Trustpower looks to Australia to restore earnings momentum

Friday 9th May 2014

Tauranga-based utility Trustpower is looking to its Australian windfarm investments to restore earnings momentum after a sluggish result from its New Zealand electricity assets pulled full year net earnings down by 6.7 percent.

In the year to March 31, the Infratil-controlled company reported net profit after tax of $115.1 million, compared with $123.4 million in the prior year. Earnings before interest, tax, depreciation and amortisation were down 6 percent on the year, at $277.4 million.

Directors declared a partially imputed dividend of 20 cents per share, making a 40 cent per share distribution for the full year, payable on June 13. Trustpower shares were unchanged at $7.02 this afternoon, having risen 7.8 percent in the last year.

Most to blame for the decreased earnings were lower electricity sales by volume, lower wholesale electricity power prices and the impact of the strong New Zealand dollar on Australian earnings when translated back to kiwi dollars.

Despite growing its telecommunications business by 11,000 to a total of 54,000 customers, the acquisition of 14,000 natural gas customers previously owned by Energy Direct, and a growing increase in contributions from Australian wind investments, total revenue for the year at $811.7 million grew only 1 percent.

Operating expenses were 5 percent higher at $534.5 million, driven by higher electricity generation production costs, including higher lines charges for electricity distribution, around $4 million in extra marketing charges caused in part by rebranding, and higher staff costs.

Total employees rose from 481 to 572 over the year, with the cost of employee benefits rising from $35.6 million to $41.0 million.

In spite of gaining an extra 18,000 electricity customers, total electricity sales were slightly lower than the year before, at 3,512 Gigawatt hours, compared with 3,683GWh. That reflected intense competition for bulk commercial or "time of use" customers as competitors "looked to place surplus product at low margins" because of the over-supply of electricity generation plant in New Zealand at present.

While the average spot price to buy wholesale electricity fell from an average $86 to $73 per Megawatt hour between the two years under review, the wholesale electricity selling price fell further, from $83 to $67 per MWh. However, mass market sales to retail customers did increase in the second half of the year and the company says its customer base is churning less than the industry average.

Dry conditions in the North Island saw total hydro-electric production from the company's northern dams fall 21 percent from the previous year, and while wind production was 35GWh higher than the previous year, it was 5 percent below the long term expected average.

In Australia, the Snowtown Stage 1 wind farm in South Australia achieved a record 397GWh of production, 3 percent above the expected long term average, while the Snowtown Stage 2 development is scheduled for completion in September and produced 139GWh of electricity in the period.

The company continues to examine options in Victoria, South Australia and New South Wales on wind generation projects with a total installed capacity of up to 1,390MW, subject to the Australian federal government renewing its subsidy scheme for renewable generation on "supportive" terms.

Also coming on stream is an increase in the company's involvement in Canterbury irrigation projects, with variations to the Rakaia River Water Conservation Order opening the prospect of water for another 40,000 hectares and examination of options to use water from Lake Coleridge to irrigate as much as another 80,000 hectares.

Negotiations for a smart meter rollout to electricity customers is also close to being confirmed.

The company gave no earnings guidance, but is optimistic about the impact of the Snowtown 2 project.

"Despite the current challenging New Zealand electricity environment, which includes intense retail competition, an oversupplied generation market and regulatory uncertainty, the board is confident Trustpower will regain earnings momentum in the 2015 financial year as the Snowtown Stage 2 wind farm is completed," said chairman Bruce Harker.

The company intends to seek permission from shareholders to continue its share buyback scheme for another three years. The scheme allows the purchase of up to five million shares over a three year period and saw 1.1 million shares purchased at an average cost of $6.89 during the year under review.

BusinessDesk.co.nz

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