Mighty River Power gets a slight foreign exchange dampener, but still reports strong half-year result

The pain inflicted by the high Kiwi dollar is not limited to exporters – just ask Mighty River Power.

The state-owned power company, set to be the first of the SOE’s to be partially sold off, had the pleasure of receiving its first payout from an overseas geothermal investment somewhat dampened by a $22.4 million foreign exchange loss.

MRP original US$250 million investment in GeoGlobal Partners I Fund (GGE Fund), for geothermal projects in the US, Germany and Chile, was made in 2010 when the Kiwi was worth US69.7c, versus the +US80c rates prevailing more recently.

MRP got the New Zealand equivalent of NZ$140 million as a cash distribution from the fund in October. The good news was that even after the exchange rate hit the company was able to book a $57 million after-tax gain on it.

“Normally we would try and hedge those returns,” MRP chief executive Doug Heffernan said.

“But because of the particular character of the investments through GGE we couldn’t define precisely when and what level the cash return would come. So, we weren’t able to get an effective hedging of the cash return and therefore we had an exposure to exchange rate movements.”

Heffernan couldn’t rule out that future returns might also be affected by exchange rate losses – though said MRP would be looking at ways to avoid it.

“That’s one of the strategic things we will be working through now that we’ve got direct control of the investments we’ve got in Energysource [in the US] and into Chile. We’ll be able to be much closer to the table...”

Heffernan did point out that in the swings and roundabouts nature of these things, some of the additional investments in the GGE Fund had been done at a time when the Kiwi-US exchange rate was very high and were therefore favourable.

MRP announced last week that it was taking direct control of the US and Chile investments and has taken a NZ$88.9 million write-down on the value of the GGE Fund’s investments and it management company.

MRP reported net profit after tax of NZ$75.5 million for the six months to December, up from $17.6 million at the same time a year ago. The more reliable measure of “underlying earnings” – not involving one-offs – was NZ$133.2 million, up from NZ$101.7 million. A dividend of NZ$67.2 million was paid.

Operationally, MRP showed strong gains in electricity sales to business, partially offset by a slight fall in sales to residential customers. In gigawatt hours (GWh) sales to businesses in the first half of the year were up 22% when compared with the same period a year ago to 1402GWh. Residential sales eased to 1375GWh from 1408GWH.

“We’ve got some bigger contracts than we had previously and that was part of a desire to get some matching against the new geothermal capacity coming on to the market,” Heffernan said.

MRP’s NZ$484 million new Ngatamariki geothermal power station is due to be commissioned in mid 2013, with first power to the grid expected in early March.
Heffernan was “very happy” with the business gains.

“We seemed to hit the market at the right time and got very good results.”

He said the new contracts were with general, medium-sized businesses. “There would be literally 10s of contracts that made up that gain – not one or two.”