$34.4 million profit for energy producer

2 October 2008
$34.4 million profit for energy producer

Energy producer Solid Energy New Zealand Ltd has reported an after-tax profit of $34.4 million (2007: $96.4 million) for the year ended 30 June 2008, well below last year’s record result but significantly above earlier expectations and boosted at year end by several export coal shipments at record prices.

Post balance date the company declared a dividend of $34.375 million which it will pay to its shareholder, the Government, on 31 October. The previous dividend paid by the company was $20 million in 2006.

Solid Energy Chairman, John Palmer, says that while the year was challenging for the business, with coal production and revenue down, the result is above expectations given the difficulties experienced early in the year. The 2007 record profit had been boosted by significant one-offs, including the sale of a 49% stake in Spring Creek Mine to Cargill.

Coal exports in the year were down to 1.9 million tonnes (2007: 2.2 mt) and New Zealand coal sales were 2.5 mt (2007: 2.6 mt). An additional 0.1 million tonnes, the company’s 51% share of Spring Creek Mine sales , lifted total coal sales for the year to 4.5 mt (2007: 4.8 mt). Revenue for the year was $552.3 million, down slightly on last year ($556.5 million).

John Palmer comments: “There was a huge contrast in the results from the two halves of the year. In the first half of the year we reported a small loss of $2.7 million, the result of ongoing production problems at Stockton export mine, industrial action and reduced demand from Huntly Power Station. By contrast, in the second half we increased production and productivity and achieved record export price settlements for all coal types - up to US$300/tonne for hard coking coal - a substantial increase on last year’s international prices.

“Across-the-board cost increases started to impact on operations in the second half of the year, but the increased export revenue offset most of this impact. There continues to be increased cost pressure in a number of areas of the business which will flow through into the 2009 year. The challenge is to make the most of the record high export prices and to maximise revenue while controlling cost escalation. The company has a sound financial base which will allow us to grow the business significantly in the medium term.”

Chief Executive Officer, Dr Don Elder, adds: “Solid Energy is one of New Zealand’s two largest producers of primary energy, producing over 114 PJ annually, almost as much energy as New Zealand’s entire electricity consumption. Our combined export and New Zealand revenue will approach $1 billion in the current year, on the back of the record international coal price settlements.

“If we are successful with our current and planned developments we expect our energy production to more than double within a decade, and our revenue to triple. This could include another $500 million from our renewable energy business and major additional contributions from coal seam gas, coal gasification and potentially, longer term, a world-scale, world-class coal-to-liquids plant. In the last year we began developing a new biodiesel production facility at Rolleston, a third wood pellet fuel plant at Taupo to complement our two existing plants at Rolleston and Rotorua, and launched a new business, Switch, providing integrated renewable energy solutions for businesses and homes, including solar water heating. We also produced commercial quantities of gas from the initial wells at our – and New Zealand’s – first coal seam gas field.

“While overall production was down in the year, the coal business improved in the second half of the year. In the South Island, production and stock levels were restored at Stockton Mine, after production shortfalls of 2007; coal extraction resumed at Spring Creek Mine; and we concluded that the high international prices justified supporting a further 12 months production at Terrace Mine, Reefton. We completed the integration of the recently-acquired New Vale Mine, near Gore, into our business. In the North Island, production at Rotowaro Mine was in line with forecast, although down as Genesis Energy used more gas to fuel Huntly Power Station, and we began extending Huntly East Mine to the north, while continuing discussions on a new long-term coal contract with New Zealand Steel.”

Dr Elder concludes: “Together, Solid Energy’s current and future projects will play a major role in supporting energy security and energy affordability in New Zealand. By 2018, if we successfully deliver our planned developments, and if global energy prices continue to rise, we have the opportunity to provide a major part of New Zealand’s energy requirements at costs that could be close to half world average prices for our trade competitors, and improving every year.”

Full Year Summary - Solid Energy audited result for 12 months ended 30 June 2008

Sales Volumes
Tonnes of coal sold:
Exports
Spring Creek Mining Company (51%)
New Zealand 2007
Tonnes
4.8 million
2.2 million
-
2.6 million 2008
Tonnes
4.5 million
1.9 million
0.1 million
2.5 million

Profitability
Revenue
Operating surplus before write-downs and tax
Earnings before interest and tax
Surplus after taxation

$556.5 million
$140.5 million
$152.2 million
$96.4 million

$552.3 million
$41.7 million
$55.6 million
$34.4 million

Dividend paid to shareholder
Return on shareholder’s funds
Return on average assets
$0
33.5%
19.3%
$0
9.7%
5.7%
Note: The 2007 figures have been restated to conform with NZ IFRS

ensd

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