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Infratil Results for three Months ended 30 June 2007

16 Aug 2007


16 August 2007
Infratil’s first quarter was satisfactory and all businesses progressed their respective investment and development initiatives.

Infratil’s success in generating value for shareholders, together with the potential for increasingly shaky global capital markets to result in new investment opportunities, saw the Company announce a rights issue raising $175 million in August.

For the period under review earnings before interest, tax, depreciation, amortisation, realisations and impairments, and fair value movements of financial instruments ("EBITDAF") were $64.5 million from $31.2 million in the first quarter of the previous year. The net surplus was $62.6 million (2006 $8.5 million) and profit attributable to Infratil shareholders was $45.9 million (2006 $7.7 million).

Depreciation and amortisation was $17.5 million, up from $10.0 million from the prior comparative period as a result of the consolidation of TrustPower and subsidiaries’ investment in plant and equipment.

Infratil’s net interest costs were $32.0 million up from $14.7 million in the prior comparative period. $9.2 million of the increase reflects consolidation of TrustPower while the bulk of the remainder relates to funding the increased stake in TrustPower.

Infratil remains conservative in its use of debt which comprised 40 per cent of capitalisation as at 30 June 2007. Over the period the offer of Perpetual Infratil Infrastructure Bonds (PiiBs) was closed having raised $240 million which was a testament to Infratil’s standing in the capital markets.


This quarter is Infratil’s first result under the NZIFRS accounting standards. Prior periods have been restated to be consistent. The most significant impact of the NZIFRS changes on the reported results is in respect of the accounting treatment of the fair value of electricity derivative contracts. This resulted in a gain over the period of $78.7 million and accrual of tax of $23.4 million. This gain largely arises from Infratil Energy Australia’s electricity contracts which do not meet the effective hedge test under NZIFRS. This gain would not have been recognised under GAAP. It is likely that this impact will reverse in later periods as electricity prices return to normal.


TrustPower’s first quarter was notable for the good progress made on capital projects. EBITDAF was $51.3 million ($53.4 million) and net profit $31.9 million ($26.2 million). These were satisfactory results given that wholesale electricity prices were relatively low over the period as was TrustPower’s own hydro generation and sales to customers - all of which are normal seasonal factors.

Tararua Stage III windfarm (93 MW) was commissioned at a cost of $174 million well under the budget of $180 million. Construction of the A$200 million South Australian windfarm (88MW) continues.  Provisional consents were received for the 72 MW Wairau hydro generation scheme and consenting progressed for both the 46 MW Arnold hydro and the 200 MW Lake Mahinerangi wind projects.

In New Zealand and Australia the respective Governments are advancing the introduction of CO2 pricing regimes which are likely to benefit renewable electricity generation.

Infratil Energy Australia (IEA) had an EBITDAF loss for the quarter of $6.1 million against a gain of $2.2 million for the same period in 2006. The result reflected the cost of strong growth in IEA’s retailing operations during a period of very high wholesale energy prices. Eastern Australian wholesale electricity prices more than doubled and gas supply costs in the newly restructured Victorian market were also much higher during periods of peak residential winter load.  IEA had substantially hedged against these increases and the scale of the market disruption is indicated by the 30 June 2007 $144.5 million fair market valuation of the total hedge position.

However, while IEA’s exposure to wholesale energy prices and costs was substantially hedged, there was an adverse impact from variable retail load and from the actual energy spot prices. The wholesale prices also caused IEA to slow its customer growth in Victoria and delay initiation in Queensland. Nonetheless, momentum still resulted in a net 35,000 accounts being added to produce a total of 221,330. IEA will resume its retail growth when wholesale energy price levels moderate, which is expected to be early 2008.

When wholesale market conditions again favour retail growth, IEA expects to benefit from the market withdrawal and collapse of several other new retailers and the large losses by some of the NSW state owned retailers.  One retailer which has withdrawn due to inadequate risk management is EnergyOne in which Infratil had a 20 per cent stake and which has now been written down, resulting in an impairment loss of $5.6 million in the quarter.

Infratil’s South Australian generation operated more than usual over the period in response to the high electricity spot prices and the plant performed well.  Development activities took another step forward with agreement with engine maker Cummins to build a 30MW “peaker” generation facility in NSW’s Hunter Valley on a “turn key” fixed price basis. This is expected to be commissioned in mid 2008 at a cost of approximately A$20 million.

NZ Bus produced an on-budget result although passenger usage disappointed. Wellington especially continues to see lower user numbers.

Bus usage depends on reliability, friendliness, comfort and value for money. Extensive work is underway on each of these key factors. NZ Bus is investing heavily in new buses, staff training and systems. Its partners, Greater Wellington Regional Council, the Auckland Regional Transport Authority, Auckland City Council and Wellington City Council and others are also all committed to improving the reliability of bus public transport.

Infratil Airports Europe (IAE)’s quarter was slightly ahead of the same period the previous year due to an improved contribution from passenger services, which reflects IAE’s investment in better facilities in Glasgow.

Passenger numbers were flat at Glasgow and lower at Lübeck. Freight was up at both Glasgow and Kent. In line with the wider European market, activity levels were generally flat, but the announcement of several new passenger routes at Glasgow and Kent’s attraction of a number of new carriers bodes well for the future.

Wellington Airport produced a solid result with incremental income improvements across the board.  Effective from 1 July the aeronautical charges were reset for the first time since 2002. Average charges increased 2.5 per cent. There was no change to the international passenger departure fee and airline charges increased 2.85 per cent. Unfortunately what had been considered to be a very cordial and constructive consultation process with the main airline users of the Airport (AirNZ, Qantas, Pacific Blue) has not resulted in avoiding litigation from AirNZ. In each of the last two consultations over aeronautical charges (1997 and 2002) Wellington Airport reached agreement with its main customer, but seemingly the airline regards a legal stage as a necessary part of the process.
Wellington Airport continued the upgrade of its runway safety and terminal and the expansion of the off-airport retail development.


Over the quarter Infratil undertook a share and warrant split effectively doubling the number of both instruments. Infratil also undertook an issue of new five-year warrants. These steps were taken to enhance liquidity in Infratil’s shares and to provide shareholders with greater flexibility.
In August, Infratil announced that it was to undertake a rights issue. Infratil has not issued shares for over a decade and the decision to now raise $175 million is specifically targeted to enable the Company to better position itself to take advantage of potential opportunities that might arise from the current and expected turbulence in world capital markets.

Infratil’s financial position is strong which, together with its depth of operational skills and assets, places the Company is a good position to act on new growth investment opportunities should they arise.

The final dividend of 7.5 cents per share was paid on 18 June 2007.
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