Investor Presentation August 2017
INVESTOR PRESENTATION REN company overview Acquisition of EDP Gás Appendix 1
REN IS THE PORTUGUESE TSO HOLDING THE ELECTRICITY AND NATURAL GAS CONCESSIONS REN, headquartered in Lisbon, is an integrated TSO focused in the operation of two major business areas: Transmission in high voltage electricity 1 and overall technical management of the Portuguese electricity system Transportation of high-pressure natural gas and overall technical management of the Portuguese natural gas system, reception, storage and regasification of LNG 2 and underground storage of natural gas Electricity Sole TSO of the Portuguese electricity system with a 50-year concession ending in 2057 Natural gas Sole concessionaire of Portuguese high-pressure natural gas transportation network for 40 years (until 2046) Grid length* 8,863 km Electricity consumption* 49.3 TWh # Headcount 1H17 220 Pipeline length* 1,375 km Natural gas consumption* 58.9 TWh # Headcount 1H17 130 1. High voltage electricity grid of 150 to 400kV 2. Liquefied Natural Gas * - End 2016 2
REN IS CURRENTLY PRESENT IN THE ELECTRICITY TRANSMISSION AND NATURAL GAS TRANSPORTATION, STORAGE AND TERMINAL ACTIVITIES REGULATED ACTIVITIES Electricity Value Chain Generation Transmission Distribution Supply Tariffs build-up Energy Cost + Use of Transmission Network + Global System Costs (1) + Use of Distribution Network = Final Energy Cost Natural Gas Value Chain REGULATED ACTIVITIES Imports LNG Transportation Storage Distribution EDP Gás Supply Tariffs build-up Energy Cost + Use of LNG Facilities + Use of Transportation Network + Global System Costs (1) + Use of Distribution Network = Final Energy Cost (1) Tariff charged through the transmission/transportation operator, mostly composed by pass-through costs, such as energy acquisition costs related to the management of the two remaining PPAs (Electricity), hydro land (Electricity), positive or negative adjustments related to costs supported by the supplier of last resort (Gas) and ERSE costs Source: REN 3
STABLE AND SUPPORTIVE REGULATION IN PORTUGAL Activity Remuneration Remuneration of the regulated activities is based on the definition of the allowed revenues, which assure the principle of recovering operating costs (with efficiency targets) as well as the cost of capital. The model is defined for 3-year regulatory periods, during which the relevant parameters remain stable TARIFFS RATIONALE Allowed revenues are earned through the tariffs charged to final consumers through supply companies ERSE sets the regulated tariffs ex-ante every year based on estimated consumption One of the regulatory guiding principles for the definition of energy tariffs is stability The sector companies regulated revenues are not dependent from State payments Transmission/transportation operators do not have consumer credit risk Stable regulatory framework Source: REN, ERSE 4
MAIN FINANCIAL INDICATORS 1H17 M 1H16 M 2016 M Variation Δ% [Δ Abs.] EBITDA (1) 242.7 240.2 476.0 1.0% [2.5] Financial Result (1) Recurrent Net Profit -27.5 80.9-41.7 66.5-79.9 126.1 34.0% [14.2] 21.7% [14.4] Average RAB (1H17) Net Profit 53.0 40.5 100.2 30.7% [12.4] Average RAB 3,470.3 3,522.8 3,537.1-1.5% [-52.5] CAPEX 41.0 37.6 171.5 8.9% [3.3] Natural Gas Electricity Net Debt 2,577.4 2,526.5 2,477.7 2.0% [50.9] 31% Electricity base RoR 6.4% 6.1% 6.1% 0.3p.p. 69% Gas RoR 6.3% 7.4% 6.7% -1.1p.p. 1) Financial result from the interconnection capacity auctions between Spain and Portugal (- 0.5M in 1H16 and - 0.3M in 1H17) known as FTR (Financial Transaction Rights) was reclassified from Financial Result to Revenues (EBITDA level) 5
A STRONG FUNDING PROFILE WITH INVESTMENT GRADE CREDIT METRICS Currently, REN has a robust debt profile with balanced maturity, diversified sources of funding, strong liquidity and growing average maturity IN RECENT YEARS REN HAS RECOVERED ITS INVESTMENT GRADE Gross debt maturity profile 1H17, Million 2,605-315 -241-228 -381 Gross debt funding sources 1) 1H17 Commercial EIB paper 19% 17% Loans 2% Rating BBB Baa3 Total gross debt 2) -1,441 2017 2018 2019 2020 >2021 63% Bonds Speculative grade BBB- (with positive outlook) LIQUIDITY Maintain over 2 years MATURITY 4.5 years as of 1H17 Extend slightly to take advantage of market conditions REN reduced its risk profile and is one of only two Portuguese issuers with three investment grade ratings 1) Fixed/variable rates: 61%/39% 2) Adjusted by interest accruals and hedging on yen denominated debt 6
REN PROVIDES A PREDICTABLE AND STRONG RETURN TO SHAREHOLDERS DIVIDEND PER SHARE 0.171 0.171 0.171 0.171 REN plans to 2015 2016 2017 2018E maintain the nominal dividend per share year on year, providing one of the highest dividend yields in the industry 7
STABLE SHAREHOLDER BASE WITH STRONG GOVERNANCE SHAREHOLDER STRUCTURE BOARD COMPOSITION Own shares Other 35.2% 0.7% 25.0% State Grid of China 3 EXECUTIVE COMMITTEE 3 AUDIT COMMITTEE (INDEPENDENT) 12 BOARD MEMBERS 1 INDEPENDENT 2.1% Great-West Lifeco 4.8% The Capital Group Companies 5.0% REE 15.0% Oman Oil 6.9% 5.3% Lazard Asset Management Fidelidade 3 5 OTHER 1 1 Strong, stable and diversified shareholder base Best in class governance with diverse and conservative Board Source: REN 8
A STRATEGIC AGENDA GROUNDED ON A SUSTAINABLE DOMESTIC INVESTMENT PLAN AND INTERNATIONAL UPSIDE STRATEGIC GUIDELINES Continue CAPEX in Portugal Local business remains a top priority Maintain RAB stability EDP Gás acquisition reinforces REN's focus on the local, core infrastructure business as a top priority Explore international projects First international investment executed Consolidate financials Stable Recurrent Net Profit Maintain yearly dividend Ensure investment grade rating 9
INVESTOR PRESENTATION Company overview Acquisition of EDP Gás Appendix 10
Transaction overview Key Terms REN has signed a Share Purchase Agreement with the EDP Group to acquire 100% of EDP Gás (EDPG) EDPG is Portugal s second largest gas distribution company, with a 4,640 km network and a net RAB of 452M Unique opportunity for REN to achieve vertical integration in core domestic natural gas infrastructure, by entering the highest growth energy infrastructure segment The transaction perimeter excludes EDP Gás SU, which operates as a last resort gas supplier to end clients 1 The transaction s underlying Enterprise Value is 532M, representing a 1.18x EV/RAB multiple and a 11.0x EV/EBITDA multiple, below recent transaction precedents Funding is secured and is expected to consist of a mix of new equity and debt 250M will be financed through a rights issue for which a standby underwriting agreement, subject to certain customary market conditions being met, has been executed by REN with Banco Santander, CaixaBI and J.P. Morgan EDPG s acquisition completion is subject to standard legal and regulatory approvals (expected in the next 2-3 months) Key Dates April 7 th 2017 Share Purchase Agreement has been signed and the acquisition and funding structure for the transaction have been approved by the Board of Directors of REN May 11 th 2017 REN General Shareholder s Meeting Next 2-3 months Expected legal and regulatory authorizations for the transaction Before end of 2017 Capital Increase and Debt Issue 1. Under Portuguese law, REN is not allowed to perform marketing or supply activities of natural gas 11
EDPG is a leading gas distribution company in Portugal Overview Gas distribution company providing services in the coastal region of Northern Portugal 40-year concession contract (ending in December 2047) Second-largest gas distribution concession in Portugal, initiated in 2008 Fully-regulated business with a transparent and stable remuneration framework based on allowed revenue set by regulator ERSE for 3 year regulatory periods Consistent with the regulatory framework for REN s activities Transaction perimeter REN s perimeter 100% EDP Gás SU (CUR) 100% EDP Gás SGPS 100% EDP Gás Distribuição 100% EDP Gás LPG EDP Gás SU, which operates as last resort gas supplier (CUR) to endclients, is not included in the transaction perimeter as, under Portuguese law and the natural gas system unbundling, the TSO is not allowed to perform marketing or supply activities of natural gas Concession area area EDPG s operational and business team has a proven track record with deep knowledge and seasoned business skills Source: EDPG 12
with the second-largest network in the country and a strong financial performance EDPG - Key technical data (2016) EDPG - Key financial data (2016) 1 Network length: 4,640 km EBITDA ( M) Net Income ( M) 48.5 20.8 Connection points: 339,012 RAB ( M) 451.6 Capex ( M) 22.9 Distributed gas: 7,090 GWh RoR (%) 7.85% (2015-2016) REN RoR Gas Transportation% -30bp presently Source: EDP Gás, ERSE 1. The values presented are REN s estimates (unaudited/not official) specifically for the purpose of the transaction excludes EDPG SU which is outside the transaction perimeter Note: Key technical data, RAB, Capex and RoR figures for EDP Gás Distribuição 13
EDPG presents a unique opportunity for natural gas infrastructure integration, while maintaining REN s strong financial and credit profile 1 New growth opportunity EDPG has a strong growth potential within the gas distribution sector in Portugal Opportunity to increase REN s RAB by 452M (+13%) 2 3 4 Low risk transaction Compelling valuation Funding plan preserves financial discipline Limited integration risk considering REN s experience in integrating and managing regulated gas assets in Portugal Regulatory remuneration framework similar to REN s existing gas and electricity TSO activities 40-year concession (ending 2047) aligned with the long-term maturity of REN s concessions and supervised by the same Portuguese regulatory bodies Acquired at 11.0x EV/EBITDA, below the 14.8x median multiple for similar market transactions 1, which is particularly significant considering this is an acquisition granting full control Share Purchase Agreement helps protect REN against post-transaction risks Opportunity for synergies over the long term, leveraging REN s best-in-class industry expertise Expected funding structure designed to maintain solid investment grade credit metrics REN plans to maintain its current nominal dividend per share (0.171 /sh) 5 Improvement of stock liquidity Capital Increase is expected to expand Free Float and to increase the market liquidity for REN s shares 1. Precedent transactions include Naturgas, Galp s GGND and Madrileña Red de Gas Source: Press releases, corporate presentations and REN 14
1 EDPG has significant growth potential within the gas distribution sector in Portugal, and will add value to REN s existing business Significant growth potential: Connections points ( 000# of CPs) Growth opportunity will complement REN s stable gas transportation asset base 21.7% of total households in Portugal (vs. 20.4% of Lisboagás 1 ) 26.4% of gas penetration rate (vs. 45.3% of Lisboagás 1 ) Concession region has colder weather compared to Portugal as a whole, favouring higher energy demand EBITDA ( M) 524.5 EDP Gás 301 2013 314 2014 326 2015 413 339 2016E 2021E RAB ( M) 3,989 Expected sustained RAB growth in the next 5 years EDP Gás 476 48.5 +10% 3,537 451.6 +13% 476 3,537 2016 REN 2016 REN and EDP Gás 2 2016 REN 2016 REN and EDP Gás 2 1. Lisbon metropolitan area concession 2. The values presented for EDP Gás are REN s estimates (unaudited/not official) specifically for the purpose of the transaction excludes EDPG SU which is outside the transaction perimeter. The 2016 values of REN and EDP Gás do not include transaction costs or funding costs, do not represent any consolidation of accounts and are for illustration purposes only Source: EDPG, ERSE, REN, PDIRDGN 15
3 The transaction multiple is the lowest compared to recent similar market deals EV / EBITDA multiple Median of comparable transactions 14.8x 15.7x 14.8x 11.0x 11.5x EDP Gás 1 Naturgas Galp Gás Natural Distribuição Madrileña Red de Gas (March 2017) (July 2016) (April 2015) Additionally, the Share Purchase Agreement helps to protect REN against post transaction risks Source: Press releases, corporate presentations and REN 1. 2016 values 16
4 The funding of the acquisition is secured Funding source Key considerations Timing Capital Increase Debt Issue 250M of proceeds The funding structure has been approved by the Board of Directors and consists of credit facilities and of a share capital increase The share capital increase through a rights issue was approved by the Board of Directors following a delegation resolved by the General Shareholders Meeting (GSM) on May 11 th 2017 To be fully underwritten by Banco Santander, CaixaBI and J.P. Morgan pursuant to a definitive underwriting agreement and for which a standby underwriting agreement, subject to certain conditions being met, has been executed Bridge loan has been signed and will enable REN to maintain existing liquidity REN has c. 1bn of available liquidity New debt to be raised Subject to transaction closing (following pending legal and regulatory authorisations) Expected to be before the end of Q3 2017 Shortly after the capital increase Expected to be in Q3 or Q4 2017 Funding structure designed to maintain solid investment grade credit metrics 17
4 REN plans to maintain its dividend policy and credit profile Dividends per share ( ) Dividend policy as approved in the Business Plan 0.171 0.171 0.171 0.171 REN plans to maintain the nominal dividend per share, year on year 2015 2016 2017 2018E Current Credit rating profile Investment grade Investment grade Investment grade REN s credit metrics post transaction are expected to remain consistent with an Investment Grade rating Source: REN, rating agencies 18
Closing Remarks Acquisition of EDP Gás: a strong strategic fit Unique opportunity for natural gas infrastructure integration Aligned with strategic framework, increasing REN s RAB by 13% in a fully regulated sector with a stable regulatory framework Opportunity for long-term synergies, leveraging REN s best-in-class industry expertise and deep knowledge of the domestic gas regulation framework Allows REN to benefit from an asset with significant growth potential within the gas distribution sector in Portugal Contributing to REN s strong financial position through the steady and predictable cash flow generation profile of EDPG EDP Gás underlying Enterprise Value of 532M corresponds to a EV/RAB multiple of 1.18x, and a EV/EBITDA multiple of 11.0x, which is lower than similar recent market transactions in the sector The acquisition funding is secured and is expected to ensure the maintenance by REN of its current nominal dividend distribution policy (0.171 /sh) and investment grade credit metrics EDP Gás acquisition completion is subject to standard legal and regulatory approvals (expected in the next 2-3 months) 19
INVESTOR PRESENTATION Company overview Acquisition of EDP Gás Appendix 20
REMUNERATION IN DETAIL Remuneration regime based on allowed revenues, set by the regulator ERSE for 3-year regulatory periods Electricity (current period: 2015-2017) Gas (current period: 2016-2019) TOTAL ALLOWED REVENUES Activity Remuneration = Regulated EBIT Margin + Return on Capital (Return on RAB: RoR ) + Interest on tariff deviations from year N-2 (1) + Other items Transmission Assets Hydro Land Base RoR x RAB + CAPEX Efficiency Mechanism: Premium (75 bps) if REN is able to achieve CAPEX costs below a reference level determined by the regulator (assets post-2009) Between -1.5% / 1.5% x RAB Transportation Assets RoR x RAB (No CAPEX efficiency mechanism given lack of comparable projects) Remuneration on the recovery of the tariff deviations resulting from differences between the estimated and actual demand: Tariff Deviation N-2 x [ (1 + Euribor12M N-2 + Spread N-2 ) x (1 + Euribor12M N-1 + Spread N-1 ) 1 ] Incentives Use of assets at end of life Rent on protection zone land 21.4 million in 2017 Cost of capital smoothing effect Only applied to REN Atlântico (LNG Terminal) and valid until June 2017 Operational Expenses Recovered Depreciation + Recovered Net OPEX Depreciation of Regulated Asset Base, net of subsidies OPEX subject to efficiency: OPEX N-1 x (1+ GDPI - X) + OPEX induced by grid expansion + Accepted costs + Pass-through costs Electricity Efficiency Factor: 1.5% Gas Efficiency Factors: Transportation 3.0%; LNG 2.0%; Storage 3.0% (1) For Gas, the regulator may decide to set a provisional tariff deviation of n-1 depending on tariffs level Note: GDPI = Inflation implicit on GDP deflator; Source: REN, ERSE 21
A RETURN MECHANISM LINKED TO THE 10Y PORTUGUESE BOND YIELD Electricity Base RoR The Base RoR is indexed to the average Portuguese sovereign 10-year bond yields (OT s) The RoR starting point was set at 6.4%, for a 3.6% 10Y bond yield average, and it will be adjusted annually based on the average Portuguese 10Y bond yields (Oct N-1 - Sep N ) (1). The mechanism assures the RoR varies between 5.65% and 9.15% Gas RoR The RoR is indexed to the average Portuguese sovereign 10y bond yields (OT s) through a linear function The RoR starting point was set at 5.90%, for a 2.78% 10Y bond yield average, and it will be adjusted annually based on the average Portuguese 10Y bond yields (Apr N-1 - Mar N ). The mechanism assures a floor RoR of 5.40% and a cap of 9.00% 3.6% Last Regulatory Periods Base RoR 2012 2013 2014 9.55% 7.76% 8.06% 2015 5.99% 2016 6.13% 1H17 6.41% Last Regulatory Periods Base RoR 2010/13 8.00% 2013/14 7.46% 2014/15 7.34% 2016 6.70% (2) 1H17 6.25% (1) The average shall be filtered by the 1/12 highest and lowest quotations; Notes: All rates of return are pre-tax (2) According to ERSE's regulatory framework Source: REN 22
LEADING TO A STABLE ROR Electricity Base RoR 10Y PT Gov. Bonds 1H17 Electricity Base RoR Avg. 10Y PT Gov. Bonds 7.55% 7.39% 7.56% 9.55% 8.06% 7.76% 5.99% 6.13% 6.41% 4.21% 5.42% 10.26% 10.56% 6.30% 3.75% 2.43% 3.19% 3.01% 23
ELECTROGAS: INVESTMENT IN A KEY NATURAL GAS ASSET IN CHILE WITH HIGH CASHFLOW VISIBILITY Key asset in Chile s natural gas sector REN as partner of major Chilean energy players Electrogas operates a (i) 165.6 Km reversible natural gas pipeline between Quintero s LNG terminal (Chile s Pacific coast) and Santiago metropolitan region; and a (ii) 20.5 Km diesel oil pipeline Electrogas is the only gas pipeline in Chile s central region connecting Quintero s regasification terminal to Chile s largest population center (Santiago), and to Valparaiso, one of the country s most important ports The asset benefits from high cashflow visibility due to established long-term Take-or-Pay gas transportation contracts 42.5% 42.5% 15% REN acquired stake from Enel Generación Chile Colbún Involved in electricity generation (3.3 GW of installed capacity in Chile) and transmission ENAP State-owned company involved in Oil & Gas activities Asset connects Quintero s LNG terminal to Santiago Key customers comprise blue-chip electricity generators (Endesa, Colbún and AES Gener), industrial companies (ENAP) and major local gas distribution players (Metrogas and GasValpo) 24
1 ST MAJOR INTERNATIONAL INVESTMENT OF REN IN CHILE UNDER A CAUTIOUS AND DISCIPLINED APPROACH Stable and long term Take-or-Pay contracts High cash conversion based on revenue set-up and stable and efficient cost structure Low-risk investment grade country, considered as the best country to do business in Latin America Competitive and growing economy 1 Stable regulatory and legal frameworks Chile as LatAm s most developed economy High cash flow visibility ACQUISITION ACQUISITION WITH IMPACT POSITIVE ON REN IMPACT ON REN Unique asset under operation 165.6 Km reversible NG pipeline under operation, avoiding risk of greenfield entry Only pipeline connecting the sole LNG terminal in Chile s central region and Santiago s metropolitan region Lasting relationship with investment grade clients Asset positioned to benefit from growing strategic importance of natural gas in Chile 2 First international success story and delivery of approved strategic plan Relevant influence over company decisions Net Income positively impacted Equity ticket in line with REN s investment profile Limited impact on credit metrics (1) Average annual GDP growth of 3.9% since 2011 (2) Since 2010, Santiago s largest gas distributor registered a 5% annual increase in distributed gas volume 25
DISCLAIMER This presentation was prepared by the management of REN Redes Energéticas Nacionais, SGPS, S.A. ( REN ) merely for informative purposes and is not and should not be construed as an offer to sell or buy, a solicitation, a recommendation or an invitation to purchase or subscribe any securities. This document does not intend to be totally or partially the basis of any investment decisions or to provide all comprehensive information to be reviewed by any prospective investor and its addressees must conduct their own investigations as deemed necessary should they decide whether to trade or not in any securities. All the information contained in this presentation is based on public information disclosed by REN and on information from other credible sources which were not subject to independent review by REN. Thus, these statements are not guarantees of future performance and are subject to factors, risks and uncertainties that could cause the assumptions and beliefs upon which the forwarding looking statements were based to substantially differ from the expectation predicted herein. No representation, warranty or undertaking, express or implied, is made hereto and you are cautioned not to place undue reliance on any forward-looking statements provided. The information contained herein is not for release, publication or distribution, directly or indirectly, in or into the United States, Canada, Australia or Japan or any other jurisdiction in which the distribution or release would be unlawful. This presentation does not constitute an offer to sell, or a solicitation of offers to purchase or subscribe for, securities in the United States. The securities referred to herein have not been, and will not be, registered under the Securities Act of 1933, as amended, and may not be offered, exercised or sold in the United States absent registration or an applicable exemption from registration requirements. There is no intention to register any portion of the offering in the United States or to conduct a public offering of securities in the United States. The issue, exercise or sale of securities in the offering are subject to specific legal or regulatory restrictions in certain jurisdictions. The Company assumes no responsibility in the event there is a violation by any person of such restrictions. The information contained herein shall not constitute an offer to sell or the solicitation of an offer to buy or subscribe for, nor shall there be any sale of the securities referred to herein, in any jurisdiction in which such offer, solicitation or sale would be unlawful. Investors must neither accept any offer for, nor acquire or subscribe for, any securities to which this document refers, unless they do so on the basis of the information contained in the applicable prospectus published or offering circular distributed by the Company. The Company has not authorized any offer to the public of securities in any Member State of the European Economic Area. With respect to each Member State of the European Economic Area and which has implemented the Prospectus Directive (each, a Relevant Member State ), no action has been undertaken or, except in Portugal, in due course, will be undertaken to make an offer to the public of securities requiring publication of a prospectus in any Relevant Member State. As a result, the securities may only be offered in Relevant Member States (a) to any legal entity which is a qualified investor as defined in Article 2(1)(e) of the Prospectus Directive; or (b) in any other circumstances which do not require the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this paragraph, the expression an offer of securities to the public means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to exercise, purchase or subscribe the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including Directive 2010/73/EU, and includes any relevant implementing measure in the Relevant Member State. In addition, this communication is only being distributed to, and is only directed at (A) persons who are outside the United Kingdom or (B) in the United Kingdom, persons who (i) have professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order ), or (ii) are high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2) of the Order (all such persons together being referred to as relevant persons ). Any investment or investment activity to which this communication relates will only be available to and will only be engaged in with, relevant persons. Any person who is not a relevant person must not act or rely on this document or any of its contents. 26
REN s IR & Media app: Visit our web site at www.ren.pt or contact us: Ana Fernandes Head of IR Alexandra Martins Telma Mendes Av. EUA, 55 1749-061 Lisboa Telephone: +351 210 013 546 ir@ren.pt