Our consistent focus on customers and pioneering Systems Thinking approach have helped us go from strength to strength.

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


This has been a busy year. Extreme weather caused operational challenges for the sector as a whole, and we submitted our business plan for the next regulatory period. Throughout these competing priorities, we maintained a resilient and high-quality service and grew stronger as a company.

We made further improvements in customer satisfaction and delivered our best performance to date against our outcome delivery incentives, despite our targets being tougher this year. We met our leakage target for the 13th consecutive year, and we maintained high standards of environmental performance and drinking water quality.

Our 2020–25 business plan submission received the highest grades in the sector and a fast-track rating in Ofwat's initial assessment.

These achievements are a testament to the transformation we have delivered over recent years and the hard work of all our team.

Continuing to improve service for customers

Our purpose and strategy are centred around customers. This has been our focus for many years and underpins customer satisfaction improvements year after year.

We achieved our best ever Service Incentive Mechanism (SIM) scores this year, and our performance across the first four years of this regulatory period means we expect to be eligible for a financial reward of around £16 million.

Key facts


additional investment of outperformance


ODI reward for 2018/19 against tougher targets


expected SIM reward for the 2015–20 period


business plan for 2020–25


for the high quality and transparency of our reporting

Proving that good service costs less, we have reduced the amount it costs to serve our customers by 27 per cent since the start of this regulatory period, as a result of our improved operational performance, digital strategy, and driving down bad debt.

Our household bad debt has reduced from 3.6 per cent of regulated revenue in 2014/15 to 2.1 per cent in 2018/19, and customer bills have reduced in real terms since 2010.

We have taken the lead in transforming how the sector supports customers, particularly those in vulnerable circumstances. We have the sector's most innovative and ambitious assistance schemes, supporting over 100,000 customers struggling to pay. We held the second North West Affordability Summit this year, launching the North West Hardship Hub, the first of its kind in the country. This platform helps the money advice community in our region locate cross-sector assistance schemes all in one place, making it easier for them to find the best help for their clients.

Our efforts are being recognised externally. We were awarded the Institute of Customer Service 'Service Mark with Distinction'. We were the first water company accredited by the Chartered Institute of Credit Management for our work with customers struggling to pay; and we achieved Shaw Trust Accessibility status as a further recognition of our work supporting customers in vulnerable circumstances.

Rising to challenges and improving our resilience

2018 was a year of unprecedented extremes of weather, with a deep freeze and rapid thaw in the early part of the calendar year swiftly followed by an intense heatwave in the summer. It was the driest summer for our region since modern records began in 1961, meaning our impounding reservoirs were at much lower levels than usual. The soaring temperatures contributed to a huge increase in demand for water.

We undertook a series of actions to minimise any impact on customers and protect water resources. We increased communication to encourage customers to use water wisely. We significantly increased our leak detection efforts to help manage leakage. We used our fleet of Alternative Supply Vehicles (ASVs) to help maintain pressure in the network at peak times. We brought back into service groundwater supplies such as boreholes that had not been used for many years, and we used our West East Link Main to pump water around our region.

Read more about how we are responding to extreme weather conditions

The tireless hard work of our employees, together with the support of customers and regulators over this period, meant we were able to maintain an unrestricted service to customers. Our ability to manage these extreme conditions further demonstrates the benefits of our Systems Thinking approach. Many of the actions we took to protect service to customers would not have been possible without it.

Our actions resulted in one-off additional costs of around £80 million, which has further improved the high level of resilience we have already embedded into our service. For example, our investment in ASVs has been critical to improving our water service, an efficient way of helping to keep customers supplied during planned and unplanned interruptions.

Delivering strong and sustainable financial performance

Our financial performance from a statutory perspective has been very good this year.

Underlying earnings per share is 55.5 pence, an increase of 24 per cent and more than covering the dividend for the year. The main drivers of this increase are our allowed regulatory revenue profile and a decrease in the underlying net finance expense due to lower RPI inflation applied to our index-linked debt, partly offset by increases in infrastructure renewals expenditure and depreciation.

Reported earnings per share is 53.3 pence, which is slightly lower than the underlying figure, mainly due to exceptional costs associated with the dry weather period and fair value movements. Adjusting items are outlined in the reconciliation table in Our performance in 2018/19. The £80 million additional dry weather costs include £25.6 million operating costs and £10.5 million infrastructure renewals expenditure, with the remainder being capital expenditure.

Read more about our financial performance for 2018/19

The board has proposed a final dividend of 27.52 pence per ordinary share, taking the total dividend for 2018/19 to 41.28 pence. This is an increase of 3.9 per cent, in line with our policy for this regulatory period of targeting an annual growth rate of at least RPI inflation through to 2020.

We have had a pension surplus on an IAS 19 basis for many years and this is well controlled through our asset-liability matching approach. The IAS 19 surplus increased to £484 million at 31 March 2019.

The funding position is assessed using a different basis to value liabilities. While maintaining a pension surplus on an IAS 19 basis, we have had a deficit on a funding basis, and have been making deficit recovery contributions of around £40 million per year. It was confirmed in the most recent triennial valuation, signed off as at 31 March 2018, that these contributions would address the funding deficit by December 2021. However, in April 2019, we prepaid the remaining agreed deficit recovery contributions at a discount, meaning we are now in a pension surplus position on an IAS 19 basis and have eliminated the deficit on a funding basis, achieving self-sufficiency.

This is a responsible approach, mitigating risk for all of our stakeholders at a time when regulators, including Ofwat and The Pensions Regulator, are highlighting the importance of this area and in some cases, intervening to protect pension scheme members and customers.

As part of our business plan submission for the next regulatory period, we have set out a range of considerations that will determine the future level of dividends paid. One of these is the impact of pension deficits. With our historic well managed approach to pensions and strong level of funding, we do not expect future funding of our pension scheme to act as a constraint in the 2020–25 period.

We have a consistent policy of targeting gearing of 55–65 per cent, measured as net debt to regulatory capital value. This has been supportive of United Utilities Water Limited's A3 credit rating with Moody's, which affirmed a stable outlook on our credit rating following Ofwat's initial assessment of business plans, despite retaining a negative outlook on the sector in general.

This, alongside our pension position, gives us an extremely robust capital base and provides a high degree of resilience and financial flexibility as we look to the future.

Performing well against our regulatory contract

From an economic perspective, there are four key drivers of value – total expenditure (totex), SIM performance, outcome delivery incentives (ODIs), and financing. We are delivering good results against all of these areas, demonstrating strong all-round performance in the current regulatory period.

As previously mentioned, we anticipate being eligible for a SIM reward of around £16 million thanks to our improved performance for customers.

On financing, the low cost of debt we have locked-in places us in a strong position to outperform the industry allowed cost of debt in the current regulatory period, and into the next period.

On totex, we remain confident in outperforming our totex allowance by £100 million against the scope of our 2015–20 final determination.

Sitting outside the scope of the final determination is an additional £350 million we have committed to invest from our total outperformance, including £250 million in resilience that we had committed to previously and £100 million to give us a flying start for the next regulatory period, and the £80 million additional totex related to the dry weather event.

Although our ODI reward-penalty range was skewed to the downside, we expect to earn a net reward of around £30 million for the 2015–20 period. This year's performance was our best so far, with a net reward of £19.2 million bringing our cumulative position for the first four years of the period to a net reward of £21.4 million.

This performance, across the range of our ODIs, demonstrates the benefit of the accelerated investment we made early in the period. It is particularly pleasing given we were delivering against increasingly challenging targets and dealing with extremes of weather. Our expected out-turn position equates to performance towards the top end of our estimates, providing a solid foundation for the next regulatory period.

Achieving a fast-track rating for our business plan

Our business plan submission for the 2020–25 period received the highest grades for the sector against the test areas set out in Ofwat's initial assessment, and was commended as industry leading in many areas.

This achievement demonstrates the transformation we have achieved in recent years, both in terms of operational performance and efficiency, as well as the high quality of our plan and our ambition for further improvement in the next regulatory period.

Read more about our business plan submission for 2020–25

As previously mentioned, we have committed an additional £100 million investment towards a flying start to the 2020–25 period. The main priorities for this investment include three of our toughest performance targets: leakage, supply interruptions and sewer flooding.

Supporting employees' health and wellbeing

We are committed to protecting the health and wellbeing of our employees, and have made significant efforts in this area over recent years.

We engage with employees to help them with lifestyle choices. For example, we help them to quit smoking and offer incentives for those who stay smoke-free for six months. We have reduced employee inactivity rates through initiatives such as standing desks and walking meetings, as well as offering discounted gym memberships and an onsite gym at our head office. We offer nutritional programmes and have health kiosks where employees can measure their weight and blood pressure.

As well as physical health, we focus on mental health. We offer free confidential support services for employees, and have trained mental health champions and first aiders across the business. We joined other businesses in the year in an initiative aimed at ending the stigma of talking about mental health in the workplace.

Our progress in this area has been recognised externally. We were named one of Britain's Healthiest Workplaces 2018 and the third most improved organisation; we were reaccredited with the Workplace Wellbeing Charter in 2018; and we received two employee wellbeing accolades at the Reward and Employee Benefits Association (REBA) awards for physical wellbeing and mental wellbeing.

Read more about how we are creating a healthy workplace

Maintaining high standards of corporate governance

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

We continued to demonstrate good drinking water quality compliance, as assessed by the Drinking Water Inspectorate. We have delivered a range of improvements in our water transformation programme, which has driven a significant reduction in the risk of water quality events. We once again retained Industry Leading Company status in the Environment Agency's annual assessment, and we achieved a World Class rating in the Dow Jones Sustainability Index for the eleventh consecutive year.

Ofwat's Company Monitoring Framework Assessment provides an assessment of the trust and confidence stakeholders can have in the accuracy, completeness and transparency of company reporting. Integrity is one of our core values and we were delighted to be awarded the top self-assurance rating again this year, the only company to have held this for three consecutive years.


The acceleration of investment we made in the current regulatory period, along with our additional investment, Systems Thinking approach and financial risk management, are delivering sustainable improvements in performance and resilience. Our customer satisfaction is among the top of the water and wastewater companies in the sector.

The benefit of accelerated investment to deliver earlier improvements to service is clear to see. Given our total anticipated outperformance for the 2015–20 regulatory period, we are reinvesting £350 million of our outperformance to deliver enhanced resilience and improved performance earlier in the next regulatory period.

We are proud of the transformation we have delivered and the performance of our team during the year. We are excited about the opportunity the 2020–25 period represents as we deliver our purpose to provide great service to customers and communities in the North West, creating long-term value for all of our stakeholders.

We would like to express our gratitude to our employees for their hard work and dedication, and to customers and other stakeholders for their continued support.

Dr John McAdam


Steve Mogford

Chief Executive Officer

The strategic report was approved at a meeting of the board on 22 May 2019 and signed off on its behalf by Steve Mogford, Chief Executive Officer.