Strong result in challenging circumstances
Hydro Tasmania has delivered a strong financial performance for the year on the back of a welcome return to average rainfall, ongoing cost containment and improved trading opportunities in the National Electricity Market (NEM).
Tabling its annual report in Parliament today, the business is reporting an operating profit of $72.9 million for 2009-10 ($38.6 million in 2008-09), which is calculated before movements in fair value of assets and liabilities are added, and based on a turnover of $727 million.
While revenue from the Tasmanian component declined due to increased competition, there was a significant increase in mainland sales. Hydro Tasmania's retail business Momentum, which is included in the overall revenue figure, continued its excellent growth from its operations on mainland Australia.
Chairman David Crean said the overall result for 2009-10, when compared to the previous two years, demonstrated the importance of rainfall to Hydro Tasmania’s financial performance and the importance of Basslink to the business and the State.
Overall, net operating cash was $178 million ($43.8 million in 2008-09) while capital expenditure was $95.5 million ($81.2 million in 2008-09). Net debt declined by $41 million (from $904 million in 2008-09). The declared dividend for 2009-10 is $10.2 million.
Storages at 30 June 2010 were 36.3 per cent (27.7 per cent at 30 June 2009). They are currently sitting at 47 per cent.
Dr Crean said the overall result reflected a combination of increased inflows into hydro storages and the strong financial management of a business competing in a highly competitive national market that was providing significant returns to its owners - the people of Tasmania.
"Rainfall substantially determines our financial performance,” Dr Crean said. “This is clearly evident when you compare our results for the year with the years impacted by the drought. View the fact sheet below.
“The past three years have also demonstrated the importance of Basslink to the organisation and to Tasmania. The return to average rainfall this year gave Hydro Tasmania total flexibility in exporting to the mainland when prices were high in the spot market and importing back to Tasmania when prices were low with much improved trading opportunities.
“Having Basslink in place during the years of drought kept the lights on in Tasmania and avoided severe power restrictions and potential blackouts. However, this came at a cost of some $100 million each year due to net revenue foregone, which was totally absorbed by the business at no cost to consumers.”
Dr Crean said that despite the many positives in 2009-10, the past 12 months had been challenging with increased competition and greater scrutiny of Hydro Tasmania’s operations and commercial behaviour, as well as growing community concern over higher power prices, which has been felt in all States and not just Tasmania.
"Hydro Tasmania continues to strive to be more efficient and reduce costs while setting a clear growth strategy to strengthen our financial position, reduce our debt and increase returns to our owners,” he said.
"Our five-year growth strategy encompasses structured financial consolidation and discipline, electricity sales growth interstate, primarily through Momentum, and increasing our innovative capability.
“The aim is to build and maintain a sustainable business for future generations while returning the benefits to the Tasmanian community.”
Under this strategy, Hydro Tasmania forecasts that by 2015 its debt will be further reduced while returns to the Tasmanian Government during that time will total over $400 million.
Goal of sustainability
CEO Roy Adair said the 2009-10 result had set a challenging benchmark for future performance which the business must maintain if it is to attain its goal of sustainability.
Mr Adair said a key challenge for the business over the next few years was the progress towards a national emissions trading scheme which had been deferred from its original implementation date of July 2010.
"This has created uncertainty about the future, not only for Australia and the manner in which it responds to the global challenge of climate change, but also for Hydro Tasmania in realising the true value of its operating asset base and the renewable energy it creates," he said.
"We have the lowest level of carbon intensity of any integrated generator and retailer in the National Electricity Market (NEM). This strong advantage afforded to us by our ability to produce large volumes of very low emission electricity from hydro and wind assets has still to be reflected by the implementation of a carbon price.
"Until this situation is resolved, the value of our electricity production capability will continue to be undervalued."
Mr Adair, who joined Hydro Tasmania on 21 June 2010, said the business would build on a successful year by implementing a number of initiatives to ensure it could deal robustly with the challenges that lay ahead.
- Growing the value of the business;
- continuing to rationalise the group's operating cost base to ensure we remain a competitive participant in the NEM and robust enough to deal both with occasional years of extremely low rainfall and the predicted lower average run-off into hydro storages resulting from climate change;
- attracting and retaining good quality staff who want to be part of a dynamic and growing business;
- positioning the business to stand on its own without any need for additional equity support from the Tasmanian Government;
- optimising the management of Hydro Tasmania's generation asset base;
- enhancing the interaction with the Tasmanian community and continuing to support the Tasmanian economy;
- a unifying brand for Hydro Tasmania, its consulting business now known as Entura, and its retail arm Momentum to recognise their unique qualities, diversity and wider market focus.
"While we look to the mainland for growth opportunities, Tasmania will always be our principal place of business and our home base," Mr Adair said.
"We are a major employer and contributor to the State's economy. Our business impacts on the lives of many Tasmanians and our people actively engage with all parts of the community.
“While we have a responsibility under legislation to seek a commercial rate of return as a business, we also have a significant footprint across the State and want to build upon the many areas in which we actively engage with the community.
“This is a key element of our strategic purpose to deliver a sustainable future.”
The annual report is available here.
|Cash flow from operating activities||25.0||43.8||178.0|
|Generation (GWh) – hydro||7100||7203||8184|
|Basslink (GWh):net imports||2279||2560||1056|
|Storage levels at 30 June (%)||19.1||27.7||36.3|
|Employee numbers – excluding Momentum||819||860||844|
For futher information
Please contact Ian Colvin on 03 6230 5800