In addition to the discussion below, an outline of the major transactions and events is provided in the directors’ report.
Overview of operating performance
Profit attributable to MIG security holders for the year ended 30 June 2008 was A$767.3 million (2007: A$1,702.3 million). The decrease reflects lower revaluation income on MIG’s non-controlled toll road assets and the prior year impact of the demerger of MIG’s mature Australian toll road assets, through the in-specie distribution of Sydney Roads Group (SRG), and the sale of 50% of MIG’s interests in its four US assets.
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Revenue from continuing activities of A$203.7 million (2007: A$314.7 million)
The primary contributors to the decrease compared to 2007 are the reduction in consolidated toll revenue to A$127.8 million (2007: A$184.9 million) following the demerger and divestment of four consolidated toll road assets during the prior period and the reduction in interest income to A$70.4 million (2007: A$118.6 million) following the completion of the A$1.00 billion on-market security buy-back.
The demerger and divestment transactions also reduce consolidated operational expenses recognised for the period.
Other income from continuing activities of A$1,197.1 million (2007: A$2,425.7 million)
Revaluation income of A$1,184.1 million (2007: A$1,773.5 million) relates to MIG’s non-controlled assets only. It includes distributions received from the assets but excludes the majority of foreign exchange impacts which are reflected directly in reserves. These factors account for the majority of the difference between revaluation income for the year and the much smaller increase in overall portfolio valuation. The prior period included A$1.08 billion of revaluation gains associated with APRR. In the case of APRR approximately 50% of the gains are attributable to the minority interests in this investment.
In addition, the prior period included a net gain on the sale of investments and deconsolidation/demerger of subsidiaries of A$644.8 million, following the demerger of SRG and sale of 50% of MIG’s interests in its four US assets.Finance costs A$151.0 million (2007: A$254.2 million)
The reduction in finance costs reflects the impact of the prior year demerger of MIG’s mature Australian toll road assets and the sale of 50% of MIG’s interests in its four US assets.Income tax expense of A$82.3 million (2007: income tax benefit A$133.9 million)
The recognition of deferred tax liabilities on revaluation of MIT(II)’s toll road assets has resulted in the recognition of an income tax expense of A$82.3 million.
Discussion and analysis of financial position
Net assets have decreased by A$389.5 million for the year ended 30 June 2008. This has been driven primarily by the impact of a strengthening Australian dollar (against most of the portfolio currencies) on foreign denominated balances and the reduction in cash and cash equivalents as a result of the on market security buy-back, distributions paid to security holders and interest and distributions received, partially offset by a net increase in investments in financial assets.
Discussion and analysis of statement of cash flows
Net cash flows from operating activities were A$440.6 million (2007: A$478.6 million). The decrease reflects lower toll revenue and interest received, being partially offset by additional distributions received from MIG’s investments, lower management fees paid and reduced payments to suppliers and employees. These lower receipts and payments in relation to toll road operations are due to the impact of the sale of investments and subsidiaries following the demerger of SRG and divestment of 50% of MIG’s interests in its US assets.
Net cash outflows from investing activities of A$31.6 million (2007: A$560.3 million inflow) primarily comprise further investments in Transtoll and South Bay Expressway during the period. In the prior year, A$661.3 million was received as proceeds from the sale of 50% of MIG’s interests in the US assets, net of cash disposed, and there was significant capital expenditure in relation to consolidated assets and an additional investment in Westlink M7.
Net cash flows from financing activities primarily reflect distributions paid to MIG security holders and payments made in relation to the on-market security buy-back. The prior year reflects the net impact of refinancing of the M6 Toll, distributions paid to security holders and payments made in relation to the security buy-back.
Discussion and analysis of changes in equity
Overall contributed equity has fallen to A$3,591.6 million (2007: A$3,956.0 million), reflecting A$364.4 million of buy-back completed during the year. On 14 January 2008 the A$1.00 billion on market buy-back was completed, resulting in the total buy-back and cancellation of 292,218,706 securities.
At 30 June 2008 reserves comprised a negative foreign currency translation reserve of A$275.3 million (2007: $28.3 million) and a cash flow hedging reserve of A$91.6 million (2007: A$180.1 million).
Where an investment in a toll road company is held by a group entity having a non Australian dollar functional currency, but the same functional currency as the assets the effects of foreign exchange that result from the translation of that group entity’s assets and liabilities are taken to the foreign currency translation reserve. Foreign exchange movements arose during the period due to the strengthening Australian dollar against all major currencies, with the exception of the Euro dollar.
The cash flow hedging reserve balance reflects the fair market value (net of tax) of interest rate swaps hedging non recourse debt at the M6 Toll. These swaps qualify for hedge accounting and movements in the fair value of the swaps have been taken to a separate reserve in accordance with Australian Accounting Standards.