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Infratil Monthly Operational Report
1 July 2011
Infratil's 2011 Annual Report was
released and is available here.
The Report provides a record of Infratil's performance over the
year to 31 March 2011, its financial position as at 31 March 2011,
the strategic factors which are guiding management and a summary
of the performance, circumstance and prospects of Infratil's businesses.
After almost a quarter of the financial year the main "take out"
thus far is that Infratil is tracking to budget with the pluses
and minuses roughly in balance.
The 4.25cps final dividend was paid in June. 25% of shareholders holding 11% of the shares took advantage of the DRP and 1.4 million shares were issued at $1.87 each. After the DRP issue, Infratil has 604.2 million shares on issue.
A wet, warm winter has depressed wholesale
electricity prices and coincidentally the Electricity Authority
has initiated a $10.5 million campaign to encourage consumers to
check their power bills to see if they can lower their costs. The
Authority reported that approximately 6% of those who checked their
bills subsequently initiated a change of retailer. The Authority
is funded by a levy on electricity consumption.
Over the last year about 30,000 accounts have switched company each month. Over this period TrustPower's customer gains and losses have been in balance with the overall outcome being gains by Pulse, Meridian and Genesis drawn from Contact and Mighty River Power.
The temperate winter may be increasing
supply and reducing demand (less electricity has been consumed to
date in 2011 than for the same period in 2010) resulting in low
wholesale prices, but the situation may be analogous to mortgage
borrowers with floating rate loans. Eventually rates will rise and
today's cheapest may not be tomorrow's.
The Electricity Authority's decided
to cap the prices Genesis Energy was able to charge for output from
the Huntly Power Station on 26 March. While price capping is naturally
popular with consumers (and retailers which haven't fully hedged
their cost of supply) it can have negative consequences for the
viability and longer term availability of generation plant.
The following graph shows CO2 emissions
from NZ's thermal power stations over the last 5 years. It is apparent
that the Genesis' Huntly power station (the orange coloured emissions
on the graph) are both volatile and have diminished (NB. the correlation
of output and generation is not perfect as different power stations
use different fuels and some are more efficient than others). Over
the period hydro and wind generation has risen and demand has been
depressed by the weak economy. However, what will have been good
for the environment will have been bad for the economics of Huntly.
A large, old station which is turned on only infrequently when wind
and hydro facilities are insufficient to meet demand needs to generate
revenue as well as power.
Whether the Authority's price-capping
decision will result in Huntly being decommissioned sooner than
would otherwise have been the case is not known, but what is obvious
is that without Huntly, the next cold dry winter will produce an
interesting supply situation and probably much higher prices.
The trial of the new retail and corporate
brand "Z Energy" commenced with an extensive advertising campaign
and 10 trial sites; Greenlane, Auckland Airport, Customhouse Quay,
Mana, Waiouru, Turangi, Putaruru, Takanini, Shirley and Linwood.
The last two being rebuilds after Christchurch's 22 February earthquake.
Each Z Energy service station features hotel-style bathrooms, barista-made
coffee, award winning Hawkes Bay gourmet pies, cupcakes produced
by Laurel Watson's Petal, and touch-screen information services
for maps, directions, car advice and customer feedback. An illustration
of the trial aspect of the initial programme is the provision of
forecourt service between 10am and 5pm each day. Pre-launch customer
surveys indicated that people who want help with their vehicles
tend to use service stations between those hours so this is being
tested along with all the more tangible changes.
Over the next 6 months Z Energy will be listening to feedback and
watching what works and what doesn't. Expect changes. So far the
responses have been outstandingly positive, but not to every product;
savoury cupcakes have not been popular, even as the chocolate, red
velvet and caramello have been selling like "hot"cupcakes.
In the media, the chief executive of BP in New Zealand was reported
as saying "Z had "taken a risk" by electing to drop the Shell brand
as it overhauled its non-fuel retail offering." He had visited
one of the new stores, and said he doubted the overhaul would be
profitable. "I don't know how they're going to make much more money
out of it. Certainly, my view is they've taken a lot of stock out."
Time will tell.
New Zealand pump petrol prices hit their highest ever level in May;
$2.20/litre. Diesel peaked earlier in April at $1.70/litre. Both
prices have now fallen. High prices have some impact on demand as
indicated by the following graph which shows consumption and price
data from the Ministry of Economic Development (www.med.govt.nz).
The last significant pump price rise in 2008 had some impact, albeit
more to flatten growth than to permanently lower consumption.
Following the Christchurch earthquakes on the afternoon of 13 June
Port Lyttelton was temporarily closed and Z Energy maintained supply
to the city by trucking fuel from its terminals in Timaru and Nelson.
None of its retail or commercial outlets were materially damaged.
Z Energy has announced that it is planning to issue $100 million
of 7.25% bonds to mature August 2018, with the capacity to accept
oversubscriptions of a further $50 million. The managers to the
issue; ANZ, Westpac, Forsyth Barr and First NZ Capital are seeking
pre-launch expressions of interest. The funding would be used to
repay bank loans.
Infratil Energy Australia/Lumo
The CEO of Lumo Energy, Simon Draper,
announced his retirement from the job as a precursor to a six month
sabbatical. His integrity, collegial approach and acumen will be
missed and his intention to spend time learning a foreign language
and experiencing a very different lifestyle is envied. Fortunately
he leaves a well established and experienced senior management team
to cover while recruitment of his replacement occurs.
Lumo achieved a small increase in customer accounts over the first
two months of the financial year. The focus remains on profitable
growth and the retention of good customers. A more aggressive entry
to NSW is planned and is likely to lift growth later in FY12.
|Lumo Customer Accounts
|31 March 09
|31 March 10
|31 March 11
|30 April 11
|31 May 11
The electricity markets have generally
been stable over the last two months. The following graph shows
electricity prices in Victoria out to the end of 2013 as at 31 March
2011 and 22 June 2011 (it shows prices for each quarter and for
the calendar years 2012 and 2013). As shown in the graph there were
small rises in the forward prices, which may reflect ongoing uncertainty
about CO2. However, even with cheap gas, new base load plant is
unlikely to be economic at these price levels.
The gas market is quite different to that for electricity. In particular,
if a retailer wants to be certain about having gas available at
a fixed (or capped) price, it has to have contracts in place to
buy that gas, and to have back ups if a gas field or pipeline fails.
While it isn't possible to look at public information about future
gas prices, it is possible to look backwards to what average wholesale
market spot prices were, which is shown in the following graph.
This shows average monthly prices over the last 12 months and the
prices of the 12 months previous to that.
Although recent Victorian gas prices are a little higher than was
the case the year prior, two reports that came out since 31 March
2011 imply that Australian gas prices may stay low for some time
yet. Macquarie Securities pointed out that the cost of building
facilities to convert gas to LNG for export was rising and is likely
to mean that less exporting occurs (ie there will be more gas available
for domestic Australian consumption). Coincidentally the London
based Global Warming Policy Foundation published a report "The
Shale Gas Shock" written by Dr Matt Ridley (who was interviewed
on RNZ on 18 June) which presented a credible forecast of a world
with abundant natural gas, and the possibility of relatively low
prices in the short to medium term due to a mining boom; longer
term gas prices were expected to increase to reflect extraction
Infratil's corporate loyalties will be stretched on Saturday when
Auckland Blues take on Queensland Reds in Brisbane. Lumo has teamed
up with The Reds and Queensland Rugby to help grow Queensland rugby
with a special offer for Queensland clients.
Auckland Transport's introduction of the Hop cards to all NZ Bus
services in that region was accomplished over May and was a remarkably
smooth transition for travellers and NZ Bus. The trials, and errors,
of NZ Bus and Snapper in Wellington and Hutt Valley provided the
experience to ensure the pitfalls were avoided in Auckland.
In June NZ Bus took delivery of the first of 158 new Enviro200 buses
purchased from British bus manufacturer ADL and Tauranga based bus
assembler Kiwi Bus. This bus is an ideal addition to the NZ Bus
fleet. The Enviro200 is a mid sized vehicle which will complement
the larger buses which have been the main acquisition of recent
years. The Euro5 engine and relatively light body weight will significantly
reduce fuel consumption and emissions. The bus layout and use of
electronic monitoring systems will also reduce maintenance costs.
For passengers the new buses will provide a comfortable ride and
The initial allocation of these excellent buses will be to central
Auckland services. Auckland Transport is working with NZ Bus to
enhance these routes. Not only will travellers have new buses and
better ticketing; the timetable, routes and bus stop locations are
all being upgraded.
The Central Auckland bus public transport enhancements will be a
clear demonstration of the benefits of the cooperative relationship
between Auckland Transport and NZ Bus, and of the efficiency of
Auckland Transport as the single agency with responsibility for
public transport and local roads.
Patronage in the Auckland/northern region grew 3% over the first
two months of the financial year relative to the same period last
year. Wellington showed a slight recovery from the Regional Council's
fare increases of last October and the 2 months were up 1% on last
year. For the last 12 months, Auckland growth was 6% and Wellington's
|Northern passenger trips
||Year End May
|Wellington passenger trips
||Year End May
Greater Wellington Regional Council has initiated public consultation
over its draft "Wellington Regional Public Transport Plan 2011-21"
Submissions can be made over July and Council intends to release a
final Plan in September.
Snapper went live on all NZ Bus's
Auckland fleet care of its provision of services through Auckland
With Snapper now the main way people pay for public transport in
Auckland and Wellington (covering roughly 50% of all NZ public transport),
the goal now is to broaden functionality with car parking, low value
purchases, access and a range of other services.
Construction of Wellington's new hangar
for mid sized jets took a step forward as Fletcher Building literally
"raised the roof" in June. The entire structure was jacked up from
the ground to full height in a single day. Conversely, Mainzeal's
construction of the new car park deck will occur incrementally so
as to minimise disruption. Both projects are on track for completion
before Rugby World Cup
Ash from the Puyehue volcano in Chile has been an unexpected and
significant source of disruption to NZ aviation over the last two
months, but weak traffic flows with Christchurch were a more depressing
influence on Wellington's total traffic. Over each of April and
May approximately 10,000 fewer people travelled between Wellington
and Christchurch than over the same period in 2010 before the earthquakes.
|YE May 2010
|YE May 2011
Over the first 2 months of the financial year, domestic trunk traffic
was down 4% (because of reduced Christchurch services), regional
traffic was up 4% and international was up 9%.
Sydney traffic grew 11%, Melbourne 13% and Brisbane 3%. In each
market a different airline was the stand out performer, Pacific
Blue to Sydney, Qantas to Melbourne and AirNZ to Brisbane.
Over the period international loads were stable at 71% while domestic
loads rose 2 points to 81%.
Wellington Airport has commenced consultation with its airline customers
in respect of prices from 1 April 2012. This is a highly prescribed
process which has occurred on three previous occasions. In parallel
the Commerce Commission is still progressing its specification of
the information NZ's three largest airports must disclose. The airports'
price consultations and the information disclosure requirements will
come together in a review the Commission is planning to undertake
later in 2012.
For this consultation Wellington Airport is publishing all consultation
documents on its website: www2.wellingtonairport.co.nz/business/consultation-airport-charges
Notwithstanding everything else that was happening at and around Wellington
Airport, the main source of public interest in the Airport was "Wellywood";
a sign that was to be erected to promote Wellington's links with the
film industry and to spark tourism interest. Unfortunately public
opinion was not in favour of this concept and the Airport has now
facilitated the establishment of an independent panel to review alternatives
with the intention of holding some form of public vote. Anyone with
an interest in this project is invited to contact the panel.
Glasgow Prestwick Airport
Relative to the same period in 2010,
freight was up 6% and passenger numbers were down 2%.
Kent Manston Airport
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