Trustpower expects A$20M NPAT uplift from Aussie wind farm completion

Friday 16th May 2014

Trustpower is expecting an after-tax uplift in earnings of A$19.9 million within two years from stage two of its South Australian Snowtown wind project.

In slides for an investor briefing in Sydney posted to the NZX, 51.1 percent Infratil-owned Trustpower says it is projecting a contribution of A$14.7 million to net profit after tax in the 2015 financial year and A$19.9 million in the 2016 year.

In earnings per share terms, the second stage of Snowtown is expected to contribute 5.2 cps and 7.4 cps in those two years respectively. A further A$50 million in capital expenditure will be required in the 2015 year, but the A$439 million project will be complete in the 2016 year.

Tauranga-based Trustpower, whose earnings were hurt in the last financial year when income in Australian dollars was converted to New Zealand dollars, is optimistic the Aussie-kiwi cross rate will drop from above 90 Australian cents at present to around 85 cents in two years' time.

Total capex for the Trustpower group, in Australia and New Zealand, is expected to be around $85 million, with the difference between Snowtown and other costs made up by investment in IT systems and stay in business capital equipment maintenance and upgrades.

The company also hopes to extract earnings before interest, tax, depreciation, amortisation and changes in the fair value of financial instruments of between $10 million and $15 million from its customer growth strategy.

Trustpower undertook a rebranding in the last financial year to better market its bundled offering, which now includes natural gas, LPG and telecommunications services.

According to the presentation, research results suggest Trustpower is the most liked by New Zealanders of all the electricity brands, and that the company has continued to maintain electricity tariff levels that are higher than the rest of the market, before discounts, while suffering less customer churn than its competitors.

The slides also include discussion of the company's Canterbury Plains irrigation plans, the first stage of which has been completed to allow water to be pumped to between 8,000 and 10,000 hectares of land, but without a guaranteed security of supply as investment in water storage at Lake Coleridge has yet to occur.

The second stage of the project would see irrigation for up to 40,000 hectares, rising to 120,000 hectares in stage 3 through "enhanced release of storage capacity from Coleridge", and could be augmented with 45 Megawatts of installed hydro-electric generation capacity.

Trustpower last week declared a 6.7 percent fall in net profit after tax of $115.1 million in the year to March 31, 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.

That was partly because of weak wholesale electricity prices in an over-supplied New Zealand market, with today's slides showing starkly how a combination of warm winter weather and more energy efficient consumers are having an impact on consumption patterns.

Domestic consumption volumes from April to March 2014 were lower than any previous year in the last decade, at around 6,700 kilowatt hours, and average over that period of 6,900Kwh.

Nonetheless, Trustpower continues to earn a higher return on adjusted capital, at around 12 percent, than any of its primary competitors. The weakest ROC, as calculated by Trustpower, comes from Genesis Energy, at about 5 percent, with Meridian Energy next weakest, followed by Contact Energy at close to 8 percent and MightyRiverPower's return volatile in the last three years, but returning around 11 percent on capital in the 2013 financial year.

Trustpower shares rose 5 cents to $7 in trading on the NZX today and are 6.7 percent lower than they were a year ago. The board has been buying back shares on-market at $6.89 a share and will seek an extension to the buyback scheme for another three years.

BusinessDesk.co.nz

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