainable-finance
Generating value for:
Customers
Environment
Shareholders
The framework
allows us to more
clearly demonstrate
how investment in
our business makes
a positive impact
on the North West's
environment and
society.
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STRATEGIC REPORT
Our performance at a glance
Suppliers
Media
Innovating in partnership with suppliers – we rely on suppliers to deliver our services and to
help identify ways to make them better.
How we deliver value to suppliers
Short term
• We spend significant amounts of
money with our suppliers each year
to help deliver maintenance and
enhancement projects across our asset
base, and this helps support thousands
of jobs in our region.
Long term
• Supporting jobs through our supply
chain in the short term catalyses the
development of skills and jobs in the
North West, providing a stimulus to
benefit the regional economy in the
long term.
• Paying suppliers on time gives them
• Working together to develop
confidence in us and allows companies
to maintain cash flow and become
more resilient.
• While our operations and suppliers
are mainly UK and European, they
work closely with us to address human
rights, in particular, modern slavery.
innovations and new technologies
means we can identify solutions that
will make our services better in the
future.
• We act with integrity, giving suppliers
confidence in the way we do business,
which translates to transparency and
fairness for our suppliers.
Link to strategic themes
Working on our behalf, suppliers
are a face for our business.
Ensuring they are motivated to
deliver good quality work helps
us deliver the best service to
customers.
Developing innovations with
suppliers, and ensuring they deliver
goods and services efficiently,
contributes to a sustainably low
cost for customers.
Working with responsible suppliers
who share our sustainability
objectives helps us achieve more
in tackling environmental and
social issues.
OPERATIONAL KEY PERFORMANCE INDICATOR
READ MORE
We act fairly and transparently with all our suppliers and are a signatory to the
Prompt Payment Code, which involves our commitment to paying invoices within
60 days.
Invoices paid within 60 days
Definition
Percentage of invoices paid within 60
working days of issue.
Target
At least 95 per cent, in line with
requirements of the Prompt Payment
Code.
Status
Achieved/confident of achieving
target
Performance
For 2020/21, 99.55 per cent of invoices
were paid within 60 days. The
average number of days taken to pay
our suppliers was 13 days, which is
reflective of our efforts to accelerate
payment to suppliers by seven days
during COVID-19.
• 2019/20: 97.35 per cent
• 2018/19: 98.57 per cent
• 2017/18: 95.44 per cent
• 2016/17: 97.40 per cent
Link to material issue
North west regional economy
Responsible supply chain
Human rights
Read more about our approach to
materiality on page 27
Link to risks
4
Read more about our principal risks
on pages 104 to 107
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
71
STRATEGIC REPORT Our performance in 2020/21
Operational performance
Overview
Our activities support around 17,700 jobs in
the supply chain, and the acceleration of
around £500 million of capital expenditure
into the first three years of AMP7 will
play a part in helping to generate jobs
and income for the north west economy
at a critical time as the country emerges
from the worst effects of the COVID-19
pandemic. Suppliers play an important
role in maintaining supply for key parts
of our business, and contractors, as well
as direct employees, act as the face of
our business for many customers and
communities. The pandemic has shown
the importance of our relationship with our
supply chain partners. We have continued
to work closely with our supply chain and
issued guidance reinforcing government
guidelines to protect employees, suppliers
and customers while maintaining delivery
of critical services.
'Better together' through United
Supply Chain
In November 2020 we successfully
launched our new approach to responsible
supply chain management for AMP7 called
United Supply Chain (USC). USC recognises
suppliers as an extension of the United
Utilities family and suppliers are asked
to become signatory to our responsible
sourcing principles as a minimum. Those
suppliers who are integral to our operations
we encourage to become leaders
and to work jointly with us to deliver
improvements across environmental, social
and governance areas and improve value
to customers. At the end of March 2021
we had signed 38 per cent of our targeted
suppliers to our responsible sourcing
principles and continue to pursue the
remaining suppliers to reach our target of
100 per cent. Via our partnership with the
Supply Chain Sustainability School we have
been able to offer both our commercial
colleagues and supply chain partners
free resources to learn more about the
responsible sourcing principles.
Innovation in action
Our Innovation Lab programme is designed
to “look for ideas where others aren’t
looking” – in other sectors, other countries
and with suppliers that are often small,
start-up businesses, just starting on their
idea development or business growth
journey. It does all this whilst being fully
compliant with procurement legislation
– allowing for rapid idea testing and idea
adoption / contract award – an obstacle
that most regulated companies struggle
with. The open, collaborative nature means
that feedback is given more frequently
and ideas get tailored for United Utilities
adoption faster than traditional product
testing. We have worked with 23 suppliers
in this way, and our highest profile success
is with FIDO (tackling leakage detection in
our Lab 2 programme). FIDO is becoming
known as a disruptor in the global water
sector, and we have first mover advantage
on new developments.
We are part-way through our third
Innovation Lab programme; we have
published four high level problems and
encouraged innovative solutions from
around the world. Over 120 supplier
applications have been reviewed by
our experts and we have selected eight
suppliers with high potential ideas; with
our help, they could offer a performance
step change across a range of areas from
helping us to reduce our carbon footprint
and be more self-sufficient on energy, to
predicting asset failures before they occur.
All ideas support our Systems Thinking
ambitions, most are digitally-centric, and
half are new entrants to the UK water
sector.
OTHER PERFORMANCE INDICATORS
17,700
jobs supported by
our activities
120
supplier applications
reviewed as part of our
third Innovation Lab
programme
Measure
2025 target
Status
2020/21
performance
Annual
performance
Against 2025
target
KPI:
Invoices paid within
60 days
Average time taken to
pay invoices
% suppliers in high risk
categories, as identified
by sustainability risk
assessments, covered by
enhanced due diligence
audits
% of partner and
strategic suppliers that
have sustainability risk
assessment in place
Supplier Relationship
Management score
% of targeted suppliers
signed up to United Supply
Chain
CIPS ethical mark
Savings delivered through
innovation and efficiency
Status key:
At least 95% 99.55%
<28 days
13
5%
Delivery
scheduled from
2021
75%
35%
90%
100%
69%
38%
Retain annual
accreditation
Retained
£40 million
£3.9million
Annual performance
Against 2025 target
Met expectation/target
Confident of meeting target
Close to meeting expectation/target
Some work to do
Behind expectation/target
Target unobtainable
Baseline year
Baseline year
72
United Utilities Group PLC
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STRATEGIC REPORT BEING PURPOSE-LED
Working better
together
Having an integrated culture throughout
our supply chain is fundamental to the
successful delivery of our strategic aims.
This means extending our values beyond our own business
and into the supply chain, recognising it as an extension
of our operations and commitments, delivering critical
services to our region and providing great water and more
for the North West.
United Supply Chain (USC) is a fundamental step change
in the way we are looking to engage and work with our
suppliers through AMP7, and into AMP8 – replacing
the previous Sustainable Supply Chain Charter used
through AMP6. USC is centred on using our responsible
sourcing principles to create a high-quality supply chain
and provide suppliers with a way of enhancing their
performance in the North West and beyond. We believe
that operating and procuring in a responsible manner will
mitigate risk, build resilience, improve compliance and
ultimately deliver better value for customers.
In November 2020, as part of our launch of USC, we held
our first digital supplier event, with senior leaders from
across the business sharing their role in helping us to
achieve our company’s vision of being the best UK water
and wastewater company.
A variety of supplier engagement activities followed, and
we are now in the process of signing up 100 per cent of all
targeted suppliers to our responsible sourcing principles.
We will then be surveying suppliers to capture our
progress and successes, and to identify new ways that we
can work better together.
Since 2016, we have had a strong relationship with the
Supply Chain Sustainability School, and the launch of USC
has seen them partner us on our journey to embed best
practice across our business and broader supply chain.
This collaboration allows our suppliers direct access to
the latest thinking and training in responsible sourcing.
Recent insightful workshops have covered carbon and
modern slavery – with the latter leading to us enhancing
key internal documents to align to best practice.
‘Pride in the workplace’ training by The Proud Trust
provided education on diversity and inclusion, another key
theme of our USC roll-out. Ensuring that learning gained
from this training is replicated internally and throughout
our supply chain will be key to helping us embed USC.
We will be showcasing more examples of collaborative
working on our USC supplier web pages, as we work
to create, adopt and develop better practice across our
delivery chain.
Generating value for:
Customers
Environment
Media
USC is centred on using
our responsible sourcing
principles to create a
high-quality supply chain
and provide suppliers
with a way of enhancing
their performance in the
North West and beyond.
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
73
STRATEGIC REPORT
Our performance in 2020/21
Financial performance
Our performance at a glance
We have delivered against our financial key
performance indicators this year, reflecting a
year of robust financial performance.
Robust financial performance backed by a strong balance
sheet
• Underlying profit after tax(1) of £383 million down 21 per cent, in
line with expectation.
• Customer debtor position and household cash collection
remain strong.
• Strong balance sheet; A3 stable credit rating with Moody’s.
• Pension schemes fully funded on a low-dependency basis.
• AMP7 dividend policy of growth in line with CPIH inflation.
Financial key performance indicators
Underlying operating profit(1)
Underlying earnings per share(1)
Dividend per share
Gearing: net debt to RCV(2)
Total shareholder return
Low dependency pension scheme
£602m
56.2p
43.24p
62%
+7%
2020/21
2019/20
2018/19
2017/18
2016/17
£602m
£732m
£685m
£645m
£623m
2020/21
2019/20
2018/19
2017/18
2016/17
56.2p
71.3p
59.8p
49.0p
48.9p
2020/21
2019/20
2018/19
2017/18
2016/17
43.24p
42.60p
41.28p
39.73p
38.87p
62%
61%
61%
61%
61%
2020/21
2019/20
2018/19
2017/18
2016/17
+7%
+17%
+20%
+19%
-25%
provided.
£nil
deficit repair contributions
This is a new measure for the 2020–25
period hence no prior years' comparators.
From 2021/22 onwards comparators will be
Definition
This measure divides total dividends
declared by the average number of shares
in issue during the year.
Link to remuneration, bonus/LTP
LTP – indirect
Status
Met expectation/target
Performance
The board has proposed an increase in
the dividend of 1.5 per cent taking the
total dividend for the year to 43.24 pence
per share, in line with our AMP7 policy
of targeting growth in line with CPIH
inflation.
Definition
Definition
Definition
Group net debt divided by United Utilities
This measure calculates the return to
Fully-funded defined benefit pension
Water Limited's (UUW) shadow (adjusted
shareholders based on the movement
schemes on a low -dependency basis.
for actual spend) regulatory capital value
in share price plus dividends over each
financial year.
Link to remuneration, bonus/LTP
Status
Met expectation/target
Performance
Maintain gearing with a range of 55 per
LTP – direct
cent to 65 per cent.
Met expectation/target
Performance
Our total shareholder return was 7 per cent
Our gearing at 62 per cent is marginally
over the year to 31 March 2021.
higher this year but remains within our
target range of 55 per cent to 65 per cent,
supporting a solid investment grade credit
rating.
Status
Met expectation/target
Performance
Our pension scheme has minimal reliance
on the company in order to meet all of
its liabilities – in other words, we have
achieved low dependency as defined in
The Pensions Regulator's defined benefit
funding consultation published in March
2020. We have no further deficit repair
contributions to make, a position we do not
expect to change given our approach to
hedging market risk.
Definition
The underlying operating profit measure
excludes from the reported operating
profit any significant non-recurring items.
The group determines adjusted items in
the calculation of its underlying operating
profit measure by reference to a framework
that considers significance by reference
to profit before tax, in addition to other
qualitative factors such as whether the item
is deemed to be within the normal course
of business, its assessed frequency of
recurrence, and its volatility, which is either
outside of the control of management and/
or not representative of the current year
performance. A reconciliation is shown on
pages 82 to 83.
Link to remuneration, bonus/LTP
Bonus – direct, LTP – indirect
Status
Definition
This measure deducts underlying net
finance expense, underlying share of
joint venture losses and underlying
taxation from underlying operating
profit to calculate underlying profit
after tax and divides this by the average
number of shares in issue during the year.
Underlying net finance expense makes
adjustments to the reported net finance
expense, including stripping out fair value
movements. Underlying taxation strips out
deferred tax (including any tax credits or
debits arising from changes in the tax rate
from reported taxation) or any exceptional
tax. Reconciliations to the underlying
measures above are shown on pages 82
to 83.
Link to remuneration, bonus/LTP
LTP – indirect
Close to achieving expectation/ target
but more work to be done
Status
Met expectation/target
Performance
Underlying operating profit of £602 million
was down £130 million, largely reflecting
lower revenue in the first year of the new
price control and higher infrastructure
renewals expenditure (IRE), as a result of
ongoing work to optimise performance.
Performance
Underlying earnings per share was down
15.5 pence at 56.2 pence due to the
decrease in underlying operating profit
partly offset by a lower underlying net
finance expense due to lower RPI inflation
on our index-linked debt.
2020/21
2019/20
2018/19
2017/18
2016/17
(RCV).
Target
Status
(1) Underlying measures are defined in the tables on pages 82 to 83 and reflect a change in approach to alternative performance measures (APMs) with prior
year numbers re-presented for comparability
(2) March 2021 gearing based on new definition of net debt to exclude the impact of derivatives that are not hedging specific debt instruments, with prior
year numbers re-presented for comparability
Notes:
Note 1: For both our operational and financial KPIs, where we have declared external targets we assess our performance against the most recent public targets.
Where there are no externally declared targets we assess our performance against our internal budget; however, our internal budget is not disclosed.
Note 2: In some instances the remuneration committee has used metrics with similar names but calculation methodologies which they consider more
appropriate for executive remuneration, as set out in the remuneration report on pages 160 to 189.
74
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
Financial key performance indicators
Underlying operating profit(1)
Underlying earnings per share(1)
Dividend per share
Gearing: net debt to RCV(2)
Total shareholder return
Low dependency pension scheme
£602m
56.2p
43.24p
62%
+7%
2020/21
2019/20
2018/19
2017/18
2016/17
£602m
£732m
£685m
£645m
£623m
2020/21
2019/20
2018/19
2017/18
2016/17
56.2p
71.3p
59.8p
49.0p
48.9p
2020/21
2019/20
2018/19
2017/18
2016/17
43.24p
42.60p
41.28p
39.73p
38.87p
Definition
Definition
Definition
The underlying operating profit measure
This measure deducts underlying net
This measure divides total dividends
excludes from the reported operating
finance expense, underlying share of
declared by the average number of shares
profit any significant non-recurring items.
joint venture losses and underlying
in issue during the year.
The group determines adjusted items in
taxation from underlying operating
the calculation of its underlying operating
profit to calculate underlying profit
profit measure by reference to a framework
after tax and divides this by the average
that considers significance by reference
number of shares in issue during the year.
to profit before tax, in addition to other
Underlying net finance expense makes
qualitative factors such as whether the item
adjustments to the reported net finance
Link to remuneration, bonus/LTP
LTP – indirect
Status
Met expectation/target
is deemed to be within the normal course
expense, including stripping out fair value
Performance
of business, its assessed frequency of
movements. Underlying taxation strips out
The board has proposed an increase in
recurrence, and its volatility, which is either
deferred tax (including any tax credits or
the dividend of 1.5 per cent taking the
outside of the control of management and/
debits arising from changes in the tax rate
total dividend for the year to 43.24 pence
or not representative of the current year
from reported taxation) or any exceptional
per share, in line with our AMP7 policy
performance. A reconciliation is shown on
tax. Reconciliations to the underlying
of targeting growth in line with CPIH
pages 82 to 83.
measures above are shown on pages 82
inflation.
Link to remuneration, bonus/LTP
Bonus – direct, LTP – indirect
to 83.
Link to remuneration, bonus/LTP
LTP – indirect
Status
Close to achieving expectation/ target
Status
but more work to be done
Met expectation/target
Performance
Underlying operating profit of £602 million
was down £130 million, largely reflecting
lower revenue in the first year of the new
price control and higher infrastructure
renewals expenditure (IRE), as a result of
ongoing work to optimise performance.
Performance
Underlying earnings per share was down
15.5 pence at 56.2 pence due to the
decrease in underlying operating profit
partly offset by a lower underlying net
finance expense due to lower RPI inflation
on our index-linked debt.
2020/21
2019/20
2018/19
2017/18
2016/17
62%
61%
61%
61%
61%
2020/21
2019/20
2018/19
2017/18
2016/17
+7%
+17%
+20%
+19%
-25%
Definition
Group net debt divided by United Utilities
Water Limited's (UUW) shadow (adjusted
for actual spend) regulatory capital value
(RCV).
Definition
This measure calculates the return to
shareholders based on the movement
in share price plus dividends over each
financial year.
Target
Maintain gearing with a range of 55 per
cent to 65 per cent.
Status
Met expectation/target
Performance
Our gearing at 62 per cent is marginally
higher this year but remains within our
target range of 55 per cent to 65 per cent,
supporting a solid investment grade credit
rating.
Link to remuneration, bonus/LTP
LTP – direct
Status
Met expectation/target
Performance
Our total shareholder return was 7 per cent
over the year to 31 March 2021.
£nil
deficit repair contributions
This is a new measure for the 2020–25
period hence no prior years' comparators.
From 2021/22 onwards comparators will be
provided.
Definition
Fully-funded defined benefit pension
schemes on a low -dependency basis.
Status
Met expectation/target
Performance
Our pension scheme has minimal reliance
on the company in order to meet all of
its liabilities – in other words, we have
achieved low dependency as defined in
The Pensions Regulator's defined benefit
funding consultation published in March
2020. We have no further deficit repair
contributions to make, a position we do not
expect to change given our approach to
hedging market risk.
KPI STATUS KEY
Met expectation/
target
Close to meeting
expectation/target
Behind
expectation/target
Baseline
year
75
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
Our performance in 2020/21
Financial performance
Revenue
2020/21
2019/20
2018/19
2017/18
2016/17
1,808.0
1,859.3
1,818.5
1,735.8
1,704.0
Underlying operating profit(1)
602.1
2020/21
2019/20
2018/19
2017/18
2016/17
Reported operating profit
2020/21
2019/20
2018/19
2017/18
2016/17
732.1
684.8
645.1
622.9
602.1
630.3
634.9
636.4
605.5
RCV gearing(2)
62%
Total dividend per
ordinary share (pence)
43.24
(1) We have changed our approach to
alternative performance measures (APMs)
during the year, with prior year numbers
restated for comparability. A guide to APMs
and a reconciliation between underlying
profit and reported profit is shown on pages
82 to 83.
Revenue
1,859.3
46.8
12.5
6.2
9.4
1,808.0
(79.5)
(46.7)
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Year to
31 March
2020
Regulatory
revenue
changes
Non-
household
consumption
Household
consumption
WRFIM
adjustments
Innovation
fund
Other
Year to
31 March
2021
Revenue was down £51 million, at £1,808
million, largely reflecting the £80 million
reduction from the new pricing regime in
this, the first year of AMP7, incorporating
a 5.5 per cent real reduction in typical
household bills and a 1.5 per cent CPIH-
linked increase.
The impact of the COVID-19 pandemic and
related lockdown periods has seen non-
household revenue decrease by £47 million,
with an increase in household revenue of £47
million as a result of more time spent at home
and the hot, dry weather in spring 2020.
Revenue in 2020/21 includes £6 million
in relation to the Innovation in Water
Challenge Scheme. This is a new scheme
introduced by Ofwat in AMP7, and
therefore did not apply last year, and is
intended to fund industry-wide innovation
projects. In 2020/21, we have provided
for £6 million of offsetting costs with
the balance of revenue and costs as the
scheme matures in future years dependent
upon how successful companies are in
bidding for funds.
Operating profit
800
732.1
(51.3)
(21.8)
(21.8)
(13.5)
(6.2)
(15.4)
602.1
600
400
200
0
(2) Regulatory capital value (RCV) gearing
calculated as group net debt/United Utilities
Water Limited shadow RCV (out-turn prices).
Underlying
year to
31 March
2020
Revenue
Depreciation
and
amortisation
Infrastructure
renewals
expenditure
Property
rates
Innovation
fund
Other
underlying
operating
costs
Underlying and
reported year
to 31 March
2021
* Adjusted items are set out on pages 82 and 83
76
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
Underlying operating profit(1) at £602
million was £130 million lower than last
year. This principally reflects the £51 million
reduction in revenue, and also a £22 million
increase in IRE as a result of ongoing
work to optimise the performance of our
network. Depreciation is £22 million higher,
principally reflecting the higher capex
programme in AMP6 with a high number
of assets commissioned towards the end of
the AMP. In the near term we would expect
depreciation to flatten out, reflecting the
lower AMP7 capex programme. Property
rates are £14 million higher this year, largely
reflecting a rates refund received last
year. We have accrued £6 million of costs
in 2020/21 in relation to the Innovation
in Water Challenge Scheme mentioned
above, along with £13 million of extra
COVID-19 related costs (including a £5
million increase in the underlying bad debt
charge), which have been absorbed within
our cost base and which have not been
treated as adjusted items when calculating
our underlying operating profit.
Reported operating profit was £28 million
lower than last year, reflecting the decrease
in underlying operating profit partially
offset by a decrease in adjusted items. As
a result of the changes we have made to
alternative performance measures, we will
no longer, as a matter of course, adjust for
restructuring costs to derive underlying
operating profit and therefore we do not
have any adjusted items in the year to
31 March 2021, with prior year numbers
re-presented for comparative purposes.
Adjusted items totalling £102 million were
made in the full year to 31 March 2020,
comprising £83 million of accelerated
depreciation of bioresources assets that
had been taken out of use and £19 million
in relation to provisions for the anticipated
impact of COVID-19, principally reflecting
a higher bad debt charge recognising
the higher risk of future non-payment of
household customer bills. These adjusted
items can also be found on pages 82 to
83 and more detail can be found in our
announcement of results for the year to
31 March 2020.
Household bad debt is 2.2 per cent of
regulated revenue, representing a marginal
increase of £5 million on the underlying
bad debt cost in the prior year, reflecting
the ongoing uncertainty associated with
the third lockdown and taking into account
expected cash collection into the future, as
government support unwinds in the coming
months.
Profit before tax
600
534.8
91.0
551.0
460.0
(3.2)
(130.0)
58.4
400
200
0
Underlying
year to
31 March
2020
Underlying
operating
profit
Underlying
net finance
expense
decrease
Share of
JVs
losses
Underlying
year to
31 March
2021
Adjusted
items*
Reported
year to
31 March
2021
* Adjusted items are set out on pages 82 and 83
Underlying profit before tax(1) was £460
million, £75 million lower than last year.
This reflects the £130 million reduction
in underlying operating profit, and an
increase in the share of underlying losses
of joint ventures of £3 million, partly offset
by a £58 million decrease in underlying net
finance expense.
Underlying profit before tax reflects
consistently applied presentational
adjustments as outlined on pages 82 to 83.
Reported profit before tax increased by
£248 million to £551 million, reflecting the
£28 million reduction in reported operating
profit and the £3m increase in the share of
underlying losses of joint ventures, more
than offset by a £210 million reduction in
reported net finance expense (including
fair value movements), a £37 million profit
on the disposal of our Tallinn joint venture
and the impact in the prior year of our £32
million share of Water Plus losses arising as
a result of COVID-19.
Net finance expense
The underlying net finance expense of £133
million was £58 million lower than last year,
on a consistent basis. Interest of £83 million
on non-index linked debt was £13 million
lower than last year due to lower rates
locked in on debt and associated swaps. The
indexation of principal on index-linked debt,
including the impact of inflation swaps,
amounted to a net charge in the income
statement of £54 million, compared with a
net charge of £100 million last year.
Reported net finance expense of £79 million
was £210 million lower than last year,
principally reflecting a £151 million increase
in the fair value gains on debt and derivative
instruments, from a £76 million loss in the
prior year to a £74 million gain in the current
year, and lower inflation applied to our
index-linked debt.
Joint ventures
On 31 March 2021, the group completed
the disposal of its stake in the Tallinn Water
joint venture for consideration of EUR
100.3 million (£85.3 million) and a total
recognised profit on disposal of £37 million.
Given its material and atypical nature, this
profit on disposal has been excluded from
underlying results.
For the year to 31 March 2021, we recognised
£14 million losses in the income statement
relating to our joint venture Water Plus,
comprising £9 million of our share of Water
Plus’s underlying losses for the year and £5
million of previously unrecognised share of
losses. At 31 March 2021 there was a clear
expectation that the £32.5 million revolving
credit facility extended to Water Plus would
be converted into additional equity share
capital, and as a result share of losses are
recognised against this capital, this includes
recognition of any previously unrecognised
losses. The transaction to convert the
£32.5 million revolving credit facility was
subsequently executed on 23 April 2021.
For the year to 31 March 2020, we
recognised £51 million losses in the income
statement relating to our joint venture
Water Plus, comprising £14 million of our
share of Water Plus’ underlying losses and
our £32 million share of Water Plus losses
arising as a result of COVID-19, as well as
a £5 million allowance for expected credit
losses. As a result, our long-term interest
in Water Plus was written down to £nil. A
further £5 million of our share of Water
Plus’ underlying losses were not recognised
in the income statement.
Our £9 million underlying share of losses of
joint ventures in the year to 31 March 2021
comprises a £5 million share of profits from
Tallinna Vesi AV, more than offset by a £14
million share of losses from Water Plus.
77
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Financial performance
600
Profit after tax and earnings per share
486.3
70.4
453.4
(74.8)
(28.5)
383.0
400
200
0
Underlying
profit after
tax to 31 March
2020
Underlying
profit before
tax
Underlying
tax
Underlying
profit after
tax to 31 March
2021
Adjusted
items*
Reported
profit after
tax to 31 March
2021
* Adjusted items are set out on pages 82 and 83
Underlying profit after tax(1) of £383 million
was £103 million lower than last year, and
underlying earnings per share decreased
from 71.3 pence to 56.2 pence, principally
reflecting the £75 million reduction in
underlying profit before tax and a £28
million higher underlying tax charge largely
due to the pension deficit repair payment
we made last year.
Reported profit after tax increased by £347
million to £453 million, and reported basic
earnings per share increased from 15.7 pence
to 66.5 pence, principally reflecting the
£248 million increase in the reported profit
before tax and a £99 million decrease in the
reported tax charge primarily as a result
of a £136 million deferred tax adjustment
for the change in tax rate reflecting the
Government’s reversal of the planned
reduction in the rate of corporation tax
recognised in the prior year.
Tax
The group continues to be fully committed
to paying its fair share of tax and acting in
an open and transparent manner in relation
to its tax affairs and we were delighted
to have retained the Fair Tax Mark
independent certification for a second year,
having been only the second FTSE 100
company to be awarded the Fair Tax Mark
in July 2019.
In addition to corporation tax, the group
pays significant other contributions to the
public finances on its own behalf as well as
collecting and paying over further amounts
for its 5,000 strong workforce. The total
payments for 2020/21 were around £258
million and included business rates,
employment taxes, environmental taxes
and other regulatory service fees such
as water abstraction charges, as well as
corporation tax.
78
In 2020/21, we paid corporation tax of £75
million, which represents an effective cash
tax rate on underlying profits of 16 per cent,
which is 3 per cent lower than the headline
rate of corporation tax of 19 per cent. The
key reconciling item to the headline rate of
corporation tax continues to be allowable tax
deductions on capital investment and also,
in the prior year, pension payments – these
being deductions put in place by successive
governments to encourage such investment
and thus reflecting responsible corporate
behaviour in relation to taxation.
We have expressed the effective cash tax
rate in terms of underlying profits as this
measure excludes fair value movements
on debt and derivative instruments and
thereby enables a medium-term cash tax rate
forecast. We expect the average cash tax rate
on underlying profits to remain below the
headline rate of tax for the medium term.
As well as the payments we also received a
repayment of corporation tax of £27 million
following agreement of routine prior years’
UK tax matters.
The current tax charge was £80 million in
2020/21, compared with £51 million in the
previous year. There were current tax credits
of £1 million in 2020/21 and £12 million in
2019/20, following agreement of prior years’
UK tax matters.
For 2020/21, the group recognised a deferred
tax charge of £18 million, compared with
£158 million for 2019/20. Of the deferred tax
charge for 2019/20, £136 million related to
the Government’s reversal of the planned
reduction in the rate of corporation tax
from 19 per cent to 17 per cent from 1 April
2020. Excluding the above change in tax
rate related deferred tax adjustment in the
prior year and the current year non-taxable
profit on the disposal of the joint venture
investment in AS Tallinna Vesi, the total
effective tax rate was around 19 per cent
for both the current year and the prior year.
Subject to any legislative or tax practice
changes, we would expect the total effective
tax rate to be in line with the headline rate of
corporation tax for the medium term.
In 2020/21, there are £31 million of tax
adjustments taken to equity, primarily
relating to remeasurement movements on
the group’s defined benefit pension schemes.
As in the prior year the rate at which the
deferred tax liabilities are measured on the
group’s defined benefit pension scheme is 35
per cent, being the rate applicable to refunds
from a trust.
An increase in the headline rate of
corporation tax to 25 per cent from 1 April
2023 was announced in the Chancellor’s
Budget on 3 March 2021. This change has
been enacted in May 2021, and will result
in a future deferred tax charge currently
estimated at around £380 million.
Dividend per share
The board has proposed a final dividend of
28.83 pence per ordinary share in respect
of the year ended 31 March 2021. Taken
together with the interim dividend of 14.41
pence per ordinary share, paid in February,
this results in a total dividend per ordinary
share for 2020/21 of 43.24 pence. This is an
increase of 1.5 per cent compared with the
dividend relating to last year, in line with
the group’s dividend policy of targeting
a growth rate of CPIH inflation each year
through to 2025. The inflationary increase
of 1.5 per cent is based on the CPIH element
included within the allowed regulated
revenue increase for the 2020/21 financial
year (i.e. the movement in CPIH between
November 2018 and November 2019).
The final dividend is expected to be paid
on 2 August 2021 to shareholders on the
register at the close of business on 25 June
2021. The ex-dividend date is 24 June 2021.
Cash flow
Net cash generated from continuing
operating activities for the year to 31 March
2021 was £859 million, broadly consistent
with £810 million last year. The group’s
net capital expenditure was £639 million,
principally in the regulated water and
wastewater investment programmes. This
excludes infrastructure renewals expenditure
which is treated as an operating cost. Cash
flow capex differs from regulatory capex,
since the latter is based on capital work done
in the period, rather than actual cash spent.
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Pensions
As at 31 March 2021, the group had an IAS 19
net pension surplus of £689 million, compared
with a net pension surplus of £754 million
at 31 March 2020. This £65 million decrease
is predominantly due to the unwinding of a
spike in credit spreads at 31 March 2020 due
to COVID-19 that resulted in a temporary
decrease in the valuation of liabilities. The
scheme-specific funding basis does not suffer
volatility due to credit spread movements to
the same extent as it uses a prudent, fixed
credit spread assumption and is hedged for
inflation and interest rates. Any inflation and
credit spread movements are therefore not
expected to have a material impact on the
pension liabilities calculated on a scheme-
specific funding basis.
129.3
291.9
52.6
48.5
7,397.7
11.4
7,305.8
(91.9)
639.0
Financing
Summary of net debt movement
7,361.4
7,250
6,750
6,250
5,750
(1,037.2)
(85.3)
(7.5)
(6.4)
As at
31 March
2020
Cash
generated
from
operations
Proceeds
from
disposal
Fair
value
movements
Net capital
expenditure
Dividends
from
joint
ventures
Dividends
Interest
Indexation
Tax
Other
Adjustments
As at
31 March
2021
As at
31 March
2021
(new
definition)
Gearing, measured as group net debt divided
by UUW’s shadow (adjusted for actual spend)
regulatory capital value, was 62 per cent at 31
March 2021. This is marginally higher than the
61 per cent as at 31 March 2020 but remains
within our target range of 55 to 65 per cent.
Cost of debt
As at 31 March 2021, the group had
approximately £3.0 billion of RPI-linked
debt at an average real rate of 1.3 per cent,
and £1.1 billion of CPI or CPIH-linked debt at
an average real rate of -0.2 per cent.
A lower RPI inflation charge compared with
the same period last year contributed to the
group’s average effective interest rate of
2.5 per cent being lower than the rate of 3.4
per cent for the year to 31 March 2020. The
average underlying interest rate represents
the underlying net finance expense adjusted
for capitalised borrowing costs and net
pension interest income, divided by average
notional debt.
The group has fixed the interest rates on its
non index-linked debt in line with its 10-year
reducing balance basis at a net effective
nominal interest rate of 2.2 to 2.5 per cent
for the 2020–25 regulatory period.
Credit ratings
UUW’s senior unsecured debt obligations
are rated A3 with Moody’s Investors Service
(Moody’s), A- with Fitch Ratings (Fitch)
and BBB+ with Standard & Poor’s Ratings
Services (S&P) and all on stable outlook.
United Utilities PLC’s (UU PLC’s) senior
unsecured debt obligations are rated Baa1
with Moody’s, A- with Fitch and BBB- with
S&P, all on stable outlook.
Debt financing
The group has access to the international
debt capital markets through its €7
billion euro medium-term note (EMTN)
programme. The EMTN programme does
not represent a funding commitment, with
funding dependent on the successful issue
of the notes.
In total over 2020–25, we expect to raise
around £2.4 billion to cover refinancing and
incremental debt, supporting our five-year
investment programme. In 2020/21 we have
raised £900 million, taking advantage of the
attractive rates available and extending our
liquidity position out to August 2023.
The group’s gross borrowings at 31 March
2021 had a carrying value of £8,452 million.
The fair value of these borrowings was
£9,855 million. This £1,403 million difference
principally reflects the significant fall in real
interest rates compared with the rates at the
time we raised a portion of the group’s index-
linked debt. This difference has increased
from £471 million at 31 March 2020 due
primarily to a decrease in credit spreads.
Cash and short-term deposits at 31 March
2021 amounted to £744 million.
Net debt at 31 March 2021 was £7,306 million,
compared with £7,361 million at 31 March
2020. This comprises gross borrowings of
£8,452 million and derivative liabilities of
£115 million net of cash of £744 million and
derivative assets of £425 million. This is
then adjusted to exclude derivatives with a
net liability of £92 million under our revised
definition of net debt to exclude the impact
of derivatives that are not hedging-specific
debt instruments and therefore gives a fairer
reflection of the amount we are contractually
obliged to repay. This approach is more
consistent with that taken by the credit rating
agencies and better reflects the regulatory
economics.
Underlying movements in net debt are largely
a result of net operating cash inflows offset by
our net capital expenditure, dividends, cash
interest, indexation interest and tax, and in
2020/21 also reflects the impact of the £85
million sales proceeds from the disposal of
our Tallinn JV.
79
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Financial performance
In November 2020, we published our new
sustainable finance framework, through
which we expect to raise financing based
on our strong ESG credentials alongside
conventional issuance. This replaces the
green funding we have previously secured
through the European Investment Bank
(EIB), which is no longer available post-
Brexit.
In January 2021, we issued our
debut sustainable bond raising £300
million, maturing in October 2029 and
subsequently swapped to CPI-linkage.
We remain one of the sector leaders in the
issuance of CPI-linked debt in response to
Ofwat’s decision to transition away from
RPI inflation linkage. At 31 March 2021, we
have increased the CPI-linkage in our debt
portfolio to £1,015 million with a further
£50 million of CPIH-linkage, and therefore
a perfect match for the regulatory regime.
Since March 2020, we have renewed £50
million of revolving credit facilities with
a relationship bank for a further five-
year term, and extended £100 million of
revolving credit facilities for a further three
years, and £250 million of revolving credit
facilities for a further year.
Interest rate management
Long-term borrowings are structured or
hedged to match assets and earnings,
which are largely in sterling, indexed to UK
price inflation and subject to regulatory
price reviews every five years.
Long-term sterling inflation index-linked
debt provides a natural hedge to assets and
earnings. At 31 March 2021, approximately
41 per cent of the group’s net debt was
in RPI-linked form, representing around
26 per cent of UUW’s regulatory capital
value, with an average real interest rate of
1.3 per cent. A further 15 per cent of the
group’s net debt was in CPI or CPIH-linked
form, representing around 9 per cent of
UUW’s RCV, with an average real rate of
-0.2 per cent. The long-term nature of this
funding also provides a good match to the
company’s long-life infrastructure assets
and is a key contributor to the group’s
average term debt maturity profile, which
is around 18 years.
Our inflation hedging policy is to target
around 50 per cent of net debt to be
maintained in index-linked form. This
reflects a balanced assessment across a
range of factors.
Where nominal debt is raised in a currency
other than sterling and/or with a fixed
interest rate, the debt is generally swapped
to create a floating rate sterling liability for
the term of the debt. To manage exposure
to medium-term interest rates, the group
fixes underlying interest costs on nominal
debt out to ten years on a reducing balance
basis.
Historically, this has been supplemented by
fixing substantially all remaining floating
rate exposure across a forthcoming
regulatory period around the time of the
price control determination. Recognising
Ofwat’s intention to apply debt indexation
for new debt raised during the 2020–25
regulatory period, we have retained the
hedge to fix underlying interest costs on
nominal debt out to ten years on a reducing
balance basis, but have not supplemented
this with the additional ‘top up’ fixing at the
start of the new regulatory period.
Liquidity
Short-term liquidity requirements are met
from the group’s normal operating cash
flow and its short-term bank deposits and
supported by committed but undrawn
credit facilities. Our €7 billion EMTN
programme provides further support.
At 31 March 2021, we had liquidity out to
August 2023, comprising cash and short-
terms deposits (enhanced by new finance
raised in the period), plus committed
undrawn revolving credit facilities. This
gives us flexibility in terms of when and
how further debt finance is raised to help
refinance maturing debt and support
the delivery of our regulatory capital
investment programme.
We consider that we operate a prudent
approach to managing banking
counterparty risk. Counterparty risk,
in relation to both cash deposits and
derivatives, is controlled through the use of
counterparty credit limits. Our cash is held
in the form of short-term money market
deposits with prime commercial banks.
We operate a bilateral rather than
a syndicated approach to our core
relationship banking facilities. This
approach spreads maturities more evenly
over a longer time period, thereby reducing
refinancing risk and providing the benefit
of several renewal points rather than a
large single refinancing requirement.
Outlook
We have responded well to the
challenges presented by COVID-19
and delivered another year of strong
operational performance, building on the
improvements we delivered in AMP6.
We are leading the way on customer
satisfaction and have made a strong start
to our AMP7 customer ODIs, delivering net
outperformance of £21 million this year.
We have extended our AMP7 totex plans
by £300 million to underpin the delivery
of long-term sustainable performance
improvements and efficiency, and we
continue with our strategy of accelerating
investment to bring forward benefits
for customers and the environment and
contributing to the economic recovery of
our region.
This is a great start to the new regulatory
period and provides a strong platform
to deliver further good operational
performance for the benefit of all
stakeholders. This gives us the confidence
to target cumulative net outperformance of
around £150 million against our customer
ODIs for AMP7.
2021/22 full-year guidance
• Revenue is expected to be marginally
lower in 2021/22, reflecting the
November 2020 CPIH of 0.6 per
cent offset by the regulatory revenue
reduction of 2.0 per cent.
• Underlying operating costs are
expected to be marginally higher year-
on-year, reflecting small inflationary
increases coming through core costs
while IRE is expected to increase,
reflecting the additional investment
in DNM.
• Underlying finance expense is expected
to be higher year-on-year as higher
inflation impacts our index-linked debt.
• Capex in 2021/22 is expected to
be in the range of £625 million to
£675 million, reflecting the ongoing
acceleration of our AMP7 programme
and around £50 million of additional
capex (of the £300 million extension
to our AMP7 totex plans).
• Targeting a net customer ODI reward
of around £20 million, consistent
with targeting a cumulative net AMP7
reward of around £150 million.
80
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT 81
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our performance in 2020/21
Financial performance
Guide to Alternative Performance
Measures (APMs)
The underlying profit measures in the
following table represent APMs as defined
by the European Securities and Markets
Authority (ESMA). These measures are
linked to the group’s financial performance
as reported in accordance with international
accounting standards in conformity with
the requirements of the Companies Act
2006, and in accordance with International
Financial Reporting Standards (IFRSs) adopted
pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union, in the group’s
consolidated income statement, which can be
found on page 207. As such, they represent
non-GAAP measures.
Adjusted item
Rationale
Adjustments not expected to recur
These APMs have been presented in order
to provide a more representative view of
business performance. The group determines
adjusted items in the calculation of its
underlying measures against a framework
which considers significance by reference
to profit before tax, in addition to other
qualitative factors, such as whether the
item is deemed to be within the normal
course of business, its assessed frequency
of recurrence and its volatility which is either
outside the control of management and/or not
representative of current year performance.
We have simplified our approach to APMs
and are no longer, as a matter of course,
adjusting our underlying earnings for
restructuring costs, net pension interest,
capitalised borrowing costs and prior years’
tax matters. This brings our approach more
in line with peers and therefore makes cross-
company comparisons easier. The tables
that follow present the prior year APMs
both on a re-presented basis using the new
definition of APMs and as presented as at
31 March 2020 for comparative purposes.
In addition, a reconciliation of the group’s
average effective interest rate has been
presented, together with a prior year
comparison. In arriving at net finance
expense used in calculating the group’s
effective interest rate, underlying net finance
expense is adjusted to add back net pension
interest income and capitalised borrowing
costs in order to provide a view of the group’s
cost of debt that is better aligned to the
return on capital it earns through revenue.
Bioresources asset
write down
COVID-19
A strategic review of the group’s bioresources activities was undertaken in the second half of the year ended 31 March 2020,
informed by the PR19 process and the group’s zero-carbon commitments. This resulted in the likelihood of future economic benefit
being derived from certain assets now being considered remote in light of improvements in alternative lower-cost and more
environmentally-friendly processes. This resulted in a material asset write down that was not considered to be part of the normal
course of business, with similarly material write downs not expected to reoccur in future years.
The group incurred significant costs resulting from the COVID-19 pandemic in the early part of 2020, including incremental
expected credit losses on household and non-household customer receivables caused by the economic impact of business
closures and expected increases in unemployment. The group’s joint venture, Water Plus, was also significantly impacted,
resulting in the business recognising an impairment of certain assets and a higher allowance for expected credit losses at
31 March 2020, feeding through to the group’s share of losses from joint ventures. This also caused the group to recognise
an allowance for expected credit losses in relation to loans extended to Water Plus. Due to the unprecedented nature of
the pandemic and the initial economic shock associated with early lockdown measures, these costs were not deemed to be
representative of normal business performance when compared against prior periods. In line with best practice, we make no
COVID-19 adjustment in the year ended 31 March 2021.
Profit on disposal of joint
ventures
Consistently applied presentational adjustments
This relates to the disposal of the group’s 35.3 per cent stake in its Estonian joint venture, AS Tallinna Vesi, which represents a
significant, atypical event and as such is not considered to be part of the normal course of business.
Net fair value (gains)/losses
on debt and derivative
instruments, excluding
interest on derivatives and
debt under fair value option(2)
Deferred tax adjustment
Fair value movements on debt and derivative instruments can be both very significant and volatile from one period to the next, and
are therefore excluded in arriving at underlying net finance expense as they are determined by macroeconomic factors which are
outside of the control of management and relate to instruments that are purely held for funding and hedging purposes (not for trading
purposes). Included within fair value movement on debt and derivatives is interest on derivatives and debt under fair value option.
In making this adjustment it is appropriate to add back interest on derivatives and debt under fair value option to provide a view of
the group’s cost of debt which is better aligned to the return on capital it earns through revenue. Taking these factors into account,
management believes it is useful to adjust for these fair value movements to provide a more representative view of performance.
Management adjusts to exclude the impact of deferred tax in order to provide a more representative view of the group’s profit
after tax and tax charge for the year given that the regulatory model allows for cash tax to be recovered through revenues, with
future revenues allowing for cash tax including the unwinding of any deferred tax balance as it becomes current. By making this
adjustment, the group’s underlying tax charge does not include tax that will be recovered through revenues in future periods, thus
reducing the impact of timing differences.
Management adjusts for the tax impacts of the above adjusted items to provide a more representative view of current year
Tax in respect of adjustments
performance.
to underlying profit before tax
Presentational adjustments no longer applied (1)
Restructuring costs
The group typically incurs a certain level of restructuring costs each year, the quantum of which is dependent on the
significance of discrete events in a given year, which can cause volatility in the reported results. Management adjusts
internally for these costs to provide a view of underlying performance which it considers to be representative of the
normal course of business and more comparable period to period. For the year ended 31 March 2021 and going forward,
an adjustment will only be made if part of a more significant strategic restructure.
Net fair value (gains)/losses
on debt and derivative
instruments(2)
Fair value movements on debt and derivatives can be both very significant and volatile from one period to the next. These
movements are determined by macroeconomic factors which are outside the control of management and these instruments are
purely held for funding and hedging purposes (not for trading purposes). Taking these factors into account, management believes
it is useful to adjust for this to provide a more representative view of performance.
Interest on derivatives and
debt under fair value option(2)
Net fair value gains on debt and derivative instruments includes interest on derivatives and debt under fair value option. In adjusting
for net fair value gains on debt and derivatives, it is appropriate to add back interest on derivatives and debt under fair value option
to provide a view of the group’s cost of debt which is better aligned to the return on capital it earns through revenue.
Net pension interest income
This item can be very volatile from one period to the next and it is a direct function of the extent to which the pension scheme
is in an accounting deficit or surplus position.
Capitalised borrowing costs
Accounting standards allow for the capitalisation of borrowing costs in the cost of qualifying assets. These significant
costs have previously been adjusted for to provide a representative cost of borrowings and current year performance when
considered in the context of the return on capital the group earns through revenue.
Agreement of prior years’
tax matters
The agreement of prior years’ tax matters is part of the group’s normal processes of ensuring that the right amount of tax
is paid. Depending on the agreements made in any given year, this can be significant, volatile and often related to final
settlement of numerous prior year periods. Historically, management has adjusted for this as a matter of course to provide a
more representative view of the tax charge/credit in relation to current year performance. For the year ended 31 March 2021
and going forward, an adjustment will only be made if significant and relating to numerous prior year periods.
(1) These adjustments are no longer made in the year ended 31 March 2021 and going forward reflect our change in approach to APMs.
(2) For the year ended 31 March 2021, and going forward, this adjustment combines 'net fair value (gains)/losses on debt and derivative instruments' and
‘interest on derivatives and debt under fair value option’.
82
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Underlying profit
Operating profit
Operating profit per published results
Bioresources asset write down
COVID-19 – expected credit loss on non-household receivables
COVID-19 – expected credit loss on household receivables
COVID-19 – operating expenses
Restructuring costs
Underlying operating profit
Net finance expense
Finance expense
Investment income
Net finance expense per published results
COVID-19 – expected credit losses on loans to JVs
Net fair value (gains)/losses on debt and derivative instruments, excluding interest on
swaps and debt under fair value option
Net fair value (gains)/losses on debt and derivative instruments
Interest on swaps and debt under fair value option
Net pension interest income
Adjustment for capitalised borrowing costs
Underlying net finance expense
Share of losses of joint ventures per published results
COVID-19 – Water Plus impairment losses and expected credit losses
Underlying share of losses of joint ventures
Profit on disposal of joint ventures per published results
Profit on disposal of AS Tallinna Vesi joint venture
Underlying profit on disposal of joint ventures
Profit before tax per published results
Adjustments in respect of operating profit
Adjustments in respect of net finance expense
Adjustments in respect of share of losses of joint ventures
Adjustments in respect of profit on disposal of joint ventures
Underlying profit before tax
Profit after tax per published results
Adjustments in respect of profit before tax
Deferred tax adjustment
Agreement of prior years’ UK tax matters
Tax in respect of adjustments to underlying profit before tax
Underlying profit after tax
Earnings per share
Profit after tax per published results (a)
Underlying profit after tax (b)
Weighted average number of shares in issue, in millions (c)
Earnings per share per published results, in pence (a/c)
Underlying earnings per share, in pence (b/c)
Dividend per share, in pence
Year ended
31 March
2021
£m
Re-presented
Year ended
31 March
2020
£m
As reported
Year ended
31 March
2020
£m
602.1
–
–
–
–
–
602.1
(103.5)
25.0
(78.5)
–
(54.3)
–
–
–
–
(132.8)
(9.3)
–
(9.3)
36.7
(36.7)
–
551.0
–
(54.3)
–
(36.7)
460.0
453.4
(91.0)
18.4
–
2.2
383.0
£m
453.4
383.0
681.9m
66.5
56.2
43.24p
630.3
82.6
1.4
16.7
1.1
–
732.1
(313.0)
24.0
(289.0)
5.0
92.8
–
–
–
–
(191.2)
(38.1)
32.0
(6.1)
–
–
–
303.2
101.8
97.8
32.0
–
534.8
106.8
231.6
157.5
–
(9.6)
486.3
£m
106.8
489.5
681.9m
15.7
71.3
42.60p
630.3
82.6
1.4
16.7
1.1
11.8
743.9
(313.0)
24.0
(289.0)
5.0
–
76.3
16.5
(14.0)
(40.6)
(245.8)
(38.1)
32.0
(6.1)
–
–
–
303.2
113.6
43.2
32.0
–
492.0
106.8
188.8
157.5
(12.2)
(11.3)
429.6
£m
106.8
429.6
681.9m
15.7
63.0
42.60p
Average effective interest rate
In arriving at net finance expense used in calculating the group’s effective interest rate, management adjusts underlying net finance
expense to add back net pension income and capitalised borrowing costs in order to provide a view of the group’s cost of debt which is
better aligned to the return on capital it earns through revenue.
Underlying net finance expense
Net pension interest income
Adjustment for capitalised borrowing costs
Net finance expense for effective interest rate (a)
Average notional net debt (b)
Average effective interest rate (a/b)
31 March
2021
31 March
2020
(132.8)
(17.5)
(30.4)
(180.7)
(7,315)
2.5%
(191.2)
(14.0)
(40.6)
(245.8)
(7,136)
3.4%
83
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT STRATEGIC REPORT
Being a responsible business
Our ESG credentials
Through our purpose, vision and strategic themes, responsible business is a core
part of who we are as a business and has been for many years.
We actively participate in a range of global ESG ratings, indices and frameworks to benchmark our approach against best practice and
emerging sustainability challenges.
Index/rating
Description
Performance
The Dow Jones Sustainability Index ranks the
sustainability approach of the top 10 per cent of
the world’s biggest companies based on long-term
economic, environmental and social criteria.
For 2020, our overall performance was 79 per cent
and we attained World Class status for the 14th
consecutive year. We were awarded SAM Bronze
Class in the Sustainability Yearbook 2021.
The FTSE4Good Index Series measures the
performance of companies who demonstrate strong
ESG practices against globally recognised responsible
business standards.
United Utilities Group PLC has been included in the
FTSE4Good Index Series since 27 June 2001. Latest
review June 2020.
ISS ESG’s Corporate ESG Rating provides investors
with comprehensive portfolio company research on
social, environmental and governance factors to help
identify and mitigate ESG risks and to capitalise on
investment opportunities.
Provides ESG ratings on an AAA to CCC scale
according to exposure to industry-specific ESG risks
and ability to manage those risks relative to peers.
Sustainalytics, a Morningstar company, is a leading
independent ESG research, ratings and data firm. Its
ESG Risk Ratings measure a company’s exposure to
industry-specific material ESG risks and how well a
company is managing those risks.
Vigeo Eiris (V.E), an affiliate of Moody’s, is a
global leader in ESG assessments, data, research,
benchmarks and analytics. Leveraging their extensive
proprietary database, they equip market players
with the ESG insight they need to manage risks
and better understand and address their social and
environmental impact. The Euronext ESG indices
serve as a benchmark for investors to incorporate
ESG considerations into their investment strategies.
In the annual review of November 2020, our status
was assessed as Prime.(1)
As of February 2021, United Utilities Group PLC
received an MSCI ESG rating of AA.(2)
In April 2021, United Utilities received an ESG Risk
Rating of 13.0 and was assessed by Sustainalytics
to be at low risk of experiencing material financial
impacts from ESG factors. United Utilities is a
Sustainalytics ESG Industry Top Rated Company for
2021.(3)
We received an overall Advanced ESG score by V.E of
65 and United Utilities Group PLC has been confirmed
as a constituent of the Euronext UK 20 and Europe 120
Indices in year 2020.(4)
(1)
issgovernance.com/esg/ratings/badge
(2) msci.com/notice-and-disclaimer
(3) sustainalytics.com/legal-disclaimers
(4) vigeo-eiris.com/privacy-legal-information
84
United Utilities Group PLC unitedutilities.com/corporate
Alignment to wider global goals
The Sustainable Development Goals (SDGs) comprises 17 global goals to
be achieved by the year 2030, and were adopted by a summit of the United
Nations (UN) in 2015. They are designed to be the blueprint to achieve a better
and more sustainable future for all. Our approach to responsible business
aligns quite naturally with the goals and we have identified six that are most material to our
business and where we contribute the most.
We contribute to the delivery of a wider selection of the SDGs through our investment
projects and these are described in our sustainable finance framework.
Clean water and sanitation
Part of our purpose is to provide great
water and is the reason we exist,
ensuring customers in the North West
have safe, resilient and affordable water
and wastewater services.
This includes avoiding wasting water,
and we promote water efficiency
through campaigns, advice, education
and free water saving gadgets for
customers.
We protect and enhance water-related
ecosystems across our region through
initiatives such as our Catchment
Systems Thinking approach.
Decent work and economic
growth
Our daily operations provide direct,
indirect and induced employment
for 22,700 people, and we are a big
contributor to the north west economy.
We provide training and development
opportunities in safe, secure working
environments, graduate and apprentice
opportunities, programmes for young
people experiencing difficulties securing
employment, offer equal opportunities
to all and value diversity among our
employees.
Industry, innovation and
infrastructure
We invest heavily in infrastructure,
including plans for over £4 billion
between 2020 and 2025 to improve the
performance and resilience of our assets
and operations to impacts such as those
arising from climate change.
We embrace innovation, especially in an
increasingly digital world, to ensure the
region where we operate has reliable,
sustainable and resilient infrastructure,
now and into the future.
Generating value for:
Generating value for:
Generating value for:
Communities
Customers
Environment
Communities
Employees
Customers
Shareholders
Customers
Customers
Environment
Media
Media
Sustainable cities and
communities
We use our understanding of customer
needs and priorities to deliver services
that meet their expectations and
engage with communities to enhance
participation in what we do. We plan at
least 25 years into the future to prepare
for increases in the population and new
housing that will need connections for
water and wastewater services. We
are exploring ways to do this using
natural solutions to manage water
and wastewater, such as Sustainable
Drainage Systems (SuDS).
Climate action
Responding to the climate emergency is
an imperative for us all.
Reducing our greenhouse gas emissions,
delivering against our six carbon
pledges and ensuring that we, and the
region we serve, are resilient to the
impacts that a changing climate might
bring, are key to our long-term planning.
Read more about our approach to climate
change on pages 86 to 99
Peace, justice and strong
institutions
We run our business in a responsible
manner, and being trustworthy is one of
our core values.
We have high levels of transparency
in our reporting and ethical standards
of business conduct and corporate
governance – those systems and
processes through which our
organisation is managed, controlled
and held accountable.
Generating value for:
Generating value for:
Generating value for:
Communities
Customers
Environment
Communities
Customers
Environment
Employees
Shareholders
Customers
Customers
Environment
Media
Stock Code: UU.
Annual Report and Financial Statements for the year ended 31 March 2021
85
STRATEGIC REPORT
Our approach to climate change
Task Force on Climate-related Financial Disclosures
ACHIEVEMENTS
• On track to deliver our climate
change mitigation pledges and our
public commitments.
• Science-based targets covering all
emission scopes set and submitted
for validation by the Science Based
Target initiative (SBTi).
• Three 'alternative' scenarios, each
one aligned to a specific emissions
pathway, developed and used to
support strategic planning.
•
Impact of climate change now
specifically considered as part of
corporate risk framework.
SUCCESSES
• CDP is a global disclosure system
for environmental reporting. Our
CDP climate change rating improved
from B to A- in 2020, demonstrating
leadership-level reporting and
disclosure. We are one of only two
companies in the UK water sector
achieving leadership level.
• The Sustainability Reporting
Performance report by EcoAct
measures how businesses are
acting and reporting on climate-
related sustainability. We have been
ranked in the top 20 FTSE 100 list,
improving from 17th to 11th position
in 2020, and are the highest ranking
water company.
Overview
Weather is fundamental to how we deliver
water and wastewater services so climate
change has been, and always will be, of
strategic and operational importance.
With advances in climate science, our
understanding of climate change and
how we respond is ever evolving, as is the
external policy environment in which we
operate.
Incorporating climate into
long-term planning
Building on our long-standing approach to
climate change mitigation and adaptation,
we now integrate consideration of climate-
related risks and opportunities directly
into our business planning to influence
strategy and behaviours throughout the
organisation.
This year, we've enhanced our
understanding of the sensitivity of our
business risks to climate change and
applied Systems Thinking to embed
physical and transitional risks into both
operational planning and long-term
strategy development.
We now have a good understanding of the
controls required to adapt to a changing
climate, and are building our confidence
to recognise and manage cascade impacts
where multiple weather events in a short
time frame can have a cumulative impact.
Scenario analysis
To support strategic planning, we
developed three comprehensive scenarios
exploring how multiple drivers of change
might evolve and interact over time,
compared to a baseline scenario. Each
one is aligned to a specific emissions
pathway, enabling us to test out scenarios
where there is: an effective transition to
a low carbon world; a climate crisis due
to suboptimal climate change mitigation
efforts; and a central case where more
moderate impacts of climate change are
experienced after slow initial progress
is followed by a step change in de-
carbonisation.
Transparency and disclosure
We have published carbon and climate change disclosures in our annual report and CDP’s
Climate Change Programme assessment for over a decade. We report in adherence with
the Greenhouse Gas Protocol Corporate Accounting and Reporting Standards (2015) and
the 2019 UK Governmental Environmental Reporting guidelines.
We have signed the Statement of Support for the Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (TCFD) which was published in June 2017, and we report
in line with its recommendations across its four thematic areas.
86
Pledges and commitments
We have made good progress on our
six carbon pledges (see page 93), which
include science-based emission reduction
targets and four specific pledges on how
those reductions will be achieved.
Pledge 1 is to reduce our scope 1 and 2
emissions by 42 per cent by 2030. We are
on track to achieve this pledge although
progress will not be linear year-on-year
while we work to reverse the pressures that
are driving growth in emissions.
Pledge 2 – Over 94 per cent of the
electricity we used in 2020/21 came from
renewable technologies. From October
2021, we will meet our pledge for 100
per cent.
Pledge 3 commits us to 100 per cent
green fleet by 2028. We have deployed
27 electric vehicles at operational sites,
and are trialling a 44-tonne biogas-
powered HGV.
Pledge 4 commits us to 1,000 hectares
of peatland restoration by 2030. We have
proposed five sites for green recovery
catchment peatland restoration.
Pledge 5 commits us to 550 hectares of
woodland creation by 2030. We have
planted 9,783 woodland carbon code
compliant trees, established two tree
nurseries and identified hundreds of
potential sites for new and ‘replanted’
woodlands.
Pledge 6 commits us to set a science-
based target for our scope 3 emissions,
which we have done (see page 96).
An important element of our approach is to
encourage others to contribute by making
public commitments. We joined the global
movement of 'Business Ambition for 1.5°C:
Our Only Future', with a commitment to
setting science-based targets aligned
with limiting global temperature rise to
1.5°C above pre-industrial levels. We
are signatories to the UN Race to Zero
campaign and are proud to be contributing
to the UK water industry’s commitment to
be net zero from 2030.
CORPORATE CITIZENSHIP REVIEW
Corporate Citizenship, a leading
sustainability consultancy, reviewed
this disclosure and provides an ISAE
assurance against the Principles
of Effective Disclosure to ensure
that it accords with Task Force on
Climate-related Financial Disclosures
recommendations.
Read more at fsb-tcfd.org/
recommendations
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT TCFD recommendations
This table shows progress this year towards meeting the TCFD recommendations and the areas we will focus on in the future. The table
includes cross-references where there is more material within this annual report and financial statements.
Governance
Progress this year
•
Implemented enhancements required
to reach overall ‘leadership level’ in the
2020 CDP assessment.
•
Included special report on climate-
related risks in board-level risk review.
• Created long-term strategy team
with primary focus on climate change
adaptation and mitigation.
The organisation’s governance around climate-related risks and opportunities
Future focus
• Further inclusion of climate-related
risks and opportunities into all
investment decisions, processes and
governance.
• Continue to demonstrate leadership in
climate-related disclosure, for example
CDP assessment.
Further information
Our corporate responsibility committee
report on pages 156 to 159 provides a
summary of committee discussions on
climate change
A summary of the board and its
management committees can be found
on page 120
Risk management
The processes used by the organisation to identify, assess and
manage climate-related risks
Progress this year
• Enhanced analysis of risks arising from
the climate change we are already
experiencing and the extent to which
that might affect operations.
• Completed a robust review to identify
which corporate risks are vulnerable
to climate change and quantified the
impact and time sensitivity.
Future focus
• Further formalisation of climate-related
physical and transitional risks into risk
management systems.
• Embed identification of climate-related
risks and opportunities throughout the
organisation as business as usual.
Further information
Read more about the processes for
identifying, assessing and managing climate
risks on page 90
Read more about our risk management
framework on page 100
Strategy
The actual and potential impacts of climate-related risks and opportunities of the
organisation’s businesses, strategy and financial planning
Further information
Read more about how our climate-related
risks, opportunities and commitments are
shaping our strategy and financial planning
on page 93
Progress this year
• Extensive preparations for the publication
of our third climate change adaptation
progress report later in 2021, after
widespread stakeholder consultation.
This report will include a review of
climate impacts and how we will adapt.
• Updated water resources and flood
models to include climate scenario
analysis and UKCP18 forecasts.
• Developed company-wide scenarios to
explore how multiple factors (including
climate change) interact to provide a
structured framework to think about
future uncertainty.
Future focus
• Whole-life costing for capital projects
and appraisals to include variable
carbon pricing.
•
Implement climate change resilience
plans (both physical and transitional)
across AMP7, incorporating natural
capital solutions.
• Build relationships with key suppliers
to reduce our environmental impact by
sharing best practice and collaborating
on how to reduce greenhouse gas
emissions.
•
Identify and evaluate climate-related
opportunities.
Metrics and targets
The metrics and targets used to assess and manage relevant climate-related risks
and opportunities
Progress this year
• Completed comprehensive review
of all scope 3 emissions and set
ambitious science-based targets
(currently being validated by SBTi).
• Achieved A- rating in 2020 CDP
assessment of targets and emission-
reduction initiatives.
• Updated drought plan triggers to
minimise the impact on customers and
improve our resilience to periods of
prolonged dry weather.
Future focus
• Secure SBTi validation for science-
based targets for all three emission
scopes.
•
Implement data improvements
for scope 3 emissions so more are
supplier and product-based factors
rather than spend based.
• Analysis to understand cascade impacts
and our resilience to them where multiple
extreme weather events can occur in a
single short time frame.
Further information
Read more about metrics used to assess
climate impact to our key risks on page 92
Read more about setting our science-based
targets on pages 92 and 96
Read our energy and GHG emissions report
on pages 97 to 99
87
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our approach to climate change
Task Force on Climate-related Financial Disclosures
GOVERNANCE
Chief Executive Officer Steve Mogford
has ultimate responsibility for the group’s
preparedness for both adapting to climate
change and driving our mitigation strategy.
As climate change is a significant causal
factor for the group’s principal risks (see
page 103), the executive team is tasked with
managing the risks and mitigating actions,
for example by ensuring the company has
the necessary financial resources and people
with the required skills to achieve its climate-
related objectives.
Chief Financial Officer Phil Aspin
has executive responsibility for risk
management and is supported in this
role by the head of audit and risk and the
corporate risk manager.
The group audit and risk board (GARB)
reviews the effectiveness and performance
of the governance processes along with the
identification of emerging trends, including
climate change. The work of the GARB
feeds into the information and assurance
processes of the audit committee and into
the board’s assessment of risk exposures
and strategies to manage these risks.
There is further board oversight of climate-
related issues through the corporate
responsibility committee (see pages 156
to 159). Mitigation and adaptation are
priority topics for the committee, which
plays an important role in challenging and
encouraging consideration of climate-
related issues. It initiated the review of the
company’s carbon strategy and endorsed
the mitigation policy, defining our corporate
ambition and objectives. This led to the
development of our mitigation strategy
and the establishment of an executive-level
steering group. This group has delegated
responsibility to embed climate-related
issues throughout business planning, to
bring consistent focus to the delivery of our
climate-related commitments, such as the
six carbon pledges, and to provide updates
to the board and corporate responsibility
committee.
RISK MANAGEMENT
We have a strong track record of risk
management and of climate change
disclosure. We continually mature our
capacity and capability to manage risk and
uncertainty to build and maintain long-term
resilience across the corporate, financial
and operational structures of the group.
Our company risk management framework
follows an enterprise-wide approach and
covers all principal risk areas such as water
service, supply chain and programme
delivery.
88
Climate-related risks are identified,
assessed and managed in the same way as
any other risk through our embedded risk
management framework which is described
on pages 100 to 101. Having been identified,
each business risk is assessed in two ways.
First, we consider the likelihood of the event
occurring based on multiple causal factors;
secondly, we examine the full range of
potential impacts and their severity should
the event occur, from a minimum (best case)
to a maximum (worst case) scenario.
We take a variety of approaches to identify
and assess risks, including using risk
breakdown structures and tools such as
PESTLE to formalise horizon scanning, as
well as complex modelling of the physical
impacts of climate change on our water
resources and wastewater management.
Horizon scanning such as tracking legal and
regulatory changes, emerging technologies
and comparison of our strategies with
other companies is particularly useful
when considering transitional risks. We
have found risk breakdown structures and
detailed modelling are better suited to
acute or chronic physical risks.
Risks sensitive to climate change
Climate change has been identified as
a critical cross-cutting driver, so all our
100 event-based risks in our business risk
profile were reviewed for their exposure
to climate change. Last year we identified
seven risks most sensitive to climate
change in that their likelihood or the
impact will increase with global warming.
We have further analysed these risks and
now have a good understanding of the
controls required to adapt to a changing
climate. This is set out on pages 90 to 91.
This exercise highlighted a further risk in
the potential for cascade impacts where
multiple weather events in a relatively short
time span can have a more challenging
impact.
Looking ahead, we will explore how
innovation can help us learn more about
the profile of risk events, their causes
and consequences and the capacity and
capability of our company to manage
them. By understanding this, we have the
opportunity to be proactive and better
prepared by prioritising issues.
By incorporating longer-term climate
change impacts more explicitly in our
corporate risk framework, we have raised
the profile of climate change adaptation,
providing the board enhanced insight to
consider our risk appetite and capacity from
within existing risk management processes
and with the same thresholds for materiality.
We have identified where climate risks
are not well enough understood or where
existing controls might be inadequate to
manage the risk in the long term.
STRATEGY
Planning horizons
Our planning horizons are illustrated on
pages 46 to 49. Climate-related risks are
manifesting themselves in the short to
medium term and in common with the
rest of the water industry, we are also
vulnerable to physical climate risks in the
long term (ten to 25 years and beyond) as
our assets typically have long, even very
long, lifespans. Many of our services are
based on legacy infrastructure which was
designed decades ago to deliver water and
wastewater services for the climate we had
rather than the one that is ahead of us.
Already seeing climate change in the
North West
Five of the top ten wettest years for the North
West since 1880 have occurred since 2000,
and all of the ten hottest years have occurred
since 2002. A top ten coldest year has not
been recorded since 1963. These trends, and
their impact on local weather conditions, are
impacting our climate sensitive risks already.
For example, changes in precipitation and
temperature have contributed to changing
patterns of river flow in our water supply
catchments. There has been an increase
in winter flows in almost all catchments,
with significant upward trends in ten of the
14 river basins, and a reduction in flows in
most catchments in spring, most notably
for the strategic Vyrnwy catchment where
there has been a significant downward
trend over the last 20 years.
Annual average rainfall has not changed
significantly, although the year-to-year
variability has increased (with more dry
and wet years) and some research shows
an increase in the probability of heavier
rainfall events. The greatest change in
seasonal rainfall trends is an increase in
winter rainfall, due to an intensification
of heavy rainfall events, which leaves us
increasingly susceptible to a range of
key risks, including sewer flooding, asset
flooding and land quality deterioration.
Annual and monthly temperatures in the
North West are already higher than those
experienced before 1900, largely due to
anthropogenic activity, with the rate of
warming accelerating.
Application of temperature-based
estimates show an increase in potential
evapo-transpiration in our region. This may
influence the water balance, particularly in
spring and summer, leading to a sensitivity
to drought, and potentially water network
failure and water sufficiency events.
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Rainfall
Climate change in the North West
Riverflows
Sea level
Rainfall
Annual average rainfall has not changed
significantly, however year-to-year
variability has increased, with more
dry and wet years.
Evaporation
River flows
Winter river flows have increased in
almost all catchments, with significant
upward trends in ten of the 14 river
basins, and a reduction in flows during
spring in most catchments.
Seasonal variation
Sea level
By 2100 under the likely warming
scenarios (3°C-5°C), sea level at
Liverpool is projected to rise between
0.3 and 1.0m.
Extreme events
Evaporation
The amount of water lost to evaporation
has increased, putting increasing pressure
on water resources during spring and
summer and potentially increasing the
demand for outdoor water use.
Seasonal variation
Seasonal changes in the North West are
projected to be greater than those for
England and Wales, with much wetter
winters and, under some scenarios, much
hotter and drier summers.
Extreme events
Evidence demonstrates that climate
change has exacerbated extreme rainfall
and storm events, and will continue to do
so, as well as increasing the likelihood of
heatwaves.
Physical risks
All seven of the risks identified as being
sensitive to climate change are physical risks,
so we set about quantifying that vulnerability.
Predicting the effects of climate change is
complex, with a large amount of uncertainty
involved. Focusing on the predominant
downsides, we assessed the potential
implications for the seven risks in 2050
and 2100 compared to today, using the
latest climate research, the Met Office UK
Climate Projections 2018 (UKCP18). This
has four pathways to 2100 depending on
concentrations of greenhouse gases in the
atmosphere and we have used what is widely
accepted as the most likely pathway, RCP
6.0, which is consistent with peak emissions
occurring in 2080. Best and worst case
scenarios will be considered in due course.
The outcomes of the risk assessment were
the topic of a special report prepared
for a board-level risk review which took
place in April 2021. They are presented on
pages 90 to 91, together with a summary
of assumptions, climate sensitivity
and existing controls. In each case the
downside effect is quite significant relative
to the baseline, and four risks in particular
stand out as having the most significant
increases in likelihood: water sufficiency
event; water network failure; recycling
of biosolids to agriculture; and risk of
inadequate land management.
Transitional risks
We are also vulnerable to risks associated
with the transition to a low-carbon
economy. Changing policies, regulation
and legislation to address mitigation
and adaptation requirements can
increase operating costs due to, for
example, enhanced emissions reporting.
Environmental requirements to meet water
quality standards can lead to increased fuel
or chemical consumption and legislation
such as the Industrial Emissions Directive
will result in operational and strategic
planning interventions.
One likely consequence of changing
legislation is potential asset redundancy,
where the case to move to lower
carbon technologies might result in the
consolidation of assets on a fewer number
of sites.
Opportunities
We are a relatively energy-intensive
business, typically using around 800 GWh
of electricity each year. As well as the
risks associated with this dependency we
see opportunities in the way we manage
energy and have developed an approach to
use less, generate more and use our assets
and resources smarter while maintaining
security of supply.
We have already invested in innovation
and research to minimise the total amount
of energy we consume, for instance in
pioneering UV LED water treatment. We
have increased renewable generation
through bioresources, solar and wind,
increasing the amount of self-generated
energy from 108 GWh in 2012/13 to 205
GWh in 2020/21.
We aim to develop more successful
innovation projects and that by meeting
more of our own energy demands we can
rely less on imports from the grid and
mitigate the risks of future energy price
fluctuations and uncertainty, as well as
bolstering our own security of supply.
Resilience of our organisation to a
changing climate
The main climate-related risks to the
resilience of our operational assets
are uncertainty of the health of ageing
infrastructure and the increasing challenges
presented by predictions for climate change
and population growth over the long term.
Our Water Resources Management Plan
2019 is an example of how our strategy,
to achieve a long-term, best value and
sustainable plan for water supplies in the
North West, has been developed to ensure
that we have an adequate supply to meet
demand over the 25 years from 2020 to
2045. This will ensure that our supply
system is resilient to drought and other
hazards, including climate change (using
'stochastic weather' and scenarios from the
latest UK climate projections, UKCP18) and
demand (population growth, economic
trends and patterns of water use).
89
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Our approach to climate change
Climate sensitive risks overview
Below is the outcome of a special risk assessment on the risks identified as sensitive to climate change.
Likelihood and impact are as predicted at 2050 and 2100 using the accepted most likely emission pathway RCP 6.0.
CONTROL EFFECTIVENESS
RISK TYPE
The effectiveness of controls at 2025
to mitigate the climate-related risk
at 2050.
Largely insufficient
Somewhat sufficient
Mostly sufficient
C Chronic physical risk – changing trends in weather patterns, such as rising
temperatures, sea level, rainfall
A Acute physical risk – chance of severe weather events, such as storms, heat
waves and floods.
*
Indicates the most significant event-based risks reported to the board
(see pages 108 to 109)
Water sufficiency event
C
When temperatures rise, higher water
usage, evapo-transpiration and lower
average summer rainfall from associated
dry periods, causes supply pressures.
The most likely impact assumes weather
patterns similar to 2018 happening twice in
five years at 2050, and four times in five
years by 2100.
Likelihood (%)
Impact (NPV £m)
Baseline
10%
40%
2050
2100
£66m
£265m
80%
£530m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
• Development of new sources of water, particularly boreholes.
• Water trading between different regions of the UK.
• Leakage reduction.
• Encourage and inform customers about using less water.
•
Installation of more meters on domestic properties.
Failure of wastewater network
(sewer flooding) *
C A
Increased rainfall (storm) events can result in
severe sewer flooding. The frequency of such
events is forecast to almost double with climate
change. For a storm with a return period of one
in 50 years or greater, 15 per cent of our region
is currently at risk of internal flooding. By 2050
it is expected 20 per cent of our region would be
impacted, rising to 29 per cent by 2100. The cost
of an internal flooding incident is assumed to
stay constant.
Likelihood (%)
Impact (NPV £m)
Baseline
40%
2050
2100
53%
77%
£210m
£278m
£404m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
•
Increase sewer capacity and build storm water holding tanks.
•
Implement and encourage sustainable drainage solutions.
• Use technology to monitor and better control flows in the sewer system.
•
Install flood protection devices to at-risk properties.
Land management
C A
Deterioration in the quality of land due to
climate change will increase the frequency and
impact of weather events on our owned land.
Such events have led to more fire, flood,
subsidence and landslip events which in turn
have associated impacts on: health, safety
and environmental issues; access to operational
and capital activities; corporate reputation;
missed opportunities; legal liability and
additional unplanned spend associated
with invasive species.
The annual likelihood of such events is forecast
to increase from 20 to 100 per cent by 2100.
Likelihood (%)
Impact (NPV £m)
20%
50%
Baseline
2050
2100
£31m
£76m
100%
£153m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
• Proactive land management action to protect quality, including through
nature-based solutions.
• Provide net gain in biodiversity from our construction projects.
• Directly restore peatland and woodland.
• Work in partnership with farmers, the Environment Agency and others
to improve upland watercourses.
90
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Failure to adequately treat
wastewater *
A
Extreme rainfall events cause overflows and
variation between high rainfall and drought
periods causes further susceptibility. Likelihood of
failure to adequately treat wastewater is expected
to remain at one in two years but the most likely
impact expects six more failing works (above
2020 baseline) and uses the current ODI
penalties as the impact magnitude.
Failure of above-ground water and
wastewater assets (flooding)
C
Average winter rainfall is projected to increase
by 6 per cent by 2050, and by 12 per cent by
2100, increasing the likelihood of extreme events
where sites are flooded from sea, river or surface
water sources.
The impact is estimated based on three
modelled events (of likelihood 1:1000, 1:100 and
1:30) each having a 10 per cent annual increase
in frequency every 20 years.
Likelihood (%)
Impact (NPV £m)
Baseline
2050
2100
50%
50%
50%
£75m
£95m
£114m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
• Enhancements linked to no deterioration funded through price review.
• DWMP investigations into increased dilution.
•
Infrastructure investment to increase resilience to extreme events.
Likelihood (%)
Impact (NPV £m)
Baseline
8%
2050
2100
12%
15%
£45m
£117m
£142m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
•
Install permanent flood defences at most flood-prone sites.
•
Improve flood forecasting capabilities.
• Build better network connectivity so that supplies can be maintained
from elsewhere if a treatment works is flooded.
•
Invest to ensure sites can bounce back quickly once flooding subsides.
Water network failure
C
Warmer, milder winters will decrease the
likelihood of cold snaps/freeze thaws that result
in burst pipes. However, these milder winters
will result in more precipitation and flood events,
causing a risk to assets close to, or crossing,
rivers. Increased summer temperatures may
result in considerably more heatwaves, which
cause a higher peak demand. Such events
can result in low pressure and no water for
some customers.
Recycling biosolids to agriculture
C
Climate change is expected to increase
persistent rainfall. The resultant water logging
will limit spreading biosolids to land for a greater
part of the year and uncovered sludge stores and
stockpiles will be more vulnerable in persistent
wet, winter weather.
The impact calculation assumes the sludge
that cannot be spread to land will be sent to
restoration and the impact is the associated
ODI and EA fines.
Likelihood (%)
Impact (NPV £m)
Baseline
13%
2050
24%
2100
32%
£2.1m
£28m
£41m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
• Already increased the size of our fleet of alternative supply vehicles
(ASVs), and introduced a new 24/7 logistics capability.
• New Network Maintenance Services contracts with key third-party
suppliers include elements to ensure all can respond effectively in an
incident when required.
• Leakage reduction.
• Encourage and inform customers about using less water.
•
Installation of more meters in domestic properties.
Likelihood (%)
Impact (NPV £m)
Baseline
20%
2050
2100
37%
52%
£2.3m
£12m
£27m
0
25
50
75
100
0
100 200 300 400 500 600
Controls
•
Increased sludge storage capability.
• Utilise covered storage.
•
Increased distance travelled for disposal of sludge.
91
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Task Force on Climate-related Financial Disclosures
Our WRMP proposals include enhanced
demand management activities to offset
upward pressures on water suppliers and will
enable us to reduce the frequency of needing
drought permits to augment supply by 2025.
As well as targeted scenario analysis,
we have developed three company-
wide alternative scenarios for 2050
incorporating combinations of key factors
that are both highly relevant and uncertain.
These scenarios, named 'climate chaos',
'green guardianship' and 'public purpose',
are plausible narratives, with associated
metrics, of a 2050 future for water and
wastewater services in the North West.
The scenarios recognise climate change
as one of the most critical uncertainties
and use RCPs 2.6, 4.5 and 8.5 (GHG
concentration pathways adopted by the
IPCC) to describe how well climate change
has been mitigated in each case.
The scenarios have provided a simple way
to understand the interaction of multiple
factors so we can enhance resilience, help
manage future uncertainty and shape long-
term decisions.
Climate change mitigation strategy
Before agreeing our strategy, we
developed a matrix to assess and compare
our mitigation capabilities with other
water companies and brands, to explore
principles, priorities and define our
objectives. The matrix began with the
premise that great carbon management
is more than just a number and that our
strategy should cover four themes: vision
and visibility; ambition and commitment;
demonstrating action; and beyond here and
now. See figure on page 93.
We already have a strong track record of
sustainability reporting and disclosure,
having reported our GHG emissions for
nearly 20 years. Through this TCFD section,
and improvements in our CDP response,
we want our carbon reporting to be open
and transparent and recognised as among
the best in the UK.
Other aspects of our climate mitigation
strategy can be summarised as:
integrating carbon into strategic and
day-to-day business planning;
improving our carbon reporting and
climate-related disclosure;
setting ambitious and comprehensive
commitments and greenhouse gas
emissions targets to contribute to
limiting global temperature rise;
reducing emissions across water and
wastewater processes, sludge process
and disposal, fleet management, fuel
use, land use, and waste and resources;
and
•
•
•
•
92
• collaborating to drive innovation and
challenge standards to deliver a low-
carbon future.
Playing our part
Pages 94 to 95 illustrate and describe
how there are climate-related risks and
opportunities throughout our organisation.
Our approach to managing those risks,
and taking advantage of the opportunities,
involves all our stakeholders across our
value chain.
METRICS AND TARGETS
Metrics to assess climate risks
The metrics which determine the magnitude
of our climate risks and opportunities relate
mainly to the weather, for instance measures
such as temperature and rainfall by season.
To manage our climate risks effectively
we must track and understand patterns of
weather, and weather events, and learn how
they can affect us operationally, so we can
put into place appropriate controls such as
those in the risk table on pages 90 to 91.
We monitor several measures that can affect
transitional risks. These include energy
pricing (electricity, natural gas, diesel and
alternative fuels, such as compressed natural
gas and hydrotreated vegetable oil) and
carbon pricing through purchasable credits,
offsets and certificates (such as REGOs not
bundled with electricity). We monitor the
marketplace for the availability and pricing
of alternative fuelled vehicles, battery
storage and for emerging technologies to
reduce process and fugitive emissions.
Operational metrics and targets
We have key metrics that assess the
effectiveness of the controls for our
principal risks and therefore determine
our capability to adapt to a changing
climate and ensure the resilience of our
service. For these operational metrics we
have set ambitious targets. For instance,
to give us headroom in our water supply
demand balance we have set short and
long-term targets for leakage and per
capita consumption (how much customers
use) to reduce the demand for water in all
climate scenarios. Recognising the need
to maintain service to customers, even
in extreme weather events, we have also
set targets for supply interruptions, sewer
flooding and pollution incidents.
Metric
2020 2025
2045
Per capita
consumption
Leakage
Network
interruptions
140
135
115
---
↓ 15% ↓ 40%
---
↓ 50%
Sewer flooding
Pollution incidents
---
---
↓ 20% ↓
70%
↓ 37% ↓ 64%
Climate commitments and targets
We have made several climate-related
public commitments, on our own and with
other organisations. Having exceeded
the emissions targets we set in 2015, last
year we made six pledges to reduce our
carbon footprint. Central to these is to
set and meet science-based targets for all
emission scopes (see figure of greenhouse
gas emissions by scope on page 97) and
we have joined the global movement of
'Business Ambition for 1.5˚C: Our Only
Future' and the UN Race to Zero campaign.
Science-based targets
Science-based emission reduction targets
are set in line with what climate science
says is enough to limit global temperature
rise to well below 2°C or 1.5°C above pre-
industrial levels. This requires emissions to
halve from 2010 levels by 2030 and to hit
net zero by 2050.
The Science Based Target initiative
(SBTi) defines and promotes global best
practice in science-based target setting.
We have applied the 'SBTi Criteria and
Recommendations' guidance to our policies
and greenhouse gas accounting standards
and have applied for our targets to be
validated.
Pledge 1 is to meet our science-based
target to reduce scope 1 and 2 emissions
by 42 per cent by 2030 (from the 2019/20
baseline). This ambition is based on the
Paris Agreement’s highest level of ambition,
to limit global temperature rise to 1.5°C
above pre-industrial levels. We have a
longer-term science-based target for a
100 per cent reduction from the 2019/20
baseline (net zero without purchased
offsets) by 2050.
Pledge 6 committed us to set a science-
based target for scope 3 emissions and
we describe how this was achieved on
page 96 .
Net Zero 2030 Routemap:
Unlocking a net zero future
In November 2020 the UK water sector
launched the 'Net Zero 2030 Routemap:
Unlocking a net zero future', understood to
be the world’s first sector-wide plan for net
zero. We have committed to contributing
by stating our ambition that our water
emissions (scope 1, 2 and a small selection
of scope 3) will be net zero from 2030.
This routemap allows companies to offset
residual emissions (using agreed offsetting
principles) whereas science-based targets
require absolute emission reductions.
This explains the difference between our
science-based target to achieve a 42 per
cent reduction by 2030 and being net zero
from 2030 in line with the water industry
ambitions.
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Our approach to climate change mitigation
A collaborative strategy for a low carbon future: embedding carbon commitments across our processes, technology, culture and beyond.
I T Y
D VISIB I L
Demonstrating integrity
and leadership in carbon
reporting and disclosure.
Carbon management is integrated
into decision-making and driving
decisions and behaviours.
N
A
N
O
I
S
I
V
Enhanced disclosure aligned to
TCFD recommendations.
Net Zero 2030
Routemap:
Unlocking a
net zero future
(UK water industry)
T I N G A C T ION
A M B I T I ON AND CO
M
Delivering ambitious commitments
to mitigate climate change and lower
our carbon footprint.
M
I
T
M
E
N
T
Six pledges to reduce
our carbon footprint
Science-based
targets (SBTs)
Pledge 1 Meeting SBTs for scope 1 and 2
2 100% renewable electricity by 2021
3 100% green fleet by 2028
4 1,000 ha peatland restoration by 2030
5 550 ha woodland creation by 2030
6 Set SBT for scope 3 in 2021
A
N S T R
O
140,000
M
E
D
Delivering consistent and
prolonged reduction of our greenhouse gas
emissions and other environmental impacts.
Pledge 2: 100% renewable electricity
Pledge 3: 100% green fleet
Pledge 4: 1,000 ha of peat restoration
Renewable energy exports
Baseline
Pledge 5: Create 550 ha woodland
More woodland
More peatland
2030
Scope 1 & 2 SBT
Fossil fuel alternatives
Lower emission
sludge treatment
Delivery underway
Additional benefits realised after 2030
Known technology
New/emerging technology
Lower emission
wastewater process
solutions
Delivery approach in our strategy
to meet our climate change
mitigation commitments
2
d
n
a
1
e
p
o
c
S
)
e
2
0
C
t
(
s
n
o
i
s
s
i
m
e
s
a
g
e
s
u
o
h
n
e
e
r
G
0
Science-
based targets
for scope 3
(see page 96)
Science-
based target
to reduce scope
1 and 2 emissions
by 42% by 2030
(from the 2019/20
baseline)
B E YOND H
E
R
E
Innovation across our
processes, technology and
culture and beyond.
Beyond here: influencing others,
collaboration with value chain.
Beyond now: innovative solutions
for multi-capital benefits,
questioning legacy standards
and specifications.
A
N
D
N
O
W
93
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
Our approach to climate change
Playing our part to reduce greenhouse gas emissions across our value chain
This picture illustrates many of the operational sources of greenhouse gas emissions and the ways in which we’re tackling them to deliver
multiple benefits.
12
2
8
5
7
1
6
Grid electricity – Delivering water
and wastewater services is energy
intensive but by the end of 2021 all
of the electricity we use will be from
renewable sources. This is helping to
greatly reduce our carbon footprint,
and we are going much further.
Water network – Moving water to
where it is needed can require energy
for pumping, but we can use gravity
to help. Victorian aqueducts help us
to deliver a billion litres of water a day
from the Lake District and Wales.
Wastewater network – Energy is
often needed to pump wastewater
out of harm’s way. We are working
innovatively and in partnership to better
manage surface water to help reduce
the need for pumping at the same time
as reducing the risk of flooding.
4
5
Wastewater treatment – Biological
processes used to treat sewage can
release greenhouse gases. We are
working collaboratively with the
UK water industry to improve the
measurement and control of these
process emissions.
Chemicals – There is a carbon
impact from producing the
chemicals used in water and
wastewater processes. We want to
find innovative ways to minimise the
amount and their impact.
6
7
Sewage sludge treatment – We have
invested in digestion technologies
to generate renewable energy from
sewage ‘waste’. Combined with other
renewables we now generate 25 per
cent of our electricity needs. At our
Manchester Bioresources Centre we
are also able to export biogas to the
national grid.
Sludge disposal to land – Sewage
contains valuable nutrients that
can provide a renewable fertiliser.
Greenhouse gases are released
as the biosolids decay but there
are also benefits from displacing
fertilisers that are not reflected in our
accounts.
1
2
3
94
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT
15
14
11
3
16
10
4
9
13
8
9
Construction services – Around 30
per cent of our scope 3 emissions are
related to the construction of new
and replacement infrastructure. Our
new science-based target seeks to
address these.
Maintenance services – Maintaining
our sites, pipes and pumps has a
significant footprint. New techniques
can reduce the emissions by using less
power, less carbon-intensive materials
and by enabling proactive intervention.
10
Transport – We cover many miles
across the North West but we are
already switching to low carbon vehicles
and by 2028, none of our fleet of
cars, vans and tankers will run on
fossil fuels.
11
12
13
Business travel, offices and
employee footprint – A relatively
small part of our emissions providing
the opportunity for employee
engagement on climate change.
Solar and wind power – We have
invested to generate more of our
own electricity through hydro, wind
and solar photovoltaics, including
floating panels on Godley and
Langthwaite reservoirs.
Woodland creation – We manage
a lot of woodland across the North
West and continue to plant more. We
will create 550 hectares of additional
carbon code verified woodland by
2030.
14
15
16
Nature-based solutions – We are at
the forefront of deploying innovative
approaches that work with nature to
clean and store water. For example,
wetlands can support biodiversity,
reduce flood risk and provide
recreation opportunities.
Peatland restoration – We have
20 years of experience working in
partnership to restore and protect large
areas of peatland in the North West.
Recycling – Our operations produce lots
of waste, from the biosolids recovered
from our wastewater treatment facilities
to the excavated material displaced
when we dig holes. We divert over 97
per cent to beneficial use.
95
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Task Force on Climate-related Financial Disclosures
BEING PURPOSE-LED
Scope 3 emissions:
beyond our control but
not beyond our influence
Working with others to protect the
environment we fundamentally
rely on.
When we committed to our carbon pledges last year we
recognised that we had a limited understanding of the
scale of the emissions in our value chain beyond the small
number of scope 3 emissions we had reported for over
ten years.
We pledged to quantify the emissions and to set a
science-based target to reduce them in line with our
ambitious targets for scope 1 and 2 emissions (those we
own and have control over).
Together with EcoAct, an Atos company (an international
sustainability consultancy), we produced an inventory of
the relevant emissions using the GHG Protocol guidance
and explored the target options recommended by the
Science Based Target Initiative.
We have chosen two targets to obtain maximum coverage
of our value chain emissions:
• That 66 per cent of our construction services suppliers
(by emissions) will set their own science-based target
by 2025; and
• To reduce absolute emissions for the remainder of
scope 3 categories by 25 per cent by 2030, from a
2020 baseline.
Our supplier engagement target enables us to focus on
the important area of carbon in construction. Our current
estimate of scope 3 construction emissions is based
on spend and this target will help transition to actual
emissions reporting for this activity. This target aligns with
our drive for efficiency, innovation and collaboration.
The absolute reduction target for the remainder of our scope
3 emissions will ensure we align to a trajectory needed to
limit global warming to 'well below' 2˚C.
De-carbonisation efforts across society will support further
success with this target, as can be seen with the momentum
behind low-carbon vehicles and energy sources. We
believe we can go further and show leadership in areas of
opportunity and challenge specific to our operations and
climate change objectives.
Generating value for:
Environment
Media
Playing our part for
the planet means we
must look ‘beyond
here and now’, plan
for the long term and
influence beyond our
company boundary.
96
United Utilities Group PLC
unitedutilities.com/corporate
STRATEGIC REPORT
Energy and carbon report
Reporting and assurance
We measure and report the greenhouse
gases that result from all United Utilities’
activities. We have used the financial
control approach so our energy and
greenhouse gas emissions reports are
aligned with the consolidated financial
statements for United Utilities Group
PLC. This includes its subsidiaries listed in
section A8 on page 260.
Our measurement and reporting is
aligned to the GHG Protocol Corporate
Accounting and Reporting Standard (2015)
and the recommendations of the TCFD. As
required, we report under the Companies
Act 2006 (Strategic Report and Directors’
Reports) Regulations and we apply the 2019
UK Government Environmental Reporting
Guidelines, including the Streamlined
Energy and Carbon Reporting Guidance
(SECR). Our reporting is compliant with
the international carbon reporting standard
(ISO 14064, Part 1) and assured by the
Carbon Reduce programme previously
known as Certified Emissions Measurement
and Reduction Scheme (CEMARS). We
hold a Platinum status certificate as we
have demonstrated emission reductions
over ten years.
How we measure our greenhouse
gas emissions
A carbon footprint is calculated by
converting all emissions of Kyoto Protocol
gases into a carbon dioxide equivalent
(tCO2e). Emissions are categorised as
direct, indirect or avoided emissions.
Direct emissions (scope 1 emissions) are
those from activities we own or control,
including those from our treatment
processes, company vehicles, and burning
of fossil fuels for heating.
Indirect emissions, known as scope 2 and 3
emissions, result from operational activities
we do not own or control. These include
emissions produced as a consequence
of electricity we purchase to power our
treatment plants (scope 2) and other
indirect emissions such as products and
services we buy and travel on company
business (scope 3).
Avoided emissions are reductions from
the purchase, or export, of renewable
energy. Gross emissions are the sum of all
three scopes. Net emissions are the gross
emissions minus reductions from avoided
emissions and removals.
The GHG Protocol recommends using
two methods to quantify emissions
– the ‘location-based’ method which
uses average grid electricity emissions
factors and the ‘market-based’ method
which is specific to the actual electricity
purchased. Following the GHG protocol
recommendation we report results using
both methods and use the ‘market-based’
figures to report our headline emissions.
Greenhouse gas emissions and energy
performance in 2020/21
Our investment in renewable energy
generation has resulted this year in a
further increase to 205.3 GWh, equivalent
to a quarter of the electricity we consumed.
Our net scope 1 and 2 greenhouse gas
emissions for 2020/21 were 127,173 tCO2e,
1.5 per cent more than last year. This is due
to an increase in fossil fuel use, the volume
of wastewater being processed and the
subsequent amount of wastewater sludge
being produced.
Our scope 3 emissions, covering our new
comprehensive inventory, have increased
by 4 per cent, due to increased spend in the
value chain on goods and services. In the
coming years we plan to reduce the reliance
on spend-based emissions calculations
and will incentivise use of lower emission
products, services and suppliers.
Greenhouse gases
CH₄
N₂O
CO₂
PFCs
HFCs
SF₆
Direct
Indirect
Scope 1
Emissions from activities we
own or control
Scope 3
Emissions emitted in our
value chain
Indirect
Scope 2
Purchased
electricity
Avoided emissions
Burning of
fossil fuels
Company
vehicles
Sludge
disposal
Capital
investment
Grid electricity
generation
Sludge
processing
Wastewater storage
and processing
Operational
maintenance
Business
travel
Renewable power
generation and export
Commuting
and home
working
Grid electricity,
transmission and
distribution
97
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Greenhouse gas emissions and energy
The greenhouse gas emissions for the financial year 2020/21 are presented in the table below. Emissions have been estimated using the
water industry Carbon Accounting Workbook v15 (CAW v15) which incorporates the UK Government GHG conversion factors for company
reporting. 2019/20 data has been restated using CAW v15 to reflect the significant changes from the previous version of the workbook,
including improvements to the accounting for biogas and renewable electricity generated and used on site and an increased emission
factor for wastewater process emissions (following the recommendation in UK Water Industry Research project report 'Quantifying and
reducing direct greenhouse gas emissions from waste and water treatment processes – Phase 1' (20/CL/01/28)).
Scope 1, 2 and 3 emissions have been separated to align with the boundaries of our science-based targets. We now disclose all the scope
3 emissions categories described in the Corporate Value Chain (scope 3) Accounting and Reporting Standard that are deemed relevant to
United Utilities. This change in scope 3 emissions reporting boundary has significantly increased our emissions in this area. The increase
over the past year is due to variation in supply chain spend on goods and services.
SCOPE 1 AND 2 GREENHOUSE GAS EMISSIONS (NET)
Market-based
127,173
125,680
115,424
125,977
Market-based (1)
8,507
Location-based
149,030
Scope 1 Direct emissions
Direct emissions from burning of fossil fuels
Process and fugitive emissions from our treatment plants –
including refrigerants
Transport: company-owned or leased vehicles
Scope 1 Total
Scope 2 Energy indirect emissions
Grid electricity purchased – generation
Scope 2 Total
SCOPE 1 AND 2 GREENHOUSE GAS EMISSIONS (GROSS)
Market-based
Avoided emissions from renewable electricity
Renewable electricity exported
Biomethane exported
Avoided emissions Total
Scope 3 Other indirect emissions
Purchased goods and services
Capital goods
Fuel and energy-related emissions
Market-based
Upstream transportation and distribution (sludge transport)
Waste generated in operations (including sludge disposal to land)
Business travel (public transport, private vehicles and hotel accommodation)
Current
CAW v15
2020/21
tCO2e
SBT
baseline
CAW v15
2019/20
tCO2e
CAW v13 2020
2019/20
tCO2e
CAW v13 2019
2018/19
tCO2e
17,371
15,247
17,129
16,809
98,569
16,634
132,575
96,186
15,739
127,172
84,048
15,739
116,916
88,136
14,409
119,354
11,789
164,521
11,789
11,789
164,521
11,789
18,503
187,171
18,503
138,961
128,705
137,857
-3,979
-9,302
-13,281
-3,979
-9,302
-13,281
-3,434
-8,446
-11,880
8,507
141,082
-4,184
-9,725
-13,909
271,871
95,968
42,599
1,119
26,333
1,226
4,108
213,442
128,286
45,262
3,374
27,936
3,508
4,231
–
–
1,007(2)
–
27,410(3)
2,123(4)
–
n/a
n/a
–
–
1,577(2)
–
26,186(3)
2,236(4)
–
n/a
n/a
Employee commuting and home working
Scope 3 Total
SCOPE 3 GREENHOUSE GAS EMISSIONS (excluding capital goods)
Science based target measure
Market-based
347,255
297,753
Market-based
443,223
426,039
(1) Market-based figures for electricity purchased on a standard tariff have been calculated using specific emissions factors from published generator fuel
mix disclosures, shown in energy use table. Location-based figures use average grid emissions and are shown in blue.
(2) Well-to-tank emissions were not included in previous scope 3 inventory. We include well-to -tank emissions for electricity, natural gas and all liquid fuels.
(3) Sludge-to-land and grit and screenings only, other business waste was not included in the previous scope 3 inventory.
(4) Hotel accommodation, other travel services and outsourced transport were not included in the previous scope 3 inventory.
United Utilities’ greenhouse gas emissions intensity
As in previous years we state our emissions as tonnes CO2e per £million revenue. We include scope 1 and 2 emissions only in this measure. We
also report the regulated emissions tonnes CO2e per megalitre treated (using the location-based method as calculated in the CAW v15), as these
are common metrics for our industry. The methodology for this calculation changed from CAW v13 so the figure is not available for 2018/19.
Greenhouse gas emissions intensity measures
2020/21
2019/20
2018/19
Scope 1 and 2 greenhouse gas emissions (gross) per £m revenue
Scope 1 and 2 greenhouse gas emissions (net) per £m revenue
Regulated emissions per megalitre of treated water
Regulated emissions per megalitre of sewage treated
tCO2e
tCO2e
kg tCO2e/Ml
kg tCO2e/Ml
78.0
70.3
118.51
152.26
74.7
67.6
131.98
168.51
75.8
69.3
n/a
n/a
98
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Scope 1 and 2 emissions – breakdown by activity and
greenhouse gas
Energy use, generation and export
Mechanical treatment and
storage of wastewater
Sludge processing
Burning of fossil fuels
Fuels used for transport
17,371
16,634
55,508
43,056
Energy use
Electricity
Natural gas
Other fuels(1)
Grid electricity purchased
8,507
Refrigerants
5
Exported renewable
electricity
Exported
biomethane
-4,184
-9,725
Carbon dioxide
Methane
Nitrous oxide
HFC refrigerant
-20,000
0
20,000
tCO2e
40,000
60,000
Scope 3 emissions by GHG Protocol category
Capital goods
construction
services
95,968
Fuel and
energy
related
42,599
Downstream transportation
and distribution
(sludge transport)
1,119
Business travel
1,226
Employee commuting
and home working
4,108
Purchased
goods and
services
271,871
Waste generated
in operations
(including sludge
disposal to land)
26,333
Renewable energy generated
200
150
100
50
0
CHP
Biomethane (gas to grid)
Solar
Wind
Hydro
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
2020/21
GWh
2019/20
GWh
2018/19
GWh
807.3
40.0
104.0
951.3
591.4
47.8
639.2
127.6
50.7
5.3
6.9
14.8
802.3
38.3
116.3
956.9
602.9
40.8
643.7
121.5
42.6
5.7
6.8
14.2
807.9
33.0
135.0
975.8
601.5
59.7
661.2
115.7
34.6
4.8
4.6
13.2
Total energy use
Electricity purchased
Renewable Tariff (2)
Supplier Standard Tariff (3)
Total electricity purchased
Renewable energy generated
CHP
Solar
Wind
Hydro
Biomethane(4)
Total renewable energy generated
205.3
190.8
172.9
Renewable energy exported
Electricity
Biomethane(4)
Total renewable energy exported
22.4
14.8
37.2
18.1
14.2
32.3
13.0
13.2
26.2
(1) Other fuels includes liquid fuel purchased for processing and transport
plus business mileage in private vehicles converted to GWh using 2020
UK Government GHG Conversion Factors for Company Reporting.
(2) Electricity purchased on a renewable tariff had 0 CO2e/kWh emissions.
(3) Electricity purchased on our standard tariff had 289 CO2e/kWh
emissions in 2019/20 and 178 CO2e/kWh emissions in 2020/21 .
(4) Biomethane generated and exported to grid is expressed as an
electricity equivalent.
Energy use and emissions
Our energy management strategy aims to achieve an appropriate
balance between managing energy consumption, use of renewables
and self-generation and being smart about how we operate our
assets to get best value while maintaining security of supply. We are a
relatively energy-intensive business, consuming 951 GWh in 2020/21.
We have increased the amount of energy generated from renewable
sources, such as hydro, solar photovoltaics, wind, biomethane and
sewage sludge powered combined heat and power (CHP) generators.
In 2020/21 we generated the equivalent of 205 GWh of renewable
electricity, an increase of 14 GWh on 2019/20. We exported 37.2 GWh
back to the national electricity and gas grids, 4.9 GWh more than the
previous year. Overall we reduced our electricity purchase by 4.5 GWh.
Energy efficiency action taken
Our energy management programme brings together management
processes, asset optimisation and data analytics. We have focused on
optimisation of existing operations alongside realising opportunities
through our capital programme to improve our use of pumps and how
we manage wastewater treatment processes.
A focus area for 2020/21 has been our use of pumps. At Watchgate
water treatment works, performance analysis of two key pump types
led to the tactical refurbishment of the worst performing pumps and
changes to the control philosophy – resulting in better efficiency, saving
an estimated £40,500 per year, and a longer asset life.
At Heronbridge water treatment works, analysis of pump operation
identified an opportunity to operate two pumps at minimum speed
rather than a single pump at maximum speed. Running pumps
closer to their best efficiency point reduces energy use and costs
and should save approximately £45,000 per year.
99
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Governance and reporting process
The board ensures that its oversight of
risk remains effective, and in compliance
with the UK Corporate Governance Code,
through a number of established reporting
routes.
Twice yearly the board receives an
extensive update on the risk profile as part
of the full and half-year reporting cycle.
This provides an overview of the nature
and extent of risk exposure in the context
of the group’s principal risks (as detailed on
pages 104 to 107), and emphasises the most
significant event-based risks (summarised
on pages 108 and 109) in both their current
state relative to the risk appetite, and
target state of acceptable exposure. The
board is also advised of new and emerging
risks (see page 109). In addition to the
biannual risk reporting, specific risk topics
are reported to the board to support
decision-making. The board is therefore
able to:
• make decisions on the level of risk it
is prepared to manage relative to risk
appetite and tolerance in order to
deliver on the group’s strategy;
• engage with the business to ensure
appropriate controls and mitigation are
in place, and test the appropriateness
of plans;
•
report externally on the long-term
viability of the company in an informed
manner; and
• monitor and review the effectiveness
of risk management procedures and
internal control systems.
Principal risks and uncertainties
Our risk management framework
We have a robust risk management framework for the
identification, assessment and mitigation of risk.
How we identify and assess risk
Identify &
assess
Monitor &
review
Consult &
communicate
Control &
mitigate
Record &
update
We have a number of mechanisms in
place to identify risk. These include a risk
universe, cross-business horizon scanning
forums, consultation with third parties and
comparison with National Risk Registers.
Each risk is event based and is sponsored by
a senior manager who is responsible for the
analysis of the corresponding causal factors,
consequences and the control effectiveness,
taking account of both the internal and
external business environment. This process
determines the likelihood of the event
occurring and the full range of potential
impacts from a minimum (best case) to a
maximum (worst case). Comparing this
position against the desired target state, in
combination with the strengths, weaknesses
and gaps of the control environment,
supports the decisions for further mitigation
as appropriate. This ongoing analysis
culminates in the biannual business unit
risk assessment (BURA) which forms part of
the governance and reporting process (as
outlined opposite) to ensure consistency
of approach and a true reflection of the
risk facing the company. It also serves to
calibrate the most significant risks from a
financial and reputational context and to
assess how these relate to our risk appetite.
Our approach to risk and resilience
Successful management of risks and
uncertainties enables us to deliver on
our purpose to provide great water and
more for the North West, and be more
resilient across our corporate, financial and
operational structures. A key objective of
our approach is to support the sustainable
achievement of the strategic themes that
underpin our vision to be the best UK water
and wastewater company delivering:
•
the best service to customers;
• at the lowest sustainable cost; and
•
in a responsible manner.
Our risk management framework provides
the foundation for the business to
anticipate threats to delivering an effective
service in these challenging times, and
to respond and recover effectively when
risks materialise. Key components of the
framework include:
• An embedded group-wide risk
management process which is aligned
to ISO 31000:2018 Risk management
guidelines;
• A board-led approach to risk appetite,
based on strategic goals;
• A strong and well-established
governance structure giving the board
oversight of the nature and extent of
risks the group faces, as well as the
effectiveness of risk management
processes and controls; and
• A portfolio of policies, procedures,
guidance and training to enable
consistent, group-wide participation
by our people.
Continuous improvement is a key feature
of the framework which incorporates
a maturity assessment model to
identify areas to enhance. Based on risk
management capabilities relative to five
levels of maturity, a recent assessment
has supported the development of a road
map of improvements. These include an
update to risk appetite statements, greater
focus and analysis of cross-cutting themes
and improved escalation of data from
operational risk management systems.
100
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT The governance and reporting process
Group board
Reviews the nature and
extent of risk, confirms the
company’s viability and
reports on effectiveness of
risk management and
internal control systems
Group audit and
Group audit and
risk board
risk board
Reviews governance,
Reviews governance,
risk and compliance
risk and compliance
matters
matters
Audit committee
Reviews the effectiveness
of risk management and
internal control systems
Operational risk and
Operational risk and
resilience board
resilience board
Monitors status of risk,
Monitors status of risk,
controls and actions
controls and actions
associated with water,
associated with water,
wastewater and bioresources
wastewater and bioresources
Corporate
risk team
Second line framework
development, advisory,
assurance and reporting
Corporate
audit team
Third line review and
assurance of risk
management and internal
control
Operational and
Operational and
project risk
project risk
First line identification,
First line identification,
analysis, evaluation and
analysis, evaluation and
management of operational
management of operational
and project risk
and project risk
Group strategic
and tactical risk
First line identification,
analysis, evaluation and
management of
strategic/tactical risk
Board/board committee
Management committee/activity
Business unit risk assessment (BURA)
Risk-specific governance and steering
groups manage ongoing individual risks.
The operational risk and resilience board
provides oversight of asset and operational
process risk and resilience capability,
escalates risks and issues to the group audit
and risk board (GARB) and contributes to
the BURA process.
The executive-led GARB focuses on: the
adequacy, effectiveness and performance
of governance processes; risk management
and internal control; monitoring
compliance and assurance activities;
identification of emerging themes and
trends; and resilience across the group.
The audit committee is also a fundamental
component of the governance structure.
Supported by company secretariat and
the corporate audit teams, the audit
committee reviews the effectiveness of risk
management and internal controls before
these are agreed by the board.
Risk profile
The business risk profile consists of approximately 100 event-based risks, each of which relates to one of ten inherent risk areas, which we
regard as our principal risks due to their potential to affect the performance, future prospects or reputation of the company. The allocation
of event-based risks to principal risks enables the company to consider risks in the context of systems and production lines, in line with our
Systems Thinking approach.
High
Impact
Low
Principal risk heat map
The heat map provides
an indicative view of the
current risk exposure
(likelihood of occurrence
and most likely impact) of
each of the principal risks
relative to each other.
Seven of the ten principal
risks have remained
relatively stable in the
last 12 months. Water
service, Supply chain and
programme delivery and
Finance have reduced
due to the replacement
of a section of the
Haweswater Aqueduct,
the trade deal with the
EU and improvement in
the economic outlook,
respectively.
See pages 104 to 107
for further details of the
principal risks.
7
1
6
8
2
3
10
5
9
4
Low
Likelihood
High
Principal risks
1 Water service
2 Wastewater service
3 Retail and commercial
4 Supply chain and programme
delivery
5 Resource
6 Finance
7 Health, safety and environmental
8 Security
9 Conduct and compliance
10 Political and regulatory
RISK EXPOSURE
An indication of the current
exposure of each principal risk
relative to the prior year.
Decreased
Stable
Increased
101
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT
Principal risks and uncertainties
Common themes
As illustrated in the bow-tie diagram below, each of the event-based risks has multiple causes and consequences which in turn lead to
financial and/or reputational impact. Preventative and responsive controls are applied to reduce the likelihood of the event occurring
and limit the impact if the event were to materialise. New and emerging circumstances in respect of causes, consequences and controls
make the profile multifaceted and dynamic. Analysis of the profile highlights common themes, notably associated with the causes and
consequences. These common themes can then be considered more holistically to enable a more integrated, Systems Thinking approach
to risk mitigation. Analysis of the control environment indicates the strengths, weaknesses and gaps in the mitigation of risk, as well as the
interdependencies across the business to manage risk as part of the integrated approach.
Cause
Cause
Cause
Cause
Event
Consequence
Consequence
Consequence
Consequence
Financial
impact
Reputational
impact
Preventative controls
Responsive controls
• Economic conditions: Macro events,
such as the financial crisis in 2008
and more recently COVID-19, can
have multiple financial implications,
including: lower revenue; increased
bad debt; increased operational cost;
increased cost of borrowing; and a
reduction in the Regulatory Capital
Value. The events can also impact
the wider supply chain with knock-on
effects to our service delivery and cost
to serve.
• Asset health: General use, exposure
to natural hazards, pressure and load
all contribute to the deterioration of
assets. In addition, other factors such
as technological obsolescence and
operating assets beyond their optimal
capacity to cope with increased demand
(population growth and/or climate
change) also affect asset health. Ageing
assets therefore provide an underlying
and cross-business risk and uncertainty
both to efficiency and for the long-term
resilience of asset integrity and the
associated service capability.
• Culture: Embedded through
processes, reward mechanisms,
values and behaviours, corporate
culture is important to maintain high
performance and cuts across the
majority of risks in the profile. In an
increasingly challenging business
environment, our focus is to continue
to embed a culture of innovation,
customer service and behaving in a
responsible manner at the same time as
being open and transparent.
Common consequence themes
Each consequence is analysed for the
financial and reputational implications
relative to multiple stakeholders.
Categorisation of the consequences
illustrates four common impact themes:
• Customer: Customers are impacted
through our service offering, the quality
of their experience when dealing with
us, and how our operational and capital
schemes affect them in the community.
• Environment: Our assets, operations
•
and capital programmes can have a
significant impact on the environment
in both rural and urban settings. As
a major land owner and operator of
a large fleet of vehicles, the way we
manage these also has environmental
implications.
Investors: The vast majority of risks in
the profile have financial implications
that could affect shareholder
investment in the short and long term.
Reputational impact associated with
ethics, environmental protection and
efficiency is also relevant for investors'
interest in the company.
• Employees: Our employees are
fundamental to delivering our service
requirements as well as our strategic
objectives. Equally, our employees can
be affected by multiple risks across
the business, but primarily in relation
to employment and health, safety and
wellbeing risks.
Common causal themes
The event-based risks include multiple
causal factors which individually or in
combination could trigger the risk event to
occur. Categorisation illustrates six common
causal themes:
• Extreme weather/climate change: In the
majority of cases our water resources,
asset base and operations can cope with
extreme weather conditions, although
these can become overwhelmed in
intense situations. Climate change
projections highlight increased
temperatures, rainfall, wind and more
frequent extreme variations in weather
patterns. This means that climate change
remains a key focus for us, because of
its impact on our capacity and capability
for service delivery, and because of
the effect on the environment that we
strive to protect and enhance. We are
committed to the principles set by the
Financial Stability Board’s Task Force on
Climate-related Financial Disclosures
(TCFD) – see pages 86 to 99.
• Demographic changes: Demographic
changes, including population growth
and evolving age profiles, can impact
the capacity and capability of water
and wastewater treatment and network
assets; can affect demand on water
resources; and increase uncertainty in
relation to pension obligations.
• Legislative and regulatory change:
Changes in legislation and/or regulation
can have implications for the business
model, asset base and ways of working.
For example: the anticipated post-Brexit
changes in law bring an element of
uncertainty; and the introduction of
competition, whilst positive to customers
and markets, can affect ongoing revenue
and the asset base.
102
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT Mapping of common themes to the principal risks
The diagram below illustrates how the common themes (causal and consequence) relate to the principal risks (see pages 104 to 107).
Legislative and
regulatory change
Economic
conditions
1
2
3
4
3
Demographic
changes
1
2
6
9
5
6
9
10
6
4
8
5
9
10
Extreme weather/
climate change
1
2
5
7
9
Causal
themes
Asset health
1
2
3
5
6
8
7
9
Culture
4
5
7
3
8
9
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Customers
3
4
2
1
5
Consequence
themes
Employees
4
6
7
8
6
8
9
10
9
10
Environment
2
5
1
7
9
Investors
1
2
3
4
5
6
7
8
9
10
Principal risks
1 Water service
6 Finance
2 Wastewater service
7 Health, safety and environmental
3 Retail and commercial
8 Security
4 Supply chain and programme delivery
9 Conduct and compliance
5 Resource
10 Political and regulatory
RISK EXPOSURE
An indication of the current exposure
of each principal risk relative to the
prior year.
Decreased
Stable
Increased
103
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021
Principal risks and uncertainties
Our principal risks
CORE OPERATIONS AND SERVICE PROVISION
1
2
Water service
A failure to provide a secure supply of
clean, safe drinking water and the potential
for a negative impact on public confidence
in water supply.
Wastewater service
The failure to remove, treat and return
water to the environment and recycle
sludge to land.
Main strategic theme
Main strategic theme
Risk exposure
Covering the entire water system from
source to customers' taps, threats include:
extreme weather which not only affects
supply and demand through reduced
rainfall, but can also affect raw water quality
through fire or flooding; demographic
changes affecting demand; asset health
contributes to the frequency and magnitude
of failure; and legal and regulatory change
potentially increases the quality standards
which will require time and investment in
order to maintain compliance.
Potential impacts include: regulatory non-
compliance; interruptions to water supply;
or, in extreme cases, a danger to public
health caused by poor water quality.
Control and mitigation
Strict quality controls supplement the
physical and chemical treatment including
a rigorous sampling regime, alarm systems
and 'shut down and start up to waste'
processes. Asset inspections, regular
maintenance and cleaning are undertaken
across our water assets, supported by a
prioritised replacement regime. Water
resources management, production
planning, pressure/flow management and
leak detection are undertaken to maintain
supply and minimise interruptions. The
integrated network, alternative supply
vehicles and maintenance crews provide a
response capability.
Performance indicators
• C-MeX
• Leakage
•
• Water quality compliance (CRI)
Interruptions to supply
Most significant event-based risks
• Failure of significant water supply
systems *
• Failure of the distribution system
(leakage) *
• Dam failure *
• Water sufficiency (dry weather)
• Water network failure
Risk exposure
Covering the entire wastewater and
bioresource systems from customer
properties to land, river or the sea, the key
factors are: the capacity and capability
of assets and operational processes; and
the availability of sludge recycling outlets.
Compounding issues include unauthorised
third party discharges into the sewer
network, changing demographics and
extreme weather. Whilst generally designed
to cope with the vast majority of storms,
high intensity rainfall can overwhelm the
system. Legal and regulatory change
potentially increases standards or imposes
restrictions which will require time and
investment to maintain compliance.
Potential impacts include: regulatory
non-compliance; interruptions to drainage
services; pollution incidents (including
odour nuisance and sewer flooding); and
inability to dispose of sludge to land.
Control and mitigation
The sewer network is managed through
a combination of the drainage and
wastewater management plans and the
wastewater network operating model
which include asset condition surveys
to identify defects, sewer rehabilitation
projects, customer campaigns and sewer
cleaning programmes. Integrated drainage
area studies and the adoption of a pollution
incident reduction plan aim to make further
enhancements. Proactive maintenance,
operative training, sampling, compliance
audits and odour management systems
supplement the treatment processes across
our wastewater and biosolids systems.
Performance indicators
• C-MeX
• EA performance assessment
•
Internal flooding incidents
• Pollution incidents
Most significant event-based risks
• Failure of wastewater network
(sewer flooding) *
• Failure to treat wastewater *
• Failure of wastewater assets
(serious pollution) *
• Recycling of biosolids to agriculture
Pages 104 to 107 provide details of our
principal risks, including a description of
the risk, a summary of the risk exposure,
control mitigation actions and references
to performance indicators and related
event-based risks.
RISK EXPOSURE
An indication of the current exposure
of each principal risk relative to the
prior year.
Decreased
Stable
Increased
OUR STRATEGIC THEMES
The best service to
customers
At the lowest sustainable
cost
In a responsible manner
MOST SIGNIFICANT RISKS
* Indicates a significant event-
based risk reported to the board
(see pages 108 and 109).
104
3
Retail and commercial
Failing to provide good and fair service
to domestic customers and third-party
retailers or a failure of or issue in relation
to non-United Utilities Water operations or
businesses.
Main strategic theme
Risk exposure
Key factors include the social deprivation
across the North West, the macroeconomic
environment, and the experience and
perception of customers towards our
operations and service. Commercial
contractual terms and conditions and the
structure, positioning and efficiency of joint
ventures, subsidiaries and undertakings are
also factors.
Potential impacts include financial losses
and an impact on profitability associated
with poor cash flow and an increase in
bad debt. Poor service and associated
decreased customer satisfaction could
result in regulatory penalties and
reputational harm.
Control and mitigation
Our customer-focused initiatives aim
to drive excellent service and enhance
the experience of all our customers. We
have an award-winning Priority Services
scheme for vulnerable customers and those
needing help to pay, which has driven up
our success in recovering charges. Bad
debt risk is managed through best practice
collection techniques, segmentation of
customers and the use of data sharing
to determine the most effective and
collaborative collection and support
activities.
The wholesale business maintains processes,
systems and data to deal fairly with market
participants and the central market operator
in the business retail market in order to
generate and collect revenue. Similarly strong
governance applies to non-United Utilities
Water operations and businesses.
Performance indicators
• C-MeX
• D-MeX
• Customer complaints
Most significant event-based risks
• Billing accuracy
• Customer experience
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT CORE OPERATIONS AND SERVICE PROVISION
FUNCTIONAL SERVICE AND SUPPORT
1
Water service
A failure to provide a secure supply of
clean, safe drinking water and the potential
for a negative impact on public confidence
in water supply.
Main strategic theme
2
Wastewater service
The failure to remove, treat and return
water to the environment and recycle
sludge to land.
Main strategic theme
Potential impacts include: regulatory non-
restrictions which will require time and
compliance; interruptions to water supply;
investment to maintain compliance.
Risk exposure
Covering the entire water system from
source to customers' taps, threats include:
extreme weather which not only affects
supply and demand through reduced
rainfall, but can also affect raw water quality
through fire or flooding; demographic
changes affecting demand; asset health
contributes to the frequency and magnitude
of failure; and legal and regulatory change
potentially increases the quality standards
which will require time and investment in
order to maintain compliance.
or, in extreme cases, a danger to public
health caused by poor water quality.
Control and mitigation
Strict quality controls supplement the
physical and chemical treatment including
a rigorous sampling regime, alarm systems
and 'shut down and start up to waste'
processes. Asset inspections, regular
maintenance and cleaning are undertaken
across our water assets, supported by a
prioritised replacement regime. Water
resources management, production
planning, pressure/flow management and
leak detection are undertaken to maintain
supply and minimise interruptions. The
integrated network, alternative supply
vehicles and maintenance crews provide a
response capability.
Performance indicators
• C-MeX
• Leakage
•
Interruptions to supply
• Water quality compliance (CRI)
Most significant event-based risks
• Failure of significant water supply
• Failure of the distribution system
systems *
(leakage) *
• Dam failure *
• Water sufficiency (dry weather)
• Water network failure
Risk exposure
Covering the entire wastewater and
bioresource systems from customer
properties to land, river or the sea, the key
factors are: the capacity and capability
of assets and operational processes; and
the availability of sludge recycling outlets.
Compounding issues include unauthorised
third party discharges into the sewer
network, changing demographics and
extreme weather. Whilst generally designed
to cope with the vast majority of storms,
high intensity rainfall can overwhelm the
system. Legal and regulatory change
potentially increases standards or imposes
Potential impacts include: regulatory
non-compliance; interruptions to drainage
services; pollution incidents (including
odour nuisance and sewer flooding); and
inability to dispose of sludge to land.
Control and mitigation
The sewer network is managed through
a combination of the drainage and
wastewater management plans and the
wastewater network operating model
which include asset condition surveys
to identify defects, sewer rehabilitation
projects, customer campaigns and sewer
cleaning programmes. Integrated drainage
area studies and the adoption of a pollution
incident reduction plan aim to make further
enhancements. Proactive maintenance,
operative training, sampling, compliance
audits and odour management systems
supplement the treatment processes across
our wastewater and biosolids systems.
Performance indicators
• C-MeX
• EA performance assessment
•
Internal flooding incidents
• Pollution incidents
Most significant event-based risks
• Failure of wastewater network
(sewer flooding) *
• Failure to treat wastewater *
• Failure of wastewater assets
(serious pollution) *
• Recycling of biosolids to agriculture
3
4
5
Retail and commercial
Failing to provide good and fair service
to domestic customers and third-party
retailers or a failure of or issue in relation
to non-United Utilities Water operations or
businesses.
Main strategic theme
Risk exposure
Key factors include the social deprivation
across the North West, the macroeconomic
environment, and the experience and
perception of customers towards our
operations and service. Commercial
contractual terms and conditions and the
structure, positioning and efficiency of joint
ventures, subsidiaries and undertakings are
also factors.
Potential impacts include financial losses
and an impact on profitability associated
with poor cash flow and an increase in
bad debt. Poor service and associated
decreased customer satisfaction could
result in regulatory penalties and
reputational harm.
Control and mitigation
Our customer-focused initiatives aim
to drive excellent service and enhance
the experience of all our customers. We
have an award-winning Priority Services
scheme for vulnerable customers and those
needing help to pay, which has driven up
our success in recovering charges. Bad
debt risk is managed through best practice
collection techniques, segmentation of
customers and the use of data sharing
to determine the most effective and
collaborative collection and support
activities.
The wholesale business maintains processes,
systems and data to deal fairly with market
participants and the central market operator
in the business retail market in order to
generate and collect revenue. Similarly strong
governance applies to non-United Utilities
Water operations and businesses.
Performance indicators
• C-MeX
• Customer complaints
• D-MeX
Most significant event-based risks
• Billing accuracy
• Customer experience
Supply chain and
programme delivery
The potential ineffective delivery of capital,
operational and change programmes/
processes.
Resource
The potential failure to provide appropriate
resources (human, technological or
physical) required to support business
activity.
Main strategic theme
Main strategic theme
Risk exposure
As the supplier of essential water and
wastewater services with a significant asset
base, key factors include the consistent
supply of critical goods and services and
the ongoing development of operational
facilities, distribution networks and
systems. Disruption and delay can occur
through macroeconomic conditions,
political issues or natural disasters in the
country of origin. Contractual issues,
technical or engineering complications,
natural hazards such as extreme weather or
legal aspects such as planning permission
or access rights are also factors.
Potential impacts include: implications
to cash flow; failure to take opportunities
and competitive advantage; and ultimately
failure to meet our obligations and
customer outcomes.
Control and mitigation
Category management and supplier
relationship management are key areas
of control underpinned by contract
management across our extensive supply
chain. Capital, change and operational
programmes are undertaken in order of
priority following approval. Within the
capital programme we have created better
alignment and integration between our
capital delivery partners, engineering
service providers and our operating model.
Our programmes and project management
include risk and issue management.
Performance indicators
• Percentage of invoices paid within 60
days
• Time, cost and quality index
Most significant event-based risks
• Unfunded developer-led projects
• Dispute with supplier
Risk exposure
The nature and scale of our operations
warrants a highly efficient, effective
and competent set of resources that
is adaptable to a constantly changing
business environment. Key factors include:
the recruitment and selection of talent,
employee engagement, skill-set and
knowledge; obsolescent systems due
to innovative new ways of working and
advances in technology; the quality of
tools, equipment and vehicles; and
ongoing deterioration of property, land
and other assets.
Potential impacts include the inability to
maintain efficiency, optimise opportunity
and competitive advantage, or meet our
obligations and customer outcomes.
Control and mitigation
We develop our people with the right
skills and knowledge and deliver effective
technology to support the business
in meeting its objectives. Employees
are kept informed regarding business
strategy and progress through various
communication channels. Training and
personal development programmes exist
for all employees in addition to talent
management programmes and apprentice
and graduate schemes. We focus on
change programmes and innovative ways
of working to deliver better, more resilient
and more cost-effective operations.
Resources are closely monitored because
of COVID-19, with home working and safe
site working practices being adopted.
People with multiple skill sets are able to
add resilience across the business.
Performance indicators
• Employee engagement
Most significant event-based risks
• Land management
• Business critical data
105
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Principal risks and uncertainties
Our principal risks
FUNCTIONAL SERVICE AND SUPPORT
HAZARD-BASED
6
7
8
Finance
The potential inability to finance the
business appropriately.
Health, safety and environmental
The potential harm to employees,
contractors, the public or the environment.
Main strategic theme
Main strategic theme
Risk exposure
The extent of our capital programme and
the scale of our operations means that it is
important that we are able to raise finance
when needed to preserve adequate liquidity.
Key factors include unexpected and/or higher
costs associated with an operational incident,
fluctuations in commodity prices and our
exposure to movements in interest rates and
inflation. A reduction in credit ratings, the
over payment of tax and a worsening of the
pension scheme funding position are also
factors. Contributing factors include the
macroeconomy, the political and regulatory
environments relative to the water sector, and
our internal financial structure.
Potential impacts include cash flow
implications, reduced profit and ultimately
the solvency of the company in extreme
cases.
Control and mitigation
We arrange long-term refinancing with
staggered maturity dates and maintain
significant liquidity to minimise the effect
of short-term downturns. Counterparty
credit exposure and settlement limits exist
to reduce any potential future impacts.
These are based on a number of factors,
including the credit rating and the size of the
asset base of the individual counterparty.
The group employs hedging strategies to
manage the impact of market fluctuations
for inflation, interest rates and energy prices.
Sensitivity analysis is carried out as part of
the business planning process, influencing
the various financial limits employed.
Continuous monitoring of the markets takes
place, including movements in credit default
swap prices and movements in equity levels.
Performance indicators
• Return on Regulated Equity (RoRE)
• Underlying operating profit
• Gearing (net debt : RCV)
Most significant event-based risks
• Financial outperformance *
• Credit ratings *
• Pension deficit *
• Fair payment of tax *
Risk exposure
The nature and scale of our operations
presents multiple hazards to employees,
contractors, the public and the environment.
These include confined spaces, excavations,
explosive atmospheres or high volume
asset failures (e.g. dams or aqueducts),
and polluting sewage and chemicals if
accidentally or uncontrollably released.
Potential impacts include: serious injury
or loss of life; catastrophic damage to
property/infrastructure; and damage to,
or destruction of, wildlife, fish or natural
habitats. Environmental hazards, notably
extreme weather, can affect our operational
assets and service delivery.
Control and mitigation
We have a strong health, safety and
environmental culture supported by strong
governance and management systems
certified to OHSAS 18001 and ISO 14001
respectively. We actively seek to improve
health, safety and wellbeing across the
group through targeted improvements and
benchmarking against our peers and seek
to protect and improve the environment
through the responsible delivery of our
services. This includes helping to support
rare species and habitats through targeted
engagement and activity, as well as our
commitment to reducing our carbon
emissions by designing out waste from our
operations, generating our own energy
and looking at ways to reduce our use
of raw materials. Due to the impact the
environment can have on our services,
extreme weather and climate change is
being integrated into our risk, planning and
decision-making processes.
Performance indicators
• EA performance assessment
• Accident frequency rates
Most significant event-based risks
• Disease pandemic *
• Process safety *
• Personal safety
• Carbon commitments
• Failure of above-ground assets
(flooding)
Security
The potential for malicious activity (physical
or technological) against people, assets or
operations.
Main strategic theme
Risk exposure
As the supplier of essential services and
the owner and operator of critical national
infrastructure, security is of paramount
importance against an ever evolving and
increasingly sophisticated threat through
physical, technological, chemical or
biological means. This could originate from
rogue independent actors, nation states,
organised crime, disgruntled employees, or
as a result of commercial espionage.
Potential impacts include the loss or
compromise of commercially sensitive data,
the disruption of business activity and/or
damage or destruction of systems, assets
or infrastructure with a knock-on impact to
service delivery and community infrastructure.
Control and mitigation
Security measures and awareness training
combined with strong governance
and inspection regimes aim to protect
infrastructure, assets and operational
capability. We work closely with our
industry peers, the Centre for the
Protection of National Infrastructure
(CPNI), the National Cyber Security Centre
(NCSC), the Drinking Water Inspectorate
and Defra. We liaise with these
organisations to shape the sector approach
to security, understand how to better
protect our business, and be compliant
with the Network and Information Systems
(NIS) Directive. Ongoing system and
network integration improves operational
resilience and we maintain robust incident
response, business continuity and disaster
recovery procedures. We maintain
insurance cover for loss and liability, and
the instrument of appointment (licence)
of the regulated business also contains a
‘shipwreck’ clause that, if applicable, may
offer a degree of recourse in the event of a
catastrophic incident.
Performance indicators
• Cyber incidents
Most significant event-based risks
• Cybercrime *
• Terrorism *
106
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT REGULATORY AND LEGAL
9
10
Conduct and compliance
The failure to adopt or apply ethical
standards, or to comply with legal and
regulatory obligations and responsibilities.
Political and regulatory
Developments connected with the
political, regulatory and legislative
environment.
Main strategic theme
Main strategic theme
RISK EXPOSURE
An indication of the current exposure
of each principal risk relative to the
prior year.
Decreased
Stable
Increased
OUR STRATEGIC THEMES
The best service to
customers
At the lowest sustainable
cost
In a responsible manner
MOST SIGNIFICANT RISKS
* Indicates a significant event-
based risk reported to the board
(see pages 108 and 109).
Risk exposure
As a regulated business, the political and
regulatory environment shapes how we
operate as a business. Factors include
the public perception of the water
industry and its legitimacy to provide
value, increased challenges on efficiency
and the imposition of increased levels of
competition across the sector.
There is the potential for increased
costs of administration and for sources
of income and funding to be impacted.
There is also the potential for reduced
Regulatory Capital Value (RCV) and for
greater uncertainty of returns.
Control and mitigation
We continue to take part in government
and regulatory consultations to influence
outcomes in respect of policy and
legislation. We routinely communicate
with customers so that their needs and
expectations can be factored into our
thinking and plans.
Performance indicators
• Return on Regulated Equity (RoRE)
• Underlying operating profit
Most significant event-based risks
• Reduced revenue at the next price
review *
• Upstream competition
(bioresources) *
• DPC – Haweswater Aqueduct
Replacement Programme (HARP)
Risk exposure
Our business extends to multiple
stakeholders and is subject to a significant
amount of legislation and regulation.
Long-term sustainability, resilience and
reputation rely on responsible conduct
and compliance across our business and
extended supply chain.
Failure to comply with legal obligations
could lead to financial penalties,
reputational harm and loss of customer
and investor confidence. Fines of up
to 10 per cent of group turnover could
be imposed, particularly in the areas
of environmental, health and safety,
competition, and information and data
security. Ultimately sanctions could
include, in extreme circumstances,
revocation of the instrument of
appointment (licence) and the imposition
of a special administration regime.
Control and mitigation
We place high importance and focus
on corporate responsibility. Our
well-established internal forums and
engagement activities with communities,
landowners, environmental groups and
other stakeholders allow us to be aware
of current issues and concerns. These
include ethical supply chains, modern
slavery risks, the needs of vulnerable
customers and diversity and equality
within our own employee population.
Performance indicators
• Community investment
• EA performance assessment
• C-MeX
Most significant event-based risks
• Non-compliance with the Bribery Act
• Digital Service licensing
107
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT Principal risks and uncertainties
The company's most significant event-based risks
The most significant event-based risks represent the ten highest-ranked risks by exposure (likelihood of
occurrence of the event multiplied by the most likely financial impact) and those risks which have been assessed
as having a significantly high impact, but low likelihood. Depending on the circumstances, financial impacts will
include loss of revenue, additional or extra cost, fines, regulatory penalties and compensation. Reputational impact
relative to our multiple stakeholders is also assessed, reported and considered as part of the mitigation.
1
2
3
Failure of significant water
supply systems
Risk exposure: The Haweswater Aqueduct
(HA) is a key asset with current low resilience
due to deterioration, potentially resulting in
water quality issues and/or supply interruptions
to a large proportion of our customer base.
Control/mitigation: Capital projects for
asset replacement (including HARP), as
well as extensive programmes of asset
monitoring, surveys and maintenance.
Failure of wastewater network
(sewer flooding)
Risk exposure: Equipment failure,
collapses/bursts or inadequate hydraulic/
operational capacity to cope with extreme
weather and population growth, resulting
in sewer flooding.
Control/mitigation: Preventative
maintenance and inspection regimes,
customer campaigns and sewer
rehabilitation programmes.
Cybercrime
Risk exposure: Data and technology
assets compromised due to malicious
or accidental activity, leading to a major
impact to key business processes and
operations.
Control/mitigation: Multiple layers of
control, including a secure perimeter,
segmented internal network zones, access
controls, constant monitoring and forensic
response capability.
5
6
7
Failure to treat wastewater
Risk exposure: Inadequate capacity and
capability of wastewater treatment works,
leading to environmental permit breaches.
Control/mitigation: Improved Effective
Operations and Maintenance (EO&M)
programme and operating procedures
including proactive maintenance, operative
training and compliance audits.
Financial outperformance
Risk exposure: Failure to achieve financial
outperformance due to macro economic
conditions and efficiency challenges, impacting
the cost of debt and delivery of the company
business plan.
Control/mitigation: Interest rate and
inflation management, ongoing monitoring
of markets and regulatory developments,
and company business planning.
Credit ratings
Risk exposure: Credit ratings below internal
targets, due to deterioration in financial and/
or operational performance and/or external
factors (such as inflation) resulting in more
expensive funding.
Control/mitigation: Continuous monitoring
of markets, and the management of key
financial risks within defined policy parameters.
9
10
A
Upstream competition
(bioresources)
Risk exposure: Competition in the
bioresources market leading to a loss
of business and reduced operational
efficiency.
Control/mitigation: Delivering operational
efficiency, continued engagement with
Ofwat and a strategic review of the
bioresources business.
Failure of the distribution system
(leakage)
Risk exposure: Network characteristics,
asset condition, extreme weather or
third-party damage resulting in the loss of
treated water and failure of the leakage
target.
Control/mitigation: Management
of pressure and flow combined with
traditional and innovative leakage detection
techniques.
Pension deficit
Risk exposure: The potential for the
pension scheme funding deficit to increase
because of life expectancy rates leading to
additional contributions.
Control/mitigation: Constant monitoring
combined with hedging against interest
rates, inflation and growth asset risk.
C
D
E
Dam failure
Risk exposure: Uncontrolled release of a
significant volume of water from reservoirs
due to flood damage, overtopping, earthquake
or erosion leading to catastrophic impacts
downstream.
Control/mitigation: Each reservoir is regularly
inspected by engineers. Where appropriate,
risk reduction interventions are implemented
through a prioritised investment programme.
Disease pandemic
Risk exposure: Serious illness in a large
proportion of the UK population and
consequences to our workforce, the wider
supply chain and macroeconomy.
Control/mitigation: The incident
management process would be invoked,
supported by the Pandemic Response
Plan. This includes the implementation
of multi-channel communication with
non-pharmaceutical interventions as per
government guidance.
Terrorism
Risk exposure: A significant asset to be
compromised by terrorist activity leading
to loss of supply, contamination and/or
pollution.
Control/mitigation: A risk-based
protection of assets in line with the Security
and Emergency Measures Direction
(SEMD) and close liaison with the Centre
for the Protection of National Infrastructure
(CPNI), regional counter terrorist units,
local agencies and emergency services.
108
United Utilities Group PLC unitedutilities.com/corporate STRATEGIC REPORT The top ten ranking risks relative
to likelihood and impact
High impact, low likelihood risk
KEY
4
Reduced revenue at the next
price review
Risk exposure: One of many potential issues
relates to the totex allowances through
AMP8 revenues for labour costs, due to the
Office of National Statistics ASHE Index
taking account of lower wages associated
with COVID-19.
Control/mitigation: Reviewing the rule
book once published and liaising with
Ofwat accordingly.
8
Failure of wastewater assets
(serious pollution)
Risk exposure: The unintended introduction
of pollutants (including sewage) into the
environment due to the capacity and
capability of wastewater assets.
Control/mitigation: Proactive identification
of asset defects through condition surveys,
staff training, incident analysis, drainage area
studies and improvement plans.
B
Fair payment of tax
Risk exposure: Failure to maximise the
available tax efficiencies and reliefs due to
changing mechanisms.
Control/mitigation: Tax policies and
objectives cover: efficient structuring
of commercial activities; maintaining a
robust governance and risk management
framework; and an open and transparent
relationship with tax authorities.
F
Process safety
Risk exposure: The unintentional
generation and/or release of dangerous
substances and explosive atmospheres
in sludge digestion or other processes,
resulting in a catastrophic incident.
Control/mitigation: The design and
engineering of facilities, training and
maintenance of equipment. Effective
control points exist with alarms monitored
remotely and statutory inspections.
New and emerging risks
We continue to review and monitor external
and internal business environments to
establish and understand risks and issues
that are new, developing, growing or
becoming more prominent. We do this
through a combination of business unit risk
assessments, a specific new and emerging
risk forum and other horizon scanning
forums such as a compliance working
group. This enables us to plan our strategy
and operations to minimise threats of this
nature. Notable new and emerging risks
and some possible impacts are set out
below.
• Post-Brexit supply chain: Despite the
agreement of a trade deal with the
EU, there remains some uncertainty
in relation to the supply of goods and
services. We manage the supply chain
through category management, with
chemicals and critical spares being two
categories which are fundamental to
the delivery of our service provision.
We will continue to monitor how
the supply chain emerges and will
adapt accordingly through category
management and supplier relationship
management.
• Post-Brexit legislative change: Post-
Brexit uncertainty remains in relation
to how European legislation will
transition into UK law, for example, data
protection laws governing the flow of
data and information between the EU
and UK. Changes in UK law, such as
the Environment Bill, Sewage (Inland
Waters) Bill and changes to Public
Procurement will all have implications
for the water sector.
• Regulatory change: The political
landscape remains challenging for the
water sector. There remains uncertainty
regarding the introduction of further
competition and therefore the
associated implications for revenue and
the asset base. Looking ahead to Price
Review 2024 (PR24), the methodology
remains uncertain, particularly in
light of the outcome of other water
companies' PR19 CMA appeals.
• Plastics: The current attention on
single use plastics and microplastic
pollution in water, wastewater effluent
discharge and sludge disposal (see
biosolids recycling to agriculture) could
have implications for our assets and
operations.
• Biosolids recycling to agriculture:
The practice of disposing of biosolids
to agriculture could be banned
(partially or in full) in the UK based on
similar actions within Europe.
• Water scarcity and water trading:
Water scarcity is an emerging issue
within the UK, which has knock-on
implications for us in relation to the
proposed strategic transfer of water
from the North West to the South East
of England, and the associated service,
commercial and reputational impacts.
• COVID-19: To a large degree, COVID-19
has become business as usual,
however, the longer-term implications
of the economic downturn, with
potential corporate failures and high
unemployment, could affect cash
collection. Continued lower inflation
will affect revenues, financing costs and
RCV, however, rising inflation will have
an upside over the longer term.
Material litigation
The group robustly defends litigation where appropriate and seeks to minimise its
exposure by establishing provisions and seeking recovery wherever possible. Litigation
of a material nature is regularly reported to the group board. Beyond that reported
in previous years on the Argentina multiparty ‘class action’ and the Manchester Ship
Canal Company matters (to which there have been no material developments), there is
nothing specific to report on material litigation.
109
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021STRATEGIC REPORT What it means
to govern
responsibly
In the following pages of this corporate governance report
we have set out how we have applied the principles and
reported against the provisions of the 2018 UK Corporate
Governance Code (the code).
Governance Corporate governance report
– Board of directors
– Letter from the Chairman
– Nomination committee report
– Audit committee report
– Corporate responsibility
112
116
130
144
committee report
156
– Remuneration committee report
160
– Tax policies and objectives
190
Directors’ report
192
Statement of directors’ responsibilities 196
Corporate governance report
Board of directors
Sir David
Higgins
Chairman
Steve Mogford
Chief Executive
Officer (CEO)
Phil Aspin
Chief Financial
Officer (CFO)
N
C
T
Responsibilities: Responsible for the
leadership of the board, setting its agenda
and ensuring its effectiveness on all aspects
of its role.
Qualifications: BEng Civil Engineering,
Diploma Securities Institute of Australia,
Fellow of the Institute of Civil Engineers
and the Royal Academy of Engineering.
Appointment to the board: May 2019;
appointed as Chairman in January 2020.
Skills and experience: Sir David has
spent his career overseeing high profile
infrastructure projects, including: the
delivery of the Sydney Olympic Village
and Aquatics centre; Bluewater Shopping
Centre, Kent; and the delivery of the 2012
London Olympic Infrastructure Project.
Career experience: Sir David was
previously chief executive of: Network Rail
Limited; The Olympic Delivery Authority;
and English Partnerships. He has held non-
executive roles as chairman of both High
Speed Two Limited and Sirius Minerals
plc. In December 2019 he stepped down
as non-executive director and chair of the
remuneration committee at Commonwealth
Bank of Australia.
Current directorships/business interests:
Chairman of Gatwick Airport Limited and
a member of the Council at the London
School of Economics. He is Chairman of
United Utilities Water Limited.
Independence: Sir David met the 2018
UK Corporate Governance Code’s
independence criteria (provision 10) on his
appointment as a non-executive director
and chairman designate.
Specific contribution to the company’s
long-term success: Sir David’s experience
of major infrastructure projects and his
knowledge and understanding of the role of
regulators will be invaluable in meeting the
challenges of the current regulatory period
and beyond. As chairman of the nomination
committee he is responsible for ensuring the
succession plans for the board and senior
management identify the right skillsets to
face the challenges of the business.
112
Responsibilities: To manage the group’s
business and to implement the strategy
and policies approved by the board.
Qualifications: BSc (Hons) Astrophysics/
Maths/Physics.
Appointment to the board: January 2011.
Skills and experience: Steve’s experience
of the highly competitive defence market
and of complex design, manufacturing and
support programmes has driven forwards
the board’s strategy of improving customer
service and operational performance at
United Utilities. His perspective of the
construction and infrastructure sector
provides valuable experience and insight to
support United Utilities’ capital investment
programme.
Career experience: Steve was previously
chief executive of SELEX Galileo, the
defence electronics company owned by
Italian aerospace and defence organisation
Finmeccanica, chief operating officer BAE
Systems PLC and a member of its PLC
board. His early career was spent with
British Aerospace PLC. Steve ceased to
be a non-executive director of G4S plc
following its takeover in April 2021.
Current directorships/business interests:
He is Chief Executive Officer of United
Utilities Water Limited and a non-executive
director of Water Plus, a joint venture with
Severn Trent serving business customers.
Specific contribution to the company’s
long-term success: As the Chief Executive
Officer, Steve has driven a step change in
the company’s operational performance,
and has implemented a Systems Thinking
approach to underpin future operational
activities and improved performance.
Responsibilities: To manage the group’s
financial affairs, to contribute to the
management of the group’s business and
to the implementation of the strategy and
policies approved by the board.
Qualifications: BSc (Hons) Mathematics,
Chartered Accountant (ACA), Fellow of the
Association of Corporate Treasurers (FCT).
Appointment to the board: July 2020.
Skills and experience: Phil has extensive
experience of financial and corporate
reporting, having qualified as a chartered
accountant with KPMG and more latterly
through his role as group controller. He
has a comprehensive knowledge of capital
markets and corporate finance underpinned
through his previous role as group treasurer
and his FCT qualification. Having been
actively engaged in the last four regulatory
price reviews he has a strong understanding
of the economic regulatory environment.
Career experience: Phil has over 25 years’
experience working for United Utilities. Prior
to his appointment as CFO in July 2020,
he was group controller with responsibility
for the group’s financial reporting and
prior to that he was group treasurer with
responsibility for funding and financial risk
management. He has been a member of
EFRAG TEG and chaired the EFRAG Rate
Regulated Activities Working Group.
Current directorships/business interests:
Phil was appointed as a member of the UK
Accounting Standards Endorsement Board
in March 2021. He is chair of the 100 Group
pensions committee and a member of both
the 100 Group main committee and the
stakeholder communications and reporting
committee. He is Chief Financial Officer of
United Utilities Water Limited and a non-
executive director of Water Plus, a joint
venture with Severn Trent serving business
customers.
Specific contribution to the company’s
long-term success: Phil has driven forward
the financial performance of the group
and delivered the group’s competitive
advantage in financial risk management
and excellence in corporate reporting.
Responsibilities: Responsible, in addition
Responsibilities: To challenge
to his role as an independent non-
constructively the executive directors and
executive director, for discussing any
monitor the delivery of the strategy within
concerns with shareholders that cannot be
the risk and control framework set by the
resolved through the normal channels of
board and to lead the board’s agenda on
communication with the Chairman or Chief
acting responsibly as a business.
Executive Officer.
Qualifications: Chartered Management
Accountant (FCMA).
Appointment to the board: November
2014.
2013.
Qualifications: Bachelor of Laws (Hons).
Appointment to the board: September
Skills and experience: As the chief
executive of a FTSE 100 listed company,
Skills and experience: Through his
Stephen brings current operational
previous roles at British Gas and BAA, Mark
experience to the board. His public sector
has a strong background operating within
experience provides additional insight in
regulated environments. His extensive
regulation and government relations. His
knowledge of customer-facing businesses
day-to-day experience in the information
is particularly valuable for United Utilities
and technology industries ensures that the
in the pursuit of our strategy to improve
board is kept abreast of these areas of the
customer service.
company’s operating environment.
Career experience: Mark was previously
Career experience: Stephen previously
chief executive of Barratt Developments
held senior executive roles at Alcatel
plc. He is a former trustee of the Building
Lucent Inc. and a number of public sector/
Research Establishment and the UK
service roles, including serving a term as
Green Building Council. Mark held senior
the founding chief executive of Ofcom. He
executive roles in Centrica plc and British
stepped down as a non-executive director
Gas. He is a former non-executive director
at the Department for Business Energy
at BAA plc and Ladbrokes Coral PLC.
and Industrial Strategy in December 2020.
Current directorships/business interests:
Mark was appointed as a non-executive
director and chairman designate at
Aggreko plc in October 2020. He was
appointed as senior independent non-
Former chairman Ashridge Business School.
A Life Peer since 2008.
Current directorships/business interests:
Group chief executive Informa plc. He is
an independent non-executive director of
executive director at Wickes Group plc and
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Stephen’s experience
as a current chief executive and his
previous work in the public sector and
government provides valuable insight for
board discussions on regulatory matters.
as chair of the remuneration committee in
April 2021. He is non-executive chairman at
Grainger plc and a non-executive director
at Premier Marinas Holdings Limited. He is
an independent non-executive director of
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: As senior independent
non-executive director, Mark applies his
own considerable board experience gained
during his career to United Utilities and
provides a sounding board to the executive
in many areas.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Responsibilities: Responsible for the
Responsibilities: To manage the group’s
Responsibilities: To manage the group’s
leadership of the board, setting its agenda
business and to implement the strategy
financial affairs, to contribute to the
and ensuring its effectiveness on all aspects
and policies approved by the board.
management of the group’s business and
of its role.
Qualifications: BSc (Hons) Astrophysics/
Qualifications: BEng Civil Engineering,
Maths/Physics.
Diploma Securities Institute of Australia,
Fellow of the Institute of Civil Engineers
and the Royal Academy of Engineering.
Appointment to the board: May 2019;
appointed as Chairman in January 2020.
Appointment to the board: January 2011.
Skills and experience: Steve’s experience
of the highly competitive defence market
and of complex design, manufacturing and
to the implementation of the strategy and
policies approved by the board.
Qualifications: BSc (Hons) Mathematics,
Chartered Accountant (ACA), Fellow of the
Association of Corporate Treasurers (FCT).
Appointment to the board: July 2020.
support programmes has driven forwards
Skills and experience: Phil has extensive
Skills and experience: Sir David has
the board’s strategy of improving customer
experience of financial and corporate
spent his career overseeing high profile
service and operational performance at
reporting, having qualified as a chartered
infrastructure projects, including: the
United Utilities. His perspective of the
accountant with KPMG and more latterly
delivery of the Sydney Olympic Village
construction and infrastructure sector
through his role as group controller. He
and Aquatics centre; Bluewater Shopping
provides valuable experience and insight to
has a comprehensive knowledge of capital
Centre, Kent; and the delivery of the 2012
support United Utilities’ capital investment
markets and corporate finance underpinned
London Olympic Infrastructure Project.
programme.
Career experience: Sir David was
Career experience: Steve was previously
previously chief executive of: Network Rail
chief executive of SELEX Galileo, the
Limited; The Olympic Delivery Authority;
defence electronics company owned by
and English Partnerships. He has held non-
Italian aerospace and defence organisation
through his previous role as group treasurer
and his FCT qualification. Having been
actively engaged in the last four regulatory
price reviews he has a strong understanding
of the economic regulatory environment.
executive roles as chairman of both High
Finmeccanica, chief operating officer BAE
Career experience: Phil has over 25 years’
Speed Two Limited and Sirius Minerals
Systems PLC and a member of its PLC
experience working for United Utilities. Prior
plc. In December 2019 he stepped down
board. His early career was spent with
to his appointment as CFO in July 2020,
as non-executive director and chair of the
British Aerospace PLC. Steve ceased to
he was group controller with responsibility
remuneration committee at Commonwealth
be a non-executive director of G4S plc
for the group’s financial reporting and
Bank of Australia.
following its takeover in April 2021.
Current directorships/business interests:
Current directorships/business interests:
Chairman of Gatwick Airport Limited and
He is Chief Executive Officer of United
a member of the Council at the London
Utilities Water Limited and a non-executive
School of Economics. He is Chairman of
director of Water Plus, a joint venture with
prior to that he was group treasurer with
responsibility for funding and financial risk
management. He has been a member of
EFRAG TEG and chaired the EFRAG Rate
Regulated Activities Working Group.
United Utilities Water Limited.
Severn Trent serving business customers.
Current directorships/business interests:
Independence: Sir David met the 2018
Specific contribution to the company’s
UK Corporate Governance Code’s
long-term success: As the Chief Executive
independence criteria (provision 10) on his
Officer, Steve has driven a step change in
appointment as a non-executive director
the company’s operational performance,
and has implemented a Systems Thinking
approach to underpin future operational
activities and improved performance.
and chairman designate.
Specific contribution to the company’s
long-term success: Sir David’s experience
of major infrastructure projects and his
knowledge and understanding of the role of
regulators will be invaluable in meeting the
challenges of the current regulatory period
and beyond. As chairman of the nomination
committee he is responsible for ensuring the
succession plans for the board and senior
management identify the right skillsets to
face the challenges of the business.
Phil was appointed as a member of the UK
Accounting Standards Endorsement Board
in March 2021. He is chair of the 100 Group
pensions committee and a member of both
the 100 Group main committee and the
stakeholder communications and reporting
committee. He is Chief Financial Officer of
United Utilities Water Limited and a non-
executive director of Water Plus, a joint
venture with Severn Trent serving business
customers.
Specific contribution to the company’s
long-term success: Phil has driven forward
the financial performance of the group
and delivered the group’s competitive
advantage in financial risk management
and excellence in corporate reporting.
Mark Clare
Senior
independent
non-executive
director
Stephen
Carter CBE
Independent
non-executive
director
N R
N A C
Responsibilities: To challenge
constructively the executive directors and
monitor the delivery of the strategy within
the risk and control framework set by the
board and to lead the board’s agenda on
acting responsibly as a business.
Qualifications: Bachelor of Laws (Hons).
Appointment to the board: September
2014.
Skills and experience: As the chief
executive of a FTSE 100 listed company,
Stephen brings current operational
experience to the board. His public sector
experience provides additional insight in
regulation and government relations. His
day-to-day experience in the information
and technology industries ensures that the
board is kept abreast of these areas of the
company’s operating environment.
Career experience: Stephen previously
held senior executive roles at Alcatel
Lucent Inc. and a number of public sector/
service roles, including serving a term as
the founding chief executive of Ofcom. He
stepped down as a non-executive director
at the Department for Business Energy
and Industrial Strategy in December 2020.
Former chairman Ashridge Business School.
A Life Peer since 2008.
Current directorships/business interests:
Group chief executive Informa plc. He is
an independent non-executive director of
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Stephen’s experience
as a current chief executive and his
previous work in the public sector and
government provides valuable insight for
board discussions on regulatory matters.
Responsibilities: Responsible, in addition
to his role as an independent non-
executive director, for discussing any
concerns with shareholders that cannot be
resolved through the normal channels of
communication with the Chairman or Chief
Executive Officer.
Qualifications: Chartered Management
Accountant (FCMA).
Appointment to the board: November
2013.
Skills and experience: Through his
previous roles at British Gas and BAA, Mark
has a strong background operating within
regulated environments. His extensive
knowledge of customer-facing businesses
is particularly valuable for United Utilities
in the pursuit of our strategy to improve
customer service.
Career experience: Mark was previously
chief executive of Barratt Developments
plc. He is a former trustee of the Building
Research Establishment and the UK
Green Building Council. Mark held senior
executive roles in Centrica plc and British
Gas. He is a former non-executive director
at BAA plc and Ladbrokes Coral PLC.
Current directorships/business interests:
Mark was appointed as a non-executive
director and chairman designate at
Aggreko plc in October 2020. He was
appointed as senior independent non-
executive director at Wickes Group plc and
as chair of the remuneration committee in
April 2021. He is non-executive chairman at
Grainger plc and a non-executive director
at Premier Marinas Holdings Limited. He is
an independent non-executive director of
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: As senior independent
non-executive director, Mark applies his
own considerable board experience gained
during his career to United Utilities and
provides a sounding board to the executive
in many areas.
Board role
Chairman
Executive director
Senior independent non-executive director
Independent non-executive director
Committee membership
N Nomination committee
C Corporate responsibility committee
T Treasury committee
R Remuneration committee
A Audit committee
Chair of the committee
Changes to board directors:
Russ Houlden (CFO) and Sara Weller
(independent non-executive director) both
left the board at the end of the company’s
AGM in July 2020. Furthermore, they both
ceased to be directors of United Utilities
Water Limited at that time.
Brian May will not be seeking
reappointment at the AGM in July 2021,
having served on the board for almost nine
years. At the same time he will cease to be
a director of United Utilities Water Limited.
113
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Board of directors
Kath Cates
Independent
non-executive
director
Alison
Goligher
Independent
non-executive
director
Brian May
Independent
non-executive
director
N R
N R C
N A T
R
Responsibilities: To challenge
constructively the executive directors
and monitor the delivery of the strategy
within the risk and control framework set
by the board.
Qualifications: Solicitor of England and
Wales.
Appointment to the board: September
2020.
Skills and experience: Kath has spent
most of her career working in a regulated
environment in the financial services
industry. Since 2014, she has focused on her
non-executive roles, chairing all the main
board committees and undertaking the role
of senior independent director.
Career experience: Kath previously
was chief operating officer at Standard
Chartered plc before which she held a
number of roles at UBS Limited over a 22-
year period, prior to which she qualified
as a solicitor. She stepped down as a
non-executive director at Brewin Dolphin
Holdings plc in February 2021.
Current directorships/business interests:
Kath is a non-executive director at
RSA Insurance Group plc and chair of
the remuneration committee. She is
a non-executive director at Columbia
Threadneedle Investments where she
chairs the TPEN audit committee and a
non-executive director of TP ICAP Group
Plc. She is an independent non-executive
director of United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Kath’s broad board
experience enables her to contribute to
board governance and risk management
at United Utilities.
114
Responsibilities: To challenge
constructively the executive directors and
monitor the delivery of the strategy within
the risk and control framework set by the
board and to lead the audit committee.
Qualifications: BSc (Hons) Actuarial
Science, Chartered Accountant (FCA).
Appointment to the board: September
2012.
Skills and experience: Brian’s background
in finance and accounting and the various
roles that he has held are major assets to
the board. He has been chair of the audit
committee since September 2013 and has
considerable knowledge of the company
and the specifics of the utilities sector.
Career experience: Brian was appointed
group finance director of Bunzl plc in
January 2006 and he retired from the board
of Bunzl plc on 31 December 2019.
Current directorships/business interests:
Brian was appointed as a non-executive
director and member of the audit
committee of Ferguson plc in January
2021. He is a non-executive director of
ConvaTec Group Plc and a member of
its audit and risk committee and chair
of its remuneration committee. He is an
independent non-executive director of
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Brian contributes
his considerable expertise in finance
to the company primarily through the
important roles as chair of both the audit
committee and the treasury committee,
which are important in overseeing the risk
management of the group. The industry
knowledge he has gained over the eight
years he has been a board member enabled
him to focus on, and contribute to, key risk
areas during the regulatory price review
process for the 2020–25 regulatory period.
Responsibilities: To challenge
constructively the executive directors and
monitor the delivery of the strategy within
the risk and control framework set by the
board and to lead the board’s activities
concerning directors’ remuneration.
Qualifications: BSc (Hons) Mathematical
Physics, MEng Petroleum Engineering.
Appointment to the board: August 2016.
Skills and experience: Alison has strong
technical and capital project management
skills, having been involved in large
projects and the production side of Royal
Dutch Shell’s business. This experience
of engineering and industrial sectors
provides the board with additional insight
into delivering United Utilities’ capital
investment programme.
Career experience: Royal Dutch Shell
(2006 to 2015), where Alison’s most
recent executive role was Executive
Vice President Upstream International
Unconventionals. Prior to that she spent 17
years with Schlumberger, an international
supplier of technology, integrated project
management and information solutions to
the oil and gas industry.
Current directorships/business interests:
Alison is a non-executive director and
chair of the remuneration committee at
Meggitt PLC and a part-time executive
chair at Silixa Ltd. In February 2021
she was appointed as a non-executive
director of Technip Energies NV. She is
an independent non-executive director of
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Alison’s understanding
of the operational challenges of large
capital projects and the benefits of
deploying technology provides valuable
insight into addressing the longer-term
strategic risks faced by the business. Her
role as the designated non-executive
director for workforce engagement
will provide the board with a better
understanding of the views of employees
and greater clarity on the culture of the
company.
Responsibilities: To challenge
Responsibilities: To challenge
constructively the executive directors
constructively the executive directors
and monitor the delivery of the strategy
and monitor the delivery of the strategy
within the risk and control framework set
within the risk and control framework set
by the board.
by the board.
Qualifications: MEng + Man (Hons), MBA.
Qualifications: MA Geography and
Appointment to the board: July 2017.
Skills and experience: Paulette has spent
most of her career in the regulated finance
industry and so provides the board with
2020.
Management Science, Chartered
Accountant (FCA).
Appointment to the board: September
additional perspective and first-hand
Skills and experience: Doug has extensive
regulatory experience. Her experience
career experience in finance from
of technology-driven transformation will
qualifying as a chartered accountant with
contribute to United Utilities’ customer
Price Waterhouse, his executive roles
experience programme and its Systems
as CFO of major listed companies and
Thinking approach.
Career experience: Previously held senior
executive roles in banking and technology
activities.
more recently through his non-executive
positions and focus on audit committee
at Facebook, Barclays and the Royal Bank
Career experience: Doug was previously
of Scotland/NatWest. Former trustee and
chief financial officer at Meggitt PLC from
chair of children’s charity The Mayor’s Fund
2013 to 2018 and prior to that, he was chief
for London.
Current directorships/business interests:
CEO of Integrated and Ecommerce
Solutions and member of the Paysafe
Group executive since January 2020.
financial officer at both the London Stock
Exchange Group plc and QinetiQ Group
plc. He is a former non-executive director
and audit committee chair at SEGRO plc,
having stepped down in 2019.
Paysafe, a former FTSE 250 company, is
Current directorships/business interests:
now privately owned by PE firms CVC and
Doug currently serves as a non-executive
Blackstone. She is an independent non-
director and audit committee chair at
executive director of United Utilities Water
Johnson Matthey plc, BMT Group Ltd and
Limited.
Specific contribution to the company’s
long-term success: Paulette’s wide-ranging
the Manufacturing Technology Centre
Ltd. He is an independent non-executive
director of United Utilities Water Limited.
experience in regulated sectors, profit
Specific contribution to the company’s
and loss management, technology and
long-term success: Doug’s financial
innovation enables her to provide a first-
capabilities and his experience as an audit
hand contribution to many board topics of
committee chair strengthen the board’s
discussion. In her current executive role she
financial expertise.
often faces many of the same issues, and
has been able to provide support to senior
management at United Utilities.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Responsibilities: To challenge
Responsibilities: To challenge
Responsibilities: To challenge
constructively the executive directors
constructively the executive directors and
constructively the executive directors and
and monitor the delivery of the strategy
monitor the delivery of the strategy within
monitor the delivery of the strategy within
within the risk and control framework set
the risk and control framework set by the
the risk and control framework set by the
by the board.
board and to lead the board’s activities
board and to lead the audit committee.
Qualifications: Solicitor of England and
concerning directors’ remuneration.
Qualifications: BSc (Hons) Actuarial
Appointment to the board: September
Physics, MEng Petroleum Engineering.
Appointment to the board: September
Qualifications: BSc (Hons) Mathematical
Science, Chartered Accountant (FCA).
Appointment to the board: August 2016.
2012.
Wales.
2020.
Skills and experience: Kath has spent
Skills and experience: Alison has strong
Skills and experience: Brian’s background
most of her career working in a regulated
technical and capital project management
in finance and accounting and the various
environment in the financial services
skills, having been involved in large
roles that he has held are major assets to
industry. Since 2014, she has focused on her
projects and the production side of Royal
the board. He has been chair of the audit
non-executive roles, chairing all the main
Dutch Shell’s business. This experience
committee since September 2013 and has
board committees and undertaking the role
of engineering and industrial sectors
considerable knowledge of the company
of senior independent director.
provides the board with additional insight
and the specifics of the utilities sector.
Career experience: Kath previously
was chief operating officer at Standard
into delivering United Utilities’ capital
investment programme.
Career experience: Brian was appointed
group finance director of Bunzl plc in
Chartered plc before which she held a
Career experience: Royal Dutch Shell
January 2006 and he retired from the board
number of roles at UBS Limited over a 22-
(2006 to 2015), where Alison’s most
of Bunzl plc on 31 December 2019.
year period, prior to which she qualified
recent executive role was Executive
as a solicitor. She stepped down as a
Vice President Upstream International
non-executive director at Brewin Dolphin
Unconventionals. Prior to that she spent 17
Holdings plc in February 2021.
Current directorships/business interests:
Kath is a non-executive director at
RSA Insurance Group plc and chair of
the remuneration committee. She is
a non-executive director at Columbia
Threadneedle Investments where she
years with Schlumberger, an international
supplier of technology, integrated project
management and information solutions to
the oil and gas industry.
Current directorships/business interests:
Brian was appointed as a non-executive
director and member of the audit
committee of Ferguson plc in January
2021. He is a non-executive director of
ConvaTec Group Plc and a member of
its audit and risk committee and chair
Current directorships/business interests:
of its remuneration committee. He is an
Alison is a non-executive director and
independent non-executive director of
chair of the remuneration committee at
United Utilities Water Limited.
chairs the TPEN audit committee and a
Meggitt PLC and a part-time executive
non-executive director of TP ICAP Group
chair at Silixa Ltd. In February 2021
Plc. She is an independent non-executive
she was appointed as a non-executive
director of United Utilities Water Limited.
director of Technip Energies NV. She is
Specific contribution to the company’s
long-term success: Kath’s broad board
an independent non-executive director of
United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Brian contributes
his considerable expertise in finance
to the company primarily through the
important roles as chair of both the audit
committee and the treasury committee,
experience enables her to contribute to
Specific contribution to the company’s
which are important in overseeing the risk
board governance and risk management
long-term success: Alison’s understanding
management of the group. The industry
at United Utilities.
of the operational challenges of large
knowledge he has gained over the eight
capital projects and the benefits of
years he has been a board member enabled
deploying technology provides valuable
him to focus on, and contribute to, key risk
insight into addressing the longer-term
areas during the regulatory price review
strategic risks faced by the business. Her
process for the 2020–25 regulatory period.
role as the designated non-executive
director for workforce engagement
will provide the board with a better
understanding of the views of employees
and greater clarity on the culture of the
company.
Paulette Rowe
Independent
non-executive
director
Doug Webb
Independent
non-executive
director
AN
AN
Responsibilities: To challenge
constructively the executive directors
and monitor the delivery of the strategy
within the risk and control framework set
by the board.
Qualifications: MEng + Man (Hons), MBA.
Appointment to the board: July 2017.
Skills and experience: Paulette has spent
most of her career in the regulated finance
industry and so provides the board with
additional perspective and first-hand
regulatory experience. Her experience
of technology-driven transformation will
contribute to United Utilities’ customer
experience programme and its Systems
Thinking approach.
Career experience: Previously held senior
executive roles in banking and technology
at Facebook, Barclays and the Royal Bank
of Scotland/NatWest. Former trustee and
chair of children’s charity The Mayor’s Fund
for London.
Current directorships/business interests:
CEO of Integrated and Ecommerce
Solutions and member of the Paysafe
Group executive since January 2020.
Paysafe, a former FTSE 250 company, is
now privately owned by PE firms CVC and
Blackstone. She is an independent non-
executive director of United Utilities Water
Limited.
Specific contribution to the company’s
long-term success: Paulette’s wide-ranging
experience in regulated sectors, profit
and loss management, technology and
innovation enables her to provide a first-
hand contribution to many board topics of
discussion. In her current executive role she
often faces many of the same issues, and
has been able to provide support to senior
management at United Utilities.
Responsibilities: To challenge
constructively the executive directors
and monitor the delivery of the strategy
within the risk and control framework set
by the board.
Qualifications: MA Geography and
Management Science, Chartered
Accountant (FCA).
Appointment to the board: September
2020.
Skills and experience: Doug has extensive
career experience in finance from
qualifying as a chartered accountant with
Price Waterhouse, his executive roles
as CFO of major listed companies and
more recently through his non-executive
positions and focus on audit committee
activities.
Career experience: Doug was previously
chief financial officer at Meggitt PLC from
2013 to 2018 and prior to that, he was chief
financial officer at both the London Stock
Exchange Group plc and QinetiQ Group
plc. He is a former non-executive director
and audit committee chair at SEGRO plc,
having stepped down in 2019.
Current directorships/business interests:
Doug currently serves as a non-executive
director and audit committee chair at
Johnson Matthey plc, BMT Group Ltd and
the Manufacturing Technology Centre
Ltd. He is an independent non-executive
director of United Utilities Water Limited.
Specific contribution to the company’s
long-term success: Doug’s financial
capabilities and his experience as an audit
committee chair strengthen the board’s
financial expertise.
Board role
Chairman
Executive director
Senior independent non-executive director
Independent non-executive director
Committee membership
N Nomination committee
C Corporate responsibility committee
T Treasury committee
R Remuneration committee
A Audit committee
Chair of the committee
115
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Letter from the Chairman
The board has responsibility for the health of the company and
needs to take a long-term view, managing the conflict between
short-term interests and the long-term impacts of its decisions.
Dear Shareholder
Over the past year the board’s focus has
been has been dominated by the group’s
response to the pandemic and ensuring
the safety and support for our employees
while maintaining the delivery of services
to customers across our region. As a
regulated monopoly supplier, with a
population of 7.3 million in our region,
we need to work hard to meet the high
expectations customers have for us, both
in terms of the services we provide but also
in behaving as a responsible business in the
way in which we provide them. To do so is
crucial to the long-term success of United
Utilities.
During the period May to November 2020,
the board reviewed the impact of the
pandemic on the financial performance
of the group, including understanding the
ability of some customers facing financial
hardship to pay for our services. As a
consequence, an extension of UUW’s social
tariff arrangements were approved, to
apply until the end of the 2021/22 financial
year. At the same time, the board did not
want to jeopardise the great progress
made over the last five years in improved
• All directors are subject to annual
election at the annual general
meeting (AGM) held in July. The
board concluded, following the
completion of the evaluation of the
effectiveness of the board, that each
director continues to contribute
effectively.
• The board recommends that
shareholders vote in favour of those
directors standing for a further term
at the forthcoming AGM, as they
will be doing in respect of their
individual shareholdings.
Quick link
Schedule of matters reserved
for the board
unitedutilities.com/
corporate-governance
A copy of the Financial Reporting
Council’s 2018 UK Corporate
Governance Code can be found
at frc.org.uk
Sir David Higgins
Chairman
QUICK FACTS
•
•
•
•
Sir David Higgins met the
independence criteria as set out
in provision 10 of the 2018 UK
Corporate Governance Code (the
code) when he was appointed.
The code requires that at least half
of the board, excluding the chair,
should be non-executive directors
whom the board considers to be
independent. At United Utilities,
seven out of the remaining nine
directors are independent non-
executive directors.
The company secretary attends
all board and committee meetings
and advises the Chairman on
governance matters. The company
secretariat team provides
administrative support.
The directors’ biographies (see
pages 112 to 115) include specific
reasons why each director’s
contribution is, and continues to be,
important to the company’s long-
term sustainable success.
116
operational performance, led by Steve
Mogford and his team. Throughout
this report you will see examples of our
improved operational performance as
recognised against the benchmarks set
by our regulators. These improvements
have given the board greater confidence
of achieving regulatory outperformance
during AMP7, and support our longer-
term plans for the next asset management
period.
Governance
The past year has challenged the normal
interaction of both the board and
management. The board were kept fully
apprised of management’s actions and
changes to normal business practices
in the early stages of the pandemic. A
combination of physical meetings where
possible, in conjunction with virtual board
and committee meetings, have been held
to maintain the integrity of our governance
structure. Induction programmes for Kath
and Doug were undertaken virtually, I
know, in due course, Kath and Doug will
welcome the opportunity to visit some of
the company’s principal operational sites
and important capital projects, as will all
board members. Informal virtual meetings
have been held the evening before board
meetings, as a substitute for our usual
informal pre-board dinners. The annual
board evaluation was externally facilitated
this year, by virtual means by Independent
Audit Limited (see page 135).
Additionally, we have held a number of
virtual workshops on key topics, including:
leakage; digital strategy; diversity and
inclusion and, as a direct consequence of
the pandemic, considering the options for
new ways of working for employees across
appropriate parts of our business. These
in-depth sessions have provided board
members with a greater understanding of
these particular challenges and initiatives,
and how they are being addressed by
management. We held a strategy day
in November 2020, enabling the board
to spend time debating a number of
strategic and long-term business priorities,
an action which was identified in the
2019/20 board evaluation. A particular
focus for the day, was understanding
the plans for the Haweswater Aqueduct
Resilience Programme and Ofwat’s ‘direct
procurement for customers’ approach,
through which the programme will be
delivered.
Historically, the company’s annual general
meeting held in July each year has
welcomed a number of shareholders who
have been regular attendees, last year of
course being the exception. We are hoping
that this will be an event in the corporate
calendar that can be reinstated in the years
to come. We are however, proposing to
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE adopt new articles of association at the
forthcoming 2021 annual general meeting,
including the power to be able to hold fully
hybrid meetings should the need arise, in
line with market best practice.
In the following pages of this corporate
governance report we have set out how we
have applied the principles and reported
against the provisions of the 2018 UK
Corporate Governance Code (the code).
On page 167 we have explained our
proposals in relation to code provision 38.
Risk
The board has an agreed framework for
managing strategic and operational risks in
accordance with the agreed risk appetite.
The board regularly reviews the position
to ensure that management are managing
and mitigating risk in accordance with the
board’s agreed risk appetite. These risks
include succession planning for senior
management and asset resilience, with
particular consideration for the impacts
of climate change. The board is directly
supported in this by the internal audit and
risk management team and indirectly by
KPMG during the course of their audit of
the financial statements.
People
I would like to thank Brian May for his
excellent work and support during my first
full year as Chairman. It was announced
in May 2021, that after nearly nine years’
on the board, Brian would be stepping
down at the conclusion of the AGM in July
2021. Doug Webb, whom we welcomed
to the board in September 2020, was
recruited as an independent non-executive
director, to chair both the audit and
treasury committees on Brian’s departure.
Doug brings to the role, as required by
the code, ‘recent and relevant financial
experience’. Given the complexities of the
work of both the audit committee, and the
treasury committee particularly in terms
of the regulatory operating model, it was
felt that a handover period between Brian
and Doug covering a full audit cycle would
be particularly beneficial. Doug will also
become a member of the remuneration
committee when Brian steps down from
the board.
In September 2020, along with Doug,
we welcomed Kath Cates, as a new
independent non-executive director. Kath
brings a wealth of experience of regulated
businesses from her executive career in
financial services. Alison Goligher, who has
served as a member of the remuneration
committee since 2016, accepted the role
as chair of the remuneration committee on
Sara Weller’s departure from the board at
the conclusion of the 2020 AGM.
A combination of physical
meetings where possible,
in conjunction with virtual
board and committee
meetings, have been held to
maintain the integrity of our
governance structure.
G
O
V
E
R
N
A
N
C
E
2021 is the first annual report presented by
the board under the tenure of Phil Aspin as
CFO. As demonstrated by his biography,
Phil has many years’ experience in different
financial roles within the business, which
has undoubtedly facilitated a smooth
transition in a challenging year. Phil
succeeded Russ Houlden, who retired from
his executive responsibilities in July 2020.
Investors
We are in regular contact with our large
investors through a regular scheduled
programme of meetings attended by
either our CEO or CFO, or both. The
programme is supported by the activities
of our investor relations team who are
readily available to address investors’
queries. I, too, have had the opportunity
to engage with a number of our major
investors during the year, their feedback
was shared with my board colleagues.
ESG, and specifically our progress in terms
of diversity and inclusion were areas of
particular interest. We have sought to
respond by better articulation of our ESG
activities throughout this annual report,
including our efforts toward improving
diversity and inclusion both at board
level and across the business, and more
information can be found on pages 132 and
pages 138 respectively.
Sir David Higgins
Chairman
UK CORPORATE GOVERNANCE CODE
Reporting on the application
of principles and against the
provisions of the 2018 UK
Corporate Governance Code
1
Board leadership and
company purpose
See page 117
2 Division of
responsibilities
See page 129
3 Composition, succession
and evaluation
See page 132
4 Audit, risk and
internal control
See page 141
5 Remuneration
See page 162
117
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021 Corporate governance report
1
Board leadership
and company
purpose
Principle A:
A successful company is led by an
effective and entrepreneurial board,
whose role is to promote the long-term
sustainable success of the company,
generating value for shareholders and
contributing to wider society.
We set out our application of principle A
and provision 1 on pages 118 and 119, our
reporting against risk as part of provision
1 on pages 100 to 109. The S172(1)
Statement is on page 28.
Principle B:
The board should establish the
company’s purpose, values and
strategy, and satisfy itself that these
and its culture are aligned. All directors
must act with integrity, lead by example
and promote the desired culture.
The board is satisfied it has applied
principle B - see page 2. See pages 125
to 126 and 172 for our reporting against
provisions 2 and 5.
Principle C:
The board should ensure that the
necessary resources are in place for
the company to meet its objectives
and measure performance against
them. The board should also establish
a framework of prudent and effective
controls, which enable risk to be
assessed and managed.
Application of principle C to identify the
resource within the business is delegated
to management, but monitored by the
board through the measurement of
performance. See page 137 regarding our
succession pipeline, and page 141 for the
board’s approach to risk management
and internal control.
Principle D:
In order for the company to meet
its responsibilities to shareholders
and stakeholders, the board should
ensure effective engagement with, and
encourage participation from, these
parties.
Engagement of stakeholders fulfilling
the application of principle D, and our
reporting against provision 3 is set out
on pages 127 to 128 in relation to our
engagement with shareholders and
stakeholders.
Principle E:
The board should ensure that workforce
policies and practices are consistent
with the company’s values and support
its long-term sustainable success. The
workforce should be able to raise any
matters of concern.
Our application of principle E can be
demonstrated by our approach to
ensuring the safety of our employees
during the pandemic (see page 45) and
our reporting against provision 6. The
board recognises the importance of a
two-way flow of communication and
the importance of employees having the
facilities to raise matters of concern. See
page 126 to 127 in relation to engagement
with employees for our reporting against
provisions 5 and 6.
OVERVIEW OF THE BOARD’S RESPONSIBILITIES
• Sets the strategy of the group,
•
ensuring the long-term success of
the group for customers, investors
and wider stakeholders.
Is responsible for challenging
and encouraging the executive
team in its interpretation and
implementation of how it manages
the business, and that it is doing
so in accordance with the strategic
goals the board has set.
• Has responsibility for ensuring the
company’s internal control systems
(including financial, operational
and compliance) and processes are
sound and fit for purpose (see pages
154 to 155).
• Must ensure that the company has
the necessary financial resources
and people with the necessary skills
to achieve its objectives. It reviews
managerial performance annually.
• Approves appointments to and
removal from the board and
membership of the committees.
• Applies the principles of the code
and reports against the provisions.
• Has oversight of major capital
expenditure projects within UUW that
exceed £150 million, and any project
which materially increases the group’s
risk profile or is not in the ordinary
course of the group’s business.
Quick link
Terms of reference – unitedutilities.
com/corporate-governance
118
Providing great water and
more for the North West
Thinking about the ‘more’
Board members, individually and
collectively, are cognisant of their statutory
duties as set out in the Companies Act
2006 (the Act). In accordance with section
172 of the Act, directors are individually
required to act in the way they consider, in
good faith, would most likely be to promote
the success of the company for the benefit
of its members as a whole. In doing so, the
directors must have regard to the likely
consequences of any decision in the long
term and the interests of, among other
matters, employees, customers, suppliers,
the community and the environment, and
on the company’s reputation. By virtue
of the long-term nature of the water and
wastewater industry, thinking about our
stakeholders is an integral part of our
decision-making process and underpinned
by our regulatory contract. The board’s
2020/21 S172(1) Statement can be found on
page 28.
Incorporating sustainability
in our stewardship
Historically, a board’s success criteria has
primarily been judged on the company’s
financial performance and while this is
still fundamental, boards of companies
are now encouraged to adopt a more
holistic approach to their stewardship.
It is the responsibility of the directors to
exercise their judgement, balancing the
use of the company’s resources to ensure
its sustainable long-term success, and at
times, the requirements and criteria for
assessing our success by our different
stakeholder groups will be in competition.
Sustainability is a key component of the way
in which we manage our business. We set
out on page 32 how we create value for our
shareholders and other stakeholders. Our
board governance ethos, our culture and the
way we operate as a business is to behave
responsibly towards all our stakeholders.
Consideration of our AMP7
dividend policy
During the year, the board took the time to
review the AMP7 Dividend Policy. In light of
the extraordinary circumstances, we wanted
to ensure we had a better understanding of
the impact of COVID-19 on the financial and
operational performance of the business
and on the impact of the macroeconomic
environment. The board consulted investors
and advisers to fully understand their
expectations and likely market reactions to
different scenarios and indeed the implication
of the board taking the extra time to formulate
its decisions. Taking all factors into account
and with a view to the promotion of the long-
term sustainable success of the company, the
board confirmed the AMP7 dividend policy in
the half-year results in November 2020.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Being a guardian for future
generations
Environmental issues are high on the list
of matters considered by the board. The
corporate responsibility committee takes
the lead in overseeing management’s
development of our climate change
mitigation strategy, and reports regularly
to the board on the matter. Plans are
progressing to drive the group’s transition
to a low carbon future by minimising our
contribution to global warming through a
reduction in our carbon emissions. Carbon
has been incorporated as a factor to be
considered in:
• our investment appraisal and decision-
making processes;
• our land management practices to
enhance/improve natural capital
•
the innovation that we encourage
both within our operations and
through working with our partners and
suppliers; and
• our implementation of a ‘circular’
mindset.
The board is kept fully informed by
management on the impacts of climate
change from an operational perspective.
Extreme weather events impacting our
region and our operations in recent years
are increasingly common. When such
incidents occur, the CEO keeps board
members fully apprised of the impact on
operations via conference call and other
forms of communication. The board would
be informed of any material points of
learning identified in the post-incident
review process, and progress with the
implementation of material actions. Our
reporting against TCFD can be found on
pages 86 to 99.
Working with our regulators –
responding responsibly to the
‘green recovery’ in our region
As a business, we are aware of the
importance of our financial contribution
to the north west economy. The board
was keen to respond to the Government’s
green recovery challenge and play our
part, by putting forward a programme of
work that we believe is achievable and
which will not generate an unnecessary
risk for the company. Consideration of our
green recovery proposal is included in the
statement by the directors in performance
of their statutory duties in accordance with
S172(1) of the Act set out on page 28.
Diversity and inclusion
We recognise that we need fantastic people
to enable us to deliver a great service now
and to ensure the long-term sustainable
success of the business. We have to
reach and recruit from every part of our
community and to support our employees
to achieve their full potential and feel valued
and included, regardless of their gender,
age, race, disability, sexual orientation or
social background. We acknowledge that
it will be a challenge to make significant
step changes quickly in the workforce with
low levels of attrition, regional variations in
demographics and difficulties in recruiting
females to STEM roles.
Working with a specialist inclusion partner
we have updated our employee diversity and
inclusion plan to drive our changes. We plan to
set targets for the next 12 months based on the
implementation of enabling activities before
moving to comprehensive representation
targets once we have understood our
employee data and we will assess our
progress with a further maturity audit.
Delivering against our
regulatory contract
Under the current regulatory model, we
are a monopoly supplier of water and
wastewater services to our domestic
customers. Simplistically, the opportunities
for improving our financial performance
are based on outperforming our five-year
contract. Underlying this is a complex set
of regulatory key performance indicators,
including total expenditure (totex)
outperformance, the outcome delivery
incentive mechanism (ODI), customer
measure of experience (C-MeX) and
financing expenditure (see pages 50 to 73)
which are managed and monitored by the
business.
119
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Governance structure for our
board and our committees
The board has responsibility for establishing
the strategy, which is broken down into the
three strategic themes. The governance
structure encompassing the board, its
principal committees and the principal
management committees (and set out in the
diagram below) contributes to ensuring that
the group focuses on its strategic themes.
In line with the code, the board delegates
certain roles and responsibilities to
its principal board committees. While
the board retains overall responsibility,
a sub-committee structure allows
these committees to probe the subject
matters more deeply and gain a greater
understanding of the detail. The committees
then report back to the board on the
matters discussed, decisions taken, and,
where appropriate, make recommendations
to the board on matters requiring its
approval. The reports of the principal
board committees required by the code
can be found on the subsequent pages.
Minutes of the board and principal board
committee meetings (with the exception
of the remuneration committee) are tabled
at board meetings and the chairs of each
of the board committees report verbally to
the board on their activities. The Chairman
chairs the nomination committee; all other
principal board committees are chaired
by independent non-executive directors
who have particular skills or interests in the
activities of those committees.
The executive team is chaired by the CEO,
and its members are the senior managers
who have a direct reporting line to the CEO.
Our executive team meets monthly; it is
responsible for the day-to-day running of
the business and other operational matters
and implementing the strategies that the
board has set. Short biographies of the
executive team can be found on our website
at unitedutilities.com/executive-team.
The diagram below shows the principal
management committees and a brief
description of their roles. These committees
are vital to the implementation of the
group’s strategic themes. These committees
enable senior management to meet to
understand, delegate the implementation of
appropriate actions, and monitor progress
and provide challenge as needs be. The
board received reports from the CEO and
CFO at every scheduled meeting, providing
an updated overview of the business, and its
financial and operational performance.
Governance structure of the board and its principal committees and the principal management committees
Group board
Chair: Sir David Higgins
Chief Executive Officer
Steve Mogford
Principal management committees
Executive team
Chair: Steve Mogford, CEO
This forum is responsible for implementing the board’s strategy
and the day-to-day operation of running the business and the
CEO will cascade decisions made by the board to the business
via this forum.
Group audit and risk board
Chair: Steve Mogford, CEO
Read more on
page 101
Quarterly business review
Chair: Steve Mogford, CEO
This forum is responsible for the quarterly review of
operational, financial and health and safety performance.
Political and regulatory group
Chair: Gaynor Kenyon, corporate affairs director
This forum is responsible for discussing political and
regulatory issues affecting the company, where any ‘horizon
scanning’ issues are raised and business responses to
consultations are agreed.
Capital investment committee
Chair: Steve Mogford, CEO
The committee is responsible for authorising expenditure
relating to the capital investment programme.
Key to strategic themes:
The best service to customers
At the lowest sustainable cost
In a responsible manner
Principal board committees
Audit committee
Chair: Brian May
Read more on
pages 144 to 155
Remuneration committee
Chair: Alison Goligher
Read more on
pages 160 to 189
Nomination committee
Chair: Sir David Higgins
Read more on
pages 130 to 140
Corporate responsibility committee
Chair: Stephen Carter
Read more on
pages 156 to 159
Treasury committee
Chair: Brian May
The committee considers and approves borrowing, leasing,
bonding and other banking facilities within limits set by the
board. The CFO and treasurer are also members. Some powers
are sub-delegated, within certain limits, to the CFO and treasurer.
Read more on
page 125
120
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
Summary of board activity in 2020/21
Actions
Leadership and employees
Outcomes
Cross
reference
Link to strategic
themes
Review of health, safety and wellbeing activities
and consideration of health and safety incidents of
employees and contractors.
Review of board succession plans.
Reviewed progress with our aspiration for a diverse
and inclusive workforce.
Reviewed and discussed the results of the annual
employee engagement survey and received
updates on employee voice workforce engagement
mechanisms including the Employee Voice panel
chaired by Alison Goligher, the non-executive director
designated for engagement with the workforce.
Reviewed the company's dashboard of culture
metrics and associated analysis.
Strategy
Discussed and reviewed the climate change mitigation
strategy and the proposals to set Scope 3 carbon
emissions targets.
Reviewed the financial implications of the
COVID-19 pandemic on the business and the
impact on the company’s dividend policy for the
2020–25 asset management period.
Received regular updates at each meeting of
items with a strategic component, such as
emerging changes to regulation, major capital
expenditure and business structuring decisions.
Continued focus on the ‘home safe and well’
programme embedding a health and safety culture
within the business. Further development and
implementation of employee wellbeing policies
and activities has been a major focus throughout
the year.
Succession plans for the appointment of two non-
executive directors were implemented during the
year.
Board kept apprised of programme of work to
increase diversity of the workforce and improve
inclusivity.
Board kept informed of the activities and insight
provided by the Employee Voice panel and
links to employee network groups including its
contribution to the work on diversity and inclusion
and the next ways of working project.
See pages 24
and 32
See page 132
See pages 138
to 140
See page 126
Monitored and assessed culture and agreed
it was aligned with the company's purpose,
values and strategy.
See page 125
Approved the setting of Scope 3 carbon emissions
targets as part of the group’s commitment to
reducing carbon emissions and in accordance with
our Climate Change Mitigation Policy.
See page 28
Re-affirmed the company’s dividend policy for the
2020–25 asset management period.
See page 28
Facilitated more informed board discussion and
planning.
Considered the non-appointed business strategy
for the bioresources market for sewage sludge and
development of a northern hub and strategy for
green energy services.
Agreed an action plan to progress initial steps
to develop a northern hub for sewage sludge
treatment and reviewed the strategy for green
energy services.
Held a full day meeting to consider the strategic
development of the group and its long term priorities.
In-depth review of the Haweswater Aqueduct
Resilience Programme and direct procurement
for customers approach, water and wastewater
strategy and the 2025–30 price review.
Governance
–
–
–
Reviewed and debated the overall risk profile of the
group, and in particular the principal risks, emerging
risks and risk appetite, including a review of the most
significant operational risks.
Endorsed the nature, extent and management of key
business risks and endorsed the view that the risk
appetite approach and framework remained fit for
purpose.
See page 100
Reviewed the risk management systems, including
financial, operational and compliance controls and
reviewed the effectiveness of the internal control
systems.
The risk management and internal control systems
were considered to be effective.
See page 141
121
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Actions
Outcomes
Cross
reference
Link to strategic
themes
Reviewed and discussed developments in
cyber crime.
Approved the activities undertaken to enhance the
effectiveness of the group’s security controls.
See page 106
Reviewed the terms of reference for the audit,
remuneration, treasury and corporate responsibility
committees and received post-meeting reports
from the chairs of each committee summarising
discussions and actions.
Reviewed biannual updates on changes and
developments in corporate governance.
Reviewed and discussed the external evaluation of
the board, its committees and individual directors
and conflicts of interest.
Approved amendments to the terms of reference
of the company’s committees as recommended
particularly relating to the 2018 code.
–
Matters implemented as considered appropriate.
–
Identified action points and any ongoing training
needs.
See page 135
Reviewed the performance of the statutory auditor
and recommendation for reappointment at the 2021
AGM.
Accepted the recommendation from the audit
committee that KPMG be reappointed at the 2021
AGM.
See page 151
Reviewed the approach and progress of work to
identify areas where there is any risk of modern
slavery occurring in our supply chain.
Reviewed the effectiveness of the whistleblowing
policies and processes and incidents under
investigation and noted the activities within the
business to prevent and detect fraud.
Considered a reduction in the base remuneration
of the Chairman and the executive directors in light
of the COVID-19 pandemic.
Approved the 2021/22 slavery and human
trafficking statement.
See page 195
Concluded that the whistleblowing policies and
processes were effective and noted the activities
within the business to protect and detect fraud.
See pages 127
and 155
Agreed to apply a 20 per cent reduction to
base fee/salary for the Chairman and executive
directors for a 3 month period, with funds to be
donated to FareShare.
See page 161
United Utilities Water Limited (UUW) regulated business and its stakeholders
Regular review of the progress of the direct
procurement approach and readiness ahead of the
expected tender issue date of 2021/22 to replace
sections of the Haweswater Aqueduct.
Noted the successful completion in November 2020
of the replacement of the Hallbank section of the
Haweswater Aqueduct, as a preliminary stage of the
programme.
See page 190
Reviewed customer service performance
measures.
In-year customer performance measures monitored
against regulatory targets.
See page 57
Considered an approach from Defra to propose to
accelerate investment to deliver ‘green’ initiatives
that would both benefit the environment and
support the economic recovery from the COVID-19
pandemic.
Approved and proposed a plan of work to Ofwat.
See page 28
122
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
Actions
Other group business
Outcomes
Cross
reference
Link to strategic
themes
Considered the offer from the City of Tallinn to
dispose of the group’s 35.3 per cent shareholding in
AS Tallinna Vesi, the water and wastewater services
company serving customers in Tallinn, Estonia.
Regular review of progress of Water Plus, the
group’s joint venture with Severn Trent serving
commercial customers.
Shareholder relations
Received and discussed a presentation by Rothschild
Investor Advisory on investors’ views and perceptions
of the group in relation to, among other things:
strategy; the group’s unique selling proposition;
dividend policy; and how the company compares
with other listed water and wastewater companies.
Regularly received and discussed feedback from
roadshows, presentations and face-to-face meetings
between investors and the Chairman, CEO and/or
the CFO and other communications received from
large investors.
Financial
Approved the disposal of the group’s 35.3 per cent
shareholding in AS Tallinna Vesi.
See page 153
Approved the restructuring and increase in working
capital facilities, aligning with those provided by
Severn Trent the joint venture partner, reflecting the
challenges to the business relating to the COVID-19
pandemic.
See page 153
Provided the board with an indirect view of investor
perceptions.
See page 127
Provided the board with a direct view of investor
perceptions and provided a point of comparison
with the indirect approach.
See page 127
Reviewed the AMP7 dividend policy in light of the
uncertainty associated with the COVID-19
pandemic.
After consideration, the board reaffirmed the AMP7
dividend policy, targeting a growth rate of CPIH
inflation each year through to 2025 as announced
in November 2020.
See page 28
Reviewed the 2020–25 business plan and the
2021/22 budget.
Noted the 2020–25 business plan and approved
the 2021/22 budget.
–
Reviewed and approved the half and full-year
results and associated announcements and
applicable dividend payments.
Approved the half and full-year results and
associated announcements and considered and
approved the interim and final dividend payments to
be paid to shareholders.
–
Reviewed management's proposed going concern
and long-term viability statement.
Approved the going concern and long-term
viability statement.
Reviewed tax policies and objectives proposed by
management for 2020/21.
Approved tax policies and objectives for
2020/21.
See pages 142
to 143
See page 190
Reviewed the annual pensions update.
Reviewed the annual treasury update.
Pensions strategy affirmed and endorsed the
preferred methodology for Guaranteed Minimum
Pension equalisation.
See page 230
Approved the treasury policies; the group’s funding
requirements for the year and the potential sources
to meeting these funding requirements; and
managing the group’s interest rate and other
market risk exposure.
See pages 79
and 125
Reviewed the annual insurance programme for
2021/22.
Approved the annual insurance programme
for 2021/22.
–
Reviewed progress with material litigation
involving the group.
Strategy to defend claims robustly affirmed.
See page 109
123
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Attendance at board and committee meetings
Eight scheduled board meetings were planned and held during the year (2020: eight). A number of other board meetings and telephone
conferences were held during the year, as the need arose. The table below shows the number of scheduled meetings attended and the
maximum number of scheduled meetings that the directors could have attended. Only in exceptional circumstances would directors not
attend board and committee meetings. Similarly, every effort is made to attend ad hoc meetings either in person or via the use of video or
telephone conferencing facilities if needs be. None of our non-executive directors has raised concerns over the time commitment required
of them to fulfil their duties. Scheduled meetings are normally held face- to-face, but due to the COVID-19 restrictions, meetings were held
remotely via audio or video conference.
On the evening before most scheduled board meetings all the non-executive directors meet either by themselves, or together with just
the CEO, or with the entire board and the company secretary, and this time is usefully spent enabling board colleagues to share views
and consider issues impacting the company. This year, these informal pre-board meeting sessions have been held virtually, and were felt
to be particularly useful for Kath and Doug as part of their familiarisation with the company and provide time for board members to build
relationships on a personal level, contributing to better board dynamics and decision-making.
Board
meetings1
Audit
committee
Remuneration
committee
Nomination
committee
Corporate
responsibility
committee
Treasury
committee
Sir David Higgins
8
8
Steve Mogford
Phil Aspin
Mark Clare
Stephen Carter
Kath Cates
Alison Goligher
Brian May
Paulette Rowe
Doug Webb
Russ Houlden
Sara Weller
8
8
4
4
8
8
8
8
4(2) 4
8
8
8
8
8
8
4(4) 4
4(5) 4
4(6) 4
4 4
4 4
4 4
5 5
5 5
5 5
1 1
5 5
5 5
4(3) 5
1 1
2 2
3 3
1(5) 1
5 5
3 3
5 5
5 5
4 4
4 4
4 4
4 4
2(6) 2
4(6) 4
Meetings attended
Possible meetings
(1) Actual number of meetings attended/maximum number of scheduled meetings which the directors could have attended during the financial year
ended 31 March 2021.
(2) Kath Cates was appointed to the Board on 1 September 2020.
(3) Paulette Rowe was unable to attend one nomination committee meeting due to other commitments.
(4) Doug Webb was appointed to the Board on 1 September 2020.
(5) Russ Houlden stepped down from the board at the AGM in July 2020.
(6) Sara Weller stepped down from the board at the AGM in July 2020.
124
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Treasury committee
Treasury management is fundamental to the
group’s operating model. In the first instance,
the group’s treasury activities are overseen
by the treasury committee, which operates
under terms of reference and delegated
authorities approved by the board.
The chairman of the audit committee,
always an independent non-executive
director, has historically chaired the treasury
committee, given the synergies with the
work of the audit committee and the need
for financial expertise. Brian May chairs
the committee, the other members of the
committee are the CFO and the group
treasurer, with the company secretary in
attendance at committee meetings. Since
his appointment, Doug Webb has attended
meetings of the committee, with a view to
him taking over as chair when Brian steps
down from the board in July 2021.
The committee’s work relates to:
•
review of the group’s treasury policies in
relation to: financing; liquidity; hedging
of market risks (interest rates; inflation;
currency and electricity hedging);
financial counterparty credit risk; credit
ratings and capital structure;
• execution of the financing plan and
evaluation of funding opportunities;
•
liquidity management and review of
forecasts;
• execution of hedging transactions
and programmes in relation to the
management of market risks in
accordance with treasury policy
parameters;
• developments in relation to the credit
ratings agencies;
• creditor investor relations;
• banking relationships;
•
•
treasury delegated authorities, internal
controls and governance; and
reporting to the board on matters
relating to the group’s treasury
activities, including board approval
of the annual treasury update and
associated financing plan and board
delegated authorities.
During the year, with the board’s
endorsement, the committee oversaw the
successful execution of a funding programme
which raised approximately £900 million
of new term funding, with financial market
conditions being closely monitored as
policymakers responded to prevailing
COVID-19 pandemic related uncertainties.
This funding programme has positioned the
group well with regard to its circa £2.4 billion
financing requirement across the AMP7
regulatory period. The committee evaluated
the group’s long-term financing strategy
beyond the current regulatory period.
The committee reviewed the group’s
preparations with regard to the transition of
benchmark reference rates from GBP LIBOR
to replacement ‘risk free rates’ (with SONIA
replacing GBP LIBOR with effect from
the end of 2021), and oversaw the group’s
management of its interest rate and inflation
hedging programmes, including further
transitioning the mix of the group’s inflation
hedging to CPI and CPIH from RPI-linked.
Following approval by the treasury
committee, the group launched its
sustainable finance framework in November
2020, and issued its debut sustainable bond
in January 2021 (see page 70). Details of the
group’s engagement with banks and credit
investors can be found on page 128.
Alongside the other committees, the
members of the treasury committee
undertook a self-evaluation in December
2020. The responses, which were reviewed
by Independent Audit Limited, indicated
that the committee was effective, and
its members had appropriate skills and
experience.
Purpose, values and strategy
Our purpose is to provide great water and
more for the North West. Our vision is
to be the best UK water and wastewater
company through providing the best
service to customers, at the lowest
sustainable cost and in a responsible
manner. In setting the company’s purpose,
the board took into account information
and views from stakeholders, utilising
much of the research and engagement that
contributed to our 2020–25 business plan
submission and feedback obtained from
customers as part of the company’s brand
refresh undertaken during 2019/20. For
the year ended 31 March 2021, the board
is satisfied that the formulation of our
aspirations in terms of our purpose, values
and culture have been informed by our
stakeholders and we operate our business
in such a way that will create long-term
value for all.
Our values demonstrate how we behave
individually and collectively as the board
and how we ask our employees to behave.
Our employees are fundamental to
delivering our strategy and achieving our
purpose. Our values of being customer
focused, trustworthy and innovative
underpin our culture of behaving as a
responsible business in the way we interact
with all the stakeholders we serve. We
must continually reinforce these values
so that the right behaviours cascade
throughout the organisation, ensuring our
culture of behaving responsibly drives
what we do. Key to this is taking action
to address any issues where there is
1
2
3
Dashboard
of culture
metrics
Existing
reporting
structures for
discussion
Alignment
with purpose,
values and
strategic
themes
In addition to the existing reporting, management has developed a dashboard of culture metrics in
accordance with the Denison Culture Model, providing a comprehensive overview to support the
board in fulfilling its role in monitoring and assessing culture. The dashboard comprises relevant
metrics derived from: the annual employee engagement survey; human resources policies in relation to
diversity and associated training; whistleblowing reporting; health, safety and wellbeing policies and
practices; and other key performance indicators relating to how we behave as a responsible business.
There are a number of existing reporting structures that allow these cultural indicators to be measured,
discussed and challenged by the board and its committees.
The board was satisfied that policies, practices and behaviours within the business were aligned with
the company’s purpose, values and strategic themes.
125
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
EMPLOYEE VOICE PANEL
Outcomes from the work since the
panel was established to strengthen
the ‘employee voice’ in the
boardroom include:
•
the transfer of the governance of
the annual employee survey to
the Employee Voice panel. The
panel enhanced the underlying
anonymity of the survey for
employees and provided more
opportunities to provide free
text comments. Survey questions
were updated to reflect key
topics, including: wellbeing;
inclusivity; and working
differently;
• additional administrative and
communications resource made
available for network groups and
executive sponsors identified;
and
• panel members sought
colleagues’ views to contribute
to the ‘next ways of working’
project, the ‘home safe and well’
project and the ‘diversity and
inclusion’ audit.
126
Alison chairs the Employee Voice panel (the
panel) formed from representatives of a
number of employee groups and employee
networks from within the business and
with representatives drawn from across
the geographical region. Alison has met
the panel virtually four times throughout
the year, it was recognised that the panel
needed to meet more frequently during
such a challenging period.
misalignment with the company’s culture.
As well as our engagement survey we
run regular employee barometers to ask
employees what they are seeing, hearing
and feeling. This approach allows us to act
quickly if there are any areas of
misalignment and take immediate action.
Culture and employee engagement
Our employees are at the heart of the
culture of our business and further insight
and evidence, as part of the board’s
assessment and monitoring of culture, has
been gathered, and fed back to the board
by Alison Goligher, the current designated
non-executive director for engagement
with the workforce.
Employee Voice panel
The board
Employee networks
groups:
• Multicultural
• GENEq
• Armed Forces
• LGBT Identity+
• Ability
Employee Voice panel
Chair: Alison Goligher (non-executive director)
Employee champion
groups:
• Health, safety and
wellbeing champions
• Engagement
champions
• Colleague
engagement group
• Career development
forums
Early careers and
managers:
Union partners:
• The Early Careers
• UNISON
Board
• Aspiring managers
• Apprentices
• Graduates
• Bands 3 and 4
managers
• Unite
• GMB
• Prospect
Members of the panel rotate approximately
every two years. There is an open invitation
to all board members to attend meetings of
the panel. When the panel was established,
the intention was to hold physical
meetings, rotating around different
operational and office locations, in order
to encourage participation and enable
colleagues to get a different perspective
on working for the company; and enabling
Alison to have first-hand experience of
different company sites and gain a view
of the company at ‘grass-roots’ level.
However, due to the pandemic, all four
meetings were held virtually. This did prove
to be particularly beneficial to colleagues
in operational roles, who found it much
easier to attend panel meetings. Terms of
reference were agreed when the panel was
established along with the way in which
the panel would operate. Such mechanisms
will be reviewed in due course, particularly
in relation to whether meetings will be held
virtually.
Sub-groups, made up of panel members,
have focused on specific aspects of the
business, including cross-networks, culture
and the employee engagement survey,
providing updates at each meeting. The
culture sub-group has focused its energies
on obtaining a grass-roots view of changes
to ways of working during the pandemic
and contributing to the ‘next ways of
working’ project and on the discussion
of topical issues relating to culture, such
as the focus on racial inequality. As part
of the two-way communication, Alison
provides updates to the panel from the
perspective of the board and the corporate
responsibility committee and she similarly
provides feedback to the board and the
committee on the work of the panel.
Listening to our employees
Employees’ views are measured annually
through the employee engagement
survey with the objective of taking any
required action to improve how permanent
employees feel about the company and
understand its direction. Employees
are provided with information through
briefings and access to online materials,
to enable them to understand the financial
and economic factors affecting the group’s
performance. Along with our employee
relations team, our CEO holds regular
face-to-face meetings with senior trade
union representatives to facilitate two-way
communication and engagement with the
views of employees’ representatives.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
The group has a commercial arrangement
with a third party for the provision of agency
staff and contractors. Engagement and
communication in relation to their work
with the group for these members of the
wider workforce is managed directly by
the third party via a dedicated third party
account manager who liaises directly with
the company’s human resources team. If
there is any significant change activity, a
representative of the third party joins the
project team, thereby ensuring consistency
when communicating key information to
employees, agency staff and contractors.
During the year, a virtual all employee
engagement day was held which was very
well received by those who attended.
Set out on page 34 is the company’s
approach to our engagement with and
creating value for employees, with health,
safety and well-being a priority. Furthermore,
an explanation of the company’s approach
to rewarding the workforce can be found in
the report of the remuneration committee on
page 172.
Whistleblowing policy
The following sets out the company’s
compliance with code provision 6.
As part of our two-way communication the
board has responsibility for reviewing the
group’s arrangements for individuals to raise
matters of concern and the arrangements
for the investigation of such matters. The
group’s whistleblowing policy (the policy)
supports the culture within the group
where genuine concerns may be reported
and investigated without reprisals for
whistleblowers. A confidential telephone
helpline and a web portal are available
to enable employees (including agency
workers and contractors) to raise matters of
concern in relation to possible incidents of
fraud, dishonesty, corruption, theft, security
and bribery. Furthermore, employees are
encouraged to raise any matters relating
to health and safety and any activities
of the business that have caused or may
cause damage to the environment, such as
pollution or other contamination. Both the
helpline and web portal are operated by
a third party, enabling any concerns to be
reported anonymously. The policy states that
no employee will be victimised for raising
a matter in accordance with the policy.
Matters raised with the helpline/portal are
in the first instance raised with the relevant
director and investigated by senior managers
independent of any involvement of the issues
being considered. Details of the findings
of the investigation and proposed solution
are considered by the whistleblowing
committee (whose membership comprises
the company secretary, customer services
and people director, head of internal audit
and commercial director) and which meets
quarterly. The board routinely reviews
matters considered by the whistleblowing
committee, the outcome of the investigation
and the ways in which the matters were
brought to a conclusion, thus ensuring that
the core value of integrity is upheld and
fostering an environment where employees
feel it is ‘safe to speak up’ and to do so
without fear of reprisal.
Board engagement with shareholders
and other stakeholders
The board as a whole accepts its
responsibility for engaging with
shareholders and is kept fully informed
about information in the marketplace
through the following channels:
• The investor relations adviser produces
an annual survey of investors’ views
and perceptions about United Utilities,
the results of which are presented and
discussed by the board;
• The board receives regular updates
and feedback on investor meetings
involving the CEO, CFO and/or
investor relations team and reports
from sector analysts to ensure that the
board maintains an understanding of
investors’ priorities; and
• The executive and non-executive
directors are available to meet with
major shareholders and institutional
investors. When revising the directors’
remuneration policy, the chair of
the remuneration committee invited
engagement from the company’s major
shareholders. Feedback from any such
engagement would be shared with all
board members.
Institutional investors
As well as current investors, we engage
actively with institutional investors who do
not currently hold shares in United Utilities,
as we are keen to ensure our business is
well understood across the investment
community, and to hear and discuss the
views of all investors.
We have an active investor relations
programme, which includes:
• An invitation to major shareholders to
meet with the Chairman;
• A regular schedule of meetings
between the CEO and CFO and
representatives from our major
shareholders, supplemented with
meetings hosted by our investor
relations team;
•
Presentations by the CEO and CFO
to groups of institutional investors,
both on an ad hoc basis and linked
to our half and full-year results
announcements and at our ‘Capital
Markets Days’;
INVESTOR DIALOGUE WITH
THE CHAIRMAN
During the year the Chairman met
virtually with representatives from
a number of institutional investors.
Common themes from these
discussions were as follows:
• encouraged by the group’s early
adoption of TCFD disclosures,
updates sought on the outcome
of science-based target setting to
deliver carbon pledges to net zero
by 2030;
• making progress on diversity and
inclusion within the business
• board succession; and
• comparisons with the group’s
listed peers.
•
The programme covers a range of
major global financial centres, typically
including the UK, Europe, North
America and the Asia Pacific region;
• Regular feedback is provided to the
board on the views of our institutional
investors following these meetings; and
• Close contact is maintained between
the investor relations team and a range
of City analysts that conduct research
on United Utilities.
In 2020/21, all our investor relations activities
were conducted virtually. We met or offered
to meet with 81 per cent (2019/20: 82 per
cent), by value, of the active targetable
institutional shareholder base (after adjusting
for shareholders who do not typically meet
with companies, such as indexed funds).
Frequent areas of common interest
arising in meetings with investors
include operational and environmental
performance, customer service, capital
investment, efficiency initiatives, regulatory
performance, regulatory changes and
ESG matters. Investors are always keen
to observe financial stability and are
interested in: the level of gearing versus
regulatory assumptions; cost of finance;
our debt portfolio and debt maturity
profile; future financing requirements; and
dividends. Investors are keen to understand
how the company is performing relative
to the price review allowances and
targets each year, along with the potential
implications of regulatory change.
127
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Retail shareholders
Despite the privatisation process being
around 30 years ago, we have retained a
large number of individual shareholders
with registered addresses in the North
West – in fact, over 50 per cent of registered
shareholdings on the share register. We
have historically held our AGM in our
region in Manchester, which enables our
more local shareholders, many of whom
are customers, to attend the meeting. A
resolution is being proposed to shareholders
at the 2021 AGM to amend the articles of
association to allow for ‘hybrid’ general
meetings to be held. There is a considerable
amount of information on our website, which
provides information on our key social and
environmental impacts and performance
during the year. Together with the annual
and half-yearly results announcements, our
annual report and financial statements are
also available on our website; these are the
principal ways by which we communicate
with our retail shareholders. Our company
secretariat and investor relations teams,
along with our registrar, Equiniti, are on
hand to help our retail shareholders with any
queries. Information for shareholders can
also be found on the inside back cover of this
document, with a number of useful website
addresses.
Other stakeholders
The board has direct contact with other
stakeholder representatives, including:
Ofwat and YourVoice (the independent
customer challenge group). The chair of
YourVoice regularly attends parts of UUW
board meetings to provide an opportunity
for discussion, in-depth customer insight
and the sharing of views.
Prior to the AGM in 2019, Sara Weller, the
then chair of the remuneration committee,
consulted with shareholders, in relation to
the revised directors’ remuneration policy,
which was proposed to shareholders for
approval at the 2019 AGM and which was
approved by 99.41 per cent of the votes cast.
Engagement with representatives of all
our stakeholder groups occurs widely across
many aspects of the business, and more
information can be found on pages 24 to 26.
Further information on stakeholder
engagement can be found in the report of
the corporate responsibility committee on
page 156 and in the measures reported on
pages 52 to 76.
Outcome of 2020 AGM
At the 2020 AGM, votes were cast in relation to approximately 69 per cent of the issued
share capital (2019: 67 per cent; 2018: 65 per cent). All 18 resolutions proposed by the
board were passed by the required majority; there were no significant votes cast against
the board’s recommendations.
Votes cast in favour of the reappointment of the board directors were as follows:
Sir David Higgins
98.64% Alison Goligher
Steve Mogford
Mark Clare
Stephen Carter
99.84% Brian May
99.03% Paulette Rowe
99.09%
98.90%
99.03%
99.23%
Relations with banks and
credit investors
Running a water and wastewater
business, by its very nature, requires a
long-term outlook. Our regulatory cycle
is based on five-year periods, and we
raise funding to build and improve our
water and wastewater treatment works
and associated network of pipes for each
five-year cycle and beyond. We are heavily
reliant on successfully raising long-term
funding from banks and credit investors to
fund our capital investment programme and
refinance upcoming debt maturities.
This requires long-term support from our
credit investors who invest in the company
by making term funding available in return
for receiving interest on their investment
and repayment of principal on maturity of
the loans or bonds. We arrange term debt
finance in the debt capital markets (with
maturities typically ranging from seven
years to up to 50 years at issue). Debt
finance is primarily raised via the group’s
London listed multi-issuer Euro Medium
Term Note Programme, which gives us
access to the sterling and euro public
bond markets and privately arranged note
issues. Committed credit facilities are
arranged with our relationship banks on a
bilateral basis. Additionally, the European
Investment Bank (EIB), which is the financing
arm of the European Union (EU), remains a
significant lender to United Utilities Water,
currently providing around £1.1 billion of loan
funding supporting past capital investment
programmes.
Given that the UK left the EU on 31 January
2020, we are unlikely to obtain future
funding from the EIB under its existing
mandate, with our existing loan portfolio
with the EIB entering into ‘run-off’ in line
with the scheduled maturities of each loan.
A greater proportion of the group’s term
finance is therefore likely to come from the
debt capital markets, and during the year
the group raised a total of £725 million of
term funding in the sterling public bond
market, including our first sustainable
bond of £300 million with a maturity date
of October 2029, and paying a coupon of
0.875 per cent. The bond was issued under
the group’s sustainable finance framework
established in November 2020.
The group currently has gross borrowings
of circa £8,452 million. Given the
importance of debt funding to our
group, we have an active credit investor
programme coordinated by our group
treasury team, which provides a first point
of contact for credit investors’ queries
and maintains a dedicated area of the
company’s website. One-to-one meetings
are held with credit investors through a
programme aimed at the major European
fund managers known to invest in corporate
bonds that may be existing holders of the
group’s debt or potential holders. Regular
mailings of company information are sent to
keep credit investors informed of significant
events. The treasury team has regular
dialogue with the group’s relationship banks
and the EIB and the credit rating agencies.
More information can be found on our
website at unitedutilities.com/corporate/
investors/credit-investors
Rating agency services continue to be
provided to the group by Moody’s Investors
Service Limited, Fitch Ratings Ltd and S&P
Ratings UK Limited under contracts signed
at the beginning of 2020 for an initial three-
year term. Debt capital markets issuance
by the group has therefore been made on a
solicited basis by all three rating agencies
during the 2020/21 financial year.
128
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE 2
Division of
responsibilities
Principle F:
The chair leads the board and is
responsible for its overall effectiveness
in directing the company. They should
demonstrate objective judgement
throughout their tenure and promote
a culture of openness and debate.
In addition, the chair facilitates
constructive board relations and the
effective contribution of all non-
executive directors, and ensure that
directors receive accurate, timely and
clear information.
The external board evaluation (see page
135) tested and confirmed the Chairman’s
application of principle F. Sir David was
independent on appointment when
assessed against the circumstances set out
in provision 10, his biography is on page 112.
Principle G:
The board should include an
appropriate combination of executive
and non-executive (and, in particular,
independent non-executive) directors,
such that no one individual or small
group of individuals dominates the
board’s decision-making. There should
be a clear division of responsibilities
between the leadership of the board
and the executive leadership of the
company’s business.
The external board evaluation (see page
135) tested and confirmed the application
of principle G, concluding that the skills and
experience of executive and independent
non-executives were appropriate with
the board working together as a cohesive
unit, but maintaining the clear division of
responsibility between the board and the
executive management team. See pages 112
to 115 for our reporting against provision 10;
and the governance structure of the board
and its principal committees on page 120.
Principle H:
Non-executive directors should have
sufficient time to meet their board
responsibilities. They should provide
constructive challenge, strategic
guidance, offer specialist advice and
hold management to account.
As part of the annual review of conflicts of
interest, the board was satisfied that, after
taking into account the other commitments
of directors, board members have sufficient
time to meet their board responsibilities
and principle H had been applied (see page
129). The board demonstrated constructive
challenge and offered strategic guidance
and advice to management in relation to
the review of the AMP7 dividend policy (see
page 28), and the appropriate time period
applicable to the company’s long-term
viability statement (see page 142).
Principle I:
The board, supported by the company
secretary, should ensure that it has
the policies, processes, information,
time and resources it needs in order to
function effectively and efficiently.
The external board evaluation tested and
confirmed the application of principle I,
the views of board members was sought
on whether the necessary support and
information was provided effectively and
efficiently, see page 135.
Chairman of the board
The role and behaviour of the Chairman
is fundamental to the effective operation
and decision-making of the board and
in creating an atmosphere where open
and frank discussion is facilitated and
encouraged. The roles and responsibilities
of the Chairman are set out as part of the
company’s governance framework. Sir
David was independent on appointment
when assessed against the circumstances
set out in provision 10 of the code.
It is the role of the Chairman, supported
by the company secretary, to drive forward
the business agenda of board meetings to
ensure that the board is kept abreast of the
regulatory drivers and strategic needs of
the business.
It is the role of the Chairman, supported by
the company secretary, to ensure that the
directors receive accurate, timely and clear
information. The Chairman and company
secretary hold regular meetings to discuss
agenda items and board materials. Board
packs are distributed electronically five
days before the meeting. Ensuring board
materials are of an appropriate length,
on what can be particularly complex and
technical issues, is a constant challenge.
Conflicts of interest and
time commitment
The following section sets out the company’s
compliance with provision 7.
The company’s articles of association
contain provisions which permit
unconflicted directors to authorise conflict
situations. Each director is required to
notify the Chairman of any potential
conflict or potential new appointment
or directorship. Additionally, the board
reviews the position of each director
annually. No changes were recorded that
would impact the independence of any of
the directors. No conflicts of interest had
arisen during the year.
The board does not specify the precise
time commitment it requires from its
non-executive directors in taking on the
role as they are expected to fulfil it and
manage their diaries accordingly. The
board is content that none of its directors
is overcommitted and unable to fulfil
their responsibilities as a board director
for United Utilities. Each individual’s
circumstances are different, as is their
ability to take on the responsibilities of a
non-executive directorship role. Should a
director be unable to attend meetings on a
regular basis, not be preparing appropriately
or not contributing appropriately to board
discussions, the Chairman would be
responsible for discussing the matter with
them and agreeing a course of action.
During the year, permission was sought
from the board to take on additional non-
executive responsibilities by: Brian May
appointed as a non-executive director at
Ferguson plc; Mark Clare appointed as
a non-executive director and chairman
designate at Aggreko plc and as a non-
executive director of Wickes Group plc;
Alison Goligher as a non-executive director
of Technip Energies NV and Kath Cates
as a non-executive director of TP ICAP
Group Plc.
Executive directors are not normally allowed
to take on more than one non-executive
position, a non-executive role is considered
to be beneficial from a developmental
perspective. In March 2021, although not a
statutory directorship, Phil Aspin accepted
a position on the UK Accounting Standards
Endorsement Board (UKEB).
129
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Nomination committee
The committee’s board recruitment process is continuous
and proactive, it takes into account the factors affecting the
long-term success of the group and its strategic priorities.
Dear Shareholder
Board changes during the year are
summarised on page 117, suffice to say it
has been a year of considerable change
around the board table. We endeavoured to
ensure a smooth induction (see page 134),
albeit virtually, for our new independent
non-executive colleagues Kath Cates and
Doug Webb, both of whom joined the
board in September 2020.
The nomination committee has undertaken
a comprehensive review of the board
succession plan, which addresses
both contingency planning needs and
requirements in the short to medium term,
and incorporates a reasonable degree of
certainty on timescales for key board
Sir David Higgins
Chair of the
nomination
committee
QUICK FACTS
• All members of the committee are
independent, thus fulfilling the
code requirement that a ‘majority
of members of the nomination
committee should be independent
non-executive directors’. On
joining the board, all independent
non-executive directors become
members of the nomination
committee.
• The role of the committee is to lead
the process for appointments to
the board and ensure plans are in
place for orderly succession to both
the board and senior management
positions and oversee a diverse
pipeline for succession.
Nomination committee members
• The company secretary attends all
meetings of the committee.
• The customer services and people
director has responsibility for
human resources, she regularly
attends meetings and is responsible
for engaging with executive search
recruitment advisers.
• The CEO is not a member of the
committee, but from time to time
is invited to attend. Neither the
Chairman nor the CEO would
participate in the recruitment of
their own successor.
Quick link
Terms of reference – unitedutilities.
com/corporate-governance
Sir David Higgins
(chair)
Brian May
Paulette Rowe
Stephen Carter
Mark Clare
Alison Goligher
Kath Cates
Doug Webb
130
positions. The committee’s role is to ensure
that the board and senior management
have the appropriate balance of skills and
experience to support the group’s strategic
objectives and that any developmental
needs are met. Board members and senior
managers need to be in tune with the
culture of the company and be supportive
of the company’s ESG credentials which
are embedded in the way the business is
operated and will be ever more important.
Historically, independent non-executive
directors at United Utilities have served a
term of between seven and nine years; a
pattern that has facilitated the refreshing
of the board in recent years almost on an
annual basis, along with ensuring a high
degree of continuity. Notwithstanding
this, the specifics of each of the non-
executive directors’ time of departure
have been driven by their own personal
circumstances. Serving beyond a nine-year
term is identified in the code as being one
of the reasons that could affect a non-
executive director’s independence. For
this reason, we say a fond farewell to Brian
May, the chair of audit committee, at the
annual general meeting. In accordance
with our succession plans, Brian will be
succeeded in this important board position
by Doug Webb, whom the board is satisfied
as having recent and relevant financial
expertise. Two-thirds of board members
are independent non-executive directors,
fulfilling provisions 10 and 11 of the code.
Biographies of board directors can be
found on pages 112 to 115.
Diversity and inclusion is high on the board
agenda with the board’s focus on the
matter both across the entire workforce,
and in terms of the board’s own members.
The board diversity policy (see page 133) is
taken into account during every candidate
selection process. Ultimately, we do strive
to appoint the person we believe is best
matched to the role in terms of what
they have to offer the company and to
make a positive contribution to the board
conversation and board dynamics. Diversity
in its broadest sense and in terms of
outlook and interest is essential to ensuring
we have a variety of views to contribute
to discussions and the decision-making
process. The board is committed to ethnic
diversity, and its membership is in line with
the board diversity policy, reflecting the
recommendations of the Parker Review
Committee, that there should be at least
one director of non-white ethnicity by 2021.
The annual board and committee
evaluation (see page 135) was externally
facilitated in December 2020/January 2021
by Independent Audit Limited.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE MAIN RESPONSIBILITIES
• Lead the process for board
appointments and make
recommendations to the board
about filling vacancies on the
board, including the company
secretary;
• Consider the succession planning
of directors and members of the
executive team;
• Make recommendations to
the board on refreshing the
membership of the board’s
principal committees;
• Review directors’ conflict
authorisations;
• Consider the request from
executive directors for election
to the boards of other companies
and make a recommendation to
the board; and
• Consider requests from non-
executive directors for election to
the boards of other companies;
this role has been delegated
to the Chairman (other than in
respect of his own requests).
During the year, Steve has re-shaped
his executive management team to
better reflect the needs of the business
going forward and to provide key senior
managers with new opportunities for
challenge and development. The board
is satisfied that this will contribute to
the strength and quality of the senior
management succession pipeline, as has
management’s response to the pandemic,
quickly evolving from the ‘new normal’ to
‘business as usual’. The board has good
visibility and communication links with
senior management, indeed this is one
of the contributing factors to the board’s
confidence in its management team.
Excluding the CEO and CFO, there are
now eight members of the executive team
(2020:13) of which 50 per cent are women.
Short biographies can be found on our
website at unitedutilities.com/executive-
team. While the executive team reflects
strong gender diversity, there is a way to
go to achieve our aspirations for ethnic
diversity.
Sir David Higgins
Chair of the nomination committee
Diversity and inclusion is
high on the board agenda,
with the board’s focus on the
matter both across the entire
workforce, and in terms of the
board’s own members.
G
O
V
E
R
N
A
N
C
E
Directors’ tenure as at 31 March 2021
Sir David Higgins
Steve Mogford
Phil Aspin
Mark Clare
Stephen Carter
Kath Cates
Alison Goligher
Brian May
Paulette Rowe
Doug Webb
1 yr 10m
10yrs 3m
9m
7yrs 5m
6yrs 7m
7m
4yrs 8m
8yrs 7m
3yrs 8m
0
1
0
2
h
c
r
a
M
1
3
1
1
0
2
h
c
r
a
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1
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1
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h
c
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1
3
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1
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5
1
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6
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1
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2
0
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c
r
a
M
1
3
Age and gender profile at 31 March 2021
53–56
30%
57–60
40%
61–66
30%
Chairman
Senior independent non-executive director
Executive director
Independent non-executive director
Male
Female
131
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021
Corporate governance report
Nomination committee
3
Composition,
succession and
evaluation
Principle J:
Appointments to the board should be subject to a formal, rigorous and
transparent procedure, and an effective succession plan should be maintained for
board and senior management. Both appointments and succession plans should
be based on merit and objective criteria and, within this context, should promote
diversity of gender, social and ethnic backgrounds, cognitive and personal
strengths.
The board is satisfied it has applied principle J. An explanation of the board
appointment and succession planning activities can be found on page 132 and forms
our disclosure as part of provision 23. Our disclosure against provision 20 is on page
132. In relation to provision 23, our policy on board diversity is on page 133 and
details of the gender balance of senior management on page 137. Information on the
company’s approach to diversity and inclusion is set out on pages 138 to 140.
Principle K:
The board and its committees should have a combination of skills, experience and
knowledge. Consideration should be given to the length of service of the board as
a whole and membership regularly refreshed.
The board is satisfied it has applied principle K. Biographies of the board can be
found on pages 112 to 115. An overview of directors’ areas of expertise is set out in the
skills matrix on page 133 and the length of service of board members on page 131.
Board biographies include our reporting against provision 18.
Principle L:
Annual evaluation of the board should consider its composition, diversity and how
effectively members work together to achieve objectives. Individual evaluation
should demonstrate whether each director continues to contribute effectively.
The board is satisfied it has applied principle L. Details of the board evaluation and
disclosure against provision 23 can be found on pages 116 and 135.
What has been on the committee’s
agenda during the year?
Board succession
In line with the board succession plan, and
the approximate timescales therein, the
process of the appointment of Kath Cates
was undertaken to fill the vacancy when
Sara Weller stepped down from the board
at the end of the 2020 AGM. Doug Webb
was recruited with the knowledge that
Brian May was approaching nine years’
service on the board. The committee is
supported during any recruitment process
by the customer services and people
director, Louise Beardmore, as part of
her human resources responsibilities.
The executive search firm Lygon Group
were engaged as part of the recruitment
process.
The succession planning matrix tool and
skills matrix (see opposite) for board
directors is used to support the planning
process for board appointments. The
succession planning matrix highlights the
code governance requirements; existing
directors’ terms of appointment and a
forecast/anticipated time frame when an
individual might leave the business; the
projected strategic needs of the business
and resulting preferred experience of any
potential new board member; existing
potential internal successors to a role
(where identified) and those who could
act as an interim should the need arise.
A candidate suitable for the role of CEO
would need to demonstrate that their
management approach would fit with the
company’s culture of behaving responsibly.
132
The committee would seek to consult
with the incumbent CEO, given his unique
knowledge and perspective of the group,
on his view of the needs of the business
going forward. Neither the Chairman
nor the CEO would be involved in the
appointment process of their successor.
Other than providing executive search
services on previous occasions Lygon
Group have no other connection with the
company.
Membership of the principal
board committees
Alison Goligher took over the role as chair
of the remuneration committee when Sara
Weller left the board in July 2020, Alison
had served as a member of the committee
since 2016 and chairs the remuneration
committee at Meggitt plc. On appointment,
Kath Cates joined the remuneration
committee, bringing her experience from
her existing non-executive appointments.
Doug Webb was appointed with a view to
taking over as chair of the audit committee
and treasury committee when Brian steps
down at the conclusion of the 2021 AGM, at
which point Doug will also replace Brian on
the remuneration committee.
The board is satisfied that the membership
of the audit committee is in accordance
with provision 24, and that the membership
of the remuneration committee is in
accordance with provision 32.
Board diversity
The board diversity policy is to ‘ensure the
selection process for board appointments
provides access to a range of candidates.
Any appointments will be made on the
basis of merit and objective criteria,
and within this context, should promote
diversity of gender, social and ethnic
backgrounds, cognitive and personal
strengths, but with due regard for the
benefits of diversity on the board,
including gender diversity.’ The objective
of the policy is for new directors to
bring something different to the board
table, be it in terms of experience, skills,
perspective, interests or other attributes.
As referred to above, our board diversity
policy would be brought to the attention
of any executive search firm used as part
of the selection and appointment process
for a board position. Feedback would
be sought from the search firm in terms
of their success in attracting potential
candidates in terms of their diversity
of attributes. Feedback would also be
gathered first hand through the interview
process with candidates conducted by
other board members and taken into
consideration in identifying those suitable
for the role in question. As a board, the
benefits of diversity and associated
benefits to the decision-making process
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE is widely recognised and has been the
subject of discussion with major investors.
When Brian May steps down from the
board at the annual general meeting, the
measurable targets of 33 per cent female
representation on the board and one
director of non-white ethnicity will be met.
On the board at 31 March 2021, female
representation was 30 per cent and BAME
was representation 10 per cent. Amongst
the workforce BAME representation
was 2.5 per cent (15 per cent choose not
to disclose) and 9.2 per cent* (*Office
for National Statistics, Regional Ethnic
Diversity, August 2020) as a comparator,
across our region. We recognise the
benefits of diversity across our business
with initiatives in place to support women
in the workplace and tackle the ethnic
imbalance of our workforce, thereby
aligning with our strategic theme of
operating our business in a responsible
manner (see page 17).
Skills matrix of board directors
SUMMARY
Summary of board diversity policy
• Ensure the selection process for
board appointments provides
access to a range of candidates. Any
such appointments will be made
on the basis of merit and objective
criteria, and within this context
should promote diversity of gender,
social and ethnic backgrounds,
cognitive and personal strengths.
• Ensure that the policies adopted by
the group will promote diversity in
the broadest sense among senior
managers who will in turn aspire to
a board position.
•
In selecting candidates for board
positions, only use the services of
executive search firms who have
signed up to the voluntary code of
conduct for executive search firms
as recommended by the Davies
Report.
• Adopt measurable objectives from
time to time for achieving gender
diversity at board level, which shall
be to maintain at least 25 per cent,
and aspire to 33 per cent, female
representation by 2020, and to have
at least one director of non-white
ethnicity by 2021.
Sir David
Higgins
Steve
Mogford
Phil
Aspin
Mark
Clare
Stephen
Carter
Kath
Cates
Alison
Goligher
Brian
May
Paulette
Rowe
Doug
Webb
Finance/accounting
Utilities
Regulation
Government
Construction/
engineering
Industrial
Customer-facing
FTSE companies
Digital/Technology
ESG
Current CEO/CFO
of FTSE 350 *
Former CEO/CFO
of FTSE 350
* Excludes UU
133
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Nomination committee
Non-executive directors’ induction
programme
Since joining the board in September
2020, Kath Cates and Doug Webb have
spent time (both virtually and face-to-face
as was permitted from time to time) with
members of the executive team and met
with representatives from the company’s
advisers as follows:
• The CFO and members of the
finance function and gained external
perspective from the group’s statutory
auditor, KPMG. Met representatives
from JPM Cazenove and Deutsche
Bank, the group’s corporate brokers;
• The water, wastewater and digital
services director to gain an
understanding of the company’s
operations and digital monitoring
and control of the group’s water and
wastewater network and assets and
insight into the group’s IT systems;
and associated processes and met
with Slaughter and May, the group’s
legal adviser, to receive an external
perspective on governance and best
practice;
• The commercial, engineering and
capital delivery director to gain an
understanding of the group’s capital
delivery programme and insight into
the Haweswater Aqueduct Resilience
Programme;
• The customer services and people
director to discuss the actions
undertaken by the business to improve
service to customers and the group’s
employee agenda and the director of
health, safety and wellbeing;
• The strategy and regulation director
and the director of environment,
planning and innovation to discuss
the requirements of the economic and
quality regulators; and
• The company secretary to gain an
• The corporate affairs director to
understanding of the group’s corporate
structure, governance arrangements
gain an understanding of the group’s
engagement with political stakeholders.
CFO transition programme
Phil Aspin had extensive finance experience
within the group prior to his appointment
as CFO, having previously been both group
controller and group treasurer. To support
his transition to his new role he has taken
part in a programme of activities, including:
•
Investor relations: met with Rothschild
& Co the group’s investor relations
adviser and received a briefing
on equity investor themes and
perceptions;
• Corporate brokers: met with JPM
Cazenove and Deutsche Bank and
received a briefing on equity markets:
• Legal advisers: met with Slaughter and
May and received an in-depth review of
directors’ responsibilities and corporate
governance requirements;
• Media and communications advisers:
received media training provided by
Tulchan Communications; and
• Participated in a CFO transition
programme provided by Deloitte.
134
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Evaluation of the effectiveness of the board, board committees and individual directors
Our board evaluation was conducted by Independent Audit Limited (IAL) who were engaged after a competitive tender process; this was
the first review undertaken by IAL. Bids were received from six bidders. The tender process was conducted by the company secretary,
head of legal and deputy secretary. Prior to this, an external evaluation was last conducted in 2018. In the intervening years the evaluation
was facilitated by the company secretary and his team. IAL does not have any other connection with the group. IAL reviewed the accuracy
of the content set out in relation to their work.
A summary of IAL’s 2020/21 review of responses to the board self-assessment questionnaire is set out below:
2020/21 areas of assessment
Commentary and actions
Overview
Board fundamentals
Strategy
IAL found the responses to be, on the whole, very positive. They recommended that the board should
continually challenge itself to ensure it maintained consistency in the areas that were felt to be working
particularly well. The review of responses identified a broad mix of skills, experience, personalities
and diversity in the board composition which should continue to be an aspiration for future board
appointments.
The review of responses indicated board members felt there was an appropriate mix of skills and
experience with members drawn from a diverse range of backgrounds. The mix of personalities helped
to encourage diversity of thinking. There was a constructive relationship between the non-executive
directors and the executive directors and management team, of which there was good visibility at
board level.
Responses indicated there was a clear understanding of the strategic goals for the core business
and with good visibility of both short and long-term strategy, although it was felt that a better
understanding of the sustainable aspects of strategy was needed. Oversight of the financial
performance of the business was felt to be good. Greater visibility of the people skills, characteristics
and diversity for the future needs of the business was an area to be addressed along with that of
enhancing the oversight of culture.
Managing risk
Responses indicated that risk was considered to be well managed and the board had a clear overview
of the principal risks. More opportunity for the discussion of IT risk was cited along with other
emerging risks.
Support and information
Respondents felt meetings were well chaired and the board arrangements and administration provided
by the company secretary and his team were effective. On the whole, papers were considered to be
well structured, although better signposting of key issues on more complex topics would be helpful.
Committees
• Overview: responses suggest that committees were well chaired and supported. Agendas were
focused and members were provided with appropriate information. Members had the right skills to
debate issues and provide challenge to management.
• Audit committee: questionnaire responses indicated that members agreed that the reporting
environment was satisfactory and oversight of internal and external audit was appropriate. Some
respondents indicated the need for better insight on how the key risk and control functions
operated together.
• Remuneration committee: questionnaire responses indicated that the committee was working well
and the focus of the committee’s agenda was appropriate. The committee should consider the
employee’s perspective on how remuneration and wider policies align with the values and impact
on culture.
• Nomination committee: respondents agreed there to be a good level of debate and discussion. A
revised skills planning matrix was developed during the year which would aid future non-executive
succession planning. It was suggested that the executive succession pipeline would benefit from a
more structured approach.
• Corporate responsibility committee: given the broad range of ESG activities, respondents felt the
committee should focus on the areas where it could add greater value to the debate and more
feedback should be sought from the board on the committee’s activities.
Individual directors
IAL reviewed the responses from the questionnaires completed by each director assessing their own
effectiveness and that of the evaluation of the Chairman. The meeting witnessed by IAL observed good
interaction and participation by directors, supporting the view from directors and the board that each
director continues to contribute effectively.
135
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Nomination committee
2019/20 evaluation recommendations
Actions taken during 2020/21
More focus was needed on longer term business
priorities such as climate change, technology and
innovation, resilience and people development.
In addition to the strategy day held in November 2020, the board have received
a number of ‘deep dive’ sessions on topics including: leakage, digital strategy,
people, diversity and inclusion and ‘next ways of working’.
Nomination committee: continuing the focus on
succession planning for executive and non-executive
board positions.
Audit committee: the authors of committee papers to
focus on the key issues to be brought to the attention
of the committee, particularly in relation to the risk
management systems and controls.
During the year nomination committee conducted selection processes for two new
non-executive directors, appointing Kath Cates and Doug Webb.
Audit committee papers have focused on key issues, with greater use of
appendices for the explanation of detail.
Corporate responsibility committee: the priorities
over the next 18 months should be identified.
The corporate responsibility committee has reviewed and focused the matters
within its remit.
EXTERNALLY FACILITATED SELF-ASSESSMENT EVALUATION PROCESS
Part 1
A brief for the board effectiveness evaluation was first discussed between the
Chairman and the company secretary. Thereafter a further session was held with
IAL who drafted self-assessment questionnaires, which were then shared with the
Chairman, committee chairs and company secretary for feedback. Final versions
were then issued to board members and the regular committee attendees via IAL’s
bespoke online platform, Thinking Board®, in December 2020. The respondents’
views were analysed and the reports shared with the Chairman, committee chairs
and company secretary and then formally presented at the February 2021 board
meeting and respective committee meetings. IAL attended the board strategy day
held virtually in November 2020 to observe the board in action. They reviewed the
papers for the strategy day along with a more standard set of board papers to assess
the quality of materials being provided to the board.
Part 2
The evaluation of the effectiveness of individual directors followed in January
2021. Following discussion with the Chairman and company secretary, IAL drafted
questionnaires to enable individual director self-assessment. The senior independent
director (SID) agreed the form of the questionnaire to assess the effectiveness
of the Chairman and a copy of the questionnaire was shared with the Chairman.
Questionnaires were again distributed via IAL’s online platform, Thinking Board®,
and the results analysed by IAL. A report based on responses to the questionnaire
on the effectiveness of the Chairman was sent to the SID, who then discussed the
outcome with the other non-executive directors and provided feedback to the
Chairman. IAL’s report based on the responses from the individual directors was
provided to the Chairman who subsequently provided feedback to each of the
individual directors.
Ongoing board development
and training
Board directors regularly receive updates to
improve their understanding and knowledge
about the business and, in particular, its
regulatory environment. As part of the
individual director’s element of the board
evaluation exercise, directors are asked to
identify any skills or knowledge gaps they
would like to address. Directors made a
number of suggestions, as set out above.
Consideration of ESG issues are
fundamental to the way in which we
operate as a responsible business at United
Utilities; such matters are central to board
discussions (see the summary of board
activity on pages 121 to 123 and the report
of the corporate responsibility committee
on pages 156 to 159). The board’s approach
to these matters is reflected in our strategic
themes, and our corporate culture of
behaving in a responsible manner as
reflected throughout the strategic report.
Through presentations and discussions
with representatives of YourVoice, the
independent customer challenge group,
whose role is predicated on protecting
customer interests in how the group
goes about its business, the board is
kept informed of customer, in-region
environmental affairs and social matters.
In addition to this less formal approach
to board development, during the year
the board received briefings from both
Slaughter and May (legal and governance
matters) and KPMG (governance changes
relating to reporting requirements), along
with a number of other advisers. Non-
executive directors completed in-house
online training courses on the Competition
Act and the Bribery Act. A number of board
members attended events organised by
Ofwat for non-executive directors.
Our non-executive directors are conscious
of the need to keep themselves properly
briefed and informed about current issues
and to deepen their understanding of the
136
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE business. During the year, Alison Goligher
has again chaired the Employee Voice
panel as part of the ongoing work to ensure
the board has a direct link to understand
the views of employees (see page 126)
of the business. Paulette Rowe has
contributed to the work on diversity and
inclusion (see page 138).
Induction of new
non-executive directors
An induction programme is arranged
for new non-executive directors. The
programme for Kath Cates and Doug Webb
is set out on page 134. In addition, virtual
one-to-one meetings with the Chairman
and each of the existing non-executive
directors were held. Furthermore, one-
to-one meetings were held with the CEO.
Ordinarily, on joining the board, non-
executive directors would meet members
of the operational teams and visit some
of the key operational sites and capital
projects to ensure they get a first-hand
understanding of the water and wastewater
business. New directors receive a briefing
on the key duties of being a director of a
regulated water company, including the
role of the regulated company’s holding
company. They are required to meet
with representatives of Ofwat prior to
appointment.
Wider succession pipeline
and talent management
For a number of years, we have had a
written succession plan for our executive
directors and other members of the
executive team, which includes outline
timescales. The plan identifies an interim
internal successor to fill a role in the short
term should the need arise, and the longer-
term development needs of potential
successors to be able to fulfil a role on
a more permanent basis. As with all our
board appointments, we would always aim
to appoint the best person to fulfil a role.
It would be common, when recruiting for
a senior role, for an external search to be
conducted alongside an internal candidate
recruitment process.
Any changes that are required to the
profile of the management team to reflect
the changing needs of the business
are considered by the board in the
executive succession plan. Succession
and development initiatives for senior
executives include executive mentoring
and coaching and/or participating in an
executive business school programme,
as appropriate. Leadership development
centres have been delivered to identify
and validate potential for future director
and senior leader positions and develop a
number of role-ready diverse candidates to
provide the group with leadership capacity
in an increasingly complex environment.
Senior managers are encouraged to take
on a non-executive directorship role as
part of their personal development, but it is
recognised that this is very much a personal
commitment for each individual. Along with
the wider employee population, we continue
to work towards improving the diversity
of our succession pipeline as part of our
ongoing diversity and inclusion plans.
Fifty per cent of our executive team
(excluding the CEO and CFO) is made up
of women, and as yet there is no ethnic
diversity among the team. The gender
balance of the direct reports of the
executive team is 65 per cent male and
35 per cent female, BAME representation
is 1.5 per cent. We are keen to develop
our succession pipeline of female senior
managers so that, over time, they can
be considered for executive board
appointments or as potential candidates
for non-executive directorships in other
companies. Our current talent programme
at a senior level is well embedded and we
believe a non-executive appointment for
senior managers provides an excellent
opportunity for both personal and career
development. It is a way of gaining valuable
experience that may be applied at United
Utilities so long as no conflicts of interest
occur. Our graduate and apprentice
programmes are thriving and we are
focusing more effectively on middle/junior
management succession. Our gender pay
data can be found on page 139. Historically,
our industry has been male dominated,
but we have measures in place to increase
diversity in broad terms, including
gender among our employees. During the
year, board directors have a number of
opportunities to meet with members of
the executive team, both formally when
senior managers are required to present
at board meetings on matters related to
their responsibilities, and on more informal
occasions. From time to time, board
members have the opportunity to attend
events and meet with members of the
apprentice and graduate population and
other employees identified as potential
talent within the business.
137
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Nomination committee
Diversity and inclusion in 2020/21
What have we done to improve
diversity and inclusion in 2020/21
We are committed to providing a
diverse and inclusive workforce that is
representative of the communities we
serve. Our stakeholders would expect this
and it is more relevant than ever before.
We need fantastic people to enable us
to deliver a great public service now and
into the future, so we are determined to
make sure we are reaching and recruiting
from every community and supporting
employees to achieve their full potential
and feel valued and included.
Our inclusion plan
Working with a specialist inclusion partner,
The Clear Company, we have focused
our approach in 2020/21 on five key
programmes:
• Leadership development, ensuring
managers understand and embrace our
inclusion strategy;
• Encouraging openness to enable us to
understand more about our employees
to improve the support and services we
offer to them;
• Enhancing our processes and policies
to attract and develop diverse talent
and remove bias throughout our
employee population;
•
Increasing awareness of diversity and
inclusion through education, debate
and discussion; and
• Facilitating inclusion through
encouraging and supporting our active
employee networks.
Louise Beardmore, our customer services
and people director, sponsors the overall
diversity and inclusion plan and tracks its
progress against activity-based targets
with the executive team. A further maturity
audit will be completed in the next 12
months to independently assess progress
and inform representation targets.
In 2021 we were the highest placed water
company for our diversity efforts in the
Diversity Leaders ranking.
Ethnicity
With 2.5 per cent of our workforce
identifying as BAME (15 per cent choose
not to disclose ethnicity), attracting a
future pipeline of talent from across multi-
cultural backgrounds remains a priority.
In the North West where we operate,
BAME representation is 9.2 per cent*
(*Office for National Statistics, Regional
Ethnic Diversity, August 2020) and there
is considerable variability area by area.
Fifty-five per cent of permanent roles
recruited during 2020/21 were at our
biggest employment hub in Warrington in
Cheshire, where BAME representation in
the area is 2.7 per cent.
138
In 2020, we trialled a bespoke approach
as part of our apprentice campaign with a
specialist diversity recruitment provider.
By ring fencing a number of the roles, we
were able to target under-represented
groups and successfully increase the
2020 intake to include 18 per cent ethnic
minority, a 12 per cent increase since
the 2019 programme. We adapted our
selection processes for this year’s graduate
programme and increased ethnic minority
representation to 21 per cent, a 15 per cent
increase since 2019.
We have become a patron member of
the BAME Apprentice Alliance and have
an active Multicultural Network which
supports colleagues and educates the
wider workforce on cultural differences by
providing insight and stories from a range
of cultural backgrounds.
Gender
Throughout 2020/21, our workforce profile
remained quite static at 66 per cent male
and 34 per cent female. This is primarily
driven by the limited number of females
with the relevant skills available in the
market and the legacy of a traditional male-
orientated bias in science, technology,
engineering and maths (STEM) careers.
Women made up circa 24 per cent of the
UK workforce employed in core STEM-
related jobs in 2020 (WISE campaign
summary of Office for National Statistics
Labour Force Survey Data).
We have focused on creating a strong
pipeline of female candidates for future
roles, forming strategic recruitment
partnerships to source external talent
alongside a range of internal programmes.
A new Female Pipeline Talent programme
was launched in 2020, supporting
progression through cross-company
mentoring schemes and targeted future
progression. We actively encourage all
employees to join our award-winning
GENEq gender equality network which
continues to provide insight, education and
support for female colleagues.
Against a backdrop of low attrition levels,
variable geographical demographics and
male-orientated STEM roles, we have seen
progress with our targeted diversity and
inclusion approach:
•
In the last year around 42 per cent of all
promotions were achieved by women
and 60 per cent of our senior leader
external hires were female.
• Our Aspiring Manager Programme
continues to support female
progression with 71 per cent of female
participants being promoted or moved
to a new role.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Our median gender pay gap over time
Our mean gender pay gap over time
2020
2019
2018
2017
13.8%
15.3%
15.3%
15.9%
2020
2019
2018
2017
10.7%
11.3%
13.2%
13.1%
0%
5%
10%
15%
20%
0%
5%
10%
15%
20%
Our median gender bonus gap over time
Our mean gender bonus gap over time
2020
2019
2018
2017
14.4%
15.7%
16.3%
17.2%
2020
2019
2018
2017
32.4%
38%
36.5%
35.1%
0%
5%
10%
15%
20%
15%
20%
25%
30%
35%
40%
Proportion of women and men receiving a bonus
Female
94.7%
Male
93.2%
Note: To be eligible for our bonus scheme, employees need to
have completed a minimum level of service. This means that
some people who start working for us during the year may not be
eligible.
Having challenged our thinking and
assessed ourselves against external
practices, we are confident that action we
are already taking or have planned should
result in us being able to reduce our gender
pay gap in a way that can be maintained.
LGBT+
Our LGBT+ network, Identity+ with over
350 members provides a social and support
network for LGBT+ staff and those who
are LGBT+ friendly. Its work has continued
throughout the pandemic to support virtual
events both in the company and externally,
including celebrating Pride Month in June
2020.
We are pleased to have partnered with
The Proud Trust, a north west-based
LGBT+ youth charity. We have sponsored a
group youth workers to work with LGBT+
young people in Oldham, a ‘cold spot’ as
defined by the social mobility index. We
have funded LGBT+ inclusive educational
resources, linked to the English national
curriculum.
In 2020, over 200 people participated
in Pride in the Workplace training, to
help break down barriers and improve
confidence to talk about LGBT+ in the
workplace. We remain committed to
being a Stonewall Diversity Champion.
Stonewall are supporting us with a review
of our people policies to ensure they are
progressive and reflective of societal
changes.
Disability
Our ability network with over 100 members
aims to support employees with, or those
who support people with, a disability
or long-term health conditions. Having
gained Disability Confident status, we have
• Our graduate intake for 2020 was 64
per cent female, a 25 per cent increase
since 2019.
• Our apprentice programme has seen
31 per cent females joining us, an 18
per cent increase compared to 2019.
This is against a backdrop of females
accounting for only 7 per cent of
apprentices in the UK engineering,
manufacturing and technology sector
(Institute for Apprenticeships and
Technical Education).
We have been recognised externally
and named on Bloomberg’s 2021 Gender
Quality Index, an accepted standard for
gender quality transparency. In 2020,
United Utilities was named as finalists in
both the Northern Power Women Awards
and in the ‘Women in Water’ category at
the Water Industry Awards.
Gender pay reporting
Since our reporting began in 2017, our
median gender pay gap is lower than the
national average. In 2020, the national
median gender pay gap was 15.5 per cent
(ONS, November 2020). Our median
gender pay gap has increased slightly
since our last report in 2019. This is mainly
because we needed to recruit people for
a number of operational roles that receive
extra payments due to the nature of their
working patterns and, at the moment, it is
mainly men working in these roles.
We are pleased to report that our mean
gender pay gap has reduced. This is partly
due to changes in the organisation, which
have meant we have had more women
progressing into senior roles and more men
in lower-paid roles.
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Corporate governance report
Nomination committee
continued to offer guaranteed interviews
and make reasonable adjustments for
people who are registered with a disability
and we are seeing the positive impact of
this with 4 per cent of our 2020 apprentice
group having a long-term health condition
or a disability.
We have continued to deliver disability
awareness training to our people managers
and were proud to be finalists at the 2020
Recruitment Industry Disability Initiative
awards.
Young people
Research indicates that there continues to
be significantly fewer females than males
studying STEM subjects in secondary
schools and universities, which means that
females continue to be under-represented
in jobs requiring such skills.
In 2020, we sponsored the first STEM
Centre of Excellence of its kind at one of
our partner schools in Warrington. We
provide a range of activities at schools and
in our communities to inspire girls to study
STEM subjects. Our 50 STEM ambassadors
have together volunteered over 100 hours
this year. We are working in partnership
with Northern Power Futures, supporting
school students across our region, with a
specific focus on women.
We have committed to supporting the
Government’s Kickstart Scheme by
providing 250 placements to young
unemployed people in 2021. We have
welcomed our first cohort of new recruits
into their placements and our supply chain
partners are supporting us in our aim to
provide opportunities for young people.
Read more about Kickstarting careers in the
North West on page 54.
Social mobility
In 2020, we hosted our first Social Mobility
Summit with over 150 employers from the
North West. We are keen to play our part,
alongside other north west businesses,
organisations and agencies, in tackling the
challenge of social mobility, contributing to
boosting opportunities and social mobility
as part of our national recovery.
We invited Rt Hon Justine Greening,
founder of the Social Mobility Pledge, to
co-host a live virtual event with Louise
Beardmore, which officially launched our
Opportunity Action Plan – the first of its
kind in the North West.
We continue to play our part in driving
improvements sector-wide, with partners
and external stakeholders. We are active
members of the Energy and Utility skills
diversity and inclusion forum and have
signed the sector pledge. As a member
of Water UK, we have led on the creation
of a water sector apprenticeship scheme
that aims to raise awareness of the sector
as an employer and are leading in raising
awareness of the importance of social
mobility inside and outside of the industry.
In 2020, our targeted approach for
increasing diversity resulted in 49 per cent
of our apprentices coming from areas of
low social mobility.
140
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Financial oversight responsibilities of the board
4
Audit, risk and
internal control
Principle M:
The board should establish
formal and transparent policies
and procedures to ensure the
independence and effectiveness of
internal and external audit functions
and satisfy itself on the integrity of
financial and narrative statements.
Our application of principle M is
formalised in our non-audit services
policy and terms of engagement
with the auditor as agreed by the
committee. The head of internal audit
and risk reports to the committee and
to the CFO but only on a functional
basis, thereby ensuring a direct
line of communication between
internal audit and the committee.
In accordance with provision 25, an
explanation of the independence and
effectiveness of the external audit
process can be found on pages 149
to 150, and the reappointment of the
statutory auditor on page 151. The
board considered and was satisfied
on the integrity of the financial and
narrative statements, as advised by
the audit committee in accordance
with DTR 7.1.3(5).
Principle N:
The board should present a fair,
balanced and understandable
assessment of the company’s
position and prospects.
We have applied principle N, as
confirmed by our disclosure against
provision 27, which can be found on
page 196 and is supported by our
disclosure against provision 25 on
page 149.
Principle O:
The board should establish
procedures to manage risk, oversee
the internal control framework, and
determine the nature and extent of
the principal risks the company is
willing to take in order to achieve
its long-term strategic objectives.
Our risk management framework
and principal risks are on pages 100
to 107. Further information on the
company’s internal audit function
and controls can be found on pages
154 to 155 and together set out our
application of principle O.
Board’s responsibility for
financial oversight
One of the fundamental roles of the board
is to oversee the financial performance of
the business. The board is supported in this
role by the audit committee whose activities
are described on pages 144 to 154. The
board reviews the financial performance
of the company at every scheduled board
meeting, receiving a report from the CFO
which provides the board with the up-to-
date position of the consolidated financial
statements, interpretative analysis and
other key performance indicators, metrics
and ratios. The board takes into account
the review by the audit committee of the
financial and narrative statements, and
the auditor’s views on the key risks and
judgements identified and given particular
focus in their audit work and set out
in their report (see page 200), and the
information and explanations provided
by management in relation to their key
judgements and adjustments to APMs. The
board considered the review and assurance
process undertaken by management,
and considered by the audit committee
to support the application of principle N.
The board concluded that in the 2020/21
annual report and financial statements
it has presented a fair, balanced and
understandable assessment of the company’s
position and prospects, and the board was
satisfied on the integrity of the financial and
narrative statements. Furthermore, the board
approved the accounts and provision of
the directors’ responsibility statement at its
meeting on 26 May 2021, see page 196.
Oversight of financial aspects of ESG
ESG, and behaving responsibly, has
been a long-term commitment and part
of the board ethos for many years and
is embedded in everything we do. It
naturally flows through into our approach
to the integrity of our financial reporting.
Recognising that climate change is a
key risk to our provision of water and
wastewater services (see page 104),
2020/21 is the second year that we have
reported against TCFD. As part of the
processes supporting the provision of
the ‘fair, balanced and understandable’
statement, we took into account the
existing processes of review and assurance
of our TCFD and wider narrative reporting
(see above). We intend to further review
the assurance processes of ESG matters,
particularly those relating to TCFD
reporting, ahead of the mandatory
reporting requirement which will apply to
our 31 March 2022 annual report.
Board’s approach to risk
management and internal control
The board discharges its responsibility for
determining the nature and extent of the
risks that it is willing to take to achieve
its strategic objectives through the risk
appetite framework. As a key part of the
risk management framework, risk appetite
captures the board’s desire to take and
manage risk relative to the company’s
obligations, stakeholder interests and the
capacity and capability of our key resources.
The board is responsible for ensuring that
the company’s risk management and internal
control systems are effectively managed
across the business and that they receive an
appropriate level of scrutiny and board time.
The group’s risks predominantly reflect
those of all regulated water and wastewater
companies. These generally relate to the
failing of regulatory performance targets or
failing to fulfil our obligations in any five-year
planning cycle, potentially leading to the
imposition of fines and penalties, in addition
to reputational damage. Climate change is a
risk that underpins our core operations and
provision of water and wastewater services to
customers (see page 104).
Review of the effectiveness
of the risk management and
internal control systems
During the year, the board reviewed the
effectiveness of the risk management
systems and internal control systems,
including financial, operational and
compliance controls. Taking into account
the principal risks and uncertainties set
out on pages 100 to 107, the ongoing work
of the audit committee in monitoring the
risk management and internal control
systems (see pages 154 and 155) on behalf
of the board, (and to whom the committee
provides regular updates), the board:
•
is satisfied that it has carried out a
robust assessment of the emerging
and principal risks facing the company,
including those that would threaten its
business model, future performance,
solvency or liquidity; and
• has reviewed the effectiveness of the
risk management and internal control
systems, including all material financial,
operational and compliance controls
(including those relating to the financial
reporting process) and no significant
failings or weaknesses were identified.
After review, the board concluded that
through a combination of the work of the
board, the audit committee and the UUW
board (which has particular responsibility
for operational and compliance controls),
the company’s risk management and
internal controls were indeed effectively
monitored throughout the year.
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Financial oversight responsibilities of the board
The board’s review of the effectiveness
of risk management and internal control
systems took into account the:
• biannual review of significant risks
and emerging risks (see pages 104 to 107
and 109);
• assurance (both internal and external)
of the most significant business and
operational risks of the group;
•
review of matters correlating to specific
event based operational risks (see page
108);
• outcome of the biannual business unit
risk assessment process (see page 154);
• activities and review of the
effectiveness of the internal audit
function (see page 154);
• opinion provided by internal audit
in relation to their work, that ‘the
governance, risk management and
internal control framework was suitably
designed and effectively applied within
the areas under review’;
•
self-assessment provided by
management confirmed compliance
with a range of key internal policies,
processes and controls (see page 155);
•
review of reports from the group audit
and risk board (see page 101);
• oversight of treasury matters, in
particular debt financing and interest
rate management (see page 125); and
•
review of the business risk
management framework and
management’s approach and tolerance
towards risk (see page 100).
Going concern and
long-term viability
The following section sets out the
company’s compliance with part of
provisions 30 and 31.
The board, following the review by the
audit committee, concluded that it was
appropriate to adopt the going concern
basis of accounting (see page 214). Similarly,
in accordance with the principles of the
code, the board concluded, following the
recommendation from the audit committee,
that it was appropriate to provide the
long-term viability statement based on an
assessment period of seven years. Assurance
supporting these statements was provided
by the review of: the group’s key financial
measures and contingent liabilities; the key
credit financial ratios; and the group’s liquidity
and ongoing ability to meet its financial
covenants. As part of the assurance process,
the board also took into account the principal
risks and uncertainties facing the company,
and the actions taken to mitigate those risks,
and include emerging and more topical risks.
These principal risks and uncertainties are
detailed on pages 104 to 107, as are the risk
142
management processes and structures used
to monitor and manage them. Biannually,
the board receives a report detailing
management’s assessment of the most
significant risks facing the company. The
report gives an indication of the level of
exposure, subject to the mitigating controls
in place, for the risk profile of the group,
while also highlighting the reputational and
customer service impact. This provides the
board with information in two categories:
group-wide business risks; and wholesale
operational risks. The board also receives
information during the year from the
treasury committee (to which the board
has delegated matters of a treasury nature
see page 125) including such matters as
liquidity policy, the group’s capital funding
requirements and interest rate management.
Long-term viability statement
The directors have assessed the viability of the
group, taking account of the group’s current
position, the potential impact of the principal
risks facing the business in severe but
reasonable scenarios, and the effectiveness of
any mitigating actions. This assessment has
been performed in the context of the group’s
prospects as considered over the longer
term. Based on this viability assessment, the
directors have a reasonable expectation that
the group will be able to continue in operation
and meet its liabilities as they fall due over the
seven year period to March 2028.
Basis of assessment
This viability statement is based on the
fundamental assumption that the current
regulatory and statutory framework does not
substantively change. The long-term planning
detailed on page 48 assesses the group’s
prospects and establishes its strategy over a
25-year time horizon consistent with its rolling
25-year licence and its published long-term
strategy. This provides a framework for the
group’s strategic planning process, and is
key to achieving the group’s aim of providing
the best service to customers at the lowest
sustainable price and in a responsible manner
over the longer term, underpinning our
business model set out on pages 30 to 46.
In order to achieve this aim and promote the
sustainability and resilience of the business,
due consideration is given to the management
of risks over the long term that could impact
on the business model, future performance,
credit ratings, solvency and liquidity of the
group. Specifically, risks associated with the
possible ongoing impact of the COVID-19
pandemic and climate change have been
incorporated into the baseline position and
factored into the various scenarios modelled
as part of the group’s assessment. An
overview of our risk management approach
that supports the group’s long-term planning
and prospects, together with the principal
risks and uncertainties facing the business,
can be found on pages 104 to 107.
Within the context of this long-term planning
and management of risks, the group’s
principal business operates within five year
regulatory price control cycles. Medium-term
planning considers the current price control
period, over which there is typically a high
degree of certainty, and looks beyond this in
order to facilitate smooth transitions between
price control periods. This results in the board
concluding a recurring period of seven years
to be an appropriate period over which to
perform a robust assessment of the group’s
long-term viability.
Viability assessment:
resilience of the group
The viability assessment is based upon the
group’s medium-term business planning
process, which sits within the overarching
strategic planning process and considers:
• The group’s current liquidity position
– with £1.3 billion of available liquidity
at March 2021 providing a significant
buffer to absorb short-term cash flow
impacts;
• The group’s robust capital solvency and
credit rating positions – with a debt
to regulatory capital value (RCV) ratio
of circa 62 per cent, a robust pension
position and current credit ratings
of A3/BBB+/A- with Moody’s, S&P
and Fitch respectively, this provides
considerable headroom supporting
access to medium-term liquidity where
required;
• The group’s expected performance,
underpinned by its historical track-
record; and
• The current regulatory framework
within which the group operates –
which provides a high degree of cash
flow certainty over the regulatory
period and the broader regulatory
protections outlined below.
The group has a proven track-record of being
able to raise new finance in most market
conditions, and expects to continue to do so
into the future. This is despite the group no
longer having access to future EIB funding
following the UK’s exit from the EU.
From a regulatory perspective, the group
benefits from a rolling 25-year licence and
a regulatory regime in which regulators –
including the economic regulator, Ofwat – are
required to have regard to the principles of
best regulatory practice. These include that
regulation should be carried out in a way that
is transparent, accountable, proportionate,
consistent and targeted. Ofwat’s primary
duties provide that it should protect
consumers’ interests, by promoting effective
competition wherever appropriate; secure
that the company properly carries out its
statutory functions; secure that the company
can finance the proper carrying out of these
functions – in particular through securing
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE the group to date, and is not considered to
represent a significant risk to the group’s
ongoing viability.
The scenarios considered are underpinned
by the group’s established risk management
processes, taking into account those risks
with a greater than 10 per cent (1 in 10)
cumulative likelihood of occurrence. The risks
associated with COVID-19 are reflected within
the baseline position, with further potential
downside risks (most notably in relation to
bad debt and low inflation) covered by the
individual scenarios modelled, and collectively
within a combined scenario.
The assessment has considered the impact
of these scenarios on the group’s business
model, future performance, credit ratings,
solvency and liquidity over the course of the
viability assessment period. This assessment
has demonstrated the group’s ability to
absorb the impact of all severe but reasonable
scenarios modelled, without the need to rely
on the key mitigating actions detailed below.
As part of the assessment, reverse stress
testing of two extreme theoretical scenarios
focusing on totex overspend and persisting
low inflation have been performed to
understand the extent to which the group
could further absorb financial stress before it
reaches a sub-investment grade credit rating.
This reverse stress testing demonstrated
that these extreme conditions would have
to be significantly outside what would be
considered ‘severe but reasonable’ scenarios
before the group’s long-term viability would
be at risk.
Viability assessment:
key mitigating actions
In the event of more extreme but low
likelihood scenarios occurring, there are
a number of key mitigations available to
the group, the effectiveness of which are
underpinned by the strength of the group’s
capital solvency position.
As well as the protections that exist from
the regulatory environment within which
the group operates, a number of actions
are available to mitigate more severe
scenarios, which include: the raising of
new finance, including hybrid debt; capital
programme deferral; reduction in other
discretionary totex spend; the close-out of
derivative asset positions; the restriction
of dividend payments; and access to
additional equity.
Governance
The analysis underpinning this assessment
has been through a robust internal review
process, which has included scrutiny and
challenge from the audit committee and
board, and has been reviewed by the
group’s external auditor, KPMG, as part of
their normal audit procedures.
Going concern
The directors also considered it appropriate
to prepare the financial statements on the
going concern basis, as explained in the
basis of preparation note to the accounts.
reasonable returns on capital; and secure that
water and wastewater supply systems have
long term resilience and that the company
takes steps to meet long-term demands for
water supplies and wastewater services.
In addition, from an economic perspective,
given the market structure of water and
wastewater services, threats to the group’s
viability from risks such as reduced market
share, substitution of services and reduced
demand are low compared to those faced by
many other industries.
Viability assessment: resilience to
principal risks facing the business
The directors have assessed the group’s
viability based on the resilience of the
group and its ability to absorb a number
of ‘severe but reasonable’ scenarios,
derived from the principal risks facing
the group, as set out on pages 104 to
107. The baseline plan against which the
viability assessment has been performed
incorporates the estimated ongoing impact
COVID-19 based on experience to date.
This baseline plan is then subject to further
stress scenarios and reverse stress testing
that takes into account the potential
impact of group’s principal risks. Such
risks include: environmental risks such as
the occurrence of extreme weather events
and other impacts of climate change,
further details of which are included in the
group’s TCFD disclosures on pages 86 to
99; political and regulatory risks; the risk
of critical asset failure; significant cyber
security breaches; longer term economic
impacts resulting from COVID-19, including
unemployment and corporate failures
affecting debt collection and lower
inflation affecting revenues, financing costs
and RCV; and the potential for a restriction
to the availability of financing resulting
from a capital markets crisis. The UK’s
withdrawal from the EU and the ending of
the transition period has not had a material
adverse operational or financial impact on
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Audit committee
The audit committee is responsible for discharging
governance responsibilities in respect of audit, risk and
internal control, and reports to the board on these matters.
Dear Shareholder
In my report this year I have sought to
provide shareholders with an understanding
of the work we have done as the audit
committee to provide assurance on the
integrity of the annual report and financial
statements for the year ended 31 March
2021. Much of the work of the committee
is necessarily targeted at the regulated
activities of UUW, which represent over 98
per cent of group revenues and is a reflection
of our commitment to safeguarding the
interests of our stakeholders, particularly our
shareholders and customers.
The timing of the pandemic has meant that
both the 2020 and 2021 year end audits
have been conducted under lockdown
rules. Working practices of the group’s
financial reporting team and those of
KPMG audit team have been adapted,
reflecting the lessons learnt from the
2020 audit which was undertaken in the
early stages of the pandemic. In addition,
through the last year certain changes
to internal controls were necessary,
reflecting the move to home working, due
to the practical difficulties of obtaining
CFO, the company secretary, the
head of audit and risk, the group
controller, and representatives from
the statutory auditor, KPMG LLP
(KPMG). None of these attendees
are members of the committee.
• The representatives from KPMG and
the head of audit and risk each have
time with the committee and the
company secretary to raise freely
any concerns they may have without
management being present.
• The committee is authorised to seek
outside legal or other independent
professional advice as it sees fit, but
has not done so during the year.
Quick link
Terms of reference – unitedutilities.
com/corporate-governance
Brian May
Chair of the audit
committee
QUICK FACTS
• Brian May has chaired the committee
since July 2013. He is a chartered
accountant and is considered by the
board to have recent and relevant
financial experience, having served
as finance director of a FTSE 100
company, from which he retired in
February 2020.
• All members of the committee
are independent non-executive
directors and the board is satisfied
that the committee as a whole has
competence relevant to the sector.
Attendance at audit committee
meetings is set out on page 124, and
the relevant directors’ biographies
can be found on pages 112 to 115.
• Other regular attendees at
meetings at the invitation of the
committee include the CEO, the
Audit committee members
Brian May (chair)
Stephen Carter
Paulette Rowe
Doug Webb
144
wet signatures as the usual evidence of
approval. Changes were implemented by
the treasury, commercial and property
teams. Such changes, and the effectiveness
thereof, were reviewed by, and agreed
with, the internal audit team.
Management made a number of changes
to its alternative performance measures
(APMs) to better enable comparability
with other companies, rather than reflect
the nuances of the regulatory model. The
committee concurred with the changes,
and in particular that there should be
no adjustments to underlying profit
relating to COVID-19 at 31 March 2021,
recognising that, for the group, operating
in the COVID-19 environment had become
business as usual. A guide to APMs can be
found on page 82.
The group’s purpose is to ‘provide great
water and more for the North West’. The
committee’s contribution to achieving
the purpose is to ensure that the interests
of shareholders and other stakeholders
are properly protected by overseeing the
group’s financial reporting and internal
control arrangements. The committee uses
its collective expertise, with input from the
auditor, to provide challenge to the approach
and judgements made by management in
the treatment of financial matters and the
resulting disclosures within the company’s
financial statements. Transparency
and openness are fundamental to the
relationship between management and the
committee, something which is reinforced
through the cultural framework within
which the business operates, with being
trustworthy one of our core values.
As articulated in the code, ‘the board should
present a fair, balanced and understandable
assessment of the company’s position
and prospects’. The board asks the audit
committee to advise on whether in fact
‘the annual report and accounts, taken as a
whole, is fair balanced and understandable
and provides the information necessary
for shareholders to assess the company’s
position and performance, business model
and strategy’.
The committee chose to retain KPMG
as auditor following the competitive
tender process conducted in December
2019, as reported in the 2019/20 report.
The primary factor for the committee in
retaining the services of KPMG, was that,
in the committee’s view, it offered a more
compelling case for the provision of a
high-quality audit than the other candidates
participating in the tender. As set out on page
151, the group has tendered and changed the
auditor on a number of occasions since the
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE G
O
V
E
R
N
A
N
C
E
MAIN RESPONSIBILITIES
• Make a recommendation to the
board for the appointment or
reappointment of the auditor, and
to be responsible for the tender of
the audit from time to time and to
agree the fees paid to the auditor.
• Establish policies for the
provision of any non-audit
services by the auditor.
• Review the scope and the results
of the annual audit and report to
the board on the effectiveness
of the audit process and how the
independence and objectivity of
the auditor has been safeguarded.
• Review the half-year and annual
financial statements and any
announcements relating to
financial performance, including
reporting to the board on the
significant issues considered by
the committee in relation to the
financial statements and how
these were addressed.
• Review the scope, remit and
effectiveness of the internal audit
function and the group’s internal
control and risk management
systems.
• Review the group’s procedures
for reporting fraud and other
inappropriate behaviour and to
receive reports relating thereto.
• Report to the board on how it has
discharged its responsibilities.
• Apply the principles of the code
and report against the provisions.
group was originally formed in 1989. 2020/21
has been KPMG’s tenth year in office. Ian
Griffiths was appointed as the new audit
engagement partner for the 2020/21 audit.
As part of the committee’s review of the
performance and recommendation on
reappointment of auditor, it took into account
the annual review published in July 2020 by
the Financial Reporting Council’s (FRC’s) Audit
Quality Review Team. The findings, based on
a sample of 88 audits from across the seven
largest UK firms, reported that ‘firms are still
not consistently achieving the necessary level
of audit quality’. The committee challenged
KPMG on the FRC’s findings and also
reviewed whether the quality improvement
proposals outlined to the committee had
indeed been implemented in the 2019/20
audit. Following the committee’s review of the
effectiveness of the 2019/20 audit process,
additional proposals were put forward as part
of the 2020/21 audit scope (see page 149).
Transparency and openness
are fundamental to the
relationship between
management and the
committee, something which
is reinforced through the
cultural framework within
which the business operates
Auditor independence
is a key principle, and
contributing factor to audit quality.
It is reviewed as part of the audit scope
and re-examined prior to the accounts being
approved and signed by the board. The
auditor must be independent of the company.
It is the committee’s responsibility to ensure
that the three-way relationship between the
committee, the auditor and the company’s
management is appropriate and there is no
undue influence by any of the parties on
the other, thereby ensuring the integrity of
the audit process and the annual report and
financial statements. Independence is a key
focus for the auditor, whose staff must comply
with their firm’s own ethics and independence
criteria which must be consistent with
the FRC’s Revised Ethical Standard (2019).
Information on how the committee assesses
the independence of the auditor can be found
on page 150. The statutory auditor presents
its audit findings to the shareholders as the
owners of the business (see page 200).
The committee has responsibility for
ensuring that the group’s policy on non-audit
services reflects the FRC’s Revised Ethical
Standard (2019) whereby the only non-audit
services that a statutory auditor is permitted
to provide to a public interest entity are
those required by law or regulation, loan
covenant reporting, other assurance services
closely linked to the audit and/or reporting
accountant services. Assurance on this
matter is provided by the auditor.
In summary, the committee concluded that
the statutory audit process and services
provided by KPMG for 2019/20 were
satisfactory and effective.
We continue to be committed to providing
meaningful disclosure of the committee’s
activities and ensuring the committee’s
agenda is kept abreast of relevant
developments. The committee will await
the outcome of the BEIS consultation on
‘Restoring trust in audit and corporate
governance’ and we expect to contribute
to the consultation process. We are fully
committed to ensuring that the group’s audit
and governance arrangements reflect best
practice and address any new requirements
within the expected time frames.
Following review of our 31 March 2020
accounts by the FRC (see page 152), we have
enhanced a number of disclosures in our
financial statements.
There is an element of overlap between
our statutory and regulatory reporting.
Engaging the same auditor improves
efficiency. It contributes to the integrity of
the narrative reporting statements, with
the auditor reviewing them in accordance
with ISA720 (see page 149). Furthermore,
the committee has been provided with
greater visibility of the assurance of the non-
financial information in the annual report.
The details of the external evaluation of the
committee’s performance can be found on
page 135.
I would like to extend my thanks to my
committee colleagues for their work and
support during my last year as chair of
the committee. Doug Webb will take over
the role at the conclusion of the annual
general meeting in July 2021. Doug joined
the committee on his appointment in
September 2020, and at the beginning of
the 2021 financial reporting cycle. He has
considerable recent and relevant financial
experience both as a former FTSE 100
CFO and through his other non-executive
appointments. The skills matrix on page
133 summarises the experience of the
committee’s members.
This report was approved by the committee
at its meeting held on 19 May 2021.
Brian May
Chairman of the audit committee
145
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021 Corporate governance report
Audit committee
What has been on the committee’s
agenda during the year?
The committee has an extensive agenda
of items of business focusing on the audit,
assurance and risk processes within the
business which it deals with in conjunction
with senior management, the auditor, the
internal audit function and the financial
reporting team. The committee’s role is
to ensure that management’s disclosures
reflect the supporting detail provided to
the committee or challenge them to explain
and justify their interpretation and, if
necessary, re-present the information. The
committee reports its findings and makes
recommendations to the board accordingly.
The committee is supported in this role by
using the expertise of the statutory auditor,
who, in the course of the audit, considers
whether the financial statements have
been prepared in accordance with IFRS
and whether adequate accounting records
have been kept. In doing so it ensures that
high standards of financial governance, in
line with the regulatory framework as well
as market practice for audit committees
going forward, are maintained. Furthermore,
the company’s own internal audit team
contributes to the assurance process
by reviewing compliance with internal
processes. The committee’s financial
reporting cycle, which starts each year in
September, is shown below. There were four
meetings of the committee held during the
year. Items of business considered by the
committee are set out on pages 147 to 148.
Audit committee financial reporting cycle
• Review of the effectiveness of the
external process
• Auditor presents their audit strategy for
forthcoming year
• Committee agrees the audit fee for the
forthcoming year
• Management
presents their key
accounting issues
and judgements for
approval by committee and
recommendation to board
• Auditor presents the findings
of the audit and their auditor’s
report and provides confirmation
of their independence
• Committee makes a
recommendation to the board
on whether the annual report
and financial statements are
fair, balanced and
understandable and on the
reappointment of the
auditor at the AGM
S e p tember
N
o
v
e
m
b
e
y
a
M
Audit committee:
principal statutory
reporting matters
Marc h
r
• Management presents
the half-year financial
statements
• Auditor presents the
review of half-year
financial statements
• Auditor confirms
their independence
• Management presents their proposed
key accounting issues and judgements
at the full year
• Auditor provides an update on their audit
processes and confirmation
of their independence
146
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
Actions
Outcomes
Cross reference
Annual and half-year reporting
Reviewed and discussed the reports from the financial
reporting team on the financial statements, considered
management’s significant accounting judgements, and the
policies being applied both at the full and half year and how
the statutory audit contributed to the integrity of the year
end financial reporting.
Reviewed the regulatory reporting process relating to the
annual performance report for UUW as required to be
submitted to Ofwat and noted the differences between the
regulatory and statutory accounts.
The committee challenged management on a
number of its judgements and sought detailed
explanations of its interpretation. The committee
was satisfied with the explanations provided by
management. Recommendations were made to the
board, supporting the approval of the half and full-
year accounts and financial statements.
See pages 152 to 153
Contribution to the assurance of the regulatory
reporting to the UUW board.
–
Assessed management’s revision of APMs to better enable
comparability with other companies rather than reflecting
the nuances of the regulatory model and adjustments to
underlying profit.
Concurred with management’s revised approach,
and the recognition that, for the group, operational
and financial performance in the COVID-19
environment had become business as usual.
See page 82
Reviewed the proposed audit strategy for the 2020/21
statutory audit, including the level of materiality applied
by KPMG, audit reports from KPMG on the financial
statements and the areas of particular focus for the
2020/21 audit.
Monitoring progress made by the statutory audit
team against the agreed plan, and considered
issues as they arose.
See page 200
Reviewed the basis of preparation of the financial statements
as a going concern as set out in the accounting policies.
Recommendation made to the board to support
the going concern statement.
Reviewed the long-term viability statement proposed by
management and reasons for retaining a seven-year period.
The committee challenged management on the
length of the period, particularly in light of time
periods provided by peer companies, but were
satisfied with management’s preference to provide
a statement with greater certainty over a shorter
period of time.
See page 214
See page 142
Reviewed the accounting treatment of the refinancing of
Water Plus, the group’s joint venture with Severn Trent.
Considered KPMG’s view and concurred with
management’s approach.
See page 153
Reviewed the results of the committee’s assessment of the
effectiveness of the 2019/20 audit.
Reviewed whether the company’s position and prospects as
presented in the 31 March 2021 annual report and financial
statements were considered to be a fair, balanced and
understandable assessment of the company’s position and
prospects.
Reviewed the non-audit services and related fees provided
by the auditor for 2020/21 and the policy on non-audit
services provided by the auditor for 2021/22.
Negotiated and agreed the statutory audit fee for the year
ended 31 March 2021 and agreed additional fee for 2019/20
reflecting increased audit work due to COVID-19.
The committee concluded that the audit was
effective and a recommendation was made to
the board on the reappointment of KPMG as the
auditor for the year ending 31 March 2022 at the
forthcoming annual general meeting.
See page 149
Recommendation made to the board that the
31 March 2021 annual report and financial statements
was a fair, balanced and understandable assessment
of the company’s position and prospects.
See pages 141 and
149
Approved the non-audit services and related fees
provided by KPMG for 2020/21 and concluded that
no changes were required to the policy for non-audit
services provided by the auditor.
2019/20 statutory audit fee paid as agreed by the
committee. The committee approved the fees
for the 2020/21 audit, including an additional fee
in respect of the 2019/20 audit relating to
COVID-19 audit work that are reported as part
of the 2020/21 fee.
See page 150
See pages 150 to 151
Reviewed the assurance processes supporting certain
aspects of the TCFD and ESG sections in the narrative
reporting in the 2020/21 annual report.
The committee concluded that the assurance
processes supporting the narrative reporting in the
annual report were satisfactory.
See page 149
147
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Audit committee
Actions
Risk management and internal control
Outcomes
Cross reference
Received a deep dive into the risk management process
and reviewed the effectiveness of the risk management and
internal control systems.
Recommendation made to the board that the risk
management and internal control systems were
effective.
See pages 154 to 155
Considered changes to internal control arrangements
brought to the attention of the committee by KPMG
Tasked management to resolve any issues relating
to internal controls and risk management systems.
See page 200
Monitored fraud reporting.
Reviewed the company’s anti-fraud policies and
processes and alleged incidents of fraud and the
outcome of their investigation.
See page 155
Biannual oversight and monitoring of the group’s
compliance with the Bribery Act.
Reviewed compliance with the company’s ongoing
anti-bribery programme.
See page 155
Approved the strategic internal audit planning approach
and reviewed reports on the work of the internal audit
function from the head of audit and risk.
Considered the issues and findings brought to the
committee’s attention by the internal audit team.
Reviewed the quality and effectiveness of internal audit and
the effectiveness of the current co-source arrangements.
Reviewed the strategic internal audit planning approach
and internal audit plan for 2021/22.
Undertook a competitive tender process for the internal
audit co-source resource.
Governance
Review of the committee’s terms of reference
Considered the Brydon and Kingman Reviews and
established processes to consider the BEIS consultation
report ‘Restoring trust in audit and corporate governance’.
Reviewed the conclusions of the committee’s annual
evaluation. The evaluation was externally facilitated by
Independent Audit Limited (IAL). The review explored the
effectiveness of: the fundamental reporting environment;
the work of the auditor and their audit approach; and the
work of internal audit along with the level of understanding
of the risk management process.
Monitored the implementation of the 2020/21
internal audit plan. Reviewed findings of specific
internal audit and implementation of any resulting
actions by management.
The committee was satisfied that management
had resolved or was in the process of resolving any
outstanding issues or concerns in relation to matters
scrutinised by the internal audit team.
The committee reviewed the process of
assessment of internal audit and made
recommendations for enhancement,
notwithstanding the recommendations it was
concluded that the internal audit team, supported
by the PwC co-source resource was effective.
See page 154
See page 154
See page 154
Approved the internal audit plan for 2021/22.
See page 154
After analysis of the results of the competitive
tender process PwC were reappointed to provide
additional resource to the internal audit team.
See page 155
No changes were made to the committee’s terms
of reference during the year.
Process in place to consider our draft response and
next steps in relation to the BEIS consultation.
All elements of the self-assessment reviewed by
IAL indicated the committee was working well.
The board considered the results of the review of
the committee and concluded that the committee
continued to be effective.
See page 135
148
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE AUDIT QUALITY
Additional audit quality
processes for the 2020/21 audit
With a view to further enhancing
audit quality, and in response to
lessons learnt during the 2019/20
audit, KPMG proposed the following
action plan for the 2020/21 audit,
including:
• Providing sight of their interim
•
control findings to the committee
early in the audit process and
sharing their knowledge and best
practice recommendations;
Improving the two-way
communication and sharing of
information and insight between
the external and internal audit
teams by implementing regular
discussion sessions prior to the
scheduled committee meetings;
• Raising audit points in a more
timely manner with the financial
reporting team during the audit
process by holding regular
discussions with the external
audit team and financial
reporting team; and
• Using a project manager to assist
with the delivery of the year end
audit cycle.
As part of its review of the 2020/21
audit in July 2021, the committee will
review the effectiveness of the above
processes.
How we assessed whether ‘the
annual report and accounts, taken
as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the company’s position and
performance, business model and
strategy’
The following section sets out the company’s
compliance with part of provision 25.
The directors’ responsibility for preparing
the annual report and financial statements is
set out on page 196.
The board delegates to the committee, in
the first instance, the review of the annual
report and financial statements with the
intention of providing advice to the board
on whether, as required by the code, ‘the
annual report and accounts, taken as a
whole, is fair, balanced and understandable
and provides the information necessary
for shareholders to assess the company’s
position and performance, business model
and strategy’.
To make this assessment, the committee
received copies of the annual report and
financial statements to review during the
drafting process to ensure that the key
messages being followed in the annual report
were aligned with the company’s position,
performance and strategy being pursued
and that the narrative sections of the annual
report were consistent with the financial
statements. The significant issues considered
by the committee in relation to the financial
statements include those identified by the
auditor in their report on pages 152 to 153.
The committee received regular updates
on the calculation of underlying operating
profit measures as one of the principal
alternative performance measures (APMs).
A guide to APMs can be found on page 82.
Management enhanced the review processes
to provide support to the board in forming
its view on whether the accounts and
financial statements were fair, balanced and
understandable, as it concluded they were
and set out on page 141.
Many of our regulatory performance
commitments are used by management as
key performance indicators and are monitored
by our regulators, who set the methodology
against which we report. As part of their role
as auditor of UUW’s annual performance,
KPMG provides assurance on many of these
performance commitments along with
Jacobs, the technical auditor.
KPMG is required (under ISA720) to consider
whether there are any material inconsistencies
between the other information presented in
the annual report (e.g. the strategic report),
and the financial statements, taking into
account the auditor’s knowledge obtained in
the audit, or the auditor’s understanding of the
legal and regulatory requirements applicable
to the other statutory information. The
assurance of our greenhouse gas emissions
and TCFD disclosures (see pages 88 to 99),
is undertaken both by third parties and our
internal audit team. Our disclosures against
the code are reviewed by the internal audit
team and reported to the committee.
Additionally, the committee was satisfied
that all the key events and issues which
had been reported to the board in the
executive team’s monthly board reports
during the year, both good and bad, had
been adequately referenced or reflected
within the annual report.
How we assessed the effectiveness
of the statutory audit process
The committee, on behalf of the board, is
responsible for the relationship with the
auditor, and part of that role is to examine
the effectiveness of the statutory audit
process. Audit quality is regarded by the
committee as the principal requirement of
the annual audit process.
KPMG presented the strategy and scope
of the audit for the forthcoming financial
year at the meeting of the committee held
in September, highlighting any areas which
would be given special consideration
(these key audit matters are included in
the auditor’s report on page 200). KPMG
reported against their audit scope at
subsequent committee meetings, providing
an opportunity for the committee to
monitor progress and raise questions, and
challenge both KPMG and management.
Throughout the year, management presents
their up-to-date view of the key accounting
issues and their resulting judgements. KPMG
responds informing the committee whether,
in their professional view, the judgements
management propose, or have taken, are
appropriate. A number of these issues
manifest themselves as the significant issues
considered by the committee in relation to
the financial statements. For 2020/21 these
are set out on pages 152 to 153, in exercising
their professional scepticism, as required by
auditors’ professional standards, KPMG did
not identify any areas of disagreement with
management’s judgements.
Private meetings are held at each
committee meeting between the
committee and representatives of the
auditor without management being
present to encourage open and transparent
feedback by both parties. KPMG meets
with management at regular intervals
during the annual audit process.
Prior to the board’s approval of the
year end financial statements, the
committee provides its view to the board
149
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Audit committee
Statutory auditor’s fees
600
500
400
300
0
0
0
£
’
200
100
0
0
4
3
5
5
3
8
0
5
7
9
5
6
7
4
9
1
1
7
7
2
6
0
7
1
0
2
1
1
7
2019
2020
2021
Statutory audit – group and company
Regulatory audit services provided by the statutory auditor
Statutory audit – subsidiaries
Other non-audit services
on the outcome of the statutory audit,
explaining: management’s key accounting
issues and judgements; the outcome of
the auditor’s assessment of key audit
matters; other areas of audit focus and
control deficiencies (if any), and how the
statutory audit contributed to the integrity
of the financial reporting process. The
independent nature and financial expertise
of committee members further contributes
to the integrity of the process.
KPMG updated the committee on its
ongoing Audit Quality Transformation Plan
(AQTP). KPMG’s AQTP includes: a more
standardised audit approach; holding
companies to account for the quality of the
information provided in the audit process;
providing more feedback to companies on
the findings of their audit and providing
additional senior-level support to the KPMG
audit teams during the audit; all of which
are well embedded in the audit process.
In planning for the 2020/21 audit, KPMG
provided a report to the committee on
the quality interventions that they had
implemented during the 2019/20 audit. Each
year the committee has challenged KPMG to
ensure continuous improvement.
On completion of the annual audit process
the views of those involved in the audit on
how well KPMG performed the audit are
sought. All members of the committee,
key members of the senior management
team and those who regularly provide input
into the audit committee or have regular
contact with the auditor, complete a
feedback questionnaire, thereby ensuring a
wide range of views are taken into account.
The questionnaire, reviewing the 2020
audit process was issued in July 2020.
Views of the respondents were sought in
terms of:
• The robustness of the external audit
process and degree of challenge to
matters of significant audit risk and
areas of management subjectivity;
150
• Whether the scope of the audit and
the planning process were appropriate
for the delivery of an effective and
efficient audit;
• The quality of the delivery of the
audit and whether planned quality
improvements had been delivered;
• The expertise of the audit team
conducting the audit;
• That the degree of professional
scepticism applied by the auditor was
appropriate;
• The appropriateness of the
communication between the
committee and the auditor in terms of
technical issues;
• The quality of the service provided by
the auditor;
• Their views on the quality of the
interaction between the audit
engagement partner, the audit senior
manager and the company;
• Whether the audit process had been kept
on schedule, despite the remote working
due to COVID-19 restrictions of both the
audit and management teams; and
• Whether the statutory audit
contributed to the integrity of the
group’s financial reporting.
The feedback was collated and presented
to the committee’s meeting in September
2020. The committee noted KPMG’s
quality interventions as part of its AQTP
to improve audit quality, including: the
additional oversight provided by senior
KPMG personnel during the 2019/20 audit;
and the enhanced consultation to ensure
consistency and challenge management’s
view of COVID-19. The committee
concluded that the statutory audit process
and services provided by KPMG were
satisfactory and effective, although areas
for further enhancement were agreed (see
page 149).
How we assessed the independence
of the statutory auditor
The following section sets out the
company’s compliance with part of
provision 26.
There are two aspects to auditor
independence that the committee
monitors to ensure that the auditor remains
independent of the company.
First, in assessing the independence of the
auditor from the company, the committee
takes into account the information and
assurances provided by the auditor
confirming that all its partners and staff
involved with the audit are independent of
any links to United Utilities. KPMG confirmed
that all its partners and staff complied with
their ethics and independence policies and
procedures which are fully consistent with
the FRC’s Ethical Standard, including that
none of its employees working on our audit
hold any shares in United Utilities Group
PLC. KPMG is required to provide written
disclosure at the planning stage of the audit
in the form of an independence confirmation
letter. Their letter discloses matters relating
to their independence and objectivity,
including any relationships that may
reasonably be thought to have an impact
on its independence and the integrity and
objectivity of the audit engagement partner
and the audit staff. The audit engagement
partner must change every five years and
other senior audit staff rotate at regular
intervals.
Secondly, the committee develops and
recommends to the board the company’s
policy on non-audit services and associated
fees that are paid to KPMG. In accordance
with the FRC’s Revised Ethical Standard
(2019), an auditor is only permitted to
provide certain non-audit services to
public interest entities (i.e. United Utilities
Group PLC) that are closely linked to the
audit itself or that are required by law or
regulation, as such services could impede
their independence. Permitted non-audit
services fees paid to the statutory auditor
are subject to a fee cap of no more than 70
per cent of the average annual statutory
audit fee for the three consecutive financial
periods preceding the financial period in
which the cap applies.
The 70 per cent non-audit services fee cap has
been applied to the group for the year ended
31 March 2021. The average of audit fees is
£430,000 (calculated as the average of the
audit fees for the three preceding financial
years (2020: £474,000; 2019: £437,000; 2018:
£379,000). Non-audit services fees during
the year were £119,500, (2020: £77,000; 2019:
£65,000) so well below the cap of £301,000
(70 per cent of £430,000). In 2021, fees for
non-audit services represent 27.8 per cent of
the average audit fees on which the cap is
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE based. The committee revised the non-audit
services policy incorporating the 70 per cent
fee cap as described above with effect from 1
April 2017. The company’s non-audit services
policy reflects the FRC’s Revised Ethical
Standard (2019). Permitted services (which
remain subject to the 70 per cent cap, apart
from the regulatory audit) can be approved
by the CFO subject to a cap of £10,000
applied for individual items. Individual items
in excess of £10,000 require the approval of
the committee. Auditor-provided permitted
services include the non-audit fees paid to the
statutory auditor for: the interim review; the
regulatory audit; agreed-upon procedures for
regulatory reporting and the Euro Medium
Term Note Programme and Law Debenture
Trust compliance work.
Fees for non-audit services paid to KPMG
include the cost of the UUW regulatory
assurance work they undertake, which
is separate to the regulatory audit.
While this work could be performed by
a different firm, the information is in fact
more granular breakdowns of data that
form part of the statutory audit, and by
KPMG undertaking the work it reduces
duplication and saves considerable cost.
During the year, the committee agreed
additional fees of £100,000 in relation to
the additional audit work impacted by
COVID-19 as part of the 2019/20 audit.
These fees were agreed subsequent to
the finalisation of the 2019/20 accounts
are therefore included in the audit fees
disclosed for 2020/21.
conduct a competitive tender process every
ten years, and rotate auditors after 20 years
at most. As a matter of good practice, the
committee continually keeps under review
the performance of the auditor.
Taking into account our findings in relation
to the effectiveness of the audit process and
in relation to the independence of KPMG,
the committee was satisfied that KPMG
continues to be independent, and free from
any conflicting interest with the group.
Statutory auditor reappointment for
the year ending 31 March 2022
The following section sets out the company’s
compliance with part of provision 26.
The 2020/21 year-end audit has been
KPMG’s tenth consecutive year in office
as auditor; they were reappointed after
the committee conducted a formal tender
process in December 2019 and as reported
by the committee in 2020. Prior to this, a
formal tender was last undertaken in 2011,
and resulted in the appointment of KPMG
who thereafter presented their report to
shareholders for the year ended 31 March
2012. An audit tender review was held in
September 2015. The diagram shown below
shows the historical tendering and rotation
of the role of statutory auditor. The company,
as a public interest entity, is required to
The 2020/21 audit has been the first year
for Ian Griffiths as audit engagement
partner. The audit engagement partner
changes at least every five years.
United Utilities has complied fully with
the provisions of The Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014 for the year
ended 31 March 2021.
At its meeting on 19 May 2021, the
committee recommended to the board
that KPMG be proposed for reappointment
for the year ending 31 March 2022 at the
forthcoming AGM in July 2021. There are
no contractual obligations that restrict
the committee’s choice of auditor; the
recommendation is free from third-party
influence and no auditor liability agreement
has been entered into.
ROTATION OF EXTERNAL AUDITOR TO THE GROUP
1989
31 March
1994
First Auditor appointed
on formation of group:
Price Waterhouse
Price Waterhouse
retired after
completion of audit
September
2015
31 March
2012
Audit
tender review
KPMG Audit Plc
audit
1993–
1994
Audit
tender
April
2011
Audit
tender
31 March
1995
KPMG
Peat Marwick
audit
May
2002
Audit
tender
31 March
2008
31 March
2003
Audit partner
rotation
Deloitte &
Touche LLP audit
31 March
2017
December
2019
31 March
2021
Audit partner
rotation
Audit
tender
KPMG LLP audit and
audit partner rotation
151
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Audit committee
Interactions with the Financial
Reporting Council (FRC)
During the year, the FRC undertook a
review of the company’s annual report
and accounts for the year ended 31 March
2020, which resulted principally in queries
relating to disclosures associated with
the consolidated statement of cash flows
(see page 212). These queries were quickly
resolved to the FRC’s satisfaction and their
review was closed. To provide greater
clarity, the group has provided enhanced,
voluntary disclosure on these and other
matters in this year’s financial statements.
In their correspondence, the FRC states
that their review provides no assurance
that the company’s accounts are correct
in all material respects; the FRC’s role is
not to verify the information provided but
to consider compliance with reporting
requirements. The FRC last reviewed and
corresponded with the company in relation
to the 31 March 2016 accounts.
Going concern and long-term
viability
The committee challenged and scrutinised
management’s detailed assessment of the
group’s long-term viability and its ability
to continue as a going concern. In doing
this the committee took into account the
risks facing the business, and its ability
to withstand a number of severe but
reasonable scenarios. Having considered
management’s assessment, the committee
approved the long-term viability statement
set out on page 142.
Significant issues considered by the committee in relation to the financial statements
Significant issues considered
How these were addressed by the committee
Impact of COVID-19 – the impact of the COVID-19
pandemic resulted in higher levels of estimation
uncertainty and considerably more judgement being
required in preparing the financial statements for the
year ended 31 March 2020. During the year ended
31 March 2021, the committee has considered how
the situation has developed in order to revisit these
significant estimates and judgements.
Capitalisation of fixed assets (see pages 201, 216 and
225 to 226 and 256) – fixed assets represents a subjective
area, particularly in relation to costs permitted for
capitalisation and depreciation policy.
Revenue recognition and allowance for doubtful
receivables (see pages 201, 215 to 216, 227 to 228 and
255) – due to the nature of the group’s business, the
extent to which revenue is recognised and doubtful
customer debts are provided against is an area of
considerable judgement and estimation. This has
particularly been the case in the current and prior year,
where the economic impacts of COVID-19 have been
highly uncertain, though compared with the prior year
these judgements and estimates have been increasingly
informed by the availability of more data in relation to
consumption of services and customer payment patterns
under the conditions brought about by the pandemic.
Retirement benefits (see pages 202, 230 to 231, 248 to
253 and 258) – the group’s defined benefit retirement
schemes are an area of considerable judgement, the
performance and position of which is sensitive to the
assumptions made. The group employs the services of
an external actuary to determine the calculation of the
net retirement benefit surplus and determine the
appropriate assumptions to make.
The impacts of the pandemic on the issues considered are outlined below, where applicable.
Broadly, with the passage of time and as more data relating to the key areas impacted by the
pandemic has become available, the level of estimation uncertainty has fallen compared with
the prior year when the pandemic was still in its early stages.
The committee assessed the reasonableness of the group’s capitalisation policy and the basis on
which expenditure is determined to relate to enhancement or maintenance of assets and, having
considered the work performed by KPMG in this area, deemed both to be appropriate;
The committee challenged the controls around ensuring the accuracy of capital accruals making
up part of the total amount of fixed assets capitalised during the year, and satisfied itself that
controls in this area were adequate; and
The committee reviewed the recovery of the capital overhead rates that it had approved in
the year ended 31 March 2020 for the five-year regulatory period ending 31 March 2025. The
committee concluded that the rates remain appropriate, noting that it is early in this period and
therefore the continuing appropriateness of the rates used will be kept under review.
The committee reviewed the approach taken by management in estimating the impact of
changing consumption patterns for both household and non-household customers during
periods of lockdown, and the implications this has for estimating the amount of unbilled revenue
to recognise for customers with water meters. The committee noted that the level of estimation
required has reduced throughout the year, as more meter reads covering periods of changing
consumption patterns have been performed. The committee satisfied itself that management’s
approach to estimating the level of revenue to recognise has been robust and has been
appropriately adapted as more data has become available; and
The committee reviewed management’s assessment of the impact the pandemic appears
to have had on the level of doubtful debt and credit note provisioning, recognising that the
situation remains uncertain as government support schemes are set to unwind in future periods.
The committee challenged management’s judgement around the appropriate period over which
to consider cash collection history in assessing the level of expected future credit losses, and
concurred that the judgement around the period chosen was appropriate.
The committee sought from management an understanding of changes to the methodology and
assumptions used in calculating the defined benefit scheme surplus, including an expansion of
the corporate bond population used in deriving the discount rate, the application of an inflation
risk premium in determining the RPI inflation assumption, and a reduction in the long-term
rate of improvement assumed in the mortality assumptions adopted. Having challenged the
rationale for making these changes and considered how they compare with market practice
and the requirements of the relevant accounting standards, the committee concluded that the
resulting assumptions were appropriate and balanced in estimating the level of defined benefit
obligations and therefore the net retirement benefit surplus.
152
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Significant issues considered
How these were addressed by the committee
Accounting for loans to the Water Plus joint venture
(see pages 216 to 217, 226 to 227 and 253 to 254) – during
the year ended 31 March 2020 the carrying value of the
group’s long-term interest in Water Plus, comprising its
equity investment and zero coupon loan notes extended
to the joint venture, was reduced to £nil as a result of
significant losses recorded by Water Plus due to the
COVID-19 pandemic. During the year ended 31 March
2021, the group and its joint venture partner, Severn Trent,
each agreed to refinance £32.5 million of revolving credit
facilities extended to Water Plus by replacing it with
additional long-term capital, which took the form of equity
shares issued in April 2021. This resulted in an increase in
the group’s long-term interest as at the reporting date and
the £32.5 million facility was included in the statement of
financial position in the form of a non-current receivable.
Accordingly the previously unrecognised brought forward
Water Plus losses, were set against this additional long-
term interest.
Accounting for the disposal of the group’s stake in its
joint venture, AS Tallinna Vesi (Tallinn Water) (pages
226 to 227) – during the year the group disposed of its
35.3 per cent stake in AS Tallinna Vesi, which gave rise
to a profit on disposal of £36.8 million.
Derivative financial instruments (see pages 240 to 247
and 257 to 258) – the group has a significant value of
swap instruments, the valuation of which is based
upon models which require certain judgements and
assumptions to be made. Management performs periodic
checks to ensure that the model-derived valuations agree
back to third-party valuations and KPMG check a sample
against their own valuation models.
Provisions and contingent liabilities (see pages 232,
234 and 258) – the group provides for contractual, legal
and environmental claims brought against it based on
management’s best estimate of the value of settlement,
the timing of which is dependent on the resolution of
the relevant legal claims. Judgement is also required in
determining when contingent liabilities exist that require
disclosure in the financial statements.
Having satisfied itself as to the rationale for refinancing part of the loans extended to Water
Plus, the committee considered whether the conditions existed as at the reporting date to
account for the £32.5 million revolving credit facility as part of the group’s long-term interest in
Water Plus, and therefore the appropriateness of the recognition of current and prior year losses
against this balance. Having sought to understand alternative accounting approaches that were
considered, the committee concluded that the nature of the balance and the conditions extant
at 31 March 2021 were such that it formed part of the group’s long-term interest at the reporting
date and that it was satisfied with how this is presented in the financial statements; and
The committee reviewed and challenged management’s updated assessment of expected credit
losses in relation to loans to Water Plus, concluding that the assumptions and judgements
underpinning the assessment remain reasonable, and noting that the reduction in the required
allowance was primarily driven by a reduction in the level of exposure to future credit losses
resulting from the refinancing of the £32.5 million facility with new equity.
The committee noted the proposed accounting approach for the disposal of the Tallinn Water
JV and after taking account of the specific circumstances and the views of management
and KPMG, concluded that the approach and presentation in the financial statements was
appropriate.
The committee noted that the periodic checks performed by management had been completed
at the year end reporting date, and that KPMG had undertaken their testing with no significant
issues identified.
The committee assessed and challenged the appropriateness of the basis on which provisions
are recognised, and management’s estimate of the value applied to individual claims, focusing
particularly on instances where new provisions were required or where the likelihood of financial
outflow was deemed to have diminished such that provisions were no longer needed and were
therefore released. The committee concluded that the approach to provisioning was appropriate
and that management’s best estimates were reasonable; and
The committee considered the reasonableness of disclosures made in respect of contingent
liabilities, challenging management as to whether any provision should be recognised in the
financial statements and concluding that the recognition criteria had not been met and therefore
that disclosure as contingent liabilities was the most appropriate approach.
Taxation (see pages 222 to 223, 231 and 255 to 256) –
judgement is required in assessing provisions for
potential tax liabilities and in considering the
recoverability of deferred tax assets.
The committee considered the tax risks that the group faces and the key judgements made by
management underpinning the provisions for potential tax liabilities and deferred tax assets. In
addition, the committee took account of KPMG’s assessment of these provisions. Based on the
above, the committee was satisfied with the judgements made by management.
Alternative performance measures (APMs) (see pages
82 to 83) – during the year the group revisited the
adjustments made in arriving at the underlying profit
measures reported in its APMs. This resulted in the
removal of adjustments for: restructuring costs in
arriving at underlying operating profit as a matter of
course, unless highly material; net pension interest and
capitalised borrowing costs in arriving at underlying
net finance expense; and agreement of prior years’ tax
matters relating to annual tax rebates received as a
result of the group’s approach to paying tax.
Net debt disclosure in the financial statements (see
pages 236 to 237) – following the alignment of rating
agency approaches to defining net debt, the group has
amended its definition of net debt reported in the financial
statements as set out in note A2 (pages 236 to 237) to now
exclude the fair value of derivatives hedging future interest
rates, power derivatives, and the fair value of inflation
swaps (excluding the principal accretion element).
The committee also considered the implications of these changes for the group’s measure
of effective interest rate which, while not an alternative to a GAAP measure of financial
performance, expresses the underlying interest cost as an effective interest rate on the nominal
value debt and therefore provides a useful comparison against the Ofwat’s allowed cost of debt
to illustrate financing outperformance during the period versus the regulatory determination.
The committee concurred with management’s view that it is appropriate to include effective
interest rate as a measure alongside other APMs in order to increase transparency, and that
in reaching this rate it is appropriate to adjust for capitalised borrowing costs and net pension
interest to be consistent with the regulatory economics; and
In considering management’s judgements around adjusting items, the committee satisfied
itself that as operating under the conditions brought about by the COVID-19 pandemic has
become part of normal business practice, adjusting for COVID-19 related items becomes more
subjective and therefore APMs could become less reliable. The committee therefore endorsed
management’s approach of not adjusting for such items in the current year.
The committee challenged management as to why the updated definition, which excludes the
fair value of derivatives hedging future interest rates, power derivatives, and the fair value of
inflation swaps (excluding the principal accretion element), gives a more useful view of the
group’s net debt, ultimately satisfying itself that the updated definition more closely aligns to
definitions used by credit rating agencies and the approach taken by industry peers, as well as
giving a better reflection of the regulatory economics associated with the group’s borrowings
and treasury management.
153
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Audit committee
Internal controls and risk
management systems
The main features of the group’s internal
controls and risk management systems are
summarised below:
Internal audit function
The internal audit function is a key element
of the group’s corporate governance
framework. Its role is to provide independent
and objective assurance, advice and insight
on governance, risk management and
internal control to the audit committee, the
board and to senior management. It supports
the organisation’s vision and objectives by
evaluating and assessing the effectiveness
of risk management systems, business
policies and processes, systems and key
internal controls. In addition to reviewing the
effectiveness of these areas and reporting
on aspects of the group’s compliance with
them, internal audit makes recommendations
to address any key issues and improve
processes and, as such, provides an
indication of the behaviours being exhibited
by employees in the areas under review.
Once any recommendations are agreed with
management, the internal audit function
monitors their implementation and reports
to the committee on progress made at every
meeting.
A five-year strategic audit planning
approach is applied. This facilitates an
efficient deployment of internal audit
resource in providing assurance coverage
over time across the whole business, as
well as greater variation in the nature,
depth and breadth of audit activities. This
strategic approach supports the annual
audit plan, which is then endorsed by
management, and which the committee
reviews, challenges and approves. The
plan focuses the team’s work on those
areas of greatest risk to the business.
Building on the strategic planning
approach, the development of the plan
considers risk assessments, issues raised
by management, areas of business and
regulatory change, prior audit findings
and the cyclical review programme. The
purpose, scope and authority of internal
audit is defined within its charter which is
approved annually by the audit committee.
As set out in the charter, internal audit
perform their work in accordance with the
mandatory aspects of the International
Professional Practice Framework of the
Chartered Institute of Internal Auditors;
and with integrity (honestly, diligently
and responsibly) and objectively (without
conflicts of interest).
Internal audit, led by the head of audit
and risk, covers the group’s principal
activities and reports to the committee and
functionally to the CFO. The head of audit
and risk attends all scheduled meetings of
the audit committee, and has the opportunity
154
to raise any matters with the members of
the committee at these meetings without
the presence of management. He is also
in regular contact with the chair of the
committee outside of committee meetings.
The in-house team is expanded as and
when required with additional resource and
skills co-sourced from external providers.
The committee keeps the relationship
with co-source providers under review to
ensure the independence of the internal
audit function is maintained and there is a
documented process to manage possible
conflicts of interest with the co-sourced
resource. Ensuring that any co-source
resource remain independent in the course
of its work is crucial to the integrity of
its work. During the year, PwC was re-
appointed as co-source resource provider
following a competitive tender process (see
page 155).
The internal audit function liaises with
the statutory auditor, discussing relevant
aspects of their respective activities which
ultimately supports the assurance provided
to the audit committee and board. During
the year, the committee reviewed the
current operating model, in particular the
balance of in-house versus co-sourced
resource, and concluded that, while minor
improvements were identified, the current
approach was satisfactory.
Assessing the effectiveness of the
internal audit function
The effectiveness of the internal audit
function’s work is continually monitored
using a variety of inputs, including the
ongoing audit reports received, the audit
committee’s interaction with the head of
audit and risk, an annual review of the
department’s internal quality assurance
report, a quarterly summary dashboard
providing a snapshot of the progress
against the internal audit plan tabled at
each committee meeting as well as any
other periodic quality reporting requested.
An annual stakeholder survey in the form
of a feedback questionnaire is circulated to
committee members, senior management
and other managers who have regular
contact with the internal audit function,
including representatives from the auditor
KPMG and the co-source audit provider
PwC. The responses were anonymous to
encourage open and honest feedback,
and were consistently favourable, as were
previous surveys.
Periodically, the quality and effectiveness
of the internal audit function is also
assessed externally, with the most recent
review being undertaken in early 2019. The
committee has received regular updates
during the year from the head of audit
and risk on the impact of the pandemic on
the schedule of work of the internal audit
team, due to remote working and social
distancing measures. Some re-phasing of
the original work was undertaken, with
the team keeping on track with re-planned
work. Only one audit, which required
access to a third party’s site, was deferred,
with agreement by the committee, to the
2021/22 audit plan.
Taking all these elements into account,
the committee concluded that the internal
audit function was an effective provider of
assurance over the organisation’s risks and
controls and appropriate resources were
available as required.
Risk management systems
The committee receives updates and
reports from the head of audit and risk on
key activities relating to the company’s risk
management systems and processes at every
meeting. These are then reported to the
board, as appropriate. The group designs its
risk management activities to manage rather
than eliminate the risk of failure to achieve its
strategic objectives.
The CFO has executive responsibility for
risk management and is supported in this
role by the head of audit and risk and the
corporate risk manager and his team. The
group audit and risk board (GARB) is a
sub-committee of the executive team. The
GARB meets quarterly and reviews the
governance processes and the effectiveness
and performance of these processes along
with the identification of emerging trends
and themes within and across the business.
The work of the GARB then feeds into the
information and assurance processes of
the audit committee and into the board’s
assessment of risk exposures and the
strategies to manage these risks.
Supplementing the more detailed ongoing
risk management activities within each
business area, the biannual business unit
risk assessment process (BURA) seeks
to identify how well risk management is
embedded across the different teams in
the business. The BURA involves a high-
level review of the effectiveness of the
controls that each business unit has in
place to mitigate risks relating to activities
in their business area, while identifying
new and emerging risks and generally to
facilitate improvements in the way risks
are managed. The outcome of the BURA
process is communicated to the executive
team and the board. This then forms the
basis of the determination of the most
significant risks that the company faces
which are then reviewed by the board.
The group utilises risk management
software to underpin the company’s risk
management process. The maturity of
the risk management framework and its
application across the business is assessed
on an annual basis against a defined
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE INTERNAL AUDIT CO-SOURCE COMPETITIVE TENDER
During the year, the committee led and supervised a formal tender process for the
internal audit co-source resource. The contract with the incumbent, PwC, was
due to expire on 31 March 2021. The request for proposal was issued in December
2020. Five proposals were received, which were evaluated on a weighting of 85 per
cent technical and 15 per cent commercial. After initial analysis, three proposals
progressed to the presentation stage in front of the tender review panel made up
of audit committee members and senior members of the finance team. Taking into
account both technical and commercial scores, PwC achieved the highest score and
was re-appointed.
As part of the internal control self-
assessment checklist (part of the group’s
internal control processes), senior
managers in consultation with their teams
are required to confirm, among other
things, that they have complied with
the group’s anti-bribery and hospitality
policies. The anti-bribery programme is
monitored and reviewed biannually by
the committee. Our United Supply chain
approach sets out that we do not tolerate
corruption, bribery and unfair anti-
competitive actions on our own behalf or
that of our suppliers.
The anti-bribery policy is available at
unitedutilities.com/corporate/about-us/
governance
The United Supply chain approach
is available at unitedutilities.com/
corporate/about-us/governance/
suppliers/delivering-value/
united-supply-chain
During the year, the audit committee was
kept fully apprised in regular updates on
the progress and findings of investigations
of cases of alleged fraud and any remedial
actions taken. A number of employees
have been selected and received specialist
training in order to conduct investigations
of cases of alleged fraud.
In line with the group’s anti-fraud culture
and zero-tolerance attitude towards
fraud, a fraud incident forum has been
established to identify and understand
potential threats, and optimise the group’s
response and mitigation and ensure
consistency across the business.
The company has an anti-bribery policy
to prevent bribery being committed on
its behalf, which all employees must
follow, and processes in place to monitor
compliance with the policy. Employees in
certain roles are required to complete anti-
bribery training materials. As part of the
anti-bribery programme, employees must
comply with the group’s hospitality policy.
The hospitality policy permits employees
to accept proportionate and reasonable
hospitality for legitimate business purposes
only. Our employees and representatives of
our suppliers must comply with the group’s
sustainable supply chain charter which
explains that we will not tolerate corruption,
bribery and anti-competitive actions and
we expect our suppliers to comply with
applicable laws and regulations, and in
particular never to offer or accept any
undue payment or other consideration,
directly or indirectly, for the purposes
of inducing any person or entity to act
contrary to their prescribed duties.
maturity model. This assessment provides
an objective appraisal of the degree of
maturity in how the risk management
system is being applied and the quality of
each risk in terms of quantification and
management. The results of the maturity
assessment are reported to the GARB, and
actions agreed with business units.
An external assessment of the risk
management process last took place in
2017/18.
The committee received a ‘deep dive’
session on the risk management process.
This provided an explanation of the process
of identification and assessment of risk
along with the governance mechanisms
in place prior to the reporting of the risk
profile to the board.
Internal controls
The committee reviews the group’s
internal control systems and receives
updates on the findings of internal audit’s
investigations at every meeting, prior to
reporting any significant matters to the
board. Internal control systems are part
of our ‘business as usual’ activities and
are documented in the company’s internal
control manual which covers financial,
operational and compliance controls and
processes. Internal control systems are the
responsibility of the CFO, with the support
of the GARB, the financial control team and
the internal audit team, although the head
of audit and risk and his team are directly
accountable to the audit committee.
Confirmation that the controls and
processes are being adhered to throughout
the business is the responsibility of
managers, but is continually tested by the
work of the internal audit team as part of its
annual plan of work which the committee
approves each year as well as aspects being
tested by other internal assurance providers.
Compliance with the internal control system
is monitored annually by the completion
of a self-assessment checklist by senior
managers in consultation with their teams.
The results are then reviewed and audited
on a sample basis by the internal audit team
and reported to the committee.
Anti-fraud and anti-bribery
The audit committee is responsible for
reviewing the group’s procedures for
detecting fraud, and the systems and
controls for preventing other inappropriate
behaviour. In the first instance of an
incident being reported, a summary of
the allegations is passed to the fraud and
whistleblowing committee (consisting of
the company secretary, customer services
and people director, commercial director
and head of internal audit and risk) to decide
on the appropriate course of action and
investigation and by whom.
155
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Corporate responsibility committee
In what has been a challenging year, it has mattered
more than ever that the company has engaged with its
stakeholders on topics relevant to them.
Stephen Carter
Chair of the corporate
responsibility
committee
Dear Shareholder
I am pleased to introduce the report on the
activities of the corporate responsibility
committee in 2020/21.
The committee has discussed the COVID-19
pandemic at every meeting this year to
assess the actions taken by the company
from a responsible business perspective. It
considers the approach to be comprehensive
and thoughtful, ranging from enhanced
support for vulnerable customers through
extension of the company’s social tariff and
the prominent promotion of its payment
break scheme, to the help offered to
suppliers through accelerated payment
terms and the unrelenting focus on employee
health and wellbeing.
It has been encouraging to see that the
company is already well advanced in its
thinking about working patterns in a post-
pandemic environment, positioning it as
the ‘next ways of working’. The committee
recognises there are many implications
associated with changed working patterns
and it looks forward to the opportunity to
comment on plans as they develop. The
committee debated the broader impact of
QUICK FACTS
• The corporate responsibility
Quick link
Terms of reference – unitedutilities.
com/corporate-governance
committee has existed for over
thirteen years.
• The committee comprises three
directors appointed by the board,
two of whom are independent non-
executive directors.
• The company secretary, corporate
affairs director and customer
services and people director attend
all meetings of the committee.
• Senior operational directors
attend the committee to report
on the environmental, social and
governance aspects of particular
topics and initiatives.
Corporate responsibility committee members
Stephen Carter
(chair)
Alison Goligher
Steve Mogford
156
COVID-19 for the company’s approach to
responsible business, concluding that it
was premature to draw lasting conclusions
as the pandemic was still with us.
As a result of the lockdown, there has been
a marked increase in the number of visitors
to United Utilities’ recreation sites which,
regrettably, has resulted in an increase
in anti-social behaviour. The committee
welcomed a paper on the company’s
approach to land management which set
out clearly the risks and opportunities that
come with being custodians of land in
some of the most highly valued parts of the
North West, such as the Lake District.
In response to growing investor interest
in ESG – environmental, social and
governance – the committee was pleased
to comment on the company’s sustainable
finance framework ahead of its first
successful sustainable bond issuance. The
fact that the bond was three times over-
subscribed reveals the level of investor
focus on ESG. To help this community
better understand the company’s
approach, an investor guide to ESG at
United Utilities was published in 2020 to
provide a helpful summary of the material
issues the company is managing. It is also
the fifth consecutive year that my report
to shareholders has been structured under
ESG headings.
The creation of the sustainable finance
framework was a further example of the
company’s long-standing commitment to
responsible business. While the committee
is clear, on behalf of the board, that the
company is making real progress, we
believe that judgement is best left to
others. It is both pleasing and reassuring
that the company continues to perform
well across a broad range of ESG indices.
In the Dow Jones Sustainability Index, in
which the company has participated almost
longer than any other, it was again ranked
world class – for the 14th consecutive year.
Over the past twelve months, the sector
has transitioned from AMP6 to AMP7,
and the company took the opportunity
to review its approach to responsible
business. As it exited AMP6, it reported
that over 75 per cent of the stretching
targets first set in 2015 to measure
responsible business progress had been
achieved. With AMP7 underway, the
committee supported an evolution in
its approach to frame the company’s
responsible business efforts around its
purpose ‘to provide great water and
more for the North West’, with particular
emphasis on the value the company
creates for its stakeholders.
The committee endorsed a new set of
measures and targets out to 2025 that are
aligned to each stakeholder the company
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE MAIN RESPONSIBILITIES
The terms of reference remained
unchanged for the committee. Its
main duties are to:
• consider and recommend to
the board the broad corporate
responsibility (CR) policy, taking
into account the company’s
desired CR positioning;
• keep under review the group’s
approach to CR and ensure it is
aligned with the group strategy;
•
review CR issues and objectives
material to the group’s
stakeholders and identify and
monitor the extent to which they
are reflected in group strategies,
plans and policies;
• monitor and review the status
of the company’s reputation
and examine the contribution
the group’s CR activities
make towards protecting and
enhancing this;
• monitor and review compliance
with the board’s CR policy and
scrutinise the effectiveness of
the delivery of the CR policy
requirements;
• develop and recommend to
the board CR targets and key
performance indicators and
receive and review reports
on progress towards the
achievement of such targets and
indicators;
• monitor and review the steps
taken by the company to
support customers in vulnerable
circumstances; and
•
review all approved specific
giving where the aggregate
financial contribution exceeds
£100,000 over the period of the
proposed funding and to review
all community giving expenditure
annually.
It has been encouraging
to see that the company is
already well advanced in
its thinking about working
patterns in a post-pandemic
world.
G
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creates value for and reflects
what matters to them. We
welcomed the intention to include
these measures in a revised section of the
annual report (see pages 50 to 73), reporting
openly and transparently on them to help
stakeholders to determine if the company
is purpose led. This means that a ‘golden
thread’ from purpose, through to vision and
strategy, and then to measurement, will be
clearly evident.
In what has been a challenging year, it has
mattered more than ever that the company
has engaged with its stakeholders on
topics relevant to them. At every meeting,
the committee discusses the company’s
approach to stakeholder engagement,
ranging from national political and
regulatory stakeholders through to the
devolved administrations in the North West
and regional NGOs. For example, it was
good to hear of the favourable response
to the company’s first virtual caseworker
event from the staff in regional MP offices.
The pandemic has drawn attention to many
issues, with three of particular interest to
the committee. First, it is evident that the
pandemic has had a disproportionate impact
on socially and economically deprived
communities, of which there is a greater
proportion in the North West than the rest
of the country. The committee focused on
the affordability and vulnerability support
offered by the company.
Second, inequality in society has been
brought into sharp focus, whether that is
through the Black Lives Matter movement
or increasing youth unemployment. In
response, the company presented its
refreshed diversity and inclusion strategy,
marking a step change in its efforts to
address the issue, and the committee
welcomed United Utilities’ first social
mobility summit, hosted virtually, where
it convened over 150 regional businesses
to debate how best to tackle inequality,
setting out its own intentions in its
Opportunity on Tap plan.
The third issue has been the climate and
nature emergencies. The committee reviewed
the company’s progress on its climate change
adaptation plan and how its stewardship of
56,000 hectares of land will pay a critical role
in both mitigating climate change (for example
through planting trees and restoring peatland)
and adapting to the impacts that are already
occurring, such as slowing the flow of water to
reduce flood risk.
Changes to the Corporate Governance
Code in 2018 means that the committee
now examines some additional responsible
business topics on behalf of the board,
in particular in relation to employees.
Two papers were presented to the
committee on progress in relation to work
of the Employee Voice panel and how
it has established an important role in
contributing to the company’s plans.
As the contribution that businesses
make to society is examined ever more
closely, especially as we think about a
post-pandemic world, I am confident
that the company, with its long-standing
commitment to corporate responsibility
and its determination to fulfil its purpose,
will continue to build legitimacy amongst
the opinions of customers, regulators,
government and other stakeholders.
As a listed company, United Utilities
complies with the UK Corporate
Governance Code and continues to
drive for the highest standards of board
leadership, transparency and governance.
Stephen Carter
Chair of the corporate responsibility
committee
157
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021 Corporate governance report
Corporate responsibility committee
Diversity and inclusion
A refreshed and updated strategy was
discussed by the committee. It agreed that
to attract great people to deliver a great
public service, the company had to reach
out and recruit from every part of society
and support employees to achieve their
full potential and feel valued and included.
Five key work streams had been identified:
leadership development; encouraging
openness; people policies and processes;
increasing awareness; and enabling
inclusion. The committee welcomed the
company’s strong performance in the
FT Diversity Index, indicating efforts to
engage on diversity and inclusion were
being recognised.
Gender pay report
The committee commented on the draft
gender pay report for 2020 and welcomed
that employee feedback had been sought
in shaping the report. Progress against
the action plan and commitments would
continue to be monitored as part of the
wider diversity and inclusion strategy.
Affordability and vulnerability: lower
income groups
As a standing item, the committee was
provided with an update on the company’s
performance in assisting customers on low
incomes, focusing on free meter options
and how the company is responding
through planned initiatives.
Human rights policy
The committee approved an updated
Human Rights policy. Analysis by the
company’s working group on its risk
assessment showed movement in the
likelihood and severity of some risks
but this did not change the most salient
issues: forced/child labour (modern
slavery); health and safety; data protection
and privacy; and access to clean water
and sanitation. Material updates to the
policy included the addition of a clause
concerning the company’s expectations
of personnel, business partners and other
relevant parties and a statement that the
company has a mechanism by which to
report concerns safely and in confidence.
Governance
CR committee terms of reference
Following review, the committee concluded
that no further changes were needed to
its terms of reference at the current time.
The emergence of recent trends, such as
the greater emphasis on purpose, were
accommodated by the existing terms.
CR committee evaluation
The committee reviewed the external
evaluation results and, in particular, points
raised about the visibility of ESG and
how its elements are brought together. It
noted that ESG was already represented
in the committee’s section of the annual
report and, through the standing item on
reputation, it reviewed company efforts
to promote its ESG credentials and
encouraged it to do more.
Employee Voice
Twice a year the committee reviews
progress on employee and board
engagement. During lockdown, the
company adopted a ‘virtual’ Employee
Voice panel which covered key topics
such as reward strategy and the scope of
the ‘next ways of working’ programme,
with members providing feedback on
the company’s response to COVID-19.
The committee heard of the work of the
Employee Voice networks and sub-groups,
discussions on the employee opinion
survey, and feedback on the culture in
United Utilities. The committee considered
further opportunities for the employee
voice to be heard and was advised that
the management conference was to be
replaced with an all-employee conference.
The committee noted that the company
was satisfied that activities and progress
enabled it to demonstrate compliance with
the code.
Stakeholder engagement and reputation
Engagement and reputation remained
a standing agenda item allowing time
to examine the relationship between
responsible business and reputation. Each
paper provided an update on national
and regional political and regulatory
engagement, and interaction with people
and organisations representing regulatory,
social and environmental interests. The
committee was keen to understand the
company’s stakeholder approach during
COVID-19 and discussed the virtual
consultation approach for the Haweswater
Aqueduct Resilience Programme. It
welcomed the favourable response to the
company’s first virtual MP caseworker
event. The committee was presented with
an update on current reputational risks
under active management.
The committee’s agenda
during the year:
Environmental
Climate change adaptation strategy
A comprehensive overview of the company’s
approach was presented to the committee,
which included: meeting government
requirements for climate change adaptation
reporting; embedding climate risk into
the corporate risk framework; using UK
Climate Projections 2018 in future planning;
an independent review of climate change
preparedness and the interaction climate
change adaptation will have with PR24;
and plans for the company’s involvement in
COP26.
Land management update
The committee debated the company’s
approach to land management. As a
result of excess visitor numbers due
to COVID-19 lockdowns, efforts were
underway to stabilise the current
situation and reduce the impact of visitor
behaviour. Alongside this, the company
had begun a comprehensive review of its
strategy, including: overall ambition and
direction; processes; governance; funding;
partnerships; stakeholder engagement;
communications and culture.
Waste and circular economy
The committee discussed conclusions
reached by the company that business
benefits could be gained through circular
economy thinking. This will involve
engagement across the company and
with partners and suppliers in four areas:
water and wastewater; energy; materials;
and restoration of natural systems. As an
example, the committee heard about scope
to work more closely with housebuilding
companies on water efficiency. A pilot will
be undertaken in the Carlisle area with
government agencies, customers and other
stakeholders to explore opportunities.
Social
Next ways of working
Two updates were provided to the
committee on plans for employee working
patterns post-pandemic. The first phase of
work will develop a ‘flexibility framework’
and common principles to optimise and
hardcode the benefits of the current ways
of working. The second phase considers
the medium-term workforce strategy,
assessing the impact from disruptors such
as technology and automation, changing
demographics and changing employee
expectations. The committee debated the
impact on line management, measuring
productivity, and the development of skills,
and observed how other factors such
as diversity and inclusion were shaping
working patterns.
158
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE LOOKING TO THE NEXT YEAR, THE COMMITTEE WILL:
• examine new and emerging issues,
such as how the company deals
with the impact of COVID-19 and its
legacy;
• on behalf of board, review
progress and issues arising from
the Employee Voice panel and the
company’s approach to culture;
• continue to examine the interaction
between purpose, ESG and
reputation and review the approach
to stakeholder engagement and the
management of reputational risks;
• oversee matters of general
governance, such as reviewing the
gender pay report; and
• undertake matters of committee
governance, such as reviewing its
rolling calendar of agenda items,
the annual committee evaluation
and examination of the committee’s
terms of reference.
•
review new or updated responsible
business strategies, such as the
company’s community strategy, how
it delivers its purpose objectives
through its capital programme and
its approach to talent and young
people;
• consider the responsible business
themes emerging for PR24;
•
•
return to several issues to review
progress, including digital and
responsible business, approach
to air quality, waste and circular
economy, land management, carbon
strategy, climate change adaptation
and an update on surface water
management;
review performance, specifically
the new measures and targets that
will evidence how the company is
fulfilling its purpose, ESG rating
performance and the dashboard
tracking the company’s efforts to
support customers on low incomes;
Measuring and reporting CR performance
against the business principles measures
was reviewed for the final time as the
targets were aligned to the end of AMP6.
The committee welcomed the outcome
that the company had met over 75 per cent
of the targets it had set in 2015.
Cross cutting
United Supply Chain
The committee was updated on the
company’s new approach to suppliers in
AMP7, called United Supply Chain (USC),
with its aim to embed responsible sourcing
principles. This had taken into account
best practice in other sectors, with the
aim of providing a consistent approach
to suppliers, with customers positioned
as a common theme. Adherence will
be monitored through the company’s
established supplier relationship
management mechanism.
Sustainable finance framework
A paper setting out the design for the
company’s sustainable finance framework
was presented to the committee.
It included: categories of green/
sustainable projects eligible for funding;
the governance around identifying and
selecting projects; tracking the net
proceeds to eligible projects and pre-
allocation investment; and publishing
reports annually until full allocation, with
external verification. The committee
endorsed the approach, concluding
that it aligned well with the company’s
responsible business and ESG credentials.
Value framework – multi-capitals
An update was provided to the committee
on a project related to embedding
the company’s purpose into business
processes. Aligned with the six capitals
of integrated reporting, the work
will determine what level of maturity
the company wants for each capital
(manufactured, financial, natural, social,
human and intellectual).
159
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Annual statement from the remuneration committee chair
Our executive pay arrangements are aligned to our purpose,
vision and strategy, thereby incentivising great customer
service and the creation of long-term value for all.
Alison Goligher
Chair of the
remuneration
committee
Dear Shareholder
I am pleased to introduce the directors’
remuneration report for the year ended
31 March 2021, which includes the annual
report on remuneration and an abridged
version of our directors’ remuneration policy
which was approved by shareholders at our
2019 AGM.
The onset of the COVID-19 pandemic in early
2020 introduced a unique set of challenges
for the company and the communities within
which we operate. As is outlined elsewhere in
this annual report, our focus throughout the
past year has been on protecting colleagues,
supporting customers, and maintaining our
essential water and wastewater services
across the North West. Thanks to the
extraordinary hard work and dedication
of our employees, many of whom are key
workers, we have continued to deliver high
quality services to our customers and support
the interests of our other stakeholders.
The year in focus
As a remuneration committee we are
always mindful of the extent to which
the remuneration of the executives aligns
with the experience of our stakeholder
groups. We have taken a close interest in
the actions that have been taken to protect
our employees and support their wellbeing
QUICK FACTS
• The code requires that “the board
Quick link
should establish a remuneration
committee of at least three
independent non-executive directors”.
• The role of the committee is to set
Index
Terms of reference – unitedutilities.
com/corporate-governance
remuneration terms for all executive
directors, other senior executives
and the Chairman.
• By invitation of the committee,
meetings are attended by the
Chairman, the CEO, the company
secretary, the customer services
and people director, the head of
reward and the external adviser to
the committee.
• Our remuneration policy was
approved by shareholders at the
2019 AGM and is intended to apply
until the 2022 AGM.
Remuneration committee members
Read about how our remuneration
approach complies with the UK
Corporate Governance Code on page
162
Read our At a glance summary:
executive directors’ remuneration on
pages 164 to 166
Read our Annual report on
remuneration on pages 167 to 181
Read our Directors’ remuneration
policy on pages 182 to 188
Alison Goligher
(chair)
Kath Cates
Mark Clare
Brian May
160
during this difficult year. As outlined on
pages 126 to 127, my role as the designated
non-executive director for workforce
engagement has enabled me to gain a first-
hand understanding of the various initiatives
that have been put in place and the feedback
received from employees, which I have then
been able to share with the committee for
consideration. The committee has received
regular updates on relevant matters affecting
the workforce from our customer services
and people director and head of reward at
each meeting.
In the initial days and weeks of the pandemic,
we made important changes to support the
safety of our front-line colleagues, introducing
safeguarding measures such as conducting
risk assessments across all our sites. We
implemented a range of measures to help
and support over 3,000 employees who
transitioned to home-working during the
period. Recognising the broader impact of the
pandemic on our employees and their families,
we introduced a staff outreach scheme,
offering one-time grants to employees whose
families faced COVID-19 related financial
challenges, to supplement our existing
group-wide health and wellbeing schemes.
No government support was accessed, no
employees were furloughed or had their pay
or benefits reduced, we have continued to
recruit people through our graduate and
apprentice programmes, and we are currently
supporting the Government’s Kickstart
Scheme providing jobs for 16 to 24 year olds
who are at risk of long term unemployment.
The team has performed extremely well in
these challenging circumstances, with high
levels of customer satisfaction and resilient
services in times of significantly increased
demand. In serving some of the most
economically deprived areas in the country,
we have been alert to the need to help
customers who struggle to pay their bills and
have extended our ongoing charitable support
and community engagement programmes.
As part of our commitment to Ofwat, we
reduced average household bills by 5 per cent
in real terms this year and acted swiftly to
increase the number of households eligible
for our social tariff alongside the extensive
support we already provide to customers
struggling with affordability, which now covers
over 200,000 customers. We worked with
our suppliers across the region to provide
enhanced payment terms to aid cash flows,
and accelerated our capital expenditure to
bring forward benefits and help support 17,700
jobs in the supply chain.
Against this background our performance in
this first year of the new regulatory period
has been strong, with outperformance of the
regulatory contract and positive ODI rewards
resulting in good outcomes for shareholders.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Implementation of the directors’
remuneration policy during 2020/21
Salary
Recognising the difficulty being experienced
by many customers in our region, all members
of the board, including the executive directors,
volunteered a 20 per cent reduction to their
salary/fees for the three-month period to
August 2020, and agreed that giving the
money to the foodbank charity FareShare
would be an effective way to support
vulnerable groups within our communities.
Further details on our relationship with
FareShare are shown on page 43.
Whilst our policy is that executive directors
normally receive a salary increase broadly
in line with the increase awarded to the
general workforce (which was 2.3 per cent
in the year), in recognition of the wider
economic environment, all members of the
board agreed that they would not receive
scheduled increases during 2020/21. Salaries
will next be reviewed in September 2021.
Annual bonus
Employees throughout the company
participate in the same bonus scorecard
as the executive directors, to ensure a
shared focus on the business plan at all
levels. As outlined in the Strategic Report
we have seen another strong year of
customer service, operational and financial
performance, despite the challenges
presented by the pandemic and periods of
significantly increased demand.
We are leading the way on customer
satisfaction and have made a strong start
to our AMP7 customer ODIs delivering net
outperformance this year, demonstrating
resilient performance across most of the
targets set for us by the regulators. While our
written customer complaints performance
for the year has fallen below our targets, in
part reflecting the higher level of complaints
during the dry spring in 2020 and our focus
on collecting cash from those customers who
are able to pay, but choose not to, we still
expect our relative performance to be upper
quartile compared with the other water and
wastewater companies.
Underlying operating profit was down
compared to last year as expected, and
largely reflecting lower revenues arising
from the new price control.
The efficient and effective delivery of the
capital programme is reflected in our Time,
Cost and Quality index (TCQi) score which
remains high at 95.3 per cent.
Overall company results have led to an
annual bonus out-turn for the executive
directors of around 82 per cent of
maximum (compared to the 2019/20
outcome of around 71 per cent of
maximum) and a company-wide bonus
pool totalling around £18 million (compared
to around £17 million in the prior year),
reflecting the exceptional efforts and high
levels of performance of the workforce
during the very challenging year.
Long-term incentives
The outcome of the Long Term Plan (LTP)
awards which were granted in 2018 will
be confirmed in the summer of 2021, with
an estimated vesting outcome of around
90 per cent. This reflects the continued
delivery of high standards of customer
service set in recent years, the achievement
of just under the stretch level of sustainable
dividend performance, and full vesting
under the relative total shareholder return
condition due to a return of 48 per cent over
the performance period (compared to the
stretch target of 26 per cent). As outlined in
last year’s report and as noted on page 169,
as a result of Ofwat transitioning from SIM
to C-MeX, the committee used its discretion
to amend the customer service element of
the award to be based on the new C-MeX
measure and written complaints. The final
outcome of this element will not be known
until the volume of written complaints
received by other companies are available
later in 2021 and the overall vesting level
can be confirmed. The awards for the
executive directors will vest only after the
completion of a two-year holding period,
during which the shares will remain subject
to withholding provisions. The committee
believes that this approach aligns the
interests of the executive directors with
those of shareholders and customers.
During 2018/19, the committee consulted
with shareholders on changing the
structure of the LTP, so future awards
would be based on two equally weighted
components: Return on Regulated Equity
(RoRE) and a customer basket of measures.
These changes were approved at the 2019
AGM and applied with respect to the 2020
awards onwards. LTP awards are normally
granted in June each year, but due to
the uncertainties posed by the COVID-19
pandemic and particular concerns at the
time about the possible extent of the
disruption caused, the committee delayed
the 2020 grants until November to allow
more time to settle the targets, details of
which are set out on page 170. Stretching
targets have been set for RoRE based on
the allowed return over the period (as set
out in the final determination) and the
expected returns to be generated through
financial and operational performance.
In respect of the customer basket, the
committee finalised the selection of
measures having taking into account the
feedback received from customer research
and focus groups (as to which areas of
service/performance they considered the
highest priority) and the performance
commitments agreed with Ofwat, thereby
ensuring that the measures reflect the
views of our stakeholders.
Executive director changes
Russ Houlden retired from the board and
as chief financial officer on 24 July 2020
and left the company on 31 July 2020.
Russ’ departure was treated in line with
the remuneration policy for retirees and in
line with the approach set out in last year’s
remuneration report. Following a rigorous
selection process, we were delighted to
appoint Phil Aspin to the role as successor.
Phil’s salary was set at £400,000 on his
appointment, with a pension contribution
aligned to the workforce rate. Other details
of his package are set out on page 167.
Agenda for 2021/22
As a committee, we have always sought to
fully embrace the changing landscape and
implement remuneration arrangements
that are transparent and well-aligned to
our purpose, vision and strategy, and this
continues to guide our approach for the
current year and beyond.
No significant changes are proposed to the
operation of the policy for 2021/22. Details
of the measures and targets for the annual
bonus plan and 2021 LTP awards are set out
on page 171.
We have a regular programme of
engagement with shareholders each year
in advance of our AGM and were pleased
that towards the end of 2020 the company
had the opportunity to speak with Glass
Lewis about our approach to executive
remuneration.
The next directors’ remuneration policy will
be subject to approval by shareholders in
2022 and we will engage with shareholders
about any potential changes to the policy
at the appropriate time.
We continue to use our Employee Voice
panel meetings as opportunities to discuss
directly with employees our executive pay
approach and its alignment with that of the
workforce, as well as hearing the general
views, concerns and comments from our
workforce. Listening to the views of all the
company’s key stakeholders plays a vital
role in formulating and implementing a
successful remuneration policy, and the
committee is grateful for all inputs received.
This is my first report as chair of the
remuneration committee, having been on
the board and a member of the committee
since 2016. I was delighted to be appointed
committee chair in July 2020, taking
over from Sara Weller, and I would like to
express my personal thanks and that of the
whole committee to Sara for her guidance
and stewardship over last eight years.
I hope we will continue to receive your
support this year for the remuneration
resolution at the forthcoming AGM.
Alison Goligher
Chair of the remuneration committee
161
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Code principle – remuneration
The following table summarises how our shareholder approved remuneration policy fulfils
the factors set out in provision 40 of the 2018 UK Corporate Governance Code.
CLARITY
SIMPLICITY
The committee is committed to
providing transparent disclosures
to shareholders and the workforce
about executive remuneration
arrangements and, to this end, the
directors’ remuneration report sets
out the remuneration arrangements
for the executive directors in a
clear and transparent way. Our
AGM allows shareholders to ask
any questions on the remuneration
arrangements, and we welcome any
queries on remuneration practices
from shareholders throughout the
year.
Our remuneration arrangements for
executive directors, as well as those
throughout the group, are simple
in nature and understood by all
participants, having been operated
in a similar manner for a number of
years. Executive directors receive
fixed pay (salary, benefits, pension),
and participate in a single short-term
incentive (the annual bonus) and a
single long-term incentive (the Long
Term Plan).
PREDICTABILITY
RISK
Payouts under the annual bonus
and LTP schemes are dependent on
the performance of the company
over the short and long-term,
and a significant proportion of
executive director remuneration is
performance-linked. These schemes
have strict maximum opportunities,
with the potential value at threshold,
target and maximum performance
scenarios provided in the directors’
remuneration report.
The committee has designed
incentive arrangements that explicitly
do not encourage inappropriate
risk-taking. The committee retains
overarching discretion in both the
annual bonus and LTP schemes to
adjust payouts where the formulaic
outcomes are not considered
reflective of underlying business
performance and individual
contributions. Robust withholding
and recovery provisions apply to
variable incentives.
PROPORTIONALITY
ALIGNMENT TO CULTURE
Payments from variable incentive
schemes require strong performance
against challenging conditions
over the short and longer term.
Performance conditions have been
selected to support group strategy
and consist of both financial and non-
financial metrics.
The committee retains discretion
to override formulaic outcomes in
both schemes to ensure that they are
appropriate and reflective of overall
performance.
Performance measures used in
our variable incentive schemes are
selected to be consistent with the
company’s purpose, values and
strategy. The use of annual bonus
deferral, LTP holding periods and our
shareholding requirements provide a
clear link to the ongoing performance
of the group and ensure alignment
with shareholders, which continues
after employment.
5Remuneration
Principle P:
Remuneration policies and
practices should be designed to
support strategy and promote long-
term sustainable success. Executive
remuneration should be aligned to
company purpose and values, and
be clearly linked to the successful
delivery of the company’s long-
term strategy.
We describe how our remuneration
approach aligns with our business
strategy on page 164.
Principle Q:
A formal and transparent
procedure for developing policy
on executive remuneration and
determining director and senior
management remuneration should
be established. No director should
be involved in deciding their own
remuneration outcome.
This is detailed in the committee’s
terms of reference which are
available on the company website.
The committee consults with
shareholders when changes to policy
are being considered.
Principle R:
Directors should exercise
independent judgement and
discretion when authorising
remuneration outcomes, taking
account of company and
individual performance, and wider
circumstances.
The shareholder approved directors’
remuneration policy outlines the
ways in which the committee may
exercise discretion.
162
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE REMUNERATION APPROACH
There are three key principles of our approach to executive remuneration.
1
2
3
Align
to our purpose, vision and strategy
Incentivise
great customer service
Create long-term value
for all of our stakeholders
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At a glance summary: executive directors’ remuneration
ALIGNING OUR REMUNERATION APPROACH TO BUSINESS STRATEGY
Our remuneration approach is aligned to our purpose, vision and strategy, thereby incentivising great customer service and the creation of long-term
value for all of our stakeholders.
The following table provides a summary of how our incentive framework in 2020/21 aligns with our business strategy and the results that it
delivers. Many of the performance measures are key performance indicators (KPIs) for the regulatory period 2020–25 (see pages 50 to 51).
Details about how our approach to executive remuneration is aligned with the approach to remuneration across the wider workforce are
shown on pages 172 to 175.
Annual bonus
Alignment to strategy
Underlying operating profit
Key measure of shareholder value.
Customer service in year
• C-MeX ranking
Delivering the best service to customers is a strategic
objective.
• Written complaints
Maintaining and enhancing
services for customers
• Outcome delivery incentive
(ODI) composite
• Time, cost and quality of the
capital programme (TCQi)
Ofwat can apply financial incentives or penalties
depending on our customer service performance.
Delivering the best service to customers is a strategic
objective.
There is a direct financial impact on the company of
Ofwat incentives and penalties for delivery/non-delivery
of customer promises.
Keeping tight control of our capital programmes ensures
we can provide a reliable service to our customers at the
lowest sustainable cost.
Link to
strategic
themes
Alignment to purpose
reflecting views of different
stakeholders
Shareholders
Customers
Communities
Shareholders
Customers
Customers
Communities
Shareholders
Environment
Customers
Media
Compulsory deferral of bonus Deferral of part of bonus into shares aligns the interests of
Shareholders
executive directors and shareholders.
Long Term Plan (LTP)
Return on Regulated Equity
(RoRE)
Outperformance will result in an increase to RoRE which
should translate into higher returns for investors through
share price performance.
Customer basket
of measures
Delivering the best service to customers is a strategic
objective.
There is a direct financial impact on the company of
Ofwat incentives and penalties for delivery/non-delivery
of customer promises.
Customers
Communities
Shareholders
Environment
Customers
Customers
Communities
Shareholders
Environment
Customers
Additional holding period (at
least two years)
Ensures continued alignment with shareholder interests
and provides an additional period over which withholding
can be applied.
Shareholding guidelines
It is important that each executive director builds and
maintains a significant shareholding in shares of the
company to provide alignment with shareholder interests.
Shareholders
Shareholders
KEY
The best service to customers
At the lowest sustainable cost
In a responsible manner
Communities
Customers
Customers
Environment
Communities
Customers
Environment
Shareholders
Media
Investors
Suppliers
164
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
EXECUTIVE DIRECTORS’ REMUNERATION POLICY
Elements of executive directors’ pay
A significant proportion of executive directors’ pay is performance-linked, long-term and remains ‘at risk’ (i.e. subject to withholding and
recovery provisions for a period over which the committee can withhold vesting or recover sums paid):
Fixed vs performance-linked (%)(1)
Short-term vs long-term (%)(1)
Fixed
Base salary
31%
27%
Pension and
other benefits
4%
Performance-linked
69%
Annual bonus – cash
17%
Annual bonus – shares
17%
Long Term Plan (LTP)
35%
Short-term
Base salary
48%
27%
Pension and
other benefits
Annual bonus – cash
4%
17%
Long-term
Annual bonus – shares
Long Term Plan (LTP)
52%
17%
35%
(1) Based on maximum payout scenario for executive directors in line with the current remuneration policy, assuming the normal maximum award level of 130 per
cent of salary for the Long Term Plan (LTP).
Pay at risk
Key element
Annual bonus –
cash
Time frame
Performance
period
Annual bonus –
shares
Performance
period
Long Term Plan
(LTP)
Period subject to
recovery provisions
Period subject to withholding provisions
Performance period
Period subject to withholding
and recovery provisions
Year -1
Award date
Year 1
Year 2
Year 3
Year 4
Year 5
Further details on what triggers the withholding and recovery provisions can be found on page 184.
Implementation of directors’ remuneration policy in 2020/21
The table below summarises the implementation of the directors’ remuneration policy for executive directors in 2020/21. For further details
see the annual report on remuneration on pages 167 to 181.
Key element
Base salary
Implementation of policy in 2020/21
• No salary increase for Steve Mogford in 2020. Phil Aspin’s salary was set at £400,000 on his
appointment as Chief Financial Officer from 24 July 2020. See page 167 for further details.
Benefits and pension
• Market competitive benefits package.
• Steve Mogford has a cash pension allowance of 22 per cent of base salary. His pension
arrangements will be aligned to those of the wider workforce as part of the next directors’
remuneration policy. See page 167 for further details. Phil Aspin has a cash pension allowance of 12
per cent of base salary in line with the wider workforce.
Annual bonus
• Maximum opportunity of 130 per cent of base salary.
• 2020/21 annual bonus outcome of 81.8 per cent of maximum.
• 50 per cent of 2020/21 annual bonus deferred in shares for three years.
• Withholding and recovery provisions apply.
Long Term Plan
• Award of 130 per cent of base salary.
• Estimated long-term incentive vesting of 89.6 per cent for the performance period 1 April 2018 to
31 March 2021. These awards will vest after an additional two-year holding period.
• Withholding and recovery provisions apply.
Shareholding guidelines
• Personal shareholding for Steve Mogford remains above the 200 per cent of salary minimum
guideline. Phil Aspin is expected to reach the minimum guideline within five years of his
appointment to the board. Post-employment shareholding requirements apply. See page 176.
165
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Corporate governance report
At a glance summary: executive directors’ remuneration
SINGLE TOTAL FIGURE OF REMUNERATION FOR
EXECUTIVE DIRECTORS FOR 2020/21
ALIGNING PAY WITH
PERFORMANCE
Fixed pay comprises base salary, benefits and pension. Further information on the single
figure of remuneration can be seen on page 167.
£’000
£0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
Steve Mogford CEO
Total: £2,940
£937
£824
£1,179
Russ Houlden CFO
(until 31 July 2020) £183 £174
Total: £936
£579
Phil Aspin CFO
(from 24 July 2020)
Total: £703
£321
£293
£89
Fixed pay
Annual bonus
Long-term incentives
ANNUAL BONUS AND LONG TERM PLAN (LTP)
OUTCOMES
The charts below show the results of the performance against targets for the annual bonus
and LTP. Further information about the annual bonus is shown on page 168 and about the
LTP on page 169.
2020/21 Annual bonus outcome
Estimated 2018 Long Term Plan (LTP)
outcome
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Actual total:
81.8% of maximum
25.0%
10.0%
10.0%
19.3%
7.5%
35.0%
35.0%
20.0%
20.0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Estimated total:
89.6% of award vests
33.3%
33.3%
33.3%
31.3%
33.3%
25.0%
Maximum
Actual
Maximum
Estimated
Underlying operating profit
C-MeX ranking
Written complaints
Outcome delivery incentive (ODI) composite
TCQi
Relative total shareholder return (TSR)
Sustainable dividends
Customer service excellence
166
ANNUAL BONUS –
YEAR ENDED 31 MARCH 2021
Underlying operating profit(1)
£763.0m
C-MeX ranking versus the
other water companies
5th out of 17
Written complaints
16.51
Outcome delivery incentive (ODI)
composite
£18.1m
Time, Cost and Quality index (TCQi)
95.3%
LONG TERM PLAN – THREE
YEARS ENDED 31 MARCH 2021
Relative total shareholder return
(TSR)(2)
Sustainable dividends(3)
48.0%
1.35
4th out of 11
Customer service excellence(4)
Key:
At or above stretch target
Between threshold and stretch targets
Below threshold target
(1) For the purpose of annual bonus, underlying
operating profit excludes infrastructure
renewals expenditure and property trading.
(2) Above stretch versus the comparator group.
See page 169 for further details.
(3) Average underlying dividend cover over
2018/19 and 2019/20.
(4) The estimated ranking versus the other
WASCs in a combined customer service
measure comprising C-MeX and written
complaints.
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
Corporate governance report
Annual report on remuneration
EXECUTIVE DIRECTORS’ REMUNERATION FOR THE YEAR
ENDED 31 MARCH 2021
Single total figure of remuneration for executive directors (audited information)
Fixed pay
Year ended
31 March
Steve
Mogford
Russ
Houlden(4)
Phil Aspin(5)
Base salary
£’000
Pension
£’000
Benefits
£’000
Subtotal
£’000
Annual bonus
£’000
2021(1)
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021(2) 2020(3) 2021
2020
2021
2020
736
769
171
169
30
35
937
973
824
707
1,179
974 2,003
1,681
2,940 2,654
139
275
486
n/a
36
33
107
n/a
8
13
24
n/a
183
321
617
n/a
174
293
446
n/a
579
89
615
n/a
753
382
1,061
n/a
936
703
1,678
n/a
Variable pay
Long-term
incentives
£’000
Subtotal
£’000
Total
£’000
(1) Salary for Steve Mogford and Russ Houlden reflects a voluntary reduction of 20 per cent of salary for three months which was donated to charity. See page 43.
(2) The long-term incentive amount is in respect of the Long Term Plan (LTP) award which was granted in June 2018 for which the outcome is based on
performance over the three-year period from 1 April 2018 to 31 March 2021. The LTP amount is estimated as the vesting percentage for the one-third
relating to customer service excellence will not be known until later in 2021, and the awards for Steve Mogford and Russ Houlden will not vest until the
end of an additional two-year holding period. Phil Aspin’s award was granted prior to his appointment to the board and so no holding period applies. The
shares under Russ Houlden’s 2018 LTP award have been pro rated for time served in the performance period i.e. 28/36 months. For the purposes of this
table the value of LTP awards has been calculated using an average share price over the three-month period from 1 January 2021 to 31 March 2021 of
913.3 pence per share. This is higher than the share price at the time these awards were made to participants and accordingly some of the value shown is
attributable to share price appreciation. See page 169 for further details.
(3) The long-term incentive amount for the year ended 31 March 2020 is in respect of the LTP award that was granted in June 2017 and whose performance
period ended on 31 March 2020. The figure stated in last year’s report was based on a latest best estimate (LBE) for the customer service excellence
measure which indicated an overall vesting outcome of 79 per cent. The final confirmed outcome for the measure was better than the LBE which meant
the actual overall vesting outcome was 87.3 per cent. The figure for 2020 has been updated to reflect this. Additionally, dividend equivalents accrued to
31 March 2021 have been added. The awards for Steve Mogford and Russ Houlden are not due to vest until April 2022 following an additional two-year
holding period and for the purposes of this table have been valued on the basis of the average share price over the three-month period from 1 January
2021 to 31 March 2021 of 913.3 pence per share.
(4) Salary, benefits, pension and annual bonus figures for Russ Houlden reflect part-year earnings and are for the period from 1 April 2020 to 31 July 2020
when his employment ended. He stepped down from the board on 24 July 2020.
(5) Salary, benefits, pension and annual bonus figures for Phil Aspin reflect part-year earnings and are for the period from 24 July 2020 when he was first
appointed to the board. A bonus of around £53,000 was earned by Phil Aspin in respect of the period 1 April 2020 to 23 July 2020 prior to him joining the
board. This is not included in the table.
Base salary
Executive director
Steve Mogford
Phil Aspin
Base salary £’000
1 September 2020
1 September 2019
775.2
400.0
775.2
n/a
The committee judged, and Steve Mogford was in agreement, that in the context of the COVID-19 pandemic his salary should not increase
in 2020. This is a different approach in comparison to the 2.3 per cent increase applying to the general workforce in the year. Steve
requested a voluntarily reduction of his salary by 20 per cent for three months with the value saved being donated to charity. See page 43.
On his appointment as Chief Financial Officer on 24 July 2020, Phil Aspin’s salary was set at £400,000. In setting it at this level, which was lower than
that received by Russ Houlden, the committee demonstrated its intent to reposition executive remuneration packages, whilst taking into account
relevant external benchmarks. It is expected that future salary increases for Phil will be in line with the normal policy i.e. broadly in line with increases
applied across the wider workforce in normal circumstances. The next salary review for the executive directors will be in September 2021.
Pensions
Steve Mogford has a contractual entitlement to receive a cash allowance of 22 per cent of base salary in lieu of pension. In accordance with
code provision 38, his pension arrangements will be aligned to those of the wider workforce as part of the next directors’ remuneration policy,
expected to be put to shareholders at the 2022 AGM. Phil Aspin receives a cash allowance of 12 per cent of base salary in lieu of pension
which aligns with the workforce rate, and again illustrates the committee’s intention to reposition the overall executive remuneration package.
For employees, the company doubles any contributions that employees make up to a maximum of 14 per cent of salary.
Benefits
For executive directors, benefits include: a car allowance of £14,000; health, life cover and income protection insurance; travel costs; and
communication costs. No material changes are expected to benefits during the year commencing 1 April 2021.
External appointments
Steve Mogford was senior independent director of G4S PLC during the year ended 31 March 2021 for which he received and retained
an annual fee of £97,000. He stepped down from the G4S PLC board in April 2021. Phil Aspin was appointed as a member of the UK
Accounting Standards Endorsement board by BEIS with effect from 15 March 2021 for which he will receive an annual fee of £14,000.
167
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Annual report on remuneration
ANNUAL BONUS
Deferred Bonus Plan awards made in the year ended 31 March 2021 (audited information)
Bonuses are earned by reference to performance in the financial year and paid in June following the end of the financial year. Fifty per cent
of any bonus is deferred into shares under the Deferred Bonus Plan. These awards vest after three years and are subject to withholding
provisions. There are no service or additional performance conditions attached.
The table below provides details of share awards made on 16 June 2020 to the executive directors as at that date in respect of deferred
share bonus payments for the 2019/20 financial year.
Executive director
Steve Mogford
Type of
award
Conditional shares
Basis of
award
50% of bonus
Number of
shares
38,742
Face value of award(1)
(£’000)
£353
End of
deferral period
16.6.2023
Russ Houlden
Conditional shares
50% of bonus
24,469
£223
16.6.2023
(1) The face value has been calculated using the closing share price on 15 June 2020 (the dealing day prior to the date of grant), which was 911.9 pence per share.
Annual bonus in respect of financial year ended 31 March 2021 (audited information)
The performance measures, targets and outcomes in respect of the executive directors’ annual bonus for the year ended 31 March 2021
are set out below. As disclosed in last year’s report the annual bonus for 2020/21 was wholly aligned to the group bonus scorecard with no
specific personal performance element, although when determining the overall outcomes and whether any discretion should be exercised
the committee took in to account the personal contributions of each individual. The table on page 164 summarises how the performance
measures are linked to our business strategy.
Measure
Underlying operating profit(1)
Customer service in year
C-MeX ranking out of the 17
water companies
% weighting
of measure
Threshold
(25% vesting)
Target
(50% vesting)
Stretch
(100% vesting)
Vesting
as a % of
maximum
Outcome
25.0%
£643.0m
£729.2m
£791.0m
77.3%
19.3%
Actual: £763.0m
10.0%
8th position
6th position
4th position
75.0%
7.5%
Actual: 5th position
Written complaints
10.0%
14.63
14.49
14.36
0%
0%
Maintaining and enhancing services for customers
35.0%
Outcome delivery incentive (ODI)
composite
16.51
(£25.3m)
(£14.3m)
£0m
100%
35.0%
Actual: £18.1m
20.0%
80.0%
87.5%
95.0%
100%
20.0%
Actual: 95.3%
Time, cost and quality of capital
programme (TCQi)(2)
Total:
Actual award (% of maximum)
Maximum award (% of salary)
Actual award (% of salary)(3)
Steve
Mogford
824
Russ
Houlden(4)
174
81.8%
130%
106.3%
Phil
Aspin(5)
293
Actual award (£’000 – shown in single figure table)(6)
(1) The underlying operating profit figure for bonus purposes is based on the underlying operating profit on page 83 and excludes infrastructure renewals
expenditure and property trading.
(2) TCQi is an internal measure which measures the extent to which we deliver our capital projects on time, to budget and to the required quality standard.
It is expressed as a percentage, with a higher percentage representing better performance.
(3) Bonuses have been calculated using contractual salary.
(4) This is the bonus earned by Russ Houlden until his date of leaving the company on 31 July 2020.
(5) This is the bonus earned by Phil Aspin since his appointment as CFO on 24 July 2020. A bonus of around £53,000 was earned by Phil in respect of the
period 1 April 2020 to 23 July 2020 prior to him joining the board. This is not included in the table above.
(6) Under the Deferred Bonus Plan, 50 per cent of the annual bonus for Steve Mogford and Phil Aspin will be deferred in shares for three years. As Russ
Houlden is no longer employed, in line with the plan rules and as stated in last year’s report the bonus will be paid in cash in full with no element being
deferred in to shares.
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LONG-TERM INCENTIVES
2018 Long Term Plan (LTP) awards with a performance period ended 31 March 2021 (audited information)
The 2018 LTP awards were granted in June 2018 and performance was measured over the three-year period from 1 April 2018 to 31 March
2021. As they were executive directors when they were granted in 2018 the awards for Steve Mogford and Russ Houlden will normally vest
in April 2023, following an additional two-year holding period. The unvested shares will remain subject to withholding provisions during this
two-year holding period. Phil Aspin was not an executive director when his award was granted and so in line with the remuneration policy this
historic award will vest once the final outcome is confirmed. Under the shareholding guidelines he will be required to hold the vesting shares.
Note that the final outcome for the customer service excellence measure (which forms one-third of the award) will not be known until the
customer service scores for the other water and wastewater companies are published in late summer 2021. The values of the 2018 LTP awards in
the single total figure of remuneration table are therefore estimated and will be restated in next year’s report once the final outcome is known.
The table below shows how the long-term incentive amount in respect of the 2018 LTP was calculated:
Measure
Relative total shareholder return (TSR)
TSR versus median TSR of FTSE 100 companies
(excluding financial services, oil and gas, and
mining companies)(1)
Sustainable dividends
Average underlying dividend cover over the part
of the performance period up to the end of the
regulatory period
Underpin:
Dividend growth of at least RPI in each of the years
2018/19 and 2019/20
Customer service excellence(2)
Ranking for the year ended 31 March 2021 out of the 11
water and wastewater companies using a combined
customer service measure comprising C-MeX
performance and customer complaints(3)
Overall underpin
Overall vesting is subject to the committee being
satisfied that the company’s performance on these
measures is consistent with underlying business
performance
Estimated vesting (% of award)
% weighting
of measure
Threshold
(25%
vesting)
Achieved
Intermediate
Stretch
(100%
vesting)
Vesting
as a % of
maximum Outcome
Median
TSR
33.3%
Straight-line between
threshold and stretch
Median
TSR 5 1.15
100%
33.3%
Actual: TSR above stretch
Company TSR of 48.0% was above stretch TSR
of 25.8%
(50% vesting)
33.3% 1.18
1.27
1.36
93.9%
31.3%
✓ Met
Actual: 1.35
33.3% Median rank
(6th position)
Straight-line between
threshold and stretch
75.0.%
25.0%
Upper
quartile
rank (3rd
position)
Estimate: 4th position
✓ Assumed met.
The committee will make a final assessment of
the company’s performance once the outcome
of the customer service excellence measure is
known.
Steve
Mogford
129,030
15,016
n/a
144,046
129,065
913.3
£1,179
Russ
Houlden(4)
81,488
8,577
19,264
70,801
63,437
913.3
£579
89.6%
Phil
Aspin
9,753
1,133
n/a
10,886
9,753
913.3
£89
Number of shares granted
Number of dividend equivalent shares
Number of shares (including dividend equivalent shares) lapsed due to time pro rating
Number of shares before performance conditions applied
Estimated number of shares after performance conditions applied
Three-month average share price at end of performance period (pence)(5)
Estimated value at end of performance period (£’000 – shown in single figure table)(6)
(1) For the purposes of calculating TSR, the TSR index is averaged over the three months prior to the start and end of the performance period. TSR is
independently calculated by the committee’s advisers.
(2) As disclosed in the 2019 DRR, this element of the 2018 LTP was originally based on a ranking versus the other water and wastewater companies using
Ofwat’s Service Incentive Mechanism (SIM) combined score, with 25 per cent vesting for a median ranking and 100 per cent vesting for an upper quartile
ranking. As a result of Ofwat transitioning from SIM to C-MeX as its primary assessment of customer service, the committee resolved to adjust this
element of the 2018 LTP to be based on the new C-MeX measure and written complaints, with targets set to be of equivalent difficulty.
(3) This is an estimate as the final outcome will not be known until the volume of written complaints received by other companies are available later in 2021.
(4) As confirmed in last year’s report, the committee exercised its discretion to allow good leaver status to apply to Russ Houlden’s outstanding LTP awards upon his
retirement. A pro rata reduction has been made to his 2018 LTP award to reflect the proportion of the performance period served.
(5) Average share price over the three-month period from 1 January 2021 to 31 March 2021.
(6) 17.8 per cent of the value vesting is attributable to share price appreciation which equates to £210,000 for Steve Mogford, £103,000 for Russ Houlden and
£16,000 for Phil Aspin.
169
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Annual report on remuneration
2020 LTP awards with a performance period ending 31 March 2023 (audited information)
The table below provides details of share awards made to executive directors on 30 November 2020 in respect of the 2020 LTP:
Executive director
Type of award
Basis of award
Steve Mogford
Conditional shares
130% of salary
Phil Aspin
Conditional shares
130% of salary
Face value
of award
(£’000)(1)
Number of
shares under
award
% vesting at
threshold
End of
performance
period(2)
£1,008
£520
112,097
57,842
25%
25%
31.3.2023
31.3.2023
(1) The face value has been calculated using the closing share price 27 November 2020 (the dealing day prior to the date of grant) which was 899.2 pence per share.
(2) An additional holding period applies after the end of the performance period such that the overall vesting period is five years from the grant date.
As part of the directors’ remuneration policy review during 2018/19 the committee consulted with shareholders on changing the structure of
the LTP such that the 2020 and future awards would be based on two equally weighted components: Return on Regulated Equity (RoRE) and a
customer basket of measures. Shareholders approved the new policy at the 2019 AGM.
Whilst LTP awards are normally granted in June each year, due to the uncertainties posed by the COVID-19 pandemic and particular concerns
at the time about the possible extent of the disruption caused, the committee delayed the 2020 LTP award grants until November to allow
more time to settle the targets.
Stretching targets were set for the RoRE measure taking into account the allowed return over the period (as set out in the final determination)
and the expected returns to be generated through financial and operational performance. When determining the measures that should form the
customer basket component of the awards the committee took in to account feedback received from customer research and focus groups (as to
which areas of service and performance they considered the highest priority) and the performance commitments agreed with Ofwat in the final
determination for the regulatory period, thereby ensuring that the measures selected reflected the views and priorities of key stakeholders. The
committee is pleased that alongside focusing on areas of performance that will have meaningful and tangible outcomes for customers, the
measures chosen reflect its commitment to recognising evolving expectations in regard to environmental, social and governance matters.
Details about the 2020 LTP performance measures and targets are shown in the following table. Performance is measured over the three-year
period 1 April 2020 to 31 March 2023. The table on page 164 summarises how these performance measures are linked to our business strategy.
Threshold (25% vesting)
Stretch (100% vesting)
Weighting
Targets(1)
Measure
Return on Regulated Equity (RoRE)
Company RoRE
Customer basket of measures(2)
C-MeX ranking out of all the other
water and wastewater companies(3)
Water poverty(3)
Priority services(3)
Sewer flooding incidents(3)
Pollution incidents(4)
Treatment works compliance(4)
Water quality contacts(4)
Leakage(3)
Equal to the average of Ofwat’s allowed
RoRE over the three financial years of
the performance period
1.0% (or more) above the
average of Ofwat’s allowed RoRE
over the three financial years of the
performance period
Ranked 9th
62,100 customers have been lifted
out of water poverty
N/A
A combined total of 1,161
sewer flooding incidents per 10,000km
of our wastewater network
23.00 pollution incidents per 10,000km
of our wastewater network
Ranked 6th or better
83,000 (or more) customers have
been lifted out of water poverty
5.5% or more of our
customers are listed on the Priority
Services Register
A combined total of less than or equal to
990 sewer flooding incidents per
10,000km of our wastewater network
≤21.54 pollution incidents per 10,000km
of our wastewater network
97.9% compliance
≥99.0% compliance
14.7 customer contacts per
10,000 customers
A three-year average of 101.6 megalitres
of leakage per 10,000km of our
water network per day
CRI score of 3.27
3 star rating
≤13.8 customer contacts per
10,000 customers
A three-year average of less than or equal
to 97.6 megalitres of leakage per 10,000km
of our water network per day
CRI score of ≤2.00
4 star rating
50.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
Compliance risk index (CRI)(4)
The Environment Agency’s
Environmental Performance
Assessment (EPA) rating(5)
Overall underpin
Overall vesting is subject to the committee being satisfied that the company’s performance on these measures is consistent with underlying
business performance and that the company’s dividend policy has been delivered in respect of each financial year of the performance period.
5.0%
5.0%
(1) Straight-line vesting applies between the threshold and stretch targets, with nil vesting below threshold performance
(2) The customer basket of measures are based on the performance commitment definitions as per the AMP7 final determination
(3) Outcome based on performance in respect of the financial year ending 31 March 2023 as published in our own and/or the other water companies’ Annual
Performance Reports for 2022/23
(4) Outcome based on performance in respect of the calendar year ending 31 December 2022 as published in our own and/or the other water companies’
Annual Performance Reports for 2022/23
(5) Outcome based on performance in respect of the calendar year ending 31 December 2022 as published in the Environment Agency’s published report in 2023
170
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE INCENTIVES IN 2021/22
Ensuring alignment with our business plan
The performance measures used in our incentive schemes during 2021/22 will remain aligned directly with the business plan, with a
material weighting on measures that are linked to delivery for customers. Further details about the measures used and the stretching
targets set will be provided in next year’s directors’ remuneration report.
Annual bonus in respect of the financial year commencing 1 April 2021
The maximum bonus opportunity for the year commencing 1 April 2021 will remain unchanged at 130 per cent of base salary.
The annual bonus will operate in broadly the same way as that for 2020/21, except the calculation approach for the written complaints
measure will be different compared to previous years. Complaints were previously reported using the SIM complaints and unwanted
contacts methodology which is now discontinued. Water companies now report all complaints to the Consumer Council for Water on the
basis of 10,000 connected properties and so the targets for 2021/22 have been set on this basis. This means that comparing the written
complaints targets from 2020/21 with those agreed for 2021/22 is not a like-for-like comparison, but the committee is satisfied that the
targets set are stretching when taking account of previous performance and expected relative performance versus the other water and
wastewater companies.
The table below summarises the measures, weighting and targets for the 2021/22 bonus. Targets that are considered commercially
sensitive will be disclosed retrospectively in the 2021/22 annual report on remuneration.
Targets
Threshold
(25% vesting)
Target
(50% vesting)
Stretch
(100% vesting)
Commercially sensitive
Weighting
(% of award)
25.0%
Measure
Underlying operating profit(1)
Customer service in year
C-MeX ranking out of the 17 water companies
Written complaints (per 10,000 connected properties)
20.50
20.25
20.00
Maintaining and enhancing services for customers
Outcome delivery incentive (ODI) composite
Time, cost and quality of capital programme (TCQi)(2)
Total
Commercially sensitive
85.0%
90.0%
95.0%
8th position
6th position
4th position
10.0%
10.0%
35.0%
20.0%
100%
(1) Underlying operating profit for bonus purposes excludes infrastructure renewals expenditure and property trading.
(2) TCQi is an internal measure which measures the extent to which we deliver our capital projects on time, to budget and to the required quality standard.
It is expressed as a percentage, with a higher percentage representing better performance.
2021 LTP awards with a performance period ending 31 March 2024
Awards are expected to be made in late June 2021 and the award level for executive directors will remain unchanged at 130 per cent of
base salary.
Stretching targets will be set for the RoRE measure taking into account the allowed return over the period (as set out in the final
determination) and the expected returns to be generated through financial and operational performance.
In respect of the customer basket, the committee will again finalise the selection of measures in consideration of customer priorities and
performance commitments agreed by Ofwat in the final determination for the regulatory period.
171
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Annual report on remuneration
ALIGNMENT OF EXECUTIVE PAY APPROACH WITH THAT OF THE WIDER
WORKFORCE AND LISTENING TO THE EMPLOYEE VOICE
The committee is always mindful of the alignment of executive pay arrangements with those of the wider workforce and, as is
demonstrated in the table on page 173, there is a high level of alignment and consistency of approach.
When reviewing salaries and assessing incentive outcomes for the executives, the committee takes account of how those elements
of remuneration have been (or will be) applied across the wider workforce in respect of the same periods. At each of its meetings the
committee receives an update on notable matters affecting pay and benefits among the wider workforce since its previous meeting, and at
least annually the committee formally reviews and discusses a report detailing all elements of the workforce’s pay and benefits.
The committee has mechanisms through which it hears from and engages with the workforce on executive pay. As chair of the committee,
insights related to remuneration that arise via Alison Goligher in her role as designated non-executive director for workforce engagement
can be quickly and appropriately considered, and a formal report is presented to the committee at least annually in this respect. Alison
hosts sessions with the Employee Voice panel which cover topics including the alignment of our executive pay approach with that of the
wider workforce, providing valuable opportunities for open discussions and feedback. See pages 126 and 127 for further details.
The figures below show how the percentage change in the CEO’s salary, benefits and bonus earned in 2019/20 and 2020/21 compares
with the percentage change in the average of each of those components for a group of employees. The table below that shows the same
information in respect of each board member.
Change in CEO remuneration
Base salary(1)
-4.2%
Change in employee remuneration(4)
Base salary(5)
+4.1
Bonus(2)
+16.7%
Bonus
+13.6%
Change in other board member remuneration
Executive directors(2)
Russ Houlden(6)
Phil Aspin(7)
Non-executive directors(8)
Sir David Higgins(6) (9)
Stephen Carter
Kath Cates(7)
Mark Clare
Alison Goligher(10)
Brian May
Paulette Rowe
Doug Webb(7)
Sara Weller(6)
Benefits(3)
-14.1%
Benefits
+6.9%
% change in 2020/21 versus 2019/20
Salary/Fees
Benefits(3)
Bonus
-4.2%
n/a
111.1%
-4.4%
n/a
-4.4%
9.4%
-4.4%
-4.2%
n/a
-4.4%
n/a
n/a
-96.6%
-93.0%
n/a
-96.6%
-81.0%
-96.6%
-95.2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(1) Steve Mogford received no salary increase in 2020/21 and the salary received reflects a voluntary reduction of 20 per cent for three months which was
donated to charity. See page 43 for further details.
(2) Steve Mogford’s annual bonus in 2019/20 reflected a discretionary reduction related to the performance of Water Plus in that year. No such adjustment
has been made to his 2020/21 annual bonus with the outcome being based on the group scorecard, which also applies to the bonuses received by the
wider workforce. See page 168 for further details.
(3) Benefits for all board members decreased primarily due to a reduction in travel and subsistence costs arising from the COVID-19 pandemic. A year-on-year
comparison of benefits for Russ Houlden and Sara Weller would not be meaningful as they both stepped down from the board on 24 July 2020.
(4) To aid comparison, the group of employees selected by the committee are all those members of the workforce who were employed over the complete two-year period.
(5)
(6) Russ Houlden stepped down from the board on 24 July 2020. Sir David Higgins was appointed to the board on 13 May 2019. Sara Weller stepped down
Includes promotional increases. The headline salary increase for employees was 2.3 per cent.
from the board on 24 July 2020. To enable a meaningful year-on-year comparison their salary/fees reflect hypothetical full-year earnings, however we do
not believe a year-on-year comparison of bonus outcomes for Russ Houlden is appropriate given his date of departure.
(7) Phil Aspin was appointed to the board on 24 July 2020. Kath Cates and Doug Webb were appointed to the board on 1 September 2020.
(8) Calculated using the fees and taxable benefits shown in the table on page 178. The fees for the non-executive directors were not changed in 2020/21 and
reflect a voluntary reduction of 20 per cent for three months which was donated to charity. See page 43 for further details.
(9) The fee increase shown for Sir David Higgins reflects 2020/21 being his first full year as Chairman. In the prior year his fees were associated with his role as
a non-executive director and chairman designate.
(10) The fee increase for Alison Goligher reflects her appointment as remuneration committee chair with the associated fee effective from 24 July 2020.
172
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE CASCADE OF REMUNERATION THROUGH THE ORGANISATION
The table below summarises how remuneration compares across the different groups of employees throughout the company.
Employee group (number
of employees covered)
Element of pay
Description
Employees at all levels
(around 5,700)
Salary
Health and wellbeing benefits
Flexible benefits
Pension
ShareBuy
Annual bonus – cash
We want to attract and retain employees of the experience and quality
required to deliver the company’s strategy. Salaries are reviewed annually,
with executive directors normally receiving a salary increase broadly in
line with the increase awarded to the general workforce. As a Living Wage
accredited employer all our employees (except those on a training scheme
such as apprentices) receive at least the voluntary living wage rate. In 2020
the base salary increase for employees was 2.3 per cent (the executive
directors did not receive an increase).
All employees are eligible for company-funded healthcare and an enhanced
company sick pay scheme. Employees have access to a medical advice and
information service (Best Doctors) service for them and their families. All
employees have free 24/7 access to our employee assistance programme
which provides counselling and support to employees and their households.
We have over 150 trained mental health first aiders who can listen to and
signpost employees to relevant support services, and a similar number
of wellbeing champions who help promote our wellbeing campaigns.
Financial wellbeing is a key focus, with financial education tools and
awareness courses available for all employees covering a broad range of
money management topics such as financial planning, managing debt and
pensions.
All employees have access to a variety of additional voluntary benefits to
suit their lifestyle, and can choose from a range of deals and discounts all
year round. Employees can donate to their chosen charities directly from
their pay if they want to. Around 50 per cent of employees take up at least
one of these flexible options.
Employees at all levels can participate in our award-winning pension
arrangements and almost all of our employees choose to do so. The
company doubles any contributions that employees make up to a maximum
of 14 per cent of salary. As part of the pension scheme employees receive
company-funded life assurance and income protection.
Any employee can become a shareholder in our company and share in our
success by participating in our ShareBuy scheme. For every five shares an
employee buys the company gives another one free. Just over half of the
workforce participate in our ShareBuy scheme.
Employees at all levels participate in the annual bonus scheme, receiving
financial rewards based on the performance of the company and their
personal contribution. Specific weightings and award levels vary by grade.
There is strong alignment to strategy throughout the organisation, with the
same scorecard applying at all levels.
CEO, CFO and executives
(10)
CEO, CFO, executives and
other senior leaders
(around 60)
CEO, CFO and executives
(10)
Annual bonus – deferred shares Each of the executive directors and executives is required to defer a
proportion of their bonus into shares for three years.
Long Term Plan (LTP)
Executives and other senior leaders may be invited to participate in the LTP.
Performance conditions are the same for all participants but award sizes
vary.
Shareholding guidelines
All executives are subject to shareholding guidelines, aligning their interests
with those of shareholders.
173
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Annual report on remuneration
CEO PAY RATIOS
The table below sets out the ratio of the CEO’s pay to that of the 25th percentile (P25), median (P50) and 75th percentile (P75) full-time equivalent
employees. The ratios have been calculated in accordance with the regulations which provide for three different approaches to determine the pay
ratio (Options A, B and C).
The data in the tables below has been calculated using Option A which is considered to be the most accurate methodology and uses the
same calculation basis as required for the CEO’s total remuneration as shown in the single figure table on page 167.
• We identified all employees who received base salary during the year ended 31 March 2021 and who were still employed on that date.
• The calculations were carried out using their total pay and benefits received in respect of the year ended 31 March 2021, including
bonuses earned by reference to performance in the financial year and paid in June following the end of the financial year.
• For employees who were employed on a part-time basis, or who were not employed for the full year, their remuneration has been
annualised to reflect the full-time equivalent.
• No other estimates or adjustments have been used in the calculations and no other remuneration items have been omitted.
Financial year
2020/21
2019/20(1)
Method
Option A
Option A
Pay ratios
P50
64:1
60:1
P25
85:1
79:1
P75
51:1
48:1
(1) The figures for 2019/20 have been restated to reflect the final vesting outcome, additional dividend equivalents and updated share price for Steve
Mogford’s 2017 LTP as shown in the single figure table on page 167.
Along with the ratios comparing total remuneration, the committee keeps under review the ratios for salary and salary plus annual bonus, and
tracks how these change over time. With a significant proportion of the remuneration of the CEO linked to company performance and share
price movements over the longer term, it is expected that the headline ratios will depend primarily on the Long Term Plan (LTP) outcome,
and, accordingly, may fluctuate from year to year. Participation in the LTP is currently limited to around 60 executives and senior leaders, with
none of the individuals identified as P25, P50 and P75 in this group. On the other hand, employees at all levels participate in the annual bonus
scheme, and so the committee considers this ratio as well as the ratio comparing only salary, to provide helpful additional context.
Pay ratios
Pay ratios for different elements of remuneration (2020/21)
Total remuneration (as above)
Salary plus annual bonus
Salary
P25
85:1
52:1
26:1
The table below shows the total remuneration, salary plus annual bonus, and salary at each of the three quartiles.
Total remuneration
Salary plus annual bonus
Salary
CEO
2,940
1,560
736
£’000
P25
34
30
29
P50
64:1
38:1
19:1
P50
46
42
39
P75
51:1
30:1
15:1
P75
58
52
50
The committee notes that there has been a small increase in the statutory CEO pay ratios this year, with the ratio of CEO total
remuneration to the median employee (P50), for example, increasing from 60:1 to 64:1. This increase is driven primarily by a higher payout
under the annual bonus and higher expected vesting under the LTP than recorded last year, and is partially offset by the voluntary salary
reduction taken by the CEO for three months during the year. Having considered both the statutory and additional ratios, the committee is
satisfied that the changes are related to appropriate differences in the structure of remuneration at different levels of the workforce, with
‘at risk’ performance-linked pay elements forming a greater proportion of the overall remuneration package at the most senior levels. See
page 165 for further details. The committee will continue to consider the pay ratios in the context of other important metrics such as the
gender pay gap and employee engagement levels.
174
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE COVID-19 IMPACT ON WORKFORCE REMUNERATION
Our main focus during the pandemic has been to ensure the health, safety and wellbeing of our employees, and the company has taken
comprehensive action in this respect as outlined on pages 44 and 45.
In relation to workforce remuneration, we have not furloughed any employees and no employee has had their pay or benefits reduced. In
recognition that some faced financial challenges as a result of their overall household income being affected, the company set up a staff
outreach scheme to enable such employees to confidentially claim up to £5,000 in financial support which does not require repayment. To
date, around 90 employees have accessed the scheme. We also introduced a winter payment allowance, where employees could apply for
a smaller value award if their utility costs when working from home during the pandemic were greater than the savings they were making
from not travelling to their workplace. Whilst employees would normally have received a company contribution towards a Christmas
celebration with their team, we instead arranged for all employees to receive a digital voucher which they could put towards their own festive
celebrations. Alternatively, employees could opt to donate this to the FareShare initiative and around 1,500 employees opted to do so.
In relation to executive pay the following table summarises the key decisions made by the committee.
Element of remuneration
Committee decision
Rationale
Board member salaries and fees
2020 salary review
Each board member volunteered to donate 20 per
cent of their salary/fees during the three-month
period to August 2020. The values that would
otherwise have been paid were donated to FareShare.
The committee considered it appropriate to
apply this temporary reduction to demonstrate
solidarity with company’s customers and
communities.
No salary/fee increases for board members in
2020/21. The general employee base pay increase in
2020 was 2.3 per cent.
The committee considered it appropriate for
salaries/fees to remain unchanged for 2020.
2017 Long Term Plan (LTP) award
outcome
Outcome agreed according to normal timeline in
summer 2020.
2020 LTP award grants
Grant of awards delayed to November 2020.
2020/21 annual bonus
outcome
Performance assessed based on the targets set at
the start of the year with no adjustments. Resultant
bonuses (including the deferred share element) to be
award on the normal timescales.
2021/22 annual bonus
target-setting
Targets set according to usual timeline based on the
latest information available.
Noting that the company had not accessed any
of the government-backed support schemes and
that the pay and benefits for the workforce had
not been reduced the committee deemed that
there was no reason to delay the approval of the
outcome of the awards.
In consideration of the uncertainty created
by the pandemic the committee deemed it
appropriate to delay award grants to allow more
time to settle the targets.
The company’s performance has been strong
across all aspects of the scorecard. The same
scorecard applies across the business and so
outcomes for executives will be aligned with
those for employees.
The potential impacts of the ongoing pandemic
are now better understood and so the
committee did not deem it necessary to delay
the target-setting process.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the relative importance of spend on pay compared to distributions to shareholders.
Employee
costs(1)
Dividends paid to
shareholders
£297m
+3.2%
2020/21
2019/20
£288m
£292m
+2.6%
£285m
£0m
£50m
£100m
£150m
£200m
£250m
£300m
(1) Employee costs includes wages and salaries, social security costs, and post-employment benefits.
175
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Annual report on remuneration
EXECUTIVE DIRECTORS’ INTERESTS IN SHARES
Executive directors’ shareholding (audited information)
Executive directors are expected to reach a shareholding guideline of 200 per cent of salary, normally within five years of appointment.
The shareholding guideline includes a post-employment shareholding requirement, under which executive directors must continue to hold
the lower of 200 per cent of salary in shares or their shareholding on departure, for two years after ceasing employment with the group.
As the only current executive director in role before 19 May 2020, Steve Mogford must retain shares vesting from share awards relating
to performance periods beginning on or after 1 April 2020 if not doing so would take his shareholding below the guideline. Phil Aspin
(and future executive directors) must retain shares vesting from all share awards (including in-flight awards) if not doing so would take his
shareholding below the guideline. The committee has put in place nominee arrangements for relevant vesting share awards to enable the
post-employment shareholding requirements to be enforced.
Details of beneficial interests in the company’s ordinary shares as at 31 March 2021 held by each of the executive directors and their
connected persons are set out in the charts below along with progress against the target shareholding guideline level. Steve Mogford
continues to exceed the target shareholding guideline level of 200 per cent of salary. Phil Aspin is expected to reach the minimum guideline
by 24 July 2025 (within five years of his appointment to the board).
s
e
r
a
h
s
f
o
s
0
0
0
’
350
300
250
200
150
100
50
0
286
224
170
111
111
107
88
14
n/a
2021
2020
2021
2020
2021
2020
Year ended 31 March
Year ended 31 March
Year ended 31 March
Steve Mogford (CEO)
Russ Houlden (CFO)
Phil Aspin (CFO)
Unvested shares not subject to performance
conditions after tax and National Insurance
Shares owned outright
Number of shares required to achieve
shareholding guideline at 31 March 2021
Further details of the executive directors’ shareholdings and share plan interests are given in the table below and in the appendix on page 189.
Number
of shares
required
to meet
share-
holding
guide-
line(1)
Share-
holding
guideline
(% of
salary)
Number of
shares owned
outright (including
connected
persons)
Unvested shares
not subject to
performance
conditions (2)
Total shares
counting towards
shareholding
guidelines(3)
Share-
holding
as %
of base
salary at
31 March
Share-
holding
guideline
met at
31 March
Unvested shares
subject to
performance
conditions(4)
Director
Steve Mogford(5)(6)
Russ Houlden(6)(7)
Phil Aspin(5)
2021
2020
2021
2020
2021
2020
200% 169,758 110,630
70,178 331,476 289,524 286,331 223,646
200%
200%
107,216
0
14,195 208,838 182,219 110,684
110,791
87,594
11,439
n/a
4,299
n/a
13,736
n/a
2021(1)
337%
206%
31%
2021
2021
2020
Yes 390,702 381,010
n/a 108,160 240,605
No
79,794
n/a
(1) Share price used is the average share price over the three months from 1 January 2021 to 31 March 2021 (913.3 pence per share).
(2) Unvested shares subject to no further performance conditions such as matching shares under the ShareBuy scheme. Includes shares subject only to
withholding provisions such as Deferred Bonus Plan shares in the three-year deferral period and Long Term Plan shares in the applicable holding period.
(3)
Includes unvested shares not subject to performance conditions (on a net of tax and National Insurance basis), plus the number of shares owned outright.
(4)
Includes unvested shares under the Long Term Plan.
(5)
In the period 1 April 2021 to 26 May 2021, additional shares were acquired by Steve Mogford (30 ordinary shares) and Phil Aspin (31 ordinary shares) in
respect of their regular monthly contributions to the all-employee ShareBuy scheme. These will be matched by the company on a one-for-five basis. Under
the scheme, matching shares vest one year after grant provided the employee remains employed by the company.
(6) On 1 April 2021, shares granted on 28 June 2016 under the Long Term Plan vested for Steve Mogford and Russ Houlden following their additional two-
year holding period. Steve Mogford had 78,203 shares vesting, of which 36,848 shares were sold to cover tax and National Insurance. Steve retained the
remaining balance of 41,355 shares. Russ Houlden had 49,356 shares vesting, of which 23,070 shares were sold to cover tax and National Insurance.
(7) Russ Houlden left the company on 31 July 2020. Whilst due to the timing of his retirement Russ was not subject to the new formal post-exit shareholding
policy, under existing provisions he will continue to retain an interest in shares vesting through the incentive schemes until 2023, three years after his
retirement from the company.
176
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
OTHER INFORMATION
Dilution limits
Awards granted under the company’s share plans are satisfied by market purchased shares bought on behalf of the company by United Utilities
Employee Share Trust immediately prior to the vesting of a share plan. The company does not make regular purchases of shares into the Trust
nor employ a share purchase hedging strategy, and shares are bought to satisfy the vesting of share plans. The rules of the Deferred Bonus Plan
do not permit awards to be satisfied by newly issued shares and must be satisfied by market purchased shares. The rules of the Long Term Plan
permit the awards to be satisfied by newly issued shares but the company has decided to satisfy awards by market purchased shares.
Should the company’s method of satisfying share plan vestings change (i.e. issuing new shares) then the company would monitor the
number of shares issued and their impact on dilution limits set by the Investment Association in respect of all share plans (10 per cent in
any rolling ten-year period) and executive share plans (5 per cent in any rolling ten-year period). No treasury shares were held or utilised in
the year ended 31 March 2021.
Company performance and CEO remuneration comparison
The total shareholder return (TSR) chart below illustrates the company’s performance against the FTSE 100 over the past ten years. The
FTSE 100 is an appropriate comparator as the company is a member of the FTSE 100 and it is a widely published benchmark for this
purpose. The chart shows the growth in the value of a hypothetical £100 holding invested in the company over the ten-year period. The
chart also shows the CEO’s single total figure remuneration over the ten years ended 31 December 2021 for comparison. The table below
the TSR chart shows the remuneration data for the CEO over the same period. Steve Mogford was the CEO over the whole period.
United Utilities
Group PLC
FTSE 100 Index
£
e
u
a
V
l
250
200
150
100
50
0
191
197
133
126
155
125
132
117
100
107
101
221
155
200
167
166
155
250
3,500
3,000
2,500
166
2,000
232
136
1,500
1,000
500
0
’
0
0
0
£
n
o
i
t
a
r
e
n
u
m
e
r
f
o
e
r
u
g
fi
e
g
n
i
s
O
E
C
l
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Year ended 31 March
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
CEO single figure of remuneration
(£’000)
Annual bonus payment (% of
maximum)
LTP vesting (% of maximum)(4)
1,421
1,549
2,378
2,884
2,760(1)
2,233
2,221
2,448(2) 2,654(3)
2,940
72.0
84.4
78.2
77.4
54.5
83.7
74.9
79.0
70.7
81.8
n/a(5)
n/a(5)
93.5
97.5
33.6
54.5
55.4
64.4
87.3(3)
89.6(6)
(1) This includes the payout from the 2013 Long Term Plan (LTP) as well as £1.028 million in respect of Steve Mogford’s one-off Matched Share Investment
Scheme that ended on 5 January 2016 (vested at 100 per cent).
(2) The payout from the 2016 LTP, which vested on 1 April 2021 after the end of a two-year holding period, has been updated to reflect the additional
dividends accruing on this award and the closing share price on the date of vesting of 928.4 pence per share.
(3) The payout and vesting percentage for the 2017 LTP have been restated to reflect the additional dividend equivalents accruing on the award, the final
vesting outcome and updated share price. See page 167 for further details.
(4) For performance periods ended on 31 March, unless otherwise stated.
(5) Steve Mogford was not a participant in any long-term incentive plans that had performance periods ending during 2012 and 2013. For those who did
participate in those plans, the vesting as a percentage of maximum was 37.5 per cent for those vesting in 2012 and 35.3 per cent for those vesting in 2013.
(6) The 2018 Long Term Plan amount vesting percentage is estimated. See page 169 for further details.
Date of service contracts
Executive directors
Steve Mogford
Phil Aspin
Date of service contract
5.1.11
24.7.20
177
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Annual report on remuneration
NON-EXECUTIVE DIRECTORS
Single total figure of remuneration for non-executive directors (audited information)
Sir David Higgins(2)
Stephen Carter
Kath Cates(3)
Mark Clare
Alison Goligher
Brian May
Paulette Rowe
Doug Webb(3)
Sara Weller(4)
Salary/fees £’000 (1)
Taxable benefits £’000
Total £’000
2021
285
76
40
78
74
80
65
40
22
2020
2021
2020
126
80
n/a
81
68
84
68
n/a
81
0
0
0
0
0
0
0
0
1
3
1
n/a
3
0
3
2
n/a
1
2021
285
76
40
78
74
80
65
40
23
2020
129
81
n/a
84
68
87
70
n/a
82
(1)
In the context of the COVID-19 pandemic it was determined that fees should not increase in 2020. The fees received by the non-executive directors reflect
a voluntary reduction of 20 per cent for three months, the total value of which was donated to charity. The general workforce base salary increase in 2020
was 2.3 per cent.
(2) Sir David Higgins joined the board as a non-executive director and chairman designate with effect from 13 May 2019, receiving annual fees of £80,000. On
his appointment as Chairman effective 1 January 2020, his annual fees increased to £300,000.
(3) Kath Cates and Doug Webb joined the board on 1 September 2020.
(4) Sara Weller stepped down from the board on 24 July 2020. The benefits value shown for 2021 reflects the cost of a retirement gift she received.
Fees
Non-executive director base fees and the additional fees for the senior independent non-executive director and the chairs of committees
are reviewed annually, but were not increased in 2020/21.
Role
Base fee: Chairman(1)(2)
Base fee: other non-executive directors(3)
Senior independent non-executive director(3)
Chair of audit and treasury committees(3)
Chair of remuneration committee(3)
Chair of corporate responsibility committee(3)
Fees £’000
1 Sept 2020
1 Sept 2019
300.0
68.2
13.5
16.0
13.5
12.0
315.0
68.2
13.5
16.0
13.5
12.0
(1) Approved by the remuneration committee.
(2) With effect from the appointment of Sir David Higgins on 1 January 2020 the base fee for the Chairman was set at £300,000.
(3) Approved by a separate committee of the board.
Non-executive directors’ shareholdings (audited information)
Details of beneficial interests in the company’s ordinary shares as at 31 March 2021 held by each of the non-executive directors and their
connected persons are set out in the table below.
Non-executive directors
Date first appointed to the board
Number of shares owned outright
(including connected persons) at
31 March 2021(1)
Sir David Higgins
Stephen Carter
Kath Cates
Mark Clare
Alison Goligher
Brian May
Paulette Rowe
Doug Webb
Sara Weller(2)
13.5.19
1.9.14
1.9.20
1.11.13
1.8.16
1.9.12
1.7.17
1.9.20
1.3.12
3,000
3,075
2,135
7,628
3,000
3,000
3,000
5,700
11,000
(1) From 1 April 2021 to 26 May 2021 there have been no movements in the shareholdings of the non-executive directors.
(2) Sara Weller had 11,000 shares when she stepped down from the board with effect from 24 July 2020.
178
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE THE REMUNERATION COMMITTEE
Summary terms of reference
The committee’s terms of reference were last reviewed in November 2020 and are available on our website: unitedutilities.com/corporate-
governance
The committee’s main responsibilities include:
• Determining and recommending to the board the policy for executive director remuneration, having reviewed and taken into account
workforce remuneration and related policies and the alignment of incentives and reward with culture;
• Setting the individual employment and remuneration terms for executive directors and other senior executives, including: recruitment
and severance terms, bonus plans and targets, and the achievement of performance against targets;
• Approving the general employment and remuneration terms for selected senior employees;
• Setting the remuneration of the Chairman of the company;
• Proposing all new long-term incentive schemes for approval of the board, and for recommendation by the board to shareholders; and
• Assisting the board in reporting to shareholders and undertaking appropriate discussions as necessary with institutional shareholders
on aspects of executive remuneration.
Composition of the remuneration committee as at 31 March 2021
Member
Alison Goligher (chair since 24.7.20)
Kath Cates
Mark Clare
Brian May
Member since
1.8.16
1.9.20
1.9.14
16.5.17
Sara Weller was chair of the remuneration committee until 24 July 2020 when she stepped down from the board.
The committee’s members have no personal financial interest in the company other than as shareholders and the fees paid to them as non-
executive directors.
Activities of the remuneration committee over the past year
The committee met five times in the year ended 31 March 2021 and carried out a number of key activities:
• Approved the 2019/20 directors’ remuneration report;
• Considered and agreed the executive remuneration related actions arising from the COVID-19 pandemic as outlined on page 175.
• Reviewed the pay comparator group;
• Reviewed the base salaries of executive directors and other members of the executive team;
• Reviewed the base fee for the Chairman;
• Assessed the achievement of targets for the 2019/20 annual bonus scheme, reviewed progress against the targets for the 2020/21
annual bonus scheme, and considered the targets for the 2021/22 annual bonus;
• Assessed the achievement of targets for the Long Term Plan (LTP) awards made in 2017, reviewed progress against the targets for the 2018
and 2019 LTP awards, and set the measures and targets for the 2020 LTP awards;
• Reviewed and approved awards made under the annual bonus, Deferred Bonus Plan (DBP) and LTP;
• Monitored progress against shareholding guidelines for executive directors and other members of the executive team;
• Reviewed the committee’s performance during the period;
• Considered the remuneration arrangements of the wider workforce and their alignment with those of the executives, alongside feedback
received from the workforce via Alison Goligher in her role as the non-executive director for workforce engagement;
• Considered governance developments and market trends in executive remuneration, including in the wider utilities sector; and
• Noted progress on the company’s gender pay gap reporting.
179
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Annual report on remuneration
Support to the remuneration committee
By invitation of the committee, meetings are attended by the Chairman of the company, the chief executive officer, the company secretary
(who acts as secretary to the committee), the customer services and people director and the head of reward, who are consulted on matters
discussed by the committee, unless those matters relate to their own remuneration. Advice or information is also sought directly from
other employees where the committee feels that such additional contributions will assist the decision-making process.
The committee is authorised to take such internal and external advice as it considers appropriate in connection with carrying out its duties,
including the appointment of its own external remuneration advisers.
During the year, the committee was assisted in its work by the following external advisers:
Adviser
Appointed by
How appointed
Mercer/Kepler, a
brand of Mercer
(and part of the
MMC group) (to
31 December 2020)
Committee
Appointed following
a tender process in
2019
Ellason LLP (from
1 January 2021)
Committee
Appointed following
the lead adviser
moving to Ellason LLP
Services provided
to the committee
in year ended
31 March 2021
Additional services
provided in
year ended
31 March 2021
Fees paid by company
for these services in
respect of year and
basis of charge
General advice
on remuneration
matters including
analysis of the
remuneration policy
and regular market
and best practice
updates.
General advice
on remuneration
matters including
analysis of the
remuneration policy
and regular market
and best practice
updates.
£56,000 on a time/
cost basis as set out in
accordance with the
terms and conditions
in the relevant
engagement letter
Advice and
benchmarking on
non-executive director
and senior leader
remuneration.
Mercer supplied
unrelated services to
the Group in relation
to IAS 19.
Advice and
benchmarking on
non-executive director
and senior leader
remuneration.
£8,000 on a time/
cost basis as set out in
accordance with the
terms and conditions
in the relevant
engagement letter
Mercer and Ellason are both signatories to the Remuneration Consultant Group’s Code of Conduct which sets out guidelines to ensure
that any advice is independent and free of undue influence (which can be found at www.remunerationconsultantsgroup.com). None of the
individual directors have a personal connection with Mercer or Ellason. The committee is satisfied that the advice it receives is objective
and independent and confirms that neither Mercer|Kepler nor Ellason have any connection with the company that may impair their
independence.
In addition, during the year the law firm Eversheds Sutherland provided advice to the company in relation to the company’s share schemes.
180
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE 2020 AGM: STATEMENT OF VOTING
At the last annual general meeting on 24 July 2020, votes on the 2020/21 directors’ remuneration report (other than the part containing the
directors’ remuneration policy) were cast as follows:
Votes for 460,435,984
(97.41% of votes cast)
Votes against 12,243,691
(2.59% of votes cast)
472,679,675
Total votes cast
2,389,096
Votes withheld
(abstentions)
At the annual general meeting on 26 July 2019, votes on the directors’ remuneration policy were cast as follows:
Votes for 458,175,960
(99.41% of votes cast)
Votes against 2,709,122
(0.59% of votes cast)
460,885,082
Total votes cast
667,337
Votes withheld
(abstentions)
The directors’ remuneration report was approved by the board of directors on 26 May 2021 and signed on its behalf by:
Alison Goligher
Chair of the remuneration committee
181
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE
Corporate governance report
Appendix 1: Directors’ remuneration policy (abridged)
This appendix to the directors’ remuneration report sets out an abridged version of the remuneration policy for the company which was
approved by shareholders at the AGM on 26 July 2019. The policy took effect from the data of approval and is intended to apply until the
2022 AGM.
In the interests of clarity, the report includes some minor annotations to additionally show, where appropriate, how the policy will be
implemented in 2021/22. A full version of the shareholder approved policy can be found in the annual report and financial statements for
the year ended 31 March 2019.
OVERVIEW OF REMUNERATION POLICY
The company’s remuneration arrangements are designed to promote the long-term success of the company. The company does not pay
more than is necessary for this purpose. The committee recognises that the company operates in the North West of England in a regulated
environment and therefore needs to ensure that the structure of executive remuneration reflects both the practices of the markets in which
its executives operate, and stakeholder expectations of how the company should be run.
The committee monitors the remuneration arrangements to ensure that there is an appropriate balance between risk and reward and that the
long-term performance of the business is not compromised by the pursuit of short-term value. There is a strong direct link between incentives
and the company’s strategy, and if the strategy is delivered within an acceptable level of risk, senior executives will be rewarded through the
annual bonus and long-term incentives. If it is not delivered, then a significant part of their potential remuneration will not be paid.
The committee understands that listening to the views of the company’s key stakeholders plays a vital role in formulating and implementing
a successful remuneration policy over the long term. The committee thus actively seeks the views of shareholders and other key
stakeholders to inform the development of the remuneration policy, particularly where any changes to policy are envisaged.
Although employees are not consulted directly on executive remuneration policy, employee engagement surveys are carried out
annually and regular discussion takes place with union representatives on matters of pay and remuneration for employees covered by
collective bargaining or consultation arrangements. The committee takes into account the general base salary increase and remuneration
arrangements, including pension provision, for the wider employee population when determining remuneration policy for the executive
directors. Processes are in place for the committee to review and consider any remuneration-related matters that may arise from the
activities undertaken by the board to take account of the ‘employee voice’.
POLICY TABLE FOR DIRECTORS
Base salary
Purpose and link to strategy: To attract and retain executives of the experience and quality required to deliver the company’s strategy.
Operation
Maximum opportunity
Normally reviewed annually, typically effective 1 September.
Significant increases in salary should only take place infrequently,
for example where there has been a material increase in:
•
•
•
the size of the individual’s role;
the size of the company (through mergers and acquisitions); or
the pay market for directly comparable companies (for example,
companies of a similar size and complexity).
On recruitment or promotion to executive director, the committee
will take into account previous remuneration, and pay levels for
comparable companies, when setting salary levels. This may lead
to salary being set at a lower or higher level than for the previous
incumbent.
Current salary levels are shown in the annual report on
remuneration.
Executive directors will normally receive a salary increase broadly in
line with the increase awarded to the general workforce, unless one
or more of the conditions outlined under ‘Operation’ is met.
Where the committee has set the salary of a new hire at a discount
to the market level initially, a series of planned increases can be
implemented over the following few years to bring the salary to the
appropriate market position, subject to individual performance.
Performance measures
None
182
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
Pension
Purpose and link to strategy: To provide a level of benefits that allow for personal retirement planning.
Operation
Maximum opportunity
Executive directors are offered the choice of:
• a company contribution into a defined contribution pension
The maximum opportunity is aligned to the approach available to
the wider workforce, currently:
scheme;
• up to 14 per cent of salary into a defined contribution scheme;
• a cash allowance in lieu of pension; or
• cash allowance of broadly equivalent cost to the company
• a combination of a company contribution into a defined
contribution pension scheme and a cash allowance.
(up to 14 per cent of salary less employer National Insurance
contributions at the prevailing rate, i.e. up to 12 per cent of base
salary for 2019/20); or
• a combination of both such that the cost to the company is
broadly the same.
For executive directors appointed to role before 26 July 2019 a
cash allowance of 22 per cent of salary is payable. Their pension
arrangements will be aligned to the wider workforce as part of the
next policy review.
Performance measures
None
Benefits
Purpose and link to strategy: To provide market competitive benefits to help recruit and retain high-calibre executives.
Maximum opportunity
As it is not possible to calculate in advance the cost of all benefits,
a maximum is not predetermined.
Performance measures
None
Operation
Provision of benefits such as:
• health benefits;
• car or car allowance;
•
•
relocation assistance;
life assurance;
• group income protection;
• all employee share schemes (e.g. opportunity to join the
ShareBuy scheme);
•
travel; and
• communication costs.
Any reasonable business-related expenses can be reimbursed (and
any tax thereon met if determined to be a taxable benefit).
Executives will be eligible for any other benefits that are introduced
for the wider workforce on broadly similar terms and additional
benefits might be provided from time to time if the committee
decides payment of such benefits is appropriate and in line with
emerging market practice.
183
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Corporate governance report
Appendix 1: Directors’ remuneration policy (abridged)
Annual bonus
Purpose and link to strategy: To incentivise performance against personal objectives and selected financial and operational KPIs that are
directly linked to business strategy. Deferral of part of bonus into shares aligns the interests of executive directors and shareholders.
Operation
Maximum opportunity
A maximum of 50 per cent of bonus awarded paid as cash.
A minimum of 50 per cent of bonus awarded deferred into company
shares under the Deferred Bonus Plan (DBP) for a period of at least
three years.
DBP shares accrue dividend equivalents. Not pensionable.
Bonuses and DBP shares are subject to recovery provisions in
certain negative circumstances including: material misstatement
of audited financial results; an error in the calculation; or gross
misconduct.
Additionally, withholding provisions can apply to DBP shares in cases
of: serious reputational damage; serious failure of risk management;
or other circumstances that the committee may determine.
Maximum award level of up to 130 per cent of salary, for the
achievement of stretching performance objectives.
Performance measures
Payments predominantly based on financial and operational
performance.
Targets and weightings set by reference to the company’s financial
and operating plans.
Bonus outcomes are subject to the committee being satisfied that
the company’s performance on the measures is consistent with
underlying business performance and individual contributions. The
committee will exercise discretion on bonus outcomes if it deems
necessary.
100 per cent of maximum bonus potential for stretch performance;
up to 50 per cent of maximum for target performance; and up to
25 per cent of maximum for threshold performance. No payout for
below- threshold performance.
Long Term Plan (LTP)
Purpose and link to strategy: To incentivise long-term value creation and alignment with the long-term interests of shareholders,
customers, and other stakeholders.
Operation
Maximum opportunity
Awards under the Long Term Plan are rights to receive company
shares, subject to certain performance conditions.
The normal maximum award level will be up to 130 per cent of
salary per annum.
Each award is measured over at least a three-year performance
period.
An additional holding period applies after the end of the three- year
performance period so that the total vesting and holding period is
at least five years.
Vested shares accrue dividend equivalents.
Shares under the LTP are subject to recovery and withholding
provisions in certain negative circumstances, including: material
misstatement of audited financial results; an error in the calculation;
or gross misconduct.
Additionally, withholding provisions can apply in cases of: serious
reputational damage; serious failure of risk management;
or other circumstances that the committee may determine.
The overall policy limit is 200 per cent of salary. It is not anticipated
that awards above the normal level will be made to current
executive directors and any such increase on an ongoing basis will
be subject to prior consultation with major shareholders.
Performance measures
The two performance conditions are Return on Regulated Equity
and a basket of customer measures. The weighting of each of these
two components is 50 per cent.
Any vesting is subject to the delivery of the dividend policy during
the respective performance period, and the committee being
satisfied that the company’s performance on these measures is
consistent with underlying business performance. The committee
will exercise discretion on LTP outcomes if it deems it necessary.
The committee retains discretion to set alternative performance
measures for future awards but will consult with major shareholders
before making any changes to the currently applied measures.
100 per cent of awards vest for stretch performance; and up to 25
per cent of awards vest for threshold performance. No awards vest
for below-threshold performance.
184
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE
Non-executive directors’ fees and benefits
Purpose and link to strategy: To attract non-executive directors with a broad range of experience and skills to oversee the development
and implementation of our strategy.
Operation
Maximum opportunity
Current fee levels are shown in the annual report on remuneration.
The value of benefits may vary from year to year according to the
cost to the company.
Performance measures
Non-executive directors are not eligible to participate in any
performance-related arrangements.
The remuneration policy for the non-executive directors (with
the exception of the Chairman) is set by a separate committee
of the board. The policy for the Chairman is determined by the
remuneration committee (of which the Chairman is not a member).
Fees are reviewed annually taking into account the salary increase
for the general workforce and the levels of fees paid by companies
of a similar size and complexity. Any changes are normally effective
from 1 September. Additional fees are paid in relation to extra
responsibilities undertaken, such as chairing certain board sub-
committees, and to the senior independent non-executive director.
In exceptional circumstances, if there is a temporary yet material
increase in the time commitments for non-executive directors,
the board may pay extra fees on a pro rata basis to recognise the
additional workload.
No eligibility for bonuses, long-term incentive plans, pension
schemes, healthcare arrangements or employee share schemes.
The company repays any reasonable expenses that a non-executive
director incurs in carrying out their duties as a director, including
travel, hospitality-related and other modest benefits and any tax
liabilities thereon, if appropriate.
Notes to the policy table - selection of measures and targets
Performance measures for the annual bonus are selected annually to align with the company’s key strategic goals for the year and reflect
financial and operational performance. ‘Target’ performance is typically set in line with the business plan for the year, following rigorous
debate and approval of the plan by the board. Threshold to stretch targets are then set based on a sliding scale on the basis of relevant
commercial factors.
Only modest rewards are available for delivering threshold performance levels, with rewards at stretch requiring substantial
outperformance of the business plan. Details of the measures used for the annual bonus are given in the annual report on remuneration.
The current Long Term Plan (LTP) measures were selected by the committee following an extensive review and shareholder consultation
in 2018/19. These measures are considered to align with the company’s key strategic goals and be closely linked to the creation of long-
term shareholder value. LTP targets are set taking into account a number of factors, including reference to market practice, the company
business plan and analysts’ forecasts where relevant. The LTP will only vest in full if stretching business performance is achieved.
ANNUAL BONUS AND LONG-TERM INCENTIVES –
FLEXIBILITY, DISCRETION AND JUDGEMENT
The committee will operate the company’s incentive plans according to their respective rules and consistent with normal market practice,
the Listing Rules and HMRC rules where relevant, including flexibility in a number of regards.
These include making awards and setting performance criteria each year, dealing with leavers, and adjustments to awards and performance
criteria following acquisitions, disposals, changes in share capital and to take account of the impact of other merger and acquisition activity.
The committee retains discretion within the policy to adjust the targets, set different measures and/or alter weightings for the annual
bonus plan, pay dividend equivalents on vested shares up to the date those shares can first reasonably be exercised and, in exceptional
circumstances, under the rules of the long-term incentive plans to adjust performance conditions to ensure that the awards fulfil their original
purposes (for example, if an external benchmark or measure is no longer available). All assessments of performance are ultimately subject to
the committee’s judgement. Any discretion exercised, and the rationale, will be disclosed in the annual remuneration report.
All historic awards that were granted under any current or previous share schemes operated by the company and remain outstanding
remain eligible to vest based on their original award terms.
185
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Appendix 1: Directors’ remuneration policy (abridged)
ALIGNMENT OF EXECUTIVE DIRECTOR REMUNERATION WITH
THE WIDER WORKFORCE
The remuneration approach is consistently applied at levels below the executive directors. Key features include:
• market competitive levels of remuneration, incentives and benefits to attract and retain employees;
• employees at all levels participate in a bonus scheme with the same corporate performance measures as for executive directors; and
• all employees have the opportunity to participate in the HMRC-approved share incentive plan, ShareBuy.
At senior levels, remuneration is increasingly long-term, and ‘at risk’ with an increased emphasis on performance-related pay and share-
based remuneration.
SCENARIOS FOR TOTAL REMUNERATION
The charts below show the payout under the remuneration policy for each executive director under four different scenarios.
Steve Mogford CEO
£’000s
1)
2)
3)
Fixed
Target
100%
976
49.2%
25.4% 25.4% 1,983
Maximum
32.6%
33.7%
33.7%
2,991
27.9%
28.8%
28.8%
14.4% 3,495
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4) Maximum plus
50% share
price growth
Phil Aspin CFO
£’000s
1)
2)
3)
4)
Fixed
Target
100%
461
47.0%
26.5% 26.5%
981
Maximum
30.7%
34.6%
34.6%
1,501
Maximum plus
50% share
price growth
26.2%
29.5%
29.5%
14.8%
1,761
0
200
400
600
800 1,000 1,200 1,400 1,600 1,800
Fixed
Annual bonus
Long Term Plan
Additional Long Term Plan value if share price grows by 50 per cent
Notes on the scenario methodology:
•
•
•
•
‘Fixed’ is base salary effective 31 March 2021
plus the applicable cash allowance in lieu of
pension and the value of benefits as shown
in the single total figure of remuneration
table for 2020/21;
‘Target’ performance is the level of
performance required for the annual bonus
and Long Term Plan to pay out at 50 per
cent of maximum;
‘Maximum’ performance would result in 100
per cent vesting of the annual bonus and
Long Term Plan (i.e. 260 per cent of salary
in total);
‘Maximum performance plus 50 per cent
share price growth’ shows maximum
performance plus the impact on the Long
Term Plan of a hypothetical 50 per cent
increase in the share price;
• Annual bonus includes amounts
compulsorily deferred into shares;
• Long Term Plan is measured at face value,
i.e. no assumption for dividends or changes
in share price (except in the fourth scenario);
and
• Amounts relating to all-employee share
schemes have, for simplicity, been excluded
from the charts.
186
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE SHAREHOLDING GUIDELINES
The committee believes that it is important for each executive director to build and maintain a significant investment in shares of the
company to provide alignment with shareholder interests. Shareholding guidelines are therefore operated and the details of how these are
currently applied are provided in the annual report on remuneration. With effect from 19 May 2020 the guidelines were updated to include
post-employment shareholding requirements as outlined on page 176.
EXTERNAL DIRECTORSHIPS
The company recognises that its executive directors may be invited to become non-executive directors of other companies outside the
company and exposure to such non-executive duties can broaden experience and knowledge, which would be of benefit to the company.
Any external appointments are subject to board approval (which would not be given if the proposed appointment was with a competing
company, would lead to a material conflict of interest or could have a detrimental effect on a director’s performance). Directors will be
allowed to retain any fees received in respect of such appointments.
SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
Executive directors’ service contracts are subject to up to one year’s notice period when terminated by the company and at least six
months’ notice when terminated by the director.
The policy on payments for loss of office is set out on the next page.
The Chairman and other non-executive directors have letters of appointment rather than service contracts. Their appointments may be
terminated without compensation at any time. All non-executive directors are subject to re-election at each AGM.
Copies of executive directors’ service contracts and non-executive directors’ letters of appointment are available for inspection at the
company’s registered office during normal hours of business and will be available at the company’s AGM. Copies of non-executive
directors’ letters of appointment can be viewed on the company’s website.
APPROACH TO RECRUITMENT REMUNERATION
The remuneration package for a new executive director would be set in accordance with the terms of the company’s approved
remuneration policy in force at the time of appointment.
Buy-out awards
The committee may offer additional cash and/or share-based elements (on a one-time basis or ongoing) when it considers these to be in the best
interests of the company (and therefore shareholders). Any such payments would be limited to a reasonable estimate of value of remuneration
lost when leaving the former employer and would reflect the delivery mechanism (i.e. cash and/or share-based), time horizons and whether
performance requirements are attached to that remuneration. Shareholders will be informed of any such payments at the time of appointment.
Maximum level of variable pay
The maximum level of long-term incentives that may be awarded to a new executive director will be limited to the maximum Long Term
Plan limit of 200 per cent of salary per annum on an ongoing basis. Therefore, the maximum level of overall variable pay that may be
offered will be 330 per cent of salary (i.e. 130 per cent annual bonus plus 200 per cent Long Term Plan) per annum on an ongoing basis.
These limits are in addition to the value of any buyout arrangements which are governed by the policy above.
In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out
according to its terms, adjusted as relevant to take into account the appointment. In addition, any other previously awarded entitlements
would continue, and be disclosed in the next annual report on remuneration.
Base salary and relocation expenses
Base salary levels for new executive directors will be set in accordance with the policy, taking into account the experience of the individual recruited.
The committee has the flexibility to set the salary of a new appointee at a discount to the market level initially, with a series of planned increases
implemented over the following years to bring the salary to the appropriate market position, subject to individual performance in the role.
The committee may agree that the company will meet certain relocation and/or incidental expenses as appropriate.
Annual bonus performance conditions
Where a new executive director is appointed part way through a financial year, the committee may set different annual bonus measures
and targets for the new executive director from those used for other executive directors (for the initial part-year only).
Appointment of non-executive directors
For the appointment of a new Chairman or non-executive director, the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time. Non-executive directors’ fees are set by a separate committee of the board; the Chairman’s fees
are set by the remuneration committee.
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Corporate governance report
Appendix 1: Directors’ remuneration policy (abridged)
PAYMENT FOR LOSS OF OFFICE
The circumstances of the termination, including the individual’s performance and an individual’s duty and opportunity to mitigate losses,
are taken into account in every case. Our policy is to stop or reduce compensatory payments to former executive directors to the extent
that they receive remuneration from other employment during the compensation period. A robust line on reducing compensation is applied
and payments to departing employees may be phased to mitigate loss. Our policy is shown in the table below:
Provision
Summary terms
Compensation for loss of office • An executive director’s service contract may be terminated without notice and without any further
payment or compensation, except for sums earned up to the date of termination, on the occurrence
of certain contractually specified events such as gross misconduct.
• No termination payment if full notice is worked.
• Otherwise, a payment in respect of the period of notice not worked of basic salary, plus pension and
car allowance for that period.
• Half of the termination payment will be paid within 14 days of date of termination.
• The other half will be paid in monthly instalments over what would have been the second half of
the notice period. This will be reduced by the value of any salary, pension contribution and car
allowance earned in new paid employment in that period.
Treatment of annual bonus
on termination
• A time prorated bonus may be payable for the period of active service; however, there is no
automatic entitlement to payments under the bonus scheme. Any payment is at the discretion of the
committee and is subject to recovery and withholding provisions as detailed in the policy table.
• Performance targets would apply in all circumstances.
Treatment of deferred bonus
on termination
• Determined on the basis of the relevant plan rules. Full details can be found on the company’s
website.
Treatment of unvested long-
term incentives on termination
• Deferred bonuses are subject to recovery and withholding provisions as detailed in the policy table.
• The default treatment is that any outstanding awards will vest in full on the normal vesting date with
no time prorating applying.
• Determined on the basis of the relevant plan rules. Full details can be found on the company’s
website.
• Normally, any outstanding awards will lapse on date of cessation of employment (if that occurs
during the performance period).
• However, under the rules of the plans, in certain prescribed circumstances, such as death, disability,
mutually agreed retirement or other circumstances at the discretion of the committee, ‘good leaver’
status can be applied. In these circumstances, a participant’s awards vest on a time prorated basis
subject to the satisfaction of relevant performance criteria, with the balance of awards lapsing.
The committee retains the discretion not to time prorate if it is inappropriate to do so in particular
circumstances. The committee will take into account the individual’s performance and the reasons
for their departure when determining whether ‘good leaver’ status can be applied.
Treatment of pensions on
termination
• On redundancy, an augmentation may apply in relation to benefits accrued under a United Utilities
defined benefit pension scheme, in line with the trust deed and rules of the appropriate section.
Outplacement services, reimbursement of legal costs and any other incidental expenses may be provided where appropriate. Any statutory
entitlements or compromise claims in connection with a termination of employment would be paid as necessary. Outstanding savings/
shares under all-employee share plans would be transferred in accordance with the terms of the plans as approved by HMRC.
Change of control
On a change of control, executive directors’ incentive awards will be treated in accordance with the rules of the applicable plans. In summary:
• Bonus payments will take into account the extent to which the performance measures have been satisfied between the start of the
performance period and the date of the change of control, and the value will be prorated to reflect the same period.
• Deferred bonuses will generally vest on the date of a change of control, unless the committee permits (or requires) awards to roll over
into equivalent shares in the acquirer.
• Long Term Plan awards will generally vest on the date of a change of control taking into account the extent to which any performance
condition has been satisfied at that point. Time prorating will normally apply unless the committee determines otherwise.
188
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Corporate governance report
Appendix 2: Executive directors’ share plan interests 1 April 2020 to 31 March 2021
Awards held
at 1 April
2020
Award date
Granted in
year
Vested
in year
Lapsed/
forfeited in
year
Notional
dividends
accrued in
year(1)
Awards
held at
31 March
2021(1)
Steve Mogford
Shares not subject to performance conditions at 31 March 2021
DBP
47,238
16.6.17
DBP
DBP
DBP(2)
LTP
LTP
LTP
ShareBuy matching shares(3)
Subtotal
18.6.18
17.6.19
17.6.20
30.6.15
28.6.16
27.6.17
1.4.20 to 31.3.21
–
–
–
52,014
49,262
–
38,742
66,320
74,647
116,535
43
–
–
–
39
Shares subject to performance conditions at 31 March 2021
LTP
137,582
25.6.18
LTP
LTP(4)
Subtotal
TOTAL
Russ Houlden
28.6.19
30.11.20
126,893
–
264,475
670,534
Shares not subject to performance conditions at 31 March 2021
DBP
29,640
16.6.17
DBP
DBP
DBP(2)
LTP
LTP
18.6.18
17.6.19
17.6.20
30.6.15
28.6.16
LTP
27.6.17
ShareBuy matching shares(3) 1.4.20 to 31.3.21
32,626
30,929
–
24,469
41,869
47,112
73,574
43
–
–
–
13
–
–
112,097
112,097
150,878
–
–
–
406,059
38,781
113,601
113,601
15,282
Subtotal
255,793
24,482
71,565
Shares subject to performance conditions at 31 March 2021
LTP
86,888
25.6.18
LTP
Subtotal
TOTAL
Phil Aspin
28.6.19
80,143
167,031
422,824
–
–
–
–
–
–
24,482
71,565
Shares not subject to performance conditions at 31 March 2021
DBP
17.6.20
–
LTP
27.6.17
ShareBuy matching shares(3) 1.4.20 to 31.3.21
Subtotal
8,762
43
8,805
Shares subject to performance conditions at 31 March 2021
LTP
25.6.18
10,398
LTP
LTP(4)
Subtotal
TOTAL
28.6.19
30.11.20
9,730
–
20,128
28,933
(1) Note that these are subject to performance conditions where applicable.
(2) See page 168 for further details.
4,069
–
40
4,109
–
–
57,842
57,842
61,951
8,567
1,241
47,238
–
–
–
66,320
–
–
43
–
–
–
–
29,640
–
–
–
41,869
–
–
56
–
8,524
43
8,567
–
–
–
–
–
–
–
–
–
–
15,282
–
15,282
–
–
–
–
–
–
–
–
–
–
9,648
–
9,648
19,264
44,459
63,723
73,371
–
1,241
–
1,241
–
–
–
–
–
2,443
2,314
1,819
–
3,556
5,387
–
15,519
6,464
5,961
1,705
14,130
29,649
–
1,531
1,452
1,148
–
2,244
3,401
–
9,776
3,177
1,675
4,852
14,628
190
1,003
–
1,193
488
456
880
1,824
3,017
–
54,457
51,576
40,561
–
78,203
106,640
39
331,476
144,046
132,854
113,802
390,702
722,178
–
34,157
32,381
25,617
–
49,356
67,327
–
208,838
70,801
37,359
108,160
316,998
4,259
–
40
4,299
10,886
10,186
58,722
79,794
84,093
(3) Under ShareBuy, matching shares vest provided the employee remains employed by the company one year after grant. During the year Steve Mogford
purchased 200 partnership shares and was awarded 39 matching shares (at an average share price of 904.9 pence per share). Russ Houlden purchased 67
partnership shares and was awarded 13 matching shares (at an average share price of 893.2 pence per share). Phil Aspin purchased 199 partnership shares
and was awarded 40 matching shares (at an average share price of 904.9 pence per share).
(4) See page 170 for further details.
189
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UK tax policies and objectives
Consistent with our wider business objectives,
we are committed to acting in a responsible
manner in relation to our tax affairs.
Our tax policies and objectives, which are
approved by the board on an annual basis,
ensure that we:
• only engage in reasonable tax planning
aligned with our commercial activities
and we always comply with what we
believe to be both the letter and the
spirit of the law;
• do not engage in marketed, aggressive
or abusive tax avoidance;
• do not use tax havens for tax avoidance
purposes and always seek to declare
profits in the place where their
economic substance arises;
• are committed to an open, transparent
and professional relationship with
HMRC based on mutual trust and
collaborative working; and
• maintain a robust governance and risk
management framework to ensure that
these policies and objectives are fully
complied with and applied at all levels.
We expect to fully adhere to the HMRC
framework for co-operative compliance.
Our Chief Financial Officer (CFO) has
responsibility for tax governance with
oversight from the board. The CFO is
supported by a specialist team of tax
professionals with many years of tax
experience within the water sector and
led by the Head of Tax.
The Head of Tax has day-to-day
responsibility for managing the group’s
tax affairs and engages regularly with
key stakeholders from around the group
in ensuring that tax risk is proactively
managed. Where appropriate, he will
engage with both external advisers and
HMRC to provide additional required
certainty with the aim of ensuring that any
residual risk is typically low. All significant
tax issues are reported to the board
regularly.
Consistent with the group’s general risk
management framework, all tax risks are
assessed for the likelihood of occurrence
and the negative financial or reputational
impact on the group and its objectives,
should the event occur. In any given
period, the key tax risk is likely to be the
introduction of unexpected legislative
or tax practice changes which lead to
increased cash outflow which has not
been reflected in the current regulatory
settlement. The group is committed to
actively engaging with relevant authorities
to actively manage any such risk.
In any given year, the group’s effective cash
tax rate on underlying profits may fluctuate
from the standard UK rate mainly due to
the available tax deductions on capital
investment. These deductions are achieved
as a result of utilising tax incentives,
which have been explicitly put in place
by successive governments precisely to
encourage such investment. This reflects
responsible corporate behaviour in relation
to tax.
Under the regulatory framework the group
operates within, the majority of any benefit
from reduced tax payments will typically
not be retained by the group but will pass
to customers; reducing their bills. For
2020/21, the impact of tax deductions on
capital investment alone reduced average
household bills by around £20.
The group’s principal subsidiary, United
Utilities Water Limited (UUW), operates
solely in the UK and its customers are
based here. All of the group’s profits
are taxable in the UK (other than profits
relating to the group’s 35 per cent holding
in Tallinn Water which are fully taxable in
Estonia on distribution).
We completed the sale of our investment
in Tallinn Water in March this year. In
addition, the group’s other remaining
overseas subsidiary company, a dormant
company resident in Thailand, where the
group had historic trading operations, was
formally dissolved in February this year.
Every year, the group pays significant
contributions to the public finances on
its own behalf as well as collecting and
paying further amounts for its 5,000 strong
workforce. Details of the total payments
for 2021 of around £258 million are set out
below.
Taxes/contributions to public finances for 2021
Total taxes and contributions to public finances
£258m
£91m
Business rates
£48m
£24m
£54m
£10m £31m
Corporation tax
Employment taxes:
company
Employment taxes:
employees
Environmental taxes
and other duties
Regulatory services fees (e.g.
water extraction charges)
190
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE The above tax policy disclosure meets
the group’s statutory requirement under
Paragraph 16(2) of Schedule 19 of Finance
Act 2016 to publish its UK tax strategy for
the year ended 31 March 2021.
See our website for our latest separate
annual tax report, which includes further
details in relation to the following key
areas:
• How much tax we pay;
• How we ensure that we pay the right
tax at the right time; and
• How we ensure that our tax affairs are
transparent for all our stakeholders.
Recognising the group’s ongoing
commitment to paying its fair share of
tax and acting in an open and transparent
manner in relation to its tax affairs, we
were delighted to have retained the Fair
Tax Mark independent certification for a
second year, having been only the second
FTSE 100 company to be awarded the Fair
Tax Mark in July 2019.
191
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Statutory and other information
Our directors present their management report, including the strategic report, on pages 16 to 109 and the audited financial statements of
United Utilities Group PLC (the company) and its subsidiaries (together referred to as the group) for the year ended 31 March 2021.
Business model
A description of the company’s business model can be found within the strategic report on pages 30 to 49.
Dividends
Directors
Reappointment
Our directors are recommending a final dividend of 28.83 pence per ordinary share for the year ended 31 March
2021, which, together with the interim dividend of 14.41 pence, gives a total dividend for the year of 43.24 pence
per ordinary share (the interim and final dividends paid in respect of the 2019/20 financial year were 14.20 pence
and 28.40 pence per ordinary share respectively). Subject to approval by our shareholders at our AGM, the final
dividend will be paid on 2 August 2021 to shareholders on the register at the close of business on 25 June 2021.
The names of our directors who served during the financial year ended 31 March 2021 can be found on
pages 112 to 115 and on page 124.
Our articles of association provide that our directors must retire at every annual general meeting following
their last election or reappointment by our shareholders which is consistent with the recommendation
contained within the 2018 UK Corporate Governance Code (the code) that all directors should be subject to
annual election by shareholders. This has been the case at all the AGMs since 2011. Information regarding
the appointment of our directors is included in our corporate governance report on pages 130 to 137.
Interests
Details of the interests in the company’s shares held by our directors and persons connected with them are
set out in our directors’ remuneration report on pages 160 to 189 which is hereby incorporated by reference
into this directors’ report.
Corporate governance
statement
Share capital
The corporate governance report on pages 112 to 189 is hereby incorporated by reference into this directors’
report and includes details of our compliance with the code. Our statement includes a description of the
main features of our internal control and risk management systems in relation to the financial reporting
process and forms part of this directors’ report. A copy of the 2018 version of the code, as applicable to the
company for the year ended 31 March 2021, can be found at the Financial Reporting Council’s website
frc.org.uk. Copies of the matters reserved for the board and the terms of reference for each of the main
board committees can be found on our website.
At 31 March 2021, the issued share capital of the company was £499,819,926 divided into 681,888,418 ordinary
shares of 5 pence each and 273,956,180 deferred shares of 170 pence each. Details of our share capital and
movements in our issued share capital are shown in note 23 to the financial statements on page 234. The ordinary
shares represented 71.3 per cent and the deferred shares represented 28.7 per cent respectively of the shares in
issue as at 31 March 2021.
All our ordinary shares have the same rights, including the rights to one vote at any of our general
meetings, to an equal proportion of any dividends we declare and pay, and to an equal amount of any
surplus assets which are distributed in the event of a winding-up.
Our deferred shares convey no right to income, no right to vote and no appreciable right to participate in any
surplus capital in the event of a winding-up. The rights attaching to our shares in the company are provided by
our articles of association, which may be amended or replaced by means of a special resolution of the company
in general meeting. The company renews annually its power to issue and buy back shares at our AGM and such
resolutions will be proposed at our 2021 AGM. Our directors’ powers are conferred on them by UK legislation
and by the company’s articles. At the AGM of the company held on 24 July 2020, the directors were authorised
to issue relevant securities up to an aggregate nominal amount of £11,364,806 and were empowered to allot
equity securities for cash on a non-pre-emptive basis to an aggregate nominal amount of £1,704,721.
Voting
Electronic and paper proxy appointment and voting instructions must be received by our registrars
(Equiniti) no less than 48 hours before a general meeting and when calculating this period, the directors can
decide not to take account of any part of a day that is not a working day.
192
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Transfers
There are no restrictions on the transfer of our ordinary shares in the company, nor any limitations on the
holding of our shares in the company, save: (i) where the company has exercised its right to suspend their
voting rights or to prohibit their transfer following the omission of their holder or any person interested
in them to provide the company with information requested by it in accordance with Part 22 of the
Companies Act 2006; or (ii) where their holder is precluded from exercising voting rights by the Financial
Conduct Authority’s Listing Rules or the City Code on Takeovers and Mergers.
There are no agreements known to us between holders of securities that may result in restrictions on the
transfer of securities or on voting rights. All our issued shares are fully paid.
Major shareholdings
At 26 May 2021, our directors had been notified of the following interests in the company’s issued ordinary
share capital in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority:
Per cent of issued share capital Direct or indirect nature of holding
Purchase of own shares
Change of control
Lazard Asset Management LLC
BlackRock Inc.
Norges Bank
9.93
5.13
2.97
Indirect
Indirect
Direct
At our AGM held on 24 July 2020, our shareholders authorised the company to purchase, in the market, up
to 68,188,841 of our ordinary shares of 5 pence each. We did not purchase any shares under this authority
during the year. We normally seek such an authority from our shareholders annually. At our 2021 AGM, we
will again seek authority from our shareholders to purchase up to 68,188,841 of our ordinary shares of 5
pence each with such authority expiring at the end of our AGM held in 2022.
As at 31 March 2021, Ocorian Corporate Services (UK) Limited was the trustee that administered our
executive share plans and had the ability to exercise voting rights at its discretion which related to shares
that it held under the trust deed constituting the trust. In the event of a takeover offer which could lead to a
change of control of the company, the trustee must consult with the company before accepting the offer or
voting in favour of the offer. Subject to that requirement, the trustee may take into account a prescribed list
of interests and considerations prior to making a decision in relation to the offer, including the interests of
the beneficiaries under the trust.
In the event of a change of control, the participants in our all-employee share incentive plan (ShareBuy) would
be able to direct the trustee of ShareBuy, Equiniti Share Plan Trustees Limited, how to act on their behalf.
Information required by
UK Listing Rule 9.8.4
Details of the amount of interest capitalised by the group during the financial year can be found in note 6 to
the financial statements on page 221. In line with current UK tax legislation, the amount is fully deductible
against the group’s corporation tax liability, resulting in tax relief of £5.8 million.
Directors’ indemnities and
insurance
There are no other disclosures to be made under Listing Rule 9.8.4.
We have in place contractual entitlements for the directors of the company and of its subsidiaries to claim
indemnification by the company in respect of certain liabilities which might be incurred by them in the
course of their duties as directors. These arrangements, which constitute qualifying third-party indemnity
provision and qualifying pension scheme indemnity provision, have been established in compliance with
the relevant provisions of the Companies Act 2006 and have been in force throughout the financial year.
They include provision for the company to fund the costs incurred by directors in defending certain claims
against them in relation to their duties as directors of the company or its subsidiaries. The company
maintains an appropriate level of directors’ and officers’ liability insurance.
193
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Statutory and other information
It is the company’s policy position that we do not support any political party and do not make what are
commonly regarded as donations to any political party or other political organisations. However, the wide
definition of donations in the Political Parties, Elections and Referendums Act 2000 covers activities which
form part of the necessary relationship between the group and our political stakeholders. This can include
promoting United Utilities’ activities at the main political parties’ annual conferences, and occasional
stakeholder engagement in Westminster. The group incurred expenditure during the year of £5,801 (2020:
£23,627; 2019: £9,388) as part of this process. At the 2020 AGM, an authority was taken to cover such
expenditure. A similar resolution will be put to our shareholders at the 2021 AGM to authorise the company
and its subsidiaries to make such expenditure.
As the provider of services to 7 million people across the North West, customers can sometimes contact their
constituency MP and ask that they raise an issue with the company on their behalf. In 2020/21, we received
379 contacts from MPs offices covering topics such as flooding and planning. As part of our work to build
constructive relationships with all our stakeholders, we encourage MPs and members of their offices to work
closely with us to address constituency concerns and arrange case worker events to discuss such issues in detail.
In 2020, this was a virtual event in which over 40 MP representatives accepted to join us. For those unable to
participate in the live event, a link was sent so it could be viewed when convenient. There are two devolved
administrations in the North West – the Greater Manchester Combined Authority and the Liverpool City Region
(LCR) – we engage regularly with both, as well as the region’s local authorities, on a range of topics of shared
interest, such as tackling flooding risk and enhancing the North West’s natural capital. Our sponsorship of the All
Party Political Groups for Greater Manchester and LCR helps bring MPs and peers of all parties together with key
leaders to help maximise future investment in these areas for the benefit of local communities.
In addition, the company’s activities to engage with political stakeholders on matters relevant to the water
industry and its operating footprint in the North West extend to its membership of trade associations. This is
described in the section below.
We are members of a small number of trade associations. Some of these have a national focus, such as
Water UK, the representative body of the UK water industry, which considers industry-wide priorities
such as development of markets, customer trust, resilience, and legislation and regulation, and the
Confederation of British Industry, which provides a policy-making voice for firms at a regional, national
and international level. Others focus on specific professions such as the 100 Group representing the views
of the finance directors of FTSE 100 and large UK private companies and the GC 100, the voice of general
counsel and company secretaries in FTSE 100 companies. The company is a member of regional bodies,
such as the North West Business Leadership Team which encourages engagement across the public and
private sectors to promote the sustainable economic development and long-term wellbeing of the North
West. Our total contribution to these associations in 2020/21 was £420,403 (2019/20: £400,916).
In the past 12 months, the company has been involved in several engagements with political stakeholders
through its membership of trade associations. Through Water UK, the company has supported efforts to
interact with parliamentary bodies, such as select committees and chairs of other specific committees,
to provide information on topics such as water efficiency labelling for white goods and the performance
of combined sewer overflows in relation to river water quality. The company has supported Water UK in
its effort to encourage the Government to ensure its forthcoming Environment Bill supports the sector’s
objectives to deliver resilient water services now and into the future.
Through our membership with both the CBI, in particular as a member of its North West regional council, and
the North West Business Leadership Team, we have engaged with regional political stakeholders, such as local
authorities and metro mayors, to explore how the business community can work more effectively with the
public sector to drive economic growth in the region and tackle some of the North West’s pressing social issues.
For example, we have participated in consultations and discussions as part of the unlocking regional growth/
levelling up agenda, bringing together views of industry and regional government on opportunities and barriers.
Our policies on employee consultation and on equal opportunities for all employees can be found on
pages 32 and 34. Applicants with disabilities are given equal consideration in our application process, and
disabled colleagues have equipment and working practices modified for them as far as possible and where
it is safe and practical to do so. Importance is placed on strengthening employees’ engagement (see page
24). The effect of our regard towards employees in relation to the decisions taken during the financial year
is included in our S172(1) Statement on page 28.
Employees are encouraged to own shares in the company through the operation of an all employee share
incentive plan (ShareBuy).
Information on our average number of employees during the year, can be found in note 3 on page 219.
Political donations
Trade associations
Employees
194
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE Environmental, social and
community matters
Details of our approach, as a responsible business, is set out in the Strategic Report, in particular where
we describe our approach to purpose and stakeholder value on pages 16 to 17 and 32. Further information
is available on our website at www.unitedutilities.com/corporate/responsibility/. Our approach to
engagement with our environmental stakeholders and those in the communities we serve can be found on
pages 22 to 27. The effect of our regard towards the environment, social and community matters in relation
to the decisions taken during the financial year is included in our S172(1) Statement on page 28.
Customers and suppliers
and key stakeholders
Our approach to engagement with customers, suppliers, regulators and other key stakeholders can be found on
pages 22 to 27. The effect of our regard towards customers, suppliers, regulators and other key stakeholders in
relation to the decisions taken during the financial year is included in our S172(1) Statement on page 28.
Our United Supply Chain approach sets out how we work with our suppliers, which can be found on our
website at: unitedutilities.com/corporate/about-us/governance/suppliers/delivering-value/united-supply-
chain/, we are a signatory to the Prompt Payment Code. We publish key statistics and other information
on our payment practices in line with the Duty to Report on Payment Practices and Performance on the
Department for Business, Energy & Industrial Strategy’s website. Information is published on a six-monthly
basis. For the six months to 31 March 2021, our average time taken to pay invoices was 14 days; in the
previous six months it was 14 days.
Energy and carbon report Our TCFD reporting includes our energy and carbon report on pages 86 to 99 and is hereby incorporated
by reference into this directors’ report.
Approach to technology
development
We are committed to using innovative, cost-effective and practical solutions for providing high-quality
services and we recognise the importance of ensuring that we focus our investment on the development
of technology and that we have the right skills to apply technology to achieve sustainable competitive
advantage and that we continue to be alert to emerging technological opportunities.
Financial instruments
Our risk management objectives and policies in relation to the use of financial instruments can be found in
note A4 on page 240.
Events occurring after the
reporting period
Slavery and human
trafficking statement
Details of events after the reporting period are included in note 25 on page 234.
Our statement can be found on our website at: unitedutilities.com/human-rights
Annual General Meeting
Our 2021 annual general meeting (AGM) will be held on 23 July. Full details of the resolutions to be proposed to our shareholders, and
explanatory notes in respect of these resolutions, can be found in our notice of AGM. A copy can be found on our website.
At our 2021 AGM, resolutions will be proposed, among other matters:
•
•
to receive the annual report and financial statements; to approve the directors’ remuneration report; to declare a final dividend; and to
reappoint KPMG LLP as auditor; and
to approve the directors’ general authority to allot shares; to grant the authority to issue shares without first applying statutory rights of pre-
emption; to authorise the company to make market purchases of its own shares; to authorise the making of limited political donations by the
company and its subsidiaries; to adopt new articles of association; and to enable the company to continue to hold general meetings on not
less than 14 clear days’ notice.
Information given to the auditor
Each of the persons who is a director at the date of approval of this report confirms that:
•
•
so far as they are aware, there is no relevant audit information of which the company’s auditor is unaware; and
they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit
information and to establish that the company’s auditor is aware of that information. This confirmation is given, and should be
interpreted, in accordance with the provisions of s418 of the Companies Act 2006.
Reappointment of the auditor
Our board is proposing that our shareholders reappoint KPMG LLP as our auditor at the forthcoming AGM and authorises the audit
committee of the board to set the auditor’s remuneration.
Approved by the board on 26 May 2021 and signed on its behalf by:
Simon Gardiner
Company Secretary
195
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE Statement of directors’ responsibilities in respect of the
annual report and the financial statements
necessary to enable the preparation
of financial statements that are free
from material misstatement, whether
due to fraud or error, and have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations,
the directors are also responsible for
preparing a strategic report, directors’
report, directors’ remuneration report
and corporate governance statement that
comply with that law and those regulations.
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the company’s website. Legislation in
the UK governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the
directors in respect of the annual
financial report
We confirm that to the best of our
knowledge:
•
•
the financial statements, prepared in
accordance with the applicable set
of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the company and the undertakings
included in the consolidation taken as a
whole; and
the strategic report includes a
fair review of the development
and performance of the business
and the position of the issuer and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.
We consider the annual report and
accounts, taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the group’s position and
performance, business model and strategy.
Approved by the board on 26 May 2021 and
signed on its behalf by:
Sir David Higgins
Chairman
Phil Aspin
Chief Financial Officer
The directors are responsible for preparing
the annual report and the group and
parent company financial statements
in accordance with applicable law and
regulations.
Company law requires the directors
to prepare group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements
in accordance with international
accounting standards in conformity with
the requirements of the Companies Act
2006 and applicable law and have elected
to prepare the parent company financial
statements on the same basis. In addition
the group financial statements are required
under the UK Disclosure Guidance and
Transparency Rules to be prepared in
accordance with International Financial
Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies
in the European Union (EU).
Under company law the directors must not
approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs of the group
and parent company and of their profit or
loss for that period. In preparing each of
the group and parent company financial
statements, the directors are required to:
•
select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that
are reasonable, relevant and reliable;
•
state whether they have been prepared
in accordance with international
accounting standards in conformity
with the requirements of the
Companies Act 2006 and, as regards
the group financial statements,
International Financial Reporting
Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it
applies in the EU;
• assess the group and parent company’s
ability to continue as a going concern,
disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of
accounting unless they either intend
to liquidate the group or the parent
company or to cease operations, or have
no realistic alternative but to do so.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the parent company
and enable them to ensure that its financial
statements comply with the Companies
Act 2006. They are responsible for such
internal control as they determine is
196
United Utilities Group PLC unitedutilities.com/corporate GOVERNANCE 197
Stock Code: UU.Annual Report and Financial Statements for the year ended 31 March 2021GOVERNANCE What it means to
invest in
our region
Investing in resilience projects
Investing in the resilience of our assets and services is
a fundamental part of our business plan. The impacts
of a changing climate mean that we need to protect
our assets so that we continue to provide our essential
services (see TCFD section on pages 86 to 99).
Some of our critical assets also require maintenance,
and sometimes replacement, as they age and the risk
of service failure grows. The Haweswater Aqueduct
is the region’s most significant source of water,
supplying 2.5 million customers in parts of Cumbria,
Lancashire and Greater Manchester with over 500
million litres of water every day. Inspections of the
aqueduct undertaken after 60 years of continuous use
revealed that urgent action was needed to replace
one section of the aqueduct as well as a significant
longer-term replacement programme.
Last year, we successfully replaced the Hallbank
section of the aqueduct, laying 2.5 kilometres of new
pipe, which required reconfiguring our regional water
supply system. This complex construction project
was completed ahead of schedule and there was no
interruption to water supplies.
Our focus has turned to the work to replace
the majority of the aqueduct. Called HARP, the
Haweswater Aqueduct Resilience Programme, it is
expected to be undertaken using a direct procurement
for customers (DPC) approach and we have been
preparing for a DPC tender in 2021/22. If the tender
process proceeds as planned, contract award is
anticipated in 2023, with construction to begin later in
the AMP. To encourage participants to engage with the
DPC process, we held a series of physical and virtual
engagement events providing market participants
with details about the scheme and, importantly, the
opportunity to question us and shape the approach.
Nearly 200 people representing over 70 companies
tabled 80 questions over two virtual events.
The project will replace six separate tunnel sections,
totalling 50 kilometres in length and will require nine
planning applications to seven different planning
authorities. As we describe on page 44, as a result
of COVID-19 we have adopted a virtual consultation
approach, which is proving to be more successful
than traditional methods.
As one significant project to deliver more resilient
water supplies gathers momentum, another is nearing
completion. The £300 million West Cumbria water
supplies project is on track to connect customers in
the county with water from Thirlmere reservoir rather
than from other local sources where environmental
requirements mean we can no longer use them.
Later in 2021, potable water will flow through a new
treatment works and 100 kilometres of new pipework
so that over 200,000 customers will receive their
water from a new source.
Financial
statements
Independent auditor’s report to the
members of United Utilities Group
PLC only
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated and company
statements of financial position
Consolidated statement of
changes in equity
Company statement of changes
in equity
Consolidated and company
statements of cash flows
Guide to detailed financial
statements disclosures
Accounting policies
Notes to the financial statements
Notes to the financial statements –
appendices
Five-year summary – unaudited
Shareholder information
200
207
208
209
210
211
212
213
214
218
235
261
262
Independent auditor’s report to the members of
United Utilities Group PLC only
1. Our opinion is unmodified
We have audited the financial statements of United Utilities Group
PLC (‘the company’) for the year ended 31 March 2021 which
comprise the Consolidated income statement, the Consolidated
statement of comprehensive income, the Consolidated and
company statements of financial position, the Consolidated
statement of changes in equity, the Company statement of changes
in equity, the Consolidated and company statements of cash flows,
and the related notes, including the accounting policies on 214 to
217 and 255 to 259.
We have fulfilled our ethical responsibilities under, and we
remain independent of the group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited by
that standard were provided.
Overview
Materiality:
group financial
statements as a
whole
£19m (2020: £22m)
4.1% (2020: 4.5%) of normalised group profit
before tax
In our opinion:
Coverage
100% (2020: 98%) of group profit before tax
• The financial statements give a true and fair view of the state of
the group’s and of the parent company’s affairs as at 31 March
2021 and of the group’s profit for the year then ended;
Key audit matters
Recurring
Change in
risk vs 2020
Revenue recognition and allowance
for customer debts
Capitalisation of costs relating to
the capital programme
Valuation of retirement benefit
obligations
Recoverability of investment
in United Utilities PLC (parent
company only)
2. Key audit matters: including our assessment of risks of
material misstatements
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. We summarise
below the key audit matters, in decreasing order of audit
significance, in arriving at our audit opinion above, together with
our key audit procedures to address those matters and, as required
for public interest entities, our results from those procedures.
These matters were addressed, and our results are based on
procedures undertaken, in the context of, and solely for the
purpose of, our audit of the financial statements as a whole, and
in forming our opinion thereon, and consequently are incidental to
that opinion, and we do not provide a separate opinion on these
matters.
• The group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union;
• The parent company financial statements have been properly
prepared in accordance with international accounting
standards in conformity with the requirements of, and as
applied in accordance with the provisions of, the Companies
Act 2006; and
• The financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS
Regulation to the extent applicable.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities
are described below. We believe that the audit evidence we have
obtained is a sufficient and appropriate basis for our opinion. Our
audit opinion is consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on 22 July
2011. The period of total uninterrupted engagement is for the ten
financial years ended 31 March 2021.
200
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Revenue recognition and
provisions for household
customer debt
Revenue not recognised: £27.1
million (2020: £19.4 million)
Provision for customer debts:
£74.9 million (2020: £66.1
million)
Refer to page 152 (Audit
committee report), note 14 and
pages 215 and 216 (accounting
policies).
Capitalisation of costs relating
to the capital programme
£677.5 million (2020: £759.5
million)
Refer to page 152 (Audit
committee report), page 216
(accounting policies) and note 10
(financial disclosures)
The risk
Our response
Subjective estimate:
At each balance sheet date:
• Judgement is required to identify
properties where there is little
prospect that cash will be received
for revenue that has been billed due
to either the occupier not being able
to be identified or a past history of
non-payment of bills relating to that
property and therefore whether the
revenue should be recognised; and
• Assumptions involving a high degree
of estimation uncertainty are required
to assess the recoverability of trade
receivables.
The effect of these matters is that,
as part of our risk assessment, we
determined that the recoverability of
trade receivables has a high degree
of estimation uncertainty in particular
because of the potential effects of the
COVID-19 pandemic, with a potential
range of reasonable outcomes greater
than our materiality for the financial
statements as a whole. The financial
statements (see pages 215 to 216
accounting policies) disclose the
sensitivity estimated by the group.
The risk has increased in the current year
due to the likelihood of cash collection
profiles changing as a result of the COVID-19
pandemic, particularly when government
assistance is withdrawn. This will introduce
further uncertainty into the estimation.
Subjective classification:
The group has a substantial capital
programme which has been agreed with
the Water Services Regulation Authority
(Ofwat) and therefore incurs significant
annual expenditure in relation to the
development and maintenance of both
infrastructure and non-infrastructure assets.
The determination of in-year project costs
as capital or operating expenditure is
inherently judgemental. Costs capitalised
include an allocation of overhead costs,
relating to the proportion of time spent
by support function staff, which is based
on assumptions involving a high degree of
judgement.
The effect of these matters is that, as part
of our risk assessment, we determined
that the costs capitalised has a high
degree of judgement, with a potential
range of reasonable outcomes greater
than our materiality for the financial
statements as a whole. The financial
statements (Accounting policies section)
disclose the sensitivities estimated by the
group.
We performed the tests below rather than seeking to rely
on the group’s controls because the nature of the balance
is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our procedures included:
• Accounting analysis: assessed the derecognition
of revenue for compliance with relevant accounting
standards where the collection of consideration is not
probable on the date of initial recognition;
• Methodology choice: assessed the appropriateness
of the customer debt provisioning policy based on
historical cash collections, credits, re-bills and write-
off information, and estimates of future economic
scenarios and their impact on credit losses;
• Sensitivity analysis: considered the sensitivity of the
key assumptions; and
• Assessing transparency: assessed the adequacy
of the group’s disclosures of its revenue recognition
and customer debt provisioning policies, including
the judgement involved in recording revenue and
estimation uncertainty of the doubtful debts provision.
Our results:
• We found the amount of the revenue recognised to be
acceptable (2020: acceptable); and
• We considered the level of doubtful debt provisioning
to be acceptable (2020: acceptable).
We performed the detailed tests below rather than seeking to
rely on any of the group’s controls because our knowledge of
the design of these controls indicated that we would not be
able to obtain the required evidence to support reliance on
controls.
Our procedures included:
• Accounting analysis: assessed the group’s
capitalisation policy for compliance with relevant
accounting standards;
• Tests of details: critically assessed the capital nature
of a sample of projects against the capitalisation policy
focusing on new projects approved, project overspend,
forecast cost to complete;
• Tests of details: identified and critically assessed the
impact of changes in capitalisation rate for a sample
of specific cost centres; and challenged the estimates
made by management on the specific cost centres for
year-on-year movements and rate changes;
• Historical comparisons: critically assessed the
proportion of capitalised overhead costs using
historical comparisons and expected changes based
on enquiry and our sector knowledge;
• Sensitivity analysis: assessed the impact of different
capitalisation rates and the impact to capitalised
overhead costs; and
• Assessing transparency: assessed the adequacy
of the group’s disclosures of its capitalisation policy
including the judgement involved in assessing
expenditure as capital and the judgement relating to
the allocation of overhead costs.
Our results:
• We found the group’s classification of expenditure as
capital or operating to be acceptable (2020: acceptable).
201
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Independent auditor’s report to the members of
United Utilities Group PLC only
Valuation of retirement benefit
obligations
£3,295.7 million (2020: £3,057.6
million)
Refer to page 152 (Audit
committee report), page 216
(accounting policies) and notes
18 and A5 (financial disclosures)
Recoverability of parent
company’s investment in
United Utilities PLC
Investment in United Utilities
PLC - £6,326.8 million (2020:
£6,326.8 million)
Refer to page 255 (accounting
policies), and note 12 (financial
disclosures).
The risk
Our response
Subjective valuation:
The valuation of the retirement benefit
obligations depends on a number of
estimates, including the discount rates
used to calculate the current value of the
future payments to pensioners, the rate of
inflation that must be incorporated in the
estimate of the future pension payments,
and the life expectancy of pension
scheme members.
There is a considerable amount of
estimation uncertainty involved in setting
the above assumptions and a small
change in the assumptions and estimates
may have a significant impact on the
retirement benefit obligations.
The effect of these matters is that,
as part of our risk assessment, we
determined that the gross defined benefit
pension obligations has a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes greater
than our materiality for the financial
statements as a whole, and possibly
many times that amount. The financial
statements (Accounting policies section)
disclose the sensitivities estimated by
the group.
Low risk, high value:
The carrying amount of the parent
company’s investment in United Utilities
PLC represents 99 per cent (2020: 99
per cent) of the company’s total assets.
The recoverability is not at a high risk
of significant misstatement or subject
to significant judgement. However, due
to the materiality in the context of the
parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
We performed the tests below rather than seeking to rely
on the group’s controls because the nature of the balance
is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our procedures included:
• Our actuarial expertise: used our own actuarial
specialists to challenge key assumptions and
estimates used in the calculation of the retirement
benefit obligations; and perform a comparison of
key assumptions against our own benchmark ranges
derived from externally-available data and against
those used by other companies reporting on the
same period;
• Methodology assessment: used our own actuarial
specialists to assess the appropriateness and
consistency of the methodology applied by
management in setting the key assumptions;
• Assessing external actuary’s credentials: assessed
competence and independence of the external actuary
engaged by the group; and
• Assessing transparency: considered the adequacy
of the group’s disclosure in respect of retirement
benefits, in particular the gross defined benefit
obligation and the assumptions used, which are set out
in notes 18 and A5 to the financial statements.
Our results:
• We found the resulting estimate of the retirement
benefit obligations to be acceptable (2020:
acceptable).
We performed the tests below rather than seeking to
rely on any of the group’s controls because testing for
recoverability through detailed testing is inherently the
most effective means of obtaining audit evidence.
Our procedures included:
• Tests of detail: compared the carrying amount of
the investment with the draft balance sheet of United
Utilities PLC to identify whether the net assets, being an
approximation of the minimum recoverable amount, is
in excess of the carrying amount and if not, comparing
it with the expected value of the business based on a
suitable premium to the regulatory capital value.
Our results:
• We found the group’s assessment of the recoverability
of the investment in United Utilities PLC to be
acceptable (2020: acceptable).
Following the impairment of the investment in Water Plus in the prior year, we have not assessed this as one of the most significant risks
in our current year audit and, therefore, it is not separately identified in our report this year. We continue to perform procedures over
accounting for Water Plus losses and expected credit losses
Going concern was included as key audit matter in the prior period as a result of the uncertainty caused by the COVID-19 pandemic.
However, there is now considered to be less uncertainty owing to the fact that the situation has moved on by a year and the group has
continued to operate throughout. As a result, we have not assessed this as one of the most significant risks in our current year audit and,
therefore, it is not separately identified as a key audit matter in our report this year.
202
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 3. Our application of materiality and an overview of the
scope of our audit
Materiality for the group financial statements as a whole was set
at £19 million (2020: £22 million), determined with reference to a
benchmark of group profit before tax of £476.5 million, normalised
to exclude net fair value gains or losses on debt and derivative
instruments disclosed in note 6, of which it represents 4.1 per cent
(2020: 4.5 per cent). The group team performed procedures on the
items excluded from normalised group profit before tax.
Materiality for the parent company financial statements as a whole
was set at £9 million (2020: £12 million), determined with reference
to a benchmark of company total assets, of which it represents 0.0
per cent (2020: 0.3 per cent).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial misstatements
in individual account balances add up to a material amount across
the financial statements as a whole.
Performance materiality was set at 75 per cent (2020 : 75 per
cent) of materiality for the financial statements as a whole, which
equates to £14.25 million (2020 : £16.5 million) for the group and
£6.75 million (2020 : £15 million) for the parent company.
We applied this percentage in our determination of performance
materiality because we did not identify any factors indicating an
elevated level of risk.
We agreed to report to the audit committee any corrected or
uncorrected identified misstatements exceeding £0.5 million
(2020: £0.5 million), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the group’s 34 (2020: 34) reporting components, we subjected
five (2020: six) to full scope audits for group purposes and one
(2020: one) to specified risk-focused audit procedures. The latter
was not individually financially significant enough to require a full
scope audit for group purposes, but did present specific individual
risks that needed to be addressed.
The work on all five components (2020: five of the six) was
conducted by the group team.
The components within the scope of our work accounted for the
percentages illustrated opposite.
For the residual components, we performed analysis at an
aggregated group level to re-examine our assessment that there
were no significant risks of material misstatement within these.
The group team approved the component materialities, which
ranged from £8 million to £17.5 million (2020: £2.5 million to £20
million) having regard to the mix of size and risk profile of the
group across the components.
The group team visited none (2020: none) of the component
locations to assess the audit risk and strategy. During the course of
the audit we held video and telephone conference meetings with
each of five (2020: seven) components.
Normalised group profit before tax
£476.5m (2020: £493.8m)
£19m
Whole financial
statements materiality
£19m (2020: £22.0m)
£17.5m
Range of materiality at 5
components £8m to £17.5m
(2020: £2.5m to 20m)
£0.5m
Misstatements report to the audit
committee (2020: £0.5m)
Normalised PBT
Group materiality
Group revenue
Group profit before tax
1
1
99%
(2020: 100%)
99%
(2020: 100%)
100
99
100
99
Group total assets
Group normalised profit
before tax
1
1
99%
(2020: 99%)
100%
(2020: 100%)
99
99
100
100
Full scope for Group audit purposes 2021
Specified risk-focused audit procedures 2021
Full scope for Group audit purposes 2020
Specified risk-focused audit procedures 2020
Residual components
203
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Independent auditor’s report to the members of
United Utilities Group PLC only
4. Going concern
The directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the group or the
company or to cease their operations, and as they have concluded
that the group’s and the company’s financial position means that
this is realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability
to continue as a going concern for at least a year from the date of
approval of the financial statements (‘the going concern period’).
We used our knowledge of the group, its industry, and the general
economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the group’s and
company’s financial resources or ability to continue operations
over the going concern period. The risk that we considered most
likely to adversely affect the group’s and company’s available
financial resources and metrics related to the possible failure of the
Haweswater water system resulting in a one-off totex impact.
We considered whether these risks could plausibly affect the
liquidity or covenant compliance in the going concern period by
assessing the directors’ sensitivities over the level of available
financial resources and covenant thresholds indicated by the
group’s financial forecasts taking account of severe, but plausible,
adverse effects that could arise from these risks individually and
collectively.
Our procedures included:
• Assessing key assumptions in the forecasts: critically assessed
assumptions in base case and downside scenarios relevant to
liquidity and covenant metrics such as inflation rate growth
compared to market forecasts, forecast bonus payments
compared to historical bonus payments and forecast dividend
payments compared to group dividend policy. This included
assessing whether downside scenarios applied assumptions
which are mutually consistent, using our assessment of the
possible range of each key assumption and our knowledge of
inter-dependencies;
• Funding assessment: considered the availability of existing debt
arrangements and committed loan facilities, including testing
compliance with covenants and expected maturity dates;
• Historical accuracy of managements forecasts: compared
historical budgets to actual results to assess the directors’ track
record of budgeting accurately;
• Evaluating directors’ intent: evaluated the achievability of the
actions the directors consider they would take to improve the
position should the risks materialise, including assessment of
mitigating actions within their control; and
• Assessing the completeness and accuracy of the matters
covered in the going concern disclosure: considered
whether the going concern disclosure in note 1 to the financial
statements gives a full and accurate description of the
directors’ assessment of going concern, including the identified
risks and related sensitivities. We assessed the completeness of
the going concern disclosure.
Our conclusions based on this work:
• we consider that the directors’ use of the going concern basis
of accounting in the preparation of the financial statements is
appropriate;
• we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty related
to events or conditions that, individually or collectively, may
cast significant doubt on the group’s or company’s ability to
continue as a going concern for the going concern period;
• we have nothing material to add or draw attention to in relation
to the directors’ statement in the accounting policies to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the group and company’s use of that
basis for the going concern period, and we found the going
concern disclosure in the accounting policies to be acceptable;
and
•
the related statement under the Listing Rules set out on page
142 is materially consistent with the financial statements and
our audit knowledge.
However, as we cannot predict all future events or conditions and
as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the above conclusions are not a guarantee that the group or the
company will continue in operation.
5. Fraud and breaches of laws and regulations –
ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud (‘fraud risks’)
we assessed events or conditions that could indicate an incentive
or pressure to commit fraud or provide an opportunity to commit
fraud. Our risk assessment procedures included:
• Enquiring of directors, the audit committee, internal audit
and inspection of policy documentation as to the group’s high
level policies and procedures to prevent and detect fraud,
including the internal audit function, and the group’s channel
for ‘whistleblowing’, as well as whether they have knowledge of
any actual, suspected or alleged fraud;
• Reading board/audit committee/risk committee minutes; and
• Considering remuneration incentive schemes and performance
targets for directors including Long Term Plan awards.
We communicated identified fraud risks throughout the audit team
and remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible
pressures to meet profit targets and our overall knowledge of the
control environment, we perform procedures to address the risk of
management override of controls and the risk of fraudulent revenue
recognition, the risk that group management may be in a position
to make inappropriate accounting entries, and the risk of bias in
accounting estimates and judgements such as revenue recognition
and provisions for household customer debt, capitalisation of costs
relating to the capital programme and valuation of retirement
benefit obligations.
Further detail in respect of the above accounting estimates and
judgements is set out in the key audit matter disclosures in section
2 of this report.
We also performed procedures including:
•
Identifying journal entries to test based on risk criteria and
comparing the identified entries to supporting documentation.
These included journals relating to revenue or treasury posted
to unexpected or unrelated accounts; and
• Assessing significant accounting estimates for bias.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience, through
discussion with the directors and other management (as required
204
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC by auditing standards), from inspection of the group’s regulatory
and legal correspondence and discussed with the directors
and other management the policies and procedures regarding
compliance with laws and regulations.
As the group is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation, pension legislation and taxation legislation
and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation. We identified
the following areas as those most likely to have such an effect:
Ofwat, Environment Agency, Drinking Water Inspectorate, health
and safety, anti-bribery, employment law, regulatory capital and
liquidity and certain aspects of company legislation recognising
the financial and regulated nature of the group’s activities and its
legal form. Auditing standards limit the required audit procedures
to identify non-compliance with these laws and regulations to
enquiry of the directors and inspection of regulatory and legal
correspondence, if any. Therefore if a breach of operational
regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or
breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
6. We have nothing to report on the other information in
the annual report
The directors are responsible for the other information presented
in the annual report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with
the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the
other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic
report and the directors’ report;
•
•
in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and
longer-term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement,
and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or
draw attention to in relation to:
•
•
•
the directors’ confirmation within the long-term viability
statement on pages 142 to 143 that they have carried out a
robust assessment of the emerging and principal risks facing
the group, including those that would threaten its business
model, future performance, solvency and liquidity;
the Principal Risks disclosures describing these risks and how
emerging risks are identified, and explaining how they are
being managed and mitigated; and
the directors’ explanation in the long-term viability statement
of how they have assessed the prospects of the group, over
what period they have done so and why they considered that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the group will be able
to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
We are also required to review the long-term viability statement,
set out on pages 142 to 143 under the Listing Rules. Based on the
above procedures, we have concluded that the above disclosures
are materially consistent with the financial statements and our
audit knowledge.
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the absence of anything to report on these statements is not a
guarantee as to the group’s and company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit
knowledge.
205
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Independent auditor’s report to the members of
United Utilities Group PLC only
9. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to
the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members,
as a body, for our audit work, for this report, or for the opinions we
have formed.
Ian Griffiths
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peter’s Square, Manchester, M2 3AE
26 May 2021
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and
our audit knowledge:
•
•
•
the directors’ statement that they consider that the annual
report and financial statements taken as a whole is fair,
balanced and understandable, and provides the information
necessary for shareholders to assess the group’s position and
performance, business model and strategy;
the section of the annual report describing the work of the
audit committee, including the significant issues that the audit
committee considered in relation to the financial statements,
and how these issues were addressed; and
the section of the annual report that describes the review of
the effectiveness of the group’s risk management and internal
control systems.
We are required to review the part of the Corporate Governance
Statement relating to the group’s compliance with the provisions of
the UK Corporate Governance Code specified by the Listing Rules
for our review.
We have nothing to report in this respect.
7. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the parent company financial statements and the part of
the Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 196,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the group
and parent company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
206
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Consolidated income statement
for the year ended 31 March
Revenue
Employee benefits expense
Other operating costs
Allowance for expected credit losses – trade and other receivables
Other income
Depreciation and amortisation expense
Infrastructure renewals expenditure
Total operating expenses
Operating profit
Investment income
Finance expense
Allowance for expected credit losses – loans to joint ventures
Investment income and finance expense
Share of losses of joint ventures
Profit on disposal of joint venture
Profit before tax
Current tax charge
Deferred tax charge
Tax
Profit after tax
Earnings per share
Basic
Diluted
Dividend per ordinary share
All of the results shown above relate to continuing operations.
Note
2
3
4
4
4
4
5
6
A6
12
12
7
7
7
8
8
9
2021
£m
1,808.0
(161.8)
(431.9)
(28.7)
3.6
(422.3)
(164.8)
(1,205.9)
602.1
25.0
(107.2)
3.7
(78.5)
(9.3)
36.7
551.0
(79.2)
(18.4)
(97.6)
453.4
66.5p
66.3p
2020
£m
1,859.3
(161.4)
(403.4)
(41.8)
3.4
(482.8)
(143.0)
(1,229.0)
630.3
24.0
(308.0)
(5.0)
(289.0)
(38.1)
-
303.2
(38.9)
(157.5)
(196.4)
106.8
15.7p
15.6p
43.24p
42.60p
207
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Consolidated statement of comprehensive income
for the year ended 31 March
Profit after tax
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Cash flow hedge effectiveness
Tax on items taken directly to equity
Foreign exchange adjustments
Foreign exchange adjustments reclassified to profit on disposal of joint ventures
Other comprehensive income that may be reclassified to profit or loss
Items that will not be reclassified to profit or loss in subsequent periods:
Remeasurement (losses)/gains on defined benefit pension schemes
Change in credit assumptions for debt reported at fair value through profit or loss
Cost of hedging – cross-currency basis spread adjustment
Deferred tax adjustments in respect of prior years on net fair value gains
Tax on items taken directly to equity
Other comprehensive income that will not be reclassified to profit or loss
Total comprehensive income
2021
£m
453.4
9.3
(1.8)
(1.6)
4.0
9.9
(82.7)
(43.3)
(12.7)
–
36.6
(102.1)
361.2
2020
£m
106.8
(2.0)
0.4
1.3
–
(0.3)
154.6
34.2
1.3
(2.4)
(157.1)
30.6
137.1
208
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Consolidated and company statements of
financial position at 31 March
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Interests in joint ventures and other investments
Trade and other receivables
Retirement benefit surplus
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Current tax asset
Cash and short-term deposits
Derivative financial instruments
Total assets
LIABILITIES
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Derivative financial instruments
Current liabilities
Trade and other payables
Borrowings
Provisions
Derivative financial instruments
Total liabilities
Total net assets
EQUITY
Share capital
Share premium account
Other reserves
Retained earnings
Shareholders’ equity
Note
2021
£m
Group
2020
£m
2021
£m
Company
2020
£m
10
11
12
14
18
A4
13
14
15
A4
21
16
19
A4
21
16
20
A4
23
22
11,799.0
11,510.9
181.1
0.1
86.7
689.0
410.3
189.0
46.9
97.0
754.1
617.8
–
–
–
–
6,326.8
6,326.8
–
–
–
–
–
–
13,166.2
13,215.7
6,326.8
6,326.8
18.3
229.2
6.9
744.1
14.4
1,012.9
14,179.1
(798.3)
(7,797.0)
(1,449.5)
(107.8)
(10,152.6)
(322.7)
(654.8)
(11.1)
(6.9)
(995.5)
(11,148.1)
3,031.0
499.8
2.9
336.3
2,192.0
3,031.0
16.6
245.9
37.7
528.1
0.1
828.4
14,044.1
(761.2)
(7,518.1)
(1,462.6)
(135.4)
(9,877.3)
(334.4)
(845.0)
(16.4)
(8.9)
(1,204.7)
(11,082.0)
2,962.1
499.8
2.9
336.7
2,122.7
2,962.1
–
91.9
–
–
–
–
81.3
–
–
–
91.9
6,418.7
81.3
6,408.1
–
–
(1,780.6)
(1,752.0)
–
–
–
–
(1,780.6)
(1,752.0)
(10.8)
–
–
–
(10.8)
(1,791.4)
4,627.3
499.8
2.9
1,033.3
3,091.3
4,627.3
(14.2)
(0.8)
–
–
(15.0)
(1,767.0)
4,641.1
499.8
2.9
1,033.3
3,105.1
4,641.1
These financial statements for the group and United Utilities Group PLC (company number: 6559020) were approved by the board of
directors on 26 May 2021 and signed on its behalf by:
Steve Mogford
Chief Executive Officer
Phil Aspin
Chief Financial Officer
209
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Consolidated statement of changes in equity
for the year ended 31 March
At 1 April 2020
Profit after tax
Other comprehensive income
Remeasurement gains on defined benefit pension schemes (see note 18)
Change in credit assumption for debt reported at fair value through
profit or loss
Cash flow hedge effectiveness
Cost of hedging – cross-currency basis spread adjustment
Tax on items taken directly to equity (see note 7)
Foreign exchange adjustments
Foreign exchange adjustments reclassified to profit on disposal of
joint ventures
Total comprehensive income
Dividends (see note 9)
Equity-settled share-based payments (see note 3)
Exercise of share options – purchase of shares
At 31 March 2021
At 1 April 2019
Profit after tax
Other comprehensive income
Remeasurement gains on defined benefit pension schemes (see note 18)
Change in credit assumption for debt reported at fair value through profit
or loss
Cash flow hedge effectiveness
Cost of hedging – cross-currency basis spread adjustment
Deferred tax adjustments in respect of prior years on net fair value gains
Tax on items taken directly to equity (see note 7)
Foreign exchange adjustments
Total comprehensive income
Dividends (see note 9)
Equity-settled share-based payments (see note 3)
Exercise of share options – purchase of shares
At 31 March 2020
Share
premium
account
£m
Other
reserves*
£m
Retained
earnings
£m
Share
capital
£m
499.8
–
–
–
–
–
–
–
–
–
–
–
–
2.9
336.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.3
(12.7)
0.6
(1.6)
4.0
(0.4)
–
–
–
499.8
2.9
336.3
2,192.0
3,031.0
Share
capital
£m
499.8
Share
premium
account
£m
Other
reserves*
£m
Retained
earnings
£m
2.9
338.3
2,269.8
Total
£m
2,962.1
453.4
2,122.7
453.4
(82.7)
(82.7)
(43.3)
–
–
34.2
–
–
361.6
(291.9)
3.6
(4.0)
(43.3)
9.3
(12.7)
34.8
(1.6)
4.0
361.2
(291.9)
3.6
(4.0)
Total
£m
3,110.8
106.8
106.8
154.6
154.6
34.2
–
–
–
34.2
(2.0)
1.3
(2.4)
(156.9)
(156.7)
–
138.7
(284.5)
1.5
(2.8)
1.3
137.1
(284.5)
1.5
(2.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.0)
1.3
(2.4)
0.2
1.3
(1.6)
–
–
–
499.8
2.9
336.7
2,122.7
2,962.1
* Other reserves comprise the group's cumulative exchange reserve, capital redemption reserve, merger reserve, cost of hedging reserve and cash flow hedging
reserve. Further detail of movements in these reserves is included in note 22.
210
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Company statement of changes in equity
for the year ended 31 March
At 1 April 2020
Profit after tax
Total comprehensive income
Dividends (see note 9)
Equity-settled share-based payments (see note 3)
Exercise of share options – purchase of shares
Share
capital
£m
499.8
–
–
–
–
–
Share
premium
account
£m
Other
reserves
£m
Retained
earnings
£m
2.9
1,033.3
–
–
–
–
–
–
–
–
–
–
3,105.1
278.5
278.5
(291.9)
3.6
(4.0)
Total
£m
4,641.1
278.5
278.5
(291.9)
3.6
(4.0)
At 31 March 2021
499.8
2.9
1,033.3
3,091.3
4,627.3
At 1 April 2019
Profit after tax
Total comprehensive income
Dividends (see note 9)
Equity-settled share-based payments (see note 3)
Exercise of share options – purchase of shares
Share
capital
£m
499.8
Share
premium
account
£m
2.9
Other
reserves
£m
1,033.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£m
3,139.4
251.5
251.5
(284.5)
1.5
(2.8)
Total
£m
4,675.4
251.5
251.5
(284.5)
1.5
(2.8)
At 31 March 2020
499.8
2.9
1,033.3
3,105.1
4,641.1
At 31 March 2021, 31 March 2020 and 31 March 2019, the company's entire retained earnings balance was distributable to shareholders.
The company's other reserves comprises a capital redemption reserve that arose as a result of a return of capital to shareholders following
the reverse acquisition of United Utilities PLC by United Utilities Group PLC in the year ended 31 March 2009.
As permitted by section 408 of the Companies Act 2006, the company has not presented its own income statement. The result of the
company for the financial year was a profit after tax of £278.5 million (2020: £251.5 million).
211
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Consolidated and company statements of cash flows
for the year ended 31 March
Operating activities
Cash generated from operations
Interest paid
Interest received and similar income
Tax paid
Tax received
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
Grants and contributions received
(Extension)/repayment of loans to joint ventures
Dividends received from joint ventures
Proceeds from disposal of investments
Net cash used in investing activities
Financing activities
Proceeds from borrowings net of issuance costs
Repayment of borrowings
Dividends paid to equity holders of the company
Exercise of share options – purchase of shares
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
2021
£m
1,037.2
(136.7)
7.4
(75.4)
26.9
859.4
(610.4)
(33.6)
–
5.0
(2.0)
6.4
85.3
Group
2020
£m
1,005.5
(149.4)
9.9
(71.5)
15.8
810.3
(652.8)
(27.2)
–
34.7
34.5
4.9
12.0
(549.3)
(593.9)
909.7
(703.5)
(291.9)
(4.0)
(89.7)
220.4
513.2
733.6
805.4
(545.9)
(284.5)
(2.8)
(27.8)
188.6
324.6
513.2
2021
£m
302.2
(28.9)
–
–
–
273.3
–
–
–
–
–
–
–
–
23.4
–
(291.9)
(4.0)
(272.5)
0.8
(0.8)
–
Company
2020
£m
287.0
(33.4)
–
–
5.8
259.4
–
–
–
–
–
–
–
–
27.6
–
(284.5)
(2.8)
(259.7)
(0.3)
(0.5)
(0.8)
Note
A1
A1
A1
21
A6
12
12
9
15
212
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Guide to detailed financial statements disclosures
In the interest of providing clear and relevant information to the users of our financial statements we have included summary information
within the notes to the financial statements, with additional detailed information included in appendices where required. These notes and
appendices can be grouped as follows:
Notes and appendices
Page
Notes and appendices
Operations – information relating to our operating results
1
2
3
Segmental reporting
Revenue
Directors and employees
218
218
218
4
17
A1
Operating profit
Leases
Consolidated statement of cash flows – further
analysis
Financing – information relating to how we finance our business
5
6
8
9
15
Investment income
Finance expense
Earnings per share
Dividends
Cash and cash equivalents
220
221
223
224
229
16
23
A2
A3
A4
Borrowings
Share capital
Net debt
Borrowings
Financial risk management
Working capital – information relating to the day-to-day working capital of our business
13
14
15
Inventories
Trade and other receivables
Cash and cash equivalents
227
227
229
21
A6
Trade and other payables
Related party transactions
Tax – information relating to our current and deferred taxation
7
Tax
222
19 Deferred tax liabilities
Employees – information relating to the costs associated with employing our people
3
18
Directors and employees
Retirement benefit surplus
218
230
A5 Retirement benefits
Long-term assets – information relating to our long-term operational and investment assets
10
11
12
Property, plant and equipment
Intangible assets
Joint ventures and other investments
Other – other useful information
20
22
24
Provisions
Other reserves
Contingent liabilities
224
226
226
232
233
234
18
A5
Retirement benefit surplus
Retirement benefits
25
A7
A8
Events after the reporting period
Accounting policies
Subsidiaries and other group undertakings
Page
219
230
235
229
234
236
238
240
232
253
231
248
230
248
234
255
260
213
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below. Further detail can be
found in note A7.
Basis of preparation
These group and parent company financial statements have been
prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006,
and these group financial statements were also in accordance with
International Financial Reporting Standards (IFRSs) adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
(EU). They have been prepared under the historical cost convention,
except for the revaluation of financial instruments, accounting
for the transfer of assets from customers and the revaluation of
infrastructure assets to fair value on transition to IFRS.
The preparation of financial statements, in conformity with IFRS,
requires management to make estimates and assumptions that
affect the amounts of assets and liabilities at the date of the
financial statements and the amounts of revenues and expenses
during the reporting periods presented. Although these estimates
are based on management’s best knowledge of the amount,
event or actions, actual results, ultimately, may differ from these
estimates.
The financial statements have been prepared on the going concern
basis as the directors have a reasonable expectation that the group
has adequate resources for a period of at least 12 months from the
date of the approval of the financial statements and that there are
no material uncertainties to disclose.
In assessing the appropriateness of the going concern basis of
accounting the directors have reviewed the resources available
to the group in the form of cash and committed facilities as well
as consideration of the group’s capital adequacy, along with a
baseline plan that incorporates the expected impacts of COVID-19.
The directors have considered the magnitude of potential impacts
resulting from uncertain future events or changes in conditions,
and the likely effectiveness of mitigating actions that the
directors would consider undertaking. The baseline position has
been subjected to a number of severe but reasonable downside
scenarios in order to assess the group’s ability to operate within
the amount and terms (including relevant covenants) of existing
facilities. These scenarios consider: the potential impacts of
increased totex costs, including a significant one-off totex impact
arising in the assessment period; lower CPIH inflation; elevated
levels of bad debt; outcome delivery incentive penalties; and
the impact of these factors materialising on a combined basis.
Mitigating actions were considered to include: deferral of capital
expenditure; a reduction in other discretionary totex spend;
the close-out of derivative asset balances; and the deferral or
suspension of dividend payments.
Consequently, the directors are satisfied that the group will have
sufficient funds to continue to meet its liabilities as they fall due
for at least 12 months from the date of approval of the financial
statements, and that the severe but reasonable downside scenarios
considered indicate that the group will be able to operate within
the amount and terms (including relevant covenants) of existing
facilities. The financial statements have therefore been prepared on
a going concern basis.
214
Adoption of new and revised standards
The following standards, interpretations and amendments,
effective for the year ended 31 March 2021, are relevant to the
group but have had no material impact on the group’s financial
statements:
• Amendments to IFRS 3 ‘Definition of a Business’ (issued on
22 October 2018; and
• Amendments were made to IAS 1 and IAS 8 ‘Definition of
Material’ (issued on 31 October 2018).
The IASB issued its revised Conceptual Framework in March 2018
which is mandatory for annual reporting periods beginning on or
after 1 January 2020. It is not a standard and does not override any
standard, but its principles apply to arrangements not covered
by IFRS standards. No arrangements have been identified by the
group which require a change in accounting treatment under the
revised Conceptual Framework.
Early adopted new and revised standards
'Phase Two' – IBOR reform
In January 2021, the Secretary of State for BEIS and the EU
endorsed the IASB-published amendments to IFRS 9 ‘Financial
Instruments’, and IFRS 7 ‘Financial Instruments: Disclosures’ in
respect of interest rate benchmark reform, effective for annual
periods beginning on or after 1 January 2021 with early adoption
permitted ('Phase Two' IBOR Reform).
The amendments address the financial reporting impact from
reform of the London Interbank Offered Rate (LIBOR) and similar
benchmark interest rates (IBOR Reform). The Bank of England
has asked UK market participants to complete the transition to
alternative risk-free rates by the end of 2021, with the industry-
led Working Group on Sterling Risk-Free Reference Rates having
previously recommended the Sterling Overnight Index Average
(SONIA) as the preferred risk-free rate in sterling markets.
The group chose to early-adopt the Phase Two reforms for the
year ended 31 March 2021, though this has had no impact on the
financial statements for the year then ended. When applicable,
the group will take the relevant practical expedients from certain
requirements in IFRS 9 and IFRS 7 relating to changes in the basis
for determining contractual cash flows of financial assets, financial
liabilities and hedge accounting.
At 31 March 2021, the group had a net balance of £591.3 million
relating to financial instruments, along with an additional £700.0
million of undrawn committed facilities, still referencing LIBOR.
Detail on the derivation of this net balance can be found in note
A4, along with further information on the group’s transition to
alternative benchmarks. This figure is inclusive of £2,117.8 million
nominal value of swaps designated within fair value hedging
relationships.
These Phase Two amendments will be applicable on modification
of the instruments to be linked to the alternative risk-free rate, as
well as when changes to the fair value hedges are required as a
result of the reform. The reliefs provided for in this amendment
mean that on transition to the new risk-free rate, no one-off charge
or credit to the income statement will be recognised, provided the
transition has occurred on an economically equivalent basis. The
amendments also mean that the group expects no discontinuation
of hedge accounting to be required on transition to the new
interest rate benchmarks, with modifications to the documentation
permitted, provided these are directly related to the IBOR reform.
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC The group has previously adopted 'Phase One' - Amendments
to IFRS 9 and IFRS 7 - Interest rate benchmark reform, which
allowed temporary relief from applying specific hedge accounting
requirements to hedging arrangements directly impacted by IBOR
reform. This temporary relief is expected to cease, on a hedge-by-
hedge basis, when the designated hedge relationship is amended
and application of Phase Two reliefs begins.
As a result of the relief, the group expects that no material gain or
loss will arise from the replacement of LIBOR with an alternative
risk-free rate.
Critical accounting judgements and key sources
of estimation uncertainty
In the process of applying its accounting policies set out in note
A7, the group is required to make certain estimates, judgements
and assumptions that it believes are reasonable based on
the information available. These judgements, estimates and
assumptions affect the carrying amounts of assets and liabilities at
the date of the financial statements and the amounts of revenues
and expenses recognised during the reporting periods presented.
Changes to these estimates, judgements and assumptions could
have a material effect on the financial statements.
On an ongoing basis, the group evaluates its estimates using
historical experience, consultation with experts and other
methods considered reasonable in the particular circumstances.
As estimates carry with them an inherent level of uncertainty, the
group performs sensitivity analysis where this is practicable and
where, in management’s opinion, it provides useful and meaningful
information. This sensitivity analysis is performed to understand a
range of outcomes that could be considered reasonably possible
based on experience and the facts and circumstances associated
with individual areas of the financial statements that are subject
to estimates. Actual results may differ significantly from the
estimates, the effect of which is recognised in the period in which
the facts that give rise to the revision become known.
As part of the evaluation of critical accounting judgements and
key sources of estimation uncertainty, the group has considered
the implications of climate change on its operations and activities,
further details of which are set out below.
The following paragraphs detail the estimates and judgements the
group believes to have the most significant impact on the annual
results under IFRS, including specific considerations in light of the
COVID-19 pandemic.
Revenue recognition and allowance for doubtful receivables
Accounting estimate – The group recognises revenue generally at
the time of delivery and when collection of the resulting receivable
has been deemed probable. In estimating the amount of revenue to
recognise, where the group considers that the criteria for revenue
recognition are not met for a transaction, revenue recognition is
delayed until such time as collectability is deemed probable. There
are two different criteria whereby management does not recognise
revenue for amounts which have been billed to those customers on
the basis that collectability is not probable. These are as follows:
• The customer has not paid their bills for a period of at least two
years; and
• The customer has paid their bills in the preceding two years;
however, has previously had bills de-recognised and has more
than their current year debt outstanding.
This two-criteria approach resulted in a £27.1 million reduction in
revenue compared with what would have been recognised had
no adjustment been made for amounts where collectability is not
probable. Had management made an alternative judgement that
where customers have paid in the preceding two years, and have
more than their current year debt outstanding, the recoverability of
the entirety of their debt was deemed to be probable (i.e. the second
criteria were disapplied), the required adjustment to revenue would
have been £7.9 million lower.
Accounting estimate – At each reporting date, the company and
each of its subsidiaries evaluate the estimated recoverability of trade
receivables and record allowances for expected credit losses based
on experience. Estimates associated with these allowances are
based on, among other things, a consideration of actual collection
history. The actual level of receivables collected may differ from the
estimated levels of recovery, which could impact operating results
positively or negatively. At 31 March 2021, an allowance for expected
credit losses relating to household customer debt of £74.9 million
was supported by a six-year cash collection projection. Based on a
five-year or seven-year cash collection projection the allowance for
doubtful receivables would have increased by £1.3 million or reduced
by £0.6 million respectively.
At the prior year balance sheet date, the expected future impact
of the COVID-19 pandemic on the ability of some customers to pay
their bills was specifically taken into consideration as part of the
expected credit loss assessment for trade receivables. This gave
rise to a further £16.7 million incremental increase in the allowance
for expected credit losses based on judgements around the likely
impact of the pandemic on the non-payment risk profile of the
group’s customer base on a segmented basis.
A high level of uncertainty remains around how current economic
conditions could impact the recoverability of household
receivables, particularly in light of further lockdowns during the
year. As government support schemes such as furlough unwind,
this could result in increased unemployment and therefore further
impact the ability of some customers to pay.
In recognition of this future uncertainty, the allowance for expected
credit losses covering the group’s household customer base has
been determined based on the assumption that cash collection
experienced over the last two years continues into the future. This
assumption supports the reported household bad debt charge
of 2.2 per cent of household revenue and is considered to be a
reasonable estimate of future collection. Had the group assumed
that future collection was maintained at levels experienced during
the last 12 months alone, the charge would have been increased
by £2.6 million to 2.4 per cent of household revenue. If the group
had assumed that future collection improved to an average of
actual collection experienced over the last 3 years, then the bad
debt charge would have reduced by £3.8 million to 1.8 per cent of
household revenue
Accounting estimate – United Utilities Water Limited raises bills
in accordance with its entitlement to receive revenue in line with
the limits established by the periodic regulatory price review
processes. For household water and wastewater customers with
water meters, the receivable billed is dependent on the volume
supplied, including the sales value of an estimate of the units
supplied between the date of the last meter reading and the billing
date. Meters are read on a cyclical basis and the group recognises
revenue for unbilled amounts based on estimated usage from the
last billing through to each reporting date. The estimated usage
is based on historical data, judgement and assumptions; actual
results could differ from these estimates, which would result in
operating revenues being adjusted in the period that the revision to
the estimates is determined.
215
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Accounting policies
Revenue recognised for unbilled amounts for these customers at
31 March 2021 was £69.4 million. Had actual consumption been 5
per cent higher or lower than the estimate of units supplied, this
would have resulted in revenue recognised for unbilled amounts
being £4.8 million higher or lower respectively. For customers who
do not have a meter, the receivable billed and revenue recognised
is dependent on the rateable value of the property, as assessed by
an independent rating officer. Consumption patterns during the
year have been significantly impacted by changes brought about
by the COVID-19 pandemic, with household consumption having
been above levels normally seen due to customers spending more
time at home. As the year has progressed, the volume of household
meter reads has gradually increased, resulting in the increased
consumption during the pandemic period largely being captured
in actual bills meaning that the level of estimation has reduced. By
31 March 2021, the system generated accrual had largely aligned
to the independent automated meter read (AMR) data. AMR data
is captured for around 25 per cent of all measured household
customers, and this increase has been extrapolated across the
remaining measured household customer base. The reasonableness
of this approach has been validated through an assessment of bills
raised in the period.
Accounting estimate – Due to temporary business closures
required as a result of lockdown measures put in place by the UK
Government, the level of non-household consumption has fallen
significantly throughout the year ended 31 March 2021. Revenue in
relation to wholesale charges billed to non-household retailers is
recognised based on a series of settlement statements produced
by the Central Market Operating System (CMOS), operated by
Market Operator Services Ltd (MOSL). When generating bills in the
absence of a current meter read, CMOS uses the 12 months prior
to the last meter read to assess expected consumption. Depending
on when a meter was last read, the calculated volumetric charge
may not be wholly reflective of the consumption during the period
estimated due to the impact that COVID-19 has had on different
industries in the year. In recognition of this issue, MOSL advised
non-household retailers in December 2020 that they should
consider the trading status of their customers and amend their
Yearly Volume Estimate to adjust the wholesale charges calculated
by CMOS. The group has performed its own estimations of the
adjustments required to these charges determined by CMOS, and
has accrued for an additional £13.9 million of revenue in the year
relating to non-household wholesale charges. This adjustment is
based on an analysis of volume supplied for each particular end
user at a supply point level, and comparing this with estimates in
the CMOS system. Had this accrued income simply been based on
the estimates calculated by CMOS, revenue would therefore have
been £13.9 million lower, though based on the volumetric analysis
performed management considers that this position would be
overly prudent.
Property, plant and equipment
Accounting judgement – The group recognises property, plant
and equipment (PPE) on its water and wastewater infrastructure
assets where such expenditure enhances or increases the capacity
of the network, whereas any expenditure classed as maintenance
is expensed in the period it is incurred. Determining enhancement
from maintenance expenditure requires an accounting judgement,
particularly when projects have both elements within them.
Enhancement spend was 58 per cent of total spend in relation to
infrastructure assets during the year. A change of +/- 1 per cent
would have resulted in £4.0 million less/more expenditure being
charged to the income statement during the period. In addition,
management capitalises time and resources incurred by the
group’s support functions on capital programmes, which requires
accounting judgements to be made in relation to the appropriate
capitalisation rates. Support costs allocated to PPE represent 37
216
per cent of total support costs. A change in allocation of +/- 5 per
cent would have resulted in £2.1 million less/more expenditure
being charged to the income statement during the period.
Accounting estimate – The estimated useful economic lives of PPE
and intangible assets is based on management’s experience. When
management identifies that actual useful economic lives differ
materially from the estimates used to calculate depreciation, that
charge is adjusted prospectively. Due to the significance of PPE
and intangibles investment to the group, variations between actual
and estimated useful economic lives could impact operating results
both positively and negatively. As such, this is a key source of
estimation uncertainty. The depreciation and amortisation expense
for the year was £422.3 million. A 10 per cent increase in average
asset lives would have resulted in a £39.2 million reduction in this
figure and a 10 per cent decrease in average asset lives would have
resulted in a £46.0 million increase in this figure.
Retirement benefits
Accounting estimate – The group operates two defined benefit
pension schemes which are independent of the group’s finances.
Actuarial valuations of the schemes are carried out as determined
by the trustees at intervals of not more than three years. Profit
before tax and net assets are affected by the actuarial assumptions
used. The key assumptions include: discount rates, pay growth,
mortality, and increases to pensions in payment and deferred
pensions. It should be noted that actual rates may differ from
the assumptions used due to changing market and economic
conditions and longer or shorter lives of participants and, as such,
this represents a key source of estimation uncertainty. Sensitivities
in respect of the assumptions used during the year are disclosed in
note A5.
Accounting estimate – Included within the group’s defined benefit
pension scheme assets are assets with a fair value estimated to
be £268.0 million that are categorised as ‘level 3’ assets within the
IFRS 13 ‘Fair value measurement’ hierarchy, meaning that the value
of the assets is not observable at 31 March 2021. Estimates of the
fair value of these assets have been performed by the investment
managers’ valuation specialists using the latest available
statements of each of the funds that make up the total level 3 asset
balance, updated for any subsequent cash movements between the
statement date and the year end reporting date.
Derivative financial instruments
Accounting estimate – The model used to fair value the group’s
derivative financial instruments requires management to estimate
future cash flows based on applicable interest rate curves.
Projected cash flows are then discounted back using discount
factors which are derived from the applicable interest rate curves
adjusted for management’s estimate of counterparty and own
credit risk, where appropriate. Sensitivities relating to derivative
financial instruments are included in note A4.
Joint ventures – Water Plus
Accounting judgement – The group’s financial interests in Water
Plus Group Limited, a joint venture with Severn Trent PLC,
comprise an investment in the ordinary shares of Water Plus, and
loans issued to the joint venture in the form of revolving credit
facilities and a zero coupon shareholder loan note, further details of
which are included in note A6.
Prior to 31 March 2021, it was proposed that existing working
capital facilities extended to Water Plus by its shareholders would
be restructured, resulting in each shareholder injecting a form of
equity capital into the joint venture. United Utilities and Severn
Trent would reconfigure an existing revolving credit facility, drawn-
down to £32.5 million at the reporting date, into share capital,
with the subscription price of this capital equalling the value of the
cancelled revolving credit facility. On 23 April 2021, the revolving
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC are identified that have been damaged beyond repair and require
immediate accounting write-downs. No such charges were required
in the current financial year.
The group has looked to further enhance the accuracy of its useful
life assessment through the introduction of more forward-looking
information in asset life reviews. This includes the use of data from
the Pioneer strategic asset planning system to assess the economic
point of replacement for assets under future investment and
performance scenarios. This information is to be used alongside
other decommissioning data to inform useful economic asset lives.
The group mitigates the exposure that the carrying value of its book
asset base has to climate-related risks through strategic planning
activities that incorporate defined climate scenarios, climate
change mitigation pledges, and long-term climate projections.
The group installs permanent flood defences and other resilience
measures at the most vulnerable facilities to protect its assets.
credit facility was formally cancelled and the group completed the
purchase of share capital.
Judgement is required in determining whether, at the reporting
date, this revolving credit facility forms part of the group’s long-
term interest in Water Plus whose value would be reduced in
accordance with the group’s share of joint venture losses in excess
of the value of its equity investment when applying the equity
method in accordance with IAS 28 ‘Investments in Associates and
Joint Ventures’.
Notwithstanding the legal form, management view the revolving
credit facility as forming part of the group’s long-term interest in
Water Plus at the balance sheet date. Timing differences existed
between shareholder agreement to provide additional share capital
(pre year-end) and the execution of the transaction (post year-
end). The group has therefore determined that, in substance, it
had an additional long-term interest in the Water Plus group at the
reporting date.
In the year-ended 31 March 2020, the group’s long-term interest in
Water Plus was reduced to £nil. £5.3 million of unrecognised losses
existed at the balance sheet date. These previously unrecognised
losses, together with the group’s share of the Water Plus’s losses in
the year ended 31 March 2021 of £8.9 million, have been allocated
against the revolving credit facility at the balance sheet date.
The £14.2 million total share of losses has been recognised in the
group’s income statement for the year-ended 31 March 2021.
Had an alternative judgement been applied such that this revolving
credit facility was not considered to be part of the group’s long-
term interest in Water Plus, the group’s £5.3 million unrecognised
share of Water Plus’s losses for the prior year and the group’s £8.9
million share of Water Plus’s losses for the current year would
not have been recognised in the income statement resulting in a
lower share of losses from joint ventures, and the carrying value of
the amount owed by Water Plus in respect of the revolving credit
facility would have been higher by this amount. See note A6 for
further details.
Climate change
The group is continually developing its assessment of the impact
that climate change has on the assets and liabilities recognised and
presented in its financial statements.
The natural environment within which the group operates is
constantly changing, and this influences how its water and
wastewater services are to be delivered in the future. In addition,
the group has embedded ambitious climate-related targets within
its own operations, with this affecting the portfolio of assets
required to deliver such services.
The impact of climate change has been considered in the
preparation of these financial statements across a number of areas,
predominantly in respect of the valuation of the property, plant and
equipment held by the group.
Asset life reviews are undertaken regularly for facilities impacted
by climate change, environmental legislation or the group’s
decarbonisation measures. In the prior year, depreciation was
accelerated on a material value of bioresources facilities which
were deemed to be commercially obsolete and for which no further
use was planned, in part as a result of the group’s decarbonisation
strategy. In the current financial year, depreciation was accelerated
totalling £2.3 million at bioresource facilities impacted by changes
in environmental legislative requirements.
The group is exposed to potential asset write-downs following
flooding resulting from extreme weather events, the frequency of
which are expected to increase as the effects of climate change
become more apparent. Following large-scale flooding, items
217
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
Segmental reporting
1
The board of directors of United Utilities Group PLC (the board) is provided with information on a single-segment basis for the purposes of
assessing performance and allocating resources. The group’s performance is measured against financial and operational key performance
indicators which align with its three strategic themes to deliver the best service to customers, at the lowest sustainable cost, in a
responsible manner. The board reviews revenue, operating profit and gearing, along with operational drivers at a consolidated level (see
pages 50 to 81). In light of this, the group has a single segment for financial reporting purposes and therefore no further detailed segmental
information is provided in this note.
2 Revenue
The group’s revenue predominantly arises from the provision of services within the United Kingdom, with less than 1 per cent of external
revenue and non-current assets being overseas.
Wholesale water charges
Wholesale wastewater charges
Household retail charges
Other
2021
£m
751.0
941.5
64.1
51.4
2020
£m
784.8
939.5
83.8
51.2
1,808.0
1,859.3
In accordance with IFRS 15, revenue has been disaggregated based on what is recognised in relation to the core services of supplying clean
water and the removal and treatment of wastewater. Each of these services is deemed to give rise to a distinct performance obligation
under the contract with customers, although following the same pattern of transfer to the customer who simultaneously receives and
consumes both of these services over time.
Wholesale water and wastewater charges relate to services provided to household customers and non-household retailers. Household
retail charges relate solely to the margin applied to the wholesale amounts charged to residential customers. These wholesale charges and
the applicable retail margin are combined in arriving at the total revenues relating to water and wastewater services provided to household
customers. No margin is applied to wholesale water and wastewater services provided to non-household retailers.
Other revenues comprise a number of smaller non-core income streams, including those relating to energy generation and export, and
those associated with activities, typically performed opposite property developers, which impact the group’s capital network assets,
including diversions works to relocate water and wastewater assets, and activities that facilitate the creation of an authorised connection
through which properties can obtain water and wastewater services.
3 Directors and employees
Directors’ remuneration
Fees to non-executive directors
Salaries
Benefits
Bonus
Share-based payment charge
2021
£m
0.8
1.2
0.2
0.7
1.7
4.6
2020
£m
0.8
1.4
0.3
0.7
1.0
4.2
Further information about the remuneration of individual directors and details of their pension arrangements are provided in the Directors’
remuneration report on pages 167 to 189.
Remuneration of key management personnel
Salaries and short-term employee benefits
Share-based payment charge
2021
£m
6.3
3.0
9.3
2020
£m
6.4
1.3
7.7
Key management personnel comprises all directors and certain senior managers who are members of the executive team.
218
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 3 Directors and employees continued
Employee benefits expense (including directors)
Group
Wages and salaries
Employee-related taxes and levies
Severance
Post-employment benefits:
Defined benefit pension expense (see note 18)
Defined contribution pension expense (see note 18)
Charged to other areas including regulatory capital schemes
Employee benefits expense
2021
£m
240.4
25.2
1.3
8.5
23.4
298.8
(137.0)
161.8
2020
£m
229.6
23.8
7.2
12.3
22.5
295.4
(134.0)
161.4
Included within employee benefits expense were £1.9 million (2020: £11.8 million) of restructuring costs.
The total expense included within employee benefits expense in respect of equity-settled share-based payments was £3.6 million
(2020: £1.5 million). The company operates several share option schemes, details of which are given on pages 167 to 189 in the Directors’
remuneration report.
Average number of employees during the year (full-time equivalent including directors):
Average number of employees during the year
Company
The company has no employees.
2021
number
2020
number
5,354
5,302
4 Operating profit
The following items have been charged/(credited) to the income statement in arriving at the group’s operating profit:
Other operating costs
Hired and contracted services
Property rates
Power
Materials
Regulatory fees
Insurance
Loss on disposal of property, plant and equipment
Accrued innovation costs
Cost of properties disposed
Other expenses
Allowance for expected credit losses – trade and other receivables
Allowance for expected credit losses – trade and other receivables (see note 14)
Other income
Other income
Depreciation and amortisation expense
Depreciation of property, plant and equipment: owned assets (see note 10)
Amortisation of other intangible assets (see note 11)
2021
£m
96.3
89.4
83.6
82.2
28.0
13.1
10.7
6.2
2.6
19.8
431.9
28.7
28.7
(3.6)
(3.6)
379.8
42.5
422.3
2020
£m
96.6
75.9
78.9
75.1
28.3
13.5
13.9
–
0.4
20.8
403.4
41.8
41.8
(3.4)
(3.4)
441.6
41.2
482.8
219
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
4 Operating profit continued
Included within depreciation of property, plant and equipment was £2.3 million of accelerated depreciation resulting from the group’s
strategic bioresources review. This compares with accelerated depreciation of certain bioresources assets amounting to £82.3 million in
the prior year, primarily relating to incineration assets at the group’s Mersey Valley Sludge Processing Centre, known as Shell Green. The
accelerated depreciation in both years reflects the outcomes of the strategic review, whereby the likelihood of the group deriving future
economic benefit from these assets was considered remote in light of improvements in alternative lower-cost and more environmentally
friendly processes. In addition to this, in the prior year, inventory spares held for use by these assets were written down to £nil.
Excluding the impact of this current and prior year accelerated depreciation, the group’s depreciation and amortisation expense has
increased by £19.5 million in the current year, principally reflecting the higher capital expenditure programme in AMP6 with a higher
number of assets commissioned towards the end of the AMP. In the near term this depreciation and amortisation expense is expected to
flatten out, reflecting the lower AMP7 capital programme.
During the prior year, the group incurred operating costs of £19.2 million in relation to the onset of the COVID-19 pandemic, comprising £16.7
million in relation to allowances for expected credit losses in respect of household trade receivables, £1.4 million allowances for expected
credit losses in respect of non-household trade receivables, and £1.1 million of other operating expenses. The additional allowances for
expected credit losses reflected the group’s estimate of the potential impact of the pandemic on the recoverability of receivables over and
above its existing expected credit loss assessment, and was treated as an adjusting item in arriving at the group’s underlying operating
profit included in its alternative performance measures. This was possible given the proximity of the group’s year end reporting date to the
introduction of lockdown measures in the UK.
Incremental costs for the year ended 31 March 2021 arising as a result of the pandemic are estimated to be around £8 million of operating
costs, though these have been partially offset by savings realised elsewhere, and around £5 million of additional costs associated with
expected credit losses due to the increased risk associated with cash collection as government support schemes are withdrawn. With the
passage of time, and with the conditions brought about by the pandemic becoming embedded into normal processes during the current year,
the group considers that, for the purpose of presenting an underlying operating profit position, splitting out these costs does not provide
meaningful or useful additional information.
Property rates expenses in the current year include the impact of £1.1 million (2020: £8.1 million) of refunds in relation to rates paid in
previous years, and £nil (2020: £8.2 million) reduction in accrued rates costs. These reductions ensure that the cumulative costs associated
with property rates paid by the group are appropriately recorded.
Research and development expenditure for the year ended 31 March 2021 was £1.0 million (2020: £1.0 million). In addition, £6.2 million
(2020: £nil) of costs have been accrued by United Utilities Water Limited in relation to the Innovation in Water Challenge scheme operated
by Ofwat for AMP7, which therefore did not apply in the prior year. These expenses directly offset £6.2 million recognised in revenue
during the year intended to fund innovation projects across England and Wales as part of an industry-wide scheme to promote innovation
in the sector. The amounts accrued will either be spent on innovation projects that the group successfully bids for or will be transferred to
other successful water companies in accordance with the scheme rules.
During the year, the group obtained the following services from its auditor:
Audit services
Statutory audit – group and company
Statutory audit – subsidiaries
Non-audit services
Regulatory audit services provided by the statutory auditor
Other non-audit services
Total audit and non-audit services
5
Investment income
Interest receivable on short-term bank deposits held at amortised cost
Interest receivable on loans to joint ventures held at amortised cost (see note A6)
Net pension interest income (see note 18)
220
2021
£’000
2020
£’000
170
508
678
71
120
869
2021
£m
3.8
3.7
17.5
25.0
119
355
474
62
77
613
2020
£m
6.0
4.0
14.0
24.0
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 6 Finance expense
Interest payable
Interest payable on borrowings held at amortised cost(1)
Fair value losses/(gains) on debt and derivative instruments
Fair value hedge relationships:
Borrowings(2)
Designated swaps(2)(3)
Financial instruments at fair value through profit or loss:
Borrowings designated at fair value through profit or loss(4)
Associated swaps
Fixed interest rate swaps(5)
Net receipts on swaps and debt under fair value option
Inflation swaps(5)
Other
Net fair value (gains)/losses on debt and derivative instruments(6)
2021
£m
181.7
181.7
(155.1)
132.8
(22.3)
(67.3)
67.8
0.5
(36.0)
(17.6)
3.4
(2.5)
(52.7)
(74.5)
107.2
2020
£m
231.7
231.7
87.1
(68.6)
18.5
57.8
(49.8)
8.0
52.3
(15.3)
13.4
(0.6)
49.8
76.3
308.0
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
Includes a £52.6 million (2020: £100.8 million) non-cash inflation expense repayable on maturity in relation to the group’s index-linked debt and £1.8 million
(2020: £1.6 million) interest expense on lease liabilities, representing the unwinding of the discounting applied to future lease payments.
Includes foreign exchange gains of £43.9 million (2020: £14.8 million losses). These losses/gains are largely offset by fair value gains/losses on derivatives.
Under the provisions of IFRS 9 ‘Financial Instruments’, a £12.7 million loss (2020: £1.3 million gain) resulting from changes to the foreign currency basis
spread are recognised in other comprehensive income rather than profit or loss as they relate to items designated in an accounting hedge relationship.
Under the provisions of IFRS 9 ‘Financial Instruments’, a £43.3 million loss (2020: £34.2 million gain) due to the group's own credit risk is recognised in
other comprehensive income rather than within profit or loss.
These swap contracts are not designated within an IFRS 9 hedge relationship and are classed as ‘held for trading' under the accounting standard. These
derivatives form economic hedges and, as such, management intends to hold these through to maturity.
Includes £21.5 million income (2020: £16.0 million) due to net interest on derivatives and debt under fair value option and £1.3 million expense (2020:
£0.5 million income) due to non-cash inflation changes on index-linked derivatives. Fair value movements excluding this income are deducted to reach
underlying finance expense, which forms part of the group's alternative performance measures (APMs) as set out on pages 82 to 83.
Interest payable is stated net of £30.4 million (2020: £40.6 million) borrowing costs capitalised in the cost of qualifying assets, with £30.3
million (2020: £40.2 million) capitalised within property, plant and equipment and £0.1 million (2020: £0.4 million) capitalised within
intangible assets during the year. This has been calculated by applying an average capitalisation rate of 2.3 per cent (2020: 3.2 per cent) to
expenditure on such assets as prescribed by IAS 23 ‘Borrowing Costs’.
In addition to the £107.2 million finance expense, the allowance for expected credit losses in relation to loans extended to the group's joint
venture, Water Plus, has decreased by £3.7 million during the current year. This is primarily due to refinancing of facilities extended to
Water Plus, which has resulted in a lower exposure to expected credit in the future (see note A6 for further details).
Underlying finance expense, which forms part of the group's APMs set out on pages 82 to 83, is calculated by adjusting net finance
expense and investment income of £78.5 million (2020: £289.0 million) reported in the Income statement to exclude the £54.3 million of
fair value gains (2020: £92.8 million fair value losses) on debt and derivative instruments included in the above table. In addition, underlying
finance expense in the prior year excluded the impact of the £5.0 million allowance for expected credit losses on amounts owed by Water
Plus, which was recognised in response to a significant increase in credit risk following the onset of the COVID-19 pandemic. The £3.7
million credit reducing the expected credit loss allowance in the current year has not been excluded from the calculation of underlying
finance expense as it reflects reduced exposure to future credit losses arising as a result of the refinancing of facilities to Water Plus in the
normal course of business.
221
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Notes to the financial statements
7 Tax
Current tax
UK corporation tax
Adjustments in respect of prior years
Total current tax charge for the year
Deferred tax
Current year
Adjustments in respect of prior years
Change in tax rate
Total deferred tax charge for the year
Total tax charge for the year
2021
£m
79.8
(0.6)
79.2
20.2
(1.8)
18.4
–
18.4
97.6
2020
£m
51.1
(12.2)
38.9
16.4
5.6
22.0
135.5
157.5
196.4
An increase in the headline rate of corporation tax to 25 per cent effective from 1 April 2023 was announced in the Chancellor's Budget on
3 March 2021. This change was substantively enacted on 24 May 2021 and will result in a future deferred tax charge, currently estimated at
around £380 million. The deferred tax charge of £135.5 million in the prior year reflects the Government's reversal of the planned reduction
in the rate of corporation tax from 19 per cent to 17 per cent from 1 April 2020.
The adjustments in respect of prior years relate to agreement of routine prior years' UK tax matters.
The table below reconciles the notional tax charge at the UK corporation tax rate to the total charge and total effective tax rate for the year:
Profit before tax
Tax at the UK corporation tax rate
Adjustments in respect of prior years
Change in tax rate
Net (income)/expense not taxable
Total tax charge and effective tax rate for the year
2021
£m
551.0
104.7
(2.4)
–
(4.7)
97.6
2021
%
19.0
(0.4)
–
(0.9)
17.7
2020
£m
303.2
57.6
(6.6)
135.5
9.9
196.4
2020
%
19.0
(2.2)
44.7
3.2
64.7
The movement from net expense not taxable in the year ended 31 March 2020 to net income not taxable in the year ended 31 March 2021
is mainly due to the disposal of the investment in AS Tallinna Vesi (Tallinn Water) and a decrease in losses from our joint venture interest in
Water Plus.
The table below reconciles the notional tax charge at the UK corporation tax rate to the total current tax charge for the year:
Profit before tax
Profit before tax multiplied by the standard rate of UK corporation tax of 19%
Relief for capital allowances in place of depreciation
Disallowance of depreciation charged in the accounts
Financial transactions timing differences
Pension timing differences
Relief for capitalised interest
Other timing differences
Adjustments to tax charge in respect of prior years
Joint venture net losses
Profit on disposal of joint venture
(Income not taxable)/expenses not deductible for tax purposes
Depreciation charged on non-qualifying assets
Current tax charge for the year
2021
£m
551.0
104.7
(78.6)
70.0
(7.8)
–
(5.8)
2.0
(0.6)
1.8
(7.0)
(1.8)
2.3
79.2
2020
£m
303.2
57.6
(82.1)
81.6
11.7
(22.5)
(7.7)
2.6
(12.2)
7.2
–
0.5
2.2
38.9
The group's current tax charge is typically lower than the UK headline rate of 19 per cent, primarily due to a range of adjustments which
are simply timing differences between recognition of the income or expense in the accounts and in the related tax computations submitted
to HMRC. These include deductions in relation to capital spend, pension timing differences, unrealised profits or losses in relation to
financing and related treasury derivatives and capitalised interest.
222
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 7 Tax continued
For the current year, the tax charge was reduced due to the profit on the disposal of the joint venture interest in the Estonian water
company, AS Tallinna Vesi, being non taxable.
The current year net timing differences in relation to capital spend, i.e. capital allowances less depreciation, was more than the prior year
mainly due to the atypical bioresources asset write-down in the prior year.
The year-on-year movement in financial transactions timing differences is sensitive to fair value movements on treasury derivatives and
can, therefore, fluctuate significantly from year to year.
The current year pension timing differences were lower than the prior year mainly due to the company making accelerated deficit repair
contributions of £103.0 million in the prior year.
The current year adjustments to tax charge in respect of prior years of £0.6 million were lower in the current year mainly due to the
agreement of various capital allowance matters covering multiple years in the prior year.
The decrease in joint venture losses is due to a reduction in our share of the losses in relation to Water Plus.
Tax on items taken directly to equity
Current tax
Relating to other pension movements
Deferred tax (see note 19)
On remeasurement (losses)/gains on defined benefit pension schemes
Relating to other pension movements
Adjustments in respect of prior years on net fair value gains
On net fair value (losses)/gains on credit assumptions for debt reported at fair value through
profit and loss and cost of hedging
Total tax charge on items taken directly to equity
2021
£m
(3.3)
(26.0)
3.3
–
(8.8)
(34.8)
2020
£m
–
150.0
–
2.4
6.7
159.1
The current tax amount of £3.3 million relating to other pension movements is the contributions in excess of the amounts in the profit and
loss account which has to be allocated against the actuarial loss.
The tax adjustments taken to equity primarily relate to remeasurement movements on the group's defined benefit pension schemes. In the
prior year, this included the adjustment arising from a change in the rate at which the deferred tax liabilities are measured, from 17 per cent
to 35 per cent. This change in rate reflected a revised judgement as to the most likely method by which the defined benefit pension surplus
would be realised. Whereas prior to the year ended 31 March 2020 it was assumed that the surplus could be realised through a reduction in
future contributions, from the year ended 31 March 2020 onwards management considers that the most likely method of realisation would
be through a refund, which would be taxed at the rate applicable to refunds from a trust (currently 35 per cent).
8 Earnings per share
Profit after tax attributable to equity holders of the company – continuing operations
Earnings per share
Basic
Diluted
2021
£m
453.4
2021
pence
66.5
66.3
2020
£m
106.8
2020
pence
15.7
15.6
Basic earnings per share is calculated by dividing profit after tax for the financial year attributable to equity holders of the company by
681.9 million being the weighted average number of shares in issue during the year (2020: 681.9 million). Diluted earnings per share is
calculated by dividing profit after tax for the financial year attributable to equity holders of the company by 683.5 million, being the
weighted average number of shares in issue during the year, including dilutive shares (2020: 683.6 million).
The difference between the weighted average number of shares used in the basic and the diluted earnings per share calculations represents
those ordinary shares deemed to have been issued for no consideration on the conversion of all potential dilutive ordinary shares in
accordance with IAS 33 ‘Earnings Per Share’. Potential dilutive ordinary shares comprise outstanding share options awarded to directors and
certain employees (see note 3).
The weighted average number of shares can be reconciled to the weighted average number of shares, including dilutive shares, as follows:
Average number of ordinary shares – basic
Effect of potential dilutive ordinary share options
Average number of ordinary shares – diluted
2021
million
681.9
1.6
683.5
2020
million
681.9
1.7
683.6
223
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
9 Dividends
Amounts recognised as distributions to equity holders of the company in the year comprise:
Ordinary shares
Final dividend for the year ended 31 March 2020 at 28.40 pence per share (2019: 27.52 pence)
Interim dividend for the year ended 31 March 2021 at 14.41 pence per share (2020: 14.20 pence)
Proposed final dividend for the year ended 31 March 2021 at 28.83 pence per share (2020: 28.40 pence)
2021
£m
193.6
98.3
291.9
196.6
2020
£m
187.7
96.8
284.5
193.7
The proposed final dividends for the years ended 31 March 2021 and 31 March 2020 were subject to approval by equity holders of United
Utilities Group PLC as at the reporting dates, and hence have not been included as liabilities in the consolidated financial statements at
31 March 2021 and 31 March 2020.
10 Property, plant and equipment
Property, plant and equipment comprises owned and leased assets.
Property, plant and equipment – owned
Right of use assets – leased
Net book value
Property, plant and equipment –owned
Group
Cost
At 1 April 2019
Additions
Transfers
Disposals
At 31 March 2020
Additions
Transfers
Disposals
At 31 March 2021
Accumulated depreciation
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Transfers
Disposals
At 31 March 2021
Net book value at 31 March 2020
Net book value at 31 March 2021
2021
£m
11,739.7
59.3
11,799.0
2020
£m
11,453.6
57.3
11,510.9
Total
£m
15,435.8
754.5
–
(309.3)
15,881.0
677.9
(2.0)
(216.3)
1,625.4
445.4
(520.0)
–
1,550.8
430.3
(492.6)
–
1,488.5
16,340.6
–
–
–
–
–
–
–
–
1,550.8
1,488.5
4,282.4
439.6
(294.6)
4,427.4
378.7
(1.0)
(204.2)
4,600.9
11,453.6
11,739.7
Land and
buildings
£m
Infra-
structure
assets
£m
Operational
assets
£m
Fixtures,
fittings, tools
and
equipment
£m
Assets in
course of
construction
£m
359.7
1.8
6.0
(13.6)
353.9
1.7
9.7
(1.6)
363.7
126.9
8.8
(13.5)
122.2
8.2
–
(1.5)
128.9
231.7
234.8
5,490.4
140.5
131.1
(31.5)
7,422.1
157.1
358.8
(251.2)
5,730.5
7,686.8
100.8
66.5
–
136.7
418.3
(167.1)
5,897.8
8,074.7
421.3
44.4
(31.2)
434.5
42.6
–
–
477.1
5,296.0
5,420.7
3,333.9
353.4
(237.1)
3,450.2
299.1
–
(155.7)
3,593.6
4,236.6
4,481.1
538.2
9.7
24.1
(13.0)
559.0
8.4
(3.9)
(47.6)
515.9
400.3
33.0
(12.8)
420.5
28.8
(1.0)
(47.0)
401.3
138.5
114.6
During the year, there was a transfer of £2.0 million cost and associated £1.0 million accumulated depreciation from property, plant and
equipment to intangible assets following a data cleanse exercise in respect of the fixed assets register.
224
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 10 Property, plant and equipment continued
Right of use assets – leased
Group
Cost
At 1 April 2019
Opening balance adjustment on adoption of IFRS 16(1)
Additions
Disposals
At 31 March 2020
Additions
Disposals
At 31 March 2021
Accumulated depreciation
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Net book value at 31 March 2020
Net book value at 31 March 2021
Land and
buildings
£m
Operational
assets
£m
Fixtures,
fittings
tools and
equipment
£m
48.6
4.2
–
52.8
2.4
(0.1)
55.1
–
1.0
–
1.0
1.2
(0.1)
2.1
51.8
53.0
5.8
0.8
(0.1)
6.5
1.5
(0.2)
7.8
–
1.0
–
1.0
0.9
(0.2)
1.7
5.5
6.1
–
–
–
–
0.2
–
0.2
–
–
–
–
–
–
–
–
0.2
Total
£m
54.4
5.0
(0.1)
59.3
4.1
(0.3)
63.1
–
2.0
–
2.0
2.1
(0.3)
3.8
57.3
59.3
Note:
(1) Following a review of underlying assets during the year, the opening balance adjustment on adoption of IFRS 16 at 1 April 2019 has been re-presented
such that £1.4 million of right of use assets relating to vehicles have been included in operational assets whereas they were previously included in fixtures,
fittings, tools and equipment. After taking account of additions, disposals and depreciation, the effect of this is that cost and net book value of operational
assets is £1.7 million and £0.8 million higher at 31 March 2020 compared with the presentation in the prior year financial statements, and the cost and net
book value of fixtures, fittings, tools and equipment at 31 March 2020 are lower by the same amount.
To carry out its activities, the group enters into leases of assets from time to time, typically in relation to items such as land, buildings and
vehicles. Due to the nature of the group’s operations, many of the group’s leases have extremely long terms, ranging from one year to 999
years. The group does not typically lease assets on a short-term basis or enter into leases for low value asset and therefore no material
costs were incurred during the year, either individually or in aggregate, in relation to lease contracts with a duration of less than 12 months
or for low-value assets.
At 31 March 2021, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £335.8 million (2020: £432.6 million). In addition to these commitments, the group has long-term expenditure plans which include
investments to achieve improvements in performance required by regulators and to provide for future growth.
Company
The company had no property, plant and equipment or contractual commitments for the acquisition of property, plant and equipment at
31 March 2021 or 31 March 2020.
225
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Notes to the financial statements
11
Intangible assets
Group
Cost
At 1 April 2019
Additions
Disposals
At 31 March 2020
Additions
Disposals
Transfers
At 31 March 2021
Accumulated amortisation
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Disposals
Transfers
At 31 March 2021
Net book value at 31 March 2020
Net book value at 31 March 2021
Total
£m
436.5
27.6
(22.7)
441.4
32.7
(51.0)
2.0
425.1
233.8
41.2
(22.6)
252.4
41.5
(50.9)
1.0
244.0
189.0
181.1
The group’s intangible assets relate mainly to computer software.
During the year, there was a transfer of £2.0 million cost and associated £1.0 million accumulated depreciation from property, plant and
equipment to intangible assets following a data cleanse exercise in respect of the fixed assets register.
At 31 March 2021, the group had entered into contractual commitments for the acquisition of intangible assets amounting to £0.9 million
(2020: £2.6 million).
Company
The company had no intangible assets or contractual commitments for the acquisition of intangible assets at 31 March 2021 or 31 March 2020.
12 Joint ventures and other investments
Joint ventures at the start of the period
Share of profit/(losses) of joint ventures
Less: Share of losses allocated to other components of long-term interest in joint ventures
Dividends received from joint ventures
Currency translation differences
Disposal of joint venture
Joint ventures at the end of the period
Other investments
Interests in joint ventures and other investments
2021
£m
46.8
(9.3)
14.2
(6.4)
(1.6)
(43.7)
–
0.1
0.1
2020
£m
79.0
(38.1)
9.5
(4.9)
1.3
–
46.8
0.1
46.9
Following the disposal of the group’s overseas investment in AS Tallinna Vesi (Tallinn Water) as set out below, the group’s interests in joint
ventures mainly comprises its 50 per cent interest in Water Plus Group Limited (Water Plus), which is jointly owned and controlled by the
group and Severn Trent PLC under a joint venture agreement.
226
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC
12 Joint ventures and other investments continued
The group’s total share of Water Plus losses for the year was £8.9 million (2020: £51.5 million share of losses), all of which has been recognised
in the income statement together with £5.3 million of previously unrecognised share of losses (2020: £46.2 million recognised in the income
statement, £5.3 million not recognised). The £14.2 million total share of losses recognised in the income statement during the year has been
allocated against the fully drawn £32.5 million revolving credit facility extended to Water Plus by United Utilities PLC, which is presented
within amounts owed by related parties included within trade and other receivables (see note 14). This facility forms part of the group’s
long-term interest in the Water Plus joint venture given that at 31 March 2021 there was a clear expectation that it would be converted into
additional equity share capital, with this transaction subsequently executed on 23 April 2021.
In the year ended 31 March 2020, the £46.2 million recognised share of losses comprised £36.7 million which was allocated to the group’s
equity investment, and £9.5 million which was allocated to the zero coupon shareholder loan notes extended to Water Plus as this forms part
of the group’s long-term interest in the joint venture. The share of losses recognised against each component of the group’s net investment in
Water Plus reduced each of them to £nil at 31 March 2020.
On 31 March 2021, the group completed the disposal of its stake in the Tallinn Water joint venture for consideration of EUR 100.3 million (£85.3
million). The value of this stake at the time it was sold, after recognising a £4.9 million share of profits, receipt of a £6.4 million dividend,
and £1.6 million of foreign exchange losses, was £43.7 million. This resulted in a profit on disposal of £40.7 million after taking account of
£0.9 million of disposal costs. On disposal, the £4.0 million balance of the accumulated foreign exchange losses making up the cumulative
exchange reserve, all of which had accumulated in relation to the Tallinn Water joint venture, was reclassified to profit and loss resulting in a
total recognised profit on disposal of £36.7 million.
In the year ended 31 March 2020, the group completed the disposal of its overseas investment in the Muharraq sewerage treatment plant.
Consideration of £10.9 million was equal to the fair value at which the asset was carried at the point at which it was sold, resulting in no gain
or loss on disposal. Prior to this disposal, the group received £1.1 million in repayment of shareholder loans, resulting in a total cash inflow for
the year ended 31 March 2020 of £12.0 million in relation to the disposal of this investment.
Details of transactions between the group and its joint ventures and other investments are disclosed in note A6.
Company
At 31 March 2021, the company’s investments related solely to its investments in United Utilities PLC, which was recorded at a cost of
£6,326.8 million (2020: £6,326.8 million).
13
Inventories
Group
Properties held for resale
Other inventories
Company
The company had no inventories at 31 March 2021 or 31 March 2020.
14 Trade and other receivables
Trade receivables
Amounts owed by subsidiary undertakings
Amounts owed by related parties (see note A6)
Other debtors and prepayments
Accrued income
2021
£m
2.5
15.8
18.3
2020
£m
4.5
12.1
16.6
Group
Company
2021
£m
63.5
–
113.8
34.3
104.3
315.9
2020
£m
81.2
–
147.9
39.1
74.7
342.9
2021
£m
–
91.9
–
–
–
91.9
2020
£m
–
81.3
–
–
–
81.3
At 31 March 2021, the group had £86.7 million (2020: £97.0 million) of trade and other receivables classified as non-current, all of which
was owed by related parties (2020: £95.0 million) .
The carrying amounts of trade and other receivables approximates to their fair value at 31 March 2021 and 31 March 2020.
227
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
14 Trade and other receivables continued
Trade receivables do not carry interest and are stated net of allowances for bad and doubtful receivables, an analysis of which is as follows:
Group
At the start of the year
Amounts charged to operating expenses (see note 4)
Trade receivables written off
Amounts charged to deferred income
At the end of the year
2021
£m
71.4
28.7
(20.2)
0.5
80.4
2020
£m
56.5
41.8
(28.0)
1.1
71.4
Amounts charged to deferred income relate to amounts invoiced for which revenue has not yet been recognised in the income statement.
At each reporting date, the group evaluates the recoverability of trade receivables and records allowances for expected credit losses which
are measured in a way that reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes and considers past events, current conditions and forecasts of future conditions. In the year ended 31 March 2020, an allowance
for expected credit losses of £18.1 million was recognised in relation to trade and other receivables, reflecting the direct impact of COVID-19
estimated at the onset of the pandemic In the year ended 31 March 2021, a further charge of around £5 million was recognised due to
increased risk associated with cash collection as government support schemes are withdrawn.
At 31 March 2021 and 31 March 2020, the group had no trade receivables that were past due and not individually impaired.
The following table provides information regarding the ageing of net trade receivables that were past due and individually impaired:
At 31 March 2021
Gross trade receivables
Allowance for expected credit losses
Net trade receivables
At 31 March 2020
Gross trade receivables
Allowance for expected credit losses
Net trade receivables
Aged
less than one
year
£m
Aged
between one
year and two
years
£m
Aged
greater than
two years
£m
61.9
(19.9)
42.0
35.3
(16.5)
18.8
44.4
(43.9)
0.5
Aged
less than one
year
£m
Aged
between one
year and two
years
£m
Aged
greater than
two years
£m
72.8
(19.3)
53.5
31.6
(15.7)
15.9
43.4
(36.4)
7.0
Carrying
value
£m
141.7
(80.4)
61.3
Carrying
value
£m
146.9
(71.4)
76.4
At 31 March 2021, the group had £2.2 million (2020: £4.8 million) of trade receivables that were not past due.
The majority of accrued income balances represent contract assets arising from timing differences between the billing cycle and the usage
of water by customers. They therefore typically reverse in subsequent months, with all amounts held in relation to these contract assets
at the beginning of the reporting period having subsequently reversed into the income statement during the year. At 31 March 2021 and
31 March 2020, the group had no accrued income that was past due. In instances where the collection of consideration is not considered
probable at the point services are delivered, no accrued income balance is recognised, as the criteria to recognise revenue in accordance
with IFRS 15 has not been met.
Company
At 31 March 2021 and 31 March 2020, the company had no trade receivables that were past due.
The carrying amount of trade and other receivables approximates to their fair value at 31 March 2021 and 31 March 2020.
228
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 15 Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
Cash and short-term deposits
Book overdrafts (included in borrowings, see note 16)
Cash and cash equivalents in the statement of cash flows
2021
£m
88.9
655.2
744.1
(10.5)
733.6
Group
2020
£m
33.0
495.1
528.1
(14.9)
513.2
2021
£m
Company
2020
£m
–
–
–
–
–
–
–
–
(0.8)
(0.8)
Cash and short-term deposits include cash at bank and in hand, deposits, and other short-term highly liquid investments which are readily
convertible into known amounts of cash and have a maturity of three months or less. The carrying amounts of cash and cash equivalents
approximate their fair value.
Book overdrafts, which result from normal cash management practices, represent the value of cheques issued and payments initiated that
had not cleared as at the reporting date.
16 Borrowings
Group
Non-current liabilities
Bonds
Bank and other term borrowings
Lease liabilities
Current liabilities
Bonds
Bank and other term borrowings
Book overdrafts (see note 15)
Lease liabilities
2021
£m
6,029.9
1,710.4
56.7
7,797.0
388.5
252.5
10.5
3.3
654.8
8,451.8
2020
£m
5,648.5
1,814.9
54.7
7,518.1
–
827.2
14.9
2.9
845.0
8,363.1
Amounts owed to subsidiary undertakings relate to an intercompany loan from United Utilities PLC to the company, which bears interest
calculated with reference to LIBOR plus a credit margin, and is repayable with twelve months’ notice upon written request by a director of
either party, with the repayment date not falling less than 366 days after the date of the request.
For further details of the principal economic terms and conditions of outstanding borrowings see note A3.
Company
Non-current liabilities
Amounts owed to subsidiary undertakings
Current liabilities
Book overdrafts (see note 15)
2021
£m
1,780.6
1,780.6
–
–
2020
£m
1,752.0
1,752.0
0.8
0.8
1,780.6
1,752.8
Borrowings are unsecured and are measured at amortised cost. The carrying amounts of borrowings approximate their fair value.
229
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
17 Leases
The maturity profile of lease liabilities recognised at the balance sheet date is:
Less than 1 year
1 to 5 years
5 to 10 years
10 to 25 years
25 to 50 years
50 to 100 years
100 to 500 years
Longer than 500 years
Total undiscounted cash payments
Effect of discounting
Present value of cash payments
2021
£m
3.3
10.5
7.8
25.5
41.0
81.0
107.6
3.2
279.9
(219.9)
60.0
2020
£m
2.9
8.9
9.7
25.2
40.5
80.1
106.9
3.2
277.4
(219.9)
57.5
During the year ending 31 March 2021, £1.8 million (2020: £1.6 million) of interest expense on lease liabilities was recognised; representing
the unwinding of the discounting applied to future lease payments (see note 6).
The total cash outflow for leases for the year ending 31 March 2021 was £3.5 million; of this, £1.8 million was payment of interest and £1.7
million payment of principal.
Payment of interest forms part of cash flows from operating activities and payment of principal is included within repayment of
borrowings, which forms part of cash flows from financing activities in the group's statement of cash flows.
18 Retirement benefit surplus
Defined benefit schemes
The net pension income before tax recognised in the income statement in respect of the defined benefit pension schemes is summarised
as follows:
Group
Current service cost
Curtailments/settlements
Administrative expenses
Pension expense charged to operating profit
Net pension interest income credited to investment income (see note 5)
Net pension income credited to the income statement before tax
2021
£m
4.9
0.6
3.0
8.5
(17.5)
(9.0)
2020
£m
6.1
4.6
1.6
12.3
(14.0)
(1.7)
Defined benefit pension costs excluding curtailments/settlements included within employee benefit expense were £7.9 million (2020: £7.7
million) comprising current service costs and administrative expenses. Total post-employment benefits expense excluding curtailments/
settlements charged to operating profit of £31.3 million (2020: £30.2 million) comprise the defined benefit costs described above of £7.9
million (2020: £7.7 million) and defined contribution pension costs of £23.4 million (2020: £22.5 million) (see note 3).
Included within curtailments/settlements is £0.5 million (2020: £nil) relating to the equalisation of GMP benefits (see note A5 for further details).
The reconciliation of the opening and closing net pension surplus included in the statement of financial position is as follows:
Group
At the start of the year
Income recognised in the income statement
Contributions
Remeasurement (losses)/gains gross of tax
At the end of the year
2021
£m
754.1
9.0
8.6
(82.7)
689.0
2020
£m
483.9
1.7
113.9
154.6
754.1
Included in the contributions paid of £8.6 million (2020: £113.9 million) were deficit repair contributions of £nil (2020: £103.0 million),
enhancements to benefits provided on redundancy of £0.9 million (2020: £1.9 million), payments in relation to historic unfunded,
unregistered retirement benefit schemes of £0.7 million (2020: £1.4 million), and administration expenses of £0.4 million (2020: £0.4
million). Following the 2018 actuarial valuation, contributions in relation to current service cost remained broadly stable at £6.6 million
(2020: £7.2 million).
Remeasurement gains and losses are recognised directly in the statement of comprehensive income.
230
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 18 Retirement benefit surplus continued
Group
The return on plan assets, excluding amounts included in interest
Actuarial (losses)/gains arising from changes in financial assumptions
Actuarial gains/(losses) arising from changes in demographic assumptions
Actuarial gains arising from experience
Remeasurement (losses)/gains on defined benefit pension schemes
2021
£m
241.0
(429.7)
80.6
25.4
(82.7)
2020
£m
(131.6)
257.3
(7.2)
36.1
154.6
For more information in relation to the group’s defined benefit pension schemes, including changes in financial and demographic
assumptions, see note A5.
Defined contribution schemes
During the year, the group made £23.4 million (2020: £22.5 million) of contributions to defined contribution schemes which are included in
employee benefits expense (see note 3).
Company
The company did not participate in any of the group’s pension schemes during the years ended 31 March 2021 and 31 March 2020.
19 Deferred tax liabilities
The following are the major deferred tax liabilities and assets recognised by the group, and the movements thereon, during the current and
prior year:
Group
At 1 April 2019
Charged/(credited) to the income statement (see note 7)
Change in tax rate
Charged to equity (see note 7)
At 31 March 2020
Charges to the income statement (see note 7)
Credited to equity (see note 7)
At 31 March 2021
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
1,076.7
13.2
127.5
–
1,217.4
9.2
–
1,226.6
82.2
22.0
9.7
150.0
263.9
–
(22.7)
241.2
Other
£m
(12.9)
(13.2)
(1.7)
9.1
(18.7)
9.2
(8.8)
(18.3)
Total
£m
1,146.0
22.0
135.5
159.1
1,462.6
18.4
(31.5)
1,449.5
Certain deferred tax assets and liabilities have been offset in accordance with IAS 12 ‘Income Taxes’.
The deferred tax charge in the prior year of £135.5 million reflects the Government's reversal of the planned reduction in the rate of
corporation tax from 19 per cent to 17 per cent from 1 April 2020.
The accelerated tax depreciation represents the difference between capital allowances and accounting depreciation on the group’s
property, plant and equipment. Capital allowances are tax reliefs provided in law and spread the tax relief due over a pre-determined
standard number of years. This contrasts with the accounting treatment, where the expenditure is treated as an asset with the cost being
depreciated over the useful life of the asset, or impaired if the value of such assets is considered to have reduced materially. Due to the
group’s continued significant annual capital expenditure, the deductions for capital allowances are expected to exceed depreciation for the
medium term and continue to impact future corporation tax payments.
Given the fully funded nature of the group’s defined benefit pension schemes, the retirement benefit obligations primarily relate to
deferred taxation on the pensions schemes surplus position. This amount is significantly impacted by financial market conditions and
long-term inflation expectations and therefore it is difficult to forecast future movements. However, these movements have no impact on
medium-term future corporation tax payments as they only impact year-on-year deferred tax movement.
Deferred tax on retirement benefit obligations can arise where there are year-on-year differences between the contributions paid and
the associated amounts charged to the profit and loss account. However, given the fully funded nature of our pension schemes, any such
deferred tax movements, together with the associated impact on future corporation tax payments, are not expected to be significant for
the medium term.
The other short-term temporary differences are mainly in relation to the year-on-year movement in financial transactions which are
sensitive to fair value movement on treasury derivatives and can therefore fluctuate significantly from year to year. However, these
movements have no impact on future corporation tax payments as they only impact the year-on-year deferred tax movement.
Company
The company had no deferred tax assets or liabilities at 31 March 2021 or 31 March 2020.
231
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
20 Provisions
Group
At 1 April 2019
Charged/(credited) to the income statement
Utilised in the year
At 31 March 2020
Charged/(credited) to the income statement
Utilised in the year
At 31 March 2021
Severance
£m
Other
£m
2.8
7.2
(5.1)
4.9
1.3
(4.6)
1.6
14.0
(0.6)
(1.9)
11.5
(0.9)
(1.1)
9.5
Total
£m
16.8
6.6
(7.0)
16.4
0.4
(5.7)
11.1
The group had no provisions classed as non-current at 31 March 2021 or 31 March 2020.
The severance provision as at 31 March 2021 and 31 March 2020 relates to severance costs as a result of group reorganisation.
Other provisions principally relate to contractual, legal and environmental claims against the group and represent management’s best
estimate of the value of settlement, the timing of which is dependent on the resolution of the relevant legal claims.
Company
The company had no provisions at 31 March 2021 or 31 March 2020.
21 Trade and other payables
Non-current
Deferred grants and contributions
Other creditors
Current
Trade payables
Amounts owed to subsidiary undertakings
Amounts owed to related parties
Other tax and social security
Deferred grants and contributions
Accruals and other creditors
Deferred income
2021
£m
780.4
17.9
798.3
2021
£m
33.3
–
2.4
5.9
15.4
221.1
44.6
322.7
Group
2020
£m
736.8
24.4
761.2
Group
2020
£m
36.7
–
4.8
5.8
14.5
227.9
44.7
334.4
Company
2020
£m
–
–
–
Company
2020
£m
–
12.1
–
–
–
2.1
–
14.2
2021
£m
–
–
–
2021
£m
–
7.6
–
–
–
3.2
–
10.8
The average credit period taken for trade purchases is 13 days (2020: 15 days).
The carrying amounts of trade and other payables approximates to their fair value at 31 March 2021 and 31 March 2020.
The majority of deferred income balances represent contract liabilities arising from timing differences between customer payments, the
billing cycle, and the usage of water by customers. They therefore typically reverse in subsequent months, with all amounts held in relation
to these contract liabilities at the beginning of the reporting period having subsequently reversed into the income statement during the
year.
Deferred grants and contributions
Group
At the start of the year
Amounts capitalised during the year
Transfers of assets from customers
Credited to the income statement – revenue
Credited to the income statement – other operating expenses
Credited to allowance for bad and doubtful receivables
At the end of the year
232
2021
£m
751.3
5.0
55.0
(14.6)
(0.4)
(0.5)
795.8
2020
£m
684.5
35.1
47.0
(13.8)
(0.4)
(1.1)
751.3
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC 22 Other reserves
Group
At 1 April 2020
Other comprehensive income
Changes in fair value recognised in other comprehensive
income
Tax on items taken directly to equity
Foreign exchange adjustments
Foreign exchange adjustments reclassified to profit on
disposal of joint ventures
At 31 March 2021
Group
At 1 April 2019
Other comprehensive income
Changes in fair value recognised in other comprehensive
income
Amounts reclassified from other comprehensive income to
profit or loss
Deferred tax adjustments in respect of prior years on net fair
value gains
Tax on items taken directly to equity
Foreign exchange adjustments
At 31 March 2020
Cumulative
exchange
reserve
£m
Capital
redemp-
tion
reserve
£m
Merger
reserve
£m
Cost of
hedging
reserve
£m
Cash flow
hedging
reserve
£m
Total
£m
(2.4)
1,033.3
(703.6)
10.7
(1.3)
336.7
–
–
(1.6)
4.0
–
–
–
–
–
–
–
–
–
(12.7)
2.4
–
–
1,033.3
(703.6)
0.4
9.3
(1.8)
–
–
6.2
Cumulative
exchange
reserve
£m
Capital
redemp-
tion
reserve
£m
Merger
reserve
£m
Cost of
hedging
reserve
£m
Cash flow
hedging
reserve
£m
(3.7)
1,033.3
(703.6)
12.0
0.3
(3.4)
0.6
(1.6)
4.0
336.3
Total
£m
338.3
–
–
–
–
1.3
(2.4)
–
–
–
–
–
–
–
–
–
–
1,033.3
(703.6)
1.3
–
(2.4)
(0.2)
–
10.7
(7.6)
(6.3)
5.6
–
0.4
–
(1.3)
5.6
(2.4)
0.2
1.3
336.7
The capital redemption reserve arose as a result of a return of capital to shareholders following the reverse acquisition of United Utilities
PLC by United Utilities Group PLC in the year ended 31 March 2009. The merger reserve arose in the same year on consolidation and
represents the capital adjustment to reserves required to effect the reverse acquisition.
The group recognises the cost of hedging reserve as a component of equity. This reserve reflects accumulated fair value movements on
cross-currency swaps resulting from changes in the foreign currency basis spread, which represents a liquidity charge inherent in foreign
exchange contracts for exchanging currencies and is excluded from the designation of cross-currency swaps as hedging instruments.
The group designates a number of swaps hedging non-financial risks in cash flow hedge relationships to give a more representative view
of operating costs. Fair value movements relating to the effective part of these swaps are recognised in other comprehensive income and
accumulated in the cash flow hedging reserve.
Company
The company's other reserves at 31 March 2021, 31 March 2020 and 1 April 2019, were comprised entirely of a £1,033.3 million capital
redemption reserve that arose as a result of a return of capital to shareholders following the acquisition of United Utilities PLC by the
company in the year ended 31 March 2009.
233
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements
23 Share capital
Group and company
Issued, called up and fully paid
Ordinary shares of 5.0 pence each
Deferred shares of 170.0 pence each
2021
million
681.9
274.0
955.9
2021
£m
34.1
465.7
499.8
2020
million
681.9
274.0
955.9
2020
£m
34.1
465.7
499.8
Details of the voting rights of each category of shares can be found within the directors’ report on pages 192 to 193.
The 170.0 pence deferred shares were created to facilitate a return of capital to shareholders following the reverse acquisition of United
Utilities PLC by United Utilities Group PLC in the year ended 31 March 2009 (see company statement of changes in equity on page 211), and
represent the amount of a special dividend paid on B shares at that time. The deferred shares convey no right to income, no right to vote
and no appreciable right to participate in any surplus capital in the event of a winding up.
24 Contingent liabilities
Since 2016, the group has received indications from a number of groups of property search companies (PSCs) that they intend to claim
compensation for amounts paid in respect of CON29DW water and drainage search reports, which they allege should have been provided
to them either free of charge or for a nominal fee in accordance with the Environmental Information Regulations. In April 2020, a group
of over 100 PSCs, comprising companies within the groups that had previously issued notice of intended claims, served proceedings on
all of the water and sewerage undertakers in England and Wales, including United Utilities Water Limited, for an unspecified amount of
compensation. This is an industry-wide issue with the litigation currently in its early stages. While the litigation’s likely direction and the
quantum of any compensation being claimed is uncertain at this stage, based on the information currently available, the likelihood of the
claim’s success is considered to be low, and any potential outflow is not expected to be material.
The group has credit support guarantees as well as general performance commitments and potential liabilities under contract that may
give rise to financial outflow. The group has determined that the possibility of any outflow arising in respect of these potential liabilities is
remote and, as such, there are no contingent liabilities to be disclosed in this regard (2020: none).
The company has not entered into performance guarantees as at 31 March 2021 or 31 March 2020.
25 Events after the reporting period
On 3 March 2021, an increase in the headline rate of corporation tax to 25 per cent from 1 April 2023 was announced in the Chancellor’s
Budget. This increase was substantively enacted on 24 May 2021 and will result in a future deferred tax charge currently estimated at
around £380 million. As this substantive enactment occurred after the reporting date, no adjustments have been made to current or
deferred tax amounts recognised in the financial statements at and for the year ended 31 March 2021.
In April 2021, the group’s board of directors approved a plan to market the group’s renewable energy business, United Utilities Renewable
Energy Limited, for sale. This process is expected to commence during June 2021 and will involve the sale of assets – primarily property,
plant and equipment – with a carrying value of £65.5 million in the group’s consolidated statement of financial position at 31 March 2021.
In April 2021, the group and its joint venture partner, Severn Trent PLC, each subscribed to £32.5 million of additional equity share capital
issued by Water Plus. Simultaneously, the fully drawn £32.5 million revolving credit facilities issued by United Utilities PLC and Severn Trent
PLC to Water Plus were cancelled. Accordingly, the group’s equity investment in the Water Plus joint venture increased by £32.5 million,
with the £14.2 million share of joint venture losses recognised against the £32.5 million revolving credit facilities during the year being
reallocated against the equity investment to bring its value down to £18.3 million. The replacement of debt financing with equity shortly
after 31 March 2021 further supports the accounting judgement taken to treat the fully drawn £32.5 million revolving credit facility as part
of the group’s long-term interest in Water Plus.
234
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Notes to the financial statements – appendices
A1 Consolidated statement of cash flows – further analysis
Cash generated from operations
Profit before tax
Adjustment for investment income and finance expense (see notes 5, 6 and A6)
Adjustment for share of profits of joint ventures (see note 12)
Adjustment for profit on disposal of joint ventures
Operating profit
Adjustments for:
Depreciation of property, plant and equipment (see note 10)
Amortisation of intangible assets (see note 11)
Loss on disposal of property, plant and equipment (see note 4)
Amortisation of deferred grants and contributions (see note 21)
Equity-settled share-based payments charge (see note 3)
Changes in working capital:
Increase in inventories (see note 13)
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions (see note 20)
Pension contributions paid less pension expense charged
to operating profit
Cash generated from operations
2021
£m
551.0
78.5
9.3
(36.7)
602.1
379.8
42.5
10.7
(15.0)
3.6
(1.7)
18.1
2.5
(5.3)
Group
2020
£m
303.2
289.0
38.1
–
630.3
441.6
41.2
13.9
(13.8)
1.5
(1.7)
4.6
(10.1)
(0.4)
2021
£m
273.9
–
–
–
–
24.2
–
–
–
–
–
3.0
1.1
–
(0.1)
1,037.2
(101.6)
1,005.5
–
302.2
Company
2020
£m
251.6
32.9
–
–
284.5
–
–
–
–
–
–
2.7
(0.2)
–
–
287.0
The group has received property, plant and equipment of £55.0 million (2020: £47.0 million) in exchange for the provision of future goods
and services (see notes 21 and A7).
Reconciliation of fixed asset purchases to fixed asset additions
Owned property, plant and equipment(1)
Purchase of property, plant and equipment in statement of cash flows
Non-cash additions:
Transfers of assets from customers (see note 21)
IAS 23 capitalised borrowing costs (see note 6)
Net book value transfers to intangible assets
Timing differences on cash paid(2)
Property, plant and equipment additions
2021
£m
610.4
55.0
30.3
1.0
(18.8)
677.9
2020
£m
652.8
47.0
40.2
–
14.5
754.5
Notes:
(1) This reconciliation relates to property, plant and equipment owned by the group and therefore excludes right-of-use assets recognised in accordance
with IFRS 16 'Leases', for which cash flows relating to the associated lease liabilities are included within repayment of borrowings and interest paid in the
statement of cash flows.
(2) Timing differences arise and reverse when additions are recognised in the statement of financial position in a different period to when cash payments for
capital expenditure are made. Capital accruals recognised in relation to these timing differences are included in 'Accruals and other creditors' within trade and
other payables (note 21).
Intangible assets
Purchase of intangible assets in statement of cash flows
IAS 23 capitalised borrowing costs – non-cash additions (see note 6)
Net book value transfers from property, plant and equipment
Intangible asset additions
2021
£m
33.6
0.1
(1.0)
32.7
2020
£m
27.2
0.4
–
27.6
For the year ended 31 March 2021, the group has enhanced its disclosures relating to the statement of cash flows in respect of relevant
accounting policies, judgements taken, and how items can be reconciled to other areas of the financial statements. Please see note A7 for
further details.
235
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Notes to the financial statements – appendices
A2 Net debt
Net debt comprises borrowings, net of cash and short-term deposits and derivatives. As such, movements in net debt during the year are
impacted by changes in liabilities from financing activities as detailed in the tables below. The tables below should be read in conjunction
with the consolidated statement of cash flows.
Borrowings
Derivatives
Bank and
other term
borrowings
£m
Lease
liabilities
£m
in a fair
value
hedge
£m
Bonds
£m
at fair
value
through
profit or
loss
£m
Total
liabilities
from
financing
activities
£m
Cash
and cash
equivalents
£m
Adjust-
ments in
calculating
net debt(2)
£m
Net
debt
£m
At 31 March 2020
(5,648.5)
(2,642.1)
(57.6)
395.7
80.1
(7,872.4)
513.2
131.7
(7,227.5)
Non-cash movements:
Inflation uplift on index-linked
debt
Fair value movements
Foreign exchange
Other
Cash flows used in financing
activities:
Receipts in respect of
borrowing
and derivatives(1)
Payments in respect of
borrowings and derivatives(1)
Dividends paid
Exercise of share options –
purchase of shares
Other
Changes arising from
financing activities
Cash flows used in investing
activities
Cash flows generated from
operating activities
(32.4)
123.8
38.7
0.7
(20.2)
11.3
5.2
–
–
–
–
(5.9)
–
–
–
–
(140.6)
(39.6)
(900.7)
(6.1)
–
(2.9)
–
–
–
–
689.0
1.7
10.8
–
–
–
–
–
–
–
–
–
(52.6)
(45.1)
43.9
(5.2)
–
–
–
–
(909.7)
909.7
701.5
–
–
–
(701.5)
(291.9)
(4.0)
(2.0)
–
(33.3)
–
–
–
–
–
–
–
(52.6)
(78.4)
43.9
(5.2)
–
–
(291.9)
(4.0)
(2.0)
–
–
–
–
–
–
–
(769.9)
679.2
(4.2)
(132.7)
(39.6)
(267.2)
(89.7)
(33.3)
(390.2)
At 31 March 2021
(6,418.4)
(1,962.9)
(60.0)
263.0
40.5
(8,137.8)
–
–
–
–
–
1.8
–
–
–
–
–
1.8
(549.3)
859.4
733.6
–
–
(549.3)
861.3
98.4 (7,305.8)
Notes:
(1) Where derivatives are in an economic hedge of borrowings, derivative cash flows are shown netted with the net payment or receipt being reported
against the underlying borrowing cash flow to provide a more faithful representation of the substance of the transaction.
(2) The fair value of the derivatives reported in financing liabilities that are not hedging specific debt instruments are removed in calculating the group's net
debt position. These derivatives correspond to the group's fixed interest rate swaps and inflation swaps, neither of which are designated within an IFRS 9
hedging relationship and both of which are classified as 'held for trading' under the accounting standard. The fair value movements on those derivatives
that are not excluded from the revised definition of net debt (being derivatives in fair value hedge relationships) are expected to be materially equal and
opposite in value to the fair value movement included in borrowings, resulting in materially all fair value movements being excluded.
During the period, the group has revised its definition of net debt in order to exclude the impact of derivatives that are not hedging specific
debt instruments and therefore give a fairer reflection of the net debt amount the group is contractually obliged to repay. This updated
approach is now consistent with that taken by credit rating agencies, and better reflects the underlying regulatory economics. Under
this revised definition net debt comprises borrowings, net of cash and short-term deposits and derivatives, but excluding the fair value of
group's fixed interest rate swaps, electricity derivatives, and inflation swaps (apart from the principal accretion element). Previously net
debt has been defined as borrowings, net of cash and short-term deposits and derivatives.
Fair value movements on borrowings and their associated swaps that are included in net debt are not materially opposite in value for the
year ended 31 March 2021. The effects of COVID-19 on financial market volatility in the period has impacted the credit spread recognised
on the group's fair-value option debt, and material basis spread adjustments have been recorded on the group's cross-currency swaps.
Both of these items have been recorded in other comprehensive income. In addition, material credit spread adjustments have been
recorded with respect to the group's derivatives in fair value hedge relationships, which has been recorded in the consolidated income
statement in the period.
236
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC
A2 Net debt continued
Borrowings
Derivatives
Bank and
other term
borrowings
£m
Lease
liabilities
£m
in a fair
value
hedge
£m
Bonds
£m
at fair
value
through
profit or
loss
£m
Total
liabilities
from
financing
activities
£m
Cash
and cash
equivalents
£m
Adjust-
ments in
calculating
net debt(2)
£m
Net
debt
£m
At 31 March 2019
(5,256.5)
(2,544.6)
–
327.1
82.6
(7,391.4)
324.6
76.4 (6,990.4)
Adjustment on initial
application of IFRS 16
At 1 April 2019
Non-cash movements:
Inflation uplift on index-linked
debt
Fair value movements
Foreign exchange
Other
Cash flows used in financing
activities:
Receipts in respect of
borrowing
and derivatives(1)
Payments in respect of
borrowings and derivatives(1)
Dividends paid
Exercise of share options –
purchase of shares
Other
Changes arising from
financing activities
Cash flows used in investing
activities
Cash flows generated from
operating activities
–
–
(5,256.5)
(2,544.6)
(54.4)
(54.4)
–
–
(54.4)
327.1
82.6
(7,445.8)
–
324.6
–
(54.4)
76.4 (7,044.8)
(58.2)
(93.4)
(9.5)
(1.5)
(42.6)
(2.0)
(5.3)
–
–
–
–
(6.5)
(651.1)
(157.1)
421.7
109.5
–
–
–
–
–
–
–
1.7
–
–
–
–
57.8
–
–
–
–
(100.8)
(4.7)
–
–
(42.3)
(14.8)
(8.0)
–
–
–
–
–
(808.2)
808.2
10.8
2.2
545.9
–
–
–
–
–
–
–
–
–
(545.9)
(284.5)
(2.8)
(2.8)
–
(100.8)
55.3
–
–
–
–
–
–
–
13.0
(14.8)
(8.0)
–
–
(284.5)
(2.8)
(2.8)
(392.0)
(97.5)
(4.8)
68.6
(2.5)
(428.2)
(27.8)
55.3
(400.7)
At 31 March 2020
(5,648.5)
(2,642.1)
(57.6)
395.7
80.1
(7,872.4)
–
–
–
–
–
1.6
–
–
–
–
–
1.6
(593.9)
810.3
513.2
–
–
(593.9)
811.9
131.7
(7,227.5)
Notes:
(1) Where derivatives are in an economic hedge of borrowings, derivative cash flows are shown netted with the net payment or receipt being reported
against the underlying borrowing cash flow to provide a more faithful representation of the substance of the transaction.
(2) The fair value of the derivatives reported in financing liabilities that are not hedging specific debt instruments are removed in calculating the group's net debt
position. These derivatives correspond to the group's fixed interest rate swaps and inflation swaps, neither of which are designated within an IFRS 9 hedging
relationship and both of which are classified as 'held for trading' under the accounting standard. The fair value movements on those derivatives that are not
excluded from the revised definition of net debt (being derivatives in fair value hedge relationships) are expected to be materially equal and opposite in value
to the fair value movement included in borrowings, resulting in materially all fair value movements being excluded.
237
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Notes to the financial statements – appendices
A3 Borrowings
Terms and debt repayment schedule
The principal economic terms and conditions of outstanding borrowings, along with fair value and carrying value, were as follows:
Currency
Year of final
repayment
Fair
value
2021
£m
Carrying
value
2021
£m
Fair
value
2020
£m
Carrying
value
2020
£m
2,913.6
2,895.5
2,440.0
2,590.5
Borrowings in fair value hedge relationships
5.75% 375m bond
2.0% 450m bond
2.867% 320m bond
2.92% 739m bond
1.129% 52m bond
2.37% 830m bond
5.625% 300m bond
GBP
GBP
HKD
HKD
EUR
HKD
GBP
5.02% JPY 10bn dual currency loan
JPY/USD
0.875% 300m bond
2.058% 30m bond
2.625% 425m bond
1.641% 30m bond
2.9% 600m bond
1.474% 35m bond
1.707% 28m bond
1.653% 26m bond
1.70% 30m bond
2.0% 100m bond
5.0% 200m bond
GBP
EUR
GBP
EUR
HKD
USD
EUR
EUR
EUR
GBP
GBP
Borrowings designated at fair value through profit or loss
6.875% 400m bond
USD
2028
2022
2025
2026
2026
2027
2027
2027
2029
2029
2030
2031
2031
2031
2031
2032
2032
2033
2033
2035
394.6
470.6
31.7
73.2
46.9
79.6
388.0
87.2
284.8
28.9
460.8
28.0
60.4
23.5
26.1
24.0
27.8
103.8
273.7
373.6
373.6
388.6
465.3
32.0
74.1
46.6
81.9
380.4
90.2
295.8
28.6
440.5
27.4
56.4
22.7
27.0
24.7
29.0
98.4
285.9
373.6
373.6
405.1
451.8
33.4
77.2
44.2
82.7
380.6
94.5
–
26.8
366.4
25.7
62.2
–
23.8
21.9
25.3
51.4
267.0
397.5
397.5
399.4
468.5
35.9
83.4
48.6
93.3
398.7
106.8
–
30.2
380.5
28.9
67.2
–
28.7
26.2
30.8
53.3
310.1
397.5
397.5
6,568.1
5,182.7
5,996.0
5,375.1
Borrowings measured at amortised cost
1.61%+RPI 50m EIB IL loan
1.73%+RPI 50m EIB IL loan
1.84%+RPI 50m EIB IL loan
1.90%+RPI 50m EIB IL loan
1.93%+RPI 50m EIB IL loan
1.88%+RPI 50m EIB IL loan
2.10%+RPI 50m EIB IL loan
2.46%+RPI 50m EIB IL loan
Short-term bank borrowings – fixed
0.80%+LIBOR 100m loan
0.47%+RPI 100m IL loan
0.49%+RPI 100m IL loan
0.013%+RPI 25m IL bond
0.1275%+RPI 100m IL loan
0.01%+RPI 20m IL bond
1.23%+RPI 50m EIB (amortising) IL loan
0.288%+CPI 100m IL loan
1.29%+RPI 50m EIB (amortising) IL loan
1.12%+RPI 50m EIB (amortising) IL loan
1.10%+RPI 50m EIB (amortising) IL loan
0.75%+RPI 50m EIB (amortising) IL loan
0.76%+RPI 50m EIB (amortising) IL loan
1.15%+RPI 50m EIB (amortising) IL loan
1.11%+RPI 50m EIB (amortising) IL loan
0.178%+RPI 35m IL bond
0.245%+CPI 20m IL bond
0.01%+RPI 38m bond
238
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
2020
2020
2020
2020
2020
2020
2020
2020
2021
2022
2023
2025
2025
2026
2028
2029
2029
2029
2029
2029
2029
2030
2030
2030
2030
2031
2031
–
–
–
–
–
–
–
–
150.7
101.1
125.2
126.6
30.7
125.0
25.0
40.5
113.9
42.9
42.4
42.3
43.6
43.6
44.1
44.2
46.1
24.0
48.6
–
–
–
–
–
–
–
–
150.7
100.0
119.7
115.2
28.7
113.6
23.7
36.8
102.1
38.8
38.5
38.5
39.8
39.7
39.6
39.7
40.2
21.5
44.5
68.1
68.1
68.1
68.1
68.0
67.9
67.9
68.2
192.2
99.7
121.2
118.9
29.1
116.2
23.1
43.6
110.3
45.9
45.3
45.2
46.1
46.0
46.6
46.7
42.2
20.7
43.8
67.0
66.9
66.9
66.8
66.7
66.6
66.5
66.6
192.2
100.0
118.1
113.6
28.3
112.1
23.6
40.8
101.3
42.8
42.5
42.4
43.7
43.5
43.4
43.5
39.6
21.4
44.2
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A3 Borrowings continued
Currency
Year of final
repayment
Borrowings measured at amortised cost (continued)
3.375%+RPI 50m IL bond
0.709%+LIBOR 100m EIB (amortising) loan
0.691%+LIBOR 150m EIB (amortising) loan
0.573%+LIBOR 100m EIB (amortising) loan
0.511%+LIBOR 150m EIB (amortising) loan
2.0% 250m bond
0.01%+RPI 100m EIB (amortising) IL loan
0.01%+RPI 75m EIB (amortising) IL loan
0.01%+RPI 75m EIB (amortising) IL loan
0.01%+RPI 75m EIB (amortising) IL loan
1.9799%+RPI 100m IL bond
0.873%+LIBOR 100m EIB (amortising) loan
0.840%+LIBOR 75m EIB (amortising) loan
0.01%+RPI 26.5m IL bond
0.379%+CPI 20m IL bond
0.01%+RPI 29m IL bond
0.093%+CPI 60m IL bond
1.66%+RPI 35m IL bond
1.75% 250m bond
2.40%+RPI 70m IL bond
1.7829%+RPI 100m IL bond
0.01%+CPI 125m IL bond
1.3258%+RPI 50m IL bond
1.5802%+RPI 100m IL bond
1.875% 300m bond
1.5366%+RPI 20m IL bond
1.397%+RPI 50m IL bond
0.359%+CPI 32m IL bond
1.7937%+RPI 50m IL bond
Commission for New Towns (amortising) loan – fixed
1.847%+RPI 100m IL bond
1.815%+RPI 100m IL bond
1.662%+RPI 100m IL bond
1.5865%+RPI 50m IL bond
1.591%+RPI 25m IL bond
1.556%+RPI 50m IL bond
1.435%+RPI 50m IL bond
1.3805%+RPI 35m IL bond
1.585%+RPI 100m IL bond
0.387%+CPI 33m IL bond
1.702%+RPI 50m IL bond
Book overdrafts (see note 15)
Lease obligations
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
2032
2032
2032
2033
2033
2033
2033
2034
2034
2034
2035
2035
2035
2036
2036
2036
2037
2037
2038
2039
2040
2040
2041
2042
2042
2043
2046
2048
2049
2053
2056
2056
2056
2056
2056
2056
2056
2056
2057
2057
2057
2021
various
Fair
value
2021
£m
140.2
68.7
107.6
74.2
115.7
259.4
100.3
75.3
75.3
75.3
243.9
91.6
71.2
35.7
25.6
38.9
73.7
67.1
239.0
148.3
241.3
144.5
117.8
205.1
287.7
49.6
113.6
41.0
122.4
52.6
255.0
251.9
241.6
122.0
60.5
121.6
119.4
82.4
311.2
44.4
124.5
10.5
60.0
Carrying
value
2021
£m
83.1
68.8
107.8
75.0
117.2
245.7
92.2
69.1
71.4
71.4
155.2
90.6
70.3
33.0
21.5
34.2
64.1
49.6
248.1
96.8
153.5
145.6
76.6
153.1
295.3
30.6
76.5
33.8
76.2
26.2
149.8
149.1
148.8
74.4
37.1
74.0
73.7
51.6
143.2
34.5
72.2
10.5
60.0
Fair
value
2020
£m
105.1
71.3
110.4
75.5
117.7
257.0
100.1
75.0
75.0
75.0
204.0
91.3
69.3
30.3
20.1
32.4
57.3
60.5
232.1
129.6
193.5
–
100.7
147.3
–
37.9
94.2
28.2
97.1
50.7
194.6
188.8
186.1
92.8
46.3
92.4
90.0
62.3
284.1
26.7
93.6
14.9
57.6
Carrying
value
2020
£m
81.7
75.0
117.2
81.3
126.6
245.7
98.0
73.4
75.6
75.6
152.7
96.9
75.0
32.8
21.3
33.9
63.6
49.0
248.0
95.5
151.1
–
75.4
150.6
–
30.1
75.3
33.5
75.0
26.8
147.7
147.1
146.8
73.4
36.6
73.0
72.7
50.9
141.3
34.2
71.3
14.9
57.6
9,855.3
8,451.8
8,833.5
8,363.1
IL
CPI
RPI
EIB
Index-linked debt – this debt is adjusted for movements in the Consumer or Retail Prices Indices with reference to a base CPI or RPI established at trade date.
The UK general index of consumer prices (for all items) as published by the Office for National Statistics (May 2015 = 100).
The UK general index of retail prices (for all items) as published by the Office for National Statistics (Jan 1987 = 100).
Borrowings that are held with the European Investment Bank.
Borrowings in the above table are unsecured. Funding raised in foreign currencies is swapped to sterling to match funding costs to income
and assets. During the year, the group issued £75 million fixed rate notes as a fungible increase to £350 million fixed rate notes issued in
prior years, due February 2031 with a coupon of 2.625 per cent. The group issued £50 million fixed rate notes as a fungible increase to
£300 million fixed rate notes issued in the prior year, due July 2033 with a coupon of 2 per cent.
239
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A4 Financial risk management
Risk management
The board is responsible for treasury strategy and governance, which is reviewed on an annual basis.
The treasury committee, a subcommittee of the board, has responsibility for setting and monitoring the group’s adherence to treasury
policies, along with oversight in relation to the activities of the treasury function.
Treasury policies cover the key financial risks: liquidity risk, credit risk, market risk (inflation, interest rate, electricity price and currency)
and capital risk. As well as managing our exposure to these risks, these policies help the group maintain compliance with relevant financial
covenants, which are in place primarily in relation to borrowings from the European Investment Bank (EIB) and include interest cover and
gearing metrics. These policies are reviewed by the treasury committee for approval on at least an annual basis, or following any major
changes in treasury operations and/or financial market conditions.
Day-to-day responsibility for operational compliance with the treasury policies rests with the treasurer. An operational compliance report
is provided monthly to the treasury committee, which details the status of the group’s compliance with the treasury policies and highlights
the level of risk against the appropriate risk limits in place.
The group’s treasury function does not act as a profit centre and does not undertake any speculative trading activity.
Liquidity risk
The group looks to manage its liquidity risk by maintaining liquidity within a board-approved duration range. Liquidity is actively monitored
by the group’s treasury function and is reported monthly to the treasury committee through the operational compliance report.
At 31 March 2021, the group had £1,444.1 million (2020: £1,208.1 million) of available liquidity, which comprised £744.1 million (2020: £528.1
million) of cash and short-term deposits and £700.0 million (2020: £680.0 million) of undrawn committed borrowing facilities.
The group had available committed borrowing facilities as follows:
Group
Expiring within one year
Expiring after one year but in less than two years
Expiring after more than two years
Total borrowing facilities
Facilities drawn(1)
Undrawn borrowing facilities
Note:
(1) Facilities expiring after more than two years.
2021
£m
100.0
100.0
600.0
800.0
(100.0)
700.0
2020
£m
50.0
100.0
650.0
800.0
(120.0)
680.0
These facilities are arranged on a bilateral rather than a syndicated basis, which spreads the maturities more evenly over a longer time
period, thereby reducing the refinancing risk by providing several renewal points rather than a large single refinancing point.
Company
The company did not have any committed facilities available at 31 March 2021 or 31 March 2020.
Maturity analysis
Concentrations of risk may arise if large cash flows are concentrated within particular time periods. The maturity profile in the following table
represents the forecast future contractual principal and interest cash flows in relation to the group’s financial liabilities on an undiscounted
basis. Derivative cash flows have been shown net where there is a contractual agreement to settle on a net basis; otherwise the cash flows are
shown gross. This table does not include the impact of lease liabilities for which the maturity profile has been disclosed in note 17.
Group
At 31 March 2021
Bonds
Bank and other term borrowings
Adjustment to carrying value(2)
Borrowings
Derivatives:
Payable
Receivable
Adjustment to carrying value(2)
Derivatives – net assets
Total(1)
£m
11,368.2
2,274.8
Adjust-
ment(2)
£m
1 year or
less
£m
1–2 years
£m
2–3 years
£m
3–4 years
£m
4–5 years
£m
More than
5 years
£m
528.1
280.4
132.6
348.7
133.6
122.4
584.7
254.3
255.6
257.3
9,733.6
1,011.7
(5,251.2)
(5,251.2)
8,391.8
(5,251.2)
808.5
481.3
256.0
839.0
512.9
10,745.3
1,001.2
(1,499.7)
188.5
(310.0)
188.5
188.5
133.4
(186.0)
43.1
(125.6)
38.0
(92.0)
36.0
(99.7)
129.2
(202.3)
621.5
(794.1)
(52.6)
(82.5)
(54.0)
(63.7)
(73.1)
(172.6)
240
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A4 Financial risk management continued
Group
At 31 March 2020
Bonds
Bank and other term borrowings
Adjustment to carrying value(2)
Borrowings
Derivatives:
Payable
Receivable
Adjustment to carrying value(2)
Derivatives – net assets
Total(1)
£m
10,685.2
2,894.9
Adjust-
ment(2)
£m
1 year or
less
£m
1–2 years
£m
2–3 years
£m
3–4 years
£m
4–5 years
£m
More than
5 years
£m
144.3
884.9
520.4
122.0
124.9
352.1
126.0
122.7
577.2
255.8
9,192.4
1,157.4
(5,274.6)
(5,274.6)
8,305.5
(5,274.6)
1,029.2
642.4
477.0
248.7
833.0
10,349.8
952.7
(1,508.6)
82.3
(473.6)
82.3
82.3
67.4
(105.7)
45.7
(90.2)
41.8
(116.9)
38.2
(82.6)
35.4
(165.3)
724.2
(947.9)
(38.3)
(44.5)
(75.1)
(44.4)
(129.9)
(223.7)
Notes:
(1) Forecast future cash flows are calculated, where applicable, using forward interest rates based on the interest environment at year end and are therefore
susceptible to changes in market conditions. For index-linked debt it has been assumed that RPI will be 3 per cent and CPI will be 2 per cent over the life of
each instrument.
(2) The carrying value of debt is calculated following various methods in accordance with IFRS 9 'Financial Instruments' and therefore this adjustment
reconciles the undiscounted forecast future cash flows to the carrying value of debt in the statement of financial position, excluding £60.0 million (2020:
£57.6 million) of lease liabilities.
Company
The company has total borrowings of £nil (2020: £0.8 million), which are payable within one year, and £1,780.6 million (2020: £1,752.0
million), which are payable within one to two years.
Credit risk
Credit risk arises principally from trading (the supply of services to customers) and treasury activities (the depositing of cash and holding
of derivative instruments). While the opening of the non-household retail market to competition from 1 April 2017 has impacted on the
profile of the group’s concentration of credit risk, as discussed further below, the group does not believe it is exposed to any material
concentrations that could have an impact on its ability to continue as a going concern or its longer-term viability.
The group manages its risk from trading through the effective management of customer relationships. Concentrations of credit risk
with respect to trade receivables from household customers are limited due to the customer base being comprised of a large number of
unrelated households. However, collection can be challenging as the Water Industry Act 1991 (as amended by the Water Industry Act 1999)
prohibits the disconnection of a water supply and the limiting of supply with the intention of enforcing payment for certain premises,
including domestic dwellings.
Following the non-household retail market opening to competition, credit risk in this area is now concentrated in a small number of
retailers to whom the group provides wholesale water and wastewater services. Retailers are licensed and monitored by Ofwat and as part
of the regulations they must demonstrate that they have adequate resources available to supply services. The credit terms for the group’s
retail customers are set out in market codes.
In reaction to the impact of the COVID-19 pandemic, changes were made to the payment terms set out within the market codes. These
changes provided the option for extended credit terms for retailers. However, this has now ended and all outstanding payments have been
made. As at 31 March 2021, Water Plus was the group’s single largest debtor, with amounts outstanding in relation to wholesale services of
£27.2 million (2020: £52.7 million). During the year, sales to Water Plus in relation to wholesale services were £362.9 million (2020: £438.3
million). Details of transactions with Water Plus can be found in note A6
Under the group’s revenue recognition policy, revenue is only recognised when collection of the resulting receivable is reasonably assured.
Considering the above, the directors believe there is no further credit risk provision required in excess of the allowance for doubtful
receivables (see note 14).
The group manages its credit risk from treasury activities by establishing a total credit limit by counterparty, which comprises a
counterparty credit limit and an additional settlement limit to cover intra-day gross settlement of cash flows. In addition, potential
derivative exposure limits are established to take account of potential future exposure which may arise under derivative transactions.
These limits are calculated by reference to a measure of capital and credit ratings of the individual counterparties and are subject to a
maximum single counterparty limit.
Credit limits are refreshed annually and reviewed in the event of any credit rating action. Additionally, a control mechanism to trigger a
review of specific counterparty limits, irrespective of credit rating action, is in place. This entails daily monitoring of counterparty credit
default swap levels and/or share price volatility. Credit exposure is monitored daily by the group’s treasury function and is reported monthly
to the treasury committee through the operational compliance report.
241
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A4 Financial risk management continued
At 31 March 2021 and 31 March 2020, the maximum exposure to credit risk for the group and company is represented by the carrying
amount of each financial asset in the statement of financial position:
Cash and short-term deposits (see note 15)
Trade and other receivables (see note 14)*
Investments (see note 12)
Derivative financial instruments
2021
£m
744.1
315.9
0.1
424.7
Group
2020
£m
528.1
342.9
0.1
617.9
1,484.8
1,489.0
Company
2020
£m
–
81.3
–
–
81.3
2021
£m
–
91.9
–
–
91.9
* Included within trade and other receivables is £86.7 million of amounts owed by joint ventures in respect of borrowings, further details of which are disclosed in
note A6.
The credit exposure on derivatives is disclosed gross of any collateral held. At 31 March 2021, the group held £50.7 million (2020: £72.2
million) as collateral in relation to derivative financial instruments (included within short-term bank borrowings – fixed in note A3).
Market risk
The group’s exposure to market risk primarily results from its financing arrangements and the economic return which it is allowed on the
regulatory capital value (RCV).
The group uses a variety of financial instruments, including derivatives, to manage the exposure to these risks.
Inflation risk
The group earns an economic return on its RCV, comprising a real return through revenues and an inflation return as an uplift to its RCV.
For the 2020–2025 regulatory period, from 1 April 2020 the group's RCV is 50 per cent linked to RPI inflation and 50 per cent linked to
CPIH inflation, with any new additions being added to the CPIH portion of the RCV.
The group's inflation hedging policy aims to have around half of the group's net debt in index-linked form (where it is economic to do so),
by issuing index-linked debt and/or swapping a portion of nominal debt. This is currently weighted towards RPI-linked form, with circa 75
per cent of the hedge linked to RPI and circa 25 per cent linked to CPI and/or CPIH (from circa 87 per cent RPI-linked and circa 13 per cent
CPI-linked as at 31 March 2020).
The group believes this is an appropriate inflation hedging policy, taking into account a balanced assessment of the following factors:
economic hedge of United Utilities Water Limited's (UUW) RCV and revenues; cash flow timing mismatch between allowed cost of debt
and the group's incurred cost of debt; the inflation risk premium that is generally incorporated into nominal debt costs; income statement
volatility; hedging costs; debt maturity profile mismatch risk; and index-linked hedging positioning relative to the water sector.
As a result of the evaluation of the above factors, the group continues to identify opportunities to maintain around 50 per cent of the
group's net debt being hedged for inflation, which can be evidenced by the increase in the CPI/CPIH-linked hedge proportion over the past
few years. Inflation risk is reported monthly to the treasury committee in the operational compliance report.
The carrying value of index-linked debt held by the group, including the carrying value of the nominal debt swapped to CPI, was £4,093.3
million at 31 March 2021 (2020: £4,082.2 million).
Sensitivity analysis
The following table details the sensitivity of profit before tax to changes in the RPI and CPI on the group’s index-linked borrowings. The
sensitivity analysis has been based on the amount of index-linked debt held at the reporting date and, as such, is not indicative of the years
then ended. In addition, it excludes the impact of inflation on revenues and other income statement costs as well as the hedging aspect of
the group’s regulatory assets and post-retirement obligations.
Increase/(decrease) in profit before tax and equity
1% increase in RPI/CPI
1% decrease in RPI/CPI
2021
£m
(35.4)
35.4
2020
£m
(39.6)
39.6
The sensitivity analysis assumes a 1 per cent change in RPI and CPI having a corresponding 1 per cent impact on this position over a
12-month period. It should be noted, however, that there is a time lag by which current RPI and CPI changes impact on the income
statement, and the analysis does not incorporate this factor. The portfolio of index-linked debt is calculated on either a three- or eight-
month lag basis. Therefore, at the reporting date the index-linked interest and principal adjustments impacting the income statement are
fixed and based on the annual RPI or CPI change either three or eight months earlier.
Company
The company had no material exposure to inflation risk at 31 March 2021 or 31 March 2020.
242
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A4 Financial risk management continued
Interest rate risk
The group’s policy is to structure debt in a way that best matches its underlying assets and cash flows. The group currently earns an
economic return on its RCV, comprising a real return through revenues, determined by the real cost of capital fixed by the regulator
for each five-year regulatory pricing period, and an inflation return as an uplift to its RCV (see inflation risk section for changes being
introduced by Ofwat to inflation indexation from 2020).
From 1 April 2020 for the regulatory period to 2025, Ofwat has continued to set a fixed real cost of debt in relation to embedded debt (80 per
cent of net debt), but has introduced a debt indexation mechanism in relation to new debt (20 per cent of net debt), where the allowed rate on
new debt will vary in line with specific debt indices. The debt indexation mechanism will be settled as an end of regulatory period adjustment.
Therefore, sterling index-linked debt is left unswapped at inception, in accordance with our inflation hedging policy goal to maintain
around half of the group’s net debt in index-linked form. Conventional nominal debt is hedged as set out below.
Where conventional long-term debt is raised in a fixed-rate form, to manage exposure to long-term interest rates, the debt is generally
swapped at inception to create a floating rate liability for the term of the liability through the use of interest rate swaps. These instruments
are typically designated within a fair value accounting hedge.
To manage the exposure to medium-term interest rates, the group fixes underlying interest rates on nominal debt out to 10 years in
advance on a reducing balance basis. As such, at the start of each regulatory period, a proportion of the projected nominal net debt
representing new debt for that regulatory period, will remain floating until it is fixed via the above 10-year reducing balance basis, which
should approximate Ofwat's new debt indexation mechanism.
This interest rate hedging policy dovetails with our inflation hedging policy should we need to swap a portion of nominal debt to real rate
form to maintain our desired mix of nominal and index-linked debt.
The group seeks to manage its risk by maintaining its interest rate exposure within a board-approved range. Interest rate risk is reported to
the treasury committee through the operational compliance report.
Sensitivity analysis
The following table details the sensitivity of the group’s profit before tax and equity to changes in interest rates. The sensitivity analysis has
been based on the amount of net debt and the interest rate hedge positions in place at the reporting date and, as such, is not indicative of
the years then ended.
Increase/(decrease) in profit before tax and equity
1% increase in interest rate
1% decrease in interest rate
2021
£m
130.7
(134.7)
Group
2020
£m
122.7
(131.0)
Company
2020
£m
(17.5)
17.5
2021
£m
(17.8)
17.8
The sensitivity analysis assumes that both fair value hedges and borrowings designated at fair value through profit or loss are effectively
hedged and it excludes the impact on post-retirement obligations. The exposure largely relates to fair value movements on the group’s
fixed interest rate swaps which manage the exposure to medium-term interest rates. Those swaps are not included in hedge relationships.
Hedge accounting
Details regarding the interest rate swaps designated as hedging instruments to manage interest rate risk are summarised below:
Notional principal amount £m
Average contracted fixed interest rate %
1 year or less
1 to 2 years
2 to 5 years Over 5 years
375.0
1.98
–
–
450.0
1.36
1,325.0
2.00
This table represents the derivatives that are held in fair value hedging relationships, with only the weighted average for the fixed interest
elements of the swaps disclosed.
Further detail on the fair value hedging relationships is provided below:
Nominal
amount of
the hedging
instruments
£m
Carrying
amount of
the hedging
instruments
£m
Accumulated
fair value
(gains)/losses
on hedged
items
£m
Fair value (gains)/losses*
used for calculating hedge
ineffectiveness for the year
ended 31 March 2021(1)
Hedged items
£m
Hedging
instruments
£m
Hedge
ineffective-
ness
recognised
in the income
statement
£m
Nominal
amount of
hedging
instruments
directly
impacted by
IBOR reform
£m
2,150.0
215.9
198.6
(88.9)
90.9
2.0
1,675.0
Risk exposure
Interest rate risk on
borrowings
Note:
(1) The change in fair value of the hedging instruments used to measure hedge ineffectiveness exclude interest accruals and credit spread adjustments. The
full impact of fair value movements on the income statement is disclosed in note 6.
243
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Notes to the financial statements – appendices
A4 Financial risk management continued
Currency risk
Currency exposure principally arises in respect of funding raised in foreign currencies. To manage exposure to currency rates, foreign
currency debt is hedged into sterling through the use of cross-currency swaps and these are often designated within a fair value
accounting hedge. The group seeks to manage its risk by maintaining currency exposure within board-approved limits. Currency risk in
relation to foreign currency denominated financial instruments is reported monthly to the treasury committee through the operational
compliance report. The group and company have no material net exposure to movements in currency rates.
Hedge accounting
Details regarding the cross-currency interest rate swaps designated as hedging instruments to manage currency and interest rate risk are
summarised below:
Notional principal amount £m
Average contracted fixed interest rate %
1 year or less
1 to 2 years
2 to 5 years Over 5 years
–
–
–
–
99.9
2.71
369.7
2.29
This table represents the derivatives that are held in fair value hedging relationships, with only the weighted average for the fixed interest
rate elements of the swap disclosed.
Further detail on the fair value hedging relationships is provided below:
Nominal
amount of
the hedging
instruments
£m
Carrying
amount of
the hedging
instruments
£m
Accumulated
fair value
(gains)/losses
on hedged
items
£m
Fair value (gains)/losses*
used for calculating hedge
ineffectiveness for the year
ended 31 March 2021(1)
Hedged items
£m
Hedging
instruments
£m
Hedge
ineffective-
ness
recognised
in the income
statement
£m
Nominal
amount of
hedging
instruments
directly
impacted by
IBOR reform
£m
469.6
59.9
66.6
(66.2)
66.5
0.3
442.8
Risk exposure
Foreign currency
and interest rate risk
on borrowings
Note:
(1) The change in fair value of the hedging instruments used to measure hedge ineffectiveness excludes interest accruals and credit spread adjustments. The
full impact of fair value movements on the income statement is disclosed in note 6.
Interest rate benchmark reform
Globally, financial regulators are requiring that market participants cease using certain financial market benchmark reference rates (i.e.
interbank offered rates, IBORs), and transition to the use of alternative nearly risk-free rate (RFR) such as the Sterling Overnight Index
Average (SONIA).
Whilst uncertainty around the mechanism to replace IBOR, the timing of the replacement and the method and timing for the calculation
of a spread adjustment remained, amendments were included within IFRS 9 'Financial Instruments', providing temporary exceptions from
applying specific hedge accounting requirements in cases where hedging relationships are directly impacted by the IBOR reform. These
reliefs are applied until the uncertainty surrounding the IBOR reform has ended or the hedging relationship has been discontinued.
At the point of IBOR transition, further amendments are included within IFRS 9 to allow for specific changes to hedge documentation to be
made without the requirement to discontinue the hedging relationship, as well as including a practical expedient when financial liabilities
and assets are modified to calculate cash flows based on the alternative interest rate, provided the modification has been done on an
economically equivalent basis. Given the reliefs provided as part of the phase 2 amendments, the anticipation is that on transition, the risk
of significant movements to the income or balance sheet as a result of the transition is low.
The amount of financial instruments left to transition to alternative benchmarks can be found below. Non-derivative financial instruments
are presented at their carrying value, with the derivatives at their nominal value to give the fairest representation of the magnitude of
instruments left to transition to RFRs. All of the instruments left to transition reference LIBOR. In addition to the below, the group hold
£700 million of undrawn committed facilities that reference LIBOR.
Type of financial instrument
Non-derivative financial liabilities (pay GBP LIBOR)
Derivative instruments (pay GBP LIBOR)*
Derivative instruments (receive GBP LIBOR)*
Net position
* Future dated transition to RFR contractually agreed.
244
Amount left
to transition
to RFR
£m
729.7
2,343.9
(2,482.3)
591.3
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC
A4 Financial risk management continued
During the financial year, the group adhered to the ISDA 2020 IBOR fall-backs protocol, embedding fall-back provisions into the interest
rate derivatives of compounded SONIA plus a spread, which will automatically replace the London Inter-bank Offered Rate (LIBOR) at
a future index cessation effective date. On 5 March 2021, following an announcement from the FCA on the future cessation and loss of
representativeness of the LIBOR benchmarks, ISDA advised that a LIBOR cessation trigger event had occurred under the protocol, the
index cessation effective date for GBP LIBOR will therefore be 1 January 2022. All of the group’s derivative counterparties have adhered to
the protocol and so from 1 January 2022 all of the group’s derivatives will automatically transition from LIBOR to RFRs. The group do not
expect to renegotiate interest rate swaps to reference a RFR prior to this date.
Further detail on the risk management strategy can be found within the interest rate risk section of this note.
Repricing analysis
The following tables categorise the group’s borrowings, derivatives and cash deposits on the basis of when they reprice or, if earlier,
mature. The repricing analysis demonstrates the group’s exposure to floating interest rate risk.
Our largest concentration of floating interest rate risk is with index-linked instruments. This has been classified as repricing in one year or
less due to the refixing of the interest charge with changes in RPI and CPI.
Group
At 31 March 2021
Borrowings in fair value hedge relationships
Fixed rate instruments
Effect of swaps
Borrowings designated at fair value
through profit or loss
Fixed rate instruments
Effect of swaps
Borrowings measured at amortised cost
Fixed rate instruments
Floating rate instruments
Index-linked instruments
Effect of fixed interest rate swaps
Total borrowings
Cash and short-term deposits
Net borrowings
At 31 March 2020
Borrowings in fair value hedge relationships
Fixed rate instruments
Effect of swaps
Borrowings designated at fair value
through profit or loss
Fixed rate instruments
Effect of swaps
Borrowings measured at amortised cost
Fixed rate instruments
Floating rate instruments
Index-linked instruments
Effect of fixed interest rate swaps
Total borrowings
Cash and short-term deposits
Net borrowings
1 year or
less
£m
Total
£m
2,895.5
–
2,895.5
388.6
2,506.9
2,895.5
373.6
–
373.6
1,026.0
640.2
3,516.5
5,182.7
–
373.6
373.6
51.2
640.2
3,516.5
4,207.9
–
(2,332.3)
8,451.8
5,144.7
(744.1)
(744.1)
7,707.7
4,400.6
1 year or
less
£m
Total
£m
2,590.5
–
2,590.5
–
2,590.5
2,590.5
397.5
–
397.5
770.3
686.9
3,917.9
5,375.1
–
397.5
397.5
193.2
686.9
3,917.9
4,798.0
–
(2,382.3)
8,363.1
5,403.7
(528.1)
(528.1)
7,835.0
4,875.6
1–2 years
£m
2–3 years
£m
3–4 years
£m
4–5 years
£m
More than
5 years
£m
–
–
–
–
–
–
1.0
–
–
1.0
164.5
165.5
–
165.5
–
–
–
–
–
–
1.1
–
–
1.1
575.0
576.1
–
576.1
465.3
(465.3)
106.1
1,935.5
(106.1)
(1,935.5)
–
–
–
–
0.9
–
–
0.9
350.0
350.9
–
–
–
–
–
3.7
–
–
3.7
200.0
203.7
–
–
373.6
(373.6)
–
968.1
–
–
968.1
1,042.8
2,010.9
–
350.9
203.7
2,010.9
1–2 years
£m
2–3 years
£m
3–4 years
£m
4–5 years
£m
More than
5 years
£m
399.4
(399.4)
–
–
–
–
1.0
–
–
1.0
50.0
51.0
–
51.0
–
–
–
–
–
–
1.1
–
–
1.1
164.5
165.6
–
165.6
–
–
–
–
–
–
0.7
–
–
0.7
575.0
575.7
–
575.7
468.5
1,722.6
(468.5)
(1,722.6)
–
–
–
–
0.8
–
–
0.8
350.0
350.8
–
–
397.5
(397.5)
–
573.5
–
–
573.5
1,242.8
1,816.3
–
350.8
1,816.3
245
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A4 Financial risk management continued
Company
Borrowings measured at amortised cost
Floating rate instruments
Total borrowings
2021
1 year or less
£m
Total
£m
2020
1 year or less
£m
Total
£m
1,780.6
1,780.6
1,780.6
1,780.6
1,752.0
1,752.0
1,752.0
1,752.0
Electricity price risk
The group is allowed a fixed amount of revenue by the regulator, in real terms, to cover electricity costs for each five-year regulatory
pricing period. To the extent that electricity prices remain floating over this period, this exposes the group to volatility in its operating
cash flows. The group’s policy, therefore, is to manage this risk by fixing a proportion of electricity commodity prices in a cost-effective
manner. The group has fixed the price on a proportion of its anticipated net electricity usage out to the end of the regulatory period from
2020 to 2025, partially through entering into electricity swap contracts.
Hedge accounting
Electricity swaps have been designated in cash flow hedge relationships. This means that only the impact of any hedging ineffectiveness
is recognised through fair value in the income statement, with movements in the effective portion of the hedge being recognised in other
comprehensive income.
Details of electricity swaps that have been designated in cash flow hedging relationships are summarised below:
Nominal amount
of the hedging
instrument
£m
Carrying
amount of
the hedging
instrument
£m
Fair value (gains)/
losses used for
calculating
hedge
ineffectiveness
for the year
ended 31 March
2021(1)
£m
Hedge
ineffectiveness
recognised
in the income
statement
£m
Cash flow
hedge reserve
excluding
effects of tax
£m
Amount
reclassified
from the cash
flow hedge
reserve to
the income
statement
£m
46.5
6.5
(9.3)
–
7.8
–
Risk exposure
Electricity price risk
Note:
(1) The change in fair value of the hedging instruments used to measure hedge ineffectiveness exclude credit spread adjustments. The full impact of fair value
movements on the income statement is disclosed in note 6.
Due to the relative low value of the electricity swaps in comparison to that of the derivative portfolio, no maturity profile and fixed price
breakdown has been disclosed.
Capital risk management
The group’s objective when managing capital is to maintain efficient access to debt capital markets throughout the economic cycle. The
board therefore believes that it is appropriate to maintain RCV gearing, measured as group consolidated net debt (including derivatives) to
regulatory capital value (RCV) of UUW, within a target range of 55 per cent to 65 per cent. As at 31 March 2021, RCV gearing was within the
range at 62 per cent (2020: 62 per cent).
Assuming no significant changes to existing rating agencies’ methodologies or sector risk assessments, the group aims to maintain long-
term issuer credit ratings for UUW of at least A3 with Moody's Investors Service (Moody's) and BBB+ with S&P Global Ratings (S&P) and a
senior unsecured debt rating for UUW of at least A- with Fitch Ratings (Fitch). Debt issued by UUW's financing subsidiary, United Utilities
Water Finance PLC, is guaranteed by UUW and is therefore rated in line with UUW.
To maintain its targeted credit ratings, the group needs to manage its capital structure with reference to the ratings methodology and
measures used by Moody’s, S&P and Fitch. The ratings methodology is normally based on a number of key ratios (such as RCV gearing,
adjusted interest cover, post maintenance interest cover (PMICR) and Funds from Operations (FFO) to debt) and threshold levels as
updated and published from time to time by Moody's, S&P and Fitch. The group looks to manage its risk by maintaining the relevant key
financial ratios used by the credit ratings agencies to determine a corporate's credit rating, within the thresholds approved by the board.
Capital risk is reported monthly to the treasury committee through the operational compliance report.
Further detail on the precise measures and methodologies used to assess water companies’ credit ratings can be found in the methodology
papers published by the rating agencies.
246
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A4 Financial risk management continued
Fair values
The table below sets out the valuation basis of financial instruments held at fair value and financial instruments where fair value has been
separately disclosed in the notes as the carrying value is not a reasonable approximation of fair value.
Group
2021
Level 1
£m
Level 2
£m
Level 3
£m
Financial assets at fair value through profit or loss
Derivative financial assets – fair value hedge
Derivative financial assets – held for trading(1)
Derivative financial assets – cash flow hedge
Investments
Financial liabilities at fair value through profit or loss
Derivative financial liabilities – fair value hedge
Derivative financial liabilities –held for trading(1)
Derivative financial liabilities – cash flow hedge
Financial liabilities designated as fair value through profit or loss
Financial instruments for which fair value has been disclosed
Financial liabilities in fair value hedge relationships
Other financial liabilities at amortised cost
2020
Financial assets at fair value through profit or loss
Derivative financial assets – fair value hedge
Derivative financial assets – held for trading(1)
Derivative financial assets – cash flow hedge
Investments
Financial liabilities at fair value through profit or loss
Derivative financial liabilities – fair value hedge
Derivative financial liabilities –held for trading(1)
Derivative financial liabilities – cash flow hedge
Financial liabilities designated as fair value through profit or loss
Financial instruments for which fair value has been disclosed
Financial liabilities in fair value hedge relationships
Other financial liabilities at amortised cost
–
–
–
–
–
–
–
–
275.6
142.6
6.5
0.1
(12.6)
(102.1)
–
(373.6)
(2,766.0)
(2,321.6)
(5,087.6)
(147.6)
(4,246.5)
(4,457.6)
–
–
–
–
–
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
–
395.7
222.0
0.2
0.1
–
(141.9)
(2.4)
(397.5)
(1,981.5)
(199.9)
(2,181.4)
(458.5)
(5,796.1)
(6,178.4)
–
–
–
–
–
–
–
–
–
–
–
Total
£m
275.6
142.6
6.5
0.1
(12.6)
(102.1)
–
(373.6)
(2,913.6)
(6,568.1)
(9,545.2)
Total
£m
395.7
222.0
0.2
0.1
–
(141.9)
(2.4)
(397.5)
(2,440.0)
(5,996.0)
(8,359.8)
Note:
(1) These derivatives form economic hedges and, as such, management intends to hold these through to maturity. Derivatives forming an economic hedge of
the currency exposure on borrowings included in these balances were £141.5 million (2020: £221.9 million)
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable).
The group has calculated fair values using quoted prices where an active market exists, which has resulted in £5,087.6 million (2020: £2,181.4
million) of ‘level 1’ fair value measurements. In the absence of an appropriate quoted price, the group has applied discounted cash flow
valuation models utilising market available data in line with prior years. The £2,906.2 million increase (2020: £816.4 million decrease) in level 1
fair value measurements is largely due to an increase in the number of observable quoted bond prices in active markets at 31 March 2021.
During the year, changes in the fair value of financial liabilities designated at fair value through profit or loss resulted in a £23.9 million loss
(2020: £23.6 million gain). Included within this was a £43.3 million loss (2020: £34.2 million gain) attributable to changes in own credit risk,
recognised in other comprehensive income. The cumulative amount due to changes in credit spread was £35.7 million profit (2020: £79.0
million profit). The carrying amount is £147.5 million (2020: £171.4 million) higher than the amount contracted to settle on maturity.
Company
The company does not hold any financial instruments that are measured subsequent to initial recognition at fair value or where fair value
has been separately disclosed in the notes as the carrying value is not a reasonable approximation of fair value.
247
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
Notes to the financial statements – appendices
A5 Retirement benefits
Defined benefit schemes
The group participates in two major funded defined benefit pension schemes in the United Kingdom – the United Utilities Pension Scheme
(UUPS) and the United Utilities PLC group of the Electricity Supply Pension Scheme (ESPS), both of which are closed to new employees.
The assets of these schemes are held in trust funds independent of the group’s finances.
The trustees are composed of representatives of both the employer and employees. The trustees are required by law to act in the interests
of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day-to-day administration of the
benefits.
Since 1 April 2018, the majority of active members in the defined benefit sections of the UUPS have been part of a hybrid section
comprising both defined benefit and defined contribution elements. Pension benefits relating to pensionable service before 1 April 2018
have not been affected by the transition to this hybrid section, which was introduced as a consequence of increases in future service costs
to reduce the overall costs and risk to the group while balancing the interests of employees by maintaining an element of defined benefit
pension provision.
The group operates a series of historic unfunded, unregistered retirement benefit schemes. The costs of these schemes are included in the
total pension cost, on a basis consistent with IAS 19 ‘Employee Benefits’ and the assumptions set out below.
Under the group's defined benefit pension schemes, employees are entitled to annual pensions on retirement. Benefits are payable
on death and following other events such as withdrawing from active service. No other post-retirement benefits are provided to these
employees.
Information about the pension arrangements for executive directors is contained in the directors’ remuneration report.
The defined benefit obligation includes benefits for current employees, former employees and current pensioners as analysed in the table
below:
Group
Total value of current employees benefits
Deferred members benefits
Pensioner members benefits
Total defined benefit obligation
2021
£m
783.5
574.4
1,937.8
3,295.7
2020
£m
665.6
521.9
1,870.1
3,057.6
The duration of the combined schemes is around 17 years. The schemes’ duration is an indicator of the weighted-average time until benefit
payments are settled, taking account of the split of the defined benefit obligation between current employees, deferred members and the
current pensioners of the schemes.
The estimated profile of cash flows out of the schemes as retirement benefits are paid is as follows:
UUPS
)
m
£
(
s
w
o
fl
h
s
a
c
e
r
u
t
u
F
125
100
75
50
25
0
0
5
10 15 20 25 30 35
40 45 50 55 60 65 70
Term (years)
ESPS
)
m
£
(
s
w
o
fl
h
s
a
c
e
r
u
t
u
F
25
20
15
10
5
0
0
5
10
15
20 25 30 35
Term (years)
40 45 50 55 60
Active members
Deferred pensioners
Current pensioners
Active members
Deferred pensioners
Current pensioners
Funding requirements
The latest finalised funding valuations of the schemes were carried out by independent qualified actuaries as at 31 March 2018, earlier than
originally planned due to the aforementioned changes to the pension scheme, and determined that the schemes were both in a deficit
position on a funding basis. The basis on which scheme liabilities are valued for funding purposes differs from the basis required under IAS
19, with liabilities on a funding basis being subject to assumptions at the valuation date that are not updated between revaluations. Funding
deficits vary significantly from company to company, but neither the deficits, the assumptions on which they are based, the associated
sensitivities, nor the risk exposures are disclosed by many companies and, therefore, meaningful cross-company comparisons are not
possible. Conversely, scheme liabilities are valued on a consistent basis between companies under IAS 19 and are subject to assumptions
and sensitivities that are required to be disclosed. Consequently, the relative economic positions of companies are comparable only on an
IAS 19 basis, subject to normalisation of assumptions used between companies.
248
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC
A5 Retirement benefits continued
A retirement benefit surplus was recognised as an asset at both 31 March 2021 and 31 March 2020 as, under both the UUPS and ESPS
scheme rules, the group has an unconditional right to a refund of the surplus assuming the full settlement of the plans’ liabilities in a single
event, such as a scheme wind-up.
Under UK legislation there is a requirement that pension schemes are funded prudently, and that funding plans are agreed by pension
scheme trustees. The group had plans in place with the schemes’ trustees to address the funding deficits by 31 December 2021 for the
UUPS and 30 September 2024 for the ESPS, through a series of deficit recovery contributions. This timescale has been accelerated, with
accelerated deficit repair contributions of £97.6 million and £5.4 million made to the UUPS and ESPS respectively in April 2019. These
payments represent the final acceleration of deficit repair contributions set out in the schedules of contributions agreed with the schemes’
trustees as part of the 31 March 2018 valuation process, and reduce the deficit repair contributions payable, due from the company, to £nil.
Accordingly, no deficit repair contributions were required during the year ended 31 March 2021.
As the 2018 valuation basis was consistent with a long-term target for self-sufficiency, the expectation is that the pension schemes will be
fully funded on a low dependency basis without additional contributions from the company.
The group and trustees have agreed long-term strategies for reducing investment risk in each scheme. This includes an asset-liability
matching policy which aims to reduce the volatility of the funding level of the pension plan by investing in assets, such as corporate bonds
and gilts, supplemented by swap and gilt long-term hedges of interest and inflation rates, which perform in line with the liabilities so as to
hedge against changes in interest and inflation rates.
Following further evolution in the group's investment and risk management strategies during the year ended 31 March 2020, both UUPS
and ESPS are fully hedged for inflation exposure through external market swaps and gilts. Further details of the derivatives used in
reducing investment risk are disclosed in the ‘Further reporting analysis’ section of this appendix.
The group expects to make further contributions of £7.5 million in the year ending 31 March 2022, £6.4 million and £0.7 million in respect of
current service contributions to UUPS and ESPS respectively, and £0.4 million in respect of expenses to the ESPS.
The schemes’ funding plans are reviewed regularly, and the next funding valuation for UUPS and ESPS is due as at 31 March 2021. The
valuation is expected to be finalised by 31 March 2022.
Impact of scheme risk management on IAS 19 disclosures
Under the prescribed IAS 19 basis, pension scheme liabilities are calculated based on current accrued benefits. Expected cash flows
are projected forward allowing for RPI and CPI and the current member mortality assumptions. These projected cash flows are then
discounted by a high-quality corporate bond rate, which comprises an underlying interest rate and a credit spread.
The group has de-risked its pension schemes through hedging strategies applied to the underlying interest rate and future inflation. Both
UUPS and ESPS fully hedge RPI inflation exposure along with underlying interest rates through external market swaps and gilts (including
gilt repurchase instruments), the value of which is included in the schemes' assets (net of associated derivative liabilities).
Consequently, the reported statement of financial position under IAS 19 remains volatile due to changes in credit spread and changes
in mortality, neither of which have been hedged at the current time. Changes in credit spread have not been hedged primarily due to
difficulties in doing so over long durations, while changes in mortality have not been hedged due to this exposure being subject to lower
volatility in the short term and relatively high hedging costs.
In contrast, the schemes’ specific funding bases, which formed the basis for regular deficit repair contributions, are unlikely to suffer from
significant volatility due to credit spread, because a prudent, fixed credit spread assumption is applied.
Pension benefits under the defined benefit element of the UUPS hybrid section, that became effective for pensionable service from
1 April 2018, are linked to CPI rather than RPI.
In the year ended 31 March 2021, the discount rate decreased by 0.25 per cent (2020: 0.1 per cent decrease), which includes a 0.85 per
cent decrease in credit spreads and a 0.6 per cent increase in gilt yields over the year. The IAS 19 remeasurement loss of £82.7 million
(2020: £154.6 million gain) reported in note 18 has largely resulted from a decrease in credit spreads during the year and an RPI inflation
assumption increase of 0.55 per cent (2020: 0.65 per cent decrease). The impact of movements in credit spreads is less pronounced on
a scheme funding basis compared with the remeasurement loss recognised on an IAS 19 accounting basis as the discount rate used for
valuing obligations utilises a fixed credit spread assumption.
Guaranteed Minimum Pensions (GMP) equalisation
A second UK High Court Ruling in the Lloyds Guaranteed Minimum Pensions (GMP) equalisation case was published on 20 November
2020. The implication of the first court ruling on 26 October 2018 was that GMP will be equalised for males and females and resulted in
GMP equalisation past service cost (and corresponding increase in liabilities) of £6.6 million (£5.5 million UUPS, £1.1 million ESPS) being
recognised for the year ended 31 March 2019. The second ruling requires schemes to equalise GMP in respect of past transfers out (dating
back to 17 May 1990) where those benefits were not equalised under the 2018 judgement. This is not expected to have a material impact on
the group's financial statements.
For the year ended 31 March 2021, there has been a further £0.5 million (£0.3 million UUPS, £0.2 million ESPS) increase to the pension
liability and past service costs in relation to GMP equalisation as a result of the six-year look-back period previously assumed for back
payments no longer being applicable, as it has been concluded that there is no limit for back payments.
249
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A5 Retirement benefits continued
Reporting and assumptions
The results of the latest funding valuations at 31 March 2018 have been adjusted for IAS 19 to assess the position at 31 March 2021, by taking
account of experience over the period, changes in market conditions, and differences in the financial and demographic assumptions. The present
value of the defined benefit obligation, and the related current service costs, were measured using the projected unit credit method.
Member data used in arriving at the liability figure included within the overall IAS 19 surplus has been based on the finalised actuarial
valuations as at 31 March 2018 for both UUPS and ESPS.
Financial assumptions
The main financial and demographic assumptions used by the actuary to calculate the defined benefit surplus of UUPS and ESPS are
outlined below:
Group
Discount rate
Pension increases
Pensionable salary growth:
ESPS
UUPS
Price inflation – RPI
Price inflation – CPI(1)
2021
% p.a.
2020
% p.a.
2.05
3.35
3.35
2.45
3.35
2.75
2.30
2.80
2.80
1.60
2.80
1.60
Note:
(1) The CPI price inflation assumption represents a single weighted average rate derived from an assumption of 2.45 per cent pre-2030 and 3.25 per cent
post-2030.
The discount rate is consistent with a high-quality corporate bond rate, with 2.05 per cent being equivalent to gilts plus 75 basis points
(31 March 2020: 2.30 per cent being equivalent to gilts plus 160 basis points). To align to emerging market practice and provide a more
robust estimate, an exercise was carried out during the year to revisit the population of high quality corporate bonds used in deriving the
discount rate. The primary change resulting from this exercise was to expand the corporate bond population used to include those rated
at least AA by one or more credit rating agencies, whereas previously the rate was derived based on bonds rated AA by two or more
agencies. Overall, the changes resulting from this exercise have not given rise to any material change in the discount rate or fair value of
defined benefit obligations as at 31 March 2021 compared with using the same approach as that used in the prior year.
In September 2019, the Chancellor of the Exchequer highlighted the UK Statistics Authority’s proposals to change RPI to align with CPIH
(Consumer Prices Index, including housing costs). Plans to reform RPI and bring it in line with CPIH from 2030 were confirmed on 25
November 2020. Broadly CPIH increases are expected to average around 1 per cent per annum below RPI in the long-term (about the same
as CPI), so this change could have a significant impact on many pension schemes. In arriving at the company’s best estimate for RPI, an
inflation risk premium of 0.2 per cent (2020: nil) has been deducted from the breakeven inflation rate for the year ended 31 March 2021.
The impact of this is a decrease in the defined benefit obligation of around £120 million and therefore an increase in the net defined benefit
surplus compared with no inflation risk premium being deducted. There is no allowance for any further change in the inflation risk premium
post 2030 as a result of RPI reform.
The assumption for CPI inflation includes a 0.2 per cent inflation risk premium (2020: 0.3 per cent) and is set by deducting a 'wedge'
from the RPI inflation assumption to reflect structural differences. For pre-2030 inflation this wedge has been estimated at 0.9 per cent,
reducing to 0.1 per cent post-2030 given that RPI and CPI are expected to converge. The impact of this reduction in the post-2030 wedge
as a result of the confirmation of RPI reform is a circa £13 million increase to the defined benefit obligation and therefore a decrease in the
net defined benefit surplus compared with the wedge remaining at 0.9 per cent after 2030. A reduction in RPI will result in a reduction
to pension scheme liabilities; however, as our pension schemes are hedged for RPI inflation, this will result in a comparable reduction to
pension scheme assets.
Demographic assumptions
At both 31 March 2021 and 31 March 2020, mortality in retirement is assumed to be in line with the Continuous Mortality Investigation’s
(CMI) S2PA year of birth tables, with a scaling factor of 106 per cent and 109 per cent for male pensioners and non-pensioners respectively
and 104 per cent and 105 per cent for female pensioners and non-pensioners respectively, reflecting actual mortality experience. At 31
March 2021, mortality in retirement is based on CMI 2020 (2020: CMI 2019) long-term improvement factors, with a long-term annual rate
of improvement of 1.25 per cent (2020: 1.50 per cent). It is too early at this stage to analytically determine the long-term impact of the
COVID-19 pandemic on future mortality trends for the schemes' membership, therefore no explicit adjustment to the mortality assumptions
have been made in this regard.
250
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A5 Retirement benefits continued
The current life expectancies at age 60 underlying the value of the accrued liabilities for the schemes are:
Group
Retired member – male
Non-retired member – male
Retired member – female
Non-retired member – female
2021
years
26.0
26.9
28.4
29.5
2020
years
26.6
27.7
28.9
30.2
Sensitivity of the key scheme assumptions
The measurement of the group’s defined benefit surplus is sensitive to changes in key assumptions, which are described above. The
sensitivity calculations presented below allow for the specified movement in the relevant key assumption, while all other assumptions
are held constant. This approach does not take into account the interrelationship between some of these assumptions or any hedging
strategies adopted.
• Asset volatility – If the schemes’ assets underperform relative to the discount rate used to calculate the schemes’ liabilities, this will
create a deficit. The schemes hold some growth assets (equities, diversified growth funds and emerging market debt) which, though
expected to outperform the discount rate in the long term, create volatility in the short term. The allocation to growth assets is
monitored to ensure it remains appropriate given the schemes’ long-term objectives.
• Discount rate – An increase/decrease in the discount rate of 0.25 per cent would have resulted in a £142.1/£151.9 million (2020: £132.8
million) decrease/increase in the schemes’ liabilities at 31 March 2021, although as long as credit spreads remain stable this will be
largely offset by an increase/decrease in the value of the schemes’ bond holdings and other instruments designed to hedge this
exposure. The discount rate is based on high-quality corporate bond yields of a similar duration to the schemes’ liabilities.
• Price inflation – An increase/decrease in the inflation assumption of 0.25 per cent would have resulted in a £144.3/£136.1 million
(2020: £124.5 million) increase/decrease in the schemes’ liabilities at 31 March 2021, as a significant proportion of the schemes’ benefit
obligations are linked to inflation. However, nearly all of the schemes’ liabilities were hedged for RPI in the external market at 31 March
2021, meaning that this sensitivity is likely to be insignificant as a result. The sensitivity to price inflation allows for the impact of
changes to pensionable salary growth and pension increases, which are both assumed to be linked to price inflation.
• Mortality long-term improvement rate – An increase in the mortality long-term improvement rate from 1.25 per cent to 1.50 per cent
would have resulted in a £33.2 million decrease in the schemes' liabilities at 31 March 2021 (2020: £31.1 million decrease based on an
increase in the mortality long-term improvement rate from 1.50 per cent to 1.75 per cent).
• Life expectancy – An increase/decrease in life expectancy of one year would have resulted in a £152.8 million (2020: £116.6 million)
increase/decrease in the schemes’ liabilities at 31 March 2021. The majority of the schemes’ obligations are to provide benefits for the
life of the member and, as such, the schemes’ liabilities are sensitive to these assumptions.
Further reporting analysis
At 31 March, the fair values of the schemes’ assets recognised in the statement of financial position were as follows:
Group
Non-equity growth assets
Gilts(1)
Bonds
Other(1)
Total fair value of schemes’ assets
Present value of defined benefit obligations
Net retirement benefit surplus
Schemes’
assets
%
10.2
34.5
46.5
8.8
100.0
Schemes’
assets
%
9.3
36.4
48.0
6.3
100.0
2021
£m
406.6
1,374.5
1,853.4
350.2
3,984.7
(3,295.7)
689.0
2020
£m
356.4
1,388.7
1,828.1
238.5
3,811.7
(3,057.6)
754.1
Note:
(1) Following a review of the fair value of the schemes’ assets and derivatives during the year, the fair value of the schemes’ assets at 31 March 2020 have been
re-presented such that £407.1 million fair value of derivatives have been included in gilts where they were previously included in other. The effect of this is
that the fair value of the schemes’ assets classified as gilts is £407.1 million lower at 31 March 2020 compared with that presented in the prior year financial
statements, and the fair value of the schemes’ assets classified as other is £407.1 million higher.
Included within the group’s defined benefit pension scheme assets are assets with a fair value estimated to be £268.0 million that are
categorised as ‘level 3’ assets within the IFRS 13 ‘Fair value measurement’ hierarchy, meaning that the value of the assets is not observable
at 31 March 2021. Estimates of the fair value of these assets have been performed by the investment managers’ valuation specialists
using the latest available statements of each of the funds that make up the total level 3 asset balance, updated for any subsequent cash
movements between the statement date and the year end reporting date.
The assets, in respect of UUPS, included in the table above, have been allocated to each asset class based on the return the assets are
expected to achieve as UUPS has entered into a variety of derivative transactions to change the return characteristics of the physical assets
held to reduce undesirable market and liability risks. As such, the breakdown shown separates the assets of the schemes to illustrate the
underlying risk characteristics of the assets held.
251
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A5 Retirement benefits continued
The portfolio contains a proportion of assets set aside for collateral purposes linked to the derivative contracts entered into, as described
above. The collateral portfolio, comprising cash and eligible securities readily convertible to cash, provides sufficient liquidity to manage
exposure relating to the derivative transactions and is expected to achieve a return in excess of SONIA (Sterling Overnight Index Average).
The fair values of derivatives included within each of the pension scheme asset categories are analysed as follows:
Group
At 31 March 2021
Non-equity growth assets
Gilts
Bonds
Other
Total fair value of schemes' assets
At 31 March 2020
Non-equity growth assets
Gilts
Bonds
Other
Total fair value of schemes' assets
Underlying
assets
£m
Fair value of
derivatives
£m
Combined
£m
406.6
2,784.3
1,859.2
376.2
5,426.3
356.4
1,795.8
1,865.0
330.0
4,347.2
–
(1,409.8)
(5.8)
(26.0)
(1,441.6)
–
(407.1)
(36.9)
(91.5)
(535.5)
406.6
1,374.5
1,853.4
350.2
3,984.7
356.4
1,388.7
1,828.1
238.5
3,811.7
The derivative values in the table above represent the net market value of derivatives held within each of these asset categories as follows:
Gilts
Repurchase agreements
Bonds – hedging non-sterling exposure
back to sterling
Currency forwards
Interest rate swaps
Other – managing liability risks targeting
a high level of interest rate and inflation
hedging
Asset swaps
Interest rate swaps
RPI inflation swaps
Total return swaps
UUPS
£m
ESPS
£m
2021
Total
£m
(1,403.6)
(1,403.6)
(6.2)
(6.2)
(1,409.8)
(1,409.8)
(8.9)
–
(8.9)
(26.6)
23.2
(18.0)
–
(21.4)
–
3.1
3.1
–
0.1
(3.5)
(1.2)
(4.6)
(7.7)
(8.9)
3.1
(5.8)
(26.6)
23.3
(21.5)
(1.2)
(26.0)
(1,441.6)
UUPS
£m
(405.9)
(405.9)
(27.7)
–
(27.7)
(30.2)
25.7
(75.0)
–
(79.5)
(513.1)
ESPS
£m
(1.2)
(1.2)
–
(9.2)
(9.2)
–
(0.4)
(10.6)
(1.0)
(12.0)
(22.4)
2020
Total
£m
(407.1)
(407.1)
(27.7)
(9.2)
(36.9)
(30.2)
25.3
(85.6)
(1.0)
(91.5)
(535.5)
Total fair value of derivatives
(1,433.9)
The derivatives shown in the tables only cover those expressly held for the purpose of reducing certain undesirable asset and liability risks.
The schemes invest in a number of other pooled funds that make use of derivatives. No allowance is made in the figures above for any
derivatives held within these other pooled funds, as they are not held expressly for the purpose of managing risk. The total fair value of
pooled funds held within the schemes’ assets was £667.2 million (2020: £698.3 million).
The intention is that the schemes' assets provide a full economic hedge of interest rates and RPI inflation of the schemes' liabilities on a
scheme funding basis. As the scheme funding basis is more prudent than the IAS 19 measurement basis for the defined benefit obligation,
the schemes are more than 100 per cent hedged on an accounting basis.
252
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC
A5 Retirement benefits continued
Movements in the fair value of the schemes’ assets were as follows:
Group
At the start of the year
Interest income on schemes’ assets
The return/(loss) on plan assets, excluding amounts included in interest
Member contributions
Benefits paid
Administrative expenses
Company contributions
At the end of the year
2021
£m
3,811.7
86.0
241.0
2.4
(162.0)
(3.0)
8.6
3,984.7
2020
£m
3,909.1
94.3
(131.6)
2.6
(175.0)
(1.6)
113.9
3,811.7
The group’s actual return on the schemes’ assets was a gain of £327.0 million (2020: £37.3 million loss), largely as a result of the schemes'
investment strategies hedging increases in the technical provisions due to change in financial conditions.
Movements in the present value of the defined benefit obligations are as follows:
Group
At the start of the year
Interest cost on schemes’ obligations
Actuarial (losses)/gains arising from changes in financial assumptions
Actuarial gains/(losses) arising from changes in demographic assumptions
Actuarial gains arising from experience
Curtailments/settlements arising on reorganisation
Member contributions
Benefits paid
Current service cost
At the end of the year
2021
£m
2020
£m
(3,057.6)
(3,425.2)
(68.5)
(429.7)
80.6
25.4
(0.6)
(2.4)
162.0
(4.9)
(80.3)
257.3
(7.2)
36.1
(4.6)
(2.6)
175.0
(6.1)
(3,295.7)
(3,057.6)
A6 Related party transactions
Group
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note.
The related party transactions with the group’s joint ventures and other related parties during the period, and amounts outstanding at the
period end date, were as follows:
Sales of services
Charitable contributions advanced to related parties
Purchases of goods and services
Interest income and fees recognised on loans to related parties
Amounts owed by related parties
Amounts owed to related parties
2021
£m
362.9
–
–
3.7
113.8
2.4
2020
£m
438.3
0.4
0.1
4.0
147.9
4.8
Sales of services to related parties during the year mainly represent non-household wholesale charges to Water Plus that were billed during
the period. These transactions were on the market credit terms in respect of non-household wholesale charges, which are governed by the
wholesale charging rules issued by Ofwat.
Charitable contributions advanced to related parties during the prior year relate to amounts paid to Rivington Heritage Trust, a charitable
company limited by guarantee for which United Utilities Water Limited is one of three guarantors.
At 31 March 2021, amounts owed by joint ventures, as recorded within trade and other receivables in the statement of financial position,
were £113.8 million (2020: £147.9 million), comprising £27.1 million (2020: £52.9 million) of trade balances, which are unsecured and will be
settled in accordance with normal credit terms, and £86.7 million (2020: £95.0 million) relating to loans.
253
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A6 Related party transactions continued
Included within these loans receivable were the following amounts owed by Water Plus:
• £66.3 million (2020: £93.6 million) outstanding on a £100.0 million revolving credit facility provided by United Utilities PLC, with a
maturity date of December 2023, bearing a floating interest rate of the Bank of England base rate plus a credit margin (2020: provided
by United Utilities Water Limited and guaranteed by United Utilities PLC, with a maturity date of September 2021, bearing a floating
interest rate of LIBOR plus a credit margin). This balance comprises £67.5 million outstanding net of a £1.2 million allowance for
expected credit losses (2020: £98.0 million outstanding net of a £4.6 million allowance for expected credit losses);
•
£18.3 million (2020: £nil) outstanding on a £32.5 million revolving credit facility provided by United Utilities PLC, with a maturity date
of 30 September 2021, bearing a floating interest rate of LIBOR plus a credit margin. This balance comprises £32.5 million outstanding
net of the group’s £8.9 million share of Water Plus losses for the year ended 31 March 2021 and the group’s £5.3 million previously
unrecognised share of joint venture losses relating to the year ended 31 March 2020 (2020: £nil outstanding, with no share of joint
venture losses or allowance for expected credit losses allocated against the facility). This facility forms part of the group’s long-term
interest in the Water Plus joint venture given that at 31 March 2021 there was a clear expectation that it would be replaced with
additional equity share capital. This additional share capital was issued by Water Plus on 23 April 2021, with the group’s subscription to
£32.5 million of new equity shares and the simultaneous cancellation of the revolving credit facility taking place on this same date; and
• £0.7 million (2020: £nil) receivable being the £10.3 million (2020: £10.0 million) fair value of amounts owed in relation to a £12.5 million
unsecured loan note held by United Utilities PLC, with a maturity date of 28 March 2027, net of a £0.1 million (2020: £0.5 million)
allowance for expected credit losses and £9.5 million of the group’s share of joint venture losses relating to the year ended 31 March
2020 as the loan note is deemed to be part of the group’s long-term interest in Water Plus. This is a zero coupon shareholder loan with
a total amount outstanding at 31 March 2021 and 31 March 2020 of £12.5 million, comprising the £10.3 million (2020: £10.0 million)
receivable measured at fair value, and £2.2 million (2020: £2.5 million) recorded as an equity contribution to Water Plus recognised
within interests in joint ventures.
A further £1.4 million of non-current receivables (2020: £1.4 million) was owed by other related parties at 31 March 2021.
The £1.3 million (2020: £5.0 million) of allowances for expected credit losses in relation to loans extended to Water Plus (£1.2 million (2020:
£4.5 million) and £0.1 million (£0.5 million) recognised against Water Plus’s total revolving credit facilities and zero coupon loan notes
respectively), is lower than the £5.0 million allowance for expected credit losses recognised at 31 March 2020. This £5.0 million allowance
was recognised in the prior year as a result of the impacts of the COVID-19 pandemic that gave rise to a significant increase in credit risk.
The £3.7 million release of this allowance during the year is primarily attributable to the group’s exposure to expected credit losses in future
periods reducing as a result of the £32.5 million revolving credit facility being cancelled and replaced with additional equity share capital in
April 2021.
During the year, United Utilities PLC provided guarantees in support of Water Plus in respect of certain amounts owed to wholesalers. The
aggregate limit of these guarantees was £54.1 million (2020: £54.1 million), of which £32.1 million (2020: £32.1 million) related to guarantees
to United Utilities Water Limited.
At 31 March 2021, amounts owed to related parties were £2.4 million (2020: £4.8 million). Included within this amount is £1.1 million (2020:
£4.5 million) due to Water Plus for the surrender of consortium relief tax losses. The amounts outstanding are unsecured and will be settled
in accordance with normal credit terms.
Details of transactions with key management are disclosed in note 3.
Company
The parent company receives dividend income and pays and receives interest to and from subsidiary undertakings in the normal course of
business. Total dividend income received during the year amounted to £291.9 million (2020: £284.5 million) and total net interest payable
during the year was £24.2 million (2020: £32.9 million). Amounts outstanding at 31 March 2021 and 31 March 2020 between the parent
company and subsidiary undertakings are disclosed in notes 14, 16 and 21.
At 31 March 2021 and 31 March 2020, no related party receivables and payables were secured and no guarantees were issued in respect
thereof. Balances will be settled in accordance with normal credit terms. No allowance for doubtful receivables has been made for amounts
owed by subsidiary undertakings as at 31 March 2021 and 31 March 2020.
254
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A7 Accounting policies
Of the accounting policies outlined below, those deemed to be the
most significant for the group are those that align with the critical
accounting judgements and key sources of estimation uncertainty
set out on pages 215 to 217.
The core water and wastewater services, which are deemed to
be distinct performance obligations under the contracts with
customers, follow the same pattern of transfer to the customer who
simultaneously receives and consumes both of these services over
time.
Basis of consolidation
The group financial statements consolidate the financial statements
of the company and entities controlled by the company (its
subsidiaries), and incorporate the results of its share of joint ventures
using the equity method of accounting. The results of subsidiaries
and joint ventures acquired or disposed of during the year are
included in the consolidated income statement from the date control
is obtained or until the date that control ceases, as appropriate.
Where necessary, adjustments are made to the financial statements
of subsidiaries to bring the accounting policies used under the
relevant local GAAP into line with those used by the group. Amounts
attributable to non-controlling interests are presented separately in
equity and total comprehensive income where material.
Subsidiaries
Subsidiaries are entities controlled by the group. Control is
achieved where the group is exposed to, or has the rights to,
variable returns from its involvement in an entity and has the
ability to affect those returns through its power over the entity. In
the parent company accounts, investments are held at cost less
provision for impairment.
On acquisition, the assets and liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair
values of the identifiable net assets acquired is recognised as
goodwill. Any deficiency of the cost of acquisition below the fair
values of the identifiable net assets acquired is credited to the
income statement in the period of acquisition. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation.
Joint ventures
Joint ventures are entities in which the group holds an interest on
a long-term basis and which are jointly controlled with one or more
parties under a contractual arrangement. The group’s share of joint
venture results and assets and liabilities is incorporated using the
equity method of accounting. Under the equity method, an investment
in a joint venture is initially recognised at cost and adjusted thereafter
to recognise the group’s share of the profit or loss.
On losing control of a subsidiary disposed of to a joint venture, the
group recognises the gain or loss attributable to measuring the
investment retained in the former subsidiary at its fair value at the date
when control is lost.
Revenue recognition
Revenue from the sale of water, wastewater and other services
represents the fair value of the consideration receivable in the
ordinary course of business for the goods and services provided,
exclusive of value added tax and foreign sales tax. Where relevant,
this includes an estimate of the sales value of units supplied to
customers between the date of the last meter reading and the
period end.
There are two main areas of the group’s activities considered to
result in revenue being recognised:
•
the provision of core water and wastewater services,
accounting for more than 97 per cent of the group’s revenue;
and
• capital income streams relating to diversions work, and
activities, typically performed opposite property developers,
that facilitate the creation of an authorised connection through
which properties can obtain water and wastewater services.
Revenue is generally recognised at the time of delivery, with
consideration given as to whether collection of the full amount
under the contract is considered probable. Should the group
consider that the criteria for revenue recognition has not been met
for a transaction, revenue recognition would be delayed until such
time as collectability is reasonably assured.
Payments received in advance of revenue recognition are recorded
as deferred income. This includes the revenue in respect of
connection activities, itself a district performance obligation. The
revenue in respect of these activities is released to the income
statement over a period of 60 years, which is deemed to be the
time over which the performance obligation for providing the
connection is satisfied.
Operating profit
Operating profit is stated after charging operational expenses but
before investment income and finance expense.
Borrowing costs and finance income
Except as noted below, all borrowing costs and finance income
are recognised in the income statement on an accruals basis.
Transaction costs that are directly attributable to the acquisition or
issue of a financial asset or financial liability are included in the initial
fair value of that instrument. Where borrowing costs are attributable
to the acquisition, construction or production of a qualifying asset,
such costs are capitalised as part of the specific asset.
Tax
Tax on the profit or loss for the year comprises current and deferred
tax. Tax is recognised in the income statement except to the extent
that it relates to items recognised directly in equity, in which case
it is recognised in equity. Assessing the outcome of uncertain tax
positions requires judgements to be made regarding the application
of tax law and the result of negotiations with, and enquiries from,
tax authorities in a number of jurisdictions. A current tax provision is
only recognised when the group has a present obligation as a result
of a past event and it is probable that the group will be required to
settle that obligation to a taxing authority.
Current tax
Current tax is based on the taxable profit for the period and is
provided at amounts expected to be paid or recovered using the
tax rates and laws that have been enacted or substantively enacted
at each reporting date.
Taxable profit differs from the net profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible.
Current tax is charged or credited in the income statement, except
when it relates to items charged or credited to equity, in which
case the tax is dealt with in equity.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit. Deferred tax liabilities are
provided, using the liability method, on all taxable temporary
differences at each reporting date. Such assets and liabilities are
not recognised if the temporary difference arises from goodwill or
from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit.
255
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A7 Accounting policies continued
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and interests
in joint ventures, except where the group is able to control the
reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the temporary timing differences
are expected to reverse based on tax rates and laws that have been
enacted or substantively enacted at each reporting date.
The carrying amount of deferred tax assets is reviewed at each
reporting date and is reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.
Deferred tax is charged or credited in the income statement,
except when it relates to items charged or credited to equity, in
which case the deferred tax is dealt with in equity.
Property, plant and equipment
Property, plant and equipment (PPE) comprises water and
wastewater infrastructure assets and overground assets.
The useful economic lives of these assets are primarily as follows:
• Water and wastewater infrastructure assets:
•
Impounding reservoirs 200 years;
• Mains and raw water aqueducts 30 to 300 years;
• Sewers and sludge pipelines 60 to 300 years;
• Sea outfalls 77 years;
• Buildings 10 to 60 years;
• Operational assets 5 to 80 years; and
• Fixtures, fittings, tools and equipment 3 to 40 years.
Employee and other related costs incurred in implementing the
capital schemes of the group are capitalised.
The group is required to evaluate the carrying values of PPE for
impairment whenever circumstances indicate, in management’s
view, that the carrying value of such assets may not be recoverable.
An impairment review requires management to make uncertain
estimates concerning the cash flows, growth rates and discount
rates of the cash generating units under review.
Costs associated with a major inspection or overhaul of an asset
or group of assets are capitalised within property, plant and
equipment and depreciated over the period of time expected to
elapse between major inspections or overhauls.
Water and wastewater infrastructure assets
Infrastructure assets comprise a network of water and wastewater
pipes and systems. Expenditure on the infrastructure assets,
including borrowing costs where applicable, relating to increases in
capacity or enhancements of the network, is treated as additions.
Amounts incurred in maintaining the operating capability of
the network in accordance with defined standards of service
are expensed in the year in which the expenditure is incurred.
Infrastructure assets are depreciated by writing off their cost (or
deemed cost for infrastructure assets held on transition to IFRS), less
the estimated residual value, evenly over their useful economic lives.
Other assets
All other property, plant and equipment is stated at historical cost
less accumulated depreciation.
Historical cost includes expenditure that is directly attributable to
the acquisition of the items, including relevant borrowing costs,
where applicable, for qualifying assets. Subsequent costs are
included in the asset’s carrying amount or recognised as a separate
256
asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the group and the
cost of the item can be measured reliably. All other repairs and
maintenance costs are charged to the income statement during the
financial period in which they are incurred.
Freehold land and assets in the course of construction are not
depreciated. Other assets are depreciated by writing off their cost,
less their estimated residual value, evenly over their estimated
useful economic lives, based on management’s judgement and
experience.
Depreciation methods, residual values and useful economic lives
are reassessed annually and, if necessary, changes are accounted
for prospectively. The gain or loss arising on the disposal or
retirement of an asset is determined as the difference between
the sales proceeds and the carrying amount of the asset and is
recognised in other operating costs.
Transfer of assets from customers and developers
Where the group receives from a customer or developer an item of
property, plant and equipment (or cash to construct or acquire an item
of property, plant and equipment) that the group must then use, either
to connect the customer to the network, or to provide the customer
with ongoing access to a supply of goods or services, or to do both,
such items are capitalised at their fair value and included within
property, plant and equipment, with a credit of the same amount to
deferred grants and contributions. The assets are depreciated over
their useful economic lives and the deferred contributions released to
revenue over the 60 years, which is the estimated period over which
an average connection through which the group provides water and
wastewater services is expected to be in place (or where the receipt
of property, plant and equipment is solely to connect the customer
to the network, the deferred contribution is released immediately to
revenue). This accounting treatment has been applied to transfers of
assets from customers received on or after 1 July 2009.
Assets transferred from customers or developers are accounted
for at fair value. If no market exists for the assets then incremental
cash flows are used to arrive at fair value.
Intangible assets
Intangible assets are measured initially at cost and are amortised on
a straight-line basis over their estimated useful economic lives. The
carrying amount is reduced by any provision for impairment where
necessary. On a business combination, as well as recording separable
intangible assets already recognised in the statement of financial
position of the acquired entity at their fair value, identifiable intangible
assets that arise from contractual or other legal rights are included in
the acquisition statement of financial position at fair value.
Internal expenditure is capitalised as internally generated
intangibles only if it meets the criteria of IAS 38 ‘Intangible Assets’.
Intangible assets, which relate primarily to computer software, are
generally amortised over a period of three to 10 years.
Impairment of assets
Where appropriate, assets are reviewed for impairment at each
reporting date to determine whether there is any indication that
those assets may have suffered an impairment loss. Where the
asset does not generate cash flows that are independent from
other assets, the group estimates the recoverable amount of the
cash generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell,
and value in use. Value in use represents the net present value of
expected future cash flows, discounted on a pre-tax basis, using a
rate that reflects current market assessments of the time value of
money and the risks specific to the asset, for which the estimates
of future cash flows have not been adjusted.
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A7 Accounting policies continued
If the recoverable amount of an asset (or cash generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (or cash generating unit) is reduced to its recoverable
amount. Impairment losses in respect of non-current assets are
recognised in the income statement within operating costs.
Where an impairment loss subsequently reverses, the reversal is
recognised in the income statement and the carrying amount of
the asset is increased to the revised estimate of its recoverable
amount, but not so as to exceed the carrying amount that would
have been determined had no impairment loss been recognised in
prior years.
Non-current assets held for sale
Non-current assets classified as held for sale are measured at the
lower of carrying value and fair value less costs to sell. Non-current
assets are classified as held for sale if their carrying amount will
be recovered through a sale transaction rather than through
continuing use. This condition is regarded as having been met
only when the sale is highly probable and the asset is available
for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of
classification.
Financial instruments
Financial assets and financial liabilities are recognised and
derecognised in the group’s statement of financial position on the
trade date when the group becomes/ceases to be a party to the
contractual provisions of the instrument.
Cash and short-term deposits
Cash and short-term deposits include cash at bank and in hand,
deposits and other short-term highly liquid investments which are
readily convertible into known amounts of cash, have a maturity
of three months or less from the date of acquisition and which
are subject to an insignificant risk of change in value. In the
consolidated statement of cash flows and related notes, cash and
cash equivalents include cash and short-term deposits, net of book
overdrafts.
Financial investments
Investments (other than interests in subsidiaries, joint ventures
and fixed deposits) are initially measured at fair value, including
transaction costs. Investments classified as financial assets
measured at fair value through profit or loss (FVPL) in accordance
with IFRS 9 ‘Financial Instruments’ are measured at subsequent
reporting dates at fair value. Gains and losses arising from changes
in fair value are recognised in the net profit or loss for the period.
The business model employed in respect of financial assets is that
of a hold-to-collect model.
Trade receivables
Trade receivables are initially measured at fair value, and are
subsequently measured at amortised cost, less any impairment for
irrecoverable amounts. Estimated irrecoverable amounts are based
on historical experience of the receivables balance.
Trade payables
Trade payables are initially measured at fair value and are
subsequently measured at amortised cost.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest
in the assets of the group after deducting all of its liabilities.
Equity instruments
Equity instruments issued by the group are recorded at the
proceeds received, net of direct issue costs.
Borrowings
The group’s default treatment is that bonds and loans are initially
measured at fair value, being the cash proceeds received net of any
direct issue costs. They are subsequently measured at amortised
cost applying the effective interest method. The difference
between the net cash proceeds received at inception and the
principal cash flows due at maturity is accrued over the term of the
borrowing.
The default treatment of measuring at amortised cost, while
associated hedging derivatives are recognised at fair value,
presents an accounting measurement mismatch that has the
potential to introduce considerable volatility to both the income
statement and the statement of financial position. Therefore,
where feasible, the group takes advantage of the provisions under
IFRS 9 ‘Financial Instruments’ to make fair value adjustments to its
borrowing instruments to reduce this volatility and better represent
the economic hedges that exist between the group’s borrowings
and associated derivative contracts.
Where feasible, the group designates its financial instruments
within fair value hedge relationships. To apply fair value hedge
accounting, it must be demonstrated that there is an economic
relationship between the borrowing instrument and the hedging
derivative and that the designated hedge ratio is consistent with
the group's risk management strategy.
Borrowings designated within a fair value hedge relationship
Where designated, bonds and loans are initially measured at fair
value, being the cash proceeds received net of any direct issue
costs. They are subsequently adjusted for any change in fair value
attributable to the risk being hedged at each reporting date, with
the change being charged or credited to finance expense in the
income statement.
Hedge accounting is discontinued prospectively when the hedging
instrument is sold, terminated or exercised, or where the hedge
relationship no longer qualifies for hedge accounting.
Under the provisions of IFRS 9 ‘Financial Instruments’, changes in
the group’s own credit risk are recognised in other comprehensive
income.
Borrowings designated at fair value through profit or loss
Designation is made where the requirements to designate within
a fair value hedge cannot be met at inception despite there
being significant fair value offset between the borrowing and the
hedging derivative. Where designated, bonds and loans are initially
measured at fair value being the cash proceeds received, and are
subsequently measured at fair value at each reporting date, with
changes in fair value being charged or credited to finance expense
in the income statement.
Derivative financial instruments
The group’s default treatment is that derivative financial instruments
are measured at fair value at each reporting date, with changes
in fair value being charged or credited to finance expense in the
income statement. The group enters into financial derivatives
contracts to manage its financial exposure to changes in market
rates (see note A4).
Derivative financial instruments designated within a
cash flow hedge relationship
Gains or losses resulting from the effective portion of the hedging
instrument are recognised in other comprehensive income and in
the cash flow hedge reserve with any remaining gains or losses
recognised immediately in the income statement. The cash flow
hedge reserve is adjusted to the lower of the cumulative gain or loss
on the hedging instrument and cumulative change in fair value of
the hedged item. At the maturity date, amounts paid/received are
recognised against operating expenses in the income statement.
257
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A7 Accounting policies continued
Upon discontinuation of a cash flow hedge, the amount
accumulated in other comprehensive income remains in the
cash flow hedge reserve if the hedged future cash flows are
still expected to occur. Otherwise the amount is immediately
reclassified to the income statement.
Derivatives and borrowings – valuation
Where an active market exists, designated borrowings and
derivatives recorded at fair value are valued using quoted market
prices. Otherwise, they are valued using a net present value
valuation model. The model uses applicable interest rate curve
data at each reporting date to determine any floating cash
flows. Projected future cash flows associated with each financial
instrument are discounted to the reporting date using discount
factors derived from the applicable interest curves adjusted for
counterparty credit risk where appropriate. Discounted foreign
currency cash flows are converted into sterling at the spot
exchange rate at each reporting date. Assumptions are made with
regard to credit spreads based on indicative pricing data.
The valuation of debt designated in a fair value hedge relationship
is calculated based on the risk being hedged as prescribed by IFRS
9 ‘Financial Instruments’. The group’s policy is to hedge its exposure
to changes in the applicable underlying interest rate and it is this
portion of the cash flows that is included in the valuation model
(excluding any applicable company credit risk spread).
The valuation of debt designated at fair value through the profit or
loss incorporates an assumed credit risk spread in the applicable
discount factor. Credit spreads are determined based on indicative
pricing data.
Inventories
Inventories are stated at the lower of cost and net realisable value.
For properties held for resale, cost includes the cost of acquiring and
developing the sites, including borrowing costs where applicable.
Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Employee benefits
Retirement benefit obligations
The group operates two defined benefit pension schemes, which
are independent of the group’s finances, for its employees.
Actuarial valuations to determine the funding of the schemes,
along with future contribution rates, are carried out by the pension
scheme actuary as directed by the trustees at intervals of not more
than three years. In any intervening years, the trustees review the
continuing appropriateness of the funding and contribution rates.
From a financial reporting perspective and in accordance with
IAS 19 ‘Employee Benefits’, defined benefit assets are measured
at fair value while liabilities are measured at present value, using
the projected unit credit method. The difference between the two
amounts is recognised as a surplus or obligation in the statement
of financial position. Where this difference results in a defined
benefit surplus, this is recognised in accordance with IFRIC 14
‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction’, on the basis that the group
has an unconditional right to a refund of any surplus that may exist
following the full settlement of plan liabilities in a single event.
The pension cost under IAS 19 is assessed in accordance with the
advice of a firm of actuaries based on the latest actuarial valuation
and assumptions determined by the actuary, which are used to
estimate the present value of defined benefit obligations. The
assumptions are based on information supplied to the actuary by
the company, supplemented by discussions between the actuary
and management. The assumptions are disclosed in note A5.
258
The cost of providing pension benefits to employees relating to
the current year's service (including curtailment gains and losses)
is included within employee benefits expense, while the interest
on the schemes’ assets and liabilities is included within investment
income and finance expense respectively. Remeasurement gains/
losses on scheme assets and liabilities are presented in other
comprehensive income.
In addition, the group operates a defined contribution pension
section within the United Utilities Pension Scheme. Payments are
charged as employee costs as they fall due. The group has no
further payment obligations once the contributions have been paid.
Share-based compensation arrangements
The group operates equity-settled, share-based compensation
plans, issued to certain employees. The equity-settled share-based
payments are measured at fair value at the date of grant. The fair
value determined at the grant date is expensed on a straight-line
basis over the vesting period, based on estimates of the number of
options that are expected to vest. Fair value is based on simulation
models, according to the relevant measures of performance. The
group has the option to settle some of these equity-settled share-
based payments in cash. At each reporting date, the group revises
its estimate of the number of options that are expected to become
exercisable with the impact of any revision being recognised in the
income statement, and a corresponding adjustment to equity over
the remaining vesting period.
Provisions
Provisions are recognised when the group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation,
and the amount can be reliably estimated. Expenditure that relates
to an existing condition caused by past operations that does not
contribute to current or future earnings is expensed.
Foreign currency translation
Transactions and balances
Transactions in foreign currencies are recorded at the exchange
rates applicable on the dates of the transactions. At each reporting
date, monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the relevant rates of
exchange applicable on that date. Gains and losses arising on
retranslation are included in net profit or loss for the period.
Exchange differences arising on investments in equity instruments
classified as fair value through other comprehensive income are
included in the gains or losses arising from changes in fair value
which are recognised directly in equity. To hedge its exposure to
certain foreign exchange risks, the group enters into contracts for
derivative instruments (see note A4).
Group companies
On consolidation, the statements of financial position of overseas
subsidiaries and joint ventures (none of which has the currency of a
hyperinflationary economy) are translated into sterling at exchange
rates applicable at each reporting date. The income statements
are translated into sterling using the average rate unless exchange
rates fluctuate significantly, in which case the exchange rate at
the date the transaction occurred is used. Exchange differences
resulting from the translation of such statements of financial
position at rates prevailing at the beginning and end of the
period, together with the differences between income statements
translated at average rates and rates ruling at the period end, are
dealt with as movements on the group’s cumulative exchange
reserve, a separate component of equity. Such translation
differences are recognised as income or expense in the period in
which the operation is disposed of.
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC A7 Accounting policies continued
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate. The group has
elected to treat goodwill and fair value adjustments arising on
acquisitions before the date of implementation of IFRS 3 ‘Business
Combinations’ (1 April 1999) as sterling-denominated assets and
liabilities.
Where leases have a term of less than 12 months from the
commencement date and do not have a purchase option, the group
applies the short-term lease recognition exemption available under
IFRS 16. The group applies the low value recognition exemption
permitted by the standard to leases of assets with a value of less
than £2,500. Payments for short-term and low value leases are
instead charged to operating costs on a straight-line basis over the
period of the lease.
Statement of cash flows
Grants and contributions received
Grants and contributions received arise from transactions
with customers, typically property developers, that result in
the expansion of the group’s water and wastewater network
and therefore its fixed asset base. Given that these grants and
contributions are used to fund expenditure that results in the
enhancement of the group’s network assets, the cash inflows are
classified within investing activities in the period.
Interest payments and receipts
IFRS allows interest payments and interest receipts to be classified
within operating activities or financing activities/investing
activities. The group classifies interest payments and interest
receipts within operating activities, with management viewing
these in conjunction with other operating cash flows in assessing
the ability of the group to maintain its operating capability.
Support costs
Costs of time and resources incurred by the group’s support
functions that is capitalised in the period (see page 216) is included
in purchase of property, plant and equipment within investing
activities. These cash flows represent expenditures that have been
made for resources intended to generate future income and cash
flows, and the group deem these to therefore meet the definition of
an investing activity.
Cash flows on derivatives
The cash flows on derivatives as a result of the group’s hedging
activities are presented together with the cash flows relating to the
underlying hedged item to provide a more faithful representation of
the substance of the transaction.
Taxes paid
Taxes paid by the group are presented as cash flows from operating
activities. The group deem it impracticable to identify the tax cash
flows with respect to individual transactions, which may themselves
be presented in investing activities or financing activities, and
instead present total tax cash flows as operating activities.
Dividend receipts
Dividends received from joint ventures have been presented in
investing activities, with these cash receipts deemed to represent a
return on investments previously made by the group.
Grants and contributions
Grants and contributions receivable in respect of property, plant
and equipment are treated as deferred income, which is credited to
the income statement over the estimated useful economic lives of
the related assets.
Leases
At inception of a contract the group assesses whether a contract
is, or contains, a lease. Where a lease is present, a right-of-use
asset and lease liability is recognised at the commencement date.
The lease liability is measured at the present value of future lease
payments due over the term of the lease, with the right-of-use
asset recognised as property, plant and equipment at cost. This is
generally equivalent to the initial measurement of the lease liability.
The group has elected to apply a practical expedient permitted by
IFRS 16 whereby for the fixtures, fittings, tools and equipment asset
class of leases the lease and non-lease components of the contracts
are not separated, and instead are both accounted for as if they
were a single lease component. Where non-lease components
exist they are embedded within the lease payments, and the group
deems that separation of such contracts into their constituent parts
for this asset class would generally not be practicable nor have a
material effect on the financial statements. IFRS 16 requires that
where this practical expedient is applied, it is applied to the entire
class of similar assets. The group has not applied this expedient to
the remaining lease asset classes. Non-lease components include
service charges, maintenance charges, and monitoring charges. For
lease asset classes where the expedient has not been applied, non-
lease components are excluded from the projection of future lease
payments and are recorded separately within operating costs on a
straight-line basis.
Lease payments are discounted using the group’s incremental
rate of borrowing if the interest rate implicit in the lease cannot
be readily determined. For materially all of the group’s leases,
the group’s incremental rate of borrowing is used. This rate is
calculated using a number of inputs, being observable risk-free
gilt rates, specific data based on bonds already in circulation for
the relevant group company, as well as data from the wider utility
sector. Further adjustments for payment profile and the term of the
lease are made.
After the commencement date, the lease liability is increased for
the accretion of interest (being the unwinding of the discounting
applied to future lease payments) and reduced by lease payments
made. In addition to this the carrying amount is updated to reflect
any remeasurement or lease modifications. Remeasurements are
typically required as a result of rent reviews or changes to the lease
term. In these cases a corresponding adjustment to the right-of-use
asset is made.
Depreciation of right-of-use assets is charged on a straight-line
basis over the term of the lease. Lease payments are instead
charged to the income statement on a straight-line basis over the
period of the lease.
259
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Notes to the financial statements – appendices
A8 Subsidiaries and other group undertakings
Details of the group’s subsidiary undertakings, joint ventures and associates are set out below. Unless otherwise specified, the registered
address for each entity is Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey, Warrington, WA5 3LP,
United Kingdom. For further details of joint ventures and associates please see note 12.
Subsidiary undertakings
Great Britain
Halkyn District Mines Drainage Company Limited
Lingley Mere Management Company Limited
North West Water International Limited
North West Water Limited
United Utilities (Overseas Holdings) Limited
United Utilities Energy Limited
United Utilities Healthcare Trustee Limited
United Utilities International Limited
United Utilities North West Limited
United Utilities Pensions Trustees Limited
United Utilities Property Services Limited
United Utilities Renewable Energy Limited
United Utilities Total Solutions Limited
United Utilities Utility Solutions (Industrial) Limited
United Utilities Water Finance PLC
United Utilities Water Limited
UU (ESPS) Pension Trustee Limited
UU Group Limited
UU Secretariat Limited
YCL Transport Limited
United Utilities Bioresources Limited
The Netherlands
United Utilities (Tallinn) BV(1)
Class of
share
capital held
Proportion of
share capital
owned/voting
rights %* Nature of business
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
99.9 Dormant
87.0
Property management
100.0 Non-trading (formerly holding company)
100.0 Dormant
100.0 Holding company
100.0
Energy generation
100.0 Corporate trustee
100.0 Consulting services and project management
100.0 Holding company
100.0 Corporate trustee
100.0
100.0
Property management
Renewable energy generation
100.0 Non-trading
100.0 Holding company
100.0
Financing company
100.0 Water and wastewater services
100.0 Corporate trustee
100.0 Dormant
100.0 Dormant
100.0 Non-trading
100.0 Wastewater services
Ordinary
100.0 Non-trading (formerly holding company)
Joint ventures
All joint ventures are accounted for using the equity method and are strategic to the group's activities to varying degrees.
Great Britain
Lingley Mere Business Park Development Company
Limited
Selectusonline Limited
Water Plus Group Limited(2)
Water Plus Limited(2)
Water Plus Select Limited(2)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50.0 Development company
16.7
Procurement portal
50.0 Holding company
50.0 Water and wastewater retail services
50.0 Water and wastewater retail services
* Shares are held by subsidiary undertakings rather than directly by United Utilities PLC
Notes:
(1) Registered address: Herikerbergweg 88, 1101 CM Amsterdam, the Netherlands.
(2) Water Plus Limited and Water Plus Select Limited are wholly owned subsidiaries of Water Plus Group Limited. Registered address: Two Smithfield, Leonard
Coates Way, Stoke-on-Trent, United Kingdom, ST1 4FD.
260
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Five-year summary – unaudited
The financial summary (unaudited) set out below has been derived from the audited consolidated financial statements of United Utilities
Group PLC for the five years ended 31 March 2021. Underlying profit measures and net debt have been re-presented for the years ended 31
March 2017 to 31 March 2020 so that they are presented on a consistent basis to the measures presented for the year ended 31 March 2021.
Further detail of the changes to how underlying profit measures are presented can be found on pages 82 to 83, and further detail of the
changes to how net debt is calculated can be found on page 236.
Year ended 31 March
Continuing operations
Revenue
Reported operating profit
Underlying operating profit
Reported profit before tax
Underlying profit before tax
Reported profit after taxation
Underlying profit after tax
Reported earnings per share (basic)
Underlying earnings per share
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
1,808.0
1,859.3
1,818.5
1,735.8
1,704.0
602.1
602.1
551.0
460.0
453.4
383.0
66.5p
56.2p
630.3
732.1
303.2
534.8
106.8
486.3
15.7p
71.3p
634.9
677.6
436.2
500.9
363.4
449.5
53.3p
65.9p
636.4
639.1
432.1
411.0
354.6
389.6
52.0p
57.1p
605.5
612.8
442.4
418.7
433.9
365.0
63.3p
53.5p
Dividend per ordinary share
43.24p
42.06p
41.28p
39.73p
38.38p
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Total net assets and shareholders’ equity
Net cash generated from operating activities
Net cash used in investing activities
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Net debt
RCV gearing(1) (%)
13,179.0
1,012.9
14,191.9
(10,157.2)
(994.8)
(11,152.0)
3,039.9
859.4
(549.3)
(89.7)
220.4
7,305.8
62%
13,215.7
828.4
14,044.1
(9,877.3)
(1,204.7)
(11,082.0)
2,962.1
810.3
(593.9)
(27.8)
188.6
7,227.5
61%
12,466.4
721.4
13,187.8
(9,025.0)
(1,052.0)
(10,077.0)
3,110.8
832.3
(627.7)
(377.4)
(172.8)
11,853.6
1,149.9
13,003.5
(8,911.1)
(1,141.5)
(10,052.6)
2,950.9
815.6
(723.2)
184.7
277.1
11,768.2
657.9
12,426.1
(8,914.7)
(689.8)
(9,604.5)
2,821.6
820.8
(804.6)
22.0
38.2
6,990.4
60%
6,816.8
61%
6,326.7
59%
Note:
(1) Regulatory capital value (RCV) gearing is calculated as group net debt (see note A2), divided by the RCV expressed in out-turn prices, of United Utilities
Water Limited.
261
FINANCIAL STATEMENTSAnnual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU. Shareholder information
Key dates
− 24 June 2021
Ex-dividend date for the 2020/21 final dividend
− 25 June 2021
Record date for 2020/21 final dividend
− 23 July 2021
Annual general meeting
− 2 August 2021
Payment of 2020/21 final dividend to shareholders
Electronic communications
We’re encouraging our shareholders to receive their shareholder
information by email and via our website. Not only is this a
quicker way for you to receive information, it helps us to be more
sustainable by reducing paper and printing materials and lowering
postage costs.
Registering for electronic shareholder communications is very
straightforward, and is done online via shareview.co.uk which is a
website provided by our registrar, Equiniti.
− 24 November 2021
Log on to shareview.co.uk and you can:
Announcement of half-year results for the six months ending
30 September 2021
− 16 December 2021
Ex-dividend date for 2021/22 interim dividend
− 17 December 2021
Record date for 2021/22 interim dividend
− 1 February 2022
Payment of 2021/22 interim dividend to shareholders
− May 2022
Announce the final results for the 2021/22 financial year
− June 2022
Publish the Annual Report and Financial Statements for the
2021/22 financial year
•
set up electronic shareholder communication;
• view your shareholdings;
• update your details if you change you address; and
• get your dividends paid directly into your bank account.
Please do not use any electronic address provided in this annual
report or in any related document to communicate with the
company for any purposes other than those expressly stated.
Online annual report
Our annual report is available online. View or download the full
Annual Report and Financial Statements from:
unitedutilities.com/corporate
unitedutilities.annualreport2021.com
Make life easier and have you dividends paid straight into
your bank account
• The dividend goes directly into your bank account and is
available immediately;
• No need to pay dividend cheques into your bank account;
• No risk of losing cheques in the post;
• No risk of having to replace spoiled or out-of-date cheques;
and
•
It’s cost-effective for your company.
To take advantage of this, please contact Equiniti via
shareview.co.uk or complete the dividend mandate form you
receive with your next dividend cheque.
If you choose to have your dividend paid directly into your bank
account you’ll receive one tax voucher each year. This will be
issued with the interim dividend normally paid in February and will
contain details of all the dividends paid in that tax year. If you’d
like to receive a tax voucher with each dividend payment, please
contact Equiniti.
262
FINANCIAL STATEMENTSunitedutilities.com/corporate United Utilities Group PLC Shareholder information
Keeping you in the picture
You can find information about United Utilities quickly and
easily on our website: unitedutilities.com/corporate. Here the
Annual Report and Financial Statements, responsible business
performance, company announcements, the half-year and final
results and presentations are published.
Registrar
The group’s registrar, Equiniti, can be contacted on:
0371 384 2041 or textphone for those with hearing difficulties:
0371 384 2255. Lines are open 8.30 am to 5.30 pm, Monday to
Friday excluding public holidays in England and Wales.
The address is:
Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex, BN99 6DA.
Overseas shareholders may contact them on:
+44 (0)121 415 7048
Equiniti offers a share dealing service by telephone:
0345 603 7037 and online: shareview.co.uk/dealing
Key shareholder facts
Balance analysis as at 31 March 2021
7
0
.
2
6
8
2
,
6
5
0
0
0
,
1
-
1
5
5
.
4
5
8
4
,
3
1
-
1
0
0
,
1
0
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0
0
1
,
7
7
.
4
1
8
8
2
-
1
0
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0
0
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,
0
0
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1
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9
.
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-
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0
0
0
0
0
1
,
3
2
.
0
4
8
4
.
5
3
2
8
1
1
% of shares
Number of
holdings
,
-
1
0
0
0
0
0
,
1
,
0
0
0
0
0
0
0
1
,
,
1
0
0
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S
Equiniti also offers a stocks and shares ISA for United Utilities
shares: call 0345 300 0430 or go to: shareview.co.uk/dealing
Shareholders by location
19%
10%
29%
42%
United Kingdom
North America
Europe
Rest of the World
Dividend history – pence per share
Interim
Final
Total ordinary
2017
12.95
25.92
38.87
2018
13.24
26.49
39.73
2019
13.76
27.52
41.28
2020
14.20
28.40
42.60
2021
14.41
28.83
43.24
Warning to shareholders
Please be very wary of any unsolicited contact about your
investments or offers of free company reports. It may be from
an overseas ‘broker’ who could sell you worthless or high-risk
shares. If you deal with an unauthorised firm, you would not
be eligible to receive payment under the Financial Services
Compensation Scheme. Further information and a list of
unauthorised firms that have targeted UK investors is available
from the Financial Conduct Authority at:
fca.org.uk/consumers/unauthorised-firms-individuals
This document is printed on Revive 100% Recycled Silk which is made from
100% FSC® Recycled pulp and post-consumer waste paper. This reduces
waste sent to landfill, greenhouse gas emissions, as well as the amount of
water and energy consumed.
Important information
Cautionary statement:
The Annual Report and Financial Statements (the annual report) contains certain forward-looking statements with respect to the operations, performance
and financial condition of the group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and
developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of
preparation of this annual report and the company undertakes no obligation to update these forward-looking statements. Nothing in this annual report should
be construed as a profit forecast. Certain regulatory performance data contained in this annual report is subject to regulatory audit.
Terms used in this report:
Unless expressly stated otherwise, the ‘group’, ‘United Utilities’, ‘UU’ or ‘the company’ means United Utilities Group PLC and its subsidiary undertakings; the
‘regulated business’, ‘regulated activities’ or ‘UUW’ means the licensed water and wastewater activities undertaken by United Utilities Water Limited (formerly
United Utilities Water PLC) in the North West of England.
263
Annual Report and Financial Statements for the year ended 31 March 2021Stock Code: UU.
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United Utilities Group PLC
Haweswater House
Lingley Mere Business Park
Lingley Green Avenue
Great Sankey
Warrington
WA5 3LP
Telephone +44 (0)1925 237000
Stock Code: UU.
Registered in England and Wales
Registered number 6559020
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