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Mighty River Power Focused on Growth

Immediate Release - 14 October
Mighty River Power 2003 Annual Result

Mighty River Power Focused on Growth

A four-year programme focused on improving operating performance and placing the company in a solid financial position has contributed to a strong performance by electricity generator and retailer Mighty River Power.

The Company today announced a $113.5 million Net Surplus after Taxation for the financial year ended 30 June 2003. This figure was boosted by a non-recurring gain of $34.2 million resulting largely from the decision to exit the onerous Southdown Power Sale Agreement.

“Putting that one-off impact aside, there were significant performance improvements that created an underlying strong position for Mighty River Power,” said Company Chairman, Rob Challinor.

“This is the result of four years of very hard work to balance our generation portfolio, stabilise our retail base and strengthen our balance sheet and has enabled us to enter a phase of growth and expansion,” he says.

“Our balance sheet tells a very different story from four years ago when we inherited very high debt levels – the highest of any of three new State Owned Enterprises created at that time. Our debt levels are now generally in line with industry norms while successful Fixed Rate Bonds Issues of $200 million in May 2003 and $113.8 million in September 2003, have diversified our debt funding and shifted the debt profile to more long-term maturity of borrowings. Our focus on debt management has been well supported by our shareholders, who have agreed to waive a dividend.

“For the first time in our four year history we had near normal inflows into the hydro system in the first half of the year and that combined with improved company performance, resulted in a very strong first half year result (Operating Surplus before Interest, Non-recurring Items and Taxation of $79.4 million),”says Mr Challinor.

“However, hydrology conditions changed in the second half of the year when we experienced the worst inflows ever recorded from March to mid-May 2003. The low inflow levels led to a sustained period of minimum production so as to arrest the rapid decline of storage levels in Lake Taupo.

“This low inflow sequence was compounded by dry conditions in the South Island and concerns in the marketplace about thermal fuel supplies, which led to national concerns about the possibility of shortages in late winter.”

Mr Challinor said heavy inflows had quickly reduced those concerns while the Company’s underlying strength had assisted in minimising the impact on Mighty River Power.

“We are now well placed to invest in opportunities to meet growing energy demand and our recently successful consents application for the long-term use of the Waikato hydro system has also given us the flexibility required to make most efficient use of Lake Taupo and the Waikato River.

“We are already seeing the results of the new focus on growth with recent expansion at the Rotokawa geothermal plant and the announcement of plans to further develop the Mokai geothermal site and explore generation opportunities in the Kawerau geothermal field.

“At retail level we have overcome the earlier industry-wide problems associated with the introduction of a competitive retail environment, kept our competitors at bay in the fiercely competitive Auckland retail market, and expanded our focus to become the leading energy retailer in the upper North Island with 283,000 customers.”

Results at a Glance

2003 2002 2001
Net Surplus after Taxation $113.5 million $47.1 million $59.1 million
Operating Surplus before Interest, Non-recurring items and Taxation $119.5 million $87.2 million $103.9 million
Hydro Generation Volume 3857 GWh 3494 GWh 4006 GWh
Operating Revenue $646.2 million $595.1 million $646.7
Total Debt $470.8 million $462.1 million $529.9
Operating Cashflow $81.7 million $77.9 million $110.3
Return on average Shareholders’ Equity 14.0% 6.4% 8.6%
Shareholders’ Equity $861.7 million $760.0 million $712.9 million
Total Equity/ Total Assets 57.3% 51.3% 44.2%
Net Debt/ Net Debt plus Equity 35.1% 37.6% 42.4%
Free funds from Operations/Interest Expense 4.0 times 3.4 times 3.2 times


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