Ann: HALFYR: NWF: Interim Report for the six mont

• Release Date: 27/02/13 17:42
• Summary: HALFYR: NWF: Interim Report for the six months ended 31 December 2012
• Price Sensitive: No
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NWF
27/02/2013 15:42
HALFYR

REL: 1542 HRS NZ Windfarms Limited

HALFYR: NWF: Interim Report for the six months ended 31 December 2012

NZ WINDFARMS LIMITED

CHAIRMAN'S REVIEW
For the six months ended 31 December 2012

FINANCIAL PERFORMANCE

Shareholders will be well aware from earlier reports that the key drivers of
the revenue of the wind farm are the wind received at the site and the
wholesale electricity price. For the six month period to 31 December 2012,
both output and price tracked below our expectations. Hydro lake levels are
tracking at close to long term average levels, but demand for electricity is
still depressed.
The Company reports a profit before depreciation, amortisation, interest and
tax of $145,000 for the half year (31 December 2011 - profit of $915,000).
When depreciation, amortisation, interest and tax are taken into account,
there was a net loss after tax of $1,257,000 (31 December 2011 - loss of
$1,335,000).
During the six month period NZ Windfarms earned $3,014,000 from electricity
sales. To achieve this, turbines generated 59,137 MWh at an average price of
$50.97/MWh. The comparatives for the six months to 31 December 2011 were
revenues of $3,576,000 from 56,884 MWh at an average price of $62.86/MWh.
Turbine availability in excess of the 95% level warranted by the manufacturer
ensured that electricity volumes produced exceeded the prior period. However,
the very weak wholesale electricity prices meant that even though more power
was generated, the revenue fell short of the prior period.
Included in the result are two major expenses that are outside the normal
operating costs of the wind farm. First, the legal costs incurred in
defending the Environment Court action instigated by the Palmerston North
City Council of $243,000, and second, the provision for doubtful debts of
$764,000 owing by Windflow Technology Limited for warranty claims. The
decision to provide for the Windflow Technology debt was taken by the
Directors when preparing the 30 June 2012 annual financial statements. The
Directors remain hopeful that this issue may be fixed as Windflow Technology
has recently made positive moves in an endeavour to achieve financial
stability. Should they succeed, it is expected that they will be able to meet
their financial obligations to our company.
On the positive side was the receipt of proceeds from the sale of emission
units. The accounting policy for these is to recognise units as an asset at
their fair value at the time they are issued by the Crown. The 2011 emission
units had not been issued prior to preparation of the 30 June 2012 accounts
and so the proceeds of $223,000 have been recognised in the current six month
period. The value of emission units has declined markedly in recent times
with the units being sold for $3.75 per unit compared to the 2010 emission
units which were sold for $20.05 per unit.
Interest income during the period was $192,000 (31 December 2011 - $176,000).

Interest expense during the period was $486,000 (31 December 2011 -
$447,000).

OPERATIONAL PERFORMANCE

As noted above we generated 59,137 MWh in the six month period to 31 December
2012, an increase on the 56,884 MWh generated in the comparable period the
previous year. While our team has had to deal with the usual mechanical
issues expected of this type of machinery, the turbines achieved 96%
availability for the period (above the 95% availability level the
manufacturer warranted). This result is a credit to the on-site operations
team.
While we acquired the operations and maintenance team in October 2011, our
company is still dependent on Windflow Technology for developing operational
policies and procedures for major repairs and for sourcing a number of the
major spare parts. Given WTL's well publicised financial difficulties, we are
currently recruiting engineers for design and development work with two
objectives; first, to be confident that our wind farm can operate
independently of WTL, and second, to achieve a long-run reduction in the cost
of maintenance of the turbines. We continue to maintain a working
relationship with WTL.

RESOURCE CONSENTS

Shareholders were last updated on our resource consent issues at the AGM in
November 2012. The Board reported then that the Environment Court had
released its decision on 4 July 2012 with two key declarations in favour of
the Palmerston North City Council. Following that Court decision our Company
opened a dialogue with the affected residents, facilitated by PNCC, in the
hope that we can find a mutually acceptable solution. A number of meetings
have been held with a considerable exchange of information and views. A
mutually accepted solution is still the Company's preferred approach. We also
appealed the Environment Court decision. The appeal hearing was heard 4
February 2013. At this stage no decision has been announced and we do not
know when the Court decision will be made.

OUTLOOK

While we continue to maintain the wind farm and achieve high availability of
turbines, the long term financial performance is dependent upon the two key
variables; the wind at the site and the electricity market wholesale price.
The Company is unable to influence either of these. The period under review
saw prices achieved drop from an average price of $62.86/MWh during the
comparative period of 2011 to $50.97/MWh for the same period in 2012. The
Company therefore focuses on operating the farm as economically and prudently
as possible and continues to look at options for improving engineering
efficiencies and the streamlining of costs.
Resolving both the resource consent issues and the Windflow Technology
warranty issues has the potential to have a material impact on future
profitability. We expect the outcome of both those issues in the next six
month period.

Wyatt Creech
Chairman
26 February 2013
End CA:00233520 For:NWF    Type:HALFYR     Time:2013-02-27 15:42:20