Letter from the Chairman

The board has responsibility for the health of the company and needs to take a long-term view, managing the conflict between short-term interests and the long-term impacts of its decisions.

Sir David Higgins
Chairman

Dear shareholder

Over the past year the board’s focus has been has been dominated by the group’s response to the pandemic and ensuring the safety and support for our employees while maintaining the delivery of services to customers across our region. As a regulated monopoly supplier, with a population of 7.3 million in our region, we need to work hard to meet the high expectations customers have for us, both in terms of the services we provide but also in behaving as a responsible business in the way in which we provide them. To do so is crucial to the long-term success of United Utilities.

During the period May to November 2020, the board reviewed the impact of the pandemic on the financial performance of the group, including understanding the ability of some customers facing financial hardship to pay for our services. As a consequence, an extension of UUW’s social tariff arrangements were approved, to apply until the end of the 2021/22 financial year. At the same time, the board did not want to jeopardise the great progress made over the last five years in improved operational performance, led by Steve Mogford and his team. Throughout this report you will see examples of our improved operational performance as recognised against the benchmarks set by our regulators. These improvements have given the board greater confidence of achieving regulatory outperformance during AMP7, and support our longerterm plans for the next asset management period.

Governance

The past year has challenged the normal interaction of both the board and management. The board were kept fully apprised of management’s actions and changes to normal business practices in the early stages of the pandemic. A combination of physical meetings where possible, in conjunction with virtual board and committee meetings, have been held to maintain the integrity of our governance structure. Induction programmes for Kath and Doug were undertaken virtually, I know, in due course, Kath and Doug will welcome the opportunity to visit some of the company’s principal operational sites and important capital projects, as will all board members. Informal virtual meetings have been held the evening before board meetings, as a substitute for our usual informal pre-board dinners. The annual board evaluation was externally facilitated this year, by virtual means by Independent Audit Limited.

Additionally, we have held a number of virtual workshops on key topics, including: leakage; digital strategy; diversity and inclusion and, as a direct consequence of the pandemic, considering the options for new ways of working for employees across appropriate parts of our business. These in-depth sessions have provided board members with a greater understanding of these particular challenges and initiatives, and how they are being addressed by management. We held a strategy day in November 2020, enabling the board to spend time debating a number of strategic and long-term business priorities, an action which was identified in the 2019/20 board evaluation. A particular focus for the day, was understanding the plans for the Haweswater Aqueduct Resilience Programme and Ofwat’s ‘direct procurement for customers’ approach, through which the programme will be delivered.

Historically, the company’s annual general meeting held in July each year has welcomed a number of shareholders who have been regular attendees, last year of course being the exception. We are hoping that this will be an event in the corporate calendar that can be reinstated in the years to come. We are however, proposing to adopt new articles of association at the forthcoming 2021 annual general meeting, including the power to be able to hold fully hybrid meetings should the need arise, in line with market best practice.

In the following pages of this corporate governance report we have set out how we have applied the principles and reported against the provisions of the 2018 UK Corporate Governance Code (the code).

Over the past year the board’s focus has been has been dominated by the group’s response to the pandemic and ensuring the safety and support for our employees while maintaining the delivery of services to customers across our region.

Investors

We are in regular contact with our large investors through a regular scheduled programme of meetings attended by either our CEO or CFO, or both. The programme is supported by the activities of our investor relations team who are readily available to address investors’ queries. I, too, have had the opportunity to engage with a number of our major investors during the year, their feedback was shared with my board colleagues. ESG, and specifically our progress in terms of diversity and inclusion were areas of particular interest. We have sought to respond by better articulation of our ESG activities throughout this annual report, including our efforts toward improving diversity and inclusion both at board level and across the business.

Risk

The board has an agreed framework for managing strategic and operational risks in accordance with the agreed risk appetite. The board regularly reviews the position to ensure that management are managing and mitigating risk in accordance with the board’s agreed risk appetite. These risks include succession planning for senior management and asset resilience, with particular consideration for the impacts of climate change. The board is directly supported in this by the internal audit and risk management team and indirectly by KPMG during the course of their audit of the financial statements.

QUICK FACTS

  • Sir David Higgins met the independence criteria as set out in provision 10 of the 2018 UK Corporate Governance Code (the code) when he was appointed.
  • The code requires that at least half of the board, excluding the chair, should be non-executive directors whom the board considers to be independent. At United Utilities, seven out of the remaining nine directors are independent nonexecutive directors.
  • The company secretary attends all board and committee meetings and advises the Chairman on governance matters. The company secretariat team provides administrative support.
  • The directors’ biographies include specific reasons why each director’s contribution is, and continues to be, important to the company’s longterm sustainable success.
  • All directors are subject to annual election at the annual general meeting (AGM) held in July. The board concluded, following the completion of the evaluation of the effectiveness of the board, that each director continues to contribute effectively.
  • The board recommends that shareholders vote in favour of those directors standing for a further term at the forthcoming AGM, as they will be doing in respect of their individual shareholdings.

Quick link

Schedule of matters reserved for the board unitedutilities.com/corporate-governance

A copy of the Financial Reporting Council’s 2018 UK Corporate Governance Code can be found at frc.org.uk


People

I would like to thank Brian May for his excellent work and support during my first full year as Chairman. It was announced in May 2021, that after nearly nine years’ on the board, Brian would be stepping down at the conclusion of the AGM in July 2021. Doug Webb, whom we welcomed to the board in September 2020, was recruited as an independent non-executive director, to chair both the audit and treasury committees on Brian’s departure. Doug brings to the role, as required by the code, ‘recent and relevant financial experience’. Given the complexities of the work of both the audit committee, and the treasury committee particularly in terms of the regulatory operating model, it was felt that a handover period between Brian and Doug covering a full audit cycle would be particularly beneficial. Doug will also become a member of the remuneration committee when Brian steps down from the board.

In September 2020, along with Doug, we welcomed Kath Cates, as a new independent non-executive director. Kath brings a wealth of experience of regulated businesses from her executive career in financial services. Alison Goligher, who has served as a member of the remuneration committee since 2016, accepted the role as chair of the remuneration committee on Sara Weller’s departure from the board at the conclusion of the 2020 AGM.

2021 is the first annual report presented by the board under the tenure of Phil Aspin as CFO. As demonstrated by his biography, Phil has many years’ experience in different financial roles within the business, which has undoubtedly facilitated a smooth transition in a challenging year. Phil succeeded Russ Houlden, who retired from his executive responsibilities in July 2020.

Sir David Higgins
Chairman