Infratil Limited (IFT) Earnings Call Transcript & Summary

[Foreign Language] Hi, everyone. I'm Jason Boyes, the Chief Executive of Infratil. I'm joined by Phillippa Harford, our CFO, for the last time in that capacity anyway, as you'll have seen our announcement that she's stepping down from that role next week. Phillippa?

Good morning, everyone.

I'm also joined by Andrew Carroll, who will take over the reins. Welcome, Andy.

Good morning.

We are pleased to be presenting Infratil's half year results to 30 September 2023 to you this morning. As usual, this presentation and the accompanying information has been released via the NZX and ASX this morning. And we'll talk through the presentation now for 30 minutes, and there will be time for questions at the end. Without further ado, let's begin. Phillippa will cover the financial highlights from the half shortly, but firstly, a quick look at how the portfolio mix has changed over the period. The increased weighting to digital infrastructure you see there reflects, by far, the most significant activity in the portfolio in the period, which was our acquisition of the other half of One NZ that we didn't already own from Brookfield in June, supported by an equity raise. As we've said then, that was a financially and strategically compelling investment, giving us full control over One NZ and its significant cash flows. Also in July, we announced our partnership with HKT, Hong Kong Telecom, to grow their global connectivity business, Console Connect, which you see there in dotted outline. It started because the partnership is subject to a number of regulatory approvals, which are progressing well and is on track to complete around Q3 2024, as we've guided, when Infratil will own 60% to 80% of that business. Console Connect invests in and develops subsea fiber optic cables globally and offers traditional and on-demand data connectivity services over that network to wholesale enterprise and business customers around the world as well. It's a growing sector and business underpinned by their critical infrastructure, those subsea cables, and will be an important step in diversifying our digital infrastructure investments internationally and from a technology perspective. We've also made additional investments in Galileo and Longroad and increased our shareholding in Kao Data to support their growth, and I'll talk more about some of those later. But for now, over to you, Phillippa.

Thanks very much, Jason. Yes. So as Jason said, what I'll do is I'll run through the highlights. And as was the case for the full year, we've also got some more detailed slides as appendices for the presentation. So for those of you who'd like a bit more detail, you can go to those appendices. First, to start with, the net parent surplus for the year was $1.17 billion. A significant portion of that surplus has actually arisen from the step acquisition accounting adjustment that we are required to undertake given our step-up from 49.95% of One NZ up to around 99.9%. We don't actually propose to go into the detail of that treatment here. But of course, we're happy to take any questions offline if people have them as to how that surplus has arisen. Turning now, though, to the proportionate EBITDA. We're reporting that as $400 million for the 6 months. That's 45% up on the prior period or 14% up on a like-for-like basis, i.e., if you took the view that we had the same stake in One NZ for the prior period as we do for the current. Overall, we can say that that's reflected by a strong performance from all of our key operating companies, and we'll get to talk about that on a company-by-company basis shortly. And you'll see there an investment -- a reported investment number of $2.7 billion. As you'd expect, that's largely dominated by the $1.8 billion we invested into the One NZ stake, although it's worth noting that there's also been significant capital deployed through CDC, Longroad and also One NZ. And then following on from the equity raise in June, pleasing to see that we've got good balance sheet strength and liquidity with forecast available capital of just over $1 billion. And actually, we have seen that improve over the last few months. We've gone out, and we've improved the tenure through new bond issuances and also through bank refinancings, which I'll talk to later in this presentation. And then just to close it off, we are really pleased to report a total shareholder return for the period of just over 14% and to advise that the Board has declared a partially imputed dividend of $0.07 per share, up 3.7% from the comparative period. It's worth noting, we're also activating the dividend reinvestment plan for this dividend, and we'll look to provide more details of that plan in a separate release during the course of today. So with that, I'll pass back to you, Jason, to kick off the portfolio company updates.

Thank you. Let's do that. So first, CDC, one of the big ones, EBITDAF, as you'll see here, is on track to achieve our guidance of more than 25% over the prior period. More significantly, though, in the half, we announced last month that CDC had commenced construction of a further 220-odd megawatts of additional capacity in response to strong demand signals across its customer base, including for generative AI workloads. That was on top of the 40-odd megawatts already being constructed, taking the total under construction now to over 260 megawatts, an almost doubling of the capacity of the business over a normal 2-or-so-year building period. We also signaled a further 500-plus megawatts of capacity being planned to be built by 2028, if you like, another doubling of capacity again. I mean, this significant uptick in activity led to the increase in the independent valuation we announced there of $450 million to the midpoint at 30 September. CDC continues to receive really strong support from debt providers. And on the trajectory I've just described, we don't expect that we'll need further equity before 2025. But of course, opportunities to accelerate growth even more could bring that forward, and we monitor that closely. Demand signals and customer engagement continues to be strong. And we remain confident that the builds underway will be supported by pre-commitments from customers, similar to the way CDC has grown in the past, leading to further valuation increases in the future, all other things being equal. We expect to be able to update on progress on those things in December, and we expect future builds to be supported by customers in a similar way in due course. Let's move to Longroad. A strong first half with EBITDAF up 40% on the prior period, reflecting the projects in Texas that, if you remember, were damaged in Winter Storm Uri in 2021, being brought back into service and historically higher power prices over the summer period. Needless say, it's not expected to recur necessarily in the second half. And you'll see our guidance -- it's the first time we've given guidance actually for Longroad on a component basis, but for the full year, it's not much higher than the first half, which reflects the normal quieter winter period for our projects. Construction of the projects that reached financial close last year continues to remain on track. And financial close of the next 2 projects, the 2023 projects, if you like, is on track, too, with Sun Streams 4 reaching financial close this month, which we announced, and Serrano, the last of the 2 projects for this year, expected to reach financial close by the end of the year, too. At 1.1 gigawatts between them, that will meet the development target we set for this year, as I said. We're still working on offtake arrangements for a few of next year's projects with good progress towards that target of 1.5 gigawatts per annum on average over the next 4 years that we have publicly talked about, and we expect to be able to update on that progress at our Investor Day next year. In the period, we upped our equity commitment to Longroad. Together -- and together with the debt facilities that are being arranged at the moment, we don't expect Longroad will need further equity before 2025 either to meet that 1.5 gigawatt target I've spoken about. And of course, again, further acceleration or unforeseen events could affect that, too. Finally here, we're releasing the outcome of Longroad's 30 September independent valuation, which was more or less flat in U.S. dollar terms over the half. This reflects risk-free rate increases over the period, offsetting progress in the business. Importantly, there were no changes to the valuer's approach to the Inflation Reduction Act or to incorporate development beyond 5 years, which remains a work on. Also, as I just mentioned, financial close of Sun Streams 4 and Serrano will fall outside the period covered by the valuation. And also, in accordance with the valuer's usual methodology, further progress in the pipeline will get incorporated, we expect, in the 31 March independent valuation. That should mean that, that valuation lands in line with our mid-teens equity return expectations for this investment, all other things being equal. I hope that's clear. Just turning quickly to our other younger renewable energy development businesses on this slide. All have made tangible progress in the period. Galileo has successfully sold some projects and brought in coinvestors to its offshore wind projects. This is happening at returns consistent with our expectations for these investments when we initially made them, and we and our partners increased our equity commitment to the business to support further growth here in the period as well. Gurin here has probably outperformed our expectations really, winning 1 of only 5 approvals awarded by Singapore to import renewable power from Indonesia via our new subsea cable and a consortium with others. This is a key development milestone for a planned enormous solar farm really, 2 gigawatts of solar and 4,400 megawatt hours of battery, which would be one of the largest projects of its kind in the world. Development activity on that project continues with the financial close targeted for the end of next year. But again, at this stage, returns look in line with our expectations for these investments. We expect to bring in a further partner for such a large project, and we'll update on progress next year. But if you stand back, it's really a strong endorsement of Gurin and a reminder of how quickly these platforms can grow like Longroad has once they're established and underway. I'll keep moving. Turning now to Diagnostic Imaging businesses. Our EBITDAF, up strongly in the period as volume growth returns in line with pretty close to pre-COVID trends, but offset, as we've seen in the market, somewhat by persistent labor shortages and cost pressures. The businesses have been really active on numerous productivity, efficiency and growth initiatives to deal with those that are beginning to bear fruit. And they're being invigorated by some refreshes and strengthening of senior management teams with former Chief Medical Officer, Gary Shepherd, taking over as CEO of Qscan and doing a great job, supported by a new CFO that was an internal appointment as well and also some key appointments to CEO Terry McLaughlin's team at RHCNZ Medical Imaging as well. So it's pleasing to see the businesses improving EBITDAF margins from 27% to 29% from the prior period in this challenging environment. There is further productivity and efficiency work to do, though, and we're reducing the top end of our guidance by $20 million, giving this new range of $180 million to $200 million here. From what we see, like the trajectory of the businesses is quite positive actually. And with the kind of continued return to normal conditions, dedicated and expert staff and doctors who are significant co-owners with us, all focused on patient care and long-term value creation and a range of attractive growth initiatives like the ones that we've outlined on this slide and others actually, that they can address as margins and free cash flow continues to return. Finally for me in this section, Wellington Airport. Here, the return from COVID then continues with a strong first half, 25% up on the prior period and in line with our guidance at the start of the year, driven by, obviously, return of passengers. Progress on new capacity, capital works and their sustainability targets continues well, as we've outlined here. Looking ahead, consultation on pricing for '25 to '29 is progressing well, where they're expected to be set by March next year. There's not much more to be said on that while that consultation is ongoing, but we feel positive about how that's sitting and the airport's prospects. Of course, our long-time partner, Wellington City Council, announced it would consult on selling its stake in the airport, and we'll watch how that process progresses with interest. Over to you, Phillippa.

Thanks, Jason. Right. Turning now to One NZ, I'll kick off with that and then a couple more. As I noted earlier, this is the first half year of reporting with our 99% stake holding in One NZ. And obviously, that acquisition completed in the middle of June. I think it's worth reminding ourselves of what our investment thesis was at the time that we increased our stake. And going back to that, we indicated that we really wanted to try to see ourselves having full control of what we viewed as a scaled, high-quality digital infrastructure business that is clearly critical to both New Zealanders and to New Zealand more generally. At the time, we also expressed a high conviction on the outlook for the business, and we also saw significant opportunity to add value through reinvestment over the long term. And clearly, that's an approach that Infratil has an extensive track record of applying in other investments that we've held. And finally, we also noted that the core cash-generative features of One NZ would be highly supportive as we look to balance our portfolio mix and, therefore, have opportunity to invest in some of the other opportunities that Jason's talked about already. So with that as a backdrop, we can then sort of look at the 6 months to 30 September, with 3 months of that occurring after our step-up. And it's pleasing to see that we've got strong trading momentum in that business, particularly in consumer and SME mobile, that is, and a continuing uptick in roaming. When you take those things together and you couple them with some cost improvements that we've seen, we are reporting a resulting EBITDA margin uplift to 29%, which is a movement from 26% that we reported at the full year. But even though that is a pleasing outcome, we do think that it is worth noting that there has been substantial movement in the industry in terms of broadband and mobile pricing during the period. We continue to see aggressive competition on fixed lines, and that's coming through especially from the power companies. And that's bringing with it the associated margin compressions that you'd expect. But it's interesting to see that most providers are passing on the annual increases that you're seeing from third-party wholesale input prices. On the mobile front, as previously signaled, One NZ has been exploring and implementing a program of regular price increases and right pricing for those products. And they're also implementing product rationalization, so reducing the number of plans we offer and targeting where we think people want to see those plans in terms of those offerings. Now what that's done is that's seen it come through in terms of the uptick in the ARPU for mobile, which is now up to $32 for the 6 months. Moving on from that, though, when we think about the CapEx front, I think it's pleasing to see that the IT transformation is progressing. The team has just developed and is in the process of rolling out a completely new platform for prepaid customers. The reason that, that matters is it is going to provide much better customer functionality, and that's going to, therefore, improve our customer value proposition and also our retention strategy. And the other thing to note, that is, as you'd expect, while you're developing those platforms, you essentially have to put on hold any further enhancements you'd like to do to your product offering. So now that we've moved to that new platform for prepaid customers, we can take a good look at what we're offering and what makes sense in that segment. And finally, just to note, the investment in the network has continued. We are still at a view where we have co-leadership in the network capability, and that's, of course, an essential element to our customer proposition. So it's great to see that ongoing investment. So moving now from One NZ and on to Manawa Energy. As you'll know, Manawa Energy released its result on Monday. And given it's been well covered by the team, we won't talk through that this morning. But we do think there's a couple of observations that we can add, our views, given that we've now digested that release as well. For a start, we're certainly encouraged to see the progress that the team is making in defining their strategy as an independent power producer in New Zealand. And that's particularly the case because they function that they are actually going to be the largest independent power producer. So it will be good to see the way they're thinking about the world that, that diversified asset portfolio can play within that construct. Now as part of that, we also think there's more to play in terms of the contracting choices that Manawa will be able to consider. They noted in the release that the contracting arrangement with Mercury starts to wind down from October next year. So as you'd expect, they're having a good look at what their options are in that regard. We think that, that ties in nicely to some of their capital structuring options, and that should be able to inform us on the funding development opportunities they have for those projects. And as you'd expect, it will also provide us with some optionality around cash flow to shareholders which, again, going back to the Infratil mode of operation, that's the kind of optionality that we certainly value at the portfolio level. And I think one other final point to pick up is that they have released the changed CapEx profile, and they've also taken views on the marginal economics of their new development opportunities. And in that regard, we just note that we've got a high degree of confidence in the team's ability to execute those. So we'll be looking forward to see how that tracks. Finally, now moving to Slide 14 from a portfolio update perspective, and this is RetireAustralia. Really, the overall picture here is that we just continue to see a really strong performance from this business, underlying profit of $95 million, which is up 50% from the prior period. All of the usual metrics that you use to test these sorts of business such as occupancy, that's also tracking very well at 93%. That's essentially full capacity. So -- and that comes through by virtue of the fact that we've got waiting lists now at 25 of the 28 villages. I think it's worth noting that really, what this also speaks to is the coming to fruition of RetireAustralia's strategic plan. They've been very purposeful in developing their care offering and actually also trying to appeal to what you'd call the care-sensitive resident, and we're certainly seeing that in the demand for our product and in the wait lists. And then finally on RetireAustralia, just to note that development is also going well. They've completed 2 developments in the year so far. We've got another development which is on track to, I think, open within the next month or so. And we've also just recently acquired a piece of land in Brisbane. So plenty of things going on there. Right. So now portfolio outlook. And I think I'll turn first to sustainability. And that's probably a fitting start to provide with an update on that, given we're really much about where we see the portfolio. Now of course, while it's worth noting that we are focused on delivering strong financial returns to our investors, we also have a role to play in delivering other things that they want to see in their futures. And if you put your sustainability lens on, that speaks to factors such as low carbon, resilient economies, great employment opportunities and also thriving communities. Now given that Infratil invests for the long term, sustainability is one of the key ingredients that enables us to do that successfully. So it's really great to see the significant progress that we've made to date, and we can also provide a bit of a prelude of things to come. So just to wrap up of what we're providing an update of on that slide, you'll be aware of the fact that we released our first sustainability report in August, and we've also since then set our SBTi targets, and we've had them validated. So we're well on the way to at least communicating that to the market and also setting that strategy in place with our portfolio companies. We're also really pleased to be close to releasing our climate-related disclosures for 2023. Those will be voluntary disclosures, but they are a precursor to the mandatory reporting that will apply from FY '24. So from our perspective, it's great to get the voluntary disclosure close to being released, and then we'll set ourselves up for next year. Turning now to debt facilities and capacity. The next couple of slides will provide some detail around the debt position of Infratil and of our portfolio companies, as we've had some requests to provide some form of look-through gearing assessment. Now I think the one thing it is worth noting and providing that view is we don't think a fully aggregated view of look-through gearing is quite the right way to think about it. The reason for that is we think that the gearing assessments need to be undertaken at the portfolio company level and on a stand-alone basis. But it is useful to see what the gearing is at those companies and also the gearing level obviously at Infratil. So we're providing that view, and people can let us know if they've got any follow-on questions from that. But firstly, starting with the wholly owned group position. And as at 30 September, our gearing was just below 20%. Pleasingly, the weighted average cost of that debt is at about 5.7%, and 79% of that drawn debt is fixed. We've got -- as I noted earlier, we've got significant undrawn facilities of around $1 billion. We've actually refinanced $200 million of the acquisition facilities we put in place for the One transaction, and we're expecting to refinance the remaining $200 million before June of next year. Turning now then to the portfolio company debt. As I said, I think the main purpose of this is to provide you with a look-through of the gearing at each -- of each portfolio company. It's worth noting that the way that we've calculated that is to provide a view of -- basically, we've taken the value of that investment from an enterprise value basis and our shareholder weighted gearing ratio across each of those companies. That provides us with an aggregated view of the 24.6% that you'll see there. And similar to Infratil, there's a high share of hedged debt across the portfolio with over 75% fixed as at 30 September. Now moving quickly to FY '24 guidance. As you'll have noted, we've announced the slight lifting and narrowing of the range to $820 million to $850 million. For the most part, we're seeing guidance ranges remaining unchanged at the portfolio company level, but we are forecasting sufficient incremental movement across the portfolio to suggest that a slight increase is appropriate. And then finally, just to wrap up, as you'd expect, for the purposes of our half year accounts, we are required to undertake the assessment of incentive fees. We are accruing $39 million at the half year. This is largely driven by the valuation of CDC, which Jason spoke to earlier. I think it's just worth noting that at the full year, we also announced that amendments would be made to the management agreement, which would provide for offsetting of over- and underperformance of the 3 categories of incentive fees. However, these amendments have not impacted the half year, and that's essentially just because we don't have a view of any initial portfolio fees at this stage. Those valuations will be undertaken at 31 March. So we'll be able to provide then a kind of aggregated view and, therefore, see the impact of the management agreement changes at that stage. So now over to you, Jason.

Nice one. Thank you, Phillippa. Let me sum up, and we can take some questions. I think kind of 4 points really. First of all, really pleasing operating performance across the group despite challenging macroeconomic conditions, underscoring, I think, the quality of the investments and teams and the benefits of the diversity we have in the portfolio. It is good to be narrowing and raising our guidance and making a small increase in the interim dividend. So that's number one. Second, we remain very confident about our growth opportunities over the short term with CDC, in particular, and Longroad and even Gurin's potential acceleration, right, and also in the long term across the portfolio. We retain control over the timing of these opportunities and good liquidity and balance sheet flexibility. Capital management remains a key focus to ensure we're balancing cash generation with growth opportunities to maintain our flexibility to continue to take attractive opportunities as we grow. Overall, the portfolio continues to feel well positioned. And finally, although we're not short of attractive internal reinvestment opportunities, we remain open to new ones that may arise while global macro and geopolitical environment remains pretty volatile. That's it, I think. Let's take some questions, and I think we have Lexy, is it, who's going to run that for us.

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

First of all, thanks for the improved disclosure. It's a good start. First question, on the Wellington Airport council stake, are there any -- do you guys have preemptive rights over that? Do you want it?

I don't think we have preemptive rights, and I think it's too early to say what our view will be on it because they've only just announced what they're doing, Wade. I think the business is well positioned and performing well, and responding to wherever they land in due course is, I think, one of the many potential capital allocation opportunities in front of us.

Okay. On Kao Data on page -- the valuation on Page 29, I think it is or the presentation, went up $24 million. Yet on Page 27, you've got investment of $81 million. Why the difference?

Yes, it's a good one. That is a book value. There might be -- I'd have to take that away, Wade, I think. We'll come back to you on what the components of that $80-odd million is, because there was some investment and then some acquisition. And there might be a split there to take us to that $53 million that we mentioned in the report.

Okay. That would be helpful. Also, on the RetireAustralia valuation, why the decline given the progress that's being made?

Yes. I think the thing to note on that, Wade, perhaps I can pick that up, is it is an independent valuation. So it's up to the independent valuer to take a view on that. Clearly, there has been some movement in risk-free rates. So we accept that as an independent valuation. And we remain confident, though, as you can see from our slide, about the way the business is performing and what its outlook is. But essentially, that's where the independent valuation landed at June. I think it will be interesting to see how that comes through at 31 March. If anything, the business, it's continuing to be able to reflect where it sees value and price increases that it's putting through to its unit pricing. So we haven't seen anything that would suggest that, that is where it needs to be.

Okay. Also, while we're on valuations, the comments you made before about the Longroad valuation in March, can you just clarify what you meant by that?

The comments I made were that it was flat to March, Wade. And then when you think -- talking about my...

Going forward.

It was really just signaling that with Sun Stream 4 -- financial close of Sun Stream 4 and Serrano coming into that valuation. And then also the way that -- this is the independent valuer's methodology, not mine. So just carry it that way, and it's not how we run the business. But just so you know, the way they do it is then once you roll into a new calendar year, they bring future projects into their valuation because they're now closer- and nearer-term projects. So the progress in the pipeline comes into the valuation in a lumpy way, I think, is what I was trying to signal. And so once you take those things into account, which we do when we look ahead, you should see over the year progress in the valuation consistent with our kind of target returns for this investment in their mid-teens plus territory. Is that clear?

Yes. Yes. Okay. And finally from me, on CDC, strong demand out there in the market. Are the current -- are you seeing an increase or impact from that in terms of contracted rates? And with the existing contracts that you have, how does the price escalation work? Is there any sort of market price escalation? Or is it all sort of CPI-linked?

Yes. So new pricing doesn't affect existing contracts, on your second question. On the first one, we're continuing to see returns on invested capital remaining stable, in line with our targets and historic trends. So if there is movement in pricing, that will be reflecting efficiencies in CapEx, but that is all very site dependent-type stuff. So we focus more on that return on invested capital staying stable, which currently we see that it is.

Your next question comes from Aaron Ibbotson from Forsyth Barr.

Again, thank you for some extra disclosure. My questions are primarily actually around One NZ. So first of all, my traditional question, was it free cash flow positive in the half? And if so, could you give us some sort of idea roughly of how much that was? And secondly, I believe the capital increase, you sort of suggested that revenues will be up low single digits. I think the main point was something like 3% up year-over-year. I haven't seen any update of the revenues. So I wanted to know, given that it was down a couple of percent in the half, what's your expectations for the full year is with regards to One NZ revenues? And then finally, Phillippa, last chance, if it's okay if I probe a little bit more than what you suggested on the EBITDA upgrade, because it's a little bit difficult to reconcile with the individual portfolio companies. So is it fair to say that it's primarily sort of a movement within the range of One NZ and CDC? Or is there something else? Because if I add up the other ones, I get to, at best, flat.

All good, Aaron. Maybe I'll start with your third question. I've got Matt having a look at your first 2, and we'll see if we can come back to you on those on the call or whether we have to come back to you separately. With regard to the earnings or bigger part in the guidance update, it is pretty much as you have indicated. I think, though, it is worth noting we have seen some uptick in Longroad. But really, what we're signaling is, as you'd appreciate, we get earnings guidance from our portfolio companies. We have to take a bit of a view about where in that range we set them. So there's a slight overlay from us, but that's always within the guidance range that we get from those portfolio companies. All we're trying to signal here is that on balance, when we look at the updates that the portfolio companies have provided us, we're not actually seeing a need to materially move the ranges or to move the ranges. But when we look at the combined effect over the portfolio, we are confident in providing that updated guidance, which lifts it by $10 million at the top end. With regard to the second -- to the first 2 questions, Matt, do we have anything to update now or can we go back to Aaron?

[indiscernible]

Perhaps we'll just come back. Sorry, Aaron, I'll come back to you, if I can. If I get an answer during the call, I can just add it to another response, if it's okay.

That's totally fine. Just one more question on One NZ then. So again, at the capital increase and I believe at the full year as well, you suggested that included in your guidance was -- I think it was $35 million or so of sort of one-off type costs, including rebranding and things. So is there any chance you could give us any idea what you think was a one-off character in the first half?

Yes, sure. Actually, that's right. So just to be clear, when we set that guidance range of $580 million to $620 million, we had noted in the June release that essentially to the right-hand side of that, we had some one-off costs, which we basically look to normalize out. In terms of the way that that's tracking at the half year, we are pretty much seeing half of that come through to the half year. And so that's actually where it's tracking now. And sort of as much as we can say now, we expect broadly that to track to about the $35 million or thereabouts for the full year, but we'll provide an update from there.

Okay. I'm going to take the liberty of making one small comment, which is given that sort of 2/3, 70% of your EBITDA -- group EBITDA is from One NZ now, I think it would be extremely helpful if you could get some sort of idea of what the actual cash flow generation from One NZ is, because it's becoming a -- quite a large driver of supporting your debt, et cetera, and dividend. I'll leave it at that.

Yes. So we could take that on board. Yes. Thank you. And then just going back -- sorry, Aaron, just going back to your question, Matt has just sent me through the answer. I think your question was whether or not we've got a net cash flow positive, and you're asking that question. Is that on like an EBITDA less interest and CapEx point of view?

Just main free cash flow, yes. So you've done a couple of -- your CapEx excludes a couple of CapEx.

Right, no problem. Look...

And you haven't included our net debt. Considering that your net debt is going up, I assume it's not free cash flow positive. But it would be just good if I could get that confirmed.

Good as gold. We'll come back to you, Aaron, if it's okay?

Absolutely.

Your next question comes from Stephen Hudson from Macquarie Securities NZ.

Jason, Phillippa, just a couple for me. Just back to Longroad, I just wondered if you can give us the independent valuer that has done that valuation, whether or not it's going to be semiannual and just a simple -- a couple of simple metrics around the gigawatts -- the terminal gigawatts that they've used and perhaps the terminal EBITDA or free cash flow. It'd be useful just to frame that up and allow a comparison versus what we've got. Just on gearing, how do you calculate look...

Do you want to pause there? Yes, we'll do that one because otherwise, we'll forget.

I can do the first one. I'm not sure that we are able to disclose who the valuer is, Steve. But what we can say is we've got a panel of valuers that are used in terms of across the portfolio. They'd be your sort of usual suspects, whether they are the big 4 or the next tier down. We very much choose them in terms of the appropriateness [ when they're ] asking the question. We can confirm if we can come back to it, but it would be one of your usual suspects.

Yes. Yes. And then in terms of those metrics, I don't have those off the top of my head. So we would have to have a look at that. But it won't be that different, right, from what management -- what we released in the presentation for Phoenix, which showed that OpCo run rate EBITDA of $600 million by '27. Yes. So it will be in line with that. And then I don't -- I couldn't tell you exactly where in the model that sits. That should be pretty close, though. They won't be different from what we put out to management, put it that way.

Okay. So it does sort of build in kind of like an 8 gig capacity -- terminal capacity then by the sound of things.

It will do, I'm fairly sure, and it just then stops basically. So as I said, you're getting nothing close to 5 years, and then they will be using the discount rate to adjust for probability the further it gets out. And then actually beyond the near term, their methodology switches from DCF to a kind of a dollars per megawatt-type calculation. So that's why the valuation can be lumpy because as it gets closer to the date of the valuation, they switch to a DCF, and you get a different outcome, just to give a more -- a bit more of a feel for what I was talking about with Wade before.

Okay. That's useful. And it's a semiannual recut that you see?

Yes. I think it's at least semiannual. It might be a little bit more, but what -- with these -- yes. So you'll see them when we do our full-on halfs, yes, exactly.

And just on gearing, look-through gearing, it sort of looks to be maybe 45%. I haven't quite updated it, but it doesn't actually look too bad. Is that where you're landing? And it looks like a sort of a long-term look-through gearing you've had maybe 50% and a peak of 65%. Is that -- do those numbers make sort of sense to you?

Yes. I think it's fair to say they make sense. But I suppose, first and foremost, our kind of starting point was to really just note that it's kind of hard to just put those 2 calculations together in our view and come up with something that is particularly meaningful. And the reason for that is if you go to that portfolio company debt, you'll see, essentially, the gearing at each of those entities is fit for purpose for the state of that business, what its outlook is, how focused it is on development. So it's kind of if you take that approach and then you apply the Infratil-level gearing, that's actually been calculated on the previous slide on a market cap basis. We all know that that's not necessarily the sum of the parts in terms of what you'd get to from an independent valuation or certainly from our perspective evaluation. So I think for what it's worth, our view is that you can look at the Infratil-level gearing and see that we're tracking at about 20%. Then you can look at that portfolio company gearing, and that's sort of on average at about 24% on a weighted average basis. So yes, your number in terms of look-through total is probably about right, but we're not necessarily sure how meaningful that is.

Okay. Maybe just staying on that theme, you've fully provided the corporate operating cash flow numbers in your supplementary there. I'm going to ask a bit of a provocative one. It looks like you're not covering your dividend. It's been a while since you've not covered your dividend. Do you just ride that out? Or are you going to do something about it? Do you care about that? So I'm looking at the 37 -- yes.

Yes. Yes. Well, do you want to...

No, you go.

Yes. I think at this stage, our intention is just to ride it out. I mean, the point for us is that we've got a very good view of the cash flows that we're expecting in from our portfolio companies. The one thing you can say is that our obligations at the corporate level are fairly known as well. It's not that complicated a profile. You can see where we've got our hedging in place in terms of our interest rate exposure. So where we sit, we're sort of happy to ride that out. I think it is always a question of how you balance cash flow through to shareholders with the investment opportunities that we have and also with our capital options.

Yes, makes sense. Last one, sorry, hogging the line. I'll back off after this. With the council looking to sell their stake, can the subvention arrangement survive the sale?

I can pick that up. For the subvention arrangement, we simply need to hold a 66% shareholding. So yes, that's certainly the case. The one thing I would observe is that subvention arrangement is actually cash flow beneficial to the airport itself and, therefore, to all shareholders of the airport. And that's just because instead of having to make progressive tax payments through the year, essentially, that tax payment is back ended to after the financial year when it gets paid through to Infratil for losses. So -- yes.

Great. And congratulations on your tenure, Phillippa, and all the best on your next adventures.

Thanks very much.

Your next question comes from Phil Campbell from UBS.

Just a few questions from me. Jason, just on CDC, firstly, you kind of talked a little bit about the demand side. And almost -- I think you talked about providing an update in December. I just wanted to maybe get a bit more color on what you were talking about in regard to that.

So I was talking there about the precommitment side of things. And we have, for example, a 31 December valuation point, which we would normally -- I think we've always had a reason to be updating around that. So I would expect any progress there to be reflected in that is what I was thinking of, if not before.

Right. Okay. So I assume it's like the valuation that was done a few weeks ago, that didn't include some of those pre-commitments. Is that a way to interpret it?

It will include the status at that time, right? And we're saying that, that is continuing to progress, and then you'll get an update on progress with the pre-commitments, well, as we need to release it because it's material or around independent valuations that are reflecting material changes from that.

Great. Got you. I suppose the other question I'm thinking you talked a little bit about was you didn't think you'd need to raise any equity for CDC until 2025. I'm assuming that's partly due to, obviously, you've probably got a couple of billion of liquidity there. But also, I'm assuming when you're talking with banks and debt providers, you're talking a concept of contracted EBITDA. So I just wanted to maybe get a bit of color around, what is the kind of conditions about how much of the contracted EBITDA gets included and how we should kind of think about that?

That's exactly right. I mean, we're not seeing material changes to how financiers have been looking at that for our business for a long period of time. So as you point out, they are looking -- they acknowledge that you need to incur the CapEx up front before you can start receiving rent and so give you credit for that coming once you -- particularly once you have pre-commitments obviously. So that's not changing. In fact, the demand in the market or the support from the debt markets is still as strong as it has been. And so exactly as you say, assuming that the debt package we're expecting to get put in place is done, then, as I said, we're not expecting CDC to need to raise equity from us before 2025. And even beyond then, that will be subject to that point, again, right, about where the capital markets are and where our CapEx profile is relative to pre-commitments. So I'm not saying we definitely need one then either. I'm just trying to give some clarity for the year ahead.

Right. And I suppose the other one from me is just -- you talked about in your comments, you've got a doubling of capacity, I think, in the next 24 months. And then kind of post that, there's another doubling of capacity. So I suppose the kind of build rate is kind of definitely stepping up quite a lot. Can you just give us a bit of a color around how -- because CDC has done a great job up until now kind of managing that build, particularly through COVID, but just it is stepping up to another level. So it's just kind of -- if you can give us a bit of color around how you're kind of managing that, because obviously, it is going to a new level, right? So...

Yes, I agree. We were sort of -- I think at the start of the year, we were feeling like we're in that 20% to 30% kind of growth rate, weren't we, and that was reflected in our guidance. It definitely feels more like 30% to 40%, I think, that's reflected in those megawatt numbers that were released in October, if you go all the way up to 28% as we put it in there. So actually, there's been some key -- particularly executive changes that we've talked about before, but are really contributing to the organizational capacity of CDC to credibly and in a manner that's been consistent with the way they built them in the past to address such a big step up. And you will admit when we had the visit, I think it was last year, Glenn Uidam, who became the Chief Operating Officer and joined from Equinix, and he obviously has a lot of experience coming from that background across Asia Pacific and operating at a much bigger scale. And so the operations side of the business has received quite a lot of attention from here and quite a lot of more organizational capacity built there to do that with the existing portfolio. But what we're talking about, that's ahead of the business. And then on the development side of the business, there's almost a whole layer of senior construction management hires that have been appointed regionally, where these large build programs have been commenced. Matt sits below Max, who's been the Chief Development Officer for a while. And it's like giving him 2 or 3 more arms, right? You're talking about senior people who've built with us before, who know the methodology and know the way Max and Greg and Glenn want things to be produced, able to operate at bigger scale across a broader geography now as well. So hopefully, that gives you a bit of color. But certainly, at the Board level, we had exactly the same questions probably over the course of this year. And as usual, the team has been a little step ahead, I think, in finding these executives and evolving their executive structure to address the opportunity that's ahead of them.

Great. And this might be a little bit of a crystal ball gazing exercise. But obviously, that last announcement you made in October, you kind of increased the pipeline from 796 megawatts up to kind of 1.85 gigawatts. And it seems when you read it, most of it was due to kind of AI demand. So we kind of almost imply like a 1.25x kind of multiplier. What's the probability do you think the multiplier could be higher than that?

It's definitely broader based than just AI, but generative AI is definitely significant. I don't know if you could probably base it. But certainly, you know Greg. We've known him for a long time, right. He's not resting on his laurels. He sees opportunities and will continue to chase them. So I think renewable power and access to it is becoming quite important in all countries, right? And Australia won't be any different in terms of even bigger growth rates, as one kind of atmospheric data point I could give you and -- yes. So I think Australia has got a great medium-term story in that space. It's probably just the short-term period isn't there, where it's hard to build and connect that needs to be navigated potentially to access meaningful further upside. But I'm kind of riffing a little bit there just to give you something.

I'm assuming the -- obviously, the guidance you've done today, that does assume some renewable energy sources. But you're kind of saying it's a bit of a constraint in the short term?

Accessing it is not uncomplicated in the short term, for sure. There are some good opportunities. I mean, luckily for us, through great design or great luck and probably a bit of both, we know a lot about renewable energy in Australia. And you can expect those teams to have been working closely together. And CDC has also done some great work building their own capacity in this space. So it's definitely important not just for our customers, but also for Infratil, right? Phillippa spoke to our sustainability ambitions and our SBTi validated targets. So it's all pushing in one direction on that thing.

Okay. Great. And then maybe just one quick follow-up just on Longroad. Obviously, there's been a couple of results in the renewable space that I've read about. And it seems as though there's some other players possibly postponing a few contracts just because of higher interest rates. But I'm just wondering if you -- if there's any impact on Longroad there or the fact that's pretty well capitalized, it's possibly an opportunity where you just continue to build the projects you've already outlined?

Yes. Yes. So the projects we'd outlined, you know the way we develop, we're pretty derisked on that front. Usually by the time we've landed the PPA, it will be forward fixing interest rates and have a very tight line of sight on to CapEx. When you look further ahead, it really does rely on -- if there's volatility in interest rates, it really does rely on the PPA prices adjusting, and we have seen that historically over the last couple of years, as we've discussed. But we're sort of live on next year's -- a bunch of next year's projects. So we'll have to update on exactly where that lands, I think, at the Investor Day. But certainly, the early ones that we have either down or closed on, we feel positive about. So yes, I think, in general, more opportunity is what the team is seeing from smaller developers or other developers who are doing exactly as you said. So there's a lot of M&A in the market that the team is looking at and interested in which we can update in as well.

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

Three for me. Just the first one, to get a bit more flavor about the offshore renewable program. Obviously, you've got a slide on with a bit of a description. Should we still think about 400 megawatts FID during the course of FY '24? And what kind of capital requirements might that require from you guys sort of FY '24 or '25?

Are you talking about Galileo?

Galileo and Gurin.

Galileo and Gurin.

It's a lot of earlier stage, of course. But...

Yes. I think we're reassessing that right now actually, Nevill. And so I can't update. So you've got quite a lumpy profile right in that project I mentioned in Singapore to digest and also what's going on in the Galileo pipeline. So I think that's not a bad number. In terms of the capital requirement, you would be looking at a raise from them, I think, to support all of that in the, I don't know, maybe EUR 200 million to EUR 300 million territory across them. And so you take Infratil's share of -- and you might make that euros, I think, are the sort of rough numbers we are looking at now to completely build out what's in front of them. So that, I think, falls into that capital allocation opportunities that we're live on. And thinking about for next year that probably by the Investor Day, we'll have a bit of view on for you and everyone else.

That's great. That's useful color. Moving on then to the airport, obviously, we will ask a few questions about this. But I'm interested in your perception about whether or not, from an Infratil perspective, you'd regard Wellington Airport as sort of a mature investment. Or does that still have some good, embedded sort of growth options, obviously, the runway, et cetera, that you think you'd like to see play out?

I think it's well balanced between both of those things, Nevill, for sure. I can definitely see, and it's hard to talk too much about them while the pricing is underway, decent growth opportunities. It also has obviously a great cash flow profile for the portfolio, which is always in our minds when we are thinking about that balance between growth and cash flow.

Okay. And then the last question is a little more generic. In the past, we sort of had great warning lights about the potential acquisition. Console Connect played quite a bit in advance. Sort of not much else flagged in the realm of inorganic acquisitions. Should we be thinking of -- I'm sure you'll never say never to rule anything out forever. But should we have in our minds that there are other sort of sizable inorganic kind of growth opportunities on the table?

I think they're going to be -- what I was trying to say there was they're going to be at the end of the spectrum where the current climate gives you access to opportunities that you wouldn't get in normal times, I would say. So there is definitely a high hurdle, but we continue to look for special situations. And I think Console Connect fell into that category. We felt access to a globally diversified digital connectivity asset that you would take 30 years to build yourself was too good an opportunity to pass up. So I think it will be in that sort of territory, and we do see things like that. But -- and I expect more of them could come out if the current volatility continues. But hopefully, that gives you a feel.

Yes, that's useful. Just to follow on to it, though. In terms of what platform we should think about or whether there's a fourth platform, should we think of those as sort of rebalancing, if the options turn up and you execute them, rebalancing more towards renewables or social infrastructure?

The -- I think it's still -- for M&A and renewables would more likely be at the project level than our new platform, as we discussed just before. So yes on M&A there, but that's sort of how we would think about it rather than a new platform. We do analyze new ones, but they would need to be -- they would need to fit the bill that I mentioned before. We see still a lot of good opportunities in digital. I do think, though, one of the points you made is worth emphasizing. The ambition and the strategy is to continue to grow the renewable portion of the portfolio through M&A and the type I described, an organic build-out, at the moment.

Great. I'll just sneak one last one in, and I imagine it's too early still, but I should ask anyway, exactly. Console Connect, yes, obviously, it's still very early days in the approval processes for that. But any sort of early indications or feedback you can give us?

They're going well actually, good interaction, good cadence. So yes, going well.

Still looking at a third quarter calendar 2024 completion...

Yes, around the same similar target to what we had outlined on announcement.

Great news.

Okay. Thanks, Nevill. I think we might finish it there. We're on the hour. Operator, sorry if you didn't get a chance to answer your question live. But before we sign off, I mentioned at the beginning of this call that this was Phillippa's last as CFO. Thankfully, she's not going far away, and she's going to focus her time on her asset management responsibilities as Chair of One NZ and a Director of Manawa and RetireAustralia. So you can still ask her questions about those. I wanted to say, though, I thoroughly enjoyed sharing the reins with you for the last 2.5 years. And you built a fantastic team around you, including Matt Ross, now on the Deputy CFO chair, familiar to you. And you have achieved amazing results and deservedly the trust and confidence of our Board and shareholders. So it's only fitting I leave the last word to you.

Thanks very much, Jason. I've got to say, it's a little bit of a mixed feeling sitting here and doing my final sign-off. But yes, it's been an absolute pleasure to be involved. And I think it's -- without a doubt, it will always be the highlight of my career, although I've got to say, I'm also really looking forward to getting my teeth a little bit more involved in those portfolio companies. So probably, they may hopefully appreciate that as well. But yes, thanks very much for your confidence. And to all of you guys and gals on the phone, thanks very much for your support, too. Cheers.