PLE
15/06/2015 08:30
FLLYR
PRICE SENSITIVE
REL: 0830 HRS Pulse Energy Limited
FLLYR: PLE: PLE - Full Year Preliminary Announcement
Overview
The twelve months to 31 March 2015 saw Pulse continue to grow its customer
base and revenues leveraging the new product offerings, marketing channels
and the Grey Power partnership developed in FY14. Electricity Authority
statistics showed our customer numbers grew by 7,317 to 54,761 during the
period, following on from our more than 15,000 customers gained in the year
to 31 March 2014. Pulse believes it is now at a sustainable scale and is
working to optimise its operations and financial performance.
There were several significant differences between the first and second half
year periods. Customer growth was stronger in the first half and this was
reflected in higher sales and marketing costs relative to the second half.
Constraints on the balance sheet meant the company had to slow down growth
while new financial arrangements were put in place. The summer period is
usually expected to have higher margins than winter as customer prices remain
the same but higher winter demand traditionally results in higher wholesale
market prices. While wholesale prices were high in the March quarter the
electricity price derivatives held for the quarter moderated the impact on
the cost of energy.
Progress since balance date
Pulse continues to make strong progress with operational performance and in
addition since 31 March 2015 a number of key agreements have been entered
into as previously announced to market, which will support the continued
growth and profitability of the company.
On 12 June 2015 the Group signed a three year Multi Option Facility Agreement
with the Bank of New Zealand. It is expected that completion of the security
arrangements (being the core outstanding conditions) and implementation of
the new banking arrangement will be completed by 19 June 2015.The Bank of New
Zealand facility is based around an invoice financing structure and the
available facility is linked to the level of receivables of the Group with a
maximum available facility of $10,000,000. Subsequent to balance date the
Group also entered into an additional $2,000,000 peak funding agreement which
matures in July 2016 with Buller Electricity Limited, the parent of the
Group. The existing arrangements with Buller Electricity Limited are
described in Note 20 of the Annual Financial Statements (attached). On
implementation these new facilities will replace the Westpac facility and the
Buller Electricity Limited guarantee of the Westpac facility. The Westpac
general security over the assets of the Group will be replaced by a Bank of
New Zealand general security. The new arrangements are expected to increase
the total funding available to the Group during the winter peak and to reduce
funding costs relative to the existing arrangements.
On 22 May 2015 the Company announced it had entered into an agreement with
Contact Energy to purchase contracts for difference (CFDs) for a significant
proportion of its forecast demand over the next four years. This
non-exclusive agreement will allow Pulse to complement its use of ASX
exchange traded products to provide forward cover.
Full Year Financial Performance
Revenue from ordinary activities increased by 37.3% to $101.8m reflecting the
annualised effect of customer growth in FY14 and the growth in customers in
the current financial year partially offset by changes in customer mix. Full
year EBITDAF (see reconciliation to net profit in the attached file) was a
loss of $2.9m, a 38.8% reduction from the EBITDAF loss in the prior year
reflecting the strong second half performance discussed further below.
The company's improved credit management processes have led to bad and
doubtful debt expense falling to $0.98m from $1.39m and combined with revenue
growth has reduced the expense from 1.9% of revenue to just under 1%. Bad
debt recoveries increased from $0.2m to $0.4m, primarily driven by a one off
sale of old bad debts.
Pulse endeavours to pass lines company costs through to customers in line
with the principle of transparency. During the year it was identified that in
a number of instances Pulse was not recovering its lines costs from customers
leading to material losses. Where this lines recovery deficit is pricing
related it has been addressed from 1 April 2015 and the other issues have
been resolved or are currently being addressed.The estimated impact on the
financial year is just under a $1m net cost and the company expects this to
be an immaterial amount in the upcoming financial year.
Pulse holds a number of electricity derivatives to hedge its exposure to
future changes in electricity prices. For accounting purposes, the
electricity derivatives are valued based on the prices in the futures market
on the reporting date. The derivative valuations revert to zero over the
life of the instruments as actual payments and receipts occur and flow
through EBITDAF. The change in valuation at each reporting date is reported
in each period's profit and loss below the EBITDAF line. From a practical
perspective the valuation of the derivatives does not impact expected future
cash flows as the net cost of electricity will not change. The fair value
movement recognised for the year was a gain of $2.9 million (FY14 $8.7m) as
futures market prices at 31 March 2015 were unusually high. Subsequent to
balance date market prices have fallen.
Financing costs net of interest income declined slightly year over year from
$1.2m in FY14 to $1.1m in FY15. The issuance of the Mandatory Convertible
Notes (MCNs) in November and December 2014 increased interest costs in the
second half with the MCNs having a cash cost of 10% per annum but for
accounting purposes a further, non cash expense of 8% per annum is added to
reflect the other terms of the MCN and the cost of issuance. Non MCN
financing costs are expected to decline in the upcoming year, particularly as
the new BNZ banking arrangement does not require a parent guarantee. This
improvement will largely offset the effect of a full year of the MCNs.
Cashflows
During the year the company's cash position improved by $4.0m to $4.9m (FY14
$0.9m) reflecting the issuance of the MCNs partially offset by the repayment
of the $0.5m shareholder loan which matured in November 2014 and negative
operating cashflows for the year of -$0.3m (FY14 -$2.0m).
Second half performance
Pulse made an EBITDAF gain of $1.7m in the second half after a first half
EBITDAF loss of $2.8m. Key drivers of the improvement relative to the first
half were stronger gross margins and lower operating costs. Revenue in the
second half was lower than in the first half reflecting lower sales volumes
but traditionally lower summer wholesale electricity prices more than offset
the effect of lower volumes generating a $7.1m gross margin against the first
half gross margin of $3.4m. Gross margins in the second were particularly
impacted by the issues in recovering lines costs discussed above.
During the second half of the year operating cashflows were $1.9m, a
turnaround from the -$2.2m in the first half. This improvement reflects the
improved EBITDAF and normal seasonal variations in working capital.
Relative to the second half of FY14 Retail Revenue was up 30.7% reflecting
the year on year growth due to increased customer numbers partially offset by
changes in the customer mix. Energy Gross Margin increased by 26.2%
reflecting the higher revenue and a smaller growth in energy, line and meter
expenses. Lower operating costs in the six months to 31 March 2015 combined
with the energy gross margin improvement saw EBITDAF improve by $3.7m
relative to the prior comparable period with Pulse moving from an EBITDAF
loss to positive EBITDAF for the half year.
Fair value movements on derivatives reflect market prices for electricity
futures contracts as at balance date and can be very volatile as shown by the
$6.3m loss in the first half and $9.2m gain in the second half of the current
financial year. High market prices at 31 March 2015 led to the large gain but
we note that as in 2014 prices have fallen significantly since balance date.
Operating cashflow in the second half was $1.9m, an improvement of $2.9m on
H2 FY14, this improvement was primarily driven by the improved EBITDAF.
Outlook
Pulse expects to be profitable at the EBITDAF line in FY16. The seasonal
nature of the business means that the first half will be weaker than the
second half however the solid platform now in place and the initiatives still
in progress are expected to see improvements in performance across the year.
Please find attached Pulse Energy Limited's full year preliminary
announcement and audited annual consolidated financial statements for the
year ended 31 March 2015.
For further information please contact:
Shane Sampson
Chief Financial Officer
P: +64 9 304 1173
E: [email protected]
End CA:00265648 For:PLE Type:FLLYR Time:2015-06-15 08:30:32