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2i Rete Gas - Infrastructure Day 2014

2irg is the second largest player in the Italian gas distribution market, managing a network of approximately 57,000 km and serving around 3.8 million customers across 1,961 municipalities. The company has experienced significant growth through acquisitions and is well-positioned for future expansion via upcoming tender processes for gas distribution areas. Financially, 2irg aims to maintain a solid investment-grade credit profile while implementing a strategic investment plan focused on smart metering and operational efficiencies.

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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 Total post Colombo … Camigas Gruppo Brianza Erogasud Sicim Edilgeo Comedigas Metansud Sogegas Impregest SGM Agas Gruppo Ripamonti Gruppo Marcotti Gruppo Camuzzi Sicilmetano Ottogas Italgestioni Metanodotti Padani Simeo Metansicula GP Gas E.On Rete G6 Rete Gas Total 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) 715 730 470 398 318 2009 2010 2011 2012 2013 367 383 271 225 161 2009 2010 2011 2012 2013 238 216 163 125 61 2009 2010 2011 2012 2013 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 Total ATEM 177 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 underwrite, subscribe for or otherwise acquire or dispose of, any debt or other securities of the Company, Holdcos or any of its subsidiaries (“securities”) and is not intended to provide the basis for any credit or any 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 invitation is made, it will be done so pursuant to separate and distinct documentation in the form of a prospectus, or a translation of the prospectus into English language (a “prospectus”) and any decision to purchase or subscribe for any securities pursuant to such offer or invitation should be made solely on the basis of such prospectus and not this Presentation. The information and opinions contained in this Presentation are provided as at the date of this presentation and are subject to change without notice. This Presentation is not an offer of securities for sale in the United States or any other jurisdiction. Neither this Presentation nor any part or copy of it may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States as that term is defined in the U.S. Securities Act of 1933, as amended (the “Securities Act”). Neither this Presentation nor any part or copy of it may be taken or transmitted into Australia, Canada or Japan, or distributed directly or indirectly in Canada or distributed or redistributed in Japan or to any resident thereof. Any failure to comply with this restriction may constitute a violation of U.S., Australian, Canadian or Japanese securities laws. The distribution of this Presentation in other jurisdictions may be restricted by law and persons into whose possession this Presentation comes should inform themselves about, and observe, any such restrictions. The Company’s securities have not been and will not be registered under the Securities Act and may not be offered or sold in the United States except pursuant to an exemption from, or transaction not subject to, the registration requirements of the Securities Act. This Presentation includes certain forward looking statements, projections, objectives and estimates reflecting the current views of the management of the Company with respect to future events. Forward looking statements, projections, objectives, estimates and forecasts are generally identifiable by the use of the words “may”, “will”, “should”, “plan”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “project”, “goal” or “target” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts, including, without limitation those regarding the Group's future financial position and results of operations, strategy, plans, objectives, goals and targets and future developments in the markets where the Group participates or is seeking to participate. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward -looking statements as a prediction of actual results. The Company's ability to achieve its projected objectives or results is dependent on many factors which are outside management's control. Actual results may differ materially from (and be more negative than) those projected or implied in the forward-looking statements. Such forward-looking information involves risks and uncertainties that could significantly affect expected results and is based on certain key assumptions. All forward-looking statements included herein are based on information available to the Company as of the date hereof. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. This Presentation is strictly confidential and is being provided to you solely for your information and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose without the prior written consent of the Company. By attending this Presentation you agree to be bound by the foregoing limitations and represent that you are a person who is permitted to receive information of the kind contained in this Presentation. Furthermore, by attending this Presentation you represent being aware of all requirements and limitations provided by applicable securities laws and regulations regarding the distribution and dissemination of information or investment recommendations and you undertake not to breach any of such provisions. None of the Company, or any of their respective affiliates, members, directors, officers or employees 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, including any liability deriving from the breach by you of your duty to confidentiality. This Presentation is exempt from the general restriction (in section 21 of Financial Services and Markets Act 2000) on the communication of invitations or inducements to engage in investment activity pursuant to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "FPO") on the grounds that it is intended for distribution in the United Kingdom only to persons who (i) are qualified investors (within the meaning of the Prospectus Directive 2003/71/EC) and (ii) who have professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the FPO and/or to high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2)(a) to (d) of the FPO or to those persons to whom it may otherwise be lawfully communicated (in each case referred to as "Relevant Persons"). The information contained in this Presentation is not intended to be viewed by, or distributed or passed on (directly or indirectly) to, and should not be acted upon by any class of persons other than Relevant Persons. It is a condition of your receiving this Presentation that you represent and warrant to the Company that (i) you are a Relevant Person; and (ii) you have read and agree to comply with the contents of this notice. In the event that a person who is not a Relevant Person receives this Presentation, such person should not act or rely on this Presentation. Neither the Company, not any other member of the Group or affiliates, nor any adviser or person acting on their behalf shall (without prejudice to any liability for fraudulent misrepresentation) have any liability whatsoever for loss however arising, directly or indirectly, from the use of information or opinions communicated in relation to this Presentation.

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2i Rete Gas - Infrastructure Day 2014

  • 1.
    September 9th, 2014 Investor Presentation
  • 2.
  • 3.
    3 2iRG ata 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.
    4 Overview ofItalian 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.
    5 Italy isthe 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.
    6 Market Sharesby 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.
    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.
    8 Main acquisitionscompleted: 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 Total post Colombo … Camigas Gruppo Brianza Erogasud Sicim Edilgeo Comedigas Metansud Sogegas Impregest SGM Agas Gruppo Ripamonti Gruppo Marcotti Gruppo Camuzzi Sicilmetano Ottogas Italgestioni Metanodotti Padani Simeo Metansicula GP Gas E.On Rete G6 Rete Gas Total Acquisitions And Integrations Completed Successful track record of business integrations Significant experience in delivery integration targets ~120 companies acquired
  • 9.
    9 Growing financialperformance Revenues (1) (in € m) Fully regulated revenues and EBITDA Data referred to 2i Rete Gas only EBITDA (in € m) EBIT (in € m) 715 730 470 398 318 2009 2010 2011 2012 2013 367 383 271 225 161 2009 2010 2011 2012 2013 238 216 163 125 61 2009 2010 2011 2012 2013 Source: Company data. Note: (1) Net of IFRIC 12 effect
  • 10.
    10 Supporting growthand 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€
  • 11.
  • 12.
    12 Gas distributionmarket 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 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 Total ATEM 177 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.
    14 First pioneerin 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.
    15 Source: Companydata 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.
    16 Disciplined investmentpolicy 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.
    17 Growth sustainedwith 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
  • 18.
  • 19.
    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.
    20 Disclaimer Thispresentation 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 underwrite, subscribe for or otherwise acquire or dispose of, any debt or other securities of the Company, Holdcos or any of its subsidiaries (“securities”) and is not intended to provide the basis for any credit or any 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 invitation is made, it will be done so pursuant to separate and distinct documentation in the form of a prospectus, or a translation of the prospectus into English language (a “prospectus”) and any decision to purchase or subscribe for any securities pursuant to such offer or invitation should be made solely on the basis of such prospectus and not this Presentation. The information and opinions contained in this Presentation are provided as at the date of this presentation and are subject to change without notice. This Presentation is not an offer of securities for sale in the United States or any other jurisdiction. Neither this Presentation nor any part or copy of it may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States as that term is defined in the U.S. Securities Act of 1933, as amended (the “Securities Act”). Neither this Presentation nor any part or copy of it may be taken or transmitted into Australia, Canada or Japan, or distributed directly or indirectly in Canada or distributed or redistributed in Japan or to any resident thereof. Any failure to comply with this restriction may constitute a violation of U.S., Australian, Canadian or Japanese securities laws. The distribution of this Presentation in other jurisdictions may be restricted by law and persons into whose possession this Presentation comes should inform themselves about, and observe, any such restrictions. The Company’s securities have not been and will not be registered under the Securities Act and may not be offered or sold in the United States except pursuant to an exemption from, or transaction not subject to, the registration requirements of the Securities Act. This Presentation includes certain forward looking statements, projections, objectives and estimates reflecting the current views of the management of the Company with respect to future events. Forward looking statements, projections, objectives, estimates and forecasts are generally identifiable by the use of the words “may”, “will”, “should”, “plan”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “project”, “goal” or “target” or the negative of these words or other variations on these words or comparable terminology. 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Such forward-looking information involves risks and uncertainties that could significantly affect expected results and is based on certain key assumptions. All forward-looking statements included herein are based on information available to the Company as of the date hereof. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. This Presentation is strictly confidential and is being provided to you solely for your information and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose without the prior written consent of the Company. 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