September 15, 2014 Brookfield Infrastructure Partners

Transcription

1 September 15, 2014 Brookfield Infrastructure Partners Investor Meeting 2014

2 Disclaimer FORWARD-LOOKING STATEMENTS This presentation contains forward-looking information within the meaning of Canadian provincial securities laws and other forward looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities regulations. The words growing, target, growth, upside, objective, expect, could, will, would, imply, assume, believe, strategy, return, opportunity, should, backlog, pipeline, appreciation, potential, prospects, derivations thereof and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify the above mentioned and other forward-looking statements. Forward-looking statements in this presentation include statements regarding participation in a growing asset class, targeting of dividend yield and growth in distributions, completion of and performance of new investments, return objectives, motorization rates at our toll road business, potential demand for additional capacity at our coal terminal operations, expected increases in tonnage and further investment at our railroad business and the EBITDA impact of this, volume increases in rail, natural gas and port businesses due to customer demands and economic recovery, growth of our district energy business, targeted equity returns, upside potential from development projects, availability of funding for growth projects with debt and internally generated cash flow, future growth prospects including large-scale development and expansion projects, distribution payout ratio, ability to finance our backlog of growth projects, future capital appreciation, distribution policy and objectives and other statements with respect to our beliefs, outlooks, plans, expectations and intentions. Although Brookfield Infrastructure believes that these forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on them, or any other forward looking statements or information in this presentation. The future performance and prospects of Brookfield Infrastructure are subject to a number of known and unknown risks and uncertainties. Factors that could cause actual results of Brookfield Infrastructure to differ materially from those contemplated or implied by the statements in this presentation include general economic and market conditions in the jurisdictions in which we operate, regulatory developments and changes in inflation rates in the U.S. and elsewhere, the fact that the success of Brookfield Infrastructure is dependent on market demand for an infrastructure company, which is unknown, the availability of equity and debt financing, foreign currency risk, the outcome and timing of various regulatory, legal and contractual issues, the competitive business environment in the industries in which we operate, the competitive market for acquisitions and other growth opportunities, favourable commodity prices, ability to negotiate favourable take-or-pay contractual terms, traffic on our toll roads, consumer demand for district energy, availability of government privatization programs that provide investment opportunities, volatility of natural gas prices and other risks and factors described in the documents filed by Brookfield Infrastructure Partners L.P. with the securities regulators in Canada and the United States including under Risk Factors in its most recent Annual Report on Form 20-F. Except as required by law, Brookfield Infrastructure Partners undertakes no obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise. IMPORTANT NOTE REGARDING NON-IFRS FINANCIAL MEASURES To measure performance we focus on net income as well as funds from operations ( FFO ) and invested capital, which we refer to throughout this presentation. We define FFO as net income plus depreciation, depletion and amortization, deferred taxes and certain other items. We define invested capital as partnership capital, adding back non-cash income statement items net of maintenance capital expenditures, accumulated other comprehensive income and certain other items. FFO and invested capital are not calculated in accordance with, and do not have any standardized meaning prescribed by International Financial Reporting Standards ( IFRS ). FFO and invested capital are therefore unlikely to be comparable to similar measures presented by other issuers. FFO and invested capital have limitations as analytical tools. See the Reconciliation of Non-IFRS Financial Measures section of the most recent Annual Report on Form 20-F and the Partnership s Supplemental Information report for a more fulsome discussion including a reconciliation to the most directly comparable IFRS measures. 2 Brookfield Infrastructure Partners L.P.

3 Brookfield Infrastructure is one of the largest, globally diversified infrastructure companies in the world ~$8.5 B Market Capitalization $0.48 Quarterly Distribution/Unit 5-9% Distribution Growth/Year Target Utilities Transport Energy We generate sustainable and growing distributions per unit over the long term 3 Brookfield Infrastructure Partners L.P.

4 How have we done since last year? Distribution growth of 12% FFO/unit was up 16% year over year Same store FFO/unit growth of 12% Payout ratio at 61% at low end of target payout of 60-70% of FFO Strong total liquidity of $2.5 billion 4 Brookfield Infrastructure Partners L.P.

5 We are well positioned for future growth Expanded our organic capex pipeline to ~$1 billion Secured ~$700 million of transport and energy investments Essential port & rail assets in Brazil Marquee North American port assets Heating and cooling in 3 large U.S. cities 30.7 Bcf Natural Gas Storage Facility in California 5 Brookfield Infrastructure Partners L.P.

6 Enabling us to extend our track record of FFO/unit and distribution growth FFO/unit $3.30 $ % CAGR $2.41 $2.41 Distribution/unit $ % CAGR $1.32 $1.50 $1.72 $1.92 $1.03 $1.06 $ * Per unit FFO Distribution * Annualized H FFO and distribution per unit 6 Brookfield Infrastructure Partners L.P.

7 Why invest with Brookfield Infrastructure? High quality assets Spotlight on utilities Ben Vaughan, COO Internally generated growth engine Bahir Manios, CFO Global business development Spotlight on Europe Alfredo Zamarriego, Managing Partner, Europe Full cycle investment strategy Sam Pollock, CEO 7 Brookfield Infrastructure Partners L.P.

8 High Quality Assets Spotlight on Utilities Ben Vaughan, COO 8 Brookfield Infrastructure Partners L.P.

9 We own a diverse portfolio of attractive assets across four continents Our business includes assets in all categories of mainstream infrastructure Electrical Utilities Toll Roads Ports Railroads Natural Gas Pipelines 9 Brookfield Infrastructure Partners L.P.

10 Today we will focus on our Utilities assets Asset review Key investment attributes There are two components we think may not be fully understood Growth Track record and future profile Value Recent transactions and implications for our assets 10 Brookfield Infrastructure Partners L.P.

11 We have a diversified portfolio of high quality utility assets Regulated Terminal Electricity Transmission Regulated Distribution ~$4.4 billion of rate base ~$2 billion of capital invested 11 Brookfield Infrastructure Partners L.P.

12 with attractive investment attributes Long-term cash flows Majority of assets have perpetual franchise rights Solid regulatory environments Australia, Chile, UK, North America Growth franchises $1.1 billion of organic growth commissioned since 2009 with strong backlog and pipeline Inflation indexation further enhances growth trajectory 12 Brookfield Infrastructure Partners L.P.

13 Regulated Terminal 85 mtpa of coal handling capacity in Queensland Australia Handles almost 20% of global seaborne metallurgical coal exports Unique attributes: Critical and low cost asset in one of the most prolific series of coal deposits in the world Long-term take-or-pay contracts with some of the world s largest mining companies Strong support from users for rate structure and expansions 13 Brookfield Infrastructure Partners L.P.

14 Electricity Transmission 10,500 km of transmission lines in North & South America Transmits electricity to 98% of population of Chile Unique attributes: Regulatory framework recognizes replacement value of assets over time Consistent network expansion and upgrades Chilean business earns a 10% real return on replacement cost, as stipulated in law 14 Brookfield Infrastructure Partners L.P.

15 Regulated Distribution ~2.1 million Electricity & natural gas connections Operations in the UK & Colombia Largest independent last mile natural gas and electricity connections provider in UK Unique attributes: Non-depreciating rate base Strong and tangible growth pipeline Businesses are critical to the UK and Colombian markets 15 Brookfield Infrastructure Partners L.P.

16 Our organic growth backlog has been very strong year after year On a same-store basis we have maintained an average capital backlog of ~$400 million and commissioned an average of ~$200 million into our rate base every year (Millions) $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $ Q Backlog Average Backlog Average Commissioned 16 Brookfield Infrastructure Partners L.P.

17 Our definition of backlog is conservative Utilities project backlog currently reported at ~$400 million Criteria for inclusion: Approval by the regulator OR Executed contractual commitment Many of our peers provide 5 to 10 year views On this basis, our backlog would be: 5 years: ~$1 billion 10 years: ~$ 2 billion 17 Brookfield Infrastructure Partners L.P.

18 How are utilities valued in the market? Publicly traded utilities are often valued based on: Valuation Approach 1 Multiple of EBITDA 8.5x 9.5x Dividend Yield ~3%+ Price / Earnings ratio 16x 17x These measures are often widely quoted in the market, but can be misleading, therefore we focus on discounted cash flows 1) Source: S&P Capital IQ, prices as at Sept 8, 2014, and based on DUK, ED, EIX, FE, NU, PCG, SO and XEL 18 Brookfield Infrastructure Partners L.P.

19 There have been three high profile transactions recently that we think provide good insight into the returns investors are seeking Acquirer Asset Price ROE Price/RAB Berkshire Hathaway/ Mid-American AltaLink C$3.2 billion 8.75% 1.5x 1 NextEra Oncor ~US$17.5 billion % 1.7x 3 Exelon Pepco US$6.8 billion ~ % 1.65x 4 This triangulates to an initial ROE of ~5-6% and an all-in IRR of 6-7% 1) BMO Capital Markets research, dated May 2, ) Bloomberg, dated July 24, 2014 (proposed valuation) 3) Based on $10.1 billion of invested capital (Source: Oncor Earnings monitoring Report dated May 15, 2014) 4) Credit Suisse research, dated May 1, Brookfield Infrastructure Partners L.P.

20 What could BIP s utility assets be worth in the current market? Value Range BIP Utilities AFFO (LTM basis) ~$330 million Initial ROE Between 5% to 6% Implied NAV $5.5 to $6.5 billion The initial ROE and IRR values we are seeing in the market would imply a NAV of between $5.5 billion to $6.5 billion for our assets 20 Brookfield Infrastructure Partners L.P.

21 Using recent comparable transactions, and applying the same initial ROE and IRR returns for our utilities assets, results in a net asset value to BIP of ~$6.0 billion ~$6.0B $3.9B ~$19 per unit $9 per unit $~$28 per unit Street Consensus NAV 1 Implied BIP Utility NAV 1) Consensus analyst NAV for BIP s utility segment is currently $3.9 billion 21 Brookfield Infrastructure Partners L.P.

22 Internally Generated Growth Engine Bahir Manios, CFO 22 Brookfield Infrastructure Partners L.P.

23 Our annual distribution growth target is 5-9% over the long term Internally Generated Organic Growth per annum New Investments ~10% Long-term Annual FFO Growth Target ~2% ~2-3% ~1-2% ~3-4% Inflation Surplus Capacity Cash Flows Re-invested New Investments Targeting FFO per unit growth of 10% annually, over the long term 23 Brookfield Infrastructure Partners L.P.

24 Organic growth is the main driver of our distribution growth Best risk-adjusted returns we can achieve We benefit from a strategy of identifying businesses that provide us with: 1. Inflation-linked revenues Internally Generated Organic Growth per annum ~3-4% ~1~ 2% % ~2-3% ~2% 2. Backlog of expansion opportunities Inflation Surplus Capacity Cash Flows Reinvested New Investm ents 3. Linkage to GDP growth 4. Margin improvement opportunities 24 Brookfield Infrastructure Partners L.P.

25 So how has our internally generated growth engine performed? Assume we held today s portfolio of assets: Since 2009 Adjusted ONLY for ownership changes We can establish our track record of same store growth 25 Brookfield Infrastructure Partners L.P.

26 Organic Growth Utilities Regulated Terminal FFO 10% CAGR ~$100 million invested to expand terminal Average inflation of ~3% per year Attractive regulatory framework Strong take-or-pay contracts; no force majeure provisions Electricity Transmission FFO 9% CAGR $380 million invested to expand and upgrade systems Margin improvement programs Established regulatory regimes Brookfield Infrastructure Partners L.P.

27 Organic Growth Utilities cont d Regulated Distribution FFO 400,000 new connections installed 25% CAGR Synergies from merging entities Lowered cost of borrowing by ~200 bps Average inflation of ~3% per year New product offerings 27 Brookfield Infrastructure Partners L.P.

28 Organic Growth Transport Australian Railroad FFO 33% CAGR $600 million invested to expand capacity Negotiated new take-or-pay contracts Average inflation of 3% per year GDP growth positively impacted general cargo Brookfield Infrastructure Partners L.P.

29 Organic Growth Transport cont d Toll Roads FFO Traffic growth in excess of GDP growth 24% CAGR $750 million spent in expansion capital Annual tariff increases linked to inflation Ports FFO 13% CAGR Key new customers European recovery boosted general activity Executed several cost saving programs Lowered cost of borrowing by ~300 bps Brookfield Infrastructure Partners L.P.

30 Organic Growth Energy Energy FFO (12%) CAGR Unfavourable regulatory outcome Challenging natural gas spread environment Increased overall cost of borrowing Brookfield Infrastructure Partners L.P.

31 Pulling it all together Organic Growth (Actual Basis) 26% Transport Energy 15% (12%) Utilities 15% CAGR During the last five years, our businesses grew on a same store basis by 15%, exceeding our 6-9% target 31 Brookfield Infrastructure Partners L.P.

32 Another way to look at this, is to make a few adjustments that normalize results 1. Excludes railroad expansion 2. Normalizes for underwritten regulatory outcomes 3. Assumes constant FX rate Organic Growth (Adjusted Basis) 23% Energy Transport (4%) 12% Utilities 13% CAGR Brookfield Infrastructure Partners L.P.

33 Takeaways Strong track record of delivering organic growth 6-9% targets are very achievable Potential to substantially exceed targets in higher growth, higher inflationary environment 33 Brookfield Infrastructure Partners L.P.

34 Global Business Development Platform Spotlight on Europe Alfredo Zamarriego, Managing Partner, Europe 34 Brookfield Infrastructure Partners L.P.

35 New Investment Activity Internally Generated Organic Growth per annum New Investments ~10% Long-term Annual FFO Growth Target ~2% ~1-2% ~2-3% ~3-4% Inflation Surplus Capacity Cash Flows Re-invested New Investments For every $500 million of new investments, we expect to generate FFO growth of 2% 35 Brookfield Infrastructure Partners L.P.

36 We have a global business with a local presence in important markets around the globe Vancouver Calgary Toronto Ottawa London San Francisco Houston Mexico Boston Madrid Colombia Peru Rio de Janeiro Sao Paulo Chile Sydney We have over 200 employees across 18 offices Over the last five years we have invested an average of $1 billion per year 36 Brookfield Infrastructure Partners L.P.

37 Now let s focus on Europe where we have $4.3 billion of assets UTILITIES REGULATED DISTRIBUTION TRANSPORT PORTS ENERGY ENERGY DISTRIBUTION 37 Brookfield Infrastructure Partners L.P.

38 and are seeking opportunities to expand our presence Recently added a second corporate office London Madrid 38 Brookfield Infrastructure Partners L.P.

39 The market opportunity in Europe is large EUROPEAN UNION UNITED STATES Number of Countries Area Population 2013 GDP mm km mm $15.9 trn mm km mm $16.7 trn A significant percentage of infrastructure assets in Europe are already in private hands 39 Brookfield Infrastructure Partners L.P.

40 We are seeing signs of European economic recovery 2014 marks the first year of positive growth in the region after 2 years of contraction Composite Purchasing Managers' Indexes (PMIs) show a generally improving Eurozone economy Source: DB We believe it is the right time for us to increase our investment focus on Europe 40 Brookfield Infrastructure Partners L.P.

41 Europe has a significant infrastructure deficit Aging infrastructure needs investment More long-term regulatory frameworks in place Strong track record of successful private investments in infrastructure 41 Brookfield Infrastructure Partners L.P.

42 We are seeing an increasing pipeline of opportunities Private Sector Drivers Needs to delever further Public Sector Drivers Needs to reduce public debt Needs to sell non-core assets Needs to reduce deficits Needs growth capital Needs to bring in private expertise 42 Brookfield Infrastructure Partners L.P.

43 with medium-to-near-term opportunities exceeding $50 billion Toll Roads Distressed assets with recapitalization needs Mainly Southern Europe (Spain, Italy, Portugal) $6.5 billion + Airports Large privatizations Mainly Southern Europe (Spain, Italy) $13 billion + Utility Networks Telecom Infra Large sell-sides from existing operators & partnerships Across Europe Large sell-sides from existing operators & partnerships Across Europe $20 billion + $9 billion + Water Partnerships and recapitalization needs Mainly Southern Europe (Spain) $4 billion + 43 Brookfield Infrastructure Partners L.P.

44 We will deploy multiple strategies to capitalize on these large scale opportunities Growth Partnerships Recapitalizations Multi-faceted Asset Sales Participate with high quality corporates needing capital to grow in strategic sectors Assisting levered corporates needing to delever in highly structured situations Participating in privatizations & private operator sales where we have competitive advantages 44 Brookfield Infrastructure Partners L.P.

45 Full Cycle Investment Strategy Sam Pollock, CEO 45 Brookfield Infrastructure Partners L.P.

46 We adhere to our investment strategy throughout the investment cycle Proprietary deal flow Target returns of 12-15% Strict underwriting Follow-on investments Recycling capital Opportunistic upfinancings Asset sales 46 Brookfield Infrastructure Partners L.P.

47 Opportunistic upfinancings surface low cost capital As cash flows grow and underlying asset values increase, we extract value through upfinancings Completed ~$650 million of upfinancings in the last three years Australian railroad UK regulated distribution Transmission $300 million $100 million $250 million 47 Brookfield Infrastructure Partners L.P.

48 as do Asset Sales We look to opportunistically sell mature/low growth assets Sold five businesses Realized total proceeds of $1.5 billion Yielded a return on equity >25% and recorded ~$500 million of gains 48 Brookfield Infrastructure Partners L.P.

49 Why not just issue equity? We have 2 choices. We can fund new investments through: Issuing equity OR Sell mature/low growth assets By choosing to recycle capital, as a component of our overall financing strategy, we are able to increase returns to unitholders by avoiding dilution on our high growth businesses 49 Brookfield Infrastructure Partners L.P.

50 because capital recycling drives higher values Current trading levels ~4.5% Growth rate of business (ex-new investments) 3-7% Total return to unitholders % Midpoint of range 9.5% Expected IRR of assets sold 8% Benefit of capital recycling 1.5% On $1.5 billion of investments, $22.5 million of annual cash/value is retained in business from recycling capital Current annualized FFO $732 million Additional annual value $22.5 million Incremental value accretion 3% 50 Brookfield Infrastructure Partners L.P.

51 Capital recycling further increases per unit growth from making new investments Indicative growth on $1.5 billion of new investments 3% 6% 51 Brookfield Infrastructure Partners L.P.

52 Can we do it again? We could monetize up to $1 billion over the next three to five years Considerations Growth profile Opportunistic pricing Changing risk profile 52 Brookfield Infrastructure Partners L.P.

53 Conclusion 53 Brookfield Infrastructure Partners L.P.

54 BIP has a compelling value proposition DISCIPLINED INVESTMENT STRATEGY ~4.5% DISTRIBUTION YIELD Underpinned by high quality assets (like those utilities assets!) 5-9% TARGET DISTRIBUTION GROWTH Predominantly driven by organic growth Growth upside should we complete major acquisitions We believe it s the right time to invest in Brookfield Infrastructure! 54 Brookfield Infrastructure Partners L.P.

55 September 15, 2014 Brookfield Infrastructure Partners Investor Meeting 2014