Trustpower warns of 2019 dry-year risk, declares special dividend

Monday 5th November 2018

Trustpower says a dry year in 2019 is a “real possibility” and warns that some retailers may not be prepared for it.

It says supply and demand in the electricity market has largely moved into balance and the potential for greater price volatility is not yet reflected in retail prices.

The company, which today announced a 25-cent-a-share special dividend and signalled potential for another next year, says it remains of the view that some retailers’ prices are not sustainable long-term for the risk they are carrying.

It noted the country's current “well-below average” hydro storage, and the high wholesale prices that had resulted from that and reduced production from the Pohokura gas field.

“Retailers who do not manage this risk may face going out of business,” the company said in a presentation for its first-half earnings.

While there is a “credible case” for significant increases in long-term electricity demand, Trustpower says considerable uncertainty remains as to how that demand will be met.

“Trustpower is unlikely to invest in a significant new generation build in the near term but is positioning itself for future development.”

Major generators have been holding off new developments amid flat demand and rising domestic solar installations. Rapidly developing wind technology, and falling costs, have also prompted revisions to some existing consented wind developments, which are now less economic.

Trustpower runs 27 generation schemes, is the country’s fifth-largest power retailer and its fourth-largest fixed-line internet services provider. In 2016 its wind interests were split off into Tilt Renewables, which last month said it is planning a 100 MW wind development at its Waverley site on the southern Taranaki coast, with output contracted to Genesis Energy.

Trustpower earlier this year sold its remaining Australian hydro generation assets to Meridian Energy for A$168 million as part of a strategy to focus on its New Zealand generation and retailing operation.

Today it said that asset sale, and a broader review of its debt levels, will enable the payment of the unimputed special dividend on Dec. 7. The company will also pay a 17 cent fully-imputed half-year dividend on the same date.

After that payment, Trustpower expects its debt to operating earnings ratio, based on its current earnings guidance, to be between 2.3 and 2.5 times by year-end.

“Trustpower will further review its debt levels, including the tenor of that debt, as at 31 March 2019 and may consider a further special dividend,” chair Paul Ridley–Smith said.

Trustpower today reported an 18 percent decline in net profit from continuing operations to $64.9 million for the six months through September.

Operating earnings – earnings before interest, tax, depreciation, amortisation and changes in financial instruments - fell to $129.6 million – 15 percent less than a year earlier when generation and wholesale prices were unusually high.

The company previously reported that generation volumes in the period fell 12 percent from the year before to 70 GWh, six percent higher than the long-run average.

The firm, which earlier this year absorbed the King Country Energy retail business, has also just acquired the commercial customer book of Opunake Hydro.

Ridley-Smith said the first-half result reflected the strength of the firm’s bundled power, gas and telecommunications offering, sound management of its generation fleet, and its determination to deliver long-term sustainable value to investors.

The firm still has capacity to grow and is “advancing plans to add more to the bundle proposition as well as making some strategic and targeted investments to continue to digitise the business and improve customer experience,” he said.

(BusinessDesk)

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