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Chief Executive's Report

Vince Hawksworth

Introduction

Vince Hawksworth, Chief Executive

The 2014 financial year was a transformative one for Trustpower. The launch of our new brand was a crucial step in our aspiration to be a multi-product utility retail company. Our acquisition of the assets of Energy Direct NZ Limited (EDNZ) gives the Company immediate scale in the gas retail market and combined with the brand launch creates momentum towards our goal of being a leading supplier of utilities at home and beyond our shores.

The substantial progress on construction of the Snowtown Stage 2 Wind Farm illustrates the ability of Trustpower to execute our Australian renewable energy strategy. The Company also continued development of our irrigation arrangements that make use of Lake Coleridge for storage. These initiatives when combined are positive for sustainable shareholder returns.

This was also a year of significant challenge. The electricity industry continues to be a target of political debate. In New Zealand this has revolved around the Labour Party and New Zealand Greens industry restructuring proposals. In Australia the focus has been on the newly elected coalition government’s carbon tax repeal and renewable energy target (RET) review. Both of these create market uncertainty.

However, Trustpower remains committed to seeking opportunities to utilise our skills in renewable energy and irrigation deployment to meet the challenges of sustainable energy and food production.

Health and Safety

The health and safety of our staff, contractors and the general public is paramount at Trustpower. We are focussed on maintaining our commitment and meeting our obligations under the Health and Safety Reform Bill. It is clear that the new legislation will require the highest standards of governance and that management and staff will need to increase engagement and ensure that together we deliver meaningful improvements in health and safety in the work place.

Trustpower has used a high engagement safety model for a number of years and this is reinforced by our ongoing commitment to the Great Safety Performance (GSP) programme. The most recent GSP Survey results illustrate that our staff and leaders are fully engaged with our “no harm” vision. However, we still have incidents and there were 6 lost time injuries, 49 first aid and medical treatment injuries and 68 near miss non injury accidents.

Increasing Brand and Customer Value

The development of our new brand presence is consistent with our vision to be a leading supplier of utilities at home and beyond our shores. The brand brings together our electricity, gas, broadband and phone offerings. Our goal is to increase the number of customers that have bundled product offerings and enjoy our great Kiwi service.

Our acquisition of EDNZ has been a spring board for multi-product growth. Electricity customers have increased by 8.7% to 224,000, telecommunicationsservice provision has increased by 25% to over 54,000 services and gas customers have reached 14,000.

The success of the Trustpower brand and growth in future years will be based on our ability to innovate and provide customer value in ways that are distinctive and different to our competitors.

To achieve this we will focus our effort on attracting new customers, improving the customer experience and retaining our loyal customers.

Trustpower continues to have lower levels of customer churn than our competitors in the electricity market.

New Zealand Generation

During the year we completed construction of the 3.8MW Esk Hydro scheme. The scheme consists of two power stations and is expected to produce 15 GWh per year with minimal environmental impact. Trustpower continues to hold wind and hydro generation options, however the current supply and demand outlook indicates it may be five years or more before New Zealand requires new generation. We will continue to review these options for economic viability.

We are focused on existing asset enhancement that will increase efficiency and value in the market. This includes optimisation of the hydro resource and improving the ability of our assets to target higher price periods in the market.

Our generation assets have performed well; we started our hydro machines 26,798 times (28,154 FY2013) with only 75 failed starts (72 FY2013). Our machines tripped in service 179 times resulting in one trip per 1,877 running hours, better than our target of less than one trip per 1,000 running hours.

Trustpower has more than 4,000 resource consent conditions that govern the operation of our assets. It is disappointing to report that we had four relatively minor non-compliances. One of these has resulted in an infringement notice. We are conducting a review of our monitoring systems to minimise the risk of future non-compliance.

Irrigation

During the year Trustpower participated in the Ruataniwha Water Storage Scheme process (RWSS). RWSS has the potential to increase land productivity in Hawkes Bay and Trustpower committed significant resources to the project. However, the Company chose to withdraw from the project as we were unable to meet our risk and return criteria.

During the year we continued to progress the use of Lake Coleridge for irrigation. We completed arrangements with Central Plains Water having previously reached an  agreement with Barhill Chertsey Irrigation. Subsequently, we installed a sixth pump at Highbank Power Station to meet potential water demand.

Our focus is on working collaboratively with the parties in the Canterbury region to ensure the benefits of storage for irrigation are realised.

Australia

Despite the uncertainty created by the newly elected Coalition Government review of the Renewable Energy Target, our focus in Australia has been to successfully execute the Snowtown Stage 2 project and further strengthen the pipeline of future projects.

Snowtown Stage 2 is well advanced achieving synchronisation of the first turbine in September 2013 and now having 71 turbines connected to the grid. The project remains under budget and ahead of schedule with completion expected in September 2014.

During the year we have made significant progress on our project pipeline. The Company now has four potential projects ready to progress through the development approval process.

These projects in South Australia, Victoria and New South Wales have the potential to provide up to 1,400 MW of renewable energy capacity.

Regulatory Landscape

In both New Zealand and Australia there is uncertainty about the political and regulatory landscape. Our goal is to reduce the risks of uncertainty by focussing on sustainable generation projects and high quality, high value services for our customers.

In New Zealand the general election in September will set the scene for the next three years. A Labour/Green led government will result in a more interventionist approach. The dismantling of over twenty years of market reform, in my opinion, puts at risk the cost competitiveness, sustainability and reliability of the electricity system.

The continuation of a National led government will see a continued drive for the Electricity Authority to focus on pro-competitive regulation for the benefit of consumers.

Trustpower has participated actively in the transmission pricing debate, submitting on all of the consultation and working papers. It remains our view that the Electricity Authority’s proposals do not benefit consumers and impose unnecessary costs.

The Company believes further development of the wholesale market by the Electricity Authority and the introduction of new products and initiatives that manage price risk support strong and vibrant retail competition.

People, Culture and Community

Our success at Trustpower is driven by the commitment of our people. Our staff have continued to rise to the challenges and opportunities and it is particularly pleasing to see our engagement survey consolidate the gains of last year.

We continue to believe that future success will be achieved by developing the capability of our staff. Building on the success of our talent management programme we have commenced a leadership development initiative to ensure we have a strong emerging leadership group.

During the year the decision was made to re-locate our corporate office to the Tauranga CBD – bringing all our Tauranga based staff together under one roof. This new building will be designed to provide an environment that supports a collaborative and performance driven culture.

This year our Community Awards have expanded to include the Whanganui region. This meant that we had 26 regions represented at the National Awards in Invercargill, the supreme award winners were the Mistletoe Bay Trust from the Marlborough District. The Trust developed an interactive eco village and educational campsite on an area of unloved Departmentof Conversation land. This gives thousands of children the opportunity to experience the great Kiwi outdoors every year.

Looking Ahead

In an environment of competition and regulatory uncertainty Trustpower has distinctive strategies and engaged people to deliver for shareholders and customers.

Our strategies differentiate Trustpower from our competitors, we believe we are well positioned for the future.

VINCE HAWKSWORTH
Chief Executive