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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
PARTICIPANTS
. Ian Marchant, Scottish and Southern Energy plc, Chief Executive . Gregor Alexander, Scottish and Southern Energy plc, Finance Director . Marc Watton, Exane BNP Paribas, Analyst . James Hutton-Mills, UBS, Analyst . Bobby Chada, Morgan Stanley, Analyst . Jamie Tunnicliffe, ABN Amro, Analyst . Chris Rogers, JP Morgan, Analyst . Mike Fox, Analyst . Iain Turner, Deutsche Bank, Analyst . Paul Dobson, Bloomberg News, Media . Frazer McLaren, Merrill Lynch, Analyst . Colin Pollock, Credit Suisse, Analyst . Jose Lopez, Societe Generale, Analyst . Orlando Finzi, M&G Investment Management, Analyst . Robert Canepa-Anson, Newton Investment Management, Analyst
OVERVIEW
SSEZY reported that it has agreed to acquire Airtricity, the Dublin-based renewable energy business. Implied equity value of the business being acquired is EUR1,080m.
PRESENTATION SUMMARY
S1. Opening Comments (I.M.) 1. Details: 1. Agreed to acquire Airtricity, the Dublin-based renewable energy business.
1. It is developing and operating wind farms in the UK, Ireland, Continental Europe and China, and supplies electricity to commercial customers in Ireland. 2. SSEZY has done the deal following seven major public policy developments which took place during 2007.
1. They all point to the material step-change in the amount of
renewable energy that will be demanded in the future. 1. Co. believes, developments in the EU, including the UK, will have to make sure there is a framework so that around 35% of the country's electricity is generated from renewable forces by 2020. 2. This compares to 4.6% in the last UK government's statistics and with the UK's power projection for 2020 of around 15%. 2. Acquisition Summary:
1. It moves SSEZY forward in onshore wind, offshore wind, Ireland, Europe and China and gives added momentums to the increasing scale on broad new scales of SSEZY's activities which has been achieved over the past few years.
S2. Assets & Financials (G.A.) 1. Assets: 1. Main assets of Airtricity come into three categories. 1. Operating [and consenting] generation. 2. Generation development projects. 3. Supply.
2. Operating [and consenting] generation assets are: 1. 308 megawatts of operating onshore wind farms in Scotland and Ireland.
2. 187 megawatts of onshore wind farms in Scotland and Ireland,
with a full consent and are under construction with EUR77m having been invested in them by end of Aug. 3. 104 megawatts of onshore wind farms in Scotland and Ireland which are not yet under construction, but which has full consent. 4. A 50% stake in the 504 megawatts Greater Gabbard offshore wind farm which has full consent. 1. Subject to a final investment decision, construction work on the first phase is expected to start later this year and turbines have been reserved. 5. A 288 megawatt offshore wind farm in Germany which has full consent. 3. Generation development projects are:
1. 483 megawatts onshore wind farm proposed for Clyde in southern Scotland, which is at an advanced stage in the planning process.
2. 1,434 megawatts of other onshore wind energy projects in the
UK and Ireland that are in various stages of development but not yet with full consent. 3. Option to participate in a 350 megawatts offshore wind farm in Ireland. 4. 1,220 megawatts portfolio of early stage wind energy development in Portugal and Holland.
5. [6,675] megawatts of wind energy development projects in China. 4. Supply: 1. 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. 2. Outlook: 1. Expects to have over 3,500 megawatts of operating renewable energy capacity by 2013.
2. Co. will continue with the development of other generation
options in line with plans Co. set out in Oct. 2007. 3. Portfolio of physical assets and the scale Co. is acquiring gives it the option of looking at a variety of ways for financing and realizing value from projects. 4. Co. will benefit from the expertise and enterprise of the more than 300 people who currently work for Airtricity and who will join SSEZY on completion of the deal.
5. Will also acquire the Airtricity brand, which is already
well-established in Ireland. 3. Financials: 1. Implied equity value of the business being acquired is EUR1,080m, which together with net debt of EUR375m gives an enterprise value of EUR1,455m.
2. Total consideration is EUR1,826.5m, which as well as the
assets of (indiscernible) covers the EUR746.5m of cash in the
business from the sale of its North American business which
was received in Dec. 1. Based on (indiscernible) of market valuations of wind farm assets, around half of this value can be attributed to the operating assets and much of the rest of it to the assets which have consent or are in construction. 3. There is value in supply business, which is a good customer base and an established brand. 1. Net result of this is that the Co. believes it will secure the development portfolio of around 10,000 megawatts for less than 100m homes. 4. Co. vigorously assessed the cash flows of the projects and the Airtricity portfolio and the acquisition is consistent with value creation and with its well established financial principles including the maintenance of a strong balance
sheet. 5. Acquisition is expected to enhance earnings from 2011 and thereafter. 6. In the UK, Co. will make significant investments in the wind energy developments acquired under the deal. 7. Co.'s CapEx program will be significantly intensive over the next few years. 8. Co.'s dividend target of at least 4% annual real growth in 2008, 2009, and 2010 is unchanged.
9. Co. expects the acquisition and the investment opportunities
it yields to help Co. maintain this track record of dividend
growth in the second decade of this century.
S3. Closing Comments (I.M.) 1. Opportunities Provided by Acquisition:
1. Will reinforce SSEZY's position as the UK's leading generator
of electricity from renewable sources. 2. Will further balance SSEZY's generation portfolio and reduce its exposure to volatile commodity prices for fossil fuels. 3. Will add to SSEZY's existing portfolio of renewable energy developments both with consent and proposed and so provide Co. with a major new range of investment opportunities from which to secure growth over the next decade.
4. Will give SSEZY (indiscernible) to build a major offshore wind
farm capability. 5. Will enable SSEZY to advance its position significantly in the energy market in Ireland, in which it began actively...
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