HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business

NOTES TO THE FINANCIAL STATEMENTS

20 SEGMENTAL

The Company operates predominantly in one industry, the distribution of electricity. Its operations are carried out solely in New Zealand and are therefore within one geographical segment for reporting purposes.

21 CONTINGENT LIABILITIES

Electricity Purchase Commitment

In March 1999, as part of the sale of the Kapuni Generation assets, the Company assigned its rights under a long term contract for the purchase of electricity and remains contingently liable to purchase this electricity until the end of the contract (2008 - plus option to renew for a further 9 years) should the purchasers fail to perform their obligations under the contract.

22 EVENTS OCCURRING AFTER BALANCE DATE

Dividend Declarations

On 30 May 2006 the Directors declared a final fully dividend of 7.5 cents (2005: 12.0 cents imputed, 4.0 cents non-imputed, total 16.0 cents) per ordinary share. As this event occurred after balance date the financial date the financial effect has not been recognised in the financial statements.

On 14 November 2006 the Directors declared an interim dividend of 10.0 cents (2005 11.5 cents) per ordinary share. As this event occurred after balance date the financial effect has not been recognised in the financial statements.

Resolution of Arbitration Proceedings

In Note 23 of the Company’s 2006 Annual Report, a Partial Award of $0.72 million was recognised along with a 100% provision in relation to proceedings initiated by Horizon Energy against a supplier for the level of fees charged for services between 1 April 2004 and 31 March 2005. The provision reflected the Board of Directors’ belief that there was significant uncertainty with respect to the Company’s ability to retain the Partial Award payment.

Since the release of the Annual Report the Company has received further Awards totalling $1.02 million relating to the recovery of fees charged by the supplier for services provided between 1 April 2004 and 31 March 2006. The characteristics of the Awards combined with the Company’s regulatory obligations have resulted in the Board of Directors, post year end, resolving to refund $0.93 million of the Awards to electricity consumers in the Eastern Bay of Plenty, a recovery of $0.66 million for the Company and a provision of $0.15 million for future costs associated with this matter. The extent to which the Company can transparently refund these monies to electricity consumers will be dependent on the cooperation of other industry participants.

These Financial Statements do not recognise provisions to reflect the Company’s future refund of $0.93m and estimated future costs of $0.15m. These provisions have not been recognised in order to comply with Financial Reporting Standards which do not permit the recognition of provisions where there was no obligation to refund the monies at balance date.

The Board of Directors’ believes that the disclosure of both the recoveries and provisions is critical to ensure these Information Disclosure Accounts are not ‘misleading’ to readers. The impact of the provisions would be to reduce Profit Before Tax by $1.08m ($0.72m after tax).