interim report 2002

MIGHTY RIVER POWER INTERIM REPORT 2001

CONTENTSFrom the Chairman and Chief Executive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Consolidated Statement of Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Consolidated Statement of Movements in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Notes to the Consolidated Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

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MMIIGGHHTTYY RRIIVVEERR PPOOWWEERR LLIIMMIITTEEDDII NN TT EE RR II MM RR EE PP OO RR TT 22 00 00 11

Mighty River Power’s financial performance for the six months ended 31 December 2001

reflected the underlying volatility of New Zealand’s hydrologically dependent electricity

market. Measured in terms of net profit after tax and in return on shareholders’ funds, the

company had a disappointing first half-year. However, performance across a range of other

indicators was sound, and in some areas of the business we achieved outstanding results.

From July to December 2001, we experienced across our catchments one of the most volatile

climatic periods over the last 100 years, with the very dry spell through to October being

followed by far greater than average rainfall for November and December. Hydro production

targets based on average-year rainfall volumes were missed as catchment inflows were down

22 percent on the long-term average and by more than 27 percent in the critical June-August

period. This, significantly more than anything else, was the primary determinant of our

commercial performance. In a winter which experienced one of the lowest rainfall periods

across the country in the last seventy years, it was inevitable that our heavy dependence on

catchment hydrology would be reflected in our financial performance.

F I N A N C I A L

Hydro generation production at 1770GWh was down 16.4 percent compared to the same period

the previous year. Operating surplus before interest, non-recurring items and tax was $25.8

million, 54.5 percent below last half-year’s result. Overall net profit after tax for the six

months to December 2001 was $14.0 million ($30.4 million last year) and this included $7.6

million of non-recurring items. Operating cashflow of $20.0 million ($57.9 million for the six

months to December 2000) reflected the reduction in profit.

The equity/total assets ratio improved from 44.2 percent at 30 June 2001 to 48.3 percent at 31

December 2001 with the retention of funds in the company and an improved debtors’ position.

F R O M T H E C H A I R M A N A N D C H I E F E X E C U T I V E

Doug HeffernanRob Challinor

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Consistent with the Statement of Corporate Intent, the company will continue to strengthen its

gearing to bring it closer to that of its industry competitors and no interim dividend will be paid.

During the period, Standard & Poor’s confirmed Mighty River Power’s long-term credit rating

at BBB, short-term A-2, highlighted high gearing levels and debt reduction as priorities for

improving the company’s rating and noted that the company had strategies to further improve

its financial strength and performance.

The company established an additional two to three year revolving advance facility with its

bankers to repay $197 million of Electricity Corporation of New Zealand (ECNZ) bonds

allocated to Mighty River Power on the split-up of ECNZ in 1999. The attractive terms offered

by lenders for short-term funding indicated a positive market rating of Mighty River Power’s

underlying commercial strength.

Mighty River Power’s $200 million commercial paper programme continues to attract very

competitive interest rates and strong interest from financiers.

S TA K E H O L D E R S

The views of stakeholders provide an important gauge to measure our performance across a

range of non-financial indicators that are important to the communities in which we operate

and the customers we serve. Operationally, a primary focus was our Taupo/Waikato resource

consent application which is set for hearing towards mid-2002.

A new initiative was the publication of our first sustainability report, An Intricate Balance,

which describes our commitment to the concepts of sustainable development. Ensuring that

our actions benefit our communities and the environment, through the efficient use of the

assets and skills that we have, requires us to consider carefully every significant aspect of our

business and all of the important decisions we make. Our sustainability report outlines the

company’s commitment to measure its performance across the full range of social,

environmental and economic indicators.

We continue to strengthen our relationships with iwi and hapu throughout the places where our

core resource uses occur. Our shared values - with Ngati Tuwharetoa, Ngati Tahu-Ngati Whaoa,

Ngati Raukawa, Waikato and other tangata whenua - to protect and nurture the natural

resources that we manage, is the basis for the strong forward-looking arrangements and

understandings we have with kaitiaki throughout Lake Taupo and Waikato River catchments.

We acknowledge and respect the matters that are important to them. There is an understanding

that the dams and powerhouses of the Waikato hydro system are critical to the economic and

social wealth of New Zealand’s homes and businesses. Our discussions with tangata whenua

help us to understand iwi priorities for protecting the environment and for safeguarding places

that are of special significance to them.

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R E TA I L

We continued to build our reputation for leadership in the retail electricity industry through

our close attention to customer service. A major initiative during the very dry winter period

was aimed at directly rewarding individual customers for reducing electricity consumption

when supply was threatened.

Mighty River Power’s premier retail brand, Mercury Energy, was the only retailer in the

country to introduce a direct bill credit scheme for customers who conserved energy.

Combined with promotion of energy-saving measures, the Beat-Your-Bill campaign delivered

significant power savings with some two-thirds of Mercury Energy customers cutting

consumption. The campaign also demonstrated that innovative electricity retailers can

manage some of the commercial risk of providing fixed prices to customers even when hydro

lake storage levels are as low as they were last winter.

Early in February this year, we announced details of an exchange of customers with TrustPower

which saw both organisations improving their competitive ability in areas where there was

previously a lesser level of effective competition. TrustPower will take over the supply of

electricity to former First Electric customers in Christchurch and Wellington, improving its

competitiveness in both cities. Mercury Energy will take over the supply of electricity to

former TrustPower customers in the Northland, Auckland and Thames Valley regions. Mercury

Energy is now the premier retailer in the top half of the North Island, with many of its

residential customers also close to where Mighty River Power’s generation assets are located.

Mercury Energy also concluded arrangements with Wanganui Gas to offer gas to mass-market

customers in the Auckland area, and expects to announce further significant benefits for its

retail customers in the second half of the year.

Mighty River Power continues to provide fixed price contracts to industrial and commercial

customers throughout New Zealand.

G E O T H E R M A L

With our partners, Tauhara North No.2 Trust, we have lifted the performance of the modern

and highly efficient geothermal plant we operate with them at Rotokawa, near Taupo, and agreed

to investigate further development options for the steam-field. As New Zealand’s need for

renewable energy increases, we consider geothermal-based generation represents the best

available all-round option for the country’s next increment of additional generation capacity.

Harnessing New Zealand’s geothermal resource sustainably, through working closely with local

resource owners, has given us unique positioning in this industry. We also manage the

geothermal plant owned by the Tuaropaki Power Company at Mokai, north of Taupo and are

working closely with the company to optimise the long-term operational efficiency of the plant.

5


Rob Challinor

Chairman

Doug Heffernan

Chief Executive

C O M M U N I T Y S U P P O R T

Our strong support for New Zealand Rowing is one of the company’s principal sponsorships.

The high performance Mighty River Power New Zealand Rowing Academy at Lake Karapiro

provides rowing athletes with a great opportunity to step up to levels of competitiveness not

otherwise achievable. We particularly congratulate the silver medal successes of the elite

women’s double and quadruple sculls and coxless four crews and their coach at last year’s

Rowing World Championships.

Increasingly, we are becoming involved in a range of activities throughout Auckland, Waikato

and Taupo – Christmas in the Park, Starship Children’s Hospital, Barnardos, Auckland City

Mission, Project K, Books in Homes, Stewart Brain Injury Trust, Salvation Army, National

Wetland Trust, Balloonz over Waikato, Taupo International Fishing Competition, Taupo Arts

Festival and many other worthwhile community initiatives.

A H E A D

Looking ahead, there are already some indications that the second half-year will produce

higher generation production as hydrology settles into a more standard pattern. However,

recent experience last winter shows the uncertainty of forecasting outcomes that are

dependent on assumed climate conditions.

O U R P E O P L E

We acknowledge and thank all of our people, and their families, for their tremendous effort,

commitment and enthusiasm as we dealt with our challenges. Without their desire to work well

with and support each other, and to keep looking for ways to improve performance, we would

not have been able to achieve our results for the period.

In November, Tania Simpson was appointed to the board as a director, joining Wayne Walden

who was appointed earlier in the year. The board of directors is confident that the company

has the leadership, technical skills and organisational ability to achieve very satisfactory

outcomes in the future across all its activities. Stretch objectives support Mighty River Power’s

commitment to superior economic, environmental and community performance. As we noted

in our 2001 annual report, conducting our business efficiently, with integrity and

transparency, and with positive impacts on people’s lives, represents an intricate and complex

balance that we are committed to achieve.

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INTERIM FINANCIAL STATEMENTSConsolidated Statement of Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Consolidated Statement of Movements in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Notes to the Consolidated Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13


I N T E R I M F I N A N C I A L S T A T E M E N T SF o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1

8


C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P E R F O R M A N C EF o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1

Year ended Six months ended Six months ended30 June 2001 31 December 2001 31 December 2000

Audited Unaudited Unaudited$000 Note $000 $000

839,894 Sales 447,230 403,350

(205,485) Less transmission, line and metering charges (99,950) (107,690)

4,245 Interest revenue 1,822 1,731

8,076 Other revenue 3,070 3,783

646,730 Total Operating Revenue 352,172 301,174

103,946 Operating surplus before interest and non-recurring items 25,764 56,636

4,245 Interest revenue 1,822 1,731

(39,144) Interest expense (17,897) (20,248)

7,660 Non-recurring items 2 7,576 4,673

76,707 Surplus Before Taxation 17,265 42,792

17,647 Taxation expense 3,228 12,374

59,060 Net Surplus After Taxation 14,037 30,418

The notes set out on pages 13 to 15 form part of, and should be read in conjunction with, these Interim Financial Statements.

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C O N S O L I D A T E D S T A T E M E N T O F M O V E M E N T S I N E Q U I T YF o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1


Audited Unaudited Unaudited$000 $000 $000

653,822 Equity at Beginning of the Period 712,882 653,822

59,060 Net surplus after taxation 14,037 30,418

59,060 Total Recognised Revenues and Expenses for the Period 14,037 30,418

712,882 Equity at End of the Period 726,919 684,240


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C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N A s a t 3 1 D e c e m b e r 2 0 0 1



Equity

377,561 Share capital 377,561 377,561

335,321 Reserves 349,358 306,679

712,882 726,919 684,240

Non-Current Liabilities

155,834 Energy contracts 144,593 166,293

1,762 Obligations assumed on acquisition of businesses 881 3,930

329,721 Loans 423,787 256,231

487,317 569,261 426,454

Current Liabilities

161,803 Payables 68,247 91,517

20 Provision for taxation 0 0

13,875 Deferred taxation 18,871 16,252

25,058 Energy contracts – current portion 23,360 29,049

200,146 Loans – current portion 95,509 328,755

12,337 Obligations assumed on acquisition of businesses 3,050 17,155

413,239 209,037 482,728

1,613,438 1,505,217 1,593,422


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C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N ( c o n t i n u e d )

A s a t 3 1 D e c e m b e r 2 0 0 1



Non-Current Assets

1,387,171 Property, plant and equipment 1,370,127 1,407,934

11,000 Investments 11,000 11,000

0 Energy contracts 0 282

9,836 Intangibles 9,275 10,396

5,855 Other non-current assets 4,693 8,167

10,924 Deferred taxation on acquisition of businesses 9,450 12,396

1,424,786 1,404,545 1,450,175

Current Assets

5,400 Cash 6,274 13,711

178,251 Receivables and prepayments 84,080 118,756

3,503 Inventories 3,317 3,573

1,498 Energy contracts – current portion 282 4,362

0 Provision for taxation 6,719 2,845

188,652 100,672 143,247

1,613,438 1,505,217 1,593,422


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C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W SF o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1


Audited Unaudited Unaudited$000 Note $000 $000

Cash Flows from Operating Activities

Cash was provided from (applied to):

589,919 Receipts from customers 439,828 307,389

1,868 Interest received 487 551

(430,333) Payments to suppliers and employees (394,554) (225,725)

(47,955) Interest paid (22,239) (24,056)

(3,177) Taxation paid (3,497) (303)

110,322 Net Cash Inflow from Operating Activities 3 20,025 57,856

Cash Flows from Investing Activities


3,477 Sale of property, plant and equipment 0 0

(13,499) Purchase of property, plant and equipment (8,647) (4,982)

(1,302) Purchase of other non-current assets 0 (1,791)

(11,324) Net Cash Outflow from Investing Activities (8,647) (6,773)

Cash Flows from Financing Activities


0 Loans advanced 0 0

(78,557) Loans repaid (10,504) (22,331)

(20,600) Dividends paid 0 (20,600)

(99,157) Net Cash Outflow from Financing Activities (10,504) (42,931)

(159) Net Increase (Decrease) in Cash Held 874 8,152

5,559 Cash Balance at Beginning of the Period 5,400 5,559

5,400 Cash Balance at End of the Period 6,274 13,711


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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T SF o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1



4,673 Capital receipt on exit of investment 0 4,673

3,101 Insurance proceeds 0 0

3,000 Movement in obligations assumed on acquisition 8,000 0

(3,896) Write down of property, plant and equipment 0 0

650 Sale of computer software 0 0

132 Other (424) 0

7,660 7,576 4,673

1. Statement of Accounting Policies

The interim financial statements presented here are the unaudited consolidated financial statements of

Mighty River Power Limited for the six months ended 31 December 2001.

These interim financial statements have been prepared in accordance with FRS-24 Interim Financial

Statements, and should be read in conjunction with the annual report for the period ended 30 June 2001.

The accounting policies used in the preparation of these interim financial statements are consistent with

those used in the annual financial statements and the previously published interim financial statements.

2. Non-Recurring Items

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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( c o n t i n u e d )

F o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1



59,060 Net Surplus After Taxation 14,037 30,418

Add (less) non-cash items:

50,628 Depreciation 25,807 24,979

(24,052) Amortisation of energy contracts (11,723) (12,748)

1,122 Amortisation of goodwill 561 562

361 Amortisation of other non-current assets 361 1,138

Movement in obligations assumed on acquisition

(10,972) of businesses (10,168) (3,986)

4,990 Foreign exchange (gains) losses on USD loan (67) 3,883

3,896 Write down of property, plant and equipment 0 0

(3,741) Other non-cash items (116) 0

22,232 4,655 13,828

Add (less) movements in working capital:

(54,121) Decrease (increase) in receivables and prepayments 94,171 1,949

(448) Decrease (increase) in inventories 186 (518)

71,017 (Decrease) increase in payables (93,556) 731

8,409 (Decrease) increase in provision for taxation (6,739) 5,544

4,999 (Decrease) increase in deferred taxation 6,470 5,904

29,856 532 13,610

Add (less) items classified as investing activities:

(826) Movement in other non-current assets 801 0

(826) 801 0

110,322 Net Cash Inflow from Operating Activities 20,025 57,856

3. Reconciliation of Net Surplus After Taxation with Net Cash Flows from Operating Activities

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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( c o n t i n u e d )

F o r t h e s i x m o n t h s e n d e d 3 1 D e c e m b e r 2 0 0 1



Capital Commitments

5,212 Commitments for future capital expenditure 17,626 4,651

Operating Lease Commitments

8,013 Commitments under non-cancellable operating leases 7,522 8,623

13,255 25,148 13,274

4. Commitments

5. Contingencies

Mighty River Power Limited has guaranteed payment obligations of $20.0 million pursuant to a letter of credit

provided by a bank in favour of M-Co.

Mighty River Power Limited also has guaranteed payment obligations of US$3.7 million pursuant to a letter of

credit provided by a bank in favour of Ormat Industries Limited.

Mighty River Power Limited has a contingent liability in respect of the Accident Compensation Corporation’s

residual claims levy. The levy is payable annually from May 1999 for up to fifteen years. The Group’s future

liability is a function of the Accident Compensation Corporation’s unfunded liability for past claims and future

payments to employees.

6. Subsequent Events

There have been no events subsequent to balance date that would affect the fair presentation of these interim

financial statements.

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B O A R D O F D I R E C T O R S

Chairman

R.L. Challinor, BCom, FCA, CMA, FCIS

Directors

C.B. Durbin, BCom, LLB (Hons) FAMINZ, A.C.I. Arb. (Deputy Chair)

I.A.N. Fraser, BE (Hons), FIPENZ

D.A.W. McConnell, BE (Hons), MBA

H.R. Webber, MPP, B.Soc.Sci

J.W. Walden

T.J. Simpson, BA

E X E C U T I V E M A N A G E M E N T

Doug Heffernan (Chief Executive)

Colleen Cann (Organisation Development Manager)

John Foote (General Manager, Retail)

Tony Gray (Chief Financial Officer)

Mike Kedian (General Manager, Generation)

Stuart Lush (Generation Development Manager)

William Meek (Pricing Strategy Manager)

David Reeve (Industry Strategy Manager)

Bruce Waters (Legal Counsel and Corporate Affairs)

Steve Woods (Manager, Metrix)

D I R E CTO R Y

R E G I S T E R E D O F F I C E

Level 9, KPMG Legal Building

22 Fanshawe Street

PO Box 90-399, Auckland

Telephone: 09 308 8200

Facsimile: 09 308 8209

Email: [email protected]

www.mightyriverpower.co.nz

MIGHTY RIVER POWER LIMITED INTERIM REPORT 2001

interim report 2002

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