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Our purpose

Driven by
what matters


United Utilities is the UK’s largest listed water and wastewater company. Our purpose is to provide great water and more for the North West.

We are a purpose-led organisation. This is why we exist and why we focus on what matters to our stakeholders.

Look out for our strategic themes throughout this report:

The best service to customers

At the lowest sustainable cost

In a responsible manner

Our strategy is broken down into these three themes, which form the framework through which we provide great water and more for the North West.

Materiality

Our Annual Report and Financial Statements aim to meet the information needs of our investors to help them make informed decisions regarding their participation – for example: whether to buy, sell or hold our shares or bonds; whether to engage with management on issues; and how to vote their shares. We have included information that we believe is material to these decisions, presented in a way that we believe is fair, balanced and understandable.

We recognise this report will be read by a wide variety of other stakeholders including customers, employees, analysts, regulators, suppliers, community bodies, politicians, non-governmental organisations, and devolved authorities. Where we believe a topic is material to a large number of them, we either include it in this report or refer the reader to other reports and information (such as our customer communications, the responsibility pages on our website, or regulatory reports).

We believe this approach meets the requirements of company law, the UK Corporate Governance Code, IFRS and the International <IR> Framework, and that we go beyond those requirements where we feel it is particularly helpful to do so and where that can be done without making the report unnecessarily lengthy or difficult to read.

Integrated Report and TCFD disclosures

This Annual Report contains information in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and is an Integrated Report prepared and presented in accordance with the International <IR> Framework published by the International Integrated Reporting Council in December 2013. The board, which is responsible for the integrity of this report, has considered the preparation and presentation of this report and concluded that it has been prepared and presented in accordance with the Framework.

David Higgins' signature

Sir David Higgins

Chairman

Steve Mogford's signature

Steve Mogford

Chief Executive Officer

What matters

What matters to
our stakeholders


We continually assess what matters to our stakeholders and this shapes how we deliver our strategy to fulfil our purpose.

Our approach

Our
integrated approach


Our decisions are shaped by material issues for stakeholders, risk assessments, a commitment to environmental, social and governance (ESG) matters and our pioneering Systems Thinking approach. This integrated approach helps us create sustainable long-term value.

How what matters shapes our decisions

Our prioritisation of issues

We can't do everything right away, so we must identify the top priorities to help us deliver a resilient service. We conduct research and assessments to help us understand how material each issue is to our stakeholders and to our ability to create value.

Our commitment to ESG matters

Our priorities and decisions are shaped by our commitment to ESG, which is embedded in everything we do. We have strong credentials in all three areas, and this has been a part of who we are as a business for many years.

Our risk management

We face a range of risks that could threaten the quality of our service, cause delays, increase cost, and/or damage our reputation. We have an embedded risk management framework to anticipate and mitigate these risks, which helps us prioritise our actions.

Systems Thinking

Our pioneering Systems Thinking approach improves efficiency and operational resilience, giving us a competitive advantage and helping us deliver great service to customers. This approach feeds into our decisions and how we prioritise our activities.

Our comptetitive
advantages


Our competitive advantages help us provide great water for the long term. Prudent financial risk management delivers long-term predictability and resilience to financial shocks, while Systems Thinking improves efficiency and operational resilience.

Prudent financial risk management


What do we do

Debt – we maintain around half our debt in index-linked form, offering good relative value and hedging the impact of inflation on a portion of our RCV and revenue. Most is RPI-linked, but now that Ofwat is transitioning to CPIH we are gradually increasing our CPI exposure, subject to cost and availability, as this is the best available proxy for CPIH in the absence of a CPIH debt capital market. On our remaining nominal debt, we fix the underlying interest cost out to ten years on a reducing balance basis.

Pensions – we adopt an asset-liability matching approach for our defined benefit pension schemes by investing in assets that perform in line with the liabilities, such as corporate bonds and gilts and the use of interest rate swaps, to hedge the impact of changes in swap and gilt yields. The schemes have hedged inflation exposure through RPI gilts and swaps, and in April 2019 we prepaid all remaining deficit repair contributions. As a result, our pension position is stable and the schemes are self-sufficient.

How this differentiates us

Our prudent approach offers a lower risk exposure than many other companies, and it may be costly for others to transition from a different approach due to the typically long-term nature of debt in our industry.

How it helps us create value

Effective financial risk management delivers long-term resilience and our clearly articulated policies, covering a variety of market risks, help us reduce our exposure to the economic and regulatory environment, providing more predictable returns. Our approach to debt financing helps us consistently lock in long-term debt at good relative value, manage uncertainty in Ofwat's approach to setting the cost of debt at each price review, and maintain resilience to financial shocks.

Our pensions approach reduces volatility in our defined benefit schemes, and self-sufficiency means our employees, past and present, are in a very secure position and shareholders are well protected.

Systems Thinking


What do we do

Systems Thinking looks at how each individual element interacts with the other parts of the system in which it operates. Instead of isolating small elements, Systems Thinking expands its view to consider larger numbers of interactions over time as a particular system issue is being studied. For a water and wastewater company, this means, rather than operating each asset or treatment works in isolation, we use all the data from the telemetry we have installed across our network to analyse the entire system and all its linkages, enabling us to find the best all-round solutions.

Our field engineers are linked by an Integrated Control Centre (ICC) at our head office, from which we plan, monitor and control our operations. From our ICC we process vast amounts of real-time data from across our network, factoring in other source data such as weather forecasts, and using artificial intelligence and machine-learning to process this data and spot issues so we can resolve them before they impact customers. We allocate resources to production teams with full accountability for asset and system performance, helping embed this way of thinking within our operational teams.

How this differentiates us

Many of our assets were built over 30 years ago when water and wastewater services were managed by local authorities, with little coordination at a regional or national level. It takes considerable time and investment to install the telemetry and interconnections across the network to enable a Systems Thinking approach. No other UK water company does this at the holistic level we do, and we are continuing to extend our lead, with new developments and further rollouts in the pipeline.

How it helps us create value

Using real-time data and operating our network in this way enables us to optimise cost and service performance. Systems Thinking improves our asset reliability and resilience, reduces unplanned service interruptions, and helps us move away from the traditional reactive approach to address problems proactively before they affect customers. This pioneering approach helped us deliver operational improvements and cost savings during AMP6, and we have further developments planned for AMP7 and beyond, as Systems Thinking forms part of our long-term strategy to continue creating value for customers and stakeholders.

What Matters

Innovating for better leak detection

We are co-creating to develop mobile sensors that allow remote monitoring in leak detection.

We have a strong track record in avoiding, finding and fixing leaks, always looking for new ideas and ways of working to further improve our performance.

Our innovation model seeks to find the best innovators to help evolve concepts into game-changing solutions we can use. To stimulate new thinking, we often look outside the traditional water sector. In 2019, we found a small supplier who was passionate to help find and pinpoint leaks in the water network using sophisticated electronics, machine learning, artificial intelligence and modern data analytics.

FIDO (Free Intelligent Domain Observers) was one of eight suppliers chosen through our 2019 Innovation Lab. Following a six-month period using our test rig and over 100 trials in live environments to help FIDO enhance the design of its previously untested prototype, we now have access to a new innovation that has been developed for field teams and adopted by us.

FIDO uses three sensors that can be deployed in-pipe or close by, even attached to a traditional listening stick. Each sensor captures its location and the sound from the pipe, and this is processed in real time to spot the 'digital signature' of a leak. The software removes background noises and artificial intelligence makes recommendations on the location and severity, which helps us prioritise when scheduling teams to fix leaks. This remote monitoring capability is another implementation of our Systems Thinking approach. The FIDO algorithm can be used to process files from our extensive deployed acoustic logger fleet, saving time versus human processing.

FIDO can be deployed faster than traditional methods of leak detection and can process more digital files with greater consistency than a human. In testing, FIDO has a greater than 85 per cent success rate, outperforming humans and traditional methods.

There are benefits from using one core technology that can be adapted for multiple applications. Recognising the potential of FIDO, we have secured a long-term agreement to optimise the current products and continue to co-create, test and adopt any new developments. FIDO is recruiting technical specialists from within the water sector to supplement its in-house experts in artificial intelligence and electronics capability.

Generating value for:


Our purpose

We are a purpose-led organisation. This is why we exist and why we focus on what matters to our stakeholders.

What matters

We continually assess what matters to our stakeholders and this shapes how we deliver our strategy to fulfil our purpose.

Our approach

Our decisions are shaped by material issues for stakeholders, risk assessments, a commitment to environmental, social and governance (ESG) matters and our pioneering Systems Thinking approach.

Our comptetitive advantages

Our competitive advantages help us provide great water for the long term.