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Powerco Announces Another Solid Result

Thursday, April 11, 2002

Powerco Chairman Barry Upson today announced an audited operating surplus after tax of $33.0 million for the 12 months ended 31 March 2002 which is consistent with the forecast released by the company in October 2001.

The profit compares with the previous seven month result of $8.8m following Powerco’s formation and the previous proforma 12 month result of $29.9m which reflected the full financial year excluding the one-off costs for merging the former Powerco and CentralPower companies.

The 2002 result reflects the company’s improved financial performance and the additional revenues achieved from acquisitions made during the year, said Mr Upson.

He said directors had approved a fully imputed final dividend of 7.2 cents per share for the year to 31 March, to be paid in June. Powerco paid an interim dividend of 5.9 cents per share in December 2001. This equates to a full year dividend of 13.1 cents per share and will exhaust the company’s imputation credit account. This outcome is an improvement of 4.8% compared with the previous year’s dividend of 12.5 cents per share.

Mr Upson said the result represented another solid performance by the company and met directors’ objectives.

Powerco reported total revenue of $163.1 million, an increase from $141.9 million on the previous year with total assets $867.6 million, an increase from $740.7 million on the previous year.

Powerco Chief Executive Steven Boulton said Powerco had successfully worked through a number of major issues this year.

“We changed our electricity pricing structure in November from a combined fixed and variable charge to a fully variable charge where retailers are charged for residential customers based on actual usage. We have held our average prices at close to the same overall levels since 1997, and we also had to manage the 2001 winter power crisis and the effects of a 1-in-30 year storm in the central North Island during the year – so all matters considered, it is a good result.”

Mr Boulton said network reliability indicators such as the frequency and duration of outages had risen marginally this year, however Powerco’s performance continued to deliver better than average outcomes when compared to its peers.

“We are pleased our financial performance, network management and cost containment strategies are achieving the targeted results with positive trends in the past five years. We believe Powerco is well positioned for the future when compared with the performance of industry peers.”

Mr Boulton said industry and regulatory issues remain a prime focus for the company as inappropriate and intrusive regulatory regimes can have significant cost impact on the industry and as a consequence, increase costs for consumers.

“Powerco has already incurred additional costs, which have been absorbed to date. However, if these costs continue to increase they will need to be passed through to consumers. Overseas experience has supported this perspective.”

“We have purposely taken a more proactive and constructive role in regulatory issues over recent times. It is pleasing that our views as stated in Powerco’s Power Plan vision for the industry launched last month, contain many similar philosophies to the subsequent Commerce Commission discussion paper for regulation of the electricity lines sector, which is now open for submissions.”

He said the Commerce Commission appeared to have taken a balanced perspective and now had the opportunity to position New Zealand at the leading edge of international regulation.

“Powerco will be providing a detailed submission on how the New Zealand industry can ensure the benefits and risks of the proposed regulatory model can be managed to provide sustainable and fair value to consumers” said Mr. Boulton.

Mr Upson said the response to Powerco’s Power Plan from a range of industry players and policy makers had been very positive and he noted that this area of discussion had usually been dominated by the collective views of the major generator/retailers - “an alternative and fresh viewpoint has been welcomed.”

“If there was one earnest desire of the Board, it would be to see retailers become more transparent in the operation of their businesses. Retailers should have to conform to a set of information disclosure requirements, similar to the one applying to lines companies, to share information with consumers,” Mr Upson said.

Recently the Commerce Commission conducted an audit on asset valuation for regulatory purposes and Powerco’s valuation has been approved.

“The company has maintained its A- long term credit rating with Standard and Poors and is about to issue an Investment Statement and Prospectus to raise $100 million in Capital Bonds to replace short term debt required to fund part of the AGL acquisition last year. Approval for this issue will be requested from Powerco’s shareholders at a meeting to be held on the 3rd May,” Mr Upson said.

He said Powerco would continue to sharpen its focus on asset management issues and the reduction of operating costs while also maintaining improvement in network quality and reliability of service.

Mr Upson noted the purchase of AGL’s Hutt Valley and Porirua gas network and Brisbane-based field services company, S&D Contracting during the year, had bedded in well with the company’s growth strategy, "but directors have decreed that it will not be growth at any cost, as illustrated by our backing away from discussions with the Eastern Bay Energy Trust over the possible joint offer to purchase the minority held shares in Horizon.”

“The directors believe there are a number of opportunities for growth for the company as the market is still experiencing substantial change. We are aware of a number of lines companies reviewing their shareholding and operational position and we are actively pursuing a range of different investment options.

“We are also focussed on increasing revenue associated with the provision of asset management and network services to the owners of other lines and pipes assets both in New Zealand and through our investment in Australia.”

Powerco is New Zealand’s third largest electricity and gas utility with around 205,000 customers connected to networks in Taranaki, Wanganui, Rangitikei, Manawatu, Wairarapa and Wellington and has more than 16,000 shareholders.

The Board appreciates the efforts of staff and the company auditors in preparing audited accounts in a short time frame in preparation for the planned Capital Bond issue, Mr Upson said.

/ends

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