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Italgas Capital Markets Day / 4
November
Admission to listing by Borsa Italiana & publication of the Prospectus
Demerger and Listing
Last 3 months
Management structure
Banking financing commitments granted to Italgas
Shareholder’s and Noteholders’ approval
Today
Start management roadshow
Before listing
Execution of demerger legal documentations
Banking financial agreements signed
$
Key dates for demerger and listing
Italgas Capital Markets Day / 5
Closing Remarks
Italgas at a glance
Financial Structure
Strategy Market Overview
Agenda
Regulation Operational Excellence
Italgas Capital Markets Day / 7
Italgas is the leading gas distribution operator in Italy, with a
widespread and geographically diversified network of concessions
The leading Italian natural gas distributor…
* Calculated by redelivery points
** Annual Volume
Source: Companies reports at Year End 2015
~65,000 km Network length
~7.4 m Redelivery points
Gas distributed**
Employees
~8,000 km
~0.9 m
~8.0 bcm ~1.0 bcm
~3,700 ~400
OPERATING METRICS
(TOTAL) OF WHICH
AFFILIATES
Market share* 33.9% 3.6%
Concessions 1,578 106
Affiliates
Italgas Reti, NPG,
ACAM Gas
Italgas Capital Markets Day / 8
… with distinctive core competencies
More than 180 years
history leading gas
market
Extensive local
knowledge
Efficient management
of multiple projects
Constructive
relationship with
regulatory bodies
Innovation in
our DNA
Unrivalled network
expertise
Italgas Capital Markets Day / 9
Stable shareholder structure &
best practice Corporate Governance
CORPORATE GOVERNANCE
SHAREHOLDERS
Meeting
Board of
Statutory
Auditors
Board of Directors: 9 members
Independent members: 4 out of 9
Gender representation: 3 women out of 9
Compensation
Committee
Control
and risk
Committee
Sustainability
Committee
Appointments
Committee
SHAREHOLDERS STRUCTURE
3-years Shareholder Agreement
between Snam, CDP Reti & CDP Gas
Significant free float and liquidity
13.5% 26% 60.5%
Free
Float
CDP Reti &
CDP Gas
Italgas Capital Markets Day / 10
Napoletanagas
99.69%
Toscana Energia
48%
Acam Gas
100%
Umbria Distribuzione
45%
NON CONSOLIDATED AFFILIATES
0.85 bn€
Total RAB
Pro-quota Equity RAB of affiliates: € 0.2 bn
Metano
S. Angelo Lodigiano
50%
Corporate structure
Source: Expected group structure as of the listing date
Italgas
Italgas Reti
CONSOLIDATION AREA
Consolidated RAB: € 5.7 bn
100%
Italgas Capital Markets Day / 11
High quality client base
Baa1
BBB+
Others
22%
Baa2
BBB
Italgas major clients are investment grade
Baa3
BB+
2%
Baa2
BBB 8%
66%
2%
About 200 clients
(Sales companies)
Italgas Capital Markets Day / 12
Italgas investment case
* Expected BBB+ by Fitch/ provisional Baa1 by Moody’s
Highly visible returns and attractive dividend,
Coupled with significant accretive growth opportunities
Leader in gas
distribution
Uniquely
positioned to
increase market
share
Clear and
visible
regulation
Predictable
revenues and
returns
Operational
excellence
Proven
capabilities in
managing gas
networks
Value creating
strategy
Further efficiencies
Sizeable organic
capex plan at RAB
Market
opportunities
Solid Balance
Sheet
Solid Investment
Grade credit rating*
Fully funded plan
Significant financial
flexibility
Italgas Capital Markets Day / 14
Natural gas distribution operator
FINAL CONSUMERS
DISTRIBUTION ACTIVITY
TRANSMISSION ACTIVITY
GAS DISTRIBUTION VALUE CHAIN
Sales companies (shippers)
Distribution
network
Pressure reduction
station
Redelivery
points
RESIDENTIAL RETAIL INDUSTRY SERVICE
Italgas Capital Markets Day / 15
Very large 4%
Large 10%
Medium 9%
Small 51%
Very small
26%
Market evolution
Source: AEEGSI 2015
SCALE IS KEY IN THE ONGOING CONSOLIDATION PROCESS
Number of operators (YE2015)
Total = 29,240 mcm
Volumes distributed (FY2015)
Total = 227
730
430
227
2000 2005 2014 >2020E
STREAMLINING OF ITALIAN OPERATORS
Very large 59%
Large 23%
Medium 7%
Small 10%
Very small 1%
Low double-
digit
The market is still fragmented, with further consolidation
expected as transition towards the ATEM regime takes place
Number of operators
Very large (>500k clients) Large (>100k clients) Medium (>50k clients)
Small (>5k clients) Very small (<5k clients)
Italgas Capital Markets Day / 16
CZ
CS1
CE1
NA
4
NA
1
LT
RM
1
RM
2
CN
2
TO
4 TO
2
AO
TO
1
VE1
Italgas network
Source: Company elaboration
Data as of 2015
Strong geographical presence: 7 districts
& 50 operating centers
Concessions concentrated in contiguous
areas drive clear efficiency advantages
Rome concession, representing 1.3m
redelivery points (or 20% of total), will
expire in 2024
1,795
1,141
743
245
408
367
274
165
378
421 589
Other regions
Redelivery points by region
(thousand units)
>50% market share
>25%/<50% market share
>5%/<25% market share
Affiliates
Regions with
Italgas Capital Markets Day / 18
Current regulatory period
3 year updates of CAPM parameters
2016 2017 2018 2019 2020 2014 2022 2021 2015
IV Regulatory Period
(parameter set: beta, xfactor,
reference opex)
WACC Period
(parameters set: risk free rate,
country risk premium, inflation,
gearing, cost of debt, tax rate)
Regulatory Authority (AEGGSI) in Italy:
Defines the criteria for revenue calculations
and evaluates tariff proposals
Guarantees third-party access to
infrastructure
Sets the quality standards of the service
Current regulatory period to end-2019
The regulatory period for the allowed rate of
return, (lasting 6 years) in place until end-2021
with the mid-review effective in 2019
Clear and stable criteria driving visibility of returns over the period
Italgas Capital Markets Day / 19
Revenues composition
94%
4%
2%
FY 2015
1,027m€
44m€
27m€
>98% of revenues are
regulated
Performance
sustained by
additional regulated
revenue streams
* Activation, suspension and deactivation of the supply, safety checks to final customers, incentives and other technical services
** Water and heating distribution activities, services to affiliates & real estate rentals
Distribution allowed revenues
+ Other regulated services in gas distribution*
+ Other non-core revenues (low risk profile)**
Italgas Capital Markets Day / 20
Historical concession legislation
Vertically integrated
companies (sales and
distribution)
Concessions at single
municipality level
Award of concessions
mainly by private
tenders
Long term duration (30
years) with further
extensions
Right to redemption
Mandatory corporate
separation between
distribution and sales
activities
Award of concession
only through tender
process and with a
maximum duration of
12 years
Early expiry of
existing concessions
Ordinary
management of
existing concessions
until new awards
Exception for the
Southern Areas
Concessions tender
at single municipality
level with a duration
of 12 years
New ATEM and
calendar defined
Concession length set
at 12 years
Standard criteria to
evaluate the tenders
Employment
safeguard clause
ATEM: minimum geographical areas for gas distribution
BEFORE GAS
MARKET
LIBERALIZATION
GAS MARKET
LIBERALIZATION
(Letta decree 2000)
TEMPORARY
PERIOD
MINISTERIAL
DECREE 226/2011
Italgas Capital Markets Day / 22
Strategy for value creation
Uniquely positioned to drive further efficiencies
leveraging on our competitive cost base
Clear strategy to implement financial efficiencies
Concession tenders opportunity to reach ~40%
market share
Active portfolio management
Capital deployed at RAB value Organic capex
plan 2
Market
opportunities 3
Efficiencies 1
Italgas Capital Markets Day / 23
Main areas of efficiency (opex and capex)
Workforce and operations
Increasing productivity through the improvement of working practices
Leveraging on «make or buy» mix
Optimizing metering management (traditional and smart)
ICT
Exploiting all economies of scale
Contract renegotiations
Improving continuously technology innovation (ICT and telecom)
Facility
Utilities cost reduction
Facility management optimization (i.a. real estate, transport)
Smart meters
Optimizing smart meters supply cost, levereging on volumes
Technology innovation
Asset management
Exploiting all economies of scale
Restructuring contracts of network maintenance and expansion
Efficient capital
deployment
Opportunity to further
outperform
parametric opex, at
least recovering
spin-off emerging
costs in the plan
period
1
Italgas Capital Markets Day / 24
48%
43%
9%
52%
31%
17%
Significant organic investment plan 2016-2020
€ ~0.4 bn € ~1.6 bn
CAPEX 2017-2020 CAPEX 2016
(over the plan period, capital deployed at RAB value)
Metering
Network
Other
Smart metering
Large size (>G6): ~40,000 meters in the 2016-2019 period
Mass market (G4-G6): ~4.7m of meters installed in the 2016-19
period, 50% smart meters installed by 2018
Network development
Expansion/Development of networks: ~520km of new pipelines
New networks: completion by 2018 of the natural gas-
connection program for the South (~120km of new pipelines)
Network maintenance
Completion of the replacement of the cast iron pipelines with
lead joints (~34 km of new pipelines)
Replacement of ~250 km of cast iron pipelines and spheroidal
cast iron
Replacement/revamping of ~435km of other pipes
Metering
Network
Other
€ 2 bn organic investment at RAB remuneration >6%*
* According to the current regulatory framework
2.0 bn€ CAPEX (>35% of 2015 RAB)
2
Italgas Capital Markets Day / 25
Italgas tender selection
Market share of major operators
in the ATEM, number and type of
operators
Weight of Italgas’ Redelivery
Points (RDPs) on total RPDs in
the relevant ATEM
Italgas’ presence in nearby
ATEMs
Italgas presence
in the ATEM
Type of
operators &
Fragmentation
Geographical
Proximity
Cost base lower than peers.
Best practice applied in the new
concessions
Competitive cost of capital
Conservative win-rate target
considered in the plan
Flexibility in
tender selection
Competitiveness
Well positioned to increase market share and underpin profitability
in the medium term
Dedicated skilled staff to manage the
bidding process
Deep knowledge of legislative framework
Bidding process
Strenghts Criteria
3
Italgas Capital Markets Day / 26
Italgas position in the new ATEMs
Italgas current market share in
each ATEM
Solid platform to increase market share
Italgas owns 6.5 m redelivery
points
Italgas is present in 113 ATEMs
(out of 177)
Italgas
Affiliates
75%
17%
8%
Relevant position (25%< ATEM market
share <50%)
Leader (redelivery points in ATEM where
market share is >50%)
Minor position (ATEM market share <25%)
N. of
Redelivery
points
3
not present
market share<25%
25%<marketshare <50%
market share>50%
~40 ATEMs
~30 ATEMs
~45 ATEMs
~65 ATEMs
Italgas Capital Markets Day / 27
Tender process
Tender
Published
Tender
offer Award
Tender
evaluation
Systems acquisition
process
Pre-tenders
fulfilments
Bid
preparation
6 months
Start
activities
3 - 6 months 6 - 18 months
Concession period
12 years
1 – 2 years
3
Italgas Capital Markets Day / 28
New tenders for natural gas distribution
concessions
ITALGAS STRONG
POSITION
Solid balance sheet
Reliable cash flow
Sustainable organic
business Italgas well
positioned
for new
tenders
opportunities
3
NEW TENDERS
ADVANTAGES
Drive efficiencies
Further economies of
scale
Rationalization of
concessions portfolio
Deploy capital at
attractive return
Italgas Capital Markets Day / 30
Cost based on current market conditions
[*For the drawn amount. Ca. 0.15% for the undrawn amount]
Ready to repay the bridge to bond
relying on favourable debt capital
markets in the current low rate scenario
Fix/Floating breakdown: 2/3 after the
Bridge-to-Bond repayment
Average spread
on Euribor
Competitive cost of debt at demerger
Average spread ~0.5%
(€bn)
ca. 0.3%
ca. 0.3%
ca. 0.5%*
ca. 0.7%
Average spread
on Euribor
Total committedbanking facilities
up to 2Y
1-3Y
3-5Y
~ 10Y
4.3
Bridge to Bond Bilateral facilities
Revolving credit
facilities Institutional lenders
financing
2.3
0.5
1.1
0.4
Italgas Capital Markets Day / 32
2016 Guidance and mid term evolution
Expected to grow in line with capital deployment
opportunities following organic capex and new
tender process
Opportunities for further cost optimization
Room to outperform cost of capital
Sustainable over the medium term
FY2017 – FY2018: low single-digit yearly increase
2016 PRO-FORMA
CONSOLIDATED RESULTS
Revenues
Ebitda margin
EBIT/RAB
DPS 2016
65%
>6%
>1.0 Bn€
€ 20 cent
MID-TERM
Italgas Capital Markets Day / 33
Value drivers for profitable and sustainable
mid-term growth
Sustainable and attractive dividend policy
Coupled with significant accretive growth opportunity
Operational
excellence and
best practice
efficiency
Clear and
visible
regulation
Leader in
Gas distribution
with proven
capabilities in
managing gas
networks
Solid balance
sheet secures
fully funded plan
and financial
flexibility
Organic capex
at RAB value
and market
opportunities
Italgas Capital Markets Day / 35
Corporate structure
Source: Company information
Note: Data as of 2015; 1 Data includes AES Torino
Napoletanagas
99.69%
Toscana Energia
48% (not consolidated)
Metano
S. Angelo Lodigiano
50%
Operates in Campania (including Naples,
Benevento and Caserta)
5.4k km of network
133 concessions
549 mcm gas distributed in 2015
743k users
Gas distribution in La Spezia area
(Liguria)
1.2k km of network
29 concessions
110k users
50.1k km1 of distribution network
7.0 bcm1 distributed
5.7m1 final users
1,3101 concessions
Gas distribution mainly in the Lodi region
10k customers
Acam Gas
100%
Umbria Distribuzione
45%
Gas distribution in the municipality of Terni
50k customers
Leader in gas distribution in Tuscany
7.7k km of distribution network
1,023 mcm gas distributed in 2015
790k users
Also active in street lighting and electricity
generation
Italgas
Italgas Reti
CONSOLIDATION PERIMETER
Italgas Capital Markets Day / 36
Toscana Energia:
a strategic industrial
partnership
Governance agreement grants the
right to Italgas to appoint the CEO
104 concessions in Tuscany
Consolidated with equity method
Contributing >7% to Italgas 2015
pro-forma net income
Italgas Reti
48%
2015 key data
Revenues Net Income Capex
c. 125 m€
c. 40 m€
157 m€
Redelivery
points
Toscana Energia
Employees
432
790 k
Italgas Capital Markets Day / 37
Disclaimer
This presentation (the “Presentation”) is for information purposes only. The contents of this Presentation may not be copied, distributed, published or reproduced
in whole or in part. The document is to be used by the intended recipients only and the document may not be forwarded to a third party.
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. Any
failure to comply with this restriction may constitute a violation of U.S. securities laws.
This Presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe or sell for, or
any offer to underwrite or otherwise acquire any shares in Italgas S.p.A. (“Italgas”) or Snam S.p.A. (“Snam”) any other securities, nor shall the Presentation form
the basis of or be relied on in connection with any contract or investment decision relating thereto, or constitute a recommendation regarding the securities of
Italgas or Snam or any other company or a proposal or an undertaking to enter into an agreement or a commitment to any kind of obligation.
This Presentation does not purport to be comprehensive. Anyone reviewing this Presentation and considering an investment decision regarding the securities of
Italgas or Snam or having any doubt about the contents of this Presentation, should obtain independent professional advice.
No representation or warranty, express or implied, is given by or on behalf of and no liability whatsoever is accepted by Italgas or Snam or any of their directors,
officers, advisers, agents or employees, nor any other person as to the accuracy, truthfulness, fairness, materiality or completeness of the information or opinions
contained in this Presentation.
This Presentation contains forward-looking statements regarding future events and the future results of Italgas that are based on current expectations, estimates,
forecasts, and projections about the industries in which Italgas operates and the beliefs and assumptions of the management of Italgas. Italgas’ actual results
may differ materially and adversely from those expressed or implied in any forward-looking statements.
This Presentation speaks as of its date and will not be updated. Recipients should not treat the contents of this Presentation as advice relating to legal, taxation or
investment matters, and are to make their own assessments concerning these and the other consequences of the various investments, including the merits of
any investment and the relevant risks.