RWE Thames Water. 12 th August 2003, London

Transcription

1 RWE Thames Water 12 th August 2003, London Bill Alexander, CEO RWE Thames Water & American Water Chris Bunker, CFO RWE Thames Water Ellen Wolf, CFO American Water

2 Agenda Introduction Harry Roels Overall Picture Bill Alexander Financial Review Chris Bunker Business Reviews Germany & Eastern Europe Chris Bunker United Kingdom Chris Bunker Americas Ellen Wolf Future Outlook & Conclusions Bill Alexander 2

3 The Overall Picture

4 RWE Water Strong Position in Core Markets Sales Americas UK Germany Other 4

5 Global Water Market Opportunities for Selective Growth in Key Markets 600 Population served (millions) F North America Europe Source: Lehman Brothers Report January

6 RWE Thames Water Regulated Business Performance Indicators Environmental Performance Stable Cash flow Reliable Pricing Mechanism Customer Service Guaranteed Return on Investment Assured Returns Limited Competition Risk Steady Growth Investment = Growth Unique Market Position 6

7 RWE Thames Water Competitive Position: Clear Focus on Stable Markets million Population served % 42% % 12% 27% 26% 20 37% 46% 47% 0 Ondeo Veolia RWE Europe North America Other Markets 7

8 RWE Thames Water Efficiency Opportunities Business Integration is a core strength and delivers value through Combination benefits Greater purchasing power in procurement Best practice and knowledge transfer Further benefits as part of the RWE Group Shared Service Centres and Cross-selling initiatives Leverage of German business streams through RWE Energy 8

9 RWE Innogy & RWE Thames Water Synergies from Shared Services RWE Innogy RWE Thames Water Information Systems Procurement/Facility Mgmt. HR Finance 1 st phase Property Internal Audit/Legal Health, Safety & Environment 2 nd phase Corporate Communications Synergies increased from 80m to 100m to be achieved by

10 Financial Review

11 RWE Thames Water 1 st Half Year 2003 Results January - June change million in % External net sales 2,070 1, EBITDA Operating result Capital expenditure on fixed assets Investment in financial assets 4, Work force (equivalents) vs ,183 11,

12 RWE Thames Water Regional Results January June external EBITDA Operating net sales result million UK & Ireland of which UK regulated Americas Europe/Middle East/Africa Asia/Pacific Total 2,070 1,

13 RWE Thames Water American Water Purchase Accounting Key Figures $'bn Purchase Price, including costs 4.75 US GAAP Audited Net Assets Dec IAS adjustment/policy alignment (0.56) Fair Value Adjustments 0.10 Net Assets Acquired 1.34 Goodwill on Purchase 3.41 Full year of amortisation in 2003, ($170m pa over 20 years) 13

14 RWE Thames Water Credit Ratings Solid credit ratings recently confirmed S&P has confirmed its corporate rating of Thames Water Plc as A+ S&P has raised its rating of American Water Capital Corporation from A to A Main drivers for decision Regulated, monopolistic water operations, providing stable and predictable cash flows Ownership and support by RWE 14

15 Business Review

16 Germany & Eastern Europe

17 RWE Water Germany & Eastern Europe Largest water supplier in Germany Population served 13.2 million Good growth potential Maximising leverage and synergies from strong regional market positions of RWE Energy Technical and Business development support to RWE Energy from RWE Thames 17

18 Structure of the German Water Business RWE Thames Water RWE Energy Americas Europe and other markets* REC Central REC East REC Southwest REC Hungary REC Poland Aqua Water Center of Excellence** RWW Regional enviam water companies Süwag and development Budapest indabrowa aqua Germany and Water Eastern Europe Water Gornicza Support *) Includes UK, Spain, Berlin, Middle East and Asia Pacific **) Ownership: 51% RWE Thames Water, 49% RWE Energy 18

19 United Kingdom

20 United Kingdom Regional Financial Summary Key Figures * ( 'm) ( 'm) Sales 1,982 2,046 EBITDA 1,117 1,059 Operating Result Capex ROCE Pre-Goodwill 10.5% 10.8% * Pro forma, unaudited 20

21 United Kingdom Non-Regulated Business Regulated-property development Customer Services management (Dwr Cymru) Water Outsourcing (Stirling Water, Ministry of Defence) Infrastructure management & Services Home Service Cover Insurance Property 48% H EBITDA: 53m Customer Services 2% Infrastructure Management 33% Outsourcing 1% Other 16% 21

22 UK Regulated Utility Financial Results Key Figures * ( 'm) ( 'm) Sales 1,719 1,727 EBITDA 1, Operating Result Capex ROCE Pre-Goodwill 9.7% 10.0% Capital Employed does not include RWE Goodwill on purchase of Thames Water * Proforma, unaudited 22

23 UK Regulated Utility Outlook for Price Review (PR04/AMP4*) Capital Requirement Capex Requirement will be a balance between asset renewal, customer demand, service improvement & environmental requirements OFWAT Allowed Return Regulator determined to support equity model and investment grade credit ratings Efficiency Targets Regulator has acknowledged maturing state of Industry * Price Review / Asset Management Programme for the 4 th regulatory period ( ) 23

24 UK Regulated Utility Cash Generation million Gross Cash Flow Generated Capex Net Cash Flow after interest before dividend 24

25 United Kingdom Summary Largest UK Water Company A strong track record of regulatory out-performance and service excellence Well positioned for the upcoming price review (PR04) Water Balance (Supply-Demand) is a central issue OFWAT acknowledge that London is different (e.g. legacy infrastructure, geology, metropolis character, traffic) Investment required in London infrastructure to supply growing demand Further growth in the non-regulated segment through water industry outsourcing and leveraging our regulated capabilities Continuous efficiency improvements 25

26 Americas

27 Americas Overview Canada USA Puerto Rico Leading regulated water service provider in North America & Number two in Chile Managed by American Water Regulated business American Water (USA) E town (USA) ESSEL/ESSBIO, ANSM (Chile) Puerto Rico Unregulated business Chile American Water Products & Services (USA/Canada) 27

28 Americas Regional Financial Summary Key Figures 2002* ($m) Sales 2,106 EBITDA 870 Operating Result 526 Capex 611 ROCE Pre-Goodwill c8% ROCE Post-Goodwill** c5% 2003 H1 ($m) 1, n.a. n.a. *) Includes unaudited US GAAP results to 31 st December 2002 for American Water **) Post-Goodwill ROCE includes all Goodwill (E town, Chile & American Water) except RWE Goodwill on purchase of Thames Water 28

29 Americas Financial Summary American Water January June * change US-$ million in % External Net Sales % Regulated % Non-regulated % EBITDA % Regulated % Non-Regulated % Operating Result % Regulated % Non-Regulated Capital Expenditure on Fixed Assets % Workforce (equivalents) 6,303 6, % *) Pro forma, US GAAP, unaudited 29

30 Americas Market Characteristics North America General Characteristics US - a $82bn pa market* Environmental Legislation Increasing Infrastructure asset condition below standard Fragmented Market with 85% Municipal Ownership Industrial 10% Equipment 6% Other 12% Contract O&M 2% Residential Market $500bn+ needed above current spending levels in coming two decades Construction 11% Public Waste Water 30% Privatisation Outsourcing Industrial Market Reduced demand Highly Competitive Outsourcing market Public Water Supply 29% 30 *) Source:Privatization and the Future, AWW Association Journal, Issue 1 (January 2000)

31 Americas Economic Regulation in the US Typically, each State Public Utility Commission regulates water utility company rates and tariffs within that state Return on Equity model with target returns dependent upon multiple individual state factors Rate filings generally at operator s request and are timed to recoup: Capital invested for infrastructure and plant improvements Operating cost increases Active management of the rate filing process is a key success factor 31

32 Americas Economic Regulation in US & UK Pre tax Allowed Returns USA UK Allowed Return on Equity post tax 10.5% 6.5% Tax rate 39.0% 24.0% Grossed up RoE 17.2% 8.6% Gearing 60.0% 50.0% Equity portion of Return on Investment 6.9% 4.3% Cost of Debt pre tax 6.0% 4.2% Debt portion of Return on Investment 3.6% 2.1% OFWAT Current Cost vs IAS Depreciation 1.1% Other adjustments 0.3% Allowed Return on Investment pre tax 10.5% 7.8% RAB/Rate Base growth CAGR % 7.6% Post tax Allowed Returns USA UK Allowed Return on Equity post tax 10.5% 6.5% Gearing 60.0% 50.0% Equity portion of Return on Investment 4.2% 3.3% Cost of Debt pre tax 6.0% 4.2% Tax rate 39.0% 24.0% Debt portion of Return on Investment 2.2% 1.6% OFWAT Current Cost vs IAS Depreciation 1.1% Other adjustments 0.3% Allowed Return on Investment post tax 6.4% 6.2% 32

33 Americas American Water Cash Generation 1, $ million , Gross Cash Flow Generated Capex Acquisitions Net Cash Flow after interest before dividend 33

34 Americas American Water Growth Forecasts Non-regulated $6m c40% c30% c12% c9% c9% Non-regulated c$50m Regulated $644m CAGR : 10% Regulated c$900m EBITDA 2001A Existing regulated business Citizens Tuck-in acquisitions Azurix Other nonregulated business EBITDA 2005F 34

35 Americas Summary 10% EBITDA growth remains the target for American Water Clearing the rate case backlog through focussed rate case programme and managing our relationships with regulators Further growth through small tuck-in acquisitions and through opportunities in the municipal O&M market (incl. Military bases) Extract value from private sector involvement in the Wastewater segment Adding further value through integration Best practice transfer and procurement initiatives Back-office consolidation across the region Value break-even target 2006 Earnings pre-goodwill accretive in

36 Future Outlook and Conclusions

37 Future Outlook Value Contribution Track onwards m VC 2002 AW VC 2002 AW Goodwill Americas rate case backlog Americas other improvements + new business UK tariff increase 2005 Water Division + Innogy synergies New business, organic growth 37

38 RWE Thames Water Conclusions Water Division is a key component of RWE Group Drivers in our core water markets remain strong Primary focus is on key markets: USA, UK & Germany US market has strong potential for organic growth Our core capabilities enable us to extract value from the regulatory framework Regulated water provides stable, predictable earnings and steady growth and contributes to the strong, stable RWE credit rating 38