Wales & West Utilities Investor Update April 2013.
-
Upload
jeffrey-booth -
Category
Documents
-
view
219 -
download
0
Transcript of Wales & West Utilities Investor Update April 2013.
Wales & West UtilitiesInvestor Update
April 2013
2
Investor Presentation Disclaimer The financing terms described herein are neither an offer to buy or sell securities, nor a solicitation to buy or sell securities. The summary contained in this document is not a complete description of the terms of the transaction and is subject to change without limitation or notice. All information contained in the foregoing is qualified in its entirety by the information to be provided in the final prospectus. Any investment decision should be based only upon such final documentation. The indicative financing terms in this investor presentation and any other information supplied in connection with the Guaranteed Bonds to be issued in respect of the programme described herein guaranteed by the Guarantors (as defined below) (the "Bonds") are not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by Wales & West Utilities Finance Plc (the "Issuer"), Wales & West Utilities Limited or Wales & West Utilities Holdings Limited (together the "Guarantors"), or any other person that any recipient of this investor presentation should purchase any of the Bonds. Each investor contemplating the purchase of any of the Bonds should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer and the Guarantors. Potential investors are advised to consider the selling restrictions that will be set out in the final prospectus. This investor presentation may not be distributed in any jurisdiction or to any person where such distribution would be prohibited by any applicable law, rule or regulation. This presentation does not purport to identify or suggest all of the risks (direct and indirect), which may be associated with the proposed transaction.If and when included in this presentation, the words “expects”, “projects”, “plans”, “believes”, “intends”, “anticipates”, “estimates”, “stabilised”, “underwritten”, “vision”, “may”, “could”, “pro forma”, “budget”, “financial model” and analogous expressions are intended to identify forward-looking statements. Any such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected and the actual outcome to differ materially from that expected. Such risks and uncertainties include, amongst others, general economic and business conditions, competition, changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, and various other events, conditions and circumstances (including acts of god, war and terrorism). No assurance is given by the Issuer, the Guarantor, or any other member of the Guarantor group that the financing arrangements described herein will be implemented. The Issuer, the Guarantors and each other member of the group expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based.The information contained herein is not for publication or distribution in the United States. These materials do not constitute an offer of securities for sale in the United States or an invitation or an offer to the public or form of application to subscribe for securities. The Issuer's securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States absent registration under the Securities Act or an available exemption from it. The Bonds will be offered and sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.The Issuer, the Guarantors and each other member of the group expressly disclaim any obligation or undertaking to publicly release any updates or revisions to update this presentation whether as a result of any change to the matters described herein or any change in any fact or circumstance subsisting at the date hereof or otherwise.This Presentation may not be passed on in the United Kingdom except to investment professionals or other persons in circumstances in which section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer
3
Graham Edwards – Chief Executive
Neil Henson – Director of Finance
Adrian Breakspear – Head of Investor Relations & Treasury
4
Agenda
1. Company Overview
2. Change in Ownership
3. Financial Performance
4. New Regulatory Framework
5. WWU Business Plan
6. Financing
5
Company Overview
WWU commenced trading on 1 June 2005, following £1.3bn acquisition from National Grid (NG) of Wales and South West gas distribution networks by a consortium of infrastructure fund investors
Utility regulated by Ofgem Operates, maintains, repairs and develops gas distribution
networks Provides the gas emergency service, which in 2011/12
comprised 97,000 public reported escapes 82,000 were domestic faults 15,000 were network leaks
Replaces circa 420km of old metallic mains/year Provides circa 13,000 new gas connections/year Undertakes circa 105,000 meter installation, repairs and
replacements/year
We don’t Sell gas Bill consumers Own a large fleet of meters – only approximately 35,000 meters (0.1%
of supply points) with a net book value of £9m have been installed since 2005 under GDN ‘meter of last resort’ obligations
Key Stats Covers 42,000km2 – 1/6 of UK Serves a population of 7.4 million 2.5 million supply points
35,000km of network RAV c£1.85bn at 31 December 2012
6
Group Ownership and Management
On 10 October 2012, the MGN Gas Networks (UK) Group was purchased by a consortium comprising Cheung Kong Infrastructure Holdings Limited, Cheung Kong Holdings Limited, Power Assets Holdings Limited and Li Ka Shing Foundation Limited.
The new owners requested a change in the Financial Year accounting reference date from 31 March to 31 December, achieved by accounts being prepared for the 9 month period to 31 December 2012.
A STID proposal approving the change of year-end was finalised on 3rd December 2012
The current board of WWU consists of 9 shareholder appointed representatives, Graham Edwards (Chief Executive) and Michael Pavia (Independent Director).
There is currently a vacancy for an additional independent director following the resignation of Kevin Whiteman.
The holding companies previously named ‘MGN Gas Networks’ have been renamed as Wales & West Gas Networks.
West Gas Networks Ltd Western Gas Networks Ltd8151511 8151473
50% 50%
Wales & West Gas Networks Holdings Limited5095454100%
Wales & West Gas Networks (Junior Finance) Ltd5149491
100%
Wales & West Gas Networks (Senior Finance) Limited5149493
100%
Wales & West Utilities Holdings Limited7092596
100%
Wales & West Utilities Limited5046791
100%
Wales & West Utilities Wales & West UtilitiesFinance plc Pension Scheme Trustees Limited
6766848 5750643
7
Cheung Kong Group – UK Infrastructure Investments
8
Since 2005 we have continued to outperform the regulatory deal and achieved a 23% reduction in operating costs
People resources reduced by 400 (20%) - without compromising delivery performance
Implemented employee terms and conditions that reduce employment costs by 25% - these terms now apply to over 50% of our people
Operational productivity improved by 15%
Rationalised main depots from 23 to 7, and offices from 4 to 1
Facilities costs reduced by 40%, IT operating costs by 35%
Alliance back office costs reduced by 20% - through the implementation of a single delivery model
Historical Performance
Over the regulatory period we will have delivered opex outperformance of c £130m
9
EBITDA Performance
EBITDA continues the strong performance of previous periods
In the nine months ended 31 December 2012:Formula turnover increased with inflation and NTS Exit Capacity income (approximately £13m in Year-ended 31st March 2013)Non-formula revenues in line with y/e 31/3/12, which included the provision of metering services to meter asset managers and other services related to gas infrastructure. In the 9 month period, one-off costs have been incurred in relation to; settlement with industrial staff re change in working terms (£2.5m), alignment of accounting policy with NGN (£1.2m) and one-off accrual for faulty valves (£0.8m).Pass through costs are higher than 2011/12 due to NTS exit capacity charges now being billed via the GDNs ~ offset by more formula revenue (impact from 1/10/12 onwards only)Restructuring costs relate to an organisational re-structure which resulted in 139 people leaving the business in April 2013.Provision movements reflect the non-cash adjustment to the carrying value of provisions for holder demolition and the statutory remediation of land.
Wales & West Utilities Limited
9 months ended
31 December 2012£’m
Year ended
31 March 2012£’m
Year ended
31 March 2011£’m
Year ended
31March 2010£‘m
Transportation Revenue 271 342 304 304
Non-Transportation Revenue 6 9 9 10
Revenue 277 351 313 314
Operating Costs (excluding shrinkage gas)
(68) (82) (79) (79)
Shrinkage Gas (7) (9) (8) (5)
Pass through Costs (29) (28) (28) (29)
Restructuring Costs (16) - (1) -
Environmental and decommissioning and other provisions
5 - 2 (3)
Earnings before interest, tax, depreciation, amortisation and replacement expenditure
162 232 199 198
Replacement Expenditure (70) (97) (80) (77)
Earnings before interest, tax, depreciation and amortisation (EBITDA)
92 135 119 121
10
Cash Flow
Net cash inflow from operating activities is after investment in RAV for that proportion of replacement expenditure (circa 50%) that qualifies for RAV
Adverse working capital movement is caused by the one-off cessation of prepayment arrangements with BGT Centrica
£11m of pension deficit contributions as part of the revised schedule of payments agreed with the pension trustees
No corporation tax paid due to accumulated tax losses
Continued investment in RAV through capital expenditure
Additional £20m of borrowing in the period (repaid subsequent to the year-end)
Wales & West Utilities LimitedCash flow£m
9 Months ended 31 December
2012
Year ended 31 March
2012
Year ended 31 March
2011
Year ended 31 March
2010
Earnings before interest, tax, depreciation and amortisation (EBITDA) 92 135 119 121
Working capital movement (10) 1 11 -
Restructuring costs - (1) - -
Difference between pension charge and contributions (11) (12) (7) (8)
Movements in provisions for liabilities and charges (10) (7) (6) 2
Net cash inflow from operating activities 61 116 117 115
UK Corporation Tax Paid - - - -
Purchase of tangible fixed assets (56) (63) (70) (84)
Capital contributions received 6 10 10 12
Proceeds of disposals of tangible fixed assets - 1 - -
Grants and contributions received - - - -
Net cash outflow from investing activities (50) (53) (60) (72)
Net cash inflow before treasury activities and servicing of finance 11 64 57 43
New long term loans 20 40 - 240
Proceeds from issue of corporate bonds - 400 - 965
Repayment of bank debt - (200) - (1,044)
Debt issue and other financing costs - (6) (3) (35)
Cash on deposit (treated as current asset investments) - (150) - -
Payments in respect of interest rate swap contracts - (39) - (78)
Net Cash inflow from financing activities 20 45 (3) 48
Net cash inflow before servicing of finance 31 109 54 91
11
A New Price Control Period
RIIO-GD1 changes the price control period from 5 to 8 years. The current regulatory settlement will run until 31 March 2021.
Cost of Equity set at 6.7% and Cost of Debt set in line with the debt index (currently 2.92%). Variable cost of debt means that future allowances will move in line with market conditions. Initial WACC for 2013/14 is 4.24%.
Several additional incentive mechanisms exist under RIIO, including benefits for minimising environmental emissions, minimising the amount of capacity we book on the National Transmission System, rewards for customer service and stakeholder engagement, and discretionary awards to promote sustainable energy and address fuel poverty and safety.
RIIO introduces a totex regime, whereby a common incentive mechanism applies to all controllable operating costs, replacement and capital expenditure. Under the IQI mechanism WWU retain 63% of all outperformance of cost allowances, but will incur 63% of any overspend.
Key Headlines from RIIO-GD1
12
A New Price Control Period
Cost allowances are set to deliver defined outputs under RIIO. WWU received final totex allowances of an average of £210m p.a. (2009/10 prices) over the eight year period. WWU secured a 15% increase between the Initial and Final Proposals – which was the largest of any network.
The replacement expenditure programme continues, however the funding method changes to 100% funding through RAV by 2021 (currently 50%). However, RIIO introduces accelerated depreciation on regulatory assets and hence the overall impact on RAV is broadly neutral. Overall replacement expenditure is anticipated to be in excess of £800m over the RIIO period.
Capital investment in the network continues as WWU continue to add connections and reinforce the network.
Overall RAV increases by 38% from £1.9bn to £2.6bn over the 8 year period.
‘Continued Focus on Cost Control and RAV growth
13
Service Performance
Under RIIO, WWU can earn up to £2m p.a. from the customer satisfaction incentive
Customer Satisfaction Survey Scores (out of 10)
Network 2008/9 2009/10 2010/11 2011/12
Wales & West 7.9 8.1 8.2 8.5
Scotland 7.8 8.0 8.1 8.3
Southern 7.6 7.8 7.8 8.1
East of England 7.6 7.8 7.2 8.1
West Midlands 7.4 7.6 7.1 8.0
North West 7.4 7.6 7.1 8.0
NGN 7.4 7.6 7.1 7.9
London 6.8 7.2 6.8 7.7
Response to Uncontrolled Escapes (97% target)
Network 2008/9 2009/10 2010/11 2011/12
Wales & West 98.0 97.6 98.5 98.7
Scotland 98.8 97.8 97.3 99.4
Southern 98.4 98.0 97.1 98.4
East of England 97.2 97.1 95.2 97.8
West Midlands 97.7 98.2 95.3 99.1
North West 97.4 96.9 92.1 99.3
NGN 97.7 97.0 91.6 99.5
London 97.7 97.4 96.1 97.4
14
Continue to concentrate on core business activity, and a continuation of our current successful business model
... but also optimise Incentive and non formula opportunities
Deliver RIIO Outputs with innovative asset strategy – increase effectiveness
Further optimise directly employed and contractor resources – increase efficiency
Significant challenge on all areas of external costs including market testing of significant contracts
Business Strategy under RIIO
15
Some Key Initiatives Contributing to Delivery Outperformance
Resource utilisation • Match people resource to seasonal workloads using flexible working - a leader in the industry
Maintenance • Extending use of risk based maintenance to cover all assets• Increasing value by further internal output - and displacing contractors
Repair & Replace • Further productivity improvement from labour force • Reduce cost of reinstatement by bundling of regional contracts
Mains Replacement • Reduction in Alliance delivery rates to deliver outperformance against regulatory allowances
Capital Investment • Implement risk based approaches - leading to refurbishment rather than replacement where this is optimum whole life cost
Customer Call Handling
• Market testing of Emergency Call Centre - with possible insourcing as a result
External Supply Chain
• Further reducing external spend - with a specific focus on need, volume and unit cost
16
Optimising Our People Resources
The strategy;
Headcount reduction programme will reduce cost - and further change employee mix
Continue to refresh the workforce on competitive terms - also addressing the age profile
Competitive T&Cs now covering over 50% of the population, and growing
Continue to invest in our people - for example 100 apprentices and 300 field staff to date - which
has reduced average age in Operations from 47 to 41
17
Historic Key Ratios
Long term Structure – Lower Leverage
Regime
Senior Debt Ratios31 December 2012
31 March 2012
31 March 2011
31 March 2010
Lock Up Default
Adjusted Interest Cover Ratio 2.14x 2.54x 2.49x 1.98x 1.30x 1.10x
RAR % 74.5% 72.4% 71.9% 72.6% 77.5% 95.0%
All covenant tests are comfortably complied with:
All ratios calculated at the senior level
For the period to 31 December 2012, ratios are calculated using the 9 month reported results and the 3 months to 31 March 2012 extracted from the prior accounting period. Adjusted Interest Cover Ratio remains strong despite the £12m adverse impact on cashflow arising from the cessation of the BGT Centrica prepayment
RAV at 31 December 2012 is c£1.82bn.
18
Bond Maturities
WWU have £1.365m bonds in issue During 2011, WWU issued £400m of Class A Bonds (yellow bars below) Proceeds of the bond issue were used to refinance existing bank borrowing and to fund future investment in RAV. Maturity concentration restrictions mean that debt with a value of no more than 20% of RAV can mature in any 2 year period. Current Bond maturities are shown below.
19
Future Financing Plans
WWU currently have c£110m of undrawn bank lines until Dec 2014. These facilities will be used to provide short term liquidity to fund the capex and repex programmes
WWU will continue to use the capital markets as source of long term funding. Likely to issue 2-3 times during the 8 Year RIIO period.
WWU continue to de-risk the financial structure by removing the mandatory breaks on the index-linked swap portfolio. The breaks have been removed on £240m of swaps during 2013 and consequently 30% of the swaps now have no breaks in place