independent appraisal report regarding proposed sale of 1 ... · 11. pwc new zealand is the...
TRANSCRIPT
Equity Partners Infrastructure Company No. 1 Limited
Independent Appraisal ReportRegarding Proposed Sale of 1.24%Indirect Shareholding in ThamesWater
3 November 2011
Equity Partners Infrastructure Company Contents 2Independent Appraisal Report3 November 2011
ContentsPage
Background................................................................................................................................................................ 5Purpose of Report .................................................................................................................................................... 5Declarations, Qualifications, Disclaimer and Restrictions ......................................................................... 6Independence............................................................................................................................................................ 6Note .......................................................................................................................................................................... 6
1. Executive Summary .............................................................................................................................. 7
Issues Facing EPIC .................................................................................................................................................. 7The Proposed Transaction .................................................................................................................................... 7Assessment of Options Available to EPIC ........................................................................................................ 8Conclusions................................................................................................................................................................ 9
2. Overview of EPIC ................................................................................................................................ 11
Background.............................................................................................................................................................. 11Management Agreement and Relationship with Pyne Gould Corporation ......................................... 11Governance .............................................................................................................................................................. 12Investments ............................................................................................................................................................. 12Financial Position .................................................................................................................................................. 15Cash Flow ................................................................................................................................................................. 17Capital Raisings and Share Trading History ................................................................................................. 18Issues Facing EPIC ................................................................................................................................................ 19Strategic Review ..................................................................................................................................................... 20
3. The Proposed Transaction................................................................................................................. 21
Introduction ............................................................................................................................................................ 21Sale Process ............................................................................................................................................................. 21The Proposed Transaction .................................................................................................................................. 21
4. Overview of Thames Water ................................................................................................................ 23
Background.............................................................................................................................................................. 23Acquisition by Consortium ................................................................................................................................. 23Regulatory Framework ........................................................................................................................................ 24Regulated Capital Value (RCV) ......................................................................................................................... 25Financial Performance and Position................................................................................................................ 26
5. Assessment of the Proposed Transaction ....................................................................................... 28
Introduction ............................................................................................................................................................ 28Reported Fair Value as at 31 March 2011 ....................................................................................................... 28Minimum Price Relative to Comparable Transactions .............................................................................. 28Size of Shareholding and Provisions of Shareholders’ Agreements....................................................... 30Process Undertaken to Sell EPIC’s Shareholding ........................................................................................ 30Summary .................................................................................................................................................................. 31
6. Assessment of Options Available to EPIC ....................................................................................... 32
Overview ................................................................................................................................................................... 32Do Nothing (Status Quo) ..................................................................................................................................... 32Renegotiation of Funding.................................................................................................................................... 32Capital Raising........................................................................................................................................................ 33Sale of Moto Investment...................................................................................................................................... 34Sale of Thames Water Shareholding................................................................................................................ 35Summary .................................................................................................................................................................. 36
Appendix A – Statement of Independence, Disclaimer, Restrictions, Limitation of Liability,and Indemnity ........................................................................................................................................... 37
Appendix B – Sources of Information ................................................................................................. 38
Appendix C – Map of Area Serviced by Thames Water .................................................................... 40
Appendix D – UK Listed Water and Wastewater Companies and Analysis of Transactions .. 41
Equity Partners Infrastructure Company Glossary 3Independent Appraisal Report3 November 2011
Glossary
AMP : Asset management plan
AMP5 : Asset management plan for period 2010 - 2015
Board or the Directors : EPIC’s board of directors
CIS : Capital incentive scheme
DCF : Discounted cash flow
DRP : Dividend reinvestment plan
EBIT : Earnings before interest and tax
EBITDA : Earnings before interest, tax, depreciation and amortisation
EPAM : Equity Partners Asset Management Limited
EPIC or the Company : Equity Partners Infrastructure Company No 1 Limited
EPIM or the Manager : Equity Partners Infrastructure Management Limited
EV : Enterprise value
FYXX : The financial year ended 31 March 20XX
FX : Foreign exchange
GBP : British pound
GFC : Global financial crisis
GST : Goods and services tax
IPO : Initial public offering
IRR : Internal rate of return
KWHL : Kemble Water Holdings Limited
KWIHL : Kemble Water International Holdings Limited
KWHL SHA : KWHL Shareholders’ Agreement
KWIHL SHA : KWIHL Shareholders’ Agreement
Macquarie Group : The Macquarie Bank Limited group of companies
Management : EPIC management
MEIF I : Macquarie European Infrastructure Fund LP
MEIF II : Macquarie European Infrastructure Fund II
MIFML : Macquarie Infrastructure Funds Management Limited
MIRA(E)L : Macquarie Infrastructure and Real Assets (Europe) Limited
Moto : Moto International Holdings Limited
NAB : National Australia Bank Limited
NPAT : Net profit after tax
NTA : Net tangible assets
NWG : Northumbrian Water Group
NZD : New Zealand dollar
NZX : New Zealand stock exchange
Ofwat : UK Water Services Regulation Authority
PGC : Pyne Gould Corporation Limited
PwC : PricewaterhouseCoopers
RCV : Regulated capital value
Equity Partners Infrastructure Company Glossary 4Independent Appraisal Report3 November 2011
Report : The independent appraisal report in relation to the Proposed
Transaction
RPI : Retail price index
Shareholders : The shareholders of EPIC
Shareholders’ Agreements : The KWIHL SHA and KWHL SHA, together
Strategic Review : The strategic review commissioned by EPIC’s Board in October 2010
Thames Water : Thames Water Limited
The Proposed Transaction : The proposed sale of EPIC’s shareholding in Thames Water
Torchlight : Torchlight Fund No. 1 LP
Torchlight Investment Group : Torchlight Investment Group Limited
TWUL : Thames Water Utilities Limited
UK : United Kingdom
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New ZealandT: +64 (9) 355 8000, F: +64 (9) 355 8001
The Board of Directors
Equity Partners Infrastructure Company No 1 Limited
PO Box 3376
AUCKLAND 1140
31 October 2011
Independent Appraisal Report regarding proposed sale of 1.24% IndirectShareholding in Thames Water
1. PricewaterhouseCoopers (PwC) has been engaged by the Directors of Equity Partners InfrastructureCompany No 1 Limited (EPIC or the Company) to prepare an independent appraisal report (the Report) inrelation to the proposed sale of EPIC’s indirect shareholding in Thames Water Limited (Thames Water) (theProposed Transaction) for EPIC shareholders (the Shareholders).
Background
2. EPIC is operating in an environment that has changed considerably since the Company’s establishment in2007, particularly as a consequence of the global financial crisis (GFC). Despite reasonable underlyingperformance by EPIC’s two main investments, recent deleveraging in combination with volatile currencymarkets has reduced the cash income received by EPIC from its investments and increased the Company’sgearing to an unsustainable level.
3. As a result, EPIC’s Directors (the Board or the Directors) commissioned a strategic review seeking a wayforward that would reduce the Company’s risk profile, whilst still maximising shareholder value (theStrategic Review).
4. Following the Strategic Review, EPIC has decided to pursue the sale of its 1.24% indirect stake in ThamesWater, to facilitate repayment of maturing debt and provide EPIC with greater liquidity and improvedfinancial flexibility.
5. Based on the expected sale price for the Company’s Thames Water shareholding, the Proposed Transactionis likely to constitute a “major transaction” as defined in Section 129 of the Companies Act 1993. It thereforeneeds shareholder approval by way of a special resolution supported by 75% of those Shareholders entitledto vote and voting on the matter.
Purpose of Report
6. The Directors of EPIC have requested that PwC prepare this independent appraisal report assessing themerits of the Proposed Transaction, to assist them with informing EPIC Shareholders about the ProposedTransaction and other options that have been considered. This Report will be provided to Shareholders bythe Company notwithstanding that there is no statutory requirement to do so.
7. To prepare the Report we have considered the “value implications” of the Proposed Transaction (i.e. is theprice that is expected to be obtained reasonably consistent with “fair market value”); together with a rangeof other factors, in particular:
Relevant factors influencing the saleability (and therefore the expected price) for EPIC’s shareholdingin Thames Water;
What other feasible options are available to enable the Company to address the issues it faces; and
What happens if the Proposed Transaction does not proceed?
8. We have also sought to corroborate some of our key assumptions and analysis, particularly those relating tothe UK water industry conditions and the current market for such assets, through discussion with our PwCUK colleagues who have considerable experience in this sector.
Equity Partners Infrastructure Company 6Independent Appraisal Report3 November 2011
9. Each Shareholder’s circumstances and investment objectives will be different. It is therefore not possible toadvise what the specific impact of the Proposed Transaction will be for each individual Shareholder norprescribe what action an individual Shareholder should take in response. Our advice is necessarily generalin nature and is intended to assist each Shareholder to form their own opinion as to the implications of theProposed Transaction for them and what action they should take given their respective circumstances.
Declarations, Qualifications, Disclaimer and Restrictions
10. This Report should be read in conjunction with the statements and declarations set out in Appendix Aregarding our independence, qualifications, restrictions on the use of this Letter, reliance on information,general disclaimer, limitation of liability and our indemnity.
Independence
11. PwC New Zealand is the statutory auditor of EPIC. We do not believe that our role as auditor of EPICcompromises our independence or presents a conflict of interest.
12. Thames Water was previously a PwC UK audit client, but is no longer one. PwC UK currently carry out arange of non-audit advisory and tax engagements for Thames Water. We do not consider that these rolesgive rise to any conflict or independence issues, given the fact that although Thames Water is the subject ofthe Proposed Transaction, it will not be a party to it.
Note
13. All monetary amounts herein are expressed in New Zealand currency (NZD) and are stated exclusive ofGoods and Services Tax (GST), unless indicated to the contrary. Certain numbers included in the tableshave been rounded and therefore do not add precisely. Generally references to “year” should be taken asreferring to EPIC’s financial years ending on 31 March. For example, references to the “2011 year” refer tothe financial year ended 31 March 2011.
14. Information sources used in preparing this report are listed at Appendix B.
Yours faithfully
PricewaterhouseCoopers
David Bridgman Eric Lucas
Partner Partner
1. Executive Summary
15. This Executive Summary is a summary only, and should be read in conjunction with the balance of ourReport, as contained in Sections 2
Issues Facing EPIC
16. Dividend income has declined significantly following the suspension of dividend payments by EPIC’s secondlargest investment, Moto. As a result,insufficient to cover operating expenses and financing costs, resIn our view, this situation is
17. EPIC’s current borrowing facilitiesreduction in the facility which was to be funded by either a capital raising or salwas able to be completed withinsubject to PGC, the ultimate parent of EPIC’sreturn for a pro rata participation in the NAB facilitiesundertake an orderly sale process or capital raising, and was not intended to
18. Convertible loan notes issuedcapital raising were also not intended to provide long term funding. The convertible loan notes have steeplyescalating coupon rates every six months to encoreplaced with more appropriate and cost effective long term funding.
19. EPIC’s current financial position isnegative cash flow, the escalating coupon rate on the convertible loan notes, andbank loan facilities which must be repaid or renegotiated
The Proposed Transaction
20. Following a market testing exercise undertaken byfrom an undisclosed international third party investorin Thames Water. MIRA(E)Loperation and management ofthat govern such sales.
21. We have been advised thatacquiring a specific minority icertain other KWIHL shareholders thatthird party investor and accordingly has offered EPIC the potential opportunity to sell its 1.24% indirectinterest in Thames Water as part of this larger transaction. It is expected that Eproportion of the total price
22. MIRA(E)L has informed EPIC that aconfirming the price and total level of shareholding thatdescribed above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject tothe pre-emption processes pursuant to the Shareholders’ Agreeexist. The pre-emption processes are expected to take 4issued. There is a risk that existing shareholders do not exercise their preinvestor subsequently decides not to prowould need to find an alternative buyer or accept the revised terms offered.
23. In order to provide a degree of flexibility to cater forapproval to sell the Company’s(the Minimum Price). The Minimum Price reflects the assessed fair value of EPIC’s Thames Watershareholding as reported in EPIC’s financial statements as at 31 March 2011. The Minimum Price is lessthan the non-binding offer
Executive Summary
Executive Summary
Executive Summary is a summary only, and should be read in conjunction with the balance of ourections 2-6.
has declined significantly following the suspension of dividend payments by EPIC’s secondlargest investment, Moto. As a result, EPIC has a negative cash flow with its dividend incomeinsufficient to cover operating expenses and financing costs, resulting in a shortfall that need
his situation is unlikely to alter for at least another 12 months.
facilities with NAB expire on 30 April 2012. NAB previously sought a $14which was to be funded by either a capital raising or sale of assets. Neither of these
within the required timeframe and instead EPIC was granted a waiver by NABsubject to PGC, the ultimate parent of EPIC’s Manager, agreeing to make a payment of $14m to NAB inreturn for a pro rata participation in the NAB facilities. PGC’s support was provided to enable EPIC toundertake an orderly sale process or capital raising, and was not intended to constitute
issued to the Torchlight Fund in March 2011 to fund EPIC’s participation in Moto’snot intended to provide long term funding. The convertible loan notes have steeply
escalating coupon rates every six months to encourage repayment, and therefore need to be repaid orreplaced with more appropriate and cost effective long term funding.
position is not sustainable and the Company will need to take action to addresscalating coupon rate on the convertible loan notes, and the
which must be repaid or renegotiated.
ollowing a market testing exercise undertaken by MIRA(E)L EPIC has received an expression of interestfrom an undisclosed international third party investor to divest its largest investment, a 1.24% indirect stake
MIRA(E)L is part of the Macquarie Group and has extensive experience in relation tod management of Thames Water, its investors, and provisions of the
We have been advised that a non-binding offer has been submitted by a third party investor interested inacquiring a specific minority interest in Thames Water. We are advised that MIRA(E)L
KWIHL shareholders that are interested in selling their shares at the price indicated by thethird party investor and accordingly has offered EPIC the potential opportunity to sell its 1.24% indirectinterest in Thames Water as part of this larger transaction. It is expected that EPIC will receive aproportion of the total price to be paid by the third party investor for its 1.24% indirect s
EPIC that a non-binding agreement has been executed with thetotal level of shareholding that it is seeking to acquire pursuant
described above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject topursuant to the Shareholders’ Agreements, a binding sale
emption processes are expected to take 4 – 6 weeks each once the sale notices have beenissued. There is a risk that existing shareholders do not exercise their pre-emptive rights and the thirdinvestor subsequently decides not to proceed or seeks to materially alter the terms
alternative buyer or accept the revised terms offered.
In order to provide a degree of flexibility to cater for potential uncertainty, the Board is seeking Shareholderapproval to sell the Company’s 1.24% indirect investment in Thames Water at a price no less than £34.0m(the Minimum Price). The Minimum Price reflects the assessed fair value of EPIC’s Thames Water
ding as reported in EPIC’s financial statements as at 31 March 2011. The Minimum Price is lessbinding offer price that has been negotiated with the new third party
Executive Summary 7
Executive Summary is a summary only, and should be read in conjunction with the balance of our
has declined significantly following the suspension of dividend payments by EPIC’s seconddividend income being
ulting in a shortfall that needs to be funded.
NAB previously sought a $14.0me of assets. Neither of these
EPIC was granted a waiver by NABmake a payment of $14m to NAB in
PGC’s support was provided to enable EPIC toconstitute long term funding.
to the Torchlight Fund in March 2011 to fund EPIC’s participation in Moto’snot intended to provide long term funding. The convertible loan notes have steeply
urage repayment, and therefore need to be repaid or
sustainable and the Company will need to take action to address itsthe impending expiry of its
an expression of interestits largest investment, a 1.24% indirect stake
is part of the Macquarie Group and has extensive experience in relation to theprovisions of the Shareholders’ Agreements
a third party investor interested inMIRA(E)L is also aware of
interested in selling their shares at the price indicated by thethird party investor and accordingly has offered EPIC the potential opportunity to sell its 1.24% indirect
PIC will receive a pro rataindirect shareholding.
binding agreement has been executed with the third party investorto acquire pursuant to the offer
described above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject tobinding sale agreement does not
6 weeks each once the sale notices have beenemptive rights and the third party
ed or seeks to materially alter the terms. In this event, EPIC
uncertainty, the Board is seeking ShareholderThames Water at a price no less than £34.0m
(the Minimum Price). The Minimum Price reflects the assessed fair value of EPIC’s Thames Waterding as reported in EPIC’s financial statements as at 31 March 2011. The Minimum Price is less
third party investor.
24. Any sale of EPIC’s Thames Water shareholding will be
Approvals by EPIC shareholders
Compliance with the terms of the
Execution of a share sale and purchase agreement by the new third party investoroutcome of the pre-emptionemption processes).
25. Assuming the above conditions are met,December 2011.
Assessment of Options Available to EPIC
26. There are five options available
Do Nothing (or “status
Renegotiation of Funding;
Capital Raising;
Sale of Moto investment
Sale of Thames Water
27. Under the status quo, EPIC will be unable to repay the NAB facilities by 30 April 201the option of doing nothing is not
28. It is unlikely that NAB (or any other bank) would be willing to provide EPIC with long term fundingmatching the quantum and on similar terms to those it currentlyrepresent, and the fact that the Company has negative operating cash flow and is therefore unable to fullyservice debt under the statusfunding, either with NAB or through alternative providers, isreduce its current debt level
29. A capital raising would enable EPIC to repay debt and thereby reduce (or eliminate) its financing costs. Acapital raising could take the form of a pro rata rights issue to existing Shareholders and / or a placement tocertain existing or new shareholders.
30. In order for EPIC to raise the substantial amount of new capital required,issue would need to be pricedEPIC’s share price performance and illiquidity, to motivate Shareholders to take up their rights.Shareholders who do not elect or are unable to participate would have theirbelieve a placement of shares to existing or new shareholders would also reEPIC’s unlisted status wouldcapital raising is technically feasible, there are a number of practical and commercial difficulties andShareholders are at risk of suffering considerable value loss should the Company undertake a discountedrights issue or placement of new capital.
31. A sale of EPIC’s 17.49% stake ina substantial proportion of EPIC’s outstanding net debt. It would alsocurrently paying any dividends and we do not expect this to alter in the near term.additional capital from its shareholders
Executive Summary
Any sale of EPIC’s Thames Water shareholding will be subject to:
Approvals by EPIC shareholders and NAB prior to settlement;
Compliance with the terms of the Shareholders’ Agreements; and
Execution of a share sale and purchase agreement by the new third party investoremption processes (assuming EPIC’s shares are not acquired pursuant to the pre
Assuming the above conditions are met, the Proposed Transaction is expected to be completed by 31
Assessment of Options Available to EPIC
available to consider in relation to the financial issues immediately facing EPIC:
tatus quo”);
Renegotiation of Funding;
investment; and
indirect shareholding.
EPIC will be unable to repay the NAB facilities by 30 April 201he option of doing nothing is not a viable alternative for the Board.
It is unlikely that NAB (or any other bank) would be willing to provide EPIC with long term fundingthe quantum and on similar terms to those it currently has given the level of leverage this would
represent, and the fact that the Company has negative operating cash flow and is therefore unable to fullytatus quo. Accordingly, we do not consider that renegotiation of EPIC’s debt
funding, either with NAB or through alternative providers, is likely to be feasible. EPIC needs to materiallylevel to reduce financing costs and improve operating cash flow.
A capital raising would enable EPIC to repay debt and thereby reduce (or eliminate) its financing costs. Acapital raising could take the form of a pro rata rights issue to existing Shareholders and / or a placement to
areholders.
In order for EPIC to raise the substantial amount of new capital required, we believepriced at a discount, especially given recent Shareholder sentiment together with
ance and illiquidity, to motivate Shareholders to take up their rights.Shareholders who do not elect or are unable to participate would have their ownership position
placement of shares to existing or new shareholders would also require a discount. Furthermore,EPIC’s unlisted status would restrict the ability of certain investors to participate. Accordingly,capital raising is technically feasible, there are a number of practical and commercial difficulties and
ers are at risk of suffering considerable value loss should the Company undertake a discountedrights issue or placement of new capital.
17.49% stake in Moto at around, or in excess of, the current book value of $45m would repayial proportion of EPIC’s outstanding net debt. It would also realise an investment that is not
currently paying any dividends and we do not expect this to alter in the near term.shareholders, hence there is some attraction in the Company pursuing this option.
Executive Summary 8
Execution of a share sale and purchase agreement by the new third party investor following theshares are not acquired pursuant to the pre-
be completed by 31
to consider in relation to the financial issues immediately facing EPIC:
EPIC will be unable to repay the NAB facilities by 30 April 2012 and in our opinion
It is unlikely that NAB (or any other bank) would be willing to provide EPIC with long term fundinggiven the level of leverage this would
represent, and the fact that the Company has negative operating cash flow and is therefore unable to fullyrenegotiation of EPIC’s debt
. EPIC needs to materiallyash flow.
A capital raising would enable EPIC to repay debt and thereby reduce (or eliminate) its financing costs. Acapital raising could take the form of a pro rata rights issue to existing Shareholders and / or a placement to
we believe it is likely that a rightsgiven recent Shareholder sentiment together with
ance and illiquidity, to motivate Shareholders to take up their rights.ownership position diluted. We
quire a discount. Furthermore,ability of certain investors to participate. Accordingly, whilst a
capital raising is technically feasible, there are a number of practical and commercial difficulties anders are at risk of suffering considerable value loss should the Company undertake a discounted
Moto at around, or in excess of, the current book value of $45m would repayan investment that is not
currently paying any dividends and we do not expect this to alter in the near term. Moto may even requireis some attraction in the Company pursuing this option.
32. An informal market sounding resulted inMoto, received in June 2011. The offer was considered reasonable by the Board in terms of value, however,the offer was structured as a staged transaction with a number of conditions and did not provide theCompany with certainty around being able to meetconsideration of the offer, the Board decided toexit in respect of its stake in Thames Water.
33. Given the timeframe that EPIC must work to in termsthat it has already attempted to find a purchaser for its Moto stake, and certain restrictions within the Motoshareholders’ agreement that affect the saleability of the shareholding, we do not believeat realising this investment represents a realistic option for the Company at the present time.
34. We have evaluated the Minimum Pricethat Shareholders are being asked to aputilities and comparable recent transaction data for the UK water sectorenterprise value (EV) relative to Thames Water’sused to cross-check the primarynoting that this value metric reflects a number of company and transaction specific attributesbe considered when comparing multiplesefficiencies, and shareholding acquired), the analysis indicates that the EV / RCV multiple implied by theMinimum Price is fair and reasonable
35. A sale of the Thames Water stakeof its debt including the Convertible Notesdebt repaid, may leave the Company
36. In this eventuality, the Companyopportunities consistent with its updated strategy per the Strategic Review. At present, EPIC is precludedfrom considering any investment opportunities as it has no financial flexibility.
37. Other options identified for EPIC from the Strategic Review that could be considered following completionof the Proposed Transaction include an internalisation of its management function, which mwith investors who are showing a preference for internally managed investment vehicles; as well as theprospect of a partial share buyback that would provide a degree of liquidity for ShareholdersThames Water investment also othe NZX to provide Shareholders with
Conclusions
38. EPIC needs to address its pendingpossible in order to maximisematerially worse outcome for Shareholders
39. Debt markets have changed significantly since EPICcash flow following Moto’s suspension of dividends means that in our assessment EPIC will be unable tosecure alternative term debt funding on terms comparable to its existing bank facility.
40. In our opinion, any equity capital raisingto be priced at a discount toShareholders unable or unwilling to participate. Aserved by realising assets at around their fair value, if achievable.
41. EPIC has two major investments that could be17.49% investment in Moto andinvestment was rejected by the Board as it contained a number of conditions and did not providerequired level of certainty of funding ahead of the 30 April 2012believe it is feasible to commence a fresh attempt to divest the Moto stake
Executive Summary
sounding resulted in only one offer from a related party for EPIC’sreceived in June 2011. The offer was considered reasonable by the Board in terms of value, however,
the offer was structured as a staged transaction with a number of conditions and did not provide theCompany with certainty around being able to meet its debt repayment obligations. Following
of the offer, the Board decided to retain EPIC’s stake in Moto in favourstake in Thames Water.
Given the timeframe that EPIC must work to in terms of addressing its debt repayment obligation, the factthat it has already attempted to find a purchaser for its Moto stake, and certain restrictions within the Moto
agreement that affect the saleability of the shareholding, we do not believeat realising this investment represents a realistic option for the Company at the present time.
Minimum Price for Thames Water stipulated as part of the Proposed Transactionthat Shareholders are being asked to approve relative to recent comparable trading multiplesutilities and comparable recent transaction data for the UK water sector. We have
relative to Thames Water’s regulated capital value (RCV), which is a standardcheck the primary discounted cash flow (DCF) valuation approach used in th
noting that this value metric reflects a number of company and transaction specific attributesred when comparing multiples (such as RCV growth, regulatory performance, operational
efficiencies, and shareholding acquired), the analysis indicates that the EV / RCV multiple implied by thereasonable.
r stake at or above the Minimum Price will enable EPIC to repayincluding the Convertible Notes and depending on the sale price actually achieved and the level of
the Company in a position where it has surplus funds available.
, the Company may be able to consider other infrastructure-related investmentopportunities consistent with its updated strategy per the Strategic Review. At present, EPIC is precluded
estment opportunities as it has no financial flexibility.
Other options identified for EPIC from the Strategic Review that could be considered following completionof the Proposed Transaction include an internalisation of its management function, which mwith investors who are showing a preference for internally managed investment vehicles; as well as theprospect of a partial share buyback that would provide a degree of liquidity for ShareholdersThames Water investment also opens up the prospect that the Company could seek a listing of its shares on
Shareholders with better liquidity.
pending debt repayment obligations in the most effectivemaximise shareholder value. Failure to address this issue is likely
for Shareholders and hence the status quo is not a viable option for the Company
Debt markets have changed significantly since EPIC was established. This coupled with EPIC’sfollowing Moto’s suspension of dividends means that in our assessment EPIC will be unable to
secure alternative term debt funding on terms comparable to its existing bank facility.
ny equity capital raising whether by way of a pro rata rights issue or placement would needat a discount to the current value of the Company’s shares and would be value dilutive for
Shareholders unable or unwilling to participate. Accordingly, Shareholders’ interests are likely to be bestassets at around their fair value, if achievable.
EPIC has two major investments that could be realised in order to materially reduce EPIC’s indebtednessMoto and a 1.24% indirect shareholding in Thames Water. An offer for EPIC’s Moto
investment was rejected by the Board as it contained a number of conditions and did not providecertainty of funding ahead of the 30 April 2012 bank repayment deadline.
believe it is feasible to commence a fresh attempt to divest the Moto stake at the present time
Executive Summary 9
for EPIC’s 17.49% stake inreceived in June 2011. The offer was considered reasonable by the Board in terms of value, however,
the offer was structured as a staged transaction with a number of conditions and did not provide thedebt repayment obligations. Following due
favour of seeking a ‘cleaner’
of addressing its debt repayment obligation, the factthat it has already attempted to find a purchaser for its Moto stake, and certain restrictions within the Moto
agreement that affect the saleability of the shareholding, we do not believe that a fresh attemptat realising this investment represents a realistic option for the Company at the present time.
stipulated as part of the Proposed Transactionrelative to recent comparable trading multiples for UK water
. We have compared the implied, which is a standard metric
used in this industry. Whilenoting that this value metric reflects a number of company and transaction specific attributes which need to
such as RCV growth, regulatory performance, operationalefficiencies, and shareholding acquired), the analysis indicates that the EV / RCV multiple implied by the
will enable EPIC to repay most, if not all,depending on the sale price actually achieved and the level of
surplus funds available.
related investmentopportunities consistent with its updated strategy per the Strategic Review. At present, EPIC is precluded
Other options identified for EPIC from the Strategic Review that could be considered following completionof the Proposed Transaction include an internalisation of its management function, which may find favourwith investors who are showing a preference for internally managed investment vehicles; as well as theprospect of a partial share buyback that would provide a degree of liquidity for Shareholders. Sale of the
the prospect that the Company could seek a listing of its shares on
debt repayment obligations in the most effective and expedient wayaddress this issue is likely to result in a
and hence the status quo is not a viable option for the Company.
was established. This coupled with EPIC’s negativefollowing Moto’s suspension of dividends means that in our assessment EPIC will be unable to
secure alternative term debt funding on terms comparable to its existing bank facility.
whether by way of a pro rata rights issue or placement would needould be value dilutive for
rdingly, Shareholders’ interests are likely to be best
in order to materially reduce EPIC’s indebtedness – a. An offer for EPIC’s Moto
investment was rejected by the Board as it contained a number of conditions and did not provide thedeadline. We do not
at the present time.
42. EPIC is seeking Shareholder approval to sell itsthan the Minimum Price pursuant toand reasonable given it reflects EPIC’s pro rata share of the 31 March 2011investment and it is broadlyutilities and the EV / RCV multiples evidenced by comparable recent transactions in the UK water sector
43. Accordingly, the Proposed Transaction comprising thethan the Minimum Price is, in our opinion,circumstances faced by EPIC
44. Importantly, we note that as at the date of this Report, the Proposed Transaction does not constitute abinding commitment for the sale oConsequently, Shareholders need to be aware that even if the Proposed Transaction is approved there is nocertainty that it will proceed, and that there will be a sale of the Thames Water stake atMinimum Price. However, we believe that the Compacourse of action open to it, given all the circumstances confronting EPIC.
45. In the event that the Proposed Transaction does not proceed, then the Company will have less than fivemonths before expiry of its debt facilities in order to find an alternative solution. In our view, this would bea near untenable position for the Directors, given they have already explored the feasible options. The Boardwould have little alternative but to consider some formwould transfer a substantialwould in effect, be equivalent to existing investors selling a substantial proportion of theirparticipation in Thames Water and Moto. However, we believe the outcome for Shareholders is likely to bematerially worse in this eventuality, given the pressure that the Company would be under due to the pendingdebt maturity, which would manifeinvestors providing the fresh capital.
Executive Summary
EPIC is seeking Shareholder approval to sell its 1.24% indirect shareholding in Thames Water for no lesspursuant to the Proposed Transaction. In our opinion the Minimum Price is fair
and reasonable given it reflects EPIC’s pro rata share of the 31 March 2011 reported “fair value” for thisis broadly consistent with comparable EV / RCV multiples for other listed UK water
multiples evidenced by comparable recent transactions in the UK water sector
Transaction comprising the sale of EPIC’s interest in Thames Water, in our opinion, a reasonable and appropriate course of action given all the
circumstances faced by EPIC.
Importantly, we note that as at the date of this Report, the Proposed Transaction does not constitute abinding commitment for the sale of the Company’s indirect 1.24% shareholding in Thames Water
Shareholders need to be aware that even if the Proposed Transaction is approved there is nocertainty that it will proceed, and that there will be a sale of the Thames Water stake atMinimum Price. However, we believe that the Company’s pursuit of this transaction represents the bestcourse of action open to it, given all the circumstances confronting EPIC.
In the event that the Proposed Transaction does not proceed, then the Company will have less than fivets debt facilities in order to find an alternative solution. In our view, this would be
a near untenable position for the Directors, given they have already explored the feasible options. The Boardwould have little alternative but to consider some form of discounted capital raising, which in all likelihood
a substantial ownership position and control of EPIC to the new capital provider(s). Thiswould in effect, be equivalent to existing investors selling a substantial proportion of theirparticipation in Thames Water and Moto. However, we believe the outcome for Shareholders is likely to bematerially worse in this eventuality, given the pressure that the Company would be under due to the pendingdebt maturity, which would manifest itself in a significant value transfer from the Shareholders to the newinvestors providing the fresh capital.
Executive Summary 10
in Thames Water for no less. In our opinion the Minimum Price is fair
reported “fair value” for thisfor other listed UK water
multiples evidenced by comparable recent transactions in the UK water sector.
sale of EPIC’s interest in Thames Water for no lessa reasonable and appropriate course of action given all the
Importantly, we note that as at the date of this Report, the Proposed Transaction does not constitute ain Thames Water.
Shareholders need to be aware that even if the Proposed Transaction is approved there is nocertainty that it will proceed, and that there will be a sale of the Thames Water stake at, or in excess of, the
ny’s pursuit of this transaction represents the best
In the event that the Proposed Transaction does not proceed, then the Company will have less than fivets debt facilities in order to find an alternative solution. In our view, this would be
a near untenable position for the Directors, given they have already explored the feasible options. The Boardof discounted capital raising, which in all likelihood
and control of EPIC to the new capital provider(s). Thiswould in effect, be equivalent to existing investors selling a substantial proportion of their indirectparticipation in Thames Water and Moto. However, we believe the outcome for Shareholders is likely to bematerially worse in this eventuality, given the pressure that the Company would be under due to the pending
value transfer from the Shareholders to the new
2. Overview of EPIC
Background
46. EPIC is a New Zealand incorporated companyand entities that own or operate infrastructure assets
47. EPIC undertook an initial public$1.00 per share. The proceeds of the IPO were primarily used to purchase shares in ThameMacquarie Water, a member of the Macquarie Group.investment in Moto, a UK motorway service operator,investments in UK infrastructure
48. EPIC’s investment strategy, as set out inquality and high yielding infrastructure assets that m
the investment must be reasonably expected to add shareholderby increasing the potential for capital gains
the investment must be an infrastructure asset (or exhibit the characteristics of an infr
the investment must be
the investment should preferably operate in a clearly defined and traand
EPIC should preferably invest as a coinvestor, and the asset must have a manager with appropria
49. The investment in EPIC was originallyexpected to pay Shareholders
Management Agreement and Relationship with
50. EPIC’s executive and investment management(EPIM or the Manager). EPIM is a whollyEPAM is owned by Torchlight Investment Groupowned through a wholly-owned subsidiary
51. Under the management agreement between EPIC and EPresponsible for:
attending to EPIC’s day to daycommunications, coordinating payment of dividends, and ensuring compliance withregulatory requirements;
managing EPIC’s investments, such as implementing EPIC’s investment strategy and managingEPIC’s debt levels, currency exposures and cash flows.
52. EPIM receives a management feein arrears. EPIM is entitled to a transaction fee of 1.00% of the price paid for anyfollowing the original Thames Water investment. A performance fee is also payable in relation to Esecond major investment, Motorespect of EPIC’s other investments.
Overview of EPIC
Overview of EPIC
incorporated company that was established in 2007 to invest in infrastructure assetsand entities that own or operate infrastructure assets.
initial public offering (IPO) in June 2007, issuing 94.7m fully paid ordinary shares. The proceeds of the IPO were primarily used to purchase shares in Thame
member of the Macquarie Group. EPIC subsequently made one other substantialmotorway service operator, and has also made two other
infrastructure-related companies.
, as set out in the IPO Prospectus, is to identify and acquire interests in highquality and high yielding infrastructure assets that meet the following criteria:
he investment must be reasonably expected to add shareholder value, by being yield accretive and / orby increasing the potential for capital gains;
he investment must be an infrastructure asset (or exhibit the characteristics of an infr
he investment must be in OECD or OECD-like countries;
nvestment should preferably operate in a clearly defined and transparent regulatory environment;
EPIC should preferably invest as a co-investor alongside at least one other major infrastructureinvestor, and the asset must have a manager with appropriate expertise.
The investment in EPIC was originally promoted as a ‘yield’ investment. At the time of its IPO EPICexpected to pay Shareholders quarterly dividends with an initial forecast dividend yield of 9.1%.
Agreement and Relationship with Pyne Gould Corporation
executive and investment management is outsourced to Equity Partners Infrastructure Management. EPIM is a wholly-owned subsidiary of Equity Partners Asset Management (EPAM).
EPAM is owned by Torchlight Investment Group Limited (Torchlight Investment Group)owned subsidiary by NZX-listed Pyne Gould Corporation
Under the management agreement between EPIC and EPIM (the Management Agreement), EPIM is
EPIC’s day to day activities, such as preparing financial information,communications, coordinating payment of dividends, and ensuring compliance withregulatory requirements; and
managing EPIC’s investments, such as implementing EPIC’s investment strategy and managingEPIC’s debt levels, currency exposures and cash flows.
a management fee calculated as 1.00% p.a. of the gross asset value of EPIC, payable monthlyEPIM is entitled to a transaction fee of 1.00% of the price paid for any
following the original Thames Water investment. A performance fee is also payable in relation to E, Moto – refer below for more details. No performance fee is payable to EPIM
other investments.
Overview of EPIC 11
that was established in 2007 to invest in infrastructure assets
fully paid ordinary shares at. The proceeds of the IPO were primarily used to purchase shares in Thames Water from
made one other substantialother much smaller
to identify and acquire interests in high
value, by being yield accretive and / or
he investment must be an infrastructure asset (or exhibit the characteristics of an infrastructure asset);
nsparent regulatory environment;
other major infrastructure
as a ‘yield’ investment. At the time of its IPO EPICdividend yield of 9.1%.
s outsourced to Equity Partners Infrastructure Managementowned subsidiary of Equity Partners Asset Management (EPAM).
(Torchlight Investment Group) which in turn isPyne Gould Corporation Limited (PGC).
Management Agreement), EPIM is
preparing financial information, investorcommunications, coordinating payment of dividends, and ensuring compliance with applicable
managing EPIC’s investments, such as implementing EPIC’s investment strategy and managing
value of EPIC, payable monthlyEPIM is entitled to a transaction fee of 1.00% of the price paid for any assets acquired by EPIC
following the original Thames Water investment. A performance fee is also payable in relation to EPIC’sow for more details. No performance fee is payable to EPIM in
53. EPAM is the largest shareholder in EPIC with an 11.06% interest.1 LP (Torchlight) – a fund manageof the shares as well as $12.0capital raising undertaken by Moto.bank facility negotiations via a $14
54. The chart below illustrates the structure of EPIC’s Manager and relationship with PGC:
Source: EPIC Investment Prospectus 2007,
Governance
55. The EPIC Board of Directors comprises twoand Brian Harrison, and onedirector of EPIM, Torchlight Investment Group and PGCof directors who are independent of EPIM.
56. The Board is responsible forBoard’s specific responsibilities include: defining the Company’s objectives, strategy and policy framework;the supervision of EPIM’s performance as managerdividend policy; regulatory reporting
Investments
57. EPIC currently has two major investments:
An indirect 1.24% shareholdwastewater services; and
A 17.49% shareholding
58. EPIC also has two smaller investments
Arqiva, a UK based broadcast and transmission service provider
Wales & West Utilities Limited, a UK based gas network provider
EPIM
100%
100%
Perpetual GroupLimited
100%
100%
EPAM
Pyne Gould CorporationLimited
Torchlight InvestmentGroup Limited
Overview of EPIC
EPAM is the largest shareholder in EPIC with an 11.06% interest. An associated entity,a fund managed by EPAM’s parent, Torchlight Investment Group,
12.0m of convertible loan notes that were issued to enable EPIC to participate incapital raising undertaken by Moto. In July 2011 PGC supported EPIC’s National
via a $14.0m sub-participation in the facility. Refer below
The chart below illustrates the structure of EPIC’s Manager and relationship with PGC:
Prospectus 2007, NZ Companies Office, EPIC Management
The EPIC Board of Directors comprises two non-executive independent directors, Margaret Devlin (and Brian Harrison, and one non-executive non-independent director, John Duncan
, Torchlight Investment Group and PGC. EPIC’s constitution requires EPIC have a majorityare independent of EPIM.
Board is responsible for the overall direction of EPIC and corporate governance of the Company. Thepecific responsibilities include: defining the Company’s objectives, strategy and policy framework;
EPIM’s performance as manager; annual asset valuations; fees paid to the Manager;regulatory reporting; and asset acquisitions and disposals.
EPIC currently has two major investments:
shareholding in Thames Water, the UK’s largest supplier of water and provider of; and
shareholding in Moto, a motorway and trunk road service area operator in the
smaller investments in:
Arqiva, a UK based broadcast and transmission service provider; and
ales & West Utilities Limited, a UK based gas network provider.
EPIC
ManagementAgreement
11.06%
Manager Torchlight FundNo 1 LP
5.3%
$14m sub-participation in senior loanfacilities provided by NAB
ConvertibleNotes($12.0m at 31
March 2011)
Overview of EPIC 12
An associated entity, Torchlight Fund NoTorchlight Investment Group, holds a further 5.3%
m of convertible loan notes that were issued to enable EPIC to participate in a’s National Australia Bank (NAB)
below for more detail.
The chart below illustrates the structure of EPIC’s Manager and relationship with PGC:
independent directors, Margaret Devlin (Chair)independent director, John Duncan. John Duncan is also a
EPIC’s constitution requires EPIC have a majority
te governance of the Company. Thepecific responsibilities include: defining the Company’s objectives, strategy and policy framework;
; fees paid to the Manager;
largest supplier of water and provider of
in Moto, a motorway and trunk road service area operator in the UK.
59. The table below sets out theMarch 2011, in both GBP (currency in which all investments are denominated)
60. The reported book values of EPIC’s2011 reflect their assessed “fair values”market. These values are based on a
61. As shown above, the assessed fair value of Thames Water as at 31 March 2011 was 3.6% above the totalinvestment cost of £33.0m. However,investment date, the translatedcommentary on Thames Water’s financial performance and outlook.
62. The NZD value of EPIC’s three other investments has also been adversely impacted by the appreciatingNZD. The chart below illustrates the movement in the NZD:GBP exchange rate since May 2007the significant appreciation in the NZD from(NZD:GBP up approximately 3
Source: RBNZ Historical Exchange Rates Data, EPIC Management
63. We understand that in response to debt market conditions, the Arqiva board decided that it was prudent tosuspend distributions in order to reduce its debt level. We have been advised that distributions are notexpected to be reinstated until the refinancing has been completed successfully. The fair valueinvestment in Arqiva has been marked down since acquisition, partly reflecting this voluntary deleveraging.
Investments
Company
Date of
Original
Investment
Thames Water May-07
Arqiva3 Sep-08
Wales & West4 Sep-08
Moto Jun-09
Total
1. Including transaction costs
2. NZD:GBP FX rate of 0.4737 used
Source: EPIC Management, EPIC Annual Financial Report for FY11
Notes
4. EPIC has a beneficial interest in 283,186 shares and 94,396 loan notes in MGN Gas Networks (UK) Limited, the ultimate holding
company of Wales & West Utilities Limited
3. EPIC has a beneficial interest in 460,504 shares and 460,504 loan notes in Macquarie UK Broadcast Holdings Limited, the ultimate
holding company of Arqiva
5. Not meaningful (n.m) due to book value reported in EPIC's FY11 Annual Report reflecting equity method of accounting (initial cost in
NZD, share of loss / gain and losses arising on translation). Accordingly GBP converted figure is not meaningful.
0.30
0.35
0.40
0.45
0.50
0.55
May-2007 Feb-2008
NZ
D:G
BP
Mo
nth
lyA
ve
rage
Ex
ch
an
ge
Rate
NZD:GBP Exchange Rate from May 2007 to the present
Thames Water investment
Overview of EPIC
below sets out the total investment cost and reported book value of EPIC’s investments(currency in which all investments are denominated) and NZD
of EPIC’s investment in Thames Water, Arqiva and Wales & West2011 reflect their assessed “fair values” as the carrying value of these investments has been marked to
based on a discounted cash flow (DCF) valuation methodology.
As shown above, the assessed fair value of Thames Water as at 31 March 2011 was 3.6% above the total33.0m. However, due to the appreciating NZD relative to thetranslated NZD value as at 31 March 2011 has declined by 19.9%.
commentary on Thames Water’s financial performance and outlook.
three other investments has also been adversely impacted by the appreciatingThe chart below illustrates the movement in the NZD:GBP exchange rate since May 2007
the significant appreciation in the NZD from June 2009 – the date of EPIC’s original investment in Motoup approximately 30%).
Exchange Rates Data, EPIC Management
response to debt market conditions, the Arqiva board decided that it was prudent tosuspend distributions in order to reduce its debt level. We have been advised that distributions are not
cted to be reinstated until the refinancing has been completed successfully. The fair valueinvestment in Arqiva has been marked down since acquisition, partly reflecting this voluntary deleveraging.
Investment
Share-
holding
Total
Investment
(₤m)1
Book value at
31 Mar 2011
(₤m)2Movement
in £ value
Total
Investment
(NZDm)
1.24% 33.01 34.18 3.6% 90.03
0.07% 1.45 1.40 (3.4%) 3.94
0.10% 0.64 0.53 (17.5%) 1.87
17.49% 26.86 n.m.5 n.m. 67.66
61.96 36.11 163.49
2. NZD:GBP FX rate of 0.4737 used
Source: EPIC Management, EPIC Annual Financial Report for FY11
4. EPIC has a beneficial interest in 283,186 shares and 94,396 loan notes in MGN Gas Networks (UK) Limited, the ultimate holding
company of Wales & West Utilities Limited
3. EPIC has a beneficial interest in 460,504 shares and 460,504 loan notes in Macquarie UK Broadcast Holdings Limited, the ultimate
5. Not meaningful (n.m) due to book value reported in EPIC's FY11 Annual Report reflecting equity method of accounting (initial cost in
NZD, share of loss / gain and losses arising on translation). Accordingly GBP converted figure is not meaningful.
Nov-2008 Aug-2009 May-2010 Feb-2011
Month
NZD:GBP Exchange Rate from May 2007 to the present
Thames Water investment
Moto investment
Arqiva and Wales &West investments
Overview of EPIC 13
of EPIC’s investments as at 31and NZD:
and Wales & West as at 31 Marchas the carrying value of these investments has been marked to
methodology.
As shown above, the assessed fair value of Thames Water as at 31 March 2011 was 3.6% above the totalthe GBP since the initial19.9%. Refer Section 4 for
three other investments has also been adversely impacted by the appreciatingThe chart below illustrates the movement in the NZD:GBP exchange rate since May 2007 and shows
the date of EPIC’s original investment in Moto
response to debt market conditions, the Arqiva board decided that it was prudent tosuspend distributions in order to reduce its debt level. We have been advised that distributions are not
cted to be reinstated until the refinancing has been completed successfully. The fair value of EPIC’sinvestment in Arqiva has been marked down since acquisition, partly reflecting this voluntary deleveraging.
Total
Investment
(NZDm)1
Book Value
at 31 Mar 11
(NZDm)2
Movement
in NZD value
90.03 72.15 (19.9%)
3.94 2.95 (25.0%)
1.87 1.12 (40.3%)
67.66 44.60 (34.1%)
163.49 120.82
4. EPIC has a beneficial interest in 283,186 shares and 94,396 loan notes in MGN Gas Networks (UK) Limited, the ultimate holding
3. EPIC has a beneficial interest in 460,504 shares and 460,504 loan notes in Macquarie UK Broadcast Holdings Limited, the ultimate
5. Not meaningful (n.m) due to book value reported in EPIC's FY11 Annual Report reflecting equity method of accounting (initial cost in
NZD, share of loss / gain and losses arising on translation). Accordingly GBP converted figure is not meaningful.
64. Wales & West has outperformed the regulatorsuspended dividend payments for a period until it had implemented a securiti2010. The fair value of EPIC’s investment has been marked down due to a reduction inapproximately 12% compared to the original base case.
65. The reported book value of Moto reflects theadditional investment) adjusted for gains and losses, including foreign currency troriginal investment. Accordinglyreflect its assessed fair value.directors for Moto, and is therefore
66. Since EPIC’s initial investment in June 2009EBITDA has increased by 23.1% andexceeding its budget targetsMoto was unable to renew these facilitiescredit markets requiring more
67. In September 2010, Moto announced that it was suspending dividend payments in order to focus onreduction and its growth strategy.capital injection from shareholdersrecapitalisation, investing a further $11.7m in order to maintain its 17.4dilution and potential loss ofrefinanced in March 2011 andand a £176m of bond which
Overview of EPIC
& West has outperformed the regulatory allowances over the past three years. However, the companysuspended dividend payments for a period until it had implemented a securitisation structure in March2010. The fair value of EPIC’s investment has been marked down due to a reduction inapproximately 12% compared to the original base case.
The reported book value of Moto reflects the equity method of accounting and is recorded atadjusted for gains and losses, including foreign currency tr
. Accordingly the reported book value of EPIC’s Moto investmentfair value. The equity method is used given EPIC has the right
therefore in a position where it is able to exert “significant influence
investment in June 2009, Moto’s financial performance has been strongby 23.1% and 14.7% in the last two financial years ended 31 December
exceeding its budget targets. However, Moto’s previous debt facilities were due to expire in June 2011, andthese facilities on terms similar to those originally negotiated
more conservative funding structures.
10, Moto announced that it was suspending dividend payments in order to focus ongrowth strategy. In March 2011, Moto undertook a recapitalisation which included a
capital injection from shareholders to help repay a portion of outstanding debt. EPICation, investing a further $11.7m in order to maintain its 17.49% shareholding
dilution and potential loss of its right to appoint a director. Moto’s debt facilities were successfullyand currently comprise a £400m senior debt facility which expires in March 2016
of bond which pay a 10.25% coupon and which is due for repayment in March 2017.
Overview of EPIC 14
y allowances over the past three years. However, the companyation structure in March
2010. The fair value of EPIC’s investment has been marked down due to a reduction in gearing of
and is recorded at cost (includingadjusted for gains and losses, including foreign currency translation, since the
the reported book value of EPIC’s Moto investment does not necessarilyto appoint one of up to five
significant influence” over Moto.
Moto’s financial performance has been strong. Moto’sended 31 December respectively,
to expire in June 2011, andsimilar to those originally negotiated, largely due to
10, Moto announced that it was suspending dividend payments in order to focus on debta recapitalisation which included a
. EPIC participated in this% shareholding and thereby avoid
to appoint a director. Moto’s debt facilities were successfullycomprise a £400m senior debt facility which expires in March 2016
due for repayment in March 2017.
Financial Position
68. EPIC’s financial position for the previous t
69. We note the following regard
Investments were recordedvalue basis, as discussed above
Investment in associateadjusted for gains and losignificant influence through the ability to appoint a director
Derivative financial liabilities relate to foreign exchange (FX) hedging contracts. EPIC terminated allFX hedging contracts in January 2011
Moto performance fee relates to the fee(IRR) achieved on thethe investment, change of control, change of manager, IPO, or2019. The reported fee has been based onMoto.
Bank loans relate to secured2011. (Refer below)
Statement of Financial Position
As at 31 March
NZD 000s
Cash and cash equivalents
Other current assets
Total current assets
Investments
Investment in associate
Other non-current assets
Total non-current assets
Total assets
Derivative financial liabilities
Bank loans
Moto performance fee
Other current liabilities
Total current liabilities
Bank loans
Convertible loan notes
Derivative financial liabilities
Total non-current liabilities
Total liabilities
Issued capital
Retained earnings / (Accumulated losses) and other adjustments
Total Equity
Number of issued shares (m)
Net tangible assets (NTA) per Share ($)
Net Debt
Net Debt / Net Debt + Equity
Source: EPIC Annual Financial Report for FY09, FY10 and FY11, PwC Analysis
Overview of EPIC
EPIC’s financial position for the previous three financial years is set out below:
egarding EPIC’s financial position:
corded at cost in FY09 and FY10. In FY11 investments were, as discussed above.
Investment in associate (Moto) is recorded using the equity method of accountingadjusted for gains and losses, including foreign currency translation, since acquisitionsignificant influence through the ability to appoint a director.
Derivative financial liabilities relate to foreign exchange (FX) hedging contracts. EPIC terminated allging contracts in January 2011.
Moto performance fee relates to the fee potentially payable to EPIM based on the internal rate of returnon the investment. The performance fee only becomes payable upon
the investment, change of control, change of manager, IPO, or failing any of these eventsThe reported fee has been based on EPIC management’s (Management
Bank loans relate to secured debt facilities provided by NAB. These facilities were renegotiated in June
Statement of Financial Position
2009 2010
1,385 895
3,351 561
4,736 1,456
96,123 95,609
- 39,981
5,029 2,156
101,152 137,746
105,888 139,202
9,445 6,668
9,350 13,439
- 3,531
2,725 3,581
21,520 27,219
- 31,621
- -
9,049 79
9,049 31,700
30,569 58,919
88,192 114,359
Retained earnings / (Accumulated losses) and other adjustments (12,873) (34,076)
75,319 80,283
95.1 128.0
Net tangible assets (NTA) per Share ($) 0.79 0.63
7,965 44,165
9.6% 35.5%
Source: EPIC Annual Financial Report for FY09, FY10 and FY11, PwC Analysis
Overview of EPIC 15
were recorded on a fair
is recorded using the equity method of accounting (i.e. original costsses, including foreign currency translation, since acquisition) given EPIC has
Derivative financial liabilities relate to foreign exchange (FX) hedging contracts. EPIC terminated all
based on the internal rate of returnonly becomes payable upon the realisation of
failing any of these events on 20 Junent) assessed fair value of
. These facilities were renegotiated in June
2011
889
372
1,261
76,223
44,601
218
121,042
122,303
-
7,753
3,531
2,192
13,476
38,998
12,300
-
51,298
64,774
121,076
(63,547)
57,529
135.7
0.42
58,162
50.3%
Convertible loan notesTorchlight plus related
Issued capital has increased as a result ofis discussed further below.
Net tangible assets (NTA2011.
70. EPIC’s facility agreement wit30 April 2011. This obligation was waived by NAB subject to a restructuring of the facilityEPIC making a repayment of $14.0mApril 2012.
71. The $14.0m repayment to NABHowever neither of these optionsagreed to provide assistancemaximise shareholder value.required PGC to make a payment of $14.0m toof the interest and fees paid by EPIC to NAB.and PGC were related parties
72. The bank facility agreement was amended on 8 July 2011 to reflect PGwas set for the facilities comprisingBoth facilities have a termination date of 30 April 2012.term of the facility otherwise extended, beyond 30 April 2012of PGC pursuant to NZX Listing Rule 9.2.1
73. The convertible loan notes were issued toMarch 2011 recapitalisationin the coupon rates which applyin September 2011 and is set to increase by 5% every 180 daysconvert the loan notes at $0.90 per shareMarch 2011 NTA per share of $0.42Torchlight was able to exercise itscurrent circumstances. Accordingly, given therepaid or replaced with more appropriate
74. As at 30 September 2011, EPIC’sloan notes of $13.2m, less cash andbalance from 31 March 2011 represents additional notes issued in respect of the accrued interest on thenotes, which is being capitalised and not paid in cash
Overview of EPIC
Convertible loan notes comprise $12.0m of unsecured subordinated convertible loan notes issued torelated transaction costs of $0.3m.
al has increased as a result of several capital raisings undertaken to fund investmentis discussed further below.
NTA) per share has declined from $0.79 at 31 March 2009 to $0.42 at 31 March
EPIC’s facility agreement with NAB originally required partial repayment of the Company’s bank loan30 April 2011. This obligation was waived by NAB subject to a restructuring of the facilityEPIC making a repayment of $14.0m by 30 June 2011 and the balance of the facility
to NAB was originally expected to be funded via an equity raising orowever neither of these options was able to be completed by the 30 June 2011 repayment date
to provide assistance in order for EPIC to continue an orderly sale process which was expected toe shareholder value. Accordingly, PGC agreed to take a sub-participation in the NAB facility
a payment of $14.0m to NAB in return for an entitlement to receive a pro rata portionand fees paid by EPIC to NAB. PGC’s participation required a waiver from NZX
and PGC were related parties. In effect, PGC repaid $14.0m to NAB and became a co
facility agreement was amended on 8 July 2011 to reflect PGC’s sub-participation, andcomprising $3.0m for Facility A (working capital facility)
termination date of 30 April 2012. PGC’s participation will not be renewed, nor theterm of the facility otherwise extended, beyond 30 April 2012, without the approval of ordinary shareholders
Listing Rule 9.2.1 (provided PGC remains listed).
The convertible loan notes were issued to Torchlight to raise funding to enable EPIC to participate in Moto’sation. The notes were not intended to provide long term funding, and this is reflected
which apply. The coupon rate for the first 6 months was 15%, and this increased to 20%in September 2011 and is set to increase by 5% every 180 days thereafter. Torchlight
$0.90 per share if EPIC is placed in liquidation or is woundMarch 2011 NTA per share of $0.42 and EPIC’s prevailing share price which is below $0.50Torchlight was able to exercise its conversion option, the loan notes are unlikely to be converted
Accordingly, given the steeply increasing coupon rates this funding will need to bereplaced with more appropriate and cost effective long term funding.
EPIC’s net debt had risen to $60.3m, comprising bank debt of $48cash and cash equivalents of $1.7m. The increase in the convertible
balance from 31 March 2011 represents additional notes issued in respect of the accrued interest on thebeing capitalised and not paid in cash.
Overview of EPIC 16
$12.0m of unsecured subordinated convertible loan notes issued to
capital raisings undertaken to fund investments. This
$0.79 at 31 March 2009 to $0.42 at 31 March
repayment of the Company’s bank loans by30 April 2011. This obligation was waived by NAB subject to a restructuring of the facility which involved
of the facility was extended to 30
was originally expected to be funded via an equity raising or asset sales.was able to be completed by the 30 June 2011 repayment date. PGC
in order for EPIC to continue an orderly sale process which was expected toparticipation in the NAB facility, which
NAB in return for an entitlement to receive a pro rata portionPGC’s participation required a waiver from NZX given EPIC
m to NAB and became a co-lender to EPIC.
participation, and a new limitand $48.7m for Facility B.
PGC’s participation will not be renewed, nor theapproval of ordinary shareholders
enable EPIC to participate in Moto’swere not intended to provide long term funding, and this is reflected
. The coupon rate for the first 6 months was 15%, and this increased to 20%Torchlight only has the option to
is wound up. Given the 31and EPIC’s prevailing share price which is below $0.50, even if
s are unlikely to be converted givencoupon rates this funding will need to be
bank debt of $48.8m, convertibleThe increase in the convertible loan notes
balance from 31 March 2011 represents additional notes issued in respect of the accrued interest on the
Cash Flow
75. EPIC’s statement of cash flows for the previous three financial years is set out below
76. Dividend income fell by 42.2% in FY11from Thames Water and MotoNZD:GBP exchange rate.
Source: EPIC Management
77. Thames Water’s dividend reducedleverage ahead of the refinance of holding company debt. Tpositive provided it can continue to meet its regulatory obligationsEPIC is expecting an interim£1.2m, which is 33% higher
78. As discussed above, Moto suspended dividend payments in September 2011.payments will resume, we believe that& West reinstated dividend payments in FY11reinstate dividend payments until at least 2013.
79. EPIC’s FY12 dividend incomesuspension of dividend paymentsexpenses and interest unless
Statement of Cash Flows
For years ended 31 March
NZD 000s
Dividends received
Operating expenses paid
Financing costs
Realised foreign exchange loss
Other operating activities
Net cash generated from operating activities
Proceeds from liquidation of foreign exchange contracts
Acquisition of investments
Net cash used in investing activities
Net proceeds from equity raising
Net movement in borrowings
Dividends paid to shareholders
Net cash received / (used) in financing activities
Decrease in cash and cash equivalents
Source: EPIC Annual Financial Reports for FY09, FY10 and FY11
-
1,000
2,000
3,000
4,000
5,000
6,000
FY09
Div
idends
(£000s)
Dividend Income Received from EPIC's Investments
Thames Water
Wales & West
Overview of EPIC
EPIC’s statement of cash flows for the previous three financial years is set out below
fell by 42.2% in FY11. As shown in the chart below, this was due to aand Moto, which are denominated in GBP, as well as further weakening in the
reduced in FY11 due to a fall in profitability and the company’s decisionleverage ahead of the refinance of holding company debt. The long term outlook for Thames Water is
provided it can continue to meet its regulatory obligations – refer Sectionn interim dividend payment in December 2011 from Thames Water
33% higher than the prior year dividend.
As discussed above, Moto suspended dividend payments in September 2011. Although ibelieve that this is unlikely to be in the near term. As previously discussed
& West reinstated dividend payments in FY11 and Arqiva has suspended dividendsreinstate dividend payments until at least 2013.
nd income is therefore expected to fall significantly compared to FY11dividend payments. EPIC’s dividend income will thereafter be insufficient to cover
unless these expenses, especially interest payments, can be reduced.
FY09 FY10 FY11
7,214 11,944 6,904
(2,496) (2,012) (2,065)
(359) (3,242) (3,858)
Realised foreign exchange loss (16) (9,685) (4,281)
856 339 209
Net cash generated from operating activities 5,199 (2,656) (3,091)
Proceeds from liquidation of foreign exchange contracts 2,667 - -
(7,761) (55,451) (11,566)
Net cash used in investing activities (5,094) (55,451) (11,566)
Net proceeds from equity raising - 25,310 6,451
6,850 42,066 13,446
Dividends paid to shareholders (8,282) (9,279) (5,367)
Net cash received / (used) in financing activities (1,432) 58,097 14,530
Decrease in cash and cash equivalents (1,327) (10) (127)
Source: EPIC Annual Financial Reports for FY09, FY10 and FY11
-
0.50
1.00
1.50
2.00
2.50
3.00
FY10 FY11
NZ
D:G
BP
Co
nve
rsio
nR
ate
Dividend Income Received from EPIC's Investments
Moto
Average GBP:NZD FX Rate (RHS)
Overview of EPIC 17
EPIC’s statement of cash flows for the previous three financial years is set out below:
. As shown in the chart below, this was due to a drop in dividendsas well as further weakening in the
and the company’s decision to reducehe long term outlook for Thames Water is
ection 4 for more information.from Thames Water of approximately
Although it is unclear whenAs previously discussed Wales
suspended dividends and is not expected to
compared to FY11 following Moto’sinsufficient to cover operating
interest payments, can be reduced.
Capital Raisings and Share Trading History
80. Since its IPO in 2007 which raised $94.7mraisings in October 2009 and September 2010in July 2010 that enabled Shareholders to elect to receive additional shares in the Company in lieu ofreceiving cash dividend payments.
81. The table below summarises
82. We note the following regarding the above table:
The October 2009 rights issueaddition to using debt facilities
The September 2010 equity placementrepayment of EPIC’s NAB facilities. This payment was originally expected to be covered by Moto’sSeptember 2010 dividend, howeverto find alternative means of fundingacquire up to 19.99% of the Companyto 31 December 2011.share, prevailing share price and uncertainty surrounding the Company’s funding,unlikely that Torchlight
83. As at 30 September 2011 EPIC had 1,6Shareholders split by shareholding size
84. Shareholders holding more than 1 millionare the two largest individual shareholders, holding
Capital Raisings and Share Issues
Date Description
Jun-07 Initial public offering
FY09 Dividend reinvestment plan
Oct-09 Rights issue
FY10 Dividend reinvestment plan
Sep-10 Issue of shares to Torchlight
FY11 Dividend reinvestment plan
Total
1. Net of share issue costs
Source: EPIC Management, EPIC Annual Financial Reports for FY09, FY10 and FY11
Notes
EPIC Shareholder Breakdown as at 30 September 2011
Shareholding Range
Holder
Count
1 - 9,999
10,000 - 49,999
50,000 - 99,999
100,000 - 499,999
500,000 - 999,999
1,000,000 +
Total 1,659
Source: EPIC Management, Computershare
Overview of EPIC
Share Trading History
which raised $94.7m (gross proceeds), EPIC has undertakenin October 2009 and September 2010. EPIC also established a dividend reinvestment plan (
that enabled Shareholders to elect to receive additional shares in the Company in lieu ofeiving cash dividend payments.
The table below summarises EPIC’s equity capital raisings and shares issued under the DRP
We note the following regarding the above table:
October 2009 rights issue raised capital that was used to help fund the Moto acquisitiondebt facilities); and
equity placement to Torchlight was used to help make therepayment of EPIC’s NAB facilities. This payment was originally expected to be covered by Moto’sSeptember 2010 dividend, however, following Moto’s decision to suspend dividends EPIC was requiredto find alternative means of funding. As part of this placement, Torchlight was granted the option toacquire up to 19.99% of the Company’s shares at $0.90 per share. This option has
The option can be exercised at any time. However, given EPIC’s current NTA pershare, prevailing share price and uncertainty surrounding the Company’s funding,unlikely that Torchlight will take up this option.
2011 EPIC had 1,659 Shareholders. The table below sets out the breakdown of EPICShareholders split by shareholding size:
e than 1 million shares largely relate to custodial holdings. EPAM and Torchlightare the two largest individual shareholders, holding 11.06% and 5.32% of EPIC’s share
Capital Raisings and Share Issues
Description
No. of
shares
issued (m)
Price per
Share
(NZD)
Capital
raised1
(NZDm)
Initial public offering 94.7 1.00 87.8
Dividend reinvestment plan 0.3 1.00 0.3
Rights issue 32.0 0.90 25.3
Dividend reinvestment plan 0.9 0.90 0.9
Issue of shares to Torchlight 7.2 0.90 6.3
Dividend reinvestment plan 0.5 0.90 0.5
135.7 121.1
Source: EPIC Management, EPIC Annual Financial Reports for FY09, FY10 and FY11
EPIC Shareholder Breakdown as at 30 September 2011
Holder
Count
Holder
Count %
Holding
Quantity
Holding
Quantity %
298 17.96% 1,849,865 1.36%
934 56.30% 19,417,582 14.31%
234 14.10% 14,295,570 10.54%
170 10.25% 28,119,722 20.72%
11 0.66% 6,789,493 5.00%
12 0.72% 65,212,577 48.06%
1,659 100.00% 135,684,809 100.00%
Source: EPIC Management, Computershare
Overview of EPIC 18
, EPIC has undertaken two further equityreinvestment plan (DRP)
that enabled Shareholders to elect to receive additional shares in the Company in lieu of
and shares issued under the DRP:
was used to help fund the Moto acquisition (in
the required partialrepayment of EPIC’s NAB facilities. This payment was originally expected to be covered by Moto’s
following Moto’s decision to suspend dividends EPIC was requiredTorchlight was granted the option to
at $0.90 per share. This option has since been extendedgiven EPIC’s current NTA per
share, prevailing share price and uncertainty surrounding the Company’s funding, we believe it is
t the breakdown of EPIC
to custodial holdings. EPAM and Torchlightshares respectively.
85. EPIC shares are not listed on the NZX but areand Sharemart. The shares trade infrequently, withbeing approximately 51,000 shares.traded on four days out of the last 90 days.liquidity and price consistency, given materialplatforms. This would require approval from(MIFML), as EPIC is currently prohibited from seeking a listing on any stock exchange under the terms ofthe Thames Water share pu
86. The following graph illustrates EPIC’s share price movements and trading volumes(the earliest electronic share transfer recorded)
Source: Sharemart and Computershare Trade
87. EPIC’s shares traded in a relatively narrow bandannounced it was suspending dividend payments following Moto’s suspension of dividend payments.the past six months EPIC’s$0.25 per share. Assuming a current share price of approximately$0.42), the Company has a current market capitalisation of approximately $5
88. The spikes in traded volume inissue and announcement of the suspension of2011 following announcement of EPIC’s bank faciliproposed asset sales.
Issues Facing EPIC
89. The immediate financial issues
NAB facilities (includingextend these;
Convertible bonds issued to Torchlight were intended to provide short term funding only, with thecoupon rate currently 20% and
Negative operating cash flofinancing costs.
0.00
0.15
0.30
0.45
0.60
0.75
0.90
1.05
1.20
15 Oct2008
15 Dec2008
15 Feb2009
15 Apr2009
15 Jun2009
Sh
are
Pri
ce
NZ
$
EPIC Share Trading Information since 15 October 2008
Overview of EPIC
not listed on the NZX but are currently traded through two otherThe shares trade infrequently, with the average volume on days when shares are traded
0 shares. The shares last traded at $0.43 on 30 September 2011days out of the last 90 days. The Board has considered a listing on the NZX to improve
ce consistency, given material differences in prices sometimes achieved on the differentplatforms. This would require approval from Macquarie Infrastructure Funds Management Limited
, as EPIC is currently prohibited from seeking a listing on any stock exchange under the terms ofthe Thames Water share purchase agreement.
The following graph illustrates EPIC’s share price movements and trading volumes(the earliest electronic share transfer recorded) based on Macquarie and Sharemart data
Source: Sharemart and Computershare Trade Data, EPIC Management
EPIC’s shares traded in a relatively narrow band between $0.78 to $1.00 up to Octoberannounced it was suspending dividend payments following Moto’s suspension of dividend payments.the past six months EPIC’s shares have traded at much lower levels, between a high of
Assuming a current share price of approximately $0.43 (which approximates), the Company has a current market capitalisation of approximately $58m.
volume in November 2009 and October 2010 occurred around the time of the rightsand announcement of the suspension of EPIC dividends respectively. Volumes increased again in July
2011 following announcement of EPIC’s bank facility renegotiation and the progress
issues confronting EPIC can be summarised as follows:
(including the PGC sub-participation) expire on 30 April 2012
Convertible bonds issued to Torchlight were intended to provide short term funding only, with thecurrently 20% and rising by 5% every six months to encourage repayment; and
Negative operating cash flow with dividend income being insufficient to cover operating expenses and
15 Aug2009
15 Oct2009
15 Dec2009
15 Feb2010
15 Apr2010
15 Jun2010
15 Aug2010
15 Oct2010
15 Dec2010
15 Feb2011
15 Apr2011
Date
EPIC Share Trading Information since 15 October 2008
Volume Share Price
Overview of EPIC 19
platforms – Macquarieon days when shares are traded
30 September 2011 and have onlyThe Board has considered a listing on the NZX to improve
imes achieved on the differentMacquarie Infrastructure Funds Management Limited
, as EPIC is currently prohibited from seeking a listing on any stock exchange under the terms of
The following graph illustrates EPIC’s share price movements and trading volumes since 15 October 2008based on Macquarie and Sharemart data:
up to October 2010, when EPICannounced it was suspending dividend payments following Moto’s suspension of dividend payments. Over
a high of $0.50 and a low ofapproximates NTA of
m.
around the time of the rightsVolumes increased again in Julyprogress being made on
and it will be difficult to
Convertible bonds issued to Torchlight were intended to provide short term funding only, with theevery six months to encourage repayment; and
insufficient to cover operating expenses and
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
15 Apr2011
15 Jun2011
15 Aug2011
Vo
lum
e
90. PGC’s support was needed toa sustainable position and management advise that NAB h
Strategic Review
91. As a result of the above issues, the Board announced in October 2010 that it was undertaking aReview. The objectives of the Strategic Review were to:
Improve operating cash flow;
Reduce leverage;
Provide yield;
Provide shareholder liquidity;
Minimise FX risk; and
Maximise shareholder value
92. The Board reported to Shareholders on theconclusion was that EPIC should realiprovided fair value could be achievedincrease in investor interest in the UK water sector and expectation of limited buyerstage. This would enable EPIC to repayreduce management fees payablea potential share buyback orrepayment).
93. Other matters considered during theShareholders and potential internaliexplored in more detail following satisfactory resolution of EPIC’s debt position.
94. Following the Strategic Review
Overview of EPIC
to extend the existing NAB facilities in June 2011, as discussed above. This is notand management advise that NAB has requested full repayment by 30 April 2012.
As a result of the above issues, the Board announced in October 2010 that it was undertaking aThe objectives of the Strategic Review were to:
Improve operating cash flow;
Provide shareholder liquidity;
Minimise FX risk; and
Maximise shareholder value.
he Board reported to Shareholders on the outcome of the Strategic Review in March 2011.conclusion was that EPIC should realise one of its principal investments (i.e. Thames Water or Mot0)provided fair value could be achieved, with the primary focus being on Thames Water given the recentincrease in investor interest in the UK water sector and expectation of limited buyer
would enable EPIC to repay all or a substantial proportion of its outstanding debt obligations,management fees payable (as a result of a lower asset base), and potentially
or acquisition of other higher yielding assets (depending on the extent of debt
Other matters considered during the Strategic Review included options to improve liquidityand potential internalisation of the management arrangements. These matters were to be
in more detail following satisfactory resolution of EPIC’s debt position.
Strategic Review, EPIC initiated a market testing exercise for Thames Water.
Overview of EPIC 20
extend the existing NAB facilities in June 2011, as discussed above. This is notas requested full repayment by 30 April 2012.
As a result of the above issues, the Board announced in October 2010 that it was undertaking a Strategic
in March 2011. The Board’s key(i.e. Thames Water or Mot0)
on Thames Water given the recentincrease in investor interest in the UK water sector and expectation of limited buyer interest for Moto at this
outstanding debt obligations,potentially provide surplus cash for
s (depending on the extent of debt
included options to improve liquidity for. These matters were to be
for Thames Water.
3. The Proposed Transaction
Introduction
95. In July 2011, EPIC engagedthe Macquarie Group, to undertake a market testing exercise
96. The process has been carefully managed to ensure that theWater holding (discussed further below)prospect of a transaction proceeding
97. In October 2011, MIRA(E)LThames Water, resulting in the Proposed Transaction. A summary of theTransaction is provided below.
Sale Process
98. As discussed further in Section 4Limited (KWIHL), which in turn is the holder of 49.27% ofTherefore, EPIC has a 1.24% effective interest in KWHL, which owns 100% of the equity ithrough various wholly owned subsidiaries
99. Both the KWIHL Shareholders’ AgreementSHA) (together the Shareholders’ Agreementshareholders rights of first refusalto sell its Thames Water investment, the Company must first offer its interest to other shareholdersfairly common for consortiumprocess and timetable for KWIHL and KWHL shaemptive rights.
100. If the KWIHL and KWHL shareholders dinterest to another party at a price no less and on terms no less favourable than those offeredshareholders pursuant to the
The Proposed Transaction
101. We have been advised a nonacquiring a specific minority interestcertain other KWIHL shareholdernew investor and accordingly has offered EPIC theThames Water as part of thisthe total price to be paid by the new investor
102. MIRA(E)L have informed EPIC that ainvestor confirming the price anddescribed above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject tothe pre-emption processes pursuant to the Shareholders’ Agreements,exist. The pre-emption processes are expected to take 4issued.
103. There is a risk that shareholders do not exercise their presubsequently decides either notthis event, EPIC would need to find an alternative buyer or accept the revised terms offered.
The Proposed Transaction
The Proposed Transaction
In July 2011, EPIC engaged Macquarie Infrastructure and Real Assets (Europe) Limitedto undertake a market testing exercise in respect of EPIC’s interest in Thames Water.
carefully managed to ensure that the pre-emptive rights applicable toWater holding (discussed further below) are not triggered until there is a level of certainty around
proceeding.
MIRA(E)L notified EPIC that it had identified an opportunity for EPIC to sell its interest inThames Water, resulting in the Proposed Transaction. A summary of the sale process andTransaction is provided below.
As discussed further in Section 4, EPIC holds 2.52% of the shares in Kemble Water International HoldingsLimited (KWIHL), which in turn is the holder of 49.27% of Kemble Water Holdings Limited (KWHL).Therefore, EPIC has a 1.24% effective interest in KWHL, which owns 100% of the equity ithrough various wholly owned subsidiaries.
Shareholders’ Agreement (KWIHL SHA) and KWHL Shareholders’ AgreementShareholders’ Agreements) contain pre-emptive rights which grant KWIHL and KWHL
shareholders rights of first refusal for any sale of KWIHL and KWHL shares. In other words, if EPIC wishesto sell its Thames Water investment, the Company must first offer its interest to other shareholders
irly common for consortium-style investments of this nature. The Shareholders’ Agreementprocess and timetable for KWIHL and KWHL shareholders to consider and if desired,
KWIHL and KWHL shareholders do not exercise their pre-emptive rights, then EPICinterest to another party at a price no less and on terms no less favourable than those offered
the pre-emption processes.
a non-binding offer has been submitted by a new third partya specific minority interest in Thames Water. We understand that MIRA(E)L
shareholders that are interested in selling their shares at the price indicated by theand accordingly has offered EPIC the potential opportunity to sell its 1.24%
Thames Water as part of this larger transaction. It is expected that EPIC will receiveby the new investor for its 1.24% indirect shareholding.
EPIC that a non-binding agreement has been executed with theprice and total level of shareholding that it is seeking to acquire
described above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject topursuant to the Shareholders’ Agreements, a binding sale
emption processes are expected to take 4 – 6 weeks each once the sale notices have been
here is a risk that shareholders do not exercise their pre-emptive rights and the third partyeither not to proceed with the expected offer or seeks to materially alter the terms. In
need to find an alternative buyer or accept the revised terms offered.
The Proposed Transaction 21
Macquarie Infrastructure and Real Assets (Europe) Limited (MIRA(E)L), part ofEPIC’s interest in Thames Water.
applicable to EPIC’s Thameslevel of certainty around the
ified EPIC that it had identified an opportunity for EPIC to sell its interest insale process and Proposed
, EPIC holds 2.52% of the shares in Kemble Water International HoldingsKemble Water Holdings Limited (KWHL).
Therefore, EPIC has a 1.24% effective interest in KWHL, which owns 100% of the equity in Thames Water
Shareholders’ Agreement (KWHLrights which grant KWIHL and KWHL
In other words, if EPIC wishesto sell its Thames Water investment, the Company must first offer its interest to other shareholders, which is
Shareholders’ Agreements set out aconsider and if desired, exercise their pre-
rights, then EPIC is able to sell itsinterest to another party at a price no less and on terms no less favourable than those offered to existing
third party investor interested inMIRA(E)L is also aware ofat the price indicated by the
opportunity to sell its 1.24% indirect interest inreceive a pro rata proportion of
binding agreement has been executed with the third partyseeking to acquire pursuant to the offer
described above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject tobinding sale agreement does not
sale notices have been
third party investorto materially alter the terms. In
need to find an alternative buyer or accept the revised terms offered.
104. In order to provide a degree of flexibility toShareholder approval to sell the Company’sthan £34.0m (the Minimum Price). The Minimum Price reflecWater shareholding as reported in EPIC’s financial statements as at 31 March 2011less than the non-binding offer price
105. Any sale of EPIC’s Thames Water shareholding will be
Approvals by EPIC shareholders
Compliance with the terms of the
Execution of a share sale and purchase agreement by the third party investorof the pre-emption processprocesses).
106. Assuming the above conditions are met,December 2011.
107. The prospective new investorconclusion of the pre-emption processinterest not result in a transactionreason.
108. As part of any sale transaction,accordance with the Investor Services Agreement (dated 2007),(IRR) achieved in respect of this investment, as determined by the priceManagement have advised us that in their view the amount payable in respect of the Minimum Price is zero.As at the date of this Report, we have been advised that the terms and calculation of the performance feepayable to MIRA(E)L are being disputed. We understand thatthat EPIC will be required toMinimum Price.
109. In addition, the EPIC Board has agreed to payGBP proceeds, or approximately £0.6malso be payable.
110. The below table sets out the expected net proceeds to EPICthe Minimum Price:
111. It is important that Shareholders note that although theyTransaction, there is in fact currently no binding offer to purchase EPIC’sThames Water. Accordingly, it is possible that notwithstanding Shareholder approval for the ProposedTransaction, a transaction may not eventuate.
Net proceeds1
Minimum Price
less: MIRA performance fee
less: EPIM transaction fee
less: Estimated transaction costs
Net proceeds to EPIC
Notes
1. Assuming completion of the Proposed Transaction at 30 November 2011.
2. NZD:GBP FX rate of 0.5090.
Source: EPIC Management
The Proposed Transaction
provide a degree of flexibility to cater for potential uncertainty, the Board is seeking EPICShareholder approval to sell the Company’s 1.24% indirect investment in Thames Waterthan £34.0m (the Minimum Price). The Minimum Price reflects the assessed fair value of
reported in EPIC’s financial statements as at 31 March 2011binding offer price that is under negotiation with the new investor
’s Thames Water shareholding will be subject to:
Approvals by EPIC shareholders and NAB prior to settlement;
Compliance with the terms of the Shareholders’ Agreements; and
Execution of a share sale and purchase agreement by the third party investoremption processes (assuming EPIC’s shares are not acquired pursuant to the pre
Assuming the above conditions are met, the Proposed Transaction is expected to be completed by 31
new investor in Thames Water is unwilling for its identity to be revealed prior to theemption processes to avoid public knowledge of its identity and intentions should its
result in a transaction as a result of pre-emptive rights being exercised, or for some other
As part of any sale transaction, there is a performance fee obligation payable by EPIC to MIRA(E)Laccordance with the Investor Services Agreement (dated 2007), contingent on the
) achieved in respect of this investment, as determined by the price achieved on sale.Management have advised us that in their view the amount payable in respect of the Minimum Price is zero.
eport, we have been advised that the terms and calculation of the performance feebeing disputed. We understand that the estimated likely outcome
be required to pay MIRA(E)L a performance fee of between zero and
In addition, the EPIC Board has agreed to pay a transaction fee to EPIM calculated as 1.75% of the grossGBP proceeds, or approximately £0.6m based on the Minimum Price. Legal and other transaction costs will
The below table sets out the expected net proceeds to EPIC assuming the Proposed Transaction
It is important that Shareholders note that although they are being asked to approve the ProposedTransaction, there is in fact currently no binding offer to purchase EPIC’s 1.24% indirectThames Water. Accordingly, it is possible that notwithstanding Shareholder approval for the Proposed
tion may not eventuate.
£m NZDm2
34.0 66.8
0 - (3.2) 0 - (6.2)
(0.6) (1.2)
less: Estimated transaction costs (0.3) (0.7)
29.9 - 33.1 58.7 - 65.0
1. Assuming completion of the Proposed Transaction at 30 November 2011.
The Proposed Transaction 22
, the Board is seeking EPICin Thames Water at a price no less
ts the assessed fair value of EPIC’s Thamesreported in EPIC’s financial statements as at 31 March 2011. The Minimum Price is
that is under negotiation with the new investor.
Execution of a share sale and purchase agreement by the third party investor following the outcomeare not acquired pursuant to the pre-emption
be completed by 31
is unwilling for its identity to be revealed prior to theto avoid public knowledge of its identity and intentions should its
emptive rights being exercised, or for some other
there is a performance fee obligation payable by EPIC to MIRA(E)L inon the internal rate of return
achieved on sale. However, EPICManagement have advised us that in their view the amount payable in respect of the Minimum Price is zero.
eport, we have been advised that the terms and calculation of the performance feeestimated likely outcome of the dispute is
zero and £3.2m based on the
calculated as 1.75% of the grossLegal and other transaction costs will
the Proposed Transaction proceeds at
to approve the Proposed1.24% indirect shareholding in
Thames Water. Accordingly, it is possible that notwithstanding Shareholder approval for the Proposed
4. Overview of Thames Water
Background
112. Thames Water, through its whollysupplier of water and provider ofGreater London and the Thames Valley.
113. TWUL was listed on the London Stock Exchange in 1989 as part of thewater sector in England and Wales. The listed parent company, Thames Water PLC, was subsequentlyacquired by German infrastructure company
Acquisition by Consortium
114. In December 2006, a consortium led by Macquarie European Infrastructure Fund LP (MEIF I) andMacquarie European Infrastructure Fund II (MEIF II) acquired Thames Water PLC from RWE AG.
115. The consortium established a UKas an investment vehicle through which all equity investors could participate. KWHL holds 100% of theequity capital of Thames Water through a chain of whollydebt obligations to external financiers.
116. A summarised investment structure diagram is provided below:
Source: Thames Water Bond Prospectus June 2011,
Kemble WaterInternational Holdings
Limited (KWIHL)
EPIC
49.27%
2.52%
Overview of Thames Water
Overview of Thames Water
Thames Water, through its wholly-owned subsidiary Thames Water Utilities Limited (TWUL), isprovider of wastewater services in the UK. TWUL serves 14 million customers across
Greater London and the Thames Valley.
listed on the London Stock Exchange in 1989 as part of the UK Governmentd Wales. The listed parent company, Thames Water PLC, was subsequently
German infrastructure company RWE AG in 2001.
In December 2006, a consortium led by Macquarie European Infrastructure Fund LP (MEIF I) andMacquarie European Infrastructure Fund II (MEIF II) acquired Thames Water PLC from RWE AG.
The consortium established a UK incorporated parent company, Kemble Water Holdings Limited (KWHL),as an investment vehicle through which all equity investors could participate. KWHL holds 100% of theequity capital of Thames Water through a chain of wholly-owned subsidiaries, some of wdebt obligations to external financiers.
A summarised investment structure diagram is provided below:
Thames Water Bond Prospectus June 2011, EPIC Management
Kemble Water HoldingsLimited(KWHL)
Thames Water Limited(Thames Water)
Kemble WaterInternational Holdings
Limited (KWIHL)
MEIF I, MEIF II, Otherco-investors
Co-investors
50.73%
97.48%
100%
Wholly OwnedSubsidiaries
100%
Thames WaterUtilities Limited
(TWUL)
100%
Overview of Thames Water 23
owned subsidiary Thames Water Utilities Limited (TWUL), is the largests 14 million customers across
UK Government’s privatisation of thed Wales. The listed parent company, Thames Water PLC, was subsequently
In December 2006, a consortium led by Macquarie European Infrastructure Fund LP (MEIF I) andMacquarie European Infrastructure Fund II (MEIF II) acquired Thames Water PLC from RWE AG.
incorporated parent company, Kemble Water Holdings Limited (KWHL),as an investment vehicle through which all equity investors could participate. KWHL holds 100% of the
owned subsidiaries, some of which have issued
117. As shown above, EPIC holds a 2.the ultimate parent of Thames Water. Other CoMacquarie-managed funds (all held through KWIHL) and various nonof pension funds and other institutional investors from Europe, Canada, and Australia.
118. Shareholders in both KWIHL and KWHL are governed by the provisions contained in confidentialShareholders’ Agreements which stipulate, inter alia, thewhere a shareholder wishes to sell
119. TWUL, the regulated water and wastewater company, is the principal operating company and accounts forapproximately 99% of the value of Thames Water (referstatements are released to the public and have been referred to in this Report.and other non-public information provided periodically to EPIC management by KWHL to help us form ouropinion on the Proposed Transaction. This includes KWHL investor reports, management reports, andother presentations.
Regulatory Framework
120. TWUL is one of ten companies providing both water and wastewater services in England and Wales. Eachcompany has a regional monopoly for their services based on boundaries determined when the sector wasprivatised in 1989. Refer Appendix
121. The Water Services Regulation Authority (Ofwat) is the economic regulatorprices the companies can charge for the provision of water and wastewater services under aManagement Plan (AMP) agreed with each companybusiness plans submitted by each company for the period“AMP5”).
122. In order to set price limits, Ofwat determines revenue requirements for each company usingblocks approach. This is summarised in the chart below:
Source: Ofwat
123. Essentially, the price limits set by Ofwat allow
depreciation of assets;
operating expenditure;
tax; and
a fair return on capital.
Return on
Regulated
Capital Value
(RCV)
Tax
Allowed return Allowance
for tax
- RCV - Interest tax
- Gearing shield from
- Real returns gearing in
regulated entity
Building
blocks
Key
drivers
Return onRegulated
Capital Value(RCV)
Tax
Allowed return Allowance
for tax
- -
-
-
Building
blocks
Key
drivers
Overview of Thames Water
As shown above, EPIC holds a 2.52% shareholding in KWIHL reflecting a 1.24% indirect holding in KWHLThames Water. Other Co-Investors comprise MIEF I, MIEF II, certain other
managed funds (all held through KWIHL) and various non-Macquarie investors made up largelyher institutional investors from Europe, Canada, and Australia.
Shareholders in both KWIHL and KWHL are governed by the provisions contained in confidentialgreements which stipulate, inter alia, the pre-emptive rights which apply in circu
where a shareholder wishes to sell its shareholding, as discussed in Section 3.
TWUL, the regulated water and wastewater company, is the principal operating company and accounts for99% of the value of Thames Water (refer below). TWUL’s annual report and financial
statements are released to the public and have been referred to in this Report. We have had access to thispublic information provided periodically to EPIC management by KWHL to help us form our
on the Proposed Transaction. This includes KWHL investor reports, management reports, and
TWUL is one of ten companies providing both water and wastewater services in England and Wales. Eachal monopoly for their services based on boundaries determined when the sector was
privatised in 1989. Refer Appendix C for a map of TWUL’s clean water and wastewater
The Water Services Regulation Authority (Ofwat) is the economic regulator for the sectorprices the companies can charge for the provision of water and wastewater services under a
agreed with each company. Price limits were last set by Ofwat in 2009mitted by each company for the period 1 April 2010 to 31 March
In order to set price limits, Ofwat determines revenue requirements for each company using. This is summarised in the chart below:
price limits set by Ofwat allow water and wastewater companies to finance:
depreciation of assets;
operating expenditure;
a fair return on capital.
Depreciation
expenditure
penalties Total allowed
revenue
(real)
Depreciation Operating expense Reward for Impact on real
allowance allowance performance prices
- Assetcondition - His torical opex - Past - Customer prices
- His torical capex performance performance
- Peer group - Leakage
analysis - Customer
- Capitalisation serv ice
policy
Depreciation
Operatingexpenditure
Incentives /penalties
Total allowedrevenue(real)
Depreciation Operating expense Reward for Impact on real
allowance allowance performance prices
- - - -
-
and performance - -
-
-
Overview of Thames Water 24
indirect holding in KWHL,, MIEF II, certain other
Macquarie investors made up largelyher institutional investors from Europe, Canada, and Australia.
Shareholders in both KWIHL and KWHL are governed by the provisions contained in confidentialrights which apply in circumstances
TWUL, the regulated water and wastewater company, is the principal operating company and accounts for). TWUL’s annual report and financial
We have had access to thispublic information provided periodically to EPIC management by KWHL to help us form our
on the Proposed Transaction. This includes KWHL investor reports, management reports, and
TWUL is one of ten companies providing both water and wastewater services in England and Wales. Eachal monopoly for their services based on boundaries determined when the sector was
water and wastewater boundaries.
the sector. It determines theprices the companies can charge for the provision of water and wastewater services under a 5 year Asset
. Price limits were last set by Ofwat in 2009 based on31 March 2015 (known as
In order to set price limits, Ofwat determines revenue requirements for each company using a building
to finance:
Inflation Total allowed
revenue
(nominal)
No impact on real returns
as a resultof inflation
- Income protected in real terms
Inflation Total allowedrevenue(nominal)
No impact on real returns
as a resultof inflation
-
124. A fair return on capital is calculated based on a fixed return on Regulated Capital Value (RCV). The allowedrate of return on RCV is set by Ofwat for each 5 year regulatory period and applied consistently across allwater and wastewater companies in Englbuilding blocks are company specific and are determined by Ofwat for each year following a transparentprocess of consultation with each companyperformance across a range of service indicators
125. Once the price limits are set there is limited scope to vary prices.
Regulated Capital Value (RCV)
126. RCV is the capital base used by Ofwat for the purposeof the price setting process and is used to determine the “allowed return”.
127. Ofwat provides specific guidance on how RCV is calculatedTWUL’s RCV over the past three financial years
128. TWUL’s RCV has grown significantly over recent years. Capex over each AMPregulator based on an assessment of works that need to be undertaken. TWUL is required by Ofwat todeliver an investment programme of nearly £5.0 billion over the currentwhich largely reflects the Victorian Mains replacement, upgrades and expansion of the sewerage treatmentworks, Lee Tunnel and metering
Opening RCV
Price review opening adjustments
Indexation to year end
Opening RCV at year end prices
Capital expenditure1
Infrastructure renewals expenditure
Grants and contributions
Depreciation
Infrastructure renewals charge
Out performance of past regulatory assumptions
Closing RCV
Growth
1.
Source: Thames Water Utilities Limited FY09, FY10 and FY11 Financial Statements
Movement of Thames Water's RCV for years ended 31 March
£m
Notes
Excluding infrastructure renewals expenditure
Overview of Thames Water
A fair return on capital is calculated based on a fixed return on Regulated Capital Value (RCV). The allowedrate of return on RCV is set by Ofwat for each 5 year regulatory period and applied consistently across all
companies in England and Wales. Information on RCV is provided below. The otherbuilding blocks are company specific and are determined by Ofwat for each year following a transparentprocess of consultation with each company, including rewards or penalties relating to th
a range of service indicators (e.g. water leakages, customer service)
Once the price limits are set there is limited scope to vary prices.
Regulated Capital Value (RCV)
RCV is the capital base used by Ofwat for the purpose of setting price limits. It is a fundamental componenof the price setting process and is used to determine the “allowed return”.
uidance on how RCV is calculated. The table below sets out the movement inast three financial years:
TWUL’s RCV has grown significantly over recent years. Capex over each AMP periodregulator based on an assessment of works that need to be undertaken. TWUL is required by Ofwat todeliver an investment programme of nearly £5.0 billion over the current five year
ictorian Mains replacement, upgrades and expansion of the sewerage treatmentworks, Lee Tunnel and metering.
2009 2010 2011
6,990 7,180 7,721
Price review opening adjustments - - 182
(26) 319 423
Opening RCV at year end prices 6,964 7,499 8,326
646 670 960
Infrastructure renewals expenditure 115 125 142
(41) (44) (19)
(356) (374) (372)
(103) (108) (141)
Out performance of past regulatory assumptions (45) (47) (47)
7,180 7,721 8,849
7.5% 14.6%
Source: Thames Water Utilities Limited FY09, FY10 and FY11 Financial Statements
Movement of Thames Water's RCV for years ended 31 March
Excluding infrastructure renewals expenditure
Overview of Thames Water 25
A fair return on capital is calculated based on a fixed return on Regulated Capital Value (RCV). The allowedrate of return on RCV is set by Ofwat for each 5 year regulatory period and applied consistently across all
and and Wales. Information on RCV is provided below. The otherbuilding blocks are company specific and are determined by Ofwat for each year following a transparent
rewards or penalties relating to the company’s(e.g. water leakages, customer service).
of setting price limits. It is a fundamental component
The table below sets out the movement in
period is agreed with theregulator based on an assessment of works that need to be undertaken. TWUL is required by Ofwat to
five year regulatory period (AMP5),ictorian Mains replacement, upgrades and expansion of the sewerage treatment
129. The chart below shows TWUL’s March 2011 RCV and real growth in RCV over AMP5 as agreed with Ofwat.The same data for the other 9 water and
Source: Ofwat RD 04/10: Regulatory capital values 2010Note: RCVs are based on 2010/11 prices
130. TWUL has not only the highest RCV at March 2011, but also the highestnext four years. Based on its investment programme agreed with Ofwat under AMP5, TWUL’s real RCV willgrow to £10,714m from March 2011 togrowth for the entire AMP5 periTWUL’s water and wastewater network and also investment required to support expected population growthin TWUL’s boundary area.
131. As discussed above, as RCV is one of the key variablegenerate a return up to the regulated level on this investment.
Financial Performance and Position
132. A summary of TWUL’s financial performance for the previous three financial years is set out below
2,3962,703
12%
-2%(1,000)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Wessex South West Northumbrian
RC
V(£
m)
UK Water and Wastewater Companies 2010/11 RCVs and Real RCV Growth (2011
Summary Financial Performance
Turnover
Growth
EBIT1
EBIT margin
Net profit after tax
NPAT margin
Dividends paid
Dividends paid as % of NPAT
Source: Thames Water Utilities Limited Annual Reports for 2009, 2010 and 2011
Notes
1. Excluding profit on sale of fixed assets
For years ended 31 March
₤m
Overview of Thames Water
The chart below shows TWUL’s March 2011 RCV and real growth in RCV over AMP5 as agreed with Ofwat.The same data for the other 9 water and wastewater companies is also provided.
Source: Ofwat RD 04/10: Regulatory capital values 2010-15Note: RCVs are based on 2010/11 prices
TWUL has not only the highest RCV at March 2011, but also the highest planned growth in RCV over thenext four years. Based on its investment programme agreed with Ofwat under AMP5, TWUL’s real RCV will
from March 2011 to March 2015, an increase of 21% in real terms.growth for the entire AMP5 period (2010 – 2015) is 28.7%. As discussed above, this reflects the state ofTWUL’s water and wastewater network and also investment required to support expected population growth
As discussed above, as RCV is one of the key variables used by Ofwat in setting prices, TWUL will be able togenerate a return up to the regulated level on this investment.
Financial Performance and Position
A summary of TWUL’s financial performance for the previous three financial years is set out below
3,319
3,7433,981
4,924
5,869
6,814
7%6%
2%
8%
10%
3%
Northumbrian Southern Welsh Water Yorkshire Anglian Severn Trent United Utilities
UK Water and Wastewater Companies 2010/11 RCVs and Real RCV Growth (2011 - 2015)
2011 RCV Real RCV Growth (2011 - 2015) (%)
Summary Financial Performance
FY09 FY10 FY11
1,558 1,624 1,623
4.7% 4.2% 0.0%
605 671 600
38.8% 41.3% 37.0%
315 331 225
20.2% 20.4% 13.9%
222 308 271
70.5% 93.0% 120.5%
Source: Thames Water Utilities Limited Annual Reports for 2009, 2010 and 2011
1. Excluding profit on sale of fixed assets
Overview of Thames Water 26
The chart below shows TWUL’s March 2011 RCV and real growth in RCV over AMP5 as agreed with Ofwat.
growth in RCV over thenext four years. Based on its investment programme agreed with Ofwat under AMP5, TWUL’s real RCV will
March 2015, an increase of 21% in real terms. TWUL’s real RCVAs discussed above, this reflects the state of
TWUL’s water and wastewater network and also investment required to support expected population growth
s used by Ofwat in setting prices, TWUL will be able to
A summary of TWUL’s financial performance for the previous three financial years is set out below:
8,180
8,849
11%
21%
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
United Utilities Thames
RealG
row
th(%
)
133. TWUL’s revenue was broadly flat in FY11, with inflation and real price increases agreed with Ofwat beingoffset by a fall in metered consumption by customers during the period. Operating expenditure rose duringFY11 largely due to increased bad debt prorates, additional costs associated with the unusually cold winter weather, and general inflationary pressureson costs. As a result, earnings before interest and tax (EBIT) fell by 10.6% to £
134. Revenue is forecast to grow strongly over coming years reflecting the strong growth in nominal RCV agreedwith Ofwat under AMP5. The realised EBIT margin will depend on TWUL’s operational performance,including incentives or penalties providdiscussed above. Realised net profit after tax (NPAT) margin will also depend on TWUL’s funding structureand movements in interest rates.
135. Dividends are paid in accordance with TWUL’s dividendaccount, inter alia, the companycovenants. As shown above, dcompany’s decision to reduce leverage ahead of the restructure of holding companies’ debt, as discussedbelow, as well as a decline in EBIT and NPATearnings growth, but also continued support from debt providers funding TWUL’sexpenditure programme, which is running at a level significantly above annual depreciation.dividends received by EPIC from Thames Water do not reconcilethe various levels of owners
136. A summary of TWUL’s financial position for the previous three fi
137. We note the following regarding TWUL’s financial position:
Tangible fixed assets reflect accounting book values,
Net assets fell by £50m in FY11 becausein pension scheme balances.
Net debt increased significantly in FY11 as a result of the company’s decision to replace debt pheld within the holding companies (i.e. the entities above TWUL) with debt in the securitisation group(TWUL) as well as TWUL’s ongoing capital expenditure program.
138. TWUL has an extensive debt funding programme including issuance of public bonds and bank facilities.Various financial covenants are required to be met under the terms of this funding, includingRCV set out above. TWUL’s senior debt / RCV cwhich allowed an increase in debt fundingwill rise to approximately 80% at 31 March 2012, and remain at that level during FY13. As at 31TWUL was compliant with all financial covenants and was expected to remain so over the remainder ofAMP5.
Summary Financial Position
Tangible fixed assets
Current and other assets (excl. cash)
Total assets
Current liabilities
Non-current liabilities
Net Assets
Net debt
Senior Debt / RCV ratio
Actual
Covenant
Source: Thames Water Utilities Limited Annual Reports for 2009, 2010 and 2011
As at 31 March
₤m
Overview of Thames Water
TWUL’s revenue was broadly flat in FY11, with inflation and real price increases agreed with Ofwat beingoffset by a fall in metered consumption by customers during the period. Operating expenditure rose duringFY11 largely due to increased bad debt provisioning as a result of the economic downturn, higher businessrates, additional costs associated with the unusually cold winter weather, and general inflationary pressureson costs. As a result, earnings before interest and tax (EBIT) fell by 10.6% to £600m in FY11.
Revenue is forecast to grow strongly over coming years reflecting the strong growth in nominal RCV agreedwith Ofwat under AMP5. The realised EBIT margin will depend on TWUL’s operational performance,including incentives or penalties provided by Ofwat in accordance with the building blocks methodologydiscussed above. Realised net profit after tax (NPAT) margin will also depend on TWUL’s funding structureand movements in interest rates.
Dividends are paid in accordance with TWUL’s dividend policy which states that the directors must take intocompany’s current and expected regulatory and financial performance and debt
covenants. As shown above, dividends reduced by 12% in FY11. We understand this was as a result ocompany’s decision to reduce leverage ahead of the restructure of holding companies’ debt, as discussed
e in EBIT and NPAT in FY11. Future growth in dividends will depend not only onearnings growth, but also continued support from debt providers funding TWUL’sexpenditure programme, which is running at a level significantly above annual depreciation.dividends received by EPIC from Thames Water do not reconcile exactly with dividends paid by TWUL giventhe various levels of ownership and debt in the Thames Water structure.
A summary of TWUL’s financial position for the previous three financial years is set out below:
We note the following regarding TWUL’s financial position:
Tangible fixed assets reflect accounting book values, rather than RCV.
£50m in FY11 because the dividend exceeded NPAT by £46m, as well as movementsin pension scheme balances.
Net debt increased significantly in FY11 as a result of the company’s decision to replace debt pheld within the holding companies (i.e. the entities above TWUL) with debt in the securitisation group
TWUL’s ongoing capital expenditure program.
TWUL has an extensive debt funding programme including issuance of public bonds and bank facilities.Various financial covenants are required to be met under the terms of this funding, includingRCV set out above. TWUL’s senior debt / RCV covenant was increased from 75% to 85% in April 2010which allowed an increase in debt funding within TWUL. TWUL forecasts that its ratio of senior debt / RCVwill rise to approximately 80% at 31 March 2012, and remain at that level during FY13. As at 31TWUL was compliant with all financial covenants and was expected to remain so over the remainder of
2009 2010 2011
7,124 7,532 8,145
Current and other assets (excl. cash) 2,318 2,370 3,275
9,442 9,902 11,420
(1,111) (1,351) (1,016)
(6,722) (6,995) (8,898)
1,609 1,556 1,506
(5,316) (5,549) (6,795)
72.0% 68.3% 77.4%
75.0% 75.0% 85.0%
Source: Thames Water Utilities Limited Annual Reports for 2009, 2010 and 2011
Overview of Thames Water 27
TWUL’s revenue was broadly flat in FY11, with inflation and real price increases agreed with Ofwat beingoffset by a fall in metered consumption by customers during the period. Operating expenditure rose during
visioning as a result of the economic downturn, higher businessrates, additional costs associated with the unusually cold winter weather, and general inflationary pressures
600m in FY11.
Revenue is forecast to grow strongly over coming years reflecting the strong growth in nominal RCV agreedwith Ofwat under AMP5. The realised EBIT margin will depend on TWUL’s operational performance,
ed by Ofwat in accordance with the building blocks methodologydiscussed above. Realised net profit after tax (NPAT) margin will also depend on TWUL’s funding structure
policy which states that the directors must take intocurrent and expected regulatory and financial performance and debt
ividends reduced by 12% in FY11. We understand this was as a result of thecompany’s decision to reduce leverage ahead of the restructure of holding companies’ debt, as discussed
. Future growth in dividends will depend not only onearnings growth, but also continued support from debt providers funding TWUL’s increased capitalexpenditure programme, which is running at a level significantly above annual depreciation. We note that
with dividends paid by TWUL given
nancial years is set out below:
NPAT by £46m, as well as movements
Net debt increased significantly in FY11 as a result of the company’s decision to replace debt previouslyheld within the holding companies (i.e. the entities above TWUL) with debt in the securitisation group
TWUL has an extensive debt funding programme including issuance of public bonds and bank facilities.Various financial covenants are required to be met under the terms of this funding, including senior debt /
ovenant was increased from 75% to 85% in April 2010. TWUL forecasts that its ratio of senior debt / RCV
will rise to approximately 80% at 31 March 2012, and remain at that level during FY13. As at 31 March 2011,TWUL was compliant with all financial covenants and was expected to remain so over the remainder of
5. Assessment of the Proposed Transaction
Introduction
139. As set out in Section 3, EPIC is requesting Shareholder approval to sellshareholding in Thames Water for no less than £34.0m (the Minimum Price)the reported fair value of Thames Water
140. In order to assess the Proposed Transaction, we have considered
Reported fair value as at 31 March 2011
Minimum Price relative to comparable transactions;
Size of shareholding and provisions of
Process being undertaken to sell EPIC’s shareholding.
Reported Fair Value as at 31 March 2011
141. As noted in section 2, the reported book value of EPIC’s investment in Thames Water as at 31 March 2011reflects the assessed “fair value” based on
142. Key inputs in the DCF valuationexpected regulatory performance, financing costs, and inflation rates99% of the total valuation, with non1%.
143. The reported book value of EPIC’s investment in Thames Water as at 31 March 2011 therefore reflectsrata share of the present value of expected future cash flows.
Minimum Price Relative to Comparable Transactions
144. Water utilities are generally valued using a DCFthat used to determine the fair value recorded in EPIC’s financial statementsDCF value is then cross-checked tomost appropriate metric given it is
145. The table below summarises the implied2011 (the approximate dateMinimum Price:
146. As shown above, the Minimum Priceestimated nominal RCV at 30 November 2011
EV at Minimum Price 1
(£m)
11,241
Notes
3. Excluding value of non-regulated business.
Source: EPIC Management, PwC Analysis
1. Based on Minimum Price and estimated net debt at 30 November 2011.
2. Nominal RCV has been estimated based on nominal RCV at 31 March 2011, real RCV at 31 March 2012 included in AMP5 agreed with Ofwat,
latest inflation data, and pro rata allocation for 30 November 2011.
Assessment of the Proposed Transaction
Assessment of the Proposed Transaction
As set out in Section 3, EPIC is requesting Shareholder approval to sell all of its effectivein Thames Water for no less than £34.0m (the Minimum Price). The Minimum Price
value of Thames Water contained in EPIC’s financial statements as at 31 March 2011.
In order to assess the Proposed Transaction, we have considered the following:
Reported fair value as at 31 March 2011;
rice relative to comparable transactions;
Size of shareholding and provisions of the Shareholders’ Agreements; and
undertaken to sell EPIC’s shareholding.
as at 31 March 2011
in section 2, the reported book value of EPIC’s investment in Thames Water as at 31 March 2011assessed “fair value” based on application of a DCF valuation methodology.
in the DCF valuation included the operating forecasts included in the AMP5 agreed with Ofwatregulatory performance, financing costs, and inflation rates. TWUL accounted for approximately
valuation, with non-regulated assets held by Thames Water accounting for the remaining
The reported book value of EPIC’s investment in Thames Water as at 31 March 2011 therefore reflectsrata share of the present value of expected future cash flows.
Price Relative to Comparable Transactions
Water utilities are generally valued using a DCF valuation approach as the primarythat used to determine the fair value recorded in EPIC’s financial statements, as stated above
checked to the implied multiple of RCV. Multiple of RCV is considered to be themost appropriate metric given it is a fundamental building block used by Ofwat for price setting purposes.
The table below summarises the implied regulated EV / RCV multiple for Thamesdate for the expected completion of the Proposed Transaction)
Minimum Price reflects a premium to RCV of approximately 1at 30 November 2011.
RCV (£m) Regulated EV3 / RCV
9,648 1.15x
As at 30-Nov-112
3. Excluding value of non-regulated business.
Source: EPIC Management, PwC Analysis
1. Based on Minimum Price and estimated net debt at 30 November 2011.
2. Nominal RCV has been estimated based on nominal RCV at 31 March 2011, real RCV at 31 March 2012 included in AMP5 agreed with Ofwat,
latest inflation data, and pro rata allocation for 30 November 2011.
Proposed Transaction 28
Assessment of the Proposed Transaction
effective 1.24% indirect. The Minimum Price reflects
in EPIC’s financial statements as at 31 March 2011.
in section 2, the reported book value of EPIC’s investment in Thames Water as at 31 March 2011a DCF valuation methodology.
included the operating forecasts included in the AMP5 agreed with Ofwat,. TWUL accounted for approximately
counting for the remaining
The reported book value of EPIC’s investment in Thames Water as at 31 March 2011 therefore reflects its pro
valuation approach as the primary methodology, such as, as stated above. The resulting
Multiple of RCV is considered to be thefundamental building block used by Ofwat for price setting purposes.
for Thames Water as at 30 Novemberof the Proposed Transaction) based on the
reflects a premium to RCV of approximately 15% based on TWUL’s
2. Nominal RCV has been estimated based on nominal RCV at 31 March 2011, real RCV at 31 March 2012 included in AMP5 agreed with Ofwat,
147. UK water companies generally tRCV, operating efficiencies that may be achieved to improve margin, incentives that may be allowedpenalties charged) by Ofwat, andbuilding block methodology outlined above. Asin RCV under AMP5, which, all other things being equal, should justi
148. Appendix D sets out comparablemultiples for three comparable listed UK water utilities.companies have been subject to a full takeover, with EV / RCV multiples ranging fromnote that all of the transaction multiples (except for thebased on EVs that include nonmultiples also reflect 100% control rather than the sale oftrade at a discount reflecting the valuestructure, and dividend policy.
149. During 2011 the sector hasWater Group (NWG) by a consortium of investors being the most directly relevant to Thames Water in termsof size and scale of operationsOctober 2011 following the completion of the acquisition. The chart below sets out the movement in NWG’sRegulated EV / RCV (i.e. excluding estimated value of nonbased on its traded share price prior to delisting in Octobe
Source: Capital IQ, Factiva, PwC Analysis
150. As shown above, the acquisition represented a regulated EV / RCV multiple of 1.29x. This reflects asignificant premium over the average regulated EV / RCV multipleto the acquisition announcement.
151. Appendix D provides regulated EV / RCV multiples for the three other listed UK water companies. UnitedUtilities and Severn Trent, the second and third largest water companiesnon-regulated businesses and are trading at regulated EV / RCV multiples of 1.0Pennon owns South West Water andan estimated regulated EV / RCV multiple of 1.22x.excluded from the regulated EV / RCV multiples in Appendix D.
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
Reg
ula
ted
EV
/RC
Vm
ult
iple
Northumbrian Water Group - Regulated EV / RCV
Average 3-Month Pre-Offer Multiple of 1.10x
Assessment of the Proposed Transaction
generally trade at a premium to RCV. This premium reflects expected fRCV, operating efficiencies that may be achieved to improve margin, incentives that may be allowed
Ofwat, and any cost of capital benefits that may improve future earnings under thebuilding block methodology outlined above. As discussed previously, Thames Water has thein RCV under AMP5, which, all other things being equal, should justify a higher premium over RCV.
sets out comparable UK transaction RCV multiples since 2005 together with current RCVmultiples for three comparable listed UK water utilities. Since 2005, four of the ten water andcompanies have been subject to a full takeover, with EV / RCV multiples ranging from
all of the transaction multiples (except for the Northumbrian and Thames Water transactionnon-regulated businesses which can distort simple EV / RCV multiples
reflect 100% control rather than the sale of a minority interest. Minority interests generallya discount reflecting the value for control, such as the ability to determine company strategy, capital
structure, and dividend policy.
During 2011 the sector has witnessed a number of transactions, with the £4.7b acquisition of NorthumbrianWater Group (NWG) by a consortium of investors being the most directly relevant to Thames Water in termsof size and scale of operations. NWG was previously listed on the London Stock Exchange and delisted on 14
ollowing the completion of the acquisition. The chart below sets out the movement in NWG’s(i.e. excluding estimated value of non-regulated business based on broker estimates)
based on its traded share price prior to delisting in October and net debt and RCV as at 31 March 2011
Source: Capital IQ, Factiva, PwC Analysis
As shown above, the acquisition represented a regulated EV / RCV multiple of 1.29x. This reflects asignificant premium over the average regulated EV / RCV multiple of 1.10x for the three month period prior
announcement.
provides regulated EV / RCV multiples for the three other listed UK water companies. United, the second and third largest water companies in the UK by RCV,
regulated businesses and are trading at regulated EV / RCV multiples of 1.06x and 1.08x respectively.owns South West Water and has a significantly higher non-regulated business mix, and is trading at
ted regulated EV / RCV multiple of 1.22x. The estimated value of non-regulated business has beenexcluded from the regulated EV / RCV multiples in Appendix D.
Regulated EV / RCV
Consortiumconfirmsinterest in NWGpublicly.
Acquisition Multiple of 1.29x
Offer Multiple of 1.10x
Proposed Transaction 29
rade at a premium to RCV. This premium reflects expected future growth inRCV, operating efficiencies that may be achieved to improve margin, incentives that may be allowed (or
any cost of capital benefits that may improve future earnings under theThames Water has the highest growth
fy a higher premium over RCV.
transaction RCV multiples since 2005 together with current RCVof the ten water and wastewater
companies have been subject to a full takeover, with EV / RCV multiples ranging from 1.20x to 1.38x. WeThames Water transactions) are
which can distort simple EV / RCV multiples. Theseminority interest. Minority interests generally
e company strategy, capital
acquisition of NorthumbrianWater Group (NWG) by a consortium of investors being the most directly relevant to Thames Water in terms
NWG was previously listed on the London Stock Exchange and delisted on 14ollowing the completion of the acquisition. The chart below sets out the movement in NWG’s
regulated business based on broker estimates)net debt and RCV as at 31 March 2011:
As shown above, the acquisition represented a regulated EV / RCV multiple of 1.29x. This reflects aof 1.10x for the three month period prior
provides regulated EV / RCV multiples for the three other listed UK water companies. Unitedin the UK by RCV, both have small
x and 1.08x respectively.regulated business mix, and is trading at
regulated business has been
Acquisition Multiple of 1.29x
152. The extent of the premium buyers are prepared to pay for a water/wastewater business is typicaby reference to:
The prospect of future growth in RCV relative to other participants in the industryThames Water has a history of superior RCV growth, in part due to the extent of its networkreplacement that it is required
The expected level of overof what they regard as “superior” management and operating efficienciesunder the CIS framework discussed previou
Regulatory performance, including any expected incentives allowed or penalties applied by Ofwat; and
Any reduction in the cost of capital employed which may be achieved through introduction of lowercost debt.
153. Whilst some observation can be made about individual transactions with reference to these criteria, it is notpossible to accurately discern the precise extent to which these factor correlate to the premium over RCVthat a purchaser has been willing to paywith simplistic comparisons across different transactions, and the importance of having regard to thedifferent circumstances of the subject company, and the expectations and motivati
154. Overall the analysis suggests that thecomparable trading multiplesstake would therefore generallyWater.
Size of Shareholding and Provisions of
155. EPIC holds 2.52% of KWIHL representing ashareholding does not provide any level of controlresult EPIC’s investment returns such as dividends are largelylarger shareholders. For example, EPIC is unable to appoint ashareholder approval, either at the KWIHL or Thames Water level.a discount to the prices that might be achieved w
156. EPIC is bound by the provisions of therestrictions and specific provisions governingthe information that can be disclosed to outside partiesto freely sell its Thames Water shareholdingthe price that would otherwise be achiev
Process Undertaken to Sell EPIC’s
157. MIRA(E)L was engaged by EPIC in July 2011 to assist in securing a purchaser for EPIC’s interest in ThamesWater. MIRA(E)L was considered to be the bestexperience in relation to the operation and management ofof the Shareholders’ Agreementto maximise the performance fee payable which EPICof the Thames Water investment
158. We have been advised that iparty investor interested in acquiringof certain other KWIHL shareholdernew investor which, when aggregated with EPIC’s sharesshareholding. The price indicated by the new investoroffered to EPIC under this potential transactionthe full offer price, so that EPICshareholding being transacted and the fact that thisrepresentation.
Assessment of the Proposed Transaction
the premium buyers are prepared to pay for a water/wastewater business is typica
The prospect of future growth in RCV relative to other participants in the industryThames Water has a history of superior RCV growth, in part due to the extent of its network
is required to undertake;
The expected level of over-performance that in an investor might hope to achieve through applicationof what they regard as “superior” management and operating efficiencies including capex efficiencyunder the CIS framework discussed previously;
Regulatory performance, including any expected incentives allowed or penalties applied by Ofwat; and
Any reduction in the cost of capital employed which may be achieved through introduction of lower
Whilst some observation can be made about individual transactions with reference to these criteria, it is notpossible to accurately discern the precise extent to which these factor correlate to the premium over RCVthat a purchaser has been willing to pay in any given instance. These factors illustrate the need to be carefulwith simplistic comparisons across different transactions, and the importance of having regard to thedifferent circumstances of the subject company, and the expectations and motivati
Overall the analysis suggests that the Minimum Price is reasonable relative to comparable transaction andcomparable trading multiples, especially given that EPIC holds a minority interest in Thames Water and
e generally be expected to trade at a discount to the pro rata value of 100% of Thames
rovisions of Shareholders’ Agreements
% of KWIHL representing a 1.24% indirect interest in Thames Water. This level ofshareholding does not provide any level of control over either KWIHL or Thames Water
EPIC’s investment returns such as dividends are largely dependent on the decisions made by othershareholders. For example, EPIC is unable to appoint a director nor block any decisions requiring
, either at the KWIHL or Thames Water level. Minority share parcels generally trade ata discount to the prices that might be achieved where the transaction conveys 100% ownership and control.
EPIC is bound by the provisions of the Shareholders’ Agreements which contain variousspecific provisions governing the sale of shares (as set out in Section 3)
the information that can be disclosed to outside parties. These provisions effectively restrict EPIC’s abilityits Thames Water shareholding to a third party, which could be expected to
otherwise be achievable in an open market.
EPIC’s Shareholding
was engaged by EPIC in July 2011 to assist in securing a purchaser for EPIC’s interest in Thameswas considered to be the best placed to assist with this process given its
experience in relation to the operation and management of Thames Water, its investorsShareholders’ Agreements. MIRA(E)L is also incentivised to obtain the highest price possible in
e the performance fee payable which EPIC may be obliged to pay to MIRA(E)Lof the Thames Water investment under the Investor Services Agreement, as discussed previously
We have been advised that in October 2011, a non-binding offer was submitted byinvestor interested in acquiring a specific minority interest in Thames Water
shareholders that are interested in selling their shares at thewhen aggregated with EPIC’s shares, will achieve the new investor’s required
shareholding. The price indicated by the new investor exceeds the Minimum Priceunder this potential transaction, should it proceed, would comprise
EPIC would benefit directly from any uplift in value attributable to the largerbeing transacted and the fact that this is expected to convey to the investor the benefit of board
Proposed Transaction 30
the premium buyers are prepared to pay for a water/wastewater business is typically justified
The prospect of future growth in RCV relative to other participants in the industry – in this regard,Thames Water has a history of superior RCV growth, in part due to the extent of its network
performance that in an investor might hope to achieve through applicationincluding capex efficiency
Regulatory performance, including any expected incentives allowed or penalties applied by Ofwat; and
Any reduction in the cost of capital employed which may be achieved through introduction of lower-
Whilst some observation can be made about individual transactions with reference to these criteria, it is notpossible to accurately discern the precise extent to which these factor correlate to the premium over RCV
in any given instance. These factors illustrate the need to be carefulwith simplistic comparisons across different transactions, and the importance of having regard to thedifferent circumstances of the subject company, and the expectations and motivations of the purchaser.
is reasonable relative to comparable transaction and, especially given that EPIC holds a minority interest in Thames Water and its
be expected to trade at a discount to the pro rata value of 100% of Thames
interest in Thames Water. This level ofover either KWIHL or Thames Water to EPIC, and as a
dependent on the decisions made by otherirector nor block any decisions requiring
inority share parcels generally trade athere the transaction conveys 100% ownership and control.
various requirements,(as set out in Section 3) and which restrict
These provisions effectively restrict EPIC’s abilitybe expected to negatively impact
was engaged by EPIC in July 2011 to assist in securing a purchaser for EPIC’s interest in Thamessist with this process given its extensive
investors and the provisionsed to obtain the highest price possible in order
MIRA(E)L upon realisationunder the Investor Services Agreement, as discussed previously.
was submitted by a prospective new thirda specific minority interest in Thames Water. MIRA(E)L is also aware
shares at the price indicated by thewill achieve the new investor’s required level of
the Minimum Price. The price that would bewould comprise a pro rata allocation of
benefit directly from any uplift in value attributable to the largerconvey to the investor the benefit of board
159. MIRA(E)L have informed EPIC that ainvestor confirming the price anddescribed above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject tothe pre-emption processes pursuant to the Shareholders’ Agreements, aexist. The pre-emption processes are expected to take 4issued. There is a risk that existing shareholders do not exercise their preinvestor subsequently decides not to prowould need to find an alternative buyer or accept the revised terms offered.situation could be less than the expected offer price currently being negotiated with the new ireflecting inter alia the fact that EPIC’s shareholding on its own does not provide a board seat.
Summary
160. In our opinion the Minimum Pricethe DCF valuation as at 31 March 2011 and is broadlyreflected by the other listed UK water utilities and recent transactions in the sector
Assessment of the Proposed Transaction
EPIC that a non-binding agreement has been executed with theprice and total level of shareholding that it is seeking to acquire
described above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject topursuant to the Shareholders’ Agreements, a binding sale
emption processes are expected to take 4 – 6 weeks each once the sale notices have beenissued. There is a risk that existing shareholders do not exercise their pre-emptive rights and the third partyinvestor subsequently decides not to proceed or seeks to materially alter the terms
alternative buyer or accept the revised terms offered. The price achieved in thissituation could be less than the expected offer price currently being negotiated with the new ireflecting inter alia the fact that EPIC’s shareholding on its own does not provide a board seat.
Minimum Price is fair and reasonable to EPIC given it reflects EPIC’s pro rata share ofthe DCF valuation as at 31 March 2011 and is broadly consistent with comparable EV / RCV multiplesreflected by the other listed UK water utilities and recent transactions in the sector
Proposed Transaction 31
binding agreement has been executed with the third partyacquire pursuant to the offer
described above. However, as any sale by EPIC, and other existing Thames Water shareholders, is subject tobinding sale agreement does not
6 weeks each once the sale notices have beenemptive rights and the third party
s to materially alter the terms. In this event, EPICThe price achieved in this
situation could be less than the expected offer price currently being negotiated with the new investor,reflecting inter alia the fact that EPIC’s shareholding on its own does not provide a board seat.
given it reflects EPIC’s pro rata share ofwith comparable EV / RCV multiples as
reflected by the other listed UK water utilities and recent transactions in the sector.
6. Assessment of
Overview
161. There are five options available
Do Nothing (or “Status Quo”);
Renegotiation of Funding
Capital Raising;
Sale of Moto investment
Sale of Thames Water
162. Each of these options is considered below
Do Nothing (Status Quo)
163. As set out in Section 2, EPIC’s current funding position is not sustainable and the Company’s operating cashflow is negative.
164. Under the status quo, the Company will be unable to repay the NAB facilities that expire on 30 April 2012and will therefore be in breach offorcing a sale of the investments pledged as security. EPIC would no longer be in control of this process,which may result in a significantly lower sale price being achieved and / owhich would adversely impact
165. The world’s financial markets remain volatile, meaning that the prices achievable for EPIC’s assets, and theNZD:GBP exchange rate will continue to fluctuate.price or a more favourable exchange rate through realising assets at a later date, this is by no means assured.Moreover, given the Company now has less than six months remaining before the scheduled expiry of itscore funding facility, in our opinion it would be irresponsible of the Directors not to take action now toensure the Company is in a position to meet its obli
166. The status quo is therefore not a viable option, and EPIC will need to be proactive to ensure the bestoutcome is achieved for Shareholders.
Renegotiation of Funding
167. EPIC currently has approximately $60.with NAB (Facility B) which expires on 30 April 2012Torchlight, the coupon on which
168. Options in relation to this funding include:
Renegotiate and extend the term and quantum of the existing NAB facility; or
Seek alternative debt funding sources.
169. As discussed in Section 2, NAB has previously sought to reduce its eof a planned $14.0m loan reduction in June 2011 on the basis that PGC took up a $14in the facilities. PGC’s supportexposure and extend the repayment date to 30 April 2012.
Assessment of Options Available to EPIC
Assessment of Options Available to EPIC
available to consider in relation to the financial issues immediately
Do Nothing (or “Status Quo”);
Funding;
investment; and
Sale of Thames Water indirect shareholding.
options is considered below.
, EPIC’s current funding position is not sustainable and the Company’s operating cash
e Company will be unable to repay the NAB facilities that expire on 30 April 2012breach of the facility agreement. NAB could then seek to recover amounts owed by
forcing a sale of the investments pledged as security. EPIC would no longer be in control of this process,which may result in a significantly lower sale price being achieved and / or additional costs being incurredwhich would adversely impact Shareholder value.
The world’s financial markets remain volatile, meaning that the prices achievable for EPIC’s assets, and theNZD:GBP exchange rate will continue to fluctuate. Whilst it may be possible for EPIC to achieve
able exchange rate through realising assets at a later date, this is by no means assured.ver, given the Company now has less than six months remaining before the scheduled expiry of its
core funding facility, in our opinion it would be irresponsible of the Directors not to take action now toensure the Company is in a position to meet its obligations when they fall due in April 2012
The status quo is therefore not a viable option, and EPIC will need to be proactive to ensure the besthareholders.
approximately $60.3m of funding comprising a fully drawn $48.7mwhich expires on 30 April 2012 and $13.2m of convertible loan notes issued to
Torchlight, the coupon on which is currently 20% and progressively increases to encourage repayment.
funding include:
Renegotiate and extend the term and quantum of the existing NAB facility; or
Seek alternative debt funding sources.
, NAB has previously sought to reduce its exposure to EPIC and agreed to a waiverm loan reduction in June 2011 on the basis that PGC took up a $14
in the facilities. PGC’s support provided a short term solution only, enabling EPICexposure and extend the repayment date to 30 April 2012. This was not expected to be a long term solution
Assessment of Options Available to EPIC 32
Available to EPIC
immediately facing EPIC:
, EPIC’s current funding position is not sustainable and the Company’s operating cash
e Company will be unable to repay the NAB facilities that expire on 30 April 2012,agreement. NAB could then seek to recover amounts owed by
forcing a sale of the investments pledged as security. EPIC would no longer be in control of this process,r additional costs being incurred
The world’s financial markets remain volatile, meaning that the prices achievable for EPIC’s assets, and thebe possible for EPIC to achieve a higher
able exchange rate through realising assets at a later date, this is by no means assured.ver, given the Company now has less than six months remaining before the scheduled expiry of its
core funding facility, in our opinion it would be irresponsible of the Directors not to take action now toin April 2012.
The status quo is therefore not a viable option, and EPIC will need to be proactive to ensure the best
$48.7m term loan facilityconvertible loan notes issued to
to encourage repayment.
Renegotiate and extend the term and quantum of the existing NAB facility; or
xposure to EPIC and agreed to a waiverm loan reduction in June 2011 on the basis that PGC took up a $14.0m sub-participation
EPIC to partially reduce NAB’snot expected to be a long term solution.
170. In our opinion, NAB (or any other bank for that matter) is unlikely to be willing to provide the Companywith long term funding for approximately $60fact that the Company has a negative operating cash flow and is therefore unable to fully service debtthan by other asset sales or accessing additional fundiTorchlight.
171. There are also practical difficulties involved for PGC and/or Torchlightfurther funding assistance to the Companywould therefore require shareholder approval or a waiver from the NZX as was required for PGC’s subparticipation in EPIC’s NAB loan facility
172. Alternative debt funding sources will not address the issues facing EPIC.any lender will extend credit to EPIC on terms comparable to the current NAB facilities given the currentissues facing EPIC. Any increase in inserviceability.
173. Accordingly, in our opinion,providers, is not a viable option.convertible loan notes, to reduce financing costs and improve operating cash flow.
Capital Raising
174. A new equity capital raising would have the benefit of enabling EPIC to repay debt thereby reducing (oreliminating) its substantialconvertible loan notes, would require aapproximately half the Company’scapitalisation of approximately $5
175. A capital raising could be effected by way of a
pro rata rights issue to existing
placement to certain existing or new shareholders.
176. An informal sounding amongst a small number ofraising by EPIC was carried out earlier in 2011. The resulting feedback, as disclosed toJune 2011 shareholder notice, was thatinvest further capital in order to reduce debt.
177. A pro rata rights issue would require full support from the Shareholders in ordenew capital to be raised. In our view, rperformance and illiquidity meanbe some shareholders willing to participate, especially if the rights offer price is discounteda discount would be required to motivateother recent rights issues in New Zealand,participate would have their
178. To illustrate, in order for EPIC to raise say, $30mis likely to require the issue of 120share, which compares to the trading band for shares of the last six months of betweenThis would represent close to a doubling of the Company’s issued capitalShareholder, EPAM, took up its full entitlement, and other Shareholders did not, then there is a limitedability for EPAM to underwrite thethe fundamental rule under the Takeovers Code limiting its shareholding to 19.9% in the absence of makinga compliant takeover offer or
Assessment of Options Available to EPIC
In our opinion, NAB (or any other bank for that matter) is unlikely to be willing to provide the Companym funding for approximately $60m, given the level of leverage this would represent, and the
fact that the Company has a negative operating cash flow and is therefore unable to fully service debtother asset sales or accessing additional funding, such as the support already
There are also practical difficulties involved for PGC and/or Torchlight should they be askedfurther funding assistance to the Company. As such funding constitutes a “related pwould therefore require shareholder approval or a waiver from the NZX as was required for PGC’s subparticipation in EPIC’s NAB loan facility (assuming PGC remains listed).
Alternative debt funding sources will not address the issues facing EPIC. In our opinion, iany lender will extend credit to EPIC on terms comparable to the current NAB facilities given the currentissues facing EPIC. Any increase in interest payments will put further pressure on EPIC’s cash flow
in our opinion, renegotiation of EPIC’s debt funding, either with NAB orproviders, is not a viable option. EPIC needs to materially reduce its current debtconvertible loan notes, to reduce financing costs and improve operating cash flow.
A new equity capital raising would have the benefit of enabling EPIC to repay debt thereby reducing (orits substantial financing costs. To repay all net debt at 30 September 2011, including the
would require a capital raising of approximately $60m, being an amount that isCompany’s current issued capital, but exceeds the Company’s approximate market
capitalisation of approximately $58m.
capital raising could be effected by way of a:
pro rata rights issue to existing Shareholders and / or;
placement to certain existing or new shareholders.
amongst a small number of mainly retail shareholders in relation to a potential capitalraising by EPIC was carried out earlier in 2011. The resulting feedback, as disclosed toJune 2011 shareholder notice, was that the shareholders canvassed had expressed ainvest further capital in order to reduce debt.
A pro rata rights issue would require full support from the Shareholders in order for theIn our view, recent shareholder sentiment together with EPIC’s share price
performance and illiquidity means that this would be difficult to achieve, notwithstanding that there woulders willing to participate, especially if the rights offer price is discounted
discount would be required to motivate Shareholders to take up their rights, as has been the case withother recent rights issues in New Zealand, otherwise Shareholders who do not elect or are unable to
have their ownership position diluted.
To illustrate, in order for EPIC to raise say, $30m of new capital and reduce its debt byis likely to require the issue of 120 million new shares assuming a discounted issue price of say,share, which compares to the trading band for shares of the last six months of betweenThis would represent close to a doubling of the Company’s issued capital base. Moreover, if its largestShareholder, EPAM, took up its full entitlement, and other Shareholders did not, then there is a limited
underwrite the rights issue and subscribe for more of the new sharesle under the Takeovers Code limiting its shareholding to 19.9% in the absence of making
a compliant takeover offer or first obtaining shareholder approval.
Assessment of Options Available to EPIC 33
In our opinion, NAB (or any other bank for that matter) is unlikely to be willing to provide the Companym, given the level of leverage this would represent, and the
fact that the Company has a negative operating cash flow and is therefore unable to fully service debt otheralready provided from PGC or
should they be asked to providesuch funding constitutes a “related party transaction”, it
would therefore require shareholder approval or a waiver from the NZX as was required for PGC’s sub-
In our opinion, it is unlikely thatany lender will extend credit to EPIC on terms comparable to the current NAB facilities given the current
terest payments will put further pressure on EPIC’s cash flow and debt
renegotiation of EPIC’s debt funding, either with NAB or through alternativedebt burden, including the
convertible loan notes, to reduce financing costs and improve operating cash flow.
A new equity capital raising would have the benefit of enabling EPIC to repay debt thereby reducing (oro repay all net debt at 30 September 2011, including the
, being an amount that is, but exceeds the Company’s approximate market
hareholders in relation to a potential capitalraising by EPIC was carried out earlier in 2011. The resulting feedback, as disclosed to Shareholders in the 2
had expressed a general unwillingness to
r for the required amount ofhareholder sentiment together with EPIC’s share price
, notwithstanding that there woulders willing to participate, especially if the rights offer price is discounted. We believe that
hareholders to take up their rights, as has been the case withwho do not elect or are unable to
new capital and reduce its debt by approximately half,million new shares assuming a discounted issue price of say, $0.25 per
share, which compares to the trading band for shares of the last six months of between $0.25 and $0.50.Moreover, if its largest
Shareholder, EPAM, took up its full entitlement, and other Shareholders did not, then there is a limitedand subscribe for more of the new shares without infringing
le under the Takeovers Code limiting its shareholding to 19.9% in the absence of making
179. In our view many of EPIC’s Shareholders are unlikely to favour a rights issue and thereforesupportive for a number of reasons. First there isinvestment post-IPO. The shares were originally issued at $1raisings at $0.90, and recent trading of shaper share. Secondly, the shares were originally promoted as aoffering a relatively high yield. This is no longer the case, and even if a partial debunlikely in the near future that the Company would be able to resume dividend payments at a level thatwould offer an attractive yield, given there would still be a substantial level of debt that requires servicingfrom the Company’s limited cash flow.undertaking a capital raising at this time, given the pending maturity of the Company’s debt facilities.
180. In the event that the Company did proceed with aShareholders would be able toTherefore non-participating Shareholders would be unable to obtain full value from theirthem to other investors as is the casea recognised stock exchange.shareholders are either unwilling or, for whatever reason, unable to take up their rights, the inability toefficiently trade rights and realiholdings diluted and suffer value loss as a consequence.
181. We also believe that a placement of sharesdiscount given EPIC’s recent historyTorchlight convertible notes and reduce the NAB exposure toplacement to a number of shareholders, so as to ensure that no single shareholder endethan the permitted 19.9% of the Company, unless theshareholding (as is permitted under the Takeovers Code)exclude or limit the interesta capital raising would be dilutiveparticipation to existing Shareholders
182. Any capital raising that involves an offer to existing Shareholders would require a prospectus, and thiswould take time to prepare, and is also likely toat capital raising will involve the CompanyChristmas break, the Company will start to run out of time to avoid serious risk of a breach in its fundingarrangements occurring.
183. Therefore whilst a capital raising isdifficulties and Shareholdersinvestments at fair value, rather thancapital, also at a discount.
Sale of Moto Investment
184. A sale of EPIC’s 17.49% Moto shareholding at around, or in excess of, the current book value of $45mthe original cost adjusted for gains and losses, including foreign currency translation, sinceunder the equity accounting method)It would also realise an investment that isin the near term. Moto mayattraction for the Company pursuing
185. Moto is one of five major UK motorway services operators including Welcome Break, Roadchef, Extra andWestmoreland. We note thatrecent years.
186. EPIC has not undertaken a formalmarket conditions, the distraction of Moto’s recent recapitalisation andthis stage for other Moto shareholders.investment in Moto and there are a number of restrictions on the sale of any Moto shareholdingthe existing shareholder group
Assessment of Options Available to EPIC
EPIC’s Shareholders are unlikely to favour a rights issue and thereforefor a number of reasons. First there is the poor performance of the Company’s
IPO. The shares were originally issued at $1.00, there have been two further capital, and recent trading of shares during the last six months has occurred at prices below
per share. Secondly, the shares were originally promoted as a secure infrastructureoffering a relatively high yield. This is no longer the case, and even if a partial debunlikely in the near future that the Company would be able to resume dividend payments at a level thatwould offer an attractive yield, given there would still be a substantial level of debt that requires servicing
y’s limited cash flow. Thirdly, there are practical difficulties confrontingundertaking a capital raising at this time, given the pending maturity of the Company’s debt facilities.
In the event that the Company did proceed with a discounted pro rata rights issue, iShareholders would be able to readily and efficiently trade their rights given the illiquidity in EPIC’s shares
participating Shareholders would be unable to obtain full value from theiras is the case with rights issues undertaken by companies
exchange. In circumstances where a discounted rights issue is being undertaken andnwilling or, for whatever reason, unable to take up their rights, the inability to
efficiently trade rights and realise the implied value means non-participating shareholdersholdings diluted and suffer value loss as a consequence.
placement of shares to existing or new shareholders would alsodiscount given EPIC’s recent history. Assuming an amount of say, $30m was to be raised to repay theTorchlight convertible notes and reduce the NAB exposure to a level that may be acceptable, would require aplacement to a number of shareholders, so as to ensure that no single shareholder endethan the permitted 19.9% of the Company, unless the Shareholders first approved
permitted under the Takeovers Code). Furthermore, EPIC’s unlisted status wouldexclude or limit the interest and ability of certain investors to participate. Any discount associated with sucha capital raising would be dilutive to existing Shareholders, although this can be mitigated by offering
Shareholders on the same terms.
that involves an offer to existing Shareholders would require a prospectus, and thiswould take time to prepare, and is also likely to entail significant transaction costs. Therefore, any attemptat capital raising will involve the Company enduring a further period of uncertaintyChristmas break, the Company will start to run out of time to avoid serious risk of a breach in its funding
a capital raising is technically feasible, there are a number of practicalShareholders’ interests are likely to be better served by realising one of EPIC’s major
investments at fair value, rather than by the Company undertaking a discounted rights issue or placing new
Moto shareholding at around, or in excess of, the current book value of $45moriginal cost adjusted for gains and losses, including foreign currency translation, since
under the equity accounting method) would repay a substantial proportion of EPIC’s outstanding net debt.It would also realise an investment that is currently paying any dividends and we do not expect this to alter
may even require additional capital from its shareholders, hencethe Company pursuing the sale of EPIC’s Moto investment.
Moto is one of five major UK motorway services operators including Welcome Break, Roadchef, Extra andWe note that one of the largest operators, Roadchef, has experienced financial
has not undertaken a formal market testing exercise for its 17.49% stake in Motothe distraction of Moto’s recent recapitalisation and the sensitivity of a sale process at
this stage for other Moto shareholders. A pre-emptive rights process also applies toand there are a number of restrictions on the sale of any Moto shareholding
the existing shareholder group.
Assessment of Options Available to EPIC 34
EPIC’s Shareholders are unlikely to favour a rights issue and therefore may not bethe Company’s shares as an
, there have been two further capitalres during the last six months has occurred at prices below $0.50
infrastructure-based investmentoffering a relatively high yield. This is no longer the case, and even if a partial debt repayment occurs, it isunlikely in the near future that the Company would be able to resume dividend payments at a level thatwould offer an attractive yield, given there would still be a substantial level of debt that requires servicing
confronting the Directorsundertaking a capital raising at this time, given the pending maturity of the Company’s debt facilities.
discounted pro rata rights issue, it is unlikely thattrade their rights given the illiquidity in EPIC’s shares.
participating Shareholders would be unable to obtain full value from their rights by sellingwhose shares are listed on
In circumstances where a discounted rights issue is being undertaken andnwilling or, for whatever reason, unable to take up their rights, the inability to
participating shareholders will have their
to existing or new shareholders would also need to be priced at aAssuming an amount of say, $30m was to be raised to repay the
acceptable, would require aplacement to a number of shareholders, so as to ensure that no single shareholder ended up owning more
first approved a higher level ofunlisted status would
. Any discount associated with such, although this can be mitigated by offering
that involves an offer to existing Shareholders would require a prospectus, and thissignificant transaction costs. Therefore, any attempt
a further period of uncertainty. With the pendingChristmas break, the Company will start to run out of time to avoid serious risk of a breach in its funding
a number of practical and commercialinterests are likely to be better served by realising one of EPIC’s major
rights issue or placing new
Moto shareholding at around, or in excess of, the current book value of $45m (beingoriginal cost adjusted for gains and losses, including foreign currency translation, since acquisition
of EPIC’s outstanding net debt.currently paying any dividends and we do not expect this to alter
, hence there is some
Moto is one of five major UK motorway services operators including Welcome Break, Roadchef, Extra andexperienced financial difficulties in
Moto given the currentsensitivity of a sale process at
applies to the Company’sand there are a number of restrictions on the sale of any Moto shareholding outside of
187. EPIC received one offer in June 2011Board in terms of value, howeverprogressive deal that only offeredpoint immediately, howevercommitted.
188. A sale of 49.99% of EPIC’s shareholdremainder of the stake until the expiry of the option period (June 2012) would have left EPIC unable tomarket the residual 50.01% of its Moto investment over that period.conditions and gave rise totime, the Board attempted to extract a binding offer for the sale of EPIC’sinterested party, however, negotiations
189. Following assessment of the offer received, the Board decided to hold EPIC’s stake in Moto in favour ofseeking a ‘cleaner’ exit in respect
190. Given the attempt already made to locate buyersCompany in order to resolve its debt repayment obligation, and the restrictions contained in the Motoshareholders agreement affecting saleability ofdivesting the Moto shareholding is a feasible option for the Company to pursue at the present time.
Sale of Thames Water Shareholding
191. A sale of EPIC’s 1.24% indirectprovide the Company with sufficientTorchlight convertible noteactual price achieved and the level of debt repaid,investments, or for a share buyback
192. The original EPIC Investment Prospectus stated that EPIC would seek to exit its investment in ThamesWater within 5 years after makinglisted on a stock exchange remained in place.consistent with this statemenprospect that the Company could seek aliquidity for Shareholders.
193. A sale of the Thames Water investment is also consistent with one of the key findings from the Company’srecent Strategic Review, namely its preference for undertaking investments thatinfluence the investment, as is the case with Moto, but which is not the case in respect of theshareholding in Thames Water.
194. A sale of the Thames Water stake willmay be a more appropriate position for the Company so long as its other major investment in Moto is notgenerating any cash income. Moreover, there remains a prospect that Moto may require additional capitalto continue its development, and thereunable to fully participate. Completion of thehas funding available for further investment in Moto should the need arise.
195. In addition, the Company mayconsistent with its updatedconsidering any investment opportunities
196. Other options identified for EPIC from thof the Proposed Transaction include an internaliwith investors who are showing a preference for internally managed investment vehicles; as well as theprospect of a partial share buyback that would provide at least a degree of liquidity for Shareholdersthe Thames Water investment also opens upon the NZX to provide Shareholders with
Assessment of Options Available to EPIC
in June 2011 from a related party. The offer was considered reasonablehowever, the offer was structured as a staged transaction.
only offered certainty over 49.99% of EPIC’s holding in Moto at an acceptable pricepoint immediately, however, the sale of the balance of EPIC’s shareholding over the next 12 months was not
A sale of 49.99% of EPIC’s shareholding in Moto with a purchaser holding an option to acquire theremainder of the stake until the expiry of the option period (June 2012) would have left EPIC unable tomarket the residual 50.01% of its Moto investment over that period. The offer also had
gave rise to potential tax issues in respect of retention of EPIC’s existing PIE statustime, the Board attempted to extract a binding offer for the sale of EPIC’s entire stake
negotiations were not successful.
Following assessment of the offer received, the Board decided to hold EPIC’s stake in Moto in favour ofin respect of its stake in Thames Water (refer below).
Given the attempt already made to locate buyers for EPIC’s stake in Moto, the timeframe available to theCompany in order to resolve its debt repayment obligation, and the restrictions contained in the Motoshareholders agreement affecting saleability of this investment, we do not believe that a freshdivesting the Moto shareholding is a feasible option for the Company to pursue at the present time.
Shareholding
1.24% indirect shareholding in Thames Water in excess of the Minimum Priceompany with sufficient funds to repay most, if not all, of its debt facilities
Torchlight convertible notes, albeit EPIC would no longer own a significant yield assetactual price achieved and the level of debt repaid, funds may also be available to be applied to other
a share buyback that could offer some liquidity to Shareholders.
The original EPIC Investment Prospectus stated that EPIC would seek to exit its investment in Thamesafter making its investment in 2007 if the restriction preventing the Company being
on a stock exchange remained in place. A sale of EPIC’s Thames Water investment now is broadlyconsistent with this statement. In our opinion, sale of the Thames Water investment also opens up theprospect that the Company could seek a listing of its shares on the NZX, as a means of providing enhliquidity for Shareholders.
ale of the Thames Water investment is also consistent with one of the key findings from the Company’sview, namely its preference for undertaking investments that also
e the investment, as is the case with Moto, but which is not the case in respect of theshareholding in Thames Water.
ale of the Thames Water stake will enable EPIC to repay most, if not all, of its outstanding debtmay be a more appropriate position for the Company so long as its other major investment in Moto is notgenerating any cash income. Moreover, there remains a prospect that Moto may require additional capitalto continue its development, and there is risk of value loss to EPIC should a Moto capital raising occur if it isunable to fully participate. Completion of the Proposed Transaction may mean EPIC
available for further investment in Moto should the need arise.
may be able to consider other infrastructure-related investment opportunstrategy per the Strategic Review. At present, EPIC is pr
ng any investment opportunities as it has no financial flexibility.
Other options identified for EPIC from the Strategic Review that could be considered following completionof the Proposed Transaction include an internalisation of its management function, which may find favourwith investors who are showing a preference for internally managed investment vehicles; as well as theprospect of a partial share buyback that would provide at least a degree of liquidity for Shareholdersthe Thames Water investment also opens up the prospect that the Company could seek
Shareholders with better liquidity.
Assessment of Options Available to EPIC 35
The offer was considered reasonable by the. It comprised a
y over 49.99% of EPIC’s holding in Moto at an acceptable priceover the next 12 months was not
with a purchaser holding an option to acquire theremainder of the stake until the expiry of the option period (June 2012) would have left EPIC unable to
also had a number ofpotential tax issues in respect of retention of EPIC’s existing PIE status. At the
stake in Moto with the
Following assessment of the offer received, the Board decided to hold EPIC’s stake in Moto in favour of
for EPIC’s stake in Moto, the timeframe available to theCompany in order to resolve its debt repayment obligation, and the restrictions contained in the Moto
, we do not believe that a fresh attempt atdivesting the Moto shareholding is a feasible option for the Company to pursue at the present time.
the Minimum Price woulddebt facilities, including the
a significant yield asset. Depending on theto be applied to other
liquidity to Shareholders.
The original EPIC Investment Prospectus stated that EPIC would seek to exit its investment in Thamespreventing the Company being
ale of EPIC’s Thames Water investment now is broadlyale of the Thames Water investment also opens up the
listing of its shares on the NZX, as a means of providing enhanced
ale of the Thames Water investment is also consistent with one of the key findings from the Company’salso carry some ability to
e the investment, as is the case with Moto, but which is not the case in respect of the small indirect
of its outstanding debt, whichmay be a more appropriate position for the Company so long as its other major investment in Moto is notgenerating any cash income. Moreover, there remains a prospect that Moto may require additional capital
to EPIC should a Moto capital raising occur if it isEPIC is in a position where it
related investment opportunitiesStrategic Review. At present, EPIC is precluded from
Strategic Review that could be considered following completionits management function, which may find favour
with investors who are showing a preference for internally managed investment vehicles; as well as theprospect of a partial share buyback that would provide at least a degree of liquidity for Shareholders. Sale of
the prospect that the Company could seek a listing of its shares
Summary
197. EPIC needs to address its pending debt repayment obligationsmaximise shareholder value.the convertible loan notes whichincreasing coupon rates to encourage repayment.will likely result in a materially worse
198. Debt markets have changed significantldebt servicing ability following Moto’s suspension of dividends means thatunable to secure alternativeAccordingly, restructuring EPIC’s existing debt facilities is also not
199. In our opinion any equity capital raising is likely to beperformance, share illiquidity, andlikely to be best served by realising assets
200. EPIC has two major investments that could be realised in order to materially reduce EPIC’s indebtedness.The Company’s 17.49% stake inThames Water has a book value ofshareholding and a formal market testing exercise for
201. One offer was received for Motocontained a number of conditionsMoto shareholding, and did not provide certainty of funding ahead ofdo not consider that mounting a fresh attempthe present time.
202. A sale of EPIC’s indirect 1.24%our opinion, fair and reasonable as the Minimum Price reflects thwithin the band of comparable EV/RCV multiplescomparable recent transactions in the UK water industrythe Company’s ability to repayAccordingly, the sale of EPIC’s interest in Thames Waterreasonable and appropriate course of action
203. In the event that the Proposed Transaction does not proceed, then the Company will have less than fivemonths before expiry of its debt facilita near untenable position for the Directors.consider some form of discounted capital raising, which in all likelihoodownership position and control of EPIC to the new capital provider(s)existing investors selling a proportion of their indirect participation in Thames Water and Moto. However,we believe the outcome for Shareholders is likely to be worse in this eventuality, given the pressure that theCompany would be under due to the pending debt maturityfrom the Shareholders to the
Assessment of Options Available to EPIC
needs to address its pending debt repayment obligations in the most effective way possible in order tomaximise shareholder value. This includes both its NAB facilities, which expire on 30 April 2012, as well asthe convertible loan notes which were only meant to provide short term funding and
to encourage repayment. Any failure to address these immediate financialwill likely result in a materially worse outcome for Shareholders hence the status quo is not a viable option
Debt markets have changed significantly since EPIC was first established. This coupled with EPIC’s reduceddebt servicing ability following Moto’s suspension of dividends means that in our assessment
alternative term debt funding on terms comparable to its existingrestructuring EPIC’s existing debt facilities is also not viewed as a viable option.
ny equity capital raising is likely to be priced at a discount to “fair value” given EPIC’s recentuidity, and the quantum of funds required. Accordingly, Shareholders’ interest
likely to be best served by realising assets at around their fair value, if achievable.
has two major investments that could be realised in order to materially reduce EPIC’s indebtedness.The Company’s 17.49% stake in Moto has a book value of $45m while the indirect 1.24% shareholding inThames Water has a book value of $72 million. An informal market sounding in respect
market testing exercise for its Thames Water investment
One offer was received for Moto from a related party however this offer was rejected by the Board as itcontained a number of conditions, only provided certainty of realisation in respect of half the Company’s
and did not provide certainty of funding ahead of the 30 April 2012do not consider that mounting a fresh attempt to sell the Moto investment is a feasible option for EPIC at
EPIC’s indirect 1.24% indirect shareholding in Thames Water at or above the Minimum Price is, inour opinion, fair and reasonable as the Minimum Price reflects the 31 March 2011 reported “fair value”, lies
of comparable EV/RCV multiples corresponding to other listed UK water utilities andcomparable recent transactions in the UK water industry. Such a transaction will provide certainty aroundthe Company’s ability to repay most, if not all, of its debt funding ahead of the 30 April 2012 deadline.Accordingly, the sale of EPIC’s interest in Thames Water at or in excess of the Minimum Price
opriate course of action given all the circumstances faced by EPIC
In the event that the Proposed Transaction does not proceed, then the Company will have less than fivemonths before expiry of its debt facilities in order to find an alternative solution. In our view, this would be
for the Directors. In our assessment the Board would have little alternative but todiscounted capital raising, which in all likelihood would transfer
and control of EPIC to the new capital provider(s). This wouldexisting investors selling a proportion of their indirect participation in Thames Water and Moto. However,
ve the outcome for Shareholders is likely to be worse in this eventuality, given the pressure that thedue to the pending debt maturity, which would manifest
the new investors providing the fresh capital.
Assessment of Options Available to EPIC 36
ffective way possible in order toThis includes both its NAB facilities, which expire on 30 April 2012, as well as
only meant to provide short term funding and stipulate progressivelyimmediate financial issues
hence the status quo is not a viable option.
st established. This coupled with EPIC’s reducedin our assessment EPIC will be
ng bank facility.a viable option.
at a discount to “fair value” given EPIC’s recentShareholders’ interests are.
has two major investments that could be realised in order to materially reduce EPIC’s indebtedness.the indirect 1.24% shareholding in
in respect of EPIC’s Motoinvestment have been undertaken.
his offer was rejected by the Board as it, only provided certainty of realisation in respect of half the Company’s
30 April 2012 bank deadline. Wet to sell the Moto investment is a feasible option for EPIC at
above the Minimum Price is, ine 31 March 2011 reported “fair value”, lies
other listed UK water utilities andwill provide certainty around
its debt funding ahead of the 30 April 2012 deadline.in excess of the Minimum Price is a
faced by EPIC.
In the event that the Proposed Transaction does not proceed, then the Company will have less than fivein order to find an alternative solution. In our view, this would be
would have little alternative but towould transfer a substantial
. This would in effect, be equivalent toexisting investors selling a proportion of their indirect participation in Thames Water and Moto. However,
ve the outcome for Shareholders is likely to be worse in this eventuality, given the pressure that the, which would manifest itself in a value transfer
Appendix A – Statement of Independence,Disclaimer, Restrictions, Limitation of Liability,and Indemnity
Qualifications
This Report has been prepared by the Corporate Finance division of PricewaterhouseCoopers, which provides advice onmergers, acquisitions and divestments, valuations, independent expert’s reports and appraisals, financial investigations andstrategic corporate advice.
The Partners responsible for this Report are David Bridgman M.Com, LLB, CA andhave extensive experience in relation to corporate restructurings and the preparation of independent expert’s reports for thebenefit of investors.
Independence
PricewaterhouseCoopers considers itself independent of
Our fee for preparation of this report is based on the time required for its completion, and it is not contingent on the succimplementation of the Proposed Transaction
We are not, and do not intend to be, a director, officer, or employee of,
In addition to this Report we have provided the following advice and reports to
Analysis of EPAM Value Report EPAM Due Diligence Report –
PricewaterhouseCoopers New Zealand is the statutory auditor of EPIC.
Scope, Disclaimer and Restrictions
The purpose of this Report is to advise the Directors of theimpact on the Company and its shareholders.
This Report is prepared solely for this purpose and should not be used or relied upon for any other purpose.
The statements and opinions expressed in this Report are based on
In preparing our Report, we have not independently verified the accuracy of information provided to us, and have not conducteany form of audit in respect of EPIC or any of its related entities. Accordor completeness of the information provided to us and upon which we have relied.
In forming our opinions, we have relied on forecasts and assumptions prepared by(including members of the Macquarie Group)verified. Inevitably, some assumptions may not materialise and unanticipated events and circumstances are likely to occur.Therefore, actual results in the future will vary from the forecasts upon which we have relied. These variations may be material.
The statements and opinions expressed in this Report have been made in good faith and on the basis that all relevantinformation for the purposes of preparing our Report has been provided bysuch information is true and accurate in all material aspects and not misleading by re
Accordingly, neither PricewaterhouseCoopers nor its partners, employees or agents, accept any responsibility or liability for anysuch information being inaccurate, incomplete, unreliable or not soundly based or for any errors in the analysis, statementsopinions provided in our Report resulting directly or indirectly from any such circumstances or from any assumptions uponwhich our Report is based proving unjustified.
Our opinions have been arrived at based on economic, market and other conditions prevailing at the date of oconditions may change significantly over relatively short periods of time.
We reserve the right, but will be under no obligation, to review or amend our Report, if any additional information, which waexistence on the date of our Report, was not brought to our attention, or subsequently comes to light.
Limitation of Liability
PricewaterhouseCoopers will accept liability to pay damages for losses arising as a direct result of breach of contract ornegligence on our part in respect of serpermitted by law, any liability of PricewaterhouseCoopers, its partners and staff (whether in contract, negligence or otherwishall in no circumstances exceed five
We accept no liability to any party other than the addressee, as our client.
Indemnity
EPIC has agreed to indemnify us against claims brought by any third party (which includes but is not limited toShareholders and prospective investors). The indemnity covers PricewaterhouseCoopers for any loss or liability suffered orincurred as a result of or in connection with the preparation of our Report. The indemnity will not apply to the extent that it hasbeen determined by a Court that there is negligence or misconduct on our part.
Statement of Independence,Disclaimer, Restrictions, Limitation of Liability,and Indemnity
by the Corporate Finance division of PricewaterhouseCoopers, which provides advice onmergers, acquisitions and divestments, valuations, independent expert’s reports and appraisals, financial investigations and
eport are David Bridgman M.Com, LLB, CA and Eric Lucas BA (Hons),have extensive experience in relation to corporate restructurings and the preparation of independent expert’s reports for the
PricewaterhouseCoopers considers itself independent of EPIC in relation to the Proposed Transaction
Our fee for preparation of this report is based on the time required for its completion, and it is not contingent on the succTransaction.
We are not, and do not intend to be, a director, officer, or employee of, EPIC.
In addition to this Report we have provided the following advice and reports to EPIC during the last three years:
Analysis of EPAM Value Report – June 2009; andJune 2009.
New Zealand is the statutory auditor of EPIC.
Scope, Disclaimer and Restrictions
eport is to advise the Directors of the EPIC Board about the Proposed Transactionimpact on the Company and its shareholders.
eport is prepared solely for this purpose and should not be used or relied upon for any other purpose.
The statements and opinions expressed in this Report are based on information available as at the date of the Report.
In preparing our Report, we have not independently verified the accuracy of information provided to us, and have not conducteor any of its related entities. Accordingly, we express no opinion on the reliability, accuracy,
or completeness of the information provided to us and upon which we have relied.
In forming our opinions, we have relied on forecasts and assumptions prepared by EPIC and third parties reporting to(including members of the Macquarie Group) about future events which by their nature are not able to be independentlyverified. Inevitably, some assumptions may not materialise and unanticipated events and circumstances are likely to occur.
re, actual results in the future will vary from the forecasts upon which we have relied. These variations may be material.
The statements and opinions expressed in this Report have been made in good faith and on the basis that all relevantthe purposes of preparing our Report has been provided by EPIC and / or its directors and advisers, and that all
such information is true and accurate in all material aspects and not misleading by reason of omission or otherwise.
cewaterhouseCoopers nor its partners, employees or agents, accept any responsibility or liability for anysuch information being inaccurate, incomplete, unreliable or not soundly based or for any errors in the analysis, statements
our Report resulting directly or indirectly from any such circumstances or from any assumptions uponwhich our Report is based proving unjustified.
Our opinions have been arrived at based on economic, market and other conditions prevailing at the date of oconditions may change significantly over relatively short periods of time.
We reserve the right, but will be under no obligation, to review or amend our Report, if any additional information, which wat, was not brought to our attention, or subsequently comes to light.
PricewaterhouseCoopers will accept liability to pay damages for losses arising as a direct result of breach of contract ornegligence on our part in respect of services provided in connection with, or arising out of, this engagement but, to the extentpermitted by law, any liability of PricewaterhouseCoopers, its partners and staff (whether in contract, negligence or otherwishall in no circumstances exceed five times the fees paid in the aggregate in respect of all such services.
We accept no liability to any party other than the addressee, as our client.
has agreed to indemnify us against claims brought by any third party (which includes but is not limited tohareholders and prospective investors). The indemnity covers PricewaterhouseCoopers for any loss or liability suffered or
t of or in connection with the preparation of our Report. The indemnity will not apply to the extent that it hasbeen determined by a Court that there is negligence or misconduct on our part.
Appendix 37
Statement of Independence,Disclaimer, Restrictions, Limitation of Liability,
by the Corporate Finance division of PricewaterhouseCoopers, which provides advice onmergers, acquisitions and divestments, valuations, independent expert’s reports and appraisals, financial investigations and
BA (Hons), FCA, both of whomhave extensive experience in relation to corporate restructurings and the preparation of independent expert’s reports for the
Transaction.
Our fee for preparation of this report is based on the time required for its completion, and it is not contingent on the success or
during the last three years:
Transaction and its likely future
eport is prepared solely for this purpose and should not be used or relied upon for any other purpose.
information available as at the date of the Report.
In preparing our Report, we have not independently verified the accuracy of information provided to us, and have not conductedingly, we express no opinion on the reliability, accuracy,
and third parties reporting to EPICabout future events which by their nature are not able to be independently
verified. Inevitably, some assumptions may not materialise and unanticipated events and circumstances are likely to occur.re, actual results in the future will vary from the forecasts upon which we have relied. These variations may be material.
The statements and opinions expressed in this Report have been made in good faith and on the basis that all relevantand / or its directors and advisers, and that all
ason of omission or otherwise.
cewaterhouseCoopers nor its partners, employees or agents, accept any responsibility or liability for anysuch information being inaccurate, incomplete, unreliable or not soundly based or for any errors in the analysis, statements and
our Report resulting directly or indirectly from any such circumstances or from any assumptions upon
Our opinions have been arrived at based on economic, market and other conditions prevailing at the date of our Report. Such
We reserve the right, but will be under no obligation, to review or amend our Report, if any additional information, which was int, was not brought to our attention, or subsequently comes to light.
PricewaterhouseCoopers will accept liability to pay damages for losses arising as a direct result of breach of contract orvices provided in connection with, or arising out of, this engagement but, to the extent
permitted by law, any liability of PricewaterhouseCoopers, its partners and staff (whether in contract, negligence or otherwise)times the fees paid in the aggregate in respect of all such services.
has agreed to indemnify us against claims brought by any third party (which includes but is not limited to EPIChareholders and prospective investors). The indemnity covers PricewaterhouseCoopers for any loss or liability suffered or
t of or in connection with the preparation of our Report. The indemnity will not apply to the extent that it has
Appendix B – Sources of Information
EPIC Annual Reports for financial years ended 31 March 2009, 2010 and 2011
EPIC Group Management Accounts for the period ended 30 September 2011
KWHL Annual Report for the financial year ended 31 March 2011
EPIC Investment Statement and Prospectus
Constitution of EPIC dated 26 April 2007
KWHL Subscription and Shareholders’ Agreement dated 11 October 2006
KWIHL MIC Subscription and Shareholders’ Agreement dated 11 October 2006
EPIC Investment Statement and Prospectus
EPIC and Macquarie Investment Management (UK) Limited Investor Services Agreement relating toKWIHL dated 2007
Convertible Note Deed – EPIC and Torchlight (GP) Limited (in its capacity as General Partner of TorchlightFund No 1 LP)
Fourth Amendment and Restatement Deed
PGC NZX Waiver in relation to PGC’s sub
Letter from MIRA(E)L to EPIC dated 8 July 2011 outlining the proposed terms of enthe proposed sale of EPIC’s indirect stake in Thames Water
Letter from MIRA(E)L to EPIC dated 3 October 2011
EPIC Shareholder Announcements
EPIC share price and volume data provided by Sharem
Calculation of relevant RCV multiple implied by the
Calculation of Performance Fee related to the Proposed Transaction
TWUL Annual Reports for financial years ended 31 March
Thames Water Bond Prospectus June 2011
Various Thames Water management presentations
Thames Water Shareholder announcements
Thames Water website (www.thameswater.co.uk
Ofwat 2009 Final Determination
Ofwat published RCVs for 2010 / 11
Broker Reports for Pennon, Northumbrian, Severn Trent and United Utilities for past two years
Moto Holdings Limited Annual Reports for the financial years ended 31 December 2009 and 2010
Correspondence provided by EPIC Management in relation to the offer received for EPIC’s investment inMoto
Moto Amended and Restated
Sources of Information
financial years ended 31 March 2009, 2010 and 2011
EPIC Group Management Accounts for the period ended 30 September 2011
KWHL Annual Report for the financial year ended 31 March 2011
EPIC Investment Statement and Prospectus – Offer of Shares dated 26 April 2007
Constitution of EPIC dated 26 April 2007
and Shareholders’ Agreement dated 11 October 2006
and Shareholders’ Agreement dated 11 October 2006
EPIC Investment Statement and Prospectus – Offer of Shares dated 14 August 2009
EPIC and Macquarie Investment Management (UK) Limited Investor Services Agreement relating to
EPIC and Torchlight (GP) Limited (in its capacity as General Partner of Torchlight
ment and Restatement Deed – Facility Agreement between NAB and EPIC dated 8 July 2011
PGC NZX Waiver in relation to PGC’s sub-participation in NAB facility dated 11 July 2011
to EPIC dated 8 July 2011 outlining the proposed terms of enthe proposed sale of EPIC’s indirect stake in Thames Water
to EPIC dated 3 October 2011 in relation to the Proposed Transaction
EPIC Shareholder Announcements
EPIC share price and volume data provided by Sharemart and Computershare
Calculation of relevant RCV multiple implied by the Minimum Price provided by Management
Calculation of Performance Fee related to the Proposed Transaction provided by Management
TWUL Annual Reports for financial years ended 31 March 2009, 2010 and 2011
Thames Water Bond Prospectus June 2011
Various Thames Water management presentations to shareholders
Thames Water Shareholder announcements
www.thameswater.co.uk)
2009 Final Determination
Ofwat published RCVs for 2010 / 11
Broker Reports for Pennon, Northumbrian, Severn Trent and United Utilities for past two years
Moto Holdings Limited Annual Reports for the financial years ended 31 December 2009 and 2010
Correspondence provided by EPIC Management in relation to the offer received for EPIC’s investment in
Moto Amended and Restated Shareholders’ Agreement dated February 2011
Appendix 38
2007
August 2009
EPIC and Macquarie Investment Management (UK) Limited Investor Services Agreement relating to
EPIC and Torchlight (GP) Limited (in its capacity as General Partner of Torchlight
Facility Agreement between NAB and EPIC dated 8 July 2011
participation in NAB facility dated 11 July 2011
to EPIC dated 8 July 2011 outlining the proposed terms of engagement in relation to
the Proposed Transaction
provided by Management
provided by Management
Broker Reports for Pennon, Northumbrian, Severn Trent and United Utilities for past two years
Moto Holdings Limited Annual Reports for the financial years ended 31 December 2009 and 2010
Correspondence provided by EPIC Management in relation to the offer received for EPIC’s investment in
Capital IQ
Factiva
RBNZ Website (www.rbnz.govt.nz
Various email correspondence and discussions with EPIC Management and Directors
EPIC website (www.epam.co.nz
.govt.nz)
Various email correspondence and discussions with EPIC Management and Directors
www.epam.co.nz)
Appendix 39
Various email correspondence and discussions with EPIC Management and Directors
Appendix C – Map of Area Serviced byWater
Source: Thames Water Website
Map of Area Serviced by
Appendix 40
Map of Area Serviced by Thames
Appendix D –Companies and
Comparable Company Analysis - United Kingdom Water and Wastewater Utilities
As at 28 October 2011
Market EV RCV at
Company Cap (£M) (£M) 30 Nov 11
Pennon 2,523 4,896
United Utilities 4,141 9,197
Severn Trent 3,636 7,793
Median
Notes:
2. After deducting estimated value of non-regulated businesses based on broker estimates
Source: Capital IQ, OFWAT, Company Websites, Annual Reports, Investor Presentations, Broker Reports and PwC Analysis
1. Based on real RCV at 31 March 2011 and 31 March 2012 per AMP5 agreed with Ofwat, estimated inflation rate of 4.01%, and pro-rata
allocation to 30 November 2011
UK Listed Water and Wastewaterand Analysis of Transactions
Comparable Company Analysis - United Kingdom Water and Wastewater Utilities
% %Oper.
RCV at EV/ RCV Regulated Region of Rev Profit
30 Nov 111 (30.11.11 RCV) Cust. Base Operation Share Share
2,794 1.75x 1.7 million
residents
South
Western
England
39% 73%
8,568 1.07x 4.2 million
households
North
Western
England
98% 97%
7,017 1.11x 3.2 million
households
English
Midlands
81% 97%
Median 1.11x
2. After deducting estimated value of non-regulated businesses based on broker estimates
Source: Capital IQ, OFWAT, Company Websites, Annual Reports, Investor Presentations, Broker Reports and PwC Analysis
1. Based on real RCV at 31 March 2011 and 31 March 2012 per AMP5 agreed with Ofwat, estimated inflation rate of 4.01%, and pro-rata
Regulated Segment of Company:
Appendix 41
UK Listed Water and WastewaterTransactions
%Oper.
Profit Reg. %of Reg. EV /
Share EV2 total EV RCV
73% 3,407 70% 1.22x
97% 9,116 99% 1.06x
97% 7,611 98% 1.08x
Median 1.08x
Source: Capital IQ, OFWAT, Company Websites, Annual Reports, Investor Presentations, Broker Reports and PwC Analysis
1. Based on real RCV at 31 March 2011 and 31 March 2012 per AMP5 agreed with Ofwat, estimated inflation rate of 4.01%, and pro-rata
Regulated Segment of Company:
Source: Capital IQ, Company Presentations, Independent Reports, Factiva, PwC Analysis
1.20x
1.33x
1.10x
1.15x
1.20x
1.25x
1.30x
1.35x
1.40x
1.45x
1.50x
1.55x
May 2005 Oct 2006
EV
/R
CV
Multip
le
Selected United Kingdom Water and Wastewater Company Transactions
Thames Water
South East Water
Comparable Transaction Analysis - United Kingdom Water and Wastewater Utilities
Date Target
Water and Sewerage Companies - 100% Acquired
Jul 2011 Northumbrian Water Group
Nov 2007 Kelda Group (Yorkshire
Water)
Oct 2007 Southern Water
Oct 2006 Thames Water Utilities
Other Transactions
Oct 2011 Agbar UK (Bristol Water
Group)
Oct 2011 Cambridge Water
Aug 2011 Cambridge Water
Dec 2010 South East Water
Nov 2009 Southern Water
Dec 2008 Southern Water
Oct 2007 South Staffordshire Group
Oct 2006 South East Water
May 2006 Bristol Water Group plc
Jan 2006 Sutton & East Surrey Water
Feb 2005 Mid Kent Water
Notes:
1. Implied EV based on total acquisition price including any non-regulated businesses
2. Based on regulated EV / RCV, i.e. excluding estimated value of non-regulated businesses
Source: Capital IQ, Company Presentations, Independent Reports, Factiva, PwC analysis
Source: Capital IQ, Company Presentations, Independent Reports, Factiva, PwC Analysis
1.27x
1.38x
Feb 2008 Jul 2009 Nov 2010
Transaction Date
Selected United Kingdom Water and Wastewater Company Transactions - 2005 to 2011
South East Water
Kelda (Yorkshire Water)
Southern Water
Comparable Transaction Analysis - United Kingdom Water and Wastewater Utilities
Percentage
Acquirer Acquired
Water and Sewerage Companies - 100% Acquired
Northumbrian Water Group Cheung Kong Holdings Limited and
associated interests
100.0%
Consortium including Citi, HSBC,
Prudential and GIC.
100.0%
Consortium (Challenger
Infrastructure Fund, JP Morgan Asset
Management et al)
100.0%
Macquarie European Infrastructure
Limited
100.0%
Median
Capstone Infrastructure Corporation 70.0%
South Staffordshire plc 100.0%
HSBC Bank plc 100.0%
Caisse de Depot et Placement du
Quebec
50.0%
Australian Government Future Fund 15.6%
UBS Global Asset Management 7.8%
South Staffordshire Group Alinda Capital Partners LLC (IBO) 100.0%
Hastings Funds Management 100.0%
Agbar (Sociedad General de Aguas
de Barcelona SA)
100.0%
Sutton & East Surrey Water Deutsche Bank 100.0%
Hastings Funds Management;
Utilities Trust of Australia
100.0%
Median
1. Implied EV based on total acquisition price including any non-regulated businesses
2. Based on regulated EV / RCV, i.e. excluding estimated value of non-regulated businesses
Source: Capital IQ, Company Presentations, Independent Reports, Factiva, PwC analysis
Appendix 42
1.22x
1.29x
1.26x
Nov 2010 Apr 2012
Agbar UK (Bristol Water)
Northumbrian Water Group
Comparable Transaction Analysis - United Kingdom Water and Wastewater Utilities
Implied EV1 /
EV (£m) RCV
4,732 1.29x2
5,542 1.27x
4,195 1.38x
8,000 1.20x2
Median 1.33x
307 1.22x
n/a n/a
75 1.13x
331 1.26x
4,117 1.26x
4,325 1.30x
400 1.40x
665 1.33x
340 1.51x
272 1.34x
241 1.26x
Median 1.28x