MRP hits 1/2-year growth despite worst-ever hydro conditions
26 February 2014
MRP hits half-year growth despite worst-ever hydro conditions
Mighty River Power today released financial results for the six months ended 31 December 2013 – declaring an interim dividend of 5.2 cents per share, and reaffirming that the Company is on track to achieve its full-year 2014 outlook (IPO forecast).
Chair, Joan Withers, said: “We have delivered operating earnings growth for the half year, and we are on track for the full year – even with a quarter less hydro than HY2013. Mighty River Power has responded to the competitive dynamics in the market and is showing new levels of efficiency and performance.”
Mrs Withers said the Company was realising the expected benefits from its investment in reliable base-load geothermal generation – which in HY2014 made up more than 40% of total half-year production for the first time.
“We also managed to offset the impact of poor hydro by reducing our exposure to business customers back to HY2012 levels and by concentrating our hydro production into those times when it was most valued by the market. On the cost side we have remained sharply-focused on operating expenditure and achieving Company-wide gains in effectiveness and efficiencies.”
Net Profit After Tax (NPAT) was up $48 million to $124 million, largely due to lower operating costs, positive non-cash fair value movements, and one-off effects in the prior period, while Underlying Earnings was down $28 million mainly as a result of higher interest and depreciation costs following the completion of the Ngatamariki station.
• · EBITDAF up 4% ($9.5 million) despite record low hydro inflows
• · NPAT of $124 million (up $48 million) and Underlying Earnings of $105 million (down $28 million)
• · Fully imputed interim dividend increased 8% to 5.2 cents per share in line with IPO forecast
• · On track to achieve IPO forecast for FY2014 EBITDAF of $498 million
Chief Executive, Doug Heffernan, said the achievement of the forecast 4% ($9.5 million) lift in Operating Earnings (EBITDAF) to $270 million was challenging in light of the drought conditions that have impacted the central North Island over much of the past 12 months.
Hydro volumes were down 34% in the first quarter of FY2014, which over the full period equated to the loss of more than $33 million in potential operating income due to inflows to Lake Taupo being the lowest since the Company was formed in 1999.
This was partially offset by the timely additional contribution from geothermal (up 25%) with the completion of the new Ngatamariki station at the end of August, together with higher-than-expected cost savings.
Dr Heffernan said the higher proportion of generation coming from geothermal generation – combined with a measured reduction in commercial sales commitments – gave the Company greater flexibility when to use available hydro generation. “This meant we were able to achieve better prices for our production than the average in the market – and it was 97% geothermal and hydro renewables.”
Mighty River Power’s Operating Expenditure fell $33.7 million, reflecting permanent cost savings of $8.3 million and $25.4 million of one-off costs incurred in the prior period. Dr Heffernan said savings had come through taking direct control of international geothermal interests along with broader savings in maintenance and other expenses, building on the cost management gains achieved in the last quarter of FY2013.
Electricity sales volumes to businesses were down more than 9% in a low-price, low-margin commercial market environment as “Mighty River Power chose to reduce business sales to where we were a year ago”, Dr Heffernan said. This helped lift the average sales prices across the portfolio by 2% in the six months ended 31 December 2013.
Mighty River Power announced in December a commitment to not increase residential energy prices until at least April 2015, reflecting the highly-competitive retail environment. This means the only increase on customers’ electricity bills will be where there are regulator mandated increases from transmission, distribution and metering charges. Dr Heffernan said residential sales volumes were down 5% on the previous half year, partly due to warm winter and spring temperatures, resulting – on average – in lower bills for residential customers.
He said the Company continued to review its portfolio of assets including the role of Southdown in light of continued weak demand conditions and to further adjust the balance of the Company’s sales and generation portfolio to manage risk and drive value in the highly-competitive environment.
DIVIDEND AND OUTLOOK
The Mighty River Power Board has declared a fully imputed interim dividend of 5.2 cents per share, to be paid on 31 March 2014 representing 40% of the forecast FY2014 dividend of 13 cents per share.
Mrs Withers said the Company has lowered its estimate for capital expenditure for the full year from previous guidance ($125 million - $175 million) to $95 million - $120 million due to lower investment domestically as it implements cost containment initiatives, and in international geothermal where a patient approach to growth opportunities has reduced forward commitments.
“Board and Management remain comfortable with the IPO forecast (issued in April 2013) for 27% growth in EBITDAF to $498 million for the full financial year to 30 June 2014, and financial metrics updated in November at the Company’s Annual Shareholders’ Meeting, which show NPAT and Underlying Earnings are expected to be more than $35 million ahead of the IPO forecasts. As outlined in the Prospectus there are a range of risks, including hydrology, which could impact on our forecasts.”
Mighty River Power had built up Taupo storage between October and December 2013, while national wholesale prices were low, but inflows have been very weak since 1 January with Lake Taupo storage currently just over 60% of average, although forecasts show a return to more normal inflows in the autumn.