Infratil Limited (IFT) Earnings Call Transcript & Summary

[Foreign Language] And welcome everybody. I'm Jason Boyes, the Chief Executive and the Director of Infratil. And I'm joined by our CFO, Andrew Carroll. Good morning, Andrew.

Good morning.

And welcome. We're delighted to present to you today Infratil's annual results for the year-ended 31, March 2024. Disclaimers. These guys got quite a big program to get through, so I'll get underway. I'm trying to set the scene first. Most of you know this, but it's important to get oriented first. So we're an infrastructure investment company, focused on investments across digital, renewables, healthcare and airports, backed by these long-term investment themes here on the right. Our key assets are CDC, One NZ, Longroad Energy and Wellington Airport, which make up 75% of the portfolio based on the current independent valuations. CDC and Longroad are the key drivers of growth and value creation because they're developing new data centers and solar farms at scale and at attractive returns. One NZ and Wellington Airport, on the other hand play important roles in our core portfolio, generating that cash flow we need to support existing debt and reinvestment into growth options. There are a number of other smaller earlier stage investments intended to develop or grow into the growth or stable cash flow generating businesses of the future. Our goal is to generate 11% to 15% per annum total shareholder returns on a rolling 10-year basis. And we are and have always been managed externally by Morrison. This is the composition of the portfolio today where you see our portfolio companies split over those 4 things I mentioned before. You can see our continued concentration and focus on digital infrastructure and renewables. Digital infrastructure now over -- well over half our portfolio when measured both by value and EBITDA as you can see on the top right. We're comfortable with that, but we do expect renewables to grow as those platforms develop their operating projects and prove out their platform valuations, which we've seen in the past for those businesses. And you can see that our assets, when you think about where they split geographically, have good diversification, but still, nearly 80% of the assets still in Australia and New Zealand, with growing positions in the U.S., Europe and Asia. Starting with the investment highlights for the year, it's been a really strong year of investment across the portfolio, over $2 billion of investment by Infratil into its portfolio companies. It's obviously dominated by the acquisition of Brookfield's half of One NZ earlier last year, but also complemented by significant investments in Kao Data, where we acquired more of that platform, about $150 million invested in that, and another $200 million invested in our renewable platforms to expand their pipelines and their growth. And you can see that pipeline has expanded by over 20 gigawatts over the period. That was -- and we also actually announced signing an investment into a business called Console Connect, which is on track, we think, to close by the end of this year, as we anticipated or forecast. That was all supported by a large equity raise last year, $935 million, which was well supported and received an award, actually, last week at the Infins Awards announcement, which we're happy to receive. This investment by Infratil has been echoed by investment by our portfolio companies, which Andy will run through in a second. And we continue to have capital available at Infratil to continue that investment, which is supplemented by significant capacity in our portfolio companies to fund their own investment as well, which we'll talk about more today. We've got our 10-year return up there which is the one we hold ourselves to account for, again well over the top of the 15% top end of that range over that period which we're very proud of, and because it's our 30th year, we put our 30-year annual return up there as well. Just a quick note on Sustainability, before I hand it over to Andy. We're remaining committed to integrating sustainable investing practices across our portfolio and into our own business. We released our first sustainability report last year, which laid out the 4 pillars of our sustainability strategy. We've got 2 of them here on this Slide, decarbonization and our people. On decarbonization, we announced our science-based target initiatives commitments last year, which will roll down to our portfolio companies over time. And we published our first carbon disclosures, which we'll be supplementing again this year. On the people side, we've shown you here the key metrics that we're tracking from a sustainability perspective. And I want to focus on safety, which is our first concern for all of our portfolio companies. Over the period, we saw a slight rise in our portfolio level LTIFR frequency rate. That has spurred activity within the portfolio companies concerned. We hope to address that and we hope to see that come back down over the next period and you should look out for that. We're happy to report that our TRIFR has not increased the Total Recordable Frequency Rate across our portfolio over the period, despite quite a large pickup in construction activity over that period. And obviously, we're working to have that come down as well in the future. So, look out for updates on that that we'll continue to build on, showing you, we hope, the benchmarks we're tracking and holding ourselves to account for across our various industries, to ensure that we're doing the right things there. Last point I want to make on this Slide is our progress in sustainability is being recognized. So we've got on the bottom right here the 2 independent bodies who have rated us recently. One is GRESB, which is an infrastructure focused rating body. We're seeing our overall score improve over the period. And then hot off the press, an updated rating from Sustainalytics, which is a very widely used platform. That's an incredible increase in our score, which we're very proud of, and we hope you should be as well. So that's it from me for a second, and I'll hand over to you, Andy.

Thanks, Jason, and good morning everyone. I'm very pleased to join my first set of Infratil results and they are a strong set of results. We've delivered EBITDAF of $864 million, which is slightly above the top end of our revised guidance range so that's good news. Just touching on a few of the other key metrics on this page, shareholder returns similarly strong across the period, almost 22% that Jason referenced for the decade. So, there is strong momentum across the portfolio, which I will talk to further later on in the pack. And then the last thing to touch on this slide, proportionate CapEx that is something -- that increased by around $600 million relative to FY '23, so we're up to $1.7 billion. Turning now to dividends, we're declaring a partially imputed final dividend of $0.13 per share. That continues recent trend of modestly increasing dividend profiles through time. And one other call out on the slide, we are offering a DRP at the full year with a 2% discount with the details noted on the slide. So thanks back to you, Jason.

Thanks, Andy. So we're going to go through the key portfolio companies. In fact, I think we're going to touch on all of them. And let us start with the big one, CDC. So if we think back to the year in review, CDC is clearly experiencing a staggering surge of demand for its services, which is coming across the board, but mainly from Hyperscale workloads for AI-related capacity. In the period, you can see on the bottom right of that Slide, we announced over 200 megawatts of additional contracted capacity when you include reservations and rights of first refusal. Over 100 megawatts actually committed. In response to that surge in demand, CDC increased its pipeline, which is really land positions that have access to power that can be developed into data centers quickly, by over 400 megawatts, as you can see on the right there as well, which has resulted in a total sort of addressable capacity that we have announced of over 1 gigawatt in time. At the same time, the business hugely accelerated its construction program, currently underway with construction of over 400 megawatts of capacity, as you can see in the graph there. The business is continuing to scale to be able to construct at this cadence, but also operate efficiently at that ultimate size. So you will see head count increases and also investments in the training of our staff to ensure that we're able to continue the high quality of service that we've provided to our customers for a while. Turning to our financial performance, so they had a strong finish to the year with EBITDAF up 26%, slightly over the top of their guidance range in the end at $271 million. There's a slight reduction in margin you can see on that slide 77% down to 76% and that's really the effect of that scaling ahead of revenue turning up that I mentioned before, and some investments in systems et cetera. When you look up to the right, you can see utilization is now quite high as you'd expect heading into those large build programs ahead, and you'll see that through that contracting, if we go keep going to the right there whale which is our weighted average lease expiry has continued to expand now including reservations and options well over 30 years that together with our load churn and the profile of our clients, gives CDC quite a unique level of debt capacity, which it was able to action last year, but it still has significant debt capacity left within that business to address the CapEx program that we're talking about here of between $2.3 billion and $2.6 billion. We've reintroduced that CapEx guidance, which we I think suspended around COVID, right, Andy? And we've got here for the first time some guidance on EBITDA per megawatt on a blended basis. You'll see also on the right that sustainability is a real focus, particularly around the carbon profile of the electricity for such a significant set of builds, and the business continues to focus on that as well. I'm going to pop back and talk about the outlook for the business from here. So the guidance is up is for EBITDA growth of about 20% over the period. A lot of that is reliant on new construction completing and contracts starting a little bit towards the end of the year. So we've given ourselves some wriggle room in that in case those timelines slip. We see margins staying relatively flat through this year as that scaling continues, I think we've seen FTE growth over the last year pretty much in line with revenue, and we'd expect it to be even slightly higher next year to give you a sense of that. But over the medium term, our sort of long-term guidance we've given for this business of around 20% to 30% growth is retained. So you should see this year's growth more than balanced out over the next 2-years to maintain that long-term growth rate that we've been aiming for -- for a long time. If you stand back from the business, the demand signals that the business is still receiving over and above what we contracted last year is still strong, one might say staggering in some ways, and CDC is positioned extremely well to access that for all the reasons we've talked about before, but it's worth reiterating both their relationships with their customers the types of customers who are likely to sign this capacity their history of developing in campus style deployments which is exactly what large customers are looking for now. Our ability to hold large land positions to continue to do that over time because of our scale and the way we operate the business. The amount of power we can get to racks is very flexible, and the fact that we've always used closed-loop water cooling, which is really where the industry is going to have to go over the next period, all reinforces why CDC should be well positioned to get at least its fair share, and we hope more than its fair share, of the market demand that all operators in this space are seeing. So today, we're progressing discussions for significant additional capacity over what we've already signed and shown to you to be committed over this financial year. And it's possible that some of that acceleration could accelerate the funding needs of this business from what we're talking about today, which I think would be a good thing. I think this business remains a scarce listed access point to AI-driven data center growth at scale almost anywhere in the world. One NZ.

Thank you. Yes, so I'll speak to One NZ. It has been a good 12 months for One NZ, reflecting the trend of steady improvement in the core business over the last few years, as is illustrated on the right-hand side through this page. And I'll talk to the next couple of pages as I work through this slide. So One has reported EBITDAF of $600 million, an almost 14% increase on the prior year after adjusting for some one-offs. There has been good revenue and earnings growth in mobile in particular, reflecting a transition from prepaid to postpaid accounts, higher adoption of unlimited data plans, annual pricing investments, the continued recovery in roaming revenues. One's wholesale business also continues to grow profitably. In terms of headwinds, Jason Paris talked to some of those at our Investor Day in Sydney. So we are absolutely seeing evidence of that. The enterprise segment has been challenging as customers in both enterprise and public sector see cost reductions. And that has accentuated a longer term trend of continued transition from legacy calling services. Handset sale revenues, which are typically lower margin in nature, are also of somewhat reflecting the broader economic conditions. Fixed broadband continues to be competitive, highly competitive with energy retailers in particular offering very aggressive pricing. Costs have been carefully managed through the period, quite a number of line items continuing to grow at CPI-like rates. In terms of operating cash flows, which was a topic of some focus at the half year, we did land within the range that we signaled at the time of the Brookfield acquisition, coming in at $220 million. And we've touched briefly there on One New Zealand's brand. It is absolutely exceeding expectations in terms of brand awareness and customer consideration relative to the previous brand. Moving to outlook, forecast EBITDAF guidance range is unchanged relative to FY '24, and that reflects the ongoing impacts of the broader market dynamics and business trends within One New Zealand that I've already touched on. We do expect to see continued growth in recurring revenues as more customers move to postpaid and as MVNO and wholesale businesses grow. We do expect the enterprise market to continue to be challenging. Both the creation of a separate fibre entity and the partnership with SpaceX are exciting new initiatives that we expect to begin to yield fruit through the balance of this financial year. And just moving to the medium term, there's a few comments there. There is still an ambition to continue to grow EBITDA, as you've seen over the last few years, but to grow to mid-30s margins in the medium term. And there are a few ingredients to that. The first is continued ARPU growth across all products. Now, that reflects a few things. Further growth investment, product enhancement, and many inputs still growing at CPI-type rates. Jason Paris talked at the Investor Day about medium term CPI based pricing. Operational efficiencies have been targeted through product simplification, significant simplifications in business processes and systems, increased digital adoption and AI, while maintaining a strong focus on customer experience. And we've also referenced continued growth in infrastructure-related parts of One's business. We do expect CapEx to remain around the current levels in absolute terms for the next few years because that enables some of that change as we enhance the value of the fibre business, expand network coverage and capability, invest further in network reliability and simplify our IT infrastructure. Beyond that period, we anticipate that capital spend will gradually reduce towards a long-term percentage of around 11% as a proportion of renewables. Back to you. Thanks Jason.

Thanks, Andy. Longroad. So over the period here, this is our U.S. renewable platform. Over the period here, if you sort of go down to the bottom right, we have started talking about the business as 2-parts, right? An operating business of the projects we've built, contracted, and are operating, which over the period increased from 1.6 gigawatts of operating to 1.8 gigawatts here which is really the addition of Umbriel our Texas project during the period. We did actually complete another project Foxhound in Virginia, but we ended up selling that, so that was actually the right thing to do for that project at that time. But there was more momentum, I guess, on the development side of finishing projects in the period than that 200 megawatts shows. On the development side, which is the other half of the business, we've said for a while, what we're trying to do there is build 1.5 gigawatts on average annually to reach a total operating capacity, assuming we don't sell any projects of around 9.5 gigawatts at the end of '27. In the period, we added 1.1 gigawatts of projects reached financial close over the period. So, a little bit under our 1.5 gigawatt target, but remember that's an average over the whole period. That was Sun Streams 4, a huge project in Arizona, and Serrano, another project in Arizona. Those were the ones we were targeting for that period, and those did reach financial close. That's all part of that 1.8 gigawatts, you can see in that graph as under construction now. Similar to CDC in a way the business is continuing to scale to operate an operating portfolio spread across the U.S. of that sort of a scale. So you see FTE increases and that large pipeline increase over 10 gigawatts over the period on the bottom right of the slide. A big tailwind for this sector in the last year in the U.S. has been the Inflation Reduction Act. We often get asked, what's the risk of that getting wound back to our business? We've done some work on that since the Investor Day, as we promised we would do. We don't see actually a material impact to our valuation from a sort of even worst case scenario for that, mainly because we only have actually a small amount invested in the pipeline of projects beyond 2025, which is when you'd expect a change to take effect. And also, there are many levers in the business to mitigate the ongoing impacts of that, particularly as states probably respond to pick up the slack where the federal government lays off. Remember, we ran this business for most of its life without an Inflation Reduction Act, and we did our transaction with Munich Re before the Inflation Reduction Act as well under a Trump presidency, so we don't see it as being a particularly material issue. And in fact, in the meantime, the Biden administration recently announced new tariffs on Chinese imports, which would cover panels and batteries sourced from that market, and has released updated guidance on the Inflation Reduction Act, both of which strongly reinforce Longroad's long-term strategy and long-running strategy of buying U.S. made, particularly panels and going forward, batteries as well, so we feel very well placed to benefit from those developments. We look at our outlook, here we go here or just before I go to there. The guidance for next year is up 17% at the midpoint, $60 million to $70 million. That's the effect of about 650 megawatts of projects Sun Streams 3 in Arizona and Three Corners up in Maine coming on stream around the middle of the year. The rest of the things that we have in construction won't hit until 2025. So you should see those come through in that period. For our development pipeline, we are advancing 1.6 megawatts for 2024. Sorry, I've jumped ahead. I'm going to go back to that. Let me just -- actually, let me just touch on performance for this year, which is the slide I was on before I go back to outlook. So what we're showing here for the first time, I think, is the split between the operating company and the development business. The idea is to allow people to value those businesses separately in the future. So, hopefully, you find that useful. The other interesting development over the period, I think, as you see our average remaining life of the power purchase agreements for our projects, that's extended quite a lot over the period, and that's a trend we see, which significantly kind of derisks the value of that operating business. And you can also see the impact of the scaling I talked about with the significant CapEx program ahead of it, the head count increases I talked about, and the number of projects that we're tracking. And you can see also that sustainability is a focus for that platform. So sorry about that. I'll finish that, and I'll go back to outlook. I mentioned our EBITDA uplift and what's that going to be driven by in terms of those new projects. And then for the 2024 pipeline, we're trying to hit 1.5 gigawatts. As Paul said at the Investor Day, we're in negotiations for -- or signed 1.3 gigawatts -- sorry, 1.6 gigawatts for that year, so we're on track to meet that target. And we even gave some visibility for the next year, where we've done about 1.3 gigawatts of the 4.9 gigawatts of potential projects for '25, so the outlook looks quite strong. If we stand back, we see the market fundamentals for this market as continuing to be particularly strong, particularly when you layer in hyperscale demand in that market from AI, and when you look at forecasts for that market of the impact of that, you can see growth and demand for electricity almost doubling over that period. I think our view is reinforced by some recent investments in Longroad like platforms that we've been actually waiting for a long time, which have recently happened at what we think look like attractive valuations, although, we're still digging into those, they're private transactions. But we still continue to think, as Paul said at Investor Day, that our scale is a competitive advantage. And we see, for example, attractive M&A for new projects that can only be addressed by platforms of our scale that could accelerate the business and its capital needs further from what we've got here. I'm going to touch on Wellington Airport, another one of the big ones, the last of the 4. They released their results last week, I think. And what you would have seen is that that post-COVID recovery, as we got down on the bottom right is well underway. They're back now at nearly 90% of pre-COVID packs. They also talk about strong airline partnerships, I think, through this recovery period as well, which stands out for Wellington Airport. Qantas has now emerged as their largest international airline and Air New Zealand has agreed to us hosting their first commercial electric aircraft in 2026. As Matt talked about at our Investor Day, the Commerce Commission's review of Input Methodologies is completed. We have completed repricing and all of that's resulting in a significant uplift in aeronautical pricing for the next 5-years. There's actually a merits review underway still of that Input Methodology, which the airports together are running, so it's worth keeping an eye on. And CapEx over the period was reasonably muted. I think we've got $64 million here on this slide, but we expect to see that step up over the period as well. We see about $600 million of investment over the next 5 years. Most of that is in the aeronautical and you can see our CapEx guidance here is elevated from the last year, all part of that pricing package. When you look at performance, we've come in right in the middle of guidance and the outlook is 20% growth from FY '24 from this year, which is obviously a significant uptick, reflects that new aeronautical pricing and the commercial momentum that we see. And sustainability is a focus for this asset as well, ranked fifth in the world amongst airports in that GRESB survey. Let me touch on some of the other portfolio companies. Diagnostic Imaging, I would describe this year's performance as actually really solid. We have, just as a reminder, about 150 clinics, 300 radiologists, which we have continued to invest in over the period. So you can see we opened 5 new clinics in the period, but actually the total number of clinics is relatively stable, but we have introduced new machines and new modalities to, we think, grow earnings over time having done that. We also continued to hire radiologists, which is up 5% over the period as well. In the period, there have been multiple initiatives really to improve productivity and quality, including investments in IT infrastructure in particular, AI, online booking, all these sorts of things. In New Zealand, we introduced our first provincial PET-CT scanner, which has been part of the strategy for this business all along is to increase the availability of that technology around New Zealand. If we stand back, we're starting to see some of the infrastructure elements of our investment in this space playing out. We see good catchments sort of dynamics, some good pricing response 0through indexation and pricing power in Australia, and we see the equity participation of our doctors as leading to good retention and alignment and recruitment. And when we look ahead, we're seeing guidance up 11% -- 16% actually at the middle of the range. They're up 11% over the year, so double-digit growth, where is that? Oh, there we go. That's based on revenue increases of about 10% to 11%, based on volume increases of sort of 4-ish, and the rest coming from increases in average prices is the way to think about it. So that looks good relative to market, in some cases, growing at least in line with market, and that pricing point that I mentioned before. You see the margin there grinding slowly back up as we recover the impacts of the inflationary period over that period of time as well. The guidance in next year, we're seeing double-digit growth. Hopefully again, continued momentum and margin expansion from this optimization and mix shift I've talked about. CapEx is actually quite strong through the period as well. So we're continuing to invest at around $90 million to $100 million over the period. In New Zealand, we feel our business is well positioned to assist with national radiology needs, which is reasonably unique for it. And teleradiology remains a strategic focus. So I would say overall, we feel our businesses are -- will provide a high quality exposure to what is an interesting sector. Quickly touching on the Others. RetireAustralia, but really a record outcome, as you can see from the graph on this page, a significant increase in underlying earnings, resales, sales, capital gains. They have waitlists for a lot of their villages and occupancy up over the average. Development continues to perform and locations, we believe make good sense given CapEx inflation is reasonably significant in some of those markets. So that we believe the location of our developments is important. And we see the market and the government moving towards our version of care model, which is more in home care around care hubs. It also has lower gearing than a lot of peers, which is sometimes underappreciated when you look at the valuation. So congratulations to the team on a great year. Kao and FortySouth quickly. Kao, I think is building well, extending its pipeline and its set of customer relationships. Our thesis that the market would move towards high performance computing, which is really Kao's DNA is definitely playing out. And it seems well positioned to us in a fast-growing and constrained market. FortySouth did a good year establishing it -- did a good job establishing itself this year as well. Manawa was released its results yesterday. We're really happy with the trajectory there and what the team are doing and the increased dividend was very welcome as well. And just to finish on the other renewable development platforms. So these continue to establish themselves and build out their pipelines. Galileo sold up to, I think, nearly a gigawatt of projects over the period, a quite attractive returns, signaling the development of their business. And it's continued to build out its pipeline. And Mint has continued to build its team and pipeline nicely as well. Lastly, Galileo, this is our Southeast Asian platform. They have commenced construction of their first facility in the Philippines. There's a photo of that in the annual report. And they're developing this large project we've talked about. It's about a $3 billion project to import renewable power into Singapore, which if completed would give it a similar sized operating business to what Longroad it has today to give you a sense of that. So really good project progress there, I think, on that project since Investor Day as well. Their pipeline is built out to 10 gigawatts as well. I think the way we think about this business is that it's accelerating quickly well beyond our original investment case, which is exciting for us. And I think that covers them all. Back to you, Andy.

Thank you. Back to some more numbers. So FY '25 guidance, you'll see that on this slide, we're breaking our EBITDAF guidance into 2 parts to better reflect the underlying dynamics of the component parts. So the established versus the developing parts of our portfolio. So for FY '25, our operating EBITDAF guidance is $980 million to $1.03 billion. And that's up 11% to the equivalent midpoint. And the component parts are set out on this table. For our development businesses, EBITDAF guidance is a loss range of $80 million to $90 million. And we think it is clearer to break out these development components to better reflect the early stage nature of these businesses and the growing DevEx and CapEx commitment to those businesses. If we move to CapEx, as Jason mentioned earlier, we are reinstating CapEx guidance for the group. And there's some pretty interesting stats on this slide. So the range for FY '25 is $2.7 billion to $3.1 billion proportionate CapEx. And that is a $1.2 billion increase on FY '24. And FY '24 was a $600 million uplift on FY '23. And it is worth dwelling on those numbers as it does reflect an important part of the Infratil value creation story, the ability to deploy meaningful capital into businesses that we know very well. And you can also see the strong CapEx orientation towards the development and growth and core plus parts of the portfolio. So the pink and the dark blue on the bar charts there. If we move to debt, I imagine there will be some questions around how that capital expenditure is being funded. So we'll touch on that briefly. This slide does provide an update of our debt facilities and liquidity position. And the simple message is that we have significant flexibility to support the investment opportunities that we have talked to today. Much of the CapEx funding occurs at the portfolio company level, where Infratil decides to provide additional funding support, we have significant undrawn funding facilities, as we have outlined on that table. And we do have a large and diverse portfolio companies -- portfolio of companies generally with positions of influence. So we do have significant ability to shape the nature of cash flows through any period. So that gives us further confidence around our liquidity position. We've provided some further updates on this page and in the appendices in terms of key leverage metrics for both Infratil and portfolio companies. And before I hand back to Jason to wrap up, I did want to touch briefly on our commitment to continuing to enhance Infratil's disclosures through time. You will see some additional disclosures in the appendices. In particular, you'll see some further detail around the valuation methodologies and key assumptions that underpin the independent valuations. And there is some further information included in the data pot, which was appended to our release to the exchange. So back to you. Thanks, Jason.

Thanks, Andy. Let me wrap up and we can go to some questions. So we think all our businesses are performing really well with strong earnings momentum heading into '25, as Andy has just described, despite the uncertain macroeconomic backdrop. And looking forward, we're really happy with the shape of the portfolio, where it's heading over the next 12 months and beyond, as I touched on at the beginning. And we're really excited about the significant ongoing investment opportunities that are arising across our existing portfolio, which, as Andy said, will drive further earnings growth into the future. We believe we have multiple levers to manage those capital demands effectively, both within the portfolio companies and at our level. And we believe it's our job to maintain discipline, to prioritize the highest value opportunities and ways of funding them for our shareholders. We're still open to exploring new opportunities. That's our way, right? But our primary focus over this short period is prioritizing capital to support existing platforms. We're 30 years old this year, and as we reflect on it, we're proud of the robust returns and solid growth we've delivered to our shareholders. And really, this result is a combination of all those investments made over the last few years turning into earnings. Looking forward, we're continuing to lay the groundwork for that strong future growth through that strong investment program we've outlined here today. So with that, we'll finish here and go to some questions. Rachel, are you there?

Your first question comes from Owen Birrell with RBC.

Just a quick question. Just wondering around looking at CDC and possibly even Kao here. You talked about the really strong demand for these sort of hyperscale projects. And I'm just wondering if you can give me a sense of what the incremental margins look like for those hyperscale projects relative to, I guess, what your core existing were?

Yes. The -- we're still targeting levered returns, equity returns that are 15%-plus. They're definitely less, right, for large hyperscale deployments, but long-term, no doubt about that. But we're looking to manage the way we deploy our CapEx and other nuances in the contract to achieve those sorts of returns, which we've sort of had for a long time for these businesses. Does that help?

A little bit. I mean, so what it sounds like is that you're effectively taking a much longer-dated profile in terms, I guess, in terms of securing customers for these contracts.

Yes. Exactly.

And therefore derisking, but with a slightly lower, I guess, margin, but equivalent returns.

That's right. That's right. And you can see that through that whale. And that gives us the ability to use more debt than we would otherwise to make the equation work. You're hearing that exactly right.

Excellent. And just another question, I guess, on CDC. You're a bit of a victim of your own success here in terms of the increased scale of CDC, particularly within the broader Infratil portfolio. And I'm just wondering how you're considering that from, I guess, an asset risk perspective in terms of its proportionality relative to the other parts of the business? And given that he's drawing so much capital, is that potentially going to starve other businesses within the portfolio from their ability to grow?

I don't think so. It's a good question, though. And it's definitely something we monitor a lot. I think it's sort of around 30% or 40% of the portfolio now. So which we don't think is massively overweight at all. It's a concentrated exposure, which -- and the risks around that we monitor a lot. I think what it does for the rest of the portfolio is it definitely sets a really high bar in terms of the returns on capital we're seeing from it, which is fine from our perspective and it's something we can message back to our group so that we're continuing to allocate capital. It might mean we're not the best long-term owners of some businesses, right, if it continues at that rate and scale into the future. But it's not something we see as creating an urgent issue today, Owen. But yes, I think it's the right question to keep focusing on. At the moment, with the growth ahead of it, one of the things we always look at with these development businesses is what the market would pay for that asset, well incorporating enough of that growth or well beyond the way we value that growth. And that's always quite a hard thing to tell in private market assets, but it's something we always think about a while ago with Longroad, we did a capital raise to see if those sorts of dynamics existed there, and we achieved what we thought was a very good outcome in line with our Tilt sales. So those are the types of things we think about all the time when we think about is that time to trim that position. And you should be expecting us to be thinking about that for all our assets, but CDC in particular as well over the next we will.

Okay. Just I guess, one final one from the interest on CDC, just again to that ongoing expansion of capacity. You mentioned that you're in discussions to add even further capacity to the existing pipeline, which could accelerate the funding needs of that business. Do you have any preferences around how that funding comes about? I mean, does this business take on more debt? And can the broader Infratil portfolio, I guess, deal with that level of debt, particularly during construction phases?

Yes. And a lot there depends on the profile of the contracts that are actually signed relative to when you're deploying CapEx. And the team has been incredibly good, right, over the last 8 years of our ownership, but certainly in the last 4 or 5 at timing those together so that to-date all the growth has been able to be funded by debt. I think what we're saying is it's very hard to predict exactly how those contracts drop relative to the CapEx. But we think there's ways for it to drop where that can be mostly funded by debt. And certainly, over the next year that CapEx program we've outlined feels like that will be the case. But no doubt, if a big contract drops and we're not able to borrow against it, then we will have to look at other ways of funding that as a shareholder group, which we'll keep everyone updated on as and when we see that happening.

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

A couple of quick questions from me. Just following on from Owen's, I mean, given the large CapEx profile you've got in the next couple of years, can you sort of -- sorry, the CDC, can you sort of give us an indication of how much of that is already pre-committed? And what sort of levels, ways to cut off of before you actually will like commit to something?

Yes. So a good way to think about it is we've got that 416 megawatts we said is underway now. And then we have contracted over the last year, we announced that sort of 200-odd megawatts of contracting, which sort of roughly, roughly means you're kind of half contracted, right, when you remember, we've got that build program shows built megawatts, and we're announcing contract in ICT megawatt terms, you got to adjust for PUE. So actually, I think quite a significant amount of contracting before you push the button. The pushing the button is can be phased a lot as well. And Longroad does the same thing. So you can get underway on a project with some land and start doing groundworks, which is actually not a significant amount of money, right? And certainly, if you never got a contract, you could sell the land. What we try to do is make sure that we're contracted really at the point where we're committing to the large amounts of money. And there's always that kind of delicate dance around it. We're not building at the moment, given what we announced on the contracting basis, what we would consider to be sort of on spec. And what we'd like to do, if the market will let us, is continue that kind of approach of contracting a good chunk of the capacity before we really spend big dollars on it. And that's what we think is achievable. But we need to remain flexible to ensure we get a good share of the market at attractive pricing.

So there could come a point at which you might need to sort of invest earlier, if you like. I'm just sort of looking at this $820 million of available funding that you've got. And if I take out what is due on Console Connect, which I think is about NZD 270 million this year. And then there's potentially, depending on what you do with Wellington Airport, that could suck up another few hundred million. It doesn't look to me like you have a huge amount left for either accelerating the CDC profile or growth profile further, or getting into a situation where you need to build to spec.

I understand. I would agree with that. And that's not really our current plan with what we're building versus what we've contracted. But there are ways the discussions could evolve where we could push beyond that envelope. What we're saying is that CapEx program that's in there, $2.3 billion or something, that can be funded with debt. That's actually quite a lot of capacity, right, of which maybe only roughly half we have spoken for in contracts. So another big set of contracts might not really change that number, because you've still got capacity there to sell. It would be that kind of next wave of contracts, I think, that would cause us to re-look at exactly how we're funding that business. So I think we're 2 steps away, if you like, Wade, from really having to consider that question. But I think you're reading the numbers correctly, don't you think, Andy?

Yes. And noting that there's other options across the portfolio in terms of, yes, releveraging and other aspects, other levers we can pull to assist with funding. So I understand your math, but we have got some other levers to pull if we need to.

Yes.

Yes. And just on the independent valuation for CDC, I think it was up about, at the midpoint, about $20 million, your share this time. Can you get a bit more -- I mean, I know there's some detail on the slides there on the valuations, but more detail sort of with regard to what the value has or has not included with some of these growth projects?

What's the answer to that? I think it's all in there.

Yes. I mean, if you get into the specifics, there are different elements of risk applied to the projects depending on level of certainty and how far out they are. So yes, that's part of the secret sauce, I guess, in terms of the valuation. So is it all fully valued? No, it's not.

But in terms of the pipeline, it's just the published pipeline, I think, isn't it?

Yes, that's right.

Yes. Which is sort of way in the notes in the back there way, but the CapEx profile is really just the published one that we've put out there, but it's phased over the period with different risk weightings and discount rates...

Correct.

...depending on level of contractedness, how near term it is, et cetera.

Correct.

And no development beyond 2031, I think, is the number you've made.

Correct. Correct.

Okay. Right. But reasonable to expect that as we get through this year, particularly towards the end when some of these projects start to come online, that the risk profile will therefore decline.

Exactly.

And we'd see a reasonable uplift in that valuation.

Exactly. Exactly. That's how it works. In the last WIAL, there was some puts and takes. There was some macro stuff that changed and a few other things in the model. So there was a few things going on, which is why it's a bit flat.

Your next question comes from Aaron Ibbotson with Forsyth Barr.

I have quite a few questions. So first one just on One NZ, trying to just clarify. I believe your initial guidance at the capital increase was for sort of $580 million to $620 million without $35 million of rebranding and SaaS costs and some other stuff. You said that you've added back a few things. I just wanted to see if you've added back any of those. And to my best knowledge, that's the guidance you sort of reiterated a couple of times still.

Yes, Aaron. So the number is prepared on a consistent basis with what we've talked to previously. In terms of the one-offs, yes, they're in the nature of -- there has been some restructuring within one. There are some costs that relate to the fiber business. So they're relatively small. But yes, it's prepared on this consistent basis with what we've described previously.

So if I then look at your guidance on an underlying basis, that's then down 7% year-over-year if we take out those previously guided for $35 million one-offs, which presumably is not going to reappear. So that seems like a quite dramatic decline you're expecting for this year, assuming that mobile is still doing fine, judging by your commentary. Is that all centered around the sort of IT services type business? Or have I got that roughly right?

No, I don't think we're talking about a downgrade, Aaron. So maybe, yes, I think we're talking about, yes, flat year-on-year.

Not a downgrade, but that fine. Well, you previously guided towards this year, the $600 million, including $35 million for one-offs on an underlying basis, that would be $635 million for this year. So if you then guide to $590 million midpoint now, that's down 7%.

No, no. So it's $600 million, including those one-offs. So you're expecting broadly equivalent performance year-on-year. So maybe we can take it offline with you, Aaron, just to do the rec.

Well, I prefer to take things online. But in June, in the Capital Markets, the capital increase, you had a slide saying that you expected $580 million to $620 million. And then there was $35 million for one-off. So pro forma, FY '24 was $615 million to $655 million, if I add those $35 million back. And that's the guidance you've reiterated. So can you just be very clear whether those $35 million are added back or not?

It's $600 million reflecting those costs. So it's not $65 million adjusting for those. It's $600 million reflecting those costs. So this is, yes, this is...

Okay. I guess we can take it offline, right.

Yes.

Okay. On Longroad, so in the U.S. in September, you said calendar year Opco EBITDA would be $147 million on Slide 10. And now you -- if I've understood it right, you've reported calendar year '23 of $94 million. So I was just trying to understand what the difference is there. Also in the March Capital Markets Day or Investor Day in Australia, you put up a slide suggesting a run rate of close to $200 million. So what is the discrepancy here?

We've had a look at that, Aaron. We think it's the production tax credits which come out of Milford. So they were included in Longroad's presentation. That's about $40 million in the period. They were included in Longroad's Opco, that $147 million they put up in September in Phoenix. But we don't -- even though they have a cash value, we haven't included them in EBITDA in our calculation of that. So sorry for the confusion there. And then in terms of a run rate, can you just repeat your question there? I think I remember it, but.