Dear Consumers

Times of financial stress can challenge all forms of investments.  This Annual Report details how TECT is responding to those challenges in a manner that advances the interests of Consumers and the community in which we live.

A BIT ABOUT THE HISTORY OF TECT

With many new Consumers joining our ranks it’s useful to recount some of the history of TECT. In 1991 following a power crisis (another one) the Government decided to reform the electricity industry by (inter alia) abolishing local Power Boards. TrustPower was established to acquire the assets of the Tauranga Electric Power Board and TECT (then known as the Tauranga Power Trust) was formed to be a cornerstone shareholder in TrustPower. TrustPower listed on the NZX in April 1994 with 87.5 million shares. 40.8 million shares were distributed to 40,900 Tauranga Electric Power Board customers with each Consumer (customer) receiving 1,000 shares. 43.7 million shares or 49.94% of TrustPower was vested in TECT for the benefi t of existing and future generations of Consumers.

Immediately upon listing, TrustPower issued 11 million shares to Infratil and, with the money from the issue, set about acquiring electricity interests in Rotorua and Taupo and then the Tauranga City Council’s electricity interests. These purchases were financed through a mixture of cash and share issues which saw TECT’s shareholding in the Company diminish over time to a 24.9% shareholding. Subsequent Company buy-backs and share purchases by TECT have resulted in TECT now holding a 33% shareholding in TrustPower. This TrustPower shareholding is TECT’s most signifi cant investment and the dividends that fl ow from that shareholding enable TECT to make the distributions described in this Report

TRUSTPOWER

The value of TECT’s shareholding in TrustPower fell this year by 46.7 million (6%) from $779 million to $732 million as share markets throughout the world were affected by the world financial crisis.

There are risks associated with holding investments undiversified but, in the case of TECT’s shareholding in TrustPower, the loss in value was far less than the loss in value of most other companies listed on NZX. In fact, at the time of writing this Report, the value of TECT’s shareholding has increased to a figure which wipes out the loss and exceeds the prior year’s value.

Because TECT’s shareholding in TrustPower is its major asset, Consumers may be interested in knowing that TrustPower is now New Zealand’s fifth largest retailer generator servicing 227,000 customers throughout New Zealand. At the 31st of March this year, the Company had assets of $2,527 million and a profit of $105 million. Approximately 80% of TrustPower’s revenues come from outside this region and it’s great to have part of those revenues now fl owing in from Australia where TrustPower has a wind farm. During the year, TrustPower paid a special dividend of $0.10 per share increasing TECT’s dividends from TrustPower from $30.3 million last year to $42.8 million this year. This represents an outstanding performance in difficult financial times for which Keith Tempest and his management team at TrustPower are to be congratulated. Keith is to “hang up” his TrustPower boots in December after 23 years with TrustPower. Keith has been a strong supporter of TECT since its formation. We hope you will join us at our AGM to pay tribute to Keith. Keith has established a world class management team at TrustPower and it operates right here in Tauranga contributing significant benefi ts to the District.

FINANCIAL RESULTS

Key financial results for the year are as follows:
• Trust equity decreased by $24 million to $658 million. A decrease of 3.5%.
• Short term money market deposits were $39.6 million including $9 million committed to TECT’s funding reserves and distribution provisions.
• TECT’s investment in the Russell World Strategies Fund was realised in February 2009 at a loss of $975,875.
• TECT’s investments in the Russell World Bond Fund increased by $156,466.
• Total TECT income increased by $11.3 million to $44.5 million. An increase of 34%.
• Total expenses (including the dividend to Arawata Finance on funds raised to purchase further TrustPower shares) increased by $257,053. This increase is largely attributable to election expenses and an accounting adjustment to share purchase expenses.

TECT’s redeemable preference share issue to Arawata Finance Limited of $85 million falls due for repayment in December this year. Trustees have decided that in the uncertain financial climate that exists, a better return for Consumers can be gained by using cash resources to pay down debt. It was for this reason Trustees sold TECT’s units in the Russell World Strategy Fund. Trustees have decided to repay $25 million of the Arawata advance when it falls due in December. Trustees have received preliminary indications from TECT’s bankers that give Trustees confidence that the balance of the loan can be renewed when it falls due.

CONSUMER CONSULTATION

A Consumer Poll was conducted in April this year. Consumers were asked whether they supported either a continuation of TECT’s current policy for distribution of income (approximately 80% Consumer cheques and 20% Consumer Community Grants) or a change to a return of 100% of funds available direct to Consumers with no grants to Consumer Community Organisations.

The Poll attracted a lot of interest and there was a high return for this sort of poll of 58.43% of Consumers. Consumers voted 78.55% for the status quo. A clear endorsement of TECT’s longstanding distribution policies.

TECT DISTRIBUTIONS

During the year, $24.3 million of distributions were allocated to TECT’s Consumer Distribution Schemes. $21 million was distributed directly to Consumers through the Annual Cheque Distribution Scheme. This represented an average payout of $350 per Consumer. TECT has now distributed over $119 million direct to Consumers and the base amount has grown from $20 per Consumer in 1994 to $305 in 2008. Trustees are focused on maintaining that growth and this year have resolved to increase the base amount from $305 to $350 per Consumer. $3.3 million was allocated to TECT’s other Consumer Community Organisation Schemes and details of the grants made from these Schemes are set out elsewhere in this Report. I believe the benefits these distributions bring to Consumers clearly justifies the support given by Consumers in the Consumer Poll.

SECRETARIAT

Mr Fraser Lellman, TECT’s Secretary, leads an enthusiastic team who work hard on behalf of Consumers. Their efforts throughout the year are to be commended.

TRUSTEES

It has been an interesting year in which Trustees have worked to accommodate their diverse views. This Report is testimony to their endeavours. Consumers can be assured that Trustees are taking into account the results of the recent Consumer Consultation.

CONCLUSION

I believe this Report shows TECT to be in good heart and well positioned to continue to make significant returns to Consumers and Consumer Organisations to the benefit of our community. I hope you enjoy reading this Report. We look forward to your presence at the AGM.

Michael Cooney
Chairperson