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

• Release Date: 28/02/14 10:31
• Summary: HALFYR: NWF: Interim Report for the six months ended 31 December 2013
• Price Sensitive: No
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					NWF
28/02/2014 08:31
HALFYR

REL: 0831 HRS NZ Windfarms Limited

HALFYR: NWF: Interim Report for the six months ended 31 December 2013

NZ WINDFARMS LIMITED
CHAIRMAN'S REVIEW

For the six months ended 31 December 2013

FINANCIAL PERFORMANCE

The key drivers of the revenue of the wind farm are the wind received at the
site and the wholesale electricity price. Compared to the previous
corresponding period, the volume of electricity generated increased, but
prices were lower. Prices have been adversely impacted by additional capacity
coming on-stream, high hydro lake storage levels and soft demand.
During the six month period NZ Windfarms earned $2,729,000 from electricity
sales. To achieve this, turbines generated 63,530 MWh at an average price of
$42.96/MWh. The comparatives for the six months to 31 December 2012 were
revenues of $3,014,000 from 59,137 MWh at an average price of $50.96/MWh.
The Company reports a profit before depreciation, amortisation, interest and
tax of $187,000 for the half year (31 December 2012 - profit of $145,000).
When depreciation, amortisation, interest and tax are taken into account,
there was a net loss after tax of $1,225,000 (31 December 2012 - loss of
$1,257,000).
The reduction in revenue from electricity sales in comparison with the same
period in 2012/13 has been largely offset by increased warranty recoveries
from Windflow Technology Limited for warranty repairs carried out on their
behalf. However the increased level of repairs has adversely impacted wind
farm operating costs and employment expenses. High legal and consulting costs
are still being incurred due to the continuing Environment Court action
instigated by the Palmerston North City Council. A reassessment of risk has
resulted in significant economies being made in insurance costs.
Interest income during the period was $181,000 (31 December 2012 - $192,000).
Interest expense during the period was $486,000 (31 December 2012 -
$486,000).
OPERATIONAL PERFORMANCE

The 63,530 MWh generated in the six month period to 31 December 2013 is a
7.4% increase on the 59,137 MWh generated in the comparable period the
previous year. The increased level of repairs required over the six month
period resulted in the turbines achieving 93.8% availability which is below
the manufacturer's warranty of 95%.

As previously advised we have suffered a number of gearbox failures in the
review period. We are monitoring all gearboxes and identifying those
gearboxes that are exhibiting the early signs of failure. These gearboxes are
then monitored more intensely and included in a repair and reinstall program
that to date has allowed us to avoid consequential damage and therefore
minimise repair costs and time.
In addition to the aforementioned gearbox issues our operations team is
charged with the maintenance of the fleet of 97 WF500 turbines and the repair
of the various components that suffer failure from time to time e.g. pitch
bearings.
RESOURCE CONSENTS

Shareholders were last updated on our resource consent issues at the AGM in
November 2013. The Board reported then that the High Court found in our
favour with regards to our appeal of the earlier adverse Environment Court
decision. We noted that the Palmerston North City Council had been granted
leave to appeal that decision, and can advise that the Palmerston North City
Council have now applied for a Court date to hear that further Appeal. We
will advise shareholders of progress in this matter and with regard to the
outstanding Environment Court declarations sought by the Council as it
occurs. We have continued to monitor the sound power output from the wind
farm and remain confident that we are meeting the conditions of the consents
provided by the Palmerston North City Council and the neighbouring Tararua
District Council.

NZ WINDFARMS LIMITED
CHAIRMAN'S REVIEW
BOARD CHANGES

Wyatt Creech resigned effective from the AGM date, and Mike Allen has advised
he will resign from the Board, effective no later than 31 March 2014. Derek
Walker has been appointed Chair and Simon Mackenzie, Deputy-Chair. The
Nomination Committee is presently evaluating future Board structure and
composition.
CAPITAL MANAGEMENT

The Company provided an update on its review of capital management at the AGM
in November.

We had advised shareholders at the 2012 AGM that we were looking at ways to
restructure the Powerco lease. Considerable savings could be achieved if the
lease was repaid and the bank guarantee removed. Unfortunately the Company
has been unable to get agreement on early release from Powerco and has
therefore renewed its guarantee with the BNZ to support the lease.

The terms of the BNZ guarantee require us to hold $6.5 m on deposit to
support the BNZ guarantee. In the Board's view, it is also prudent to hold
some surplus funds on its balance sheet to provide resources which may be
required to address any major costs to resolve the resource consent issue,
costs that would arise should our warranties become inoperative, our on-going
reconditioning programme require further financial support and any other
unforeseen issues.

In parallel with the matters noted above, the Board has observed that there
is a substantial difference between the value of the business implied by the
net asset value per share as at 30 June 2013 (after taking in to account
impairment charges), and the current share price.

The Board therefore investigated whether the most efficient use of any
surplus funds that the Company may have in the near term would be to buy back
shares. After considering the options available, the Board has decided not to
proceed with a buy back for now. The Board believes it is prudent to retain
any surplus funds to cover issues mentioned earlier and to provide funding to
repay the lease, or part thereof, once we have the contractual rights to
repay without penalty.
OUTLOOK

The long term financial performance is dependent upon the two key variables
which are outside of the Company's control; the wind at the site and the
wholesale electricity market prices. Over the period under review wholesale
electricity prices received fell for the second year in a row over those
prevailing in the same period of previous years. The Company therefore is
exploring the potential to hedge a portion of the farm's output to improve
revenue certainty while remaining focused on operating the farm as
economically and prudently as possible. The Company is continually learning
about the installed turbine fleet's maintenance requirements and exploring
options for improving engineering efficiencies and therefore streamlining
costs.

Derek Walker
Chairman
25 February 2014
End CA:00247615 For:NWF    Type:HALFYR     Time:2014-02-28 08:31:22