2020 Annual report Investment in our people, communities and essential networks for the future. Contents Chair & Chief Executive report 2 Financial overview 4 Our Directors 6 Evolving leadership and governance 8 Our leadership team 10 90 years of Northpower 12 Safety and wellbeing 14 Financial sustainability 22 Enabling networks 24 Contributing to our communities 30 Uplifting performance 34 Thriving communities 48 Board of Directors’ report 44 Financials Governance statement 46 Financial statements 47 Statement of service performance 48 Consolidated statement of comprehensive income 50 Consolidated balance sheet 51 Consolidated statement of changes in equity 52 Consolidated cash flow statement 53 Notes to the consolidated financial statements 53 Independent auditor’s report 72 1 Chair & Chief Executive report The global impact of COVID-19 has reminded us all of the need for essential services to perform in times of crisis. As a provider of electricity and high speed fibre services to the Whangārei and Kaipara districts, and as a contractor to the power industry. Serving communities 24 hours a day, 7 days a week is at the heart of what we do. 2 Chair & Chief Executive report This year we continued to invest in our core Associated deployment of tools and increased automation The early stages of the COVID-19 outbreak reminded us operations to ensure safe and reliable service. improved the efficiency of our field teams and network all why our essential service to our communities matters. It’s part of staying focused, and ensuring our design, delivering flexibility and cost-savings. Our networks and staff performed well in keeping power infrastructure performs consistently for the benefit and communications available over the lockdown period, We supported eight distribution companies with a of Northpower consumers. a critical contribution to the families and businesses who collective footprint of more than 25,000 kilometres of rely on our services when it mattered most. Our electricity business connected 909 new customers lines and cables who have over 500,000 consumers, and invested $20.1 million to ensure our electricity along with maintaining several Transpower asset fleets. The body of this report includes other examples of our networks continue to serve our community reliably into commitment to effective relationships, such as collaboration Our Contracting division continued to see strong demand the future. It’s part of a $243 million planned ten year with our clients to improve outcomes on their networks, for its services as distribution and transmission companies investment programme to renew older equipment, and facilitation of business and community networks, cadet across the North Island continued to lift investment. cater for growing capacity as our region continues to grow mentoring, wellbeing initiatives and local sponsorships. and diversify. Safety, effective programme delivery, and investing in local Overall, we have been pleased how the 1,200 strong workforces remained critically important to Northpower We continued to evolve our electricity network to enable Northpower team has focused on the things that matter and our clients, and we made material investments in increasing integration of technologies such as electric this year. Their performance embodies our four behaviours: vehicles and solar power. Key milestones this year each of these areas this year. We opened new depots in • be mindful, be present, be safe; included substantial progress on upgrading our core Tauranga and Hamilton to support growth in these regions • act as one; control systems as a step in supporting more complex and balance our capability to regional needs. • earn the trust; energy flows, including implementing common industry Financially, we achieved a group NPAT of $16.6 million, • own the outcome. standards and frameworks, and modernisation of the way supporting effective balance of pricing discounts, They demonstrate our focus on performing for clients we communicate and work with customers. reinvestment, and total debt. As part of this balanced and communities. Our fibre division (with the support of Crown Infrastructure approach we returned $10.1 million of posted discount to Partners Limited) accelerated the roll-out of fibre optic our consumer owners, an increase of $0.7 million on the We look forward to doing our part to continue to support networks to 12 towns in our region, connecting 3,180 prior year dividend paid. New Zealand’s recovery from the COVID-19 pandemic new customers and investing $13.2 million. Demand for and its associated impacts. Making the right investment decisions has been connection to these new networks has been strong, with underpinned by a focus on partnerships and 17,786 customers in our region now connected to fibre. trusted relationships with our communities and Nikki Davies-Colley We enhanced our fibre network management systems, clients. It’s the way we ensure our services provide BBS, MBA, CFInstD to ensure network reliability, utilising world-class maximum value. Chair communications solutions from our technology partner Calix. Andrew McLeod BEng (Mech), PGDip FA Chief Executive 3 Financial overview The Northpower group delivered a solid financial Balance sheet performance in FY20 underpinned by growth in our AT A GLANCE contracting division as well as solid performance from Northpower continued to invest in all divisions over the both our electricity and fibre networks. period, making material investments in both the electricity and fibre networks while also investing in new depots Northpower Group's net profit after tax for the year was in Tauranga and Hamilton to support growth in the $16.6 million after applying the $10.1 million posted $ contracting division. 16.6m discount paid to consumers. This was paid via a credit Net Profit After Tax on electricity bills reducing energy costs for connected From a financial perspective we have focused on achieving consumers. At an operating earnings level, this is a balance across discounts for our for consumer owners, pleasing result, which builds on the consistent financial investment into our core networks and services, and the performance achieved over the last number of years. total level of debt. Appropriate financial performance in recent years has helped support a targeted lift in both Northpower continued to focus on core business and discounts and investment, while managing debt within a process improvements throughout the year. New works $ tightly controlled range. 37.1m management systems were livened across our contracting in new assets group, providing a fully integrated quotation, construction Northpower retains a strong balance sheet and management, and billing platform. The livening of this actively manages gearing to provide capacity for group system, and associated process enhancement has been a businesses to traverse market and operating shocks key enabler in supporting growth and enabling efficiency should these occur. This position provides necessary gains realised across the group. flexibility as we move to adapt to the uncertainties and challenges associated with COVID-19. $ The outbreak of COVID-19 towards the end of the financial 10.1m discount to year impacted our operations in the latter part of March customers in 2019 2020 and into the first quarter of FY21 particularly in our contracting division. Pleasingly as COVID-19 restrictions have been lifted work flows have rebounded strongly. 4 4 Financial overview NETWORK Electricity network Fibre investment 300+ Electricity division earnings were in-line with the The ultra-fast broadband (UFB) network in Whangārei poles replaced previous year. Distribution revenue increased in-line is owned by Northpower Fibre Limited, a joint venture with connection growth; offset by lower generation between Northpower and Crown Infrastructure Partners. revenue due to historically low water levels, with reduced As at 31 March 2020, Northpower owned 69.5% of this generation at our Wairua hydro plant. Capital investment business. It has continued to perform well and provide a was in-line with projections for the year reflecting an dividend stream to Northpower, while delivering world- increase from the previous year. class speed and reliability outcomes to families and 909 new electricity connections businesses in our region. New Zealand contracting With the help of debt funding from the Crown, Northpower’s contracting division performed Northpower continues to extend the ultra-fast appropriately on the back of increased volumes from core broadband network to smaller towns in the region. clients as well as the continued strength in the housing This project is progressing well and is forecast to 50km and development markets. New Zealand’s distribution finish in December 2020. high voltage lines replaced and transmission sectors continue to forecast a period of increasing investment in the medium to long term. 64% in our region connected to fibre 69.5% fibre ownership 5 Our Directors Nikki Davies-Colley Mark Trigg Richard Booth Phil Hutchings BBS, MBA, CFInstD B Eng Chemical and Materials MBA, Dip Ag B.Eng. (Hons), Dip Bus Admin Audit and Risk Committee (ex-officio) People and Capability Audit and Risk Committee Audit and Risk Committee People and Capability Committee Committee Chair Director Director Chair Director Nikki has been a director of Mark brings extensive industry Richard brings a robust governance Phil’s early background in commercial Northpower since 1995 and was experience with a