Trustpower : reports lift in half year performance

HY2022 Results Summary:

• Net profit after tax of $115.1 million, up 243 per cent on HY2021
• Total operating earnings (EBITDAF*) of $122.2 million, up 11 per cent
• Operating earnings (EBITDAF*) from continuing operations of $106.4 million, up 16 per cent
• Operating earnings (EBITDAF*) from discontinued operations of $15.8 million, down 14 per cent
• Generation volumes of 1,000 GWh, up 6 per cent
• Fully imputed interim dividend of 17 cents payable on 3 December 2021

Trustpower Limited (NZX:TPW) has delivered a strong half year result ahead of its impending sale of the mass market retail business to Mercury NZ Limited (Mercury Energy), with two of the three conditions now met and the final condition expected before the financial year is over.

Net profit after tax climbed to $115.1 million, up from $33.6 million the previous year, largely due to a non-cash fair value gain on financial instruments. Underlying earnings** which exclude fair value gain on financial instruments were $59 million for the six months to 30 September 2021, up from $52.7 million in the prior period driven largely by higher generation volumes and wholesale prices.

Announcing its interim financials, Trustpower chair Paul Ridley-Smith said the company's results reflect a well-performing bundled retail business and sound management of its 27 generation schemes across New Zealand, enabling the business to deliver consistent returns for investors.

Trustpower shareholders approved the sale of its retail business to Mercury Energy at its Annual Shareholder Meeting on 22 September, and Mercury Energy had also been given the green light from the Commerce Commission, which said the $441 million deal would not substantially lessen competition. The final condition of sale is the completion of the Tauranga Energy Consumer Trust (TECT) restructure, subject to a High Court hearing scheduled for 15-17 November 2021.

Chief executive David Prentice said there had been considerable effort within the company to prepare the business for sale. Despite this, and the impact of COVID-19 lockdowns, Trustpower delivered an 11 per cent increase in total combined (discontinued and continuing) operating earnings (EBITDAF*) of $122.2 million, rising from $110.4 million in the prior period.

The company has remained focused on its customers with a rise in customer connections and continued high levels of customer service. Operating earnings (EBITDAF*) from discontinued retail operations were $15.8 million, down from $18.3 million in the prior period. This decrease included a reduction in revenue of ~$2.6 million resulting from the removal of the prompt payment discount structure, a cost of $1.1 million relating to the retail sale, and increased gas costs which Trustpower largely absorbed. Trustpower's telco customer numbers reached 114,000, up 8,000 or 7 per cent on the same time last year, including a new milestone of 10,000 mobile connections. All key retail metrics including fibre and mobile connections, products per customer and digital uptake, showed positive momentum.

"Energy only retailing is intensely competitive given current wholesale prices. Our multi-product retail business strategy bundling life's essential utilities including power, gas, internet and phone has been a tremendous success delivering greater returns and longer customer tenure," said Prentice.

Generation volumes at 1,000 GWh were up from 945 GWh the previous year, despite being impacted by extreme weather cycles. Trustpower's nationwide geographically dispersed portfolio of flexible generation schemes were able to take advantage of weather events, contributing to increased operating earnings (EBITDAF*) from continuing operations of $106.4 million up from $92.0 million in the prior period.

Improved asset reliability was delivered throughout the year and 3D modelling, digital simulation, and drone footage was being used to improve decision making and drive performance. Operational highlights included the refurbishment of a unit at the Coleridge Scheme, and commencement of construction of a new intake at the Branch Scheme which will allow the scheme to utilise its full consented intake, doubling capacity and increasing its annual generation once complete. Preparation was also underway to replace generators at Trustpower's Waipori and Cobb generation sites.

Dividend
An interim dividend of 17 cents per share, fully imputed, has been declared and is payable on 3 December 2021. Post sale, the Board has signalled its intention to issue an unimputed dividend of up to 65 cents.

Governance
Several changes to the Trustpower Board were announced at the recent Annual Meeting with former chief executive of Todd Energy and energy industry expert, Joanna Breare, along with business consultant, independent director and former chief executive of Counties Power, Sheridan Broadbent, joining the Board on 22 September. These appointments follow the retirement of Susan Peterson and David Prentice as Directors. Keith Turner also resigned effective 31 October.

Outlook
Ridley-Smith said Trustpower remains focused on its current business while building the capability to prosper under Manawa Energy - the recently announced new name for Trustpower assuming the retail sale goes ahead.

Looking forward, Manawa Energy will be focussed on developing new renewable generation capacity to help meet the anticipated significant increase in demand for electricity to meet New Zealand's climate targets as well as continuing to provide high levels of service to its existing commercial and industrial customer base.

A dedicated team has been formed to investigate options with a specific interest in wind and solar energy. Ridley-Smith said Trustpower has secured two wind and two solar utility-scale generation options across the North and South Islands although these projects were in the early stages of maturity. He said Trustpower was not limiting itself to greenfield developments and was looking at options to shorten time to market including partnerships, joint ventures, and acquisitions to execute developments and bring extra generation on stream by 2030.

"With electricity demand set to grow by 50 to 70 per cent over the next 30 years from electrification of transport and industry the potential for Manawa Energy is huge and the business is well poised to take advantage of the opportunities the market presents," said Ridley-Smith.

Guidance
Trustpower expects its FY22 EBITDAF to be in the range of $210-$225 million (excluding the costs of selling the retail business of ~$9 million). This is within the earlier guidance range given on 18 May 2021.