Infratil Limited (IFT) Earnings Call Transcript & Summary

[Foreign Language] Welcome, everybody, to Infratil's annual results announcement for the year ended 31 March 2025. I'm Jason Boyes, the Chief Executive of Infratil, and I'm joined here by my partner in crime, Andy Carroll.

Good morning.

CFO. We're going to talk you through the full year results presentation that we uploaded to the stock exchanges this morning alongside our annual report. So without further ado, let's get going. Lots to get through as usual. Infratil, we are an infrastructure investment company. I'm sure everybody on this call knows that, but it's worth reminding people. We are growth oriented and target 10% to 15% returns on a rolling 10-year basis. Our track record is much higher than that, 18% since inception and a little less than that on a 10-year basis, as you see on the right-hand side. We have investments in digital, renewables, health care and airports and the proportions, you see on the right-hand side. Looking back over the year at a portfolio level. I'm not sure I can remember a busier year in my time here at Infratil. And the world today feels quite a lot different than it felt when I was standing up here talking to you last year. I think heading into last year, we were thinking a lot about managing the residual inflation out of COVID. And then sure enough along came the AI acceleration around June and July, followed by the AI worries in January and February at the start of this year. And then since the end of the financial year, we've had Liberation Day tariffs and in the last week, Inflation Reduction Act reform, so plenty going on. Usually, the further you look out, the more uncertain it gets. But in some ways, the reverse feels to be truer with a lot of our long-term themes still on track, we think. So with that, through the noise, which is the theme of our annual report, it's pleasing to report progress on multiple long-term strategic initiatives that we completed during the year. The 3 I'm going to call out here on this slide are the merger of Contact Energy with Manawa, which is on track for completion. This was executed at an attractive valuation for both parties, improves cash flow through to Infratil to keep the CFO happy but also brings great optionality and flexibility for the portfolio with the merged entity having interesting growth opportunities ahead of it over the medium term. The second major strategic initiative in the period was us increasing our stake in CDC alongside the Future Fund that brought increased governance rights for a pretty minimal outlay. And it also, because the price was set in a competitive third-party process, confirmed the valuation of that business certainly in a private markets context, which was about 30% up from the independent valuation just prior to announcing that transaction. The last strategic initiative I've called out here is Infratil being added to a number of global indices, which is broadening our access to more and more investors globally, which is important, and I'll come back to that later. There are also some standout operating performances across the group. I think One NZ' result fits into that and so does Longroad and Gurin's progress on their construction and pipeline, all of which we'll come back to in a minute. Before I hand to Andy, I want to say a word about our progress on the sustainability side. Our approach at Infratil is to set targets and expectations at a portfolio level that turn up in real-world outcomes and also are reflected or measured by third-party assessors of our progress in the sustainability space. So you'll see here on the slide, we call out increasing sustainability reporting not only by us but also a number of our portfolio companies. We see progress across our portfolio and our portfolio companies setting their own science-based targets initiative, emissions reduction targets, and that should continue into the future. And then you can see work we've done with the portfolio companies on their approach to modern slavery, which is very important as we globalize but also with the GRESB assessments that are being undertaken by most of the businesses now. That's turning up in real-world outcomes, which we report on in our sustainability report and a few of which we've got here on the right and are being recognized by important ESG rating agencies like the ones we mentioned here, which are showing good improvement over the period. So with that, I'll hand to you.

Thanks. Thanks, Jason. Right, financial performance highlights. We've delivered proportionate EBITDAF of $986 million for the year, which is in the top half of guidance. You can see the operating earnings growth set out in that waterfall chart. And on a like-for-like basis, excluding Manawa, just to improve comparability, operating EBITDAF increased around 6% on FY '24. A couple of other call-outs on this slide. Proportionate EBITDAF was a loss of $69 million, which reflects the strongly growing development activity across the group, and that is one important lead indicator of future earnings. Significant capital was invested across the group, circa $940 million directly and then $2.4 billion of CapEx on a proportionate basis across the group. And just to stay with proportionate CapEx a little bit longer, it was up 39% on FY '24 and FY '24 was 61% up on FY '23, so another strong lead indicator of future earnings. This is a new slide to help understand the movement in asset -- portfolio asset values across the financial year. So that's up $4.1 billion or almost 29%. And the bases of these valuations are covered in various parts of our disclosures. But the vast majority of our valuations are undertaken independently of Infratil. And the uplift also reflects the injection of capital by Infratil. The largest share of portfolio value uplift relates to our largest asset, CDC, unsurprisingly, but you do see significant absolute value increases in WIAL, Gurin and One NZ. In terms of a valuation, the uplifts in CDC and Gurin, they are partially offset by underperformance in Longroad and RetireAustralia, which goes into the incentive fee calculation, and we have accrued $350 million in this last financial year with that fee to be paid across 3 years, subject to the various elements of the Morrison fee agreement. A couple of other call-outs on this slide. Firstly, the CDC valuation uplift that reflects significant growth in the business, equity that we've injected and the very recent acquisition, CDC sale. For completeness, one much less material call out but a note for completeness, as I say, is that we have reviewed the carrying value of RetireAustralia in the context of market comparables. We've written down that carrying value by approximately $85 million with that adjusted valuation also being part of the fee calculations. And finally, we expect to pay an incentive fee of $220 million (sic) [ $202 million ] in FY '26 with $80 million of that in scrip. Dividends, we're declaring an unimputed final dividend of $0.1325. That reflects a 2% increase in the second half, 2.5% on the full year. And as we think about capital management settings, we continue to see attractive opportunities to create shareholder value. So we think it's appropriate to moderate the nominal rate of growth in the dividend, broadly matching the rate of inflation. It is worth noting that our dividend has been broadly flat in real terms for the last few years. That long-term shareholder value benefit of retaining marginal cash is also reflected in our DRP settings. We're maintaining it with a 2% discount. And then the rest of the detail that's dividend related is set out on this slide. So back to you. Thanks, Jason.

Thanks, Andy. Okay. Let's go through the portfolio companies, starting with the big one, CDC. So we came in at the top of guidance this year, which is obviously a very good result. Andy has already referred to their strong growth. That was underpinned by a record contracting year that we've talked about here, over 230 megawatts of contracts, including reservations across multiple geographies. That means we now deliver or contract with all the top western global cloud service providers, which positions the business very well to continue to grow in that segment as well. A huge build program continued with 104 -- over 100 megawatts becoming operational in the period and a further 140 plus commencing construction across 2 very large campuses: Marsden Park, which is 1 of the biggest in the Southern Hemisphere; and now Laverton, our second campus in Victoria, which is very big as well, over a gigawatt of capacity potential between them, which is really what pushed that future build part of the graph up so significantly during the year. Strong support from lenders and investors. We put in the money we said we were going to put in at the end of last year following our equity raise, and there's a little bit more to come in the next period. Looking ahead, the company is really well set for multiyear growth with strong contracted position and data center demand continuing to expand. We've talked a lot to the market about that over the last month. Guidance this year is -- for next year is up 20% at the midpoint. We would have hoped probably for more at the start of last year, but there has been rephasing by customers over the period, which we've been talking to since the half year that has pushed some of that growth into FY 2027. But no change to what we have been saying over the last month in terms of how we feel about demand, the next lot of contracts and growth longer term, confirming here what we said last month that CDC continues to expect to double its earnings over the next 2 years with approximately 80% of that forecast revenue already contracted, and that's not including any reservations that is firmly contracted. Off the back of that, you see CapEx guidance more or less in line with last year, reflecting that rephasing but still a significant build program continuing, as I said, with up to 5 data centers to become revenue generating over the next 12 months, which is really what feeds into that 2-year outlook. In terms of demand, just reiterating what we've said, I think, over the last month through Greg and I that there still continues to be a deep pipeline of customer engagements from advanced negotiations like the ones we talked about last year to a number of earlier-stage conversations as customer requirements and customer types are constantly evolving with the technology and landscape that is really a rapidly evolving and dynamic environment. The outlook for data center demand across all our key segments continues to be robust, whether you're talking about cloud, AI or, for us, government and national critical infrastructure customers, which are very important and a real point of difference for CDC today and how it's likely to grow into the future. As I mentioned, we expect to put the last part of the equity funding that we flagged last year, $250 million from us, in over the next 12 months. And based on our modeling and expectations, that should enable the business to build the future build that we showed you on the previous slide. Hand to you, Andy.

Thank you. So One, One has reported EBITDAF of $605 million for the year, slightly ahead of the midpoint of guidance, which is a really creditable performance given the broader economic and competitive context. We've noted a number of factors on this page underpinning that performance, strong contributions from Consumer Mobile and Wholesale. Fixed and enterprise continues to be challenging, while there has been good disciplined execution on cost management and simplification across the business. EBITDAF margins continue to improve as does the free cash flow position even after absorbing one-off investments relating to defend and dense air spectrum. And for those of you who have been looking for more detail on one's cash flows, there is an additional disclosure as part of the data book that's related to this release. Moving beyond the financials, we've touched on a couple of really positive strategic initiatives on this page, Satellite TXT. So for those of you who haven't used it, it is a fantastic service. Many examples emerging across New Zealand from the really material benefits that can be realized across large swathes of New Zealand that don't have telecommunications coverage. 380,000 active users, over 12,000 messages a day. And EonFibre launched second largest B2B fiber provider with EBITDAF in the order of around $50 million. Turning to outlook. We're providing guidance, which is approximately 1% up on FY '25, and that reflects ongoing growth in consumer mobile, leveraging the investment in SpaceX and One Wallet, wholesale, so similar themes to what you have seen in FY '25. We're noting that, that guidance is inclusive of circa $25 million of incremental discretionary spend on SpaceX, AI acceleration and property relocation costs. CapEx guidance is down relative to FY '25. So the combination of those 2 factors, we are expecting a continuing strengthening in One's cash flow position across into FY '26. We touch on 5G rollout here. Disciplined rollout continues to be a focus. And then touching again on a couple of key strategic programs, T-One is our multiyear IT transformation program, supported by and supporting of whole of business change. We're very happy with progress across year 1 with key prepaid milestones achieved, and simplification of the product lineup is a key enabler of the ongoing success of that transformation program. We have set up a program to accelerate AI adoption across the business. And for those of you listen to media, you might have heard Jason Paris speak to that yesterday, and we're really excited about the opportunities that, that is going to present the business. And to wrap things up, we've repeated on this slide our longer-term expectations around EBITDA margins and capital intensity. So back to you. Thanks, Jason.

Thanks, Andy. SpaceX numbers have really surprised me how popular it is, but anyway. Fantastic. Longroad, easy one. So let's start actually with the easy stuff. So EBITDAF earnings in line with guidance, which is good but also a very strong year on the development side with nearly 2 gigawatts of revenue arrangements, PPAs agreements to buy power out of new projects entered into over the period, which is a huge number, no doubt. That is translating through to the construction side of the business with a massive 1.4 gigawatts completed during the year, including in the last month and a further 600 megawatts of construction commenced in the period as well. So a huge growth program going on there still. Of course, the big news, as I mentioned in the opening, over the last month or so has been reforms to the Inflation Reduction Act, which is the piece of legislation that contains tax credits, tax incentives for renewable energy projects like Longroad develops and then also the Liberation Day tariffs. So on the Inflation Reduction Act reforms, we've tried to lay out here exactly where the business is at today in relation to that. People will have seen what was passed in the House of Representatives last week in the U.S. Based on that legislation, we're showing about 1.8 gigawatts of projects over the next 2 years are already safe harbored. Now what does that mean? That means you have to have commenced construction of those projects, which in a lot of cases can be achieved by ordering some of the long lead equipment, which is what the team has done to qualify them as under construction already. That means that you preserve your access to the existing credits under the current IRA. Future projects, however, won't be able to do that as what the reforms do. So we're in a good position there. The business is also working to safe harbor a further, what have we got there, 2.5 gigawatts for next year's projects and the years after projects by September, which is when we think the deadline for safe harboring projects will run out under the reforms passed last week. So that's safe harboring. A new requirement was added to the rules last week when the reforms came through. That requires that your safe harbor projects also be placed in service, a new term by 31 December 2028. So that's earlier than usual. Usually, you had about 4 years to build your project, but they're bringing that forward. The team have looked at their projects over the weekend and are confident they can get most of this year's and next year's projects in before that date. We're still working on 400 megawatts of that. And of course, what we have planned for FY '28 will need to be examined as well. It's important to remember, too, that while this has passed the House, it remains subject to Senate approval and tweaks, which could be positive or negative. So we're just giving you the view based on what we know today. But in general, the team has been doing a good job, in line with a lot of people in the market, I would say, to get the business well placed to continue to deliver the most competitive projects that can be brought to market over the next 2 or 3 years. So that's IRA, maybe some questions on that later. On Liberation Day tariffs, we put out a newsletter on this during the month and nothing much has changed there. We expect to have a minimal impact from the Liberation Day tariffs because a lot of our supply chain had already been reshored to the U.S. to take advantage of domestic content credits that are in the Inflation Reduction Act. The one exception to that is batteries. So part of our projects often include a large-scale battery, and battery supply is heavily linked to China, where the most significant tariffs were initially applied. You may have seen that there is a current pause on the increase in tariffs from imports into the U.S. from China, and the team are looking to use that pause to import the batteries we are targeting to develop this year. That's about 400 megawatts. For next year, there's about 500 megawatts of battery in that pipeline of 1.5 gigawatts. And depending on what happens to the tariff situation, say, higher tariffs remain in place, then higher PPA pricing is likely to be needed to maintain the economics of those projects. The early conversations we're having with customers are actually quite positive that, that could be available. And that's really, if you stand back, because the market is still experiencing extremely strong electricity demand growth and demand for renewable energy, which is fueling demand for power, as you can see in that enormous year of contracting or PPA wins that I talked about, 2 gigawatts and what you see then being reflected in these latest conversations around the impact of tariffs and tax credit reform on PPA prices for projects that are already in flight, which we would expect to continue into the future as well. So then looking ahead, you're seeing a very significant uptick in earnings from this business as all those projects I talked about reaching completion have a full year of revenue generation, so up 150% at the midpoint. When we talk about this business in the past, we have talked about targeting an Opco run rate EBITDA by 2028 of 600 megawatts. That figure is based on taking the full year contribution of projects that you've built and projects that will -- that have reached financial close, so have commenced construction in that particular year. And we've included here a reconciliation from next year's guidance to that Opco run rate EBITDA to help people understand exactly how that works. Why do we do that? Because the team and the industry has a very strong track record of delivering these projects on time and on budget, and that has been the case in Longroad's history. We have always been on time and often under budget but also because the revenue for these projects is highly contracted. In most cases, 100% of the revenue is contracted and known in advance. So that element of the valuation is very certain. So when people value these businesses, it's not unusual for them to run rate or annualize the revenue side as soon as you're very certain that will arrive, which, in this case, is commencing construction. So back to that $600 million target. That still feels in reach. What we're seeing is because project economics have improved since we set that target initially in 2023, we can reach that target by developing 8.5 gigawatts of projects rather than the 9.5 we talked about and estimated in 2024. When you look at the graph on the right-hand side, you can see, if you take into account everything we safe harbored and already has PPAs and construct that over the next 2 years, that will take our run rate to about $400 million, with $500 million in reach once we complete the safe harboring for the balance of our pipeline that I talked about as well. And then getting all the way to the $600 million would require another 1.5 gigawatt on top of that in 2028. What you are seeing in the industry at the moment, and Longroad is no exception, is people are assessing their longer-dated pipeline to see how much of that is actually worthwhile to bring forward ahead of that 31 December 2028 placed in service deadline I mentioned. And Longroad is assessing another 3 gigawatts and more of further projects that could be brought forward to give us coverage over that -- what we already have pointed at 2028 -- 2027 to reach that target. So a heck of a lot of volatility to navigate for sure, but we still feel that the path to that is in reach. And certainly, even a business that developed nothing more than what we have contracted and safe harbored today will be a very significant business at $400 million of earnings. Confirming here at the end, really, there is significant volatility. The market fundamentals, however, are actually very strong with that U.S. power demand growth I mentioned. Solar continues to be the fastest and cheapest way to get more electricity onto the system. And those 2 together should mean that PPA volumes and pricing should be able to adjust to maintain PPA pricing over time. What are the risks to that? I would say top of our minds at the moment are where these tariffs on batteries end up, whatever happens in the Senate, and then question whether a lot of projects are brought forward into 2028 and puts pressure on PPAs or whether people realize that what happens after '28 is that there won't be any projects and so they try and contract them early. So that PPA supply-and-demand dynamic will be very interesting to watch. But it has to be said. It's easier to say you're pulling it forward than actually doing it. So we will see. So end there on Longroad. It's a bit of a complex one, and we can cover any more questions later. We'll quickly go through some of the other portfolio entities. Gurin Energy, really good progress during the year with their first plant operational, which you can see here, in the Philippines and the next one underway. But the big story here really is it's Project Vanda. This is its large solar and battery project looking to import that solar power from Indonesia into Singapore, and we've got some of the metrics here on the table. Really good progress on that project during the period with progress on approvals with Singaporean authorities and very good progress with acquiring the land. Having said that, this project remains highly conditional with a number of critical approvals, particularly the Indonesian side of those approvals and normal development milestones to be completed. But assuming that Indonesian approval comes through, actually, it could come quite quickly with a final investment decision targeted for the next 12 months. So we call it out here now, significant equity required, maybe up to USD 500 million, but significant value creation as well, USD 500 million plus of value in U.S. dollars is what we see this type of project being able to generate. So it's definitely one to watch and will be transformational for Gurin and significant for Infratil as well. Galileo, that's the European version of Gurin. Like Gurin actually, potentially in Europe, they will benefit from some of the volatility in the U.S. that I mentioned. Good progress across its pipeline, also proving out that it creates value through selling some projects, recycling capital in that way and also commencing or going to commence the build of their first project. It's looking for its sort of Vanda moment in some ways, and we've highlighted here that, within its portfolio, there are significant projects that could accelerate the scale of this business quite quickly, the floating offshore wind project, which is still 2 or 3 years away, would be one example but progressed well during the period. Different sector but actually a similar story based in Europe, which has some interesting demand dynamics at the moment, separate from the rest of the world. Good progress on leasing out their second building, which they feel they'll be close to having completely sold later this year, which is meaning they're getting on with their third building focused on the high-performance compute where they have a credible track record. So continuing work to position itself with capacity for growth in a very constrained London market and in a disciplined way. Let's move to Medical Imaging, a bit different from energy and digital for a bit. So starting in New Zealand, actually, quite a strong year, right, with nearly double-digit growth driven by a range of factors, including good volume growth, the opening of new clinics, so some of that -- the fruits of that CapEx coming through and also building their strategic relationships with key funders and continuing their work on operational efficiency through technology investments, including AI. Looking ahead to next year, you see more or less the same things continuing to bear fruit and more or less the same work continuing to accelerate its growth. So you're seeing solidly double-digit growth earnings outlook there and large new clinics coming onstream in Auckland and Dunedin and more technology and operational efficiency. Last thing to call out here is the businesses working with Qscan to scale their teleradiology businesses together, which is an area that's very interesting and experiencing significant growth as well. So good to see those businesses finding material ways to work together. Turning to Australia and Qscan, a really strong year from this team with very solidly double-digit growth, driven by a range of initiatives, which we've outlined here, executed very well by a very strong team. So you're seeing lots of productivity improvements, technology and efficiency measures and also managing their clinic portfolio with reducing that number by 3 over the year coming through in earnings. Also good progress recruiting more radiologists, which is a good lead indicator of earnings for these businesses because that is really the constrained asset and reflects how well Qscan is perceived and respected in the industry there. Looking ahead, guiding to a very similar level of growth as last year, so excellent compounding growth happening there with continued work across all those work streams that I talked about. Also Australia, quite attractive outlook as a market with stable and supportive government policy settings there following the election. And the teleradiology initiative I mentioned before is a great sign. So a good year for both of those businesses. RetireAustralia, this is a good outcome, we think, given high levels of occupancy and low levels of stock to resell during the period as development faced headwinds in Queensland that the business had to navigate through that, managing to increase unit prices and still keep occupancy at a high level. Looking ahead, they're looking to restart some development, having navigated some of those headwinds during the period, which should see settlements return to where they were last year is what we're seeing, so continuing good disciplined execution for that business. Lastly, in the portfolio companies, certainly not least, Wellington Airport, a good performance here as well holding to their guidance despite pretty material headwinds on the domestic passenger side due to well-publicized shortages of aircraft in the system over this year. We're looking ahead to next year. Unfortunately, we're forecasting that, that will continue again for next year. So you're seeing earnings relatively flat on the period, so if anyone is listening and has a spare aircraft and they could land at Wellington Airport, please let us know. You're seeing a big CapEx program there that's staged over 5 years. We expect that to roll out in line with passenger recoveries, which I think is pretty much how it's set up in the plan, anyway. So I'll hand to you, Andy, for a bit.

Thank you. Guidance and liquidity. So proportionate EBITDAF guidance just $1 billion to $1.050 billion. The key components set out on this slide, and that guidance is up about 9% at the midpoint if you adjust for Manawa's expected exit. Gurin, Galileo, Mint, I talked about development costs lead indicator, so that is a larger guidance range in FY '26 as well. So increased development expenditure across the last 3 years. CapEx, broadly similar to what you've seen for FY '25. Again, the components are set out here. Jason talked to Kao development activity. RetireAustralia, there's further expenditure development related. So those are 2 larger elements in the bridge that are noted on the slide. And Gurin, Galileo and Mint, again, we've talked about the development activity. The capital expenditure that relates there is called out also. And last but not least, funding and liquidity. So this is a repeat of the usual slide, and you will see that we have quite significant undrawn facilities to support future growth. So quick whistle-stop tour through those 3 slides. Thanks, Jason.

Thanks, Andy. Okay. Let's get into this last piece here, and then we'll get on to questions. I want to lay out some medium-term strategic objectives for the portfolio that we've been talking about here at Morrison and with the Board. But before I do that, I think it's helpful to kind of restate what our portfolio strategy and approach is because our priorities really drop out of that. So remember, we are assembling our portfolio of companies. It's not just 1 company or even 2 companies. It is a portfolio. What we do is we take what we call ideas that matter, but they're really infrastructure businesses that are driven by attractive long-term global thematics. And what we're trying to do is build a portfolio of those that is able to maintain strong growth over long periods of time, which our track record shows we're able to do. How do we do that? We take those businesses and we assemble the best of those that we have access to into 3 pillars that I've outlined here on the slide. Pillar 1 is what we call our cash flow generators. These are scale businesses with enough diversity to provide meaningful cash flow through to the group to support the business but also the next 2 pillars, which are really your drivers of growth. Pillar 2 are your mature growth platforms. These need to be scaled and concentrated to drive returns at a portfolio level. But these are businesses that can develop new infrastructure generally or otherwise grow at strong 15% plus type returns to meet our target return. So in that category today, we would say CDC and Longroad are well and truly emblematic of that. And then lastly and importantly, there's Pillar 3, which are our future growth platforms, which will be multiple smaller businesses that can scale to be $1 billion plus, so meaningful to returns over a 3- to 5-year period. And in that category, really, you're talking about your Kaos and your Gurins and your Galileos and others. It's really by assembling all these and managing them over time is how we fuel that long-term growth. We dynamically allocate capital from the cash flow generators through to the best 15% plus IRR growth opportunities in the mature growth platforms to drive that concentrated meaningful growth. And then we manage the balance of the cash flow and growth pillars over time to ensure we have enough diversity and stability in the cash, scale and concentration in the mature growth platforms and future growth potential in Pillar 3 to keep growth going as other businesses mature and cycle out of the portfolio. So we maintain that balance by moving the portfolio towards the best mix of those types of businesses we can find to continue to drive growth forward. And that changes over time as new themes and new opportunities and new ideas that matter emerge, and we've been pretty good at that over time. But you will have heard a few terms there repeated over and over again that are really important and that have driven our medium-term strategic objectives. So that's this next slide. We still fundamentally believe that the portfolio remains well positioned for growth with our long-term things still as relevant today as they were at the start of the year, and our business is incredibly well positioned to take advantage of them. But we have a clear set of priorities ahead to keep the portfolio on balance between those pillars that I mentioned over the long term. One of the words I mentioned a lot before is scale and concentration are 2 key themes. So one of our most important strategic objectives, the first one here, is to make sure we're focused enough on identifying and scaling our growth platforms beyond the mature ones we have today in CDC and Longroad. And we get asked a lot about the concentration of the portfolio in CDC, for example, which is about 40% today. That is elevated, I agree, although we've -- not unprecedented in our portfolio. Manawa has been more than that in the past. But it is important for us for those future growth platforms to scale to balance CDC's growth in particular over time. And we see Gurin Energy, in particular, through that Project Vanda as the nearest-term example within the portfolio that would enable us to do that. But there are other opportunities as well that we need to continue to focus on across Gurin and Kao, for example. So that's priority 1, balancing CDC through other growth platforms. The second priority is, again, related to scale, and we're calling out here that we will look to divest businesses that we believe are unlikely to scale under our ownership, and we will reinvest that capital in businesses that are more able to meaningfully contribute to returns or cash flow for the portfolio of the future, and we expect over $1 billion of proceeds from that over the medium term as well. Thirdly, we're calling out the desire on our part to balance Infratil's operating cash flow. So that's the distributions we receive out of our portfolio companies less our fixed costs, which are interest and the management fee. We want that to cover -- also cover our dividend, which it doesn't currently. It covers the first 2 but not completely the dividend. We think that's important to make the dividend sustainable. The dividend is important to our -- an important part of our shareholder base. And we think it shows good capital cash flow discipline over time. We see ourselves getting back into balance through deleveraging through some of those asset sales, growing free cash flow from one of our cash flow generators, One NZ, and also the completion of CDC and Longroad's currently very elevated build programs off the back of which they will have free cash flow available to the group as well. I mentioned here that we expect incentive fees to be funded by investment realizations over time, not out of operating cash flow. So that's our third key strategic objective. Lastly, we've mentioned here continuing to broaden our shareholder base to support our future scale. If you roll forward the portfolio from today at our track record over, say, take the last 10 years, we'll quickly be -- have a market capitalization of around $20 billion and -- which is obviously very significant, and we see our shareholder base continuing to globalize to enable us to support that future scale and beyond that, and we're focused on doing that for the benefit of all shareholders over the next period. So we'll finish here. Hopefully, that's clear, and we'll go to some questions, please, Kelly.

Your first question comes from Eric Choi with Barrenjoey.

Sorry, could I please ask 2 asks?

Yes.

Just one on CDC, one on Longroad. Just on CDC, I understand you guys can't comment on specific customers, but just looking at all the hyperscaler results, it's pretty clear that some like Microsoft and AWS, maybe they're momentarily pausing to let demand catch up to supply and make -- refresh build spec. So that kind of suggests they eventually reaccelerate. And then I kind of look at like people like Oracle, Google, Meta, they all need to ramp. So it just seems to me there's a future scenario where demand from ramping hyperscalers coincides with those 2 incumbents reaccelerating the builds. So my question, Jason, is, would you agree with my reasoning? And if so, how much of that sort of scenario is factored into your doubling EBITDA target? Or would that represent upside? Jason, should I go to the second one or I'll let you reply?

Why don't I fire on that one, Eric, and then -- because otherwise, I'll forget all the nuances of it, and then we can talk about Longroad. So I agree with that premise. We believe there is upside to what we're showing over the next period. We believe we focus a lot on the comments in the hyperscaler results around capacity constraints because that is more what we see over the next period. So we've tried to remain conservative for now because the volatility is quite high as we've talked about for the full year. But our kind of view on capacity across lots of major customer sets versus the demand growth and the use case acceleration we're seeing across corporates, and it hasn't even really hit government yet, right, as meaning we're kind of more positive than not through the period. Hopefully, that helps.

Very helpful. Can I -- just on Longroad, and this is my ignorance, if you safe harbored all the '26 and '27 projects, how much of your $2.1 billion valuation would that actually underpin? And can I just confirm, I think you guys said if you safe harbored or to safe harbor the '27 project completion is needed by debt '28. So could you just remind us of the usual build times for these projects?

Yes. So no worries. So build times can be anywhere between 9 and 18 months, I guess. If -- but they can build really quick, particularly if it's just PV. And a lot of it's on flat land in the desert. So the team has been working through can we get it up in time. And you've got the comment there in the pack around being confident around that, which I probably softened actually from what they wrote. But we feel okay about a lot of that next 2 years. I don't have the stat on the independent valuation. We could look at that. But one way of thinking about it is if that took us to -- from what we've contracted, safe harbored, that took us up above $400 million of Opco run rate in the EBITDA. And you can pick a multiple anywhere between 9 and 14 or something for that sort of revenue. You've got 30-year revenue, all the interest rate risk hedged out, not a lot of operating expense exposure. So that might be our way on the energy side to figure out what that kind of downside value would be. Just an idea.

Your next question comes from Roger Samuel with Jefferies.

I've got a few questions. Can you hear me?

Yes. Shoot.

Yes. Just on the CDC, just wondering how close you are in signing the remaining 170 megawatts in contracts that are -- you are in advanced negotiation with your customers. And do you need that to achieve your doubling of earnings in 2 years?

So no, we don't. We're 80% contracted on the doubling. And we've talked about our average EBITDA in the past around $2 million, so that tells you what just landing the contracted say would get us to. And on the advanced negotiations we mentioned last year, yes, that's a fair question. So we haven't signed the $400 million we expected to. We do have a range of advanced negotiations continuing, but it's proven much more difficult than we felt in June to predict exactly when those are going to turn into contracts. I think that's a fair statement. So we're not setting a deadline for when those turn into contracts. We're just trying to give you color on exactly how the conversations with customers are going and how confident we generally feel, but it feels prudent, given what's emerged over the last year, not to be putting specific dates on it. But clearly, some of that would help us with the 20% we need to complete the doubling over the next 2 years.

And next question is on One New Zealand. So if I add back your investments into SpaceX, which is $25 million in FY '26, I've got an EBITDA uplift of about 5% at the midpoint of the guidance range, which is pretty strong given the very competitive market in a very tough macro environment as well. Where do you think that growth is going to come from? Is it mainly from price increases in mobile or cost efficiencies in One New Zealand?

Yes. Thanks, Roger. And we did call that out on the FY '26 guidance page in terms of where we thought we would expect to see the uplift. So yes, we talked about $25 million of spend. It's not all SpaceX related. We called out 3 items. We do expect those -- that spend to produce benefits. Some of that will be market share related. We are putting through ARPU increases. We've had $5 added to one of the postpaid plans recently. So yes, it is the usual combination of continuing revenue growth and discipline on the cost front.

Okay. Got it. And lastly, just on your guidance, which excludes Manawa Energy, which is now part of Contact. Can you give us any metrics or any forecast that you can share with us with regards to Contact and like how the business is going? And yes, what's your expectation going forward for Contact?

Do you want to talk about cash [indiscernible]?

Yes. So I don't think we're in a position to provide any more -- anything further than what you'd see from Contact. But when we look at historical yields, for example, Contact versus Manawa, Contact has generally had a stronger cash yield than Manawa has. And as part of your question about how we think about Contact, the business itself on a medium-term basis, Roger? Or is it just a cash point?

No, no, just expectation for -- yes, FY '26, short term.

Yes. So short term, we expect stronger cash yield from Contact than we did from Manawa.

Your next question is Phil Campbell with UBS.

Just a couple of questions from me. Jason, I'd be quite interested, given we have seen some delays in the contracting for CDC, if you could just maybe give us a bit more insight into how that kind of contracting and procurement process works for the hyperscalers. And my understanding is they do have centralized procurement and obviously contracting around the world, so it does make it a bit more tricky. But just be interested to get a bit more detail on kind of what's causing the delays, why it's taking longer. I'm assuming it's increased complexity and issues around cooling and stuff like that. But just be interested in your views on why compared to last year it has been taking longer to get visibility on those contracts.

I think Greg talked about that quite a lot in our Melbourne site visit and for some investors who are able to get there, the Macquarie conference over the last month. The thing that's -- that stood out to me from how he was describing it is really just these hyperscalers dealing with massive change on a lot of levels but including the technology side of the data center business. So with chips evolving incredibly quickly, them learning how maybe they thought they would engineer it might need to change for where technology is evolving has posed really material challenges for them in terms of plotting out infrastructure build over time and the like. As Greg put it, why would they, biggest companies in the world, sign a whole heap of contracts for a whole heap of data centers that will be -- could be obsolete, right, in 5 years' time. So that is probably the main thing that is common, I think, across all of the hyperscalers, yes.

So as a result of that, I'm assuming there's a lot of engagement between CDC and the hyperscalers trying to sort out these issues. Or is it kind of the hyperscalers taking the time to figure it out?

There's a bit of both. But as I was trying to outline and as Greg has said, there's a deep pipeline of conversations and engagement, including advanced negotiations, so very late-stage technical detailed work that all feeds into that. I think the other thing -- theme that has emerged, right, is the kind of GPU as a Service and who's actually going to provide the next wave of infrastructure for these kind of AI applications? Is it going to be the hyperscalers themselves? Or are there going to be these other businesses that emerge to do it? So quite -- and that would just be a sampling of our part of the volatility that they're managing as well.

All right. And then just a quick one on Longroad. It was a great update in terms of what's happening with the IRA. Is there a requirement that you may need to put more capital into Longroad if we need to accelerate some of those projects to make sure they're done by 2028? And then I'm also interested in the tax equity market. With the non-transferability of tax credits, does that impact the tax equity market? Or does it make it trickier for Longroad to tap that market for funding?

Could do. So a material bring forward could require further equity. So I think that's a fair thing to call out. At this stage, I'm thinking of it as coverage over our existing targets in case for whatever reason some project can't be pulled forward or a project drops out, which definitely happens. But if there was opportunities to bring forward material megawatts at attractive returns, then we would be interested in that. On the tax equity side, so I believe in the current rules, transferability is -- remains intact for projects that we're doing now. Transferability is helpful because it creates more ways to monetize your tax equity. But for a large business like Longroad, who has access to the normal, I guess, historic providers of tax equity financing, it's not a major issue but definitely is helpful. Of course, post-2028, you're not worried about credits anyway, so no need to worry about transferring them or financing as tax equity until maybe a new legislature decides that, as they have in the past, the credits need to return in some form.

And just a quick follow-up, are we looking at the Senate decision possibly around 4th of July? Is that the date, around that time?

We think it probably ends up being a little bit later, but I know they're saying 4th of July.

Your next question comes from Aaron Ibbotson with Forsyth Barr.

I had a couple of questions. So I was going to leave CDC to others. But just on Longroad, is there any chance you can help us -- guide us through the process from sort of this $600 million run rate EBITDA to a reported Opco EBITDA? Is it -- sort of on my estimate, it's sort of 3 or 4 years down the line. Or how should we think about this?

So a project would take, yes, 9 to 18 months to be built. If it landed in the middle of the year, you'd still only get half of its year's earnings. So yes, I think something like 3 is not a bad estimate in terms of the full -- that full earnings coming through, Aaron.

If we take year-end calendar year '27, you expect to have $600 million, yes. And then we take year-end calendar '30, you expect to have a sort of reported run rate EBITDA of, I don't know...

A reported EBITDA of $600 million. Yes. And then for the Opco -- on the Opco side, yes. And remember, we're taking out the overheads and development costs. So yes, that would just be on the Opco side.

Okay. Second quick one just on One NZ. And this is for you, Jason. And your $3.7 billion equity valuation and if I look at an easy -- your easiest implied valuation is very close to where -- a very close peer but significantly larger, sort of 80% more EBITDA. Do you feel fully comfortable with that? I appreciate it's arm's length and everything. But do you think $3.7 billion is a true reflection of the equity value given current market multiples domestically in New Zealand for the one listed telco we do have?

Yes, I understand the question. It's -- I think the process is fine in terms of developing those valuations. They're definitely independent and definitely overseen by the Board. I get your question in terms of current market multiples. Individual stocks, we're one of them. Other peers and other sectors are the same, go through different cycles in terms of sentiment and outlook on their stock. I would -- I feel like their stock price is not really a reflection of the long-term value of that platform. As you know, it's quite scaled. So -- and we would tend to see independent valuations and the way we think about businesses as being set on a more long-term basis. And if you look at other peers and other markets, I don't think we're miles off, which is I'm sure what the independent valuer did in that case. I think also One is different from that business in a number of ways, which we've talked about a lot in terms of its exposure to enterprise but also its significant fiber footprint, which is a big project but ultimately a more infrastructure-like set of assets and exposure than that peer. So that's all of the things going into our head when we kind of look at that investment and our own view of value, which is not that different from the independent valuer at the moment.

Okay. If -- just coming to your Slide 34, which have your medium-term strategic objectives, which I thought was a great addition, so thank you for that. I just wanted to -- you're talking about Infratil's operating cash flow. And if I understood your comments, that is -- your definition of that is whatever the distribution is from your portfolio companies. But if I look at, for instance, One, if we come back to that, you've distributed more than the free cash flow that you disclosed now. So is that how you genuinely think about this operating cash flow, that you want to cover fixed costs that it's the distribution? So if you, for instance, increase net debt in a portfolio company and move it over to Infratil, is that really operating cash flow? Is that the way we should think about?

No, I get the question. Yes, yes, I get the question. No, we should be -- and this takes time to bring it into balance because there are a number of things to pull, but we should be covering our operating cash flows from distributions that come out of operating earnings. Now there might be some push and pull for different reasons that we're managing in the background, but that would be my kind of long-term expectation. And maybe hand to you, Andy.

I agree. I mean you can't systematically re-gear portfolio companies to deliver the balance that Jason has spoken to. So it needs to be sustainable settings. And I think that's what we're trying to paint, is that desire for sustainable financial settings, which then also has a bearing on how you interact with the portfolio companies.

Yes, I agree. And One has a good plan, I think, to improve their distributions to us in line with improved free operating cash flow. And then we see that happening naturally at CDC and Longroad as those businesses complete their build programs and start charging rent and charging for the power. And then if we can get some of these asset sales done and we can hold less debt for a period, then that has a material impact on interest as well.

And sorry to probe on this. I'm sure it's boring people. But as an example, so if One NZ sold their fiber assets, if Longroad sells a project, things like that, that would trigger distribution from the portfolio companies into Infratil. Would you consider that operating cash flow? I'm just trying to think...

No, no, I think it's fair like -- yes.

I'm imagining that you are thinking about repositioning the group.

Yes. I would say something like One selling a significant part of its business or any of them, like an operating business line, I would count that as capital. And for Longroad, it might be slightly different. Some of those businesses could evolve to a state where you're regularly selling, I don't know, X megawatts a year, which could actually be part of their business model. I could see that -- and Galileo is a bit like that. I can see that kind of being more in the nature of operating but obviously a little less stable over time than them holding their projects and just managing the gearing and their development spend to a level where they can pay us a dividend, which is probably more what I had in mind.

Okay. That's very fair. Very short final question, which I think I know the answer to but just to be 100% sure, you say that 80% of forecast revenue over the next 2 years is contracted for CDC. I have assumed that you're referring to revenue growth. Yes, that's correct. Yes, incremental revenue, yes.

That's right in that doubling of that forecast. That's right.

Your next question comes from Grant Swanepoel with Jarden.

Just one quick question. You mentioned that you're looking at about $1 billion of recycling capital over the next few years. Does that include maybe getting rid of the Contact stake? And are you considering starting to sell off some of CDC's operating assets to recycle capital that way?

Yes, no worries. I understand the question. So we're not identifying which ones we're selling because we haven't decided exactly which ones there are. There are other good commercial reasons for that. In relation to the stake in Contact Energy, it will be good to get it on July 10. Actually, we're very flexible around that stake. We think it has quite good medium-term growth opportunities, but clearly, it is more liquid than our stake in Manawa was, so we could look at that over time. On CDC, we've had a number of conversations with people actually interested in could you separate out the stabilized operating assets and monetize those in some way. We're not actively working on that now, but that is one of the options that's embedded in the portfolio over time to create liquidity. Those structures are sort of being invented now in the market. We don't expect to be leaving it. But if they work and they match our business model, I think it's definitely something we will look at. We're talking about those divestments over a 2- or 3-year period, so I would expect us to have a view on that certainly in that period.

Your next question comes from Stephen Hudson with Macquarie Securities.

Most might have been asked and answered. Just on, I suppose, CDC and your comment there about sort of a stabilized Opco kind of structure, we can see the likes of Manawa with a 6x leverage and your towers business with 14 sort of highly contracted good counterparties, so a reasonable benchmark, I guess, for what a stabilized Opco leverage might look like. Can you steer us within that range, what your expectations could be over time in terms of what leverage that structure could support?

I don't have that on top of my -- I would expect it to be double digits, but I don't know actually. One stat I do have on that is I understand the ones that have been done in Europe have been done at like a 20 -- almost like a 20x EBITDA type multiple. And I imagine they're targeting, I don't know, somewhere between 7% and 10% equity returns. So you could probably figure it out from that, what's implied.

And just on dividends, I know you've sort of been steering us towards kind of the CPI kind of rate of growth from here. It's not imputed. Your retail base will probably decline over time as you've alluded to. So is there any consideration around getting away with an ordinary dividend altogether and perhaps looking at a different way of returning capital to investors?

Not yet. Even in our planning, I mentioned that sort of $20 billion in 5 years' type idea. Even with that scale, we still actually see New Zealand retail as a material component. Obviously, it's less, but it's material enough that what we're more focused on is getting the type of dividend increase you mentioned and Andy referred to on a sustainable footing within the portfolio. Obviously, with the DRP active, we can still reinvest a lot of that cash, but it still feels material enough, but we'll continue to take feedback on that. If the lack of imputation continues over time -- if we held Contact for longer, that would change. But if that means that less and less people are taken up, then we could probably relook at it. But at this stage in our planning, we think it's important for a reasonable period of time as we grow, and so we're more focused on getting the books in balance to maintain it with that growth profile you mentioned.

Great. And then just one last one. Vanda, you gave us some good extra detail there. Can you give us some of the key gates for, I suppose, fit and also the USD 500 million sort of value add?

Yes, there's plenty of them. But Andy, you're focused on this one.

Yes. And there's the sort of milestones you'd expect of any development project. I mean, there are some unique elements to this one, so export license from Indonesia, power purchasing arrangements, there's quite a bit of engineering to do, contracts to be let, financing to organize, so yes, a number of milestones.

So not in the bag, but I think at a stage where -- and because of its materiality, we do want to call it out.

Your next question comes from Andrew Gillies with Macquarie.

Just a really quick one for me just on CDC. Just OpenAI have launched Stargate Global for sovereign AI, delivered the first gigawatt cluster in the UAE. I think they're doing 10 countries. Obviously, you've got some strong relationships with the government there, future funds on the register. It seems like you've got a fair competitive advantage in that space. I know the Chief Strategy Officer of OpenAI is doing an APAC tour at the moment. Can you maybe give any indication if there are some of these other kind of emerging customers outside of the hyperscalers as well that could add to the demand profile?

Yes. I didn't mention them, but they are very interesting to us. And Australia, I believe, is 1 of those 10 countries, and as you say, we should be well positioned. So that is a new segment. It's definitely part of that customer type evolving that we're referring to there. And then there are, I guess you call them, GPU-as-a-Service people emerging. It could end up being service providers to individual companies, different countries that make the customer landscape much, much richer than the hyperscalers alone, I would say. And we don't really know actually how all that shakes out but -- and some of the GPU-as-a-Service providers are different from hyperscalers in lots of ways. So we need to learn about that. But I think it's hard to know if it adds to the overall demand, that thing, or whether they're actually serving the hyperscale clients who are sitting behind, something to be figured out. But I think for something like sovereign that you mentioned, that won't be able to be provide it in that way unless it's in a sovereign-approved kind of ecosystem, I'm fairly sure. And we're very well placed in that space, I agree.

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

Just a quick question from me. Given the rephasing of some of the projects with CDC, what does that -- does that have implications for CapEx in FY '27? Like will we see a much bigger lump coming in there? And does the $250 million of new equity that you've called out over this coming 12 months, will that need to be then replicated into FY '27?

Yes, yes. Yes, the CapEx, so you're seeing it sort of in line this year following that rephasing and then our forecasting would show it kicking up again next year, the following year, '27, as you said. The current modeling shows that the equity we have put in and that we will add this year should get us through that future build. So that's all incorporated in the planning.

Any guidance on sort of what level we should see in terms of CapEx for '27?

If you think back to the guidance we gave at the start of last year -- for last year and you can see what we actually printed, there's a wedge of CapEx that we didn't spend. That's pretty much what ends up getting moved. So it basically gets rephased in line. I think it's about $1 billion, something like that.

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

Fantastic. Well, thank you for your attention and all the great questions. Hopefully, you found that helpful. We'll let you get back to your day. See you soon.