Our approach to innovation and Systems Thinking is radically changing the way we operate, and leading the way for the industry. It has helped us to deliver sustainably better service, greater resilience and improved efficiency, contributing to outperformance that we are sharing with customers.


Industry-leading customer satisfaction across a range of metrics

Confident of delivering totex outperformance of £100 million against 2015–20 allowance

Sharing anticipated net outperformance through £250 million additional investment in resilience

Reported operating profit up 5 per cent at £636 million and underlying operating profit up 4 per cent at £645 million

Total dividend of 39.73 pence, in line with our growth policy for this regulatory period

Our strategy has, for many years now, focused on putting customers first in everything we do.

The improvement in customer satisfaction that we have delivered as a result of this positions us as a leader in the sector, recognised across a range of metrics, and our approach to vulnerability and affordability is setting new benchmarks for the industry.

Our industry faces many challenges, ranging from recent increased political scrutiny and preparations for the next regulatory review, to planning for long-term resilience needs to cope with a changing climate and growing population. We intend to rise to all of these challenges, building on the trust our customers place in us to provide an outstanding service, invest wisely to deliver additional benefits, and offer exceptional value for money.

We are using advanced technology and innovations from around the world and across different sectors to accelerate our implementation of Systems Thinking. This is delivering sustainable improvements in service, resilience and efficiency, and is contributing to outperformance in the current regulatory period. The enhanced capability that Systems Thinking has delivered gives us confidence heading into the next regulatory period and beyond.

We are sharing our anticipated net outperformance with customers by investing in projects that were not part of our original regulatory settlement for this regulatory period but that will help deliver long-term resilience for the benefit of customers and the environment, and ease the burden of future customer bills to help improve affordability.

This philosophy is central to our strategy and will help deliver long term value for customers, the environment and shareholders.

Customer focus

Our customers are benefiting from sustained improvements in service, efficiency and greater resilience, and this is demonstrated by the continuous improvements we have made in our customer satisfaction scores.

This year, we achieved our best ever scores against Ofwat’s qualitative Service Incentive Mechanism (SIM), and we were delighted to be positioned first in the industry in the final wave of the year, and to be in an upper quartile position for the year overall.

Our best practice in customer satisfaction has received external recognition through several awards, many of which look beyond the water sector. We achieved an upper quartile performance in the UK Customer Satisfaction Index, which covers all industries, and we are the leading listed company for the Consumer Council for Water’s assessment of household complaint numbers.

The North West suffers from high levels of extreme deprivation. Helping vulnerable customers is a high priority for us. We are supporting more than 50,000 customers through our Priority Services scheme, which provides dedicated support for those customers who are experiencing short or long-term personal challenges in their lives, such as physical or mental health difficulties, as well as those struggling financially.

We have far surpassed our target for the number of customers we would help through our financial assistance schemes in this regulatory period. In January, we hosted the first ever North West Affordability summit, engaging with many of our stakeholders including customers and building on our already leading position on affordability and vulnerability.

Notwithstanding our benchmark debt management processes and wide range of schemes to help customers struggling to pay, the high levels of income deprivation in our region mean that bad debt and cash collection will remain a principal challenge for us.

We have made significant inroads in this area, reducing household bad debt even further to 2.3 per cent in 2017/18, from 2.5 per cent in 2016/17.

CEO And Chairman

Pictured: Steve Mogford, Chief Executive Officer, and Dr John McAdam, Chairman

Financial performance

Group revenue was £32 million higher than last year, at £1,736 million, reflecting our allowed regulatory revenue changes partly offset by the accounting impact of our non-household retail joint venture, Water Plus, which completed on 1 June 2016.

Reported operating profit was up £31 million, at £636 million, reflecting the underlying movements as well as reduced profits last year due to costs associated with preparing the business for open competition in the non-household retail sector and other restructuring costs.

Underlying operating profit was up £22 million, at £645 million, reflecting the increase in revenue and lower operating costs, partly offset by an increase in depreciation and amortisation.

Reported profit before tax was down £10 million, at £432 million, reflecting the underlying movements as well as fair value movements and other adjusting items as outlined in the underlying profit reconciliation table on Financial performance.

Underlying profit before tax was down £19 million, at £370 million, as the increase in underlying operating profit was more than offset by a £40 million increase in the underlying net finance expense. The increase in the underlying net finance expense is mainly due to the impact of higher RPI inflation on our index-linked debt.

Reported earnings per share was 52.0 pence, which is higher than the underlying figure, mainly reflecting the net effect of fair value gains on debt and derivative instruments, capitalised borrowing costs, and interest on swaps and debt under fair value option, all of which are excluded from the underlying profit figure.

Underlying earnings per share was 44.7 pence, more than covering the dividend.

The board has proposed a final dividend of 26.49 pence per ordinary share, taking the total dividend for 2017/18 to 39.73 pence. This is an increase of 2.2 per cent, in line with our policy for this 2015–20 regulatory period of targeting an annual growth rate of at least RPI inflation through to 2020.

We have a robust capital structure, with gearing of 61 per cent as at 31 March 2018 (measured as group net debt to ‘shadow’ regulatory capital value, which adjusts for actual capital spend to date), sitting comfortably within our policy target range of 55 per cent to 65 per cent. This supports a solid investment grade credit rating. Our regulated company, United Utilities Water Limited, has long-term credit ratings of A3 from Moody’s, on stable outlook, and A- from Standard & Poor’s, on stable outlook.

This helps us retain efficient access to the debt capital markets throughout the economic cycle, and we have a low cost of debt already locked-in that places us in a strong position to substantially outperform our industry allowed cost of debt for the 2015–20 regulatory period.

Our pension scheme asset-liability matching approach continues to prove its effectiveness, providing us with stability in times of turbulent market conditions. We had an IAS 19 surplus of £344 million at 31 March 2018.

During the year, our Water Plus joint venture with Severn Trent has, along with the wider market, experienced an increase in its working capital arising from data and billing issues following market opening. As a consequence, loans owed to the group by Water Plus have increased by £17 million to £136 million.

Creating value for our community

We are a highly visible service provider in the North West and do our best to be a good neighbour and add value by investing in the communities where we live and operate.

We have a long-standing partnership that helps to regenerate neighbourhoods impacted by our work, for example our work to improve our mains and sewers. As part of this initiative, we have supported a range of local environmental projects around our Davyhulme wastewater treatment works in Greater Manchester, including the creation of a community orchard.

We work with schools across our region, with workshops encouraging a focus on the importance of saving water, not flushing the wrong things down the toilet, practical tips for the home and garden, and protecting and enhancing our beaches and bathing waters.

Our employees love getting involved in local communities through volunteering, fundraising, and charitable giving. We support and encourage this, offering paid volunteering leave, matching charitable fundraising efforts, and through our payroll giving scheme.

Whether it’s walking the hills, spotting wildlife, swimming or sailing, locals and tourists would agree that the North West is a nature lover’s delight. We work to continually maintain and enhance the environment in our region, and we encourage the public to access our land and regional bathing waters for relaxation and recreation, and to enjoy them safely.

Operational performance

Innovation and our Systems Thinking approach are radically changing the way we operate.

We have driven efficiency into the delivery of our 2015–20 investment programme through changing our delivery model, and are creating value through greater use of innovation and advanced technology alongside our substantial capital investment programme.

As well as customer service, operational and environmental benefits, this strategy has optimised performance under our outcome delivery incentives (ODIs) and delivered efficiency savings, contributing to regulatory outperformance beyond the significant savings that were already included in our business plan.

We are particularly proud that we have delivered these efficiencies whilst maintaining highly effective capital delivery, as reflected in our Time: Cost: Quality index (TCQi) score which remains high at over 90 per cent.

Total net regulatory capital expenditure in the year, including £147 million of infrastructure renewals expenditure, was £816 million. This brings our cumulative net regulatory capital expenditure for the first three years of this five-year period to around £2.4 billion, reflecting the planned acceleration that we have implemented in order to optimise our operational performance and reap the benefits of enhancements earlier in the regulatory period.

Performance against our regulatory contract

The low cost of debt we have already locked-in places us in a strong position to substantially outperform compared with the allowed cost of debt under industry price limits.

We are also confident in delivering outperformance of £100 million compared with our totex allowance for the 2015–20 regulatory period. This is in addition to £400 million of savings that we had already committed to deliver over the period to meet our final determination.

Our ODIs get increasingly challenging as we progress through this regulatory period, and we received a net £7.0 million penalty for 2017/18. Our wastewater ODI performance remains strong, but we recognise that against our water measures there are still areas in which we can improve and we are committed to achieving this. Our water metrics over the first three years of this regulatory period have been impacted by a number of big bursts on our network. We have been successful in minimising the impact of these events on customers, and we are working hard to improve performance in this area.

Our cumulative net ODI performance for the first three years of the period remains positive at a net £2.2 million reward, and we are on track to deliver a good performance against one of our ODIs that will only impact the final year of this regulatory period, 2019/20, in relation to our West Cumbria pipeline project. Read more about this project on Business insight - A collaborative approach.

Our performance in the first three years of this regulatory period exceeds our initial expectations and we now expect, in the absence of any unforeseen events over the remainder of the 2015–20 period, to end the period with a cumulative net reward on ODIs.

We are sharing our anticipated net outperformance by reinvesting to improve resilience for the benefit of customers. We have increased the additional investment that we are making available in this regulatory period from £100 million to £250 million. This is in line with the approach we took in the 2010–15 regulatory period.

This takes our total 2015–20 net regulatory capital expenditure programme to around £3.8 billion. In addition, we expect to invest up to £100 million in non-regulated projects, subject to acceptable returns. In the first three years of the 2015–20 period we have invested £59 million in non-regulated projects, primarily in solar power.

Preparing for the long term

We are advanced in our plans for PR19, informed by extensive engagement with customers regarding their needs and priorities. We are on track to submit our PR19 business plan in September 2018 and we are confident that it will deliver against Ofwat’s four key themes – great customer service, affordable bills, innovation and resilience. These are not new for us in the way that we run our business and have been areas of focus for some time. Indeed, in many of these areas we are a leader in the industry and already have plans in place to build on this in the 2020–25 regulatory period and beyond.

We have recently finished consulting with customers and other stakeholders on our new 25-year Water Resources Management Plan, balancing investment with affordability in our long-term planning for the 2020–45 period.

Strong corporate responsibility credentials

We operate in a manner that aims to deliver the highest levels of corporate governance and our board continues to provide sound and prudent governance, consistent with the principles of the UK Corporate Governance Code.

In July 2017, we were delighted to retain Industry Leading Company status, as measured through the Environment Agency’s annual assessment – the only listed company to do so. We achieved frontier performance for the sector with the lowest number of pollution incidents, alongside our best-in-sector level of self-reporting.

Our drinking water quality has improved again and is the best it has ever been, and we are leading the industry in our approach to resilience.

We retained our World Class rating in the Dow Jones Sustainability Index for the tenth consecutive year, a very good achievement in light of the ever-evolving standards.

We have consistently met, or outperformed, our regulatory leakage targets and our performance to date keeps us on track to meet our 2015–20 regulatory targets.

By 2020, we aim to reduce our carbon footprint by 50 per cent compared with a 2005/06 baseline and we are on track to do so. Our carbon footprint has reduced by one-third since 2005/06, helped by a 4 per cent reduction in electricity use. In addition, we generated more renewable energy than ever before, 12 per cent higher than the previous year. This illustrates good progress in our energy strategy to use less and generate more renewable energy.

Our employees

The commitment and dedication of our people is critical to the sustained improvements we have delivered in operational performance and customer service.

Employee engagement of 79 per cent this year, as measured through our annual Employee Voice survey, is higher than the UK norm. We are immensely grateful for the contribution our people make to the company’s performance.

We have been successful in attracting and retaining people, having regenerated our graduate and apprentice schemes in 2010 and continuing to expand them to help provide an optimal balance of skills and experience within the business.

In the first year of our apprentice scheme in 2010 we took on six apprentices, and have built this intake to 42 in 2017, taking our total programme to 118 currently employed. We are accredited by four awarding bodies and named as one of the top 100 apprenticeship employers.

We have 55 people currently on our graduate scheme, across a range of different disciplines, including finance, engineering, commercial and project management. We encourage diversity among the new generation we are bringing into this industry and 40 per cent of our current graduates are female.

We are committed to helping local schools and have trained Science, Technology, Engineering and Mathematics (STEM) ambassadors. We frequently attend careers events across our region and have good links with local universities.

Last year we launched a partnership with Teach First, a charity that strives to end educational inequality by placing and training graduates to teach in low income communities. This helps with our desire to be more active with schoolchildren in communities that are hard to reach within our region, helping them to improve their employability skills, raising awareness of future career opportunities, and offering our employees development opportunities in coaching and mentoring.

We work with our supply chain partners to give young people not in education, employment or training (NEETs) the chance to realise their potential, and gain hands on experience and basic skills training in a real workplace environment, bringing social and economic benefit to the region.

Our employee accident frequency rate for 2017/18 was 0.101 accidents per 100,000 hours, compared with a rate of 0.196 in 2016/17. Our contractor accident frequency rate in 2017/18 was 0.092 compared to 0.087 in 2016/17. As part of our health and safety improvement programme, we continue to make improvements to our corporate health, safety and wellbeing management system and through local initiatives. For example, in the last 12 months we have deployed around 600 devices to high-risk lone workers to increase their level of personal protection.

We have been awarded the workplace wellbeing charter, continue to retain Occupational Health and Safety Assessment Series (OHSAS) 18001 accreditation, and have achieved the Gold Health and Safety Award from the Royal Society for the Prevention of Accidents (RoSPA) for the sixth consecutive year.

We aim to ensure that all our colleagues go home safe and well and we firmly believe that nothing we do is worth getting hurt for.


Systems Thinking and the implementation of innovative technology has put us in a strong position as we look ahead to the next regulatory review.

Our leading operational performance is supported by a robust financing position. We are outperforming the regulatory contract for the 2015–20 period, allowing us to fund additional investment for the benefit of customers, and we have plans in place to improve yet further, giving us confidence heading into the 2020–25 regulatory period and beyond.

We have achieved industry-leading environmental and water quality performance scores, and we are making a substantial contribution to the North West. Our £3.8 billion investment programme is helping to enhance the environment that provides a home for wildlife, areas for recreation for our community, and a major pull for tourism in our region.

Our work supports thousands of jobs, both directly and indirectly through our supply chain, which helps underpin the success of the North West economy through employment and training opportunities.

We are planning and preparing for the next price review and for long-term challenges through our new 25-year Water Resources Management Plan. Through this, we will ensure that we remain resilient in the face of increasingly extreme weather and prepare to support a growing population in the North West.

Last, but by no means least, we want to give a big thank you to our employees, customers and wider stakeholders for their continued support.

Dr John Mcadam signature

Dr John McAdam


Steve Mogford signature

Steve Mogford

Chief Executive Officer