IT HAPPENS... Annual Report 2014 …AND OUR RELIABILITY RECORD GETS SHREDDED! It’s been an eventful twelve months. Headline-making storms and earthquakes ripped through the Marlborough region on more than one occasion and – in comparison with last year – parts of our network really got slammed. Reduced reliability statistics tell part of the story, but challenging events such as these also serve to demonstrate our overall resilience and ability to perform for our customers and region in the face of adversity. They show what we’re really made of. Marlborough Lines Limited Annual Report 2014 1 CONTENTS About Marlborough Lines 4 Our ownership and areas of operation Performance overview 6 Our key financial measures were steady Performance overview 8 Parent company performance overview against key targets Our mission 10 Working to exceed customer expectations – the achievements Chairman’s report 12 Taking the long-term view Managing Director’s report 14 Investing to future proof assets Customer Q&A The answers to some of our customers’ 16 most frequently asked questions 2 Marlborough Lines Limited Annual Report 2014 About this report The real value of a resilient network This 2014 Annual Report summarises Working to reduce lost supply minutes Marlborough Lines’ operations, activities 18 and financial position as at 31 March 2014. 19 Our network 30 Contracting Marlborough Lines Limited is the Parent 32 Our people company of the Marlborough Lines Group of 38 Safety companies. In this report, we have detailed as 41 Community appropriate, numbers and tables for the financial 44 Environment indicators of both the Parent and Group, and where necessary, descriptions of the activities of the individual entities comprising investments Senior management within the Group. Meet the decision makers and people References in this report to a ‘year’ means the responsible for our operations calendar and financial year ended 31 March 2014 50 unless otherwise stated. All dollar figures are expressed in New Zealand currency unless otherwise stated. The Company undertakes only a small print Regulation run of the Annual Report using materials from The implications of complex and confusing compliance sustainable forest production (see inside back 52 cover). We encourage readers and stakeholders to access the electronic (PDF) version which can be downloaded from our website www.marlboroughlines.co.nz. Review of financial statements 54 Profitability – behind the numbers Report objectives This report meets the New Zealand compliance and legislative requirements of the Companies Act, The Financial Reporting Act and the Energy Review of investments Companies Act, whilst also providing easy to read A network-centric strategy information on Marlborough Lines’ aspirations 59 and performance for 2014 – the uncontrollable factors which affect our performance, and our goals for the 2015 year. The industry and regulatory environment in which we operate is Statutory information complex and for that reason we have provided for Directors, governance, disclosures and financial statements our customers an outline of our position, activities 63 and attributes in the supply chain for electricity (see page 17). Marlborough Lines Limited Annual Report 2014 3 WHO WE ARE WE ARE ELECTRICITY NETWORK SPECIALISTS We are an electricity The Group Supply to Marlborough then radiates network owner/operator • 50% interest in Nelson out to a number of very isolated rural areas including the Marlborough delivering electricity to Electricity Limited • 51% share in the OtagoNet Sounds, Molesworth Station (New some 24,500 customers Joint Venture Zealand’s largest farm at the top of the in the Marlborough • 13.9% of the shares in Horizon Awatere Valley), and the southern region of New Zealand. Energy Distribution Limited. Marlborough coast; an area bordered by the Pacific Ocean on one side and Marlborough Lines Group has a 50% the seaward and inland Kaikoura Outside Marlborough, other interest in Nelson Electricity Limited mountains on the other. network companies in which we (the owner of the electricity network have substantial investments supply supply in the central Nelson city The Marlborough region has become a further 48,600 customers in the area), and a 51% share in the OtagoNet famous for wine production and Nelson, Otago and Bay of Plenty Joint Venture (OtagoNet supplies currently produces about 77% of regions of New Zealand. electricity to the greater Otago area). New Zealand’s wine volume . It is also Between them, these two entities a significant exporter of forestry and Our investment activities also aquaculture products. include electricity contracting supply electricity to approximately services (where we employ about 23,900 customers. The Group also While parts of our region have a 180 people) in the Marlborough, holds 13.9% of the shares in Horizon low population density and cover Otago and Southland regions. Energy – the owner of the electricity some very rugged terrain, the network which supplies a further Company traditionally maintains a Our contracting divisions undertake 24,700 customers in the Bay of Plenty. very high level of network reliability. construction and maintenance of the We are recognised as a leader in the electricity network assets that deliver Beyond the Marlborough region entities in which Marlborough Lines operation and maintenance of rural electricity to customers from the electricity networks. National Grid. has a significant financial interest: • Supply a total of around 48,600 Vital statistics customers While parts of our Parent company • Deliver 1,128GWh of electricity • Have a peak load of 175MW region have a low • Marlborough Lines Limited • Use 7,024km of lines shareholding comprises 28m population density • Have a total revenue of $159.5m $1 .00 shares issued, fully paid • Employ 400 staff. up and held by the Marlborough and cover some very Electric Power Trust Marlborough Lines is based in rugged terrain, the • Annual revenue of $53.878m Blenheim, a town with an enviable • Some 24,500 network connections reputation for high sunshine hours. Company traditionally • An area for network supply We take our electricity supply from maintains a very covering 11,330km2 the Transpower grid via three circuits • Network of lines and cables to a single point of supply in the high level of network in excess of 3,350km Blenheim suburb of Springlands. reliability. • 129 Blenheim-based staff. 4 Marlborough Lines Limited Annual Report 2014 ABOUT US Marlborough Lines investment ownership structure TRUST BENEFICIARIES Marlborough customers connected to network MARLBOROUGH ELECTRIC POWER TRUST The Power Electricity PARENT MARLBOROUGH LINES LIMITED Company Limited Invercargill Limited COMPANIES INVESTMENT Southern Lines Last Tango Limited Pylon Limited HOLDING Limited COMPANIES 13 .9% 50% 51% 24 .5% 24 .5% share share share share share Horizon Energy Nelson Electricity Otago Power Services Limited OtagoNet (Joint Venture) INVESTMENTS Distribution limited Limited (Contractor) Listed Electricity • 5 Directors • 4 Members OtagoNet • 4 Directors Network Company • 4 Staff Governance Committee • Marlborough Lines Management • 9 Staff • 90 Staff • PowerNet Admin Management • Marlborough Lines Engineering Management NELSON Marlborough Lines jointly owns Nelson Electricity Limited with Network Tasman Limited . Both companies own 50% . MARLBOROUGH SOUNDS Our supply network extends into a number of very isolated areas (including the Marlborough Sounds) that pose unique challenges for electricity supply . BLENHEIM Unlike many other regional networks, the Company has a single point of supply (in Blenheim) with an extensive sub-transmission system and zone substations . Horizon Energy Network MARLBOROUGH Marlborough The Company operates Lines Limited (the Parent significant contracting company) is based at Blenheim entities in both the in the Marlborough region . Marlborough and Otago regions. Nelson Electricity Network Nelson Blenheim Marlborough Lines Network OtagoNet Network Dunedin Gore Balclutha Marlborough Lines Limited Annual Report 2014 5 PERFORMANCE OVERVIEW PERFORMANCE OVERVIEW STEADYSOUND KEYKEY MEASURES… $54.228m $9.153m $22.505m Group total revenue (up 5.8%) Group surplus after Group earnings before taxation (down 19%). interest, tax and depreciation Network revenue increased Page 54 EBITDA (down 6%). following an increase in line Page 7 charges of 9.5% from 1 April and a 2.08% decrease in energy volume. Pages 7 & 9 $20.623m $9.172m $1.700m Capital and maintenance Total discounts, inclusive Total dividend paid to the expenditure to increase capacity of GST, paid to Marlborough Marlborough Electric Power and improve reliability customers, an increase of Trust for distribution 11.8% (an average customer to consumers An increase of 1.1% from last year. received $221.84) This investment and that of Each qualifying network previous years is reflected in an Combined discount and Trust connection received $50. increased reliability of supply distribution for the ‘average’ Page 16 excluding significant nature events. customer defined by the Page 22 MBIE was $271.84. Page 16 $7.375m -2.08% 24,546 Total cash flows received from Decrease in the volume Total Marlborough network investments in Nelson, Otago of energy traded over the connections (up 0.1%) and Horizon (down 7.6%) Marlborough network This low rate of growth is a This is a $45k decrease on last This reflects a relatively mild contrast to previous years and year, and represents a 6.73% gross winter and lower