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Chief Executive's Report

In a year of many challenges and great achievements it is our people that have ensured our continued success.

FINANCIAL PERFORMANCE

As described in the Directors’ Report 2011/12 was a significant milestone as our tenth successive year of EBITDAF growth. TrustPower continues to demonstrate that our business model is robust in the face of the many challenges of the markets we operate in. This was particularly evident in the final quarter of the financial year when we benefited from high wholesale prices maximising value for our shareholders rather than chasing customer numbers.

OUR CUSTOMERS

The past year has seen competition at unprecedented levels in New Zealand with customer churn driven by the re-alignment of the state owned enterprise portfolios and the Electricity Authority’s “What’s my number?” campaign.

Importantly we were able to maintain churn levels below the industry average as shown in the graph on page nine.

Our sales of 3,960GWh were down 73GWh compared with the 2010/2011 year.

A key feature of our sales performance was the ability to compensate for the reduction in customers to 209,000 by targeting sales into the commercial and industrial markets.

TrustPower’s Kinect telecommunications service has continued to grow with over 38,000 services provided to our customers. We are encouraged by the way our customers value our bundled product offers and will seek to enhance these in the coming year.

CUSTOMER INFORMATION SYSTEM REPLACEMENT

A highlight of the year has been the successful replacement of our customer information system. Last year I noted the decision to proceed with the Gentrack Velocity Solution. In February 2012 TrustPower ‘cut over’ to the new system on-time and on-budget with minimal impact on our customers.

This impressive achievement is a tribute both to the project team and to the leadership in the business.

The new platform provides significant opportunity for further enhancements to our customer offering.

The delivery of an outstanding customer experience and product mix will be the focus of the next stages of system deployment.

INCREMENTAL GROWTH

In a market where demand growth is closely linked to economic performance, the timing and scale of investment decisions is critical. TrustPower has many new investment opportunities. However, the right timing for development is determined by market demand and New Zealand is experiencing a period of oversupply in the electricity market. We have therefore focused new investment decisions on incremental projects that add value to our portfolio in the short term.

In the past year we have completed the development of the 9MW diesel peaking plant at Marsden Point near Whangarei and have commenced construction of the 3.8MW Esk Hydro Scheme. We are considering an upgrade of the Arnold Power Scheme utilising the available residual flow to produce 2.6MW. We believe this project represents a logical investment whilst our major project at Arnold is on hold due to HVDC pricing and soft New Zealand electricity demand.

Our entry into the irrigation sector has proven successful and we will be increasing our Highbank Power Station pumping capacity by 1MW to 6MW.

We have made significant progress with our broader irrigation strategy in Canterbury, making an application for variation to the Rakaia Water Conservation Order. If this application is successful TrustPower will be able to support the efficient irrigation of up to 60,000 hectares, benefiting both Canterbury and New Zealand as a whole.

AUSTRALIA

It is appropriate this year to focus on our Australian business. Our Snowtown I Wind Farm continues to perform well and production of 376GWh was 15% above last year and close to the expected long term average of 389GWh.

TrustPower has made significant progress with our Snowtown II opportunity. We now have conditional turbine supply and construction contracts as well as a power purchase agreement (PPA). Our strategy to reach financial close includes a partial sell-down of the project. Successful execution of this strategy will result in the construction of the 270MW Snowtown II project, with TrustPower owning 144MW and supplying ongoing management services to a co-investor who will own 126MW.

During the year TrustPower has made considerable effort to consolidate a meaningful pipeline of new wind farm opportunities. As a result we now have a pipeline of 1,300MW in NSW, Victoria and South Australia. We believe this provides a platform to execute up to 1,200MW of future developments with co-investor support.

OUR ASSETS PROVIDE A PLATFORM FOR PERFORMANCE

Our generation assets have provided the platform for our performance this year. Ensuring that we respond to market opportunities, our hydro machines have started 27,735 times in 2011/2012 compared with 24,539 time the year before. With only 86 failed starts this is an excellent performance.

This year was comparatively wet with hydro production being 196GWh above last year.

Wind production of 648GWh including the first year of production from Mahinerangi which was 100GWh.

INDUSTRY AND MARKET EVOLUTION

As noted earlier the Electricity Authority’s “What’s my number?” campaign led to increased retail competition, providing both opportunities and challenges. This overshadowed some other important events in the evolution of the market that will deliver long term benefits for customers. Of significance was the continued progress towards 3,000GWh of “open interest” on the ASX futures market. Together with improved market making this has improved transparency of forward prices and enabled participants to manage their market risks.

More disappointing was the failure to reach a resolution of HVDC (Cook Strait) cable pricing. We believe there is little to be gained by revisiting transmission pricing as a whole as proposed by the Electricity Authority.

The next twelve months will see further changes with significant transmission infrastructure commissioned including the upgrade of the HVDC and the introduction of financial transmission rights (FTR’s).

COMMUNITY AND ENVIRONMENT

This year’s TrustPower National Community Awards were held in Ashburton and appropriately saw joint winners for the first time.

Trev’s BBQ from Ashburton were recognised for their outstanding contribution in helping the people of Christchurch after the February 2011 earthquake.

Trev’s BBQ started out as a “one-off” sausage sizzle and became a nine month focal point for over 4,000 hours of volunteer work supporting the people
of Christchurch.

By contrast the Denniston Heritage Trust has worked over many years to raise in excess of $2 million to help preserve the unique mining heritage of the West Coast’s Denniston Plateau. The Denniston Experience gives visitors the remarkable opportunity to travel back in time and live life at the coalface ‘in the 1880s’.

RESOURCE CONSENTS

TrustPower monitors and complies with over 3,000 resource consent conditions I am pleased to note that only a small number of minor breaches occurred during 2011/12.

GROWING FOR THE FUTURE

Building capability and talent is one of the major challenges for organisations in the 21st Century. During the past year we have conducted an extensive talent evaluation process.  This has ensured we understand the qualities our people bring, and the opportunities for them to grow their careers with TrustPower. Our ongoing talent management programme will ensure that we develop the capability to compete in all business areas for many years to come.

During the year we welcomed Deion Campbell into the role of General Manager Generation. Deion was an internal appointment with more than
ten years service with TrustPower.

We also welcomed Simon Clarke as General Manager Information, Communications and Technology. Simon brings a wealth of executive leadership and technical knowledge from his time as Chief Executive of Arc Innovations.

LOOKING AHEAD

We are excited by future opportunities for TrustPower both in New Zealand and in Australia.
Many of these opportunities come from the changing markets we operate in and our deep understanding of the attributes that define us and our success.
The TrustPower team are committed to continued success for Shareholders, Customers and our Staff.

Vince Hawksworth
Chief Executive