Madrilea Red de Gas FY 2016 Annual Results October 2016 Table of - - PowerPoint PPT Presentation

Madrileña Red de Gas

FY 2016 Annual Results

October 2016

Table of Contents

Executive Summary Operating Overview Financial Overview Main takeaways 3 7 10 14

Executive Summary

3

• This presentation provides a summary of MRG’s FY2016 financial results, with total revenues of €165.3MM; EBITDA
• f €134.2MM; and cash flow available for debt service at €102.1MM (YoY growth of 5%); FY16 results reflects the

stability on the regulatory framework

• The company achieved a YoY net growth of 0.9% in its customer base, and currently serves c.853,056 connection

points distributed over 59 municipalities in the Region of Madrid

• MRG has expanded its natural gas network in the municipality of Vellón and has started the operation of two satellite

LNG plants to supply the municipalities of Valdetorres, and Zarzalejo

• Continuing our strategy to growth in Madrid territory, MRG entered into an agreement to purchase 42,000 piped

Liquefied Petroleum Gas (LPG) connection points from Repsol to be converted into Natural Gas in the following years

• The company has completed the implementation of a fully operative SCADA system with full control of its network
• On March 15th, 2016, Lancashire County Pension Fund acquired 12.5% stake in MRG joining the consortium of long

term infraestructure investors formed by Gingko Tree Investment Ltd, PGGM and EDF Invest

• MRG considers the financial strength as a essencial base to maintain strong solvency an liquidity ratios consistent

with investment grade rating. In this context, MRG increased the working capital and capex credit facility up to €175MM and issued €75MM bond under its €2bn EMTN Program

137,3 23,5 4,5 165,3 50 100 150 200 Regulated Remuneration Other Regulated Revenues Non-Regulated Revenues Total FY2016 €M

MRG Corporate Overview

• On March 15th Lancashire County Pension Fund entered into

the consortium formed by Gingko Tree Investment Ltd, PGGM and EDF Invest with 12.5% stake, all of them joining the same investment philosophy: stability and long term view

• On June 9th MRG entered into an agreement to purchase

42,000 piped Liquefied Petroleum Gas (LPG) connection points from Repsol to be converted into Natural Gas in the following years

• On first half of 2016 the company increased the working capital

and capex credit facility up to €175MM and issued €75MM bond under its €2bn EMTN Program

Key Corporate events Key Figures 2012-2016

Legal Structure

Revenue Breakdown (FY2016)

4 YE 30 June

Development of Connection Points (2011-2016)

YE 30 June

Source: MRG Source: MRG

176,8 177,3 180,8 166,1 165,3 82% 83% 83% 82% 81% 20% 40% 60% 80% 100% 50 100 150 200 250 300 FY2012 FY2013 FY2014 FY2015 FY2016

€M

Revenues EBITDA Margin

YE 30 June

Source: MRG

300 500 700 2011 2012 2013 2014 2015 2016

'000

822 830 835 839 845 853

MRG Shareholders

5

Source: Company Information

MRG is owned by a consortium of four experienced long-term infrastructure investors

• Created in July 2013 as the new investment arm of EDF investing in unlisted assets (primarily infrastructure along with

real estate and private equity)

• Part of an existing portfolio of €23bn “dedicated assets” to cover EDF’s nuclear plant decommissioning obligations
• Selected investments: RTE (French monopoly electricity operator), TIGF (leading gas transport and storage company in

France), Porterbrook (major rolling stock leasing company in the UK), Géosel (oil storage in France) and Thyssengas (German gas transport company in Germany)

• JCSS Mike SARL is an entity managed by Gingko Tree on behave of their ultimate beneficial owner
• Gingko Tree was established in 2010 to invest in infrastructure and real estate investments
• PGGM is a cooperative Dutch pension fund service provider offering its institutional clients pension fund management,

asset management, policy advice and management support, with over €200bn in assets under management as of September 2016

• PGGM has been active in infrastructure sector for over 10 years and has invested approximately €7.5bn in infrastructure

assets and companies worldwide as of September 2016

• Selected investments: Globalvia (a portfolio of road and metropolitan rail concessions in Spain and Latin America) and

Ennatuurlijk (one of the largest heating network portfolios in the Netherlands)

• Lancashire County Pension Fund is one of the largest funds in the Local Government Pension Scheme in the UK
• On 15 March 2016, it acquired a 12.5% stake in Elisandra IV, S.L which is the ultimate parent company of MRG

Aligned Investment Philosophy

• Long term owners looking to match investment returns to long term obligations
• Growth capital available
• Prudent approach to capital structure

Table of Contents

Executive Summary Operating Overview Financial Overview Main takeaways 3 7 10 14

Operating Overview

7

Key Operating Data Commentary

• MRG operates over 853,056 connection points as of closing of FY2016, with a net growth of 0.9% versus past fiscal year
• Network length grew by 1.6% up to c. 5,691 km over the existing municipalities
• Higher volume of gas distributed during the fiscal year has been driven by more normalized temperatures and economic cycle

recovery

• Liquefied natural gas (LNG) plants have been commissioned in two new municipalities within the MRG territory in order to

efficiently expand its distribution network

• Aligned with its business expansion strategy, MRG has entered into a Sale Purchase Agreement with Repsol for the

acquisition of the network and other related assets currently supplying c. 42,000 LPG connection points, with the intention to convert them into natural gas consumers within the following years

Source: MRG; Fiscal year ending on June 30

Units FY2015 FY2016 Change % Connection points # 845,588 853,056 0.9%

< 4 bar 845,489 852,965

0.9%

> 4 bar 99 91 (8%)

Gas distributed GWh 9,083 9,534 5%

< 4 bar 8,378 8,879

6%

> 4 bar 705 655 (7%)

Network length km 5,597 5,691 1.7% Municipalities (total) # 59 59

• New municipalities with active CPs

# 3 2 (33%)

MRG Key Initiatives

8

• MRG extended its network to the municipality of Vellón and started

the operation of two LNG plants, Valdetorres de Jarama, and Zarzalejo

• MRG has strengthen its commercial focus in the high consumption

segment of small and medium enterprises

• In order to incentive the replacement of old natural gas boilers and

the access to natural gas potential consumers, MRG has extended its cooperation with Asefosam (regional association of gas installers) and Comunidad de Madrid

• MRG network currently serves three public and seven private

compressed natural gas (CNG) stations, facilitating CNG supply to an increased number of vehicles in Madrid and enhancing the penetration of natural gas in this promising segment

MRG Committed to the Development of Natural Gas

Table of Contents

Executive Summary Operating Overview Financial Overview Main takeaways 3 7 10 14

Key Financials

10

Income Statement - €MM Commentary Commentary Cash Flow Statement - €MM

• EBITDA similar than FY15 as a reflection of stable regulatory

framework, better EBIT and NIAT driven by lower non recurring expenses and lower CIT rate

• Interest expense of €34.9MM fully reflect the recurring costs
• f MRG’s capital structure
• €500MM senior unsecured notes due Sep 2018
• €275MM senior unsecured notes due Dec 2023
• € 75MM senior unsecured notes due March 2031
• €175MM liquidity and capex revolving credit facility

due Feb 2020

• Cash flow available for debt service is reported at €102,1MM,

5% higher versus FY2015

• Lower income tax payments resulting from decrease in pre-

tax results and from application of temporary tax measures in place until FY2017

• Higher working capital, compensated by lower expansion

capex has contributed to increase cash generation

Source: MRG Source: MRG

12 month period ending 30 Jun

2015 2016 EBITDA 135.7 134.2 Income tax paid (18.3) (12.0) Working capital 0.8 (4.4) Capex (21.0) (15.7) Cash Flow Available for Debt Service 97.1 102.1

12 month period ending on 30 June

2015 2016 Remuneration 140.0 137.3 Other regulated revenues 21.9 23.3 Non-regulated revenues 4.1 4.7 Variable costs (12.8) (13.9) Overhead costs (17.6) (17.2) EBITDA 135.7 134.2 Margin 81.7% 81.2% EBIT 102.0 103.1 Margin 61.4% 62.5% Interest expense (34.3) (34.9) Income tax expense (20.0) (18.9) Net Income 47.6 49.3

Key Financials

11

• Other non current assets in FY2016 reflects the long term

tariff deficit with Gas System which, in accordance with Law 18/2014, shall be settled along a period no longer than 15 years

• The long term debt balance of MRG captures the on-loan

agreements with MRG Finance BV (issuer of outstanding unsecured notes):

• €500m 3,779% due September 2018
• €275m 4,500% due December 2023
• €75m 3,500% due March 2031

Commentary Balance Sheet - €MM

Source: MRG

12 month period ending on 30 June

2015 2016 Gas distribution licences 713.4 713.4 Net tangible fixed assets 367.3 355.8 Total Network Fixed Assets 1,080.6 1,069.1 Goodwill 57.4 57.4 Deferred Tax Asset 29.1 27.3 Other Non-Current Assets 29.6 29.9 Current Assets 19.0 47.3 Cash and cash equivalents 56.1 111.4 Total Assets 1,271.9 1,342.3 Equity 422.1 383.4 Long Term Debt 771.2 846.7 Deferred Tax Liabilities 26.9 30.4 Other Non-Current liabilities 1.2 1.3 Current Liabilities 50.5 80.6 Total Liabilities & Shareholders’ Equity 1,271.9 1,342.3

Capital Structure

12

September 2018 Bond December 2023 Bond March 2031 Bond Capex Facility Working Capital Facility

€125 MM €50 MM

(undrawn) (undrawn)

Coupon / Margin

3,779% 4,500% 3,500% Euribor + 100bps Euribor + 100bps 5 years 10 years 15 years 5 years 5 years

(September 2018) (December 2023) (March 2031) (February 2020) (February 2020)

BBB (S&P) BBB (S&P) BBB (S&P) BBB (Fitch) BBB (Fitch) BBB (Fitch)

Maturity Rating

N/A N/A

Size

€500 MM €275 MM €75 MM Investment grade bonds issued under MRG’s €2bn EMTN Program with different tenors and size

1

Capex and working capital facility provides a committed back up liquidity

2

Table of Contents

Executive Summary Operating Overview Financial Overview Main takeaways 3 7 10 14

Main takeaways

Stability in the regulatory framework resulted in a well balanced Gas System behaviour (deficit below 1% on revenues) Inorganic growth opportunity through acquisition of LPG networks (c. 42k CPs) at an attractive price, to be converted into natural gas in coming years Reaffirmed strong commitment of shareholders to a solid and efficient long term capital structure Efficient customer base growth, with lower capex requirements than expected

14

EBITDA and Free Cash Flow in line with expectations 1 4 5 3 2

Disclaimer

15 This presentation has been prepared by Madrileña Red de Gas, S.A.U. (the “Company”). Certain statements in this presentation are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described in this presentation. Forward-looking statements contained in this presentation that refer to past trends or activities should not be taken as a representation that such trends or activities will necessarily continue in the future. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as at the date of this presentation. It should be noted that the Company’s auditors have not reviewed the information in this presentation. This presentation (and its contents) are being made available on the basis that the information contained herein may not be reproduced, disclosed, redistributed

• r passed on, directly or indirectly, to any other person (unless he or she is affiliated with the recipient and has agreed to comply with these restrictions on

redistribution) or published, in whole or in part, for any purpose without the prior written consent of the Company. The distribution of this document in certain jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.