Challenger Limited · ASX:CGF
Challenger — Challenger Infrastructure Fund — FY2006 Earnings Presentation
29 slides from Challenger's earnings presentation, Aug 23, 2006
Slide 1: Challenger Infrastructure Fund 2006 annual results presentation
Challenger Infrastructure Fund 2006 annual results presentation Steve Bickerton Challenger Infrastructure Fund 23 August 2006 1
Slide 2: Disclaimer
Disclaimer • Information contained in this publication is current as at 30 June 2006 unless otherwise specified and is provided by Challenger Listed Investments Limited (ABN 94 055 293 644) (AFSL 236887) (“Challenger”), as Responsible Entity of the Challenger Infrastructure Fund (CIF). This document
Slide 3: Agenda
Agenda • Achievements • Financial results • Portfolio overview • Asset performance • Investment strategy • Outlook 3
Slide 4: Achievements
Achievements • Normalised EBITDA $49.5m – 5.4% ahead of forecast • Delivered on PDS forecast DPU 14.2 cpu • Distribution 81.5% tax deferred • Asset revaluation uplift to NAV of 23 cpu • Seed assets and Inexus performing well • On track to meet FY07 distribution guidance of 28.8 cpu 4
Slide 5: Financial performance
Financial performance For period ended 30 June 2006 Actual vs PDS forecast ($m) Total revenue 82.6 15.3% EBITDA 56.7 20.8% Normalised EBITDA* 49.5 5.4% Distributions to security holders 34.1 In line Distribution per security 14.2cpu In line 5
Slide 6: FY06 Distribution – composition
FY06 Distribution – composition Cash available for distribution $42.9 million – 23% above PDS forecast Period from allotment to 30 June 2006 Actual ($m) PDS ($m) Distributions from seed assets - Arqiva 18.5 16.8 - Northern Gas Networks 5.6 1.8 - Wales and West Utilities 6.7 7.8 Distribution from Ine
Slide 7: FY07 Distribution – forecast
FY07 Distribution – forecast CIF remains on track to deliver FY07 distribution of 28.8 cpu 1.6c (1.6c) 3.6c 30.8c (28.8c) 2.2c 14.2c 4.0c 2.7c ` 4.1c 2.0c () % " ' " " $ " $ & #" #" % % * " " ! & 7 * Other includes bank interest on $131 million of uninvested cash net of cash operating expenses
Slide 8: Capital structure
Capital structure • 30 June 2006 - borrowing at Fund level of $284.4m • 21 August 2006 - second instalment raised $420m – $289m repay bridge debt facility – $131m cash on balance sheet • Post second instalment – Repayment of bridge refreshes borrowing capacity at Fund level • Challenger Group remain
Slide 9: Quality infrastructure assets
Quality infrastructure assets Asset Nature of UK Market Long term Ownership Growth Regulation position cash flow certainty Price Leading gas Ongoing CIF majority Dual regulated and only active demand for stake aligned connections gas and gas through co- with potential Inexus electricity ownership to
Slide 10: Asset Valuations – uplift of 8%
Asset Valuations – uplift of 8% Carrying value excludes foreign exchange movements between the date of asset acquisition and 30 June 2006 revaluation date Asset CIF 30 June 2006 Uplift from Increase Ownership independent in Fair Carrying Value of Carrying Value of valuation Value Interest investment
Slide 11: Asset revaluation uplift movements
Asset revaluation uplift of 23 cents 64" ,-. /0 + " $,-. /0 ,-. 0( 1 2"3 5" 1 4"3 4" Inexus uplift movements on revaluations Listing costs Seed asset CIF Issue Interest costs NAV post and other Price uplift asset assets Forex Notes: 1. Interest costs and other includes interest costs, management fee
Slide 12: Inexus – performing well
Inexus – performing well • Total gas connections 366,000 Gas connection sales per annum 80,000 • Retained market leading 70,000 position in new gas connection sales 60,000 – Estimated 55% market share 50,000 40,000 • 6 months to 30 June 2006 new gas connection sales were 30,000 34,854 20,000 10,000
Slide 13: Inexus – predictable future revenues
Inexus – predictable future revenues Total connections and sales 7 • EBITDA CAGR of 24% 600,000 % over past 5 years 500,000 • Renewable order book 400,000 – Average duration 2.5 – 3 yrs 300,000 – Transparency in outlook 200,000 100,000 0 Dec-02 Dec-03 Dec-04 Dec-05 Jun-06 Electricity Order Book New
Slide 14: Inexus – electricity update
Inexus – electricity update • Successful launch of new UK housing starts 200000 electricity connections business 180000 160000 • Only active licensed independent 140000 electricity connections provider 120000 • 1st mover advantage in dual 100000 connections 80000 60000 • Strong developer response 40
Slide 15: Arqiva – strong divisional performance
Arqiva – strong divisional performance • Terrestrial Media: Sources of revenue (by division) – TV: Preferred supplier for BBC Other Revenue and Digital 3 and 4 3% – Radio: 91% market share of digital Public Safety contracts awarded 17% Terrestrial media 41% • Wireless: growth in mobile operator’s 3G
Slide 16: Gas Distribution Networks – solid performance
Gas Distribution Networks – solid performance • 96% regulated revenue bases • Benefits continue from new private ownership structures – Operational efficiencies – Capital management discipline • Effectively managed tough operating environment – Warmer than average weather softened volumes • Regulato
Slide 17: Effective hedging program
Effective hedging program Inflation Interest rates Foreign exchange* Direct regulated 100% of borrowings 100% of forecast price adjustment hedged to 2030 distributions hedged to Inexus August 2010 at £1 = A$2.4637 Contracted price Greater than 95% of 100% of forecast adjustment borrowings hedged to
Slide 18: Investment strategy
Investment strategy & $8 " $ 9 : ; #: " % " : " # = & " " ! #"! <?# <! #" < # "# <& $ # < <= > $ $ <; # < ## # " % < # " < @# % " <! #" $ 18
Slide 19: Investment strategy
Investment strategy • Opportunities for FY07: – Focus on utilities sector assets that deliver a mix of income and growth – Focus on OECD countries – Pursue strategic co-investments with like-minded investors – Use strong balance sheet to fund growth initiatives – Maintain disciplined investment appr
Slide 20: Positive outlook
Positive outlook • CIF’s current assets: – generate highly predictable and stable cash flows – delivering organic growth opportunities • Assets are unlocking value for CIF investors: – Inexus – electricity connections – Arqiva – DSO, wireless and mobile media divisions – Gas Distribution Networks –
Slide 21: Outlook – certainty with growth
Outlook – certainty with growth Forecast FY07 revenue sources Portfolio by growth profile Other 6% Classic utility assets 27% Contracted 12% Regulated Essential Revenue 82% infrastructure with growth 73% 21
Slide 22: Summary
Summary • Normalised EBITDA $49.5m – 5.4% ahead of forecast • Delivered on PDS forecast DPU 14.2 cpu • Distribution 81.5% tax deferred • Asset revaluation uplift to NAV of 23 cpu • Seed assets and Inexus performing well • On track to meet FY07 distribution guidance of 28.8 cpu 22
Slide 23: Appendix
Appendix 1. Appendix 1 – Financials EBITDA Reconciliation NPAT Reconciliation Portfolio Performance NAV Reconciliation 2. Appendix 2 – Inexus Business Model Regulator Pricing Regime 23
Slide 24: Financial – EBITDA Reconciliation
Financial – EBITDA Reconciliation Allotment to Allotment to Variance Variance 30 June 2006 30 June 2006 $m Actual $m PDS forecast $m Investment Revenue - Arqiva 11.7 5.4 - North DN 5.6 1.7 - Wales & the West 7.4 7.8 Interest Income 2.0 - Operating revenue 26.8 14.9 11.9 79.9% Transportation revenue
Slide 25: Financial – NPAT reconciliation
Financial – NPAT reconciliation Allotment to Allotment to 30 June 2006 30 June 2006 Actual $m PDS forecast $m EBITDA 56.7 46.9 Depreciation (9.2) (9.4) Unrealised movements on employee share scheme (1.1) (1.1) Unrealised (losses)/gains on hedge contracts (13.8) (4.0) Amortisation of loan issue costs
Slide 26: Portfolio performance in line with expectations
Portfolio performance in line with expectations Asset Distribution CIF distribution actual vs forecast Variance to PDS Inexus $0.1m - In line Arqiva $1.7m - Due to stronger operating performance Wales and ($1.1m) - ($0.8m) due to pull forward of 2007 capex West - ($0.3m) due to weaker operating perf
Slide 27: Financial – NAV reconciliation
Financial – NAV reconciliation Reconciliation of Net Asset Backing per security to Net Asset Value per security Net Asset Backing per security (per Appendix 4E) $3.35 Impact of deconsolidation of Inexus $0.11 Inexus valuation uplift $0.19 Net Asset Value per security $3.65 27
Slide 28: Inexus – Independent Gas Transporter
Inexus – Independent Gas Transporter 28
Slide 29: Inexus - Regulation
Inexus - Regulation • Two basic pricing regimes: – Legacy Pricing: • Applies to connections before Jan 2004 • Fixed real price escalates at RPI until 2018 • After 2018 migrates to RPC regime (below) – Relative Price Control (“RPC”) Regime: • Applies to connections post Jan 2004 • Price essentially f
Challenger Infrastructure Fund — FY2006 Earnings Presentation on 6ix