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Infratil Monthly Operational Report


6 September 2011


Infratil's Annual Meeting was held in Auckland on Monday 15th August. Marko Bogoievski provided an update on the Company’s strategy and current performance, the presentation is available here.

After the first four months of the financial year he was able to confirm that the 2011/12 earnings guidance remained on track (normalised EBITDAF in the range of $460-$490 million, 4% to 11% higher than last year). Incremental improvements are expected at TrustPower, Wellington Airport, NZ Bus & Z Energy and a slightly lower contribution from Infratil Energy Australia. The increased earnings are mainly due to the previous investment in the Kwinana, Port Stanvac and Mahinerangi power stations and Z Energy's new retail offers and growth.

At the Annual Meeting shareholders approved Infratil's manager H.R.L. Morrison & Co. acquiring a further 2.5% of the Company on market and that Infratil undertake a share buyback if it is "in the best interests of the company and the remaining shareholders."



The Electricity Authority opened consultation on whether it needs to assist the development of a market for exchange-traded electricity contracts. The objective is to have generators, retailers, and consumers able to fix the price of electricity several years into the future in a deep and efficient wholesale market.

Because of the reliance on hydro generation, New Zealand has an unusual wholesaleelectricity market in that prices are very susceptible to the weather. A warm/wet winter may result in average “spot” electricity prices for the year of around 5c/kwh, while a cold/dry winter can see the average price more than double that level. This uncertainty means that most generators, retailers and large consumers fix in advance the cost/income on their electricity needs/output. Increasingly this is occurring via the ASX market or by using the ASX market as an indication of fair pricing for bilateral agreements.

Infratil’s management have long advocated for the desirability of an efficient hedge market. Infratil Update September 2001

The relevance for TrustPower is noted in its submission "TrustPower is a substantial net retailer, producing around 5% of the national generation but supplying around 10% of the retail load. We agree that the establishment of a robust forward price curve is a critical element in the NZ electricity market, as a benchmark for both wholesale and retail pricing. It appears that the current level of volume commitment to the ASX, (which operates the ASX New Zealand Electricity Market) combined with the investment in initial margin required of the major gentailers, is acting to provide a reasonably robust pricing curve, and we agree with the Electricity Authority that this result represents real progress."

The increasing reliance being placed on the ASX hedge market was underlined when Contact Energy reported its FY11 result. Contact and most analysts looking at electricity prices over the next two to three years used the ASX price as their benchmark. The ASX price for next year is 8c/kwh, rising to 9c/kwh in FY14. The hedge price for the year to 30 June 2011 was also about 8c/kwh, which turned out to be markedly higher than the average spot price over that period which was about 5c/kwh. The relatively low spot price for the last year has had limited impact on next year’s hedge price which will depend on next year’s weather. The 8c/kwh is a reasonable guess as to the mid-point price.

As Contact noted in its result, wet/warm winters can lower short term prices, but what determines prices over the medium term and the prices paid by most consumers is the economics of new generation. The 8-9c/kwh price range for wholesale electricity over the next three years is the level required for investment in new generation.


Z Energy

Z Energy and TrustPower were both finalists for the Deloitte’s Energy Company of the Year Award with Z being named overall winner by Energy Minister Hekia Parata.

Accepting the award, Z CEO Mike Bennetts gave credit to Shell for having developed such an efficient, reliable and safe business and for selling it to Infratil and NZ Super. He thanked all Z’s staff who have risen to the challenges posed by the transition to local independent operation, for maintaining services after the Christchurch earthquakes and more latterly for providing forecourt service through the most bitter winter blast in recent memory; and also Z’s customers for their support and feedback.

Nine of the Z pilot service stations were operating at the end of August with Putaruru to reopen in early September. Each station has a unique offering which are being closely monitored to assist with determining the optimal service and product mix when the remaining 220 stations are rebranded in 2012.

Recent fuel volume increases may indicate an improvement in the economy after flat demand earlier in the year although price volatility continues to be high due to instability in each of the main determinants of the pump price; the NZ$/US$ exchange rate, the international price of crude oil and refining margins.

New Zealand Refining Company (17% owned by Z) reported a net surplus before tax of $43 million for the six months to 30 June 2011 (+31% on the same period last year) on 4% higher volumes. NZRC is forecast to process about 80% of New Zealand's total demand this year: 100% of the country's jet fuel needs, 80% of the diesel requirement and 55% of the petrol. NZRC's capacity was fully utilised over the period and investment has been started to remove bottlenecks which will lift future processing capacity.


Infratil Energy Australia/Lumo/Perth Energy

Lumo Energy appointed Dean Carroll to the role of Chief Executive. Dean previously managed the gas and electricity retail activities of Genesis Energy which over the last decade expanded its retail activities from 157,000 to 650,000 customers, becoming New Zealand’s leading energy retailer with 27% of the electricity retail market.

Lumo continues to have overall stable customer numbers, although the situation in each region reflects the slightly different competitive situations in each state of the National Electricity Market.

Lumo Customer Numbers

  Victoria Electricity Victoria Gas South Australia
New South Wales
July 2010 207,367 141,000 27,778 46,357 1,447
March 2011 192,198 127,804 36,447 50,408 1,997
July 2011 191,605 125,870 37,630 52,854 2,697

In August two of Lumo’s main competitors, AGL and Origin, reported their annual results and both indicated good performance in their respective retailing divisions. While each company reports results differently, making it difficult to make direct comparisons of key operating and financial variables (net margin, cost-to-serve, customer acquisition costs, bad debts, churn), Lumo’s net margin on energy sales (before interest, tax, depreciation and revaluations) is in line with the margins of its larger competitors.

Origin and TRU Energy acquired the NSW State owned retailers in March and AGL showed that it had lifted its efforts to organically grow in that State with a net gain of 87,000 customers. Lumo lifted its sales effort in NSW after the majors increased their retail tariffs by 18% on 1 July 2011. This is expected to assist growth later in the year as it usually takes about 3 months for customer switches to occur.


NZ Bus

Patronage continues to grow positively in Auckland with the 12 months to 31 July being 5% ahead of the prior period. Passenger numbers in the Wellington region remains flat.

Northern passenger trips July 4 months to 31 July 12 months to 31 July
2010 2,957,965 12,195,153 34,679,540
2011 2,971,860 12,444,161 36,724,034

Southern passenger trips July 4 months to 31 July 12 months to 31 July
2010 1,767,436 6,953,618 20,226,686
2011 1,657,883 6,864,513 20,270,158

The new Auckland central Link services started in late August with drivers giving particularly positive reviews of the new ADL buses.

Wellington’s bus public transport is currently subject to several reviews by the Regional Council and it is hoped these lead to service enhancements later in the year when Government unveils the new regulatory regime.

Following on from the success of bus priority ways through Manners Street, Wellington City Council has now agreed to open consultation on introducing morning and evening bus priority-ways through Courtenay Place and Cambridge/Kent Terraces.



290,000 Snapper cards are now on issue, including over 110,000 co-branded Hop/Snapper cards in Auckland. 500 retailers accept Snapper and in July over 4 million transactions were processed.

In August the Snapper team were able to integrate Snapper with the rail ticketing products being developed for Auckland Transport by Thales. This has allowed the launch by Auckland Transport of integrated public transport tickets for RWC, but more materially the Snapper system can now accept tickets developed to meet the National Standard for Integrated Ticketing as well continuing to provide a suite of non-PT payment services for retailers, taxis, venues, etc, via the Snapper cards.


Wellington Airport

After a third of the financial year Wellington passenger throughput was down 2% relative to last year. Regional passenger numbers were up 9%, international service numbers were up 5%, but trunk services which comprise 60% of the total, were down 8%.

In July traffic with Auckland was up 2% reflecting a full recovery from the withdrawal of Pacific Blue, however total capacity was down 5% (25,000 seats) with over half of this being on Christchurch services. Domestic load factors were 80% up from 77.5% a year prior.

July's International growth reflected Qantas up-gauging its aircraft and Air NZ and Pacific Blue lifting capacity in accordance with their alliance commitments to the ACCC.

Operational figures

  July Domestic
July International
Passengers 4 months to 31 July Total Passengers 12 months to 31 July
2010 389,808 54,256 1,696,555 5,135,643
2011 383,566 57,026 1,660,604 5,098,276

Glasgow Prestwick and Kent Manston Airports

Ryanair’s continued capacity reductions on UK domestic and Irish routes continued to impact passenger numbers. Freight volumes were stable.

  July Passengers July Freight Tonnes Passengers 4 months to 31 July Freight Tonnes
4 months to 31 July
2010 197,197 1,033 640,311 4,046
2011 158,583 915 560,289 4,001

Operational Figures

Freight tonnages were stable. Passenger traffic continues to grow, with July boosted by the British Open Golf Championship being held this year at nearby Sandwich. The Belfast service benefitted with the Northern Ireland tournament winner travelling home through the Airport.

  July Freight Tonnes July
Freight Tonnes
4 months to 31 July
4 months to 31 July
2010 2,319 3,259 9,449 9,351
2011 2,373 5,347 9,044 15,627
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