Atlantia Presentation Update on Recent Events - London - 25 October 2007
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Disclaimer THIS DOCUMENT HAS BEEN PREPARED BY ATLANTIA S.P.A. (THE “COMPANY”) FOR THE SOLE PURPOSE DESCRIBED HEREIN. IN NO CASE MAY IT BE INTERPRETED AS AN OFFER OR INVITATION TO SELL OR PURCHASE ANY SECURITY ISSUED BY THE COMPANY OR ITS SUBSIDIARIES. THE CONTENT OF THIS DOCUMENT HAS A MERELY INFORMATIVE AND PROVISIONAL NATURE AND THE STATEMENTS CONTAINED HEREIN HAVE NOT BEEN INDEPENDENTLY VERIFIED. NEITHER THE COMPANY NOR ANY OF ITS REPRESENTATIVES SHALL ACCEPT ANY LIABILITY WHATSOEVER (WHETHER IN NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY FROM THE USE OF THIS DOCUMENT. THIS DOCUMENT MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON. THE INFORMATION CONTAINED HEREIN AND OTHER MATERIAL DISCUSSED AT THE PRESENTATION MAY INCLUDE FORWARD-LOOKING STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT THE COMPANY’S BELIEFS AND EXPECTATIONS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES AND PROJECTIONS, AND PROJECTS. HOWEVER, FORWARD-LOOKING STATEMENTS INVOLVE INHERENT RISKS AND UNCERTAINTIES. WECAUTION YOU THAT A NUMBER OF FACTORS COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO: TRENDS IN COMPANY’S BUSINESS, ITS ABILITY TO IMPLEMENT COST-CUTTING PLANS, CHANGES IN THE REGULATORY ENVIRONMENT, ITS ABILITY TO SUCCESSFULLY DIVERSIFY AND THE EXPECTED LEVEL OF FUTURE CAPITAL EXPENDITURES. THEREFORE, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Update on Recent Events London – 25 October 2007 1
Preliminary Remarks Rome London 12 October 25 October Next Steps 2007 2007 • Autostrade per l’Italia • Presentation of the main • Completion of the and ANAS signed the content and clauses of the authorization process Single Concession new concession contract • Business plan update Contract Scheme • Illustration of the approval process • Update on status of the current investment plan and overview of the new one • Perspectives for international growth Update on Recent Events London – 25 October 2007 2
Table of Contents 1. Introduction 2. New Concession Scheme Highlights 3. Investment Plans 4. International Overview Strategy 5. Closing Remarks Update on Recent Events London – 25 October 2007 3
1. Introduction Update on Recent Events London – 25 October 2007 4
Key Company Facts Autostrade per l’Italia’s Network • In May 2007 Autostrade changed its name to Atlantia A23 A23 A26 A26 A27 • Atlantia is the holding company responsible for A4 A4 A27 Milan Milan portfolio strategies in the transport and A1 A1 A13Venice communications infrastructure and network Turin A12 A12 A6 A6 Bologna Bologna sectors and owns 100% of Autostrade per l'Italia Genoa A11 A11Florence Ancona A12 A12 A14 • Autostrade per l’Italia is Italy’s largest toll A1 A1 A14 motorway operator with more than four million A12 Pescara daily customers Rome A14 A14 A1 Bari • Atlantia, through its Concessionaires, is the A16 A16 Naples A3 largest private investor in infrastructure in Italy with over €18bn of projected major work • Atlantia has an international presence, with operations in Poland, Chile and the US as well as in Brazil and Argentina through its interest in Impregilo, Italy’s largest construction company Group Network under concession Other Motorways Update on Recent Events London – 25 October 2007 5
Group Structure Sintonia 3.17%(1) 60.0% Schemaventotto Free Float 50.1% 46.7% 100% International Engineering, Italian Concession Concession Construction, Business Business O&M Business • 8 motorway Concessionaires • Costanera Norte - Chile (45%) – 43 km(2) • SPEA (100%) • 3,414 km of infrastructure under • Stalexport - Poland (56%) – 61 km(2) • Pavimental (71,67%, Revenue FY ‘06 € 0.5bn) concession in Italy, representing • Impregilo Concessions(3) in Brazil (936 • Impregilo(3) (Revenue FY ‘06 € 2.6bn) approximately 60% of the national km) and Argentina (413 km) • Dulles Greenway - Virginia/US (100%) toll network (1) A 0.63% stake is to be acquired through a share forward transaction (2) At present Costanera Norte and Stalexport are directly held by Atlantia and will be shortly transferred to Autostrade per l’Italia (3) Autostrade per l’Italia has a 33.3% interest in IGLI that, in turn, holds a 29.83% interest of Impregilo Update on Recent Events London – 25 October 2007 6
Turnaround 1999-2007 Operational • Successful implementation, between 1999 and 2007, of efficiency and programme to improve quality of service while driving quality operational efficiency • Efficient reorganisation, between 2003 and 2004, of the Capital Group’s capital structure structure • The signing of the Concession Contract Scheme in 2007 Regulatory provides a clear regulatory framework for Autostrade per framework l’Italia • A selective and strategic approach to international growth International (Europpass 2003, Costanera Norte 2005, Stalexport 2006) development Update on Recent Events London – 25 October 2007 7
Beyond 2007 Operational • Continuous focus and commitment to efficiency alongside efficiency and quality of service quality • Optimising the cost of capital as a result of new network Capital investments and reduced regulatory risk structure • Finalising new investment for removing bottlenecks on the Regulatory existing network, enabling long term traffic growth framework • Accelerate international growth leveraging on industry International knowledge and financial flexibility development Update on Recent Events London – 25 October 2007 8
2. New Concession Scheme Highlights Update on Recent Events London – 25 October 2007 9
Value Drivers in the Toll Road Industry • Value creation for a toll road operator is the result of careful management of typical concession risks and effectively mitigating risks that are out of the Concessionaire’s control Contract & Concessionaire’s Country risk Regulatory risk risks • Macroeconomics • Risk of adverse change • Construction Risk • Demographics to the concession terms • Traffic risk • Geography and conditions • Operating risk • Competitiveness • Ability to increase tariffs • Credit risk • Politics • Protection against new legal requirements or ‘force majeure’ events Update on Recent Events London – 25 October 2007 10
Latest Events 23.04.06 15.6.07 26.9.07 12.10.07 + Autostrade- CIPE Directive New Directive Signed the single Abertis merger no. 39/2007 for the concession announcement (review of the authorization contract scheme previous Directive of the transfer between no. 1/2007) of motorway Autostrade per concessions l’Italia and ANAS 2006 2007 Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct - 5.07.06 The Minister of Infrastructure, after a ruling of the Council of State, states that authorization is 3.10.06 (converted into Law 9.12.06 Law Decree Action by 26.1.07 CIPE 262/2006 ANAS against Directive ASPI and no. 1/2007 Atlantia for 286/2006) the delay on investments needed 27.12.06 2007 Tariff Increase frozen Update on Recent Events London – 25 October 2007 11
Reaction of the EU Commission • 22.9.06: Merger Approval DG Competition • 18.10.06: Preliminary conclusion that Italy has violated Article 21 of the EU Merger Regulation • 31.1.07: Sent new preliminary assessment to Italy on measures blocking Abertis-Autostrade merger • 18.7.07: Welcomed Italy's move to clarify authorisation procedures in toll motorway sector • 14.11.06: Opening of infringement proceedings against Italy DG regarding the new regime for Motorway Concessions in Italy Internal Market & Services • 4.10.07: New requests for clarifications have been sent to the Italian authorities Update on Recent Events London – 25 October 2007 12
New Concession Contract Pillars • On 12 October 2007 Autostrade per l’Italia and ANAS signed the single concession contract scheme as required by the recent law no. 286/2006 A new price • A lean formula for the duration of the concession based on a percentage of inflation, in line with international best practice for cap formula motorway concessions Explicit • An explicit compensation mechanism in the event of regulatory Indemnities changes or early termination of the concession Covenants & • Well defined constraints on indebtedness, extraordinary transactions and change of control involving the concessionaire guarantees New • Confirmation of the commitment to make the investments provided for by the contract of 1997 and the 4th Supplementary Agreement of Investments 2002 • Commitment to implement the preliminary plans to upgrade an additional 300 km of the network, for approximately €5bn Update on Recent Events London – 25 October 2007 13
Effectiveness of the New Concession Contract Inter Parliamentary Court CIPE Signature Ministerial Commissions of Auditors decree • Opinion by NARS • Non binding • Final contract • Inter-ministerial • Inter-ministerial • Approval by CIPE opinion between ASPI and decree issued by the decree to be filed ANAS Ministry of the • CIPE resolution to Infrastructure and be filed with the the Ministry of Court of Auditors Economy • The Concession Contract is fully effective only once registered by the Italian Court of Auditors • Pending the European Commission’s infringement proceedings, some changes to the legal framework might be necessary • Once the Concession Contract becomes effective, the parties are committed to waive all litigations that are pending or in any case related to the concession Update on Recent Events London – 25 October 2007 14
Simplification of Tariff Formula Old Formula Remarks New Formula Remarks Inflation •Government Budgeted CPI • 70% of Actual rate of inflation for Inflation previous 12 month period 1 July – 30 Recovery of the • To be calculated every 5 years June inflation gap • Set by ANAS on the basis of: • Adequate remuneration of invested capital • X Investments Factor Productivity • Future investment plan Compensation • Unchanged rate of return improvement -X • Expected change in for the 2002 • Amounts of investments provided target for in the definitive plan productivity Investment • No need of tariff realignment at • Expected change in demand • In case of disagreement the X Plan the end of the works as previously Compensation requested for the 2002 factor is equal to percentage Investment Plan traffic growth of the previous 5 year period • K Factor • Based on road surface quality Compensation • RAB system and accident rate with possible for new (CIPE Directive no 1/2007) Quality Factor new parameters to be added investments • Return equal to WACC pre-tax unilaterally by ANAS before leverage Update on Recent Events London – 25 October 2007 15
New Formula Improves Visibility on Toll Trend Annual change in tolls = 70% * ∆CPI + X + K • For the purposes of calculating tariffs, the Concession Agreement has retroactive effect commencing from 1 January 2007 • In 2008, once the new contract is effective, tariffs will be raised by the percentage equal to the difference between the amount resulting from applying the new tariff formula since 1 January 2007 and the tariff charges actually applied since that date • Authorization to increase tariff by ANAS, the Ministry of Infrastructure and the Ministry of Treasury pertains to material mistakes made by the Concessionaires only. In case of no remarks, tariffs are increased by the Concessionaire from 1 January Update on Recent Events London – 25 October 2007 16
A Lean Price-Cap Formula • A new streamlined formula in line with standard regulations in the European Toll Road Industry Minimum tariff increase for European operators of motorways under concession France Portugal Spain 70% * ∆CPI 70% * ∆CPI 90% * ∆CPI 100% * ∆CPI – X • ∆CPI = actual rate of inflation • ∆CPI = actual rate of • ∆CPI = actual rate of • ∆CPI = actual rate of of the previous 12 months inflation of the previous inflation of the previous inflation of the previous period 1 July – 30 June year year year • x= 1% of the difference between foreseen and actual traffic growth Update on Recent Events London – 25 October 2007 17
Indemnity for Revocation or Regulatory Changes • In the event of tax, legislative and regulatory changes with specific Pass-Through impact on the industry, by means of a pass-through mechanism, tariffs are adjusted upwards to fully indemnify the concession holder Early • The types of contractual failures that can lead to revocation, Termination withdrawal or termination of the concession are expressly regulated (even in case of unilateral changes in the regulation) • In case of early termination of the concession an indemnity is Indemnity always explicitly provided for, which is equal to the net present value of expected cash flows until the end of the concession as originally agreed in the concession contract (net of a penalty equal to 10% of the value, applied only in case of revocation due to Concessionaire’s fault) Update on Recent Events London – 25 October 2007 18
Covenants and Guarantees Financial • Introduction of a covenant (DSCR>1.2x)(1) that the Concessionaire Covenant must comply with at the end of every fiscal year • Commitment to have irrevocable financing available in an amount Liquidity equal to the investment gap with respect to the concession agreement plan Extraordinary • Mergers, de-mergers, liquidation, headquarter move, change in Transactions purpose of the company, involving the concession holder, are subject to authorisation by ANAS Acquisitions & • Not subject to authorisation by ANAS if DSCR>1.6x (pre and post Disposals transaction) (1) DSCR=Operating Cash Flow before Interest/Debt Service Update on Recent Events London – 25 October 2007 19
Change of Control Rule • Net equity of at least €10 million for each percentage point of ownership • Head office in a country not included in the list of countries with Control over favourable tax treatments Autostrade per l’Italia must always • Commitment to preserve the Concessionaire’s registered remain with an entity headquarters and the technical and organizational strength necessary fulfilling specific to cover its contractual obligations in Italy conditions • A Board of Directors consisting of directors and statutory auditors who fulfil requirements of professional standing as well as independence and honesty, required of listed companies on the exchange where the head office is located Update on Recent Events London – 25 October 2007 20
Other Provisions • Concession fee on tolls is currently set at 2.4% Concession • Future increases are transferred to tariffs by means of the pass- Fees through mechanism • The sub-concession fee on service area royalties is raised to 5% Recovery of • On a five years basis, in the event that actual traffic for the same Extra Traffic period results in an annual growth rate higher than 1% with respect to estimates stated in the 2002 Supplementary Agreement(1), 50% of the economic benefit (net of taxes) is paid into a special fund for financing new investments without additional tariffs Regulatory • If there is a delay in making investments that are not specifically Provisions compensated for in the tariffs (e.g. the 1997 Concession Agreement investments), the Concessionaire must set aside regulatory provisions of equity capital equal to equivalent cumulated net profits • These reserves will automatically become available when the investments reach the originally planned amount (€4.5 bn) (1) The 2002 Supplementary Agreement forecast a 1.75% annual growth from 2008 to 2012, 1% from 2013 to 2017, 0.5% from 2018 to 2022 and 0% thereafter. The share of net revenues subject to claw back is equal to 75% in the event traffic exceeds those estimates by 1.5%. Update on Recent Events London – 25 October 2007 21
Sanctions and Penalties • A set of sanctions and penalties are agreed upon by contract in case of lack of compliance with the contractual obligations Quality • In case quality indicator used in previous tariff formula results in a fall below 2006 levels, Concessionaire has to pay a penalty equal to Standards €2m • Other penalties are provided for in case of deterioration of quality standard (ranging from €10,000 up to €500,000 in the heaviest case) • €25,000 per month of delay in the completion of project phase of Works investments or in the execution of works (after all authorizations are granted) in case of Concessionaire’s fault Administrative • Sanctions ranging from €25,000 up to €2m in the heaviest case are Sanctions charged in case of violations of information obligations to ANAS, as well as of major contractual obligations Update on Recent Events London – 25 October 2007 22
3. Investment Plans Update on Recent Events London – 25 October 2007 23
Autostrade per l’Italia Capex Commitment Residual Capex(1) & Investment Period Status as at 30 Sept. 2007 Compensation Major works 1997 Concession € 4.4 bn 31% 49% 20% • 70% CPI Agreement Executed In progress Major works To be authorized 2002 Supplementary € 5.9 bn 9% 47% 44% • X Factor Agreement Reallocation of € 2.0 bn Ongoing Capex • Already included in 1997 Concession Agreement commitment under ongoing capex • 70% CPI 2008-2020 Completion of noise € 0.7 bn reduction plan 2008-2021 • Included in the new contract • K Factor • Commitment to implement the preliminary plan to € 5.0 bn New Investments 2012-2020 upgrade over 300 Km of network with additional • K Factor new lanes Total Capex € 18.0 bn (1) Gross capex from 2007 to the completion of the plan, excludes government grants and capitalized costs Update on Recent Events London – 25 October 2007 24
Update on Group’s Current Investments Stage of Residual Investment completion Km Capex(1) Period as at 30.09.07 MI-VA (A8) Fiorenza - Gallarate 28.7 0 2000 100% Major works MI-NA (A1) e BO-TA (A14) Bologna Interchange 45.3 70 2007 75% 1997 Concession MI-NA (A1) Variante di Valico 66.6 2,623 2012 31% Agreement MI-NA (A1) Florence Interchange 58.5 1,697 2015 16% MI-NA (A1) Orte-Fiano 37.8 17 2007 96% Remaining Investments 16 2007 45% Total projects under 1997 Agreement 236.9 4,424 31% MI-CO (A9) Lainate - Como Grandate 23.2 266 2012 3% Major works MI-Laghi (A8-A9) Access to Milan Exhibition Center 3.8 18 2008 90% 2002 Supplementary MI-BS (A4) Milan - Bergamo 33.6 261 2007 77% Agreement A7-A10-A12 Genoa By-pass 34.8 2,494 2017 0% BO-TA (A14) Rimini Nord - P.to S.Elpidio 154.7 2,441 2013 3% MI-NA (A1) Fiano Romano - Settebagni 14.6 152 2011 4% Altri interventi 1.3 230 2012 13% Total projects under 4th Supplementary Agreement 266.0 5,863 9% Total Investments in Major Works by Autostrade per l'Italia 502.9 10,286 20% RAV: AO-Traforo Monte Bianco (A5) Morgex- Entreves 12.4 32 2007 94% STRADA DEI PARCHI: RM-AQ-TE e Torano - Pescara (A24 and A 25) 19.9 314 2010 24% Subsidiaries AUTOSTRADE MERIDIONALI: NA-Pompei-SA (A3) Napoli - Pompei 20.0 182 2010 59% Total projects by subsidiaries 52.3 528 61% Total Investments in Major Works 555.2 10,815 23% 1. Gross capex from 2007 to the completion of the plans, excludes government grants and capitalized costs Update on Recent Events London – 25 October 2007 25
Revamping the Italian Toll Road Network • Current and new investments in the pipeline allow for long term unconstrained traffic growth • New tariff formula provides for a compensation system for new investments with a return equal to at least current WACC before leverage • Capital employed in new investments provides for additional financial leverage with subsequent decrease in the average cost of capital Autostrade per l’Italia ADT per lane 2007 Autostrade per l’Italia ADT per lane 2021 Undergoing & Committed Sensitivity with an accumulated traffic growth equal Investments to approximately 25% between 2008 and 2021 ~ 800 km 63,9% 48,1% 46,2% % Network % Network ~7 % of the network ~6 % of the network (1) 29,2% 6,1% 5,1% 0,5% 0,3% 0,6% 0,0% 22,001 22,001 (1) Of which 130 km eligible for further de-bottlenecking Investments Update on Recent Events London – 25 October 2007 26
Group’s Investments Profile 2007-2021(1) • A massive investment plan to improve and de-bottleneck the network (€ bn) 1997 Investment Plan 2.0 2002 4th Supplementary Agreement Subsidiaries, Other Investments, Ongoing Capex 1.8 New Investment Commitment Noise Reduction Plan Completion 1.5 1.3 1.0 \ 0.8 0.5 0.3 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1. Gross capex from 2007 to the completion of the plans, excludes government grants and capitalized costs Update on Recent Events London – 25 October 2007 27
Solid and Stable Credit Quality Gross debt allocation as of 30 June 2007 • Strong credit quality with limited impact on • €2,000m FRN 2004-2011 current credit metrics even after new capex • €2,750m Notes 2004-2014 • €750m Notes 2004-2022(5) commitment ATLANTIA S.p.A. • €1.000m Notes 2004-2024 • Avg. Net Debt/Ebitda 2007-2020: ~ 4.0x €7,500m • €800m Term Loan Facility • €200m EIB average life 12 years • Avg. DSCR 2007-2020: ~2.5x Total drawn: €7,500m • Long term availability of financial resources • €1,200m Revolving Facility • €250m EIB with average debt maturity of 10 years, with • (Committed Undrawn) no notes maturing before 2011 Autostrade per l’Italia €258m (1)(2) • 93% of consolidated total debt at fixed Strada €dei 1,434m Parchi rate/hedged €701m Others (3)(4) €203m (1) Excludes €817m related to the State (this debt is fully collateralised and guaranteed/paid by ANAS) (2) Autostrade per l’Italia is a guarantor of Autostrade (now Atlantia) under the Notes, Term Loan,EIB and Revolving Facility (undrawn) (3) Gross debt including debt deriving from Fondo Centrale di Garanzia for €117m (non interest bearing) (4) Excludes €78m related to state subsidies (this debt is fully collateralized and guaranteed/paid by ANAS) (5) Sterling denominated issue Update on Recent Events London – 25 October 2007 28
4. International Overview Strategy Update on Recent Events London – 25 October 2007 29
Market Dynamics 11.0%-13.5% 13.5% Regulatory Market IRR Risk = 2% 9.0%-11.5% 9.0 / Construction Risk = 2% 7.07.0%-9.5% / 9.5% Target IRR ∆ Traffic Risk = 1.5 / 3% 5.5%-6.5% Operating Risk = 1.0 / 1.5% 30 ys. treasury bond (4.5/5.0%) Tender Construction Opening to Operating Phase Phase Traffic Phase Greenfield Brownfield Privatizations Update on Recent Events London – 25 October 2007 30
International Growth Strategy • The Group’s strategy for international growth is based on strict investment criteria designed to minimize business risk and to exploit competitive advantage Greenfield • Focus on urban toll road for minimization of traffic risk • Key focus on leverage on core competences (ETC, O&M) Brownfield • Achievement of a critical mass by country Privatization • Shortcut to exploit re-leverage potential • Operator of toll road with limited equity commitment • Sintonia and Schemaventotto shareholders’ financial resources and know-how allow for an increase in fire power, especially in large equity commitment investments, as well as potential industrial synergies as part of a combined strategy Update on Recent Events London – 25 October 2007 31
Building on Outstanding Track Record Initial Gross Investment Annual Equity Capital Gain Period IRR (€ m) (€ m) (Months) (%) Country: Austria 2002 Type: Implementation of a free-flow tolling system for HGV 90 129 28 47% Europpass 1 Km: 2,000 km overall network length 2005 Country: Chile (Santiago) Type: Free-flow urban toll road 45 200 (2) 16 254% Costanera Norte Km: 43 km-long motorway Country: Poland 2006 Type: Toll road 95 48 (3) 6 135% Stalexport Km: 61 km-long motorway (Krakow-Katowice) (1) Sold on August 2005 (2) Internal estimate (3) On the basis of current market cap Update on Recent Events London – 25 October 2007 32
Most Attractive Countries and Opportunities US: Eastern Europe: Poland - Achieve critical Russia: ETC/Congestion pricing Urban toll road Privatization with limited mass equity investment Other Countries - ETC commitment and key role Stalexport (Poland) China: ? Dulles Greenway (Washington, US) Turkey: Privatization with limited India: ? equity investment commitment and key role Mexico: Under evaluation Costanera Norte (Santiago,Chile) Brazil & Argentina: Leverage on Impregilo’s Market Presence Chile: market presence Atlantia Achieve critical mass Impregilo Update on Recent Events London – 25 October 2007 33
5. Closing Remarks Update on Recent Events London – 25 October 2007 34
Investment Highlights Long Term • Financial flexibility Concession Best in Class • Reduction in the cost of capital thanks to lower regulatory and contractual risk Contract • Settlement of all litigation • Ability to continue to invest in core assets Investment • Influential position thanks to key role in Italy’s economy Capacity • Potential for unsaturated traffic growth International • Proven strategy for sound international expansion based on competitive advantage and focused on spread between IRR Growth and WACC Update on Recent Events London – 25 October 2007 35
25 October 2007 Atlantia Presentation Update on Recent Events Q&A
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