14 May 2013
For the year ended 31 March 2013 Infratil delivered on its earnings guidance and committed significant investment capital to underpin future growth. Infratil’s core businesses are performing well and the positive earnings and value trajectory is being maintained.
Net Surplus was $3.4 million against $51.6 million last year. The decline reflects $62.4 million of costs and write downs associated with the two UK airports, from $37.3 million the previous year. Fluctuations in derivatives and other asset value changes amounted to a further net cost of $20 million from a net $23 million gain the previous year.
Consolidated earnings before interest, tax, depreciation, amortisation and movements in the value of financial derivatives (EBITDAF) from continuing operations was $538 million compared with $510 million in the prior year. This includes Z Energy’s contribution measured on a current cost basis adjusted for revaluations, impairments and realisations. For the year to March 2014 EBITDAF from continuing operations adjusted for Z’s current cost earnings in the range of $520-$560 million is anticipated, assuming no changes in the Infratil portfolio.
Net cashflow from operating activities was $288 million up from $188 million in the prior year.
Capital expenditure(1) was $414 million up from $246 million.
The group has a comfortable financial position and retains bank and capital markets support which is enabling early refinancing of 2014 maturities. The solid position and good financial performance has allowed Infratil to declare a final dividend of 6.0 cents per share bringing the total dividend for the year to 9.25 cents up from 8.0 cents for the prior year. The dividend will be paid on 14 June to shareholders on the register as at 31 May. The dividend reinvestment plan will operate.
There were two particular highlights in the 2013 financial year; TrustPower starting construction of the $550 million Snowtown II wind farm, and Infratil Energy Australia’s 52% increase in EBITDAF contribution to $98 million. In their own ways both represent the Infratil approach. Both developments involved years of hard work, the application of a great deal of expertise and diligent management of risks. The commencement of the Snowtown wind farm is the start of a new stage of earnings growth for TrustPower.
Other developments during the year included:
Each year we set our businesses two paramount objectives - look after your customers and look after growth. We believe that if our businesses are well placed in growth sectors and they are well regarded by their customers then they will be able to invest in expansion.
Over the last year each of our major companies have delivered in an environment with intense competition and a modest macroeconomic backdrop. Each of our businesses has to provide services to a high standard and do so at the least possible cost.
Infratil operates in markets where there is heightened sensitivity over prices and long-run returns. Energy, airport, public transport, and fuel prices are all subject to significant scrutiny and commentary. An illustration is the Commerce Commission forecast that Wellington Airport will generate excess aeronautical earnings from the year ended 31 March 2015. The Commission’s approach is being tested in the High Court and the next steps are likely to be influenced by the outcome of that merits appeal.
The Airport’s management are maintaining their focus on a wide range of operational needs, expansion of the domestic terminal and car park, enhanced air services, as well as the project to attract direct air services with Asia.
Over last year group capital expenditure was $414 million; largely on power generation in Australia, Z’s retail network, and the NZ Bus fleet. This capital outlay is expected to increase Infratil’s future earnings and value.
While the sum is very substantial, the allocations were conservative and reflect where the group has a competitive edge. Infratil also participated in a number of new investment transactions, none of which resulted in an acquisition. This was disappointing, and educational about the risk and return appetite of other investors.
If Infratil proceeds to a partial sell-down of its holding in Z Energy, or other major asset sales take place, the Company is likely to have additional capital flexibility. Infratil shareholders should not anticipate immediate reinvestment. Infratil’s criteria for both internal capital spending and acquisition will not be softened, in fact if anything the current market requires particular care. These are unusual times and it is difficult to arrive at high-confidence forecasts about the economy or financial markets.
At present Infratil is actively involved with the sale of two assets; the exit from its UK airports and the more recently initiated market testing of the partial sale of Z Energy. The state of European markets has made the sale of the airports unpredictable and difficult. On the other hand, the latter process will run its course relatively quickly. If the eventual indications of value are satisfactory the transaction is likely to be concluded before 30 September 2013.
In addition to the $414 million invested in operating assets, Infratil also applied $13 million repurchasing shares. Share buy-backs will continue to be an option, especially if the shares remain below the value the directors believe to be implicit in their net asset backing.
During the year $57 million of Infratil infrastructure bonds matured and $111 million were issued to mature in 2018.
As at 31 March 2013 net borrowings by Infratil and its 100% subsidiaries, from banks and vendors, was $364 million, from $363 million at the start of the year. The 100% Infratil group had dated debt (excludes perpetual bonds) as a percentage of debt and equity market value of 39%, down from 42% in the prior year.
Over the year Infratil issued 3.0 million shares for $6 million under its dividend reinvestment plan and repurchased 6.4 million shares on market for $13 million.
Infratil’s ownership changed slightly with local ownership rising to approximately 78% from 76% a year prior.
For the financial year to 31 March 2014 Infratil’s earning and cashflow guidance is:
The EBITDAF outlook is consistent with last year and reflects softer expectations from TrustPower and Infratil Energy Australia. In both cases EBITDAF is expected to improve after the 2014 financial year as both companies are investing in assets or operational capability.
As always there are short term challenges and naturally faster growth in the overall economy would be desirable. Infratil’s businesses are well positioned to continue to provide increasing returns to shareholders, they are operating well and our people are energetic and committed.
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