Singapore Exchange Ltd. · SGX:S68
Singapore Exchange — Ausgrid — Debt Investor Presentation (July 2020)
58 slides from Singapore Exchange's debt investor presentation, July 2020
Slide 1: Ausgrid Debt Investor Presentation July 2020
Ausgrid Debt Investor Presentation JULY 2020 ausgrid.com.au
Slide 2: Presenters
Presenters Richard Gross Michael Bradburn Edwin Waters Craig Wilson Chief Executive Officer Chief Financial Officer Group Treasurer Sustainability Manager Richard has over 30 years of Michael has more than 20 years of Ed has more than 20 years of Craig has more than 15 years of experience in
Slide 3: Agenda
Agenda 1 About Ausgrid 2 Operations and performance 3 Strategic priorities and transformation Impact of COVID-19, regulation and financial 4 performance 5 Capital management and funding A Supporting materials 3 3
Slide 4: Ausgrid's investment highlights
Ausgrid’s investment highlights Our vision is to become a leader in energy solutions, recognised locally and globally Long-life essential infrastructure with stable, inflation-protected cash flows Regulated revenues are insulated from volume exposure through the revenue cap regulatory regime pro
Slide 5: Ausgrid's position in the NSW electricity supply chain
Ausgrid’s position in the NSW electricity supply chain Ausgrid network • Includes c.230 large substations Competitive Generation • 32,000 small distribution substations • More than 500,000 power poles and 49,000 kilometres of below and above- ground electricity cables Transmission Interconnectors Re
Slide 6: Ausgrid's network area
Ausgrid’s network area Ausgrid’s core business is building, extending, maintaining and operating the electricity distribution and transmission network in Ausgrid’s supply area, spanning 22,275 square kilometres including eastern Sydney, the Central Coast and the Hunter Valley. Ausgrid’s network exte
Slide 7: Ownership and governance arrangements
Ownership and governance arrangements Governance • Ausgrid has been majority owned by AustralianSuper and IFM Investors (together 50.4%) since 2016 • The NSW Government holds the remaining 49.6% through a specially created entity and indirect subsidiaries which are independent from Government • Aust
Slide 8: Agenda
Agenda 1 About Ausgrid 2 Operations and performance 3 Strategic priorities and transformation Impact of COVID-19, regulation and financial 4 performance 5 Capital management and funding A Supporting materials 8 8
Slide 9: Ausgrid's revenue streams
Ausgrid’s revenue streams Ausgrid has four distinct revenue streams which align to the regulatory framework Ring-fencing regulation Network Service Provider REGULATED – 95% of revenue2 UNREGULATED – 5% of revenue2 Standard Control Services – Alternative Control Services – Unregulated PLUS ES1 88% of
Slide 10: Customer profile
Customer profile Ausgrid has a large and diverse end customer base with low concentration risk End customer type Annual consumption NUOS revenue Large Business 23% Large Business 41% Business 10% Medium Business 10% Medium Business 12% Small Business 14% Small Business 19% Residential 90% Residentia
Slide 11: Asset management – 'whole of life' approach
Asset management – ‘whole of life’ approach Sustainably improving performance for customers, stakeholders and partners while complying with regulatory obligations Achieving asset management objectives through: 120 1.5 • A robust asset management framework, including asset policies, asset standards a
Slide 12: Peer RAB and customer base comparison
Peer RAB and customer base comparison Largest distribution network in Australia by RAB, end customer numbers, electricity delivered and maximum demand Snapshot • Ausgrid's network has distributed electricity within NSW for over 100 years • 1.8 million end customers2 and 24,957 GWh of electricity tra
Slide 13: Sustainability at Ausgrid
Sustainability at Ausgrid Our sustainability approach Our journey so far Our developing ambitions Sustainability at Ausgrid means operating in a Our vision to become a leading energy solutions Key actions underway to further mature our safe, responsible manner that will enable us to provider, recogn
Slide 14: Agenda
Agenda 1 About Ausgrid 2 Operations and performance 3 Strategic priorities and transformation Impact of COVID-19, regulation and financial 4 performance 5 Capital management and funding A Supporting materials 14 14
Slide 15: Strategic priorities – FY20 performance
Strategic priorities – FY20 performance Substantial progress has been made in FY20 to accelerate the delivery of Ausgrid's strategic priorities Strategic priority FY20 achievements • We continue to increase our focus on reporting, investigating and implementing the corrective actions related to High
Slide 16: Strategic priorities – looking ahead
Strategic priorities – looking ahead Ausgrid's vision is to be recognised locally and globally as a leading energy solutions provider. Our key priorities for FY21 and beyond are outlined below Strategic priority Actions • Promotion and maintenance of a strong safety culture and safety performance Li
Slide 17: Transformation Program
Transformation Program Comprehensive program to deliver first quartile cost efficiencies while improving customer, operational and safety outcomes • Improve the customer experience: Better understand our customers’ needs and deliver a better service experience through a programme of continuous impro
Slide 18: Agenda
Agenda 1 About Ausgrid 2 Operations and performance 3 Strategic priorities and transformation Impact of COVID-19, regulation and financial 4 performance 5 Capital management and funding A Supporting materials 18 18
Slide 19: 2019-24 Final Determination
2019-24 Final Determination The AER determines the maximum revenues that Ausgrid can earn over a five year regulatory period through a building- block methodology. Ausgrid’s revenue cap regulatory regime provides revenue certainty ($million, nominal) FY20 FY21 FY22 FY23 FY24 Total Return on capital
Slide 20: COVID-19 impact and management response
COVID-19 impact and management response Ausgrid moved early to address the onset of the COVID-19 pandemic, with the activation of its internal Incident Management and Crisis Teams in early January to implement Ausgrid's Pandemic Response Plan Moody’s and S&P have recently affirmed Ausgrid’s credit
Slide 21: Impact of COVID-19 on Ausgrid's network
Impact of COVID-19 on Ausgrid's network Actual energy consumption data on Ausgrid’s network indicates a recent stabilisation from the initial COVID-19 volume reduction of ~10% in April 2020. The increase in residential consumption and the decrease in commercial and industrial load largely offset eac
Slide 22: Impact of COVID-19 on Ausgrid's network
Impact of COVID-19 on Ausgrid's network Following sharp energy consumption movements at the end of March, the effects of COVID-19 are currently pointing towards a recovery. The residential spike started to ease off when schools returned and more people returned to workplaces. Small, medium and large
Slide 23: Financial summary
Financial summary FY20 is the first year of the new five year regulatory period Statement of profit or loss Key highlights $million, nominal FY19 FY201 Variance • SCS revenue fell by $284 million in FY20 due to a reduction in Revenue Ausgrid’s Maximum Allowable Revenue (MAR) following the SCS 2,299
Slide 24: Agenda
Agenda 1 About Ausgrid 2 Operations and performance 3 Strategic priorities and transformation Impact of COVID-19, regulation and financial 4 performance 5 Capital management and funding A Supporting materials 24 24
Slide 25: Capital management strategy
Capital management strategy Ausgrid is committed to supporting its current credit ratings and has a prudent capital management strategy to support this. Ausgrid has a proven track record of taking action to support its credit ratings 1 Capital management strategy • Ausgrid has a $12.6 billion debt p
Slide 26: Credit metrics
Credit metrics Ausgrid has headroom against key metric thresholds. Moody’s and S&P have also recently reaffirmed Ausgrid's BBB/Baa1 credit ratings (both stable outlook) on 5 June and 29 June 2020 respectively Leverage Cash flow Net debt1 / RAB Net debt Net /debt EBITDA 2 1 / EBITDA2 CFCR 3 CFCR3 EBI
Slide 27: Funding and liquidity
Funding and liquidity Ausgrid has a $12.6 billion debt portfolio, is committed to prudent capital management and seeks to minimise its cost of funding within defined risk parameters Summary • Management’s key focus to date has been to establish a global capital markets presence in order to achieve d
Slide 28: Summary
Summary Our vision is to become a leader in energy solutions, recognised locally and globally Long-life essential infrastructure with stable, inflation-protected cash flows Regulated revenues are insulated from volume exposure through the revenue cap regulatory regime providing revenue certainty
Slide 29: Contact information
Contact information Michael Bradburn Chief Financial Officer michael.bradburn@ausgrid.com.au +61 2 8569 6858 Edwin Waters Group Treasurer edwin.waters@ausgrid.com.au +61 2 9160 6785 Ausgrid 24 Campbell Street Sydney NSW 2000 www.ausgrid.com.au 29 29
Slide 30: Supporting materials
Supporting materials i. Company information ii. Regulatory iii. FY20 and historical financials iv. Security structure v. Treasury Policies vi. ESG commitments 30 30
Slide 31: NSW economic overview
NSW economic overview Sydney is the capital city of NSW, the driving force of economic growth across Australia Key highlights 1 Australia has experienced 28 consecutive years of positive economic growth prior to the onset of COVID-19 2 NSW is the largest economy and most populous state in Australia,
Slide 32: Overview of the Ausgrid board
Overview of the Ausgrid board Independent Chairman Dr Helen Nugent AO • Professional company director with 35 years experience in the energy, resources and financial services sectors • Non-Executive Director of IAG and Chairman of the National Disability Insurance Agency Non-executive directors Jaso
Slide 33: Risk management and insurance
Risk management and insurance Formalised risk management framework Board risk appetite statement • Risk management cycle consistent with ISO 3100:2018 Themes • Incorporates use of Bow-Tie methodology as part of the risk assessment process 1. People, Health & Safety Risk Averse • Network risk managem
Slide 34: Bushfire risk management
Bushfire risk management Inspection and maintenance using the latest technology in all potential bushfire impact areas In potential bushfire impact areas, Ausgrid conducts: • Vegetation monitoring and trimming to maintain minimum clearances from powerlines • Annual Light Detection and Ranging scanni
Slide 35: Future trends in the electricity value chain
Future trends in the electricity value chain Competitive Generation • Industry transition from coal and other fossil fuels to renewable sources • Transmission will be required to manage new interconnections as fuel mix evolves Regulated natural monopoly Transmission • Poles and wires have a signific
Slide 36: Australian electricity market regulatory environment
Australian electricity market regulatory environment Established national regulatory regime governing the operational framework and revenue determination • Ausgrid’s electricity distribution and transmission network is economically regulated by the AER – an independent statutory body that is require
Slide 37: Regulatory framework
Regulatory framework COAG Energy Council may NSW government is a member COAG Energy Council request reviews and receive of the COAG Energy Council Policy setting and strategic direction advice from the AEMC National Electricity Law¹ All stakeholders Rule change Legislative framework (Except the AEMC
Slide 38: Regulatory building block methodology
Regulatory building block methodology Background • AER determines Ausgrid's annual expected revenue requirement based on a building block methodology – this is set at the commencement of each regulatory period (typically five years), providing transparency and revenue certainty throughout the period
Slide 39: Regulatory key drivers
Regulatory key drivers The regulatory framework is incentive-based, meaning that the regulator allows Ausgrid to outperform the regulated rate of return by pursuing desirable objectives Value Driver Description Outperformance potential Opex • AER determines an efficient level of opex by reference to
Slide 40: Regulatory developments – COVID-19
Regulatory developments – COVID-19 Ausgrid participated in the ENA package to assist small business and residential customers for the three months ended 30 June 2020. We are also discussing additional support options with the AER going forward 1 ENA relief package 2 AER rule changes in response to C
Slide 41: 2019-24 Final Determination – detailed components
2019-24 Final Determination – detailed components Rate of Return (% nominal) FY20 FY21 FY22 FY23 FY24 Average Capex and opex allowance ($m, real FY19)1 Return on equity (nominal post-tax) 5.70% 5.70% 5.70% 5.70% 5.70% 5.70% 1,085 1,015 986 952 937 Return on debt (nominal pre-tax) 5.74% 5.55% 5.36% 5
Slide 42: 2019-24 Final Determination – projected RAB
2019-24 Final Determination – projected RAB A$million, nominal FY20 FY21 FY22 FY23 FY24 Opening RAB 15,681 16,234 16,693 17,057 17,413 Net capex (incl. disposals) 656 593 528 549 543 Straight line depreciation (483) (528) (569) (607) (615) Indexation 380 394 405 414 422 Closing RAB 16,234 16,693 17,
Slide 43: Comparison of 2014-19 and 2019-24 Determination
Comparison of 2014-19 and 2019-24 Determination Comparison of key assumptions Item 2014-19 2019-24 Comments Regulatory CPI 2.42% 2.42% Consistent across regulatory periods Tax allowance Final outcome of Review of Regulatory Tax Approach changed tax depreciation Depreciation method for tax Diminishin
Slide 44: Interest rate hedging strategy
Interest rate hedging strategy Notional swap profile Overview RCP 2019-24 RCP 2025-30 Ausgrid’s interest hedging strategy can be broken down into: Swap Execution Debt/RAB FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 • 60% debt to RAB hedged to 10-year trailing average Tenor Year cost of debt1 D
Slide 45: Income statement
Income statement Income statement FY18-201 Comments Variance A$m, nominal FY18 FY19 FY20 • The reduction in SCS revenue of $284 million from FY19 was (FY19-20) due to a combination of factors, including a reduction in SCS revenue 2,327 2,299 2,015 (284) Ausgrid’s Maximum Allowable Revenue following
Slide 46: Cash flow statement
Cash flow statement Cash flow statement FY18-201 Comments Variance • Net cash flow from operating activities reduced by A$m, nominal FY18 FY19 FY20 (FY19-20) $391 million in FY20 primarily driven by: EBITDA 1,573 1,655 1,319 (336) lower tariffs following the AER Determination and reduced consumpti
Slide 47: Capital expenditure
Capital expenditure Capital expenditure FY18-201 A$m, nominal FY18 FY19 FY20 Replacement 472 577 385 Augmentation 18 29 29 Connection and reliability 15 23 37 Non-network and other 120 269 91 Regulated capex 625 898 542 ACS and unregulated capex 186 161 140 Total capex 811 1,059 682 Note: 1. FY20 nu
Slide 48: Balance sheet
Balance sheet Balance sheet FY18-201 Comments Variance • The increase in fixed assets of $160 million in FY20 is mainly A$m, nominal FY18 FY19 FY20 (FY19-20) driven by additions of $813 million offset by Property, plant & equipment 16,212 16,735 16,925 190 depreciation/amortisation of $639 million a
Slide 49: Security structure
Security structure NSW State Blue Asset ERIC Alpha Holdings Blue Op Hold Trust Pty Limited Hold Trust 100% 4 100% 4 100% 4 3 3 3 3 3 3 Blue Asset ERIC Alpha ERIC Alpha ERIC Alpha Blue Op Blue PES Partner Trust Asset Trust Operator Trust AUP Trust Partner Trust Partner Trust 1 (2/3/4) 1 (2/3/4) 1 (2/
Slide 50: Summary borrowing structure
Summary borrowing structure Security structure All senior secured creditors (including AMTN noteholders) benefit from a security package comprising: • Security over the present and after acquired property of the Ausgrid Asset Partnership, Ausgrid Operating Partnership and PLUS ES Partnership • Secur
Slide 51: Treasury policies
Treasury policies Category Credit rating • Ausgrid will use reasonable endeavours to maintain a bbb/baa2 baseline credit assessment and not less than bbb-/baa3 • Minimum of regulatory debt allowance (60% of RAB) to be hedged on trailing 10-year basis, with up to 100% of any residual Interest rate ri
Slide 52: Sustainability – Business-wide ESG commitments
Sustainability – Business-wide ESG commitments Social Sustainability at Ausgrid is about Reporting on our environmental, social operating in a safe, responsible and governance (ESG) commitments is Keeping our people, customers manner that will enable us to an essential part of this effort. Our and c
Slide 53: Sustainability – Environment
Sustainability – Environment We are committed to conducting our to reduce our impact on the planet, address business in a way that drives climate change and be innovative with new environmental sustainability. This technologies and how we use them with our Enabling the transition to means we are pro
Slide 54: Sustainability – Social
Sustainability – Social Through our services, policies and We recognise that our infrastructure is present organisational culture, Ausgrid delivers in all the communities we operate and that we safe, reliable and affordable energy to have a large impact when things go well or Delivering affordable,
Slide 55: Sustainability – Governance
Sustainability – Governance Our Board assumes overall responsibility for Ausgrid’s corporate governance, overseeing the performance of Investing in our capability to protect the organisation, our management, employees and critical infrastructure assets the interests of our shareholders and stakehold
Slide 56: Glossary
Glossary AAP Ausgrid Asset Partnership1 GRI Global Reporting Initiative ACS Alternative Control Services HV High Voltage ADMHC Alpha Distribution Ministerial Holding Corporation IoT Internet of Things ADMS Advanced Distribution Management System LED Light Emitting Diode AEMC Australian Energy Market
Slide 57: Important notice and disclaimer
Important notice and disclaimer Disclaimer This Investor Presentation contains information which is strictly confidential and is provided to the recipient in connection with the medium term note programme of Ausgrid Finance Pty Ltd (ABN 14 615 343 005) (“Issuer”). The information may not be reproduc
Slide 58: Important notice and disclaimer (cont'd)
Important notice and disclaimer (cont’d) This Investor Presentation should not be distributed to any person or entity in any jurisdiction or country where such distribution would be contrary to applicable law and no action has been taken to permit the public distribution of this Investor Presentatio