TrustPower Limited Third Quarter Result
Thursday, 26 January 2006
TrustPower Limited Third Quarter Result Nine Months Ending 31 December 2005
TrustPower's unaudited after tax surplus for the nine months to 31 December 2005 was $68.7 million, compared with $61.5 million for the same period last year. Earnings before Interest, Tax, Deprecation and Amortisation ("EBITDA") were $149.5 million versus $139.8 for the prior period.
The third quarter's trading environment saw a continuance of conditions experienced in the first half of FY 2006. Lake storage levels and inflows were well below average leading to significantly higher spot electricity prices. During November and early December the Company experienced some of the lowest inflows on record into its South Island hydro generation catchments.
TrustPower's load weighted average spot price paid for electricity in the first nine months of FY 2006 was $84 per MWh versus $37 per MWh for the prior period. For the third quarter TrustPower's load weighted average spot price paid for electricity was $102 per MWh versus $39 per MWh for the prior period.
TrustPower's own generation assets produced 1,403 GWh during the nine month period versus 1,648 GWh in the prior period (a reduction of close to 15 per cent). During January 2006, most of TrustPower's hydro generation storage catchments have received good inflows which together with purchase contracts the Company has in place, leaves it well positioned to meet customer demand over the remainder of FY 2006.
Customer numbers have remained relatively steady and were around 221,000 at the end of December 2005. Total electricity sold to customers in the first nine months of FY 2006 totalled 3,614 GWh compared with 4,456 GWh sold in the prior period. As previously disclosed, the majority of the sales reduction is due to the impact of a large industrial customer now purchasing electricity directly from the wholesale market rather than purchasing through TrustPower. This change has had only a minor impact on TrustPower's financial results.
The Company's balance sheet remains strong. Debt to debt plus equity was 31 per cent as at 31 December 2005 unchanged from the same time the previous year.
However, gearing was higher than expected due to the requirement for the Company to provide greater levels of market security than normal to The Marketplace Company Ltd ("M-co") as a result of the sustained period of high wholesale market prices during November and December 2005. At period end the Company had $23.7 million of cash on interest bearing deposit to meet M-co's market security requirement and this was funded from bank facilities.
The 93MW expansion of the Tararua Wind Farm is progressing to plan with the majority of key project contracts now finalised. Tararua Stage III is expected to produce 350 GWh per annum and to cost around $185 million. Civil work commenced on the 9th of January, with the first turbines targeted for commissioning in February 2007 and final completion scheduled for July 2007.
A resource consent hearing for the proposed 72 MW Wairau hydro generation scheme, in Marlborough, is expected to start in June.
A resource consent application for a revised 37 MW hydro generation scheme at Arnold, on the West Coast, is expected to be lodged within two to three months.
Earlier this month, TrustPower announced that it was undertaking feasibility studies for a potential 300 MW wind farm close to its largest hydro storage facility at Lake Mahinerangi near Dunedin. Further wind monitoring at the site is required, however, initial studies indicate a high quality wind resource. If the project can be successfully progressed it will allow the Company to combine wind generation with existing hydro generation and storage capacity. It is likely that the wind farm would be developed in stages.
The Company continues to examine other potential South Island wind farm opportunities.
TrustPower's two Australian wind farm projects are facing ongoing delays due to various issues.
The 40 MW wind farm proposed at Myponga, south of Adelaide, is capable of meeting the generation license conditions proposed by the Essential Services Commission of South Australia ("ESCOSA").
However, an acceptable power purchase agreement ("PPA") has not been able to be concluded for this project. TrustPower is interested in proceeding to develop a wind farm at Myponga if satisfactory off take arrangements can be negotiated. However, this will require renegotiation of key project contracts.
The proposed 171 MW Snowtown wind farm, north west of Adelaide, is also not able to be currently progressed despite PPAs being concluded with two counterparties. In the case of Snowtown, the preferred wind turbine supplier that TrustPower has been negotiating with for close to eighteen months is unable to meet some of the technical specifications recently published by ESCOSA that must be satisfied before a generation licence will be granted.
Additionally, the Snowtown site is of a scale where it is not considered possible to operate as a scheduled generator under the National Electricity Rules, which is also a recent licensing requirement of ESCOSA. TrustPower is still looking at ways to progress this project including re-tendering the supply of turbines.
However, given the current tight supply conditions for manufacturers of wind turbines globally, negotiation of a turbine supply arrangement for the project is expected to be challenging in the short to medium term.
TrustPower will endeavour to preserve its options with respect to the Myponga and Snowtown wind sites during 2006 and to respond to any Government initiatives to promote further renewable generation.
The result for the nine months to 31 December 2005 is pleasing and reflects TrustPower's ability to manage wholesale market risks in both high and low price periods. At this stage the Directors are confident that another good financial outcome for the full year is achievable.