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Scottish & Southern Energy plc Agreement to Acquire Airtricity Holdings Limited - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Thank you for standing by and welcome to Scottish and Southern Energy analysts and investor conference call. (OPERATOR INSTRUCTIONS). I must advise this conference is being recorded today, Monday January 7, 2008. I would now like to hand the conference over to your first speaker today, Ian Marchant. Please go ahead.

IAN MARCHANT, CHIEF EXECUTIVE, SCOTTISH AND SOUTHERN ENERGY PLC: Thank you. Good morning everyone and thank you for joining us. I'm Ian Marchant and with me in Perth here is Gregor Alexander. Alistair Phillips-Davies and Colin Hood are also on the call. Gregor and I will summarize the key points of Friday afternoon's announcement and then we'll take your questions. This morning's session is also a foretaste of an event we'll be staging in March to set out our sustainable energy plans.

Given the venue choice made between the Glendale hydroelectric scheme in the spectacular highlands of Scotland or the Slough CHP scheme we've just bought, it will come as no surprise to those of you who know SSE well that we've chosen to do things in Slough.

As you know, we've agreed to acquire Airtricity, the Dublin-based renewable energy business. It's developing and operating wind farms in the U.K., Ireland, Continental Europe and China and it supplies electricity to commercial customers in Ireland. We have done this deal following seven major public policy developments which took place during 2007 and they are listed in our announcement. They all point towards a material step change in the amount of renewable energy that will be demanded in the future.

For example, we believe that these developments mean the EU, including the U.K., will have to make sure there is a framework so that around 35% of the country's electricity is generated from renewable sources by 2020. That compares with 4.6% in the last U.K. Government statistics and with the U.K.'s current projection for 2020 of around 15%. We think there is a growing recognition within the U.K. Government of the need for a package of incentives that will make these renewable targets a reality.

I would summarize the acquisition as follows. It moves us forward in onshore wind, offshore wind, Ireland, Europe and China and gives an added momentum to the increasing scale and broadening scope of SSE's activities which has been achieved over the past few years.

Gregor will now run through the main assets that are being acquired and the financial impact.

GREGOR ALEXANDER, FINANCE DIRECTOR, SCOTTISH AND SOUTHERN ENERGY PLC: Good morning everyone. The main assets of Airtricity which we're acquiring come into three categories. First, operating and consented generation, second, generation development projects, and, third, supply. The operating and consented generation's assets are 308 megawatts of operating onshore wind farms in Scotland and Ireland. 187 megawatts of onshore wind farms in Scotland and Ireland which have full consent and are under construction with EUR77m having been invested in them by the end of August. 104 megawatts of onshore wind farms in Scotland and Ireland which are not yet under construction but which have full consent. A 50% stake in the 504 megawatts Greater Gabbard offshore wind farm which has full consent. Subject to a final investment decision, the construction work on the first phase is expected to start later this year and turbines have been reserved. And a 288 megawatt offshore wind farm in Germany which has full consent.

The second category, generation development projects, are the 483 megawatt onshore wind farm proposed for Clyde in Southern Scotland which is at an advanced stage in the planning process. 1,434 megawatts of other onshore wind energy projects in the U.K. and Ireland that are in various stages of development but not yet with full consent. An option to participate in a 350 megawatt offshore wind farm in Ireland. 1,220 megawatts of early stage wind developments in Portugal and Holland. And 6,675 megawatts of wind energy development projects in China.

In the third and final category is an electricity supply business providing power to around 35,000 commercial customers in Ireland, with related energy trading and risk management functions operating in the all-island electricity market. This will give real momentum to our ambitions in Ireland.

Looking forward we're expecting to have over 3,500 megawatts of operating renewable energy capacity by 2013. We'll also be continuing with the development of our other generation options in line with plans we set out last October. A portfolio of physical assets on the scale we're acquiring also gives us the option of looking at a variety of ways for financing and realizing value from projects, and over time we'll do that. In addition, we'll benefit from the expertise and enterprise of the more than 300 people who currently work for Airtricity and who will join SSE on completion of the deal. We'll also acquire the electricity brand which is already well established in Ireland.

Turning now to the financials. The implied equity value of the business being acquired is EUR1,080m, which together with the net debt of EUR375m, gives an enterprise value of EUR1,455m. The total consideration is EUR1,826.5m, which as well as the assets I listed earlier covers the EUR746.5m of cash in the business from the sale of its North American business which was received in December. But it's the EUR,1455m of enterprise value that's the key number.

Based on a prudent interpretation of market valuations of wind farm assets, around half of this value has been attributed to the operating assets and much of the rest of it to the assets which have consent or are in construction. There is also value in the supply business which has a good customer base and an established brand. The net result of this is that we believe we have secured a development portfolio of around 10,000 megawatts for less than GBP100m.

The purchase of Airtricity meets the criteria which we set for acquisitions. We've rigorously assessed the cash flows of the projects in the Airtricity portfolio and the acquisition is consistent with value creation and with our well-established financial principles including the maintenance of a strong balance sheet.

To monitor financial performance over the medium term we focused on earnings per share and the acquisition is expected to enhance earnings from 2011 and thereafter. In the meantime we'll make significant investments in wind energy developments acquired under the deal. We'll also continue to pursue the various generation options we outlined in our October statement and take specific investment decisions in the context of the enlarged generation portfolio which we will now have.

All of this means that our CapEx program will be significantly more intensive over the next few years but the opportunities for growth are commensurately greater as well. We will provide more details about our future CapEx profile at the investor event we're planning for in March, but we...

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