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TrustPower Snowtown 2 Financial Close

26 Jul 2012

TrustPower Wind Farm Stage 2 Investor Briefing

TrustPower Limited (TrustPower) is pleased to advise that financial close is expected to be achieved by 31 July 2012 for the development of Snowtown Stage 2 project, being a 270 MW extension  of  TrustPower’s  existing  Snowtown  Stage  1  Wind  Farm  in  South  Australia.    As previously advised the Snowtown Stage 2 project will consist of two separately metered wind farms, Snowtown 2 North (144MW) and Snowtown 2 South (126 MW), sharing a single transmission line owned by TrustPower.

All key conditional agreements and approvals required for the development of the Snowtown Stage 2 project have been entered into or secured.  Foreign exchange hedging arrangements to cover Euro  and  USD  currency  exposure  on  the  turbine  supply  contract  have  been  completed  at favourable rates and so the expected total project cost (excluding capitalised interest) has reduced from A$465 million to A$439 million or $A 1.6 million / MW.

On this basis Snowtown Stage 2 project represents a very attractive investment for TrustPower and its shareholders.

TrustPower will fund the project via Australian dollar bank facilities provided by its relationship banks which will mature in late 2014.   It is expected that a proportion of these facilities will be refinanced over the next 12 months with long term Australian dollar funding arrangements.

TrustPower has entered into an exclusive sales process for Snowtown 2 South with a potential co-investor that was earlier shortlisted by TrustPower.

If the co-investor sale process is not completed then, as previously advised, TrustPower intends to hold the entire Snowtown Stage 2 project through to commissioning at which time a wider sales process will be conducted for Snowtown 2 South.

The long term annual expected output and capacity factors for the Snowtown Stage 2 project are shown in the table below:

MW

GWh

Capacity

Factor

Snowtown 2 North

144

504

40.0%

Snowtown 2 South

126

481

43.6%

Total Snowtown Stage 2

270

985

41.7%

TrustPower believes that the Snowtown site is one of the best wind farm sites in mainland Australia.

The construction of Snowtown 2 North is expected to reduce the long term annual expected output of the existing 100MW Snowtown Stage 1 wind farm by around 19 GWh (4.9%) due to wind shading caused by the new turbines to be built on the Snowtown 2 North site.   Consequently, Snowtown Stage 1 wind farm’s forecast long term capacity will reduce to around 41.9% from 44.1%.

The Snowtown Stage 2 project’s economic performance will be underpinned by long term power purchase agreements entered into with Origin Energy Electricity Limited for 100% of the total output of the Snowtown Stage 2 wind farms. A long term operations and maintenance agreement had been entered into with Siemens Ltd.

TrustPower believes that the economics for the Snowtown Stage 2 project are attractive due to a combination of favourable turbine pricing, a strong Australian dollar and a well priced long term power purchase agreement that could run for a maximum of 21 years if a 5 year option to extend is exercised.

TrustPower expects the following financial impact on TrustPower Group of the first full year of operation from the Snowtown Stage 2 project, expected to be FY 2016.

Snowtown 2

North*

Snowtown 2

South

Total

Snowtown Stage 2

CAPEX (A$m)

257

182

439

EBITDAF (A$m)

41.2

36.7

77.9

NPAT (A$m)

8.6

11.3

19.9

Free cash flow from operations (after tax and debt servicing) (A$m)

21.5

20.4

41.9

Earnings per share (NZ cents per share)

3.4

4.5

7.9

* Includes the wind shading effect on expected Snowtown Stage 1 wind farm output post commissioning of Snowtown 2

North.

Note: The information included in this table relates to future matters and should be read subject to the Important Notice and Significant Assumptions set out at the end of this announcement. 

The projected returns to shareholders of TrustPower are expected to be well in excess of the cost of capital employed in the project.

 The construction period for the Snowtown Stage 2 project will commence shortly after financial close.  Erection of the first batch of turbines on site is expected to commence in September 2013 with  full  commissioning of  Snowtown  2  South  targeted  to  be  completed  by  May  2014  and Snowtown 2 North by November 2014.

The additional debt required to fund the Snowtown Stage 2 project will significantly increase the TrustPower Group’s gearing (debt to debt plus equity) ratio.  However, TrustPower anticipates that the gearing ratio will be comfortably within the upper limit of the Group’s target gearing ratio range of 25-50% and that the TrustPower Group will comfortably operate within its banking covenants during construction of Snowtown Stage 2 project.  Post commissioning of the project, the strong expected cash flows from the project are expected to reduce gearing levels quite quickly. A sale of Snowtown 2 South would also significantly reduce the gearing ratio.

Financial close of the Snowtown Stage 2 project is an important milestone for TrustPower in terms of its wind development aspirations in Australia.  TrustPower holds development options over a further 1,280 MW of wind generation opportunities in New South Wales, Victoria and South Australia and is looking to advance development planning submissions for some of these opportunities over the next 12 months.

Vince Hawksworth
Chief Executive

Important Notice:

 The  information  set  out  above  relates  to  future  matters  that  are  subject  to  a  number  of  risks  and uncertainties, many of which are beyond the control of TrustPower, which may cause the actual results, performance or achievements of TrustPower or the TrustPower Group to be materially different from the future results set out above.  The inclusion of the forward-looking information below should not be regarded as a representation or warranty by TrustPower, the directors of TrustPower or any other person that those forward-looking statements will be achieved or that the assumptions underlying any forward-looking statements will in fact be correct.

 Significant Assumptions

Capex
•      Based  on  pricing  under  fixed  price  contracts  with  Siemens  Ltd  (“Siemens”),  Downers  EDI Engineering Power Pty Ltd and ElectraNet Pty Ltd

•      Capex to be paid in foreign currencies  has been converted to A$ using rates set by forward exchange contracts. 100% of foreign currency exposure is covered by forward contracts

EBITDAF

•      Revenue based on fixed price contract with Origin Energy Electricity Limited (“Origin”) and long term average expected wind volumes

•      Maintenance costs based on maintenance contract with Siemens

•      Landowner royalties based on land rental agreements

•      Other costs estimated based on existing wind farm costs

•      Fair value movements on financial instruments will be zero as hedge accounting is used for foreign exchange cover.

NPAT

•      EBITDAF less interest (based on expected average TrustPower Group Australian funding cost), depreciation (at 5%) and tax (at 30%)

Free cash flows

•      NPAT plus depreciation and less capex (assumed to be nil in first year of operation i.e. the first full year post commissioning)  EPS

•      based on expected A$ NPAT converted to NZD at 0.8000 divided by number of TrustPower shares on issue (less treasury stock held by TrustPower)

Wind volume/capacity factors

•    Based on independent expert assessment

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