Presented by: David Burke, Emily Finnegan, Katie Twomey & Pierce Healy

Transcription

1 Presented by: David Burke, Emily Finnegan, Katie Twomey & Pierce Healy

2 Utility Sector Team Utility Sector contributing Members: David Sheehan Emily Finnegan Katie Twomey Pierce Healy New Sector Manager: David Burke

3 SP Ausnet s Attractiveness We have decided to move away from the tradition markets of the US and Europe for this Utilities Pitch. We are picking this company for its Annual Dividend Yield of 7.55%. And thus we are going to try sell SP Ausnet on the four fronts of: 1. Geographic Diversity for the portfolio - Australia 2. Portfolio stock Diversity - No Utility Stocks 3. Dividend Yield of 7.55% 4. Diluting the Currency concentration of Euros.

4 Company Profile Company Description SP AusNet manages a $6.3 billion electricity and gas network that services more than one million customers in southeastern Australia. Share Price Performance LTM SP Ausnet manages three Victorian Energy Networks: Electricity Transmission Network carrying electricity from power stations to electricity distributors via 12,800 high voltage towers and approximately 6,500 kilometres of transmission lines. Electricity Distribution Network carrying electricity from the high voltage transmission grid to approximately 640,000 customers across eastern Victoria, spanning across an area of 80,000 square kilometres. Gas distribution network transporting gas to approximately 602,000 customers across central and western Victoria. This network spans across an area of 60,000 square kilometres. Key Financials: SP Ausnet SPN:ASX As at March 25 th Share Price: 1.06 Aus($) Beta: Shares outstanding 2.90bn Free float 1.47bn P/E (TTM) Market cap 3.07bn AUD EPS (TTM) AUD Annual Dividend 0.08 AUD Annual Dividend Yield 7.55% Source:??? Source:????

5 Singapore Power Group Singapore Power Group owns and operates electricity and gas transmission and distribution businesses. The majority of its businesses operate in Singapore, while it also operates in Australia. SPG is owned by Temasek Its Australian businesses are SPI (Australia) Assets, and it owns 51% of AusNet, via a wholly owned subsidiary called Singapore Power International Pte Ltd. AusNet is publicly listed on the Australian and Singapore Stock Exchanges. SPI Management Services is the management company of SP AusNet under a management services agreement. It also offers market support services to electricity, gas, and water customers; telecom infrastructure services; and chilled water services for the air-conditioning of commercial buildings. In addition, the company provides consultancy, training, and management services in developing and operating energy utility infrastructure and businesses; and third-party asset development, construction, and management services. Further, it offers infrastructure services; loans; and customer services relating to utilities supply.

6 SP Ausnet s Management Name: Position: Ng Kee Choe Chairman, Non-executive Nino Ficca Managing Director Ng Kee Choe, Chairman - Non-executive. Bachelor of Science (Honours), University of Singapore Mr Ng is Chairman and Director of Singapore Power Limited. He also serves as: Chairman and Director of NTUC Income Insurance Co-operative Limited President-Commissioner of PT Bank Danamon Indonesia, Tbk. a Director of Singapore Airport Terminal Services Limited, Singapore Exchange Ltd, Fullerton Financial Holdings Pte Ltd. Mr Ng was formerly Vice-Chairman and Director of DBS Group Holdings. He retired from his executive position with DBS Group Holdings Ltd in 2003 after 33 years of service in various executive roles. Mr Ng is Chairman of the SP AusNet Board, Chairman of the Nomination Committee and Chairman of the Issuing Committee. Nino Ficca, Managing Director and Chief Executive Officer. Bachelor of Engineering (Electrical) (Honours), Deakin University Graduate Diploma in Management, Deakin University Advanced Management Programme, Harvard Business School, USA Mr Ficca has over 25 years experience in the energy industry, including numerous senior management roles with SPI PowerNet Pty Ltd including as Managing Director since 200 He also serves as: a Director of SPI Management Services Pty Ltd and of Enterprise Business Services (Australia) Pty Ltd. Mr Ficca is a Director of Energy Networks Association Limited Mr Ficca was formerly Deputy Chairman and Director of the Energy Supply Association of Australia Mr Ficca is Managing Director and a member of the Bushfire Litigation Committee and the Issuing Committee

7 Investment Thesis Why we are looking to add SP Ausnet (SPN) to the SMF Portfolio? SP Ausnet is an important subsidiary of Singapore Power Limited, the only electricity company in Singapore and one of the largest corporations in Singapore (own 51% of SP Ausnet). SP Ausnet services its electricity and gas distribution network to roughly 1/5 of the population of Victoria, Australia s most densely populated state. With a low beta of , a strong dividend yield of 7.55%; we see SP Ausnet as a defensive and steady income investment for the SMF portfolio.! SPN s current strategy is to invest in energy networks in Australia and New Zealand in order to advance its customer base and also position itself to participate in future acquisition opportunities of publicly-listed, privately-held or government owned energy network businesses (those included in the ENergy Network Association of Australia - energy network business who deliver electricity and gas to over 13.5 million customers). Recent & Upcoming Events SP Ausnet Comparative Analysis May : 2011/2012 Full Year Results and Final Distribution Announcement Next div ex-date: May 24th 2012 Next div pay-date: June 29th days Source: Financial Times

8 Breakdown Revenue Distribution 2011 Electricity Distribution Network (Northern & Eastern Victoria) Fiscal 2011 Financial Highlights Source: AP Ausnet Business Review 2010

9 Competitive Advantage & Infrastructure Developments SP Ausnet s Competitive Advantage Regulated business: the ability to compete is mainly on the financing side, where the company enjoys an A- credit rating compared to most peers at BBB The financial strength and operational experience of SP Ausnet s parent company, Singapore Power Limited Key competencies on the unregulated side Regulated natural monopoly a major barrier to entry into the Australian Utilities Industry Runs all of Victoria's high voltage transmission towers and lines (6500km in length)- Mixture of natural gas and electricity transmission gives SP Ausnet a diversity of projects with over a million customers and makes it less vulnerable to shocks in either of these markets. SPI provide experience and skill for select solutions Infrastructure Developments On July 5th 2011 SP Ausnet invested $3 million in gas infrastructure to support growth in Werribbee for the Brunswick Terminal Station Brunswick Terminal Station is owned and operated by SP AusNet, however CitiPower distributes electricity from the terminal station to around 25,000 customers The projected growth in developments and population in these areas has resulted in CitiPower requesting that SP AusNet increase the capacity of Brunswick Terminal Station to meet future demand for electricity to around 70,000 customers This increase in capacity is required by 2013 with an additional increase needed by around 2015 The upgrade will ensure sufficient capacity to meet anticipated demands for the next 40 years, with the project estimated to cost approximately $140m

10 SWOT Analysis Strengths Strong and stable Australian economy Toll road type business model, does not buy or sell gas so revenues very secure Singapore Power Limited (the controlling interest) have provided responsible ownership, management and a solid credit rating A $6.3 billion Regulated Asset Base Represents critical infrastructure assets and provide stable and predictable earnings power and high sustainable dividends Revenue growing year on year from organic growth SP Ausnets revenue and tariffs are set in real terms, with inflation being a regulatory pass through making its common stock a good inflation hedge. 80% of revenue from Regulated asset base. Opportunities Metropolitan Melbourne, which SP Ausnet provides electricity to, has one of the fastest growing populations in Australia. Carbon Tax and move towards renewable will require huge investment in networks. Possible Jemena SPI deal would lead to synergies. Select solution is definite growth area. Regulatory change (demand pricing) Weaknesses Geographic concentration Possible Liquidty constraints ($545.1m in 2010 to $49.9 in High CAPEX means accesses to finance essential would suffer disproportionally if credit crisis returns. Negative free cash flow for past 4 of 5 years. Free cash flow (millions $) Threats Stern competition from the other well performing AU/Electric Utilities companies Potential monopoly issues. Kilmore East Bushfire. Regulatory change Tax changes

11 Peers Citi Power ASX:SKI Provides energy to just under 300,000 customers in Melbourne city centre and inner suburbs. Own and maintain a network covering 157 square kilometres. 51% owned by subsidiaries of the Cheung Kong Group Sister company of Powercor Powercor Australia ASK:SKI Largest electricity distributor in Victoria Supplies electricity to 662,000 customers throughout Victoria Supplies to an area of 150,000 square km; more than 80,000 km of power lines 51% owned by subsidiaries of the Cheung Kong Group, other 49% floated in Australian Stock Exchange through Spark Infrastructure Combined with Citipower; nearly 2000 employees EBITDA: $685.4 million Revenue: $958.6 million Net Capital Expenditure: $433.3 million Jemena SPI New name for Alinta AE Supplies electricity for approximately 285,000 homes and businesses in NW greater metropolitan region of Melbourne Also distributes natural gas Owns and operates approximately 10,285 kilometres of wires and cables covering an area of 950 square kilometres Owned by Singapore Power International Revenue: $1.48 billion United Energy Distribution DUET Supplies energy to over 600,000 homes and businesses in SE Melbourne area and the Mornington Peninsula Own and manage 12,600 km of wires and cables covering 1,450 square km. 34% owned by Jemena (Singapore Power International) and 66% owned by DUET (Diversified Utilities and Energy Trusts). Revenue : $404 million EBITDA: $274million

12 Australian Regulation, Tax and Inflation Regulation SP AusNet s 2011 revenues increased as a result of regulated price. Australian Energy Regulator enforce a Weighted Average Cost of Capital (WACC) for SP AusNet of 9.65 per cent (in nominal, after-tax terms) as network price determination for 2011 to SP AusNet has developed an Electricity Safety Management Scheme identifying safety related risks. Energy Safe Victoria is currently reviewing the plan for which total capital expenditure was $164.6 million for the period. $48.2 million of this was customer initiated and $103.5 million was for company initiated projects. The Stapled Group was subject to both Federal and State Government environmental legislation which regulate noise emissions, greenhouse gas emissions, the discharge of emissions to land, air and water, the management of oils, chemicals and dangerous goods, the disposal of wastes, and those which govern the assessment of land use including the approval of developments. Tax SP AusNet reported a $12M tax expense for the 2011 financial year. This represents 0.98% of revenues for the same year. Previous years tax expense was $40.1M Tax paid was $18.3M for 2011 and $21.7 in 2011 The Stapled Group s effective tax rate for the year ended 31 March 2011 is approximately 5% (2010: 16%). Inflation From this table the average annual inflation is 3.16% from 2000 to present. The nominal dividend yield of 8% this year would represent approximately a 4.6% return in real terms (after inflation). Source: Financial Times

13 Australian Stability and Currency Stability in Australia Developed Democratic country Labour Party have been in government since 2007 Australia has only Negative growth only during 2 quarters in 5 years, despite global financial crisis Comparative advantage in exporting primary goods Australian Currency Dollar predicted to diverge given ECB decision to hold the interest rate at 1% Australian services index is up Inflation is low at 0.2% Central Bank cash rate is a strong 4.5% $1.53Bn Trade Balance predicted for March

14 Debt Profile & Free Cash Flow Debt Profile of SP Ausnet * Issued January 2012 Total cash from operations INVESTING Capital expenditures (625) (585) (462) (371) (401) Other investing and cash flow items, total Total cash from investing (625) (581) (459) (370) (401) FINANCING Financing cash flow items Total cash dividends paid (143) (186) (219) (239) (186) Issuance (retirement) of stock, net Issuance (retirement) of debt, net (200) Total cash from financing (343) (0.20) 7.86 NET CHANGE IN CASH Foreign exchange effects Net change in cash (495) 538 (4.80) Net cash-begin balance/reserved for future use Net cash-end balance/reserved for future use SP AusNet maintains a well diversified debt maturity profile, together with well diversified sources of debt including GBP, USD, Australian Dollar, HKD and CHF with maturities stretching to As a result, and despite volatile markets, this diversity, together with strong credit metrics, allows SP AusNet ready access to debt markets both in Australia and offshore. SP AusNet is therefore not reliant on any one capital market or any one source of debt. The next major refinancing is a syndicated bank debt facility which is not due to mature until March What the Ratings Agencies say: SP AusNet is considered investment grade by the Moody s and S&P rating agencies. Moody's: A1 S&P: A- Continuing its diversified debt strategy, in 2010/11 SP AusNet raised a total of $800 million of debt finance, consisting of $550 million of bank funding and a $250 million 10-year Australian Dollar bond issue, which priced at a margin of 167 basis points over the benchmark swap rate. The debt will be used to refinance existing debt and to fund growth capital expenditure. These financings demonstrate SP AusNet s continuing ability to raise competitively priced debt from a variety of sources

15 Income Statement Balance sheet 15

16 Five Year Cash Flow 16 15

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