Phoenix Group

The pre-eminent natural gas business in Northern Ireland

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The Phoenix Group (Phoenix) operates a gas conveyance (transmission and distribution) network under a monopoly licence in Northern Ireland. Phoenix was one of three companies within East Surrey Holdings, a public ‘multi-utility’ which Terra Firma acquired in 2005.

Investment Strategy

Asset-Backed: Phoenix owns and operates 3,100 km of distribution pipeline.

Requiring Fundamental Change: Although there were significant growth prospects for the business, the instability of the regulatory framework, combined with the relative immaturity of the network, demanded an owner with a strong vision.

Creating Value

  1. Transforming strategy

    • Terra Firma and Phoenix worked together with the regulatory authorities in 2006 to agree a mutually satisfactory regulatory framework with transparent and stable gas prices. As many people in Northern Ireland had no experience of using gas, the stabilised pricing allowed them to feel more comfortable about switching to gas.
    • Phoenix attracted new customers and expanded its network by offering its customers efficient energy production and more appealing appliances. The business achieved a significant increase in natural gas penetration across Greater Belfast and is committed to converting 60% of the properties along its distribution network into connected customers by 2016.
    • The build-out of Phoenix resulted in an overall group structured into four integrated businesses: Phoenix Natural Gas; Phoenix Supply; Phoenix Energy Services; and Phoenix Energy Limited.
  2. Developing through capital expenditure

    • The expansion of the network and an increase in customer connections were driven by accelerating the capital investment programme and setting appropriate returns targets.
    • Terra Firma supported a continual programme of capital expenditure which has enabled Phoenix to convert 46% of the potential market in Belfast to natural gas. Investment continues with the aim to make gas available to an additional 21,000 properties by 2016.
  3. Lowering the cost of capital to create extra upside

    • Established a more stable regulatory environment following the 2006 agreement served to lower Phoenix's cost of capital and enabled investment decisions to be taken with greater confidence.
    • This agreement also allowed for refinancings in both 2009 and 2013, which put in place a more efficient capital structure and removed market volatility.
    • In January 2008, Phoenix separated its distribution business from its transmission assets. This facilitated the sale of the transmission division of Phoenix, with the resulting proceeds being used to pay down debt.
    • In 2012, Phoenix sold both its supply businesses as it was felt that future growth of the distribution business was better served with supply in a completely separate ownership.

Status of Investment: The Phoenix investment has been realised. In August 2013, Terra Firma sold Phoenix to Hastings’ managed fund Utilities Trust of Australia and The Royal Bank of Scotland Group Pension Fund.

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164,000

At Terra Firma's exit, Phoenix provided gas to 164,000 customers

3,100km

Phoenix owns and operates 3,100km of distribution pipeline