MIG is a triple stapled security. The units of Macquarie Infrastructure Trust (I) (MIT(I)), Macquarie Infrastructure Trust (II) (MIT(II)) and the shares of Macquarie Infrastructure Group International Limited are combined and trade as one stapled security on the ASX. Under Australian Accounting Standards stapled groups must identify one of the stapled entities as the accounting parent. MIG has identified MIT(II) for this purpose.
Stapled securities are efficient structures for entities that invest in long life physical assets like toll roads and property. The three entities that make up MIG are effectively investment vehicles (two Australian trusts and a Bermudan mutual fund company). The vehicles are managed or advised by Macquarie Group companies.
The following comments may be useful when considering the concise financial report.
Accounting for toll road interests
At 30 June 2008 MIG holds a controlling interest in the M6 Toll in the UK and non-controlling interests in toll roads in Australia, Canada, Portugal, Germany, France and the US. There have been no changes in the asset portfolio during the year.
In the accounts that follow, all non-controlled MIG toll road investments are recorded at fair value in accordance with Australian Accounting Standard AASB 139. Fair value accounting is used by most traditional unit trusts, life companies, general insurers and super funds because it is the best way to show changes in the value of their investments in any period.
The use of fair value accounting sometimes produces large positive results in the income statement because the increases in asset values are recorded as profits. Conversely, there may be occasions where MIG reports losses as a result of asset write downs.
Where MIG has a controlling interest (where MIG is able to dominate the major decisions made by an entity) in a toll road, it is required to consolidate the assets and liabilities and results of that toll road into the results of MIG. Aside from derivative instruments these assets and liabilities are recorded at historical cost (less any associated depreciation and amortisation), in accordance with the requirements of accounting standards, and are not revalued. Consequently, the accounts do not reflect the directors’ estimates of the fair value of these assets.
This combination of fair value and historical cost accounting means that care is needed when interpreting MIG’s financial statements. Certainly, most commentators believe that investors should place less weight on the magnitude of MIG’s accounting profit than they would for a typical industrial company. Instead, more emphasis is given to the change in Net Asset Backing (NAB) per security and to MIG’s operating cash flows.
MIG’s quarterly management information report (MIR) provides information on the NAB per security together with the proportionally consolidated results of MIG’s operations and other relevant information. The MIR is available from the MIG website at http://www.macquarie.com/mig-financials.
Net Asset Backing per security
The change in MIG’s NAB per security before deferred tax shows the increase (or decrease) in the directors’ valuation of each MIG security listed on the ASX.
It is a reflection of how much additional wealth has been created (or potentially lost) for security holders during the period. It is an indication of how successful the manager has been at acquiring, managing and, in some cases, disposing of MIG’s assets. It also reflects changes in macroeconomic variables.
Indebtedness
Each of the toll roads in which MIG has an interest is set up as a separate legal entity in which MIG is simply a shareholder. The debt borrowed by these separate legal entities is limited-recourse debt, i.e. project finance, where MIG provides no guarantees to the lenders other than, in some cases, guarantees in relation to its equity contributions. The lenders only have recourse to the cash flows of that project.
Under Australian Accounting Standards MIG consolidates only the debt liabilities of interests which it controls, so the balance sheet at 30 June 2008 includes only the debt at the M6 Toll. MIG discloses the levels of debt at all its assets on a proportionally consolidated basis in the MIR.