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Trustpower Limited Report To Shareholders

The six months to 30 September 1999 represents the first reporting period for TrustPower as a generator and retailer of electricity without a lines business. Shareholders will be aware that the lines business was sold effective from 31 January 1999 as a response to the reforms imposed on the industry by the Government.

This period has been one of tremendous activity for our company, the highlights of which are:

- the full integration of all customer databases acquired earlier in the year into TrustPower's systems. This has enabled the release of operational efficiencies and provided all customers with the benefit of our service levels. This along with a standardised national brand was achieved well ahead of our competitors as the rest of the industry settles into its new environment; - the acquisition of the Citipower customers based in Nelson which brought the total number of customers to 218,000;

- very strong progress made by our commercial sales team with nearly 2500 GWh (annualised) of net new business added during the period and in particular the successful acquisition of major national accounts including Fletcher Challenge Group, Auckland International Airport, Air New Zealand, WestpacTrust and Telecom; - activity by our competitors, who are in the main Government owned generators, has largely been ineffectual resulting in a net loss of only a few hundred customers;

- generation output for the period is down by approximately 5% on ten year averages due to drier than normal conditions;

- generation upgrades together with the successful integration of 21 new schemes into our Generation Division;

- the acquisition of the Tararua wind power scheme which has been delayed due to the resolution of some technical issues. These matters are currently being finalised. TrustPower expects to have completed settlement and be operating this 31.7 MW scheme in December this year. Tararua is the newest and largest wind powered generation scheme in the southern hemisphere and incorporates the very latest technologies. To date output performance has exceeded initial expectations; and

- the successful establishment of a seven day/24 hour Call Centre based at Mount Maunganui. This Call Centre services all our customers throughout New Zealand. A grade of service well in excess of industry standards is being achieved.

RESULTS

The net surplus after tax for the six months to 30 September 1999 was $15.2m. This result is unaudited. It is of interest to note that this result is equal to the $15.2m produced for the same period last year. Any direct comparison with the previous year is difficult as the nature of TrustPower undertakings have changed significantly with the sale of the lines business and as is also demonstrated by the changes in revenue which for this period was $209.6m, compared to last year's $91.5m. TrustPower now operates over a wide number of different electricity networks collecting line charges from the end customer as part of its total revenue and passing those on to the line companies as part of its operating expenses.

There is however one meaningful comparison and that is in cash earnings (being the surplus before tax for the period adjusted for major non cash items, namely depreciation and amortisation) which amounted to $32.7m compared to last year's $29.9m, an increase of 9.4%.

Sales volume for the period was 2,131 GWh of which 717 GWh were outside of TrustPower's "incumbent" areas. Of the sales 909 GWh were generated by our hydro schemes, the balance being purchased from the wholesale market.

Total assets as at 30 September 1999 have increased to $776m including the purchase of the Nelson customer base. Borrowings in the form of unsecured loans have decreased to $111m reflecting strong trading cash flows and the delay in the settlement of the purchase of the Tararua wind power scheme.

On 1 April 1999 24,589,800 of the $1.10 convertible notes were converted, on a one to one basis, to ordinary shares increasing shareholders equity by $27.0m. A further 8,000,000 of these convertible notes were converted to ordinary shares on 1 October 1999 which leaves only 269,812 of the $1.10 notes outstanding, these notes mature on 31 March 2000.

As at the date of this report the company had 183,030,967 ordinary shares issued, 14,975,000 $2.00 convertible notes and the above 269,812 $1.10 convertible notes.

DIVIDEND

Very strong cashflows have been a continuing feature of TrustPower's operations with cash earnings being considerably in excess of reported after tax surplus due to the large non cash expenditure items of depreciation and amortisation. The directors therefore consider that after taking into account the increase in the number of shares now on issue this strong position justifies a level of dividend payout equal to 100% of the after tax surplus.

Accordingly the dividend for the period ending 30 September 1999 will be 8.66 cents per share, fully imputed. A supplementary dividend of 1.53 cents per share will be paid to non-resident shareholders. The dividend will be paid on 20 December 1999 to all eligible holders registered on 10 December 1999. The Dividend Reinvestment Plan remains suspended.

YEAR 2000

TrustPower's Year 2000 compliance programme is now entering its final phase. All critical business systems operated by the company have been tested as compliant. Contingency plans have been developed to ensure that in the unlikely event of disruption the effect will be minimal and these plans are now being tested.

TrustPower is however completely reliant on a number of suppliers, in particular Transpower, the lines companies and other generators, to successfully provide its services to its customers. Assurance as to compliance has been sought from all critical suppliers and there has been no indication that these organisations will not be ready for the Year 2000. TrustPower cannot however give assurance that these organisations will be Year 2000 compliant, nor that the failure by any such supplier to the company will not have an adverse effect on its operations.

CONCLUSION

TrustPower has emerged from its first six months as an electricity retailer and generator in a competitive environment in a manner that should give considerable satisfaction and encouragement to shareholders. The results compare well with previous periods, are in line with the Board and Management's expectations, provide strong cash earnings and therefore give confidence as to future trading.

We expect the retail market to be extremely volatile in the months ahead but we believe it is not unreasonable to expect that the three State Owned Enterprises, which compete with TrustPower and the two other major generator/retailers, will have greater focus on commercial realities over the next period. More realistic asset valuation and, no doubt, the return expectations that go along with these asset values are likely to emerge.

There is no doubt the electricity generation, retail and distribution sectors have been subject to political influence in this election year. It is hoped that this interference will now lessen to allow the sector to concentrate on the key issues.

TrustPower's focus has been in ensuring its systems and processes are ahead of the rest of the industry so that the all important differentiator of superior customer service is delivered.

Sale of the three Waikaremoana hydro stations currently owned by Genesis is due to be completed in the first half of 2000.

TrustPower is part of a strong consortium which will be bidding for these.

A L CARPENTER

CHAIRMAN

26 November 1999

ENDS....

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