AFFINITY WATER INVESTOR PRESENTATION JANUARY 2013
Contents 1 BUSINESS OVERVIEW 3 2 BUSINESS PERFORMANCE 14 3 FINANCIAL STRUCTURE 20 4 APPENDIX 27 1
Executive summary Introducing Affinity Water — Acquired in June 2012 by consortium led by Infracapital and Morgan Stanley Infrastructure Partners (Transaction Value £1,236 million) — Three Operating companies unified under one licence, resulting in a combined RCV of £949.4 million (March 2012) — Rebranded Affinity Water (previously branded Veolia Water and prior to that Three Valleys Water) — New Class A / B secured debt platform established — Looking to issue Class A bonds, preliminarily rated A ‐ / A3 (S&P/Moody’s), in both fixed rate and index ‐ linked form — Experienced management team Richard Bienfait CEO Affinity Water — Joined Veolia Water UK in 1997 as Group Financial Controller — Appointed CFO of Veolia Water UK in 2004 — Appointed CEO of Veolia Water Central in 2010 (now Affinity Water) Duncan Bates CFO Affinity Water — Joined Veolia Water UK in Jan 1992 — Appointed Group Financial Controller 1999 — Appointed CFO, Veolia Water UK Non ‐ Regulated business 2007 — Appointed CFO of Veolia Water Central in March 2012 (now Affinity Water) 2
BUSINESS OVERVIEW 3
Business strengths Largest water only company by revenues and population served, with no material non regulated businesses — Operates as a regional monopoly Regulated asset under single licence — No material non regulated activity — Affinity Water has the latest Ofwat ring ‐ fence licence conditions — Following licence unification, RCV consolidated in one corporate entity Established — Primary statutory duty of the Regulator to ensure that efficient regulated companies can finance themselves regulatory — Recent Section 13 uncertainty effectively concluded regime — Established regulatory regime — Price regulation recently reinforced by Defra Draft Strategic Policy statement, November 2012 — Strong ranking on SIM performance metrics Robust operational performance — Achieved “Stable” for Ofwat serviceability measure in 2011/12 Experienced — Strong management team put in place as response to PR09 settlement management team — Management team retained by incoming shareholders to focus on continuing operational improvements — Firm focus on preparation for PR14 Simple financial — 3 and 5 year bank debt currently in place on good terms structure — New platform broadly follows precedent financial structures — Very limited use of derivatives (no index linked swaps currently intended) — No external debt to service higher up the company structure 4
Ownership structure Collaborative and financially well resourced shareholder group who support management initiatives 40% Infrastructure Partners 40% — Infrastructure investors with long ‐ term investment horizon Morgan Stanley — Track record as strategic investors in a range of core infrastructure and utilities — Detailed knowledge of UK water sector 10% Beryl Datura Investments — Previous 100% owner retaining stake 10% — Capability sharing arrangements established to facilitate continued access to previously developed knowledge 5
Unification process completed On 27 July 2012 three businesses were unified — This brought the entire RCV of the three previously separate businesses (Central / East / Southeast) under a single licence — Enables a more efficient group financing structure — Already realising operational efficiencies — Rebranding to Affinity Water complete with no adverse impact to operations or revenue cash flows Affinity Water (Central Region) RCV £805.2m Affinity Water Affinity Water RCV £949.4m (East Region) RCV £65.8m Affinity Water (Southeast Region) RCV £78.4m RCV as of 31 st March 2012 based on 2011/12 financial year ‐ end prices 6
Our business operates in South East England Regulated water industry in England and Wales Affinity Water Affinity Water area — Combined revenues of £288 million – largest Water only Company by revenue Other WoC area — Combined EBITDA £159 million Water and Sewerage Northumbrian Employs c. 897 people (with grand total of 1,167 including AWSS as at 31 st Dec Company (WaSC) area — 2012) United Utilities Yorkshire — Supplies a population of c. 3.49 million Cambridge — Operates 16,500 km of water mains Dee Valley Affinity Water Affinity Water Affinity Water 1 2 3 (Central Region) (East Region) (Southeast Region) South Staffordshire Anglian Severn Trent Dwr Cymru A1 M11 1 2 M20 M1 Thames (Welsh) Northumbrian M25 Bristol London M40 Cholderton & District Southern 3 Wessex M4 South West M20 M3 Not to scale Bournemouth & Sutton & West Hampshire East Surrey Portsmouth South East 7 Source: Ofwat and company information. Figures as of 31st March 2012
The value chain of our business Abstraction Treatment Distribution Customer Grafham (not to scale ) Ardleigh Sunnymeads (Iver intake) Egham Chertsey Walton Surface Water Abstraction Principal Boreholes River Thames Urban Areas 8
The value chain of our business Abstraction Treatment Distribution Customer Grafham (3%*) (distance not to scale) Horsley Cross (80%*) Ardleigh (20%*) Clay Lane (13%*) North Mymms (3%*) Iver (20%*) Egham (12%*) Chertsey (4%*) Walton (3%*) Major Treatment Work (>40 Ml/day) Treatment Work (<40 Ml/day) Urban Areas 9 * Percent of maximum deployable output
The value chain of our business Abstraction Treatment Distribution Customer + Available Interconnection Point Trunk Network Distribution Network Urban Areas 10 10
The value chain of our business Abstraction Treatment Distribution Customer + Commercial Customers Urban Areas 11
Affinity Water is the largest WoC by revenues and population served WoC ranking by stated appointed revenues, £m (Year to March 2012) 1 WoC Ranking by RCV, £m (March 2012) 2 289 978 949 196 108 354 88 252 57 201 42 144 37 116 22 21 69 67 South East South Staffordshire Bournemouth & Portsmouth South East South Staffordshire Bournemouth & Portsmouth Dee Valley Affinity Water Bristol Sutton & East Dee Valley Cambridge Affinity Water Bristol Sutton & East Cambridge Surrey Surrey W. Ham W. Ham Source: Ofwat and companies’ regulatory accounts 1 Nominal values as of 31 st March 2012 based on regulatory accounts 12 2 RCV as of 31st March 2012 based on 2011/12 financial year ‐ end prices
We have rebuilt a strong relationship with our regulators Governmental Economic Drinking water Environmental Consumer regulation regulation quality regulation regulation representation * Legislative and Drinking water Environmental Consumer Price limits policy framework standards permits protection Water company Customer * Statutory body representing consumer interests 13
BUSINESS PERFORMANCE 14
Vision and strategic priorities PR09 Settlement Resulting actions by company following PR09 — New management team put in place to drive business — Affinity Water received a challenging PR09 settlement: performance following the final determination — Required improvements in operating efficiency; and — This management team is supported by the company's new — Awarded a high capex incentive scheme ratio shareholders — A clear plan for improving efficiency has been put in place since 2010 and significant progress has been made in improving performance Strategic priorities 1 Demonstrate great Asset Management Vision 2 Provide a highly ‐ visible Customer Experience The leading community ‐ focused Develop a team ‐ based, collaborative organisation delivering 3 Water Company commercial performance 4 Apply proven technology to drive effectiveness and efficiency 5 Obtain a favourable AMP6 Determination 15
Affinity Water management is executing its plan 2010 2011 2012 Implemented Well ‐ Defined Needs process to optimise capex over AMP5 Serviceability, Burst rate reduced by c.15% Best Ever Water Quality Control of the money Asset Achieved “Stable” for — Performance in its history Ofwat serviceability Management Control of the assets — measure in 2011/12 Achieved Leakage Leakage c.15% below target 2010/11 Ofwat target 2011/12 July 27th, Establish Community Head count reduction – — £5.5m unification of the Procurement savings Operations 40 FTE annual regulated to improve control and savings businesses Customer effectiveness experience Contractor reduction Review 23 customer — facing business SIM performance processes improvement – in 2010/11 and 2011/12 Source: Company analysis 16
AMP5 Performance to date Regulatory Revenues and allowance Opex and allowance Capex and allowance £m 280 280 280 (2007/ 240 240 240 2008 prices) 200 200 200 160 160 160 120 120 120 80 80 80 Key 40 40 40 Outturn 0 0 0 Ofwat Allowance 2010/2011 2011/2012 2010/2011 2011/2012 2010/2011 2011/2012 £m Regulatory Revenues Opex Capex (07/08 prices) Year 2010/2011 2011/2012 2010/2011 2011/2012 2010/2011 2011/2012 Ofwat 257 256 126 122 77 85 Allowance Outturn 254 254 135 126 75 90 Surplus / (3) (2) (9) (4) 2 (5) (Deficit) Small under ‐ recovery of revenue so far in Affinity Water achieved £5.5m efficiencies in The capex plan has met all key regulatory Comment AMP5 primarily due to lower volumes 2011/12 outputs to date in AMP5 Source: Company analysis, regulatory accounts 17
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