Business Description:
Envestra Limited (ENV) is Australia's largest distributor of natural gas. Its main assets are regulated gas distribution networks in Victoria, South Australia and Queensland. ENV also owns small gas networks and pipelines in New South Wales and the Northern Territory. The company is internally managed but operation of the pipelines is outsourced to APA Group. Domestic and small industrial customers account for 90% of revenue. Users have relatively stable consumption patterns.

Strategy Analysis:
Envestra's strategy is to expand its current networks and build and acquire new networks. In Queensland, there was a substantial increase in new customer connections resulting from the introduction of an energy policy by the Government which requires the installation of gas hot water heaters wherever natural gas is available. Government carbon reduction policies will likely push costs up but any impost on the company will ultimately be recovered from consumers through a combination of the regulatory Access Arrangements and the haulage agreements the company has with retailers and directly with large businesses. Current focus is on major repairs to the aging networks. Most funding comes from retained earnings and the DRP rather than debt so gearing will fall over time. Envestra reported NPAT up 21% to $45m for the year ended 30 June 2011. On an underlying basis, profit after tax increased by $11.3m to $47.6m. Adjustments to the profit after tax to derive the underlying profit are land and asset sales, land management cost provisions and Country Energy acquisition costs. Revenues from ordinary activities were $425m, up 11% from last year. Basic and Diluted EPS was 3.2 cents compared to 2.8 cents last year. Net operating cash flow was $136.2m compared to $117.1m last year. The final dividend declared was 2.75 cents, taking the full year dividend to 5.5 cents compared with 5.5 cents last year.