2019 Annual Report Highlights


51% Infratil
27% Tauranga Energy Consumer Trust
22% Public

Over the last decade New Zealand’s excess generation capacity depressed electricity prices and meant there were few investment opportunities.

The electricity supply/demand balance is now changing and while demand continues to be flat, expectations are that electricity consumption will rise with de-carbonisation of transport and industry. The economics of generation will also change as the cost of using gas and coal to fuel generation rises and the use of those fuels declines.

In addition to its generation facilities, Trustpower is a leader in providing customers with multiple utility services. This is evolving as services increase in complexity and more sophisticated analytical tools enable providers to better fit services to the requirements of individual customers.

For Trustpower, FY2019 was a year of relative normalcy after the prior year’s hydrology windfall. However, the market as a whole experienced an unusual period characterised by the highest wholesale prices experienced in New Zealand since the 2002 drought.

What is especially notable about the period is that the electricity wholesale market events had little impact on most residential consumers.

As the table at the bottom of the page shows, it was a year of two halves for wholesale electricity prices.

The electricity market events of the last year are interesting in themselves and as a signal for the future.

  • Historically, high wholesale market electricity prices in New Zealand reflected water shortages in the main hydro storage lakes. During the second half of FY2019 for the first time it was the supply of gas which drove up wholesale electricity prices.
  • Maintenance of the pipeline from the offshore Pohokura field restricted gas availability and saw gas-fired generation for the December quarter down 583GWh on the same period the prior year (Pohokura usually provides about a third of New Zealand’s gas). While only 5% of total generation this had a dramatic impact on wholesale electricity prices. Although some additional hydro generation was available, coal-fired generation was the key source of back-up, and is very expensive.
  • Remarkably, residential customers will have hardly noticed. There wasn’t a campaign to save power and prices haven’t risen for those on term plans. 

The messages from this period are that New Zealand relies on gas-fired generation to fill the gaps in demand that are not met from wind, geothermal and hydro; and that supply and demand is finely balanced. A second message is that wholesale electricity prices are determined by the whole portfolio of generation that is required to meet demand.

A third point is that the large generator-retailers are good at managing electricity price risk on behalf of consumers. The only complaints voiced over the period came from smaller electricity retailers that had not managed risk efficiently and consumers who preferred to be exposed to “spot” prices.

The relevance for the market and consumers of these lessons depends on how demand for electricity grows and whether there are constraints on gas-fired generation. The Government’s policies favour both increasing use of electricity for transport and industry and less use of gas.

Ironically, given the very high electricity prices, Trustpower revalued its generation down by a net $163 million as at 31 March 2019. This reflected a matrix of pros and cons and the reduction in value would have depended on the judgement of the valuers as to the weightings of the variables.

Trustpower’s utility retailing business continues to evolve as a provider of both energy and telecommunication services. The only step change event last year was Trustpower’s decision to replace its 140,000 electricity meters with a “smart” version. As the last major energy retailer to make this change it is believed that Trustpower will gain a considerable benefit from having waited until the technology improved to the point where the meters provide real benefits rather than mainly just additional cost.

With its utility retailing activities, Trustpower’s key goals are to reduce the cost of churn by retaining customers and to reduce back-office costs. Progress was delivered on both fronts. Increasing the proportion of customers with both telecommunication and energy services reduces turnover because multi-utility customers are more satisfied and less likely to shop around. Improvements to customer-communication technology is enabling a significant shift from telephone conversations to more automated ways of accommodating customer inquiries.

Trustpower is interested in a raft of Government policy initiatives, with several directly relevant; for instance the Water Review, the Electricity Price Review, how the goal of reducing CO2 emissions is implemented, and the specific policy targeting lower electricity sector CO2 emissions by 2035. Each initiative has the potential to produce a major increase in generation costs or to distort the market. Fortunately, to date no tangible disruptive plans have emerged and the general tone of government pronouncements has shifted from aspirational to pragmatic.



Year Ended 31 March




New Zealand retail electricity sales




New Zealand generation




Australian generation




Electricity accounts




Gas accounts




Telecommunication accounts




Av. NZ market spot price¹








Green State EBITDAF 




Investment spend




Net debt




Infratil's holding value³




1. 12.5c/kwh is the same as $125,000/GWh (ie. 1GWh = 1,000,000kwh)
2. Excludes $16.7 million of demerger costs in FY2017
3. NZX market value at period end 

Fiona Smith - General Manager Customer Operations

Utility companies can no longer deliver services that are one size fits all or set and forget. Customers expect service providers to understand and know them. But delivering a personalised service; whether to help reduce energy use, better manage cost, or to adjust data capacity to deliver excellent broadband, takes data and analytics. Trustpower is building this capability.

Artificial intelligence is also helping our staff identify new customers that are likely to be receptive to a combination of Trustpower’s energy and telecommunication plans.

In addition to helping us identify the services that will best meet the needs of existing and prospective customers, technology is enabling us to do this at a lower cost while also improving the efficiency of other back-office functions. For instance, only three years ago 80% of customers got in touch with Trustpower by phone, it’s now 40% because customers have shown they prefer chat-bots, web-chat and other lower-cost and higher-value means of communication.

Trustpower’s aspirations run much deeper. Learning algorithms that can predict a customer’s future needs by mimicking human logic will enable Trustpower to personalise service offerings, to stay one step ahead. It is also expected that customers will increasingly use digital assistants to interact with businesses, for which Trustpower’s people and systems are preparing.

It has been apparent in the past that technology has promised more than it has delivered. “You can see the computer age everywhere but in the productivity statistics”, as US economist Robert Solow said. But the balance is shifting. Analytical capability is enabling Trustpower to draw a line between an understanding of the energy and telecommunication markets and an understanding of customer needs, and to do so cost efficiently.

Fiona Smith - General Manager Customer Operations

EBITDAF & Generation

Year ended 31 March

Over the last ten years Trustpower’s New Zealand hydro generation has risen via acquisition and small-scale development projects. With fluctuations coming from rainfall changing from one year to the next.

New Zealand EBITDAF has shown some volatility reflecting hydrology conditions, but the trend has been flat as increased generation has been offset by lower wholesale prices and increasing retail market competition.

Trustpower EBITDAF & Generation
NZ EBITDAF per unit of NZ generation and the average NZ market price of electricity

Year ended 31 March

Usually Trustpower’s success as a utilities retailer, and with its irrigation activities, has ensured that earnings per unit of generation have remained comfortably above the wholesale market value of the generation.

This year’s spike in prices wasn’t passed on to customers which breaks the run.

While tightening supply conditions make it likely that wholesale prices will tend
to remain more in the 7 to 9 cent range rather than 5 to 7 cents, it is unlikely that Trustpower’s margins over wholesale prices will return to former levels.

Trustpower NZ EBITDAF per unit of NZ generation and the average NZ market price of electricity
Customers and retail electricity sales

Year ended 31 March

The attraction of Trustpower’s utility retailing offer is apparent from the graph.

However, electricity sales per customer have fallen by 25% over the period, while costs per customer have been stable.

Trustpower Customers and retail electricity sales

Tilt Renewables

65% Infratil ownership
20% Mercury Energy
15% Public

Both New Zealand and Australia require more wind and solar generation capacity, to meet decarbonisation goals and to satisfy rising demand for electricity.

Massive investment in technology, manufacture and operation has resulted in wind and solar generation rapidly evolving to the lowest cost new-build options for the energy market. The resulting cost reduction has also spawned challenges as these sources of generation are intermittent, which can mean extremely low-cost electricity for part of a day, but none at another.

Through its existing generation facilities and its extensive development pipeline Tilt has gained deep insights into the nuances of solar and wind generation, how to deliver low-cost renewable electricity and the choices available to manage supply and price risk, including through physical energy storage.

During FY2019 Infratil sought to takeover Tilt but settled for increasing its holding from 51% to 65%.

$109 million was invested in the acquisition of the additional 14%, and Infratil also subscribed for $179 million of equity issued by Tilt to enable it to progress its development initiatives.

The takeover bid and the provision of additional capital to Tilt were interlinked. Tilt has an extensive development pipeline which is attractive to Infratil. However, Infratil’s failure to reach 100% reflects a cautious approach to value. Development activities should generate good returns as compensation for their risk and the higher the share price the lower the future returns.

Operationally, Tilt experienced satisfactory wind conditions on both sides of the Tasman (after last year’s calm) and saw the first generation from its new A$105 million 54MW Salt Creek wind farm in Victoria. This translated into a A$31.0 million increase in EBITDAF (+A$23.4 million from higher Australian volume, +A$5.7 million from New Zealand, +A$6.3 million from higher Australian prices, and -A$4.4 million from higher operating and development costs). The higher prices in Australia related to the generation that was not sold on fixed price contracts due to Salt Creek commencing generation earlier than anticipated and the Snowtown 1 wind farm coming off contract in January 2019.

Tilt continued to expand its development pipeline of prospective projects, which now amounts to 3,400MW of capacity spanning Australia and New Zealand; including 660MW of consented solar and more than 2,100MW of consented wind. In addition to the generation projects, Tilt is also working on energy storage so that “excess” wind or solar electricity can be stored for use during higher value periods. For instance, because wind generation can make up a very high proportion of South Australia’s total load, the State energy regulator occasionally curtails such generation (to avoid the risk of a system outage being caused by a large natural fluctuation in wind generation). Last year this reduced Tilt’s production by 47GWh (worth A$5.1 million at Tilt’s average Australian price). Options to allow this “spilled” energy to be stored are being investigated, albeit not a simple process under the Australian generation connection regulations. 

While a large portfolio of development options is necessary for growth, what matters is that these can be executed. For this to occur requires Tilt to find buyers for the electricity, and for that to happen requires that Tilt’s sites, technology, costs and funding are all best in class. Consequently, progress at Dundonnell and Waverley was welcome vindication that Tilt is indeed in that category.

Before Tilt committed to build the A$560 million 336MW Dundonnell wind farm it was successful in gaining an agreement with the Victorian State government which effectively removed the price risk on about a third of the forecast output to 2035. The State government had undertaken a comprehensive tender process before it selected Tilt as its counterparty. Subsequently Tilt has also contracted with Snowy Hydro and as at 31 March 2019 only 13% of Dundonnell’s output wasn’t under long-term contract.

In New Zealand Tilt is advanced in its negotiations with Genesis Energy for the latter to take the electricity price risk on the 130MW Waverley wind farm in south Taranaki. If the parties agree it is likely that construction will start in FY2020. This project would underline Tilt’s capability as an independent wind farm developer, even in New Zealand where most of such development is undertaken in-house by generator-retailers (where project specific costs can be obscure). Tilt’s summary of key features of the New Zealand and Australian markets is set out in the table below.

The rate at which these variables translate into Tilt converting more of its 3,400MW project pipeline into physical generation will depend on the rate at which each market provides off-take contracting opportunities and the level of uncontracted generation that can be accepted in the portfolio.

With Salt Creek and Dundonnell, Tilt has shown that it has the ability to develop generation which delivers competitively priced electricity and creates shareholder value.

For its shareholders Tilt represents an unusual situation in that they will be hoping the Company continues to ask them for capital rather than start increasing its dividends.

Year Ended 31 March




Australian generation




New Zealand generation




Australian revenue




Average price 




Australian contracted sales




New Zealand revenue




Average price




New Zealand contracted sales








Investment spend




Net Debt




Infratil's holding value²




1. 10.8c/kwh is the same as A$108,000/GWh (ie. 1GWh = 1,000,000kwh). All prices are in A$
2. NZX market value at period end. 

Projected generation & Electricity price risk

A forecast of the generation from Tilt’s existing capacity (including Dundonnell from FY2021, but not Waverley) and the part of the output where the price risk has been transferred to counterparties is shown in the graph.

Tilt Projected generation & Electricity price risk
EBITDAF & Generation

Year ended 31 March

Tilt EBITDAF & Generation
EBITDAF per unit of generation

Year ended 31 March

Tilt EBITDAF per unit of generation

Longroad Energy

40% Infratil ownership
40% New Zealand Superannuation Fund
20% Management

In less than three years of operation Longroad has executed a remarkable series of projects and started to deliver what is likely to be a robust source of income and value.

Longroad was established to develop renewable generation in the US using experienced local management, and the capital and investment discipline of the two New Zealand shareholders. The goal is to build a business that owns and manages renewable generation and creates value by undertaking development projects, which may be realised if opportunities are propitious. It is also expected to provide insights into the economics and trends at the cutting edge of renewable generation which Infratil will be able to apply in New Zealand, Australia and possibly elsewhere.

When Infratil and the New Zealand Superannuation Fund backed the establishment of Longroad in 2016 the motive was the calibre of the executive team and the opportunity afforded by the dynamic US electricity market.

The speed at which events have subsequently unfolded is dumbfounding when compared to Australasia. In the familiar markets it is expected that regulation will slow projects; that electricity price risk will be difficult to manage; and generally that independents will struggle to compete with large integrated generator-retailers to develop, build or own generation plant.

In the US the individual components of electricity generation; development – contracting output - building – ownership - management; are often performed individually. A company may specialise in identifying and scoping good sites for wind or solar generation. A totally different party may own the facilities once they are built with management outsourced and price-risk contracted away. In this environment Longroad has been able to pick a diverse range of opportunities based on their specific risk/reward features.

Longroad’s overarching goals are to buy or create development options, to develop those options into generation which optimises site, technology, financing, and market features, and to build a portfolio of low-risk assets which may be retained or on-sold. In each of these areas Longroad delivered in FY2019.

The Phoebe 315MWdc solar facility developed by Longroad in north Texas saw construction start in July 2018 after funding had been arranged and 89% of the projected 738GWh of annual output had been sold to Shell Energy. However, even before the US$307 million construction started, Longroad sold the project to Canadian renewable investment vehicle Innergex for US$397 million. Phoebe will be commissioned later in 2019 and will then be the largest solar power station in Texas. 

The 238MW Rio Bravo wind farm developed by Longroad, also in Texas, had its US$301 million construction start in late 2018 once power purchase terms had been agreed with Citigroup and debt funding secured. Its sale was later agreed with privately owned investment company Sammons Enterprises with settlement early in FY2020; when gains will be recognised.

Longroad management have indicated that the existing portfolio of development projects which are nearing execution are expected to give rise to a further US$130 million to US$180 million of gains.

In addition to its development projects, Longroad owns 685MW of generation which provides a stable source of income as well as providing development options and an operational capability (which can then be offered to third parties on a contract basis).

As shown in the table below, Longroad has an eclectic range of involvements with 2,520MW of generation. In addition, the Longroad team are evaluating a further 7,000MW of wind and solar generation projects:

  • 553MW developed and on-sold.
  • 684MW of capacity owned for both earnings and development potential.
  • 730MW of projects under development.
  • 552MW managed for 3rd parties.

Longroad Corporate renewable projects

 An important source of demand for renewable electricity and hence long-term purchase agreement are corporate buyers seeking to reduce their carbon footprint. Standard & Poor’s reported that in 2018 over 6,500MW of corporate renewable capacity was secured from over 40 generators; more than doubling the previous annual peak.

The largest US corporate buyers include Microsoft which has 1,260MW of contracted generation, Amazon 1,400MW, Apple 1,200MW, Walmart 800MW, and Ikea 900MW. In 2018 buyers also included Shell and Exxon Mobil.

Illustrating the trend, the Brookings Institution reported that May 2019 was the first month ever when US renewable electricity generation was greater than generation from coal-fired capacity. They put this down to state environmental standards and emission policies and rising corporate investment in cleaner technology and electricity purchases.

Augmenting its development goals, Longroad employs a 65 strong team to manage generation assets for its own projects and on behalf of third parties. This capability ensures that Longroad has comprehensive understanding of its own facilities, to inform development decisions, and it means that the 238MW Rio Bravo wind farm can be sold to a financial buyer which doesn’t have operating capability.


As with any early-stage business undertaking development, the financial arrangements and value creation are complex and contingent.

  • Initially Longroad’s three shareholders committed US$100 million. Infratil and New Zealand Superannuation Fund each owned 45% with management holding the balance. In addition, Infratil indicated a willingness, on a case by case basis, to provide temporary funding and credit support to enable Longroad to execute projects.
  • Subsequently, Longroad’s management exercised the right to increase their shareholding to 20% which reduced the New Zealand shareholders to 40% each. • In addition to its equity funding, Longroad had (by 31 March 2019) raised US$1,702 million of project debt funding from 16 different lenders.
  • For Infratil, the arrangement has meant a high turnover of financial investment and commitment. Funds have been invested and returned in short order. As at 31 March 2019 this meant that Infratil’s net investment at that point (the difference between what had been invested and what had been returned, either as profits or repayment) was only $2.7 million. ($154.0 million invested and $151.3 million received back).
  • Infratil arranged for an independent valuation of its 40% interest in Longroad as at 31 March 2019. This derived a value of $122.7 million allocated:
      • 59% near-term development projects.
      • 24% operating assets.
      • 9% undeployed plant and equipment.
      • 8% other development projects.
  • The book value of Infratil’s 40% interest in Longroad reflects both capital flows and Longroad’s net profit (US$60.2 million for the twelve months to 31 December 2018 after a US$22.6 million loss the prior year). Reported profits/losses includes depreciation, amortisations, and interest expenses related to generation ownership vehicles, and Longroad’s generation management fees and costs, and development costs and gains.


Year Ended 31 March



Infratil investment amount

$154.0 million

$66.8 million

Infratil capital received back


$151.3 million

$28.9 million

Infratil book value


$10.8 million 

 $16.0 million

Infratil’s share of Longroad Energy’s net income


$46.4 million 

 ($13.8 million)



US$37.0 million

 (US$5.6 million)



(US$31.2 million) 

 (US$8.4 million)



(US$34.0 million) 

 (US$8.6 million)

Net surplus before tax¹


US$60.2 million 

 (US$22.6 million)

Operating cash flow inc. development costs¹


US$92.9 million 

 (US$5.3 million)

Owned generation




Managed generation


1,236 MW


105 people


74 people

1. Longroad Energy has a 31 December financial year.These figures are for the years ended 31 December 2017 and 2018. 

Wellington Airport

66% Infratil ownership
34% Wellington City Council

Wellington Airport delivers growing earnings from investing in its own activities.

The Airport’s goal is good air services between central New Zealand and the world and a safe, welcoming environment for the people who use it. Delivering requires capable well directed people and supportive capital providers.

Airport under-investment results in poor air connectivity, queues and inconvenience for individuals and airlines. Over-investment creates a mausoleum ambiance, unnecessary cost and redundancy.

Over the last five years the Airport has invested $315 million in its facilities and paid $254 million to shareholders. Annual passenger throughput rose from 5.5 million to 6.4 million and earnings from $82 million to $101 million.

Wellington Airport’s priorities are to facilitate the provision of convenient, competitive air services between central New Zealand and the world, and to provide a safe, efficient, welcoming environment for the people who use its facilities. The Airport team can be proud about what they are now delivering.

Wellington Airport’s priorities are to facilitate the provision of convenient, competitive air services between central New Zealand and the world, and to provide a safe, efficient, welcoming environment for the people who use its facilities. The Airport team can be proud about what they are now delivering.

Last year domestic passenger growth was a solid 4.6% per annum and international a satisfactory 3.8% per annum. On a daily basis that’s approximately 90 more international and 660 more domestic passengers than at the same point a year ago. Regularly, over 30,000 people visit Wellington Airport each day (including meeters, greeters, staff.)

Recent growth was mainly due to increased aircraft loadings and almost all services now have more than 80% of their seats sold. Capacity was added with Napier, Queenstown, Rotorua and Tauranga, and on the domestic trunk Air New Zealand has started replacing its 171 seat A320 aircraft with the 214 seat A321s.

While credit for increased throughput reflects many factors, the Airport’s contributions are not minor: 

The Airport provides support for all airlines developing new services especially those reliant on recreational and social traffic as their utilisation is more discretionary than those targeting business travellers.

The constantly improving Singapore service, now carrying approximately 900 people per week into the region, was initiated with the combined support of the Airport, City and Regional Development Agency.

Last August the Airport contracted for Airbus to bring its new generation A350 from France to undertake Wellington trials. It is hoped that following regulatory approval that this model of aircraft (and its A330 sister) will be used to further improve the region’s international connectivity.

FY2019 saw myriad operational improvements to lower airline costs; of particular note was the Airport’s work with Air New Zealand on the push-back of its ATR aircraft (resulting in a significant cost saving on the part of the Airport) and the automation of airbridges (Singapore Airlines reported an average time saving of three minutes). Wellington has the first automated airbridges in the world and has hosted many visits from airports interested in emulation.

Passenger surveys are indicating the highest-ever levels of approval, reflecting the Airport’s wide range of land-transport options, improved carparking facilities, excellent main terminal ambiance, best-of-Wellington food, beverage and retail offerings, cleanliness, and the speed with which it is possible to move through if you are in a rush. Every airport user has specific criteria;

“On Friday before I flew home I had a craft beer and listened to a jazz band.” “I flew in from Blenheim and within five minutes I was out of the carpark and on my way home.” “The toilets’ baby facilities are excellent.”

The Airport’s 134 room hotel and expanded conference capacity opened in January. The objective with this investment is to make Wellington convenient as a place for people to meet and as a place to start/finish an international trip. Many of the Airport’s international services leave before 7am and arrive after 11pm. This timing is discouraging for someone from say Napier or even Kapiti. Now they can overnight at the Airport in pleasant surrounds with a 100 metre walk to or from their plane.

For the Airport team, moments of self-congratulation are brief because maintaining standards is a constant challenge. The list of current initiatives is daunting:

Airfield. Wellington operates on an extremely constrained site (the aeronautical area is about a quarter of Auckland or Christchurch). Because there is now finite ability to accommodate growth within the existing envelope the Airport intends acquiring vacant Crown land, part of the Miramar golf course, and converting carparks into airfield. It is also to relocate its fuel and fire services to free up space for aircraft movements. Alongside the expansion plans, planning has started on replacing the seawall that faces Cook Strait to ensure it is futureproofed against sea level rises and storms.

Terminal. Improvements to the main terminal are ongoing and major new initiatives are also starting. Increasing security requirements will require new facilities for screening airport visitors and the construction of a new baggage hall. Passenger congestion and major challenges with the location of larger international aircraft is necessitating the construction of an entirely new international terminal.

Technology, community, people, environment. In addition to ensuring its physical ability to accommodate demand growth, the Airport has initiatives to minimise waste, achieve zero-carbon, and to ensure it maintains community trust, positive staff, and stays ahead of issues such as data integrity and privacy.


The Airport’s 134 room hotel and expanded conference capacity opened in January. The objective with this investment is to make Wellington convenient as a place for people to meet and as a place to start/finish an international trip.

Even with a long list of future-proofing projects, the largest challenge to efficient delivery of Airport capacity and services comes from the myriad regulatory agencies which undertake monitoring or provide approvals. Most mean well and no one doubts the need for expert independent monitoring, accountability, and forum to facilitate participation in issues such as whether Wellington should be able to reclaim 10 hectares to enable a runway extension. But there is little onus on efficiency or proportionality. The Airport’s joint project with Wellington City Council to extend its runway is now in its seventh year and after millions of dollars and immense frustration is still at least a year away from consents. And the main reasons for the delay and expense are procedural and have added little new insight nor changed the initial understanding of costs and benefits. 
Another area of regulation to which Wellington is subject comes from the Commerce Commission’s monitoring and strictures on Airport charging of airlines. As a counterpoint to the New Zealand approach, the Australian Productivity Commission recently released its five-yearly review of the performance of that country’s main airport’s charges and services. The holistic and less prescriptive approach taken there is considerably more efficient and effective than what happens in New Zealand.


Year Ended 31 March



Passengers Domestic



Passengers International



Aeronautical income



Passenger services income






Operating costs 






Investment spending



Net debt



Infratil cash income



Infratil’s holding value¹



1. Infratil’s share of net assets excluding deferred tax at period end

EBITDAF & Passengers

Year ended 31 March

Over the ten years EBITDAF rose from $68 million to $101 million. Passenger numbers lifted by 1,299,564. $80 An average annual increase of 99,675 domestic and 30,281 international travellers

Wellington Airport EBITDAF & Passengers
Aeronautical & Services Income

Year ended 31 March

Wellington Airport’s 18% increase in EBITDAF/Passenger over the period (to $15.73) reflects better passenger services, an increase in property income, and good cost control.

Wellington has the lowest per passenger costs and aeronautical charges of New Zealand’s international airports.

Wellington Airport Aeronautical & Services Income
The cost of travel

Year ended 31 March

Over the ten years, consumer prices rose 17.0%. The cost of domestic New Zealand air travel increased 13.5%.

The cost of international air travel for New Zealanders fell 19.7%.

Over the decade, the international air travel market has delivered 41% more value for New Zealand users relative to the less competitive domestic market.

Wellington Airport The cost of travel

Canberra Data Centres

Infratil 48%
Commonwealth Superannuation Corporation 48%
Management 4%

The increase in electronic data now being stored for constant accessibility has spawned specialist computing and storage requirements.

CDC’s remarkable growth trajectory reflects a confluence of factors; huge increases in data creation and demand for storage and computing on the one hand, and the secure and hard to replicate facilities CDC offers on the other hand. 

What is unusual about CDC is that it faces both high growth and low risk on its core activities once a centre is built and utilisation is contracted. In FY2019 CDC has been able to contract utilisation of data centre capacity prior to construction so that once construction is complete tenants will take up the capacity on a long-term basis. 

The last year was transformative for CDC with several developments telescoped.

From last year’s 39MW of capacity at two campuses, CDC is now on track to own over 200MW of capacity at three locations. From last year’s run-rate EBITDAF of A$69 million, a run-rate of A$135 million is now anticipated by the end of FY2020.
The data storage environment is difficult to encapsulate as many interconnected developments are unfolding simultaneously.

Data sovereignty is a developing issue. The New Zealand Government has interdicted the use of Chinese equipment for critical pieces of communication infrastructure. The Australian Government has adopted data storage and transmission protocols to guarantee its data security and privacy. Incidents such as the hacking by Saudi agents of the private emails of the owner of the Washington Post newspaper illustrate the personal impact and the flaws in the system that are now being addressed.

Hyperscale isn’t just about scale reducing costs, data owners need extremely fast processing/ transmission and co-location of their data with those who need to use it to provide services either for data owners or third parties.

Cloud providers are creating global standards and demanding data storage with best-in-class features. In the US the number and capacity of single client and in-house data centres are rapidly reducing (within five years an 80% reduction of some categories is expected). Increasingly, individual enterprises are shifting from managing their own data to using services. In Australia, a number of cloud providers are clients of CDC.

Data makes data. 5G will make data. Devices make data. Self-drive cars make data. AI makes data. The upgrade of the cellular networks to its 5th Generation will massively increase capacity over 4G and result in the growth of data-dependent technologies and applications not currently practicable.

The average term of CDC’s leases with users is now over 9 years.

Over FY2019 a number of milestone events encapsulated CDC’s transformative year:

The 21MW Fyshwick 2 data centre opened in December 2018. The construction cost was approximately A$80 million with a similar sum to be invested as the centre is occupied. CDC manages its construction projects in-house and by developing expertise and close relationships with contractors achieves constant improvement in its facilities and low build costs.

Acquisition of the 14.5 hectare Sydney site at Eastern Creek, including a 7MW operational data centre and a partially completed centre with 13MW of capacity; which CDC was immediately able to contract. The site has the scale and infrastructural connections (energy and fibre) to enable construction of four further 25MW data centres.

Demand for capacity in CDC’s centres has resulted in both a high level of forward contracting by users and a material extension of lease terms. The average term of CDC’s new leases with its customers, excluding options, are now over 9 years.

CDC’s acquisition of the Sydney site and its accelerated construction plans were funded with a A$100 million equity commitment (Infratil has provided NZ$42.7 million to date) and a A$300 million increase of debt facilities (to A$915 million).

As is required under its management contract, Infratil had its 48% shareholding in CDC independently valued as at 31 March 2019. This identified a valuation range of NZ$841-$942 million, based on:

• CDC’s 31 March 2019 EBITDAF run rate of A$90 million rising to A$135 million by the end of FY2020.

• Net debt as at 31 March 2019 of A$518 million, rising as capex projects are undertaken before being repaid from increasing operating earnings.

• Projections of CDC’s income tax.

• A return to equity of 11.5-12.5% per annum after tax.

• Estimates of the notional transaction costs Infratil would incur if its stake was sold, including taxes.

• The cash flows included in the valuation were limited to CDC’s existing data centres and those under construction or where construction is imminent.

Infratil’s 48% stake cost NZ$411.5 million in November 2016 with a further NZ$42.7 million invested two years later. The rate of return on the investment is over 35% per annum which has consequently given rise to a management performance payment of NZ$65.3 million. This sum is calculated as 20% of Infratil’s gains over 12% per annum.

CDC’s increasing earnings are best illustrated by its EBITDAF run-rate due to the company’s rate of growth and the long-term contracted nature of new business. This is a measure of earnings that is based on the EBITDAF inherent in existing income producing contracts; which approximates to twelve times the last month’s actual EBITDAF.

As at 31 March 2017 it was A$50 million, 2018 A$69 million, 2019 A$90 million and is projected to be A$135 million at 31 March 2020.

The FY2019 return to Infratil of NZ$83.9 million is 48% of the Company’s net surplus, which includes A$217 million of gains from the increased value of CDC’s investment properties

Year Ended 31 March



Available capacity 






Contribution to Infratil 






Net debt



Infratil's holding value¹



1. This sum is 48% of CDC’s shareholders funds. The difference between this value and the independent value of $841-942 million is explained on page 25 of this Report. 


Infratil 50%
New Zealand Superannuation Fund 50%

Over the last 20 years the number of Australians over 85 has risen 125% (the total population has increased 34%). More than 500,000 Australians are now over 85 years old. When the youngest of these people was 50 years old, only 100,000 Australians was older than 85.

Not only is the number of elderly people increasing, so too is the understanding of their needs and the desire to deliver to those needs. RetireAustralia is seeking to provide accommodation, care, and for the other requirements of elderly Australians and is investing accordingly. Once these capabilities are in place it is anticipated that RetireAustralia will provide its shareholders with solid income and value growth from its existing facilities and good opportunities to invest in expansion.

RetireAustralia is transitioning so that it can offer the residents of its villages accommodation which meets their diverse and changing needs, and care so that residents who need assistance can receive this in their own homes or nearby.

This is requiring the development and construction of care apartments that cater for people with higher needs or less mobility as well as hospital facilities and care capabilities.

Over the last two years almost A$120 million has been invested in these initiatives as well as additional standard accommodation at existing villages and at two new villages.

The strategic decision to transition RetireAustralia’s facilities and services while also building new villages caused a significant short-term reduction in the usual rate at which units became available. Historically RetireAustralia has commissioned about 100 units a year, but last year there were only 15 new units.

However, from FY2020 it is expected that over 200 new units will enter RetireAustralia’s portfolio each year which will approximately double the growth rate from what has been delivered in the past. Construction is currently underway on a total of 822 units at two new villages and several existing ones.

This investment and development has increased costs at a time when the aged care industry in Australia has been facing headwinds. Residential property values have been under pressure and media coverage has highlighted poor treatment of residents by some operators. Both factors have discouraged people from taking the step into retirement accommodation, which has increased RetireAustralia’s vacancy rate and increased sales costs.

Positively, all the parties contesting the federal elections have policies that will continue the reform of the aged care sector. Along with initiatives to improve standards and transparency are plans to increase government funding for in-home assistance; whether home is in a retirement village or a family residence.

In-home care is more efficient for government than having people enter hospital, and providing for the elderly who live in a village is more efficient and effective than helping people who are more dispersed around the community.

Prospects for RetireAustralia are excellent. It employs caring staff and provides charming accommodation suitable for a diverse range of people and budgets and is offering an increasing range of in-home services as well as specialist medical assistance and facilities.

From FY2020 it will have available a significant number of new accommodation units in villages in Brisbane and the Central Coast and, while the market faces challenges, government policy initiatives are positive and there are the underlying demographics of Australia’s increasing elderly population.

RetireAustralia’s underlying profit of A$17.1 million was down on last year’s A$33.7 million. Development margins of A$1.4 million were down A$6.9 million because of the lower number of new units delivered. Realised gains on resales of A$9.9 million were up slightly, but the contribution from the value of the deferred occupancy receivable was down A$12.2 million from the prior year while management costs were up A$4.7 million.

Year Ended 31 March








Serviced apartments




Independent living units




Unit resales




Resale cash gains per unit




New unit sales




New unit average price




Occupancy receivable/unit¹




Embedded resale gain/unit¹




Underlying profit








Net external debt




Infratil's holding value




1. The values are estimates of average per unit value at that point in time. What RetireAustralia would have received in cash for deferred occupancy fees and capital gains if all residents left and the occupancy rights were resold on that particular date. The resale values were estimated by independent valuers based on market and actual transactions.
2. The decline in RetireAustralia’s shareholders funds; reflected in the fall in Infratil’s holding value; was due to a decline in the value of RetireAustralia’s investment properties resulting from lower achieved sale prices and a change in valuation methodology. 

Other Investments

Infratil Infrastructure Properties (IIP)

(Infratil 100%)

Development of its Auckland Wynyard Quarter property was IIP’s FY2019 priority, although in addition, $5.2 million was realised from the sale of land in Orewa and there was progress with releasing Wellington’s Kilbirnie bus depot site for sale or development.

The Wynyard Quarter is Auckland’s most dynamic area of commercial and mixed use development and in 2021 will also host the Americas Cup Regatta. Well before then IIP will have commissioned its 154 room Travelodge hotel, 385 car parks and retail/hospitality facilities. Construction on the $66 million project is now at the third of seven floors and is running to timetable and budget for a June 2020 completion. Further stages remain under review subject to tenant commitments.

In Kilbirnie, IIP has arranged an alternative site for NZ Bus’ depot which is now awaiting regulatory approvals. Once these are granted construction of the new depot will follow, clearing the way for a sale or development of the existing 2.4 hectare depot site. Kilbirnie is one of the best large residential sites available in Wellington with excellent access to public transport, infrastructure, shops, schools, parks and beach. IIP achieved a zoning plan change previously to allow medium density apartments.

Australian Social Infrastructure Partners

Last year the debt funding of the Queensland schools was extended to match the remaining 21 years of the life of the concession. This is now a low-risk bond-like investment.

Normalisation of the investment into the Royal Adelaide Hospital is still dependent on settlement of disputes between the State government, sub-contractors and capital providers. The parties are working on a resolution and normalisation of the investment is expected for later in 2019.

It is likely that Infratil will seek to exit these investments.

Clearvision Ventures Fund

Over the year Infratil increased its investment in the fund by US$9.8 million to US$19.5 million. The book value of the investment as at 31 March 2019 was NZ$26.8 million.

Infratil’s objective with undertaking this investment is to gain hands on experience with early stage businesses in fields relevant to Infratil’s core activities, early warnings about technology and other potentially disruptive developments, and to generate a positive return.

An example of Clearvision’s investments which fits this description is ChargePoint, the owner of the world’s largest network of vehicle recharging stations with clients that include Apple, General Motors, and the cities of San Francisco and New York. In addition to its vehicle recharging facilities, ChargePoint also manages the data collection, electricity purchases and sales, and provides ancillary services.

Businesses Held For Sale

Over the last year Infratil progressed the sale of a number of its businesses. For the main part sale decisions reflected a desire to recycle capital into areas where better outcomes are expected for Infratil’s shareholders, but they also recognise that owning many businesses can create an impression of complexity which isn’t helpful for transparency and value recognition.

NZ Bus

(Infratil 100%)

Infratil has agreed the sale of NZ Bus with Next Capital, subject to regulatory approvals and the approval of NZ Bus’ key contract counterparties. This remains on track to close on about 30 June 2019.

On completion of the transaction Infratil expects to receive proceeds of approximately $160–$170 million, after adjustments for working capital, capital expenditure, and an earnout mechanism.

At year end Infratil has impaired the carrying value of the asset by $27.9 million to reflect downside uncertainty.

As with any divestment, there are feelings of both disappointment and pride. In its fourteen years of ownership Infratil oversaw a major upgrade of the NZ Bus fleet and systems. All the people concerned worked very hard to deliver the best possible public transport service within the financial constraints imposed by the regulatory model.


(Infratil 100%)

Infratil has agreed the sale of its interest in Snapper for nominal consideration subject to regulatory and key counterpart agreement. Settlement is expected to be in June 2019.

Snapper was established in 2006 to provide electronic public transport ticketing services and a small-value payments tool. Despite working well on NZ Bus services and winning international accolades Snapper struggled for viability because of its scale. When it was established it was estimated that there were about 100 million public transport boardings each year in New Zealand and it was recognised that Snapper would have to be used to pay for a large part of them if it was to become viable. Unfortunately when Auckland transport authorities chose to use tax and rate payer funding to build a competitor it shrank the accessible market to a sub-economic scale.

The new owner of Snapper also operates in the ticketing field and will be able to benefit from Snapper’s technology while Snapper will benefit from its owner’s scale.

Australian National University Student Accommodation

Infratil has agreed the sale of its economic interest in the ANU student facilities with AMP Capital, subject to the approval of key contract counterparties, with settlement expected to close in May 2019. Net proceeds are expected to be A$162 million.

This investment dates from August 2016 when Infratil acquired a 50% interest in 3,250 student units from ANU. Further construction lifted this to 4,184 units by 31 March 2019, with a further 450 units now under construction. The initial investment was $84.8 million with a further $9.1 million provided as construction funding.

The sale crystallises the value management has created through the relationship built up with the University and from their involvement with the expansion initiatives. It also captures the value of the low risk/return requirements of the incoming investor.

However, the sale also reflects recognition that Infratil’s goal of owning a much larger portfolio of student facilities is now unlikely.

Perth Energy Holdings (PEH)

(Infratil 80%)

Infratil is in negotiation with prospective buyers of its interest in PEH with settlement anticipated in FY2020.

The turnaround in PEH profitability is almost complete with the business posting an EBITDAF of $35.9 million for FY2019 driven by the successful execution of a Large Scale Renewable Certificate transaction and material growth in retail margins and volumes. The book value of Infratil’s interest in PEH as at 31 March 2019 was $89.3 million with a further exposure through the credit support of $36.8 million of PEH borrowing.

The trajectory of PEH’s earnings over the last five years has been quite remarkable. A combination of negative market developments and out-of-the- money contracts saw earnings collapse over 2015-2016 with a subsequent turn around delivered by successful management interventions.

PEH is now well positioned, but the investment is no longer a fit with Infratil’s strategic investment parameters.

Infratil Annual Report 2019
Infratil Annual Report 2019
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