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The Power of Working Together
ANNUAL REPORT 2013 Contents
02 Who We Are 03 Highlights & Strategic Focus 04 Directors’ Report 07 Board of Directors 08 Chief Executive’s Report 10 Leadership Team
12 Snowtown Stage II 14 Reliable Irrigation 16 Fibre Services Shine 18 Powering Locals 20 Shared Understanding 22 Safety First 23 Stakeholders with Vision
24 About our Sustainability Report 25 Sustainability Outlook 26 Our People 27 Our Environment 28 Our Community 29 Our Customers 30 Our Economic Performance 32 Stakeholder Interaction 34 Corporate Governance Statement 37 Financial Statements 2013 38 Auditors’ Report 76 Statutory Information 79 Security Holder Information 81 Directory 81 Financial Calendar TRUSTPOWER ANNUAL REPORT 2013 01
TrustPower
Our Industry Partners Our Customers Our Local Communities Our Staff Our Environment
Better Results We believe that working collaboratively will consistently deliver better results. Hence we’re always looking for opportunities to bring together teams of talented people to work simultaneously to make things better. 02
These assets produce an average of 2,800GWh per year. Our first Who We Are irrigation asset, a pumping facility using water from our Highbank hydro generation scheme, has completed its first full season of operation. We own 630MW of hydro and wind generation spread We supply electricity to around 206,000 customers and provide 43,000 telecommunications services to 26,000 customers throughout throughout New Zealand as New Zealand. We have 481 full time equivalent employees working well as the 100MW Snowtown throughout New Zealand and three employees in Adelaide. Around 65% Wind Farm in South Australia. of New Zealand employees are based in our Tauranga head office.
GENERATION SCHEMES
1 Kaimai ...... 2 Matahina ...... 1 3 Wheao/Flaxy ...... 4 Hinemaiaia ...... 5 Mangorei ...... 6 Motukawa ...... 7 Patea ...... 8 Tararua Wind Farm ...... 2 9 Cobb ...... 5 10 Waihopai ...... 3 1 11 4 Argyle/Wairau ...... 6 2 12 Arnold ...... 3 13 7 Kumara/Dillmans/Duffers ...... 14 4 Kaniere Forks/McKays Creek0 6 8 15 Coleridge ...... 10 5 16 9 Highbank ...... 7 17 Montalto ...... 11 18 Wahapo ...... 12 19 Paerau/Patearoa ...... 8 20 Waipori/Deep Stream ...... 9 21 13 Mahinerangi Wind Farm ...... 15 22 14 Snowtown Wind Farm ...... 11 16 10 12 RETAIL CUSTOMERS 17 13 Far North ...... 1 14 18 Counties ...... 2 18 Waipa ...... 3 15 19 Central Waikato ...... 4 16 17 Southern Thames Valley ...... 5 20 21 Tauranga/Rotorua/Taupo ...... 6
Gisborne ...... 7 23 22 Wairoa ...... 8 24
Hawke’s Bay ...... 9 19 21 New Plymouth...... 10 25 20 Wanganui/Taranaki ...... 11 Manawatu ...... 12 26 Wellington ...... 13
Marlborough ...... 14
Tasman/Nelson ...... 15
Buller ...... 16
West Coast ...... 17
Rangiora ...... 18
Christchurch ...... 19
Ashburton ...... 20 Timaru ...... 21 22 Oamaru ...... 22
Central Otago ...... 23
Otago ...... 24
Dunedin ...... 25
Invercargill/Southland ...... 26 TRUSTPOWER ANNUAL REPORT 2013 03
Earnings before interest, tax, depreciation, amortisation and fair value movements of financial instruments were Highlights $294.8 million 2013 a credible performance given lower New Zealand generation production versus prior year and a challenging retail environment.
Commenced construction of the A$439 million 270MW Snowtown Stage II Wind Farm development, TrustPower’s largest ever investment.
Approval for variation to the Rakaia River Water Conservation Order is an important step forward in realising TrustPower’s Irrigation Strategy in Canterbury.
Progress construction of Snowtown Stage 2 Wind Farm to schedule and budget. STRATEGIC Refresh retail brand and develop FOCUS capability to deliver multi product retailing proposition. 2014 Progress irrigation opportunities in Canterbury and other New Zealand regions.
Progress development approval applications for a further 570MW of wind investment in Victoria and New South Wales. 04
DIRECTORS’ REPORT
BRUCE HARKER Financial Performance experience lower levels of customer churn than Chairman the market overall and in the final quarter achieved TrustPower produced a solid operating performance modest customer gains. for the 2013 financial year. Good progress was made in implementing the Group’s growth agenda The Group’s New Zealand generation production demonstrated by the Group’s commitment to invest of 2,330GWh was down 352GWh (10%) on the in the 270MW Snowtown Stage 2 Wind Farm in previous year and 4% below the expected long term average. Total hydro production was down Notes South Australia. 243GWh (13%) on the previous year due to lower 1. Underlying Earnings is a TrustPower’s consolidated profit after tax was than average inflows into both North and South non GAAP (Generally $123.4 million for the year ended 31 March 2013. Island catchments particularly during the first and Accepted Accounting This represents a decrease of 6% compared with final quarters but was only 1% below the expected Principles) financial measure. $131.7 million for the same period last year. TrustPower believes that long term average. TrustPower actively used its this measure is an important Underlying earnings1 after tax excluding fair value South Island storage lakes to support generation additional financial measure movements on financial instruments and one-off output. New Zealand wind production ended to disclose as it excludes impairment charges were $127.3 million compared 10GWh lower than the previous year following a movements in the fair value with $135.3 million in the previous year, a decrease poor final quarter and was down 11% on expected of financial instruments of 6%. long term average. which can be volatile year The Snowtown Wind Farm in South Australia to year depending on Earnings before interest, tax, depreciation, movement in long term amortisation, fair value movements of financial produced 386GWh which was 10GWh (3%) higher interest rates and or instruments and asset impairments (EBITDAF)2 than the previous year and within 1% of expected electricity futures prices. were $294.8 million, compared with $300.1 million long term average. Also excluded in this measure achieved in the previous year representing a Underlying return on average equity, adjusted for are items considered to be decrease of 2%. As reported in the half year result fair value movements on financial instruments and one off and not related to approximately $3.9 million was included in other impairment charges, was 8.2% (9.6% in the core business such as operating expenses during the year relating to the previous year). changes to the company cost of transacting currency options to hedge tax rate or impairment of currency exposure prior to the Group committing Group operating cash flow remained solid at generation assets. to the Snowtown Stage 2 Wind Farm investment. $241.1 million for the 2013 financial year versus A full reconciliation between $268.3 million in the prior year. profit after tax attributable The Group operating performance was considered to the shareholders of the satisfactory given lower New Zealand generation Financial Position Company and underlying production and a challenging retail environment, TrustPower’s balance sheet as at 31 March 2013 earnings after tax is provided where pressure on margins and lower customer remains in good shape, with shareholders’ funds of in Note 3 to the consolidated demand was experienced. Financial Statements. $1.56 billion and total assets of close to $3 billion. Operating revenue was in line with prior period at Net debt (including subordinated bonds) to net debt 2. EBITDAF is a non GAAP $805.5 million. Operating expenses including financial measure but is plus equity increased to 37.0% from 33.3% at prior energy and line costs increased 1%. commonly used within the year end, as a result of increased borrowing levels electricity industry as a Total electricity volume sold by the Company in to finance the development of the Snowtown measure of performance as New Zealand through mass market retailing and Stage 2 Wind Farm. TrustPower continues to it shows the level of earnings time of use sales was 3,683GWh, compared with maintain conservative levels of committed credit before impact of gearing 3,960GWh in the year to 31 March 2012. This facilities. As at 31 March 2013 Group net debt was levels and non-cash charges 277GWh reduction in sales volume was partially $911.4 million. TrustPower has recently accepted such as depreciation and offset by 199GWh of sales through ASX (67GWh offers to refinance A$180 million of bank facilities amortisation. Market analysts in the prior year) which was considered the most due to mature in July 2013. These facilities will be use this measure as an input into company valuation and effective sales channel during certain periods of increased to A$200 million and extended in two valuation metrics used to the financial year. tranches to July 2016 and July 2018. assess relative value and Customer numbers decreased from 209,000 at The Group has recently completed documentation performance of companies 31 March 2012 to 206,000 as at 31 March 2013. for A$171.9 million of Danish Export Credit Agency across the sector. While the retail market remained highly competitive guaranteed amortising loan facilities with a final throughout the year, TrustPower continued to maturity of November 2032. These loan facilities TRUSTPOWER ANNUAL REPORT 2013 05
will be progressively drawn down over the next has recently concluded a long term storage and eighteen months and will assist with the funding of release agreement with Barrhill Chertsey Irrigation the Snowtown Stage 2 Wind Farm development. Limited (“BCIL”) and expects to conclude further This long term unsecured loan facility will also assist agreements with other parties in the near future. in lengthening the Group’s debt maturity profile. First release of stored water for BCIL is expected Following the completion of these financing activities to occur in the final quarter of 2013. Timing of the Group will have close to NZD equivalent 1.8 billion release to other parties will require final decisions of committed debt facilities of which over NZD on additional off take infrastructure which could equivalent 800 million will be undrawn. involve TrustPower investment. It is expected that initial agreements will result in an additional irrigation It is expected that A$194 million of bank facilities supply area in mid Canterbury of around 40,000ha. maturing in July 2014 will be cancelled following completion of the refinancing of the A$180 million Retailing and Customers bank facilities maturing in July 2013. TrustPower continues to achieve growth in the Capital Structure sale of telecommunication services (increase of 13% on prior year) and this is assisting with overall Modest purchases of TrustPower’s shares have electricity customer retention. continued under the Company’s share buyback programme for which a three year extension was Following the implementation of a new customer approved at the Annual Meeting in July 2011. billing system twelve months ago, TrustPower’s focus The approval allows the Company to purchase up has turned to further enhancements that will improve to 5 million shares over a three year period. 37,000 our customer online experience and also ensure shares were purchased at an average cost of $7.07 the Company is well positioned to offer multiple during the year to 31 March 2013. It is expected products across energy and telecommunications. that the share buyback programme will continue The ability to successfully offer a bundled suite of to operate over the next twelve months. utility products creates the opportunity to grow TrustPower is actively market share and customer life time value. progressing other wind development options in Generation Development TrustPower is aiming to have this enhanced retail Australia with the aim of Construction of the 270MW Snowtown Stage 2 capability in place over the next six months which developing further wind Wind Farm in South Australia is progressing well we hope will see a return to customer number projects to help meet the and is on track in terms of budget and schedule. growth but more importantly delivery of a service Australian Renewable Civil works including wind turbine foundations are and product proposition that our customers value Energy Target over the around 50% complete and the 28km 275kV and are prepared to pay a premium for. course of the next transmission line is approximately 70% complete. Over the next twelve months TrustPower intends to five years. The first shipments of blades, towers and nacelles invest more heavily in its retail proposition including are expected to arrive during May and June. The its brand and this will have a modest impact on first wind turbine on the Snowtown Stage 2 South near term earnings. site is expected to be generating in October 2013 with the South site completed in April 2014, the On 15 May 2013 TrustPower announced that it had North site completed in September 2014 and final reached a conditional agreement to purchase the handover of the total site targeted for November 2014. key assets of Energy Direct New Zealand (EDNZ) NZD equivalent $159 million has been included in for $13.65 million (subject to a post-completion capital work in progress in the Group balance sheet working capital adjustment). as at 31 March 2013. The agreement will see TrustPower taking over the TrustPower is actively progressing other wind assets of EDNZ including approximately 15,000 development options in Australia with the aim of electricity customers and 10,000 gas customers developing further wind projects to help meet the and will take effect from 1 July 2013. Australian Renewable Energy Target over the course Existing EDNZ staff will be employed by TrustPower of the next five years. but the EDNZ business will continue to serve A development approval application for up to 270MW customers from its Wanganui base. at the Dundonnell wind farm site in Western Victoria We see this as an exciting opportunity for TrustPower has been lodged. Another development approval to grow its customer base in the lower North Island application for a wind farm of up to 300MW in and to be involved in the retailing of gas for the first New South Wales has also recently been lodged. time which we expect will enhance TrustPower’s The Group has close to a further 1000MW of multiproduct proposition over time. identified wind options in South Australia, Victoria and New South Wales which it is continuing to assess. Regulatory Issues There have been two significant events over the In New Zealand commissioning of the 3.8MW Esk last twelve months that have given TrustPower Valley Hydro project in Hawkes Bay is expected to be cause to reflect on the level of regulatory risk that completed in July, a few weeks behind schedule the Group is exposed to in New Zealand. TrustPower but in line with budget at around $13 million. Once recognises that regulatory regimes need to evolve commissioned it is expected to add around 15GWh of over time to ensure markets remain competitive hydro production to TrustPower’s generation portfolio. and efficient, however policy changes need to be Given the current generation oversupply situation carefully managed. in New Zealand, TrustPower will look to maintain The first of these was the Electricity Authority’s its existing 520MW of consented wind and hydro proposal to significantly revise the current transmission development options. TrustPower will continue to pricing framework. TrustPower in its last quarterly look at small high return enhancement options on announcement stated its view was that much of what existing hydro generation assets. was being proposed was unnecessarily complex and Following Government approval of the variation to was likely to lead to unintended consequences for the Rakaia River Water Conservation Order, TrustPower the electricity industry and on-going regulatory is now in a position to store and distribute consented uncertainty for investors. Following completion of a water from Lake Coleridge to improve irrigation detailed submission, TrustPower’s view is unchanged. reliability to various irrigator groups. TrustPower It would seem that this view is shared by a wide 06
cross-section of the electricity industry including have resulted in any significant adverse industrial users, consumer groups, generators, environmental consequences. retailers, distribution companies and Transpower. TrustPower has established a diversity policy during In fact 51 of the 54 submissions received by the the year and disclosure of TrustPower’s gender Electricity Authority opposed its proposal and of breakdown across its business can be found in the three that supported, two were heavily the sustainability section of the Annual Report. caveated. The Board is satisfied that the Company is Secondly, the Labour/Green proposal to abolish recognising the objectives of its diversity policy in the current competitive wholesale and retail market all its decision making. model and replace it with a single buyer model, should it form a government at the next election, Over recent years, TrustPower has been increasing had immediate impact. The combined fall in the its focus away from regional event type sponsorship, market value of TrustPower, Contact Energy and towards more enduring long term initiatives that Infratil in the twenty four hours following the build and sustain relationships and are of greater announcement was close to $600 million. The long term benefit to the wider communities in potential for significant unintended consequences regions where we operate. and risk transfer to tax payers together with the This has seen a steady growth in our Community likelihood that future private sector investment will Awards programme, particularly in terms of be discouraged by such a proposal have already participation by community organisations, and the been highlighted in subsequent media reaction. It addition of our Youth Spirit Award programme is clear from analysis undertaken by a Labour led which has allowed us to engage with and recognise Government of the same proposal in 2006 that young people who will go on to be future leaders implementation would be complex, challenging, in their communities. costly and fraught with risk, and that in fact the proposal may not offer marked improvements overall. Our Lend a Hand Foundation, run in partnership Our long standing approach with Rotary Clubs and local business supporters TrustPower believes that a detailed facts based to community engagement covers four regions in New Zealand, and with the analysis of the issues raised by the proposal needs local Lions Club in Snowtown, South Australia, and support is certainly to be undertaken so that New Zealanders are better different to the corporate continues to provide a “hand-up”, as distinct from informed of the issues at stake. This is challenging a “hand-out”, to needy individuals, families and norm, but has proven its for an industry that has a high level of complexity. worth time and time again community organisations. in terms of both the Governments the world over do not have good track Nationally, TrustPower supports “Elgregoe”, well-being of communities, records of efficient allocation of investment capital magician Greg Britt (NZOM) and his wife Sue, with and the health of TrustPower or risk management through the electricity supply a magic-based and values-focussed anti-bullying as a business. chain. Single buyer models perform poorly when programme delivered to primary and intermediate future electricity requirements turn out differently to schools from the Far North to Southland. the planners expectation. Single buyers enter long term contract obligations and these must inevitably be Our long standing approach to community engagement underwritten by electricity consumers and tax payers. and support is certainly different to the corporate norm, but has proven its worth time and time again In contrast, the current market framework has, for in terms of both the well-being of communities, the last twenty years, managed the transition away and the health of TrustPower as a business. from dwindling low cost Maui gas and reliance on high carbon emission thermal plant to renewables Directors without risk to electricity consumers or taxpayers. New Zealand is the only country in the world that In accordance with the Company’s Constitution, has achieved unsubsidised wind generation through Mr M Bogoievski and Mr GJC Swier will retire at efficient and timely investments by market participants. the 2013 Annual Meeting and being eligible offer themselves for re-election. Companies such as TrustPower have also invested huge effort and resources to establish a solid pipeline Auditors of potential new renewable projects. In aggregate New Zealand has an enviable resilience in its PricewaterhouseCoopers has indicated its power sector with diversified low cost options for willingness to continue in office. renewable power. Dividend However, TrustPower and the electricity industry The Directors are pleased to announce a final need a workable regulatory environment to continue dividend of 20 cents per share, partially imputed to deliver these outcomes. New Zealand can ill afford to 16 cents per share, payable 14 June 2013 dramatic regulatory and policy interventions that (record date of 31 May 2013). This together with cast aside the framework on which investors have an interim dividend of 20 cents per share, provides made long term investment decisions. The consequent a total pay-out of 40 cents per share for the 2013 impact on private property values will surely deter financial year, in line with the prior year. continued domestic and foreign investment in New Zealand’s future infrastructure. Outlook Sustainability Despite the current challenging New Zealand electricity environment which includes intense retail TrustPower is firmly committed to sustainability competition, an oversupplied generation market principles, and continues to make good progress and regulatory uncertainty, the Board is confident in terms of stretching and achieving its sustainability goals. that TrustPower is well placed to regain earnings momentum once the Snowtown Stage 2 Wind Farm TrustPower’s approach to environmental obligations is completed and other quality renewable generation and responsibilities is reflected in the detailed and irrigation development opportunities are able systems and focussed resources it has put in place to be progressed. to manage compliance with an ever increasing number of resource consents conditions. Pleasingly, TrustPower continues to report only a very small number of minor non-compliance events, BRUCE HARKER and again in the past year, none of these events Chairman TRUSTPOWER ANNUAL REPORT 2013 07
BOARD OF DIRECTORS
BRUCE HARKER MICHAEL COONEY BE(Hons), PHD (ELEC. ENG), MIPENZ LLB Chairman Director
SAM KNOWLES MARKO BOGOIEVSKI MSc(Hons) BCA, CA, MBA (HARVARD) Director Director
GEOFF SWIER RICHARD AITKEN MCom (ECON), MAICD BE(Hons), M.Eng.Sc. (Syd) Director Director 08
CHIEF EXECUTIVE’S REPORT
VINCE HAWKSWORTH Financial Performance There is considerable electricity industry and market Chief Executive development in progress and this is covered later, As described in the Directors’ Report this was a however, much of this is overshadowed by the challenging year for hydrology and in the retail market, uncertain outcome of negotiations between Pacific customer choice continues to challenge us to be Aluminium and Meridian Energy. TrustPower believes on our game in respect to service and competitive that a decision to close the aluminium smelter at offerings. From a strategic perspective this has Bluff will accelerate a restructure of New Zealand’s been a good year for TrustPower with milestone generation fleet with old coal and gas fired plant progress on NZ irrigation and Australian wind. being retired earlier as significant hydro generation In this context the EBITDAF result was solid and would come to market. Recently, the Labour Party demonstrated the resilience of our core business and New Zealand Greens have announced a proposed as well as the benefits of the strategic focus on electricity policy that is a radical reversal of the developing new revenue streams. progressive market reforms over the last fifteen years in New Zealand. Fortunately there is time for full Health and Safety evaluation of this model but I do note that, somewhat ironically, if the Central Buyer model was in place, TrustPower supports the work of the Government and demand falls, such as with the possible closure and the Independent Taskforce on workplace health of Tiwai, cost recovery would be more difficult for and safety. TrustPower is committed to the welfare the Central Buyer and power prices would need to of our staff and is focused on both robust processes rise as the Central Buyer’s costs need recovering and developing a positive health and safety culture. over a smaller sales volume. Under a market based I am particularly pleased with the progress we have framework excess supply leads to soft prices whereas made with the Great Safety Performance (GSP) with a centralised cost recovery Government initiative. The GSP has brought increased focus to department, prices must rise to cover fixed purchase our health and safety discussions for management cost obligations. and staff. This programme is critical to sustaining our goal to achieve a safety improvement culture. Our Customers The continued high level of competition driven by Strategic Focus the Electricity Authority’s “What’s My Number” At TrustPower shareholder value is the main driver campaign resulted in TrustPower electricity customer of strategy and investment decision making. This numbers declining 1.5% to 206,000. The Company clarity of thinking has positioned the Company did not restart sales activity until the second half of well in a challenging market environment. the year and a particular focus has been the retention of existing customers. Consequently TrustPower Our goal is to be recognised as a leading supplier of has continued to achieve lower levels of churn utilities at home and beyond our shores. To achieve than our competitors. this TrustPower has three key strategic areas of activity. These are New Zealand energy markets, We have grown the number of customers that use irrigation and water markets and Australian our Kinect telecommunications service. Over 43,000 renewable energy. services are now provided to our 26,000 Kinect customers. The majority of these customers are We believe successful delivery to our customers in purchasing both electricity and telecommunication each of these markets will ensure that TrustPower products. We believe that our customers are remains a distinctive investment with the ability to increasingly willing to buy bundled product offers, as grow for the benefit of all shareholders. long as we provide great value, great service and reward their loyalty. TrustPower expects to increase New Zealand Energy Markets our product offering to customers during the next year. Currently the New Zealand market is characterised by low levels of demand growth, high levels of competition Generation for customers and oversupply as a result of new The performance of our generation assets was generation build ahead of demand. TrustPower particularly pleasing. Our hydro machines continues to adapt its business to these pressures performed 28,154 starts compared with 27,735 and this is our first area of strategic focus. starts in 2011/2012. Our failed starts reduced from TRUSTPOWER ANNUAL REPORT 2013 09
86 last year to 72 this year. In combination these We expect the commissioning of new geothermal achievements meant that TrustPower was successful and gas peaking plants will drive a reduction in the at targeting higher priced periods despite lower use of coal and gas for generation whilst the upgrade hydro inflows. of transmission infrastructure will reduce constraints Total generation in New Zealand was lower than the between points of supply and points of demand. When previous year with hydro production close to the long combined these investments will increase reliability term average and wind production below the long and security of supply and reduce price volatility. term average. In Australia our Snowtown 1 Wind Farm The introduction of financial transmission rights output was close to the long term average. During and the success of the ASX futures market will the year we made significant progress on construction improve the ability for market participants to of the 3.8MW Esk Hydro Scheme and this is nearing manage risk and enter new market segments and completion. Following a review of project economics geographies. TrustPower is an active participant in we decided not to proceed with a proposed small these markets and supports their development. hydro investment at the Arnold Power Scheme. By comparison we remain disappointed with the TrustPower has significant new investment options Electricity Authority’s response to transmission in both wind and hydro generation, it is our intention pricing. TrustPower believes the Authority’s to retain these until market and regulatory settings proposal is overly complex and that the cost of provide positive investment signals. In the meantime implementation does not justify the benefits. our focus is on extracting greater value from our existing assets by identifying innovative Making a Difference in Our Communities enhancement opportunities. Over the past 18 years the TrustPower Community TrustPower has over 3,000 resource consent Awards have grown to include 25 regions in conditions and I am pleased to report that there New Zealand reflecting the geographical spread of were only a small number of minor breaches during both our customers and generation facilities. This the 2012/2013 year. year our regional finalists travelled to the Far North Our goal is to be recognised Irrigation where the National Community Awards winners were as a leading supplier of Kaibosh from Wellington. A clever and innovative utilities at home and beyond The second area of strategic focus is the New Zealand concept, Kaibosh is New Zealand’s first dedicated our shores. To achieve this irrigation sector. The success of our application to food rescue organisation that bridges the gap vary the Rakaia Water Conservation Order was a TrustPower has three key between businesses that are willing to donate significant milestone. Subsequently we have reached strategic areas of activity. agreement with Barrhill Chertsey Irrigation and surplus food and charities that can use it in central These are New Zealand expect to conclude arrangements with Central Wellington. A great win for all with a reduction in energy markets, irrigation Plains Water to supply up to 50 million cubic metres food waste benefiting those most in need. and water markets and of water with the potential to irrigate 40,000ha. We have also taken our regional kiwi values to our Australian renewable energy. The use of Lake Coleridge to store water ensuring Australian projects. At Snowtown we have partnered it is available when and where it is needed provides with local businesses and the Lions Club to form much needed certainty for farmers to make “on the Lend a Hand Foundation; this collaborative farm” investment in irrigation. The transformation approach has ensured the community and of farm productively is positive for Canterbury and TrustPower share benefits from our activities. New Zealand. TrustPower believes that our involvement in the development of irrigation Our People Make the Difference projects is a good fit with our core competencies. It was particularly pleasing that staff engagement increased during the year. The increase of 2.8% Australia reflects the greater connection that our staff feel The Australian renewable energy sector provides with the Company strategies and the part they the third area of strategic focus for TrustPower. In play in our success. Australia the renewable energy target is the key policy directive that will lead to increased production Last year I noted the investment TrustPower is making of electricity from renewable sources. TrustPower in our talent management programme. As a result of is well positioned to grow our business by pursuing this programme we have appointed Craig Neustroski wind farm development opportunities. as General Manger Trading (Designate). Craig brings almost fifteen years of TrustPower experience to the During the year we have made considerable progress role and will take over when Therese Thorn retires towards our goal to develop up to 1,200MW of at the end of May 2013. wind farm investment. Therese has provided more than twenty years of Early in the year we reached financial close and service to TrustPower and is regarded highly commenced construction of the 270MW Snowtown throughout the industry. Therese has devoted Stage 2 project. The project has a 15 year power much of her career to the development of the purchase agreement with Origin Energy and a long New Zealand electricity market, always focussing term maintenance contract with the wind turbine supplier Siemens Energy. Construction is well advanced, on efficient and pragmatic solutions. We will miss with first production expected in October 2013 and her unique thinking style and wish her well in her full commissioning completed by November 2014. future endeavours. Our original plan to complete a partial sell down Looking Ahead prior to construction did not eventuate and we will The TrustPower team has a deep understanding revisit that option after construction. of the markets that we operate in. We strongly TrustPower has continued to firm our future pipeline believe our strategies in New Zealand energy of Australian wind farm options. We have commenced markets, irrigation development and Australian the development approval process for the 270WM renewable energy will deliver for shareholders, Dundonnell project in Victoria and a 300MW customers and staff. project in NSW. Industry Landscape and Market Development In New Zealand we are experiencing changes in market structures and the deployment of new VINCE HAWKSWORTH electricity infrastructure. Chief Executive 10
LEADERSHIP TEAM
VINCE HAWKSWORTH C.ENG, MBA Chief Executive
ROBERT FARRON KAREN BOYTE BBS, CA, CFIPNZ, MInstD BBS, MBS(Hons), MHRINZ, MInstD Chief Financial Officer & Company Secretary General Manager Human Resources
DEION CAMPBELL BE(ELECT, Hons), ME(MGMT), CPEng, MIPENZ, MInstD General Manager Generation TRUSTPOWER ANNUAL REPORT 2013 11
SIMON CLARKE PETER CALDERWOOD BA/LLB MInstD BE(Hons), ME, MIPENZ General Manager Business Solutions & Technology General Manager Strategy & Growth
CHRIS O’HARA BAgrSc, Dip. Bus General Manager Commercial Operations
THERESE THORN CRAIG NEUSTROSKI BE(Hons) BE(ELECT), Dip. Bus General Manager Trading General Manager Trading (Designate) 12
Snowtown Stage II On completion, Snowtown Stage II wind farm will sustainably generate enough electricity to power the equivalent of 170,000 South Australian homes — but reducing greenhouse gases isn’t the only positive benefit of the development. TrustPower and its partners are working alongside the local Snowtown community, to bring diverse benefits to both people and the environment. TRUSTPOWER ANNUAL REPORT 2013 13
TRUSTPOWER + LOCAL COMMUNITY + SIEMENS WIND POWER = SNOWTOWN STAGE II 01
Community Environmental Benefits TrustPower’s strong relationship with the local The sustainable generation of electricity by Snowtown 01 TrustPower and community ensures a united approach to Stage II will deliver very clear environmental worth. Siemens supporting the local addressing issues that are important to Snowtown The wind farm is expected to generate 985GWh Lend A Hand Foundation. and the surrounding area. We work closely with per annum: the equivalent of powering 170,000 TrustPower Chief Executive Aboriginal heritage groups, the Snowtown Lions South Australian homes. This clean generation will Vince Hawksworth (left) Club, local bodies and other community result in an annual 700,000 tonne reduction of and Siemens Energy Vice organisations. All these partnerships help us gain greenhouse gas emissions, CO2, making a President David Pryke (right) an in-depth understanding of key issues. significant contribution to the Australian Federal present Alan Large, Snowtown Government’s Renewable Energy Target. Lions Club President with We have become a proactive and trusted member a $10,000 cheque for the of the community, providing support through the The environmental benefits extend beyond Lend A Hand Foundation. Lend A Hand Foundation. We make an annual generation itself. TrustPower has developed a contribution, and Snowtown Lions Club receives, strong relationship with the Native Vegetation reviews and approves applications for funding for Council of South Australia. In what’s been termed projects. This successful partnership has led to a wide a “win-win” for the environment, 102ha of degraded range of projects, all bringing value to the community. native grassland on the South Hummocks is now benefiting from an innovative management plan. Our wind farm construction contractor, Siemens Energy, and their consortium partners CatCon Under the Native Vegetation Act 1991, we are and Consolidated Power Projects, similarly required to provide an environmental benefit offset recognise the importance of strong community for the clearance of vegetation needed to construct links. The companies have worked closely with stage II of the wind farm. Such offsets are often the County Fire Service and heritage groups, achieved by paying money into a fund used by the and together with the community have addressed Native Vegetation Council. Instead, an alternate issues such as fire fighting response and heritage approach has been agreed, bringing additional monitoring. They further strengthen the bond by benefit. Working with the Mid North Grasslands regularly utilising local contractors and services. Working Group, we have identified a native grasslands offset area, on a property north-east In addition, Siemens and their consortium’s of Kulpara township. personnel provide technical expertise and construction support for community projects A Native Vegetation Management Plan has been such as the Snowtown Skateboard Park. implemented. This establishes a rotational grazing programme, together with weed management “Siemens will be an integral part of the Snowtown and feral animal control to improve biodiversity Community, both now and for the next 15 years,” outcomes. The plan establishes a number of emphasised Siemens Vice President David Pryke. “cells”, or paddocks, with watering facilities for “We see our support of Lend A Hand as confirming stock. It includes annual surveys and reporting, our involvement in the future of this community. so management can be refined over time. We’re seeking to gain a greater understanding of local needs, and the areas where a helping hand “I think it’s just great, a really innovative solution,” would be of benefit.” said Mid North Grasslands Working Group member Millie Nichols. “This will result in an important For TrustPower and its contractors, our support grassland area being sustainably managed for the and commitment to the needs of the wider long term. People don’t often recognise the value Snowtown community will remain a key focus, of these grasslands and this agreement will set a for the life of the Snowtown Wind Farm. standard for the future.” Bruce Munday, Chair of the Native Vegetation Assessment Panel, noted the benefits will be all-round: “Landowners are now committed to using rotational grazing as a tool for improving the overall condition of the grassland communities — primarily for biodiversity conservation purposes, but also as a way of improving grassland condition for domestic livestock.” 14
Clarence River
Lake KAIKOURA Rotorua Kowhai River Lake Tennyson
COLERIDGE Lake Guyon POWER STATION Conway River Hanmer Springs
Waiau
Waiau River Cheviot Katrine, Loch Culverden Lake Sumner Hurunui River Lake Sheppard
Lake Mason Lake Taylor Hawarden Waikari Waipara
Amberley Waipara River Lake Sarah Lake Letitia Leithfield Lake Grasmere Sefton Ashley River Lake Pearson Lake Hawdon Rangiora Woodend HIGHBANK Cust POWER STATION Oxford Ohapuku Waimakariri River Lake Lilian Lake Selfe Lake Rubicon Lake Evelyn CHRISTCHURCH Lake LyndonSheffield Lake Coleridge Prebbleton Kirwee Darfield Lincoln Rolleston Hororata
Akaroa Lake Heron Dunsandel Lake Ellesmere Methven Leeston Te Walhora Lake Emma Rakaia Lake Forsyth Lake Clearwater Kaituna Lagoon Lake Camp Rakaia River Ashburton
Ashburton River Lake Tekapo Hinds River Lake Alexandrina Geraldine LEGEND Rangitata River Fairlie Existing RDR Irrigation Scheme Area Lake Orari River Pukaki Temuka Opihi River Developing BCI Supply Area
Washdyke Potential CPW Supply Area Washdyke Lagoon TIMARU Existing RDR New supply from Lake Coleridge Twizel Lake Pareora River State Highway 1 Ohau Lake Benmore
Wainono Lagoon Lake Aviemore Waimate Waihao River Otematata Lake Waitaki Kurow Waitaki River TRUSTPOWER ANNUAL REPORT 2013 15
Clarence River
Lake KAIKOURA Rotorua Kowhai River Lake Tennyson Reliable Irrigation
COLERIDGE Lake Guyon For New Zealand to maximise future agriculture and horticulture production, POWER STATION Conway River in many areas, reliable irrigation supply will be essential. In Canterbury, Hanmer Springs we’re working with multiple stakeholders to utilise and integrate the natural Waiau capacity of Lake Coleridge — while maintaining our generation capability
Waiau River and environmental commitments. Cheviot Katrine, Loch Culverden Lake Sumner Hurunui River Lake Sheppard
Lake Mason Lake Taylor Hawarden Waikari Waipara Reliable Irrigation Supply is Fundamental Delivering Reliable Supply to Two Irrigation for agriculture and horticulture is a major Significant Irrigation Schemes user of New Zealand’s fresh water. So clearly, Amberley Waipara River Over the last two years, TrustPower has worked Lake Sarah irrigation users have a responsibility to manage Leithfield closely with two large irrigation schemes in Lake Letitia water as efficiently as possible, and minimise the Lake Grasmere Sefton mid-Canterbury, namely Barhill Chertsey Irrigation Ashley River adverse effects. Lake Pearson Lake Hawdon (BCI) and Central Plains Water (CPW), to determine Rangiora Woodend the viability of supporting irrigation reliability and HIGHBANK Efficient use depends on reliable supply, because Cust security of supply via Lake Coleridge. POWER STATION Oxford Ohapuku Waimakariri River reliability allows users to target use against demand, Lake Lilian Lake Selfe and avoid waste. But across much of New Zealand, The Barhill Chertsey Irrigation Scheme has been Lake Rubicon rivers and streams are under pressure. Irrigation Lake Evelyn CHRISTCHURCH operating for three seasons. It currently supplies Lake LyndonSheffield schemes, particularly new ones, are unlikely to Lake Coleridge approximately 25 per cent of the ultimate potential Prebbleton achieve the level of reliability needed to maximise Kirwee supply area of 40,000ha south of the Rakaia River. Darfield Lincoln efficiency and support sustainable economic Rolleston TrustPower’s Highbank Pump Station is the Hororata value. The solution? To incorporate storage into primary supply system to the irrigation scheme. irrigation schemes, ideally close to, and higher Akaroa than, the demand area. CPW intends to develop a new irrigation scheme, Lake Heron Dunsandel Lake Ellesmere on the north bank of the Rakaia River. The potential TRUSTPOWER Methven Leeston Te Walhora Utilising Lake Coleridge for supply area is some 60,000ha. The scheme Lake Emma Rakaia Lake Forsyth Canterbury Agriculture accesses river flow with low reliability, so storage + Lake Clearwater Kaituna Lagoon from Lake Coleridge is fundamental to CPW’s Canterbury agriculture contributes over $1.7 billion long-term viability. Lake Camp ENVIRONMENT Rakaia River to the economy each year, much of it relying on irrigation. Further, the region’s future development Ashburton Working For an Integrated Future of high value agriculture, critical to New Zealand’s CANTERBURY Of even greater significance for efficient water use growth, will depend on reliable irrigation. is the potential integration of Lake Coleridge into the + Ashburton River That’s where we turn to Lake Coleridge, a wider Canterbury water infrastructure. This could Lake natural lake west of Christchurch that is managed encompass both existing infrastructure such as the Tekapo by TrustPower. The lake and associated inflow Rangitata Diversion Race, supplying three existing WATER Hinds River Geraldine feeds the Coleridge Power Station, supplying irrigation schemes totalling 64,000ha, and future Lake Alexandrina LEGEND power to the Canterbury region. It is also located infrastructure, such as additional storage facilities USERS Rangitata River near to, and above, some of the largest potential, and supply systems. Fairlie Existing RDR Irrigation Scheme Area Lake Orari River developing and established irrigation schemes = Temuka TrustPower is working with Environment Canterbury Pukaki Developing BCI Supply Area in mid-Canterbury, serving over 160,000ha Opihi River and irrigation users to develop infrastructure plans of farmland. MORE Washdyke Potential CPW Supply Area that would allow water to be conveyed and Washdyke Lagoon In 2012, TrustPower secured a variation to the supplied over a much greater area of Mid- and TIMARU Existing RDR existing Water Conservation Order on the Rakaia South-Canterbury. A key focus is progressive EFFICIENT New supply from Lake Coleridge Twizel River, under which the Coleridge Station operates. sustainable development, over a number of years. Lake Pareora River The variation did not seek to change the water IRRIGATION State Highway 1 Once coupled with integrated infrastructure, Ohau allocation criteria, as these protect environmental Lake Coleridge would be fundamental to opening Lake aspects of the river system. Instead, the change new irrigation areas, allowing water to be allocated Benmore simply allows water to be stored in Lake Coleridge, to new users without negative impact on existing as at present, but now for irrigation supply as well Wainono Lagoon users. Integration means water could be traded as for hydro-generation. Lake Aviemore Waimate Waihao River amongst users, ensuring it is applied to the Otematata Lake Coleridge storage, in conjunction with river highest value use. Lake Waitaki take, can provide high levels of reliability for up to Integrated storage and supply would also enhance Kurow 65,000ha of irrigation. the opportunity to incorporate hydro-generation Waitaki River facilities. These facilities would typically operate in-sync with water demand, so partially match energy demand from agricultural processes. 16
Fibre Services Shine Since September 2012, TrustPower has connected many businesses and homes to voice and broadband services by Ultrafast Broadband. One of the businesses is Tauranga’s Sun Media, who can now deliver the news faster than ever. TRUSTPOWER ANNUAL REPORT 2013 17
SUN MEDIA + TRUSTPOWER = ULTRA FAST NEWS
When there’s news in the western Bay of Plenty, been a customer of TrustPower for over 30 years). chances are, a Sun Media reporter is one of the first His home was one of the first to be connected to MAIN IMAGE OPPOSITE on the scene. The privately owned company runs the Ultrafast Broadband and while there were a few Fibre services shine highly successful news web site SunLive. The company set-up niggles, these were quickly resolved: “The for SunLive produces the Weekend Sun newspaper, delivered customer service was unbelievably good. They’d free to 63,760 homes across the region; making it by always call you back. They were really committed to Ross Brown, GM of far the largest circulating newspaper in the Western sorting it out.” Ross likes the fact that he’s dealing Sun Media, is sold on the Bay of Plenty. Sun Media also publishes Coast and with people who, like Sun Media, have a strong fibre experience. After Country monthly, Waterline quarterly and New Farm commitment to the local community. experiencing the UFB fibre Dairies annually. experience at SunLive, TrustPower released ultrafast residential and business TrustPower connected Sun Media to its Ultrafast Ross had the service voice and broadband services over the fibre network installed at home. Broadband service in late-2012. The technology has in September 2012. It’s a collaboration with providers made a huge difference, both in the speed of getting including Ultrafast Fibre Ltd, FX Networks, Transfield, news out, and in the company’s operational efficiency. local ICT providers and local PABX providers. “We have cameras that can transmit photos straight “The synergies of working with our partners has back to the office. Almost as soon as a reporter arrives resulted in products of greater benefit to our customers. at a news scene, we can have a story and photos on It’s the next generation of voice and internet services,” SunLive. We can have video news footage live within said TrustPower telecommunications business five minutes after editing,” said Sun Media general manager Peter Gregory. manager Ross Brown. Reports can go live 24 hours a day, seven days a week. That currency helps SunLive to TrustPower residential and business customers from generate over 250,000 page hits a week, New Zealand’s as far north as Coromandel, and as far south as fourth most-visited news site. Reporoa now connect to our Ultrafast Broadband service, as do over 25 schools. “We plan to offer The TrustPower Ultrafast Broadband connection has Ultrafast Broadband connectivity to customers in all also transformed work on The Weekend Sun. The areas nationwide where we have strong penetration paper is laid-out in Tauranga, then uploaded to Auckland or growth,” said Peter. for printing. Each page file is up to 20MB, with up to 72 pages each issue, and deadlines are of course tight. The last year has seen TrustPower bundle its power, “With the new Ultrafast Broadband connection, the phone and broadband offering, with options to suit page uploading to Auckland is vastly improved. Each ADSL and fibre networks, and plans to suit different page uploads in less than a minute. That includes the data needs. About 85% of residential customers are large page file sizes, which in the past could take up now on bundled services. A broadened offering of voice to 10 minutes to upload and then several minutes services was also launched for business customers. extra to clear from the process folder,” explained Sun “We also introduced quarterly analysis of data usage. Media’s print production manager James Carrigan. Whenever another of our plans would be more “Since the upgrade, there have been no transfer appropriate, we let the customer know. This approach crashes. We can upload two files at a time, and have has had a marked effect on customer satisfaction, as multiple files cued up and ready to go.” they know we are helping them to get our best deal “The speed is absolutely staggering,” said Ross. for their needs,” said Peter. “That gives our designers and production team a lot TrustPower now provides more than 26,000 customers more space to do what they should be doing.” It also with over 43,000 phone and internet services. Over the enables higher-quality footage to be uploaded by last year, the number of customers grew by 10.5%, and SunLive, an important edge when items are regularly the value of internet services grew by 15%. Looking picked up by television and other news teams. ahead, targets include lifting revenue from voice and Ross was so impressed, he also had his home internet services from $23 million in FY2013 to over connected to TrustPower’s ultrafast services (he’s $50 million by FY2015. 18
01 02
03 Powering Locals Around New Zealand, TrustPower owns and operates 36 small to medium-sized hydroelectric generation stations. We called on this experience to successfully develop two small power stations in the Hawkes Bay — when others decided not to proceed. Esk Hydropower Project is named after the famous wine-growing valley, about 20km from the site. Two stations, Rimu and Toronui, will provide electricity for about 2,000 households. Rimu is the highest-head generation station in the North Island. TRUSTPOWER ANNUAL REPORT 2013 19
I watch this project with great satisfaction. It has been a long-time TRUSTPOWER ambition to see power produced from an available natural resource. We are lucky to have had MAP who have + worked in difficult terrain in some LOCAL CONTRACTORS trying weather and left little impact on the farm and its operation.
+ Chris Pask Toronui Station Landowner LANDOWNERS = ESK HYDROPOWER PROJECT
Innovative Thinking in Action Local Landowners The Esk project is located in the headwaters of Back in 2003, Toronui sheep and beef station 01 Balancing the the Esk River, north of Napier, and is planned to owner Chris Pask conceived a hydro scheme that Rimu Station’s pelton be commissioned in July 2013. The scheme would utilise streams to power the local community. turbine runner. consists of two separate high head stations, Over the next five years, he developed the proposed drawing on separate Esk tributaries. They will scheme to include Rimu scheme, located on the 02 TrustPower had produce a combined 3.8MW and an estimated neighbouring Rimu station, owned by Dennis Bell. Unison Contracting install 15GWh per annum: enough power for up to TrustPower joined these local landowners in 2009, 17km of 33kV powerline 2,000 homes. and progressed the Esk Hydropower Project for the Esk project. Local Contractors: MAP Projects, through design, procurement and construction. 03 AIE Hydroworks and Unison Contracting The landowners wanted to ensure the Rimu Trial fitting the Toronui waterfall, and upper Sutherland stream, were kept turbine and generator The project’s 16-month civil build is planned to be intact and we were pleased to develop the at Allied Industrial completed in July 2013. Conditions were at times concept around these desires. Between 2009 and Engineering, Kawerau. highly challenging, with temperatures down to 2013, we worked with the landowners and local minus 5 degrees, and winds over 140km/hr. contractors to bring together a unique hydro The specialist civil contractor working on Esk, development project. MAP Projects, is based in Raetehi, near Ohakune. Rimu Station Their experience in working in extreme environments, such as on the Mt Ruapehu ski fields and at Rimu has a gross head (vertical elevation difference National Park, proved a real asset. MAP Projects between the intake and the power station) of has worked with TrustPower on a number of 346m and a maximum consented flow of up to previous schemes, and our strong relationship has 1.0 cubic metres of water per second (cumec). been a cornerstone to the project’s success. Even with this modest flow, the station will be able to generate 2.4MW of clean green electricity. Allied Industrial Engineering and Hydroworks (AIE/HW) are a joint venture. They bring together Water is transported from the intake to the power specialist fabrication, installation and management station by a 2.4km penstock pipe. This is buried (AIE), with specialist water turbine design (HW). underground so farming activities can continue The two companies, based in Kawerau and unaffected by the scheme, with no visual impact. Christchurch, produce world-class hydro-generation equipment for clients in New Zealand, Australia Toronui Station and the South Pacific. They provided turnkey Toronui is smaller, with a design output of 1.4MW. hydro-generation equipment for the project. The station has a gross head of over 140m, with a Unison Networks, and their construction arm 900m penstock, and a maximum consented flow Unison Contracting, designed and built 17km of of up to 1.2 cumecs. There’s a 4,000 cubic metre 33kV transmission and connected the scheme to reservoir, enough to cater for twice daily periods the local grid. This challenging build included of peak demand. As required by the consent, flow crossing Darky’s Spur, where a steep 350m will be continuously released from the weir back ascent tested the team’s skills and resources. to the streams. 20
Shared Understanding In early 2012, as part of changes to our core customer care and billing system, TrustPower introduced a Business Intelligence Reporting system. The result is a system that seamlessly spans multiple aspects of our business. Here, focusing on our Metering & Field Services team, we explain why and how the new system was developed, and the shared benefits it brings. TRUSTPOWER ANNUAL REPORT 2013 21
The Meter Reading team BUSINESS provided knowledge of the INTELLIGENCE TEAM business to make sense of the data, while the BI team + had the technical know-how METERING & to bring it all together. FIELD SERVICES TEAM Tim Roberts = Business Intelligence Specialist BETTER REPORTING SOLUTIONS
Time For a Change “The Meter Reading team provided knowledge of the business to make sense of the data, while the MAIN IMAGE OPPOSITE Prior to 2012, TrustPower used the same core BI team had the technical know-how to bring it all The Business Intelligence customer care and billing system for more than a together,” said Tim Roberts. decade. The longevity of the technology confirms and Meter & Field Services that it performed well. However, over the years, The Benefits of Collaboration teams worked closely many different reporting mechanisms had been built together, helping both around the core system, to extract the information The collaboration brought many benefits, including teams work smarter. needed to run day-to-day business. These knowledge transfer, quick turn around on key Pictured from left to right, mechanisms had been individually developed: they decisions, and a high quality outcome. “The BI Tim Roberts, Cushla Dyer were ‘reporting silos’, with different teams using reporting system gave us the ability to perform and Lesley Warren. different tools and techniques to extract information. our critical tasks on day one, for example issuing and monitoring Final Reading, and Out of Cycles By about 2011, the reporting mechanisms were requests to our meter readers in the field,” increasingly difficult to maintain. They weren’t said Cushla Dyer, Metering Services Team Leader. easily accessed or shared, and in some cases, “That was just the beginning of an ongoing they were no longer well understood by our staff. BI journey. “We were faced with a big challenge. The information Once we had our critical tasks covered, we delivered by the reporting mechanisms was worked with BI to develop reports to help us work essential for our business operations. But it was smarter. One example in particular is our No Read clear we wouldn’t be able to adapt the mechanisms Action Report. This provides a management tool to work with the new system,” explained Paul Bacon, to monitor and report on properties that haven’t Technology Strategy and Services Manager. received a recent meter reading. It also enables The Meter & Field Services team was a great our 60-plus meter readers to identify the sites and example of the challenges. In essence, all the key work to resolve the issues on a day to day basis. systems used by the team to source information And with all our reports in one place, they are were to be changed in 2012: the reports the team easier to manage, access and maintain.” relied on to run their business would no longer work. The enduring legacy of the project is that the “The Meter Reading team really know their stuff. Metering & Field Services team has far deeper But they didn’t have the knowledge or tools necessary knowledge of the reporting solution. This enables to replace all the reports,” said Tim Roberts, them to access data and answer questions TrustPower Business Intelligence Specialist. themselves, without needing the costly technical support that may previously have meant questions The Business Intelligence (BI) team had been were left unanswered. developing a new reporting framework, to support the whole business. If BI had taken a traditional “The Metering & Field Services team are now approach, they would have developed the meter actively involved in enhancing their reporting reading reporting mechanisms based on lengthy capability to meet future needs,” said Tim Roberts. initial analysis and rigid requirements. Instead, the “This will enable them to manage their business BI and Meter & Field Services teams worked closely more effectively, reducing operational costs and together, to build a comprehensive reporting system. improving the service they deliver to our customers.” 22
Safety First The safety of our people is paramount to TrustPower’s continuing success. Our aim is to ensure no harm to any people who work for us, or with us.
A safe workplace depends on everyone who works In all four categories, an individual’s actions are at TrustPower knowing how critically important influenced by how staff work together, and the safety is. This awareness starts with our induction support that is available to them. process, and continues with ongoing training, regular GSP surveyed individuals on their thoughts about communication and a commitment from management. the safety climate followed by a series of GSP staff We understand that we can always learn and workshops. The workshops ensure the information improve from our experiences, and continually look gathered reflects the entire team’s view, and enable for ways to make things safer. All people working all staff to comment and contribute towards what for TrustPower are expected to support this safety aspects need further improvement. Ongoing culture by following systems and processes to meetings then help deliver the improvements that keep themselves and their workmates safe. are identified. TrustPower has structured systems and processes To date, GSP has been run in TrustPower’s two SAFETY to reduce risk, and to control hazards that can’t high risks areas: Generation Asset Management; be eliminated. Staff are empowered to report all and Metering and Field Services. The Generation INITIATIVES safety issues, and to never accept unsafe behaviour. team was the GSP pilot group. The initiative was Participation in safety matters is widely encouraged, driven by the Process Leaders and supported by + and there’s an active group of staff representing all the Senior Leadership Team. divisions on the Health and Safety Committee. SAFETY The graph below shows the shift in results Great Safety Performance between August 2011 (Phase 1) and May 2012 AWARENESS (Phase 2). During this time, all survey question One of TrustPower’s key safety initiatives of the categories saw a positive shift. Overall, there 2013 financial year focused on the organisation’s was an improvement in 94 of the 97 questions. + safety climate. The Great Safety Performance (GSP) project focuses on four priority areas: From May 2013, the Generation team will run ONGOING + Knowing what to do GSP Phase 3; while Metering and Field Services will run Phase 2. Importantly, people who work + Able to do it COMMITMENT for TrustPower under contracts will also be + Equipped to do it included in the project, as this has been identified = + Wanting to do it as a high risk area that needs attention. SAFER WORKPLACES GENERATION FIELD STAFF SAFETY CLIMATE SURVEY 2011 2012 Training Supervision Coaching Tools and Equipment Stop Unsafe Work Safe Work Practices Reporting Performance Expectations Personal Protective Equipment “TrustPower has seen a Management Support significant change in how we Hazard Control manage safety issues since Fitness to Work we rolled out GSP, we now Emergency Response have a great platform to Co-worker Support bring up suggestions and Barriers Signs Markings ideas, evaluate it with input Safety Culture Indicators from all stakeholders and Want to do it make informed decisions Equipped to do it on how best to proceed” Able to do it Angus Bell, Know what to do Health and Safety Manager Safe Work Actions Interactions
AGREE AGREE AGREE STRONGLYDISAGREE DISAGREE DISAGREE STRONGLY SOMEWHAT SOMEWHAT TRUSTPOWER ANNUAL REPORT 2013 23
Stakeholders with Vision For two decades, TrustPower’s business success and growth has been underlied by the tremendous loyalty of its capital providers being shareholders, bondholders and banks. In 2013, those partnerships are stronger than ever.
When it was incorporated in 1993, TrustPower was then has issued a total of $755 million of both senior a provincial electricity company with a half share in and subordinated bonds. Many bondholders have the Kaimai hydro power scheme — and serving only invested with us since 2002, and continue to reinvest. the Western Bay of Plenty. Today, TrustPower provides This was confirmed by the success of our most customers with electricity, telecommunications and recent subordinated bond offering in September irrigation services and has nearly $3 billion of assets 2012 when an existing issue matured. We gave throughout New Zealand and Australia. existing bondholders priority to reinvest in a new For 20 years, TrustPower and its investors have 7 year subordinated bond, as a reward for their shared in this remarkable story of growth. At loyalty and 60% of them chose to take up the offer TrustPower, we place enormous value on the strong and continue their investment in TrustPower. and stable relationships we have with all our investors, be they shareholders, bondholders, or Banks banks. It is the tremendous loyalty of these investors Equally, the support of our relationship banks has that has enabled us to pursue our growth vision. been critical to TrustPower’s ability to grow. Most Without their insight and support, TrustPower could of our banks have been supporting TrustPower for have remained a small provincial electricity company. a number of years, and they have seen the business TRUSTPOWER grow and prosper over that time. When TrustPower Shareholders wanted to invest in Snowtown Stage 2 Wind Farm, + Shareholders have enjoyed a highly-productive our largest ever project, our relationship banks 20-year period. For a shareholder who invested were happy to help. Within a very short time we LONG TERM $1,000 when TrustPower listed on the New Zealand had flexible funding in place that allowed us to Stock Exchange in 1994, those shares would be sign the project contracts and commence INVESTORS worth around $15,000 today. Further, over the construction. It underlies the strength of our same period, they would have received $7,500 in partnerships when you think we were borrowing = dividends. If that same investor had reinvested all to fund a large project (A$439 million) in Australia. their dividends in TrustPower shares, their $1,000 would now be a very impressive $38,000. Looking Ahead 20 YEARS OF Our two largest shareholders, Infratil and TECT, have All of our investors — shareholders, bondholders INVESTMENT been with us right from the start. Working together and banks — tell us they are pleased to be investing with two longterm cornerstone shareholders has in such a successful company. However what SUCCESS meant we have had industry expertise and local excites them the most is investing in a company support to call on, whenever needed. This has with so much future potential. been key to the success of our business. TrustPower is just now starting to capitalise on some of the options that we have developed over the last Bondholders decade — Snowtown Stage 2 being one example. Pleasingly, our investors have been well rewarded. The future for our investors looks good, with a Debt holders have enjoyed the comfort of investing in number of other options in the development a strong company with stable cash flows. TrustPower pipeline able to provide profitable growth at the began its retail bond programme in 2002 and since appropriate time. 24
About Our Sustainability Report
The Reason for this Report Reporting Principles At TrustPower we believe that producing an annual We have reviewed GRI’s G3 Reporting Principles sustainability report is an essential part of being a in an effort to provide a balanced and reasonable good corporate citizen. This report provides a means representation of our sustainability performance. of communicating with a range of stakeholders on We have applied the key principles of materiality, the full range of our activities. completeness, context, comparability, accuracy, Consistent with previous years we report on timeliness, clarity, reliability and boundary setting. sustainability in conjunction with our annual report. Reporting Period, Accuracy and Materiality Completeness To determine which issues are of material This report is based on the performance and importance, we considered issues that might information for the financial year to the end of impact our operations, the environment, the March 2013. We use in-house reporting systems communities in which we operate, or substantially to collect data for the GRI process. impact our individual customers and stakeholders. Material measures are those identified from Boundary of the Report stakeholder interaction page 32 and key risks This report covers the operations of TrustPower page 25. By choosing these measures we have and all of its subsidiaries. Outside the scope of produced a report aimed at all stakeholders. this report are outsourced customer services and a variety of field services contractors. Sustainability Reporting Guidelines This Annual Report is available on our website, External Assurance www.trustpower.co.nz and is compiled with The financial statements have been audited by reference to the Global Reporting Initiative (“GRI”) PricewaterhouseCoopers. Independent review of Sustainability Reporting Guidelines Version 3.0 the Company’s impact on greenhouse gases (“G3”). We have assessed our compliance with the ‘carbon footprint’ has also been completed by reporting guidelines at the Application Level (B). PricewaterhouseCoopers. The GRI guidelines provide a voluntary reporting The remainder of the report has not been framework used by organisations around the world subjected to independent review. as the basis for sustainability reporting. The GRI is the generally accepted framework for ‘measuring, disclosing, and being held accountable to internal and external stakeholders for organisation performance toward the goal of sustainable development’. The GRI consists of a framework and guiding principles as well as a range of ‘indicators’ that reporting organisations can report against. Indicators are chosen on the basis of materiality or significance to the business and / or stakeholders. Not all indicators are reported against in this report. The full list of G3 indicators, where they are reported on in the report and to what extent they are reported can be found on our website or by inquiry to the address listed in the directory. TRUSTPOWER ANNUAL REPORT 2013 25
SUSTAINABILITY OUTLOOK
At TrustPower we believe that sustainability means building a long term business through relationships with all who we interact with. In order to report on our progress in this regard we report economic, staff, environmental, customer and community related measures. Our performance this year was comparable with previous years across the five areas we report on although not all targets were achieved.
AREA MEASURE 2012 ACTUAL 2013 ACTUAL 2013 TARGET 2014 TARGET Economic EBITDAF Growth 9.4% (1.8)% 6-10% 5-10% Staff Staff Survey 73.1 77.3 76.0 79.8 Environmental Resource Consent 10 5 0 0 Breaches Customer 1 Customer 96% 95% >95% >95% Satisfaction Community Stakeholder Completed Completed Complete detailed Complete detailed Consultation stakeholder stakeholder consultation consultation
1 Customers rating very good or excellent A more detailed analysis can be found in pages 26-31
All businesses face risks and challenges. Our key risks and challenges are summarised in the table below.
CATEGORY KEY RISKS / CHALLENGES APPROACH TARGETS PROGRESS Economic + Unable to meet future + Develop a pipeline of + Costs benchmarked at below demand for electricity opportunities for new investment industry average + Shareholder value growth + Maintain strong focus on + New projects all economically efficiency of operation viable + Invest in economic growth + New projects completed on projects time and to budget + Focus on long term + Prices set at levels so sustainable pricing customer base maintained with minimal churn Environmental + Need to minimise + Work closely with special + Zero significant resource environmental impact of interest groups and the local consent breaches generation schemes community to minimise impact + Year on year reduction in + Overall impact on carbon of new generation carbon emissions per customer emissions + Comply with resource consents + Reduce carbon footprint Our people + Need to retain and develop a + Extensive training and + 75% of management roles team to produce ongoing development programme filled by internal promotion performance + Succession planning and + Continuous improvement in internal promotion staff survey results + Staff survey exceeds national benchmark Community + Relationships with and an + Community engagement + Maintain a strong corporate understanding of local including sponsorship and profile in all areas in which we communities is required to community awards operate and build operate effectively + Consultation around resource relationships within those issues communities + No resource consents turned down due to lack of consultation Customer + Dissatisfied customers + Competitive pricing + Net customer churn <2% prevent sustainable economic + Excellent customer service + >90% satisfaction in survey performance + Information and advice
Achieved Partially achieved Not achieved 26 GENDER DIVERSITY GENDER LOST TIME INJURIES INJURY INCIDENCE RATE WORKED) HOURS MILLION (PER BOARD 2009 2009 6 3 55.3 LEVEL 0% 0 2010 2010 9 52.9 EXECUTIVE
2011 2011 LEVEL 6 PEOPLE
7 50.9 25%
2 OUR
2012 2012
7 62.6 SENIOR MANAGER 18 2013 2013 18% 10 82.5 4
TARGET2013 TARGET2013
0 0 ALL STAFF 245
TARGET2014 TARGET2014 49% 236 0 0 OVERALL EMPLOYEE ENGAGEMENT RATING (%) RATING ENGAGEMENT EMPLOYEE OVERALL UNSCHEDULED ABSENTEEISM (%) (%) TURNOVER VOLUNTARY
2009 2011 2011 74.9 2.9 Identification anddevelopment of Commitments for 2014 for Commitments ( ) ( ) ( ) Performance Against Commitments for 2013 15.0 Organisational Development process Implementation of theGSPinitiative has Lead thecompany culture through vision Provide asafe andhealthy environment - High Potential employees continues Position staff for thefuture 2010 Implement Safety Improvement Plan to supportvisionandculture Implement development programme Increase EngagementSurvey scores by 2.5% whole organisation inthenext 2-3 years commenced andprogrammed across the Development Process and values -ImplementOrganisational involved thisyear continued withMeter Readingbecoming Great Safety Performance Continue implementation of 10.5 2012 2012 73.1 2.7 2011 10.7
2012 2013 2013 77.3 2.7 19.14
2013
TARGET2013 TARGET2013 22.9
76.0 2 TARGET2013
8.0
TARGET2014 TARGET2014 TARGET2014 79.8 2 15.0 TRUSTPOWER ANNUAL REPORT 2013 27
OUR ENVIRONMENT
Performance Against Commitments for 2013
( ) Achieve zero non-compliance events Five non-compliance events. While this result did not meet our target it equalled SCOPE 1 our previous lowest number Emissions which occur from sources that are owned or controlled by Commitments for 2014 TrustPower Achieve zero non-compliance events SCOPE 2 Indirect emissions SCOPE 3 which occur at the All other indirect source of generation of emissions which are a purchased electricity consequence of the consumed by activities of TrustPower, TrustPower but occur from sources not owned or controlled by TrustPower
GREENHOUSE GAS EMISSIONS (TONNES CO2-e) 1,500
1,200
900
600
300
0
2011 2009 2010 2012 2013 2013 2014 TARGET TARGET
EMISSIONS FROM ONE-OFF, LARGE CONSTRUCTION PROJECTS RESOURCE CONSENT NON-COMPLIANCE EVENTS
(TONNES CO2-e) 10 9 522 374 5 5 5 0 0 0 0 0 0 0
2011 2011 2009 2010 2012 2013 2013 2014 2009 2010 2012 2013 2013 2014 TARGET TARGET TARGET TARGET 28
OUR COMMUNITY Performance Against Commitments for 2013
( ) Continue rollout of stakeholder engagement meetings Improvement on prior year but target was COMMUNITY GROUPS RECOGNISED AND AWARDED VIA missed as two groups of stakeholders TRUSTPOWER COMMUNITY AWARDS had no issues and did not think a meeting was necessary
360 ( ) Maintain involvement in the wider 346 community through various award
303 programmes and targeted sponsorship 303
288 Achieved Commitments for 2014 Continue rollout of stakeholder engagement meetings Maintain involvement in the wider community through various award programmes and targeted sponsorship
2011 2012 2013 2013 2014 TARGET TARGET
HIGH SCHOOL STUDENTS RECOGNISED VIA TRUSTPOWER STAKEHOLDER ENGAGEMENT MEETINGS HELD YOUTH SPIRIT AWARDS These stakeholder engagement meetings have been 78
77 introduced in the past year and are designed to increase engagement on a general level. These numbers exclude stakeholder meetings as part of a resource consent approval or renewal process. 50 50
10 7 24 5 6 2
2011 2012 2013 2013 2014 2011 2012 2013 2013 2014 TARGET TARGET TARGET TARGET
ORGANISATIONS AND INDIVIDUALS SPONSORED THROUGH STAKEHOLDER SATISFACTION THE LEND A HAND FOUNDATION This survey is carried out every two to three years 2013 target was missed due to delays in achieving and asks regional and district councils as well as other charitable status for the Wairoa Lend a Hand foundation stakeholders seven questions relating to TrustPower's consultation. The respondants rate Trustpower from 1 (poor) to 5 (excellent). The numbers below are the 135 133 133 average score of all seven questions. 124 4.1 N/A N/A N/A 4.2 4.2 71
2011 2012 2013 2013 2014 2010 2011 2012 2013 2013 2014 TARGET TARGET TARGET TARGET OVERHEADS PER ELECTRICITY CUSTOMER MASS MARKET SALES (GWh)
2009 2009
Commitments for 2014 for Commitments ( ) ( ) Performance Against Commitments for 2013 2,007 130 Acquired theassets of Energy Direct Introduce new products andservices that in 2014 develop web basedservices for deployment Information System andinitiated aproject to Deployed andbeddedinourCustomer with usviatheirchannelofchoice Enhance ourcustomers abilityto engage with usviadeveloped web basedservices Enhance ourcustomers abilityto engage capability to customers New Zealand Limited to enablegassupply energy needs enable usto better meetourcustomers 2010 2010 2,057 126
2011 2011 1,877 138
2012 2012 1,761 153
2013 2013 1,613 175
TARGET2013 TARGET2013
1,600 - 1,700 180 - 190
TARGET2014 TARGET2014
1,600 - 1,700 200 - 210 HALF HOURLY METERED SALES (GWh) SALES METERED HOURLY HALF CUSTOMER NUMBER GROWTH (%) GROWTH NUMBER CUSTOMER (%) RATING SERVICE CUSTOMER TELECOMMUNICATION SERVICE NUMBERS (000s) ELECTRICITY CUSTOMER NUMBERS 2009 88 2009 2009 2009 2009 2.3 2,024 30 227
2010 -0.9 2010 2010 2010 2010 94 33 225 2,046 CUSTOMERS
2011 94 2011 2011 2011 2011 -1.8 2,156 35 221 OUR
2012 2013 REPORT ANNUAL TRUSTPOWER -5.4 2012 2012 2012 2012 96
2,199 38 209 (000s)
2013 95 2013 2013 2013 2013 -1.6
2,070 43 206
TARGET2013 TARGET2013 TARGET2013 -5 -0 TARGET2013 TARGET2013 95
2,200 - 2,300 43 - 46 195 - 205
2014 2014 2014 2014
TARGET TARGET TARGET 0 -5 TARGET
TARGET2014 95
1,900 - 2,000 50 - 53 210 - 215 29 30
OUR ECONOMIC PERFORMANCE
FIVE YEAR ECONOMIC SUMMARY Mar 09 Mar 10 Mar 11 Mar 12 Mar 13
Electricity customer numbers (000’s) 227 225 221 209 206
Telecommunication customer numbers (000’s) 30 33 35 38 43
Customer sales (GWh) 4,031 4,103 4,033 3,960 3,683
Average spot price of electricity purchased ($/MWh) 120 56 59 78 86
Hydro generation production (GWh) 1,568 1,435 1,737 1,934 1,692
Wind generation production (GWh) 558 582 550 648 638
Average spot price of electricity generated ($/MWh) 114 50 51 72 83
$M $M $M $M $M
Operating Revenue 785 759 766 807 806
EBITDAF 262 274 274 300 295
Fair Value Movements of Financial Instruments (20) 13 - (8) (6)
Asset Impairment (1) (6) - - -
Amortisation and Depreciation (44) (55) (55) (58) (66)
Net Interest Paid (52) (59) (62) (63) (63)
Tax Expense (40) (48) (45) (39) (37)
OPERATING SURPLUS 105 119 112 132 123
Underlying Earnings After Tax 119 117 116 135 127
SHAREHOLDERS’ EQUITY 1,430 1,437 1,418 1,571 1,552
Current and Other Assets 114 157 135 165 213
Fixed Assets 2,373 2,366 2,436 2,585 2,717
Intangible Assets 40 36 34 46 47
TOTAL ASSETS 2,527 2,559 2,605 2,796 2,977
Current and Other Liabilities 114 313 120 251 247
Deferred Tax Liability 251 267 257 300 292
Term Debt 732 542 810 674 886
TOTAL LIABILITIES 1,097 1,122 1,187 1,225 1,425
NET ASSETS 1,430 1,437 1,418 1,571 1,552
Earnings Per Share (cents) 33 38 36 42 39
Dividends Per Share (cents) 33 38 39 40 40
Return on Average Shareholders’ Funds 7.8% 8.3% 7.9% 8.8% 7.9% TRUSTPOWER ANNUAL REPORT 2013 31
Performance Against Commitments for 2013
( ) Provide a year of earnings growth in line with EBITDAF growth goal DEBT TO DEBT PLUS EQUITY (%) Not achieved. See Director's Report and Increase due to commencement Chief Executive's commentary for of construction of Snowtown detailed discussion
Wind Farm Stage 2 <45 <40 36.9 36.3 33.9 34.0 Commitments for 2014 32.8 Provide a year of earnings growth in line with EBITDAF growth goal
2011 2009 2010 2012 2013 2013 2014 TARGET TARGET
EBITDAF GROWTH (%) TOTAL SHAREHOLDER RETURN (%)
This target is based 11.7 on TrustPower's medium 25.7 5-10 term growth aspirations 5-10 and should not be taken 9.2 as guidance for the 2014 financial year. 6.3 4.7 5-10 6-10 9.4 4.7 0.2 -1.2 -1.8
2011 2011 2009 2010 2012 2013 2014 2010 2012 2013 2013 2014 2013 TARGET TARGET 2009 TARGET TARGET
UNDERLYING EARNINGS ($ MILLIONS) OPERATING COST PER MWh GENERATED ($) Variance largely due to lower than expected generation volumes 135.3 120-130 120-130 127.3 16.4 16.4 120.1 15-16 15.7 116.5 116.8 14.5 14.0 13.5
2011 2011 2009 2010 2012 2013 2013 2014 2009 2010 2012 2013 2013 2014 TARGET TARGET TARGET TARGET 32
STAKEHOLDER INTERACTION
Our relationships with various stakeholders have been highlighted throughout this report. The following table summarises the interaction we have had and will continue to have with our stakeholders.
STAKEHOLDER INTERACTION KEY INTERESTS AND CONCERNS HOW WE RESPOND Generation Communities + As required community/stakeholder meetings on key topics of interest + Impact of electricity generation on communities including transport + Targeting 100 per cent compliance with consent conditions + Regular community group meetings of goods and staff + Mitigation projects + Stakeholder surveys + Impact on recreational areas around generation sites + Environmental management systems + Charitable donations and community projects + Impact on local employment + Policy of hiring locally where local skills and expertise are available + Community Awards Programme + Contribution to economic and sustainable development of + Sponsorship and management of local community awards affected communities Tangata Whenua + Regular formal and informal meetings with iwi at generation sites + Minimisation of any ongoing impact and degradation on tangata + Seek to understand and acknowledge tangata whenua regarding whenua cultural and spiritual values electricity schemes + Minimisation of, or where appropriate mitigation for, ongoing + Seek to understand and acknowledge the impact of activities on the environmental footprint values held by tangata whenua + Where possible and appropriate, reach mitigation agreements with iwi impacted by operations Customers + Customer interaction through customer service staff, meter readers, + Cost, reliability of and access to electricity supply + Treat all customers fairly and with respect account managers and community relation activities + Customer service and satisfaction + Be aware of and seek to minimise risk for vulnerable customers + Customer surveys + Energy efficiency and renewable generation + Provide energy efficiency advice to customers + Customer newsletters + Company reputation + Aim to provide the highest level of service + Website + Deliver open and transparent pricing / billing Employees + Staff surveys + Work/life balance + Monitor staff work levels, performance and feedback + Staff newsletter + Achieving and maintaining zero health and safety incidents + Great Safety Performance programme + Intranet + Competitive rates of pay + Market based remuneration + Direct engagement on key topics of interest + Being a socially and environmentally responsible employer + Provide leadership development programme + Staff committee + Training and development + Promote wellness programme + Senior Leadership Team’s staff updates + Being regarded and respected as a responsible employer and an + Keep employees well informed about our business + Inter-team challenges, sports and fun evenings employer of choice + Promote internally for 75% of positions + Employee involvement in community activity + Diversity + Subsidise life, trauma and income protection insurance + Introduction of diversity policy Special Interest Groups + Meetings to discuss key topics of interest + Contribution to climate change + Contribution to climate change strategy + Partnerships and funding to deliver, where appropriate, + Impact on local communities – positive and negative + Develop renewable electricity generation community projects + Show an interest in and ability to support community development + Respond to information requests + Promotion of and support for community voluntary sector + Membership of relevant organisations + Community Connect website Government + Briefings with Ministers and officials + Security of supply + Assist with development of climate change strategy + Submissions on policy + Ensuring company corporate social responsibility + Engage with the Government and other stakeholders and submit on + Contribution to development of policy key energy policy documents + Participation in working groups, conferences and meetings + Develop renewable generation Electricity Sector + Submissions on electricity sector policy + Working with other industry stakeholders on mutual interests related + Submit on the Electricity Authority’s transmission pricing review + Participation in utility forums to planning and regulation + Participate in working groups, conferences and other key forums on + Security of supply key topics of mutual interest Suppliers and Contractors + Contractual arrangements + Policies, procedures and requirements are clearly understood + Development and implementation of a sustainable procurement policy + Procurement policy General Community + Media liaison + Keeping the lights on uninterrupted + Climate change strategy + Public meetings + Contribution to climate change + Direct community involvement, interaction, sponsorship and support + Direct mail communications + Cost and access to energy + Advertising + Impact on local communities positive and negative + Website + Direct community involvement Shareholders + Annual meeting + Sustainable earnings + Considered economic investment + Board representatives + Growth + Deliver sustainable shareholder returns + Reports and publications + Shareholder value TRUSTPOWER ANNUAL REPORT 2013 33
STAKEHOLDER INTERACTION KEY INTERESTS AND CONCERNS HOW WE RESPOND Generation Communities + As required community/stakeholder meetings on key topics of interest + Impact of electricity generation on communities including transport + Targeting 100 per cent compliance with consent conditions + Regular community group meetings of goods and staff + Mitigation projects + Stakeholder surveys + Impact on recreational areas around generation sites + Environmental management systems + Charitable donations and community projects + Impact on local employment + Policy of hiring locally where local skills and expertise are available + Community Awards Programme + Contribution to economic and sustainable development of + Sponsorship and management of local community awards affected communities Tangata Whenua + Regular formal and informal meetings with iwi at generation sites + Minimisation of any ongoing impact and degradation on tangata + Seek to understand and acknowledge tangata whenua regarding whenua cultural and spiritual values electricity schemes + Minimisation of, or where appropriate mitigation for, ongoing + Seek to understand and acknowledge the impact of activities on the environmental footprint values held by tangata whenua + Where possible and appropriate, reach mitigation agreements with iwi impacted by operations Customers + Customer interaction through customer service staff, meter readers, + Cost, reliability of and access to electricity supply + Treat all customers fairly and with respect account managers and community relation activities + Customer service and satisfaction + Be aware of and seek to minimise risk for vulnerable customers + Customer surveys + Energy efficiency and renewable generation + Provide energy efficiency advice to customers + Customer newsletters + Company reputation + Aim to provide the highest level of service + Website + Deliver open and transparent pricing / billing Employees + Staff surveys + Work/life balance + Monitor staff work levels, performance and feedback + Staff newsletter + Achieving and maintaining zero health and safety incidents + Great Safety Performance programme + Intranet + Competitive rates of pay + Market based remuneration + Direct engagement on key topics of interest + Being a socially and environmentally responsible employer + Provide leadership development programme + Staff committee + Training and development + Promote wellness programme + Senior Leadership Team’s staff updates + Being regarded and respected as a responsible employer and an + Keep employees well informed about our business + Inter-team challenges, sports and fun evenings employer of choice + Promote internally for 75% of positions + Employee involvement in community activity + Diversity + Subsidise life, trauma and income protection insurance + Introduction of diversity policy Special Interest Groups + Meetings to discuss key topics of interest + Contribution to climate change + Contribution to climate change strategy + Partnerships and funding to deliver, where appropriate, + Impact on local communities – positive and negative + Develop renewable electricity generation community projects + Show an interest in and ability to support community development + Respond to information requests + Promotion of and support for community voluntary sector + Membership of relevant organisations + Community Connect website Government + Briefings with Ministers and officials + Security of supply + Assist with development of climate change strategy + Submissions on policy + Ensuring company corporate social responsibility + Engage with the Government and other stakeholders and submit on + Contribution to development of policy key energy policy documents + Participation in working groups, conferences and meetings + Develop renewable generation Electricity Sector + Submissions on electricity sector policy + Working with other industry stakeholders on mutual interests related + Submit on the Electricity Authority’s transmission pricing review + Participation in utility forums to planning and regulation + Participate in working groups, conferences and other key forums on + Security of supply key topics of mutual interest Suppliers and Contractors + Contractual arrangements + Policies, procedures and requirements are clearly understood + Development and implementation of a sustainable procurement policy + Procurement policy General Community + Media liaison + Keeping the lights on uninterrupted + Climate change strategy + Public meetings + Contribution to climate change + Direct community involvement, interaction, sponsorship and support + Direct mail communications + Cost and access to energy + Advertising + Impact on local communities positive and negative + Website + Direct community involvement Shareholders + Annual meeting + Sustainable earnings + Considered economic investment + Board representatives + Growth + Deliver sustainable shareholder returns + Reports and publications + Shareholder value 34
CORPORATE GOVERNANCE STATEMENT
Role of the Board of Directors 31 March 2013, the Board has determined that the independent directors of TrustPower are The Directors are elected by the shareholders RH Aitken, GJC Swier, and IS Knowles and the and are responsible to the shareholders for the non-independent directors of TrustPower are performance of the Group. Their focus is to enhance MJ Cooney, BJ Harker, and M Bogoievski. the interests of shareholders and other key stakeholders and to ensure the Group is properly The Board has established two standing managed. The Board draws on relevant corporate Subcommittees being; the Audit Committee and governance best practice principles to assist and the Remuneration Committee. contribute to the performance of the Group. Audit Committee The Board has developed a charter that outlines responsibilities that encompass the following: The Board has established a standing Audit Committee consisting of three directors. The + Setting the strategic direction of TrustPower Committee meets at least four times a year. and monitoring management’s implementation Members of the Committee are: GJC Swier of that strategy. (Chairman), BJ Harker, and IS Knowles. + Selecting and appointing (and, if appropriate, The role of the Audit Committee is formally recorded removing from office) the Chief Executive, in a charter document approved by the Board of determining his/her conditions of service and Directors. The primary objective of the Committee, monitoring his/her performance against as set out in the charter, is to assist the Board in established objectives. fulfilling its responsibilities relating to accounting + Ratifying the appointment (and, if appropriate, and reporting practices of the Group. In particular, removing from office) the Chief Financial Officer the Committee’s main responsibilities are to: and Company Secretary. + Review and report to the Board on the annual + Ratifying the remuneration of senior management report, the interim financial report and all other consistent with their employment agreements. financial information published by the Group or released to the market. + Monitoring financial outcomes and the integrity of reporting, and, in particular, approving + Assist the Board in reviewing the effectiveness annual budgets and longer-term strategic and of the organisation’s internal control environment. business plans. + Determine the scope of the internal audit + Setting specific limits of authority for function and ensure that its resources are management to commit to new expenditure adequate and used effectively, including enter contracts or acquire businesses without co-ordination with external auditors. prior Board approval. + Oversee the effective operation of the risk + Ensuring that effective audit, risk management management framework. and compliance systems are in place to protect + Recommend to the Board the appointment, the Group’s assets and to minimise the possibility removal and remuneration of the external of the Group operating beyond legal requirements auditors, and review the terms of their or beyond acceptable risk parameters. engagement, and the scope and quality of + Monitoring compliance with regulatory the audit. requirements (including continuous disclosure) + Review and approve, within established and setting ethical standards and then procedures, and before commencement, the monitoring compliance with those standards. nature and scope of non-audit services being + Reviewing, on a regular basis, senior management provided by the external auditors. These succession planning and development. procedures include quantitative and qualitative thresholds for the review, and include all + Ensuring effective and timely reporting to relatively significant projects. shareholders. In fulfilling its responsibilities, the Audit Committee Each year the Board has nine scheduled one day receives regular reports from management and meetings, at least one extended strategic planning the internal and external auditors. It also meets meeting, at least four Audit Committee meetings and with the internal and external auditors at least several unscheduled meetings to consider and/or three times a year – more frequently if necessary. review substantial projects and any other special circumstances that may arise from time to time. The internal and external auditors have a clear line of direct communication at any time to either The full Board determines the board size and the Chairperson of the Audit Committee or the composition, subject to limits imposed by the Chairperson of the Board. Company’s Constitution which is required to comply with the NZX Listing Rules. The Constitution The Remuneration Committee provides for a minimum of three directors and a The Board has established a Remuneration maximum of seven. Committee which has two directors as members, The Constitution and NZX Listing Rules also require BJ Harker and GJC Swier. The role of the that while there are a total of six or seven directors, Remuneration Committee is formally recorded in a two must be independent directors. As at charter document approved by the Board of Directors. TRUSTPOWER ANNUAL REPORT 2013 35
The primary objectives of the Remuneration Code of Ethics Committee are to: A Code of Ethics has been developed and + Help enable the Company to attract, retain and approved by the Board. TrustPower is committed motivate executives and Directors who will to maintaining the highest standards of honesty, create value for shareholders. integrity and ethical conduct and has adopted a + Fairly and reasonably reward executives having Code of Ethics to deter wrongdoing and to promote: regard to the performance of the Company, the + Honest and ethical conduct, including the ethical performance of the executives and the general handling of actual or apparent conflicts of interest pay environment. between personal and professional relationships. + Help the Company comply with the provisions + Full, fair, accurate, timely and understandable of the Employment Relations Act 2000, the disclosure in reports and documents filed by the Companies Act 1993, the NZX Listing Rules Company and in other public communications and any other relevant legal requirements. made by the Company. The responsibilities of the Committee include: + Compliance with applicable laws, rules and + Reviewing and recommending to the Board regulations. for approval the remuneration policy for + Internal reporting to the Board of Directors of directors and senior executives and ensuring violations of this Code of Ethics. that the structure of the policy allows the + Accountability for adherence to the Code of Ethics. Company to attract and retain directors and senior executives of sufficient calibre to facilitate The Code of Ethics is not an exhaustive list of the efficient and effective management of the acceptable or non-acceptable behaviour, rather it Company’s operations. is intended to guide decisions so they are consistent with TrustPower’s values, business + Annual review and recommendation to the goals and legal and policy obligations. Board for approval of the remuneration packages of all directors and senior executives Failure to follow the Code of Ethics may lead to of the Company. disciplinary action being taken, which may include dismissal. The Code of Ethics applies to the Board + With reference to the Board, managing the of Directors and the Company’s employees. employment or removal of the Chief Executive and negotiation of employment terms. Internal Control + Participation in the process of employment of the The Group has adopted a system of internal Chief Financial Officer and recommendation to control. The system is based upon written the Board of its confidence in any appointment. procedures, policies, guidelines and organisational + Establishment of appropriate performance structures that provide an appropriate division of criteria, from time to time, for short and long responsibility, sound risk management, a term employee incentive schemes and to make programme of internal audit, and the careful recommendations to the Board. selection and training of qualified personnel. While the Board acknowledges that it is responsible Other Sub Committees for the overall control framework of the Group, it The Board has established a sub committee recognises that no cost effective internal control including BJ Harker, MJ Cooney and IS Knowles system will preclude all errors and irregularities. to oversee any transaction to be undertaken by the Company in relation to on-market share buybacks. Risk Management The Group has developed a comprehensive, Review of Board Performance enterprise-wide risk management framework. An annual review of the performance of the Board Management actively participates in the identification, and individual directors is undertaken by the Chairman. assessment, and monitoring of new and existing risks. Particular attention is given to market risks Compliance with NZX Corporate Governance that could impact on the Group. Management Best Practice Code and Other Guidelines undertakes regular reporting to appraise the Audit Committee and the Board of the Company’s risks As a listed issuer TrustPower is required to disclose and the treatment of those risks. in its Annual Report whether, and to what extent, its corporate governance principles materially The Audit Committee reviews and if considered differ from the NZX Corporate Governance Best satisfactory, recommends for approval by the Board Practice Code. annually, the Company’s insurance programme. TrustPower believes that it complies in all material Wholesale Electricity and Carbon respects with the Code. However, it should be noted that the TrustPower Board has chosen not Trading Policy to constitute a Nominations Committee as The Group has adopted a Wholesale Electricity recommended by the Code. The Board has and Carbon Trading Policy to manage the risk decided that director nominations are able to be relating to the purchasing of electricity from the handled more effectively by the full Board. wholesale electricity market and sale of carbon 36
related products. Derivative instruments can be or is accustomed to act in relation to the used to set the price of electricity at a future Director’s powers and duties, nominated time. The Wholesale Electricity and without the prior consent of a Subcommittee of Carbon Trading Policy allows wholesale electricity the Board established to authorise the disclosure. trading to occur within risk limits set by the Board. Treasury Policy Conflicts of Interest Where any TrustPower Director has a conflict of The Group has a Board approved Treasury Policy interest or is otherwise interested in any transaction, to manage finance, interest rate, foreign exchange that Director is required to disclose his or her and foreign investment risks. The Policy approves conflict of interest, and thereafter neither participate the use of certain instruments for risk management in the discussion nor vote in relation to the relevant purposes, and it prohibits any activity that is purely matter. The Company maintains a register of speculative in nature. It also sets out exposure disclosed interests. limits, delegated authorities and internal controls. The Policy is reviewed by management annually Insider Trading and independently every three years. In order to protect TrustPower’s reputation and Delegated Authorities Policy safeguard employees who may want to buy or sell TrustPower securities, the Company’s Securities The Group has a Delegated Authorities Policy in Trading Policy requires an approved procedure to be place that has been approved by the Board. The followed by all staff and Directors. Certain employees Policy provides limited authority to certain Group of the Company are required to make additional executives to purchase goods and services, enter disclosures under the Securities Markets Act 1988. into sales contracts and approve credit, sign deeds, indemnities and guarantees, and sign other contracts Whistleblowing Policy and documents. The Policy is reviewed annually. TrustPower has established a Whistleblowing Policy Environmental Policy in order to facilitate the disclosure and impartial investigation of any serious wrongdoing. This The Group recognises the importance of policy advises employees of their right to disclose environmental issues and is committed to the serious wrongdoing, and sets out TrustPower’s highest levels of performance. To help meet this internal procedures for receiving and dealing with objective the Group has developed and is proactively such disclosures. The policy is consistent with, implementing both environmental policies and a and facilitates, the Protected Disclosures Act 2000. comprehensive environmental management system. These have been established to facilitate the Other Corporate Policies systematic identification of environmental issues and to ensure that they are managed in a structured The Group has a number of other policies covering manner. These measures allow the Group to: but not limited to human resource activities, health and safety, buildings and security, and disaster + Monitor its compliance with all relevant legislation. recovery planning. These policies are regularly + Continually assess and improve the impact of reviewed and approved by senior management its operations on the environment. and where appropriate the Board. + Encourage employees to actively participate in Internal Audit the management of environmental issues. The Group has established an outsourced internal + Use energy and other resources efficiently. audit function that is responsible for monitoring + Encourage the adoption of similar standards the Group’s system of internal financial control and by the Group’s principal suppliers, contractors the integrity of the financial information reported to and distributors. the Board. Internal audit operates independently from the Board and reports its findings directly to + Ensure procedures are in place to appropriately the Audit Committee. Internal audit liaises closely deal with any adverse environmental event that with the external auditors, who review the internal may occur. audit work undertaken to the extent necessary to Group Information Policy support their audit opinion. The following is the Group’s policy regarding the The Role of Shareholders disclosure of Group information: The Board aims to ensure that shareholders are No Director of the Group may disclose information informed of all major developments affecting the which that Director has received in his or her capacity Group’s state of affairs. Information is communicated as a director or employee of the Group, being to shareholders in the annual, interim reports, and information that would not otherwise be available various announcements to NZX. Quarterly operational to the Director, to information is also provided following the end of each quarter via NZX announcement. The Board (a) a person whose interests that Director encourages full participation of shareholders at the represents; or annual meeting to ensure a high level of (b) a person in accordance with whose directions accountability and identification with the Group’s or instructions the Director may be required, strategies and goals. TRUSTPOWER ANNUAL REPORT 2013 37
Directors’ Responsibility Statement
The Directors are pleased to present the financial statements of TrustPower Limited and subsidiaries for the year ended 31 March 2013.
The Directors are responsible for ensuring that the financial statements give a true and fair view of the financial position of the Company and the Group as at 31 March 2013 and their financial performance and cash flows for the year ended on that date. The Directors consider that the financial statements of the Company and the Group have Bruce Harker been prepared using appropriate accounting Chairman policies, consistently applied and supported by reasonable judgements and estimates and that all relevant financial reporting and accounting standards have been followed. The Directors believe that proper accounting records have been kept that enable, with reasonable accuracy, the determination of the financial Geoff Swier positions of the Company and the Group and Director facilitate compliance of the financial statements with the Financial Reporting Act 1993. The Directors consider they have taken adequate COMPANY REGISTRATION NUMBER HN604040 steps to safeguard the assets of the Company and the Group to prevent and detect fraud and DATED: 10 MAY 2013 other irregularities. 38
Independent Auditors’ Report to the shareholders of TrustPower Limited
Report on the Financial Statements We have audited the financial statements of TrustPower Limited (“the Company”) on pages 39 to 75, which comprise the statements of financial position as at 31 March 2013, the income statements, statements of comprehensive income and statements of changes in equity and cash flow statements for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 March 2013 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We have no relationship with, or interests in, TrustPower Limited or any of its subsidiaries other than in our capacities as auditors, tax advisors and providers of other assurance services. These services have not impaired our independence as auditors of the Company and the Group. Opinion In our opinion, the financial statements on pages 39 to 75: (i) comply with generally accepted accounting practice in New Zealand; and (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the financial position of the Company and the Group as at 31 March 2013, and their financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2013: (i) we have obtained all the information and explanations that we have required; and (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records. Restriction on Distribution or Use This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.
Chartered Accountants Auckland 10 May 2013
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz TRUSTPOWER ANNUAL REPORT 2013 39
Income Statements
GROUP PARENT 2013 2012 2013 2012 For the Year Ended 31 March 2013 Note $000 $000 $000 $000
Operating Revenue Electricity revenue 6 765,155 763,570 727,215 727,147 Carbon revenue 1,692 5,181 1,692 5,181 Meter rental revenue 7,138 6,986 7,138 6,986 Other customer fees and charges 2,464 2,808 2,464 2,808 Telecommunications sales 23,346 23,427 23,346 23,427 Other operating revenue 5,709 5,088 5,601 5,197 805,504 807,060 767,456 770,746 Operating Expenses Energy costs 136,480 137,225 136,480 137,225 Generation production costs 41,531 39,036 35,195 33,089 Line costs 230,312 225,495 230,312 225,495 Market fees and costs 10,458 11,594 10,428 11,563 Meter rental costs 4,650 4,713 4,650 4,713 Other customer connection costs 1,724 1,835 1,724 1,835 Net gain on sale of property, plant and equipment (104) (5) (41) (72) Employee benefits 35,623 32,379 34,597 29,577 Telecommunications cost of sales 19,959 18,792 19,959 18,792 Other operating expenses 7 30,115 35,859 42,670 52,128 510,748 506,923 515,974 514,345 Earnings Before Interest, Tax, Depreciation, Amortisation, Fair Value Movements of Financial Instruments and Asset Impairments (EBITDAF) 294,756 300,137 251,482 256,401
Impairment of assets 8 - 428 2,841 5,314 Net fair value losses on financial instruments 9 5,593 7,544 3,721 1,883 Amortisation of intangible assets 24 7,930 5,357 7,930 5,357 Depreciation 22 58,057 52,880 23,898 18,558 Operating Profit 223,176 233,928 213,092 225,289
Interest paid 10 64,219 63,889 48,782 48,788 Interest received 10 (1,472) (904) (3,320) (4,883) Net finance costs 62,747 62,985 45,462 43,905
Profit Before Income Tax 160,429 170,943 167,630 181,384
Income tax expense 11 37,078 39,291 46,805 47,831
Profit After Tax Attributable to the Shareholders of the Company 123,351 131,652 120,825 133,553
Basic earnings per share (cents per share) 4 39.2 41.9 38.4 42.5 Diluted earnings per share (cents per share) 4 39.2 41.8 38.4 42.5
The accompanying notes form part of these financial statements 40
Statements of Comprehensive Income
GROUP PARENT 2013 2012 2013 2012 For the Year Ended 31 March 2013 Note $000 $000 $000 $000
Profit after tax attributable to the shareholders of the Company 123,351 131,652 120,825 133,553
Other Comprehensive Income Revaluation gains on generation assets 14 - 193,447 - 159,589 Currency translation differences on revaluation reserve 14 (1,405) (6,231) - - Fair value gains/(losses) on cash flow hedges 16 (20,293) 18,153 (19,106) 18,153 Other currency translation differences 17 (1,031) (4,027) - - Movements in employee share option reserve 17 (3) (100) (3) (100)
Tax effect of the following: Revaluation gains on generation assets 14 - (41,057) - (34,074) Disposal of revalued assets 14 18 14 18 6 Fair value gains/(losses) on cash flow hedges 16 5,705 (5,083) 5,349 (5,083) Other currency translation differences 17 (493) (3,584) - -
Total Other Comprehensive Income (17,502) 151,532 (13,742) 138,491
Total Comprehensive Income 105,849 283,184 107,083 272,044
The accompanying notes form part of these financial statements TRUSTPOWER ANNUAL REPORT 2013 41
Statements of Changes In Equity
Cash flow Share Revaluation hedge Other Retained Total capital reserve reserve reserves earnings equity For the Year Ended 31 March 2013 Note $000 $000 $000 $000 $000 $000
GROUP
Opening balance as at 1 April 2011 170,750 880,391 (7,872) 19,903 355,319 1,418,491
Total comprehensive income for the period - 146,173 13,070 (7,711) 131,652 283,184 Disposal of revalued assets - (51) - - 51 -
Transactions with owners recorded directly in equity Purchase of treasury shares by directors 146 - - - - 146 Own shares repurchased 13 (4,818) - - - - (4,818) Dividends paid 12 - - - - (125,672) (125,672) Total transactions with owners recorded directly in equity (4,672) - - - (125,672) (130,344)
Closing balance as at 31 March 2012 166,078 1,026,513 5,198 12,192 361,350 1,571,331 Opening balance as at 1 April 2012 166,078 1,026,513 5,198 12,192 361,350 1,571,331
Total comprehensive income for the period - (1,387) (14,588) (1,527) 123,351 105,849 Disposal of revalued assets - (63) - - 63 -
Transactions with owners recorded directly in equity Purchase of treasury shares by directors 290 - - - - 290 Own shares repurchased 13 (260) - - - - (260) Dividends paid 12 - - - - (125,447) (125,447) Total transactions with owners recorded directly in equity 30 - - - (125,447) (125,417)
Closing balance as at 31 March 2013 166,108 1,025,063 (9,390) 10,665 359,317 1,551,763
Cash flow Share Revaluation hedge Other Retained Total capital reserve reserve reserves earnings equity For the Year Ended 31 March 2013 Note $000 $000 $000 $000 $000 $000
PARENT
Opening balance as at 1 April 2011 170,750 705,806 (7,872) 103 304,191 1,172,978
Total comprehensive income for the period - 125,521 13,070 (100) 133,553 272,044 Disposal of revalued assets - (25) - - 25 -
Transactions with owners recorded directly in equity Purchase of treasury shares by directors 146 - - - - 146 Amalgamation adjustment 23 - 30,252 - - 45,304 75,556 Own shares repurchased 13 (4,818) - - - - (4,818) Dividends paid 12 - - - - (125,672) (125,672) Total transactions with owners recorded directly in equity (4,672) 30,252 - - (80,368) (54,788)
Closing balance as at 31 March 2012 166,078 861,554 5,198 3 357,401 1,390,234 Opening balance as at 1 April 2012 166,078 861,554 5,198 3 357,401 1,390,234
Total comprehensive income for the period - 18 (13,757) (3) 120,825 107,083 Disposal of revalued assets - (63) - - 63 -
Transactions with owners recorded directly in equity Purchase of treasury shares by directors 290 - - - - 290 Own shares repurchased 13 (260) - - - - (260) Dividends paid 12 - - - - (125,447) (125,447) Total transactions with owners recorded directly in equity 30 - - - (125,447) (125,417)
Closing balance as at 31 March 2013 166,108 861,509 (8,559) - 352,842 1,371,900
The accompanying notes form part of these financial statements 42
Statements of Financial Position
GROUP PARENT 2013 2012 2013 2012 As at 31 March 2013 Note $000 $000 $000 $000
Equity Capital and reserves attributable to shareholders of the Company Share capital 13 166,108 166,078 166,108 166,078 Revaluation reserve 14 1,025,063 1,026,513 861,509 861,554 Retained earnings 15 359,317 361,350 352,842 357,401 Cash flow hedge reserve 16 (9,390) 5,198 (8,559) 5,198 Other reserves 17 10,665 12,192 - 3 Total Equity 1,551,763 1,571,331 1,371,900 1,390,234
Represented by: Current Assets Cash at bank 18 53,972 23,142 31,117 9,695 Bond deposits on trust 995 1,791 995 1,791 Accounts receivable and prepayments 19 136,414 115,963 129,456 110,671 Derivative financial instruments 20 4,230 10,603 2,797 10,571 Advances to subsidiaries 21 - - 130,553 142,066 Taxation receivable 6,362 5,159 - - 201,973 156,658 294,918 274,794 Non-Current Assets Accounts receivable and prepayments 19 3,051 - - - Property, plant and equipment 22 2,716,588 2,584,985 1,958,019 1,954,993 Derivative financial instruments 20 4,941 5,665 4,595 5,665 Investments in subsidiaries 23 - - 51,135 51,135 Other investments 2,420 2,431 1,892 1,892 Intangible assets 24 47,298 45,895 47,298 45,895 2,774,298 2,638,976 2,062,939 2,059,580
Total Assets 2,976,271 2,795,634 2,357,857 2,334,374
Current Liabilities Accounts payable and accruals 25 120,463 109,812 115,786 101,850 Unsecured subordinated bonds 27 54,713 108,592 54,713 108,592 Unsecured bank loans 26 24,908 - - - Derivative financial instruments 20 3,328 3,896 303 3,728 Taxation payable 2,726 5,702 2,561 5,432 206,138 228,002 173,363 219,602 Non-Current Liabilities Unsecured bank loans 26 435,284 308,440 108,983 119,605 Unsecured subordinated bonds 27 237,662 153,685 237,662 153,685 Unsecured senior bonds 28 212,838 212,178 212,838 212,178 Derivative financial instruments 20 36,399 17,510 27,990 10,857 Accounts payable and accruals 25 4,064 4,273 4,064 4,273 Deferred tax liability 29 292,123 300,215 221,057 223,940 1,218,370 996,301 812,594 724,538
Total Liabilities 1,424,508 1,224,303 985,957 944,140
Net Assets 1,551,763 1,571,331 1,371,900 1,390,234
The accompanying notes form part of these financial statements TRUSTPOWER ANNUAL REPORT 2013 43
Cash Flow Statements
GROUP PARENT 2013 2012 2013 2012 For the Year Ended 31 March 2013 Note $000 $000 $000 $000
Cash Flows from Operating Activities Cash was provided from: Receipts from customers 802,716 816,396 765,453 778,748 802,716 816,396 765,453 778,748 Cash was applied to: Payments to suppliers and employees 517,867 501,742 497,603 488,731 Taxation paid 43,741 46,402 43,426 46,370 561,608 548,144 541,029 535,101
Net Cash from Operating Activities 31 241,108 268,252 224,424 243,647
Cash Flows from Investing Activities Cash was provided from: Sale of property, plant and equipment 377 21 252 21 Return of bond deposits on trust 800 200 800 200 Return of electricity market security deposits 8,900 5,700 8,900 5,700 Return of advances from subsidiaries - - - 12,038 Interest received 1,497 904 3,321 4,883 11,574 6,825 13,273 22,842 Cash was applied to: Advances to subsidiaries - - 14,308 10,572 Interest capitalised in construction of property, plant and equipment 4,780 27 514 27 Lodgement of electricity market security deposits 8,905 4,457 8,905 4,457 Purchase of property, plant and equipment 198,603 35,863 28,823 33,789 Purchase of other investments - 100 - 84 Purchase of intangible assets 9,333 16,841 9,333 16,841 221,621 57,288 61,883 65,770
Net Cash used in Investing Activities (210,047) (50,463) (48,610) (42,928)
Cash Flows from Financing Activities Cash was provided from: Bank loan proceeds 242,358 20,728 68,535 18,261 Subordinated bond issue proceeds 74,925 - 74,925 - Issue of shares 290 146 290 146 317,573 20,874 143,750 18,407 Cash was applied to: Bond brokerage costs 1,907 - 1,907 - Purchase of own shares 260 4,818 260 4,818 Repayment of bank loans 83,613 35,979 79,789 32,000 Repayment of subordinated bonds 43,517 - 43,517 - Interest paid 61,404 63,076 47,222 48,370 Dividends paid 125,447 125,672 125,447 125,672 316,148 229,545 298,142 210,860
Net Cash from/(used in) Financing Activities 1,425 (208,671) (154,392) (192,453)
Net Increase in Cash and Cash Equivalents 32,486 9,118 21,422 8,266
Cash and cash equivalents at beginning of the year 23,142 14,606 9,695 1,429
Exchange losses on cash and cash equivalents (1,656) (582) - -
Cash and Cash Equivalents at End of the Year 53,972 23,142 31,117 9,695
The accompanying notes form part of these financial statements 44
Notes to the Consolidated Financial Statements For the year ended 31 March 2013
Note 1: General Information De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders Reporting Entity give the Group the power to govern the financial and operating policies. The principal activities of TrustPower Limited (the Company or Parent) and Subsidiaries are fully consolidated from the date on which control is its subsidiaries (together the Group) are the development, ownership and transferred to the Group and they are no longer consolidated from the date operation of electricity generation facilities from renewable energy sources and that control ceases. the retail sale of electricity and telecommunications services to its customers. The Group applies the acquisition method of accounting to account for All significant operations take place within New Zealand and Australia. business combinations. The consideration transferred for the acquisition of The Company is a limited liability company incorporated and domiciled a subsidiary is the fair values of the assets transferred, the liabilities incurred in New Zealand. The address of its registered office is Truman Lane, Te Maunga, to the former owners of the acquiree and the equity interests issued by the Mount Maunganui. The Company is listed on the New Zealand Stock Exchange. Group. The consideration transferred includes the fair value of any asset or These financial statements relate to the year ended 31 March 2013 and liability resulting from a contingent consideration arrangement. Identifiable have been approved for issue by the Board of Directors (the Board) on assets acquired and liabilities and contingent liabilities assumed in a business 10 May 2013. combination are measured initially at their fair values at the acquisition date. The Company’s owners or others do not have the power to amend the The Group recognises any non-controlling interest in the acquiree on an financial statements after they have been authorised for issue. acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s Note 2: Statement of Accounting Policies identifiable net assets. Acquisition-related costs are expensed as incurred. The principal accounting policies adopted in the preparation of these If the business combination is achieved in stages, the acquisition date audited financial statements are set out below. These policies have been carrying value of the acquirer’s previously held equity interest in the consistently applied to all the periods presented, unless otherwise stated. acquiree is re-measured to fair value at the acquisition date; any gains or 2.1 Basis of Preparation losses arising from such re-measurement are recognised in profit or loss. These audited financial statements have been prepared in accordance with Any contingent consideration to be transferred by the Group is recognised New Zealand Generally Accepted Accounting Practice (NZGAAP). They at fair value at the acquisition date. Subsequent changes to the fair value of comply with New Zealand equivalents to International Financial Reporting the contingent consideration that is deemed to be an asset or liability is Standards (NZ IFRS), International Financial Reporting Standards (IFRS) recognised in accordance with NZ IAS 39 either in profit or loss or as a and other applicable New Zealand Financial Reporting Standards, as change to other comprehensive income. Contingent consideration that is appropriate for profit-oriented entities. classified as equity is not re-measured, and its subsequent settlement is Entities reporting accounted for within equity. The consolidated financial statements of the Group are for the economic Goodwill is initially measured as the excess of the aggregate of the entity comprising TrustPower Limited and its subsidiaries. The consolidated consideration transferred and the fair value of non-controlling interest over entity is designated as a profit-oriented entity for financial reporting purposes. the net identifiable assets acquired and liabilities assumed. If consideration is lower than the fair value of the net assets of the subsidiary acquired, the Statutory base difference is recognised in profit or loss. TrustPower Limited is registered under the Companies Act 1993 and is an Inter-company transactions, balances and unrealised gains on transactions issuer in terms of the Financial Reporting Act 1993. The financial statements between Group companies are eliminated. Unrealised losses are also have been prepared in accordance with the requirements of the Financial eliminated but are considered as an impairment indicator of the assets Reporting Act 1993 and the Companies Act 1993. transferred. Accounting policies of subsidiaries have been changed where Historical cost convention necessary to ensure consistency with the policies adopted by the Group. These financial statements have been prepared under the historical cost 2.3 Segment Reporting convention, as modified by the revaluation of generation assets, derivative financial instruments, unsold emission rights and employee share options Operating segments are reported in a manner consistent with the internal which are stated at fair value. reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing Estimates performance of the operating segments, has been identified as the Board. The preparation of financial statements in conformity with NZ IFRS requires the Group to make judgements, estimates and assumptions that affect the 2.4 Trade Receivables application of policies and reported amounts of assets and liabilities, Trade receivables are initially recognised at fair value and subsequently income and expenses. The areas involving a higher degree of judgment or measured at amortised cost using the effective interest method, less complexity, or areas where assumptions and estimates are significant to provision for impairment. A provision for impairment of receivables is the financial statements are disclosed in note 38. established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Functional and Presentation Currency The amount of the provision is the difference between the asset’s carrying Items included in the financial statements of each of the Group’s entities amount and the present value of estimated future cash flows, discounted are measured using the currency of the primary economic environment in at the original effective interest rate. The amount of the impairment loss is which the entity operates (‘the functional currency’). The consolidated recognised in the income statement. The criteria that the Group uses to financial statements are presented in ‘New Zealand Dollars’ (NZD), which is determine that there is objective evidence of an impairment loss include: the Company’s functional and the Group’s presentation currency, and • Significant financial difficulty of the issuer or obligor; rounded to the nearest thousand. • A breach of contract, such as a default or delinquency in interest or 2.2 Principles of Consolidation principal payments; Subsidiaries • The Group, for economic or legal reasons relating to the borrower’s Subsidiaries are all entities (including special purpose entities) over which financial difficulty, granting to the borrower a concession that the lender the Group has the power to govern the financial and operating policies would not otherwise consider; and generally accompanying a shareholding of more than one half of the voting • It becomes probable that the borrower will enter bankruptcy or other rights. The existence and effect of potential voting rights that are currently financial reorganisation. exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control 2.5 Financial Assets where it does not have more than 50% of the voting power but is able to The Group classifies all of its investments as financial assets at fair value govern the financial and operating policies by virtue of de-facto control. through the profit or loss, held to maturity financial assets or loans and TRUSTPOWER ANNUAL REPORT 2013 45
receivables. The classification depends on the purpose for which the costs, and an appropriate proportion of variable and fixed overheads. investments were acquired. Management determines the classification of Financing costs on uncompleted capital work in progress are capitalised at its investments at initial recognition. the specific project finance interest rate, where these meet certain time and Financial assets at fair value through the profit or loss monetary materiality limits. Costs cease to be capitalised as soon as the asset is ready for productive use and do not include any inefficiency costs. Financial assets at fair value through the profit or loss are financial assets held for trading. A financial asset is classified in this category if it is acquired Subsequent costs are included in the asset’s carrying amount or principally for the purpose of selling in the short term. Derivatives are classified recognised as a separate asset only when it is probable that future as held for trading unless they are designated as hedges. Assets in this economic benefits will flow to the Group and the cost of the item can be category are classified as non-current assets where the remaining maturity measured reliably. The carrying amount of any replaced item is of the asset is greater than 12 months; they are classified as current assets derecognised. All other repairs and maintenance are charged to the when the remaining maturity of the asset is less than 12 months. income statement during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation of generation assets Held to maturity financial assets are credited to the revaluation reserve in equity. Decreases that offset previous Held to maturity financial assets are non-derivative financial assets with increases of the same asset are charged against the revaluation reserve fixed or determinable payments and fixed maturities, other than those that directly in equity. All other decreases are charged to the income statement. meet the definition of loans and receivables, that the Group’s management Land is not depreciated. Depreciation on all other property, plant and has the positive intention and ability to hold until maturity. These assets are equipment is calculated using the straight-line method at rates calculated recognised initially at fair value and subsequently measured at amortised to allocate each asset’s cost over its estimated useful life. Depreciation is cost using the effective interest rate method, less any provision for charged on a straight line basis as follows: impairment. Freehold buildings 2% Generation assets 0.5-8% Loans and receivables Metering equipment 5-15% Plant and equipment 10-33% Loans and receivables are non-derivative financial assets with fixed or The assets’ residual values and useful lives are reviewed, and adjusted if determinable payments that are not quoted in an active market. They are appropriate, at the end of each reporting period. The depreciation rate for included in current assets, except for maturities greater than 12 months metering assets has changed from 5% to a range from 5-15%, with no after the end of the reporting period. These are classified as non-current individual metering assets having a remaining useful life greater than assets. Advances between Group companies within one country are 10 years. The effect on the financial statements was an increase in interest free while cross-border advances incur interest at a market rate. depreciation of $2,179,000. Recognition and derecognition An asset’s carrying amount is written down immediately to its recoverable Regular purchases and sales of financial assets are recognised on the amount if the asset’s carrying amount is greater than its estimated trade-date – the date on which the Group commits to purchase or sell the recoverable amount. asset. Investments are initially recognised at fair value plus transaction Gains and losses on disposals are determined by comparing the proceeds costs for all financial assets not carried at fair value through the profit or with the carrying amount and are recognised within net gain on sale of loss. Financial assets carried at fair value through profit or loss are initially property, plant and equipment, in the income statement. When revalued recognised at fair value, and transaction costs are expensed in the income assets are sold, the amounts included in the revaluation reserve are statement. Financial assets are derecognised when the rights to receive transferred to retained earnings. cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. 2.7 Investment in Subsidiaries Subsequent measurement Investments in, and advances to, subsidiaries are recorded at cost less any impairment writedowns. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held to maturity financial assets are 2.8 Emission Rights carried at amortised cost using the effective interest method. The Group receives tradable emission rights from specific energy Gains or losses arising from changes in the fair value of the ‘financial assets production levels of certain renewable generation facilities. The future at fair value through profit or loss’ category are presented in the income revenue arising from the sale of these emission rights is a key matter in statement within fair value movements of financial instruments, in the deciding whether to proceed with construction of the generation facility period in which they arise. Dividend income from financial assets at fair and is considered to be part of the value of the generation assets recorded value through profit or loss is recognised in the income statement as part in the statement of financial position. of other income when the Group’s right to receive payments is established. Emission rights produced are recognised in the statement of financial The fair values of quoted investments are based on current bid prices. If position if the right has been verified, it is probable that expected future the market for a financial asset is not active (and for unlisted securities), the economic benefits will flow to the Group, and the rights can be measured Group establishes fair value by using valuation techniques. These include reliably. Emission rights are initially measured at cost. After initial the use of recent arms length transactions, reference to other instruments recognition, the emission rights are carried at fair value with any changes that are substantially the same, discounted cash flow analysis and option taken to the income statement. Fair value is determined by reference to an pricing models, making maximum use of market inputs and relying as little active market. If the emission rights cannot be valued because there is no as possible on entity-specific inputs. active market, the emission rights are carried at cost less any subsequent Impairment of financial assets accumulated impairment losses. The Group assesses at the end of each reporting period whether there is 2.9 Intangible Assets objective evidence that a financial asset or a group of financial assets is Customer base assets impaired. Impairment testing of trade receivables is described in note 2.4. Costs incurred in acquiring customers from other electricity supply 2.6 Property, Plant and Equipment companies and telecommunications companies are recorded as a Generation assets are shown at fair value, based on at least three-yearly customer base intangible asset. The customer bases are amortised on a valuations by independent external valuers, less subsequent depreciation. straight line basis over the period of expected benefit. This period has been This valuation is reviewed annually and if it is considered that there has assessed as 20 years for electricity customer bases and 5 years for been a material change then a new independent valuation is undertaken. telecommunication customer bases. These useful lives are reviewed Any accumulated depreciation at the date of the revaluation is eliminated annually with reference to historical levels of churn experienced in the against the gross carrying amount of the asset, and the net amount is relevant markets. The carrying value of the customer bases is reviewed restated to the revalued amount of the asset. All other property is stated at annually by the Directors and adjusted where it is considered necessary. historical cost less depreciation and impairment. Historical cost includes The carrying values are reviewed with reference to the expected future expenditure that is directly attributable to the acquisition of the items. Cost cash flows from these customers. The expected future cash flows are may also include transfers from equity of any gains/losses on qualifying cash produced via internal forecasting. flow hedges of foreign currency purchases of property, plant and equipment. Computer software The cost of assets constructed by the Group, including capital work in Acquired computer software licences are capitalised on the basis of the progress, includes the cost of all materials used in construction, direct costs incurred to acquire and bring to use the specific software. These labour specifically associated, resource management consent renewal costs are amortised over three years on a straight line basis except for 46
major pieces of billing system software which are amortised over no more Termination benefits than seven years on a straight line basis. Termination benefits are payable when employment is terminated by the Costs associated with developing or maintaining computer programmes Group before the normal retirement date, or whenever an employee are recognised as an expense as incurred. Costs that are directly accepts voluntary redundancy in exchange for these benefits. The Group associated with the development of identifiable and unique software recognises termination benefits when it is demonstrably committed to products controlled by the Group, and that will probably generate either: terminating the employment of current employees according to a economic benefits exceeding costs for more than one year, are recognised detailed formal plan without possibility of withdrawal; or providing as intangible assets. Costs include the employee costs incurred as a result termination benefits as a result of an offer made to encourage voluntary of developing software and an appropriate portion of relevant overheads. redundancy. Benefits falling due more than 12 months after the end of the Computer software development costs recognised as assets are amortised reporting period are discounted to their present value. over their estimated useful lives. 2.12 Foreign Currency Translation All of the Group’s intangible assets have finite lives. Items included in the financial statements of each of the Group’s entities 2.10 Revenue Recognition are measured using the currency of the primary economic environment in Revenue comprises the fair value of consideration received or receivable which the entity operates (the functional currency). These financial for the sale of electricity, telecommunications and related services in the statements are presented in New Zealand dollars, which is the Parent’s ordinary course of the Group’s activities. Revenue is shown net of goods functional and presentation currency. and services tax, rebates and discounts and after eliminating sales within Transactions denominated in a foreign currency are converted to New Zealand the Group. dollars at the exchange rate on the date of the transaction. Monetary assets Customer consumption of electricity is measured and billed by calendar and liabilities arising from foreign currency transactions are translated at month for half hourly metered customers and in line with meter reading closing rates at the end of the reporting period. Gains or losses from schedules for non-half hourly metered customers. Accordingly revenues currency translation on these items are included in the income statement. from electricity sales include an estimated accrual for units sold but not The results and financial position of all the Group entities (none of which billed at the end of the reporting period for non-half hourly metered customers. has the currency of a hyperinflationary economy) that have a functional Customer consumption of telecommunications services is measured and currency different from the presentation currency are translated into the billed according to monthly billing cycles. Accordingly revenues from presentation currency as follows: telecommunications services provided include an estimated accrual for • assets and liabilities for each statement of financial position presented services provided but not billed at the end of the reporting period. are translated at the closing rate at the end of the reporting period Meter rental revenue is charged and recognised on a per day basis. • income and expenses for each income statement are translated at Other customer fees and charges are recognised when the service is provided. average exchange rates Operating lease revenue earned by Snowtown Wind Farm Pty Ltd is • all resulting exchange rate differences are recognised in other recognised when the services have been performed under the terms of the comprehensive income. arrangement. Refer to note 6 for further details. On consolidation, foreign exchange differences arising from the translation Interest income is recognised on a time-proportion basis using the effective of the net investment in foreign operations, and of borrowings and other interest method. currency instruments designated as hedges of such investments, are taken Dividend income is recognised when the right to receive payment is to the foreign currency translation reserve. When a foreign operation is established. partially disposed of or sold, such foreign exchange differences are recognised in the income statement as part of the gain or loss on sale. 2.11 Employee Entitlements 2.13 Generation Development Employee entitlements to salaries and wages, non-monetary benefits, annual leave and other benefits are recognised when they accrue to The Group incurs costs in the exploration, evaluation, consenting and employees. This includes the estimated liability for salaries and wages, construction of generation assets. Costs incurred are expensed in the annual leave and sick leave as a result of services rendered by employees income statement unless such costs are highly likely to be recouped up to the end of the reporting period. through successful development of, and generation of electricity from, a particular project. Where costs meet this criteria and are capitalised they Share-based compensation will ultimately be amortised over the estimated useful life of a project once it The Group operates an equity-settled, share-based compensation plan. is completed. The Directors review the status of capitalised development The fair value of the employee services received in exchange for the expenditure on a regular basis and in the event that a project is granting of the options is recognised as an expense. The total amount to abandoned, or if the Directors consider the expenditure to be impaired, a be expensed over the vesting period is determined by reference to the fair write off or provision is made in the year in which that assessment is made. value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). 2.14 Borrowings Non-market vesting conditions are included in assumptions about the Borrowings are recognised initially at fair value, net of transaction costs number of options that are expected to vest. At the end of each reporting incurred. Borrowings are subsequently stated at amortised cost; any period, the entity revises its estimates of the number of options that are difference between the proceeds (net of transaction costs) and the expected to vest. It recognises the impact of the revision to original redemption value is recognised in the income statement over the term of estimates, if any, in the income statement, with a corresponding the borrowings using the effective interest method. adjustment to equity. Borrowings are classified as current liabilities unless the Group has an The proceeds received net of any directly attributable transaction costs are unconditional right to defer settlement of the liability for at least 12 months credited to share capital when the options are exercised. after the end of the reporting period. The Group operates cash-settled share based incentive schemes for key 2.15 Insurance management personnel of the Parent. The Group has property, plant and equipment which is predominately The Group recognises an expense and a liability as the employees render concentrated at power station locations that has the potential to sustain services over the vesting period at the fair value of the liability. Until the major losses through damage to plant with resultant consequential costs. liability is settled, the Group re-measures the fair value of the liability at the end of each reporting period and at the date of settlement, with any To minimise the financial impact of such exposures, the major portion of changes in fair value recognised in profit or loss for the period. The fair the risk is insured by taking out appropriate insurance policies with value of the liability is measured taking into account the terms and appropriate counterparties. Any uninsured loss is recognised in the income conditions of the scheme. statement at the time the loss is incurred. Bonus plans 2.16 Impairment of Non-Financial Assets The Group recognises a liability and an expense for bonuses, based on a Assets that have an indefinite useful life, for example land, are not subject formula that takes into consideration the profit attributable to the Company’s to amortisation and are tested annually for impairment. Assets that are shareholders after certain adjustments. The Group recognises a provision subject to amortisation are reviewed for impairment whenever events or where contractually obliged or where there is a past practice that has changes in circumstances indicate that the carrying amount may not be created a constructive obligation. recoverable. An impairment loss is recognised for the amount by which the TRUSTPOWER ANNUAL REPORT 2013 47
asset’s carrying amount exceeds its recoverable amount. The recoverable classified as a non-current asset or liability when the remaining maturity of amount is the higher of an asset’s fair value less costs to sell and value in the derivative is more than 12 months; it is classified as a current asset or use. For the purposes of assessing impairment, assets are grouped at the liability when the remaining maturity of the derivative is less than 12 months. lowest levels for which there are separately identifiable cash flows Fair Value Hedges (cash-generating units). Assets other than goodwill that suffer an impairment are reviewed for possible reversal of the impairment at the end Changes in the fair value of derivatives that are designated and qualify as of each reporting period. fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable 2.17 Cash and Cash Equivalents to the hedged risk. Cash and cash equivalents include cash on hand, deposits held at call with Cash Flow Hedges banks, other short-term highly liquid investments with original maturities of The effective portion of changes in the fair value of derivatives that are three months or less, and bank overdrafts. Bank overdrafts are shown designated and qualify as cash flow hedges are recognised in equity. The within borrowings in current liabilities in the statement of financial position. gain or loss relating to the ineffective portion is recognised immediately in 2.18 Cash Flow Statement the income statement. The following are the definitions used in the cash flow statement: Amounts accumulated in equity are recycled in the income statement in the • cash is considered to be cash on hand and deposits held at call with periods when the hedged item affects profit or loss. However, when the banks, net of bank overdrafts forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred • operating activities include all activities that are not investing or from equity and included in the measurement of the cost of the asset. financing activities When a hedging instrument expires or is sold, or when a hedge no longer • investing activities are those activities relating to the acquisition, meets the criteria for hedge accounting, any cumulative gain or loss existing holding and disposal of property, plant and equipment, intangible in equity at that time remains in equity and is recognised in accordance assets and investments with the above policy when the transaction occurs. When a forecast • financing activities are those activities, which result in changes in the transaction is no longer expected to occur, the cumulative gain or loss that size and composition of the capital structure of the Group. This includes was reported in equity is immediately transferred to the income statement. both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing Net Investment Hedge activities. Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument 2.19 Goods and Services Tax (GST) relating to the effective portion of the hedge is recognised in equity. The The income statement and cash flow statement have been prepared so gain or loss relating to the ineffective portion is recognised immediately in that all components are stated exclusive of GST. All items in the statement the income statement. of financial position are stated exclusive of GST, with the exception of billed Derivatives that do not qualify for hedge accounting receivables and payables which include GST invoiced. Certain derivatives do not qualify for hedge accounting. Changes in the fair 2.20 Income Tax value of these derivative instruments that do not qualify for hedge accounting The income tax expense comprises both current and deferred tax. Income are recognised immediately in the income statement. tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case the income tax 2.22 Share Capital is recognised directly in equity. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a Deferred income tax is provided in full, using the liability method, on deduction, net of tax, from the proceeds. temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The following Where the Company purchases the Company’s equity share capital temporary differences are not provided for: the initial recognition of assets (treasury stock), the consideration paid is deducted from equity attributable or liabilities in a transaction other than a business combination that at the to the Company’s equity holders until the shares are cancelled or reissued. time of transaction affects neither accounting nor taxable profit, and Where such shares are subsequently reissued, any consideration received differences relating to investments in subsidiaries to the extent that they will is included in equity attributable to the Company’s equity holders. probably not reverse in the foreseeable future. Deferred tax is determined 2.23 Trade Payables using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the Trade payables are recognised initially at fair value and subsequently related deferred tax liability (asset) is settled (realised). measured at amortised cost using the effective interest method. Deferred tax assets are recognised to the extent that it is probable that 2.24 Leases future taxable profit will be available against which the temporary Leases in which a significant portion of the risks and rewards of ownership differences can be utilised. are retained by the lessor are classified as operating leases. Payments made 2.21 Derivative Financial Instruments and under operating leases (net of any incentives received from the lessor) are Hedging Activities charged to the income statement on a straight-line basis over the period of the lease. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are periodically remeasured at their fair value. The method 2.25 Dividend Distribution of recognising the resulting gain or loss depends on whether the derivative Dividend distribution to the Company’s shareholders is recognised as a is designated as a hedging instrument, and if so, the nature of the item being liability in the Group’s financial statements in the period in which the hedged. The Group designates certain derivatives as one of the following: dividend is approved by the Board. • hedges of the fair value of recognised assets, liabilities or a firm 2.26 Other Investments commitment (fair value hedge) Other investments include investments in non-group companies as well as • hedges of highly probable forecast transactions (cash flow hedges) insurance investments. Insurance investments include government stock. • hedges of net investments in foreign operations. 2.27 Common Control Transactions The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk Business combinations in which all of the combining entities or businesses management objectives and strategy for undertaking various hedging ultimately are controlled by the same party or parties both before and after transactions. The Group also documents its assessment, both at hedge the combination are recognised as common control transactions. inception and on an ongoing basis, of whether the derivatives that are used In common control transactions by way of short form amalgamation, the in hedging transactions are highly effective in offsetting changes in fair Company incorporates the assets and liabilities at the amounts recorded in values or cash flows of hedged items. The fair values of various derivative the financial statements of the acquired company. The gain or loss arising instruments used for hedging purposes are disclosed in note 20. on the acquisition is recognised in the statement of changes in equity. The Movements on the cash flow hedge reserve in equity are shown in the results of the acquired company are recognised in the income statement of statement of comprehensive income. The full fair value of a derivative is the Company from the date of the amalgamation. 48
2.28 Comparative Information NZ IFRS 10 Consolidated Financial Statements Where necessary certain comparative information has been reclassified in NZ IFRS 10 replaces all of the guidance on control and consolidation in order to provide a more appropriate basis for comparison. NZ IAS 27 Consolidated and Separate Financial Statements, and NZ SIC 12 Consolidation – Special Purpose Entities. The core principle that a 2.29 Adoption Status of Relevant New Financial consolidated entity presents a parent and its subsidiaries as if they are a Reporting Standards and Interpretations single economic entity remains unchanged, as do the mechanics of The following new standards and amendments to standards were applied consolidation. However, the standard introduces a single definition of control during the period: that applies to all entities. It focuses on the need to have both power and FRS 44 New Zealand Additional Disclosures and Harmonisation rights or exposure to variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns Amendments must vary and can be positive, negative or both. There is also new guidance FRS 44 sets out New Zealand specific disclosures for entities that apply on participating and protective rights and on agent/principal relationships. NZ IFRSs. These disclosures have been relocated from NZ IFRSs to clarify The Group does not expect the new standard to have a significant impact on that these disclosures are additional to those required by NZ IFRS. Apart from its composition. The Group intends to adopt NZ IFRS 10 from 1 April 2013. the recognition of imputation credits (refer note 32), adoption of the new rules has not affected any of the amounts recognised in the financial statements. NZ IFRS 12 Disclosures of interests in other entities The Harmonisation Amendments amends various NZ IFRSs for the NZ IFRS 12 sets out the required disclosures for entities reporting under purpose of harmonising with the source IFRSs and Australian Accounting the two new standards, NZ IFRS 10 and NZ IFRS 11, and replaces the Standards. The significant amendments include: disclosure requirements currently found in NZ IAS 28. Application of this standard by the Group will not affect any of the amounts recognised in the • deletion of the requirement for an independent valuer to conduct the financial statements, but will impact the type of information disclosed in valuation of investment property and property, plant and equipment; relation to the Group’s investments. The Group intends to adopt NZ IFRS • inclusion of the option to account for investment property using either 12 from 1 April 2013. cost or fair value model; NZ IFRS 13 Fair Value Measurement • introduction of the option to use the indirect method of reporting cash NZ IFRS 13 explains how to measure fair value and aims to enhance fair flows that is not currently in NZ IAS 7. value disclosures. The Group has yet to determine which, if any, of its current In addition, various disclosure requirements have been deleted. measurement techniques will have to change as a result of the new guidance. The following new standards and amendments to standards have been It is therefore not possible to state the impact, if any, of the new rules on any issued but are not yet effective; of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes NZ IAS 1 Amendments Presentation of Items of Other to the financial statements. The Group intends to adopt NZ IFRS 13 from Comprehensive Income 1 April 2013. The amendment requires entities to separate items presented in other There are no other NZ IFRSs or NZ IFRIC interpretations that are not yet comprehensive income into two groups, based on whether they may be effective that would be expected to have a material impact on the Group. recycled to profit or loss in the future. This will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. The Group intends to adopt the new standard from 1 April 2013. NZ IAS 27 Separate Financial Statements NZ IAS 27 is renamed Separate Financial Statements and is now a standard dealing solely with separate financial statements. Application of this standard by the Group and Parent entity will not affect any of the amounts recognised in the financial statements, but may impact the type of information disclosed in relation to the parent’s investments in the separate parent entity financial statements. The Group intends to adopt the new standard from 1 April 2013. NZ IFRS 9 Financial Instruments This standard addresses the classification, measurement and derecognition of financial assets and financial liabilities. NZ IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of NZ IAS 39 that relate to the classification and measurement of financial instruments. NZ IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of NZ IAS 39 requirements. The main change is that in cases where the fair value option is taken for financial liabilities, the part of the fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group is yet to assess NZ IFRS 9’s full impact and intends to adopt NZ IFRS 9 no later than no later than 1 April 2015. TRUSTPOWER ANNUAL REPORT 2013 49
Note 3: Underlying Earnings After Tax GROUP 2013 2012 Note $000 $000
Profit After Tax Attributable to the Shareholders of the Company 123,351 131,652
Fair value losses on financial instruments 9 5,593 7,544 Asset impairments 8 - 428 Adjustments before income tax 5,593 7,972
Change in income tax expense in relation to adjustments (1,678) (2,271) Adjustment to tax depreciation on buildings 11 - (2,031) Adjustments after income tax 3,915 3,670 Underlying Earnings After Tax 127,266 135,322
Underlying earnings after tax ($000) 3 127,266 135,322 Weighted average number of ordinary shares in issue (thousands) 314,347 314,347 Underlying earnings per share (cents per share) 40.5 43.0
Underlying earnings after tax ($000) 3 127,266 135,322 Weighted average number of ordinary shares in issue plus share options outstanding (thousands) 314,347 314,587 Diluted underlying earnings per share (cents per share) 40.5 43.0
Underlying earnings after tax is presented to allow stakeholders to make an assessment and comparison of underlying earnings after removing the non-cash fair value movements in financial instruments, the effect of the change in corporate tax rules as well as other items that the Group considers to be one off in nature.
Note 4: Earnings Per Share Basic earnings per share is calculated by dividing the profit attributable to the shareholders of the Company by the weighted average number of ordinary shares on issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potential dilutive ordinary shares.
GROUP PARENT 2013 2012 2013 2012
Profit attributable to the shareholders of the Company ($000) 123,351 131,652 120,825 133,553 Weighted average number of ordinary shares in issue (thousands) 314,347 314,347 314,347 314,347 Basic earnings per share (cents per share) 39.2 41.9 38.4 42.5
Profit attributable to the shareholders of the Company ($000) 123,351 131,652 120,825 133,553 Weighted average number of ordinary shares in issue plus share options outstanding (thousands) 314,347 314,587 314,347 314,587 Diluted earnings per share (cents per share) 39.2 41.8 38.4 42.5
The share options outstanding referred to in the diluted earnings per share calculation relate to share options issued to certain employees. 50
Note 5: Segment Information As at 31 March 2013, the Group is organised into two main business segments: • development, ownership and operation of electricity generation facilities from renewable energy sources including the trading of energy with Retail and external parties (“Generation”) • purchase of energy from Generation and retail sale of electricity to customers (“Retail”) The remaining activities of the Group are included in Other. This primarily relates to property services and some unallocated head office functions. The Board has further segregated Generation into New Zealand and Australian operations. Generation New Zealand includes the metering business which does not meet the criteria to be disclosed as a separate operating segment. Retail operates only in New Zealand and includes telecommunications operations which do not meet the criteria to be disclosed as a separate operating segment. The segment results for the year ended 31 March 2013 are as follows:
Generation Generation New Zealand Australia Retail Other Total $000 $000 $000 $000 $000
Total segment revenue 252,382 37,817 722,845 2,772 1,015,816 Inter-segment revenue (208,179) - - (2,133) (210,312) Revenue from external customers 44,203 37,817 722,845 639 805,504
Adjusted EBITDAF 222,387 23,188 51,852 (3,927) 293,500
Amortisation of intangible assets - - 3,063 4,867 7,930 Depreciation 40,651 15,182 - 2,224 58,057 Capital expenditure 26,971 166,461 - 13,647 207,079 Asset impairment - - - - -
The segment results for the year ended 31 March 2012 are as follows:
Total segment revenue 254,531 36,407 732,939 2,460 1,026,337 Inter-segment revenue (217,116) - - (2,161) (219,277) Revenue from external customers 37,415 36,407 732,939 299 807,060
Adjusted EBITDAF 212,594 22,886 68,730 (1,468) 302,742
Amortisation of intangible assets - - 3,808 1,549 5,357 Depreciation 37,463 13,756 - 1,661 52,880 Capital expenditure 24,119 5,138 - 19,216 48,473 Asset impairment 428 - - - 428
Inter-segment transactions are entered into under normal commercial terms and conditions that would also be available to unrelated third parties. The Board does not distinguish between revenue from internal or external customers when measuring the performance of segments. All revenue is reported to the Board on a basis consistent with that used in the income statement. The Board assesses the performance of segments based on a measure of adjusted EBITDAF. This measure excludes the effects of non-operational expenditure or gains such as loss/gain on disposal or impairments of property, plant and equipment, fair value changes in foreign currency financial assets/liabilities and costs of major business acquisitions. Interest income and expenditure and taxation costs are not allocated to segments as these activities are managed at a Group level by a central treasury function. The Board does not segregate assets and liabilities in assessing Group performance. Capital expenditure comprises additions to property, plant and equipment and intangible assets. A reconciliation of adjusted EBITDAF to profit before income tax is as follows:
group 2013 2012 $000 $000
Adjusted EBITDAF 293,500 302,742 Depreciation (58,057) (52,880) Amortisation (7,930) (5,357) Fair value gains/(losses) on financial instruments (5,593) (7,544) Foreign exchange gains/(losses) 1,152 (2,610) Loss on sale of property, plant and equipment 104 5 Impairment of assets - (428) Interest received 1,472 904 Interest paid (64,219) (63,889)
Profit before income tax 160,429 170,943 TRUSTPOWER ANNUAL REPORT 2013 51
Note 6: Electricity Revenue GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Electricity sales 731,465 729,997 727,215 727,147 Electricity lease revenue 33,690 33,573 - - 765,155 763,570 727,215 727,147
Electricity lease revenue is revenue recognised in connection with Snowtown Wind Farm Pty Ltd’s (a subsidiary of the Company) Power Purchase Agreement to sell 90% of all energy generated by the Snowtown Wind Farm to a significant Australian electricity retailer. This agreement has been deemed as an operating lease of the wind farm under NZ IFRS and all revenue under the contract accounted for as lease revenue. Because of the contract terms, in particular that the volume of energy supplied is variable dependent on the actual generation of the Snowtown Wind Farm, the future minimum payments under the term of the contract, that expires on 31 December 2018, are contingent in nature and therefore not able to be quantified.
Note 7: Other Operating Expenses GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Audit fees and expenses 336 289 273 254 Fees paid for other audit related services provided by the auditors* 94 109 94 109 Fees paid for taxation advice, compliance and planning services provided by the auditors 179 325 179 325 Bad debts written off 39 1,492 1,515 1,492 1,515 Directors’ fees 36 577 580 577 580 Donations 784 683 762 645 Loss/(gain) on foreign exchange (1,151) 2,596 (676) 2,467 Generation development expenditure 9,265 13,751 2,494 7,858 Marketing expenditure 3,006 2,568 3,006 2,568 Computer maintenance and support costs 4,700 3,679 4,700 3,679 Other administration costs 10,366 9,530 10,361 11,358 Rental and operating lease costs 467 234 19,408 20,770 30,115 35,859 42,670 52,128
* Other audit related services provided by the auditors includes reviews of unaudited interim financial statements and carbon assurance services. The Parent entity reimburses subsidiaries for the use of generation assets and records these as rental and operating lease costs. The future minimum payments are contingent in nature and therefore not able to be quantified.
Note 8: Impairment of Assets GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Impairment of property, plant and equipment - 566 - 566 Reversal of impairment of property, plant and equipment - (138) - (28) Impairment of advances to subsidiaries 21 - - 2,841 4,776 - 428 2,841 5,314
Note 9: Fair Value Gains/(Losses) on Financial Instruments The changes in the fair value of financial instruments recognised in the income statement and the cash flow hedge reserve for the year to 31 March 2013 are summarised below:
GROUP PARENT 2013 2012 2013 2012 Recognised in the income statement $000 $000 $000 $000
Interest rate derivatives (5,119) (9,485) (3,247) (3,824) Electricity price derivatives (474) 1,941 (474) 1,941 (5,593) (7,544) (3,721) (1,883)
GROUP PARENT 2013 2012 2013 2012 Recognised in the cash flow hedge reserve $000 $000 $000 $000
Interest rate derivatives 63 (403) 63 (403) Electricity price derivatives (17,050) 18,949 (17,050) 18,949 Exchange rate derivatives (3,031) (118) (1,844) (118) (20,018) 18,428 (18,831) 18,428 52
Note 10: Finance Income And Costs GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Amortisation of debt issue costs 1,889 1,841 1,889 1,841 Interest paid on unsecured bank loans 16,429 16,117 4,253 4,777 Interest paid on unsecured subordinated bonds 22,709 22,342 22,709 22,342 Interest paid on unsecured senior bonds 16,225 16,225 16,225 16,225 Other interest costs and fees 11,747 7,391 4,220 3,630 Interest capitalised in construction of property, plant and equipment (4,780) (27) (514) (27) Total Interest Paid 64,219 63,889 48,782 48,788
Interest received on cash at bank 1,472 904 895 384 Interest received on intercompany advances - - 2,425 4,499 Total Interest Received 1,472 904 3,320 4,883
The capitalisation rate ranged from 6.7% to 8.2% in the year to 31 March 2013 (2012: 7.9% to 8.4%)
Note 11: Income Tax Expense GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Profit before income tax 160,429 170,943 167,630 181,384 Tax on profit @ 28% 44,920 47,864 46,936 50,788 Foreign tax rate adjustment (301) (254) - - Tax effect of non-assessable revenue (6,724) (4,114) 678 973 Income tax over provided in prior year (817) (2,174) (809) (1,748) Adjustment to tax depreciation on buildings - (2,031) - (2,182) 37,078 39,291 46,805 47,831 Represented by: Current tax 39,464 46,298 44,321 50,980 Deferred tax 29 (2,386) (7,007) 2,484 (3,149) 37,078 39,291 46,805 47,831
The 28% tax rate used above is the corporate tax rate payable by New Zealand corporate entities on taxable profit under New Zealand tax law.
Note 12: Dividends on Ordinary Shares GROUP & PARENT GROUP & PARENT 2013 2012 2013 2012 Cents Per Share $000 $000
Dividends (forfeited)/reinstated - - (152) (99) Final dividend prior year 20.0 20.0 62,796 62,930 Interim dividend paid current year 20.0 20.0 62,803 62,841 Supplementary dividend paid - - 156 141 Foreign investor tax credit - - (156) (141) 40.0 40.0 125,447 125,672
Final partially imputed dividend declared subsequent to the end of the reporting period payable 14 June 2013 to all shareholders on the register at 31 May 2013. 20.0 20.0 62,803 62,803
Note 13: Share Capital GROUP & PARENT GROUP & PARENT 2013 2012 2013 2012 000’s of Shares $000 $000
Authorised and issued ordinary shares at beginning of year 314,016 314,679 166,078 170,750 Own shares repurchased (37) (683) (260) (4,818) Purchase of treasury shares by Directors 36 20 290 146 314,015 314,016 166,108 166,078
All shares rank equally with one vote attached to each share, have no par value and are fully paid. On 15 May 2008, the Company announced a resolution allowing it to buy back up to 5,000,000 of its own shares. Shareholders approved an extension to the share buyback programme in July 2011. As at 31 March 2013, since the start of the buyback programme, 1,793,000 shares had been purchased at a total cost of $12,712,000 (2012: 1,756,000 shares at a total cost of $12,452,000). All shares repurchased were purchased through the NZX stock exchange at market price. As at 31 March 2013 56,000 of these shares had been reissued or cancelled (2012: 20,000). TRUSTPOWER ANNUAL REPORT 2013 53
Note 14: Revaluation Reserve GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Balance at beginning of year 1,026,513 880,391 861,554 705,806 Revaluation of generation assets 22 - 193,447 - 159,589 Transfer (to)/from deferred tax liability 29 18 (41,043) 18 (34,068) Transfer to retained earnings 15 (63) (51) (63) (25) Foreign exchange movements (1,405) (6,231) - - Effect of amalgamation of subsidiaries 23 - - - 30,252 1,025,063 1,026,513 861,509 861,554
There are no restrictions on the distribution of this reserve to the equity holders of the Company.
Note 15: Retained Earnings GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Balance at beginning of year 361,350 355,319 357,401 304,191 Profit for the year 123,351 131,652 120,825 133,553 Transfer from revaluation reserve 14 63 51 63 25 Effect of amalgamation of subsidiaries 23 - - - 45,304 Dividends on ordinary shares 12 (125,447) (125,672) (125,447) (125,672) 359,317 361,350 352,842 357,401
Note 16: Cash Flow Hedge Reserve GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Balance at beginning of year 5,198 (7,872) 5,198 (7,872)
Fair value gains/(losses) (27,162) 11,908 (27,610) 11,908 Transfers to energy cost expense 6,129 4,680 6,129 4,680 Transfers to property, plant and equipment (1,635) (107) - (107) Transfers to carbon revenue 2,291 1,629 2,291 1,629 Transfers to interest paid 84 43 84 43 (20,293) 18,153 (19,106) 18,153
Tax on fair value (gains)/losses 7,595 (3,335) 7,730 (3,335) Tax on transfers to energy cost expense (1,716) (1,310) (1,716) (1,310) Tax on transfers to property, plant and equipment 491 30 - 30 Tax on transfers to carbon revenue (641) (456) (641) (456) Tax on transfers to interest paid (24) (12) (24) (12) 5,705 (5,083) 5,349 (5,083)
(9,390) 5,198 (8,559) 5,198
Note 17: Other Reserves GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Foreign Currency Translation Reserve Balance at beginning of year 12,189 19,800 - - Transfer to deferred tax (493) (3,584) - - Currency translation differences (1,031) (4,027) - - 10,665 12,189 - - Employee Share Option Reserve Balance at beginning of year 3 103 3 103 Fair value movements charged to the income statement (3) (100) (3) (100) - 3 - 3
Total Other Reserves 10,665 12,192 - 3 54
Note 18: Cash and Cash Equivalents GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Cash at bank 53,972 23,142 31,117 9,695 53,972 23,142 31,117 9,695
Note 19: Accounts Receivable and Prepayments GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Current Portion: Billed debtors and unbilled sales 81,275 73,452 81,275 73,452 Provision for doubtful debts 39 (1,700) (1,800) (1,700) (1,800) Electricity market receivables 39,978 26,894 37,903 26,122 Other receivables 12,842 14,581 9,872 10,872 GST receivable 951 - - - Prepayments 3,068 2,836 2,106 2,025 136,414 115,963 129,456 110,671 Non-current Portion: Prepayments 3,051 - - - 3,051 - - -
Note 20: Derivative Financial Instruments GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Current Interest rate derivative assets 482 181 - 149 Electricity price derivative assets 1,451 8,313 1,451 8,313 Exchange rate derivative assets 2,297 2,109 1,346 2,109 4,230 10,603 2,797 10,571
Interest rate derivative liabilities 788 168 - - Electricity price derivative liabilities 303 3,728 303 3,728 Exchange rate derivative liabilities 2,237 - - - 3,328 3,896 303 3,728
Non-current Interest rate derivative assets 4,806 4,540 4,558 4,540 Electricity price derivative assets 37 44 37 44 Exchange rate derivative assets 98 1,081 - 1,081 4,941 5,665 4,595 5,665
Interest rate derivative liabilities 21,840 17,031 13,431 10,378 Electricity price derivative liabilities 14,559 479 14,559 479 36,399 17,510 27,990 10,857
See notes 38 and 39 for details on fair value estimation and details of the hedge relationships.
Note 21: Advances to Subsidiaries GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Net advances to subsidiaries - - 155,945 165,024 Impairment of advances to subsidiaries 38 - - (25,392) (22,958) - - 130,553 142,066 TRUSTPOWER ANNUAL REPORT 2013 55
Note 22: Property, Plant and Equipment GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Generation Assets Balance at beginning of year Fair value 2,488,312 2,342,802 1,881,000 1,486,036 Cost - 15,776 - 13,303 Capital work in progress 19,474 98,609 14,721 91,144 Accumulated depreciation - (90,138) - (19,602) 2,507,786 2,367,049 1,895,721 1,570,881
Additions at cost 188,034 19,631 18,509 17,757 Depreciation (49,898) (47,770) (16,025) (13,546) Disposals at net book value (9) (244) (9) (178) Foreign exchange movements (7,778) (22,016) - - Revaluations/transfers 178 191,136 168 157,218 Effect of amalgamation of subsidiaries - - - 163,589
Balance at end of year Fair value 2,482,456 2,488,312 1,880,991 1,881,000 Cost 8,646 - 7,001 - Capital work in progress 196,651 19,474 26,227 14,721 Accumulated depreciation (49,440) - (15,855) - 2,638,313 2,507,786 1,898,364 1,895,721
Metering Equipment Balance at beginning of year Cost 76,642 72,743 76,642 72,743 Accumulated depreciation (42,226) (39,054) (42,226) (39,054) 34,416 33,689 34,416 33,689
Additions at cost 3,138 3,876 3,138 3,876 Depreciation (5,501) (3,177) (5,501) (3,177) Disposals at net book value - - - - Transfers 54 28 54 28
Balance at end of year Cost 79,791 76,642 79,791 76,642 Accumulated depreciation (47,684) (42,226) (47,684) (42,226) 32,107 34,416 32,107 34,416
Other Freehold Buildings Balance at beginning of year Cost 14,011 13,428 11,326 10,762 Accumulated depreciation (3,698) (3,461) (3,553) (3,346) 10,313 9,967 7,773 7,416
Additions at cost 126 583 100 564 Depreciation (266) (234) (235) (205) Disposals at net book value (25) - (25) - Transfers (178) (3) (178) (2)
Balance at end of year Cost 13,931 14,011 11,220 11,326 Accumulated depreciation (3,961) (3,698) (3,785) (3,553) 9,970 10,313 7,435 7,773 56
Note 22: Continued GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Other Freehold Land Balance at beginning of year Cost 16,710 16,632 7,555 7,482
Additions at cost 1 82 1 74 Disposals at cost - - - - Foreign exchange movements - (3) - - Transfers (2) (1) (2) (1)
Balance at end of year Cost 16,709 16,710 7,554 7,555
Other Plant and Equipment Balance at beginning of year Cost 29,828 21,150 23,236 19,420 Accumulated depreciation (14,068) (12,704) (13,708) (12,401) 15,760 8,446 9,528 7,019
Additions at cost 6,447 7,460 5,357 2,370 Depreciation (2,392) (1,699) (2,137) (1,630) Disposals at net book value (159) (148) (147) (148) Foreign exchange movements (115) (180) - - Transfers (52) 1,881 (42) 1,833 Effect of amalgamation of subsidiaries - - - 84
Balance at end of year Cost 35,137 29,828 27,588 23,236 Accumulated depreciation (15,648) (14,068) (15,029) (13,708) 19,489 15,760 12,559 9,528
Total Balance at beginning of year Fair value 2,488,312 2,342,802 1,881,000 1,486,036 Cost 137,191 139,729 118,759 123,710 Capital work in progress 19,474 98,609 14,721 91,144 Accumulated depreciation (59,992) (145,357) (59,487) (74,403) 2,584,985 2,435,783 1,954,993 1,626,487
Additions at cost 197,746 31,632 27,105 24,641 Depreciation (58,057) (52,880) (23,898) (18,558) Disposals at net book value (193) (392) (181) (326) Foreign exchange movements (7,893) (22,199) - - Revaluations/transfers - 193,041 - 159,076 Effect of amalgamation of subsidiaries - - - 163,673
Balance at end of year Fair value 2,482,456 2,488,312 1,880,991 1,881,000 Cost 154,214 137,191 133,154 118,759 Capital work in progress - generation assets 196,651 19,474 26,227 14,721 Accumulated depreciation (116,733) (59,992) (82,353) (59,487) 2,716,588 2,584,985 1,958,019 1,954,993
If generation assets were stated on an historical cost basis, the amounts would be as follows:
Generation assets (at cost) 1,510,333 1,505,243 992,243 985,240 Generation assets under construction (at cost) 196,651 19,474 26,227 14,721 Generation assets accumulated depreciation (359,824) (309,926) (167,328) (151,303) 1,347,160 1,214,791 851,142 848,658
Generation assets include freehold land and buildings which are not separately identifiable from other generation assets. Generation assets were independently revalued, using a discounted cash flow methodology, as at 31 March 2012 to their estimated market value as assessed by Deloitte Corporate Finance. See note 38 for significant assumptions. Included in the capital work in progress as at 31 March 2013 are capitalised borrowing costs of $4,807,000 (2012: $27,000). TRUSTPOWER ANNUAL REPORT 2013 57
Note 23: Investments in Subsidiaries
Country of incorporation % owned Principal activity Significant subsidiaries (31 March balance dates)
Sellicks Hill Wind Farm Pty Ltd Australia 100 Generation development Snowtown Wind Farm Pty Ltd Australia 100 Electricity generation Snowtown Wind Farm Stage 2 Pty Ltd Australia 100 Electricity generation Snowtown South Wind Farm Pty Ltd Australia 100 Electricity generation Tararua Wind Power Limited New Zealand 100 Asset holding TrustPower Australia Holdings Pty Ltd Australia 100 Generation development TrustPower Australia (New Zealand) Limited New Zealand 100 Asset holding TrustPower Insurance Limited New Zealand 100 Captive insurance TrustPower Australia Financing Partnership Australia 100 Financing TrustPower Market Services Pty Ltd Australia 100 Financial services
The following subsidiaries were amalgamated into the Parent on 31 March 2012: Cobb Power Limited New Zealand Asset holding TrustPower Oamaru Limited New Zealand Call services operator Esk Hydro Power Limited New Zealand Generation development Taheke Geothermal Limited New Zealand Generation development Waikaremoana Power Limited New Zealand Generation development Paehinahina Mourea Geothermal Limited New Zealand Generation development
Under the amalgamation the Parent took control of all the assets of these subsidiaries and assumed responsibility for their liabilities. These subsidiaries have been removed from the New Zealand register of companies. The table below shows a summary of the effect of amalgamation on the financial statements.
GROUP PARENT 2013 2012 2013 2012 Assets and liabilities amalgamated: NOTE $000 $000 $000 $000
Property, plant and equipment 22 - - - 163,673 Revaluation reserve 14 - - - (30,252) Investments in subsidiaries - - - (80,271) Deferred tax liability 29 - - - (7,846) Transferred to retained earnings - - - 45,304
Note 24: Intangible Assets GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Customer Base Assets Balance at beginning of year Cost 64,994 64,994 64,994 64,994 Accumulated amortisation (44,352) (40,544) (44,352) (40,544) 20,642 24,450 20,642 24,450
Additions at cost - - - - Amortisation (3,063) (3,808) (3,063) (3,808) Disposals at net book value - - - -
Balance at end of year Cost 64,994 64,994 64,994 64,994 Accumulated amortisation (47,415) (44,352) (47,415) (44,352) 17,579 20,642 17,579 20,642 58
Note 24: Continued GROUP PARENT 2013 2012 2013 2012 NOTE $000 $000 $000 $000
Computer Software Balance at beginning of year Cost 35,305 27,236 35,305 27,236 Accumulated amortisation (10,052) (17,275) (10,052) (17,275) 25,253 9,961 25,253 9,961
Additions at cost 9,333 16,841 9,333 16,841 Amortisation (4,867) (1,549) (4,867) (1,549)
Balance at end of year Cost 44,499 35,305 44,499 35,305 Accumulated amortisation (14,780) (10,052) (14,780) (10,052) 29,719 25,253 29,719 25,253
Total Balance at beginning of year Cost 100,299 92,230 100,299 92,230 Accumulated amortisation (54,404) (57,819) (54,404) (57,819) 45,895 34,411 45,895 34,411
Additions at cost 9,333 16,841 9,333 16,841 Amortisation (7,930) (5,357) (7,930) (5,357)
Balance at end of year Cost 109,493 100,299 109,493 100,299 Accumulated amortisation (62,195) (54,404) (62,195) (54,404) 47,298 45,895 47,298 45,895
There are no individually material intangible assets included within the above. There are no material internally generated intangible assets or additions as a result of business combinations.
Note 25: Accounts Payable and Accruals GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Current Portion Capital expenditure accruals 2,124 7,015 - 2,199 Customer bond deposits 861 1,349 861 1,349 Electricity market payables 54,796 34,548 54,796 34,548 Line cost accrual 1,298 1,605 1,298 1,605 Employee entitlements 6,898 6,041 6,841 5,979 Interest accruals 4,263 3,461 2,986 3,042 GST payable 1,374 3,491 1,045 3,514 Other accounts payable and accruals 12,339 18,444 11,461 15,769 Trade accounts payable 36,510 33,858 36,498 33,845 120,463 109,812 115,786 101,850 Non-current Portion Other accounts payable and accruals 4,064 4,273 4,064 4,273 4,064 4,273 4,064 4,273 TRUSTPOWER ANNUAL REPORT 2013 59
Note 26: Unsecured Bank Loans GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
New Zealand dollar facilities Repayment terms: Less than one year One to two years - - - - Two to five years - - - - Over five years 112,338 123,593 112,338 123,593 Facility establishment costs (3,355) (3,988) (3,355) (3,988) 108,983 119,605 108,983 119,605 Weighted average interest: One to two years - - - - Two to five years - - - - Over five years 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Australian dollar facilities Repayment terms: Less than one year 224,176 - - - One to two years 127,033 188,835 - - Two to five years - - - - Over five years - - - - Facility establishment costs - - - - 351,209 188,835 - - Weighted average interest: Less than one year 4.2% - - - One to two years 3.8% 5.6% - - Two to five years - - - - Over five years - - - - 4.1% 5.6% - -
Total bank loans 460,192 308,440 108,983 119,605
Current portion 24,908 - - - Non-current portion 435,284 308,440 108,983 119,605 460,192 308,440 108,983 119,605
Interest rates paid during the year ranged from 2.9% to 6.2%. The Group has the following loan facilities with interest priced at between call and 180 day rates: (i) $100,000,000 revolving loan expiring in two to five years (ii) $75,000,000 revolving loan expiring in two to five years (iii) $67,338,000 table loan maturing in over five years (iv) $45,000,000 table loan maturing in over five years (v) AUD 180,000,000 revolving loan expiring in under one year (vi) AUD 194,800,000 revolving loan expiring in one to two years (vii) AUD 220,000,000 revolving loan expiring in one to two years Where drawn facilities mature within one year and the Group has an unconditional right to refinance the loans through undrawn facilities with the same lenders with maturity dates of greater than one year from the end of the reporting period, the loan is considered non-current. All of the Group’s borrowings are unsecured. The Group borrows under a negative pledge arrangement with its bank loan providers, which with limited exceptions does not permit the Group to grant any security interest over its assets. The negative pledge deed requires the Group to maintain certain levels of shareholders’ funds and operate within defined performance and debt gearing ratios. The banking arrangements may also create restrictions over the sale or disposal of certain assets unless the bank loans are repaid or renegotiated, specifically: • Facilities (i), (ii), (v), (vi) and (vii) require a continuation of the existing business operations. There are no costs to cancel the facilities. • Facility (iii) requires continued ownership by the Group of at least 30% in relation to Tararua Stage III wind generation assets with a book value of $148,806,000. There are no costs to cancel the facility. • Facility (vii) must be repaid if Snowtown South Wind Farm Pty Ltd is sold. Throughout the period the Group has complied with all debt covenant requirements as imposed by lenders (see above for requirements). Subsequent to balance date the Group has accepted offers to refinance the facility expiring in under one year and extend it by AUD 20,000,000 to AUD 200,000,000. This facility is currently being documented and will mature in two to five years. On 30 April 2013 the Group entered into an AUD 171,900,000 table loan maturing in over five years. 60
Note 27: Unsecured Subordinated Bonds GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Repayment terms and interest: Maturing in September 2012, 8.5% p.a. fixed coupon rate - 108,592 - 108,592 Maturing in March 2014, 8.5% p.a. fixed coupon rate 54,713 54,713 54,713 54,713 Maturing in December 2015, 8.4% p.a. fixed coupon rate 100,000 100,000 100,000 100,000 Maturing in December 2019, 6.75% p.a. fixed coupon rate 140,000 - 140,000 - Bond issue costs (2,338) (1,028) (2,338) (1,028) 292,375 262,277 292,375 262,277
Current portion 54,713 108,592 54,713 108,592 Non-current portion 237,662 153,685 237,662 153,685 292,375 262,277 292,375 262,277
At maturity the bonds maturing in December 2015 and prior can be converted at the option of the Company to ordinary shares based on the market price of ordinary shares at the time. The bonds are fully subordinated behind all other creditors. At 31 March 2013 the subordinated bonds had a fair value of $312,930,000 (31 March 2012: $273,213,000).
Note 28: Unsecured Senior Bonds GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Repayment terms and interest: Maturing in December 2014, 7.6% p.a. fixed coupon rate 75,000 75,000 75,000 75,000 Maturing in December 2016, 8.0% p.a. fixed coupon rate 65,000 65,000 65,000 65,000 Maturing in December 2017, 7.1% p.a. fixed coupon rate 75,000 75,000 75,000 75,000 Bond issue costs (2,162) (2,822) (2,162) (2,822) 212,838 212,178 212,838 212,178
The Group has entered a Master Trust Deed dated 30 October 2009 (the Trust Deed) with respect to its senior bonds, which with limited exceptions does not permit the Group to grant any security interest over its assets. The Trust Deed requires the Group to operate within defined performance and debt gearing ratios. The arrangements under the Trust Deed may also create restrictions over the sale or disposal of certain assets unless the senior bonds are repaid or renegotiated. Throughout the period the Group has complied with all debt covenance requirements as imposed by the Bond Trustee (see above for requirements). The unsecured senior bonds rank equally with bank loans (note 26). At 31 March 2013 the senior bonds had a fair value of $230,681,000 (31 March 2012: $224,738,000).
Note 29: Deferred Income Tax GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Balance at beginning of year 300,215 257,316 223,940 180,092 Current year changes in temporary differences affecting tax expense 11 (2,366) (4,714) 2,478 144 Current year changes in temporary differences affecting reserves (4,772) 52,050 (5,367) 39,151 Reclassification of prior year temporary differences 11 (468) (262) 6 (1,111) Exchange rate movements on foreign denominated deferred tax (486) (2,144) - - Effect of amalgamation of subsidiaries - - - 7,846
Effect of removal of tax depreciation on buildings on income tax expense 11 - (2,031) - (2,182) 292,123 300,215 221,057 223,940
Comprising: Deferred tax liabilities 292,123 300,215 221,057 223,940 292,123 300,215 221,057 223,940
There have been changes to the income tax legislation that have had a material impact on the financial statements, refer to note 11 for details. TRUSTPOWER ANNUAL REPORT 2013 61
Note 29: Continued The tables below show the break down of the temporary differences that make up the deferred tax liabilities and their movement for the year. Group Charged Charged Opening to Income Directly to Closing For the year ended 31 March 2013 ($000) Balance Statement Equity Balance
Revaluations 227,344 - (655) 226,689 Other property, plant and equipment movements 73,948 771 71 74,790 Employee benefits (1,422) (234) - (1,656) Provision for impairment (504) 28 - (476) Carbon revenue recognition 1,062 (805) - 257 Customer base assets 5,779 (858) - 4,921 Financial instruments (2,100) (1,239) (5,664) (9,003) Unrealised losses on Australian dollar loan (3,829) - 493 (3,336) Other (63) - - (63) 300,215 (2,337) (5,755) 292,123 Group Charged Charged Opening to Income Directly to Closing For the year ended 31 March 2012 ($000) Balance Statement Equity Balance
Revaluations 185,010 - 42,334 227,344 Other property, plant and equipment movements 75,691 (648) (1,095) 73,948 Employee benefits (1,329) (93) - (1,422) Provision for impairment (504) - - (504) Carbon revenue recognition 3,292 (2,230) - 1,062 Customer base assets 6,846 (1,067) - 5,779 Financial instruments (4,214) (2,969) 5,083 (2,100) Unrealised losses on Australian dollar loan (7,413) - 3,584 (3,829) Other (63) - - (63) 257,316 (7,007) 49,906 300,215
PARENT Charged Charged Opening to Income Directly to Closing For the year ended 31 March 2013 ($000) Balance Statement Equity Balance
Revaluations 171,046 - (18) 171,028 Other property, plant and equipment movements 48,105 5,031 - 53,136 Employee benefits (1,422) (218) - (1,640) Provision for impairment (504) 28 - (476) Carbon revenue recognition 1,062 (805) - 257 Customer base assets 5,779 (858) - 4,921 Financial instruments (63) (693) (5,350) (6,106) Other (63) - - (63) 223,940 2,485 (5,368) 221,057 PARENT Charged Charged Opening to Income Directly to Closing For the year ended 31 March 2012 ($000) Balance Statement Equity Balance
Revaluations 134,489 - 36,557 171,046 Other property, plant and equipment movements 41,215 1,533 5,357 48,105 Employee benefits (1,329) (93) - (1,422) Provision for impairment (504) - - (504) Carbon revenue recognition 3,292 (2,230) - 1,062 Customer base assets 6,846 (1,067) - 5,779 Financial instruments (3,854) (1,292) 5,083 (63) Other (63) - - (63) 180,092 (3,149) 46,997 223,940 62
Note 30: Net Tangible Assets Per Share GROUP PARENT 2013 2012 2013 2012 NOTE $000 $000 $000 $000
Total net assets ($000) 1,551,763 1,571,331 1,371,900 1,390,234 Less intangible assets ($000) (47,298) (45,895) (47,298) (45,895) Net tangible assets ($000) 1,504,465 1,525,436 1,324,602 1,344,339 Number of ordinary shares in issue (thousands) 13 314,015 314,016 314,015 314,016 Net tangible assets per share (dollars per share) 4.79 4.86 4.22 4.28
Note 31: Reconciliation of Net Cash From GROUP PARENT Operating Activities With Profit After Tax 2013 2012 2013 2012 Attributable to the Shareholders $000 $000 $000 $000
Profit after tax attributable to the shareholders of the Company 123,351 131,652 120,825 133,553 Items classified as investing/financing Interest paid 61,404 63,076 47,222 48,370 Interest received (1,497) (904) (3,321) (4,883) 59,907 62,172 43,901 43,487 Non-cash items: Amortisation of debt issue costs 1,889 1,841 1,889 1,841 Non-cash transfer from cash flow hedge reserve to interest expense (275) (275) (275) (275) Amortisation of other investments 13 5 - - Amortisation of intangible assets 7,930 5,357 7,930 5,357 Depreciation 58,057 52,880 23,898 18,558 Net gain on sale of property, plant and equipment (104) (5) (41) (72) Impairment of assets - 428 2,841 5,314 Share option provision transfer (3) (100) (3) (100) Movement in derivative financial instruments taken to the income statement 5,593 7,544 3,721 1,883 Intercompany charges - - 22,981 25,519 Increase/(decrease) in deferred tax liability excluding transfers to reserves (2,375) (7,164) 2,485 (3,149) 70,725 60,511 65,426 54,876 Decrease/(increase) in working capital: Accounts receivable and prepayments (26,446) (15,196) (25,444) (16,317) Taxation payable/receivable (4,289) 52 (2,869) 1,372 Accounts payable and accruals excluding capital expenditure accruals 17,860 29,061 22,585 26,676 (12,875) 13,917 (5,728) 11,731
Net cash from operating activities 241,108 268,252 224,424 243,647
Note 32: Imputation Credit Account GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Imputation credits available for use in subsequent reporting periods 13,954 19,279 12,989 18,991
The above amounts represent the balance of the imputation account as at the end of the reporting period, adjusted for imputation credits that will arise from the payment of the amount of taxation payable. The consolidated amounts include imputation credits that would be available to the parent if subsidiaries paid dividends. Note 33: Emission Rights Kyoto Carbon Credits The Group has received carbon emission rights from the New Zealand Government issued pursuant to the Kyoto protocol in relation to completed generation facilities. These rights were based upon the levels of generation output from the new facilities for the period 1 January 2008 to 31 December 2012 and are reliant on the ongoing support of the Kyoto protocol and emission rights within the international community.
GROUP PARENT 2013 2012 2013 2012
Kyoto Carbon Credits (Tonnes CO2-e) Balance at beginning of year 187,000 157,000 187,000 157,000 Rights earned during the year 174,000 222,000 174,000 222,000 Rights sold during the year (45,000) (192,000) (45,000) (192,000) Rights unsold at end of year 316,000 187,000 316,000 187,000
Included in other receivables (note 19) is $2,723,000 relating to Kyoto Carbon Credits generated and pre-sold (2012: $7,360,000). In addition $647,000 is included in other receivables relating to Kyoto Carbon Credits generated but unsold at the end of the reporting period (2012: $1,178,000). Renewable Energy Credits The Group also earns Renewable Energy Credits (RECs) from renewable electricity generation in South Australia. Included in other receivables (note 19) is $1,377,000 relating to RECs generated and pre-sold (2012: $1,438,000). In addition $1,493,000 is included relating to RECs generated but unsold at the end of the reporting period (2012: $1,734,000). This potential revenue source is taken into consideration in the evaluation of generation development projects and in the valuation of the generation assets. TRUSTPOWER ANNUAL REPORT 2013 63
Note 34: Commitments GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Capital Commitments 360,116 8,041 3,072 8,041
The capital commitments include construction contracts relating to the construction of the Esk Valley Hydro scheme in Hawkes Bay as well as stage two of the Snowtown Wind Farm in South Australia. Electricity Purchase Commitments The Parent has a contract with Pioneer Generation Limited to purchase all of the output from its various generation sites. This commitment cannot be quantified. The Parent has a contract with Mighty River Power Limited to purchase the output from the Rotokawa geothermal power station. This commitment cannot be quantified. The Parent has a contract with Opuha Water Limited to purchase the output from its hydropower station. This commitment cannot be quantified. The Parent has a contract with Amethyst Hydro Limited to purchase the output from its hydropower station. This commitment cannot be quantified.
Note 35: Contingent Liabilities, Operating Leases, and Subsequent Events Inland Revenue is currently disputing the tax treatment adopted by the Group in relation to feasibility expenditure in the 2006, 2007 and 2008 financial years. Inland Revenue has now issued assessments for the 2006, 2007 and 2008 financial years. These assessments are based on the adjudication report previously issued by Inland Revenue and now allow a deduction for certain categories of expenditure which were previously disputed by Inland Revenue but contend that the costs of obtaining resource consents should have been capitalised. The assessments are based on Inland Revenue’s determination of what should be considered resource consent costs. The Group does not agree with the basis of the assessments. It continues to believe the tax treatment it has adopted is correct and continues to defend its position. The case is currently scheduled to be heard in the High Court in August 2013. Should Inland Revenue be completely successful in its claim for all three years, the resulting liability would give rise to an additional tax payment of $5,924,000 and interest expense of $2,838,000. Based on the principle of the assessments, the Group would need to revise its policy for capitalising the costs of resource consents for tax purposes in the 2009 and future years. This would give rise to a further estimated tax payment of $4,114,000 and interest expense of $1,104,000 in respect of the 2009 to 2013 years. This would primarily result in a balance sheet adjustment in the financial statements as most resource consents are depreciable intangible property. The impact of these adjustments on the tax expense in the income statement is difficult to estimate but is unlikely to exceed $3,300,000 for all years up to 2013. The Group is not aware of any other material contingent liabilities at balance date (2012: nil). Other than disclosed in note 6 the Group is not party to any material operating leases at balance date (2012: nil). The Group is not aware of any significant events occurring subsequent to balance date that have not been disclosed.
Note 36: Related Party Transactions Key management personnel The key management personnel compensation (including Directors’ fees) is as follows:
GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Salaries and other short-term employee benefits 4,523 4,048 4,523 4,048 Share based payments 63 21 63 21 4,586 4,069 4,586 4,069
$910,000 of this amount was unpaid at 31 March 2013 (2012: $703,000). All key management personnel participate in a cash settled, share based incentive scheme. This scheme was introduced in 2007 and replaces the employee share option scheme (refer to note 37). Subsidiaries Advances have been made to/from subsidiaries (refer to note 21) and are payable on demand. These advances are not expected to be repaid in the coming year. Advances to New Zealand based subsidiaries are interest free while interest is charged to overseas based subsidiaries at a market rate. The net advances as disclosed in note 21 include the balances due to/from subsidiaries in respect of the following transactions. The Parent has a lease contract with its subsidiary Tararua Wind Power Limited for the use of the subsidiary company’s generation assets. The Parent had a similar lease contract with its former subsidiary Cobb Power Limited until Cobb Power Limited was amalgamated into the Parent on 31 March 2012 (see note 23). These commitments cannot be quantified because they are dependent on subsidiary asset valuations and capital expenditure. The Parent has an insurance contract with its subsidiary TrustPower Insurance Limited which is renewed annually. The impact of transactions with subsidiaries on the profit of the Parent and Group is shown below.
GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Operating lease costs - - (18,941) (20,536) Insurance costs - - (2,685) (2,187) Interest revenue - - 2,425 4,499 Impact on profit before income tax - - (19,201) (18,224) 64
Note 36: Continued The Group is controlled by Infratil Limited (incorporated in New Zealand) which owns 50.7% of the Company’s voting shares. The Tauranga Energy Consumer Trust owns 33.1% and the residual balance of 16.2% is widely held. A related entity of H.R.L. Morrison & Co Limited manages Infratil Limited and M Bogoievski, a Director of TrustPower Limited, is the Chief Executive of H.R.L. Morrison & Co Limited. Infratil Limited is the parent of TrustPower Limited and $8,000 (2012: $56,000) was paid to H.R.L. Morrison & Co Limited and related entities during the year for consultancy services. As at 31 March 2013 no balance was outstanding (2012: $56,000). Consultancy fees of $7,000 (2012: $11,000) were paid to Lumo Energy Pty Ltd which is a subsidiary of the Group’s ultimate parent. As at 31 March 2013 none of this amount was outstanding (2012: nil). All Directors participate in a share purchase plan where the Directors’ purchase shares in the Company to the value of half of their annual Directors’ fees. During the year all Directors purchased their shares directly from the Company at the average market price for the preceding 20 business days from the treasury stock that the Company was holding. A total of 36,000 shares (2012: 20,000) were purchased for $290,000 (2012: $146,000) (see note 13). Mr RH Aitken, a Director of TrustPower Limited, is the Executive Chairman of the engineering firm Beca Limited. $281,000 was paid to Beca Limited for engineering services (2012: $374,000). As at 31 March 2013 $50,000 of this amount was unpaid (2012: $32,000). Mr RWH Farron, Chief Financial Officer and Company Secretary of TrustPower Limited, is a director of the engineering supplies firm BGH Group Limited and its New Zealand based subsidiaries. $5,000 has been charged by subsidiaries, Bay Engineers Supplies Limited and Hose Supplies New Zealand Limited (2012: $11,000). As at 31 March 2013 $1,000 of this amount was unpaid (2012: nil). TrustPower Limited owns 20.0% of the ordinary shares of Rangitata Diversion Race Management Limited (RDR) which owns and operates an irrigation canal in Canterbury. RDR’s operating and capital expenditure is funded by advances from its shareholders. In 2013 the Group advanced RDR nothing (2012: $84,000) and the total balance of the advance at 31 March 2013 was $1,884,000 (2012: $1,884,000). This balance is included in other investments in the statement of financial position. Except as noted above, no transactions took place with related parties during the year. Other than interest free intercompany advances all transactions with related parties take place on an arms length basis. No related party debts were forgiven or written off during the year. Except as noted above there are no amounts outstanding at 31 March 2013 (2012: nil).
Note 37: Employee Share Based Compensation The Company has issued share options to certain employees. Each option issued under the Scheme converts to one ordinary share on exercise when employees are required to pay a non-refundable amount for the issue of the ordinary share (the exercise price). The options may be exercised any time after three years from issue date up until expiry, are non-transferable and conditional on the individual employee’s continued employment through this period. The initial exercise price was set by taking the average closing market price of the shares during the ten business days up to and including the issue of the options. The exercise price is adjusted by an equity rate of return, dividends paid and capital structure changes from issue date up until the point at which the employee exercises the option.
NUMBER EXERCISE PRICE $ 2013 2012 2013 2012
Options Outstanding: Tranche D issued May 2006, expired June 2012 - 240,000 - 8.62 - 240,000
Options Exercised to Date: Tranche D ------
Options Lapsed to Date: Tranche D 460,000 220,000 - 8.62 460,000 220,000
Members of the Parent’s executive management team and certain other employees (together defined as key management personnel) are eligible to receive payment under a cash settled share based payment scheme. The scheme is defined as follows: An incentive scheme for key management personnel of the Parent was implemented on 15 May 2009. This is a cash-settled share-based payment scheme covering a three-year period. Subsequently, each year on the 15th of May, a new tranche of the scheme has been issued and covers a period of three years from the issue date. Key management personnel are eligible to receive a bonus payment at the end of the three year period of the scheme, the sum of which is determined by the total return on a notional number of allocated shares. The return is calculated as the sum of dividends paid by the Parent plus the increase in share price over the period. Payment is only made if a minimum return, set by the Board, is met. Additionally the scheme has a set maximum return above which no increase in the bonus is received by the participants. The total return is calculated for a three year period commencing on the 15th of May with reference to the average share price over the ten days prior to the scheme closing. The fair value of the liability at 31 March 2013 has been determined by reference to the Parent’s current share price and expected dividends and share price movements with comparison to the share price at the start of the relevant period and adjusted to reflect the present value of these future expected cash flows. For the year ended 31 March 2013 the total expense recognised in the income statement was $89,000 (2012: $(43,000)) and the liability recognised in the statement of financial position as at 31 March 2013 is $99,000 (2012: $10,000). TRUSTPOWER ANNUAL REPORT 2013 65
Note 38: Critical Accounting Estimates and Judgements Estimates and judgements are frequently evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market (for example, electricity price hedges) is determined by using valuation techniques. The Group uses its judgement to select methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The Group has used discounted cash flow analysis for various electricity price hedges that are not traded in an active market. The forward curve is derived from a combination of market quoted prices and management’s best estimates. The discount rate is assumed as the counterparty’s cost of funds for the period of the instrument. See note 39 for sensitivity analysis. Electricity gross margin Three key estimates are made when determining electricity gross margin. The accrual for all three factors is based on an estimate of unbilled units. • Revenue recognition An accrual is estimated for units sold but not billed at the end of the reporting period for non-half hourly metered customers. This estimate is based on units bought from the wholesale electricity market as well as historical factors. Significant judgement is required in making this determination. • Line cost recognition Some electricity lines companies bill the Group based on the units and days that the Group has billed its customers while the remaining electricity lines companies bill the Group based on estimated total units and days. For the companies that base their bill on the Group’s customer billing, an accrual, similar to the revenue recognition accrual, is estimated for line charges incurred but not billed at the end of the reporting period. • Energy cost recognition An accrual is estimated for units that the Group believes it has consumed but has not yet been billed for by Energy Clearing House Limited. Significant judgement is required in making this determination. Sensitivity analysis If the estimated unbilled units had been 10% higher/lower, operating profit for the year would have (decreased)/increased by $(54,000)/$54,000 (2012: increased/(decreased) by $695,000/$(695,000)). Generation property, plant and equipment The Group’s generation property, plant and equipment is stated at fair value as established by an independent valuation undertaken at least every three years. This valuation is reviewed annually and if it is considered that there has been a material change then a new independent valuation is undertaken. The basis of the valuation is a discounted cash flow analysis of the future earnings of the assets. The major inputs that are used in the valuation model that require management judgement include the forward price path of electricity, sales volume forecasts, projected operational and capital expenditure profiles, discount rates and life assumptions for each generation station. The following table outlines the key assumptions used by Deloitte Corporate Finance in preparing the most recent valuation as at 31 March 2012. In all cases there is an element of judgement required. The table shows the range of reasonably possible alternative assumption values considered. The valuation is based on a combination of values that are generally in the midpoint of the range.
Assumption Low High Valuation Impact New Zealand Assets Forward electricity price path Decreasing in real terms from Decreasing in real terms from -/+ $98,000,000 $98/MWh to $85/MWh by 2015 $98/MWh to $85/MWh by 2015 then constant. then increasing to $95/MWh by 2020. Thereafter held constant. Generation volume 2,167 GWh 2,649 GWh -/+ $245,000,000 Operating costs $29,600,000 p.a. $32,600,000 p.a. +/- $38,000,000 Weighted average cost of capital 7.84% 8.34% +$82,000,000 / -$75,000,000 Australian Assets AUD Forward electricity price path (Stated in AUD) Until 2018 constant (Stated in AUD) Until 2018 constant -$11,000,000/ +$33,000,000 at $82 in real terms. After 2018 at $82 in real terms. After 2018 increasing to $105 by 2030 in increasing to $115 with gradual real terms. increases to $125 by 2030 in real terms. Generation volume 350 GWh 428 GWh -/+ $30,000,000 Weighted average cost of capital 7.74% 8.24% +$6,000,000 / -$5,000,000
The valuation impact is calculated as the movement in the fair value as a result of the change in the assumption and keeping all other valuation inputs constant. Depreciation expense A significant amount of management judgement is used when determining the useful lives of the Group’s generation assets for depreciation purposes. This is especially so for the Group’s longer lived assets. Sensitivity analysis If the estimated useful lives of generation assets were 10% higher/lower, operating profit for the year would have increased/(decreased) by $5,278,000/$(6,451,000) (2012: $4,804,000/$(5,872,000)). Amortisation expense Management judgement is used when determining the useful lives of the Group’s intangible assets for amortisation purposes. Sensitivity analysis If the estimated useful lives of intangible assets were 10% higher/lower, operating profit for the year would have increased/decreased by $721,000/$(881,000) (2012: $478,000/$(584,000)). 66
Note 38: Continued Income tax expense The Group is subject to income taxes in New Zealand and Australia. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Provision against advances to subsidiaries For subsidiaries involved in generation development, the Parent fully provides for advances made until such time as a viable project is identified and construction commences. This provision is the result of significant uncertainty that economic projects will be completed and that the advances will be recoverable. Changes to accounting estimates Apart from the change in metering asset useful lives (refer note 2.6), there have been no changes to accounting estimates in the year. Note 39: Financial Risk Management Financial Risk Management Objectives TrustPower’s activities expose it to a variety of financial risks: electricity price risk, interest rate risk, exchange rate risk, liquidity risk and credit risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out under policies approved by the Board. (a) Electricity Price Risk The Group typically sells more electricity at fixed prices than it generates. As a result the Group is required to purchase a percentage of its electricity sold off the electricity spot market. This leaves the Group exposed to fluctuations in the spot price of electricity where it sells electricity at a fixed price. The Group operates under an energy trading policy which limits the exposure the Group may have in any future period. Future exposure is estimated based on expected fixed price sales and generation output. The Group has entered into a number of electricity hedge contracts to reduce the commodity price risk from price fluctuations on the electricity spot market. These hedge contracts establish the price at which future specified quantities of electricity are purchased. Any resulting differential to be paid or received is recognised as a component of energy costs through the term of the contract. The Group has elected to apply cash flow hedge accounting to those instruments it deems material and which qualify as cash flow hedges while immaterial contracts are not hedge accounted. This risk management strategy assumes that the electricity wholesale market that currently operates will continue to do so in the future. There is a possibility that future regulatory intervention may fundamentally alter the structure of the wholesale electricity market. The likelihood and potential impact of such a change is unquantifiable. However, such an occurrence would likely necessitate a change to the Group’s electricity price risk management policies and require a review of assets and liabilities held at fair value where electricity price is a key assumption in their value. The aggregate notional volume of the outstanding electricity derivatives at 31 March 2013 was 1,275GWh (31 March 2012: 639GWh). The hedged anticipated electricity purchase transactions are expected to occur continuously throughout the next three years from the end of the reporting period consistent with the Group’s forecast electricity generation and retail electricity sales. Gains and losses recognised in the cash flow hedge reserve on electricity derivatives as of 31 March 2013 will be continuously released to the income statement in each period in which the underlying purchase transactions are recognised in the income statement. Sensitivity analysis The following tables summarise the impact of increases/decreases of the relevant forward electricity prices on the Group’s post-tax profit for the year and on other components of equity. The sensitivity analysis is based on the assumption that the relevant forward electricity prices had increased/decreased with all other variables held constant as a result of the fair value change in electricity price derivatives.
GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Increase/(decrease) to profit of a 10% increase in electricity forward price 447 (3,706) 447 (3,706) Increase/(decrease) to profit of a 10% decrease in electricity forward price (447) 3,706 (447) 3,706 Increase/(decrease) to equity of a 10% increase in electricity forward price 9,011 5,062 9,011 5,062 Increase/(decrease) to equity of a 10% decrease in electricity forward price (9,011) (5,062) (9,011) (5,062)
(b) Interest Rate Risk The Group’s bank borrowings are all on floating interest rates exposing it to the risk that rising interest rates will increase the Group’s interest expense and, hence, reduce its profitability. The Group operates under a treasury policy which prescribes the proportion of fixed interest rate cover the Group must hold in relation to its future borrowings. This proportion is calculated based on the actual fixed rate cover held and the forecast debt levels of the Group. The Group has various interest rate financial instruments to manage exposure to fluctuations in interest rates. Any resulting differential to be paid or received on the instruments is recognised as a component of interest paid. The Group has elected to hedge account only a limited number of these instruments. The aggregate notional principal amounts of the outstanding interest rate derivative instruments at 31 March 2013 was $877,803,000 (31 March 2012: $489,459,000). Interest payment transactions are expected to occur at various dates between one month and eight years from the end of the reporting period consistent with the Group’s forecast total borrowings. Weighted average interest rates for the Parent and the Group are disclosed in note 26. Sensitivity analysis At 31 March 2013, if interest rates at that date had been 100 basis points higher/lower with all other variables held constant, post-tax profit for the year and other components of equity would have been adjusted by the amounts in the table below, as a result of the fair value change in interest rate derivative instruments.
GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Increase/(decrease) to profit of a 100 basis point decrease in interest rates (19,873) (10,752) (5,790) (6,587) Increase/(decrease) to profit of a 100 basis point increase in interest rates 19,058 10,336 5,484 6,195 Increase/(decrease) to equity of a 100 basis point decrease in interest rates (20,168) (11,235) (6,085) (7,070) Increase/(decrease) to equity of a 100 basis point increase in interest rates 19,344 10,800 5,770 6,659 TRUSTPOWER ANNUAL REPORT 2013 67
Note 39: Continued c) Exchange Rate Risk During the course of business the Group may enter into contracts for the construction of generation assets and the sale of carbon credits to be settled in a foreign currency in the future. This exposes the Group to movements in foreign exchange rates. The Group operates under a treasury policy which requires all foreign currency transactions over certain limits to be 100% hedged. Compliance with this policy is measured by forecasting future foreign currency transactions and ensuring that the exchange rate has been fixed. The Group enters into forward exchange contracts to reduce the risk from price fluctuations of foreign currency costs associated with the construction of property, plant and equipment or income associated with the sale of carbon credits. Any resulting differential to be paid or received is recognised as a component of the cost of the project for the construction of generation assets and as a part of revenue for the sale of carbon credits. The Group has elected to apply cash flow hedge accounting to these instruments. The aggregate notional principal amounts of the outstanding forward foreign exchange contracts at 31 March 2013 was $247,476,000 (31 March 2012: $11,076,000). The hedged anticipated transactions denominated in foreign currency are expected to occur at various dates between one month and one year from the end of the reporting period. Gains and losses recognised in the cash flow hedge reserve in equity on forward foreign exchange contracts as at 31 March 2013 will be recycled to revenue from the sale of carbon credits when the credits are sold or to cost of property, plant and equipment when the assets are purchased. Sensitivity analysis At 31 March 2013, if the functional currency of the entities holding the forward foreign exchange contracts had weakened/strengthened by 10 per cent against the currencies with which the Group has foreign currency risk with all other variables held constant, post-tax profit for the year would not have been different. Other components of equity would have been $24,145,000/$(24,145,000) higher/(lower) (31 March 2012: $(768,000)/$768,000 (lower)/higher), arising from foreign exchange gains/losses on revaluation of foreign exchange contracts in a cash flow hedge relationship. (d) Credit Risk The Group has no significant concentrations of credit risk (2012: none). It has policies in place to ensure that sales are made to customers with an appropriate credit history. Where a potential customer does not have a suitable credit history a bond is required before the customer is accepted. Derivative counterparties and cash transactions are limited to high credit quality financial institutions with a minimum Standard & Poor’s long-term credit rating of A+ and other large electricity market participants (all have a Standard & Poor’s long-term credit rating of at least BBB). Where a potential counterparty does not meet these credit criteria the maximum level of credit exposure is set individually by the Board. The Group has policies that limit the amount of credit exposure to any counterparty. The carrying amounts of financial assets recognised in the statement of financial position best represents the Group’s maximum exposure to credit risk at the reporting date without taking account of the value of any collateral obtained. Collateral is customer bond deposits held as cash - refer to note 25. This collateral reduces the exposure to credit risk by its nominal amount. As shown in note 19, the reported accounts receivable balance includes a provision for doubtful debts of $1,700,000 (2012: $1,800,000). The Group has around 206,000 customers (2012: 209,000), only four (2012: four) of which make up more than one per cent of the Group’s total accounts receivable balance. The largest of these customers accounts for 4 per cent (2012: 4 per cent) of the Group’s total accounts receivable. Included in other accounts payable and accruals is $861,000 (2012: $1,349,000) of bonds collected from customers who do not meet certain credit criteria. As of 31 March 2013, trade receivables relating to the Group and the Parent of $3,955,000 (2012: $4,652,000) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Up to 3 months 3,955 4,652 3,955 4,652 3,955 4,652 3,955 4,652
As of 31 March 2013, trade receivables relating to the Group and the Parent of $1,700,000 (2012: $1,800,000) were past due and impaired. The ageing analysis of these trade receivables is as follows:
GROUP PARENT 2013 2012 2013 2012 $000 $000 $000 $000
Up to 3 months 11 493 11 493 Over 3 months 1,689 1,307 1,689 1,307 1,700 1,800 1,700 1,800
For details of the receivables considered impaired refer to note 2.4. Movements on the provision for impairment of trade receivables are as follows:
GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Opening balance 1,800 1,800 1,800 1,800 Provision for receivables impairment 7 1,492 1,515 1,492 1,515 Bad debts written off (1,592) (1,515) (1,592) (1,515) Closing balance 19 1,700 1,800 1,700 1,800 68
Note 39: Continued (e) Liquidity Risk The Group’s ability to readily attract cost effective funding is largely driven by its credit standing. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the spreading of debt maturities. The Group operates under a treasury policy which dictates the level of available committed facility to be maintained to provide cover for reasonably conceivable adverse conditions. This is measured by forecasting debt levels under various adverse scenarios and comparing this to committed facility levels. The treasury policy also requires a spread of debt maturities which is measured by the proportion of debt maturing in various time bands. The tables below analyse the Group’s and the Parent’s financial liabilities excluding gross settled derivative financial liabilities into relevant maturity groupings based on the remaining period to the earliest possible contractual maturity date at the period end date. The amounts in the tables are contractual undiscounted cash flows. Group Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2013 $000 $000 $000 $000
Net settled electricity price derivatives 71 1,019 6,073 10,950 Net settled interest rate derivatives 491 3,579 3,267 19,426 Accounts payable and accruals 116,009 87 104 4,064 Unsecured subordinated bonds - 11,343 65,871 306,768 Unsecured senior bonds - 8,170 8,170 254,235 Unsecured bank loans - 11,042 5,628 452,291 Financial guarantee contracts - - - - Total 116,571 35,240 89,113 1,047,734
Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2012 $000 $000 $000 $000
Net settled electricity price derivatives 463 3,675 2,878 4,319 Net settled interest rate derivatives 347 2,232 2,407 16,288 Accounts payable and accruals 106,160 87 104 4,273 Unsecured subordinated bonds - 119,824 6,472 182,492 Unsecured senior bonds - 8,170 8,170 270,575 Unsecured bank loans - 10,073 5,628 301,172 Financial guarantee contracts 756 - - - Total 107,726 144,061 25,659 779,119
PARENT Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2013 $000 $000 $000 $000
Net settled electricity price derivatives 71 1,019 6,073 10,950 Net settled interest rate derivatives 298 1,391 1,689 13,046 Accounts payable and accruals 112,609 87 104 4,064 Unsecured subordinated bonds - 11,343 65,871 306,768 Unsecured senior bonds - 8,170 8,170 254,235 Unsecured bank loans - 7,562 5,628 101,082 Financial guarantee contracts - - - - Total 112,978 29,572 87,535 690,145
Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2012 $000 $000 $000 $000
Net settled electricity price derivatives 463 3,675 2,878 4,319 Net settled interest rate derivatives 217 975 1,192 10,967 Accounts payable and accruals 98,617 87 104 4,273 Unsecured subordinated bonds - 119,824 6,472 182,492 Unsecured senior bonds - 8,170 8,170 270,575 Unsecured bank loans - 7,786 5,628 125,432 Financial guarantee contracts 756 - - - Total 100,053 140,517 24,444 598,058 TRUSTPOWER ANNUAL REPORT 2013 69
Note 39: Continued The tables below analyse the Group’s and the Parent’s derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period to the contractual maturity date at the period end date. The amounts disclosed in the tables are the contractual undiscounted cash flows. Group Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2013 $000 $000 $000 $000
Foreign currency forward contracts Inflows 3,882 139,269 77,844 21,923 (Outflows) (2,529) (141,057) (79,793) (22,743)
Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2012 $000 $000 $000 $000
Foreign currency forward contracts Inflows 3,784 - 3,409 3,882 (Outflows) (2,685) - (2,316) (2,685)
PARENT Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2013 $000 $000 $000 $000
Foreign currency forward contracts Inflows 3,882 - - - (Outflows) (2,529) - - -
Less than 1-6 6-12 Over 1 month months months 1 year At 31 March 2012 $000 $000 $000 $000
Foreign currency forward contracts Inflows 3,784 - 3,409 3,882 (Outflows) (2,685) - (2,316) (2,685)
Fair Values Except for subordinated bonds and senior bonds (see notes 27 and 28), the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values. Estimation of Fair Values The fair values of financial assets and financial liabilities are determined as follows: • The fair value of financial assets and liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. • The fair value of other financial assets and liabilities are calculated using discounted cash flow analysis based on market-quoted rates. • The fair value of derivative financial instruments are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve or available forward price data for the duration of the instruments. Where the fair value of a derivative is calculated as the present value of the estimated future cash flows of the instrument, the two key types of variables used by the valuation techniques are: • forward price curve (as described below); and • discount rates.
Valuation Input Source Interest rate forward price curve Published market swap rates Foreign exchange forward prices Published spot foreign exchange rates and interest rate differentials Electricity forward price curve Market quoted prices where available and management’s best estimate based on its view of the long run marginal cost of new generation where no market quoted prices are available. Discount rate for valuing interest rate derivatives Published market interest rates as applicable to the remaining life of the instrument. Discount rate for valuing forward foreign exchange contracts Published market interest rates as applicable to the remaining life of the instrument. Discount rate for valuing electricity price derivatives Assumed counterparty cost of funds ranging from 3.8% to 4.3% 70
Note 39: Continued The selection of variables requires significant judgement and therefore there is a range of reasonably possible assumptions in respect of these variables that could be used in estimating the fair value of these derivatives. Maximum use is made of observable market data when selecting variables and developing assumptions for the valuation techniques. See earlier in this note for sensitivity analysis. NZ IFRS 7 requires that financial instruments are measured in the statement of financial position at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following tables present the Group’s and Parent’s financial assets and liabilities that are measured at fair value. Group Level 1 Level 2 Level 3 Total 31 March 2013 $000 $000 $000 $000
Assets per the statement of financial position Interest rate derivative assets - 5,288 - 5,288 Electricity price derivative assets - - 1,488 1,488 Exchange rate derivative assets - 2,395 - 2,395 - 7,683 1,488 9,171
Liabilities per the statement of financial position Interest rate derivative liabilities - 22,628 - 22,628 Electricity price derivative liabilities - - 14,862 14,862 Exchange rate derivative liabilities - 2,237 - 2,237 - 24,865 14,862 39,727
Level 1 Level 2 Level 3 Total 31 March 2012 $000 $000 $000 $000
Assets per the statement of financial position Interest rate derivative assets - 4,721 - 4,721 Electricity price derivative assets - - 8,357 8,357 Exchange rate derivative assets - 3,190 - 3,190 - 7,911 8,357 16,268
Liabilities per the statement of financial position Interest rate derivative liabilities - 17,199 - 17,199 Electricity price derivative liabilities - - 4,207 4,207 Exchange rate derivative liabilities - - - - - 17,199 4,207 21,406
PARENT Level 1 Level 2 Level 3 Total 31 March 2013 $000 $000 $000 $000
Assets per the statement of financial position Interest rate derivative assets - 4,558 - 4,558 Electricity price derivative assets - - 1,488 1,488 Exchange rate derivative assets - 1,346 - 1,346 - 5,904 1,488 7,392
Liabilities per the statement of financial position Interest rate derivative liabilities - 13,431 - 13,431 Electricity price derivative liabilities - - 14,862 14,862 Exchange rate derivative liabilities - - - - - 13,431 14,862 28,293 TRUSTPOWER ANNUAL REPORT 2013 71
Note 39: Continued PARENT Level 1 Level 2 Level 3 Total 31 March 2012 $000 $000 $000 $000
Assets per the statement of financial position Interest rate derivative assets - 4,689 - 4,689 Electricity price derivative assets - - 8,357 8,357 Exchange rate derivative assets - 3,190 - 3,190 - 7,879 8,357 16,236
Liabilities per the statement of financial position Interest rate derivative liabilities - 10,378 - 10,378 Electricity price derivative liabilities - - 4,207 4,207 Exchange rate derivative liabilities - - - - - 10,378 4,207 14,585
The following tables present the changes during the year of the level 3 instruments. Group Electricity price derivatives Total 31 March 2013 $000 $000
Assets per the statement of financial position Opening balance 8,357 8,357 Gains and (losses) recognised in profit or loss (6,869) (6,869) Gains and (losses) recognised in other comprehensive income - - Closing balance 1,488 1,488 Total gains or (losses) for the period included in profit or loss for assets held at the end of the reporting period 1,447 1,447
Liabilities per the statement of financial position Opening balance 4,207 4,207 (Gains) and losses recognised in profit or loss (6,395) (6,395) (Gains) and losses recognised in other comprehensive income 17,050 17,050 Closing balance 14,862 14,862 Total (gains) or losses for the period included in profit or loss for liabilities held at the end of the reporting period 14,383 14,383
Settlements during the year (794) (794)
Electricity price derivatives Total 31 March 2012 $000 $000
Assets per the statement of financial position Opening balance 1,763 1,763 Gains and (losses) recognised in profit or loss (1,986) (1,986) Gains and (losses) recognised in other comprehensive income 8,580 8,580 Closing balance 8,357 8,357 Total gains or (losses) for the period included in profit or loss for assets held at the end of the reporting period 4,316 4,316
Liabilities per the statement of financial position Opening balance 18,503 18,503 (Gains) and losses recognised in profit or loss (22,876) (22,876) (Gains) and losses recognised in other comprehensive income 8,580 8,580 Closing balance 4,207 4,207 Total (gains) or losses for the period included in profit or loss for liabilities held at the end of the reporting period 6,036 6,036
Settlements during the year 10,110 10,110 72
Note 39: Continued PARENT Electricity price derivatives Total 31 March 2013 $000 $000
Assets per the statement of financial position Opening balance 8,357 8,357 Gains and (losses) recognised in profit or loss (6,869) (6,869) Gains and (losses) recognised in other comprehensive income - - Closing balance 1,488 1,488 Total gains or (losses) for the period included in profit or loss for assets held at the end of the reporting period 1,447 1,447
Liabilities per the statement of financial position Opening balance 4,207 4,207 (Gains) and losses recognised in profit or loss (6,395) (6,395) (Gains) and losses recognised in other comprehensive income 17,050 17,050 Closing balance 14,862 14,862 Total (gains) or losses for the period included in profit or loss for liabilities held at the end of the reporting period 14,383 14,383
Settlements during the year (794) (794)
Electricity price derivatives Total 31 March 2012 $000 $000
Assets per the statement of financial position Opening balance 1,763 1,763 Gains and (losses) recognised in profit or loss (1,986) (1,986) Gains and (losses) recognised in other comprehensive income 8,580 8,580 Closing balance 8,357 8,357 Total gains or (losses) for the period included in profit or loss for assets held at the end of the reporting period 4,316 4,316
Liabilities per the statement of financial position Opening balance 18,503 18,503 (Gains) and losses recognised in profit or loss (22,876) (22,876) (Gains) and losses recognised in other comprehensive income 8,580 8,580 Closing balance 4,207 4,207 Total (gains) or losses for the period included in profit or loss for liabilities held at the end of the reporting period 6,036 6,036
Settlements during the year 10,110 10,110
Electricity price derivatives are classified as Level 3 because the assumed location factors which are used to adjust the forward price path are unobservable. A sensitivity analysis showing the effect on the value of the electricity price derivatives of reasonably possible alternative price path assumptions is shown in section (a) of this note. Capital Risk Management Objectives The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. • Net debt is calculated as total borrowings less short term deposits. Total borrowings are calculated using a value of unsecured bank loans plus unsecured subordinated and senior bonds. • Total capital funding is calculated as total equity as shown in the statement of financial position, adjusted for the fair value of financial instruments, plus net debt. TRUSTPOWER ANNUAL REPORT 2013 73
Note 39: Continued The gearing ratio is calculated below:
GROUP PARENT 2013 2012 2013 2012 Note $000 $000 $000 $000
Net debt Unsecured bank debt 26 460,192 308,440 108,983 119,605 Unsecured subordinated bonds 27 292,375 262,277 292,375 262,277 Unsecured senior bonds 28 212,838 212,178 212,838 212,178 Cash and cash equivalents 18 (53,972) (23,142) (31,117) (9,695) 911,433 759,753 583,079 584,365 Equity Total equity 1,551,763 1,571,331 1,371,900 1,390,234 Remove net effect of fair value of financial instruments after tax 16 9,390 (5,198) 8,559 (5,198) 1,561,153 1,566,133 1,380,459 1,385,036 Total capital funding 2,472,586 2,325,886 1,963,538 1,969,401
Gearing ratio 37% 33% 30% 30%
Note 40: Financial Instruments by Category Group Assets at fair value Derivatives Assets Loans and through used for held to receivables profit or loss hedging maturity 31 March 2013 $000 $000 $000 $000
Assets per the statement of financial position
Derivative financial instruments - 6,775 2,396 - Trade and other receivables excluding prepayments 133,346 - - - Cash and cash equivalents 53,972 - - - Bond deposits on trust 995 - - - Term receivables 3,051 - - - Other investments - - - 2,420 191,364 6,775 2,396 2,420
31 March 2012
Assets per the statement of financial position
Derivative financial instruments - 9,129 7,139 - Trade and other receivables excluding prepayments 113,127 - - - Cash and cash equivalents 20,488 - - - Bond deposits on trust 1,791 - - - Other investments - - - 5,085 135,406 9,129 7,139 5,085 74
Note 40: Continued Group Other Liabilities financial at fair value Derivatives liabilities at through used for amortised profit or loss hedging cost 31 March 2013 $000 $000 $000
Liabilities per the statement of financial position
Unsecured bank loans including bank overdrafts - - 460,192 Unsecured subordinated bonds - - 292,375 Unsecured senior bonds - - 212,838 Derivative financial instruments 23,179 16,548 - Trade and other payables - - 124,527 23,179 16,548 1,089,932
31 March 2012
Liabilities per the statement of financial position
Unsecured bank loans including bank overdrafts - - 308,440 Unsecured subordinated bonds - - 262,277 Unsecured senior bonds - - 212,178 Derivative financial instruments 20,133 1,273 - Trade and other payables - - 114,085 20,133 1,273 896,980
PARENT Assets at fair value Derivatives Assets Loans and through used for held to receivables profit or loss hedging maturity 31 March 2013 $000 $000 $000 $000
Assets per the statement of financial position
Derivative financial instruments - 6,046 1,346 - Trade and other receivables excluding prepayments 127,350 - - - Cash and cash equivalents 31,117 - - - Bond deposits on trust 995 - - - Other investments - - - 1,892 159,462 6,046 1,346 1,892
31 March 2012
Assets per the statement of financial position
Derivative financial instruments - 9,098 7,139 - Trade and other receivables excluding prepayments 108,646 - - - Cash and cash equivalents 9,695 - - - Bond deposits on trust 1,791 - - - Other investments - - - 1,892 120,132 9,098 7,139 1,892 TRUSTPOWER ANNUAL REPORT 2013 75
Note 40: Continued PARENT Other Liabilities financial at fair value Derivatives liabilities at through used for amortised profit or loss hedging cost 31 March 2013 $000 $000 $000
Liabilities per the statement of financial position
Unsecured bank loans including bank overdrafts - - 108,983 Unsecured subordinated bonds - - 292,375 Unsecured senior bonds - - 212,838 Derivative financial instruments 13,982 14,311 - Trade and other payables - - 119,850 13,982 14,311 734,046
31 March 2012
Liabilities per the statement of financial position
Unsecured bank loans including bank overdrafts - - 119,605 Unsecured subordinated bonds - - 262,277 Unsecured senior bonds - - 212,178 Derivative financial instruments 13,312 1,273 - Trade and other payables - - 106,123 13,312 1,273 700,183 76
Statutory Information Interests Register The Company is required to maintain an Interests Register in which particulars of certain transactions and matters involving the Directors must be recorded. The matters set out below were recorded in the Interests Register of the Company during the financial year. General Notice of Interest by Directors The Directors of the Company have declared interests in the following identified entities as at 31 March 2013.
Director Interest Entity Bruce James Harker Director TrustPower Metering Limited Director Morrison Capital Limited Richard Hammond Aitken Executive Chairman Beca Director Beca Group Subsidiaries Director John Scotts Limited Director John Scotts Investment Limited Marko Bogoievski Chairman Aotea Energy Holdings Limited Director Aotea Energy Holdings Limited Subsidiaries Director Infratil Limited and certain Infratil Limited Subsidiaries Chief Executive Infratil Limited Director HRL Morrison & Co and certain subsidiaries Director Zig Zag Farm Limited Michael James Cooney Trustee Tauranga Energy Consumer Trust Director TECT Holdings Limited Consultant Cooney Lees & Morgan Director TrustPower Australia (New Zealand) Limited Director TrustPower Insurance Limited Director Tararua Wind Power Limited Ian Samuel Knowles Chairman OnBrand Limited Chairman Unlimited Realities Limited Chairman Xero Limited Chairman Partners Life Limited Director SLI Systems Limited Director Angel HQ Inc Director Rangitira Limited Trustee Te Omanga Hospice Trustee United World College NZ Geoffrey Jon Campbell Swier Director Farrier Swier Consulting Pty Ltd Director Snowtown Wind Farm Pty Ltd Director Sellicks Hill Wind Farm Pty Ltd Director TrustPower Australia Holdings Pty Ltd Director TrustPower Renewable Investments Pty Ltd Director TrustPower Market Services Pty Ltd Director Snowtown Wind Farm Stage 2 Pty Ltd Director Snowtown South Wind Farm Pty Ltd
Information used by Directors During the financial year there were no notices from Directors of the Company requesting to disclose or use Company information received in their capacity as Directors which would not otherwise have been available to them. TRUSTPOWER ANNUAL REPORT 2013 77
Directors Holding Office and their Remuneration No Directors were appointed or ceased to hold office during the year to 31 March 2013. The Directors holding office as at 31 March 2013 and during the year to 31 March 2013 are listed below. The total amount of the remuneration and other benefits received by each Director during the financial year, and responsibility held, is listed next to their names.
Director Remuneration Responsibility Held Bruce James Harker $145,000 Chairman Non-executive Director Member of Audit Committee Member of Remuneration Committee Member of Share Buyback Committee Michael James Cooney $75,000 Non-executive Director Member of Share Buyback Committee Geoffrey Jon Campbell Swier $121,880 Independent Director Chairman of Audit Committee Member of Remuneration Committee Richard Hammond Aitken $75,000 Independent Director Ian Samuel Knowles $85,000 Independent Director Member of Audit Committee Member of Share Buyback Committee Marko Bogoievski $75,000 Non Executive Director
Indemnification and Insurance of Directors and Executives During the financial year the Company paid insurance premiums in respect of Directors’ and certain executive employees’ liability insurance, as permitted by the Company’s Constitution and the Companies Act 1993. The policies do not specify the premium for individuals. This insurance extends to Directors and certain executive employees acting in the capacity of a director or on behalf of a subsidiary or related company. The Directors’ and executive employees’ liability insurance provides cover against costs and expenses involved in defending legal actions and any resulting payments arising from a liability to persons (other than the Company or a related body corporate) incurred in their capacity as Director or executive employee unless the conduct involves a wilful breach of duty or an improper use of inside information or position to gain advantage. The Company has entered into deeds of indemnity in respect of each Director, the Chief Executive, Chief Financial Officer and Company Secretary, General Manager Strategy and Growth, General Manager Generation, General Manager Commercial Operations, General Manager Trading, and General Manager Business Solutions and Technology whereby each such Director and executive employee is indemnified against the types of liability and costs described above, as permitted by the Company’s Constitution and the Companies Act 1993. Subsidiary Company Directors Set out below are details of the Directors of TrustPower’s subsidiaries as at 31 March 2013.
Director as at 31 March 2013 TrustPower Group Company Bruce James Harker TrustPower Metering Limited Michael James Cooney Tararua Wind Power Limited TrustPower Insurance Limited TrustPower Australia (New Zealand) Limited Geoffrey Jon Campbell Swier TrustPower Australia Holdings Pty Ltd TrustPower Renewable Investments Pty Ltd Snowtown Wind Farm Pty Ltd Sellicks Hill Wind Farm Pty Ltd TrustPower Market Services Pty Ltd Snowtown Wind Farm Stage 2 Pty Ltd Snowtown South Wind Farm Pty Ltd Vincent James Hawksworth Tararua Wind Power Limited TrustPower Metering Limited TrustPower Australia (New Zealand) Limited TrustPower Insurance Limited Bay Energy Limited TrustPower Market Services Pty Ltd TrustPower Australia Holdings Pty Ltd TrustPower Renewable Investments Pty Ltd Snowtown Wind Farm Pty Ltd Sellicks Hill Wind Farm Pty Ltd Snowtown Wind Farm Stage 2 Pty Ltd Snowtown South Wind Farm Pty Ltd
No Directors’ fees or other benefits were paid in relation to these Directorships during the financial year. The remuneration and other benefits received by employees acting as Directors of subsidiaries during the financial year is disclosed in the relevant bandings for employee remuneration. 78
General Notice of Interests by Directors of Subsidiary Companies
Director Interest Entity Bruce James Harker* Michael James Cooney* Geoffrey Jon Campbell Swier* Vincent James Hawksworth Chief Executive TrustPower Limited
*Refer General Notice of Interests by Directors Information used by Directors of Subsidiaries During the financial year there were no notices from Directors of subsidiary companies requesting to disclose or use subsidiary company information received in their capacity as Directors which would not otherwise have been available to them. Employee Remuneration During the financial year the number of employees or former employees (including employees holding office as Directors of subsidiaries) who received remuneration and other benefits in their capacity as employees of the Company, the value of which was or exceeded $100,000 per annum was as follows:
Remuneration Ranges Number of Employees Remuneration Ranges Number of Employees $100,000 – 109,999 11 $230,000 – 239,999 - $110,000 – 119,999 11 $240,000 – 249,999 4 $120,000 – 129,999 7 $250,000 – 259,999 - $130,000 – 139,999 6 $260,000 – 269,999 2 $140,000 – 149,999 4 $270,000 – 279,999 1 $150,000 – 159,999 4 $310,000 – 319,999 1 $160,000 – 169,999 4 $360,000 – 369,999 1 $170,000 – 179,999 - $400,000 – 409,999 1 $180,000 – 189,999 2 $440,000 – 449,999 1 $190,000 – 199,999 1 $460,000 – 469,999 1 $200,000 – 209,999 2 $540,000 – 549,999 1 $210,000 – 219,999 2 $570,000 – 579,999 1 $220,000 – 229,999 1 $1,000,000 – 1,009,999 1
Directors’ Transactions and Relevant Interests in Securities of the Company The relevant interests of Directors in securities of the Company as at 31 March 2013 are listed below together with transactions by Directors in securities of the Company during the financial year. Number Number Number Acquired/ $ Amount Paid/ Class of Held at Held at Director (Disposed) (Received) Date Security 31 March 2013 31 March 2012 BJ and JS Harker Family Trust (beneficial) (53,000) (53,000) 15 September 2012 Bonds 150,000 203,000 4,718 36,251 13 June 2012 Shares 4,258 36,253 30 November 2012 Shares 44,946 35,970 RH Aitken (beneficial) 2,441 18,755 13 June 2012 Shares 2,202 18,748 30 November 2012 Shares 11,418 6,775 MJ Cooney (beneficial) 2,441 18,755 13 June 2012 Shares 2,202 18,748 30 November 2012 Shares 22,880 18,237 MJ Cooney (non beneficial) - - - Bonds 150,000 150,000 MJ Cooney (non beneficial) - - - Shares 103,878,838 103,878,838 IS Knowles (beneficial) - - - Bonds 100,000 100,000 IS Knowles (beneficial) 2,766 21,253 13 June 2012 Shares 2,496 21,251 30 November 2012 Shares 24,515 19,253 Maclagen Pty Ltd as Trustee for the Swier Family Trust (beneficial) 4,084 31,379 13 June 2012 Shares 3,621 30,833 30 November 2012 Shares 38,565 30,860 M Bogoievski (non beneficial) Shares 159,215,388 159,215,388 M Bogoievski (beneficial) 2,441 18,755 13 June 2012 Shares 2,202 18,748 30 November 2012 Shares 10,160 5,517
The non beneficial shares recorded for MJ Cooney are held in his capacity as a Director of TECT Holdings Limited. The non beneficial bonds recorded for MJ Cooney are held in his capacity as Trustee for an estate and a private trust. The shares held beneficially by MJ Cooney include shares held in own name and via a family trust. The interests disclosed as bonds for IS Knowles are with respect to his position as executor and beneficiary of a family estate. The non beneficial shares recorded from M Bogoievski are held in his capacity as a Director of Infratil Limited. The Company was not advised of any other security transactions by any Director during the year. TRUSTPOWER ANNUAL REPORT 2013 79
Security Holder Information Substantial Security Holders The Company’s register of substantial security holders, prepared in accordance with Section 35C of the Securities Markets Act 1988 recorded the following information as at 30 April 2013. As at 30 April 2013, TrustPower Limited had 315,751,872 ordinary shares on issue. A total of 1,750,707 ordinary shares were held as treasury stock as at 30 April 2013.
Security Holder Class of Security Number Infratil Limited Shares 159,215,388 TECT Holdings Limited Shares 103,878,838
Spread of Holders as at 30 April 2013
Shares Holders % Shares % 1 to 999 1,506 11.55% 732,313 0.23% 1,000 to 1,999 2,127 16.31% 2,588,743 0.82% 2,000 to 4,999 8,212 62.98% 19,381,330 6.14% 5,000 to 9,999 777 5.96% 4,949,728 1.57% 10,000 to 49,999 366 2.81% 5,953,459 1.89% 50,000 to 99,999 19 0.15% 1,347,186 0.43% 100,000 to 499,999 17 0.13% 3,788,920 1.20% 500,000 to 999,999 5 0.04% 3,839,359 1.22% 1,000,000 plus 9 0.07% 273,170,834 86.50% 13,038 100.00% 315,751,872 100.00%
Subordinated Bonds Holders % Subordinated Bonds % 1 to 999 0 0.00% 0 0.00% 1,000 to 1,999 1 0.02% 1,000 0.00% 2,000 to 4,999 1 0.02% 3,000 0.00% 5,000 to 9,999 798 13.43% 4,442,000 1.51% 10,000 to 49,999 3,993 67.19% 80,286,000 27.24% 50,000 to 99,999 782 13.16% 45,620,000 15.48% 100,000 to 499,999 323 5.44% 49,367,000 16.75% 500,000 to 999,999 20 0.34% 12,149,000 4.12% 1,000,000 plus 24 0.40% 102,845,000 34.90% 5,942 100.00% 294,713,000 100.00%
Senior Bonds Holders % Senior Bonds % 1 to 999 0 0.00% 0 0.00% 1,000 to 1,999 0 0.00% 0 0.00% 2,000 to 4,999 1 0.03% 2,000 0.00% 5,000 to 9,999 464 12.28% 2,521,000 1.17% 10,000 to 49,999 2,587 68.46% 49,823,000 23.18% 50,000 to 99,999 451 11.93% 24,877,000 11.57% 100,000 to 499,999 242 6.40% 34,905,000 16.23% 500,000 to 999,999 14 0.37% 8,809,000 4.10% 1,000,000 plus 20 0.53% 94,063,000 43.75% 3,779 100.00% 215,000,000 100.00%
Shares Holders % Shares % New Zealand 12,765 97.91% 313,111,113 99.16% Australia 197 1.51% 2,482,307 0.79% United Kingdom 25 0.19% 69,207 0.02% United States of America 17 0.13% 29,162 0.01% Other 34 0.26% 60,083 0.02% 13,038 100.00% 315,751,872 100.00%
Subordinated Bonds Holders % Subordinated Bonds % New Zealand 5,872 98.82% 290,027,000 98.41% Australia 22 0.37% 2,167,000 0.74% United Kingdom 14 0.24% 203,000 0.07% United States of America 14 0.24% 396,000 0.13% Other 20 0.33% 1,920,000 0.65% 5,942 100.00% 294,713,000 100.00% 80
Voting Rights Every shareholder present in person, by proxy or by representative, on a vote by voices or a show of hands has one vote, and on a poll has one vote for each fully paid share held. Shares held as treasury stock do not have voting rights. Stock Exchange Listing The Company’s shares are listed on the NZSX and its senior and subordinated bonds are listed on the NZDX. Current Credit Rating Status TrustPower does not currently have an external credit rating. Current NZX Waivers NZX has granted a waiver dated 23 March 2006 from NZSX Listing Rule 8.1.7 (change of option exercise price or number of underlying securities) to enable the Company to issue options under the Company’s Executive Share Option Plan dated 28 February 2006 (as amended on 12 May 2006) in accordance with the exercise price formula contained in the Rules of the Plan. That exercise price formula permits the exercise price to be recalculated on a daily basis which may not be permitted by Listing Rule 8.1.7. The waiver has been granted on the condition that options outstanding issued under the Plan do not exceed 1% of the total shares of the Company. This waiver was varied on 6 July 2006 to permit TrustPower to vary the exercise price of Options issued on 29 May 2006 by amending the formula to permit the dividend with a record date of 26 May 2006 to be included in the calculation of the exercise price, notwithstanding that the record date of such dividends was prior to the issue date of the Options. The waiver described above is no longer required or relied upon as the last options issued in reliance on the waiver lapsed in June 2012. NZX Disciplinary Action There has been no action taken by NZX in relation to the Company under Listing Rule 5.4.2. Largest Security Holders (as at 30 April 2013)
Rank Holder Name Shares % 1 Infratil Limited 159,215,388 50.42% 2 TECT Holdings Limited 103,878,838 32.90% 3 BNP Paribas Nominees (NZ) Limited* 2,592,202 0.82% 4 Custodial Services Limited A/C 3 2,376,118 0.75% 5 Accident Compensation Corporation* 1,490,790 0.47% 6 Custodial Services Limited A/C 2 1,131,833 0.36% 7 National Nominees New Zealand Limited* 1,080,730 0.34% 8 New Zealand Superannuation Fund Nominees Limited* 930,021 0.29% 9 Citibank Nominees (New Zealand) Limited* 922,541 0.29% 10 Custodial Services Limited A/C 18 829,218 0.26% 11 Custodial Services Limited A/C 4 633,291 0.20% 12 Custodial Services Limited A/C 1 524,288 0.17% 13 TEA Custodians Limited* 416,532 0.13% 14 FNZ Custodians Limited 410,583 0.13% 15 New Zealand Permanent Trustees Limited* 314,000 0.10% 16 Forsyth Barr Custodians Limited 1-33 266,207 0.08% 17 New Zealand Depository Nominee Limited A/C 1 256,884 0.08% 18 Brett Anthony Hart & Lynn Marion Fitness & Judith Louise Burney (Whakaaro Account) 240,000 0.08% 19 Custodial Services Limited A/C 16 216,693 0.07% 20 Brett Anthony Hart 200,000 0.06% 277,926,157 88.00% * These names are registered in the name of New Zealand Central Securities Depository Limited.
Rank Holder Name Subordinated Bonds % 1 Custodial Services Limited A/C 3 21,045,000 7.14% 2 Forsyth Barr Custodians Limited 1-33 10,623,000 3.60% 3 Custodial Services Limited A/C 2 10,160,000 3.45% 4 FNZ Custodians Limited 9,702,000 3.29% 5 Investment Custodial Services Limited A/C C 6,410,000 2.17% 6 Forsyth Barr Custodians Limited 1-17.5 6,247,000 2.12% 7 Custodial Services Limited A/C 18 5,720,000 1.94% 8 Custodial Services Limited A/C 1 3,600,000 1.22% 9 Custodial Services Limited A/C 4 3,570,000 1.21% 10 BNP Paribas Nominees (NZ) Limited* 3,310,000 1.12% 11 Eastern Central Community Trust Inc 2,750,000 0.93% 12 Forsyth Barr Custodians Limited 1-30 2,659,000 0.90% 13 NZPT Custodians (Grosvenor) Limited* 2,397,000 0.81% 14 New Zealand Methodist Trust Association 2,000,000 0.68% 15 Sterling Holdings Limited 1,827,000 0.62% 16 Citibank Nominees (New Zealand) Limited* 1,561,000 0.53% 17 Forsyth Barr Custodians Limited 1-28 1,479,000 0.50% 18 Forsyth Barr Custodians Limited Account 1 E 1,355,000 0.46% 19 Custodial Services Limited A/C 16 1,348,000 0.46% 20 Lynette Therese Erceg & Darryl Edward Gregory & Catherine Agnes Quinn (Saint Jude’s A/C) 1,082,000 0.37% 98,845,000 33.54% * These names are registered in the name of New Zealand Central Securities Depository Limited. TRUSTPOWER ANNUAL REPORT 2013 81
Directory
Board of Directors Auditors Bruce J Harker – Chairman PricewaterhouseCoopers Richard Hammond Aitken 188 Quay Street Marko Bogoievski Auckland 1142 Michael J Cooney I Sam Knowles Share Registrar Geoffrey JC Swier Computershare Investor Services Limited 159 Hurstmere Road Registered Office Takapuna TrustPower Building Private Bag 92119 Truman Lane Auckland 1142 RD 5 Telephone: 09 488 8700 Tauranga 3175 Facsimile: 09 488 8787 Website Shareholders with enquiries about transactions, change of address or www.trustpower.co.nz dividend payments should contact the Share Registrar. Email Address Stock Exchange Listing [email protected] New Zealand Exchange Limited Level 2 NZX Centre Postal Address 11 Cable Street Wellington 6011 Private Bag 12023 Tauranga Mail Centre Tauranga 3143 Telephone: 07 574 4800 Facsimile: 07 574 4825
Financial Calendar
Annual Meeting 26 July 2013 First quarter operating information 26 July 2013 Payment September bond interest 16 September 2013 Half year announcement 5 November 2013 Record date interim dividend 29 November 2013 Payment interim dividend 13 December 2013 Payment December bond interest 16 December 2013 Third quarter operating information 31 January 2014 Payment of March bond interest 17 March 2013 Full year announcement 9 May 2014 Record date of final dividend 30 May 2014 Payment of final dividend 13 June 2014 Payment of June bond interest 16 June 2014 Annual report due 27 June 2014