Code principles



Relations with shareholders



Code principle – Leadership

Introduction by Dr John McAdam

"The penultimate year in an asset management period is always a crucial one. The extent of the challenge and the complexities of the decisions taken in the construction of the business plan for the next asset management period should not be underestimated. We believe that in the plan we submitted to Ofwat on 3 September 2018, we have fulfilled our individual statutory duties, to act in the way that would be most likely to promote the long-term success of the company."

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 and in creating shareholder value;
  • 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 the 'accountability' section of this report in the Corporate governance report for more detail;
  • Must ensure that the company has the necessary financial resources and people with the necessary skills to achieve its objectives. It also reviews managerial performance annually; and
  • Has oversight of major capital expenditure projects within UUW which 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.

Full details of the matters that the board has reserved for its own decision-making, due to their importance to the business or the working of the board, can be found on our website at

Governance structure for our board and our committees

In line with the Code, the board delegates certain roles and responsibilities to its principal board committees, as shown in the diagram opposite. 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

The diagram shown opposite also shows the principal management committees and a brief description of their roles. These committees enable senior management to understand and, if necessary, challenge the business in its interpretation of the implementation of the strategies the board has set. The board received reports from the CEO and CFO at every scheduled board meeting, providing the board with an updated overview of the business and its financial performance and position. Operational updates are also provided to board meetings by the COO.

Governance structure of the board and its principal committees and the principal management committees

Group board

Chair: Dr John McAdam

Principal board committees

Audit committee

Chair: Brian May

Remuneration committee

Chair: Sara Weller

Nomination committee

Chair: Dr John McAdam

Corporate responsibility committee

Chair: Stephen Carter

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.

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

Quarterly business review

Chair: Steve Mogford, CEO

This forum is responsible for the quarterly review of operational and financial performance.

Political and regulatory steering 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.


The best service to customers

At the lowest sustainable cost

In a responsible manner

Summary of board activity in 2018/19

Cross referenceLink to strategic themes

Leadership and employees

  • Review of health, safety and well-being activities and consideration of health and safety incidents of employees and contractors reinforcing the company's belief that 'nothing we do is worth getting hurt for' and an update on the progress of developing and implementing an improved health and safety culture within the business branded as 'home safe and well';
See Creating a healthy workplace
  • Considered board succession planning and the appointment of Sir David Higgins as an independent non-executive director and Chairman designate;
See Nomination committee
  • Monitored progress on key aspects of the employee succession and development plans, identifying leadership potential at all levels, developing our employer brand and our aspiration for a multi-generational and diverse workforce;
See Nomination committee
  • Reviewed and discussed: executive team succession plans and the needs of the business; the ongoing progress in the development of our talent pipeline of senior talent to address business challenges identified in the 2020–25 asset management period and beyond; and other emerging employee issues;
See Nomination committee
  • Discussed the results of the annual employee voice and engagement survey. Reviewed and endorsed the introduction of new workforce engagement mechanisms to ensure an accurate representation of employees' views are provided to the board. Alison Goligher was identified as the non-executive director designated for engagement with the workforce;
See Corporate responsibility committee
  • Reviewed and amended the board diversity policy; and
See Nomination committee
  • Approved the changes to the all-employee share incentive plan to comply with the General Data Protection Regulation.


  • Reviewed the group's corporate responsibility activities focusing on reputation management, particularly in our communications with stakeholders;
See Corporate responsibility committee
  • 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;
  • Discussed the context of the next price review the key issues to be addressed and considered the expectations of our key stakeholders;
See Chairman and Chief Executive Officer's review
  • Discussed the group's preparations in relation to Brexit; and
See Our risk management
  • Discussed the impact of any renationalisation of the water sector.
See Our risk management


  • Reviewed and debated the risk profile of the group, and in particular the principal risks and our risk appetite, including a review of the most significant operational risks;
See Our risk management
  • Reviewed the effectiveness of the risk management systems, including financial, operational and compliance controls and reviewed the effectiveness of the internal control systems;
See Audit committee
  • Reviewed and discussed developments in cyber crime and the activities undertaken to enhance the effectiveness of the group's security controls;
See Mitigating the risk of cyber crime
  • 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 and the implementation of any changes required particularly relating to the 2018 Code;
See Corporate governance report
  • Reviewed and discussed the external evaluation of the board, its committees and individual directors and conflicts of interest;
See Corporate governance report
  • Reviewed the performance of the external auditor and recommendation for reappointment;
See Audit committee
  • Reviewed and approved the new directors' remuneration policy to be presented to shareholders for approval at the 2019 AGM; and
See Statutory and other information
  • Reviewed the approach and progress of work to identify areas where there is any risk of modern slavery occurring in our supply chain and approval of the 2019/20 slavery and human trafficking statement.
See Statutory and other information

United Utilities Water Limited (UUW) regulated business and its stakeholders

  • Regular review and monitoring of the progress with the business plan submission for the 2020–25 regulatory period as submitted to Ofwat on 3 September 2018, and the ongoing preparations towards final determination in December 2019;
See Our business plan submission for 2020–25
  • Monitored the ongoing progress of the customer experience programme and resulting improvements to customer service. During the year, new initiatives for customers in vulnerable circumstances were incorporated into our accessible affordability schemes, contributing to our improved performance scores against Ofwat's qualitative Service Incentive Mechanism (SIM); and
See Working together to support those in need
  • Regular updates in relation to the 2018 extreme weather events and group's operational response and performance.
See Responding to extreme weather conditions

Other group business

  • Reviewed progress on the group's renewable energy generation capabilities and opportunities for expansion and innovation including the construction of a 7.2MW ground mounted solar panel array at Huntington water treatment works and a 4.5MW array at Preston Clifton Marsh wastewater treatment works; and
See If it matters to you, it matters to us
  • Regular reviewed of progress of Water Plus, the group's joint venture with Severn Trent serving commercial customers, and approved the renewal of working capital arrangements.
See Audit committee

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; and
See Corporate governance report
  • Regularly received and discussed feedback from road shows, presentations and face-to-face meetings between investors and the CEO and/or the CFO and other communications received from large investors.
See Corporate governance report


  • Reviewed the 2020–25 business plan and approved the 2019/20 budget;
  • Reviewed and approved the half and full-year results and associated announcements;
  • Reviewed and approved the going concern and long-term viability statement;
See Corporate governance report
  • Reviewed and approved the company's 2018/19 UK tax strategy;
See Tax policies and objectives
  • Reviewed and approved: the annual pensions update and the guaranteed minimum payment pension charge to address the equalisation of benefits between men and women reflecting the outcome of a recent legal case;
See Audit committee
  • Reviewed and approved the company's 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 exposures including the impact of Brexit;
See Corporate governance report
  • Approved annual insurance arrangements for 2019/20;
  • Reviewed progress with material litigation involving the group; and
See Our risk management
  • Reviewed, discussed and approved proposals in principle relating to actuarial valuations of the United Utilities Pension Scheme and the United Utilities PLC group of the Electricity Supply Pension Scheme.
See Chairman and Chief Executive Officer's review


The best service to customers

At the lowest sustainable cost

In a responsible manner

The board table

Board Diversity table


Executive director

Senior independent non-executive director

Independent non-executive director

Company secretary

Attendance at board and committee meetings

Eight scheduled board meetings were planned and held during the year (2018: eight). A number of other board meetings and telephone conferences were also held during the year, as the need arose. The table below shows the actual number of scheduled meetings attended and the maximum number of scheduled meetings which 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 have raised concerns over the time commitment required of them to fulfil their duties.

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. Time together also helps to build relationships on a personal level, which contributes to better relationships and decision-making around the board table.

Nomination committeeCorporate
Dr John McAdam8/82/2
Steve Mogford8/84/4
Russ Houlden8/83/3
Steve Fraser8/8
Mark Clare8/86/62/2
Sara Weller7(1)/86/61(1)/2
Brian May8/84/46/62/23/3
Stephen Carter7(2)/84/42/24/4
Alison Goligher8/84/45(3)/62/24/4
Paulette Rowe8/84/41(4)/2

Actual number of meetings attended/maximum number of scheduled meetings which the directors could have attended during the financial year ended 31 March 2019.

  1. Sara Weller was unable to attend a meeting of the board and a meeting of the nomination committee due to unforeseen circumstances.
  2. Stephen Carter was unable to attend a meeting of the board due to a conflicting commitment.
  3. Alison Goligher was unable to attend a meeting of the remuneration committee due to a conflicting commitment.
  4. Paulette Rowe was unable to attend a meeting of the nomination committee due to a conflicting commitment.

Code principle – Effectiveness

Introduction by Dr John McAdam

"Board colleagues have approached the evaluation process with resolve this year, ahead of the challenges and changes posed by a new five-year asset management period."

Evaluation of the board and board committees

Our board evaluation was conducted internally this year; our last external evaluation was conducted by Lintstock consultants in 2018.

The evaluation process was facilitated by the company secretary and his team. It was based on the completion of questionnaires (including questions to be scored and free text questions) by board members assessing both the performance of the board and each of its principal committees, as well as that of the Chairman and each of the individual non-executive directors.

Board members were also asked to provide a view on how well the actions identified in the 2017/18 evaluation had been addressed.

In addition to board members, other members of the executive team who regularly attend and support the various committee meetings were also asked to complete the questionnaires.

The results, once reviewed by the company secretary, were then discussed with the Chairman and the chair of the relevant committee, tabled at a meeting of the relevant committee, and then presented to the board. The Chairman reviewed the performance of the individual directors. Mark Clare, as the senior independent non-executive director, in discussion with the other non-executive directors, led the review of the Chairman's performance.

A summary of the internal analysis of the 2018/19 evaluation is as follows:

2018/19 areas of assessmentCommentary and actions
Board composition and expertiseThe composition of the board was considered to be a diverse group of high-quality non-executive and executive directors, with a variety of skills, expertise and knowledge.
Board agendaThe board was well informed about the regulatory environment within which the company operates and had a good understanding of the views of customers, regulators and investors. The agendas were well balanced, and site visits were welcomed and added significant value.
Board dynamicsThe relationship between the board members was appropriate. Board meetings were conducted in an atmosphere with open communication, meaningful participation and the proper resolution of issues.
Board supportThe timeliness of the distribution of board documentation was satisfactory, but could be improved. Executive summaries of board papers were used effectively although board packs were sometimes considered to be too lengthy.
Wider strategic oversightThe involvement of the board in the development of the strategic direction of the group was considered to be appropriate and they were fully involved in the requirements of the price review process.
Risk management and internal controlThe board's approach to the management of risk and to its systems of internal control were considered to be appropriate. The information received relating to risk management was rated highly with good visibility of operational and reputational risks, and board members welcomed the opportunity for discussion on risk.
Succession planning and human resource managementSuccession plans for the board were in place with outline timescales, with the Chairman's succession being addressed. Succession for senior executive positions was considered to be satisfactory.
CommitteesThe composition and performance of the audit, remuneration, nomination, corporate responsibility and treasury committees were considered to be appropriate. The feedback to the board by committee chairs was full and transparent and meetings chaired effectively. Specific comments/actions were identified as follows:
  • Nomination committee: more regular meetings would be required over the next year within agreed timescales;
  • Remuneration committee: overall, colleagues felt the committee was very effective;
  • Audit committee: the balance between detail and simplification in audit papers should continue to be reviewed; and
  • Corporate responsibility committee: the implications of the outcome for the business plan submission for the committee's agenda should be kept under review.
Individual directorsThe individual performance of all the directors was assessed: all the non-executive directors were considered to be independent and effective, and all directors demonstrated the expected level of commitment to their roles. The review of the Chairman's performance (led by the senior independent director) concluded that Dr McAdam continued to demonstrate an effective and unbiased perspective, notwithstanding that he would have served for over ten years as a board director by 31 March 2019. It was agreed that Dr McAdam fulfilled the expected commitment to the role and was an effective leader of the board. All directors would be offering themselves for reappointment/election at the 2019 AGM.
2017/18 evaluation recommendationsActions taken during 2018/19
The board would benefit from more opportunities to gain better understanding of the views of employees across the group.During the year, the board agreed its preferred approach for strengthening the employee voice in the boardroom with Alison Goligher appointed as the designated non-executive director.
Allow more time for discussion of key strategic topics at the board strategy awayday and involving experts to further the debate.A strategy awayday was not held during the year, due to the demands of the price review process.
Nomination committee: maintain the focus on senior board succession over the next 12 months and ensure it was managed proactively.The nomination committee has reviewed board succession in accordance with the succession plan, and undertaken the recruitment of the Chairman's successor.
Remuneration committee: consider the way in which incentives should address the transition to the next asset management period.During the year, the remuneration committee decided to accelerate its review of the directors' remuneration policy. A comprehensive shareholder consultation process was undertaken covering a wide range of elements, including incentive arrangements and performance measures for directors, a new directors' remuneration policy will be presented to shareholders for approval at the 2019 AGM.
Audit committee: ensure the committee was kept abreast of reporting changes.The audit committee received updates on the implications for the company on the adoption of IRFS 9, IFRS 15 and IRFS 16.
Corporate responsibility committee: ensure the committee contributed to the PR19 business plan submission process, particularly in terms of customer priorities.The corporate responsibility committee reviewed the draft business plan from for the 2020–25 asset management period from a responsible business perspective prior to submission to Ofwat. The committee endorsed management's approach particularly the emphasis towards affordability and vulnerability and the impact that this would have on the communities served.

Board development

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 directors' element of the board evaluation exercise (see Corporate governance report), directors are asked to identify any skills or knowledge gaps they would like to address.

Consideration of environmental and social 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 in the Corporate governance report). The board's approach to these matters is reflected in our strategic theme, 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, the board has been kept fully aware of in-region environmental and social matters.

In addition to this less formal approach to board development, during the year the board also 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.

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 business. During the year, Sara Weller and Alison Goligher visited the group's offices in Warrington to attend different meetings with representatives of YourVoice, the independent customer challenge group. As part of the ongoing work to ensure the board has direct link to understand the views of employees (see Corporate responsibility committee report) Alison spent time meeting employees in different areas of the business to gain an understanding of everyday life and the culture of the business.

Induction programmes are designed and arranged for any new director.

Values and culture

The best service for customers

At the lowest sustainable cost

In a responsible manner

Core value:

Customer focus

Customers are at the heart of everything we do, and we aim to provide a great and resilient service at the most efficient cost.

Core value:


We continually look for new ways to make our services better, safer, faster and cheaper.

Core value:


We make promises knowingly and keep them, behaving responsibly towards all of our stakeholders.

Our values underpin our strategic themes as shown in the diagram above. The United Utilities way of doing things is to behave as a responsible business, and is set out in our business principles document. A copy can be found at:

The board leads by example; behaving responsibly is at the root of the board's decision making processes and it operates in an environment conducive to open and frank discussions. Culture, as defined by the FRC (see below), is cultivated and cascaded throughout the business by the CEO and his executive team. Our employees play a vital role in bringing our values to life, particularly in relation to fulfilling the company's purpose of providing great service to customers in the North West, creating long-term value for all of our stakeholders. Our culture, of behaving responsibly, is treated as business as usual.

Board decisions and culture are interlinked. The culture of the business is impacted by the decisions taken by the board, and the board takes decisions in light of its understanding of the culture of the business.

During the year, the board has a number of opportunities to consider cultural indicators and metrics particularly in relation to reporting on: employees, customer matters and risk. While such reporting provides the board with a good opportunity to monitor the cultural health of the business, management is working to improve the presentation of the information to better facilitate the board's monitoring and assessment of culture.

The management team continues to drive the focus on customers and ensure this value is deeply embedded in our culture and the way we operate. Through the ongoing work of Alison Goligher, the designated non-executive director for engagement with the workforce, the board will benefit from Alison's first hand assessment of the culture of the business.

A stakeholder metrics table (see How we measure our performance) provides data on a number of stakeholder and cultural indicators.

Examples of how we aim to behave responsibly towards our different stakeholders are shown in the table below. Further information on our stakeholder engagement can be found in How we create value for stakeholders.

How we behave responsibly towards our customersHow we behave responsibly towards our employeesHow we behave responsibly towards our other stakeholders (shareholders, environment, communities, and regulators)

Customers are at the heart of everything we do, and we aim to provide great and resilient service at the most efficient cost.

Our offering to customers includes:

  • 'Priority Services' that customers can register for if they require extra support due to such things as age, ill health, disability, mental health problems, financial worries or language barriers;
  • 'Moving Home' services are designed to provide an easy way for customers in our region to get in touch with us when they move house;
  • improved communications with customers – including making our bills easier to understand and removing technical jargon;
  • a user-friendly customer website and mobile app enabling customers to easily access their account at any time; and
  • through the regular contact with representatives of YourVoice the independent customer challenge group, the board receives a direct channel of communication and customers' views to inform its decision making.
At the heart of our operations is our ethos of 'nothing we do is worth getting hurt for'. We believe the safety of our employees and contractors is paramount.
Our offering to employees includes:
  • a competitive base salary;
  • employee benefits;
  • family friendly employment policies that go beyond the statutory minimum;
  • the opportunity to express their views about the company in the annual employee voice survey;
  • an internal network of mental health awareness supporters;
  • employees are encouraged to improve their well-being through exercise. Corporate or reduced rate gym membership has been arranged with providers across the company's region; and
  • the company funds an employee assistance support programme providing a confidential counselling and information service 24/7 to assist employees with personal or work-related problems that may be affecting their health, well-being or performance.
Our engagement with our wider stakeholders is business as usual through a number of specialist functions/teams such as:
  • our investor relations team provides a point of contact for equity investor queries;
  • the sustainability team champions sustainability issues with the business;
  • our stakeholder teams provide support for communities where we are undertaking major capital projects;
  • our communications teams raise awareness and respond to press and media queries;
  • our corporate affairs team provides information to public organisations;
  • teams within our business are in constant communication with our various regulators in relation to customer, economic and environmental factors; and
  • our treasury team provides a point of contact for credit investor queries.

The culture of a company is defined by the FRC as 'a combination of the values, attitudes and behaviours manifested by a company in its operations and relations with its stakeholders. These stakeholders include shareholders, employees, customers, suppliers and the wider community and environment which are affected by a company's conduct.' FRC's 'Corporate Culture and the Role of Boards' July 2016.

Code principle – Relations with shareholders

Introduction by Dr John McAdam

"We welcome the opportunity to engage with investors. Face-to-face meetings are particularly useful in gaining a better understanding of investors' views. Feedback from investor meetings is regularly shared with board colleagues."

The board as a whole accepts its responsibility for engaging with shareholders and is kept fully informed about information in the marketplace including:

  • 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; this is also one of the specific roles of the senior independent director. Feedback from any such meetings would be shared with all board members.

Institutional investors

We are always keen to engage with our shareholders, hear their views and update them on developments in our business. 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:

  • A regular schedule of face-to-face 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;
  • 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 also maintained between the investor relations team and a range of City analysts that conduct research on United Utilities.

In 2018/19, through our investor relations programme, we met or offered to meet with 78 per cent, by value, of the overall shareholder base, of the 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 political risk. 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. The performance against the final determination for the 2015–20 period is a key area of interest, and investors are also 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 and political risk. Furthermore, investors are keen to hear how we are progressing with our plans for the 2020–25 regulatory period and beyond.

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 of England – in fact, over 50 per cent of registered shareholdings on the share register. We have historically always held our AGM in our region in Manchester, which enables our more local shareholders, many of whom are also our customers, to attend the meeting. We endeavour to hold the meeting at a venue which is both centrally located in the city (to enable shareholders to use public transport should they so wish) while being mindful of the costs.

There is a considerable amount of information on our website, including our online report 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 in which we communicate with our retail shareholders. Our company secretariat and investor relations teams, along with our registrar, Equiniti, are also 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.

Outcome of 2018 AGM

At the 2018 AGM, votes were cast in relation to approximately 65 per cent of the issued share capital. All 21 resolutions were passed by the required majority.

Votes were cast in favour of the reappointment of the board directors as follows:

Dr John McAdam99.73%Russ Houlden99.29%
Steve Mogford99.73%Brian May99.72%
Stephen Carter99.74%Paulette Rowe99.74%
Mark Clare99.73%Sara Weller99.51%
Alison Goligher99.72%

Steve Fraser was elected with 99.55% of the votes.

Sir David Higgins will stand for election by shareholders for the first time at the 2019 AGM as a non-executive director and Chairman designate.

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 associated funding in order 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 acquiring 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 bond markets (with maturities typically ranging from seven years to up to 50 years at issue). Debt finance is 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), is our single biggest lender, currently providing around £1.8 billion of loan funding to support our capital investment programmes (past and present).

Following the 2016 referendum regarding the UK exiting the EU (Brexit), it is likely that the EIB will significantly curtail new lending into the UK once Brexit has been effected. We therefore expect that post-Brexit, further loans from the EIB will not be available and our existing loan portfolio with the EIB will enter into 'run-off' in line with the scheduled maturities of each loan. The group is therefore likely to access the debt capital markets on a more regular basis post-Brexit.

The group currently has gross borrowings of circa £7,816 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 in order 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

During the year, the rating agency services provided to the group were reviewed. Moody's Investors Service Limited, S&P Ratings Europe Limited and Fitch Ratings Ltd were appointed to provide credit rating services to the group for an initial three-year term. Future debt capital market issuance by the group will benefit from solicited ratings from all three rating agencies.

Code principle – Accountability

Introduction by Dr John McAdam

"Risk and viability reporting are an area of key interest for investors. Management has recommended, and the board has approved a more detailed and informative long-term viability statement, in line with the FRC's guidance in its letter to audit committee chairs and finance directors published in October 2018."

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 also 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. Political risk is also closely monitored.

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 in Our risk management, and the ongoing work of the audit committee in monitoring the risk management and internal control systems on behalf of the board (and to whom the committee provides regular updates, see Audit committee), the board:

  • Is satisfied that it has carried out a robust assessment of the 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, it was 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.

In the review of the effectiveness of risk management and internal controls systems, the board also took into account the:

  • Biannual review of significant risks (see Our risk management);
  • Outcome of the biannual business unit risk assessment process (see Audit committee);
  • Activities and review of the effectiveness of the internal audit function (see Audit committee);
  • 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 Audit committee);
  • Review of reports from the group audit and risk board (see Audit committee);
  • Oversight of treasury matters in particular debt financing and interest rate management (see Our performance in 2018/19); and
  • Review of the business risk management framework and management's approach and tolerance towards risk (see Audit committee).

Going concern and long-term viability

The board, following the review by the audit committee, concluded that it was appropriate to adopt the going concern basis of accounting (see Our risk management). 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 (see below). 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 in Our risk management, as are the risk 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 the structure diagram in our Corporate governance report) including such matters as liquidity policy, the group's capital funding requirements and interest rate management. The board has reconsidered its viability assessment period. In line with the work undertaken to support the financial resilience element of the UUW draft business plan, as submitted to Ofwat on 3 September 2018, the board believes that under the current regulatory and statutory framework a period of seven years to assess the group's long-term viability is appropriate. After review, the board concluded that among other things, because of the nature of the regulatory regime of the water sector and the clarity of Ofwat's business plan assessment process contributing to the longer-term planning horizon for the sector, it was comfortable with the extension of the period from a five-year to a seven-year term.

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 2026.

Basis of assessment

The long-term planning detailed in Our planning horizons 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 cost and in a responsible manner over the longer term, underpinning our business model.

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. 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 in Our risk management.

Fundamental assumptions

This viability statement is based on the fundamental assumption that the current regulatory and statutory framework does not substantively change, for example a change that facilitated the compulsory purchase of the shares or assets of either UUW or the company for the renationalisation of the water sector.

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 £1.0 billion of available liquidity at March 2019 covering funding requirements through to 2021, this provides 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 around 60 per cent, a robust pension position and current credit ratings of A3/A-/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 – Ofwat's Initial Assessment of Plans, published in January 2019, scored the group's business plan the highest across the industry and has given good early visibility of expected cash flows for the 2020–25 period; 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 forms of finance in most market conditions, and expects to continue to do so into the future. This is despite the likely inability to secure future EIB funding should the UK 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 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 in Our risk management. Such risks include: environmental risks such as the occurrence of extreme weather events; political and regulatory risks; the risk of critical asset failure; significant cyber security breaches; and the potential for a restriction to the availability of financing resulting from a capital markets crisis. Specifically in relation to a 'no deal' Brexit scenario, while this may have adverse operational and financial impacts on the group, this risk does not represent a significant risk to the ongoing viability of the group.

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 extreme theoretical scenarios has been performed to understand the headroom in the group's ability to absorb all severe but reasonable scenarios.

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; capital programme deferral; the closeout of derivative asset positions; the restriction of dividend payments; and access to additional equity.

Extending the viability period to seven years

Recognising the group's expected performance underpinned by its historical track-record, Ofwat's positive assessment of its 2020–25 business plan which was awarded fast-track status and the protections provided by the regulatory framework, the board considers it appropriate to extend the viability statement to cover a seven-year period.

In determining this period, the board had regard for the increasing level of uncertainty as the duration of the assessment period is extended and the desire to maintain a robust viability assessment.


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 paragraph in note 1 to the accounts.