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2010? MIGHTY RIVER POWER LIMITED ANNUAL REPORT 2005

FUELLING YOUR FUTURE

HIGHLIGHTS 2005

CHAIR AND CHIEF EXECUTIVEâ€™S REPORT

GENER ATION

RE TA IL

METERING

P E O P L E , E N V I R O N M E N T, C O M M U N I T Y

THE BOARD

C ORP OR ATE GOV ERN A NCE

EXECUTIVE MANAGEMENT

AUDIT REPORT

FIN A NCI A L S TATEMENT S

FIVE YEAR FINANCIAL REVIEW

S TAT U TORY INFORM ATION

DIRECTORY

FUE LLI N G YOUR FUTURE

ANOTHER YEAR HAS PASSED, BRINGING US A YEAR CLOSER TO THE COUNTRYâ€™S FUTURE ENERGY CHALLENGES. THE PACE WITHIN THIS COMPANY TO SECURE VIABLE OPTIONS HAS QUICKENED MARKEDLY.

THIS YE AR, WE HAVE MADE SIGNIFICANT ADVANCES IN OUR BID TO DIVERSIFY OUR ENERGY SUPPLY PORTFOLIO. PROJECTS WE HAVE BEEN WORKING ON FOR SOME TIME HAVE BECOME MORE VISIBLE. TOGETHER WITH OUR PARTNERS, WE HAVE INVESTED SIGNIFICANTLY

IN GEOTHERMAL DEVELOPMENT AND EXPLORATION. WE’VE PROGRESSED THERMAL OPTIONS, COMMENCED GAS EXPLORATION, SECURED WIND OPPORTUNITIES AND IDENTIFIED SOME SMALL HYDRO POTENTIAL.

IMPORTANTLY, WE GENERATED THE SUSTAINABLE LEVELS OF INCOME AND STRENGTH OF BALANCE SHEET NEEDED TO FUND INVESTMENT IN NEW ZEALAND’S FUTURE ENERGY INFRASTRUCTURE — BEARING IN MIND THAT DEVELOPMENT ITSELF IS NOT FAST, CHEAP OR CERTAIN.

WORK CONTINUES, AT PACE.

BI0MASS C OGENER ATION

GEOTHERMAL

W H E R E W E A R E T O D AY

2005 MIGHTY RIVER POWER GENER ATION P OR TFOLIO

HYDRO

BI0MASS C OGENER ATION WIND

GEOTHERMAL

W H E R E W E C O U L D B E I N 2 010

POTENTIAL 2010 MIGHT Y RIVER POWER GENER ATION P OR TFOLIO

HYDRO

GEOTHE RMAL

TOGETHER WITH OUR PARTNERS, WE HAVE MADE CONSIDERABLE PROGRESS AT MOKAI, ROTOKAWA AND KAWERAU. OUR GOAL IS TO ACHIEVE SIGNIFICANT ADDITIONAL GROWTH IN GEOTHERMAL GENERATION CAPABILITY BY THE END OF THE DECADE. THE KEY CONSIDERATION IS SECURING ACCESS TO THE RESOURCE THROUGH MUTUALLY BENEFICIAL RELATIONSHIPS.

WIND

WE HAVE IN PLACE A SPECIALIST WIND TEAM AND HAVE SECURED POTENTIAL DEVELOPMENT SITES FOR FUTURE INVESTMENT IN WIND GENERATION. BY THE END OF THE DECADE, WE EXPECT TO BE GENERATING 20-30% OF NEW ZEALANDâ€™S WIND ENERGY.

W AT E R

I N C R E A S I N G O U R C A PA C I T Y I N H Y D R O I S A N AT U R A L C H O I C E F O R A C O M PA N Y W I T H S O M U C H E X P E R I E N C E I N T H I S F O R M O F G E N E R AT I O N . P L A N S W E H AV E I N P L A C E T O A D D T O O U R H Y D R O P O R T F O L I O A R E F O C U S S E D O N S M A L L H Y D R O S C H E M E S I N V O LV I N G L O W L E V E L S O F L A N D I N U N D AT I O N A N D M I N I M A L D I V E R S I O N F R O M R I V E R S .

GA S

T O D AT E , W E H AV E N E G O T I AT E D J O I N T V E N T U R E E X P L O R AT I O N A N D D E V E L O P M E N T F O R T H R E E P R O S P E C T S A N D C O M M E N C E D W O R K O N O N E O F T H E S E . O T H E R P R O J E C T S A N D PA R T N E R S H I P S A R E U N D E R C O N S I D E R AT I O N .

COAL

O P T I O N S A R E V I TA L F O R T H E C O U N T R Y A S W E L O O K A H E A D . O U R A P P L I C AT I O N F O R A R E S O U R C E C O N S E N T T O R E F I R E M A R S D E N B I S A B O U T P L A N N I N G F O R T H E N E X T D E C A D E ; S E C U R I N G A B A S E L O A D G E N E R AT I O N O P P O R T U N I T Y T H A T C A N B E B U I LT Q U I C K LY T O F I L L G A P S I N N E W Z E A L A N D â€™ S F U T U R E E N E R G Y S U P P LY.

HIGHLIGHTS 2005

OUR BEST EVER O P E R AT I N G R E S U LT

$242 MILLION O P E R AT I N G S U R P L U S B E F O R E I N T E R E S T, N O N - R E C U R R I N G I T E M S A ND TA X ATION, UP FROM $20 0 MILLION L A S T Y E A R

$ 121 MI L L I O N NE T SURPLUS A F TER TA X ATION

$1056 MILLION ADDED TO SHAREHOLDERSâ€™ EQUITY FOLLOWING AN INDEPENDENT RE VA LUATION OF GENER ATION A S SE T S

$108 MILLION CA PITA L E X PENDIT URE A S W E BEGIN ROLLING OU T OUR IN V E S TMENT PROGR A MME

$188 MILLION OPER ATING CA SHFLOW A BLE TO SUPP ORT NE W IN V E S TMENT

317,000 CUSTOMERS A N AV ER AGE GROW TH R ATE IN CUS TOMER N U M B E R S O F 7. 8 % P E R A N N U M S I N C E 2 0 0 3

DIVERSIFICATION E S TA B L I S H M E N T O F A D I V E R S E S U P P LY P O R T F O L I O W I T H GEOTHERM A L SOURCE S NOW 18 % OF TOTA L GENER ATION

EFFICIENCY RECONFIGURING SOUTHDOWN PLANT TO INCREASE FLEXIBILITY AND EFFICIENCY

39MW COMMISSIONING OF TUAROPAKI POWER COMPANYâ€™S 39MW E XPANSION OF THE MOK AI GEOTHERMAL PL ANT

70MW AGREEMENT S RE ACHED W ITH NOR SK E SKOG TA SM A N, T U W H A RE TOA K I K AW ER AU A ND PUTAUA K I TRUS T TO FACILITATE A 70M W GEOTHERM A L DE V ELOPMENT

DIAMOND E N V I R O - M A R K A C C R E D I TAT I O N A C H I E V E D A C R O S S T H E C O M PA N Y, W I T H M E R C U R Y G A I N I N G T O P - L E V E L D I A M O N D S TAT U S

OPERATING SURPLUS BEFORE INTEREST, NON-RECURRING ITEMS AND TAXATION

$241.8 M I L L I O N

$199.6 M I L L I O N

$119.5 M I L L I O N

03 02

$87.2 M I L L I O N $103.9 M I L L I O N

NET SURPLUS AFTER TAXATION

$121.2 M I L L I O N

$99.8 M I L L I O N

$113.5 M I L L I O N

03 02

$47.1 M I L L I O N $59.1 M I L L I O N

OPERATING CASHFLOW

$187.6 M I L L I O N

05 04 03 02

$89.0 M I L L I O N $81.7 M I L L I O N $77.9 M I L L I O N $110.3 M I L L I O N

RETURN ON AVERAGE SHAREHOLDERSâ€™ EQUITY

8.3 P E R C E N T

11.4 P E R C E N T

14.0 P E R C E N T

03 02

6.4 P E R C E N T 8.6 P E R C E N T

TOTAL EQUITY/ TOTAL ASSETS

76.2 P E R C E N T

58.6 P E R C E N T

57.3 P E R C E N T

51.3 P E R C E N T

02 01

44.2 P E R C E N T

CHAIR AND CHIEF E XECUTIVEâ€™S REPORT

NET DEBT / NET DEBT + EQUITY

18.0 P E R C E N T

32.4 P E R C E N T

35.1 P E R C E N T

37.6 P E R C E N T

42.4 P E R C E N T

FREE FUNDS FROM OPERATIONS / INTEREST EXPENSE

7.0 T I M E S

6.8 T I M E S

4.1 T I M E S

3.5 T I M E S

3.2 T I M E S

DEBT MATURITY PROFILE

> 7 YEARS

4-7 YEARS

< 4 YEARS

$200.0 M I L L I O N

$313.8 M I L L I O N

$200.0 M I L L I O N

$113.8 M I L L I O N

05 04 03

$16.0 M I L L I O N $106.0 M I L L I O N $155.5 M I L L I O N

05 04 03

$98.5 M I L L I O N $164.8 M I L L I O N

We have recorded our best ever operating result with an Operating Surplus before Interest, Non-recurring Items and Taxation of $241.8 million, up from $199.6 million the year before. Net Surplus after Taxation increased by $21.4 million over 2004, to $121.2 million. These results were thanks to very positive hydrological conditions in the ﬁrst half of the year, reduced gas use at our Southdown plant and increased revenues.

ACHIEVEMENTS ACROSS THE BUSINESS

The signiﬁcant advancement of development options within our generation business has been matched by achievements across the Company. Retail volumes were very strong, as we proved that, even in a competitive retail environment, there is always room for a brand prepared to compete seriously on service. Our metering business, Metrix, has continued to achieve market leading results in asset growth and in quality metering services.

E X PA N D I N G O U R C O M M I T M E N T T O A D I V E R S I F I E D P O R T F O L I O

Several initiatives this year have brought us closer to our vision of a diversiﬁed energy company.

In the past 18 months we have signiﬁcantly expanded our geothermal business. We have realised a number of key projects and put in place a management and technical team that rates amongst the best in the world. Approximately $100 million was spent by the Tuaropaki Power Company on the expansion of the Mokai geothermal power station which has delivered 39MW of additional geothermal capacity. Over the past two years we have also invested over $50 million in geothermal drilling programmes at Rotokawa, Kawerau and Mangakino. The addition of more production and deep re-injection wells at Rotokawa has seen production levels climb signiﬁcantly.

The results of our exploration at Kawerau to date, have given us sufficient confidence to seek consents for the development of a 70MW plant. Exploration results on the Mangakino field have been below expectations. We have drilled two wells at Mangakino and will confirm our views on the field’s potential upon completion of another two exploratory wells. We have reduced the assessed geothermal capacity of each of these reservoirs and some expenditure related to the exploratory drilling has been expensed as a consequence of this review. These expenses are included in the $22.1 million of non-recurring costs in this year’s financial statements. Our success rate in geothermal drilling is above international practice and in line with our expectations.

Our wind generation activities have predominantly been around securing site access and data collection rights, but increasing capital expenditure is anticipated in the coming years.

In total, we have undertaken capital expenditure of $108 million on developments, re-investment in existing assets and an investment in an associate.

S T RONG PERFORM A NCE P O SI T ION S US W EL L FOR ONGOING IN V E S T MEN T

Operating cashflow was strong at $187.6 million, up $28.9 million on last year’s cashflow adjusted for non-recurring items and more than double the level achieved in some years following the Company’s formation. This level of cashflow is critical over the longer term, as it will contribute to funding the planned investment in new generation capability.

The sustained improvement in the Company’s performance means we now have both the ﬁnancial and organisational capability to grow. This strong platform is vital as we invest the signiﬁcant amounts of capital needed to convert our development opportunities in areas such as geothermal, wind and gas to assets.

R E VA L U E D G E N E R AT I O N A S S E T S B O O S T O U R B A L A N C E S H E E T

In line with industry practice and Crown accounting policy, the Board adopted a new accounting policy requiring electricity generation assets to be revalued at least once every ﬁve years. This policy will ensure that the balance sheet values reﬂect more current values. The independent valuation was undertaken by PricewaterhouseCoopers as at 30 June 2005.

The result of this was a $1056 million increase in our generation assets and Shareholders’ Equity as at 30 June 2005. While this positive revaluation greatly enhances our gearing ratios and has led to a drop in our return on Shareholders’ Equity it does not impact on cashﬂows.

Prior to the end of the last financial year, the Directors declared a special dividend of $75 million based on the Company’s strong financial position. This was paid in July 2004. In October 2004, the Directors declared an ordinary dividend of $30 million for the 2004 financial year. Overall dividends since 1999 have been approximately 30% of Net Surplus after Taxation. The Directors are comfortable that a dividend payout ratio of 30% of Net Surplus after Taxation is a fair reflection of the need to continue to deliver satisfactory cash returns to our Shareholder, whilst retaining the cash needed to support investment in new generation opportunities that will grow the value of the business.

Debt as at 30 June was $469.3 million, up from $428.3 million last year, with the majority of that ($313.8 million) in long term Fixed Rate Bonds. This strong debt portfolio and operating cashflow provide the Company with significant flexibility in the funding of ongoing capital expenditure. Overall, our balance sheet is now very robust, reflecting the positive underlying improvement achieved since the Company was formed.

LOOKING AHEAD

We have continued to adjust our organisational structure to reﬂect changing priorities, and continuous improvement in our business. As a result we have integrated all sales activities and created an increase in focus for the senior leadership team on development. There’s little doubt in anyone’s mind however, that conversion of the development options we have created into successful operating businesses provides exciting challenges. A one-off special payment was made to staff this year to recognise the extraordinary effort and energy invested by many individuals over the six years since formation, in helping us get to this point. We now have the people, the vision, the cashﬂow and debt structure to proceed decisively.

T H E C O M PA N Y FA R E W E L L S F O U N D I N G C H A I R M A N

Finally, as the Chair since January 2005, I wish to place on record the Company’s great indebtedness to its founding Chair, Rob Challinor, who contributed his many talents unstintingly to the Company. We wish him the very best for the future.

CAROLE DURBIN

DOUG HEFFERNAN

CHAIR

CHIEF EXECUTIVE

31 AUGUST 2005

G E N E R AT I O N

GENERATION DATA

HYDRO

COGENERATION

GEOTHERMAL*

BIOMASS *

2005 2004 2003 2002 2001 GWh

1000

2000

3000

4000

5000

* MIGHTY RIVER POWER DOES NOT OWN 100 PERCENT OF THESE ASSETS AND/OR THE PHYSICAL OUTPUT

6000

Hydro generation remains a signiﬁcant but declining proportion of our generation portfolio. More recently, we have broadened our generation capabilities to the point where one quarter of our generation and supply capability is now non-hydro.

A D I V E R S I F I E D E N E R GY C O M PA N Y

The proportion of non-hydro generation in our supply portfolio will continue to increase over the years ahead as we develop other renewable capacity such as geothermal and wind. Potential thermal developments could in the longer term create further diversiﬁcation of the Company’s energy sources. In the past ﬁve years, geothermal investment has increased the geothermal production we are associated with to approximately 18% of our total supply portfolio, and we expect this to reach over 30% by the end of the decade.

Our non-hydro assets currently include the gas ﬁred co-generation plant at Southdown, biomass generation assets at Greenmount, Rosedale and Silverstream and our expanding geothermal interests at Rotokawa and Mokai.

As we said last year, being ready for the potential energy shortfall at the end of the decade demands that we take action now. Gas supply will hit a crunch point in New Zealand in just ﬁve years if signiﬁcant new sources of domestic gas are not found, and this may require the country to import LNG or CNG, or to use coal.

GEO T HERM A L WA S A N Y T HING BU T BORING

2005 was always going to be an ambitious year for our geothermal ventures, so it is very pleasing to announce that we exceeded our expectations in this area. We now have a truly world class exploration and development team, having boosted the size of our geothermal team from 20 to 50 over the past three years. We’ve also undertaken geophysical surveys on 11 different reservoirs at a cost of over $2 million and developed resource models for each of these reservoirs.

In 2003 we accepted the invitation of the Tuaropaki Trust to take a 25% shareholding in the Tuaropaki Power Company and to facilitate a new development at Mokai. The $100 million expansion by Tuaropaki Power Company is now complete with commissioning completed in early July. The 39MW expansion will bring total capacity on the Mokai ﬁeld close to 100MW. We have medium term contract arrangements to purchase the majority of the Tuaropaki Power Company’s output.

At Rotokawa, we have expanded production to 33MW and are continuing discussions with our partners, the Tauhara North No.2 Trust, to add further capacity.

We are conﬁdent that an incremental development of 80MW is now economic and sustainable, which would bring total Rotokawa capacity to a level comparable with Mokai. This year, both Rotokawa and Mokai I power plants generated beyond their targets with excellent operating performance. Rotokawa has produced 276 GWh at 97.7% availability, whilst Mokai I produced 473 GWh at 94.7% availability, despite accommodating commissioning outages. These were record annual production levels for each station.

At Kawerau the Company has for the last two years been undertaking drilling of exploratory wells on land owned by the Putauaki Trust. Post balance date the Company completed a transaction to purchase the Crown’s geothermal assets at Kawerau including steam field assets and contracts. The majority of these assets were then on-sold to Ngati Tuwharetoa Geothermal Assets Limited. Negotiations have taken place with Norske Skog Tasman and Tuwharetoa Ki Kawerau over development on the field. As a consequence the Company has filed resource consents for a 70MW geothermal plant on the Kawerau field.

C R E AT I N G S T E A M AT S O U T H D O W N

The 120MW Southdown co-generation station has been significantly reconfigured in the past year. The station was built in 1996 for base load electricity operation, and also to supply steam to an industrial customer. The foundation gas supply contracts have been renegotiated to secure increased flexibility of gas use and to extend the duration of the contract. In addition, a stand alone boiler has been installed allowing the generation plant to be operated in a more flexible manner, whilst maintaining industrial steam supply. As a result of this increased flexibility, Southdown was shut down for extended periods in the summer when lake levels were high and wholesale prices were low. It was then operated in base load mode over autumn and winter to compensate for deteriorating hydro storage. Over the year significant savings in gas costs were realised compared to the previous year.

PURSUING UPSTREAM GAS JOINT VENTURES

We believe New Zealand’s chances of discovering and commercialising new domestic gas sources are increased through relationships between upstream explorers and downstream energy companies. We have embarked on a range of gas exploration ventures through a joint venture with Swift Energy (NZ) Limited. Swift Energy has a well established and proven capability in New Zealand’s oil and gas exploration business. Drilling the ﬁrst of three wells in Taranaki commenced in June 2005.

AN UP AND DOWN HYDRO YEAR

This year has been another one of contrasts for our hydro generation. The first seven months in the Taupo-Waikato catchment brought very good inflows on the back of reasonably wet weather. From February though, conditions became very dry around Taupo with inflows over the February-June period at only 80% of mean. The poor inflows led to steadily falling lake levels, even with low hydro production. This effect was offset by the relatively high lake levels secured prior to the start of summer.

Fortunately, the strong showing in the first half of the year more than compensated for the second half fall-off in inflows, and our hydro generation closed approximately 5% above average at 4,473 GWh for the year. As one would expect, these contrasts were reflected in market prices, with relatively low prices in the first half, followed by much firmer prices later in the year as conditions dried across the country.

The increasing diversity of our energy portfolio allowed us to adjust our production mix to the seasonal changes. We were able to lower gas fired outputs in the first half of the year to allow higher hydro generation, and then to raise gas fired electricity production in the second half as hydro production was reduced to manage declining lake levels.

During the year we recommissioned the Marsden A generation unit to provide synchronous condensing services to Transpower. This service provides voltage support to the upper North Island, relieving pressure on transmission security and is supplied without the need to use fuel to power the generator.

In August 2004, the Company began public consultation on the proposed conversion of the unused Marsden B oil ﬁred 240MW power station to a 320MW coal ﬁred station. Resource consents were applied for in November 2004 and a decision is expected from the independent commissioners later in 2005.

AT T H I S P O I N T

Generation development requires us to progress with both urgency and sensitivity, whilst enhancing our returns and growing our market presence. This year has been one of successes on many fronts.

R E TA I L

Mercury Energy retails electricity and gas services to residential and small commercial customers in the upper North Island area and businesses nationwide. Our customer base climbed to 317,000, up from 300,000 this time last year, as a result of continued growth across our retail business and in the geographical areas in which we are now present.

In many ways 2005 has been a year of ﬁrsts for our retail business and as with any success it is nice to be told how well you have done by others. Our residential customers continue to be serviced by the market’s best contact/call centre (2005 CRM Contact Centre Awards) and dairy farming customers have rated Mercury Energy as the best energy retailer (New Zealand Dairy Exporter July 2005).

DIVERSIFIED GROW TH

Growth has been very good, fuelled by sustained population growth in the upper North Island. Our market base continued to expand as we grew at more than one and a half times the rate of new connections in the Greater Auckland market. Gas has also made signiﬁcant gains, strengthening our role as a dual energy provider. The numbers of gas customers exceeded 18,000 as existing electricity customers took up the convenience of One Bill. Our gas business has grown to 23% market share in Greater Auckland since its launch 36 months ago.

B E S T VA L U E P L A N N I N G

Mercury Energy customers’ electricity prices increased by an average of 8% while gas prices increased by an average of 6% for residential customers during the year. Government also introduced the Low Fixed Charge Tariff regulations for electricity in October 2004. We used this opportunity not just to make the new price plan available to those who qualiﬁed, but to ensure that all our customers were on the very best value plan for them. To achieve this, we looked at each customer’s actual usage over the last 12 months, and then automatically moved them to the best value plan based on their actual usage. As a result, 70% of our customers are now on the Low Fixed Charge Tariff – more than twice the national average.

O N T O I T, O N L I N E

In June 2005, we increased our commitment to customer service online with a revamped website that delivers our customers increased online functionality.

Another important online innovation has been the inclusion of “Energy Manager” on the new site, which has been speciﬁcally developed to deliver our large commercial customers greater market transparency and information. The free online tools encourage customers to monitor and manage their electricity use and costs, and to increase their understanding, familiarity and experience with electricity price risk management products and services.

A STRONG POSITION ON HEDGING

We have provided market leadership with our education programme for commercial customers by focussing on risk management tools for managing wholesale market risk. As perhaps the most active participant of hedging products and services in the sector, we have developed proactive risk management products and provided software tools that enable consumers to evaluate their position using a range of ‘what if’ scenarios.

Our commitment to raising awareness levels has seen us participating in a Treasury Risk Management education programme run with KPMG, Lincoln University and ANZ National Bank. The electricity price module was very popular with corporates and is just one more example of the multi-levelled approach we are taking in this regard in the local market.

O U R C O N TA C T C E N T R E G E T S T H E W I N N E R ’ S C A L L – T W I C E !

It was a watershed year for customer communications as we committed to the move from a call centre to a true full-contact centre, capable of working with customers across the full range of communication channels. The change was mirrored in our operational performances, with ﬁrst call resolution and customer satisfaction levels achieving their best ever results.

The hard work and commitment to change put in by our team was recognised when Mercury Energy won Contact Centre of the Year for Energy Retailers at the CRM Contact Centre Awards, and then went on to win the National Gold Award for all contact call centres with more than 50 seats.

I N N O VAT I V E S P O N S O R S H I P P R O G R A M M E

Mercury Energy has increased its commitment to the Starship Foundation. An ofﬁcial sponsor of the Foundation since 2000 and a Five Star Sponsor since 2002, at the end of 2004 we launched the Star Supporters Club - an innovative programme that allows customers to make a donation to Starship Children’s Health as part of their bill. The generous contributions made by customers over the year have enabled the Star Supporters Club to donate several pieces of equipment vital for children’s health.

F O C U S I N G O N VA L U E

Mercury Energy continues its focus on delivering customer offerings built around value not just price. Our success in growing customer numbers at more than double the natural growth rate confirms that energy retailing is a competitive business in which good service and customer satisfaction are key determinants of success. Our performance this year reflects the hard work invested in building a platform of service differentiation and gives us confidence that further benefits are possible.

METERING

Metrix provides meters and meter reading services in the upper North Island. The past year has seen Metrix continue its strong growth in both the number of metering assets and the number of meter reads achieved. This strong performance by the business delivered revenues of $18.5 million in the ďŹ nancial year.

A reorganisation during the year has helped Metrix improve its focus around the two core parts of its business, asset management and data capture.

Metrix, through its meter reading capability, continues to deliver the highest standard of service and remains the only major metering business reading meters monthly. Over the past year, 4.3 million reads were obtained, an increase of 8% on the previous year.

Staff safety is always the highest priority, so Metrix is very pleased to report that in tandem with achieving the highest standards in service, the business unitâ€™s Health and Safety results improved further in the past year.

At the end of the ďŹ nancial year, Metrix had over 550,000 metering assets servicing retail customers.

Metrix will continue to lead the market in terms of the asset functionality and accuracy of information provided to customers. Further investment in research and development remains a key priority for the future.

P E O P L E , E N V I R O N M E N T, C O M M U N I T Y

Our business is inextricably linked to the environment. We are responsible to New Zealanders and to the communities we work with because they provide us with the licence and the mandate to do what we do.

As a resources based business, we depend on the environment for the energy we produce and the income we create. We are committed to achieving sustainable economic, community and environmental returns and impacts.

MEASURES IN PL ACE

As owners and operators of the Waikato hydro system, we have signiﬁcant responsibilities to ensure this controlled environment is managed in the best interests of all stakeholders. Land use, water abstraction, changing demands for electricity and variations in rainfall all result in changes in both lake levels and the quality and ﬂow of the River’s water. All our dams are monitored regularly to ensure that water movements and levels stay within resource consent limits.

Our geothermal sites are subject to a range of monitoring requirements, including ﬂuid chemistry, downhole pressures, casing integrity and regular surveying for subsidence, to ensure they continue to comply with resource consents and operate sustainably.

We also monitor combustion efﬁciency and emission levels at our three biomass plants and our geothermal and co-generation sites to ensure they comply with resource consent levels. Last year we were pleased to report full compliance from all our sites, in terms of environmental requirements, with no enforcements by regulatory authorities.

S TA N D A R D S T O W O R K T O

The Enviro-Mark is a global standard that evaluates New Zealand organisations’ environmental performances against the Enviro-Mark NZ standards through an external audit process conducted by Landcare Research, an independent Crown Research Institute.

NEW ZEALAND HAS FIVE ENVIRO-MARK STANDARDS

≠

BRONZE

≠

SILVER

Compliance with the most commonly applicable environmental

and health and safety legislation. Production of an appropriate environmental policy, built upon

a determination of environmental impacts. Effective monitoring of targets and objectives to achieve continuous improvement.

≠

GOLD

≠

PLATINUM

≠

DIAMOND

Control of the organisation’s activities with operational documentation.

Correction and continuous improvement driven by a proven

internal audit programme.

Within our organisation, Mercury Energy was awarded the top Diamond standard in June 2004, one of only three businesses in the country to do so, while Metrix became the ﬁrst metering business to achieve Platinum standard. Other parts of the Company have achieved Bronze standard in 2005 at ﬁrst evaluation, and will now look to raise this to at least Gold standard over the coming year.

COMPLIANCE WITH RESOURCE CONSENTS

100 P E R C E N T

HYDRO 1S O U T H D O W N

99 P E R C E N T

SILVERSTREAM

100 P E R C E N T

ROSEDALE

100 P E R C E N T

GREENMOUNT

100 P E R C E N T

2R O T O K A W A

97 P E R C E N T 1 Minor 2 Low

technical non-compliance

priority non-compliance

HYDRO SPILL KARAPIRO ARAPUNI WAIPAPA MARAETAI W H A K A M A RU ATIAMURI OHAKURI ARATIATIA ENERGY LOST (GWH)

2 PLANT

HIGH INFLOW

REGULATORY

6 COST

ECONOMIC

8 TRANSMISSION CONSTRAINT

HYDRAULIC CONSTRAINT

OTHER

CO2 EMITTED BY TYPE 2005

56,995 T O N N E S

GEOTHERMAL

230,659 T O N N E S

CO-GENERATION 1M E T H A N E

41,255 T O N N E S 1 41,255

tonnes of CO 2 was emitted which offset the non-release of 825,100 tonnes CH 4 (Methane)

CO2 EMITTED BY STATION 2005

230,659 T O N N E S

SOUTHDOWN 1S I L V E R S T R E A M 1ROSEDALE

8,294 T O N N E S 11,157 T O N N E S

1G R E E N M O U N T

21,804 T O N N E S

MOKAI

22,159 T O N N E S 34,735 T O N N E S

ROTOKAWA 1 41,255

tonnes of CO 2 were emitted which offset the non-release of 825,100 tonnes CH 4 (Methane)

LAKE LEVELS

Lake levels operated within the normal range for all of 2005.

SAMPLE LAKE LEVELS DURATION PROFILE

Each point on this graph represents a lake level

(in metres above sea level) at which a certain percent of the year the lake was at or below. The example below shows 7o% of the time eg. 255 days the lake was at or below 356.8 metres.

METRES ABOVE SEA LEVEL

SAMPLE LAKE LEVELS DURATION PROFILE 357.5 CONSENT MAXIMUM CONTROL LEVEL 357.0

356.5

356.0 MINIMUM CONTROL LEVEL

355.5 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR TAUPO 357.5

357.0

356.5

356.0

355.5 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR ARATIATIA 338.0

337.0

336.0

335.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR OHAKURI 290.0

287.0

286.0

285.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR ATIAMURI 254.0

253.0

252.0

251.0

250.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR WHAKAMARU 227.0

226.0

225.0

224.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR MARAETAI 190.0

189.0

188.0

187.0

186.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR WAIPAPA 129.0

128.0

127.0

126.0

125.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR ARAPUNI 112.0

111.0

110.0

109.0 0%

P E R C E N TAG E O F T I M E

100%

LAKE LEVEL DURATION PROFILE FOR KARAPIRO 54.0

53.0

52.0

51.0

50.0 0%

P E R C E N TAG E O F T I M E

100%

I N T E R N A L E N V I R O N M E N TA L R E P O R T I N G

Our environmental focus extends to what we do internally. Each area of the Group has a cross-functional environmental team who set internal measures and monitor outcomes. Below are the results for the past ﬁnancial year.

R E TA I L

WASTE REDUCTION

Waste to landfill has been reduced by 50%. 100,000 litres of rubbish

was diverted for recycling rather than going to the landﬁll. ENERGY EFFICIENCY

We committed a large percentage of our external marketing budget to

promote energy efficiency. We were involved in an EECA partnership to design and implement Energy Challenger; an online analysis tool for business energy management and continued to promote and reward energy efficiency within the office environment. CARBON FOOTPRINT During the financial year, we emitted 328.9 tonnes of CO2 into the atmosphere

Internal Electricity Usage

172.5 tonnes

International Air Travel

21.5 tonnes

Domestic Air Travel

104.2 tonnes

Motor Vehicle

11.5 tonnes

Mileage

12.7 tonnes

Taxi use

6.5 tonnes

COMPANY TRAVEL

Staff travelled 93,069 km either in company vehicles, rental or private

motor vehicles during the year. DIRECT MAIL

81,877 pieces of direct marketing were sent electronically, an increase of 116%

from the previous year, resulting in paper saving. CUSTOMER BILLS PAPER USAGE

6,500 customers had taken up the Online Bill service by year end.

A staff paper saving competition produced a 50% saving of paper (2,090 reams).

This equates to approximately 9 tonnes of paper or 152 mature trees per year in savings.

C O R P O R AT E

WASTE REDUCTION

An internal audit of waste was initiated and glass, plastic, cardboard and

paper recycling established. PAPER USAGE

An internal audit of paper consumption was also initiated. Only our Annual

Report is printed. Our Interim Report and Statement of Corporate Intent are published electronically only.

METERING

WASTE REDUCTION

We now recycle glass, plastic and cans. All staff have been provided with

personal recycling containers. Meter readers are now returning their used paperwork to be recycled. All batteries are collected from meter readers and other staff for safe disposal. PAPER USAGE

We have obtained new printers and photo copiers with duplex functionality.

Reminders have been placed on all printers to question the need to print or copy. ENERGY EFFICIENCY

A full appliance and lighting audit was completed.

VEHICLE EMISSIONS AND USAGE

Following a review comparing the efﬁciency of hybrid electric

vehicles with the current vehicle fleet, the current fleet remains as the vehicles of choice. The efficiency of the fleet is maintained with a regular maintenance and service schedule. Vehicle emission tests show that all vehicles currently meet emission recommendations. Signage has been added to all vehicles indicating their purpose and that they stop often. Vehicles have had ‘day lights’ fitted and reversing alarms installed. EBIX CALCULATION

Metrix calculated its carbon footprint from energy usage as 245 tonnes of

carbon per year.

G E N E R AT I O N

WASTE REDUCTION

An internal audit of waste was completed which assessed that over

200kg of waste goes to landﬁll each week. Glass, plastic, cardboard and paper recycling has been established at all sites. PAPER USAGE

An internal audit of paper consumption was completed. 2,455 reams of

paper were consumed in the 2004 calendar year. ENVIRONMENTALLY FRIENDLY PRODUCTS, ELECTRICITY CONSUMPTION AND VEHICLE USE

Work has begun in these key areas at each of the ofﬁce sites.

A L I C E N C E T O O P E R AT E

A community licence to operate is vital if we are to continue to work successfully in partnership with people. That’s why we place so much importance on building strong, open relationships based on sharing information and viewpoints. We depend on their goodwill and trust to sustain our right to use resources and ultimately run our business. Our sponsorships, open days and scheduled water releases are all about engaging and working with different groups to build relationships, foster loyalty, and keep resources and communication lines as open as possible.

Building and protecting stakeholder relationships are just as important. There are inevitably competing objectives and outcomes. Mighty River Power looks to partner with community groups to quantify how resources should be used wisely. This approach helps achieve an understanding of different viewpoints, balance and positive interaction. Partnership is often about ﬁnding other ways to involve the community.

SUPPORT THROUGH SPONSORSHIPS

We are involved with a wide range of events and activities – too many to fully detail here. What follows is a snapshot of some of this year’s achievements:

WAIKATO ECOLOGICAL ENHANCEMENT TRUST

This Trust was formed following discussions

and agreement between Mighty River Power and representatives from the Department of Conservation, Fish & Game NZ, Royal Forest and Bird Protection Society Incorporated, and the Advisory Committee for Regional Environment to assess the future impacts of operations on the Waikato River and to enhance restoration projects. In the past year, the Trust has funded 17 projects via grants of $178,000.

M AUNGATAU TA RI ECOLOGICA L ISL A ND TRUS T

Mighty River Power is a founding partner

of the Maungatautari Ecological Island Trust. The Trust leads a project to restore the ecology of Maungatautari, a forested volcanic cone that rises above the Waikato basin, by building a pest proof fence around the top of the mountain. To date, the Trust has completed two enclosures and approximately half of the perimeter fencing. This year kiwi have been returned to Maungatautari, after an estimated 100 year absence, the ﬁrst species reintroduced in this community-driven restoration project that will ultimately return a range of threatened species to the mountain.

ROWING NEW ZEALAND

We are proud to support Rowing New Zealand’s High Performance

Programme at Lake Karapiro. We regard this partnership as a fantastic opportunity to contribute to one of New Zealand’s most successful sports and to help provide role models for the future. Like all New Zealanders, we are exceptionally proud of the team’s performances at the World Championships and the Olympics. These extraordinary achievements demonstrate the ability of a programme like this to motivate our athletes to excel.

STARSHIP

Mercury Energy sponsors a range of community-based events and organisations

throughout the year as part of its proactive programme to foster and strengthen wider community relationships. The most far-reaching of these is the involvement with the Starship Foundation, which began in 2000. This relationship has been enhanced by the Star Supporters Club, launched in May 2004, which enables customers to donate money on a monthly basis to Starship through their Mercury Energy bills. This year, the Club raised $200,000 to purchase a new Mobile Image Intensiﬁer, a key piece of technology that allows doctors to gain detailed X-ray images during surgery on children. The images provide surgeons with accurate guidance during operations such as spinal corrections, bone strengthening, hip reconstructions and other orthopaedic and general surgery.

C H RI S TM A S I N TH E PA RK

This year, Mercury Energy marked 11 years as sponsor of this

much-anticipated event, once again attended by more than 200,000 people.

MERCURY ENERGY CHRISTMAS AT THE LAKE, HAMILTON

For the second time, Mercury

Energy was a major sponsor of the Christmas at the Lake in Hamilton that around 12,000 people attended.

MERCURY ENERGY POHUTUKAWA FESTIVAL

Mercury Energy lit up the Coromandel as

major sponsor of the Mercury Energy Pohutukawa Festival. The Festival, which ran 26 November – 12 December 2004, included more than 50 family-oriented events, showcasing the best in local cuisine, arts, sports, culture and the environment. Among the highlights: the Mercury Energy Pohutukawa Party, a food and wine festival where Goldenhorse performed; and the Mercury Mile, a fun run down the main street of Thames.

CAROLS BY CANDLELIGHT

These popular family events are part of Auckland City’s free

programme of summer events. Held each year at local Auckland community parks, the events receive great support. Once again this year, each event drew a big crowd.

LIGHTING LANDMARKS

Mercury Energy’s support allows major Auckland landmarks to be

lit up at night. Icons lit this year included the Auckland Museum, the monument on One Tree Hill, Tamaki Drive and the Michael Joseph Savage Memorial at Bastion Point.

MIGHTY RIVER POWER PHOTOGRAPHIC COMPETITION The third Mighty River Power Photographic

Competition gave secondary and tertiary students and non-professional photographers the opportunity to win prizes whilst capturing on ﬁlm imaginative interpretations of ‘Creating Energy’. This year’s big winners were Deone Kok (Howick College), Cindy Hall (Wintec) and Des Brough (non-professional).

BOOKS IN HOMES Books in Homes was started by the New Zealand author Alan Duff to encourage

primary school children to read. This is the tenth year that this wonderful programme has been run. This year, our support helped Books in Homes purchase hundreds of books for pupils of Mangakino Area School, Waipa Primary School and Ruakaka Primary School.

OPEN DAY

In March 2005, an open day held at the Arapuni Dam attracted 750 people.

Visitors to the historic dam and powerhouse enjoyed station tours and walks across the popular swingbridge.

OPPORTUNITIES TO LEARN

This past year has seen Mighty River Power proactively addressing the skills shortfall in the industry in a range of ways.

This year, we launched an Apprenticeship Programme for up to 20 apprenticeships annually to ensure the electricity industry has a strong base of qualiﬁed and skilled professionals in the coming years.

Mighty River Power also has graduate programmes that aim to develop graduates into jobs by not only giving them specific skills for specific roles but by also exposing them to the broader business and industry. Partly this is about finding skilled people capable of taking up the challenges of the work, but it is also recognition on our part that graduates bring fresh ideas for the future.

In 2002, we supported the launch of the Electric Power Engineering Centre which was established to promote and support power engineering in New Zealand. In 2005 this resulted in signiﬁcantly increased student enrolments in power engineering course at the University of Canterbury.

R E C R E AT I O N A L R E L E A S E D ATA

Mighty River Power released water on the Waikato Hydro system for recreation purposes on 80 days during the ďŹ nancial year. ACTIONED WATER RELEASE DAYS

Auckland University Canoe Club

BOP Waterskiers Association

Cambridge Waikato Power Boat Club

Eastern Fish & Game

Huka Falls Kayak Club

Huka Jet

Ironman New Zealand

Karapiro Rowing Inc

Manukau Canoe & Adventure Club

NIWA

New Zealand Freestyle Kayakers Committee

New Zealand Grand Prix Hydroplanes Driver Club

New Zealand Secondary Schools Canoeing Association

New Zealand Tournament Waterski Association

New Zealand Waterski Racing Association Inc.

Pairere Waterski Club

Prawn Farms Tourism

Rapid Jets

Taupo Harbour Master

Taupo Triathlon Club

Te Wananga o Aotearoa

Waikato Tainui

Waikato Tournament Waterski Association

Waipa District Council

Wakeboarding New Zealand

Whakamaru Christian Youth Camp

Whitewater Slalom New Zealand

THE BOARD

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(1) CAROLE DURBIN

is the Chair of Mighty River Power. She was

(5) TREVOR JANES

was appointed to the Board in June 2005. Trevor is

formerly the Deputy Chair of the Board and was a member of the

an investment banker and ﬁnancial analyst. He is the Chairman

original establishment group for the Company. Carole spent nine

of Trinity Hill, a Hawkes Bay based winery. Trevor is also a Director

years on the Board of Transpower, the last few years of that time as

of Capital+Merchant Finance Limited, Watercare Services Limited,

its Deputy Chair. She is a Fellow of the Institute of Directors, Chair

and also sits on the the Investment Committee of the Board for ACC.

of the Legal Services Agency and a Commissioner on the Board

Trevor is a Chartered Accountant and a Fellow of IFPNZ.

of the Earthquake Commission. She is an advanced panel member commercial background is in electrical

of LEADR (a mediation organisation) and a Fellow of the Arbitrators’

(6) DAVID MCCONNELL’S

and Mediators’ Institute of New Zealand. Carole is a former partner

engineer ing and business development. He is currently

of law ﬁrm Simpson Grierson.

Managing Director of McConnell Limited and related companies and a director of McConnell Property Limited, Steelpipe

is Deputy Chair of the Board and has been a

New Zealand Limited, and Hawkins Construction Limited. He is

Director of Mighty River Power since it began operations in

a trustee of Committee for Auckland and of Counties Manukau

April 1999. Ian has a comprehensive background in engineering

Paciﬁc Trust. David has been on the Board of Mighty River Power

and engineering management, and is a Director of Beca Group;

since its establishment in April 1999.

(2) IAN FRASER

the largest New Zealand owned consulting engineering company. He also manages the southern region of Beca Group and is a

(7) SANDY (SAMFORD) MAIER

is the Chairman of the Audit Committee.

member of the Registered Construction Managers Board for

He has worked in international commercial and investment

the New Zealand Institute of Building. He is a past president of

banking with Citicorp/Citibank for 15 years in various management

the Association of Consulting Engineers of New Zealand.

positions in the Caribbean, South America and Australasia. He has lived and worked in New Zealand since 1986, serving on the

joined the Board of Mighty River Power in May 2004

Board of Bank of New Zealand and as the Statutory Manager of

and is Chairman of the Remuneration Committee. He is Chair of

DFC New Zealand, for which he received a 1990 Commemoration

NIWA Natural Solutions, has been Managing Director of several

Medal for services to New Zealand. For the past 10 years he has

consumer products businesses and is currently a Director of Ovita,

had his own international management consulting ﬁrm specialising

(3) JOHN BAIRD

Motion Industries, Sleepyhead and the Auckland Rugby Union.

in strategic ﬁnancial and human resource issues. He has served

John is a former Director of Goodman Fielder, Goodman Fielder

as Chief Executive and Board member of a number of companies,

Wattie, Ceramco, Baycorp and a number of private companies.

and has been a Director of Mighty River Power since April 2002.

(4) CAROLINE BALL

was appointed a Director of Mighty River Power

(8) TANIA SIMPSON

was appointed as a Director of Mighty River Power

in November 2002. She has extensive experience in New Zealand’s

in November 2001 and is the founding Director of Maori policy adviser,

energy industry having been Chief Executive for Fitzroy Worley,

Kowhai Consulting. She is of Ngati Maniapoto and Ngati Manu

and General Manager Transmission at Natural Gas Corporation.

descent and lives in the Maniapoto district. She has previously held

Caroline is Managing Director of Strategic Developments, a consulting

management positions in Housing Corporation, Ministry of Maori

ﬁrm specialising in business growth issues and investments.

Development and Ofﬁce of Treaty Settlements and has worked on social policy, economic development and Treaty-related matters. Tania is a Director of Kokatotaea Limited and Maraeroa C Incorporation.

C O R P O R AT E G O V E R N A N C E

Mighty River Power operates under a corporate governance framework,

BOARD MEETINGS

consisting of its legal requirements (under such legislation as the Companies Act 1993 and the State-Owned Enterprises Act 1986),

The full Board met 11 times during the year. For the year ended 30

and formal and informal practices adopted by the Board of Directors.

June 2005, Board meetings were attended as follows:

These include the Board Charter, the Code of Ethics, Audit Committee Terms of Reference, Remuneration Committee Terms of Reference

DIRECTOR

and the Trading Disclosure Policy – Company Securities.

Carole Durbin

Ian Fraser

John Baird

The Board is responsible for corporate governance of the Company

BOARD MEETINGS

– in other words, the direction and control that is undertaken

Caroline Ball

by the Directors of the Company and also for their accountabilities

Sandy Maier

to shareholders and others for the Company’s performance and

David McConnell

its compliance with the appropriate laws and standards.

Tania Simpson

Rob Challinor ROLE OF THE BOARD

5 (until December)

Trevor Janes

The Board is responsible for the overall direction of Mighty River

0 (on leave of absence in June)

Rob Challinor was Chairman, Director and an ex-ofﬁcio member

Power’s business and other activities on behalf of Shareholding

of the Audit and Remuneration Committees until he resigned

Ministers. The Company’s principal objectives are to operate as a

in December 2004

successful business and to be:

≠

as proﬁtable and efﬁcient as comparable businesses not

≠

an employer that operates policies which are judged to be fair

To assist Directors to carry out their duties, the Board has three

and equitable in their treatment of all staff in all aspects of

standing committees. Other ad hoc committees may be formed

their employment;

from time to time.

BOARD COMMITTEES

owned by the Crown;

≠

an organisation that displays an informed sense of social responsibility by having regards to the interests of the

AUDIT COMMITTEE This

committee comprises Sandy Maier (Chairman),

communities in which the Group operates and by supporting

Caroline Ball, Trevor Janes (from 31/8/05) and Ian Fraser with

these communities when able to do so;

Carole Durbin as an ex-ofﬁcio member. It met four times during the

a leader in achieving the objectives of sustainable development

year. The Audit Committee’s role is to assist the Board in fulﬁlling its

– working to achieve sustainable development for the

duties and responsibilities around the establishment and continued

communities in which the Group operates through world’s

effectiveness of the Company’s policies, practices, procedures and

best management of generation resources.

internal control systems. The committee also reviews the performances of internal and external auditors. Internal audit is outsourced to Deloitte. All Directors are invited to attend Audit

BOARD MEMBERSHIP

Committee meetings and are provided with copies of meeting minutes The Board is made up of eight non-executive Directors. Proﬁles of

and any reports received by the committee.

the individual Directors can be found on page 47.

REMUNERATION COMMITTEE

This committee comprises John Baird

As part of managing its broader risk proﬁle, the Board recognises the

(Chairman), David McConnell and Tania Simpson with Carole Durbin

importance of full compliance with laws controlling environmental

as an ex-officio member. It met five times during this financial

activities, management of natural resources, health and safety

year. The Remuneration Committee’s primary role is to consider

in employment and working conditions within buildings, and

remuneration policies concerning the Company’s employees,

monitors the Company’s compliance with relevant statutes

including the Chief Executive.

through the regular reports it receives from management.

GENERATION DEVELOPMENT COMMITTEE

This Committee comprises

AUDITOR INDEPENDENCE

all Board members and is chaired by Carole Durbin. It met 11 times during the ﬁnancial year, in conjunction with each Board meeting.

The Board’s policy on auditor independence places responsibility for

The Generation Development Committee’s role is to oversee

managing the relationship with the Audit Committee.

the Company’s extensive generation development programme, During the year the Board reviewed the Company’s relationship

particularly in the areas of geothermal drilling and construction,

with the auditor of the ﬁnancial statements, G A Fulton of Ernst &

and to evaluate and monitor proposed exploration.

Young, on behalf of the Auditor-General. This review confirmed the present audit arrangements and noted no need to change them.

BOARD PERFORMANCE REVIEW

Each year, the Board evaluates the performance of the Board as a

The Audit Committee also reviewed the scope of services provided to

whole and of the Chair. This is done using a variety of techniques

Mighty River Power by G A Fulton of Ernst & Young.

including external consultants, questionnaires and Board discussion. The Chair’s performance is reviewed by all Directors and is then

R E S P O N S I B I L I T Y S TAT E M E N T

discussed with the Chair. The Board of Directors has responsibility for ensuring the Company has effective policies in place to manage its risks. The Board

PL ANNING

decides the level and nature of the risks which are acceptable to The Board held a Strategic Planning session and other review

the Company. The Chief Executive has overall responsibility for the

sessions this year. It also approved the Company’s draft Statement

day to day running of the Company and the day to day management

of Corporate Intent for shareholder approval, business plan, and

of normal business risk.

budgets as part of its normal functions. S TAT E M E N T O F C O R P O R AT E I N T E N T RISK MANAGEMENT

In accordance with its obligations under the State-Owned It is a Board responsibility to identify and control the Company’s

Enterprises Act, the Company publishes an annual Statement

business risks. Major policies which are subject to the Board’s

of Corporate Intent as approved by its shareholders that

approval and review include capital investment, treasury, electricity

communicates the goals and strategies of the Company and

trading and risk management, accounting and ﬁnancial, insurance

outlines its expected performance. This document also contributes

and delegated authority limits.

to Mighty River Power’s disclosure obligations.

EXECUTIVE MANAGEMENT

(1)

(2)

(3)

(5)

(4)

(6)

(7)

(8)

(1) DOUG HEFFERNAN, CHIEF EXECUTIVE.

Doug was appointed Chief

James joined Mighty River Power following experience in ﬁnancial

Executive in December 1998. Previously, he was Chief Executive of

markets and strategic and ﬁnancial consulting work in the

Power New Zealand Limited, from 1991 to 1997, leading it through

Australian energy sector. He brings extensive business experience

corporatisation, merger and stock exchange listing. He has also

in managing risk, commodity trading and ﬁnancial management.

assisted governments on policy development, provided strategic Greg joined

advice to the electricity industry and performed a number of

(6) GREG RAASCH, GENERAL MANAGER GEOTHERMAL.

governance roles within the sector. His senior management

Mighty River Power in January 2004 after spending 30 years

responsibility has extended across all parts of the electricity value chain.

in geothermal exploration and development around the world. He was previously the Programme Manager responsible for

John is responsible for

creating a Geothermal Division within the state-owned oil company

group operations, including hydro/thermal generation, group

in Chile. He was the Operations Manager for a 756MW geothermal

services and metering. He has over 20 years’ experience in general

generating facility in the Philippines and has developed geothermal

management roles in the electricity sector, and previously held

and natural gas-ﬁred power plants in North America, Latin

the position of Chief Operations Manager with Power New

America and South East Asia.

(2) JOHN FOOTE, GROUP OPERATIONS MANAGER.

Zealand Limited. Prior to joining the electricity industry, John was involved in the construction industry, which included signiﬁcant

(7) STEVE RAWSON, GENERAL MANAGER NEW BUSINESS DEVELOPMENT.

international experience.

Steve is responsible for building a portfolio of gas exploration prospects

via

joint

ventures

with

established

petroleum

(3) STUART LUSH, GENERAL MANAGER GENERATION DEVELOPMENT.

exploration companies and managing relationships with our key

Stuart is responsible for the identiﬁcation and development of new

partners (the lines companies) in delivering quality services to

generation opportunities. Stuart has extensive experience in the

customers. He is also charged with encouraging development of

electricity and construction industries, particularly in relation to the

embedded generation. Steve joined Mighty River Power in 2001 and

commercial realisation of development opportunities.

brings to this role experience as a geophysicist in the oil exploration industry, in sales of information services, trading in ﬁnancial

( 4 ) W I L L I A M M E E K , E N T E R P R I S E R I S K S T R AT E G I S T.

William is

markets and marketing and logistics in the oil supply chain.

responsible for overseeing the integrated risk positions of the Company with a particular focus on electricity and risk tolerance

(8)

parameters. This includes developing value–enhancing strategies

Neil previously headed our trading area and has over 10 years

within the Company’s ﬁnancial capability. He has 10 years experience

experience in the New Zealand electricity industry across retailing,

NEIL

WILLIAMS,

GENERAL

MANAGER

EXTERNAL

AFFAIRS.

in the New Zealand electricity industry including electricity wholesale

distribution and trading. His responsibilities include identifying

markets, price forecasting, strategy and risk management.

for the Company and its stakeholders opportunities emerging from policy development. In his role he guides our strategic

( 5)

JAMES

MO U LD E R,

G E NE RA L

M A NAG E R

SALES.

James is

industry policy, relationships with central government, iwi and

responsible for the management of the Company’s sales activities

other stakeholders. He is also responsible for public relations and

which supply residential, commercial and industrial customers.

media communications.

He is also responsible for the optimisation of the Company’s generation portfolio within the wholesale market, consistent with deﬁned risk management policies.

F I N A N C I A L & C O M M E R C I A L P E R F O R M A N C E TA R G E T S

Our objective is to increase shareholder value at a rate that is similar to the increases in market value achieved by comparable private sector companies. Our Statement of Corporate Intent sets out our financial and non-financial performance targets. Our achievements against targets for the 2005 financial year were as follows:

FINANCIAL PERFORMANCE TARGETS

2005 ACTUAL

Return on average Shareholders’ Equity (%)

2005 TARGET

STATUS

8.3

10.9

Not achieved

Total Equity/Total Assets (%)

76.2

61.3

Achieved

Net Debt /Net Debt plus Equity (%)

18.0

33.7

Achieved

7.0

4.8

Achieved

0.46

< 1.25

Achieved

100

Achieved

Customer switching to Industry standards (%)

100

Achieved

Free Funds from Operations /Interest Expense (times) NON-FINANCIAL PERFORMANCE TARGETS

Safety – Frequency (lost time accidents per 100,000 hours of time worked) Environmental performance (%)

Customer contacts per year

2.3

< 2.5

Achieved

Plant availability (%)

> 93

Achieved

Forced Outage Rate (%)

1.3

< 2.1

Achieved

1 No

enforcements by regulatory authorities arising from breach of environmental standards and controls.

D I R E C T O R S ’ R E S P O N S I B I L I T Y S TAT E M E N T

The Directors are pleased to present Mighty River Power Limited’s Annual Report and ﬁnancial statements for the year ending 30 June 2005.

The Directors are responsible for ensuring that the financial statements comply with generally accepted accounting practices and represent a true and fair view of Mighty River Power Limited’s financial position as at 30 June 2005, and of the financial performance and cashflows for the current financial year.

The Directors consider that the Group and Company’s ﬁnancial statements have been prepared using appropriate accounting policies, that these have been consistently applied and are supported by reasonable judgments and estimates, and that all relevant ﬁnancial reporting and accounting standards have been followed.

The Directors believe that proper accounting records have been kept which allow for the determination of the Company’s ﬁnancial position with reasonable accuracy, and that the ﬁnancial statements themselves comply with the Financial Reporting Act 1993 and the Companies Act 1993.

The Directors consider that they have taken adequate steps to safeguard the Company’s assets and to prevent and where necessary detect fraud and any other irregularities.

The Audit Ofﬁce is required to be the Company’s auditor, and has appointed Mr G A Fulton of Ernst & Young to undertake the audit on its behalf.

AUDIT REPORT

To the readers of Mighty River Power Limited and Group’s ﬁnancial

We planned and performed our audit to obtain all the information

statements for the year ended 30 June 2005.

and explanations we considered necessary in order to obtain reasonable assurance that the ﬁnancial statements did not have

The Auditor-General is the auditor of Mighty River Power Limited

material misstatements, whether caused by fraud or error.

(the Company) and Group. The Auditor-General has appointed me, Gordon Fulton, using the staff and resources of Ernst & Young,

Material misstatements are differences or omissions of

to carry out the audit of the ﬁnancial statements of the Company and

amounts and disclosures that would affect a reader’s overall

Group, on his behalf, for the year ended 30 June 2005.

understanding of the ﬁnancial statements. If we had found material misstatements that were not corrected, we would have referred to them in the opinion.

UNQUALIFIED OPINION

In our opinion:

Our audit involved performing procedures to test the information

The ﬁnancial statements of the Company and Group on pages

presented in the ﬁnancial statements. We assessed the results of

58 to 86:

those procedures in forming our opinion.

≠

comply with generally accepted accounting practice in New Zealand; and

≠

give a true and fair view of:

≠

Audit procedures generally include:

≠

determining whether signiﬁcant ﬁnancial and management

the Company and Group’s financial position as

controls are working and can be relied on to produce complete

at 30 June 2005; and

and accurate data;

the results of operations and cash ﬂows for the year

≠

verifying samples of transactions and account balances;

ended on that date.

≠

performing analyses to identify anomalies in the reported data;

based on our examination the Company and Group kept proper

≠

accounting records.

reviewing signiﬁcant estimates and judgements made by the Board of Directors;

The audit was completed on 31 August 2005, and is the date at which

≠

conﬁrming year-end balances;

≠

determining whether accounting policies are appropriate and

our opinion is expressed.

consistently applied; and

≠ The basis of the opinion is explained below. In addition, we outline

determining whether all ﬁnancial statement disclosures are adequate.

the responsibilities of the Board of Directors and the Auditor, and We did not examine every transaction, nor do we guarantee complete

explain our independence.

accuracy of the ﬁnancial statements. BASIS OF OPINION

We have evaluated the overall adequacy of the presentation We carried out the audit in accordance with the Auditor-General’s

of information in the ﬁnancial statements. We obtained all the

Auditing Standards, which incorporate the New Zealand

information and explanations we required to support the opinion above.

Auditing Standards.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE AUDITOR

The Board of Directors is responsible for preparing financial statements in accordance with generally accepted accounting practice in New Zealand. Those financial statements must give a true and fair view of the financial position of the Company and Group as at 30 June 2005. They must also give a true and fair view of the results of operations and cash flows for the year ended on that date. The Board of Directors responsibilities arise from the State-Owned Enterprises Act 1986 and Financial Reporting Act 1993.

We are responsible for expressing an independent opinion on the ﬁnancial statements and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001 and section 19(1) of the State-Owned Enterprises Act 1986.

INDEPENDENCE

When carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the Institute of Chartered Accountants of New Zealand.

Other than the audit, we have no relationship with or interests in the Company or any of its subsidiaries.

G O R D O N F U LTO N ERNST & YOUNG O N B E H A L F O F T H E A U D I TO R - G E N E R A L , A U C K L A N D , N E W Z E A L A N D

F I N A N C I A L S TAT E M E N T S

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

S TATEMENT OF FIN A NCI A L PERFORM A NCE

S TATEMENT OF MOV EMENT S IN EQUIT Y

S TATEMENT OF FIN A NCI A L P OSITION

S TATEMENT OF CA SH FLOW S

NOTE S TO THE FIN A NCI A L S TATEMENT S

S TAT E M E N T O F F I N A N C I A L P E R F O R M A N C E

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

NOTE

Sales Less line and metering charges

PARENT

2005

2004

2005

2004

$000

895,669

774,654

847,829

721,880

(222,527)

(185,844)

(222,527)

(185,844)

Interest income

3,649

2,341

17,999

13,880

Other revenue

7,585

8,097

9,791

9,960

Total Operating Revenue

684,376

599,248

653,092

559,876

Operating surplus before interest and non-recurring items

241,762

199,551

250,997

211,174

3,649

2,341

17,999

13,880

(36,336)

(31,742)

(36,336)

(31,818)

(22,137)

(14,705)

(6,139)

(13,996)

Interest income Interest expense Non-recurring items

Share of associate net surplus

Surplus Before Taxation

1,021

131

187,959

155,576

226,521

179,240

Taxation expense

(66,732)

(55,748)

(79,572)

(63,810)

Net Surplus After Taxation

121,227

99,828

146,949

115,430

The notes set out on pages 63 to 86 form part of, and should be read in conjunction with, these Financial Statements.

S TAT E M E N T O F M O V E M E N T S I N E Q U I T Y

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

NOTE

Equity at Beginning of the Year Net surplus after taxation

Increase in asset revaluation reserve

Total Recognised Revenues and Expenses for the Year

PARENT

2005

2004

2005

2004

$000

886,524

861,696

911,956

871,526

121,227

99,828

146,949

115,430

1,055,564

1,076,913

1,176,791

99,828

1,223,862

115,430

(30,000)

(75,000)

2,033,315

886,524

2,105,818

911,956

Distributions to owners: Final dividend paid

Special dividend

Equity at End of the Year

The notes set out on pages 63 to 86 form part of, and should be read in conjunction with, these Financial Statements.

S TAT E M E N T O F F I N A N C I A L P O S I T I O N

A S AT 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

NOTE

$000

Share capital

377,561

Reserves

1,655,754

508,963

1,728,257

534,395

2,033,315

886,524

2,105,818

911,956

1,204

Equity

Non-Current Liabilities Energy contracts Loans

469,294

374,315

469,294

374,315

470,498

375,519

470,498

375,519

136,304

91,863

126,160

85,494

75,000

Provisions

5,051

4,254

5,051

4,254

Deferred taxation

22,913

24,114

14,657

13,288

2,032

8,214

8,936

Current Liabilities Payables and accruals Provision for dividend

Provision for taxation Loans â€“ current portion

Total Equity and Liabilities

The notes set out on pages 63 to 86 form part of, and should be read in conjunction with, these Financial Statements.

54,000

164,268

251,263

154,082

240,972

2,668,081

1,513,306

2,730,398

1,528,447

S TAT E M E N T O F F I N A N C I A L P O S I T I O N ( C O N T I N U E D )

A S AT 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

NOTE

$000

2,437,139

1,369,319

2,294,943

1,226,538

Non-Current Assets Property, plant and equipment Investment in subsidiaries

84,959

37,959

Investment in associate

31,152

2,352

25,000

1,971

Other non-current assets

11,005

15,494

8,428

12,617

2,479,296

1,387,165

2,413,330

1,279,085

7,013

3,457

6,955

3,382

16,400

1,985

Receivables and prepayments

160,316

116,649

290,708

239,945

Inventories

3,054

4,050

3,005

4,050

2,002

188,785

126,141

317,068

249,362

2,668,081

1,513,306

2,730,398

1,528,447

Current Assets Cash Short term deposits Investment in associate

Provision for taxation

Total Assets

For and on behalf of the Board of Directors, who authorised the issue of the ďŹ nancial statements on 31 August 2005.

CAROLE DURBIN

IAN FRASER

CHAIR

DEPUTY CHAIR

31 AUGUST 2005

The notes set out on pages 63 to 86 form part of, and should be read in conjunction with, these Financial Statements.

S TAT E M E N T O F C A S H F L O W S

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

NOTE

PARENT

2005

2004

2005

2004

$000

642,965

574,572

601,898

525,158

2,574

1,426

2,532

1,398

(351,134)

(408,544)

(314,850)

(356,543)

(34,835)

(30,966)

(34,835)

(30,966)

(71,966)

(47,500)

(71,966)

(47,500)

187,604

88,988

182,779

91,547

436

4,725

2,710

4,725

2,710

(78,541)

(47,120)

(55,321)

(42,002)

Cash Flows from Operating Activities CASH WAS PROVIDED FROM (APPLIED TO):

Receipts from customers Interest received Payments to suppliers and employees Interest paid Taxation paid

Net Cash Inflow from Operating Activities

Cash Flows from Investing Activities CASH WAS PROVIDED FROM (APPLIED TO):

Sale of property, plant and equipment Repayment of advances by associate Purchase of property, plant and equipment Purchase of other non-current assets Investment and advances to associate

Net Cash Outflow from Investing Activities

(150)

(3,983)

(150)

(3,983)

(29,750)

(103,627)

(47,957)

(80,407)

(42,839)

40,979

(42,456)

Cash Flows from Financing Activities CASH WAS PROVIDED FROM (APPLIED TO):

Loan advances

Loans repaid Loans to subsidiaries

(18,378)

(7,040)

(105,000)

(64,021)

(42,456)

(82,399)

(49,496)

Net Increase (Decrease) in Cash Held

19,956

(1,425)

19,973

(788)

Cash Balance at Beginning of the Year

3,457

4,882

3,382

4,170

23,413

3,457

23,355

3,382

7,013

3,457

6,955

3,382

16,400

23,413

3,457

23,355

3,382

Dividends paid

Net Cash Outflow from Financing Activities

Cash Balance at End of the Year

Cash balance comprises: Cash Short term deposits

The notes set out on pages 63 to 86 form part of, and should be read in conjunction with, these Financial Statements.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

1. S TAT E M E N T O F A C C O U N T I N G P O L I C I E S

B A S I S O F CO N S O L I D AT I O N

REPORTING ENTIT Y

holds a controlling interest either directly, indirectly or beneﬁcially in

Mighty River Power Limited is a company registered under the

the equity. Subsidiaries are consolidated under the purchase method on

Companies Act 1993 and is a reporting entity for the purposes of

a line-by-line basis. All material inter-company transactions, balances

the Financial Reporting Act 1993. The ﬁnancial statements have

and unrealised surpluses and deﬁcits arising from transactions

been prepared in accordance with the Financial Reporting Act

between Group companies are eliminated on consolidation.

S U B S I D I A R I E S Subsidiaries are those entities in which the Group

1993 and the Companies Act 1993 and comprise the following: A S S O C I AT E S Associates are those entities in which the Company

significant accounting policies, statements of financial performance, movements in equity, financial position and cash flows, as well as

holds an equity interest and over which the Company has the

the notes to these statements.

capacity to significantly affect but not unilaterally determine the operating and/or financial policy decisions. Associates are reflected

The Parent Company’s ﬁnancial statements are for Mighty River

in the consolidated ﬁnancial statements on an equity accounting

Power Limited (the “Company”) and the consolidated ﬁnancial

basis which recognises the Group’s share of retained surpluses or

statements are for Mighty River Power Limited Group (the “Group”).

deﬁcits in the consolidated statement of ﬁnancial performance and

The consolidated ﬁnancial statements comprise the Company, its

its share of post acquisition increases or decreases in net assets in

subsidiaries, associates and interests in joint ventures.

the consolidated statement of ﬁnancial position.

CO N S T I T U T I O N , O W N E R S H I P A N D A C T I V I T I E S

J O I N T V E N T U R E S Joint ventures are joint arrangements with

Mighty River Power Limited is wholly owned by Her Majesty the Queen

other parties in which the Company has several liability in respect

in Right of New Zealand (the Crown). Consequently, the Company is

of costs and liabilities, and shares in any resulting output. The

bound by the requirements of the State-Owned Enterprises Act 1986.

Company’s share of the assets, liabilities, revenues and expenses of joint ventures is incorporated into the Company and Group ﬁnancial

The liabilities of the Company are not guaranteed in any way

statements on a line-by-line basis.

by the Crown. I N V E S T M E N T S Investments in subsidiaries are stated at cost.

The Group’s principal activities are the generation, trading and

Short-term investments comprise investments that mature or are

retailing of energy.

otherwise realisable within not more than twelve months from the date of purchase and are stated at cost, less unamortised premium or discount.

ME A SUREMENT BA SE

The ﬁnancial statements are prepared on the basis of historical cost with the exception of certain items for which speciﬁc accounting

A CQ U I S I T I O N O R D I S P O S A L D U R I N G T H E Y E A R Where an

policies are identiﬁed, as noted below.

entity becomes or ceases to be a Group entity during the year, the

S P E C I F I C A CCO U N T I N G P O L I C I E S

from the date of acquisition or up to the date of disposal.

results of that entity are included in the net surplus of the Group

The following specific accounting policies that materially affect the measurement of financial performance, financial position and cash flows have been applied.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

G O O D W I L L Goodwill represents the excess of the purchase

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

F O R E I G N C U R R E N C I E S Foreign currency assets and liabilities

consideration over the fair value of the identiﬁable net assets acquired

are translated at exchange rates ruling at balance date.

at the date of acquisition of an equity interest. Goodwill is recognised

Exchange differences arising on translation are taken to the

as an asset and separately disclosed. Goodwill is amortised on a

statement of ﬁnancial performance. Hedged foreign currency assets

straight-line basis over the period of expected beneﬁts.

and liabilities are translated at the rates of exchange determined by the underlying hedge contracts.

Discount on acquisition of businesses is accounted for by reducing proportionately the fair values of the non-monetary assets acquired.

Foreign currency transactions are translated at the exchange rates ruling at the date of the transaction except where hedging contracts

O P E R AT I N G R E V E N U E Operating revenue recognised in the

are taken out to cover short-term forward currency commitments,

statement of ﬁnancial performance includes the amounts received

in which case the transaction is translated at the forward rate

and receivable for energy and related energy services supplied to

speciﬁed in those contracts.

customers in the ordinary course of business. Operating revenue is stated exclusive of:

≠

The assets and liabilities of independent foreign operations are

distribution costs paid to lines companies as collected from

translated at the exchange rates ruling at balance date. Revenue

customers, and

and expense items are translated at the spot rate at the transaction

goods and services tax collected from customers.

date or a rate approximating that rate. Exchange differences are taken to the foreign currency translation reserve.

Operating revenue includes the value of units assessed as being recorded on meters as at balance date, but for which invoices have

Surpluses and deficits relating to outstanding forward foreign

not yet been rendered.

exchange contracts which are not designated as hedges are recognised in the statement of ﬁnancial performance in the period

R E C E I VA B L E S Receivables are stated at their estimated realisable

in which they are incurred.

value, after providing for debts where collection is doubtful. Bad D E B T Debt is stated at face value. Bank borrowing costs such

debts are expensed during the period in which they are identiﬁed.

as origination, commitment and transaction fees are expensed TA X AT I O N The taxation expense charged to the statement of

as incurred.

ﬁnancial performance includes both the current year’s provision and the income tax effect of timing differences calculated using

P R O P E R T Y, P L A N T A N D E Q U I P M E N T

the liability method.

OWNED ASSETS

The Group has adopted fair value accounting for its

generation assets which include freehold land and buildings and Tax effect accounting is applied on a comprehensive basis to all timing

generation plant. The underlying valuation performed by independent

differences. A debit balance in the deferred taxation account arising

third party valuation experts and reviewed by the Board is conducted

from timing differences or income tax beneﬁts from income tax losses,

at a minimum of ﬁve yearly intervals with the underlying assumptions

is only recognised if there is virtual certainty of realisation.

being reviewed for reasonableness on an annual basis.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

The basis of the valuation is net present value of future earnings of

Where appropriate, the cost of property, plant and equipment

the assets on an existing use basis, excluding any costs associated

includes site preparation costs, installation costs, unrecovered

with disposal, restoration and environmental rehabilitation.

operating costs incurred during planned commissioning and the cost of obtaining resource consents.

Office land and buildings are revalued to net market value tri-annually as determined by third party valuation experts.

Provision is made for any permanent impairment in the value of property, plant and equipment where the estimated recoverable

Any surplus on revaluation of a class of property, plant and

amount is less than the carrying value.

equipment is transferred directly to the asset revaluation reserve unless it offsets a previous decrease in value recognised in the

Where property, plant and equipment is disposed of, the surplus

statement of ﬁnancial performance, in which case it is recognised

or deﬁcit recognised in the statement of ﬁnancial performance is

in the statement of ﬁnancial performance. A deﬁcit on revaluation

calculated as the difference between the sale price and the carrying

of a class of property, plant and equipment is recognised in

value of the property, plant and equipment.

the statement of ﬁnancial performance in the period it arises where it exceeds any surplus previously transferred to the asset

LEASED ASSETS

revaluation reserve. Additions to property, plant and equipment

equipment.

The Group leases certain property, plant and

stated at valuation subsequent to the most recent valuation Leases under which the Group assumes substantially all the risks

are recorded at cost.

and rewards incidental to ownership are classiﬁed as ﬁnance leases and are capitalised. The asset and corresponding liability

All other items of property, plant and equipment are recorded at cost.

are recorded at the inception of the lease at the fair value of the The cost of property, plant and equipment purchased comprises

leased asset, at amounts equivalent to the discounted present value

the consideration given to acquire the assets plus other directly

of minimum lease payments, including residual values.

attributable costs incurred in bringing the assets to the location and Finance charges are apportioned over the terms of the

condition necessary for their intended service.

respective leases. The cost of property, plant and equipment constructed by the Group, including capital work in progress, includes the cost of all materials

The cost of improvements to leasehold property is capitalised and

used in construction, direct labour speciﬁcally associated and an

amortised over the estimated useful life of the improvements, or

appropriate proportion of variable and ﬁxed overheads. Financing

over the unexpired portion of the lease, whichever is shorter.

costs attributable to a project are capitalised at the Group’s speciﬁc project ﬁnance interest rate, where these meet certain time and

Capitalised leased assets are depreciated over the shorter of their

monetary materiality limits. Costs cease to be capitalised as soon

estimated useful lives or the lease term.

as an asset is ready for productive use.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

Operating lease payments are representative of the pattern of

EXPLORATION

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

Exploration expenditure which includes geological,

beneﬁts derived from the leased assets and accordingly are charged

geochemical and geophysical costs, is recognised in the statement

to the statement of ﬁnancial performance in the periods in which

of ﬁnancial performance in the period incurred except where future

they are incurred.

beneﬁts are expected to exceed such expenditure.

D E P R E C I AT I O N Depreciation is provided on a straight-line basis

Exploratory drilling costs are initially deferred and are subject to

on all property, plant and equipment other than freehold land and

regular review to conﬁrm the ability to develop or otherwise extract

capital work in progress, so as to write down the assets to their

value from expenditure. If an exploratory ﬁeld is appraised as

estimated residual value over their expected useful lives.

unsuccessful, such costs are charged to the statement of ﬁnancial performance.

The annual depreciation rates are as follows: Freehold buildings

1–2%

The exploratory drilling costs of successful efforts are

Generation plant:

amortised on a units of production basis over the estimated life

≠

Hydro

≠

Geothermal

5 – 8%

≠

Co-generation

7 – 11%

≠

Landfill

5 – 10%

DEVELOPMENT

Meters

2 – 15%

of the field, commencing from the first year of commercial production from that field.

The development costs of successful efforts are

4 – 10%

capitalised and amortised on a units of production basis over the

Computer hardware and software

20 – 33%

estimated life of the field, commencing from the first year

Other plant and equipment

10 – 20%

of commercial production. Any impairment in the value of

20%

unamortised development costs is charged to the statement of

Motor vehicles

ﬁnancial performance. DISTINC TION BE T WEEN C APITAL AND RE VENUE E XPENDITURE

Capital expenditure is deﬁned as all expenditure on the purchase

R E H A B I L I TAT I O N CO S T S Estimations are made for the expected

or creation of a new asset, and any expenditure that results in a

cost of environmental rehabilitation of commercial sites that require

significant improvement to the original functionality of an

some level of reinstatement resulting from present operations. Any

existing asset.

liability is recognised when exposure is identiﬁed and rehabilitation costs can be reasonably estimated.

Revenue expenditure is deﬁned as expenditure that restores an asset to its original operating capability and all expenditure incurred

I N S U R A N C E The Group’s property, plant and equipment is

in maintaining and operating the business.

predominantly concentrated at power station locations which have the potential to sustain major losses through damage to plant and resultant consequential costs.

E X P L O R AT I O N A ND D E V EL O P M EN T E X P END I T U R E

Exploration and development expenditure incurred by the Group is accounted for using the successful effort method.

To minimise the ﬁnancial impact of such exposures, the major portion of the assessed risk is transferred to insurance companies

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

by taking out insurance policies with appropriate counter parties.

ENERGY CONTRACTS

The Group has entered into a number of

Any uninsured loss is expensed to the statement of ﬁnancial

contracts to manage its exposure to price ﬂuctuations on the

performance in the year in which the loss is incurred.

electricity spot market. These contracts are in the form of power supply agreements, contracts for difference, and option

R E S O U R C E CO N S E N T S Costs incurred in obtaining a resource

based instruments. They are not undertaken for speculative

consent are capitalised and recognised as a non-current asset

purposes. These energy contracts establish the price at which

where they are more likely than not to give rise to future economic

future speciﬁed quantities of electricity are purchased, sold or

beneﬁt. These costs are amortised over the life of the consent on a

otherwise exchanged.

straight-line basis. Surpluses and deﬁcits on energy contracts are recognised in the I N V E N T O R I E S Inventories are stated at the lower of cost or net

statement of ﬁnancial performance in the period incurred.

realisable value. Cost is determined on a weighted average basis and includes expenditure incurred in acquiring the inventories and

A portfolio of energy contracts existing at 1 April 1999 was

bringing them to their existing condition and location.

marked-to-market using an expected price path for future wholesale electricity prices determined by independent experts.

E M P L O Y E E E N T I T L E M E N T S A liability for employee entitlements

The resulting net present values of unrealised revenues and

is accrued and recognised in the statement of ﬁnancial position.

expenses associated with these contracts have been recognised

The liability is stated at the estimated value of future cash outﬂows

in the ﬁnancial statements at balance date and the provisions are

resulting from employee services provided up to balance date.

amortised over the remaining terms of individual contracts based on the expected price path.

FINANCIAL INSTRUMENTS TREASURY

The Group has various ﬁnancial instruments with off-

S TAT E M E N T O F C A S H F L O W S

balance sheet risk for the purpose of reducing its exposure to

The following are the deﬁnitions of the terms used in the statement

ﬂuctuations in interest rates and foreign exchange rates.

of cash ﬂows.

≠

Cash includes cash on hand and bank current accounts, net

≠

Investing activities are those activities relating to the

For interest rate swap agreements, the differential to be paid or

of bank overdrafts.

received is accrued and is recognised as a component of interest

acquisition, holding and disposal of property, plant and

expense or interest revenue over the life of the swap agreement.

equipment and of investments. Investments can include Premiums paid on interest rate and currency options and the

securities not falling within the deﬁnition of cash.

net settlement on maturity of forward rate agreements are

≠

Financing activities are those activities that result in changes

amortised over the life of the underlying asset or liability protected

in the size and composition of the equity structure of the

by the instrument.

Group. This includes both equity and debt not falling within the

Surpluses and deﬁcits relating to ﬁnancial instruments entered into

are included in ﬁnancing activities.

deﬁnition of cash. Dividends paid in relation to equity structure

with no corresponding underlying position are recognised in the

≠

Operating activities include all transactions and other events that are not investing or ﬁnancing activities.

statement of financial performance in the period in which they are incurred.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

The statement of cash flows includes net cash flows from loan advances as the rollover of loans and deposits is covered by an arranged finance facility.

CO M PA R AT I V E S

Prior year comparatives have been restated to conform with current year presentation.

C H A N G E S I N A CCO U N T I N G P O L I C I E S

The Group has adopted fair value accounting from 30 June 2005 for its generation assets which aligns the Company’s policy with Crown accounting policies. As a result of this change in accounting policy, generation assets have been revalued upward by $1,056 million effective from 30 June 2005. From 1 July 2005 the revalued component of generation assets will be depreciated in line with the Group’s depreciation methodology for this class of asset.

There are no other changes in accounting policies during the period.

F R S 41 : Disclosing the impact of Adopting New Zealand Equivalents to

International Financial Reporting Standards came into effect for the year ended 30 June 2005 and has been applied for the ﬁrst time in the current period.

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

2 . O P E R AT I N G R E V E N U E

All operating revenue was derived from continuing activities.

GROUP

PARENT

2005

2004

2005

2004

$000

(9,225)

3 . O P E R AT I N G S U R P L U S B E F O R E I N T E R E S T A N D N O N - R E C U R R I N G I T E M S AFTER CHARGING (CREDITING):

Amortisation of energy contracts Net surplus on disposal of property, plant and equipment Bad debts written off Change in provision for doubtful debts

(54)

(175)

(54)

(175)

2,145

1,838

2,145

1,838

155

(545)

155

(50)

Depreciation:

≠

Buildings

≠

Generation assets

43,990

43,001

28,572

28,411

≠

Meters

3,363

3,295

3,363

3,295

≠

Computer hardware and software

3,324

6,232

3,290

6,196

≠

Other plant and equipment

1,755

1,859

1,568

1,741

≠

Motor vehicles

255

218

241

208

2,006

1,606

2,006

1,606

319

305

319

305

228

161

162

117

Rental and operating lease costs Directors’ fees Donations Fees paid to auditors for:

≠

Auditing the financial statements

≠

Other

Net foreign currency exchange losses (gains) Amortisation of other non-current assets

225

(38)

3,672

1,775

3,372

1,475

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

$000

(20,935)

(4,937)

Exit from Contracts for Differences

(14,098)

Revaluation of office land and buildings

600

(1,202)

(1,207)

(1,202)

(498)

(22,137)

(14,705)

(6,139)

(13,996)

4. NON-RECURRING ITEMS

Impairment of exploration expenditure

Other

IMPAIRMENT OF EXPLORATION EXPENDITURE

Expenditure relating to exploratory drilling has been expensed as a consequence of a review of

the economic viability of the expenditure associated with this drilling. The assessed capacity of the ďŹ elds involved has been reduced and expected future developments can no longer support the carrying value of these investments.

EXIT FROM CONTRACTS FOR DIFFERENCES

On 28 June 2004 the Group exited from two Contracts for Differences. The amount of $14,098,000

relates to the net loss from exiting these arrangements, including a termination payment and reversal of the remaining balance of a provision for an onerous energy contract established at the time of commencement of business on 1 April 1999.

5 . TA X AT I O N E X P E N S E

Surplus before taxation

187,959

155,576

226,521

179,240

62,026

51,340

74,752

59,149

4,545

4,352

4,659

4,299

161

362

66,732

55,748

79,572

63,810

Current taxation

67,933

54,427

78,203

61,820

Deferred taxation

(1,201)

1,321

1,369

1,990

66,732

55,748

79,572

63,810

Taxation at 33 cents Taxation effect of permanent differences: Other permanent differences Prior year adjustments Taxation Expense ANALYSIS OF TAXATION EXPENSE

6 . N E T S U R P L U S A F T E R TA X AT I O N

All net surplus after taxation was derived from continuing activities.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

PARENT 2005

2004

$000

77,293

29,793

7. I M P U TAT I O N C R E D I T A C C O U N T

Balance at beginning of the year Imputation credits attached to dividends received during the year

(51,716)

Income tax payments during the year

72,226

47,500

Balance at end of the year

97,803

77,293

87,979

67,469

9,824

97,803

77,293

Imputation credits attached to dividends paid during the year

At balance date the imputation credits available to the shareholder were: Through direct shareholding in the Company Through indirect interests in subsidiaries

8 . S H A R E C A P I TA L

The share capital is represented by 377,561,000 (2004: 377,561,000) ordinary shares issued and fully paid. All shares have equal voting rights and share equally in dividends and surplus on winding up.

GROUP

PARENT

2005

2004

2005

2004

$000

244,953

342,204

9. R E S E R V E S ASSET REVALUATION RESERVE

Balance at beginning of the year Increase in asset revaluation reserve

1,055,564

1,076,913

Balance at end of the year

1,300,517

244,953

1,419,117

342,204

Balance at beginning of the year

264,010

239,182

192,191

151,761

Net surplus after taxation

121,227

99,828

146,949

115,430

(30,000)

(75,000)

355,237

264,010

309,140

192,191

1,655,754

508,963

1,728,257

534,395

RETAINED SURPLUS

Distributions to owners: Final dividend Special dividend Balance at end of the year

The special dividend was approved by the Board on 30 June 2004 and paid as a special dividend on 23 July 2004. The ďŹ nal dividend was approved by the Board on 24 November 2004 and paid on 29 November 2004.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

$000

10 . L O A N S

Bank loans (unsecured)

21,000

54,000

21,000

54,000

Commercial paper (unsecured)

118,473

44,494

118,473

44,494

Fixed Rate Bonds (unsecured)

313,821

16,000

469,294

428,315

469,294

428,315

Within one year

54,000

One to two years

ECNZ Residual loans (unsecured)

REPAYABLE AS FOLLOWS

INTEREST RATE

Two to five years

7.0% to 8.0%

155,473

60,494

155,473

60,494

Later than five years

6.7% to 7.0%

313,821

469,294

428,315

469,294

428,315

54,000

469,294

374,315

469,294

374,315

Total Less current portion Total term loans

The unsecured bank loans represent amounts drawn down at balance date on the Company’s $225 million of revolving advance facilities of which $75 million matures in October 2007 and $150 million matures in November 2007. These facilities carry ﬂoating interest rates which, at balance date, were 7.0%. It is the Company’s intention to renew these facilties.

The unsecured commercial paper has a cash advances and standby facility available which provides liquidity support. The cash advances and standby facility expires in March 2008. It is the Company’s intention to continually re-new this facility for the foreseeable future.

The Company has classiﬁed both its unsecured bank loans and its commercial paper as at 30 June 2005 to reﬂect the underlying committed facilities in place.

The unsecured and unsubordinated Fixed Rate Bonds represent subscriptions of $200 million dated 9 May 2003 and $114 million dated 27 August 2003. The Bonds dated 9 May 2003 carry a fixed interest rate of 7.01% for the first five years and have a maturity date of 15 May 2013, unless the Company exercises its early repayment option to redeem the Bonds on 15 May 2008. The Bonds dated 27 August 2003 carry a fixed interest rate of 6.73% for the first three years and have a maturity date of 15 September 2011, unless the Company exercises its early repayment option to redeem the Bonds on 15 September 2006.

The Company has entered into a Master Trust Deed with the New Zealand Guardian Trust Company Limited, acting as trustee for the holders of Fixed Rate Bonds, in which the Company has agreed subject to certain exceptions, not to create or permit to exist a security interest over or effecting its assets to secure indebtedness, and to maintain a minimum level of shareholders’ equity.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

10 . L O A N S ( C O N T I N U E D )

The Company has also entered into speciﬁc Supplementary Trust Deeds for the issue of $200 million of 10 year Fixed Rate Bonds and $114 million of 8 year Fixed Rate Bonds.

The Company has entered into a negative pledge deed in favour of its bank ﬁnanciers in which the Company has agreed subject to certain exceptions, not to create or permit to exist a security interest over or effecting its assets to secure its indebtedness, and to maintain certain ﬁnancial ratios in relation to the Company.

GROUP

PARENT

2005

2004

2005

2004

$000

118,773

81,991

113,217

76,853

3,109

1,604

3,109

1,604

14,422

8,268

9,834

7,037

136,304

91,863

126,160

85,494

4,254

3,322

4,254

3,322

11. PAYA B L E S A N D A C C R UA L S

Trade payables Employee entitlements Sundry creditors

12 . P R O V I S I O N S PROVISION FOR PROMPT PAYMENT DISCOUNTS

Balance at beginning of the year Movements during the year Balance at end of the year

797

932

797

932

5,051

4,254

5,051

4,254

Provision for prompt payment discounts represents the prompt payment discount allowed for electricity retail customers. The discount is utilised when outstanding accounts are paid by the due date as speciﬁed on the monthly electricity invoice. The level of discount provided for is assessed on an ongoing basis.

13 . D E F E R R E D TA X AT I O N

Balance at beginning of the year

24,114

22,793

13,288

11,298

(1,228)

1,117

1,398

1,970

204

(29)

22,913

24,114

14,657

13,288

Movements during the year: Timing differences Prior year adjustments Balance at end of the year

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

$000

14 . P R O P E R T Y, P L A N T A N D E Q U I P M E N T FREEHOLD LAND

At valuation

17,662

3,417

FREEHOLD BUILDINGS

At valuation Accumulated depreciation

(353)

(290)

(353)

(290)

3,064

3,127

3,064

3,127

245,327

31,731

GENERATION ASSETS

At cost Accumulated depreciation

(88,695)

(2,439)

2,289,979

1,260,397

2,183,811

1,242,597

(151,445)

(145,715)

2,289,979

1,265,584

2,183,811

1,126,174

57,421

54,537

57,421

54,537

(20,851)

(17,487)

(20,851)

(17,487)

36,570

37,050

36,570

37,050

36,237

36,342

36,032

36,190

(32,269)

(31,615)

(32,088)

(31,510)

3,968

4,727

3,944

4,680

18,932

16,509

17,736

15,467

(12,176)

(11,287)

(11,736)

(10,926)

6,756

5,222

6,000

4,541

At cost

1,472

1,307

1,326

1,208

Accumulated depreciation

(719)

(574)

(648)

(518)

753

733

678

690

78,387

35,214

43,214

32,614

2,437,139

1,369,319

2,294,943

1,226,538

At valuation Accumulated depreciation

METERS

At cost Accumulated depreciation

COMPUTER HARDWARE AND SOFTWARE

At cost Accumulated depreciation

OTHER PLANT AND EQUIPMENT

At cost Accumulated depreciation

MOTOR VEHICLES

CAPITAL WORK IN PROGRESS

At cost

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

14 . P R O P E R T Y, P L A N T A N D E Q U I P M E N T ( C O N T I N U E D )

Generation assets shown at valuation were revalued to net present value by PriceWaterhouseCoopers as at 30 June 2005. As a consequence of the revaluation, accumulated depreciation on these assets has been reset to nil as at 30 June 2005. Revalued ofďŹ ce land and buildings, included within freehold land and buildings, are stated at their net market value as determined by Attevell Gerbich Havill Limited, an independent valuer, on 22 April 2004. During the year a review of exploration expenditure was performed. Refer note 4 on non-recurring items.

PARENT 2005

2004

$000

84,959

37,959

84,959

37,959

15 . I N V E S T M E N T I N S U B S I D I A R I E S

Shares in subsidiaries at cost

The parent company recapitalised a number of its subsidiaries as at 30 June 2005. Subsidiaries comprise: COMPANY

% HOLDING

PRINCIPAL ACTIVITIES

BALANCE DATE

2005

2004

Southdown Cogeneration Limited

100

Rotokawa Generation Limited

100

Electricity generation

30 June

Mighty River Power Investments Limited

100

Investment holding

30 June

Mighty River Power (Rotokawa) Limited

100

Investment holding

30 June

ECNZ International Limited

100

Investment holding

30 June

Enalysis Limited

100

Energy services

30 June

Energy Auckland Limited

100

Non trading

30 June

First Electric Limited

100

Non trading

30 June

Mercury Energy Limited

100

Non trading

30 June

PT ECNZ Services Indonesia

100

Non trading

31 December

Rotokawa Geothermal Limited

100

Non trading

30 June

Southdown Cogen Power Limited

100

Non trading

30 June

Kawerau Geothermal Limited

100

Geothermal development

30 June

Mangakino Geothermal Limited

100

Geothermal development

30 June

Electricity generation

30 June

16 . J O I N T V E N T U R E S

The Company has interests in the following joint ventures: JOINT VENTURE

% HOLDING

PRINCIPAL ACTIVITIES

BALANCE DATE

2005

2004

Rotokawa

50.0

Electricity generation

30 June

Rosedale/Greenmount

77.5

Electricity generation

30 June

Silverstream

93.0

Electricity generation

30 June

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

16 . J O I N T V E N T U R E S ( C O N T I N U E D )

The Group’s share of revenue, expenses, assets and liabilities of joint ventures which have been proportionately consolidated within the ﬁnancial statements are as follows:

GROUP 2005

2004

$000

Share of revenue

3,135

2,048

Share of expenses

3,058

1,949

Non-current assets

16,521

6,484

Share of assets

16,521

6,484

Current liabilities

201

146

Share of liabilities

201

146

Share of revenue

2,453

3,078

Share of expenses

2,188

2,453

Share of revenue

596

543

Share of expenses

720

753

ROTOKAWA

ROSEDALE/GREENMOUNT

SILVERSTREAM

Non-current assets

1,762

1,995

Share of assets

1,861

2,038

Current assets

Current liabilities

Share of liabilities

Ownership of and responsibility for the assets of Rosedale/Greenmount are retained by the party contributing those assets. The ﬁnancial statements of Rosedale/Greenmount are unaudited.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

$000

250

Share of net surplus

1,152

131

Cost of investment acquired during the year

4,750

Advances

25,000

3,956

25,000

3,956

Balance at end of the year

31,152

4,337

25,000

3,956

17. I N V E S T M E N T I N A S S O C I AT E

Shares at cost

On 18 June 2003 the Group acquired a 25% ownership in TPC Holdings Limited, whose principal activity is investing in its 100% owned subsidiary Tuaropaki Power Company Limited an electricity generator. The balance as at 30 June 2004 includes a current portion of $1,985,000.

18 . O T H E R N O N - C U R R E N T A S S E T S

Energy contracts

4,537

6,431

4,537

6,431

Generation development options

2,577

4,675

1,798

Bond issue costs

3,741

4,388

3,741

4,388

150

11,005

15,494

8,428

12,617

138,678

127,201

Other

Non-current assets are stated at cost less amortisation of any impairment

19. R E C E I VA B L E S A N D P R E PAY M E N T S

Subsidiaries Trade receivables

151,267

106,359

143,129

102,788

Sundry receivables

5,390

6,619

5,390

6,619

Prepayments

3,659

3,671

3,511

3,337

160,316

116,649

290,708

239,945

2,826

3,654

2,777

3,654

228

396

228

396

3,054

4,050

3,005

4,050

20. INVENTORIES

Consumable stores Finished goods

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

$000

121,227

99,828

146,949

115,430

52,750

54,636

37,097

39,882

(9,225)

21. R E C O N C I L I AT I O N O F N E T S U R P L U S A F T E R TA X AT I O N W I T H N E T C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S NET SURPLUS AFTER TAXATION

Add (less) non-cash items: Depreciation Amortisation of energy contracts Amortisation of other non-current assets

3,672

1,775

3,372

1,475

20,935

4,937

Release from energy contracts

(55,637)

Share of associate net surplus

(1,021)

(131)

Other non-cash items

(7,291)

(1,066)

(6,011)

(1,775)

69,045

(9,648)

39,395

(25,280)

(43,667)

(21,558)

(39,286)

(19,106)

Exploration expenditure

Add (less) movements in working capital: Increase in receivables and prepayments Decrease (increase) in inventories

996

(1,034)

1,045

(1,034)

Increase in payables and accruals

45,238

13,598

41,463

17,054

(Decrease) increase in provision for taxation

(4,034)

6,481

(2,031)

21,188

(Decrease) increase in deferred taxation

(1,201)

1,321

2,678

1,990

(2,668)

(1,192)

3,869

20,092

(7,434)

(18,695)

(7,434)

(18,695)

187,604

88,988

182,779

91,547

Add (less) items classified as investing activities: Transfers between group companies

NET CASH INFLOW FROM OPERATING ACTIVITIES

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

GROUP

PARENT

2005

2004

2005

2004

$000

21,797

33,725

20,577

30,425

21,797

33,725

20,577

30,425

Within one year

1,351

1,398

1,351

1,398

One to two years

1,331

1,312

1,331

1,312

Two to five years

4,092

3,484

4,092

3,484

2,490

754

2,490

754

9,264

6,948

9,264

6,948

22. COMMITMENTS CAPITAL COMMITMENTS

Commitments for future capital expenditure are: Within one year

OPERATING COMMITMENTS

Commitments under non-cancellable operating leases and other contracts are:

Later than five years

23. CONTINGENCIES

Mighty River Power Limited and certain subsidiaries have cross-guaranteed the due and punctual payment of each other’s Guaranteed Indebtedness in relation to bank borrowings under a Standby and Cash Advances Facility and a Revolving Advances Facility.

Mighty River Power Limited has a number of potential on-going support projects with community based groups.

Mighty River Power Limited has a contingent liability in respect of the Accident Compensation Corporation’s residual claims levy. The levy is payable annually from May 1999 for up to ﬁfteen years. The Group’s future liability is a function of the Accident Compensation Corporation’s unfunded liability for past claims and future payments to employees.

Mighty River Power Limited holds land and interests that may be affected by certain claims that have been brought or are pending against the Crown under the Treaty of Waitangi Act 1975. In the event that a recommendation is made by the Waitangi Tribunal for the return of some or all of the affected land, and that recommendation is conﬁrmed by the Crown, resumption would be effected by the Crown under the Public Works Act 1981 and compensation would be payable to Mighty River Power Limited.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

24. RESOURCE CONSENTS

Mighty River Power Limited requires land, water and air consents, obtained under the Resource Management Act 1991 (the Act), to enable it to operate its geothermal, thermal and hydro power stations. The duration of consents under the Act is for a maximum of 35 years. The current resource consents within which the hydro power stations operate nominally expired on 1 October 2001 but remain in effect until such time as the Company’s applications for new consents are heard and determined. The consenting authority (Environment Waikato Regional Council) heard the application in November 2002. The hearings were closed on 14 August 2003. Seven parties appealed the consent decision. A number of these appeals have been resolved, however, the ﬁnal form of the Consent will not be known until completion of the Appeals process.

2 5 . S E G M E N T I N F O R M AT I O N

Mighty River Power Limited operates predominantly in one segment, being the generation and marketing of energy in New Zealand.

26. FINANCIAL INSTRUMENTS REVENUE RISK – ENERGY CONTRACTS

The Group, in the ordinary course of business, enters into energy contracts that establish a ﬁxed price at which future speciﬁed quantities of electricity are purchased, sold or otherwise exchanged. The Group’s exposure to spot electricity prices is limited by a Board approved Wholesale Electricity Trading Risk Management Policy.

On maturity of the energy contracts, any difference between the hedge price and the spot market price is settled between the parties. Settlement occurs irrespective of the amount of electricity actually supplied or consumed.

CREDIT RISK

To the extent that Mighty River Power Limited has a receivable from another party, there is a credit risk in the event of non-performance by that counter party. Financial instruments which potentially subject the Group to credit risk principally consist of bank balances, receivables, investments and interest rate swaps.

Mighty River Power Limited manages its exposure to credit risk. The Group performs credit evaluations on all electricity customers and normally requires a bond from customers who have yet to establish a suitable credit history with Mighty River Power Limited.

The Group monitors the credit quality of the major ﬁnancial institutions that are counter parties to its off balance sheet ﬁnancial instruments and does not anticipate non-performance by the counter parties.

With respect to energy contracts, the Group has a potential credit risk exposure to the counter party dependent on the spot market price at settlement, and does not anticipate any non-performance of any obligations which may exist on maturity of these contracts. Credit risk in relation to these counter-parties is managed in accordance with a Board approved Electricity Market and Credit Risk Policy Manual.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

26. FINANCIAL INSTRUMENTS (CONTINUED)

Maximum exposures to credit risk at balance date are: GROUP 2005

Bank balances Short term deposits Receivables Taxation receivable Investments Other non current assets Interest rate swaps

PARENT 2004

2005

2004

$000

7,013

3,457

6,955

3,382

16,400

151,412

107,552

281,952

231,382

2,002

31,152

4,337

25,000

3,956

150

3,910

3,205

3,910

3,205

The above maximum exposures are net of any recognised provision for losses on these ďŹ nancial instruments. Collateral in the form of customer bonds totalling $451,000 is held in respect of the above amounts.

Concentrations of credit risk Included in receivables are the following balances: GROUP 2005

Energy Clearing House Limited

PARENT 2004

2005

2004

$000

35,521

19,545

28,491

19,545

The Group does not have any other signiďŹ cant concentrations of credit risk.

FOREIGN EXCHANGE RISK

Mighty River Power Limited has exposure to foreign exchange risk as a result of transactions denominated in foreign currencies. The Group uses foreign currency forward exchange contracts and foreign currency options to manage these exposures.

At balance date the principal or contract amounts of foreign currency forward exchange contracts and foreign currency options are:

GROUP

Foreign currency forward exchange contracts Foreign currency options

PARENT

2005

2004

2005

2004

$000

213,716

3,208

213,716

3,208

36,529

At balance date the Group also has US funds of $3,972,206 (2004: $801,128) in US dollar accounts that are not hedged.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

26. FINANCIAL INSTRUMENTS (CONTINUED) INTERE S T R ATE RISK

Mighty River Power Limited has exposure to interest rate risk to the extent that it borrows for a fixed term at floating interest rates. The Group manages its cost of borrowing by placing limits on the proportion of floating to fixed rate borrowings.

The Group uses interest rate swaps and interest rate options to manage interest rate risk.

At balance date the principal or contract amounts of interest rate swaps and interest rate options outstanding are:

GROUP

PARENT

2005

2004

2005

2004

$000

Interest rate swaps

670,000

585,000

670,000

585,000

Interest rate options

90,000

55,000

90,000

55,000

REPRICING A N A LY SIS

The following tables identify the periods in which repriced financial instruments are subject to interest rate risk. The overall effective interest rate incorporates the effect of the relevant derivative contracts. EFFECTIVE INTEREST RATE

GROUP AND PARENT 2005

TOTAL

$000

WITHIN ONE YEAR

ONE TO TWO YEARS

TWO TO FIVE YEARS

LATER THAN FIVE YEARS $000

$000

Assets Cash

3.6%

7,013

Short term deposits

6.7%

16,400

Advances to associate

0.0%

Total Assets

25,000

48,413

23,413

25,000

Less Liabilities Bank loans (unsecured)

7.0%

21,000

Commercial paper (unsecured)

7.1%

118,473

Fixed Rate Bonds (unsecured)

6.9%

313,821

ECNZ Residual loans (unsecured)

8.0%

16,000

469,294

155,473

313,821

Interest rate swaps

670,000

155,000

275,000

240,000

Interest rate options

90,000

60,000

30,000

339,119

23,413

215,000

149,527

(48,821)

Total Liabilities Off Balance Sheet

Repricing Profile

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

26. FINANCIAL INSTRUMENTS (CONTINUED) EFFECTIVE INTEREST RATE

TOTAL

WITHIN ONE YEAR

$000

6.3%

3,457

18.0%

3,956

7,413

3,457

3,956

GROUP AND PARENT 2004

ONE TO TWO YEARS

TWO TO FIVE YEARS

LATER THAN FIVE YEARS

Assets Cash Advances to associate

Total Assets Less Liabilities Bank loans (unsecured)

6.1%

54,000

Commercial paper (unsecured)

6.1%

44,494

Fixed Rate Bonds (unsecured)

6.9%

313,821

ECNZ Residual loans (unsecured)

8.0%

Total Liabilities

16,000

428,315

54,000

60,494

313,821

585,000

15,000

50,000

400,000

120,000

Off Balance Sheet Interest rate swaps Interest rate options Repricing Profile

55,000

25,000

15,000

219,098

(10,543)

50,000

354,506

(174,865)

FA IR VA LUE S

The estimated fair values of ďŹ nancial instruments that differ from carrying values are as follows:

GROUP & PARENT

2005

2004

CARRYING VALUE

FAIR VALUE

$000

3,910

(9,503)

3,205

(7,447)

983

440

712

571

Foreign currency forward exchange contracts

(366)

Foreign currency options

1,798

(390)

Interest rate swaps Interest rate options

CARRYING VALUE

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

26. FINANCIAL INSTRUMENTS (CONTINUED)

The following methods and assumptions were used to estimate the fair value of each class of ﬁnancial instrument:

BA NK BA L A NCE S, RECEI VA BLE S, PAYA BLE S, LOA NS, IN V E S TMENT S

The carrying amount is the fair value for each of these classes of ﬁnancial instrument and accordingly they are excluded from the table above.

FOREIGN CURRENCY OP TIONS A ND FOREIGN CURRENCY FOR WA RD E XCH A NGE CONTR ACT S

The fair value of these classes of ﬁnancial instruments is based on the quoted market price of comparable instruments.

INTERE S T R ATE S WA P S A ND INTERE S T R ATE OP TIONS

The fair value of these classes of ﬁnancial instruments is the current market valuation provided by the Group’s bankers.

ENERGY CONTR ACT S

The fair value of energy price hedge contracts varies in accordance with the market price for electricity.

As at balance date, the face value of energy contracts amounted to $742.1 million (2004: $470.5 million) with terms of up to 13 years.

The carrying value of energy contracts in the ﬁnancial statements of $1.2 million (2004: $1.2 million) represents the value of the contracts acquired by the Group on 1 April 1999, as valued by PriceWaterhouseCoopers, less the amortisation credited to the Statement of Financial Performance since the date of acquisition.

2 7. R E L AT E D PA R T Y T R A N S A C T I O N S

During the year the Company entered into the following transactions with subsidiaries, associates and joint ventures:

Management fees charged to subsidiaries/joint ventures Advances to subsidiaries Advances to associates

2005

2004

$000

2,590

2,319

138,678

127,201

25,000

3,956

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

2 7. R E L AT E D PA R T Y T R A N S A C T I O N S ( C O N T I N U E D )

Advances to subsidiaries are interest free and repayable on demand with the exception of Mighty River Power Investments Limited with regard to advances in Mighty River Power (Rotokawa) Limited and Southdown Cogeneration Limited.

Mighty River Power Limited uses the services of a number of law firms including Simpson Grierson. Carole Durbin, Chair, was a partner in the law firm Simpson Grierson until 31 December 2004. Other partners and staff of that firm have rendered various legal services to the Group in the ordinary course of business on normal commercial terms. The Company has incurred expenditure for the period of $75,593 (2004: $188,107) with Simpson Grierson with related amounts payable at balance date of $9,842 (2004: $21,769).

Doug Heffernan (Chief Executive), a director of Mighty River Power Investments Limited and its subsidiaries, is also a director of TPC Holdings Limited and Tuaropaki Power Company Limited and Tim Densem (General Manager Hydro/Thermal Generation) is a director of Damwatch Services Limited. The Company has the following transactions and balances with these entities:

T UA ROPA K I P OW ER COMPA N Y LIMITED

Interest Income from advances totalled $296,052 (2004: $826,343) and related amounts receivable at balance date of $nil (2004: $1,185,534).

Net payments on energy contracts totalled $4,793,683 (2004: net receipts of $3,099,351) and related amounts receivable at balance date of $530,144 (2004: amounts payable of $670,466).

Revenue under the Mokai operations and maintenance contract of $1,827,422 (2004: $1,855,765) and related amounts receivable at balance date of $443,008 (2004: $366,018).

Revenue under the Engineering Services Agreement of $149,000 (2004: $nil) and related amounts receivable at balance date of $nil (2004 $nil).

DA M WATCH SER V ICE S LIMITED

Monitoring services expense for the period of $1,589,290 (2004: $1,994,548) and related amounts payable at balance date of $34,690 (2004: $nil).

Directors and employees of the Group deal with Mighty River Power Limited as electricity consumers on normal terms and conditions within the ordinary course of trading activities.

No related party debts have been written off or forgiven during the year.

The ultimate shareholder of Mighty River Power Limited is the Crown. All transactions with the Crown and other State-Owned Enterprises are at arm’s length, and it is considered that these do not fall within the intended scope of related party disclosures.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D )

FOR THE Y E A R ENDED 3 0 JUNE 2 0 05

28. SUBSEQUENT E VENTS

There are no events subsequent to balance date that would affect the fair presentation of these ﬁnancial statements.

2 9. I N T E R N AT I O N A L F I N A N C I A L R E P O R T I N G S TA N D A R D S

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under the Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for ﬁnancial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reﬂect New Zealand circumstances.

Mighty River Power Limited intends to adopt NZ IFRS from 1 July 2007. A project team, monitored by a steering committee, has been established to achieve transition to NZ IFRS reporting. The project involves assessing the impacts of conversion to NZ IFRS reporting on existing accounting and reporting policies, procedures, systems and processes, then designing and implementing the changes required to enable the delivery of ﬁnancial reporting on an NZ IFRS compliant basis.

The key differences between current NZ GAAP and NZ IFRS identified to date as potentially having a significant effect on the Group’s financial statements are summarised below.

FIN A NCI A L INS TRUMENT S

All derivative contracts including electricity hedges will be recorded in the statement of financial position at fair value under NZ IFRS and be adjusted against opening equity. Any movements in the fair value of these instruments from year to year will have the potential to affect the statement of financial performance and the statement of financial position, the extent to which will depend on whether hedge accounting is adopted. The financial impact of the change is not yet reliably estimable.

DEFERRED TA X ATION

The IFRS basis of accounting for deferred tax is conceptually different to current GAAP. Under current GAAP deferred taxation is calculated using an income statement approach whereas under NZ IFRS deferred taxation will be calculated based on a balance sheet approach. This method recognises deferred tax balances where there is a difference between the carrying value of an asset or liability and its tax base. The most signiﬁcant impact for Mighty River Power Limited will be the recognition of a deferred tax liability in relation to the revaluation of generation assets. The ﬁnancial impact of this change is not yet reliably estimable.

This summary should not be taken as an exhaustive list of all the differences between current NZ GAAP and NZ IFRS. Further, the effects of these differences have not yet been quantified by the Group. Accordingly, there can be no assurances that the financial performance and financial position as disclosed in these financial statements would not be significantly different if determined in accordance with NZ IFRS.

FIVE YEAR FINANCIAL REVIEW

2005

2004

2003

2002

2001

$000

Operating Revenue

684,376

599,248

646,246

595,108

646,730

Operating surplus before interest & non-recurring items

241,762

199,551

119,474

87,177

103,946

Net interest

(32,687)

(29,401)

(27,083)

(26,658)

(34,899)

1,021

131

Non-recurring items

(22,137)

(14,705)

34, 217

6,772

7,660

Surplus before taxation

187,959

155,576

126,608

69,291

76,707

Taxation expense

(66,732)

(55,748)

(13,077)

(20,208)

(17,647)

Net surplus after taxation

121,227

99,828

113,531

47,083

59,060

Statement of Financial Performance

Share of associate net surplus

Statement of Cash Flows Operating cashflow

187,604

88,988

81,727

77,872

110,322

Investing cashflow

(103,627)

(47,957)

(28,532)

(16,696)

(11,324)

Financing cashflow

(64,021)

(42,456)

(51,588)

(63,301)

(99,157)

19,956

(1,425)

1,607

(2,125)

(159)

Opening cash

3,457

4,882

3,275

5,400

5,559

Closing cash

23,413

3,457

4,882

3,275

5,400

Net increase (decrease) in cash

Performance Indicators 8.3%

11.4%

14.0%

6.4%

8.6%

Total equity/total assets

Return on average shareholdersâ€™ equity

76.2%

58.6%

57.3%

51.3%

44.2%

Net debt/net debt plus equity

18.0%

32.4%

35.1%

37.6%

42.4%

7.0x

6.8x

4.1x

3.5x

3.2x

FFO/interest expense

FIVE YE AR FINANCIAL RE VIE W (CONTINUED)

2005

2004

2003

2002

2001

$000

Statement of Financial Performance Equity and Liabilities Share capital

377,561

1,655,754

508,963

484,135

382,404

335,321

2,033,315

886,524

861,696

759,965

712,882

Loans

469,294

374,315

434,771

209,402

329,721

Other

1,204

56,002

133,843

157,596

470,498

375,519

490,773

343,245

487,317

Reserves

Non-current liabilities

Current liabilities Loans

54,000

36,000

252,657

200,146

Other

164,268

197,263

115,376

124,780

213,093

164,268

251,263

151,376

377,437

413,239

2,668,081

1,513,306

1,503,845

1,480,647

1,613,438

2,437,139

1,369,319

1,375,053

1,355,059

1,387,171

Total Equity and Liabilities

Assets Non-current assets Property, plant and equipment Other

42,157

17,846

21,354

19,318

37,615

2,479,296

1,387,165

1,396,407

1,374,377

1,424,786

23,413

3,457

4,882

3,275

5,400

Current assets Cash and short term deposits Other

Total Assets

165,372

122,684

102,556

102,995

183,252

188,785

126,141

107,438

106,270

188,652

2,668,081

1,513,306

1,503,845

1,480,647

1,613,438

S TAT U T O R Y I N F O R M AT I O N

SHAREHOLDERS

R E M U N E R AT I O N O F D I R E C T O R S

In accordance with the State-Owned Enterprises Act 1986, the

The following table sets out the total remuneration and other beneﬁts

Company has two shareholders:

received by each Board member as a Director of Mighty River Power Limited for the reporting period.

The Minister for State-Owned Enterprises (Hon. Paul Swain) and Minister of Finance (Hon. Dr Michael Cullen).

In accordance with Section 15 of the Act, an Annual Report is to be

Carole Durbin (Chair)

$60,796

Ian Fraser (Deputy Chair)

$39,300

John Baird

$36,883

submitted to the Shareholding Ministers, such report to contain

Caroline Ball

$36,883

sufﬁcient information to enable an informed assessment to be made

Sandy Maier

$36,883

of the operations of the Group. The Group will provide any other

David McConnell

$36,883

information requested by the shareholding ministers pursuant to

Tania Simpson

$36,883

Rob Challinor

$34,490

Section 18 of the Act.

Trevor Janes

P R I N C I PA L AC T I V I T I E S DISCLOSURES OF INTERESTS

The principal activities of the Group are: generation of electricity including operation and maintenance

The general disclosures of interest made by the Directors of Mighty

of generating plant

River Power Limited pursuant to Section 140 (2) of the Companies Act

≠

management of hydro and geothermal reservoirs

1993 are shown on page 90. There were no declarations of interests

≠

securing fuel to enable operation and development of

made pursuant to Section 140 (1) of the Companies Act 1993 that

generation facilities

were entered in the interests register of Mighty River Power Limited

trading electricity and related ﬁnancial products and retailing

or its subsidiaries for the reporting period. No Director of Mighty

of energy to customers, including marketing of value-added

River Power Limited is a shareholder of Mighty River Power Limited

products and management of energy sales.

or any of its subsidiaries.

≠

FINANCIAL PERFORMANCE

A full set of ﬁnancial statements of Mighty River Power Limited and the Group for the 12 month period to 30 June 2005 are included on pages 58 to 86 of this report. These statements include details of the Group’s accounting policies on pages 63 to 68.

S TAT U T O R Y I N F O R M AT I O N ( C O N T I N U E D )

DECL AR ATION OF GENER AL INTERE ST PURSUANT TO SEC TION 140 (2) OF THE COMPANIE S AC T 19 9 3 A S AT 31 AUGUST 2005

CAROLE DURBIN

DAVID MCCONNELL

Earthquake Commission: Commissioner

McConnell Limited and subsidiaries: Managing Director

Fidelity Life: Director

McConnell Property Limited: Director

Legal Services Agency: Chair

Steelpipe New Zealand Limited: Director

Simpson Grierson: Partner (until December 2004)

Hawkins Construction Limited: Director

IAN FRASER

Committee for Auckland: Trustee

Beca Carter Hollings & Ferner Limited: Managing Director

Counties Manukau Pacific Trust: Trustee

Beca Group Limited: Executive Director

SANDY MAIER

JOHN BAIRD

Argent Networks: Director

4PL Limited: Director

Taranaki Investment Management Limited: Director

Auckland Rugby Union: Director

Equitable Group of Companies: Director

Eden Park Board of Control: Member

Esphion limited: Director

Motion Industries Limited: Chair

Intelligent Optical Systems Jan, KK (Japan): Director

Ovita Limited: Chair

Maier Limited: Director

Project K: Trustee

McConnell International Limited: Director

Sleepyhead Limited: Director

Pacific Print Group Limited: Director

South Island Forklifts Limited: Director and Shareholder

Porter Novelli Investor Relations Advisory Board: Director

Waitangi Tribunal: Member

RECT Funds Management Limited: Director

NIWA Natural Solutions Limited: Chair

Synergy Limited: Director

CAROLINE BALL

Tilda Holdings Limited: Director

Strategic Developments Limited: Managing Director

Green Acres Franchise Group Limited: Chairman

Work and Income Enterprise Awards: Advisory Panel Member

TANIA SIMPSON

TREVOR JANES

Kowhai Consulting Limited: Director

Accident Compensation Commission:

Tui Trust: Trustee

Independent Member, Investment Committee of the Board

Kokakotaea Limited: Director

Capital & Merchant Finance Limited: Director

Kowhai Trust: Director

Trinity Hill Limited: Chairman

Maraeroa C Incorporation: Director

Watercare Services Limited: Director, Chairman Finance & Audit Committee

S TAT U T O R Y I N F O R M AT I O N ( C O N T I N U E D )

INDEMNIT Y AND INSUR ANCE

C O M P A N Y C R E D I T R AT I N G

Mighty River Power Limited has resolved to indemnify Directors and

As at 30 June 2005, the Company had the following credit rating:

employees for any costs or liabilities referred to in Section 162 (3)

STANDARD & POOR’S SHORT-TERM:

and 162 (4) of the Companies Act 1993. The Company has arranged

OUTLOOK

[A-2] LONG-TERM [BBB +]

Stable

insurance for those Directors and employees in respect of any liability or costs referred to in Section 162 (5) of the Companies Act 1993.

LOANS TO DIRECTORS

E M P L O Y E E R E M U N E R AT I O N

There were no loans by the Group to Directors.

During the reporting year, the number of employees (including former

D I R E C T O R S ’ U S E O F I N F O R M AT I O N

employees) of Mighty River Power Limited and its subsidiaries, not being Directors, who received remuneration and other beneﬁts in

There were no notices from Directors of the Group requesting to use

excess of $100,000 are:

Company information received in their capacity as Directors which would not otherwise have been available to them.

REMUNERATION BANDS

NUMBER OF EMPLOYEES

$100,001 - $110,000

E V E N T S S U B S E Q U E N T T O B A L A N C E D AT E

$110,001 - $120,000

$120,001 - $130,000

The Directors are not aware of any circumstance since the end of the

$130,001 - $140,000

year that has signiﬁcantly or may signiﬁcantly affect the operations

$140,001 - $150,000

of the Group.

$150,001 - $160,000

$160,001 - $170,000

$170,001 - $180,000

$190,001 - $200,000

This Annual Report is dated 31 August 2005 and is signed on behalf

$210,001 - $220,000

of the Board by:

$240,001 - $250,000

$260,001 - $270,000

$270,001 - $280,000

$300,001 - $310,000

$310,001 - $320,000

$340,001 - $350,000

$810,001 - $820,000*

A N N U A L R E P O R T C E R T I F I C AT E

CAROLE DURBIN

*This includes provision for a retention payment

IAN FRASER

CHAIR

DEPUTY CHAIR

31 AUGUST 2005