MONTHLY: IFT: Infratil Monthly Operational Update

25 Jun 2010 9:48 am

IFT 25/06/2010 MONTHLY

REL: 0947 HRS Infratil Limited

MONTHLY: IFT: Infratil Monthly Operational Update

Infratil Monthly Operational Report

25 June 2010

Introduction

After closing the acquisition of the Shell downstream operations in April the first two months of the 2010/11 financial year were relatively quiet for Infratil and its businesses.

A number of shareholder matters progressed. The last of Infratil's 2004 Warrants were exercised resulting in an equity injection of $42 million. A special meeting of shareholders was held to ratify changes to Infratil's constitution so it would be compatible with ASX listing requirements - all amendments were supported. The June dividend was the first undertaken with a dividend reinvestment option and the shares were issued at $1.61. The annual report was also prepared and will be posted next week. Listing in Australia is expected in July.

Since 31 March 2010 global markets have experienced another period of volatility due to concerns about European sovereign debt. Commentators have pointed out that this has little relevance to New Zealand, but market prices tend to move in unison irrespective of underlying values. Over this period returns (in NZ$) have been:

Infratil -3.5% NZX50 -6.8% ASX200 -10.6% FT500 -8.5% S&P500 -3.5%

Infratil independent director Anthony Muh resigned from the board when he took up a role with Infratil's manager H.R.L. Morrison & Co and consequently ceased to be independent. He will still be making a contribution to Infratil through the managerial role and he has also been appointed as an alternate Infratil director to Duncan Saville.

Foreign Policy magazine produced its annual assessment of country stability ranking New Zealand 7th and Australia 8th, the only non-European countries in the top 10.

TrustPower

A 46 MW expansion of TrustPower's Arnold hydro scheme gained approval from the Environment Court having previously received consents from the Grey District and Westland Regional Councils. The scheme has the potential to make the West Coast self sufficient in electricity and involves the expansion of an existing power station on the Arnold River.

The $75 million Stage One of the Mahinerangi Wind Farm also progressed and the installation and commissioning of the first of the 12 Vestas V90 turbines (total capacity of 36 MW) is expected to occur in early 2011 with full operation from May 2011.

Retail competition continues to be vigorous. The intensity of competition seems to be driven by the SOE restructuring and over the last twelve months the main changes in customer numbers have been gains by Mighty River Power and losses at Genesis. TrustPower's customer numbers have fallen approximately 3% over the year.

Infratil Energy Australia (IEA)

Customer growth continues with numbers up slightly over the first two months of the financial year. The rate of growth is in line with the last two years and is consistent with IEA's priorities for this year, being improved customer services and management of margins.

The back office system improvements introduced last year are proving to be reliable which is assisting with the programme to lift the quality of service experienced by customers.

As these initiatives progress it is anticipated that IEA will revisit its retail brands which are in need of a refresh and will have to support the company's increasingly national operations. Customer growth continues to be pursued when wholesale market opportunities allow.

IEA's two generation projects remain on track for commissioning this year.

The Market Operator in Western Australia announcement that capacity charges are to increase in 2012 will benefit the Kwinana power station. The majority of this station's income comes from capacity charges and these have been increased from approximately $130,000 per available MW per annum to $190,000 per annum. Kwinana has 120 MW of capacity, although a lower level is deemed available under the Market Operator's formula for setting charges. The increase in charges also improves the viability of an expansion of this facility.

Greenstone Energy

Greenstone Energy was formed by the New Zealand Superannuation Fund and Infratil to acquire Shell's New Zealand downstream oil operations and shareholding in the New Zealand Refining Company. It has 230 petrol stations under the Shell brand and 95 truck-stops and other commercial fuel distribution which operates under the name of Greenstone Energy. It supplies about 30% of New Zealand's fuel needs.

The first 2 months of operation have naturally been mainly about ensuring a smooth transition from multinational to local ownership with 40 jobs brought onshore, including areas such as the senior management team and the call centre.

Since 31 March management report that fuel sales are ahead of the same period last year despite industry volumes being down. No doubt this is mainly due to competitive prices, good service and products, and the popularity of Fly Buys, Shell Card and supermarket dockets (70% of customers use one or more), but sales are also likely to have benefitted because many New Zealanders prefer to deal with locally owned and managed firms.

Since the acquisition the company has committed to the construction of one new petrol station. This is located in Bethlehem near Tauranga. The approximately $3 million cost of this station indicates the capital commitment required to maintain a national supply network.

NZ Bus

Since 31 March patronage in the Northern Region has continued to recover from last year's service disruptions. Growth in tertiary students and seniors has been notable while West Auckland had the best performed routes.

Northern Region Since 31 March 2010 Last 12 months 2009 6,076,911 35,445,877 2010 6,269,328 34,654,621 Change 3.2% -2.2%

Wellington patronage was flat over the first two months of the financial year but users will benefit from a number of changes now occurring. The region's first real time information displays are expected to be operational in October and Wellington City Council's improvements to the central city routes are to come into effect 1 December.

Southern Region Since 31 March 2010 Last 12 months 2009 3,407,185 19,844,091 2010 3,390,719 20,073,902 Change -0.5% 1.2%

Greater Wellington Regional Council has announced fare increases from September which are intended to increase revenue by 3.5%. They also widen the gap between cash and Snapper fares which should further encourage the move away from cash.

1 zone 2 zone Old New Old New Cash fare $1.50 $2.00 $3.00 $3.50 Snapper fare $1.20 $1.40 $2.40 $2.46 Snapper discount 20% 30% 20% 30%

Government is progressing implementation of "fare box" rules which will stipulate that fares should cover at least 50% of a region's public transport costs (operating costs for trains and total costs for buses and ferries).

Greater Wellington is comfortably positioned to meet this target, last year fares covered 55% of costs and this year Council's contract payments to bus public transport operators are forecast to be 10% below budget (a saving of $3.8 million). In the Auckland region fares made up 43.5% of costs.

Snapper

125,000 Snapper cards are now on issue and additional retailers continue to join. Snapper is also trialling kiosks where cardholders can check their balance and recharge the card at no cost using EFTPOS. The first 2 kiosks are at Wellington Airport and the Reading cinemas on Courtenay Place.

Greater Wellington Regional Council is on target to switch its Total Mobility scheme over to Snapper in August and by then all the region's taxis will have been Snapper enabled.

Snapper has also introduced an expanded range of "toggle" style cards which are proving popular.

Wellington Airport

Wellington Airport submitted to the Australian Competition and Consumer Commission (ACCC) on the Air New Zealand - Virgin Blue Tasman alliance application. Australia and New Zealand have different regulatory processes for the review of arrangements such as the Alliance. In Australia the review is undertaken by the ACCC which is the Federal competition authority. In New Zealand the review will be done by the Ministry of Transport for approval by the Minister of Transport and has less focus on whether consumers are likely to win or lose. Wellington Airport considers that the New Zealand and Australian processes should be harmonised and the NZ Commerce Commission should be involved in reviewing the Alliance's impact on New Zealand consumers.

The Alliance has the potential to enhance Australasian air links, but on some routes the impact could be negative and only a consumer review is likely to identify and address this possibility. The airlines' proposal to the ACCC notes the case for potential benefits for business travellers from the Alliance, but does not address how the reduction in competition will impact tourism traffic, in particular inbound to Wellington.

At present Wellington Airport is financially supporting a significant marketing campaign to attract Australian visitors to the Wellington region, but this type of initiative will only have a positive impact if potential visitors can access convenient and well priced air services.

International Passengers Since 31 March 2010 Last 12 months 2008 94,788 600,959 2009 101,239 617,447 2010 96, 187 621,594

Domestic Passengers Since 31 March 2010 Last 12 months 2008 830,276 4,574,391 2009 749,319 4,564,445 2010 748,619 4,490,560

Operational figures

Over the first two months of the financial year International passengers declined 5% compared to the previous year. Melbourne and Sydney passengers were both up on the back of increased capacity, but Brisbane was down 12% off a 10% decline in capacity. Passengers on Brisbane services have declined since Qantas stopped flying this route in June 2009.

Regional services improved 5% with load factors up 6% on the same period last year. On the trunk , Auckland was down 3% and Christchurch down 1%. Capacity reductions by Pacific Blue were matched by capacity increases by Jetstar and Air New Zealand.

A SmartGate has now opened at Wellington Airport which will speed up processing for New Zealand and Australian ePassport holders. The SmartGate uses biometric face recognition to provide an efficient way to clear passport control and is a step towards seamless travel between New Zealand and Australia which will benefit tourism and business sectors.

European Airports

Glasgow Prestwick

Passenger numbers were down 8% in May relative to the same month last year. Air travel and freight volumes continued to be affected by Icelandic volcanic ash, but less dramatically than April. Glasgow's sunshine routes are performing well with strong load factors and forward bookings.

Passengers Since 31 March Last 12 months 2009 322,914 2,215,097 2010 268,469 1,659,443

Freight volumes for May were 6% better than April as both months were impacted by Eyjafjallajokull.

Freight tonnes Since 31 March Last 12 months 2009 2,563 16,012 2010 2,004 11,939

Operational Figures

Kent

Freight traffic continued to grow with the 2,608 tonnes handled in May an increase of 15% on the same month last year. A new customer, ZAAB Air, commenced operations during the month with strong initial loads. .

Flybe launched a daily scheduled passenger service with Edinburgh which has been well received with strong load factors on all flights. The success of this service has encouraged Flybe to announce a further route to Manchester which is due to commence in September 2010.

Freight tonnes Since 31 March Last 12 months 2009 4,267 22,870 2010 4,326 36,144 End CA:00196517 For:IFT Type:MONTHLY Time:2010-06-25:09:48:03

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