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Infratil Results Year Ended 31 March 2007
31 Mar 2007
Infratil had a successful year as measured by returns to shareholders, transactions undertaken and progress at each of its businesses.
Developments at TrustPower and Infratil Energy Australia were especially notable. Wellington Airport and Energy Developments were solid performers.
There was progress at Infratil Airports Europe, NZ Bus and the co-investment agreement with NZ Superannuation and it is hoped that each will translate into future value uplift and hence returns.
Infratil's goal is a 20% per annum after tax return to shareholders and this was achieved in the year to 31 March 2007. Imputed dividends of 12.5 cents per share were paid and the share price rose 31%.
For the year to 31 March 2007, Infratil's earnings before interest, depreciation, amortisations, realisations and tax were $145.2 million (2006 $77.6 million).
Earnings before interest, tax and realisations were $91.3 million (2006 $53.5 million).
Net profit was $34.7 million (2006 $8.0 million).
As at 31 March 2007, total consolidated assets were $3,730 million (2006 $1,705 million). Consolidated equity was $1,686 million (2006 $793 million). Net group bank debt was $548 million (2006 $253 million) and subordinated bond debt was $941 million (2006 $482 million).
Net bank borrowing of Infratil and its wholly owned subsidiaries was $192 million (2006 $140 million) and $730 million (2006 $482 million) of Infrastructure Bonds were on issue.
Infratil's shareholders' funds, after minorities, were $875 million (2006 $666 million). When listed investments are included at market values shareholders' funds were $1,616 million (2006 $1,159 million).
Consolidation of TrustPower for the first time and a number of "one-off" transactions make it difficult to compare consolidated figures at 31 March 2007 with the prior year. The attached results breakdown and commentary should be read in conjunction with the financial statements.
WIN-WIN-WIN : EMPLOYEES & COMMUNITIES
As a long term investor Infratil believes that its employees and communities (including customers) must also
"win" if it is going to continue to be successful for its capital providers.
Achieving wins for these three groups will not necessarily occur coincidentally. However, over the longer term, each of capital providers, employees and communities must benefit from their interaction with Infratil if it is to be successful.
Infratil's involvement in the Community Awards with Waitakere City, the Wellington Community Trust and TrustPower; its support of the Wellington Marine Education Centre; the support of NZ Bus for Starship Hospital, North Shore Netball, the Karori Sanctuary, Wellington Zoo and Cuba Street Carnival are all tangible indications of Infratil's reinvestment into its communities.
At each of its businesses Infratil is supporting initiatives to invest in employees and to enhance their working environments. Infratil's businesses are also investing to provide better services and facilities for their customers and communities.
POLICY & SOCIAL ENVIRONMENT
Infratil's businesses have high levels of community involvement or partnership. They are also in sectors of political sensitivity and interest. Interactions over the last year have been constructive and complementary.
Local partnerships include with Wellington City (Wellington Airport), Waitakere, North Shore and Rodney Councils (Whenuapai Airport), Tauranga Energy Community Trust (TrustPower), Greater Wellington Regional Council (Wellington buses), Auckland Regional Transport Authority and Auckland Regional Council (Auckland buses and ferries), and the City of Lübeck (Lübeck Airport).
Nationally, Government has made good progress with the development of its greenhouse gas emission reduction policies and with enunciating goals for enhanced public transport.
Developments at TrustPower and Infratil Energy Australia can be especially singled out as contributing to Infratil's year. Infratil's other businesses performed credibly and, while they may not have provided the major step-up delivered by TrustPower and Infratil Energy Australia, each appears well positioned and each is in good sectors.
In late 2006 Infratil increased its shareholding in TrustPower from 35% to 51% at a net cost of $296 million.
The transaction was important for Infratil, and testament to Infratil's approach.
INFRATIL ENERGY AUSTRALIA (IEA)
- The transaction was negotiated with Alliant Energy which had been Infratil's long term partner in TrustPower. It was concluded on 'Win:Win' terms.
- The transaction enables Infratil to consolidate TrustPower, significantly reducing Infratil's risk profile.
- TrustPower continues to perform in an excellent sector. A year ago, renewable energy was regarded as having potential. Whether it was Al Gore's persuasion or the analytical logic of the Stern Report, the social mood has changed in favour of definite immediate measures to limited greenhouse gas emissions. TrustPower will benefit from the shift with its existing renewable generation portfolio and its programme of new renewable generation projects in New Zealand and Australia.
Infratil's investment approach is to build businesses in sectors offering attractive risk-adjusted returns; maximise the use of management's expertise to confer relative advantage and avoid contested purchases that could result in high entry cost.
IEA is beginning to take form as an outcome of this approach. It has not happened as quickly as hoped, but this is a long term project which is now beginning to develop materiality.
- In the course of the year IEA, through its now wholly owned subsidiary Victoria Electricity, grew its customer numbers to 186,000 from 77,000. IEA also increased its generation capacity to 70MW from 40MW and it acquired a 51% shareholding in Perth Energy which is about to embark on construction of a 90MW gas turbine station in West Australia.
- Infratil moved to 100% ownership of Victoria Electricity at a cost of A$40 million. The transaction also resulted in Infratil crystallising an obligation to pay its own management $14 million. The investment in Victoria Electricity was made under the venture capital portfolio, and associated fee structure approved by shareholders in 2002. Under that approved fee structure, Infratil agreed to pay management 20% of returns over 17.5% per annum on certain specified investments, including Victoria Electricity.
Based on the above noted acquisition price for Victoria Electricity and with generation assets at cost, IEA had a value at 31 March 2007 of $206 million. The net investment amount has been $113 million.WELLINGTON AIRPORT
Wellington Airport's EBITDA rose to $50 million from $47 million. The result reflected increased passenger services and property rental income and muted traffic growth. The Airport will be resetting aeronautical charges from July 2007 and is continuing to invest in both its aeronautical and property activities.ENERGY DEVELOPMENTS
Energy Developments experienced a year of overall improvement marred by cost increases at its largest new generation project in West Australia and continued poor US results. Over the year Infratil increased its shareholding in Energy Developments to 26% from 23%.INFRATIL AIRPORTS EUROPE (IAE)
IAE's three airports recorded 3.1 million passenger movements and 56,500 tonnes of freight. Management remain focussed on attracting additional carriers and doing so on profitable terms. The European aviation market continues to grow markedly and Infratil remains confident as to its strategic positioning. EBITDA for IAE was a loss of £0.3 million (profit of £0.6 million) while its net contribution
was a loss of NZ$20 million ($7million). The results were consistent with forecasts.NZ BUS
NZ Bus experienced a transition year. Few improvements would have been apparent to its customers, but a great deal of work is underway to enable the Company to make a marked improvement to its services. In addition to investing in its staff and buses, NZ Bus has also been working with Regional Authorities, City Councils and Government agencies to ensure it will play a major part in their vision of significantly better and expanded public transport in Auckland and Wellington. For the year NZ Bus' contribution to Infratil was $17 million.NZ SUPERANNUATION FUND CO-INVESTMENTS
As at 31 March 2007 Infratil had co-invested $22 million ($26 million market value) alongside the New Zealand Superannuation Fund.FINANCE/CAPITAL/RISK MANAGEMENT
Over the year Infratil issued $248 million of Infrastructure Bonds, of which $221 million were the new Perpetual Infratil Infrastructure Bonds (PIIBs). When the issue closed in May $240 million of PIIBs had been raised.
Over the year the number of shares on issue increased 694,297 via the exercise of warrants and the net sale of treasury stock.
Infratil's own net bank borrowing is $203 million from $150 million a year earlier.
Offshore assets comprised approximately 50% of Infratil's equity market capitalisation and were not hedged against changes to the value of the New Zealand Dollar.
Infratil was the recipient of the 2007 New Zealand Institute of Financial Professionals award for Excellence in Treasury Management.DIVIDEND, SHARE SPLIT, WARRANT ISSUE
The final dividend for the year will be 7.5 cents fully imputed per share (unchanged from last year) to be paid on 18 June 2007 to all shareholders on the register as at 5.00 pm on 7 June 2007.
Infratil intends to undertake a 1 for 1 share split so that the total number of shares on issue in Infratil doubles and immediately after the share split, a free one for ten pro-rata issue of 5 year equity warrants will be made to all shareholders and existing warrant holders.
Key terms of the new warrants are likely to be:
Exercise price : $4.25 (NB. The warrant issue is post the share split.)
Final maturity : June 2012
Approximately 52.9 million new warrants will be issued
Infratil has undertaken two previous warrant issues and their success has prompted this latest issue. Also, Infratil's share price appreciation since its last warrant issue in 2004 means that those warrants, which mature in July 2009, now trade much like shares. There is investor demand for a lower priced security that has a higher exercise price and more option value.
No changes are required to the exercise terms of the current warrants (IFTWB) as a result of the new warrant issue as IFTWB holders are participating pro rata with the shareholders in the new issue. However, Infratil is taking advice on the appropriate changes to be made to the exercise terms of the IFTWB warrants as a result of the share split and will advise shareholders and IFTWB holders of such changes in due course. Any changes to the existing IFTWB terms will be made with the aim of ensuring that neither IFTWB holders nor shareholders relatively gain or lose as a result of the share split.LOOKING FORWARD
Infratil's businesses remain well positioned. Renewable energy, airports, the Australian energy market, public transport, all offer high growth and the prospect of good returns for well managed companies.
Set against this, the world's capital markets seem to be absorbing ever higher levels of risk. The consequences of a hiccup are hard to predict. The Board is mindful of retaining control of Infratil's destiny and is ensuring that it manages its exposure to market adjustments or to changes in sentiment.
Infratil's conservative approach to its liabilities through the use of long dated and perpetual subordinated debt is one manifestation of this risk management. Not overpaying for assets is another.
Infratil remains focused on meeting its goals of providing good long-term returns to its share and bondholders. Click for a pdf copy of the announcement