TrustPower’s audited after tax operating surplus for the year to 31 March 2001 was $23.5m. The result was achieved on a total revenue of $507.7m (2000 : $428.7m), an increase of 18.4%. This increase in turnover reflects the significant success the Company has produced in gaining new customers. During the year the Company’s financial position has further strengthened with total assets increasing by $52.8m to $866.3m.
The result represents a 12.5% shortfall on the operating surplus of the 2000 year, $26.8m. Although the Directors are disappointed to report a result below last year, the increased customer base provides an opportunity for TrustPower to improve earnings in the short to medium term.
The 2001 year has seen intense competitive activity amongst New Zealand’s electricity retailers with up to 10% (approximately 170,000) of the total number of customers changing supplier. TrustPower has been a net beneficiary of the customer “churn” gaining a net 46,000 new customers during the year with total at year end of 266,000.
These new customers and the increased turnover were gained through very successful marketing campaigns that are a credit to the team at TrustPower. The total number of customers has increased a further 14,000 to 280,000 since year end. It should be noted that most of the new customer gains took place in the latter part of the year and therefore the Company has not received a “full year” effect of the increased revenue.
It is also worthy of note that despite competitive activity in incumbent areas very few customers were lost. This reflects the Company’s ongoing focus on providing a high standard of customer service.
The significant increase in customer numbers resulted in an expense item of $6.4m before tax (2000 : $0.9m) which relates to external costs directly associated with the marketing campaigns to acquire the new domestic customers. This represents a cost of approximately $115 per new customer which compares very favourably with up to $800 per customer paid by other electricity retailers to acquire customers. This investment has been expensed to comply with generally accepted accounting practice although the Directors consider there are compelling economic arguments to capitalise the amount as an intangible asset.
TrustPower’s portfolio of generation schemes, 33 hydro generation and one wind farm would in a normal year produce up to 1,750 GWh of electricity. The year to 31 March 2001 was however notable for a very widespread severe drought resulting in actual output at only 1,612.5 GWh. An extra 137 GWh had to be acquired externally, resulting in approximately $5.0m additional before tax cost.
Without the specific factors of the customer acquisition costs and the effect of drought it can be seen that the result for the year would have exceeded last year’s result and our budget.
Also adversely affecting the year’s result was the wholesale electricity market. The drier than normal conditions not only reduced TrustPower’s output but also reduced the output of other hydro generators resulting in higher wholesale prices.
All generation assets were revalued at 31 March 2001 resulting in a net uplift in valuation and in the revaluation reserve of $34.5m. This significant increase in value arises substantially from enhancement work completed and in some cases the attractive purchase prices of newly acquired schemes.
As at 31 March 2001 TrustPower’s Balance Sheet, with an equity ratio of 71.9%, provides a very sound basis for future opportunities to add to shareholder value.
The Directors consider that under the circumstances of a strong Balance Sheet and cashflow, as well as their confidence in the future performance of the Company, it is appropriate to pay a final dividend that maintains shareholder’ earnings. As a consequence of this the final dividend for the 2001 year will be 8.0 cents per share. As foreshadowed in the previous year the dividend will not carry imputation credits. The dividend will be paid on 31 August 2001 to all shareholders registered on 17 August 2001. This dividend will bring the total dividend paid for the year to 17.206 cents per share (2000: 16.5142 cps).
The ongoing drought, particularly in the South Island, reducing generation output and competing generators using dominant regional positions, is likely to adversely effect the early part of the 2002 financial year. However the Company’s underlying strength provided by its portfolio of generation assets, using renewable energy sources, and its strong financial position will mean shareholders can continue to expect added value over the medium and longer term.
H M TITTER
31 MAY 2001