Abstract
Overview
Introduction
The European Commission has indicated its preference for passage of a network
ownership unbundling directive in 2008. This potential highlights the issue of
how networks business units perform within integarted power and gas utilities,
and how valuable these business units are.
Scope
- An analysis of operating margins across a range of utilities at the level
of both networks business units and the overall utiliy.
- An assessment of financial performance at those utilities which derive the
highest proportion of their income from network assets.
- An examination of financial measures, from credit ratings to debt
leverage, that may be explained by a utility' s focus on network assets.
- A review of share price betas for utilities with different levels of
reliance on network assets.
Report Highlights
Among those utilities that publish operating information for their networks
business units, operating margins are significantly higher than for the
utility as a whole.
The average utility earns 21% of its revenue from its networks business, and
has a debt-to-equity ratio of 57%. However, there is no consistent
relationship between levels of debt leverage and the proportion of a utility' s
revenue that derive from its networks business unit.
The return on capital employed of 30 leading utilities has been declining
steadily since 2002. In contrast, utilities with a high proportion of their
revenue flowing from networks businesses saw a turnaround in return on capital
employed in 2005.
Reasons to Purchase
- Compare European utilities on the proportion of revenue and operating
income that are derived from networks business units.
- Understand how a utility' s relative focus on networks affects a range of
financial metrics.
- Challenge assumptions about the financial benefits that a focus on
networks may provide to integrated utilities.
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