Geothermal Powers Mighty River Earnings Up 22%

Geothermal Powers Mighty River Earnings Up 22%

Mighty River Power today announced earnings (EBITDAF) of $233.6 million for the six months to 31 December 2010, up 22% on the prior period - driven by increased generation, primarily from additional geothermal capacity.

Mighty River Power Chair, Joan Withers, said the result reflected the value of the $1 billion investment over the past five years in new geothermal plant, which has broadened the Company's domestic generation portfolio with hydro now only 63% of total production.

"We've really seen the contribution from the newly-commissioned 140MW Nga Awa Purua joint venture plant show through in these results - a 69% increase in our geothermal generation on the same period last year, with geothermal now over 30% of our total generation. This was the main driver of the lift in energy margin and EBITDAF," Mrs Withers said.

Financial results

NPAT (net profit after tax) was up 15% at $85.2 million. After-tax profit was impacted by higher interest expenses (up $19.8 million to $34.4 million) due to lower capitalised interest and higher debt levels
following last year's special dividend payment and the capital investment programme undertaken in recent years, and higher depreciation charges (up $10 million) relating to the higher valuation of generation assets at 30 June 2010. Underlying earnings at $88.7 million, up 4%, were not materially different from NPAT. Adjustments relate to unfavourable pre-tax fair value movements in derivatives (both domestic and international) of $4.0 million and after-tax gas exploration impairments of $2.5 million.

Dividend and revised forecast

The Company has announced an interim dividend of $64.7 million, up 15% from last year. This is consistent with the dividend policy targeting a 75% payout ratio and will be paid in March 2011. Based on a strong half year and positive outlook, Mrs Withers said the Board has revised the FY2011 forecast EBITDAF: "The Company is increasing its EBITDAF guidance from $391 million to $420-435 million, subject to any unforeseen market or hydrology conditions."

Performance and operations

Mighty River Power Chief Executive, Doug Heffernan, said the six months to 31 December 2010 highlighted the considerable investment the Company has made over the past decade in base-load geothermal capacity and the optimisation of the gas-fired Southdown facility.

"The increased total capacity and balance of our portfolio enabled an 18% lift in generation volumes to 3,504GWh. This cushioned the impact of weather extremes - ranging from drought to some of the highest inflows in the Waikato. Despite the challenges this created for our operations on the Waikato River, overall hydro generation was up 6% from 2,075GWh in the prior period to 2,209GWh.

Mr Heffernan said the Company's retail businesses, Mercury Energy, BOSCO Connect and Tiny Mighty Power, held market share in a highly competitive environment, and grew sales in the South Island by 49%, while maintaining a focus on managing credit risk.

Customer numbers at the end of the half year were 402,000, an increase of 2,000 on the prior comparable period but below the peak of 412,000 at 30 June 2010.

"We had increased our customer numbers over the past financial year at a faster rate and to a higher level than planned, and remain comfortable with a market share around 20%, with a good South Island customer base in what continues to be an intensely-competitive electricity market." He said the 15-year Virtual Asset Swap (VAS) with Meridian Energy, which took effect on 1 January 2011, would provide an energy hedge to mitigate risks associated with supplying customers in the South Island.

International and domestic development

Mr Heffernan said Mighty River Power had continued to advance international and domestic generation development options.

"We have made good progress in the period on our international geothermal investment programme in partnership with GeoGlobal Energy (GGE) in the US and Chile, and its extension into Germany. In total, GGE now has a development pipeline that involves eight different geothermal reservoirs reflecting the good growth opportunities for international geothermal development."

He said Mighty River Power's geothermal competencies and experience and New Zealand's institutional capability in geothermal were "highly-regarded and globally rare" in what is a niche renewable energy
field with significant growth potential. In New Zealand, Mr Heffernan said the Company was working with its partners the Tauhara North No.2 Trust on the plans to build a geothermal power station on the
Ngatamariki geothermal field, which was consented in FY2010.

"We are now working through the commercial considerations for the project, including with equipment suppliers, and will be making further announcements with our joint venture partners as this work evolves. The earliest this project will come to market is late 2013 with the actual date governed by these commercial negotiations."

To view the unaudited consolidated financial statements of Mighty River Power Limited for the six months to 31 December 2010 please click here: https://www.mightyriver.co.nz/content/2633/Mighty%20River%20Power%20Inte
rim%20Report%202011.pdf

Highlights

* $233.6m EBITDAF, a 22% increase

* NPAT up 15% to $85.2m. Underlying earnings of $88.7m, up 4%

* US$200m (NZ$260m) debt raised in US private placement, extending average maturity

* 3,504GWh total generation up 18%, with 69% increase in contribution from geothermal

* Geothermal 31% of generation, an increase of more than 400% on the same period in 2007

* Entered into 15-year virtual asset swap, providing South Island energy hedge

* Retail expanded into new geographies; 49% growth in South Island sales

* International geothermal investment in eight geothermal reservoirs across three countries

* $64.7m interim dividend announced, a 15% increase on last year

* FY2011 EBITDAF guidance increased from $391 million to $420-435 million.

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