Infratil sees early payoff in bus deal

Infratil's foray into "social infrastructure" through its $250 million purchase of Stagecoach New Zealand should start paying off in the first year, says company chief Lloyd Morrison.

Morrison and other senior executives, including Stagecoach's local boss, yesterday stressed their credentials in the passenger transport business and their plan to ride an approaching wave of increased public spending.

The Stagecoach deal came as something of a surprise when Infratil announced it last week, but Morrison said the company had been talking to Stagecoach about buying its New Zealand business since 2003.

Morrison & Co (which manages Infratil's investments) was 41 per cent owner of Go Bus, which ran buses in the Waikato and Bay of Plenty. Knowledge obtained through Go Bus, which had expanded from 180 to 320 buses, had given it experience of public sector contracting and tendering.

Stagecoach NZ managing director Ross Martin said local and central government now realised that if they wanted to boost public transport, more money had to go into it. Much less public money went into subsidising New Zealand passenger transport than in similar cities in Australia.

Over the next 10 years, the Auckland Regional Transport Authority wants to boost bus use from 45 million trips a year to 90 million, and rail from 3 million to 18 million trips a year.

Martin said moves were under way at the authority to change the way bus services were subsidised, with less emphasis on lowest cost tenders.

Quality and service standards were becoming more important, which would hopefully be accompanied by a move to longer contracts - up to 12 years rather than three to five years.

While a move to longer-term contracts was still being negotiated, what was important was that the key provider - the authority - wanted to spend more money on better services.

"Infratil likes to look at the big picture," said Morrison. "That's our main attraction to making specific investments and what we like about this area is that there is - for environmental reasons, for congestion reasons - very much a national focus on improving public transport, in terms of the service standards, the quality of equipment involved and supporting it through incentives.

"We think the outlook for the sector is good and we expect a considerable increase in patronage over the next 10 years. Stagecoach is the leader in the business and it's our job to make sure that leadership is not only continued but improved."

Taking the bus:

* Infratil has paid $253 million (including acquisition costs) for Stagecoach NZ.

* Existing bank facilities will be used to pay for the purchase.

* Acquisition will add to earnings per share from first full year.

* Stagecoach NZ is expected to have operating profit of $24.7 million in 2006.

* Infratil believes operating performance will stabilise at present levels, "with some scope to improve" over the next few years.

* Industry funding from the public sector is likely to double over next 10 years.

* Infratil can use the Stagecoach name for the next five years.