MRP exceeds prospectus forecasts as Heffernan signs off

Tight cost control and reduced sales to commercial and industrial customers at low prevailing wholesale electricity prices were primary contributors to state-controlled electricity generator and retailer MightyRiverPower [NZX: MRP] turning in operating earnings just one percent ahead of those forecast in its prospectus prior to its partial privatisation in May last year.

Earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments were 1 percent ahead of the prospectus forecast at $504 million in the year to June 30, and 29 percent ahead of the Ebitdaf result for the previous financial year.

On a net profit after tax basis, MRP reported earnings of $212 million, up 84 percent on the previous year and 33 percent ahead of prospectus forecasts, with the year-on-year difference explained largely by $97 million of writedowns on MRP's investments in geothermal operations and prospects in the US and Chile in 2012/13.

The company has upped its final dividend by 0.5 cents per share to 8.3 cps, bringing total distributions for the year to 13.5 cps, 4 percent above prospectus forecast and 13 percent ahead of the dividend declared in the last financial year.  That represents a payout ratio at 72 percent  of free cash flow and 98 percent of net adjusted profit, to put the distribution in line with the company's policy to pay dividends at rate of between 90 percent and 110 percent of net adjusted profit.

Guidance for Ebitdaf earnings the current financial year of between $495 million and $520 million suggests earnings growth will be hard to come by in a market characterised by flat demand and an expectation of "flat to declining residential electricity prices", which MRP has said it won't raise before April next year.

"The resilience from our low cash cost renewables provided the foundation for delivering on our IPO forecasts, but this result required very good decision-making from management to shape our portfolio and capture further business efficiencies," said chair Joan Withers, in the company's statement to the NZX.

Crucial to the improved Ebitdaf result against prospectus forecast was a $20 million permanent reduction in operating expenditure, which helped offset low wholesale electricity prices and reduced total generation  as MRP coped with the lowest inflows to its Waikato River hydro dam catchments since the company was formed in 1998.

"Additional baseload electricity generation from the new Ngatamariki (geothermal) station, which took geothermal production to 42 percent of the company's total, along with a conscious decision to reduce commercial customer sales commitments, provided added flexibility for the business in the use of limited hydro inflows," said founding chief executive Doug Heffernan, presenting his last financial results before handing the reins on Sept. 1 to his internally appointed replacement, Fraser Whineray.

The pressure on the company's operating performance caused by low hydro inflows and competitive price pressure saw gross margin on energy sales of $692 million some $32 million lower than forecast in the prospectus, with total electricity sales 408 Gigawatt hours lower than prospectus forecast and total generation 765GWh lower than the previous year.

Net cash provided from operating activities at $317 million was also down on the prospectus forecast of $328 million, although within the guidance range given at last year's annual meeting.

However, net cash was $31 million higher than the previous year, thanks to the availability of power from Ngatamariki, and lower than forecast reinvestment capital expenditure.  The company also pulled back capital expenditure on international geothermal operations, which totalled just $7 million, compared with the prospectus forecast of $96 million for the year just ended.  However, capex will be above average in the current year, at an estimated $145 million, partly because new geothermal steam wells are needed two to three years earlier than anticipated owing to existing wells not feeding sufficient energy to run Ngatamariki at full capacity.

The MRP share price rose 0.6 percent to $2.39 in early NZX trading this morning.

(BusinessDesk)