Challenger Limited · ASX:CGF
Challenger — Challenger Infrastructure Fund — Merger or Acquisition (September 2005)
25 slides from Challenger's merger presentation, Sep 1, 2005
Slide 1: Challenger Infrastructure Fund: Acquisition of Inexus
Challenger Infrastructure Fund Acquisition of Inexus 1 September 2005
Slide 2: Agenda
Agenda 1. Summary 2. Inexus highlights 3. Funding and impact on CIF 4. Additional information 2
Slide 3: 1. Summary
_ 4. Summary nancial Services Group
Slide 4: Summary
Summary • A CIF-led consortium has entered into an agreement for the purchase of 100% of Inexus Group (Holdings) Limited for an enterprise value of £465mm • Consortium includes CIF (80%), Colonial First State (13%) and existing Inexus management (7%) • Acquisition to be funded via a combination of d
Slide 5: Key facts
Key facts Inexus is the largest Independent Gas Transporter (“IGT”) in the UK with 453,000 connections built and contracted • Designs, owns, operates, acquires and maintains gas and electricity networks • IGTs operate the last mile of distribution networks and focus on new-build connections Gas Prod
Slide 6: Inexus meets all of CIF's investment criteria
Inexus meets all of CIF’s investment criteria CIF investment criteria Inexus Commentary • Revenue certainty until 2018 for 98% of revenue from current connections Regulated industry or near monopoly • New connections benefit from a high degree of market position regulatory certainty until 2014 • Mar
Slide 7: Improved portfolio diversification towards growth assets
Improved portfolio diversification towards growth assets CIF’s asset mix Portfolio by Asset Portfolio by Sector Portfolio by growth profile Portfolio by ownership Wales & the West DN UK Gas DNs Classic utility Inexus UK IGT Majority-owned Minority stake 13.9% 27.2% assets 27.2% 53.6% 53.6% 53.6% 46.
Slide 8: 2. Inexus highlights
ye 2 challenger 2. Inexus highlights
Slide 9: Quality essential infrastructure asset with growth
Quality essential infrastructure asset with growth Market leadership • Twice the connections of nearest competitor • 47% IGT market share and Aligned & highly experienced complete national coverage Robust growth opportunities management team • CIF has retained and incentivised • Strong order book vi
Slide 10: Inexus is the clear market leader in the UK IGT market
Inexus is the clear market leader in the UK IGT market • 47% market share, nearly two fold Share of total IGT domestic new build connections its nearest competitor Inexus GT C BCGL Other • 453,000 connections built and 6% contracted 21% 47% – 309,000 existing – 144,000 contracted 26% • Nationwide co
Slide 11: Inexus' growth prospects are robust
Inexus’ growth prospects are robust • 22% historic compound growth in connections • Stable forward order book, with 75% expected to be built in next three years Gas & electricity built connections (000s) Growth in annual forward order book (000s) Gas built Electricity built Gas Contracted Electricit
Slide 12: Inexus' growth prospects are robust (cont'd)
Inexus’ growth prospects are robust (cont’d) New housing starts • Forecast UK new build housing growth from 169,000 p.a. to 180,000 p.a. by 2012 500,000 – Meet housing shortages, 400,000 particularly in the South of Number of Dwellings England 300,000 • Inexus’ estimated target market is 200,000 app
Slide 13: Inexus' growth prospects are robust (cont'd)
Inexus’ growth prospects are robust (cont’d) • New business opportunity in electricity connections – Electricity sales twice that of gas business at same stage of development – Current market size estimated at 55,000 new connections p.a. • Inexus is first to market with dual fuel offering – Inexus i
Slide 14: Highly favourable regulatory regime
Highly favourable regulatory regime • 98% of current gas revenues and 90% of contracted gas revenues are fixed in real terms until 31 December 2018 (contracts signed prior to 1 January 2004) — Thereafter, the revenues migrate to Relative Price Control (“RPC”) and benefit from a known RPI-linked floo
Slide 15: Once built, connections are highly cash generative
Once built, connections are highly cash generative . . . • Excellent customer profile consisting Premium customer base (2004) of large UK gas shippers • Strong EBITDA margins of approx. 70% once built London energy Powergen Sc ottish power British Gas trading Other • Majority of the cost base is com
Slide 16: Capex only committed after contract is secured
. . . with capex only committed after contract is secured • Capex is discretionary and revenue driven • Capex is only committed on an order once a contract is executed with the developer • The developer is typically responsible for excavation • Completion rate has been historically very high at 99.5
Slide 17: Aligned and highly experienced management team
Aligned and highly experienced management team • Majority of management team has been involved in the Group since start up, including Managing Director, Development Director and Asset Management Director • Management and staff will invest £12.6mm of their own money in Inexus • Management has been in
Slide 18: 3. Consortium and CIF funding
3. Consortium and CIF funding
Slide 19: Sources and uses of funds
Sources and uses of funds • The Acquisition will be funded through a combination of equity and debt • Consortium equity members include Colonial £25m and management £12.6m Sources £m Uses £m Senior debt 269 Payment to Vendor / 465 repayment of existing debt Subordinated debt 35 Cash Reserve 10 Equit
Slide 20: CIF funding and impact
CIF funding and impact • The acquisition will be funded via a combination of equity and debt • CIF will contribute £152mm in equity, which it will initially fund via a bridge against its second instalment from CBA and Calyon and borrowings from Challenger • CIF intends to undertake a 1:3 fully under
Slide 21: CIF rights issue
CIF rights issue • Issue of approx. 60 million Class A Securities Offer size • A$210 million fully paid • 1: 3 pro rata rights offer • Fully underwritten by JPMorgan and sub-underwritten by Challenger Life • Price of at least the IPO price of $3.50, fully-paid Structure • Class A Securities issued u
Slide 22: Summary historical financial information
Summary historical financial information Summary historical financial information (UK GAAP) (£ million) 2002A 2003A 2004A CAGR Revenue 15.6 19.2 22.9 21% EBITDA 9.8 13.6 16.2 29% EBITDA margin 63% 71% 71% Operating cash flow 8.7 17.0 21.2 56% Note: The summary numbers above have been prepared by Ine
Slide 23: 4. Additional information
ye GB challenger 4. Additional information
Slide 24: Integrated IGT business
Integrated IGT business • Inexus designs, constructs, acquires, owns, operates and maintains gas and electricity networks connecting new homes to gas and electricity systems throughout the UK Inexus Regulated entities Group Envoy Asset Inexus Independent Quadrant Independent Independent Connect Util
Slide 25: Structure of transaction
Structure of transaction • Majority ownership of Inexus via CIF2 • Post capital raising, fully diluted stapled securities (both Class A and Class B) on issue of approx. 240mm • Class A securities represent approx. 62.5% Class A Securities Class B Securities 62.5% post 37.5% post capital capital rais
Challenger Infrastructure Fund — Merger or Acquisition (September 2005) on 6ix