interim report 2011

Mighty River Power

Interim Report 2011

Mighty River Power Limited Interim Report 2011 1

0-910-2930-4950-69

GEOTHERMAL

100M

W

est.2008

100M

W

est.2008

34MW

est.2008

140M

W

est.2008

112M

W

est.2008

MOKAI

NGA AWA PURUA

ROTOKAWA

NGATAMARIKI

KAWERAU

WAIKATO HYDRO SYSTEMARATIATIA 78MWOHAKURI 106MWATIAMURI 74MWWHAKAMARU 98MWMARAETAI I & II 360MWWAIPAPA 54MWARAPUNI 182MWKARAPIRO 96MW

GEOTHERMALKAWERAU 100MWROTOKAWA 34MW

*NGA AWA PURUA 140MW*MOKAI 112MW *Not 100% owned by Mighty River Power

CO-GENERATIONSOUTHDOWN 175MW

RETAIL MARKET SHARE (%)

SALES VOLUMES

JUL–

DEC

2008

JUL–

DEC

2009

JUL–

DEC

2010

4000

3000

2000

NORTH ISLANDSOUTH ISLAND

GWh

1000

0

Generation and Retail OperationsAbout Mighty River Power

0-910-1920-2930-3940-4950-5960-69

GEOTHERMAL31%

HYDRO63%

CO-GENERATION6%

GENERATION PRODUCTIONSIX MONTHS TO 31 DECEMBER 2010

Mighty River Power is a New Zealand-based integrated energy company, with a flexible portfolio of electricity generation assets, a strong national retail presence and a focus on domestic generation and international geothermal development opportunities. More than 90% of our generation is from renewable sources. We supply both electricity and thermal energy to major commercial users and have more than 400,000 retail customers with our brands, Mercury Energy, BOSCO Connect and Tiny Mighty Power.

Mighty River Power is a world leader in geothermal energy development, construction and operation – leveraging this expertise with investment in geothermal energy development in the US, Chile and Germany through GeoGlobal Energy.

Formed in April 1999 from some of the assets of the former Electricity Corporation of New Zealand, Mighty River Power has driven shareholder value through sustained strategic growth – from our beginnings as a hydro generator to a diversified energy business today with assets of more than NZ$4 billion. Much of our domestic geothermal growth has been in partnership with Maori Land Trusts, such as the 140MW Nga Awa Purua plant commissioned in 2010 – a joint venture with the Tauhara North No.2 Trust.

Our generation portfolio is unique in New Zealand, being the only large renewable-dominated company in which geothermal is a major component. Mighty River Power’s generation assets are located in the upper North Island, close to the major energy load centres and play a vital role in responding to demand peaks and supporting security of supply. They include nine hydro stations on the Waikato River (1040MW), four geothermal plants (387MW, not all 100% owned), and a gas-fired co-generation plant (175MW).

Mighty River Power is actively pursuing future growth opportunities in geothermal generation and wind farm developments to help meet future domestic energy demand. Our generation capacity will continue to be complemented by a nationally competitive and sustainable retail presence.

Cover: 140MW Nga Awa Purua geothermal station, a joint venture between Mighty River Power and Tauhara North No.2 Trust.

2 Interim Report 2011 Mighty River Power Limited Mighty River Power Limited Interim Report 2011 3

In a half year marked by drought and flood conditions affecting our Waikato hydro operations and creating extreme volatility in the wholesale electricity market, the contribution from our newly-commissioned 140MW Nga Awa Purua joint venture plant was significant. It resulted in a 69% increase in geothermal generation on the same period last year and was the main driver of the lift in EBITDAF.

Geothermal made up 31% of total generation, representing a four-fold increase since the same period in 2007. The high availability of the Company’s geothermal plants during the half year complemented Mighty River Power’s core hydro operations, which also increased production despite challenging hydrology. Alongside this, the flexible gas-fired Southdown plant was used selectively to optimise wholesale market portfolio performance and support security of supply nationally at times of peak demand.

Collectively our retail businesses, Mercury Energy, BOSCO Connect and Tiny Mighty Power, held market share in the highly competitive environment, and grew sales in the South Island by 49% through expansion into new

geographies, while maintaining a focus on managing credit risk.

Mighty River Power continued to advance options for domestic generation development, including several potential wind farm sites and additional geothermal capacity. We are also pleased to report progress on our international geothermal investment programme in partnership with GeoGlobal Energy (GGE) in the US and Chile, and its extension into Germany.

In January 2011 the New Zealand Government announced that it was considering a mixed ownership model for several state-owned enterprises, including Mighty River Power. The Government has not made any decisions and has asked the Treasury to conduct further analysis of the mixed ownership approach on the basis of the Government retaining majority ownership and control. We will work with the Government and our shareholding Ministers to assist them in their consideration of the mixed ownership model.

The Government is expected to make further public announcements before the General Election on 26 November 2011. In the interim, there will be no related changes

to Mighty River Power’s business operations or capital structure.

Mighty River Power has announced an increased interim dividend of $64.7 million, up from $56.2 million last year. The dividend is consistent with our dividend policy targeting a 75% payout ratio of IFRS adjusted NPAT and will be paid in March 2011.

• $233.6mEBITDAF,a22%increase

•Higherinterestanddepreciationcostsresultedin NPAT of $85.2m and underlying earnings of $88.7m

•US$200m(NZ$260m)debtraisedinUSprivateplacement, extended average maturity to 7.3 years

• 3,504GWhtotalgenerationup18%,with69% increase in contribution from geothermal

•Geothermal31%ofgeneration,anincrease of more than 400% on the same period in 2007

•Enteredinto15-yearvirtualassetswap, providing South Island energy hedge

•Retailexpandedintonewgeographies;49% growth in South Island sales

• Internationalgeothermalinvestmentexpanded to eight reservoirs across three countries

•VolunteerCrewofmorethan500people supported 2010 FISA World Rowing Championships

• $64.7minterimdividendannounced,a15%increase.

Highlights Chair and Chief Executive’s Report

The value to Mighty River Power’s broader generation portfolio from $1 billion investment in new geothermal assets over the past five years clearly showed through in a 22% increase in EBITDAF (earnings before interest, taxation, depreciation, amortisation and financial instruments) to $233.6 million for the six months to 31 December 2010.

Joan Withers Doug Heffernan


FINANCIAL OVERVIEW

At $233.6 million, EBITDAF was up 22% on the prior comparable period’s $191.2 million. This strong result was driven by an 18% increase in generation volumes, primarily from the contribution of the new Nga Awa Purua geothermal plant.

NPAT (net profit after tax) was $85.2 million for the period, up 15% on the prior period. After-tax profit was impacted by higher depreciation and amortisation charges (up $10 million) relating to the higher valuation of generation assets at 30 June 2010 and higher interest expense (up $19.8 million to $34.4 million) due to lower capitalised interest and higher debt levels following last year’s special dividend payment and the capital investment programme we have undertaken in recent years.

Impairments of $3.5 million during the period reflect the Company’s decision in August to exit the upstream gas business. We also completed an exit from the small biomass generation business with the sale of our 50% share of the 1MW Tirohia joint venture in July.

Underlying earnings at $88.7 million were not materially different from NPAT. Adjustments relate to unfavourable pre-tax fair value movements in derivatives (both domestic and international) of $4.0 million and the pre-tax gas exploration impairments of $3.5 million.

Other expenses were $138.2 million, up from $121.8 million in the prior comparable period, due primarily to an increase of $9.8 million in maintenance expenditure. GeoGlobal Energy management fees increased due to the increased level of activity from the larger development pipeline, and in New Zealand we had higher

retail marketing costs driven by intense competition and customer churn.

Operating cash flow, at $151.3 million, was up $29.3 million on the prior period, reflecting the increased generation from Nga Awa Purua and lower taxes paid in the period ($24.0 million), but partially offset by higher interest paid of $13.9 million due to higher debt levels and interest rates.

Capital expenditure was $80.0 million, down significantly on the $128.6 million in the six months to 31 December 2009. The lower spend reflects the completion of the Nga Awa Purua project in April 2010. The capital expenditure was made up of $29.7 million stay-in-business and $50.3 million of growth capital. Of the new development funding, $33.8 million was domestic, primarily for geothermal development including funding research to improve performance of the Kawerau geothermal steamfield, and $16.5 million for our international geothermal programme.

Mighty River Power’s total assets at 31 December 2010 were $4,956 million, compared with $4,361 million at 31 December 2009.

Our debt financing profile was strengthened during the half year with the settlement of a US$200 million (NZ$260 million) private placement with US-based institutional investors with a duration of 10 to 15 years.These funds were used to repay bank debt and extended the average debt maturity profile from around 5.4 years at 30 June to more than 7.3 years at 31 December. We have also established a new three-year revolving cash facility of $150 million in New Zealand with local banks.

As at 31 December 2010, Mighty River Power’s debt facilities totalled $1,210 million (up from $1,050 million at 30 June 2010), with $985 million drawn.

BUSINESS OVERVIEW

Operations

The six months to 31 December 2010 highlighted the considerable investment we have made over the past decade in base-load geothermal capacity and the optimisation of the gas-fired Southdown facility.

The increased total capacity and the balance of our portfolio enabled an 18% lift in generation volumes to 3,504GWh and cushioned the impact of weather extremes – ranging from drought to some of the highest inflows in the Waikato. Despite the challenges this created for our operations on the Waikato River, overall hydro generation was up 6% from 2,075GWh in the prior period to 2,209GWh.

The record September inflows led to very high lake levels requiring us to spill water in September and October equivalent to 165GWh or about 25% of our average hydro production for those two months – highlighting the impact of major weather events in the catchment on the small storage in Lake Taupo. Following the dry Waikato conditions starting in November, which saw a drought declared in mid-December, there was very high rainfall in the December-January period which meant the Company once again had to spill water through the Waikato system to help bring lake levels below the operating maximum.

The outcome of our close co-ordination with the flood manager, Environment Waikato, during recent high-flow events has provided clear evidence of the value and effectiveness of current operating consent conditions for the lake and river.

The Nga Awa Purua geothermal plant – a joint venture with the

Tauhara North No.2 Trust – was the major contributor to the increase in production volumes. The plant brought additional capacity to our generation portfolio and has performed at a world-leading average 96% availability over the six months, including scheduled inspection downtime. This outstanding performance reflects the application of knowledge and

expertise from the development and operation of the Kawerau geothermal plant, which uses similar technology.

Improvements in the Kawerau geothermal field were secured following a research project to identify solutions to chemistry issues that were restricting injection capacity. These had limited the Kawerau plant output

6 months 6 months 12 months

to 31 Dec 2010 to 31 Dec 2009 to 30 June 2010

Electricity Customers 402,000 400,000 412,000

Electricty Sales (GWh)

ResidentialFPVV*(GWh) 1,445 1,379 2,612

CommercialFPVV*(GWh) 1,085 1,106 2,245

Spot (GWh) 1,098 1,035 2,105

Net CFD (GWh) 512 556 1,247

WeightedAveragePriceFPVV*($/MWh) $108.63 $100.54 $102.53

Electricty Purchases

Total NZEM (GWh) 3,797 3,697 7,307

WeightedAverageCost($/MWh) $58.54 $50.33 $61.28

Gas Purchases

Retail (PJ) 0.62 0.74 1.23

Co-generation (PJ) 2.05 2.30 5.22

($/GJ) $7.7 $6.8 $7.4

Generation

Hydro(GWh) 2,209 2,075 3,730

Geothermal(GWh)** 1,092 646 1,562

Gas co-generation (GWh) 204 228 504

Biomass (GWh) 0 10 16

Total (GWh) 3,504 2,959 5,812

WeightedAveragePrice($/MWh) $56.24 $52.79 $63.17

LWAP/GWAP ratio 1.04 0.95 0.97

Carbon emissions (tonnes) 284,900 228,900 479,300

*FPVV: Fixed Price Variable Volume

**Mighty River Power's equity interest

Chair and Chief Executive’s Report

“This strong result was driven by an 18% increase in generation volumes, primarily from the contribution of the Nga Awa Purua geothermal plant.”

Operating Information


to its original 90MW design through most of the last financial year. After drilling two additional injection wells and implementing technical measures to better balance the chemistry of the injection fluid with the reservoir characteristics, production capacity was restored to 100MW. This research project will have long-term benefits in helping inform how we maintain production from the plant as the steam field changes naturally over time.

Our 175MW gas-fired plant at Southdown in Auckland was used during the half year to optimise our portfolio performance and meet demand when hydro operators nationally were taking a prudent approach to declining water storage and snow pack coming into summer. Overall production from Southdown was 10.5% lower than the prior period.

The implementation of the Emission Trading Scheme (ETS) from 1 July 2010 meant the Company incurred carbon liabilities. The key emissions sources were our Southdown plant (105,500 tonnes), our interests in geothermal plants (143,500 tonnes) and retail gas sales (35,800 tonnes). Mighty River Power’s geothermal plants have very low carbon intensity (on average0.13kt/GWhcomparedwith0.52kt/GWhforSouthdown,whichisgas-fired). The Company has carbon credits from the Government in the form of PREs (Projects to Reduce Emissions credits) a policy predecessor to the ETS to encourage renewable generation. These were secured from the Government prior to the investment in the Kawerau geothermal station and some have been used to fully offset the Company’s carbon liabilities for the period valued at $3.6 million.

During the period we continued to negotiate long-term carbon reduction supply agreements with

a range of parties, following our tender process announced in August. Certainty around emissions trading legislation is important if further parties are to commit to these types of arrangements. The outcome of the Government’s review of the ETS is important to provide this certainty.

The weighted average wholesale electricity price earned for the six months(GWAP)of$56.24/MWh,was up6.5%onthe$52.79/MWhinthepriorperiod.Howeverthecostofpurchasesfrom the wholesale market (LWAP) at$58.54/MWhwasup16.3%.TheresultingLWAP/GWAPratioof1.04,reflected the high hydro production to move the extremely high inflows in September and October and the increased base-load generation from Nga Awa Purua. A partially offsetting factor was the improved price performance achieved with Southdown.

Our hydro asset management programme to upgrade and improve the efficiency of our nine power stations on the Waikato River continued and in December we signed an $18 million multi-year contract with Alstom Power for the design through to commissioning of four generator units at Arapuni.

We announced in December a virtual assetswap(VAS)withMeridianEnergy,which took effect on 1 January 2011 at300GWh/yearandwillincreasetoamaximumof700GWh/yearduringthe15-yearVASterm.TheVASprovidesaSouthIslandenergyhedge to help mitigate the risks associated with supplying customers in the South Island in the absence of owning local generation plant. These risks materialise because of the country’s limited transmission capacity and variable and storage-constrained hydro generation.

In 2009 we commenced a strategy to build a South Island residential customer base to complement our commercial sales. Customers in the South Island typically have higher electricity consumption. As a result we have grown our South Island sales to 444GWh in the six months to 31 December, a 49% increase on the previous period. The VASwillreduceourwholesalemarketrisks, enabling Mercury Energy and Tiny Mighty Power to offer competitive pricing to their South Island customers without increasing financial risks.

Retail

Intense competition across all segments of the retail electricity and gas markets continued during the period. This was driven in part by changes to the market resulting from the Electricity Industry Act (EIA), which was passed in October 2010. The provision in the EIA for major physical and virtual asset swaps between the three state-owned generators has driven a rebalancing of the other two companies’ retail customer bases between the North and South Islands.

We have continued to expand the reach of our residential retail offering, with Mercury Energy entering the NelsonandInvercargillareas;Boscoentering the Wellington apartment segment and Tiny Mighty Power opening in Wairarapa, Marlborough and North Canterbury. We now have 39,000 customers in the South Island, representing 10% of total customer numbers and 12% of sales volumes.

Customer numbers at the end of the half year were 402,000, an increase of 2,000 on the prior comparable period but below the peak of 412,000 at 30 June 2010. We had increased our customer numbers over the past

financial year at a faster rate and to a higher level than planned, and remain comfortable with a market share that is around 20% in what continues to be an intensely competitive electricity market.

Total sales to residential customers at 1,445GWh were up 4.8% on last year, while sales to commercial customers were down 1.9% to 1,085GWh. Total purchases from the wholesale market (NZEM) to satisfy customers needs were up 100GWh (2.7%) with the average cost of purchasesup16.3%,an$8.21/MWhincrease. Consistent with this cost increase, average sales prices were up$8.09/MWh,an8%increaseon last year.

While the overall electricity demand conditions have been weak, peak residential demand continues to grow. We are conscious of current economic conditions, but have been taking a pragmatic view of the need for customer prices to reflect the costs of the investment in new generation required to support the economic recovery and future growth. Reflecting this, after the end of the half year, we implemented a retail price increase for Mercury Energy residential customers averaging 3.4% on the total bill including the pass-through of transmission and local lines costs.

Mercury Energy is actively working in the community with support agencies and directly with customers who have difficulty paying their electricity bill. This involves helping them better understand their energy consumption and manage it effectively in line with their incomes, with products such as GLOBUG prepay. In an environment of high customer churn and weak economic conditions, these initiatives have enabled us to hold bad debt write-offs at a similar level to the prior period.

Development

In the half year to 31 December 2010, we continued to progress potential generation development opportunities in both geothermal and wind. Although New Zealand’s recent weak electricity demand growth conditions mean that consented projects are likely to come to the market later than originally planned, it is vital that we continue to prepare opportunities through geothermal exploration, wind monitoring and securing resource consents. This will ensure that we are ready to commit projects as economic growth and electricity demand recover.

As announced in the previous financial year, Mighty River Power and our partners the Tauhara North No.2 Trust have secured consents to build a geothermal power station on the Ngatamariki geothermal field. We are now working through the commercial considerations for the Ngatamariki project including with equipment suppliers and will be making further announcements with our joint venture partners as this work evolves. The earliest this project will come to market is late 2013 with the actual date governed by these negotiations.

We are also discussing, with a number of Maori partners, green field opportunities on geothermal fields in the central North Island. These domestic geothermal opportunities

are typically smaller in scale and will have higher development costs than our recent projects, but we see opportunities to deliver benefits to the partners through our specific geothermal and project development expertise and innovation.

Mighty River Power also continued to investigate potential wind developments at a number of sites throughout New Zealand. After the end of the financial period we received the draft decision from the Turitea Board of Inquiry granting Mighty River Power resource consents for the construction and operation of a 61-turbine wind farm at Turitea, east of Palmerston North. While the draft decision allows significantly fewer turbines than the 105 applied for, it removes one uncertainty around the project. Mighty River Power applied for and has been granted an extension to 12 May 2011 for responding to the Board of Inquiry’s draft report. This was necessary given the need for us to respond on a large number of complex and substantive issues. Alongside this process, we are now assessing detailed technical and commercial considerations for the project.

In addition to Turitea, we are also actively investigating opportunities for wind farms in superior wind resource areas of the Puketoi Ranges near Pahiatua, at Cape Campbell in Marlborough, and elsewhere.

Chair and Chief Executive’s Report “In 2009 we commenced a strategy to build a South Island residential customer base to complement our commercial sales… As a result we have grown our South Island sales to 444GWh in the six months to 31 December, a 49% increase on the previous period.”


Chair and Chief Executive’s Report

INTERNATIONAL GEOTHERMAL

Mighty River Power’s geothermal competencies and experience and New Zealand’s institutional capability in geothermal are highly regarded and globally rare in what is a niche renewable energy field which has significant growth potential. Our offshore geothermal strategy is to deliver enhanced shareholder value through leveraging these competencies and capabilities and to further strengthen New Zealand’s international reputation as a geothermal leader.

We have committed capital of US$250 million to our international partner, GeoGlobal Energy (GGE), to secure and develop geothermal projects consistent with this strategy. They have continued to progress several projects over the past six months with US$124 million deployed at 31 December involving eight geothermal reservoirs across three countries.

GGE has a 20% shareholding in EnergySource which is constructing the49.9MWHudsonRanchIgeothermalpower station in Southern California’s ImperialValley.Theprojectisnowseveral months into the detailed design and construction phase and remains on track for commissioning in early 2012. Through GGE we have now invested US$92 million of a total potential commitment of US$107 million for a majority share of the US$400 million project which is leveraging Mighty River Power’s experience from the similar Kawerau and Nga Awa Purua projects, along with the geothermal resource capability of GGE.

In Chile the major activity in the reporting period has been the preparation for production-scale well drilling on the Tolhuaca field,

including access road preparation and completion of landowner negotiations. In late 2010 we committed further capital to allow a three-well programme to be undertaken. This brings the total commitment to Tolhuaca to US$66 million of which US$17 million had been deployed by the end of 2010.

In Germany, through its subsidiary Oberland Erdwarme, GGE has been steadily progressing a strategy to develop low temperature geothermal resources under the German government’s renewable energy policy. By the end of 2010 GGE had secured a number of concessions in Bavaria and was undertaking geophysical surveys of the Weilheim prospect. A total of US$11 million has been deployed to date in Germany with the next six months focused on securing a development permit for Weilheim and acquiring additional concessions.

WATER ALLOCATION AND POLICY

We have continued to work with stakeholder groups and on water allocation and Government policy issues that could have implications for our hydro operations.

At a regional level, we saw the establishment of the Waikato River Authority during the half year, and we will be working with the Authority to help realise their vision for a healthy and well-managed Waikato River, a vision we have been committed to since our formation in 1999. Mighty River Power will also be engaged in Environment Court proceedings over thecomingmonthsonVariation6(Waikato River water allocation). This is a fundamental consideration for the fuel source of the Waikato hydro system. We will be advocating that the process undertaken by Environment Waikato to determine the allocation

levels was well-considered, and that we support their proposals.

As part of the wider consideration of water allocation and use, Mighty River Power has supported the collaborative process of the Land and Water Forum and we look forward to seeing the Forum’s work progress into national policy. In particular, we note the Forum's recognition of the importance of renewable electricity for New Zealand. We are also concerned that changes in policy recognise the need to provide certainty to all investors in infrastructure including land development, both present and future, since the capital intensity of water-related infrastructure requires the regulatory support of a low capital risk environment.

The variability of rainfall during the half year highlights the need for New Zealand as a whole, and water users in particular, to look more broadly at the potential of water storage – ensuring that the focus is not that New Zealand is short of water, but that the water is not always in the right place at the right time.

In the Waikato catchment, there is more than enough water for everyone’s needs if the right investment in storage infrastructure is made by those who value water. Storage would enable water that is not currently being utilised to be captured for a wide range of uses such as pastoral agriculture, horticulture and related productive uses without compromising existing users. We are encouraged by the Government’s plans in this area elsewhere in New Zealand and will be investigating opportunities to partner with others to investigate the potential of such water storage initiatives in the Waikato catchment. Operator in Nga Awa Purua

Power Station control room.

Left: Mighty River Power’s Maraetai I and II power stations, part of the Waikato Hydro System.


COMMUNITY SUPPORT

During the half year Mighty River Power played a substantial role in supporting the 2010 FISA World Rowing Championships, held at Lake Karapiro for the first time in 32 years – attracting record attendances. Mighty River Power was a Premier Partner of the Championships and exclusive sponsor of the more than 500 volunteers for the event – the Karapiro Crew. As operator of the Waikato hydro system we also worked closely with event organisers to provide optimum lake level and flow conditions – showcasing to a global audience one of New Zealand’s hydro lakes and the Mighty River Domain being used for a top-class recreational event.

Another special milestone was the celebration in November to mark the 10th anniversary of our support for Starship children’s hospital – which has seen more than $3.3 million provided in financial support from Mercury Energy and our customers, together with many hundreds of hours of volunteer time.

Above: Hamish Bond and Eric Murray celebrate their gold medal win at the FISA World Rowing Championships, which were held at the Mighty River Domain on Lake Karapiro.

STRATEGY AND OUTLOOK

Mighty River Power has come through a period of sustained strategic growth and capital restructuring in good financial shape, and has benefited from an expanded geothermal capacity in the six months to 31 December 2010. Our significant growth in geothermal and the optimisation of Southdown has reduced the impact of hydro variability on Mighty River Power, as demonstrated in 2010, and we expect this to be an important new characteristic of our future performance. Based on the strong half year and positive outlook, full-year EBITDAF guidance has increased from the $391 million we announced at our Annual Public Meeting in October to $420-$435 million, subject to any unforeseen market or hydrology conditions.

In the near term, our geothermal investment programme – both domestically and internationally – will continue to be a focus for Mighty River Power. The programme presents significant opportunities to create shareholder value, and is not limited by weak domestic demand. Completion of commercial arrangements for Ngatamariki should position us well for the expected recovery in electricity demand, and finalisation of consents for Turitea will give us a firm option for future wind development. Offshore there are a number of projects underway and we expect GGE to have good progress to report in all regions by year end.

We will support the Government’s commitment to develop policy to ensure water is valued as a strategic resource. At the same time we will participate in Environment Court proceedings to support Environment Waikato’s

decision on Waikato River allocation levels and investigate opportunities for water storage in the Waikato.

OUR PEOPLE

The Geothermal Centre in Rotorua is now fully operational and the benefits of being close to the geothermal resources were borne out in the performance for the half year. All staff can be proud of the outcomes achieved – with customers, in the community and with the environment, and financially.

BOARD CHANGES

During the half year, Tania Simpson was reappointed to the Mighty River Power Board and Parekawhia McLean was appointed to the Board, replacing Diana Crossan, who has made a valuable contribution since joining the Company as a Director in November 2007. These changes took effect on 1 November 2010.

JOAN WITHERS Chair

DOUG HEFFERNAN Chief Executive

Chair and Chief Executive’s Report Re dolor acillan endip el ulput la aci bla feugiam velesto eugait, verit velenit et am num dipit, velit incin heniam, sequis accumsa ndreet alisi tisi tismodo lutate el ulla .


Condensed Consolidated Interim Financial StatementsFor the six months ended 31 December 2010

  

14. Condensed Consolidated Income Statement

15. Consolidated Statement of Comprehensive Income

16. Consolidated Statement of Changes in Equity

17.  Consolidated Balance Sheet

18. Consolidated Cash Flow Statement

19.  Notes to the Financial Statements


Unaudited Unaudited Audited 6 Months 6 Months 12 Months 31 Dec 2010 31 Dec 2009 30 June 2010 Note $000 $000 $000

Sales 822,173 720,183 1,485,088

Less line charges (213,985) (209,606) (403,286)

Other revenue 10,057 11,180 22,773

Total revenue 618,245 521,757 1,104,575

Energy costs 246,423 208,787 500,737

Other expenses 138,174 121,783 276,050

Total expenses 384,597 330,570 776,787

Earnings before net interest expense, income tax, depreciation,

amortisation and financial instruments (EBITDAF) 233,648 191,187 327,788

Depreciation and amortisation (67,699) (57,603) (98,707)

Change in the fair value of financial instruments 11 (10,193) (1,540) 8,081

Impaired assets 4 (3,514) (15,019) (31,373)

Equity accounted earnings of associate companies 7 (29) 1,753 (11,703)

Equity accounted earnings of interest in jointly controlled entities 8 4,005 0 (21,992)

Earnings before net interest expense and income tax (EBIT) 156,218 118,778 172,094

Interest expense (34,459) (14,691) (34,394)

Interest income 913 696 3,653

Net interest expense (33,546) (13,995) (30,741)

Profit before income tax 122,672 104,783 141,353

Income tax expense 5 (37,478) (30,878) (56,739)

Net profit for the period 85,194 73,905 84,614

Net profit for the period is attributable to:

Owners of the parent 85,198 73,905 84,647

Non controlling interests (4) 0 (33)

85,194 73,905 84,614

Supplementary disclosure

Underlying earnings after tax is presented to enable stakeholders to make an assessment and comparison of underlying earnings after

removing significant one-off items and the change in the fair value of financial instruments.

Underlying earnings after tax 3 88,690 85,496 139,554



Other comprehensive income

Fair value revaluation of hydro and co-generation assets 0 0 287,000

Fair value revaluation of other generation assets 0 0 85,048

Fair value revaluation of office land and buildings 0 0 (950)

Equity accounted share of movements in associates' reserves 1,320 (2,418) 19,865

Fair value movements on available-for-sale investment reserve (24) (826) 0

Release of the available-for-sale investment reserve to the income statement 0 0 3,097

Movements in foreign currency translation reserve (16,147) (9) 610

Cash flow hedges loss taken to equity, net of taxation (74,766) (101,231) (89,281)

Income tax on items of other comprehensive income 22,437 30,611 (85,041)

Impact of tax rate change 0 0 48,216

Other comprehensive income for the period, net of taxation (67,180) (73,873) 268,564

Total comprehensive income for the period 18,014 32 353,178

Total comprehensive income for the period is attributable to:

Owners of the parent 18,018 32 353,211

Non controlling interests (4) 0 (33)

18,014 32 353,178

Condensed Consolidated Income StatementFor the six months ended 31 December 2010

Consolidated Statement of Comprehensive IncomeFor the six months ended 31 December 2010

The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements.


Unaudited Unaudited Audited 31 Dec 2010 31 Dec 2009 30 June 2010 Note $000 $000 $000

SHAREHOLDERS’ EQUITY 2,676,686 2,391,832 2,688,970

ASSETS

CURRENT ASSETS

Cash and cash equivalents 41,821 19,252 7,905

Receivables 209,285 256,823 174,635

Inventories 24,349 18,280 20,226

Derivative financial instruments 11 27,524 34,421 35,476

Total current assets 302,979 328,776 238,242

NON-CURRENT ASSETS

Property, plant and equipment 6 4,297,668 3,892,424 4,307,547

Intangible assets 33,202 35,106 32,114

Available-for-sale financial assets 2,025 3,224 2,049

Investment and advances to associates 7 123,000 96,042 113,614

Investment to jointly controlled entities 8 104,648 0 111,926

Advances 11,399 0 11,841


Total non-current assets 4,652,743 4,032,299 4,656,658

TOTAL ASSETS 4,955,722 4,361,075 4,894,900

LIABILITIES

CURRENT LIABILITIES

Payables and accruals 178,217 141,304 148,469

Provisions 9 2,829 2,176 2,673

Current portion loans 12 0 30,064 0


Taxation payable 8,926 16,303 10,596

Total current liabilities 329,757 280,074 304,893

NON-CURRENT LIABILITIES


Loans 12 985,552 831,500 978,758

Deferred tax 10 771,018 709,895 789,594

Total non-current liabilities 1,949,279 1,689,169 1,901,037

TOTAL LIABILITIES 2,279,036 1,969,243 2,205,930

NET ASSETS 2,676,686 2,391,832 2,688,970

Available- Foreign for-sale currency Asset Cash flow Non- Issued Retained investment translation revaluation hedge controlling Total capital earnings reserve reserve reserve reserve interest equity $000 $000 $000 $000 $000 $000 $000 $000

Balance as at 1 July 2009 (Audited) 377,561 709,461 (2,168) 15 1,534,035 2,696 0 2,621,600

Equity accounted share of movements in associates'

reserves 0 0 0 0 0 (2,418) 0 (2,418)

Net loss on available-for-sale investments, net of taxation 0 0 (584) 0 0 0 0 (584)

Movements in foreign currency translation reserve 0 0 0 (9) 0 0 0 (9)

Cash flow hedges loss taken to equity, net of taxation 0 0 0 0 0 (70,862) 0 (70,862)

Other comprehensive income 0 0 (584) (9) 0 (73,280) 0 (73,873)

Net profit for the period 0 73,905 0 0 0 0 0 73,905

Total comprehensive income for the period 0 73,905 (584) (9) 0 (73,280) 0 32

Dividend 0 (229,800) 0 0 0 0 0 (229,800)

Balance as at 31 December 2009 (Unaudited) 377,561 553,566 (2,752) 6 1,534,035 (70,584) 0 2,391,832

Balance as at 1 January 2010 (Unaudited) 377,561 553,566 (2,752) 6 1,534,035 (70,584) 0 2,391,832

Fair value revaluation of hydro and co-generation

assets, net of taxation 0 0 0 0 200,900 0 0 200,900

Fair value revaluation of other generation assets,

net of taxation 0 0 0 0 60,250 0 0 60,250

Fair value revaluation of office land and buildings 0 0 0 0 (950) 0 0 (950)


reserves 0 0 0 0 21,020 1,263 0 22,283

Net loss on available-for-sale investments, net of taxation 0 0 2,752 0 0 0 0 2,752

Movements in foreign currency translation reserve 0 0 0 619 0 0 0 619

Cash flow hedges gain taken to equity, net of taxation 0 0 0 0 0 8,367 0 8,367

Release of asset revaluation reserve for assets

taken out of service 0 158 0 0 (158) 0 0 0

Impact of tax rate change 0 0 0 0 50,652 (2,436) 0 48,216

Other comprehensive income 0 158 2,752 619 331,714 7,194 0 342,437

Net profit for the period 0 10,742 0 0 0 0 (33) 10,709

Total comprehensive income for the period 0 10,900 2,752 619 331,714 7,194 (33) 353,146

Non-controlling interest 0 0 0 0 0 0 192 192

Dividend 0 (56,200) 0 0 0 0 0 (56,200)

Balance as at 30 June 2010 (Audited) 377,561 508,266 0 625 1,865,749 (63,390) 159 2,688,970

Balance as at 1 July 2010 (Audited) 377,561 508,266 0 625 1,865,749 (63,390) 159 2,688,970


reserves 0 0 0 0 (3,075) 4,395 0 1,320

Net loss on available-for-sale investments, net of taxation 0 0 (17) 0 0 0 0 (17)

Movements in foreign currency translation reserve 0 0 0 (16,147) 0 0 0 (16,147)

Cash flow hedges loss taken to equity, net of taxation 0 0 0 0 0 (52,336) 0 (52,336)

Other comprehensive income 0 0 (17) (16,147) (3,075) (47,941) 0 (67,180)

Net profit for the period 0 85,198 0 0 0 0 (4) 85,194

Total comprehensive income for the period 0 85,198 (17) (16,147) (3,075) (47,941) (4) 18,014

Non-controlling interest 0 0 0 0 0 0 2 2

Dividend 0 (30,300) 0 0 0 0 0 (30,300)

Balance as at 31 December 2010 (Unaudited) 377,561 563,164 (17) (15,522) 1,862,674 (111,331) 157 2,676,686

Consolidated Statement of Changes in EquityFor the six months ended 31 December 2010

Consolidated Balance SheetAs at 31 December 2010

The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements.



CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from customers 579,194 558,600 1,109,232

Payments to suppliers and employees (357,742) (355,299) (782,430)

Interest received 1,515 443 3,555

Interest paid (36,396) (22,483) (52,807)

Taxes paid (35,300) (59,300) (78,040)

Net cash provided by operating activities 13 151,271 121,961 199,510

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (87,709) (107,027) (199,256)

Proceeds from sale of property, plant and equipment 772 100 696

Advances to associate (15,164) (19,111) (27,866)

Advances to associates repaid 1,875 3,902 4,402

Advances to joint venture partner 0 0 (11,841)

Repayment from joint venture partner 442 0 100,563

Investment in jointly controlled entities (1,342) 0 (133,835)

Acquisition of intangibles (6,141) (7,769) (7,350)

Acquisition of other non-current assets 0 (18,824) (21,938)

Net cash used in investing activities (107,267) (148,729) (296,425)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from loans 260,212 230,000 375,000

Repayment of loans (240,000) (11,003) (41,003)

Dividends paid (30,300) (229,800) (286,000)

Net cash (used in)/provided by financing activities (10,088) (10,803) 47,997

Netincrease/(decrease)incashandcashequivalentsheld 33,916 (37,571) (48,918)

Cash and cash equivalents at the beginning of the period 7,905 56,823 56,823

Cash and cash equivalents at the end of the period 41,821 19,252 7,905

Cash balance comprises:

Cash 41,821 5,550 7,905

Short term deposits 0 13,702 0

Cash balance at the end of the period 41,821 19,252 7,905

Consolidated Cash Flow StatementFor the six months ended 31 December 2010

Notes to the Financial StatementsFor the six months ended 31 December 2010

The accompanying notes form an integral part of these financial statements.

NOTE 1. ACCOUNTING POLICIES

(1) Reporting entity

Mighty River Power Limited is a company incorporated in New Zealand, registered under the Companies Act 1993 and is a reporting entity for the

purposes of the Financial Reporting Act 1993. The condensed consolidated interim NZ IFRS financial statements have been prepared in accordance

with the Financial Reporting Act 1993 and the Companies Act 1993.

The condensed consolidated interim financial statements are for Mighty River Power Limited Group (the “Group”). The condensed consolidated

financial statements comprise the Company, its subsidiaries, associates and interests in jointly controlled assets and entities.

MightyRiverPowerLimitediswhollyownedbyHerMajestytheQueeninRightofNewZealand(theCrown).Consequently,theCompany

is bound by the requirements of the State-Owned Enterprises Act 1986.

The liabilities of the Company are not guaranteed in any way by the Crown.

The Group’s principal activities are to invest in, develop and produce electricity from renewable and other energy sources and to sell energy

and energy related services and products to retail and wholesale customers.

2) Basis of preparation

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting

Practice ("NZ GAAP") as applicable to interim financial statements and as appropriate to profit-oriented entities.

These condensed consolidated interim financial statements comply with NZ IAS 34 Interim Financial Reporting. These condensed consolidated

interim financial statements do not include all the information and disclosures required in the annual financial statements, and should therefore be

read in conjunction with the annual financial statements for the year ended 30 June 2010, which have been prepared in accordance with the New

Zealand equivalents to International Financial Reporting Standards and comply with International Financial Reporting Standards.

(b) Accounting policies

The accounting policies and methods of computation, apart from the ones noted below, are consistent with those of the annual financial statements

for the year ended 30 June 2010, as described in those annual financial statements.

The following amending standard has been adopted from 1 July 2010.

NZ IAS 24 (revised) – Related Party Disclosures. This revised standard simplifies the definition of a related party and provides a partial exemption

from the disclosure requirements for government-related entities.

The Group has elected not to early adopt the following standard which has been issued but is not yet effective:

NZ IFRS 9 – Financial Instruments. This standard is part of the project to replace NZ IAS 39 - Financial Instruments: Recognition and Measurement.

The standard, which will be effective for periods beginning on or after 1 January 2013, applies to financial assets, their classification and

measurement. Management have yet to determine the impact of this new standard on the financial statements.

(c) Estimates and judgements

The preparation of interim financial statements in conformity with NZ IAS 34 requires management to make judgements, estimates and

assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Actual results may

differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which

the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most

significant effect on the amount recognised in the financial statements are described below:

Generation plant and equipment

The Group's generation assets are stated at fair value by an independent valuer. The basis of the valuation is the net present value of the future

earnings of the assets, excluding any reduction for costs associated with restoration and environmental rehabilitation. The major inputs and

assumptions that are used in the valuation model that require judgment include the forecast of the future electricity price path, sales volume

forecasts, projected operational and capital expenditure profiles, capacity and life assumptions for each generation plant and discount rates.


Accounting Policies and inter-segment transactions

The accounting policies used by the Group in reporting segments are the same as those contained in note 1 to the annual financial statements

and in the prior periods. The Chief Executive assesses the performance of the operating segments on a measure of EBITDAF. Segment EBITDAF

represents profit earned by each segment exclusive of any allocation of central administration costs, share of profits of associates, change in fair

value of financial instruments, impairment of exploration expenditure, finance costs and income tax expense.

Transactions between segments are carried out on an arm's length basis. Other Wholesale Retail segments Total

Six months ended 31 December 2010 (Unaudited) $000 $000 $000 $000

Total segment revenue 494,539 378,292 18,275 891,106

Inter-segment revenue (258,141) 0 (14,720) (272,861)

Revenue from external customers 236,398 378,292 3,555 618,245

Segment EBITDAF 183,061 63,153 (12,566) 233,648

Segment Assets 4,461,019 152,176 342,527 4,955,722

Other Wholesale Retail segments Total

Six months ended 31 December 2009 (Unaudited) $000 $000 $000 $000

Total segment revenue 411,210 353,570 16,828 781,608


Revenue from external customers 165,721 353,570 2,466 521,757

Segment EBITDAF 153,160 51,501 (13,474) 191,187

Segment Assets 4,053,050 144,831 163,194 4,361,075

Other Wholesale Retail segments Total

Twelve months to 30 June 2010 (Audited) $000 $000 $000 $000

Total segment revenue 855,065 720,601 37,482 1,613,148


Revenue from external customers 378,704 720,601 5,270 1,104,575

Segment EBITDAF 229,848 126,163 (28,228) 327,783

Segment Assets 4,442,078 169,890 282,932 4,894,900

Reconciliation of segment revenue to the income statement Unaudited Unaudited Audited 6 Months 6 Months 12 Months 31 Dec 2010 31 Dec 2009 30 June 2010 $000 $000 $000

Total segment revenue 891,106 781,608 1,613,148

Inter-segment sales elimination (272,861) (259,851) (508,573)

Total revenue per the income statement 618,245 521,757 1,104,575

Reconciliation of segment assets to total assets Unaudited Unaudited Audited 6 Months 6 Months 12 Months 31 Dec 2010 31 Dec 2009 30 June 2010 $000 $000 $000

Segment assets 4,955,722 4,361,075 4,894,900

Current tax assets 0 0 0

Total assets 4,955,722 4,361,075 4,894,900

Retail revenue

Management has exercised judgement in determining estimated retail sales for unread gas and electricity meters at balance date. Specifically this

involves an estimate of consumption for each unread meter, based on the customers past consumption history. The estimated balance is recorded

in sales and as an accrual balance within receivables.

Restoration and environmental rehabilitation

Liabilities are estimated for the abandonment and site restoration of areas from which natural resources are extracted. Such estimates are valued

at the present value of the expenditures expected to settle the obligation. Key assumptions have been made as to the expected expenditures to

remediate based on the expected life of the assets employed on the sites and an appropriate discount rate.

Valuation of financial instruments

Energy contracts are valued by reference to the Group's financial model for future electricity prices. Foreign exchange and interest rate derivatives

are valued based on quoted market prices. Detailed information about assumptions and risk factors relating to financial instruments and their

valuation are included in the annual financial statements.

Deferred tax

In May 2010 the Government passed a bill decreasing the headline company tax rate from 30% to 28% effective from 1st July 2011. Management

have calculated the impact of the tax rate change on deferred tax based on an estimate of the deferred tax liability as at 30 June 2011. The

Government also announced that tax depreciation deductions for buildings would be disallowed effective the same date. As there is no definition

of a building in the Income Tax Act, the Company has had to make an assessment of whether those generation assets, which have historically been

classified as buildings, have been appropriately classified or whether they would more appropriately be classified as plant. While the government

has issued some additional guidance about what constitutes a building several areas were left open for further discussion. As a consequence the

Company has not adjusted their position taken at 30 June 2010. In the event the Inland Revenue Department disagree with the position that has been

taken an additional deferred tax liability of $21.3m would need to be recognised associated with the portion of the powerhouses that the Company

had considered to be more appropriately classified as plant.

(d) Functional and presentation currency

These financial statements are presented in New Zealand Dollars ($). The functional currency of Mighty River Power Limited and all its subsidiaries,

apart from Mighty Geothermal Power Limited and its direct subsidiaries and PT ECNZ Services Indonesia, is New Zealand dollars. The functional

currency of Mighty Geothermal Power, and its subsidiaries and PT ECNZ Services Indonesia is United States Dollars which has been translated

to the presentation currency for these Group accounts. All financial information has been rounded to the nearest thousand.

(e) Seasonality of operations

The energy business operates in an environment that is dependent on weather as one of the key drivers of supply and demand. Fluctuations

in seasonal weather patterns, particularly over the short term, can have a positive or negative effect on the reported result. It is not possible to

consistently predict this seasonality and some variability is common.

(f) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief

operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified

as the Chief Executive.

NOTE 2. SEGMENT REPORTING

Identification of reportable segments

The operating segments are identified by management based on the nature of the products and services provided. Discrete financial information

about each of these operating businesses is reported to the chief-operating decision maker on at least a monthly basis.

Operating segments are aggregated into reportable segments only if they share similar economic characteristics.

Types of products and services

Wholesale

The wholesale segment encompasses activity associated with the production of energy from all power stations, the purchase of energy related

products and services, and the sale of power to the retail segment, generation development activities together with activities such as risk and asset

management. The wholesale segment is exposed to volatility in wholesale prices which may result in significant fluctuations in segmental results

from year to year.

Retail

The retail segment encompasses activity associated with the purchase of power from the wholesale segment and the subsequent sale of energy

and energy related services and products to customers. The retail segment is also exposed to fluctuation in wholesale prices relating to energy

purchases, electricity sales at spot and the settlement of electricity price derivatives. The results of wholesale price volatility will have a partially

offsetting impact between the wholesale and retail segments.

Other Segments

Other operating segments that are not considered to be reporting segments are grouped together in the "Other Segments" column. Activities

include metering, upstream gas and other corporate support activities.



Mighty River Power Limited Interim Report 2011 21


NOTE 5. INCOME TAX EXPENSE

Unaudited Unaudited Audited 6 Months 6 Months 12 Months 31 Dec 2010 31 Dec 2009 30 June 2010

$000 $000 $000

Income tax expense

Profit before income tax 122,672 104,783 141,353

Prima facie income tax expense at 30% on profit before tax (36,802) (31,435) (42,406)

Increase/(decrease)inincometaxdueto:

•effectoftaxratechangeondeferredtax 0 0 7,067

•deferredtaximpactoftheremovalofbuildingtaxdepreciation 0 0 (9,846)

•shareofassociates'taxpaidearnings (9) 526 (3,511)

•shareofjointlycontrolledentitiestaxpaidearnings 1,202 0 (6,598)

•capitalloss 0 0 (2,246)

•lossmakingoffshoreentitieswithnodeferredtax (2,209) 0 0

•otherdifferences (6) (29) (704)

Over provision in prior period 346 60 1,505

Income tax expense attributable to profit from ordinary activities (37,478) (30,878) (56,739)

Represented by:

Current tax expense (44,184) (34,252) (49,546)

Deferred tax expense recognised in the income statement 6,706 3,374 (7,193)

Total income tax expense (37,478) (30,878) (56,739)

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Unaudited Unaudited Audited 6 Months 6 Months 12 Months 31 Dec 2010 31 Dec 2009 30 June 2010 $000 $000 $000

Assets acquired at cost 57,341 101,736 206,969

Net book value of assets disposed 1,072 95 752

(Loss)/gainondisposal (300) 5 (56)

NOTE 7. INVESTMENT AND ADVANCES TO ASSOCIATES


Balance at the beginning of the period 113,614 84,713 84,713

Additions during the year 15,173 19,111 27,873

Equity accounted earnings (29) 1,753 (11,703)

Equity accounted share of movements in reserves 1,320 (2,418) 19,865

Repayment of advances during the year (1,875) (3,902) (4,402)

Accrued interest on advances 166 0 38

Exchange movements (5,369) (3,215) (2,360)

Impaired investment in associate 0 0 (410)

Balance at the end of the period 123,000 96,042 113,614

NOTE 3. UNDERLYING EARNINGS



Change in the fair value of financial instruments 10,193 1,540 (8,081)

Change in the fair value of financial instruments of associate entities (214) 0 17,534

Change in the fair value of financial instruments of jointly controlled entities (5,949) 0 21,337

Impaired assets 3,514 15,019 31,373

Adjustments before income tax expense 7,544 16,559 62,163

Income tax expense on adjustments (4,048) (4,968) (10,002)

Impact of deferred tax rate change through the income statement 0 0 (7,067)

Deferred tax impact of removal of building depreciation 0 0 9,846

Adjustments after income tax expense 3,496 11,591 54,940

Underlying earnings after tax 88,690 85,496 139,554

Tax has been applied on all taxable adjustments at 30%.

NOTE 4. IMPAIRED EXPENDITURE


Impaired property, plant and equipment 0 0 9,469

Impaired exploration and development expenditure 3,514 15,019 16,396

Impaired investment in associate 0 0 410

Impaired available-for-sale financial asset 0 0 5,098

Total impaired assets 3,514 15,019 31,373




NOTE 8. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES


Balance at the beginning of the period 111,926 0 0

Additions during the year 1,342 0 134,020

Equity accounted earnings 4,005 0 (21,992)

Exchange movements (12,625) 0 (102)

Balance at the end of the period 104,648 0 111,926

NOTE 9. PROVISIONS


Balance at the beginning of the period 2,673 2,058 2,058

Provisions made during the year 0 0 366

Provisions used during the year 0 0 0

Provisions reversed during the year 0 0 0

Unwind of discount rate 156 118 249

Balance at the end of the period 2,829 2,176 2,673

Provisions have been recognised for the abandonment and subsequent restoration of areas from which geothermal resources have been extracted.

The timing of expected cash out-flows required to settle the above provision is uncertain and will depend on the extent of the geothermal steam

resource for the well and the field.

NOTE 10. DEFERRED TAX


Balance at the beginning of the period (789,594) (743,924) (743,924)

Current period changes in temporary differences affecting tax expense 6,706 3,374 (14,261)

Current period changes in temporary differences affecting reserves 11,870 30,655 (87,240)

Balance transferred to joint venture partner 0 0 547

Change in tax rate recognised in tax expense 0 0 7,068

Change in tax rate recognised in reserves 0 0 48,216

Balance at the end of the period (771,018) (709,895) (789,594)

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS

Assets Liabilities Assets Liabilities Assets Liabilities Unaudited Unaudited Unaudited Unaudited Audited Audited 31 Dec 2010 31 Dec 2010 31 Dec 2009 31 Dec 2009 30 June 2010 30 June 2010 $000 $000 $000 $000 $000 $000

Interest rate derivatives 16,381 121,554 20,665 68,474 18,133 125,942

Cross currency interest rate derivatives 0 16,030 0 0 0 0

Cross currency interest rate derivatives - margin 0 8,636 0 0 0 0

Electricity price derivatives 91,915 178,487 11,992 145,033 93,990 136,834

Foreign exchange rate derivatives 29 7,787 7,267 24,494 920 13,064

108,325 332,494 39,924 238,001 113,043 275,840

Current 28,466 139,785 34,421 90,227 35,476 143,155

Non-current 79,859 192,709 5,503 147,774 77,567 132,685

108,325 332,494 39,924 238,001 113,043 275,840

Interest rate derivatives, short term low value foreign exchange rate derivatives, and short term low value electricity price derivatives, while

economic hedges, are not designated as hedges under NZ IAS 39 but are treated as at fair value through profit and loss. All other foreign exchange

rateandelectricitypricederivatives(excepttheTuaropakiPowerCompanyFoundationHedgeandtheVirtualAssetSwapcontracts)aredesignated

as cash flow hedges under NZ IAS 39. Cross currency interest rate swaps, which are used to manage the combined interest and foreign currency

risk on borrowings issued in foreign currency, have been split into two components for the purposes of hedge designation. The hedge of the

benchmark interest rate is designated as a fair value hedge and the hedge of the issuance margin is designated as a cash flow hedge.

The changes in fair values of derivative financial instruments recognised in the income statement and equity are summarised below:

Income Income Income statement statement statement Equity Equity Equity Unaudited Unaudited Audited Unaudited Unaudited Audited 6 Months 6 Months 12 Months 6 Months 6 Months 12 Months 31 Dec 2010 31 Dec 2009 30 June 2010 31 Dec 2010 31 Dec 2009 30 June 2010 $000 $000 $000 $000 $000 $000

Cross currency interest rate swaps (16,030) 0 0 0 0 0

Borrowings 12,445 0 0 0 0 0

(3,585) 0 0 0 0 0

Interest rate derivatives 3,745 49 (61,597) 0 0 0

Cross currency interest rate swaps – margin 0 0 0 (1,216) 0 0

Electricity price derivatives (1,474) (1,543) 70,027 (41,696) (91,232) (73,094)

Foreign exchange derivatives (3) 0 3 (31,854) (9,999) (16,187)

Income tax on changes taken to equity 0 0 0 22,430 30,369 26,786

(1,317) (1,494) 8,433 52,336 (70,862) (62,495)

Ineffectiveness of cash flow hedges recognised

in the income statement (8,876) (46) (352)

Fair value movements of derivative financial instruments recognised in the income statement are non cash movements.




NOTE 12. LOANS


Current 0 30,064 0

Non-current 985,552 831,500 978,758

985,552 861,564 978,758

The Company issued US$200m ($260m) of Notes in a private placement with US investors, which was used to repay and cancel a

$250m facility with banks in New Zealand. The Company also raised $150m in revolving cash facilities with ASB Bank and ANZ National Bank

in December 2010.

NOTE 13. RECONCILIATION OF PROFIT FOR THE PERIOD TO NET CASH FLOWS FROM OPERATING ACTIVITIES


Profit for the period 85,194 73,905 84,614

Items classified as investing/financing activities

•Fixed,intangibleandinvestmentassetcharges (2,447) (9,781) (20,237)

•Loancharges 1,108 1,114 (1,446)

Non-cash items

Depreciation and amortisation 67,699 57,603 98,707

Netgain/(loss)onsaleofproperty,plantandequipment 300 (5) 56

Change in the fair value of financial instruments 10,193 1,540 (8,081)

Impaired assets 3,514 15,019 31,373

Unwind of discount on long term provisions 156 118 249

Share of earnings of associate companies 29 (1,753) 11,703

Share of earnings of jointly controlled entities (4,005) 0 21,992

Other non-cash items 909 4,434 5,261

Net cash provided by operating activities before change in assets and liabilities 162,650 142,194 224,191

Change in assets and liabilities during the period:

•(Increase)/decreaseintradereceivablesandprepayments (34,651) 38,728 19,268

•Increaseininventories (4,123) (3,981) (5,927)

•Increase/(decrease)intradepayablesandaccruals 25,209 (26,555) (16,156)

•Decreaseinprovisionfortaxation (1,670) (25,013) (30,720)

•Increase/(decrease)indeferredtaxation 3,856 (3,412) 8,854

Net cash inflow from operating activities 151,271 121,961 199,510

NOTE 14. COMMITMENTS AND CONTINGENCIES

Commitments Unaudited Unaudited Audited 31 Dec 2010 31 Dec 2009 30 June 2010 $000 $000 $000

Commitments for future capital expenditure 103,088 84,554 87,097

Commitments for future operating expenditure 30,924 43,795 30,444

Contingencies

The Group has no material contingent assets or liabilities.

NOTE 15. SUBSEQUENT EVENTS

The Board has approved an interim dividend of $64.7 million to be paid on 31 March 2011.

There have been no other material events subsequent to 31 December 2010.



28 Interim Report 2011 Mighty River Power Limited

Shareholders

TheMinisterforStateOwnedEnterprises(HonSimonPower)and

MinisterofFinance(HonBillEnglish)

Company Credit Rating (as at 30 June 2010)

Standard & Poor’s Short-term: A-2

Long term: BBB+

Outlook: Negative

Company Secretary

Tony Nagel, LLB,MComLaw(Hons)

Registered Office

Level 14, 23-29 Albert Street, Auckland

Phone +64 9 308 8200

Fax +64 9 308 8209

Email [email protected]

Web www.mightyriver.co.nz

Auditor

The Auditor-General pursuant to section 14 of the

Public Audit Act 2001. Brent Penrose of Ernst & Young

was appointed to perform the audit on behalf

of the Auditor-General.

Solicitors

Chapman Tripp

Bell Gully

Bankers

ANZ National Bank

ASB Bank

Kiwibank

Bank of Tokyo-Mitsubishi

Bank of New Zealand

Board of Directors

Joan Withers, Chair

Trevor Janes, Deputy Chair

Dr Michael Allen

Prue Flacks

JonHartley

Sandy Maier

Parekawhia McLean

Tania Simpson

Keith Smith

Senior Management

DougHeffernan,ChiefExecutive

William Meek, Chief Financial Officer

James Munro, General Manager Retail and Corporate Affairs

BridgetO’Shannessey,GeneralManagerHumanResources

Mark Trigg, General Manager Development

Fraser Whineray, General Manager Operations

Directory

Mighty River Power Level 14, 23-29 Albert Street Auckland 1010, PO Box 90 399 Auckland, New Zealand PHONE +64 9 308 8200 FAX +64 9 308 8209

www.mightyriver.co.nz

interim report 2011

Documents