NTR has come a long way from the toll roads of old and now has a very long pipeline of new projects to invest in, writes Arthur Beesley, Senior Business Correspondent
Utility group NTR is a work in progress. The former National Toll Roads has a huge appetite for money, massive capital expenditure and a very long pipeline of new projects. The maturity of its disparate activities is some way off, but the organisation is in investment overdrive.
NTR believes it has plenty of firepower on board to move forward for another couple of years. With €488 million in the bank thanks to a monetisation deal on the West Link buyout contract, the group is also likely to take the benefit of the sale of a big strategic stake in the US arm of its wind power business, Airtricity.
But with chief executive Jim Barry reiterating his commitment to a "liquidity event" some time in 2009, the coming two years will determine whether NTR finally takes out a stock market listing or whether it lists, sells or demerges one or more of its subsidiaries.
The growth strategy is based around three core divisions:
Airtricity, in which NTR has a 51 per cent stake, has onshore projects in the US and Europe and European offshore projects.
Waste unit Greenstar wants to make acquisitions in the US and Britain from its strong position in the Irish market.
Wholly owned bioenergy firm Bioverda has big biodiesel operations in Germany and a joint venture with Richard Branson's Virgin group for bioethanol projects in the US.
NTR has reported a drop to €14.2 million in its attributable profit in the year to March from €22.22 million in the prior 15-month period. The bottom line was €10.5 million weaker due to ongoing losses at Irish Broadband, a unit that may be sold off.
"We're not running our business for a profit at the moment. If we were running it for profit we'd take out development expenditure of €15 million," said Barry. With investment expenditure rising threefold last year to €753 million from €251 million, NTR is on track to spend up to €3.5 billion in the coming years.
Group finance director Michael Walsh said some €500 million in capital assets on the balance sheet are not yet making a contribution to revenues and profits as they are still in development or construction.
"As we stand now we have sufficient equity to meet our needs for the next two years. As far as equity funding in 2009 is concerned, we do have a commitment to a liquidity event which was given on foot of our equity-raising in September 2006. The form that that liquidity event will take will depend on commercial and market circumstances at that time," he said.
"We're not in the business of curtailing the growth prospects of our businesses simply by virtue of our desire either to remain unlisted or to retain control of those businesses."
Airtricity's commissioned production capacity rose last year to 383 megawatts (MW) from 117MW and the capacity of plant under construction rose to 708MW from 418MW. The capacity of pipeline projects rose to 9,406MW from 6,487MW.
With capital investment last year reaching €547.1 million, this business has an insatiable appetite for money. In addition, the price of wind energy turbines is rising due to strong demand.
NTR has hedged forward its turbine orders for two years but that means it must put down deposits of 5-10 per cent for equipment it will not use for years to come.
The firm has commissioned a 124MW windfarm in Texas, its largest to date. In view of the requirement in the US for capital expenditure of $700-$800 million (€506.5-€578.8 million) in the next three years, the firm has hired Credit Suisse to sell up to 50 per cent of the US business to an industry or institutional investor. Industry sources said the business could now be worth $1 billion or more.
Some of the proceeds will be used by Airtricity to fund its European investments. If NTR itself does not float, Airtricity is perhaps the most likely candidate for a listing on its own. While any US government subsidy for wind power would enhance the business, a significant increase in European offshore activities might prove too risky for a separate listing.
Greenstar is less of an investment play, as its future growth will be through acquisition, with target companies expected to make an immediate contribution to profits. The unit has started an acquisition round in the US, spending a sum of less than $20 million on Pittsburgh company Recycling Management Corp and Illinois firm Delta Management.
NTR expects in the next year to make equity investments in the US of up to $125 million, with additional debt. Individual deals will be valued at $5-$50 million.
Greenstar's annual landfill capacity in Ireland rose to 657,000 tonnes last year from 507,000 and annual waste reprocessing capacity in Ireland and Britain rose to 1.22 million tonnes from 820,000. It bought out Kilkenny company Ormonde Waste last year and made three British acquisitions: Wastelink, RU Recycling and Waste Exchange Services.
Bioverda opened two biodiesel plants last year in Germany and it has four plants under development in Britain, Spain and Ireland. Total investments were worth €118.5 million.
The division's US unit has started the construction of two 100 million gallon bioethanol plants. With US market conditions favouring larger players, Barry said NTR will be a participant in consolidation. However, he indicated that the company will have to be careful in that sector as the business was high risk and requires significant investment.
While NTR's ultimate destiny will not be decided for some time to come, the organisation has taken big strides away from its dependence on the toll road operation of old. At present, all the signs are that big decisions will have to be made in 2009.
"At that stage you should be seeing the benefits of the high levels of investment in 2005-2008, which should be showing through to the bottom line. The business should be at a more mature stage, while still offering growth potential," said NCB Stockbrokers analyst John Sheehan.
