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The document discusses American Water, the largest publicly traded water and wastewater utility company in the United States. It provides an overview of American Water's business, including its market capitalization, revenues, regulated and market-based segments, and growth strategies. American Water aims to invest $1 billion annually in its regulated operations and achieve long-term 7-10% earnings growth through regulated infrastructure spending and acquisitions as well as its market-based business opportunities.
Awk red chip slides final without notes
- 1. NYSE: AWK American Water Durgesh Chopra Director Investor Relations October 2014
- 2. Cautionary Statement Concerning Forward-Looking Statements 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 American Water’s current expectations and assumptions regarding future events and may relate to, among other things, its future financial performance, including earnings, growth and portfolio optimization strategies, its ability to finance current operations and growth initiatives, trends in its industry, regulatory or legal developments or rate adjustments. Actual results could differ materially because of factors such as the decisions of governmental and regulatory bodies, including decisions to raise or lower rates; the timeliness of regulatory commissions’ actions concerning rates; changes in laws, governmental regulations and policies, including environmental, health and water quality, and public utility regulations and policies; the outcome of litigation and government action related to the Freedom Industries chemical spill in West Virginia; weather conditions, patterns or events, including drought or abnormally high rainfall, strong winds and coastal and intercoastal flooding; changes in customer demand for, and patterns of use of, water, such as may result from conservation efforts; its ability to appropriately maintain current infrastructure and manage the expansion of its business; its ability to obtain permits and other approvals for projects; changes in its capital requirements; its ability to control operating expenses and to achieve efficiencies in its operations; its ability to obtain adequate and cost-effective supplies of chemicals, electricity, fuel, water and other raw materials that are needed for its operations; its ability to successfully acquire and integrate water and wastewater systems that are complementary to its operations and the growth of its business, including, among other core growth opportunities, concession arrangements and agreements for the provision of water services in the unregulated shale arena; cost overruns relating to improvements or the expansion of its operations; changes in general economic, business and financial market conditions; access to sufficient capital on satisfactory terms; fluctuations in interest rates; restrictive covenants in or changes to the credit ratings on the company’s current or future debt that could increase its financing costs or affect its ability to borrow, make payments on debt or pay dividends; fluctuations in the value of benefit plan assets and liabilities that could increase its cost and funding requirements; migration of customers into or out of its service territories; difficulty in obtaining insurance at acceptable rates and on acceptable terms and conditions; its ability to retain and attract qualified employees; cash impact if the National Labor Relations Board order requiring it to provide back pay to employees in connection with a dispute relating to its national benefits agreements with unions representing Regulated Businesses employees is upheld on appeal; labor actions including work stoppages and strikes; the incurrence of impairment charges; and civil disturbance, terrorist threats or acts, or public apprehension about future disturbances or terrorist threats or acts. For further information regarding risks and uncertainties associated with American Water’s business, please refer to American Water’s annual, quarterly and current SEC filings. The company undertakes no duty to update any forward-looking statement. October 2014 NYSE: AWK www.amwater.com 2
- 3. October 2014 Water Industry Basics: The US Water Industry is highly fragmented and with limited Investor ownership Percentage of Drinking Water Systems and Population served by Size Class (1) (Based on 51,988 total water systems in US) System Size bbyy PPooppuullaattiioonn SSeerrvveedd (1) Source: EPA, Drinking and Ground Water Statistics, 2008. Water Wastewater Investor Owned 16% Public & Other 84% Investor Owned 2% Public & Other 98% The majority of water systems in the US are owned by capital constrained entities NYSE: AWK www.amwater.com 3
- 4. October 2014 Aging U.S Pipe Infrastructure Network Propels Need for Capital Expenditures Without renewal or replacement of existing systems, pipe classified as poor, very poor or life elapsed will increase from Without renewal or replacement of existing systems, pipe classified as poor, very poor or life elapsed will increase from 10% of pipes in the U.S. to 44% by 2020 10% of pipes in the U.S. to 44% by 2020 Wooden water pipes Water main break NYSE: AWK www.amwater.com 4 Corroded water pipe
- 5. American Water: The Premier Water Services Provider in North America $14.6 Billion Total Enterprise Value 700,000 Average Trading Volume $8.6 Billion Market Capitalization $2.9 Billion in 2013 Revenues 89% Regulated, 11% Market Based 21.6% Total Shareholder Return for Last 12 21.6% Total Shareholder Return for Last 12 October 2014 $14.6 Billion Total Enterprise Value 700,000 Average Trading Volume $8.6 Billion Market Capitalization $2.9 Billion in 2013 Revenues 89% Regulated, 11% Market Based Months Months 2.6% Current Dividend Yield 0.8 Beta 2.6% Current Dividend Yield 0.8 Beta 14 Million People Served 47,000 Miles of Pipeline 6,600 Employees 1,500 Communities 3.2 Million Regulated Customers 14 Million People Served 47,000 Miles of Pipeline 6,600 Employees 1,500 Communities 3.2 Million Regulated Customers Market Statistics* Assets * Market data as of September 25, 2014, Source : FactSet NYSE: AWK www.amwater.com 5
- 6. October 2014 We have delivered impressive total shareholder value since 2008 IPO $350 $300 $250 $200 $150 $100 Total Shareholder Return History: IPO – Sep 25, 2014 NYSE: AWK www.amwater.com 6 Source: Factset, Bloomberg Our Total Shareholder Return has outperformed S&P500 and Utility Peers As of Sep 25, 2014 One Year Three Year Five Year American Water Price Appreciation 18.4% 61.9% 144.4% Including Dividend 21.6% 75.7% 185.1% UTY Index Price Appreciation 9.2% 18.7% 34.5% Including Dividend 13.5% 34.3% 66.6% S&P500 Price Appreciation 16.1% 73.0% 88.2% Including Dividend 18.6% 84.6% 109.1% A $100 dollar investment in American Water at IPO would have increased approximately 3x $50 Total Shareholder Return
- 7. October 2014 Our Long Term 7- 10% EPS Growth Plan: Regulated Growth Opportunities while leveraging Market Based Businesses MBB (<1%) Other Shale (0-2%) Market Based (2-3%) Regulated Acquisitions (1-2%) Long-term Plan 2015 - 2018 Regulated Investment – CapEx (4-5%) Regulated Investment – CapEx (3-5%) Market Based Growth: 2%-5% NYSE: AWK www.amwater.com 7 Note: * Net of Declining Usage Regulated Growth: 4%-7%
- 8. October 2014 Our Regulated Business 549,892 483,876 378,635 369,892 195,824 1.2 million 1.5 million NYSE: AWK www.amwater.com 8 New Jersey Pennsylvania Missouri Illinois Indiana California West Virginia Kentucky Tennessee Virginia New York Iowa All Other 57,566 361,864 644,865 1.2 million 2.1 million 2.5 million States Where We Operate (approximate population served by state )* * Population data for FY 2013 State FY 2013 Revenues ($ mm) % of Total New Jersey $638.0 24.6% Pennsylvania 571.2 22.0% Missouri 264.8 10.2% Illinois 261.7 10.1% California 209.5 8.1% Indiana 199.2 7.7% West Virginia 124.2 4.8% Other 325.3 12.5% Total Regulated Business $2,593.9 100%
- 9. October 2014 We will invest approximately $1 Billion per year in our core growth Regulated Operations Capital Expenditures ($ in millions) NYSE: AWK www.amwater.com 9 $1,200 $1,000 $800 $600 $400 $200 $0 2012 Actual 2013 Actual 2014E 2015E 2016E 2017E 2018E
- 10. Cost containment and timely return on our investments will drive added Capital Expenditures American Water Pipe Replacement Rate (in years) National average 2010 2011 2012 2013 2014E October 2014 300 250 200 150 100 50 0 O&M Efficiency Ratio O&M stretch target of 35% by 2018 Pipe Replacement rate is shortening NYSE: AWK www.amwater.com 10 44.2 42.4 40.1 38.7 35.0 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013 2018 Stretch Target O&M Efficiency Ratio* *Non GAAP Measure – See appendix for reconciliation
- 11. Disciplined approach to O&M cost controls enables more efficient use of our capital Note: *Approximation in states where we received black box award, as of May 2014 **For general rate cases effective in 2014, the incremental revenue requirement was reduced by 25% due to lower Operating expenditures. October 2014 Incremental Revenue Requirement* – Increases Attributable to Opex vs. Capex – NYSE: AWK www.amwater.com 11
- 12. Market Based Business generate complementary opportunities for growth October 2014 Regulated Like Except not as Capital Intensive Lines of Business •Homeowner Services (HOS) •Contract Operations • Military Services Group (MSG) • Municipal/Industrial (CSG) •Biosolids / Terratec •Modest competition •Strong/consistent margins •Controllable risk •Growing market •Capitalizes on AW strengths Note: MBB segment also includes two non-regulated contracts for NJ concessions which are not included in this presentation NYSE: AWK www.amwater.com 12
- 13. October 2014 Business Updates Commitment to Our Customer 2013 Water Quality Report •American Water again scored above 99% for compliance with EPA standards •20x better than industry average for compliance with drinking water quality standards •150x better than industry average for compliance with drinking water reporting and monitoring requirements Commitment to Innovation Innovation Development Process - NPXpress •Launched in 2009, our Innovation Development Process has examined over 400 technologies to date •NPXpress, licensed to Abengoa in April, 2014, is cost effective way to remove nitrogen & phosphorus from wastewater Commitment to Financial Stability AWK Outlook changed from Stable to Positive AWK Outlook changed from Stable to Positive •American Water Works Co. Inc. And Subsidiaries Outlook Revised To Positive; 'A-' Corporate Credit Ratings Affirmed •American Water Works Co. Inc. And Subsidiaries Outlook Revised To Positive; 'A-' Corporate Credit Ratings Affirmed NYSE: AWK www.amwater.com 13
- 14. October 2014 American Water Update American Water Named to the Dow Jones Utility Average American Water Named to the Dow Jones Utility Average • 15-member index that represents • 15-member index that represents the stock performance of large, well-known U.S. companies within the utilities sector • Index Market Capitalization of the stock performance of large, well-known U.S. companies within the utilities sector • Index Market Capitalization of approximately $400 Billion • Since inception in 1929 only 40 approximately $400 Billion • Since inception in 1929 only 40 companies have been part of the Index • American Water is the only Water companies have been part of the Index • American Water is the only Water & Waste Water Utility included in the Index & Waste Water Utility included in the Index NYSE: AWK www.amwater.com 14
- 15. Dividend Practice • Future dividend increases aligned with normalized EPS growth • Payout ratio between 50-60 percent of net income October 2014 Long History of Consistent Annual Dividend Growth Announced $0.31 quarterly cash dividend per common share payable September 2, 2014 to all shareholders of record as of August 11, 2014 2008 2009 2010 2011 2012 2013 2014 * Source: Thomson Reuters, Time Period: 2009 – 2013 Dividend Paid CAGR Peer companies include: AWR, WTR, CWT, ATO, GAS, WGL, GXP, WR, OGE, AEE, POR, LNT, EDE, SCG, POM, HE, IDA, TE, CMS, UNS, PNM. NYSE: AWK www.amwater.com 15 $$00.2.200 $$00.2.211 $0.22 $0.22 $$00.2.233 $$00.2.255 $$00.2.288 $$00.3.311 Announced $0.31 quarterly cash dividend per common share payable September 2, 2014 to all shareholders of record as of August 11, 2014 CCAAGGRR 8 8%% Top quartile Dividend CAGR Growth compared to water and utilities peers*
- 16. October 2014 Why American Water is the right investment for you Our Mission: Safe, Clean, Affordable and Reliable Water Services to Highly Satisfied Customers • Operations in over 40 states, Regulated Presence in 16 states • 5 Year EPS CAGR (2009 – 2013) approximately 16% • Operational Efficiency 35% by 2018 • 5 Year Capex $5.8 Bn (Reg. $5.5 Bn), avg 2% annual bill increase • Regulated like & Asset light • Homeowner Services, Military, Municipal & Biosolids • Innovation Development Process: NPXpress Patent • 20x better industry avg (drinking water quality) • 150x better industry avg (drinking water reporting & monitoring) • Dividend growth correlated w/ EPS growth & Payout of 50%-60% • Free cash flow positive by 2017 Industry Leading 7-10% Long Term EPS Growth Operational Excellence Maximizes Investments & Minimizes Bill Increases Market Based Businesses Build Adjacencies & Provide Growth Opportunities Commitment To Innovation Commitment to Environmental Stewardship Transparent Dividend Practice & No Planned Equity Offerings NYSE: AWK www.amwater.com 16
- 17. October 2014 Investor Relations Contacts: Investor Relations Contacts: Ed Vallejo Vice President – Investor Relations Edward.vallejo@amwater.com Durgesh Chopra Director – Investor Relations Durgesh.chopra@amwater.com Ed Vallejo Vice President – Investor Relations Edward.vallejo@amwater.com Durgesh Chopra Director – Investor Relations Durgesh.chopra@amwater.com Tel: 856-566-4005 Fax: 856-782-2782 Tel: 856-566-4005 Fax: 856-782-2782 NYSE: AWK www.amwater.com 17