#1Investor Presentation Business Update January 2019 esb.ie/ir E ecars 11-D-34177 ES3 Energy for generations#22 Disclaimer ES3 Energy for generations Forward looking statements: This presentation contains certain "forward-looking statements" with respect to ESB's financial condition, results of operations and business and certain of ESB's plans and objectives with respect to these items. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to and depend upon future events and circumstances. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. All forward-looking statements in the presentation are expressly qualified in their entirety by such factors. ESB does not intend to update any forward-looking statements. No warranty as to accuracy: Neither ESB nor any person acting on its behalf (i) makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this presentation or (ii) shall have any liability whatsoever for loss, howsoever arising, directly or indirectly, from use of the information contained within this presentation. No invitation to engage in investment activity: This presentation is not an offer to sell, exchange or transfer any securities of ESB and is not soliciting an offer to purchase, exchange or transfer such securities in any jurisdiction. esb.ie/ir#33 ESB Team ES3 Energy for generations Pat Fenlon Group Finance Director Gerry Tallon Group Treasurer Éilish Dolan Manager, Investor Relations & Credit Rating esb.ie/ir#44 Agenda ESB Background and Strategy Financial Overview Business Profile Funding and Liquidity Outlook & Summary ES3 Energy for generations esb.ie/ir#5ESB Background and Strategy ES3 Energy for generations esb.ie/ir#6CO 6 ESB Key Credit Strengths Leading Irish Energy Utility ES3 Energy for generations Stable Business Profile Consistent Financial Performance • 95% Irish Government owned Markets - Ireland and Great Britain Owns all networks in ROI and NI 1 Irish electricity market: 42% share of generation and 34% share of supply in 2017 Regulated electricity networks businesses in Ireland account for more than two thirds of EBITDA and assets Supported by established and transparent regulatory frameworks regarded as robust by credit rating agencies 2 H1 2018 €620m & Gearing 53% (2017 EBITDA €1.28bn & Gearing 52%) Diversified funding and strong liquidity position Credit ratings of A- and A3 1 2 In Republic Of Ireland (ROI) and in Northern Ireland (NI) via its wholly-owned subsidiary NIE Networks See S&P Global report published May 2018 "Why we see the Republic of Ireland's Electricity Regulatory Framework as supportive" esb.ie/ir#77 Electricity Industry Structure: Ireland One Single Electricity Market (SEM) - All-Island Generators Centralised Market Interconnectors GB to SEM Regulators CRU An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities Networks ESB 100% of Market (Monopoly) ESB Networks Transmission ESB Networks Distribution Northern Ireland Electricity Transmission Northern Ireland Electricity Distribution I 1 I I 1 I ES3 Energy for generations Suppliers Utility Regulator ELECTRICITY GAS WATER System Operators EIRGRID SONi Operator for others and esb.ie/ir#88 ESB Overview ESB Regulated Networks ESB Networks NIE Networks ESB Networks Generation Customer Solutions Financial Generation ES3 Customer Solutions Electric ESB Ireland Energy Generation & Trading Established 1927, Leading Irish Utility, 95% Government-owned. Markets Ireland & UK Owner of the Regulated Republic of Ireland transmission & distribution networks (2017 RAB €7.7bn) Owner of the Regulated Northern Ireland transmission & distribution networks (2017 RAB €1.7bn) Portfolio 5.8 GW. Irish¹ capacity 4.4 GW and 42% market share in H1 2018. GB capacity 1.4 GW ● Diversified fuel mix. Benefits from capacity and regulatory supports Customer facing businesses including supply of electricity, gas and smart energy services in Ireland and UK 33% Irish¹ electricity supply market share in 2017 and 1.4 million customers accounts Regulated Networks Businesses account for over two thirds of EBITDA, capex and assets Solid EBITDA €620m for H1 2018 (2017 €1.28bn), Assets €12.2bn, Gearing 53% Strong liquidity position and credit ratings A- and A3 Energy for generations 1 Irish = Republic of Ireland and Northern Ireland esb.ie/ir#99 ESB - Strategy for a Brighter Future ESB's Purpose Create a brighter future for our customers by leading the transition to reliable, affordable, low carbon energy Energy Services to meet evolving market needs Meet customers' energy needs through diverse businesses across energy value chain • Markets - Ireland and Great Britain Investment focus Smart reliable networks Low carbon energy New business growth potential Produce connect and deliver clean, secure & affordable energy Customer needs at centre of activities Grow business while maintaining financial strength ES3 Energy for generations High performance culture esb.ie/ir#10Financial Overview ES3 Energy for generations#1111 Consistent Financial Performance EBITDA (€m) Capital Expenditure (Єm) H2 H2 636 658 H1 H1 686 603 510 468 541 564 499 665 690 638 673 620 450 405 356 303 2014 2015 2016 2017 H1 2018 2014 2015 2016 2017 H1 2018 Net Debt (€m) Gearing (%) 1 53% 4,975 4,639 4,524 4,377 4,554 2014 55% 51% 52% 53% 2015 2016 2017 H1 2018 2014 2015 2016 2017 H1 2018 1 Gearing =Net Debt/ (Debt + Equity) on IFRS basis ES3 Energy for generations esb.ie/ir#1212 H1 2018 Highlights Operating Profit €244m; 88% from Regulated Networks Businesses in Ireland; Capex €499m: €266m in Regulated Networks, €193m in Generation; Regulated Networks Businesses in Ireland: supported by established and transparent regulatory frameworks; Generation & Trading: lower GB energy margins partially offset by higher wind margins; Electric Ireland: ccompeting effectively despite higher energy costs ES3 Energy for generations 1 Regulated Networks businesses in Ireland refers to ESB Networks in ROI and NIE Networks in NI esb.ie/ir#13Business Profile Networks#1414 Macro Environment Ireland • Irish economy performing strongly GDP +7.2% 2017 +6.7% 2018 forecast • SEM Electricity demand growth • Irish sovereign rating strengthened SEM¹ System Demand Growth (%) ES3 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2016 2017 2018F 2019F 2020F 2021F A+ Stable (S&P) and A2 Stable (Moody's) 1 Single Electricity Market = Republic of Ireland and Northern Ireland GB • UK GDP +1.7% 2017 & +1.3% 2018 forecast Brexit Uncertainty persists but prudent financial management protecting ESB's credit metrics; Sterling assets matched with sterling funding; SEM underpinned by pre-existing legislation in NI and ROI; ESB's Networks businesses have no volume risk with NIE having revenue visibility out to Q1 2024 UK Capacity Market Under review following suspension but minimal financial impact for 2018/2019 Source: Eirgrid Energy for generations Forecast Irish GDP Source: Central Bank of Ireland UK GDP Source: Office of Budget Responsibility esb.ie/ir#1515 Network Regulation Overview in Ireland ES3 Energy for generations Revenue determined by ROI and NI Independent Regulators CRU (Republic of Ireland) for ESB Networks Utility Regulator (Northern Ireland) for NIE Networks Regulatory framework similar to Ofgem in Great Britain ⚫ Regulatory objectives: Protect customers' interests, while ensuring safe, secure, sustainable Networks at reasonable cost, that earn a fair return ● Multi-year Price / Revenue Control Cycles Allowance for Opex and Capex Allowed real return on Regulated Asset Base (RAB) No volume risk. Inflation adjustment to opex, capex and RAB. Incentives for strategic innovation, customer service and network performance Model well established and considered robust by investors and rating agencies An Coimisiún um Rialáil Fóntas Commission for CRU Regulation of Utilities Utility Regulator ELECTRICITY GAS WATER esb.ie/ir#1616 ESB Networks Business Description ~58% of Group EBITDA and 56% Group Assets Sole owner and operator of distribution network and sole owner of transmission network in Republic of Ireland Regulated Asset Base (RAB) 2017 €7.7bn Strategy: Smart Reliable Networks PR4 Revenue Determination (2016-2020) Significant Capital Investment WACC 4.95% pre tax real 1 • Focus: PR4 delivery ESB Networks 58% H1 2018 EBITDA - €620m ES3 RAB (€bn) €7.7bn €6.1bn End PR2 Dec 2010 PR4 Dec 2017 Energy for generations 1 WACC pre tax real calculated real pre tax cost of debt and real pre tax cost of equity 2 Estimated RAB value end 2017 per CRU published PR4 revenue determination methodology esb.ie/ir#1717 Northern Ireland Electricity (NIE) Networks Business Description ~16% of Group EBITDA and 17% Group Assets Sole owner and operator of distribution network and sole owner of transmission network in Northern Ireland Regulated Asset Base 2017 €1.7bn / £1.5bn nominal • Strategy: Smart Reliable Networks RP6 revenue determination (Oct 2017 - Mar 2024) RP6 WACC 3.2% vanilla real 1 (3.8% pre tax real), reflecting low interest rate environment¹ • Focus: RP6 Implementation ES3 H1 2018 EBITDA - €620m NIE Networks 16% RAB (€bn) £1.5bn 2 £1.2bn 2 RP4 April 2013 RP5 Sept 2017 Energy for generations 1 Vanilla WACC ACC calculated real pre tax cost of debt and real post tax cost of equity 2 RAB values are per the UR at the start of RP5 (1st April 2013) and end of RP5 (30 Sept 2017) esb.ie/ir#18Generation & Trading (G&T) Business Description ~26% of Group EBITDA and 20% Group Assets 5.8 GW: 4.4 GW All-Island and 1.4 GW in GB All-Island ISEM¹ market share 42% by volume ISEM¹ revenue includes capacity & regulatory supports • Thermal plants now competing for capacity revenue More challenging but ESB portfolio mix advantageous and well positioned with focus on: 18 - Availing of additional revenue opportunities ― Cost efficiency - Investing in balanced low carbon portfolio of thermal & renewable generation Strategy: Transition to low carbon energy Focus: Integrated Single Electricity Market & Renewable Investment H1 2018 EBITDA - €620m ESB Energy for generations ISEM Market Share Generation Output by Fuel Type ESB 42% Other 58% Coal 22% 1 ISEM = Republic of Ireland and Northern Ireland 0 Peat Hydro Wind 6% 8% 4% Gas 60% esb.ie/ir#1919 Integrated Single Electricity Market ⚫ EU Internal Energy Market compliance to align energy trading more closely with EU - went "live" on 1st October 2018 Capacity payments remain but are now secured by way of competitive auction 91% of G&T plant 3,295 MW secured contracts Market average price €41.80/kW/pa T-1 auction in Dec 2018 - positive initial results • Ancillary services market revenue cap increasing from €75m in 2016 to a cap of €235m by 2020 Market operating effectively with +90% of demand being traded through Day Ahead Market with prices similar to old SEM market I-SEM Energy Payments Centralised market with day ahead, intra-day and balancing markets Regulatory Supports Capacity Payments Competitive Auction Ancillary Services ES3 Energy for generations esb.ie/ir#20Customer Solutions Business Description •~3% of Group EBITDA • Customer-facing businesses including supply of electricity, gas, energy services, e-transport and wholesale telecoms Strategy Meet customer energy needs - Competitive Offerings • Excellent Customer Service Innovative and value driven solutions Competing effectively 20 20 H1 2018 EBITDA - €620m ES3 Electric Ireland 3% SEM Retail Market Share (MWh) • Irish market share¹ 33% with 1.4m customer accounts Electric GB Supply residential market entry under brand "ESB Energy" as long term growth opportunity Ireland 33% Focus Meet customer energy needs through value driven solutions at appropriate margins SSE Airtricity 20% Bord Gais Energy 9% Viridian - Energia & Other 14% Power NI 24% 1 Irish Republic of Ireland and Northern Ireland Energy for generations esb.ie/ir#2121 Funding & Liquidity ES3 Energy for generations IXLAY esb.ie/ir#2222 ESB Group Debt - Diversified Funding and Strong Liquidity Group Debt 30 June 2018 - €4.8bn Project Finance 10% EIB 14% Bonds 64% US Private Placement 12% Available Liquidity - €1.8bn Cash 13% NIE Networks £350m bond issued September 2018. Maturity October 2025 with 2.5% coupon Euro Bond €500m issued October 2018. Maturity 2033 with a coupon of 2.125% ES3 Committed Facilities 87% Energy for generations esb.ie/ir#2323 Debt Repayment Profile ES3 €700m €600m €500m €400m €300m €200m €100m €0m 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2031 2033 2034+ EUR Bonds ■GBP Bonds Private Placements ■Other (Bilaterial/Project Finance) Manageable profile. €1.8 bn liquidity and EBITDA ~ €1.3bn pa. Energy for generations Note: Excludes Joint Venture Debt esb.ie/ir#2424 ESB Credit Ratings S&P Global Ratings A- (Stable Outlook) Long Term Rating MOODY'S INVESTORS SERVICE A3 (Stable Outlook) Long Term Rating Credit ratings with both rating agencies reaffirmed with stable outlooks in May 2018 ES3 Energy for generations esb.ie/ir#2525 Dividend Policy & Pensions - ? Dividend Policy agreed in 2013 with Irish Government (95% Shareholder) Target dividend pay-out ratio of 40% of normalised profits after tax Dividend Policy Pensions ES3 Irish Government agreed that sustaining a minimum BBB+ Credit Rating is key ESB policy objective ESB DB Pension Scheme does not have a deficit on an ongoing actuarial basis at end 2017 NIE Networks DB Pension scheme. Deficit at the end of 2017 and funding plan has been agreed. Any deficit related to pre March 2012 substantially funded by customers through regulatory model Energy for generations esb.ie/ir#2626 Outlook & Summary ES3 Energy for generations#2727 Outlook • Continued growth in Irish economy and SEM electricity demand expected • Networks ESB Networks (ROI) PR4 2016-20 delivery NIE Networks (NI) RP6 Oct 2017-March 2024 delivery • Generation (G&T) ■ Integrated Single Electricity Market (I-SEM) ☐ Low carbon and renewable investment • Customer Solution (Electric Ireland and ESB Energy) Meet customer energy needs through value driven solutions at appropriate margins Ongoing focus on strategy delivery while maintaining financial strength Create a brighter future for our customers by leading the transition to low carbon energy ES3 Energy for generations esb.ie/ir#2828 ESB Key Credit Strengths Leading Irish Energy Utility ES3 Energy for generations Stable Business Profile Consistent Financial Performance • 95% Irish Government owned Markets - Ireland and Great Britain Owns all networks in ROI and NI 1 Irish electricity market: 42% share of generation and 34% share of supply in 2017 Regulated electricity networks businesses in Ireland account for more than two thirds of EBITDA and assets Supported by established and transparent regulatory frameworks regarded as robust by credit rating agencies 2 H1 2018 €620m & Gearing 53% (2017 EBITDA €1.28bn & Gearing 52%) Diversified funding and strong liquidity position Credit ratings of A- and A3 1 2 In Republic Of Ireland (ROI) and in Northern Ireland (NI) via its wholly-owned subsidiary NIE Networks See S&P Global report published May 2018 "Why we see the Republic of Ireland's Electricity Regulatory Framework as supportive" esb.ie/ir#2929 Contacts ES3 ES3 Energy for generations ESB Two Gateway East Wall Road Dublin D03 A995 Ireland Éilish Dolan Manager, Investor Relations & Credit Rating +353 1 702 6756 [email protected] www.esb.ie/ir esb.ie/ir