Transpower New Zealand Limited

Chair » Mark Verbiest

Board » Ian Fraser, Abby Foote, Don Huse, Maury Leyland, Michael Pohio, Alastair Scott, Keith Tempest

Chief Executive » Dr Patrick Strange

Activities

Transpower plans, builds, maintains and operates the National Grid which links generators of electricity to distribution companies and major industrial users. Through its System Operator role, Transpower also provides real-time co-ordination of electricity transmission, electricity generation, transmission and demand.

Financial performance measures
	2007	2008	2009	2010	2011
Returns
Total shareholder return	9.4%	4.4%	(7.5%)	28.0%	0.0%
Dividend yield	0.0%	0.0%	0.0%	0.0%	0.0%
Dividend payout	0.0%	0.0%	0.0%	0.0%	0.0%
Adjusted ROE	9.7%	8.1%	10.0%	10.0%	8.5%
Efficiency
ROCE	8.1%	8.2%	10.2%	9.9%	8.9%
Operating margin	55.3%	59.5%	58.5%	63.8%	61.8%
Generator efficiency	N/A	N/A	N/A	N/A	N/A
Leverage
Net gearing	53.8%	46.9%	47.2%	52.6%	54.1%
Interest cover	3.58	4.96	4.18	4.06	3.62
Current ratio	0.15	0.83	0.91	0.62	0.29
Other (Five-year average)
Dividend growth					N/A
Revenue growth					2.9%

Income statement
$m	2007	2008	2009	2010	2011
Revenue	651	642	694	730	731
EBITDAF	361	382	406	466	452
NPAT	126	78	93	65	78

Balance sheet
$m	2007	2008	2009	2010	2011
Total assets	3,051	2,844	3,106	3,565	4,171
Total liabilities	1,693	1,537	1,706	2,111	2,637
Commercial value*	1,294	1,351	1,250	1,600	1,600

Cash flow statement
$m	2007	2008	2009	2010	2011
Operating activities (net)	241	330	250	313	285
Purchase of fixed assets	288	328	336	555	664
Dividends paid	0	0	0	0	0
Net cash flow	(2)	6	30	(18)	(21)

Note:

* Commercial valuation from the SCI

Operations

In 2010/11, Transpower has continued its major grid investment programme, spending $733 million across multiple projects. The overall capital programme is currently forecast to be around $5 billion over 10 years, with investments peaking in 2011/12 at around $870 million. These investments will significantly increase the capacity, performance and resilience of the grid. The increase in capital investment will see a commensurate increase in the revenue Transpower can recover from its customers, as determined by the Commerce Commission (the Commission).

There have been significant regulatory changes impacting Transpower. Under the Electricity Industry Act 2010, since 1 November 2010, Transpower was given additional responsibilities as the System Operator and placed regulatory oversight of all transmission operating and capital expenditure under a single regulatory agency, being the Commission. Additionally, under the new regime, the Commission has developed a new input methodology that determines the rate of return that Transpower may earn on its investment in the National Grid. Transpower considers that the proposed rate of return set by the Commission is materially below its cost of capital, and has therefore applied to the High Court seeking a "Merits Review" and a Judicial Review of the Commission's final decision.

Financial performance

Transpower achieved NPAT (excluding fair value movements) of $126 million for 2010/11. This compares with $142 million for 2009/10. The decrease in profit is a result of higher operating expenses (particularly maintenance), lower than forecast transmission revenue owing to a reduction in the regulated return set by the Commission and the deferral of the planned commissioning of the new Pole 3 and recognition of a further impairment charge on properties ($19.7 million) purchased by Transpower for the North Island Grid Upgrade project.

Following a period of large investments, it is expected that Transpower will deliver a higher cash return to the Crown.

Performance against plan

Transpower recorded NPAT (excluding fair value movements) of $126 million, against a plan of $152 million. Though the underlying operating performance was sound, the result was impacted by the adverse one-off impacts mentioned above in the financial performance section.

Dividends

In a decision supported by shareholders, Transpower had suspended its dividend payments since the 2005/06 financial year so that profits could be reinvested in the grid. Following a review of its capital structure and dividend policy in 2010/11, the Transpower Board has decided to recommence dividend payments in 2011/12, a year earlier than previously anticipated. This is likely to result in a dividend payment of $315 million in 2011/12 and cumulative dividend payments of $695 million over the next three years.

Major investments

Transpower has a major capital investment programme underway. Work on the three largest projects continues, being the North Island Grid Upgrade project (a total project value of $824 million), the High Voltage Direct Current Pole 3 project to upgrade the inter-island cable (a $672 million project) and the North Auckland and Northland Project (a $473 million project).

Non-financial performance

Transpower achieved the majority of its non-financial performance targets but did not achieve targets around the number of fatalities or injuries causing permanent disability (1 against a target of 0), and the number of medical treatment injuries (26 against a target of 20). Transpower continues to focus on improving its safety performance.

Corporate social responsibility

Transpower has established a CommunityCare Fund that provides support and funding to communities that are impacted by Transpower's operations. In 2010/11, the Fund made grants totalling $1 million to 52 community-based projects nationwide.

Transpower also made a special $500,000 donation for Canterbury earthquake relief.