United Utilities Group Plc · LSE:UU.
United Utilities — H1 2006/07 Earnings Presentation
53 slides from United Utilities's earnings presentation, November 2006
Slide 1: United Utilities PLC Interim results
United Utilities PLC Interim results Six months ended 30 September 2006 www.unitedutilities.com 1 1
Slide 2: Sir Richard Evans, Chairman
Sir Richard Evans Chairman 2 Good morning ladies and gentlemen, and welcome to our interim results presentation. With me on the platform are Philip Green, our Chief Executive and Tim Weller, our Chief Financial Officer. Also with us are other members of our executive team. I’m pleased to welcome Tim
Slide 3: Agenda
Agenda • Introduction Sir Richard Evans • Overview Philip Green • Financial review Tim Weller • Strategy and business update Philip Green • Questions 3 In a moment Philip will provide a brief overview before handing over to Tim, who will take you through the numbers. Philip will then discuss our str
Slide 4: Philip Green, Chief Executive
Philip Green Chief Executive 4 Thank you Chairman, good morning. 4
Slide 5: Overview
Overview • Strong profit growth, underpinned by United Utilities North West • Operational and service improvements delivered • Developing a high performance company, with the medium term aim of being a world class operator of utility infrastructure • Interim dividend increased by 2.4% to 14.63 pence
Slide 6: Vertex – not a long-term strategic hold
Vertex – not a long-term strategic hold • Our strategy is to focus on our core skills of managing water, wastewater, electricity and gas networks • The Board has taken the strategic decision to initiate a process for the divestment of Vertex • Shareholders’ interests best served by concentrating on
Slide 7: Tim Weller, Chief Financial Officer
Tim Weller Chief Financial Officer Thank you, Philip. Good morning. 7
Slide 8: Highlights
Highlights • Profit before tax increased by 98% to £317m – underlying profit before tax1,2,3 up 14% • Operating profit from continuing operations increased by 16% to £424m – underlying operating profit1,2 up 7%, reflecting regulatory price increases and efficiencies • United Utilities North West – u
Slide 9: United Utilities North West
United Utilities North West £m 2006 2005 Revenue 812.6 745.9 +9% Operating profit 390.5 323.4 +21% Adjustments: Restructuring costs 4.0 - Settlement of claims1 (15.0) - Accelerated write-off of IT systems2 - 25.0 Underlying operating profit 379.5 348.4 +9% • Growth in revenue primarily reflects allo
Slide 10: United Utilities North West Operating expenses
United Utilities North West Operating expenses £m 2006 2005 Depreciation and amortisation (Water) 98.8 95.3 Depreciation and amortisation (Electricity) 31.0 29.1 Infrastructure renewals expenditure (Water) 44.1 19.7 Other costs (Water) 221.4 215.9 Other costs (Electricity) 37.8 37.5 Operating expens
Slide 11: United Utilities North West Capital expenditure profile
United Utilities North West Capital expenditure profile Water capital expenditure profile Wastewater capital expenditure profile 800 800 600 600 Year spend (£m) Year spend (£m) 400 400 200 200 0 2005/06 2006/07 2007/08 2008/09 2009/10 0 2005/06 2006/07 2007/08 2008/09 2009/10 Latest Projection Final
Slide 12: United Utilities Contract Solutions
United Utilities Contract Solutions £m 2006 2005 Revenue 330.7 289.4 +14% Operating profit 25.3 29.9 Adjustments: Restructuring costs 0.5 1.6 Profit on disposals - (6.4) Underlying operating profit 25.8 25.1 +3% • Performance in line with expectations • Full six months contribution from Northern Gas
Slide 13: United Utilities Property Solutions
United Utilities Property Solutions • The property trading and management business of the group, previously included within infrastructure management – maximises the value of surplus assets • Owns land and property assets in excess of £100m • The business has been consistently profitable for over fi
Slide 14: Finance expense
Finance expense £m 2006 2005 Published net finance expense1 107.6 205.9 IAS 39 fair value adjustment (3.6) (95.9) Net finance expense pre IAS 39 104.0 110.0 Interest on swaps and debt under fair value option 27.5 28.0 Net interest payable pre IAS 39 131.5 138.0 Average cost of net borrowing 6.2% 6.6
Slide 15: Profit before tax
Profit before tax £m 2006 2005 Group operating profit1 424.4 365.6 Net finance expense1 (107.6) (205.9) Profit before tax1 316.8 159.7 +98% Adjustments: IAS 39 fair value adjustments 3.6 95.9 Interest on swaps and debt under fair value option (27.5) (28.0) Restructuring costs 4.5 1.6 Settlement of c
Slide 16: Movement in net debt
Movement in net debt1 4,500 £257m £94m £16m £4,260m £4,187m £489m £293m 4,000 £122m Net debt (£m) 3,500 3,000 2,500 RAV gearing2 RAV gearing2 56% 55% 2,000 Net debt at 1 Operating Interest and Net capex Dividends Fair value Discontinued Net debt at 30 April 2006 cash flow tax movement and other Sept
Slide 17: Long-term, index-linked debt
Long-term, index-linked debt Financing outperformance • Total index-linked debt now amounts to £1,360m and represents around one third of net debt – includes over £0.5 billion with 50-year maturities • Good match for the group’s regulated assets and revenue profile - both linked to RPI • Low cost of
Slide 18: Improved term structure of net debt
Improved term structure of net debt1 £bn 5 4 3 2 1 0 2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2 Sept 2006 Net Debt (Adjusted) Sept 2005 Net Debt “…the average term to maturity has more than doubled, from under 13 years, to over 33 years…” 1 Net debt is calculated as gross borrowings le
Slide 19: Highlights
Highlights • Profit before tax increased by 98% to £317m – underlying profit before tax1,2,3 up 14% • Operating profit from continuing operations increased by 16% to £424m – underlying operating profit1,2 up 7%, reflecting regulatory price increases and efficiencies • United Utilities North West – u
Slide 20: Philip Green, Chief Executive
Philip Green Chief Executive Thank you Tim. 20
Slide 21: Focus on core skills
Focus on core skills • United Utilities’ strategy • Management team • Business update – United Utilities North West – United Utilities Contract Solutions • Summary and outlook 21 I’ve been with United Utilities for almost nine months and would like to take this opportunity to share my views with you
Slide 22: United Utilities' strategy: Focus on core skills
United Utilities’ strategy Focus on core skills Asset Owner Asset Operator UU North West UU North West Non-core UU Water Operates interests regulated assets UU Water and Vertex UU Electricity UU Electricity regulated assets Minority stake in regulated assets THUS UU Contract UU Contract Solutions So
Slide 23: Focus on core skills
Focus on core skills • United Utilities’ strategy • Management team • Business update – United Utilities North West – United Utilities Contract Solutions • Summary and outlook 23 Before I provide you with an update of the performance of our businesses, I’d like to say a few words about changes in ou
Slide 24: Our management team
Our management team Philip Green, Chief Executive Tim Weller, Chief Financial Officer Charlie Cornish, MD UU North West Gordon Waters, MD UU Contract Solutions Tom Drury, MD Vertex Gaynor Kenyon, Communications Director Tim Rayner, General Counsel Linda Booth, Group HR Director “…infrastructure expe
Slide 25: Focus on core skills
Focus on core skills • United Utilities’ strategy • Management team • Business update – United Utilities North West – United Utilities Contract Solutions • Summary and outlook 25 Now, looking at UU North West. 25
Slide 26: United Utilities North West Regulatory efficiencies
United Utilities North West Regulatory efficiencies • Good progress in delivering efficiencies – capital investment partnership framework now fully integrated into the business – project and investment system working well – integrated performance management process now in place across the North West
Slide 27: United Utilities Water Performance improvements
United Utilities Water Performance improvements • Up from 6th to 4th position in Ofwat’s 2005/06 overall performance assessment (OPA) score • Overall customer satisfaction, in response to enquiries, has improved – satisfaction levels for water and wastewater customers up from <50% prior to the start
Slide 28: United Utilities Water Overall performance assessment (OPA)
United Utilities Water Overall performance assessment (OPA) United Utilities Water and Welsh Water movements in OPA score Sustained 500 relative 450 improvement for both UU Water 400 UUW and Welsh water OPA Score Welsh 350 High 300 Low 250 200 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 Year • C
Slide 29: United Utilities Electricity Performance improvements
United Utilities Electricity Performance improvements • Continues to perform well against regulatory targets for: – customer interruptions; and – customer minutes lost • Improvement in customer satisfaction since the start of the year “…our water, wastewater and electricity customers have all benefi
Slide 30: Benefits of operational performance and service improvements
Benefits of operational performance and service improvements • Good service often, actually, costs less than bad service • Good service is just good business • Developing regulatory strategy for 2009 price reviews “…good service and a strong operational performance can help to mitigate regulatory ri
Slide 31: Developing a high performance company
United Utilities North West Developing a high performance company • We aim to be an upper quartile company on key measures • Restructuring UU North West to sharpen its commercial focus – asset owner / asset operator management reorganisation – builds on the successful Contract Solutions business mod
Slide 32: Key operational and service measures
Key operational and service measures Start point Current position Target Relative efficiency Below average Below average Upper quartile in the medium term Security of supply Have not met On track to meet Meet or outperform economic level of 2006/07 rolling target rolling leakage targets leakage roll
Slide 33: Environmental responsibility
Environmental responsibility • For the first time, this year, all seaside waters in our region now meet tough European quality standards • Working closely with the Carbon Trust to develop our carbon management programme and maximise our contribution in tackling climate change • More robust approach
Slide 34: Focus on core skills
Focus on core skills • United Utilities’ strategy • Management team • Business update – United Utilities North West – United Utilities Contract Solutions • Summary and outlook 34 Now, turning to Contract Solutions, which represents a direct application of our core utility skills. 34
Slide 35: United Utilities Contract Solutions Contract portfolio performance
United Utilities Contract Solutions Contract portfolio performance Dwr Cymru Welsh Water Good performance with profit levels maintained despite inflationary price pressures. United Utilities Contract Solutions has helped move Dwr Cymru Welsh Water from a below average OPA position to a sustained upp
Slide 36: Scottish Water contract renewal
Scottish Water contract renewal • Contract1 renewal in June 2006, worth around £760m with potential for additional work with an estimated value of £240m – our share of this potential combined contract is worth around £150m • Consolidates our position as the leading utility infrastructure outsourcing
Slide 37: Major UK utility contracts
United Utilities Contract Solutions Major UK utility contracts Robust order book 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Welsh Water Northern Gas Networks Southern Water “…whilst United Utilities Contract Scottish Water Solutions continues to pursue growth opportun
Slide 38: Focus on core skills
Focus on core skills • United Utilities’ strategy • Management team • Business update – United Utilities North West – United Utilities Contract Solutions • Summary and outlook 38 I’d like to finish off with a brief summary and a few comments about the outlook for the group. 38
Slide 39: Summary and outlook
Summary and outlook • Strong profit growth underpinned by United Utilities North West • Strategy is to focus on core skills of managing water, wastewater, electricity and gas networks • Drive to create a high performance company – target upper quartile results across key operational and service meas
Slide 40: Questions
Questions 40 That concludes our presentation. Thank you for listening, we’ll now take questions. 40
Slide 41: Supporting information
Supporting information Key operational and service measures Reclassification of historical results Financing and liquidity Debt structure 41
Slide 42: Key operational and service measures: Relative efficiency
Key operational and service measures Relative efficiency • United Utilities Water performs well in areas such as water resources and treatment, distribution, network, sewer network and sludge activities – however, underperformance in areas such as customer services and large wastewater treatment wor
Slide 43: Key operational and service measures: Security of supply
Key operational and service measures Security of supply • United Utilities Water has not achieved its economic level of leakage rolling target1 for the last three years – on track to meet 2006/07 target1 of 470 megalitres per day • Going forward, the business aims to achieve or outperform its econom
Slide 44: Key operational and service measures: Pollution
Key operational and service measures Pollution • United Utilities Water aims to halve the number of Category 1 & 21 pollution incidents in the medium term • This will be measured from a base position in 2005/06 when: – two Category 1 & 21 water pollution incidents were recorded; and – twenty one Cat
Slide 45: Key operational and service measures: Sewer flooding
Key operational and service measures Sewer flooding • United Utilities Water will focus on reducing the number of properties at risk of sewer flooding • Good progress has been made in recent years – in 2005/06, 237 properties at risk of one sewer flooding incident in ten years were removed from the
Slide 46: Customer interruptions
Key operational and service measures Customer interruptions (CIs) 100 There has been a 12% improvement in customer 80 interruptions over the period Interruptions per 100 customers per year 60 40 …and we have outperformed Ofgem’s 2005/06 target by 13% 20 0 2001/02 2002/03 2003/04 2004/05 2005/06 “…go
Slide 47: Customer minutes lost
Key operational and service measures Customer minutes lost (CMLs) 100 Customer minutes connected customer per year Customer minutes lost per lost have reduced by 80 26% over the period 60 40 …and we have outperformed Ofgem’s 2005/06 target by 21% 20 0 2001/02 2002/03 2003/04 2004/05 2005/06 “…we aim
Slide 48: Overall customer satisfaction
Key operational and service measures Overall customer satisfaction • Overall customer experience assessment in place, measuring the level of satisfaction in relation to the response received after an enquiry – involves monthly interviews by a third party with water, wastewater and electricity custom
Slide 49: Reclassification of historical results: six months to September 2005
Reclassification of historical results Six months ended 30 September 2005 UUCS Vertex As reported UUPS transfer Intangibles discontinuance Restated £m £m £m £m £m United Utilities North West 325.0 - - (1.6) 323.4 (formerly described as licensed multi-utility operations) United Utilities Contract Sol
Slide 50: Reclassification of historical results: year ended March 2006
Reclassification of historical results Year ended 31 March 2006 UUCS Vertex As reported UUPS transfer Intangibles discontinuance Restated £m £m £m £m £m United Utilities North West 652.3 - - (2.6) 649.7 (formerly described as licensed multi-utility operations) United Utilities Contract Solutions 95.
Slide 51: Financing & liquidity as at September 2006
Financing & liquidity as at 30 September 2006 Gross debt = £6,388.9m Headroom/prefunding = £2,258.4m Joint venture EIB loans2 £m £705.2 m Yankee debt bonds (USD) Cash and short-term deposits 2,129.1 £194.3 m £810.9 m Leases & Medium-term committed bank facilities1 775.0 other long- term debt Short-t
Slide 52: Debt structure at September 2006
Debt structure2 at 30 September 2006 United Utilities PLC A3 Stable; BBB+ Stable Yankees: Euro MTN: • $500m in 08’s • JPY 3bn in 08’s • EUR 10m in 08’s • $250m in 18’s • USD10m in 08’s • GBP 6.5m in 13’s Loan to UUW • $350m in 19’s • USD10m in 09’s • $400m in 28’s Short term debt: Commercial paper £
Slide 53: Forward-looking statements
This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of the company. Statements that are not historical facts, including statements about the company’s beliefs and expectations, are forward-looking statements. Words
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