ANNUAL REPORT 2011 harnessing energy At TrustPower, the 2010/11 year has again seen us harnessing the power of nature to create relationships across the communities and businesses of New Zealand. These relationships help to strengthen lifestyles, open up opportunity, and drive productivity. In so doing, they support our business success and reinforce our commitment to shareholders. In this year’s annual report, we are delighted to share, and applaud, some of the relationships that make everything possible — year after year. 01 TRUSTPOWER ANNUAL REPORT 2011 Contents The Power of People 18 Our Environment 36 Highlights & Strategic Focus 02 Innovation in Action 20 Stakeholder Interaction 38 Who We Are 03 A Focus on Fish 22 Corporate Governance Statement 40 Directors' Report 04 About our Sustainability Report 24 Financial Statements 2011 43 Board of Directors 07 Sustainability Outlook 25 Auditors' Report 44 Chief Executive's Report 08 Our Customers 26 Statutory Information 80 Management Team 12 Our Community 28 Security Holder Information 83 A Southland Success For Two 14 Our People 30 Directory 85 Connecting with our Communities 16 Sustainable Economic Performance 34 Financial Calendar 85 02 1 22 TRUSTPOWER GENERATION ASSETS RETAIL CUSTOMERS 2 Kaimai 1 Far North 1 5 3 1 Matahina 2 Counties 2 4 6 2 Wheao/Flaxy 3 Waipa 3 3 7 Hinemaiaia 4 Central Waikato 4 4 6 8 Mangorei 5 Southern Thames Valley 5 10 5 Motukawa 6 Tauranga/Rotorua/Taupo 6 9 7 Patea 7 Gisborne 7 11 Tararua Wind Farm 8 Wairoa 8 12 Cobb 9 Hawke’s Bay 9 8 9 Waihopai 10 New Plymouth 10 13 15 Argyle/Wairau 11 Wanganui/Taranaki 11 11 14 16 Arnold 12 Manawatu 12 10 Kumara/Dillmans/Duffers 13 Wellington 13 12 17 Kaniere Forks/McKays Creek 14 Marlborough 14 13 14 18 Coleridge 15 Tasman/Nelson 15 18 Highbank 16 Buller 16 15 19 16 Montalto 17 West Coast 17 17 20 Wahapo 18 Rangiora 18 21 Paerau/Patearoa 19 Christchurch 19 23 22 Waipori/Deep Stream 20 Ashburton 20 24 19 Mahinerangi Wind Farm 21 Timaru 21 21 25 Snowtown Wind Farm (Australia) 22 Oamaru 22 20 Central Otago 23 26 Otago 24 Dunedin 25 Invercargill/Southland 26 HIGHLIGHTS STRATEGIC FOCUS 2011 2012 Earnings before interest, Replacement of customer tax, depreciation, amortisation information system. and fair value movements of financial instruments was Protect and grow TrustPower’s $274.4 million. premium retail brand. Underlying Progress hydro scheme enhancement earnings after tax of opportunities to provide additional $116.5 million. peaking capacity for the Group’s generation portfolio. Completion of 36MW Stage 1 Mahinerangi Wind Project ahead Progress Canterbury of schedule and under budget. hydro / irrigation opportunities. Completion of Highbank pumping Progress wind development project on schedule. Fifth pump opportunities in Australia including added in response to increased Stage II expansion of the demand from irrigators. snowtown Wind Farm. Awarded energy Retailer Complete Bream Bay 9MW of the Year at the 2010 Deloitte diesel plant to enhance north Island Energy Excellence Awards. peaking generation capacity. 03 TRUSTPOWER ANNUAL REPORT 2011 1 22 TRUSTPOWER GENERATION ASSETS RETAIL CUSTOMERS 2 Kaimai 1 Far North 1 5 3 1 Matahina 2 Counties 2 4 6 2 Wheao/Flaxy 3 Waipa 3 3 7 Hinemaiaia 4 Central Waikato 4 4 6 8 Mangorei 5 Southern Thames Valley 5 10 5 Motukawa 6 Tauranga/Rotorua/Taupo 6 9 7 Patea 7 Gisborne 7 11 Tararua Wind Farm 8 Wairoa 8 12 Cobb 9 Hawke’s Bay 9 8 9 Waihopai 10 New Plymouth 10 13 15 Argyle/Wairau 11 Wanganui/Taranaki 11 11 14 16 Arnold 12 Manawatu 12 10 Kumara/Dillmans/Duffers 13 Wellington 13 12 17 Kaniere Forks/McKays Creek 14 Marlborough 14 13 14 18 Coleridge 15 Tasman/Nelson 15 18 Highbank 16 Buller 16 15 19 16 Montalto 17 West Coast 17 17 20 Wahapo 18 Rangiora 18 21 Paerau/Patearoa 19 Christchurch 19 23 22 Waipori/Deep Stream 20 Ashburton 20 24 19 Mahinerangi Wind Farm 21 Timaru 21 21 25 Snowtown Wind Farm (Australia) 22 Oamaru 22 20 Central Otago 23 26 Otago 24 Dunedin 25 Invercargill/Southland 26 WHO WE ARE We own 621MW of hydro and wind generation spread throughout New Zealand as well as the 99MW Snowtown Wind Farm in South Australia. These assets produce an average of around customers and provide 35,000 2,750GWh per year including the recently telecommunications services to 23,000 completed 36MW first stage of the customers throughout New Zealand. Mahinerangi Wind Farm in Otago. Our first We have 424 full time equivalent employees irrigation asset, a pumping facility using working throughout New Zealand and three water from our Highbank hydro generation employees in Adelaide. Around 65% of scheme, was constructed during the year. New Zealand employees are based in our We supply electricity to around 221,000 Tauranga head office. 04 BRUCe HARKeR CHAIRMAN 05 TRUSTPOWER ANNUAL REPORT 2011 DIRECTORS' REPORT Financial Performance hydro storage. However, a number of TrustPower continues to maintain TrustPower’s consolidated profit after tax short term wholesale price increases conservative levels of committed credit was $112.4 million for the year ended occurred during the last four months of facilities. Including subordinated bonds, the 31 March 2011. This represents a decrease the financial year when thermal generation Company currently has NZD equivalent of 6 per cent compared with $119.4 million was priced at very high levels following of 1.21 billion of committed debt funding for the same period last year. Impacting on capacity constraints in the market. in place. As at 31 March 2011 Group net the prior year result was fair value gains TrustPower’s sound risk management debt was $797.0 million. TrustPower has on financial instruments of $12.5 million practices resulted in the Company not recently accepted offers to refinance its resulting from rising long term interest rates being materially impacted by these events. $225 million of bank facilities due to mature that favourably impacted the value of the The Group’s New Zealand generation in July 2011. These facilities will be increased Group’s interest rate hedging portfolio. production of 2,286GWh was up 269GWh to $250 million and extended to July 2014. Underlying earnings after tax excluding (13 per cent) on the previous year and fair value movements on financial slightly above the expected long term Capital Structure instruments and impairment charges average. Total hydro production was up During the financial year TrustPower was $116.5 million compared with 301GWh (21 per cent) on the previous successfully raised $75 million of seven $116.8 million in the previous year. year and 6 per cent above the expected year senior bonds from retail investors and Earnings before interest, tax, depreciation, long term average due to above average arranged a $50 million amortising export amortisation, fair value movements of inflows over the course of the year into both credit agency guaranteed debt facility for financial instruments and asset impairments North and South Island catchments. Wind the Mahinerangi Wind Farm. These (EBITDAF) were $274.4 million, slightly production was down 32GWh (5 per cent) arrangements have improved the diversity above the $273.9 million achieved in the on the previous year and down 11 per cent of long term funding for the Group. previous year. Taking into account the very on the expected long term average. Purchases of TrustPower’s shares competitive retail environment during the Wind production from the Snowtown have continued under the Company’s year, this is considered to be a solid result Wind Farm in South Australia was 328GWh Share Buyback Programme which was and in line with guidance provided to the which was 45GWh (12 per cent) lower originally approved at the Annual market following the interim announcement. than the previous year and 16 per cent Meeting in July 2008. The approval Operating revenue increased 1 per cent lower than the expected long term average. allows the Company to purchase up to from $759.3 million in the previous year In both Australia and New Zealand 5 million shares over a 3 year period. to $766.2 million. Operating expenses review of available wind data does not As at 2 May 2011, 1,103,417 shares including energy and line costs increased indicate that the low wind conditions have been purchased at an average cost in line with revenues. reflect a long term reduction in the of $7.12. This represents just under 5 per Total electricity volume sold by the resource. Underlying return on average cent of total TrustPower shares traded Company in New Zealand was 4,033GWh, equity, adjusted for fair value movements over the period and the average compared with 4,103GWh in the year on financial instruments and impairment purchase price compares to a volume to 31 March 2010. Customer numbers charges, was 8.2 per cent (compared to weighted average price of $7.35 for total decreased by 4,000 from 225,000 as 8.1 per cent in the previous year). shares traded during the period. at 31 March 2010 to 221,000 as at Group operating cash flow was 31 March 2011. While sales volume to $224.0 million for the 2011 financial Generation Development and mass market customers fell by 180GWh year versus $234.1 million in the 2010 Capital Expenditure (9 per cent) due to lower customer financial year. The construction of the 36MW first stage numbers and the impact of a mild winter of the Mahinerangi Wind Farm adjacent to in 2010, the Company was able to increase Financial Position the Waipori Hydro Generation Scheme time of use sales volume by 110GWh TrustPower’s balance sheet as at was completed during the year ahead of (5 per cent).