“BBW remains in a strong financial position – with no asset impairments, no refinancing requirements and no unfunded commitments,” the company’s Managing Director Miles George said.
“The group also retains significant cash balances and will immediately look to continue its current buy-back program.”
Generation
The operating assets generated 2,559 GWh for the half year ended December 31, 2008 compared to 2,101 GWh in the previous corresponding period, an increase of 22%. The wind farms achieved a capacity factor of 27% which reflects seasonally lower wind resource in the US, and availability below budget in Australia and Germany, although this was partly offset by improvements in the availability of US wind farms.
The business continues to capture the benefit of rising electricity prices, with the average price achieved per megawatt hour of generation growing at a compound rate of 13% pa since H107.
FY09 interim financial result
Total revenue was AUD250.4 million for the half year ended December 31, 2008, compared to AUD162.7 million in the previous corresponding period, an increase of 54%. The growth in revenue can be attributed to new operations coming on line, a higher average price per MWh and a positive FX variance from overseas operations.
EBITDA from operations also increased by 54% to AUD192.3 million, reflecting the above mentioned growth. EBITDA margins remained stable at 76.8%.
The key measure of Babcock & Brown’s business performance is net operating cash flow (NOCF) and this increased to AUD82.7 million for the half year, representing an increase of 52%.
The seasonal skew of cash flow and earnings to the second half of each financial year will enable distributions for FY09 to continue to be met from NOCF after actual debt repayments.
Balance sheet and risk management
Babcock & Brown’s balance sheet remains sound with significant cash balances at year-end and no impairments in asset values. Babcock & Brown’s corporate debt facilities are structured as long term amortising facilities with no refinancing requirements. Furthermore, Babcock & Brown has no unfunded capital expenditure commitments.
Babcock & Brown’s stated target of 2.5x interest cover ratio has been met; while Babcock & Brown’s covenant ratios of Net Debt to EBITDA of 11.5x and Debt Service Cover Ratio (DSCR) of 1x remain comfortably met. Committed CAPEX and future construction costs of AUD313 million will be fully covered by existing cash balances.
Babcock & Brown continues to maintain prudent risk management practices with around 80% of its debt hedged against interest rate movements on a long term amortising basis and an average maturity of swaps being around 9 years. Babcock & Brown’s average interest rate for the period was 6.27% including margin. Along with the foreign exchange cover to hedge medium term distributions, the total mark to market value of these derivatives is a AUD320 million liability following the significant reduction in long term interest rates and a weakening of the Australian dollar.
Babcock & Brown has no off-balance sheet liabilities and remaining trade balances to Babcock & Brown are immaterial.
Capital expenditure
A total of AUD387 million was applied towards capital expenditure during the six months ended 31 December 2008 with AUD179 million related to Australian construction projects.
Sale of Spanish assets
Babcock & Brown reached financial close on the sale of its Spanish assets on January 8, 2009. As initially announced on August 21, 2008, the transaction included the sale of Babcock & Brown’s interest in 14 wind farms for a total consideration of $1.42 billion. An estimated profit before transaction costs of AUD266 million2 will be recorded in H209.
Internalisation
With the internalisation having reached financial and contractual close on December 31, 2008, it is a management priority to re-name the business, move premises and complete a full transition of IT and other B&B services to independent operation by June 30, 2009. An EGM is expected to be held in April 2009, where securityholders will vote on the name change and a new equity incentive scheme proposed to strengthen the alignment of interests between management and securityholders.
Offer to acquire certain Babcock & Brown wind energy assets
Babcock & Brown has submitted an offer to Babcock & Brown to acquire its Australian and New Zealand wind energy project development assets, its US wind asset management business, and its minority interests in three of Babcock & Brown’s existing wind farms. The offer involves a total cash consideration not exceeding AUD30 million.
FY09 cash flow and distribution guidance 9
Cash flow in the second half of the financial year is again expected to be stronger than the first half because of the seasonality of the US business as well as initial production from newly completed operations in Germany and France. Interest costs and debt repayments will be lower in the second half following the sale of the Portuguese and Spanish assets.
FY09 net operating cash flow before debt repayments is expected to be 20.6 cents per stapled security. In recognition of the strong business performance across all key performance metrics, the Directors have reconfirmed FY09 distribution guidance of at least 9.0 cents per security3 and medium term distribution growth targets4.
Strategy and outlook
Babcock & Brown is uniquely positioned as a pure renewable energy generation business, focused on being a cost competitive provider of utility-scale renewable energy. As a strategic priority, BBW will focus its attention on growth markets where it can demonstrate sustainable competitive advantages and consider recycling capital from existing lower yield / mature assets to fund that growth.
Babcock & Brown will also continue to invest in asset management capabilities including, where appropriate, bringing existing asset management capabilities ‘in-house’ to capture further operational performance improvements and costs savings.
Miles George, managing director said, “BBW is well positioned as a high quality business with predictable cash flows and a strong balance sheet, enabling considerable financial flexibility. Our immediate priority is to take advantage of the opportunity to establish BBW as a fully independent leading renewable energy business, and to re-focus our attention on high growth markets where BBW can demonstrate sustainable competitive advantages.”
