Financial results 2016 Fixed income analyst & investor conference call 16 March 2017
Disclaimer The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applicable as at 31 December 2016. The figures in this report are derived from the 2016 audited annual report of N.V. Nederlandse Gasunie. The financial statements as prepared will be submitted on 30 March 2017 to the General Meeting of Shareholders for adoption. This presentation is not an offer or solicitation of an offer to buy or sell securities. It is solely for use at the investor presentation and is provided as information only. This presentation does not contain all of the information that is material to an investor. This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of N.V. Nederlandse Gasunie and its subsidiaries. We would like to bring to your attention that these statements are management predictions and that actual events or results may differ materially. 2
Gasunie at a glance 4 Business highlights 2016 7 Financials performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 3
Gasunie at a glance Updated and approved strategy Ensure a secure, reliable, affordable and sustainable gas infrastructure in our key area. Contribute to an efficient gas infrastructure & services for wellfunctioning European gas and LNG market. Accelerate the transition to a CO 2 - neutral energy supply. 4
Gasunie at a glance Business model Gasunie Business Unit Gasunie Transport Services (GTS) Business Unit Gasunie Deutschland (GUD) Business Unit Participations Regulated: GTS and GUD. The core activity of GTS and GUD is the transport of gas in the Netherlands and North Germany respectively. Both companies are Transmission System Operators (TSOs). Their revenues and returns are regulated by national regulatory authorities. The tariffs are calculated by dividing the permitted revenues by the estimated capacity bookings. Non-Regulated: Participations develops and manages our other infrastructure services. These include gas storage, transport through international pipelines (including offshore pipelines), a terminal for the import of liquefied natural gas (LNG), and our share in the gas exchange ICE Endex. These activities support the liquidity and functioning of the gas market in areas in which Gasunie is active. Revenues and returns are not regulated. The services are offered in competition with other providers. For more information about the business model, see Gasunie s annual report 2016 (page 14). 5
Gasunie at a is glance Gasunie a European gas Business highlights 2016 infrastructure company. 4 Financial performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 7 6
Business highlights 2016 Business developments (1) Gasunie Safety: - The Reportable Frequency Index decreased to 3.5 in 2016 (3.7 in 2015). The aim of the Safe@Gasunie programme is to structurally lower this number to below 3.0. - 1 pipeline damage incident was reported in 2016 versus 5 in 2015. Security of supply: Only 2 interruptions occurred in transmission in 2016 versus 3 in 2015. GTS A new regulatory period: On 24 February 2017 the ACM published its final method decision for the period 2017-2021. The method decision is applicable with retroactive effect as of 1 January 2017. This method decision introduces a cost benchmark that compares the cost efficiency of GTS with other comparable TSOs in Europe. As a result of the method decision, the GTS tariffs will be lowered. Over the next five years, annual allowed revenues will gradually decrease with a total of 200 million. In addition, the method decision will result in an impairment of the GTS network of 450 million. Gasunie is well capable to compensate the production cuts of the Groningen gas field by increasing the conversion of high-caloric into a low-caloric gas quality. Consequently, gas conversion increased by almost 40% (23.4 BCM in 2016 vs 16.9 BCM in 2015). 7
Business highlights 2016 Business developments (2) GUD GUD filed its cost application to BNetzA based on the costs occurred in the base/photo year 2015. Based on the approved costs and an efficiency benchmark BNetzA has to decide by end of 2017 on the allowed revenue cap for GUD for the regulatory period 2018-2022. In December 2016 Open Grid Europe (OGE) and Gasunie acquired Statoil's share in the Netra pipeline. With this transaction Gasunie and OGE increased their participations in Netra and are now the only remaining shareholders. This transaction strengthens GUD s portfolio and increases its capacity for the transportation of high calorific gas. Projects in Germany: - A new compressor station in Quarnstedt became operational. In combination with a new pipeline it strongly enhances the transport capacity towards Denmark. - Two new compressor stations have been brought in operation in Wardenburg. Participations Nord Stream transported a record volume of 477 TWh, which is 12% more than in 2015. BBL celebrated its 10-year anniversary. Gate: New infrastructure at the Port of Rotterdam enables the operation of small-scale LNG. This enables LNG to be used in the road and water transport sector as well as in industrial applications. FIDs have been taken for two pilot projects of new gasification technologies with which biogas can be produced. Gasunie New Energy and partners established a joint venture for a biogas network in Twente. Completed at the end of 2016, it is capable of producing 4 mln m 3 biogas. 8
Business highlights 2016 Gas volume trends Stable volumes transported, increasing trading activity on Title Transfer Facility (TTF) Volume transported Stable transported volume 2016 (1,236 TWh) vs 2015 (1,170 TWh). Based on a 5 year outlook, Gasunie forecasts similar transport volumes compared to 2016. Gas trading Title Transfer Facility (TTF) overtook National Balancing Point (NBP) in terms of gas traded. TTF is now the largest virtual trading platform in Europe highlighting the liquidity in gas trading within the GTS network. Gaspool: Traded volumes remained relatively stable. 9
Gasunie at a glance 4 Business highlights 2016 7 Financial performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 10
Financial performance 2016 Financial highlights 2016 Financial performance Revenues 83 mln lower compared to 2015 due to the efficiency discounts and lower capacity sales for GTS and GUD and lower contract values for renewed contracts for non-regulated activities. Developments 2016 2015 (in mln) Normalised operating result 53 mln lower. Lower revenues partly compensated by: - Lower operating expenses mainly due to smaller project portfolio and improved operational efficiency. - Lower provisions. In 2015 a provision ( 22 mln) was recognised for decommissioning and removal of pipeline sections to make Gasunie s infrastructure more earthquake-proof. Normalised net profit 32 mln lower. Reported net profit 370 mln lower mainly due to the impairment of 450 mln in 2016. Proposed dividend pay out ratio of 60%. 11
Financial performance 2016 Breakdown per business unit Regulated activities largest contributor to revenues and operating results Key business unit characteristics Regulated: Gasunie Transport Services (GTS) - Gas transmission system operator in The Netherlands. - Regulated by the Dutch regulator Autoriteit Consument en Markt (ACM). Regulated: Gasunie Deutschland (GUD) - Gas transmission system operator in Northern Germany. - Regulated by the German regulator Bundesnetzagentur (BNetzA). - The pie charts do not include the results from the GUD participations Deudan and Netra. These entities are accounted for using the equity method as outlined under IFRS 11 joint arrangements and are reported as financial results. Regulated: Gasunie Transport Services Gasunie Deutschland Non-regulated: Participations Non-regulated: Participations a.o: - BBL Company (Subsea pipeline; 60% interest), EnergyStock (Fastcycle gas storage services; 100% subsidiary), Peakshaver (LNG Plant; 100% subsidiary). - The pie charts do not include the results from the participations Nordstream (Subsea pipeline; 9% interest), Gate Terminal (LNG import terminal; 50% interest). These entities are accounted for using the equity method as outlined under IFRS 11 joint arrangements and are reported as financial results. * Before intersegment eliminations. ** Normalised for impairment. 12
Financial performance 2016 Stable operating cash inflows and stabilising investing cash outflows Main developments Operating cash flow: - Operating cash flow improved compared to 2015 despite a lower EBITDA; The working capital improved due to customer prepayments including security deposits. Investing cash flow (Cash outflow): - The last large expansion projects were completed in 2016. - In December 2016 Open Grid Europe (OGE) and Gasunie acquired Statoil's share in the Netra pipeline. With this transaction Gasunie and OGE increased their participations in Netra and are now the only remaining shareholders. - Main focus currently on the maintenance and replacement programme. 13
Gasunie at a is glance Gasunie a European gas Business highlights 2016 infrastructure company. 4 Financial performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 7 14
Financing Net debt continues to decrease Debt ( mln) 31-12-2016 Money market debt 23 Loans of the European Investment Bank (EIB) 636 Euro Medium Term Notes 3,300 Total interest-bearing debt 3,959 As per 31-12-2016 Weighted average interest rate of outstanding long-term loans: approx. 2.8% p.a. (3.7% as per 31-12-2015). Weighted average maturity of long-term loans: 4.7 years. Cash - 238 Total net debt 3,721 15
Financing Debt programmes and committed facilities Debt profile allows for good access to financial markets Debt programmes Committed credit facilities at 31 December 2016 EMTN programme of 7,500 mln. Stand-by revolving credit facility (RCF) of 750 mln (undrawn). ECP programme of 750 mln. Capital markets transactions Transactions in 2016 May 2016: 10 year 650 mln bond. Coupon: 1.00%. November 2016: 3 year 300 mln bond. Coupon 0.00%. Upcoming bond redemptions: 31 March 2017 ( 750 mln). 16 October 2018 ( 300 mln). Revolving credit facility In July 2016 the RCF was extended by one year. RCF size until July 2020 is 750 mln. RCF size July 2020 - July 2021 is 680 mln. 16
Financing Solid ratings remain unchanged Rationale A2/Stable P-1 Low business risk profile: around 80% of the Group s operating profit stems from regulated network activities, operating under two well-defined and relatively stable regulatory regimes in the Netherlands and Germany. Rating is constrained by challenging Dutch tariff setting. Liquidity profile remains solid. Two-notch uplift, stemming from strong support from its 100% owner, the State of the Netherlands (Aaa). The stable outlook reflects the view that Gasunie will be able to maintain credit metrics over the medium term in line with the minimum guidance for its current rating outlined by Moody s, despite cash flow pressures stemming from a lower allowed return and potential efficiency challenges for the Dutch network operations. Rationale AA-/Stable A-1+ Business Risk: Excellent. Focus on low risk regulated gas transmission operations in the Netherlands and northern Germany and the Netherlands very low country risk. Low level of earnings volatility. Financial risk: Intermediate. Underpinned by strengthening credit metrics and the expectation of positive and growing discretionary cash flows, on the back of structurally declining capital expenditures. Some likely pressure on the company s financial profile post- 2017, when a new regulatory period starts in The Netherlands High likelihood of extraordinary support from the State of the Netherlands leads to a 3-notch uplift of the a- stand-alone credit profile. Liquidity position: Adequate. Source: Moody s Investors Service Credit Opinion of 20 May 2016 and Standard & Poor s Rating Services Research Update of 2 June 2016. 17
Gasunie at a glance 4 Business highlights 2016 7 Financial performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 18
Outlook External forces have different effects on Gasunie's business environment Political Geopolitical issues dominate discussions on infrastructure development Tension between long-term climate goals, regulatory/legal constraints and social acceptance of sustainable energy solutions (NIMBY, costs) is currently restricting the role we aim to play in strong acceleration of renewables. Economic Persistent low energy prices support Gasunie s gas infrastructure business Supply developments: The Middle East and Russia provide opportunities for new infrastructural developments. Technological Big data / internet of things / analytics provide opportunities for new services Growing commercial competitiveness of sustainable production and shortterm power storage lead to additional competition but also lead to long-term opportunities for gas as back-up Societal Negative public framing of gas in the Netherlands Focus of sustainability debate shifts to CO 2 reduction providing gas with an advantage over coal. In addition CCS is being considered again. 19
Outlook Outlook Net profit is expected to decline from 2017 onwards mainly as a result of the new method decision in the Netherlands. Over the next five years, annual allowed revenues will gradually decrease with a total of 200 million. In Germany a new regulatory period will start in 2018. Future CAPEX level for the next 3 years is expected to be between 200 million and 300 million per year mainly coming from our maintenance and replacement programme. Upcoming bond redemption of 750 million in March 2017; significant part of the required refinancing was raised in November 2016. Gasunie aims to expand its activities into the fast-growing gas markets in the south-eastern part of Europe via consultancy services and if applicable via proportional asset positions with partners. 20
Gasunie at a is glance Gasunie a European gas Business highlights 2016 infrastructure company. 4 Financial performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 7 21
Key take-aways Key take-aways A leading European gas infrastructure company - Continued focus on safety and security of supply. - Gasunie is well capable to handle the production cuts of the Groningen gas field resulting in an increase in gas conversion - Several business initiatives regarding renewable gasses are well underway. - TTF is now the largest European gas trading hub. - Gasunie aims to expand its activities into the southeastern part of Europe Regulatory developments - The ACM has published the method decision (including a static efficiency benchmark) for the period 2017-2021. - As a result of the method decision, the GTS tariffs will be lowered. Over the next five years, annual allowed revenues will gradually decrease with a total of 200 million. In addition, the method decision will result in an impairment of the GTS network of 450 million. - In Germany a new regulatory period will start in 2018 Financial performance and outlook - Lower revenues in 2016 due to efficiency discounts, lower capacity sales and lower contract values. - Lower operating costs in 2016, mainly due to a major provision in 2015. - Increased focus on maintenance CAPEX and operational excellence. - Proposed dividend payout ratio is 60%. - Net profit is expected to decline in 2017 till 2021 as a result of the new method decision in the Netherlands. Prudent financial policy - Credit ratings have been reaffirmed A2/Stable (Moody s) and AA-/Stable (S&P) in Q2 2016. - RCF has been extended by one year. - Upcoming bond redemption of 750 million in March 2017; significant part of the required refinancing was raised in November 2016. 22
Questions & Answers Thank You! For further information: René van der Haar, +31 50 521 2697, R.E.van.der.Haar@gasunie.nl Janneke Hermes, +31 50 521 2742, J.Hermes@gasunie.nl 23
Gasunie at a glance 4 Business highlights 2016 7 Financial performance 2016 11 Financing 15 Outlook 19 Key take-aways 22 Appendices 25 24
Appendices Appendix: Balance sheet Balance Sheet - Before profit appropriation (in mln) 31-12-2016 31-12-2015 - Tangible & intangible fixed assets 8,665.3 9,134.0 - Investments in joint ventures 233.2 157.4 - Investments in associates 11.5 12.4 - Other equity interests 470.2 434.9 - Deferred tax assets 430.3 322.5 Total fixed assets 9,810.5 10,061.2 Total current assets 460.7 300.6 Total assets 10,271.2 10,361.8 Shareholder s equity 5,601.9 5,717.5 - Interest-bearing loans 3,164.3 2,985.7 - Other long-term liabilities 370.5 370.4 Total Long-term liabilities 3,534.8 3,356.1 - Current financing liabilities 794.9 1,001.6 - Trade and other payables 339.6 286,6 Total current liabilities 1,134.5 1,288.2 Equity & liabilities 10,271.2 10,361.8 More detailed information about the financial statements can be found in Gasunie s annual report 2016 25
Appendices Appendix: Profit and loss statement (reported) Profit & Loss statement (in mln) 2016 2015 Revenues 1,547.8 1,631.0 - Capitalised expenditure 98.7 89.5 - Staff costs and other operating expenses -608.7-638.5 - Depreciations -304.6-296.0 - Impairment -450.0 0.0 Operating result 283.2 786.0 - Financial income & costs -125.0-132.4 - Result of participations 61.2 70.7 Result before taxation 219.4 724.3 Taxes -35.9-171.4 Result after taxation 183.5 552.9 More detailed information about the financial statements can be found in Gasunie s annual report 2016 26
Appendices Appendix: Profit and loss statement (Normalised) Profit & Loss statement (in mln) 2016 2015 Revenues 1,547.8 1,631.0 - Capitalised expenditure 98.7 89.5 - Staff costs and other operating expenses -608.7-638.5 - Depreciations -304.6-296.0 Operating result 733.2 786.0 - Financial income & costs -125.0-132.4 - Result of participations 61.2 70.7 Result before taxation 669.4 724.3 Taxes -148.4-171.4 Result after taxation 521.0 552.9 More detailed information about the financial statements can be found in Gasunie s annual report 2016 27
Appendices Appendix: Cash flow statement Cash Flow statement (in mln) 2016 2015 Cash flow from operating activities 883.8 852.0 Cash flow from investing activities -350.3-356.3 - Repayment of long-term loans -721.4-521.5 - New long-term loans 950.0 300.0 - Movement in short-term financing -256.7 105.1 - Dividend paid -331.7-362.1 Cash flow from financing activities -359.8-478.5 Movement in cash & cash equivalents 173.7 17.2 More detailed information about the financial statements can be found in Gasunie s annual report 2016 28