29 May 2003
The Directors of TrustPower Limited are pleased to report the company's results for the year ended 31 March 2003. The audited after tax operating surplus was $47.0m. This compares with $1.3m for the previous year.
This significant change in performance is a reflection of a return to more normal trading and generation after the set backs during the winter of 2001. The surplus achieved also is a reflection of the improvements made to trading and risk management practices referred to in last year's Annual Report. Although the wholesale spot price of electricity started to track up dramatically towards the end of the financial year the company's hedge positions and ability to use the storage capacity of its own hydro-schemes saw profitability maintained.
Sales revenue for the year was $654.1m with volume sold of 6,500GWh. This compares with $596.8m and 5,906 GWh respectively last year.
Customer numbers during the year declined from 280,000 to 274,000. Most of this decline has taken place in "non-incumbent" areas, particularly Wellington and Christchurch. There has been very aggressive competitor activity in these areas with some retailers selling at unsustainably low prices. This has resulted in our announcement earlier this month of a decision to withdraw from the Wellington and Christchurch residential electricity markets. The company considers it is better to focus on markets where we are well placed with a strong brand presence and marketing and service economies.
TrustPower's own generation performed well with output close to long term averages (2003:1672 GWh, 2002: 1522 GWh).
The company's financial position remains very strong, with the purchase of the Cobb hydro-scheme for $92.5m in March 2003 bringing fixed assets up to $811.9m from $731.4m last year.
Included in the operating surplus was a $2.7m profit on the sale of the Monowai hydro scheme. This scheme with an average annual output of 36 GWh was sold because its size and location better suited the purchasers operations. The output of the scheme has been secured by TrustPower through a long term electricity purchase contract.
There was also a further write down of $1.0m to recognise an assessed impairment in value of the company's interest in its South Australian wind farm site. This is in addition to the $1.0m announced at the half year. A further decision on the remaining $1.0m carried forward for this site will be made once the result of planning applications to the South Australian Government is known by mid year.
Directors' had previously indicated they recognised TrustPower's level of equity compared to debt was not a particularly efficient balance of funding. Two major initiatives were embarked on during this year with the issue of subordinated bonds and the offer of a pro-rata share buy back.
The issue of subordinated bonds into the retail investment market has been very successful. At the time of writing this announcement the issue has raised $232m. The use of these bonds provides an alternative source of funds that is cost effective compared to equity, reduces reliance on banks for debt and gives longer maturities to overall funding.
The two out of seven shares held pro-rata buy back offer at $3.70 per share closed on 24 April 2003. Acceptances were received for 41,194,136 shares, this including 100 per cent of major shareholder Australian Gas and Light ("AGL") holding of 40,578,881 shares. This will result in a return to shareholders of approximately $152m. The pro-rata buy back is conditional on shareholder approval at a special meeting of shareholders to be held on 19 June 2003.
To comply with an exemption given by the Takeovers Panel shareholders, who accepted the offer, other than AGL, will have until 26 June 2003 to withdraw their acceptances.
If approved, the share buy back will significantly affect the number of shares eligible for the final dividend for the 2003 year. The dividend announcement will therefore not take place until after the result of the shareholder vote is known.
The company has continued to have a focus on generation development. A dedicated team is undertaking investigations into potential generation projects throughout New Zealand and for wind power sites in Australia.
We have recently announced the expansion of our Tararua wind power scheme by undertaking a project to double its capacity to 68MW. This project is expected to be completed within 12 months.
In summary, the 2003 year has been a very successful year for TrustPower. As well as the excellent result significant and positive additions havebeen made to our generation portfolio through the purchase of Cobb and the decision to undertake the Tararua expansion. A new form of funding in bonds has been successfully achieved and the process of moving to a more efficient balance sheet through the share buy back is well underway.
Whilst it is too early in the 2004 year to predict year end results the Directors are confident that despite the nation facing another "electricity crisis" the risk management processes within the company should ensure there are no significant adverse affects on profit.
The Government has recently announced it intends to develop an Electricity Commission which will levy consumers with the purpose of providing dry year
capacity. The detail of the scheme has not been released and submissions have been called. TrustPower will prepare a submission. Without the detail it is difficult to comment but it is considered this proposal is unlikely to have any significant adverse affect on the company.
The Directors believe TrustPower with its core of generation assets and highly respected retail operation will continue to deliver value for shareholders into the future.
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