A safe port in a storm

Peel Ports
Peel Ports Group (Peel Ports) is a strategic transportation and logistics hub centred in north-west England, with locations in Liverpool, Dublin, Belfast, Glasgow and along the Manchester Ship Canal. Linked by its short sea shipping services and the Manchester Ship Canal container shuttle service, Peel Ports provides direct access to the significant hinterland of north-west England and the main Roll-on Roll-off (RoRo) services to Ireland. Additionally, through the Port of Sheerness, Peer Ports provides access to London and through Clydeport to Central Scotland.

Peel Ports offers a value-added logistics solution to clients’ supply chains, including conservancy, pilotage, berthing, facilities rental, storage, cargo handling, marine services and shipping. The group handles more than 65 million tonnes of cargo a year, across a diverse range: bulk liquids, bulk solids, automotive, energy, agribulks and containers.

Port of Liverpool was awarded Port Authority of the Year by global industry journal Containerisation International in October 2012. The award cited the heavy investment the port is making and the way in which it is helping change the way stakeholders think about the supply chain.

A partnership approach
In early 2006, following a broad review of the UK ports sector, Deutsche Asset & Wealth Management (DeAWM) Infrastructure approached the owner of Peel Ports, the Peel Group and its chairman, John Whittaker, with a proposal to acquire a 49.9 percent interest in Peel Ports for its infrastructure fund. A significant factor in the success of DeAWM Infrastructure’s proposal was its ability to differentiate itself from other parties by proposing a long-term partnership approach.

DeAWM Infrastructure established an acquisition financing package in 2006, which was successfully refinanced in December 2012. During the acquisition process, DeAWM Infrastructure also negotiated and structured a preferred yield instrument to minimise any volatility in the expected base case yield profile. Through its proactive management, however, the business has performed well ahead of the acquisition base case and distributions to shareholders have exceeded the yield hurdle throughout the hold period.

DeAWM Infrastructure’s partner, Peel Group, is one of the UK’s leading property and transport companies, with interests in shopping centres, land & property, ports and airports.

Investment rationale
The investment in Peel Ports provided DeAWM Infrastructure with an opportunity to:
• Capitalise on its experience in the port industry, through management of an investment in Port of Geelong in Australia, and senior team members who have a long history in the UK port sector;

• Invest in a business with a strong regional monopoly position – the UK landlord/operator business model is relatively unique;

• Invest in a high-quality infrastructure business with stable customer contracts, steady cash flows and a diversified business;

• A resilient business during downturns as approximately 75 percent of EBITDA comes from the UK ports’ landlord model, with the potential for growth during economic upturns from other commercial activities; and

• Partnering with a reputable industry player with a track record of value creation.

DeAWM Infrastructure’s management approach DeAWM Infrastructure has taken a proactive management approach and has worked with its partner, Peel Group, and Peel Ports management to:

Develop internal growth opportunities:
• Peel Ports has improved customer relationships and retention rates by investing, for instance, in new warehouse facilities to supply the automotive industry. Peel Ports has also worked with automotive clients to increase volumes and link car manufacturing clients in Medway with steel activities at Port of Liverpool.

• Peel Ports is investing approximately £350 million (€417 million; $564 million) to build a post panamax container facility at Port of Liverpool. This project will enable Peel Ports to handle vessels up to 12,000 TEU (twenty-foot equivalent units) and, when fully operational in 2019, will increase container port capacity from 0.9 million TEU to 2.4 million TEU per annum.

Develop external growth opportunities:
• Peel Ports created a multi-modal port facility in Liverpool when it acquired the Bridgewater site in 2010. This acquisition helped further integrate Port of Liverpool and Manchester Ship Canal and significantly increased the warehousing opportunities for customers.

• Peel Ports acquired 75 percent of marine support services A&P and Cammell Laird in 2012. These high-quality businesses have strong growth prospects and will create synergies with the group’s operations.

Rationalise the business:
• A strategic review of all existing business divisions and support functions was carried out by DeAWM Infrastructure and non-core businesses were disposed of.

• A broad cost rationalisation programme was developed to preserve EBITDA during the downturn, which led to resilient earnings despite a 28 percent reduction in volume (second quarter 2008 vs. third quarter 2009). Building on the revenue growth initiatives above, EBITDA has grown from £111.5 million at acquisition to £157.0 million in March 2013.

• The capital expenditure approval process and internal audit function were strengthened. Acquired businesses have been integrated within the group and revenue synergies have been improved.

• The business is now focused on the next stage of operating process improvement and launched a dedicated project in the second quarter of 2013 which aims to save significant costs over the next couple of years, improve the customer interface and generate revenue opportunities.

Successfully refinance:
• DeAWM Infrastructure led a £1.6 billion refinancing of Peel Ports in December 2012, which refinanced the acquisition facility and restructured the debt portfolio at investment grade. The new long-term funding diversified funding sources and extended maturities at modest costs. It also included a £200 million capital expenditure facility to support the Liverpool 2 project and allowed the continuation of dividend payments. In July 2013, Peel Ports refinanced more than 50 percent (over £150 million) of the three-year tranche maturing in 2015 with seven- and eightyear institutional loans.

Align the organisation with strategic objectives:
• DeAWM Infrastructure supported the hiring of a new executive team (CEO and CFO), a business development manager, a treasurer and a Liverpool 2 project manager. The management team’s interest has been aligned with longer-term group-wide priorities through a long-term incentive plan.

• The commercial team has been integrated into one unit by combining marketing, sales, commercial analysis and property responsibilities.

Working together
The working relationship between DeAWM Infrastructure and Peel Ports clearly showcases the benefits of a highly successful partnership. Mark Whitworth, CEO of Peel Ports, says: “DeAWM Infrastructure’s hands-on asset management and partnership approach has enabled Peel Ports to perform strongly despite the global economic crisis, and to position the company to take advantage of the recovery we are beginning to experience.”

Hamish Mackenzie, head of infrastructure, Europe, adds: “Our investment in Peel Ports is consistent with the partnership model that we have applied in the European marketplace and is testament to the strength and quality of Peel Ports. Between us, we have created a thriving partnership and one that we feel will deliver stable long-term returns for our clients.”

Deutsche Bank’s infrastructure investment business
DeAWM’s infrastructure investment business, DeAWM Infrastructure (formerly RREEF Infrastructure), has been investing in infrastructure assets since 1994, and today focuses on economic infrastructure such as transportation, utilities and energy-related assets.

It is one of the world’s largest infrastructure managers with approximately €14.1 billion in private and publicly listed infrastructure assets under management as of June 30, 2012. With extensive experience in acquiring, actively managing, restructuring and exiting infrastructure investments as an equity or principal investor, the infrastructure investment business aims to deliver diversification, preservation of capital, superior yield and long-term performance consistent with the objectives of its clients.

DeAWM Infrastructure has a track record of investing alongside industrial companies and developing long-term partnerships.

Note: All facts and figures are supplied by Deutsche Asset & Wealth Management – Infrastructure. All information is publicly available or derived from audited annual reports. The material does not constitute investment advice and should not be relied upon as the primary basis for any investment decision. All opinions and estimates herein, including any forecast returns, reflect Hamish Mackenzie’s judgment on the date of this report and are subject to change without notice. Such opinions and estimates, including forecast returns, involve a number of assumptions that may not prove valid. Opinions expressed herein may differ from the opinions expressed by departments or other divisions or affiliates of Deutsche Bank. This document may not be reproduced or circulated without our written authority. The manner of circulation and distribution of this presentation may be restricted by law or regulation in certain countries. Persons into whose possession this material may come are required to inform themselves of, and to observe such restrictions.