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Mighty River Power Posts Sound Result

Mighty River Power Posts Sound Result

State-owned electricity generator and retailer, Mighty River Power, has reported an after tax surplus of $47.1 million for the financial year to 30 June, 2002, despite a significant reduction in hydro generation as a result of low inflow hydrology and reduced hydro lake storage in winter 2001.

Board Chairman Rob Challinor says given the strong correlation between catchment rainfall and Mighty River Power’s operating performance, this year’s results were always going to reflect the low water storage position at the beginning of the financial year and the heavily reduced inflows over the first part of the period.

“In these circumstances, we are very satisfied with these results. They bear the hallmarks of a disciplined, commercial approach to asset utilisation and to our increasingly efficient use of water in the Taupo-Waikato hydro system.

“Producing positive financial outcomes from a trading year characterised by poor hydrology was one outcome of the company’s capacity to quickly adjust its water resource management operations.

“This flexibility is at the heart of the company’s current resource consent applications to continue operating the Waikato hydro system. Within the Resource Management Act process, we need to ensure the most efficient and productive use of our hydro-generation capacity to meet anticipated consumer demand and assist in overall security of supply,” Mr Challinor said.

Catchment inflows were 17 per cent lower than the long-term average and 13 per cent below the previous year.

The revenue decrease of eight per cent compared with last year reflected both reduced electricity production, particularly through the first half of the year when reservoirs were depleted, and also a substantial reduction in Mighty River Power’s retail sales over the period, Mr Challinor said.

This reduction was a managed consequence of an agreement concluded in June 2001 with Natural Gas Corporation, which reduced Mighty River Power’s annual electricity purchase commitments by more than 1000 GWh.

The significance of the company’s commercial strategies was evident when the results for the 2000 and 2002 trading years were compared, he said.

“Achieving an operating surplus that is higher than the operating surplus result two years ago, when we produced more than seven per cent more hydro electricity, is a big move forward in an industry where business efficiency gains are usually measured in much smaller increments.

“We believe that the underlying strength of these results provides good evidence of the sustainability of the company’s capacity to generate strong earnings over the long term.”

Reduced debt in 2002 resulted from the shareholders’ support for strengthening the group’s balance sheet by retaining funds in the business, and from the company’s strong operating cash flows.

Mr Challinor said the stronger balance sheet and capital structure would enable the board to pay a dividend of $11.8 million, representing 25 per cent of the 2002 net surplus after tax.

The performance of the company’s leading retail brand, Mercury Energy, was dominated by:

· significant growth and new services in the Auckland region

· expansion into Waikato, Bay of Plenty and Northland

· continued improvements in business processes and customer service delivery

· introduction of Mercury Duo - electricity and gas supply - on one bill.

Mighty River Power’s resource consents applications, due to be heard next month, had been a huge undertaking, reflecting the critical importance to the company, the region and New Zealand of continuing to optimize the flexible operation of the Waikato hydro scheme.

“Our ability to contribute fully to New Zealand’s increasing demand for peak supply throughout the year means that our hydro production constantly exerts strong competitive pressure on peak prices, which is vital at times of high demand.

“Flexibility in water utilisation is a crucial factor in providing that competitive tension and in improving security of electricity supply for New Zealanders,” Mr Challinor said.

Two new directors were appointed to the board of Mighty River Power during the year. Tania Simpson joined the board in November 2001 and Sandy Maier was appointed as a director in April 2002. Together with existing directors Hilary Webber, Ian Fraser, Carole Durbin, David McConnell and Wayne Walden, the board represents strong experience across the full range of governance, strategic and commercial matters.

The senior management team had been strengthened to reflect the company’s focus on generation development opportunities, particularly in geothermal, and to lift the future performance of the business.

Mr Challinor said Mighty River Power had made a commitment to the principles of sustainable development, publishing its first report in this area, “An Intricate Balance”.

“That commitment is to improve our performance as an efficient business using renewable resources to responsibly meet the country’s demand for energy. We will do so with careful regard to the place we occupy in our social and natural environments.”

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