Please find attached BCM Analyst Presentation which will be presented today in Europe.

Transcription

1 ASX Release 23 November 2006 BABCOCK & BROWN CAPITAL LIMITED (BCM) Please find attached BCM Analyst Presentation which will be presented today in Europe. ENDS Further Information: Erica Borgelt Investor Relations Babcock & Brown About Babcock & Brown Capital Limited Babcock & Brown Capital is an Australian-based investment company that focuses on a concentrated portfolio with a flexible investment horizon. The Company s mandate allows it to build positions in domestic and overseas companies and both listed and private entities. Babcock & Brown Capital concentrates on growing the value of its investments over time. Investments are held while they continue to meet the Company s investment objectives. Babcock & Brown Capital listed on the Australian Stock Exchange in February For further information please see our website:

2 Babcock & Brown Capital Investor Presentation November 2006

3 CONTENTS 1. BCM RT Financials Investment update Investment capital structure Corporate structure 2. eircom business overview Investment rationale PD Strategy to drive value PD Key enablers to drive value PD Fixed line RC - EBITDA resilience - Key financials - Broadband Mobile RH - Market - Potential - Strategy - Key financials Cost base and structure - Operating approach - Operating cost base - Capex cost base Key messages RC 3. BCM Outlook RT 1

4 BCM TODAY

5 BCM UPDATE FINANCIALS Unaudited Profit & Loss Account for the Quarter to 30 September Months 3 mths to Jun Jul Aug Sep Sep 2006/07 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL $'000 $'000 $'000 $'000 $'000 REVENUE FROM ORDINARY ACTIVITIES Interest Revenue 17, , ,673 AIFRS Net Effective Interest Income 15, Share of profits from associates (1) (40,163) - - 1,068 1,068 TOTAL REVENUE (Excl eircom Plc) (6,943) 804 1,151 1,786 3,741 EXPENSES (excluding Interest) Management Fee 11,269 1,687 1,687-3,374 Compliance Costs Statutory Costs Consultant Deal Costs 288 (85) - - (85) NED's option expense Other expenses BCM Expenses (excluding Interest) 13, ,897 1,888 3,921 Mark-to-market of derivatives- Loss 7, ,025 6,025 EARNINGS/(LOSS) BEFORE INTEREST AND TAX (Excl eircom Plc) (27,907) 668 (746) (6,127) (6,205) Interest - margin loan (eircom) 3, ,015 Other finance related charges Total Borrowing Costs 4, ,017 Unrealised (gains) on foreign exchange (911) OPERATING PROFIT/(LOSS) BEFORE TAX (Excl eircom Plc) (31,682) (302) (1,723) (6,196) (8,222) Tax benefit 1, NET PROFIT/(LOSS) AFTER TAX (Excl eircom Plc) (30,516) (302) (1,723) (6,196) (8,222) eircom results (2), (3), (4) - 7,797 14,077 8,778 30,652 NET PROFIT\(LOSS) AFTER TAX- BCM GROUP (30,516) 7,495 12,354 2,582 22,431 3 ASSUMPTIONS/NOTES : (1) Associate revenue at 30 June 2006 primarily consists of the eircom results. (2) eircom results were equity accounted at 27.1% from 1 July to 17 Aug 2006 until control was obtained. (3) Exchange rate : AUD:EUR = (Ave FX Jan to Sep 06) (4) These results contain eircom's original depreciation and amortisation for the periods stated. However, these amounts are subject to change based on the outcome of the purchase price allocation process Source: unaudited eircom management accounts

6 BCM INVESTMENT UPDATE BCM raised A$1bn Invested ~A$430m in eircom Available ~A$520m - Cash - Marketable securities eircom investment The acquisition enterprise value was circa 4.8bn (A$8.0bn) BCM owns a 57.1% interest in eircom and the BCM syndicate owns the balance eircom will be consolidated in the BCM accounts Acquisition met BCM investment criteria including: - Stability and visibility of cash flows - Natural barriers to entry - Private Equity-level returns from LBO Base Case - Chance of Enhanced Case from securitisation of the utility-like network cashflows 4

7 BCM INVESTMENT UPDATE: PIK NOTES Summary terms Issuer Issue Currency BCM Ireland Preferred Equity Limited PIK Notes EUR Amount 425,000,000 Maturity February 2017 Security Interest Margin Call Protection Use of Proceeds Unsecured PIK for life; cash pay at Issuer s option TBD NC 18 months, 102 for 6 months, 101 for 12 months, 100 thereafter To finance distribution of capital to Babcock & Brown syndicate and members of the ESOT 5

8 BCM INVESTMENT CAPITAL STRUCTURE Following 425 million PIK Note raising, equity holdings by syndicate members remain: BCM: 57% ESOT: 35% Other: 8% Capital (incl margin over eurobor on debt where applicable) Sep-06 Adjustments Sep-06 % x LHA Sep-06 EBITDA 1 Cash and Cash Equivalents Term Loan A1 (SPS) (2.000%) % 0.5x Term Loan A2 (2.000%) % 0.5x Term Loan B (2.375%) 1,250 1,250 26% 1.9x Term Loan C (2.750% 1,250 1,250 26% 1.9x Total First Lien Debt 3,150 3,150 65% 4.8x Second Lien (4.250%) % 0.5x Total Senior Debt 3,500 3,500 73% 5.3x Floating Rate Notes (5.000%) % 0.5x Total Cash Pay Debt 3,850 3,850 80% 5.8x PIK Notes (TBD) % 0.6x Total Debt 3,850 4,275 89% 6.5x Net Debt (2) 3,756 4,181 87% 6.3x Total Equity 968 (425) % Total Capitalisation 4,818 4, % (1) Last Half Annualised EBITDA of 660 million, calculated by annualising H1 EBITDA of 330 million for the half year ended 30 September 2006 (2) Excludes leases 6.

9 CORPORATE STRUCTURE Babcock & Brown Syndicate - BCM Ireland Equity Ltd. 425m PIK Notes BCM Ireland Preferred Equity Limited Floating Rate Notes BCM Ireland Finance Ltd. Senior Credit Facilities BCM Ireland Holdings Ltd. Senior Preference Shares ESOT (Ireland) eircom Group plc 7

10 eircom BUSINESS OVERVIEW

11 eircom INVESTMENT RATIONALE The macro-economic picture in Ireland is attractive Highest real GDP growth in Europe Highest GDP per capita Highest population growth in Europe Strong household growth Attractive tax regime (12.5% tax rate) The downside risk is low as the industry in Ireland has structural benefits Significant barriers to entry in the Irish market as low population concentration makes network competition difficult - Only 40% of the 4 million population live in the 5 largest cities with c. 59 inhabitants per square km Limited Fixed Line competition Rationale mobile competition Population aged % 4% 2% 0% 6% 5% 4% 3% 2% 1% 0% Ireland Finland Sweden UK Source: European Commission Population growth rate (%) 53% 47% 46% 48% 52% 48% 48% 47% 48% 50% 49% Ireland Finland Sweden UK Spain Belgium France Real GDP growth (%) Spain Belgium France Denmark Denmark Italy Italy Portugal Portugal Germany Germany Source: European Commission 9

12 STRATEGY TO DRIVE VALUE eircom is a well managed telecoms company in a position to launch a new growth phase From eircom today to building on existing strong platform Successful cost reduction plans implemented, still more room to transform the cost base Highly successful winback campaign Attractive re-balancing outcome from sound working relationship with the regulator Strategic re-entry to mobile market through acquisition of Meteor Continued broadband rollout eircom is a good platform from which we can focus on and accelerate growth pursue growth in key areas further optimise the business eircom approach to deliver return Stability of the fixed line business Continuing focus on growth trajectory in Meteor 10

13 KEY ENABLERS TO DRIVE VALUE Grow Revenue Stability of fixed line revenues Broadband Mobile Value Added Services Contain Costs and Optimise Existing Business Continued focus on cost cutting and cash management Step-up initiatives to reduce cost of non-quality and leverage IT/Network transformation Efficiently managing HR requirements Targeted Capex Focus on network renewal, IT transformation, NGN, FTTC and 3G Optimise corporate finance Property real estate and masts Pensions 11

14 FIXED LINE

15 KEY FINANCIALS FIXED LINE Fixed line revenue and Adjusted EBITDA 1 (H vs. H1 2006) Domestic fixed revenue 1H06 vs. 1H05 (% change) % 833 H (Sept. 2005) H (Sept. 2006) Eircom 3 Telstra (0.1)% 3.8% TEF 2.6% BT 4 0.1% + 2.7% TI (1.1)% FT (1.3%) KPN (3.4)% DT(5.5)% Revenues EBITDA 1 Source: eircom management accounts Source: company filings, eircom plc results (1) EBITDA before restructuring costs, transaction costs, non-cash pension charge/credit and profit on disposal of property and investments (2) Eircom figure as of September All other figures as of June BT has March YE and Telstra June YE. TEF stands for Telefonica, TI for Telecom Italia, FT for France Telecom, BT for British Telecom, DT for Deutsche Telekom and KPN is the Dutch incumbent (3) eircom figures as of September 2005/2006, pro forma for the Meteor acquisition (4) Includes BT Retail and BT Wholesale 13

16 FIXED LINE EBITDA RESILIENCE Fixed line EBITDA continues to be stable at c. 600 million p.a. Voice Decline Rate currently below expectations Slower than European peers Number of fixed lines has grown by 4.2% CAGR compared to declines experienced by other European incumbents New housing starts (c. 90,000 p.a.) is significantly greater than UK Fixed line voice call volume ( ¹ ) between 1H05 and 1H06 (% change) (2) Eircom (3) (3.9%) Quarterly revenue and Adjusted EBITDA (Jun-05 to Sep-06) Telstra (7.1%) TEF (1.3%) TI (3.6%) DT (9.4%) KPN (11.2%) FT (11.6%) 14 BT Source: Company filings and analysts presentations, eircom plc results (1) BT: YE Mar, Telstra YE Jun. TEF = Telefonica, TI = Telecom Italia, FT = France Te-lecom, BT = British Telecom, DT = Deutsche Telekom and KPN is the Dutch incumbent. (2) FT (PSTN voice traffic consumer minutes), TEF(Domestic outgoing voice minutes), DT(City/Local + Long distance + International + Fixed to Mobile), Eircom (Local + National + Fixed to mobile + International), KPN(National + Local+ Fixed to Mobile + International), TI (National and international traffic) (3) 6-month volume as of September 2006 vs. 6-month volume as of September 2005 N/A Q1 Jun-05 Q2 Sep-05 Q3 Dec-05 Q4 Mar-06 Q1 Jun-06 Q2 Sep-06 FY 2006 FY 2007 Source: eircom annual and interim reports Revenues Adjusted EBITDA

17 FIXED LINE EBITDA RESILIENCE (continued) Voice decline offset by rebalancing to access revenues Total call cost is below European average cost, but access charge is above European average cost Migration toward access businesses has insulated eircom s revenue streams against voice decline Regulation allows annual CPI increase for access Gross revenue FYE March 2003 Gross revenue 6 mths to Sept 2006 Interconnect 12% Other 11% Access 24% Interconnect 14% Other 9% Access 35% Data 11% Data 10% Internet services 6% Voice traffic 36% Internet services 5% Voice traffic 27% Source: unaudited eircom management accounts Source: unaudited eircom management accounts 15

18 ROBUST WIN-BACK CAPABILITIES ARE ENABLING DEFENCE OF FIXED LINE MARKET SHARE Strong win-back of fixed line customers Increased service levels will have a long-term effect Sale channels capabilities: call centre and door-to-door salesforce Winback as % of gross losses 81.9% 60.0% 56.3% 59.8% Mar 04 Mar 05 Mar 06 Sept 06 Years to 31 March Source: eircom published information and management accounts 16

19 FIXED LINE BROADBAND: CAPITALISE ON IRELAND S RELATIVELY LOW BROADBAND PENETRATION Enable broadband growth through better availability Accelerate journey toward 100% availability 100% in commercially viable areas, including using WiMax for in-fill Government decision to fund enablement of non-viable rural areas Aggressive marketing Advertising Sports content agreement signed with Setanta Sports Sales coverage Improve service bundling Price cuts Leverage dial-up customer base Unlock LLU situation Enable fair competition through LLU process Re-energise wholesale bitstream offerings Initiate FTTC roll-out Reiterate target of 500,000 subscribers by Dec 2007 Accelerated growth in Ireland 18 mths 12 mths 6 mths 100k 200k 300k Ireland vs. EU15 penetration after 54 months Luxemburg Netherlands Ireland Denmark Portugal Sweden Belgium EU avg. Finland UK Italy France Austria Spain Germany Greece 13.3% 10.6% 10.0% 9.1% 5.5% 16.7% 15.5% 14.9% 14.4% 13.9% 19.8% 18.7% 17.4% 17.2% 26.2% 24.6% 60% long line: distance from exchange 40% carriers: more than 1 person sharing a line Broadband availability Ireland broadband customers ('000) Q106 Can have broadband Broadband line failure Rural - not in broadband area Over 370K subscribers, up 110% YoY Cable 11% Other DSL 4% FWA 14% eircom Wholesale Bitstream 18% Other 1% Source: Comreg review of Irish Communication Market Sept 2005, and Sept % 15% eircom 52% 75% 17

20 FIXED LINE BROADBAND VALUE ADDED SERVICES STRATEGY Increase residential service innovation IPTV Gaming Security IPTV New way of watching TV Differentiate eircom offering by extending enterprise products Develop IP VPN As demonstrated at BT potential for eircom to provide adjacent IT services around - LAN services - managed services - pure adjacent IT services (security, storage etc.) 18

21 MOBILE

22 MOBILE OVERVIEW: MARKET Irish mobile market currently growing at 11.5% pa with Meteor taking 61% of that growth¹ Mobile ARPUs² among highest in Europe¹ 3rd operators in Europe have achieved ~20% market share and 30% EBITDA margins³ 22 Sweden Portugal Denmark Germany Market ARPU development ( /month) Italy Note: As of 31 December 2005 Source: ComReg, The Yankee Group Greece Average Netherlands UK Finland Spain Austria ¹ ComReg Key Data Report - Sept 06 ² Average Revenue per User ³ JPMorgan for average 3rd operator market share France Norway Belgium Ireland Switzerland Meteor subscribers and revenue ( /month) 27 Source: eircom Preliminary Results Presentation, May 2006 and eircom management information to 30 Sept Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Pre-paid subscribers ('000) Post-paid subscribers ('000) Service revenues ( m) Acquisition of Meteor by eircom Nov 05 20

23 MOBILE POTENTIAL 6.4% 7.1% 9.0% 9.8% 10.7% 11.5% 13.4% 14.6% 15.6% Average 3 rd operator volume market share in Europe is 19.6% Meteor Subscriber Market Share Key market share drivers Value positioning Strong distribution Effective marketing June September December March June September December March June % Source: ComReg for market share, JPMorgan for average 3 rd operator market share 5% 16% 18%* 5% 13% Meteor EBITDA Margin Average 3 rd operator EBITDA margin in Europe is 31.3% Key EBITDA drivers Subscriber acquisition cost Scale effect 4 mnths to March 2006 June September Source: eircom six months management results to September 2006, JPMorgan for average 3rd operator market share * Q2 margin excludes 3 million (or 5% margin) incentive fee cost: this may re-occur in the future

24 MOBILE: STRATEGY Build solid foundation for long term growth Attain parity with key competitors - Network coverage & quality: aggressively rolling out additional sites - Core systems upgrade Continue to expand distribution retail sales points and growing - New channels: door-to-door salesforce Move up the Value Chain Maintain strong momentum in Bill Pay - Corporate & government - Dual brand strategy Broaden product portfolio 3G services 22

25 KEY FINANCIALS MOBILE Q Q H June 2006 Sept Sept ( millions) Actual Actual Actual Pre-paid subscribers 626, , ,000 % of total subscribers 91.7% 90.5% 90.5% Post-paid subscribers 57,000 70,000 70,000 % of total subscribers 8.3% 9.5% 9.5% Total subscribers 683, , ,000 ARPU ( ) Mobile revenues Operating costs (67) (76) (143) Mobile EBITDA (1) (2) Margin % 16.1% 12.6% 14.3% Source: eircom management accounts (1) Adjusted EBITDA before restructuring costs, transaction costs, non-cash pension charge/credit and profit on disposal of property and investments (2) Q2 EBITDA includes 3 million (or 5% margin) incentive fee cost 23

26 COST BASE AND STRUCTURE

27 OPERATIONAL APPROACH Reinforce accountability Decentralisation of corporate head office into business lines Step-up operational excellence Customer focused end-to-end Monthly operational reviews Capitalise on existing talent and bring new Andy Macleod (COO), Ann-Marie Kearney (General Counsel and Company Secretary) 25

28 OPERATING COST BASE Fixed line total costs cannot grow more than revenue growth Re-energise existing trajectory on cost cutting Supply chain management and procurement Overheads Senior management targeting 30 of the top 150 Transform the IT and network infrastructure in order to: improve efficiency eliminate cost of non-quality, right first time progress towards web-based sales and service HR agenda: leverage partnership with CWU to improve performance within a win-win framework Redeployment of staff to growth areas Reduction in number of call centres 12,000 10,000 8,000 6,000 4,000 2, , Fixed line headcount and pay costs ( m) 8, , ,275 7,109 7,051 Note: Pay costs stated before amortisation of any pension surplus or deficit Source: eircom results and for six months management results to September 2006 Headcount for fixed services reduced by almost 40% since ,051 at September 2006 Pay costs have fallen as well though impact of reduction in headcount partly offset by annual salary increases Q Headcount Pay cost

29 CAPEX COST BASE Historical fixed line capex at c. 13% of revenue New homes capex account for c. 3% of fixed line revenue 92% of our investment is consumed by growth and our obligations on Health & Safety Potential Capex initiatives Broadband Access renewal NGN IP Core NGN Fibre access IT infrastructure Mobile - network parity Mobile - 3G Eircom fixed capex (% of revenues) 33% 19% 12% 13% 12% 13% 13% Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Sept 06 Source: eircom annual report 2006 and six months management results to September

30 KEY MESSAGES

31 KEY MESSAGES Resilient fixed line business Focus on maintaining EBITDA of 150 million per quarter Growing mobile business Focus on attaining average 3 rd -player market share of 20% and EBITDA margin of 30% Annual capex of 250 million Fixed line: 200 million Mobile: 50 million Up to million of incremental capex over the next 3 years 29

32 RESILIENT FIXED LINE BUSINESS SUPPORTED BY MOBILE GROWTH H H Sept Sept Variance ( millions) Actual Actual H1/06 - H1/07 Revenues Adjusted EBITDA (2) % margin 37.2% 33.8% Capital expenditure Adjusted EBITDA - Capex % margin 22.8% 19.0% 11.0% (1) 10.7% % 1.6% - Domestic fixed and mobile revenue 1H06 vs. 1H05 (% change) Eircom (3) Telstra 1.9% 11.0% EoP cash NM TEF 2.7% Fixed line resilience Rebalancing and line rental increases Maintain win-backs Local market growth Cost optimisation Mobile growth Local market growth Market share gains and scale improvement Source: eircom management accounts and company filings (1) Pro forma for acquisition of Meteor (2) Adjusted EBITDA before restructuring costs, transaction costs, non-cash pension charge/credit and profit on disposal of property and investments (3) eircom figures pro forma for acquisition of Meteor (4) 2006 proforma for acquisition of Telfort, 2005 data is not adjusted Note: BT has March YE (half to June for comparison) and Telstra June YE (year end comparison). TEF stands for Telefonica, TI for Telecom Italia, FT for France Telecom, BT for British Telecom, DT for Deutsche Telekom and KPN is the Dutch incumbent BT TI FT KPN DT (4) (5.0%) (0.3%) (0.2%) 0.1% 3.8% 30

33 BCM OUTLOOK

34 BCM OUTLOOK eircom is a great investment Maintain fixed line EBITDA Continue growth of mobile revenues Look to optimise capital structure Explore network securitisation opportunities Capital Available for Investment Market tight in Australia - Strong Private Equity interest - High valuations New investment focus - Remain patient for value - Disciplined around investment criteria Use Babcock & Brown global network to source opportunities Investment Strategy Look for value-enhancing follow-on investment around eircom Leverage telco expertise in other opportunities Broaden investment focus to include current-yielding opportunities 32

35 DISCLAIMER NOT FOR DISTRIBUTION IN OR INTO THE US The information in this presentation is an overview and does not contain all the information necessary to make an investment decision. In making an investment decision, investors must rely on their own examination of BCM and the acquisition described in this presentation. This presentation has been prepared in good faith based on information available to BCM and/or Babcock & Brown Capital Management Pty Ltd up to the date hereof. No representation or warranty, express or implied, is made as to the accuracy, reliability or adequacy of any statements, estimates, forecasts, prospects, opinions or other information contained in this presentation (any of which may change without notice). Any information included in this presentation which comprises or may be construed as prospective financial information or forecasts has been prepared based on information currently available to BCM and/or Babcock & Brown Capital Management Pty Ltd and current expectations about future events, and is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from the expectations described. To the maximum extent permitted by law, the BCM Group (comprising BCM and its related bodies corporate) and the BNB Group (comprising Babcock & Brown Limited and its related bodies corporate, including Babcock & Brown Capital Management Pty Ltd) and their respective directors, officers, employees and agents and any other person involved in the preparation of the presentation disclaim all liability and responsibility (including without limitation any liability arising from fault or negligence) for any direct or indirect loss or damage which may be suffered through use or reliance on anything contained in, or omitted from, this presentation. This presentation is not a prospectus or any other type of disclosure document nor an offer of securities or financial products for sale or subscription in any jurisdiction. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or to any U.S. person, as defined in Regulation S under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act). Securities may not be offered or sold in the United States, or to or for the account of any U.S. person (as defined in Regulation S of the U.S. Securities Act), unless the securities have been registered under the U.S. Securities Act or an exemption from registration is available. It is not intended to constitute financial product advice. 33