Network companies should be proactive not reactive

Chairman's report

The Company has produced an enviable pre-tax profit of $16.169m for the year ended 31 March 2011.

I say enviable because over the last year the overall economy – and in particular, the economic environment within Marlborough – has been difficult.

The Marlborough economy has slowed considerably and this is reflected in the reduction in electricity delivered over our Marlborough network.

Marlborough Lines has a level of resilience which has been shaped by prudent capital and maintenance expenditure over a period of years and we have maintained a resolute commercial focus in relation to our core business.

Engagement in speculative unrelated business is not for us. Our approach has stood us in good stead and we have continued to increase value for our shareholder. The value of discount and dividend paid to customers and our shareholder for the year was a record $7.744m.

Looking forward it is our objective to further increase these benefits.

The regulatory environment over the last few years has been less than ideal

Marlborough Lines’ approach is always to look forward, but there is cause to reflect upon what has been gained for electricity users from the former regime of the Commerce Commission over a period of some five years. In short, a minor amount. Its regime has not encouraged mergers or innovation, nor provided certainty for investors. The converse has applied.

It has been well documented that we are of the view there should be further consolidation within the electricity industry and we will continue to pursue opportunities to that end which we consider are in the best interests of the Company and its shareholder.

That is the reason we purchased the strategic stake of 13.9% in Horizon Energy in 2010. This investment – in the network company centred in Whakatane – gave rise to dividends totalling $354,000 in the first year.

We would like to see further change and more consolidation in our industry but in some instances representatives of owners and those with vested interests have (in our opinion) closed minds. We believe shareholder and customer interests have not always been accorded the priority they deserve.

Regrettably this situation has prevailed for too long.

Unquestionably the regime of the Commerce Commission has acted as an impediment to maximising efficiency within our industry. The Commission has been preoccupied with pricing rather than focussing on the larger picture of what could be achieved. The emphasis has been on micro management of detail.

This Company has, over the last five years, expended close to some $2m on regulatory issues specific to the electricity industry – not safety, but legislative compliance. It is a pity this expenditure could not have been invested within our network to provide real benefit, or that the amount spent on regulation – averaging $80 per customer – could not have been paid out to customers.

As a responsible corporate citizen we must abide by the regulatory requirements placed upon us. Notwithstanding, we also have a responsibility to promote change where we consider such change is in the best interests of our Company, shareholder and electricity users. Our stakeholders can be assured we will continue to push for change.

Marlborough lines can look forward with confidence. it has sound assets, financial strength, very dedicated staff and a committed Directorate. Looking to the future we will seek to maximise our performance and pursue opportunities which are beneficial to our shareholder and customers.

Overall, we are in a strong position, because of my fellow Directors and the Company’s staff.

I am also pleased to acknowledge the support of our shareholder (the Marlborough Electric Power Trust) and our customers whom it has been a pleasure to serve.

D W R (David) Dew
Chairman