HomeInfratil News2012TrustPower Audited Financial Results for the year ended 31 March 2012

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TrustPower Audited Financial Results for the year ended 31 March 2012

11 May 2012

TrustPower's consolidated profit after tax was $131.7 million for the year ended 31 March 2012. This represents an increase of 17% compared with $112.4 million for the same period last year. Impacting on the current year result was fair value losses on financial instruments of $7.5 million primarily resulting from a fall in long term interest rates over the period that negatively impacted the value of the Group’s interest rate hedging portfolio.

Underlying earnings after tax excluding fair value movements on financial instruments and one-off impairment charges were $135.5 million compared with $116.5 million in the previous year, an increase of 16%.

Earnings before interest, tax, depreciation, amortisation, fair value movements of financial instruments and asset impairments (EBITDAF) were $300.1 million, compared with the $274.4 million achieved in the previous year representing an increase of 9%. This is the 10th consecutive year of earnings growth achieved by the Group on this measure.

Operating revenue increased 5% from $766.0 million in the previous year to $807.1 million. Operating expenses including energy and line costs increased 3%.

Total electricity volume sold by the Company in New Zealand was 3,960GWh, compared with 4,033GWh in the year to 31 March 2011. Customer numbers decreased from 221,000 as at 31 March 2011 to 209,000 as at 31 March 2012. While retail market remains highly competitive TrustPower continues to experience lower levels of customer churn than the market. Over the last four months of the financial year TrustPower refrained from actively acquiring customers to ensure a seamless transition for the replacement of its core customer billing and information system. During this period there were also good opportunities to place product with commercial customers and via the ASX in preference to mass market placement.

For the first half of the financial year wholesale electricity prices remained subdued due to above average levels of hydro storage. However, inflows into South Island hydro storage catchments have been below average in the second half which has caused national storage levels to fall below 80% of average. This has caused wholesale prices for electricity to rise above average during this period. TrustPower’s hydro catchments fared better during this period and the Group was able to benefit from higher prices by selling surplus generation in the wholesale market.

The Group’s New Zealand generation production of 2,582GWh was up 295GWh (13%) on the previous year and 7% above the expected long term average. Total hydro production was up 197GWh (11%) on the previous year and 14% above the expected long term average due to above average inflows over the course of the year into both North and South Island catchments. Wind production was flat on the previous year but down 9% on the expected long term average.

Wind production from the Snowtown Wind Farm in South Australia was 376GWh which was 48GWh (15%) higher than the previous year but 3% lower than the expected long term average.

Underlying return on average equity, adjusted for fair value movements on financial instruments impairment charges and excluding the impact of the revaluation of generation assets at balance date, was 9.6% (compared to 8.2 % in the previous year).

Group operating cash flow was strong at $268.3 million for the 2012 financial year versus $224.0 million in the prior year.
TrustPower’s balance sheet as at 31 March 2012 remains solid, with shareholders’ funds of $1.57 billion and total assets of close to $2.8 billion.

In accordance with International Financial Reporting Standards, TrustPower undertook an independent valuation of its generation assets as at 31 March 2012. The independent valuation was undertaken by Deloitte Corporate Finance and has resulted in an uplift in the value of generation assets of $193.4 million.

Debt (including subordinated bonds) to debt plus equity decreased to 33.3% from 36.3% at prior year end, as a result of reduced borrowing levels and the impact of the generation asset revaluation. TrustPower continues to maintain conservative levels of committed credit facilities. As at 31 March 2012 Group net debt was $762.4 million. TrustPower has recently accepted offers to refinance $125 million of bank facilities due to mature in July 2012. These facilities will be increased to $175 million and extended in two tranches to July 2015 and July 2016. Following this refinancing the Group will have NZD equivalent 1.25 billion of committed debt facilities and over NZD equivalent 450 million of undrawn facilities.

TrustPower has $108.5 million of subordinated bonds maturing in September of this year. Although a final decision has not been made, TrustPower expects that it will make an offer to existing holders to replace the bonds at maturity combined with a retail market offer. More detail will be provided in the coming months.

Purchases of TrustPower’s shares have continued under the Company’s Share Buyback Programme for which a three year extension was approved at the Annual Meeting in July 2011. The approval allows the Company to purchase up to 5 million shares over a three year period. 663,257 shares have been purchased at an average cost of $7.05 during the year to 31 March 2012. This represents 8% of total TrustPower shares traded over the period and the average purchase price per share compares to an average price of $7.19 for the total number of TrustPower shares traded during this period.

TrustPower has recognised for some time the opportunity for the Coleridge Hydro Scheme to play an important part in delivering reliable irrigation capacity along the Rakaia River plains in Canterbury. TrustPower is working with landowners, as well as central and local government, to develop solutions to increase irrigation reliability in the region.

The hearing to consider a proposed amendment to the Water Conservation Order for the Rakaia River is in its final stages and a decision is expected later this year. As a result of growing demand from irrigators TrustPower will install a sixth pump at its Highbank Hydro Scheme later this year.

TrustPower expects that electricity prices will become more volatile over time and consequently generation capacity which is able to meet peak demand will become more valuable. Many of TrustPower’s hydro generation assets have peaking capacity and a detailed review has been undertaken to identify potential enhancement opportunities that can increase peaking capacity in the short to medium term. As a result, the Group has set itself a target to identify generation enhancement opportunities within the existing portfolio that can create further shareholder value.

The 3.8MW Esk Hydro generation project is now under construction and is expected to be completed by June 2013 at a cost of around $13 million.

During the last year the Company has undertaken detailed geotechnical and civil design studies for the Arnold Hydro Scheme. Following this work it has been determined that the project will not, at this stage, be progressed further due to project economics not being sufficiently attractive. However, a watching brief will be maintained so that remaining feasibility work can be quickly completed should current status change. It is expected that a final investment decision on the smaller 2.6MW Arnold Residual Flow project will be made in the coming months once final construction costs have been confirmed.

TrustPower currently has consents for around 400MW of wind farm development and 120MW of hydro development in the South Island. However, the recent decision by the Electricity Authority, after many years of investigation and industry consultation, not to change the charging methodology for the High Voltage Direct Current ("HVDC") transmission line, does not assist the development of South Island generation investment. TrustPower has long argued that the current HVDC cost recovery methodology prevents a level playing field for generation investment across the country and is increasing energy prices disproportionately for South Island consumers. We see the Electricity Authority’s decision as a missed opportunity to address a longstanding industry anomaly.

In Australia, TrustPower has been making good progress in advancing the development of the Snowtown Stage 2 Wind Farm in South Australia.

As recently announced, TrustPower has negotiated conditional contracts with Siemens for turbine supply and with Origin Energy for long term off-take which aligns with the remaining period of the Australian Government’s Large Renewable Energy Trading target. It is intended that the 270MW Stage 2 development will be split into two separately metered wind farms. TrustPower will retain ownership of 144MW and sell down the rights to develop the remaining 126MW to a co-investor. Identification of a suitable co-investor is well advanced and it is expected that further announcements will be made over the coming months once this process in completed.

TrustPower has also been very active in identifying further wind development opportunities across Australia. In the final quarter of the 2012 financial year, TrustPower has acquired an option from NewEn to develop the Dundonnell site in Victoria which has the potential for around 270MW. Options over two other wind farm sites have been purchased from another developer in New South Wales with potential for a further 700MW.

All of these sites have land owner access arrangements in place, good wind resource, uncomplicated transmission connection options and some are capable of development in stages and / or further expansion. TrustPower has to date spent around NZD equivalent 4.5 million to secure these development rights and this expenditure has been included within other operating expenditure in the financial statements.

Together with existing development options in South Australia, TrustPower now has over 1,200MW of wind development options across New South Wales, Victoria, and South Australia, in addition to Snowtown Stage 2, which positions the Group well to be involved in further wind development and contribute towards meeting
Australia’s renewable energy policy targets.

Following the successful implementation of the Group’s core customer information and billing system, further system development is expected to be completed during the FY13 financial year to enhance customer experience and product choice as well as improving the Group’s website.

The Directors are pleased to announce a final dividend of 20 cents per share, partially imputed to 18 cents per share, payable 8 June 2012 (record date of 25 May 2012). This, together with an interim dividend of 20 cents per share, provides a total payout of 40 cents per share for the 2012 financial year compared with 39 cents per share for the 2011 financial year representing 2.6% growth and 10 years of continuous dividend growth (excluding special dividends).

While New Zealand hydro storage remains below average levels for this time of year, TrustPower’s hydro storage lakes are currently close to average.

The initiatives under taken by the Group over the past twelve months has ensured that the Group is well positioned to meet its customers’ needs and to pursue further development of electricity generation assets when it is economically justifiable.

BJ Harker

NZX Announcement TrustPower Financial Results year ended 31 March 2012

TrustPower Financial Statements year ended 31 March 2012

PWC Auditors Report
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