United Utilities Group PLC (UU) Earnings Call Transcript
August 13, 2026
Earnings Call Speaker Segments
So good morning, everyone. Thank you very much for joining us today. This morning, as you all will be aware of what published its draft decision its inaugural totex reopener process, which is, of course, the topic of today's call. The format for the session will be a brief presentation by our CEO, Louise Beardmore and CFO, Phil Aspin. And then I think we'll have plenty of time to take questions at the end of the presentation. So with that, I'm going to hand straight to you, Lou, to kick us off.
Well, great. Thanks, Chris. And thanks ever so much for everybody joining this morning. Im conscious there's a lot going on. You'd be pleased to know we'll keep this brief. We've just got a couple of slides that provide some of the overview. But more than anything, as we said, this is your opportunity to ask any questions that you may have of ours. So look, for this morning have published their draft decision. That's completely in line with our expectations. That gives us an allowance of GBP 975 million. And what I'm really pleased to be able to report is that Ofwat has supported the majority of our first year's unpaid submission. So 97% of the scope that we put forward. That leaves us in a position with that first one as they annualize, we opened a process in terms of being on track to deliver that GBP 2.5 billion worth of additional growth that we identified back in April when we updated our guidance as we go through that coming annualized process. I think what we're really pleased to see this morning is the supportive regulatory backdrop and the fact that we've been talking about the benefits of this annualized process as we move forward because more than anything else, it gives us the ability to respond to new and emerging needs as they come through. And there is a huge amount that's happening here in the Northwest. So the fact that we're able to put these in-year adjustment claims in, is a really strong position to be in. I'm really pleased that we've seen our asset health submission virtually approved in full. We've seen our Windermere submission approved in full. There's some real positives. And I think what's great about that asset health submission is that this was a sort of key legacy of [indiscernible] in his recommendations about the need to make sure that there was rates of investment in base assets. We've got some ongoing discussions to have with Ofwat in relation to funding of industrial growth projects and specific high net and Hightnet is a government-based project, a series of partners, and we're in active conversations with both the government and around that project specifically. I suppose more than anything else, positively, it gives us the ability to sort of sum back, be very clear and reinforce the guidance that we provided back in April, the capital investment of circa GBP 11.5 billion, the asset base growing to GBP 25 billion by 2030 and those regulatory returns of 10% to 11%. So look, on this next slide, I thought it would be helpful to just provide that bridge in terms of some of the numbers. I'm conscious there's a lot of data, as always, out this morning. So as I've said, that GBP 975 million worth of totex that's been approved. Obviously, that's GBP 1.2 million after inflation. What is really encouraging is that Ofwat have been clear where they're looking for additional evidence. What the evidence is that they're looking for? And again, this is a bit of a step change that we've seen compared to submissions in the past. The team are already on with pulling that information together and providing that evidence pack . And then also, we're very clear around these future submissions. And we talked back in April about the fact that scope would be fluid, it would move around. But actually, we're really clear. And more importantly, we have got total visibility of what that scope looks like and what that opportunity looks like as we go forward. And therefore, we shape each one of those reopeners accordingly. We're already in conversations with Ofwat about what's going in the 2027, we opened a process. And it looks like to be helpful on this next slide, just to remind everybody of what we said and also some new fees that are coming through as well. So as part of those additional submissions in future years, and just to reiterate, this is all consistent with the guidance that we previously provided, is that we've got a huge amount of growth that's coming as a result of the defense investment that's happening here in the Northwest and particularly chip building programs that are happening up in Barrow. The proactive asset replacement. So as I said at the beginning, I'm really pleased to see Ofwat taking such a positive set on asset replacement. But also, as I've said, we're already in active conversations about asset pluses that they're looking to see and starting to build those evidence cases. And as well as that, we've got some new requirements that come through, too. So only last week, we were in a meeting with the Drinking Water Inspectorate and the Chief Inspector Marcus Wink and [indiscernible] Who are now calling more an additional submission around cyber resilience and security. So an additionality to what we talked about, and all of that as well as the opportunity around what we take for month 9 and bring into AMP8 make sure that we continue to smooth that supply chain cycle. So a sort of positive start to the first submission that we put in, great that they've identified that need and that scope, no opportunity to further dialogue and conversation. Just thought to be helpful to outline the process and the time line. So obviously, 13th of August today, we've got to go back by the 24th of September. And then we've got a final decision that is due just before Christmas on the 15th. And then as I've said, we then get into these annualized reopening process. So it's a [indiscernible] As we go through each of the following years. So with that, I'll probably hand over to Phil just to reiterate our guidance.
Thanks, Lou. Good morning, everyone. Yes. As we already said, effectively, we're really pleased today to be reaffirming our guidance on our financial claim work. And just calling out the 3 key items here. So regulatory returns, 10% to 11% nominal. 10% compound growth rate in our asset base and about GBP 11.5 billion. And as you all know, a very strong balance sheet. We're gearing in the bottom half would be 55% to 65% range, securing a robust set of credit ratings and good access to the capital markets. So with that, I guess. I pass on to questions.
Thanks Phil, short and sweet and to the point. So first up, we've got Pavan, would you like to ask your question?
I've got two to start with, please. Lou, I appreciate it's obviously a hours let alone days. But based on what you've seen so far, what do you think the key issues are that you need to be getting through with all Ofwat areas where you were maybe a bit more disappointed or where there were challenges to what you submitted. It would be great to hear your thoughts there? That's my first question. And then secondly, maybe on the flip side, looking differently at what they've approved overall throughout the sector or you mentioned in your last slide around cyber, are you starting to see any areas of opportunity that you think could provide even more upside to what you guided us to earlier this year? Those are my two questions.
Okay. Thanks, Pav. Look, I'll take the second question first, if you like, and then put it around. Probably too early to have a look at what everybody else has done. And I think from what we can see, we seem to have done very well in terms of what we've got approved and and that's really encouraging to see. And of what we're sort of very complementary when I spoke to them last night about the quality of the cases that we put forward and the engagement with the team. And I think that's really good. And I think the fact that they've approved a GBP 975 million worth of escape. I think, is reflective of the fact that we put the right things in and around where those investment needs were and also have been clear, if you like, about the route to deliver. In relation to where do those questions come from, I think there's one area really, which is where we've been talking to Ofwat, and we will have those conversations, which relates to the certainty of funding around industrial growth and specifically HyNet. So if we take that GBP 975 million that we've had allowed at a scope level, we've got GBP 715 million where there is certainty of funding. This GBP 260 million were we need clarity on funding. And that's because it's HyNet, it's a government project and there's multiple partners. And so we're having conversations with those partners about what that funding is. I think just from your perspective, there will be no -- that project won't be proceeding until that clarity is sort. And then the question that you asked around opportunity I think the reason that we went out, we did the raise, we were very clear our guidance that we put forward was that we could see where this opportunity was. And I think the fact we say much of our scale has been approved, is a reflection of our understanding and the ability to make sure the submissions that we're putting forward are reliant with where those needs are. And we are seeing additional things coming in all the time. Like I said, only last week, around cyber. So we always talked about that, that this would be fluid, things would move around as projects and programs move around, in terms of broader economic delivery. But where we sit today, we're confident with the guidance that we've given. And more importantly, the fact that we've got visibility of what can be in each of the hoppers.
Jenny, over to you next.
If I can hone in on the HyNet GBP 260 million spend a bit, please. As I understand it, the funding structure is not secured as we stand. So there could be the project could effectively be funded by industry themselves, in which case you may not need to spend the money. And also just on a like-for-like basis, I think there's quite a lot of confusion this morning because of also the EUR 1.4 billion that you submitted, had rapid projects which needed to be taken out, et cetera. So on a like-for-like basis, if we look at what's been approved this morning, i.e., the GBP 975 million less the GBP 260 million. What is that number comparing to what you've submitted? Because some people are saying that the Ofwat has allowed all of your bulk of your asset, I think it's not apples to apples. So if you can help us to dissect that a little bit to put it to apples-to-apples, that would be helpful.
Yes. Okay. Well, we do. I'll get Phil to just talk through the growth chart. If you could just pull back up just in terms of the -- we've tried to do that for you, Jenny, if we can just -- if my team can just reput in the presentation, and we'll see through the active -- the sort of the bridge, if you like. So if we can just redisplay that presentation slide. What isn't helpful here is we've got -- obviously, we've got real and we've got nominal. And you're right, also rapid as you can see here, is going through a separate mechanism in terms of that approval process. But Phil, do you want to just talk us through the bridge between the two?
Yes, I think try and keep this quite simple, Jenny, if I can. But I mean you've already highlighted the GBP 260 million, which is in the sort of GBP 975 million at the start of year. So effectively, there would be an extra blocking there to sort of pull by [indiscernible] So as you say, that that is subject to ongoing discussions around funding certainty and the investment will only happen if we got clarity around something certainty in delivery rig effectively. And that's the main area of ongoing discussion. And as Lou talked about in the presentation, when we actually set our guidance back in April, we were very clear that this was an area of uncertainty and that projects will come in and go out of scope through the period, and that this is the first stage of the number of reopenners. And in setting the GBP 2.5 billion to CapEx and a 10% CAGR, we did a number of scenarios looking at what may move around in that process, and we're very comfortable with the guidance we gave. And so that position is reiterated and reconfirmed to anywhere.
Sorry, just on that, if I may. So the GBP 1.4 billion you talked to include GBP 80 million of rapid and that was in nominal prices. So if we take off the AT and deflate everything. Basically, your ask going in without the HyNet piece is about GBP 1.1 billion. And what you've approved -- got approved in the GBP 975 million is with HyNet inside. Is that correct?
So that's the approval for the expenditures. So Ofwat has confirmed the need and scope and approve the expenditure effectively the sort of component that goes into the RCV is lower by a factor of the [ 260 ] you pulled out in terms of HyNet and that gives clarity of the route of funding for that of those projects. The HyNet is what needs clarity around funding route at this stage in the ongoing discussions. And as I say, that -- that was something we were very conscious about going into the process. And we've talked as we have through the process and projects moving in and out to scope through the period, and that was something we factored into our guidance at this stage we gave the guidance back in April.
Thank you very much, Jenny. Ahmed, your insightful questions, next, please.
So I have a very similar question to Jenny, but more from a RAB impact perspective for 2030. So I see we're in the table where Ofwat mentions the [indiscernible] you also mentioned a RAB impact of GBP 668 million for March 2030. So I'm assuming this is excluding the HyNet of the GBP 260 million that we have been talking about. So as and when that sort of gets approved, what should we consider that as an additional element to what I see in this sort of table 2 of the draft methodology? So a, just to clarify that. And then I mean, just maybe a sort of a broader point, where would you -- in your -- I mean, you've seen already that it's a positive step. I mean I understand the GBP 260 million point in HyNet, where else would you be seeking improvement in terms of in the run-up to the final determination in this?
Do you want to pick up the first question, Phil, and I'll do the second one?
Yes. I mean, I think you answered your own question actually, Ahmed. I think you're quite correct that the revenue allowance of GBP 975 million compares to the RCB adjustment of [indiscernible] And the GBP 260 million difference is HyNet. So effectively, you can see the allowed expenditure has got a certainty of funding for the RCV component that the ongoing discovery is around certainty of tuning for the HyNet piece, that underpins the investment effectively. That will be [indiscernible] Discussion. So Lou, do you want to pick up other areas?
Yes. I mean, of what I've been quite clear in terms of areas where they're looking for additional evidence. We've got 2 specific sites where they've asked for additional information. I think what was good was that our costs were put in line with their models. And again, I think that was reflected in what we've seen come back. So again, I think that's encouraging. So again, it's the evidence cases that they've asked for, they're just looking for specific information. So we will be going back and having that backwards and forwards conversation. So there's two specific sites that we're particularly looking at that we think the interpretation requires some element of challenge so we're having that specific conversation. And obviously, we were doing that over the next couple of days.
Okay. James, over to you.
Congratulations on the award. I have two questions. The first was related to bills. So I was wondering whether you could just clarify the position on bills because Ofwat kind of hasn't allowed any bill increases already, but I think your plan was to defer at request until the license change has gone through? So maybe you could just clarify your position? And are you confident in getting revenues in this period to cover the additional expenditure? And then the second question is on incentives. And I was wondering whether you could just clarify on Totex and ODIs. How this impacts on incentives? I think the position is that there isn't scope for Totex outperformance on the new CapEx. And I think the position is that they might adjust the ODI targets. But maybe you could just clarify if that's correct or not.
Yes. So first thing on revenue, James, you're absolutely right. We didn't -- as part we will clear as said, part of the submission that we put forward, is that we would wait as part of Ofwat's consultation that we were doing and have those conversations about revenue allowances because, obviously, you may or may not have seen it, but Ofwat launched their license change consultation last week. And therefore, we were explicit as part of the submission that we put forward is that we would have those conversations as part of that consultation process. So that's exactly what we're doing. In relation to Totex, yes, that doesn't look like there is outperformance opportunities. And I think ODIs it's not yet clear. We're just working through the documents. We probably know as much as you do at the minute in terms of working through the absolute deliverables, in terms of where they are. If you look at the things that we've put forward, they're probably less about ODI benefits, if I'm honest, there are around additional capacity into the system, additional water resources, additional waste water capacity to enable homes to be built and growth to happen as opposed to specifics of things that you might be doing that would then drive a specific outcome. So again, we're going to be working through that in the next couple of days.
And James, just to build on Louis point about the license change. Obviously, we're a little different to others because our submission was probably 1/3 asset held and 2/3 growth. And the license change conditions required to facilitate the sort of revenue allowance for growth [indiscernible] know, which is what the purpose of the consultation is that we refer to. So effectively, it makes sense for us to sort of wait until we've got that through, so then we submit one sort of application for revenue. And that's an ongoing conversation with Ofwat. And as you can see from the table is upward of allowed circa GBP 200 million of revenue adjustment at the end of AMP, but we'll be seeking to get as an [indiscernible] As we move forward.
Dominic, next.
A couple of questions from me, please, if I might, 3 or 4. First one, the HyNet one. Can you just remind me on the time line expected for a decision? Is it realistic that we can get something through before December 15 for your fine? Or is this going to be sort of a permanent rolling sort of addition? Secondly, on the accounting of this, could you just help me out here on this one. So first of all, you get no revenue announced in period. How are you going to be accounting for in your IFRS accounts for the cost of finance and depreciation? Would you be capitalizing this? Or is this going to be sort of an earnings drag through until you start to see the revenues sort of kick in? And I'd just say probably on that issue, could you just expect me why the RAB is growing slower in your reopeners, I think [indiscernible], whatever it is a RAB increase when you actual expenditure is going to be significantly higher. And then the other thing is maybe there's a revenue adjustment coming through and the cost of capital that you allowed on it, I presume is kind of in the mix rolled up and then we're going to have to model it and revenue higher than the FD in AMP, I presume. Is that how it's going to be working through? So they are my sort of questions.
All right. I'll pick up on the first one. So in relation to time line, which is probably the easiest question. In relation to time line, Dom, as you can imagine, we've got a new Prime Minister and therefore, a new team, HyNet has a number of partners. People are extremely committed to enabling HyNet to be delivered. And it's part of the sort of strategic growth here in the Northwest. So that is continuing. And those conversations are continuing. I think what is important is the Ofwat approved the scale. So there's a [indiscernible] but actually recognizing that government here is the biggest customer in this case. We've got to just work through that time line. In relation to accounting, Phil and particularly, IFRS?
Yes. And just coming back from a HyNet, just to build on a little bit, I think as well. I think clearly, Dominic, you asked about 15% and what will be key for the [indiscernible] understanding the principle Ofwat, as to the route of funding around HyNet. And that's needed to guarantee the sort of investment profile effectively. So without certainty funding, it's difficult for us to proceed with the investment. So that will be the main first conversation. On the accounting, you're quite right. So currently, there's no revenue in some determination because that's part of an ongoing conversation and is something Ofwat is aware of. So we do expect that to change, and that will be the GBP 200 million of our asset for [indiscernible] to James. You asked how the accounting will be done for the assets that you just [indiscernible] IFRS accounting. So the investments or the investment is effectively capital investments that will be capitalized. As a standard under IFRS accounting, you also capitalized interest in relation to financing costs for assets that's a standard effectively. So that won't change. And then I think you had a question around the difference between the RAB and I think it was effectively between the sort of surface [indiscernible] as a number a couple of different numbers banding around and the [indiscernible] out expenditure. And I think that is effectively behind that sort of GBP 260 million we've been talking about. So with the order approved the allowance of the GBP 975 million, that includes the GBP 260 million of HyNet, which means that the balance goes into the RCV and has a secured funding route. The GBP 260 million is subject to ongoing discussion around the clarity of funding route to support that investment. And that's the [indiscernible] And then there will be other [indiscernible] sort of adjustments that will be made such as the GBP 200 million on revenue at the moment, but we're going to [indiscernible] we going forward if it's not taking the revenue in period. So probably quite complicated. I think in these very early few hours post determination, it's probably about as good as I can guide on at this stage. We will be able to have more detailed conversations in coming days.
I mean the question wasn't the HyNet on the difference in RAB increase in your total expenditures at on like-for-like there's a GBP 50 million gap, will be rolled up into the GBP 200 million of revenue into PR. And just finally, on the accounting on this one here, the annual performance reports that you will publish the expenditure on these will be in your shadow RAB? Or will it actually go through into your main RAB into the -- into the accounting?
I think it probably shows on point of detail, I need to check on Dominic.
Okay. No more questions. Thank you all for your time today. Lou over to you.
Great. Look, thanks so much. Early days, we'll continue to digest. I think we've got a sort of series of meetings in the sort of days and weeks ahead. We're pleased to see the scope being approved to the level that it has. We're now in conversations specifically with Government regarding HyNet. And as I've previously said, we're now actively on already with engaging with around March's submission and more importantly, making sure that, that is equally as high quality. So look, we will no doubt continue to exchange questions in the days ahead. Chris, Jenny and the team, we're all here to answer those. But I'm conscious there's a lot on, so we'll let you off the call. But many thanks for your time this morning. Thank you,.
Thank you, everyone.
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