Infratil (ASX:IFT)

Marko Bogoievski
CEO
Market Cap (AUD): 2.97B
Sector: Utilities
Last Trade (AUD): 4.55 +0.05 (+1.11%)
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1. About

Infratil Limited is a New Zealand-based company, which owns energy, transport and social infrastructure businesses that provide services to individuals and communities. The Company owns and operates infrastructure and utility businesses and investments in New Zealand and Australia. The Company is organized into six business segments: Trustpower, Wellington Airport, NZ Bus, Australian Energy, Retirement and Other.

2. Business model

 

The Company operates the following divisions:[1]

 

Divisions

Revenue ($’M)

% of total Revenue

% of Profit (before Tax, Depn & Amort)

Profit drivers[2]

Trust power Australasia

$979.4

52.1%

104.5%

  • EBITDAF from continuing operations of $243.1 M was $40.1 M (19.8%) above the prior year. EBITDAF for total operations including Australia was $269.7 M
  • Trustpower’s diverse and flexible fleet of generation assets, together with sound operating decisions, allowed it to capitalise on above average prices and deliver a strong result
  • Sale of Australian operations for A$168 M, a substantial increase from the 2014 purchase price of A$72 M

Tilt renewables Australasia

$171.0

9.1%

(2.5%)

  • EBITDAF of A$103.8 M was A$20.3 M (16.4%) below the prior year of A$124.1 M
  • Revenue of A$158.0 M was A$15.5 M (9%) below the prior year, primarily due to lower NZ production
  • Lower generation costs due to savings on production-linked maintenance and landholder contracts, and increased maintenance capitalisation for compo

Wellington airport New Zealand

$128.6

6.8%

50.6%

  • Retail and trading activities revenue +8.7% on prior year from increased passenger numbers, introduction of new services including Uber, Valet partnership with Air NZ and retail growth EBITDAF of $95.4 M, 5.4% growth on last year

NZ bus New Zealand

$218.7

11.6%

(2.6%)

  • Revenue down 4.0%, largely due to the end of South Auckland services

Perth energy Australia

$306.7

16.3%

(17.6%)

  • FY18 EBITDAF loss A$5.3 M, A$8.0 M improvement on FY17
  • FY19 forecast includes a positive contribution from both Retail and Generation

Associates

N/A

N/A

42.2%

N/A

All other segments & corporate

$112.9

6.0%

(62.1%)

N/A

Eliminations & discontinued operations

($36)

(1.9%)

(12.5%)

N/A

3. Strategy

 

Key strategies include:[3]

 

Long-term view

Investments are long-term. Infratil invests in businesses which have the capacity to invest in their facilities and services. Long-term “excess” returns can only be derived from the compounding effect of reinvesting in growth

 

Sectors offering value

Infratil chooses sectors which offer patient investors exceptional returns. Each of Infratil’s businesses has the prospect of a "step up" in value.

  • Renewable energy: The global increase in the cost of energy plus the pricing of carbon is producing exceptional returns
  • Australian energy: The reform of the Australian energy market and renewable generation are both trends which are opening opportunities
  • Airports: The huge growth in the world’s population of people financially able to fly (both because of reducing air travel costs and increasing incomes) is increasing airport throughput.
  • Public transport: It is becoming a truism that private cars will not provide urban mobility. The solution to growing city populations is not more vehicles on the road, it is more people in each vehicle
  • Retirement Living and Aged Care: Retirement villages provide real benefits to an aging population addressing concerns such as isolation, mobility, and cost of living

 

Invest with expertise

Infratil will invest where it has the expertise or can partner with expertise, and where it can influence the strategic and operational directions of the companies it invests in. Infratil's management has world-class expertise in respect of airports, energy, and public transport.

 

Community focus

Infratil prefers to invest alongside community interests (City Councils and Community Trusts). Infratil's co-investor in Wellington Airport is the Wellington City Council. In Trustpower it is the Tauranga Energy Consumer Trust. Infratil recognises that infrastructure is part of the community’s social and economic capital. For a long-term investor, only outcomes which benefit those communities will also benefit capital providers.

Infratil’s businesses are operated by the customer as the priority. Whether the service is retail energy, an airport, or a bus ride home, it can be made to suit user needs. Historically infrastructure management made cost minimisation the single priority. It is necessary to be efficient and low cost, but that is not sufficient. The service must also meet user expectations and needs.

4. Markets

 

The Company operates in markets including:[4]

 

Industry (Australia)

Industry Revenue

Growth Rate (annual 13-18)

Wind and Other Electricity Generation

$2 billion (2018)

10.8%

Electricity Transmission

$3 billion (2017)

(3.3%)

Electricity Distribution

$17 billion (2017)

(3.3%)

5. Competition

 

Major competitors include:[5]

 

  •     Contact Energy Limited (NZE: CEN)
  •     Vector Limited (NZE: VCT)
  •     Trustpower Ltd (NZE: TPW)

6. History

 

1998[6]

Infratil announced an agreement to increase its stake in Wellington International Airport to 66%

 

 

1999   

Alliant and Infratil announced electricity investment agreement

 

2000   

Conditional agreement reached for Macquarie Bank to acquire 100% of Morrison & Co., the Manager of Infratil

 

2001   

Infratil acquired majority shareholding in Glasgow Prestwick International Airport

 

2002   

Infratil invested in Energy Developments Ltd

 

2003   

Infratil accepted toll offer for Tranz Rail Holdings Limited

 

2004   

Infratil backed prospect of successful commercial airport at Whenuapai

 

2005   

Infratil Limited advised that it had completed the purchase of Stagecoach New Zealand for the previously advised price of NZ$250.5 million

 

2006   

Infratil acquired a further interest in Austral Pacific

Infratil acquired Mana Coach Services

 

2007   

Infratil Energy Australia purchased 51% of Perth Energy Pty Ltd.

Infratil acquired Victoria Electricity Pvt Ltd

 

2008   

Victoria Electricity secured gas supply

 

2009   

Infratil and its banks completed the regular annual review of one-third of Infratil's bank facilities

 

2010   

Shell New Zealand acquisition completed

Infratil announced the sale of Energy Developments Limited

 

2011   

Z Energy Limited registered a simplified disclosure Prospectus for an offer of up to NZ$100 million bonds

 

2012   

Assessment done by the Directors to release half-yearly financial statements of Infratil Airports Europe Limited

 

2013   

Infratil completed the purchase of Metlifecare Limited

Infratil sold Glasgow Prestwick International Airport

 

2014   

Infratil completed the acquisition of 50% of RetireAustralia

Infratil completed investment in Australian PPP fund

 

2015   

Infratil confirmed that the sale of stake in Z Energy had been completed

 

2016   

Adopted ASX foreign exempt listing status

Infratil completed the acquisition of equity interest of Canberra data centres

Infratil acquired an equity interest in ANU student accommodation

 

2017   

Trustpower Sale of Australian Hydrogeneration Assets

Canberra Data Centres (“CDC”) signs contract with Microsoft to deliver hyperscale cloud services from Canberra and announces final investment approval for the 20MW Fyshwick 2 data centre

 

2018   

Mercury acquisition of stake in Tilt Renewables

7. Team

 

Board of Directors[7]

 

Marko Bogoievski – Non-Independent Director, Chief Executive

Mark Tume – Chairman, Independent Director

Humphry Rolleston – Independent Director

Paul Gough – Independent Director

Alison Gerry – Independent Director

Peter Springford – Independent Director

Kirsty Mactaggart – Independent Director

 

Management Team

 

Kevin Baker

Marko Bogoievski – Director, Chief Executive

Ryan Bowater

Jason Boyes

Tim Brown

Rosanne Byrne

Fiona Cameron

Kellee Clark

Regan Clyma

Peter Coman

Roger Crawford

John Culy

Steven Fitzgerald

Mark Flesher

Phillippa Harford

Bruce Har.ker

Andrew Lamb

Nick Lough

Scott McCutcheon

Paul Newfield

Alicia Quirke

Sarah Porter

Matthew Ross

George Royal

William Smales

Phil Walker

Vimal Vallabh


read more

8. Financials

 

2019 Half Year Results Presentation

     

Financial Year 2017/2018 (ended 31 March):[8]

 

Divisions

Revenue ($’M)

% Change

Profit (before Int, Tax, Depn & Amort) ($’M)

% Change

Trust power Australasia

$979.4

4.2%

$129.3

37.6

Tilt renewables Australasia

$171.0

(7.7%)

($3.1)

(117.6%)

Wellington airport New Zealand

$128.6

7.5%

$62.6

14.2%

NZ bus New Zealand

$218.7

(4.0%)

($3.2)

(218.5%)

Perth energy Australia

$306.7

15.9%

($21.8)

(26.0%)

Associates

N/A

N/A

$52.2

55.4%

All other segments & corporate

$112.9

(6.2%)

($76.8)

(40.1%)

Eliminations & discontinued operations

($36)

3.5%

($15.5)

13.9%

Total

$1,881.3

2.0%

$123.7

10.1%

9. Risk

 

Major risks include:[9]

 

Credit Risk

Credit risk is the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Group. The Group is exposed to credit risk in the normal course of business including those arising from trade receivables with its customers, financial derivatives and transactions (including cash balances) with financial institutions. The Group minimises its exposure to credit risk of trade receivables through the adoption of counterparty credit limits and standard payment terms. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions and organisations in the relevant industry.

 

Liquidity Risk

Liquidity risk is the risk that assets held by the Group cannot readily be converted to cash to meet the Group’s contracted cash flow obligations. Liquidity risk is monitored by continuously forecasting cash flows and matching the maturity profiles of financial assets and liabilities.

 

Market Risk

Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and energy prices will affect the Group’s income or the value of its holdings of financial assets and liabilities. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

 

Interest rate risk (cash flow and fair value)

Interest rate risk is the risk of interest rate volatility negatively affecting the Group’s interest expense cash flow and earnings. Infratil mitigates this risk by issuing term borrowings at fixed interest rates and entering into Interest Rate Swaps to convert floating rate exposures to fixed rate exposures. Borrowings issued at fixed rates expose the Group to fair value interest rate risk which is managed by the interest rate profile and hedging

 

Foreign Currency Risk

The Group has exposure to foreign currency risk on the value of its net investment in foreign investments, assets and liabilities, future investment obligations and future income. Foreign currency obligations and income are recognised as soon as the flow of funds is likely to occur.

 

Energy Price Risk

Energy Price Risk is the risk that results will be impacted by fluctuations in spot energy prices. The Group meets its energy sales demand by purchasing energy on spot markets, physical deliveries, and financial derivative contracts. This exposes the Group to fluctuations in the spot and forward price of energy. The Group has entered into a number of energy hedge contracts to reduce the energy price risk from price fluctuations. These hedge contracts establish the price at which future specified quantities of energy are purchased and settled. Any resulting differential to be paid or received is recognised as a component of energy costs through the term of the contract. The Group has elected to apply cash flow hedge accounting to those instruments it deems material and which qualify as cash flow hedges.

References

  1. ^ Annual Report 2018, P. 61.62
    https://infratil.com/assets/imported/nzx/Infratil-Annual-Report-2018-279343.pdf
  2. ^ Investor Presentation 2018, P. 11-18 https://www.listcorp.com/asx/ift/infratil/news/corrected-media-release-and-results-presentation-1887811.html
  3. ^ https://infratil.com/about-us/strategy/
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=5321
    http://www.ibisworld.com.au/industry/default.aspx?indid=1825
    http://www.ibisworld.com.au/industry/default.aspx?indid=1826
  5. ^ https://quotes.wsj.com/NZ/IFT
  6. ^ http://www.infratil.com/infratil-news/1998/infratil-announces-agreement-to-increase-its-stake-in-wellington-international-airport-to-66/
    http://www.infratil.com/infratil-news/1999/alliant-and-infratil-announce-electricity-investment-agreement/
    http://www.infratil.com/infratil-news/2000/infratil-new-zealand-stock-exchange-announcement/
    http://www.infratil.com/infratil-news/2001/infratil-acquires-majority-shareholding-in-glasgow-prestwick-international-airport-2/
    http://www.infratil.com/infratil-news/2003/infratil-accepts-toll-offer-for-tranz-rail/
    http://www.infratil.com/infratil-news/2004/infratil-backs-prospect-of-successful-commercial-airport-at-whenuapai/
    http://www.infratil.com/infratil-news/2005/stagecoach-new-zealand-acquisition/
    http://www.infratil.com/infratil-news/2006/infratil-acquires-further-interest-in-austral-pacific/
    http://www.infratil.com/infratil-news/2006/infratil-acquisition-of-mana-coach-services/
    http://www.infratil.com/infratil-news/2007/infratil-energy-australia-purchases-51-of-perth-energy/
    http://www.infratil.com/infratil-news/2007/victoria-electricity-pty-limited/
    http://www.infratil.com/infratil-news/2008/victoria-electricity-secures-gas-supply/
    http://www.infratil.com/infratil-news/2009/infratil-debt/
    http://www.infratil.com/infratil-news/2010/shell-new-zealand-acquisiton-completed/
    http://www.infratil.com/infratil-news/2010/infratil-announces-sale-of-energy-developments-limited/
    http://www.infratil.com/infratil-news/2011/z-energy-bond-offer/
    http://www.infratil.com/infratil-news/2012/infratil-airports-europe-carrying-values/
    http://www.infratil.com/infratil-news/2013/infratil-completes-purchase-of-metlifecare-limited/
    http://www.infratil.com/infratil-news/2013/infratil-sells-glasgow-prestwick-airport/
    http://www.infratil.com/for-investors/announcements/2014/completion-of-acquisition-of-retireaustralia/
    http://www.infratil.com/infratil-news/2014/infratil-completes-investment-in-australian-ppp-fund-/
    http://www.infratil.com/for-investors/announcements/2015/infratil-confirms-sale-of-z-energy-stake-has-completed/
    http://www.asx.com.au/asxpdf/20160310/pdf/435qrlphy786kt.pdf
    http://www.asx.com.au/asxpdf/20160914/pdf/43b5p710vh5g50.pdf
    http://www.asx.com.au/asxpdf/20160802/pdf/4391mylgvrcrty.pdf
    https://www.listcorp.com/asx/ift/infratil/news/trustpower-sale-of-australian-hydro-generation-assets-1766479.html
    https://www.listcorp.com/asx/ift/infratil/news/canberra-data-centres-cdc-signs-contract-with-microsoft-1658465.html
    https://www.listcorp.com/asx/ift/infratil/news/mercury-acquisition-of-stake-in-tilt-renewables-1885571.html
  7. ^ http://www.infratil.com/about-us/people/
  8. ^ Annual Report 2018 P. 61-62
    https://infratil.com/assets/imported/nzx/Infratil-Annual-Report-2018-279343.pdf
  9. ^ Annual Report  2018 P 83-87
    https://infratil.com/assets/imported/nzx/Infratil-Annual-Report-2018-279343.pdf