Challenger Limited · ASX:CGF
Challenger — Inexus — Non-Deal Roadshow (February 2006)
17 slides from Challenger's roadshow presentation, February 2006
Slide 1: Visit to Australia February/March 2006
Visit to Australia February/March 2006
Slide 2: Philip Gibb, Chief Executive
aS 2 Philip Gibb Chief Executive ) ~INEXUS
Slide 3: Agenda
Agenda • Prospects • Business Performance • Markets & Competition • Regulation • Operations • Summary
Slide 4: Considerable growth prospects
Considerable growth prospects Competitive advantages •1 Market Leader •2 Economies of scale •3 Strong brand and relationships •4 One step ahead of competition •5 Electricity – next step change in competitive position
Slide 5: Business performance
Business performance Consistently strong performance Sales of connections up by 21% CAGR (000s) 100 75 20 10 Elec tric 50 Gas 66 66 25 52 56 36 42 0 2001A 2002A 2003A 2004A 2005A 2006B Built connections up by 22% CAGR (000s) 450 4 1 300 Electric 386 Gas 338 150 290 242 188 152 0 2001A 2002A 2003A 20
Slide 6: Business performance
Business performance Consistently strong performance Revenue increase of 19% (£m) 35 30.0 30 26.4 25 22.9 19.2 20 15.6 15 12.7 10 5 0 2001A 2002A 2003A 2004A 2005A 2006B EBITDA increase of 20% (£m) 25 20.7 20 17.7 Note: EBITDA margin increased from 63% 14.9 15 13.5 in 2001 to 69% in 2006 9.8 10 8.0
Slide 7: Revenue
Revenue Stable, secure long term revenues • Stable, long term, low risk Revenues (£m) BUT high growth: 50 • Order book build out 40 • Legacy Settlement 30 41 30 • 96% current revenues 20 26.4 22.9 19.2 • 85% total order book 10 12.7 15.6 0 2001A 2002A 2003A 2004A 2005A 2006B Build Out
Slide 8: UK new housing market
UK new housing market Current build rate close to historic low Dwellings completed in Great Britain (000s) 200 150 Build rate of c.169,000 implies 100 average house life of 50 c.150 years 0 1990/91 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 Completed 5 year average
Slide 9: Move into electricity networks
Move into electricity networks Natural evolution • Rapid market entry • Significant customer demand • Larger market • Suitable regulatory environment • Significantly lower net capital cost
Slide 10: Declining number of competitors
Declining number of competitors 2005 BGCL - Assets sold UGI - Business sold 2004 Scottish Power - Business sold Mowlem - Business sold 2003 East Midlands - Business sold United Utilities - Business sold
Slide 11: Remaining gas transporters
Remaining gas transporters Sales p.a .(1) • Inexus >60k 2006 Budget • Transco (2) c.20-30k • GTC c.30-35k Organic growth • SSE <10k Limited geography • East Surrey Pipelines Infill only (1) Source: Management estimates (2) Now fragmented into NGT and other DN owners
Slide 12: Regulation
Regulation • Agreement with OFGEM (UK regulator) • Pre 2004 projects – legacy settlement • Post 2004 relative price control (RPC) • Industry wide • Common principles
Slide 13: Legacy settlement
Legacy settlement Inexus’ strong Legacy Settlement • Covers 96% of current revenues • Contracted prior to 2004 • Flat real revenues • Uplifted for RPI • Long control period • End 2018; migration into RPC thereafter
Slide 14: RPC
RPC Favourable framework for Inexus Example of RPC floor and ceiling (£ in real terms) 40 35 30 25 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Ceiling Floor Transco equivalent price IGT charge • Contracted on or after 1 January 2004 • Stability via narrow floor/ ceiling over 20 years • Lo
Slide 15: Asset operating costs
Asset operating costs Declining unit costs • Falling opex per Asset opex/ connection (£)1 connection 15 • Economies of scale/ efficient systems 10 • Low repairs and 5 maintenance • Electricity = further 0 2001A 2002A 2003A 2004A 2005A 2006B improvement to marginal OPEX Note: 1. Internal overheads an
Slide 16: Construction costs
Construction costs Significant efficiencies • Low build net cost • Build out of existing order book <£200 per connection • New networks <£350 per connection • Unique build cost model • Direct contracting teams • Outsourced supply chain • Low inventory cost • High volume cost savings • Electricity bu
Slide 17: Summary - a unique platform
Summary - a unique platform Low utility-type risk but strong growth •1 Leading market position • 491,000 connections, of which c.339,000 installed •2 Strong prospects for growth • Gas/ electricity, potential for other utilities •3 Stable secure long term revenues • Certainty re prices; RPI-indexed •