Review of Eversholt Rail Group Mary Kenny and David Stickland 6 May 2015.

Review of Eversholt Rail Group

Mary Kenny and David Stickland 6 May 2015

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1. Rail Industry Overview

2. Eversholt Rail Business Overview

3. Review of 2014 Financial Performance

4. Covenants & Ratings

5. Ownership Changes

6. Executive Management Changes

7. Q&A

Index

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Industry Update

· The Rolling Stock Strategy, published by the Rolling Stock Strategy Steering Group, (‘RSSSG’)

reaffirmed its projection of a doubling of rolling stock numbers.

– In February 2015, an updated ‘Long Term Passenger Rolling Stock Strategy’ was published by the RSSSG, which includes rolling stock owners, train operators and Network Rail. The group reaffirmed their previous long term conclusions that the industry will continue to be demand-led, with the UK passenger fleet size forecast to potentially double over the next 30 years

· Network Rail

– In March 2014, Network Rail published its five-year plan to invest £38bn in rail infrastructure. The plan (for the period April 2014 to March 2019) includes: up to 700 more trains a day between major northern cities, 20% capacity increase of London’s commuter trains, 850 miles of track to be electrified, upgrades for stations including Birmingham New Street and Manchester Victoria

· Refranchising

DfT awarded:

– Seven-year Thameslink, Southern and Great Northern franchise to Govia Thameslink Railway Limited – Fifteen-year contract to operate passenger services on the Essex Thameside rail franchise to the existing operator c2c– Eight-year contract to operate the Inter-City East Coast franchise to Inter City Railways, a joint venture of Stagecoach (90%) and

Virgin (10%)

Transport Scotland awarded the 10-year ScotRail franchise to Abellio ScotRail, operations commenced on the 1 April 2015

DfT launched the TransPennine Express (TPE), Northern and East Anglia refranchising competitions. The TPE and Northern bids are due to be submitted during Q2 2015

Rail Industry Overview DfT awards the first franchises since the Brown report

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Eversholt Rail’s Position

• Eversholt Rail is currently in discussion with bidders, the DfT and TfL on all of the “live” franchises. Within these franchises there are several potential new build opportunities

• Eversholt Rail is also in touch with the existing Train Operating Companies regarding potential directly-awarded extensions of the East Midlands Trains and First Great Western franchises

• 100% fleet utilisation of the passenger rolling stock for 2014 (2013:100%)

• In November 2014, Eversholt Rail successfully negotiated a one year extension to its existing Revolving Credit facility (‘RCF’). The RCF is now due to mature in 2019. In addition the business also negotiated improved terms and conditions on both this facility and on its term loan

• Lease extensions (2014)

– In February, Eversholt Rail signed a series of Single Tender or Direct Award, (STA/DA) lease extensions with Northern Rail to keep our fleet of 3 Class 321s, 5 Class 322s and 10 Class 158s on lease until February 2016

– In April, Eversholt Rail signed a lease extension with East Coast Main Line Limited to retain our IC225 fleet on lease until 2019-20

– In June, Eversholt Rail signed an STA lease extension with Abellio Greater Anglia to keep our fleets of 61 Class 315s and 94 Class 321s on lease until October 2016

– In October Eversholt Rail signed an STA lease extension with London South Eastern Railway to keep our fleets of 112 Class 375s, 36 Class 376s, 29 Class 395s and 97 Class 465s on lease until June 2018

Eversholt Business OverviewUnderlying demand remains high

Financial performance (Security Group)For the year ended 31 December 2014

· Capital rental marginally higher than 2013 due to

additional investment in fleets

· Higher net maintenance income arises from the increased

level of maintenance activity in the year

· Other income includes asset management fees received

from Cross London Trains Ltd

· Fair value adjustment on derivatives represents the

movement in the fair value of the interest rate swaps

· Net interest and finance cost in 2013 included the unwind

of capitalised borrowing costs on the bank acquisition

facilities

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31 December 2014

31 December

2013

£m £m

Capital rental income 270.0 268.1

Net maintenance income 10.5 5.2

Finance lease income (Depots) 0.9 0.6

Other income 3.6 3.1

Total Income 285.0 277.0

Overheads (21.4) (18.2)

263.6 258.8

Profit on disposal of property, plant and equipment - 0.6

Depreciation (125.5) (128.6)

Fair value adjustment on derivative financial instruments (48.8) 34.7

Net interest and finance cost (141.4) (152.9)

(Loss)/profit before tax (52.1) 12.6

Year ended

Statement of financial position (Security Group)As at 31 December 2014

· Property, plant and equipment lower as a result of

annual depreciation charge partially offset by

investment in the fleets

· Year end cash of £37.5m after repayment in

borrowings

· Revolving Credit Facility maturity extended by one

year to 2019 with a further option to extend by one

more year

· Negative mark to market valuation of interest rate

swaps not expected to be realised

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Year ended   31 December 2014   31 December 2013    £m   £m         Assets        Property, plant and equipment   1,708.4   1,818.4Finance lease receivables   10.0   10.8Trade and other receivables   24.7   15.5Deferred Tax   22.5   12.1Deferred Revenue 0.0 0.6Investment in subsidiary   2.8   2.8Inventory   1.6   1.8Cash and cash equivalents   37.5   88.2    1,807.5   1,950.2         

Liabilities        Trade and other payables   42.6   31.8Borrowings   1,757.8   1,820.2Derivative financial instruments   107.3   58.5Amounts owed to Eversholt Rail (365) Limited 19.0   36.5Deferred tax   85.7   89.4Deferred revenue   100.6   115.7    2,113.0   2,152.1         Net assets   (305.5)   (201.9)         Equity        Share capital   -*   -* Share premium account   13.7   13.7Accumulated deficit   (319.2)   (215.6)

  (305.5)   (201.9)

* £12,000        

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· Financing

o Facilities - Term loan 2018, Revolving Credit Facility 2019

o Undrawn RCF provides same day liquidity

o Improved financial efficiency using surplus cash to pay down drawings on RCF

o Improved financial terms and conditions on the bank facilities following RCF extension agreement by 1 year to 2019

· Average debt maturity until mid 2020s

· Cash reserves of £37.5m:-

– £27.0m Security deposit (restricted)

– £10.5m Unrestricted cash

31 Dec 2014 31 Dec 2013

Facility A 5 year term loan (2018) £100m £100m

Facility B 5+1 year RCF (2019 + 1) £35m £16m

Bond A (2020) £300m £300m

Bond B (2025) £400m £400m

Bond C (Amort. 2021-2035) £400m £400m

MetLife Note (Amort. 2028-2036) £150m £150m

Total £1,385.0m £1,366.0m

Shareholder Loan (inc capitalised interest) £340.6m £422.8m

Key Funding ActivitiesEnhanced funding platform with the capacity for additional investment in rolling stock

Current debt structure

20142016

20182020

20222024

20262028

20302032

20342036

20382040

-

5000

10000

15000

20000

25000

30000

35000

40000

45000

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CovenantsRatios substantially below the lock up limits

· All ratios were substantially below the lock

up levels and are projected to remain so

· Intention is to maintain these ratios with

plenty of headroom to provide scope for

investment

Leverage test 31-Dec-14 31-Dec-13(Net debt / EBITDA) Actual Lock-up Actual Lock-up

Backward looking 5.16x < 7.00x 4.96x < 7.00x

Forward looking 4.55x < 7.00x 5.21x < 7.00x

Interest cover ratio 31-Dec-14 31-Dec-13(EBITDA / Interest) Actual Lock-up Actual Lock-up

Backward looking 2.87x > 1.75x 2.48x > 1.75x

Forward looking 3.15x > 1.75x 2.88x > 1.75x

NPV test 31-Dec-14 31-Dec-13(Net Debt / NPV) Actual Lock-up Actual Lock-up

Forward looking 50.9% < 70.0% 47.2% < 70.0%

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Ratings

· Fitch reaffirmed bond rating at A- (October 2014)

– Net Debt to NPV considered comfortable

· S&P reaffirmed bond rating at BBB, with a stable outlook (March 2015)

– FFO to Debt 11.3%

· Company and New Shareholders remain committed to ensuring that the bond ratings remain at these levels

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Ownership changes

· CKI acquired Eversholt Rail on 17 April 2015

– Business as usual

– No change to strategy

– CKI fully supportive of Executive approach & fully supportive of growth opportunities

· Andy Hunter new Chairman

· Non Executives from Industry continue

· KYC (information will follow shortly)

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Executive Management changes

· David Stickland, CFO, joined Eversholt Rail in November 2014

· Clive Thomas, Head of Commercial and Business Services, retires October 2015. Responsibilities for legal

and company secretarial pass to Dave Stickland from 1 May 2015

· Executive Team for 2015:

– CEO: Mary Kenny

– CFO: David Stickland

– COO: Andy Course

– Head of Relationship Development: Stephen Timothy

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Questions?

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Appendix - EBITDA Reconciliation

Note1 £mGross Profit 159.5Administrative expense (21.4)Operating lease depreciation (Note 4) 125.5

263.6Add back:Write down in value of inventories within Cost of Sales (Note 4) 0.2Administrative depreciation (Note 7) 0.6

Pension costs(Note 7 &

28.6) 1.0

Finance lease depreciation within Finance lease income 0.8

EBITDA (as stated in Compliance Certificate) 266.2

1 Note from Security Group Financial Statements

Figures drawn from Security Group Financial Statements

Year ended 31 December 2014

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© Eversholt Rail (UK) Limited 2015

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