Orion announces $29.9m net surplus for 2003

30 June 2003

Christchurch based electricity network company Orion New Zealand has announced a $29.9m net surplus for the financial year to 31 March 2003. The net surplus was $6.6m or 28% ahead of the statement of corporate intent forecast and corresponds with a net surplus of $31.5m in the previous year.

"It has been another excellent year for shareholders, with fully imputed dividends totalling $23.7m. This was in line with the forecast in the statement of corporate intent," Orion chairman Linda Constable says. At balance date Orion had a low level of debt with a gearing ratio of approximately 12%.

The improved result was mostly due to another above budget result from contracting subsidiary Connetics, increased revenues from the delivery of above budget volumes of electricity deliveries through the network, below budget expenses and increased capital contributions from new connections to the network.

"Our network delivery prices for residential and business consumers have not changed for four years and this year we extended that freeze for a further year," Ms Constable says.

Orion's fixed assets were independently revalued on 31 March 2003 and this resulted in a 30% increase in fixed asset values of approximately $150m. Orion's fixed assets are now valued at approximately $623m and total assets at $727m. The revaluation was as part of a well-established three-yearly cycle, but based on a new valuation methodology recommended by Orion's independent financial advisors.

"The previous methodology of revaluing based on the Ministry of Economic Development's ODV Handbook is no longer acceptable for audit purposes," Ms Constable says. An optimised depreciated replacement cost methodology has been adopted which, while similar to the previous methodology, uses up to date replacement costs and asset lives rather than the estimates used in the out of date Handbook.

The Orion electricity network has also performed well and the company continues to have one of the most reliable networks in New Zealand.

"Our network upgrade investment programme is focussed on improving the reliability and security of our network and the success of this programme is reflected in Orion's reliability performance."

The reliability performance of the urban network was such that the service to consumers was above target levels. However, the three winter storms in 2002 meant rural consumers were without power for longer than Orion's target performance.

Orion was named "Energy Supplier of the Year" at the September 2002 Energy Efficiency and Conservation Authority's Energy-Wise Awards.

The Commerce Commission is continuing its development of the industry's targeted price control regime. The current timetable has final decisions for the regime occurring in early 2004. Orion is actively engaged in the Commission's consultation processes. Orion's main concerns are to ensure the regime will:

• retain incentives on line companies to continue to innovate
• use up to date costs to determine network asset valuations
• achieve the relevant legislation's objectives
• minimise regulatory costs where appropriate
• create some certainty for the industry via an ongoing orthodox approach to the regime by the Commission.

Ms Constable says that while the company's core business remains the efficient and reliable operation of the electricity network, the significant skills Orion has in managing investments in infrastructure and energy were also being employed to grow the shareholders' investment.

During the year further equity investments were made in technology based companies Energy Developments, Pulse Data International, 4RF and Whisper Tech. In June 2003 Orion announced that it was effectively withdrawing from the IO Fund - a joint venture with Infratil and the New Zealand Government. "This signals a reduced emphasis on new technology-type investments to concentrate on our existing investments," Ms Constable says.

The largest investment made during the year was purchasing a 15% stake in Energy Developments (EDL), an Australian company listed on the ASX for NZ$60m. EDL has two main lines of business: a well-established electricity generation business and the development of a solid waste to energy recycling facility (SWERF).

The current ASX market price for EDL is below Orion's entry price due to previously announced performance issues with a particular type of engine used in EDL's electricity generation plants and delays in the SWERF development. 

"Orion is holding its stake as a long term investment and the board believes that the recent operational issues at EDL are short term in nature and the fundamental value of Orion's EDL stake is at least its average entry price of A$3.00 per share," Ms Constable says.

"Orion has further developed its sustainability reporting this year. This reports the company's progress in terms of its finances, community and environment - its 'triple bottom line'. We have reported key results compared with targets set last year and also set targets for next year. Stakeholder consultation is also an integral part of our sustainability reporting," Ms Constable says.

Chris Laurie, Orion's managing director for most of the period, resigned late in the financial year to become managing director of Energy Developments Limited. "In April 2003 we were delighted to appoint Roger Sutton as Orion's new chief executive", Ms Constable says. Mr Sutton was previously Orion's General Manager Commercial.

Financial result - pdf
Annual Report 2003 - pdf

For more information:

Linda Constable
Chairman
Mobile 021 228 5456 or

Roger Sutton
Chief Executive Officer
Mobile 027 4333 632