Right place, right time is at core of Infratil strategy

On the face of it, last month's $250 million purchase of the bus and ferry company Stagecoach NZ is a departure from Lloyd Morrison's usual practice of buying into "pure infrastructure": utilities, ports and airports.

But Morrison's success at Infratil, which he founded in 1994, stems from a knack for accurately spotting changes in society or the economy and then picking a way of making money out of it. He is hoping Infratil's purchase of Stagecoach will be no different.

Morrison now finds himself coming to the attention of a wider constituency, this time one made up of taxpayers, ratepayers and public officials - all of whom want to know exactly where this "big picture vision" may be going.

Spend a few minutes listening to Waitakere Mayor Bob Harvey and you may be convinced we should all be hitching our wagons to the Morrison-Infratil star.

"This guy is a remarkable entrepreneur," says Harvey. "He's got a social conscience. He is highly regarded in the business world. He's a renaissance man. He likes music. He likes literature."

Harvey came to have close dealings with Morrison and Infratil during an unsuccessful collaboration to turn Whenuapai airfield into a commercial airport.

"He's aware. He is in tune and he understands that everything is connected - the transportation, air travel. He understands the minutiae of business, small and big," says Harvey. "I think he's probably one of the most impressive business people of recent times. I think there's a big picture in his mind."

Local councils, ratepayers, commuters and shareholders all have a greater stake now in how this "big vision" actually works in practice.

Through Stagecoach's bus and ferry operations, Infratil will be receiving many millions of dollars in public transport contracts.

Stagecoach is expected to get $48 million in public subsidies for Auckland buses alone this year, a combination of Land Transport New Zealand and Auckland Regional Council money channelled through Arta, which contracts public transport services.

Morrison points out that on top of all considerations at Infratil is creating value for its shareholders.

"That means performing on a longer-term basis. That's something that's not easy to do. We think that we're okay at our jobs, but we don't think we're any better than anybody else."

As close as we get to an over-arching vision or big picture from Morrison is an idea that no matter how clever you might be, you have to be in the right place.

"We've recognised that the most important thing for creating value is being in the right place. So we spend a lot of time trying to be in the right place."

Morrison has said it did not matter how good a manager was, if he or she was in a declining industry, there was little chance of success.

"Most people, whether they are a dairy owner, corporate magnate or even an artist in Switzerland, are better off than the best in Zimbabwe."

Infrastructure is undergoing significant change, not just in New Zealand, but everywhere.

"So we position ourselves for that and, within infrastructure, we've looked for sectors that have major change taking place over a period of time, plus good growth prospects.

"The reason we've done well over the past 12 years is because utilities as a whole have done well. The reason we've done well in TrustPower is because renewables have done well. The reason we've done well in airports is because most airports which have exposure to low-cost airlines have done well.

"So we don't attribute our performance to our own ability. We attribute our performance to being in the right place and, I believe, that's something you can't ignore."

The trick is in knowing exactly which part of the sector to put your money into. Accurately predicting the surge in European low-cost airlines is one thing, but knowing to invest in airports, not the airlines themselves, is where the skill of Morrison and his team can be seen.

From a home base of a two-thirds ownership of Wellington International Airport, Infratil has moved into Europe, where it now owns all of Glasgow's Prestwick airport. This year, it has expanded from this base in Scotland into mainland Europe, buying 90 per cent of Lubeck airport near Hamburg. These investments are designed to catch the rising wave of low-cost airlines, which operate out of cheaper, less congested regional airports away from the main hubs.

Infratil has been a long-time investor in TrustPower, the Tauranga-based electricity generator and retailer. One of its better performing investments, TrustPower contributed 26 per cent of Infratil's income: $25.7 million last year.

"On the decision to buy Stagecoach and get involved in the public transport sector ... it's not too far away from the environmental trend as well. I think there's a broader social movement to use resources better and it's not done for charitable reasons. It's done because it makes sense," says Morrison. "And if it makes sense and there's an overall community respect for it making sense, then there's an opportunity there."

Infratil's opportunities in public transport will be constrained by the challenge of keeping profits flowing to shareholders, all the while keeping public bodies and regulators happy with the service they are paying for.

Goldman Sachs JBWere analyst Peter Sigley said Infratil had "tended to be very early picking macro themes and then backing themselves to invest in them".

"They have tended to be there before most people."

Sigley rightly points out that not all Infratil touches turns to gold.

"They've obviously struggled to execute on some of their aspirations in terms of international airports. But they were there in the beginning of the cycle. It's just that they got swamped by deeper pools of capital."

This is a reference to some of the multi-billion-dollar funds that prowl the world looking for infrastructure investments. Their deep pockets mean Infratil has been shut out of many highly competitive bidding processes for assets.

"We've never held ourselves out to be geniuses," says Morrison. "And I think we realise we have to have a profile, but I don't believe there's a lot of self-serving and egotistical stuff out there. I think the issue is that being in the right place: getting the overall performance right is more important than the micro-aspects."

Morrison described Infratil's purchase of Stagecoach as a move into "social infrastructure".

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.

"Infratil likes to look at the big picture," Morrison told investors just after the deal was confirmed. "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."

Harvey rates Morrison among the titans of New Zealand business: not the flashy merchant bankers of the 1980s or the present crop of entrepreneurs better known for chasing models, but the industrial pioneers, such as Sir James Fletcher and the Watties.

"He's a return to the days of the giants," says Harvey.

Infratil has no staff, and its assets are managed by executives at Morrison's investment bank, Morrison & Co. A subscriber to the Infratil shares in its float in 1994 has received a return of 20 per cent per annum after tax over the 11 years to March 2005. This includes dividends.

The Stagecoach purchase is the latest in a string of acquisitions by Infratil, which so far this year has bought Kent International Airport for $47 million, 90 per cent of Lubeck Airport in Germany and an 11 per cent stake in Austral Pacific for $9 million. Other investments include a 66 per cent stake in Wellington Airport, full ownership of the Glasgow Prestwick Airport and an 88 per cent stake in Victoria Electricity.


Infratil's investments
* TrustPower, $652 million
* Wellington Airport, $158.8 million
* Glasgow Prestwick airport, $168.6 million
* Kent International airport, $46.5 million
* Port of Tauranga, $31.6 million
* Energy Developments, $149.5 million
* Stagecoach, paid $250 million last month.
* Austral Pacific, invested $9 million in an 11 per cent stake.
(Listed investments at market value. Others at book value.)