ADDRESS: HED: Chairman's Address to 2010 Annual General Meeting

5 Aug 2010 5:34 pm

HED 05/08/2010 ADDRESS

REL: 1733 HRS Horizon Energy Distribution Limited

ADDRESS: HED: Chairman's Address to 2010 Annual General Meeting

5 August 2010

HORIZON ENERGY'S 16TH ANNUAL SHAREHOLDERS MEETING HELD ON 5 AUGUST 2010

CHAIRMAN'S ADDRESS

Horizon Energy Distribution Limited is a New Zealand Exchange listed Company and owns, manages and operates the electricity distribution network of high voltage overhead and underground power lines responsible for transporting energy from generators through to approximately 24,000 homes and businesses in the Eastern Bay of Plenty.

Horizon Energy owns and operates Horizon Services who provide a wide range of electrical services to customers in the Eastern and Western Bay of Plenty and provide the resources to develop and maintain Horizon Energy's electricity network.

Our Theme The theme of the Company's 2010 Annual Report is "Keeping you connected 24/7". Everyone at Horizon Energy is mindful that our business is about ensuring our customers have access to electricity all day, every day. Our commitment to the Eastern Bay of Plenty community is to provide a safe, efficient, sustainable and reliable electricity distribution network 24/7.

Financial The financial aspects of the Company's 2010 year results are presented in the Annual Report sent to all shareholders however, I will highlight key aspects about this years performance, significant issues that occurred during the reporting year and comment on the future direction for the Company.

Horizon Energy has reported an after tax profit of $5.9 million for the year ending 31 March 2010. Significant contributing factors to this year's result were:

-strong electricity network revenue, driven largely by additional electricity consumption during the relatively cold 2009 winter and although such climatic conditions cannot be forecast in future years there is an overall modest growth in both the base number of electricity connections and consumption throughout the year.

-improved cost savings as a result of both operational efficiencies and by having network capital works undertaken internally by the Company's contracting division.

-gains arising from changes to the value of the Company's interest rate derivatives at the balance date. Although modest this year, these profit adjustments occur as a result of accounting for mark to market adjustments each year as required under the New Zealand International Financial Reporting Standards (NZIFRS).

Last year's results included a one off $1.5 million pre tax ($1.0 million post tax) arbitration award, off-set partly by the $500,000 (post tax) losses caused by the reduction in the value of interest rate derivatives for that year. The one-off gains experienced in previous years are not likely to re-occur, however as I will explain later, we are now facing one-off costs associated with the corporate activity of the Company.

During the year the Company's electrical contracting business, Horizon Services, performed admirably despite the slow-down in the economy. This division was established in 2007 and now undertakes a significant proportion of the capital and maintenance work for the network and has enabled the Company to enjoy significant cost savings for work that would otherwise be contracted to external providers. Several changes to the business operation such as the establishment of new contracting teams in the areas of Glove & Barrier (live-line), Technical Services (servicing complex network equipment), refrigeration and air-conditioning, data cabling and security system services have enabled the Company to broaden the range of services available to both the network and to external customers.

Cash flows for the Company remain strong. Shareholder funds increased slightly at year end reflective of a good financial performance and after allowing for dividends paid to shareholders during the year. With total fixed assets at book value of $100 million and with relatively low external debt of $26 million the Company's balance sheet is strong and underpins the strategy to look for value adding non-regulated business acquisitions.

Corporate Activity At this time last year I was bold enough to suggest that with the ownership issue resolved following the termination at the request of the Eastern Bay Energy Trust, of the merger investigations undertaken in 2008, that the pathway was clear to progress a number of initiatives to upgrade elements of the network, develop a platform for growth and pursue profitable business opportunities.

Included in the Annual Report sent to shareholders is an overview of the corporate activity during the reporting year including the failed takeover offer by Marlborough Lines Limited and subsequent Takeovers Panel Hearing plus the proposed offer by the Eastern Bay Energy Trust. Regrettably, there is an ongoing issue associated with the Marlborough bid and the costs continue to mount.

Marlborough Lines recently lodged a High Court application for a declaratory judgement on the jurisdiction of the Takeovers Panel to rule on certain matters associated with the failed takeover and subsequent events. Horizon has been included in this legal action as a second defendant.

The root of this ongoing action by Marlborough is principally around avoiding payment of Horizon's costs of $363,000 arising from the failed takeover bid plus the cost arising from the Takeovers Panel hearing that was requested by Marlborough and awarded against Marlborough.

Shareholders will be aware the Takeovers Panel ruled that the explanation provided by Horizon for the revised profit outlook issued during the takeover period in September 2009 was inadequate. The Horizon Directors do not agree with the Panel's decision and firmly believe they have met fully their disclosure obligations. However, the Directors decided there is little benefit for the Company to challenge this ruling, incur further costs and consume yet additional valuable management time.

The Takeover offer and Marlborough's subsequent disputes have cost Horizon more than $800,000 to date. In addition to the amount due to the Company from Marlborough, other costs associated with the corporate activity totalling nearly $0.5 million have been incurred by Horizon, the majority of which has been expensed to the 2009/10 year with the balance to be expensed in the current financial year.

To give shareholders a perspective of the Directors frustration over costs and erosion of Management time associated with Marlborough's actions, this entire matter would have been avoided if prior to launching their takeover bid, someone at Marlborough had simply telephoned the Trust and asked if the Trust would sell any Horizon shares.

Despite public statements by Marlborough to the contrary, their takeover offer was unsolicited by the Eastern Bay Energy Trust. Marlborough did not obtain any prior commitment from the Trust to sell shares or seek to undertake due diligence on the Company prior to making their offer. Marlborough were aware from communication with the Trust in December 2008, some 10 months prior to making their offer that the Trust was a long term holder of Horizon shares.

By any measure, the Marlborough takeover offer was ill-conceived. What sense is there in seeking to acquire 51% of a company controlled by a 77% shareholder without a simple telephone call to the major shareholder and seeking support for the offer. This matter has consumed considerable Management and Board time, been very expensive for all parties and a significant distraction for the Company.

I am pleased to report that despite the distraction and time commitment associated with the corporate activity, the Company has progressed all planned initiatives and investigated potential business opportunities. I will leave our CEO to report to you in more detail about these and other operational initiatives undertaken or planned for the future.

Shareholding During June and July 2010, Marlborough Lines acquired approximately 13.5% of Horizons shares. The Eastern Bay Energy Trust have maintained their majority holding of 77.29% with the balance held by approximately 2000 members of the public. The Company remains listed on the NZ stock exchange.

Marlborough Lines, despite being a substantial shareholder does not have any entitlements or rights different from other shareholders. It does not have any rights to request or appoint a director or have any influence over the decision making of the Company.

Despite public statements by Marlborough about benefits to Horizon and the Eastern Bay of Plenty community from their association, we cannot identify anything in their current record or performance that would be of any interest to Horizon. Marlborough's single minded objective for their investment in Horizon is, as reported in the Marlborough Express, to advance the rebates to the consumers of Marlborough and little to do with the interests of the consumers of the Eastern Bay of Plenty.

The Eastern Bay Energy Trust holds 77.29% of the voting rights and has effective control over the appointment of Horizon's Board of Directors. In practical terms, for so long as the Trust holds more than 50% of the voting rights in the Company the future of Horizon Energy in its current status as a locally controlled company rests with the Trustees and the Eastern Bay of Plenty community that elects the Trustees. Directors of course, once appointed, must act in the interests of all shareholders.

Current Performance and Future Direction As an electricity network business and corporate entity, Horizon is performing very well. Our CEO will tell you about a number of operational initiatives underway or planned that will have a significant impact on the way we manage the network, its performance and operating costs. Compared with other lines businesses of a similar size and network profile, Horizon is achieving above average results on most performance criteria.

Growth of the network is expected to be incremental in line with the growth of the Eastern Bay communities and businesses. The Company continues to investigate new electricity technologies and associated opportunities to enhance network performance, reduce operating costs and to maximise network revenue. The Company continues to work with the regulators to maximise the regulated network revenue.

The most fertile ground for growth is in the unregulated business. Our CEO's brief is to seek opportunities which meet the investment criteria of the Board. Several were looked at last year and where appropriate due diligence on them was undertaken. To give shareholders a sense of the areas of investment potential or under consideration:

-Expansion of contracting services by acquisition -Development of design, asset management, facilities and services to third parties -Broadband network -Meter ownership and smart metering -Investment in generation -Retail

Not all of these areas are actively under consideration, however they have been identified as potential opportunities and continue to be under a watching brief.

Dividend Expectations The Board is committed to ensuring that the network is safe and reliable and ongoing investment will be required for both network maintenance and capital development. Significant progress was achieved in the 2009/10 year.

Budgeted network maintenance, management system upgrades and planned network capital development over the next few years will impose constraints on the cash position of the Company. Part of the capital spend will be funded from prudent additional borrowings and part from annual cash surpluses generated by the business.

Forecasts of NPAT over the next four years based on the current business model indicate that dividends at or near the current level could be paid however, forecast dividends will always be subject to the need for re-investment in necessary network development.

Rob Tait Chairman Horizon Energy Distribution Limited End CA:00198065 For:HED Type:ADDRESS Time:2010-08-05:17:34:03

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