Affinity Water Investor Presentation

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Affinity Water Investor Presentation 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 Regulated asset under — Operates as a regional monopoly 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 Robust operational — Strong ranking on SIM performance metrics 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 investors with long‐term investment horizon Morgan Stanley —Track record as strategic investors in a range of core infrastructure and utilities Infrastructure Partners 40% — Detailed knowledge of UK water sector Beryl Datura Investments 10% —Previous 100% owner retaining stake — Capability sharing arrangements established to facilitate continued access to 10% 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 6 RCV as of 31st March 2012 based on 2011/12 financial year‐end prices 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 Company (WaSC) area —Employs c. 897 people (with grand total of 1,167 including AWSS as at 31st Dec United 2012) Utilities Yorkshire — Supplies a population of c. 3.49 million Cambridge —Operates 16,500 km of water mains Dee Valley 1 Affinity Water 2 Affinity Water 3 Affinity Water South Staffordshire (Central Region) (East Region) (Southeast Region) Severn Anglian Trent Dwr Cymru A1 M11 M20 (Welsh) Thames 1 2 M1 Northumbrian M25 Bristol London M40 Cholderton & District Southern 3 Wessex M4 South West M3 M20 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) Ardleigh (20%*) Horsley Cross (80%*) 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 & & East East East East Valley Valley Water Bristol Water Bristol & & Ham Ham Surrey Surrey Dee Dee South South Cambridge Cambridge Portsmouth Portsmouth W. W. Staffordshire Staffordshire Sutton Sutton Affinity Affinity Bournemouth Bournemouth South South Source: Ofwat and companies’ regulatory accounts 12 1 Nominal values as of 31st March 2012 based on regulatory accounts 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 — Affinity Water received a challenging PR09 settlement: —New management team put in place to drive business —Required improvements in operating efficiency; and performance following the final determination —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 Water Company 3 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 Asset — Control of the money Achieved “Stable” for Performance in its history Ofwat serviceability Management — Control of the assets measure in 2011/12 Achieved Leakage target 2010/11 Leakage c.15% below Ofwat target 2011/12 July 27th, — Establish Community £5.5m Head count reduction – unification of the Operations Procurement savings annual 40 FTE regulated to improve control and savings businesses Customer effectiveness experience Contractor reduction — Review 23 customer facing business processes SIM performance 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/ 2008 240 240 240 prices) 200 200 200 160 160 160 120 120 120 80 80 80 Key 40 40 40 Outturn Ofwat 0 0 0 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 AMP5 SIM Performance SIM scores 100 85.1 84.7 85.4 84.1 84.0 83.0 79.7 78.6 78.2 78.1 78.0 77.7 77.7 77.0 80 70.4 100) 69.9 67.0 66.9 65.0 64.6 62.6 of 60 56.2 (out 40 score 20 SIM 0 |X East East East West Trent Staffs South Valley Water & Bristol East United Central Anglian Utilities Wessex Thames AW AW Southern Yorkshire Surrey AW Dee South Cambridge South AW Portsmouth South Sembcorp Severn (Aggregated) Welsh Sutton Northumbrian Bournemouth SIM score 2011/12 SIM score 2011/12 (*Aggregated) —Initiatives have been implemented
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