15 May 2008
TrustPower’s consolidated operating surplus after tax was $98.1 million for the year ended 31 March 2008, compared with $102.4 million as restated for IFRS adjustments, for the same period last year.
Earnings before interest, tax, depreciation, amortisation and fair value movements on financial instruments (“EBITDAF”) grew by 6 per cent to $208.0 million from $196.4 million in the previous year.
Operating revenue of $681.5 million increased 9 per cent on the previous year as a result of higher energy prices charged to those customers paying spot market prices together with a $12.7 million revenue contribution from telecommunication services. Total electricity volume sold was 4,540 GWh compared with 4,575 GWh in the year to 31 March 2007. Customer numbers increased to 222,000 at 2008 year end from 219,000 a year earlier.
The New Zealand electricity market has been characterised by lake storage levels and inflows that have been below average for much of the 2008 financial year. However, spot electricity prices during the first nine months remained below average but increased significantly in the final quarter.
Generation production of 2,018 GWh for the year was up 4 per cent on the previous year but around 270 GWh down on expected long term average. Hydro production was down around 220 GWh or 13 per cent on long term average and North Island hydro production contributed around 185 GWh of this shortfall as a result of record low inflows into a number of catchments. Wind production was up 272 GWh on the previous year due to nearly a full year’s contribution from Stage III of the Tararua Wind Farm which was commissioned in July 2007. However, wind production was also down 50 GWh (8 per cent) on expected long term average. This was due to a combination of lower than expected wind speeds over the second half of the financial year and some Stage III turbines experiencing post commissioning operational issues which have caused lower than expected availability. The Company expects this situation to be resolved shortly.
Operating expenses including energy and line costs increased 10 per cent on the previous year, primarily driven by higher wholesale electricity costs. High frequency keeping costs in the North Island due to low availability of North Island hydro generation supply in the last quarter of the financial year together with higher generation production costs have also contributed to increased operating expenses.
Net profit after tax, return on average shareholders’ funds, was 7.9 per cent (last year 8.6 per cent).
Group operating cash flow was $161.0 million for the 2008 financial year versus $161.2 million in the
Taking into account the significant shortfall in production from the Company’s own generation assets and
high wholesale prices for the final quarter of the financial year, the result was satisfactory and again
demonstrates that the Company’s trading and risk management practices are sound.
Included in accounts payable and accruals is an amount of $102.7 million relating to milestone payments
due under the Snowtown Stage I wind turbine supply contract. A similar amount was held in year end
cash balances following settlement of foreign exchange hedge contracts matching the wind turbine supply
Debt (including subordinated bonds) to debt plus equity was 34.3 per cent at year end versus 29.5 per
cent in the previous year. This increase is due to the Company debt funding the capital expenditure
programme of the last two years which has included the 93 MW Tararua Stage III wind farm, the 6 MW
hydro expansion at Deep Stream in Otago and the partial construction of 98 MW of wind generation for
Stage I of the Snowtown wind farm in South Australia.
TrustPower continues to maintain high levels of committed credit facilities. Including subordinated bonds
the Company currently has NZD equivalent of 950 million of committed debt funding in place. Given the
current uncertainty in financial markets the Company decided to refinance early $100 million of bank
facilities due to mature in July 2008 and to establish an additional $100 million three year bank facility
TrustPower’s New Zealand generation development programme continues to progress satisfactorily
despite resource consenting taking longer than expected for many development opportunities. Following
commissioning of the Deep Stream hydro enhancement project the Company owns 594 MW of
renewable generation capacity in New Zealand producing on average around 2,320 GWh per annum.
Good progress is being made on the development of the 98 MW Snowtown Stage I wind farm. Civil
works have been completed and to date six wind turbines have been erected and commissioned. The
balance of the planned 47 2.1 MW Suzlon wind turbines are expected to be progressively erected and
commissioned over the next three months. If all goes to plan the project could be completed three
months ahead of schedule which would be a pleasing outcome for the Company’s first Australian
renewable generation project.
Expensed generation development costs for the year were $9.5 million compared with $10.3 million in
2007. This expenditure reflects a range of costs including preliminary design, environmental
investigations and resource consent application costs over a number of hydro and wind development
opportunities in both New Zealand and Australia.
Legislation to enact the New Zealand Emission Trading Scheme (“ETS”) is currently under review by a
parliamentary select committee following public consultation. The likely introduction of the ETS for the
electricity sector from 2010 together with a proposed ten year moratorium on thermal generation should
provide a supportive environment for progressing renewable generation opportunities. However, the
Company remains frustrated by the lack of progress towards amendment of High Voltage Direct Current
(“HVDC”) pricing methodology which is required to provide a level playing field for new renewable
generation in both North and South Islands. If this issue is not dealt with it is difficult to see how the
Government’s objective of 90 per cent renewable generation by 2025 will be achieved efficiently as many
of New Zealand’s best future wind and hydro sites are located in the South Island.
TrustPower currently has resource consent applications pending for over 550 MW of hydro and wind
generation projects in New Zealand. TrustPower is working hard to ensure that it is in a position to progress
renewable projects should the Company conclude that shareholder value is likely to be created. However,
should this conclusion not be able to be reached due to regulatory uncertainty or negative policy impacts,
then the Company will aim to protect the value of its development rights as longer term options.
Forecast capital expenditure in the 2009 financial year for committed generation development projects is
expected to be around $70 million which mostly relates to the completion of Stage I of the Snowtown wind
Generation development costs to be expensed in the 2009 financial year are projected to be around $7
The Board has approved that the Company be able to buy-back up to 5 million of its shares over the next six
months. Given the current volatility in financial markets the Board considers that the Company should have
the flexibility to buy back its shares where there are opportunities to add value for existing shareholders.
Approval from shareholders will be sought at the Annual Meeting for an annual share buy-back programme
of a similar scale.
The Board has also agreed that Directors enter into a fixed share purchase plan whereby Directors will
allocate a percentage of their directors’ fees and automatically instruct a share broker to purchase shares in
the Company at market price following the Company’s annual and interim announcements. Fixed share
purchase plans are quite common internationally and the Board views individual ownership by Directors in
the Company as a positive way of ensuring that Board and shareholders’ interests are closely aligned.
The Directors are pleased to announce a final dividend of  cents per share, partially imputed to 11 cents
per share, payable 6 June 2008 (record date of 23 May 2008). This together with an interim dividend of 15
cents per share provides a total payout of 30 cents per share for the 2008 financial year compared with 27
cents per share for the 2007 financial year, representing dividend growth of 11 per cent.
Shareholders should be aware that dividends for the foreseeable future are likely to be partially imputed as
the Company will pay relatively lower levels of tax in the early years following the commissioning of wind
farm developments as the result of higher tax depreciation levels available for wind farm assets. The
Company expects that a minimum level of 60 per cent imputation is likely to be achieved on dividends over
the next two to three years.
On 1 May 2008 Transpower, as the independent system operator, advised that despite the recent rain hydro
storage levels remain a significant concern to the industry and as such the industry is continuing with
contingency planning efforts to ensure a secure supply of electricity this winter. At the time of this
announcement New Zealand hydro lake levels were around 60% of average storage for this time of year.
While it is too early to make predictions about the 2009 financial year, it is worth noting that the Company
remains in a satisfactory position to meet its customers’ needs this winter.
TrustPower Financial Statements 2008
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