Infratil owns infrastructure businesses that provide essential facilities and services to individuals and communities. Shareholders receive good risk-adjusted returns if the businesses provide satisfactory services, are efficient, and risks are well managed.
Infrastructure comprises the basic physical and organisational structures and facilities needed for the operation of a society or enterprise. In the 24 years since Infratil was established, what constitutes infrastructure has evolved.
In 1994, ports, power plants, wires and airports were infrastructure; today the scope has widened in response to changes in society, technology, and consumer preferences. Data storage and transmission is increasingly sourced from specialist infrastructure providers. Social infrastructure includes accommodation and care for those for whom society has recognised responsibility. Airports have become regional gateways with a much wider mandate than offering passengers shelter and airlines a safe airfield. Energy providers were vertically integrated and offered “take it or leave it” service. They are now segmented, specialist and closely focussed on consumer preferences. Along with changes to what constitutes infrastructure has been the evolution of business models and sources of capital.
Throughout, Infratil has maintained a consistent approach to its goal of providing its risk-adjusted returns by seeking to invest:
Where demographic or core societal factors are driving long-term demand.
Where Infratil has expertise and influence.
Where Infratil has a competitive advantage as an operator and a capital provider, and where demand growth, market structures and regulation supports further investment in capacity and capability.
Although the core features of Infratil’s approach have not changed, some aspects have. In part because of the changes to the investment environment and in part because of changes in the priorities of Infratil’s shareholders. Infratil invests in a portfolio of businesses. Some are mature and strongly cash generative (e.g. Trustpower, Wellington Airport), some are early stage (e.g. Longroad Energy). The portfolio approach reduces risk through diversification, creates stability of cash flows, and enables Infratil to take a long-term approach to early-stage developments.
A consistent feature of infrastructure is its reliance on capital. Energy, airports, data storage/transmission, accommodation/care; all require assets, buildings, structures, equipment, and land. Reflecting this, Infratil and its businesses have invested $3,993 million over the last decade. This creates a distinct pattern of earnings and capital growth. Capital is deployed, structures are erected, utilisation rises, earnings increase, capital grows. This annual report covers Infratil’s operations, capital deployment, and how the goal of capital growth is being realised.