Introduction to infrastructure

MIC’s businesses are the providers of basic, often essential, services, facilities and technologies upon which the growth and development of a modern community depends. Infrastructure businesses tend to be large scale and capital intensive. They employ long-lived, high-value physical assets that serve, in part, to create a privileged position in their respective markets. These attributes also serve to protect operating margins throughout market cycles, enabling MIC to produce generally growing levels of cash flow. Other characteristics of the businesses include:

  • Operations within a regulated or contractual framework;
  • Ownership of physical assets that are difficult to replicate or substitute around;
  • They provide a platform for the deployment of growth capital;
  • Broadly consistent demand for their services;
  • Scalability, such that relatively small amounts of growth can generate disproportionate increases in earnings before interest, taxes, depreciation and amortization, (EBITDA).
  • Generally favourable competitive positions, largely due to operations in sectors with high barriers to entry, which create sustainable competitive advantages; and
  • Generally predictable maintenance capital expenditure requirements.

In addition to the benefits associated with these characteristics, the rate of growth in revenues and/or gross profit generated by most of the businesses tend to keep pace with historically normal rates of inflation. The price escalators built into many customer contracts, and the inflation and cost pass-through adjustments that are typically included as part of pricing terms, serve to insulate the businesses to a significant degree from the negative effects of inflation and commodity price risk.