Investor Report 2016

Transcription

1 Investor Report 2016

2 Investor Report 2016 Group structure Caruna Networks B.V. is the parent company of Caruna Networks B.V. Group (Group). In addition to Caruna Networks B.V., Caruna Networks B.V. Group includes Suomi Power B.V., Caruna Networks Oy, Caruna Networks Sähkönsiirto Oy, Caruna Networks Espoo Oy, Caruna Oy and Caruna Espoo Oy. Caruna Networks Oy owns Caruna Networks Sähkönsiirto Oy and Caruna Networks Espoo Oy, which in turn own Caruna Oy and Caruna Espoo Oy. Caruna Networks B.V. Group s business arises from Caruna Networks Oy Group (Caruna Group). Caruna Oy and Caruna Espoo Oy practise regional and distribution network operations in the electrical power systems they own and are two of the regional and distribution network operators referred to in the Finnish Electricity Market Act, within their areas of responsibility. Caruna Networks Oy, Caruna Networks Espoo Oy and Caruna Networks Sähkönsiirto Oy provide supportive services for the entire Caruna Group. Caruna Networks B.V. Group Investor Report

3 Highlights in 2016 In 2016, Caruna Group continued the extensive network reliability improvement projects, initiated in Caruna Group also developed its core information systems and operational processes, specifically to meet the needs of an electricity distribution company. The storm Rauli in August was the most significant adverse weather event to cause electricity distribution outages in the South, Southwest and West Finland in The network improvement programme ensures that by 2028 Caruna Group will meet the revised objectives for the security of supply, laid down in the amended Electricity Market Act, and will thus be able to restore the power for its customers within six hours in urban areas and within 36 hours in rural areas. Caruna Group is improving the reliability of electricity distribution and minimising weather damage primarily by substituting overhead lines with underground cabling in areas particularly exposed to falling trees. Caruna Group is also increasing the automation of its network to quickly isolate any faults and restore power to undamaged parts of the network. During this financial period, the main focus shifted from urban areas to sparsely populated areas in Southwest Finland, Satakunta, Southern Finland, Ostrobothnia, and Koillismaa. Caruna Group increased their electricity distribution fees on 1 March 2016, to enable them to carry out network improvement projects. This price increase caused a public debate on distribution pricing and the extent of one-time increases. As a result of the negotiations with the Consumer Ombudsman, Caruna Group reduced their fixed basic charges by 25% for a period of 12 months, until the end of February Finnish electricity network companies are regulated by the Energy Authority in regulatory periods of four years. The new regulatory period began on 1 January The regulatory methods applicable from 2016 to 2019 and from 2020 to 2023 will allow electricity network companies to invest in the electricity network to improve their reliability of supply. The Energy Authority monitors the electricity distribution pricing in four-year regulatory periods to ensure it remains on a reasonable level. At the end of the previous regulatory period in 2015, Caruna Oy showed an overincome which was taken into consideration in the 2016 pricing, resulting in the company showing an underincome at the end of In the spring 2016 Caruna Networks Oy refinanced its loans and financing collaterals generated by the company acquisition as Caruna Group was formed in March Refinancing enables the implementation of Caruna Group s 3

4 strategy and the development of the company according to set targets. In December, Caruna Networks Oy also signed a loan agreement of EUR 200 million with the European Investment Bank, to implement network improvement projects. CEO Ari Koponen announced his resignation in October. He continued in an advisory role until the end of the year. In December, the Board of Directors of Caruna Networks Oy appointed Tomi Yli-Kyyny as the new CEO. He will start in May Meanwhile, the Caruna Group s Chief Financial Officer, Jyrki Tammivuori, took on the responsibilities of acting CEO. Electricity supply volumes Compared to the long-term average, temperatures have been above the normal during the financial period, which was reflected in the electricity distribution volumes, similarly to the previous years. The year 2016, however, was colder than 2015, and a higher demand for heating resulted in a slight increase in the electricity supply volume. During the financial period, the electricity supply volume in the distribution network amounted to a total of 9.6 (9.1) TWh and to a total of 2.9 (2.8) TWh in the regional network. Regulatory and Business Update On the 30 November 2015 the Energy Authority issued an official decision that confirmed regulatory methods for electricity distribution companies for 2016 to 2019 and 2020 to The new regulatory methods started on 1 January The decisions contain detailed descriptions of how the reasonableness of the distribution prices are monitored over the following two regulatory periods. The regulatory methods will remain the same over the two upcoming periods, and changes to the regulatory period from 2020 to 2023 are merely mechanical updates mainly to starting levels for incentives. An important and central element of the regulatory requirement to the power grid companies is, as defined by the law, their responsibility to invest to secure the electricity supply to Finnish households in all circumstances, especially even during the strongest storms. This ten years large investment program will be, to most part, financed with debt and will lead to consumer price increases in the limits defined by the Energy Authority. According to these guidelines Caruna Group raised electricity distribution prices as of 1 March The effect of the price increase on Caruna Oy s network area was on average 27 % and on Caruna Espoo Oy s network area on average of 22% of the total, including tax, shown on the electricity distribution invoice. Among 4

5 customers this one-time price increase was seen as high. Caruna Group conducted discussion with the Consumer Ombudsman and a jointly acceptable solution was found: Caruna Group divided the price increases into two steps. This is realised by reducing the basic fees for electricity distribution by 25% until the end of February As a result of the change, the rise in annual costs from electricity distribution will remain on average below 15% of the taxable total of the electricity distribution share, depending on the customer s electrical consumption. Ministry of Employment and the Economy has started a process to evaluate and revise Electricity Market Act. Ministry s EMA proposal was published for hearing on 6 June Ministry s proposal includes restrictions related to one-time price increases. Proposal is maximum 15% on 12-months basis including tax. The legislation update process is expected to take Parliament hearings and to be implemented in Summary of financial result January December 2016 KEY NOTES TO THE INCOME STATEMENT: Net sales 2016 EUR million (budget EUR million): This was EUR 22.7 million less than in plan mainly due to given temporary discount in fixed fees to all customers in accord-ance to agreement with Consumer Ombudsman made in February Lower transmission sales were partly compensated by higher connection fees (actual EUR 17.5 million vs. budget 10.9 million) derived from higher volumes of new connections. Variable costs 2016 EUR 81.8 million (budget 80.5 million): Variable costs were in accordance to the budget. Operating expenses 2016 EUR 77.8 million (budget EUR 88.8 million): Operating expenses were 11.0 million below budget. Rescheduling of IT development projects resulted in EUR 6.6 million lower one-off costs than initially planned (actual EUR 0.4 million vs. budget EUR 7.0 million). Additionally repairs & maintenance costs were below planned level (actual EUR 19.5 million vs. budget EUR 25.4 million) due to better optimisation between maintenance and investments as well as lower fault repair and stand-by costs due to favorable weather. Additionally IT service costs were lower (actual EUR 11.1 million vs. budget EUR 12.9 million). EBITDA 2016 did not include any non-recurring items in accordance to financing agreements. 5

6 Depreciation & amortisation 2016 EUR million (budget EUR million): Difference between actual and budget is mainly due to lower than anticipated scrapping of old network (actual EUR 5.1 million vs. budget 12.3 million) depreciation includes EUR 31.3 million depreciation of fair value adjustments. Net financing expenses 2016 EUR million (budget EUR million): Actual expenses were EUR 38.6 million higher than budgeted. The difference is derived from loan arrangement fee amortization and refinancing costs which were not included in budget due to assumption of refinancing to take place already in Interest expenses 2016 consist of interest on shareholder loan, interests related to Senior-loans, interests related to Junior-loans and interest related to capex-facility as well as revolving credit facility. Additionally net financing expenses 2016 include ongoing fees, loan arrangement fee amortization and other financial items (mainly costs of refinancing of loans). KEY NOTES TO THE BALANCE SHEET: Intangible assets EUR 1,641.3 million (budget EUR 1,630.9 million) at budgeted level and include non-depreciable fair value of operating licenses raising from purchase price allocation EUR 1,529 million and goodwill EUR 62 million. Property, plant and equipment EUR 2,075.4 million (budget EUR 2,005.1 million) slightly higher than planned due to higher capital expenditure. The balance include fair value adjustment of network assets from purchase price allocation EUR 677 million. Other non-current assets EUR 1.3 million (budget EUR million), difference explained mainly by EUR million related to budgeted write-off of interest swap market-to-market valuation assumed for 2016 but which was done already at the end of Total equity EUR million (budget million) remained negative but little less than planned which was mainly due to better retained earnings (2015 result) than in budget. The equities of the standalone Finnish companies are positive and comply with Finnish Companies Act. Interest-bearing debt EUR 3,031.3 million (budget EUR 2,877.1 million) was slightly higher due to lower than expected operating cash flow due to given temporary discount as well as higher financing expenses which didn t cover higher than planned capital expenditures. The balance consists of the following items: 6

7 Senior debt EUR 2,106.2 million (budget EUR 1,906.6 million) Shareholder loan EUR million (budget EUR million) Loan arrangement fees EUR -6.9 million (budget EUR -7.8 million) Derivative financial instruments EUR 31.3 million (budget -) were not included in budget and mainly consist of fair value of interest rate swaps EUR 31.0 million and fair value of electricity derivatives EUR 0.3 million. Deferred tax liabilities EUR million (budget EUR million) were at budgeted level and include deferred tax arising from purchase price allocation EUR million, from accumulated depreciation EUR million and from other temporary differences between accounting and taxation of EUR -0.6 million. KEY NOTES TO THE CASH FLOW: Net cash from operating activities was EUR 99.4 million (budget EUR million), which is EUR 31.8 million lower than assumed in budget. The difference is mainly due to lower EBITDA because of given temporary discounts as well as higher financing expenses due to one-off costs related to refinancing of EUR 29.8 million. Net cash from operating activities includes interest expenses paid of EUR 80.3 million (senior interest paid of EUR 37.4 million, junior interest paid of EUR 2.9 million and shareholder loan paid of EUR 40.0 million), commitment fees EUR -1.6 million, non-cash flow items EUR -3.1 million, interests received EUR 2.6 million and change in working capital of EUR million. Net cash used in investing activities was EUR million (budget EUR million) which is EUR 37.6 million more than planned. The difference is deriving of higher amount of cash spent to network reliability investments. Net cash used in financing activities was EUR 170 million (budget EUR 56.6 million). Caruna Networks Oy refinanced its loans in EUR million difference between budgeted and actual cash flow is mainly due to additional debt drawn to finance the increased investments. 7

8 Capital Expenditure Caruna Group investments were cumulatively during January-December EUR 50.4 million higher than planned totalling to EUR million (budget EUR million). Network investments were EUR million (budget EUR million) and IT, smart meter related and other investments EUR 13.6 million (budget EUR 12.9 million). From total investments EUR million were in Caruna Oy and EUR 24.8 million in Caruna Espoo Oy. Financing The Caruna Networks Oy refinanced its loans in The purpose of refinancing was to guarantee the conditions for Caruna Group s operations in the long term and to secure financing for the network improvement programme. Refinancing was carried out in three stages to allow Caruna Group to arrange diversified funding from several capital markets. The total of the first refinancing stage in February came up to EUR 1,930 million, of which EUR 825 million consisted of bank loans from a group of 12 banks. The banks also granted Caruna a capex facility of EUR 600 million and a revolving credit facility of EUR 60 million. In addition to the bank loans, Caruna Networks Oy borrowed EUR 1,105 million from Transmission Finance DAC, a company that issues bonds and loans to institutional investors, as part of a 10-billion euro bond programme. The loans granted by Transmission Finance DAC mature in 10 to 30 years. At the same time, Caruna Networks Oy paid off its junior loan of EUR 150 million and reduced its shareholder loan by EUR 149 million. At the beginning of May, Caruna Networks Oy partially refinanced its bank loan taken out in February. In total, refinancing operations amounted to EUR 326 million. The Transmission Finance DAC loans taken out mature in 10 to 20 years. Caruna Networks Oy refinanced its remaining bank loans at the end of May. In total, refinancing operations amounted to EUR 500 million. The Transmission Finance DAC loan taken out matures in seven years. In December 2016, Caruna Networks Oy signed a loan agreement of EUR 200 million with the European Investment Bank. The loan period is 10 years and the final interest rate will be determined at the time the loan is taken out. No loan was taken out during

9 During the financial period, Caruna Networks Oy has taken out external floating rate capex facility loans for a total of EUR 170 (174) million. These will mature in February By the end of the period, the Group s external loans amounted to a total of EUR 2,106.2 (1,632.0) million. The Group had a total of EUR (1,040.3) million of fixed interest rate shareholder loans at the end of the financial period. The shareholder loan will be repaid on demand, but at the latest in February The interest for the shareholder loan is paid biannually. The available committed facility limits are the capex facility, EUR 430 million; revolving credit facility, EUR 60 million; bank overdraft, EUR 30 million; liquidity facility, EUR 20 million; and undrawn bank loan, EUR 200 million. The total net financing costs for the financial period were EUR (169.8) million and outstanding interest in the balance sheet was EUR 38.5 (24.7) million. Group complied with the covenant terms of the loan agreements during the financial period. Standard & Poor s has assigned Caruna Networks Oy a long-term corporate credit rating of BBB+ and a stable outlook. Personnel The number of personnel at the end of December 2016 was 273. Annual General Meeting Caruna Networks Oy s Annual General Meeting (AGM) was held on March 23, The AGM approved the financial statements for 2015, confirmed the consolidated income statement and balance sheet and discharged the members of the Board of Directors and the CEO from liability. The AGM elected to the Board of Directors Juha Laaksonen as chairman, Ralph Berg, Jouni Grönroos, Niall Mills, Tomas Pedraza, Alejandro Lopez Delgado as members and Gregor Kurth and Delphine Voeltzel as deputy members. No dividends decided to be paid. 9

10 Auditing The financial statements of Caruna Group are audited. All numbers are consolidated figures at Group level and reported in accordance to IFRS. Risks and uncertainty Factors in the near future The major risks and uncertainty factors in Caruna Group s operations have been presented in the Board s Annual Report for During the reporting period, no major new risks connected with the Group s operation have arisen. Outlook for H Group expects to operate in line with business plan and comply with debt covenants. Subsequent events after reporting period There were no subsequent events after reporting period. Current Hedging Position Interest rate derivatives are used by Caruna Group to hedge exposures to fluctuations in interest rates. At the interest rate swap position was closed as there were equal amount of interest rate swap liabilities and receivables, therefore changes in interest curve does not have any effect to mark-to-market value nor to future interest rate swap payments. Caruna Networks Oy will pay outstanding interest rate swap market value until end of the maturity March Currently all Caruna Networks Oy s IBLA-loans have fixed interest rate. The capex-loans have floating inter-est rate. There were no unhedged material foreign exchange risks exposures. Caruna Group utilises electricity derivatives to hedge forecasted grid losses. 10

11 Ratios 1 We confirm that in respect of this Investor Report dated 17 March 2017, by reference to the most recent Financial Statements that we are obligated to deliver to you in accordance with paragraph 1 (Financial Statements) of part 2 (Information Covenants) of Schedule 2 (Borrower Security Group Covenants) of the Common Terms Agreement: (a) the Senior Interest Cover Ratio in respect of the Relevant Period is estimated to be greater than or equal to 1.7; and (b) the Senior Leverage Ratio in respect of the Relevant Period is or is estimated to be greater than or equal to 5.0 %, (together the Ratios ). 2 We confirm that each of the above Ratios has been calculated in respect of the Relevant Period(s) or as at the Calculation Dates for which it is required to be calculated under the Common Terms Agreement. 3 We confirm that: (a) no Default or Trigger Event has occurred and is continuing; (b) the Borrower Security Group is in compliance with the Hedging Policy; and (c) the statements set out in this Investor Report are accurate in all material respects. Yours faithfully, Jyrki Tammivuori Officer Signing without personal liability, for and on behalf of Caruna Networks Oy as Borrower Security Group Agent 11

12 INCOME STATEMENT EUR million, cumulative ACT Jan Dec 2016 BUD Jan Dec 2016 *) Diff ACT Jan Dec 2015 *) Change BUD Jan Dec 2017 Transmission sales Other sales NET SALES Direct costs SALES MARGIN Other Income Personnel costs Repairs & maintenance External services Other expenses Total fixed costs EBITDA Depreciation and amortisation OPERATING PROFIT Financial Income Interest expenses on Senior loan Interest expenses on Junior loan Interest expenses on SHL loan Ongoing fees Loan arrangement fee amortization Other financial items Total financial income / expense RESULT BEFORE TAX Tax from operations RESULT FOR THE PERIOD NON recurring items EUR million, cumulative ACT Jan Dec 2016 BUD Jan Dec 2016 *) Diff ACT Jan Dec 2015 *) Change BUD Jan Dec 2017 EBITDA before non-recurring items Capital gains and losses Transaction costs Restructuring & transformation Items affecting comparability Comparable EBITDA *) Caruna Networks BV was established in February 2016 and does not have actuals for 2015 and budget for The Actuals for the year 2015 and the Budget for the year 2016 are Caruna Networks Oy Group numbers. 12

13 BALANCE SHEET EUR million ACT Dec 31, 2016 BUD Dec 31, 2016 *) ACT Dec 31, 2015 *) BUD Dec 31, 2017 ASSETS Non-current assets Intangible assets 1 641,3 1, , ,636.0 Property, plant and equipment 2, , , ,169.4 Other non-current assets Total non-current assets 3, , , ,807.0 Current assets Trade receivables Other current receivables Cash and cash equivalents Total current assets Total assets 3, , , ,921.6 EQUITY Share capital Invested distributable funds Profit for the period Retained earnings Other equity components Total equity LIABILITIES Non-current liabilities Senior Debt 2, , , ,171.2 Junior loan Shareholder loan , Loan arrangement fees Derivative financial instruments Deferred tax liabilities Provisions Other non-current liabilities Total non-current liabilities 3, , , ,986.4 Current liabilities Derivative financial instruments Trade payables Accrued interest expenses Other current interest-free payables Total current liabilities Total liabilities 4, , , ,128.3 Total equity and liabilities 3, , , ,921.6 *) Caruna Networks BV was established in February 2016 does not have actuals for 2015 and budget for The Actuals for the year 2015 and the Budget for the year 2016 are Caruna Networks Oy Group numbers. 13

14 CASH FLOW STATEMENT EUR million ACT Jan Dec 2016 BUD Jan Dec 2016 *) Diff. ACT Jan Dec 2015 *) Change BUD Jan Dec 2017 Cash flow from operating activities Result for the period Adjustments: Income tax expenses Finance costs-net Depreciation, amortisation and impairment charges Operating profit before depreciations (EBITDA) Non-cash flow items and divesting activities Interest received Interest paid, Senior loan Interest paid, Junior loan Interest paid, Shareholder loan Ongoing fees, paid Other financial expenses paid Taxes Funds from operations Change in working capital Total net cash from operating activities Cash flow from investing activities Capital expenditures Acquisition of shares Proceeds from sales of fixed assets Total net cash used in investing activities Cash flow before financing activities Cash flow from financing activities Proceeds from long-term liabilities 2, , , Payments of long-term liabilities -2, , , Change in short-term liabilities Other financing items Total net cash used in financing activities Total net increase(+) / decrease( ) in cash and cash equivalents Cash and cash equivalents in the beginning of the period Cash and cash equivalents at the end of the period *) Caruna Networks BV was established in February 2016 does not have actuals for 2015 and budget for The Actuals for the year 2015 and the Budget for the year 2016 are Caruna Networks Oy Group numbers. 14

15 RATIO ICR Dec , Backward Dec , Forward Dec , Extended Forward Senior Interest Cover Ratio 4.3x 4.2x Lock-up 1.7x 1.7x Lock-up breach Default 1.2x Default breach Senior Leverage Ratio 8.8% 9.6% 8.8% Lock-up 5.0% 5.0% 5.5% Lock-up breach Default 4.0% Default breach 15

16 LOAN COVENANT RATIO CALCULATION Backward Backward Forward Forward Extended EUR million H1/2016 H2/ /12/2016 H1/2017 H2/ /12/ months total Senior Interest Cover Ratio, Denominator: EBITDA / Unrealised gains or losses of electricity derivatives Taxes Consolidated EBITDA taxes, total Senior Interest Cover Ratio, Numerator: Interest Costs, Senior Fair valued interest rate derivatives adjustment Ongoing fees, Senior Net Finance Charges, Senior total Senior Interest Cover Ratio 4.3x 4.2x 4.3x 4.2x EUR million H1/2016 H2/ /12/2016 H1/2017 H2/ /12/ months total Senior Leverage Ratio, Denominator: EBITDA /- Unrealised gains or losses of electricity derivatives Interest Costs, Senior Fair valued interest rate derivatives adjustment Ongoing fees, Senior Taxes Funds from Operations, FFO Senior Leverage Ratio, Numerator: Senior debt 2, , , , , , ,459.3 Cash Net debt Senior 2, , , , , , ,449.3 Senior Leverage Ratio 8.8 % 9.6 % 8.8 % 9.6 % 8.8 % 16

17 EUR million ACT Jan Dec 2016 Permitted Acquisition none Permitted Disposal 0.5 Permitted Distribution none Additional Financial Indebtness none 17

18 Upseerinkatu 2 PO Box 1, CARUNA, FINLAND Switch tel caruna.fi/en