American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Day (December 2013)
67 slides from American Water Works's investor day presentation, Dec 17, 2013
Slide 1: 2013 Investor Day
NYSE: AWK 2013 Investor Day December 17, 2013
Slide 2: Analyst Day Presentation will start in
NYSE: AWK The American Water Analyst Day Presentation will start in: Minutes
Slide 3: Customer Service Video
Please review the corresponding video link “Customer Service Video” on the American Water website
Slide 4: 2013 Investor Day - Jeff Sterba
NYSE: AWK 2013 Investor Day Jeff Sterba President and CEO December 17, 2013
Slide 5: Cautionary Statement Concerning Forward-Looking Statements
Cautionary Statement Concerning Forward-Looking Statements Certain statements in this presentation are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are predictions based on our cu
Slide 6: What you'll hear today
What you’ll hear today 1 12:30-1:15PM: Strategy Overview • Jeff Sterba 2 1:15-1:45PM: Our success is built on … • Walter Lynch – Regulated Operations 3 1:45-2:00PM: Break 4 2PM–2:30PM: Our success is built on … • Sharon Cameron: Market Based Businesses 5 2:30-3:15PM: Our success results in … • Susan
Slide 7: Today's Key Takeaways – reasons to invest in American Water
Today’s Key Takeaways – 6 reasons why you should invest in American Water CULTURE OF CONTINUOUS IMPROVEMENT TRANSPARENT COST CONTROLS DIVIDEND MINIMIZE CONSUMER PRACTICE Industry PRICE INCREASES Leading 7-10% Long Term EPS Growth Goal NO NEED FOR REGULATED AND EQUITY REGULATED-LIKE OFFERINGS IN CASH
Slide 8: Culture shift to continuous improvement and customer service
We have made a culture shift to continuous improvement and unparalleled customer service CONSTRUCTIVE CONTINUED REGULATION CAPITAL INVESTMENT CREATING SUPERIOR VALUE FOR OUR CUSTOMERS HIGH AFFORDABLE RELIABILITY PRICES
Slide 9: High customer satisfaction creates superior value for all constituents
High customer satisfaction ultimately leads to creating superior value for all constituents Inputs Results in Which leads to Outstanding customer service Effective Cost Management Innovation & Technology Strong regulatory relationships Community Involvement High customer satisfaction Clean, safe, re
Slide 10: Delivered impressive total shareholder value since IPO
We have delivered impressive total shareholder value since 2008 IPO A $100 dollar investment in American Water at IPO would have increased more than 2.5x Dividends Share Price Appreciation Dividend and Share Price History: IPO – November 29, 2013 Our Total Shareholder Return has outperformed S&P500
Slide 11: 7-10% Long Term Earnings Growth: Past Disclosures
7-10% Long Term Earnings Growth: Past Disclosures Future Growth Conceptual Representation Long Term Growth New Services Acquisitions Regulated Investments Operational Excellence/Efficiencies ROE improvement Short Term Long Term Long Term 7-10% EPS Growth Rate Enhanced Growth Medium/Large Acquisition
Slide 12: Our Growth Triangle: 2010–2012 Actual Growth
Our Growth Triangle: 2010 – 2012 Actual Growth ~ 17% CAGR EPS Growth Acquisitions (<1%) MBB (2%) ROE Improvement / Regulatory Lag (6%) Regulated Investment – CapEx (8%) Note: 2012 is based on adjusted EPS from continuing operations, a non-GAAP measure
Slide 13: Our Growth Triangle: 2013 Landing Zone
Our Growth Triangle: 2013 Landing Zone of $2.17—$2.22 ~ 10% Annual EPS Growth * Acquisitions (~0-1%) Corp Exp Reductions (1-2%) MBB (1-2%) ROE Improvement / Regulatory Lag (2-3%) Regulated Investment – CapEx (6-7%) Note: * Based on midpoint of range * 2012 based on adjusted EPS from continuing opera
Slide 14: Our Growth Triangle: 2014 Guidance of $2.35-$2.45
Our Growth Triangle: 2014 Guidance of $2.35-$2.45 7-10% LT EPS Growth Shale (0-1%) MBB (~1%) Acquisitions (1-2%) Corp Exp Reductions (1-2%) Regulated Investment – CapEx (4-5%)
Slide 15: Our Growth Triangle – Long Term Growth
Our Growth Triangle – Long Term Growth based on a shifting blend of business that leverages our core utility Long-term Plan 2015—2018 Other Shale (0-2%) (<1%) Acquisitions (1-2%) MBB (2-3%) Regulated Investment – CapEx (3-5%) Long Term Results 7-10% LT EPS Growth Free Cash Flow Positive by end of pe
Slide 16: EPS Growth Goals not yet reflected in market valuation
Our industry leading EPS Growth Goals are not yet fully reflected in our market valuation Long Term Growth vs Forward PE Ratio PE Ratio Group Beta: 0.81 AWK Beta: 0.66 Current LT Midpoint Consensus AWK LT Guidance Long-Term Growth Rate 1)Water Companies Include: AWR, WTR, CWT. 2)Gas Companies includ
Slide 17: Our success is built on … Regulated Operations Overview
NYSE: AWK Our success is built on … Regulated Operations Overview Walter Lynch
Slide 18: Investment in Water and Wastewater Industry is urgently needed
Investment in Water and Wastewater Industry is urgently needed Water: approximately one million miles of pipe in the U.S. A major water main breaks every two minutes in the U.S. Two trillion gallons of treated water lost every year at a cost of $2.6 billion Wastewater: approximately 800 thousand mil
Slide 19: Our Regulated Business
Our Regulated Business States Where We Operate (approximate population served by state )* New Jersey 2.5 million Pennsylvania 2.2 million Missouri 1.5 million Illinois 1.2 million Indiana 1.2 million West Virginia 625,000 LTM Revenues California 610,000 9/30/13% of State($ mm) Total Kentucky 492,000
Slide 20: Strong customer ratings and operational performance
Strong customer ratings and operational performance drive performance 2013 KPIs Annual Target YTD Actual Customer Satisfaction > 90% 90.5% Customer Service Quality > 85% 87.2% Environmental Compliance < 15 NOVs 5 NOVs O&M Efficiency Ratio < 40% (1) 40.3%(2) LTM SAP Implementation • Consistent with r
Slide 21: Constructive Regulatory Policies accelerate recovery of Capex
Constructive Regulatory Policies will continue to accelerate recovery of Capex Investment Capital Expenditures covered by Regulatory Mechanisms Note (1) Regulatory Mechanisms includes DSIC, SIC and Future Test Years
Slide 22: 2014 Financial Plan - Summary
2014 Financial Plan- Summary Capital Expenditure ($ in millions) $1,200 $1,000 $800 $600 $400 $200 $0 2012 Actual 2013 Landing 2014 Plan 2015E 2016E 2017E 2018E Zone Regulated & Services Strategic Investment Regulated Acquisitions Market-Based Business
Slide 23: 2014 Financial Plan - Regulated Capex by Purpose
2014 Financial Plan—Summary 2014 – 2018 Average Regulated Capital Expenditures by Purpose Capacity Regulatory Expansion, Compliance, 10% 11% Quality of Service, 9% Asset Renewal, 66% Other , 4%
Slide 24: Cost containment and timely return drive added Capital Expenditures
Cost containment and timely return on our investments will drive added Capital Expenditures O&M Efficiency Ratio 50% 44.2 42.4 40.1 39.5 40% 35.0 30% 20% 10% 0% 2010 2011 2012 2013Landing New 2018 Zone (LZ) Stretch Target New O&M stretch target of 35% by 2018 Pipe Replacement Life (in years) Nationa
Slide 25: Regulated Operations – Looking into 2014: Regulated Acquisitions
Regulated Operations – Looking into 2014: Regulated Acquisitions Connections Selected 2014 Targets Approximate State Customer Connections Target A 19,000 Target B 13,000 Target C 7,500 Target D 3,000 Target E 3,000 Target F 3,000 NYSE: AWK www.amwater.com
Slide 26: Why is Acquisition Pipeline More Robust?
Why is Acquisition Pipeline More Robust? What’s different now? External Factors Internal Factors Continued aging of infrastructure New focus on wastewater Less attachment to wastewater by Strong presence in communities municipalities • More cost effective service with dual Increasing EPA regulations
Slide 27: Enablers for increased water and wastewater infrastructure investment
Going forward, we will continue to seek enablers for increased water and wastewater infrastructure investment Key Strategic Objectives Expand acquisition potential Enable increased infrastructure investment Promote Innovative mechanisms for capital recovery Facilitate 7-10% growth Enabler 1: Single
Slide 28: Our success is built on … Market Based Operations Overview
NYSE: AWK Our success is built on … Market Based Operations Overview Sharon Cameron
Slide 29: Market Based Business generates complementary growth opportunities
Market Based Business* (MBB) generate complementary opportunities for growth Regulated Like Except not as Capital Intensive Modest competition Strong/consistent margins Controllable risk Growing market Capitalizes on AW strengths Lines of Business Homeowner Services (HOS) Contract Operations Militar
Slide 30: Market Based Business delivers consistent growth in profits
Market Based Business segment delivers consistent growth in profits Revenues Operating Income $400 CAGR 2010-2014: 6.8% $60 CAGR 2010-2014: 24.2% $350 $50 $300 $40 $250 millions $200 millions $30 In $150 In $20 $100 $50 $10 $- $- 2010 2011 2012 2013 LZ 2014 2010 2011 2012 2013LZ 2014 HOS Military Te
Slide 31: Homeowner Services growth driven by geographic expansion
Homeowner Services growth driven by geographic expansion to increase customer base & adding new products to increase wallet share New York Partnerships Trenton Burlington City, Nashville NJ PA, NY IN, MO, ET, TN, WV AZ VA, CA NM CO, CT, AL, DE, OH, IA, KY ID, KS, MA, MS, Geography IL MI, NV, MT, NE,
Slide 32: Homeowner Services
Homeowner Services Growth driven by geographic expansion to increase customer base & adding new products to increase wallet share Product Diversification Partnerships Homeowners Geographic Expansion Optimize Core HOS Revenues $120 $100 $80 millions $60 In $40 $20 $- 2010 2011 2012 2013LZ 2014E
Slide 33: Homeowner Services – Partnerships market
Homeowner Services Future Growth – Partnerships market is large and untapped 100 Largest US Cities: Under-penetrated Market Opportunity as Municipal Players are Increasingly Open to Partnerships
Slide 34: Homeowner Services – product diversification
Homeowner Services Future Growth – market potential for product diversification is compelling Homeowner Warranty and Maintenance Market (in billions) Other General Appliances $0.9 $2.2 $4.1 $7.2 Wiring & HV AC Plumbing System
Slide 35: Military Services Group – Overall Growth Strategy
Military Services Group Overall Growth Strategy MSG Growth Strategy Add New Customers Optimize Existing Bases 1. Price Redeterminations 2. Infrastructure Modifications Existing Installations
Slide 36: Military Services Group – adding new bases
Military Services Group Growth by adding new bases and optimizing value at existing bases MSG Revenues millions In Installations 2 3 3 4 6 8 10 10 10 9 9 9+
Slide 37: Military Services Group – infrastructure needs beyond original contract
Military Services Group Growth driven by infrastructure needs beyond original contract Oct- Mar American Water Identifies Potential Projects September American Water Awarded Contract Modifications Apr – May Prioritize Projects with Local Installation Officials Local Installation Confirms Available F
Slide 38: Military Services Group – utility privatization awards
Military Services Group Growth driven by anticipated momentum of utility privatization awards Targeted Military Installation Prospective UP Opportunity Significant utility assets Pending RFPs and 50 year revenues Current Portfolio between $250M—$500M $9 billion $2 billion $2 billion None Awarded Sin
Slide 39: New strategic customer focus
New strategic customer focus Consumer Federal Services Services Municipal Industrial Services Services Customer focus will generate new business opportunities
Slide 40: Our Success results in: Susan Story
NYSE: AWK Our Success results in: Susan Story SVP and CFO
Slide 41: 2013 Landing Zone
2013 Landing Zone Diluted Earnings per share from Continuing Operations * 2012 2013 $ 2.15 $ 2.11 $ 2.10 $ 2.05 $ 2.00 $ 0.02 $ 1.99 ($ 0.14) $ 1.95 $ 1.90 2012 Actual Favorable Foundation 2012 Adjusted Weather Contribution $ 3.00 $ 2.50 $ 2.03—$ 2.08 $ 0.14 $ 2.17-$ 2.22 $ 2.00 $ 1.50 $ 1.00 $ 0.50
Slide 42: Our Growth Triangle: 2014 Guidance – Growth Drivers
Our Growth Triangle: 2014 Guidance of $2.35-$2.45 2014 Growth Drivers Shale (0-1%) MBB (~1%) Acquisitions (1-2%) Corp Exp Reductions (1-2%) Regulated Investment – CapEx (4-5%)
Slide 43: Inputs to Financial Plan: Capital Expenditures
Inputs to Financial Plan: Capital Expenditures Total Capital Expenditure Plan 2009 Actual – 2013 LZ: $4.4 Bn Regulated MBB Acquisitions $30M $100M Regulated & Services $4.3B 2014—2018 Five-Year Plan: $5.8 Bn Regulated Strategic Acquisitions $300M $400M MBB $40M Regulated & Services $5.1B 2014—2018 F
Slide 44: 2014 Guidance: Shale and MBB
Our Growth Triangle: 2014 Guidance of $2.35-$2.45 2014 Growth Drivers Shale (0-1%) MBB (~1%)
Slide 45: 2014 Guidance: Corporate Expense Reductions
Our Growth Triangle: 2014 Guidance of $2.35-$2.45 2014 Growth Drivers Corp Exp Reductions (1-3%)
Slide 46: Cost Controls
Cost Controls Regulated O&M Cost Control ($ in millions) $ 1,350 $ 1,330 $ 1,310 $ 1,290 $ 1,270 $ 1,250 $ 1,230 $ 1,210 $ 1,190 $ 1,170 $ 1,150 $ 1,130 $ 1,110 $ 1,090 $ 1,070 $ 1,050 2012 2013 2014 2015 2016 2017 2018 Current Plan Previous Plan 2011 Business as Usual Key Enablers- Flat O&M SAP Eff
Slide 47: Corporate Expense Management – Debt Management
Inputs to 2014 Financial Plan: Corporate Expense Management -Debt Management Tender and Retirement of 6.085% Notes $225.8M tendered in Oct 2013 Incurred one-time loss on extinguishment of debt in 2013 of approximately $40.6M or approximately $0.14EPS Mitigated capital market risk of 2017 maturities
Slide 48: Corporate Expense Management – Debt Management (Refinancings)
Inputs to 2014 Financial Plan: Corporate Expense Management -Debt Management Increase and Extension of Revolving Redemption Refinancings Maturity Refinancings Credit Facility $ 75M called in Dec 2013 (10.00%) $101M maturing in Dec 2013 Increased size of facility in Sep 2013 to (5.39%) $1.25B, and $1
Slide 49: Pension and Post Retirement Savings
Inputs to 2014 Financial Plan: Corporate Expense Management – Pension and Post Retirement Savings 2014 Pension $7.5 Post-Retirement Benefits $2.7 Net Income Impact* $10.2 EPS Diluted Impact $0.06 *Incremental change from 2012 plan assumptions Key Assumptions – Pension Discount Rate: 4.17% for 2013 a
Slide 50: Our Growth Triangle: 2014 Guidance of $2.35-$2.45
Our Growth Triangle: 2014 Guidance of $2.35-$2.45 2014 Growth Drivers Shale (0-1%) MBB (~1%) Acquisitions (1-2%) Corp Exp Reductions (1-2%) Regulated Investment – CapEx (4-5%)
Slide 51: 2014 Guidance and Major Drivers
2014 Guidance and Major Drivers $2.35—$2.45 Guidance Drivers Weather -7 +7 Market Based Businesses -4 +2 Corporate Exp. Reductions -2 +2 Regulated -1 +1 Acquisitions -8 -6 -4 -2 0 2 4 6 8 Cents per Share Variation
Slide 52: Strong cash flows and balance sheet support our strategy
Strong expected cash flows and balance sheet support our strategy Free Cash Flow ($ MM) $160.0 $120.0 $80.0 $40.0 $- $(40.0) $(80.0) $(120.0) $(160.0) $(200.0) $(240.0) 2013 2014E 2015E 2016E 2017E 2018E Corporate Capital Structure 100% 80% 60% 40% 20% 44.1% 44.3% 44.5% 44.9% 45.4% 46.2% 0% 2013LZ 2
Slide 53: ROE will improve for latest twelve months
ROE will improve by approximately 30 basis points for latest twelve months Consolidated ROE 10.0% 0.5% 0.4% 1.0% 0.5% 1.8% 0.7% 0.9% 8.0% 1.0% 6.0% 8.8% 9.1% 4.0% 8.1% ROE 72%. 2.0% 0.0% 2011 Actual 2012 2013 2014 Actual Landing Zone Plan Regulatory Lag - Opportunity ROE - Impact of Parent Co. Debt
Slide 54: Dividend History: IPO–Current
Dividend History: IPO—Current Dividend Practice $0.30 Future dividend increases aligned with normalized EPS $1.09 growth $0.28 Payout ratio between 50-60 percent of net income $0.26 $0.96 $0.24 $0.90 $0.86 $0.22 $0.82 $ 0.80* $0.20 $0.18 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q3
Slide 55: Our Long Term EPS Goal continues to be 7-10%
Our Long Term EPS Goal continues to be 7-10% $ 2.75 $ 2.55 2014 Initial Guidance $ 2.35 $ 2.35 $2.22 $ 2.15 -$2.17 $ 1.99* $ 1.95 $ 1.75 2012 2013 2014 2015 * A non-GAAP measure * Excludes premium paid over par and other charges related to the recently announced cash tender offer by American Water’s
Slide 56: In Summary
NYSE: AWK In Summary
Slide 57: American Water 2014 Expectations
American Water 2014 Expectations You Can Hold Us Accountable For: Optimize Capital Spend Efficient use of our regulated capex spend Prudent deployment of strategic capital Constructive Regulatory Frameworks Continue to reduce regulatory lag through constructive mechanisms Pursue completion of three
Slide 58: Investor Relations goes Digital
American Water’s Investor Relations effort goes Digital –download the AW App for your Apple or Android devices Verzion LTE 9.20AM 82% American Water 40.75 0.00 Vol: 0.75M Mk Cap: 7.26B Open: 40.38 High: 40.84 Low: 40.38 Data Delayed 15m Updated 12/12/13, 5:40 PM Press Releases American Water Preside
Slide 59: Q&A
NYSE: AWK Q&A
Slide 60: Appendix
NYSE: AWK Appendix
Slide 61: Core growth anchored in needs of the US water industry
Our core growth is anchored in the needs of the US water industry Total 20-Year Needed by Project Type1 (In billions of January 2011 dollars) Total National Need $384.2 Billion Treatment $72.5 Source $20.5 Other , $4.2 Storage $39.5 Transmission and Distribution $247.5 Water Infrastructure Needs: $3
Slide 62: 2014 Regulated Capital Expenditures – the what and the why
2014 Regulated Capital Expenditures –the “what” and the “why” 2014 Net CapEx Asset Codes Distribution Customer (Services (Mains, Valves, and Meters) 15% and Hydrants) 51% Information and Communication Systems 3% Wastewater 3% Other 4% Land, Buildings and Structures 3% Source of Supply Including Supp
Slide 63: Working with State Commissions to Lower Regulatory Lag
We work with State Commissions to Lower Impact of Regulatory Lag to Increase Investments Positive Policies to reduce Regulatory Lag Full or Infrastructure Forward Surcharges for Rates recovery Partial Surcharge Looking Changes on Plant not yet Single Programs Test Years In Opt Expenses in service* T
Slide 64: Rate Cases Update
Rate Cases Update Rate Cases Awaiting Final Order A. Rate Cases Filed in 2013 Revenue ROE Rate Base Company Docket / Case Number Date Filed Increase Filed Requested Filed Pennsylvania Case No. R-2013-2355276 4/30/2013 $58.6 11.25% $2,493.1 Iowa Case No. RPU-2013-0002 4/30/2013 6.4 (a) 10.80% 100.7 C
Slide 65: Regulated Utilities – Rate Base and Allowed Return on Equity
Regulated Utilities – Rate Base and Allowed Return on Equity Last Rate Case Awarded—Largest Regulated Subsidiaries Authorized Rate Base* $374,404 $706,386 $741,151 (b) $384,729 $831,375 (b) Authorized ROE 9.99% (a) 9.34% 9.70% 9.70% 10.00% Authorized Equity 53.00% (a) 48.10% 42.02% 44.70% 50.57% (d)
Slide 66: Reconciliation Table – Regulated O&M Efficiency Ratio
Reconciliation Table – Regulated O&M Efficiency Ratio Regulated O&M Efficiency Ratio For the Twelve Months Ended (A Non-GAAP Unaudited Number) September 30, ($ in thousands) 2013 Total Operations and Maintenance Expense $1,336,466 Less: Operations and Maintenance Expense – Market Based Operations 25
Slide 67: Earnings Per Share Reconciliation & Guidance
Earnings Per Share Reconciliation & Guidance Reconciliation of 2013 Guidance to Adjusted 2013 Guidance $2.03 $2.08 Diluted EPS 2013 Guidance (GAAP) Add : Diluted EPS impact of tender offer charge (2) 0.14 0.14 Adjusted Diluted EPS 2013 Guidance (Non-GAAP) $2.17 $2.22 2012 EPS from Continuing Operati
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