Brookfield Infrastructure Partners LP

Thank you for standing by, and welcome to Brookfield Infrastructure Partners' second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to CFO David Krant. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to Brookfield Infrastructure Partners' second quarter 2022 earnings conference call. As introduced, my name is David Krent, and I am the Chief Financial Officer of Brookfield Infrastructure Partners. Joining me today is Sam Pollack, our Chief Executive Officer, and Matt Grimes, a Senior Vice President of our Investments Team for the Infrastructure Group. I'll begin today with a discussion of our financial and operating results for the second quarter of 2022, as well as touch on the strength of our balance sheet and current liquidity position. I'll then turn the call over to Matt, who will walk through how decarbonization can influence capital allocation and new investment themes. Finally, Sam will provide an update on strategic initiatives and provide concluding remarks. Following our commentary, we will be joined by Ben Vaughn, our Chief Operating Officer, for our question and answer period. At this time, I'd like to remind you that in our remarks today, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual report on Form 20F, which is available on our website. We are pleased to report another quarter of record financial results. Funds from operations, or FFO, increased 30% compared to the same period last year, while FFO per unit was 20% higher at 67 cents. Organic growth remained robust at 10%, reflecting the benefits of elevated inflation, as well as the commissioning of approximately $1 billion of new capital projects and over $3 billion of capital deployed in new investments over the last 12 months. Taking a closer look at our operating results by segment, starting with utilities, adjusted EBITDA increased 14% relative to the prior year, reflecting the benefits from inflation indexation, the commissioning of approximately $500 million of capital into rate base, and the contribution from two Australian utility acquisitions completed earlier this year. FFO for the overall segment was consistent with the prior year, as these noted benefits were offset by the impact of higher borrowing costs at our Brazilian assets, which increased by $25 million compared to the prior year. After removing the impact of these costs, FFO increased 12% over the same period last year. Our UK regulated distribution business continues to perform well as connections activity increased 17% compared to last year. Our order book of 1.5 million connections is at a record high, reflecting a backlog of new home deliveries that were delayed due to the pandemic. These are expected to drive strong growth into the second half of the year. We completed two tuck-in acquisitions within our North American residential infrastructure business during the quarter. including the largest New York-based submetering provider and a portfolio of 9,000 submetering connections in British Columbia and Alberta, further expanding our existing footprint in Western Canada. On our European residential infrastructure business, it became one of the first installers in Germany to provide customer access to electric heat pumps under long-term rental agreements. Switching to a heat pump usually carries a high upfront cost and results in a tedious transition process for customers. By offering a rental product with a carefree package, we were able to double our expected sales in the first month. We anticipate increasing customer penetration to those looking for an easy transition to environmentally friendly heat pumps. I think Matt will elaborate on during his remarks. Moving on to our transport segment, which continues to experience elevated demand as global supply chains remain constrained. FFO was $199 million for the quarter, an increase of 15% compared with the prior year. Key highlights include a 16% increase in FFO across our global toll road portfolio driven by inflationary tariffs and an increase of 8% in traffic levels. At our diversified terminal operations, performance continues to benefit from higher rates, congestion surcharges, and the contribution from our U.S. LNG export terminal, which commissioned a sixth commercial liquefaction train earlier in the year. Performance has also remained strong in our rail networks, with inflationary tariff increases offsetting software volumes and the impact of foreign exchange. Our North American rail operation announced it will serve a new US-based electric vehicle, or EV, ecosystem. Hyundai Motor Group will invest $5.5 billion into a dedicated EV and battery manufacturing facility along our Georgia Central Railway that is scheduled to begin commercial production in the first half of 2025. We expect our rail network will transport inbound materials to support production as well as provide outbound transportation of new vehicles to markets across the United States. Additionally, in May 2022, the Western Australian government formally announced the first package of federal and state government funding towards the Western Australian Agricultural Supply Chain Improvement Program. Of the total Australian dollar 200 million program, We expect our Australian rail network will receive approximately $60 million to upgrade our track to handle incremental capacity. The program, combined with our existing capital plans, will facilitate the shifting of more grain freight from truck onto our rail network. Our midstream segment generated FFO of $170 million for the quarter, nearly triple the prior year, primarily due to the acquisition of our diversified Canadian midstream operation. Same-store results were favorably impacted by the robust commodity price environment and higher utilization of our existing infrastructure compared to the prior year. Commissioning at our Heartland petrochemical facility is progressing in line with our expectations. During the quarter, we completed the startup of our polypropylene plant and shipped our first railcars of the product to our customers. The entire Heartland complex is scheduled for an integrated startup in the third quarter. Once fully in service, approximately 70% of our volumes are contracted on a nine-year weighted average term. These agreements are structured to provide cash flow stability and eliminate direct commodity price exposure, similar to our other midstream operations. SFO from our data segment was consistent with the prior year at $60 million. Strong underlying growth from additional points of presence and incremental megawatts commissioned in the last 12 months as well as inflationary price escalators were offset by the impact of foreign exchange. Our French telecom operation has been selected by a local municipality to roll out 15,000 additional fiber connections to the home. This is estimated at approximately 22 million euros of growth capital underpinned by a 25-year concession agreement with the local authority. This is an attractive addition to our existing fiber network of over 700,000 connections. Our fiber business expects to complete the rollout in 2023 with commercialization rates significantly exceeding our plan levels. Now I'd like to touch on the strength of our balance sheet. Our corporate and asset level balance sheets are well capitalized with limited exposure to rising interest rates through proactive issuance of fixed rate and long dated debt. Capital markets remain open and supportive of our business due to our strong investment grade credit profile and high quality asset base. In April, we proactively issued $600 million of corporate notes in the Canadian debt market. The offering was significantly oversubscribed and split between a 12-year and a 30-year tranche, with an average coupon of approximately 5.5%. Also, during the quarter, we completed several asset-level financings to reduce risk by opportunistically locking in fixed rates and extending our average duration. most notably in investment-grade markets at our diversified Canadian midstream operation and our UK regulated distribution business. Following this activity, approximately 90% of our borrowings have been fixed for an average duration of over eight years, with less than 1% maturing in the balance of this year. From a funding perspective, at the end of the quarter, we ended the quarter with $2.8 billion of available corporate liquidity and have since made significant progress on our asset recycling strategy. As Sam will highlight, we have secured asset sales that will add over $700 million to our current liquidity position and fully fund our new investment activity. For the balance of the year, we have three additional sales processes underway that are combined to generate approximately $1.5 billion of net proceeds. I would like to thank you all for your time this morning, and I'll now pass the call over to Matt.

Thank you, David, and good morning, everyone. I'm pleased to be joining today's call to discuss decarbonisation of the global economy and the resulting investment opportunities. Our view is that this multi-decade initiative will require substantial infrastructure investment to improve and replace the existing energy supply chain. To achieve these aggressive net zero targets, governments, businesses and individuals must balance increasing energy consumption with the goal of reducing carbon footprints. This fundamental shift in how the world is powered is expected to be a catalyst for growth in our existing businesses, both organically and through new investment activity. We separate these opportunities into two categories. Firstly, supply side, which relates to the industries and companies directly responsible for the carbon emissions. And secondly, demand side, which focuses on consumer preferences for energy efficient solutions. On the supply side, we believe the fuels used today to power the global economy will either transition to a net zero economy or be run off safely and responsibly. Our existing midstream assets are predominantly natural gas, highly utilized and strategically located. We believe these characteristics favorably position us to participate in the energy transition through the adoption of emerging technologies as well as through the shift in the global energy mix from coal to natural gas, LNG, and eventually to hydrogen. To date, we have been most active on demand-side decarbonization initiatives to assist those seeking ways to increase energy efficiency, lower energy consumption, and reduce reliance on fossil fuels. Recently, we have made investments in both smart meters and submetering, which enable energy demand management through real-time information about energy usage. We are also investing in building a platform of residential energy infrastructure businesses in North America and Europe. The combination of evolving regulatory requirements and growing preference for low-carbon, high-efficiency in-home energy solutions provides significant tailwinds for this segment. As essential in-home infrastructure increases in cost and complexity, Customers should be more inclined to adopt our rental model to alleviate the high upfront cost of new technology such as heat pumps and solar panels. Through HomeServe, we will extend our rental model value chain by offering homeowners subscription-based recurring repair policies for residential infrastructure products. This investment creates an opportunity to scale our existing residential energy operations in North America where we currently have a large presence. In the US alone, HVAC installation, replacement and subscription-based repair memberships currently have an addressable market of in excess $40 billion that is expected to grow at a 5% compound annual growth rate over the long term. In Europe, where we have a smaller presence, this acquisition accelerates our growth plans and provides a model for expansion into other markets we know well. As the global economy moves closer to net zero targets, all new investment opportunities will have transition elements, given our focus on generating sustainable long-term returns for our unit holders. Our operating capabilities, extensive development experience, and ability to leverage the Brookfield ecosystem positions us well to secure supply and demand side decarbonization investment opportunities. We look forward to sharing our progress with you in the future. That concludes my remarks for today. I will now pass the call over to Sam.