infratil overview 2011-03-08
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INFRATIL
OVERVIEWINVESTORDAYMARCH8,2011
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Infratil Investor Day 2011 - Agenda
Time Presenter Topic
9.00am MarkoBogoievski CEO Infratil Infratiloverviewandintroduction
9.45am Dr PhilipVerleger PKVerleger LLC Theglobaloilmarketandfutureoilprices
10.45am Break
11.00am MikeBennetts CEOGreenstoneEnergy
Current plansandthefutureoftheNZsfuel
andenergymarkets
12.30pm Lunch
1.15pm BruceHarker ChairTrustPower
andJohnCuly (Morrison&Co)
Long termoutlookfortheNZelectricity
marketandwhatitmeansforTrustPower
1.45pm VinceHawksworth CEOTrustPower
TrustPoweroptionsanddevelopment
opportunities
2.30pm LloydMorrison ChairMorrison&
CoandMarkoBogoievski Wrapupandsummary
3.00pm Dr PhilipVerleger PKVerleger LLC Crudeoilworkshop(breakoutsession)
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Objectives for the day
Principal objectives:
- Introduce the team
- Update the facts- Highlight the challenges and the opportunities
- Lay out the plan
- Get your perspective
Focus is on capital allocation, NZ energy markets and positioning ofGreenstone Energy and TrustPower:
- Australian energy focus day is scheduled for March 29 in Sydney
Emphasis on the long-term prospects and valuation considerations for
our businesses
Brief update on Christchurch
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Infratil focus and consistency are reaping rewards
Consistency and discipline will drive a re-rating
Strengthening cash flow and earnings
Increased proportion of portfolio with strong market positions in sectors
we believe are fundamentally attractive Improving value of internal development pipeline and reinvestment
options
Better access to capital following improved credit metrics and
significant program of capital raising and refinancing The Greenstone transaction is an example of the opportunities
available for an investor with operating experience and access tocapital
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Current context pressure building for a re-rating
Emphasis on improving free cashflow and earnings continues
Core holdings performing very welland current outlook is significantlyahead of our base 2010-11 plantargets
Value of internal developmentpipeline continues to grow
Less competition for complexinfrastructure assets requiring activemanagement
Most investors accept that IFT istrading at a significant discount tounderlying valuation
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Investors seeking confirmation and follow through
Steady growth in free cash flow and earnings is always the best catalyst
The Greenstone transaction has forced a partial re-examination of IFTfollowing a busy 2008-2010
- good execution in a number of financial and operational initiatives
- most investors now looking for follow through and confirmation of recentperformance
While IFT returns have been good over 2009 and 2010, the share pricehas basically tracked improvements in underlying NTA
- Discount to NTA remains wide
Good long-term sector allocation and growth in valuations needs to besupported by active management and delivery of tangible short-termresults
- Transparency over operational milestones and valuation metrics
- Periodic realisations
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2010/11 delivery - better performance with less risk
Greenstone Energy
- Market share gains and improving margins inrapidly changing market
- Opportunities to reinvest
- Capex consistent with bid case
Lumo Energy (formerly Infratil Energy Australia)
- Material earnings contribution
- NSW privatisation a positive outcome re futurewholesale liquidity, and strong industry valuationmarkers
- Proven value of peaking facilities in increasinglyvolatile market with weak average price outlook
Limited refinancing risk- Successful GEL, TPW and IFT parent bond offers
- Successful rollover of senior debt (with good termand pricing)
- Significantly improved financial flexibility
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Investors are adept at finding new concerns
Immediate outlook for TPW
- recent TPW performance and spike incustomer churn following SOE asset swaps
has raised some question over the mediumterm outlook
Privatisation of SOEs
- SOE privatizations although good for long
term market discipline may create someliquidity and trading issues during theexecution phase
Sustainability of GEL earnings in the longterm
- How long can margin and volume growth besustained?
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So, what will drive the re-rating?
TotalShareholder
Returns
Dividends
ClosingtheNTADiscount
Buybacks
GrowingUnderlyingNTA
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Weve been working on the qualitative factors
TotalShareholder
Returns
Dividends
ClosingtheNTADiscount
Buybacks
GrowingUnderlyingNTA
- Discipline
- Consistencyofthe
investmentmodel
- Accesstocapital- Originationoutlook
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But focus is always on growing underlying NTA
TotalShareholder
Returns
Dividends
ClosingtheNTADiscount
Buybacks
GrowingUnderlyingNTA
- Sectorallocation
- Performance
management
- Sequenceandtiming
ofprojects
- M&A
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High conviction around our major assumptions ...
FundamentalAssumptionorTrend
Related
Asset
NetAsset
Exposure
Confidence
Levels
Risingelectricityprice pathinNZ TPW $1.1bn High
Inherent NPVinexclusivedevelopment
optionsandinternalcapex
TPW, Lumo,
PE, GEL $2.0bn High
Future valueofdualfuelcustomersinconcentratedAustralianenergymarket Lumo $0.3bn High
FutureinternationalPAXCAGR >GDP WIAL $0.4bn High
ImprovingnetmarginsperlitreinNZ
downstreamoilindustry
GEL $0.4bn Med High
Valueofpeakingandstorageassetsin capacity
constrainedenergymarkets TPW, Lumo $1.6bn Med
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Satisfaction with our secondary assumptions
FundamentalAssumptionorTrend
Related
Asset
NetAsset
Exposure
Confidence
Levels
Developmentofcarbonpricingin Australiaand
NewZealand TPW, Lumo,PE $1.6bn Med
Further developmentofLCCairlinemodelin
AustralasiaandAsia WIAL $0.4bn Med
PublictransportPAXgrowth reflectedin
profitablelongtermcontracts NZBus $0.2bn Med
Crudeoilprices upwardbias IFT $0.2bn Low Med
NZDexchangerates(variesbycurrency) IFT variable Low Med
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And sector choices are being actively managed
Activity RecentExamples FutureFocus(example)
Driveshorttermperformance
Greenstone, LumoEnergy,NZBus
Greenstone, Lumo,TPW
Delivergreenfield
constructionprojects
Kwinana,PortStanvac,
Mahinerangi
SnowtownII,Arnoldhydro,
NSWgasfiredpowerstation
Optimise commercial
modelsPublictransportoperating
modelinNZPricingroundatWIAL,Oil
industryJVstructures
Maximise access to capital NZretailbondmarket Internationalequityinvestors
Sharebuybacks TPWbuybackprogram IFTparent
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2011 Outlook - upside bias to EBITDAF earnings
EBITDAF range $415 million to $435million major assumptions:
- approx $30 million equity earnings contribution from
50% of Greenstone Energy- TrustPower EBITDAF in line with FY 2010
- WIAL and NZ Bus hold first half gains
- IEA $40-$50m FY EBITDAF reflecting significantseasonality in second half of year
Upside confidence to EBITDAF outlookpartially balanced by recent developments
- GEL gross margins temporarily impacted by recentspike in crude oil prices and weakness in NZD
- Direct cost of Christchurch earthquake
Operating cash flow reflects EBITDAF,interest, tax and anticipated movements inworking capital
HY 30Sept2010
($Millions) H12011
FY2011
Guidance
EBITDAF $258 $415$435
NetInterest ($80) ($160$170)
OperatingCashFlow $94 $160$180
Investment/Capex ($301) ($450$500)
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Confidence in the long-term outlook
Favourable sector trends and capital investment program will driveconsolidated EBITDAF towards $500 million
- exposure to rising energy prices and consumption, changing NZ fuels industry, air
travel and urban mobility
Next phase of investment cycle will suit Infratil
- large pools of infrastructure capital targeting passive utility returns (not growthinfrastructure)
- few active managers of complex assets- many quality assets currently in work-out or PE funds
- constraints on government spending will mean increased private provision ofinfrastructure
Infratils priorities: energy and transport sectors in Australia and New
Zealand- control or influential stakes in unlisted assets in sectors we understand well
- partnerships and co-investment model especially for larger value opportunities
- other sectors and investment ideas continue to be actively monitored
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