Infratil Limited (IFT) Earnings Call Transcript & Summary

[Foreign Language] and welcome to Infratil's interim results announcements for the period ended 30 September 2021. I am Jason Boyes, the Chief Executive of Infratil. And I'm here with Phillippa Harford, our CFO. Good morning. So we're really delighted to talk you through these results announcements this morning. As usual, this presentation, and media release, and the interim report, has been uploaded to the ASX and NZX this morning. So you can have a read of that at your leisure. Phillippa and I are going to run through the presentation that's been uploaded with you now. This presentation is in about 3 parts. It goes for about 20 or 30 minutes, and there will be room for questions and answers at the end. First of all, we're going to give you a bit of an overview of the performance and activity in the portfolio, and Phillippa will talk through guidance and the dividend. Then we're going to go through the main operating businesses between Phillippa and I, and then Phillippa will talk through some of the more detailed financial results and our credit metrics towards the end before Q&A. So with that, why don't we get started? It is my pleasure to announce the record net parent surplus of $1.1 billion this year, which navigates tired, I can confirm to say. A lot of that is, of course, from the sale of Tilt Renewables, which actually, we announced in last year but, of course, now it completed in August this year. So we can get to talk about it all over again. I think what Tilt shows a lot has been said about Tilt and there's a really nice retrospective in the annual report of the Tilt story, and how it was really 10 years at least in the making. And it is -- I think the last thing really to sound that it is a case study of how we like to build long-term value for shareholders in our businesses. So perhaps with that, I'll hand over to you, Phillippa, to go through some of the highlights.

Thanks, Jason. All right. Good morning, everybody, and nice to be here. I thought I'd actually just start out with giving you some of the high-level things to note about the 6 months. And it's definitely the case that Infratil has once again been very busy over the period. You'll see that we've got a proportionate EBITDAF of $253 million, which is up 28% from the prior comparative period. And just to remind people, the way that we're giving guidance to the market nowadays is we are actually bringing through our share of each underlying businesses' EBITDAF, so essentially taking a 100% and applying our ownership stake to that. So where we are is, as I said, $253 million, which I think is part attributable to the addition of Qscan and Pacific Radiology. But as Jason said, it's also worth noting that the portfolio overall has shown real resilience over the period. Now as well as actually focusing on that operating performance, we do want to talk to you about the 4 new investments that we've concluded over the period. That's given rise to capital expenditure investment and investment of $833 million in total. And the split of that is actually roughly 50-50 between CapEx within those businesses and investments that Infratil has made. Thinking about shareholder returns and the 6-month period has provided shareholder returns of 13.2%, we're declaring an interim dividend of $0.065 per share. That's up 4% from the prior comparative period. And this time around, it will also be fully imputed. So that's a highlight of the 6-months as an overview, and I'll hand it back to you, Jas.

Thanks. A really solid set of results, I think. Let's stand back before we dive in a little bit and think about the portfolio at a high level. You can see from this next slide that we have concentrated positions in all of the sectors where we have the highest conviction. This is showing, like we did at the full year results, and I suspect at the AGM, quite a strong skew at the moment towards digital infrastructure. So that's Data Centers and Vodafone. We don't mind that. Actually, we have a lot of conviction and confidence in that sector and our positions in it. And actually, we're seeing a decent pipeline of opportunities globally in that space, and we would extend that if the right opportunity came along. So that doesn't worry us. It's just something to note. A little bit it's skewed in the way it is because in renewables, 1 of our other high conviction sectors, Tilt Renewables is obviously sold, which took a lot out in 1 hit. But we do expect, as we talk a little bit about later, Longroad to scale quite quickly given its maturity and the way that market is developing. And we've also shown the seeds with our investments in Galileo Green Energy and Gurin in this period to build more long roads and tilts in the future because of the long-term growth trends in that sector. Manawa as well as -- or Trustpower, as it's still called Manawa will be, is also looking at development. So we expect that exposure to renewables to grow, and that's certainly our intention. We also shown here within the grouping social infrastructure, our investments in health care, another 1 of our high conviction sectors. And we've said all along and certainly when we maintain that we saw an ability to grow in that sector through reinvestment in the existing businesses but also consolidation, so buying smaller businesses and bolting them into the platform we have. And actually, that's happened during the period, which I'll talk to you about in a second as well. But the last, I think, comment on this slide is to note how we're getting some nice geographic diversification or spread across the portfolio with positions now in Europe, the U.S., and Asia, alongside obviously our strong ANZ portfolio. So I mentioned those acquisitions, and Phillippa did as well. I think it's been really pleasing during the period that we've managed to add to basically all 3 of our highest conviction sectors at what we think are great entry points and good value. I wanted to spend a little bit of time on these now, although you would have heard a bit about them before. So the first 1 to talk about is Pacific Radiology. Pacific Radiology is New Zealand's largest diagnostic imaging business. That's a business where the doctors take MRI, CT, X-ray scans, and also really advanced PET-CT scans. It sits alongside our existing investment in Qscan, which is a similar-sized business doing basically the same things in Australia. So we like diagnostic imaging, you can tell. Why do we like it? Diagnostic imaging is really essential to diagnosing and treating a really wide range of conditions. So it's essential. But it's also, if done well, able to reduce overall system costs which -- and produce better outcomes, which we like in general, obviously, but we also think gives it a nice position with government, and funders, and obviously patients. We also -- with these businesses, the scarce resource is really the medical professionals that are operating in it. And with Pacific Radiology like with Qscan, we've invested alongside the doctors who -- and other staff who essentially own half the business with us, which we think is a really strong feature of the way we're investing here. These businesses benefit from scale, and Infratil can play a really strong role in that by providing capital to help them do that by investing to extend their networks, investing in advanced technology, and also extending their network through partnering with other businesses, which is exactly what happened very soon after we acquired Pacific Radiology and invested with those doctors. Pacific Radiology itself has partnered with Auckland Radiology, which is Auckland's largest diagnostic imaging business. And together, the 2 make New Zealand's largest and only national diagnostic imaging business, which we think will be important as health funders start to look more for national procurement rather than the regional model, which has happened in the past. So that's Pacific Radiology and diagnostic imaging. Gurin Energy was another investment we made in the period. This is a business that will build -- develop and operate renewable energy projects in Southeast Asia or actually across Asia, and it's headquartered in Singapore. We -- everyone knows we love renewal energy businesses and why? The interesting thing about Gurin, is at being based in Asia is not only are they trying to decarbonize their existing electricity system but because of their growing population and the population becoming more wealthy, they actually have quite strong energy growth, which we don't see in a lot of other developed markets. So being in Asia sort of benefits from that double tailwind, which we don't have anywhere else. So it's a diversifier of growth and risk across our broader renewables business. With Gurin, we now have truly global reach across all the major a kind of economic areas across our renewables business, which is a really nice position to be in, in this next phase and enables us to allocate capital to the parts of the world where development is most accretive and that changes over time. So having a capability in those places and options to execute in those places is really valuable to enable you to maximize your return. The last 1 I wanted to mention was our investment in Kao Data, which is a London-based data center business. This is -- through our investment in CDC, we know we have had a great experience in the data center space, and we've seen how there's been a massive growth of demand for data center capacity as computing moves to the cloud, and people are working from home all during the pandemic and all of those things. So I don't need to remind you about that too much. That's obviously happening globally and happening in London. Why we like Kao Data in particular? Is it actually looks like CDC looks a sort of slightly before we bought it. It's an earlier-stage business. They have 1 data center north of London, and room on that same site to build 2 more, I think 2 more. They've also recently agreed to acquire another data center in a prime London location. So it's just about to move to a multisite provider, which opens up a whole heap of other conversations you can have with clients who really need that multi-site application. Kao also has a particular differentiating focus in the same way CDC had with federal government clients. Kao focuses on high-performance computing, which is people like NVIDIA who runs supercomputers that are needed to -- for artificial intelligence, and for medical research, and other really complicated applications like that. Kao's data centers are ideally located for that. They're quite close to the large bioscience and life sciences companies in the U.K. that do that stuff like GlaxoSmithKline. And that's evidenced by the fact that NVIDIA has put its supercomputer in 1 of its data centers, which is actually the fastest supercomputer in the U.K. So we see the potential there from a really strong, differentiated core to grow a nice and sizable business. And together with our partners in that investment, which are Legal & General, which is 1 of the biggest investors in the world, and a really respected local mainly property but also technology developer and Noé Group. Our ambition is to build that to essentially a $1 billion business through adding new data centers over time. So I think that's a good run through those, Phillippa. I'll hand it back to you on guidance and dividend.

Thanks, Jason. Right. So you may recall that we last gave guidance to the market as part of our annual meeting. And at that point, what we did was we reaffirmed the guidance that we had presented to the market after we acquired Pacific Radiology. The guidance range at that point was $500 to $550 million. What we have done at this point, as you would expect, is we're looking to narrow that guidance range as we go through the year. It's also worth noting, however, that since August, there's been a couple of things that have gone on that we have also taken into account in our guidance range. Most notably, as Jason said, we've acquired a stake in Kao Data centers, and also in Gurin Energy. The acquisition of the Gurin Energy stake essentially will give rise to about a $10 million loss for the period to 31 March 2022. The reason for that being is that, as you would expect, it's a development platform and it's going to get about with that development, and those expenses actually go through the P&L for accounting purposes. So that's what we'll see as a contribution from Gurin for the period. There's also been some follow-on impact of COVID to the portfolio, most notably to Wellington Airport into our 2 diagnostic imaging businesses. But those setbacks have in part been offset by strong contributions from both Vodafone and Trustpower. And we also have some expectation that in particular in relation to the diagnostic imaging businesses, we may see some of that loss come back through in the second half of the year. So there's just a couple of other things to note in relation to that guidance range, first thing being that we've also continued to include the Trustpower retail business in that guidance. And that's on the basis that the sale continues to be conditional. So we'll make an adjustment to that if need be, if that transaction concludes. The other thing to note is at this stage, we haven't adjusted guidance for what's called the IFRIC Software-as-a-Service clarification. Just to put some context around that, there's been an accounting clarification about where in the P&L certain software services get recorded. It really is a reclassification from 1 line item in the P&L to another. We are working for what the implications of that are to the group. But at this stage, we haven't adjusted our guidance. And just to emphasize, that it is a noncash adjustment, so really is not -- is important, but not what we see as meaningful from a value perspective. So that's guidance. And then moving to the dividend. As I said earlier, our interim dividend of $0.065 per share, and that will be fully included. The other thing to note is that we also will be activating the DRP for this dividend. So I think that will be a positive move on the -- and received by retail shareholders. So there have been some questions around how we view our dividend outlook from here. And as we've indicated, we do see the ability to slowly or, I would say, modestly improve our dividend over time. We're seeing stronger cash flows from Vodafone, and from CDC. And of course, the addition of the diagnostic imaging businesses are also expected to provide us with strong cash flows. So on that basis, really the signal that we're giving is that we've been moving to a 3.5% to 4% increase, and we do see that as achievable for the outlook period.

Thanks, Phillippa. Okay. Let's take a breath. There's quite a bit there, and we'll go through some of the main assets in a little more detail. So let's start with CDC data centers. This is the big 1 really. It's our biggest asset. It's grown from our original investment of $400 million to -- in the mid-$2 billion now, from a couple of data centers to about 7. So its growth has been incredible. I think the key things out of this period to note are these. The focus this year was always going to be on construction, which we flagged at our full year results announcement when we originally gave guidance. And that's certainly been the case. The team and all our partners have done a phenomenal job keeping that construction materially on track through what's been a pretty testing time with COVID lockdowns. We're building in Sydney, Canberra and Auckland, and essentially all of those construction sites were locked down for some period during the 6 months. And it really is a testament to the capability of the team but also their partners and their customers that they've, as I say, remained materially on track, through that period. And it's really that capability that is, over time, quite differentiating for CDC. And we'll set it apart and continue to set it apart, and I mean that it's in demand from the sort of highest quality buyers of these sort of services because this stuff is really critical to them and getting it delivered on time is really, really critical to them. And we see that as continuing to differentiate this team from not only their competitors but even the internal teams of some of these businesses who are looking to build their own data centers. So a really huge check, I think, for the team there. We continue to see CDC having a differentiated offering in the market overall as well because it's building to those sort of higher security availability, and resilience standards, we've talked about for a long time. That's really -- been really important to the federal government and other clients in the past, and is extending into other critical infrastructure providers as well. CDC, during the period, was the only large-scale provider to have certified strategic status awarded by the federal government for all of its data centers. Some competitors have had enclaves in some of their buildings certified, but CDC is the only 1 that essentially meets all the requirements across all of them. So that is a real big differentiator and we do continue to see that being differentiating in the market. And that's giving great confidence around a lot of things. But also yesterday, he announced the planned extension of CDC into Melbourne, where we talked for a long time that CDC was looking at other jurisdictions and geographies to extend into it. And obviously, they have moved from Canberra to Sydney, Sydney to Auckland, and now to Melbourne as well, Greg has announced. So really strong confidence from all of those factors we have talked about in the past, and obviously, the growth that's happening in the market. He talked about 150 megawatts of capacity, which when you add it to the pipeline, he talked about earlier in the year at our Investor Day comes to a kind of whopping really 700 megawatts of operating in construction and development pipeline. Last point on this business is really that it is on track to make that EBITDA guidance that we talked about at the start of the year, which is a big effort. And also, we are confident that our medium-term growth targets will continue to be met through the commissioning of the capacity that's in construction right now. So that's for CDC, I think. Next big 1 is Vodafone. I think this is the second biggest at the moment but in the digital infrastructure space as well although obviously a very different business. I don't need to tell you what Vodafone does. So it is on track to meet that EBITDA guidance, uplift we talked about at the full year results, a sort of 10% uplift we talked about. They're actually ahead of that at the moment. That's a really good result for anyone, but also particularly in the sector, you'd be hard-pressed to find any business in the sector that's doing that. As we said then, it's true that, that is driven a lot by really strong cost control, which is driving that result. They're also performing well or continuing to perform well in that on account mobile space. But there are real headwinds obviously through the period in their retail stores with COVID lockdowns and prepay and roaming are still really affected by that. And fixed consumer, which is really broadband to your home through fiber optic cable is still really, really, really challenging. On the plus side, they're seeing quite good and strong pipeline in their ICT business, which is really relevant for Vodafone because it has a really strong SME offering. And that -- those sorts of offerings are really valuable to those clients. So we think we can make really strong headway there in the future as well. So that gives you a bit of a taste for the kind of melange of businesses in there and how they're operating through the period. We will always have, I think, in that businesses some ups, some downs. The net tends to be a kind of a flat revenue result, which is actually what we're seeing in the numbers here as well. So the EBITDA comes at the moment from the costs. When we look ahead, those cost efficiencies are being reinvested in the business, and the kind of 3 major value drivers we have talked about for a long time and listen Jason Paris talks about those as well. And we expect those to continue to deliver EBITDA margin improvements over the medium term. So those 3 things, to remind you, are things like network, utilization, or monetization, so getting more out of your network. And there have been significant investments in 5G for Vodafone to enable that to continue to happen as people switch from copper or plugged-in broadband to a fixed wireless mobile offering. The kind of second area we call productivity improvements, and that's a lot of that cost control and investments have continued there in the IT transformation, and also product simplification, which not only pulls out cost and improves productivity, but it creates a better customer experience as well. And then the last a kind of value driver we talk about as a bundle is really seeking new areas for top line growth for new revenue. And that's really the ICT stuff is a really good example that I mentioned before. And the business is investing in sort of talent in those areas, which we've got there as a sort of digitization, automation, data analytics, but also partnerships. 1 of the features of Vodafone is it's never been in that space because it's not the way they ran it at a global level of Vodafone Group. So we have a pretty fresh sheet of paper, and not a lot of legacy offerings to deal with. And their approach has been to partner with the kind of group of best-in-breed providers in that area that others can choose from, and that's proving quite popular. So that's a kind of what's happening, where the reinvestment is happening, where we see EBITDA margin growth coming in the future. I wanted to step back at this point as well and just talk about the market in general, like we are seeing a lot of investor interest in the private markets in digital infrastructure but particularly mobile towers with a lot of transactions recently are very strong valuations. From that, there's a lot of new ownership and operating models that are emerging. Also, network sharing is accelerating and becoming acknowledged as a really strong way to reduce costs, improve access to connectivity, and also reduce risk for the whole industry. And in New Zealand, that's really important in rural connectivity, for example, where all the industry is working together to improve that access at better cost than they could do it alone, while preserving the kind of benefits of competition between the retail providers on that network. We've said when we bought this asset, that we really believed in that model. We thought that was a really productive place for people to spend their time, and we haven't changed our mind on that at all. And Vodafone is continuing to explore the possibilities for more infrastructure sharing, and also network capital release options as well, given the strong valuations we've seen in recent transactions, particularly in Australia. So look out for that. Those are the 2 big digital infrastructure assets. I want to spend a little bit of time on the larger renewables ones, and the first 1 here is Longroad Energy. Longroad Energy, remember, is our U.S.-based renewable project developer and operator. And a little bit like CDC, they have distinguished themselves over this period in continuing to demonstrate their capability to execute with. We've got here 530 megawatts of solar generation, and this is a picture here of Sun Streams 2, the 1 that they built in Arizona this year, and it's selling power to Microsoft. The cover page is actually Prospero, which is mentioned here as well. So that sort of capability is actually really scarce and differentiating and in high demand through -- from a lot of investors in this space. And we're seeing transactions continue in this space at really, really strong valuations that demonstrate that level of interest. The other thing here in the U.S., of course, everybody knows that the Biden administration is pushing quite hard into renewable development, which is helpful, obviously, for Longroad but also for valuations and investor interest in this space. So we think this business is really poised to scale quite quickly from here. It will do that by retaining a greater proportion of the assets that it's developed because that is seen as valuable by investors. It is evaluating inorganic growth options as well or opportunities to grow into spaces that doesn't do itself and to get bigger. And it will be looking for partnering opportunities that will help accelerate that growth. And that could include somebody joining New Zealand Super and Infratil in the Longroad, and principles, obviously, the management team, and the ownership of Longroad. If we can see real benefits to enable Longroad to scale quite quickly and recognize some of that value that we're seeing in the market. So look out for that. Last 1 on my section is Trustpower, which will become Manawa. I think David and Paul did a really good job of presenting their results the other day. So there's no real need to represent all of that. From our perspective, we think the team has done a really good job continuing to execute that business and get it ready for sale to Mercury. We're all looking forward to the court decision. I think they're in court in Monday actually to enable the [ Tauranga Electricity Consumers Trust ] to go ahead with its reforms, which is a condition to that sale completing. So that's been really good. They also announced that Trustpower is investigating renewable development, which we love as well. So we're, of course, supportive. Of course, we are interested to see what the returns from those opportunities will be because the regulatory environment in New Zealand is still reasonably volatile, and could have a material impact on whether or not those projects make any sense. But we do support building those options and building capability. We know from our past businesses that accumulating those options doesn't consume a lot of capital, but it can be quite valuable in the long term. So I'll finish there on my section, and I'm handing over to you, Phillippa.

Thanks, Jas. So I'm going to take you through a few of the assets remaining, and I'll also then take you through some of the financial results from the more detailed interim accounts. So just to start with Wellington Airport. And definitely looking back at the 6 months, there's been periods of highs and periods of lows. You could look at July and see, for example, that the airport saw something like 420,000 passengers to it. Fast forward though to September and that dropped to about 1/3 of the pre-COVID levels. Putting that into context, so it's worth remembering that the airport is a predominantly domestic-focused airport. That's really come through in terms of the result that the airport has been able to deliver. We're really pleased with the EBITDA performance for the business at $31 million. And it is worth noting that actually, the airport was once again cash flow positive, and that's after taking into account interest and CapEx for the period. So looking about where that might be, clearly, the period from now till 31 March will be heavily dependent on what happens in terms of travel settings. But it is heartening to note that travel from Wellington Airport effectively resumed back to pre-COVID levels, when domestic travel was sort of fully available within New Zealand. So we remain optimistic in that regard. And as you'd expect, the airport has put a hold on its growth CapEx. We do, however, continue to invest in the stuff that you'd expect us to invest in, namely the earthquake strengthening, any sort of remedial work we need to do on the assets themselves. And also, clearly, the seawall is a big area for the airport as well. On capital structure and how the business is placed, pleasing to see that the airport managed to issue $125 million of new bonds recently. That enabled them to fully repay their bank debt. So they've got available liquidity in the form of bank debt. They've also still got the shareholder commitments of $75 million available through until June next year, if required. And again, it's also pleasing to note that the airports managed to attain its S&P investment-grade rating. So that sees them in good shape for the period ahead. Just in terms of to draw out what's in that picture, the airport did actually welcome its first fully electric flight in the last month, and that's what you can see there. So quite small, but I'm sure it's a good step forward. And now, Jason, if we can move on to the next 1, RetireAustralia. And I really do think it's worth pausing on RetireAustralia, and a performance that you could really only describe as remarkable. Just to remind everybody, RetireAustralia operates in 3 parts of Australia, being South Australia, New South Wales and Queensland. And as you can imagine, all 3 of those states have been impacted over the last 6 months by various lockdowns. The key priority for RetireAustralia is, of course, to keep its residents safe, and not only that, but actually try to provide them with a supportive living environment so they can actually still feel part of a community notwithstanding what's going on. So you put that as a backdrop and what you can see, though in terms of both financial results and also sales result, really is outstanding. So the business delivered 296 sales during the period. That's up from 343 for the entire year to 31 March 2021, and really pleasingly actually included 41 sales of new units, so quite an outstanding result. And what that's done is actually, it's also driven an underlying profit for the period of $22.8 million, which is significantly ahead of the comparative, and certainly significantly ahead of where we would have thought that business would be hitting, when we started to think about the FY '22 financial year. So then when we think about what else RetireAustralia has been doing. And again, in the backdrop of everything that it's dealing with at the village level, it's also been refocused on development. At the moment, it's got 4 developments underway. They're across the central coast of New South Wales and also through to Queensland. And it's also working hard to ensure that it's got development pipeline that we can look to execute over the medium to long term. So overall, I would say, an absolutely remarkable result for RetireAustralia, and a performance that we're really proud of, and I think that the business can be really proud of. So then if I move next to the final 1, that's Diagnostic Imaging. And I think it is worth reflecting that this time last year, we didn't hold a single stake in this sector. We executed the acquisition of Qscan in December of last year. We acquired Pacific Radiology in May of this year. And after the half year, that's also been followed by the partnership with Auckland Radiology Group. So we now have what we would view as a significant and sustainable Australasian diagnostic imaging platform. That was exactly what we wanted to achieve. So it's really pleasing that we've managed to get this far. Now as I alluded to earlier, the Diagnostic Imaging businesses have been impacted by COVID, as you would expect. Notwithstanding that there were essential services, lockdowns have meant that not all appointments have been able to go ahead. So some patients have had to defer their appointments, and that obviously has an impact on the earnings of those businesses. We do think that, that lag, if you like, may come through for the balance of the period. But at this stage, we're expecting that the combined [ EBITDAF ] impact of the lockdowns over both of those businesses will be approximately $7 million. Now the other thing to note, however, is, just like I talked about with RetireAustralia, neither of these businesses have stood still when it comes to development over the period. Qscan has 3 PET-CT clinics, which are due to open in FY '22. And Pacific Radiology is also building a new clinic in Queenstown, which I know will be very well received, given the massive population growth that, that area is experiencing. So when we think about outlook for these businesses, we see them as prospective and able to provide us with strong cash flows. Certainly, the addition of Auckland Radiology to Pacific Radiology will help that. We also see the ability to continue to grow these businesses, whether that be organically or inorganically through bolt-on acquisitions. And indeed, both Pacific Radiology and Qscan will continue to look for opportunities in that regard. And putting that aside, of course, as we said, when we purchased Qscan and also Pacific Radiology, part of our plan is to have a diagnostic imaging platform where the businesses can work together and leverage off each other. We see that as being a significant opportunity with things like equipment purchases with teleradiology opportunities so that services can be shared across the platform, and even just in terms of the opportunities that it provides the radiologists and staff in terms of transfers of knowledge, and career development. So we think it's a very positive start to that business. Certainly, PRG and Qscan are already talking to each other, a lot about the things they can do together. And as a shareholder, that's definitely something we will positively encourage. So then I think that's it for the businesses. And I'll just quickly run through some of the financial results if that's all right. I think we've actually dealt with most of this so we can do this quickly. Operating revenue, and interest, and depreciation and amortization, you'll see there's quite a bit of movement in that. That's largely because Qscan and Pacific Radiology have joined the group. But there's also been a solid tick up in terms of operating revenue for both Vodafone and for Trustpower. And you'll see here that we've got an incentive fee accrual of $9.4 million for the period. That is essentially an accrual for the annual incentive fee, and I'll talk about that separately in a few moments. And the other thing to draw out, I think, on this slide is just to note that the discontinued operations, that includes both the sale of Tilt, Tilt's actual operating performance through to the date of sale and also Trustpower's retail business. So that's where all of that activity is for this result. Now moving now from there, Jason, please. Thank you. Proportionate EBITDAF, and I won't spend too much time on this. I think we've gone through what the major impacts are but you can clearly see Qscan and Pacific Radiology being net additive, strong performances from Vodafone and Trustpower. There was a slight uptick in the corporate costs. That's a mixture of increased management fees because of Infratil's share price performance but also a slight uptick in other corporate. Moving on from there. As I mentioned earlier, so this is proportionate capital expenditure and investment, and the activity during the group -- during the period has been relatively weighted between the 2. You'll see there that CDC has got nearly $100 million of CapEx. Vodafone had $110 million. For CDC, that's exactly all of the data center construction that Jason referred to. So construction underway in 4 locations is absolutely no mean feat. And Vodafone, we've got a mixture of 4G and 5G CapEx, and also some spend that they've incurred on spectrum. I think the only other thing I would call out is we've got Longroad Energy there. That largely relates to the Arizona developments that Jason referred to earlier. So moving on from there and international portfolio incentive fees. As I talked about, the accrual for the annual incentive fee is $9.4 million for the period. The way that we've calculated that accrual is to essentially take the latest valuations, which are 30 June 2021, and roll them forward as an approximate sort of valuation to 30 September. And as you know, there will be actual valuations undertaken at 31 March to determine if there was actually an annual incentive fee payable. And as you'll see here on this slide, we've got the Tilt Renewables calculation of the realized incentive fee. This is entirely driven from the cash receipts from Tilt from the sale, including the dividend that was paid just before completion. And it essentially results in a realized incentive fee of $122 million, which will be payable in April of next year. And the only other thing to note is that there was no initial incentive fee accrual at this stage, but we do note for completeness that Galileo Green Energy will need to be assessed for that fee at 31 March 2022, and that process will involve an independent valuation. So moving on from there. And I think the last thing for me to cover off before I hand back to you, Jas, is the debt capacity and facilities. So as we talked about, the Tilt proceeds came in, in August. That gave us about $2 billion of cash. We immediately applied about $800 million of that to our drawn debt facilities. And at this stage, having also since made some investment in Auckland Radiology, and also started to contribute to Kao Data centers and Gurin, we're currently sitting on a cash balance of just over a $1 billion. But at the same time, we saw this as an excellent opportunity to the way we look at our debt facility, so that we can position ourselves as well as possible to execute on transactions if we can. And in that regard, in early October, we fully refinanced all of our bank facilities. That's meant that we've now got core facilities of about $750 million, and additional term facilities of about another $150 million, which we can use and execute quickly. The benefit of that is also that as part of that refinancing, we've extended the maturity profile of those facilities. So we've effectively got bank facilities out to July 2026, and no upcoming maturities at this stage. I think finally, you'll see there that our gearing is at a relatively meager level at this point. I think I can leave it 5.8%, significantly below where you'd -- where we would normally operate, which is at about 30% gearing. And with that, I think I'll turn it to you, Jas.

Nice work, Phillippa. Thank you. I think my clicking improved there during the talk. I'll do better. But that's a really solid set of results, right? Let me sum up now, and then we can go to some Q&A. So what are the highlights? Obviously, a record net parent surplus driven by the completion of the sale of Tilt Renewables. It's a record outcome that was many, many years in the making, as we've talked about. We think operating performance of the businesses has been resilient in the half year, despite the ongoing challenges posed by the pandemic. And we do expect a strong bounce back as lockdowns ease here and in Australia, certainly, if the bounce back at Wellington Airport that you talked about Phillippa was anything to go by last time. We have lifted our interim dividend and narrow guidance, as you'd expect coming into the second half of the year. When we think about the portfolio, we remain high conviction on our current focus sectors, digital infrastructure, renewable energy, and health care. And during the period, we've made significant investments in those assets and 4 new investments across all of those sectors. And so we think the portfolio remains really well positioned with high-quality positions as we look ahead. Investor interest in those sectors remains really high though. And so we need to remain patient. But we do continue to see a pipeline of attractive investment opportunities. And we think our expertise, track record and long-term approach is pretty key to snagging and landing really good, interesting investments that others might not be able to do at a really attractive value. And I think the ones we have done during this period really do demonstrate that. We see opportunities across all 3 sectors. If I think about what we said at the Investor Day, the things we were looking at and digital infrastructure, we talked about data centers, which we've done. In renewables, we talked about another geography, which we've done. In health care, we talked about further consolidation, which we have done. We also talked about our fiber investments. Actually, we were seeing a lot of those at that time of year, and we still see good opportunities in that space as well. And as I said, our kind of strong overweight, and confident position in digital infrastructure, wouldn't hold us back continuing to invest in that space, if we found the right investment. I do want to reassure people though it is a really strong market but we are remaining patient and continuing to be disciplined. Every dollar of capital available to us is precious, and we treat it that way. So you can continue to expect us to operate the same way we always have in a really patient and disciplined way. So I think we'll wrap our presentation up and move to questions and answers if there are any on the phones.

Your first question comes from Wade Gardiner with Craigs Investment Partners.

Can you hear me?

Hi, Wade. Can you hear us?

Can you hear us?

A couple of quick questions from me. First of all -- yes, I can hear you fine. The DRP, what -- can you just a sort of talk through the rationale of having a DRP when given where your debt levels lie, and there was a comment -- I read in the commentary about considering special distribution.

Yes. Do you want to...

I can start with that. Yes, I think, Wade, that the main driver for the DRP is that we do think that our retail shareholder base appreciates the opportunity to reinvest. We don't really see it in terms of the amount of capital involved as being significantly impacting the approach we take and the decisions we make. But I think it's also worth noting that we'll generally neutralize that DRP by either purchasing that stock on market or we've also got a balance of treasury stock available.

Yes. Okay. While we're on dividends. Can you just talk about the imputation outlook in particular the second half given where the source of earnings come through.

Yes, sure. So Wade, I think the main thing to note is Vodafone will continue to be a source of imputation credits, so will Trustpower. And we also see an imputation credit flow coming through from Pacific Radiology and together with the partnership from Auckland Radiology. So at this stage, we do think we can move to full imputation. Last time we were in that position was back when we held our stake in Z Energy. So it's good to be able to have that kind of forecast outlook.

Okay. You see the timing of the Melbourne development and hence they actually acquired land for that.

I can talk to that. We haven't put out any timing yet, Wade. But I think Greg doesn't announce these things lightly if you look back at his track record. So he's obviously confident, and planning has been underway for some time. Land is secured, I would say, but that's as much as we're saying just now.

A single site or are we looking at multiple sites here given the size of it.

We're not saying that to us it either, but it's a good question.

Okay. And final question from me. Just on the page that looks at the incentive fee accrual. Can you talk through the methodology that the valuers used for Longroad?

Yes, sure. Do you want to talk to Longroad?

Yes. Could Actually.

Okay.

Yes. So I think we put out this in our Gurin presentation actually as well, and we've talked about it a little bit. The methodology that independent valuer users essentially only takes into account the operating assets we own now and 12 months of development. So there's no value given to development beyond that or the ability of the team to continue to develop into the future. So it is a pretty restricted valuation methodology that's been used so far.

Your next question comes from Aaron Ibbotson with Forsyth Barr.

Can you hear me? Very good. I've got actually quite a long list. I'll try to rattle through them 1 by 1, if that's okay. So first one on CDC, at the full year, I think there was sort of a -- I'll call it a throw off comment around 2-year CAGR being in line with history. That got some of us quite excited. You a sort of now put in on track to meet medium-term growth targets through commissioning of capacity. So basically, what I'm trying to fish for is looking out to FY '23, is that a reasonable best guess that you're going to CAGR 25% over '22 '23? Or can we think about that $50 million implied uplift in the second half as that's going to sort of uplift again in the first and second half next year, which takes us to maybe a slightly lower number? Or is there anything you can give us around FY '23? I think that's the key focus item for the market at the moment.

Yes. So that -- our view on that hasn't changed. There has been some delay in construction, right? But we don't see it as material. So our view across those 2 periods is materially the same as what we talked about at the full year, Aaron. I know exactly what you're asking.

Yes. Now. I know. That's -- I'll settle for that.

Great.

Vodafone, and apologies if I missed it, it was a bit bad audio at the time. But then you said something. Did you say that you were ahead at the moment of current guidance? Is that what you sort of said?

Yes, we guided 10%...

What do you mean...

We're pretty much close to it. I think we guided 10% up, and we're talking 12% up in that, in that top bullet, so slightly ahead, more or less in line.

Yes. So I guess -- yes. But if I look at what you've reported and particularly on the margin side, to me, is there any -- if I rephrase it, is there any obvious reason why we should expect a meaningful drop in margins in the second half? Is there any strong seasonality that we haven't or I haven't picked up on?

Not that we...

For to me, your guidance on Vodafone seems quite conservative.

It might be a little bit but not materially, Aaron. We're expecting to -- we're still guiding as we talked about at the full year. Maybe they'll be a little bit above the midpoint.

That guidance will include no roaming there.

Yes, totally. Remember, the guidance included no roaming. Yes.

Yes. And then just 1 detailed question for you, Phillippa. I'm sorry if it [ fits ] somewhere in your material. But what -- can you just tell us what the total number of earned but not yet paid incentive fee is?

Yes, I can, Aaron. I think it's...

I mean there's nothing dramatic happened at the total number, yes.

Yes. No problem, Aaron. I think it's essentially about $110 million to $112 million, and that's our 1 -- that excludes the Tilt realization fee because, obviously -- so you can put that to the side as well. The $112-odd million is a final tranche of the '21 fee, a bigger part in final tranche of the FY '20 fee, and a tranche of the FY '21 fee. In fact -- sorry, I'll have to add that again. It's basically about $140 million plus $20-odd million. So make that $160 million plus the Tilt realization fee. I can give you the detail separately if that's easier.

And the tilt -- okay. So that's $160 million plus tilt. So zero tilt has been paid presumably, yes?

That's right.

Yes. And then sorry, but final question from me. If I take your available liquidity of around $2 billion and spend it on something, you get sort of within your leverage range. On a sort of 2-year view, is that roughly how we should think about it that you're looking to redeploy something around that $2 billion mark?

Yes, that -- no, that's certainly the case, Aaron...

Anything else that you could have in mind.

I think that's a good place to start. We've set those bank facilities up with the intention that we apply them where we can, noting, of course, Jason's comment about wanting to be disciplined in our approach. But certainly, the available capital at this stage is about $2 billion. We've also got other acquisition facilities, which we could call on if we wanted to.

Okay. Maybe a very quick follow-up to that on the sort of comment on Longroad or on the slide. You said something on the lines of it being a high investment appetite for operating development platforms with operating assets. To me, that read a bit like back there was strong demand basically for other people buying Longroad rather than you buying other assets, but maybe I misunderstood that comment.

No, you're exactly right, Aaron. We probably wouldn't buy many operating assets ourselves. We'll build them. There's a bit of value. You can buy some assets that are closer to the end of their PPAs and work on them, which they definitely have been looking at and would do. You can buy a pipeline as well. So there are other teams that are looking for more capital and looking for more scale as well themselves. So that's definitely something we're looking at. And I think we would evaluate bringing a partner into Longroad if that would help accelerate the scale we think that our business can reach in such a huge market.

Your next question comes from Stephen Hudson with Macquarie Securities.

Just a couple from me. Specifically on Vodafone. I understand you have been testing -- I think they've been testing their new stack in the last couple of months. I just wondered if you could give us an update on how it says. You mentioned the [ IFT 38 ]...

Actually, Stephen, could you speak up? It's a bit hard to hear you.

Can you just get us a little bit -- Sorry, I don't know if you call the [indiscernible] Vodafone ICT strength, understand the things at the moment Vodafone [indiscernible] fund if you could give us a feel for how they're gone. And then [indiscernible] And then just on Longroad, how advanced value on your partnership discussions? What's the timing for there. And then just lastly, on Kao and Gurin, I understand we said this a predevelopment stage stuff that is the $12 million first half costs sort of well a kind of builds out next year or that expected to do for a little while.

Yes. Okay. I think I caught half of the Vodafone but let's give it a go and then see what's left. So I think your first question was about Vodafone testing its IT stack. I don't actually have any detailed information on how that test went. But we talked at the full years about next year being the kind of target date for the first significant drops. And that's still the case. So I think we should be thinking of that in those terms. On Longroad, we expect to be working on that in the new year. So obviously, in North America, they don't have the same holidays we do. So we'd expect the team up there to be pushing that forward over the first and second quarters next year. That actually includes the inorganic opportunities we're looking at as well that were a kind of being worked on in parallel. So that gives you a sense on that. And maybe on Gurin?

Yes, on Gurin, I think it's not dissimilar Longroad in that. Certainly, the 1 thing we're doing with that platform is giving them flexibility about the way in which they execute, and whether or not they take particular projects through to operating or whether or not they look to, for example, disposal project [ DFID ]. So I think the answer to your question is that the costs that are going to be incurred between now and 31 March, is very much about building up that development pipeline. Whether or not that kind of pattern continues beyond 31 March 2022, will really be around the decisions the business makes about what projects it holds, what projects it sells. But certainly, we'll be supporting them and making that on a sort of a value basis, and we're not driving them in any particular way, I would say, in that regard.

Yes. I think it should be bigger probably in general, would be our expectations, Steve. There's a lot of pipeline that can be accessed in that market, and there's not many players there yet. There's a few but not many. So what they're looking at the moment is, yes, bunches of portfolio and pipeline that we'll be bringing in if that helps. And I might -- I feel like I might have missed half of your question on Vodafone.

It was the flooring account question of IF 38.

Yes.

I think 5 has given a little bit of guidance from what impact on that, and I was hoping you can capitalize as a multiple to examine your holding.

Yes. It's fair to say that, that issue has an impact on a couple of the companies within the group, and we're working together with those companies to get an estimate. Vodafone is pretty well advanced in their calculations. But we aren't looking to provide that number now. I think we just would prefer to be very clear that our guidance doesn't include it. And as I noted earlier, it is a noncash adjustment. So we don't see it as being particularly meaningful. We're just going to have to navigate how we into -- put it as it comes forward.

Yes. Stand by for that, Steve, I think.

Your next question comes from Phil Campbell with UBS.

Just a couple of questions from me. Firstly, just on CDC. I was just wondering, Jason, if you could just give us a kind of your views on the benefits of the government certification, because obviously, when you talk to the players that have the certifications all very positive when you speak to them by time that don't have it, they seem to a kind of down play it. So just good to get your kind of feel on what the true benefit of that is. And obviously, I think there is a change to the Australian government panel next year. So just be curious of your views on that. And then the second 1 was from Vodafone. Obviously, I saw the CapEx number for Vodafone in the half was very high at $220 million. I know you talked about 4G and 5G and some spectrum. But yes, it did look very, very high. So I'm just wondering if that's it's a seasonal thing. And so the second half CapEx will be a lot lower, but just any more color around that would be quite good.

Sure. Why don't I start with CDC. Yes. The strategic certified or certified strategic is an interesting 1. I think the thing to focus on is really actually how differentiated the CDC offering is, and we just use that as a mark, particularly the way all of these data center -- all of those data centers are in there. That it is different from its competitors, no matter what the others say. So I suspect the best way to think about it is in that way that it is a differentiated offering that people want. There's no doubt that others needed to be included because the federal government needs diversity of cloud providers at the very least, right? But I would think mostly about it as a mark of the differentiation we've always seen there, continuing into the future, if that helps. I think on -- what was the second question again?

Vodafone.

No. On CDC -- do you remember?

Just on the panel. I think panel next year that is making...

Yes, exactly. No, we're super focused on that. But we -- I think the answer to that is actually the same as what I was thinking is that, we continue to see CDC being -- providing a really strong offering to that through their differentiation. I think the people to talk to really are not so much to the competitors. It's probably the clients, right, and what they value, and where they're getting directed by their peers amongst those clients to put their kit. And I think you'll find CDC remains really high on their shopping list. And we'd expect that to flow through to the panel as well. We're not complacent at all, and we'll be putting our best foot forward like everyone else. But we are confident in what we're providing. And then maybe to you on...

Yes. I think in terms of your CapEx question around Vodafone, it's roughly been split between ICT spend and network. Whether or not that's going to preserve in the second part of the year, if you don't mind, I'll come back to you on that, but that's the way that you should view that split for the current period.

Okay. Great. And sorry, just 1 follow-up on CDC was, again, there seems to be some debate around the certification will benefit your ability to win government customers but then some people are saying it, it also impacts other customers that supply to government, which obviously will be wider, but there seems to be different views on that. So I don't know if you could comment on that, Jason.

Yes. It's hard to know whether that's a hard requirement or just an atmospheric 1. I suspect at the moment, it's a little bit the latter. But I think the trajectory is reasonably clear in Australia, and we don't see that necessarily changing that. Things like critical infrastructure providers as well, right, that rating is a guideline for them. It wouldn't take much for that to become a harder requirement. So we do think it demonstrates the trajectory for not only those service providers. Some of them just like being there because then they can say we're in the same data center as you, without it being a hard requirement. But I think critical infrastructure is the next 1 coming down the track that will want to be able to say that they're in similar quality facilities. So it's broader than just the service providers as well, I think.

And sorry, just 1 quick...

Yes.

1 quick follow-up. Just on some of the pipeline build because obviously, we're seeing Equinix uses the next scale type structure for hyperscale builds, and we're seeing Nexeo do the same. Is that something that CDC would look for some of the pipeline going forward?

We've talked about it. It's not on the cards at the moment. Obviously, there's a pretty big crowd of capital providers there, so not yet. But it is being watched and it does go to that cost, doesn't it?

[Operator Instructions] Your next question comes from Nevill Gluyas with Jarden.

Just tailing questions from me. First 1, the -- you talked about corporate cost rates going up. I mean should we assume now that what's in the first half is a sort of run rate going forward? Just a question on CDC, and sort of the adjustment to how megawatts reported that PUE adjustments. And just if you can comment why that's required. And really just last 1. We recently had the NVIDIA presentations was a few days ago talking about their use of supercomputer. Does Kao have any involvement with these latest announcements at all just as in position.

I can start with the corporate cost 1, if you like.

Yes, please.

So I think as I indicated, Nevill, part of the corporate cost uplift is purely a function of the Infratil share price. So that flows through to the management fee. I think there was also though an element of the corporate costs in the first half of the year that may not be repeated in the second half. So we might see some moderation in that regard.

Cool. And CDC, actually, you're quite right, Nevill I meant to point out that in the interim, there's some restated data on CDC, which we've worked on with the team, and we're intending to use as our sort of template for information that we're going to provide going forward, which is something we promised to focus on because we still saw a valuation gap there. And we hope that they're -- it's helpful because we'll be providing consistent sets of information going forward. What we have reverted to consistently, as you point out, Nevill, is talking about built capacity rather than ICT capacity, the ICT capacity being closer to the revenue earning capacity. But we have provided the PUE to enable people to get close to where that number will be. What we don't want to do is to enable our competitors to figure out what the revenue per megawatt is by data centers, which some of them are less sensitive about than we are for various reasons. So that's why we're reverting to that high level of disclosure. In the past, it's been a little bit inconsistent, which we're trying to tidy up here as well. So -- and there's other data in there, which there's different reasons for why it's provided, but have a look at it.

Just in terms of how you report Kao, looks a bit on the same build...

We will do -- actually, I can't remember how we did the last numbers, but we will do -- be consistent across them all going forward. It's a good question. I think we did do build. Okay. You asked about Kao and NVIDIA. Do you mean the second 1, they want to put in the U.K?

Yes.

Yes, like we are super...

I think of as 2.

Yes. No. We are definitely working with NVIDIA on trying to expand their footprint in the U.K. I think they're in the middle of that takeover with Arm and they've said if they are approved to do that, then they'll put us a supercomputer in I think they said it Kao, but we hope it is, because the first 1 is there. If that helps.

Excellent. Thank you.

Okay.

There are no further question at this time. I hand back to Mr. Boyes for closing remarks.

Perfect. Thank you. Well, thank you, everybody, for your attention. I really appreciate it. I did want to make 1 more announcement. And it is to say thank you to Mr. Tim Brown, who has announced that he's retiring from full-time duties here at Morrison & Co and Infratil after 28, I want to say, years here. It's a pretty momentous moment for us. Tim has joined when we were $50 million, I think, and we're now $6 billion, and he's been a huge part of that. He's written all of our investor materials over that whole period, and is being very much the voice and face of Infratil because he does the retail roadshow as well. We'll really miss him, but we really thank him. I'll assume because I have sat next to him for nearly 10 years, and we've argued about all sorts of things. And a lot of it not only represents the sort of face and voice event for Infratil, but actually, Morrison and Co, 1 of our values is curious. We're curious about things and learning and Tim embodies that in spades. And he also embodies the kind of intellectual rigor, and keeps us all -- has held us all to account for a long time in that space. But he's not going too far away. We should be able to get ahold of them when he can be bothered picking up the phone, but we'll really miss all of that. So congratulations, Tim, on your track record here, and thank you very much and wish you well. So reach out to him, if you like, and say thank you as well. So I think that's it from us. Thank you again for your attention, and we look forward to talking to you again soon.

Thanks.