SP AusNet profit slides 11.7% to A$157.5m

Drop is due largely to A$24.6m of costs related to scrapped Alinta deal

SP AUSNET has posted full-year net profits for the period ended March 31 of A$157.5 million (S$205.3 million), down 11.7 per cent because of costs related to the scrapped Alinta deal from its parent Singapore Power.

Earnings per share fell to 2.54 Australian cents from 3.38 cents a year ago.

SP AusNet – 51 per cent owned by Singapore Power – declared a final dividend of 5.788 cents, taking the full year distribution to 11.564 Australian cents. This gives an annualised yield of 9.3 per cent, based on the A$1.25 price on May 19, 2008.

SP AusNet went public in December 2005 with an initial public offering price of $1.75 a share in Singapore and A$1.38 in Australia. It closed here yesterday down 1 cent to $1.64.

SP AusNet which owns and operates power transmission networks in Victoria state, said net profit from continuing operations was A$151 million, down 6.3 per cent. This included A$24.6 million (A$17.2 million after tax) of one-off transaction costs of the proposed acquisition of Alinta from Singapore Power which did not go through. Excluding these costs, profit after tax from continuing operations would be A$168.3 million.

On Dec 10, 2007, after protests from some shareholders, SP AusNet decided not to proceed with the proposed acquisition due to the ongoing deterioration in capital markets, as it had raised financing costs.

For the year under review, SP AusNet said revenues grew 3.5 per cent to A$1.1 billion due to price, volume and customer growth.

During the year, the operator added 23,500 new customers to its networks and finalised transmission and gas regulatory resets, locking in almost 100 per cent of regulated revenues until 2011.

Net operating cash inflows for the year were A$373.4 million, a decrease of $19.8 million predominantly due to the increase in income tax paid.

It also refinanced A$1.55 billion debt at margins of between 40 and 50 basis points, representing favourable terms in the current market, the company said.

SP AusNet managing director Nino Ficca said: ‘The operational and financial stability of SP AusNet has been reinforced this year, enabling us to further enhance our platform for future growth.’

On this year’s prospects, the firm reaffirmed the guidance given earlier this year and expects revenue and earnings before interest tax, depreciation and amortisation growth of around 8 per cent. Net profit after tax is expected to be in line with the current year, due to increased interest charges and distribution growth of around 2.5 per cent.

The company expects to invest an estimated A$2.7 billion in its networks over the next five years.

Any acquisitions would be ‘relatively small’, general manager Adrian Hill, corporate development and investor relations, said. The company has no intention ‘at this stage’ of reviving plans to buy the Alinta assets from Singapore Power, he said.

While SP AusNet continues to assess possible synergies from Alinta with its parent, any potential initiatives will be ‘subject to rigorous governance oversight with review and approval’ by its audit and risk management committee, including its three independent directors, it said.

SP AusNet does not expect these potential synergy opportunities to have a material impact on current year guidance.

Maintaining distribution guidance despite shelving of cquisition

• SP Ausnet (SPN) cancelled its first and only post-IPO acquisition of Alinta‘s assets due to the deterioration of the debt capital market in Dec 2007. SP Power (owns 51% of SPN) acquired Alinta Limited in early 2007 under a Consortium. SPN has the first right of refusal to acquire the proportionate share of Alinta’s assets. We think that it was a pity as a successful acquisition will give SPN a larger market share (regulated asset base to double) and increase FY09 distribution to 12.14 cents. Nevertheless, SPN is maintaining its distribution guidance of 11.55 Aust cents (5.776 cents paid out in 1HFY08) and 11.8 Aust cents for FY08F and FY09F respectively.

Successful refinancing debt of A$1.55bn; no major need for refinancing till 2011

• SPN successfully refinanced its A$850m bridge facility together with A$600m of syndicated bank debt. The new A1.55bn facility comprises of 2 facilities of equal amounts which will mature in Mar 2011 and 2013 respectively. It also provides A$100m of undrawn but committed spare capacity. Some 95% of the debt is hedged (swapped floating for fixed) and hence minimize the company’s exposure to the fluctuating interest rate risk.
• The regulator assumes the cost of debt (in the building block revenue methodology) based on BBB+ rated assets plus a credit spread, while SPN carries a “A-“ credit rating from S&P. SPN will effectively benefit from achieving a return on its regulated asset base in excess of its actual funding costs.

Favorable regulatory decisions bolster stability and quality of distributions

• Favourable final decision at Gas Access Arrangement Review (GARR) & Transmission Regulatory Reset (TRR) secures and locks in around 90% of the revenue for gas and electricity transmission for the next 5 years till Dec 2012 and Mar 2014 respectively. Hence, in the near term, there is only the gas distribution scheduled for reset in Dec 2010. We can expect minimal surprises from now till 2010.

Not subject to the competitive retail electricity and gas market; provides stability to distributions

• SPN operates in the regulated privatized monopoly of electricity and gas transmission and distribution sectors where its revenue is highly regulated. This eradicates any downside risks, albeit at the expense of upside surprises. For instance, listed comparable AGL, which has a retailing arm, reported outstanding year-on-year results in FY07, but it is inevitably subject to market dynamics (i.e. demand and supply).

SPN ranks fairly high amongst high-yield comparables

• SP Ausnet is favoured for its stable and sustainable growth in distribution per stapled security due to its predictable cash flow from the regulated revenue. It’s a relatively “safe haven” stock to consider for its highly assured distribution payout. Notably, it guided for 11.55 Aust cents for FY08F and 11.8 Aust cents for FY09F. We do not foresee any likelihood of new acquisitions in the near term.

SP Ausnet upgrades earnings forecasts

Australian infrastructure firm SP Ausnet upgraded its earnings forecasts for the 2008/09 year yesterday, buoyed by higher revenues and a debt refinancing.

SP Ausnet, which owns and operates power transmission networks in Victoria state, said it expected net profit to be about 15 per cent higher than a forecast in its 2007 explanatory memorandum of A$147.5 million (S$187.4 million).

Distribution guidance of about 2.5 per cent growth in distributions per security remained unchanged.

SP Ausnet, which is 51 per cent owned by state-owned utility Singapore Power, said revenues would benefit from last month’s decision on transmission charges by the Australian Energy Regulator, along with higher capital expenditure allowances.

Earnings would also be boosted by the refinancing of A$1.55 billion in debt and the finalisation of new interest rate hedges.

SP Ausnet last year pulled out of a plan to pay A$8.3 billion for assets of former energy firm Alinta, blaming a downturn in capital markets which would have increased the cost of the deal. — Reuters

SP AusNet drops plan to buy Alinta assets

Higher cost of funding would hit its ability to meet forecasts

THE credit market turmoil has claimed another victim. Singapore Power’s plan to offload its A$8.3 billion (S$10.5 billion) Alinta acquisition to listed SP AusNet is now off as it has become too expensive and could affect the latter’s cashflow and distribution to unitholders.

Singapore Power chief financial officer Yap Chee Keong said the energy company will explore all options for Alinta and will proceed with a refinancing plan.

After the announcement that the deal was off, SP AusNet shareholders who had been scheduled to vote on the deal today cheered, and the security yesterday shot up 5.34 per cent or eight cents to $1.58. SP AusNet, listed in Australia and Singapore since Dec 2005, is 51 per cent owned by Singapore Power. In Australia, SP AusNet surged a bigger 8.4 per cent to A$1.285 from its Friday close of A$1.19. The SP AusNet board said in a statement said that ongoing deterioration in the debt and equity markets would have affected its ability to achieve the forecasts if it decided to go ahead with the transaction, which was at the same price as Singapore Power paid in August.

If the deal had gone through, SP AusNet would have become Australia’s largest energy and infrastructure group. But the higher cost of funding would have hit SP AusNet profits and its cashflow, which could affect the distribution of dividends to unitholders.

Analysts had also raised concerns about SP AusNet buying Alinta assets, given the high price that was paid by the then consortium of Singapore Power and investment firm Babcock & Brown. The consortium had to fend off a Macquarie Bank rival bid with an offer of about A$15.46 a share, which was 43 per cent above the average price of the stock prior to the Jan 9 announcement of a buyout proposal.

In yesterday’s statement, SP AusNet said: ‘The board has noted the ongoing deterioration in capital markets, in particular debt capital markets, since the Explanatory Memorandum was released. Current conditions would have a material impact on the overall transaction metrics, as well as SP AusNet’s ability to achieve the forecasts provided in the Explanatory Memorandum.’

SP AusNet chairman Ng Kee Choe said: ‘The management team has spent considerable time with our existing and potential new securityholders since the release of the Explanatory Memorandum in November and the board acknowledges that investors have had mixed views on the proposed acquisition.’

A SP AusNet spokeswoman told BT that since the end of October funding cost has risen 60-80 basis points, or 0.6 to 0.8 per cent. ‘In addition, the volatility in the equity market would have meant we would have had to issue at a lower price,’ she said.

The board had promised that a rights issue to help pay for Alinta would not be below A$1.10 per unit.

The plan was for SP AusNet to borrow A$5 billion-A$5.3 billion from the debt market and have a rights issue of around A$3 billion. Singapore Power would have subscribed for its 51 per cent entitlement.

‘Obviously, we are disappointed with this outcome. However, the strong fundamentals of our existing business position us well for future growth and we aim to continue to provide a stable and sustainable investment for securityholders today and into the future,’ Mr Ng said.

Ian Renard, chairman of the independent directors’ committee, said: ‘While the decision to not proceed was a difficult one, it reflects an open, rigorous and transparent process.’

SP AusNet yesterday maintained its 2007-08 full year distribution guidance of 11.55 Australian cents. It said the 2008-09 forecast of 11.80 Australian cents remains applicable.

Costs incurred on the transaction, estimated at A$26 million, will be expensed to the profit and loss in the 2007-08 full year financial statements.

Singapore Power said in a separate statement that for the time being it will manage the Alinta assets as a separate entity and will continue to work closely with SP AusNet to achieve synergies and explore growth opportunities.

Mr Yap said SP is not in a rush to sell Alinta and ‘will explore all options to maximise shareholder value’. He added that SP, whose credit is rated as AA, is able to access the capital market and will now proceed with a refinancing plan. ‘Investors are still willing to invest in companies of high quality,’ said Mr Yap.

Notification of Cancellation of General Meeting

Notice is hereby given that the general meeting of SP Australia Networks (Distribution) Ltd, SP Australia Networks (Transmission) Ltd and SP Australia Networks (Finance) Trust (“SP AusNet”) scheduled for 10.00am on Tuesday 11 December 2007 has been cancelled.

The SP AusNet Board has decided not to proceed with the proposed acquisition of the Alinta assets and businesses from its majority securityholder Singapore Power International Pte Ltd (“SPI”).

The Board has noted the ongoing deterioration in capital markets, in particular debt capital markets, since the Explanatory Memorandum was released. Current conditions would have a material impact on the overall transaction metrics, as well as SP AusNet’s ability to achieve the forecasts provided in the Explanatory Memorandum.

The Board and its financial advisers, Pacific Road, therefore consider it is no longer in the best interests of SP AusNet to proceed with the transaction.

SP AusNet Chairman, Mr Ng Kee Choe, said, “The management team has spent considerable time with our existing and potential new securityholders since the release of the Explanatory Memorandum in November and the Board acknowledges that investors have had mixed views on the proposed acquisition.

However, had the capital market conditions been more favourable for raising fresh debt and equity capital the Board would have proceeded to the securityholder vote.”

“Obviously we are disappointed with this outcome. However, the strong fundamentals of our existing business position us well for future growth and we aim to continue to provide a stable and sustainable investment for securityholders today and into the future,” Mr Ng said.

“While the decision to not proceed was a difficult one, it reflects an open, rigorous and transparent process”, said Mr Ian Renard, Chairman of the Independent Directors’ Committee.

The 2007/08 and 2008/09 forecasts provided in the Explanatory Memorandum for the existing SP AusNet business remain applicable. However, SP AusNet has incurred a portion of the costs of the transaction, estimated at approximately $26 million (per page 17 of the Explanatory Memorandum), which will be expensed to the profit and loss in the 2007/08 full year financial statements.

SP AusNet Managing Director, Mr Nino Ficca, said, “Our investors can be sure that the focus of the SP AusNet management team will be on continuing to deliver value from our high quality regulated assets through organic growth, operating efficiencies and delivering on the forecasts outlined for SP AusNet in the Explanatory Memorandum.”

SP AusNet and SPI have, throughout the transaction, been impressed with the benefits which could accrue to the two groups in streamlining and optimising business and operational processes. The two groups will continue to work together to ensure that mutual benefits are realised.

SPI has advised that for the time being, it will manage the Alinta assets as a separate entity and will continue to work closely with SP AusNet to achieve synergies and explore growth opportunities for SP AusNet going forward.

SP AusNet maintains its 2007/08 full year distribution guidance of 11.55 Australian cents per security.

Source : SGX