Infratil Limited (IFT) Earnings Call Transcript

[Foreign Language], I'm Mark Tume. I'd like to call the meeting to order and to welcome you to Infratil's 27th Annual Meeting. I confirm that under Infratil's constitution, we have a quorum and declare the meeting of shareholders properly constituted. Infratil originally proposed a hybrid meeting to give shareholders the option to join the meeting either in person or join online given the ongoing impact of COVID-19. However, due to the revised COVID-19 restrictions announced by the New Zealand government on the 17th of August, we are no longer able to have an in-person meeting. I'm very pleased to welcome shareholders who are participating online through our virtual meeting platform provided by our share registrar, Link Market Services. [Operator Instructions] Slide 3 of the presentation is a picture of the virtual meeting platform, and the arrows on that slide point to where to click to get a voting card and to ask a question. If you need help, you can also call the number displayed in the blue bar at the top of the platform. I also advise the meeting that members of the press and non-shareholders may be present. Before progressing on to the business of the meeting, I would like to introduce your directors. I am Mark Tume, and I am an Independent Director, the Chair of the Board and a member of the Audit and Risk, the Nomination and Remuneration and the Manager Engagement committees. I am seeking reelection as part of today's meeting. Alison Gerry is an Independent Director, the Chair of the Audit and Risk Committee and a member of the Nomination and Remuneration Committee and the Management Engagement Committee. Jason Boyes is a non-independent Director and was appointed Chief Executive of Infratil with effect from 1 April this year. As a result, he has also been appointed by the Board as a Director. And in accordance with the NZX listing rules, Jason is seeking election by shareholders at today's meeting. Paul Gough is an Independent Director and a member of the Nomination and Remuneration Committee and also the Management Engagement Committee. Paul is seeking reelection at today's meeting. Kristin Mactaggart is an Independent Director and a member of the Audit and Risk and Management Engagement committees. Catherine Savage is an Independent Director and a member of the Audit and Risk Committee and the Management Engagement Committee. Peter Springford is an independent Director and a member of the Management Engagement Committee. Phillippa Harford is our Chief Financial Officer. And Nick Lough is our Company Secretary and both are present at the meeting. Gavin Silver and Brent Manning from KPMG, our auditors, and Josh Blackmore from Chapman Tripp are also present for the meeting. In addition to your directors, we also have directors from our businesses and executives from Morrison & Co available to answer shareholder questions. Now if I can move to the meeting proper. As the Notice of Meeting has been sent to all shareholders, I will take it as read. Proxies have been lodged by 897 shareholders holding approximately 291 million shares representing 40% of the ordinary issued capital. I advise that the Board has confirmed that the minutes of the last annual meeting held virtually on 20 August 2020 are a true and correct record of that meeting. Copies of the minutes of that meeting are available to shareholders. Before progressing on to the other matters, I would like to reflect on another remarkable year of accomplishments for Infratil despite the uncertainty and challenges cast by the ongoing COVID-19 pandemic. Our businesses responded to the pandemic with both professionalism and care with the well-being of staff and customers, the highest priority. That vigilant approach remains in our businesses today. And although it is easy to see these circumstances as the new norm, the commitment required should not be overlooked. And the Infratil Board extends its thanks for those tremendous efforts. At the same time, Infratil raised $300 million of equity in June 2020, so that it could be prepared for the investment opportunities should they arise. Indeed, an opportunity was identified and successfully executed being the acquisition of a majority stake in the Australian-based Qscan Group, which was completed in December. The Qscan investment was our first commitment in the diagnostic imaging sector, and our exposure to that sector has since been extended through our acquisition of a majority stake in Pacific Radiology, which was completed in May 2021. One of the cornerstones of Infratil's investment approach is to invest in ideas that matter. And with the aging population and the increasing need for investment in health care for that growing population, diagnostic imaging is seen as an excellent example of an idea that matters. It has a significant role to play in lowering the overall cost of health care and in speeding up recovery times for those affected by ill health. And we look forward to the contribution that Infratil can make as a significant shareholder in those businesses. Last year has also seen market recognition of the value of Infratil's portfolio and investment approach. In October 2020, an Australian Superannuation Fund approached the Infratil Board seeking support for an offer to acquire Infratil for a price that was ultimately increased to $7.43 per share. Those approaches were fully considered but rejected by the Board. Fast forward to August 2021, and we remain comfortable with that decision and with the opportunities we see for Infratil and for its shareholders. The value of Infratil and its approach to investment has been further endorsed by the value created through Tilt Renewables. The sale of Tilt Renewables was announced in March 2021 and completed earlier this month, bringing to an end a remarkable investment for Infratil that extends back to the foundations of our renewable energy investment in Trustpower and the demerger of Tilt from Trustpower in 2016 to enable it to operate and execute its development opportunities in a focused manner. The sale has returned over $2 billion of capital to Infratil and provided a return of 35% per annum since the demerger, an outcome that both Infratil and Tilt can be very proud of. As part of last year's annual meeting, I also commented on the Board's responsibility to monitor and manage the terms under which Infratil is managed by Morrison & Co. To this end, the Board commissioned an independent review of the terms of the arrangement the results of which were published on Infratil's website in November of last year. The review concluded that the incentive fees, which would have been payable to Morrison & Co since inception under a contemporary fee structure would, in present value terms, have been materially larger than the incentive fees that were actually paid or accrued at that time. The review has now been rolled forward to assess the position as at 31 March 2021, which also confirmed that the existing fee arrangement remains beneficial to Infratil's shareholders. As was the case last year, shareholder approval is being sought to grant the Board the option to pay all or a portion of certain performance fees under the management arrangement to Morrison & Co and Infratil's shares, if those tranches become payable and if the Infratil Board decides that it is in the best interest of Infratil shareholders. If the resolutions are not passed, and the fees are payable, payment can only be made in cash. In what is another significant milestone for Infratil, we also announced the transition of the CEO role from Marko Bogoievski to Jason Boyes with effect from 1 April. Marko had taken up the reins from Lloyd Morrison in 2009, and steered the company to a significant growth and to investment in emerging infrastructure sectors. The Board wholeheartedly thanks Marko for his outstanding contribution, and we look forward to his ongoing involvement through his Board roles with Vodafone. At the same time, we congratulate Jason on his appointment. Jason has been closely involved with Infratil for the past decade, be it through our investment activity or through governance positions within the Infratil portfolio. And we are confident that Jason will build on Marco's success. On that note, I would like to hand over to Jason to present the Chief Executive report. Following Jason's report, I'll then invite questions and discussion from shareholders before we move to the formal aspects of the meeting.

Thank you, Mark. Hopefully, you can see me out there - there we go. Thank you, Mark. And [Foreign Language]. I'm Jason Boyes, I'm the Chief Executive of Infratil. And I'm really delighted to be talking to you all today for the first time at an annual meeting in that role. I would have liked to be doing this in person like I am sure you all would be. So welcome from an unusually sunny period in Wellington's day today. Hopefully, that light isn't too distracting. I hope everyone is as safe and as well as you can be wherever in the world you're watching this. But I'm thinking particularly of our people and our businesses and our customers of our businesses in Australia and New Zealand over this very disruptive time. I'd like to start like Mark at acknowledging all the people in our businesses who are continuing to work to provide essential services to our communities in this period. And that includes people at Trustpower generating electricity; Vodafone and CDC data centers, providing telecommunication services like the ones we're using right now and our health and care professionals across Qscan's Pacific Radiology and RetireAustralia focused on keeping themselves and their customers and patients safe. All those efforts are very, very much appreciated. Now I want to touch on 3 topics in this overview. First, as usual, we'll have a look back at the 2021 financial year which ended on 31 March; second, I want to spend a couple of minutes on each of our investments, and talk about notable developments and how they're fairing so far this year; and lastly, I'll sum up and talk a little bit about how we're talking -- thinking about the future. The slides for this presentation are released on the New Zealand and the Australian Stock Exchanges. And as usual, I'll refer to these, but I won't read them out, and I'll leave it to you to go through those at your leisure. First, the year that was. I won't repeat our full year results announcements now, but I would, I think, highlight 3 things. The first is how resilient returns and continued investment continued to be throughout quite a disruptive period. I think this demonstrates that not only have we achieved good diversification in our portfolio. But there we have also remain disciplined in our investment approach and approach to risk management, focusing on businesses that provide essential services, are defensive and exposed to long-term growth drivers, which have meant that they've maintained resilient internal reinvestment pipelines as well. That produced a solid proportionate EBITDAF uplift we saw last year. And I think the resilience of that reinvestment pipeline as demonstrated on the next slide, which summarizes the investment that continues across the group. CDC data centers is an excellent example. The lockdown accelerated demand for services like the ones we're using now, enabling CDC to accelerate its build-out of over 100 megawatts of data centers this year. And to put that in some perspective, I think the largest data center in New Zealand is or will be about 13 megawatts. So 100 megawatts is a multiple of those sorts of facilities being built now. Longroad on this slide, too, is another great example. We are in a year of disruption in the U.S. It was able to complete the construction of over 900 megawatts of renewable energy projects, wind and solar farms. To put that in some perspective, the big sounding numbers. That's equivalent to approximately 10% of the total installed generation capacity in New Zealand. So really big-build program, industrial scale, all able to be produced and brought forward in a time of great disruption. So it's part of what your investment in Infratil brings. On the next slide with the pie charts, we've shown how we've positioned the portfolio in those businesses and sectors that are exposed, we think, to long-term growth. Whether that's renewable energy, which we know we'll need more of; or digital infrastructure, which is essential now to the way we all live. And health and aged care businesses, which are addressing the needs of our aging population, and that's a theme that's not going away. What's also really interesting about the slide, I think, on the right is how large a proportion of the portfolio is now invested in digital infrastructure across CDC and Vodafone. So it's a bit over half now. And as a Board and a management team, we're conscious of this and mindful of it, but fundamentally, it's a choice we've made because we like the businesses in the sector we're in. So we're not proposing to change that anytime soon. Secondly, and looking back at the year, I'd highlight, as Mark has done, the landmark transaction in the sale of Tilt Renewables. That sale completed 2 weeks ago, which means that Infratil banked $2 billion, which is not something that happens every day, unfortunately. But it was a good day. I think that transaction amply demonstrates so many things about Infratil. But the key ones I'd draw out here are -- the first one, which Mark mentioned as well, it's why international investors like Australian Super are interested in Infratil's investments and Infratil itself. And why the independent directors -- one of the reasons the independent directors were able to be so confident in the way they've dealt with it at the time. It also emphasizes really Infratil's ability to create value over the long term. It took us 15 years or so in the making. And long-term value creation really remains our focus today. So if we go to the next slide, this is just a reminder, and we've shown this slide before, what our long-term target returns are for Infratil, that 11% to 15% over a rolling 10-year period that we talk about. And how it's made up of a blend of lower and high-risk investments. It again, demonstrates this really well. It has that been built in with a mix of sort of lower-risk wind farms that were fully contracted to sell their electricity. And also higher risk development projects like new wind farms that they built and are working on. The next slide is a familiar graph as well, some new years added to that, but that shows the value creation since inception for Infratil, which is a track record any infrastructure investor anywhere in the world would want. Thirdly and finally, what that Tilt sale means is that Infratil's balance sheet has probably never been in a stronger position, which is shown on the next slide, and so a familiar format, too. You can look through the detail of that at your leisure. But in summary, Infratil today has no drawn bank debt and over $1 billion of cash on hand. Clearly, there are some future calls on that cash already with incentive fees from the sale of Tilt and other things. But it's really a great position to be hitting -- to the end, getting into the current COVID uncertainty here in Australia. And to enable us to continue to support our existing businesses to grow and to work on new investment opportunities, which I'll talk about later. If we go on to the next slide, I can confirm we're leaving our FY '22 guidance unchanged today. As before, we have indicated this assumes a full year contribution from Trustpower's retail business, 10 months of Pacific Radiology and no contribution from Tilt. And as always, it's subject to the usual caveats about the future. I would call out, though, that although the Australian COVID lockdowns have not caused us to change our guidance to date, unusually prolonged or severe lockdowns either in Australia or here in New Zealand will have implications that we're continuing to monitor, and we'll update you if anything comes to hand. So to summarize that first section, resilient portfolio, I would say, a landmark Tilt sale and an extremely robust balance sheet heading into the next period. In the second section, let me spend a couple of minutes on each of the assets, and I'm going to call out the key things that we're thinking about for each of them. First, let's talk about digital infrastructure and CDC data centers, which is our biggest investment, and one of the biggest data center providers in Australia and New Zealand. As I've said, they've experienced increased demand and accelerated their build program. It also means CDC has been able to lengthen the term of its customer contracts to back that demand, which improves its characteristics as an investment. I've mentioned this large build-out program. Looking ahead, we still see CDC playing a strong role in high-security government work as the only scaled player with facilities certified to the highest possible level under Australian law today. And so able to handle that work. And what that does is it also generates its own ecosystem of other service providers who want to work with government and benefit from the same high security environment, which enhances CDC's offering even more. We don't need to assume that our head start and CDC's head start in that space last forever to be happy with this investment. But clearly, it's in a really good space now. The COVID lockdowns in Australia and New Zealand are affecting the build program. They're still tracking okay in Sydney for various reasons. And the more recent lockdowns like Canberra and Auckland are still being assessed, so something to look out for here. Next slide, please, our other investment in digital infrastructure, Vodafone. We're not doing a full trading update today, but we're still on track to deliver the 2% EBITDA uplift that we guided to for this year. It's mostly coming from strong performance in Contract Mobile and continued strong cost control. There are still a large number of [ implied ] initiatives to complete the separation of Vodafone New Zealand from the Vodafone Group mothership. And also to streamline their systems processes, which we expect to deliver margin and other benefits over the medium term. It's a fairly challenging program to be fair, but it also has a lot of focus from the team. And we should start to see fruit from that next year, as we said before. And we see this asset being in the portfolio for some years to come. Stepping back a bit on that sector, we're keeping an eye out for what I call pre-IPO-type behavior from the likes of 2degrees. There's no doubt they'll be focused on showing good customer numbers hitting into any sales. So it's something we're keeping an eye on. We also saw Spark's comments yesterday about an openness to shared ownership of network assets. And we've said since the first day we made this investment that that's -- we support that sort of thinking and have worked since the likes of 2degrees and continue to work with the rural connectivity group on network sharing arrangements. And we continue to think that's an encouraging direction for the market in New Zealand [ ahead ]. Next slide, please, and Wellington Airport. Well Wellington Airport was going a lot better last week than it is today, unfortunately. I know Steve Sanderson, the CEO is, online if people have questions. I mean clearly, it's too early to say what impact these current lockdowns will ultimately have. But the management team has done all the right things with its costs and its CapEx to weather these sorts of disruptions. Prior to lockdowns, domestic traffic was actually back to above 90% of pre-COVID levels. So we know the numbers can and will likely bounce back strongly when knockdowns ultimately [ ease ]. Moving on to our 3 renewable energy investments. Next slide. First, Trustpower. On that, we're really pleased with the conditional sale of its retail business. Those customers and staff could hardly be going to a better home with Vince Hawksworth, the former CEO of Trustpower and the team at Mercury. I know that -- completing that transaction is taking significant bandwidth. But I also know David Prentice and his team won't waste any time turning their focus to looking at ways to augment Trustpower's existing generation and to develop more of the conditions around. I'm also a big fan of the new name announced last week, Manawa Energy, which is the name we'll be talking about next year. Last point on Trustpower and really just to refer to the blackouts last week. That's meant that the structure of the market is getting a lot of focus and really so no one at all, the industry least of all, wants blackouts. And we spoke about or market actually the Lake Onslow or South Island battery project last year. And the view we expressed then is, I think, fundamentally the same as we have today, which is that we don't believe the market itself is fundamentally broken. Clearly, New Zealand could have used more fast out generation, which could have been provided by gas [indiscernible] to take advantage of higher prices that happen at those times. But equally, clearly, it's very difficult for people to go ahead and build those assets while -- or even complete the elimination of gas fuels is a prospect. So changes will no doubt need to happen in [indiscernible]. Next slide, please. Longroad Energy, this is our U.S. developer of wind and solar farms. As I said, it's finishing an enormous couple of years of building. And we've actually just completed this year a 300-megawatt, quite a large solar project in Texas. The year ahead, as I said at the full year results announcement is actually a bit slower just the way the projects that we have in the pipeline are coming forward. But as it turns out, better to be lucky than good, I think it's not actually a bad thing because there are currently supply chain issues all around the world, and it's affecting renewable developers as well, making some equipment prohibitively expensive. The medium-term outlook, though, remains very strong for this business with the Biden administration maintaining a very positive development environment going forward. And we know from the Tilt sale right that the value of these businesses is increasing, not decreasing. Next like please, Galileo Green Energy. This is our European equivalent of Longroad. You want to think about it that way. It's only been going for about 18 months, but it's now a team of 16 people. And they're working with partners to actively develop in Ireland, and the U.K. and the Nordics region, Spain and Italy. We know it took 2 years for Longroad develop its first project, and Galileo won't be too far behind that, I think. What is different. I think this time, it's probably more competitive now than when we started Longroad. So there are less late-stage projects then that Galileo can bring to market quickly. And so it's concentrating rightly, I think, on newer projects that will, by the nature, take longer to develop. But the political tailwinds for switching to renewable energy in Europe are extremely strong. And so we remain positive about its medium and top long-term prospects. Now and lastly, on to the 3 health and aged care investments. Remember here, our long-term idea is that as our population ages, we will need more and improved health care and accommodation. And I couldn't agree more with Mark's comments about how excited we are to be able to contribute to that. So first in that sector is Qscan. Qscan is new to the group. It's a diagnostic imaging business in Australia with around 75 clinics, 800 employees. And they take and read x-rays, ultrasounds, MRIs, CT in good -- joined the group last year. So this will be our first year of its full year ownership. They have landed well, and are tracking their investment case, which is really good. Clearly, they've been affected by COVID lockdowns in Australia. But have been super focused on being able to continue to serve their patients and doctors and to look after their staff. For those who had a chance to see Chris Monday, the CEO's excellent presentation at our Investor Day earlier this year, really recommend that to you. You'll know that a key part of the medium-term growth in this business and while as rolling out more clinics that take PET-CT scan. They are very advanced high-resolution scans. And it's pleasing they're continuing to meet the increased demand for that type of service in Australia and have opened 3 new clinics and are continuing their program of opening those. There also continues to be interesting opportunities to acquire other diagnostic imaging businesses in Australia in areas Qscan doesn't currently serve. And Qscan's well practiced at reviewing and addressing leads. Next slide, we have Pacific Radiology. Even though it entered the group this year, not last, it does what Qscan does in New Zealand. And it's the largest of its kind here with about 46 clinics and 650 employees, if that helps you think about the scale of it. We're really delighted to welcome the team to the group in May. And although it's early days, it is on track with our investment case, too. So one to watch. Next slide, please, and last but not least, RetireAustralia, our retirement village business there. Again, like Qscan, Brett Robinson, the CEO and his team are doing an absolutely amazing job keeping themselves and their residents safe through this really challenging period. Hats off to them. Financially, this business has had its issues in the past, but it's actually performing as well or better than it ever has at the moment. Resales of units, which are as a key indicator of operating performance, have been particularly strong. Remember also that this sort of business tends to perform well as house prices are increasing, which is definitely a feature of the post-COVID landscape globally. That's given us and the team confidence to recommence development with recent builds completed and new ones coming in. So I know it's a bit of a whirlwind tour, but it justified at least once a year at an annual meeting like this. Let me finish by summing up and perhaps emphasizing 2 things because we've gone through a lot. First thing, the portfolio is really well positioned, we think. The 2 hottest infrastructure investment sectors in the world are renewables and data centers, and we have large enviable exposures to both. We've also begun sowing the seeds for the future with our investments in health care. Second point, Infratil's balance sheet has never been stronger, with no bank debt and significant cash to support and help grow our existing businesses, and to initiate new investments for the future. As I said at the full year results announcement, we remain upbeat about the opportunities to make good new investments. But as always, we will remain disciplined and conservative, particularly [indiscernible] that's for me for now. Back to you, Mark.

Great. Thanks, Jason. There's now an opportunity for discussion of the annual report of Infratil for the year ended 31 March 2021. To start with, we have received a statement from ACC, which I will now read out to the meeting."We understand that ACC is Infratil's second largest shareholder. ACC is voting against resolutions 4 and 5. We are unhappy with the Independent Director's decision to not progress work with the manager to address unfair aspects of the management contract. We address the details now. Why isn't the contract fair to Infratil's shareholders? We start with an uncontroversial statement. Performance fees should be paid to the manager when it has performed, that is when shareholders have earned returns above the agreed threshold. There were 2 unfair and nonstandard parts of the Infratil management agreement. First, the international performance fee comprises calculations over 3 buckets. If any bucket makes a return above the threshold, the manager receives a performance fee. In other words, if one bucket makes a profit, the manager receives a performance fee regardless of the size of the losses in the other 2 buckets. This structure is both unfair and easily fixed. Why not combine the 3 buckets? The second, manager performance fees and returns to Infratil shareholders may diverge when the markets zig and zag a lot. There is potential for the manager to earn a performance fee multiple times when shareholders make a return only once. A high watermark ensures that the performance fees are not paid when shareholders are recovering losses and is easily added to the contract. The Board has been responsive, commissioning Fadata to provide an independent analysis, making a summary available and discussing the concerns and the report of the board share in the 9-2020 interim report. So you may ask, ACC, why are you still unhappy? There are 4 reasons. Firstly, like the independent directors, we are experienced at negotiating investment contracts and performance fees. We recognize unfair when we see it. Secondly, manager performance fees -- Secondly, the independent review has been a black box and we have asked and continue to ask the Board to make the full report available to shareholders. In summary, the summary provided to shareholders as a black box summary, who are the peers? What are the sizes of the wholesale mandates of the peers? Do the peers receive performance fees based on unrealized gains? What are the termination provisions in the contracts of the peers. Thirdly, the historical analysis conducted by Fadata seems to us to be both not relevant and unsurprising. As we set out earlier, the high watermark and bucket issues will likely only emerge when the markets zig and zag and there is a wide dispersion in returns. The analysis was conducted over 1 of the biggest bond bull markets in history. Lastly, the inference and Fadata's summary that the absence of a high watermark is not inconsistent with market practice, surprises us a lot. That is not our experience. As a brief aside, we note that the FMA's view of fairness seems aligned to ours. The FMA April 2021 note sites that KiwiSaver investors should not pay twice for the same return and requires a high watermark for all its manager agreements. We finish by asking 2 questions to the Board addressing each of the sources of the unfairness which we started with. They have not been addressed either by the Board or by the summary of the independent report. It would be good to have them addressed directly. Firstly, do you agree that the 3 buckets in the performance fee structure provide the potential for the manager to earn performance fees when the shareholders have returns before below the benchmark. Is that fair? Second, do you believe that the absence of a high watermark in the management agreement allows the potential for the manager to earn performance fees when the investors are recovering losses. Is that fair? Lastly, ACC is the second largest shareholder of Infratil but small in percentage terms. A successful case for change depends on other shareholders supporting our view. We ask you to vote against resolutions 4 and 5, and ask the independent directors to address the unfairness and the contract." That brings an end to the statement from ACC. I'll address the ACC questions. Shareholders will be aware that we've had these questions before from ACC and responded to them directly. Firstly, do you agree that the 3 buckets in the performance fee structure provide the potential for the manager to earn performance fees when shareholders have returns below the benchmark, and is this fair. The answer to that is, yes, we do agree that it's a possible outcome. However, the issue of whether it's fair cannot be considered in the context of a single outcome. The Board must consider whether the fee arrangements in their totality are fair to shareholders. Given that shareholders have received a near 18% compound annual return for 26 years after fees on balance, the Board believes the fee arrangement to be fair, and this has been supported by external advice. Second question, does the Board believe that absence of high watermarks in the management agreement allows the potential for the manager to earn performance fees when investors are recovering losses, and is that fair? Consistent with the question above, this is a possible outcome, but the issue of whether it's fair or not can't be considered in the context of that single outcome. Given the outstanding after-fee returns to shareholders over 26 years, we must consider all possible outcomes when balancing whether the fee structure is fair or not to shareholders on past performance and, therefore, on the balance of probable outcomes, we concur with the external advice we have received. Finally, on the management agreement, shareholders should be aware, it is under constant review. The Board has an independent director committee that meets regularly to deal with the performance of the manager and any potential conflicts. We have, as a consequence, made some changes to the way we engage with the minister and agreed certain protocols, and these have been received positively. We will now have Mark Flesher read out questions submitted online. Either Jason and I will seek to provide a response. But where the question relates to one of our businesses, I may also call on the director or management representatives to provide a response. In respect of CDC data centers, Galileo Green Energy and Longroad Energy, Jason will respond. Trustpower will be Paul Ridley-Smith, the Chairman. Infratil Infrastructure Property and Pacific Radiology and RetireAustralia will be Peter Coman. And Paul Newfield will respond in respect of Qscan. Steve Sanderson in respect of Wellington Airport and an old favorite of yours and mine, Marko Bogoievski, will take anything in respect of Vodafone New Zealand.

Thank you, Mark. We have first questions from a shareholder, Philip Peters. As a major shareholder in Vodafone is the Board of Infratil able to influence Voda to greatly improve its customer service attitude?

Before I turn to Marko, I'll make a couple of comments. The Infratil and Vodafone Board, which includes 3 appointees from Infratil are very aligned on how important customer service is to Vodafone. And Vodafone itself is committed to continuing to improve customer service, and we will continue to focus on that area. I have no doubt. We do acknowledge however that historically the industry because of high transaction volumes and a lot of legacy complexity has not provided consistently excellent customer service. I'd like, if I could, to get Marko to respond possibly in some more detail and give a bit of more granularity.

Happy to, and good afternoon, everyone. I mean the first thing I'd say is, yes, we can influence both the Infratil Board appoints the 3 appointees on the Vodafone Board, I'm 1 of the 3, and we work alongside our 50% joint venture partner, Brookfield. I can tell you that we're aligned on all of our key strategies, of which one is delivering better customer experience. And I think we just have to acknowledge the industry and Vodafone's let itself down, and it's not consistent enough in its delivery. It's basically the fundamental reason why we're effectively reinvesting almost the entire cost-out savings we've identified in the business back into a brand-new IT platform, brand new operating model and U.K. capability. Now the outcomes at the end are consistent with what Jason was talking about earlier. It's a major program of work that should deliver much more seamless customer experience, much stronger product development capability and hopefully stronger margins and a more competitive entity. So I can tell you we're completely aligned around that as a priority, customer services and outcome. It's a major program of work, doesn't come in 1 day. I would expect to seeing some material benefits starting to show up around this time next year. So that's the play, and that's my view on customer experience. Thanks, Mark.

Thanks, Marko. Wonderful to see you back in the country, by the way.

Thank you.

Maybe staying with the Vodafone team. We have a question from Jennie Miller. Is Vodafone and Jason Paris really being bold and brave when they -- when all they merely do is appoint executives from Spark. Is a shopping objectives when Elon Musk is bold and brave with cars, he did not run out and recruit for people from Ford or Honda. Is New Zealand's telecommunications sector always going to be the same-old, same-olds for the years to come.

It's an interesting question. I think it's almost a statistical impossibility for Spark and Vodafone not to have crossover on staff. And we all know that with the border closures there is definitely a war for talent. But the telco industry itself is incredibly dynamic and Vodafone is continually looking at its priorities and skills to get those services most valued by customers to those customers. I might ask Marko actually to give us a fuller response to that question because we do expect that the Vodafone Board is across all of the HR issues it's faced. And I think access to talent is a really, really important one.

I actually love this question. I mean I know it's slightly provocative, right? And -- It's not entirely accurate. I mean we've got quite a good mix of background and experience on not just the Vodafone senior management team, but throughout the senior executives in the organization. But the reason why I love it is I think the industry recognizes, and certainly we do, that future success in this market is about developing and accessing capability in quite new areas, including data analytics, software development, customer experience, user experience, software and IT services. And those are really critical for us being successful and they're extremely hard to get ahold of and build. So obviously, the things we do control. We're building that capability now and where we can, and we're trying to acquire them as aggressively as possible. In the meantime, I think we have to work with our great pool of skilled kiwis we have. And regardless of whether they come from Spark, and I think we're blessed to have some really high talented people in our organization.

Thanks, Marko.

Next question comes from Paul O'Grady, actually, he's got 2 questions on both are on CDC. The first part is apart from interest, what cash has been paid by CDC to Infratil in the last 2 years? And then the second part of the question is CDC is a great company, and you get the feeling when its opposition complained about it in the media. What is the basis for its current valuation? And is it similar, for example, to Next DC?

Paul, those are fantastic questions. Now I'm super impressed that you're across the detail to the extent that you are picking out that interest is the cash that's been paid out by CDC to Infratil being interest, your bang on the money. Obviously, given the significant growth trajectory and development pipeline in front of CDC. The priority from shareholders and CDC has been to reinvest in the company's growth. So as such, the only cash payments we received to date are in respect of shareholder loan interest, so well done. On the second question, the independent valuers use a discounted cash flow approach to equity, which is then we cross-check against comparable trading and transaction multiples. CDC's value proposition really revolves around its contracted cash flows, and that has a current weighted average lease term expire. I think Jason raised it in his earlier presentation of 22.4 years, including options and 9.4 years, excluding options, which is fantastic. They have an extremely high-quality product offering. It's the only scale provider in Canberra some built for top secret and accredited for secret security standards and has certified strategic status. And it's a very, very unique ecosystem with the government enterprise cloud providers colocated with the same campus building. Jason, I'm not quite sure whether you might want to add anything to that?

No. I think that's perfect, mate.

Thanks, Mark. Thanks, Jason.

The next question is for our Director Kirsty Mactaggart. Do you think Morrison & Co will work just as hard for Infratil that the calculation of its incentive fees was for a return of, say, 20% after tax, gets stated by as a goal by Lloyd Morrison rather than the current 12%?

Shareholders are in for a real treat.

Thank you, Mark, and thank you for the question. Happy to respond, but I'm in absolutely no doubt that Morrison & Co are working extremely hard for all shareholders. And it was actually Lloyd that set the 12% hurdle rate all these years ago. I'd note that, that 12% is actually much higher than the industry standard of 7% to 8%. I'd also note that -- and just remind shareholders that there is no incentive fee paid at all on our New Zealand assets. But I can confirm that Morrison & Co are working just as hard on Wellington Airport, Trustpower and Vodafone, and I absolutely expect them to do the same on our recent acquisition in New Zealand Pacific Radiology. I would also just finally note that the Lloyd's ambition of 20% has actually been achieved in shareholder returns. And that the shareholder return for the last 10 years has actually just been just over 20%, 21.1%, and that's after all tax and all fees, both management and incentive. So yes, they are working very hard, and all good from that side.

Thanks, Kirsty.

The next question comes from Lannett Scott. Given the current low interest rate environment, is it an efficient use of funds just to sit on a lot of cash. If Infratil doesn't find any suitable new investments, will it consider repayment or special dividend from the Tilt proceeds.

That's also a great question. Please, rest assured, and consistent with Kirsty's comment earlier regarding how much work is going on to this. First of all, as Jason said in his presentation, the proceeds have been applied to debt. So nearly $1 billion of debt has been paid off, and we have $1 billion of cash in the bank. When you look at the Infratil portfolio, you have to be impressed by the businesses that we own, but equally impressed by the options that they provide us to invest capital. So rest assured that we are not short of opportunities within our current portfolio but that we also are putting quite a bit of work into adding to those portfolios, both judiciously, carefully and putting quite a bit of work into options on that front. But Jason, you might like to add to your earlier comments on the uses of that cash.

Yes. Sure. That's a good question. We do remain upbeat about opportunities for investment, as Mark has said, within the existing investments. But also there are opportunities outside those that we have been actively tracking for a while. That said, the discipline I mentioned shows up in a few ways, but also comparing the returns from that investment versus buying back our stock, which we have a view on what its value is as well. So you should expect, because this actually happens that all the kind of uses of that cash are tested against sort of counteract just is giving a bit back to you.

Thank you, Jason.

The next question comes from John Steps around Wellington Airport. The arrivals and baggage at Wellington Airport is a disgrace. When is it proposed to be upgraded or improve the area.

Thank you, Mark. Why don't I get Steve Sanderson to provide some color on this one? Steve?

Yes. Thank you. And again, a good question. I mean, first of all, we do take customer service very -- it's right at the front of our minds. And the baggage area is an old system, and we recognize that. And it is in our plans in the next 2 years to fully upgrade our baggage management system and to improve the service there. And certainly, COVID and our cut in CapEx and certainly pushed that out a little bit, but it is back on the CapEx plan. And yes, we will see a much improved service in the near future. So thank you for your tolerance anyway.

Thanks, Steve.

Thank you, Mark.

The next question is from Linette Scott. Given the current -- I'm sorry, I've read that one. [ Bomen Fuller ], has Vodafone/Infratil revisited buying Sky TV to merge with Vodafone. With online entertainment entrants such as Spark, Netflix, TV on demand, Neon Amazon and power companies like Contact and Trustpower now offering broadband and telecommunications solutions. Is there an opportunity for Vodafone -- sorry for Vodafone to extend -- sorry, I just lost the -- I'm sorry, opportunity for Vodafone to extend their customer often given that the foundation for the Commerce Commission having refused Vodafone's original team to acquire Sky TV no longer exists.

Thanks for that question. Short answer, no. But Vodafone do have a great relationship with Sky, and expect that to continue. And as you're probably aware of media and content, it's clear that the content market's really fragmented. And Vodafone do believe there's room for aggregators. But Marko, maybe again, we might get you to provide more detail.

Happy to, Mark. So it's definitely not on the agenda for us. As you can tell, we've got a list as long as your arm of sort of heavyweight strategic priorities, and we're confident they're going to deliver the sort of business we're trying to build. We also have, I think, a different philosophy now and have taxed in a slightly different direction from our major competitors. We think which should provide low-cost, accessible network and with high capability to reach all kiwis and all the tools they need to access the content and apps that they need to entertain themselves or do their work and not necessarily provide that for them. We're quite capable of doing that. So at the moment, I think we're just trying to improve our core underlying network infrastructure, IT capability, customer experience and build our network position in this market, and that's the focus.

Thanks, Michael.

Next question from Kay Baker. Congratulations to the Board and management income management team on fantastic returns for shareholders over the last year. How is the Board and management thinking about return targets? And any modifications to investment exposures in an environment likely to see inflation pressures and higher interest rates.

That's a great question. That's something that we actually talked about as late as the Board meeting that we had today. Definitely, in the back of our thinking and a macro view is the -- have we seen the end of the secular fall in interest rates? And how do we think about repositioning? Or how do we think about the position of the portfolio in light of that? If you look at some of our recent investments, we do believe that we have the ability to price on pricing pressures. I think the portfolio itself is incredibly robust. The earlier question about where we think about putting capital has certainly got that thematic running through its DNA. Jason, maybe you'd like to also add.

Yes. It's a good answer and a really good question. And essentially, that's on our mind almost every day, is it really a fix whether you're a holder or a seller of a bunch of our assets. I think, now if you look at the sale of Tilt again, that had a lot of contracted revenue that wasn't able to increase with inflation and sort of one of the reasons why it was time for that asset to go. So you can see we do actively think about it. While we're super focused on, I think, with our current portfolio position is what are the growth prospects for those businesses as well, not just the pricing but the growth prospects and are they going to be significant enough to that weigh the kind of drag that would come from inflation and higher interest rates. And so around something like CDC, we fundamentally remain confident that its growth is strong enough to compete with that. You'll also notice in health care and actually, there's elements of this in CDC as well. Elements of their revenue are linked to CPI at the moment, which is another attractive picture heading into what looks like the next kind of scenario. So it's something we're actively thinking about with new investments, but also existing ones. I think today, we're happy with the current settings, but it's constantly on watch. Thanks mate. Hopefully this helps.

Thanks, Jason.

We have a question from Bob Hayward on Vodafone. Is Vodafone not a mature business? Or do you consider it will match the growth of CDC data centers?

Personally, I was wondering to I'm incredibly bullish on Vodafone. If you think about the opportunities in front of us with Vodafone and the options that we've got to invest in Vodafone, I think, is a tremendous opportunity in front of. But again, Marko, I might put this one to you.

So again, a couple of things to think about. So they're broadly both in that digital infrastructure segment. But as you -- I'm sure you're fully aware there is parts of that sector that are growing at 40% and 50% per annum. So raw data growth is growing at that level. Unfortunately, while volumes are growing, revenue isn't growing at that same pace. And what typically happens, we tend to try to give our customers more for the same price point as being sort of a feature of the market for a long time. So it's one of the reasons why our data center business might grow at a different rate to say an integrated telco like Vodafone. Inside Vodafone though there will be businesses, subsegments like IT services that are growing much faster than, say, fixed line broadband, which is actually nominal neutral or slightly negative. So probably requires a bit more time to fully answer that question, but there's a reason why those 2 businesses would perform quite differently.

Donald Charleston has a question on Trustpower. Has Trustpower locked into the feasibility of generating power using tidal movement with a huge fly water through -- cooked inside those straights, it seems to make sense to harness, if possible.

I would be surprised if they haven't looked into it. By doing that there are a lot of difficulties with tidal power. And in terms of per megawatt both into cost to build and cost to run that tidal power compared to wind and possibly solar in the New Zealand environment just doesn't stack up. But why don't I give -- a chance to shine here, Paul Ridley-Smith. Can I say this, that there are no plans to further invest in the gate generation from tidal power.

Sorry, I'm having technical difficulty. Am I back on now?

You are. I can hear you.

I'm sorry about that. I had to tick the mic my computer. Yes, I did hear the question. No, the answer is no, we are not looking at tidal power. I have no expectation that we will. The renewable energy we are interested in are geothermal wind and solar, and we will be looking at projects in all of those spaces, but tidal is not a starter.

Thanks, Paul. Good question, though.

Next question is from James Noble regarding Qscan. Will Australian insurance companies cover the cost of a PET-CT investigation. If not, what is the cost per patient per investigation?

That's quite a detailed question. Thankfully, we have Paul Newfield on the line, Paul?