For the year ended 30 June 2008
Note 1
Summary of significant accounting policies
The significant policies which have been adopted in the preparation of the financial statements are stated to assist in a general understanding of this concise financial report. These policies have been consistently applied to all periods presented, unless otherwise stated.
(a) Basis of preparation
This concise financial report has been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standard AASB 1039: Concise Financial Reports.
The financial report was authorised for issue by the directors of the Responsible Entity on 20 August 2008. The Responsible Entity has the power to amend and reissue the concise financial report.
Historical cost convention
These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss.Stapled security
The units of MIT(I) and MIT(II) and the shares of Macquarie Infrastructure Group International Limited (MIGIL or the Company) are combined and issued as stapled securities in MIG. The units of MIT(I) and MIT(II) and the shares of MIGIL cannot be traded separately and can only be traded as stapled securities.
This concise financial report consists of the consolidated financial statements of MIT(II), which comprises MIT(II) and its controlled entities, MIT(I) and its controlled entities and MIGIL and its controlled entities, together acting as MIG.Presentation currency
The presentation currency used in this concise financial report is Australian dollars.
(b) Consolidated accounts and stapling arrangements
UIG 1013: Consolidated Financial Reports in Relation to Pre-Date-of-Transition Stapling Arrangements requires one of the stapled entities of an existing stapled structure to be identified as the parent entity for the purpose of preparing consolidated financial statements. In accordance with this requirement MIT(II) has been identified as the parent of MIG comprising MIT(I) and its controlled entities, MIT(II) and its controlled entities and MIGIL and its controlled entities.
(c) Principles of consolidation
The consolidated financial statements of MIG incorporate the assets and liabilities of the entities controlled by MIT(II) at 30 June 2008, including those deemed to be controlled by MIT(II) by identifying it as the parent of MIG, and the results of those controlled entities for the year then ended. The effects of all transactions between entities in the consolidated entity are eliminated in full. Minority interests in the results and equity are shown separately in the Income Statement and the Balance Sheet respectively. Minority interests are those interests in partly owned subsidiaries which are not held directly or indirectly by MIT(I), MIT(II) or MIGIL.
Where control of an entity is obtained during a financial period, its results are included in the Income Statement from the date on which control commences. Where control of an entity ceases during a financial period, its results are included for that part of the period during which control existed.
(d) Group formation
On 9 June 2000, MIT(I) and MIT(II) (both trusts constituted in Australia) became registered schemes under the Managed Investments Act (1998). On that date, Macquarie Infrastructure Investment Management Limited (MIIML) became the Responsible Entity of each Trust, replacing the Manager and the Trustee (also MIIML).
On 20 September 2000, the investment of MIT(II) in Macquarie European Infrastructure plc (MEI) was distributed to MIG security holders through an in specie distribution of the MEI shares. The MEI shares were then stapled to MIT(I) and MIT(II) and listed on the Australian Securities Exchange (ASX) as a triple stapled security comprising MIG.
On 12 January 2005, a restructure inserted a new mutual fund company (incorporated in Bermuda), Macquarie Infrastructure Bermuda Limited (MIBL), above MEI, replacing MEI as the stapled company in the MIG stapled structure. On 8 December 2005, MIBL changed its name to MIGIL. Macquarie Capital Funds (Europe) Limited (previously known as Macquarie Investment Management (UK) Limited) is the Adviser of this company.
Units in Airport Motorway Trust (AMT) were classified as debt on 1 July 2005 until the demerger of AMT as part of the Sydney Roads Group on 1 August 2006 (refer to note 3). As the units of AMT were classified as debt, the income which accrued to the units during the period 1 July 2006 to 1 August 2006 has been accounted for as an expense and presented in the Income Statement as a finance cost.
(e) Investments in financial assets at fair value through profit or loss
MIG has designated its non-controlling investments in toll road assets as financial assets at fair value through profit or loss. Investments in financial assets at fair value through profit or loss are revalued at each reporting date, or when there is a change in the nature of the investment, to their fair values in accordance with AASB 139: Financial Instruments: Recognition and Measurement. Changes in the fair values of these investments in financial assets at fair value through profit or loss, both positive and negative have been recognised in the Income Statement for the year.
Investments have been brought to account as follows:
Interests in unlisted securities in companies and trusts
Interests in unlisted companies and trusts are brought to account at fair value, determined in accordance with a valuation framework adopted by the directors. Discounted cash flow analysis is the methodology applied in the valuation framework as it is the generally accepted methodology for valuing toll roads, bridges and tunnels and the basis upon which market participants have derived valuations for toll road transactions.
Discounted cash flow is the process of estimating future cash flows that are expected to be generated by an asset and discounting these cash flows to their present value by applying an appropriate discount rate. The discount rate applied to the cash flows of a particular asset comprises the risk free interest rate appropriate to the country in which the asset is located and a risk premium, reflecting the uncertainty associated with the cash flows.
MIG engages specialist traffic forecasting experts to provide a view on the most likely level of traffic to use the road having regard to a wide range of factors including the development of the surrounding road network, economic growth in the traffic corridor and people’s willingness to pay specific toll levels based on the perceived benefits they gain from using the toll road.
The risk free rate for each asset is determined using the yields on 10 year nominal government bonds in the relevant jurisdiction at the valuation date.
The risk premiums applied to the discounted cash flow forecasts of the Groups’ interests in securities in companies and trusts can be found in
note 5.
The valuation derived from the discounted cash flow analysis is periodically benchmarked to other sources such as recent market transactions to ensure that the discounted cash flow valuation is providing a reliable measure.
Interest, dividends and other distributions received from investments brought to account at fair value are credited against the investments when received.
Interests in interest bearing debt securities
Interests in interest-bearing (public and other) debt securities are brought to account at fair value, determined in accordance with a valuation framework adopted by the directors. Discounted cash flow analysis is the methodology applied in the valuation framework. Adjustments to the fair value of debt securities are recognised in the Income Statement.Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognised at fair value and subsequently measured at amortised cost. Interest income from loans and receivables is recognised using the effective interest method.