IFT - Infratil

[kiora]

Singapore recently lifted its moratorium on data centre builds, presumably in part as it thinks it can source renewable energy from Oz (hopefully in part supplied by IFT!).

"Gurin Energy awarded conditional approval to import low-carbon electricity from Indonesia to Singapore"
https://morrisonglobal.com/news/gur%...-to-singapore/

[Jaa]

"Gurin Energy awarded conditional approval to import low-carbon electricity from Indonesia to Singapore"
https://morrisonglobal.com/news/gur%...-to-singapore/

"The power generation is planned on the Riau islands and underpinned by 2,000MW of Solar Photovoltaic installed capacity and c. 4,400 MWh of battery storage, one of the largest such planned projects in the world."

Interesting, Riau Islands are a tough place to do business but good luck to them, looks like a win-win for all involved and hopefully IFT.

Confirms that IFT's two big bets (data centres and renewable energy) covering half of the company's assets are linked and thus so will be success. An increase in risk compared to what shareholders are used to.

[kiora]

https://infratil.com/news/cdc-indepe...-30-june-2024/

The metrics in this links Appendix Page 3 May shed more light

[RGR367]

I just submitted my discounted share entitlement.
Im taking my full offer.

Onwards and upwards for IFT.

Same here on full max amount. And hope we get them.

[Snoopy]

If you want to solve for FV or D then I recommend present a range of values based on varying assumptions of depreciation rates as well as assumed splits between capital WIP vs income producing assets. Same for solving I vs FDM - present a range of values. But right now there are too many unsolved variables to meaningfully unpick these two unknown values any further.

It could be the USPP debt is costing CDC a lot. So how much of the IFT capital raise will be used for debt repayment versus capex....have they disclosed this?

There are two ways in which the value of non-current assets can increase:
a/ Some new non-current (i.e. long term) assets are built.
b/ Some existing long term assets are revalued upwards.

The difference in value of non-current assets, on the books, over the FY2024 year, was: $6,666.0m-$5,762.3m= $903.7m. But some of those assets have been built during the year as a result of capital expenditure of $560.8m (AR2024 p26). So this implies that the 'revaluation component' of the increase in long term assets was: $903.7m-$560.8m=$342.9m. However, there will have been a depreciation cost for the year that will have been 'netted off' against any revaluation. So it is more correct to call the $342.9m 'R-D'.

From the Statement of Comprehensive Income above:

EBITDAF - (I +Fdv) +(R-D) = NPBT
=> $271.0m - (I+Fdv) + $342.9m = $299.7m
=> (I+Fdv) =$314.2m

...where 'I' is the net interest bill and 'Fdv' are foreign currency derivative movements. The FdV's could be related to currency hedging the New Zealand activities of CDC, or perhaps the acquisition of capital equipment from committed contracts most likely priced in USD.

On the subject of making a 'range of guesses' around depreciation charges, I feel there is enough information in the Spark annual accounts depreciation schedule (SPK AR2023 p113) to make a pretty good informed guess. I have previously stated that for CDC (light on computer rack equipment that is largely supplied by the customer) I think this should be 40 years, based on:

Depreciation Category	Depreciation Time
Building	15-53 years
Air Conditioning	8-20 years
Power Systems	3-25 years
Computer Equipment	2-8 years
Internal IT System Assets	3-15 years

I am thinking the datacentre building, by far the largest capital value item, will have a life of 50 years, averaged back to 40 by the lower value shorter life power and internal IT equipment and the air conditioning. Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. So 1/40th of that value is $144.1m

$342.9m = 'R-D' => Revaluation over FY2024 = $342.9m + $144.1m = $487.0m

That figure is considerably greater than the net surplus for FY2024 of $201.9m. This is fairly clear evidence to me that CDC made an overall loss on its day to day operations over FY2024 (even if they probably did make an operational profit over FY2023). But considering the build program currently on the plans and being executed, that is what I might expect in a business like this at its current state of development. Fortunately the 'future valuation' boffins descended on the accounts and decided that enough money would be made in the future to put an offsetting $487.0m into the income statement. That means there was no need to upset the Infratil shareholders about the operational performance of CDC. Nothing like some accounting spin to keep those punters happy.

And if you believe the funding strategy, slide 14 of the Infratil Capital raising Presentation, I would say none of the equity raised from Infratil will be going to repay CDC debt. I would say it is build, build and build some more from here.

I am not too worried about solving to find the derivative amounts in the equation puzzle. They should all come out in the wash as the build program rolls out.

SNOOPY

[Snoopy]

There are two ways in which the value of non-current assets can increase:
a/ Some new non-current (i.e. long term) assets are built.
b/ Some existing long term assets are revalued upwards.

The difference in value of non-current assets, on the books, over the FY2024 year, was: $6,666.0m-$5,762.3m= $903.7m. But some of those assets have been built during the year as a result of capital expenditure of $560.8m (AR2024 p26). So this implies that the 'revaluation component' of the increase in long term assets was: $903.7m-$560.8m=$342.9m. However, there will have been a depreciation cost for the year that will have been 'netted off' against any revaluation. So it is more correct to call the $342.9m 'R-D'.

On the subject of making a 'range of guesses' around depreciation charges, I feel there is enough information in the Spark annual accounts depreciation schedule (SPK AR2023 p113) to make a pretty good informed guess. I have previously stated that for CDC (light on computer rack equipment that is largely supplied by the customer) I think this should be 40 years, based on:

Depreciation Category	Depreciation Time
Building	15-53 years
Air Conditioning	8-20 years
Power Systems	3-25 years
Computer Equipment	2-8 years
Internal IT System Assets	3-15 years

I am thinking the datacentre building, by far the largest capital value item, will have a life of 50 years, averaged back to 40 by the lower value shorter life power and internal IT equipment and the air conditioning. Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. So 1/40th of that value is $144.1m

$342.9m = 'R-D' => Revaluation over FY2024 = $342.9m + $144.1m = $487.0m

That figure is considerably greater than the net surplus for FY2024 of $201.9m. This is fairly clear evidence to me that CDC made an overall loss on its day to day operations over FY2024 (even if they probably did make an operational profit over FY2023). But considering the build program currently on the plans and being executed, that is what I might expect in a business like this at its current state of development.

It has been pointed out to me that I have made an error in my depreciation estimate calculation. The error being that I have ignored the owned land on which the datacentres are built and onto which any expansions are going to be built. We do have a bit of an obsession in NZ with 'land'. But the vast majority of the CDC land is of course in Australia where most of their business is located.

The interesting thing about datacentres is that when signals are being fired back and forth to them along optical fibres at up to 70% of the speed of light the distance from the point of data use to the point of data storage becomes less relevant. IOW whether the datacentre structure is 5km away or 50km away, the operator on the end is not going to to be able to tell much difference. This means datacentre builders can be a bit less choosy about where they build their structures. They do not have to compete with logistics distribution houses for prime space.

Looking at Googlemaps, it appears the Canberra CDC datacentre there is about 20km out of the city 'in the middle of nowhere'. So I suspect the land bank value of CDC is actually not that high - probably no more than 10% of the value of all CDC long term assets. This means my correction to overall depreciation to take account of land (which does not depreciate) is likely relatively small. Maybe applying to only 10% of the value of the long term assets?

Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. 90% of that value (being the non-land assets) amounts to $A5,186m. So 1/40th of that value is $129.7m

The difference in value of non-current assets, on the books, over the FY2024 year, was: $6,666.0m-$5,762.3m= $903.7m. But some of those assets have been built during the year as a result of capital expenditure of $560.8m (AR2024 p26). So this implies that the 'revaluation component' of the increase in long term assets was: $903.7m-$560.8m=$342.9m. However, there will have been a depreciation cost for the year that will have been 'netted off' against any revaluation. So it is more correct to call the $342.9m 'R-D'.

The reduction in D from $144.1m to $129.7m, equating to $14.4m, means that the Revaluation part of the 'R-D' equation 'R' can be smaller by that same amount to make the $342.9m 'R-D' = $342.9m equation balance. But at $342.9m + $129.7m = $472.6m, it still a large revaluation amount.

SNOOPY

[Snoopy]

MCO are global, have sector experience and have some of the best corporate minds globally. Idiotic to think they’ve stumbled into some good investments. They’ve maneuvered their way into fast growing assets through thoughtful future focussed insight. No lottery ticket luck here, just plain hard graft and patient investment.

Yes, Morrison's/Infratil have a good historical record. I don't think anyone is disagreeing with that. But conflating that record with the idea that they should not be scrutinized when venturing outside of their areas of proven competence is not a logic leap I would make.

The data centres have an average forward contract tenure in multiple decades, and cdc’s growth is not contracted until they’re mostly forward sold. The debt providers that analyse a lot of data centre businesses describe CDC as a unique data centre asset (the best in the world form a credit perspective) given longevity of forward contracts and the high quality of their clients. So pray… explain the risk?

I suspect the forward contract agreements are not as water tight as has been presented. I mean, what business manager is going to sign up to an unencumbered 30+ year property lease deal? That sounds insane. I would suggest we are more likely seeing a 10 year property deal with two ten year rights of renewal. Don't get me wrong, that would still be a good deal for CDC. But it would leave room for a client to ease out of the arrangement, should technology take a different turn. Like with the rise of 5G and more 'local hub', rather than 'central hub' processing (one technological risk you seem unaware of).

As to the big boys swamping them… ignores CDC’s competitive advantage of being co-owned by AU super and ift (asx/nzx listed entity as helping Govt, and large AU corporations get around cloud based data sovereignty issues. It ignores the quality execution by CDC management to date.

I agree having a locally owned outfit holding sensitive government information onshore is an advantage card that CDC have played well so far. But I haven't heard it said that it is government policy not to use the big boys like AWS and Microsoft Azure. And the fact that such operators are starting to build their own operations 'down under' suggests that they too see the value in having local infrastructure on the ground. I suspect the scale low cost funding from their US parents will make them cheaper too.
'Quality execution by CDC management to date' doesn't provide any guarantee for future heavyweight bouts. You are only as good as your last fight in this heavyweight data game.

Finally to think AI is some buzz word blip and it’s a passing phase before the bubble bursts demonstrates a remarkably myopic view of technology that I think beggers belief.

You might find some of the adoption of AI does not go as smoothly as you think. I think of the AI revolution as akin to what happened with call centres. Company's 'save money' by going to Asian boiler room help desk operators who can be helpful but only to a point. As a counter example, Telstra has gone back to Australians working in Australian based call centres - not a cost out exercise - but nevertheless still 'worth it'. Implementations of such brilliant ideas like just communicating through robots does not always go entirely to plan.

SNOOPY

[warthog]

Yes, Morrison's/Infratil have a good historical record. I don't think anyone is disagreeing with that. But conflating that record with the idea that they should not be scrutinized when venturing outside of their areas of proven competence is not a logic leap I would make.

Morrisons are all about infrastructure and this, with all its parallels with existing and historical investments, is no different.

Regardless, everyone should always be scrutinised irrespective of whether it is "their area" or not.

You might find some of the adoption of AI does not go as smoothly as you think. I think of the AI revolution as akin to what happened with call centres.

The hog sees the "AI" landscape as being more similar to electrification or digital networks rather than call centres.

[LaserEyeKiwi]

A reminder that today is the last day for shareholders to apply for discounted shares in the retail offer

[Snoopy]

It has been pointed out to me that I have made an error in my depreciation estimate calculation. The error being that I have ignored the owned land on which the datacentres are built and onto which any expansions are going to be built. We do have a bit of an obsession in NZ with 'land'. But the vast majority of the CDC land is of course in Australia where most of their business is located.

The interesting thing about datacentres is that when signals are being fired back and forth to them along optical fibres at up to 70% of the speed of light the distance from the point of data use to the point of data storage becomes less relevant. IOW whether the datacentre structure is 5km away or 50km away, the operator on the end is not going to to be able to tell much difference. This means datacentre builders can be a bit less choosy about where they build their structures. They do not have to compete with logistics distribution houses for prime space.

Looking at Googlemaps, it appears the Canberra CDC datacentre there is about 20km out of the city 'in the middle of nowhere'. So I suspect the land bank value of CDC is actually not that high - probably no more than 10% of the value of all CDC long term assets. This means my correction to overall depreciation to take account of land (which does not depreciate) is likely relatively small. Maybe applying to only 10% of the value of the long term assets?

Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. 90% of that value (being the non-land assets) amounts to $A5,186m. So 1/40th of that value is $129.7m

The difference in value of non-current assets, on the books, over the FY2024 year, was: $6,666.0m-$5,762.3m= $903.7m. But some of those assets have been built during the year as a result of capital expenditure of $560.8m (AR2024 p26). So this implies that the 'revaluation component' of the increase in long term assets was: $903.7m-$560.8m=$342.9m. However, there will have been a depreciation cost for the year that will have been 'netted off' against any revaluation. So it is more correct to call the $342.9m 'R-D'.

The reduction in D from $144.1m to $129.7m, equating to $14.4m, means that the Revaluation part of the 'R-D' equation 'R' can be smaller by that same amount to make the $342.9m 'R-D' = $342.9m equation balance. But at $342.9m + $129.7m = $472.6m, it still a large revaluation amount.

I have had another prod off line about getting my estimate of a depreciation deduction wrong. The issue, this time, is that long term assets under construction are not depreciated until construction is finished. A fair cop. So what proportion of long term assets 'on the books' are under construction? Some good background information on this is in the Infratil Capital raising presentation:
https://infratil.com/news/infratil-a...-equity-raise/

From slide 7:
"388MW under construction across current footprint"

From slide 13:
"Operating capacity 302MW" "388MW expected to be completed by the end of FY2026."

So we can think of the 'under construction' section of future data centre roll outs as being completed over 3 years. That averages out at 388MW/3= 129MW to be completed over each of FY2024, FY2025 and FY2026. So we could say the paid for work under construction represents ( 129MW/(129MW+302MW) =) 30% of 'long term datacentre assets'.

Non current assets at EOFY2023 (the time point used for setting depreciation rates) were $A5,762.3m. 90% of that value (being the non-land assets) amounts to $A5,186m. 70% of that value (being the depreciable assets that have finished construction) is $3,630m. Assuming these assets depreciate on average over 40 years, this gives an annual depreciation charge of ($3,630m/40=)$90.8m.

This insight further reduces the FY2024 datacentre revaluation 'R' required to match known declared CDC profits over FY2024
'R-D' = $342.9m => R = $342.9m + $90.8m = $433.7m 'which is still a large amount'.

SNOOPY