Wales & West Utilities
Investor Update
April 2013
Investor Presentation Disclaimer
The financing terms described herein are neither an offer to buy or sell securities, nor a solicitation to buy or sell securities. The summary contained in this
document is not a complete description of the terms of the transaction and is subject to change without limitation or notice. All information contained in the
foregoing is qualified in its entirety by the information to be provided in the final prospectus. Any investment decision should be based only upon such final
documentation. The indicative financing terms in this investor presentation and any other information supplied in connection with the Guaranteed Bonds to be
issued in respect of the programme described herein guaranteed by the Guarantors (as defined below) (the "Bonds") are not intended to provide the basis of any
credit or other evaluation and should not be considered as a recommendation by Wales & West Utilities Finance Plc (the "Issuer"), Wales & West Utilities Limited
or Wales & West Utilities Holdings Limited (together the "Guarantors"), or any other person that any recipient of this investor presentation should purchase any of
the Bonds. Each investor contemplating the purchase of any of the Bonds should make its own independent investigation of the financial condition and affairs, and
its own appraisal of the creditworthiness, of the Issuer and the Guarantors. Potential investors are advised to consider the selling restrictions that will be set out in
the final prospectus. This investor presentation may not be distributed in any jurisdiction or to any person where such distribution would be prohibited by any
applicable law, rule or regulation. This presentation does not purport to identify or suggest all of the risks (direct and indirect), which may be associated with the
proposed transaction.
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“vision”, “may”, “could”, “pro forma”, “budget”, “financial model” and analogous expressions are intended to identify forward-looking statements. Any such
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outcome to differ materially from that expected. Such risks and uncertainties include, amongst others, general economic and business conditions, competition,
changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, and various other events, conditions and
circumstances (including acts of god, war and terrorism). No assurance is given by the Issuer, the Guarantor, or any other member of the Guarantor group that the
financing arrangements described herein will be implemented. The Issuer, the Guarantors and each other member of the group expressly disclaim any obligation
or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein to reflect any change in expectations or any change
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registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States absent registration under
the Securities Act or an available exemption from it. The Bonds will be offered and sold outside the United States to non-U.S. persons in reliance on Regulation S
under the Securities Act.
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update this presentation whether as a result of any change to the matters described herein or any change in any fact or circumstance subsisting at the date hereof
or otherwise.
This Presentation may not be passed on in the United Kingdom except to investment professionals or other persons in circumstances in which section 21(1) of the
Financial Services and Markets Act 2000 does not apply to the Issuer
2
Graham Edwards – Chief Executive
Neil Henson – Director of Finance
Adrian Breakspear – Head of Investor Relations & Treasury
3
Agenda
1.
Company Overview
2.
Change in Ownership
3.
Financial Performance
4.
New Regulatory Framework
5.
WWU Business Plan
6.
Financing
4
Company Overview

WWU commenced trading on 1 June 2005, following £1.3bn
acquisition from National Grid (NG) of Wales and South West
gas distribution networks by a consortium of infrastructure
fund investors

Utility regulated by Ofgem

Operates, maintains, repairs and develops gas distribution
networks

Provides the gas emergency service, which in 2011/12
comprised

97,000 public reported escapes

82,000 were domestic faults

15,000 were network leaks

Replaces circa 420km of old metallic mains/year

Provides circa 13,000 new gas connections/year

Undertakes circa 105,000 meter installation, repairs and
replacements/year
We don’t

Sell gas

Bill consumers

Own a large fleet of meters – only approximately 35,000 meters
(0.1% of supply points) with a net book value of £9m have been
installed since 2005 under GDN ‘meter of last resort’ obligations
Key Stats
 Covers 42,000km2 – 1/6 of UK
 Serves a population of 7.4 million
 2.5 million supply points
 35,000km of network
 RAV c£1.85bn at 31
December 2012
5
Group Ownership and
Management
West Gas Networks Ltd
8151511
50%

On 10 October 2012, the MGN Gas Networks (UK) Group
was purchased by a consortium comprising Cheung Kong
Infrastructure Holdings Limited, Cheung Kong Holdings
Limited, Power Assets Holdings Limited and Li Ka Shing
Foundation Limited.

The new owners requested a change in the Financial Year
accounting reference date from 31 March to 31
December, achieved by accounts being prepared for the 9
month period to 31 December 2012.

A STID proposal approving the change of year-end was
finalised on 3rd December 2012

The current board of WWU consists of 9 shareholder
appointed representatives, Graham Edwards (Chief
Executive) and Michael Pavia (Independent Director).

There is currently a vacancy for an additional independent
director following the resignation of Kevin Whiteman.

The holding companies previously named ‘MGN Gas
Networks’ have been renamed as Wales & West Gas
Networks.
Western Gas Networks Ltd
8151473
50%
Wales & West Gas Networks Holdings Limited
5095454
100%
Wales & West Gas Networks (Junior Finance) Ltd
5149491
100%
Wales & West Gas Networks (Senior Finance) Limited
5149493
100%
Wales & West Utilities Holdings Limited
7092596
100%
Wales & West Utilities Limited
5046791
100%
Wales & West Utilities
Finance plc
6766848
Wales & West Utilities
Pension Scheme TrusteesLimited
5750643
6
Cheung Kong Group – UK
Infrastructure Investments
7
Historical Performance
Since 2005 we have continued to outperform the regulatory deal and
achieved a 23% reduction in operating costs
 People resources reduced by 400 (20%) - without compromising delivery
performance
 Implemented employee terms and conditions that reduce employment costs by
25% - these terms now apply to over 50% of our people
 Operational productivity improved by 15%
 Rationalised main depots from 23 to 7, and offices from 4 to 1
 Facilities costs reduced by 40%, IT operating costs by 35%
 Alliance back office costs reduced by 20% - through the implementation of a
single delivery model
Over the regulatory period we will have delivered opex outperformance of c £130m
8
EBITDA Performance
9 months
ended
31 December
2012
£’m
Year
ended
31 March
2012
£’m
Year
ended
31 March
2011
£’m
Year
ended
31March
2010
£‘m
271
342
304
304
6
9
9
10
Revenue
277
351
313
314
Operating Costs (excluding
shrinkage gas)
(68)
(82)
(79)
(79)
(7)
(9)
(8)
(5)
Pass through Costs
(29)
(28)
(28)
(29)
Restructuring Costs
(16)
-
(1)
-
5
-
2
(3)
Earnings before interest, tax,
depreciation, amortisation and
replacement expenditure
162
232
199
198
Replacement Expenditure
(70)
(97)
(80)
(77)
92
135
119
121
Wales & West Utilities Limited
Transportation Revenue
Non-Transportation Revenue
Shrinkage Gas
Environmental and
decommissioning and other
provisions
Earnings before interest, tax,
depreciation and amortisation
(EBITDA)
EBITDA continues the strong performance of previous
periods
In the nine months ended 31 December 2012:
 Formula turnover increased with inflation and NTS Exit
Capacity income (approximately £13m in Year-ended
31st March 2013)
 Non-formula revenues in line with y/e 31/3/12, which
included the provision of metering services to meter
asset managers and other services related to gas
infrastructure.
 In the 9 month period, one-off costs have been
incurred in relation to; settlement with industrial staff
re change in working terms (£2.5m), alignment of
accounting policy with NGN (£1.2m) and one-off
accrual for faulty valves (£0.8m).
 Pass through costs are higher than 2011/12 due to
NTS exit capacity charges now being billed via the
GDNs ~ offset by more formula revenue (impact from
1/10/12 onwards only)
 Restructuring costs relate to an organisational restructure which resulted in 139 people leaving the
business in April 2013.
 Provision movements reflect the non-cash adjustment
to the carrying value of provisions for holder
demolition and the statutory remediation of land.
9
Cash Flow
Wales & West Utilities Limited
Cash flow
£m
9 Months ended
31 December
2012
Year ended
31 March
2012
Year ended
31 March
2011
Year ended
31 March
2010
92
135
119
121
(10)
1
11
-
-
(1)
-
-
Difference between pension charge and contributions
(11)
(12)
(7)
(8)
Movements in provisions for liabilities and charges
(10)
(7)
(6)
2
61
116
117
115
Earnings before interest, tax, depreciation and
amortisation (EBITDA)
Working capital movement
Restructuring costs
Net cash inflow from operating activities
-
-
-
-
(56)
(63)
(70)
(84)
Capital contributions received
6
10
10
12
Proceeds of disposals of tangible fixed assets
-
1
-
-
Grants and contributions received
-
-
-
-
(50)
(53)
(60)
(72)
Net cash inflow before treasury activities and
servicing of finance
11
64
57
43
New long term loans
20
40
-
240
Proceeds from issue of corporate bonds
-
400
-
965
Repayment of bank debt
-
(200)
-
(1,044)
Debt issue and other financing costs
-
(6)
(3)
(35)
Cash on deposit (treated as current asset investments)
-
(150)
-
-
Payments in respect of interest rate swap contracts
-
(39)
-
(78)
Net Cash inflow from financing activities
20
45
(3)
48
Net cash inflow before servicing of finance
31
109
54
91
UK Corporation Tax Paid
Purchase of tangible fixed assets
Net cash outflow from investing activities
 Net cash inflow from operating
activities is after investment in
RAV for that proportion of
replacement expenditure (circa
50%) that qualifies for RAV
 Adverse working capital
movement is caused by the oneoff cessation of prepayment
arrangements with BGT Centrica
 £11m of pension deficit
contributions as part of the
revised schedule of payments
agreed with the pension trustees
 No corporation tax paid due to
accumulated tax losses
 Continued investment in RAV
through capital expenditure
 Additional £20m of borrowing in
the period (repaid subsequent to
the year-end)
10
A New Price Control Period
Key Headlines from RIIO-GD1
 RIIO-GD1 changes the price control period from 5 to 8 years. The current regulatory settlement will run
until 31 March 2021.
 Cost of Equity set at 6.7% and Cost of Debt set in line with the debt index (currently 2.92%). Variable
cost of debt means that future allowances will move in line with market conditions. Initial WACC for
2013/14 is 4.24%.
 Several additional incentive mechanisms exist under RIIO, including benefits for minimising
environmental emissions, minimising the amount of capacity we book on the National Transmission
System, rewards for customer service and stakeholder engagement, and discretionary awards to
promote sustainable energy and address fuel poverty and safety.
 RIIO introduces a totex regime, whereby a common incentive mechanism applies to all controllable
operating costs, replacement and capital expenditure. Under the IQI mechanism WWU retain 63% of all
outperformance of cost allowances, but will incur 63% of any overspend.
11
A New Price Control Period
‘Continued Focus on Cost Control and RAV growth
 Cost allowances are set to deliver defined outputs under RIIO. WWU received final totex allowances of
an average of £210m p.a. (2009/10 prices) over the eight year period. WWU secured a 15% increase
between the Initial and Final Proposals – which was the largest of any network.
 The replacement expenditure programme continues, however the funding method changes to 100%
funding through RAV by 2021 (currently 50%). However, RIIO introduces accelerated depreciation on
regulatory assets and hence the overall impact on RAV is broadly neutral. Overall replacement
expenditure is anticipated to be in excess of £800m over the RIIO period.
 Capital investment in the network continues as WWU continue to add connections and reinforce the
network.
 Overall RAV increases by 38% from £1.9bn to £2.6bn over the 8 year period.
12
Service Performance
1 of only 2 network to
achieve all standards
of service consistently
since 2005
Awarded UK Utility
Company of the Year
2010
Customer Satisfaction Survey Scores (out of 10)
Network
2010/11
Gas Industry Customer
Services Awards in
2009, 2010 2011 and
2012
Only GDN to have no
ombudsman
complaints for 18
months
Response to Uncontrolled Escapes (97% target)
2008/9
2009/10
2011/12
Wales & West
7.9
8.1
8.2
8.5
Scotland
7.8
8.0
8.1
Southern
7.6
7.8
East of England
7.6
West Midlands
Network
2008/9
2009/10
2010/11
2011/12
Wales & West
98.0
97.6
98.5
98.7
8.3
Scotland
98.8
97.8
97.3
99.4
7.8
8.1
Southern
98.4
98.0
97.1
98.4
7.8
7.2
8.1
East of England
97.2
97.1
95.2
97.8
7.4
7.6
7.1
8.0
West Midlands
97.7
98.2
95.3
99.1
North West
7.4
7.6
7.1
8.0
North West
97.4
96.9
92.1
99.3
NGN
7.4
7.6
7.1
7.9
NGN
97.7
97.0
91.6
99.5
London
6.8
7.2
6.8
7.7
London
97.7
97.4
96.1
97.4
 Under RIIO, WWU can earn up to £2m p.a. from the customer satisfaction incentive
13
Business Strategy under RIIO
 Continue to concentrate on core business
activity, and a continuation of our current
successful business model
Costs &
Workloads
 ... but also optimise Incentive and non
formula opportunities
 Deliver RIIO Outputs with innovative asset
strategy – increase effectiveness
 Further optimise directly employed and
contractor resources – increase efficiency
 Significant challenge on all areas of
Value &
Outperformance
external costs including market testing of
significant contracts
14
Some Key Initiatives Contributing
to Delivery Outperformance
 Resource utilisation
• Match people resource to seasonal workloads using flexible working - a
leader in the industry
 Maintenance
• Extending use of risk based maintenance to cover all assets
• Increasing value by further internal output - and displacing contractors
 Repair & Replace
• Further productivity improvement from labour force
• Reduce cost of reinstatement by bundling of regional contracts
 Mains Replacement
• Reduction in Alliance delivery rates to deliver outperformance against
regulatory allowances
 Capital Investment
• Implement risk based approaches - leading to refurbishment rather than
replacement where this is optimum whole life cost
 Customer Call
• Market testing of Emergency Call Centre - with possible insourcing as a result
Handling
External Supply
Chain
• Further reducing external spend - with a specific focus on need, volume and
unit cost
15
Optimising Our People Resources
2005
2011
• Direct Employees
1,109
• Direct Employees
• Contract Employees
1,591
• Contract Employees
• Total Enterprise
2,700
• Total Enterprise
2013
1,460
840
2,300
• Direct Employees
• Contract Employees
• Total Enterprise
1,300
600
c1,900
The strategy;
 Headcount reduction programme will reduce cost - and further change employee mix
 Continue to refresh the workforce on competitive terms - also addressing the age profile
 Competitive T&Cs now covering over 50% of the population, and growing
 Continue to invest in our people - for example 100 apprentices and 300 field staff to date - which
has reduced average age in Operations from 47 to 41
16
Historic Key Ratios
Long term Structure –
Lower Leverage
Regime
Senior Debt Ratios
31 December
2012
31 March
2012
31 March
2011
31 March
2010
Lock Up
Default
Adjusted Interest Cover Ratio
2.14x
2.54x
2.49x
1.98x
1.30x
1.10x
RAR %
74.5%
72.4%
71.9%
72.6%
77.5%
95.0%
All covenant tests are comfortably complied with:

All ratios calculated at the senior level

For the period to 31 December 2012, ratios are calculated using the 9 month reported results and the 3 months to 31 March 2012 extracted
from the prior accounting period. Adjusted Interest Cover Ratio remains strong despite the £12m adverse impact on cashflow arising from
the cessation of the BGT Centrica prepayment

RAV at 31 December 2012 is c£1.82bn.
17
Bond Maturities
 WWU have £1.365m bonds in issue
 During 2011, WWU issued £400m of Class A Bonds (yellow bars below)
 Proceeds of the bond issue were used to refinance existing bank borrowing and to fund future investment in RAV.
 Maturity concentration restrictions mean that debt with a value of no more than 20% of RAV can mature in any 2 year period.
 Current Bond maturities are shown below.
350
300
250
£m
200
150
100
50
0
18
Future Financing Plans

WWU currently have c£110m of undrawn bank lines until Dec 2014. These facilities will be used to
provide short term liquidity to fund the capex and repex programmes

WWU will continue to use the capital markets as source of long term funding. Likely to issue 2-3 times
during the 8 Year RIIO period.

WWU continue to de-risk the financial structure by removing the mandatory breaks on the index-linked
swap portfolio. The breaks have been removed on £240m of swaps during 2013 and consequently 30%
of the swaps now have no breaks in place
19