INTERIM REPORT 31 DECEMBER 2006 MIGHT Y RIVER POWER LIMITED
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
Ground breaking work started in late 2006 on the 90 MW, $275 million Kawerau geothermal power station. It is the largest single geothermal power development in New Zealand in more than 20 years. Geothermal energy will meet a signiďŹ cant proportion of consumer requirements over the next 10 years.
C
HIGHLIGHTS 31 DECEMBER 2006
BE ST CUSTOMER SERV ICE F O R T H E T H I R D Y E A R I N A R O W T H E T E A M AT M E R C U R Y E N E R G Y H A S W O N T H E C U S T O M E R R E L AT I O N S H I P M A N A G E M E N T AWA R D F O R B E S T C U S T O M E R S E R V I C E W I T H I N T H E E N E R G Y I N D U S T R Y
GEOTHERMAL POWER C O N S T R U C T I O N O F T H E K AW E R A U G E O T H E R M A L P L A N T C O M M E N C E D , T H E L A R G E S T SINGLE GEOTHERMAL DE VELOPMENT IN NEW ZEAL AND IN MORE THAN 20 YEARS
RECORD PRODUCTION O U T S TA N D I N G P R O D U C T I O N F R O M T H E G E O T H E R M A L P O W E R S TAT I O N S T H E C O M PA N Y O P E R AT E S , A N D O W N S I N C O N J U N C T I O N W I T H I T S I W I PA R T N E R S
$136.2 MILLION A S T R O N G O P E R AT I N G S U R P L U S B E F O R E I N T E R E S T, N O N - R E C U R R I N G I T E M S A N D TA X AT I O N WA S R E C O R D E D
$74 .6 MILLION D U E T O FAV O U R A B L E O P E R AT I N G C O N D I T I O N S , N E T S U R P L U S A F T E R TA X AT I O N INCREA SED BY OVER $20 MILLION FROM THE CORRESPONDING PERIOD
$15 4 .1 MILLION O P E R AT I N G C A S H F L O W I N C R E A S E D $ 3 2 . 8 M I L L I O N O N THE CORRESPONDING PERIOD L A ST YEAR
2
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
OPERATING SURPLUS BEFORE
NET SURPLUS
OPERATING CASH FLOW
INTEREST, NON-RECURRING
AFTER TAXATION
FOR 6 MONTHS TO 31 DECEMBER
ITEMS AND TAXATION
FOR 6 MONTHS TO 31 DECEMBER
($MILLION)
FOR 6 MONTHS TO 31 DECEMBER
($MILLION)
($MILLION)
Net Surplus Net Surplus After Net Surplus tax After tax After tax Operating Operating Surplus Operating Surplus before Surplus before Interest before Interest Interest 136.2 135.7
135.7
136.2 135.7
136.2
99.8
99.8
99.8
77.3
77.3
77.3
74.6
74.6
Operating Operating cashflow Operating cashflow cashflow
154.1
123.6 106.8
95.3
79.4
106.8
95.3
79.4
106.8
121.3
123.6
154.1
121.3
123.6
154.1
121.3
74.6
95.3
79.4
51.4
54.0
54.0
51.4
51.4
54.0
81.6
47.4
2002 2003 2002 2004 2003 2005 2002 2004 2006 2003 2005 2004 2006 2005 2006
2002 2003 2002 2004 2003 2005 2002 2004 2006 2003 2005 2004 2006 2005 2006
81.6
47.4
81.6
47.4
2002 2003 2002 2004 2003 2005 2002 2004 2006 2003 2005 2004 2006 2005 2006
3
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
TOTAL EQUITY/TOTAL ASSETS
NET DEBT/NET DEBT + EQUITY
GENERATION DATA (GWh)
AT 31 DECEMBER
AT 31 DECEMBER
FOR 6 MONTHS TO 31 DECEMBER
(PERCENT)
(PERCENT)
HYDRO COGENERATION
Total Equity Total Equity
76.8
75.3
76.8
Net debt Net+debt Equity + Equity
75.3
36.5
GEOTHERMAL* BIOMASS* * MIGHTY RIVER POWER DOES NOT OWN 100% OF THESE ASSETS AND/OR THE PHYSICAL OUTPUT
36.5
3000
32.3
62.0
55.9
61.3
62.0
30.1
32.3
30.1
61.3
2500
55.9
2000
17.4
1500
17.4 15.5
15.5
1000
500
2002 2003 2002 2004 2003 2005 2004 2006 2005 2006
2002 2003 2002 2004 2003 2005 2004 2006 2005 2006
2002 2003 2004 2005 2006
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
4
Chair and chief executive report
ON BEHALF OF THE BOARD AND MANAGEMENT, WE ARE PLEASED TO REPORT ON MIGHTY RIVER POWER’S
HIGHLIGHTS
Favourable operating conditions have assisted Mighty River
PERFORMANCE FOR THE SIX MONTHS
Power to record a strong Net Surplus after Taxation of $74.6
TO 31 DECEMBER, 2006.
million in the period to 31 December 2006, up $20.6 million on the previous corresponding period. The advantages of a diversified portfolio have been highlighted in the period with healthy inflows into the greater Waikato catchment increasing hydro production by 18% over the six months. In contrast, production at Southdown reduced by 59% during the half year with a consequential reduction in the quantity of gas required, a saving of $10.6 million. The complementarity of Southdown and the Waikato hydro system has over the 2005 and 2006 periods illustrated the ability of the Company to provide a consistent level of total generation output over a wide range of climatic conditions. Record geothermal production further contributed to the pleasing growth in Operating Surplus before Interest and Taxation from $106.8 million in the first half of the previous financial year to $136.2 million for the six months under review. The company’s geothermal development plans remain its strategic imperative. With construction now underway at Kawerau and further major projects in the pipeline at Rotokawa and Nga Tamariki, substantial growth in geothermal capability will dominate the company’s advancement for the foreseeable future. A significant milestone in the Company’s geothermal expansion was the commencement of construction on the Company’s 90MW, $275 million power plant in Kawerau in late 2006. The Kawerau plant is the largest single geothermal development in New Zealand in more than 20 years and part of Mighty River Power’s plans to develop around 400MW of geothermal energy in the next five to ten years – enough power for around 400,000 homes. Geothermal expansion has a number of key characteristics that make it attractive to both the country and Company. Geothermal energy is renewable, and importantly compared to other renewables is reliable in that it is unaffected by climatic conditions, such as whether the wind is blowing, rain is falling or sun shining. The constant production and high availability of geothermal power stations has the potential to help underpin the secure supply of electricity to New Zealand’s homes and businesses.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
5
E N E R GY G R O SS M A R G I N A N A LY S I S SIX MONTHS ENDED 31 DECEMBER 2006 1
RETAIL
2
WHOLESALE
SIX MONTHS ENDED 31 DECEMBER 2005 1
RETAIL
2
WHOLESALE
Operating Results Revenue Gross Revenue
378.6
155.3
364.1
236.4
Less Transmission and Distribution Costs
154.5
-
136.7
-
Net Revenue
224.1
155.3
227.3
236.4
Energy Purchases
148.2
12.3
231.8
23.1
Other Direct Costs/ (Income)
(17.5)
9.2
17.0
(0.1)
93.4
133.8
(21.5)
213.4
-
2,695.3
-
2,612.6
2,063.7
-
1,982.1
-
-
53.9
-
97.2
-
92.1
Costs
Energy Gross Margin
3
3
Volumes/Pricing Total Generator Volumes (GWh)4 Total Fixed Price Variable Volume Sales (GWh)
5
Average Wholesale Electricity Price ($MWh) Average Fixed Price Variable Volume Price ($MWh) 1.
Retail includes sales to end user customers of energy and the net impact of electricity financial derivatives (excluding inter-generator financial derivatives).
2.
Wholesale includes all generation activities, the sale of energy to the wholesale energy market and the net impact of inter-generator electricity financial derivatives.
3.
Retail Energy Gross Margin includes full metering costs incurred by Metrix, some of which are eliminated on consolidation.
4.
Generation volumes exclude equity accounted volumes.
5.
Does not include the volumes associated with electricity ďŹ nancial derivatives.
The key difference between the 2005 and 2006 Energy Gross Margin was the signiďŹ cant decrease in electricity spot prices following the very dry conditions in 2005. The table above shows that lower spot prices decreased the Wholesale Energy Margin to $133.8 million from $213.4 million. This decrease was offset by retail energy purchase costs decreasing by $83.6 million to $148.2 million in 2006. The offsetting nature of these movements resulted in an aggregate Energy Margin increase of $35.3 million.
85.0 -
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
An additional characteristic is the location of New Zealand’s main geothermal resources in the central North Island. This places the existing and future power stations close to both the key growing load centre of the upper North Island and
6
G E N E R AT I O N – O P E R AT I O N S
Total generation volumes rose to 3,113 GWh, compared with 2,989 GWh for the six months to December 2005. Increased rainfall during mid 2006 lifted hydro production to 2,329
the main transmission grid.
GWh from 1,981 GWh in the previous corresponding period.
Only relatively minor modifications to the transmission grid
The outstanding performance of the geothermal plants
in the local Taupo region will be required to accommodate our geothermal developments. A key factor is that geothermal power is a very efficient user of transmission capacity since extra capacity is not required to deal with the variable and peaky production that is a feature of wind and hydro generation. A key theme for the Company is the importance we place on diversification – across fuels, across geographical regions, and across new technologies. This focus on building capability has seen capital expenditure of $64.1 million for the six month period. This follows the $148.4 million invested in new energy developments and existing assets in the full year to 30 June 2006. In early 2007 Mighty River Power is also set to complete the installation of a new 45MW gas-fired turbine generator at its Southdown plant in Penrose. In addition to the construction activity at Kawerau and Southdown, Mighty River Power continues to investigate a large number of other potential
the Company operates, and owns with its iwi partners, continued in the six months to 31 December with production records set for a second year running at both Mokai (419.3 GWh) and Rotokawa (146.2 GWh). Availability levels of 97.6% (Mokai) and 97.2% (Rotokawa) achieved over the period are well above international norms of 95%. With good hydrological conditions over winter, there was a reduced requirement to operate Southdown, compared to the first half of 2005 in which Mighty River Power experienced the second lowest hydro inflows in the Company’s history. Total generation at Southdown decreased from 464 GWh in the previous corresponding period to 188.2 GWh in the six months under review. The gas supply arrangements in place at Southdown provide Mighty River Power with flexibility to run the plant when the wholesale price is high enough, extra capacity is needed to meet national peak demand, or other market conditions warrant its operations.
generation projects across a range of complementary fuel sources including geothermal, wind, small hydro and gas.
G E N E R AT I O N – D E V E L O P M E N T
Excellence in service is the ongoing commitment we make to
In addition to commencing construction at Kawerau, Mighty
our retail customers – and is reflected across our products
River Power is making good progress in its plans to develop
and services, our initiatives to promote in-home energy
further geothermal capability at Rotokawa with its joint
efficiency and billing innovations. During the period, growth in customer numbers has been maintained, rising from 354,000 to 371,000. However lower wholesale prices led to reduced Operating Revenues of $397.3 million compared to $478.5 million in the previous
venture partner Tauhara North No. 2 Trust. The partners plan to apply for resource consents for an 80MW plant at Rotokawa and have geothermal rights at Nga Tamariki, an undeveloped field, located approximately 10 kilometres north of Rotokawa.
corresponding period. Operating cash flow rose significantly
New Zealand’s wind resource is another form of renewable
to $154.1 million, up $32.8 million from the 2005 half-
energy which has an important role to play in our country’s
year, due primarily to the improved hydro and geothermal
future. Mighty River Power is actively building its wind
production, lower gas costs and retail growth.
portfolio, with monitoring equipment established on six sites throughout the North Island and upper-South Island.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
Thermal energy will continue to play an important role in maintaining security of supply in a renewable dominated
7
LOOKING AHEAD
Mighty River Power’s service promise extends not just to
supply system. The installation of the new 45MW gas-fired
the 371,000 customers we supply today, but the future
turbine generator, will lift Southdown’s total generation
generations we are expanding to support in the future.
capacity to 170MW. Meanwhile, Mighty River Power continues to expand its gas exploration interests. A range of permits have been secured in addition to gas exploration previously announced with joint venture partner Swift Energy (NZ) Limited.
Our everyday business is a balancing act, managing today’s assets to build tomorrow’s energy solution, utilising existing fuel sources while preserving the environment and essential natural resources. We are confident that as a company, Mighty River Power has good momentum. Through geothermal developments such
CUSTOMERS
In a highly competitive retail environment, Mercury Energy’s customer base rose from 330,000 electricity and 24,000 gas customers to 344,000 and 27,000 respectively
as Kawerau, the expansion at Southdown and the ongoing wind and gas exploration projects, Mighty River Power is playing its part in providing a sustainable energy future for New Zealand.
over the reporting period – representing supply to some
These developments and those of others in the industry have
800,000 New Zealanders.
bought time. The fuel supply outlook for the next ten years
This result is a reflection of the business’s ongoing commitment to customer service, including the launch of price plan rebate and new channel options.
looks secure. However beyond this, the industry and country needs to take an innovative approach to the energy question, to challenge and move beyond current thinking. Our partners in the energy industry also need to be building for
Mercury Energy’s industry-leading service was recognised
the future – among the requirements is the need for better
in September when the team won the highly coveted
transmission networks to carry the power to where
Customer Relationship Management award, for best
it is needed.
customer service in the energy retail industry – the third year Mercury has won the award. The Company also won the silver award for best New Zealand contact centre with more than 50 operators.
It is an exciting and positive time. Thank you to our staff, commercial partners and other stakeholders, whose efforts have allowed the Company to continue to develop and grow.
Metrix, our metering business, maintained strong growth in new connections and continued its investment in modern metering technologies. The results of the deployment of “Smart Metering” solutions utilising modern two-way
CAROLE DURBIN
DOUG HEFFERNAN
communications technology will be available by year end.
CHAIR
CHIEF EXECUTIVE
The scale of improvements in retail business productivity and the customer service benefits will be assessed prior to determining the preferred pathway for large scale deployment of “Smart Retailing” solutions.
8
Interim Financial Statements F O R T H E S I X M O N T H S E N D E D 3 1 D E C E M B E R 2 0 0 6
9 C O N S O L I D AT E Dare S TAT E M E N T Othat F F I Nas A NaCcompany, I A L P E R F OMighty RMANCE We confident River
Power
isEbuilding momentum. Through C O N S O L I D AT D S TAT E Mgood ENT O F MOVEMENT S I N E Q Udevelopments ITY 10
such
as Kawerau, the expansion at Southdown and the ongoing
C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N 1 1
wind and gas exploration projects, Mighty River Power is
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S 1 3
playing its part in providing a sustainable energy future
N O T E S T O Tfor H E New C O N SZealand. O L I D AT E D I N T E R I M F I N A N C I A L S TAT E M E N T S 1 4
These developments and those of others in the industry have bought time. The fuel supply outlook through to 2014 looks secure. However beyond this, the industry and country needs to take an innovative approach to the energy question, to challenge and move beyond current thinking. Our partners in the energy industry also need to be building for the future – among the requirements is the need for better transmission networks to carry the power to where it is needed. It is an exciting and positive time. Thanks to our staff, commercial partners and other stakeholders, whose efforts have allowed the Company to continue to develop and grow.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
9
Consolidated Statement of Financial Performance
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
YEAR ENDED 30 JUNE 2006
SIX MONTHS ENDED 31 DECEMBER 2006
SIX MONTHS ENDED 31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
NOTE
1,255,385
Sales
(257,730)
Less line and metering charges
2,501 11,781 1,011,937 220,463 2,501
$000
533,849
600,510
(145,447)
(128,796)
Interest income
3,435
1,003
Other revenue
5,481
5,814
Total Operating Revenue
397,318
478,531
Operating surplus before interest and non-recurring items
136,214
106,772
3,435
1,003
(19,342)
(18,092)
0
0
1,820
1,739
122,127
91,422
(47,563)
(37,374)
74,564
54,048
Interest income
(37,147)
Interest expense
(17,532)
Non-recurring items
4,156
$000
2
Share of associates net surplus
172,441
Surplus Before Taxation
(71,669)
Taxation expense
100,772
Net Surplus After Taxation
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
3
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
10
Consolidated Statement of Movements In Equity
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
YEAR ENDED 30 JUNE 2006
SIX MONTHS ENDED 31 DECEMBER 2006
SIX MONTHS ENDED 31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
$000
$000
2,033,315
Equity at Beginning of the Period
2,097,687
2,033,315
100,772
Net surplus after taxation
74,564
54,048
100,772
Total Recognised Revenues and Expenses for the Period
74,564
54,048
Distributions to owners: (36,400)
Final dividend paid for 2005
0
(36,400)
0
Final dividend paid for 2006
(50,400)
0
2,097,687
Equity at End of the Period
2,121,851
2,050,963
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
11
Consolidated Statement of Financial Position
A S AT 31 DECEMBER 2006
30 JUNE 2006
31 DECEMBER 2006
31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
$000
$000
Equity 377,561
377,561
1,720,126
Reserves
1,744,290
1,673,402
2,097,687
Total Equity
2,121,851
2,050,963
377,561
Share capital
Non-current Liabilities 1,204
Energy contracts
1,204
1,204
28,751
Deferred taxation
43,526
27,845
435,591
Loans
532,500
438,002
465,546
Total Non-current Liabilities
577,230
467,051
103,346
139,966
Current Liabilities 144,433 753 145,186 2,708,419
Payables, provisions and accruals Provision for taxation Total Current Liabilities Total Equity and Liabilities
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
14,995
13,774
118,341
153,740
2,817,422
2,671,754
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
12
Consolidated Statement of Financial Position (continued)
A S AT 31 DECEMBER 2006
30 JUNE 2006
31 DECEMBER 2006
31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
$000
2,498,323
2,447,603
31,193
32,891
$000
Non-current Assets 2,478,979 31,308
Property, plant and equipment Investment and advances to associate
9,134
Other non-current assets
8,604
10,150
2,519,421
Total Non-current Assets
2,538,120
2,490,644
139,807
6,775
3,000
5,000
131,794
164,937
4,721
4,398
279,322
181,110
2,817,442
2,671,754
Current Assets 2,364
Cash
2,000
Short term deposits
180,225 4,409 188,998 2,708,419
Receivables and prepayments Inventories Total Current Assets Total Assets
The Board of Directors authorised the issue of the interim financial statements on 22 February 2007.
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
Consolidated Statement of Cash Flows
13
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
YEAR ENDED 30 JUNE 2006
SIX MONTHS ENDED 31 DECEMBER 2006
SIX MONTHS ENDED 31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
$000
440,549
474,508
2,997
414
$000
NOTE
Cash Flows from Operating Activities CASH WAS PROVIDED FROM (APPLIED TO):
984,058 1,506
Receipts from customers Interest received
(253,871)
(319,727)
(34,847)
Interest paid
(17,057)
(17,279)
(63,079)
Taxation paid
(18,545)
(16,666)
195,695
Net Cash Flow from Operating Activities
154,073
121,250
41
30
(691,943)
Payments to suppliers and employees
4
Cash Flows from Investing Activities CASH WAS PROVIDED FROM (APPLIED TO):
147
Sale of property, plant and equipment
4,000
Repayment of advances by associates
(148,415) (448) 75 (144,641)
Purchase of property, plant and equipment Purchase of other non-current assets Disposal of other non-current assets Net Cash Flow from Investing Activities
4
2,000
0
(64,091)
(65,263)
(89)
0
0
37
(62,139)
(65,196)
Cash Flows from Financing Activities CASH WAS PROVIDED FROM (APPLIED TO):
0
Loan advances
(33,703)
Loans repaid
(36,400)
Dividends paid
(70,103)
Net Cash Flow from Financing Activities
(19,049)
Net Increase (Decrease) in Cash Held
23,413 4,364
Cash Balance at Beginning of the Period Cash Balance at End of the Period
96,909
0
0
(31,292)
(50,400)
(36,400)
46,509
(67,692)
138,443
(11,638)
4,364
23,413
142,807
11,775
139,807
6,775
3,000
5,000
142,807
11,775
CASH BALANCE COMPRISES:
2,364
Cash
2,000
Short term deposits
4,364
Cash Balance at End of the Period
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
Notes to the Financial Statements
14
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
1. S TAT E M E N T O F A C C O U N T I N G P O L I C I E S
The interim financial statements presented here are the unaudited consolidated financial statements of Mighty River Power Limited (The Group) for the six months ended 31 December 2006. 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 2006. The accounting policies used in the preparation of these interim financial statements are consistent with those used in the previous annual financial statements.
2. NON-RECURRING ITEMS
YEAR ENDED 30 JUNE 2006
SIX MONTHS ENDED 31 DECEMBER 2006
SIX MONTHS ENDED 31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
(17,532)
Impairment of exploration expenditure
$000
$000
0
0
Expenditure relating to exploratory drilling has been expensed as a consequence of a review of the economic viability of the expenditure associated with this drilling.
3 . TA X AT I O N E X P E N S E
YEAR ENDED 30 JUNE 2006
SIX MONTHS ENDED 31 DECEMBER 2006
SIX MONTHS ENDED 31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
172,441 56,905
Surplus before taxation Taxation at 33 cents
$000
$000
122,127
91,422
40,302
30,169
7,261
7,205
Taxation effect of permanent differences: 15,015 (251) 71,669
Other permanent differences Prior year adjustments Taxation expense
0
0
47,563
37,374
Analysis of taxation expense: 65,831
Current taxation
32,789
32,442
5,838
Deferred taxation
14,774
4,932
71,669
Taxation expense
47,563
37,374
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
15
Notes to the Financial Statements continued
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
4 . R E C O N C I L I AT I O N O F N E T S U R P L U S A F T E R TA X AT I O N W I T H N E T C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S
YEAR ENDED 30 JUNE 2006
SIX MONTHS ENDED 31 DECEMBER 2006
SIX MONTHS ENDED 31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
100,772
Net Surplus after Taxation
$000
$000
74,564
54,048
42,596
40,880
600
818
0
0
(1,820)
(1,739)
2,283
1,495
43,659
41,454
48,232
(4,449)
(312)
(1,344)
Add (less) non-cash items: 82,462 1,080
Depreciation Amortisation of other non-current assets
17,532
Impairment of exploration expenditure
(4,156)
Share of associates net surplus
7,598
Other non-cash items
104,516 Add (less) movements in working capital: (19,909) (1,355)
Decrease (increase) in receivables and prepayments Increase in inventories
3,078
(Decrease) increase in payables and accruals
(41,088)
10,833
2,755
Increase in provision for taxation
14,243
15,776
5,838
Increase in deferred taxation
14,775
4,932
35,850
25,748
154,073
121,250
(9,593) 195,695
Net Cash Flow from Operating Activities
5. COMMITMENTS
30 JUNE 2006
31 DECEMBER 2006
31 DECEMBER 2005
AUDITED
UNAUDITED
UNAUDITED
$000
24,825
Commitments for future capital expenditure
17,642
Commitments for future operating expenditure
42,467
Total Commitments
$000
$000
178,110
22,732
14,858
8,188
192,968
30,920
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
16
Notes to the Financial Statements continued
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
6. CONTINGENCIES
Mighty River Power and certain subsidiaries have cross-guaranteed the due and punctual payment of each other’s Guaranteed Indebtedness in relation to bank borrowings under a Standby and Cash Advances Facility and a Revolving Advances Facility. Mighty River Power Limited holds land and interests that may be affected by certain claims that have been brought or are pending against the Crown under the Treaty of Waitangi Act 1975. In the event that the Crown agrees to the return of some or all of the affected land resumption would be effected by the Crown under the Public Works Act 1981 and compensation would be payable to Mighty River Power Limited. A third party made a claim following a contract dispute. The amount of the claim has subsequently been significantly reduced and is now immaterial. The Directors still consider that the claim can be successfully defended.
7. S U B S E Q U E N T E V E N T S
There have been no events subsequent to balance date that would affect the fair presentation of these interim financial statements.
8 . I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S
In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under the Financial Reporting Act would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances. The Group intends to adopt NZ IFRS from 1 July 2007. A project team, monitored by a steering committee, has been established to achieve transition to NZ IFRS reporting. The project involves assessing the impacts of conversion to NZ IFRS reporting on existing accounting and reporting policies, procedures, systems and processes, then designing and implementing the changes required to enable the delivery of financial reporting on an NZ IFRS compliant basis for the 30th June 2008 financial year. The comparative period in the 30 June 2008 financial statements will also need to be reported on a NZ IFRS compliant basis. Consequently during the period from 1st July 2006 to 30th June 2007, known as the transition year, two sets of records will be maintained: one under current NZ GAAP; the other under NZ IFRS. The differences between current NZ GAAP and NZ IFRS identified to date as having an effect on the Group’s financial position are summarised below and are based on NZ IFRS that exist at the date of issue of these financial statements. Future developments of those standards, that occur prior to the first set of financial statements under NZ IFRS, may result in material amendments to the adjustments detailed below. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions or events are presented. Only a complete set of financial statements including notes, the first to be presented as at 30 June 2008, together with comparative balances, will provide a true and fair presentation of the Group’s results in accordance with NZ IFRS.
17
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
8 . I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S ( C O N T I N U E D )
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
Provisional reconciliation of the impact of adopting NZ IFRS on the current NZ GAAP statement of financial position as at 1 July 2006 (Audited).
SHARE C A P I TA L GROUP
Total Reported under NZ GAAP
R E TA I N E D EARNINGS
OTHER RESERVES
T O TA L EQUITY
T O TA L LIABILITIES
T OTA L ASSETS
$000
$000
$000
$000
$000
$000
377,561
419,609
1,300,517
2,097,687
610,732
2,708,419
Fair value of derivative contracts
0
0
60,241
60,241
9,192
69,433
Deferred tax
0
(132,519)
(375,546)
(508,065)
508,065
0
Deemed cost adjustments
0
244,692
(244,692)
0
0
0
Revaluation of property, plant & equipment
0
(25,205)
25,205
0
0
0
Other adjustments
0
(45)
0
(45)
(9,421)
(9,466)
377,561
506,532
765,725
1,649,818
1,118,568
2,768,386
Restated to NZ IFRS
Provisional reconciliation of the impact of adopting NZ IFRS on the current NZ GAAP statement of financial position as at 31 December 2006 (Unaudited).
SHARE C A P I TA L GROUP
Total Reported under NZ GAAP Fair value of derivative contracts
R E TA I N E D EARNINGS
OTHER RESERVES
T O TA L EQUITY
T O TA L LIABILITIES
T OTA L ASSETS
$000
$000
$000
$000
$000
$000
377,561
443,773
1,300,517
2,121,851
695,571
2,817,422
0
(66,736)
42,735
(24,001)
66,589
42,588
Deferred tax
0
(102,761)
(369,769)
(472,530)
472,530
0
Deemed cost adjustments
0
244,692
(244,692)
0
0
0
Revaluation of property, plant & equipment
0
(25,205)
25,205
0
0
0
Other adjustments
0
267
0
267
(7,603)
(7,336)
377,561
494,030
753,996
1,625,587
1,227,087
2,852,674
Restated to NZ IFRS
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
8 . I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S ( C O N T I N U E D )
18
FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
FAIR VALUE OF DERIVATIVE CONTRACTS
On transition all derivative contracts (including electricity hedges, interest rate and foreign exchange contracts) will be recorded in the statement of financial position at fair value under NZ IFRS and be adjusted against opening equity. Any subsequent movement in the fair value of these instruments from year to year will have the potential to affect the statement of financial performance and the statement of financial position, the extent to which will depend on whether hedge accounting is adopted. NZ IFRS is very prescriptive on when a derivative contract can be considered an effective hedge of an underlying position or future cash flow. The Group has therefore adopted hedge accounting practices where practical. DEFERRED TAXATION
The IFRS basis of accounting for deferred tax is conceptually different to current NZ GAAP. Under current NZ GAAP deferred taxation is calculated using an income statement approach whereas under NZ IFRS deferred taxation will be calculated based on a balance sheet approach. This method recognises deferred tax balances where there is a difference between the carrying value of an asset or liability and its tax base. The most significant impact for the Group will be the recognition of a deferred tax liability in relation to the revaluation of generation assets and the recognition of the fair value of derivative contracts. DEEMED COST ADJUSTMENTS
NZ IFRS 1 has some specific exemptions available to entities on initial transition to NZ IFRS. A first time adopter may have established a deemed cost under previous GAAP for some or all of its assets and liabilities by measuring them at their fair value because of a specific event. It may use such event-driven fair value measurements as deemed cost for NZ IFRS at the date of that measurement. The Group will use this exemption in relation to the fair value exercise undertaken on the acquisition of assets and liabilities on the break-up of ECNZ. The impact of this will be a transfer of $244.7 million between the asset revaluation reserve and retained earnings. REVALUATION OF PROPERTY PLANT & EQUIPMENT
Under NZ IFRS downward revaluations below cost of individual assets are not permitted to be set off in the reserve against upward revaluations of other assets within the same asset class and are taken to the income statement. As permitted under transition to NZ IFRS an amount of $25.2 million resulting from a devaluation of certain generation assets will be reclassified from the asset revaluation reserve to retained earnings.
M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6
19
Directory D I R EC T O R S
R EG I S T E R E D O F F I C E
Carole Durbin, BCom, LLB (Hons), FInstD, FAMINZ (Chair)
Level 19, 1 Queen Street, Auckland
John Baird, BSc, BA, MA (Hons), Rhodes Scholar,
TELEPHONE
Dip Marketing (UK) Caroline Ball, BE Chem (Hons) Trevor Janes, BCA (Econ), CA
FACSIMILE EMAIL
09 308 8200
09 308 8209
enquiries @mightyriver.co.nz
WEBSITE
www.mightyriverpower.co.nz
Sandy Maier, JD, BA Neil Ranford, Dip Tchg, BSc, BE (Hons) Sir Paul Reeves, ONZ, MA, GCMG, GCVO, QSO, KST.J, LTh Tania Simpson, BA, MMM Patrick Strange, BE (Hons), ME, PhD
AU D I T O R
The Auditor-General pursuant to section 14 of the Public Audit Act 2001. J Freeman of Ernst & Young was appointed in February 2006 to perform the audit on behalf of the Auditor-General.
E X EC U T I V E M A N A G E M E N T
Doug Heffernan, BE (Hons), ME, PhD, FIPENZ (Chief Executive) Ken Bugden, CA (Chief Financial Officer)
SOLICITORS
Chapman Tripp Kensington Swan
John Foote, BSc, BE (Civil) (General Manager Generation) James Moulder, BA, BCA (General Manager Sales)
BANKERS
Greg Raasch, BSc, MSc, PE (Prof Engineer)
ANZ National Bank
(General Manager Geothermal) Neil Williams, BA (Group Strategist) COMPANY SECRETARY
Tony Nagel, LLB, MComLaw (Hons)
ASB Bank Citibank
INTERIM REPORT 31 DECEMBER 2006 MIGHT Y RIVER POWER LIMITED