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Business and financial overview and strategies of 2i Rete Gas, the company controlled by F2i and Ardian.
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September 9th, 2014
Investor Presentation
Business and Financial Overview
3
2iRG at a glance
2iRG is the #2 player in the Italian gas distribution market
63.9% 21.3%
F2i I Finavias
FRI
99.906%(2)
8.1% 6.6%
F2i II Axa I. H.(1)
Regional presence (#) 18
ATEM presence (#) 137(5)
Re-delivery points (“rdp") (m) 3.8
Distributed volumes (bcm) 5.9
Municipalities under management (#) 1,961
Employees (#) 2,042
Net Invested Capital (€ bn) 2.5
Grid extension ('000 km) 57
Gross capex (€ m) 136
The Group(3)
Current Group Structure
Main Operating Data(4)
2iRG Corporate History
Source: Company data. Note: (1) AXA Infrastructure Holding; (2) 0.094% Minorities and treasury shares; (3) The Group including subsidiaries GP Gas S.r.l., Italcogim Velino S.r.l. (in liquidation) and Italcogim Trasporto S.r.l.; (4) 2013 data; (5) Out of 177 “multi-municipality areas” (Ambiti Territoriali Minimi or “ATEMs”),indicated by the Ministry of Economic Development (“MED”)
2000
Enel Rete Gas (today 2iRG) entered the gas distribution business
80% of 2iRG acquired from Enel
In December, Enel minority in 2iRG bought out through FRI2
2009 2011 2013
Acquisition E.On Italia distribution gas and G6 Rete Gas
~2.2m
~1.6m
Clients growth
~3.8m
4
Overview of Italian gas market
Liberalized market with an independent regulatory Authority
Storage Transport (national
and regional) Distribution
Retail sales and small/medium
industries Import
Production
62.0 Capacity: 15.6 70.1 34.4
Industrial users Power stations
Data in bcm
(2013)
Upstream Midstream Downstream
Market structure
Players •Eni, Edison, Enel and
others
•Snam (Stogit), Edison •Snam (Snam Rete
Gas), SGI
•Snam (Italgas), 2iRG,
Hera, A2A and others
•ENI, Enel ,Edison and
others
Concentrated market with opportunistic competition Fragmented market
with accelerated
consolidation
Market dominated by
few players
Value chain
Regulatory Authority
• Authority for Electricity, Gas and Water (“AEEGSI”)
•Tariffs; Access conditions and Quality of service and safety
7.7 21.2 14.5
Source: MED and Company Data
34.4
5
Italy is the 3rd largest gas market in Europe…
With a total natural gas consumption of 70.1 bcm, Italy is the third
largest European market after Germany and UK
The relative weight of infrastructure costs, as part of the Italian gas
price composition, is the lowest across the main European
countries (15%)
• In particular, the impact of the distribution infrastructure on the
end users’ price is very limited (12% in total, including system
charges)
One of the largest gas markets with low infrastructure costs
88,5 79,2
70,1
46,1 40,3
30,9
Germany UK Italy France The Netherlands
Spain
Gas Consumption in EU (Data in Bcm, 2013) – Top Six Countries
45,34 50,36 42,12 39,69 36,70 36,63
14,01 19,31
15,80 18,80 12,51 12,21
30,93 13,43
14,29 10,44 16,31 2,91
1,56 0,84 3,01
0,70 2,45
6,39
Italy Spain Belgium France Germany UK
58.14 67.97 69.63 75.22 83.94 91.84
Data in € cents/cm
Natural Gas Price Analysis – European Comparison
Raw material and commercial Tax System charges Infrastructure Raw material Tax System charges Infrastructure Commercial-
Retail
Commercial-
Wholesale
3,7%
10,4%
1,2%
Infrastructure
Distribution
Transport
Storage
15,3%
41,5%
3,9%
3,9%
33,7%
1,7%
Breakdown of Natural Gas Price in Italy
Source: Company data and Elaboration of AEEGSI Annual report 2013
6
Market Shares by Network Length(1) (2013)
2iRG is the 2nd largest gas distribution operator in
Italy
Distribution network consisting of approx. 57,000km
Distributing approx 5.9bcm of gas in 2013
3.8m customers across 1,961 municipalities
Mkt share%
23%
22%
6%
3%
3%
3%
2%
2%
35%
In ‘000 km
Others
Mkt share%
17%
6%
5%
4%
2%
2%
1%
35%
In m
Others
Source: Company data and AEEGSI
Note: (1) Italgas data includes 100% Napoletana Gas, 49% AES, and 48% Toscana Energia; Hera includes 100% Acegas-APS; IREN includes 100% IREN Emilia and Genova Reti Gas and 51% AES; (2) Including GP Gas network
2iRG is well positioned to grow in the Italian market thanks to the upcoming tender process
Market Shares by Rdp(1) (2013)
28%
…Where 2iRG plays a leading role
(2)
89,6
5,8
6,2
6,6
7,5
8,2
16,0
56,6
57,1
1
2
3
4
5
6
7
8
9
7,9
0,3
0,4
0,5
0,9
1,2
1,4
3,8
6,5
1
2
3
4
5
6
7
8
9 56.9% 18.5%
24.6%
Tot:
22.7 m
Geographical split of RDP (%)
Central Italy Southern Italy Northern Italy
7
Remuneration regime: a transparent and established methodology
Local Net Invested capital or “Local RAB” (Historical revaluated cost )
WACC
Distribution:
6.9%
WACC Metering:
7.2%
The depreciation is calculated based on
depreciation schedules provided by the
Regulator and differentiated for each asset
category
Distribution
activities
Metering
activities Commercial
activities
(addressed to
gas sales
companies) Metering
reading
activities
Regulator applies a € amount per redelivery point
% weight on
revenues
Centralised Net Invested capital or “Centralised RAB” (i.e. IT, headquarters etc,
calculated by a parametric approach)
Allowed Revenues or VRT (“Vincolo Ricavi”)
Return on RAB Depreciation Operating Costs
RAB WACC Technical Life of the Assets Distrib.on Metering Comm.al
35%
30%
~35% ~35% ~30%
Regulation protects from volume risk RAB and Depreciation yearly updated by gross investment deflator
Operating costs updated yearly by CPI and X-factor
8
Main acquisitions completed:
Gruppo Camuzzi (2002): approx. 1,000k clients
E.On Rete (2011): approx. 600k clients
G6 Rete Gas (2011): approx. 1,000k clients
Significant efforts to integrate all acquired companies in terms of organisational structure, approach with local municipalities, ICT, accounting and
administrative systems
Jan.
2000
Apr.
2000
Oct.
2000
Nov.
2000
Dec.
2000
Jan.
2001
Mar.
2001
May.
2001
Jul.
2001
May.
2002
Jan.
2004
Oct.
2004
Dec.
2004
Oct.
2005
Jan.
2006
Dec.
2007
Feb.
2008
Apr.
2011
Sep.
2011
Mar.
2013
Clients, in ‘000 ~3,800
Source: Company data
F2i and ARDIAN
0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
To
tal p
ost
Colo
mb
o …
Cam
iga
s
Gru
pp
o B
ria
nza
Ero
ga
su
d
Sic
im E
dilg
eo
Com
ed
iga
s
Me
tan
su
d
So
ge
ga
s
Imp
reg
est
SG
M
Ag
as
Gru
pp
o
Rip
am
on
ti
Gru
pp
o M
arc
ott
i
Gru
pp
o C
am
uzzi
Sic
ilme
tan
o
Ott
og
as
Ita
lge
stio
ni
Me
tan
od
ott
i P
ad
an
i
Sim
eo
Me
tan
sic
ula
GP
Ga
s
E.O
n R
ete
G6
Rete
Ga
s
To
tal
Acquisitions And Integrations Completed
Successful track record of business integrations
Significant experience in delivery integration targets
~120 companies acquired
9
Growing financial performance
Revenues (1) (in € m)
Fully regulated revenues and EBITDA
Data referred to 2i Rete Gas only
EBITDA (in € m) EBIT (in € m)
730715
470
398
318
2012 2011 2013 2009 2010
383367
271
225
161
2009 2012 2010 2011 2013
238216
163125
61
2013 2011 2012 2009 2010
Source: Company data. Note: (1) Net of IFRIC 12 effect
10
Supporting growth and preserving sounding capital structure
Pre-Refinancing Debt Structure
Financial Strategy
Well positioned to increase tenor and maturity flexibility
EMTN programme established
Subscribed €0.4bn Capex/RCF line with a group of 6 major
banks with a 5 year tenor
Maturity coherent with business profile
Stable presence in Capital Markets
Financial Flexibility
Note: (1) Including financial debt at FRI and FRI2 level (2) Of which €210 m referred to HoldCo not drawn yet (line already committed)
Current Debt Structure (1)
Bond:
€750m
Bond:
€600m
Term loan:
€750m (2)
1,50% + EUR 3m
Fixed 1,75%
Fixed 3,00%
Jul
2019 Jul
2024 Today
~1.755
Debt
MtM IRS
210
Bank loan
(2iRG)
2.100 ~135
Bank loan
(HoldCos)
750
1.350
Bank facility
(2iRG)
Bonds
Debt
2.100
~4,4%
Cost of debt
€ m € m
Cost of debt
~2,3% ~90 m€
~50 m€
Strategy Highlights
12
Gas distribution market is still fragmented
Main players within the Italian markets are: (i) large Italian energy
and utility players, (ii) local utilities; (iii) small operators controlled
by local municipalities and (iv) private companies
Over the last few years, the market has experienced a
consolidation wave that reduced the number of distributors (from
780 in 2000 to 229 in 2013)
Although the number of players remains sizeable, the market is
increasingly concentrated: the 35 “very large” and “large” players
control 83% of the market in terms of volumes distributed
Legislative framework in place to achieve further consolidation with
the creation of 177 ATEMs
Italgas
2i Rete Gas
IREN
A2A
Ascopiave
Hera
Toscana Energia
No dominant distributors
Other distributors
No gas area
Size Pdr (#) Distributors (#) Volumes
Distributed
Very large > 500 k 8 (5 groups) 57%
Large < 500k ; > 100k 27 26%
Medium < 100k ; > 50k 19 6%
Small < 50k ; > 5k 112 10%
Very small < 5k 63 1%
Source: AEEGSI, MED and Snam Rete Gas data
Note: (1) Based on 177 ATEMs
A consolidation process is under way where size is a key factor
Dominant geographical presence and Distributors’ Clusters (1)
Evolution of # Distributors (2000-2013)
-71%
?
780 716 693
560
480 430
360 338 295
259 246 239 236 229
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2019
13 13
• 2iRG currently present in 1,961 concessions
spread over 137 out of 177 ATEMs
• 2iRG expects to be awarded with ~ 45
ATEMs by 2019
>50%
<25%
25-50%
137 ATEMs
(partially managed)
45-50 ATEMs
(fully managed)
ATEM tenders 2015-2019
Growth strategy through ATEM tenders based on Group nationwide presence
Low concentration
risk
Perugia concession: 2%
Top 3 concessions: 5%
Top 10 concessions:11%
Very
high
Probability of
won tenders
High
Low
Very
low
No
Current presence in ATEMs (2014) Expected RDP growth also following ATEM tenders
177Total ATEM
No presence
Strong
competition
~40
Limited
presence ~55
~25
~30
Duopoly
Dominant
position
~30
• Exit from ATEMs where the Group has a limited
/ no presence, strengthening presence where it
has already a dominant position/duopoly and
in some of the ATEMs in strong competition
14
First pioneer in Italy adopting smart meters: tlaunched a pilot project (“Progetto Avogadro”) that envisages the installation of ~20,000 electronic meters in Biella
2iRG has planned to install the new meters in a town of Center Italy and further 21 municipalities
The development and deployment of smart meters will introduce a significant innovation in the sector and will significantly improve the quality provided:
• Better information to the clients about own consumption
• Reduction of operating costs related to reading activities at client’s site
• Use of remote information for commercial activities and management in remote of certain activities (switch, closure of clients’ accounts, etc)
100% of high volume
meters
26.300
51.000
75.500
2013 2014E 2016E
1.600 115.000
2.600.000
2013 2014E 2018E
60% of mass market
meters
Selected investments to increase profitability
in a mature business
High volume smart meters – Installation plan (cumulated figures)
Mass market smart meters – Installation plan (cumulated figures)
Metering RAB with higher remuneration (7,2%)
15
Source: Company data
More competitive cost structure
Synergies
Internalization of staff functions
One integrated Headquarter to exploit companies resources at group level
Internalization of previously out-sourced services leveraging on HR synergies arising from integration project
Reach 2iRG full independence: from being a branch of ENEL S.p.A. to becoming a stand-alone company
Rationalize and industrialize field operations
Rationalize organizational structure on the Field
Centralize technical activities at regional level
Introduce IT tools to manage local workplace remotely
0
5
10
15
20
2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
€ m
16
Disciplined investment policy for sustainable growth
2iRG plans to grow while protecting a solid credit profile
1
Growth through ATEM
tenders in Italy
Supportive regulatory framework
addressing concessions’ renewal,
market concentration and asset
value protection
Dominant position in north-western
and south-eastern Italy, where the
2iRG will strengthen its presence
and leverage any potential economy
of scale
Optimisation of concession portfolio
2 Investments to
increase profitability in
a mature business
Capex driven by new redelivery
points as well as maintenance of the
existing network
Pioneer in adoption and deployment
of smart metering
3
More competitive
cost structure
Continuous focus on operating and technical excellence
Reaping the benefits from significant in-sourcing after ownership changes and synergies from integration
Economies of scale arising from ATEM tenders
Savings from investments in smart meters and ICT infrastructure
~ €1.6bn of investment plan up to 2019
17
Growth sustained with a solid capital structure with an attractive shareholders return
Interest rate policy
Limited exposure to interest rates
The Group targets a capital structure with a minimum level of 65% of fixed rate debt
The remaining floating rate exposure will not be hedged as the Company considers its WACC-related
revenues as a natural hedge
The Group targets a level of Net Debt / RAB of ~60%
BBB/stable (S&P), Baa2/stable (Moody’s)
2iRG required to keep a solid investment grade credit profile by its shareholders
Debt maturity coherent with business and regulatory profile
Leverage and rating
Management strongly committed to financial discipline
Shareholder return Regular and predictable cash returns to its shareholders in the form of cash dividends
Dividend yield in line with main peers
Capex policy
Significant discretion over the scheduling of capex programme
Optimised capex planning due to RAB remuneration and recovery value at termination
Flexibility of financial capital structure to sustain capex plan
Appendix
19
Key Financials
P&L
€m 2012 2013
Distribution and other 591.6 590.9
Connection fees 24.0 22.4
Other sales and services 19.7 23.2
IFRIC 12 133.0 116.4
Other revenues 79.6 93.3
Total Revenues 848.0 846.3
Labour cost (110.2) (111.3)
Raw material cost (31.4) (32.0)
Service cost (256.3) (226.4)
Other costs (64.4) (76.3)
Provisions (20.1) (18.5)
Incr. in fixed assets not subject to IFRIC 12 1.7 0.9
Total costs (480.7) (463.6)
EBITDA 367.2 382.6
EBITDA % (ex IFRIC 12 impact) 51.4% 52.4%
EBIT 216.4 238.5
EBIT % (ex IFRIC 12 impact) 30.3% 32.7%
Net Income 67.3 79.2
Balance Sheet
€m 2012 2013
Net fixed assets 2,381.5 2,388.5
Net working capital 62.1 97.9
Total provisions (7.4) (30.2)
Net invested capital 2,436.2 2,456.2
IRS unwinding 36.2 30.2
Net Financial Position 1,584.1 1,587.8
Shareholders' equitiy 816.0 838.2
Total Sources 2,436.2 2,456.2
20
Disclaimer
This presentation has been prepared by and is the sole responsibility of 2i Rete Gas S.p.A. (the “Company” or “2iRG”). As used herein, “Presentation” means this document, any oral presentation, the question and
answer session and any written or oral material discussed or distributed during the presentation. The Presentation comprises written material/slides which provide information already available to the public on the
Company, its Holdcos and its subsidiaries (together, the “Group”). The information contained in this Presentation has not been verified, approved or endorsed by or independently verified by any independent third
party. Save where otherwise indicated, the Company is the source of the content of this Presentation. Care has been taken to ensure that the facts stated in this Presentation are accurate, and that the opinions
expressed are fair and reasonable. However, no representation or warranty, express or implied, is made or given by or on behalf of the Group, or the management or employees of Company, or any other person as
to the accuracy, completeness or fairness of the information or opinions contained in this document or any other material discussed at the Presentation. None of the Company nor any of its subsidiaries nor any other
person accepts any liability whatsoever for any loss howsoever arising from any use of this Presentation or its contents or otherwise arising in connection therewith.
This Presentation is not intended for potential investors and does not constitute, or form part of, any offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of, or any solicitation of any offer to
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other third party evaluation of securities nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment whatsoever. If any such offer or
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