American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Day (February 2011)
54 slides from American Water Works's investor day presentation, Feb 15, 2011
Slide 1: Investor Conference February 15, 2010
Investor Conference February 15, 2010 Exhibit 99.2
Slide 2: Water | NYSE: AWK
WATER | NYSE: AWK
Slide 3: Investor Conference February 15, 2010
Investor Conference February 15, 2010
Slide 4: Customer Service Video
3 Please review the corresponding video link "Customer Service Video" on the American Water website
Slide 5: Introduction
Introduction Ed Vallejo Vice President - Investor Relations
Slide 6: Forward-looking statements
5 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 current expectations and assumptions regarding future event
Slide 7: Today's Agenda
6 Jeff Sterba: Strategy Overview Walter Lynch: Regulated Overview Break Ellen Wolf: Financial Overview Closing and Q&As Today’s Agenda
Slide 8: American Water Overview: Strategy & Goals
American Water Overview: Strategy & Goals Jeff Sterba President and Chief Executive Officer
Slide 9: Jeff Sterba, Chief Executive Officer & President
‘American Chief Executive Office & President Jeff Sterba www.amwater.com
Slide 10: American Water: The Premier Water Services Provider in North America
9 American Water: The Premier Water Services Provider in North America Geographic Diversity (1) Business Diversity (1) Market Cap: $4.7 Billion Enterprise Value: $10.2 Billion Average Volume Traded: 1.1 Million shares (1) 2010 Revenues (2) Market data as of 2/9/11 (3) Market Based includes Other
Slide 11: American Water: A Snapshot
10 Cash Flow From Operations (in millions) Earnings Per Share Operating Revenues (in millions) Return on Equity American Water: A Snapshot • 2010 Preliminary Results • EPS and ROE exclude impairment charges
Slide 12: Commitment to our Customers, Employees and Shareholders
11 Commitment to our Customers, Employees and Shareholders What You’ll Hear Today Sound Corporate Strategy and Key Initiatives Portfolio Optimization Regulatory Policy Regulated and Market-Based Opportunities Operational Excellence Continued Investment in Infrastructure Driving Excellent Results and
Slide 13: Water Sector Themes
Water Sector Themes ATER | NYSE: AWK www.amwater.com
Slide 14: Water Industry Has a Favorable Utility Profile
13 Water Utility Characteristics Implications Water Industry Has a Favorable Utility Profile • Capital projects focused on maintaining public health & safety standards • Regulators supportive of prudent projects • Water bills low portion of household budget • Essential product – no substitutes • Dem
Slide 15: Our Values, Mission and Vision
14 Our Values • Honesty and Integrity • Communication • Teamwork • Excellence • Engagement Our Mission • Providing safe, reliable water services to our customers and communities • Driving Operational Excellence • Enabling employees to innovate • Ensuring long-term stewardship of all resources • Enga
Slide 16: Providing Value to Customers, Employees and Shareholders
15 American Water provides value-added products and services that address customers’ needs V alue P rice C ost American Water: Providing Value to Customers, Employees and Shareholders Operational Excellence Employer of Choice Sustainability Customer Focus Regulatory & Public Policy Targeted Growth I
Slide 17: Strategy Specifics: Goals and Actions
Goals Actions 16 • Earn appropriate return on investments • Promote constructive regulatory frameworks • Grow Regulated Businesses through focused acquisitions • Pursue “regulated-like” opportunities • Focus on Operations Efficiencies Regulated Operations & Support • Invest in states where we can ad
Slide 18: Regulated Operations: Population Served
17 States we are in process of exiting thru Portfolio Optimization Strategy Specifics: Regulated Operations - Invest in states where we can add value American Water Regulated Operations: Population Served 32,000 * 2009 Data
Slide 19: Strategy Specifics: Homeowner Services Growth
18 Strategy Specifics: Homeowner Services Growth
Slide 20: Market Size of Military Utility Privatizations
19 Over $2 Billion in Revenues Backlog Market Opportunity represents approximately $11Bn in Total Revenues 3 3 4 Strategy Specifics: Market Size of Military Utility Privatizations 2011-13 2014-16 Major Water/Wastewater Contracts to be Awarded Contracts Awarded to American Water Contracts Awarded to
Slide 21: Strategy Specifics: Municipal Contract Operations
20 The Current Model Our Value Model • Shorter Term Contracts • Heavy Competition • High Risk • Low Margin • Resource Intensive • Minimal Scalability Strategy Specifics – Municipal Contract Operations • Longer Term Contracts • Form of Public Private Partnership • Shared Risk • Performance Metrics •
Slide 22: Strategy Specifics: Growth Avenues
21 Profitable Growth Drivers Core Businesses • Infrastructure Investment • Tuck Ins • Homeowner Services • Military Utility Privatizations New Markets New Products Strategy Specifics: Growth Avenues • Acquisitions in new territories • Homeowner Services (new territories) • Military (beyond Army ) •
Slide 23: Investment Thesis: Sustained 7-10% EPS Growth
22 Investment Thesis: Sustained 7-10% EPS Growth Future Growth Short Term Long Term New Services Regulated Investments Acquisitions Operational Excellence/ Efficiencies ROE improvement Long Term Growth Conceptual Representation
Slide 24: Regulated Operations Initiatives
Regulated Operations Initiatives Walter Lynch President & Chief Operating Officer Regulated Operations
Slide 25: American Water's Regulated Portfolio
24 Regulated Customers Net Utility Plant American Water’s Geographic Presence Total = 3,335,518 Regulated Market Based Both Corporate headquarters 2010 EBIT Total = $748 million Total = $11.1 billion American Water’s Regulated Portfolio
Slide 26: Providing Value to Customers and Shareholders
25 V alue P rice C ost American Water: Providing Value to customers and shareholders Operational Excellence Employer of Choice Sustainability Customer Focus Regulatory & Public Policy Targeted Growth
Slide 27: American Water's Regulatory Initiatives
Goal: To earn appropriate rate of return on investments 26 Advancing consistent operational regulations Shaping constructive regulatory policies through participation in industry, regulatory and legislative settings Working with stakeholders to determine appropriate allowed ROE American Water’s Regu
Slide 28: American Water's Business Transformation Project
Promote operating excellence, efficiency, and economies of scale Business Transformation Project Increase employee effectiveness and satisfaction Enhance the customer experience Upgrade legacy systems near the end of useful lives 27 American Water’s Business Transformation Project
Slide 29: Business Transformation Project: Looking Ahead
28 Implementation Blueprint Project to be completed late 2014 American Water’s Business Transformation Project: Looking Ahead Oct. ’10 System Implementer selection Sep. ’11 Start EAM & CIS (Target “go live” Summer 2014) May ’11 Start ERP (Target “go live” summer 2012) Jan. ’11 Blueprint Phase begins
Slide 30: Portfolio Optimization Initiatives
Continue to Lower Costs Focus on Value Drivers Optimizing Long-term Value Through Proactive Management Redeploy Value Into Core Growth Markets Explore Opportunities for Long-Term Success Drive Profitability and Returns 29 American Water’s Portfolio Optimization Initiatives • Balanced Portfolio Analy
Slide 31: Portfolio Optimization Criteria
Portfolio Optimization Criteria 30 STRATEGIC IMPORTANCE & RELEVANCE MATERIALITY OF INVESTMENT PROJECTED CAPITAL INTENSITY REGULATORY ENVIRONMENT POTENTIAL TO ACHIEVE CRITICAL MASS American Water’s Portfolio Optimization Criteria
Slide 32: Portfolio Optimization Implementation
31 *Transaction Details • Sale Price: $470 million • Sale Multiple: 1.14x Book Equity • AZ Rate Base (1) : $319 mm • NM Rate Base (1) : $34 mm MO TX NM AZ * Missouri Transaction Details • Purchase Price: $3 million • Annual Revenue of $3.4 million • 59 wastewater systems • 10,000 people served Portf
Slide 33: KY Capex Video
32 Please review the corresponding video link "KY Capex Video" on the American Water website
Slide 34: Financial Overview
Financial Overview Ellen Wolf Senior Vice President & Chief Financial Officer
Slide 35: Total Shareholder Return: American Water vs. Indices
34 Shareholder Return YTD S&P 500 Beta = 1 85% 90% 95% 100% 105% 110% 115% 120% AWK DJ Util S&P 500 0.40 0.45 0.50 0.55 0.60 0.65 0.70 AWK Beta Price as a percent of base (December 31, 2009 = 100%) American Water S&P 500 Dow Jones Utilities +17.3% +15.1% +6.5% Total Shareholder Return : American Wat
Slide 36: 2010 Preliminary Financial Results
35 * For the Year Ended December 31, 2010 2009 (In thousands, except per share data) Revenue $2,710,677 $2,440,703 Gross Margin $748,091 $623,609 Gross Margin % 27.6% 25.6% Net income to common $267,827 $209,941 Common dividends paid $150,301 $137,331 Average common shares outstanding during the per
Slide 37: Regulated O&M Efficiency Ratio Continues to Improve
36 Adjusted O & M Efficiency Ratio* 49.4% 48.5% 46.2% 30% 35% 40% 45% 50% 55% 2008 2009 2010 Regulated O&M Efficiency Ratio Continues to Improve *O&M Efficiency Ratio = operating and maintenance expenses / revenues, adjusted for purchased water Long Term Goal: Below 40%
Slide 38: Customer Gallons Consumption Analysis
37 Residential Commercial Industrial American Water Total American Water Customer – Gallons Consumption – Period over Period Analysis -5.8% -13.8% 11.9% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 2007-2008 2008-2009 2009-2010 -4.2% -4.9% 0.7% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2007-
Slide 39: Rate Cases & Infrastructure Charges Granted in 2010
Average Timing of Rate Cases: Approximately every 2 Years 38 Rate Cases & Infrastructure Charges Granted in 2010 that will have impact on 2011 Core Strategy: Continuing Effort to Earn Appropriate Rate of Return on Prudent Investments
Slide 40: Rate Cases Awaiting Final Order
39 Rate Cases Awaiting Final Order as of December 31, 2010 Index of Rate Case Status 1 - Case Filed 2 - Discovery (Data Requests, Investigation) 3 - Negotiations / Evidentiary Hearings / Briefings 4 - Recommended order issued / settlement reached, without interim rates 5 - Interim rates in effect, a
Slide 41: Key Business Assumptions
40 Key Business Assumptions Continued decline in water usage per customer Low flow fixtures Declining family size Unemployment General conservation (promoted by US EPA) Downward trend has accelerated in most states since the late 1990’s Continued improvement in operating efficiency and cost structur
Slide 42: Capital Expenditure Plan by Asset Type 2011-2013
• $800 - $1 Billion in Capex to be spent each year for the foreseeable future • 20% of Capital Expenditures will be recovered by Infrastructure Surcharge mechanisms 41 Land, Bldgs, & Structures 4% Distribution 38% Pumping and Power 4% Treatment 9% Storage 4% Customer Meters 15% Source of Supply incl
Slide 43: Cash Flow from Operations Relative to CAPEX
42 Cash Flow from Operations Continues to Improve Relative to Capital Expenditures (CAPEX) No anticipated need for Equity Offering in 2011 Improving Cash Flow Metrics Increasingly Offset Need for Capital Raising CAPEX $800 Million - $1 Billion
Slide 44: Key Factors Influencing Earnings
* Not to scale Key Factors Influencing Earnings * Not to scale 2011 EPS Guidance $1.65 - $1.75 43 2011 Earnings Per Share Guidance: $1.65 - $1.75 Interest Rates (+/- 1%) Consumption (+/-1%) Fuel & Power (+/- 10%) Chemicals (+/- 10%) O&M Expense (+/- 1%) $1.77 $1.63 $1.65 $1.75
Slide 45: American Water Continues to Close ROE Gap
4.73% 5.28% 6.49% American Water continues to close ROE Gap 44 2008 2009 2010 2011 Allowed ROE Expected Return on Equity 10 % - 10.5 % ROE (2) 6.8% - 7.2% 1. ROE calculation excludes impairment charges 2. Range of allowed ROE 1.25% Parent Co. Debt Opportunity
Slide 46: Debt Maturities
45 $235 $728 $816 $524 $485 $1,439 $7 $790 $70 $303 Total Debt: $5,397M 5.5% 6.0% 6.0% 6.3% 6.0% Weighted Average Interest Rates Debt Maturities (in millions) Parent Company Debt 6.4% * * Amount excludes Preferred Stock with Mandatory Redemptions
Slide 47: Investing in Water Infrastructure and Paying Dividends
1886 1947 2003 2008 46 125 years Investing in Water Infrastructure and paying Dividends to Shareholders Dividend paid to private holders American Water Listed on NYSE – Dividend paid to common shareholders RWE takes AWK private. Dividend paid to shareholder AWK IPO Lists on NYSE. Pays dividends to c
Slide 48: Recent Dividend History
Quarterly Dividend Rate as of Year-end 47 Recent Dividend History • Key component of American Water’s total shareholder return proposition • Dividend Growth – Board of Directors increased dividend 5% to $0.22 or $0.88 annualized • Dividend Yield – 3.3% at 2/9/2011 • Growth in Dividend reflects growt
Slide 49: American Water – A Compelling Value
P/E Ratio Enterprise Value* / Net PP&E* 48 American Water – A Compelling Value AW Stock Price at Average PE: $34.04 AW Stock Price at Highest PE: $43.26 AW Stock Price at Average EV/Net PP&E: $35.29 AW Stock Price at Highest EV/Net PP&E: $52.30 Average Average Close price 12/31/10 unless otherwise i
Slide 50: Closing
Closing
Slide 51: What to Expect from American Water in 2011
50 What to Expect from American Water in 2011 Start execution of Portfolio Optimization Initiative December 15, 2010: Announcement of acquisition of Missouri properties & sale of Texas American January 24, 2011: Announcement of sale of Arizona American and New Mexico American Resolve Rate Cases wort
Slide 52: American Water – A Compelling Value
51 American Water – A Compelling Value Value Proposition Market Leader Strong Visible Growth Proven Management Trades at Discount to Peers Sound Regulatory Framework
Slide 53: Investor Relations Contacts
52 Investor Relations Contacts: • Ed Vallejo Vice President – Investor Relations Edward.vallejo@amwater.com • Muriel Lange Manager – Investor Relations Muriel.lange@amwater.com Tel: 856-566-4005 Fax: 856-782-2782
Slide 54: Slide 54
American Water Works Company — Investor Day (February 2011) on 6ix