Brookfield Infrastructure Partners LP (BIP) 2014 Q2 法說會逐字稿

Presentation

Welcome to the Brookfield Infrastructure Partners' 2014 second quarter results conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. (Operator Instructions)

At this time, I would like to turn the conference over to Tracey Wise, Senior Vice President, Investor Relations. Please go ahead, Ms. Wise.

Thank you, Operator, and good morning. Thank you all for joining us for Brookfield Infrastructure Partners' second quarter 2014 earnings conference call.

On the call today is Bahir Manios, our Chief Financial Officer, and Sam Pollock, our Chief Executive Officer. Following their remarks, we look forward to taking your questions and comments.

At this time, I would like to remind you that in responding to questions and in talking about our growth initiatives and our financial and operating performance we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For [future] information on known risk factors, I would encourage you to review our annual report on Form 20-F, which is available on our website.

With that, I would like to turn the call over to Bahir Manios. Bahir?

Thanks, Tracey, and good morning, everyone. In my remarks, I'll focus on funds from operations, or FFO, which is a proxy for cash that we generate in our business.

Our results for the quarter were strong, with most of our operating businesses performing well. We reported funds from operations, or FFO, of $180 million, or $0.86 per unit, which translates to a 62% payout ratio that sits comfortably at the lower end of our long-term target range.

For the first half of the year, our results were up 12% on a comparable, or a same-store, annualized FFO per unit basis, surpassing our targeted goal of 6% to 9% of organic growth that gets generated without additional fresh capital from BIP.

For the quarter, our results were flat compared to the prior year, as the second quarter of 2013 benefited from the contribution of assets that were subsequently sold as part of our capital recycling initiative.

Our utilities business generated FFO of $92 million in the period, compared with $83 million on a comparable basis and $96 million in total for the second quarter of 2013. Total results in this segment were lower, reflecting the impact of the sale of our Australasian distribution operation in the fourth quarter of 2013. However, the comparable results were strong, as our businesses benefited from higher connection activity in our UK regulated distribution business, inflation indexation, a larger regulated asset base, and lower costs resulting from margin improvement programs at a number of our operations.

Our transport business generated FFO of $94 million in the second quarter of 2014, compared to $83 million in the prior-year period. The increase in FFO was driven largely by the greater contribution from our Brazilian toll roads, where we doubled our ownership in September 2013, as well as stronger results in our ports business, where we benefited from both the newly acquired North American west coast port operation and better performance at our European port operations.

This increase in FFO was partially offset by $6 million of non-recurring interest income from a favorable stamp duty ruling at our Australian railroad that was reflected in prior-year results.

Our energy business generated FFO of $16 million in the second quarter of 2014, compared to $18 million in the prior-year period. Results were negatively impacted by lower transportation volumes in our North American gas transmission business and a warmer winter that affected volumes in our UK energy distribution business.

On the financing front, subsequent to period end, our Chilean electricity transmission business completed a $375 million financing, comprised of notes that were rated Baa1 by Moody's and BBB by Standard & Poor's. The issuance, which was almost seven times oversubscribed, has an 11-year term and a coupon of 4.25%. The proceeds from this financing will be used to repay debt that is maturing in the second half of 2014 and 2015.

From an operations perspective, most of our businesses performed well during the quarter, and we're encouraged on a number of fronts.

Most noteworthy was our Australian regulated terminal, where we experienced record capacity utilization of over 95% in June. Given that we have take-or-pay contracts in place with premier mining companies, our financial results for this business are not impacted by volumes handled at the terminal. However, this level of throughput is encouraging, as it demonstrates that in this low price environment our customers are continuing to ship significant volumes through the terminal.

Our railroad saw another good quarter, with volumes up 5% from the prior year, as a result of higher iron ore and grain shipments which were ahead of our expectations.

And finally, our ports business also experienced a solid quarter, with results improving compared to the prior year. The business in the UK has seen an overall 15% increase in underlying volumes on a year-to-date basis compared to the prior year, primarily due to improved economic conditions and several customers expanding their operations. In response to increased demand from our customers, we are investing $35 million to complete an upgrade of the quay to accommodate these increased volumes.

In addition, we are in the midst of integrating our North American west coast container terminal into our ports platform. We expect to see a meaningful contribution from this business with the completion of its modernization program at the end of 2015.

And finally, on the organic growth front, as you know this is a core part of our overall strategy and we've continued to add to our backlog in our utilities, transport, and energy businesses during the quarter. These are all projects that are funded by internally generated cash flows and earn us very attractive risk-adjusted returns.

As an example, this quarter in our utilities business we grew our committed projects backlog during the second quarter to approximately $435 million, which we expect to invest and commission into our regulated rate base in the next 24 months. We did that by adding almost $100 million of projects, primarily at our UK regulated distribution business and our Australian regulated terminal.

Our UK regulated distribution business experienced record sales activity during the period, with sales of our multi-product offerings up 40% compared to the prior year. The increase in activity levels is primarily attributable to a broader recovery in the UK housing market, which still remains below pre-financial crisis levels.

Also, at our Australian regulated terminal, we received approval to invest an additional $50 million on the final phase of a storm water management system.

With that, I'll turn the call over to Sam.

Thanks, Bahir, and good morning, everyone. The focus of my remarks today will be on updating our investment activities, and I thought I would review our investment posture for you.

Last quarter, we indicated that approximately $450 million of capital was committed to be deployed into four new investments. We have made considerable progress towards closing these transactions and expect them to start to contribute to our results during the second half of the year.

In mid-August, we expect to close on our investments in VLI and Macquarie District Energy, as we have received all consents required for closing these transactions. VLI is a Brazilian rail and port business, which will provide us with approximately $300 million of organic growth projects, as the business has a substantial capital program to expand operations. Macquarie District Energy is a district energy system that provides environmentally efficient heating and cooling to large buildings in Chicago and Las Vegas.

We are still waiting for regulatory consent to close our investment in the Elizabeth container terminal located in the port of New York/New Jersey and the acquisition of Seattle Steam. We expect to obtain the required consents during the second half of 2014.

Just after quarter-end, we signed an agreement to acquire Lodi Gas Storage in California with institutional partners for $105 million. Our equity investment will be 40%, or approximately $40 million. While this is a modest investment, we believe we are acquiring the business for exceptional value. This business complements our existing natural gas storage business, and we expect to see some synergies from combining it with our current platform. We expect this transaction to close by the end of the first quarter of 2015, following completion of customary closing conditions.

I would now like to discuss our investment posture, as lately we've had a recurring question from a number of our investors regarding how much longer the investment cycle for infrastructure assets will last before we see a correction in values. While our views don't necessarily lead to a simple answer, we can certainly see an argument for both sides of the debate.

For those of us with GDP-sensitive operations in North America and Europe, it certainly feels like the recovery in economic growth is just beginning. Our European ports business has only recently shown improvement, with increases in container traffic and signs of new customer investment activity, particularly in our UK operations. Furthermore, in both the UK and the US, we are still not seeing housing starts at levels that approach the steady-state levels we would expect. Consequently, we should still experience stronger economic growth for a number of years to come, which will support valuations and encourage further investments.

But you can also take the view that we are late in the investment cycle: the stock market in the US and Canada is well into its fifth year of strength; there have been a recent spate of IPOs by companies looking to exit core assets; and the use of leverage and valuation multiples in a number of notable mergers and acquisitions are approaching levels we haven't seen since 2005 and 2007. These are all indicators of a cycle nearing its conclusion.

Now, no one can say for certain how much longer this cycle will last or what sort of correction we could experience once interest rates start their climb from these historic levels. Our view is that valuation levels for some types of assets have been inflated by a combination of extremely low interest rates and a scarcity of infrastructure opportunities to satisfy the investment appetite of new market entrants. On the other hand, we also believe that the global economy will likely surprise on the upside, which should mitigate these factors from a valuation perspective.

Our businesses are not liquid investments, and therefore we take a much longer-term approach to investing than many investors. As a result, our investment and financial strategy is formulated to succeed throughout the business cycle, including conditions which currently exist. However, we believe that several of our investment guidelines are particularly relevant in this valuation environment, and therefore I wanted to reiterate five of these guidelines to you.

First and foremost, we remain focused on investing capital to meet our long-term return targets of 12 to 15%. We do not believe in reducing our return thresholds for the sake of making it easier to acquire assets, nor do we justify purchases based solely on our accretive cost of capital.

Second, we create value for our unit holders by being both good buyers and good sellers. Late last year, we recycled over $1 billion of equity capital in our business through asset sales. While we don't expect that we will be selling assets every year, harvesting assets to reinvest back into our business is a core strategy. Investing capital at 12% to 15% returns and selling assets at an 8% to 10% return level is very accretive to our Company's per-unit growth.

Third, we don't pay for unrealistic growth targets. Whenever we look to make an acquisition, the seller will always portray a very rosy future for the business. We apply our expertise to forecast a reasonable expectation for growth that reflects competitive dynamics such as new market entrants and regulatory considerations. This is where many acquisition mistakes are made, in particular when capital is more freely available.

Fourth, we buy high-quality assets with established, proven business models and management teams that have a solid track record. We are always focused on identifying businesses with internally generated organic growth potential where we can deploy further capital at highly accretive returns. Furthermore, in an environment where odds favor interest rates increasing, assets that are fully contracted with little organic growth are the most susceptible to valuation declines.

And lastly, we maintain a high level of liquidity. We currently have approximately $2.5 billion of total liquidity. We have also extended the maturity profile of our debt to an average of 10 years, and for the most part fixed our interest rates. While we incur some costs for maintaining high levels of liquidity and utilizing long-term, fixed-rate debt, we believe the benefits of being in position to take advantage of market corrections far outweigh these costs.

I'm going to conclude my remarks with an outlook for our business. We have built a business over the past number of years that is positioned to deliver solid results in a variety of economic environments. We are currently operating in global economic conditions that are generally pretty good.

The US economy is continuing to demonstrate signs of renewed growth, and we have also seen further easing of monetary policy by the European Central Bank. There are continued signs of economic stabilization within China, where government officials recently expressed confidence that the government would achieve the 7.5% annual GDP growth target established late last year.

The only region where we operate that has seen economic growth decelerate is South America. However, we believe fundamentals continue to support favorable growth over the longer term.

On the whole, our business should perform well in this economic environment.

We remain disciplined with our capital allocation and underwriting. Liquidity is strong, and our business development teams are continuing to engage on a number of attractive investment opportunities. In addition, we have almost $1 billion of organic investment opportunities in our operations which are always the lowest risk and highest return for us.

With that, I'll turn the call back to the Operator to open the line for questions.

Thank you. (Operator Instructions) Brendan Maiorana, Wells Fargo.

Sam, at DBCT you guys had record utilization. What do you think that means for the prospects for additional growth CapEx at your Australian rail operations? And could you also maybe speak to does the high utilization do anything to rekindle the opportunity at Dudgeon Point as well?

Maybe the first comment I'll make on the higher volumes we're seeing at DBCT. I think the reason we're seeing that is because all the mining companies right now are highly focused on bringing down their per-unit costs. And so, they're focused on maximizing volumes and achieving those economies of scale. And so, that's why we think we're seeing this phenomena take place in this particular environment. And so, we would expect that to continue for the foreseeable future.

And I believe that we're seeing to a certain extent, maybe not as widely, but also taking place out in the western part of Australia in relation to our rail business, as well.

And so, I think over the next couple of years we should continue to see higher volumes and higher utilization for both businesses, and obviously subject to where the commodity prices trade.

I think as far as major expansions, my view is that most of those are probably on the shelf for the time being until we see some price signals that would suggest that they would make sense. And so, in relation to Dudgeon Point, at this stage we are still pretty much pens down as it relates to that particular large-scale expansion project.

What we are doing, though, and what we've been thinking about for the last couple of quarters is some smaller, more incremental type expansions that we can do at DBCT itself. And so, the first phase might be a 4 million- or 5 million-ton expansion, and then we've got some ideas around maybe how we can do a 15 million- or a 20 million-ton expansion. But they are much more smaller and incremental than Dudgeon Point, which would be in relation to much greater growth which we just don't see at this point in time.

Okay. That's helpful. So, it sounds like kind of similar to what you guys put in place this quarter. I think it was [$50 million] of additional at DBCT.

And then, just my second question, last question, for Bahir. So, just thinking about the capital backlog now, the growth CapEx projects, I think it's about $900 million, give or take. I forget if that's a number through the end of 2015, or if that's a 24-month window?

And how should we think about the ability to finance that on a leverage-neutral basis through your cash flow and what that may mean for the dividend? Because if I think about just a high-level BIP perspective, your AFFO less the dividend is in the low $200 millions, which would suggest to me that maybe funding this internally from just operating cash flow on a leverage-neutral basis -- call it 50/50 debt to equity, or maybe even 60/40 -- seems like you may fall a little bit shy. So, just wondering with the increase in the CapEx backlog, does that mean you've got to look for some additional sources to help fund that on a leverage-neutral basis?

As you said, there's about $930 million of total CapEx in our backlog, including about $35 million in energy projects. And if you add that to our utilities and transport numbers that we disclosed in our supplementary, you get about $930 million.

These numbers will be invested over the next two to three years. As you correctly pointed out, they will be funded, say, on average, by 50%. Typically, your utilities projects will be funded with 60% to 65% debt, and the transport and energy projects will be funded by, say, 40% to 50% debt to equity. So, on average, you're right: about 50%.

And so, over three years and if I look out to our forecasted results and just keeping with our methodology of retaining 20% of the FFO that we generate in our business, retaining that back into our business and reinvesting in these projects, we don't think we will be in need of any fresh, new capital.

And that's also in addition to about $760 million of retained cash that's in the business that today we have. So, we do have currently a lot of cash in the business. And in addition to that, in the next three years we'll be generating some pretty good cash flow that will be sufficient to fund this approximately $930 million CapEx backlog.

Maybe just to add to that, a significant amount of this backlog relates to our Brazilian toll roads, where we have lines of credit with BNDS specifically set aside for these expansion projects, as well as a significant amount of cash that we have prefunded that sits down there as well to fund the CapEx. So, that probably skews the numbers a bit, but most of that CapEx has already been prefunded through those two mechanisms.

Okay. All right. Very helpful. Thanks, guys.

Andrew Kuske, Credit Suisse.

I just want to step back a little bit and think about your capital allocation on a global basis and how you're thinking about just some of the currency moves we've seen recently. So, we've seen the euro pull back a little bit. Some of the LatAm currencies are still somewhat depressed relative to where they were a few years ago.

So, how do you think about that in terms of allocating your dollars on, say, the next few years relative to, say, quote-unquote, more normalized levels of some of those currencies?

As it relates to currencies themselves, we take a much longer-term view when thinking about where they sit at this particular point in time. I think whenever we make an investment, the long-term growth rates, inflation, and currencies are all factors that go into our underwriting analysis.

But I'd say that the currency side of it is one that if we think that we're sitting outside of a particular bend, then we'll usually cover that off through some sort of hedging activity, particularly as it relates to the euro or the UK pound, where we can almost always hedge that out at very low cost if we think that they're trading outside of what we would describe as a normal band. South America is obviously a little different, but today I'd say we think that the currencies down there are probably fairly attractively priced and putting aside all other factors, it would be a relatively good entry point to go into that market.

But I think just maybe adding to your question a little bit, putting aside valuation for the time being, we see good conditions for investing across the world. Our two most active regions at the moment are probably Europe and then maybe to a lesser extent Australia. And then, we've got a number of, I'd say, more early stage opportunities that we're evaluating here in North America and in South America. But all in all, we've got good pipeline around the world.

I guess just to follow up on that and then if we focus on the European situation, really, what are the primary drivers of some of the opportunities you're seeing? Is it corporate deleveraging? Or, is it effectively bank deleveraging, trying to get off of some loans on their books?

It's both, to be honest. The theme is definitely deleveraging, though. With where the bank market is today in Europe, there's some opportunities that unfortunately have gone away from us because companies have been able to blend and extend to a certain extent. But generally people are either taking advantage of this point in time to sell assets to help pay down debt, or banks are giving them a bit of a push. And so, that is creating opportunities for us.

Okay. That's very helpful. And then, if I may just ask one more specific question as it relates to some of your co-investors interests in some of the assets in, say, Transelec in particular? I think if we looked at that asset, it's probably the one that's been on the Brookfield books the longest. And so, the ownership positions there, are they coming up to the end of life of the original life of the fund before they go into the option periods? And then, what does that really mean from a BIP standpoint on an opportunity to increase the capital position allocated to those assets?

So, in relation to Transelec, that was an investment we made with three institutional partners, going back probably to 2005. At the time, it wasn't really a fund, per se; it was more of a joint venture type arrangement. It doesn't really have a specific termination period. And so, the exit decisions are really dependent on each individual partner's investment horizon. And so, we know our partners like that asset as much as we do. And so, I'm not expecting that anyone is looking to exit any time soon.

Okay. That's very helpful. Thank you.

Robert Kwan, RBC Capital Markets.

Just when it comes to GDP-driven investments, it seems that those fit your long-term thesis quite well. And generally, that leads you to the transport business and maybe a little bit more away from the utilities business. I'm just wondering how you think about balancing the percentage of the investment from each of those different asset classes, if you do at all? And if you do have some targets, what type of goalposts are you looking at in terms of balancing the two?

We don't have any specific objectives or targets around balancing one asset class to another. I'd say our investment philosophy has always been much more opportunistic. And we have just found that over the last 12 to 24 months that the better value opportunities for us have been in the more GDP-sensitive businesses, because people have been paying an extremely high valuation for contracted cash flows, which I think we see both in the public markets and in the private markets.

But cycles change. I think once interest rates move, you could see that change, and people's concerns around that could result in more opportunities for us to invest in utility type transactions. Obviously, we're able to add to our utilities business through our capital backlog. And so, they continually organically grow and make up a meaningful portion of our organic growth. And even though we may not do as many utility type transactions, we are continuing to seek them out and we will from time to time make investments and often they can be large.

So, that's probably a long-winded answer for what you asked, but I think the short answer is there is no target, and I think you need to look at our investment program over a much longer-term time frame than just the last 12 to 24 months.

Okay. And [just] to be clear, if it's not necessarily between utilities and, say, transport or energy as well, is there a level of exposure to just GDP-driven assets that would get you uncomfortable?

I don't think so. And I apologize if there's noise in the background here; we've got the air conditioner on in the room here.

But we -- I think the thing you need to keep in mind, Robert, is that even for our GDP-sensitive businesses, they are all highly contracted and/or regulated entities. And so, you shouldn't necessarily conclude that the cash flows have a lot of volatility to them. Examples such as our district energy business which we might describe as GDP-sensitive because a lot of our new customers come on because of new buildings that are built.

And so, it has a sensitivity to the economy, but besides that, all of our existing customer base is locked in for 20 to 30 years, and the cash flows are to a large extent indexed to inflation. So, I think it's just -- you need to be careful in concluding that GDP-sensitive is volatile. That doesn't necessarily mean that.

Okay. Just, I guess, the last question here, when it comes to your UK regulated distribution business. You cited the multi-product offering. Is that just the fiber side that Inexus brought to you?Or, is there something else? And is this selling additional services to existing customers? Or, is this more driven by an expansion of the footprint, just offering more services as you roll that out?

Today, we have five products; two, we had prior to the acquisition of Inexus. So, we always had gas and electricity, and those still remain the main multi-product offerings that we sell to customers.

Since the acquisition of Inexus, we added three new products. One is fiber to the home; one is water; and the last one is district energy. District energy typically sells on its own, because it targets a different type of residential property. But we could and do, in fact, offer the other four to our customers.

And I'd say we have -- water is a much more niche, smaller product for us, but the one that is continuing to grow, albeit it will take some time before I'd say it's hugely meaningful for our results, but fiber to the home is probably the one we're most excited about.

But today, gas and electricity are very established, and I'd say in most cases we sell both of those to our customers when we do a sale.

And what's the fiber penetration right to the existing customers (i.e., how much running room do you have for above-average growth as you sell through to the exiting customers)?

Well, today the penetration is quite modest and in fact, because of the relatively infancy of the regulation around it, from a profitability perspective it really only is economic for customers with larger entitlement schemes. And so, we're hoping that with the further work that we'll do with the regulator, where we can improve our access points, that we in fact can make this more economic to much smaller schemes, and then our penetration will rise substantially.

But it's still relatively new. I think this is something that hopefully we'll be able to provide you greater transparency on over the next couple of years.

That's great. Thanks, Sam.

Bert Powell, BMO Capital Markets.

Just a question on the toll roads; $341 million is your capital backlog, and I'm going to assume most of that is for Brazil. I'm just wondering can you walk us through how that capital goes in and the lag between the increasing and widening of lanes then turns into FFO? I would assume increasing a road, you can start tolling right away. Widening is a judgment call around utilization of the toll roads. So, I'm just wondering if you could help us think about how the return on that capital flows?

Okay. There's really two elements to it, Bert. The first element relates to higher tariffs that we get from what they describe as rebalancing, which is where when we expend the capital, the regulator will allow us to adjust our models where we can increase tariffs, and that obviously gets collected over the life of the concession. And so, it's somewhat of a mathematical analysis that we do with the regulator, but it would be over, let's say, the remaining 20 years of the concession. So, that's obviously a very large component to it.

The second component which can happen relatively quickly is that when we do an expansion and de-bottleneck a road, there's often sort of a step-change increase in volumes that takes place. And this can happen quite quickly following one of these widenings.

And they're very specific examples, but we have a number of roads such as Regis Bittencourt, which is one of the roads that connects Sao Paulo with Curitiba. And there, there's a couple of choke points where traffic is extremely dense, and as a result, just discourages people from making the trip.

But once you complete an expansion, what we've seen in other roads is that the experience of traveling from A to B becomes that much better, that it just results in people now making that trip, whereas today the only people who would take the road were the people who just must use it.

And so, that's obviously hard to predict as far as what the quantum of that will be, but those are really the two examples of how it takes place.

Okay. That's great. That gives it a little bit of color on that front.

And just wondering, in terms of your ports commentary, I assume most of that relates to PD ports. But how are euro ports doing, outside of the PD ports?

I'll start on this one, and Bahir can jump in as well. You're correct in your first statement that the stronger of the operations has been our UK operation, where we have really seen a change in the economic situation in the UK over the last six to 12 months. I think it really started in the fourth quarter of last year and has really carried through to this year, and it looks quite promising for the next little while.

The experience in euro ports in the European continent is, I'd say, mixed. There is -- as far as trade goes, we're starting to see some improvement, albeit lower than what we have seen in the UK, but it's a much more diverse business. And so, there is always specific situations, such as weather conditions in Spain that can impact the amount of generation that comes through hydro versus coal generation and whether or not the coal plants are operating. And if the coal plants are operating, then there's reduced coal imports, which is what we've seen and that's impacted our numbers.

And so, it's harder to draw a comparison on the economic conditions of Europe with our operations specifically, but I think our business in Europe as a whole has been very steady, and we're expecting that with the better economy and then hopefully none of this noise with weather, or whatever, will result in better results over the next couple of years.

And Bert, I'll just add to that. So, volume has stabilized, as Sam said. So, at the EBITDA level we're essentially flat to slightly up year over year, and we get more benefit at the FFO line item. Just you'll recall that financing that we did last year where we deleveraged the business and also reduced our cost of carry there. So, as volumes ramp up in the next little while, we'll also get that added benefit as well, because our FFO there is going to pick up additionally, just because of the financing that we did.

And Bahir, just while I've got you, a last question on other income in the corporate side. You have a better than expected quarter there. Can you --? Is there anything that you can call out to say that this is a normal level? Or, what are the one-timers that are contributing to that in the quarter, if there's any?

Sure. So, Bert, we've got about a -- it ranges between $275 million to $325 million. That's the total size of the investment program. From a current yield perspective, we target 4% to 5% returns. And from a total return perspective, we're targeting 8% to 10% returns.

During the quarter, you're right; income was $10 million. I would say that's a little bit outsized, as we did realize on some gains on certain positions that we sold during the quarter. But on a normalized basis, I think modeling a 4% to 5% current yield on that investment program will be good, realizing that in certain quarters we could surprise high on the upside if we did realize on any positions.

That's perfect. Thank you.

Frederic Bastien, Raymond James.

You mentioned that sales activity was up 40% for your UK regulated business, but I suspect this is probably coming off a low base. Can you provide more color on the strength you're actually observing and whether we can expect this improved sales activity to have somewhat of a material impact on your results in the second half?

I'd say that the real driver for the sales activity has been the improvement in the economy of the UK, and in particular in home building. We had, I think, some slight benefit this quarter because of some pricing changes that we were going to institute in the fall. And so, my understanding was some of the developers advanced some of the sales to lock in that price.

But generally, our expectation is that the housing starts in the UK will remain strong for the foreseeable future. They are still, as we mentioned in our remarks, at levels below what we would describe as steady-state. I don't expect that our market share will drop or increase from the levels we're at now. And so, I think we're at a level of penetration that's pretty sustainable.

Okay. Thanks. The second question I have regards NGPL. There has been little mention of it today. Has your view on the business changed fundamentally?

The short answer is, no. I think what has changed from quarter to quarter, last quarter we talked about how with the extremely cold and long winter that we had, that storage levels had dropped to the lowest levels we'd seen, I think, in history. And so, we were predicting that it was unlikely that we would see injection levels take storage levels back up to where they were at the end of last year. And so, we probably could have greater volatility and higher prices, which would all be great for our business.

As you know, the summer has seen very temperate weather conditions in the northeast, and injection levels as a result have exceeded what we probably would have expected a few months ago. And so, while storage levels probably won't get back up to where they were, I don't think they're going to be at the drastically low levels that we and others were predicting.

And so, I think we're probably in for another year of relatively modest volatility. Obviously, we hope that I'm wrong and that there will be better volatility. But unless we get some real scorching weather soon, my expectation is that we'll probably see gas prices and volatility at levels that maybe are a little better, but comparable to what we've seen in the last couple of years.

Thanks, Sam. That's helpful. Thank you.

Cherilyn Radbourne, TD Securities.

First question is just on VLI and the $300 million of growth projects there. I assume that that's at share, and I was just curious over what time frame you'd expect to deploy that capital?

To answer your first question, yes, that's our share. I think for the whole business it's a very substantial program of about BRL6 billion or BRL7 billion, and the time frame for completing all the projects is anywhere between five and seven years. And so, the $300 million that we spoke about really relates to that five- to seven-year time horizon.

Our expectation is that a good chunk of that will be at the front end, but we haven't yet had an official board meeting. And so, the exact timing of those programs we still need to work out with management and our partners.

But that hopefully gives you a bit of a sense of how the numbers fit in.

Okay. And just to come back to the currency discussion earlier in the call, you do continue to be well hedged on your non-Latin American currency exposures. And I'm just curious why you aren't hedging the Latin American exposure, whether that's a cost issue, to your earlier point, or a view on the currencies, or both?

It's primarily a cost issue. I think the -- we've seen some pretty substantial corrections to date, and most of the currencies are within a band that we think is relatively what we describe as normal. And so, our treasury group, while obviously cautious about the environment, nonetheless recommend that we maintain the current stance.

Okay. And then, last one from me, you do note in your commentary that the use of leverage and valuation multiples on some recent deals has approached prior peak levels, and I think we're all aware of some of those examples. Just curious how vulnerable you think some of these deals are to a change in economic conditions or interest rates, or both? And are we setting ourselves up for another period of distress at some point?

Well, I don't have a crystal ball. So, I can't say how the things will unfold. And there's no doubt that some of the transactions have been fueled by higher debt levels. But I'd say if there is a silver lining, it's the fact that most of the higher valuations have been funded from equity and as a result of new entrants using lower return expectations than they would in the past.

So, I think there is a risk for some of those investors who will need to realize on their investments in the short term that they could experience losses, but I think some of them also are long-term investors and they may in fact hold on to their assets for a much longer time horizon. And so, we won't really see the impact of those results. I think it will be almost -- it will be the equivalent of them having bought long-term bonds and just having to wear the mark-to-market losses.

But at this stage, I can't predict any sort of negative systemic issues that might come out of this higher valuation period.

Thank you. That's all for me.

There are no more questions at this time. I will now turn the call back over to Mr. Pollock for closing comments.

That's great. Thank you, Operator, and thank you, everyone on the call, for participating today. And we look forward to speaking with you again next quarter and reviewing our progress.

Have a nice summer.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.