Infratil Limited (IFT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Infratil full year results announcement. [Operator Instructions] On the call today, we have Marko Bogoievski, Chief Executive Officer; and Phillippa Harford, Chief Financial Officer. I would now like to hand the conference over to Mr. Marko Bogoievski. Please go ahead.

Okay. Thank you, Taylor, and good morning, everyone, from Wellington, New Zealand, and welcome to the Infratil full year results briefing. So I'm Marko Bogoievski. I am joined by Phillippa Harford, who is going to -- our CFO, who's going to take us through a number of slides shortly. I'd just like to give a little overview before we get started. I mean I think it was April 8 that we gave the last substantive update to the market. That clearly was in the height of the COVID crisis scenario with a lot of fundamental uncertainty. I don't -- in a lot of respects, the uncertainty is still there. In terms of the elements that we could control though, securing our assets and our people and our businesses and working with banks to refinance scheduled repayments where necessary and securing equity commitments for a couple of our operating subsidiaries, I'm really pleased with the fact that we've been able to execute on those elements. And so what it's resulted in is, I think, fundamentally, a bit more confidence today than we had back on April 8, and I would expect that to continue as we get through the passage of time. I'm really pleased actually with the way a lot of our management teams have performed as well, both at the manager level with Morrison & Co but also the chief executives and the leadership teams. We have looked after, as I said, our -- whether they're our clients or our customers. We've done so responsibly in terms of recognizing our accountability as corporates in both Australia and New Zealand, the U.S. markets. And I would expect us to continue to operate in that sort of mature posture. We know that it's been a year of change. So it's sort of hard to forget, isn't it, that with the crisis going on, that's all consuming. But we do know that we had actually a very busy year in terms of portfolio changes, particularly with the acquisition of Vodafone New Zealand in August, but also, we had 4 or 5 quite significant divestments for the group, which resulted in a net simplification of the portfolio, now a much tighter focus on our preferred sectors of renewable energy, data and telecommunications, in particular, transport and retirement living. It's pleasing that we -- notwithstanding all those changes, we managed to deploy a lot of CapEx, as I said in our preferred sectors. We'll go through those in some detail in the presentation. We managed to record a 13% growth in underlying EBITDAF. You will see a headline number there around a net parent surplus of $241 million. Most of that number is dominated by recording the sale of Snowtown 2 wind farm, which is part of the Tilt Renewables portfolio. Again, we'll go through that during the presentation. On the capital position, as I mentioned at the very start, we're really -- I mean we were positioned, I think, well, going into the crisis conservatively. I think we've always -- we're always thinking about resilience and the way the portfolio will perform under stress. That's our job. But having said that, I think we're still pleased with the way that -- we've had very responsive conversations with lenders where necessary, particularly in areas like Wellington Airport and with RetireAustralia. We've got a very -- we've got very comfortable about our parent company cash flows. And I think we've got some confidence about being able to meet comfortably our commitments to our growth platforms and a couple of areas now where we've provided additional equity support for 2 operating subsidiaries. The net outcome of that is that we've confirmed in this result a dividend of $0.11 per share. That actually is the same absolute number of DPS as we had last year -- this time last year. That's partly imputed. I think we talked about on April 8 the possibility that, that could have been moderated. We just didn't see the need to moderate that and it reflects our confidence looking forward here at the moment. So that's a full dividend of $0.11 per share. So what I'd like to do now is hand it over to Phillippa for the next few slides, and I'll come back to you when we look at the portfolio. Phillippa?

Thanks, Marko. And what I'm going to do is I'm just going to be quite clear on what slide I'm talking to here so that you can follow us on the webcast presentation. So I'm starting first with Slide 5 and the financial highlights. And as Marko indicated, we've got a net parent surplus for the year of $241 million, which is up from a deficit last year of $19.5 million. And a big contribution to that surplus is the Infratil share of the Tilt gain on sale of Snowtown 2. Thinking about it from an underlying EBITDAF perspective, which we like to view as really seeing the operating result, we have recorded an underlying EBITDAF before incentive fee of $605 million. That's up on the prior period, which, on an equivalent basis, was $533 million. As I've noted, Infratil has also accrued an incentive fee of $125 million. We'll go into a bit more detail about that later. That is very much -- that's an accrual, and only an element of that payment amount is actually due for payment at the moment. So the full -- in the full year, we've seen $1.9 billion of capital expenditure and investment that's included CDC's ongoing expansion in Sydney and Canberra. Tilt, of course, has also been busy constructing the Waipipi and Dundonnell wind farms. And of course, included in the $1.9 billion is our acquisition of a 49.9% stake in Vodafone. And you'll see the bottom line on that slide, we've got a reported earnings attributable to the parent of $0.415 per share, and that includes our share of the Tilt Snowtown 2 gain. So turning now to the results summary and what you can see when you look at our financial statements. Operating revenue was down 6% from the prior year. That's a combination of a shorter contribution period from Snowtown 2 and lower generation volumes in wholesale electricity pricing impacting Trustpower. Further down, net depreciation and amortization, that's also down. That's also a combination from both Tilt and Trustpower, with Tilt being the disposal of Snowtown 2 and in the case of Trustpower, it started from a lower asset valuation at the beginning of the year and that flowed through to depreciation. And just flowing down, another item of interest is [ half keys ] upon net interest. We've got net interest this year of $186.4 million. The increase in that is largely as a result of the increased debt at the corporate level after the acquisition of Vodafone and also increased interest going through the P&L as construction projects completed. And then the realizations and revaluations, as we've touched on, largely reflect Snowtown 2. And as Marko mentioned, we've also got discontinued operations, which essentially speaks to the disposal activity and the tightening of the portfolio that we've had underway. And included in that line is the contributions from ANU, NZ Bus, Perth Energy and Snapper, and that basically takes them up to the date of disposal. Turning now to Slide 7 and underlying EBITDAF. Trustpower result has already been reported. And as we're aware, that's materially down on the prior year. There were several factors that were playing a part in that, including weaker generation volumes, lower electricity prices and also lower ACOT revenue. This was actually offset though by our first contribution from Vodafone, which represented our 8-month ownership period. And as you can see from that slide, we've had a significant increase in our share of CDC Data Centres EBITDAF, which is essentially reflecting the build-out of the new data centers and increasing use of existing capacity. And I think as we touched on in quite a bit of detail in our announcement in April, you'll also see quite a change in the Longroad Energy contribution. That really is just a function of the accounting treatment of the partial asset disposal. And I think we've already -- we've spoken previously about the actual economic outcomes from an Infratil perspective. So turning now to Slide 8 and capital expenditure and investments. I won't dwell on this too much. I think no real surprises other than to reinforce the activity that is underway at both Tilt and CDC. And it was also pleasing to see that Wellington Airport completed its domestic terminal renovation. So we can draw a line under that. And moving further down, we've got RetireAustralia, which has also been commencing work -- commencing new construction and also completing developments. We've got the Glengara Care Apartments, which were completed in February, and some independent living apartments also progressing well in New South Wales, which I'll talk to a little bit later. And then Slide 9. This is an asset values assessment, and it's really just the case of providing a different view of the asset values as you might -- than you might see in our accounts because of the consolidation mechanism that happens for accounting purposes. What we're showing here is we've got CDC Data Centres, RetireAustralia, Longroad and Tilt Renewables, which are all showing a value based on the independent valuation process, which was undertaken at 31 March 2020, whereas Trustpower, that effectively represents the share price as of yesterday. And just for completeness, the other assets that you'll see there is primarily our infrastructure property assets as well as our investment in Australian Social Infrastructure Partners and our Clearvision Ventures investment. Now -- turning now to Slide 10 and the international annual incentive fee. The management agreement provides for an assessment of the performance of assets which have been held for at least 3 financial years. And essentially, the benchmark that those assets need to perform against is a 12% hurdle. So an incentive fee is only payable to the extent that those assets outperform that 12% hurdle. And if they do so, then the fee that is payable is 12 -- I beg your pardon, 20% of that outperformance. So we last -- we've given a couple of updates on the international incentive fee over the last period, but I think it is worth reflecting on some of the significant developments that have happened since our half year assessment of the performance fee. In December and as we've spoken to, Tilt announced the sale of its Snowtown 2 wind farm that resulted in a gain of $516 million, and we are expecting to see part of that gain would be returned to Infratil in the form of a capital return in July 2020. That realization of Snowtown 2 had an immediate impact or uplift in value for Tilt, and we are seeing that in part come through our performance fee. Now following on from that, in January, we provided the market with an update of the evaluation of CDC Data Centres and a corresponding increase in estimated performance fee as a result of that. Later in January, we also noted that Infratil's co-investor, CSC, had sold half of its stake in CDC to the Future Fund and that the sell-down price was within the valuation range at -- as determined at 31 December. And just to note that more recently, CDC has also announced its expansion into New Zealand and that it had acquired 2 data centers in Auckland and they expect to be constructed by the end of calendar year 2022. So moving forward from those announcements, I think they just help to set the context of really what we see as some significant outperformance that has been happening in those assets. And moving forward, we then had independent valuations undertaken at 31 March in order to assess what the final valuation position was. Those valuations were approved by the Infratil Board as part of approving the FY '20 financial statements. The other thing though I think that is important to draw out here is that although accounting standards require that the full amount of $125 million is recognized in the 31 March 2020 accounts, the annual incentive fee is actually payable in 3 tranches. So the first tranche is payable based on the 31 March 2020 result. So that's $41.7 million. However, tranches 2 and 3 will only be payable if the portfolio value is maintained over the next 2 years. So essentially, what that means is if you see those valuations on Slide 10, if we aren't able to maintain that total valuation of $2.98 billion, then essentially, the second or third tranche will not be payable. Turning now to Slide 11, access to liquidity and credit. What you'll see here is we've had a year-on-year movement in terms of bank facilities, which has resulted in an increase in our total facilities to $748 million. What that movement doesn't really show is the level of debt financing activity that has actually occurred during the year. Separate from that, we had also undertaken the acquisition financing as part of the Vodafone transaction. And we've partly repaid debt through the asset disposal proceeds and also through net bond issuances of $167 million through the year. So as you can see, it doesn't sound like a big change, a $75 million increase, but certainly, there's been a lot of financing activity underway at a corporate level. So our -- the other thing to note, I think, is the Tilt Renewables capital returns. That's expected to be completed in July 2020, and that will also have a favorable impact on the group's liquidity position. Looking forward, our next bank maturity is $53 million in July, and we will not be refinancing that facility at this stage. And our next bond maturity is scheduled for June 2021. So just to wrap up, I think, with the front end of the sections of slides for me. Turning now to Slide 12 and debt capacity and facilities. We've got a net debt position of $470 million as at 31 March that's clearly before the Tilt capital return in July and undrawn facilities of $268 million. As at 31 March, our gearing ratio was just under 41%. However, that did reflect our share price at the height of the COVID-19 pandemic. So we've also provided a view of gearing based on our more current share price. And essentially, if you looked at it based on yesterday, that would be a gearing of about 35.8%. The thing to note really in terms of our pool of funding, as you'll appreciate, we've got a balance of bank debt, infrastructure bonds and equity. And that, I think, has positioned us well in terms of where we sit now and our ability to support the group and to manage our cash flows throughout the short to medium term. So on that note, I'll turn it over to you, Marko.

Thank you, Phillippa. So I'm on Slide 13, portfolio target returns. So you can see, just picking up where Phillippa left off -- so obviously, our leverage assumptions are part of our long-term total shareholder return targets. At the moment, we're slightly higher in terms of leverage than our projected long-term target of 30%, but we know we're paying less on incremental debt than the 6% number. So those 2 elements sort of balance out. If you look at -- more at the available returns for different types of risk, core, core plus and development, it's becoming increasingly more difficult to find true core defensive assets at that 8% to 10% range, I would argue. And we do see quite a lot of drift of what really looks like core plus assets being priced as single-digit-type return for risk profiles, and that's sort of one of the things, I guess, we try to guard against [ borrowed ] investment disciplines and programs. Portfolio composition is the way we really get to our total 10-year target of 11% to 15%. I think that composition served us well during this crisis, but also, we know that we're still able to deploy a large amount of growth capital, notwithstanding the fact that we've got a lot of fundamental uncertainty. So that reflects the confidence in some of our preferred sectors. Portfolio composition is one part of what we do. Obviously, active management is the other part. We know that just about every one of our portfolio entities has a combination of contractors or defensive components to their business and also has a development angle. So managing the optionality, current cash flows, optimizing existing business, keeping customers heavy obviously is another part of our -- how we achieve our total returns to shareholders. So looking and thinking of total returns to shareholders. On Slide 14, we have an updated view of our share price. I mean obviously, there's some pretty dramatic activity there in the last -- well, last 3 months. I think it is important to note how much ground has actually been retraced since those lows when liquidity was at a premium, I guess, in the market. I don't think we're reading too much into that. You can look at the TSR performance. I think the last 12 months there, just under 16%, is a fair reflection of the work we've done in the portfolio and by each asset. Slide 15, which is our distribution profile. As I mentioned at the very start, we've confirmed our final dividend of $0.11 a share that will be payable on the 15th of June. It's partially imputed, $0.025 of ICs attached to that final dividend. It's consistent on a DPS basis with the final dividend in 2019, and the record date will be the 8th of June. I think it is just -- worth just emphasizing the confidence that we're trying to signal by holding a full dividend. This was effectively the level of distributions that we were projecting way before the COVID crisis emerged on the horizon, and it also reflects the shape of our current parent company and group cash flows and credit metrics. I think around the full year and the future outlook, I think we -- like a lot of businesses are thinking, it's more prudent to not comment on guidance or outlook at the group perspective, and I think that's mainly because it could be more misleading if we chose to give point estimates of where our various assets are hitting. We have, later in the pack, a sort of summary of the earnings guidance and I'll talk to that. Page 16, the slide titled portfolio resilience and composition. So we're starting to -- now to turn to some of the components of our portfolio. As -- I think one of the themes we've been talking about other than simplifying our portfolio in the last 24 months, 3 years, has been resilient. So I'd like to think that, that focus has served us well during COVID-19. As you know, we've tried to point equity quite early against long-term trends and sort of high-conviction ideas. Most of those are turning up in sort of the decarbonization, renewable energy space but we also got -- now got quite a significant exposure to data and digital infrastructure. You can see on Slide 16 that in terms of each of those high-conviction themes, we've also got quite a diversified exposure via different portfolio entities. So whether it's Australia and New Zealand with Tilt, the United States with Longroad Energy or Galileo Green Energy, which is a new entity that's European focused, clearly there, we've got the same fundamental investment thesis playing out in different markets with different competitors, different regulatory environments and different submarkets. So we like the jurisdictional diversification that, that brings and supports the overall thesis. CDC and Voda are now becoming increasingly bigger part of our portfolio, CDC particularly because of its growth rate, as you'll see in a few slides. It's still deploying capital at an aggressive rate. Actually, that was a good segue into CDC, which is Slide 18. So Canberra Data Centres has been in the portfolio for a few years now. Clearly, it has been sort of -- in some ways, the -- a focus for a lot of investors who are new to Infratil because it's a space that's growing so quickly. I do want to emphasize that data centers aren't created equally. So we do think there are some unique characteristics around CDC that make it particularly well positioned. Part of that is its relationship with and success with the federal government in Australia in particular, hopefully in New Zealand in the future, and partly is the way it deals with its other large commercial customers. It has grown its business significantly again this year. We are forecasting -- in this case, we can give a forecast because of its relative performance, an EBITDAF of AUD 145 million to AUD 155 million next year. So that's through to March 31, 2021. We know that this year, it invested just under $450 million on new facilities. Eastern Creek is the new Sydney campus, which is probably the most exciting part of its growth story at the moment. Hume 4 was an additional facility inside its traditional Canberra base. And Phillippa mentioned earlier we had acquired 2 sites in Auckland. So I think it's a pretty prudent expansion now from Canberra to New South Wales to New Zealand, and that business continues to look at other opportunities. So we've got a lot of confidence around that forecast for that business. Slide 19, Vodafone New Zealand. So Vodafone has been in the portfolio for 8 months. There's a few things here. I mean, yes, we are very, I think, fortunate to get ahold of such a high-quality part of the New Zealand economy, particularly -- and we've seen, right, during the COVID-19 crisis just how essential and important resilient mobile and fixed broadband networks really are to our functioning. And I think the industry is really pleased to be able to say that those assets and networks have performed well. And there's a lot of interconnectivity with that infrastructure. So the level of cooperation on the physical side has been pleasing. So I think we've done our part in delivering that critical infrastructure to New Zealand, and I congratulate the Vodafone team on their execution. We do know though that notwithstanding the demand for data services and connectivity that any business with a retail or customer base is not immune from the current environment. So whether it's a residential customer seeking payment relief or business failures inside the SME base or corporates who are thinking about downsizing or cost-cutting, it is going to impact that business. I do get the impression that there's a deferred or delayed impact on businesses like Vodafone. So I would -- we're cautious about this next 6-month period and looking at some of those key metrics like credit collections, service revenue impact and business failure. The most obvious, immediate impact has been roaming revenues, both inbound and outbound, but we've also seen a commensurate fall in prepaid volumes and activity as people have tended to use their fixed wireless and WiFi networks at home. I think going forward, we've got quite a significant program of work there broadly. It's transformational. It's strategic. But we do know that we have to compete day in, day out with our competitors in the market and continue to provide high-quality service. I think we've got a way to go there before we would say we're happy with our relative performance even though we're optimistic about the potential for our strategies to hit. And we do know the industry has, even with 5G on the horizon -- well, actually more than on the horizon being a current reality, we know the industry has struggled in the past to effectively monetize or convert demand growth for services into long-term sustained profitability. So that's something that we're going to focus on in that organization going forward. So that's Vodafone. Slide 20 is Longroad Energy. We've largely reported on Longroad's performance during the April 8 update. But just to remind you, this is the U.S. renewable energy, utility-scale development vehicle. We had strong economic performance. This year, there was a financial close of 4 large projects, which are noted on that page, El Campo Texas wind, Texas solar; Little Bear, California; Minnesota wind. I mean these are all gigantic-scale, even for North American context, utility projects. So this team is one of the most successful development organizations now operating in the United States. And we're really proud of what they're doing. It also now has quite a significant operating portfolio, which means it's got to provide network and operations services. It has a full pipeline, I mean several gigawatts of pipeline, and those are real opportunities for the group. I think we are cautious about FY '21. So looking ahead through March '21, I think there is quite a short-term deferral of corporates writing PPAs in North America at the moment. There is some thinness in the tax equity market. So what that means is that the highest quality of developers like our Longroad team will get their fair share of work. I think if you're a marginal developer or a mid-tier developer, you might struggle to get support. But I think everybody is impacted at the moment in the U.S., just looking at the extent of the crisis in that market. FY '22 looks much, much stronger again. I guess we can update you on whether we'll get more or less confident on that as the year progresses. Page 21 is more detail. It's still Longroad Energy. This detail really is just to support Phillippa's comments earlier that the economics being delivered from this vehicle have actually exceeded our expectations pre-COVID by some significant margin. The accounting hasn't been that helpful, particularly when we held on to 50% of the projects. So in those cases, we are still consolidating those assets as part of our operating portfolio. We can see there quite strong economics across the board, all 5 of those projects, with Infratil's share of the economics being USD 30 million to USD 43 million. So this entity continues to perform. So I'll hand it back to Phillippa, and I'll come back to the call when we're looking forward to the outlook. Phillippa?

Thank you. Thanks, Marko. So turning now to Slide 20. I'll start with Trustpower and Tilt -- actually Slide 22, Trustpower. As I noted, Trustpower has already reported its results. So I won't go into a lot of detail here in the interest of time. As the market knows, the headline outcome for Trustpower was a full year EBITDAF of $186 million, which was down from the $222 million in the prior period. Clearly, they had a number of factors that came to play in that result, including notably a couple of plant outages and lower North Island generation. So I think the overriding position for Trustpower was that it did view the result as disappointing and their expectation is that they will be able to deliver a better result out to FY '21. And in a similar vein, with Tilt Renewables on Slide 23, again, the team at Tilt have already well and truly reported and covered their result. Headline for us is that the EBITDAF contribution from Tilt is down from last year, but that is really just because of the sale of Snowtown 2, which effectively means that we had a reduced contribution from that wind farm for a 3-month period of the financial year. It is just worth noting that Tilt has fully consolidated that wind farm into its result for the period. And so that's what you see coming through our result as well. Now turning from the result and actually thinking about the construction activity, the only thing we'd note and clearly talk -- will have talked a lot about this, but they're going gangbusters with the construction of Dundonnell and also with Waipipi, and they have pretty good confidence in what the development pipeline looks beyond those 2 assets. However, what we had announced is that Tilt is undertaking a capital return of about AUD 260 million and that will be -- is expected to be processed in July 2020. So turning now to Slide 24 and Wellington Airport. And I think it's fair to say that the financial year FY '20 certainly paints a stark contrast to the outlook that we now see for financial year 2021. The airports reported EBITDAF of $103 million, was up from $101 million in the prior year, and that was even despite the impact that COVID-19 had on the month of March. So really, it actually was a pretty good year for the airport. Clearly, since 31 March or in fact earlier in that month, the airport has been taking steps necessary to adjust its activities and to manage its capital position until traffic revenues return to more viable levels. As you'd expect, this has involved canceling CapEx, reducing operating costs, renegotiating arrangements with lenders. And as Marko noted, the airport has also secured shareholder funding from both Infratil and Wellington City Council. So then as to the outlook, looking forward, what we've got is this weekend will be the first long weekend at Level 2. So we're hoping that we should see a pickup in the number of people traveling within the permitted Level 2 frameworks. At this stage, clearly, it's a bit of a moving feast as to what the FY '21 outlook will be like. However, the airport currently has a midpoint forecast of domestic travel returning to 60% of pre-COVID levels by March '21 and that international travel will be at 20% by March '21. Clearly, the latter will -- is heavily dependent on how we go on our trans-Tasman bubble. So then the final slide for me, and I'm turning to Page 25 in RetireAustralia. Not dissimilar to Wellington Airport, RetireAustralia was actually starting to hit its straps in financial year 2020. Resale settlements were up to 292 as compared to 244 in the prior year. And I think that the business is making good progress on its sales strategies generally, and we were anticipating a very strong start to the FY '21 financial year. As you would expect, quite a bit of that had to be reassessed with the outbreak of COVID-19. And RA's top priority at that point was to protect its residents. And along the lines of what Marko was saying earlier, we've been very impressed with the way the RA team has responded to the significant challenges that COVID-19 presented and the responsibility that, that entailed for the entire team in terms of trying to protect the well-being of our residents. So on the development front, I think it's just worth noting RA completed the care apartments in Glengara Village in February. The sell-down of those apartments has been impacted by the COVID-19 lockdown restrictions. However, in contrast, construction was not halted in Australia. So RA has been continuing to progress with its construction at both The Rise in Wood Glen and also with its Verge development of independent living apartments. So really, on the capital structure and sort of economic uncertainty sort of position in light of the lockdown restrictions that were in place and the potential sort of outlook for Australia's economy, RetireAustralia has agreed with its lenders to transfer some of its available development facilities to core operating facilities. This is essentially to allow us with some -- to allow us to have some working capital buffer in the event that there was a slowdown in resales. And at the same time, RA's shareholders, being both Infratil and NZ Super, have each committed $10 million to support the business if required. So at this stage though, just to sort of look at how resales have been progressing in April and for the month of May, we've actually continued to have resales. I suppose though we have a cautious outlook given that the economic outflow from COVID-19 may take some months to really fully play out. Okay. Marko, I'll hand it back to you.

Okay, Phillippa. Let's see if we can wrap the presentation up before we move to questions. Slide 26, the outlook to March 2021. I already indicated at the start of the presentation that we aren't offering group guidance at this stage. We have however given, via our listed subsidiaries, Tilt and Trustpower, some guidance for next year. You can see there that Trustpower is talking about NZD 190 million to NZD 215 million as EBITDAF; Tilt, AUD 80 million to AUD 95 million of EBITDAF. We've also offered some outlook statements around CDC Data Centres, March 21 EBITDAF reported of AUD 145 million to AUD 155 million. So those components, I guess we're feeling like it's sensible to offer guidance. The reason why we're not talking to some of the other assets, I mean just quickly reiterating -- Wellington Airport is sort of obvious. As Phillippa said, there are some new activity going on there particularly around domestic. We have no idea when this trans-Tasman bubble will start, although we're all keen to put a start sooner rather than later. Vodafone, already mentioned, has got fundamental uncertainty also related to international travel with roaming revenues but also prepaid uses generally via these lockdown restrictions. RetireAustralia, Phillippa just talked to, but also, I guess we've got longer-term questions around resales activity and house price inflation. And Longroad, I mentioned already the ability for corporates to write revenue contracts or PPAs and the sort of the tax equity market. All of those are quite uncertain even though I think we're trying to manage as aggressively as we can. When those things start clearing up -- fundamentally, I don't think we're waiting for the last element of uncertainty to come clear. But when we're seeing a bit more answers to those, we will offer updated guidance. So we're not withdrawing guidance on a permanent basis. We understand the importance of that for investors and analysts. Capital expenditure, similarly, I think we are cutting our cloth to meet the economic environment we're in. I mean that's what you'd expect us to do as active managers. There are some areas of confirmed growth, so Tilt via Dundonnell and Waipipi, Longroad for those projects where we reached financial close during this last financial year, Vodafone through 5G and other network capability build, CDC with the Sydney campus in particular being dominating our CapEx program. Those are all continuing. So just to be clear, we're not holding those in. But other parts of the business, we're being cautious. So a final set of comments on Slide 27. I think it's just -- it is important to just sit back now and say, okay, we've had a decent result through March, but we know that March was not particularly -- that year to March were not particularly impacted by the current environment. We had about 1 month worth of COVID impacts on some of our businesses, particularly at the airport. We've got a bit more information today about the quality of our capital position. And as I said at the start, those elements that we can't control as a group, I think we've done a pretty good job. Your guess is as good as mine around what it means around long-term GDP growth and economic activity in not just New Zealand but in Australia and North America. And I think we've -- we understand the impacts of those scenarios in our businesses and we're prepared for them. I think one thing we can say for sure is that our relative overweight positions now in renewable energy and with digital infrastructure should drive relative outperformance. That's our views as manager. And that's during a sustained period of economic activity or slowdown in economic activity. If things look better, I guess we'll have better absolute performance. So that's not a bad position to be in at this time of the crisis. As I mentioned earlier, we've -- not only have we continued the capital programs in some of our subs, we will get the benefit of the work we did last year flowing into this FY '21 income statement. The capital position is -- as I said, we've done a lot of work to give us the comfort that we've got today. We are still rationing capital, right, to support our businesses and make sure that only the highest-value developments are getting access to funding. We've got a default position, which says we're going to prioritize our existing platforms because that's -- the scalability of those platforms, we think, is what -- a critical part of our model in the future. We've done what we needed to do with our lenders, around 2 assets, Wellington Airport, RetireAustralia. And we are not out of business in terms of looking for new opportunities for the group. I don't -- and I don't think, as a group, we subscribe to the idea that there's a lot of COVID-19 discounts out there, certainly none that are worth acting on today. But we are very aware that these are exactly the sort of market conditions that suit Morrison & Co and Infratil's capability. So it's our job to seek those out. And this is over and above the additional development activity inside our existing platforms. I think you don't have to be a politician to talk about how important infrastructure is as an essential component of economic recovery. We've been banging on about that for -- since 1994. But we do think productivity is just as important as job growth, and that's sort of what we're focused on, right? That's a medium-term to longer-term analysis. And I'd like to think that our decarbonization, digital infrastructure, social infrastructure assets are all important parts of the economic recovery story in each market that we operate in. And I'd also like to think that Infratil is doing a responsible job via its operating subsidiaries to make sure it's turning up as an adult in those discussions and activities. Okay. We're at 10:45 Wellington. Taylor, can we take questions, please, on the phone?

[Operator Instructions] Your first question comes from Andrew Harvey-Green from Forsyth Barr.

Marko and Phillippa, a couple of questions from me, as usual. First of all, just starting off with Wellington Airport and probably sort of an easy question hopefully. If March had been normal and you didn't have the 40% decline in passengers, are you able to give us an idea of what the EBITDA would have looked like without that disruption?

I think it was about $3 million higher.

So Andrew, that -- and for the call, that was Tim Brown in the channel.

Yes. I recognize that voice, yes. And the second question I had around Wellington, what I guess are just the discussions you've got particularly with the USPP and -- are you looking for, I guess, a similar waiver of covenants with them? My understanding had been that a covenant breach would have only resulted in a sort of a modest increase in interest rates and therefore wasn't overly onerous. Are you able to give us a little bit more color around that? And therefore, flowing on from that, I guess, that any change in view of the likelihood that Infratil and Wellington City Council will have to put funds into the airport?

Sure, Andrew. The terms have basically been fully agreed with Pricoa also to provide the same sort of waiver as the bank. So everybody has lined up the bank agreement as the shareholders agreement has actually been documented. The Pricoa one has been turned into a document sort of as we speak. So I would guess that next week, that will actually be fully sort of formalized, if you like. The only outcome that could possibly, as we said, result in a call on the shareholders support is that under the agreement which we agreed with the banks is that if the airport is credit-downgraded to below BBB, then the banks have the right to actually require that the shareholder payment is made or at least they have the right to actually sort of require mediation. So it's been a very amicable and constructive arrangement that we've agreed with 4 banks, the USPP lender and the 2 shareholders. So we're actually pretty comfortable that this is going to see us through basically.

Okay. Great. Next couple of questions are just around CDC and I guess, in particular, the move into New Zealand. And just to be interested for more color in terms of, I guess, one, why New Zealand, why not going into Melbourne. Do you have any customers already signed up? What's the -- yes, what's the -- are you able to give us a bit more color around that, I guess?

Can I -- Andrew, can I ask -- we've got Will Smales, who's available for that. So Will is one of our senior executives at Morrison & Co. He's also directly involved with CDC as a Director. Will, can you take a crack at that?

Sure. No problem, Marko. Andrew, look, the extension into New Zealand was the same strategy that we've had from growing from Canberra to Sydney, i.e., following customer demand. And whilst we're not commenting on who the customer got in, that's kind of an established policy to let our customers talk about where they're located. That New Zealand development will be cornerstone by existing customers and long-term contracts, not up 100% of the capacity but a portion of the capacity when it's ready for service in early calendar '22.

Great. Okay. And second question on CDC was just in terms of the outlook. I noticed you haven't provided any run rate guidance this year. But looking at the FY '21 guidance range, I guess it was a wee bit lower than what I'd been anticipating based on previous comments around growth rate that I guess we were expecting out of Sydney primarily. Has there sort of been any change in the sort of the expected pickup in Sydney and Canberra for that matter?

Andrew, the Sydney development and the run rate attached to those are quite formulaic. So they've agreed ready to service that. So the area of uncertainty for us was less around the Sydney development but more around existing federal government and demand into Canberra. And as you know, those contracts are quite lumpy. And often, we will win a tender then the government will take time to get its house ready to deploy it. So any slight variance in outcome is usually just related to timing with respect to those government customers. But overall, all the expected wins has happened. In some cases, there were short delays.

Okay. Just 2 more questions. On Vodafone, I think on the slide there, there's talk of a $67 million purchase adjustment. Are you able to just talk a little bit more about that? Is that cash coming back? Or are we talking about, I guess, a lower sort of subsequent payment that needed to go before the acquisition?

So that's -- those are pretty standard working-capital-type final completion adjustments and it is cash and that's the total. So it will be shared between Brookfield and Infratil.

Okay. Great. And similarly, I guess I'm thinking about earnouts. NZ Bus obviously has been greatly impacted by COVID-19 as well. Is there anything at risk in terms of the sales proceeds from that? And I guess -- I think it was a loan that was made to the acquirers of that. Is there anything at risk there?

Maybe -- Andrew, it's Phillippa here. I can answer that. The earnout period for NZ Bus was well and truly over by the time COVID-19 came through. It was actually on the later part of calendar year 2019. So there was no flow-through impact of COVID-19 on that earnout. We do still have a fair process to go through yet to finalize that earnout. So what you'll essentially see in our accounts is that we aren't -- we have currently impaired the receipt of that loan, but really, the point to note is that's as much about how much certainty we have over the outcome. That's really just an accounting construct. As you will appreciate, earnouts by their nature have to be agreed between the parties. The threshold that's required for accounting is much, much higher than that. So because of our balance state being pretty much right in the middle of that earnout outcome, then essentially, we've not continued to book that loan for accounting purposes, but the process is still well and truly underway and ongoing. We have a fairly clear view of what we think that outcome will be and we'll be able to speak to that more, I would expect, at our FY '21 half year result.

Your next question comes from Stephen Hudson from Macquarie Securities.

Can you hear me okay?

Yes.

Just a couple of quick ones from me. Just on CDC perhaps for Will. Will, one of your, I suppose, counterparts in Australia talked recently about an acceleration of demand for data centers as a result of COVID-19. So with the sort of a move to touchless everything and I guess increased urgency over cost-out and efficiency moves by companies, they had seen sort of 5 years of demand pulled forward to the next 12 to 18 months, they thought. I just wondered if you could comment on that and whether or not you think that COVID-19 has had a similar impact on your demand profile going forward. I guess relatedly, I'd just be interested in the independent valuation. You've got the installed space going to 275 megawatts. So I just wondered if you can give us an idea for what the independent valuation, which date, which year the 275 is hit in terms of installed capacity. And then just finally on land. You've got land in Canberra and Auckland to support installed megawatts above the 275. I just wondered if you can sort of size that up for us.

So Stephen, Will here again. So to take those questions in turn. On demand, CDC is experiencing similar sort of demand impacts that -- the other supplier you talked about. Remembering though that in our case, our large clients are federal government. So they have -- the good thing about federal government is that they're very sort of regular in their spend patterns. So whilst we have seen certain customers bring forward deployment of equipment, it's not a material step-up that you may see in certain commercial areas. We do think though that there's some balancing headwinds. Yes, I think outsourcing to third-party providers is a net cost benefit. And I think for us, we will continue to see that trend. I think for other suppliers in the market that are more exposed to mid-tier commercial customers, it remains to be seen what the overall macroeconomic downturn impact is for them. With respect to the installed capacity on -- in the independent valuation, so I don't have that information at hand. So I can't answer that, but I'll leave it to Phillippa as a potential follow-up. In terms of additional land acquisitions, look, our strategy as a Board and then as a management team is always to be on the lookout for new land sites. So as Phillippa pointed out, we have acquired the 2 land sites in New Zealand, which will add another 20 megawatts of capacity when those come live from 2022. In Canberra, we have again secured land there. If you think about the Hume 4 being sort of again a 20-megawatt plus site, when we think about the next site in Canberra, the build will be of about that scale.

That's useful, Will. Sorry, just one other question, if I may. Just on the New Zealand corporate bond market, I just wanted to get perhaps Phil or Tim's view on the current pricing and liquidity in that market and how you're seeing things. I realize you don't have any maturities coming up for a couple of years, but just interested in how you see that market recovering from here.

Well, Steve, it seems to have recovered remarkably well. I mean I think we've been followed up, as you would probably imagine, very closely over the last couple of months. And obviously, in late March, we were quite concerned, and the Board confirmed that they were willing to support buybacks if pricing became anomalous for our bonds. But the buzz that we got from a lot of people was that actually our pricing was just consistent with the overall market. So there wasn't much point of being the guys that have -- Canute while the tide's rising. And we had a conversation with Christian Hawkesby and a series of other conversations with people at the Reserve Bank about the bond market in general. And so a lot of people were watching it very closely, but I think the bull market actually came through the whole sort of crisis period extremely smoothly. And what we're seeing now is relatively good. Everybody who we talk to -- and we talk to all the brokers who trade our bonds quite a lot, and they will tell us that there's actually very good liquidity in the securities and the pricing is actually sort of relatively normalizing.

Your next question comes from Nevill Gluyas from Jarden.

So a follow-on from the CDC -- that's a hard one to pronounce. Just following on CDC, 130 megawatts once Eastern Creek 3 is completed, if I've got the numbers correct. The EBITDA guidance sort of seems to be consistent with that 20% to 30% growth we heard sort of late last year. But I guess at the time, that seemed a little bit light, sort of reconfirmed now on $145 million to $155 million. Perhaps another way to ask sort of -- or to elaborate is if you -- once sort of at maximum contract level, the 130 megawatts, what kind of EBITDA run rate should we expect from that?

Do you want to take that, Will?

Yes.

Thank you.

Yes, yes. Sorry, it's Will here. I'd have to get back to you on that one. I guess my guidance today is looking at our existing run rate with our current contracted megawatt. I think in terms of pricing going forward, that's pretty consistent. So that can be extrapolated from there.

So based on the current run rate, I guess the difficulty is it's -- we're never quite sure what megawatts to divide by. I mean maybe that's a way of answering the question too, sort of what were the contracted megawatts for the $135 million run rate?

We can probably follow up with you on that separately maybe, Nevill.

Yes. That would be great. That would be really worthwhile. Just another couple of questions on CDC. The first one is I have presumed that the 20 megawatts in New Zealand is sort of really kind of domestic service, local service customers. And you've talked before about -- well, as much as you can, about sort of the clients for that. I'm interested, is there any sign of a market for higher latency services? I guess this is sort of the dream that maybe -- if, for example, speed and capacity, power capacity came available in New Zealand but there was a market for higher latency data center services interested in some kind of commentary on that.

Yes. No. It's a good point and it is an emerging trend. So from a broader global perspective, you are starting to see more remote locations where latency is an issue. But because of the relative cost advantage from lower power prices that people are differentiating between the types of workloads basically close and the types of workloads they put away. So we're increasingly seeing those conversations happen at the CDC level. To date, the power differential within Australia hasn't meant that those conversations have happened within Australia, but increasingly, you could see a scenario if New Zealand had a relative cost advantage on the power side that some customers certainly from Australia or even further afield might choose to leave workloads or storage in that location. Just to be clear though, that is not the business case for New Zealand at the moment. That would be an upside relative to -- over how we sized and thought about the market today.

That's really useful. And just last one on CDC. If you -- I presume you're still looking at other geographies. Any idea when we kind of might expect updates and progress there?

We are looking at other geographies. And it's important -- I think Andrew even referenced it slightly, why New Zealand ahead of Melbourne. We're executing on the opportunities that are the most prospective immediately in front of us. But I think it's fair to say when we talk about other geographies, CDC today is only present in Canberra and Sydney. And certainly, other markets like Melbourne are important, and we're looking at them at the moment to see whether it makes sense to deploy. And again, looking at our customer base, our customer base includes large federal government departments like defense. For defense, the most obvious location might not be Melbourne as their workloads may be in other locations, which are different from corporate customers.

That's great. Moving on to the next topic, Wellington Airport, just a little bit of elaboration. I guess to confirm, I think what you've probably already told us is we shouldn't expect the subvention payment to be made this year.

No. Actually -- Nevill, it's Phillippa here. The subvention payment is expected to proceed in sort of June, July 2020, and that has been part of the discussion with both shareholders and lenders and the airport itself. That essentially allows us to draw a line under that 31 March 2020 result. And as you can tell, we're also though, as shareholders, committed to reinvesting those amounts if required. So there will be a subvention payment and a dividend to Wellington City Council. We're expecting in the ordinary course for March 2020.

Just to be clear though, that -- for my benefit, that relates to the FY '20 year though, doesn't it -- to FY '21 year? [indiscernible]

Yes, absolutely -- sorry, I beg your pardon. So for -- there will be one for March 2020, and we are not forecasting one for March 2021.

Great. Just a couple of questions on the valuation table, both sort of the suggested one and the formal one for the international incentive fee. So Wellington Airport, I see you put the 15x EBITDA figure out there. Was there any logic to that?

No, not particularly. I think it's very hard to value an airport right now. So I think maybe -- and actually, it's hard to value Wellington Airport because it's not just any -- it's not necessarily the same as even airports within New Zealand given its heavy emphasis on domestic travel relative to international. So there's no methods to be taken from that. I think really, it's just a function that we're setting at 31 March. We're dealing with an asset that has been significantly impacted by a pandemic and we've taken a shot at it. But we do think that Wellington Airport has a very different profile to some other airports. So really, the test will be time and how the domestic and international travel comes back.

Great. And that segues nicely into the next question, which is, I guess, those 2 forecasts, the domestic and international travel, both would assume -- have some sensitivity to the trans-Tasman bubble idea. If the trans-Tasman bubble didn't occur, what would those figures be in terms of seasonality?

So Tim isn't here at the moment, Nevill. He just had to leave the room. So can we come back to you on that?

Yes, that would be great. And last question from me, promise, is RetireAustralia and the valuation, the formal valuation in the table you've offered there, obviously declined, I think, if I remember correctly, $90 million. Can you explain the basis for the valuation and what the core reason for the change were from a valuation perspective?

Nevill, we've got Peter Coman on the line. He's the chair of RetireAustralia, also another Morrison & Co executive. Peter, can you take that question, please?

Yes. Sure. Nevill, it mainly relates to the investment property valuation component of RetireAustralia, where we took a deduction in kind of house price assumptions for FY '21 and through FY '22 or at a period of sort of stabilizing and also kind of an adjustment to the discount rate for those assets.

Your next question comes from Phil Campbell from UBS.

Just a couple on Vodafone. I see the EBITDA has come in at about $481 million, which was kind of more towards the top end of the range. And I think back in April, you were guiding towards the bottom of that $460 million to $490 million range. I was just wondering if there's anything that you can kind of give us some color on what was causing that or whether there was some one-offs in there. And then the second one was -- I'm not sure whether you'd want to answer this question, but we have seen a number of telcos, including Vodafone plc, give us some commentary around kind of April trading and 2degrees gave a commentary on that as well in terms of revenue growth. So I'm just wondering if you're able to give us any comment on what was happening in April and possibly May for Vodafone New Zealand.

Phil, it's Marko. Just on your first question, it was basically better than -- good cost management is what got us to the EBITDA outcome for this year. So it is a pretty hard control over the expenses in that organization that -- then that obviously has continued into management of sort of overheads this year. So I don't -- I wouldn't extrapolate that number or that performance particularly, although I think we're reasonably satisfied with where it landed. In terms of April performance, it's really -- just reiterating what I said before, we have seen obviously roaming revenues disappeared. We have seen a recovery and a little bit of the prepaid issue that I mentioned that was a feature of the first part of the COVID crisis particularly during Level 4 and 3 restrictions in New Zealand. So that's the level of activations and level of usage for new prepaid customers. So -- I'm sorry. I didn't see 2degrees' announcement, but presumably, their -- all the telcos will be seeing something similar to that front.

Your next question comes from Andrew Harvey-Green from Forsyth Barr.

Just one follow-up question from me. In terms of Vodafone and its relationship with Sky TV and the reselling, we -- obviously, we've seen Sky TV announce that it's going into broadband. Are you expecting any sort of change in the relationship with Sky TV and the reselling of their product?

I mean possibly. I think the relationship is still warm. But obviously, Sky has got sort of a number of significant issues, right? They're probably not so worried about Vodafone at the moment when they've got other more important matters. I mean we'd like to keep working with them on a commercial basis. I think they also talked about offering a mobile service, right? So we could be a wholesale provider of some of those services. But I think, yes, the days of the sort of the straight retail arrangement are probably numbered, right? But that -- those conversations are ahead of us. They haven't happened.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Bogoievski for closing remarks.

Okay. Thank you, Taylor, and thank you for everyone on the call. I appreciate we're running a little bit over, but it's always good to take additional questions. And we've got a couple of follow-ups, Phil.

Yes.

So we'll come back to you directly where we weren't able to answer questions on the call. Our next scheduled update is at the half-year result. So that's November. And we look forward to talking to all of you there. Thank you. Thanks, Phil.

Thank you.