Different...

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different because... WE BELIEVE SMALL THINGS MAKE ALL THE DIFFERENCE

Our team's collaborative approach has helped complete the Snowtown Stage 2 Wind Farm ahead of schedule and nearly SEE A$16 million under budget. PAGE 27 FOR THE FULL STORY

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different because... WE BELIEVE IN PEOPLE NOT PRODUCTS

That’s why we bundled life’s essential utilities together to make our customers’ lives easier, enabling them to do more of what they want. SEE PAGE 31 FOR THE FULL STORY

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different because... WE BELIEVE IN GETTING THE MOST FROM OUR RESOURCES

Building a sustainable economy is about maximising the potential of the SEE assets we have, like finding more than PAGE 35 one way to use water. FOR THE FULL STORY

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Introduction

At Trustpower we don’t try to be different just for the sake of being different. We believe our fresh approach has brought much needed innovation to the industry and we are now seeing the benefits. Customers are benefiting from the convenience of multiple utilities on one bill and shareholders are benefiting from clever optimisation of existing renewable energy assets and efficient completion of new assets.

TRUSTPOWER 2015 ANNUAL REPORT

Contents

10 - ACHIEVEMENTS 12 - WHO WE ARE

Introduction 14 - DIRECTORS’ REPORT 20 - LEADERSHIP TEAM 22 - CHIEF EXECUTIVE’S REPORT 26 - CASE STUDIES 38 - SUSTAINABILITY REPORT 50 - CORPORATE GOVERNANCE

56 - FINANCIAL STATEMENTS 59 - AUDITORS' REPORT 98 - STATUTORY INFORMATION 102 - SECURITY HOLDER INFORMATION 105 - DIRECTORY 105 - FINANCIAL CALENDAR

ACHIEVEMENTS 2015 ACQUISITION OF THE FOR different because... HYDRO AND WIND GENERATION ASSETS OF GREEN STATE POWER FROM THE WE TAKE A NSW GOVERNMENT A$73 MILLION FROM THE LONG TERM SUCCESSFUL LAUNCH OF VIEW TOWARDS 28,000 MULTI-UTILITY ACHIEVING SHORT CUSTOMERS BUNDLES TERM GAINS 16% 19% 18% 47% REGIONAL NZ HAMILTON WELLINGTON AUCKLAND ACHIEVEMENTS AND STRATEGIC FOCUS COMPLETION OF THE SNOWTOWN STAGE 2 WIND FARM

MILLION AN UPLIFT IN VALUE A$424 OF APPROXIMATELY 270MW A$300 MILLION Strategic Focus - 2016 Financial Year HAS BEEN RECORDED AS AT Progress development approval applications for 1,280MW of wind investment in Victoria, New South Wales and South Australia. Progress irrigation opportunities in Canterbury. 31 MARCH Metro market targeting to continue growing multi product customers. Deployment of smart metering technology to customers 2015 over a 3 year period commencing early 2016. FOLLOWING THE COMPLETION ON TIME AND OF AN INDEPENDENT UNDER BUDGET VALUATION

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ACHIEVEMENTS 2015 ACQUISITION OF THE FOR HYDRO AND WIND GENERATION ASSETS OF GREEN STATE POWER FROM THE NSW GOVERNMENT A$73 MILLION FROM THE SUCCESSFUL LAUNCH OF 28,000 MULTI-UTILITY CUSTOMERS BUNDLES 16% 19% 18% 47% REGIONAL NZ HAMILTON WELLINGTON AUCKLAND

COMPLETION OF THE SNOWTOWN STAGE 2 WIND FARM

MILLION AN UPLIFT IN VALUE A$424 OF APPROXIMATELY 270MW A$300 MILLION HAS BEEN RECORDED AS AT 31 MARCH 2015 FOLLOWING THE COMPLETION ON TIME AND OF AN INDEPENDENT UNDER BUDGET VALUATION

11 TRUSTPOWER 2015 ANNUAL REPORT FAR NORTH different because... BREAM BAY

AUCKLAND

COUNTIES WE’RE BIG CROOKWELL WIND FARM SOUTHERN TAURANGA THAMES VALLEY KAIMAI

KEEPIT ROTORUA WAIKATO/WAIPA ENOUGH TO MATAHINA TAUPO WHEAO/FLAXY

BLAYNEY WIND FARM HINEMAIAIA DELIVER BUT GISBORNE MANGOREI BURRINJUCK WAIROA SMALL ENOUGH NEW PLYMOUTH/ HUME TARANAKI ESK

MOTUKAWA HAWKE’S BAY

TO CARE COBB PATEA WHANGANUI

TASMAN/NELSON MANAWATU SNOWTOWN WHO WE ARE AND WIND FARM BULLER WHERE WE WORK TARARUA WIND FARM ARNOLD WELLINGTON MARLBOROUGH WEST COAST ARGYLE/WAIRAU KUMARA/ DILLMANS/DUFFERS WAIHOPAI KANIERE FORKS/ MCKAYS CREEK RANGIORA

WAHAPO We own 1,101MW of hydro and wind generation CHRISTCHURCH TIMARU spread throughout New Zealand and Australia. COLERIDGE HIGHBANK

These assets produce an average of 4,046GWh per year. CENTRAL OTAGO ASHBURTON We supply electricity to around 242,000 customers, gas to MONTALTO MAHINERANGI 24,000 customers and provide 54,000 telecommunications WIND FARM/ DEEP STREAM services to 38,000 customers throughout New Zealand. OAMARU We have 628 full time equivalent employees working OTAGO RETAIL CUSTOMERS throughout New Zealand and Australia. Around 65% of our DUNEDIN INVERCARGILL/ employees are based in our Tauranga head office. SOUTHLAND PAERAU/PATEAROA GENERATION SCHEME

WAIPORI

12 TRUSTPOWER 2015 ANNUAL REPORT FAR NORTH

BREAM BAY

AUCKLAND

COUNTIES

CROOKWELL WIND FARM SOUTHERN TAURANGA THAMES VALLEY KAIMAI

KEEPIT ROTORUA WAIKATO/WAIPA MATAHINA

TAUPO WHEAO/FLAXY

BLAYNEY WIND FARM HINEMAIAIA GISBORNE

MANGOREI BURRINJUCK WAIROA

NEW PLYMOUTH/ HUME TARANAKI ESK

MOTUKAWA HAWKE’S BAY

COBB PATEA WHANGANUI

TASMAN/NELSON MANAWATU SNOWTOWN WIND FARM BULLER TARARUA WIND FARM

ARNOLD WELLINGTON MARLBOROUGH WEST COAST ARGYLE/WAIRAU KUMARA/ DILLMANS/DUFFERS WAIHOPAI KANIERE FORKS/ MCKAYS CREEK RANGIORA

WAHAPO CHRISTCHURCH

TIMARU COLERIDGE HIGHBANK

CENTRAL OTAGO ASHBURTON

MONTALTO MAHINERANGI WIND FARM/ DEEP STREAM OAMARU

OTAGO RETAIL CUSTOMERS DUNEDIN INVERCARGILL/ SOUTHLAND PAERAU/PATEAROA GENERATION SCHEME

WAIPORI

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different because...

WE BELIEVE IN CHALLENGING THE STATUS QUO

Reports from our DIRECTORS & CHIEF EXECUTIVE

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Directors' Report BRUCE HARKER

Trustpower has made good progress on its growth agenda over the 2015 financial year. The 270MW Snowtown Stage 2 Wind Farm in South Australia was completed on time and under budget and has provided shareholders with significant value uplift following commissioning in October 2014.

Trustpower has broadened its Australian renewable energy portfolio through the acquisition, at an attractive price, of 105MW of hydro and wind assets owned by Green State Power from the New South Wales Government in July 2014. Trustpower has grown its New Zealand retail customer base, particularly in metro markets, as its multi-product strategy gains momentum.

FINANCIAL PERFORMANCE Earnings before interest, tax, depreciation, amortisation, fair value movements of financial instruments, asset Trustpower’s consolidated profit after tax was $144.0 million impairments and discount on acquisition (EBITDAF)2 were for the year ended 31 March 2015, an increase of 25% $330.7 million, compared with $277.4 million achieved in the compared with $115.1 million for the same period last year. previous year, representing an increase of 19%. It includes a $25.0 million gain representing the difference between purchase price and fair value of the Green State While earnings were well ahead of the 2014 financial year Power assets as determined by independent valuation they were at the lower end of expectation due to a number following the acquisition. of headwinds encountered during the period namely: Underlying earnings1 were $122.9 million compared with • Poor wind generation over the second half at the $108.5 million in the previous year, an increase of 13%. Snowtown and Tararua Wind Farms.

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• Weak North Island hydro generation as the result of low storage lakes provide valuable flexibility to generate into any inflows due to drought conditions experienced during the periods of firming prices and this was evident over the fourth fourth quarter. quarter with South Island generation making up for some of the low hydro and wind production at our North Island sites. • The impact of the strong NZ$/A$ exchange rate on Australian earnings, which now contribute a larger The Australian wind farms produced 1,187GWh versus proportion of group earnings following completion of 536GWh in the prior year as the Snowtown Stage 2 wind Snowtown Stage 2. turbines were progressively brought on line through the first half of the financial year. However, production was Total electricity volume sold by the Group in New Zealand approximately 100GWh (8%) below expectation due to through mass market retailing and commercial and weaker second half production caused by lower available industrial sales was 3,934GWh, compared with 3,512GWh wind resource. in the prior year, an increase of 12%. Increased sales volume was achieved in both segments. Australian hydro generation assets performed well, producing 278GWh in line with expectation for the period Total energy connections increased to 266,000 at from acquisition in July 2014 through to 31 March 2015. 31 March 2015 (including 24,000 gas connections) from 238,000 as at 31 March 2014 (14,000 gas connections). Group operating cash flow remained solid at $269.8 million While the retail market remained highly competitive for the 2015 financial year versus $256.8 million in the throughout the year, Trustpower continued to experience prior period. lower levels of customer churn than the market overall. FINANCIAL POSITION AND CAPITAL STRUCTURE Trustpower has continued to achieve strong growth in Group generation assets were independently valued by telecommunication connections with an increase to Deloitte Corporate Finance as at 31 March 2015 as part 38,000 connections from 31,000 connections in the of a three yearly cycle required under Trustpower’s prior year, an increase of 23%. accounting policies. Trustpower was particularly active in North Island metro As a result generation assets were revalued upwards markets using a range of sales channels. Pleasingly, by $399 million, equity increased by $289 million and customers with two or more utility services increased deferred tax liability by $111 million. The majority of the uplift by 37% from 38,000 to 52,000, demonstrating that reflected the revaluation of Snowtown Stage 2 following Trustpower’s multi-product proposition is gaining strong its commissioning which increased by A$315 million support from existing and new customers. Trustpower above cost providing further validation of the quality of is making good progress in consolidating its position as this significant investment. New Zealand’s leading multi-utility retailer with a product suite that includes power, ultra fast broadband and phone New Zealand hydro generation assets were revalued services, natural gas and bottled LPG. upwards by $95 million driven by a lower cost of capital used to discount future cash flows. New Zealand wind Trustpower has invested heavily in its retail growth strategy assets were revalued downwards by a net $6 million. and will continue to do so in the 2016 financial year. To provide some context to the level of investment made in the Trustpower believes there is an opportunity to improve 2015 financial year, capital expenditure on retail IT systems yields by up to 3% at its Snowtown Stage 1, Tararua and was around $7.5 million and foregone EBITDAF through Mahinerangi Wind Farms through a range of power higher customer acquisition costs was approximately performance improvements. These include the installation $8 million relative to a no growth strategy. of blade aerodynamic devices and technology as well as operational improvements to increase the power curve The Group’s New Zealand generation production of range. Some of these improvements have already been 2,216GWh was slightly above the previous year but 8% below made, otherwise early stage trials are being undertaken with expected long term average. Trustpower’s South Island

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Over the next 12 months Trustpower is targeting further customer growth as well as increased conversion of existing customers to multiple utility services.

turbine manufacturers to confirm economic potential and STRATEGY technical feasibility. Trustpower’s key strategic priorities are to grow value in the retail business through the roll out of its multi-product Net debt3 (including subordinated bonds) to net debt proposition to a wider customer base, and to position itself plus equity decreased to 40% as at 31 March 2015 from in Australia to develop further wind generation projects once 43% at prior year end. Trustpower continues to maintain the Federal Government has completed the longstanding conservative levels of committed credit facilities. As review of the Renewable Energy Target (RET). at 31 March 2015 Group net debt was approximately $1.2 billion. Trustpower has recently accepted offers to Over the next 12 months Trustpower is targeting further refinance A$70 million and NZ$100 million of bank facilities customer growth as well as increased conversion of existing due to mature in July 2015. These facilities will be extended customers to multiple utility services. in two tranches to mature in July 2018 and July 2020 and will be increased by A$30 million. In Australia, it is expected that the Renewable Energy Target for large scale generation will be reduced from 41,000GWh Following the completion of these financing activities the to a level closer to 33,000GWh. To put this in perspective, Group will have approximately NZ$ equivalent $1.5 billion around 17,000GWh of large scale renewable generation has of committed debt facilities and around NZ$ equivalent been built to date to meet the target, so a near doubling of $235 million of undrawn debt facilities, which provides the the existing build will be required to meet the expected lower Group with good capacity to fund growth and meet ongoing RET. Trustpower currently has three wind projects in operational liquidity requirements. South Australia, Victoria and New South Wales at various stages of the development approval process. These projects In December 2014, Trustpower successfully refinanced represent around 890MW of potential development. The $75 million of maturing senior bonds and increased the first of these approvals is expected at the end of 2015. issue size to $105 million with a seven year maturity. Trustpower continues to assess other renewable Purchases of Trustpower’s shares have continued under development opportunities in Australia with the view the Company’s share buyback programme for which a to increase the scale of its development pipeline where three year extension was approved at the Annual Meeting in possible. This includes considering the potential of grid July 2014. The approval allows the Company to purchase up connected solar as both a competing and complimentary to 5 million shares over a three year period. In the 12 months technology to wind generation. to 31 March 2015, 113,838 shares were purchased at an average cost of $6.51. SUSTAINABILITY Tauranga Energy Consumer Trust (TECT) announced Pleasingly, structural risk for the energy industry in on 23 April 2015 that it had sold 20 million Trustpower New Zealand appears to have stabilised following the shares in a placement to New Zealand institutions and 2014 general election. retail investors. This should assist in improving the market liquidity of Trustpower’s shares. TECT remains a committed Trustpower is firmly committed to sustainability principles long term shareholder of Trustpower and it retains a 26.8% and continues to make good progress in terms of stretching shareholding. and achieving its sustainability goals. Trustpower recognises

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that a key determinant of future success relies on its ability AUDITORS to maintain the trust of customers, other stakeholders and PricewaterhouseCoopers have indicated their willingness importantly the communities in which it operates. to continue in office. There continues to be a strong focus on health and safety DIVIDEND performance and environmental compliance across the Group. The Directors are pleased to announce a final dividend of 21 cents per share, partially imputed to 14 cents per share, Trustpower has a diversity policy in place and disclosure of payable 12 June 2015 (record date of 29 May 2015). This Trustpower’s gender breakdown across its business can be together with an interim dividend of 20 cents per share, found in the sustainability section of the Annual Report. provides a total pay-out of 41 cents per share for the 2015 financial year, a 2.5% increase over the prior year. Trustpower continues to focus on enduring long term initiatives that build and sustain relationships and are of OUTLOOK greater long term benefit to the wider communities in The outlook for Trustpower remains positive. The 2016 regions where it operates. financial year will see the first full year of earnings contribution from Snowtown Stage 2. Trustpower expects Trustpower’s Community and Youth Spirit Awards remain to grow its retail customer base at a similar rate to the the cornerstone of Trustpower’s effort to recognise the huge 2015 financial year and continue to increase the number volunteer effort that underpins New Zealand’s social fabric. of multi-product customers, improving retail profitability. Trustpower now has 24 Community and 25 Youth Spirit Award programmes, all in partnership with local councils, covering 27 regions.

DIRECTORS BJ HARKER - CHAIRMAN Over the last 12 months one director has been appointed to the Board. Alan Bickers was appointed on 1 September Notes 1. Underlying Earnings is a non GAAP (Generally Accepted Accounting Principles) financial 2014 to fill a casual vacancy following Michael Cooney’s measure. Trustpower believes that this measure is an important additional financial measure to disclose as it excludes movements in the fair value of financial instruments, resignation. Mr Bickers has been determined by the Board to which can be volatile year to year depending on movement in long term interest rates and or electricity futures prices. Also excluded in this measure are items considered to be a non-independent director. Mr Bickers is required to be be one off and not related to core business such as changes to the company tax rate or re-elected at the Annual Meeting. impairment of generation assets. A full reconciliation between profit after tax attributable to the shareholders of the Company and underlying earnings after tax is provided in Note A2 to the financial statements. Dr Bruce Harker and Mr Sam Knowles retire by rotation and 2.  EBITDAF is a non GAAP financial measure but is commonly used within the electricity industry as a measure of performance as it shows the level of earnings before impact are eligible for re-election at the Annual Meeting. Mr Richard of gearing levels and non-cash charges such as depreciation and amortisation. Market analysts use this measure as an input into company valuation and valuation metrics Aitken is also due to retire in accordance with Trustpower’s used to assess relative value and performance of companies across the sector. constitution having reached the age of 70 during the year. 3. Net debt is a measure of indebtedness to external funding provides net of funds held with those providers and is defined as bank loans plus subordinated bonds plus senior Mr Aitken remains eligible for re-election at the Annual Meeting. bonds less cash at bank.

19 TRUSTPOWER 2015 ANNUAL REPORT DEION CAMPBELL General Manager Generation ROBERT FARRON Chief Financial Officer & Company Secretary VINCE HAWKSWORTH MARKO BOGOIEVSKI Chief Executive Director

ALAN BICKERS Director MELANIE DYER CHRIS O’HARA General Manager General Manager People and Culture Commercial Operations

20 TRUSTPOWER 2015 ANNUAL REPORT CRAIG NEUSTROSKI General Manager Trading GEOFF SWIER SAM KNOWLES RICHARD AITKEN Director Director Director PETER CALDERWOOD General Manager Strategy & Growth SIMON CLARKE MELANIE DYER General Manager Business General Manager BRUCE HARKER Solutions & Technology People and Culture Chairman

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Chief Executive's Report VINCE HAWKSWORTH

The 2015 financial year was notable for the focus on executing our key strategies.

These strategies are based on our convictions. Firstly, that renewable energy projects are valuable investments in market environments. Secondly, that customers will value the comfort, convenience, connectivity and value of multi-product bundled offerings. Finally, that multi-use hydro generation and water storage adds value for the New Zealand agricultural economy and Trustpower.

The highlights of the year include the completion of Snowtown Stage 2 Wind Farm, acquiring the assets of Green State Power in New South Wales, growing our multi-product retail customer base and the increased demand for irrigation water storage from Lake Coleridge.

We believe these achievements create momentum towards our goal of being a leading supplier of utilities at home and beyond our shores, and create the Trustpower point of difference.

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HEALTH AND SAFETY the deployment of advanced meters to all Trustpower’s residential customers throughout New Zealand. The building Our commitment to health and safety starts with the and testing of new computer systems at both Metrix and engagement of our Directors and senior management. Trustpower is underway and a preliminary deployment We know that this engagement is only meaningful if all our pilot has been completed. It is intended that a further, more staff remain safe and well and believe that management is substantial, pilot will be undertaken later this year and full committed to safety being more important than production. service commencement and scale deployment is now planned to commence early in 2016. To reinforce and support this safety message, we continue to invest in the Great Safety Performance NEW ZEALAND (GSP) programme. The most recent results highlight the opportunity to increase the focus on the quality of health Flat demand for electricity in New Zealand means we have and safety conversations. been unable to progress our wind and hydro development options. There is unlikely to be large scale generation During the year we have introduced a new Health and investment required in New Zealand in the next few years. Safety reporting application. This makes it easier for all We have therefore focused on increasing the efficiency staff to report safety issues and has facilitated an increase and performance of our current assets. To date we have in near miss reporting. A focus on near miss reporting completed 17 projects, investing $3.3 million to achieve provides a platform for continuous improvement in safety $85.8 million of value. performance. We had five lost time injuries during the 2015 financial year. Our Generation fleet has performed well; lower inflows and fewer high price peaks mean there have been less machine MULTI-PRODUCT RETAIL starts. During the year there were 21,849 starts with a start failure rate of 0.23%, better than our long term target of 0.25%. Building on our successful re-branding the previous year, we have executed our multi-product retail growth strategy. AUSTRALIA More than 23% of our customers now purchase two or more The uncertainty about the outcome of the Renewable products. The unique combination of electricity, gas, phone Energy Target (RET) review by the Federal Government and broadband products has resonated with customers in persisted through the year. We remain optimistic that a our metro target markets. We have met our growth targets resolution will be reached in the coming months. and improved retention of existing customers. Clarity about the future long term policy settings in Australia Whilst we are pleased with our progress we know that may not be forthcoming until after the conference of the we must keep meeting the needs and expectations of our parties (COP21) in Paris later this year. customers. We continue to invest in our systems, people and processes to improve the customer experience. However, what is clear is the need for Australia to renew the We are also continuing to improve our choice of interaction ageing coal fired generation fleet over the next twenty years. channels for customers. We believe renewable generation will play a key role.

SMART METERS During the year Trustpower completed the 270MW Snowtown Stage 2 project under budget and ahead of Trustpower continues to work with Metrix (our outsourced time. This asset will make a significant contribution to our metering service provider) to implement the necessary future performance. “end to end” systems and process changes required to prepare for advanced metering service delivery and

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We have focused on increasing the efficiency and performance of our current assets. To date we have completed seventeen projects investing $3.3 million to achieve $85.8 million of value.

We have continued to progress projects in our development Our ‘Leading our Future’ programme has been developed pipeline and expect the Palmer (SA) and Dundonnell to ensure we have the capabilities and mindsets required to (Victoria) projects to complete the development approval continue our successful growth. process during the coming year. Our National Community Awards programme acknowledges Trustpower also acquired the assets of Green State Power the huge contribution that volunteers make in New Zealand. from the NSW government. These small hydro and wind assets fit very well with Trustpower’s New Zealand This year’s winners, Focus Paihia, demonstrate how generation fleet and have been successfully integrated into business, volunteers and the wider community can work our business. together. Their project Horotutu – Our Place has created a waterfront park that provides an inviting point of focus for REGULATORY LANDSCAPE the centre of Paihia. The political environment is less volatile as elections in both LOOKING AHEAD New Zealand and Australia are not imminent. Trustpower is proud of our points of difference and we will However, regulatory risks remain, associated with the continue to build on our strategies to ensure we deliver for Renewable Energy Target in Australia and the increasing our shareholders, customers and people. regulatory burden in New Zealand.

Trustpower remains concerned about the Electricity Authority’s approach to transmission pricing. We believe VINCE HAWKSWORTH - CHIEF EXECUTIVE Transpower has provided a sensible proposal to modify the rules. However, there remains a risk that further changes to this proposal made by the Electricity Authority will result in sub-optimal outcomes.

Our view is that regulatory certainty and the preservation of investments made in good faith is critical to a sound regulatory process and especially important where investments are made in long life assets.

PEOPLE, CULTURE AND COMMUNITY Trustpower has made significant progress on the new corporate office located in the Tauranga CBD. We expect to complete the fitout and relocate in the first quarter of 2016. To ensure we gain maximum value from the move and to build capability in the business we have a focus on development of our people.

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Case Study GENERATION PORTFOLIO

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Case Study Cadel Evans, Tour de France 2011 winner and Vince Hawksworth, Trustpower Chief Executive GENERATION present Gracie Allen with her prize at the Snowtown 2 official opening. PORTFOLIO

Stage 2 of the Snowtown Wind Farm would not have been a success had it not been for the shared philosophy of all involved.

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Community support has helped Trustpower complete its largest ever capital project - early and under budget.

The Snowtown Stage 2 Wind Farm near Adelaide in Clayton says the Australian business and development Australia was completed two months ahead of schedule environment brings a unique set of challenges. “The and nearly A$16 million under budget. The last of 90 wind regulatory and planning environment is complex, and there turbines was successfully commissioned in July 2014. is ongoing uncertainty surrounding renewable energy targets brought about by the political environment,” he says. Trustpower’s Business Development Manager “However we believe renewables have a vital place Clayton Delmarter says the project could not have in Australia’s future energy mix, and we have a strong been pulled off without the backing of the Snowtown pipeline of wind options in South Australia, Victoria and community, land owners and indigenous groups. New South Wales.”

Trustpower’s partners – Siemens, Downer EDI, Electranet As well as these new developments, Trustpower is and other local contractors – also forged strong local increasing its Australian assets through acquisition. It relationships. “This has been 10 years in the making and it bought the renewable energy assets owned by Green State would not have been possible without a shared philosophy Power from the New South Wales government in July 2014. among all involved,” says Clayton. They include the 58MW Hume Hydro Power Station on the Trustpower will continue its commitment to the local Murray River, the 27.2MW Burrinjuck Hydro Power Station Lend a Hand Foundation, which is run in partnership with in south west New South Wales, the 7.2MW Keepit Hydro the Snowtown Lions Club. The foundation supports local Power Station, the 9.9MW Blayney Wind Farm, plus 80% projects, charities, schools and individuals. Trustpower also of the 4.2MW Crookwell Wind Farm. backs Aboriginal heritage projects and instigated a native tree and shrub planting programme as part of Stage 2. General Manager Generation, Deion Campbell says the purchases have attractive similarities to the fleet of hydro Snowtown Stage 2 represents nearly a quarter of and wind generation assets operated by Trustpower in Trustpower’s total generating capacity. With Snowtown New Zealand. “They are relatively small and, although they Stage 1, it delivers more than 370MW of clean, sustainable have been upgraded to a degree over the years, we see energy and is the second largest wind farm in Australia. plenty of opportunity to modernise, increase efficiency and Located 170 kilometres north of Adelaide on private deliver further value to the business,” says Deion. farmland, the wind farm can now produce enough electricity to power more than 230,000 homes. “We can also apply our 15 years of experience successfully operating and improving the performance of the Tararua Clayton says Snowtown is a classic example of successful Wind Farm in New Zealand to the wind farms in New South execution - selecting high quality projects with strong Wales, as they utilise very similar turbine technology.” fundamentals, being flexible during the development and procurement stages, and then forging ahead as soon as Trustpower will seek similar purchases in the future to conditions are favourable. advance its growth ambitions in the Australian market.

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different because... WE BELIEVE IN MAKING OUR CUSTOMERS’ LIVES EASIER

Case Study MULTI-PRODUCT BUNDLING

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Case Study MULTI-PRODUCT BUNDLING

The simplicity, transparency, convenience and value of one bill from one provider is proving very popular with customers.

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Multi-product bundles are making life easier for Trustpower customers.

The unique product offering – bundling power, gas, phone Trustpower plans to continue to build brand awareness and broadband on one account - has quickly gained through television, radio, billboard, press and online traction since its launch last year. advertising.

Trustpower’s General Manager Commercial Operations, “Building credibility in a new space is a long journey and Chris O’Hara says the simplicity, transparency, convenience you have to stick to it,” says Chris. “In some cases we have and value of one bill from one provider is proving very returned to markets – such as Auckland, Hamilton and popular with customers. More than half of new customers Wellington - where we haven’t had a real presence for are taking two or more products and multi-product 10 years.” customers are less prone to churn. Trustpower is offering new customers market-leading That’s not to say the success has been overnight, or that the broadband rates, capped power and gas prices until at path ahead will be smooth. The integrated product offering least March 2017, and ongoing discounts on each product. has percolated for the past decade, as Trustpower put the Customers who choose two, three or four products earn building blocks in place to offer a truly unique service. even greater discounts.

“We still have more investment to make in our behind-the- Once it has acquired new customers, Trustpower intends scenes systems and processes to ensure that our staff to retain them by providing a great service so that credibility experience the same seamlessness and efficiency as our is built through what the Company does, rather than just customers,” says Chris. what it says.

Because of the complexities, the multi-product, single For example, customer accounts are reviewed regularly account model has yet to be replicated in New Zealand. to ensure they are on the right broadband plan and do not Chris notes that other utility companies may eventually incur unnecessary charges. try to compete, but believes that Trustpower’s diligent preparation and superior customer service will win out. Building internal credibility is also a long-haul proposition, and Chris says the strong support for the strategy will “We’ve tried working with different partners and ensure it builds value for shareholders in the long-term. experimented with delivery models,” says Chris. “We believe we now have the right service model and skill set to meet a “A key advantage for Trustpower is that our people genuinely much more varied set of customer demands.” care about our customers’ experience and they are not prepared to compromise it.” “Telecommunications services have a lot of moving parts that need to be co-ordinated. In some cases, customers can cope better with a short power cut than a broadband outage,” he says.

33 TRUSTPOWER 2015 ANNUAL REPORT 34 TRUSTPOWER 2015 ANNUAL REPORT different because... WE BELIEVE IN EVERYONE’S POTENTIAL TO INNOVATE

Case Study GENERATION 50 BY 15

35 TRUSTPOWER 2015 ANNUAL REPORT Case Study GENERATION 50 BY 15

It was fantastic to see the interesting array of opportunities that were put into the mix when the usual constraints to applying innovation were removed.

36 TRUSTPOWER 2015 ANNUAL REPORT A fresh approach to pursuing maximum value from Trustpower’s assets has had some surprising spinoffs.

Increased collaboration between teams, opportunities there is in our diverse asset base. At the beginning, the team for individuals to stretch themselves and some healthy believed the target might be out of reach. Now that the internal competition have all been unexpected bonuses of project has officially ‘finished’ we’re fired up to keep going.” the “50 by 15” initiative. The 50 by 15 project is just one example of Trustpower’s The three-year “50 by 15” project has encouraged different way of thinking about its assets. The team will innovative thinking to deliver small, but often very lucrative, continue to innovate and apply technology in fresh ways. tweaks to existing assets. The target was set at $50 million net shareholder value improvement by March 2015, from Another is the dual use of hydro generation lakes and investments of no more than $1 million each. equipment for farmland irrigation in addition to generating electricity. Canterbury irrigation schemes received a major Trustpower’s General Manager Generation, Deion Campbell boost from Trustpower in 2014 with the opening of access to says opening up the initiative to all parts of the generation the vast storage capacity of Lake Coleridge, to compliment business resulted in a wide variety of ideas. the addition of pumps on the Rakaia River at Highbank Power Station two years ago. “It was fantastic to see the interesting array of opportunities that were put into the mix when the usual constraints to Both the Barrhill Chertsey and Central Plains irrigation applying innovation were removed,” says Deion. “Even some schemes now have access to Lake Coleridge instead of long-standing maintenance issues were solved as a result relying on deep bore water supplies or variable river flow – of people looking at them from a fresh perspective.” and avoiding the cost, time and environmental impacts of constructing new storage. Projects included installing vortex generators on wind turbine blades, adopting different gate control algorithms, Lake Coleridge, a popular recreational fishing spot, feeds modifying commercial agreements, removing restrictions Trustpower’s Coleridge Hydro Power Station, which in canals and improving water flow measurement for celebrated its 100th anniversary in 2014. turbine control. Deion says having access to reliable stored water has “It’s amazing, for example, how a few pieces of steel enabled irrigators to actually use less water – irrigating ‘just carefully placed in a waterway can completely change how in time’ instead of ‘just in case’. much water can flow into an intake,” says Deion. “This means lower running costs, less use of fertiliser and In total, $3.3 million has been invested in 17 projects to reduced nutrient run-off,” says Deion. “Fertiliser is not achieve a net present value of $85.8 million. washed away unnecessarily and underground aquifer levels are maintained, supporting the health of low land streams.” “Obviously this is an outstanding result for Trustpower,” says Deion. “It just goes to show how much latent potential

37 TRUSTPOWER 2015 ANNUAL REPORT different because... WE BELIEVE IN THE VALUE OF LONG-TERM RELATIONSHIPS

SUSTAINABILITY REPORT

At Trustpower we know that sustainability means building a long-term business through relationships with everyone we interact with. In order to report on our progress in this regard we report economic, staff, environmental, customer and community related measures.

38 TRUSTPOWER 2015 ANNUAL REPORT Our performance this year was comparable with previous years across the five areas we report on although not all targets were achieved.

AREA MEASURE 2014 ACTUAL 2015 ACTUAL 2015 TARGET 2016 TARGET Economic1 EBITDAF Growth (5.9)% 19.2% 5-10% 5-10% Staff Voluntary 30.0% 12.3% 15% 12% Turnover Environmental Resource Consent 4 7 0 0 Breaches Customer Customer churn rate 67% 74% <100% <100% compared to market average Community Stakeholder Completed Completed Complete detailed Complete detailed Consultation stakeholder stakeholder consultation consultation 1 This target is based on Trustpower’s medium term growth aspirations and should not be taken as guidance for the 2016 financial year. A more detailed analysis can be found in pages 40-49

All businesses face risks and challenges. Our key risks and challenges are summarised in the table below.

CATEGORY KEY RISKS / CHALLENGES APPROACH TARGETS PROGRESS Economic • Unable to meet future • Develop a pipeline of • Costs benchmarked at below demand for electricity opportunities for new industry average investment • New projects all economically • Shareholder value growth • Maintain strong focus on viable efficiency of operation • New projects completed on • Invest in economic growth time and to budget projects • Prices set at competitive levels • Focus on long term sustainable pricing Environmental • Need to minimise • Work closely with special • Zero significant resource environmental impact of interest groups and the local consent breaches generation schemes community to minimise impact of new generation • Comply with resource consents Our people • Need to retain and develop • Extensive training and • 75% of management roles filled a team to produce ongoing development programme by internal promotion performance • Succession planning and • Staff survey exceeds internal promotion New Zealand benchmark • Health and safety focus • Zero lost time injuries Community • Relationships with and • Community engagement • Maintain a strong corporate an understanding of local including sponsorship and profile in all areas in which we communities is required to Community Awards operate and build relationships operate effectively • Consultation around resource within those communities issues • No resource consents turned down due to lack of consultation Customer • Dissatisfied customers • Competitive pricing • Customer churn below market prevent sustainable • Excellent customer service average economic performance • Information and advice • Differentiated product offering Achieved Partially achieved Not achieved

39 TRUSTPOWER 2015 ANNUAL REPORT

INJURY INCIDENCE RATE UNSCHEDULED (PER MILLION HOURS WORKED) ABSENTEEISM (%) 50.9 62.6 82.5 49.4 34.4 2.9 2.7 2.7 2.5 2.9 2 2 0 0

2011 2012 2013 2014 2015 2015 2016 2011 2012 2013 2014 2015 2015 2016 TARGET TARGET TARGET TARGET

LOST TIME INJURIES 7 7 10 6 6 0 0

2011 2012 2013 2014 2015 2015 2016 Our TARGET TARGET PEOPLE VOLUNTARY TURNOVER (%) OVERALL EMPLOYEE ENGAGEMENT RATING (%) 2016 TARGET 12.0 We no longer believe that the best way to gauge

2015 TARGET staff engagement is by a single measurement. 15.0 Instead, all the measurements on this page should be viewed as a whole to best assess 2015 Trustpower’s engagement with its employees. 12.3

2014 2014 PERFORMANCE AGAINST COMMITMENTS FOR 2015 21.0 76.7 Implement Health, Safety and Wellness Strategy 2013 2013 22.9 77.3 • Online incident reporting database • Induction programme reviewed developed and implemented 2012 2012 • Submission to Parliament Select 19.1 73.1 • Flu vaccinations completed Committee on Health and Safety legislation 2011 2011 • Wellness allowance uptake 67% • Increased incident reporting 10.7 74.9 Develop comprehensive Work Force plan for next 3-5 years Workforce planning has resulted in a large amount of organisational change in the business to ensure future resilience. NUMBER X = OF WOMEN Continue focus on Talent Identification and Development DIVERSITY We have continued with our robust talent identification process, resulting in retention of key talent. DISCLOSURE

2015 COMMITMENTS FOR 2016 0 1 35 364 TOTAL 6 TOTAL 8 TOTAL 91 TOTAL 655 Operational policy and process review for both People and Safety processes. 0% 13% 38% 56% Focus on leadership development to build future capacity. 2014 Preparation for new Health and Safety legislation. 0 1 32 338 TOTAL 6 TOTAL 8 TOTAL 78 TOTAL 613 0% 13% 41% 55% BOARD LEVEL BOARD OFFICER MANAGER ALL STAFF

40 TRUSTPOWER 2015 ANNUAL REPORT

INJURY INCIDENCE RATE UNSCHEDULED (PER MILLION HOURS WORKED) ABSENTEEISM (%) 50.9 62.6 82.5 49.4 34.4 2.9 2.7 2.7 2.5 2.9 2 2 0 0

2011 2012 2013 2014 2015 2015 2016 2011 2012 2013 2014 2015 2015 2016 TARGET TARGET TARGET TARGET

LOST TIME INJURIES 7 7 10 6 6 0 0

2011 2012 2013 2014 2015 2015 2016 TARGET TARGET

VOLUNTARY TURNOVER (%) OVERALL EMPLOYEE ENGAGEMENT RATING (%) 2016 TARGET 12.0 We no longer believe that the best way to gauge

2015 TARGET staff engagement is by a single measurement. 15.0 Instead, all the measurements on this page should be viewed as a whole to best assess 2015 Trustpower’s engagement with its employees. 12.3

2014 2014 21.0 76.7

2013 2013 22.9 77.3

2012 2012 19.1 73.1

2011 2011 10.7 74.9

NUMBER DIVERSITY X = OF WOMEN DISCLOSURE 2015 0 1 35 364 TOTAL 6 TOTAL 8 TOTAL 91 TOTAL 655 0% 13% 38% 56%

2014 0 1 32 338 TOTAL 6 TOTAL 8 TOTAL 78 TOTAL 613 0% 13% 41% 55% BOARD LEVEL BOARD OFFICER MANAGER ALL STAFF

41 TRUSTPOWER 2015 ANNUAL REPORT

RESOURCE CONSENT NON-COMPLIANCE EVENTS

9 10 5 4 7 0 0

2011 2012 2013 2014 2015 2015 2016 TARGET TARGET

Our ENVIRONMENT

PERFORMANCE AGAINST COMMITMENTS FOR 2015 Achieve zero non-compliance events Seven minor non-compliance events this year.

COMMITMENTS FOR 2016 One of Trustpower’s key focus areas in the coming year is the redevelopment of its Environmental Management System in accordance with the requirements of AS/NZ ISO 14001. The focus of this initiative in the coming year will be on Trustpower’s management response to its significant environmental aspects and impacts; training for awareness and education of personnel on environmental issues; reviewing the Company’s emergency preparedness and response plans; and improving its incident response processes. Each year we focus on resource consent compliance and improving this. This year our focus is structured in a more proactive sense. Reviewing and improving our compliance processes and systems will feature prominently in this. Reviewing our existing consents to identify areas of risk in terms of interpretational issues and setting in place work programmes to minimise these risks will be a significant part of our focus for the coming year. Looking to integrate our response processes into our asset management system is an exciting opportunity. This will form part of the overall

systems33 review and provide greater internal visibility of these work streams, particularly to our remote sites.

42 TRUSTPOWER 2015 ANNUAL REPORT

RESOURCE CONSENT NON-COMPLIANCE EVENTS

9 10 5 4 7 0 0

2011 2012 2013 2014 2015 2015 2016 TARGET TARGET

CASE STUDY In February, Trustpower staff (Robert Sigmund and Annabel Davies) accompanied Mark Enright of the Environmental Protection Authority (EPA)

as he undertook a risk assessment audit Hume at Hume Power Station. Recent legislation Power Station has triggered a change in approach by EPA going forward. The changes come into effect 31 October 2015.

In short the EPA is implementing:

a) New risk-based licensing system. This means fees will be set by the level of risk our operations pose and can vary depending on how sound our performance and management controls are year on year. The risk assessment considers the type of emission (in our case potential for oil or stormwater discharge 1957 to watercourse), the proximity to receptor (we’re practically in it), and the management controls and Hume Power Station performance on the site. This last point considers Hydro matters such as whether we are certified to ISO 14001, have secondary controls in place on site. ALBURY, NEW SOUTH WALES, AUSTRALIA

For example: The Hume Power Station is likely to Hume is a 58MW hydro power station located at always remain a moderate risk due to its proximity Hume Dam, the second largest dam in NSW, on the to the watercourse. However with continued sound Murray River upstream from Albury-Wodonga. It management practices and controls Trustpower was commissioned in 1957 and comprises two may remain subject to the lowest possible fee for an 29MW turbines (two English Electric vertical operation of this nature. Kaplan turbines, 35m net head).

b) Increased penalties if pollution occurs. Considerations such as responsiveness and readiness of site staff to any event will be taken into account in the event a spill occurs. Trustpower annually reviews and tests it’s

33 Pollution Incident Response Plan at this site.

43 TRUSTPOWER 2015 ANNUAL REPORT

ORGANISATIONS AND INDIVIDUALS HIGH SCHOOL STUDENTS SPONSORED THROUGH THE RECOGNISED VIA TRUSTPOWER LEND A HAND FOUNDATION YOUNG SPIRIT AWARDS

2016 TARGET 2016 TARGET

140 60

2015 TARGET 2015 TARGET 145 60

2015 2015 136 60

2014 2014

139 60

2013 2013 124 77

2012 2012 133 50

2011 2011

71 24

Our COMMUNITY COMMUNITY GROUPS RECOGNISED AND REWARDED VIA TRUSTPOWER COMMUNITY AWARDS

2011 288 2012 303 2013 346 2014 327 2015 330 2015 330 2016 330 TARGET TARGET

PERFORMANCE AGAINST COMMITMENTS FOR 2015 Develop stakeholder engagement measures to reflect our stakeholder engagement framework Trustpower continues to monitor and adapt its stakeholder engagement as need and resources allow. Maintain involvement in the wider community through various award programmes and targeted sponsorship Involvement maintained.

COMMITMENTS FOR 2016 Maintain and where appropriate expand involvement in the wider community through various award programmes and targeted sponsorship.

Trustpower’s commitment to recognising voluntary organisations and high school students who are contributing to their communities continues.

While consideration is being given to expanding this recognition into new areas where Trustpower now has an increasing business presence, this has to be underpinned by sustainability.

Trustpower’s view is that as a responsible corporate citizen, its recognition of the voluntary sector, which is undertaken in partnership with local Councils, needs to become cemented into any additional communities as it has been for the 27 regions already involved – some more than 20 years.

44 TRUSTPOWER 2015 ANNUAL REPORT

ORGANISATIONS AND INDIVIDUALS HIGH SCHOOL STUDENTS SPONSORED THROUGH THE RECOGNISED VIA TRUSTPOWER LEND A HAND FOUNDATION YOUNG SPIRIT AWARDS

2016 TARGET 2016 TARGET

140 60

2015 TARGET 2015 TARGET 145 60

2015 2015 136 60

2014 2014

139 60

2013 2013 124 77

2012 2012 133 50

2011 2011

71 24

COMMUNITY GROUPS RECOGNISED AND REWARDED VIA TRUSTPOWER COMMUNITY AWARDS

2011 288 2012 303 2013 346 2014 327 2015 330 2015 330 2016 330 TARGET TARGET

COMMITMENTS FOR 2016 (Continued) On the national front, Trustpower is further extending its support for an anti-bullying programme, run by magician Elgregoe, which covers primary and intermediate schools throughout New Zealand. Trustpower’s support for this programme, which includes the provision of a vehicle and collateral material, plus significant financial assistance, ensures that the programme reaches schools in many smaller and more remote communities which would otherwise not be able to participate.

Feedback from schools and parents about the benefits of the “You’ve Got the Power” anti-bullying programme, and the success achieved through using magic to deliver important values based messages to young people, continues to be extremely positive.

THE YEAR AHEAD The year ahead will also see increased attention on stakeholder relationships. To measure and focus its efforts, both an iwi and a more general stakeholder engagement strategy have been developed. The strategies underpin Trustpower’s commitment to enhancing its relationships with iwi in the regions in which it operates, with a view to creating opportunities and fostering cross learning and mutual understanding.

There will also be a focus on the numerous environmental enhancement funds that have been established in connection with Trustpower’s generation development projects and assets. Trustpower recognises that these are important commitments not only for the resulting environmental outcomes but also for the benefit of maintaining close and enduring relationships with fellow interest groups.

45 TRUSTPOWER 2015 ANNUAL REPORT

(000s) TELECOMMUNICATION CONNECTIONS 2015 2016 2012 2013 2014 2015 TARGET TARGET

25 27 31 38 33-37 46-50 OVERHEADS PER MASS MARKET ELECTRICITY CUSTOMER ($) SALES (GWh) 2016 TARGET 2016 TARGET 150 - 160 1,800 - 1,900

2015 TARGET 2015 TARGET 180 - 190 1,700 - 1,800

2015 2015 151 1,659

2014 2014 178 1,578

2013 2013 167 1,613 Our 2012 2012 CUSTOMERS 148 1,761 2011 2011 132 1,877

CUSTOMER GAS CONNECTIONS NUMBER GROWTH (%) (000s)

2015 TARGET 10-15% 2015 TARGET N/A 14 24 2016 TARGET 26 - 30 2014 2015

PERFORMANCE AGAINST COMMITMENTS FOR 2015 CALL SERVICE LEVEL* Provide additional online customer services including energy consumption and efficiency information

We now provide simple online transaction and consumption history for customers. -1.8 -5.4 -1.6 8.7 8.0 8-10 2015 TARGET 80 8% 2016 TARGET 80 2011 2012 2013 2014 2015 2016 72 TARGET 2015 COMMITMENTS FOR 2016 * Calls to call centre answered within 60 seconds Trustpower intends to commence its roll out of advanced meters in the coming year. This will facilitate the provision of additional and more detailed consumption information for customers. ELECTRICITY CONNECTIONS COMMERCIAL AND (000s) INDUSTRIAL SALES (GWh) 2,156 2,199 2,070 1,934 2,275 - 2,100 2,000 1,900 - 2,000 221 209 206 224 242 - 255 245 260 - 270

2011 2012 2013 2014 2015 2015 2016 2011 2012 2013 2014 2015 2015 2016 TARGET TARGET TARGET TARGET

46 TRUSTPOWER 2015 ANNUAL REPORT

(000s) TELECOMMUNICATION CONNECTIONS 2015 2016 2012 2013 2014 2015 TARGET TARGET

25 27 31 38 33-37 46-50 OVERHEADS PER MASS MARKET ELECTRICITY CUSTOMER ($) SALES (GWh) 2016 TARGET 2016 TARGET 150 - 160 1,800 - 1,900

2015 TARGET 2015 TARGET 180 - 190 1,700 - 1,800

2015 2015 151 1,659

2014 2014 178 1,578

2013 2013 167 1,613

2012 2012 148 1,761

2011 2011 132 1,877

CUSTOMER GAS CONNECTIONS NUMBER GROWTH (%) (000s)

2015 TARGET 10-15% 2015 TARGET N/A 14 24 2016 TARGET 26 - 30 2014 2015

CALL SERVICE LEVEL*

-1.8 -5.4 -1.6 8.7 8.0 8-10 2015 TARGET 80 8% 2016 TARGET 80 2011 2012 2013 2014 2015 2016 72 2015 TARGET * Calls to call centre answered within 60 seconds

ELECTRICITY CONNECTIONS COMMERCIAL AND (000s) INDUSTRIAL SALES (GWh) 2,156 2,199 2,070 1,934 2,275 - 2,100 2,000 1,900 - 2,000 221 209 206 224 242 - 255 245 260 - 270

2011 2012 2013 2014 2015 2015 2016 2011 2012 2013 2014 2015 2015 2016 TARGET TARGET TARGET TARGET

47 TRUSTPOWER 2015 ANNUAL REPORT

OPERATING COST PER DEBT TO DEBT MWH GENERATED PLUS EQUITY 36.3 32.8 36.9 43.0 40 <45 <45 14 14.5 16.4 17.9 19.2 16.5 - 17.5 19 - 20

2011 2012 2013 2014 2015 2015 2016 2011 2012 2013 2014 2015 2015 2016 TARGET TARGET TARGET TARGET Increased cost per MWh due to below average generation in New Zealand

TOTAL SHAREHOLDER UNDERLYING EARNINGS1 RETURN (%) ($ MILLIONS)

2016 TARGET 2015 TARGET 10-15% 125 - 135 Our 2015 TARGET ECONOMIC 125 - 135 PERFORMANCE 2015 121.0

2014 108.4 201630.3% TARGET 5-10 % 2013 127.3

2011 2012 2013 2014 2012 135.3 4.7 6.3 11.7 -10.5 2011 116.5 PERFORMANCE AGAINST COMMITMENTS FOR 2015 Provide a year of earnings growth in line with EBITDAF growth goal EBITDAF1 GROWTH (%) 19% uplift achieved due to commissioning of Stage 2 of the Snowtown Wind Farm.

COMMITMENTS FOR 2016 Provide a year of earnings growth in line with EBITDAF growth goal. 5-10* -5.9 9.4 2016 19.2 TARGET 2014 2012 5-10 -1.8 0.2 2015 2015 TARGET 2013 2011

* This target is based on Trustpower's medium term growth aspirations and should not be taken as guidance for the 2016 financial year.

1 Underlying earnings and EBITDAF are non-GAAP measures. See page 19 for more detail on why Trustpower believes they are important measures.

48 TRUSTPOWER 2015 ANNUAL REPORT

OPERATING COST PER DEBT TO DEBT MWH GENERATED PLUS EQUITY 36.3 32.8 36.9 43.0 40 <45 <45 14 14.5 16.4 17.9 19.2 16.5 - 17.5 19 - 20

2011 2012 2013 2014 2015 2015 2016 2011 2012 2013 2014 2015 2015 2016 TARGET TARGET TARGET TARGET Increased cost per MWh due to below average generation in New Zealand

TOTAL SHAREHOLDER UNDERLYING EARNINGS1 RETURN (%) ($ MILLIONS)

2016 TARGET 2015 TARGET 10-15% 125 - 135 2015 TARGET 125 - 135

2015 121.0

2014 108.4 201630.3% TARGET 5-10 % 2013 127.3

2011 2012 2013 2014 2012 135.3 4.7 6.3 11.7 -10.5 2011 116.5

EBITDAF1 GROWTH (%)

5-10* -5.9 9.4 2016 19.2 TARGET 2014 2012 5-10 -1.8 0.2 2015 2015 TARGET 2013 2011

* This target is based on Trustpower's medium term growth aspirations and should not be taken as guidance for the 2016 financial year.

1 Underlying earnings and EBITDAF are non-GAAP measures. See page 19 for more detail on why Trustpower believes they are important measures.

49 TRUSTPOWER 2015 ANNUAL REPORT

CORPORATE GOVERNANCE STATEMENT

ROLE OF THE BOARD OF DIRECTORS • Ensuring that effective audit, risk management and compliance systems are in place to protect the The Directors are elected by the shareholders and are Group's assets and to minimise the possibility of the responsible to the shareholders for the performance Group operating beyond legal requirements or beyond of the Group. Their focus is to enhance the interests of acceptable risk parameters. shareholders and other key stakeholders and to ensure the Group is properly managed. The Board draws on relevant • Monitoring compliance with regulatory requirements corporate governance best practice principles to assist and (including continuous disclosure) and setting ethical contribute to the performance of the Group. standards and then monitoring compliance with those standards. The Board has developed a charter that outlines responsibilities that encompass the following: • Reviewing, on a regular basis, senior management succession planning and development. • Setting the strategic direction of Trustpower and monitoring Management's implementation of • Ensuring effective and timely reporting to shareholders. that strategy. • Ensuring the Group has a strong health and safety culture • Selecting and appointing (and, if appropriate, removing and complies with health and safety legislation. from office) the Chief Executive, determining his/her conditions of service and monitoring his/her performance Each year the Board has eight scheduled one day meetings, against established objectives. at least one extended strategic planning meeting, at least four Audit and Risk Committee meetings and • Ratifying the appointment (and, if appropriate, several unscheduled meetings to consider and/or review removing from office) the Chief Financial Officer substantial projects and any other special circumstances and Company Secretary. that may arise from time to time. • Ratifying the remuneration of senior management The full Board determines the board size and composition, consistent with their employment agreements. subject to limits imposed by the Company's Constitution which is required to comply with the NZX Listing Rules. The • Monitoring financial outcomes and the integrity of Constitution provides for a minimum of three directors and reporting, and, in particular, approving annual budgets a maximum of seven. and longer-term strategic and business plans. The Constitution and NZX Listing Rules also require that • Setting specific limits of authority for management to while there are a total of six or seven directors, two must be commit to new expenditure, enter contracts or acquire independent directors. As at 31 March 2015, the Board has businesses without prior Board approval. determined that the independent directors of Trustpower

50 TRUSTPOWER 2015 ANNUAL REPORT

are RH Aitken, GJC Swier, and IS Knowles and the non- THE REMUNERATION COMMITTEE independent directors of Trustpower are BJ Harker, The Board has established a Remuneration Committee M Bogoievski and AN Bickers. which has two directors as members, BJ Harker and GJC Swier. The role of the Remuneration Committee is The Board has established two standing Subcommittees formally recorded in a charter document approved by being; the Audit and Risk Committee and the Remuneration the Board of Directors. Committee. The primary objectives of the Remuneration Committee AUDIT AND RISK COMMITTEE are to: The Board has established a standing Audit and Risk Committee consisting of three directors. The Committee • Help enable the Company to attract, retain and meets at least four times a year. Members of the Committee motivate executives and Directors who will create are: GJC Swier (Chairman), BJ Harker, and IS Knowles. value for shareholders.

The role of the Audit and Risk Committee is formally • Fairly and reasonably reward executives having regard to recorded in a charter document approved by the Board the performance of the Company, the performance of the of Directors. The primary objective of the Committee, as executives and the general pay environment. set out in the charter, is to assist the Board in fulfilling its responsibilities relating to accounting and reporting • Help the Company comply with the provisions of the practices of the Group. In particular, the Committee’s main Employment Relations Act 2000, the Companies responsibilities are to: Act 1993, the NZX Listing Rules and any other relevant legal requirements. • Review and report to the Board on the annual report, the interim financial report and all other financial information The responsibilities of the Committee include: published by the Group or released to the market. • Reviewing and recommending to the Board for approval • Assist the Board in reviewing the effectiveness of the the remuneration policy for directors and senior executives organisation’s internal control environment. and ensuring that the structure of the policy allows the Company to attract and retain directors and senior • Determine the scope of the internal audit function executives of sufficient calibre to facilitate the efficient and and ensure that its resources are adequate and used effective management of the Company's operations. effectively, including co-ordination with external auditors. • Annual review and recommendation to the Board for • Oversee the effective operation of the risk management approval of the remuneration packages of all directors and framework. senior executives of the Company.

• Recommend to the Board the appointment, removal and • With reference to the Board, managing the employment remuneration of the external auditors, and review the or removal of the Chief Executive and negotiation of terms of their engagement, and the scope and quality of employment terms. the audit. • Participation in the process of employment of the Chief • Review and approve, within established procedures, and Financial Officer and recommendation to the Board of its before commencement, the nature and scope of non- confidence in any appointment. audit services being provided by the external auditors. These procedures include quantitative and qualitative • Establishment of appropriate performance criteria, from thresholds for the review, and include all relatively time to time, for short and long term employee incentive significant projects. schemes and to make recommendations to the Board.

In fulfilling its responsibilities, the Audit and Risk Committee OTHER SUB COMMITTEES receives regular reports from management and the internal The Board has established a sub committee comprising and external auditors. It also meets with the internal BJ Harker and IS Knowles to oversee any transaction to be and external auditors at least three times a year – more undertaken by the Company in relation to on-market share frequently if necessary. The internal and external auditors buybacks. have a clear line of direct communication at any time to either the Chairperson of the Audit and Risk Committee or the Chairperson of the Board.

51 TRUSTPOWER 2015 ANNUAL REPORT

REVIEW OF BOARD PERFORMANCE an appropriate division of responsibility, sound risk management, a programme of internal audit, and the An annual review of the performance of the Board and careful selection and training of qualified personnel. individual directors is undertaken by the Chairman. While the Board acknowledges that it is responsible for the COMPLIANCE WITH NZX CORPORATE GOVERNANCE overall control framework of the Group, it recognises that no BEST PRACTICE CODE AND OTHER GUIDELINES cost effective internal control system will preclude all errors As a listed issuer Trustpower is required to disclose in its and irregularities. Annual Report whether, and to what extent, its corporate governance principles materially differ from the NZX RISK MANAGEMENT Corporate Governance Best Practice Code. The Group has developed a comprehensive, enterprise- wide risk management framework. Management actively Trustpower believes that it complies in all material participates in the identification, assessment, and respects with the Code. However, it should be noted that monitoring of new and existing risks. Particular attention the Trustpower Board has chosen not to constitute a is given to market risks that could impact on the Group. Nominations Committee as recommended by the Code. Management undertakes regular reporting to appraise the The Board has decided that director nominations are able Audit and Risk Committee and the Board of the Company’s to be handled more effectively by the full Board. risks and the treatment of those risks.

CODE OF ETHICS The Audit and Risk Committee reviews and if considered A Code of Ethics has been developed and approved by the satisfactory, recommends for approval by the Board Board. Trustpower is committed to maintaining the highest annually, the Company’s insurance programme. standards of honesty, integrity and ethical conduct and has adopted a Code of Ethics to deter wrongdoing and to WHOLESALE ENERGY AND CARBON TRADING POLICY promote: The Group has adopted a Wholesale Energy and Carbon Trading Policy to manage the risk relating to the purchasing • Honest and ethical conduct, including the ethical handling of electricity and gas from wholesale energy markets of actual or apparent conflicts of interest between personal and the trading of carbon related products. Derivative and professional relationships. instruments are used to set the price of electricity at a future nominated time. The Wholesale Energy and Carbon • Full, fair, accurate, timely and understandable disclosure in Trading Policy allows wholesale energy and carbon trading reports and documents filed by the Company and in other to occur within risk limits set by the Board. public communications made by the Company.

• Compliance with applicable laws, rules and regulations. TREASURY POLICY The Group has a Board approved Treasury Policy to • Internal reporting to the Board of Directors of violations of manage finance, interest rate, foreign exchange and foreign this Code of Ethics. investment risks. The Policy approves the use of certain instruments for risk management purposes, and it prohibits • Accountability for adherence to the Code of Ethics. any activity that is purely speculative in nature. It also sets out exposure limits, delegated authorities and internal The Code of Ethics is not an exhaustive list of acceptable controls. The Policy is reviewed by Management annually or non-acceptable behaviour, rather it is intended to guide and independently every three years. decisions so they are consistent with Trustpower's values, business goals and legal and policy obligations. DELEGATED AUTHORITIES POLICY

Failure to follow the Code of Ethics may lead to disciplinary The Group has separate Delegated Authorities Policies in action being taken, which may include dismissal. The place for its New Zealand and Australian activities that Code of Ethics applies to the Board of Directors and the have been approved by the Board. The Policies provide Company’s employees. limited authority to certain Group employees to purchase goods and services, enter into sales contracts and approve INTERNAL CONTROL credit, sign deeds, indemnities and guarantees, and sign other contracts and documents. The Policies are The Group has adopted a system of internal control. reviewed annually. The system is based upon written procedures, policies, guidelines and organisational structures that provide

52 TRUSTPOWER 2015 ANNUAL REPORT

ENVIRONMENTAL POLICY INSIDER TRADING The Group recognises the importance of environmental In order to protect Trustpower’s reputation and safeguard issues and is committed to the highest levels of employees who may want to buy or sell Trustpower performance. To help meet this objective the Group has securities, the Company’s Securities Trading Policy requires developed and implemented both environmental policies an approved procedure to be followed by all staff and and a comprehensive environmental management system. Directors. Certain employees of the Company are required These have been established to facilitate the systematic to make additional disclosures under the Financial Markets identification of environmental issues and to ensure that Conduct Act 2013. they are managed in a structured manner. These measures allow the Group to: WHISTLEBLOWING POLICY Trustpower has established a Whistleblowing Policy in • Monitor its compliance with all relevant legislation. order to facilitate the disclosure and impartial investigation of any serious wrongdoing. This policy advises employees • Continually assess and improve the impact of its of their right to disclose serious wrongdoing, and sets out operations on the environment. Trustpower’s internal procedures for receiving and dealing with such disclosures. The policy is consistent with, and • Encourage employees to actively participate in the facilitates, the Protected Disclosures Act 2000. management of environmental issues.

• Use energy and other resources efficiently. OTHER CORPORATE POLICIES The Group has a number of other policies covering but not • Encourage the adoption of similar standards by the Group’s limited to human resource activities, health and safety, principal suppliers, contractors and distributors. buildings and security, business continuity and disaster recovery planning. These policies are regularly reviewed and • Ensure procedures are in place to appropriately deal with approved by senior management and where appropriate any adverse environmental event that may occur. the Board.

GROUP INFORMATION POLICY INTERNAL AUDIT The following is the Group’s policy regarding the disclosure The Group has established an outsourced internal audit of Group information: function that is responsible for monitoring the Group’s system of internal financial control and the integrity of the No Director of the Group may disclose information which financial information reported to the Board. Internal audit that Director has received in his or her capacity as a director operates independently from the Board and reports its or employee of the Group, being information that would not findings directly to the Audit and Risk Committee. Internal otherwise be available to the Director, to audit liaises closely with the external auditor, who reviews the internal audit work undertaken to the extent necessary (a) a person whose interests that Director represents; or to support its audit opinion.

(b) a person in accordance with whose directions or THE ROLE OF SHAREHOLDERS instructions the Director may be required, or is accustomed to act in relation to the Director’s powers The Board aims to ensure that shareholders are informed and duties, of all major developments affecting the Group’s state of affairs. Information is communicated to shareholders in without the prior consent of a subcommittee of the Board the annual, interim reports, and various announcements established to authorise the disclosure. to NZX. Quarterly operational information is also provided following the end of each quarter via NZX announcement. CONFLICTS OF INTEREST The Board encourages full participation of shareholders at the annual meeting to ensure a high level of accountability Where any Trustpower Director has a conflict of interest and identification with the Group’s strategies and goals. or is otherwise interested in any transaction, that Director is required to disclose his or her conflict of interest, and thereafter neither participate in the discussion nor vote in relation to the relevant matter. The Company maintains a register of disclosed interests.

53 TRUSTPOWER 2015 ANNUAL REPORT 54 TRUSTPOWER 2015 ANNUAL REPORT different because... WE BELIEVE IN IMPROVING THE CLARITY OF OUR FINANCIAL REPORTING

TRUSTPOWER FINANCIAL STATEMENTS

55 TRUSTPOWER 2015 ANNUAL REPORT Financial Statements Review Trustpower is pleased to present a new structure for our audited financial statements. The new structure is designed to improve the clarity and usefulness of this report. The first major change is the new sequence to the notes. They are now grouped into the broad categories the Directors consider the most relevant when evaluating the performance of Trustpower. The sections are: Retail Notes 3 - 7 Generation Notes 8 - 13 Debt Notes 14 - 16 Equity Notes 17 - 21 Tax, Related Parties & Other Notes Notes 22 - 27 There is also an appendix, from notes A1 to A19, which contains additional detailed disclosure readers may wish to use to supplement the disclosures in the primary sections of notes listed above. The second change has been to make additional disclosures. The most significant of these is the new profitability analysis notes 3 & 8 for the Retail and Generation segments. In some cases disclosures have been removed where they were considered to be duplicated, immaterial, or in the case of some accounting policies, merely a repeat of a mandatory accounting standard. Note Index Appendix Index Basis of preparation 1 Accounts payable and accruals A8 Borrowings 14 Accounts receivable and prepayments A7 Business combinations 12 Cash flow hedge reserve A10 Commitments - Generation 13 Derivative financial instruments A11 Commitments - Other key disclosures 26 Earnings per share A3 Commitments - Retail 7 Employee share based compensation A14 Contingent liabilities and subsequent events 25 Fair value gains/(losses) on financial instruments A9 Deferred income tax 23 Fair value measurement A17 Dividends on ordinary shares 19 Financial instruments by category A18 Equity 17 Financial risk management - appendix A16 Finance income and costs 15 Investments in subsidiaries A12 Financial risk management - Debt 16 Net tangible assets per share A4 Financial risk management - Equity 21 Other operating expenses A5 Financial risk management - Generation 11 Property, plant and equipment at historical cost A15 Financial risk management - Retail 6 Reconciliation of net cash from operating activities A13 Generation profitability analysis 8 with profit after tax attributable to the shareholders Imputation credit account 20 Remuneration of auditors A6 Income tax expense 22 Significant accounting policies index A1 Intangible assets 4 Supplementary accounting policies A19 Key assumptions and judgements - Generation 10 Underlying earnings after tax A2 Key assumptions and judgements - Other key disclosures 24 Key assumptions and judgements - Retail 5 Property, plant and equipment 9 Related party transactions 27 Retail profitability analysis 3 Segment information 2 Share Capital 18

Accounting policies can be found throughout the notes to the financial statements and are denoted by the box surrounding them.

56 TRUSTPOWER 2015 ANNUAL REPORT Key Metrics 2015 2014 2013 2012 2011 Earnings Before Interest, Tax, Depreciation, Amortisation, Fair Value Movements of Financial Instruments, Asset Impairments and Discount on Acquisition (EBITDAF) ($M) 331 277 295 300 274 Profit After Tax Attributable to the Shareholders of the Company ($M) 144 115 123 132 112 Underlying earnings after tax ($M) 123 108 127 135 116 Basic earnings per share (cents per share) 46 37 39 42 36 Underlying earnings per share (cents per share) 39 35 41 43 37 Dividends paid during the year (cents per share) 40 40 40 40 38 Gearing ratio 40% 43% 37% 33% 36% Net tangible assets per share (dollars per share) 5.55 4.61 4.79 4.86 4.40

Customers, Sales and Service Electricity connections (000s) 242 224 206 209 221 Telecommunication connections (000s) 38 31 27 25 23 Gas connections (000s) 24 14 - - - Total utility accounts 304 269 233 234 244

Customers with two or more utilities (000s) 52 38 22 19 17

Mass market sales - fixed price (GWh) 1,659 1,578 1,613 1,761 1,877 Time of use sales - fixed price (GWh) 810 601 710 754 739 Time of use sales - spot price (GWh) 1,465 1,333 1,360 1,446 1,416 Total customer sales (GWh) 3,934 3,512 3,683 3,961 4,032 Average spot price of electricity purchased ($/MWh) 77 73 86 78 59

Gas Sales (TJ) 903 593 - - -

Annualised customer churn rate 14% 14% 12% 16% 13% Annualised customer churn rate - total market 19% 21% 19% 21% 18%

Generation Production and Procurement North Island hydro generation production (GWh) 532 571 725 922 780 South Island hydro generation production (GWh) 1,034 965 967 1,012 957 Total hydro generation production (GWh) 1,566 1,536 1,692 1,934 1,737

North Island wind generation production (GWh) 551 578 548 548 550 South Island wind generation production (GWh) 99 95 90 100 - Total wind generation production (GWh) 650 673 638 648 550

Total New Zealand generation production (GWh) 2,216 2,209 2,330 2,582 2,287 Average spot price of electricity generated ($/MWh) 71 67 83 72 51

Net third party fixed price volume purchased (GWh) 750 561 629 976 1,182

Australian wind generation production (GWh) 1,187 536 386 376 386 Australian hydro generation production (GWh) 278 - - - - Total Australian generation production (GWh) 1,465 536 386 376 386

Other Information Resource consent non-compliance events 7 4 5 10 9 Staff numbers (full time equivalents) 628 572 481 458 424

57 TRUSTPOWER 2015 ANNUAL REPORT

Independent Auditors’ Report to the shareholders of Trustpower Limited

Report on the Financial Statements We have audited the Group financial statements of Trustpower Limited (“the Company”) on pages 60 to 97, which DIRECTORS’ comprise the statement of financial position as at 31 March 2015, the income statement, the statement of comprehensive income, the statement of changes in equity and the statement 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 the Group. The Group comprises the Company and the entities it controlled at RESPONSIBILITY 31 March 2015 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial STATEMENT Reporting Standards 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 THE DIRECTORS ARE PLEASED TO PRESENT THE Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the FINANCIAL STATEMENTS OF TRUSTPOWER LIMITED AND 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 SUBSIDIARIES FOR THE YEAR ENDED 31 MARCH 2015. 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’s preparation and fair presentation of the financial statements 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’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness The Directors are responsible for ensuring that the financial statements of accounting estimates, as well as evaluating the overall presentation of the financial statements. give a true and fair view of the financial position of the Group as at 31 March 2015 and the financial performance and cash flows for the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit year ended on that date. opinion. We are independent of the Group. Our firm carries out other services for the Group in the areas of audit, tax The Directors consider that the financial statements of the Group have advisory, other assurance services, and financial modelling services. The provision of these other services has not been prepared using appropriate accounting policies, consistently BRUCE HARKER impaired our independence. applied and supported by reasonable judgements and estimates and CHAIRMAN that all relevant financial reporting and accounting standards have Opinion been followed. In our opinion, the financial statements on pages 60 to 97 present fairly, in all material respects, the financial position of the Group as at 31 March 2015, and its financial performance and cash flows for the year then ended in The Directors believe that proper accounting records have been kept accordance with New Zealand Equivalents to International Financial Reporting Standards and International that enable, with reasonable accuracy, the determination of the Financial Reporting Standards. financial position of the Group and facilitate compliance of the financial statements with the Financial Markets Conduct Act 2013. Restriction on Use of our Report GEOFF SWIER This report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1993. DIRECTOR The Directors consider that they have taken adequate steps to safeguard Our audit work has been undertaken so that we might state those matters which we are required to state to them the assets of the Group to prevent and detect fraud and other irregularities. in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume Company Registration Number HN604040 responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, Dated: 15 May 2015 for this report or for the opinions we have formed.

Chartered Accountants Auckland 15 May 2015

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

58 TRUSTPOWER 2015 ANNUAL REPORT

Independent Auditors’ Report to the shareholders of Trustpower Limited

Report on the Financial Statements We have audited the Group financial statements of Trustpower Limited (“the Company”) on pages 60 to 97, which comprise the statement of financial position as at 31 March 2015, the income statement, the statement of comprehensive income, the statement of changes in equity and the statement 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 the Group. The Group comprises the Company and the entities it controlled at 31 March 2015 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards 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’s preparation and fair presentation of the financial statements 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’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We are independent of the Group. Our firm carries out other services for the Group in the areas of audit, tax advisory, other assurance services, and financial modelling services. The provision of these other services has not impaired our independence. Opinion In our opinion, the financial statements on pages 60 to 97 present fairly, in all material respects, the financial position of the Group as at 31 March 2015, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards. Restriction on Use of our Report This report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1993. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

Chartered Accountants Auckland 15 May 2015

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

59 TRUSTPOWER 2015 ANNUAL REPORT Income Statement 2015 2014 FOR THE YEAR ENDED 31 MARCH 2015 Note $000 $000

Operating Revenue Electricity revenue 3, 8 915,362 752,444 Telecommunications revenue 34,544 28,783 Gas revenue 22,150 10,962 Other operating revenue 21,411 19,510 993,467 811,699 Operating Expenses Line costs 279,210 232,103 Energy costs 160,782 126,058 Generation production costs 66,725 49,345 Employee benefits 49,049 40,959 Telecommunications cost of sales 26,942 23,261 Gas cost of sales 16,625 8,617 Other operating expenses A5 63,403 53,950 662,736 534,293

Earnings Before Interest, Tax, Depreciation, Amortisation, Fair Value Movements of Financial Instruments, Asset Impairments and Discount on Acquisition (EBITDAF) 330,731 277,406

Impairment of assets 141 226 Discount on acquisition 12 (24,986) - Net fair value (gains) / losses on financial instruments A9 14,219 (9,448) Amortisation of intangible assets 4 12,958 10,619 Depreciation 9 85,167 61,394 Operating Profit 243,232 214,615

Interest paid 15 79,628 63,215 Interest received 15 (1,065) (1,487) Net finance costs 78,563 61,728

Profit Before Income Tax 164,669 152,887

Income tax expense 22 20,655 37,766

Profit After Tax Attributable to the Shareholders of the Company 144,014 115,121

Basic and diluted earnings per share (cents per share) A3 46.0 36.7

The accompanying notes form part of these financial statements 60 TRUSTPOWER 2015 ANNUAL REPORT Statement of Comprehensive Income 2015 2014 FOR THE YEAR ENDED 31 MARCH 2015 Note $000 $000

Profit after tax attributable to the shareholders of the Company 144,014 115,121

Other Comprehensive Income

Items that may be reclassified to profit or loss: Revaluation gains on generation assets 17 398,789 - Asset impairments 17 - (4,268) Currency translation differences on revaluation reserve 17 (3,034) (11,299) Other currency translation differences 17 (4,931) (6,796) Fair value gains/(losses) on cash flow hedges A10 5,735 14,562

Tax effect of the following: Revaluation gains on generation assets 17 (106,473) - Asset impairments 17 - (92) Disposal of revalued assets 17 - 74 Other currency translation differences 17 (11,250) (7,625) Fair value gains/(losses) on cash flow hedges A10 (1,543) (4,558)

Total Other Comprehensive Income 277,293 (20,002)

Total Comprehensive Income Attributable to Shareholders of the Company 421,307 95,119

Statement of Changes in Equity Foreign Cash Flow Currency Share Revaluation Hedge Translation Retained Total Capital Reserve Reserve Reserve Earnings Equity Note $000 $000 $000 $000 $000 $000

Opening balance as at 1 April 2013 166,108 1,025,063 (9,390) 10,665 359,317 1,551,763

Total comprehensive income for the period - (15,585) 10,004 (14,421) 115,121 95,119 Disposal of revalued assets - (266) - - 266 -

Transactions with owners recorded directly in equity Purchase of treasury shares by Directors 27 298 - - - - 298 Purchase of treasury shares by Management 27 51 - - - - 51 Own shares repurchased 18 (7,423) - - - - (7,423) Dividends paid 19 - - - - (125,276) (125,276) Total transactions with owners recorded directly in equity (7,074) - - - (125,276) (132,350) Closing balance as at 31 March 2014 159,034 1,009,212 614 (3,756) 349,428 1,514,532 Opening balance as at 1 April 2014 159,034 1,009,212 614 (3,756) 349,428 1,514,532

Total comprehensive income for the period - 289,282 4,192 (16,181) 144,014 421,307 Disposal of revalued assets ------

Transactions with owners recorded directly in equity Purchase of treasury shares by Directors 27 293 - - - - 293 Purchase of treasury shares by Management 27 ------Own shares repurchased 18 (741) - - - - (741) Dividends paid 19 - - - - (125,155) (125,155) Total transactions with owners recorded directly in equity (448) - - - (125,155) (125,603) Closing balance as at 31 March 2015 158,586 1,298,494 4,806 (19,937) 368,287 1,810,236

The accompanying notes form part of these financial statements 61 TRUSTPOWER 2015 ANNUAL REPORT Statement of Financial Position 2015 2014 AS AT 31 MARCH 2015 Note $000 $000

Equity Capital and reserves attributable to shareholders of the Company Share capital 17 158,586 159,034 Revaluation reserve 17 1,298,494 1,009,212 Retained earnings 17 368,287 349,428 Cash flow hedge reserve A10 4,806 614 Foreign currency translation reserve 17 (19,937) (3,756) Total Equity 1,810,236 1,514,532

Represented by: Current Assets Cash at bank 14,057 31,723 Other deposits 2,740 2,599 Accounts receivable and prepayments A7 123,003 131,515 Derivative financial instruments A11 3,525 5,132 Taxation receivable 5,145 9,913 148,470 180,882 Non-Current Assets Accounts receivable and prepayments A7 - 764 Property, plant and equipment 9 3,348,382 2,886,619 Derivative financial instruments A11 10,648 4,507 Other investments 1,892 1,892 Intangible assets 4 72,207 72,239 3,433,129 2,966,021

Total Assets 3,581,599 3,146,903

Current Liabilities Accounts payable and accruals A8 96,271 122,429 Unsecured subordinated bonds 14 100,000 - Unsecured senior bonds 14 - 75,000 Unsecured bank loans 14 31,675 193,508 Derivative financial instruments A11 2,963 2,907 Taxation payable 4,821 5,222 235,730 399,066 Non-Current Liabilities Unsecured bank loans 14 703,128 529,012 Unsecured subordinated bonds 14 138,671 238,211 Unsecured senior bonds 14 243,140 138,498 Derivative financial instruments A11 25,962 13,966 Accounts payable and accruals A8 3,648 3,856 Deferred tax liability 23 421,084 309,762 1,535,633 1,233,305

Total Liabilities 1,771,363 1,632,371

Net Assets 1,810,236 1,514,532

The accompanying notes form part of these financial statements 62 TRUSTPOWER 2015 ANNUAL REPORT Cash Flow Statement 2015 2014 FOR THE YEAR ENDED 31 MARCH 2015 Note $000 $000

Cash Flows from Operating Activities Cash was provided from: Receipts from customers 998,971 839,741 998,971 839,741 Cash was applied to: Payments to suppliers and employees 688,938 548,999 Taxation paid 40,229 33,979 729,167 582,978

Net Cash from Operating Activities A13 269,804 256,763

Cash Flows from Investing Activities Cash was provided from: Sale of property, plant and equipment 251 338 Return of bond deposits on trust - 200 Return of electricity market security deposits 7,595 8,300 Interest received 1,068 1,490 Sale of investments - 523 8,914 10,851 Cash was applied to: Interest capitalised in construction of property, plant and equipment 2,087 15,146 Lodgement of electricity market security deposits 7,737 10,107 Purchase of property, plant and equipment 63,202 308,803 Purchase of other investments 3 - Purchase of business 12 81,318 17,038 Purchase of intangible assets 12,926 16,493 167,273 367,587

Net Cash used in Investing Activities (158,359) (356,736)

Cash Flows from Financing Activities Cash was provided from: Bank loan proceeds 209,835 406,550 Senior bond issue proceeds 77,982 - Issue of shares 293 298 288,110 406,848 Cash was applied to: Bond brokerage costs 1,136 - Purchase of own shares 741 7,423 Repayment of bank loans 164,752 73,000 Repayment of subordinated bonds - 54,713 Repayment of senior bonds 47,982 - Interest paid 74,906 61,796 Dividends paid 125,155 125,275 414,672 322,207

Net Cash (used in)/from Financing Activities (126,562) 84,641

Net Decrease in Cash and Cash Equivalents (15,117) (15,332)

Cash and cash equivalents at beginning of the year 31,723 53,972

Exchange losses on cash and cash equivalents (2,549) (6,917)

Cash and Cash Equivalents at End of the Year 14,057 31,723

The accompanying notes form part of these financial statements 63 TRUSTPOWER 2015 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015 Note 1: Basis of Preparation Reporting Entity The reporting entity is the consolidated group comprising Trustpower Limited and its New Zealand and Australian subsidiaries together referred to as Trustpower. Trustpower Limited is a limited liability company incorporated and domiciled in New Zealand. The principal activities of Trustpower are the development, ownership and operation of electricity generation facilities from renewable energy sources and the retail sale of energy and telecommunications services to its customers. Trustpower Limited is registered under the Companies Act 1993, is listed on the New Zealand Stock Exchange (NZX) and is an FMC Reporting Entity under the Financial Markets Conduct Act 2013. The financial statements are presented for the year ended 31 March 2015. Basis of preparation The financial statements are prepared in accordance with: • the Financial Markets Conduct Act 2013, and NZX equity listing rules. • New Zealand Generally Accepted Accounting Practice (NZGAAP). • New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), International Financial Reporting Standards (IFRS) and other applicable New Zealand Financial Reporting Standards, as appropriate for profit oriented entities.

In preparing the financial statements we have: • Recorded all transactions at the actual amount incurred (historical cost convention), except for generation assets and derivatives which we have revalued to their fair value. • Reported in ‘New Zealand Dollars’ (NZD) rounded to the nearest thousand.

An index to all of the accounting policies is available in note A1. Changes to accounting policies and standards are shown in note A19. Estimates and judgements made in preparing the financial statements are frequently evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Trustpower makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are listed below. Judgements and key assumptions The areas involving a higher degree of judgement or complexity are disclosed below: • Fair value of Trustpower’s generation assets (Note 11) • Useful lives of generation assets for depreciation (Note 11) • Useful lives of intangible assets for amortisation (Note 4) • Fair value of derivatives and other financial instruments (Note A17) • Electricity gross margin relating to unread electricity meters (Note 5) • Tax treatment of generation feasibility expenditure currently subject to court proceedings between Trustpower and Inland Revenue (Note 25)

64 TRUSTPOWER 2015 ANNUAL REPORT Note 2: Segment Information For internal reporting purposes, Trustpower is organised into three segments. The main activities of each segment are: Retail The retail sale of electricity, gas and telecommunication services to customers in New Zealand. New Zealand Generation The generation of renewable electricity by wind and hydro power schemes across New Zealand. Australian Generation The generation of renewable electricity in Australia by the Snowtown Wind Farm and the newly acquired Green State Power hydro and wind schemes. The New Zealand Generation segment also includes the lease of legacy meters to the Retail segment and to other retailers, and the supply of water to Canterbury irrigators. There is also an Other segment that exists to include any unallocated revenues and expenses. This relates mostly to unallocated corporate functions. The segment results for the year ended 31 March 2015 are as follows: Generation Generation Retail New Zealand Australia Other Total $000 $000 $000 $000 $000

Total segment revenue 815,143 232,498 129,434 2,409 1,179,484 Inter-segment revenue - (184,644) - (1,373) (186,017) Revenue from external customers 815,143 47,854 129,434 1,036 993,467

EBITDAF 54,535 182,559 97,603 (3,966) 330,731

Amortisation of intangible assets 4,305 - - 8,653 12,958 Depreciation - 45,610 36,150 3,407 85,167 Capital expenditure including business acquisitions - 11,216 173,263 15,512 199,991 Asset impairment - 141 - - 141

The segment results for the year ended 31 March 2014 are as follows: Generation Generation Retail New Zealand Australia Other Total $000 $000 $000 $000 $000

Total segment revenue 714,313 242,015 51,404 2,277 1,010,009 Inter-segment revenue - (196,715) - (1,595) (198,310) Revenue from external customers 714,313 45,300 51,404 682 811,699

EBITDAF 50,274 196,817 32,336 (2,021) 277,406

Amortisation of intangible assets 3,995 - - 6,624 10,619 Depreciation - 41,798 16,674 2,922 61,394 Capital expenditure including business acquisitions 14,897 19,890 295,887 19,065 349,739 Asset impairment - 226 - - 226

Transactions between segments (inter-segment) are entered into under normal commercial terms and conditions that would also be available to unrelated third parties. The most significant inter-segment transaction is the sale of electricity hedges by New Zealand Generation to New Zealand Retail. See the retail note 3 for more information.

65 TRUSTPOWER 2015 ANNUAL REPORT Retail This section details the retail operations of Trustpower. Trustpower is a multi-product utility retailer. Trustpower supplies homes and businesses around the country with electricity, gas, broadband and telephone services. Trustpower provides electricity to 242,000 homes and businesses (2014: 224,000), supplies 24,000 customers with gas (2014: 14,000) and connects 38,000 (2014: 31,000) customers with telephone and broadband connections. A retail profitability analysis is included in Note 3. This is a new disclosure that provides a detailed breakdown of the performance of Trustpower’s retail operations. This section includes the following notes: Note 3: Retail Profitability Analysis Note 4: Intangible Assets Note 5: Retail Assumptions and Judgements Note 6: Retail Financial Risk Management Note 7: Retail Commitments

Note 3: Retail Profitability Analysis 2015 2015 2014 2014 Operating Revenue $000 $000 $000 $000

Electricity revenue Mass market - fixed price 452,923 429,456 Commercial & industrial - fixed price 125,160 97,490 Commercial & industrial - spot price 177,089 755,172 144,682 671,628 Gas 22,150 10,962 Telco 34,544 28,783 Other operating revenue 3,277 2,940 815,143 714,313 Operating Expenses Energy costs 341,250 320,442 Line costs 279,210 232,103 Telecommunications cost of sales 26,942 23,261 Employee benefits 25,868 20,736 Meter rental costs 18,579 16,296 Gas cost of sales 16,625 8,617 Market fees and costs 8,267 8,464 Marketing costs 15,750 7,300 Other customer connection costs 2,370 1,993 Bad debts 1,158 1,432 Other operating expenses* 24,589 23,395 760,608 664,039

EBITDAF 54,535 50,274

The analysis above includes the following internal charges: Energy costs 180,468 194,384 Meter rental costs 10,876 10,725 Other operating expenses 2,520 2,520 193,864 207,629

*Other operating expenses includes an allocation of computing and corporate costs.

66 TRUSTPOWER 2015 ANNUAL REPORT Note 4: Intangible Assets All the computer software assets of Trustpower are shown in the table below. Although not all software assets are used exclusively by the Retail segment, most are, and so for simplicity all computer software assets have been disclosed in this section of the report.

Customer Computer Indefinite Base Assets Software Life Goodwill Total $000 $000 $000 $000

Opening balance as at 1 April 2013 Cost 64,994 44,499 - 109,493 Accumulated amortisation (47,415) (14,780) - (62,195) 17,579 29,719 - 47,298

Additions at cost 14,897 16,535 4,171 35,603 Amortisation (3,995) (6,624) - (10,619) Disposals at net book value - (50) - (50) Transfers - 7 - 7

Closing balance as at 31 March 2014 Cost 79,891 60,982 4,171 145,044 Accumulated amortisation (51,410) (21,395) - (72,805) 28,481 39,587 4,171 72,239

Additions at cost - 12,916 - 12,916 Amortisation (4,305) (8,653) - (12,958) Disposals at net book value - - - - Transfers - 10 - 10

Closing balance as at 31 March 2015 Cost 79,891 73,788 4,171 157,850 Accumulated amortisation (55,715) (29,928) - (85,643) 24,176 43,860 4,171 72,207

There are no individually material intangible assets. The customer base assets acquired (in the first column above) were acquired as part of a business combination.

Customer base assets From time to time Trustpower acquires customer bases from other energy supply companies. These costs are recorded as customer base intangible assets. The costs of acquiring individual customers as part of our day to day business are expensed as they are incurred. The customer bases are reduced (amortised) evenly over a 12 to 20 year period. Each year we do an internal forecast to determine whether the number of years we are amortising over is reasonable and also to ensure the total amount of the cost remaining is not too high. Computer software Trustpower capitalises the cost when we buy a software licence or develop software ourselves which we expect to benefit us over a number of years. We also capitalise the costs of bringing the software into operation. These costs can include employee costs and some overheads. We spread (amortise) these costs evenly over the number of years we expect the software to keep providing benefits. Generally this is three years but major billing software applications are spread over up to seven years.

67 TRUSTPOWER 2015 ANNUAL REPORT Note 5: Retail Assumptions and Judgements Unbilled Sales Estimate One of the uncertainties that comes with selling electricity and gas is that meters are read on a progressive basis throughout the period. This means that at balance date, except for the large customers, nearly every customer will have used electricity or gas since their last meter reading but not have been billed for it. Trustpower therefore estimates the amount of unbilled electricity or gas. This estimate is then used in the calculation of: • Electricity and gas revenue • Electricity and gas purchases • Line costs paid to network companies for the use of their networks and the national grid

This estimate is based on units bought from the wholesale electricity and gas markets as well as historical factors. Trustpower considers the estimate to be accurate as it: • is prepared on an individual customer by customer basis • is used consistently across both revenue and costs so therefore only impacts on the gross margin • uses a well-established process based on each individual customer’s historical data where this is available

Even a large error in the estimate e.g. 10% only has a very small impact on operating profit (well under 1%). If the estimated unbilled units had been 10% higher/ lower, operating profit for the year would have increased/(decreased) by $707,000/$(707,000) (2014: increased/(decreased) by $393,000/$(393,000)).

Note 6: Retail Financial Risk Management Risk management is carried out under policies approved by the Board. Energy Price Risk In New Zealand there is a wholesale electricity market that sets the price of electricity every half hour. This market is very volatile and the prices can vary significantly. Price volatility also exists for wholesale gas purchases and transmission, however gas price risk is much less significant to Trustpower than electricity price risk. Trustpower sells energy on the retail market in two ways; firstly to “spot” customers who are charged based on the wholesale price (electricity customers only) and secondly “fixed price” customers who are sold energy (electricity and gas) at an agreed fixed price. There is no electricity price risk with the spot customers. However if Trustpower was required to purchase energy from the wholesale spot market to supply its fixed price customers there is a risk that the price paid for the energy could exceed the revenue received. Trustpower manages this risk by: • Generating its own electricity • Buying energy from other parties at a fixed price • Entering hedge agreements which fix the price paid for energy on the wholesale market

Consequently these measures limit the amount of energy purchased which is exposed to spot pricing. Trustpower’s Energy Trading Policy sets limits around the amount of fixed exposure permissible now and into the future. Trustpower’s electricity price risk is managed by Generation on behalf of Retail. Generation sells electricity to Retail at a fixed price under terms equivalent to those used by independent generators and retailers. The price paid is benchmarked against actual transactions with independent generators as well as prices quoted by the ASX electricity market. Retail Credit Risk Trustpower has no significant concentrations of credit risk in its Retail business (2014: none). It has policies in place to ensure that sales are only made to customers with an appropriate credit history. Where a potential customer does not have a suitable credit history a bond is required before the customer is accepted. Transactions to limit energy price risk noted above are generally only made with other large electricity market participants (all have a Standard & Poor’s long-term credit rating of at least BBB). Where a potential counterparty does not meet these credit criteria the maximum level of credit exposure is set individually by the Board. Trustpower has around 212,000 customers (2014: 196,000). The largest single customer accounts for 3 per cent (2014: 3 per cent) of Trustpower’s total accounts receivable. Included in other accounts payable and accruals is $981,000 (2014: $826,000) of bonds collected from customers who do not meet credit criteria. Debtors that are unlikely to pay the money they owe Trustpower are not included as an asset in the balance sheet. This provision for doubtful debts is $1,650,000 (2014: $1,600,000). See notes A7 and A17(c) for further detail.

68 TRUSTPOWER 2015 ANNUAL REPORT Note 7: Retail Commitments Electricity Purchase Commitments Trustpower has contracts to purchase the future electricity output of a variety of generation stations. These physical supply commitments are not recognised as items on the balance sheet because their value is difficult to quantify. Their value is subject to variable inflows, shutdowns due to planned and unplanned maintenance, price reset mechanisms and location factor risk. If they were quantified, their fair value would not be material. Counter Party Type of generation Eastland Networks Limited Waihi Hydro station Mighty River Power Limited Rotokawa geothermal power station Clearwater Hydro Limited Hydropower stations Amethyst Hydro Limited Hydropower station Ngawha Generation Limited Geothermal power station Gas Purchase Commitments Trustpower has a contract with Origin Energy Resources NZ (Rimu) Limited to purchase output from its Rimu gas field. This commitment cannot be quantified with sufficient reliability for disclosure within these financial statements.

69 TRUSTPOWER 2015 ANNUAL REPORT Generation This section details the generation operations of Trustpower. Trustpower owns 634MW of hydro and wind generation assets throughout New Zealand as well as 477MW of hydro and wind generation in South Australia and New South Wales. The Generation segment also includes metering and irrigation assets as well as Trustpower’s energy trading function. A generation profitability analysis is included in Note 8. This is a new disclosure that provides a detailed breakdown of the performance of Trustpower’s generation operations. This section includes the following notes: Note 8: Generation Profitability Analysis Note 11: Generation Financial Risk Management Note 9: Property, Plant and Equipment Note 12: Business Combinations Note 10: Generation Critical Accounting Estimates and Judgements Note 13: Generation Commitments Note 8: Generation Profitability Analysis New Zealand 2015 2014 Operating Revenue $000 $000

Electricity revenue 202,004 213,080 Meter rental revenue 19,299 19,200 Net other operating revenue 11,195 9,735 232,498 242,015

Operating Expenses Generation production costs 43,192 38,766 Employee benefits 10,609 10,614 Generation development expenditure 1,477 3,326 Other operating expenses including electricity hedge settlements (5,339) (7,508) 49,939 45,198

EBITDAF 182,559 196,817

The analysis above includes the following internal charges: Electricity revenue 171,248 183,668 Electricity hedge settlements 9,220 10,716 Meter rental revenue 10,876 10,725 Other operating revenue 2,520 2,520 193,864 207,629

Australia 2015 2014 Operating Revenue $000 $000 Electricity revenue 129,434 51,404

Operating Expenses Generation production costs 23,533 10,579 Employee benefits 1,862 932 Generation development expenditure 3,492 7,129 Other operating expenses 2,944 428 31,831 19,068

EBITDAF 97,603 32,336

There are no internal transactions in the Australian Generation business.

Generation development An ongoing part of Trustpower’s business is the development of new generation assets. All costs incurred prior to our commitment to build a new asset are expensed, including exploration, evaluation and consenting costs. All costs from the point of commitment are capitalised if appropriate (see note A5 for further details). Generation lease revenue Over 90% of the electricity generated by Trustpower’s Australian wind farms is sold via power purchase agreements to a significant Australian electricity retailer. These agreements have been deemed as operating leases of the wind farms under NZ IFRS and all revenue under the contracts are accounted for as lease revenue (2015: $111,118,000, 2014: $47,685,000). Because of the contract terms, in particular that the volume of energy supplied is dependent on the actual generation of the wind farms, the future minimum payments under the terms of the contracts, that expire between 31 December 2018 and 31 December 2030, are not able to be quantified with sufficient reliability for disclosure in the financial statements.

70 TRUSTPOWER 2015 ANNUAL REPORT Note 9: Property, Plant and Equipment While not all property, plant and equipment relates to Generation, almost all does and, for simplicity, all property, plant and equipment for Trustpower are included in this note.

Other Land Other Generation and Metering Plant and Assets Buildings Equipment Equipment Total $000 $000 $000 $000 $000

Opening balance as at 1 April 2013 Fair Value 2,482,456 - - - 2,482,456 Cost 8,646 30,640 79,791 35,137 154,214 Capital work in progress 196,651 - - - 196,651 Accumulated depreciation (49,440) (3,961) (47,684) (15,648) (116,733) 2,638,313 26,679 32,107 19,489 2,716,588

Additions at cost 308,916 1,002 741 3,477 314,136 Depreciation (52,146) (287) (5,707) (3,254) (61,394) Disposals at net book value (331) (5) - (184) (520) Foreign exchange movements (77,615) - - (860) (78,475) Revaluations - - - - - Transfers/impairments (3,513) (7) 66 (262) (3,716)

Closing balance as at 31 March 2014 Fair value 2,436,085 - - - 2,436,085 Cost 255,297 31,632 80,532 36,797 404,258 Capital work in progress 220,825 - - - 220,825 Accumulated depreciation (98,583) (4,250) (53,325) (18,391) (174,549) 2,813,624 27,382 27,207 18,406 2,886,619

Additions at cost 181,287 1,341 490 3,957 187,075 Depreciation (71,791) (306) (9,204) (3,866) (85,167) Disposals at net book value (9) (32) (38) (85) (164) Foreign exchange movements (36,694) (1) - (857) (37,552) Revaluations 398,789 - - - 398,789 Transfers/impairments 1,572 (4) (184) (2,268) (884)

Closing balance as at 31 March 2015 Fair value 3,275,674 - - - 3,275,674 Cost - 32,928 68,280 36,388 137,596 Capital work in progress 14,086 - - - 14,086 Accumulated depreciation (3,316) (4,548) (50,009) (21,101) (78,974) 3,286,444 28,380 18,271 15,287 3,348,382

Closing balance as at 31 March 2015 by Country New Zealand 2,201,223 28,345 18,271 9,244 2,257,083 Australia 1,085,221 35 - 6,043 1,091,299 3,286,444 28,380 18,271 15,287 3,348,382

Generation assets include land and buildings which are not separately identifiable from other generation assets. Generation assets were independently revalued, using a discounted cash flow methodology, as at 31 March 2015, to their estimated market value as assessed by Deloitte Corporate Finance. See note 11 for a description of the inputs used. See note A15 for historical cost information.

Property, Plant and Equipment Generation assets are revalued, by independent external valuers, every three years or more frequently if there is evidence of a significant change in value. All other property, plant and equipment is stated at its original cost less depreciation and impairment. Land is not depreciated. Depreciation on all other property, plant and equipment is calculated using the straight-line method at the following rates: Freehold buildings 2% Generation assets 0.5-8% Metering equipment 5-15% Plant and equipment 10-33%

71 TRUSTPOWER 2015 ANNUAL REPORT Note 10: Generation Critical Accounting Estimates and Judgements Fair value of generation property, plant and equipment The valuation of Trustpower’s generation assets is sensitive to the inputs used in the discounted cash flow valuation model. A sensitivity analysis around some key inputs is given in the table below. The valuation is based on a combination of values that are generally at the midpoint of the range. The valuation impact is calculated as the movement in the fair value as a result of the change in the assumption and keeping all other valuation inputs constant.

Assumption Low High Valuation Impact New Zealand Assets Decreasing in real terms from Decreasing in real terms from $83/MWh to $74/MWh by 2018 $83/MWh to $74/MWh by 2018 Forward electricity price path -/+ $147,000,000 then increasing to $82/MWh by 2021. then increasing to $97/MWh by 2023. Thereafter held constant. Thereafter held constant. Generation volume 2,165GWh 2,645GWh -/+ $241,000,000 Operating costs $32,300,000 p.a. $39,500,000 p.a. +/- $50,000,000 Weighted average cost of capital 7.42% 8.29% +$189,000,000 / -$160,000,000

Australian Assets AUD Forward electricity price path (Stated in AUD) Increasing in real (Stated in AUD) Increasing in real (including renewable energy credits) terms from $74/MWh to $92/MWh terms from $90/MWh to $112/MWh Note: the valuation impact of changes -/+ $30,000,000 by 2035 then dropping to $59/MWh. by 2035 then dropping to $70/MWh. in price path is reduced by the fixed Thereafter held constant. Thereafter held constant. price agreements in place. Generation volume 878GWh 1,080GWh -/+ $111,000,000 Weighted average cost of capital 7.17% 7.96% +$9,000,000 / -$8,000,000

The Australian asset sensitivity excludes GSP Energy Pty Ltd assets. See note 12 for more detail. Some of these inputs are not based on inputs observable in the market, and so under IFRS they are classified within level 3 of the fair value hierarchy. See note A17 for more information of IFRS fair value hierarchies. Depreciation expense Management judgment is involved in determining the useful lives of Trustpower’s generation assets based on engineering knowledge and expertise. The lives of longer lived assets are subject to a greater degree of judgement. Sensitivity analysis If the estimated useful lives of generation assets were 10% higher/lower, operating profit for the year would have increased/(decreased) by $7,749,000/$(9,471,000) (2014: $5,581,000/$(6,822,000)).

72 TRUSTPOWER 2015 ANNUAL REPORT Note 11: Generation Financial Risk Management Exchange Rate Risk Trustpower typically contracts with local and international suppliers when building a new generation asset. Some of these suppliers may require payment to be made in a foreign currency. To manage the risk of a moving foreign exchange rate, Trustpower will fully hedge large transactions in accordance with Trustpower’s treasury policy. Cash flow hedge accounting will apply to these instruments. The total notional principal amounts of the outstanding forward foreign exchange contracts at 31 March 2015 was nil (31 March 2014: $17,245,000). Electricity Price Risk Exposure to electricity price risk in New Zealand is largely mitigated by selling electricity to the retail segment. See note 6 for more detail. In Australia over 75% of output is contracted to a major Australian retailer which ensures Trustpower receives a fixed price for this portion of its generation. This risk management strategy assumes that the electricity wholesale markets in New Zealand and Australia, including the renewable energy credit market, that currently operate will continue to do so in the future. There is a possibility that future regulatory intervention may fundamentally alter the structure of these markets. The likelihood and potential impact of such a change is unquantifiable. However, such an occurrence would likely necessitate a change to Trustpower’s electricity price risk management policies and require a review of assets and liabilities held at fair value where electricity price is a key assumption in their value. Volume Risk Over 99% of Trustpower’s electricity generation is from renewable sources and, as such, varies due to weather. In New Zealand this risk is mitigated somewhat by operating in different regions of the country. In Australia, however, around 80% of generation comes from wind farms and, depending on wind conditions, could vary significantly from year to year. Trustpower accepts this risk will cause a degree of volatility to its earnings and does not attempt to mitigate it. Credit Risk A large proportion of Australian revenue comes from two counterparties, one of these is the Australian Electricity Market and the other is a major electricity retailer which holds an investment grade credit rating. As at 31 March 2015 $9,558,000 was owed to Trustpower by these two counterparties (31 March 2014: $6,077,000). Damage to Generation Assets Risk There is potential for Trustpower to sustain major losses through damage to its generation plant and the resulting loss of earnings. The major portion of this risk has been mitigated by taking out appropriate insurance policies with insurers of high creditworthiness. This insurance covers both the repair and or replacement of the plant as well as the lost earnings.

Note 12: Business Combinations Effective 18 July 2014 the Group purchased the majority of the assets and liabilities of Green State Power Pty Ltd, an Australian electricity generator. As a result of this acquisition the Group now owns hydro and wind generation assets in New South Wales. The following table sets out the consideration paid and the fair value of assets acquired and liabilities assumed at the acquisition date.

$000

Cash consideration paid 81,318

Recognised amounts of identifiable assets acquired and liabilities assumed: Accounts receivable and prepayments 465 Generation assets 124,734 Other property, plant and equipment 324 Accounts payable and accruals (515) Deferred tax liability (18,704) Total identifiable net assets 106,304

Discount on acquisition (24,986)

Total 81,318

Acquisition costs of $486,000 have been charged to other operating expenses in the income statement for the period ended 31 March 2015. The acquisition was made in Australian dollars and was funded by new Australian dollar debt facilities. The fair value of the generation assets has been determined by the Board following an independent valuation. The basis of the valuation is a discounted cash flow analysis of the future earnings of the assets. The major inputs that are used in the valuation model that require management judgement include the forward price path of electricity, sales volume forecasts, projected operational and capital expenditure profiles, discount rates and life assumptions for each generation station. The following table outlines the key assumptions used by Deloitte Corporate Finance in preparing this valuation. In all cases there is an element of judgement required. The table shows the range of reasonably possible alternative assumption values considered. The valuation is based on a combination of values that are generally in the midpoint of the range.

73 TRUSTPOWER 2015 ANNUAL REPORT Note 12: Business Combinations (Continued) Assumption Low High Valuation Impact (AUD)

(Stated in AUD) Increasing in real (Stated in AUD) Increasing in real Forward electricity price path terms from $81/MWh to $117/MWh terms from $99/MWh to $143/MWh -/+ $18,000,000 (including renewable energy credits) by 2035 then dropping to $72/MWh. by 2035 then dropping to $88/MWh. Thereafter held constant. Thereafter held constant. Generation volume 243GWh 297GWh -/+ $19,000,000 Weighted average cost of capital 7.47% 8.47% +$11,000,000 / -$9,000,000

The price paths noted above differ to those in note 10 due to the fact that the assets are in different states of Australia as well as valuation date differences. The difference between the acquisition price and the fair value may be due to the following characteristics of Trustpower which means that it is more suited to owning these assets than other potential buyers. • Able to fund the purchase off its balance sheet • Current Australian generator familiar with market dynamics • A long history of owning and optimising small run-of-river hydro stations • Experience in managing a remote workforce

The revenue included in the consolidated income statement since 18 July 2014 contributed by the acquired business was $14,214,000 and the profit before tax was $7,154,000. Had the business been consolidated from 1 April 2014, the consolidated income statement would show pro-forma revenue of $17,768,000 and profit of $7,249,000.

Note 13: Generation Commitments 2015 2014 $000 $000

Capital Commitments 2,571 50,494

The capital commitments figure above is comprised of a number of capital projects across Trustpower’s generation schemes. None of these projects is individually material.

74 TRUSTPOWER 2015 ANNUAL REPORT Debt This section details the borrowings of Trustpower. Trustpower is debt funded by a combination of bank facilities in New Zealand and Australia, and by senior and subordinated bonds that are listed on the New Zealand Stock Exchange. This section should be read in conjunction with the Equity section. This section includes the following notes: Note 14: Borrowings Note 15: Finance Income and Costs Note 16: Debt Financial Risk Management

Note 14: Borrowings Senior bonds rank equally with bank loans, while subordinated bonds are fully subordinated behind all other creditors. Trustpower borrows under a negative pledge arrangement, which with limited exceptions does not permit Trustpower to grant any security interest over its assets. The negative pledge deed requires Trustpower to maintain certain levels of shareholders’ funds and operate within defined performance and debt gearing ratios. The banking arrangements may also create restrictions over the sale or disposal of certain assets unless the bank loans are repaid or renegotiated. Throughout the period Trustpower has complied with all debt covenant requirements in these agreements.

Unsecured bank loans New Zealand Australian dollar dollar Total bank Senior Subordinated facilities facilities facilities Bonds Bonds As at 31 March 2015 $000 $000 $000 $000 $000

Repayment terms: Less than one year 44,500 66,415 110,915 - 100,000 One to two years - 76,632 76,632 65,000 - Two to five years - 284,050 284,050 75,000 140,000 Over five years 89,827 175,641 265,468 105,000 - Facility establishment costs / bond issue costs (2,262) - (2,262) (1,860) (1,329) 132,065 602,738 734,803 243,140 238,671

Current portion - 31,675 31,675 - 100,000 Non-current portion 132,065 571,063 703,128 243,140 138,671 132,065 602,738 734,803 243,140 238,671

Undrawn facilities Less than one year 55,500 5,108 60,608 - - One to two years 75,000 - 75,000 - - Two to five years - 68,458 68,458 - - Over five years - - - - - 130,500 73,566 204,066 - -

Weighted average interest rate: Less than one year 4.8% 3.1% - 8.4% One to two years - 3.1% 8.0% - Two to five years - 3.3% 7.1% 6.8% Over five years 4.5% 5.4% 5.6% - 4.6% 3.8% 6.7% 7.4%

75 TRUSTPOWER 2015 ANNUAL REPORT Note 14: Borrowings (Continued)

Unsecured bank loans New Zealand Australian dollar dollar Total bank Senior Subordinated facilities facilities facilities Bonds Bonds As at 31 March 2014 $000 $000 $000 $000 $000

Repayment terms: Less than one year - 235,203 235,203 75,000 - One to two years - - - - 100,000 Two to five years 43,800 172,126 215,926 140,000 - Over five years 101,082 173,089 274,171 - 140,000 Facility establishment costs / Bond issue costs (2,780) - (2,780) (1,502) (1,789) 142,102 580,418 722,520 213,498 238,211

Current portion - 193,508 193,508 75,000 - Non-current portion 142,102 386,910 529,012 138,498 238,211 142,102 580,418 722,520 213,498 238,211

Undrawn facilities Less than one year - - - - - One to two years 100,000 - 100,000 - - Two to five years 75,000 41,695 116,695 - - Over five years - - - - - 175,000 41,695 216,695 - -

Weighted average interest: Less than one year - 3.5% 7.6% - One to two years - - - 8.4% Two to five years 4.1% 3.7% 7.5% - Over five years 3.9% 5.2% - 6.8% 4.0% 4.1% 7.5% 7.4%

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the term of the borrowings using the effective interest method. A loan that matures within a year will still be considered non-current if Trustpower has an unconditional right to refinance the loan through non-current undrawn facilities with the same lender.

When Trustpower’s subordinated bonds have reached maturity in December 2015, they can be converted to ordinary shares, at Trustpower’s option, based on the market price at the time. The fair value of Trustpower’s bank loans and bonds is not materially different to the carrying values above. At 31 March 2015 the subordinated bonds had a fair value of $251,991,000 (31 March 2014: $247,545,000) and the senior bonds had a fair value of $256,820,000 (31 March 2014: $225,134,000). The bonds have been classified as level 1 in the fair value hierarchy, see note A17 for a definition of the levels. Subsequent to balance date Trustpower has accepted offers to refinance and increase the facilities that are expiring in less than one year. These facilities will be replaced with a NZD100,000,000 facility and an AUD100,000,000 facility both maturing in two to five years. These facilities are currently being documented.

76 TRUSTPOWER 2015 ANNUAL REPORT Note 15: Finance Income and Costs 2015 2014 $000 $000

Amortisation of debt issue costs 1,757 1,784 Interest paid on unsecured bank loans 34,278 25,185 Interest paid on unsecured subordinated bonds 17,871 22,276 Interest paid on unsecured senior bonds 16,401 16,225 Other interest costs and fees 11,408 12,891 Interest capitalised in construction of property, plant and equipment (2,087) (15,146) Total Interest Expense 79,628 63,215

Interest received on cash at bank 1,065 1,487 Total Interest Income 1,065 1,487

The capitalised interest rate ranged from 4.1% to 4.2% in the year to 31 March 2015 (2014: 5.6% to 8.3%).

Note 16: Debt Financial Risk Management Interest Rate Risk All of Trustpower’s bank facilities are on floating interest rates. Trustpower then uses Interest Rate Swaps (IRS) to fix most of the interest costs of the Group. This stabilises Trustpower’s debt servicing costs. However for every dollar of debt protected against a potential rise in market interest rates, that same dollar is unable to take advantage of a potential fall in market interest rates. Payments made or received by IRS are recognised as a part of “Interest paid on unsecured bank loans”, except for an immaterial number of these IRS which are instead hedge accounted. The amount of interest rate risk taken in the current and future years is managed in accordance with a Board approved Treasury Policy. The policy is independently reviewed every three years. Liquidity Risk The Group’s ability to readily attract cost effective funding is largely driven by its credit standing. Prudent liquidity risk management requires maintaining sufficient cash, marketable securities or unutilised committed credit facilities to provide cover for reasonably conceivable adverse conditions. The Group operates under a Board approved treasury policy which dictates the level of available committed facilities to be maintained. This is measured by forecasting debt levels under various adverse scenarios and comparing this to committed facility levels. Exchange Rate Risk Approximately half of Trustpower’s debt is denominated in Australian dollars. This acts as a natural hedge for Trustpower’s Australian assets, reducing, but not eliminating, Trustpower’s exposure to changes in the Australian dollar relative to the New Zealand Dollar. Refinancing Risk From time to time Trustpower’s debt facilities mature and need to be refinanced. There is a risk that this could occur during adverse market conditions resulting in increased interest rates or in extreme events an inability to refinance at all. The Treasury Policy requires a spread of debt maturities to minimise the impact of this risk should it occur. This is measured by the proportion of debt maturing in various time bands. Credit Risk Trustpower’s New Zealand and Australian dollar facilities are with institutions that all have a Standard & Poor’s long-term credit rating of A+ or higher.

77 TRUSTPOWER 2015 ANNUAL REPORT Equity This section details the equity of Trustpower. Trustpower is listed on the New Zealand Stock Exchange under the code TPW. Trustpower has over 12,000 shareholders, the two largest shareholders are Infratil Limited (51.1%) and the Tauranga Energy Consumer Trust (33.1%). On 23 April 2015 the Tauranga Energy Consumer Trust reduced its shareholding to 26.8%. This section includes the following notes: Note 17: Equity Note 18: Share Capital Note 19: Dividends on Ordinary Shares Note 20: Imputation Credit Account Note 21: Equity Financial Risk Management

Note 17: Equity Foreign Cash flow currency Share Revaluation hedge translation Retained Total capital reserve reserve reserve earnings equity

Opening balance as at 1 April 2013 166,108 1,025,063 (9,390) 10,665 359,317 1,551,763

Profit after tax attributable to the shareholders of the Company - - - - 115,121 115,121 Disposal of revalued assets - (266) - - 266 -

Other comprehensive income - items that may be reclassified to the profit or loss Revaluation gains on generation assets ------Asset impairments - (4,268) - - - (4,268) Currency translation differences on revaluation reserve - (11,299) - - - (11,299) Other currency translation differences - - - (6,796) - (6,796) Fair value gains/(losses) on cash flow hedges Realised - - 36,910 - - 36,910 Unrealised - - (22,348) - - (22,348)

Tax effect of the following: Revaluation gains on generation assets ------Asset impairments - (92) - - - (92) Disposal of revalued assets - 74 - - - 74 Other currency translation differences - - - (7,625) - (7,625) Fair value gains/(losses) on cash flow hedges - - (4,558) - - (4,558)

Total other comprehensive income - (15,585) 10,004 (14,421) - (20,002)

Transactions with owners recorded directly in equity Purchase of treasury shares by Directors 298 - - - - 298 Purchase of treasury shares by Management 51 - - - - 51 Own shares repurchased (7,423) - - - - (7,423) Dividends paid - - - - (125,276) (125,276) Total transactions with owners recorded directly in equity (7,074) - - - (125,276) (132,350)

Closing balance as at 31 March 2014 159,034 1,009,212 614 (3,756) 349,428 1,514,532

78 TRUSTPOWER 2015 ANNUAL REPORT Note 17: Equity (Continued) Foreign Cash flow currency Share Revaluation hedge translation Retained Total capital reserve reserve reserve earnings equity

Opening balance as at 1 April 2014 159,034 1,009,212 614 (3,756) 349,428 1,514,532

Profit after tax attributable to the shareholders of the Company - - - - 144,014 144,014 Disposal of revalued assets ------

Other comprehensive income - items that may be reclassified to the profit or loss Revaluation gains on generation assets - 398,789 - - - 398,789 Asset impairments ------Currency translation differences on revaluation reserve - (3,034) - - - (3,034) Other currency translation differences - - - (4,931) - (4,931) Fair value gains/(losses) on cash flow hedges Realised - - 7,256 - - 7,256 Unrealised - - (1,521) - - (1,521)

Tax effect of the following: Revaluation gains on generation assets - (106,473) - - - (106,473) Asset impairments ------Disposal of revalued assets ------Other currency translation differences - - - (11,250) - (11,250) Fair value gains/(losses) on cash flow hedges - - (1,543) - - (1,543)

Total other comprehensive income - 289,282 4,192 (16,181) - 277,293

Transactions with owners recorded directly in equity Purchase of treasury shares by Directors 293 - - - - 293 Purchase of treasury shares by Management ------Own shares repurchased (741) - - - - (741) Dividends paid - - - - (125,155) (125,155) Total transactions with owners recorded directly in equity (448) - - - (125,155) (125,603)

Closing balance as at 31 March 2015 158,586 1,298,494 4,806 (19,937) 368,287 1,810,236

There are no restrictions on the distribution of any reserves to the equity holders of the Company. The amount of share capital is increased or decreased by the amount paid or received when Trustpower buys or sells its own shares.

Note 18: Share Capital 2014 2015 000’s 2015 2014 of Shares $000 $000

Authorised and issued ordinary shares at beginning of year 312,987 314,015 159,034 166,108 Own shares repurchased (114) (1,078) (741) (7,423) Issue of shares to Management - 7 - 51 Purchase of treasury shares by Directors 40 43 293 298 312,913 312,987 158,586 159,034

All shares rank equally with one vote per share, have no par value and are fully paid. On 15 May 2008, the Company announced a resolution allowing it to buy back up to 5,000,000 of its own shares. Shareholders approved an extension to the share buyback programme in July 2011 and July 2014. As at 31 March 2015, since the start of the buyback programme, 2,985,000 shares had been purchased at a total cost of $20,876,000 (2014: 2,871,000 shares at a total cost of $20,135,000). All shares repurchased were purchased through the NZX stock exchange at market price. As at 31 March 2015 145,000 of these shares had been reissued or cancelled (2014: 105,000).

79 TRUSTPOWER 2015 ANNUAL REPORT Note 19: Dividends on Ordinary Shares 2014 2015 Cents 2015 2014 Per Share $000 $000

Dividends (forfeited)/reinstated - - - (165) Final dividend prior year 20.0 20.0 62,576 62,800 Interim dividend paid current year 20.0 20.0 62,579 62,641 Supplementary dividend paid - - 88 127 Foreign investor tax credit - - (88) (127) 40.0 40.0 125,155 125,276

Final partially imputed dividend declared subsequent to the end of the reporting period payable 12 June 2015 to all shareholders on the register at 29 May 2015. 21.0 20.0 65,712 62,597

Dividend Distribution Dividends payable to Trustpower’s shareholders are recognised as a liability in the financial statements in the period in which the dividend is approved by the Board.

Note 20: Imputation Credit Account 2015 2014 $000 $000

Imputation credits available for use in subsequent reporting periods 15,818 11,891

The above amounts represent the balance of the imputation account as at the end of the reporting period, adjusted for imputation credits that will arise from the payment of the amount of taxation payable. The consolidated amounts include imputation credits that would be available to the parent if subsidiaries paid dividends.

Note 21: Equity Financial Risk Management Capital Risk Management Objectives When managing capital, Trustpower’s objectives are to ensure sufficient funds are available to pay liabilities when they fall due and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, Trustpower has discretion to adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, Trustpower monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by net debt plus equity. The gearing ratio is calculated below:

2015 2014 Note $000 $000

Net debt Unsecured bank debt 14 734,803 722,520 Unsecured subordinated bonds 14 238,671 238,211 Unsecured senior bonds 14 243,140 213,498 Cash and cash equivalents (14,057) (31,723) 1,202,557 1,142,506 Equity Total equity 17 1,810,236 1,514,532 Remove net effect of fair value of financial instruments after tax 17 (4,806) (614) 1,805,430 1,513,918 Total capital funding 3,007,987 2,656,424

Gearing ratio 40% 43%

Trustpower has a target of maintaining its gearing ratio between 25% and 50%.

80 TRUSTPOWER 2015 ANNUAL REPORT Tax, Related Party and Other Notes This section details tax disclosures, contingent liabilities, operating lease commitments and related party transactions. This section includes the following notes: Note 22: Income Tax Expense Note 23: Deferred Income Tax Note 24: Income Tax Estimates and Judgements Note 25: Contingent Liabilities and Subsequent Events Note 26: Other Commitments Note 27: Related Party Transactions

Note 22: Income Tax Expense 2015 2014 $000 $000

Profit before income tax 164,669 152,887 Tax on profit @ 28% 46,107 42,808 Australian operations tax rate adjustment 565 31 Tax effect of non-assessable revenue (21,089) (2,934) Prior year tax losses not previously recognised - (3,017) Income tax under provided in prior year 1,543 878 Change in treatment of depreciation of powerhouses (6,471) - 20,655 37,766 Represented by: Current tax 44,081 32,017 Deferred tax (23,426) 5,749 20,655 37,766

The 28% tax rate used above is the corporate tax rate payable by New Zealand corporate entities on taxable profit under New Zealand tax law. 30% is the corporate tax rate payable by Australian corporate entities. The 2010 Budget removed tax depreciation on buildings with estimated useful lives of 50 years or more. As a result of that announcement Trustpower recognised an increased deferred tax liability in respect of all its buildings. Consistent with Inland Revenue advice at the time, this included powerhouses at hydro generation schemes. During the current year Inland Revenue has reviewed its position and has recently issued a policy statement that recognises powerhouses at hydro generation schemes are actually part of the dam structure and not buildings in their own right. This has allowed Trustpower to reverse the deferred tax liability that was recognised in respect of these powerhouses.

81 TRUSTPOWER 2015 ANNUAL REPORT Note 23: Deferred Income Tax 2015 2014 Note $000 $000

Balance at beginning of year 309,762 292,123 Current year changes in temporary differences affecting tax expense 22 (7,437) 5,267 Current year changes in temporary differences affecting reserves 119,265 12,201 Reclassification of prior year temporary differences 22 (9,518) 482 Acquired as part of business combination 18,704 4,171 Exchange rate movements on foreign denominated deferred tax (3,221) (4,482) Change in treatment of depreciation of powerhouses 22 (6,471) -

Total deferred tax liabilities 421,084 309,762

Comprising: Deferred tax liabilities to be recovered after more than 12 months 421,565 307,420 Deferred tax liabilities to be recovered within 12 months (481) 2,342 421,084 309,762

The tables below show the break down of the temporary differences that make up the deferred tax liabilities and their movement for the year.

Acquired with Charged to Charged Opening Business Income Directly to Closing For the year ended 31 March 2015 ($000) Balance Combination Statement Equity Balance

Revaluations 221,578 - - 110,752 332,330 Other property, plant and equipment movements 79,312 18,704 (16,923) (7,720) 73,373 Employee benefits (1,784) - (399) 5 (2,178) Provision for impairment (448) - (14) - (462) Customer base assets 7,974 - (1,205) - 6,769 Financial instruments (1,355) - (5,147) 1,757 (4,745) Unrealised losses on Australian dollar loan 4,289 - - 11,250 15,539 Other 196 - 262 - 458 309,762 18,704 (23,426) 116,044 421,084

Acquired with Charged to Charged For the year ended 31 March 2014 ($000) Opening Business Income Directly to Closing Balance Combination Statement Equity Balance

Revaluations 226,689 - - (5,111) 221,578 Other property, plant and equipment movements 74,790 - 3,603 919 79,312 Employee benefits (1,656) - (130) 2 (1,784) Provision for impairment (476) - 28 - (448) Customer base assets 4,921 4,171 (1,118) - 7,974 Financial instruments (9,003) - 3,364 4,284 (1,355) Unrealised losses on Australian dollar loan (3,336) - - 7,625 4,289 Other 194 - 2 - 196 292,123 4,171 5,749 7,719 309,762

82 TRUSTPOWER 2015 ANNUAL REPORT Note 24: Income Tax Estimates and Judgements Income tax expense Tax returns for Trustpower and the detailed calculations that are required for filing tax returns are not prepared until after the financial statements are prepared. Estimates of these calculations are made for the purpose of calculating income tax expense, current tax and deferred tax balances. As well as this, an assessment of the result of tax audit issues is also made. Any difference between the final tax outcomes and the estimations made in previous years will affect current year balances.

Note 25: Contingent Liabilities and Subsequent Events Trustpower was successful in its High Court case against Inland Revenue. The Court ruled that Trustpower’s existing tax treatment of feasibility expenditure incurred in the 2006 to 2008 financial years was appropriate and disagreed with Inland Revenue’s view that the resource consents acquired were capital assets. Inland Revenue has appealed this decision. The appeal was heard by the Court of Appeal in March 2015 but to date no judgment has been received. Inland Revenue has reassessed the 2009 and 2010 years and has made further claims. Trustpower has disputed this assessment. This dispute has been lodged with the High Court but is on hold pending an outcome in the initial 2006 to 2008 dispute. It is likely Inland Revenue will take the same approach in assessing the 2011 and future tax years. Should Inland Revenue be completely successful in its claim it would give rise to the following outcomes:

2006 2009 2011 to 2008 to 2010 to 2015 Total $000 $000 $000 $000

Additional amount owed to Inland Revenue Tax payment 5,924 2,632 2,018 10,574 Interest expense 2,989 1,309 483 4,781

The tax payable would primarily result in a balance sheet adjustment in the financial statements as most resource consents are depreciable intangible property. The impact of these adjustments on the tax expense in the income statement is difficult to estimate but is unlikely to exceed $2,500,000 for all years up to March 2015. The interest cost would be an income statement expense. Trustpower has been awarded $1,177,000 of costs in relation to the High Court case. These costs have been paid by Inland Revenue however the awarding of costs has also been appealed and is therefore contingent on the outcome of the Court of Appeal case noted above. The Group is not aware of any other material contingent liabilities at balance date (2014: nil). Other than disclosed in note 26 the Group is not party to any material operating leases at balance date (2014: nil). The Group is not aware of any significant events occurring subsequent to balance date that have not been disclosed.

Note 26: Other Commitments 2015 2014 $000 $000

Operating Leases Not later than 1 year 483 199 Later than 1 year and not later than 5 years 13,208 7,649 Later than 5 years 26,000 29,627 Total operating lease commitments 39,691 37,475

The operating leases relate to the rental of ten office buildings throughout New Zealand as well as Trustpower’s head office which is currently under construction.

83 TRUSTPOWER 2015 ANNUAL REPORT Note 27: Related Party Transactions Key management personnel The key management personnel compensation (including Directors’ fees) is as follows:

2015 2013 Note $000 $000

Salaries and other short-term employee benefits 4,991 4,549 Cash settled, share based incentives A14 311 (99) Post-employment benefits 69 68 5,371 4,518

$1,009,000 of this amount was unpaid at 31 March 2015 (2014: $870,000). All key managers participate in a cash settled, share based incentive scheme. (refer to note A14). Shareholders Trustpower is controlled by Infratil Limited (incorporated in New Zealand) which owns 51.1% of Trustpower Limited’s voting shares. The Tauranga Energy Consumer Trust owns 33.2% and the residual balance of 15.7% is widely held. On 23 April 2015 the Tauranga Energy Consumer Trust reduced its shareholding to 26.8%. H.R.L. Morrison & Co Limited manages Infratil Limited and Mr M Bogoievski, a Director of Trustpower Limited, is its Chief Executive. Dr B Harker, Chairman of Trustpower Limited, is a senior executive of H.R.L Morrison & Co Limited. $9,200 (2014: $14,000) was paid to H.R.L Morrison & Co Limited and related entities during the year for consultancy results. As at 31 March 2015 no balance was outstanding (2014: nil). Consultancy fees of $8,000 (2014: $11,000) were paid to Lumo Energy Pty Ltd which was a subsidiary of Infratil Limited during part of the year to 31 March 2015. As at 31 March 2015 no balance was outstanding (2014: nil). Directors All Directors participate in a share purchase plan where half of their Directors’ fee is used to purchase Trustpower shares. All Directors purchased their shares directly from Trustpower treasury stock at a price set by the market price over the 20 business days prior to issue. A total of 40,000 shares (2014: 43,000) were purchased for $293,000 (2014: $298,000) (see note A18). Mr RH Aitken, a Director of Trustpower Limited, is the Executive Chairman of the engineering firm Beca Limited. $326,000 was charged by Beca Limited for engineering services (2014: $165,000). As at 31 March 2015 $84,000 of this amount was unpaid (2014: $3,000). Mr RWH Farron, Chief Financial Officer and Company Secretary of Trustpower Limited, is a director of the engineering supplies firm BGH Group Limited and its New Zealand based subsidiaries. $5,000 has been charged by subsidiaries, Bay Engineers Supplies Limited and Hose Supplies New Zealand Limited (2014: $18,000). As at 31 March 2015 none of this amount was unpaid (2014: nil). Other Trustpower Limited owns 20.0% of the ordinary shares of Rangitata Diversion Race Management Limited (RDR) which owns and operates an irrigation canal in Canterbury. RDR’s operating and capital expenditure is funded by advances from its shareholders. In 2015 Trustpower made no additional advances to RDR (2014: nil) and the total balance of the advance at 31 March 2015 was $1,884,000 (2014: $1,884,000). This balance is included in other investments in the statement of financial position. Except as noted above, no transactions took place with related parties during the year. All transactions with related parties took place on an arm’s length basis. No related party debts were forgiven or written off during the year (2014: nil). Except as noted above there are no amounts outstanding at 31 March 2015 (2014: nil).

84 TRUSTPOWER 2015 ANNUAL REPORT Appendix Note A1: Significant Accounting Policies Index Policy Note Basis of Preparation 1 Principles of Consolidation 1 Trade Receivables A7 Property, Plant and Equipment 9 Intangible Assets 4 Generation Development 8 Borrowings 14 Cash Flow Statement A19 Share Capital 17 Trade Payables A8 Dividend Distribution 19 Adoption Status of Relevant New Financial Reporting Standards and Interpretations A19

Apart from note A19, accounting policies are denoted by the box surrounding them.

Note A2: Underlying Earnings after Tax 2015 2014 Note $000 $000

Profit After Tax Attributable to the Shareholders of the Company 144,014 115,121

Fair value losses / (gains) on financial instruments A9 14,219 (9,448) Discount on acquisition 12 (24,986) - Asset impairments 141 226 Adjustments before income tax (10,626) (9,222)

Change in income tax expense in relation to adjustments (4,021) 2,582 Change in treatment of depreciation of powerhouses 22 (6,471) - Adjustments after income tax (21,118) (6,640) Underlying Earnings After Tax 122,896 108,481

Underlying Earnings is a non GAAP (Generally Accepted Accounting Principles) financial measure. Trustpower believes that this measure is an important additional financial measure to disclose as it excludes movements in the fair value of financial instruments which can be volatile year to year depending on movement in long term interest rate and or electricity future prices. Also excluded in this measure are items considered to be one off and not related to core business such as changes to the company tax rate or gain/impairment of generation assets.

Note A3: Earnings Per Share 2015 2014

Profit after tax attributable to the shareholders of the Company ($000) 144,014 115,121 Weighted average number of ordinary shares in issue (thousands) 312,949 313,500 Basic and diluted earnings per share (cents per share) 46.0 36.7

Underlying earnings after tax ($000) 122,896 108,481 Weighted average number of ordinary shares in issue (thousands) 312,949 313,500 Underlying earnings per share (cents per share) 39.3 34.6

85 TRUSTPOWER 2015 ANNUAL REPORT Note A4: Net Tangible Assets Per Share Note 2015 2014

Total net assets ($000) 1,810,236 1,514,532 Less intangible assets ($000) (72,207) (72,239) Net tangible assets ($000) 1,738,029 1,442,293 Number of ordinary shares in issue (thousands) 18 312,913 312,987 Net tangible assets per share (dollars per share) 5.55 4.61

Note A5: Other Operating Expenses 2015 2014 Note $000 $000

Remuneration of auditors A6 776 548 Bad debts written off A16 1,158 1,432 Directors’ fees 621 628 Donations 842 721 Loss/(gain) on foreign exchange (54) (1,721) Generation development expenditure 4,968 10,455 Market fees and costs 8,267 8,464 Meter rental costs 7,703 5,571 Other customer connection costs 2,370 1,993 Net (gain)/loss on sale of property, plant and equipment (183) 137 Marketing expenditure 15,750 7,300 Computer maintenance and support costs 6,390 5,635 Other administration costs 14,107 12,160 Rental and operating lease costs 688 627 63,403 53,950

Note A6: Remuneration of Auditors During the year the following fees were payable to the auditors of Trustpower, PricewaterhouseCoopers:

2015 2014 Note $000 $000

Audit and other assurance services Audit and review of financial statements 399 290 Other assurance services Audit of regulatory returns 24 45 Review of half year financial statements 38 32 461 367 Taxation services Tax compliance services 46 30 Support for dispute with Inland Revenue 25 33 119 Tax compliance advice 177 5 256 154 Other services Benchmarking services 15 - Financial modelling review services 37 23 Other consulting services 7 4 59 27

Total remuneration of PricewaterhouseCoopers 776 548

86 TRUSTPOWER 2015 ANNUAL REPORT Note A7: Accounts Receivable and Prepayments 2015 2014 $000 $000

Current Portion: Billed debtors and unbilled sales 89,631 78,076 Provision for doubtful debts (1,650) (1,600) Electricity market receivables 2,851 34,581 Other receivables 27,559 14,267 GST receivable - 1,449 Prepayments 4,612 4,742 123,003 131,515 Non-current Portion: Prepayments - 764 - 764

From March 2015, New Zealand electricity market invoices are partially net settled. This has had the effect of reducing both the electricity market receivables above and the electricity market payables (note A8).

Trade Receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that Trustpower will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the impairment loss is recognised in the income statement. The criteria that Trustpower uses to determine that there is objective evidence of an impairment loss include: • Significant financial difficulty of the issuer or obligor; • A breach of contract, such as a default or delinquency in interest or principal payments; • Trustpower, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; and • It becomes probable that the borrower will enter bankruptcy or other financial reorganisation.

Note A8: Accounts Payable and Accruals 2015 2014 Note $000 $000

Current Portion Customer bond deposits 981 826 Electricity market payables A7 16,529 44,712 Line cost accrual 160 1,207 Employee entitlements 9,481 7,734 Interest accruals 6,747 3,752 GST payable 3,192 2,558 Other accounts payable and accruals 17,107 20,685 Trade accounts payable 42,074 40,955 96,271 122,429 Non-current Portion Other accounts payable and accruals 3,648 3,856 3,648 3,856

Trade Payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

87 TRUSTPOWER 2015 ANNUAL REPORT Note A9: Fair Value Gains/(Losses) on Financial Instruments The changes in the fair value of financial instruments recognised in the income statement and the cash flow hedge reserve for the year to 31 March 2015 are summarised below:

2015 2014 Recognised in the income statement $000 $000

Interest rate derivatives (16,888) 10,873 Electricity price derivatives 2,669 (1,425) (14,219) 9,448

2015 2014 Recognised in the cash flow hedge reserve $000 $000

Interest rate derivatives 170 479 Electricity price derivatives 8,631 11,178 Exchange rate derivatives (2,791) 3,180 6,010 14,837

Note A10: Cash Flow Hedge Reserve 2015 2014 $000 $000

Balance at beginning of year 614 (9,390)

Fair value gains/(losses) 2,447 (22,348) Transfers to energy cost expense 5,380 6,976 Transfers to property, plant and equipment (1,984) 28,542 Transfers to other operating revenue - 1,322 Transfers to interest paid (108) 70 5,735 14,562

Tax on fair value (gains)/losses (662) 6,348 Tax on transfers to energy cost expense (1,506) (1,953) Tax on transfers to property, plant and equipment 595 (8,563) Tax on transfers to other operating revenue - (370) Tax on transfers to interest paid 30 (20) (1,543) (4,558)

4,806 614

88 TRUSTPOWER 2015 ANNUAL REPORT Note A11: Derivative Financial Instruments 2015 2014 $000 $000

Current Interest rate derivative assets 704 135 Electricity price derivative assets 2,821 2,216 Exchange rate derivative assets - 2,781 3,525 5,132

Interest rate derivative liabilities 1,208 614 Electricity price derivative liabilities 1,755 2,293 2,963 2,907

Non-current Interest rate derivative assets 1,955 4,136 Electricity price derivative assets 8,693 371 10,648 4,507

Interest rate derivative liabilities 23,378 8,701 Electricity price derivative liabilities 2,584 5,265

25,962 13,966

Note A12: Investments in Subsidiaries Country of incorporation % owned by Nature of Parent and Group and place of business Trustpower business

Significant subsidiaries (31 March balance dates) Church Lane Wind Farm Pty Ltd Australia 100 Generation development Dundonnell Wind Farm Pty Ltd Australia 100 Generation development Energy Direct NZ Limited New Zealand 100 Electricity and gas retailing GSP Energy Pty Ltd (formerly Sellicks Hill Wind Farm Pty Ltd) Australia 100 Electricity generation Rye Park Renewable Energy Pty Ltd Australia 100 Generation development Salt Creek Wind Farm Pty Ltd Australia 100 Generation development Snowtown South Wind Farm Pty Ltd Australia 100 Electricity generation Snowtown Wind Farm Pty Ltd Australia 100 Electricity generation Snowtown Wind Farm Stage 2 Pty Ltd Australia 100 Electricity generation Tararua Wind Power Limited New Zealand 100 Asset holding Trustpower Australia (New Zealand) Limited New Zealand 100 Asset holding Trustpower Australia Financing Partnership Australia 100 Financing Trustpower Australia Holdings Pty Ltd Australia 100 Generation development Trustpower Insurance Limited New Zealand 100 Captive insurance Trustpower Market Services Pty Ltd Australia 100 Financial services Wingeel Wind Farm Pty Ltd Australia 100 Generation development

89 TRUSTPOWER 2015 ANNUAL REPORT Note A13: Reconciliation of Net Cash from Operating Activities with Profit after Tax Attributable to the Shareholders 2015 2014 $000 $000

Profit after tax attributable to the shareholders of the Company 144,014 115,121 Items classified as investing/financing Interest paid 74,906 61,796 Interest received (1,068) (1,490) 73,838 60,306 Non-cash items: Amortisation of debt issue costs 1,757 1,784 Non-cash transfer from cash flow hedge reserve to interest expense (275) (275) Amortisation of other investments 3 3 Amortisation of intangible assets 12,958 10,619 Depreciation 85,167 61,394 Net (gain)/loss on sale of property, plant and equipment (183) 137 Other fixed and investment asset charges/(credits) 592 226 Fair value increase of GSP generation assets (43,690) - Share based staff remuneration - 51 Movement in derivative financial instruments taken to the income statement 14,219 (9,448) Increase/(decrease) in deferred tax liability excluding transfers to reserves (5,029) 10,113 65,519 74,604 Decrease/(increase) in working capital: Accounts receivable and prepayments (10,308) 3,041 Taxation payable/receivable 4,310 (6,326) Accounts payable and accruals excluding capital expenditure accruals (7,569) 10,017 (13,567) 6,732

Net cash from operating activities 269,804 256,763

Note A14: Employee Share Based Compensation Members of Trustpower’s executive management team and certain other employees (together defined as key management personnel) are eligible to receive payment under a cash settled share based payment scheme. The scheme is defined as follows: An incentive scheme for key management personnel was implemented on 15 May 2009. This is a cash-settled share-based payment scheme covering a three-year period. Subsequently, each year on the 15th of May, a new tranche of the scheme has been issued and covers a period of three years from the issue date. Key management personnel are eligible to receive a bonus payment at the end of the three year period of the scheme, the sum of which is determined by the total return on a notional number of allocated shares. The return is calculated as the sum of dividends paid by Trustpower plus the increase in share price over the period. Payment is only made if a minimum return, set by the Board, is met. Additionally the scheme has a set maximum return above which no increase in the bonus is received by the participants. The total return is calculated for a three year period commencing on the 15th of May with reference to the average share price over the ten days prior to the scheme closing. The fair value of the liability at 31 March 2015 has been determined by reference to Trustpower Limited’s current share price and expected dividends and share price movements with comparison to the share price at the start of the relevant period and adjusted to reflect the present value of these future expected cash flows. For the year ended 31 March 2015 the total expense recognised in the income statement was $311,000 (2014: $(99,000)) and the liability recognised in the statement of financial position as at 31 March 2015 was $311,000 (2014: nil).

90 TRUSTPOWER 2015 ANNUAL REPORT Note A15: Property, Plant and Equipment at Historical Cost If generation assets were stated on an historical cost basis, the amounts would be as follows

2015 2014 $000 $000 Generation assets (at cost) 2,114,215 1,726,168 Generation assets under construction (at cost) 14,086 220,825 Generation assets accumulated depreciation (481,682) (409,891) 1,646,619 1,537,123

Note A16: Financial Risk Management (a) Liquidity Risk The tables below analyse Trustpower’s financial liabilities excluding gross settled derivative financial liabilities into relevant maturity groupings based on the remaining period to the earliest possible contractual maturity date at the period end date. The amounts in the tables are contractual undiscounted cash flows.

Less than 1 month 1-6 months 6-12 months Over 1 year $000 $000 $000 $000

As at 31 March 2015

Net settled electricity price derivatives 1 272 2,419 1,961 Net settled interest rate derivatives 50 4,016 3,999 20,472 Accounts payable and accruals 89,333 87 104 3,648 Unsecured subordinated bonds - 8,925 106,825 173,075 Unsecured senior bonds - 8,218 8,218 292,210 Unsecured bank loans 333 23,121 9,869 713,241 Total 89,717 44,639 131,434 1,204,607

Less than 1 month 1-6 months 6-12 months Over 1 year $000 $000 $000 $000

As at 31 March 2014

Net settled electricity price derivatives 247 1,353 7,712 5,992 Net settled interest rate derivatives 470 846 1,315 7,407 Accounts payable and accruals 118,486 87 104 3,856 Unsecured subordinated bonds - 8,998 8,852 288,918 Unsecured senior bonds - 8,170 80,320 162,895 Unsecured bank loans - 13,542 5,628 714,044 Total 119,203 32,996 103,931 1,183,112

The table below analyses Trustpower’s derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period to the contractual maturity date at the period end date. The amounts disclosed in the table are the contractual undiscounted cash flows. There were no gross settled instruments in place at 31 March 2015.

Less than 1 month 1-6 months 6-12 months Over 1 year $000 $000 $000 $000

As at 31 March 2014

Foreign currency forward contracts Inflows - 18,762 - - (Outflows) - (16,130) - -

91 TRUSTPOWER 2015 ANNUAL REPORT Note A16: Financial Risk Management (Continued) (b) Interest Rate Risk The aggregate notional principal amounts of the outstanding interest rate derivative instruments at 31 March 2015 were $924,473,000 (31 March 2014: $745,062,000). Interest payment transactions are expected to occur at various dates between one month and eight years from the end of the reporting period consistent with Trustpower’s forecast total borrowings. Weighted average interest rates for Trustpower are disclosed in note 14. Sensitivity analysis At 31 March 2015, if interest rates at that date had been 100 basis points higher/lower with all other variables held constant, post-tax profit for the year and other components of equity would have been adjusted by the amounts in the table below, as a result of the fair value change in interest rate derivative instruments. 2015 2014 $000 $000

Decrease to profit of a 100 basis point decrease in interest rates (19,207) (15,055) Increase to profit of a 100 basis point increase in interest rates 18,075 15,151 Decrease to equity of a 100 basis point decrease in interest rates (19,207) (15,151) Increase to equity of a 100 basis point increase in interest rates 18,075 15,244

(c) Credit Risk As of 31 March 2015, trade receivables of $4,722,000 (2014: $4,156,000) were past due but not impaired. The ageing analysis of these trade receivables is as follows:

2015 2014 $000 $000

Up to 3 months 4,722 4,156 3 to 6 months - - 4,722 4,156

As of 31 March 2015, trade receivables of $1,650,000 (2014: $1,600,000) were past due and impaired. The ageing analysis of these trade receivables is as follows:

2015 2014 $000 $000

Up to 3 months 562 279 Over 3 months 1,088 1,321 1,650 1,600

For details of the receivables considered impaired refer to note A7. Movements on the provision for impairment of trade receivables are as follows:

2015 2014 $000 $000

Opening balance 1,600 1,700 Provision for receivables impairment 1,158 1,432 Bad debts written off (1,108) (1,532) Closing balance 1,650 1,600

92 TRUSTPOWER 2015 ANNUAL REPORT Note A16: Financial Risk Management (Continued) (d) Electricity Price Risk Trustpower has elected to apply cash flow hedge accounting to those instruments it deems material and which qualify as cash flow hedges while immaterial contracts are not hedge accounted. The aggregate notional volume of the outstanding electricity derivatives at 31 March 2015 was 1,590GWh (31 March 2014: 836GWh). The hedged anticipated electricity purchase transactions are expected to occur continuously throughout the next three years from the end of the reporting period consistent with Trustpower’s forecast electricity generation and retail electricity sales. Gains and losses recognised in the cash flow hedge reserve on electricity derivatives as of 31 March 2015 will be continuously released to the income statement in each period in which the underlying purchase transactions are recognised in the income statement. Sensitivity analysis The following tables summarise the impact of increases/decreases of the relevant forward electricity prices on Trustpower’s post-tax profit for the year and on other components of equity. The sensitivity analysis is based on the assumption that the relevant forward electricity prices had increased/decreased with all other variables held constant as a result of the fair value change in electricity price derivatives.

2015 2014 $000 $000

Increase to profit of a 10% increase in electricity forward price 1,096 1,499 Decrease to profit of a 10% decrease in electricity forward price (1,096) (1,499) Increase to equity of a 10% increase in electricity forward price 10,377 6,998 Decrease to equity of a 10% decrease in electricity forward price (10,377) (6,998)

Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market (for example, electricity price hedges) is determined by using valuation techniques. Trustpower uses its judgement to select methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Trustpower has used discounted cash flow analysis for various electricity price hedges that are not traded in an active market. The forward curve is derived from a combination of market quoted prices and management’s best estimates. The discount rate is assumed as the counterparty’s cost of funds for the period of the instrument. See parts (b) and (d) of this note for sensitivity analysis. Fair Values Except for subordinated bonds and senior bonds (see note 14), the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values.

Note A17: Fair Value Measurement Estimation of Fair Values The fair values of financial assets and financial liabilities are determined as follows: • The fair value of financial assets and liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. • The fair value of other financial assets and liabilities are calculated using discounted cash flow analysis based on market-quoted rates. • The fair value of derivative financial instruments are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve or available forward price data for the duration of the instruments. Where the fair value of a derivative is calculated as the present value of the estimated future cash flows of the instrument, the two key types of variables used by the valuation techniques are: • forward price curve (as described below); and • discount rates.

Valuation Input Source Interest rate forward price curve Published market swap rates Published spot foreign exchange rates and interest rate Foreign exchange forward prices differentials Market quoted prices where available and the Directors’ best Electricity forward price curve estimate based on their view of the long run marginal cost of new generation where no market quoted prices are available Published market interest rates as applicable to the remaining life of Discount rate for valuing interest rate derivatives the instrument adjusted by the cost of credit of the counterparty for assets and the cost of credit of Trustpower for liabilities Published market interest rates as applicable to the remaining life of the instrument adjusted by the cost of credit of the Discount rate for valuing forward foreign exchange contracts counterparty for assets and the cost of credit of Trustpower for liabilities Discount rate for valuing electricity price derivatives Assumed counterparty cost of funds ranging from 4.1% to 5.2%

93 TRUSTPOWER 2015 ANNUAL REPORT Note A17: Fair Value Measurement (Continued) The selection of variables requires significant judgement and therefore there is a range of reasonably possible assumptions in respect of these variables that could be used in estimating the fair value of these derivatives. Maximum use is made of observable market data when selecting variables and developing assumptions for the valuation techniques. See earlier in this note for sensitivity analysis. NZ IFRS 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy which represents the level of judgement and estimation applied in valuing the instrument: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3)

There were no transfers between level 1, 2 and 3 assets or liabilities within the fair value hierarchy (2014: none). The following tables present Trustpower’s financial assets and liabilities that are measured at fair value.

Level 1 Level 2 Level 3 Total $000 $000 $000 $000

31 March 2015 Assets per the statement of financial position Interest rate derivative assets - 2,659 - 2,659 Electricity price derivative assets - - 11,514 11,514 Exchange rate derivative assets - - - - - 2,659 11,514 14,173

Liabilities per the statement of financial position Interest rate derivative liabilities - 24,586 - 24,586 Electricity price derivative liabilities - - 4,339 4,339 Exchange rate derivative liabilities - - - - - 24,586 4,339 28,925

Level 1 Level 2 Level 3 Total $000 $000 $000 $000

31 March 2014 Assets per the statement of financial position Interest rate derivative assets - 4,271 - 4,271 Electricity price derivative assets - - 2,587 2,587 Exchange rate derivative assets - 2,781 - 2,781 - 7,052 2,587 9,639

Liabilities per the statement of financial position Interest rate derivative liabilities - 9,315 - 9,315 Electricity price derivative liabilities - - 7,558 7,558 Exchange rate derivative liabilities - - - - - 9,315 7,558 16,873

94 TRUSTPOWER 2015 ANNUAL REPORT Note A17: Fair Value Measurement (Continued) The following tables present the changes during the year of the level 3 instruments being electricity price derivatives.

2015 2014 $000 $000

Assets per the statement of financial position Opening balance 2,587 1,488 Gains and (losses) recognised in profit or loss Realised in energy cost expense 4,599 4,275 Unrealised (2,795) (3,176) Gains and (losses) recognised in other comprehensive income Realised in energy cost expense 194 - Unrealised 6,929 - Closing balance 11,514 2,587 Total gains for the period included in profit or loss for assets held at the end of the reporting period 4,391 1,679

Liabilities per the statement of financial position Opening balance 7,558 14,862 (Gains) and losses recognised in profit or loss Realised in energy cost expense (14,160) (2,068) Unrealised 12,449 5,942 (Gains) and losses recognised in other comprehensive income Realised in energy cost expense (5,573) (7,219) Unrealised 4,065 (3,959) Closing balance 4,339 7,558 Total losses for the period included in profit or loss for liabilities held at the end of the reporting period 3,364 4,407

Settlements during the year (14,940) (3,959)

Electricity price derivatives are classified as Level 3 because the assumed location factors which are used to adjust the forward price path are unobservable. A sensitivity analysis showing the effect on the value of the electricity price derivatives of reasonably possible alternative price path assumptions is shown in section (d) of note A16.

Note A18: Financial Instruments by Category Assets at fair value Derivatives Loans and through used for Assets held receivables profit or loss hedging to maturity $000 $000 $000 $000

31 March 2015 Assets per the statement of financial position

Derivative financial instruments - 7,051 7,123 - Trade and other receivables excluding prepayments 118,391 - - - Cash and cash equivalents 14,057 - - - Bond deposits on trust 2,740 - - - Other investments - - - 1,892 135,188 7,051 7,123 1,892

31 March 2014 Assets per the statement of financial position

Derivative financial instruments - 6,858 2,781 - Trade and other receivables excluding prepayments 126,773 - - - Cash and cash equivalents 31,723 - - - Bond deposits on trust 800 - - - Term receivables 764 - - - Other investments - - - 1,892 160,060 6,858 2,781 1,892

95 TRUSTPOWER 2015 ANNUAL REPORT Note A18: Financial Instruments by Category (Continued) Other Liabilities at financial fair value Derivatives liabilities at through used for amortised profit or loss hedging cost $000 $000 $000

31 March 2015 Liabilities per the statement of financial position

Unsecured bank loans including bank overdrafts - - 734,803 Unsecured subordinated bonds - - 238,671 Unsecured senior bonds - - 243,140 Derivative financial instruments 27,950 975 - Trade and other payables - - 99,919 27,950 975 1,316,533

31 March 2014 Liabilities per the statement of financial position

Unsecured bank loans including bank overdrafts - - 722,520 Unsecured subordinated bonds - - 238,211 Unsecured senior bonds - - 213,498 Derivative financial instruments 14,219 2,654 - Trade and other payables - - 126,285 14,219 2,654 1,300,514

See notes A16 and A17 for details on fair value estimation and details of the hedge relationships.

96 TRUSTPOWER 2015 ANNUAL REPORT Note A19: Supplementary Accounting Policies A19.1 Cash Flow Statement The following are the definitions used in the cash flow statement: • cash is considered to be cash on hand and deposits held at call with banks, net of bank overdrafts • operating activities include all activities that are not investing or financing activities • investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment, intangible assets and investments in subsidiaries • financing activities are those activities, which result in changes in the size and composition of the capital structure of the Group

This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. A19.2 Adoption Status of Relevant New Financial Reporting Standards and Interpretations The following new standards and amendments to standards were applied during the period: NZ IAS 32 Financial instruments: Presentation This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on Trustpower’s financial statements. NZ IAS 36 Impairment of assets This amendment removed certain disclosures of the recoverable amount of cash-generating units which had been included in NZ IAS 36 by the issue of NZ IFRS 13. NZ IAS 39 Financial instruments: Recognition and measurement This amendment considers legislative changes to ‘over-the-counter’ derivatives and the establishment of central counterparties. Under NZ IAS 39 novation of derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. Trustpower has applied the amendment and there has been no significant impact on Trustpower’s financial statements as a result. NZ IFRIC 21 Levies The interpretation addresses what the obligating event is that gives rise to the payment of a levy and when a liability should be recognised. Trustpower is not currently subjected to significant levies so the impact on Trustpower is not material. Trustpower has adopted these new standards and amendments from 1 April 2014. The following new standard has been issued but is not yet effective: NZ IFRS 9 Financial instruments The complete version of NZ IFRS 9 was issued in September 2014. It replaces the guidance in NZ IAS 39 that relates to the classification and measurement of financial instruments. NZ IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. NZ IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under NZ IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. Trustpower intends to adopt NZ IFRS 9 on its effective date and has yet to assess its full impact. NZ IFRS 15 Revenue from contracts with customers Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces NZ IAS 18 ‘Revenue’ and NZ IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. The group intends to adopt NZ IFRS 15 on its effective date and is currently assessing its full impact. There are no other NZ IFRSs or NZ IFRIC interpretations that are not yet effective that would be expected to have a material impact on Trustpower. There are no other NZ IFRSs or NZ IFRIC interpretations that are not yet effective that would be expected to have a material impact on Trustpower.

97 TRUSTPOWER 2015 ANNUAL REPORT Statutory Information INTERESTS REGISTER The Company is required to maintain an Interests Register in which particulars of certain transactions and matters involving the Directors must be recorded. The matters set out below were recorded in the Interests Register of the Company during the financial year. GENERAL NOTICE OF INTEREST BY DIRECTORS The Directors of the Company have declared interests in the following identified entities as at 31 March 2015.

Director Interest Entity Bruce James Harker Director Trustpower Metering Limited Director Z Energy Limited Director ikeGPS Limited (formerly Surveylab Group Limited) Richard Hammond Aiken Executive Chairman Beca Group Limited Director Beca Group Subsidiaries Director John Scotts Investment Limited Director Auckland Council Property Limited Alan Norman Bickers Director Jayal Enterprises Limited Chairman Destination Rotorua Marketing, Venues & Events Chairman Trustpower Insurance Limited Marko Bogoievski Chairman Aotea Energy Holdings Limited Director Aotea Energy Holdings Limited Subsidiaries Director Z Energy Limited Director Infratil Limited and certain Infratil Limited Subsidiaries Chief Executive Infratil Limited Director HRL Morrison & Co Limited and certain subsidiaries Director Zig Zag Farm Limited Ian Samuel Knowles Chairman OnBrand Limited Chairman Umajin Limited Chairman Partners Life Limited Chairman Adminis Limited Director SLI Systems Limited Director Angel HQ Inc Director Rangitira Limited Director Synlait Milk Limited Director Magritek Limited Trustee Te Omanga Hospice Trustee United World College NZ Geoffrey Jon Campbell Swier Director Farrier Swier Consulting Pty Ltd Board Member Health Purchasing Victoria Director Snowtown Wind Farm Pty Ltd Director GSP Energy Pty Ltd* Director Rye Park Renewable Energy Pty Ltd Director Trustpower Australia Holdings Pty Ltd Director Trustpower Renewable Investments Pty Ltd Director Trustpower Market Services Pty Ltd Director Snowtown Wind Farm Stage 2 Pty Ltd Director Snowtown South Wind Farm Pty Ltd Director Dundonnell Wind Farm Pty Ltd Director Wingeel Wind Farm Pty Ltd Director Church Lane Wind Farm Pty Ltd Director Salt Creek Wind Farm Pty Ltd

* Formerly Sellicks Hill Wind Farm Pty Ltd INFORMATION USED BY DIRECTORS During the financial year there were no notices from Directors of the Company requesting to disclose or use Company information received in their capacity as Directors which would not otherwise have been available to them. DIRECTORS HOLDING OFFICE AND THEIR REMUNERATION During the year to 31 March 2015 Michael Cooney ceased to be director of the Company and certain subsidiaries effective 29 August 2014 and Alan Bickers was appointed as a director of the Company effective 1 September 2014. The Directors holding office as at 31 March 2015 and during the year to 31 March 2015 are listed below. The total amount of the remuneration and other benefits received by each Director during the financial year, and responsibility held, is listed next to their names.

98 TRUSTPOWER 2015 ANNUAL REPORT Director Remuneration Responsibility Held Bruce James Harker $165,000 Chairman Non-executive Director Member of Audit and Risk Committee Member of Remuneration Committee Member of Share Buyback Committee Michael James Cooney $33,333 Non-executive Director Member of Share Buyback Committee Geoffrey Jon Campbell Swier $125,000 Independent Director Chairman of Audit and Risk Committee Member of Remuneration Committee Richard Hammond Aitken $80,000 Independent Director Ian Samuel Knowles $90,000 Independent Director Member of Audit and Risk Committee Member of Share Buyback Committee Marko Bogoievski $80,000 Non-executive Director Alan Norman Bickers $46,667 Non-executive Director

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND EXECUTIVES During the financial year the Company paid insurance premiums in respect of Directors’ and certain executive employees’ liability insurance, as permitted by the Company’s Constitution and the Companies Act 1993. The policies do not specify the premium for individuals. This insurance extends to Directors and certain executive employees acting in the capacity of a director or on behalf of a subsidiary or related company. The Directors’ and executive employees’ liability insurance provides cover against costs and expenses involved in defending legal actions and any resulting payments arising from a liability to persons (other than the Company or a related body corporate) incurred in their capacity as director or executive employee unless the conduct involves a wilful breach of duty or an improper use of inside information or position to gain advantage. The Company has entered into deeds of indemnity in respect of each Director, the Chief Executive, Chief Financial Officer and Company Secretary, General Manager Strategy and Growth, General Manager Generation, General Manager Commercial Operations, General Manager Trading, and General Manager Business Solutions and Technology whereby each such director and executive employee is indemnified against the types of liability and costs described above, as permitted by the Company’s Constitution and the Companies Act 1993.

99 TRUSTPOWER 2015 ANNUAL REPORT SUBSIDIARY COMPANY DIRECTORS Set out below are details of the Directors of Trustpower’s subsidiaries as at 31 March 2015.

Director as at 31 March 2015 Trustpower Group Company Bruce James Harker Trustpower Metering Limited Alan Norman Bickers Trustpower Insurance Limited Geoffrey Jon Campbell Swier Trustpower Australia Holdings Pty Ltd Trustpower Renewable Investments Pty Ltd Snowtown Wind Farm Pty Ltd GSP Energy Pty Ltd* Rye Park Renewable Energy Pty Ltd Trustpower Market Services Pty Ltd Snowtown Wind Farm Stage 2 Pty Ltd Snowtown South Wind Farm Pty Ltd Dundonnell Wind Farm Pty Ltd Wingeel Wind Farm Pty Ltd Church Lane Wind Farm Pty Ltd Salt Creek Wind Farm Pty Ltd Vincent James Hawksworth Tararua Wind Power Limited Trustpower Metering Limited Trustpower Australia (New Zealand) Limited Trustpower Insurance Limited Bay Energy Limited Energy Direct NZ Limited Trustpower Market Services Pty Ltd Trustpower Australia Holdings Pty Ltd Trustpower Renewable Investments Pty Ltd Snowtown Wind Farm Pty Ltd GSP Energy Pty Ltd* Rye Park Renewable Energy Pty Ltd Snowtown Wind Farm Stage 2 Pty Ltd Snowtown South Wind Farm Pty Ltd Dundonnell Wind Farm Pty Ltd Wingeel Wind Farm Pty Ltd Church Lane Wind Farm Pty Ltd Salt Creek Wind Farm Pty Ltd * Formerly Sellicks Hill Wind Farm Pty Ltd No directors’ fees or other benefits were paid in relation to these directorships during the financial year. The remuneration and other benefits received by employees acting as directors of subsidiaries during the financial year is disclosed in the relevant bandings for employee remuneration. GENERAL NOTICE OF INTERESTS BY DIRECTORS OF SUBSIDIARY COMPANIES

Director Interest Entity Bruce James Harker* Alan Norman Bickers* Geoffrey Jon Campbell Swier* Vincent James Hawksworth Chief Executive Trustpower Limited *Refer General Notice of Interests by Directors INFORMATION USED BY DIRECTORS OF SUBSIDIARIES During the financial year there were no notices from directors of subsidiary companies requesting to disclose or use subsidiary company information received in their capacity as directors which would not otherwise have been available to them.

100 TRUSTPOWER 2015 ANNUAL REPORT EMPLOYEE REMUNERATION During the financial year the number of employees or former employees (including employees holding office as directors of subsidiaries) who received remuneration and other benefits in their capacity as employees of the Company and its subsidiaries, the value of which was or exceeded $100,000 per annum was as follows:

Remuneration Ranges Number of Employees $100,000 – 109,999 17 $110,000 – 119,999 16 $120,000 – 129,999 15 $130,000 – 139,999 9 $140,000 – 149,999 6 $150,000 – 159,999 5 $160,000 – 169,999 2 $170,000 – 179,999 5 $180,000 – 189,999 3 $190,000 – 199,999 1 $200,000 – 209,999 2 $210,000 – 219,999 4 $220,000 – 229,999 1 $230,000 – 239,999 1 $240,000 – 249,999 2 $250,000 – 259,999 2 $260,000 – 269,999 2 $270,000 – 279,999 1 $280,000 – 289,999 1 $290,000 – 299,999 2 $410,000 – 419,999 1 $440,000 – 449,999 1 $540,000 – 549,999 1 $640,000 – 649,999 1 $660,000 – 669,999 1 $1,340,000 – 1,349,999 1

DIRECTORS’ TRANSACTIONS AND RELEVANT INTERESTS IN SECURITIES OF THE COMPANY The relevant interests of Directors in securities of the Company as at 31 March 2015 are listed below together with transactions by Directors in securities of the Company during the financial year.

Number $ Amount Class of Number Number Acquired/ Paid/ Security Held at Held at Director (Disposed) (Received) Date 31 March 2015 31 March 2014 BJ and JS Harker Family Trust Bonds 150,000 150,000 (beneficial) 5,842 41,247 11 June 2014 Shares 5,411 41,249 4 December 2014 Shares 67,294 56,041 RH Aitken (beneficial) 2,833 20,002 11 June 2014 Shares 2,624 20,003 4 December 2014 Shares 22,412 16,955 AN & EJ Bickers (beneficial) 437 3,331 4 December 2014 Shares 937 500 M Bogoievski (beneficial) 2,833 20,002 11 June 2014 Shares 2,624 20,003 4 December 2014 Shares 21,154 15,697 MJ Cooney (beneficial) 2,833 20,002 11 June 2014 Shares N/A 28,417 MJ Cooney (non-beneficial) - - - Bonds N/A 150,000 - - - Shares N/A 103,878,838 IS Knowles (beneficial) 3,187 22,501 11 June 2014 Shares 2,952 22,504 4 December 2014 Shares 36,905 30,766 Maclagen Pty Ltd as Trustee for the Swier Family Trust 4,426 31,249 11 June 2014 Shares (beneficial) 4,099 31,248 4 December 2014 Shares 55,776 47,251

MJ Cooney ceased to be a director of the Company and certain subsidiaries effective 29 August 2014. The non-beneficial shares recorded for MJ Cooney were held in his capacity as a joint shareholder of the registered holder of those shares (being TECT Holdings Limited) as a trustee of Tauranga Energy Consumer Trust for whom those shares are held. The non-beneficial bonds recorded for MJ Cooney were held in his capacity as Trustee for an estate and a private trust. The shares held beneficially by MJ Cooney include shares held in own name and via a family trust. The Company was not advised of any other security transactions by any Director during the year.

101 TRUSTPOWER 2015 ANNUAL REPORT Security Holder Information SUBSTANTIAL SECURITY HOLDERS The Company’s register of substantial security holders, prepared in accordance with Section 35C of the Securities Markets Act 1988 recorded the following information as at 30 April 2015. As at 30 April 2015, Trustpower Limited had 315,751,872 ordinary shares on issue. A total of 2,839,376 ordinary shares were held as treasury stock as at 30 April 2015.

Security Holder Class of Security Number Infratil Limited Shares 159,742,389 TECT Holdings Limited Shares 83,878,838

Spread of Holders as at 30 April 2015 Shares Holders % Shares % 1 to 999 1,544 12.47% 751,573 0.24% 1,000 to 1,999 2,031 16.38% 2,465,598 0.78% 2,000 to 4,999 7,665 61.82% 18,234,484 5.77% 5,000 to 9,999 740 5.97% 4,762,842 1.51% 10,000 to 49,999 355 2.86% 6,077,713 1.92% 50,000 to 99,999 21 0.17% 1,439,834 0.46% 100,000 to 499,999 19 0.15% 4,143,663 1.31% 500,000 to 999,999 9 0.07% 6,272,914 1.99% 1,000,000 plus 14 0.11% 271,603,251 86.02% 12,398 100.00% 315,751,872 100.00%

Subordinated Bonds Holders % Subordinated Bonds % 1 to 999 0 0.00% 0 0.00% 1,000 to 1,999 1 0.02% 1,000 0.00% 2,000 to 4,999 0 0.00% 0 0.00% 5,000 to 9,999 600 13.12% 3,371,000 1.40% 10,000 to 49,999 3,102 67.85% 61,438,000 25.60% 50,000 to 99,999 593 12.97% 34,581,000 14.41% 100,000 to 499,999 242 5.29% 36,568,000 15.24% 500,000 to 999,999 12 0.26% 7,534,000 3.14% 1,000,000 plus 22 0.49% 96,507,000 40.21% 4,572 100.00% 240,000,000 100.00%

Senior Bonds Holders % Senior Bonds % 1 to 999 0 0.00% 0 0.00% 1,000 to 1,999 0 0.00% 0 0.00% 2,000 to 4,999 1 0.03% 2,000 0.00% 5,000 to 9,999 394 11.34% 2,181,000 0.89% 10,000 to 49,999 2,345 67.45% 45,738,000 18.67% 50,000 to 99,999 444 12.78% 24,952,000 10.18% 100,000 to 499,999 248 7.14% 36,855,000 15.04% 500,000 to 999,999 20 0.58% 12,529,000 5.11% 1,000,000 plus 23 0.66% 122,743,000 50.11% 3,475 100.00% 245,000,000 100.00%

Shares Holders % Shares % New Zealand 12,133 97.84% 311,501,294 98.67% Australia 187 1.51% 1,924,838 0.61% United Kingdom 25 0.20% 64,497 0.02% United States of America 19 0.15% 30,284 0.01% Other 34 0.30% 2,230,959 0.69% 12,398 100.00% 315,751,872 100.00%

Subordinated Bonds Holders % Subordinated Bonds % New Zealand 4,522 98.92% 236,745,000 98.65% Australia 16 0.35% 1,793,000 0.75% United Kingdom 7 0.15% 152,000 0.06% United States of America 9 0.20% 98,000 0.04% Other 18 0.38% 1,212,000 0.50% 4,572 100.00% 240,000,000 100.00%

Senior Bonds Holders % Senior Bonds % New Zealand 3,444 99.09% 241,525,000 98.58% Australia 13 0.37% 1,777,000 0.73% United Kingdom 3 0.09% 125,000 0.05% United States of America 1 0.03% 50,000 0.02% Other 14 0.42% 1,523,000 0.62% 3,475 100.00% 245,000,000 100.00% VOTING RIGHTS Every shareholder present in person, by proxy or by representative, on a vote by voices or a show of hands has one vote, and on a poll has one vote for each fully paid share held. Shares held as treasury stock do not have voting rights. STOCK EXCHANGE LISTING The Company’s shares are listed on the NZSX and its senior and subordinated bonds are listed on the NZDX. CURRENT CREDIT RATING STATUS Trustpower does not currently have an external credit rating. DEFINED SHARE BUYBACK PROGRAMME At the 2014 Annual Meeting of the Company held on 25 July 2014, an ordinary resolution was passed to authorise the buyback by the Company of up to 5 million of its shares, being less than 2% of the total number of its shares, by way of offers made through NZX’s order matching market during the period of 36 months following the Annual Meeting (Defined Share Buyback Programme). It was noted that such acquisitions may result in the percentage of voting shares held or controlled by TECT Holdings Limited (TECT) in the Company, increasing in aggregate by a maximum of 0.54% above the percentage held or controlled by TECT immediately before the first share buyback effected after the commencement of the Defined Share Buyback Programme.

As at 31 March 2015: (a) the Company has acquired 10,000 shares under the Defined Share Buyback Programme Buyback since the 2014 Annual Meeting; (b) the number of Trustpower voting shares on issue that were held or controlled by TECT was 103,878,838 shares which represented 33.20% of all Trustpower voting shares on issue; (c) the percentage of all Trustpower voting shares on issue that were held or controlled, in aggregate, by TECT and TECT’s associates was 33.20%; (d) the maximum percentage of all Trustpower voting shares on issue that could be held or controlled by TECT if the Company acquired the approved maximum number of Trustpower shares is 33.74%; (e) the maximum percentage of all Trustpower voting shares on issue that would be held or controlled, in aggregate, by TECT and TECT’s associates if the Company acquired the approved maximum number of Trustpower shares is 33.74%. The following assumptions have been applied for the purposes of providing the above particulars: (f) the number of Trustpower voting shares is the number of Trustpower voting shares on issue on 31 March 2015; (g) there is no change in the total number of Trustpower voting shares on issue between 31 March 2015 and 25 July 2017, being the end of the buyback period, other than as a result of the Defined Share Buyback Programme; (h) TECT and Infratil Limited do not participate in the Defined Share Buyback Programme; and (i) the Company acquires the approved maximum number of its own shares. CURRENT NZX WAIVERS There are no current NZX Waivers. NZX DISCIPLINARY ACTION There has been no action taken by NZX in relation to the Company under Listing Rule 5.4.2.

103 TRUSTPOWER 2015 ANNUAL REPORT LARGEST SECURITY HOLDERS (AS AT 30 APRIL 2015) Rank Holder Name Shares % 1 Infratil Limited 159,742,389 50.59% 2 TECT Holdings Limited 83,878,838 26.56% 3 Accident Compensation Corporation* 6,296,292 1.99% 4 New Zealand Superannuation Fund Nominees Limited* 5,807,689 1.84% 5 Custodial Services Limited 6,677,598 2.11% 6 BNP Paribas Nominees (NZ) Limited* 3,012,192 0.95% 7 National Nominees New Zealand Limited* 2,172,572 0.69% 8 Westpac NZ Shares 2002 Wholesale Trust* 1,595,664 0.51% 9 Citibank Nominees (New Zealand) Limited* 1,430,660 0.45% 10 Tea Custodians Limited* 1,161,792 0.37% 11 Craigs Investment Partners Limited 1,007,083 0.32% 12 New Zealand Permanent Trustees Limited* 733,199 0.23% 13 JPMorgan Chase Bank NA NZ Branch* 661,113 0.21% 14 BT NZ Unit Trust Nominees Limited* 648,488 0.21% 15 FNZ Custodians Limited 564,735 0.18% 16 Forsyth Barr Custodians Limited 537,175 0.17% 17 Multum Corporation Limited 380,200 0.12% 18 Brett Anthony Hart & Lynn Marion Fitness & Judith Louise Burney 300,000 0.10% 19 Brett Anthony Hart 294,000 0.09% 20 Superlife Trustee Nominees Limited 250,000 0.08% 277,151,679 87.78% * These names are registered in the name of New Zealand Central Securities Depository Limited.

Rank Holder Name Subordinated Bonds % 1 Custodial Services Limited 41,847,000 17.44% 2 Forsyth Barr Custodians Limited 26,239,000 10.93% 3 FNZ Custodians Limited 10,808,000 4.50% 4 Investment Custodial Services Limited 4,618,000 1.92% 5 BNP Paribas Nominees (NZ) Limited* 3,310,000 1.38% 6 NZPT Custodians (Grosvenor) Limited* 2,043,000 0.85% 7 New Zealand Methodist Trust Association 2,000,000 0.83% 8 Citibank Nominees (New Zealand) Limited* 1,471,000 0.61% 9 Lynette Therese Erceg & Darryl Edward Gregory & Catherine Agnes Quinn 1,171,000 0.49% 10 Carter Holt Harvey Retirement Plan 1,000,000 0.42% 11 F S Investments Limited 1,000,000 0.42% 12 Kia Investments Limited 1,000,000 0.42% 13 Sterling Holdings Limited 972,000 0.41% 14 Roger Michael Johnson & Cynthia Ann Johnson 850,000 0.35% 15 Mt Nominees Limited* 750,000 0.31% 16 Asset Custodian Nominees Limited* 709,000 0.30% 17 Tappenden Holdings Limited 633,000 0.26% 18 ASB Nominees Limited 575,000 0.24% 19 New Zealand Permanent Trustees Limited* 545,000 0.23% 20 Barry Neville Colman 500,000 0.21% 102,041,000 42.52% * These names are registered in the name of New Zealand Central Securities Depository Limited.

104 TRUSTPOWER 2015 ANNUAL REPORT

DIRECTORY BOARD OF DIRECTORS AUDITORS Bruce J Harker – Chairman PricewaterhouseCoopers Richard H Aitken 188 Quay Street Alan N Bickers Auckland 1142 Marko Bogoievski I Sam Knowles Geoffrey JC Swier SHARE REGISTRAR Computershare Investor Services Limited 159 Hurstmere Road REGISTERED OFFICE Takapuna Trustpower Building Private Bag 92119 Truman Lane Auckland 1142 RD 5 Telephone: 09 488 8700 Tauranga 3175 Facsimile: 09 488 8787

Shareholders with enquiries about transactions, change of address or WEBSITE dividend payments should contact the Share Registrar. www.trustpower.co.nz STOCK EXCHANGE LISTING EMAIL ADDRESS New Zealand Exchange Limited [email protected] Level 2 NZX Centre 11 Cable Street POSTAL ADDRESS Wellington 6011 Private Bag 12023 Tauranga Mail Centre Tauranga 3143 Telephone: 07 574 4800 Facsimile: 07 574 4825 FINANCIAL CALENDAR

Annual Meeting 24 July 2015 First quarter operating information 24 July 2015 Payment September bond interest 15 September 2015 Half year announcement 30 October 2015 Record date interim dividend 27 November 2015 Payment interim dividend 11 December 2015 Payment December bond interest 15 December 2015 Third quarter operating information 28 January 2016 Payment of March bond interest 15 March 2016 Full year announcement 13 May 2016 Record date of final dividend 27 May 2016 Payment of final dividend 10 June 2016 Payment of June bond interest 15 June 2016 Annual report due 30 June 2016

105 TRUSTPOWER 2015 ANNUAL REPORT