review of eversholt rail group of eversholt rail group mary kenny, andy course & andrea wesson...
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Review of Eversholt Rail Group
Mary Kenny, Andy Course & Andrea Wesson
24 April 2014
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1. Rail Industry overview
2. Eversholt Business overview
3. Review of 2013 Financial Performance
4. Covenants & Ratings
5. Senior Management changes
6. Q&A
Index
3
Industry Update
• In February, the second Long Term Passenger Rolling Stock Strategy was published by a cross-industry
group including rolling stock owners, operators and Network Rail
o Long term conclusions remain largely unchanged, being demand–led with UK passenger fleet forecast to potentially double over
the next 30 years
• In March, Network Rail announced a 5 year plan to invest £38bn in rail infrastructure. The plan, which runs
from 2014 to 2019, includes:
o Up to 700 more trains a day between major northern cities
o 20% capacity increase of London’s commuter trains
o 850 miles of track to be electrified
o Upgrades for stations including Birmingham New Street and Manchester Victoria
Passenger demand continues to increase: 2013-14 Q3 showed the highest recorded revenue generated,
franchised passenger kilometres travelled and franchised passenger journeys made since records began1
Rail Franchising
• 5 Franchises to be awarded before 2015 general election:
o Essex Thameside, InterCity East Coast, Thameslink Southern & Great Northern, ScotRail and Caledonian Sleeper
o Opportunities for new build and cascade of existing rolling stock
1 Source: National Rail Trends Quarterly Summary 2013-14
Rail Industry Overview DfT recommences refranchising programme
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Eversholt’s Position
• 100% fleet utilisation of the passenger rolling stock for 2013
• In June 2013, Eversholt Rail entered into a long–term agreement to provide project and asset management
services to Cross London Trains, the consortium providing the new fleet of Siemens Desiro City Class 700
trains to be operated on the Thameslink routes
• In November 2013, successfully completed a new £600m senior debt financing, which will provide additional
funding capacity for investment in rolling stock and also allowed for the prepayment of existing bank facilities
o The financing, which was provided by eleven banks, includes a £100m five year term loan facility and a £500m five year general
purpose revolving credit facility, which can be extended by up to two years by agreement
• Lease extensions
o In Dec 2013, signed Class 168 lease extension until 2021 with Chiltern Railway Company
o In Feb 2014, signed STA with Northern Rail to keep our fleet of 8 Class 321/322s and 10 Class 158s on lease until Feb 2016
o In April 2014, signed a lease extension with Directly Operated Railways to retain IC225 on lease until 2019-20
• Class 321 Demonstrator launched at Liverpool Street Station in December 2013. A powerful means of
displaying the possibilities offered by quality refurbishment delivered at significantly lower cost than new trains
Eversholt Business Overview Underlying demand remains high
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Eversholt’s Position
• Franchising Opportunities: Ongoing discussions with incumbent operators, new bidders, TS, TfL and DfT
• Franchise new rolling stock opportunities
o TSGN
Potential replacement of Class 313 units and strengthening with new 3-car EMU, dual voltage, metro-layout, ETCS fitted. 150 vehicles with an estimated date for delivery of 2017, at a capital investment of c.£225m.
o ScotRail
Latest discussions are 29x4-Car AC units to run on improved Edinburgh to Glasgow electrified service. Electrification programme of 100 miles per annum may lead to small follow-on order. Potential that bidders are looking for increased numbers of new EMUs in 2016/2017. 150 vehicles with an estimated date for delivery of 2017, at a capital investment of c.£190m.
• Additional rolling stock opportunities not linked to refranchising programme
o South West Trains August 2013, DfT and SWT revealed capacity improvement plans on one of Europe’s busiest rail networks. SWT anticipates
a requirement of between 135 and 200 vehicles which could potentially result in 40 additional 5-car trains. These could be
either new build or refurbished stock.
o Southern Railway In December 2012, the Secretary of State for Transport announced that the Government was providing support for two new
rolling stock programmes by Southern Railways. First programme to procure 40 additional Class 377/6 vehicles, to
complement the 130 vehicles previously ordered in Dec 2011 was won by Porterbrook. Second programme is for a further
116 new Class 387 Electrostars (29x4 car units), with an option for another 140 vehicles.
Eversholt Business Overview Significant new build opportunities
Financial performance (Security Group) For the year ended 31 December 2013
Capital rental marginally higher than 2012 due to additional
investment in fleets
Other income includes asset management fees received
from Cross London Trains Ltd
Higher overheads include £1.9m write-off of prepayments
for maintenance services due to Railcare Ltd going into
administration in July 2013.
Decrease of £9.6m in depreciation charge reflects asset
life extensions, offset by investment in existing fleets
Fair value adjustment on derivatives represents the
movement in the fair value of the interest rate swaps
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31 December
2013
31 December
2012 (restated) *
£m £m
Capital rental income 268.1 267.7
Net maintenance income 5.2 8.0
Finance lease income (Depots) 0.6 1.1
Other income 3.1 1.4
Total Income 277.0 278.2
Overheads (18.2) (14.8)
258.8 263.4
Profit on disposal of property,
plant and equipment 0.6 3.3
Depreciation (128.6) (138.2)
Fair value adjustment on
derivative financial instruments 34.7 (24.0)
Net interest and finance cost (152.9) (150.8)
Profit/(loss) before tax 12.6 (46.3)
Year ended
* 2012 accounts were restated as the Group adopted IAS 19
(Revised) Employee Benefits from 1 January 2013
Statement of financial position (Security Group) As at 31 December 2013
Property, plant and equipment takes into account sale
of 17 flat wagons
Year end cash of £88.2m after early repayment of
acquisition bank facilities
Bank funding maturity extended until 2018 with an
option to further extend by 2 years
Negative mark to market valuation of interest rate
swaps not expected to be realised
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Year ended 31 December 2013 31 December 2012
£m (restated) £m #
Assets
Property, plant and equipment 1,818.4 1,931.1
Finance lease receivables 10.8 11.9
Trade and other receivables 15.6 29.2
Derivative financial instruments 0.0 0.8
Deferred Revenue 0.6 0.7
Investment in subsidiary 2.8 2.8
Inventory 1.8 2.0
Cash and cash equivalents 88.2 141.4
1,938.2 2,119.9
Liabilities
Trade and other payables 31.8 35.9
Borrowings 1,820.2 2,003.5
Derivative financial instruments 58.5 97.9
Amounts owed to Eversholt Rail (365) Limited 36.5 19.7
Deferred tax 77.4 77.7
Deferred revenue 115.7 90.3
2,140.1 2,325.0
Net assets (201.9) (205.1)
Equity
Share capital -* -*
Share premium account 13.7 13.7
Accumulated deficit (215.6) (218.8)
(201.9) (205.1) * £12,000
# 2012 accounts restated as the
Group adopted IAS 19 ( Revised)
Employee Benefits from 1 January
2013
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Refinancing
o New facilities - 5 year term loan and 5+1+1 Revolving Credit Facility
o Undrawn RCF provides same day liquidity
o Improved financial efficiency using surplus cash to pay down
drawings on RCF
In November repaid £279m Bank Facility B with new £100m term loan
and a drawdown of £179m on new RCF
In December repaid £163m of RCF using cash held at the bank
Average debt maturity extended until 2027 (2012: 2025)
Cash reserves of £88m:-
– £27m Security deposit (restricted)
– £61m Unrestricted cash
31 Dec 2013 31 Dec 2012
Acquisition Bank Facilities – repaid £nil £342m
New Facility A 5 year term loan £100m -
New Facility B 5+1+1 year RCF £16m -
Bond A (2020) £300m £300m
Bond B (2025) £400m £400m
Bond C (Amort. 2021-2035) £400m £400m
MetLife Note (Amort. 2028-2036) £150m £150m
Total £1,366.0m £1,592.0m
Shareholder Loan (inc capitalised interest) £423m £385m
Key Funding Activities New funding platform with the capacity for additional investment in rolling stock
Current debt structure
-
50
100
150
200
250
300
350
400
450
20
142
015
20
162
017
20
182
019
20
202
021
20
222
023
20
242
025
20
262
027
20
282
029
20
302
031
20
322
033
20
342
035
20
362
037
20
382
039
20
40
£ m
illio
ns
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Covenants Ratios substantially within lock up limits
All ratios were substantially within lock up
levels and are projected to remain so
Intention is to maintain these ratios with
plenty of headroom to provide scope for
investment
Leverage test 31-Dec-13 31-Dec-12
(Net debt / EBITDA) Actual Lock-up Actual Lock-up
Backward looking 4.96x < 7.00x 5.52x < 7.00x
Forward looking 5.21x < 7.00x 5.36x < 7.00x
Interest cover ratio 31-Dec-13 31-Dec-12
(EBITDA / Interest) Actual Lock-up Actual Lock-up
Backward looking 2.48x > 1.75x 2.71x > 1.75x
Forward looking 2.88x > 1.75x 2.59x > 1.75x
NPV test 31-Dec-13 31-Dec-12
(Net Debt / NPV) Actual Lock-up Actual Lock-up
Forward looking 47.2% < 70.0% 49.0% < 70.0%
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Ratings
Fitch maintained bond rating at A- (October 2013).
S&P maintained bond rating at BBB, with a stable outlook (March 2014).
Company and Shareholders continue to remain committed to ensuring that the bond ratings remain at these
levels.
11
Management changes
Smaller Executive Team formed in 2013
– CEO, COO, CFO, Head of Relationship Management and Head of Commercial & Business Services
– Engineering teams all under COO
Andy Course, COO joined Eversholt in June 2013
CFO
o Fred Maroudas left the business in March 2014
o Search in progress
o Interim Head of Finance in place – Corinna Bishopp
Note:
Executive Team
CEO: Mary Kenny
COO: Andy Course
CFO: TBA; Interim Head of Finance - Corinna Bishopp
Head of RM: Stephen Timothy
Head of CBS: Clive Thomas
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Questions?
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Appendix - EBITDA Reconciliation
Note1 £m
Gross Profit 148.3
Administrative expense (18.2)
Operating lease depreciation (Note 4) 128.6
258.7
Add back:
Write down in value of inventories within Cost of Sales (Note 4) 0.2
Administrative depreciation (Note 7) 0.5
Write off of prepayments (Note 7) 1.9
Pension costs (Note 7 & 28.6) 0.8
Finance lease depreciation within Finance lease income 1.1
EBITDA (as stated in Compliance Certificate) 263.2
1 Note from Security Group Financial Statements
Figures drawn from Security Group Financial Statements
Year ended 31 December 2013
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© Eversholt Rail (UK) Limited 2014
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