AVENG CAPITAL PARTNERS Investor conference 19 & 20 October 2015
AGENDA OVERVIEW PORTFOLIO PORTFOLIO VALUATION MARKET UPDATE STRATEGY VALUE PROPOSITION Q & A 2
3 OVERVIEW
OVERVIEW Background to Aveng Capital Partners Aveng s infrastructure concession activities were initially part of Aveng Grinaker-LTA ( GLTA ) The GLTA concessions unit was involved in some of the first infrastructure concession contracts in the country: N1 and N3 road projects In 2012 the concessions business activities were centralised at the Group level, leading to the formation of Aveng Capital Partners ( ACP ) ACP was recently instrumental in developing and investing in three infrastructure projects, namely; the Department of Environmental Affairs Office Accommodation PPP project ( DEA ), the 74MW Sishen Solar PV Project and the 138MW Gouda Wind Project During 2013, the Aveng real estate portfolio activities were incorporated within ACP ACP has grown steadily in the past few years and is now an established real assets development, investment and asset management business 4
OVERVIEW Business structure and objectives Structured as a development, investment and asset management platform with the following principal activities: PRIMARY INVESTMENTS SECONDARY INVESTMENTS ASSET MANAGEMENT Originating, bidding for and developing greenfield energy and infrastructure projects (PPP / Concession investments) Sourcing and developing real estate projects Holding selective operational infrastructure and real estate investments Aim to deliver projected investment returns and consistent growth in portfolio value Asset management services cover: project delivery and value enhancement commercial, technical, legal and financial support management services Key objectives for the business is to grow its profitability and sustainable value creation Securing new greenfield investment opportunities Generating a strong yield from operational projects Enhancing portfolio value; and Growing our assets under management and associated fee income 5
OVERVIEW An integrated approach to project delivery Primary investment model allows Aveng to generate incremental value along the whole project cycle Development cost recovery and Development premiums earned at financing close Construction / EPC Margins & Profits Equity cash flows / O&M Profits De-risk arbitrage / Exit Profit Development Financing Design, Engineering and Construction Operations / Concession Life Exit/Rotation Aveng Development Capital Aveng Equity Investment Partner s Equity Investment Project Finance Debt 6
OVERVIEW Investment approach and value creation Financial discipline throughout the investment phase and value creation through the ownership and operation of selective assets Investment Phase (Development and Construction Phase) Operational Phase PPP/Concession projects offer high predictability and stability of cash flows allowing for a typical project finance structure Maximise third-party debt financing helps increase equity returns and minimise equity contribution and related risks Commitment to equity investment only when project financing is in place Once in operation, the risks are largely ring fenced from Aveng balance sheet Profitable assets only: Investment decisions based on standalone investment returns Recurrent long-term revenues with creditworthy counterparties (PPA, availability payments, etc), limiting risk Good cash flow generation derived from strong EBITDA margins and relatively low maintenance capex requirements Natural deleverage once in operation and no refinancing risk for the sponsor/shareholders due to long term project financing 7
OVERVIEW Management team LUYANDA JONAS SIMON EVERITT DHARMESH KALYAN RYAN CROSSMAN ENVER NAIDOO Legal Counsel Executive: Infrastructure Managing Director Executive: Real Estate Project finance / Investment management Expertise in developing projects, arranging financing, undertaking complex financial modelling, project and commercial management, equity investment and ongoing investment management, in line with leading industry practice within a sound governance structure. 8
OVERVIEW Business performance INFRASTRUCTURE INVESTMENTS PORTFOLIO HIGHLIGHTS: FY 2014/2015 Service commencement achieved for the DEA building project Commercial operations achieved on Sishen Solar PV facility Significant construction progress on the Gouda project commercial operations achieved during August 2015 Concluded the disposal of the San Solar PV Project equity stake N3 Toll Concession (N3TC) senior Lenders and preference shareholders approved the waiver of the relevant ratios thus making it possible to declare a dividend of circa R22 million Revaluation of investments in Sishen Solar, DEA and Gouda Wind projects resulted in a revaluation gain of circa R170 million REAL ESTATE ACTIVITIES: FY 2014/2015 Disposed a 15% undivided share in Goldfields Mall for R97 million Aveng industrial property portfolio disposal process advanced over the period 9
10 PORTFOLIO
PORTFOLIO Transport Northern Toll Road JV Bela-Bela to Polokwane N3 Toll Road Heidelberg to Cedara NORTHERN TOLL ROAD JOINT VENTURE 50:50 joint venture with Murray and Roberts First major road concession contract awarded in SA Project was to design, finance, construct, maintain and transfer to the client 23 year contract period ending October 2018 Management fees and margin income from maintenance contract Third major road concession contract awarded in SA The Project was to design, finance, construct, operate and maintain 30 year concession from SANRAL Total initial project investment of circa R2.0 billion In operation since 2002 Aveng was the lead sponsor, investor and construction contractor for the project. It currently maintains a 10,92% equity stake in N3TC, alongside institutional investors 11
PORTFOLIO Social Infrastructure DEA PPP Office Accommodation Pretoria, Gauteng IMVELO CONCESSION COMPANY During 2012, the Imvelo Concession Company was awarded a 27 year concession to finance, design, build, and operate a 27 500m² office facility for the Department of Environmental Affairs Following a 22 month construction period, service commencement was achieved in July 2014 First public sector building with a six star green building design rating Aveng was the lead sponsor, construction contractor and currently maintains a 30% shareholding in the Project 12
PORTFOLIO Renewable energy Sishen Solar PV Facility Dibeng, Northern Cape Gouda Wind Facility Gouda, Western Cape The 74MW Sishen Solar Energy Facility was successfully bid into Round 2 of the REIPPP and entered into a PPA with Eskom in May 2013 Following a 19-month construction period, the project achieved commercial operations in December 2014 Aveng role: Project sponsor Construction contractor Operations and maintenance contractor 29% shareholder in the Project The 138MW Gouda Wind Energy Facility was successfully bid into Round 2 of the REIPPP and entered into a PPA with Eskom in May 2013 Commercial operations was achieved in August 2015 Aveng role: Project sponsor Construction contractor Operations contractor 29% shareholder in the Project 13
PORTFOLIO Real estate Dimopoint Investment South Africa Industrial Portfolio Corporate Housing Portfolio Kathu, Northern Cape DIMOPOINT INVESTMENT PLATFORM KATHU CORPORATE HOUSING Aveng disposed of 70% of Dimopoint, a SPV housing 35 of its properties, to a commercial property development and investment company within the Collins Property Group The disposal was in accordance with Aveng s plan to diversify its funding sources and reduce debt The portfolio is jointly managed by ACP and Collins Aveng and Collins aim to grow and diversify the portfolio 91 residential units acquired by Aveng and leased to Aveng Moolmans on a 5 year triple net lease in an integrated housing development in Kathu Address staff retention and recruitment in the Kathu region where there is a severe shortage of reasonable housing 100% owned by Aveng 14
15 PORTFOLIO VALUATION
PORTFOLIO VALUATION Methodology (Infrastructure Investments) METHODOLOGY APPLIED REVALUATION METHODOLOGY CASH FLOW CHARACTERISTICS Asset type: Financial assets held at fair value through profit or loss in accordance with IFRS 9 Construction phase: Asset reported at historical cost Post construction/operations phase: Asset revaluation performed to determine fair value. Revaluation performed at least annually Fair value movement reflected in P&L as revaluation gain/loss Present value of equity cash flow forecast comprising expected distributions to shareholders (+) and expected equity advances by shareholders (-) : Risk adjusted discount rate (r) determined by assessing project performance, expectations and macro factors Period of evaluation: Current financial year end until end of offtake agreement (PPA, PPP agreement) Stable and predictable revenue and operating costs (performance validated against forecasts) Typical equity cash flow forecast, supported by contractually agreed parameters 16
PORTFOLIO VALUATION Risk and value illustration (Infrastructure Investments) IRR/Discount rate Fair Value Equity IRR rr eeeeeeeeeeee rr ii Decrease in r reflecting lower risk premia as Project progress satisfies or exceeds base case performance expectation. Increase in Fair Value Corresponding to a lower/decreasing discount rate. Value creation a positive function of (Equity IRR-r) differential Cost rr ff Ramp up Steady state Construction End of PPA/PPP Equity IRR = rr ff + rr ii + rr eeeeeeeeeeee rr ii = rr cccccccccccc + rr oooooo + rr ttttttt + rr llllll + rr mmmmmm + rr ffffff + rr pppppppppppppppppp + rr ooooooooo Gouda DEA Discount rate: r = rr ff + rr ii Sishen 17 N3
18 MARKET UPDATE
MARKET UPDATE Power and infrastructure South Africa maintains a strong appetite for infrastructure development, has a well respected PPP regulatory framework, required level of expertise and credible track record South Africa has furthermore recognised the need to move towards a sustainable energy future The Department of Energy ( DoE ) aims to generate 45% of all new electricity from renewable sources by 2030. This equates to 17,000 megawatts (MW) of wind and solar-generated energy The success of the Renewable Energy Independent Power Producer Procurement ( REIPPP ) programme has demonstrated how an enabling regulatory environment can attract competitive private sector participation The REIPPP programme facilitated the procurement of approximately 5,200 MW in four bidding rounds across 77 renewable energy projects, in just over three years since inception of the programme REIPPP oversubscription and aggressive pricing has resulted in highly competitive environment 19
MARKET UPDATE Power and infrastructure The DoE plans to procure a further 8000 MW from IPPs through base load (coal and natural gas) and cogeneration projects over the next 10 years Other key SA infrastructure related opportunities in the near to mid-term are: Serviced office accommodation Municipal waste to energy projects Ports and terminal development Water and environmental management Given the growth in the number of South African PPPs and IPPs it is inevitable that a PPP secondary market will emerge in South Africa in the next few years PPP Secondary Market will provide investors with a well-defined exit route as an alternative to remaining invested for the full concession period PPPs and related private infrastructure models have also been successful across Sub-Saharan Africa (ex South Africa) 20
MARKET UPDATE Real estate Opportunity to develop 67000 m² of available bulk at the Aveng Jet Park facility into a high tech distribution warehousing park. The Dimopoint platform with Collins provides opportunities to grow and diversify the existing portfolio The African real estate market offers an opportunity to pursue retail, commercial and industrial opportunities in targeted countries in Sub-Saharan Africa 21
22 STRATEGY
STRATEGY Medium term strategy A three part strategy is to be pursued by ACP over the medium term Manage and extract further value from existing investments in the short term Further develop asset management capability and establish secondary market platform for infrastructure investments 1 2 3 Actively pursue private infrastructure and real estate transactions to feed the primary investment project pipeline N3 Toll Road Concession project Department of Environmental Affairs Office Accommodation Project Sishen Solar PV Project Gouda Wind Project Dimopoint property platform Establish an ACP promoted and managed energy and infrastructure fund as part of ACP secondary market activities Enhance asset management function for primary and secondary market activities 23 South Africa Power sector Renewable energy, especially concentrated solar power, and co-generation opportunities Economic and Social infrastructure Office accommodation, healthcare, education, etc Real estate Jet Park and selective industrial and retail development opportunities Other Markets Infrastructure and real estate projects in select markets in Africa (outside South Africa)
24 VALUE PROPOSITION
VALUE PROPOSITION The ACP capabilities and offering provides the Aveng Group with a robust combination of strategic, financial and operational benefits STRATEGIC FINANCIAL OPERATIONAL Drive growth in infrastructure, power and real estate sectors Position Aveng competitively for securing large-scale project opportunities in target sectors Provides predictable revenues over the life cycle of the project Project pipeline will secure significant construction and EPC related work Concessions investment largely self financing in the short term from construction / EPC cash flow generation and development premiums Significant dividend stream from SPVs during operational period (assuming investments held on balance sheet) Opportunity to invest in assets with significant capital value appreciation over investment life, above Group WACC Leverage Group capabilities in construction, EPC and operations cross benefits Provides an integrated commercial offer to clients Ongoing development of O&M capabilities 25
26 Q&A