Review of Eversholt Rail Group of Eversholt Rail Group Mary Kenny, Andy Course & Andrea Wesson 24 April 2014

Review of Eversholt Rail Group

Mary Kenny, Andy Course & Andrea Wesson

24 April 2014

2

1. Rail Industry overview

2. Eversholt Business overview

3. Review of 2013 Financial Performance

4. Covenants & Ratings

5. Senior Management changes

6. Q&A

Index

3

Industry Update

• In February, the second Long Term Passenger Rolling Stock Strategy was published by a cross-industry

group including rolling stock owners, operators and Network Rail

o Long term conclusions remain largely unchanged, being demand–led with UK passenger fleet forecast to potentially double over

the next 30 years

• In March, Network Rail announced a 5 year plan to invest £38bn in rail infrastructure. The plan, which runs

from 2014 to 2019, includes:

o Up to 700 more trains a day between major northern cities

o 20% capacity increase of London’s commuter trains

o 850 miles of track to be electrified

o Upgrades for stations including Birmingham New Street and Manchester Victoria

Passenger demand continues to increase: 2013-14 Q3 showed the highest recorded revenue generated,

franchised passenger kilometres travelled and franchised passenger journeys made since records began1

Rail Franchising

• 5 Franchises to be awarded before 2015 general election:

o Essex Thameside, InterCity East Coast, Thameslink Southern & Great Northern, ScotRail and Caledonian Sleeper

o Opportunities for new build and cascade of existing rolling stock

1 Source: National Rail Trends Quarterly Summary 2013-14

Rail Industry Overview DfT recommences refranchising programme

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Eversholt’s Position

• 100% fleet utilisation of the passenger rolling stock for 2013

• In June 2013, Eversholt Rail entered into a long–term agreement to provide project and asset management

services to Cross London Trains, the consortium providing the new fleet of Siemens Desiro City Class 700

trains to be operated on the Thameslink routes

• In November 2013, successfully completed a new £600m senior debt financing, which will provide additional

funding capacity for investment in rolling stock and also allowed for the prepayment of existing bank facilities

o The financing, which was provided by eleven banks, includes a £100m five year term loan facility and a £500m five year general

purpose revolving credit facility, which can be extended by up to two years by agreement

• Lease extensions

o In Dec 2013, signed Class 168 lease extension until 2021 with Chiltern Railway Company

o In Feb 2014, signed STA with Northern Rail to keep our fleet of 8 Class 321/322s and 10 Class 158s on lease until Feb 2016

o In April 2014, signed a lease extension with Directly Operated Railways to retain IC225 on lease until 2019-20

• Class 321 Demonstrator launched at Liverpool Street Station in December 2013. A powerful means of

displaying the possibilities offered by quality refurbishment delivered at significantly lower cost than new trains

Eversholt Business Overview Underlying demand remains high

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Eversholt’s Position

• Franchising Opportunities: Ongoing discussions with incumbent operators, new bidders, TS, TfL and DfT

• Franchise new rolling stock opportunities

o TSGN

Potential replacement of Class 313 units and strengthening with new 3-car EMU, dual voltage, metro-layout, ETCS fitted. 150 vehicles with an estimated date for delivery of 2017, at a capital investment of c.£225m.

o ScotRail

Latest discussions are 29x4-Car AC units to run on improved Edinburgh to Glasgow electrified service. Electrification programme of 100 miles per annum may lead to small follow-on order. Potential that bidders are looking for increased numbers of new EMUs in 2016/2017. 150 vehicles with an estimated date for delivery of 2017, at a capital investment of c.£190m.

• Additional rolling stock opportunities not linked to refranchising programme

o South West Trains August 2013, DfT and SWT revealed capacity improvement plans on one of Europe’s busiest rail networks. SWT anticipates

a requirement of between 135 and 200 vehicles which could potentially result in 40 additional 5-car trains. These could be

either new build or refurbished stock.

o Southern Railway In December 2012, the Secretary of State for Transport announced that the Government was providing support for two new

rolling stock programmes by Southern Railways. First programme to procure 40 additional Class 377/6 vehicles, to

complement the 130 vehicles previously ordered in Dec 2011 was won by Porterbrook. Second programme is for a further

116 new Class 387 Electrostars (29x4 car units), with an option for another 140 vehicles.

Eversholt Business Overview Significant new build opportunities

Financial performance (Security Group) For the year ended 31 December 2013

Capital rental marginally higher than 2012 due to additional

investment in fleets

Other income includes asset management fees received

from Cross London Trains Ltd

Higher overheads include £1.9m write-off of prepayments

for maintenance services due to Railcare Ltd going into

administration in July 2013.

Decrease of £9.6m in depreciation charge reflects asset

life extensions, offset by investment in existing fleets

Fair value adjustment on derivatives represents the

movement in the fair value of the interest rate swaps

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31 December

2013

31 December

2012 (restated) *

£m £m

Capital rental income 268.1 267.7

Net maintenance income 5.2 8.0

Finance lease income (Depots) 0.6 1.1

Other income 3.1 1.4

Total Income 277.0 278.2

Overheads (18.2) (14.8)

258.8 263.4

Profit on disposal of property,

plant and equipment 0.6 3.3

Depreciation (128.6) (138.2)

Fair value adjustment on

derivative financial instruments 34.7 (24.0)

Net interest and finance cost (152.9) (150.8)

Profit/(loss) before tax 12.6 (46.3)

Year ended

* 2012 accounts were restated as the Group adopted IAS 19

(Revised) Employee Benefits from 1 January 2013

Statement of financial position (Security Group) As at 31 December 2013

Property, plant and equipment takes into account sale

of 17 flat wagons

Year end cash of £88.2m after early repayment of

acquisition bank facilities

Bank funding maturity extended until 2018 with an

option to further extend by 2 years

Negative mark to market valuation of interest rate

swaps not expected to be realised

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Year ended 31 December 2013 31 December 2012

£m (restated) £m #

Assets

Property, plant and equipment 1,818.4 1,931.1

Finance lease receivables 10.8 11.9

Trade and other receivables 15.6 29.2

Derivative financial instruments 0.0 0.8

Deferred Revenue 0.6 0.7

Investment in subsidiary 2.8 2.8

Inventory 1.8 2.0

Cash and cash equivalents 88.2 141.4

1,938.2 2,119.9

Liabilities

Trade and other payables 31.8 35.9

Borrowings 1,820.2 2,003.5

Derivative financial instruments 58.5 97.9

Amounts owed to Eversholt Rail (365) Limited 36.5 19.7

Deferred tax 77.4 77.7

Deferred revenue 115.7 90.3

2,140.1 2,325.0

Net assets (201.9) (205.1)

Equity

Share capital -* -*

Share premium account 13.7 13.7

Accumulated deficit (215.6) (218.8)

(201.9) (205.1) * £12,000

# 2012 accounts restated as the

Group adopted IAS 19 ( Revised)

Employee Benefits from 1 January

2013

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Refinancing

o New facilities - 5 year term loan and 5+1+1 Revolving Credit Facility

o Undrawn RCF provides same day liquidity

o Improved financial efficiency using surplus cash to pay down

drawings on RCF

In November repaid £279m Bank Facility B with new £100m term loan

and a drawdown of £179m on new RCF

In December repaid £163m of RCF using cash held at the bank

Average debt maturity extended until 2027 (2012: 2025)

Cash reserves of £88m:-

– £27m Security deposit (restricted)

– £61m Unrestricted cash

31 Dec 2013 31 Dec 2012

Acquisition Bank Facilities – repaid £nil £342m

New Facility A 5 year term loan £100m -

New Facility B 5+1+1 year RCF £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 £1,366.0m £1,592.0m

Shareholder Loan (inc capitalised interest) £423m £385m

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

Current debt structure

-

50

100

150

200

250

300

350

400

450

20

142

015

20

162

017

20

182

019

20

202

021

20

222

023

20

242

025

20

262

027

20

282

029

20

302

031

20

322

033

20

342

035

20

362

037

20

382

039

20

40

£ m

illio

ns

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Covenants Ratios substantially within lock up limits

All ratios were substantially within 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-13 31-Dec-12

(Net debt / EBITDA) Actual Lock-up Actual Lock-up

Backward looking 4.96x < 7.00x 5.52x < 7.00x

Forward looking 5.21x < 7.00x 5.36x < 7.00x

Interest cover ratio 31-Dec-13 31-Dec-12

(EBITDA / Interest) Actual Lock-up Actual Lock-up

Backward looking 2.48x > 1.75x 2.71x > 1.75x

Forward looking 2.88x > 1.75x 2.59x > 1.75x

NPV test 31-Dec-13 31-Dec-12

(Net Debt / NPV) Actual Lock-up Actual Lock-up

Forward looking 47.2% < 70.0% 49.0% < 70.0%

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Ratings

Fitch maintained bond rating at A- (October 2013).

S&P maintained bond rating at BBB, with a stable outlook (March 2014).

Company and Shareholders continue to remain committed to ensuring that the bond ratings remain at these

levels.

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Management changes

Smaller Executive Team formed in 2013

– CEO, COO, CFO, Head of Relationship Management and Head of Commercial & Business Services

– Engineering teams all under COO

Andy Course, COO joined Eversholt in June 2013

CFO

o Fred Maroudas left the business in March 2014

o Search in progress

o Interim Head of Finance in place – Corinna Bishopp

Note:

Executive Team

CEO: Mary Kenny

COO: Andy Course

CFO: TBA; Interim Head of Finance - Corinna Bishopp

Head of RM: Stephen Timothy

Head of CBS: Clive Thomas

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Questions?

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Appendix - EBITDA Reconciliation

Note1 £m

Gross Profit 148.3

Administrative expense (18.2)

Operating lease depreciation (Note 4) 128.6

258.7

Add back:

Write down in value of inventories within Cost of Sales (Note 4) 0.2

Administrative depreciation (Note 7) 0.5

Write off of prepayments (Note 7) 1.9

Pension costs (Note 7 & 28.6) 0.8

Finance lease depreciation within Finance lease income 1.1

EBITDA (as stated in Compliance Certificate) 263.2

1 Note from Security Group Financial Statements

Figures drawn from Security Group Financial Statements

Year ended 31 December 2013

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