INFRATIL 2013 INFRATIL DRIVING CASHFLOW AND CAPITAL GROWTH IN A COMPETITIVE INFRASTRUCTURE MARKET 2013 INFRATIL INVESTOR DAY MARKO BOGOIEVSKI, CEO

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1 INFRATIL DRIVING CASHFLOW AND CAPITAL GROWTH IN A COMPETITIVE INFRASTRUCTURE MARKET INFRATIL INVESTOR DAY MARKO BOGOIEVSKI, CEO

2 INFRATIL ACCESS TO CAPITAL AND CAPABILITY Our current position is the result of a number of years of repositioning capital and building capability and relationships Earnings and cash flow from our major investments have good momentum and support higher valuations Infrastructure still very much on the investor heatmap Return targets and benchmarks are shifting Portfolio rejuvenation will enable significant investment and capital management opportunities to be assessed - and will likely be the driver of further out-performance during the next phase We will maintain a conservative stance to financial market risks and approach to new sectors 2

3 EARNINGS GROWTH AND MOMENTUM DPS TRAJECTORY LOOKS SOLID Infratil Group EBITDAF (NZ$m) DPS (NZc/share) (3) % ZEL (2) NZB IEA & PE WIAL TPW F (1) Corporate/Other Discontinued Ops ) FY13 forecast is the middle of the guidance range provided of $525m-$545m (excludes discontinued UK Airports) 2) ZEL FY13 EBITDAF includes one off items of ~$6m: including $11.5m gain from sale/leaseback and $17.5m loss on inventory value 3) DPS reflects the cash dividends paid during the financial year 3

4 IFT SHARE PRICE ABSOLUTE AND RELATIVE PERFORMANCE Infratil and index share price performance (Index, 1 st January 2010 = 100) 70 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Infratil NZX50 ASX100 Infratil NZX50 ASX100 3 Years TSR Capital 53.5% 35.5% 30.2% 13.1% 3.4% Infratil discount to NAV 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% IFT NZ Equities Gradual decline from ~30% in mid-2010, to ~15% now 4

5 INFRASTRUCTURE STILL ON THE HEAT-MAP TREND: DIRECT OWNERSHIP OF REAL ASSETS Infrastructure is established as a distinct asset class and there is increasing interest in direct ownership of real assets and competition for passive utility assets is increasing Traditional rationale - defensive attributes and potential for non-correlated returns More recent rationale - as an alternative to traditional fixed interest investments in a low-rate environment Biggest challenge is the aggregation of capital in large funds with low costs of capital and improving direct capability around transactions and origination Driving up asset prices and lowering required returns Real assets demand extensive on-going asset management and operational attention Often underestimated Good fit with IFT/Morrison & Co capability 5

6 RETURN TARGETS ARE SHIFTING STRONG MARKET FOR MATURE INFRA ASSETS Required rates of return are declining across most Core and Core+ infra sectors Low base rates and the prospect of an extended period of depressed rates of return A large pool of investors are targeting lower-risk developed market infrastructure and there is significant ongoing consolidation in pension fund and SWF investment pools Premiums are being paid for low-risk CORE infrastructure with (and without) a running yield Private market comparables for distinctive assets show continued strength Typical large pension fund focus and mandate restrictions means that certain development and greenfield opportunities are being overlooked Large capital gain is potentially available for successful management of development risk (Snowtown II may be a good example of this dynamic) IFT Valuations vs Transaction Comps (EV/EBITDA) Airports Transport Downstream Oil WIAL (Avg Analyst) PER FF STN MAG/IFM NCL AMP 2012 EDI GIP 2012 NZB (Avg Analyst) Grenda Ventura 2011 Brdmdws Sita 2011 ZEL (Avg Analyst) Ausfuels Trafigura 6

7 DELIVERING EXCESS RETURNS RISK CAPITAL RELATIVELY MORE ATTRACTIVE Indicative Equity IRR Indicative Allocation CORE CORE+ Critical infrastructure with strong re-investment potential Good cash flows and GDP+ growth rate, inflation-resistant revenues Strong re-investment potential and optionality Typical entry point during industry change and/or deregulation Likely strong fit with existing sectors or adjacent to existing sectors 12-15% ~70% Medium-term, private equity style transactions Attractive entry-price, likely minimal cash flow in first phase Significant industry change, deregulation or business improvement High total return and capital growth potential Link to core IFT capability (energy, transport, project and commodity risk management, retail) 20% % GROWTH Negative free cash flow for medium term Early-stage investment delivering capital growth Strong re-investment potential over long term (10+ years) Very high total return and capital growth potential Significant industry change, deregulation, and/or new technology 30% % Likely strong fit with sector experience and capability 15-17% portfolio returns 7

8 IFT PORTFOLIO WE CAN IMPROVE THE CURRENT POSITION Current position has driven the strong recent TSR performance although there are obvious areas of focus: Need to maintain the strong pipeline of internal capex and development opportunities Options are critical and becoming more valuable Proportion of mature assets versus greenfield or development capital is under review Notwithstanding strong internal pipeline, external origination will be important during a portfolio refresh and development of potential new lines of business Long term - targeting a basket of early stage investments to enhance medium-term returns Corporate finance parameters determine the ultimate shape of the portfolio Requirement for cash-flow to satisfy lenders and shareholders seeking yield is unlikely to change materially in the near future Forecast cash yields and earnings growth (%) Cash yield (%) 16% 14% 12% 10% 8% 6% 4% 2% Mature, strong yield NZB Lift performance or exit Z Energy TPW WIAL IEA 0% - 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Earnings growth (% pa) Strong growth & yield Early-stage investment Yields are calculated over the average analyst enterprise valuations 8

9 DELIVERING EXCESS RETURNS THE BASIC FORMULA (PRICING & PERFORMANCE) 1 Repeat the success with Z Infrastructure market dynamics are focusing IFT external origination on more complex infrastructure and less competed spaces In practice, we should always be opportunistic across home market transactions At a minimum we are well positioned to assess all material Australasian infra and quasi-infra opportunities 2 Sell assets at strong valuations IFT and NZ Super have asked Z Energy to prepare for an IPO in Annual strategic assessment of all assets against target valuations 3 Address underperformance All major assets are operating at plan or above-plan levels UK Airports (sell, make cash neutral) - fortunately a small part of the aggregate portfolio 4 Equity exposed to faster growth rates Allocate capital to sectors with stronger tailwinds e.g. irrigation, renewables Ongoing seeding of greenfield and development initiatives in the portfolio Limited exposure to emerging markets with important caveats 9

10 EXTERNAL ORIGINATION KEY DIMENSIONS SECTOR CORE INFRA OR GENERAL PE? GEOGRAPHIES NZ OR GLOBAL? MARKET - PRIVATE OR LISTED? HOLD PERIOD SHORT TERM OR 10+ YEARS Energy, transport and airports are our core sectors Continue opportunistic approach to quasi-infra in home markets Canterbury and other initiatives with local and central government are becoming more relevant with fiscal constraints and the volume of new infrastructure required Australasian focus: Will consider limited international developed market opportunities where our expertise is transferable (e.g. airports), and we have appropriate partners Will consider small emerging market position if we have: (a) core sector expertise, (b) appropriate local partners, and (c) potential for the position to be leveraged in the future Strong focus on private market and control positions: Will consider a minority listed position if path to control or significant influence is available (e.g. public-to-private transactions) Long-term orientation unlikely to change: Willingness to consider development ideas that can eventually be sold as mature assets with predictable cash-flows (e.g. selling down wind farm positions post development) Need to take advantage of market cycles to deliver sustained excess returns 10

11 REPOSITIOING THE PORTFOLIO BALANCING GROWTH AND YIELD Asset Equity holding Portfolio % Long term sector outlook Specific asset growth prospects TPW 50.7% 43% Positive Strong pipeline of projects Z Energy 50% 15% Positive Moderate growth with structural and operational upsides Asset return characteristics Capital growth and cash yield Capital growth and cash yield Commentary Key cash yield asset for IFT (5-6% cash return + IC s), potential for higher value post SOE sales Strong cash yield (5%-6% + IC s), capital return likely from property sales + potential to recycle 40% - 60% through IPO WIAL 66% 13% Positive GDP+ growth Capital growth and cash yield Delivers 7%-8% cash yield to IFT + capital growth IEA Lumo 100% 15% Positive Organic growth with M&A options Capital growth Organic growth prospects remain very positive next 2 3 years, likely to attract attention of larger tier-1 retailers 11

12 REPOSITIOING THE PORTFOLIO BALANCING GROWTH AND YIELD (Cont d) Asset Equity holding Portfolio % Long term sector outlook NZBus 100% 9% Neutral to positive Perth Energy Infratil Property UK Airports 80% 3% Neutral to positive 100% 1% Neutral to positive Specific asset growth prospects GDP + linked to growth in Auckland market Subject to longterm WA price path and market structure Positive individual developments (largely associated with NZ Bus and adjacent developments) Asset characteristics 2 more years of above average capital investment then good cash yield prospects Cash yield Below IFT target cash yield but supports core infra program Commentary Auckland has the potential for strong growth with the right private sector contract settings Contracting terms to be finalised during Repositioning important to future value Execute current property options 100% 1% Neutral Negative Cash flow negative Sell and/or limit losses 12

13 IFT CAPITAL MANAGEMENT FLEXIBILITY MAINTAINED IN CAP STRUCTURE Approximately $250m-$300m of investment capital available under existing facilities Prior to any significant recycling, buybacks or special distributions Assumes ~$150m held as liquidity reserves for working capital and unusual/stress events Assumes reasonable running yield associated with any new investment IFT is accessing bond markets at the lowest nominal and real costs it has experienced since listing in 1994 The average spread to swap is 280bp as against 400bp a year ago Reviewing potential for a 10yr retail bond issue IFT divestment bias suggests potential for significant capital management opportunity Potential to strengthen credit metrics $m IFT BOND AND BANK MATURITIES Lumo Bonds Bank Infratil has $235.1m perpetual infrastructure bonds that have no fixed maturity date 13

14 INFRATIL PORTFOLIO FINANCING CHARACTERISTICS Investment Category Strong capital growth & yield Strong capital growth and solid yield PortfolIo holding Value $Bn NZD) (1) Asset Asset return characteristics Contribution to IFT 57% $1.8 TPW Z Energy Good cash yield and GDP growth rate Steady dividend growth and potential for future special dividend (e.g. Snowtown II partial sale) Strong pipeline for reinvestment potential Potential for long term industry consolidation (both electricity and downstream oil) 13% $0.4 WIAL Good cash yield and GDP growth Reinvestment potential linked to GDP growth TPW strong dividend flow and primary source of imputation credits Control position and historic performance provides cash flow confidence to lenders and equity Z Energy - return on capital has been strong mainly due to acquisition price, steady growth and strong management Strong history of earnings and cash flow delivery provides confidence to capital providers Mature - lower growth, medium yield Early stage investment now delivering capital growth and yield Negative return assets vs target rates of return 9% $0.3 NZB Historically strong cash yield Significant capital renewal nearly complete Future cash flow/earnings dependent on new contract terms & pax growth 18% $0.6 Lumo IEA Perth Energy Infratil Property 3% $0.1 IAE isite Snapper Capital growth with M&A options to deliver high return outcomes Downward revision of capacity charges has reduced short term OPCF for PE (although LT upside remains in place) Successfully upgrading property positions and adding value across wider Infratil portfolio IAE held for sale isite and Snapper developing future options Current strong EBITDA to net investment value is very positive to credit metrics Return outlook dependent on new contract terms Developing contribution Lumo /IEA have moved to significant EBITDA contribution Cash yield has been reinvested in customer acquisition, growth in working capital and generation development Some interesting angles but overall immaterial to the Group s value and performance (1) Mid-point of analyst valuations 14

15 POTENTIAL Z ENERGY IPO RATIONALE AND CONSIDERATIONS Subject to market conditions, preparation is underway for a potential listing in the third quarter of In 2010 Z was purchased at an attractive price but with significant transition and business risks: Changing Industry structure Transitioning off Shell s global platform Nationwide rebranding and reformatting of retail New capital investment programme 3 years on Infratil and NZ Super now believe that the business is entering a lower risk phase that would be valued by the market through an IPO An attractive business with strong cash-flows, a good dividend outlook and embedded growth options Infratil and NZ Super will remain significant investors post an IPO Targeting a sell-down of 40%-60% (with equal remaining shareholding post IPO) 15

16 INFRATIL SUMMARY IMPROVING YIELD WITH GROWTH OPTIONS IFT offers exposure to an increasingly attractive asset class with an improving DPS profile High quality pipeline of exclusive development opportunities offering strong returns Next phase of cycle likely to reward active investors with ability to take on development risks Excess returns still available in greenfield and early stage investments and selected brownfield We will be pragmatic in our origination and portfolio focus Much more confident closer to home with ability to act quickly when opportunities become available We will be conservative in our balance sheet settings and with investment ideas outside of our core sectors and geography Still concerned about financial market risks Expect limited allocations to higher risk proposals with tight parameters Fundamental approach to investment and generating excess returns remains unchanged 16

17 FOR MORE INFORMATION GO TO INFRATIL.COM