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Infratil Monthly Operational Report

29 April 2010

Introduction

On 1 April Infratil and its partner the New Zealand Superannuation Fund settled the acquisition of Shell's New Zealand fuels processing and distribution business. Details of this investment are available in this Update. The transaction was welcomed by both the New Zealand investment community and future customers.

The Infratil board has decided to establish a dividend reinvestment plan which will be in effect for the payment of Infratil's next dividend. The Plan will give shareholders the option of receiving some or all of their dividends as shares. Any shareholder who does not apply to be included in the Plan will continue to receive their normal cash dividend.

A document describing the Plan and an application form will be mailed to shareholders over the next month.

INFINZ (Institute of Financial Professionals NZ) announced that Infratil secured "Corporate Communicator of the year" at its recent annual awards. The nature of Infratil's activities in very long-term investments in core infrastructure sectors makes it imperative that good information is provided to both capital providers and user communities.

 

TrustPower

Fall-out from Government's initiatives to restructure the three state owned generator/retailers appears to be driving a marked increase in competition for residential customers, especially in the four main urban centres. Almost 35,000 customers changed supplier in March, a normal level of monthly turnover is about 15,000. The impact on TrustPower's customer base has been minor during this period of extreme competition.

Rating agency S&P noted that the reforms impact on the credit quality of the SOEs are "tough to judge" due to "still limited transparency". While the restructuring of the SOEs is likely to continue to provide short term retail-market uncertainty, the key issue for the industry will be the construction of new generation capacity to meet demand. In March the Electricity Commission pointed out that "A significant amount of new generation investment will be needed to maintain security margins from 2012 onwards. Given the lead time for new generation, some investment will need to be committed within the next year; and despite the need for new generation, investment has slowed in the past year. Over 600 MW of new generation that was rated as medium or higher probability for 2010 or 2011 in the 2008 assessment, has since been deferred until at least 2013, or cancelled."

The Commission indicated that over the four years, 2010 to 2013 a net addition of only about 100MW of capacity is now forecast and security margins will correspondingly tighten. The Commission noted this could mean: "More difficulty in meeting winter peak demand; more difficulty in meeting peak demand at other times of the year owing to factors such as increasing summer demand, increasing reliance on wind generation, and generation and/or transmission outages; more occasions when instantaneous reserves cannot be maintained; and a generally 'tighter' power system."

While wholesale prices remain subdued for 2010, higher prices are now being contracted for 2012. Ultimately if wholesale prices don't rise, investment in new generation will not occur.

TrustPower's decision on initiating construction of the Mahinerangi wind farm is pending suitable economics. TrustPower holds consents for 200 MW at this site but is likely to build in stages as demand, the price of electricity and construction costs justify the investment. At present TrustPower's Tararua wind farm is New Zealand's largest with capacity of 161 MW and average annual output of 620 GWh.

 

Infratil Energy Australia (IEA)

At 31 March IEA had 411,000 customers, an increase of 24,000 over the year, following two years when customer numbers increased approximately 100,000 per annum. The slower growth reflected market conditions, especially in Queensland where regulatory decisions meant forgoing customers to achieve a fair margin. The slower growth was also a reflection of much closer scrutiny of prospective new sign-ups and management of collections following recent credit-related losses.

The current expectation is for customer acquisition and growth rates to resume at stronger levels in FY 2011.

Electricity prices in Victoria and elsewhere have declined markedly over the year, both in the spot and forward market out to 2012. This will increase the margin available to retailers buying additional electricity for new customers. The impact will be muted for existing customers as retailers hedge their forward purchases of electricity for 1-2 years which locks in margins (for better and worse). Reported results will however reflect mark-to-market losses on these forward contracts. These are not cash costs and retail margins are expected to remain in line with those originally locked in. To look at this from a different angle, if the mark-to-market losses were realised and the forward book repurchased at today's lower levels the business would expect the mark-to-market losses to be offset by the value of increased retail margins.

The Victorian gas market continues to reflect widespread inflexibilities in gas supply contracts - excess take or pay scheduled gas injections have seen spot gas prices fall to very low levels over FY2010. IEA has excess contracted gas compared to its retail gas sales and has been a net seller to the gas spot market - at a higher level than is optimal for the business. This resulted in an approximately $20 million annual cost, masking what would otherwise have been a good financial result for the IEA group. IEA has made a lot of progress in building a diversified more flexible gas forward book but this may not reflect in trading results until the winter of 2012 when the volume of exposure to the spot market is expected to become more appropriate. In the interim, unless offset by increased sales, IEA forecasts continuing to be a net seller of excess gas to the spot market and its results will have some elevated variability over the next two years - this exposure could prove profitable or costly as it did in FY2010.

Construction work continues on time and on budget at Port Stanvac in SA and Kwinana in Perth with both power stations expected to be commissioned in calendar 2010.

 

NZ Bus

  2010 2009 Change
Northern      
March 3,817,331 3,680,675 +3.7%
12 months 34,462,204 35,550,039 -3.1%
Southern    
March 2,022,030 1,946,446 +3.9%
12 months 20,090,368 20,032,134 +0.3%

The Wellington region performance in March was close to a monthly record. Over 2 million rides in one month having only occurred three times, ever. The past surges in traffic have occured when fuel prices have spiked. This year's good demand performance occurred notwithstanding flat pump prices and is likely to have reflected the on-going enhancement to the region's Valley Flyer and GO Wellington services.

A key goal now will be to ensure capacity stays ahead of demand so that increasing use does not slow services (through increased boarding/alighting) or result in congestion.

The Northern region's strong performance over the month signals encouraging patron support after last year's industrial action.

As always, regulation of the public transport sector continues to evolve on several fronts. The clear guidance of the Minister in favour of a consensus outcome is having a positive impact with the sector's three key groups: operators and central and local government collaborating constructively.

In March, 78 NZ Bus drivers achieved the National Certificate of Passenger Transport. This qualification has been developed to create an industry benchmark for driver skills and NZ Bus has incorporated it into its driver recruitment training programmes.

 

Snapper

By 31 March 120,000 Snapper cards were on issue, double the number of a year ago. About a third of the wallets and purses in Wellington and the Hutt Valley (population 325,000) now hold a Snapper and daily use can exceed 86,000 transactions. 200 retailers have signed-up with all of the North Bus, Valley Flyer and GO Wellington buses now equipped with Snapper readers and it is also accepted by Wellington's East by West Ferries. 17 schools incorporate Snapper in their student IDs and the Snapper Campus Card integrates photo ID, building access and a transport pass.

For its public transport customers Snapper has delivered the ability to load passes which will eventually remove the inconvenient cardboard which occasionally goes through the wash. Snapper is also providing transfers on Valley Flyer services so that a person going from one bus to another as part of one journey gets a discounted ride fare for the second and subsequent legs of the journey. Ultimately integrated-fares will be a feature of all public transport.

Other benefits delivered over the year include "hot listing" so that someone who has lost a registered Snapper card can cancel it and transfer its cash and pass balance to a replacement card. Self service kiosks are being introduced so that Snapper can be topped up using EFTPOS without any fees. "Special event" capability was trialed with the half price bus fares over last year's Bledisloe Cup weekend and the special Snapper products provided to participants in the Asia-Pacific Junior Diving Championship. Recognising its achievements, Snapper is a finalist in the Cyber Gold category in the 2010 Wellington Gold Awards.

Further initiatives to improve and expand Snapper's capabilities and scale include:

Total Mobility. The scheme operated by Greater Wellington Regional Council which will mean that the region's taxis accept payment by Snapper.

The National Standard for Integrated Ticketing, which would allow Snapper's proven Wellington services to operate in other regions with other schemes.

Production of Snapper cards in New Zealand which will allow them to carry more functions with the goal, amongst others, of having banks producing debit and credit cards with Snapper included.

In April the NSW Government announced a A$1.2 billion (NZ$1.6 billion) plan to introduce public transport ticketing and naturally raised questions as to how Snapper can be developed and implemented at minimal cost to tax or rate payers. There are two fundamental differences to the approach being adopted in NSW to how Snapper was established. In the first place Snapper has partnered with Korea Smart Card Corporation and is able to piggyback the best smart card technology in the world, it isn't building from scratch. Secondly, Snapper is an "open-platform". This means that if it wants, for instance, Wellington's parking meters to accept Snapper, it will work with the meter producer so their machines can interface with Snapper. Under the "closed" model being adopted in NSW it the system operator would have to actually build their own parking meters, only their own bespoke hardware will communicate with their card. Snapper management consider the "closed" model to be both flawed and expensive.

 

Wellington Airport

  2010 2009 Change
Domestic March 406,722 408,209 -0.4%
International March 56, 463 53,840 +4.9%
Total 12 months 5,117,906 5,256,437 -2.6%

Operational figures

Relative to the prior year the 12 months saw international passenger numbers rise 2.6% and domestic numbers decline 3.3%. The domestic decline was mainly on regional services which were off 7.2% against a fall of only 1.6% on domestic trunk services.

In March, airline loadings were at 79% for both domestic and international services (77% and 74% respectively a year ago). The good demand appears to indicate room for capacity growth which is resulting in new or expanded services.

flyDirect is to provide a daily Wanaka service and additional Jetstar services are to be provided to Auckland. Air New Zealand's reconfigured Tasman A320 aircraft will add around 5% capacity to the Wellington international market later in the year.

The March international growth reflected a 16% increase on the Sydney services (largely due to Pacific Blue's new services), with a small increase in Melbourne traffic balancing a small decline on the Brisbane route after a period of strong growth.

Wellington Airport's revamp of its food and beverage area is complete, widening the choice and quality. The pay-by-use Wild at Heart Lounge has added a barista station operated by Mojo. Improvements to the retail area are continuing with the recent instalment of a Weta display within Discover NZ, showcasing local product previously exclusive to the Weta Cave in Miramar.

In March ratings agency Standard & Poor's released its score card of the Australian and New Zealand airports. Wellington's rating was reaffirmed. The Company's rating was not changed during the global financial crisis or recession. To quote: Wellington International Airport Ltd. (WIAL; BBB+/Stable/A-2) WIAL generated a 1% increase in earnings in the six months to Sept. 30, 2009, reflecting higher passenger services income; this was despite a 5% decline in passenger numbers. The international terminal upgrade is on track for completion in 2010. WIAL has minimal upcoming debt maturities, reflecting its well-spread debt-maturity profile.

The Rocks Construction Update
The roof takes shape as Mainzeal's Swiss expert oversees the copper cladding. While not obvious from the outside, the building has consumed approximately 2,500m3 of concrete and 100 tonnes of structural steel which was "trial assembled" in Tokomaru in the Manawatu before being shipped to the site as no two pieces are the same length or with same end details.

 

Glasgow Prestwick

  March
Freight Tonnes
March
Passengers
Total freight
12 months to 31 March
Total Passengers
12 months to 31 March
2008 3,260 192,142 31,736 2,426,630
2009 1,364 149,994 19,023 2,312,515
2010 927 122,345 12,499 1,713,885

Operational Figures
122,345 passengers used Glasgow Prestwick Airport in March, 18% less than a year prior, in line with recent trends. The summer schedule started on March 28th with good load factors and strong forward bookings.

Excellent television and press exposure was achieved for the Airport hosted event to celebrate the 50th anniversary of Elvis Presley's only visit to the UK. He touched down briefly at Prestwick on route to the McGuire Air force base in New Jersey.

Freight volumes for March were 927 tonnes which is a 32% reduction on the prior year however a slight increase (1.7%) on February's figures.

Kent Airport

  March Freight Tonnes Total Freight
12 months to 31 March
2008 3,602 32,622
2009 2,914 22,988
2010 3,641 36,084

March freight volumes at KIA totalled 3,641 tonnes - a 25% increase on the prior year of 2,914. The month benefitted from a number of freight charters including an Antonov 124 and an Ilyushin IL-96.

Cargo traffic for the financial year ended 31 March 2010 showed strong growth with tonnages 57% ahead of the prior financial year with a total of 36,084 tonnes being transported through the airport. Scheduled traffic has increased markedly over the period supplemented by an increasing number of large charter flights.

The airport continues to gear up for the 27 May 2010 launch of scheduled, daily Flybe services to Edinburgh with early sales continuing to perform well.

 
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