The Water Industry InEngland & Wales

Structure, issues & strategies

January 1999

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Industry structure

• Comprises ten major water companies.• Privatised in 1989.• Some integration into multi-utilities.• Industry turnover approximately £6 billion.• Ratio of profit to revenue typically between

30% and 45%.• Limited cross-boundary competition.

Company services

• Regulated business.…• Water infrastructure & supply.• Waste water infrastructure & treatment.

• Non-regulated business….• Contracting services.• Consultancy services.• Off-shore equity stakes.• Facilities management

Regulation

• Monopoly business regulated by Office of Water Regulation (OFWAT)

• Key activity is regulating prices using RPI-X regime.

• Requires regulated businesses to be financially ring-fenced.

• Automatically refers mergers involving assets of more than £30 million to the MMC.

Key issues

• Regulatory pressure to reduce leakage to required levels.

• Levels of capital investment required to refurbish and replace infrastructure.

• Increasing community expectations on environmental and pollution issues.

• Wind fall tax on privatised utilities.

Strategies

• Operational focus on reducing water leakage and improving water purity.

• Some attempted growth by acquisition.• Geographical penetration as multi-

utility companies.• No significant foreign ownership as in

the electricity industry.

Windfall tax

• One-off tax levied on the “excess profits” of the privatised utilities by the Blair administration.

• Paid in two equal installments on 1 December 1997 and 1 December 1998.

• Cost to each of the companies was “significant” - Thames Water paid £231 million.

• Customers - 1.64 million

• Turnover - £850 million.

• Profit - £274 million.

• Business includes Hartlepool Water plc and global operations.

• Operates as United Utilities plc.

• Customers - 2.9 million

• Turnover - £867 million.

• Profit - £383 million.

• Mains & sewers - 70,000 km

• Ownership by United seen as long-term geographical penetration strategy.

• Customers - 2.6 million.

• Population base - 8 million.

• Turnover - £1,157 million.

• Profit - £327 million.

• Recent hostile bid for South West Water plc suggests strategy of growth by acquisition.

• Turnover - £343 million.

• Profit - £132 million.

• Recently subject to hostile bids from Severn-Trent Water and Wessex Water.

• Customers - 1.7 million

• Turnover - £316 million.

• Profit - £114 million.

• Acquired by ScottishPower plc.

• Ownership by ScottishPower seen as a long-term investment in a growth market.

• Waste customers - 11.9 million

• Water customers - 7,000,000

• Turnover - £1,389 million.

• Profit - £407 million.

• Population base - 3 million.

• Turnover - £226 million.

• Profit - £90 million.

• Mains & sewers - 24,900 km

• Acquired by Hyder plc (along with South Wales Electricity plc).

• Ownership by Hyder seen as a long-term geographical penetration strategy.

• Water customers - 1.1 million

• Waste customers - 2.5 million

• Turnover - £266 million.

• Pre-tax profit - £139 million.

• Recently made hostile bid for South West Water plc, suggesting strategy of growth by acquisition.

• Customers - 4.6 million

• Turnover - £580 million.

• Profit - £173 million.

• Mains & sewers - 58,000 km

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Cool links

AnglianWater

North WestWater

Severn-TrentWater

NorthumbrianWater

SouthernWater

South WestWater

ThamesWater

WelshWater

WessexWater

YorkshireWater

OFWAT