Annual Report 2019 / 2020

ANNUAL REPORT 2019 / 2020 FOR THE FAR NORTH CONTENTS [ 24 ] [ 4 ] Ngawha Geothermal Chairman’s Report Generation : Expansion Project [ 8 ] [ 26 ] Governance Our People [ 14 ] [ 30 ] CEO’s Report Our Community [ 16 ] [ 38 ] Financial Summary Financial Statements [ 18 ] [ 78 ] Our Network and Directory Contracting [ 22 ] [ 79 ] Ngawha Geothermal Covid-19 Generation : Operations [ 2 ] ABOUT TOP ENERGY Top Energy is the electricity generation and lines network Group which distributes power to the consumers of the Far North. With operations throughout the Far North, the Group is progressive and technically driven with interests in: ELECTRICITY GENERATION TRANSMISSION AND ELECTRICAL THROUGH OUR DISTRIBUTION LINES RETICULATION GEOTHERMAL POWER NETWORK CONTRACTING PLANT We are one company with a clear vision: To be a pillar of the Far North community, meeting the energy needs of our consumers. 32 500 THOUSAND MILLION 150 Top Energy is owned by the Top The Group manages assets of The Group employs over Energy Consumer Trust, on behalf of more than $500 million. 150 staff. 32,000 power consumers connected to the company’s network. ANNUAL REPORT 2019 / 2020 [ 3 ] CHAIRMAN’S REPORT ‘ A MOST SUCCESSFUL AND CHALLENGING YEAR’ I’ll start my report by It is pleasing to report that the areas saying that the year to of success included: 31 March 2020 was both SAFETY successful and challenging The Objective set out in the Statement of Corporate Intent (SCI), to improve the safety culture of the Group, has for the Top Energy Group. been met with a result which is quite outstanding, with no lost time injuries (LTIs) across the Group, for the third year running and this includes both our staff and the many external contractors who work for us. This is the first year we have included our contracting partners in this measure. The SCI information later in the report includes the actual Total Recordable Injury Frequency Rate of 4.4, compared to the target of 3.6, reflecting a small number of mostly moderate medical treatments. OPERATING EARNINGS The Group’s underlying operating earnings, as measured by EBITDAF, was $47.3m. All of the financial metrics detailed in the SCI were exceeded. ENVIRONMENTAL, SOCIAL, CULTURAL This is an area where we have been doing a lot of work and the reporting later in this report outlines our focus on the United Nation’s sustainable development goals which we believe are most relevant to us. As well as enhancing our reporting, we have achieved those targets set out in our SCI. Taipa 33kV line maintenance THE NGAWHA EXPANSION PROJECT This significant Far North project has advanced largely in line with the project plan – right up until the Covid-19 lockdown in the last week of March. [ 4 ] BUSINESS PERFORMANCE 47.3 42.8 17.1 MILLION MILLION 0 MILLION EBITDAF NET OPERATING LOST TIME NETWORK CAPITAL CASH INFLOW INJURIES SPEND Over the past year, the most challenging of the operating As we move through the Ngawha expansion project, our areas has been network system reliability (or network management of cash is of vital importance. Cash generated quality standards as they are defined in our SCI), where we from operations was $8.4m greater than budgeted. almost achieved the internal target set at the beginning Network capital expenditure is determined by our Asset of the year. Chief Executive Russell Shaw talks about Management Plan and we spent $3.6m more than we this further in his CEO report. In previous reports I have had planned, in this area. We remain well within our total noted that the Company recognises the challenges that debt facility of $355m, with borrowings at 31 March 2020 exist in relation to affordability of power for the Far North totalling $286.65m. community. It is our intention to pass to the consumers the benefits that will come from the Ngawha generation project and other industry changes that may occur in the future. This coming year, we are taking the first step in this journey by increasing the annual rebate to consumers to COVID-19 an average of $250 per residential consumer. The clear and present challenge that emerged at the end of the 2020 financial year is Covid-19. Whilst the essential and regulated nature of HEALTH & SAFETY much of our business insulated us from the worst The safety of our staff and the public are always the most economic effects of Covid-19, the lockdown on important aspect of the Group’s activities. Not only did 25 March 2020 was a major challenge across we not have any LTIs in relation to staff during the year, all parts of the business, in particular for the our Ngawha generation business has had no LTIs for Ngawha expansion project where all site work the last 11 years. It must also be remembered that this was required to cease. operation is classified by WorkSafe as being a high hazard facility, recognising the potential for significant harm that While the performance of the Group for the could arise. year has been very pleasing, the impact and uncertainty that Covid-19 has brought to our Our staff take all the necessary precautions to ensure the community, our country and the rest of the safety of the operations and this is reflected in their safety world makes forecasting, in the short to medium record. This year was also the first when we tracked any term, very difficult. The speed with which the safety events relating to external contractors working for business environment is changing means that us, and it is pleasing to report that there have also been no we will need to keep stakeholders informed of LTIs in this group of workers. the impacts and our responses to them by other means than this annual report. FINANCIAL This report therefore outlines the information that is relevant to the past year and events PERFORMANCE immediately post balance date, identifies the Our operating performance was very pleasing, with an major areas of risk which are developing and, Earnings before Interest, Tax Depreciation, amortisation where possible, the actions being taken to and Fair Value Movements (EBITDAF) result up 7% on the ensure the business maintains the services it previous year. This has resulted in our outperforming the provides to the Far North community. long-term value measures agreed with the shareholder in the Statement of Corporate Intent at the start of the financial year. ANNUAL REPORT 2019 / 2020 [ 5 ] CHAIRMAN’S REPORT (continued) Geothermal fluid separator vessel installed and connection of steam line in progress NGAWHA EXPANSION FAIR VALUE GAINS AND PROJECT (OEC4) LOSSES Once again, the last year has been dominated by the I noted in the previous section the reduction in wholesale project to expand the generation capacity at Ngawha. prices. This raises the accounting effect of hedging of Much of the year was taken up with civil works, preparing risks in relation to interest rates and energy prices. These the power station site, and beginning to construct the hedges protect the Group from adverse movements in geothermal pipelines to and from the power station. both areas, but any reported gains and losses have no impact on our cash position. Early in the New Year, parts of the plant were shipped from various locations around the world. While the It should be noted that the funding agreements we have in advent of Covid-19 created some uncertainty in relation place require a minimum level of interest rate and energy to some of the later shipments, all essential items have hedges to be entered into. In some cases, Directors now been received. The focus now is on getting the parts consider that a greater level of hedging is prudent, and of the plant assembled and the fluid supply and the power these decisions are made in the context of the Treasury delivery lines built. policy adopted by the Board. Unfortunately, the site works ceased during the Level 4 The reduction of interest rates has continued during lockdown that commenced in late March, and the final the year and they remain at historically low levels. The delivery date, previously the end of October 2020, will now accounting standard requirement that we revalue hedges be most likely be towards the end of this calendar year. to current market rates, results in the charge to the Consolidated Statement of Comprehensive Income for fair The impact of the current Covid-19 crisis on wholesale value gains or losses on financial assets. prices has been to lower the short-term prices quite significantly. However, the two major issues that are part In addition, the same requirement for any energy offtake of our forward planning for the project are a number of hedges to be revalued also reflects movements during the hedge contracts already in place, at prices which are at, year. Wholesale prices have been volatile during the year or better than, the values we used in the original business but, at year end, reducing prices have created gains to case for the project. These will support the business over offset the other hedge contract movements. the next 2-3 years. Secondly, it is unclear what wholesale prices will do over the next 3-5 years and there may be an upside to the current prices, just as much as there may be further reductions. [ 6 ] Embedding generation into the Top Energy network The Ngahwa substation site with foundations for 110kV poles INDUSTRY ISSUES LOOKING FORWARD In last year’s report, I noted Top Energy believed it was As I noted earlier, Covid-19 has impacted the Group since appropriate that legislation be changed to allow lines the introduction of the Level 4 and Level 3 lockdowns.

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