MONTHLY: IFT: Infratil Monthly Operational Update

30 Jul 2010 12:39 pm

IFT 30/07/2010 MONTHLY

REL: 1238 HRS Infratil Limited

MONTHLY: IFT: Infratil Monthly Operational Update

Infratil Monthly Operational Report

30 July 2010

Introduction The first quarter of the financial year was positive for Infratil's businesses, operationally and financially.

It was an active period for the Company encompassing closing the Shell transaction, a Special Meeting which voted through changes to Infratil's constitution, the receipt of $42 million from the exercise of warrants issued in 2004, the first dividend paid with a DRP in operation, the regulatory steps required for listing in Australia and delivery of the annual report to share and bondholders. Share and bondholders will also have received the notice of meeting for the Annual Meeting which is to be held in Wellington on 11 August. The period also saw the retirement of Anthony Muh from Infratil's board, although he remains an alternate to Duncan Saville.

The annual report is only one part of Infratil's communication programme, albeit the most important as it brings together a full explanation of the group's strategy as well as summarising all matters germane to asset and liability management and providing financial records of the year to 31 March 2010. In July and August members of the Infratil management team will be presenting to investors in centres around New Zealand and over 2,000 people are expected to attend these briefings. In March Infratil again won the INFINZ corporate communicator award.

It was very pleasing to see that diver Gabe Armstrong-Jones was recently selected for the Commonwealth Games team. Gabe is a member of the Wellington High Performance Aquatics programme which is supported by Infratil and Wellington Airport.

TrustPower

Work commenced on the Mahinerangi wind farm and further progress was also delivered to have TrustPower's hydro projects fully consented.

The introduction of the ETS appears to have resulted in a small increase in wholesale electricity prices, which is of benefit to TrustPower as its renewable generations facilities do not produce CO2 and consequently do not incur an emission cost.

Some commentators have mistakenly claimed that the ETS is a waste of time/money as it will not change consumer behaviour. They miss a key point, the ETS has and will change the behaviour of generators. Anticipation of the ETS was a material factor behind the development and construction of wind, geothermal and hydro generation facilities over the last five years. Without the ETS (or something with the same effect) there is little doubt that New Zealand would have seen (and would see) more construction of long-life coal and gas-fired power stations.

New Zealand's CO2 emissions per unit of electricity consumed are amongst the lowest in the world (about a sixth of Australia's), which will be a significant advantage to the country as emission prices rise in future.

Infratil Energy Australia "LUMO"

IEA launched its new national brand LUMO to replace the previous state based names. With retail accounts approaching 425,000 it has become apparent that a national brand was required for both better name recognition and the ability to partner in promotions with national organisations. Lumo has recently supported the Bicycle Network in support of a National road safety campaign - Lumo Energy Light Up!, aimed to promote safety and awareness of cyclists at night time across Melbourne, Brisbane and Adelaide. Lumo is also the founding partner of the "Bikes for Bush foundation", whose aim is to promote healthy living and an active lifestyle in remote indigenous communities through cycling.

Over the quarter wholesale energy prices continued to decline in the states where IEA is active. This is a bonus for IEA which has no investment in base-load generation and can "cherry pick" the least cost energy source for its retail customers.

After last year's back office and excess-gas issues, this year has been easier, in particular wholesale gas prices have been a little firmer and IEA's excess capacity has been lower. A very detailed review of IEA's back office has indicated that credit and collection issues are performing as expected, that the back office operations cost about the same as similar services at much larger energy retailers, and that IEA has largely avoided the onerous set-up costs many larger companies seem to incur.

Both of IEA's generation projects remain on track for completion on time and budget. Over the period IEA's West Australian Kwinana station (which is expected to be commissioned in the next quarter) received a benefit when the State energy agency increased its schedule of capacity payments.

Greenstone Energy

Over the first 3 months of local ownership the focus at Greenstone Energy was on delivering smooth operational transition and the integration of new members to the management team. Whether it was due to public support of the change of ownership, or the myriad other factors which influence consumers in a competitive market (especially price) the period also saw Greenstone achieve absolute and market-share growth.

A key feature of Greenstone's strategy is to expand services and capacity by developing investment opportunities and over the quarter work began on a new petrol station for Bethlehem, near Tauranga, a new truck refuelling station opened near Whangarei and Greenstone acquired a further petrol station on Auckland's North Shore. Greenstone's access to locally refined fuel has also increased as a result of the recently commissioned Refinery expansion. In addition to these initiatives, the first three months of local ownership has seen approximately 20 jobs brought onshore.

From July Greenstone (along with the other fuel companies) became liable for the emissions from use of the fuels it sells and this has been reflected in pump prices. It is estimated that Greenstone's total annual liability under ETS could amount to as much as $100 million and this is resulting in a review of bio-fuels as such fuels do not create an emission liability.

Greenstone also began preparation for a bond issue to repay bank debt. While Greenstone has facilities from ANZ, BNZ, HSBC and Westpac through to 2013, bond funding has the attraction of being longer term and providing diversification. The response from brokers and investors to the announcement of this intention was very positive.

NZ Bus

June patronage in the Northern Region was 6% higher than recorded last year with much of the increase coming from tertiary students and seniors, especially in Auckland's west.

Northern Region June 3 months to 30 June 12 months to 30 June 2009 2,927,941 9,004,852 35,537,887 2010 3,094,485 9,363,813 34,821,165 Change 5.7% 4.0% -2.0%

Patronage in the Southern Region was 4% higher than the prior year with the Airport Flyer continuing to be the route with the strongest increase.

Southern Region June 3 months to 30 June 12 months to 30 June 2009 1,672,554 5,079,739 19,792,214 2010 1,730,397 5,121,116 20,131,745 Change 3.5% 0.8% 1.7%

On 27 July members of the Wellington Tramways and Manufacturing and Construction Workers Unions met to consider two new Collective Employment Agreements which had been negotiated by NZ Bus and the unions over the previous four months. The Agreements were to cover workshop and bus operator staff to the end of 2012 for the Hutt Valley and beginning of 2013 for Wellington.

The negotiation process to reach this position was very constructive but regrettably the workshop and bus operators voted not to accept Agreements. NZ Bus will now be re-engaging with the unions to produce an outcome which is acceptable to the staff and other stakeholders. While the "no" vote was a disappointment, this year's discussions have been cordial and have resulted in minimal disruption of services.

In June NZ Bus chief executive Bruce Emson joined the pledge to Zero Harm Workplaces an initiative launched by John Key and Kate Wilkinson with the goal of improving workplace health and safety. NZ Bus also launched an initiative to increase the training and responsibilities of group supervisors.

Snapper

Snapper instigated a trial with East West Ferry, GO Wellington and Valley Flyer for integrating ticketing/fares between the ferries and buses.

A different type of trial was undertaken at the Roller Derby held at TSB Arena in July. Members of the over 3,500 fans with Snappers had access to a fast entry queue and were able to purchase food and beverages more quickly than those with cash or eftpos. Not surprisingly given the high-speed adrenalin nature of the sport, Snapper users were very appreciative of their reduced queue time. It will not be long before all Wellington event venues should have Snapper entry and payment options to reduce the aggravation of missing the first ten minutes of a game through poor ticketing systems and having to queue the entire half-time break to buy chips.

Snapper remains on track to be available on local taxis in late August. This is likely to become an increasingly attractive payment option as new chip and PIN technology on credit cards slow down that form of payment.The Snapper website has been renewed to make it easier to top up online with the Feeder which can be used on computers using Windows and Mac operating systems.

Wellington Airport

Wellington Airport joined a group representing Wellington stakeholders concerned about the proposed Alliance of Virgin Blue and Air New Zealand. The common interest of the group's members is that Wellington retains good air links with Australia. Regrettably the airlines' request for regulatory approval for the Alliance can avoid scrutiny by the New Zealand consumer protection agency and consequently is not subject to the normal review entailed by an application to the Commerce Commission. The Wellington Stakeholder submission can be viewed here

June Domestic June International Total Passengers 3 months to 30 June 2008 371,646 42, 721 1,339,431 2009 347,986 42,727 1,241,271 2010 363,684 44,001 1,252,491

Operational figures In June, passengers were up 4% relative to the year prior on a capacity increase of 1%. Year-to-date, passengers were up 1%.

Domestic passengers in June rose 5% on the same month last year. Auckland traffic was flat, Christchurch and regional routes increased 7% and 9% respectively. Capacity was up 1% on the trunk and down 3% on regional services.

International passengers increased 3% in June compared to the previous year (which included now discontinued services to Coolangatta and Nadi). Melbourne passengers grew by 4% on a similar lift in capacity, Sydney had a 13% increase in passengers with additional capacity provided by Pacific Blue, and Brisbane passengers fell 4% with a similar decline in capacity.

Despite the challenges of the Wellington weather, the finishing of the work on the Rocks international terminal extension is running to schedule. Visitors to the Airport are becoming aware of its visual impact as the copper cladding becomes visible and international passengers leaving Wellington will soon also become aware of the significant improvement of facilities.

European Airports

Glasgow Prestwick

Passenger numbers were up 7% in June relative to the same month last year driven by the increased leisure capacity. Glasgow's sunshine routes are performing particularly well with strong load factors and forward bookings.

Freight volumes were 2% ahead of those anticipated

June Passengers Freight tonnes Total Passengers 3 months to 30 June Total Freight 3 months to 30 June 2009 164,060 1,169 2,215,097 3,732 2010 174, 766 1,009 2,215,097 3,013

Operational Figures

Manston

Freight traffic through Manston rose 12% against the previous year for the same month, with the rolling 3 month total up 5%. The recent demise of MK Airlines is beginning to be compensated by Egypt Air and Meridian who have increased capacity. The Flybe Edinburgh service continues to attract good passenger loads and is running ahead of expectation with encouraging forward bookings.

Freight Tonnes 2010 June Passengers Total Freight 3 Months to 30 June Total Passengers 3 Months to 30 June 2010 2,505 618 6,772 1,044 2011 2,804 3,171 7,123 6,092 End CA:00197827 For:IFT Type:MONTHLY Time:2010-07-30:12:39:11

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