There are few industries that are resilient in times of economic uncertainty, and at the same time retain significant growth potential - Australia's natural gas infrastructure industry is one of them. This has been, and will continue to be, an industry for the long term, where natural gas pipelines and networks provide essential energy services for two or three generations without significant capital upgrade. In Australia, the gas market is dynamic with unprecedented growth in gas reserves and gas demand, with many opportunities for growth.

Such solid market fundamentals bode extremely well for APA Group as we continue to enhance and grow our extensive gas transportation and storage networks across the country.

As Australia's largest natural gas infrastructure business, APA's performance this year, and the opportunities ahead, demonstrate the resilience as well as the strength of our business.

Financial performance

As our Chairman outlined, APA achieved another record performance in 2009, with increased underlying EBITDA across all parts of the business.

Our largest business segment, Gas Transmission and Distribution, recorded an EBITDA increase of 14% to $384 million, mainly due to strong growth in the eastern states. The increased performance of the Victorian Transmission System was due to a combination of tariffs under the revised Access Arrangement, new investments in capacity and increased gas use. Similarly, the Moomba Sydney Pipeline's increased contribution resulted from increased demand for pipeline capacity, as well as revised tariffs.

The EBITDA increase of 7% from our Western Australian pipelines was particularly pleasing as earlier in the year we expected some impact on the resources sector with the downturn of the global economy. However, earnings increased, with mining operations increasing gas throughput and capacity reservations, and this more than offset revenue loss from one mine which was put under care and maintenance.

The EBITDA performance of our Asset Management and Energy Investments segments also increased. These are smaller but strategic divisions of our business. APA's Asset Management business manages and operates in excess of $4 billion of assets in which APA has an equity interest - that is, the Energy Investments segment. All up, APA's operations team is responsible for over $8 billion of assets. Asset Management EBITDA increased by 7% to $30 million, while Energy Investments EBITDA increased by 21% to $22 million.

Enhancing APA's asset portfolio

APA's natural gas pipelines and networks are connected to all of the country's major gas sources and all major markets. This gives us unique access to growth opportunities. This year we expanded the capacity of most of our major pipelines to meet increased demand for gas transportation and storage services. The returns for these investments were secured by either long term contractual or regulatory arrangements.

The financial benefits of the growth projects undertaken during the year will flow into the next year and beyond. These include capacity increases via additional compression on the Goldfields Gas Pipeline at Ned's Creek and Wyloo West, and on the Carpentaria Gas Pipeline at Davenport Downs.

Capacity on our interconnected pipeline systems in New South Wales and Victoria also grew. We increased the storage and gas delivery capacity on the Moomba Sydney Pipeline, which was further enhanced by the acquisition of the Central Ranges Pipeline. Our transmission system in Victoria was expanded with a new pipeline looping the southern part of the state and we've commenced work on expanding the northern section of the system. These projects will facilitate gas flow between the two states and improve supply flexibility for participants as well as enhance competition between gas producers.

In 2008 we began construction of the Bonaparte Gas Pipeline in the Northern Territory, completing it on budget and ahead of schedule in December 2008. We subsequently completed the Wickham Point Pipeline in Darwin in early 2009. Although these pipelines were sold to the Energy Infrastructure Investments vehicle we established in December 2008, our people continue to operate and manage these assets.

I am especially proud of the fact that these projects all utilised the commercial and operational skills of APA's people at every stage. Our people are creating value for the business and for our customers by offering innovative, enduring and cost efficient solutions as well as ensuring the reliable and long term performance of our assets. These are some of the advantages of being a truly independent operating business, and within the Australian gas infrastructure sector, APA is a leader on this front.

APA's business model

Unique among our peers, APA has a traditional internal operating business model which has this year proven to be transparent, low cost and highly competitive. Our 1,100 skilled and experienced employees managed all aspects of our business - commercial, operational and support activities. Our people are located in 57 offices across the country, managing and operating APA's assets and investments. And our people are engaged, working with a great sense of ownership to deliver greater value to the business.

Safety remains a high priority for APA. We have improved our safety performance during the year, and with particular focus on early recognition and reporting of potential safety risks, we will continue to focus on improving safety across the business.

Delivering Australia's energy

The two key ingredients in APA's success are the abundant supply of natural gas and increasing demand for natural gas.

As I mentioned earlier, the growth of natural gas reserves in the east and west of the country continues, with reserves earmarked for domestic use as well as for LNG export. At the same time, demand for natural gas is increasing as a major fuel in Australia's energy mix. State and federal government policies are encouraging energy users to move to forms of energy that reduce the impact of carbon emissions on the environment, with natural gas being one of the preferred fuels.

Demand for natural gas fired electricity generation, particularly during peak times, is also rising, largely driven by the government's carbon reducing policies. This type of generation is the preferred technology to back-up renewable energy such as wind powered generation. We expect the recent implementation of the Federal Government's 20% Renewable Energy Target to further drive investment in gas fired generation.

While there is still uncertainty around the final form of the Federal Government's proposed Carbon Pollution Reduction Scheme, we expect the investment and operating decisions of Australia's electricity industry will move in favour of low and zero emissions electricity generation alternatives in order to meet Australia's emissions targets. By necessity, this will include the use of natural gas for electricity generation over the long term.

What this means for APA's business is that there will be more opportunities for growth in our business and for our infrastructure to provide the means of storing and delivering this vital fuel.

Looking forward to a year of security and growth

This year's performance has highlighted the strength of APA's business. The regulated and contracted nature of our revenue provides security. The scale and location of our infrastructure assets and investments means that APA is well positioned for growth. In 2010 we expect the business to generate strong and growing operating cash flows and we will continue to develop opportunities that enhance our asset portfolio and increase value for securityholders.

I am very proud to lead APA's 1,100 people, and proud of APA's achievements this year. We remain focused on delivering on our strategy to maximise value for our securityholders. I believe APA is in a strong position to continue delivering security and growth in the coming year.

Mick McCormack
Managing Director APA Group