Investor Presentation
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it is presented or transmitted and is provided on the basis that each of those persons is a wholesale client (as defined in Section 761G of
the Corporations Act). This presentation is not and does not form part of an offer, invitation or recommendation in respect of securities.
The information contained in this presentation is given without any liability whatsoever to Babcock & Brown Power Limited, Babcock &
Brown Power Services Limited, Babcock & Brown Limited or any of their respective related entities (collectively “Babcock & Brown”) or
Deutsche Bank AG or Morgan Stanley Dean Witter Australia Securities Limited or any of their respective related entities (collectively “Joint
Lead Managers”) or any of Babcock & Brown’s or the Joint Lead Managers’ respective directors, officers, employees or agents, and such
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Brown.
2
Agenda
Overview
Warren Murphy
– Director of Babcock & Brown Power
– Head of Australian Energy, Babcock &
Brown
The Business & Key Drivers
Paul Simshauser
– CEO of Babcock & Brown Power
Key Financials
James Brown
– CFO of Babcock & Brown Power
Offer Summary
3
Joint Lead Managers
Introduction
Babcock & Brown Power (BBP) is
•
A power generation business comprising eight1 power stations across five states
•
A substantial business with a market capitalisation of around $900 million2
•
A growth business with attractive yield
•
Managed by Babcock & Brown, an experienced operating and management
team
1. 7 Operating power stations and 1 power station under construction
2. Assumes 359 million Securities list at the Offer price of $2.50 per security
4
Investment Highlights
5
•
Well managed and diversified business delivering predictable cash flows
•
A unique opportunity to invest in the only pure play power generation business
listed on the ASX
•
Positioned in a growing market with favourable supply dynamics
•
Further growth through expansions, new development opportunities and
acquisitions
•
FY07 distribution yield of 9.1% growing by 5% in the first year with a 4% growth
target beyond that
•
Managed by Babcock & Brown, an experienced power station developer and
manager with a dedicated, experienced operating management team
Unique – Strong Growth – Attractive Yield
BBP offers a unique combination of attractive investment
features
Highly
Diversified
Predictable
Revenue plus
Growth
Strong
Management
6
• Eight power stations across five states
• Mixture of fuel, technology and operating mode
• Long term off-take agreements
• High quality and diverse credit counterparties
• A range of development and acquisition opportunities
• Experienced industry executives and Board members
• Strong internal risk management and O&M expertise
• Support of Babcock & Brown global power expertise
Strong & growing cash flows underpinned by diversification
& management
A pure power play enables investors to access the
attractive investment fundamentals of this industry
Non-Government Owned NEM Generation Portfolios
MW
4,000
Pure Power Generation
7 Operational Power Stations
3,500
3,000
2,500
2,000
1,500
1,000
500
INP
TRU
BBP
AGL
ORG
Source: Scheduled Generator List 21/9/2006, NEMMCO, Aggregated capacity used based on effective interests >= 50%, wind excluded
7
The only pure play power generation business listed on the ASX
Significant capacity shortfall creates attractive market
conditions for power generation businesses
~800MW pa
Source: NEMMCO Statement of Opportunities update July 2006 10% POE on required reserve margins
8
BBP is extremely well positioned to capitalise on tight supply conditions
BBP has a range of outstanding growth opportunities
Organic
• 9% Revenue CAGR 2005-20081
Growth
• 15% EBITDA CAGR 2005-20081
+
Attractive
Market
Exposure
+
Business
Growth
• Energy exposure in tight market regions
• Opportunities to expand in fast growing market regions
• Kwinana (320MW) commissioned mid FY 2009
• Attractive expansion & development opportunities
1. Accounts prepared on a consolidated basis. EBITDA includes income from equity accounted investments
9
Well positioned to deliver security holder growth
Strong growth with attractive fully tax deferred yield1
Forecast Distribution Yield
%
12
11
5%
10
9.6%
4% medium term
distribution growth
target
9.1%
9
8
7
6
5
2007
2008
2008+
1. Tax deferral may constitute the distribution of franking credits and the distribution of trust capital
10
9.1% FY07 distribution yield with 5% growth in the forecast period
Unique Investment Opportunity
Paul Simshauser
• Well managed and diversified business
• Attractive market dynamics
• Development pipeline of growth opportunities
11
The Australian Power Industry
NEMMCO / IMOWA
Market operators
Competitive
Generation
Transmission
Distribution
Competitiv
e
Retail
Electricity production from
power stations fuelled by
coal, gas, hydro, wind, etc
Electricity
transportation using
high voltage
transmission lines to
major demand regions
Electricity distribution
from transmission
lines to end users of
electricity
Electricity purchased
from the market and
sold to end users of
electricity
Regulated
4,000
NGO NEM Generation Portfolios
MW
3,500
3,000
2,500
2,000
1,500
1,000
500
INP
12
TRU
BBP
AGL
BBP is a business of scale in the Australian power industry
ORG
BBP is a ~3,000MW Power Generation Business
Fuel
Capacit
y
(MW)
Operating
mode
Contract
Type
Equity
Ownership1
QLD
Gas
286
Peak
PPA
50%
Braemar
QLD
Gas
455
Intermediate
Cap
contract
85%
Redbank
NSW
Coal
135
Base load
PPA
100%
Ecogen - Jeeralang
VIC
Gas
449
Peak
Ecogen - Newport
VIC
Gas
510
Peak
PPA
73%
Flinders - Northern
SA
Coal
527
Base load
Flinders - Playford
SA
Coal
240
Intermediate
Rolling
Hedges
100%
Kwinana2
WA
Gas
320
Base load
PPA
70%
Total
2,922
Regio
n
Oakey
Generator
1. Effective interests
2. Kwinana is currently under construction
PPA = Power Purchase Agreement
Refer to the PDS for more information on the BBP assets
13
Diversified by fuel, operating mode and region
Oakey
Braemar
Redbank
Kwinana
Flinders
Ecogen
Strategic Portfolio of Assets Positioned for Growth
Flinders
(SA)
Braemar
(QLD)
Kwinana
(WA)
• Lowest cost energy provider in South Australia
• Tight supply, already breaching reserve requirements
• Proven ability to capture a premium to market prices
• Positioned in the fastest growing demand region of the NEM
• Located in the heart of Queensland’s coal seam gas fields
• Sunk infrastructure in place to allow for expansion opportunities
• 320MW CCGT1 underwritten by a long term off-take agreement
• Scheduled to be commissioned late 2008
• Forecast financial contribution for 2H Fin Year 2009
Redbank (NSW) • Provide a stable foundation of high quality cash flows
Ecogen (VIC)
• Contractual revenue indexation underpins future growth
Oakey (QLD)
• Strong operations & maintenance teams in place
1. CCGT = Combined Cycle Gas Turbine
14
Strategic assets are positioned to deliver growth to unit holders
Investment Strategy
•
Provide investors with long term capital growth complemented by an attractive cash
yield
•
Develop a diversified portfolio of power generation assets, both in Australia and
internationally by
- expanding the generation capacity of existing assets
- developing new power assets
- acquiring new power assets
15
•
Target investments with risk/return characteristics similar to those of the initial
portfolio
•
Development and acquisition opportunities to be introduced by Babcock & Brown
•
Initial international focus is likely to be on acquisition opportunities in OECD regions
with development opportunities to be assessed in due course
BBP has a clearly defined growth strategy
Well Managed and Diversified
Business
Board and Management
Board
Senior Management
Chairman
Chief Executive Officer
Peter Hofbauer
- Global Head of Infrastructure, Babcock & Brown
Paul Simshauser
- Previously CEO NewGen Power, GM Trading Stanwell
Executive
Warren Murphy
- Head of Australian Energy, Babcock & Brown
Independent
Chief Financial Officer
James Brown
- Previously CFO Foodland Associated, CFO GE
Commercial
Len Gill
- Director of Verve Energy
- Previously CEO of TXU Australia
Chief Operating Officer
Independent
Brian Green
- Previously GM Operations, NRG Flinders
John Fletcher
- Director of Integral Energy Australia
- Previously CFO of AGL
Independent
Peter Kinsey
- Director of ABB Australia Pty Ltd
- Legal & Compliance Manager South Asia for ABB
Ltd
17
• Experienced power station management
• Over 500 employees across the business
A strong team of experienced operational and development executives
Diversified by Fuel, Region and Operating Mode
Fuel Split (MW)
Operating Mode (MW)
Region (MW)
SA
26%
Coal
31%
WA
11%
Intermediate
23%
Base
34%
QLD
25%
Gas
69%
VIC
33%
NSW
5%
Calculations are based on gross station capacity
Peak, Intermediate and Base Load split based on capacity factors of <20%, <50% & 50%+
respectively
All numbers include Kwinana, which is currently under construction
18
Diversified business delivers predictable shareholder returns
Peak
43%
Predictable Revenues derived from Long Term Contracts and
Rolling Hedges
BBP Generation Revenue FY07
Unhedged
Pool, 20%
Rolling
hedges,
41%
Flinders
Contracted,
39%
Oakey
Peaking PPA with 8 year tenor
Braemar
Cap contract with 10 year tenor
Ecogen
Peaking PPA with 13 year tenor
Redbank
Base load PPA with 24 year tenor
Kwinana
Base load PPA with 25 year tenor
Rolling hedges provide managed exposure to attractive market conditions
•
Long term off-take agreements are written with high credit quality counterparties
•
Revenue indexation provides an underlying growth platform for BBP distributions
•
Predictable operating costs reinforce revenue certainty to deliver predictable cash flows
19
Contract mix provides predictable revenues and attractive market
exposure
Carbon Emissions are Lower than the National Average
Power station
Carbon Intensity
(kg CO2/MWh)
BBP Average (NEM)
913
Kwinana Pro Forma
400
BBP Average (Australia)
817
NEM 2004-2005
970
Australia 2004-2005
964
Source: Cabon intensity estimates from ACIL Tasman & IES
2005 Energy production used for calculation. First year energy projection used for Kwinana
Aggregate BBP generation and major contracts are included in the calculation
• BBP also receives revenue from the creation of NGACs and GECs
• Future project developments are well positioned to benefit from
existing gas powered generation incentive schemes
20
BBP’s exposure to carbon related penalties is minimal
Attractive Market Dynamics
High Demand for Peak Supply across the NEM
~800MW pa growth
Equivalent of ~2 Braemar
power stations pa
•
NSW & SA reserve
requirements are already in
deficit
•
Tight supply conditions are
conducive to high pool and
forward contract prices
•
Peak demand determines
generation capacity
requirements
•
Peak demand growth in all
regions is forecast to exceed
energy growth
•
Queensland is the fastest
growing region in the NEM
Source: 10% POE data. NEMMCO Statement of Opportunities July 2006 update, IMOWA, aggregate of each region
Annual Energy Growth
22
Peak Demand Growth
New South Wales
1.7%
2.7%
Queensland
3.5%
3.6%
South Australia
1.5%
1.7%
Victoria
0.8%
1.9%
NEM Wide
1.9%
2.6%
Source: NEMMCO Statement of Opportunities 2005
BBP is well positioned to capitalise on favourable supply / demand
dynamics
Flinders – Strategic Position in Tight SA Market
Superior market
position
• Flinders Northern & Playford are the only coal power stations in
SA and have the lowest short run marginal costs in the region
• Historical revenues have been captured at a premium to the
prevailing pool price
• South Australian demand currently exceeds NEMMCO’s reserve
requirements
Tight supply and • Victorian inter-connector capacity is restricted during periods of
demand balance
extreme weather and demand in Victoria
• New capacity is likely to be gas powered, placing upwards
pressure on regional pricing
Proven ability to
manage pool
volatility
23
• Historical contracting strategies have provided the Flinders
portfolio with a predictable revenue stream
• Balance of long and short term contracts to optimise revenue
A unique and flexible asset that earns premium revenues
Peak Demand Case Study – A Queensland Day
• Extreme weather
patterns cause spikes
in electricity demand
Demand (MW)
9,000
8,500
Extreme Weather Day
8,000
Average Day
Peaking capacity
required
7,500
7,000
6,500
6,000
5,500
5,000
4,500
Hot weather drives air conditioning load
through the heat of the day and into the
evening
The extreme demand day maximum was
a ~15% increase on the average demand
day maximum
4,000
Source: QLD demand data for Summer 05/06
24
Peak demand events require low cost, fast start power stations
• Demand spikes drive
price volatility
• Peak generators
provide hedge
products to retailers
for managing price
volatility
• Peaking capacity is
required to operate
infrequently (less
than 10%)
Braemar – Leveraged to Peak Demand Growth
• Key gas and electricity
infrastructure was designed
to allow for future expansion
• Site location provides access
to multiple competing gas
producers at minimal
transmission cost
Key Information
450MW OCGT
Site consented for 900MW
Commissioned September 2006
Completed on schedule and on budget
Long term cap contract with Energex Ltd
25
• Gas lateral from Kogan
North and the Roma to
Brisbane Pipeline provides
line pack to allow for flexible
operation
• Ability to convert to
Combined Cycle Gas
Turbine and expand capacity
at low cost
Strategically positioned to capitalise on peak growth opportunities
Development Pipeline of Growth
Opportunities
BBP has been Developed over 10 Years
27
Developed via green field developments and selected strategic
acquisitions
A Typical Power Station Development
28
Development undertaken by B&B with committed projects approved
by BBP
Future Development Opportunities have been Identified
29
Babcock & Brown has a substantial pipeline of development projects
30
Financial Highlights
- James Brown
•
•
•
•
•
•
Key financials
Distributions
Capital management
Security structure
Sources and uses of funds
Pre IPO funding
Key Financials
Profit & Loss ($m)
Profit & Loss
Balance Sheet ($m)
FY07
FY08
Revenue
537
562
EBITDA
135
EBITDA Margin
25%
Balance Sheet
FY07
FY08
Net Debt
822
889
168
Gearing
48%
51%
30%
Capital Expenditure
259
93
FY08 EBITDA breakdown by segment1
Revenue Position
100%
80%
Intermediate
30%
60%
Base Load
47%
40%
20%
0%
FY 07
Contracted
FY 08
Rolling Hedge
Pool
1. EBITDA segmentation ignores Osborne contribution
Refer to Section 9 of the PDS for more detailed financial information
32
Peak 23%
Other
Distributions
Forecast Distributions
Reconciliation of EBITDA to gross cash flow
($ million)
Forecast
9.6% - $87m
2008
EBITDA (after associates)
Distributions to minority interests
Forecast
2007
Movement in WC & other reserves
9.1% -
0.0
$45m1
5.0
Distribution Policy
Pay all free operating cash flow after:
• debt servicing
• working capital
• maintenance capital expenditure
• other amounts prudent to reserve for
1. 9.1% represents an annualised yield
2. Applicable from interim 2008
33
Strong operating cash flows
10.0
Forecast
Jun-2008
168
(8)
3
Capex – excluding construction
(17)
Financing - Interest / Principal
(69)
Tax paid
(2)
Dividend Reinvestment2
12
Gross Cash Flow
87
Capex - Construction
(76)
Debt - Construction
76
Cash Flow Available for Distributions
87
Distributions paid
Refer to section 9 of the PDS for more information
(87)
Capital Management
34
•
BBP will maintain an optimal level of debt at both the asset and corporate levels
•
Current conservative gearing level of ~50%
•
Investment grade rating targeted
•
Interest rate hedging policy in place – currently 90% hedged
•
Current project finance debt structures provide opportunities for further
refinement
Latent balance sheet capacity to fund future growth opportunities
Stapled Security Structure
Management Fee
• 1.0% of Net Investment
Value
• Calculated quarterly
Incentive Fee
• 20% of out-performance
against the S&P/ASX 200
accumulation index
• First calculation and
payment are deferred until
December 2007
Note: Part of loan from BBP to Braemar is an arms length subordinated loan that was purchased by BBP, rather than a shareholder loan
35
Provides optimal tax effective distributions to unit holders
Sources and Uses of Funds
Sources
Sources
Uses
Uses
Proceeds from issue of new Stapled
Securities
278
Costs & Fees1
43
Braemar mezz debt acquisition
51
Financing costs2
Repay BNB SHL interests
Acquisition of minority interests
3
25
156
278
Proceeds from sale of existing Stapled
Securities
Total
Primary raising
278
168
Secondary raising3
168
446
Total
BBP will have a market capitalisation of around $900 million4
1.
2.
3.
4.
36
Costs and Fees is the aggregate sum of costs and fees associated with the IPO, acquiring Flinders and the minority interests in Redbank, Ecogen and Oakey
BBPCS interest + Flinders
Proceeds to existing BBPCS holders, Babcock & Brown and Asset Vendors
Assumes BBP securities list at the issue price of $2.50 per security
446
Pre IPO Funding
Pre IPO Funding
•
BBPL issued $410 million of convertible securities (“BBPCS”) in 2005 and 2006
•
Funds used to acquire assets in the Initial Portfolio
•
Holders comprise Foundation Investors, Babcock & Brown employees and
Institutional Investors
•
BBPCS converted into $410 million of Stapled Securities prior to the Offer
•
Holders agreed to:
− sell $132 million of Stapled Securities into the Offer
Conversion,
Reinvestment &
Acquisition
− reinvest and acquire additional Stapled Securities totalling $103 million as
part of the Foundation Offer1
− voluntary escrow for six months from Allotment Date in respect of $185
million worth of Stapled Securities
IPO
•
100% of BBPCS Holders2 immediately prior to the Offer have elected to remain
as Securityholders in BBP
•
BBPCS Holders will retain an investment of ~$400 million in BBP following the
Offer
1. BBPCS Holders acquiring additional Stapled Securities are entitled to a sub-underwriting fee
2. each Holder has retained a significant percentage of their investment in BBP following conversion to Stapled Securities
37
Offer Structure
- Joint Lead Managers
• Offer structure
• Indicative post IPO register
• Key dates
Offer Structure
•
Offer size of $446 million
– Foundation Offer of $229 million
– Institutional and Broker Firm Offer of $217 million
•
Fixed Price Offer of $2.50 per security
•
359 million securities on issue at listing
•
Market capitalisation of $898 million1
•
FY07: 9.1%2 yield (12.6 cps)
•
FY08: 9.6% yield, (24.0 cps3)
•
5% distribution growth FY08
•
4% medium term target distribution growth
•
Provides fully tax deferred distributions in the forecast period 4
JLMs &
Bookrunners
•
Morgan Stanley and Deutsche Bank
Co Lead
Managers
•
UBS, ABN Amro, Citigroup, Tricom
Offer
structure
Forecast
distributions
1.
2.
3.
4.
39
Assumes 359 million Stapled Securities on issue and securities list at the Offer Price of $2.50 per Stapled Security
9.1% represents an annualised yield
Assumes DRP participation is activated from December 07 distribution
Tax deferral may constitute the distribution of franking credits and the distribution of trust capital
Indicative Post IPO Register
Indicative post IPO Register
Babcock & Brown
%
10
Vendor Securityholders1
9
Former BBPCS Holders
44
New Securityholders
37
Total
New
Securityholders
37%
BBPCS Holders
44%
100
Babcock & Brown
10%
Vendor
Securityholders
9%
Approximately 35% of Securities on issue following completion of the Offer will be
subject to voluntary escrow arrangements
1. Vendor securityholders comprise vendors who have sold assets into the fund, part consideration for which are BBP securities
40
Key dates1
Retail broker firm commitments due
12pm, Monday 6 November 20062
Institutional firm bids due
5pm, Monday 6 November 20062
Offer Document lodged
Friday 10 November 2006
Retail Offer opens
Thursday 16 November 2006
Retail Offer closes
Friday 8 December 2006
Settlement
Friday 8 December 2006
Allotment date
Monday 11 December 2006
Deferred settlement trading
Monday 11 December 2006
Normal trading
Wednesday 13 December 2006
1. Babcock & Brown reserves the right to change the Offer time table
2. Timing for Retail firm commitments and Institutional firm bids may be brought forward
41
Unique – Strong Growth – Attractive Yield
42
•
Well managed and diversified business
•
A unique opportunity to invest in pure play power generation
•
Attractive market dynamics
•
Pipeline of attractive development opportunities
•
FY07 distribution yield of 9.1% growing by 5% in the first year
•
Managed by Babcock & Brown