SP Austnet Half year results

Total Revenues 785.8 up 10.1%
EBITDA 463.2 up 8.1%
EBIT 337.7 up 7.0%
NPAT 166.0 up 22.6%

Half Year Distribution: 4 cents
SGX-ST ex-distribution date: Wednesday 24 November 2010
Payment of distribution: Wednesday 22 December 2010

KeyPoints
- Revenues 10.1% higher as a result of incentive scheme payments due to improvements in network reliability, additional revenues from the Advanced Metering Infrastructure ("AMI") program, strong growth in customer numbers, favourable weather conditions and the increase in service revenue from Select Solutions

- EBITDA growth of 8.1%. NPAT growth of 22.6% driven by lower income tax expense

- On track to deliver a full year distribution of at least 8.000 cents per security

- Fully franked dividend component increased to 39.8% of total distribution

- Continuation of Distribution Reinvestment Plan for the 2010/11 interim distribution

- Higher net finance charges, mainly due to $11.8m of hedge de-designations. No economic loss as recovery will occur over the term of the hedge.

Outlook
Looking forward, SP AusNet will determine future distribution amounts based on operating cash flows after servicing its maintenance capital expenditure and a portion of its growth capital expenditure. For FY11, SP AusNet expects to at least match the distributions per security for FY10. As with prior years, the seasonality of revenues, particularly due to higher demand on the gas distribution network for heating during the winter months, results in a larger proportion of revenues being earned in the first half of the year. Operating costs are more evenly spread over the full year, resulting in lower revenues and NPAT in the second half of the year.

Organic growth in the regulated asset base continues to be strong, with high levels of demand for energy infrastructure from new housing developments and peak demand growth within the distribution network areas. New wind farm and gas fired generation connections on the transmission network also ensure growth in SP AusNet’s asset base. SP AusNet remains committed to growing and modernising its existing networks. SP AusNet will also focus on expanding and commercialising niche asset services, in particular metering and technical services. In addition, the adoption of smart networks via the Advanced Metering Infrastructure (AMI) program is a key platform for future growth.

SP AusNet now expects capital expenditure in FY11 to be around 16% higher than FY10. Prior guidance for capital expenditure in FY11 was to be around 5% higher than FY10. The revised guidance is due to changes in the AMI program and the acquisition by Select Solutions of water metering business Schultz Plumbing.

On 4 October 2010, SP AusNet confirmed to the ASX and SGX-ST an improvement in NPAT for HY11, in the range of 15 – 25% over the previous corresponding period. The HY11 NPAT improvement is mainly driven by $28m (approx.) of favourable income tax expense adjustments, arising from tax consolidation, investment allowance and research and development deductions. The favourable tax adjustments recorded in HY11 will consequentially impact (favourably) FY11 NPAT.

Victorian February Bushfires
On 7 February 2009, the state of Victoria was impacted by significant bushfires. The Victorian Government subsequently established a Royal Commission of Inquiry into the Victorian bushfire crisis. The Royal Commission made a number of recommendations that are intended to reduce the occurrence and impact of future bushfires. SP AusNet will continue to work with the Victorian Government, its Powerlines Bushfire Safety Taskforce (“the Taskforce”) and electricity regulators to scope the recommendations, with a view to making constructive improvements designed to make the electricity network even safer.

Until the full extent and nature of the recommendations are worked through, it is not possible to accurately estimate the costs that will result from implementation of the recommendations. The Taskforce is expected to provide its final report by 30 June 2011. It is required to recommend a 10 year plan to reduce bushfire risk accompanied with options for fairly and efficiently recovering the costs of that plan.

SP AusNet is a defendant in litigation that has been brought in connection with the 7 February 2009 bushfires located at Kilmore East and Beechworth, respectively. SP AusNet denies it was negligent. SP AusNet alleges that its conduct was at all times reasonable, in compliance with technical regulations and reasonable in light of economic regulations applicable to SP AusNet. SP AusNet will vigorously defend these claims.

It is too early for SP AusNet to speculate on the outcome of any claims which may be instituted by third parties. If these claims are pursued, SP AusNet has liability insurance which specifically provides cover for bushfire liability. SP AusNet reviews its insurance cover annually and ensures it is commensurate with the scale and size of its operations, the risks assessed to be associated with its operations and with industry standards and practice. SP AusNet’s bushfire mitigation and vegetation management programs are audited annually by Energy Safe Victoria. SP AusNet had a “zero” bushfire mitigation index throughout the 2008-09 bushfire season.