United Utilities PLC

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United Utilities PLC

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Title: United Utilities PLC

1
United Utilities PLC

United Utilities Contract Solutions
20 July 2001

2
John Roberts

Chief Executive - United Utilities

3
Agenda

Introduction John Roberts
United Utilities Contract Solutions Gordon
Waters
Operations management Gordon Waters
Green energy Chris Richards
Network services Chris Marsden
Summary John Roberts
nb references in the presentation to joint
venture turnover reflect 100 of operations and
not the UU share

4
Strategy

Develop our support service businesses using our
core skills of
asset management
customer management
Improve the efficiency of our licensed businesses
Maximise synergies as a multi-utility operator
Realise value for businesses not central to our
strategy

5
Strategy

Develop our support service businesses using our
core skills of
asset management
customer management
Improve the efficiency of our licensed businesses
Maximise synergies as a multi-utility operator
Realise value for businesses not central to our
strategy

6
Asset management services turnover
Turnover (m)
were targeting sales next year of over 300
million
also includes property and internal facilities
management services
7
Asset management services operating profit
Operating profit (m)
also includes property and internal facilities
management services
8
Business focus

Changing from the past
Bangkok
major construction project by North West Water
Engineering
construction risk taken on in alien political and
cultural environment
to the present and the future
Partnership with International Water Limited
(Bechtel)
Bechtel assumes construction risk
Target markets are UK, Australia and Central
Eastern Europe
reduced political risk
Focus is on operational risk
extensive experience acquired in the UK since
privatisation
a return on our management skills rather than a
capital investment

9
Gordon Waters

Managing Director - United Utilities Contract
Solutions

10
United Utilities Contract Solutions

A broadly-based asset management services
business
operations management
green energy
network services
Operating throughout the UK and overseas
Currently providing utility services to 15
million people worldwide

11
Rationale for the business

Why do we think we can succeed at these
activities?
capitalises on the operating and technical
capability in the groups licensed businesses
a mature, non-growth market
overlay this with the commercial skills of our
management
Increased returns from our skill base in growth
markets
Were leveraging the skills in our non-growth
licensed businesses into growth areas where we
can add value for shareholders

12
Management

Gordon Waters, United Utilities Group Board
Director
Managing Director United Utilities Contract
Solutions
previously a divisional managing director at
Tarmac Construction
Simon Batey, Group Finance Director (April 2000)
previously Group Finance Director of AMEC plc
Les Bell, International Operations Director
previously with AMEC plc
Chris Richards, Managing Director - green energy
previously with Hyder plc
Chris Marsden, Managing Director - network
services
previously with Balfour Beatty and Wiltshier
Construction

13
Management

Extensive experience in engineering,
construction, utilities, outsourcing and support
services
to minimise construction risk...
strategic partnership with IWL and Bechtel
and capitalise on...
relevant commercial skills
understanding of life of asset relationship
between capital expenditure and operating costs
we need to be intelligent users of the asset
creation process. This underpins the way in
which the management team has been put together

14
Gordon Waters

Operations management

15
The operations management model
Special Purpose Vehicle
16
Operations management returns

Return on capital employed
c125m capital employed
target 20 pre-tax real nominal
but
back-end loaded over concession life

Operating margins on operational sub-contract
target gt10
but also
mobilisation/ex-pat costs in early years
productivity improvements back-end loaded over
concession life

in our target markets, our competitors are
predominantly Vivendi, Suez and now also RWE. We
see less of our UK competitors
17
Operations management
18
Operations management
19
Scotland PFI

3 projects for North of Scotland Water Authority
Highlands, Tay and Moray Coast
BOOT (build, own, operate, transfer) contracts
through Catchment Holdings
joint venture with Morrison Construction and IWL
33 each
total project equity 31.5m
Design, construction operation and management of
6 wastewater treatment works under Scottish PFI
Contract lengths from 25 to 28 years
annual turnover 40-50m

20
Operations management
21
Welsh Water

Changing shape of UK utility industry
financial restructuring following price reviews
to increase debt and reduce the cost of capital
increased outsourcing
Glas Cymru
debt-funded company limited by guarantee
acquired Welsh Water from WPD
continues to finance capital programme
outsourced operations management by tender
United Utilities
four-year contract worth 450m
operations management
water and wastewater treatment
water networks

22
Welsh Water

Partnership approach between United Utilities and
Welsh Water
key performance indicators of contract reflect
this
For Welsh Water...
Efficiency against its regulatory targets
For United Utilities...
Exploiting synergies of extended water operations
manpower outsourcing, productivity and efficiency
procurement, especially chemicals
energy
property

23
Operations management
24
United Utilities Industrial - serving industrial
customers in UK

Growth in outsourced environmental and utility
services
on-site water effluent treatment, water supply,
waste minimisation and energy efficiency
Long-term partnerships with heavy water users and
wastewater producers
sectors targeted include food, dairy, paper,
pharmaceutical, chemicals, electronics, mine
waters, municipal
25 contracts throughout the UK and Ireland
currently operational
with a further 2 at final stage of development
total project equity c20m
8 further projects under development
Targeting project ROCE gt20 pre-tax nominal

25
Strategy for United Utilities Industrial

Growth will be driven by
regulation
trend for companies to outsource non-core
specialist activities
Growth areas
establish as a national business
opportunities in trade effluent
against a background of increasing environment
controls
Exploit industrial customer base in North West
England
alongside United Utilities Customer Sales

26
Operations management
27
Australia

Country presence
serving 0.5m customers
annual turnover gt40m
Initial opportunities in water
now moving into wastewater
Market opportunities
further opportunities in public sector
building on existing operations
mining industry
water and wastewater

28
Australia

Water (3 projects)
BOOT 12 water treatment works
investment
7m for 50 equity stake
25 year projects commencing 1993 and 1996
annual turnover 40m
Wastewater (1 project)
Yabulu Water - for Queensland Nickel
investment
20 year project commencing 2000
annual turnover 2m

29
Operations management
30
Central Eastern Europe

Market
countries looking to join European Union
environmental and quality standards to meet
infrastructure generally well-established
no great capital investment required
contrast to developing nations
expertise lacking in operations management
involvement of EBRD and IFC
United Utilities can transfer experience gained
since privatisation
customer care
operational productivity and efficiency
transition from state-run culture to business
efficiency

31
Operations management
32
Sofia - Bulgaria

Concession to operate, maintain and improve water
and wastewater infrastructure for City of Sofia
25 year project commenced October 2000
annual revenues 25m
Investment in Sofiyska Voda
75 jointly owned by UU and IWL
UU effectively investing up to 6m for 37.5
stake
City of Sofia is minority holder of 25
Frequent dialogue to understand political
expectations
First steps
customer care rather than operational
call centre, billing system, payment centres
but also
leakage management, procurement, productivity and
efficiency

33
Operations management
34
Tallinn - Estonia

Investment
in ownership as in Sofia, but this time in
physical assets
investment in Tallinna Vesi
50.1 jointly owned by UU and IWL
UU effectively investing 25m for 25 stake
City of Tallinn retains a minority stake
Manages water and wastewater operations for City
of Tallinn
15 year contract
Annual revenue 35m
Early indications are that we can make major
improvements
procurement
management structure
Provides an excellent base to expand into other
Baltic countries

35
Operations management
36
Bielsko-Biala - Poland

Strategic partnership with Municipality of
Bielsko Biala
28 jointly owned by UU and IWL
looking to increase to majority control
UU effectively invested 4m for 14 stake
Municipality of Bielsko Biala is holder of 56
water and wastewater utility
annual turnover 11m
Major privatisation programme in Poland
total population of over 40 million
looking to build on initial investment
targeting other larger municipalities

37
Operations management
38
The water industry in the United States of America

Many utilities have interests in the US
French and UK water companies
A huge market
but very fragmented
theoretically ripe for consolidation
Few really big players
fewer still with both water and wastewater
capability
Our experience
assets are at premium prices
concessions often carry conditions more stringent
than we are comfortable with
we are not targeting huge growth in this market

39
US Water

Country presence
investment of 16m in 50 of US Water
annual revenue of 40m
partnership with Bechtel
Operates over 60 facilities
North Brunswick
OM of water treatment, distribution and customer
services
Camden City
OM of water and wastewater systems
Easton
water and wastewater treatment works and networks
Springfield, Massachusetts
OM of wastewater treatment works

40
Operations management
41
Argentina

Investment of 48m in 41 of EDEA
joint venture with Camuzzi
operate gas distribution and supply company in
same area
Privatisation of electricity distribution, supply
and customer services
south-west of Buenos Aires province
99 year contract from 1997
Annual revenues of 125m

42
Argentina

Current position
weakness in Argentinian economy
social issues
peso/US peg
lack of growth in economy
Future prospects
good quality of assets
strong local presence of partners
access to cheaper energy supplies
capital programme has reduced energy losses and
increased system security
consolidation of distribution companies

43
Operations management
44
Mexico

Operating contract in Mexico City
10 year contract from 1994
metering, billing and upgrade of water systems
Investment
3m in 49 of Agua de Mexico
JV with Gruppo Gutsa, a local construction and
property company
annual revenue of 10m
Conclusion
a small but unsuccessful contract

45
Operations management
46
Philippines

6m investment in 20 of Manila Water Company
remainder held by Ayala (local partners), Bechtel
and Mitsubishi
Water and wastewater utility serving Eastern half
of Manila
Suez also operates in Manila
issues with foreign currency denominated loans
United Utilities Contract Solutions performance
25 year contract from 1997
annual turnover of 40m
service standards much improved
contract profitable at PBT level
all debt non-recourse to parent company

47
Operations management - summary

Minimised construction risk
joint ventures with Bechtel
Application of experience since privatisation
return on management skills not purely a capital
investment
operational and customer service expertise
Gradually building income streams as concessions
mature
growth markets
regulatory risk is less significant
good returns are achievable
Developing opportunities in the UK
diversification (laying off) of regulatory risk

48
Operations management - the way forward

Management
extensive experience in construction, utilities,
outsourcing and support services
Focused strategy
operations management
UK, Australia and Central Eastern Europe
Risks
building on core skills in non-growth licensed
businesses
applying in growth markets - c15 each year
Returns
ROCE 20 pre-tax nominal
Operating margins gt10

49
Chris Richards

Green energy

50
The green energy business

Established 5 years ago, growing and developing
through 2 key elements
Initiator, developer, and operator of renewable
energy projects
principally in the UK
Operating in the new demand-led energy market
place
as the NFFO (non-fossil fuels obligation)
initiative recedes as a market driver
but not as commodity trader

51
The green energy business today

Dominant player in small-scale hydro under NFFO
20m investment to develop 16MW capacity
40 market share
Market leadership in landfill and mines gas
generation
17 market share
30m investment in 49MW installed capacity
Overall
high quality long-term earnings
underpinned by index-linked NFFO contracts
10 of renewable projects developed under NFFO
over the last five years

52
The green energy market today

Existing markets provide a good pipeline
to deliver growth for 2-3 years
and...
Business is moving forward with other
technologies
wind and biofuels
to take advantage of new opportunities
to build on experience and reputation

53
The green energy market in the future

UK and Europe commitment to CO2 reductions
10 of all energy generated is sourced from
renewables by 2010
An ambitious target
a demand-led market for renewables
demand likely to outstrip supply for years to
come
Changing nature of renewables market
NFFO enabled establishment of green energy
business
the future is more exciting and on a bigger scale
green energy will become a mainstream energy
provider
United Utilities will be a key player

54
The green energy business in the future

Deliver pipeline of projects and opportunities in
established markets
landfill and mines gas, small-scale hydro
this will provide steady growth for next 3 years
Develop further opportunities from existing
client and asset base
secondary schemes leveraged off primary projects
to exploit
grid connections in place
operations on site
relationships with land owners and planning
authorities
Long-term future growth will come from new
initiatives
offshore wind
onshore wind
biofuels
green certificate trading

55
Offshore wind - an exciting prospect

Currently
Very little offshore wind generation in UK
18 schemes announced by UK government recently
will change that
just the beginning
and in the future
developing a scheme at Scarweather Sands, off the
South Wales coast
60MW capacity for a 60m investment
commissioning expected by 2005/6
Actively considering other potential
opportunities
looking to roll out in the medium term

56
Green energy - scale of operations

Currently operating or commissioning
over 40 schemes generating 65MW
investment of 50m
preferred developer for a further 35MW capacity
to invest another 35m
expected to grow over the next few years
60m offshore wind scheme
generating 60MW
develop new projects in biomass generation
development pipeline of 100MW
including opportunities on existing clients
asset base

57
Green energy - scale of operations

In three or four years
A portfolio of 200-300MW
with a capital investment of c1m per MW
Potential further significant roll-out from
offshore wind and biomass
as they evolve into mainstream technologies
The business can grow significantly over the next
few years based on
a proven track record in renewables
the strong United Utilities brand
expertise in developing large scale projects
Well-placed to exploit new opportunities
that will arise from government commitment

58
Green energy - returns

Currently...
Annual revenues currently lt20m but...
project returns of 18-20 pre-tax nominal
10-15 year index-linked revenue streams under
NFFO
characteristics capable of securitisation to
demonstrate value
UK government credit risk
minimal operational risk
diversified portfolio risk
and in the future
Generally looking for similar returns
Offshore wind
determined by power purchase contracts
returns must reflect project risks

59
Green energy - summary

A tremendous opportunity
UK government target is 10 renewable energy by
2010
800 growth in 9 years
annual growth gt25 each year
capital investment of c5bn
A significant growth market
even if government target not achieved
We intend to exploit this growth by
building on success to date
developing new projects in established and
emerging technologies
landfill gas, small hydro, land and offshore wind
and biofuels
maximising income from trading green certificates

60
Chris Marsden

Network services

61
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63
The connections market

What is a connection?
the provision of utility assets to facilitate new
supplies
gas, water, wastewater or electricity
Industrial and domestic
a mature market
annual value c500m
gt500,000 single utility connections each year

64
The connections market

Changing nature of market
monopoly utility dominance - moving to
competitive market
mature single utility market - moving to
multi-utility growth
Why?
Multi-utility connections are
more efficient
cheaper
easier

65
The connections market

The single utility market
gas - competition well established
electricity - regional differences in
specification have slowed development of
competition
water and wastewater - competition at an early
stage
The multi-utility market
all utilities have single service offering
five have multi-utility offering
but...
United Utilities Networks has c50 of existing
multi-utility market
significant first mover advantage
multi-utility connections are only 6 of total
connections market
set to grow by 10-15 each year in the medium term

66
United Utilities Networks - connections business

The UKs largest provider of multi-utility
connections services
created from merging the multi-utility businesses
of United Utilities and Hyder
a springboard to national coverage
A design and management service delivering
utility infrastructure
managing sub-contractors
Integrated skills in electricity, gas, water and
wastewater
offering a complete range of connections
solutions from a single national source
Trafford Centre - 8m
Lowry Centre - 4m
Speke Airport - 1m
Manchester Commonwealth Games Stadium - 2m

67
United Utilities Networks - the connections
business now

Currently, the United Utilities connections
business has
Annual sales of 60m
75 external to United Utilities
Order book of gt50,000 connections
10 share of UK connections market
c50 of multi-utility market
track record of multi-utility growth
Nil in 1997 to gt15m in 2001
gt20m expected in current year

68
United Utilities Networks - the connections
business in the future

but looking to the future...
A multi-utility strategy to meet customer needs
efficiently
developing a national service with commercial
property developers and house builders
eg partnerships with Barratts, Redrow
Exploit the growth in private networks
established in gas
Independent Public Gas Transporter (IPGT) licence
granted July 2000
orders for c10,000 connections
requisite asset management skills to own and
operate private electricity and water networks
commercial skills imported from
construction/support services sectors

69
United Utilities Networks - the connections
business summary

Growth of gt10 each year in the medium term
Operating margins of 10 deliverable
Targeting return on capital employed of 20
pre-tax nominal
20 year revenue streams from private networks
characteristics capable of securitisation to
demonstrate value

70
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71
The metering services market

Electricity
annual market gt250m
gt25m meters
estimated asset value of 1.3bn
Gas
annual market gt400m
gt20m meters
regulatory asset value of 1.2bn
Water
annual market lt 100m
gt 6m meters
estimated asset value of 400m

72
United Utilities Networks - the metering business

National multi-utility metering services business
c10 share of the electricity market
c10 share of the water market
now established in gas
providing meters to the IPGT market
Operation and maintenance
2.7m meters
field activities, data management, procurement
and logistics
over 300,000 meter changes each year
We do NOT read meters

73
United Utilities Networks - the metering business

A multi-utility business
national coverage
United Utilities is a neutral brand following
sale of Norweb Energi
value added services
multi-utility data management
education, food processing, manufacturing, public
sector
right sizing, audit and consultancy services.
Experience of procurement and outsourcing
to minimise fixed costs and leverage higher
returns
cost of electricity meters reduced by 50 in last
3 years
Ofgem approval of imported meters will produce
further cost benefits.

74
United Utilities Networks - the metering
business technology

Investment in web-enabled operator system
internet access for energy retailers and their
customers
dynamic work scheduling
asset management capability
Remote meter reading
participating in 20m DTI Funded trial.
reduction in estimated readings and back office
call centre costs
potential opportunity to cross-sell home services
home security
appliance monitoring

75
United Utilities Networks - the metering
business in the future

Currently...
Annual turnover c30m
Operating margins gt10
but growth will come from our multi-utility
strategy...
Utility retailers are integrating horizontally to
provide multi-utility offerings
multi-utility metering services fits with that
strategy
growth is customer-led
Utilities also looking to reduce costs of
non-core skills
increased outsourcing
British Gas Trading to award work competitively

76
United Utilities Networks - the metering
business summary

Multi-utility services provided
Advanced technology base
Annual growth of c20 in multi-utility metering
services
Operating margin in the medium term of 10 is
deliverable

77
John Roberts

Chief Executive - United Utilities

78
United Utilities Contract Solutions - summary

Good growth prospects from core skills
a broadly-based asset management business in
growth markets
overall target of 15-20 annual growth for the
medium term
Operations management
applying the experience acquired since
privatisation to earn a return on management
capital
at the forefront of the UK utility industry as it
changes shape
Green energy
high quality securitisable income stream
potential 25 annual growth for next nine years
Network services
a multi-utility strategy to deliver annual growth
of gt10 in the medium term