2016 Annual Report Highlights

Chairman & CEO Report

Infratil has simple operational goals which underpin our financial objectives.


Chairman & CEO Report

We believe that providing better value services will create the platform for shareholder returns and investment opportunities that will grow shareholder value over time.

On the criteria of “better value” it was a satisfactory year. Trustpower’s innovative multi-product offer continues to win support and remains unique. Wellington Airport’s operating costs per passenger are the lowest of any Australasian international airport and its average aeronautical charges (per passenger) are the lowest of any international airport in New Zealand.

NZ Bus has fully implemented real-time bus monitoring which is delivering smoother rides and saving on fuel and tyres. RetireAustralia is developing care services for its residents to prolong their ability to comfortably remain in their homes.

These accomplishments reflect factors within our control; in the meantime the external environment is creating challenges and opportunities. Australia’s affirmation of its commitment to a 2020 renewable energy target means a massive and quick expansion in renewable generation is required. Air travel growth is benefitting Wellington Airport. Changes to how the Australian government pays for aged care will result in more demand for in-home services. Conversely NZ Bus experienced the criteria of regional transport agencies when it lost its South Auckland services.


Infratil’s consolidated underlying EBITDAF from continuing operations was $462.1 million from $450.7 million last year. Free cash flows from operations amounted to $250.5 million (previously $235.6 million).

The net parent surplus was $438.3 million ($383.5 million) which benefited from contributions of $436.3 million from Z Energy and iSite which were sold during the year (last year contributions from businesses sold were $372.1 million).

Asset sales and a modest level of reinvestment left Infratil in a “cashed up” position on 31 March 2016. $728.6 million was on deposit, $67.5 million was borrowed from banks and bond funding of the wholly-owned group (ie. excluding debt of Wellington Airport, Trustpower and the other less than 100% companies) was $957.0 million. The net debt of $295.9 million accounted for 14% of Infratil’s funding, the balance being the market value of Infratil’s equity.

Investment focus and external considerations

Indicatively, Infratil’s current capital position could allow up to $1 billion of new investment or the return of $500 million to shareholders, or a combination. As discussed on the next page of this report, work is underway to deliver uses for this capital that satisfy Infratil’s risk-adjusted return targets.

Investment criteria, approach and a number of potential investments were described in detail during Infratil’s 13th April 2016 Investor Day. The presentations are on Infratil’s website.

Of course as time goes by if investments are not made then excess capital will be returned to shareholders.

As always, Infratil’s allocation of capital is intended to take advantage of secular trends such as decarbonisation of energy and transport, the growing population of elderly people, expanding demand for air travel, and changing urban transport needs.

However, while each of these factors fits with the adage “to be the fast swimmer find a fast flowing river” we do not underestimate the external challenges now faced. The most obvious is from financial market instability. The benign run brought by central bank largess is unsustainable and distorting. It has created winners and losers; such as the elderly person who saved to acquire bonds and has had their income halved by low interest rates. Five years ago no one predicted today’s financial market values, so it would be foolish to now be certain about what 2021 holds. The important thing for individuals and companies is to be prepared for eventualities and to buy more insurance than usual.

The other external challenge we see unfolding is from rapid technological change. iPhones/ Pads/Pods are only a decade old and have caused changes in people’s behaviour and industries’ fortunes beyond what would have seemed possible in that time. Tesla (electric vehicles) and Google (self-driving vehicles) believe they can do for land transport what Apple has done for information and entertainment. Boeing’s 787 has fundamentally changed airline economics, and marginalised the Airbus A380 (last year 135 B787s were delivered and only 27 A380s).

However, we shouldn’t overemphasise the risks. Infratil’s businesses provide essential services and experience mainly stable demand, prices and costs throughout market cycles.

Our People

Last year saw the implementation of a more muscular health and safety regime in New Zealand. This is warmly embraced by Infratil and its businesses. As a group we take health and safety seriously and recognise that it is an area that requires continual improvement and prioritisation. It is also easier to improve when everyone else is too.


For Financial Year 2016, Infratil paid 5.25 cents per share interim dividend in December 2015 and will pay 9.0 cents per share final dividend on 15 June 2016 (4.5 cps and 8.0 cps respectively last year). The 14% increase is consistent with Infratil’s objective of providing a reliable and increasing dividend.

Over the previous two years there were also special dividends, but a repeat is at least postponed until the success or otherwise of current investment plans is known.

Financial year 2017

Underlying EBITDAF is forecast to be between $475 million and $515 million, an increase of 3% to 12%. The next financial year will include a full period contribution from King Country Energy which Trustpower acquired in October 2015 although Trustpower is also anticipating demerger costs of about $10 million. Wellington Airport is expected to continue its steady progress and small improvements are forecast across each of Infratil’s other businesses except NZ Bus which will be impacted by the loss of its South Auckland service contracts. The FY2016 result included $5.3 million of non-recurring costs associated with the unsuccessful bid for Pacific Hydro. Operating cash flows next year are expected to be lower than the year just finished, largely as a result of some one-off costs and the reduced earnings of NZ Bus, with some uplift from other businesses.

Last year saw satisfactory creation of value for Infratil’s shareholders and a great deal of preparation for future investment. We would have liked the $728.6 million on deposit with our banks to have been deployed to more productive investments, but this is an environment that will reward patience and discipline.


Actual FY2016

Guidance FY2017

Underlying EBITDAF1



Operating cash flows



 1. Underlying EBITDAF is a non-GAAP measure of financial performance, presented to show management’s view of the underlying business performance. Underlying EBITDAF represents consolidated net earnings before interest, tax, depreciation, amortisation, financial derivative movements, revaluations, non-operating gains or losses on the sales of investments, and includes Infratil’s share of its associates’ (Metlifecare and RetireAustralia) underlying profits. Underlying profit for Metlifecare and RetireAustralia removes the impact of unrealised fair value movements on investment properties, impairment of property, plant and equipment and excludes one-off gains and deferred taxation. 


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2016 Annual Report
2016 Annual Report
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