all the little things TRUSTPOWER 2018 ANNUAL REPORT little things lead to greatness Trustpower’s relentless attention to detail and continuous effort have led us to where we are today. It’s no small achievement. Improvements, innovations and efficiencies add up to a very successful year. Our talented people recognise that individual steps are not insignificant when they are made together as a team, on a shared path to the future. table of contents 2 achievements 4 where we work 6 chairman & chief executive’s report 12 the leadership team 14 case studies 22 sustainability report 24 our economic performance 26 our community 28 our environment 30 our people 32 our customers 34 corporate governance 36 explanation of financial statements 37 financial statements 38 key metrics 39 directors’ responsibility statement 40 auditor’s report 89 statutory information 96 security holder information 98 directory 98 financial calendar TRUSTPOWER 2018 ANNUAL REPORT / 1 achievements / 2018 We added the most shareholder Strategic Focus value, at 29%, of all our listed / 2019 We’re focussed on continuing competitors for the year; we reached to execute our multi-product customer strategy, increasing the milestone of 100,000 customers efficiency throughout the business, and finding taking two or more services; we opportunities to add value for shareholders through successfully sold our NSW hydro strategic acquisitions over assets for AUD168 million after the year ahead. purchasing them for AUD72 million in 2014; we completed the joint takeover of King Country Energy and the purchase of its retail business. 2 \ ACHIEVEMENTS $35 $267 million million net profit after tax of operating earnings (EBITDAF) $129 million, up $35 million of $267 million, up 22% or 38% 17¢ 40.9¢ final dividend of earnings per share of 17 cents 40.9 cents, up 38% 397,000 $60 total utility account holders reached 397,000, a 3% increase from 385,000 at 31 March 2017 million retail earnings (EBITDAF) of $60 million, up 33% 100,000 customers with two or more products reached 100,000, 11% increase from 90,000 at 31 March 2017 11% 45% New Zealand generation production lifted more customers are choosing 11% due to the impact of strong hydrological to engage with Trustpower inflows, resulting in operating earnings of digitally, with 45% of customer $196 million, up 16% on last year interactions now handled by our virtual workforce TRUSTPOWER 2018 ANNUAL REPORT / 3 where we work Trustpower generates electricity at 27 sites across New Zealand. More than 99% of our power is generated sustainably, through hydroelectric generation. North Island South Island Retail Customers Auckland Tasman/Nelson Hydro Counties Buller Far North West Coast Diesel King Country Invercargill/Southland Southern Thames Valley Marlborough Taupo Central Otago Waikato/Waipa Dunedin Tauranga Oamaru Rotorua Otago New Plymouth/Taranaki Ashburton Gisborne Christchurch Manawatu Rangiora Whanganui Timaru Hawke’s Bay Wairoa Cobb Wellington Arnold Kaniere Forks/McKays Creek Hinemaiaia Kumara/Dillmans/Duffers Kuratau Wahapo Mokauti Argyle/Wairau Piriaka Waihopai Wairere Falls Paerau/Patearoa Kaimai Waipori Matahina Deep Stream Wheao/Flaxy Coleridge Mangorei Highbank Motukawa Montalto Patea Mangahao Esk Bream Bay 4 \ WHERE WE WORK 99%+ 27 246,000 of our power is generation sites customers including 100,000 that generated sustainably across New Zealand purchase multiple products from us TRUSTPOWER 2018 ANNUAL REPORT / 5 chairman & chief executive’s report The 2018 financial year was the first full year for Trustpower after the demerger of Tilt Renewables Limited. Last year we noted that Trustpower would “focus on Whilst the environment in which we operate is increasing performance in its two key business areas dynamic and continuous change is inevitable we of hydro generation and multi-product retail”. believe Trustpower is well positioned to compete. Progress this year has been pleasing. We continued our retail multi-product growth strategy reaching Strategy 100,000 customers with two or more products, we Trustpower has further refined its strategy during have also benefited from being well positioned with the 2018 year. our hydro generation storage when prices were high We have developed four key strategic themes. during the winter months. These are based on our core convictions, that We have further refined our strategy and focussed customers value the bundled product offer, the the business in New Zealand with the successful value of customer loyalty and the importance of sale of the Australian GSP Energy assets and the renewable generation in New Zealand. completion of the acquisition of King Country The first strategy, bundling energy and Energy (KCE) in a joint venture with the King telecommunication products, is a successful growth Country Electric Power Trust. story. We consistently experience more than There were two particularly challenging events 80% of new customers purchasing two or more during the year. The first was the Edgecumbe flood. products. When this trend is combined with lower This serious weather event was devastating for the churn for customers who buy both energy and community and Trustpower provided support where telecommunication products we believe this leads possible. Trustpower also made significant effort to increased customer satisfaction and lifetime value. to reduce the impact through the operation of the During the year, Trustpower changed its approach Matahina dam and meeting the requirements of the for bundled customer acquisition, moving from a flood management plan. price discount model to a customer centric value The second was the Tauranga Energy Consumer added model based on the insights from our Trust (TECT) proposal and consultation on major market research. change to TECT. Trustpower opposed the process Analysis of these insights led to the introduction followed by TECT and the single option for change. of entertainment bundles that appealed to key Trustpower’s customers expected the company to customer segments. The result is more customers enable their voice to be heard. Trustpower believes migrating to higher value internet plans. Trustpower the TECT Trustees made the right decision to now has 52% of its telecommunication customers withdraw the proposal. on fibre plans. 6 \ CHAIRMAN & CHIEF EXECUTIVE’S REPORT Paul Ridley-Smith / Chairman TRUSTPOWER 2018 ANNUAL REPORT / 7 Vince Hawksworth / Chief Executive 8 \ CHAIRMAN & CHIEF EXECUTIVE’S REPORT Our second strategic focus is on our electricity We believe that consolidation is inevitable in the only customers. This is a highly competitive market markets we serve. We completed the takeover segment with around 40 brands in market; we of King Country Energy (KCE) jointly with the believe this intense competition increases the risk King Country Electric Power Trust. Subsequently, of business failures and market consolidation is Trustpower has fully acquired the KCE retail likely. Trustpower seeks to balance its portfolio business and is integrating it with Trustpower retail. across all parts of the market to manage risk. We sell approximately 1,900GWh per annum into Operating performance the commercial and industrial market on two to Trustpower achieved New Zealand hydro generation three year contracts, with our customer relationships volumes of 2,235GWh which is 18% above the having an average tenure of seven years. long-term average of 1,890GWh. The Company In the mass market consumer segment, we have particularly benefitted from strong inflows into its focussed our efforts on cross sell and retention North Island catchments. using targeted offers to move customers from The average price received was $88/MWh, electricity only to the multi-product category. a significant increase from the average price of Our third strategy, to optimise our generation $52/MWh received in the prior year. portfolio performance, delivered particularly well In Australia, prices for black energy were in the 2018 year. Our hydro storages were well A$92/MWh (an 18% increase on the A$78/MWh positioned at the start of winter and by ensuring received in the previous year) and this, combined that our assets were available Trustpower was able with renewable energy credit production, resulted in to maximise revenue, resulting in $196 million a strong final year for GSP Energy. EBITDAF from the generation business, an increase of 16% from $169 million in the previous year. Customer connections continue to grow and Trustpower now has more than 100,000 customers Trustpower has a small share of the New Zealand buying two or more products. It is notable that our generation market. In an average year we produce growth in the metro areas means that we are now 4.2% of New Zealand generation and 7.3% of more geographically diversified, with our traditional New Zealand hydro generation. Trustpower does customer base being in the Bay of Plenty and however have the ability to store more water than regional New Zealand. To support this growth, and represented by its generation capacity. This allows to meet the expectations of our customers, we have us to generate more electricity at times when prices continued to invest in technology. are high and conservatively less when prices are low. During the year, we launched a mobile app and We continue to make prudent investments in our a chatbot. Together with our other customer asset base with a particular focus on the highest facing technology investments, we now service earning hydro machines. We commenced significant more than 45% of customer contacts without work at Matahina that will be completed in the human intervention. coming months and have a planned upgrade for the Coleridge power station generators. Financial performance Trustpower also decided to divest the GSP Energy As noted, the year ended 31 March 2018 was a Pty Ltd hydro assets. This decision took advantage positive year for Trustpower. With consolidated profit of the current Australian energy market conditions after tax of $129 million, being an increase of 38% that has created heightened interest in renewable compared with the $94 million received last year.