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ERM Power Limited Notes to the Financial Statements for the HALF YEAR ENDED 31 DECEMBER 2016

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ERM Power Limited Notes to the Financial Statements for the HALF YEAR ENDED 31 DECEMBER 2016 Thursday, 23 February 2017 RESULTS FOR ANNOUNCEMENT TO THE MARKET Please find attached the following documents relating to ERM Power’s results for the six months ended 31 December 2016: 1. Appendix 4D 2. Half Year Financial Report including Management Discussion and Analysis and Directors’ Report Phil Davis Group General Counsel & Company Secretary ERM Power Limited 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 load, with operations in every state and the Australian Capital Territory. 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. ERM Power also sells electricity in several markets in the United States. The Company operates 497 megawatts of low emission, gas-fired peaking power stations in Western Australia and Queensland. www.ermpower.com.au Appendix 4D ERM Power Limited ABN 28 122 259 223 Results for announcement to the market for the half year ended 31 December 2016 Notification in Accordance with Listing Rule 4.2A.3 (The amount and percentage changes are in relation to the previous corresponding period) 1. Results for the half year 1H 2017 1H 2016 $'000 $'000 1.1. Revenue from ordinary activities: 1.1.1 Revenue from ordinary continuing activities: ERM Power Limited and controlled entities up 5% to 1,340,505 1,282,471 1.2. Profit from ordinary continuing activities: 1.2.1. Underlying EBITDAF*: ERM Power Limited and controlled entities down 70% to 11,102 37,062 (*earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial instruments designated at fair value through profit and loss and gains / losses on onerous contracts and other significant items) 1.2.2. Underlying NPAT**: ERM Power Limited and controlled entities down 659% to (50,981) 9,136 (**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) 1.3. Statutory (loss) / net profit after tax for the period attributable to members: 1.3.1 Net (loss) / profit after tax for the period attributable to members: ERM Power Limited and controlled entities down 226% to (18,847) 14,945 2. Dividend A fully franked interim dividend of 3.5 cents per share has been declared and will be paid on 6 April 2017. Record date is 8 March 2017. The Company’s shares will trade ex-dividend from 7 March 2017. An unfranked 6.0 cents per share dividend was declared on 25 August 2016 and paid on 6 October 2016 to shareholders on record at 12 September 2016. The Company’s dividend reinvestment plan (DRP) will apply to this dividend with no discount. The last date for receipt of notifications to participate in the DRP is 9 March 2017. 3. Brief explanation of any of the figures reported above or other items of importance not previously released to the market The attached Directors' Report and Management Discussion and Analysis provide further information and explanation. 4. Commentary on the results for the half year The attached Directors' Report and Management Discussion and Analysis provide further information and explanation. 5. Net tangible assets per share 1H 2017 1H 2016 Cents Cents Net tangible assets (cents per share) 183 161 6. Entities in which control was gained or lost during the half year During the period 1 July 2016 to 31 December 2016 the Company did not lose control of any entities. 7. Details of associates and joint ventures The following entities are proportionately consolidated as joint ventures: • NewGen Power Neerabup Pty Ltd (50%) • NewGen Neerabup Pty Ltd (50%) • NewGen Neerabup Partnership (50%) The following entity is accounted for as a joint venture: • Energy Locals Pty Ltd (33%) The following entity is accounted for as an associate: • 1st Energy Pty Ltd (10.5%) ERM Power Limited Half Year Financial Report for the period ended 31 December 2016 ERM Power Limited Half Year Financial Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016 Contents Page Management Discussion and Analysis 2 Directors’ Report 16 Auditor’s Independence Declaration 18 Half Year Financial Statements Consolidated Income Statement 19 Consolidated Statement of Comprehensive Income 20 Consolidated Statement of Financial Position 21 Consolidated Statement of Changes in Equity 22 Consolidated Statement of Cash Flows 23 Notes to the Financial Statements 24 Directors’ Declaration 42 Independent Auditor’s Review Report 43 Corporate Information 45 ABN 28 122 259 223 A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the Directors’ Report on page 16. The Directors’ Report does not form part of the financial report. ERM Power Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is as set out on page 25. The financial statements were authorised for issue by the directors on 23 February 2017. The directors have the power to amend and reissue the financial statements. 1 ERM Power Limited and Controlled Entities ABN 28 122 259 223 Management Discussion and Analysis for the half year ended 31 December 2016 ERM Power Limited Management Discussion and Analysis FOR THE HALF YEAR ENDED 31 DECEMBER 2016 CONTENTS Page 1. Results overview 4 2. Review of operating and financial results 5 2.1 Summary of Group financial results 5 2.2 Divisional performance review 6 2.2.1 Electricity sales 6 2.2.2 Generation 8 2.2.3 Corporate and other 9 2.3 Cash flow, balance sheet and dividends 9 2.3.1 Cash flow 10 2.3.2 Balance sheet 10 2.3.3 Dividends 11 3. Safety, environment and community 11 3.1 Safety 11 3.2 Environment 11 3.3 Community 11 Non-IFRS financial information 12 Appendices 13 Glossary 15 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 load, with operations in every state and the Australian Capital Territory. 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. ERM Power also sells electricity in several markets in the United States. The Company operates 497 megawatts of low emission, gas-fired peaking power stations in Western Australia and Queensland. ERM Power Limited shares are traded on the Australian Securities Exchange under the symbol EPW. This review is for ERM Power (Company, Group, we, our) for the period ended 31 December 2016 with comparison against the previous corresponding period ended 31 December 2015 (previous period, previous year or comparative period). All reference to $ is a reference to Australian dollars unless otherwise stated. Individual items totals and percentages are rounded to the nearest approximate number or decimal. Some totals may not add down the page due to rounding of individual components. 3 ERM Power Limited Management Discussion and Analysis (continued) FOR THE HALF YEAR ENDED 31 DECEMBER 2016 1. RESULTS OVERVIEW Key financial measures ($m unless otherwise stated)1 1H FY2017 1H FY2016 Underlying EBITDAF continuing operations2 11.1 37.1 Underlying EBIT continuing operations2 (7.0) 24.7 Underlying NPAT continuing operations2 (51.0) 9.1 Statutory NPAT2 (18.8) 14.9 Net debt / (cash) (78.4) 23.4 Dividends paid (cents per share) 6.0 6.0 Underlying earnings per share (cents) (20.4) 3.7 Key operational measures 1H FY2017 1H FY2016 Electricity sold (TWh) continuing operations 10.4 9.8 Forward contracted electricity sales (TWh) continuing operations 42.1 37.9 Overview Underlying EBITDAF for the Group decreased on the comparative period primarily as a result of reduced first half earnings in our Australia electricity retailing business, given the timing of settlements has weighted earnings to the second half for the Australian retail division. The reduced earnings resulted from the sale of favourably priced Large-scale Generation Certificate (LGC) inventory in FY2016, the timing impact of realising a profit on green certificate forward contracts designated as held for trading at 31 December 2016 in January 2017, as well as some margin compression. The unrealised gain on these forward contracts is included within Statutory NPAT as an unrealised gain but no value is recorded in underlying EBITDAF or underlying NPAT in 1H of FY2017 as the contracts were not settled at 31 December 2016. The amount realised in January 2017 was $48.9m. Refer to section 2.2.1 Electricity sales for further details. Underlying NPAT also reduced substantially as a result of a permanent tax difference arising from a decision to meet a proportion of our 2016 LGC surrender requirements by way of payment of a shortfall charge to the Clean Energy Regulator. This shortfall charge is not tax deductible and accordingly an additional permanent tax expense of $36.6m was recognised in profit and loss during the period. During the period the Group initiated a process to divest the residential customer contracts in the US. Accordingly, the earnings from residential customers are included in discontinued operations and excluded from the underlying earnings figures above and throughout this report. The business was loss-making in 1H.
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