ANNUAL REPORT POWERCO HAS GROWN TO BECOME NEW ZEALAND’S LARGEST GAS DISTRIBUTION COMPANY A N D SECOND LARGEST

CONTENTS

1 HIGHLIGHTS OF 2003-2004 39 FINANCIAL STATEMENTS 2 FINANCIAL PERFORMANCE AND KEY RATIOS 40 STATEMENT OF FINANCIAL PERFORMANCE 4 CHAIRMAN’S LETTER 40 STATEMENT OF MOVEMENTS IN EQUITY 10 CHIEF EXECUTIVE’S REVIEW 41 STATEMENT OF FINANCIAL POSITION 18 NEW ZEALAND AND AUSTRALIA BUSINESS PROFILES 42 STATEMENT OF CASH FLOWS 20 LINE CHARGES 44 RECONCILIATION OF OPERATING SURPLUS AFTER TAXATION WITH CASH INFLOW FROM OPERATING 21 NEW PRICE REGULATIONS ACTIVITIES 22 NETWORK RELIABILITY 45 STATEMENT OF ACCOUNTING POLICIES 24 FEBRUARY STORMS 47 NOTES TO FINANCIAL STATEMENTS 25 TASMANIAN NETWORK 63 AUDITOR’S REPORT 26 BOARD OF DIRECTORS 64 STATUTORY INFORMATION 28 EXECUTIVE MANAGEMENT TEAM 73 DIRECTORY 30 CORPORATE GOVERNANCE 35 DIRECTORS’ INFORMATION

FINANCIAL CALENDAR

18 June 2004 2003-04 final dividend payment Mid December 2004 2003-04 interim dividend payment

29 June 2004 Guaranteed bond interest payment 29 December 2004 Guaranteed bond interest payment

27 July 2004 Shareholders’ annual meeting 22 February 2005 Capital bond interest payment

23 August 2004 Capital bond interest payment 1 March 2005 Redeemable fixed coupon bond 1 September 2004 Redeemable fixed coupon bond interest payment interest payment 29 March 2005 Guaranteed bond interest payment

29 September 2004 Guaranteed bond interest payment This Annual Report is dated 16 June 2004 and is signed on Mid November 2004 2003-04 interim report behalf of the Board by:

22 November 2004 Capital bond interest payment

Barry Upson Ian Lobb Chairman Deputy Chairman POWERCO LIMITED 1 ANNUAL REPORT 2004 in 2003-04

2003-04

Comprehensive update in corporate governance – Powerco demonstrates best practice. Comprehensive update in corporate governance – Powerco EBITDA of $190 million. EBITDA Annual dividend increased to 16 cents per share. on track – agreement reached for stage 2 growth. gas network rollout Tasmanian Operating efficiencies across the enlarged group – progress from successful business acquisitions. Debt refinancing successes – bond issues oversubscribed in United States and New Zealand. praised for strength in systems, 2004 storms – Powerco Rapid and effective response to February people and approach. improved outcome. input contributed to New electricity regulations – Powerco

increased • • • • • • • HIGHLIGHTSOF • Powerco is a NZX-listed company with total assets of $1.71 billion. is a NZX-listed Powerco is focused on the safe, reliable and economically-efficient Powerco distribution of energy and on sustained growth in value to shareholders. New Zealand. distribution has grown to become New Zealand’s largest gas Powerco distributor. company and second largest electricity Powerco owns and operates major electricity and gas networks in New owns and operates major electricity and gas networks Powerco Zealand, and has a new-opportunity gas network under development network and utility services businesses in It also has energy in Tasmania. and operates its asset management in New Zealand and Queensland Powerco is a strongly performing energy distribution company. Powerco EBITDA and dividend EBITDA ELECTRICTY DISTRIBUTOR. POWERCO LIMITED 3 ANNUAL REPORT 2004 1 N/A N/A 1.4x 2.6x 2001 2001 2001 $000 $000 10.6c 12.5c $1.88 3,294 41.3% 19.9% 67,400 99,073 15,849 26,940 23,646 27,805 740,744 418,277 306,202 319,817 141,862 31 MARCH 31 MARCH 31 MARCH

2002 2.1x 3.1x 2002 $000 2002 $000 14.8c 15.8c 13.1c $1.88 48.8% 20.9% (1,958) 89,700 28,482 31,019 32,965 61,794 29,139 867,576 420,956 423,081 446,620 162,652 103,151 31 MARCH 31 MARCH 31 MARCH

14c 2003 1.7x 2.7x 2003 $000 2003 $000 AND KEY RATIOS 14.6c 12.3c $1.83 60.0% 17.8% 53,714 27,376 38,054 71,176 38,641 (10,678) 127,200 578,523 228,305 147,215 31 MARCH 31 MARCH 31 MARCH 1,716,815 1,091,241 1,138,292

16c 2004 1.7x 2.6x $000 $000 2004 2004 8.72c 14.5c $1.75 60.0% 19.1% 79,542 42,928 15,358 27,570 50,589 190,000 558,779 324,446 201,976 106,487 31 MARCH 31 MARCH 31 MARCH 1,706,095 1,094,624 1,147,316

3 FINANCIAL PERFORMANCE

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Figures for the 2001 year are pro forma after adjustments to eliminate one-offFigures and costs associated with the amalgamation of Powerco CentralPower. issued US$175 million (NZ$294.3 million) in long term senior debt to institutional investors in the Powerco During the 2004 year, including 93,750,000 new shares issued in December 2002. issued capital at 31 March 2004 was 316,186,775 ordinary shares, Total United States and $250 million in medium and long term senior tradeable bonds to New Zealand investors. The issues were part of a United States and $250 million in medium and long term senior tradeable bonds to New Zealand nance existing debt. programme to refi

2 3 1 POWERCO LIMITED ANNUAL REPORT 2004 Pretax interest coverage Pretax Funds from operations interest coverage Funds from operations to total debt Funds Net senior debt to total capital Earnings per share Dividends declared per share Net tangible asset backing per share Ratios FOR THE YEAR ENDED Free cash fl ow per share cash fl Free

Net profi t after tax Net profi

Total assets Total Shareholders’ equity Net interest bearing debt Balance Sheet AS AT Total operating revenues Total Net interest expense Net earnings before tax FOR THE YEAR ENDED EBITDA tax expenses (credit) Total ow from operations Net cash fl

Total dividends payable Total Total liabilities Total Total operating expenses Total

POWERCO LIMITED 22 ANNUAL REPORT 2004 POWERCO LIMITED 33 ANNUAL REPORT 2004 � � � � � � � � � � � � POWERCO LIMITED ANNUAL REPORT 2004 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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POWERCO LIMITED 2 ANNUAL REPORT 2004 POWERCO LIMITED 5 ANNUAL REPORT 2004 CHAIRMAN’S LETTER

POWERCO LIMITED 4 ANNUAL REPORT 2004 POWERCO LIMITED 5 ANNUAL REPORT 2004 , Deloitte, t arising from tax virtual certainty” that electricity and gas distribution.” electricity Barry Upson position at the forefront of position at

“We have consolidated our consolidated our have “We one accounting period to the next. Current accounting practice requires “ one accounting period to the next. Current accounting practice future income tax benefit assets are realisable, which requires “virtual certainty” that there will Act test. Tax be sufficient shareholder continuity to satisfy the Income The consequence of this announcement was discussed with the Company Auditor The consequence of this announcement was discussed with the tax benefi who advised that the previous practice of recognising the future was no longer appropriate. The Position losses as an asset in the Statement of Financial to be carried forward from Act requires 49% shareholder continuity for tax losses Income Tax time of our new equity raising in November 2002. However, since that date, the three major time of our new equity raising in November 2002. However, announced that they are shareholders, holding a combined 53.64% in the Company have shares. considering divesting their shares and are seeking offers for their behalf of energy users, especially when Powerco’s network areas were battered by the worst network when Powerco’s behalf of energy users, especially 2004. storms in decades during February particularly Net profit after tax for the year was reported on 27 April at $55.1m. It was by the Company at the pleasing to note that this was ahead of the $53.6m forecast issued Dear Shareholders 2003-04, During Powerco. by performance strong of year another on report to pleased am I at the forefront of electricity and gas distribution in the Company consolidated its position growth objectives. It was also a year of achievement on New Zealand, and delivered on

POWERCO LIMITED 4 ANNUAL REPORT 2004 POWERCO LIMITED 7 ANNUAL REPORT 2004 OF HOW THEIR COMPANY RESPONDED. B E P R O U D OF CUSTOMERS ON OUR NETWORKS. SHAREHOLDERS CAN

affected customers how their Company responded. Our line crews, managers and contractors worked round staff, the clock to restore power to nearly 100,000 affected customers and protect the public. Our people were out there in the midst of the flooding and devastation that flashed across the nation’s The storms and TV screens for much of February. implemented for the 2007 annual accounts, will implemented for the 2007 annual accounts, to account for deferred taxation require Powerco on a total liability basis (comprehensive method) which will have the effect of reducing accounting profits but will have no effect on cash earnings. The Company is currently preparing for the impact arising from these new accounting standards. performance was achieved strong Powerco’s despite pressure on costs and revenues from a number of adverse events during the course of 2003-04. The year started with an electricity supply crisis, followed by a national electricity conservation campaign, which had the effect of reducing our volumes. Revenue and earnings were under budget for the first quarter ended 30 June 2003, but recovered during subsequent quarters. 2004 storms, described by NIWA The February to be “one for the record books” and judged an “extreme event” by the Commerce Commission, and, of course, had a major impact on Powerco disrupted the lives of thousands of customers on our networks. Shareholders can be proud of over 40 years will never materialize, a position over 40 years will never materialize, a position that has not changed at this time. The proposed international accounting standards, to be

We restored power to nearly restored power to We 100,000 HAD A MAJOR IMPACT ON POWERCO AND, OF COURSE, DISRUPTED THE LIVES OF THOUSANDS company depreciation costs on network assets are not included in the deferred taxation calculation. The Company has consistently held the view that deferred taxation on network assets with lives the previous year 14 cps and consistent with our November 2002 forecast. has continued its current practice of Powerco accounting for deferred taxation on the partial liability basis (partial method). The effect of this is that timing benefits arising from taxation versus effect on the cash earnings of the Company. effect on the cash earnings of the Company. On the strength of the company result, Powerco declared a final dividend of 8.8 cents per share (cps) payable on 18 June 2004 to all shareholders on the register as at 4 June. This will bring to 16 cps the full dividend for 2003-04, up from their shares or sufficient shareholder continuity their shares or sufficient shareholder continuity will not lose the future is maintained, Powerco income tax benefit asset and the above accounting adjustment will be reconsidered when the next set of financial statements are prepared. It is important to note that this change had no losses to 31 March 2004 previously calculated losses to 31 March 2004 previously calculated amounting to $27.6m. This reduced our previously announced net profit after tax result from $55.1m to $27.6m as well as reducing total assets and shareholders’ equity by the same amount. If major shareholders do not sell three Powerco’s The Board has concurred with Deloitte that there The Board has concurred with Deloitte that there is no longer virtual certainty that the shareholder continuity threshold will be maintained and thus had to reflect this impact in the current year’s was result and advise the market. The full impact tax to reverse the cumulative benefit arising from FEBRUARY 2004 STORMS T H E

POWERCO LIMITED 6 ANNUAL REPORT 2004 POWERCO LIMITED 7 ANNUAL REPORT 2004 industries. The alternatives are greater cost being carried by customers, or a rundown in the nation’s networks, with escalating risk of sudden and catastrophic system failure costing well in excess of any incremental savings from regulation. This, of course, is what happened to many cities across the world during the past 18 months with material equal or greater to this amount as a result of the equal or greater to this amount as a result of regulatory regime now implemented for electricity lines companies. and Quality Path Price The Commission’s Threshold regulation has been set at a level which is less severe than that initially proposed. But we continue to have grave misgivings about the methodology used to assign particular price The path thresholds to different lines companies. methodology does not take sufficient account of the relatively low connection density and networks and the consumption rate on Powerco’s wide geographical spread of our networks. These that are factors have cost implications for Powerco simply not present for lines companies operating predominantly urban networks. The major concern with regulation is the risk that it will create consequential disincentives for infrastructure investment. Under a regulatory regime, investment becomes the only variable, and as such is severely at risk. Unless revenues and profits are sufficiently adjusted for risk, new and replacement capital will not flow into the asset base of both the electricity and gas distribution that regulatory processes are themselves imposing that regulatory processes are themselves imposing unnecessary cost on our business. I question whether customers will receive net benefits OF HOW THEIR COMPANY RESPONDED. B E P R O U D

annum only four years ago. is very focused on cost control and Powerco and on meeting the operating efficiency, expectations of customers. It is, therefore, ironic but we are ever mindful of the associated costs. Indeed, our profit result for 2003-04 was achieved despite an escalation in regulatory compliance costs, government policy related costs and statutory levies during the year to more than $5 million, up from less than $500,000 per inquiry into the gas pipelines sector continues. The electricity regulatory regime has been designed to ensure that uncontrollable costs (such as rates) are not counted as part of the revenues Powerco takes that lines firms are allowed to earn. a responsible approach on all regulatory matters Additional cost pressures came with the need Additional cost pressures came with the need for continued engagement with the Commerce Commission and Government on a range of regulatory and energy policy matters. The process for regulating electricity Commission’s distribution finally reached a conclusion, but its shareholders, I pay a tribute to Powerco people shareholders, I pay a tribute to Powerco in the and contractors for their dedication and skill face of adversity. The storms obviously had a revenue impact on repair and recovery operations with Powerco, year. adding more than $1 million to costs for the resultant devastation required our Company to utilise all resources at our disposal for a continuous four week period. Clean up continued for months following the storm. Deep appreciation for the efforts of our staff has come from the Board and customers and communities. From

OF CUSTOMERS ON OUR NETWORKS. SHAREHOLDERS CAN

HAD A MAJOR IMPACT ON POWERCO AND, OF COURSE, DISRUPTED THE LIVES OF THOUSANDS FEBRUARY 2004 STORMS T H E

POWERCO LIMITED 6 ANNUAL REPORT 2004 POWERCO LIMITED 9 ANNUAL REPORT 2004 � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � senior debt with United States institutional investors undertaking in November 2003, a market-leading A which has proved successful for Powerco. major benefit of sourcing funds from the United States market is that longer maturity profiles can be obtained compared with the New Zealand support there for investment in business. The The business. in investment for there support carries certainly environment business Tasmanian Powerco. as such companies for risk less barriers of tide rising a about concerned remain I of form the in business Zealand New all for and law employment to changes restrictive We processes. consent resource complex overly and entrepreneurship innovation, inhibiting risk if ask to have We industries. many in investment social and economic for route smartest the is this heavily country isolated small, a in development competitiveness. export on reliant business in been has Powerco months, recent In the Holdings, NGC with discussions development Zealand. New in operator system transmission gas and us, between proposals firm no are There April in talks the disclosing of step the took Powerco outcomes, what on comment to soon too is It 2004. talks. the from result might any, if Powerco’s of strength the see to pleasing was It during markets capital in recognised business 2003-04. The Company placed $294.3 (US$175) million of Powerco shareholders. It must be noted that we are are we that noted be must It shareholders. Powerco large in Tasmania in successfully so operate to able Government strong such is there because part � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � confines of the domestic market, and our project in in project our and market, domestic the of confines both results excellent deliver to track on is Tasmania to and economy, and community Tasmanian the to rational approach to gas regulation. is Powerco distribution, energy in leader a As its of renewal and maintenance to committed for strategy business clear a of part as networks in investment network gas our see We future. the the outside diversification excellent an as Tasmania expand the market and open gas as a real energy choice for more people. Consumers using gas as the primary energy fuel is more efficient than these burning gas for electricity generation. For reasons, we believe the Commerce Commission consultation process will result in an informed and direct supply of gas to the residential and small direct supply of gas to the residential and small commercial sectors. Where gas is available, it is fuel LPG, a competitive alternative to electricity, oil, and firewood. The problem is, that it is only available to one household in eight. The nation needs substantial investment in more networks to for renewal and growth. In gas pipelines, New Zealand’s real need is infrastructure investment – not regulatory controls recent of the type proposed in the Commission’s gas draft report. The concern about availability of relates to power generation, and does not affect economic and social costs borne by business economic and social costs borne by business the and consumers. The same issue now plagues has cut generation sector where under-investment reserves to the point of crisis during a dry winter. very wary of regulation that begins should be We starving energy distribution of the capital required

POWERCO LIMITED 8 ANNUAL REPORT 2004 POWERCO LIMITED 9 ANNUAL REPORT 2004 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Barry Upson Chairman 17 June 2004 Charter. Four years ago, this Company was Four Charter. own among the first in New Zealand to have its this document has charter and over the past year, by been reviewed and updated in light of initiatives development the NZX, the Securities Commission’s of Governance Standards and others. on corporate governance report fully We developments from page 30 onwards. is in sound In conclusion, I can report that Powerco shape, both financially and operationally for have strong governance 2004-05 and beyond. We and management, sound business strategies I thank and highly capable, committed staff. people for their contribution to the all Powerco pleasing results of 2003-04. Our primary focus for the coming year is to strengthen the business operations and develop I have every on both sides of the Tasman. Powerco confidence in the Company’s continued delivery to all our stakeholders. Powerco continues to place a strong emphasis on continues Powerco effective corporate governance, with the Board recently adopting a revised Corporate Governance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � � � � the appropriate time, should a sale agreement on those shares trigger provisions of the Code. Takeovers At the time of writing, New Plymouth District and Powerco Energy Council,Trust Taranaki are seeking offers Trust Wanganui for their combined shareholding ofin 53.64%.Powerco I recognise this situation is unsettling for staff and for the Company’s other shareholders. The Board will comment and provide advice at In the equities market, Powerco continued to deliver deliver to continued Powerco market, equities the In above significantly value in growth shareholders to and appreciation price Share market. general the to return gross 32.5% a represented paid dividends 2004. May 31 ended year the over shareholders requirements. Both of the debt issues described described issues debt the of Both requirements. of restructuring the in greatly assisted above sources the increasing debt, existing Powerco’s and overseas, from and local both funding, of as well as debt the of profile maturity the spreading funds. of cost overall the lowering the Company. the Company. the year financial the of beginning the At the for Policy Treasury new a approved Board The portfolio. debt Powerco’s of management requirements profile hedging our determines policy sourcing and profile maturity debt the as well as market. And there was heavy demand for our most market. And there was heavy demand for our the recent $250 million guaranteed bond issue to a local market. These bonds are guaranteed by specialist United States based financial guaranty risk organisation providing bondholders with less to whilst achieving an overall lower cost of funds

POWERCO LIMITED 8 ANNUAL REPORT 2004 POWERCO LIMITED 1 ANNUAL REPORT 2004 1 CHIEF EXECUTIVE’S REVIEW

POWERCO LIMITED 0 ANNUAL REPORT 2004 1 POWERCO LIMITED 1 ANNUAL REPORT 2004 1 consolidation and organic growth.” and organic consolidation Steven Boulton phase in our development – our development phase in 2004 Powerco’s systems, staff and other resources received their greatest test ever in the form form the in ever test greatest their received resources other and staff systems, Powerco’s 2004 colours. flying with passed and – storms February devastating the of 2002-03, and the roll out of a new gas network business in Tasmania. in business network gas new a of out roll the and 2002-03, continue we time same the At track. on well are we that confirm year the for results Overall with progress achieving and strongly contributing industry, our in role leadership a take to early in And businesses. distribution gas and electricity all affect that processes regulatory the Powerco is building on its success at growing earnings and acquiring scale in New Zealand Zealand New in scale acquiring and earnings growing at success its on building is Powerco Australia. and and consolidation – Company’s development the of phase next the began we 2003-04, In in acquisitions asset significant after operations, Zealand New enlarged our in growth organic

“In 2003-04 we began the next we began the “In 2003-04

POWERCO LIMITED 0 ANNUAL REPORT 2004 1 POWERCO LIMITED 3 ANNUAL REPORT 2004 1 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � retail and smaller commercial developments. Consumption growth also reflected dairy farm upgrades, and the installation of new irrigation and frost protection pumps for horticulture and the more general use by consumers of a range of useful home appliances. although some can be legitimately passed their through to consumers for the very reason of “uncontrollability”. The 2003-04 result included a rise in depreciation and interest charges, as and expected following the UNL asset acquisition restructuring of our balance sheet. NETWORK ELECTRICITYOPERATIONS considerable growth in experienced Powerco connections in some geographic areas during 2003-04, reflecting economic development of the regions we serve. In the Eastern Region, demand for new connections is being driven by subdivision and on of coastal land south west of Tauranga along with residential the Coromandel Peninsula, infilling in urban areas. Growth in new connections in this area is amongst the highest in the country. Our networks are also being extended to serve industrial and commercial growth in most areas. Across the Eastern Region, new connections were added during the year for meat, dairy and timber New Plymouth, processing plants. Tauranga, saw growth in North and Wanganui Palmerston levies also increased substantially on previous levies also increased substantially on previous years. These levies, regulatory and policy decision costs remain largely uncontrollable by companies, � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � � � contributed to the finalisation of the Commerce new regime for the electricity Commission’s Costs related to Government distribution sector. regulation and policy deployment and statutory operating costs, and overall, costs were in line Challenges in 2003-04 with budgets for the year. during networks our to damage severe the included 2004 storm, which added more than the February $1 million to operating costs. Regulatory processes were another area of increased cost as Powerco growth areas, compared with earlier years. Growth in total revenue also included the first contribution network business and gas from the new Tasmanian a modest gain from the sale of shares in Horizon Energy Distribution Limited. maintained strong focus on controlling Powerco benefited from improved economies of scale, benefited from improved economies of scale, greater diversification in revenues and a broader asset base. In 2003-04, total revenue grew by achieved 41.9% to $325.3 million, and Powerco significantly improved balance in the urban/rural customer mix and improved income streams from consolidation of the business assets acquired from UnitedNetworks Limited (UNL), compared with the five month period which contributed to the previous year’s result. the UNL assets on 1 November acquired Powerco has 2002 and since then the enlarged Company ANNUAL RESULT grewPowerco EBITDA (earnings before interest, tax, depreciation and amortisation) by 49% to $190 million in 2003-04, compared with $127.2 million in The the outstanding previous year. result was principally due to the first full 12-month

POWERCO LIMITED 2 ANNUAL REPORT 2004 1 POWERCO LIMITED 3 ANNUAL REPORT 2004 1 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � To respond to this situationTo introduced Powerco a fully variable pricing option which should provide an alternative to fixed charges and maintain low usage connections. several severe climate events, including multiple several severe climate events, including multiple heavy rainfall and damaging high wind events recorded over the month. ESCPPowerco’s rapidly put systems into operation for identifying and prioritising repair activity and for coordinating restoration work, often under atrocious weather conditions. employed Powerco robust systems for civil defence coordination and for timely communication with all affected parties. Our network managers, field staff and contractors performed exceptionally well in difficult circumstances. It has been very pleasing to see earnPowerco positive feedback from customers, the Ministry of Civil Defence and others for the effectiveness of its organisation and the work of its people. GAS management consolidated and reviewed Powerco 2003-04. during networks gas its across systems are positioningWe this business for future growth in residential and commercial markets. Total connection numbers declined slightly during the year largely from consumers who have low usage levels of gas deciding to disconnect. NIWA has reported that February 2004 was February has reported that NIWA an “extraordinary month in the history of New of Zealand climate”, noting that it was a month � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � storms struck the same areas two or three times. response was a great credit to the expertise and dedication of our people and a range of contractors supporting our business, and to our Electricity Supply Continuity Plan (ESCP). Over three weeks there were thousands of outages on the network – some repeated as the series of We continue our strong emphasis also on public We networks. safety and on the reliability of Powerco The standard reliability indicators for 2003-04 were, of course, impacted by the severe storms 2004 which caused widespread of February damage on the networks (see page 22). Powerco’s and this puts particular cost pressures on Powerco given the substantial geographical areas to be covered. The Company continues to perform well against our industry peers in terms of maintenance and operating costs per customer and per kilometre. asset life. Total asset managementasset life. expenditure Total for 2003-04 was $74.4 million, which included $48.8 million of capital expenditure. This level of expenditure is in line with previous years. Our networks are largely in rural areas with relatively low connection density and low consumption, Powerco continuesPowerco to make efficiencies in its network management, building on the capabilities of the Network Operations Centre established in New Plymouth in late 2002. The Company has a comprehensive asset management plan for maintaining and, where possible, extending

POWERCO LIMITED 2 ANNUAL REPORT 2004 1 POWERCO LIMITED 5 ANNUAL REPORT 2004 1 HAVE IN POWERCO’S OUTLOOK AND STRATEGY. US INVESTORS the Government provides a material capital to support the investment contribution to Powerco in the networks and a limited timeframe franchise provides additional risk mitigation for gas network investors. These investment benefits provided by a government focussed on economic development Launceston, Devonport and other parts of the State. First gas flowed to a processing plant at Longford in May 2004. to complete stage 1 in December expects Powerco on 2004, on time and on budget. This will deliver Government, our agreement with the Tasmanian which seeks gas distribution as a valuable addition has to the State’s economic development. Stage 1 a total build cost of approximately A$34 million and will link the Alinta (formerly Duke Energy) transmission system to most of the State’s large industrial sites located in major centres. In September 2003, we signed a conditional State Government agreement with the Tasmanian to add a second stage network that would extend from the stage 1 backbone network to provide supply to some 38,500 residential and small commercial gas users. Current planning is for to roll out this network by April 2007. Powerco with a Powerco provides Investing in Tasmania number of commercial opportunities not apparent does not have heavy in New Zealand. Tasmania handed regulation of gas distribution networks, of gas distribution services entered in the first months of the rollout. stage Powerco’s 1 network will provide natural gas into the cities of Hobart, specifies close management of interest rate risk management of interest rate specifies close treasury policy treasury WAS OVERSUBSCRIBED, REFLECTING THE CONFIDENCE THAT Powerco’s The response from potential industrial and large commercial customers has been very positive, with substantial commitments for the purchase TASMANIA Construction on a gas distribution network in began in NovemberTasmania 2003 and has proceeded according to plan, both in terms of budget and geographical rollout, since then. The February 2004 storms threatened disruption The February to the gas transmission line feeding our Hawkes worked closely Bay distribution network. Powerco with gas transmission company NGC to secure the co-operativeThe situation. a by adopted approach number of parties in this situation averted a crisis. processes to sharpen responsiveness to customer processes to sharpen responsiveness to customer requests for connections and we invested in upgrading gas networks, especially in parts of These upgrades enable suburban Wellington. higher customers to take advantage of the new, pressure gas appliances now becoming available. generation. There are certainly no real issues over generation. There are certainly no real issues and the availability of gas for supply to residential small commercial users over the longer term. Gas distribution is a competitive market and a strong focus on service quality for has Powerco we improved work gas users. During the year, Despite these issues, we see growth potential Despite these issues, we see growth potential for residential and commercial natural gas connections, as the advantages of this fuel are increasingly recognised in the target markets. The gas availability issues that are well known are predominantly related to gas for electricity SENIOR DEBT PLACEMENT T H E

POWERCO LIMITED 4 ANNUAL REPORT 2004 1 POWERCO LIMITED 5 ANNUAL REPORT 2004 1 However the success of our programme to date has substantially lengthened average debt maturity on our balance sheet and reduced to very manageable levels the refinancing that will be required each year from now on. borrowings, and our overall cost of debt. Highlights for the year in treasury management included the raising of $294.3 million in a private placement of 11-13 year term senior debt to United States institutional investors. The placement terms, was oversubscribed and issued on attractive have in reflecting the confidence that US investors and strategy. outlook Powerco’s In the local financialPowerco market and XL Capital Assurance Inc. (XLCA) this year completed NZ$250Powerco’s million issue of triple-A rated senior unsecured retailable medium-term bonds, for which XLCA provided a financial guarantee. This was the largest retailable tranche of triple-A bonds to be issued to the public to date in New Zealand. The longer term profile and maturities reflect owns and the type of asset base that Powerco treasury policy which specifies the Powerco’s close management of interest rate risk. Powerco’s business has largely predictable revenues and cost structures given the asset base in electricity have some further and gas infrastructure. We bank debt to refinance within the next 18 months. note and bond issues during 2003-04 take us a note and bond issues during 2003-04 take us long way towards the Company’s optimum debt of profile in terms of the sources and maturities with a major programme to refinance much of the debt on its enlarged balance sheet. Our successful near future. Focussing on profitable niche sections near future. Focussing of the contracting market will underpin the contribution from this part of the business. BALANCE has followed the UNL assets acquisitions Powerco SHEET the Queensland field services business created through our acquisitions during the previous year. Queensland is one of the fastest growing states in Australia. The business is well placed to benefit from an expected increase in major infrastructure spending by State and local authorities in the of operating costs. The New Zealand business of operating costs. The New Zealand business in 2003 to established a new base in Tauranga Region. Eastern our in growth network in participate During 2003-04, cost reductions were achieved in Energy Services Pty Ltd (previously called Powerco Australian Holdings Pty Ltd) Limited, Powerco the medium and longer terms. ENERGY SERVICES Services businesses on both Energy Powerco’s remain focused on clearly sides of the Tasman control tight on and opportunities growth identified are attractive to commercial investors like Powerco, are attractive to commercial investors like Powerco, are incremental in terms of capital required and key competency they are consistent with Powerco’s in owning and operating energy infrastructure. as an excellent seeing Tasmania continue We over manageable growth opportunity for Powerco HAVE IN POWERCO’S OUTLOOK AND STRATEGY. US INVESTORS WAS OVERSUBSCRIBED, REFLECTING THE CONFIDENCE THAT SENIOR DEBT PLACEMENT T H E

POWERCO LIMITED 4 ANNUAL REPORT 2004 1 POWERCO LIMITED 7 ANNUAL REPORT 2004 1 safety remain key areas of management focus. workstream which has been underway for some months, and which will progress further in 2004- 05: and the possible regulation of gas distribution is, once again, contributing transmission. Powerco to the industry debate with international independent expert analysis and a range of sound perspectives to this process. The Commission by must deliver final recommendations to Cabinet November 2004. Gas is, of course, a competitive alternative to firewood and other energy forms. LPG, electricity, Consumers have a range of options on whether to use gas or not, so gas distribution is by no this reason many means a monopoly service. For market analysts and observers are agreed that there is no case to be made for special regulation remain confident that a of gas distribution. We well informed and rational view of the market, and of the ongoing requirements for investment, will emerge in final recommendations to the Government. PEOPLE Employee development, training and workplace We have recently announced that the Company, that the Company, have recently announced We other lines companies, was along with 10 or more price path for 2003-04. in breach of the initial to the calculation The technical breach relates year and the inclusion of average price for the costs such in this calculation of uncontrollable and rates applied to as transmission charges In fact, Powerco’s our assets by local councils. at all in the period. line charges did not increase this as part believe the Commission will see We Path into the new Price of a complex transition Threshold regime and respond accordingly. The February 2004 storms also caused Powerco to breach the network reliability criterion along with many other companies, but the Commerce Commission has already indicated it will consider the weather factors associated with these rare and extreme storms which materially contributed to the breach. It’s important to also note here another regulation Commission’s processes and methodology in Commission’s determining these decisions and will continue to constructively discuss these concerns with the Commission (see page 21). efficiency, on restraint in any line charge increases on efficiency, and on network reliability – the very objectives of Path Price note that the final the regulation. We Thresholds are less arduous than those initially proposed by the Commerce Commission, with all lines companies now working towards compliance remain concerned at the with the regime. We settings on prices and service quality for all electricity lines companies. The Commerce Commission decisions on these came after a long, at times arduous, process of regulatory review in played a proactive and constructive which Powerco operating on focused long has Company This role. of restrictive regulatory practices. Australia also of restrictive regulatory practices. Australia also has an abundant supply of gas with known gas reserves for more than 100 years’ consumption. REGULATION 2004-05 with new regulatory have begun We for similar projects in mainland Australia, where for similar projects in mainland Australia, where State or local authorities look to drive economic of development through extending the availability natural gas. Greenfield opportunities are generally more conducive to the provision of capital contribution from governments and the loosening number of other parties on opportunities in the number of other parties on opportunities in the energy markets of New Zealand and Australia. The Company has commercial and technical of development strengths in the “greenfields” in gas networks, as is now being demonstrated opportunities at look to continue will We Tasmania. Holdings on matters of mutual interest, looking Holdings on matters of growth options. These at a range of possible early stage and discussions remain at an and NGC Powerco substantial issues for both final negotiation of need to be clarified before to talk with a will continue any agreements. We BUSINESS selected continues to explore various Powerco DEVELOPMENTopportunities in both business development announced have recently electricity and gas. We with NGC that we have been in discussions

POWERCO LIMITED 6 ANNUAL REPORT 2004 1 POWERCO LIMITED 7 ANNUAL REPORT 2004 1 making in Powerco programmes for asset making in Powerco maintenance and replacement. is our major business development Tasmania initiative and we look forward to final agreement is on a stage 2 network in the near future. Powerco that supports establishing a presence in Tasmania value our strategy for diversification and growth in Zealand, we continue In New over the long-term. to look at opportunities for further rationalisation in electricity and gas distribution. The Company is well placed to move in this direction without diminishing our major focus on consolidation and organic growth. Steven Boulton Chief Executive 17 June 2004 OUTLOOK year ahead has a clear objective for the Powerco our existing businesses – to grow the value of tighter application and strengthen them through foresee We making. of systems and decision now occurring in a continuation of growth on our electricity connections and volumes continue working for growth networks. And we will volumes, recognising that in gas connections and by under-utilised this is a valuable fuel significantly households and small-to-medium-sized businesses within our existing network areas. Regulatory matters will remain an important concern for the Board and management. Powerco will devote reasonable time and resources to processes, assist the Commerce Commission’s in anticipation of fair and reasonable outcomes. This year will see major investment in information technology to strengthen network data gathering and analysis, and to enable best practice decision storms of February 2004. storms of February Our involvement with the development agencies Healthy Homes and with projects like Wairarapa Powerco’s commitment to is further reflection of people in our regions – a commitment that is most evident everyday in how we do business and especially so in times of adversity as during the the project is rolled out further in 2004-05. More than 400 households are expected to benefit from additional insulation and energy efficiency measures that contribute to better health outcomes for residents, to reduced power bills, and to national energy efficiency objectives. interest in energy-related projects in the regions, interest in energy-related Healthy Homes most notably the Wairarapa project which was successfully piloted with initial are pleased to continue We funding from Powerco. giving support along with the Energy Efficiency and Conservation Authority and local bodies as economies in which Powerco operates. During economies in which Powerco 2003-04, the Company made further financial Enterprise Taranaki, contributions to Venture and Vision Manawatu, Wairarapa Go Wanganui, and supported these agencies’ business have a special development programmes. We help streamline decision making and contribute to help streamline decision making and contribute drive for reduction in costs and ongoing Powerco’s improvement in service delivery. REGIONALsupport development of the regional actively We DEVELOPMENT Team being reduced from 10 to seven. This is Team a tightly focused group in which the executive oversight of network operations and asset management has been combined, and the new Commercial and role of General Manager, Corporate added. These changed accountabilities apprenticeships with the Company. During the year Company. apprenticeships with the lost time the Company recorded nine under review, a positive trend in this injuries, which continues safety. critical indicator of workplace have recently re-aligned some accountabilities We in senior management, with the Senior Executive At 31 March 2004, Powerco had 515 full-time had 515 At 31 March 2004, Powerco including 143 in Australia. equivalent employees, individual employees The Company is assisting wide qualifications in a to attain work-related people on We also have 12 range of fields.

POWERCO LIMITED 6 ANNUAL REPORT 2004 1 POWERCO LIMITED 9 ANNUAL REPORT 2004 1 29 1,250 29 ������ �������� ������� � ���������� � ������� �� � ��������������� ���������� � NEW ZEALAND KEY FACTS connections: electricity Total ������� ������������ BUSINESS PROFILE OF Note: The gas networks are splintered within the operating regions. They serve individual towns/ settlements and are not joined up like electricity networks. NEW ZEALANDSERVICES CONTRACTING Energy Services provides electricity and gas Powerco and network build and maintenance services to Powerco to other network owners in New Zealand. The business North, Palmerston operates in New Plymouth, Wanganui, Hastings, Napier and Tauranga. Wellington, Central Gas and Hutt Valley Gas networks in parts of Wellington, and in the main centres in the Horowhenua, Porirua, Manawatu and Hawkes Bay regions. Electricity networks in Taranaki, Wanganui and Wanganui Electricity networks in Taranaki, Gas surrounding areas, Manawatu and Wairarapa. networks in Taranaki. Eastern Powerco and surrounding areas, Electricity networks in Tauranga surrounding areas Thames and south-eastern Waikato, and the Coromandel Peninsula. The electricity networks are a combination of overhead The electricity networks are a combination of overhead points and underground lines between National Grid exit gas and customer premises. The gas networks distribute drawn off the transmission system of NGC Holdings. network areas are: Powerco Principal Western Powerco NEW ZEALAND to large has extended its operating territory Powerco NETWORKS areas of the North Island through the amalgamation and acquisition of various electricity and gas distribution businesses since 1993. gas customers respectively. gas customers respectively. Powerco is the second largest electricity distribution company in New Zealand company in New Zealand second largest electricity distribution is the Powerco utility is one of only two such in natural gas distribution. Powerco and the largest networks. Powerco both gas and electricity operating country, businesses in the of New Zealand’s electricity and to approximately 16% and 46% delivers energy 8 POWERCO LIMITED 8 ANNUAL REPORT 2004 1 1 9 POWERCO LIMITED 9 ANNUAL REPORT 2004 1 1 Coast

d l Go BrisbaneB Sydney CANBERRA Hobart Melbourne 107,300 Total gas connections: gas Total

Electricity distribution network Gas distribution network Contractor gas or electricity field services

NEW ZEALANDOPERATIONS AND AUSTRALIA KEY firms purchased by Powerco in 2002 and the previously firms purchased by acquired business of S&D Powerlines. eastern Queensland, including Brisbane and the Gold Coast. The business includes installation and maintenance of underground and overhead networks, maintenance of streetlight systems, and contracted service to large industrial sites. Australian Holdings combines three contracting Powerco More information on the Tasmanian operation is included More information on the Tasmanian on page 25. Queensland Australian Holdings subsidiary Powerco Powerco Full Pty Limited undertakes a range of civil and electrical engineering work on lines and pipes networks in south Stage 1 of the network is due for completion in December Stage 1 of the network is due for completion in December 2004. The network is being located in the cities of Hobart, and other centres of and Devonport, Launceston population. On completion, the stage 1 network will assets. represent 2% of total Powerco Tasmania The network is owned and operated by Powerco in Hobart. based Pty Limited, a full subsidiary of Powerco, AUSTRALIANTasmania OPERATIONS gas distribution network will initially serve The Tasmanian more than 20 industrial and large commercial customers. Powerco has contracting businesses for network installation and maintenance in has contracting businesses for network installation Powerco New Zealand and south-eastern Queensland, Australia. Powerco is developing a natural gas distribution network in Tasmania for the for network in Tasmania a natural gas distribution is developing Powerco through a submarine in that State of gas supplied first delivery to customers in network is due for completion Australia. Stage 1 of the pipeline from mainland thereafter. with construction of stage 2 expected December 2004, 29 1,250 29 Total electricity connections: connections: electricity Total

POWERCO LIMITED 8 ANNUAL REPORT 2004 1 POWERCO LIMITED 1 ANNUAL REPORT 2004 2 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � distribution and transmission components of an average residential customer’s monthly account (consuming 8000 KWh annually). Analysis of the power bill to a typical household shows a significant decline in the proportion contributed by electricity distribution and transmission charges. Since 1999, the distribution and transmission proportion per KWh has declined from 56% to 51% of the total bill (see chart right) while the total bill has increased by 11.6% in nominal terms. Powerco expects to continue this strong performance for customers – and to ensure that line charge movements are, overall, within the Price ThresholdPath regulations set for Powerco (as far as possible, taking into account uncontrollable costs to Powerco). The regulations will limit changes in the average level of all Powerco’s lines charges (and those of other lines companies), calculated across all types of For customer. 2004-05, Powerco expects to reduce this average price in real terms. � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � price increases by generator and retailer companies, with virtually no movement in the significantly in nominal terms since 1999, at the same time that the price for having electricity delivered to the home has increased only slightly. householdTotal electricity bills are certainly rising. But it’s important to note that this reflects for a typical residential customer (consuming 8000 KWh annually) has fallen by 8.1% since 1999. Even without CPI adjustment, electricity distribution prices have remained largely stable, particularly in comparison with other household costs. As the chart (above) shows, other standard items of household expenditure have increased on Powerco’s electricity networks, this has meant significant real reductions in line charges. These line charges are billed to retailers who then bill customers. For instance, the average real daily line charge LINE CHARGES Powerco has a strong record of achieving efficiency gains in its business and maintaining stable prices for customers. For most households

POWERCO LIMITED 0 ANNUAL REPORT 2004 2 POWERCO LIMITED 1 ANNUAL REPORT 2004 2 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � to each of the 29 lines companies (including the is Powerco transmission Transpower). company, one of nine companies assigned an ‘x’ of 2. If annual inflation for 2004-05 is 1.5%*, then CPI – x will equate to -0.5%. In other words, the Price ThresholdPath would require to adjustPowerco its average price down by this amount during the year. Threshold Path Price the adopted Commission The approach and assigned particular ‘x’ figures after a lengthy inquiry into electricity distribution and transmission. The ‘x’ figure is indicative of a productivity gains that each company is expected to make over time. * This was the actual CPI movement from the March quarter 2003 to the March quarter 2004. The Threshold level is set according to CPI-x, where ‘x’ is a figure of 0, 1, or 2. The Commission has assigned a particular ‘x’ � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � in relation to New Zealand’s inflation rate as Index (CPI). measured by the Consumers Price NEW PRICE Path The Commerce Commission has set a Price REGULATIONSThreshold for electricity lines companies over five years, beginning 1 April 2004. The new regulations will require companies to ensure that annual changes in their average price are limited average price for the year. In fact, Powerco line In fact, Powerco average price for the year. charges did not increase at all during 2003-04. Many other lines companies were in breach of Threshold for technical Path the preliminary Price reasons. As reported publicly in May 2004, the Company As reported publicly in May 2004, the Company Path was in breach of a preliminary Price Threshold set for 2003-04. This technical breach control, arose from factors outside Powerco’s and from complexities in the electricity volume and revenue calculations used to determine an

POWERCO LIMITED 0 ANNUAL REPORT 2004 2 POWERCO LIMITED 3 ANNUAL REPORT 2004 2 length of shutdowns if these are needed. The charts show not just the impact of the February The charts show not just the impact of the February in 2004 storms, but also the “weather bomb” areas network and Tauranga the Thames Valley which led to major outages in June 2002. Without overall the impact of these two storms, Powerco’s performance on reliability in 2003-04 has improved. will Drawing on its recent experience, Powerco continue its programmes to improve network Supply feeders are ranked on their reliability. reliability performance, with the lowest ranked being targeted for improvement. The Company will reduce the numbers of customers affected by network faults by installing equipment that isolates faulty circuits. It also has a focus on reducing the time taken to restore supply through greater use of fault locating devices and remotely controllable switchgear. has processes for tightly controlling Powerco planned shutdowns. Live line construction techniques and diesel generators are used to maintain supply while work is undertaken. Maintenance is carefully planned to minimise the NETWORK RELIABILITY indicators for 2003-04 (see charts right). Network reliability is measured in terms of the average frequency of interruptions to power supply (SAIFI), the average time customers are without supply in any one year (SAIDI) and the average time of any one supply interruption (CAIDI). happened in February 2004, which became one happened in February of the most extreme months in the climate history responded rapidly of New Zealand. Powerco and effectively but the severity of the storms and extent of the damage meant that disruptions to service had a major impact on standard reliability From time to time, weather can severely disrupt time to time, weather From the networks. High winds blow debris and tree branches into lines, cause conductors to clash and bring conductors down. Heavy rains cause landslides that bring down lines. Adverse weather can lengthen the time required to access the damaged assets and restore service. All of this monitoring and for efficient fault response and monitoring and for efficient fault response and commitment to service is repair work. Powerco’s as when especially evident at times of adversity, storms battered the North Island during February 2004. Powerco is committed to delivering a high is committed Powerco standard of service on its electricity networks. to improve systems for network continues Powerco

POWERCO LIMITED 2 ANNUAL REPORT 2004 2 POWERCO LIMITED 3 ANNUAL REPORT 2004 2 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �

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POWERCO LIMITED 2 ANNUAL REPORT 2004 2 POWERCO LIMITED 5 ANNUAL REPORT 2004 2 Energy Services crews and contractors from areas less affected, and others from as far away as Christchurch and Northland, worked round out roads and washed the clock. Flooding, bridges and high winds made working conditions fixed, extremely difficult. In some cases lines were only to be knocked out again by another storm credit of all the huge To front, just days later. recorded no lost time injuries concerned, Powerco or near misses throughout the disaster recovery process. electricity was restored to all but By 23 February, 500 homes in the worst affected areas. Damage to the gas transmission pipeline feeding Powerco networks in Hawkes Bay was also repaired. Then in the final week of the month, the Bay of Plenty and the Coromandel were battered by the remnants of a tropical cyclone, with service disruption to some 25,000 customers in those has reviewed all aspects of its regions. Powerco response to the storms, with refinements made in the ESCP as necessary. utilities. Powerco offered homes without power for utilities. Powerco extended times the use of temporary generators. high voltage outages. The Company responded rapidly in the first days of the storms, activating its Electricity Supply Continuity Plan (ESCP). With could respond effectively to Powerco the ESCP, events as they occurred and coordinate activities with emergency services and other infrastructure average and westerly winds across the North Island were among the highest on record. Flooding in the Manawatu was the worst in a century. During the storms over 94,000 customers went without power and the faults list showed 426 Worst affected areas were in the Manawatu, affected Worst States of and Wairarapa. Rangitikei, Wanganui emergency were declared in some parts on 18 Much of the North Island experienced February. successive storm fronts through the remainder Rainfall was 4-6 times the monthly of February. The initial blasts of rain and wind came on Friday The initial blasts of rain and wind came on Friday three days, more than and within 13 February Lines 50,000 homes were without power supply. were brought down by falling trees, slips and of the winds. and by the force flooding, The extraordinary storms in February 2004 caused The extraordinary storms in February electricity network area damage in every Powerco during three hectic weeks. FEBRUARY 2004 STORMS

POWERCO LIMITED 4 ANNUAL REPORT 2004 2 5 POWERCO LIMITED 5 ANNUAL REPORT 2004 2 2 ��������� owerco �������� ���������� �������� ������ �������� . ��������� � � � � � � � ���������� � ������ asmanian market. It set up ebruary 2004, major construction ����� �� PROFILE OF TASMANIAN NETWORK Launceston, Devonport, Burnie, Bell Bay and Wynyard. and Wynyard. Devonport, Burnie, Bell Bay Launceston, The Company’s gas distribution network is being rolled out progressively pipes were under stage 1. The first to each of the locations designated adjacent to the take-offlaid at Longford, point from Duke Energy’s in has followed and in Hobart. Work Bass Strait gas transmission line, Powerco and Tasmania are getting to know each other well. are getting to know Tasmania and Powerco 477,000. Zealand, Powerco is the owner and operator of the Zealand, Powerco pipelines over which a number of parties will retail gas to end users. approximately 68,300 has a land area of Tasmania square kilometres with a population in excess of This local resource will be expanded to help the planned stage 2 project. Under with Powerco the Company’s conditional agreement with the 600 km of Government, a further Tasmanian pipelines will be laid to pass 38,500 potential residential and small commercial customers after completion of the current rollout. As in New terrajoules of gas and there is a high degree of interest from other potential industrial users. P terrajoules of gas and there is a high degree emergence of the new T is staying closely in touch with the rollout and Launceston a year ago, and now has a team of 15 personnel involved in project offices in Hobart and activities. In F the construction project management and commercial through competitive tender contracts were assigned to Australian contractors In all, 100km of high pressure steel pipelines is being laid and 40km of polyethylene pipes. This In all, 100km of high pressure steel pipelines and large commercial users and has been network will supply gas to more than 20 industrial and small commercial load over time. designed to allow the connection of residential to taking more than 400 date connections have been signed with customers who are committed To

POWERCO LIMITED 4 ANNUAL REPORT 2004 2 POWERCO LIMITED 7 ANNUAL REPORT 2004 2 MPS, JP, ANZIM, MNZIOD JP, MPS,

CA Chairman LLB Deputy Chairman BOARD OF DIRECTORS Ian Lobb since 1985, and was or its predecessors has been a Director of Powerco Mr Lobb with the former Energy Limited before its amalgamation Chairman of Taranaki is also Chairman of Pharmacy Wholesalers (Central) Limited Mr Lobb Powerco. principal place of and a director of a number of private companies. Mr Lobb’s residence is New Plymouth. Mr Auld is a commercial lawyer and practices in New Plymouth. He has been a Mr Auld is a commercial lawyer and practices in New Plymouth. He has been a or its predecessors since 1989. He has a particular interest Director of Powerco and health, safety and environment resource management law, in energy law, the past 28 years he has acted for companies involved in the issues. For resources. Mr Auld is petroleum exploration for and development of Taranaki’s of a number of private Limited and a director Transport a Director of Westgate Audit Committee. He lives in companies. Mr Auld is the Chairman of Powerco’s New Plymouth. John Auld former Powerco since 1997, and a Director of Taranaki Energy Limited or one of since 1997, and a Director of Taranaki former Powerco been at the forefront of the growth its predecessors since 1993. Mr Upson has and Limited through its mergers with the former Powerco Energy of Taranaki Mr Upson is also a director of a number is today. into what Powerco CentralPower of residence is Inglewood. principal place of private companies. Mr Upson’s Barry Upson director and business consultant Mr Upson is a chartered accountant, company and chief executive level, primarily with extensive experience at senior executive since its Mr Upson has been Chairman of Powerco in the manufacturing sector. he was Chairman of the to that, in 2000. Prior amalgamation with CentralPower

POWERCO LIMITED 6 ANNUAL REPORT 2004 2 POWERCO LIMITED 7 ANNUAL REPORT 2004 2 MNZM, JP, FCIS MNZM, JP, JP, BCom JP, BCA (Hons), CA, CFIP FInstD, ANZIM FInstD, Limited, and of Midcentral District Health Board. He is also a director of principal place of residence is a number of other companies. Mr Wilson’s North. Palmerston Ms Timpany joined the Board in 1993 and has a background in finance has a background in finance Ms Timpany joined the Board in 1993 and Ms Timpany is also the Chief Executive of the Whanganui and accounting. Philanthropy New Zealand. Inc. and Chair of Community Foundation Ms Timpany’s principal place of residence is Wanganui. Ian Wilson before its amalgamation with the Mr Wilson was a Director of CentralPower Limited and he was previously a Director of ElectroPower former Powerco, Systems Limited. Mr Wilson Limited and Chairman of Progas and TrustPower is currently Chairman of the Institute of Environmental Sciences and Research Finance Committee. Mr Ogden’s principal place of residence is Wellington. is residence of place principal Ogden’s Mr Committee. Finance Kinsley Sampson in October 2000 and was previously Mr Sampson was appointed to the Board District Council. Mr Sampson is currently General Manager of the New Plymouth Government Insurance Local Chairman of the Board of the New Zealand of the International City Corporation Limited and was formerly President DC. In December 2002 in Washington Management Association, which is based of the New Zealand Order of Merit Mr Sampson was appointed a Member principal place of Mr Sampson’s (MNZM) for his services to local government. residence is New Plymouth. Judith Timpany James Ogden a has Ogden Mr 2001. October in Board the to appointed was Ogden Mr investment in experience extensive with background accounting professional the of member a accountant, chartered a is He markets. capital and banking broker. NZX a recently until and Inc Zealand New Professionals Finance of Institute Agriquality Limited, Kiwibank Limited, Post Zealand New of Director a also is He Wellington. of University Victoria of Member Council a and Limited Zealand New and Limited Zealand New Macquarie of Director a previously was Ogden Mr Powerco’s of Chairman the is Ogden Mr Limited. Zealand New Equities Macquarie

POWERCO LIMITED 6 ANNUAL REPORT 2004 2 POWERCO LIMITED 9 ANNUAL REPORT 2004 2 B.Com/LLB, Barrister & Solicitor of B.Com/LLB,

BSc (Hons), CEng, MIEE BSc (Hons), CEng,

Master Tech M’nt, BBus, AFAIM, GAICD, CMAHRI GAICD, M’nt, BBus, AFAIM, Master Tech

TEAM Corporate Risk Manager Chief Executive General Manager Commercial and Corporate EXECUTIVE Nigel Barbour the High Court of New Zealand responsibilities in October 2002 and his portfolio of Mr Barbour joined Powerco includes: electricity and gas line pricing; revenue forecasting; customer relations management; gas and electricity marketing; corporate affairs; human resources; In addition, insurance; legal compliance; legal services; and property. Mr Barbour shares responsibility for electricity and gas industry regulation with Mr Broadhurst. Mr Barbour’s professional training is in law and economics. Ted Broadhurst Ted Mr Broadhurst has a professional engineering background. He has been with or its predecessors since 1974 in a number of senior management Powerco positions. member of the Electricity Networks Association, the Institute for the Study of member of the Electricity Networks Association, subsidiaries. Mr Boulton of Powerco Competition and Regulation and a number in business management, has qualifications and a professional background He commenced his career as an human resources and technology management. management and executive electrical fitter/mechanic, working through various has held senior executive positions levels in the energy sector in Australia. He been employed in the energy gas and coal sectors, and has in the electricity, industry since 1977. Steven Boulton since January 2000, having Powerco Mr Boulton has been Chief Executive of of Allgas Energy Limited, a listed previously held the position of Chief Executive Mr Boulton is also a Board Australian natural gas and LPG utility company. MANAGEMENT

POWERCO LIMITED 8 ANNUAL REPORT 2004 2 POWERCO LIMITED 9 ANNUAL REPORT 2004 2 , , having MBA (Executive), MNZIM, MNZIOD

MBA (Tech Mgmt), BEng, MIPENZ Mgmt), BEng, MBA (Tech

BEng (Hons), MIPENZ

FCA (SL), ACIS, CMA (AUS) FCA (SL), ACIS,

Chief Financial Officer Chief Financial General Manager, Powerco Energy Services Powerco General Manager, General Manager Network Assets General Manager Corporate Development range of industries that include seaport and airport management, consulting in business, He has an extensive background manufacturing and technology. operations, employee relations and information technology. Steve Sanderson two Mr Sanderson has overall management responsibility of Powerco’s Energy Services in New Zealand, and service provision subsidiaries; Powerco Mr Sanderson has worked in a broad Energy Services in Australia. Powerco Mr Krogh has responsibility for the asset management and operation of the Mr Krogh has responsibility for the asset electricity and gas networks. Mr Krogh is a professional engineer specialised in asset management and network planning in the electricity contract management and Mr Krogh has held engineering, distribution industry. general management positions within the electricity industry since 1993. management and engineering positions in various sectors of the energy industry management and engineering positions over the last 15 years. Richard Krogh Jeff Kendrew Jeff Kendrew Manager of Operations for Wairarapa was previously General Mr Kendrew Electricity following the acquisition of Wairarapa Electricity and joined Powerco engineering background and has held has a professional in 1998. Mr Kendrew Mr Ekanayake is a Fellow Chartered Accountant, a Chartered Secretary and a Chartered Mr Ekanayake is a Fellow Powerco or its He has been with Certified Management Accountant of Australia. Ekanayake was a consultant accountant predecessors since 1988. Before that Mr New Guinea. Bank project in Papua for several years with an Asian Development Elanga Ekanayake

POWERCO LIMITED 8 ANNUAL REPORT 2004 2 POWERCO LIMITED 1 ANNUAL REPORT 2004 3 executive management team, developing, executive management team, developing, overseeing and reviewing the effectiveness of the Company’s occupational health and safety systems to ensure the well-being of all employees. ensuring the interests of all shareholders are considered in the decision making process, and effective communications with stakeholders occur; and Risk Compliance Monitoring, Management: overseeing the Company’s risk management, compliance, control and accountability systems and monitoring and directing the financial and operational performance of the Company; Delegation: delegating appropriate powers to the Chief Executive to ensure the effective and day-to-day management of the Company, determining and reviewing the establishing, powers and functions of the Committees of the Board; and appointing, Executive Management Team: Chief regularly reviewing the performance of, Executive, and ensuring systems exist for the performance review of the other members of the executive management team; Ensuring the Health, Safety and Well-Being of Employees: in conjunction with the Leadership: determining and demonstrating Leadership: values of the the high-level culture and Company; senior working with Strategy Formulation: management to set and review the overall strategic goals and strategic plans of the Company; Overseeing Planning Activities: overseeing the business plans and development of Powerco’s budgets; approving the annual and long-term Stakeholder Liaison and Communication:

• • • • RESPONSIBILITIES of the Board are: The principal responsibilities OF • THE BOARD • • • CORPORATE GOVERNANCE Exchange Limited (“NZX”); for Directors issued by Practice Code of Proper Institute of Directors in New Zealand Inc; Governance of Good Corporate Principles issued by Recommendations and Best Practice Australian Stock Exchange Limited; and Corporate Governance - Good Governance Australia. issued by Standards Principles Corporate Governance Best Practice Code Corporate Governance Best Practice (“the Code”) recently issued by New Zealand

of the Board is to drive the performance of the does this through establishing It Company. objectives, major strategies for achieving Powerco’s these objectives, and key corporate policies within which the business of the Company is conducted. elected by shareholders to govern the Company within legal and ethical constraints, and to The supervise the management of the Company. Board has ultimate responsibility for the successful business. operation of Powerco’s In carrying out its governance role, a key task and practices and the Code, the reasons for those differences are explained in this statement of corporate governance. ROLE OF is The Board of Directors (the “Board”) of Powerco THE BOARD Company. Powerco’s Corporate Governance Corporate Powerco’s Company. Charter can be viewed on our website. A brief summary of the key elements of the Charter are set out in this statement of corporate governance. In the few instances where there are differences corporate governance policies between Powerco’s The outcome of this review was an update of The outcome of this review was an update of Governance Charter to reflect Corporate Powerco’s the those parts of the Code which are relevant to or which the Board considered would Company, and prosperity of the growth assist the long-term • • including: • • In 2003 the Board of Powerco (the “Board”) (the In 2003 the Board of Powerco review of its undertook a comprehensive primarily in order to governance practices, benchmark the Company’s governance practices contemporary best- against a number of other practice standards in New Zealand and Australia, Powerco is committed to implementing the highest standards of to implementing the highest is committed Powerco corporate governance.

POWERCO LIMITED 0 ANNUAL REPORT 2004 3 POWERCO LIMITED 1 ANNUAL REPORT 2004 3 securities by Directors and employees of Powerco. Directors and employees must obtain All Powerco Officer prior to the consent of the Chief Financial permitted is Trading securities. Powerco’s in trading within a certain period after the Chief Financial Officer is notified and after the Company’s half year and annual results are announced, and thereafter for a period up until 31 January and and the effectiveness of the inputs to the meeting, and the effectiveness of the inputs to the meeting, including briefing papers provided to Directors. a Where Directors require further information, protocol has been established for liaison with management and employees. In addition, the its committees, and each Board collectively, advice Director may seek independent professional (at the Company’s expense) to assist them to carry out their responsibilities. Continuous Disclosure The Board is responsible for ensuring that timely and balanced disclosure is made of all material especially those matters concerning the Company, disclosures required under the NZX Listing Rules. As such, the Board works with management to develop, review and ultimately approve, disclosure policies which address disclosure content and vetting processes and dissemination timing, channels. Shares in Powerco Trading has adopted a formal procedure which Powerco governs the sale and purchase of the Company’s Powerco maintains an interest register in which which in register interest an maintains Powerco matters and transactions certain of particulars the of (particulars recorded be must Directors involving during register interests the in entered matters the 35). page on out set are year financial previous the Board Information for the of responsibilities and The Board has a number it receives timely and processes in place to ensure provided for under Principle quality information (as is a key responsibility of it 2.8 of the Code). First, the Chairman to ensure that the Board is provided with sufficient and timely information to effectively time discharge its duties. The Board defines from it to time certain periodic reports and information of wishes to receive. Second, it is the responsibility the Chief Executive to keep the Board informed, the at an appropriate level, as to all activities of the Board periodically reviews Finally, Company. the effectiveness of the meetings of the Board Disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist; and If requested by the Board, take such necessary and reasonable steps to remove any conflict of interest. Exhibit a high standard of moral and ethical behaviour. Comply with their fiduciary duties; Maintain confidentiality of Company information; Avoid conflicts of interest; Be independent in judgment and actions; fairly and with respect all employees, Treat shareholders and other stakeholders; Comply with the spirit and letter of the law, principles of the Code of Conduct and and Constitution; Powerco’s

If a Director cannot or is unwilling to remove themselves from a conflict of interest, then the Director will not be entitled to participate in discussions or vote on the matter in respect of the matter related to the conflict of interest. • • executives. Conflicts of Interest The Board has adopted a policy to deal with actual or potential conflicts of interest. This policy requires Directors to: In accordance with Principle 1.3 of the Code, In accordance with Principle also implemented compliance and has Powerco disciplinary procedures in relation to its Code of Conduct. Compliance with the Code of Conduct is periodically reviewed, generally during the annual performance evaluation process for Directors and • • • • • Conduct includes, but also goes beyond, statutory Conduct includes, but also goes beyond, statutory and common law requirements and expects Directors and those executives to: • • Code of Conduct 1.1 of the Code, the In line with Principle Code of Conduct to Board has developed a Executive and Chief guide the Directors, Chief and other key executives in the Officer, Financial roles. This Code of performance of their respective BOARD POLICIES principal corporate A brief description of the the Board is set out below. governance policies of

POWERCO LIMITED 0 ANNUAL REPORT 2004 3 POWERCO LIMITED 3 ANNUAL REPORT 2004 3 new candidates) should be their ability to make positive and value-added contribution a strong, Endorsement of candidates by to the Company. the Board, including candidates standing for re- election, is not automatic, and will only occur once the formal assessment process outlined above has been completed. of necessary and desirable competencies and of necessary and desirable competencies and qualities. In assessing candidates, the Committee has regard to the alignment between the candidate’s skills and experience and the Board’s future needs, as well as the candidate’s integrity, time independence and ability to devote sufficient to the discharge of their responsibilities. Directors seeking re-nomination undergo also a formal assessment process against the same criteria, including a review of their recent performance as Board members. A Director will not receive endorsement by the Board for re- election if his or her performance is considered to be unsatisfactory. BOARD REFRESHMENT prosperity of the Company depends The long-term on suitably skilled and qualified candidates occupying the position of Directors. In addition, there is only a small number of skilled and independent director candidates in New Zealand. these reasons, the Board has determined For that the primary emphasis for qualification as a Director (either potential re-appointments or are appointed to the Board, the positions of Chief are appointed to the Board, will not be filled by the Executive and Chairman is consistent with Principle same person. This policy 2.1 of the Code. APPOINTMENTS ultimate power to elect Shareholders have the TO responsibility of the it is the Directors. However, THE BOARDhas the appropriate level Board to ensure that it required to fulfil its duties. of skills and experience The Board has established a Governance and in this Remuneration Committee to assist the Board regard. The Governance and Remuneration Committee has adopted a formal procedure for nominating and assessing potential Directors. This process 2.3 of the Code. The is consistent with Principle Committee considers the future intellectual capital set needs of the Board, and from this develops a Is free from any interest and any relationship, which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company. Is not involved in the value chain of the either upstream or downstream Company, (generation, transmission or retailing); Is not an advisor to the Company for fees or some other benefit; Has no material contractual relationship with the Company other than as a Director of the Company; which perspective a developed not Has to ability Director’s the with interferes materially and Company; the of interests best the in act Is not a current or previous executive; Is not a nominee of a major shareholder;

Executive Directors. It is also a policy of the Board to have a clear division of responsibility between the Chairperson and the Chief Executive. Therefore, in the event that executive Directors The Board has adopted a policy that the Company will not normally appoint a Managing Director. will not normally appoint Powerco Similarly, • • • • • • • independent. The independence of Powerco’s non- independent. The independence of Powerco’s executive Directors is reviewed regularly through the Company’s conflict of interest and Director evaluation processes. Under the prescribed an criteria for assessing Directors independence, who: independent Director is defined as a Director the Board will generally comprise seven Directors, the Board will generally comprise seven Directors, including the Chairman. The majority of the Board must be independent for Directors and the Board has prescribed criteria assessing each Director’s independence. Currently, are all seven Directors, including the Chairman, BOARD COMPOSITION so that it is able to The Board has been formed responsibilities and duties. adequately discharge its less than Constitution allows for not Powerco’s eight Directors. However, five and not more than Board has decided that for the present time, the 31 August, respectively. This procedure is This procedure 31 August, respectively. Markets Act 1988 and consistent with the Securities procedures. its approved insider trading

POWERCO LIMITED 2 ANNUAL REPORT 2004 3 POWERCO LIMITED 3 ANNUAL REPORT 2004 3 and reporting procedures. These are contained in the Company’s Corporate Governance Charter. and Remuneration, and Finance Committees. and Remuneration, and Finance Given the current size of the Board, the Board a has decided that it is not efficient to establish separate Nominations Committee, as proposed of the Code. The 2.2 and 3.10 in Principles Board considers that it is more efficient for the Governance and Remuneration Committee to be undertake the functions that would otherwise undertaken by a Nominations Committee. As a general rule (and in accordance with 3.4 of the Code) any member of the Principle Board is entitled to attend meetings of any Board those However, Committee as an observer. Directors who are not members of the Committee may only attend meetings of the Committee upon invitation (and where they have no conflict of interest) and they may only participate in discussions if invited by the Chairman of the Committee. Observers are otherwise not entitled to vote on business considered by the Committee. 3.2, 3.8 and 3.11 In accordance with Principles of the Code, each Committee of the Board has adopted terms of reference, which outline its responsibilities, composition guidelines, authorities BOARD PERFORMANCEEVALUATION to the ongoing The Board is committed as a whole. The Board development of the Board objectives and goals develops its own set of annual performance and undergoes a formal goals and to best evaluation relative to those standards. This practice corporate governance includes a review of the evaluation process also Director (including performance of each individual the Chairman) and the effectiveness of each Committee of the Board. These review procedures are consistent with the evaluation principles recommended under the Code. COMMITTEES These are three formally constituted committees of the Board, being the Audit, Governance Principle 2.4 of the Code. Principle encouraged to undergo continual professional development (at the Company’s expense). In addition, Directors are provided with resources to remain current both in the industry in which operates, and in corporate governance Powerco best practice. These policies are consistent with process to provide new Directors with a full including meetings with briefing on the Company, key executives, tours of the Company’s premises, an induction package and presentations. In order to ensure continuing improvement in the performance of the Board, all Directors are Executive Directors, the changes will be presented Executive Directors, the changes will be presented to shareholders for their approval. INDUCTIONEDUCATION AND CONTINUINGThe Board has established a formal induction OF DIRECTORS The Board is considering the methods and implications of introducing a performance- based equity plan for Non-Executive Directors, 2.7). as recommended by the Code (Principle If it is decided to make any such change in the structure of remuneration payable to Non- Directors. The Committee then develops a structure a develops then Committee The Directors. that it believes fairly remunerates Directors for the duties they fulfil and responsibilities they undertake. That structure is reviewed by the Board, and a proposal is then presented to shareholders for their approval. of the Code. The Committee’s process begins of the Code. The Committee’s process begins with the Committee undertaking an annual review of the current level of Directors’ remuneration, referencing Australasian market levels and international trends, and consideration of the risks and responsibilities undertaken by Powerco’s been approved by shareholders. been approved by shareholders. and Remuneration The Board’s Governance and transparent Committee follows a formal recommendations process before making packages to about Directors’ remuneration 2.6 shareholders. This is consistent with Principle NON-EXECUTIVEREMUNERATION DIRECTOR fees are paid out of the Non-Executive Directors of Directors’ fees which has maximum annual pool

POWERCO LIMITED 2 ANNUAL REPORT 2004 3 POWERCO LIMITED 5 ANNUAL REPORT 2004 3 ) • professional standards of independence, integrity and objectivity when performing its role as auditor The Board acknowledges the of the Company. equal commitment of the auditor to maintaining its independence. Powerco’s recent growth and breadth of activities recent Powerco’s has required additional advice and involvement Therefore, the Directors, from the auditor. a through the Audit Committee, have established and formal, transparent and rigorous monitoring 4.1 of communication process (as per Principle the the Code) to ensure that work undertaken by Company’s external auditor does not compromise the external auditor’s independence. As a result, the non-audit advice and services provided by the Company’s external auditor have been largely restricted to assurance and compliance matters associated with acquisitions, and regulatory compliance audits and reporting, public offers of securities for debt refinancing. The auditor has also undertaken a limited amount of work in the areas of taxation and corporate The Board has been diligent to restructuring. ensure that internal audit reviews and accounting advice has been undertaken by other accountancy firms. Due to the rigorous processes in place at Powerco, the Board is confident that the Company’s external auditor has observed the highest ethical and Finance Committee by James Ogden, This Committee, chaired Directors, each of whom is comprises at least three a non-executive, is independent of management, of interest. This Committee and free from conflicts the Board in fulfilling is responsible for assisting to capital funding and its responsibilities relating The principal objective treasury management. minimise the Company’sof this Committee is to criteria determined cost of capital within policy by the Board from time to time, and the relevant regulatory environment. Other members of this and Committee are: Judith Timpany; Barry Upson; Ian Wilson. EXTERNAL AUDITORS the The Board ensures that the independence of Company’s external auditor (presently Deloitte is not compromised by the engagement of the auditor for non-audit services. However, board nominations, Directors’ remuneration, Board retirements and refreshment, and continuing education for Directors. The Committee also assists the Board in evaluating the performance of the Chief Executive, goal setting and remuneration determinations. is responsible for assisting the Board in fulfilling its responsibilities relating to all corporate governance matters and the employment and This welfare of employees of the Company. includes developing and recommending to the Board best practice corporate governance policy, executive, is independent of management, and executive, is independent of management, and free from conflicts of interest. These requirements 3.1 of the Code. Other comply with Principle members of this Committee are: Kinsley Sampson; Barry Upson; and Ian Wilson. The Governance and Remuneration Committee with all legal measures affecting the Company. with all legal measures affecting the Company. Governance and Remuneration Committee comprises This Committee, chaired by Ian Lobb, at least three Directors, each of whom is a non- communication between the Board and senior communication between the Board and senior financial management and staff involved in internal control procedures and external auditors. The Committee’s objective is to enhance the and credibility and objectivity of financial reporting to ensure, through management, full compliance and internal control procedures in regard to financial reporting and practices, business ethics policies and practices, and accounting the policies. In addition, another key function of Committee is corporate risk management and control. The Committee provides a forum for free from conflicts of interest. These requirements free from conflicts of interest. 3.1 of the Code. Other comply with Principle are: Kinsley members of the Audit Committee and Barry Upson. Sampson; Judith Timpany; responsible for overseeing The Audit Committee is and appraising the quality of the external audit Audit Committee by John Auld, comprises This Committee, chaired each of whom is a non- at least three Directors, of management, and executive, is independent

POWERCO LIMITED 4 ANNUAL REPORT 2004 3 POWERCO LIMITED 5 ANNUAL REPORT 2004 3 Consulting Director Director Director Director Chief Executive Director Director Member Chairman Chairman Director Chairman es as an “Independent Director”es as an “Independent (as defined in the

During the year ended 31 March 2004, the following Directors have made the following general disclosures of interest have made the following general disclosures 31 March 2004, the following Directors During the year ended Learning Media Limited Learning Estendart Limited North Regional Advisory Board Massey Palmerston Academic Colleges of NZ Limited Australasian Hotel Holdings Limited Ms J R Timpany - Director Whanganui Community Foundation I A Wilson Director – I D Lobb – Deputy Chairman Pharmacy Wholesalers Central Limited J H Ogden - Director LECG Limited PH New Zealand Holdings Limited between the Company and its subsidiaries and the disclosed entity: between the Company and its subsidiaries B R Upson - Chairman Limited MCK Metals Pacific Apex Consultants Limited Upson Consultants Limited pursuant to Section 140 of the Companies Act 1993. Each Director will be regarded as interested in any transactions will be regarded as interested in any of the Companies Act 1993. Each Director pursuant to Section 140

DIRECTORS’ INFORMATION The following entries were made in the Interests Register of the Company with regard to the Directors during the 12 months Company with regard to the Directors during were made in the Interests Register of the The following entries ended 31 March 2004; General Disclosures: (a) STATEMENT AS TO WHICH DIRECTORS ARE INDEPENDENT DIRECTORS ARE INDEPENDENT WHICH DIRECTORS TO AS STATEMENT qualifi of the current Directors of the Company In the Board’s view each as at 31 March 2004. Corporate Governance Charter) Powerco’s NZX Listing Rules and INTERESTS DIRECTORS’

POWERCO LIMITED 4 ANNUAL REPORT 2004 3 POWERCO LIMITED 7 ANNUAL REPORT 2004 3 Council Member Councillor Director Member Chairman Chairman Chairman Director Partner Director Director Director/Shareholder Director Director Director Chairman

The following previously reported general disclosures of interest pursuant to Section 140 of the Companies Act 1993 pursuant to Section 140 of the Companies reported general disclosures of interest The following previously I A Wilson Director – Midcentral District Health Board Institute of Environmental Science & Research Limited Western Institute of Technology at Taranaki Institute of Technology Western Limited TenderLink.Com Ms J R Timpany - Director Services Water Wanganui Foundation Chief Executive of the Whanganui Community Kiwibank Limited Agriquality Limited City Council Monitoring Sub-Committee Wellington Victoria University of Wellington K N Sampson – Director Apex Consultants Limited Limited Transport Westgate J H Ogden – Director Ogden Consulting Limited Limited New Zealand Post B R Upson – Chairman Limited TenderLink.Com Upson Associates Limited J S Auld – Director McEwen Auld Brewer Mazengarb remain in effect. Each Director will be regarded as interested in any transactions between the Company and its any transactions between the Company and Director will be regarded as interested in remain in effect. Each entity: subsidiaries and the disclosed

DIRECTORS’ INFORMATION c disclosures during the year of any interests in transactions entered into by the Company and There were no specific disclosures during the year of any interests in transactions entered into by the Company subsidiaries of the Company. Specific Disclosures: DIRECTORS’ INTERESTS (CONT.) DIRECTORS’ (b)

POWERCO LIMITED 6 ANNUAL REPORT 2004 3 POWERCO LIMITED 7 ANNUAL REPORT 2004 3 BALANCE 31/03/04

- - - VALUE 9,068 5,631 5,000 6,000 25,000 11,336 40,000 50,000 15,000 20,000 25,000 BALANCE 31/03/04 140,000 151,445

VALUE Market Market Market PURCHASES

DISPOSALS PURCHASES

DATE

4,000 55,305 46,176 DISPOSALS no movement no movement no movement no movement no movement no movement no movement no movement no movement no movement no movement no movement no movement

BALANCE 01/04/03 DATE 30/10/03 31/10/03 30/09/03

4,000 6,000 5,631 9,068 5,000 25,000 25,000 40,000 50,000 20,000 11,336 15,000 BALANCE 01/04/03 101,481 140,000 151,445

DIRECTORS’ INFORMATION J H Ogden – Whakapua Trust Ordinary Shares of George Mason Trust J S Auld – Trustee Ordinary Shares of Louisiana Trust J S Auld – Trustee Ordinary Shares the with compliance of employees, and Directors all by trading securities to relation in policy, a adopted has Company The Notice Officers) Company for Procedure (Approved Trading Insider the in Commission Securities the by approved procedure 1996. Ordinary Shares (Jointly with L Wilson) NON-BENEFICIAL INTEREST of Trustees B R Upson & J S Auld – Trust Purchase Share Employee Ordinary Shares Ordinary Shares J R Timpany Ordinary Shares Ordinary Shares (Jointly with R J Timpany) B R Upson Bonds 5 Year Bonds 7 Year Capital Bonds Ordinary Shares I A Wilson BENEFICIAL INTEREST J S Auld Ordinary Shares I D Lobb Capital Bonds Ordinary Shares K N Sampson Ordinary Shares DIRECTORS’ SHAREHOLDING DIRECTORS’ dealings are as as at 31 March 2004. Details of securities held relevant interests in the Company The following Directors follows:

POWERCO LIMITED 6 ANNUAL REPORT 2004 3 POWERCO LIMITED 9 ANNUAL REPORT 2004 3

$ $ ’s 36,992 52,000 52,000 52,000 55,000 52,000 52,000 110,000

’s Constitution was for

J Auld, I Lobb, J Timpany, B Upson, I Wilson J Timpany, J Auld, I Lobb, B Upson, I Wilson J Timpany, J Auld, I Lobb, B Upson, I Wilson J Timpany, J Auld, I Lobb, B Upson, I Wilson J Timpany, J Auld, I Lobb, B Upson, I Wilson J Timpany, J Auld, I Lobb, DIRECTORS I Wilson B Upson, J Ogden, K Sampson, J Timpany, J Auld, I Lobb, I Wilson B Upson, J Ogden, K Sampson, J Timpany, J Auld, I Lobb, I Wilson B Upson, J Ogden, K Sampson, J Timpany, J Auld, I Lobb, I Wilson, B Upson, J Ogden, K Sampson, J Timpany, J Auld, I Lobb, D Maloney B Upson, D Maloney B Upson, S Boulton, S Sanderson, P Hale S Boulton, E Ekanayake, J Palairet B Upson, I Wilson J Timpany, J Auld, I Lobb,

Chairman Governance and Remuneration Committee Chairman Governance and Remuneration Chairman – Audit Committee Committee Chairman – Finance and Remuneration Committees Member Finance/Governance Committees Member Audit/Finance Committees Member Audit/Governance and Remuneration Chairman and Remuneration Committees Member Audit/Finance/Governance Deputy Chairman

DIRECTORS’ INFORMATION Service.Link Limited Energy Metering Limited for the director services of D Maloney for the year ended was paid to Blake Dawson Waldron Directors fees of AUD$15,000 31 March 2004. (formerly Powerco Australian Holdings Pty Limited) (formerly Powerco Energy Brokers New Zealand Limited Electricity Limited Taranaki Central Energy Limited Limited Powercom Limited Powerline Powerco Network Management Limited Powerco Energy Services Limited Powerco Australia Group Pty Limited Powerco Pty Limited Tasmania Powerco Energy Services Pty Limited Powerco SUBSIDIARY COMPANY DIRECTORS DIRECTORS SUBSIDIARY COMPANY The following persons held the office of Director of the respective subsidiaries during the year to 31 March 2004. SUBSIDIARY Holdings Limited (NZ) Powerco B R Upson with clause 27.7 of the Company The remuneration paid to B R Upson in accordance services performed by B R Upson which were not performed in his capacity of a Director By of way the Company. ofthese brief services summary, include appearances before the Commerce Commission during the year ended 31 March 2004. I A Wilson J R Timpany K N Sampson SPECIAL REMUNERATION – CLAUSE 27.7 B R Upson I D Lobb J S Auld J H Ogden REMUNERATION OF DIRECTORS REMUNERATION in line with the Company the year and were paid fees accordingly held office as Directors during The following persons period as at 31 March 2004. in office at the end of the accounting Constitution. All were REMUNERATION – CLAUSE 27.1 DIRECTORS’ AND OFFICERS’ INDEMNITIES AND INSURANCE AND OFFICERS’ INDEMNITIES DIRECTORS’ given has Company the Constitution, Company’s the of 28 Clause and 1993 Act Companies the of 162 Section to Pursuant costs and liabilities certain against Company the of officers certain and Directors for, insurance certain effected and to, indemnities cover. insurance this for premium the pays Company The Company. the of officers and Directors as capacity their in incurred

POWERCO LIMITED 8 ANNUAL REPORT 2004 3 POWERCO LIMITED 9 ANNUAL REPORT 2004 3 FINANCIAL STATEMENTS

POWERCO LIMITED 8 ANNUAL REPORT 2004 3 POWERCO LIMITED 1 ANNUAL REPORT 2004 4 - 2003 $000 (140) 2003 $000 38,814 38,814 28,409 38,814 (29,361) 38,814 (10,405) 420,456 150,000 203,153 579,769

- - PARENT PARENT 140 2004 $000 2004 $000 22,305 22,305 37,300 14,995 22,305 22,305 (48,060) 579,769 281,231 554,154

2003 $000 2003 $000 (986) (140) 38,054 38,054 27,376 38,054 38,054 (29,361) (10,678) 420,956 150,000 229,250 578,523

- GROUP GROUP

606 140 2004 $000 2004 $000 27,570 27,570 42,928 15,358 27,570 27,570 (48,060) 578,523 325,294 558,779

5 5 5 4 1 2 3 Notes Notes

The accompanying notes form part of these financial statements. Dividends – paid Ordinary share issue currency translation reserve Foreign stock Treasury Distributions to shareholders Closing Balance FOR THE YEAR ENDED 31 MARCH 2004 Opening Balance Operating surplus attributable to the shareholders and Expenses Revenue Recognised Total for the Period STATEMENT OF FINANCIAL PERFORMANCE STATEMENT OF MOVEMENTS IN EQUITY Operating Surplus Attributable to the Shareholders Operating Surplus Attributable Income tax expense/(credit) Taxation Operating Surplus after Revenue Taxation Operating Surplus before FOR THE YEAR ENDED 31 MARCH 2004

POWERCO LIMITED 0 ANNUAL REPORT 2004 4 POWERCO LIMITED 1 ANNUAL REPORT 2004 4

------255 2003 $000 1,977 2,343 2,843 1,105 3,440 15,478 20,895 12,725 17,749 15,509 21,714 15,257 38,331 579,769 176,005 100,000 123,152 707,000 1,106,157 1,617,321 1,668,490 1,706,821 1,706,821

------44 PARENT 146 136 2004 $000 1,224 2,248 9,388 4,074 19,730 25,028 12,806 14,034 22,931 32,645 554,154 176,005 100,000 250,000 294,266 118,271 160,000 1,098,542 1,615,991 1,645,079 1,677,724 1,677,724

------

605 178 255 237 442 2003 $000 8,195 2,843 1,883 3,440 27,912 31,530 18,026 29,572 15,257 47,646 578,523 176,005 100,000 123,152 707,000 1,106,762 1,640,105 1,669,169

1,716,815 1,716,815

------44 GROUP 254 466 146 2004 $000 4,399 1,568 1,345 4,074 36,898 41,692 13,665 33,475 11,720 46,953 558,779 176,005 100,000 250,000 294,266 118,271 165,737 1,105,624 1,641,078 1,659,142 1,706,095 1,706,095

5 6 7 8 9 13 14 16 17 18 19 10 11 12 12 Notes

Director Date: 15 June 2004

The accompanying notes form part of these financial statements. For and on behalf of the Board by: and on behalf For Chairman Date: 15 June 2004 Deposits on call Cash and deposits Assets Total Current Assets Assets held for resale Inventories Accounts receivable GST receivable Goodwill Investments in subsidiaries Other investments Other non-current assets Intercompany loan Equity and Liabilities Total Non-Current Assets and equipment plant Property, Bank overdraft for employee entitlements Provision leases Finance Accounts payable GST payable Intercompany loan US dollar private placement notes Commercial paper facility Commercial bank debt leases Finance Current Liabilities Share capital and reserves Non-Current Liabilities Redeemable bonds Capital bonds Guaranteed bonds AS AT 31 MARCH 2004 Equity STATEMENT OF FINANCIAL POSITION

POWERCO LIMITED 0 ANNUAL REPORT 2004 4 POWERCO LIMITED 3 ANNUAL REPORT 2004 4 - - - 22 928 461 2003 $000 6,831 6,831 1,901 10,526 80,789 46,068 70,957 126,879 850,632 861,158 194,546 197,836 (854,327)

- - - - PARENT 700 408 167 2004 $000 2,843 2,843 2,123 55,294 55,294 83,847 84,555 (52,451) 197,417 280,864 281,972 111,280

7 - - - 42

955 268 461 2003 $000 6,831 6,831 52,515 71,176 157,289 867,020 867,020 226,774 228,465 104,732 (860,189)

- - - 91 30 GROUP 835 802 408 2004 $000 2,843 3,678 64,460 64,460 84,931 (60,782) 216,569 321,755 323,056 131,608 106,487

The accompanying notes form part of these financial statements. Proceeds from sale of investments Proceeds assets from sale of fixed Proceeds Energy Services Pty Limited Advances to Powerco Australian Holdings Pty Limited) (formerly Powerco Purchase of fixed assets Dividends received to suppliers and employees Payments Interest paid Net GST paid of income tax Payments Receipts from customers Interest received Net GST received Income tax received STATEMENT OF CASH FLOWS Net Cash Inflow (Outflow) from Investing Activities Cash Flows from Investing Activities Cash was provided from: Cash was applied to: Cash was applied from: Net Cash Inflow from Operating Activities FOR THE YEAR ENDED 31 MARCH 2004 Activities Cash Flows from Operating Cash was provided from:

POWERCO LIMITED 2 ANNUAL REPORT 2004 4 POWERCO LIMITED 3 ANNUAL REPORT 2004 4 - - - - 2003 $000 1,105 14,240 17,631 15,257 15,509 25,029 29,361 31,871 31,871 159,390 707,000 150,000 100,000 957,000 105,000 797,610

- - - - - PARENT 136 2004 $000 9,388 4,881 8,300 8,300 (1,224) 31,871 48,060 (23,571) (55,675) 599,941 250,000 294,266 544,266 547,000

- - -

442 458 2003 $000 9,272 6,427 1,133 15,257 25,029 29,361 15,699 15,699 159,848 707,000 150,000 100,000 958,133 105,000 798,285

- - - - - GROUP 2004 $000 (254) 5,737 4,881 (4,233) 15,699 11,720 48,060 11,466 11,466 (49,938) 599,941 250,000 294,266 550,003 547,000

The accompanying notes form part of these financial statements. Cash and deposits/(bank overdraft) Deposits on call Intercompany loan Commercial paper repayment Commercial bank debt repayment Dividends paid Issue of capital bonds leases Finance Debt repayment Issue of guaranteed bonds placement notes Issue of US dollar private Commercial bank debt Issue of ordinary shares STATEMENT OF CASH FLOWS

Composition of Cash Net Increase (Decrease) in Cash Held Opening cash brought forward Ending Cash Carried Forward Activities Net Cash Inflow (Outflow) from Financing Cash was applied to: Cash provided from: FOR THE YEAR ENDED 31 MARCH 2004 Activities Cash Flows from Financing

POWERCO LIMITED 2 ANNUAL REPORT 2004 4 POWERCO LIMITED 5 ANNUAL REPORT 2004 4 - - 446 2003 $000 (938) (2,111) (7,105) (8,292) 38,814 39,740 39,248 13,724 70,957 (10,426)

- - PARENT

639 2004 $000 (212) 2,911 5,472 (2,169) 22,305 56,351 56,778 14,828 84,555 (10,098)

2 -

2003 $000 (908) 1,616 (2,211) 38,054 43,595 44,303 14,494 71,176 (11,181) (13,039) (10,427)

GROUP 126 315 2004 $000 (756) (254) 4,605 1,311 (1,376) 11,160 27,570 62,095 67,757 12,851 106,487

The accompanying notes form part of these financial statements. Payables Inventories Prepayments Depreciation on sale of assets (Profit)/Loss Receivables Income tax credits WITH CASH INFLOW FROM OPERATING ACTIVITIES RECONCILIATION OF OPERATING SURPLUS AFTER TAXATION Net Cash Flow from Operating Activities Add (less) Non-cash Items Amortisation Increase/(Decrease) in doubtful debts Capital Movements in Working FOR THE YEAR ENDED 31 MARCH 2004 Taxation Operating Surplus After

POWERCO LIMITED 4 ANNUAL REPORT 2004 4 POWERCO LIMITED 5 ANNUAL REPORT 2004 4 Liabilities for amounts expected to be paid to employees for their entitlement to annual leave and other current employee entitlements are measured as the amount unpaid at the reporting date at current pay rates in respect of employees’ services up to that date. benefit of the timing differences will be realised or any benefit of the timing differences will be realised losses utilised. Inventory cost and Inventory is valued at the lower of historical method has net realisable value. The weighted average been used to determine historical cost. Investments and net Investments are valued at the lower of cost realisable value. Recognition Revenue Revenue from the sale of distribution and value-added services is recognised when services are provided. Lines Subdivisions/Uneconomic for Contributions Contributions received from customers and grants towards the costs of reticulating new subdivisions and contributions received in constructing uneconomic lines are recognised as revenue. Any identified impairment losses in respect of uneconomic lines are recognised in and the asset Performance the Statement of Financial component is written down to its fair value. Employee Entitlements Receivables valued at expected realisable Accounts receivable are for doubtful debts. All known bad value, after providing off during the period under debts have been written review. Income Tax liability method of accounting for The group adopts the deferred taxation. the period The taxation charge against the surplus of after is the estimated liability in respect of that surplus timing allowance for all permanent differences and foreseeable differences not expected to crystallise in the of future. This is the partial basis for the calculation deferred taxation. to timing differences taxation benefits attributable Future the financial or losses carried forward are recognised in that the statements only where there is virtual certainty

g) h) i) j) k) e) f) Not depreciated 100 years 5 to 10 years 3 to 10 years 5 years 10 to 60 years

Properties intended for resale are shown at the lower of Properties Furniture and Fittings Furniture Office Equipment Motor Vehicles Network Systems Intended for Resale Properties Depreciation of Property, Plant and Equipment Depreciation of Property, Depreciation rates based on remaining useful life, for Land Buildings Property, Plant and Equipment Property, plant and equipment are recorded at cost, All property, Basis of Consolidation those of The consolidated financial statements include Distribution of electricity and value added services. Distribution of electricity value added services. Distribution of gas and cost or net realisable value. major classes of asset are: on consolidation. In the parent company financial on consolidation. In the parent company financial statements investments in subsidiaries are stated at cost. less accumulated depreciation. Powerco Limited and its subsidiaries (listed in Note 14), Limited and its subsidiaries (listed Powerco All significant accounted for using the purchase method. and balances are eliminated transactions inter-company

d) c) b) a) appropriate for the measurement and reporting of earnings appropriate for the measurement and reporting basis. and financial position on an historical cost POLICIES SPECIFIC ACCOUNTING which materially The following specific accounting policies, and the affect the measurement of financial performance financial position, have been applied: These financial statements have been prepared to comply These financial statements have been prepared Companies with the provisions of Section 44 of the Energy Financial Act 1992, the Companies Act 1993, and the Reporting Act 1993. MEASUREMENT BASIS recognised as The Group follows the accounting principles and its subsidiaries (refer Note 14). and its subsidiaries (refer were the principal activities The following activities Limited throughout the period: undertaken by Powerco • • REPORTING ENTITY company registered under the Limited is a Powerco Limited The group consists of Powerco Companies Act 1993. STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2004

POWERCO LIMITED 4 ANNUAL REPORT 2004 4 POWERCO LIMITED 7 ANNUAL REPORT 2004 4 Comparative Figures where Comparative information has been reclassified, in disclosure with the to achieve consistency necessary, current year. Impairment asset is less If the estimated recoverable amount of an down to its than its carrying amount, the asset is written loss is estimated recoverable amount and an impairment recognised in the statement of financial performance. Changes in Accounting Policies There have been no changes to accounting policies. All policies have been applied on a basis consistent with prior years. Translation of Financial Statements of Financial Translation of Foreign Operations foreign operations are translated Assets and liabilities of and expense items are at the closing rate. Revenue average of exchange rates translated at a weighted surrogate for the spot rates at over the period, as a differences arising from transaction dates. Exchange to the foreign currency translation translation are taken in the Statement of Movements reserve and recognised are independent The foreign operations in Equity. trading operations by wholly owned subsidiaries. Goodwill net assets The excess of cost over the fair value of the amortised acquired is recognised as goodwill, and is over the Performance to the Statement of Financial to be expected period of the benefit, currently estimated up to 5 years.

r) s) t) p) q) Transactions denominated in foreign currencies are denominated in Transactions Foreign Currency Transactions For interest rate swap agreements entered into in interest rate For Financial Instruments with off- The company has various financial instruments Finance Leases assumes substantially under which the company Leases Leases effectively Operating lease payments, where the lessors A liability for gratuities is accrued for the employees A liability for gratuities A liability for long service leave is accrued for the value A liability for long service the Statement of Financial Performance. the Statement of Financial translated at the New Zealand rate of exchange, using the average rate for the month in which the transactions occurred. At balance date foreign monetary assets and liabilities are translated at the closing rate and exchange variations arising from these transactions are included in exposure, the differential to be paid or received is accrued as interest rates change and is recognised as a component of interest income/expense over the life of the agreement. financial instruments are subject to risk that market rates financial instruments are subject to risk that may change subsequent to acquisition, such changes items the on effects opposite by offset be generally would being hedged. connection with the management of interest rate allocate a constant rate of return. of reducing balance sheet risk for the primary purpose While these its exposure to fluctuations in interest rates. over the lease term. classified as all the risks and rewards of ownership are charge finance leases and are capitalised. The finance so as to is allocated to periods during the lease term retain substantially all the risks and benefits of ownership retain substantially all the risks and benefits of of the leased items, are included in the determination instalments operating surplus before taxation in equal balance date. The value is determined based on current balance date. The value and service to date. wage and salary levels The value is calculated value of current entitlements. employee, wage and salary based on the age of the levels and current length of service. of expected future payments to be made in respect of expected future payments by employees up to the of services already provided

o)

n) m) l)

STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2004

POWERCO LIMITED 6 ANNUAL REPORT 2004 4 POWERCO LIMITED 7 ANNUAL REPORT 2004 4 - - - 446 927 461 138 352 2003 $000 2003 $000 (938) 3,905 2,061 39,740 38,667 14,781 28,409 201,765 203,153

- - - - 72 PARENT PARENT 746 405 425 639 2004 $000 2004 $000 (212) 2,112 56,351 59,885 18,629 37,300 280,080 281,231

- - 45 945 461 138 352 2003 $000 2003 $000 (908) 3,932 1,616 2,061 43,595 39,878 14,781 27,376 227,844 229,250

- GROUP GROUP 848 405 171 425 108 2004 $000 2004 $000 (254) 1,243 2,392 1,375 3,230 62,095 61,761 18,629 42,928 324,041 325,294

Acquisition expenses Directors’ fees assets on sale of fixed Loss/(Gain) lease charges Finance Rental and operating lease costs Amortisation expense Impairment of goodwill Depreciation Interest expense Bond interest expense Bad debts written off Bad debts provision Dividend revenue Sales Interest revenue Operating Surplus Before Taxation Revenue

Operating Surplus Before Taxation After Charging/Crediting

Comprises:

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

2.

1.

POWERCO LIMITED 6 ANNUAL REPORT 2004 4 POWERCO LIMITED 9 ANNUAL REPORT 2004 4 - - - 22 2003 $000 (545) 5,574 9,375 10,405 28,409 16,001 (10,405) (19,235) (10,405) (10,405)

- 36 PARENT 682 168 2004 $000 (991) 3,641 1,174 t. 14,313 16,001 37,300 12,309 14,995 14,995 (14,995)

- - - 90 nancial statements. 2003 $000 (583) 5,510 9,034 10,678 27,376 16,278 (10,678) (19,129) (10,678) (10,678)

- 36 GROUP 682 363 805 2004 $000 (115) (991) 14,676 16,278 42,928 15,950 15,358 15,358 (15,358)

year’s performance including prior year adjustment Current tax movement Deferred tax movement totalling 53.64% of the Company, the previous assumption of virtual certainty will no longer be satisfied. As a result, the the previous assumption of virtual certainty will no longer be satisfied. totalling 53.64% of the Company, relating to the accumulated tax Company has reviewed its basis of recognition of accumulated tax losses. The portion losses of the future income tax benefit recorded has been reversed in the current year. of $10.7 million) resulting in a During the year the Company incurred a tax expense of $15.4 million (2003: tax loss million future income tax benefit of $0.8 million (2003: $16.3 million). In addition, there is a further tax loss of $1.2 tax benefi relating to the Australian operations, that has not been accounted for as a future income amounting to In respect of the network assets, there is a deferred tax liability for tax depreciation recoverable crystallise if all network assets approximately $57.3 million (2003: $31.5 million) for group and parent which would fi were disposed of for their carrying value. This liability has not been recognised in the Future Income Tax Benefit Future Income Tax Balance as at 1 April 2003 tax Imputation credits and non resident withholding effect of timing differences from current Tax sell their combined shareholding As a consequence of the indicated sales process by the three major shareholders to Prima facie taxation @ 30% – Australia facie taxation @ 30% Prima differences tax effect of permanent Plus/(Less) Timing differences Subvention adjustment The tax credit comprises: Taxation Taxation Operating Surplus Before facie taxation @ 33% – New Zealand Prima Balance as at 31 March 2004 Taxation Expense Attributable to Operating Surplus Taxation

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

3.

POWERCO LIMITED 8 ANNUAL REPORT 2004 4 POWERCO LIMITED 9 ANNUAL REPORT 2004 4

- - - - 7 152 2003 $000 2003 $000 7,729 (7,874) 16,015 13,346 29,361

7 - - - 30 28 PARENT PARENT 135 2004 $000 2004 $000 (144) 25,295 22,765 48,060

- - - 12 19 152 2003 $000 2003 $000 7,729 (7,874) 16,015 13,346 29,361

- - - 19 30 GROUP GROUP 40 135 2004 $000 2004 $000 (144) 25,295 22,765 48,060

per share on 28 June 2002 per share on 19 December 2003 per share on 25 November 2002 per share on 20 June 2003 paid during the period received during the period Dividends Taxation (cont.) Taxation - Dividends paid on ordinary shares at 6 cents Final Distributions: cents - Dividends paid on ordinary shares at 8.0 cents - Dividends paid on ordinary shares at 7.2 Interim Distributions: - Dividends paid on ordinary shares at 7.2 cents Imputation credits attached to dividends Income tax payments made during the period period adjustment Prior Imputation Credits Account Imputation Credits 2003 Balance as at 1 April Imputation credits attached to dividends Balance as at 31 March 2004

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

4.

3.

POWERCO LIMITED 8 ANNUAL REPORT 2004 4 POWERCO LIMITED 1 ANNUAL REPORT 2004 5 ------156 2003 $000 (140) (140) 9,609 38,814 (29,361) 420,300 150,000 570,300 579,769

------PARENT 140 2004 $000 (140) 9,609 22,305 (48,060) (16,146) 570,300 570,300 554,154

- - 24 24 (46) 678 2003 $000 (140) (140) (986) 9,371 (1,032) 38,054 (29,361) . 420,300 150,000 570,300 578,523

- - - 24 24 GROUP 140 606 2004 $000 (140) (426) 9,371 (1,032) 27,570 (48,060) (11,119) 570,300 570,300 558,779

(a) the right to one vote on a poll at a meeting of the Company on any resolution; (b) the right to an equal share in the distributions approved by the Board of Directors; (c) the right to an equal share in distribution of the surplus assets of the Company ordinary shares which were held in an Employee Share Ownership Plan which was stock relates to 101,481 Treasury had been allocated, these ordinary Limited. As all beneficial employee securities operated by the former CentralPower shares were sold in the year ended 31 March 2004. Minority Interest Opening balance Current year movement Closing balance increasing the number of fully paid In December 2002, 93,750,000 ordinary shares were issued totalling $150 million, 2003. No new shares were ordinary shares issued from 222,436,775 to a balance of 316,186,775 as at 31 March issued during the year ended 31 March 2004. Each ordinary share in the Company confers on the holder: Closing balance Stock Treasury Opening balance Current year movement Closing balance Reserve Foreign Exchange Opening balance Current year movement Closing balance Share Capital Opening balance Ordinary share issue Closing balance Earnings Retained Opening balance Operating surplus for current year Dividends paid Share Capital and Reserves

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

5.

POWERCO LIMITED 0 ANNUAL REPORT 2004 5 POWERCO LIMITED 1 ANNUAL REPORT 2004 5 2003 $000 2003 $000 98,001 78,004 100,000 176,005

owerco PARENT PARENT 2004 $000 2004 $000 98,001 78,004 100,000 176,005

2003 $000 2003 $000 98,001 78,004 100,000 176,005

GROUP GROUP 2004 $000 2004 $000 98,001 78,004 100,000 176,005

(2003: $101,006,872) (2003: $81,576,604)

7.97% per annum 8.15% per annum $100,864,378 $82,399,937

5 year fixed coupon bonds 7 year fixed coupon bonds 5 year fixed coupon bonds 7 year fixed coupon bonds 7 year fixed coupon bonds 5 year fixed coupon bonds 5 year fixed coupon Capital Bonds Redeemable Bonds Redeemable capital bonds under the resale facility arranged by the Company. If the sale of any bonds which a bondholder has capital bonds under the resale facility arranged by the Company. such bonds into P elected to sell is not completed by the election date, the bondholder can elect to convert 2004 was $104,685,000 ordinary shares on the election date. The fair value of the capital bonds as at 31 March (31 March 2003: $101,425,000). The capital bonds were issued on 22 May 2002 and are unsecured, subordinated debt obligations of the Company The capital bonds were issued on 22 May 2002 and are unsecured, subordinated debt which are non-cumulative until 22 May 2007. have an interest rate of 8.4% p.a. fixed as to interest. The capital bonds the ability to reset the terms and conditions of the capital bonds, including the interest the Company has Thereafter, the Company has the right to rate, on dates determined by the Company (election dates). On each election date, does not elect to convert some ordinary shares. If the Company convert some or all of the capital bonds into Powerco were not converted or sell those or all of the capital bonds, bondholders can elect to retain their capital bonds which Capital bonds on issue were: on the redeemable fixed coupon bonds were: to require the Company to redeem all of their bonds for cash. If this option On maturity date, bondholders have a right bonds for cash or convert the bonds into ordinary shares. is not taken, the Company will redeem the 2004 were: The fair values of the bonds as at 31 March 2000 and expire on 1 September 2005 (5 year bonds) and 1 September These bonds were issued on 1 September the interest rates cost and have fixed interest rate terms. As at 1 April 2004, 2007 (7 year bonds). Bonds are carried at On 31 March 2004, redeemable fixed coupon bonds On 31 March 2004, on issue were:

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

7.

6.

POWERCO LIMITED 0 ANNUAL REPORT 2004 5 POWERCO LIMITED 3 ANNUAL REPORT 2004 5 - - - - - 2003 $000 2003 $000 -based . The

PARENT PARENT 2004 $000 2004 $000 50,000 100,000 100,000 294,266 250,000

year guaranteed bonds).

4 - - - - / - 1 2003 $000 2003 $000

GROUP GROUP 2004 $000 2004 $000 50,000 100,000 100,000 294,266 250,000

5.47% per annum 5.57% per annum 5.67% per annum 6.22% per annum 6.39% per annum 6.53% per annum

year guaranteed bonds year guaranteed bonds

4 4 / / 1 1 13 year US dollar private placement notes 11 year US dollar private placement notes 12 year US dollar private placement notes 7 year guaranteed bonds 9 year guaranteed bonds 11 11 7 year guaranteed bonds 9 year guaranteed bonds notes on issue were:

payments are semi-annual and the notes expire on 25 November 2014 (11 year notes), 25 November 2015 (12 year payments are semi-annual and the notes expire on 25 November 2014 (11 year notes), notes), and 25 November 2016 (13 year notes). As at 1 April 2004, the interest rates on the notes are: On 31 March 2004, US dollar private placement institutional investors. The coupon The US dollar private placement note issue took place on 25 November 2003 to US been executed. Placement Notes US Dollar Private Under the trust documents constituting the guaranteed bonds, the Company has covenanted to ensure that, if XL Under the trust documents constituting the and such default continues unremedied, guaranty, under the financial Capital Assurance Inc. defaults on its obligations under the guaranteed bonds by the Company will procure sufficient of its subsidiaries to guarantee its obligations all times the total tangible assets of the Company and all guaranteeing executing a Subsidiary Guarantee so that at assets of the Group. As at 1 April 2004, no Subsidiary Guarantees had subsidiaries exceeds 85% of the total tangible nancial guaranty organisation. The bonds expire on 29 March 2011 (7 year XL Capital Assurance Inc., a specialist financial guaranty organisation. The bonds guaranteed bonds) and 29 June 2015 (11 guaranteed bonds), 29 March 2013 (9 year guaranteed bonds were: As at 1 April 2004, the interest rates on the March 2004 and are unsecured debt obligations of the Company The guaranteed bonds were issued on 29 and principal are guaranteed on an unsecured basis by US scheduled payments by the Company of interest On 31 March 2004, guaranteed bonds on issue were: On 31 March 2004, Guaranteed Bonds

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

9.

8.

POWERCO LIMITED 2 ANNUAL REPORT 2004 5 POWERCO LIMITED 3 ANNUAL REPORT 2004 5 -end a sum of $120,000,000, which -end a sum of $160 million from Tranche -end $160 million from Tranche a sum of t of a deed of negative pledge and cross-guaranteest of a deed of negative been drawn-down also unsecured and as at 31 March 2004. This facility expires on 6 November 2005. The facility is has the benefit of the Negative Pledge Deed referred to above. have joined the Negative Pledge Deed as guaranteeing subsidiaries. At year have joined the Negative Pledge Deed as (2003: $707 million, which had accrued interest of $7,178,571) had which has accrued interest of $1,665,578, B, of this and expires in October 2006. The remaining $580 million Facility been drawn down under the Asset Purchase facility has been cancelled. established a commercial bank a subsidiary of the Company, Pty Limited, Tasmania On 6 November 2003, Powerco has million) Corporation for $30 million. A total of $5.74 million (AUD$5 Banking borrowing facility from Westpac UnitedNetworks Limited (UNL). This Asset Purchase Facility for $740 million was supported by a syndicate made up of for $740 million was supported by a syndicate made Purchase Facility UnitedNetworks Limited (UNL). This Asset Corporation and ANZ Banking Group (New Zealand) Limited. This facility is Banking Bank of New Zealand, Westpac B of $250 A of $250 million and Tranche of $240 million, Tranche Facility made up of three commitments - a Bridge and cross-guarantees of a deed of negative pledge benefit million. The facility is unsecured and has the dated 4 August of its subsidiaries (the Negative Pledge Deed). As at 1 April 2004, all 1997 entered into by the Company and certain Australia Group Pty Limited and Energy Brokers New Zealand Limited) subsidiaries of the Company (excluding Powerco commercial paper facility (2003: $125,000,000 was drawn down under the commercial paper facility which included an commercial paper facility (2003: $125,000,000 interest portion of $1,848,311). in July 2002 for the purpose of acquiring network assets from Facility The Company established an Asset Purchase Bank of New Zealand, Westpac Banking Corporation and ANZ Banking Group (New Zealand) Limited, which continues Banking Group (New Zealand) Limited, Banking Corporation and ANZ Westpac Bank of New Zealand, The facility is unsecured and has the benefi until 30 October 2004. As at 1 April of its subsidiaries (the Negative Pledge Deed). entered into by the Company and certain dated 4 August 1997 New Zealand Group Pty Limited and Energy Brokers Australia of the Company (excluding Powerco 2004, all subsidiaries subsidiaries. At year Negative Pledge Deed as guaranteeing Limited) have joined the of 90 day bills, with varying maturity dates, had been drawn down under the includes an interest portion of $1,729,029 The Company has established a commercial paper facility to enable the Company to borrow money from the capital the Company to borrow money from a commercial paper facility to enable The Company has established made up of the of $160 million with a syndicate of banks is supported by a cash advance facility market. The programme NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 11. Commercial Bank Debt 10. Commercial Paper Facility 10. Commercial Paper

POWERCO LIMITED 2 ANNUAL REPORT 2004 5 POWERCO LIMITED 5 ANNUAL REPORT 2004 5

------2003 $000

------PARENT 2004 $000 arent company, Powerco Powerco arent company,

605 178 232 274 399 122 783 905 783 2003 $000

GROUP 466 599 501 990 279 2004 $000

1,345 1,811 2,090 1,811

Current liabilities liabilities Term Represented by: Energy Services Pty Limited have finance rates ranging from 6.95% to 8.5% Powerco finance leases held by The Group’s obligations is given by way of a guarantee by the P per annum. Security in respect of the lease Limited. Assets relating to finance leases are included in Note 13. Within one year Between 1–2 years Between 2–5 years finance charges Less Finance Leases date are as follows: lease obligations payable after balance Finance

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

12.

POWERCO LIMITED 4 ANNUAL REPORT 2004 5 POWERCO LIMITED 5 ANNUAL REPORT 2004 5

------2003 $000 9,443 79,385 1,607,878 1,687,263 1,617,321

------PARENT 907 198 286 137 149 2004 $000 1,105 2,202 8,423 1,155 7,268 14,470 134,450 1,591,704 1,726,154 1,615,991

- - - 497 818 203 902 2003 $000 9,937 5,583 2,452 1,128 1,324 1,869 1,372 2,202 8,378 7,560 1,105 79,315 16,512 10,929 1,605,879 1,685,194

1,640,105

GROUP 820 128 692 342 971 376 949 2004 $000 9,954 4,303 1,963 2,340 1,313 2,272 8,423 1,155 7,268 1,325 30,507 20,393 10,439 133,996 1,586,125 1,720,121 1,641,078

Property, Plant and Equipment Property, Network Systems Cost accumulated depreciation Less in progress Work the fair value of these assets. The Government valuation of The book value of land and buildings as stated above reflects land and buildings amounts to $6.677 million as at 31 March 2004. Motor Vehicles Cost accumulated depreciation Less – Subject to Finance Lease Motor Vehicles Cost accumulated depreciation Less Less accumulated depreciation Less Office Equipment, Plant and Machinery Cost accumulated depreciation Less Office Equipment, Plant and Machinery – Subject to Finance Lease Cost accumulated depreciation Less Land Cost Buildings Cost accumulated depreciation Less Furniture and Fittings Cost

Total Property, Plant and Equipment Property, Total NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

13.

POWERCO LIMITED 4 ANNUAL REPORT 2004 5 POWERCO LIMITED 7 ANNUAL REPORT 2004 5

227 2003 $000 3,125 9,373 12,725 100 100 100 100 100 100 100 100 100 100 100 100 66.3

% INTEREST HELD PARENT 227 2004 $000 3,125 9,454 12,806

- - - - 2003 $000 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March BALANCE DATE

- - - - GROUP 2004 $000

Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading PRINCIPAL ACTIVITYNon-trading and consolidating of management services Provision Electrical/gas field services and contracting Non-trading and consolidating Gas reticulation and distribution Electrical contracting

Advances Shares (formerly Powerco Australian (formerly Powerco Holdings Pty Limited)

Powercom Limited Powercom Limited Powerline Service.Link Limited Energy Metering Limited Powerco Energy Services Pty Ltd Powerco Energy Brokers New Zealand Limited Electricity Limited Taranaki Central Energy Limited Powerco Network Management Limited Powerco Energy Services Limited Powerco Australia Group Pty Limited Powerco Pty Ltd Tasmania Powerco SUBSIDIARY COMPANIES Holdings Limited (NZ) Powerco Investment in Energy Brokers New Zealand Ltd Investment in Energy Energy Services Pty Ltd: Investment in Powerco Investments in Subsidiaries

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

14.

POWERCO LIMITED 6 ANNUAL REPORT 2004 5 POWERCO LIMITED 7 ANNUAL REPORT 2004 5 - - 2003 $000 2003 $000 2003 $000 2,843 1,748 5,385 1,653 2,843 16,001 17,749 ’s 814,193 819,578 821,231

------PARENT PARENT PARENT 2004 $000 2004 $000 2004 $000 1,174 12,860 14,034

- - 2003 $000 2003 $000 2003 $000 2,843 1,748 5,385 1,653 2,843 16,278 18,026 824,516 829,901 831,554

------GROUP GROUP GROUP 805 2004 $000 2004 $000 2004 $000 12,860 13,665

Other Non-Current Assets Other Investments Effect of Acquisition of Businesses Effect of Acquisition Future income tax benefit Future Deferred funding costs Listed equity shares the amount of $4,321,415. sole investment in listed equity shares was sold on 22 January 2004 for The Group’s The market value of these shares as at 31 March 2003 was $3,333,663. Non-currentliabilities Net assets acquired Goodwill on acquisition Net cash paid the Company for the year ended 31 March 2003, is the effect of acquiring Included in the accounts of the Group and Limited in November 2002. In addition, one of the Group electricity and gas network assets from UnitedNetworks Australian Holdings Pty Ltd), purchased three Limited (formerly Powerco Energy Services Pty subsidiaries, Powerco in Australia during June 2002. and New South Wales electrical contracting businesses in Queensland Current assets Non-current assets Current liabilities

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

17. 16.

15.

POWERCO LIMITED 6 ANNUAL REPORT 2004 5 POWERCO LIMITED 9 ANNUAL REPORT 2004 5

2 35 126 178 251 643 236 285 2003 $000 2003 $000 (200) 1,469 21,627 21,714

- - 50 PARENT PARENT 172 386 248 351 915 2004 $000 2004 $000 (200) 1,207 22,216 22,931

- 35 142 178 251 643 236 2003 $000 2003 $000 (200) 3,759 1,485 26,013 29,572

- - 50 GROUP GROUP 172 386 248 452 2004 $000 2004 $000 7,145 1,308 (1,443) 27,773 33,475

Auditing regulatory statements assurance services Taxation Other assurance services Other services Auditing financial statements Audit assurance services The relationship between the Company and its external auditors is managed by the Directors in accordance with The relationship between the Company and its external auditors is managed by the the Company’s Corporate Governance policies relating to auditor independence. A substantial proportion of the 2003 assurance services provided by the Company’s auditors was in relation to the two Investment Statements and issued during the year. Prospectuses Amounts paid or payable to the auditors for: As at 31 March 2004, Powerco Tasmania Pty Limited, a wholly-owned subsidiary of the Company, had deposits on call subsidiary of the Company, a wholly-owned Pty Limited, Tasmania As at 31 March 2004, Powerco $2.033 million). to $2.332 million (AUD Banking Corporation amounting with Westpac Auditors’ Remuneration The Company operates a wholesale capital advance facility with the Bank of New Zealand for up to $15 million. The Company operates a wholesale capital down on the facility and $9.388 million was invested in call funds (2003: As at 31 March 2004, no funds were drawn is based on a revolving credit arrangement and as such does not have set investment of $15.257 million). The facility July 2004 but is subject to automatic renewal for a further period. repayment dates. The facility expires on 31 t of the Negative Pledge Deed and the cross-guaranteesThe facility is unsecured and has the benefi provided by the 10 above. guaranteeing subsidiaries referred to in Note Intercompany receivables Capital Advances Facility Working Accounts receivable Unbilled sales and prepayments for doubtful debts Provision Accounts Receivable

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

20. 19.

18.

POWERCO LIMITED 8 ANNUAL REPORT 2004 5 POWERCO LIMITED 9 ANNUAL REPORT 2004 5 - - - - - 2003 $000 2003 $000 12,620 12,620

- - - - - PARENT PARENT 2004 $000 2004 $000 5,248 5,248

- 927 2003 $000 2003 $000 1,618 1,360 3,905 12,620 12,620

. The Company paid $143,122 (2003:

, has an interest, for work performed in the

GROUP GROUP 2004 $000 2004 $000 5,248 2,032 1,554 2,021 5,607 40,548 45,796

resulting from contracts entered into: Operating Lease Obligations Transactions with Related Parties with Related Transactions Contingent Liabilities and Commitments Contingent Liabilities Within one year Between 1–2 years Between 2–5 years nancial year ended 31 March 2003, the Company paid consulting fees and brokerage amounting to In the previous financial year ended 31 March 2003, the Company paid consulting fees and brokerage in the Macquarie New Zealand 48% of the total fees paid for asset acquisition transactions (2002: 77%) to companies resigned as a Director of Macquarie New Mr J H Ogden group, companies in which Mr J H Ogden was a Director. Zealand Limited on 5 December Zealand Limited on 30 April 2002, resigned as a Director of Macquarie Equities New 2003. 2002 and resigned as a consultant to Macquarie New Zealand Limited on 31 January Operating lease obligations payable after balance date on non-cancellable leases are as follows: The Company paid consulting fees amounting to $36,992 (2003: $109,100) to Upson Associates Ltd, a company in The Company paid consulting fees amounting and the area of corporate development, finance has an interest, for work performed in which Mr B R Upson, a Director, regulatory advice. party relationship with the New Plymouth District Council. The New The Company is also deemed to have a related material interest in the Company Plymouth District Council holds a 38.16% Council at market rates. Rates have been paid to New Plymouth District $124,938) rent to the New Plymouth District Utility Rates have been paid to the New Plymouth District Council to the Council to the value of $29,395 (2003: $7,147). length transactions with the New Plymouth District Council amounted to value of $21,143 (2003: $5,239). Other arms $30,837 (2003: $66,954). to $17,000 to In the previous financial year ended 31 March 2003, the Company had paid consulting fees amounting Ogden Consulting Limited, a company in which Mr J H Ogden, a Director area of corporate finance and regulatory advice. Commitments Commitments for future capital expenditure gas network Tasmanian Contingencies Transpower against Limited Energy Todd by issued claim a in defendant second a as named been has Company The injunctions and declarations various claim and 1986 Act Commerce the of breaches various allege plaintiffs The Limited. the Company, by defended being is claim The unquantified. presently is amount damages The damages. with together financial the in included been has claim the for provision No obligations. its of any of breach in not is it that contends which statements.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 23. 22.

21.

POWERCO LIMITED 8 ANNUAL REPORT 2004 5 POWERCO LIMITED 1 ANNUAL REPORT 2004 6

.

rudential Supervision Policy which is used which is used rudential Supervision Policy

foreign currency exchange variations in relation to the independent foreign subsidiaries. The Company has put in place foreign currency exchange variations in relation a cross-currencyhedge against the cost of the US dollar private placement interest costs. swap to maturities of these agreements are shown in (iv) below. The weighted average of the interest rate swap agreements The weighted average of the interest rate swap agreements in (iv) below. maturities of these agreements are shown an interest rate of 6.6% per annum. (excluding the reverse swap agreements) produce Exchange Risk (iii) Foreign risk as a result of the independent foreign subsidiaries trading in their The Company has exposure to foreign exchange placement notes. There is currently no hedging against the risk of local currency and the issue of US dollar private (ii) Interest Rate Risk (ii) Interest Rate will change, increasing or decreasing the cost of borrowing or lending Interest rate risk is the risk that interest rates The Company’s daily interest rate. Non-current borrowings are on a floating fixed debt is funded by the short-term coupon bonds and the Company’s bills. commercial paper facility based on 90 day bank swap agreements to reduce the impact of the changes in interest rates The Company has entered into interest rate Company had interest rate swap agreements with registered banks. The on its borrowings. As at 31 March 2004 the (i) Credit Risk potentially subject the Company to credit risk principally consist of bank balances and instruments which Financial at 31 March 2004 comprise 62.2% (2003: accounts receivable. The five largest accounts receivable balances as accounts are subject to a Board P 63.2%) of total accounts receivable. These exposures have been set and are monitored on a limits on of this policy, to manage the exposure to credit risk. As part with registered banks. regular basis. Cash deposits are only made All operations are carried out within New Zealand, with the exception of a small contracting business in Queensland, of a small contracting business in Queensland, out within New Zealand, with the exception All operations are carried gas distribution business in Australia. Australia and a small Financial Instruments Segmental Reporting Segmental Reporting of electricity and service provision and reticulation activities relate to the distribution, management, principal The Group’s Island. gas within the North

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 25. 24.

POWERCO LIMITED 0 ANNUAL REPORT 2004 6 POWERCO LIMITED 1 ANNUAL REPORT 2004 6 $000 $000 7,070 (1,234) (4,715) (1,294) MARKET MARKET (25,094) (19,188) MARK TO MARK TO (19,318) (25,137) ADJUSTMENT ADJUSTMENT 31 MARCH 2004 31 MARCH 2003

- - - - $000 $000 VALUES VALUES 25,000 340,000 NOTIONAL NOTIONAL FORWARD RATE FORWARD RATE 31 MARCH 2004 31 MARCH 2003

- - $000 $000 VALUES VALUES CURRENT CURRENT 878,000 822,266 420,000 NOTIONAL NOTIONAL 1,416,000 31 MARCH 2004 31 MARCH 2003

MATURITIES MATURITIES 2006-2015 2003-2012 2006-2010 2003-2012 2004-2012 2006-2010

(Powerco pays fixed / receives floating) (Powerco receives fixed / pays floating (Powerco plus margin) (Powerco pays fixed / receives floating) (Powerco (Powerco pays fixed / receives floating) (Powerco receives fixed / pays floating (Powerco plus margin) (Powerco pays fixed / receives floating) (Powerco Financial Instruments (cont.) Financial Instruments Swaps (Fixed to Floating for Bonds) Swaps (Fixed Interest Rate Swaps Interest Rate Swaps Forward Rate As at 31 March 2003 (excluding bonds and investments referred to in Notes 6, 7 and 16 above) are considered assets and liabilities Financial of the following items: to be at their fair value with the exception Swaps (Fixed to Floating for Bonds) to Floating Swaps (Fixed Interest Rate Swaps Interest Rate Swaps Forward Rate As at 31 March 2004 7, 8 and 9 above) are and investments referred to in Notes 5, 6, assets and liabilities (excluding bonds Financial items: fair value with the exception of the following considered to be at their (iv) Fair Value (iv) Fair

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

25.

POWERCO LIMITED 0 ANNUAL REPORT 2004 6 POWERCO LIMITED 3 ANNUAL REPORT 2004 6

1 1 1 ------PARENT

1 1 1 ------EMPLOYEES asmania dated DISCONTINUING owerco must repay GROUP nancial capability to

4 1 4 2 1 2 1 1 - - - - asmania amounting to

PARENT

8 2 4 1 1 2 1 2 1 1 - - EMPLOYEES CONTINUING GROUP

30 April 2003. whereby P There is a refund mechanism on sale of assets or the shares in the gas distribution entity and the asset/equity an amount equal to the lesser of the establishment contribution the State Government of Tasmania profit. Contribution from Tasmanian Government Contribution from Tasmanian contribution from the State Government of T In January 2004, the Company received a This payment, known as an establishment of a gas distribution network in Tasmania. $8 million, for the build AUD necessary steps to incorporate a gas distribution entity and procuring that contribution, is consideration for taking all access to the necessary expertise, assets and fi the gas distribution entity is established with with the Crown in Right of the State Government of T undertake the Stage 1 Development Agreement $280,001 – $290,000 $290,001 – $300,000 $320,001 – $330,000 $720,001 – $730,000 $130,001 – $140,000 $150,001 – $160,000 $170,001 – $180,000 $250,001 – $260,000 $260,001 – $270,000 $100,001 – $110,000 $110,001 – $120,000 $120,001 – $130,000 Employee’s Remuneration

27.

26.

POWERCO LIMITED 2 ANNUAL REPORT 2004 6 POWERCO LIMITED 3 ANNUAL REPORT 2004 6 cient ows for the year ended 31 March 2004. nancial report presented by the Board of Directors and nancial report presented by the Board of Directors gives a true and fair view of the financial position of Powerco Limited and Group as at 31 March 2004 and the Powerco Limited and Group gives a true and fair view of the financial position of results of their operations and cash flows for the year ended on that date. complies with generally accepted accounting practice in New Zealand;

- proper accounting records have been kept by Powerco Limited and Group as far as appears from our examination of Limited and Group as far as proper accounting records have been kept by Powerco those records; and the financial report on pages 40 to 62: - the significant estimates and judgements made by the Board of Directors in the preparation of the financial report, and report, financial the of preparation the in Directors of Board the by made judgements and estimates significant the to the Company and Group circumstances, consistently applied and whether the accounting policies are appropriate adequately disclosed.

CHARTERED ACCOUNTANTS NEW ZEALAND WELLINGTON, Our audit was completed on 15 June 2004 and our unqualified opinion is expressed as at that date. We have obtained all the information and explanations we have required. We In our opinion : • • fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the In forming our opinion we also evaluated the overall adequacy fraud or error. financial report. consulting advice, we have no Other than in our capacity as auditor and the provision of taxation, accounting and Limited or any of its subsidiaries. relationship with or interests in Powerco OPINION UNQUALIFIED • • planned and performed our audit so New Zealand Auditing Standards. We conducted our audit in accordance with We which we considered necessary in order to provide us with suffi as to obtain all the information and explanations misstatements, whether caused by report is free from material the financial evidence to obtain reasonable assurance that It is our responsibility to express an independent opinion on the fi It is our responsibility to express an independent report our opinion to you. BASIS OF OPINION report. on a test basis, evidence relevant to the amounts and disclosures in the financial An audit includes examining, It also includes assessing: BOARD OF DIRECTORS’ RESPONSIBILITIES OF DIRECTORS’ BOARD preparation, in accordance with New Zealand law and generally accepted The Board of Directors is responsible for the Limited and Powerco position of view of the financial accounting practice, of a financial report which gives a true and fair of their operations and cash fl Group as at 31 March 2004 and of the results RESPONSIBILITIES AUDITORS’ TO THE SHAREHOLDERS OF POWERCO LIMITED AND GROUP THE SHAREHOLDERS OF POWERCO LIMITED TO 31 MARCH 2004 FOR THE YEAR ENDED the past financial financial report provides information about financial report on pages 40 to 62. The have audited the We is stated in Group as at 31 March 2004. This information Powerco Limited and position of performance and financial out on pages 45 and 46. accordance with the accounting policies set AUDITOR’S REPORT

POWERCO LIMITED 2 ANNUAL REPORT 2004 6 POWERCO LIMITED 5 ANNUAL REPORT 2004 6 1.17 0.91 0.61 0.57 0.46 0.34 0.29 0.29 0.28 0.28 0.26 0.25 0.17 0.16 0.15 0.12 3.69 0.17 38.16 11.79 60.12 37,288,723 120,665,371 ISSUED SHARES PERCENTAGE OF

SHARES 929,539 919,288 909,177 902,700 824,717 793,305 565,436 516,271 464,375 368,947 548,872 ORDINARY 3,700,000 2,916,120 1,982,595 1,812,638 1,484,000 1,085,725 37,288,723 11,670,059 120,665,371 190,347,858 NUMBER OF VOTING SECURITIES

– Guardian Trust Investment Limited – A/C NZCSD Investment – Guardian Trust The New Zealand Guardian Trust Company Limited The New Zealand Guardian Trust Agency Company Of New Zealand - A/C NZCSD Executors And The Trustees Ivor Anthony Millington and Philippa Mary Williams Margaret Jean Williams and Nicola Jean O’Brien Pamela Citibank Nominees (New Zealand) Limited – A/C NZCSD Citibank Nominees (New Zealand) Limited – NZCSD Fund AMP Superannuation Tracker – A/C NZCSD National Nominees New Zealand Limited No 2 – NZCSD A/C Banking Corporation – Client Assets Westpac M A Janssen Ltd Limited Equities Custodians Leveraged BNZ Nominees Limited – A/C NZCSD A/C – NZCSD Custodians Limited – NZ Mid Cap Index Fund Tea (RWT) Limited – A/C NZCSD Investment Nominees Guardian Trust Margaret Jean Williams Pamela SECURITY HOLDERS INFORMATION AS AT 1 MAY 2004 Largest Shareholders Twenty New Plymouth District Council Incorporated Electricity Trust Taranaki Incorporated Community Trust Powerco Investments Limited Kiwi Pacific Custodians Limited Forbar Custodial Services Limited SUBSTANTIAL SECURITY HOLDERS SUBSTANTIAL The Company’s Markets Act in accordance with section 25 of the Securities of substantial security holders, prepared register information at 1 May 2004. 1988, recorded the following NAME Council New Plymouth District Electricity Trust Taranaki 316,186,775. number of issued voting securities was At 1 May 2004 the total STATUTORY INFORMATION

POWERCO LIMITED 4 ANNUAL REPORT 2004 6 POWERCO LIMITED 5 ANNUAL REPORT 2004 6 0.37 0.35 0.35 0.35 0.29 0.28 0.28 0.25 8.05 6.31 2.04 2.04 1.07 1.02 0.76 0.51 0.51 0.51 0.40 0.40 26.14 BONDS REDEEMABLE ISSUED 5 YEAR PERCENTAGE OF

5 YEAR BONDS 370,000 350,000 350,000 350,000 285,000 282,640 280,000 250,000 750,000 503,000 500,000 500,000 400,430 400,000 7,895,051 6,187,000 2,008,314 2,000,000 1,050,000 1,000,000 25,711,435

& Georgina Charity Tudhope & William Rodney Hamilton Tudhope & Georgina Charity Tudhope STATUTORY INFORMATION Canterbury District Health Board Eastern Central Community Trust Inc Eastern Central Community Trust Charities Ltd Eastern Central Community Trust David Tudhope Oliver Richard Gilbert & Geoffrey Richard Limited NZ Capital Custodians First Edith Ella Colgrave Presbyterian Savings & Development Society Of New Zealand Incorporated Savings & Development Presbyterian Investment Custodial Services Limited Joyce Fisher Incorporated Medical Research Foundation Wellington McMillan Nominees Limited Church Property Trustees Church Property Association New Zealand Methodist Trust Custodian Limited Portfolio Masterportfolio Nominees Limited Society Manchester Unity Friendly Twenty Largest 5 Year Redeemable Bondholders Redeemable Largest 5 Year Twenty Securities Depository Limited New Zealand Central Limited Custodial Nominees Custodial Services Limited PSIS Limited SECURITY HOLDERS INFORMATION SECURITY HOLDERS AS AT 1 MAY 2004

POWERCO LIMITED 4 ANNUAL REPORT 2004 6 POWERCO LIMITED 7 ANNUAL REPORT 2004 6 0.24 0.23 0.22 0.21 0.19 0.19 0.19 0.19 1.50 1.10 0.62 0.51 0.51 0.32 0.32 0.32 0.32 0.25 0.25 47.01 54.69 BONDS REDEEMABLE ISSUED 7 YEAR PERCENTAGE OF

7 YEAR BONDS 190,000 180,000 179,000 170,000 150,000 150,000 150,000 150,000 859,643 486,308 400,000 400,000 250,000 250,000 250,000 250,000 200,000 200,000 1,179,910 36,670,195 42,715,056

Forbar Custodians Limited Forbar & Dean Allan Ellwood Audrey Elva Bremner & Thomas Norman Johnston Edward Vial John Gladwyn Morton Spooner & Gordon Rachel Raye Freedman & Julia Yearsley Yearsley John Karl Board Incorporated House Trust Woodford Equine Estate Limited Marie Marshall Anthony Marshall & Lynette Peter Anne Wakem & Beverley Geoffrey Arnold Atkinson & Brian John Lynch Robert David John Scollay Neil Gray & Christopher James Scollay & Alexander Robin Charles and Linda Jane Page Twenty Largest 7 Year Redeemable Bondholders Redeemable Largest 7 Year Twenty Securities Depository Limited New Zealand Central Limited Custodial Nominees Support Central Presbyterian Investment Custodial Services Limited Incorporated Eastern Central Community Trust Charities Limited Eastern Central Community Trust Board Incorporated Knox Home Trust Society Of New Zealand Incorporated Savings & Development Presbyterian & John Stephen Burrett Graeme Nigel Thurston & Bridget Gorinski SECURITY HOLDERS INFORMATION SECURITY HOLDERS AS AT 1 MAY 2004 STATUTORY INFORMATION

POWERCO LIMITED 6 ANNUAL REPORT 2004 6 POWERCO LIMITED 7 ANNUAL REPORT 2004 6 0.29 0.25 0.25 0.23 0.20 0.20 0.20 0.20 4.56 2.65 2.57 1.50 1.10 0.91 0.70 0.56 0.38 0.35 0.30 0.30 17.70 OF ISSUED PERCENTAGE CAPITAL BONDS

BONDS CAPITAL 292,000 250,000 250,000 237,000 200,000 200,000 200,000 200,000 918,000 700,000 560,000 386,000 350,000 300,000 300,000 4,562,000 2,672,000 2,593,000 1,500,000 1,100,000 17,770,000

rancis Austin

STATUTORY INFORMATION

Oakwood Securities Limited Hsiu-Ching Huang (South Canterbury) Support Services Presbyterian MGL Superannuation Limited International Limited Holdings Lane Ken Limited NZ Capital Custodians First Board Trust Cornwall Park Williams and Christina Lucas Ian Franklin and Raymond Lucas Paul Johnston and Geofrey F Owen Lindsay Johnston and Maureen Catherine David Claude Collis and Ruth Ann Collis Twenty Largest Capital Bondholders Twenty Securities Depository Limited New Zealand Central Custodial Services Limited Custodians Limited Forbar Cogent Nominees Limited Masfen Holdings Limited Investment Custodial Services Limited & Catherine Ann Tuck Horton Tuck Francis Custodial Nominees Limited Association New Zealand Methodist Trust Society Of New Zealand Incorporated Savings & Development Presbyterian SECURITY HOLDERS INFORMATION SECURITY HOLDERS AS AT 1 MAY 2004

POWERCO LIMITED 6 ANNUAL REPORT 2004 6 POWERCO LIMITED 9 ANNUAL REPORT 2004 6 1.00 1.00 0.76 0.50 0.50 0.50 0.40 0.35 3.00 2.02 2.00 2.00 2.00 1.25 1.00 1.00 1.00 1.00 1.00 51.14 73.42 BONDS GUARANTEED ISSUED 7 YEAR PERCENTAGE OF

7 YEAR BONDS 760,000 500,000 500,000 500,000 400,000 350,000 1,000,000 1,000,000 3,000,000 2,033,000 2,000,000 2,000,000 2,000,000 1,262,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 51,142,000 73,447,000

The Public Trustee Fund The General Trust Selwyn Foundation Incorporated Board New Zealand Anglican Church Pension New Zealand Church Of Aotearoa Presbyterian Limited NZ Capital Custodians First Association New Zealand Methodist Trust Harold Hilliam & Gail Clark & Craig Waymouth Custodian Limited Portfolio Foundation New Zealand Law and John Spence Sharp Oxley Martin Ross Oxley and Susan Patricia Twenty Largest 7 Year Guaranteed Bondholders Largest 7 Year Twenty Securities Depository Limited New Zealand Central AMI Insurance Limited Custodial Services Limited Southern Cross Medical Care Society Board Melanesian Mission Trust Board Inc St Johns College Trust Custodians Limited Forbar Society Manchester Unity Friendly Southland District Council SECURITY HOLDERS INFORMATION SECURITY HOLDERS AS AT 1 MAY 2004 STATUTORY INFORMATION

POWERCO LIMITED 8 ANNUAL REPORT 2004 6 POWERCO LIMITED 9 ANNUAL REPORT 2004 6 0.10 0.10 0.10 0.07 0.07 0.07 0.06 0.05 1.00 0.22 0.20 0.20 0.20 0.17 0.16 0.15 0.13 0.10 0.10 95.71 98.96 BONDS GUARANTEED ISSUED 9 YEAR PERCENTAGE OF

9 YEAR BONDS 78,000 78,000 75,000 60,000 50,000 100,000 100,000 100,000 225,000 205,000 200,000 200,000 170,000 160,000 150,000 138,000 100,000 100,000 1,000,000 95,715,000 99,004,000

STATUTORY INFORMATION

Glenfield Investments Limited Marie Wills Wills & Nancy Percival Frank Arohanui Hospice Service Trust Elizabeth Davison Davison & Shona Bruce Leslie & Amelie Wong Wong Terii Greenwood Greenwood & Diane Denise Stephen Paul Chappell & James Thomas Chappell Raymond John Chappell & Noeline Elizabeth Chappell & James Thomas Chappell Noeline Elizabeth Chappell & Raymond John Limited NZ Capital Custodians First Beatrice Cunningham Grahame Claud Cunningham and Gloria Gilmour Steven Twenty Largest 9 Year Guaranteed Bondholders Largest 9 Year Twenty Securities Depository Limited New Zealand Central The Maori Trustee Council Matamata Piako District Custodial Services Limited Nicholas James Hegan Brian George Highsted & Helen Isobel Highsted PCS Investment Nominees Limited Amir Khazeni Custodial Nominees Limited SECURITY HOLDERS INFORMATION SECURITY HOLDERS AS AT 1 MAY 2004

POWERCO LIMITED 8 ANNUAL REPORT 2004 6 POWERCO LIMITED 1 ANNUAL REPORT 2004 7 YEAR 0.46 0.30 0.15 0.12 0.05 0.05 0.04 0.04 0.03 0.02 4 / 98.74 1 BONDS 100.00 HOLDING QUANTITY 881,433 457,809 GUARANTEED 47,174,290 63,103,108 16,083,000 17,992,095 65,949,429 91,605,863 72,943,000 27,057,000 205,027,944 233,917,000 PERCENTAGE OF 250,000,000 316,186,775 100,000,000 176,005,196

ISSUED 11

630 114 103 761 206 106 YEAR 744 4 1,615 7,303 / BONDS 3,145 2,922 4,143 1 4,249 15,618 75,000 60,000 25,000 25,000 20,000 20,000 15,000 10,000 HOLDERS 20,481 11,192 230,000 149,000 11 NUMBER OF 49,371,000 50,000,000

Year Guaranteed Bondholders Year 4 / 1

5,001 to 100,000 Over 100,000 Guaranteed Bonds 5,001 to 100,000 Over 100,000 Over 100,000 Bonds Redeemable 1 to 1,000 1,001 to 5,000 5,001 to 100,000 Over 100,000 Capital Bonds Bartholomew Robin Mann Campbell Helen Louise SIZE OF HOLDING Ordinary Shares 1 to 1,000 1,001 to 5,000 5,001 to 100,000 Largest 11 Securities Depository Limited New Zealand Central Limited PCS Investment Nominees Limited Custodial Nominees Annette Mann Pauline Megan Churchill Jacka & Alison Louise Norman Jacka Cecil Kerry Max Rutherford & Christina Rutherford & Sally Eileen Wallis Roger Harding Wallis Richard Henry Digby Neave & Ian Stuart Dalley SECURITY HOLDERS INFORMATION SECURITY HOLDERS AS AT 1 MAY 2004 STATUTORY INFORMATION

POWERCO LIMITED 0 ANNUAL REPORT 2004 7 POWERCO LIMITED 1 ANNUAL REPORT 2004 7 ORDINARY 8,778,059 5,631,634 1,322,284 SHARES HELD 21,410,839 22,199,494 12,910,648 30,536,837 19,319,294 30,699,753 163,377,933 316,186,775

623 561 669 220 1,405 1,166 1,245 3,668 7,306 3,618 HOLDERS 20,481 NUMBER OF ’s guaranteed bonds ’s capital bonds specified riday. nition of record date in the trust BBB+ LONG-TERM

A-2 SHORT-TERM

STATUTORY INFORMATION NZX has also granted the Company a waiver from Listing Rule 1.13 to permit the defi on a F documents for the guaranteed bonds to contemplate a record date other than 5.00pm ed under the NZX Listing Rules. This waiver has been granted on the basis that a minimum holding of guaranteed specified under the NZX Listing Rules. This waiver has been granted on the basis that a minimum bonds is guaranteed bonds of a tranche with an aggregate principal amount of $5,000. the Company to include in NZX has also granted the Company a waiver from Listing Rule 11.1.1. This waiver allows bonds who is to retain any the trust documents for the guaranteed bonds a provision that any transferor of guaranteed holding of a tranche and any guaranteed bonds of a tranche following a transfer must continue to hold a minimum additional guaranteed bonds in integral multiples of $1,000. under the NZX Listing Rules. This waiver has been granted on the basis that a minimum holding of capital bonds is capital under the NZX Listing Rules. This waiver has been granted on the basis that a minimum applies to both a transferor and a bonds with an aggregate principal amount of $5,000. This minimum holding restriction transferee of capital bonds. Guaranteed Bonds Company NZX has granted the Company a waiver from the required minimum holding of the NZX WAIVERS which remain applicable as at New Zealand Exchange Limited (NZX) has granted the Company the following waivers 31 March 2004. Capital Bonds Company NZX has granted the Company a waiver from the required minimum holding of the CREDIT RATING following credit ratings: As at 31 March 2004 the Company has the RATING AGENCY Standard & Poor’s EARNINGS PER SHARE 31 March 2004 is 17.4 cents. (2003: 14.6 cents) The earnings per share for the year ending Manawatu Dunedin Other North Island Other South Island Overseas Auckland Wellington Christchurch Taranaki Wanganui SECURITY HOLDERS INFORMATION SECURITY HOLDERS Analysis Shareholder Location

POWERCO LIMITED 0 ANNUAL REPORT 2004 7 subsidiaries, and there were no changes in the classes of business in which the Company has an interest. in which the Company has an interest. were no changes in the classes of business subsidiaries, and there DONATIONS ended 31 March 2004. by the Company during the 12 months No donations were made SUBSIDIARIES AND OF COMPANY OPERATIONS CHANGES IN BUSINESS Company or its in the nature of the business of the ended 31 March 2004 there were no changes During the 12 months STATUTORY INFORMATION

POWERCO LIMITED 2 ANNUAL REPORT 2004 7 DIRECTORS B R Upson (Chairman) I D Lobb (Deputy Chairman) J S Auld J H Ogden K N Sampson J R Timpany I A Wilson

CHIEF EXECUTIVE S R Boulton

EXECUTIVE MANAGEMENT TEAM General Manager Corporate and Commercial N Barbour Corporate Risk Manager T S Broadhurst Chief Financial Officer S E Ekanayake General Manager Corporate Development J W Kendrew General Manager Network Assets E R Krogh General Manager Energy Services S Sanderson

REGISTERED OFFICE Level 2, Council Chambers 84 Liardet Street Private Bag 2061 New Plymouth New Zealand Telephone 0800 769 372 Facsimile +64 6 758 6818 www.powerco.co.nz

AUDITORS Deloitte• BANKERS Westpac Banking Corporation Bank of New Zealand ANZ Investment Bank

SHARE REGISTRY ComputerShare Investor Services Limited Private Bag 92 119 Auckland 1020 www.powerco.co.nz