MIGHTY RIVER POWER INTERIM REPORT 2001
CONTENTS From the Chairman and Chief Executive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Consolidated Statement of Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Consolidated Statement of Movements in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Notes to the Consolidated Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001
Rob Challinor
Doug Heffernan
FROM THE CHAIRMAN AND CHIEF EXECUTIVE Mighty River Power’s financial performance for the six months ended 31 December 2001 reflected the underlying volatility of New Zealand’s hydrologically dependent electricity market. Measured in terms of net profit after tax and in return on shareholders’ funds, the company had a disappointing first half-year. However, performance across a range of other indicators was sound, and in some areas of the business we achieved outstanding results. From July to December 2001, we experienced across our catchments one of the most volatile climatic periods over the last 100 years, with the very dry spell through to October being followed by far greater than average rainfall for November and December. Hydro production targets based on average-year rainfall volumes were missed as catchment inflows were down 22 percent on the long-term average and by more than 27 percent in the critical June-August period. This, significantly more than anything else, was the primary determinant of our commercial performance. In a winter which experienced one of the lowest rainfall periods across the country in the last seventy years, it was inevitable that our heavy dependence on catchment hydrology would be reflected in our financial performance.
FINANCIAL Hydro generation production at 1770GWh was down 16.4 percent compared to the same period the previous year. Operating surplus before interest, non-recurring items and tax was $25.8 million, 54.5 percent below last half-year’s result. Overall net profit after tax for the six months to December 2001 was $14.0 million ($30.4 million last year) and this included $7.6 million of non-recurring items. Operating cashflow of $20.0 million ($57.9 million for the six months to December 2000) reflected the reduction in profit. The equity/total assets ratio improved from 44.2 percent at 30 June 2001 to 48.3 percent at 31 December 2001 with the retention of funds in the company and an improved debtors’ position.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001
Consistent with the Statement of Corporate Intent, the company will continue to strengthen its gearing to bring it closer to that of its industry competitors and no interim dividend will be paid. During the period, Standard & Poor’s confirmed Mighty River Power’s long-term credit rating at BBB, short-term A-2, highlighted high gearing levels and debt reduction as priorities for improving the company’s rating and noted that the company had strategies to further improve its financial strength and performance. The company established an additional two to three year revolving advance facility with its bankers to repay $197 million of Electricity Corporation of New Zealand (ECNZ) bonds allocated to Mighty River Power on the split-up of ECNZ in 1999. The attractive terms offered by lenders for short-term funding indicated a positive market rating of Mighty River Power’s underlying commercial strength. Mighty River Power’s $200 million commercial paper programme continues to attract very competitive interest rates and strong interest from financiers.
S TA K E H O L D E R S The views of stakeholders provide an important gauge to measure our performance across a range of non-financial indicators that are important to the communities in which we operate and the customers we serve. Operationally, a primary focus was our Taupo/Waikato resource consent application which is set for hearing towards mid-2002. A new initiative was the publication of our first sustainability report, An Intricate Balance, which describes our commitment to the concepts of sustainable development. Ensuring that our actions benefit our communities and the environment, through the efficient use of the assets and skills that we have, requires us to consider carefully every significant aspect of our business and all of the important decisions we make. Our sustainability report outlines the company’s commitment to measure its performance across the full range of social, environmental and economic indicators. We continue to strengthen our relationships with iwi and hapu throughout the places where our core resource uses occur. Our shared values - with Ngati Tuwharetoa, Ngati Tahu-Ngati Whaoa, Ngati Raukawa, Waikato and other tangata whenua - to protect and nurture the natural resources that we manage, is the basis for the strong forward-looking arrangements and understandings we have with kaitiaki throughout Lake Taupo and Waikato River catchments. We acknowledge and respect the matters that are important to them. There is an understanding that the dams and powerhouses of the Waikato hydro system are critical to the economic and social wealth of New Zealand’s homes and businesses. Our discussions with tangata whenua help us to understand iwi priorities for protecting the environment and for safeguarding places that are of special significance to them.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001
R E TA I L We continued to build our reputation for leadership in the retail electricity industry through our close attention to customer service. A major initiative during the very dry winter period was aimed at directly rewarding individual customers for reducing electricity consumption when supply was threatened. Mighty River Power’s premier retail brand, Mercury Energy, was the only retailer in the country to introduce a direct bill credit scheme for customers who conserved energy. Combined with promotion of energy-saving measures, the Beat-Your-Bill campaign delivered significant power savings with some two-thirds of Mercury Energy customers cutting consumption. The campaign also demonstrated that innovative electricity retailers can manage some of the commercial risk of providing fixed prices to customers even when hydro lake storage levels are as low as they were last winter. Early in February this year, we announced details of an exchange of customers with TrustPower which saw both organisations improving their competitive ability in areas where there was previously a lesser level of effective competition. TrustPower will take over the supply of electricity to former First Electric customers in Christchurch and Wellington, improving its competitiveness in both cities. Mercury Energy will take over the supply of electricity to former TrustPower customers in the Northland, Auckland and Thames Valley regions. Mercury Energy is now the premier retailer in the top half of the North Island, with many of its residential customers also close to where Mighty River Power’s generation assets are located. Mercury Energy also concluded arrangements with Wanganui Gas to offer gas to mass-market customers in the Auckland area, and expects to announce further significant benefits for its retail customers in the second half of the year. Mighty River Power continues to provide fixed price contracts to industrial and commercial customers throughout New Zealand.
G E OT H E R M A L With our partners, Tauhara North No.2 Trust, we have lifted the performance of the modern and highly efficient geothermal plant we operate with them at Rotokawa, near Taupo, and agreed to investigate further development options for the steam-field. As New Zealand’s need for renewable energy increases, we consider geothermal-based generation represents the best available all-round option for the country’s next increment of additional generation capacity. Harnessing New Zealand’s geothermal resource sustainably, through working closely with local resource owners, has given us unique positioning in this industry. We also manage the geothermal plant owned by the Tuaropaki Power Company at Mokai, north of Taupo and are working closely with the company to optimise the long-term operational efficiency of the plant.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001
C O M M U N I T Y S U P P O RT Our strong support for New Zealand Rowing is one of the company’s principal sponsorships. The high performance Mighty River Power New Zealand Rowing Academy at Lake Karapiro provides rowing athletes with a great opportunity to step up to levels of competitiveness not otherwise achievable. We particularly congratulate the silver medal successes of the elite women’s double and quadruple sculls and coxless four crews and their coach at last year’s Rowing World Championships. Increasingly, we are becoming involved in a range of activities throughout Auckland, Waikato and Taupo – Christmas in the Park, Starship Children’s Hospital, Barnardos, Auckland City Mission, Project K, Books in Homes, Stewart Brain Injury Trust, Salvation Army, National Wetland Trust, Balloonz over Waikato, Taupo International Fishing Competition, Taupo Arts Festival and many other worthwhile community initiatives.
AHEAD Looking ahead, there are already some indications that the second half-year will produce higher generation production as hydrology settles into a more standard pattern. However, recent experience last winter shows the uncertainty of forecasting outcomes that are dependent on assumed climate conditions.
OUR PEOPLE We acknowledge and thank all of our people, and their families, for their tremendous effort, commitment and enthusiasm as we dealt with our challenges. Without their desire to work well with and support each other, and to keep looking for ways to improve performance, we would not have been able to achieve our results for the period. In November, Tania Simpson was appointed to the board as a director, joining Wayne Walden who was appointed earlier in the year. The board of directors is confident that the company has the leadership, technical skills and organisational ability to achieve very satisfactory outcomes in the future across all its activities. Stretch objectives support Mighty River Power’s commitment to superior economic, environmental and community performance. As we noted in our 2001 annual report, conducting our business efficiently, with integrity and transparency, and with positive impacts on people’s lives, represents an intricate and complex balance that we are committed to achieve.
Rob Challinor
Doug Heffernan
Chairman
Chief Executive
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 I N T E R I M F I N A N C I A L S T A T E M E N T S For the six months ended 31 December 2001
I N T E R I M F I N A N C I A L S TAT E M E N T S Consolidated Statement of Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Consolidated Statement of Movements in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Notes to the Consolidated Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P E R F O R M A N C E For the six months ended 31 December 2001
Year ended 30 June 2001 Audited $000
839,894 (205,485)
Note
Six months ended 31 December 2001
Six months ended 31 December 2000
Unaudited $000
Unaudited $000
Sales
447,230
403,350
Less transmission, line and metering charges
(99,950)
(107,690)
4,245
Interest revenue
1,822
1,731
8,076
Other revenue
3,070
3,783
352,172
301,174
25,764
56,636
646,730
Total Operating Revenue
103,946
Operating surplus before interest and non-recurring items
4,245
Interest revenue
1,822
1,731
(39,144)
Interest expense
(17,897)
(20,248)
7,576
4,673
17,265
42,792
7,660 76,707
Non-recurring items
2
Surplus Before Taxation
17,647
Taxation expense
59,060
Net Surplus After Taxation
3,228
12,374
14,037
30,418
The notes set out on pages 13 to 15 form part of, and should be read in conjunction with, these Interim Financial Statements.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 C O N S O L I D A T E D S T A T E M E N T O F M O V E M E N T S I N For the six months ended 31 December 2001
E Q U I T Y
Year ended 30 June 2001
Six months ended 31 December 2001
Six months ended 31 December 2000
Audited $000
Unaudited $000
Unaudited $000
653,822
Equity at Beginning of the Period
712,882
653,822
59,060
Net surplus after taxation
14,037
30,418
59,060
Total Recognised Revenues and Expenses for the Period
14,037
30,418
726,919
684,240
712,882
Equity at End of the Period
The notes set out on pages 13 to 15 form part of, and should be read in conjunction with, these Interim Financial Statements.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 C O N S O L I D A T E D
S T A T E M E N T O F F I N A N C I A L As at 31 December 2001
P O S I T I O N
Year ended 30 June 2001
Six months ended 31 December 2001
Six months ended 31 December 2000
Audited $000
Unaudited $000
Unaudited $000
Equity 377,561
Share capital
377,561
377,561
335,321
Reserves
349,358
306,679
726,919
684,240
144,593
166,293
881
3,930
712,882
Non-Current Liabilities 155,834 1,762 329,721
Energy contracts Obligations assumed on acquisition of businesses Loans
487,317
423,787
256,231
569,261
426,454
68,247
91,517
0
0
Current Liabilities 161,803 20
Payables Provision for taxation
13,875
Deferred taxation
18,871
16,252
25,058
Energy contracts – current portion
23,360
29,049
Loans – current portion
95,509
328,755
3,050
17,155
413,239
209,037
482,728
1,613,438
1,505,217
1,593,422
200,146 12,337
Obligations assumed on acquisition of businesses
The notes set out on pages 13 to 15 form part of, and should be read in conjunction with, these Interim Financial Statements.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 C O N S O L I D A T E D
S T A T E M E N T O F F I N A N C I A L As at 31 December 2001
P O S I T I O N
( c o n t i n u e d )
Year ended 30 June 2001
Six months ended 31 December 2001
Six months ended 31 December 2000
Audited $000
Unaudited $000
Unaudited $000
Non-Current Assets 1,387,171 11,000 0
Property, plant and equipment Investments Energy contracts
1,370,127
1,407,934
11,000
11,000
0
282
9,836
Intangibles
9,275
10,396
5,855
Other non-current assets
4,693
8,167
Deferred taxation on acquisition of businesses
9,450
12,396
1,404,545
1,450,175
6,274
13,711
84,080
118,756
3,317
3,573
10,924 1,424,786
Current Assets 5,400 178,251 3,503 1,498
Cash Receivables and prepayments Inventories
282
4,362
6,719
2,845
188,652
100,672
143,247
1,613,438
1,505,217
1,593,422
0
Energy contracts – current portion Provision for taxation
The notes set out on pages 13 to 15 form part of, and should be read in conjunction with, these Interim Financial Statements.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S For the six months ended 31 December 2001
Year ended 30 June 2001 Audited $000
Note
Six months ended 31 December 2001
Six months ended 31 December 2000
Unaudited $000
Unaudited $000
Cash Flows from Operating Activities Cash was provided from (applied to): 589,919 1,868 (430,333)
Receipts from customers Interest received
307,389
487
551
(394,554)
(225,725)
(47,955)
Interest paid
(22,239)
(24,056)
(3,177)
Taxation paid
(3,497)
(303)
20,025
57,856
0
0
110,322
Payments to suppliers and employees
439,828
Net Cash Inflow from Operating Activities
3
Cash Flows from Investing Activities Cash was provided from (applied to): 3,477 (13,499) (1,302) (11,324)
Sale of property, plant and equipment Purchase of property, plant and equipment Purchase of other non-current assets Net Cash Outflow from Investing Activities
(8,647)
(4,982)
0
(1,791)
(8,647)
(6,773)
0
0
(10,504)
(22,331)
Cash Flows from Financing Activities Cash was provided from (applied to): 0 (78,557)
Loans advanced Loans repaid
(20,600)
Dividends paid
(99,157)
Net Cash Outflow from Financing Activities
0
(20,600)
(10,504)
(42,931)
874
8,152
(159)
Net Increase (Decrease) in Cash Held
5,559
Cash Balance at Beginning of the Period
5,400
5,559
5,400
Cash Balance at End of the Period
6,274
13,711
The notes set out on pages 13 to 15 form part of, and should be read in conjunction with, these Interim Financial Statements.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 N O T E S
T O
T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the six months ended 31 December 2001
1. Statement of Accounting Policies The interim financial statements presented here are the unaudited consolidated financial statements of Mighty River Power Limited for the six months ended 31 December 2001. These interim financial statements have been prepared in accordance with FRS-24 Interim Financial Statements, and should be read in conjunction with the annual report for the period ended 30 June 2001. The accounting policies used in the preparation of these interim financial statements are consistent with those used in the annual financial statements and the previously published interim financial statements.
2. Non-Recurring Items Year ended 30 June 2001
Six months ended 31 December 2001
Six months ended 31 December 2000
Audited $000
Unaudited $000
Unaudited $000
4,673
Capital receipt on exit of investment
0
4,673
3,101
Insurance proceeds
0
0
3,000
Movement in obligations assumed on acquisition
8,000
0
(3,896)
Write down of property, plant and equipment
0
0
650
Sale of computer software
0
0
132
Other
(424)
0
7,576
4,673
7,660
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 N O T E S
T O
T H E
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( c o n t i n u e d ) For the six months ended 31 December 2001
3. Reconciliation of Net Surplus After Taxation with Net Cash Flows from Operating Activities Year ended 30 June 2001
Six months ended 31 December 2001
Six months ended 31 December 2000
Audited $000
Unaudited $000
Unaudited $000
59,060
Net Surplus After Taxation
14,037
30,418
25,807
24,979
(11,723)
(12,748)
Amortisation of goodwill
561
562
Amortisation of other non-current assets
361
1,138
(10,168)
(3,986)
(67)
3,883
Add (less) non-cash items: 50,628 (24,052) 1,122 361
Depreciation Amortisation of energy contracts
Movement in obligations assumed on acquisition (10,972)
of businesses
4,990
Foreign exchange (gains) losses on USD loan
3,896
Write down of property, plant and equipment
(3,741)
Other non-cash items
22,232
0
0
(116)
0
4,655
13,828
94,171
1,949
186
(518)
(93,556)
731
(6,739)
5,544
Add (less) movements in working capital: (54,121) (448) 71,017
Decrease (increase) in receivables and prepayments Decrease (increase) in inventories (Decrease) increase in payables
8,409
(Decrease) increase in provision for taxation
4,999
(Decrease) increase in deferred taxation
29,856
6,470
5,904
532
13,610
801
0
Add (less) items classified as investing activities: (826)
Movement in other non-current assets
(826) 110,322
Net Cash Inflow from Operating Activities
14
801
0
20,025
57,856
MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001 N O T E S
T O
T H E
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( c o n t i n u e d ) For the six months ended 31 December 2001
4. Commitments Year ended 30 June 2001
Six months ended 31 December 2001
Six months ended 31 December 2000
Audited $000
Unaudited $000
Unaudited $000
Capital Commitments 5,212
Commitments for future capital expenditure
17,626
4,651
7,522
8,623
25,148
13,274
Operating Lease Commitments 8,013
Commitments under non-cancellable operating leases
13,255
5. Contingencies Mighty River Power Limited has guaranteed payment obligations of $20.0 million pursuant to a letter of credit provided by a bank in favour of M-Co. Mighty River Power Limited also has guaranteed payment obligations of US$3.7 million pursuant to a letter of credit provided by a bank in favour of Ormat Industries Limited. Mighty River Power Limited has a contingent liability in respect of the Accident Compensation Corporation’s residual claims levy. The levy is payable annually from May 1999 for up to fifteen years. The Group’s future liability is a function of the Accident Compensation Corporation’s unfunded liability for past claims and future payments to employees.
6. Subsequent Events There have been no events subsequent to balance date that would affect the fair presentation of these interim financial statements.
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001
DIRECTORY
B OA R D O F D I R E C TO R S
E X E C U T I V E M A N AG E M E N T
Chairman
Doug Heffernan (Chief Executive)
R.L. Challinor, BCom, FCA, CMA, FCIS
Colleen Cann (Organisation Development Manager)
Directors C.B. Durbin, BCom, LLB (Hons) FAMINZ, A.C.I. Arb. (Deputy Chair) I.A.N. Fraser, BE (Hons), FIPENZ D.A.W. McConnell, BE (Hons), MBA H.R. Webber, MPP, B.Soc.Sci J.W. Walden T.J. Simpson, BA
John Foote (General Manager, Retail) Tony Gray (Chief Financial Officer) Mike Kedian (General Manager, Generation) Stuart Lush (Generation Development Manager) William Meek (Pricing Strategy Manager) David Reeve (Industry Strategy Manager) Bruce Waters (Legal Counsel and Corporate Affairs) Steve Woods (Manager, Metrix)
REGISTERED OFFICE Level 9, KPMG Legal Building 22 Fanshawe Street PO Box 90-399, Auckland Telephone: 09 308 8200 Facsimile: 09 308 8209 Email: enquiries@mightyriver.co.nz www.mightyriverpower.co.nz
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MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001