2001 Annual Report

This page contains highlights from the 2001 Annual Report. Please contact the company if you would like to request a full copy of the report.

This is the Annual Report of WEL Networks Limited

Dated this 19th day of September 2001

Signed for and on behalf of the Board of Directors

Sir Dryden Spring	Rodger Fisher
Chairman	Deputy Chairman

This Year's Highlights

First full financial year with 100% shareholding by WEL Energy Trust.
Net surplus after tax was $23.3m.
Return on assets* was 8.4%.
Total dividends paid to all shareholders for the year was $11.95 (or 66 cents per share), including a final dividend of $7.2 m to be declared at the Annual Meeting in October 2001.
There was no increase in line prices for the fifth successive year. Most customers have had at least one price reduction during this time.
A $9.5m network investment was made, including expenditure to expand capacity and enhance network reliability.
The Distribution Management System/Outage Management System (DMS/OMS) was successfully launched.
The rebranding and renaming of WEL Energy Group Limited to WEL Networks Limited was completed.
ISO 9001 accreditation was achieved on 23 March 2001.

Chairman's Report

This is the first full financial year that WEL has operated with one shareholder, the WEL Energy Trust, which acquired full ownership in June 2000.

Financial Highlights
For the year ended 30 June 2001, the Company achieved an after tax surplus of $17.1 million compared to $23.9 million in the previous year. However, when the results are adjusted for the effects of the subvention payment made for the first time in 2001 and the one-off tax loss offset in 2000, the results show a pleasing increase in the after tax surplus of $2.9 million or 14%.

Prices
The Company has responded to the Government's challenge to lower fixed charges and on 1 May it lowered fixed charges to ensure that the average residential customer's fixed line charges are limited to no more than 10% of the total line charges. I am pleased to record that for the fifth year in succession, there has been no price increase, and further more most customers have seen at least one price reduction in that time

Dividend
The Company has paid a $4.75 million halfyear dividend to its shareholder the WEL Energy Trust. The Board has declared a final dividend of $7.2 million which will bring the total dividends payable to shareholders for the year to $11.95 million. This is consistent with the Company's policy of returning the maximum possible funds to its shareholder for distribution back to the Waikato community, while retaining sufficient funds to ensure the continued enhancement of reliability and security of the network.

Loan
Following the sale of the Energy Business in 1999, the Company had significant cash reserves. In order to allow the shareholders to utilise these funds, on 9 August the company made a loan for $110 million to WEL Energy Trust Shareholding Limited (WETSL), a wholly owned subsidiary of the WEL Energy Trust. This loan is interest only and on full commercial terms. Associated with this loan is an agreement whereby the Company makes a subvention payment equivalent to WETSL's losses. This makes the transaction tax efficient from a group perspective.

Industry Reform
With 57 major Government initiatives since 1987, the industry has experienced considerable structural change. While I believe that major restructuring of the electricity industry has been necessary, I know that this environment of continuous and ongoing reform has been to the detriment of customer service and ongoing improvement to supply. It is vital now that the industry moves forward to a more certain environment that allows us to focus on our core business and the provision of better customer service.

The electricity lines industry needs continuous ongoing investment in its network to meet the demands arising from growth, security and quality of supply. I am concerned that the Government's increasing focus and prescriptive regulation on line company values will lead to under investment in the electricity networks and consequently threaten the continued quality of supply for customers.

Local lines companies have an important role to play during the ongoing rationalisation of the industry. As the largest electricity network owner in the Waikato, WEL Networks is integrally linked to the growth of the region and the Company continues to invest in its network infrastructure in order to provide a safe, reliable electricity supply.

WEL Energy Trust - 100% Owner
Having just completed the first financial year with WEL Energy Trust being the sole shareholder of the Company, I am pleased to report that positive relations exist between the Company and the Trust which facilitates the progression of the strategic direction of the Company. I acknowledge with thanks the leadership of the previous WEL Energy Trust Chairman, Don Bethune, and welcome the new Chairman, Russ Rimmington who was appointed in October 2000.

Energy Retailers
Retail competition has seen over 4,000 customers in our area change Retailers in the past 12 months. This retail competition is most evident in the commercial/industrial area, where more than 31% of the load is supplied by Retailers other than the incumbent Retailer. This indicates that customers are exercising the choices now available to them

The current year has seen a major change with the incumbent Retailer, On energy, exiting the electricity retail market and selling their customers to Genesis Power Limited. We look forward to building a positive relationship with Genesis that will add benefit to the region and promote the efficient use of energy.

Acknowledgements
I would like to acknowledge the strong contributions from my fellow directors, in particular the contribution of Brooke Des Forges who retired from the Board of Directors on 30 June 2001 after 13 years of service on the Board of WEL and its predecessor. I also take this opportunity to welcome to the Board both Kieran Devine, who was appointed as a Director on 6 November 2000, and John Green, who was appointed on 9 August 2001, who bring with them strong commercial and industry experience.

My thanks and appreciation go to Mike Underhill, Chief Executive, and his management team for their support.

Chief Executive's Report

As the Waikato region's largest electricity network operator, WEL Networks is committed to providing a reliable and safe supply at a competitive price to existing and future customers. Growing and improving the network continues to be a major part of the Company's capital programme with the installation of proven measures, new technologies and a comprehensive network improvement programme.

Financial Performance
WEL has achieved underlying growth in lines sales revenue of 2.4%, with controllable expenditure reducing by 14.5%.

Reliability & Safety
We continue to target areas of our network practices to improve our reliability into the future. The Company has implemented a Distribution Management System (DMS) and an Outage Management System (OMS) designed to enable the Company to quickly and accurately identify where an outage has occurred and what areas are affected. WEL is one of the first in New Zealand to implement these systems.

Our commitment to supply continues to be reflected in there being no incidents where maloperation or damage to the system jeopardised the safety of any member of the public.

One major fault which involved the interface between WEL's network and Transpower's network accounted for nearly 50% of our target SAIDI being lost. This was a matter of serious concern and masked our significant ongoing improvement in reliability. Obviously procedures and investment have been made to eliminate this being repeated in future.

Capital Projects
The Company has undertaken a number of significant capital projects this year including a major undergrounding programme recently completed in Chartwell; the replacement of switchgear in Cobham Drive and Claudelands zone substations; the upgrade of four zone substations; the 11kV reinforcement to the major industrial area of Avalon Drive; and the commencement of the meshing of the Hamilton City 33kV network, which enables the re-routing of supply in the event of an outage at one zone substation.

Customers
While WEL Networks is essentially a lines company whose direct customers are the Energy Retailers, our continued focus on end use customers is the basis for continually improving performance. Along with improving reliability and safety and a providing competitive price, we are committed to providing a high level of customer service, particularly in network fault situations. Our 'Response Plus' call centre operates 24 hours, seven days a week and is responsible for ensuring all customer fault calls are dealt with quickly and efficiently in order to minimise outage times.

Regional Development
As a regionally based lines company, our future is closely aligned to the ongoing economic development of the region and for this reason we are an active participant and financial contributor to the economic development of the Waikato.

We are constantly implementing initiatives to assist with business growth and development as we recognise the valuable contribution that successful businesses make to the region. Examples of such initiatives to promote better business in the Waikato include; the WEL done Waikato awards; the development of WEL's business awards; and the commissioning of a number of customer surveys to determine customer needs. The most recent customer survey about the business confidence in the region reinforced the fact that the Waikato is still a great place to do business.

To add to the above initiatives WEL also holds regular customer seminars to provide an open forum for customer feedback and discussion of business and regional development opportunities and issues. Forums such as these ensure we are regularly in touch with Waikato businesses.

WEL will continue to strive to help to grow and improve the region. Our 100% owners, the WEL Energy Trust, are committed to the area and their annual grants programme is yet another reflection of WEL's ongoing commitment to the growth and development of the Waikato.

Conclusion
As Chief Executive of the Company I look forward to further improving reliability, safety and quality of supply while continuing to grow the business. I am confident that the planned upgrading of WEL's 33kV and 11kV networks, when coupled with new anticipated Transpower point of supply, will result in the Company operating one of the most reliable networks in the country.

I would like to acknowledge the commitment and dedication of the Company's staff and express my appreciation of the skills right across the organisation, which ensure we are well equipped for a successful year ahead.

Directors

Sir Dryden Spring
(Chairman)
Sir Dryden became Chairman of WEL Networks Limited in 1999, after a long and distinguished career in the dairy industry. He was chairman of the NZ Co-operative Dairy Company Limited from 1982 to 1989, during which time the company's turnover more than doubled. He became Chairman of the New Zealand Dairy Board in 1989 and, during his 10 year leadership, turnover almost tripled to NZ$7.8 billion. Sir Dryden is Chairman of Goodman Fielder New Zealand, Ericsson Communications Limited (NZ), and Fletcher Challenge Forests Limited. He is Deputy Chairman of Goodman Fielder Limited, and a director of Nufarm Limited, the National Bank of New Zealand Limited, Maersk New Zealand Limited and Fletcher Building Limited. In 1994/95 he was a member of the APEC Eminent Persons Group, which drafted the APEC Vision. He was knighted in 1994 for services to New Zealand and the dairy industry.

Rod ger Fisher
(Deputy Chairman)
Rodger became Deputy Chairman of WEL Networks Limited in 1999. He was managing director of the Owens Group Limited between 1987 to 1999. He is Chairman of the Civil Aviation Authority and of the Aviation Security Service and a Director of Fletcher Forests Limited and Waste Management New Zealand Limited. Rodger is a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors and the New Zealand Institute of Management.

Brooke Des Forges

Brooke has been a dairy farmer at Whitikahu near Taupiri for 50 years. He has been a director of the Company and its predecessors since 1988 and previously served on the Central Waikato Electric Power Board. He was a Waikato County Councillor for 12 years and then Deputy Chairman of the WDC for three years. He also served on the former Waikato Valley Authority and was chairman of the Taupiri River and Drainage Board for 14 years. Brooke is also a JP, Chairman of the Pukemokemoke Bush Trust, a life member of the New Zealand Land Drainage Association, Deputy Chairman of the Waikato Show Trust and Vice Chairman of the NZ Fieldays Society.

Shane Solomon

Shane is a Director of the Waikato Raupatu Trustee Company, Iraklis One Limited, Raukura Moana Seafoods Quota Limited, Tainui Group Holdings Limited, Raukura Moana Seafoods Limited. He was part of negotiating team responsible for settling the Waikato Raupatu Claim and helped draft the Raupatu Settlement legislation. Shane has a law degree from Auckland University.

Brian Walsh

Brian is an Auckland based financial consultant specialising in capital raisings and equity valuations. He is a former director of investment banking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countywide Bank and was director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Kwan Holdings Limited, CapitalGroup Finance Limited, Austral Distributors Limited, Annaghdown Holdings Limited and Gallagher Communications Holdings Limited and has a MA (Hons.) in Economics and a law degree from Otago University. He is a member of the Institute of Chartered Accountants.

Kieran Devine

Kieran is the Wellington based General Manager of Beca Power, a section of the engineering consultancy Beca Carter Hollings & Ferner Ltd. He previously held positions as Fuel Resources Manager and then General Manager, Generation, for the Electricity Corporation of New Zealand, ECNZ. Kieran is a Fellow of the Institute of Professional Engineers, New Zealand and is a Member of the Institution of Electrical Engineers, London; and the Institute of Electrical & Electronic Engineers, USA. Kieran has Bachelor and Masters degrees in Electrical Engineering from the University of Canterbury and a Masters degree in Business Administration from Victoria University.

Company Directory

Registered Office

WEL Energy House
Cnr Victoria and London Streets
PO Box 925
Hamilton
New Zealand

Telephone: 64-7-838 1399
Facsimile: 64-7-858 1451
Website: www.wel.co.nz
Email: connect@wel.co.nz

Auditors

PricewaterhouseCoopers, Auckland

Solicitors

Minter Ellison Rudd Watts, Auckland

Insurance Brokers

Willis New Zealand Limited, Auckland

Directors

Sir Dryden T. Spring - Chairman
Rodger Fisher - Deputy Chairman
Brooke Des Forges
John L. Foote (until July 2000)
Shane R. Solomon
Brian V. Walsh
Mike C. Underhill (Alternate)
Kerrin J Devine (from 31 October 2000)
Neil P Simmons (Alternate until 5 April 2001)

Chief Executive

Mike Underhill BE (elect), MCom (Hons), FIPENZ

Executive Officers

Merrin A Coft LLB Legal/Regulatory Manager
Kevin J. Palmer BMS, CA Financial Controller
Peter A. G. Burgess NZCE, REA Operations Manager
Keith A. Edmonds NZCE, Dip BS Network Planning Manager
Jacqui A. Thorby BMS (Hons) Marketing Development Manager
John H. A. Versluys BSC (Tech), BE (Hons), MIPENZ IS Manager
Brian J. Rayner IT Development Manager

Financial Statements

Statements of Financial Performance For the year ended 30 June 2001
These are available in PDF format which you can download here.

Last updated: Friday, 29 June 2007