ANNUAL REPORT 2013 | WEL NETWORKS LIMITED & SUBSIDIARIES ANNUAL REPORT 2013 | WEL NETWORKS LIMITED & SUBSIDIARIES

BUILDING TOMORROW’S NETWORK

BEST IN SERVICE. BEST IN SAFETY. wel.co.nz BEST IN SERVICE. BEST IN SAFETY. wel.co.nz This is the annual report of WEL Networks Limited

Dated this 30th day of May 2013 Signed for and on behalf of the Board of Directors

John Spencer CNZM Chairman

Margaret Devlin Deputy Chairman

2013 | WEL ANNUAL REPORT 1

1 2 4 5 6 10 12 16 30 32 33 34 36 37 71 73 75

Table of Contents...... Table ...... Vision ...... Company Profile ...... Quick Facts ...... Indicators Performance Key ReportChairman’s ...... Report...... Executive’s Chief News...... Profiles Directors’ ...... Governance Corporate Disclosures of Interest...... Directors’ Management...... Executive ...... WEL Trust Energy Statements...... Financial Report...... Auditors’ ...... Report and StatutoryDirectors’ Information Directory......

CONTENTS TABLE OF TABLE 2013 |

WEL ANNUAL REPORT WEL ANNUAL

2 2013 | WEL ANNUAL REPORT 3

, Best in Safety Best in Service, Providing high quality, reliable utility services valued by Providing high quality, our customers whilst protecting and enabling our community. our customers whilst protecting and enabling our Company profile

WEL Networks Limited to not only the but also achieve the national target to parts of the Bay of Plenty and of 90% renewable energy (WEL) is the provider of Taranaki regions. The five year build generation by 2025. We are also infrastructure, programme will see; Hamilton, constantly looking at upgrading for the distribution of Cambridge, Te Awamutu, New our network to deal with new energy to over 85,000 Plymouth, Wanganui, Tauranga, technologies such as electric Hawera and Tokoroa provided with vehicles and solar generation. homes, businesses and an ultra fast fibre network. Waikato As a result of the company’s Networks Limited, a subsidiary organisations throughout annual discount programme, which of WEL, has commenced the the Waikato region. was established in 2003, discounts construction of this infrastructure of approximately $213 million (incl. network which will have a value in WEL is also constructing an ultra GST) have been disbursed to our excess of $300 million. Ultrafast fast fibre network in several cities local customers over the past eleven Fibre Limited, a partnership and towns throughout the central years. The company employs 239 between WEL and the Crown, has North Island. staff based at WEL’s premises in around 700 end users connected Te Rapa, Hamilton. WEL is committed to providing to the network, with this predicted high quality, reliable infrastructure to grow exponentially. The build WEL operates under strong while maintaining a strong focus is on budget and on schedule for commercial principles and is on community safety and holding completion in June 2016. fortunate to have in place a highly- prices below the industry average. skilled and experienced Board of WEL is leading the way with the Directors. Chaired by John Spencer, Our network includes more than implementation of a Smart Network, the Board brings substantial 5,200 kilometres of lines and has enabling the transformation from a an annual throughput of 1,200GWh. business acumen and applies high 2013 traditional lines company, to a next standards of corporate governance. WEL has assets totalling in excess generation Smart Multi-Utility. of $550 million. Hamilton City is WEL is locally owned. | This deployment enables us to

WEL ANNUAL REPORT WEL ANNUAL at the centre of our coverage area closely and proactively monitor the The company has one shareholder, which extends to Maramarua in the voltage levels within our customers’ the WEL Energy Trust. The capital north and across to the west coast. premises and allows us to identify beneficiaries are the region’s local The towns of Huntly, Raglan, faults instantly and get the power councils; Hamilton City Council, Te Kauwhata and Ngaruawahia back on faster. This project will be Council and are incorporated. completed in 2016. Waipa District Council. In 2010 WEL Networks won WEL continues to explore potential the contract to roll ultra fast renewable energy options for our broadband out via a fibre network network and customers and to help

4 2013 | WEL ANNUAL REPORT 5

6% 2% % 20% 10% 20% 42% % of 100% 62% 38% 100% 239 661 SAIDI Minutes 84,529 $51 million $176 million $176 million 240 Megawatts (before discount) (before

1,200 Gigawatt hours 1,200 Gigawatt

4.82 1.74 7.40 SAIDI 75.11 15.31 14.80 31.04 Minutes km 5,251 3,255 1,996

2013 arch M 31 at as

Tree contacts Tree Total Insulators and discs Planned shutdowns Vehicle accidents Vehicle Adverse weather and other foreign interference foreign and other Adverse weather Annual Investment in Capital Projects Annual Investment in Underground Equipment faults Overhead Lines Overhead Total Causes Outage Category area after technical Loss Factors) Factors) Loss technical area after Commercial/Industrial traditional (WEL Throughput Volume Annual Revenue Residential Demand Maximum Staff numbers Staff numbers Connections Network (including embedded networks) of minutes that customers were without that customers were electricity) of minutes *SAIDI - System Average Interruption Duration Index (the average number number (the average Index Duration Interruption *SAIDI - System Average Outages (Excl. street lighting, fibre and communications lines) and communications fibre street lighting, (Excl. Kilometres of Lines

FACTS CK I QU 2012/2013 KEY PERFORMANCE

Return on Investment 12% WEL voluntarily follows the Commerce 10% Commission’s price path which results, after the 8% revaluation of assets, in a declining 6% trend for return on investment, and

Percentage lower prices for 4% customers.

2%

0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Annual Growth in Customer Numbers 2400 The challenges of the global economic recession continues 2000 to impact in 2013. /Year) o The Waikato region saw an increase in 1600 connections but at a rate well below

2013 historical figures. 1200 |

WEL ANNUAL REPORT WEL ANNUAL 800

400 Growth in Customer Numbers (N Growth

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

6 2013 | WEL ANNUAL REPORT 7 prices during during prices programme. the over prices the increasing the increasing cost the increasing capital investment capital investment compares very favourably against against favourably of energy for the for of energy average consumer. average inflation to fund inflation last ten years Increasing costs Increasing customer per are an industry challenge. wide cost per WEL’s customer increase by the new is driven Smart Network the developments, costs operational add to cost per customer while the new revenues in are included WEL income. to focus continues and on cost control improvement. 2013 in line with line 2013 in WEL increased increased WEL The trend in our in trend The s er il ta ge ra Re ve A ry st ndu I er ow 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 sp an Tr 2008 2008 ks or tw Ne L WE 2006 2007 L 2006 2007 WE 2005 2005

2004 2004 Cost Per Customer Components of Residential Nominal Prices Components of NOTE: Retailers’ components include 10% reduction for prompt payment. payment. prompt for 10% reduction include components Retailers’ NOTE: Discounts are included. WEL 8 6 4 2 0

20 18 16 14 12 10

$300 $280 $260 $240 $220 $200 $180 $160 $140 $120 $100 $/customer

Cents per Kilowatt Hour Kilowatt per Cents INDICATORS 2012/2013 KEY PERFORMANCE INDICATORS

Reliability of Supply (Total SAIDI) Year ended 31 March 2012 (Average number of minutes that customers were without electricity) WEL’s 2013 SAIDI 500 General 450 result was higher 400 WEL than the 2012 result 350 Average due to an increase 300 in the number of 250 faults and planned

Minutes 200 maintenance 150 shutdowns. 100 The timing of the 50 national industry 0 benchmarking means the graph relates to the 2011/12

Electra performance figures. Scanpower Mainpower Top WEL’s performance Alpine Vector Energy Vector continues to be Centralines Ltd Centralines WEL Networks WEL Counties Power Horizon Energy Horizon Unison Network Unison Waipa Networks Waipa Network Tasman Network Network Waitaki Network Buller Electricity Buller Eastland Network

Aurora Energy Ltd Energy Aurora significantly ahead of Marlborough Lines Marlborough Orion Orion The Lines Company Lines The The Power Company Power The Electricity AshburtonElectricity Nelson Electricity Ltd Electricity Nelson

Electricity Invercargill Electricity the industry average. OtagoNet Joint Venture OtagoNet Joint Lines Electricity Wellington

Planned Outages Year ended 31 March 2012 120 Live line maintenance General 100 techniques continue WEL to allow WEL to 80 Average achieve industry leadership in the area 60 of minimising planned

Minutes 40 customer outages.

20

0 2013 Unison Electra | Powerco

WEL ANNUAL REPORT WEL ANNUAL Scanpower Westpower Mainpower Top Energy Top Northpower Alpine Energy Alpine Vector Energy Vector Centralines Ltd Centralines WEL Networks WEL Counties Power Horizon Energy Horizon Waipa Networks Waipa Buller Electricity Buller Eastland Network Aurora Energy Ltd Energy Aurora Marlborough Lines Marlborough The Lines Company Lines The The Power Company Power The Network Waitaki Ltd Waitaki Network Electricity AshburtonElectricity Nelson Electricity Ltd Electricity Nelson Electricity Invercargill Electricity OtagoNet Joint Venture OtagoNet Joint Ltd Orion Network Tasman Tasman Limited Network Wellington Electricity Lines Electricity Wellington

8 2013 | WEL ANNUAL REPORT 9 WEL continues to continues WEL of on quality focus to customers, supply in which is reflected long- the reducing low in trend term complaints. voltage capital ongoing The investment network of the driver is a key downwards overall trend. The continuing continuing The industry trend of increasing costson impacts the Company’s maintenance expenditure. decrease The maintenance in the reflects planned in reduction and programmes level the ongoing of fault repairs. 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2008 2008 2006 2007 2006 2007 2005 2005 2004 2004 Maintenance Expenditure Per $ of ODV Maintenance Expenditure Per $ Low Voltage Complaints Low Voltage

0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.1 0.2 0.3 0.4 0.5

No. of LVC (per thousand customers) thousand (per LVC of No. Cents/$ODV 2012/2013 INDICATORS PERFORMANCE KEY CHAIRMAN’S REPORT

FINANCIAL RESULTS The net profit after tax was $19.6 million which was an improvement on budget and compares to the profit achieved in the 2011/2012 financial year of $18.9 million. This result is the balance of setting our prices which reflect our costs, our efficiency drivers, the regulatory framework and our commercial incentives. This outcome was pleasing given reduced energy consumption in the last quarter of the year during the drought and the successful management of the challenges brought by our planned increase in activities during the year in both our fibre and Smart Network initiatives.

Net Profit After Tax 25

20

John L. Spencer CNZM 15 Chairman $M 10

5

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

REGULATORY PRICING The Commerce Commission’s As in previous years, WEL’s price proposed reset of prices for increase of 6.3% (incorporating Electricity Distribution Businesses Transpower’s 7.8% pass through) (EDBs) was completed and was below the average of other those companies subject to price network companies and in keeping 2013 regulation were advised of price with WEL’s commitment to its changes between +20% and -10% customers to keep prices fair and |

WEL ANNUAL REPORT WEL ANNUAL over the next one or two years. to be in line with what the regulator WEL is exempt from this regulation would have set for us had we been and only subject to information subject to price regulation. disclosure due to being 100% trust owned. However, we remain DISCOUNTS committed to maintaining our price Discounts paid out to customers and quality performance in line with connected to our core network were the regulated companies. maintained at the same level as the prior year. WEL was pleased to pay out a total of $21.8 million (inc GST).

10 2013 | WEL ANNUAL REPORT 11 ’s report chairman D LOOKING FORWAR positive has exhibited year The with renewed Waikato the for signs the subdivisions, in interest announcing Earthquake Commission and to Hamilton their move of a the build Datacom completing data centre. large new $40 million its core in invest will WEL to to ensure it continues network to all of services quality deliver have seen an We our customers. need to address ageing increasing sector our rural and new assets in part area form this in initiatives Asset Management of our ongoing Plan. of the initiatives two key The fastSmart and ultra fibre Network and grow significantly project will the future into WEL strengthen and its activities by diversifying Both projects streams. earning and the region are important for undertaken appropriately therefore by the Company. and owned delivering on the ramp up of our on the ramp delivering major Smart and ultra Networks I thank them initiatives. fast fibre their contribution. for STAFF ENERGY TRUST DIRECTORS 2012 Mark On 30 September were McGilvary and Paul Franklin a further three for each reappointed term. year MANAGEMENT AND management team and staff, The of Dr Julian the guidance under over well have performed Elder, a safe and maintaining in the year as as well supply secure electricity WEL to provide has continued Trust The to the direction clear shareholder to look forward We Company. working the excellent maintaining WEL we have with the relationship its Chairman and Trust Energy Ingle. Mark to customers, better management better to customers, and improved of the network essential was information network electricity an efficient to running the future. in network distribution Smart and Smart Network WEL’s commenced October roll-out Box on moving now with coverage 2011, to areas of Hamilton Raglan from (South and North) and Huntly. the benefits are already seeing We that this our decision that confirm is essential to the futuretechnology management of our network.

XES SMART NETWORKS AND SMART BO smart concluded that using WEL services better to provide boxes On 15 December 2010 WEL WEL 2010 On 15 December Fibre a contract with Crown signed out across fibre to roll Holdings Cambridge, Awamutu, Te Hamilton, New Plymouth, Tokoroa, Tauranga, open This Wanganui. and Hawera was seen as network access fibre current WEL’s with fit a very good to nearly with the potential business of the Company. the size double eventually will network fibre The 500,000 people, pass around of 12.5%, approximately Networks Waipa the country. of became a 15% shareholder in Limited Networks Waikato 2011. November commenced on 1 July build The build year 2011 with a five completion targeted for programme 2016. by the end of June FIBRE FAST ULTRA and to contract is on track The and ready operating we are budget; all the nominated in business for 29% with nearly and towns cities complete as at the end of the build consumer While 2013. of March than has been slower uptake is forecast this to date, expected year. the next over to accelerate CHIEF EXECUTIVE’S REPORT delivery to standards and delivery the Christchurch reconstruction on time of our new initiatives and Australia for qualified and while growing our staff numbers experienced staff. The quality of by 25% as budgeted. This was an our staff is reflected in the level of outstanding achievement by performance the company achieved all staff. this past financial year. However this is a matter of concern due to the Again this year we were very need to maintain skills and expertise successful at the Electricity Supply to keep the lights on. We continue Industry Training Organisation’s to work on plans to ensure that we (ESITO’s) Annual Connection have identified our future skills and national competition in October resource needs and have plans to with our team winning four out meet those needs through internal of the five competition events. development and external sources. All these achievements were only possible through the very high level DR. JULIaN ELDER NETWORK DEVELOPMENT Chief Executive of commitment by all WEL staff. While residential connection has HEALTH AND SAFETY still not recovered to the levels prior to the onset of the economic Staff and public safety are of the downturn in 2008, the subdivision OPERATIONAL HIGHLIGHTS highest priority at WEL Networks. work has now started to grow We have received a very positive This year was the year we had to noticeably. We also have made result from our first audit of our build on the start-up of two very substantial capital investments in Public Safety Management System significant new business initiatives other areas. Hamilton City Council’s and we remain committed to being for WEL. The first new aspect ring road project to the east of part of industry initiatives to of our business being the Smart Hamilton generated continuously improve this aspect, particularly in Network and Smart Boxes, aimed a substantial amount of relocation

2013 the area of public communications. at delivering better services to our work, partly funded by WEL. We are committed to ensuring ‘Best consumers and giving us options to in Safety’, and have developed a Our long term network development | better manage the network in the WEL ANNUAL REPORT WEL ANNUAL culture of continuous improvement strategy is to increase capacity future. The second major initiative whereby all employees are of supply at the Hamilton and Te being the roll-out of Fibre To The committed to and are engaged in Kowhai Transpower Grid Exit Point Home (FTTH) in the coverage business enhancements which are to (GXP) substations and keep a focus areas we won being Hamilton, Te the benefit of all stakeholders. on strengthening our meshed 33kV Awamutu, Cambridge, Tauranga, subtransmission network, as well as Tokoroa, New Plymouth, Wanganui STAFF PERFORMANCE planning for new zone substations and Hawera. We have managed to attract and around the periphery of Hamilton. It was pleasing to see great retain staff in a market where WEL has obtained the Transpower performance in terms of budget, there is strong demand from conceptual design reports for WEL’s

12 2013 | WEL ANNUAL REPORT 13

report ceo 2011 2012 2013 given the frequent storm conditions storm conditions the frequent given the year; through we experienced the not achieve we did however areas our rural in levels reliability that we had targeted. Our Asset Management Plan than expected. earlier life Compared WEL nationally has new initiatives to address the has new initiatives areas, the rural we have in concerns with assets that appearparticularly of their the end to be reaching the top quartile. is in SERVICE CUSTOMER As a trusted and respected partner, we believe Waikato, the based in startsthat customer service with our people and the public keeping is an outage there When safe. repair the the cause, we identify keep We damage and restore power. – when our customers informed bad. and the news is both good on 24/7, the lights Our teams keep for looking but are continually value better new ways to deliver to our customers. and efficiency customer our further improve To review a strategic levels service that touch our of all processes project customers - this is underway Networks WEL to move help will to our customers. closer 2010

2009 2008 2007 this area. The 16mm² copper copper 16mm² The area. this conductor replacement programme and 8kms were has commenced new Ground The lastcompleted year. is technology Neutralising Fault with planned to be introduced zone Weavers the first project at and scheduled underway substation by the end of service to be ready for the 2013/14 year. assets have affected network Ageing for $10 million Over reliability. asset over replacement was spent towards As we are moving the year. assets of number an increasing the end of their economic reaching our asset strategy replacement lives, of that an average estimates asset annum for per $11 million be required in replacement will the next ten year Asset ten year the next some $8.6 including plan, year annum of customer per million such as relocations projects driven and new subdivisions. Management Plan. is capital expenditure Total of $36.4 at an average estimated the ten annum over per million RELIABILITY result was 75 SAIDI annual The target compared to our minutes This of 70 minutes. the year for result overall was a reasonable 2006 2005 2004 Reliability of Supply (SAIDI Minutes) 0 0 0

60 40 20 80

12 10

without electricity (minutes) (minutes) electricity without

were customers that time Average GXP upgrade. This is an important This GXP upgrade. part of the necessary future load the GXPs and the between transfer during overloading to avoid ability Our 33kV protection peak times. project has progressed upgrade from our protection updating well to Differential Distance Protection of our as the complexity Protection time. over has increased network were upgrades 11kV feeder Several completed as well. substation have completed We for projects upgrade capacity to substations Latham and requirements. support load growth the upgrade have progressed We substation Peacockes project for and the first stage of Hoeka This has been completed. substation conductor replacement involved an interim to provide intended and loading the voltage for solution to stage the area prior issues in be two of the project which will the construction of the new Hoeka substation. Road zone customer on rural focused has WEL our after improvements reliability achieved reliability network overall target of 70 SAIDI its strategic Our strategies lastminutes year. a number to apply identified were systematically to of techniques in the performance improve EFHI C IVE’SEXECUT PORT RE SMART NETWORKS Results of the roll-out of Smart Boxes to the Raglan area are now evident. We can now see that individual homes and businesses have their power on and get notification when it goes off. This, in addition to more information about our network and the quality of power we supply, will lead to much improved service to customers and should also allow us to manage our network investments better and further improve our costs of reactive maintenance. It is pleasing to see this technology deployed successfully with results flowing in such a short time.

ULTRA FAST FIBRE Our performance in the roll-out of fibre across our coverage areas has been top quality. We have the fastest build programme of all the local fibre companies at five years with completion due at the end of June 2016. Despite this extremely quick build programme, we are recognised

2013 as the leader in health and safety, quality and performance in this area |

in New Zealand. While customer WEL ANNUAL REPORT WEL ANNUAL uptake is slower than we originally hoped for due to the Retail Service Providers still developing their market offerings we are pleased to note that on a per premise passed basis our uptake is at the top of the table. We are receiving very positive feedback about the quality of our build and the performance of our contractors out in the field.

14

2013 | WEL ANNUAL REPORT 15

Vector

Wellington Electricity Lines Electricity Wellington (2013)

verage

2012 WEL A Networks Waipa

Powerco

report ceo Networks WEL

Nelson Electricity Ltd Electricity Nelson

Electra

Network Tasman Limited Tasman Network Eastland Energy Eastland

benchmarking means this performance figure. WEL terms of cost per customer companies. continues to perform well in compared with other lines graph relates to the 2011/12 The timing of the national

Aurora Energy Ltd Energy Aurora

Counties Power Counties

Northpower

Unison

Horizon Energy Horizon

Mainpower

Electricity Invercargill Electricity

Network Waitaki Ltd Waitaki Network

Scanpower

Orion New Zealand Ltd Zealand New Orion The Power Company Power The

In addition to these activities we to these activities In addition other in at opportunities are looking or provision infrastructure network aligning management as we see this WEL of competencies with the key are commencing We Networks. as a on smart metering trials water off potential opportunity to leverage into our Smart investment Network infrastructure. water

The Lines Company Lines The

Electricity Ashburton Electricity

Alpine Energy Alpine

OtagoNet Joint Venture Joint OtagoNet

Centralines Ltd Centralines

Top Energy Top

Marlborough Electric Marlborough

Westpower

Buller Electricity Buller Cost per Customer Year ended 31 March 2012 Cost per Customer Year We are also focusing on how better better on how are also focusing We to serve the customers connected to and what our networks added value provide. we could services looking underway have research We we could services at added value our Smart through Network offer and the opportunities that capability such as energy new technologies cells solar photovoltaic storage, as offer cars could and electric they become economic. D LOOKING FORWAR have started and better to do business to on how to focus continue We to both improve the business across initiatives development implement operations. of our and the efficiency of the business the resilience pressure on future cost and downwards service increases consumer Better will We initiatives. to our Smart and Smartare critical Network Box to our business these benefits on bringing to be very focused continue and customers. $0

$800 $700 $600 $500 $400 $300 $200 $100 ($/Customer) NEWS SMART NETWORK Gearing up for a smart future WEL Networks is leading our Network Management System Network with a less than one per the way with the (NMS), our own system which cent refusal rate. The project is on allows us to closely and proactively budget and is successfully providing implementation of its monitor the voltage levels within valuable operational and loading Smart Network, enabling our customers’ premises which have information down to an individual our transformation from a Smart Boxes installed. Today the customer basis. Smart Boxes are giving us access We are committed to connecting all traditional lines company, to more insightful data so we can our 85,000 Individual Connection identify faults in an instant and get to a next generation Smart Points (ICPs), to our Smart the power back on faster. Multi-Utility. Network by 2016. This will enable Our Smart Network has enabled us to deliver a more efficient service the introduction of optional pricing to our customers and gain better in the way it is able to measure utilisation of our assets over time. site-specific information, allowing The assimilation of cost effective us to introduce different prices metering and communications for consumption based on off- technologies will enable WEL peak or on-peak hours. We have Networks to extend electricity offered our retailers time-of-use supply monitoring and control to pricing plans with the option of every part of the network once the passing this flexible pricing model project is complete. on to customers, empowering our customers with more We will be able to better understand control options over their energy power flows along feeders, gain consumption. visibility across our low voltage networks, improve ability to back Phase one is underway with the feed and automate switching, better roll-out of Smart Boxes to 45,000 size our network assets, automate of our customers in Hamilton and 2013 switching of load, and pro-actively throughout the Waikato. By the end In 2009 we made an early move respond to any outages. of March 2013 over 11,300 meters |

on our Smart Network - one of our WEL ANNUAL REPORT WEL ANNUAL had been installed in Raglan, North We have some exciting plans in the biggest ever roll-outs - with the Huntly and areas of Hamilton. We pipeline when it comes to further knowledge that this $32 million can boast a 100 per cent fully leveraging our Smart Network spend would see WEL Networks operational mesh network across - with future service offerings lead the way in delivering more the entire region WEL Networks standing us in good stead to further efficient electricity distribution services. In addition, 99 per cent develop the capabilities of smart in New Zealand. of meters are being read every metering technology. We are New Zealand-leading in the 24 hours. way we have taken an ‘off-the-shelf’ We have the community on our Smart Box and integrated it with side in the roll-out of our Smart

16 2013 | WEL ANNUAL REPORT 17 news

bridge on the Raglan Harbour the Raglan on bridge supply the alternative be fed from minimum and maximum and maximum minimum results in Raglan, despite its rugged territory the zone substations and voltage and voltage substations the zone this back-feed option there is a there back-feed option this at set points the voltage control were quickly minimised due to minimised quickly were needed to Raglan of side western of supply quality which result in regulators to stay within the to stayregulators within real threat of voltage drop issues drop real threat of voltage quality of supply. quality We are already voltage levels. voltage been a challenge for electricity distribution companies. beginning to see some industry-defining key, our Smart Boxes installed in the installed in our Smart Boxes applications and our innovative in resulting off and are paying area and their connection to our area and their connection By using By using Hutewai Road. Te in issues to our customers. investments in new technology new technology in investments and service customer improved telecommunications and which has traditionally WEL Networks was then able to was then able Networks WEL Network Management System. System. Management Network our how show this Instances like Using this real-time feedback, feedback, real-time this Using 11kV cable crossing the estuary the crossing 11kV cable The impacts of a cable fault on an of a cable impacts The The fault meant that the entire fault The

- ork

ry sto

a Smart Raglan

success

Netw ultra fast fibre project 2013 |

WEL ANNUAL REPORT WEL ANNUAL

18 2013 | WEL ANNUAL REPORT 19 news NEWS being laid past 163,223 premises laid being premises. The network is managed network The premises. is a There body requirements. estimate that after 10 years we 10 years that after estimate ensuring compliance with local compliance ensuring mix of overhead construction and construction of overhead mix for on a like generally underground, signage and barricades around around and barricades signage safety record and has maintained safety record and has maintained will have in the vicinity of 80,000 the vicinity have in will customers connected to our network. through the Network Operations Operations the Network through connection rate. connection geographical area which adds geographical focus is on increasing the customer is on increasing focus focus on announcing our arrival our arrival on announcing focus our work areas to ensure public areas to ensure public our work awareness and safety. We area. our coverage across additional challenges such as such challenges additional to date. perception public a positive interface between the Retail Service Service between the Retail interface like basis. like clear and erecting a community in Offices and within the customers’ the customers’ and within Offices Centre which is located in . Auckland. Centre which is located in Providers and WNL where their and Providers Ultrafast Fibre Limited provides an provides Limited Ultrafast Fibre This is a complex project with fibre project with fibre is a complex This The build covers a large covers build The health and has a proud project The a through has been achieved This

provisioning service to customers to service provisioning hardware (active), this is the this hardware (active), half. The build is on budget and on build The half. premises. Two years into the project into years Two premises. and on time with the build premises, equipment that sits in our Central our Central equipment that sits in expected to rise from 300 per 300 per from to rise expected month in the first half of the 2014 month in in New Zealand in the last 50 years.in New Zealand schedule for completion in in completion schedule for they also have the responsibility they also have the responsibility into the connection to provide all of the ducts (i.e. the materials to programme. customer premises. Huawei is customer premises. contracted as our primary contracted as our primary contractor and have the civil will have laid fibre past 163,223 fibre have laid will we have already passed 48,000 who are connected to the network and is on track rate connection responsible for providing all of providing for responsible responsibility to build and maintain and maintain to build responsibility financial year to 500 in the second to 500 in year financial via Retail Service Providers. The The Providers. Service Retail via complex telecommunications network build undertaken network build complex telecommunications our fibre network. In addition In addition network. our fibre and maintaining the fibre network network the fibre and maintaining and fibre) and to also provide also provide and to and fibre) all of the network and maintain is responsible for building, operating, operating, building, for is responsible in Hamilton, Tauranga, Wanganui, Wanganui, Tauranga, in Hamilton, Cambridge and Te Awamutu. Te and Cambridge Waikato Networks Limited (WNL) Limited Networks Waikato New Plymouth, Tokoroa, Hawera, Hawera, Tokoroa, New Plymouth, The roll-out of ultra fast fibre is the largest and most ultra fast fibre is the largest The roll-out of At the conclusion of the build WNL of the build At the conclusion June 2016. June Transfield Services have been Services Transfield Today we have 700 customers Today Investing in the Network Capital projects

It is our job to ensure The replacement of the older upgrades in its lifetime to ensure our network is operating conductors formed part of the our customers stay connected to Findlay Road Reconductoring reliable electricity services. Over the efficiently for the people Project. Starting in February 2013, last two years WEL Networks has of the Waikato. Our $470 WEL Networks worked to replace installed two underground 33,000 million electricity network 4.6km of 11kV 16mm² copper volt cables from the Huntly Power conductors. Station to the substation in Wayside is some of the most vital Road Te Kauwhata and has moved The project ran smoothly from start most of its outdoor equipment into infrastructure in the to finish and was delivered in a short a brand new purpose-built building. Waikato, supporting time frame, with a high standard of how we live and work. workmanship - a great example of The next stage of the project how our Field Services staff work will see the installation of newly The 2012/13 financial year to ensure a reliable and continuous upgraded transformers at the has seen us invest over $50 power supply for our customers. site, providing a reliable capacity million in a number of network for further load growth in the Te 2013 infrastructure upgrades to ensure Kauwhata area and helping keep our 5,200 kilometre line network our electricity network running |

WEL ANNUAL REPORT WEL ANNUAL is kept in top condition. efficiently. The new cables were installed from Findlay Road Project Huntly along Te Ohaki Road, over

With the old conductors on Te Kauwhata Substation Rangiriri Bridge, along Murphy Hamilton’s Findlay Road nearing Street, Rangiriri Road and SH1 to the end of their lifespan, WEL Wayside Road, and involved drilling New Look for Te Networks needed to replace them through and resealing stop banks, Kauwhata Substation to ensure the lights stay on for new ducting in the bridge and residents in the area. Built in 1986, the Te Kauwhata making room for future road substation has undergone several works on SH1.

20 2013 | WEL ANNUAL REPORT 21

NEWS major works. As a result of this, a large majority a large majority of this, As a result were of the building of the walls by to be non-compliant found today’s standards and needed to and rebuilt. removed be completely needed construction process The to the substation for to allow the throughout operational remain the protecting involved this works; a water equipment in electrical demolition. during ‘crate’ proof has on the substation Work been completed and due to this the careful construction process to remain has been able substation throughout these operational Repeated outages in the rural Repeated outages the rural in up areas have been trending trend can this recent years; over attributed to ageing be mainly assets weak 16mm conductor. and at identifying project looked This the worst and prioritising of terms feeders in performing and replacing repeated outages, the backbone 16mm conductor sub-projects Four and crossarms. they as a priority; identified were CB3 Raglan CB6, Weavers were Kauwhata CB2. Te and and CB4, accumulated over areas had These the 2011/12 year 70 faults in total of a combined and covered 30,000 metres of conductor. represented projects stage 1These plan and had a budget of a 5 year took work The of $1.1 million. 2012 and place between August had budgeted WEL 2013. March of 5.58 a SAIDI impact for the actual SAIDI result at however of the job was 0.37 the completion which was a fantastic result. this total man hours for The 7,000 without over project were injury. any lost time Rural Reliability ct Proje

d oa Peacockes Rd Substation As part of WEL’s overall seismic seismic overall WEL’s As part of works programme, strengthening been completed at have recently in Road substation our Peacockes was building existing The Hamilton. when requirements seismic built to different considerably were place today. those that are in Peacockes R n – Seismic Substatio Strengthening a new programmed receiver will will receiver a new programmed important partimportant as of our network systems are usedload control to on our times reduce load at peak electricity Transpower’s network, generation and electricity grid the country to ensureplants around and security utilisation efficient of the assets. the plants in load control The have been in network northern and years 40 over for operation the last have been three years over and winter on summer controlled plants were old These timetables. new load 2011 by a replaced in at Huntly. plant installed control to a plant is linked Huntly The load management system which the load and controls monitors when required and only efficiently peaks. the highest during plant new this from signal The which are receivers control will being the Smart into Boxes built installed as part Smart of our a more roll-out to drive Network Where supply. electricity efficient cannot be installed a Smart Box be installed. New Waikato expressway aikato aikato n Substatio Huntly and its Networks WEL predecessors have had load control various in systems operating It is an 50 years. over for forms New W all have undergrounded We to allow services the electricity Waikato of the new the build It means our people expressway. and a safer view get a better part key of this and that journey, is network electricity our regional the elements. from shielded ressway expressway WEL Networks ensured that power that power ensured Networks WEL to our customers was interruption the during at a minimum kept equipment and electrical upgrade was protected substation the in while supply power to maintain around worked and builders diggers project has A re-vegetation it. appropriate been launched to plant the bush around and native shrub so that it blends new substation area. the surrounding into BEST IN SAFETY Fulfilling our Best in Safety promise

At WEL Networks, We have a rigorous programme The total number of compensation keeping our people of training, audits and investment claims has reduced slightly from in health and safety for our Field 42 to 39. However, the number of and the public safe Services teams. This ensures our compensation days paid by ACC is our highest work sites and practices are as safe has reduced by 62 per cent from priority. Our health as possible, as we work to keep our 143 to 54. $470 million electricity network Our staff are our most valuable and safety results in top condition for the people of resource. Our ability to do our jobs Waikato. We use the best personal and programmes are depends on using best practice to

2013 protection equipment available and recognised as create and maintain a safe, healthy carry modern resuscitation devices on industry-leading. workplace environment. We want our

| some of our field vehicles to deal with staff to go home in a better condition WEL ANNUAL REPORT WEL ANNUAL emergency events. than when they arrived. Our safety requirements are codified We are engaging with our staff to in a comprehensive range of policies, ensure safety remains a team effort; management systems and work WEL can provide the right training, procedures that govern all work and equipment and systems but it is up to operational activities. our staff to put these all to work. Our ACC Claims report for the year demonstrates continuous improvement in safety performance.

22 2013 | WEL ANNUAL REPORT 23

NEWS

20% 30% 15% 35% Weight

oject 0 60 38 312 2013 arget T 0 48 50 NA 2012 arget T

r P Climate ng rati 5-star WEL Networks Measure Near Miss reporting 25 per cent Near Miss reporting 25 per than 2011/12 higher Audit targets for Supervisors Supervisors targets for Audit and Managers Instances of Failure to Pre-qualify to Pre-qualify Instances of Failure contractors and H&S Plans in reduction cent 25 per lost days due to injury gives NZTA the New Zealand from a 5-star achieved rating Networks WEL System (ORS) for Rating annual Operator Agency (NZTA) Transport It validates safety legislation. with NZTA of compliance level our high and risks on minimising the year during and focus our hard work with regulation. compliance pursuing Measures 1, 3 and 4 are lag indicators. They report the data after They 4 are lag indicators. 3 and Measures 1, x posite Score Matri and Safety Com Health table following the in and Safety Composite Score Matrix Health The indicators performance summary reporting four is the monthly of the we use report to health and safety performance. the composite score with the target system determines A weighting cent or better. 100 per set at achieving actions measures proactive This 2 is a lead indicator. Measure event. and to address any issues identified. potential problems to identify of audit the number for except achieved, targets were All individual be was a new measure and will This Supervisors. targets set for year. financial the next in continued The project has resulted in an increase of 23 per cent in all cent in 23 per of an increase project has resulted in The the to 496 in year the 2012 financial reports in 403 from incidents 48 to reports from cent miss and near by 48 per year 2013 financial staff’s our in attitude to incident a clear turnaround demonstrating 71, and near miss reporting. reporting. and near miss continuous through initiative this the momentum of maintain will We bi-annual follow-up targets and doing against monitoring performance 2013. September survey is due to be done in next The surveys.

WEL has incorporated this this incorporated has WEL Improvement our Continuous into to fundamentally Framework, to health our approach change and safety. aspectA key of the project is to to engagement employee increase near the culture around change reporting from and accident miss to learning fault-finding and improvement. of poor total impact The health and safety workplace the first Through is immense. stage and Safety of the Health able Project we were Climate and analyse capture, to identify, those health and safety monitor factors on our that impacted us to allowed This performance. those over control better develop us to track allowing factors, the to apply and improvements whole to the business. learnings This project, introduced for the industry by the EEA, is managed by consulting firm Orange Umbrella. h and afety S Healt WEL Networks returns $21.8 million in discounts to Waikato customers 2013 |

WEL ANNUAL REPORT WEL ANNUAL

As a community-owned organisation, we keep the lights on in the Waikato, invest in a smarter future for the Waikato through new technologies like our Smart Network and ultra fast fibre, and each year return a discount to our customers. For the financial year 2012/13 we returned $21.8 million (including GST) to our customers bringing the total discounts returned to our customers since 2003 to over $210 million.

24 2013 | WEL ANNUAL REPORT 25

NEWS ac ds war businesses employing 15 to 49 employing businesses business update and bring together together update and bring business some of the top business leaders some of the top business to support to help local projects to do more to get closer to our to do more to get closer customers. Our Customer and customers. a was our opportunity to provide from the Waikato to share their Waikato the from our Waikato community grow grow community Waikato our on the projects that are shaping on the projects that are shaping and prosper. and to exchange news and views news and views and to exchange a category sponsor of the Westpac a category sponsor of the ness Excellence Busi Sponsors Westp industry insights with our customers industry insights Networks WEL Networks FTEs was won by Anglesea FTEs was won by Anglesea Business Excellence Awards in the in Awards Excellence Business Waikato as part of our commitment Waikato In 2012 WEL Networks was again was again Networks WEL In 2012 A ual Customer Annual Customer ner Summit and Part Hospital. Hospital. Partner Summit in November 2012 November in Summit Partner A key focus for the company is for focus A key The WEL Networks award for award for Networks WEL The

ng new arryi ving technology platforms used to maintain the used to maintain platforms cent. per the around and work who live public electricity lines that serve the region. that serve the region. lines electricity machines in an emergency. in machines survival chances by up to 40 survival specialist staff have undergone than $40,000 in the machines, the machines, than $40,000 in the use of defibrillators in training to help the user through the through the user to help which can increase cardiac arrest cardiac which can increase region’s 5,200 kilometre electricity electricity 5,200 kilometre region’s lifesa fleet c versatile and easy to operate with and easy to operate versatile own people and all members of the people and all members own operating process. operating and are capable of deploying the of deploying and are capable instructions automated ‘talking’ life-saving defibrillators in 16 of in defibrillators life-saving working and elevated its trucks network. lines Networks’ WEL Networks’ More than 75 of our frontline WEL WEL More than 75 of our frontline WEL Networks has invested more has invested Networks WEL WEL Networks Ltd has installed Networks WEL Safety comes first – both for our – both for Safety comes first The defibrillators are portable, are portable, defibrillators The

WEL Networks truck with defibrillator

We have a 100 year heritage serving the towns and farming city, community of the Waikato and we are proud to support a number of local projects to help the community grow and prosper.

and Out unity Comm about e in th The WEL Networks Blue team - Overall winner of the ESITO Line Mechanic Competition. From left to right: Linesmen Andrew King, Dave Robertson, Brad Carthew, Niall Gavin, and team manager Hamish Thomson.

the Waikato’s business landscape WEL Networks had two teams why they have to be the best in through to 2020. competing at the annual event held their class in all aspects of their at Hamilton’s Mystery Creek. The job. We have a safety-first policy It brought together 250 of our event saw teams competing against in everything we do; for the good customers and featured a business each other in crane operation, pole of our own people, contractors, update from our Chief Executive installation, pole-top rescue, safe customers and members of Julian Elder, an update on the ultra electrical testing and first aid. the public. fast fibre roll-out in the Waikato from Ultrafast Fibre Limited Chief WEL Networks linesman Brad Adopt-a-Box programme Executive Maxine Elliot, Tainui Carthew, won the Ross Archer Group Holding Mike Pohio’s vision Memorial Line Mechanic Safety WEL Networks has partnered with for the Ruakura development and, Award, as well as the award for the Hamilton City Council’s Adopt-a- Genesis Energy Chief Executive Overall best ESITO Trainee of the Box initiative, a programme which Albert Brantley’s future plans for Year. Trainee Sean Davidson had a lets you paint original artwork on Genesis Energy. very solid performance against more WEL Networks pillar boxes in experienced professionals winning Hamilton. The WEL pillar boxes Wel Networks Takes third place in the ESITO Cable available for adoption are spread Top Gong at National Jointer competition. throughout the city and members Line Mechanic of the public can select one in their It was the company’s level of Competition area, community or place of work. precision, quick reactions and a WEL Networks’ commitment to safety-first approach that set it health and safety shone through at apart from the rest - we do not cut the 2012 ESITO Line Mechanic corners when it comes to training Competition, winning the top prize our staff. We ensure our teams for the second year running. The 2013 undergo superb training in all competition is a great opportunity aspects of the job, from health and to showcase the skill sets WEL

| safety through to diagnosing faults

WEL ANNUAL REPORT WEL ANNUAL Networks linesmen are required to and operating equipment, in order have in order to keep the lights on to ensure our network is kept safe every day in our 5,200 kilometre and running 24/7. Waikato lines network. Our field services teams are exposed to many risks each day – that is

26 2013 | WEL ANNUAL REPORT 27

NEWS

Maui Street complex business activities. business purchase will now give the Company give now will purchase purchased our Maui Street complex, Maui Street complex, our purchased had leased the modern custom built custom built had leased the modern encompassing land and buildings, land and buildings, encompassing more flexibility to cater for our for to cater more flexibility saw all of our staff coming together together saw all of our staff coming situated in the industrial area of Te Te of area the industrial situated in since they were built in 2008. 2008. in built they were since to be based in one location. The The one location. to be based in with the business. with the business. with professional facilities and also facilities with professional growth in staff and new in numbers growth office, depot and store facilities depot and store facilities office, affect our people’s engagement affect our people’s engagement x Street Comple chases Maui WEL Pur In September 2012 WEL WEL 2012 In September Rapa, Hamilton. Prior to this WEL WEL to this Prior Hamilton. Rapa, The move to this site provided WEL WEL site provided to this move The passionate as individuals as individuals passionate that the cooperation between that the cooperation the focus and that teams is good resources to get their work done, done, to get their work resources on quality is a strength. on quality on issues that affect their work Staff are enthusiastic and is supportive WEL culture at The that they are consulted Staff feel that they have enough Staff feel

positive results including: including: results positive company revealed some verycompany revealed make improvements to enhance how how to enhance improvements make we work and operate as a company, as a company, operate and we work and highlight the areas where we the areas and highlight are already successful. identify tangible improvements that improvements tangible identify The results of the survey for the for The results of the survey This has been a useful tool to This

n inimisatio aste M by 15% to landfill to landfill Reduce waste to landfill by 32% by Reduce waste to landfill products recyclable Send zero purchases paper Reduce office

printing and have encouraged encouraged and have printing people to use the electronic has also been a big push to reduce has also been a big introduced usage so we have paper bins. These have the same function have the same function These bins. help staff to remove all recyclables all recyclables staffhelp to remove have at WEL in particular to ‘Do particular in to WEL have at and our desire reduce our to policy exchanged them for mini-landfill mini-landfill them for exchanged negative impact on the environment. impact negative minimising waste. waste. minimising smaller! That’s because we think because we think That’s smaller! survey was to gather good quality quality good survey was to gather sustainability and environmental and environmental sustainability to review our progress, however at however our progress, to review stage that an average this we know to staff on double-siding their to staff on double-siding the majority of what goes in in of whatthe majority goes their under-desk rubbish bin, and bin, their under-desk rubbish the Right Thing’. It also fits with our It also fits Thing’. the Right to focus the attention of staff on the attention to focus recycled pads, have sent have messages recycled pads, their documents. than printing rather rubbish bins is recyclable. There There is recyclable. bins rubbish document management system different parts of the building to parts of the building different of 45kg of edible waste week per of 45kg of edible out of landfill, these included; these included; out of landfill, and an audit is scheduled for 2013 for is scheduled and an audit as an under-desk bin, but they’re but they’re as an under-desk bin, Our goals were to: Our goals were ct Proje is recycled as pig food. is recycled as pig in September. The purpose of the purpose The September. in about where we can information Organisational Climate Survey Climate Organisational Climate Survey Climate W Food Scraps. Staff also gave up Staff also gave Scraps. Food We provided waste at stations provided We WEL staff an participated in WEL In 2012 WEL startedWEL a project In 2012 Results to date have been very good good Results to date have been very Paper, Co-mingled, Landfill and Landfill Co-mingled, Paper, This initiative fits with the values we with the values fits initiative This 2013 |

WEL ANNUAL REPORT WEL ANNUAL

28 2013 | WEL ANNUAL REPORT 29 news NEWS premises enable real time feedback real time enable premises enabled information network across across network information enabled and robustness of the efficiency along Taken network. electricity staying true to our community- true staying smart meters which will eventually eventually smart which will meters 45,000 homes and over sit within the region, in combination with combination in the region, enhances the overall that greatly fast to the the future is coming needs through the community’s and opportunities while challenges with our ultra fast fibre roll-out, roll-out, fastwith our ultra fibre future potential for our region. future for potential of insight and inspiration on the and inspiration of insight roots. owned initiatives such as our annual initiatives these to meeting is committed Customer Summit, bringing together together bringing Customer Summit, 250 business leaders for a half-day leaders for 250 business Waikato region and WEL Networks Networks WEL and region Waikato Waikato and we are listening to and we are listening Waikato This is an exciting time for the for time is an exciting This The development of our RF Mesh development The

ic journey our strateg - w o heritage to a customer oriented to a customer oriented heritage can technology that new benefits region. Waikato to the bring business to using new technology new technology to using business electricity network management network electricity everything from how we service our we service how from everything multi-utility company with the multi-utility single-service lines company with lines single-service and mindset customer stronger the community in new ways. new ways. in the community capacity to serve customerscapacity and and needs of residents changing to deliver new and better services. new and better to deliver is on a organisation our term to continually lift our game in in our game lift to continually customers and maintain our core customers and maintain refreshed over the past year, the past year, refreshed over longer the that over recognises decade or more, it requires an ever it requires an ever decade or more, overnight. Over time, perhaps a perhaps time, Over overnight. a business community which community a business ability to use our Smart Networks ability a hundred-plus year engineering engineering a hundred-plus year up with to keep a commitment and change the positive and apply opportunities, and challenges, and challenges, opportunities, is constantly becoming more is constantly becoming and diverse. innovative journey of change from a traditional a traditional from of change journey For WEL Networks it offers many it offers Networks WEL For WEL Networks’ business strategy, strategy, business Networks’ WEL This includes serving both the serving includes This This change will not take place not take will change This

omorr

uilding T recognised as one of regional economies in New Zealand. and most progressive the fastest growing

AHEAD R E YEA TH The Waikato is widely B DIRECTORS’ PROFILES

John Spencer CNZM Margaret Devlin Hon Richard Prebble (Chairman) (Deputy Chairman) Richard is well known for his John is Chairman of Kiwirail, Margaret is a professional active role in New Zealand Ruakawa Iwi Development Limited Director operating predominantly politics, which has spanned several and The Tertiary Education in the infrastructure and service decades. He retired as the leader Commission. He is a Director of sector. Her current governance of the ACT Party in 2005. His Tower Limited, DairyNZ Limited, portfolio is as follows: Chairman time in Parliament included his Dexcel Holdings Limited and Rivet Scott Sheetmetal and role as Minister of State Owned Dispute Resolution Services Fabrication and Harrison Grierson: Enterprises. Richard by profession Limited. He was the Chief Executive Director of City Care, Hamilton is a lawyer. He is now a professional of New Zealand Dairy Group Riverview Hotel and the Institute Director being a Director and prior to the formation of Fonterra, of Directors Accreditation shareholder of , Deputy and has held a number of senior Board. She is also a co-opted Chairman of McConnell Limited, management positions in New Director of Water New Zealand and Chairman and Director of Zealand and overseas. He is a and a Member of the National a number of private and family Fellow of the Institute of Chartered Infrastructure Advisory Board companies. Richard is a Fellow of Accountants. John was appointed and the University of Waikato the Chartered Institute of Transport. to the Board in 2005 and became Risk Management Committee. She Richard was appointed to the Board

2013 Chairman in October 2009. is an accredited member of the in 2005. Institute of Directors, a member |

of the Institute’s National Council WEL ANNUAL REPORT WEL ANNUAL and Chairs the Waikato branch. Margaret has had significant experience in both the retail and infrastructure sectors. Margaret was appointed to the Board in 2007.

30 2013 | WEL ANNUAL REPORT 31

ony) Steele DIRECTORS PROFILES DIRECTORS Anthony (T is a Chartered Accountant Tony professional in and has had a career 1988. in KPMG He joined practice. Business area was in His speciality which included Advisory Services, and of commercial range a wide retired from Tony services. corporate 2009, December the practice in as the served 11 years having after of the Hamilton Partner Managing on KPMG’s term and a similar office He is a Board. Management National of the Institute member of Directors. has been an Independent Tony Director of Forlong and Chairman 2002. since and Maisey Limited He also sits on the Boards of several and Maisey of Forlong subsidiaries both New Zealand and in Limited KPMG, from retiring Since Australia. as has accepted appointments Tony an IndependentDirector of several including companies local private Innovation Limited Foods Prolife Waikato and Limited Waikato Limited. Park Innovation to the was appointed Tony October 2010. Board in

ary v Paul McGil Paul Tatua of Executive is the Chief Paul based Dairy Company, Co-operative this He has held Morrinsville. in is focus Tatua’s 2008. since role and marketing the manufacturing added products value of complex Prior industry. food the world’s for Executive to that he was the Chief the largest plant of HortResearch, in organisation research and fruit to date career Paul’s the world. development business has included in management roles and general including of industries, a number and food, infrastructure automotive, New Zealand and overseas. both in to the Board was appointed Paul October 2009. in

Mark is Mark His other senior senior His other He is well known in in known He is well Mark is currently Chief Executive Executive Chief is currently Mark based in of the Stevenson Group Auckland. and has New Zealand business of Chief the roles held previously and Limited Vector of Executive TZ1, of Executive Chief founding carbon registry. the global also a Director of Ultrafast Fibre Director of and a former Limited Corporation. New Zealand Railways Mark Franklin Mark has been a member of the has been a member Mark Change Climate Minister’s Prime and the Australia forum Leadership Ministers Prime New Zealand Joint Forum. Leadership Director of have included; roles IBM Global Services for Operations Chief Zealand, Australia/New Australia of Interpath Executive of OSIX. Chairman and Executive to the Board was appointed Mark October 2009. in ILES OF S’ R IR ECTO D PR CO RP O R ATE GO Board of Directors associated matters, operating under a charter approved by the Board. The Board is appointed by the shareholder and is responsible Risk Management for setting and monitoring the direction of the Company. It The Audit and Risk Committee of the Board oversees the Company’s V E R NANCE delegates day to day management of the Company to the Chief risk management programme. Executive. The Board operates The Company has an Executive in accordance with the WEL Risk Management Committee Networks Corporate Governance which ensures that appropriate Charter, adopted in October 2005 risks are identified and mitigated and most recently amended in where possible and that all policies March 2012 after rigorous review and procedures consider risks by the Board to capture the when drafted. This committee is current governance regime for the responsible for providing detailed Company. Additionally, the Board risk reports to the Audit and Risk endorses the principles set out in Committee on a six monthly basis, the Code of Proper Conduct for and a summarised report on risk to Directors approved and adopted each full Board meeting. Reporting by the Institute of Directors in is immediate in the case of extreme New Zealand (Inc). The Board residual risks. In addition to normal receives monthly reports from risk management practices, key management and meets at least controls are reviewed as part eight times during each financial of the Company’s internal audit year. The Constitution specifies that programme to ensure they are there shall be no less than four and effective in managing or mitigating no more than six Directors of the known risks. Company at any time. Compliance The Board has two operating committees: (a) The Remuneration The Company has a programme in Committee; assists the Board place to review compliance on an to develop the Company’s ongoing basis across all aspects remuneration policy, set the Chief of its business. This programme Executive’s and his direct reports’ incorporates an internal audit remuneration packages and all programme which is currently being

2013 other matters relevant to ensuring provided by KPMG. In the 2012/13 a committed and competent year a high level assessment

| and update on the overarching

workforce; and (b) The Audit WEL ANNUAL REPORT WEL ANNUAL and Risk Committee; oversees framework of compliance the Company’s compliance with requirements for the Company legal and regulatory requirements, was completed. In addition to financial statements, treasury policy, this, specific external reviews preparation of the annual report, were undertaken in the areas liaises with the external auditors of; the delegations of authority, and reviews internal and external contract management processes, controls relevant to financial capital expenditure, payroll and reporting, risk management and leave management and a fraud management process review.

32 2013 | WEL ANNUAL REPORT 33

ony)

S’ S’ DIRECTOR ES DISCLOSUR T OF INTERES to 31 March 2013: to New directorships April 2012 1 from John Spencer CNZM of As Chairman Tertiary Education The and as Director Commission Mitre 10 NZ Limited, of: Limited, Mitre 10 Holdings Mitre 10 Imports Limited, Mitre 10 Retail Limited, Limited, Mitre 10 Retail Te Awamutu Mega, Mega, Awamutu Te Mega, Taupo Mega, Wellington Street Limited, Derby Raukawa Iwi Developments and Kiwirail Limited Limited Holdings Margaret Devlin As Director of Harrison Limited Holdings Grierson Riverview and Hamilton Limited Hotel Anthony (T Steele Waikato As Director of Limited Park Innovation advice to assist to meetadvice them their responsibilities. gister Interests Re Directors must any identify they interest of potential conflict with the dealing may have in a conflict Where Company’s affairs. Director a attend a still may arises, but may not be meeting, Directors’ partake in the quorum, counted in on a resolution the debate or vote the seal document to any or affix The which they are interested. in an interests Company maintains to record particulars of register involving or matters transactions for It is available Directors. at the Company’s inspection office. registered the Company has Additionally, register an interests implemented and Managers Executive for to record Managers Senior other of interest. potential conflicts

Information relating to items to relating Information by the Directorsbe discussed at a to Directors is provided meeting Directors to the meeting. prior received must not use information which as Director, their capacity in to be available not otherwise would consent of without the prior them, Directors are entitled the Board. to seek independent professional nformation Information s Used by Director mnification and Indemnification Insurance of Officers s and Director is entitled to Company The Directors and Officers indemnify them in for and to effect insurance arising respect liabilities of certain (excluding their positions from or a by the Company claims The partyrelated of the Company). must be and insurances indemnities and effected accordance in given with the Constitution and the Act. Companies The Board recognises the Board recognises The importance of environmental It is issues. and health and safety levels to the highest committed of all areas in of performance Health and safety the Company. management and environmental have been adopted programmes Company The by the Company. also seeks to assess and improve and standards in its performance and other to use energy these areas, and efficiently, resources natural of similar requires the adoption and standards by its suppliers contractors. Safety Issues ntal ntal e Environm h and and Healt m anage ent execut iv e

Dr Julian Elder William Hamilton Chief Executive General Manager Operations and Fibre Julian completed a PhD in electrical engineering in the areas of Low Cost William leads WEL’s internal Field Power Generating Technologies. Services unit, the Capital Projects unit and the Customer Projects Immediately prior to joining unit comprising over 120 staff. The WEL he was the Chief Engineer group is responsible for completing for Watercare Services Ltd. in maintenance and capital works on Auckland for two years and prior WEL’s network as well as providing to that the Asia Pacific Manager services to other asset owners and for CH2M HILL, a global infra- external customers. In addition structure consulting, construction to this he leads the subsidiary and operations company. Prior to company (with a staff of 28) that is this Julian has had a very active managing the programme of works 20 years with a range of consulting for the $320 million ultra fast firms, designing and managing fibre roll-out, Waikato Networks hydro and other generation projects; Limited. Prior to joining WEL 110kV and other subtransmission William was Director of Sales and lines and commercial and Marketing for a major New Zealand industrial installations. Julian has cable manufacturing company. also managed major water and Before this William was a major wastewater projects. shareholder and Director of one of New Zealand’s larger commercial electrical companies, which still operates in both the commercial and industrial markets. On selling his interests William has been involved 2013 in project management, facility management, civil and co-generation |

WEL ANNUAL REPORT WEL ANNUAL projects.William completed an MBA through Massey University.

As at 31 March 2013

34 2013 | WEL ANNUAL REPORT 35

aylor ohn-T Marcus K General Manager Commercial Networks WEL at GM Commercial been leading has Marcus 2012, since and commercial the strategic of the company. development Recent areas of focus include include Recent areas of focus of smart services, meter exploration technology, smart metering water a change and leading solar energy to boost strategy company-wide service delivery. experience commercial Marcus’ consumer, spans the energy, and service technology business the charge and he has led industries and locally success stories on several the after looking including overseas management launch and commercial retailer energy of Australian and New Pty Ltd, Red Energy equity venture, Zealand private Ltd. Empower and thought A creative-thinker also has extensive Marcus leader, and is the experience marketing marketing of numerous recipient New Zealand and across awards in the Tasman.

Manager Asset as Scott T General Engineering of the Power the past During Trust. Excellence has been responsible Tas 20 years management of network a range for out contracting including initiatives engineering developing of services, standards, and operating security network establishing new standards and introducing techniques monitoring condition and new earth fault protection into (resonant earthing) technology New Zealand and Australia. Management who is an Electrical Engineer Tas in Masters degree completed his leads Tas System Earthing. Power asset management team WEL’s the areas of which incorporates and development, design network and investment, asset performance of system and oversight control Project roll-out. the Smart Box has Tas WEL to joining Prior the in career had an extensive sector Canterbury distribution in of Chief positions executive holding MED, Christchurch for Engineer Services Network Manager General and more Ltd., Southpower for Network Manager General recently and NZ Ltd. Orion for Development He has Director Ltd. of Connetics with the involved also been closely of two industry-wide governance member a current being forums, Engineers of the Electricity Board and a trustee Association

vid Smith Da General Manager Services Corporate a Chartered is Accountant David July in Networks WEL who joined responsibilities David’s 2007. the management and control include administration, of the finance, and risk technology, information legal, procurement, assurance, teams. and regulatory pricing of the business. he was appointment to his Prior as 11 years for Auckland based in Watercare with Controller Financial time his During Limited. Services all in he was involved Watercare at and treasury aspects for financial a number including the business capital expenditure of significant with time to his Prior projects. a number held David Watercare the within roles finance of senior group Forests Challenge Fletcher of companies. He also has responsibility for for He also has responsibility aspects and insurance property Brad Chibnall Mark Bunting hryn Kat Williams Mark Ingle (Chair) Denise Harding (Deputy Chair) Rob Hamill bone Knee David

2013 | WEL ANNUAL REPORT 36 FINANCIAL STATEMENTS

Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Statement of Cash Flows

Notes to the Consolidated Financial Statements 1 General information 2 Summary of significant accounting policies 3 Critical accounting estimates and judgements 2012/13 4 Revenue 5 Other net gains/(losses) financial 6 Operating expenses 7 Finance costs 8 Income tax expense REPORT 9 Property, plant and equipment 10 Intangible assets Content 11 Trade and other receivables 12 Construction work in progress 13 Investment in jointly controlled entity 14 Derivative financial instruments 15 Cash and cash equivalents 16 Share capital 17 Convertible notes 18 Borrowings 19 Deferred income tax 20 Deferred income 21 Trade and other payables 22 Provisions 23 Imputation credit memorandum account 24 Contingencies 25 Commitments 26 Interest in joint venture 27 Investments in subsidiaries 28 Business combinations 29 Related-party transactions 30 Dividends on ordinary shares 31 Reserves 2013 32 Financial risk management

33 Events subsequent to balance date |

WEL ANNUAL REPORT

Auditors’ Report Directors’ Report and Statutory Information Directory

37 37 Statement of Comprehensive Income For the year ended 31 March 2013 Note Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

Revenue 4 157,553 98,912 97,489 90,448 Other net gains 5 44 19 44 19 Construction cost of sales 6 (60,990) (10,181) (1,365) (1,888) Other operating expenses 6 (69,057) (62,665) (67,811) (62,689) Net operating profit 27,550 26,085 28,357 25,890

Finance costs 7 (1,181) (851) (1,778) (851) Gain on deemed disposal of share in jointly controlled entity 13 194 495 - - Share of loss of jointly controlled entity 13 (534) (692) - - Net profit before income tax 26,029 25,037 26,579 25,039

Income tax expense 8 (6,469) (6,179) (6,580) (6,124)

Net profit for the year 19,560 18,858 19,999 18,915

Other comprehensive income (Loss) / gain on revaluation of property, plant and equipment, net of deferred tax (1,067) 8,457 (1,067) 8,457 Cash flow hedge (net of tax) (130) - (130) -

Total comprehensive income for the year 18,363 27,315 18,802 27,372

Total net profit attributable to: Owners of the parent 19,625 18,866 19,999 18,915 Non-controlling interest (65) (8) - - 19,560 18,858 19,999 18,915

Total comprehensive income attributable to: Owners of the parent 18,428 27,323 18,802 27,372 Non-controlling interest (65) (8) - - 18,363 27,315 18,802 27,372

The above statement of comprehensive income should be read in conjunction with the accompanying notes. 2013 | WEL ANNUAL REPORT

38 FINANCIAL STATEMENTS

Balance Sheet As at 31 March 2013 Note Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

ASSETS Non-current assets Property, plant and equipment 9 500,635 474,658 500,249 474,231 Intangible assets 10 10,290 10,438 9,772 10,223 Trade and other receivables 11 201 242 201 242 Investment in jointly controlled entity 13 6,563 1,303 - - Investment in subsidiaries 27 - - 25,340 13,720 517,689 486,641 535,562 498,416

Current assets Cash and cash equivalents 15 1,281 1,628 905 1,442 Trade and other receivables 11 12,362 11,887 10,397 12,817 Construction work in progress 12 21,525 16,485 - - 35,168 30,000 11,302 14,259

TOTAL ASSETS 552,857 516,641 546,864 512,675

EQUITY Capital and reserves Share capital 16 111,142 111,142 111,142 111,142 Convertible notes 17 39,000 39,000 39,000 39,000 Other reserves 31 162,787 165,100 160,679 162,992 Retained earnings 70,692 63,191 73,223 65,348 383,621 378,433 384,044 378,482 Non-controlling interests (73) (8) - - TOTAL EQUITY 383,548 378,425 384,044 378,482

LIABILITIES Non-current liabilities Borrowings 18 42,000 29,500 42,000 29,500 Deferred income tax liabilities 19 73,033 71,488 72,990 71,485 Deferred income 20 1,400 1,791 1,103 1,459 Provisions 22 951 489 951 489 117,384 103,268 117,044 102,933

Current liabilities Trade and other payables 21 17,801 11,857 16,022 10,597 Derivative financial instruments 14 130 12 130 12 Provisions 22 - 98 - 98 Provision for dividend 30 10,000 - 10,000 - Current income tax payable 522 1,810 624 1,803 Loan from non-controlling interest 29 4,472 2,421 - - Customer discount payable 19,000 18,750 19,000 18,750

51,925 34,948 45,776 31,260 2013

TOTAL LIABILITIES 169,309 138,216 162,820 134,193 |

WEL ANNUAL REPORT

TOTAL EQUITY AND LIABILITIES 552,857 516,641 546,864 512,675

The above balance sheet should be read in conjunction with the accompanying notes.

John Spencer, Chairman Margaret Devlin, Deputy Chairman 30 May 2013 30 May 2013 39 39 Statement of Changes in Equity For the year ended 31 March 2013

Note Attributable to equity holders of the Company Contributed Convertible Reserves Retained Total Non- Total equity notes earnings controlling equity interest ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Group Balance at 1 April 2011 111,142 39,000 158,335 46,012 354,489 - 354,489 Comprehensive income Net profit for the year - - - 18,866 18,866 (8) 18,858 Other comprehensive income Fair value gains: - distribution network - - 9,396 1,692 11,088 - 11,088 Movement in deferred tax on revaluation 19 - - (2,631) - (2,631) - (2,631) Net income recognised directly in equity - - 6,765 1,692 8,457 - 8,457

Total comprehensive income for 2011/2012 - - 6,765 20,558 27,323 (8) 27,315

Transactions with owners Interest on convertible note 17 - - - (3,129) (3,129) - (3,129) Dividends paid 30 - - - (250) (250) - (250) Total transactions with owners - - - (3,379) (3,379) - (3,379)

Balance at 31 March 2012 111,142 39,000 165,100 63,191 378,433 (8) 378,425

Balance at 1 April 2012 111,142 39,000 165,100 63,191 378,433 (8) 378,425 Comprehensive income Net profit for the year - - - 19,625 19,625 (65) 19,560 Other comprehensive income Cash flow hedge (net of tax) - - (130) - (130) - (130) Fair value gains: - distribution network - - (3,102) 1,246 (1,856) - (1,856) Movement in deferred tax on revaluation 19 - - 919 - 919 - 919 Net income recognised directly in equity - - (2,313) 1,246 (1,067) - (1,067)

Total comprehensive income for 2012/2013 - - (2,313) 20,871 18,558 (65) 18,493

Transactions with owners Interest on convertible note 17 - - - (3,120) (3,120) - (3,120) Dividends paid / accrued 30 - - - (10,250) (10,250) - (10,250) Total transactions with owners - - - (13,370) (13,370) - (13,370)

Balance at 31 March 2013 111,142 39,000 162,787 70,692 383,621 (73) 383,548

The above statement of changes in equity should be read in conjunction with the accompanying notes. 2013 | WEL ANNUAL REPORT

40 FINANCIAL STATEMENTS

Statement of Changes in Equity Statement of Changes in Equity (continued) For the year ended 31 March 2013 For the year ended 31 March 2013

Note Attributable to equity holders of the Company Contributed Convertible Reserves Retained Total Non- Total Note Attributable to equity holders of the Company equity notes earnings controlling equity Contributed Convertible Reserves Retained Total interest equity notes earnings equity ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Group Parent Balance at 1 April 2011 111,142 39,000 158,335 46,012 354,489 - 354,489 Balance at 1 April 2011 111,142 39,000 156,227 48,120 354,489 Comprehensive income Comprehensive income Net profit for the year - - - 18,866 18,866 (8) 18,858 Net profit for the year 18,915 18,915 Other comprehensive income Other comprehensive income Fair value gains: Fair value gains: - distribution network - - 9,396 1,692 11,088 - 11,088 - distribution network - - 9,396 1,692 11,088 Movement in deferred tax on revaluation 19 - - (2,631) - (2,631) - (2,631) Movement in deferred tax on revaluation 19 - - (2,631) - (2,631) Net income recognised directly in equity - - 6,765 1,692 8,457 - 8,457 Net income recognised directly in equity - - 6,765 1,692 8,457

Total comprehensive income for 2011/2012 - - 6,765 20,558 27,323 (8) 27,315 Total comprehensive income for 2011/2012 - - 6,765 20,607 27,372

Transactions with owners Transactions with owners Interest on convertible note 17 - - - (3,129) (3,129) - (3,129) Interest on convertible note 17 - - - (3,129) (3,129) Dividends paid 30 - - - (250) (250) - (250) Dividends paid 30 - - - (250) (250) Total transactions with owners - - - (3,379) (3,379) - (3,379) Total Transactions with owners - - - (3,379) (3,379)

Balance at 31 March 2012 111,142 39,000 165,100 63,191 378,433 (8) 378,425 Balance at 31 March 2012 111,142 39,000 162,992 65,348 378,482

Balance at 1 April 2012 111,142 39,000 165,100 63,191 378,433 (8) 378,425 Balance at 1 April 2012 111,142 39,000 162,992 65,348 378,482 Comprehensive income Comprehensive income Net profit for the year - - - 19,625 19,625 (65) 19,560 Net profit for the year 19,999 19,999 Other comprehensive income Other comprehensive income Cash flow hedge (net of tax) - - (130) - (130) - (130) Cash flow hedge (net of tax) - - (130) - (130) Fair value gains: Fair value gains: - distribution network - - (3,102) 1,246 (1,856) - (1,856) - distribution network - - (3,102) 1,246 (1,856) Movement in deferred tax on revaluation 19 - - 919 - 919 - 919 Movement in deferred tax on revaluation 19 - - 919 - 919 Net income recognised directly in equity - - (2,313) 1,246 (1,067) - (1,067) Net income recognised directly in equity - - (2,313) 1,246 (1,067)

Total comprehensive income for 2012/2013 - - (2,313) 20,871 18,558 (65) 18,493 Total comprehensive income for 2012/2013 - - (2,313) 21,245 18,932

Transactions with owners Transactions with owners Interest on convertible note 17 - - - (3,120) (3,120) Interest on convertible note 17 - - - (3,120) (3,120) - (3,120) Dividends paid / accrued 30 - - - (10,250) (10,250) Dividends paid / accrued 30 - - - (10,250) (10,250) - (10,250) Total Transactions with owners - - - (13,370) (13,370) Total transactions with owners - - - (13,370) (13,370) - (13,370)

Balance at 31 March 2013 111,142 39,000 160,679 73,223 384,044 Balance at 31 March 2013 111,142 39,000 162,787 70,692 383,621 (73) 383,548

The above statement of changes in equity should be read in conjunction with the accompanying notes. The above statement of changes in equity should be read in conjunction with the accompanying notes. 2013 |

WEL ANNUAL REPORT

41 41 Statement of Cash Flows For the year ended 31 March 2013 Note Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

Cash flows from operating activities Receipts from customers 157,148 97,516 95,449 90,388 Payments to employees and suppliers (101,368) (61,257) (33,141) (40,680) Interest received 80 112 847 503 Interest paid (1,817) (851) (1,779) (851) Income tax paid (5,292) (2,976) (5,335) (2,930) Net cash from operating activities 48,751 32,544 56,041 46,430

Cash flows from investing activities Proceeds from sale of property, plant and equipment 784 307 784 307 Purchases of property, plant and equipment (53,294) (50,597) (53,217) (50,191) Purchases of intangible assets (2,064) (3,798) (1,655) (3,535) Purchase of investments (5,600) (1,400) (11,620) (13,720) Net cash used in investing activities (60,174) (55,488) (65,708) (67,139)

Cash flows from financing activities Proceeds from borrowings 18 14,446 25,921 12,500 23,500 Interest on convertible notes 17 (3,120) (3,129) (3,120) (3,129) Dividend paid 30 (250) (250) (250) (250) Net cash used in financing activities 11,076 22,542 9,130 20,121

Net decrease in cash and cash equivalents (347) (402) (537) (588)

Cash and cash equivalents at the beginning of the year 1,628 2,030 1,442 2,030

Cash and cash equivalents at the end of the year 1,281 1,628 905 1,442

Comprises of the following: Cash and deposits 1,281 1,628 905 1,442

1,281 1,628 905 1,442

Reconciliation of net profit after tax to net cash flows -operating activities

Net profit after tax 19,560 18,858 19,999 18,915

Adjustments for items not involving cash flows:

Depreciation 18,752 18,292 18,626 18,232 Amortisation 2,185 1,874 2,099 1,807 Impairment 347 549 347 549 Loss on sale of property, plant and equipment 2,044 3,023 2,032 3,015 Net movements in provision for liabilities and charges (286) 264 6,307 (69) Deferred tax asset 2,363 1,450 2,424 1,447 2013 Gain on disposal of share in jointly controlled entity (194) (495) - - Share of loss of jointly controlled entity 534 692 - - | WEL ANNUAL REPORT Net movements in derivatives (13) 12 (13) 12

Changes in working capital: Trade and other receivables (183) (3,290) (308) (3,167) Work in progress (5,040) (15,496) - 55 Trade and other payables 9,867 5,057 5,706 3,886 Current income tax liabilities (1,185) 1,754 (1,178) 1,748

Net cash inflow from operating activities 48,751 32,544 56,041 46,430

The above statement of cash flows should be read in conjunction with the accompanying notes.

42 FINANCIAL STATEMENTS

Notes to the consolidated financial statements For the year ended 31 March 2013

1. General information

WEL Networks Limited is a profit-oriented company incorporated in New Zealand under the Companies Act 1993. The Group consists of WEL Networks Limited (‘the Company’ or ‘Parent’) and its subsidiaries (together ‘the Group’). The Group is an electricity network business, delivering energy to customers in the Waikato Region and is the contracting company associated with the construction of the Government Ultrafast Fibre roll out programme in the Waikato, Tauranga and Taranaki areas.

The Company is a limited liability company incorporated in New Zealand. The address of its registered office is 114 Maui Street,H amilton.

These consolidated financial statements have been approved for issue by the Board of Directors on 30 May 2013. Once issued the entity’s owners do not have the power to amend these financial statements.

The structure of the Group consists of: Interest Interest Operating subsidiaries Activity 2013 2012 WEL Networks Limited Waikato Networks Limited (formerly Ultrafast Fibre Limited). Construction of fibre network 85% 85%

Non-operating entities WEL Electricity Limited WEL Energy Group Limited Waikato Electricity Limited WEL Power Limited WEL Generation Limited

2. Summary of significant accounting policies associated assumptions have been based on historical experience and other factors that are believed to be reasonable under the The principal accounting policies applied in the preparation of these circumstances. These estimates and assumptions have formed the consolidated financial statements are set out below. These policies basis for making judgements about the carrying values of assets and have been consistently applied to all the years presented, unless liabilities where these are not readily apparent from other sources. otherwise stated. Estimates and underlying assumptions are regularly reviewed. Any change to estimates is recognised in the period if the change affects 2.1 Basis of preparation only that period, or into future periods if it also affects future periods. The areas involving a higher degree of judgement or complexity, (a) Basis of preparation or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3. The consolidated financial statements of WEL Networks Limited have been prepared in accordance with New Zealand Generally Accepted (c) Consolidation Accounting Practice (NZ GAAP). They comply with the New Zealand equivalents to International Financial Reporting The consolidated financial statements incorporate the assets and Standards (NZ IFRS),and other applicable Financial Reporting liabilities of all subsidiaries of WEL Networks Limited (‘Company’ or Standards, as appropriate for profit-oriented entities. The separate Parent’) as at 31 March 2013 and the results of all subsidiaries for the and consolidated financial statements of WEL Networks Limited year then ended. WEL Networks Limited Subsidiaries are all those also comply with International Financial Reporting Standards (IFRS). entities over which the Group has the power to govern the financial The consolidated financial statements have been prepared under and operating policies, generally accompanying a shareholding of the historical cost convention, as modified by the revaluation of more than one-half of the voting rights. The existence and effect of land, buildings and distribution network as disclosed in the specific potential voting rights that are currently exercisable or convertible accounting policies below. are considered when assessing whether the Group controls 2013 another entity. (b) Estimates and judgement |

Subsidiaries are fully consolidated from the date on which control is WEL ANNUAL REPORT The preparation of financial statements in conformity with NZ IFRS transferred to the Group. They are de-consolidated from the date that requires the use of certain critical accounting estimates. It also control ceases. requires management to exercise its judgement in the process of applying the Group’s accounting policies. The estimates and

43 43 The purchase method of accounting is used to account for the share of profits or losses of the jointly controlled entity is recognised acquisition of subsidiaries by the Group. The cost of an acquisition is in the Statement of Comprehensive Income, and the share of measured as the fair value of the assets given, equity instruments movements in reserves is recognised in reserves in the Balance Sheet. issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets Ultrafast Fibre Limited has a reporting date of 30 June 2013. acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the (f) Entities reporting acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s The financial statements of the ‘Parent’ or ‘Company’ are for WEL share of the identifiable net assets acquired is recorded as goodwill. Networks Limited as a separate legal entity. The consolidated financial If the cost of acquisition is less than the fair value of the net assets of statements of the ‘Consolidated’ or ‘Group’ entity are for the economic the subsidiary acquired, the difference is recognised directly in the entity comprising WEL Networks Limited and its subsidiaries. The comprehensive income statement. Parent and the consolidated entity are designated as profit oriented entities for financial reporting purposes. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised (g) Statutory base losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies WEL Networks Limited is a limited liability company which is of subsidiaries have been changed where necessary to ensure domiciled and incorporated in New Zealand. It is registered under the consistency with the policies adopted by the Group. Companies Act 1993. The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act The Group’s interests in joint ventures are accounted for by 1993 and the Companies Act 1993. proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities, 2.2 Foreign currency translation and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or (a) Functional and presentation currency losses on the sale of assets by the Group to the joint venture that it is attributable to the other ventures. The Group does not recognise its Items included in the financial statements of each of the Group’s share of profits or losses from the joint venture that result from the entities are measured using the currency of the primary economic Group’s purchase of assets from the joint venture until it resells the environment in which the entity operates (‘the functional currency’). assets to an independent party. However, a loss on the transaction is The consolidated and Parent financial statements are presented in recognised immediately if the loss provides evidence of a reduction in New Zealand dollars, rounded to the nearest $1,000, which is the the net realisable value of current assets, or an impairment loss. Company’s functional and presentation currency.

(d) Changes in ownership interests in subsidiaries without (b) Transactions and balances change of control Foreign currency transactions are translated into the functional Transactions with non-controlling interests that do not result in currency using the exchange rates prevailing at the dates of the loss of control are accounted for as equity transactions - that is, transactions. Foreign exchange gains and losses resulting from the as transactions with the owners in their capacity as owners. The settlement of such transactions and from the translation at year end difference between fair value of any consideration paid and the exchange rates of monetary assets and liabilities denominated in relevant share acquired of the carrying value of net assets of the foreign currencies are recognised in the profit and loss component subsidiary is recorded in equity. Gains or losses on disposal to non- of the statements of comprehensive income, except when deferred controlling interests are also recorded in equity. in equity as qualifying cash flow hedges in which case, they are recognised in other comprehensive income. (e) Jointly controlled entity

The interest in Ultrafast Fibre Limited is accounted for in the consolidated financial statements using the equity method and is carried at cost by the parent entity. Under the equity method, the 2013 | WEL ANNUAL REPORT

44 FINANCIAL STATEMENTS

2.3 Property, plant and equipment and leasehold improvements are carried at cost less accumulated depreciation and impairment. Cost includes expenditure that is Land and buildings comprise mainly the corporate office, warehouse directly attributable to the acquisition of the item. The cost of self- and substation land, while the electricity distribution network constructed assets includes the cost of materials and direct labour comprises mainly cables, poles and transformers. and an allowance for overheads. Borrowing costs are capitalised in respect of qualifying assets valued at $500,000 or more and which Land and buildings are valued at fair value. Fair value is determined take three months or more to construct. by a periodic independent valuation prepared by external valuers on the basis of market value for highest and best use. The valuations Depreciation on buildings and the distribution network is calculated are performed on at least a triennial period. The fair values are using the straight-line method with other assets depreciated using recognised in the financial statements, and are reviewed at the end the diminishing value basis, to allocate their cost or revalued amounts of each reporting period to ensure that the carrying value of land and to their residual values over their estimated useful lives, as follows: buildings is not materially different from fair value. 2013 2012 The electricity distribution network is measured at fair value. Fair Buildings 3% 3% value has previously been determined on the basis of an independent Distribution network 1.3% - 16.7% 1.3% - 16.7% valuation prepared by external valuers, based on a depreciated replacement cost methodology. The fair values have been recognised Computer equipment 35% 35% in the financial statements of the group and have been reviewed Furniture, plant and equipment 20% - 50% 20% - 50% at the end of each reporting period to assess whether the carrying Vehicles 25% 25% value of the electricity distribution network is not materially different Generation assets 20% 20% from fair value. Consideration has been given as to whether the electricity distribution network is impaired as detailed in note 2.6. The assets’ residual values and useful lives are reviewed, and adjusted From 31 March 2013 onwards fair value has been determined on the if appropriate, at each balance date. basis of an independent valuation prepared by expert valuers using a discounted Cash flow methodology (DCF). An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater Any revaluation increase arising on revaluation of land and buildings than its estimated recoverable amount (Note 2.6). and the distribution network is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease 2.4 Fair value estimation for the same asset previously recognised as an expense in the income statement, in which case the increase is credited to the profit and loss Financial instruments that are measured in the balance sheet account to the extent of the decrease previously charged. A decrease at fair value are disclosed by level under the following fair value in carrying amount arising on the revaluation of land and buildings measurement hierarchy : and the distribution system is charged as an expense in the income statement to the extent that it exceeds the balance, if any, held in the Level 1 - quoted prices (unadjusted) in active markets for the identical asset revaluation reserve relating to a previous revaluation of asset or liability. that asset. Level 2 - inputs other than quoted prices that are observable for the All other property, plant and equipment is stated at historical cost asset or liability, either directly or derived from level 1 prices. less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Level 3 – inputs for the asset or liability that are not based on observable market data. Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. The Group enters into forward exchange contracts to reduce exposure to foreign exchange movements. These are not traded in Depreciation on revalued buildings and the distribution network is an active market and are measured at their fair value on balance date charged to the income statement. On subsequent sale or retirement using valuation techniques. These valuation techniques maximise the of a revalued item, the attributable revaluation surplus remaining use of observable market data where it is available and rely as little as in the asset revaluation reserve, net of any related deferred taxes, is possible on entity specific estimates. Therefore these derivatives are transferred directly to retained earnings. Other plant and equipment classified as Level 2 instruments. 2013 |

WEL ANNUAL REPORT

45 45 2.5 Intangible assets 2.7 Financial assets

(a) Computer software The Group classifies its financial assets as assets at fair value through profit or loss, or loans and receivables. The classification Acquired computer software licences are capitalised on the basis of depends on the purpose for which the financial assets were acquired. the costs incurred to acquire and bring to use the specific software. Management determines the classification of its financial assets at These costs are amortised over their estimated useful lives (three to initial recognition and re-evaluates this designation at every five years). reporting date.

Costs associated with developing or maintaining computer software (a) Loans and receivables programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique Loans and receivables are non-derivative financial assets with fixed or software products controlled by the Group, and that will probably determinable payments that are not quoted in an active market. They generate economic benefits exceeding costs beyond one year, are are included in current assets, except for maturities greater than 12 recognised as intangible assets. Direct costs include the software months after the reporting date which are classified as non-current development employee costs and an appropriate portion of relevant assets. Loans and receivables are classified as ‘trade and other overheads. receivables’ and cash and cash equivalents’ in the balance sheet (Note 2.9 and 2.12 respectively) Computer software development costs recognised as assets are amortised over their estimated useful lives (three to five years). (b) Assets at fair value through profit or loss

(b) Easements Derivative assets that do not meet the criteria for hedge accounting are recorded at fair value through profit or loss. Acquired easement rights are capitalised on the basis of the costs incurred. These costs are amortised over their estimated useful lives 2.8 Financial liabilities (33 years). The Group classifies its financial liabilities as other financial liabilities (c) Leasehold Interest at amortised cost or liabilities at fair value through profit or loss. The classification depends on the purpose for which the financial liability Long term leasehold interest in substation land has been arose. Management determines the classification of its financial recorded at fair value. The assets will be amortised over the period liabilities at initial recognition and re-evaluates this designation at of the leases. every reporting date.

2.6 Impairment of non-financial assets (a) Other financial liabilities at amortised cost

Assets that are subject to amortisation are reviewed for impairment Other financial liabilities at amortised cost are non-derivative whenever events or changes in circumstances indicate that the financial liabilities with fixed or determinable payments that are not carrying amount may not be recoverable. An impairment loss is quoted in an active market. They are included in current liabilities, recognised for the amount by which the asset’s carrying amount except for maturities greater than 12 months after the reporting date exceeds its recoverable amount. The recoverable amount is the which are classified as non-current liabilities. Other financial liabilities higher of an asset’s fair value less costs to sell and value in use. For the are classified as ‘trade and other payables’ and ‘borrowings’ in the purposes of assessing impairment, assets are grouped at the lowest balance sheet. levels for which there are separately identifiable cash flows (cash- generating units). Non-financial assets that suffered an impairment (b) Liabilities at fair value through profit or loss are reviewed for possible reversal of the impairment at each reporting date. Derivative liabilities that do not meet the criteria for hedge accounting are recorded at fair value through profit or loss.

2013 | WEL ANNUAL REPORT

46 FINANCIAL STATEMENTS

2.9 Trade receivables than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading Trade receivables are recognised initially at fair value and derivatives are classified as a current asset or liability. subsequently measured at amortised cost, less provision for impaired receivables. Cash flow hedge The effective portion of changes in the fair value of derivatives that Collectability of trade receivables is reviewed on an ongoing are designated and qualify as cash flow hedges is recognised in other basis. Debts which are known to be uncollectible are written off. comprehensive income. The gain or loss relating to any ineffective A provision for doubtful receivables is established when there is portion is recognised immediately in the profit and loss component objective evidence that the Group will not be able to collect all of the statements of comprehensive income. amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s Amounts accumulated in equity are reclassified to the profit and carrying amount and the present value of estimated future cash flows, loss component of the statements of comprehensive income in the discounted at the effective interest rate. The amount of the provision periods when the hedged item affects the profit and loss component is recognised in the statement of comprehensive income. of the statements of comprehensive income (for instance when the forecast sale that is hedged takes place). However, when the forecast 2.10 Derivatives transaction that is hedged results in the recognition of a non‑financial asset (for example, inventory) or a non‑financial liability, the gains and Forward exchange contracts are used to reduce the Company’s losses previously deferred in equity are transferred from equity and exposure to foreign exchange movements on transactions included in the measurement of the initial cost or carrying amount of denominated in foreign currencies. the asset or liability.

Derivatives are initially recognised at fair value on the date a When a hedging instrument expires or is sold or terminated, or when derivative contract is entered into and are subsequently remeasured a hedge no longer meets the criteria for hedge accounting, any to their fair value. The method of recognising the resulting gain or cumulative gain or loss existing in equity at that time remains in loss depends on whether the derivative is designated as a hedging equity and is recognised when the forecast transaction is ultimately instrument, and if so, the nature of the item being hedged. The Group recognised in the profit and loss component of the statements of designates certain derivatives as either; comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in (1) hedges of the fair value of recognised assets or liabilities equity is immediately transferred to the profit and loss component or a firm commitment (fair value hedge); or of the statements of comprehensive income.

(2) hedges of highly probable forecast transactions (cash flow hedges). 2.11 Trade and other payables

The Group documents at the inception of the transaction the These amounts represent liabilities for goods and services provided to relationship between hedging instruments and hedged items, as well the Group prior to the end of financial year which are unpaid. The as its risk management objective and strategy for undertaking various amounts are unsecured and are usually paid within 30 days of hedge transactions. The Group also documents its assessment, recognition. Trade payables are recognised initially at fair value and both at hedge inception and on an ongoing basis, of whether the subsequently measured at amortised cost using the effective interest derivatives that are used in hedging transactions have been and will method. continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. 2.12 Cash and cash equivalents

The fair value of various derivative instruments used for hedging Cash and cash equivalents includes cash in hand, deposits held at call purposes are disclosed in note 14. Movements on the hedging with banks, other short-term highly liquid investments with original reserve in shareholders’ equity are shown in the Statement of changes maturities of three months or less, and bank overdrafts. Bank in equity. The full fair value of a hedging derivative is classified as a overdrafts are shown within borrowings in current liabilities on the noncurrent asset or liability when the remaining hedged item is more balance sheet. 2013 |

WEL ANNUAL REPORT

47 47 2.13 Contributed equity The income tax expense or revenue attributable to amounts recognised directly in equity are also recognised directly in equity. Ordinary shares are classified as equity. The associated current or deferred tax balances are recognised in these accounts as usual. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the Current and deferred tax assets and liabilities of individual entities proceeds. are reported separately in the consolidated financial statements unless the entities have a legally enforceable right to make or receive 2.14 Convertible notes a single net payment of tax and the entities intend to make or receive such a net payment or to recover the current tax asset or settle the Convertible notes issued by WEL Networks Limited can be converted current tax liability simultaneously. to non-participating redeemable shares (NPRS) at the option of the issuer, and where the number of NPRS to be issued does not vary with 2.16 Goods and Services Tax (GST) changes in fair value, are classified as equity. Convertible notes are initially measured at fair value, and are not subsequently re-measured The income statement has been prepared so that all components are except on conversion or expiry. stated exclusive of GST. All items in the balance sheet are stated net of GST, with the exception of receivables and payables, which include Interest payments on convertible notes are recorded as a distribution GST invoiced. through the statement of movements in equity. Interest rate is fixed at 8%. 2.17 Employee benefits

2.15 Income tax (a) Wages and salaries, annual leave and sick leave

The income tax expense or revenue for the period is the total of the Liabilities for wages and salaries, including non monetary benefits, current period’s taxable income based on the national income tax annual leave and accumulated sick leave expected to be settled rate, plus/minus movements in the deferred tax balance except where within 12 months of the reporting date are recognised in ‘other the movement in deferred tax is attributable to a movement payables’ in respect of employees’ services up to the reporting date in reserves. and are measured at the amounts expected to be paid when the liabilities are settled. Movements in deferred tax are attributable to temporary differences between the tax base of assets and liabilities and their carrying (b) Termination benefits amounts in the financial statements and any unused tax losses or credits. Deferred tax assets and liabilities are recognised for Termination benefits are payable when employment is terminated temporary differences at the tax rates expected to apply when the by the Group before the normal retirement date, or whenever an assets are recovered or liabilities are settled, based on those tax rates employee accepts voluntary redundancy in exchange for these which are enacted or substantively enacted. An exception is made for benefits. The Group recognises termination benefits when it is certain temporary differences arising from the initial recognition of demonstrably committed to either: terminating the employment an asset or a liability. No deferred tax asset or liability is recognised in of current employees according to a detailed formal plan without relation to these temporary differences if they arose in a transaction, possibility of withdrawal; or providing termination benefits as a result other than a business combination, that at the time of the transaction of an offer made to encourage voluntary redundancy. Benefits falling did not affect either accounting profit or loss or taxable profit or loss. due more than 12 months after the reporting date are discounted to present value. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only to the extent that it is (c) Bonus plans probable that future taxable amounts will be available to utilise those temporary differences and losses. The Group recognises a liability and an expense for bonuses, based on a formula that takes into consideration the profit attributable to Deferred tax liabilities and assets are not recognised for the Company’s shareholders after certain adjustments. The Group temporary differences between the carrying amount and tax bases recognises a provision where contractually obliged or where there of investments in controlled entities where the Parent is able to is a past practice that has created a constructive obligation. control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the

2013 foreseeable future.

| WEL ANNUAL REPORT

48 FINANCIAL STATEMENTS

(d) Long term incentive scheme (d) Interest income

The company operates long term incentive schemes for key Interest income is recognised on a time-proportion basis using the management personnel. This scheme is detailed in note 29 below. effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the 2.18 Provisions estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as Provisions are recognised when the Group has a present legal or interest income. Interest income on impaired loans is recognised constructive obligation as a result of past events; it is more likely using the original effective interest rate. than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions (e) Government grants are not recognised for future operating losses. Grants from the government are recognised at their fair value where Provisions are measured at the present value of the expenditures there is a reasonable assurance that the grant will be received and the expected to be required to settle the obligation using a pre-tax rate Group will comply with all attached conditions. that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision Government grants relating to costs are deferred and recognised in due to passage of time is recognised as interest expense. the statement of comprehensive income over the period necessary to match them with the costs that they are intended to compensate. 2.19 Revenue recognition Government grants relating to property, plant and equipment are Revenue comprises the fair value of the consideration received or included in non-current liabilities as deferred income and are credited receivable for the sale of goods and services in the ordinary course to the statement of comprehensive income on a straight-line basis of the Group’s activities. Revenue is shown, net of GST, estimated over the expected lives of the related assets. returns, rebates and discounts and after eliminated sales within the Group. (f) Operating lease revenue

Revenue is recognised as follows: Operating lease revenue is recognised when the services have been performed under the terms of the contracts. (a) Line revenue 2.20 Leases The Company invoices its customers (predominantly electricity retailers) monthly for the electricity delivery services across the Leases in which a significant portion of the risks and rewards of region’s lines network. The reported net line revenue includes the ownership are retained by the lessor are classified as operating leases. provision for the annual customer discounts that are accrued on a Payments made under operating leases (net of any incentives monthly basis but only paid to customers once a year. Unclaimed received from the lessor) are charged to the statement of discounts are released against the discount expense. comprehensive income on a straight-line basis over the period of the lease. Lease incentives are included in deferred income and released (b) Sales of services, contracting sales and third party contributions over the period of the lease.

Sales of services, contracting sales and third party contributions 2.21 Dividends are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction Provision is made for the amount of any dividend declared on assessed on the basis of the actual service provided as a proportion of or before the end of the financial year but not distributed at the total services to be provided. balance date.

(c) Construction contract revenue

Refer to policy 2.23 construction contracts.

2013 |

WEL ANNUAL REPORT

49 49 2.22 Non-current assets (or disposal groups) held for sale 2.26 Common control transactions

Non-current assets (or disposal groups) are classified as assets held for Business combinations in which all of the combining entities or sale and stated at the lower of carrying amount and fair value less businesses ultimately are controlled by the same party or parties both costs to sell if their carrying amount is recovered principally through a before and after the combination are recognised as common control sale transaction rather than through continuing use. transactions.

2.23 Construction contracts In common control transactions by way of short form amalgamation, the Company incorporates the assets and liabilities at the amounts Contract costs are recognised when incurred. When the outcome of a recorded in the financial statements of the acquired company. The construction contract cannot be estimated reliably, contract revenue gain or loss arising on the acquisition is recognised in the statement is recognised only to the extent of contract costs incurred that are of changes in equity. The results of the acquired company are likely to be recoverable. recognised in the income statement of the Company from the date of the amalgamation. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract 2.27 Changes in Accounting Policy revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, The company operates long term incentive schemes for key the expected loss is recognised as an expense immediately. management personnel. The schemes are cash-settled equity-based schemes covering the three year periods to 31 March 2014 and 31 Construction contract revenue is calculated on an average cost per March 2015. The Company recognises an expense and a liability as the premise passed and is recognised when the network has been participants render service over the vesting period at the fair value of accepted by Ultrafast Fibre Limited. The contract average cost per the liability. Until the liability is settled, the Company re-measures the premise passed is determined by the Network Infrastructure Project fair value of the liability at the end of each reporting period and at Agreement and recognises a difference between priority and non the date of settlement, with any changes in the fair value recognised priority premises. A priority premise is determined as a premise for in the income statement over the remaining vesting period. The fair business, health and education purposes whereas a non priority value of the liability is measured taking into account the terms and premise is mainly a residential connection. The approved network conditions of the scheme. deployment plan determines the order of premises to be constructed and whether this is determined as a priority or non priority premise. 2.28 New Standards

The Group presents as an asset the gross amount due from customers Changes in accounting policy and disclosures for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed (a) New and amended standards adopted by the group progress billings. Progress billings not yet paid by customers and retention are included within ‘construction work in progress’. FRS 44 New Zealand ‘additional disclosures’ (effective from 1 January 2011). This amends multiple standards to harmonise NZ IFRS with The Group presents as a liability the gross amount due to customers IFRS and Australian Accounting Standards. The amendments have not for contract work for all contracts in progress for which progress had a material impact on the financial statements. billings exceed costs incurred plus recognised profits (less recognised losses). (b) Standards, amendments and interpretations to existing standards that are not yet effective 2.24 Investments Certain new standards, amendments and interpretations to existing Investments are valued at historical cost. Impairments in the value of standards have been published that are mandatory for the Group’s investments are written off to earnings as they arise. accounting periods beginning on or after 1 January 2012 or later periods but which the Group has not early adopted and is not 2.25 Joint ventures expected to result in a material impact on the Group’s or Company’s financial statements. The following new standards are applicable to Joint ventures in which the ownership interest is directly in the assets the Group: and liabilities, rather than the net residue, are included on a proportional basis with assets, liabilities, revenues and expenses

2013 based on the group’s proportional interest.

| WEL ANNUAL REPORT

50 FINANCIAL STATEMENTS

NZ IFRS 13 ’Fair value measurement’ (effective from 1 January 2013) (b) Revenue recognition for sale of services The standard replaces the guidance on fair value measurement in existing IFRS literature with a single standard. The Group does not The Group uses the percentage-of-completion method in accounting intend to adopt the new standard before its operative date, which for its sales of services. Use of the percentage-of-completion method means that it would be first applied in the annual reporting period requires the Group to estimate the services performed to date as a ending 31 March 2014. proportion of the total services to be performed.

IAS 1 Presentation of Financial Statements (as amended in 2011) (c) Estimated fair value and useful lives of distribution network assets, will be effective for years beginning 1 July 2012. It requires that substation land and buildings. items in Other Comprehensive Income be grouped on the basis of whether they are potentially reclassifiable to the income statement The Group estimates the fair value of the distribution network, in subsequent periods. The Group intends to adopt the new standard substation land and buildings by using independent valuers in from 1 April 2013. accordance with the accounting policy stated in note 2.3 above. The fair value is based on a discounted Cash flow methodology for NZ IFRS 10 ‘Consolidated Financial Statements’ (effective from 1 distribution network assets and buildings. The fair value for land is January 2013). The standard requires a parent to present consolidated based on market value for highest and best use. The useful lives of financial statements as those of a single economic entity, replacing the components of the distribution network are estimated based the requirements previously contained in NZ IAS 27 ‘Consolidated and on their respective tenure period. These calculations require the use Separate Financial Statements’. The Group does not intend to adopt of estimates. Changes of the valuation in the future could have a this until the annual reporting period ending 31 March 2014. material effect on the carrying amount of distribution network (see note 9). NZ IFRS 9: Financial Instruments (effective for annual periods beginning on or after 1 January 2015). The standard partly replaces (d) Construction contract revenue NZ IAS 39 and introduces requirements for classifying and measuring financial assets and liabilities. A construction contract is defined by NZ IAS 11, “Construction Contracts”, as a contract specifically negotiated for the construction 3. Critical accounting estimates and judgements of an asset.

Estimates and judgements are continually evaluated and are based When the outcome of a construction contract can be estimated on historical experience and other factors, including expectations of reliably and it is probable that the contract will be profitable, contract future events that are believed to be reasonable under the revenue is recognised over the period of the contract by reference to circumstances. the stage of completion. Contract costs are recognised as expenses by reference to the stage of completion of the contract The Group makes estimates and assumptions concerning the future. activity at the end of the reporting period. When it is probable The resulting accounting estimates will, by definition, seldom equal that the total contract costs will exceed total contract revenue, the the related actual results. The estimates and assumptions that have a expected loss is recognised as an expense immediately. risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed The Group uses the “percentage of completion method” to below. determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to premises passed. (a) Revenue recognition for line revenue On the Balance Sheet, the Group reports the net contract The company invoices its customers (predominantly electricity position for each contract as either an asset or a liability. A contract retailers) monthly for the electricity delivery services on the basis of represents an asset where costs incurred plus recognised profits an estimation of usage, adjusted for the latest data available from (less recognised losses) exceed progress billings; a contract the electricity wholesale market and certain metering data from represents a liability where the opposite is the case. electricity retailers. However, as final metering data is not available for in excess of twelve months, it is possible that the final amounts payable or receivable may vary from that calculated.

Line revenue discounts are paid to customers once a year. A provision for line revenue discounts is established on a monthly basis. The discounts are agreed between the directors 2013 and shareholders on an annual basis having regard to the forecast level of company earnings and estimated future capital expenditure |

programmes. WEL ANNUAL REPORT

51 51 (e) Discounted Cash flows

Management assesses whether individual assets or a grouping of related assets (which generate cash flows independently) are impaired by estimating the future cash flows that those assets are expected to generate. Assumptions such as rates of expected revenue growth or decline, expected future margins and the selection of an appropriate discount rate for discounting future cash flow are required.

Note Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

4. Revenue

Gross line revenues 101,952 92,930 101,952 92,930 Discount (18,943) (18,525) (18,943) (18,525) Net line revenues 83,009 74,405 83,009 74,405 Third party contributions 6,073 6,613 6,073 6,613 Contracting revenue 62,287 11,145 1,457 2,290 Operating lease revenue 3,091 2,814 3,091 2,814 Rental income 11 11 11 11 Interest on investments 80 112 846 503 Other income 3,002 3,812 3,002 3,812

Total revenue 157,553 98,912 97,489 90,448

Operating lease revenue is recognised in relation to a lease agreement with an company. The agreement has been deemed an operating lease and all revenue under the contract is accounted for as lease revenue. The contract expires on November 2035. The future minimum payments under the term of the contract are variable in nature and therefore not able to be quantified.

5. Other net gains/(losses)

Amortisation of deferred income on Government grants 31 31 31 31 Fair value movements in derivatives 14 13 (12) 13 (12)

44 19 44 19 2013 | WEL ANNUAL REPORT

52 FINANCIAL STATEMENTS

Note Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

6. Operating expenses

Transmission costs 25,153 21,187 25,153 21,187 Wages and salaries 7,676 6,212 6,993 5,109 Materials and services 6,770 6,962 6,770 6,962 Contracting cost of sales 60,990 10,181 1,365 1,888

Depreciation of property, plant and equipment Buildings 74 259 74 259 Plant and equipment 2,155 1,504 2,030 1,444 Distribution network 16,490 16,443 16,489 16,443 Land fill generation 33 86 33 86 Total depreciation 18,752 18,292 18,626 18,232

Amortisation expense 2,185 1,874 2,099 1,807

Directors’ fees 286 270 286 270 Net loss on disposal of property, plant and equipment 2,032 3,023 2,032 3,015 Impairment on property, plant and equipment 9 347 549 347 549 Research and development 174 232 174 232 Bad debts written off 230 249 230 249 Change in provision for impaired receivables (74) 43 (74) 43 Rental and operating lease payments 410 858 549 985 Other expenses 4,908 2,465 4,462 3,625

Remuneration of Auditors Auditing the financial statements 137 128 103 103 Half year review 20 15 20 15 Assurance procedures on disclosure information 21 22 21 22 IT system security review - 20 - 20 Total audit and review services 178 185 144 160

Tax advice 25 90 15 90 Other assurance - 72 - 72 Other advisory services 5 102 5 102 Total other services 30 264 20 264

Total Remuneration 208 449 164 424 PricewaterhouseCoopers were the only auditors employed during the year. Other advisory services comprise advice on funding options and review of models to support the ultrafast broadband project.

Total operating expenses 130,047 72,846 69,176 64,577

Wages and salaries capitalised to property, plant and equipment 7,122 6,801 7,122 6,801

7. Finance costs

Interest expense Bank borrowings 2,102 1,361 1,958 1,199 Less capitalised on construction of property, plant and

equipment (176) (304) (176) (304) 2013 Less capitalised on construction contracts (741) (162) - - Less capitalised on construction of intangible assets (4) (44) (4) (44) |

WEL ANNUAL REPORT 1,181 851 1,778 851

53 53 Note Group Group Parent Group 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

8. Income tax expense

Current tax 4,085 4,736 4,181 4,684 Deferred tax 2,384 1,443 2,399 1,440

6,469 6,179 6,580 6,124

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

Net profit before tax 26,029 25,037 26,579 25,039

Tax calculated at 28% 7,288 7,011 7,441 7,011 Tax effects of: Income not subject to tax (8) (8) (8) (8) Expenses not deductible for tax purposes 17 9 17 9 Convertible note interest (874) (876) (874) (876) Share of loss of jointly controlled entity 95 55 - - Adjustments in respect of prior years (49) (12) 4 (12)

Tax charge 6,469 6,179 6,580 6,124

The weighted average effective tax rate was 25% (2012: 25%).

9. Property, plant and equipment Land and Distribution Plant and Generation Total buildings network equipment assets ($000) ($000) ($000) ($000) ($000)

Group Year ended 31 March 2012 Opening net book amount 11,595 429,028 6,860 955 448,438 Revaluation surplus - 11,088 - - 11,088 Assets on acquisition - - 16 - 16 Additions 880 27,318 4,511 - 32,709 Work in progress (62) 3,369 (38) - 3,269 Disposals - (1,989) (32) - (2,021) Impairment - (47) - (502) (549) Depreciation charge (259) (16,443) (1,504) (86) (18,292)

Closing net book amount 12,154 452,324 9,813 367 474,658

At 31 March 2012 Cost or valuation 12,603 455,114 14,901 1,250 483,868 Accumulated depreciation (449) (2,790) (5,088) (883) (9,210)

Net book amount 12,154 452,324 9,813 367 474,658

Capital work in progress included in cost and net book amount - 25,680 29 - 25,709

Year ended 31 March 2013 Opening net book amount 12,154 452,324 9,813 367 474,658 Revaluation surplus/(deficit) 181 (2,031) - - (1,850) Transfer between classes (8,290) 8,290 - - - Additions 8,198 36,412 10,590 - 55,200 2013 2013 Work in progress - (6,043) (25) - (6,068) Disposals - (2,025) (181) - (2,206) | | Impairment (14) - - (333) (347) WEL ANNUAL REPORT WEL ANNUAL REPORT Depreciation charge (74) (16,490) (2,155) (33) (18,752)

Closing net book amount 12,155 470,437 18,042 1 500,635

At 31 March 2013 Cost or valuation 12,229 470,437 25,010 1,250 508,926 Accumulated depreciation (74) - (6,968) (1,249) (8,291)

Net book amount 12,155 470,437 18,042 1 500,635

Capital work in progress included in cost and net book amount - 19,637 3 - 19,640

Additions of distribution system cost includes $290,000 (2012: $448,000) of interest capitalised at an average borrowing rate of 4.05%.

54 9. Property, plant and equipment (continued) FINANCIAL STATEMENTS Revaluations and impairment review

Land was revalued to market value for highest and best use on from the assets, rather than depreciated replacement cost which 31 March 2013 by independent valuers, Telfer Young (Waikato) Ltd does not consider the impact of revenue, and thereby provides Registered Valuers. Buildings are recorded at purchase price following a more reflective valuation of the network assets. the acquisition in October 2012. The company’s electricity distribution network was revalued as Substation buildings have been reclassified from land and at 31 March 2013 to fair value by Deloitte. The fair values were buildings to distribution system as they are an integral part of the established in accordance with NZ IAS 16 - Property, Plant and distribution system and should be valued on the same basis as Equipment. The valuation was prepared using discounted cash flow the distribution system. methodology.

During the 2013 year, the board approved a change in valuation The key assumptions used in the valuation as at 31 March 2013 methodology from depreciated replacement value to a discounted include forecasts of future demand for electricity distribution services, cash flow methodology. Reasoning behind the change was that electricity distribution prices, operating and capital expenditure discounted cash flow considers the revenue that can be earned associated with existing assets, and the discount rate.

Assumptions Valuation Low High Valuation impact assumptions ($000) adopted

Domestic load growth 0.5% 0.0% 1.0% - $44m + $46m Capital expenditure $189m 90.0% 110.0% -/+ $40m WACC (with CPI inflation 2.25%) 7.08% 6.62% 7.54% +$53m - $45m CPI inflation (with WACC 7.08%) 2.25% 1.75% 2.75% +$23m - $21m Terminal growth 2.00% 1.75% 2.25% +$37m - $31m

If property, plant and equipment were stated on the historical cost basis, the amounts would be as follows:

Land and Distribution Plant and Generation Total buildings network equipment assets ($000) ($000) ($000) ($000) ($000)

Cost 7,869 370,519 14,901 1,250 394,539 Accumulated depreciation (886) (146,297) (5,088) (883) (153,154)

Net book amount at 31 March 2012 6,983 224,222 9,813 367 241,385

Cost 10,012 406,224 25,010 1,250 442,496 Accumulated depreciation (74) (151,724) (6,968) (1,249) (160,015)

Net book amount at 31 March 2013 9,938 254,500 18,042 1 282,481

Parent

Year ended 31 March 2012 Opening net book amount 11,595 429,028 6,752 955 448,330 Revaluation surplus - 11,088 - - 11,088 Additions 880 27,318 4,148 - 32,346

Work in progress (62) 3,369 (38) - 3,269 2013 2013 Disposals - (1,989) (32) - (2,021) Impairment - (47) - (502) (549) | | WEL ANNUAL REPORT

Depreciation charge (259) (16,443) (1,444) (86) (18,232) WEL ANNUAL REPORT

Closing net book amount 12,154 452,324 9,386 367 474,231

At 31 March 2012 Cost or valuation 12,603 455,114 14,407 1,250 483,374 Accumulated depreciation (449) (2,790) (5,021) (883) (9,143)

Net book amount 12,154 452,324 9,386 367 474,231

Capital work in progress included in cost and net book amount - 25,680 29 - 25,709 55 55 9. Property, plant and equipment (continued)

Land and Distribution Plant and Generation Total buildings network equipment assets ($000) ($000) ($000) ($000) ($000)

Year ended 31 March 2013 Opening net book amount 12,154 452,324 9,386 367 474,231 Revaluation surplus/(deficit) 181 (2,031) - - (1,850) Transfer between classes (8,290) 8,290 - - - Additions 8,198 36,412 10,474 - 55,084 Work in progress - (6,043) (25) - (6,068) Disposals - (2,025) (150) - (2,175) Impairment (14) - - (333) (347) Depreciation charge (74) (16,489) (2,030) (33) (18,626)

Closing net book amount 12,155 470,438 17,655 1 500,249

At 31 March 2013 Cost or valuation 12,229 470,438 24,443 1,250 508,360 Accumulated depreciation (74) - (6,788) (1,249) (8,111)

Net book amount 12,155 470,438 17,655 1 500,249

Capital work in progress included in cost and net book amount - 19,637 3 - 19,640

If property, plant and equipment were stated on the historical cost basis, the amounts would be as follows:

Cost 7,869 370,519 14,407 1,250 394,045 Accumulated depreciation (886) (146,297) (5,021) (883) (153,087)

Net book amount at 31 March 2012 6,983 224,222 9,386 367 240,958

Cost 10,012 406,224 24,443 1,250 441,929 Accumulated depreciation (74) (151,724) (6,788) (1,249) (159,835)

Net book amount at 31 March 2013 9,938 254,500 17,655 1 282,094

10. Intangible assets Licenses Software Easements & Leasehold Total Consents interest ($000) ($000) ($000) ($000) ($000) Group Year ended 31 March 2012 Opening net book amount - 4,034 4,403 113 8,550 Assets on acquisition 19 - - - 19 Additions - 3,361 407 - 3,768 Work in progress - 27 4 - 31 Disposals - (55) - - (55) Amortisation expense - (1,483) (392) - (1,875)

Closing net book amount 19 5,884 4,422 113 10,438

At 31 March 2012 Cost or valuation 20 13,794 5,699 113 19,626 Accumulated amortisation (1) (7,910) (1,277) - (9,188)

Net book amount 19 5,884 4,422 113 10,438 Capital work in progress included in cost 2013 2013 and net book amount - 221 4 - 225 | | Year ended 31 March 2013 WEL ANNUAL REPORT WEL ANNUAL REPORT Opening net book amount 19 5,884 4,422 113 10,438 Revaluation deficit - - - (6) (6) Additions - 1,311 613 - 1,924 Work in progress - 139 - - 139 Disposals (19) (1) - - (20) Amortisation expense - (1,791) (394) - (2,185)

Closing net book amount - 5,542 4,641 107 10,290

At 31 March 2013 Cost or valuation - 15,015 6,312 107 21,434 Accumulated amortisation - (9,473) (1,671) - (11,144)

Net book amount - 5,542 4,641 107 10,290 Capital work in progress included in cost 56 and net book amount - 361 14 - 375 10. Intangible assets (continued) Software Easements & Leasehold Total Consents interest FINANCIAL STATEMENTS ($000) ($000) ($000) ($000)

Parent Year ended 31 March 2012 Opening net book amount 4,034 4,403 113 8,550 Additions 3,211 407 - 3,618 Work in progress (87) 4 - (83) Disposals (55) - - (55) Amortisation expense (1,415) (392) - (1,807)

Closing net book amount 5,688 4,422 113 10,223

At 31 March 2012 Cost or valuation 13,531 5,699 113 19,343 Accumulated amortisation (7,843) (1,277) - (9,120)

Net book amount 5,688 4,422 113 10,223 Capital work in progress included in cost and net book amount 108 4 - 112

Year ended 31 March 2013 Opening net book amount 5,688 4,422 113 10,223 Revaluation deficit - - (6) (6) Additions 789 613 - 1,402 Work in progress 253 - - 253 Disposals (1) - - (1) Amortisation expense (1,705) (394) - (2,099)

Closing net book amount 5,024 4,641 107 9,772

At 31 March 2013 Cost or valuation 14,345 6,311 107 20,763 Accumulated amortisation (9,321) (1,670) - (10,991)

Net book amount 5,024 4,641 107 9,772

Capital work in progress included in cost and net book amount 361 14 - 375

Leasehold Interest was revalued to market value on 31 March 2013 by independent valuers, Telfer Young (Waikato) Ltd Registered Valuers.

Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

11. Trade and other receivables

Trade receivables 9,905 10,003 9,463 9,823 Trade receivables - related parties 1,444 - 48 3,019 Less: provision for impairment of receivables (303) (377) (303) (377) Trade receivables - net 11,046 9,626 9,208 12,465 Amounts due from customer for contract work 814 2,148 751 267 Prepayments 703 355 639 327

12,563 12,129 10,598 13,059

Current 12,362 11,887 10,397 12,817 Non current 201 242 201 242 2013 12,563 12,129 10,598 13,059 |

(a) Impaired receivables WEL ANNUAL REPORT As at 31 March 2013 trade receivables of $1.0 million (2012: $1.3 million) were past due but not impaired.These relate to a number of independent customers for whom there is no recent history of default. The aging analysis of these trade receivables is as follows:

Less than three months 423 674 423 674 Three to six months 193 130 193 130 Over six months 341 495 341 495

957 1,299 957 1,299

57 57 Trade and other receivables (continued) As at 31 March 2013 trade receivables of $303,000 were impaired and provided for (2012:$377,000). The individually impaired receivables mainly relate to damage to the network caused by third parties. The impairment includes $236,000 (2012: $260,000) in relation to discounting future cash flows of these receivables. The aging analysis of these trade receivables is as follows:

Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

Less than three months 8 12 8 12 Three to six months 83 56 83 56 Over six months 212 309 212 309

303 377 303 377

Movements in the provision for impairment of receivables are Opening balance 1 April 2012 377 334 377 377 Movement in provision for impairment recognised during the year 121 292 121 249 Receivables written off during the year as uncollectible (195) (249) (195) (249)

Closing balance 31 March 2013 303 377 303 377

The creation and release of the provision for impaired receivables has been included in ‘other expenses’ in the income statement. Amounts charged to the provision for impairment of receivables account are generally written off when there is no expectation of recovering additional cash.

The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due.

(b) Foreign exchange and interest rate risk The Group is not exposed to foreign currency risk or interest rate risk in relation to trade and other receivables. A summarised analysis of the sensitivity of trade and other receivables to foreign exchange and interest rate risk can be found in note 32.

(c) Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above. The Group does not hold any collateral as security. Refer to note 32 – Financial risk management for more information on the risk management policy of the Group.

12. Construction work in progress

Work in progress for external work 21,525 16,485 - -

21,525 16,485 - -

13. Investment in jointly controlled entity

Opening carrying value 1,303 100 - - Acquisition of shares at cost 5,600 1,400 - - 2013 6,903 1,500 - -

| Adjustment to carrying value on deemed disposal of investment WEL ANNUAL REPORT Derecognition of carrying value proportionate to % reduced (335) (1,156) - - Proceeds in the form of additional investment 5,920 1,687 - - 5,585 531 Negative goodwill arising on acquisition of investment (5,391) (36) - -

Gain on deemed disposal of share in jointly controlled entity 194 495 - -

Share of (loss)/profit (534) (692) - -

Closing carrying value 6,563 1,303 - -

58 FINANCIAL STATEMENTS

Investment in jointly controlled entity (continued)

The share of the results of its jointly controlled companies, all of which are unlisted, and its aggregated assets and liabilities, are as follows:

Ultrafast Fibre Limited 2013 2012 ($000) ($000)

Current assets 2,226 251 Non-current assets 65,170 8,511 Total assets 67,396 8,762

Current liabilities 1,949 2,106 Total liabilities 1,949 2,106

Revenue 1,522 - Expenses (8,150) (1,406) Profit/(Loss) (4,761) (1,013)

% Interest Held 10% 20%

Ultrafast Fibre Limited is incorporated in New Zealand, and has a financial year end of June.

A Shares in Ultrafast Fibre Limited are issued to Crown Fibre Holdings Limited as payment for each premise passed. When the premise connects to the fibre network Waikato Networks Limited is required to purchase the A shares from Crown Fibre Holdings Limited. The cost of connecting a premise to the fibre network is incurred by Waikato Networks Limited, who then sell the assets to Ultrafast Fibre Limited, in return for B shares or cash in accordance with their contract. In addition Waikato Networks Limited also receive B shares in Ultrafast Fibre Limited as consideration for working capital and for expenditure on communal fibre optic network infrastructure (Layer 2). The value of the consideration for A shares and B shares (with the exception of working capital) is determined by the Shareholders’ Agreement, Schedule 2. The percentage interest held is determined by the number of shares, divided by the total number of all classes of shares issued.

Due to the frequent share issues as noted above this causes changes in the percentage of ownership held in Ultrafast Fibre Limited. These changes are accounted for as acquisitions of shares and deemed disposals of investment.

14. Derivative financial instruments The company and group has forward foreign exchange contracts at year end as follows.

Average Foreign Contract Carrying amount exchange rate currency value and fair value ($000) ($000) ($000)

Group and Parent As at 31 March 2013 USD foreign exchange contracts 0.8135 4,928 6,088 5,958 Total forward foreign exchange contracts 4,928 6,088 5,958

As at 31 March 2012 USD foreign exchange contracts 0.8151 8,110 9,918 9,906 2013 Total forward foreign exchange contracts 8,110 9,918 9,906 |

As foreign exchange rates change these derivative financial instruments are revalued to fair value and the change WEL ANNUAL REPORT in value recorded in the statement of changes in equity. Fair value is determined in accordance with the Group policy in 2.4.

15. Cash and cash equivalents

(a) Cash on hand and bank deposit balances at call There were no deposits during the year.

(b) Fair value The carrying amount for cash and cash equivalents equals the fair value.

59 59 Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000) No. of 16. Share capital Shares

Authorised issued and fully paid ordinary shares. The shares have no par value.

Balance at 1 April 8,153,000 111,142 111,142 111,142 111,142 Shares issued during the year - - - - - Closing balance at 31 March 8,153,000 111,142 111,142 111,142 111,142 All ordinary shares carry equal voting rights.

17. Convertible notes

Convertible notes 39,000 39,000 39,000 39,000

Total Convertible notes 39,000 39,000 39,000 39,000

18. Borrowings

Non-current Bank borrowings 42,000 29,500 42,000 29,500

Total borrowings 42,000 29,500 42,000 29,500

19. Deferred income tax Accelerated Revaluation of Provisions Total tax property, plant depreciation and equipment ($000) ($000) ($000) ($000)

Group

Deferred tax liabilities

At 1 April 2012 5,483 61,401 523 67,407 Charged to the income statement 233 - 1,217 1,450 Charged to equity - revaluation - 2,631 - 2,631

At 31 March 2012 5,716 64,032 1,740 71,488 Charged to the income statement 1,743 - 721 2,464 Charged to equity - revaluation - (919) - (919)

At 31 March 2013 7,459 63,113 2,461 73,033

Accelerated Revaluation of Provisions Total tax property, plant depreciation and equipment ($000) ($000) ($000) ($000)

2013 Parent

| Deferred tax liabilities WEL ANNUAL REPORT

At 1 April 2011 5,483 61,401 523 67,407 Charged to the income statement 230 - 1,217 1,447 Charged to equity - revaluation - 2,631 - 2,631

At 31 March 2012 5,713 64,032 1,740 71,485 Charged to the income statement 1,703 - 721 2,424 Charged to equity - revaluation - (919) - (919)

At 31 March 2013 7,416 63,113 2,461 72,990

60 FINANCIAL STATEMENTS

Group Group Parent Parent Group Group Parent Parent 2013 2012 2013 2012 2013 2012 2013 2012 ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) No. of 16. Share capital Shares 20. Deferred income

Authorised issued and fully paid ordinary shares. Lease incentive - 325 - 325 The shares have no par value. Deferred income on government grants 1,103 1,134 1,103 1,134 Receipts in advance 297 332 - - Balance at 1 April 8,153,000 111,142 111,142 111,142 111,142 Shares issued during the year - - - - - 1,400 1,791 1,103 1,459 Closing balance at 31 March 8,153,000 111,142 111,142 111,142 111,142 All ordinary shares carry equal voting rights. 21. Trade and other payables

17. Convertible notes Trade creditors and accruals 15,377 9,144 10,405 4,953 Trade creditors and accruals - related parties 375 - 3,644 3,019 Convertible notes 39,000 39,000 39,000 39,000 Advances received for contract work 723 1,524 723 1,524 Other accruals 1,326 1,189 1,250 1,101 Total Convertible notes 39,000 39,000 39,000 39,000 Balance at 31 March 2013 17,801 11,857 16,022 10,597

18. Borrowings 22. Provisions Retirement Other Non-current provision provisions Bank borrowings 42,000 29,500 42,000 29,500 ($000) ($000)

Total borrowings 42,000 29,500 42,000 29,500 Carrying amount at 1 April 2011 481 88 Charged to the income statement 77 - Amounts used - (59) 19. Deferred income tax At 31 March 2012 558 29 Accelerated Revaluation of Provisions Total Charged to the income statement 57 406 tax property, plant Amounts used (69) (29) depreciation and equipment ($000) ($000) ($000) ($000) Carrying amount at 31 March 2013 546 406

Group Current - 98 - 98 Non-current 951 489 951 489 Deferred tax liabilities

At 1 April 2012 5,483 61,401 523 67,407 951 587 951 587 Charged to the income statement 233 - 1,217 1,450 Charged to equity - revaluation - 2,631 - 2,631 The retirement provision relates to contracted gratuity payments for employees with employment contracts established before 1996. The gratuity payments become payable when the employee retires. At 31 March 2012 5,716 64,032 1,740 71,488 Charged to the income statement 1,743 - 721 2,464 Parent Parent Charged to equity - revaluation - (919) - (919) 2013 2012 ($000) ($000) At 31 March 2013 7,459 63,113 2,461 73,033 23. Imputation credit memorandum account

Accelerated Revaluation of Provisions Total Balance at the end of the year 21,329 16,093 tax property, plant depreciation and equipment 24. Contingencies ($000) ($000) ($000) ($000) There are no contingent liabilities as at 31 March 2013 (2012 Nil).

Parent 2013 Group Group Parent Parent 2013 2012 2013 2012 Deferred tax liabilities |

($000) ($000) ($000) ($000) WEL ANNUAL REPORT At 1 April 2011 5,483 61,401 523 67,407 Charged to the income statement 230 - 1,217 1,447 25. Commitments Charged to equity - revaluation - 2,631 - 2,631 Capital expenditure At 31 March 2012 5,713 64,032 1,740 71,485 Capital expenditure contracted for at the balance sheet Charged to the income statement 1,703 - 721 2,424 date but not yet incurred is as follows: Charged to equity - revaluation - (919) - (919) Property, plant and equipment 6,457 8,445 6,457 8,445 At 31 March 2013 7,416 63,113 2,461 72,990 6,457 8,445 6,457 8,445

61 61 Commitments (continued) Operating lease commitments

The Group leases land, premises and vehicles. Operating leases held over properties give the Group the right to renew the lease subject to a predetermination of the lease rental by the lessor. There are no options to purchase in respect of land and premises held under operating leases. Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

No later than one year 1,603 2,228 1,148 2,010 Later than one year and no later than two years 1,640 2,198 924 1,779 Later than two, not later than five years 2,117 4,989 825 3,644 Later than five years 629 3,497 629 3,497

5,989 12,912 3,526 10,930

26. Interest in joint venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Assets: Trade receivables - 171 - 171

Net assets - 171 - 171

Income - 101 - 101 Expenses (9) (191) (9) (191) Impairment (333) (502) (333) (502) Net profit before income tax (342) (592) (342) (592)

The joint venture was terminated in January 2013. The assets have no current market for sale, and as such have been impaired to nil book value.

There are no contingent liabilities relating to the Group’s interest in the joint venture, and no contingent liabilities of the venture itself.

27. Investments in subsidiaries

Shares at Cost - - - - Net Advances to Subsidiaries - - 25,340 13,720 - - 25,340 13,720

The parent has 85 shares (85% of shares) in Waikato Networks Limited. The shares are fully paid.

Interest Interest Operating Subsidiaries Activity 2013 2012 Waikato Networks Limited (formerly Ultrafast Fibre Limited). Construction of fibre network 85% 85% 2013

Non Operating Subsidiaries

| WEL Electricity Limited WEL ANNUAL REPORT WEL Power Limited WEL Energy Group Limited (formerly WEL Networks Limited) Waikato Electricity Limited WEL Generation Limited

All subsidiaries have balance dates of 31 March and are incorporated in New Zealand. The parent company has a 100% interest in all subsidiaries except as noted above.

The following subsidiaries were acquired during 2012 and subsequently amalgamated into Waikato Networks Limited on 31 March 2012 (see note 28). Velocity Group Holdings Limited Velocity Networks Limited Velocity Infrastructure Limited 62 Hamilton Fibre Networks Limited 28. Business combinations 2012 FINANCIAL STATEMENTS

(a) Acquisition of subsidiaries (i) Acquisition of Hamilton Fibre Networks Limited & Velocity Group Holdings Limited On 26 August 2011 Waikato Networks Limited (WNL) acquired 70% of the issued share capital of Hamilton Fibre Networks Limited and 100% of the issued share capital of Velocity Group Holdings Limited for a consideration of $5,250,000. WNL obtained control over Velocity Group Holdings Limited and its wholly owned subsidiaries Velocity Networks Limited and Velocity Infrastructure Limited. Velocity Group Holdings Limited owns the remaining 30% shareholding in Hamilton Fibre Networks Limited, making the Group’s total interest in Hamilton Fibre Networks Limited 100%. The acquisition has increased the Group’s market share in the fibre broadband industry. The following table summarises the consideration paid and the fair value amounts of the assets acquired and liabilities assumed at the acquisition date. 2012 ($000) Consideration Cash 5,250 Total purchase consideration 5,250

Assets and liabilities acquired Cash 3 Trade receivables 39 Inventories 1 Work in progress - fibre network 5,638 Intangible assets 19 Trade & other payables (206) Long term liabilities (244) Net identifiable net assets acquired 5,250

(b) Amalgamation of subsidiaries

On the 31st March 2012 Velocity Group Holdings Limited, Velocity Networks Limited, Velocity Infrastructure Limited and Hamilton Fibre Networks Limited were amalgamated with Waikato Networks Limited. Under the amalgamation Waikato Networks Limited took control of all the assets of Velocity Group Holdings, Velocity Networks Limited, Velocity Infrastructure Limited and Hamilton Fibre Networks Limited (the “Velocity Group”) and assumed responsibility for its liabilities. Velocity Group Holdings Limited, Velocity Networks Limited, Velocity Infrastructure Limited and Hamilton Fibre Networks Limited have been removed from the New Zealand register of companies.

Summary of the effect of amalgamation of theV elocity Group at 31 March 2012: Hamilton Velocity Group Velocity Velocity Total Fibre Holdings Ltd Infrastructure Networks Ltd Network Ltd Ltd Assets and liabilities amalgamated: ($000) ($000) ($000) ($000) ($000)

Bank balances - - - 186 186 Net current liabilities 1 (41) - (89) (129) Non current assets 2,524 2,961 43 (188) 5,340 Waikato Networks Limited investment in subsidiaries - - - - (5,250)

Balance recognised in the statement of changes in equity 2,525 2,920 43 (91) 147

The assets and liabilities have been brought into the Group’s financial statements at their carrying amounts. The balance on amalgamation has been recognised in the Statement of Changes in Equity of the Group.

29. Related-party transactions 2013 (a) Directors |

The names of persons who were directors of the company at any time during the financial year are as follows: J L Spencer, M P Devlin, WEL ANNUAL REPORT Hon R W Prebble, M X Franklin, P D McGilvary and A V Steele. All of these persons were also directors during the year ended 31 March 2012.

(b) Compensation of directors and key management and personnel The directors and key management personnel compensation for the years ended 31 March 2013 and 31 March 2012 is set out below. The directors and the five executives profiled in this report have the greatest authority for the strategic direction and management of the company.

Short-term Post-employment Other long- Termination Total benefits benefits term benefits benefits ($000) ($000) ($000) ($000) ($000)

Year ended 31 March 2013 2,161 - 405 - 2,566 Year ended 31 March 2012 1,699 - - - 1,699 63 63 Related-party transactions (continued)

(c) Other transactions with directors and key management personnel or entities related to them The company undertakes transactions with entities in which directors have disclosed an interest in the normal course of business. The following represents the major on-going transaction types but should not be taken as a complete list: lease, consent, easement, construction and advisory services.

In 2010 the company awarded the tender of the triennial valuation of land and buildings to Telfer Young (Waikato) Limited for $15,000. At this time J L Spencer was the Chairman of Telfer Young Limited, and affiliated entity. The transaction was completed on an ‘arm’s length’ basis.

(d) Subsidiaries Interests in subsidiaries are set out in note 27.

(e) Transactions with related parties The ultimate parent of WEL Networks Limited is the WEL Energy Trust which owns 100% of its shares.

All members of the Group are considered related parties of WEL Networks Limited. This includes the subsidiaries and associated companies listed in note 27.

Other than the payment of directors fees (refer note 6) the Group has not entered into any transactions with Directors.

No related party debts were forgiven or written off during 2013 or 2012.

Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

Related party transactions with WEL Energy Trust

Third party contributions 250 255 250 255 Other income 130 - 130 - Sales to related parties 380 255 380 255

Convertible notes - equity (note 17) 39,000 39,000 39,000 39,000 Interest on convertible note (3,120) (3,129) (3,120) (3,129)

Dividends of $0.25 million have been paid (2011: $0.25 million). A dividend of $10m was declared in February 2013, and is expected to be paid in June 2013.

Related party transactions with Ultrafast Fibre Ltd Waikato Networks Limited is a construction company that is building a fibre network for Ultrafast Fibre Limited. Waikato Networks Limited owns 10% (2012:20%) of Ultrafast Fibre Limited shares.

Sale of fibre Assets 56,069 8,045 - - Huawei Layer 2 Services and Service Desk 2,272 - - - Support services 1,702 - - - Management fees 739 472 - 472 Sales to related parties 60,782 8,517 - 472

Fibre access services 71 - - - Fibre access services on Velocity network 1,175 - - - Payments to related parties 1,246 - - -

Trade receivables 1,444 - - - Trade payables 375 - - -

2013 No dividends were paid 2013 (2012: Nil)

Related party transactions with Waikato Networks Ltd |

WEL ANNUAL REPORT The ultimate parent of Waikato Networks Limited is the WEL Networks Limited which owns 85% of its shares.

Management Fee - - 2,301 456 Loan - - 11,050 13,513 Interest - - 594 206 Payments to related parties - - 13,945 14,175

Trade receivables - - 48 - Trade payables - - 3,644 -

Loan from shareholders - - 25,340 13,720

64 Related-party transactions (continued) FINANCIAL STATEMENTS

Related party transactions with Waipa Networks Limited Waipa Networks Limited owns 15% of Waikato Networks Limited shares. On 1 November 2011 15% of Waikato Networks Limited was sold to Waipa Networks Limited. The consideration was $15 cash plus a 15% share of the shareholder loan. There was no gain or loss on disposal. Group Group Parent Parent 2013 2012 2013 2012 ($000) ($000) ($000) ($000)

Interest expense 14 36 - - Payments to related parties 14 36 - - Loan from non-controlling interest 4,472 2,421 - -

Related party transactions with Velocity Networks Limited On the 31st March 2012 Velocity Group Holdings Limited, Velocity Networks Limited, Velocity Infrastructure Limited and Hamilton Fibre Networks Limited were amalgamated with Waikato Networks Limited.

Management fees - 150 - - Other income - 280 - - Sales to related parties - 430 - -

Long Term Incentive Scheme A long term incentive scheme (LTI) for key management personnel has been established, this is a cash-settled equity based scheme covering the three year period to 31 March 2014. The participants of the scheme are the Chief Executive, General Manager Corporate Services and General Manager Operations and Fibre.

The participants are eligible to receive a bonus payment effective in May 2014, the quantum of which is determined by three prescribed performance conditions measured over the three years to 31 March 2014. The maximum LTI payment for the achievement of all performance measures is $500,000.

The first ‘gate’ measure provides that the increase in the Company’s value over the three years to 31 March 2014 needs to at least equal the Company’s cost of equity (calculated on a cumulative basis and adjusted for dividends), this requires an increase in shareholders equity of at least $46,000,000. If the increase in Company value is not achieved then no LTI payment will be made. Fifty percent of the maximum LTI payment is tied to the performance of this ‘gate’ measure. The second and third measures, which each account for twenty five percent of the LTI payment, relate to the delivery of the fibre installation contract and the performance of the fibre business for the three years ending 31 March 2014.

A second long term incentive scheme (LTI) for key management personnel was implemented on 1 August 2012. This is a cash-settled equity-based scheme covering the three year period to 31 March 2015. The participants of the scheme are the Chief Executive, General Manager Corporate Services, General Manager Operations and Fibre, General Manager Asset Management and General Manager Commercial.

The participants are eligible to receive a bonus payment effective in May 2015, the quantum of which is determined by three prescribed performance conditions measured over the three years to 31 March 2015. The maximum LTI payment for the achievement of all performance measures is $400,000.

The first ‘gate’ measure provides that the increase in the Company’s value over the three years to 31 March 2015 needs to at least equal the Company’s cost of equity (calculated on a cumulative basis and adjusted for dividends), this requires an increase in shareholders equity of at least $48,000,000. If the increase in Company value is not achieved then no LTI payment will be made. Fifty percent of the maximum LTI payment is tied to the performance of this ‘gate’ measure. The second measure, which accounts for twenty five percent of the LTI payment, relates to the delivery of additional earnings from new business and the third measure, which also accounts for twenty five percent of the LTI payment, relates to the delivery of the fibre installation contract and the performance of the fibre business for the three years ending 31

March 2015. 2013

For the year ended 31 March 2013 a total amount of $400,000 (2012: $nil) has been recognised in the income statement in respect of both |

LTI schemes. A liability of $400,000 has been recognised in current liabilities at 31 March 2013 (2012: $nil). WEL ANNUAL REPORT

30. Dividends on ordinary shares Group and Parent 2013 2012 2013 2012 Cents per Cents per share share ($000) ($000)

Dividend provided for 1.23 10,000 Dividend paid 0.03 0.03 250 250 1.26 0.03 10,250 250

A dividend of $10m was approved by the board on 27 February 2013 with the final timing of the payment to be confirmed. 65 65 31. Reserves

Revaluation Cash flow Total reserve hedge reserve reserves ($000) ($000) ($000) Group

Balance at 1 April 2011 158,335 - 158,335

Fair value gains: - distribution network 9,396 - 9,396 Movement in deferred tax on revaluation (2,631) - (2,631)

Balance at 31 March 2012 165,100 - 165,100

Balance at 1 April 2012 165,100 - 165,100

Cash flow hedge (net of tax) - (130) (130) Fair value gains: - distribution network (3,102) - (3,102) Movement in deferred tax on revaluation 919 - 919

Balance at 31 March 2013 162,917 (130) 162,787

Revaluation Cash flow Total reserve hedge reserve reserves ($000) ($000) ($000)

Parent

Balance at 1 April 2011 156,227 - 156,227

Fair value gains: - distribution network 9,396 - 9,396 Movement in deferred tax on revaluation (2,631) - (2,631)

Balance at 31 March 2012 162,992 - 162,992

Balance at 1 April 2012 162,992 - 162,992

Cash flow hedge (net of tax) - (130) (130) Fair value gains: - distribution network (3,102) - (3,102) Movement in deferred tax on revaluation 919 - 919

Balance at 31 March 2013 160,809 (130) 160,679

32. Financial risk management

32.1 Financial risk factors

2013 The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. | WEL ANNUAL REPORT

The Group’s overall financial risk management objectives are to ensure that the Group creates value and maximises returns to its shareholders as well as ensuring that adequate financial resources are available for the development of the Group’s businesses whilst managing its financial risks. It is, and has been throughout the financial year under review, the Group’s policy that no trading in derivative financial instruments shall be undertaken. The major areas of the financial risks faced by the Group and the information on the managementof the related exposures are detailed below:

(a) Market Risk

(i) Foreign Exchange Risk

From time to time, the company is exposed to foreign currency risk on transactions denominated in foreign currencies. This is predominantly for the purchase of network equipment in foreign currency.

66 Financial risk management (continued)

Financial risk factors (continued) FINANCIAL STATEMENTS

Exchange rate sensitivity

At year end the Group and Parent have foreign currency exposures relating to external creditors.

The following sensitivity analysis is based on the foreign currency risk exposures in existence at year end. At 31 March, had the New Zealand dollar exchange rate changed, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Post Tax Equity Profit Higher/Lower Higher/Lower ($000) ($000)

Group and Parent

Sensitivity to reasonable movements Change in United States dollar exchange rate As at 31 March 2013 USD hedged currency for capital purchases 6,088 6,088 10% increase - (553) 10% decrease - 676

As at 31 March 2012 USD hedged currency for capital purchases 9,918 9,918

10% increase 10% decrease - (902) - 1,102 (ii) Interest Rate Risk The Group’s exposure to the risk of changes in the market interest risk relates primarily to the Group’s short-term debt obligations with floating interest rates and the Group’s short-term investment rates.

The Group’s policy to manage interest rate risk is to fund ongoing activities with short-term borrowings funded at floating interest rates. Borrowings are drawn to fund ongoing operations and capital expenditure programmes. The other financial instruments of the Group are not subject to interest rate risk.

The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.

Interest rate risk + 1% - 1 % Carrying amounts Effect on profit Effect on profit before tax and before tax and equity equity ($000) ($000) ($000)

Group As at 31 March 2013 Financial assets Trade and other receivables 11,860 - - Cash and cash equivalents 1,281 13 (13)

Financial liabilities Borrowings 42,000 (420) 420 Trade and other payables 17,078 - - Customer discount payable 19,000 - - Derivative financial instruments 130 - -

Loan from non-controlling interest 4,472 (45) 45 2013 Provisions 10,951 - - |

Total (decrease) / increase (452) 452 WEL ANNUAL REPORT

As at 31 March 2012 Financial assets Trade and other receivables 11,774 - - Cash and cash equivalents 1,628 16 (16)

Financial liabilities Borrowings 29,500 (295) 295 Trade and other payables 10,333 - - Customer discount payable 18,750 - - Derivative financial instruments 12 - - Loan from non-controlling interest 2,421 (24) 24 Provisions 587 - - 67 Total (decrease) / increase (303) 303 67 Financial risk management (continued) Interest rate risk + 1% - 1 % Carrying Effect on Effect on amounts profit before tax profit before tax and equity and equity ($000) ($000) ($000)

Parent

As at 31 March 2013

Financial assets Trade and other receivables 9,959 - - Cash and cash equivalents 905 9 (9)

Financial liabilities Borrowings 42,000 (420) 420 Trade and other payables 15,299 - - Customer discount payable 19,000 - - Derivative financial instruments 130 - - Provisions 10,951 - -

Total (decrease) / increase (411) 411

As at 31 March 2012

Financial assets Trade and other receivables 12,732 - - Cash and cash equivalents 1,442 14 (14)

Financial liabilities Borrowings 29,500 (295) 295 Trade and other payables 9,073 - - Customer discount payable 18,750 - - Derivative financial instruments 12 - - Provisions 587 - -

Total (decrease) / increase (281) 281

(b) Credit Risk major financial institutions, the Directors believe that the possibility Credit risk is the potential risk of financial loss arising from the failure of non-performance by these financial institutions is remote on the of a customer or counter party to settle its financial and contractual basis of their financial strength. obligations to the Group, as and when they fall due. The credit risk Other than as mentioned above (in addition to those mentioned attributable to receivables is managed and monitored on an ongoing elsewhere in the financial statements), the Group has no significant basis via Group’s management reporting procedures and internal concentration of credit risk on its financial assets. The maximum credit review procedures. exposures to credit risk are represented by the carrying amounts of In the normal course of its business, the Group incurs credit risk other financial assets in the balance sheets. Except for the financial from trade receivables from energy customers and transactions with guarantees given by the Group, the Group does not provide any other 2013 financial institutions. A provision has been set up for trade receivables financial guarantees which would expose the Group or the Parent to which are unlikely to be collected. credit risk. | WEL ANNUAL REPORT The Group has a credit policy which is used to manage this exposure (c) Liquidity Risk to credit risk. As part of this policy, limits on exposures with The Group’s policy is to regularly monitor its liquidity requirements counterparties have been set and are monitored on a regular basis. and its compliance with lending covenants, to ensure that it maintains The Group has in excess of 41% (2012: 37%) of its trade debtors sufficient reserves of cash and readily realisable marketable securities owing from the incumbent retailer, . This and adequate committed lines of funding from major financial debt is subject to a written agreement that requires an investment institutions to meet its liquidity requirements in the short and grade credit rating to be maintained. If the credit rating falls below longer term. investment grade then a bond will be required as collateral. The table below analyses the Group’s financial liabilities into relevant The Group’s historical experience in collection of trade receivables falls maturity groupings based on the remaining period at balance sheet within the recorded allowances. Due to these factors, the Directors date to the contractual maturity date. The amounts disclosed in the believe that no additional credit risk beyond amounts provided for table are the contractual undiscounted cash flows. Balances due doubtful debts is inherent in the Group’s trade receivables. within 12 months equal their carrying balances as the impact of In respect of the fixed deposits, cash and bank balances placed with discounting is not significant. 68 FINANCIAL STATEMENTS Financial risk management (continued) Liquidity risk (continued) Less than 1 year Between 1 and Unspecified 5 years term ($000) ($000) ($000)

Group

At 31 March 2012 Borrowings - 29,500 - Trade and other payables 10,333 - - Customer discount payable 18,750 - - Loan from non-controlling interest 2,421 - - Provisions 587 - -

32,091 29,500 -

At 31 March 2013 Borrowings - 42,000 - Trade and other payables 17,078 - - Customer discount payable 19,000 - - Loan from non-controlling interest 4,472 - - Provisions 10,951 - -

51,501 42,000 -

Parent

At 31 March 2012 Borrowings - 29,500 - Trade and other payables 9,073 - - Customer discount payable 18,750 - - Provisions 587

28,410 29,500 -

At 31 March 2013 Borrowings - 42,000 - Trade and other payables 15,299 - - Customer discount payable 19,000 - - Provisions 10,951

45,250 42,000 -

32.2 Capital Risk Management

The primary objective of the Group’s capital management is to ensure that it maintains appropriate capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, borrowings and term liabilities less cash and cash equivalents. Total capital includes equity attributable to the equity holders of the Parent. 2013 The gearing ratios are as follows: Group Group 2013 2012 |

($000) ($000) WEL ANNUAL REPORT

Borrowings 42,000 29,500 Less: cash and cash equivalents (1,281) (1,628)

Net debt/(cash and cash equivalents) 40,719 27,872

Equity 383,548 402,368

Capital and net debt 424,267 430,240

Gearing ratio 10% 6%

69 69 32.3 Fair Values

The Directors estimate that the carrying amounts of financial instruments in the consolidated balance sheet equal their fair values.

Loans and Assets at fair Total Receivables value through profit or loss ($000) ($000) ($000) 32.4 Financial Instruments by category

At 31 March 2013 Assets Cash and cash equivalents 1,281 - 1,281 Trade and other receivables 11,860 - 11,860

13,141

At 31 March 2012 Assets Cash and cash equivalents 1,628 - 1,628 Trade and other receivables 11,774 - 11,774

13,402

Hedged Other Liabilities Total derivatives Financial at fair value Liabilities at through profit or amortised loss cost ($000) ($000) ($000) ($000)

At 31 March 2013 Liabilities Trade and other payables - 17,078 - 17,078 Customer discount payable - 19,000 - 19,000 Derivative financial instruments 130 - - 130 Borrowings - 42,000 - 42,000 Provisions - 10,951 - 10,951 Loan from non-controlling interest - 4,472 - 4,472

93,631

At 31 March 2012 Liabilities Trade and other payables - 10,333 - 10,333 Customer discount payable - 18,750 - 18,750 Derivative financial instruments - - 12 12 Borrowings - 29,500 - 29,500 Provisions - 587 - 587 Loan from non-controlling interest - 2,421 - 2,421

61,603 2013 33. Events subsequent to balance date | WEL ANNUAL REPORT During April and May 2013, Ultrafast Fibre Limited issued shares to Crown Fibre Holdings and Waikato Networks Limited under the terms of the construction contract, as a result Waikato Networks Limited shareholding increased from 10% to 11%.

70 FINANCIAL STATEMENTS

Independent Auditors’ Report to the shareholders of WEL Networks Limited

Report on the Financial Statements We have audited the financial statements of WEL Networks Limited (“the Company”) on pages 38 to 70, which comprise the balance sheets as at 31 March 2013, the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 March 2013 or from time to time during the financial year.

Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion. 2013

We have no relationship with, or interests in, WEL Networks Limited or any of its subsidiaries |

other than in our capacities as auditors and providers of other assurance, taxation and advisory WEL ANNUAL REPORT services. These services have not impaired our independence as auditors of the Company and the Group.

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz

71 71

Independent Auditors’ Report WEL Networks Limited

Opinion In our opinion, the financial statements on pages 38 to 70:

(i) comply with generally accepted accounting practice in New Zealand; and

(ii) comply with International Financial Reporting Standards; and

(iii) give a true and fair view of the financial position of the Company and the Group as at 31 March 2013, and their financial performance and cash flows for the year then ended.

Report on Other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2013:

(i) we have obtained all the information and explanations that we have required; and

(ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records.

Restriction on Distribution or Use This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

2013

| WEL ANNUAL REPORT Chartered Accountants Auckland 31 May 2013

PwC 2 72 FINANCIAL STATEMENTS

Directors’ Report / Statutory Information

1. Directors’ Remuneration

Directors’ fees and other remuneration paid during the year were:

Year Ended Year Ended 31 March 2013 31 March 2012 $ $

J L Spencer 76,625 72,500 M P Devlin 47,875 47,500 M X Franklin 39,375 37,500 P D McGilvary 41,250 37,500 R W Prebble 39,375 37,500 A V Steele 41,250 37,500 285,750 270,000

2. Donations

There were no donations made by the Company during the year.

3. Directors’ Indemnities and Insurance

The Deeds of Indemnity given by the Company in favour of those Directors who held office at the beginning of the financial year to which this report relates, and to Directors appointed since the beginning of the financial year and who still hold office as Directors of the Company, remain in full force and effect on the same terms and conditions under which they were given.

As permitted by, and to the extent permitted by, the Company’s Constitution, the Company has effected insurance for Directors and officers which, together with the Deeds of Indemnity, generally ensures that the Directors will not incur any monetary loss as a result of actions undertaken by them as Directors. The Directors and officers insurance comprises a primary layer of $20 million and an excess layer of $15 million.

Statutory liability insurance with a limit of $500,000 per claim and in the aggregate has also been effected.

4. Directors’ Transactions

All transactions in entities in which Directors disclosed an interest have been conducted on an ‘arm’s length’ basis in the normal course of business. 2013 |

WEL ANNUAL REPORT

73 73 Directors’ Report / Statutory Information (continued)

5. Employees Remuneration

The number of employees (excluding Directors) whose income was within specified bands is as follows:

Group Group year Ended year Ended 31 March 2013 31 March 2012

Continuing Employees

580,000-589,999 1 - 570,000-579,999 - 1 300,000-309,999 1 - 280,000-289,999 - 1 270,000-279,999 1 - 260,000-269,999 - 1 230,000-239,999 2 - 210,000-219,999 1 - 190,000-199,999 1 - 180,000-189,999 - 1 170,000-179,999 1 1 160,000-169,999 1 - 150,000-159,999 3 2 140,000-149,999 2 1 130,000-139,999 1 4 120,000-129,999 10 8 110,000-119,999 11 10 100,000-109,999 18 17

Discontinued Employees 260,000-269,999 - 1 130,000-139,999 1 1 120,000-129,999 1 1

6. Shareholders

As at 31 March 2013, the Company’s shareholder was:

WEL Energy Trust 8,153,000 shares Total Shares on Issue: 8,153,000

2013 | WEL ANNUAL REPORT

74 FINANCIAL STATEMENTS

DIRECTORY As at 31 March 2013

REGISTERED OFFICE

114 Maui Street Te Rapa Hamilton 3240 New Zealand Telephone 64-7-850 3100 Facsimile 64-7-850 3210 Website www.wel.co.nz Email [email protected]

DIRECTORS HOLDING OFFICE

DIRECTORS IN OFFICE John L Spencer - Chairman Margaret P Devlin - Deputy Chairman Mark X Franklin Paul D McGilvary Hon Richard W Prebble Anthony (Tony) V Steele Dr Julian M Elder (Alternate)

COMPANY MANAGEMENT

Chief Executive Dr Julian M Elder BE(Elec), PhD, MIPENZ, CPEng, IntPE(NZ)

Executive Officers

General Manager Operations and Fibre William J Hamilton MBA

General Manager Commercial Marcus C Kohn-Taylor Dip. Mktg

General Manager Asset Management Tas L Scott BE (Hons), ME (Elect), FIPENZ, MIoD

General Manager Corporate Services David E Smith BMS, CA

AUDITORS PricewaterhouseCoopers, Auckland

SOLICITORS Tompkins Wake, Hamilton DLA Phillips Fox, Auckland

INSURANCE BROKERS JLT New Zealand, Auckland 2013 |

WEL ANNUAL REPORT

75 75 This is the annual report of WEL Networks Limited

Dated this 30th day of May 2013 Signed for and on behalf of the Board of Directors

John Spencer Chairman

Margaret Devlin Deputy Chairman ANNUAL REPORT 2013 | WEL NETWORKS LIMITED & SUBSIDIARIES ANNUAL REPORT 2013 | WEL NETWORKS LIMITED & SUBSIDIARIES

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