Ann: ADDRESS: TPW: TrustPower Annual Meeting Chai

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• Summary: ADDRESS: TPW: TrustPower Annual Meeting Chairman's Address
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TPW
03/08/2012 14:30
ADDRESS

REL: 1430 HRS TrustPower Limited

ADDRESS: TPW: TrustPower Annual Meeting Chairman's Address

Chairman's Address - Annual Meeting 3 August 2012
Welcome
I would now like to introduce my fellow directors to you.  All have
significant relevant experience, qualifications and skills.  The focus of
your board is on understanding and looking after the risks inherent in our
business, and also positioning for the major decisions we see coming up.  By
decisions coming up i do not just mean dealing with our current business - I
mean a lot more than that - I mean being able to contribute to strategy and
support and encourage management to pursue opportunity.   Our focus is on
value and in our industry that means good positioning for the medium to long
term.
If you look across the Director team you will see experience in major
engineering projects, experience in the evolution of water markets and
irrigation economics, experience in IT and in customer facing systems in both
banking and telecoms, and you will also see quite deep electricity sector
experience.
First, I would like to introduce Mr Michael Cooney who will no doubt be
familiar to many of you.
- Michael is Chairman and a Trustee of the Tauranga Energy Consumer Trust.
- Michael holds a law degree and is a consultant to the local law firm
Cooney, Lees and Morgan, and previously he was a longstanding partner of the
firm.
Next is Mr Marko Bogoievski.
- Marko is a Chartered Accountant and holds an MBA from Harvard University.
- Marko is Chief Executive of Infratil Limited
Next is Mr Geoff Swier.
- Geoff holds a Masters of Commerce degree.  He has over 20 years experience
in micro economic reform in Australia and New Zealand focusing on the
establishment of competitive energy markets and privatisation as well as the
development of water industries in Australasia and Asia.
- Geoff was previously an associate member of the Australian Competition and
Consumer Commission and a member of the Australian Energy Regulator.
Next to Geoff is Sam Knowles.
- Sam has considerable experience in the banking and insurance industry
specialising in areas including strategic planning, retail services,
marketing and business development. Sam was previously Chief Executive of
Kiwibank and is now a professional director.
Next to Sam is Richard Aitken.
o Richard is Executive Chairman of the Beca Group.
o Richard holds an Engineering Honours degree and a Masters of Engineering
Science degree from Sydney University. Richard has extensive engineering
project management experience in major power and water infrastructure
projects.
o He also has a lot of experience in contractual matters pertaining to these
major projects.
I would also like to introduce your Chief Executive, Vince Hawksworth and
also your Chief Financial Officer Robert Farron and also offer a welcome to
the TrustPower senior management team most of who are with us today.
We will hear more from Vince shortly.
Now to return to the more formal business of reviewing the 2012 financial
year.
The Group delivered a strong increase in underlying earnings after tax of
$135.5 million up 16% on prior year.  Your Directors consider this was a very
good result given the intense retail competition and a volatile wholesale
market in the second half of the financial year.
TrustPower has paid dividends of 40 cents per share for the 2012 Financial
Year representing a 2.5% increase over prior year.
Debt (including subordinated bonds) to debt plus equity decreased to 33% at
year-end down from 36% the previous year as a result of lower borrowing
levels and the independent revaluation of generation assets which resulted in
an uplift in generation asset values of just under $200 million.
TrustPower has achieved a significant milestone with the financial close of
its Australian wind project -  Snowtown II.
This is the result of four to five years of strategic intent - an intent
built off recognising that New Zealand is a small market with modest load
growth and that TrustPower's capabilities exceed its New Zealand
opportunities.
TrustPower also recognised that wind Power is the lowest cost means for
Australia to reduce its dependence on coal.  Renewables policy in Australia
is designed to see wind not only meet load growth but, when coupled with
pricing carbon, this policy is designed to push the closure of the least
efficient thermal plants.   Carbon prices alone would not achieve this.
For Snowtown II, all key agreements and approvals required for the
development have been entered into or secured. Foreign exchange hedging
arrangements to cover Euro and USD currency exposure on the Project Capital
expenditure have been completed at favourable rates and the expected total
project cost (excluding capitalised interest) has reduced from A$465 million
to A$439 or $A 1.6 million / MW.
Snowtown Stage 2 represents a very attractive investment for TrustPower.   We
have locked in lower than expected costs for the construction and we have
secured a long term contract with a good counterparty for selling the wind
energy at fixed but inflation proof prices.
While no project is without risk, wind farms are at the low end of the scale
and TrustPower is not new to wind farm development and has a good track
record of contracting well and delivering well.  The expected cash flows to
TrustPower post commissioning are strong.  The expected returns are
exceptionally good for a such a low risk project and when you have a good
project it is also good that it has some scale.
TrustPower will fund the project via Australian dollar bank facilities
provided by its relationship banks.  While these facilities will mature in
late 2014, it is expected that a proportion of these facilities will be
refinanced in the next 12 months with long term Australian dollar debt
facilities.
The additional debt required to fund Snowtown Stage 2 will significantly
increase the Group's gearing (debt to debt plus equity) ratio.
However, TrustPower anticipates that the gearing ratio will be comfortably
within the upper limit of the Group's target gearing ratio range of 25-50%
and that the Group will operate within its banking covenants during
construction of Snowtown Stage 2 and after commissioning of the project.
Your Directors are comfortable with these debt levels but we are also mindful
that we wish to have firepower in the tank to be able to take other wind
opportunities in Australia.  Thus we have positioned to allow a sell down of
the southern part of the Project.  Such a sale realises the value of the
strong returns from the project in the form of a development profit.
TrustPower has ensured it has flexibility for this sell down to be pre
construction, or at completion, or anytime thereafter.
Directors are confident that modest growth in dividends can be maintained
with a high proportion of imputation.
Financial close of the Snowtown Stage 2 project is an important milestone for
TrustPower in terms of its wind development aspirations in Australia.
TrustPower holds development options over a further 1,280 MW of wind
generation opportunities in South Australia, Victoria and New South Wales and
is looking to advance development planning submissions for some of these
opportunities over the next 12 months.
Your Company continues to work hard at building a range of growth options in
New Zealand and in Australia and we are positioning the balance sheet to
support execution if and when we get excited about the shareholder value gain
from that investment. Exclusively we have targeted low impact hydro
developments and wind projects in locations with good wind resource, low
connection costs and a high level of community acceptance.
Your Company's approach is simple - to identify good sites for projects, to
secure the consents and development rights and then to execute selectively
when market conditions reflect that more energy is needed and when we can get
good competitively priced contracts and warranties from suppliers.  Our aim
is not to get bigger but to add shareholder value.  The Snowtown Stage 2 wind
farm development is an excellent example of this focused approach to growth.

On the retail side of the business it is very clear that the market remains
very competitive and that customers have choices and can change their
supplier if they are not happy with the service, or the price, or the
corporate responsibility of their retailer.   Your company has never seen
retail as a route to market for its generation schemes, it has always strived
for service excellence, low costs to serve and relevance to its customers.
TrustPower's retail business is performing well despite the fall in customer
numbers in the context of the very competitive retail market.  The completion
of the project to replace the Company's core customer and information systems
has now established a strong foundation from which to improve product
offerings and interaction with our customers.
 I also wish to comment more broadly on energy matters and climate change.
In New Zealand, you could be forgiven for thinking that Climate Change had
somehow gone away as a topical issue - certainly we are on a go slow.  This
is in contrast to countries like the United Kingdom and Australia.
Climate change skeptics are struggling with overwhelming evidence of human
induced global warming - the scientific debate is no longer a debate.
What is also clear globally is that to make a difference the electricity
sector has to do more than its share as we don't have the technology to make
big dents in transport just yet.   Europe and the United Kingdom and
Australia have realised this.  In the United Kingdom the decision has been
made to ensure that targets are automatically increased as renewables come on
stream - this will force the closure of coal plants or the conversion of
these plants to renewable fuels.  This is a very long term game with
consistency in policy settings necessary for investment in capital intensive
projects.   The GFC has not been allowed to divert the consistency of these
signals, which are specific to renewable electricity and not linked to
volatile and immature carbon markets.
What have we done in New Zealand?   We have actually done a good job of
getting a framework in place and improving the mechanics of CO2 pricing.
Carbon pricing schemes sensibly link CO2 prices to international levels.
however, international markets are immature and CO2 prices have collapsed in
the last year or so as a result of the fall out following the GFC and the
subsequent recessionary impacts on Europe.  Thus signals in New Zealand,
which had already been halved by the transitional 'two for one' allocation
are of little influence as we speak.   We have got it right with this
international linkage but we are wrong to rely on this alone until
international markets are more mature.  The approach must be pragmatic and
realistic in respect to international developments but complementary measures
are also needed.
Electricity is typified by very long term capital assets - we are at risk of
embedding a higher CO2 asset base if we don't have the right signals for
renewables ahead of fossil fuels and at present we don't have those signals.
  Removing the 'two for one' allocation in electricity generation would help
speed up the closure of inefficient polluting coal plant and also help avoid
gas plant being built ahead of wind.

I will now hand over to Vince for his presentation.
Thank you
End CA:00225633 For:TPW    Type:ADDRESS    Time:2012-08-03 14:30:46