United Utilities Group PLC · LSE:UU.
United Utilities — FY2005 Earnings Presentation
56 slides from United Utilities's earnings presentation, June 2005
Slide 1: United Utilities PLC Preliminary announcement of results presentation
United Utilities PLC Preliminary announcement of results presentation Year ended 31 March 2005 www.unitedutilities.com 1
Slide 2: Disclaimer
THIS DOCUMENT IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, FURTHER DISTRIBUTED TO ANY OTHER PERSON OR PUBLISHED IN WHOLE OR IN PART FOR ANY OTHER PURPOSE This document has been issued by United Utilities PLC (the “Company”) and comprises the written materials/slide
Slide 3: Sir Richard Evans, Chairman
Sir Richard Evans Chairman Good morning ladies and gentlemen, and welcome to our preliminary results presentation. With me on the platform are John Roberts, our Chief Executive, and Simon Batey, our Finance Director. Also with us in the audience are other members of our executive team. Before we sta
Slide 4: Agenda
Agenda • Introduction Sir Richard Evans • Financial review and rights issue Simon Batey • Business update John Roberts • Questions Sir Richard Evans 4 In a moment Simon will take you through the numbers. He’ll also remind you of the mechanics of the second stage of our rights issue. Please note that
Slide 5: Dividend
Dividend • These results further demonstrate the success of the group’s strategy • In line with our target of maintaining dividends in real terms, the board is proposing to increase the 2004/05 final dividend by 2.5 per cent • As we announced in December, over the next five years the Board’s target
Slide 6: Simon Batey, Finance Director
Simon Batey Finance Director Thank you, Chairman. Good morning, ladies and gentlemen. 6
Slide 7: Highlights
Highlights • Profit* before tax increased by 17% to £408m – £3.3bn of new contracts for support services businesses • Licensed multi-utility operations – operating profit* increased 13% to £588m • Infrastructure management – operating profit* increased by 17% to £79m • Business process outsourcing –
Slide 8: Turnover
Turnover £m 2005 2004 Support services and telecoms 1,173.1 1,001.0 +17% Licensed multi-utility operations 1,384.7 1,300.7 +6% Inter-business eliminations (189.6) (186.2) Total 2,368.2 2,115.5 +12% Non-regulated businesses now contribute over 40% of the group’s external turnover 8 Turning to the num
Slide 9: Profit before tax
Profit* before tax £m 2005 2004 Total operating profit* 691.8 597.1 +16% Interest charge (284.1) (248.1) Profit* before tax 407.7 349.0 +17% • Increase in interest charge reflects the impact of higher average borrowings to fund capital programme • As a result of our interest rate management strategy
Slide 10: Exceptional items and goodwill
Exceptional items and goodwill • Exceptional net charge to the profit and loss account of £21.1m principally reflects: – restructuring of the regulated businesses in preparation for meeting the 2005-10 efficiency challenges; offset by – profit in respect of disposals of businesses/investments • Good
Slide 11: Taxation
Taxation £m 2005 2004 Current tax (31.7) (20.9) Deferred tax 75.3 (3.4) Tax on exceptional items (8.1) (0.8) 35.5 (25.1) Current tax • Credit results from the agreement of prior year tax returns Deferred tax • No significant change in long-term UK government bond rates • Increase therefore reflects
Slide 12: Earnings
Earnings* Pence per share 2005 2004 Earnings per share* Before deferred tax 61.4 54.2 After deferred tax 50.8 54.7 • 13 per cent increase in EPS (before deferred tax) reflects substantial profit growth – measure is consistent with the way Ofwat treats tax in its price- setting methodology • Adjusted
Slide 13: Dividends
Dividends Pence per share 2005 2004 Dividend per ordinary share 45.42 44.31 Dividend per A share 22.71 22.155 Dividend cover* 1.3x 1.2x • Proposed total ordinary dividend increase of 2.5 per cent – in line with inflation-related increase in our water and wastewater revenues • Dividend cover, on a pr
Slide 14: Balance sheet
Balance sheet 31 March 31 March £m 2005 2004 Net debt 4,141.1 3,438.4 Equity shareholders’ funds 3,117.4 3,083.3 Total capital employed 7,258.5 6,521.7 Gearing (net debt/total capital employed) 57% 53% • Increase in net debt principally reflects: – expenditure on water and electricity capital progra
Slide 15: Pensions prepayment
Pensions prepayment • £320m prepayment is equivalent to: – five years of normal company contributions; plus – the first five years of additional contributions required to eliminate the deficit over a 13 year period • Final regulatory price determinations make explicit allowance for funding of the re
Slide 16: Segmental analysis of profits
Segmental analysis of profits* £m 2005 2004 Licensed multi-utility operations 587.9 519.6 +13% Infrastructure management 79.2 67.8 +17% Business process outsourcing 26.4 25.1 +5% Telecommunications (5.1) (16.6) +69% Other activities 7.8 5.9 Corporate costs (4.4) (4.7) Total operating profit* 691.8 5
Slide 17: Licensed multi-utility operations
Licensed multi-utility operations £m 2005 2004 Turnover 1,384.7 1,300.7 +6% Operating profit* 587.9 519.6 +13% Operating cash flow** 919.2 849.8 Net capex (855.5) (953.8) • Increase in turnover – principally reflects an allowed real price rise of 8.9% for United Utilities Water, offset by a real 3%
Slide 18: Infrastructure management
Infrastructure management £m 2005 2004 Turnover 543.1 446.9 +22% Operating profit* 79.2 67.8 +17% Operating cash flow** 61.5 33.6 Net capex including acquisitions/disposals 66.3 (39.7) £127.8m total cash inflow during period • Good growth in turnover and operating profit*, reflecting additional cont
Slide 19: Business process outsourcing
Business process outsourcing £m 2005 2004 Turnover 396.4 368.5 +8% Operating profit* 26.4 25.1 +5% Operating margin* 6.7% 6.8% Operating cash flow** 67.6 51.7 Net capex including acquisitions/disposals (63.6) (28.0) Strong operating cash flows Includes purchase of Capgemini’s stake in Vertex • Turno
Slide 20: Telecommunications
Telecommunications £m 2005 2004 Turnover 233.6 185.6 +26% Operating loss* (5.1) (16.6) +69% Operating cash flow** (1.5) 1.5 Net capex including acquisitions/disposals (13.1) (42.5) Includes purchase of • Revenue growth impacted by: Eurocall – industry-wide reductions in the prices of fixed to mobile
Slide 21: Operating profit growth in non-regulated businesses
Operating profit* growth in non-regulated businesses 120 100 Operating profit* (£m) 80 60 40 20 0 2000/01 2001/02 2002/03 2003/04 2004/05 “… for the first time our non-regulated businesses have generated more than £100m of operating profit* for the group…” * Comprises Vertex, Infrastructure manageme
Slide 22: International Financial Reporting Standards: main areas of impact
International Financial Reporting Standards Main areas of impact • As infrastructure renewals accounting is not permitted under IAS 16, our depreciation charge is expected to increase by around £25m • The adoption of IAS 19 means that any pension scheme surplus or deficit must be recognised as an as
Slide 23: International Financial Reporting Standards: main areas of impact
International Financial Reporting Standards Main areas of impact • The reversal of UK GAAP deferred tax discounting under IAS 12 is expected to increase the deferred tax provision by around £950m, and increase the 2004/05 charge by around £65m – regulatory determinations set prices allowing for tax
Slide 24: Highlights
Highlights • Profit* before tax increased by 17% to £408m – £3.3bn of new contracts for support services businesses • Licensed multi-utility operations – operating profit* increased 13% to £588m • Infrastructure management – operating profit* increased by 17% to £79m • Business process outsourcing –
Slide 25: John Roberts, Chief Executive
John Roberts Chief Executive Thank you Simon, good morning. 25
Slide 26: Achieving our objectives
Achieving our objectives • Licensed multi-utility operations – prices agreed for next five years – plans in place to meet cost savings targets – predictable index-linked income streams • Support services and telecoms – United Utilities Contract Solutions firmly established as the leading utility inf
Slide 27: Sources of operating cost efficiencies 2005-10
Licensed multi-utility operations Sources of operating cost efficiencies 2005-10 Other IT systems Accommodation and transport Management reorganisation and improved work practices Procurement Integrated Performance Management 27 As you’re probably aware our regulated businesses are tasked with deliv
Slide 28: Risk profile of allowed equity returns
Licensed multi-utility operations The risk profile of allowed equity returns Allowed equity returns contingent on delivery of operating efficiency targets 100% 13% Total allowed equity returns 80% 41% 60% 40% 20% 0% 2000-05 2005-10 “… returns for our equity investors have become significantly de-ris
Slide 29: Investment strategy: partnering to improve performance
Investment strategy Partnering to improve performance • We have appointed partners to help deliver our capital investment programmes • Building on our extensive experience of working with others – e.g. Scottish Water, Welsh Water, previous capital investment programmes in the North West • More integ
Slide 30: Investment strategy: partnering to improve performance
Investment strategy Partnering to improve performance Helping us to deliver our required capital efficiencies Better United Utilities North West aligning of incentives More evenly sharing risks Solution Services Partner and rewards between Process Partner Process Partner ourselves and our partners S
Slide 31: Achieving our objectives
Achieving our objectives • Licensed multi-utility operations – prices agreed for next five years – plans in place to meet cost savings targets – predictable index-linked income streams • Support services and telecoms – United Utilities Contract Solutions firmly established as the leading utility inf
Slide 32: The changing shape of the group
The changing shape of the group 3000 2500 Support services Telecoms businesses 2000 revenues have more Turnover (£m) Support than doubled services businesses 1500 1000 Licensed multi-utility 500 operations 0 2000/01 2004/05 32 The slide shows how the size and shape of the group has changed over the
Slide 33: Infrastructure management milestones
Infrastructure management milestones Secured JV contract to Won 5 year £750m 50 help manage Scottish JV contract with Water’s £1.1bn capital Southern Water 45 investment programme 40 35 Operating profit* (£m) Signed £450m 8 year £1.1bn 30 contract to operations contract Secured 15 year 25 with Welsh
Slide 34: North of England gas distribution network
Infrastructure management North of England gas distribution network • Contract to operate the North of England gas distribution network successfully commenced on 1 June 2005 • Around 1,100 employees have been transferred from National Grid Transco to United Utilities • The network extends south from
Slide 35: Infrastructure management future sales in order book
Infrastructure management Future sales in order book* Expectation of further growth from 800 new contract wins 700 600 Turnover (£m) 500 400 300 Future revenues from existing contracts 200 already secured* 100 0 2001 2002 2003 2004 2005 2006 2007 2008 * assumes continuation of current run rate for s
Slide 36: United Utilities presence in the UK utility sector
United Utilities presence in the UK utility sector • Involved in the management or Scottish Water operation of assets of four UK water companies • Represents around 35% of the UK water industry’s asset base North of England gas • Provide gas network services network United Utilities to over 6 millio
Slide 37: Share of utility outsourcing target market
Infrastructure management Share of utility outsourcing target market* Around 9% of our target UK utility market has been outsourced… …and we are involved in around 60% of the outsourced portion of this market Large potential market but dependent on strategies pursued by other utilities * Covers the
Slide 38: Top UK business process outsourcing players by turnover
Top 10 UK business process outsourcing players by turnover* Turnover n re S ita x s ta ng S S gi te sy B D B tu ra ap gi ri er E H s ni be en O an en C V U Li s cc ch m to A ie X A S “… Vertex is now the third largest business process outsourcing company in the United Kingdom*…” * Source: Ovum Holwa
Slide 39: Acquisition of Marlborough Stirling plc
Acquisition of Marlborough Stirling plc • Acquired Marlborough Stirling plc in May for an enterprise value of £72.2 million – provides Vertex with an entry point into the financial services market, which offers significant growth opportunities • The market for BPO services within mortgages and life
Slide 40: Marlborough Stirling progress
Marlborough Stirling progress • Vertex has identified immediate opportunities to deliver synergy savings of around £6m per annum, on a full year basis, principally derived from: – reduction in corporate costs – finance systems – property management and procurement – IT systems – marketing function •
Slide 41: Marlborough Stirling clients
Marlborough Stirling clients • life and pensions outsourcing • mortgage application processing • life and pensions software • mortgage outsourcing • life and pensions point-of-sale • Exweb / Officeweb 41 This slide shows some of Marlborough Stirling’s clients. As you can see this includes some blue
Slide 42: Vertex UK public sector progress
Vertex UK public sector progress • UK public sector continues to be a key target market as it offers excellent opportunities for growth • During April, we successfully commenced the first phase of our 15-year contract with Thurrock Council – being managed in partnership with United Utilities Contrac
Slide 43: Your Communications revenues
Your Communications revenues 250 200 Turnover (£m) 150 100 50 Revenues have nearly tripled in the last five years 0 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 43 That’s all I have to say about our support services businesses. I’ll now move on to our telecoms business, Your Communications. Here
Slide 44: Your Communications progress
Your Communications progress • Despite difficult market conditions, Your Communications achieved a break- even* position in the second half of the year • We select our markets carefully, with a clear focus on: – directly managed business customers and the public sector – our core region in the North
Slide 45: Achieving our objectives
Achieving our objectives • Licensed multi-utility operations – prices agreed for next five years – plans in place to meet cost savings targets – predictable index-linked income streams • Support services and telecoms – United Utilities Contract Solutions firmly established as the leading utility inf
Slide 46: Excellent prospects for the future: predictable regulated income streams
Excellent prospects for the future Predictable regulated income streams • Prices for our regulated businesses are now agreed for the 2005-10 period • Having made preparations in advance we believe we have plans in place to meet our regulatory challenges • The group will benefit from a predictable in
Slide 47: Excellent prospects for the future: support services businesses
Excellent prospects for the future Support services businesses • United Utilities Contract Solutions is the dominant player in UK utility infrastructure outsourcing market – the group is now involved in the operation or management of around 35% of the UK water asset base • Vertex has grown to be the
Slide 48: Supporting information
Suppo 0, United Utilities ormatio 48
Slide 49: Licensed multi-utility operations turnover
Licensed multi-utility operations turnover £m 2005 Price Volume 2004 Water and wastewater 1,126 118 (14) 1,022 Electricity distribution 259 (26) 6 279 1,385 92 (8) 1,301 49 49
Slide 50: Water and wastewater expenses
Water and wastewater expenses £m 2005 2004 Depreciation and infrastructure renewals 249 259 Other costs 404 392 Total costs 653 651 50 50
Slide 51: Electricity expenses
Electricity expenses £m 2005 2004 Depreciation 58 52 Other costs 86 78 Total costs 144 130 51 51
Slide 52: Depreciation
Depreciation £m 2005 2004 Licensed multi-utility operations 307 311 Infrastructure management 8 9 Business process outsourcing 27 25 Telecommunications 21 20 Other 3 3 Total 366 368 52 Not for release or distribution in the United States of America, Australia, France, New Zealand, South Africa and S
Slide 53: United Utilities Water regulatory asset value
United Utilities Water Regulatory asset value 8000 May grow due to potential further capital investment requirements 7500 £m, outturn prices 7000 6500 6000 31 March 31 March 31 March 31 March 31 March 2006 2007 2008 2009 2010 53 53
Slide 54: Weighted average number of shares used for adjusted EPS calculations
Weighted average number of shares used for adjusted EPS calculations (2005/06 and 2006/07) • For the year ending 31 March 2006, weighted average number of shares are expected to be around 833m* – (716.2m x 90/365) + (870.8 x 275/365) = 832.7m Shares in issue Shares in issue for for 90 days** 275 day
Slide 55: Financing & liquidity as at 31 March 2005
Financing & liquidity as at 31 March 2005 Gross debt = £5,002.4m Headroom / prefunding USD bonds £m GBP bonds Cash and short term investments 861 EIB loans Unutilised committed medium term bank 773 facilities* 200 EIB undrawn long-term loan Leases Total headroom / prefunding 1,834 Other loans * Excl
Slide 56: Debt structure at 31 March 2005
Debt structure at 31 March 2005 United Utilities PLC A3, Stable ; BBB+, Stable Yankees: Euro MTN: Loans to UUW • $350m in 05’s • JPY3bn in 08’s • $500m in 08’s • USD10m in 08’s • $250m in 18’s • EUR10m in 08’s • $350m in 19’s • USD10m in 09’s • $400m in 28’s United Utilities Water PLC United Utiliti