United Utilities PLC

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United Utilities PLC

Dawson House
Great Sankey
Warrington, Cheshire
United Kingdom
Telephone: ( + 44) 1925-237-000
Fax: ( + 44) 1925-237-073
Web site: http://www.unitedutilities.com

Public Company
1989 as North West Water Group PLC
Employees: 15,052
Sales: £1.21 billion ($2.55 billion) (2001)
Stock Exchanges: London New York
Ticker Symbol: UU
NAIC: 221310 Water Supply and Irrigation Systems; 221320 Sewage Treatment Facilities; 221122 Electric Power Distribution; 221310 Water Supply and Irrigation Systems; 237110 Water and Sewer Line and Related Structures Construction

United Utilities PLC is a pioneering multi-utility group combining operations in water supply and electric power distribution, as well as diversifiedand nonregulatedoperations including call center and customer management services, infrastructure management and maintenance services, as well as telecommunications services. United Utilities has reorganized its operations to highlight its diversified structure, forming five divisions to oversee its primary business areas. United Utilities Service Delivery combines the companys water supply and waste treatment operations, built around its North West Water subsidiary, and its electrical power distribution network, formerly known as Norweb (the company sold off the electricity supply operations of that business in 2000). Both operations focus around the groups home base in northwestern England. United Utilities Contract Solutions operates internationally in the three main areas of utilities operations management, network connections and metering services, and renewable energy generation installations. Contract Solutions operates throughout the United Kingdom and is also active, especially in partnership with U.S. construction group Bechtel, in Asia, Australia, and Central and Eastern Europe. United Utilities Customer Sales was created to take over the management of the parent groups customer services operations, as well as to provide services to third-party businesses. Vertex, slated for a public offering as early as 2003, provides call center management and other business process services for third-party groups, with a focus on utilities and municipalities. Last, Your Communications, which has grown out of the former Norweb Telecom, has positioned itself as a diversified telecommunications provider for the corporate market, offering voice, data, wireless, and wireless broadband capacity. These activities give United Utilities combined revenues topping £1.2 billion. The company anticipates further diversification, with plans to acquire gas distribution facilities in its Northwest region.

Privatizing Program in the 1980s

By the end of the 1980s, the conservative-dominated British government, led by Margaret Thatcher, had completed, in large part, a vast effort to privatize many formerly government-run industries, including launching the privatization of the countrys gas and electricity utilities. Privatizing the United Kingdoms water supply, however, proved a more delicate task, given that people need water to survive. Yet the government looked toward the private sector to rebuild the mostly antiquatedand often dilapidatedwater supply system in the United Kingdom.

Operating water supply systems had originally been open to private enterprise in the United Kingdom; as early as the 18th century, construction of the water supply networks in the countrys towns and cities was often shared among private companies and the municipalities themselves. As the towns and cities grew during the early years of the Industrial Revolution, municipal governments took on a greater share of the responsibility for laying water piping systems and for the supply and quality of the water itself. Improvements in manufacturing techniques enabled the new local utilities to replace their early piping systemswhich often featured stone and wood pipingwith new iron and lead pipes. By the middle of the century, responsibility for water supply had increasingly become the sole province of the local government, a situation that was structured under law by a series of legislation, beginning with the Health Act of 1848 and continuing through a series of Water Acts promulgated in the 1870s. In addition to supply water, the local water utility also took on the disposal and treatment of wastewater.

Water supply remained, however, a local endeavor, as each town and city developed its own water supply and wastewater treatment infrastructure, leading to the development of a large number of nonstandardized water utilities. In 1924, the government created a new system of local water authorities, which became responsible for water supply throughout England and Wales. Oversight for the countrys water resources was taken over by a growing number of river authorities. Although a degree of consolidation occurred, at the beginning of the 1970s, the United Kingdoms water supply industry remained highly fragmented, counting nearly 30 river authorities, some 160 water supplies, and more than 1,300 water and sewage treatment authorities. None of these bodies, however, were of sufficient size to invest in modernized equipment and facilities, and the countrys water system as a result had become badly antiquated, with high levels of water leakage, a growing pollution problem among the countrys waterways and coastline, and mounting concern over the contamination of the water supply itself, particularly by the presence of high levels of lead in certain parts of the country.

The British government took its first steps toward improving the countrys water supply sector when new legislation was passed under the Water Act of 1973, providing for a consolidation of the countrys local water authorities into just ten regional water authorities. These authorities then took over complete control of a regions water supply, wastewater, and sewage treatment needs, as well as responsibility for protection of its water resources, and the environmental protection of the regions rivers and coastlines. North West Water Authority was created in that year to take over the northwestern region of England, becoming one of the largest of the new authorities. Yet North West also faced improving one of the most antiquated and dilapidated systems in the country.

By the mid-1970s, North West Water, along with the other regional water authorities, faced increasing environmental awareness, including growing concerns over health issues involving the nations water supply, coupled with a number of new European Community-led directives, which established more stringent drinking water and sewage disposal standards. Already barely able to keep up with the massive investments needed to update the nations water supply system, the regional authorities quickly found themselves generating massive debts. By the mid-1980s, as the Thatcher government scored a number of successes in its privatization drive, North West and the other water authorities found themselves confronted with growing government impatience at the sectors continuing losses.

The British government announced its intention to privatize the water sector in 1989. As part of the preparations for the public offering of the countrys ten newly created water companies, the government agreed to write off some £5 billion of combined debtNorth West Waters share of that debt was worth some £1 billionand disburse an additional £1.6 billion in cash. Meanwhile, to ensure the success of the privatization, the government set deliberately low opening share prices for the utilities.

Growth Through Diversification in the 1990s

North West Water, led by Chairman Dennis Grove, while the second largest of the newly private water companies, was also considered one of the weakest in the industry, in part because of the former authoritys past inefficiencies. Yet North West Water began life as a private company with an ambitious capital investment program, representing the largest commitment of any of the ten water companies. The companys investment program quickly topped £200 million in its first year, and by 1990 the company had earmarked some £400 million in investment. At the same time, North West Water announced long-term environmental investments of more than £1 billion over the decade to come as the company sought to wipe out one of its primary sources of criticism leveled at the former water authority. The company ended its first full year of operations with revenues of more than £511 million, and pretax profits of £75 million.

From the start, however, North West Waters ambitions went beyond its position as a regional water company. The creation of the regional water authorities in the 1970s had given North West Water, and the British water supply industry in general, a great deal of experience in bringing together and operating large-scale and cross-community utility systems, a position that gave the company an advantage in the worldwide market. North West Water began to leverage its experience in the late 1980s, marketing its expertise in the design and operation of large-scale water supply and sewage treatment systems on the global scale. North West Water targeted in particular the developing markets in Asia and South America, where strengthening economies were leading governments to invest in improving meager and even nonexistent public utility systems.

Company Perspectives:

Our strategy: Pursuing a focused strategy to deliver growth and efficiency by: Growing our support services businesses using our core skills of asset management and customer management; Improving the efficiency of our licensed operations by maximising the synergies attainable by us as a multi-utility operator.

Our vision: To be an outstanding provider of services that make life better.

Our values: Working as a team; Esteem for the individual; Customers are our business; Ambitious, Responsive and responsible; Enterprising.

In 1988, North West Water scored its first success in this area, when it led a consortium to win the 20-year contract to modernize, expand, and operate the water supply system in Ipoh, in Malaysia. Other contracts followed, including an entry into Thailand with a contract to design, build, and operate a waste treatment plant, as well as a 50-kilometer sewer network, in Bangkok. The company also was called in as an advisor by the Indonesian government as it began plans to privatize that countrys water system at the beginning of the 1990s.

North West Water faced limits in its growth in the United Kingdomthe water supply business remained heavily regulated, and the possibility of geographic expansion remained limited. Instead, North West Water began seeking other, nonreg-ulated avenues for growth. In 1990, the company spent more than £50 million on acquisitions, buying up Water Engineering and Jones Environmental from Jones Group Holdings, for a total price of nearly £13 million, giving it operations in the design, manufacture, and installation of water and wastewater treatment facilities in England and Ireland. Those purchases were joined by the $75 million acquisition of the United States Envirex from Banner Industries, a manufacturer of wastewater and industrial sludge treatment plants and systems. The Envirex acquisition, which boosted North West Waters total turnover by more than £60 million, also brought the subsidiary General Filters, which specialized in drinking water systems for the municipal market.

In 1991, North West Water boosted its U.S. presence with a new acquisition, paying $130 million to acquire the Wallace & Tiernan Group, based in New Jersey. Founded in 1911, Wallace & Tiernan had pioneered the use of chlorine for disinfecting water; by the beginning of the 1990s, Wallace & Tiernan was the worlds top designer and manufacturer of chemical-based systems for water and wastewater disinfection and treatment. Although North West Water sold off most of that operation to Vivendi in 1997, the acquisition expanded the companys expertise in what the company later called Contract Solutions. North West Water also gained Wallace & Tiernans strong internationally operating network.

North West Waters international operations scored new successes in the early 1990s. In 1993, the company joined the Indah Water Konsortium, which was awarded the contract to modernize and operate the sewer system in Kuala Lumpur. By 1994, Indah had gained the sewerage concessions for much of Malaysia, including Petaling Jaya, Seremban, Port Dickson, Langkawi, and Labuan. This success came on top of other recent solo successes, as the company won contracts in Mexico City, and in Sydney and Melbourne in Australia.

Multi-Utility Operator for the New Century

The arrival of a new management team, led by Chairman Desmond Pitcher and CEO Brian Staples, marked the beginning of a new era for North West Water. Staples and Pitcher stepped up the companys U.S. operations with a partnership agreement with the U.S. construction group Bechtel, combining North West Waters design and operations expertise with Bechtels construction clout in order to bid for water supply contracts in the United States. The joint venture, called US Water, enabled North West Water to avoid having to make costly investments in building up its own construction operation, while providing a more solid basis for its worldwide expansion. Two years later, the two companies expanded their cooperation agreement on a worldwide scale with the creation of a new joint venture subsidiary, International Water Limited.

By then, North West Water had taken on a new nameUnited Utilitiesafter beating out rival bidders, including the United States TXU, and paying £1.8 billion to take over Norweb, which held the electric power concession in Englands northwestern region, and which had also begun branching out into the telecommunications sector, forming Norweb Telecom. Met initially with skepticismand a bit of government resistancethe merger created one of the United Kingdoms first and largest multi-utility groups. United Utilities quickly took advantage of similarities in the two companies operations, not least of which was their focus on the same geographic area. In 1997, the company merged both companies operations in customer service and call center management to form a new subsidiary, Vertex, which then went on to compete for and win third-party contracts.

The approaching deregulation of the British electricity market at the close of the 20th century led United Utilities to attempt to expand its own electric power supply business, which had been renamed Norweb Energi in 1998. In 1999, United Utilities entered merger talks with National Power, in a proposed deal worth some £11 million. Those talks fell through at the last minute, however. Instead, United Utilities turned around and sold off Norweb Energi to TXU in 2000. United Utilities maintained control of Norwebs electricity distribution network, however.

Key Dates:

Ten regional water authorities are created in the United Kingdom, including North West Water Authority.
North West Water wins a contract to design a sewerage system in Malaysia.
The British government privatizes water authorities, and North West Water PLC incorporates as a public company.
North West Water acquires Water Engineering and Jones Environmental from Jones Group Holdings and pays $75 million to acquire Envirex in the United States.
A joint venture partnership is formed with the Bechtel construction group.
The company acquires Norweb and is renamed United Utilities.
The Norweb power supply operation is renamed Norweb Energi.
United Utilities sells Norweb Energi to TXU but keeps its electric power distribution operation.
United Utilities restructures into five core business divisions.
The company announces its intention to expand into gas distribution and its interest in acquiring utilities in neighboring regions.

In 2001, United Utilities, now led by CEO John Roberts, restructured its operations, redefining itself around five core divisions, including Your Communications, the renamed Norweb Telecom unit. The company had hoped to spin off Your Communications in a public offering, but was forced to abandon that move, at least temporarily, as the telecommunications market floundered at the beginning of the 21st century. Instead, the company pinned its hopes on services subsidiary Vertex, in a public offering scheduled to take place as early as 2003.

United Utilities continued to grow as the new century began, acquiring assets of Welsh utility operator Hyder, including its metering, network services, and green energy divisions in 2001. The company also won a four-year, £450 million outsourcing contract from Welsh Water, followed by a contract in 2002 to install and replace meters for Welsh Water customers. The companys Vertex subsidiary also was making strong gains, including winning a contract with the Westminster City Council to handle its call center and customer service operations, and a ten-year contract to provide customer management services for Canadas Hydro One. Meanwhile, the company began planning its future, including an extension into the gas distribution market and an interest in buying up utilities in its neighboring regions. United Utilities had successfully recreated itself as one of the most diversified, and most profitable, of the United Kingdoms former water authorities.

Principal Subsidiaries

AS Tallinna Vesi (Estonia; 25%); Inversora Electrica de Buenos Aires SA (Argentina; 45%); Mcarthur Water Pty Limited (Australia; 50%); Riverland Water Pty Limited (Australia; 50%); Sofijska Voda A.D. (Bulgaria; 40%); United Utilities Australia Pty Limited; United Utilities Contract Solutions; United Utilities Green Energy Limited; United Utilities Industrial Limited; United Utilities International Limited; United Utilities Operational Services Limited; United Utilities Properti Limited; Vertex Data Science Limited; United Utilities Customer Sales; United Utilities Service Delivery; United Utilities Electricity PLC; United Utilities Water PLC; Yabulu Water Pty Limited (Australia); Yan Yean Water Pty Limited (Australia; 50%); Your Communications Limited.

Principal Competitors

Electricité de France; Centrica pic; British Gas Trading Ltd; RWE Energie AG; N.V. Nederlands Gasunie; Bayern werk AG; National Power pic; Scottish Power U.K. pic; Powergen U.K. pic.

Further Reading

Garrett, Paul, United Hits Targets to Sound of City Cheers, Utility Week, December 7, 2001, p. 10.

Harrison, Michael, United Utilities Wins Westminster Contract, Independent, July 17, 2002, p. 19.

Sastri, Sumi, United Has Designs on Neighbours Networks, Utility Week, May 31, 2002, p. 3.

Shepherd, Nick, United Scores Another Win at Welsh Water, Utility Week, April 26, 2002, p. 9.

United Utilities Planning Now for Enhanced Future Profits, Institutional Investor, February 1998, p. 100.

United Well Supported, Birmingham Post, November 30, 2001, p. 22.

Wilsher, Paul, British Water Makes Waves Overseas, Management Today, October 1993, p. 86.

M.L. Cohen

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