A DEDICATED CENTRE OF CORPORATE FINANCE EXPERTISE
- A Shareholder Expectations Framework is now in place for all commercial State bodies within NewERA’s remit on the Government’s strategic priorities, policy objectives, financial performance and reporting requirements:
- In 2015 NewERA further enhanced the Framework with a focus on development of formal financial targets for commercial State bodies.
- Work to agree formal dividend policies for each body is at an advanced stage.
- Combined dividends of €475m were paid during 2014/15.
- NewERA provided commercial and financial advice to Government on a range of issues in 2015 including:
- €2.6bn of capital expenditure requests from the commercial State bodies within its remit.
- Re-organisation of Ervia with operational establishment of Gas Networks Ireland, following on from the sale of Bord Gáis Energy.
- Sale of the State’s shareholding in Aer Lingus plc to IAG.
- The first joint venture between Bord na Móna and Coillte to finance, construct and operate a 64 MW wind farm.
- Coillte Telecoms disposal to Infravia Capital Partners.
State Bodies within NewERA’s Remit
Playing a Crucial Role in the Economy
Core Areas of Activity - Energy & Land Management
- 61% Network infrastructure assets (electricity, gas and water)
- 17% Power generation (conventional and renewable)
- 13% Land Management (forest and peatlands)
- 8% Retail (energy)
- 2% Other (telecoms, waste, biomass)
For 2014/15, on a combined basis, they:
NewERA provides financial and commercial advisory services to Government in respect of a number of major commercial State bodies: ESB, Ervia, Irish Water, Bord na Móna, Coillte and EirGrid. It takes a commercial approach to the oversight of these bodies providing advice in relation to financial performance, corporate strategy, capital and investment plans, proposed acquisitions or disposals, restructuring and board appointments. NewERA’s role also involves the provision of financial and commercial advisory services in respect of other State bodies or assets at the request of the relevant Minister.
Shareholder Expectations Framework
NewERA has developed a Shareholder Expectations Framework intended to provide clarity and guidance for each of the commercial State bodies within its core remit in relation to the Government’s strategic priorities, policy objectives, financial performance and reporting requirements for each body. Shareholder expectations letters based on the Framework and tailored to the body concerned have now been issued by the relevant Minister to each of these bodies. Work on the further enhancement of the Framework in 2015 has focused on development of formal financial targets for the relevant bodies. These targets typically include:
- Capital structure target, reflecting the underlying business mix.
- Profitability target, reflecting the risk profile of the expected business mix.
- Dividend target.
One of the key financial performance measures outlined in the Framework is Total Shareholder Return (TSR), which will assist in measuring financial value creation for the State by each body. It is expected that the bodies will undertake commercial equity valuations on an annual basis so that TSR can be measured and monitored. TSR will be analysed on an ongoing basis with the expectation that the analysis will be increasingly meaningful when reviewed over the medium term (e.g. five years) rather than on an annual basis.
Dividends are also a component of TSR. Combined dividends of €475m were received for 2014/15. These dividends comprise of €361m arising either from proceeds from the sale of assets or a special dividend request from Government and €114m in respect of ordinary dividends.
Dividends Paid by Bodies within NewERA’s Remit.
A key focus in agreeing dividend policies is to ensure that an appropriate balance is struck between the payment of dividends and re-investment in the business. The work to date in this area has seen ESB announce an increase in its dividend pay-out from 30% to 40% of normalised profits after tax by 2017, subject to ESB sustaining a minimum credit rating of BBB+. During 2015 EirGrid paid an ordinary dividend of €3m for the first time and an increased ordinary dividend of €3.5m will be paid during 2016. Coillte paid an interim dividend of €4m and a further €1m will be paid in 2016 relating to 2015. The boards of Bord na Móna and Ervia have engaged with NewERA and the relevant Government Departments with a view to implementing formal dividend policies during 2016.
NewERA Portfolio Financial Overview
Each year NewERA prepares a Portfolio Financial Overview of the commercial State bodies within its core remit. The most recent Overview covered the 2014/15 financial year ends1.
Increase in turnover of the portfolio to €5.8bn.
Operating Profit (“EBIT”)
EBIT decreased to €0.8bn from the previous period.
Net debt of €6.5bn broadly at same level as prior period.
Portfolio has invested capital of €14.7bn.
Portfolio undertook capital spend of €1.7bn during 2014/2015.
- This was carried out by reference to the published annual financial statements for each entity available at the time. The 2014/15 figures are adjusted to exclude Bord Gáis Energy which was disposed of in 2014.
During 2015 NewERA provided detailed financial analysis and recommendations (where appropriate) to relevant Ministers on a total of 72 submissions for Ministerial consideration and consent, made by the commercial State bodies within its remit. This included €4.6bn in financing-related requests (including bond issuance, revolving credit facilities, EIB and commercial debt facilities), €2.6bn in relation to capital expenditure budget requests and €0.5bn in specific capital expenditure project requests.
NewERA also provided financial and commercial advice to the relevant Minister on a range of issues related to other State bodies and projects during 2015.
Selected NewERA Advisory Projects 2015
|Projects relating to State Bodies within NewERA’s Remit|
|Re-organisation of Ervia with operational establishment of Gas Networks Ireland
||The operational establishment of Gas Networks Ireland commenced from August 2015. The purpose of the re-organisation was to consolidate the gas networks business of Ervia in a single wholly owned subsidiary and ensure consistency with the EU’s Third Gas Directive. The re-organisation was a complex process (transfer of assets and liabilities including €1.1bn in external debt). NewERA provided recommendations, from a financial and commercial perspective, to the relevant Ministers in relation to consent requests and approvals that were required to give effect to the re-organisation.|
||Following advice from NewERA, the Government announced in 2014 that the commercial operations of Bord na Móna and Coillte should be streamlined and refocused, via the establishment of joint ventures between the companies focusing on biomass, wind, support services and tourism and recreation activities. The first joint venture was put in place in 2015 to finance, construct and operate the Sliabh Bawn wind farm project: a 64MW wind farm that is expected to provide power to 40,000 houses and has an expected project cost of €90m. Work is ongoing on establishing appropriate structures around their other common business activities in biomass (via BioEnergy Ireland), shared services, and recreation and tourism.|
|Disposal of Coillte Telecoms
||In August 2015 Coillte agreed to dispose of its portfolio of telecommunications assets to InfraVia Capital Partners, a French investment fund. This transaction strengthened the company’s balance sheet and facilitated Coillte focusing on its core forestry business. NewERA worked closely with Coillte and provided financial and commercial advice to the Government Steering Group established to oversee the disposal.|
|NewERA provided financial and commercial advisory services to Government in relation to the offer by International Consolidated Airlines Group (IAG) for Aer Lingus in 2015. The sale of the shareholding generated proceeds for the State of €335m.|
|Telecommunications||The National Broadband Plan (NBP) is a Government policy initiative which aims to deliver high speed broadband to every citizen and business in Ireland. This includes a proposed State intervention to provide high speed broadband to those parts of the country where there is no certainty that the commercial sector will invest. A key principle of the NBP is to support and stimulate commercial investment. NewERA provided input from a financial and commercial perspective on specific aspects of NBP programme delivery including funding and ownership options.|