Interim report 2007

INTERIM REPORT 31 DECEMBER 2006 MIGHT Y RIVER POWER LIMITED

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

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 signiďŹ cant proportion of consumer requirements over the next 10 years.

C

HIGHLIGHTS 31 DECEMBER 2006

BE ST CUSTOMER SERV ICE 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 G Y 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 G Y I N D U S T R Y

GEOTHERMAL POWER C O N S T R U C T I O N O F T H E K AW E R A U 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 SINGLE GEOTHERMAL DE VELOPMENT IN NEW ZEAL AND IN MORE THAN 20 YEARS

RECORD PRODUCTION O 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 MILLION A 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 MILLION D 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 INCREA SED BY OVER $20 MILLION FROM THE CORRESPONDING PERIOD

$15 4 .1 MILLION O 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 THE CORRESPONDING PERIOD L A ST YEAR

2

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

OPERATING SURPLUS BEFORE

NET SURPLUS

OPERATING CASH FLOW

INTEREST, NON-RECURRING

AFTER TAXATION

FOR 6 MONTHS TO 31 DECEMBER

ITEMS AND TAXATION

FOR 6 MONTHS TO 31 DECEMBER

($MILLION)

FOR 6 MONTHS TO 31 DECEMBER

($MILLION)

($MILLION)

Net Surplus Net Surplus After Net Surplus tax After tax After tax Operating Operating Surplus Operating Surplus before Surplus before Interest before Interest Interest 136.2 135.7

135.7

136.2 135.7

136.2

99.8

99.8

99.8

77.3

77.3

77.3

74.6

74.6

Operating Operating cashflow Operating cashflow cashflow

154.1

123.6 106.8

95.3

79.4

106.8

95.3

79.4

106.8

121.3

123.6

154.1

121.3

123.6

154.1

121.3

74.6

95.3

79.4

51.4

54.0

54.0

51.4

51.4

54.0

81.6

47.4

2002 2003 2002 2004 2003 2005 2002 2004 2006 2003 2005 2004 2006 2005 2006

2002 2003 2002 2004 2003 2005 2002 2004 2006 2003 2005 2004 2006 2005 2006

81.6

47.4

81.6

47.4

2002 2003 2002 2004 2003 2005 2002 2004 2006 2003 2005 2004 2006 2005 2006

3

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

TOTAL EQUITY/TOTAL ASSETS

NET DEBT/NET DEBT + EQUITY

GENERATION DATA (GWh)

AT 31 DECEMBER

AT 31 DECEMBER

FOR 6 MONTHS TO 31 DECEMBER

(PERCENT)

(PERCENT)

HYDRO COGENERATION

Total Equity Total Equity

76.8

75.3

76.8

Net debt Net+debt Equity + Equity

75.3

36.5

GEOTHERMAL* BIOMASS* * MIGHTY RIVER POWER DOES NOT OWN 100% OF THESE ASSETS AND/OR THE PHYSICAL OUTPUT

36.5

3000

32.3

62.0

55.9

61.3

62.0

30.1

32.3

30.1

61.3

2500

55.9

2000

17.4

1500

17.4 15.5

15.5

1000

500

2002 2003 2002 2004 2003 2005 2004 2006 2005 2006

2002 2003 2002 2004 2003 2005 2004 2006 2005 2006

2002 2003 2004 2005 2006

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

4

Chair and chief executive report

ON BEHALF OF THE BOARD AND MANAGEMENT, WE ARE PLEASED TO REPORT ON MIGHTY RIVER POWER’S

HIGHLIGHTS

Favourable operating conditions have assisted Mighty River

PERFORMANCE FOR THE SIX MONTHS

Power to record a strong Net Surplus after Taxation of $74.6

TO 31 DECEMBER, 2006.

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.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

5

E N E R GY G R O SS M A R G I N A N A LY S I S SIX MONTHS ENDED 31 DECEMBER 2006 1

RETAIL

2

WHOLESALE

SIX MONTHS ENDED 31 DECEMBER 2005 1

RETAIL

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

Energy Purchases

148.2

12.3

231.8

23.1

Other Direct Costs/ (Income)

(17.5)

9.2

17.0

(0.1)

93.4

133.8

(21.5)

213.4

-

2,695.3

-

2,612.6

2,063.7

-

1,982.1

-

-

53.9

-

97.2

-

92.1

Costs

Energy Gross Margin

3

3

Volumes/Pricing Total Generator Volumes (GWh)4 Total Fixed Price Variable Volume Sales (GWh)

5

Average Wholesale Electricity Price ($MWh) Average Fixed Price Variable Volume Price ($MWh) 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 ďŹ nancial derivatives.

The key difference between the 2005 and 2006 Energy Gross Margin was the signiďŹ cant 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.

85.0 -

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

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

6

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

the main transmission grid.

GWh from 1,981 GWh in the previous corresponding period.

Only relatively minor modifications to the transmission grid

The outstanding performance of the geothermal plants

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

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.

generation projects across a range of complementary fuel sources including geothermal, wind, small hydro and gas.

G E N E R AT I O N – D E V E L O P M E N T

Excellence in service is the ongoing commitment we make to

In addition to commencing construction at Kawerau, Mighty

our retail customers – and is reflected across our products

River Power is making good progress in its plans to develop

and services, our initiatives to promote in-home energy

further geothermal capability at Rotokawa with its joint

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

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.

corresponding period. Operating cash flow rose significantly

New Zealand’s wind resource is another form of renewable

to $154.1 million, up $32.8 million from the 2005 half-

energy which has an important role to play in our country’s

year, due primarily to the improved hydro and geothermal

future. Mighty River Power is actively building its wind

production, lower gas costs and retail growth.

portfolio, with monitoring equipment established on six sites throughout the North Island and upper-South Island.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

Thermal energy will continue to play an important role in maintaining security of supply in a renewable dominated

7

LOOKING AHEAD

Mighty River Power’s service promise extends not just to

supply system. The installation of the new 45MW gas-fired

the 371,000 customers we supply today, but the future

turbine generator, will lift Southdown’s total generation

generations we are expanding to support in the future.

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.

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

CUSTOMERS

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

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.

over the reporting period – representing supply to some

These developments and those of others in the industry have

800,000 New Zealanders.

bought time. The fuel supply outlook for the next ten years

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.

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

Mercury Energy’s industry-leading service was recognised

the future – among the requirements is the need for better

in September when the team won the highly coveted

transmission networks to carry the power to where

Customer Relationship Management award, for best

it is needed.

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.

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.

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

CAROLE DURBIN

DOUG HEFFERNAN

communications technology will be available by year end.

CHAIR

CHIEF EXECUTIVE

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.

8

Interim Financial Statements 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 6

9 C O N S O L I D AT E Dare S TAT E M E N T Othat F F I Nas A NaCcompany, I A L P E R F OMighty RMANCE We confident River

Power

isEbuilding momentum.

Through C O N S O L I D AT D S TAT E Mgood ENT O F MOVEMENT S I N E Q Udevelopments ITY 10

such

as Kawerau, the expansion at Southdown and the ongoing

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

wind and gas exploration projects, Mighty River Power is

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 L O W S 1 3

playing its part in providing a sustainable energy future

N O T E S T O Tfor H E New C O N SZealand.

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

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.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

9

Consolidated Statement of Financial Performance

FOR THE SIX MONTHS ENDED 31 DECEMBER 2006

YEAR ENDED 30 JUNE 2006

SIX MONTHS ENDED 31 DECEMBER 2006

SIX MONTHS ENDED 31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

NOTE

1,255,385

Sales

(257,730)

Less line and metering charges

2,501 11,781 1,011,937 220,463 2,501

$000

533,849

600,510

(145,447)

(128,796)

Interest income

3,435

1,003

Other revenue

5,481

5,814

Total Operating Revenue

397,318

478,531

Operating surplus before interest and non-recurring items

136,214

106,772

3,435

1,003

(19,342)

(18,092)

0

0

1,820

1,739

122,127

91,422

(47,563)

(37,374)

74,564

54,048

Interest income

(37,147)

Interest expense

(17,532)

Non-recurring items

4,156

$000

2

Share of associates net surplus

172,441

Surplus Before Taxation

(71,669)

Taxation expense

100,772

Net Surplus After Taxation

The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.

3

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

10

Consolidated Statement of Movements In Equity

FOR THE SIX MONTHS ENDED 31 DECEMBER 2006

YEAR ENDED 30 JUNE 2006

SIX MONTHS ENDED 31 DECEMBER 2006

SIX MONTHS ENDED 31 DECEMBER 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

The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

11

Consolidated Statement of Financial Position

A S AT 31 DECEMBER 2006

30 JUNE 2006

31 DECEMBER 2006

31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

$000

$000

Equity 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

377,561

Share capital

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

103,346

139,966

Current Liabilities 144,433 753 145,186 2,708,419

Payables, provisions and accruals Provision for taxation Total Current Liabilities Total Equity and Liabilities

The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.

14,995

13,774

118,341

153,740

2,817,422

2,671,754

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

12

Consolidated Statement of Financial Position (continued)

A S AT 31 DECEMBER 2006

30 JUNE 2006

31 DECEMBER 2006

31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

$000

2,498,323

2,447,603

31,193

32,891

$000

Non-current Assets 2,478,979 31,308

Property, plant and equipment Investment and advances to associate

9,134

Other non-current assets

8,604

10,150

2,519,421

Total Non-current Assets

2,538,120

2,490,644

139,807

6,775

3,000

5,000

131,794

164,937

4,721

4,398

279,322

181,110

2,817,442

2,671,754

Current Assets 2,364

Cash

2,000

Short term deposits

180,225 4,409 188,998 2,708,419

Receivables and prepayments Inventories Total Current Assets Total Assets

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.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

Consolidated Statement of Cash Flows

13

FOR THE SIX MONTHS ENDED 31 DECEMBER 2006

YEAR ENDED 30 JUNE 2006

SIX MONTHS ENDED 31 DECEMBER 2006

SIX MONTHS ENDED 31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

$000

440,549

474,508

2,997

414

$000

NOTE

Cash Flows from Operating Activities CASH WAS PROVIDED FROM (APPLIED TO):

984,058 1,506

Receipts from customers Interest received

(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

154,073

121,250

41

30

(691,943)

Payments to suppliers and employees

4

Cash Flows from Investing Activities CASH WAS PROVIDED FROM (APPLIED TO):

147

Sale of property, plant and equipment

4,000

Repayment of advances by associates

(148,415) (448) 75 (144,641)

Purchase of property, plant and equipment Purchase of other non-current assets Disposal of other non-current assets Net Cash Flow from Investing Activities

4

2,000

0

(64,091)

(65,263)

(89)

0

0

37

(62,139)

(65,196)

Cash Flows from Financing Activities CASH WAS PROVIDED FROM (APPLIED TO):

0

Loan advances

(33,703)

Loans repaid

(36,400)

Dividends paid

(70,103)

Net Cash Flow from Financing Activities

(19,049)

Net Increase (Decrease) in Cash Held

23,413 4,364

Cash Balance at Beginning of the Period Cash Balance at End of the Period

96,909

0

0

(31,292)

(50,400)

(36,400)

46,509

(67,692)

138,443

(11,638)

4,364

23,413

142,807

11,775

139,807

6,775

3,000

5,000

142,807

11,775

CASH BALANCE COMPRISES:

2,364

Cash

2,000

Short term deposits

4,364

Cash Balance at End of the Period

The notes set out on pages 14 to 18 form part of, and should be read in conjunction with, these Interim Financial Statements.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

Notes to the Financial Statements

14

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. NON-RECURRING ITEMS

YEAR ENDED 30 JUNE 2006

SIX MONTHS ENDED 31 DECEMBER 2006

SIX MONTHS ENDED 31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

(17,532)

Impairment of exploration expenditure

$000

$000

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 30 JUNE 2006

SIX MONTHS ENDED 31 DECEMBER 2006

SIX MONTHS ENDED 31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

172,441 56,905

Surplus before taxation Taxation at 33 cents

$000

$000

122,127

91,422

40,302

30,169

7,261

7,205

Taxation effect of permanent differences: 15,015 (251) 71,669

Other permanent differences Prior year adjustments Taxation expense

0

0

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

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

15

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 30 JUNE 2006

SIX MONTHS ENDED 31 DECEMBER 2006

SIX MONTHS ENDED 31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

100,772

Net Surplus after Taxation

$000

$000

74,564

54,048

42,596

40,880

600

818

0

0

(1,820)

(1,739)

2,283

1,495

43,659

41,454

48,232

(4,449)

(312)

(1,344)

Add (less) non-cash items: 82,462 1,080

Depreciation Amortisation of other non-current assets

17,532

Impairment of exploration expenditure

(4,156)

Share of associates net surplus

7,598

Other non-cash items

104,516 Add (less) movements in working capital: (19,909) (1,355)

Decrease (increase) in receivables and prepayments Increase in inventories

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

35,850

25,748

154,073

121,250

(9,593) 195,695

Net Cash Flow from Operating Activities

5. COMMITMENTS

30 JUNE 2006

31 DECEMBER 2006

31 DECEMBER 2005

AUDITED

UNAUDITED

UNAUDITED

$000

24,825

Commitments for future capital expenditure

17,642

Commitments for future operating expenditure

42,467

Total Commitments

$000

$000

178,110

22,732

14,858

8,188

192,968

30,920

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

16

Notes to the Financial Statements continued

FOR THE SIX MONTHS ENDED 31 DECEMBER 2006

6. CONTINGENCIES

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.

17

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 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 C A P I TA L GROUP

Total Reported under NZ GAAP

R E TA I N E D EARNINGS

OTHER RESERVES

T O TA L EQUITY

T O TA L LIABILITIES

T OTA L ASSETS

$000

$000

$000

$000

$000

$000

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)

377,561

506,532

765,725

1,649,818

1,118,568

2,768,386

Restated to NZ IFRS

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 C A P I TA L GROUP

Total Reported under NZ GAAP Fair value of derivative contracts

R E TA I N E D EARNINGS

OTHER RESERVES

T O TA L EQUITY

T O TA L LIABILITIES

T OTA L ASSETS

$000

$000

$000

$000

$000

$000

377,561

443,773

1,300,517

2,121,851

695,571

2,817,422

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)

377,561

494,030

753,996

1,625,587

1,227,087

2,852,674

Restated to NZ IFRS

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 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 )

18

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.

M I G H T Y R I V E R P O W E R L I M I T E D I N T E R I M R E P O R T 31 D E C E M B E R 2 0 0 6

19

Directory D I R EC T O R S

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

Carole Durbin, BCom, LLB (Hons), FInstD, FAMINZ (Chair)

Level 19, 1 Queen Street, Auckland

John Baird, BSc, BA, MA (Hons), Rhodes Scholar,

TELEPHONE

Dip Marketing (UK) Caroline Ball, BE Chem (Hons) Trevor Janes, BCA (Econ), CA

FACSIMILE EMAIL

09 308 8200

09 308 8209

enquiries @mightyriver.co.nz

WEBSITE

www.mightyriverpower.co.nz

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

AU D I T O R

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.

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

Doug Heffernan, BE (Hons), ME, PhD, FIPENZ (Chief Executive) Ken Bugden, CA (Chief Financial Officer)

SOLICITORS

Chapman Tripp Kensington Swan

John Foote, BSc, BE (Civil) (General Manager Generation) James Moulder, BA, BCA (General Manager Sales)

BANKERS

Greg Raasch, BSc, MSc, PE (Prof Engineer)

ANZ National Bank

(General Manager Geothermal) Neil Williams, BA (Group Strategist) COMPANY SECRETARY

Tony Nagel, LLB, MComLaw (Hons)

ASB Bank Citibank

INTERIM REPORT 31 DECEMBER 2006 MIGHT Y RIVER POWER LIMITED