Carlo Michelini - F2i Presentation, Yielco, March 2014
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F2i, established in 2007, is Italy's largest infrastructure asset manager, managing significant projects including airports and gas distribution networks, with a total AUM of €2.5 billion. Italy's robust infrastructure, highlighted by extensive water and gas distribution systems, presents attractive investment opportunities, especially in sectors ripe for consolidation and privatization. The document also discusses specific investment cases and expected returns, illustrating the potential for growth and value creation within the Italian infrastructure landscape.
Carlo Michelini - F2i Presentation, Yielco, March 2014
- 1. 1 Infrastructure in Italy – A Case of Misperception of Risk? 27 March 2014 GESAC HfV Enel Rete Gas Mediterranea delle Acque SEA Mediterranea delle Acque Enel Rete Gas Metroweb
- 2. 2 Introduction to F2i F2i was created in 2007 by the main Italian public and private financial institutions to facilitate local privatisation and infrastructure spin-offs from the largest Italian groups F2i has launched its Second Fund, with total Fund target size € 1,2 bn ‒ With tiotal AuM equal to € 2,5 billion, F2i is the largest Italian infrastructure asset manager and one of the most important in Europe ‒ Its portfolio includes some of the major Italian infrastructure (such as the Milan airports, the broadband Milan network, the second largest Italian gas distribution company) ‒ Its Sponsors include: State-owned bank Cassa Depositi e Prestiti; the two largest Italian Banks (Banca Intesa San Paolo and Unicredit); some of the largest Banking Foundations; two Italian Pension Funds; and one major European asset manager (Ardian) ‒ 35 strong management team with decades of experience in infrastructure, led by Vito Gamberale (40 years of experience in the sector)
- 3. 3 8th largest country in the World in GDP terms* 3d largest economy in the Euro zone in GDP terms* 32% of GDP is exported 60 million inhabitants 4.4 million SMEs, one of the largest European industrial areas 100industrial districts, producing about 1/3d of Italian manufacturing 90 universities, some of the oldest in the World 47 UNESCO sites of outstanding cultural and historical significance Why Italy? Italy ranks 3d in the Euro zone in GDP terms * Source : Prometeia, data as of 2012
- 4. 4 F2i – Why infrastructure in Italy ? Italy has a solid infrastructure endowment… 300’000 km water distribution networks 252’266 km gas distribution networks 150’000 km sewage networks 146 million airport passengers 41 GW renewable energy generation capacity 24’000 km of rail network (1’370 km high speed) 180’000 km national roads and 6’700 km highways 3 hub ports and 21first-level commercial ports * Source : Prometeia, data as of 2012
- 5. 5 Italy presents various cases in which it excels for its engineering and architectural skills, that allow it to carry out cutting edge works …with examples of engineering excellence… High Speed Rail It consists of two lines connecting most of Italy’s major cities (first line connects Turin to Naples, second Turin to Venice). These lines operate at top speeds of over 300 km/h. Several projects are underway to expand the system. Plan include both more domestic connections and new international connections Mose Project The Mose (Modulo Sperimentale Elettromeccanico) flood protection project is currently being built to protect Venice and its historic city center from high water Moving flood barriers are being erected at the three inlets of Lido, Malmocco and Chioggia that connect the Venetian Lagoon with the Adriatic Sea The project is absolutely unique in the world
- 6. 6- 6 Terna – premium/(discount) evolution on RAB I REGULATORY PERIOD(1) 2004-2007 Regulatory wacc: 6.7% II REGULATORY PERIOD(2) 2008-2011 Regulatory wacc : 6.9% III REGULATORY PERIOD(3) 2012-2015 Regulatory wacc : 7.4% Financial crisis Introduction of Robin Hood Tax for companies operating in regulated sectors 4,209 4,369 5,307 5,402 4,987 6,243 6,305 5,648 6,693 9.8% 1.9% 10.7% (7.3%) (3.0%) 8.5% 6.7% (0.7%) 3.7% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Market capitalization - average of the year (€m) Premium/(discount) on RAB (%) Note: Premium / (discount) on RAB calculated considering the RAB of the period compared with the implied EV in the average market capitalization of the year, adjusted for the value of non-regulated assets (including non- controlling interests in non regulated Brazilian companies, photovoltaic other non-core minor assets) and their impact on NFP …with rational regulatory frameworks
- 7. 7- 7 Snam – premium/(discount) evolution on RAB II REGULATORY PERIOD(1) DISTRIBUTION 2004-2008: Regulatory wacc : 7.5% TRANSPORT 2005-2009: Regulatory wacc : 6.7% III REGULATORY PERIOD(2) DISTRIBUTION 2009-2012: Regulatory wacc 7.6% METERING 2009-2012: Regulatory wacc 8.0% TRANSPORT 2010-2013: Regulatory wacc 6.4% Financial crisis and acquisition of Italgas and Stogit Introduction of Robin Hood Tax for companies operating in regulated sectors Separation of Snam from ENI 8,606 7,101 8,655 8,227 11,105 12,917 13,683 11,863 12,308 19.4% 4.3% 20.0% 14.1% (6.2%) 2.2% 5.9% (1.7%) 2.2% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Market capitalization - average of the year (€m) Premium/(discount) on RAB (%) Note: Premium / (discount) on RAB calculated considering the RAB of the period compared with the implied EV in the average market capitalization of the year, adjusted for the value of non-regulated assets (including non- consolidated interests in gas distribution, district heating activities, interest in the UK interconnector and other non-core minor assets) and their impact on NFP …with rational regulatory frameworks…
- 8. 8 7.9x 8.8x 11.4x 8.1x 7.9x 12.3x 8.2x 8.9x 8.0x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 9.2x 10.3x 9.6x 10.7x 9.0x 9.2x 9.0x 6.2x 8.2x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x Intergas Energie N.V. Vattenfall Finland Open Grid Europe Total Infrastructures Gaz France Net4Gas Italgas Enel Rete Gas E.On Rete Gas G6 Rete Gas 18.1x 11.4x 16.6x 12.3x 13.8x 9.4x 8.0x 7.7x 12.0x 9.6x 8.2x 5.9x 9.1x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 9.3x 16.7x 16.5x 15.2x 10.6x 8.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x Gatwick Airport Edinburgh Airport Stansted Airport ANA Gesac SAGAT …and attractive pricing: quality Italian assets are underpriced compared to other European countries Airports : majority transactions EV/EBITDA multiples Wheighted average global transactions: 14.4x Wheighted average Italian transactions: 9.9x Airports : minority transactions EV/EBITDA multiples Gas : majority transactions EV/EBITDA multiples Wheighted average global transactions: 12.7x Wheighted average Italian transactions: 8.9x Water : all transactions EV/EBITDA multiples Wheighted average global transactions: 11.0x Wheighted average Italian transactions: 8.2x Wheighted average global transactions: 9.9x Wheighted average Italian transactions: 8.9x
- 9. 9 Asset Premium vs. Gov. Bond 10Y MDA Water 9,3% SEA II Airport 10,0% TRM Waste-to-Energy 8,0% SIA Technology Infrast. 9,9% ERG II Gas Distr. 8,8% Average 9,2% Sector Risk premium between government bonds and infra investments ─ F2i’s IRR expectations show an average premium (~9%) to Italian Government Bonds 10Y higher than UK and Germany (~ 7- 8%). Asset Country Sector NWG UK Water Thames UK Water Stansted UK Airport SESW UK Water Phoenix UK Gas Distr. Average UK OGE GER Gas Transp. 6.8% 7.1% 7.9% 7.3% 8.6% Premium vs. Gov. Bond 10Y 8.0% 9.2% 0% 3% 6% 9% 12% 15% ITA Gov. Bond 10Y SIA ERG II SEA II TRM Infra investments return vs. Government Bonds in Italy... … and in Europe Roumored IRRs 0% 3% 6% 9% 12% 15% UK Gov. Bond 10Y GER Gov. Bond 10Y Oct. 2011 Oct. 2012 Oct. 2013 Stansted Airport UK Phoenix Gas Distr. UKOGE Gas Transp. GER NWG Water UK Thames Water UK SESW Water UK Oct. 2011 Oct. 2012 Oct. 2013 F2i Fund I and Fund II Investments (in portfolio) and expected IRR (1). F2i Fund II Investments (ERG II concluded and SIA expected to be formally closed by April 2014) and expected IRR (2). (1) Expected IRRs represent the expected return as at 31 December 2012. (2) Expected IRRs represent the expected return at signing. MDA
- 10. 10 A comparison in the water sector ─ The spread between the expected IRR for F2i in the water sector in Italy and the one expected in the UK market, is justified both from the gap in the risk free rate (i.e. country risk premium) and the specific asset risk. 4,5% 2,2% 9,3% 7,8% 0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 14,0% 16,0% Expected IRR - F2i Water Expected IRR - UK Water 13,8% 10,0% Spread between Italian and UK GovernmentBonds of approx. 230 bps Spread relating to the different risk between Italian and UK water business of approx. 150 bps
- 11. 11 Market dislocations, financial constraints, regulatory changes, liberalizations and privatizations are fueling an important flow of quality opportunities in Italy, particularly in these sectors : Italian infrastructure includes sectors of particular attractiveness • Well established RAB-base regulation allowing strong margins and cash generation • Significant opportunities for consolidation among 250+ gas distributors • Asset fragmentation • Ample potential in revenue and cost synergies through coordinated management of several facilities • Focused roll-out of ultrabroadband infrastructure in selected urban centers • Substantial opportunities in mobile telephony and broadcasting towers, due to divestments by incumbents • Strong trend to develop more waste processing facilities, green and brownfield opportunities • Highly fragmented market, with the first nine operators capturing only 9% total market share Gas Toll roads Telecoms Waste Airports • Opportunity to create a large operator in a core infrastructure sector by participating in selected privatizations • Italian water network is obsolete, with average distribution losses of 37% and insufficient coverage • Sector is highly fragmented, with thousands of local operators and only few national playersWater • Disposal opportunities from over-leveraged utilities in a favorably regulated sector • Acquisition opportunities in renewable energy generation due to sector fragmentation and sub-optimal operator scalePower
- 12. 12 Enel Rete Gas GESAC Enel Rete Gas SEA
- 13. 13 Mediterranea delle Acque HfV Metroweb Mediterranea delle Acque
- 14. 14 Acquisition of 100% stake in Enel Rete Gas Co-investor: AXA Private Equity (28%) Date: May 2009 EV €1’447 million Date: December 2013 EV €2’450 million Type: brownfield Second largest gas distributor in Italy Enel Rete Gas Market share (%) 11 Clients (million) 2.23 RAB (€ million) 1’565 Turnover (€ million) 396 EBITDA (€ million) 230 Pipe network (km) 32’946 Municipalities 1’213 Acquisition of 100% stake in E.On Rete Co-investor: AXA Private Equity (25%) Date: April 2011 EV €255 million Type: brownfield Seventh largest gas distributor in Italy Enel Rete Gas + E.ON Rete ∆ Market share (%) 13 +18% Clients (million) 2.79 +25% RAB (€ million) 1’864 +19% Turnover (€ million) 528 +33% EBITDA (€ million) 274 +19% Pipe network (km) 41’539 +26% Municipalities 1’479 +22% Acquisition of 100% stake in G6 Rete Gas Co-investor: AXA Private Equity (25%) Date: September 2011 EV €742 million Type: brownfield Sixth largest gas distributor in Italy Enel Rete Gas + E.ON Rete + G6 Rete Gas ∆ Market share (%) 17 +55% Clients (million) 3.81 +71% RAB (€ million) 2’588 +65% Turnover (€ million) 689 +74% EBITDA (€ million) 360 +56% Pipe network (km) 57’237 +74% Municipalities 1’962 +62% F2i – Case studies – Fund I and & II investment Enel Rete Gas – consolidation into Italy’s second largest gas distributor
- 15. 15 Investment rationale • Second largest gas distributor in Italy, with 11% market share in 2009 • Predictable revenue streams from regulated activities • Strong cash generation • Ideal platform to lead consolidation strategy in Italian gas distribution sector, in order to reach similar industry structure as in other European countries Investment overview • Description: Enel Rete Gas is the second largest gas distributor in Italy • Deal source: Tender process • ERG investment dates: September 2009 (€279m for 63.8%) and December 2013 (€50.6m for 8.1%); F2i total ownership is 72% • Co-investor: Axa Private Equity (28% ownership) • Add-on investment dates: E.ON Rete 04/2011 (€71m for 100%); G6 Rete Gas 09/2011 (€68m for 100%) Value creation Actions • Led two major acquisitions to build a group with 17% market share • E.ON Rete : seventh largest • G6 Rete gas : sixth largest • Integrate and rationalize group • Integrate management, structure roles & responsibilities • Internalize specific services previously out-sourced to Enel • Rationalize field operations • Harmonize processes and use of best practices • Integrate and upgrade IT systems • Market leader in terms of • Revenue per client • Technical quality (AEEG incentives) • Network inspection • Average time for rapid intervention • Non-standard services • Lead innovation, service quality and safety Results above expectations • Synergies over 2x higher as initially forecast and significant cost reduction • Consolidated group results are above budget in turnover, EBITDA and EBIT in 2012 • €314.5m distributed in total to shareholders by ERG in 2010-2013 • Net financial position substantially improved Key Statistics 2009 2010 2011 2012 2013e Revenue (€m) 318 361 629 689 685 EBITDA (€m) 161 189 323 360 370 Margin (%) 51% 52% 51% 52% 54% Dividend strategy and exit • Optimize dividend flows • Exit through IPO or sale to strategic buyer 10 Largest LBOs in Europe 2009 (Bloomberg) F2i – Case studies – Fund I and & II investment Enel Rete Gas – consolidation into Italy’s second largest gas distributor
- 16. 16 F2i – Case studies F2i Airports Network – 37% of total Italian passengers traffic Acquisition of 70% stake in Gesac Date: 12.2010 + 02.2011 EV €225 –164 million (weighted average € 221 million) Airport: Naples Type: Brownfield 7th largest airport by passengers GESAC Market share (%) 3.9 Passenger (million) 5.8 Turnover (€ million) 71 EBITDA (€ million) 22.9 EBITDA Margin 32% Acquisition of 44.3% of SEA in two steps Date: 12.2011 + 12.2012 EV €1.68 - 1.41 billion Airports: Milan Malpensa & Linate, (Bergamo indirectly) Type: Brownfield 2nd largest hub by passengers SEA* Market share (%) 19 Passengers (million) 28 Turnover (€ million) 621 EBITDA (€ million) 141.5 EBITDA Margin (%) 23% Acquisition of 50.79% stake in Sagat Date: December 2012 EV €117 million Airports: Turin, (Bologna indirectly) Type: Brownfield 12th airport by passengers SAGAT* Market share (%) 2.4 Clients (million) 3.5 Turnover (€ million) 63 EBITDA (€ million) 14 EBITDA Margin (%) 22% MXP BER LIN NAPNAP Majority stake Qualified minority stake Minority stake * Data excludes indirect interests in SACBO and SAB Majority stake Qualified minority stake Minority stake Majority stake Qualified minority stake Minority stake MXP BER LIN BOL TOR NAP
- 17. 17 F2i – Case studies – Fund I and & II investment SEA Airports – Milano Malpensa and Milano Linate Investment rationale • Italy is one of the largest European airport markets, featuring strong growth (2000-2012 CAGR +4%) • Combining different airport infrastructures to create a network sharing a common value creation strategy • SEA manages the 2nd largest passengers hub in Italy and 9th in Europe and the leading cargo traffic airport (60% of total annual cargo volume in Italy) • The combined assets of F2i’s airport network create a network of 54 million passengers in 2012 representing 37% of the total Italian passenger traffic • Attractive acquisition multiple (8.2x for SEA II) vs. International average(13.9x) Investment overview • Description: SEA is the second largest airport hub in Italy • Ownership: 8.6% of SEA held by Fund II (44.3% of SEA by Fund I & II) • Indirect ownership: 31% of SACBO (held by SEA) • Deal Source: Proprietary • F2i airport investments : Fund I: 12.2010 €81 million GESAC EV €221 million Fund I: 12.2011 €385 million SEA (I) EV €1.68 billion Fund I: 12.2012 €60 million SEA (II) EV €1.41 billion Fund II: 12.2012 €87 million SEA (II) EV €1.41 billion Fund I: 12.2012 €63.5 million SAGAT EV €117 million Value creation Actions • Take advantage of the highly fragmented Italian airport sector by opportunistically acquiring strategic airports • Create a network of efficient and profitable airports that can be managed pursuant to a common value creation strategy and leveraging economies of scale • F2i already invested in 3 leading airports • GESAC – Naples airport • SEA – Milan Malpensa & Linate airports + Bergamo indirectly • SAGAT – Turin + Florence and Bologna indirectly • F2i created an Airport Advisory Board to: • Share best industry practices and a common strategy • Improve revenue management through coordination of major customers and retailers • Generate commercial and operational synergies • Enhance negotiating position with main counterparties, in particular with low-cost carriers • Optimize costs, through synergies in procurement • Benchmark quality and costs across airports • Improve external relations management, in particular vis-à- vis Italian regulatory authorities • Participate in already announced airport privatizations including: Palermo, Verona, Cagliari, Genoa, Bologna, Apulia airport system and the remaining public stake in the Milan airports Key Statistics (*) 2011 2012 2013e Revenue (€m) 596 621 642 EBITDA (€m) 134 141 163 Margin (%) *Does not include minority interests in Bergamo, Florence & Bologna airports 22.5% 22.8% 25.0% Dividend strategy and exit • Optimize dividend flows • Exit through IPO or sale to strategic buyer
- 19. 19 TRM SEA
- 20. 20 The key to manage a complex market: pros of Country - focus • In-depth knowledge of the country and its legal and regulatory system • Proximity with all major constituencies • Government • Local authorities • Regulators • Unions • Direct access to deals • Better sourcing • Deeper due diligence • Closer negotiation • Ability to pursue buy and build strategy • Privileged access to local financing • Asset management benefitting from geographical proximity • Best local management talent