Infratil Limited (IFT) Earnings Call Transcript & Summary

[Foreign Language] Welcome, everybody, to Infratil's annual results announcement for the financial year ended 2022. I'm Jason Boyes, the Chief Executive of Infratil. And I'm here, as usual, with Phillippa Harford, CFO, in the Wellington Boardroom. We're going to talk through a few things today. The presentation and all our annual results related material has been released to the NZX and ASX this morning. And we're going to run through the presentation. I'm going to take us through some financial highlights and a few other announcements, take a quick look at the portfolio. And then Phillippa and I are going to take you through our major investments. Phillippa is going to then run through some key financial metrics, including our guidance for the year coming up, which we haven't released yet. Then I'll sum up and we'll go to some questions and answers. Our ambition is to do our bit in 20 minutes. It may take a little bit longer. We're going to try and then leave good gap for Q&A. So plenty to get into, let's get started. Firstly, on the highlights. So as we released this morning, it's a record result for Infratil with more than $1 billion net parent surplus. That's been flagged well in advance, of course, because of the total renewable sale, which contributes mostly to that. We guide on our earnings on a proportionate EBITDA basis, our share of our underlying investments, EBITDA. That has landed at $513.9 million, as you can see on the slide there. That's just above actually the middle of the narrowed guidance range we put out at the half year. But you need to adjust for some new guidance on Software as a Service customization costs that came out during the year, but we're really happy, obviously, to land above the midpoint I think we were guiding earlier in the year towards the bottom end. It reflects a really strong operating performance from Vodafone, which I'll get into, and also actually Wellington Airport and RetireAustralia, which Phillippa is going to talk to. Also this year, really strong investment within the portfolio and in some new investments, which I'll talk about in a second, but $1.4 billion of CapEx, our proportionate share across the group. And the balance sheet is in really excellent shape. So more than $1 billion of available capital as a result of those proceeds coming in, which I think is a really nice place to be in this environment. Excellent shareholder returns. Total shareholder returns over the year of nearly 20%, which is kind of in line with our history, but still a very, very good outcome. And all of that's leading us and giving us confidence to raise the dividend again this year to $0.12 a share. We're announcing that final dividend. This one is actually fully imputed. Last year, we were partially imputed. So the increase is a little more than 4% if you include that, but obviously, pleasing to be able to do that in this environment as well. Maybe some other announcements. Phillippa will delve into some of those numbers a bit more later on. You might notice today, we're supporting a new logo. It's a simplified, I think, more modern version of the 01. We felt like it was time for a refresh. We wanted the logo to reflect, I think, a slightly more approachable type of language and we are presenting Infratil, which you might have seen over the last year or so, but also a more modern look to match and reflect the modern infrastructure that we are focused on and investing in today. So hope you like it. There's also a new website that will go live later today, technology willing, which reflects all of those things I hope you'll find as well, see what you think. We've also released today, as usual, our annual report. In that, we have got outlined for the first time our sustainable investment strategy. So that sets out at a high level, the 6 as it turns out sustainable investment areas that we are focused on and the high-level goals we have for those areas. Next step of work for us is to develop and put out to you detailed targets that we're going to use to measure our progress on achieving those objectives. And you can expect those to include detailed carbon and net zero commitments, and we look forward to bringing those to you later this year. Lastly of all in the announcement section, yesterday, we announced the transition of the Chair of Infratil. So Mark Tume, who's been our Chair for about 9 years, he announced he's going to retire at the end of -- as Chair anyway at the end of this month, at the end of May. And Alison Gerry will take over from him as well. So Mark has been obviously an excellent Chair for that period and presided over a remarkable period of growth for Infratil. So we wish him well. We're really looking forward to working with Alison and her new role. Obviously, she's been on our Board for 7, nearly 8 years now and has been the Chair of your Audit and Risk Committee for most of that period as well. She should be well known to you. She's a very well respected director around New Zealand as well. I think that's all I wanted to cover in the announcements. Maybe just one last look before we dive into the major investments. So this presents familiar picture to everyone, the portfolio as it stands today. You can see, as we've talked about before, our sort of high conviction approach in our 3 plus 1 4, say focused sectors of digital infrastructure, renewable energy, health care, and we have the airport as well there. You see a strong position in digital infrastructure, in particular, our largest sector and the others are growing during the year. When you look at that slide, we've added Kao Data to digital infra, Gurin Energy in the renewables sector and Pacific Auckland and Bay Radiology in health care diagnostic imaging businesses, and we'll talk about them a bit more later on. But good investment across all the sectors during the year, good geographic diversification coming in. And we think the portfolio is still really well positioned heading into what looks like a reasonably volatile macroeconomic environment. We see, as Phillippa outlined at our half years, good inflation protection across a number of these assets within CDC's revenue contracts, for example, with the way renewable energy developments are priced and financed, the list could go on. So that's a nice place to be. We also see good growth in all of these areas, which is less correlated to general economic growth. So we're going to need more renewable energy projects whether the economy is growing or not. People will continue to use more and more digital tools and people will continue to need more and more health care as we have. So nice position to be in, I think, hitting into some uncertainty. So that's the top level view. Let's go into some of the investments, and I'll start. First one is CDC. As always, our biggest investment. They have produced an EBITDA within their guidance range, albeit towards the lower end of it. That's actually a really strong performance from our point of view. Their revenue was really impacted during the period by a lot of those COVID lockdowns across all of their sites, of course, but importantly, for construction sites, we're building 4 data centers at the moment across 2 countries. That mean a little bit of a delay in revenue contract starting as customers can't move in for a little bit longer. And it's also harder to get new customers through your data centers to show them where they could move into and then get them into the data center. So actually, a real credit to the team to land that result in that year. The outlook is still remains really strong. So we are forecasting -- at the bottom of the slide, you'll see a 40% uplift at the midpoint in their EBITDAF, which is on track with what we described last year. That comes from those 4 data centers, I mentioned, completing construction. So we're actually opening a new data center just about every month. I think it is from here to August, which is an amazing feat. That means our customers can move in and start paying us rent and that will then turn up in the revenue. So it's quite predictable. The vast majority of that revenue is already contracted. So really need to complete those centers and get our customers in there. The outlook is good as well. We mentioned earlier in the year at our Investor Day that CDC had acquired some land in Melbourne. Quite a lot of land actually and was looking to expand there. We expect to commence construction of our first data center there later this year based on good demand signals from our customers. We've also acquired more land in Auckland and Canberra. So we're expecting growth there. And we continue to look at other jurisdictions as well. So the growth outlook and approach from the business is definitely not slowing down. That is turning up in the independent valuation this year. So the valuation over the year has gone up about 30%. That's reflecting that -- a bit of that Melbourne expansion, but also those 4 data centers getting closer and closer to operation and so much less riskier. And if that gets reflected in the valuation, the closer you get to that revenue coming on stream. So that's a good outcome from an Infratil investor perspective. I think that's all I wanted to say on CDC. I think it's a strong performance. I think they're well placed with that sort of indexation I mentioned before in their revenue contracts, a bit of inflation protection and a good growth outlook with strong demand signals and good land positions to enable them to take advantage of that as and when they need to. Next one I want to talk to is Vodafone, another biggie. So this is a really, really good result from the team. So they've come in above the guidance we gave at the start of the year, the top of that guidance was 5 teen. At the time, that didn't include the new guidance that came out during the year on Software as a Service customization costs. So we normalize those out. There's also been some one-off costs for transactions that we normalize out. So once you get through all that, they've come in well over the top of their guidance, which is fantastic. That reflects really strong cost control, which we flagged last year as well, but also decent trading. And when you look at the business and how it's running, that strong cost control obviously required some pretty tough restructuring within the business that's the business has got through that, the organizational health scores and culture-related measures are all really strong, and they're hiring well, which is nice to see. So that -- I think that new approach to cost is getting embedded. On the trading side, on contract mobile has been really pleasing, certainly not what we would have had in our original investment case. And that's driven by all these investments we have talked about for a while and improving customer experience through network investments, IT investments and things like that. So that's starting to pay dividends. Fixed broadband still remains a really challenging market as everyone will have seen -- we are managing to stabilize our own metrics through rolling out fixed wireless access that we have talked about in the past. So we are not unhappy with where our position is, but the market is still to be fair, very tough. We're also seeing growth in what we call ICT, which is sort of selling connectivity services mainly to enterprises, which is driving that uplift and actually some top line growth. That investment I talked about in customer experience, in particular, but also their ICT growth. The business is seeing that, I think, continue for the next 2 or 3 years as they roll out what we want to do in that space. That means we're seeing CapEx, excluding spectrum, at an elevated level this year from, I think, what a normal case for this business will be. We are at about 14%, 15% there, normally want to be in that kind of 12% range. So we see that continuing for 2 or 3 years as those improvements continue to be rolled out, and we continue to make that investment. Also, in there, there's some sort of one-off costs finishing the separation from the Vodafone Group. So I think last year, they replaced their enterprise risk enterprise system, EOP, this year I think they've still got payroll, things like that are still going on. That should be completed at the end of this year and put them on a steady foot. Next year, the outlook looks good. It's not as strong an uplift that we're forecasting at this stage as we saw last year. So they've got a 5% uplift in near guidance middle of the range a bit over $500 million. We think there's a bit of conservatism in the air, but that's probably appropriate in this environment. We're looking forward to updating you on that and how they're tracking at the half year. Also in the period, for the first time, we've had an independent valuation of that business, which is done for various purposes within the business. That's coming up with the midpoint, as you can see on the screen there of around $1.7 billion, which really reinforces what an exceptional investment this has been for Infratil. Yes. Trading will come and go in this business. It's a competitive tough market. But if you stand back as an Infratil shareholder, you can be nothing but incredibly pleased, I think. Last thing to mention on that, we talked about it and Vodafone has talked about it as well. They are looking at whether they should sell via passive mobile tower infrastructure and was backed doing the same thing. That process is progressing well, and we expect to update on that before our half year certainly, still on track for, I think, the middle of calendar year or a bit later than that. That's Vodafone. I think I'm nearly done on my piece. I'll talk about renewable energy now. And then hand it over to you, Phillippa. Manawa Energy, they've released their own results, obviously. So I'm not going to repeat all of that. Here, we like the new name and their new logo, sort of the season for doing new logos, obviously. Their focus on renewable generation development, we support. But obviously, at a large scale in New Zealand, there's quite a bit of uncertainty around that while the South Auckland battery project hangs out there over the market. Maybe there was some news on that this afternoon, the budget, who knows. We're supporting that generation development push with resources here from Morrison & Co. So no issues with the direction of that business from our perspective. It's also really showing how valuable it is in the portfolio of performing that role of producing our kind of steady operating cash, particularly with the airport out of action and Vodafone going through a heavy investment period. So a key part of the portfolio. If large-scale renewable development -- generation development is uncertain in New Zealand, it's the complete opposite in the U.S. for Longroad Energy. There's sort of an unprecedented need for more projects over the next period and also support for developing new projects in that environment. There's no doubt it's been tough with supply chain impacts and cost pressures and volatility on that side of the ledger. And you really need a really high-quality team to execute well in that environment, which we believe longer has proven it is. So through that tough environment, this year, we sort of only developed 530 megawatts of solar in the U.S. We have sold half of one of those projects, and we've retained the rest of them. But that's meant that sort of the balance of the projects we hope to develop this year and the pipeline has all been pushed into future years. So none of those projects have gone away. So over the next year, we're on track to deliver 1.3 gigawatts. So that's 1,300 megawatts, if you like, an enormous amount of generation -- in terms of generation and storage over this next year. And to give you a feel for how we'll progress those projects are, they're all named specific projects. The power purchasing arrangements for all but one of those projects is negotiated and agreed and the last one is actively under negotiation now. So those projects are highly likely to happen. In the plan as well, we've got another 3.2 gigawatts. This is almost an unfair to megawatt number, 3,000 total megawatts of specific projects. For the following 2 years, so the total pipeline over the next 3 years is a really astonishing number and quite a step up really from where we've been able to develop in the past. But roll back to the start, unprecedented need for projects, unprecedented support as long as you have a team that can meet that demand. This is not -- these are not crazy numbers. So those projects are all specific projects, again, we're actively negotiating offtake arrangements for half of those. This is 2 and 3 years out already. So high conviction on the approach, I think we're feeling really good about how on track they are to deliver their plan over their 3-year period. And the plan gets bigger after that. We all know we're going to need more renewable generation. We're also looking to retain more of these projects. And what you should see through that is we'll be able to and we haven't this year, but we are on track towards this sort of guide on EBITDA growth or EBITDA growth for this business over time. So you can get a feel for how it's growing, and I think that will make it easier for people to value, which has been tough in the past. But retaining more projects will require more equity, obviously. We're not selling them. And over the next 3 period that looks like, as Paul Gough outlined at our Investor Day, another USD 0.5 billion. Now we're up for that. And I know our partner, New Zealand Super as well, we really support the approach and ability of the team. But when you kind of roll forward, these numbers get really big. And we think, as we've announced, it's worth looking around to see if we can find new minority investors that will give us more funding options and capital options in the future. So that process is underway, like the Taiwan, and we expect to update on that before our half year or so, certainly around the middle of the calendar year. So definitely one to watch. The aim here for Infratil is to develop this global renewables platform, and we are pretty well progressed. So we know we have had Galileo Green Energy in Europe for 2.5, nearly 3 years now. And we established Gurin in Asia last year with a 30-person team lifted out of their old shop, but with decades plus of experience in the region. Galileo is progressing well in Europe. The development time lines are much longer than in the U.S. So it can take 5 to 7 years to get your planning approval. In Texas, that's sort of you measure that in weeks. So it's always going to take longer to build up your pipeline and execute it. But to compensate for that, development margins and power prices are higher to recognize that, also the projects are a bit smaller. So again, you need the margins to compensate. We see that happen in the market, and so it still remains attractive. And actually, we're on track for our first projects in Italy to reach ready to build later this year, which will be a great moment for the platform and really prove that all the work that's been up to has not been in vain. It certainly hasn't been at all. And Gurin is really underway, and we expect that to follow a similar path to Galileo and Longroad in the long term. That's all I want to say now. I'm going to hand over to you.

Thanks, Jason. Thanks, everyone. Well, I'd like to start out with Wellington Airport. And I've got to say, it's really pleasing to be at the end of the financial year and actually be talking about some international passengers. And actually as much of that talking about how those international passengers are expected to grow for the next financial year. But if we start out just with the result, I think the first thing to note is, we've had 2 full years of COVID impacting the airport. EBITDA for the year before COVID was about $100 million a year. We had 5.2 million domestic passengers and nearly 1 million international. So if you look at the result for FY '22 in that context, we've still got a way to go in terms of improvement. But a really great result of $56.8 million EBITDA, up $20 million from the prior year. And really, largely, that's been contributed to by the domestic passenger numbers. That's been able to be achieved, notwithstanding the lockdown that happened late last year. And also we've clearly had the implications of Omicron variant from the community and the way that people are traveling or not traveling. So I'd say great result all around. The airport, as you would imagine, has been quite circumspect in its CapEx spend. There's some things that they've had to carry on with and which we've fully supported them in doing. One example of that is they're actually we're doing Taxiway Bravo. That's the first time that that's actually happened since 1959. So quite a bit of work to do there, and it's actually a great opportunity to get that work underway now. So I think, though, the first -- the most thing that people will be interested in about is what we're seeing the traffic looking like for FY '23. And some of that actually is even just about how it's performing at the moment. The airport is expecting about 350,000 domestic passengers through in May. That's about 75% of pre-COVID levels. We are expecting domestic capacity to get back to about 100% in July. And what that means is that at the moment, there's not as many flights coming into Wellington as you would have had pre-COVID. Some of those planes are bigger. But essentially, we're not operating at full capacity on domestic yet. And the thing to note about international is, I don't know how many of you have been on a international flight lately, but they're actually almost at full capacity. We have got 88% load factors. And so essentially, there's as much demand there as the airlines can supply. Those number of flights is going to increase shortly because we'll have Qantas coming back to the airport in May. And the good news on that front is actually -- it will be moving to the 3 flights a day on peak days, 2 flights to Sydney and 1 to Melbourne. So we are really pleased to see that. So what that reflects is for FY '23, we'll see an uplift in guidance to the $65 million to $70 million. Clearly, there's COVID risk around that. We do feel that New Zealand is coming through the other side of it. But we are comfortable that, that's an appropriate guidance level at this stage of the year. One thing I do want to just note before we leave Wellington Airport is, we've also seen some big changes or some passings or changing of the guard there. Steve Sanderson stepped down as CEO recently, and we've had Matt Clarke take up that role previously having been Chief Commercial Officer. I just really want to say a big thank you to Steve. It's no means having been the CEO of that airport for 10 years and navigating COVID over the last couple of years. So a shout out to Steve. And also just to note that Tim Brown stepped down from the airport. He is no longer Chair or Director. Tim brought with him a wealth of knowledge and a really strong passion for the airport, and we'll definitely miss his contribution, but I'm pretty confident that he'll continue to give us his advice as a shareholder of Infratil. So I don't think we've seen the last of Tim. Now going on to diagnostic imaging. And as Jason said, this is a sector that we have really put some focus into over the last probably financial year. We first invested in Qscan in June 2020. And last year, we achieved our goal of actually taking that initial investment in Australia and managing to expand that into New Zealand. We've done that with the acquisition of a 50% stake in [ PAG ] and with the partnerships with Auckland Radiology and with Bay Radiology. So putting that into context, I think it's just worth noting that what that platform has delivered to its customers, it's essentially had over 1 million customers in that period, and those customers have received over 1.7 million scans. So -- and how that's delivered, is the platform has got over 270 radiologists and obviously, a significant number of sonographers and support staff following in behind them. So it's an extensive footprint and certainly a leading position within New Zealand and with strong growth aspirations in Australia through the Qscan Group. So in terms of where that performance has landed, I think we'd signaled at the half year and at the February Investor Day that there had been COVID challenges, as you would expect. It's difficult to get patients in either when there are restrictions, but also as the variant has gone through communities, you've got staff down and issues like that to deal with. So our reported result is EBITDA of $125 million across those 2. We're pleased with that. Just worth noting that Qscan was also impacted by the significant flooding in Australia through New South Wales and parts of Queensland. They've responded really well to that. And that was -- but if you saw the images, it was quite stunning to see exactly the impact and the damage from those floods. So in terms of looking to the outlook, we're confident about where that business will operate for the full year. We've got an EBITDAF guidance of $190 million to $205 million. That obviously includes a full year contribution from the New Zealand business, and that would largely account for the step-up that you're seeing. We're being relatively cautious in that guidance given that we do still have COVID to navigate, but we'll see how that goes. The other things to note, though, is with the borders opening, one of the most exciting things is to actually be able to get these groups of people together and start to talk about the synergies and initiatives that really we had in mind when we bought these 2 businesses. There's a lot of commonality between the Australian and New Zealand practices from a radiologist profession perspective. Clearly, they've got IP on procurement. They've got shared IT systems or knowledge on IT systems that they can basically work to get the best result and therefore, get the most of it across that platform. So that's something that is well and truly underway and something that we are really excited to sort of see, be able to take sort of physical form, if you like. I'll just quickly jump to RetireAustralia. Really, I just want to note that the performance of that business for the year can really only be described as tremendous. I think it's worth reminding ourselves that generally what has had to happen is you've had the [ IOA ] communities move from a stance where they were trying to keep the virus out of their villages to a stance where they needed to support residents who had contracted the virus, but at the same time, try to minimize its spread. And the [ IOA ] team did a fantastic job in achieving that and achieved it well. So putting that first priority aside, what they've also managed to do, though, is really execute on their strategy. And the proof of the pudding of that is they've had a weaker deal of resales and they've also come through and had over 76 new sales. So really happy with the sales achievements. And that's, again, just to note, that's happened despite the challenges of what COVID means in terms of people being able to visit villages and get to see the look and feel of what the offer was. So that's been great. I think the other thing I would just focus on is that they are well underway with development, and we're really pleased to see that. And that, of course, has also been informed by the revised strategy. And that -- what I mean by that is that's looking at what they've built formers and what best serves their target clientele. So a really good result from [ IOA ]. And as we indicated in March, we are undertaking a strategic review of RetireAustralia, along with indeed Super, and we haven't got anything to update at this stage, but it's certainly underway. So then just quickly, I won't spend too much time on this because we want to get to questions. But as Jason noted, we've had a record net surplus of $1.17 billion. That's being largely driven by the Tilt Renewables disposal. I think it is worth noting that, that was many, many years in the making. We had that business within Trustpower, really proud of the result, but certainly a long time in the making. So thank you for that contribution. As Jason explained, our proportionate EBITDAF of $513.9 million that was taking into account some adjustments. We've talked better on the slide. If you look at it on a continuing operations perspective, the result was $475 million. So we're very pleased with that. I'm not going to go through too much more of the detail on the capital deployment. We have actually put some information back into an appendix. Annual incentive fees of $100 million, and I will talk to that in a moment. And then I'll also talk to available liquidity. So let's just move on quickly to that. Just as a recap for people, we have to get independent valuations undertaken in order to determine the incentive fees. We have done that for all of the entities that were listed there other than the realized incentive fees, which obviously are based on what the assets were actually sold for. The management agreement essentially provides for an incentive fee, if the performance of the asset exceeds the 12% hurdle. And thereafter, 20% of that outperformance accrues Morrison & Co. With regard to the annual incentive fee, however, it's actually payable in 3 tranches. So the first installment is paid, but the 2 residual tranches only become payable if the value of the relevant investment holds for the next 2 financial years. So what you'll see here is a summary of what those independent valuation outcomes were. CDC is broadly in line with the 31 December valuation, which we disclosed in January with a slight reduction in discount rate and then really just the well forward of cash flows. Longroad, we can talk to, but not a lot of movement there. And clearly, we have got a lot of confidence in the outlook for that business. The only other thing to note, I think, is Galileo Green Energy. It's the first time that, that business has been subject to an independent valuation. Clearly, a lot of activity going in Galileo, and we think we'll see more from that in the current financial year. But for the purposes of the independent valuation and incentive fee assessment, there's no incentive fee payable. Right. Turning now to the dividend. I don't really cover that too much other than really just to focus on the dividend outlook. We really are seeing strong cash flows from CDC, Vodafone and from our diagnostic imaging platform. And for that reason, we are able to say that we continue to have confidence in modest cps growth for that dividend for now. Then debt capacity and facilities. We covered some of this at the half year, so I won't go into too much. We have got available cash at the moment of $773 million as at 31 March. Some of that is wing-fenced for the payment of incentive fees. We've noted that there. But really, the great thing from our perspective was we have refinanced all of our bank facilities during the period. We have about $900 million of undrawn facilities, and we think that we have got improved terms that will serve us well going forward. And then just to highlight, Infratil's gearing. We're sitting at 9.4%, obviously, well down on the target range of about 30%, but a really good place to be for now given the backdrop that we're facing. Just 2 more things for me, Jason, and we can hand over to questions. Really just wanted to note that we have got an upcoming bond which is maturing in June. The Infratil Board is considering making another offer of a bond. At this stage, we are expecting that we may offer an 8-year bond with a full year rate reset. We'll provide some more information on that next week. But yes, just obviously, what we really do want to do, where possible is to provide those maturing bond holders with the opportunity to reinvest. We are also going to enter into a bookbuild process for this bond. So we'll provide more detail on that next week. So just wrapping it up, really, and this is FY '23 guidance. And I think and some would speaks, comparing this guidance to the FY '22 guidance is not straightforward. But the first thing to note is this is a proportionate EBITDAF guidance on a continuing operations basis, which just means really that it excludes Trustpower retail. It also assumes that the portfolio change -- there's no change to the portfolio. So it has RetireAustralia in there, for example. And what we're guiding to is a range of $510 million to $550 million. Some of that uplift is coming from the fact that we've got a full year contribution from our diagnostic imaging business, and we've also got a full year contribution from Kao Data and from Gurin Energy. I think it is worth noting that risk remains on the performance of some of our portfolio of assets. We do have the lingering effect of COVID. We have set this guidance though based on what we know year-to-date and we -- our current expectations of those activities and how they will ramp up. So yes, we'll see how roaming comes back for Vodafone, for example, Wellington Airport traffic resumption, but the signs are positive at this stage. So with that, I'll hand it to you, Jason.

Nice. Thank you, Phillippa. Thank goodness, your forecast are better than mine on how long it would take. But really, really helpful, I think, overview of those points. So let me wrap up and we go to questions and answers. Summary from our perspective is, so obviously, a record result, but also a strong operating performance from Vodafone. And outlook we think for CDC, as Phillippa outlined. For rest of that, COVID is around and all the consequences of that we know about. So we have tried to be a bit conservative, I think, in our guidance, but we'll see how we go. There are obviously processes underway around a number of those assets that could demonstrate value above where the market currently has us. But again, there's no guarantee any of those transactions will happen, although they are well progressed. Balance sheet is an amazing position given the environment. And I think the portfolio is in a great position to deal with things like inflation and even a recession, right, with demand drivers, not as correlated to GDP as others, I think. It's given us confidence to raise dividend, which is a good outcome, I think, and pleasing to do. Looking ahead, we obviously have some capacity. We're still seeing plenty of attractive opportunities within the portfolio as we saw over this year and the sectors we're in and new investments, and we continue to scan outside of it. So we're really happy with that. No issues or loss of confidence on that front. But we will continue to be disciplined and patient. We took an annual report that we looked at, something quite large last year, but remain disciplined and will continue to look because there are plenty of interesting things that we're seeing. I'll leave it there, and we'll go to questions, operator. Thank you.

[Operator Instructions] Your first question comes from Owen Birrell from RBC Capital Markets.

I'm going to start very -- [ plenty of this ] a very quick start with guidance of question. Just wanted to confirm regarding going to the [indiscernible] if there is accounting change?

Yes, that's right. It does. We've basically moved to include that expense in guidance.

Okay. Excellent. I just wanted to touch on a couple of sort of I guess, the bigger macro dynamics that are playing out across the market at the moment and how that possibly impacts the portfolio and portfolio valuations. The first one for me is just around the rising interest rates. I'm wondering if you could provide us a bit of clarity around what risk-free rates are used in the valuation calculations for your various assets. And how sensitive they are to any rises in those rates.

I don't think we have those like off the top of our heads, Owen, but that's something we can take away. They tend to use a long-term rate rather than a spot one. I can give you some assurance around that. They tend to be conservative. And we haven't published sensitivities to that, but I understand the question. I think the way we are thinking about the interest rates, there's no doubt that will impact discount rates in some way. What we are trying to talk to and increase clarity over is the extent to which there's inflation protection built into these assets. So it's a stream of work that should act to counteract some of that, but we don't have the exact statistics on that for you analysts now. But just to clarify what I was talking about there, that's what we were trying to say.

Okay. And the second, I guess, just looking at some of the broader geopolitical impact and in particular, the events in Russia and in Ukraine. I'm wondering if there's been any major impacts to some of your assets. And I guess the term that I'm alluding to, one is CDC, whether there's been any change in cyber activity, therefore, that you've had to react to. And then the other one is just in the renewables front, whether there's major change demand for renewables given the rising energy costs.

Yes. So cyber is definitely a focus at CDC and the Australian federal authorities have been incredibly strong on that. We haven't seen a massive uptick there, but it is definitely sort of a high alert situation across those business is an important area for us to continue to invest in with our customers, but nothing really to report. In Europe, definitely, demand for renewable energy has gone through the roof, but it's not any easier to build them, unfortunately. So not only the planning restrictions but also just getting solar panels and the like is uncertain and transmission will become uncertain as well. So I think medium-term outlook is really good. It's really -- there's a big lump, I think, to get through for Europe to try and get the developments actually rolling. Hopefully, that will free up the planning. And I think global supply chains will respond. We're optimistic on that. But really, the regulatory environment is going to be the issue. So while demand might be great, you still have to wait 7 years to get your project through.

Your next question comes from Matt Montgomery from Forsyth Barr.

It's actually Ibbotson. Just to use the better quality line. I got a few questions, if you may, I'll just rattle through them. So first of all, you alluded to at your Vodafone guidance "may be a bit conservative." I was just wondering specifically what you are feeling around roaming return if [indiscernible].

I can cover that, if you like. I think, Aaron, as you'd expect, notwithstanding where we are seeing traffic come back into Wellington Airport, you still only get a fairly short-term view of that. And it will get greater confidence in that as we get to see airline schedules. And you'd expect that to be the case for airlines or a bigger part in airports across New Zealand. So I think it's fair to say that the assumption around roaming is pretty conservative, but we are comfortable where it lands for now.

So 10% to 20% in normal, like it's quite conservative.

Okay. And then, Jason, maybe I misheard you, but just a clarity on the Longroad comment because in the release, you sort of -- if I understood the comment correctly, you said you expected news around the half year, which is either September or November, depending if you mean when it ends or when you report. But then you sort of had around middle of calendar year, if I didn't get that right when you talked. So it's just when sort of do you think we should hear some news on the potential minority investment to Longroad.

And it would be definitely before 30 September, as I understand your question. Yes. You won't have to wait until November, but it will be definitely before 30 September.

Okay. Okay. And around debt and how you're thinking and what you're seeing, I guess. So there's no secret that their costs have gone up quite dramatically over the last few months. So I've got 2 questions. How are you thinking around that? Does that make you want to sort of potentially run with slightly or continue to run with slightly lower leverage for a more extended period? How does it make you think around Longroad and I guess the other renewables platform? But more importantly, how does the investor discussions go? It's quite a different world when you're looking at potential 5% versus 2.5%. The 80%, so that is funded with debt, presumably this must have an impact on what people are willing to pay for these assets.

Yes. Understand. Do you want to deal with that at the portfolio [indiscernible]?

Yes. Certainly, if I start at the corporate level, as you said, Aaron, we are fortunate to be sitting on the position that we are with regard to bank debt. Clearly, we've got a significant portfolio of bonds, but a nice maturity profile there, and that's essentially largely fixed, so that interest cost is what it is. At the portfolio level, I think the way that we look at it is to have regard to what that sort of corporate cost is when we're making decisions about where we deploy capital. Our target is to have that 11% to 15% return, how we deliver that and what we achieve it through and the kind of interest costs associated with that is really the overlay we need to do when we look at portfolio composition. So that's where I would see it come through.

And the -- in renewables development specifically, no doubt, it's a big input cost among a number that are increasing, I would say. For our near-term projects, we have hedged a lot of that, which is a helpful and quite cheap product. So we're okay in the near term. In the longer term, I think it gets treated like all the other input costs into development. So you have to see the power price kind of react to maintain margin is all really about that margin. And so far, we have seen that real -- there is a real scarcity of projects and a real demand for them, particularly in systems that really just need them for balance. So the ones we're developing in Arizona are all going into California, which needs a heck of a lot of that power. So we're okay as long as the market continues to be rational, right? If there's a big glut of projects like you get at the end of the tax credits rolling off that happened sort of last year, then I think you would see an issue with the economics. But just for now, it's so hard to develop projects but are managing to maintain them.

Okay. And just finally, I'm sorry to go on about this same topic. Just around the tower assets for Vodafone, I mean, that's presumably the one deal that is most exposed to long bond rates that have moved quite a lot. So I appreciate you probably don't want to give much detail. But if you look at the discussions you've had, I find it difficult to believe that there hasn't been a change of pricing expectations from a potential investor into that assets over the last few months, but I'm keen to hear if you want anything that you're willing to add to the picture.

Okay. Wouldn't say too much, but I would say you would think so. But then if you look at some of those transactions in Australia of 38x one, I'm not sure it necessarily applies if you look if you're really long term and you're thinking about your portfolio in that context. So I get what you're saying, but I'm not sure that's playing out in the market necessarily.

Next question comes from Phil Campbell from UBS.

Yes. Just had 3 quick questions. The first one was just on CDC, Jason. Obviously, noticed that the valuation -- independent valuation went up to $3.1 billion. Obviously, we have had bond yields going down. So I was kind of curious as to what was driving that. And I suppose the next question is kind of how much confidence do you have in that valuation like if you were to sell, say it's like a CDC. Is it kind of a realizable value, do you think? The second question was just on Longroad. And obviously, I think there's been a couple of live projects, which have been delayed because you couldn't negotiate the PPA prices that went [ electric ] side. I was just wondering if that was just more of a Hawaii situation. It doesn't sound that was just impacting some of the other projects in the mainland. But just be interested in your thoughts on that. And then just following on, on Vodafone and TowerCo, obviously, you're kind of mentioning these all these transactions. Obviously, the TPG transaction last week, quite an impressive valuation on the TowerCo business. Again, can we assume that those type of valuations could potentially be translated into New Zealand?

Do you want me to start with the first one?

Yes, go ahead.

Yes. So Phil, just with regard to the CDC valuation, I had noted that there's really been a relatively modest movement since the 31 December. Taking your point though about bond yields going down, I think that the movers and CDC are those 4 data centers that Jason referred to are getting closer to completion. The other thing to note is that there has been a slight reduction in the discount rate accordingly. We don't see that as a big move. I think it's something in the order of 10 bps. There's just been a well forward of the cash flow, as I mentioned. And I suppose going to your point about the CDC valuation and whether or not we think that's a realizable value. I think from our perspective, we're very confident that, that valuation is probably at the lower end in terms of where the market would see the value of CDC at the moment. The way that, that valuation builds up the value of the development pipeline, if you read across to the way that even when you are also being valued right now, that pipeline is not being valued that far out would be my response to that.

No, I agree. And there's a pretty impressive comp up in the U.S. with switch. They're pretty extensive multiple. So I think it's conservative as usual, which is right for those sorts of valuations. Hawaii, you mentioned that is definitely one of those ones. Freight costs to Hawaii, like crazy, crazy high. There, you can't actually ship direct to Hawaii. You have to go to mainland U.S. port and then bring it back. So that has impacted the economics of all the projects that were actually awarded in that round where we won our projects. We have been negotiating with the Eco, the local utility. They actually had agreed to a new price and then it all changed again, freight got even worse. So actually, what the utility decided to do is rather than doing these kind of one-off negotiations, let's just run around again with a new set of economics. So everybody can start again. So there's -- they brought forward their next tender, and we just sort of let those projects go in terms of the negotiations we're having, and we'll drop into that tender. But it is definitely a theme. But it is showing, I think, how margins are able to react in this environment at the moment. What was the last question?

TPG.

Tower, yes. Yes, exactly. I think fundamentally, there's not a lot of reason why the businesses in New Zealand should be valued in any different way. And certainly, the contract structures, the way these things are being valued, we are not seeing major differences, Phil. So I don't think there's any fundamental reason why over here should be different from over there would be my response to them.

Next question comes from Stephen Hudson from Macquarie Securities.

Just a couple from me. Just firstly on CDC. I think in the annual report, you talk about installed capacity heading 268 megawatts by mid FY '23. I just want to know if you can give us a steer for what you're assuming for the financial year-end 2023 for your installed capacity. Just secondly, going back to Vodafone, just the $30 million guidance range. I know it's similar to the year just gone past's range. But what are the sort of main moving parts there? You've covered off [ running ], but are there any other moving parts you can walk to there. Certainly, Manawa, I just saw that you're slightly [ advanced ] with the company. I think you are sort of $4 million or so lower in terms of the guidance bounds. I just wondered if you'd normalize for anything there. And then just the last one on dividend. Are you expecting sort of modest dividend growth to move toward the dividend growth that we saw some 5 years ago of 10% within a few years, can you go [indiscernible] kind of you see that trajectory, Jason.

Yes. What was your question on CDC? Did you say it installed 268? Is it true? First.

I think he was talking about adding the 104 megawatts this year. And whether or not that's going to change anymore in FY '23. So we've got the 4 data centers coming online within the next 4 months. Anything beyond that?

Yes, we will have Melbourne starting construction, but that's not installed, right. That's constructed. Sorry, Steve, maybe we might have to come back to on that question. I think I missed it. On the Voda guidance, no, there's not much else we're going to talk about in terms of where we see the pockets of conservatism here, Steve, but there are a couple of other little areas. So I understand the question.

Manawa, I can cover?

On Manawa, this year, yes.

Yes. Steve, the difference between our guidance for Manawa and their guidance is essentially they have included 1 month of contribution from the Trustpower retail. We just decided that it was easier to exclude it to save ourselves explaining it later. So that's all the differences.

Yes.

And the dividend?

Dividend outlook, I think it's exactly as Phillippa say. We're seeing that trajectory, but within the underlying businesses supporting that modest cps growth. But we also are balancing that against the attractive opportunities we're seeing internally and other new businesses in our focus sectors or maybe others. So trying to strike a balance there. We don't want people to get too carried away, but equally, when we raise money for Vodafone and essentially raise money for our diagnostic imaging businesses, we want to reward people for the operating earnings and growth that we're achieving there in some way as well. So we're trying to get a bit of a balance there.

Sorry, Jason. I missed the very first part of your response on CDC. Thanks to the other responses. But was there a number that you gave for the 268 by the end of financial year '23?

No. Actually, I didn't -- is it installed or built? What was your -- I actually asked you the question.

It's in the annual report, you're sort of saying what the installed capacity is going to be middle of the financial year, but not at the end. So if you're able to provide a full year guidance.

Yes. Sorry.

That's the same.

It will be the same. It will be the same in these numbers, yes.

So no additional capacity in the second half?

Just those 4 data centers within the first 4 months.

That's right. That's right. So Melbourne won't come on until next year. We'll start this year, but it won't come on to next year. Yes.

I shouldn't say just.

Any sort of feel for what the FY '2 -- maybe the better question would be sort of what the -- if you stepped up by 104 megawatt, that'd be a -- would you expect a similar sort of step up for FY '24?

No, no way. You'd have to be…

Given COVID is kind of [indiscernible]

Yes, yes. No way. No way. That's a massive lift, right. We have done that over 18 months. So we'd have to be building that already now to achieve that. So the only one we're really talking about today is Melbourne, but there are others in advanced sort of planning.

[Operator Instructions] Your next question comes from Wade Gardiner from Craigs Investment Partners.

Look, I don't want to harp on about the CDC valuation, but it sounds like the increase from December was really around, I guess, a change in the risk profile that was being applied to those properties that were kind of the developments that were coming on and then sort of outlaid anything around risk-free rate and increases. I guess, for the question is, if all of those properties were developed because it doesn't sound like -- it's supposed to be closer to -- you said closer to completion. So all of them when developed, what would that add to the valuation? Like what do we see over the next 4 months, a further increase in that valuation? And also, how is the valuer incorporating, I guess, the future development, the other sort of 500-odd megawatt fits to redeveloped [indiscernible] and greenfield land?

Yes, yes, yes.

I can start, if you like. My instinct, Wade, is that the actual completion of those developments, given that they are quite really close now that the actual completion wouldn't move the valuation too much from here. But what will be looked at is how they fill up and how that capacity profile looks for those data centers. That's already been taken into account. But it's a bit like what Jason was saying, once you actually have the facility built and you are able to take people through it. That's where we'll also see additional velocity on any capacity that is available. So that's what I would see is coming through the valuation. With regard to what it's assuming around future development pipeline, it's a lot lower than the 500 you referred to. There was an element of development pipeline in that valuation, but it's nowhere near the 500.

No, no. It's definitely not taking all that land position into account. That's more for I guess, comfort that they are planning around further growth rather than saying that just turns up in the valuation immediately.

So I thought that was why you hit the big uplift last year that you're actually including an assumption that it was being developed.

That was a bit of Melbourne. Do you mean that 31 December? That was a bit of Melbourne basically and some contracts.

Probably this time last year, there was a big uplift. And my understanding was that was because the independent valuer incorporated the greenfield and assumed that it was being developed.

Not all greenfield. So the question will be not…

Yes. I understand the question. I don't have that number, but I know the question. So they've not included any more greenfields as they did last year. So they definitely did include some. But what we are referencing is we bought a whole heap of land and what we're trying to tell you is they didn't just turn that land into megawatts in the [indiscernible]. So all that underlying stuff about additional megawatt development beyond this 104 hasn't really changed, except Melbourne in December. And we can come back on -- I know what your question is, how much future megawatts have they got on the [indiscernible], right?

Yes, that would be quite nice to know versus sort of what the greenfield land potential is.

Yes, yes, exactly, exactly.

And in relation to that, the first part of the answer about capacity changing and surely, the valuer makes assumptions around the capacity being taken up over the next year or so, and it's really just about the timing that could be brought forward or slower and that really shouldn't change valuation by too much.

No, it doesn't. But I mean things happen from a contractual perspective, even within the space of 3 months. So all I'm saying is that the valuer will be given up to date information about contractual developments, and those will feed into the valuation.

Yes. So we have seen in the past if big contracts are landed, that can move it. That's all Phillippa was saying. But yes, normal cadence, it wouldn't move it a lot. Yes.

Just a couple of quick questions on Longroad then. In the annual report, it says fair value of your stake is $236 million. How is that calculated?

Same as before. So we didn't touch on it in the press, but it's basically the same methodology as before where they're looking 12 months ahead. So the big movers there are basically those 2 projects that are coming on. So, yes, still very conservative, not the way we expect it to be valued in sort of market for market purposes.

And just looking at the -- for example, the 2 sold firms that you finished this year, you sold half of Prospero. Why was that? And should we expect that going forward in terms of there'll be some that you keep and some that you sell, some therefore the new equity that's essentially coming in is not necessarily going to be from one partner. It might actually be from a number of different players buying stakes in these developments.

Yes. So we look at our own portfolio and decide how much risk we want in particular areas, particular contract structures. So we should definitely expect some optimization over time for that. That one we paired with another one in California, so it was actually quite an attractive pairing that enabled us to essentially reduce our exposure to Texas. So we have obviously got Prospero 1 there. We've got El Campo there. That was enough Texas at felt. So mainly, we'll be looking at it in terms of health of the portfolio going forward rather than needing to recycle those projects to get the capital back and put it back in as this shift.

There are no further questions at this time. I'll now hand back to Mr. Boyes for closing remarks.

Thank you. Perfect timing, everyone. Just one final word from me. We wanted to acknowledge Brian Gaynor recently passed away earlier this week. He was a really big supporter of Lloyd, our founder, when he was coming through the New Zealand financial markets system, also a great supporter of the business, an astute investor and commentator and he'll be sadly missed. So our sincere condolences to his family. That is it from us. Thank you, everybody. We'll see you soon.

Thanks.