Infratil Limited (IFT) Earnings Call Transcript & Summary

Okay. We're getting the thumbs up, so we'll get started. Thank you. Good morning. Welcome to everyone in Wellington joining us for the 6 months' results announcement. Hopefully, we've got a few people on the phone as well. And the usual formats apply, questions in the room first and questions on the phone at the end of the presentation. I'm Marko Bogoievski, Chief Executive. I'm joined by Phillippa Harford. I [ have ] to think about you for a second. So look, we have a lot to actually talk about for this half year result. There were quite a few changes in the portfolio, as I think, have been well advertised. Nothing new or surprising in the result. But I think it does make comparisons a little bit more challenging than normal when you've got large assets coming in and out of the portfolio. And we've also moved to a different way of expressing our expectations for the business. So you'll hear this term proportionate EBITDAF, proportionate CapEx and investment. And I think it's a more intuitive way to think about Infratil in the way it's structured and its economic exposure to the underlying portfolio entities. So that's why we've done it. It's actually -- we are encouraged by a lot of institutional investors and by analysts. So hopefully, it's a positive move forward. So just turning to some of the highlights for the half year. So on that basis, we recorded a $27 million net parent surplus versus the $56 million. So that's the first sort of headline that's explained primarily by changes in composition in the portfolio. Phil is going to take us through that in a few slides. We continue -- I think one of the key messages that we continue to invest, notwithstanding the difficult macro environment and major investments. So most of that, as you can see on that slide, is going into what we call digital infrastructure and renewable energy. And that's the areas where we feel the most confidence, but we're also continuing to invest at above maintenance levels and effectively, all parts of our business, including, interestingly, Wellington Airport, which took the opportunity during a slower period of activity to keep some important safety CapEx and measures under way. So yes, we're not holding back given the environment. We're still expressing quite a lot of confidence, and obviously, there was a new acquisition that turned out post September 30, which was a diagnostic imaging business. Again, we'll talk about it, Qscan. But I think it's a first step into what should be a scaled new sector for Infratil and for investors to think about. Partial and future dividend of $0.0625, that's the same nominal DPS that we had for the same period in the prior year. So you'll hear more from me later.

Thanks, Marko. Yes. So as Marko indicated, there has actually been quite a few moving parts in the portfolio. So I'll just take you through some of the things that have caused some movements. We've got that net parent surplus of $27.8 million. As you'd expect, the reduction in revenue from Wellington Airport is a big contributor to that along with some reduced project disposals by Longroad, and we are also accruing a higher incentive fee this period of the $57 million compared to $12.8 million last year -- last period which I'll take you through separately. And the highlight there for proportionate EBITDAF, as Marko said, we've moved to this new measure or way of reporting our EBITDAF across the group. That's at $229 million, up from $204 million, with the main contributions to that being the continuing ramp-up of CDC and also a full 6-month contribution from Vodafone, whereas the prior period only had a 2-month contribution. And I think it's -- as Marko said, it's a good way to think about the business now. We have [ leased ] 100% owned subsidiaries. We've got some entities which we consolidate at 51%, some entities which we own 48% and don't consolidate. So I think moving to this consistent basis whereby we treat each investment the same will hopefully give greater clarity to how the business is performing and make it sort of easier to understand. And in the same vein, we're also taking that approach for our capital expenditure investment. You'll see there that this period's CapEx and investment is $488 million, down from the $1.4 billion last year. But of course, that period included the $1 billion equity investment into Vodafone. So stripping that out actually on a period-to-period basis, it's relatively comparable. And then as I noted, we've got the incentive fee accrual of $57 million this period which I'll talk to later. So then just quickly moving through some of the highlights about the results summary itself. Operating revenue quite significantly down from $802 million to $662 million. Two key drivers to that, however. You may recall that Tilt Renewables sold at Snowtown 2 wind farm, that had made a full contribution to the comparative period and obviously no contribution to the current period. And in addition, you've got the impact of COVID-19 on Wellington Airport which you'll see come through but essentially resulted in a drop in revenue by about $45 million. So that's a big impact on that line item. The reduction in depreciation and amortization, that's essentially the disposal of Snowtown 2. Clearly, those assets aren't depreciated anymore. And in a similar vein, that disposal has also flown through to our net interest expense for the group, down from $85 million to $72 million. And that also had a reduction given our capital raise that we effected in June. So we had $300 million of capital into the corporate vehicle, and we used that to pay down debt in the meantime. And you'll see what our net debt position is a bit later. So proportionate EBITDAF. This is just essentially, instead of bringing in the likes of Trustpower and Tilt and Wellington Airport on a 100% basis, we now bring in our share. Just interestingly, CDC and Vodafone, we'd already done that approach in, beg your pardon, in the 31 March results. So really, this is consistent with the approach we've taken already. You'll see CDC Data Centres is up quite a tick from the prior period. That will be because we've effectively got new facilities coming online and existing facilities also filling up a bit more. Vodafone, you'll see the difference there is a 2-month contribution from the prior period in contrast to a 6-month contribution in the current period. And I think the other thing to note is the Longroad contribution from the year there. That's largely because they've had more development expenses in the current period. So quite a bit up from the prior. I'll move now to Slide 8 and just quickly talk to our proportionate capital expenditure investment. Some of this will be already quite familiar to you, but Tilt Renewables, significant amount of CapEx on the Dundonnell wind farm, which is now fully -- we're not quite fully operational, but certainly, all the turbines are now spinning, which is great news. We've also got CDC Data Centres. Their main contribution in that period was actually the completion of Eastern Creek 3 week. That actually is now an operational asset. And pleasingly, we've also had some CapEx spend in Auckland on the 2 sites, so that those sites both have -- those projects both have resource consent and the construction is under way, which is a great sign for CDC. And interestingly, Longroad Energy, certainly, the pace of capital expenditure and development is not slowing down there despite COVID, despite the political turbulence over the period. But yes, we've got our share of that CapEx is $113 million for the 6 months. The other thing I would note actually also is Infratil Infrastructure Property has completed its hotel in Auckland, which is great. It actually opened, I think, 2 weeks ago, Travelodge, if you need a place to stay in Auckland. And we're very happy that, that project has got through, and it came through essentially a little bit behind time because of some of the COVID issues but certainly on budget, which we were very pleased about. And just to note with Infratil Infrastructure Property as well, it's also announced the sale of its Kilbirnie site. So that site has been sold for $35 million and will be settled on 31 March 2021. So that's another good -- sort of good progress for our IIPL. And then quickly, debt capacity and facilities. We had $85 million of drawn debt at 30 September and available facilities of $593 million. That was after taking into account our $300 million equity raise and the capital return proceeds from Tilt Renewables. Where that leaves us is a gearing level of about 28% at 30 September. As -- just to note, though, of course, we've at the moment got earmarked $350 million for the acquisition of Qscan. So those numbers don't yet reflect that because it was an October transaction. And we'll talk a little bit -- Marko will talk a bit later as to the status of that. In terms of our renewals profile, we have a debt facility maturing in February '21 which we've got discussions under way for renewal, and our next bond maturity is in June 2021 for $93 million. And then just to pause, I suppose, for a minute to talk about shareholder returns. I think when we last presented the annual result in May, the Infratil share price had clearly suffered the impact of COVID-19. We dropped to, I think, a number that was like $3.16 at that point. Looking to where the share price is now, we're at $5.40. Therefore, the return to shareholders over the last 6 months has been 32.1%. A lot of that is actually seeing the share price return to pre-COVID levels. Interesting to note, we've also had the equity raise in the middle or at least in June. So that will also be coming through. And just to note that Infratil's return since inception over the 26 years, at 17.5%, something we're very proud of and, yes, pretty good track record, I think, by any stretch. And as Marko noted, we've got a partially imputed dividend of $0.0625 per share. So maintaining that, notwithstanding the equity raises that we've effected in the last 12 months. And then moving to the international portfolio incentive fee. We have got an update of the annual incentive fee accrual that we're posting for 30 September. I think it's worth noting that at this stage, the accrual is exactly that. The fee gets determined at 31 March and doesn't technically get determined any time before then. However, from an accounting perspective at 30 September, we make an assessment of what we think that fee might be at 31 March 2021. You'll see that the key drivers of that fee are CDC Data Centres and Tilt Renewables. Starting first with Tilt Renewables, what we've done is determine that on the basis of Tilt share price at 30 September. Rolling forward to 31 March, that will actually be determined by an independent valuation, which is the usual process for all of these assets. Then looking at CDC Data Centres. We are estimating a performance fee of $43.5 million in relation to that. That's based on an investment valuation range of about AUD 1.60 billion to AUD 1.8 billion. It's worth noting that, that is based on an independent valuation that was undertaken at 30 September. And that for the purposes of that valuation, total capacity of CDC was estimated at 278 megawatts. So that effectively is taking into account data centers that are already operating or under construction, whereas land that CDC holds is just carried across for the purposes of that valuation. And as you'd note, the -- as I've noted, the other investments will be valued at 31 March, and it's just worth noting that any performance fee that is payable will be split into 3 tranches with only 1 tranche payable initially and the other 2 tranches being dependent on the value of those assets remaining at the value that gave rise to the fee in the first place. So I think that's me. Marko, for you.

For now. Thank you, Phil. So I think we'll just -- a few comments on our portfolio. So the way we're thinking about allocation, our sector exposures, what's sort of moving most quickly, what we think we need to address and why we're still pursuing some new areas. So Qscan is an obvious example, Slide 12, for those online. So we have been tracking, and I think we've already given these messages largely into sort of health care sector broadly from infrastructure owners' perspective for quite a while. We didn't -- part of our interest is just understanding how a dollar of invested capital in that area can return a multiple of benefits to overall health care system costs. And this area, diagnostic imaging, is in the sort of preventative end of the spectrum. It's an attractive area. I think that's going to attract -- get support from politicians, from health care professionals. And we can see -- that's why we see quite high organic growth rates in that business. So it's already traveling in the sort of reasonably high single-digit percentage year-on-year growth in revenue. It also is operating in a largely fragmented business in Australia. So you would expect some consolidation. Qscan would be one of those consolidators. And you've also got scarce resources around the doctors, the radiologists and the clinicians that operate these facilities, which -- and who are attracted to premium quality operators. So they've got a natural set of advantages in their position with clinicians and their position throughout 70 sites, I think, throughout Australia. And they're sort of what they call the modality. So the percentage of work they do in terms of the newer technologies like PET scans, MRIs, a little bit less on CTs versus other imaging businesses. So it's a really interesting starting point. I would expect it to grow organically quite strongly. And we have the usual choice at Infratil about what to do with the cash flow -- the free cash flow that's being generated, whether we use it to further consolidate the position or whether we use it to support parent company cash flows. So that's why we're interested in it. I think one of the conditions since we announced it has now, I think we can say being met, which is the doctor rollover percentage. So we're keen to get to a position where existing doctor shareholders rolled their equity into this new venture, this new business working alongside Infratil. I think the outcome of that is Infratil will end up with slightly less than 60% of Qscan. But actually, it's a good outcome. We wanted more doctors involved in the business. We'll confirm that when we actually close the transaction because the final number is dependent on completion adjustments. We still have to go through Foreign Investment Review Board approval. So we don't expect those to be forthcoming. But they work on a defined sort of statutory time line, and I think 31 December is when the target date is and that can be extended. Okay. So Slide 13. So what does that do to our -- sort of the way we're thinking about the sector exposure in our portfolio? I mean a way -- I think it's usual to aggregate, as we've talked about previously. So whether you think of it as digital infrastructure or data or -- and telco infrastructure, whether you think about renewable energy or energy sector more broadly, we sort of aggregated social infrastructure being RetireAustralia and Qscan on these slides. And that's the way we think about sort of the aggregate exposure. It is a high-conviction portfolio. So that's concentrated for a reason because we've done our homework, and we like the sector exposures. We've talked a lot about the current drivers of valuation. I think, CDC, clearly, and perhaps to a lesser extent, Tilt Renewables, are driving the net investors' view on the overall Infratil share price. I think it feels to us that that's still sort of a game of catch-up, partly for good reason, right? CDC continues to stamp out real contract growth that's driving new construction and new megawatts that you can incorporate into a valuation. And we saw that following the investor announcement we did a few weeks ago in Auckland. So I do think there's a long way to go there with significant upside potential. I mean it's difficult to describe it any other way, and that's the way it's performed since we bought it. And Tilt, I think, actually probably had least discussion, continues to perform well in the market [ despite ] of uncertainties, particularly in Australia. And -- but we've seen some recent valuations for renewable energy platforms, whether they're in the U.S., Europe,or even Australia with Infigen, that are -- we don't think is being -- are being reflected, either in the Tilt share price or in the Infratil share price. So it's sort of interesting for us to see these sort of big changes. Obviously, we need to perform. We need to execute on Vodafone, which is another large investment we made last year. That's how the portfolio is shifting. So maybe on -- at the individual level, a couple of comments, and I'll do some of these, and Phillippa will do the rest. Slide 15. So CDC. So this is a straight organic growth story. I don't think you need Infratil or us to talk to you about data growth and why these types of facilities offer critical infrastructure in the economy. I think they execute at a high level. They've got a pristine customer base. They have a clear pipeline of opportunities, which means sort of land in the right spots that can reinforce their sort of ecosystem that Greg Boorer always talks about. And again, it's actually hard to keep up with the rate of earnings growth. And a year is a long time in trying to form a view on the value of that business. So we're getting -- we've always been optimistic. We're getting more optimistic. You can look at the spread of analyst views on valuation that's quite a wide spread between the sort of lowest valuation and the highest. So I'll think about if we're -- if you're a net investor. I think the movement to New Zealand is important. It's a starting point. That shows how exportable the model is as well. And we'll see where we get to. But I would watch out really for their -- for them to keep doing what they have been doing, which is sort of to surprise on the upside. Vodafone is in a different category, obviously. It's got very, very, very different profile around its revenue growth, which is effectively flat. Quite significant costs coming out of that business as you transition to a new lower-cost model. We talked about that in Auckland again a few weeks ago. I think the current performance is a reflection of a few things. Some of the things we inherited, which was just their net position in the market, whether it be on account mobile, which is still performing at a high level versus fixed consumer broadband, which I think is struggling. But it's also had some direct COVID impacts and some direct investment that's gone into things like IT stability, customer experience. I think, again, we've talked about those before. The net of it is sort of outcomes you're seeing this year, which is sort of 7% to 8% off on an estimated basis for the full year this year versus last year. I think that is actually a respectable performance, given a number of moving parts in the entity. But the big thing to watch out for is the sort of the rest of that slide, which is the investments we're making and what we're thinking about as a new, simpler, more lean Vodafone. Some of that is getting the leadership investment in place. And you've met some of those senior leaders, again, recently join that business. And I think in some areas, you'll continue -- no one is waiting for us to get our act together, right? So we're still going to get investment going and continuing in areas like 5G. So 5G is -- remembering that in the next few years, 5G is mainly about capacity and for cost out and for supporting a fixed wireless program. So that's where the real benefits come from. Where we would expect to get to on? Effectively, network quality, network coverage, network experience in New Zealand is largely equivalent, we would argue, [ with Spark ] where I think we're competing on network. I think where it comes to is we are a laggard in fixed wireless because of the way Vodafone plc thought about that product line. So where would we target at the moment is -- basically with Spark is at the moment in terms of the percentage of lower band -- lower broadband users. So -- and that's in sort of in a 4G world. In a 5G world, you have the opportunity to expand your targets for on net fixed wireless infrastructure. And don't forget, Vodafone also has a subset of their Wellington and Christchurch consumer base that also is on net potential via the HFC cable infrastructure. So watch out there. So Longroad, so moving now more into, I guess, a more development-oriented vehicle. It's been around our portfolio now since 2016. Just a quick reminder on this. So there's a few things going on here. This business continues to perform, we would say, at the highest level. We couldn't be happier about it. It suffers a little bit from the way we report development gains, particularly when we don't sell 100% of a project. We've sold 2 projects now at a 50% level where we're still consolidating those assets as if we still own them. We can't record the gains. You can see their information around the capital and income that's returned to Infratil, which is important, but it will come in large lumps, particularly as some of those operating projects are ultimately sold. You can see there 910 megawatts of project under construction. Those are giant-sized projects, even in the scale of the United States. And yes, they continue to win revenue contracts from corporates. They continue to win in these processes like the Hawaiian solar and battery project that's noted at the bottom of that slide. So this is one of the highest-quality platforms. And again, it's a difficult thing to value because it's now a large services and operating component to develop largely originally development-oriented business. But the value of the platform, which is the people, the pipeline, the operating assets, the service capability, is growing sort of every day. And we don't intend to test that any time soon, but we do know these are incredibly valuable platforms that are difficult to replicate. Sort of it's just hard not to emphasize that enough. So we have high expectations here.

Thanks, Marko. So turning now to Slide 18 in Trustpower. And clearly, the Trustpower results already been reported. So I won't spend too much time on it. It's good to note, though, that we've got an EBITDAF of $110 million, which is slightly up on the prior period, notwithstanding lower generation volumes and a bit of dry weather affecting some of those schemes. So happy with that result for the 6 months. Thinking back to when we last spoke about Trustpower, I think one of our areas of caution was how COVID was going to impact on Trustpower in a similar way to how it could have impacted on Vodafone in terms of collections. So it's pleasing to see that actually collections did sort of hold up during the period and that Trustpower hasn't seen a material impact come through from that at this stage. So I suppose like much parts of the sectors and actually the economy, in general, we've sort of got a bit of a watching brief on that. But from a wholly owned group perspective and thinking about our cash flows, which clearly, some people are understandably interested in, it was good to see the Trustpower dividend returned to $0.17 per share. That was up from the $0.155 that they declared at the full year in March. Moving now to Tilt Renewables. And similarly, that business has already reported its results with an EBITDAF of $31 million for the period. And largely, that is the impact of the sale of Snowtown 2, although there was also a anticipated reduction in LGC prices, which has come through to the EBITDAF result as well. Good to see yesterday, you might have caught that they've formally announced that they've reached agreement with AEMO to move the Dundonnell production flow to, I think, 236 -- 226 megawatts. That's good to see, and they've essentially updated the market that they are expecting Dundonnell to be at near full production by 31 December. So what that should mean is that we'll get stronger revenue from Tilt with -- from Tilt in the second half of this year, which is great, but still in line with guidance that they've have given. Clearly, they've also been continuing to work on their New Zealand development with Waipipi. Great to see that that's progressing and hasn't been held back too much by the lockdown disruptions. So completion expectation for that project is for the first half of the next calendar year. So that's great. Moving now to Wellington Airport. And clearly, the impact of COVID-19 was pretty stark from a revenue perspective with Wellington Airport. Revenue was down $45 million for the period and the airport as you would expect to respond quite quickly with what you call some pretty effective cost control measures. The business continuity plan really did kick in very, very quickly. And I think it's a testament to the airport to see an EBITDAF result of $10.9 million for the period. When we started out looking at what the implications of COVID-19 could be, we -- part of the question was what passenger numbers were going to be. And in that regard, it's interesting to see that we did actually have a peak day of 17,000 passengers through the airport. That was an obviously stark contrast to the sort of 6,000 that we're going through in April -- for the whole of April, I mean. So clearly, activity at the airport has been very what you'd call peaks and ebbs really as the COVID has gone through, but the domestic travel has responded well. And on that basis, we've got our EBITDAF expectation of $25 million to $30 million for the full year. As Marko said, though, capital expenditure, whilst we've put a halt on the growth CapEx, we have continued to invest in both the safety and actually some of the resilience projects. A good example of that is, given we don't have any international flights arriving at the moment, we've decided to bring forward the overlay project on the airport, on the runway. So what that means is when we do get a resumption of flights -- international flights, then rather than having that CapEx project occurring in FY '22, we'll have actually brought it forward, and that will be sort of job done before the international traffic resumes. So that's a good outcome for them. And then just to note, on the capital management side, we had a good support for our bond. $100 million was issued. So happy with that. And you may recall that we'd also put in place some shareholder support of $75 million with Infratil's share of about $50 million. That shareholder support hasn't been required today. So that's great. And then looking now at RetireAustralia. And interestingly enough, the 6 months for RetireAustralia has actually been as much a reflection of what didn't happen as a result of the way the team has navigated its way through COVID-19. So what we can see there is, as you would imagine, just to remind ourselves, what we've got 27 villages across Australia, 5,000 residents. I think you could call it no less than a call to arms when COVID-19 struck. And clearly, the emphasis of that business has been to ensure the safety of its residents, which is no mean feat when you're talking about 5,000 people. It's really a testament to that team to be able to report that they haven't had any cases of COVID, that they've navigated COVID very successfully so far. They've actually built up a lot of goodwill with the residents. And not only that but we've actually managed to navigate through 138 resale settlements. Certainly, that's a long way up from where we would have been sitting when we were trying to estimate where this business might go in the 6 months. So that really has been an outstanding result. And you can see from the second bullet point there that that's even above -- well above the comparative period. So that was nothing short of fantastic. And just to kind of give a bit of flavor to how that was achieved, they had to quickly move to digital marketing channels. They weren't able to do any site visits in -- yes, they've managed to do that. So we remain pretty optimistic about the next 6 months as well. They've got a significant stream of deposits already on foot. So yes, that's a great start. And then just quickly to note that we've also got development under way in that business. There were 2 projects that were already under way when COVID struck. That progressed well. We've got The Rise. It's basically completed in September. That's 24 apartments, and we've also got a 40-unit development at Burleigh that should be finished in the first half of next year. So that's great. And then just for completeness to note that not surprisingly RetireAustralia hasn't needed to call on any of its bank support that we did put in place in May. So it's managed to satisfy its covenants without the need for any waivers. And in the same vein to Wellington Airport, it hasn't needed to call on shareholder support either. So that's been great. So last slide for me and the FY '21 outlook. And as we foreshadowed, we're now looking to provide guidance on a proportionate EBITDAF basis. I think most of these line items, you'll already have seen in terms of what Trustpower's forecast performance is and Tilt Renewables and CDC. Really, the 2 new pieces of information today are the Vodafone forecast range of $425 million to $455 million and the Wellington Airport forecast of $25 million to $30 million. Clearly, with Wellington Airport, there does remain some uncertainty given the significant impact that any future lockdowns will have. But that's a watching brief, and nobody can really tell where that will go. What that means for Infratil, though, is we've got a group proportionate EBITDAF forecast of $430 million to $470 million for the year. Okay. Marko, I hand it back to you for the wrap-up.

Thank you, and then we'll take some questions. So we're on the final Slide 23. So how would you summarize performance, hopefully, you would agree with that first bullet that describes the operating performance, execution and management as exceptional during a challenging period. Fortunately, a lot of New Zealand businesses have done a good job, I think, of exactly that, supported by the high-quality employees and really loyal customer base. So that's a great backdrop to know that you can be tested in that sort of environment and still perform, especially when you know that you've got investments pointed. We're particularly overweight in the areas that we feel most strongly about, and that's sort of exactly where you want to be. I think most participants in the infrastructure space would agree with that. I don't think there's that much debate about whether digital infrastructure, renewable energy are important, interesting investments and going to be around for quite a while. I think the difficulty is trying to get access to these types of opportunities. And so at Infratil, we've got the platforms already in place. They're operating in multiple jurisdictions. And you've got sort of multiple management teams that know what they're doing. I wouldn't, again, underestimate how difficult it is to assemble that type of starting point. So we don't think our job is done just because we happen to have got ourselves into that position. It's why Qscan was important. If Morrison & Co were doing their job properly, they should be identifying the next sort of sector that could look like renewable energy and digital infrastructure looks today. We think a part of the health care segment will transform into that space. And I mean we know we need it, right? If you look at any health care system, it's aching, it's budget stretched, it requires almost immediate application of technology, and it needs strong cooperation between capital, doctors, politicians and district health boards or equivalent in any market we're operating in. So we're willing to be the sort of corporate that participates and does it in that space. And we took advantage of that, even though our default setting is to reserve our capital for our existing platforms. So it's always a challenge, right? You have a higher hurdle on introducing a new sector. There's no doubt about that. And we did fuss about that for a long time before we committed to Qscan. So we still got -- every dollar of capital that's available to us is precious. We've got strong uses in our existing platforms. And that's still, I think, the right place to be when you wake up every morning, even though we are looking for the next interesting thing as well. So with that, can we take some questions in the room first? And let's just see where that takes us. There's a mic. Thank you.

A number of questions for me. But maybe if I start off with, I guess, the highest level one. You've got a group now of pretty high conviction platforms. All of them seem to be moving at a pretty decent pace. Two questions really and relate to that. One is, should we regard the platforms as fixed now? And the second question -- for maybe a 2- to 3-year time frame, at least. And the second question is with all them moving so quickly, they do have a demand on capital as you just mentioned. Do you have enough capital within the existing business to meet all their needs? So let's start there.

I'll have a crack at that. So you want to jump in if you want to add something. So they -- they're certainly not fixed. That's sort of what I was trying to say at the end that our job is to find and position equity ahead of the next wave, new infrastructure. Having said that, I can't off -- right this minute tell you what the next thing is past what we've already discussed. I think we've talked about water and waste variously over the last 10 years. Water store space, we're finding it difficult to access, although, [ indiscernible ] could say we're in the water business already with Trustpower. Waste, I think we just -- we haven't found the quality entry point. And we continue to scan it. But it's really difficult to see any immediate large investments in that area. So you've got these -- they are diversified though, right? There are also renewable energies. We're operating now multiple jurisdictions. So Australia, New Zealand, U.S., Europe. We would be interested in geographic expansion of that theme because we've got that much confidence in it. I'd say telco digital infrastructure. Again, we would be open to investments in other markets. Having said that, I know that we have to demonstrate that we're getting the most out of what we've already invested, in particularly Vodafone. So that's the way I think about it. If you added up all the demands, if you've got all the chief executives in the room and they say, they get me their wish list, it would break the bank. Phillippa would probably...

Have a heart attack.

Yes. So -- but every single business, however, we've been involved in has that -- every good business has that characteristic, right, where you've got more demands for capital from your businesses than you actually have immediately available. Clearly, I know you're not answering that question, but just to be clear, there's multiples of good ideas out there. And we -- it's not -- it's more than a math problem, right? We do obviously try to point capital at the highest returning opportunities. But we think about sort of long-term compound reinvestment potential. That's sort of what we're looking for. And a lot of our businesses like the CDC generates a lot of free cash flow itself. We could call Greg Boorer tomorrow and say, "Can you just please stop and pay us our 48% of the yield?" But I don't think that makes sense. Not when he is generating those sorts of returns. And ultimately, you get to a point where you look at your -- we're getting incredible support from the bond market and from the senior lenders. But ultimately, you can get to the point where you say, "Okay. We need more support from institutional investors or retail, or we need to divest a platform because we've got a better idea." And I think we've shown we've done all of the above, right, in the past.

I guess the obvious question to my mind is whether or not RetireAustralia, sort of would be the first cab off the rank? Because you wouldn't be divesting a platform at this point now anyway with medical imaging sort of coming on board. You're still in the social platform. Is that a reasonable kind of case to make?

Not from my perspective. I mean I think it's -- I think the sector is stressed, right? Although actually, there's quite interesting signs of life. I think Phillippa made that point and across Australia and New Zealand. And we'd like to think we're a reasonably commercial divester of assets as well, right? So I don't think you'd present yourself until you've got a strong story to tell, and you've actually demonstrated that some of the executional upside we think is available. So I don't see that being a near-term divestment. Never say never, but we're not thinking about it that way. I would agree with you to your point, though, that it's not scale, right? So it does create an issue for us if we can't grow that business.

Great. And then just 2 quick more ones for me. The CDC independent valuation using the 278 megawatts in the extra land, it doesn't get to the 430. Would you expect by March that the -- next year that the valuation would include all 430 megawatts as development potential?

Well, it is an independent valuation, right? So you're really asking me what -- like you have to ask an independent valuer. I think it's realistic to assume there will be incremental growth in megawatts from what we've currently assumed. To what extent, I don't know. I mean do you want to...

No, I think the only thing to add is clearly, CDC is working very hard on its customer acquisition. And clearly, the thing that really pegs bringing on sort of value and more data centers is to make some progress on customers. So we'll see what comes through there. But yes, the 278 has been held steady for March, which I think is worth calling out.

And really, the last question is just in regards to Vodafone. So I guess at some point, we'll sort of see a bit more of the kimono opens that would be able to sort of assess the business a bit. But the quick math on the figures you've -- guidance you've given us for '21, if we adjust for IFRS and for the COVID impacts have been described sort of roughly looks like it's about $20 million behind the guidance range for last year. Is that the right read, first of all? And what sort of -- what commentary could you add about that? What has driven that? And how should we think about going forward?

I've got a number more like 7% to 8% behind my head, so I'll let you do those math. What I was trying to explain earlier is that there are direct COVID impacts, which Jason Paris talked about, which I think was $60 million to $70 million sort of range. There's much more cost coming out of the business than that. A lot of it is being reinvested in IT stability and customer experience. And then you've got the sort of generic revenue gains in -- on account mobile, offset by some pressure on fixed-line consumer. And then there's various bits in the middle around -- there's a big movement from prepaid to postpaid. As you know that all telcos are going through that shift. The net is that 10%. I think on a free cash flow basis, there's also -- actually, I think we're quite a bit ahead on free cash flow, mainly because of the way the CapEx programs turned out, which is quite a bit lighter in this period than you would have seen in previous periods. Although there's no shortage of commitment around building out the balance of the 5G program, as an example, or supporting sort of the next generation of the -- they're sort of on niche strategies driving a lot of their CapEx thinking alongside the IT program. Those are the big components. Any more in the room?

Without in any way undermine the wonderful benefits of Morrison & Co for Infratil over the long period in terms of the cloud [indiscernible] cash flow over the 3 years for often projected contract levels that might be 4 or 5 or 6 years in the future be achieved? I'm talking about, in particular, say, a CDC, where I gather a project is considered or being valued once they begin turning the side over, and it might not be fully let for, you tell me, I don't know, 5 or 6 years. And yet, it becomes into a valuation, which then, as I say, as cash paid over from year 1, and you've told us up to year 3.

I can perhaps comment on the CDC valuation point. One thing to note is that one of the natures of the contracts that they enter into with some customers is that they also have first rights of refusal over future capacity. So essentially, when the valuer's looking at CDC, they're not just saying that it's an assumption that certain contracts will come through into the future. They actually have current contracts, which also extend to first rights of refusal, and those customers then go on to take up that capacity. So as part of the valuation, what the valuer's doing, is probability weighting, how much of that first right of refusal will come through and actually culminate in capacity that has taken up. So it's not as much a question about over 5 to 6 years, how long will it take to fill up that data center. In fact, we do have actually quite clear line of sight about once a data center becomes operational, given the existing customer mix because you do need to remember that some of this is hyperscale customers, which make very firm commitments to -- or rights of refusal. They like to set themselves up to say, if we want access to that data center, we've got it. So it's not quite as speculative or subjective as you might think about how that capacity will get filled. And certainly, that almost goes through with the 278 megawatts, which the valuer is using. That's based on what the current customer contracts are. And it's only as customer contracts come through that the valuation starts to reflect future data centers. And that's based on those kind of first rights of refusal.

I think more broadly, while you're digesting that, the -- I think a broader question, right, about structure of demand. I mean that is obviously ultimately a question for the independent directors and the chair. But I would say one thing is that [ this hasn't ] really changed for a long time. And the choices you can make to incentivize [indiscernible] probably is to do a couple of things, not create an upfront incentive to make an investment recommendation. So Infratil generally doesn't pay -- doesn't pay upfront [indiscernible] closing transaction. And there's also [indiscernible] incentives to sell an asset literally. So if you see the end point, and you can appreciate something like Trustpower can be held in the portfolio for 26.5 years. And we can you got to figure out a way to pay your manager in the interim. And so this is a middle ground where you use, I think, conservative independent valuations. And you defer payments over a period of time. And the second and third tranche are dependent on maintaining the cost that was used or the valuation that was used to determine the performance fee in the first place. [indiscernible] structure has been [indiscernible] and it did quite well in terms of what is a flexible mandate. It's not the model that our managers work with, but I don't think many managers are going to [indiscernible] return since 1994 either. So to me it seems to be working.

Yes, I understand all that [ except ] entirely. It just has the potential to be a problem. In the event that someone determines that the management contract needs to terminate or be concluded where upon the capital value that would be determined in that case. So I guess what I'm a little concerned is that becomes -- yes, the projected profits become embedded in the process are not being separated out. So -- and thus, expose Infratil shareholders to the potential to be paying out [ of utilization ] after a period of very rapid expansion in the -- by some of these placements. That's the issue at the [ moment ]. It's not that anything is not working against in the existing arrangement, not at all.

Yes. That's why I think we have an independent Board. So -- who's there to protect [indiscernible] business. Can we -- could we turn to the line and just see what's available online, please, for questions?

[Operator Instructions] Your first question comes from Aaron Ibbotson with Forsyth Barr.

Phillippa, thank you for the new more transparent way of reporting. I think it's been a big improvement. I've got a couple of questions. First one relates to Vodafone. You mentioned that free cash flow had improved. And I appreciate you've given us the main numbers with the EBITDA and CapEx, but I just want to know if there was a chance you can give us a free cash flow number, either expected or reported. And related to that, I just wondered if it was possible to get a 6-month -- full 6 months number for the prior period, just to give us a better feel for what's happening to the business. Secondly, if I move to Wellington Airport, you mentioned that you haven't had the need to [indiscernible] equity in. I was just wondering how you're thinking about leverage in the Wellington Airport. I guess around 5x, pre-COVID 20x guidance. What do you think is the sensible leverage in that after the COVID debacle is over -- if it will be over? And then I got a third question, but I'm going to wait for that.

I'll go at the first one. So Aaron, we haven't given an actual CapEx number, but I can tell you it's ranging really from...

$45 million?

No, I'm talking about a full year forecast, which is -- don't forget the $45 million is Vodafone's proportionate year of 6 months, right? So I'm trying to explain to you what a full year 100% Vodafone CapEx number would be, which is in the range of about $220 million to potentially as high as $270 million, depending on Perth Energy to be approved by the Board. So it's quite a wide range. And it still generates the sort of free cash flow I talked about earlier. So we've got a choice as an organization with our fellow shareholder to decide whether we want to bring forward CapEx or not. We haven't made those calls just yet.

We've got some of them. Tim, the question now I had with regard to Wellington Airport leverage and not yet needing to call on the shareholder.

Yes, sure. Aaron, well, you might know that S&P reaffirmed that they downgraded the Wellington Airport from BBB+ to BBB. And that is based on their observation and their [ expectation ] that as travel recovers, the ratings will also recover and the capability of the airport to look after its debt will improve. But I mean, obviously, there's a conditionality to that, which is around the recovery of traffic. But you might look at the interim report. They actually included in that document at the Wellington Airport page, the latest traffic throughput compared to the May forecast substantially ahead. So far, the recovery is [ a bit ] better than expected, but they expect for the airport is the relaxation of border controls.

Well, that's really appreciated. But my question was more around what you consider a good steady-state net debt EBITDAF after recovery. Do you have any idea would you think could be a reasonable level? You were running at something like 4, 5x before COVID. Is that the way you aim to get back? Or do you have a view that with a lower interest rate environment, you can run a bit higher?

No. I think that sort of 5x is probably roughly aligned with all other Australasian airports. I think Wellington Airport is [ back ], if you like. I mean Auckland's obviously at the bottom end of the range, but a lot of the airports are higher, but 5x seem to us to be a comfortable zone for the airport.

That's very helpful. And finally, to you, Philippa, just on Appendix 3. I got 2 questions, just your net debt. So the first one relates to Vodafone distribution and capital return of $40 million. So I gather maybe something like $30 million of that is -- well, what exactly is that? And secondly, just for my clarification, on the net operating cash flow, is it correct then minus $30.5 million there, that's the corporate cost -- basically management fees and some other corporate costs? And then I was just wondering with Vodafone, if you think there's a chance of more of these capital return type payments. And then I have a long-term question as well on Appendix 3.

Okay. I can start with the first one. Part of the Vodafone receipt was in fact Infratil's share of the purchase price adjustment that came through from plc. So as you'd expect, post-completion, we did a [ wash up ]. That generated about $60 million of proceeds back to the purchaser. Our share of $30 million has come back to us as a shareholder loan repayment. So that was the first one. I think your second question was around the corporate costs, and that's why that will be basically the 100% corporate cost, including the base management fee. Your third question -- what was your first question?