Downer Edi Limited · ASX:DOW
Downer Edi — Merger or Acquisition (March 2017)
64 slides from Downer Edi's merger presentation, Mar 21, 2017
Slide 1: Offer for Spotless and Equity Raising
For personal use only Offer for Spotless and Equity Raising 21 March 2017 Not for distribution or release in the United States
Slide 2: Important Notices and Disclaimer
IMPORTANT NOTICES AND DISCLAIMER For personal use only This presentation (Presentation) has been prepared by Downer EDI Limited (ABN 97 003 872 848) (Downer) in relation to a pro-rata accelerated renounceable entitlement offer of new fully paid ordinary shares in Downer (New Shares) with retail righ
Slide 3: Important Notices and Disclaimer
IMPORTANT NOTICES AND DISCLAIMER For personal use only Investment Risk An investment in shares in Downer is subject to known and unknown risks, some of which are beyond the control of Downer, including possible loss of income and principal invested. Downer does not guarantee any particular rate of r
Slide 4: Important Notices and Disclaimer
IMPORTANT NOTICES AND DISCLAIMER For personal use only Financial data All dollar values are in Australian dollars ($ or AUD) unless stated otherwise. All references starting with “FY” refer to the financial year for Downer, ending 30 June. For example, “FY16” refers to the financial year ending 30 J
Slide 5: Important Notices and Disclaimer
IMPORTANT NOTICES AND DISCLAIMER For personal use only Disclaimer The underwriter to the Entitlement Offer, together with its related bodies corporate, shareholders or affiliates and its respective officers, directors, employees, affiliates, agents or advisers (each a Limited Party) have not authori
Slide 6: Agenda
AGENDA For personal use only 1 Executive summary 2 Overview of Spotless and the Transaction 3 Strategic rationale 4 Transaction impact on Downer 5 Transaction funding and Equity Raising overview 6 Appendices Page 6 Not for distribution or release in the United States
Slide 7: Executive summary
For personal use only Executive summary Section 1 Not for distribution or release in the United States
Slide 8: Transaction Summary
TRANSACTION SUMMARY Offer to acquire all of the issued share capital of Spotless not already owned by Downer by way of an off-market takeover For personal use only offer ("Transaction") Downer has an interest equivalent to 19.99% in the issued share capital of Spotless, which is comprised of a 1
Slide 9: Downer's Strategy
DOWNER'S STRATEGY For personal use only Downer's strategy is focused on three key elements, as articulated at our 2016 Investor Day 1. DRIVE IMPROVEMENT IN EXISTING BUSINESSES leverage our brand reduce costs, increase efficiency and productivity improve revenue management 2. INVEST IN GROWTH
Slide 10: Transaction Highlights
TRANSACTION HIGHLIGHTS For personal use only Strengthens Downer's position as a leading integrated services provider with resilient earnings and long term customer relationships Delivers on Downer's strategic objectives Continues Downer's transformation towards a more stable services-focused bus
Slide 11: Downer Trading Update
DOWNER TRADING UPDATE For personal use only Strong operating performance across each of Downer's segments has continued into the second half of FY17 Guidance to deliver standalone underlying1 net profit after tax of at least $175 million for FY17 Downer continues to assess opportunities to dri
Slide 12: Overview of Spotless and the Transaction
For personal use only Overview of Spotless and the Transaction Section 2 Not for distribution or release in the United States
Slide 13: Overview of the Transaction
OVERVIEW OF THE TRANSACTION For personal use only Offer to acquire all of the issued share capital of Spotless not already owned by Downer by way of an off-market takeover offer Offer consideration $1.15 in cash per Spotless share ("Offer Price") The Offer Price represents an attractive premium
Slide 14: Reasons for Spotless Shareholders to Accept Downer's Offer
REASONS FOR SPOTLESS SHAREHOLDERS TO ACCEPT DOWNER'S OFFER For personal use only 1 Offer Price represents a substantial premium to recent trading levels and compelling value for Spotless Shares 2 Offer is materially higher than the range of broker 12 month price targets and valuations for Spotless1
Slide 15: Overview of Spotless
OVERVIEW OF SPOTLESS For personal use only Spotless is a large scale provider of facility services in Australia and New Zealand Operates through two core segments Revenue by customer sector3 – Facility services includes property maintenance (mechanical/electrical) and management (security, waste,
Slide 16: Spotless' Operating Segments
SPOTLESS' OPERATING SEGMENTS For personal use only LAUNDRIES SEGMENTS FACILITY SERVICES (91% of revenue) (9% of revenue) Customer Health, education & Commercial & leisure Base & township Laundry & linen sectors government Revenue by 9% 20% customer sector 35% (12 months to 31 Dec 16)1 36% $1,081m $1
Slide 17: Spotless Financial Overview
SPOTLESS FINANCIAL OVERVIEW For personal use only Spotless standalone financial summary 12 months to A$m 1H17 FY17 31 Dec 2016 Revenue1 3,026 1,455 Underlying EBITDA2 309 121 Margin (%) 10.2% 8.3% Underlying EBITA2,3 208 70 Margin (%) 6.9% 4.8% Underlying EBIT2 198 65 Spotless management guidance as
Slide 18: Strategic rationale
For personal use only Strategic rationale Section 3 Not for distribution or release in the United States
Slide 19: Strategically Aligned Acquisition
STRATEGICALLY ALIGNED ACQUISITION For personal use only The acquisition of Spotless represents a significant investment in growth and drives the creation of new positions in adjacent sectors 1 Continues Downer's portfolio transformation Higher proportion of earnings from stable services businesses
Slide 20: Continues Downer's Portfolio Transformation
1. CONTINUES DOWNER'S PORTFOLIO TRANSFORMATION For personal use only The acquisition increases the proportion of earnings from services businesses Downer Total Revenue1 Combined Group Total Revenue1 Services Mining & EC&M Services Mining & EC&M 55% 45% 68% 32% 6% 11% 26% 18% 29% 11% 14% 19% 5% 26% 8
Slide 21: Continues Downer's Portfolio Transformation
1. CONTINUES DOWNER'S PORTFOLIO TRANSFORMATION For personal use only Combined Group's services portfolio Spotless' presence across priority markets On a combined basis, total services revenue is in excess of 30 year relationship with Australian $7 billion1 Department of Defence, providing up Def
Slide 22: Long Term Contracts
2. LONG TERM CONTRACTS For personal use only Spotless' portfolio includes long term contracts, providing high certainty over revenues Contracted revenue1 Price growth2 High certainty over revenues high proportion of contracted revenue 13% 5% weighted average contract tenure of c.5 years1 emb
Slide 23: High Quality Customer Base
3. HIGH QUALITY CUSTOMER BASE For personal use only Spotless has a diversified contract portfolio across a high quality customer base Customer diversification1 Customer demographic1 5% Limited customer concentration 40% 50% High proportion of government 55% 50% backed contracts Strong contract
Slide 24: Extends Services Capabilities
4. EXTENDS SERVICES CAPABILITIES For personal use only Creates an integrated services provider with a comprehensive range of capabilities Core Spotless services Property maintenance and management Provides Downer with expanded Engineering services capabilities across facilities and asset manag
Slide 25: Management Capabilities and Experience
MANAGEMENT CAPABILITIES AND EXPERIENCE For personal use only Downer's management team has the experience and capabilities to manage and add value to the Spotless business Robust financial discipline and risk management processes EBITDA to operating cash flow conversion of c.90%1 Consistently str
Slide 26: Combined Group Structure
COMBINED GROUP STRUCTURE For personal use only The Combined Group will consist of seven service lines Transport Services Technology and Communications Services Rail Engineering, Construction and Maintenance Utilities Services Mining Facilities services Page 26 Not for distribution or release in the
Slide 27: Management and Growth Plan
MANAGEMENT AND GROWTH PLAN For personal use only Downer management is well prepared to manage and grow the Spotless businesses, drawing on their prior execution and services experience Preparation Management Priorities Highly experienced project team established in 2016 to develop Downer's capabil
Slide 28: Transaction impact on Downer
For personal use only Transaction impact on Downer Section 4 Not for distribution or release in the United States
Slide 29: Financially Compelling Transaction
FINANCIALLY COMPELLING TRANSACTION For personal use only EPS accretive transaction on an NPATA basis before synergies1, with the potential to drive further accretion through the realisation of synergies EPS accretive on a pro forma FY17 NPATA basis1 EPS accretion Around 10% accretion anticipated
Slide 30: Combined Group
COMBINED GROUP For personal use only Largest genuinely diversified services group in Australia and New Zealand Downer pre-transaction Combined Group Total Revenue1 $7.5 billion $10.5 billion Underlying EBITA2 $291 million $519 million Employees c.19,000 c.55,000 Tech & Comms 6% EC&M Facilities servi
Slide 31: Transaction funding and Equity Raising overview
For personal use only Transaction funding and Equity Raising overview Section 5 Not for distribution or release in the United States
Slide 32: Transaction Funding
TRANSACTION FUNDING For personal use only $1.15 in cash per Spotless share Acquisition value Implies a diluted Equity Value of c.$1,272 million1 and Enterprise Value of c.$2,120 million2 Total estimated transaction costs of $50 million Funding Acquisition to be funded through a combination o
Slide 33: Equity Raising Overview
EQUITY RAISING OVERVIEW For personal use only Fully underwritten c.$1,011 million accelerated renounceable entitlement offer with retail rights trading ("Entitlement Offer") Structure Each member of the Downer Board has stated they intend to participate in the Entitlement Offer to the extent tha
Slide 34: Equity Raising Timetable
EQUITY RAISING TIMETABLE For personal use only Event Date Institutional Entitlement Offer opens Tuesday, 21 March Institutional Entitlement Offer closes Wednesday, 22 March Institutional shortfall bookbuild opens Wednesday, 22 March Institutional shortfall bookbuild closes Thursday, 23 March Announc
Slide 35: Summary
SUMMARY For personal use only Delivers on strategy Continues Downer's portfolio transformation towards a more stable, services-focused business with resilient earnings Spotless has long term contracts with high quality customers that provide high certainty over revenues Creates an integrated
Slide 36: Pro-forma financials
For personal use only Pro-forma financials Appendix A Not for distribution or release in the United States
Slide 37: Basis of Preparation
BASIS OF PREPARATION For personal use only This section has been prepared to illustrate the pro forma historical financial information of Downer post the acquisition of Spotless (‘Pro Forma Financial Information’). The Pro Forma Financial Information is based on information extracted from the audite
Slide 38: Pro Forma Income Statement
PRO FORMA INCOME STATEMENT For personal use only Pro forma income statement for the 12 months ending 31 December 2016 ($m) Downer Spotless Spotless Adjustments Combined Combined statutory statutory underlying Group group statutory underlying Revenue 6,920.0 3,025.5 3,025.5 - 9,945.5 9,945.5 EBITDA 5
Slide 39: Pro Forma Balance Sheet
PRO FORMA BALANCE SHEET For personal use only Pro forma balance sheet as at 31 December 2016 ($m) Downer as at Downer pro forma Downer pro forma Transaction Combined Group 31 December 2016 adjustments pre-Transaction pro forma pro forma adjustments Assets Cash and cash equivalents 602.1 756.9 1,359.
Slide 40: Pro Forma Balance Sheet (continued)
PRO FORMA BALANCE SHEET (continued) For personal use only Notes continued: 3 The Combined Group pro forma balance sheet represents the Downer pro forma balance sheet as at 31 December 2016, after adjusting for the impact of the following events in respect of the Transaction, as if these events had t
Slide 41: Further information
For personal use only Further information Appendix B
Slide 42: If Less Than 90% of Spotless Is Acquired
IF LESS THAN 90% OF SPOTLESS IS ACQUIRED For personal use only Downer is making an offer to acquire all of the issued share capital of Spotless which it does not already own, by way of an off-market takeover offer 90% minimum acceptance condition (including Downer's existing holding) and other c
Slide 43: Spotless Financial Overview
SPOTLESS FINANCIAL OVERVIEW For personal use only Statutory and underlying profit and loss 12 months to A$m 1H171 31 Dec 20161 Statutory Underlying2 Statutory Underlying2 Revenue 3,026 3,026 1,455 1,455 EBITDA (124) 309 (299) 121 Margin (%) (4.1)% 10.2% (20.5)% 8.3% EBITA3 (229) 208 (354) 70 Margin
Slide 44: Key conditions of the Transaction
For personal use only Key conditions of the Transaction Appendix C
Slide 45: Key Conditions
KEY CONDITIONS For personal use only Transaction – Conditions of Offer The conditions of the offer under the Transaction, which are set out in the Bidder's Statement in full lodged with ASIC and ASX on 21 March 2017, are as follows: a 90% minimum acceptance condition (including Downer's existing h
Slide 46: Key risks
For personal use only Key risks Appendix D Not for distribution or release in the United States
Slide 47: Key Risks
KEY RISKS For personal use only There are a number of risks, of a general and specific nature, which may affect the future operating and financial performance of Downer, its investment returns and the value of its shares. Many of the circumstances giving rise to these risks are beyond the control of
Slide 48: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Reliance on public Downer has relied on information made available by Spotless through Spotless' continuous and periodic disclosure obligations under the Corporations information Act and the ASX Listing Rules. However, Downer has not been
Slide 49: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Risk of Competing During the course of the Transaction, a third party may also make an offer to acquire a substantial or controlling interest in Spotless. The existence of Bidders a competing bidder may impede the success of the Transactio
Slide 50: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Debt Funding Risk Downer has entered into a commitment letter under which the mandated lead arrangers, underwriters and bookrunners (MLAUBs) have agreed to provide a bridge loan facility (Bridge Loan Facility) to finance in part the acquis
Slide 51: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Analysis of acquisition Downer has undertaken an internal analysis of Spotless based on public information, in order to determine whether to pursue the opportunity acquisition under the Transaction. It is possible that such analyses, the a
Slide 52: Key Risks
KEY RISKS For personal use only RISKS ASSOCIATED WITH NOT TAKING UP NEW SHARES UNDER THE ENTITLEMENT OFFER: Acquisition Risk Description Rights Trading on ASX The price at which entitlements to new shares may be sold on ASX during the entitlement trading period may rise and fall. A shareholder who s
Slide 53: Key Risks
KEY RISKS For personal use only DOWNER BUSINESS SPECIFIC RISKS Acquisition Risk Description Workplace accidents and Downer maintains a rigorous focus on Zero Harm for its employees and environment, recognising that its activities can result in harm to environmental incidents people and the environme
Slide 54: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Key supplier, subcontractor Where Downer is reliant on one or a small set of specialist suppliers or subcontractors to provide goods and services, the performance of and partner risk these suppliers or subcontractors may impact Downer’s ab
Slide 55: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Insurance The availability of insurance at an appropriate term and price is not guaranteed. It is possible that the occurrence of an event may not be fully covered, or covered at all, by insurance. Future dividends and In respect of the 31
Slide 56: Key Risks
KEY RISKS For personal use only Acquisition Risk Description Economic and Level of economic activity Financial Risks Downer’s operational and financial performance is linked to both the overall level of activity in the economy and the level of outsourcing in the sectors in which Downer operates. A r
Slide 57: Key Risks
KEY RISKS For personal use only GENERAL RISKS Acquisition Risk Description General equity market and The price of Downer shares will fluctuate due to various factors including movements in Australian equity markets, recommendations by investment risk broker and analysts, interest rates, inflation, A
Slide 58: International offering jurisdictions
For personal use only International offering jurisdictions Appendix E Not for distribution or release in the United States
Slide 59: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS For personal use only International Offer Restrictions This document does not constitute an offer of entitlements ("Entitlements") or new ordinary shares ("New Shares") of the Company in any jurisdiction in which it would be unlawful. In particular, this document
Slide 60: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS For personal use only The following is a summary of the statutory rights of rescission or to damages, or both, available to purchasers in Ontario. In Ontario, every purchaser of the Entitlements or the New Shares purchased pursuant to this document (other than (a
Slide 61: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS For personal use only An offer to the public of Entitlements and New Shares has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in the Relevant Member
Slide 62: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS For personal use only Ireland The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in
Slide 63: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS For personal use only Norway This document has not been approved by, or registered with, any Norwegian securities regulator under the Norwegian Securities Trading Act of 29 June 2007. Accordingly, this document shall not be deemed to constitute an offer to the pu
Slide 64: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS For personal use only United Arab Emirates Neither this document nor the Entitlements and the New Shares have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or