Interim report 2005

Mighty River Power Interim Report 31 December 2004

01 Highlights 2004 04 Board and Chief Executive Report 09 Interim Financial Statements 19 Directory

Mighty River Power Limited Interim Report 31 December 2004

Highlights 2004

$77.3 million Net surplus after taxation

3244 GWh Record total generation volumes

48% savings Gas saved at Southdown

320 MW Consents lodged for a 320MW thermal plant at Marsden Point

Top call centre Mercury Energy the best energy retailer in 2004 Customer Relationship Management Contact Centre Awards

50% increase Gas customer base passes 15,000

$45 million Capital expenditure increases by 250%

Mighty River Power Limited Interim Report 31 December 2004

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Operating Surplus before Interest, Non-recurring Items and Taxation for 6 months to 31 December

$135.7 million

2004

$95.3 million $79.4 million

2003 2002 2001

$25.8 million $56.6 million $65.0 million

2000 1999

Total Equity/Total Assets at 31 December

61.3 percent 62.0 percent

2004 2003

55.9 percent

2002

48.3 percent 42.9 percent 44.8 percent

2001 2000 1999

Net Surplus after Taxation for 6 months to 31 December

$77.3 million

2004

$51.4 million

2003

$99.8 million

2002 2001 2000 1999

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$14.0 million $30.4 million $37.3 million

Mighty River Power Limited Interim Report 31 December 2004

Total Operating Revenue for 6 months to 31 December

$306.8 million $305.8 million

2004 2003

$235.1 million

2002

$352.2 million $301.2 million

2001 2000

$234.3 million

1999

Operating Cashflow for 6 months to 31 December

$123.6 million

2004

$81.6 million

2003

$47.4 million

2002 2001

$20.0 million

2000 1999

$57.9 million $52.3 million

Net Debt/Net Debt + Equity at 31 December 2004 2003 2002 2001 2000 1999

32.3 percent 30.1 percent 36.5 percent 41.4 percent 45.5 percent 40.5 percent

Mighty River Power Limited Interim Report 31 December 2004

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Mokai geothermal expansion

Board and Chief Executive Report

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Mighty River Power Limited Interim Report 31 December 2004

On behalf of the Board and Management, we are pleased

Generation: Our decision nearly two years ago to acquire full

to report on Mighty River Power’s performance for the six

control of the Southdown co-generation plant to balance our

months to 31 December, 2004.

hydro and non-hydro based generation assets is paying

Highlights: Mighty River Power has continued its recent run

dividends. We were able to reduce the use of gas at Southdown

of sound financial results with another strong performance

when wholesale electricity prices did not justify using gas.

in the first half of the 2004/05 financial year.

This lower utilisation of Southdown in wet periods

This period which is traditionally our strongest due to

has provided significant energy and cost efficiency gains,

high customer demand over winter, combined with record

whilst preser ving the ability to provide sustained firm

hydro production, to provide a net surplus after taxation of

capacity should national storage levels drop or wholesale

$77.3 million in the period to December 31, 2004. That is up

prices increase. Hydro generation volumes of 2631 GWh

50% on the comparable period last year ($51.4 million).

compared to 2058 GWh in the same period last year reflect

The much wetter than normal winter and spring in the

that good hydrology and comparable Southdown generation

Waikato/Taupo catchment meant our hydro system generated

of 459 GWh in 2003 and 224 GWh in 2004 reflect lower gas

very good volumes. High national inflow levels meant that

use. Geothermal generation also ran at record levels at

wholesale electricity prices were very subdued, allowing us

Rotokawa. Total generation volumes of 3244 GWh compare

to manage production from the Southdown co-generation

to 2839 GWh in the previous comparable period.

For our business the exciting story around generation is

plant to reduce our gas costs.

Retail demand also continued to grow with new

centred on our drive to expand our current portfolio, through

connections continuing at a solid pace on the back of the

a range of fuel options, to help meet the predicted growth in

strong housing market, particularly in our key Auckland

demand in New Zealand.

market. We were also able to attract new customers from

That has led to the biggest geothermal exploration

our competitors and our retail gas customer base has

programme in New Zealand in the past twenty years with

now passed 15,000. We also have 307,000 electricit y

an initial $20 million programme at Putauaki concluded

customers, 2.3% up on June.

and now under test. A $20 million programme at Rotokawa

Those successes in the retail market and the continuing

to pr ov ide additional pr oduc tion and r e -injec tion

growth in commercial demand for our financial products

capability to the existing plant, and a potential expansion,

offset the revenue loss associated with weak wholesale prices

is nearing completion. Plans for generation expansion at the

resulting in only a small gain on 2003 revenues.

Rotokawa Field, in conjunction with the Tauhara North No. 2

Operating cashflows were up approximately 50% at $123.6 million on the comparable period last year ($81.6 million) as

Trust, are progressing.

Consents were also lodged for exploratory drilling in the

a result of the strong hydro production and lower gas costs. Mangakino area as we look to develop a new geothermal Dividends of $105 million relating to the year ended 30 June

site in the region. Analysis and plans for a possible geothermal

2004 were paid out during the period under review.

plant of over 50MW at Kawerau also continue. Once analysis

Operating surplus before interest, non-recurring items and taxation was $135.7 million compared to $95.3 million

is complete a decision will be made with our iwi partners about progressing this project to the consents phase.

in the same period last year. Capital expenditure increased

The 40MW geothermal expansion at Mokai by the Tuaropaki

by 250% to $45 million primarily related to geothermal

Power Company, where we have a 25% equity partnership

exploration and development activities.

with the Tuaropaki Trust, is on schedule to be on-line in late

Mighty River Power Limited Interim Report 31 December 2004

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Total Generation Volumes for 6 months to 31 December

Hydro

Cogeneration

Geothermal*

Biomass*

2004 2003 2002 2001 2000

3500

3000

2500

2000

1500

1000

500

0

GWh

1999

* Mighty River Power does not own 100% of these assets

autumn 2005 providing a timely boost to energy supplies prior

Following the Government’s introduction of regulations requiring

to winter. This project alone will meet around 25% of the

a low fixed charge tariff we took the opportunity in October to

country’s energy demand growth this year.

restructure our pricing plans. Our customers were automatically

Consents for a 320 MW coal-fired plant at the existing Marsden Point plant near Whangarei were lodged just before Christmas and we continue to work through a thorough

we had their usage history for the past twelve months.

Our excellent customer ser vice standards were

consultation process. We are confident that Marsden B offers

recognised through Mercury Energy’s call centre winning a

the best new coal fired development option in New Zealand

Gold Award in the 2004 Customer Relationship Management

and provides a prudent way to diversify New Zealand’s medium

Contact Centre Awards. We were chosen as the best customer

term energy supply risks, especially in the scenario where no

service provider in the energy retail sector and one of the

significant new domestic gas is commercially developed before

top three in all sectors.

Our support of community based initiatives was enhanced

the end of the decade.

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moved to the best plan based on their previous usage, providing

We are actively seeking access to several sites to

with the establishment of the Star Supporters Club. Our

undertake monitoring of windflows with a view to identifying

customers can automatically donate to Starship Children’s

sites for economic wind generation. A number of small hydro

Health through their bills, a facility that has already raised

development options are under consideration and round out

more than $70,000 which will be used to purchase a Mobile

our portfolio of potential generation developments.

Image Intensifier for the hospital. We also now support the

Customers: It has also been a successful first half for the

Mercur y Energy Pohutakawa Festival on the Coromandel

Mercury Energy retail business with continued strong growth

Peninsula while our suppor t for Christmas in the Park

of electricity and gas customers. Successful acquisition

(Auckland), Carols by Candlelight (Auckland) and Christmas

campaigns have complemented our innovative products which

at the Lake (Hamilton) continues along with the lighting of

continue to retain and attract customers.

prominent Auckland landmarks.

Mighty River Power Limited Interim Report 31 December 2004

Metrix: Industry leading levels continue to be the focus of our

customers the benefits of our integrated energy business

Metrix metering business with new housing and switches

model by removing price volatility.

between electricity businesses creating steady demand

None of that would have been possible without the focus and efforts our staff and we thank the teams within

for our services.

Residential growth in the Auckland region has also provided a strong growth platform for new meter installations.

Mighty River Power for their ongoing support.

That we are in such a good position in 2005 is also testimony

Summary: While our current focus at Mighty River Power is

to the stewardship of our founding chairman Rob Challinor

on driving our generation expansion programme, that focus

who retired from the company at the end of 2004 after six

is not possible without the ongoing support of a strongly

years at the helm.

Our balance sheet was initially the weakest of the three

performing company with secure funding.

Our generation business is a well balanced and efficient

new enterprises created in 1999 and much of our focus in the

unit that has performed ver y well to take advantage of

early years was on strengthening it by ensuring we were a

good hydro conditions in the past six months. Our different

very efficient operator with excellent capital management.

fuel sources have been used in an efficient manner to meet market demand and contribute to supply security.

Our retail business is thriving on a mix of innovative

Under Rob’s leadership we have evolved into a business that is generating sound cash flow, is growing and is in a financial position to suppor t an extensive generation

products that attract customers from other competitors, development programme. The company and the current Board and ensures we capture a good share of the new business

are indebited to Rob for his major contribution to the success

generated by residential growth. Our commercial sales

of Mighty River Power. We look to the future with confidence

have also experienced superior grow th from offering

that this success will be continually enhanced.

Carole Durbin

Doug Heffernan

Chair

Chief Executive

Mighty River Power Limited Interim Report 31 December 2004

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Mighty River Power Limited Interim Report 31 December 2004

MT survey Tokoroa

8

Interim Financial Statements

For the six months ended 31 December 2004

10 Consolidated Statement of Financial Performance 11 Consolidated Statement of Movements In Equity 12 Consolidated Statement of Financial Position 14 Consolidated Statement of Cash Flows 15 Notes ot the Consolidated Interim Financial Statements

Mighty River Power Limited Interim Report 2004

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Consolidated Statement of Financial Performance for the six months ended 31 December 2004 year ended 30 june 2004 audited

six months six months ended ended 31 december 2004 31 december 2003 unaudited unaudited

$000

774,654 (185,844)

note

Sales Less line and metering charges

2,341

Interest income

8,097

Other revenue

$000

414,775

391,870

(113,641)

(90,777)

1,695

990

3,980

3,738

599,248

Total Operating Revenue

306,809

305,821

199,551

Operating surplus before interest and non-recurring items

135,686

95,326

2,341

Interest income

(31,742)

Interest expense

(14,705)

Non-recurring items

155,445

Surplus Before Taxation

(55,748)

Taxation expense

99,697 131 99,828

2

3

Surplus After Taxation Share of associate net (deficit) surplus Net Surplus After Taxation

The notes set out on pages 15 to 18 form part of, and should be read in conjunction with, these interim financial statements.

10

$000

Mighty River Power Limited Interim Report 31 December 2004

1,695

990

(18,448)

(16,222)

0

0

118,933

80,094

(41,536)

(28,571)

77,397

51,523

(103)

(80)

77,294

51,443

Consolidated Statement of Movements in Equity for the six months ended 31 December 2004 year ended 30 june 2004 audited

six months six months ended ended 31 december 2004 31 december 2003 unaudited unaudited

$000

861,696

Equity at Beginning of the Period

$000

$000

886,524

861,696

99,828

Net surplus after taxation

77,294

51,443

99,828

Total Recognised Revenues and Expenses for the Period

77,294

51,443

0

0

Distributions to owners: (75,000)

Special dividend

0

Final dividend paid for 2004

(30,000)

0

886,524

Equity at End of the Period

933,818

913,139

The notes set out on pages 15 to 18 form part of, and should be read in conjunction with, these interim financial statements.

Mighty River Power Limited Interim Report 31 December 2004

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Consolidated Statement of Financial Position As at 31 December 2004 30 june 2004 audited

31 december 2004 31 december 2003 unaudited unaudited

$000

$000

$000

Equity 377,561

Share capital

377,561

377,561

508,963

Reserves

556,257

535,578

933,818

913,139

1,204

51,387

365,821

384,459

367,025

435,846

0

1,665

84,417

63,833

0

0

886,524 Non-current Liabilities 1,204 329,821

Energy contracts Loans

331,025 Current Liabilities 0

Bank overdraft

91,863

Payables and accruals

75,000

Provision for dividend

4,254

Provisions

3,411

3,332

2,032

Provision for taxation

22,653

12,994

Deferred taxation

24,029

23,921

0

9,647

24,114 0 98,494

Energy contracts – current portion Loans – current portion

295,757 1,513,306

Total Equity and Liabilities

The notes set out on pages 15 to 18 form part of, and should be read in conjunction with, these interim financial statements.

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Mighty River Power Limited Interim Report 31 December 2004

89,225

8,000

223,735

123,392

1,524,578

1,472,377

Consolidated Statement of Financial Position (continued) As at 31 December 2004 30 june 2004 audited

31 december 2004 31 december 2003 unaudited unaudited

$000

$000

$000

1,380,689

1,357,846

Investment in associate

13,278

4,255

Other non-current assets

13,981

15,626

1,407,948

1,377,727

Cash

3,707

0

Short term deposits

5,000

0

Non-current Assets 1,369,319 2,352 15,494

Property, plant and equipment

1,387,165 Current Assets 3,457 0 1,985 116,649 4,050

Investment in associate Receivables and prepayments

0 91,507

3,284

3,143

116,630

94,650

1,524,578

1,472,377

Inventories

126,141 1,513,306

0 104,639

Total Assets

The Board of Directors authorised the issue of the interim financial statements on 23 February 2005

The notes set out on pages 15 to 18 form part of, and should be read in conjunction with, these interim financial statements.

Mighty River Power Limited Interim Report 31 December 2004

13

Consolidated Statement of Cash Flows for the six months ended 31 December 2004 year ended 30 june 2004 audited

six months six months ended ended 31 december 2004 31 december 2003 unaudited unaudited

$000

note

$000

$000

318,117

309,546

Cash Flows from Operating Activities Cash was provided from (applied to): 574,572 1,426 (408,544)

Receipts from customers Interest received Payments to suppliers and employees

1,707

1,025

(157,051)

(202,791)

(30,966)

Interest paid

(18,151)

(16,156)

(47,500)

Taxation paid

(21,000)

(10,000)

123,622

81,624

88,988

Net Cash Inflow from Operating Activities

4

Cash Flows from Investing Activities Cash was provided from (applied to): 436 2,710 (47,120) (3,983) 0 (47,957)

Sale of property, plant and equipment Proceeds from investments Purchase of property, plant and equipment Purchase of other non-current assets

41

92

4,725

2,581

(31,869)

(10,172)

0

(2,360)

Purchase of associate

(13,000)

0

Net Cash Outflow from Investing Activities

(40,103)

(9,859)

26,731

0

0

(78,312)

(105,000)

0

Cash Flows from Financing Activities Cash was provided from (applied to): 0 (42,456) 0 (42,456)

Loan advances Loans repaid Dividends paid

(78,269)

(78,312)

Net Increase (Decrease) in Cash Held

5,250

(6,547)

4,882

Cash Balance at Beginning of the Period

3,457

4,882

3,457

Cash Balance at End of the Period

8,707

(1,665)

Cash (bank overdraft)

3,707

(1,665)

Short term deposits

5,000

0

8,707

(1,665)

(1,425)

Net Cash Outflow from Financing Activities

Cash balance comprises: 3,457 0 3,457

The notes set out on pages 15 to 18 form part of, and should be read in conjunction with, these interim financial statements.

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Mighty River Power Limited Interim Report 31 December 2004

Notes to the Consolidated Financial Statements for the six months ended 31 December 2004 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 2004.

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 2004. 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.

Certain prior year comparatives have been restated to conform with current period presentation.

2. Non-recurring Items

year ended 30 june 2004 audited

six months six months ended ended 31 december 2004 31 december 2003 unaudited unaudited

$000

(14,098) 600 (1,207)

$000

$000

Exit from Contracts for Differences

0

0

Revaluation of office land and buildings

0

0

Other

0

0

0

0

(14,705)

Exit from Contracts for Differences

On 28 June 2004 the Group exited from two Contracts for Differences. The amount of $14,098,000 relates to the net loss from exiting these arrangements, including a termination payment and reversal of a provision for an onerous energy contract.

Mighty River Power Limited Interim Report 31 December 2004

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Notes to the Consolidated Financial Statements (continued) for the six months ended 31 December 2004 3. Taxation Expense

year ended 30 june 2004 audited

six months six months ended ended 31 december 2004 31 december 2003 unaudited unaudited

$000

155,445 51,297

Surplus before taxation Taxation at 33 cents

$000

$000

118,933

80,094

39,248

26,431

2,288

2,140

Taxation effect of permanent differences: 4,395 56 55,748

Other permanent differences Prior year adjustments Taxation expense

0

0

41,536

28,571

41,621

27,443

(85)

1,128

41,536

28,571

Analysis of taxation expense: 54,427

Current taxation

1,321

Deferred taxation

55,748

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Mighty River Power Limited Interim Report 31 December 2004

Notes to the Consolidated Financial Statements (continued) for the six months ended 31 December 2004 4. Reconciliation of Net Surplus After Taxation with Net Cash Flows from Operating Activities

year ended 30 june 2004 audited

six months six months ended ended 31 december 2004 31 december 2003 unaudited unaudited

$000

99,828

Net Surplus After Taxation

54,636

Depreciation

(9,225)

Amortisation of energy contracts

$000

$000

77,294

51,443

26,651

27,389

0

(5,032)

1,190

907

Add (less) non-cash items:

1,775 (55,637) (1,594)

Amortisation of other non-current assets Release from energy contracts Other non-cash items

(10,045)

0

0

(6,536)

178

21,305

23,442

12,010

3,584

766

(127)

Add (less) movements in working capital: (21,558)

Decrease (increase) in receivables and prepayments

(1,034)

Decrease (increase) in inventories

13,598

(Decrease) increase in payables and accruals

(8,289)

(15,278)

6,481

Increase in provision for taxation

20,621

17,443

1,321

(Decrease) increase in deferred taxation

(1,192)

(85)

1,128

25,023

6,750

0

(11)

Add (less) items classified as investing activities: 397

Movement in other non-current assets

397 88,988

Net Cash Inflow from Operating Activities

Mighty River Power Limited Interim Report 31 December 2004

0

(11)

123,622

81,624

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Notes to the Consolidated Financial Statements (continued) for the six months ended 31 December 2004 5. Commitments

30 june 2004 audited

31 december 2004 31 december 2003 unaudited unaudited

$000

$000

$000

25,504

39,438

8,094

8,194

33,598

47,632

Capital Commitments 33,725

Commitments for future capital expenditure Operating Commitments

6,948

Commitments for future operating expenditure

40,673

6. Contingencies

Mighty River Power Limited has a number of potential obligations under on-going support projects with community based groups.

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.

Mighty River Power Limited has guaranteed payment obligations of $16.8 million pursuant to a letter of credit provided by a bank in favour of TPC Holdings Limited.

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 a recommendation is made by the Waitangi Tribunal for the return of some or all of the affected land, and that recommendation is confirmed by the Crown, resumption would be effected by the Crown under the Public Works Act 1981 and compensation would be payable to Mighty River Power Limited.

7. 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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Mighty River Power Limited Interim Report 31 December 2004

Directory

Directors Carole Durbin, Chair John Baird Caroline Ball Ian Fraser David McConnell Sandy Maier Tania Simpson Rob Challinor, Chairman to 31.12.04

Executive Management Doug Heffernan Chief Executive Tim Densem General Manager Hydro/Thermal John Foote Group Operations Manager Tony Gray Group Finance Manager Stuart Lush General Manager Generation Development William Meek Enterprise Risk Strategist James Moulder General Manager Trading Greg Raasch General Manager Geothermal David Reeve General Manager Metrix Neil Williams General Manager External Affairs

Company Secretary Tony Nagel

Registered Office Level 19, 1 Queen Street, Auckland Telephone: 09 308 8200 Facsimile: 09 308 8209 Email: enquiries@mightyriver.co.nz Website: www.mightryriverpower.co.nz

Mighty River Power Limited Interim Report 31 December 2004

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