Interim report 2007
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Transcript of Interim report 2007
INTERIM REPORT 31 DECEMBER 2006M I G H T Y R I V E R P O W E R L I M I T E D
Ground breaking work started in late 2006 on the 90 MW, $275 million Kawerau geothermal power station. It is the largest single geothermal power development in New Zealand in more than 20 years. Geothermal energy will meet a significant proportion of consumer requirements over the next 10 years.
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
BEST CUSTOMER SERVICE F O R T H E T H I R D Y E A R I N A R O W T H E T E A M AT M E R C U R Y E N E R GY H A S W O N T H E C U S T O M E R R E L AT I O N S H I P
M A N A G E M E N T AWA R D F O R B E S T C U S T O M E R S E R V I C E W I T H I N T H E E N E R GY I N D U S T R Y
GEOTHERMAL POWERC O N S T R U C T I O N O F T H E K AW E R AU G E O T H E R M A L P L A N T C O M M E N C E D, T H E L A R G E S T
S I N G L E G E O T H E R M A L D E V E L O P M E N T I N N E W Z E A L A N D I N M O R E T H A N 2 0 Y E A R S
RECORD PRODUCTIONO U T S TA N D I N G P R O D U C T I O N F R O M T H E G E O T H E R M A L P O W E R S TAT I O N S T H E C O M PA N Y
O P E R AT E S , A N D O W N S I N C O N J U N C T I O N W I T H I T S I W I PA R T N E R S
$136.2 MILLIONA S T R O N G O P E R AT I N G S U R P L U S B E F O R E I N T E R E S T,
N O N - R E C U R R I N G I T E M S A N D TA X AT I O N WA S R E C O R D E D
$74.6 MILLIOND U E T O FAV O U R A B L E O P E R AT I N G C O N D I T I O N S , N E T S U R P L U S A F T E R TA X AT I O N
I N C R E A S E D B Y O V E R $ 2 0 M I L L I O N F R O M T H E C O R R E S P O N D I N G P E R I O D
$154.1 MILLIONO P E R AT I N G C A S H F L O W I N C R E A S E D $ 3 2 . 8 M I L L I O N O N
T H E C O R R E S P O N D I N G P E R I O D L A S T Y E A R
HIGHLIGHTS
31 DECEMBER 2006
C
OPERATING SURPLUS BEFORE
INTEREST, NON-RECURRING
ITEMS AND TAXATIONFOR 6 MONTHS TO 31 DECEMBER
( $ M I L L I O N )
2002 2003 2004 2005 2006
79.4
95.3
135.7
106.8
136.2
2002 2003 2004 2005 2006
99.8
51.4
77.3
54.0
74.6
2002 2003 2004 2005 2006
47.4
81.6
123.6121.3
154.1
2002 2003 2004 2005 2006
55.9
62.061.3
76.875.3
2002 2003 2004 2005 2006
36.5
30.1
32.3
17.4
15.5
Net debt + EquityTotal EquityOperating cashflowNet Surplus After taxOperating Surplus before Interest
NET SURPLUS
AFTER TAXATIONFOR 6 MONTHS TO 31 DECEMBER
( $ M I L L I O N )
OPERATING CASH FLOWFOR 6 MONTHS TO 31 DECEMBER
( $ M I L L I O N )
2002 2003 2004 2005 2006
79.4
95.3
135.7
106.8
136.2
2002 2003 2004 2005 2006
99.8
51.4
77.3
54.0
74.6
2002 2003 2004 2005 2006
47.4
81.6
123.6121.3
154.1
2002 2003 2004 2005 2006
55.9
62.061.3
76.875.3
2002 2003 2004 2005 2006
36.5
30.1
32.3
17.4
15.5
Net debt + EquityTotal EquityOperating cashflowNet Surplus After taxOperating Surplus before Interest
2002 2003 2004 2005 2006
79.4
95.3
135.7
106.8
136.2
2002 2003 2004 2005 2006
99.8
51.4
77.3
54.0
74.6
2002 2003 2004 2005 2006
47.4
81.6
123.6121.3
154.1
2002 2003 2004 2005 2006
55.9
62.061.3
76.875.3
2002 2003 2004 2005 2006
36.5
30.1
32.3
17.4
15.5
Net debt + EquityTotal EquityOperating cashflowNet Surplus After taxOperating Surplus before Interest
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 2
TOTAL EQUITY/TOTAL ASSETSAT 31 DECEMBER
( P E R C E N T )
2002 2003 2004 2005 2006
HYDRO
COGENERATION
GEOTHERMAL*
BIOMASS*
* MIGHTY RIVER POWER DOES NOT OWN 100% OF THESE ASSETS AND/OR THE PHYSICAL OUTPUT
1000
1500
500
2000
2500
3000
2002 2003 2004 2005 2006
79.4
95.3
135.7
106.8
136.2
2002 2003 2004 2005 2006
99.8
51.4
77.3
54.0
74.6
2002 2003 2004 2005 2006
47.4
81.6
123.6121.3
154.1
2002 2003 2004 2005 2006
55.9
62.061.3
76.875.3
2002 2003 2004 2005 2006
36.5
30.1
32.3
17.4
15.5
Net debt + EquityTotal EquityOperating cashflowNet Surplus After taxOperating Surplus before Interest
NET DEBT/NET DEBT + EQUITYAT 31 DECEMBER
( P E R C E N T )
2002 2003 2004 2005 2006
79.4
95.3
135.7
106.8
136.2
2002 2003 2004 2005 2006
99.8
51.4
77.3
54.0
74.6
2002 2003 2004 2005 2006
47.4
81.6
123.6121.3
154.1
2002 2003 2004 2005 2006
55.9
62.061.3
76.875.3
2002 2003 2004 2005 2006
36.5
30.1
32.3
17.4
15.5
Net debt + EquityTotal EquityOperating cashflowNet Surplus After taxOperating Surplus before Interest
GENERATION DATA (GWh)FOR 6 MONTHS TO 31 DECEMBER
3MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
H I G H L I G H T S
Favourable operating conditions have assisted Mighty River
Power to record a strong Net Surplus after Taxation of $74.6
million in the period to 31 December 2006, up $20.6 million
on the previous corresponding period.
The advantages of a diversified portfolio have been
highlighted in the period with healthy inflows into the
greater Waikato catchment increasing hydro production
by 18% over the six months. In contrast, production at
Southdown reduced by 59% during the half year with a
consequential reduction in the quantity of gas required,
a saving of $10.6 million. The complementarity of
Southdown and the Waikato hydro system has over the 2005
and 2006 periods illustrated the ability of the Company to
provide a consistent level of total generation output over
a wide range of climatic conditions.
Record geothermal production further contributed
to the pleasing growth in Operating Surplus before Interest
and Taxation from $106.8 million in the first half of the
previous financial year to $136.2 million for the six
months under review.
The company’s geothermal development plans remain
its strategic imperative. With construction now underway
at Kawerau and further major projects in the pipeline
at Rotokawa and Nga Tamariki, substantial growth in
geothermal capability will dominate the company’s
advancement for the foreseeable future.
A significant milestone in the Company’s geothermal
expansion was the commencement of construction on the
Company’s 90MW, $275 million power plant in Kawerau
in late 2006. The Kawerau plant is the largest single
geothermal development in New Zealand in more than 20
years and part of Mighty River Power’s plans to develop
around 400MW of geothermal energy in the next five to
ten years – enough power for around 400,000 homes.
Geothermal expansion has a number of key characteristics
that make it attractive to both the country and Company.
Geothermal energy is renewable, and importantly compared
to other renewables is reliable in that it is unaffected by
climatic conditions, such as whether the wind is blowing,
rain is falling or sun shining. The constant production and
high availability of geothermal power stations has the
potential to help underpin the secure supply of electricity
to New Zealand’s homes and businesses.
O N B E H A L F O F T H E B OA R D A N D
M A N AG E M E N T , W E A R E P L E A S E D TO
R E P O R T O N M I G H T Y R I V E R P OW E R ’ S
P E R FO R M A N C E FO R T H E S I X M O N T H S
TO 3 1 D E C E M B E R , 2 0 0 6 .
Chair and chief executive report
4MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
SIX MONTHS ENDED SIX MONTHS ENDED 31 DECEMBER 2006 31 DECEMBER 2005
1RETAIL 2 WHOLESALE 1RETAIL 2 WHOLESALE
Operating Results
Revenue
Gross Revenue 378.6 155.3 364.1 236.4
Less Transmission and Distribution Costs 154.5 - 136.7 -
Net Revenue 224.1 155.3 227.3 236.4
Costs
Energy Purchases 148.2 12.3 231.8 23.1
Other Direct Costs/ (Income) (17.5) 9.2 17.0 (0.1)
Energy Gross Margin 393.4 133.8 3(21.5) 213.4
Volumes/Pricing
Total Generator Volumes (GWh)4 - 2,695.3 - 2,612.6
Total Fixed Price Variable Volume Sales (GWh)5 2,063.7 - 1,982.1 -
Average Wholesale Electricity Price ($MWh) - 53.9 - 85.0
Average Fixed Price Variable Volume Price ($MWh) 97.2 - 92.1 -
1. Retail includes sales to end user customers of energy and the net impact of electricity financial derivatives (excluding inter-generator financial derivatives).
2. Wholesale includes all generation activities, the sale of energy to the wholesale energy market and the net impact of inter-generator electricity financial derivatives.
3. Retail Energy Gross Margin includes full metering costs incurred by Metrix, some of which are eliminated on consolidation.
4. Generation volumes exclude equity accounted volumes.
5. Does not include the volumes associated with electricity financial derivatives.
The key difference between the 2005 and 2006 Energy Gross Margin was the significant decrease in electricity spot prices
following the very dry conditions in 2005.
The table above shows that lower spot prices decreased the Wholesale Energy Margin to $133.8 million from $213.4 million.
This decrease was offset by retail energy purchase costs decreasing by $83.6 million to $148.2 million in 2006. The offsetting
nature of these movements resulted in an aggregate Energy Margin increase of $35.3 million.
ENERGY GROSS MARGIN ANALYSIS
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 5
An additional characteristic is the location of New Zealand’s
main geothermal resources in the central North Island. This
places the existing and future power stations close to both
the key growing load centre of the upper North Island and
the main transmission grid.
Only relatively minor modifications to the transmission grid
in the local Taupo region will be required to accommodate
our geothermal developments. A key factor is that
geothermal power is a very efficient user of transmission
capacity since extra capacity is not required to deal with
the variable and peaky production that is a feature of wind
and hydro generation.
A key theme for the Company is the importance we place
on diversification – across fuels, across geographical
regions, and across new technologies. This focus on building
capability has seen capital expenditure of $64.1 million
for the six month period. This follows the $148.4 million
invested in new energy developments and existing assets
in the full year to 30 June 2006.
In early 2007 Mighty River Power is also set to complete the
installation of a new 45MW gas-fired turbine generator at its
Southdown plant in Penrose. In addition to the construction
activity at Kawerau and Southdown, Mighty River Power
continues to investigate a large number of other potential
generation projects across a range of complementary fuel
sources including geothermal, wind, small hydro and gas.
Excellence in service is the ongoing commitment we make to
our retail customers – and is reflected across our products
and services, our initiatives to promote in-home energy
efficiency and billing innovations.
During the period, growth in customer numbers has been
maintained, rising from 354,000 to 371,000. However lower
wholesale prices led to reduced Operating Revenues of
$397.3 million compared to $478.5 million in the previous
corresponding period. Operating cash flow rose significantly
to $154.1 million, up $32.8 million from the 2005 half-
year, due primarily to the improved hydro and geothermal
production, lower gas costs and retail growth.
G E N E R AT I O N – O P E R AT I O N S
Total generation volumes rose to 3,113 GWh, compared with
2,989 GWh for the six months to December 2005. Increased
rainfall during mid 2006 lifted hydro production to 2,329
GWh from 1,981 GWh in the previous corresponding period.
The outstanding performance of the geothermal plants
the Company operates, and owns with its iwi partners,
continued in the six months to 31 December with production
records set for a second year running at both Mokai (419.3
GWh) and Rotokawa (146.2 GWh). Availability levels of 97.6%
(Mokai) and 97.2% (Rotokawa) achieved over the period are
well above international norms of 95%.
With good hydrological conditions over winter, there
was a reduced requirement to operate Southdown,
compared to the first half of 2005 in which Mighty River
Power experienced the second lowest hydro inflows in
the Company’s history. Total generation at Southdown
decreased from 464 GWh in the previous corresponding
period to 188.2 GWh in the six months under review. The
gas supply arrangements in place at Southdown provide
Mighty River Power with flexibility to run the plant when
the wholesale price is high enough, extra capacity is needed
to meet national peak demand, or other market conditions
warrant its operations.
G E N E R AT I O N – D E V E L O P M E N T
In addition to commencing construction at Kawerau, Mighty
River Power is making good progress in its plans to develop
further geothermal capability at Rotokawa with its joint
venture partner Tauhara North No. 2 Trust. The partners
plan to apply for resource consents for an 80MW plant at
Rotokawa and have geothermal rights at Nga Tamariki, an
undeveloped field, located approximately 10 kilometres
north of Rotokawa.
New Zealand’s wind resource is another form of renewable
energy which has an important role to play in our country’s
future. Mighty River Power is actively building its wind
portfolio, with monitoring equipment established on six
sites throughout the North Island and upper-South Island.
6MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
Thermal energy will continue to play an important role in
maintaining security of supply in a renewable dominated
supply system. The installation of the new 45MW gas-fired
turbine generator, will lift Southdown’s total generation
capacity to 170MW.
Meanwhile, Mighty River Power continues to expand its gas
exploration interests. A range of permits have been secured
in addition to gas exploration previously announced with
joint venture partner Swift Energy (NZ) Limited.
C U S T O M E R S
In a highly competitive retail environment, Mercury
Energy’s customer base rose from 330,000 electricity and
24,000 gas customers to 344,000 and 27,000 respectively
over the reporting period – representing supply to some
800,000 New Zealanders.
This result is a reflection of the business’s ongoing
commitment to customer service, including the launch
of price plan rebate and new channel options.
Mercury Energy’s industry-leading service was recognised
in September when the team won the highly coveted
Customer Relationship Management award, for best
customer service in the energy retail industry – the third
year Mercury has won the award. The Company also won the
silver award for best New Zealand contact centre with more
than 50 operators.
Metrix, our metering business, maintained strong growth
in new connections and continued its investment in modern
metering technologies. The results of the deployment
of “Smart Metering” solutions utilising modern two-way
communications technology will be available by year end.
The scale of improvements in retail business productivity
and the customer service benefits will be assessed prior
to determining the preferred pathway for large scale
deployment of “Smart Retailing” solutions.
L O O K I N G A H E A D
Mighty River Power’s service promise extends not just to
the 371,000 customers we supply today, but the future
generations we are expanding to support in the future.
Our everyday business is a balancing act, managing today’s
assets to build tomorrow’s energy solution, utilising existing
fuel sources while preserving the environment and essential
natural resources.
We are confident that as a company, Mighty River Power has
good momentum. Through geothermal developments such
as Kawerau, the expansion at Southdown and the ongoing
wind and gas exploration projects, Mighty River Power is
playing its part in providing a sustainable energy future for
New Zealand.
These developments and those of others in the industry have
bought time. The fuel supply outlook for the next ten years
looks secure. However beyond this, the industry and country
needs to take an innovative approach to the energy question,
to challenge and move beyond current thinking. Our
partners in the energy industry also need to be building for
the future – among the requirements is the need for better
transmission networks to carry the power to where
it is needed.
It is an exciting and positive time. Thank you to our staff,
commercial partners and other stakeholders, whose efforts
have allowed the Company to continue to develop and grow.
D O U G H E F F E R N A N
C H I E F E X E C U T I V E
C A R O L E D U R B I N
C H A I R
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 7
We are confident that as a company, Mighty River Power
is building good momentum. Through developments such
as Kawerau, the expansion at Southdown and the ongoing
wind and gas exploration projects, Mighty River Power is
playing its part in providing a sustainable energy future
for New Zealand.
These developments and those of others in the industry
have bought time. The fuel supply outlook through to 2014
looks secure. However beyond this, the industry and country
needs to take an innovative approach to the energy question,
to challenge and move beyond current thinking. Our
partners in the energy industry also need to be building for
the future – among the requirements is the need for better
transmission networks to carry the power to where
it is needed.
It is an exciting and positive time. Thanks to our staff,
commercial partners and other stakeholders, whose efforts
have allowed the Company to continue to develop and grow.
Interim Financial Statements FO 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 6
C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P E R FO R M A N C E 9
C O N S O L I D AT E D S TAT E M E N T O F M O V E M E N T S I N E Q U I T Y 1 0
C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N 1 1
C O N S O L I D AT E D S TAT E M E N T O F C A S H F LO W S 1 3
N OT E S TO T H E C O N S O L I D AT E D I N T E R I M F I N A N C I A L S TAT E M E N T S 1 4
8
Consolidated Statement of Financial Performance FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
YEAR ENDED SIX MONTHS SIX MONTHS 30 JUNE ENDED ENDED 2006 31 DECEMBER 31 DECEMBER 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 NOTE $000 $000
1,255,385 Sales 533,849 600,510
(257,730) Less line and metering charges (145,447) (128,796)
2,501 Interest income 3,435 1,003
11,781 Other revenue 5,481 5,814
1,011,937 Total Operating Revenue 397,318 478,531
220,463 Operating surplus before interest and non-recurring items 136,214 106,772
2,501 Interest income 3,435 1,003
(37,147) Interest expense (19,342) (18,092)
(17,532) Non-recurring items 2 0 0
4,156 Share of associates net surplus 1,820 1,739
172,441 Surplus Before Taxation 122,127 91,422
(71,669) Taxation expense 3 (47,563) (37,374)
100,772 Net Surplus After Taxation 74,564 54,048
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
9MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
YEAR ENDED SIX MONTHS SIX MONTHS 30 JUNE ENDED ENDED 2006 31 DECEMBER 31 DECEMBER 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
2,033,315 Equity at Beginning of the Period 2,097,687 2,033,315
100,772 Net surplus after taxation 74,564 54,048
100,772 Total Recognised Revenues and Expenses for the Period 74,564 54,048
Distributions to owners:
(36,400) Final dividend paid for 2005 0 (36,400)
0 Final dividend paid for 2006 (50,400) 0
2,097,687 Equity at End of the Period 2,121,851 2,050,963
Consolidated Statement of Movements In Equity FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 1 0
Consolidated Statement of Financial Position AS AT 31 DECEMBER 2006
30 JUNE 31 DECEMBER 31 DECEMBER 2006 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
Equity
377,561 Share capital 377,561 377,561
1,720,126 Reserves 1,744,290 1,673,402
2,097,687 Total Equity 2,121,851 2,050,963
Non-current Liabilities
1,204 Energy contracts 1,204 1,204
28,751 Deferred taxation 43,526 27,845
435,591 Loans 532,500 438,002
465,546 Total Non-current Liabilities 577,230 467,051
Current Liabilities
144,433 Payables, provisions and accruals 103,346 139,966
753 Provision for taxation 14,995 13,774
145,186 Total Current Liabilities 118,341 153,740
2,708,419 Total Equity and Liabilities 2,817,422 2,671,754
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
1 1MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
Consolidated Statement of Financial Position (continued) AS AT 31 DECEMBER 2006
30 JUNE 31 DECEMBER 31 DECEMBER 2006 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
Non-current Assets
2,478,979 Property, plant and equipment 2,498,323 2,447,603
31,308 Investment and advances to associate 31,193 32,891
9,134 Other non-current assets 8,604 10,150
2,519,421 Total Non-current Assets 2,538,120 2,490,644
Current Assets
2,364 Cash 139,807 6,775
2,000 Short term deposits 3,000 5,000
180,225 Receivables and prepayments 131,794 164,937
4,409 Inventories 4,721 4,398
188,998 Total Current Assets 279,322 181,110
2,708,419 Total Assets 2,817,442 2,671,754
The Board of Directors authorised the issue of the interim financial statements on 22 February 2007.
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 1 2
Consolidated Statement of Cash Flows FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
YEAR ENDED SIX MONTHS SIX MONTHS 30 JUNE ENDED ENDED 2006 31 DECEMBER 31 DECEMBER 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 NOTE $000 $000
Cash Flows from Operating Activities
CASH WAS PROVIDED FROM (APPLIED TO):
984,058 Receipts from customers 440,549 474,508
1,506 Interest received 2,997 414
(691,943) Payments to suppliers and employees (253,871) (319,727)
(34,847) Interest paid (17,057) (17,279)
(63,079) Taxation paid (18,545) (16,666)
195,695 Net Cash Flow from Operating Activities 4 154,073 121,250
Cash Flows from Investing Activities
CASH WAS PROVIDED FROM (APPLIED TO):
147 Sale of property, plant and equipment 41 30
4,000 Repayment of advances by associates 2,000 0
(148,415) Purchase of property, plant and equipment (64,091) (65,263)
(448) Purchase of other non-current assets (89) 0
75 Disposal of other non-current assets 0 37
(144,641) Net Cash Flow from Investing Activities 4 (62,139) (65,196)
Cash Flows from Financing Activities
CASH WAS PROVIDED FROM (APPLIED TO):
0 Loan advances 96,909 0
(33,703) Loans repaid 0 (31,292)
(36,400) Dividends paid (50,400) (36,400)
(70,103) Net Cash Flow from Financing Activities 46,509 (67,692)
(19,049) Net Increase (Decrease) in Cash Held 138,443 (11,638)
23,413 Cash Balance at Beginning of the Period 4,364 23,413
4,364 Cash Balance at End of the Period 142,807 11,775
CASH BALANCE COMPRISES:
2,364 Cash 139,807 6,775
2,000 Short term deposits 3,000 5,000
4,364 Cash Balance at End of the Period 142,807 11,775
The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.
1 3MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
Notes to the Financial Statements FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
1. S TAT E M E N T O F A C C O U N T I N G P O L I C I E S
The interim financial statements presented here are the unaudited consolidated financial statements of
Mighty River Power Limited (The Group) for the six months ended 31 December 2006.
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 2006. The accounting policies
used in the preparation of these interim financial statements are consistent with those used in the previous annual
financial statements.
2 . N O N - R E C U R R I N G I T E M S
YEAR ENDED SIX MONTHS SIX MONTHS 30 JUNE ENDED ENDED 2006 31 DECEMBER 31 DECEMBER 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
(17,532) Impairment of exploration expenditure 0 0
Expenditure relating to exploratory drilling has been expensed as a consequence of a review of the economic viability
of the expenditure associated with this drilling.
3 . TA X AT I O N E X P E N S E
YEAR ENDED SIX MONTHS SIX MONTHS 30 JUNE ENDED ENDED 2006 31 DECEMBER 31 DECEMBER 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
172,441 Surplus before taxation 122,127 91,422
56,905 Taxation at 33 cents 40,302 30,169
Taxation effect of permanent differences:
15,015 Other permanent differences 7,261 7,205
(251) Prior year adjustments 0 0
71,669 Taxation expense 47,563 37,374
Analysis of taxation expense:
65,831 Current taxation 32,789 32,442
5,838 Deferred taxation 14,774 4,932
71,669 Taxation expense 47,563 37,374
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 1 4
Notes to the Financial Statements continued FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
4 . R E C O N C I L I AT I O N O F N E T S U R P L U S A F T E R TA X AT I O N W I T H N E T C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S
YEAR ENDED SIX MONTHS SIX MONTHS 30 JUNE ENDED ENDED 2006 31 DECEMBER 31 DECEMBER 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
100,772 Net Surplus after Taxation 74,564 54,048
Add (less) non-cash items:
82,462 Depreciation 42,596 40,880
1,080 Amortisation of other non-current assets 600 818
17,532 Impairment of exploration expenditure 0 0
(4,156) Share of associates net surplus (1,820) (1,739)
7,598 Other non-cash items 2,283 1,495
104,516 43,659 41,454
Add (less) movements in working capital:
(19,909) Decrease (increase) in receivables and prepayments 48,232 (4,449)
(1,355) Increase in inventories (312) (1,344)
3,078 (Decrease) increase in payables and accruals (41,088) 10,833
2,755 Increase in provision for taxation 14,243 15,776
5,838 Increase in deferred taxation 14,775 4,932
(9,593) 35,850 25,748
195,695 Net Cash Flow from Operating Activities 154,073 121,250
5 . C O M M I T M E N T S
30 JUNE 31 DECEMBER 31 DECEMBER 2006 2006 2005
AUDITED UNAUDITED UNAUDITED
$000 $000 $000
24,825 Commitments for future capital expenditure 178,110 22,732
17,642 Commitments for future operating expenditure 14,858 8,188
42,467 Total Commitments 192,968 30,920
1 5MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
Notes to the Financial Statements continued FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
6 . C O N T I N G E N C I E S
Mighty River Power and certain subsidiaries have cross-guaranteed the due and punctual payment of each other’s Guaranteed
Indebtedness in relation to bank borrowings under a Standby and Cash Advances Facility and a Revolving Advances Facility.
Mighty River Power Limited holds land and interests that may be affected by certain claims that have been brought or are
pending against the Crown under the Treaty of Waitangi Act 1975. In the event that the Crown agrees to the return of some or
all of the affected land resumption would be effected by the Crown under the Public Works Act 1981 and compensation would
be payable to Mighty River Power Limited.
A third party made a claim following a contract dispute. The amount of the claim has subsequently been significantly reduced
and is now immaterial. The Directors still consider that the claim can be successfully defended.
7. S U B S E Q U E N T E V E N T S
There have been no events subsequent to balance date that would affect the fair presentation of these interim
financial statements.
8 . I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S
In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities
required to comply with NZ GAAP under the Financial Reporting Act would be required to apply International Financial
Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted
from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred
to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been
made to reflect New Zealand circumstances.
The Group intends to adopt NZ IFRS from 1 July 2007. A project team, monitored by a steering committee, has been
established to achieve transition to NZ IFRS reporting. The project involves assessing the impacts of conversion to NZ
IFRS reporting on existing accounting and reporting policies, procedures, systems and processes, then designing and
implementing the changes required to enable the delivery of financial reporting on an NZ IFRS compliant basis for the
30th June 2008 financial year.
The comparative period in the 30 June 2008 financial statements will also need to be reported on a NZ IFRS compliant basis.
Consequently during the period from 1st July 2006 to 30th June 2007, known as the transition year, two sets of records will
be maintained: one under current NZ GAAP; the other under NZ IFRS.
The differences between current NZ GAAP and NZ IFRS identified to date as having an effect on the Group’s financial
position are summarised below and are based on NZ IFRS that exist at the date of issue of these financial statements.
Future developments of those standards, that occur prior to the first set of financial statements under NZ IFRS, may result
in material amendments to the adjustments detailed below. No attempt has been made to identify all disclosure, presentation
or classification differences that would affect the manner in which transactions or events are presented. Only a complete
set of financial statements including notes, the first to be presented as at 30 June 2008, together with comparative balances,
will provide a true and fair presentation of the Group’s results in accordance with NZ IFRS.
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 1 6
8 . I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S ( C O N T I N U E D ) FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
Provisional reconciliation of the impact of adopting NZ IFRS on the current NZ GAAP statement of financial position as
at 1 July 2006 (Audited).
SHARE RETAINED OTHER TOTAL TOTAL TOTAL CAPITAL EARNINGS RESERVES EQUITY L IABILIT IES ASSETS
GROUP $000 $000 $000 $000 $000 $000
Total Reported under NZ GAAP 377,561 419,609 1,300,517 2,097,687 610,732 2,708,419
Fair value of derivative contracts 0 0 60,241 60,241 9,192 69,433
Deferred tax 0 (132,519) (375,546) (508,065) 508,065 0
Deemed cost adjustments 0 244,692 (244,692) 0 0 0
Revaluation of property, plant & equipment 0 (25,205) 25,205 0 0 0
Other adjustments 0 (45) 0 (45) (9,421) (9,466)
Restated to NZ IFRS 377,561 506,532 765,725 1,649,818 1,118,568 2,768,386
Provisional reconciliation of the impact of adopting NZ IFRS on the current NZ GAAP statement of financial position as at
31 December 2006 (Unaudited).
SHARE RETAINED OTHER TOTAL TOTAL TOTAL CAPITAL EARNINGS RESERVES EQUITY L IABILIT IES ASSETS
GROUP $000 $000 $000 $000 $000 $000
Total Reported under NZ GAAP 377,561 443,773 1,300,517 2,121,851 695,571 2,817,422
Fair value of derivative contracts 0 (66,736) 42,735 (24,001) 66,589 42,588
Deferred tax 0 (102,761) (369,769) (472,530) 472,530 0
Deemed cost adjustments 0 244,692 (244,692) 0 0 0
Revaluation of property, plant & equipment 0 (25,205) 25,205 0 0 0
Other adjustments 0 267 0 267 (7,603) (7,336)
Restated to NZ IFRS 377,561 494,030 753,996 1,625,587 1,227,087 2,852,674
1 7MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
8 . I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S ( C O N T I N U E D ) FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
FAIR VALUE OF DERIVATIVE CONTRACTS
On transition all derivative contracts (including electricity hedges, interest rate and foreign exchange contracts) will
be recorded in the statement of financial position at fair value under NZ IFRS and be adjusted against opening equity. Any
subsequent movement in the fair value of these instruments from year to year will have the potential to affect the statement
of financial performance and the statement of financial position, the extent to which will depend on whether hedge accounting
is adopted. NZ IFRS is very prescriptive on when a derivative contract can be considered an effective hedge of an underlying
position or future cash flow. The Group has therefore adopted hedge accounting practices where practical.
DEFERRED TAXATION
The IFRS basis of accounting for deferred tax is conceptually different to current NZ GAAP. Under current NZ GAAP deferred
taxation is calculated using an income statement approach whereas under NZ IFRS deferred taxation will be calculated based
on a balance sheet approach. This method recognises deferred tax balances where there is a difference between the carrying
value of an asset or liability and its tax base. The most significant impact for the Group will be the recognition of a deferred
tax liability in relation to the revaluation of generation assets and the recognition of the fair value of derivative contracts.
DEEMED COST ADJUSTMENTS
NZ IFRS 1 has some specific exemptions available to entities on initial transition to NZ IFRS. A first time adopter may have
established a deemed cost under previous GAAP for some or all of its assets and liabilities by measuring them at their fair
value because of a specific event. It may use such event-driven fair value measurements as deemed cost for NZ IFRS at
the date of that measurement. The Group will use this exemption in relation to the fair value exercise undertaken on the
acquisition of assets and liabilities on the break-up of ECNZ. The impact of this will be a transfer of $244.7 million between
the asset revaluation reserve and retained earnings.
REVALUATION OF PROPERTY PLANT & EQUIPMENT
Under NZ IFRS downward revaluations below cost of individual assets are not permitted to be set off in the reserve against
upward revaluations of other assets within the same asset class and are taken to the income statement. As permitted under
transition to NZ IFRS an amount of $25.2 million resulting from a devaluation of certain generation assets will be reclassified
from the asset revaluation reserve to retained earnings.
MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06 1 8
DIREC TOR S
Carole Durbin, BCom, LLB (Hons), FInstD, FAMINZ (Chair)
John Baird, BSc, BA, MA (Hons), Rhodes Scholar,
Dip Marketing (UK)
Caroline Ball, BE Chem (Hons)
Trevor Janes, BCA (Econ), CA
Sandy Maier, JD, BA
Neil Ranford, Dip Tchg, BSc, BE (Hons)
Sir Paul Reeves, ONZ, MA, GCMG, GCVO, QSO, KST.J, LTh
Tania Simpson, BA, MMM
Patrick Strange, BE (Hons), ME, PhD
E X ECUTI V E M A N AGEMENT
Doug Heffernan, BE (Hons), ME, PhD, FIPENZ (Chief Executive)
Ken Bugden, CA (Chief Financial Officer)
John Foote, BSc, BE (Civil) (General Manager Generation)
James Moulder, BA, BCA (General Manager Sales)
Greg Raasch, BSc, MSc, PE (Prof Engineer)
(General Manager Geothermal)
Neil Williams, BA (Group Strategist)
COMPANY SECRETARY
Tony Nagel, LLB, MComLaw (Hons)
REGISTERED OFFICE
Level 19, 1 Queen Street, Auckland
TELEPHONE 09 308 8200
FACSIMILE 09 308 8209
EMAIL [email protected]
WEBSITE www.mightyriverpower.co.nz
AUDITOR
The Auditor-General pursuant to section
14 of the Public Audit Act 2001.
J Freeman of Ernst & Young was appointed in February 2006
to perform the audit on behalf of the Auditor-General.
SOLICITOR S
Chapman Tripp
Kensington Swan
BA NK ER S
ANZ National Bank
ASB Bank
Citibank
Directory
1 9MIGHT Y RI V ER P OW ER LIMITED INTERIM REP ORT 31 DECEMBER 2 0 06
INTERIM REPORT 31 DECEMBER 2006M I G H T Y R I V E R P O W E R L I M I T E D