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ERM Power Announces Half Year Results

ERM Power Limited (ASX: EPW) today reported underlying EBITDAF1 of $37.9m for the six months to 31 December 2015, a decrease of 15% on the first half of FY2015. Underlying EBITDAF growth of $7.6m in the Australian electricity retailing business was offset by US business investment and the change in contract and operations of the Oakey Power Station, as previously guided.

The Company also announced it has finalised a A$150m, three-year committed surety guarantee facility with Liberty International Underwriters Singapore, and an associated facility with CBA. The unsecured facility provides for the issue of guarantees to support ERM Power’s prudential requirements.

The arrangements form part of ERM Power’s stated objective of improved capital efficiency to support growth and diversification in delivering customer solutions.

Results Summary

$m unless otherwise stated 1H FY 2016 1H FY 2015 % Change
Revenue and other income 1,324.5 1,099.1 +21%
Contestable revenue 677.7 539.9 +26%
Statutory EBITDAF1 35.1 42.0 (16%)
Statutory NPAT 14.9 75.0 (80%)
Underlying EBITDAFincluding interest income 37.9 44.6 (15%)
Underlying EBITDAF1 excluding interest income 35.7 41.8 (15%)
Underlying NPAT1 9.4 14.7 (36%)
Underlying EPS2(cps) 3.85 6.14 (37%)
Interim dividend (cps) unfranked3 6.0 6.0
Operating cash flow before changes in working capital 37.8 42.1 (10%)
Electricity sales volume – load (TWh) 10.1 7.9 +28%

 

Underlying EBITDAF for the period was $37.9m compared to $44.6m in the previous period. EBITDAF from the Australian electricity business increased $7.6m on the prior corresponding period. This was offset by a $14.3m decrease in earnings as follows:

  • The Oakey Power Station offtake contract expired on 31 December 2014 and the plant started operating as a merchant facility ($8.0m);
  • Losses arising from the US electricity sales business Source Power and Gas driven primarily by increased operating investment to scale up the business (A$3.2m); and
  • Reduced earnings from discontinued businesses including the Western Australia joint venture gas interests and other items ($3.1m).

ERM Power Managing Director and CEO Jon Stretch said the Australian electricity retailing business had performed well, with EBITDAF of $29m, up $7.6m (35%) on the prior corresponding period.

“We’ve achieved double digit load growth in a flat market. Our electricity retailing business grew sales load by 13.5% on the comparable half. Gross margin per MWh was up from $4.06 in the comparable half to $4.48.  The increase reflects the strong performance of our SME business, with its higher gross margins,” he said.

Mr Stretch said ERM Power was again voted number one in customer satisfaction among all major energy retailers in Australia, for the fifth year running.

“Our industry leading service and satisfaction is fundamental to the key metrics around contract retention rates and gross margin,” he said.

Mr Stretch said investment in the US business was the primary contributor to the reported underlying loss of A$3.2m in the half for Source Power and Gas.

“We’re investing in this business for growth. The leading indicators are positive and we’re pleased with progress. Our operating expenditure is being reflected in growth in the forward contract book. We’ve grown our sales force and built systems and capability. Our reach into our two chosen US markets, PJM and ERCOT, increased as a result and load grew to 1.1TWh over the half,” he said.

“We’re a year into the US acquisition and the performance of the business increases our confidence in delivering on sustained profit in financial year 2017 and beyond.”

The Board has declared an interim dividend of 6.0 cents per share unfranked. The record date for the dividend is 15 March 2016 and the payment date is 15 April 2016.

Capital Management – New Financing Facility

ERM Power today announced it has finalised a A$150m, three-year committed surety guarantee facility with Liberty International Underwriters Singapore, and an associated Fronting Bank Facility Agreement with CBA. The unsecured facility is priced at 172.5bps (credit margin) and provides for the issue of guarantees to support ERM Power’s prudential requirements.

The arrangements form part of ERM Power’s strategy around capital efficiency to support growth and diversification in delivering customer solutions.

ERM Power CEO Jon Stretch said: “One of our strategic goals, outlined at our AGM in October 2015, was to build greater capital efficiency and diversify our funding options in support of our growth. We’ve delivered on this with the Sunset Power Vales Point offtake agreement announced in November. We’ve built on that further with today’s announcement.”

Guidance

The forecast underlying EBITDAF range for FY2016 has been narrowed to $81m to $85m within the previously guided range. This reflects an anticipated full year EBITDAF loss in the US business of A$2m to A$3m.

-ENDS-

For further information

Tracey Palmer
Phone: +61 7 3021 3266
Mobile: +61 438 310 539
Email: tpalmer@ermpower.com.au

About ERM Power

ERM Power is an Australian energy company operating electricity sales, generation and energy solutions businesses. The Company has grown to become the second largest electricity provider to commercial businesses and industrials in Australia by loadi. A growing range of energy solutions products and services are being delivered, including lighting and energy efficiency software and data analytics, to the Company’s existing and new customer base. The Company operates 662 megawatts of low emission, gas-fired power stations in Western Australia and Queensland.

iBased on ERM Power analysis of latest published information.

Notes

1.Non-IFRS Financial Measures

EBITDAF: Earnings before interest expense, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial instruments designated at fair value through profit. EBITDAF excludes any profit or loss from associates.

Underlying EBITDAF – EBITDAF excluding significant items.

Underlying NPAT – Statutory net profit after tax attributable to equity holders of the Company after excluding the after tax effect of unrealised marked to market changes in the fair value of financial instruments, impairment and gains / losses on onerous contracts and other significant items. Underlying NPAT excludes any profit or loss from associates.

2.Based on 244.0m weighted average number of shares on issue (1H FY2015 240.3m shares)

3.1H FY 2016 unfranked dividend; 1H FY 2015 fully franked dividend