MightyRiver slashes budget for new capital expenditure
MightyRiverPower [NZX: MRP], the partially privatised electricity generator and retailer, has cut back its forecast for new capital expenditure for the second time since it floated last May, citing the need to contain costs and a "more patient" approach to American geothermal developments.
While its forecast maintenance capex is still expected to come in at $71.6 million for the year to June 30, its forecast spend in last year's prospectus of $127.5 million on new investments has been pegged back to between $23.4 million and $48.4 million.
It had already been brought down to between $53.4 million and $106.4 million at the August annual meeting.
The latest change reflects "lower domestic investment due to cost containment and a more patient approach to international geothermal," the company said in a discussion of its earnings for the six months to Dec. 31, released today.
MRP has greenfields geothermal prospects in Chile and has been involved in a joint venture with an American company, EnergySource, involving a producing Californian geothermal development.
However, the joint venture was "impacted by a $4.4 million loss reflecting unsuccessful exploratory drilling by EnergySource planned to extend the proven resource boundary."
MRP announced a 3.7 percent increase in earnings before interest, tax, depreciation, amortisation and changes in fair value of financial instruments of $269.6 million, as it rode out the worst conditions it had experienced in its North Island hydro catchment since it was created in 1999. MRP shares fell 1 percent to $2.02 in trading on the NZX today.
Directors said the company remains on track to reach its annual forecast of $498 million. In the first six months of the current year, revenue dropped 12 percent to $840.8 million, reflecting significantly lower hydro generation.
Chair Joan Withers also confirmed the search for a replacement for founding chief executive Doug Heffernan was about to go to the candidate interview, with an announcement expected by June, ahead of Heffernan's scheduled departure in August.
Asked about the Labour and Green parties' New Zealand Power proposal to push down wholesale electricity prices using a central buyer and lower valuations for power company's assets, Heffernan said new detail was not forthcoming but it was not reasonable to expect until a party seeking office had access to the official advice necessary to make it operational.
However, recent statements about the policy's intentions were "starting to get more light than heat on the issues" with part of the intention being to ensure hydro generators' use of water was appropriately accounted for.
However, asked whether it was inevitable electricity generators would eventually pay an explicit price for water, Heffernan drew a distinction between "consumptive" and "non-consumptive" uses for water, with hydro generation being non-consumptive as the resource remains available for other uses once put through a hydro dam.
"Inevitable is a big word," said Heffernan. "It's hard to work out how to make it work in practice."
EARLIER: MightyRiverPower [NZX: MRP], the first state-owned power company partially privatised last year, increased first-half earnings 3.7 percent as it clamped down on costs amid poor hydro conditions, while affirming its annual growth target.
Earnings before interest, tax, depreciation, amortisation, and fair value adjustments (EBITDAF) rose to $269.6 million in the six months ended Dec. 31 from $260.1 million a year earlier, and is on track to reach its annual forecast of $498 million, the Auckland-based company said in a statement. Revenue dropped 12 percent to $840.8 million with significantly lower hydro levels sapping generation.
Net profit climbed 64 percent to $123.7 million on lower operating costs and one-off gains in the value of financial instruments. Operating costs fell 24 percent to $107.8 million, with permanent savings achieved in maintenance costs, professional fees and administration expenses.
"MightyRiverPower has responded to the competitive dynamics in the market and is showing new levels of efficiency and performance," chair Joan Withers said. "On the cost side we have remained sharply-focused on operating expenditure and achieving company-wide gains in effectiveness and efficiencies."
The board declared an interim dividend of 5.2 cents per share, payable on March 31 with a March 12 record date, up from 4.8 cents a year earlier. The shares were unchanged at $2.04 yesterday, and dropped 18 percent from their $2.50 offer price when the company was floated in May last year.
The company's total generation fell to 3,258 gigawatts per hour from 3,700 GWh a year earlier due to a 25 percent slump in hydro generation, offset by a lift in geothermal. The total average price was $55.98 per megawatt hour, down from $65.74/MWh. In last year's offer document MightyRiverPower forecast an average price of between $65 and $75/MWh for the 2014 financial year with generation of 7,060 GWh.
Chief executive Doug Heffernan said the company reduced its low-margin commercial sales, and was reviewing its portfolio, including the role of its Southdown power station in the face of weak demand.
MightyRiverPower cut its forecast capital expenditure to between $95 million and $120 million this year from a range of $125 million to $175 million flagged at its annual meeting as it looks to contain costs and scale back its push into international geothermal growth initiatives.