Estimated value of infrastructure assets in OECD countries held by institutional investors, including pension funds, insurance companies and mutual funds.
Estimated size of the infrastructure deficit in Canada following years of underinvestment.
Invest in Quality Infrastructure Businesses
Capstone’s focus on core infrastructure businesses positions us to offer shareholders an attractive total return through steady income and capital appreciation.
Capstone invests in core infrastructure businesses, which represent a distinct asset class with unique investment characteristics and benefits for investors.
What makes infrastructure an attractive investment opportunity?
Our day-to-day lives intersect with infrastructure in many ways, from the roads we travel to the water we drink and the electricity that powers our homes and businesses.
Simply, the services provided by infrastructure businesses are essential. As a result, infrastructure businesses enjoy consistent demand throughout the economic cycle. In addition, infrastructure businesses operate in environments where there are high barriers to entry, such as a regulatory or contractual framework. These businesses enjoy a long life, relatively low risk profile and strong competitive advantage that cannot be easily replicated. In addition, infrastructure businesses often generate defined cash flow that is linked to measures of economic growth, providing investors with a hedge against inflation, which is especially important in economically turbulent times.
Combined, these attributes result in predictable revenue and steady cash flow that is largely resistant to economic or market fluctuations.
In addition, infrastructure businesses have historically demonstrated low volatility relative to other asset classes, offering strong risk-adjusted return potential relative to equities and higher income potential than bonds. For investors, that means stable income, growth and a compelling total return.
While infrastructure delivers a number of benefits to an investment portfolio, it is not without risk. However, risks are typically more readily identifiable or can be mitigated. Revenue risk is mitigated through long-term contracts. Political risk is managed by investing in jurisdictions we are familiar with. And interest rate risk is managed through limited use of
The infrastructure asset class is poised for growth in the years ahead as the need for investment in critical infrastructure is expected to increase substantially due to years of chronic underinvestment, population and economic growth, the challenges of climate change, and, more recently, increasingly strained public finances. Global infrastructure requirements for transport, energy, water and communications between 2013 and 2030 are estimated at more than US$57 trillion. The staggering amount of investment needed contributes to the potential for increasing private sector participation in infrastructure renewal and expansion.
Through Capstone, which intends to build a diversified portfolio of long-life, high quality core infrastructure businesses, investors have a unique opportunity to participate in – and benefit from – the infrastructure asset class.
Cardinal’s five-year average availability.
Expected increase in annual production at Erie Shores resulting from WindBOOST.
Contribution to Whitecourt’s 2013 revenue from the sale of renewable energy credits.
Generate Stable Cash Flow
By diversifying our portfolio to include growing utilities and earlier-stage power development opportunities, we are building a balanced, low-risk platform that will drive long-term stability, increase value and maximize returns for shareholders.
The stability of Capstone’s cash flow originates from the inherent characteristics of our infrastructure businesses.
Our power businesses represent approximately 439 net megawatts of installed capacity under contract with credit-worthy counterparties and are diversified by asset type, geographic location, PPA length and counterparty, and fuel source. These attributes result in predictable revenue. In addition, all our power facilities are characterized by high availability, which reflects the quality of operations, personnel and the ongoing maintenance programs. As a result, we expect these businesses to be stable cash flow generators over the terms of their contracts.
Bristol Water is regulated with a monopoly position in a growing region of the United Kingdom, which is a stable OECD country. The regulatory framework provides for the recovery of operating costs and an allowance for a fair return on capital. Historically, revenues have increased in line with the regulatory allowance and feature a real as well as an inflation component, thereby offering a natural inflation hedge. Bristol Water’s perpetual cash flow profile makes it the ideal complement to our power portfolio and positions this business to be a key contributor to Capstone’s long-term cash flow and overall value.
We are complementing the strengths of our portfolio by diversifying into earlier-stage power development, where we expect our new wind power projects to deliver an attractive risk-adjusted return and to extend our cash flow profile for many years to come.
In addition, Capstone’s capacity to maximize its cash flow and provide stable returns to shareholders depends on the ability of our businesses to deliver on their commitments or obligations to their customers. Our businesses aim to achieve excellence in their operations while providing exemplary service and often collaborating with customers and other stakeholders towards common goals, whether it is working to conserve water or improve biodiversity or providing support to the electrical grid during times of emergency.
Active management also has a considerable role to play. Every year, we undergo a rigorous strategic planning process that includes identifying opportunities to improve our businesses. We work side by side with the management teams at our facilities to determine how we can further enhance the efficiency and quality of our operations, which contributes to our cash flow sustainability.
We expect Bristol Water to be an important driver of value for Capstone’s shareholders in the years ahead.
Total return range we seek to realize on the investments we make.
Grow the Value of Our Portfolio
We carefully screen each investment opportunity to ensure long-term accretion to cash flow and a strong strategic fit.
Our strategy is to develop, acquire and manage a portfolio of high quality power, utilities and transportation infrastructure businesses and public-private partnerships.
Geographically, we are focusing our business development efforts primarily on Canada and the United States, the United Kingdom, and Western and Northern Europe, with Australia and New Zealand remaining markets of interest, all of which are members of the Organization for Economic Cooperation and Development. These jurisdictions feature relative political, legal, regulatory and economic stability.
When pursuing new investment opportunities, we focus on the quality of future cash flow streams and risks. We carefully screen each investment opportunity to ensure long-term accretion to cash flow and a strong strategic fit. We seek to invest in a combination of:
- Lower risk opportunities where cash flow is contractually defined such as operating power facilities and public-private partnerships;
- Utility-like opportunities that offer the potential for predictable cash flow and steady growth; and
- Higher return investments such as our new wind power development projects or user-pay forms of infrastructure such as toll roads.
Capstone’s current portfolio also offers the potential for organic growth, primarily at Bristol Water, a regulated water company. In the current regulatory period, which runs from 2010 to 2015, Bristol Water’s real regulated rate base will grow by approximately 26% compared with an industry average of approximately 8%. We currently anticipate similar growth in the next regulatory period, which spans from April 2015 to March 2020, subject to regulatory approval of the draft business plan Bristol Water submitted to the Water Services Regulation Authority (Ofwat) in December 2013. With this growth profile, we expect Bristol Water to be an important driver of value for Capstone’s shareholders in the years ahead.
In addition, Capstone’s new power development platform positions us to deliver greater returns to our shareholders. Capstone Power Development is focused on developing, acquiring and re-powering clean electricity generation projects in North America, targeting markets where there is a defined need for new capacity and energy supply. These early or later-stage opportunities offer the prospect of substantially higher investment returns while also broadening our pipeline and creating a quality destination for capital. We are also advancing our new pipeline of wind projects, which are currently expected to enter commercial operations between 2014 and 2016. These projects will extend our average weighted PPA term remaining, and accordingly, our long-term cash flow profile.
The Skyway 8 wind project is funding offset grassland habitat lands outside the project development area for the bobolink and eastern meadowlark species.
Operate Responsibly
Our commitment to managing Capstone in the best interests of our shareholders includes being a good corporate citizen.
Financial and operational performance is only one measure of success. How we accomplish our goals is equally important.
A key value of Capstone is to strive for the highest standards in the management and growth of our businesses with a focus on excellence, innovation and creativity in all we do.
Operating responsibly includes making sure our employees have rewarding careers. We have a cadre of long-serving employees at head office and our businesses, and we aim to support them in their career goals and aspirations, including funding continuing education programs and providing challenging opportunities.
Additionally, our commitment to managing Capstone in the best interests of our shareholders includes being a good corporate citizen.
As owners and operators of infrastructure businesses that provide essential services, we naturally have close ties to the communities in which our businesses are located. Across our businesses, the deep relationships cultivated by our employees with suppliers, customers, landowners and local communities help to enhance our competitive position and fulfil our responsibility to stakeholders. Environmental and social responsibility is a key element of our business strategy and of our shareholder value proposition.
Getting involved in community initiatives is also an important way to demonstrate our concern and respect for stakeholders and our commitment to being a responsible corporate citizen. In 2013, our employees supported numerous charitable causes and lent their expertise and time to community projects.
As we look at our development projects and future clean energy opportunities, we recognize the importance of working closely with First Nations and community partners and understanding everyone’s needs. Our goal is always to improve how we do things, and to create long-term relationships that provide sustainable benefits for all stakeholders and create tangible financial and social value.
