Press Release – Mighty River Power
Net Profit After Tax increased by $58 million reflecting improved operational performance, mixed results from our investment in the GGE Fund, and lower non-cash fair value movements compared to prior periodNews Release
21 February 2013
Mighty River Power Reports Increase in Net Profit and Underlying Earnings
Financial Results For The Six Months Ended 31 December 2012¹
• Net Profit After Tax increased by $58 million reflecting improved operational performance, mixed results from our investment in the GGE Fund, and lower non-cash fair value movements compared to prior period
• $140 million cash distribution from investment in GeoGlobal Energy (GGE) partially offset by $89 million accounting impairment principally related to investments in Chile and Germany
• Underlying Earnings up 31% ($32 million) on the previous year as a result of gains in market share and higher hydro volumes
• Declared interim dividend of $67 million reflecting the Company’s new dividend policy
Mighty River Power today reported an increase in Net Profit after Tax by $58 million to $75 million, which demonstrated improved operational performance, mixed results from the Company’s investment in the GeoGlobal Partners I Fund (GGE Fund), and lower non-cash fair value movements.
Chair of Mighty River Power, Joan Withers, said the Company had also increased Underlying Earnings by $32 million on the prior comparable period (pcp) to $133 million. This follows a steady growth in underlying earnings over the past three years. The Company’s improved operational performance reflected market share gains and increased hydro volumes.
“The Board of Directors is pleased to declare an interim dividend of $67 million in line with the Company’s new dividend policy and reflecting the new weightings² of the interim and final dividend payments,” said Mrs Withers.
EBITDAF³ increased by $6 million to $260 million (2012: $254 million), as a result of market share gains achieved in electricity sales to customers and higher hydro generation.
The financial results from the Company’s investment in the GGE Fund were mixed. During the period, Mighty River Power received its first cash distribution of $140 million from the GGE Fund. Returns from GGE had a $57 million favourable impact on Net Profit after Tax, after accounting for a foreign exchange loss reflecting the significant exchange rate appreciation since the original investment.
However, the Company also recognised an $89 million non-cash accounting impairment relating to the GGE Fund’s investments and its management company. This reflected higher estimated costs than anticipated by GGE, the Manager at the Tolhuaca project in Southern Chile, following the worst winter in 40 years badly affecting drilling, and only one of the two wells having good production capacity. In Germany, delays in progressing Weilheim due to environment court challenges (now resolved) contributed to the impairment, along with the need to relocate the proposed drilling location following assessment of the results of 3D seismic testing.
Mighty River Power’s Chief Executive, Doug Heffernan, said, “It was pleasing to see the first demonstration of financial success of our international geothermal strategy with a cash return consistent with our business case and providing a good return on the original invested capital. However, we felt it was prudent to recognise accounting non-cash impairments on the value of GeoGlobal Energy and its greenfield developments located in Chile and Germany,” said Mr Heffernan.
A further factor influencing the impairment was that as at the end of the year, GGE had not raised third party capital in the Fund as originally planned, and Mighty River Power declined the opportunity to invest further capital into the existing structure. This lack of development capital available to GGE, coupled with the above factors, led to a full review of Mighty River Power’s investment in the assets of the GGE Fund.
Overall reported Net Profit after Tax (NPAT) increased $58 million on the pcp due to the improvement in operational performance, the mixed results from GeoGlobal Energy, and a lower level of fair value losses recognised on financial instruments.
Mighty River Power achieved a solid operating performance as the Company continued to achieve gains in market share in electricity sales to customers and benefited from higher hydro volumes. During the half year, Mighty River Power’s electricity price to customers increased 2% to $115.32/MWh and associated volumes increased by 9% to 2,777GWh as the Company secured more business customers well ahead of the commissioning of the 82MW Ngatamariki geothermal power station.
Total electricity purchase costs fell 22% (from $83.48/MWh to $64.82/MWh), reflecting lower wholesale prices as inflows into our competitors South Island catchments increased, and a less constrained grid.
Overall generation increased by 36GWh due to higher hydro generation and the strong reliability (96%) across the Company’s geothermal plants (partly offset by the sale of 10% interest in Nga Awa Purua in April 2012). Gas-fired generation at the Southdown plant in Auckland fell by 130GWh on the pcp as the Company responded to pricing in the wholesale market.
Hydro generation increased by 210GWh on the pcp as a result of higher inflows than average in the first quarter of the financial year. The price received for the Company’s generation outperformed the market over the period reflecting the ability to effectively utilise storage and flexible plant to respond to wholesale prices, and the decision to move the planned outage of Southdown to ensure availability at a time when national electricity supply was impacted by a number of thermal and transmission outages.
Construction of the 82MW Ngatamariki geothermal power station progressed and the plant remains on track for commissioning in mid 2013, with first power to the grid expected in early March.
“We’re looking forward to the plant coming on stream over the next few months, which will increase the Company’s base-load geothermal generation to around 40% of total production, providing a contribution to earnings in FY2014 and further improving the stability of the Company’s financial performance,” said Mr Heffernan.
Funding & Debt Maturities
As at 31 December 2012, the Company had total debt facilities of $1,460 million (31 December 2011: $1,360 million), with $450 million of un-drawn bank facilities. The next maturity is a $200 million retail bond in May 2013, which can be can be fully funded with existing facilities. The average maturity for the debt facilities portfolio is 4.8 years; however, the Company has recently initiated a refinancing programme to increase the average maturity profile.
In October 2012, Standard & Poor’s reaffirmed Mighty River Power’s long-term credit rating of BBB+ with a Stable outlook.
Performance since balance date
During January, inflows into competitor’s South Island reservoirs were strong, leading to South Island storage rising to a peak of 150% of average. Since January, South Island storage has reduced to 106% of average and 48% ahead of the previous year. This improvement in South Island hydrology has led to wholesale market prices falling from the highs of a year ago.
Following the Company’s high level of hydro generation in the first half of the financial year and lower than average inflows into the Waikato catchment during the last quarter, Mighty River Power ended the half year with storage at 69% of the historical average (since 1999). Since 31 December 2012, inflows have been significantly lower than average and storage is currently at 217GWh, compared to 359GWh the same time last year and the historical average (since 1999) of 377GWh.
International Geothermal and Restructure Agreement
As announced on 15 February 2013, Mighty River Power reached an agreement with the Managing Partners of GeoGlobal Energy (GGE) LLC to take direct control of geothermal interests in Chile and US-based EnergySource.
Mr Heffernan said Mighty River Power’s strong New Zealand geothermal operating business and long term strategic horizons can better leverage our capabilities for developments in Chile and we see a lot of potential synergies between our business and EnergySource as an operator and developer of a large brownfield geothermal reservoir in the US.
The Company’s priority in Chile was to develop a strategic plan for the business, utilising the knowledge of the staff in Chile, and the experience we have gained through the GGE relationship, and from the experience gained over the past decade developing a significant geothermal business in New Zealand.
“Mighty River Power will maintain a measured and prudent approach to international development opportunities, and any related capital commitments.” Mr Heffernan said.
¹ Click here  for a full market disclosure including Financial Commentary, Audited Financial Statements and Presentation.
² In November 2012, Mighty River Power announced a new dividend policy that targets paying out an interim dividend representing 40% of total forecasted dividend.
³ EBITDAF or Earnings before net interest expense, income tax, depreciation, amortization, change in fair value of financial instruments, impairments and Equity-Accounted Earnings – sometimes referred to as Operating Earnings.
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