2019 ANNUAL REPORT MARLBOROUGH LINES HAS INVESTMENTS IN ELECTRICITY NETWORKS, VITICULTURE AND WINE. WE RECOGNISE BEING CONSUMER OWNED IMPOSES ADDITIONAL CHALLENGES... WE WILL MEET THEM. STANDING STANDING TALL IV section LINE MECHANIC – NIC WILLIAMS AND ARBORIST – KYLE MARFELL, POISED AND READY FOR ACTION. section 1 MARLBOROUGH LINES SEVENTH BEST 304 reliability in New Zealand of 29 networks and Strong support remotely operated much better than New Zealand’s largest city and links with our switches community Internationally recognised HIGH LEVELS management systems QUALITY for quality, health and safety and the OF CUSTOMER ASSETS environment SATISFACTION 85% of customers satisfied/very satisfied overall $125M in electricity discounts No deferred prudent paid to our consumers maintenance or since 1999 capital expenditure $15.77 value per share increased from $1.51 $30M in 1999 to $15.77 in dividends paid Measured our carbon to the Marlborough No debt in the footprint since 2008 Electric Power Trust Parent Company and actively sought from our investments to reduce it since 2010 SUCCESSFUL INVESTMENTS 50% 100% All major 33/11kV substations housed ownership of ownership of indoors with zero noise emission and integrated Nelson Electricity Yealands Wine Group within the environment 2 section A NEW DAY DAWNS AT YEALANDS SEAVIEW VINEYARD AND WINERY IN SEDDON. section 3 YEALANDS WINE GROUP Seaview Vineyard is the single LARGEST VINEYARD IN NEW ZEALAND Is still growing with newly planted areas scheduled to produce within the NEXT THREE YEARS Is New Zealand’s only Has further quality carboNZero accredited grape land for wine producer development A LEADER IN SUSTAINABLE WINE PRODUCTION RECOGNISED FOR THE QUALITY OF ITS WINES Awarded “Most Successful Winery of Competition” at the Sydney International Wine Competition for three of the last four years (2016, 2018 and 2019) SIXTH LARGEST Voted New Zealand’s Favourite Wine Brand exporter of New Zealand wine in the Air New Zealand Wine Awards 2017 (People’s Choice Award) CONTENTS SECTION SECTION 01 02 ABOUT DAY TO DAY US OPERATIONS Structure and location 8 Marlborough Lines health & safety 36 Our background 9 The electricity system 40 Performance overview 12 Customer Q&A 41 Results in brief 15 Marlborough Lines network operations 46 Parent Company performance overview 16 Marlborough Lines people 52 Setting goals and measuring progress 18 Marlborough Lines community 58 Chairman’s report 22 Marlborough Lines environment 62 Managing Director’s report 24 Marlborough Lines regulation 66 Chief Financial Officer’s report 26 Standing tall can attract criticism 70 Board of Directors 30 Senior Management 32 SECTION SECTION 03 04 YEALANDS FINANCIAL WINE GROUP PERFORMANCE Some facts 74 Our investments 82 Yealands Wine Group stands tall Governance, disclosures and in the viticulture world 75 financial statements 86 Corporate governance statement 88 General disclosures 94 Financial statements 2019 100 Notes to the financial statements 107 Statement of service performance 142 Independent auditor’s report 144 Company information 147 Notice of annual general meeting 148 Directory 149 A brief history of Marlborough Lines 150 Glossary 152 LINE CREWS WORKING ON THE HUTCHESON STREET POLE REPLACEMENT PROJECT IN BLENHEIM. SECTION 01 ABOUT US 8 structure and location about us MARLBOROUGH LINES INVESTMENT OWNERSHIP STRUCTURE AS AT 30 JUNE 2019 Marlborough Electric Power Trust Marlborough Lines Limited SEAVIEW CAPITAL LIMITED NELSON ELECTRICITY LIMITED (INVESTMENT VEHICLE) 5 DIRECTORS, 4 STAFF 100% SHARE 50% SHARE YEALANDS WINE GROUP LIMITED 5 DIRECTORS, 163 STAFF MARLBOROUGH SOUNDS 100% SHARE Our supply network extends into a number of very isolated areas NELSON (including the Marlborough Sounds) that pose unique Marlborough Lines jointly challenges for electricity owns Nelson Electricity supply. Limited with Network Tasman Limited. Both companies own 50%. BLENHEIM STRUCTURE AND LOCATION STRUCTURE Unlike many other regional networks, the Company has a single point of supply (in Blenheim) with an extensive sub-transmission system and 16 zone substations. MARLBOROUGH Marlborough Lines Limited (the Parent Company) is based at Blenheim in the Marlborough region. SOUTH ISLAND SEDDON NEW ZEALAND Yealands Wine Group is based at Seaview near the township of Seddon. about us our background 9 OUR BACKGROUND Our vision is: WHO ARE WE? Marlborough Lines Limited’s underlying » To operate our electricity network as a business is to manage the electricity distribution successful business and to be a leader network with responsibilities to distribute electricity in all that we do to facilitate the safe, within the Marlborough region of New Zealand. efficient and reliable distribution The legislation under which Marlborough Lines operates of electricity for the benefit of our requires it to operate as a successful business and it consumers, shareholder and community. achieves this demonstrably in both financial and operational terms. The Company has a track record » To undertake investment which of very successful investments in other electricity maximises benefit to our shareholder, networks outside the Marlborough region, initially the Marlborough Electric Power Trust, using funds generated from the legislatively forced divestment of its previous generation and electricity through the achievement of capital retailing businesses. growth and dividend streams which Whilst we continue to own 50% of Nelson Electricity, will enable distributions to current the distribution company which delivers electricity to and future beneficiaries. the city of Nelson, we have divested our other network investments resulting in substantial financial gain and have become a major investor in the wine industry which is the backbone of Marlborough’s economy. The Company owns 100% of Yealands Wine Group, which is Marlborough based and the sixth largest exporter of New Zealand wine. Initially Marlborough Lines acquired 80% of the Yealands Wine Group with effect from 1 July 2015, subsequently increasing this to 86% in 2016, and 100% on 29 June 2018. Our investment in the Yealands Wine Group has proven to be very successful. Dividend expectations have been met, and the capital value of the investment has appreciated significantly. This in turn has allowed us to maintain the flow of dividends from Marlborough Lines to its parent Trust and ultimately to the Trust’s electricity consumer beneficiaries. Marlborough Lines has further funds in reserve and will undertake further investment for the benefit of its shareholder in accord with its investment policy. 10 our background about us WHY OUR ACCOUNTS SEEM COMPLEX VITAL STATISTICS – MARLBOROUGH The Marlborough Lines Group is categorised as a LINES PARENT publicly accountable entity, and is required to account Marlborough Lines Limited shareholding comprises for its operations under the New Zealand equivalents 28 million $1.0 shares issued, fully paid and held by to the International Financial Reporting Standards the Marlborough Electric Power Trust. (NZ IFRS). The ownership of 100% of Yealands Wine Group dictates full consolidation of that company’s Total revenue of $60.7m ($61.4m last year). financial statements with those of Marlborough Lines to create Marlborough Lines Group accounts. Total assets of $413.9m ($407.8m last year). Following on from the initial acquisition of 80% of Some 26,000 network connections. Yealands Wine Group, it was necessary to change the Marlborough Lines balance date to 30 June, to achieve An area for network supply covering 11,330km2. alignment with Yealands Wine Group. The traditional 31 March balance date falls mid-vintage (harvest) for Network of lines and cables in excess of 3,443km. the wine industry and this makes the valuation of the harvest crop and resulting inventory very difficult. NZ 128 Blenheim based staff. IFRS group financial reporting requirements dictated alignment, with the result that Marlborough Lines An electricity network for the Marlborough region, needed a 15 month reporting period for the period which radiates out to a number of very isolated rural ended 30 June 2016. areas including the Marlborough Sounds, Molesworth To further complicate matters, each year the operational Station at the head of the Awatere Valley and the South performance of electricity networks in New Zealand is East Marlborough Coast. measured by the Commerce Commission in a reporting year ending on 31 March. Marlborough Lines currently has the 7th most reliable electricity network in New Zealand, which compares Consequently, in this report the financial data with 29th for New Zealand’s largest city. pertains to a 30 June balance date whilst much of the operational data such as network reliability statistics applies to a 31 March year. YEALANDS WINE GROUP The 2019 financials are also impacted by a valuation One of New Zealand’s major wine producers. uplift in Yealands Wine Group which then flowed through to Marlborough Lines Group numbers. The Sales revenue of $104.7m (last year $101.8m). 2019 current market valuation of the Yealands Wine Group properties provided an uplift of $13.8m. An enviable reputation for sustainable and innovative practices in the production of award winning wines. VITAL STATISTICS – MARLBOROUGH LINES GROUP Exports to over 70 countries. Marlborough Lines Parent Company plus – 50% During the year to June 2019 Yealands Wine Group shareholding in Nelson Electricity Limited – 100% received a significant number of awards for its quality interest in Yealands Wine