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Investor Briefing
November 2015
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
Trustpower key facts
•
Tauranga based national electricity generator / retailer
•
Market capitalisation circa NZ$2.4 billion
•
Key shareholders Infratil (50.6%), TECT (26.6%)
•
Free float of Trustpower’s shares 22.1% (excludes treasury stock)
•
New Zealand generation capacity (hydro / wind) 634 MW producing an average of circa 2,406 GWh per annum
•
476 MW of Australian wind and hydro operating assets producing an average of circa 1,624 GWh per annum
•
Approximately 280,000 energy connections (including 28,000 gas connections) plus 51,000 telco connections
•
Approximately 675 FTE employees
© Trustpower Limited
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
NZ electricity 7 day rolling spot prices last 12 months
Wholesale pricing subdued over H1 FY16
Source : NZX Pricing Manager
© Trustpower Limited
NZ 7 day rolling demand last 12 months
Demand consistently higher than last 2 years plus winter peaks have driven higher gas consumption
Source : Transpower
© Trustpower Limited
NZ hydro storage position
National storage tracking slightly above long term average since May
Source: COMIT Hydro Summary – 23 Oct 2015
© Trustpower Limited
© Trustpower Limited
2012
Well known NZ dry years
Sources :
https://www.niwa.co.nz/education‐and‐training/schools/students/enln
http://www.bom.gov.au/watl/about‐weather‐and‐climate/australian‐climate‐influences.shtml?bookmark=enso
2008
2003
2001
1992
EL Nino – no correlation to dry years
EL Nino – no correlation to electricity prices © Trustpower Limited
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
Half Year results summary
Key Drivers
Comments
Growth agenda delivering improved profitability despite challenging conditions characterised by low wholesale prices, generation over‐capacity and high NZD/AUD exchange rate
EBITDAF $184m up 6%
•
NZ generation production stronger, particularly North Island hydro and wind production in Q2
NZ Generation production 1,307 GWh up 7% on prior period and in line with expectation
•
Retail growth strategy progressing well
•
Continued spend on marketing and acquisition ‐ up $3.4m (40%) on prior period
Compared to prior period
• Electricity connections up 8% to 252,000
• Gas connections up 33% to 28,000
• Telco connections up 46% to 51,000
•
Underlying NPAT $68.3m up 1%
•
•
Australian profitability increased due to • Snowtown Stage 2 • Green State Power assets. Full period contribution in first half of FY16. Purchased Q2 of FY15
© Trustpower Limited
Mass market sales up 10% to 1,659GWh
Stage 2 EBITDAF contribution AUD32M (prior period AUD29M)
GSP EBITDAF AUD 4M (prior period AUD1M)
Australian wind volume 582GWh down 8% on long term expectation
EBITDAF bridge first half FY15 – FY16
© Trustpower Limited
EBITDAF, underlying earnings after tax and operating cash flow year to 30 September 2015
© Trustpower Limited
Sources of own New Zealand generation
© Trustpower Limited
Overhead costs and customer numbers
© Trustpower Limited
Current sources of debt financing
•
•
•
Longer term funding mix currently provided by a combination of retail senior and subordinated bonds and ECA facilities.
Strategic liquidity from committed but undrawn bank facilities rebuilding post completion of Snowtown Stage 2.
NZD 100M of sub bonds maturing end of 2015 likely to be repaid with bank debt.
*Exchange Rate of NZD / AUD 0.91 assumed
© Trustpower Limited
Gearing measures
Gearing improved by generation asset revaluation uplift
© Trustpower Limited
Dividends

© Trustpower Limited
Interim dividend of 21c imputed to 16c payable 11 December 2015
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
Trustpower brand awareness in Auckland growing
© Trustpower Limited
Trustpower brand awareness in Auckland growing
© Trustpower Limited
Strong sales momentum first half FY16
New Electricity Connections April ‐ September 2015
© Trustpower Limited
Bundle penetration
• Two out of three new customers taking a bundled service including telco services
• Reduction in churn rate of bundled customers to electricity only customers exceeds 40%
• Bundle penetration exceeding expectations and targets
© Trustpower Limited
Bundled churn lower
Contracted position remains strong
Annualised Churn Rate
Power only
41% lower churn
Power and telco
© Trustpower Limited
Insight and proposition development
• Developing an integrated approach to deep customer understanding
• Generating insights that will enable targeted proposition development
• Improved acquisition and retention rates • Reduced cost to acquire
© Trustpower Limited
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
Generation development pipeline
© Trustpower Limited
•
Trustpower retains significant options
•
NZ hydro and wind
‐ Near term oversupply headwind to investment
‐ Maintain options as long as possible
•
Australian wind
‐ LRET renewable energy ‐ Target largely met by wind
‐ PPA’s mitigate risk but may be hard to achieve
‐ Progressing DAs in SA, VIC and NSW with view that revised LRET scheme still supports further wind development
‐ Dundonnell in VIC consent hearing completed. Expect decision by end of 2015
‐ New consented site in WA
Renewable energy target review Likely to be a new build opportunity of circa 15,000 GWh of renewable energy in Australia over next 5 years. 80 – 90% expected to be wind
© Trustpower Limited
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
King Country Energy (KCE)
•
•
•
•
Trustpower has today given notice of intention to make a full takeover offer for KCE
Offer price is $4.78 per share but this will increase to $5 per share if acceptances of 70.2% or more are received (excluding any acceptance of King Country Electric Power Trust (KCEPT) which holds 19.98% of KCE)
Lock up agreement with Nova Energy Limited for it to accept the Offer for its 54.07% stake in KCE
Offer conditional on 50.1% acceptances and other market standard conditions
KCE Shareholders
%
Nova Energy
54.07
KCEPT
19.98
Small Shareholders
25.95
© Trustpower Limited
KCE business summary
Retail Summary
• 17,500 ICPs with majority (69%) on KCE’s incumbency network
• Domestic customers also in Waipa and Waikato regions
• SME customers across North Island
Strategic Fit with Trustpower
• Small/medium sized North Island hydros and provincial customer base fit well with Trustpower’s NZ business and core operational competencies
© Trustpower Limited
KCE takeover offer milestones
 Offer to be made between 14 and 30 days after the Takeover Notice sent to KCE
 Nova to accept offer within 3 days after despatch
 Payments in respect of acceptances after offer becomes unconditional within 7 days of receipt of acceptance
© Trustpower Limited
Contents

Trustpower Key Facts

Market Environment

Results Summary and Operational Performance

Funding and Shareholder Performance

Retail Multiproduct Strategy – Progress Update

Generation Pipeline and Australian Options

KCE Takeover Offer

Group Strategic Focus
© Trustpower Limited
Group strategic focus
Retail Growth Initiatives
•
•
•
•
Regional and metro acquisition campaigns continue
Focus on technology tools and analysis to improve customer and target market insights
Cross sell to existing customer base
Advanced metering deployment under review but some deployment likely in FY17
KCE Acquisition
•
Successfully complete takeover and implement integration
Australia Wind
•
•
•
•
Progress development approval processes for 3 projects in SA, VIC and NSW (close to 900 MW in aggregate)
Focus on optimisation of development pipeline – potential for further acquisition of development options
Taking a longer term view of renewable energy investment opportunities beyond RET scheme. Expect Australia’s ageing fossil fuel generation assets to be scaled back over the next 10 ‐ 15 years and be replaced by renewable energy
Funding strategies being actively pursued
Irrigation
•
Negotiation of further water storage and release agreements with irrigators
© Trustpower Limited
Non‐GAAP measures
•
Underlying Earnings is a non GAAP (Generally Accepted Accounting Principles) financial measure. Trustpower believes that this
measure is an important additional financial measure to disclose as it excludes movements in the fair value of financial instruments
which can be volatile year to year depending on movement in long term interest rate and or electricity future prices. Also excluded
in this measure are items considered to be one off and not related to core business such as changes to the company tax rate or
impairment of generation assets.
•
EBITDAF is a non GAAP financial measure but is commonly used within the electricity industry as a measure of performance as it
shows the level of earnings before impact of gearing levels and non‐cash charges such as depreciation and amortisation. Market
analysts use the measure as an input into company valuation and valuation metrics used to assess relative value and performance of
companies across the sector.
•
Reconciliation between statutory measure of profit and the two measures above are given below:
Proft After Tax Attributable to Shareholders of the Company
Fair value losses / (gains) on financial instruments
Discount on acquisition
Impact of Inland Revenue court case
Other changes in income tax expense in relation to adjustments
Underlying Earnings After Tax
HY2011
68,762
9,480
‐
‐
(2,654)
75,588
HY2012
69,839
8,863
‐
‐
(2,482)
76,220
HY2013
77,167
(10,066)
‐
‐
2,818
69,919
HY2014
89,235
4,395
(24,986)
‐
(1,231)
67,413
HY2015
59,746
3,019
‐
6,337
(845)
68,257
Operating Profit
Fair value losses / (gains) on financial instruments
Discount on acquisition
Depreciation and amortisation
EBITDAF
HY2011
122,709
9,480
‐
29,398
161,587
HY2012
124,764
8,863
‐
32,474
166,101
HY2013
129,138
(10,066)
‐
34,029
153,101
HY2014
147,796
4,395
(24,986)
46,141
173,346
HY2015
123,914
3,019
‐
57,246
184,179
© Trustpower Limited
Disclaimer
Some of the information set out in the presentation relates to future
matters, that are subject to a number of risks and uncertainties (many of
which are beyond the control of Trustpower), which may cause the actual
results, performance or achievements of Trustpower or the Trustpower
Group to be materially different from the future results set out in the
presentation. The inclusion of forward‐looking information should not be
regarded as a representation or warranty by Trustpower, the directors of
Trustpower or any other person that those forward‐looking statements will
be achieved or that the assumptions underlying any forward‐looking
statements will in fact be correct.
© Trustpower Limited
Thank you